10-Q 1 l84532ae10-q.txt TELXON CORPORATION FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 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) 1000 SUMMIT DRIVE CINCINNATI, OHIO 45150 (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 []. At September 30, 2000, there were 17,543,198 outstanding shares of the registrant's Common Stock. This document contains 70 pages. 2 TELXON CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

2 3 TELXON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

See accompanying notes to condensed consolidated financial statements. 3 4 TELXON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) (UNAUDITED)

See accompanying notes to condensed consolidated financial statements. 4 5 TELXON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (IN THOUSANDS) (UNAUDITED)

See accompanying notes to condensed consolidated financial statements. 5 6 TELXON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) 1. MANAGEMENT REPRESENTATION The condensed consolidated financial statements of Telxon Corporation ("Telxon") and its subsidiaries (collectively with Telxon, the "Company") have been prepared without audit and in accordance with the instructions to Form 10-Q. In the opinion of the Company, all adjustments, consisting of normal recurring adjustments necessary for a fair statement of results for the interim periods, have been made. The operating results for the three and six months ended September 30, 2000, are not necessarily indicative of the results that may be achieved for the fiscal year ending March 31, 2001. The statements, including the March 31, 2000 condensed consolidated balance sheet, do not include all of the information and notes required by accounting principles generally accepted in the United States 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, 2000. 2. POTENTIAL MERGER OF THE COMPANY On July 26, 2000, Symbol Technologies, Inc. ("Symbol") and the Company announced that they had entered into a merger agreement ("the Agreement") providing for Symbol's acquisition of the Company. Under the terms of the Agreement, Company shareholders are to receive .50 shares of Symbol for each share of the Company. The transaction has an estimated total value of approximately $315,229 based upon the closing price of Symbol common stock on September 29, 2000 of $35.94 a share. Both the Company and Symbol anticipate that the transaction will be accounted for under the purchase accounting method. The waiting period under the Hart Scott Rodino Antitrust Improvements Act of 1976 expired as of October 12, 2000. No further U.S. or foreign antitrust clearance is necessary for completion of the acquisition. The Company's stockholders will vote to approve or reject the proposed merger at a special stockholder meeting scheduled for Tuesday, November 28, 2000. The record date for stockholders entitled to notification of and to vote at the special meeting was the close of business on October 20, 2000. Provided stockholder approval is obtained, the merger is expected to be completed on November 30, 2000. Following the consummation of the merger the Company will de-list its common stock and, as a result, terminate its reporting obligations to the Securities and Exchange Commission ("SEC") with respect to its common stock. 3. FINANCIAL RESULTS AND LIQUIDITY During the quarter and six months ended September 30, 2000, the Company incurred a net loss of $19,501 and $29,692, respectively, with a decrease in consolidated revenues of $6,804 and $9,030 as compared to these same periods in fiscal 2000. The Company incurred net losses from operations of $27,807 and $42,126 for the quarter and six months ended September 30, 2000, respectively. The 6 7 Company's stockholders' equity and working capital at September 30, 2000 were $250,528 and $92,899, respectively. The Company's working capital was significantly improved during the fourth quarter of fiscal 2000 when the Company utilized proceeds from its investments in marketable securities to extinguish its notes payable, certain lease liabilities and a significant portion of its accounts payable. For the six months ended September 30, 2000, the Company used $37,943 of cash in operating activities. A portion of the cash used in operating activities resulted from transaction costs related to the proposed merger of the Company with Symbol Technologies, Inc. Additionally, the significant cash used in operating activities reflects the Company's reliance upon cash and marketable securities, both directly and indirectly, to meet the majority of its current cash flow requirements. To augment the Company's cash flows the Company utilized $19,000 from a financing arrangement to meet its cash operating requirements, during the quarter ended September 30, 2000. The Company believes its existing resources, including available cash and cash equivalents, marketable securities, internally generated funds and credit facilities will be sufficient to meet working capital requirements for the next twelve months. 4. EARNINGS PER SHARE Computations of basic and diluted earnings per share of common stock have been made in accordance with Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standard 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.

7 8

Options to purchase 3,415,392 shares of common stock at a weighted average exercise price of $14.10 per share were outstanding at September 30, 2000, but were not included in the computation of diluted earnings per share for the three and six months then ended because the options would have had an anti-dilutive effect on the net loss for the period. Options to purchase 3,571,698 shares of common stock at a weighted average exercise price of $14.43 per share were outstanding at September 30, 1999, but were not included in the computation of diluted earnings per share for the three months then ended because the exercise price of such options was greater than the weighted average market price of common shares for the period. Options to purchase 3,485,698 shares of common stock at a weighted average exercise price of $14.43 per share were outstanding at September 30, 1999 but were not included in the computation of diluted earnings per share for the six months then ended because the options would have had an anti-dilutive effect on the net loss for the period. The shares issuable upon conversion of Telxon's 5-3/4% convertible subordinated notes and 7-1/2% convertible subordinated debentures were omitted from the diluted earnings per share calculations because their inclusion at September 30, 2000 and 1999 would have had an anti-dilutive effect on earnings for the three and six months then ended. 5. COMPREHENSIVE (LOSS) INCOME Total comprehensive (loss) income consisted of the following:

8 9 Unrealized holding loss on marketable securities, net (1,556) -- Foreign currency translation adjustment (1,420) 430 ---------------------------------------- Total comprehensive (loss) income $(22,477) $15,390 ========================================

Six Months Ended September 30, September 30, 2000 1999 ---------------------------------------- Net loss $(29,692) $(1,741) Other comprehensive (losses) income: Unrealized holding loss on marketable securities, net (36,360) -- Foreign currency translation adjustment (2,324) 175 ---------------------------------------- Total comprehensive loss $(68,376) $(1,566) ========================================

6. SUPPLEMENTAL CASH FLOW

There were no capital lease additions during the six months ended September 30, 2000 or 1999. 7. INVENTORIES

At September 30, 2000, the inventory allowance accounts totaled $31,228 and were composed of manufacturing purchased components of $21,372, customer service spare parts and used equipment of $7,961 and international finished goods of $1,896. These amounts compare to March 31, 2000 inventory allowance accounts that totaled $40,457 and were composed of manufacturing purchased components of $30,424, customer service spare parts and used equipment of $8,115 and international finished goods of $1,918. Inventory allowance provisions for the quarter totaled $5,797. Inventory provisions for the second quarter of fiscal 2001 were composed of manufacturing purchased components of $4,674, customer service spare parts and used equipment of $963 and international finished goods of $160. Inventory provisions aggregating $7,748 for the first half of fiscal 2001 were composed of manufacturing purchased components of $6,230, customer service spare parts and used equipment of $1,143 and international finished goods of $375. During the first quarter 9 10 of fiscal 2001, a $7,800 reduction in the gross inventory value of trade-in product reduced the inventory allowance accounts. Since both the gross inventory value and the decrease to the reserve were for the same amount, there was no impact on net inventories. Management disposes of excess and obsolete inventory as necessary and as manpower permits. During the first half of fiscal 2001, the Company disposed of $9,177 of excess and obsolete material. Of this amount $7,562 related to manufacturing purchased components, $1,306 related to the Company's customer service inventories and $306 related to the Company's international operations. In addition to the inventory allowance accounts, the Company has recorded accrued liabilities totaling $1,981, at September 30, 2000, for purchase commitments to an outside vendor for purchased components whose net realizable value is below historical purchased cost. This accrual was adjusted $619 during the first quarter of fiscal 2001 to reflect changes in the estimated net realizable value of the underlying inventory. At September 30, 2000, the Company had approximately $7,477 of finished goods inventory held at distributors and customers and approximately $2,189 of manufacturing purchased components at contract manufacturers. At March 31, 2000, the Company had approximately $6,236 of finished goods inventory held at distributors and customers and approximately $10,107 of manufacturing purchased components at contract manufacturers. The increase in the amount of finished goods held at distributors and customers was the result of the shipment of product to a major domestic retail customer prior to the recognition of revenue of $1,322 million and the increase in the inventory recovery related to sales returns reserved for in the allowance for sales returns and allowances. The decrease in the amount of inventory held by contract manufacturers was due to timing of product builds of subcomponents of the Company's products as compared to the timing of customer demands. 8. MARKETABLE SECURITIES AND RELATED DERIVATIVE

During fiscal 2000, Cisco Systems ("Cisco") merged with the Company's Aironet subsidiary in exchange for shares of Cisco common stock. At March 15, 2000, the consummation date of the merger, the Company owned 6,366,086 shares of Cisco, and the closing price on that date was $64.32 per share (as adjusted for the two for one stock split that occurred on March 23, 2000). The Company has treated the exchange of its Aironet shares for Cisco shares under the requirements of APB 29 "Accounting for Non-monetary Transactions, thus recognizing a non-operating gain upon the exchange of shares. Subsequent to the Cisco/Aironet merger, the Company accounted for the investment retained in Cisco shares in accordance with the requirements of SFAS 115 based upon the Company's intent to hold the securities for an 10 11 extended length of time and to not engage in frequent buying and selling of the securities. That statement requires investments in marketable equity securities to be accounted for as either "trading" or "available for sale" securities. The Company has recorded its investment in Cisco shares as "available for sale" securities. The Company has recorded a cost basis for these securities equivalent to the securities fair market value as of the Cisco/Aironet merger consummation. This amount is adjusted, in accordance with FASB 115, to reflect the market price of the portfolio as of the end of each accounting period. On March 31, 2000, a $54,159 unrealized holding gain was recorded to reflect an increase in market value of the Company's investment in Cisco, in accordance with the requirements of SFAS 115. As of September 30, 2000 this value was decreased to the securities' minimum hedged value for the hedged shares, as described below, since the value of each share of Cisco stock at September 30, 2000 decreased to a closing price below the minimum amount that the Company would recognize upon the sale of these securities should the Company exercise the hedge. These adjustments to the carrying amount, net of tax, represent non-cash activities. The Company has reduced the related market risk in its investment of Cisco securities by entering into two derivative financial instruments (referred to collectively herein as the "Collar") on March 23, 2000. The Collar essentially hedges most of the Company's risk of loss on the marketable securities by utilizing put options. Conversely, the Collar arrangement also limits the Company's potential gain by employing call options. By employing a hedging alternative such as the Collar, the Company can be assured that its gains and losses will reside within the range created by the Collar assuming performance by the counterparty of the Collar. This range is set in such a way that the Black Scholes value of the call is equivalent to the Black Scholes value of the put; therefore, utilizing this means of hedging is cost effective for the Company since the premiums and costs related to the two opposing features are effectively netted. Information regarding the Collar is illustrated in the table below.

The effect of the Collar is to hedge 4,160,000 shares, or 99.9%, of the Company's remaining investment in Cisco. The Collar limits the Company's loss by placing a floor on the value the shares may be potentially sold at of, on average, $63.04 per share. Conversely, the Collar also limits the Company's gain by creating a ceiling on the value the shares may be potentially sold at of, on average, $100.62 per share. Therefore, the Company's maximum potential gain or (loss) realized from the sale of its marketable securities covered by the Collar at September 30, 2000 is on average $151,487 or ($5,074), respectively. This potential gain or loss was calculated by utilizing the average strike prices from above, and the Company's original cost basis in its investment in Cisco at March 31, 2000 of $267,704. However, the options contained within the Collar agreement have an expiration date of March 26, 2001 and may only be exercised on this date. For each collar, the election of a third party to exercise the call 11 12 feature, or the Company's option to exercise the put feature, will automatically terminate the opposing component of the Collar agreement, and the owner of such option agreement will have no further rights or obligations under the agreement once this occurs. Statement of Financial Accounting Standards Board 133, Accounting for Derivatives and Hedging Activities ("SFAS 133"), once implemented, will require the Company to display the fair market value of the Collar as an asset or liability on its consolidated balance sheet. At the end of each accounting period, the change in the fair market value of the Collar will be netted against the change in the fair market value of the Company's holdings of Cisco shares. The amount by which these values do not completely hedge each other will, in effect, increase or decrease the Company's non-operating income for the period. The Company has not fully evaluated the impact SFAS 133 will have upon its financial statements, and it is not required to implement this standard until the first quarter of its next fiscal year. As of September 30, 2000, an independent determination of the fair market value of the Collar was conducted. This independent calculation determined that the Company's ownership percentage of the Collar had a fair market value of $47,011 on that date. As of September 30, 2000, the Company realized $32,080 of the fair market value of the Collar in order to effectively value its marketable securities at the collared value. 9. ACCRUED LIABILITIES Accrued liabilities at September 30, 2000 and for the year ended March 31, 2000 consisted of the following:

Pursuant to Emerging Issues Task Force Issue No. 94-3 "Liability Recognition for Cost to Exit an Activity (Including Certain Costs Incurred in a Restructuring)", accrued employee termination benefits at September 30 and March 31, 2000 include costs to terminate 15 and 14 employees, respectively. Costs totaling $20, $7, $290, $52 and $65 were charged to cost of product revenue, cost of customer service revenue, selling expenses, product 12 13 development and engineering expenses and general and administrative expenses during the first half of fiscal 2001. This compares to costs totaling $169, $95, $657, $51 and $2,511 which were charged to cost of product revenue, cost of customer service revenue, selling expenses, product development and engineering expenses and general and administrative expenses, respectively, during fiscal 2000. The Company's domestic accrual for severance costs decreased from a balance of $3.5 million at March 31, 2000 to a balance of $2.1 million at September 30, 2000. This decrease was caused by severance charges of $1.6 million during the first half of fiscal 2001, which were more than offset by severance payments of $2.9 million to terminated employees. As mentioned above, a total of 15 employees were terminated during the first half of fiscal 2001 and 76 employees were notified of the Company's plans to move certain customer service repair operations from Houston, Texas to Juarez, Mexico. The Company accrued $.3 million in stay on bonuses earned by effected employees during the second quarter of fiscal 2001 and this amount is included in the amounts noted above. These stay bonuses have been accrued ratably over the employees contractual stay period. The areas of the Company affected were domestic sales operations, domestic product development, manufacturing and customer service operations and corporate administration. There have been no material changes to the amounts accrued at March 31, 2000. In addition to the domestic severance activity, 1 employee was terminated in the Company's international administrative operations during the second quarter of fiscal 2001. The severance recorded related to this employee was $.3 million. 10. SHORT-TERM FINANCING During fiscal 2000, the Company entered into a loan and pledge agreement arranged with a lending institution to provide the Company with an open line of credit not to exceed $236,000 collateralized by the Company's investment in marketable securities. The maximum availability of $236,000 is based upon 90% of the floor value of the Collar as described in Note 8 - Marketable Securities and Related Derivative. The line of credit, which carries a borrowing rate of LIBOR plus thirty basis points, has no fees associated with it. The one-month LIBOR rate at September 30, 2000 was 6.63%. The weighted-average borrowings for the quarter under this line were $11,804. The weighted-average interest rate charged for these funds was 6.93%, during the quarter. These funds were utilized to facilitate the Company's efforts in satisfying short-term working capital requirements. 11. 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, the plaintiff seeks no monetary relief from the Company. 13 14 On November 12, 1993, Telxon and the individual director defendants filed a Motion to Dismiss. The plaintiff filed its brief in opposition to the Motion on May 2, 1994, and the defendants filed a final responsive brief. The Motion was argued before the Court on March 29, 1995, and on July 18, 1995, the Court issued its ruling. The Court dismissed all of the claims relating to the plaintiff's allegations of corporate waste; however, the claims relating to breach of fiduciary duty survived the Motion to Dismiss. On October 31, 1996, plaintiff's counsel filed a Motion to Intervene in the derivative action on behalf of a new plaintiff stockholder. As part of the Motion to Intervene, the intervening plaintiff asked that the Court designate as operative for the action the intervening plaintiff's proposed Complaint, which alleges that a series of transactions in which the Company acquired technology from a corporation affiliated with Mr. Meyerson was wrongful in that Telxon already owned the technology by means of a pre-existing consulting agreement with another affiliate of Mr. Meyerson; the intervenor's complaint also names Raymond D. Meyo, President, Chief Executive Officer and director at the time of the first acquisition transaction, as a new defendant. The defendants opposed the Motion on grounds that the new claim alleged in the proposed Complaint and the addition of Mr. Meyo were time-barred by the statute of limitations and the intervening plaintiff did not satisfy the standards for intervention. After taking legal briefs, the Court ruled on June 13, 1997, to permit the intervention. On March 18, 1998, defendant Meyo filed a Motion for Judgement on the Pleadings (as to himself), in response to which Plaintiff filed its Answer and Brief in Opposition. The Motion was argued before the Court on November 4, 1998, and was granted from the bench, dismissing Meyo as a defendant in the case. The 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 in February 2000. Following the hearing, the parties submitted supplemental briefs, the last of which was filed on March 6, 2000. The Court decided the cross motions for summary judgment on July 24, 2000. As a result of that ruling only the plaintiff's claims relating to the directors' fiduciary duty of care continue to be pending. No trial date has been set. 14 15 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 December 1999, the case was settled by the parties, and the $500 cost of the initial settlement, $275 of which has been covered by the Company's insurer, was recorded in the Company's 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 had at March 31, 2000 accrued the then estimated costs of $250. As the result of changes to the remediation plan made after March 31, 2000 which better assure its completion within the projected schedule, the Company's estimate of the total cost is expected to increase to $350. 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. 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. 15 16 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 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 were filed by two of the unsuccessful plaintiffs but have all been denied by the Court of Appeals. On November 8, 1999, the defendants jointly moved to dismiss the Amended Complaint, which was denied on September 29, 2000. Following the denial, the parties filed a proposed joint case schedule, discovery commenced, and the parties each filed their initial disclosures. On October 30, 2000, defendants filed their answer to the plaintiffs' Amended Complaint as well as a Motion for Reconsideration or to Certify the Order Denying the Motion to Dismiss for Interlocutory Appeal and request for oral argument, and a memorandum of points and authorities in support of that motion, which remains pending before the court. Discovery is in its preliminary stages. The defendants believe that these claims lack merit, and they intend to vigorously defend the consolidated action. By letter dated December 18, 1998, the Staff of the Division of Enforcement of the Securities and Exchange Commission (the "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 and its current and former independent accountants have assessed the effects of comments issued to the Company by the Commission's Division of Corporation Finance as part of its ongoing review of various accounting matters in the Company's previous filings with the Commission, including, but not limited to, the recognition of revenues from the Company's indirect sales channel and the timing of charges which the Company recorded during fiscal 1999, 1998 and 1997 for inventory obsolescence, severance and asset impairment. The Company has cooperated, and intends to continue cooperating fully with, the Commission Staff. The Company has not accrued for any fines or penalties under SFAS 5 because it has no basis to conclude that it is probable that at the conclusion of the investigation the Commission will seek a fine or penalty, and because the amount of any such fine or penalty is not estimable. 16 17 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 Technologies, Inc. to acquire the Company in the Spring of 1998 violated their duties of loyalty, good faith and due care and wasted Company assets. The Complaint seeks an order rescinding the Aironet stock transactions (or in the event such relief cannot be granted, recissory 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, the plaintiff seeks no monetary relief from the Company. On March 8, 2000, all defendants except Messrs. Goodman and Meyerson answered the complaint and moved for judgment on the pleadings. Messrs. Goodman and Meyerson have filed motions to dismiss. In addition, all defendants have moved to stay discovery. All of these motions are currently being briefed, and no hearing date has been scheduled for any of the motions. 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. 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." On April 14, 2000 the Foundation filed five lawsuits against a total of approximately 430 end users, including a number of the Company's customers, whom the Foundation alleges use automatic identification technology which infringes the Foundation's patents; the Company is not named as defendant in any of these lawsuits. The Company continues to receive requests for indemnity from customers with regard to claims being informally asserted against them by the Foundation as well as from customers who have been formally sued by the Foundation. The Company believes that the patents so being asserted against it and its customers are invalid, unenforceable and not infringed and on April 24, 2000 filed a federal court action against the Foundation seeking a declaratory judgment to that effect. The Company's declaratory judgment action is substantially similar to the federal court action jointly filed by seven other companies in the automatic identification industry, including the Company's principal competitors, in July 1999 seeking like declaratory relief against the Foundation. On May 30, 2000 the Foundation filed an answer and counterclaim against the Company in response to its declaratory judgment action denying that its patents are invalid, unenforceable or not infringed by the Company or its customers and counter-claiming that the Company likely induces or contributes to the direct infringement of unspecified claims of the Foundation's patents. On August 12, 2000, the Court granted a stipulation and order consolidating the Company's declaratory judgement action with the declaratory judgement action filed by the seven other companies in the automatic identification industry. Discovery is in the early stages. The Company believes that the Foundation's counterclaim is without merit and intends to vigorously defend against it. 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. 17 18 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, lessors of equipment to the Company and existing and potential business and development partners. The Company is vigorously defending all such claims that do not lack merit. While the ultimate outcome of any such matters cannot presently be determined, the Company accrues for all probable liabilities when and to the extent incurred and estimable. As of the end of the second quarter of fiscal 2001, the Company accrued $5,000 for contingencies related to two customer sales contracts in accordance with the criteria set forth in Statement of Financial Accounting Standards No. 5 "Accounting for Contingencies". Other than those two disputes, the Company does not believe that such matters are likely to 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 with respect to such matters. 12. INCOME TAX An income tax benefit of $10,046 and $15,296 has been recognized for financial reporting purposes for the quarter and six months ending September 30, 2000. The effective income tax rate used to calculate this benefit was calculated as a combined federal and state statutory tax rate adjusted for tax provisions on international subsidiary income. It is the Company's current assessment that it is more likely than not that these losses and the Company's deferred tax assets will be benefited through future taxable income or through the implementation of tax planning strategies. The Company's consolidated tax provision of $738 and $2,016 for the second quarter and first half of fiscal 2000, respectively, relate to foreign taxes on the Company's international subsidiaries. No taxes were provided for the gain in the second quarter of fiscal 2000 related to the sale of Aironet voting common stock as the Company had sufficient current year operating loss carryforwards to prevent a tax provision or liability. As of the end of the second quarter of fiscal 2000 the Company had 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 was more likely than not that the deferred tax assets would not be utilized through future taxable income or the implementation of tax planning strategies. 13. BUSINESS SEGMENTS The Company designs, develops, manufactures, markets and services mobile and wireless transaction systems and solutions for vertical markets. The Company's business consists of three geographic operating segments: a) sales and distribution of all of its product lines in the United States; b) sales and distribution of all of its product lines in Europe and c) sales and distribution of all of its product lines in international locations outside of Europe. The Company has operations in the United States, Europe, Canada, and other international locations including Mexico, Australia and Asia. 18 19 Intercompany sales were at cost plus a negotiated mark-up. During fiscal 2000, the Company increased its transfer price to more currently reflect costs incurred in the United States related to sales to its international subsidiaries.

14. RECLASSIFICATION Certain items in the fiscal 2000 consolidated financial statements and notes thereto have been reclassified to conform to the fiscal 2001 presentation. 19 20 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 PENDING ACQUISITION OF THE COMPANY BY SYMBOL TECHNOLOGIES, INC., 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 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 SYMBOL'S PROPOSED ACQUISITION OF THE COMPANY AND THE COMPANY'S BUSINESS, OPERATING RESULTS AND FINANCIAL AND OTHER CONDITION 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, 2000. Overview During the second quarter ended September 30, 2000 the Company entered into an Agreement and Plan of Merger pursuant to which Symbol Technologies, Inc. ("Symbol") agreed to acquire the Company in a stock-for-stock merger. Consummation of the proposed merger is subject to approval by the Company's stockholders and customary closing conditions. The Special Meeting of Company's Stockholders to consider the merger is scheduled to be held November 28, 2000. Provided stockholder approval is obtained at this meeting, the closing of the merger is anticipated to occur on November 30, 2000. With respect to its operations, the Company recorded a net loss of $19.5 million or $1.11 per common share (diluted) and a net loss of $29.7 million or $1.69 per common share (diluted) for the second quarter and first half of fiscal 2001. In comparison, the Company recorded net income of $15.0 million or $.92 per common share (diluted) and a net loss of $1.7 million or $.11 per common share (diluted) for the second quarter and first half of fiscal 2000. The net income for the second quarter of fiscal 2000 was primarily the result of a non-operating gain recorded related to the sale of voting common stock in the Company's Aironet subsidiary of $32.2 million. The Company also recorded a loss from operations of $27.8 and $42.1 million during the second quarter and first half of fiscal 2001, respectively, compared to a loss from operations of $13.6 million and $25.8 million incurred during the same periods last year, respectively. Consolidated revenues decreased $6.8 million or 7% and $9.0 million or 5% for the second quarter and first half of fiscal 2001, respectively, compared to the same periods in fiscal 2000. The Company's consolidated gross margin percentage decreased to 19% and 25% 20 21 for the second quarter and first half of fiscal 2001, respectively, compared to 28% for both of the same periods in fiscal 2000. Operating expenses increased $4.4 million or 11% and $8.4 or 11% for the three and six-month periods ended September 30, 2000, respectively. These increases resulted primarily from increased provisions for doubtful accounts, provisions for contingent liabilities related to customer sales contracts and increased salary and contract labor expenses related to the transition of the Company's workforce to its new corporate headquarters in Cincinnati, Ohio and operations in Houston, Texas, during fiscal 2001. Additionally, merger transaction costs incurred during the second quarter of fiscal 2001 related to the anticipated merger of the Company with Symbol increased the Company's operating expenses compared to the same period of fiscal 2000. The fiscal 2001 results include a tax benefit of $10.0 million and $15.3 million for the second quarter and first half of fiscal 2001, respectively. Recognizing this tax benefit results from the Company's assessment that such benefits arising from net operating losses will be benefited in future periods. The Company experienced significant cash flows used by operating activities of $37.9 million during the first half of fiscal 2001. This compared to cash used by operating activities of $5.5 million during the first half of fiscal 2000. The significant increase in cash flows used by operating activities resulted primarily from increasing operating losses and higher levels of accounts receivable. During the quarter ended September 30, 2000, the Company borrowed a net $19.0 million of short-term debt. These borrowings were undertaken to satisfy operating cash requirements. 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 terms and conditions of, and the risks and other important factors relating to, the proposed acquisition of the Company by Symbol, as well as the Special Meeting of Stockholders to be held for the approval thereof, are described and discussed in detail in the proxy statement/prospectus concerning the transaction that has been filed with the Securities and Exchange Commission and mailed to stockholders. The proxy statement/prospectus contains important information that Telxon shareholders should consider before making any decision regarding the proposed transaction. Stockholders can obtain the proxy statement/prospectus, as well as other information about Symbol and Telxon, without charge, at the SEC's Internet site (http://www.sec.gov). Copies of the proxy statement/prospectus and the SEC filings that are incorporated by reference 21 22 in the proxy statement/prospectus can be obtained, without charge, from Symbol and Telxon. In addition, 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 identification and implementation of appropriate cost reduction, efficiency and other operating improvement strategies; 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; the performance of Company products and services to customer specifications and requirements; 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; currency exchange rates and other risks associated with foreign sales and operations; timely and efficient enhancement of appropriate product offerings through internal development and acquisition of, or investment in, new businesses and technologies; dependence on, and freedom from infringement of, technologies and other proprietary rights of, or by, third parties; government regulation of radio and other products, and product health and safety concerns; dependence on sole source, or a limited number of, suppliers; and attracting and retaining qualified employees. In addition to being subject to the foregoing factors and other cautionary statements elsewhere in this Form 10-Q, the Company's conduct of its business, and the results and condition thereof, is also subject to the possible adverse effects of certain pending litigation and other contingencies discussed in Note 11 - Litigation and Contingencies to the accompanying condensed 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. RESULTS OF OPERATIONS

22 23

Net product revenues include the sale of portable tele-transaction computers ("PTCs"), including rugged, wireless mobile computers and pen-based and touch-screen workslates; hardware accessories; wireless data communication products; custom application software, network management software and software licenses; and a variety of professional services, including systems integration and project management. Consolidated product revenues decreased as compared to prior year levels but increased by 4% as compared to those levels experienced in the first quarter of fiscal 2001. Current demand for the Company's products as measured by product shipments, improved as compared with fiscal 2000, particularly in the Company's North American operations despite the aging of the Company's products. Revenues from the Company's pen-based products and newly introduced products remained a minor percentage of total revenues. However, the decrease in the overall product revenues for fiscal 2001 as compared with fiscal 2000 was primarily caused by the recording of reserves and revenue adjustments positively impacting prior year results and negatively impacting fiscal 2001 results as described below. Consolidated product revenues were negatively impacted by adjustments to revenues for the second quarter and first half of fiscal 2001 to reflect sales concessions granted on trade-in products related to a major domestic retailer of $3.2 million and $5.3 million, respectively. Additionally, the recording of a $3.5 million contingency related to a customer sales contract also negatively impacted consolidated product revenues. This adjustment has been recorded as a reduction to revenue. Consolidated product revenues for the second quarter of fiscal 2000 included $13.0 million of revenue related to transactions previously deferred pending customer acceptance of such goods. Deferrals of product revenues or the recognition of previously deferred product revenues did not materially impact fiscal 2001 consolidated product revenues. Product revenues for the second quarter of fiscal 2001 and fiscal 2000 included revenues of $12.5 million and $14.5 million, respectively, related to the rollout of Company products to a large domestic retailer. Revenues related to this one customer accounted for 18% and 19% of the Company's consolidated product revenues for the second quarter of fiscal 2001 and fiscal 2000, respectively. For the second quarter and first half of fiscal 2001, the volume of revenues from the Company's Value-Added Distributor ("VAD") channel increased approximately $.8 million and $4.9 million as compared to the same periods in fiscal 2000. Although the level of revenues from the VAD channel increased over the same periods in fiscal 2000, these levels remain significantly less than the Company's historical experience as the Company's management continues to emphasize the direct sales channel. Revenues related to VADs continue to represent less than 10% of product revenues. 23 24 Consolidated customer service revenues increased as the result of increased maintenance contract activity in the Company's North American operations. Maintenance contract revenues increased $1.9 million or 8% for the first half of fiscal 2001 as compared to the first half of fiscal 2000. "Time and material" billings also increased by $.8 million due to the absence of start-up issues with the Company's new information system and customer demand for these services. Offsetting these increases were lower spare parts and upgrade revenues of $.8 million. Revenues from the Company's international operations (including Canada) increased $.5 million or 1% and $3.5 million or 13% during the second quarter and first half of fiscal 2001 compared to the same periods in fiscal 2000, respectively. The increase in the Company's international revenues was primarily the result of increased revenues from shipments of the Company's product to locations of a major U.S. based retailer in the United Kingdom. Revenues in the United Kingdom increased $1.8 million or 24% and $3.0 million or 21% for the second quarter and first half of fiscal 2001 as compared to the some periods in fiscal 2000, respectively. Additionally, shipments to the Company's international distributors increased by $.8 million or 25% and $.6 million or 6% for the second quarter and first half of fiscal 2001 as compared to the some periods in fiscal 2000, respectively. These increases were partially offset in the first half of fiscal 2001 by relatively lower revenues during the first quarter of the fiscal year. The results of the Company's international operations were negatively impacted by changes in foreign currency exchange rates relative to the U.S. dollar. The weakness of the local currencies in the Company's European subsidiaries lowered the translated U.S. dollar revenues by approximately $2.2 million for the first half of fiscal year 2001. The Company's reserve for sales returns and allowances increased from a balance at March 31, 2000 of $5.3 million to $6.7 million at September 30, 2000. During the second quarter and first half of fiscal 2001, the Company issued $5.5 million and $10.3 million of credits for sales returns and allowances. The total negative impact to revenues from these credits issued and the increase in the reserve for sales returns and allowances was $11.7 million, during the second quarter of fiscal 2001. This increase was caused by greater average outstanding accounts receivable and an increased average rate of return from 5% to 6% related to the Company's direct sales channel. At September 30, 2000, the Company had $4.1 million of accounts receivable outstanding from VADs and a reserve of $2.6 million against those accounts. This compares with $4.2 million of accounts receivable from VADs outstanding at March 31, 2000 and reserves against those accounts of $2.4 million. Net revenues in the VAD sales channel were $3.2 million and $8.1 million for the second quarter and the first half of fiscal 2001. This compares with net revenues for the second quarter and first half of fiscal 2000 of $5.0 million and $5.6 million, respectively. The primary reasons for the increase in the VAD revenues for the first half of fiscal 2001 was due to a decrease of $4.2 million in the amount of credits issued during the first half of fiscal 2001. The majority of the decrease in credits issued occurred during the first quarter of fiscal 2001. The sales returns and allowances experience rate decreased to 20% at September 30, 2000 as compared to 36% at March 31, 2000. 24 25

Cost of Revenues (In thousands)

The increase in the consolidated cost of product revenues as a percentage of consolidated product revenues was primarily the result of the negative gross margin impact of revenues related to a loss contract with a large domestic retail customer. Since the loss on this contract was recognized for financial reporting purposes during the fourth quarter of fiscal 2000, all subsequent shipments of product under the contract have no gross margin contribution. During the second quarter and first half of fiscal 2001 the Company shipped $8.4 million and $17.7 million, respectively. This activity caused a loss of normalized gross margin for this customer of $2.5 million and $5.3 million for the second quarter and first half of fiscal 2001, as compared to fiscal 2000, respectively. In addition to the revenues noted above with no gross margin, the Company also reserved $3.5 million during the second quarter of fiscal 2001 for a contingency related to a customer sales contract. This charge to consolidated product revenues decreased gross margins for both the second quarter and first half of fiscal 2001 by that same amount since there was no related cost recovery recorded for the subject property. The Company also increased the provisions for excess and obsolete inventories and the net realizable value of inventories by approximately $9.0 million for both the second quarter and first half of fiscal 2001 as compared to the same periods in fiscal 2000, respectively. These increased provisions are primarily the result of excess supplies of manufacturing purchased component inventories as compared to historical and forecasted usage and a loss recorded for 25 26 inventory purchased under a purchase commitment with a major purchased component vendor. The Company had estimated, based upon recent sales activity for the product and market information available from independent sources, that the net realizable value of such inventory was substantially less than its purchased cost. Also decreasing the Company's consolidated gross margins was lower gross margins in the Company's international operations of $1.5 million for both the second quarter and the first half of fiscal 2001 as compared to the same periods in fiscal 2000. The lower gross margins were primarily caused by low margin product revenues related to shipments of the Company's product to locations of a major U.S. retailer in the United Kingdom. The Company's non-standard manufacturing costs also increased by $1.0 million and $1.8 million for the second quarter and first half of fiscal 2001 as compared to the same periods in fiscal 2000, respectively. The primary reasons for these increases were increased freight costs, shipments of test equipment and allocated overhead costs. Further contributing to the lower gross margins was decreased gross profit contribution in the Company's professional services operations of $.4 million for the second quarter and first half of fiscal 2001. This decrease was due to low revenue volumes in that product offering and the maintenance of fixed costs within the Company's professional services cost structure. The decreases to the product costs noted above were partially offset by the following. Manufacturing overhead expenses were more fully absorbed by manufacturing activity by $4.7 million and $8.6 million for the second quarter and first half of fiscal 2001 as compared to the same periods in fiscal 2000, respectively. The Company's close matching of expected and actual production volumes and manufacturing efficiencies caused the reduced undersabsorbed overhead costs as compared to fiscal 2000. Also contributing to the increased gross margin was the release of estimated royalties of $1.6 million and $2.4 million for the second quarter and first half of fiscal 2001 as compared to fiscal 2000. The amount accrued for contingencies was reduced as the result of an unanticipated settlement of disputed royalties with a major vendor and licensor of key product technology. In addition to the reduction in these royalties, the Company benefited from the fully paid-up royalty related to Aironet of $1.3 million and $1.6 million for the second quarter and first half of fiscal 2001 as compared to the same periods in fiscal 2000. The royalties due on the sale of Aironet products became fully paid late in fiscal 2000 with the purchase of Aironet by Cisco Systems, Inc. Product gross margins were further enhanced by reduced costs for purchase price variance, non-conformance costs, software amortization and miscellaneous product costs aggregating $2.0 million and $2.5 million for the second quarter and first half of fiscal 2001 as compared to the same periods in fiscal 2000, respectively. 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. At September 30, 2000, the inventory allowance accounts totaled $31.2 million and were composed of manufacturing purchased components of $21.3 million, customer service spare parts and used equipment of $8.0 million and international finished goods of $1.9 million. These amounts compare 26 27 to March 31, 2000 inventory allowance accounts that totaled $40.5 million and were composed of manufacturing purchased components of $30.5 million, customer service spare parts and used equipment of $8.1 million and international finished goods of $1.9 million. Inventory allowance provisions for the quarter totaled $5.8 million. Inventory provisions for the second quarter of fiscal 2001 were composed of manufacturing purchased components of $4.7 million, customer service spare parts and used equipment of $1.0 million and international finished goods of $.1 million. Inventory provisions aggregating $7.7 million for the first half of fiscal 2001 were composed of manufacturing purchased components of $6.2 million, customer service spare parts and used equipment of $1.1 million and international finished goods of $.4 million. During the first quarter of fiscal 2001, a $7.8 million reduction in the gross inventory value of trade-in product reduced the inventory allowance accounts. Since both the gross inventory value and the decrease to the reserve were for the same amount, there was no impact on net inventories. Management disposes of excess and obsolete inventory as necessary and as manpower permits. During the first half of fiscal 2001, the Company disposed of $9.2 million of excess and obsolete material. Of this amount $7.6 million related to manufacturing purchased components, $1.3 million related to the Company's customer service inventories and $.3 million related to the Company's international operations. In addition to the inventory allowance accounts, the Company has recorded accrued liabilities totaling $2.1 million for purchase commitments to an outside vendor for purchased components whose net realizable value is below historical purchased cost. This accrual was adjusted $.6 million during the first quarter of fiscal 2001 to reflect changes in the estimated net realizable value of the underlying inventory. At September 30, 2000, the Company had approximately $7.5 million of finished goods inventory held at distributors and customers and approximately $2.2 million of manufacturing purchased components at contract manufacturers. At March 31, 2000, the Company had approximately $6.2 million of finished goods inventory held at distributors and customers and approximately $10.1 million of manufacturing purchased components at contract manufacturers. The increase in the amount of finished goods held at distributors and customers was the result of the shipment of product to a major domestic retail customer prior to the recognition of revenue of $1.3 million and the increase in the inventory recovery related to sales returns reserved for in the allowance for sales returns and allowances. The decrease in the amount of inventory held by contract manufacturers was due to timing of product builds of subcomponents of the Company's products as compared to the timing of customer demands. 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 both the second quarter and first half of fiscal 2001, the Company incurred $.2 million of these fees as VAD activity continues at relatively low levels. The decrease in the customer service cost of revenues as a percentage of customer service revenues during the first half of fiscal 2001 as compared to the first half of fiscal 2000 was primarily 27 28 caused by the leveraging of fixed costs over an increased revenue base, cost containment efforts and cost benefits derived from the Company's service repair operations in Juarez, Mexico. Due to the weaknesses of local currencies, particularly European, where the Company's international subsidiaries operate, consolidated gross margin was negatively impacted by approximately $.5 million during the second quarter of fiscal 2001. Operating Expenses (In thousands)

Consolidated selling expenses as a percentage of revenues increased to 22% during both the second quarter and first half of fiscal 2001, respectively, compared to 19% and 20% for these same periods last year, respectively. During the second quarter and first half of fiscal 2001, the Company experienced an increase in expense related to sales and marketing demonstration equipment sent to the Company's direct sales force of $1.3 and $2.0 million, respectively, coinciding with the introduction of new products and product enhancements. These increases were offset by a decrease in expenses related to international sales administration and management of $1.0 and $1.8 million for these same periods, respectively. This decrease was primarily the result of the absence of severance expense in the Company's international operations. The related personnel were terminated in fiscal 2000, which resulted in greater severance expense of $1.2 million during the second quarter and first half of fiscal 2000 compared to the same periods in fiscal 2001. The Company's allowance for doubtful accounts increased from a balance of $7.1 million at March 31, 2000 to a balance of $10.4 million at September 30, 2000. The Company provided for $2.2 and $3.3 million of bad debts for the second quarter and first half of fiscal 2001, respectively, and bad debt write-offs totaled $.1 million for both of these same periods. This 28 29 consolidated provision increased by $2.0 million compared to both the second quarter and first half of fiscal 2000. The Company incurred severance charges of $.1 and $.3 million during the second quarter and first half of fiscal 2001 related it its' marketing and sales departments. This amount was more than offset by $.3 and $.7 million in severance payments paid recently terminated sales and marketing personnel. Consolidated product development and engineering expenses as a percentage of total revenues increased to 7% for the second quarter of fiscal 2001 from 6% in the second quarter of fiscal 2000. Consolidated product development and engineering expenses, as a percentage of total revenues remained consistent at 7% for both the first half of fiscal 2001 and 2000. The increase in consolidated product development and engineering expenses for the second quarter and first half of fiscal 2001 resulted primarily from an increase in goodwill amortization of $1.2 and $2.5 million, respectively, compared to the same periods last year. This increased amortization was related to the repurchase of minority shares in the Company's Metanetics subsidiary, which occurred in the fourth quarter of fiscal 2000. Also contributing to the increase was $.1 and $.5 million of additional net software expense incurred during the second quarter and first half of fiscal 2001, respectively, due to the reduction in the amount of software costs capitalized as current year activities did not meet the criteria for capitalization under Statement of Financial Accounting Standards No. 86 "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed" ("SFAS 86"). This increase was partially offset by a decrease in the use of outside design services for the development the Company's products for these same periods of $.9 and $2.3 million, respectively. Engineering expenses at the Company's Metanetics subsidiary also decreased $.3 million for the quarter and first half of fiscal 2001, respectively. During the second quarter and first half of fiscal 2001, the Company capitalized internal software development costs in accordance with the requirements of SFAS 86 aggregating $.2 and $1.0 million, respectively, offset by amortization of $1.0 and $2.0 million on previously unamortized software. Consolidated general and administrative expenses as a percentage of revenues were 19% for the second quarter of fiscal 2001 as compared to 17% the second quarter of fiscal 2000. Consolidated general and administrative expenses as a percentage of revenues were 19% and 15% for the first half and second quarter of fiscal 2001 as compared to the first half of fiscal 2000. The increase in general and administrative expenses for second quarter of fiscal 2001 as compared with the same period in fiscal 2000 was primarily due to the following. A provision for a litigation matter concerning a customer sales contract was made for $1.5 million in accordance with the requirements of Statement of Financial Accounting Standards No. 5 "Accounting for Contingencies" ("SFAS 5"). Incentive employee compensation of $1.0 million was accrued based upon the Company's Fiscal 2001 Incentive Compensation Plan as approved by the Company's Board of Directors, during the fiscal 2001 planning process. Also, an additional provision of $.5 million was made for lease abandonment costs related to the Company's former headquarters located in Akron, Ohio as facts and circumstances 29 30 changed regarding potential subleasing transactions. Additionally, a severance charge of $.3 million was recorded for the termination of one employee in the Company's international administrative operations. These increases to general and administrative expenses were partially offset by foreign exchange gains of $.8 million resulting from the weakness of the European currencies relative to the U.S. dollar. The increase in general and administrative expenses for the first half of fiscal 2001 as compared with the same period in fiscal 2000 was primarily due to the following. The Company incurred additional administrative costs related to the transition of the Company's corporate headquarters to Cincinnati, Ohio and the transition of the Company's administrative operations to Houston, Texas. These costs included provisions for stay on bonuses aggregating $.9 million and $1.8 million in contract labor costs related to the aforementioned transition of the Company's data center to Houston, Texas. Also, provisions of $1.5 million were recorded for lease abandonment and duplicate facility costs related to the Company's former headquarters located in Akron, Ohio as facts and circumstances changed regarding potential subleasing transactions. The Company also experienced increased depreciation of $.8 million in the first half of fiscal 2001 as compared to the same period in fiscal 2000 primarily as the result of increased amortization of its corporate information system, which was not fully placed in service, and therefore not amortized until the second quarter of fiscal 2000. A provision for a litigation matter concerning a customer sales contract was made for $1.5 million in accordance with the requirements of SFAS No. 5 and the $1.0 million incentive employee compensation, as noted above. Legal and accounting expenses increased $.4 million due to increased activity related to litigation matters and the ongoing investigation of the Company by the Securities and Exchange Commission. Additionally, as noted above, during the first half of fiscal 2001 a severance charge of $.3 million was recorded for the termination of one employee in the Company's international operations. Offsetting these increases in general and administrative expenses were the following. General and administrative expenses were reduced due to the discontinuance of Company's former corporate jet operations of $.5 million. Contract labor costs related to the Company's corporate information systems decreased $1.3 million, reflecting the completion of implementation phases, including greater training and data conversion activity, during the first half of fiscal 2000. Foreign currency transaction gains of $.5 million also contributed to the offsetting decreases to general and administrative expenses. The Company incurred $1.6 million of direct merger related expenses during the second quarter of fiscal 2001. These costs consisted of professional fees for investment banking, legal and accounting services and were expensed as incurred. The Company's domestic accrual for severance costs decreased from a balance of $3.5 million at March 31, 2000 to a balance of $2.1 million at September 30, 2000. This decrease was caused by severance charges of $1.6 million during the first half of fiscal 2001, which were more than offset by severance payments of $2.9 million to terminated employees. A total of 15 employees were terminated during the first half of fiscal 2001 and 76 employees were notified of the Company's plans to move certain customer service repair operations from Houston, Texas to Juarez, Mexico. The Company accrued $.3 million in stay on bonuses earned by effected employees during the second quarter of fiscal 2001 and this amount is 30 31 included in the amounts noted above. These stay-on bonuses are accrued ratably over the contractual employee stay-on period. The areas of the Company affected were domestic sales operations, domestic product development, manufacturing and customer service operations and corporate administration. There have been no material changes to the amounts accrued at March 31, 2000. In addition to the domestic severance activity, 1 employee was terminated in the Company's international administrative operations during the second quarter of fiscal 2001. The severance recorded related to this employee was $.3 million. Interest Income/(Expense) (In thousands)

Net interest expense decreased during the second quarter and first half of fiscal 2001 compared to the second quarter and first half of fiscal 2000, due to the extinguishment in the fourth quarter of fiscal 2000 of the Company's credit facilities. Amounts outstanding under the Company's lines of credit were $19.0 million as of September 30, 2000 and the Company incurred a weighted-average interest rate of 6.93% on this amount. Amounts outstanding under the Company's credit facilities were $53.1 million as of September 30, 1999 and the Company incurred a weighted-average rate of 9.81% on this amount. The Company's interest expense for the second quarter and first half of fiscal 2001 consists primarily of interest on the $106.9 million of convertible subordinated debentures recorded on the accompanying consolidated balance sheets. During the first quarter of fiscal 2000, the Company recorded $1.3 million of non-operating expense related to the reduction in carrying value on an investment in non-marketable securities. The Company's estimate of the reduction was based upon the market value of subsequent equity transactions of the investee with third parties. The investment is 31 32 composed of stock in a development-stage 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 purchased and leased-back, and resold its 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 a non-operating gain. During the second quarter of fiscal 2000, Aironet and the Company sold 6,846,800 shares of Aironet's voting common stock in an initial public offering on the Nasdaq National Market at a price of $11.00 per share. Of the total number of shares offered, Aironet sold 4,564,562 shares, and the Company sold 2,282,238 shares. The aggregate proceeds, net of underwriting discounts and commissions, were $47.4 million to Aironet and $23.3 million to Telxon. Subsequent to this transaction, the Company's remaining interest in Aironet was approximately 35%. As a result of this transaction, the Company recorded a non-operating gain of approximately $32.2 million, net of additional transaction costs of $1.5 million. Also as a result of this transaction, the Company ceased consolidation of Aironet effective April 1, 1999. The Company accounts for its investment under the equity method of accounting. Investment income of $.4 million and $.7 million was recorded for the Company's interest in the earnings of Aironet for the second quarter and first half of fiscal 2000. Income Taxes (In thousands)

An income tax benefit of $10.0 million and $15.3 million has been recognized for financial reporting purposes for the quarter and six months ending September 30, 2000. The effective income tax rate used to calculate this benefit was calculated as a combined federal and state statutory tax rate adjusted for tax provisions on international subsidiary income. In contrast to the Company's assessment as of the end of the second quarter of fiscal 2000, the Company's current assessment is 32 33 that it is more likely than not that these losses and the Company's deferred tax assets will be benefited through future taxable income or through the implementation of tax planning strategies. The Company's consolidated tax provision of $.7 million and $2.0 million for the second quarter and first half of fiscal 2000, respectively, relate to foreign taxes on the Company's international subsidiaries. No taxes were provided for the gain in the second quarter of fiscal 2000 related to the sale of Aironet voting common stock as the Company had sufficient current year operating loss carryforwards to prevent a tax provision or liability. As of the end of the second quarter of fiscal 2000 the Company had 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 was more likely than not that the deferred tax assets would not be utilized through future taxable income or the implementation of tax planning strategies. Liquidity (In thousands)

The decrease in the Company's consolidated working capital at September 30, 2000, from March 31, 2000, was primarily due to decreases in cash and cash equivalents and an increase in notes payable, accounts payable and accrued liabilities offset by increases in accounts receivable and inventories and a decrease in income taxes payable. The significant decrease of cash at September 30, 2000 was a result of the Company's management of its working capital requirements to the extent possible, with internally generated funds. The Company used cash flows of $37.9 million to support operating activities during the quarter. An additional $5.0 million of cash was utilized to support investing activities and $15.9 million was provided by financing activities. At September 30, 2000, $19.0 million was outstanding on the Company's lines of credit. 33 34 The increase in accounts payable was the result of purchases of manufacturing purchased components late in the quarter as well as the management of cash payments to vendors in order to minimize the need for the borrowing of funds to finance current operations. The increase in the accounts receivable balance reflects a decline in cash collections within the Company's domestic and international operations for the six months ending September 30, 2000. Accordingly, consolidated days sales outstanding increased from 76 days at March 31, 2000 to 91 days at September 30, 2000. This increase in days of sales outstanding was primarily due to a large number of shipments occurring near the end of the second fiscal quarter. The increase in the Company's inventories was primarily the result of an increased level of purchased manufacturing components of $2.8 million. This $2.8 million was composed of an $8.0 million purchase of inventory in fulfillment of contract commitments with a major vendor. A reserve of $2.8 million was immediately recorded to adjust the value of this inventory to its fair market value. Obsolescence provisions were increased $3.2 million to reflect the Company's current estimate of the value of its manufacturing component inventory. Additionally, $8.4 million of inventories, which were previously reserved for, were disposed, during the second quarter of fiscal 2001. Customer service spare parts increased $.8 compared to the fourth quarter of fiscal 2000. Customer service spare parts inventory increased primarily due to inventory stock purchased to service newer PTC models. Inventory held by customers increased $1.0 million compared to balances at March 31, 2000 since criteria required to meet the Company's revenue recognition policies were not satisfied as of September 30, 2000 on these finished goods. Consolidated inventory turns decreased to approximately 2.9 at September 30, 2000, from approximately 3.4 at March 31, 2000. This decrease in inventory turns was primarily caused by the absence of inventory valuation provisions and other cost of revenue charges that occurred during the fourth quarter of fiscal 2000. Accrued liabilities increased primarily due to increased contingent liabilities recorded of $5.0 million related to completed customer sales contracts. Also increasing accrued liabilities is a $3.7 million increase related to obligations due a major customer for trade-in over allowances. These over-allowances equated to the amount by which the trade-in value of certain products returned by this customer, under the terms of a pre-existing contract between the customer and the Company, exceeded the estimated net realizable value of the product. These increases to accrued liabilities were offset by decreases in deferred customer service revenues and deferred product revenues of $1.5 and $.8 million, respectively, as revenue recognition criteria were ratably met during the first half of fiscal 2001 on customer service and product revenue previously deferred. Additionally, accrued payroll and other employee compensation decreased by $1.1 million at September 30, 2000 due to the timing of related payments. Accrued employee termination benefits also decreased $1.4 million as severance benefits were paid ratably over the first half of fiscal 2001. Income taxes payable decreased by $9.4 million primarily due to a tax benefit of $12.8 million that was recognized during the first half of fiscal 2001. Also contributing to the decrease was a $1.3 million tax payment related to revenue earned in a prior period. 34 35 Cash Flows from Operating Activities (In thousands)

The significant increase in cash flows used in the Company's consolidated operating activities for the first half of fiscal 2001 from comparable fiscal 2000 levels was primarily due to the negative cash flow impacts of increased accounts receivable and inventories and decreased income taxes payable. Additionally, the Company's increased net loss for the first half of fiscal 2001 compared to the same period last year also contributed to the significant increase in cash used in operating activities. These negative cash flow impacts were partially offset by the positive cash flow impact resulting from an increase in accounts payable. Cash Flows from Investing Activities (In thousands)

35 36 The decrease in cash flows provided by investing activities was primarily due to the absence during the first half of fiscal 2001 of proceeds realized from the sale of subsidiary stock as recorded during the first half of fiscal 2000. These proceeds related to the initial public offering and sale of common voting stock of the Company's former subsidiary, Aironet Wireless Communications, during the first half of fiscal 2000. A decrease in the fixed asset additions and software improvements for the first half of fiscal 2001 as compared to the first half of fiscal 2000 partially offset the decrease in cash provided by investing activities during these periods. The decrease in fixed asset additions is primarily attributable to the absence, during fiscal 2001, of capitalized project costs related to the Company's corporate-wide information systems project. A purchase instead of a sale, as occurred in fiscal 2000, of non-marketable investments also contributed to the net decrease in cash flows provided by investing activities. Cash Flows from Financing Activities (In thousands)

The most significant factor contributing to the increase in cash provided by financing activities has been the Company's financing of the majority of its working capital requirements with the available line of credit during fiscal 2001. Conversely, during the first half of fiscal 2000, the Company repaid amounts owed and extinguished its former credit facility in order to replace it with a new credit facility. Thereafter, the new credit facility was primarily utilized to meet working capital requirements of the Company during the first half of fiscal 2000. The net effect of these repayments and borrowings was a net repayment of $11.3 million as of September 30, 1999. The combination of these borrowing and repayment activities contributed significantly to the net increase in cash provided by financing activities. For the first half of fiscal 2001 cash flows used for financing activities consisted of a $3.1 million note to the Chief Executive Officer, John W. Paxton, the proceeds of which were utilized to refinance a bank loan he had used to purchase the common stock of the Company pursuant to his employment contract with the Company. 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 accounting principles generally accepted in the United States 36 37 while recognizing revenue. The Company has complied with the guidance contained within this document when recognizing revenue. On November 24, 1999 the Securities and Exchange Commission issued Staff Accounting Bulletin 100, "Restructuring and Impairment Charges". This authoritative document expresses the views of the SEC staff regarding the accounting and disclosure of certain expenses commonly reported in connection with exit activities and business combinations. The Company has also complied with 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 133"). SFAS 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 133 during the first quarter of fiscal 2002 (as delayed by Statement of Financial Accounting Standards No. 138, "Deferral of the Effective Date of FASB Statement No. 133"). At this time management has not fully evaluated the impact that SFAS 133 will have upon its financial statements. 37 38 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK In the ordinary course of business, the Company is subject to market, foreign currency and interest rate risks. The risks primarily relate to stock price volatility relating to its marketable securities, 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. Market Risk As discussed in Note 8 - Marketable Securities and Related Derivative, during fiscal 2000 Cisco acquired the Company's former subsidiary, Aironet Wireless Communications for shares of Cisco common stock. Subsequent to this transaction the Company held 6,366,086 shares of Cisco common stock (the Cisco share amount illustrated here and throughout the Form 10-Q, unless otherwise noted, gives effect to the two for one forward split of Cisco's common stock which became effective March 22, 2000). A portion of these shares was sold to satisfy working capital and debt obligations, during fiscal 2000. At September 30, 2000 the Company held 4,166,086 shares of Cisco. The market value of the Company's holdings of Cisco at September 30, 2000 was valued at $262.3 million. In relation to the Company's consolidated balance sheet, this is a material holding. As such, the Company is exposed to a significant degree of market risk relating to the price volatility of Cisco common stock. As discussed in Note 8 - Marketable Securities and Related Derivative, the Company has chosen to mitigate a portion of this risk by purchasing derivative collar contracts, which help to ensure that the Company's potential gain or loss is within reasonable levels. These contracts will expire on March 26, 2001. Although the counter-party to the derivative collar contract is a major financial institution the Company is exposed to market risk loss in the event of nonperformance by this financial institution. Management does monitor the credit rating of the financial institution and considers the risk of nonperformance to be remote. Foreign Currency Risk The financial results of the Company's foreign subsidiaries are measured in their local currencies. Assets and liabilities are translated into U.S. dollars at the rates of exchange at the end of each year and revenues and expenses are reported at average rates of exchange. Resulting translation adjustments are reported as a component of comprehensive income. Historically, the Company has not experienced any significant foreign currency gains or losses involving U.S. dollars and other currencies. This is primarily due to natural hedges of revenues and expenses in the functional currencies of the countries in which the subsidiaries are located which assists in managing this risk. At September 30, 2000, the Company had several forward foreign currency exchange contracts to purchase various foreign currencies aggregating $16,315 in U.S. dollars. The fair value of these instruments is not significant to the condensed consolidated financial statements of the Company. 38 39 Interest Rate Risk The Company's convertible subordinated debentures carry fixed rates of interest and therefore do not pose interest rate risk to the Company. However, interest rate changes would effect the fair market value of the debentures. At September 30, 2000, the Company had $106.9 million of convertible subordinated debentures outstanding. Interest rate risk does exist relative to the Company's $236.0 million and $5.0 million lines of credit due to the variable rates of interest charged on these facilities. The rates charged on these facilities are subject to adjustment by the lender and are tied to the lending institution's prime lending rate and the one-month LIBOR rate, respectively. If these rates were to change when the Company had borrowings under such facilities, the interest expense would decrease or increase accordingly. At September 30, 2000, $19,000 was outstanding under these lines of credit. The Company monitors its interest rate risk, but does not engage in any hedging activities using derivative financial instruments to manage its interest rate risk. 39 40 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS See Note 11 to the condensed consolidated financial statements included in Part I of this Quarterly Report on Form 10-Q for a discussion of the material pending legal proceedings to which the Company is a party, which footnote discussion is incorporated in this Part II by this reference. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits required by Item 601 of Regulation S-K: 2 Agreement and Plan of Merger, dated as of July 25, 2000, among Symbol Technologies, Inc., TX Acquisition Corporation and Registrant, incorporated herein by reference to Exhibit 2 to Registrant's Form 10-Q for the quarter ended June 30, 2000. 2.1 First Amendment, dated as of October 25, 2000, to the Agreement and Plan of Merger included as Exhibit 2 above, among Symbol Technologies, Inc., TX Acquisition Corporation and Registrant, filed herewith. 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 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. 4.2.1 Form of Rights Certificate (included as Exhibit A to the Rights Agreement included as Exhibit 4.2 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 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 40 41 Stock as of the close of business on the Distribution Date. 4.2.2 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 4.2 above, incorporated herein by reference to Exhibit 4.3.2 to Registrant's Form 10-K for the year ended March 31, 1997. 4.2.3 Amendment, dated as July 25, 2000, to the Rights Agreement included as Exhibit 4.2 above, between Registrant and Computershare Investor Services, LLC, as successor Rights Agent, incorporated herein by reference to Exhibit 4.1 to Registrant's Form 8-K dated July 25, 2000. 4.3 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. 4.3.1 Form of Registrant's 7-1/2% Convertible Subordinated Debentures Due 2012 (set forth in the Indenture included as Exhibit 4.3 above). 4.4 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. 4.4.1 Form of Registrant's 5-3/4% Convertible Subordinated Notes due 2003 issued under the Indenture included as Exhibit 4.4 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. 4.4.2 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. 41 42 10.1.1 Amended and Restated Retirement and Uniform Matching Profit-Sharing Plan of Registrant, as amended, incorporated herein by reference to Exhibit 10.1.1 to Registrant's Form 10-K for the year ended March 31, 1999. 10.1.2 1990 Stock Option Plan for employees of Registrant, as amended, incorporated herein by reference to Exhibit 10.1.2 to Registrant's Form 10-Q for the quarter ended December 31, 1999. 10.1.3 1990 Stock Option Plan for Non-Employee Directors of Registrant, as amended, incorporated herein by reference to Exhibit 10.1.3 to Registrant's Form 10-Q for the quarter ended December 31, 1999. 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, incorporated herein by reference to Exhibit 10.1.4.a to Registrant's Form 10-Q for the quarter ended December 31, 1999. 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, filed herewith. 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. 42 43 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-K for the year ended March 31, 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, incorporated herein by reference to Exhinit 10.1.13 to Registrants 10-Q for the quarter ended December 31, 1999. 10.1.13.a Letter agreement continuing Mr. Biggs' employment with the Registrant, dated June 15, 2000 incorporated by reference to Exhibit 10.13.1.a to Registrant's Form 10-K for the year ended March 31, 2000. 10.1.14 Amended and Restated Employment Agreement between Registrant and Gene Harmegnies, effective as of January 31, 2000, incorporated herein by reference to Exhibit 10.1.14 to Registrant's Form 10-Q for the quarter ended December 31, 1999. 10.1.15 Employment Agreement between Registrant and William J. Murphy, effective as of February 1, 2000, incorporated herein by reference to Exhibit 10.1.23 to Registrant's Form 10-K for the year ended March 31, 2000. 10.1.16 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. 43 44 10.1.16.a Form of letter agreement made with key employees selected under the retention program described in Exhibit 10.1.16 above, incorporated herein by reference to Exhibit 10.1.15.a to Registrant's Form 10-K for the year ended March 31, 1998. 10.1.17 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. 10.1.18 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. 10.1.19 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. 10.1.20 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. 10.1.21 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, 44 45 dated as of July 19, 1995, for premises at 3875 Embassy Parkway, Bath, Ohio, including an Addendum thereto, incorporated herein by reference to Exhibit 10.2.4 to Registrant's Form 10-K for the year ended March 31, 1996. 10.2.3.a Second Addendum, dated as of October 5, 1995, to the Lease included as Exhibit 10.2.3 above, incorporated herein by reference to Exhibit 10.2.4.a to Registrant's Form 10-K for the year ended March 31, 1996. 10.2.3.b Third Addendum, dated as of March 1, 1996, to the Lease included as Exhibit 10.2.3 above, incorporated herein by reference to Exhibit 10.2.4.b to Registrant's Form 10-K for the year ended March 31, 1996. 10.2.3.c Fourth Addendum, dated as of April 16, 1996, to the Lease included as Exhibit 10.2.3 above, incorporated herein by reference to Exhibit 10.2.2.c to Registrant's Form 10-Q for the quarter ended June 30, 1997. 10.2.3.d Fifth Addendum, dated as of June 24, 1997, to the Lease included as Exhibit 10.2.3 above, incorporated herein by reference to Exhibit 10.2.2.d to Registrant's Form 10-Q for the quarter ended June 30, 1997. 10.2.3.e Sixth Addendum, dated as of March, 1998, to the Lease included as Exhibit 10.2.3 above, incorporated herein by reference to Exhibit 10.2.3.e to Registrant's Form 10-Q for the quarter ended September 30, 1998. 10.2.3.f Seventh Addendum, dated as of July 20, 1998, to the Lease included as Exhibit 10.2.3 above, incorporated herein by reference to Exhibit 10.2.3.f to Registrant's Form 10-Q for the quarter ended September 30, 1998. 10.2.3.g Eighth Addendum, dated as of September 8, 1998, to the Lease included as Exhibit 10.2.3 above, incorporated herein by reference to Exhibit 10.2.3.g to Registrant's Form 10-Q for the quarter ended September 30, 1998. 10.2.3.h Sublease Agreement, dated as of September 1, 1998, between Registrant and Aironet Wireless 45 46 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. 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. 10.2.5 Lease between Milford Partners, LLC and Registrant, made as of March 17, 2000 for premises in Ridgewood Corporate Center, 1000 Summit Drive, Milford, Ohio incorporated herein by reference to Exhibit 10.2.5 to Registrant's Form 10-K for the year ended March 31, 2000. 10.2.6 Lease Agreement between the Woodlands Office Equities -'95 Limited and Registrant, effective January 20, 2000, for premises at 8701 New Trails Drive, The Woodlands, Texas, including an Expansion, Modification and Ratification thereof dated May 1, 2000, incorporated herein by reference to Exhibit 10.2.6 to Registrant's Form 10-K for the year ended March 31, 2000. 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 as part of 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. 46 47 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, incorporated herein by reference to Exhibit 10.3.1.d to Registrant's Form 10-K for the year ended March 31, 1998. 10.3.1.d Waiver and Agreement, dated as of December 29, 1998, with respect to the Agreement included as Exhibit 10.3.1 above, incorporated herein by reference to Exhibit 10.3.1.e to Registrant's Form 10-Q for the quarter ended December 31, 1998. 10.3.1.e Waiver Extension and Agreement, dated as of February 12, 1999, with respect to the Agreement included as Exhibit 10.3.1 above, incorporated herein by reference to Exhibit 10.3.1.f to Registrant's Form 10-Q for the quarter ended December 31, 1998. 10.3.1.f Second Waiver Extension Agreement and Amendment No. 4, dated as of March 26, 1999, with respect to the Agreement included as Exhibit 10.3.1 above, incorporated herein by reference to Exhibit 10.3.1.a to Registrant's Form 8-K dated April 1, 1999. 10.3.1.g Amended and Restated Security Agreement, dated as of March 26, 1999, by and among Registrant and The Bank of New York, as Agent for the Lenders from time to time party to the Agreement included as Exhibit 10.3.1 above (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 47 48 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. 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 as part of 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 48 49 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. 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 49 50 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 (repaid and retired in full during March 2000 as described in the Registrant's Consolidated Financial Statements including such month), 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 the Registrant in Aironet Wireless Communications, Inc. and Registrant subsidiaries to Agent as collateral to secure Registrant's obligations under the Loan and Security Agreement (terminated in connection with the repayment and retirement of Registrant's indebtedness under the Loan and Security Agreement during March 2000 as described in Registrant's Consolidated Financial Statements including such month), 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 form time to time party to the Loan and Security Agreement included as Exhibit 10.3.3 above (terminated in connection with the repayment and retirement of the Registrant's indebtedness under the Loan and Security Agreement during March 2000 as described in the Registrant's Consolidated Financial Statements including such month), 50 51 incorporated 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 (terminated in connection with the repayment and retirement of Registrant's indebtedness under the Loan and Security Agreement during March 2000 as described in Registrant's Consolidated Financial Statements including such month), 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, incorporated herein by reference to Exhibit 10.3.3.d to Registrant's Form 10-Q for the quarter ended December 31, 1999. 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, incorporated herein by reference to Exhibit 10.3.3.e to Registrant's Form 10-Q for the quarter ended December 31, 1999. 10.3.4 Loan and Pledge Agreement dated as of March 15, 2000, by and among Deutsche Bank AG, London Branch, with Deutsche Bank Securities, Inc., as agent, and Telxon System Services Inc., a wholly owned subsidiary of the Registrant (secured by the Cisco Systems, Inc. stock subject to the options transactions effected pursuant to the Confirmations included as Exhibit 10.4 below) and letter confirming determination of interest applicable to borrowings thereunder, incorporated herein by reference to Exhibit 10.3.4 to Registrant's Form 10-K for the year ended March 31, 2000. 10.3.5 Promissory Note, dated June 16, 2000, by Registrant with respect to uncommitted swing line for working capital financing available from Firth Third Bank, Northwestern Ohio, incorporated herein by reference to Exhibit 10.3.5 to Registrant's Form 10-K for the year ended March 31, 2000. 51 52 10.4 Confirmations of Share Option Transactions of Telxon System Services, Inc., a wholly owned subsidiary of Registrant, with Deutsche Bank AG, London Branch with respect to substantially all of the stock which Telxon System Services continues to hold in Cisco Systems, Inc. dated as of March 23, 2000, incorporated herein by reference to Exhibit 10.4 to Registrant's Form 10-K for the year ended March 31, 2000. 10.5 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. 10.6 Agreement dated as of November 8, 1999, by and among Registrant, Cisco Systems, Inc. and Aironet Wireless Communications, Inc. (the forms of the Purchase Agreement and License Agreement included as Exhibits A and B, respectively, thereto became effective upon the March 15, 2000 consummation of the acquisition through merger of Aironet and Cisco, which License Agreement continues in effect but which Purchase Agreement was superseded upon Registrant becoming part of Cisco's system integration program), incorporated herein by reference to Exhibit 10.5.2 to Registrant's Form 10-Q for the quarter ended September 30, 1999. 10.7 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. 10.8 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 Stock Purchase Agreement, dated as of January 19, 2000, between Registrant, Accipiter Corporation and Accipiter II, Inc. (superseded by the Plan and Agreement of Merger, included as Exhibit 10.11 below), incorporated herein by reference to Exhibit 10.13 to Registrant's Form 10-Q for the quarter ended December 31, 1999. 10.10 Stock Purchase Agreement, dated as of February 17, 2000, by and between Registrant and named minority stockholders of Registrant's Metanetics Corporation subsidiary, incorporated herein by reference to Exhibit 10.11 to Registrant's Form 10-K for the year ended March 31, 2000. 52 53 10.11 Plan and Agreement of Merger, dated as of February 22, 2000, among Registrant, its wholly owned Meta Technologies Corporation subsidiary and its Metanetics Corporation subsidiary, incorporated herein by reference to Exhibit 10.12 to Registrant's Form 10-K for the year ended March 31, 2000. 10.11.1 Investment and Registration Rights Agreement, dated as of February 22, 2000, by and among Accipiter Corporation, Accipiter II, Inc., Registrant and Registrant's wholly owned Meta Technologies Corporation subsidiary made pursuant ot the Plan and Agreement of Merger included as Exhibit 10.11 above, incorporated herein by reference to Exhibit 10.12.1 to Registrant's Form 10-K for the year ended March 31, 2000. 10.12 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 Communication, 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 Joinders thereto by, and related Irrevocable Proxy of, The Retail Technology Group, Inc., a wholly owned subsidiary of Registrant, and in turn, by and of Telxon System Services, Inc., a wholly owned subsidiary of The Retail Technology Group, incorporated herein by reference to Exhibit 10.13 to Registrant's Form 10-K for the year ended March 31, 2000. 10.13 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 September 30, 2000 filed herewith. (b) Reports on Form 8-K During the second quarter of fiscal 2001 to which this Form 10-Q relates, the Registrant filed a Current Report on Form 8-K on July 27, 2000, attaching the Registrant's press release dated July 26, 2000 which announced that on July 25, 2000 the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which Symbol Technologies, Inc. agreed to acquire Registrant in a stock-for-stock merger, as further discussed under Item 2 above. 53 54 TELXON CORPORATION SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this Form 10-Q to be signed and on its behalf by the undersigned thereunto duly authorized. Date: November 14, 2000 TELXON CORPORATION (Registrant) /s/ Woody M. McGee ----------------------- Woody M. McGee, Vice President and Chief Financial Officer 54 55 TELXON CORPORATION EXHIBITS TO FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2000 55 56 INDEX TO EXHIBITS Where Filed ----- * 2 Agreement and Plan of Merger, dated as of July 25, 2000, among Symbol Technologies, Inc., TX Acquisition Corporation and Registrant, incorporated herein by reference to Exhibit 2 to the Registrant's Form 10-Q for the quarter ended June 30, 2000. ** 2.1 First Amendment, dated as of October 25, 2000, to the Agreement and Plan of Merger included as Exhibit 2 above, among Symbol Technologies, Inc., TX Acquisition Corporation and Registrant, filed herewith. * 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 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. * 4.2.1 Form of Rights Certificate (included as Exhibit A to the Rights Agreement included as Exhibit 4.2 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 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. * 4.2.2 Letter agreement among Registrant, KeyBank National Association and Harris Trust and Savings Bank, dated June 11, 1997, with respect 56 57 to the appointment of Harris Trust and Savings Bank as successor Rights Agent under the Rights Agreement included as Exhibit 4.2 above, incorporated herein by reference to Exhibit 4.3.2 to Registrant's Form 10-K for the year ended March 31, 1997. * 4.2.3 Amendment, dated as of July 25, 2000, to the Rights Agreement included as Exhibit 4.2 above, between Registrant and Computershare Investor Services, LLC, as successor Rights Agent, incorporated herein by reference to Exhibit 4.1 to Registrant's Form 8-K dated July 25, 2000. * 4.3 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. * 4.3.1 Form of Registrant's 7-1/2% Convertible Subordinated Debentures Due 2012 (set forth in the Indenture included as Exhibit 4.3 above). * 4.4 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. * 4.4.1 Form of Registrant's 5-3/4% Convertible Subordinated Notes due 2003 issued under the Indenture included as Exhibit 4.4 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. * 4.4.2 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. 57 58 * 10.1.2 1990 Stock Option Plan for employees of Registrant, as amended, incorporated herein by reference to Exhibit 10.1.2 to Registrant's Form 10-Q for the quarter ended December 31, 1999. * 10.1.3 1990 Stock Option Plan for Non-Employee Directors of Registrant, as amended, incorporated herein by reference to Exhibit 10.1.3 to Registrant's Form 10-Q for the quarter ended December 31, 1999. * 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, incorporated herein by reference to Exhibit 10.1.4.a to Registrant's Form 10-Q for the quarter ended December 31, 1999. * 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, filed herewith. * 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-K for the year ended March 31, 1999. 58 59 * 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, incorporated herein by reference to Exhinit 10.1.13 to Registrants 10-Q for the quarter ended December 31, 1999. * 10.1.13.a Letter agreement continuing Mr. Biggs' employment with the Registrant, dated June 15, 2000 incorporated by reference to Exhibit 10.13.1.a to Registrant's Form 10-K for the year ended March 31, 2000. * 10.1.14 Amended and Restated Employment Agreement between Registrant and Gene Harmegnies, effective as of January 31, 2000, incorporated herein by reference to Exhibit 10.1.14 to Registrant's Form 10-Q for the quarter ended December 31, 1999. * 10.1.15 Employment Agreement between Registrant and William J. Murphy, effective as of February 1, 2000, incorporated herein by reference to Exhibit 10.1.23 to Registrant's Form 10-K for the year ended March 31, 2000. * 10.1.16 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. * 10.1.16.a Form of letter agreement made with key employees selected under the retention program described in Exhibit 10.1.16 above, incorporated herein by reference to Exhibit 59 60 10.1.15.a to Registrant's Form 10-K for the year ended March 31, 1998. * 10.1.17 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. * 10.1.18 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. * 10.1.19 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. * 10.1.20 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. * 10.1.21 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. 60 61 * 10.2.3.a Second Addendum, dated as of October 5, 1995, to the Lease included as Exhibit 10.2.3 above, incorporated herein by reference to Exhibit 10.2.4.a to Registrant's Form 10-K for the year ended March 31, 1996. * 10.2.3.b Third Addendum, dated as of March 1, 1996, to the Lease included as Exhibit 10.2.3 above, incorporated herein by reference to Exhibit 10.2.4.b to Registrant's Form 10-K for the year ended March 31, 1996. * 10.2.3.c Fourth Addendum, dated as of April 16, 1996, to the Lease included as Exhibit 10.2.3 above, incorporated herein by reference to Exhibit 10.2.2.c to Registrant's Form 10-Q for the quarter ended June 30, 1997. * 10.2.3.d Fifth Addendum, dated as of June 24, 1997, to the Lease included as Exhibit 10.2.3 above, incorporated herein by reference to Exhibit 10.2.2.d to Registrant's Form 10-Q for the quarter ended June 30, 1997. * 10.2.3.e Sixth Addendum, dated as of March, 1998, to the Lease included as Exhibit 10.2.3 above, incorporated herein by reference to Exhibit 10.2.3.e to Registrant's Form 10-Q for the quarter ended September 30, 1998. * 10.2.3.f Seventh Addendum, dated as of July 20, 1998, to the Lease included as Exhibit 10.2.3 above, incorporated herein by reference to Exhibit 10.2.3.f to Registrant's Form 10-Q for the quarter ended September 30, 1998. * 10.2.3.g Eighth Addendum, dated as of September 8, 1998, to the Lease included as Exhibit 10.2.3 above, incorporated herein by reference to Exhibit 10.2.3.g to Registrant's Form 10-Q for the quarter ended September 30, 1998. * 10.2.3.h Sublease Agreement, dated as of September 1, 1998, between Registrant and Aironet Wireless Communications, Inc. for the premises subject to the Lease included as Exhibit 10.2.3 above, as amended through the Eighth Addendum thereto included as 61 62 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. * 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. * 10.2.5 Lease between Milford Partners, LLC and Registrant, made as of March 17, 2000 for premises in Ridgewood Corporate Center, 1000 Summit Drive, Milford, Ohio incorporated herein by reference to Exhibit 10.2.5 to Registrant's Form 10-K for the year ended March 31, 2000. * 10.2.6 Lease Agreement between the Woodlands Office Equities -'95 Limited and Registrant, effective January 20, 2000, for premises at 8701 New Trails Drive, The Woodlands, Texas, including an Expansion, Modification and Ratification thereof dated May 1, 2000, incorporated herein by reference to Exhibit 10.2.6 to Registrant's Form 10-K for the year ended March 31, 2000. 10.3 Credit Agreements of Registrant. * 10.3.1 Credit Agreement by and among Registrant, the lenders party thereto from time to time and The Bank of New York, as letter of credit issuer, swing line lender and agent for the lenders, dated as of March 8, 1996, incorporated herein by reference to Exhibit 10.3.2 (refinanced and replaced as part of the Loan and Security Agreement included as Exhibit 10.3.3 below) 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 62 63 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, incorporated herein by reference to Exhibit 10.3.1.d to Registrant's Form 10-K for the year ended March 31, 1998. * 10.3.1.d Waiver and Agreement, dated as of December 29, 1998, with respect to the Agreement included as Exhibit 10.3.1 above, incorporated herein by reference to Exhibit 10.3.1.e to Registrant's Form 10-Q for the quarter ended December 31, 1998. * 10.3.1.e Waiver Extension and Agreement, dated as of February 12, 1999, with respect to the Agreement included as Exhibit 10.3.1 above, incorporated herein by reference to Exhibit 10.3.1.f to Registrant's Form 10-Q for the quarter ended December 31, 1998. * 10.3.1.f Second Waiver Extension Agreement and Amendment No. 4, dated as of March 26, 1999, with respect to the Agreement included as Exhibit 10.3.1 above, incorporated herein by reference to Exhibit 10.3.1.a to Registrant's Form 8-K dated April 1, 1999. * 10.3.1.g Amended and Restated Security Agreement, dated as of March 26, 1999, by and among Registrant and The Bank of New York, as Agent for the Lenders from time to time party to the Agreement included as Exhibit 10.3.1 above (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 63 64 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. * 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 as part of 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. 64 65 * 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. * 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 65 66 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 (repaid and retired in full during March 2000 as described in the Registrant's Consolidated Financial Statements including such month), 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 the Registrant in Aironet Wireless Communications, Inc. and Registrant subsidiaries to Agent as collateral to secure Registrant's obligations under the Loan and Security Agreement (terminated in connection with the repayment and retirement of Registrant's indebtedness under the Loan and Security Agreement during March 2000 as described in Registrant's Consolidated Financial Statements including such month), 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 form time to time party to the Loan and Security Agreement included as Exhibit 10.3.3 above (terminated in connection with the repayment and retirement of the Registrant's indebtedness under the Loan and Security Agreement during March 2000 as described in the Registrant's Consolidated Financial Statements including such month), incorporated by reference to Exhibit 10.3.3.b to Registrant's Form 10-Q for the quarter ended September 30, 1999. 66 67 * 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 (terminated in connection with the repayment and retirement of Registrant's indebtedness under the Loan and Security Agreement during March 2000 as described in Registrant's Consolidated Financial Statements including such month), 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, incorporated herein by reference to Exhibit 10.3.3.d to Registrant's Form 10-Q for the quarter ended December 31, 1999. * 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, incorporated herein by reference to Exhibit 10.3.3.e to Registrant's Form 10-Q for the quarter ended December 31, 1999. * 10.3.4 Loan and Pledge Agreement dated as of March 15, 2000, by and among Deutsche Bank AG, London Branch, with Deutsche Bank Securities, Inc., as agent, and Telxon System Services Inc., a wholly owned subsidiary of the Registrant (secured by the Cisco Systems, Inc. stock subject to the options transactions effected pursuant to the Confirmations included as Exhibit 10.4 below) and letter confirming determination of interest applicable to borrowings thereunder, incorporated herein by reference to Exhibit 10.3.4 to Registrant's Form 10-K for the year ended March 31, 2000. * 10.3.5 Promissory Note, dated June 16, 2000, by Registrant with respect to uncommitted swing line for working capital financing available from Firth Third Bank, Northwestern Ohio, incorporated herein by reference to Exhibit 10.3.5 to Registrant's Form 10-K for the year ended March 31, 2000. * 10.4 Confirmations of Share Option Transactions of Telxon System Services, Inc., a wholly owned subsidiary of Registrant, with Deutsche Bank AG, London Branch with respect to substantially all of the stock which Telxon 67 68 System Services continues to hold in Cisco Systems, Inc. dated as of March 23, 2000, incorporated herein by reference to Exhibit 10.4 to Registrant's Form 10-K for the year ended March 31, 2000. * 10.5 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. * 10.6 Agreement dated as of November 8, 1999, by and among Registrant, Cisco Systems, Inc. and Aironet Wireless Communications, Inc. (the forms of the Purchase Agreement and License Agreement included as Exhibits A and B, respectively, thereto became effective upon the March 15, 2000 consummation of the acquisition through merger of Aironet and Cisco, which License Agreement continues in effect but which Purchase Agreement was superseded upon Registrant becoming part of Cisco's systems integration program), incorporated herein by reference to Exhibit 10.5.2 to Registrant's Form 10-Q for the quarter ended September 30, 1999. * 10.7 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. * 10.8 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 Stock Purchase Agreement, dated as of January 19, 2000, between Registrant, Accipiter Corporation and Accipiter II, Inc. (superseded by the Plan and Agreement of Merger, included as Exhibit 10.11 below), incorporated herein by reference to Exhibit 10.13 to Registrant's Form 10-Q for the quarter ended December 31, 1999. * 10.10 Stock Purchase Agreement, dated as of February 17, 2000, by and between Registrant and named minority stockholders of Registrant's Metanetics Corporation subsidiary, incorporated herein by reference to Exhibit 10.11 to Registrant's Form 10-K for the year ended March 31, 2000. * 10.11 Plan and Agreement of Merger, dated as of February 22, 2000, among Registrant, its wholly owned Meta Technologies Corporation subsidiary and its Metanetics Corporation subsidiary, incorporated herein by reference to Exhibit 10.12 to Registrant's Form 10-K for the year ended March 31, 2000. 68 69 * 10.11.1 Investment and Registration Rights Agreement, dated as of February 22, 2000, by and among Accipiter Corporation, Accipiter II, Inc., Registrant and Registrant's wholly owned Meta Technologies Corporation subsidiary made pursuant of the Plan and Agreement of Merger included as Exhibit 10.11 above, incorporated herein by reference to Exhibit 10.12.1 to Registrant's Form 10-K for the year ended March 31, 2000. * 10.12 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 Communication, 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 Joinders thereto by, and related Irrevocable Proxy of, The Retail Technology Group, Inc., a wholly owned subsidiary of Registrant, and in turn, by and of Telxon System Services, Inc., a wholly owned subsidiary of The Retail Technology Group, incorporated herein by reference to Exhibit 10.13 to Registrant's Form 10-K for the year ended March 31, 2000. * 10.13 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 September 30, 2000 filed herewith. ---------- * Previously filed ** Filed herewith 69

TELXON CORP 10-Q