SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended SEPTEMBER 30, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-21934
TELEPAD CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 52-1680936
(State or other jurisdiction of (IRS Employer Identification
No.)
incorporation or organization)
380 HERNDON PARKWAY, SUITE 1900, HERNDON, VIRGINIA 22170
- - -------------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (703) 834-9000
--------------
NOT APPLICABLE
--------------------------------------------------------------
Former name, former address and former fiscal year, if changed
since last report.
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 ninety days.
Yes X No
---------------- ---------------
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical date:
Shares Outstanding
CLASS OF COMMON STOCK AT NOVEMBER 11, 1996
--------------------- --------------------
Class A Common Stock 11,515,618 shares, $0.01 par value
Class B Common Stock 150,000 shares, $0.01 par value
Transitional Small Business Disclosure Format (check one):
Yes No X
------------------- --------------------
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<PAGE>
TELEPAD CORPORATION
INDEX TO FORM 10-QSB
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 1996 (unaudited)
and December 31, 1995 3
Statements of Operations for the three and nine month periods
ended September 30, 1996 (unaudited) and 1995 (unaudited) 4
Statements of Cash Flows for the nine month periods
ended September 30, 1996 (unaudited) and 1995 (unaudited) 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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<PAGE>
TELEPAD CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,123,056 $ 1,257,948
Accounts receivable, less allowance of $101,000
at September 30, 1996 and $100,000 at December 31, 1995 319,566 472,724
Inventory, less allowance of $80,000 at September 30, 1996
and December 31, 1995, respectively 2,460,227 403,733
Other current assets 395,526 96,246
------------ ------------
Total current assets 14,298,375 2,230,651
------------ ------------
Furniture and equipment:
Office furniture and equipment 194,848 117,520
Computer equipment 747,693 527,908
942,541 645,428
Less accumulated depreciation (445,518) (287,838)
Net furniture and equipment 497,023 357,590
Deposits and other assets 27,689 21,061
Total assets $ 14,823,087 $ 2,609,302
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 2,993,589 $ 2,821,741
Notes payable (Note 2) -- 3,881,698
Deferred revenue 14,765 17,718
------------ ------------
Total current liabilities 3,008,354 6,721,157
Stockholders' equity (deficit):
Preferred stock, $.01 par value, 5,000,000 shares
authorized; none issued
Common stock, $.01 par value; 95,000,000 shares authorized: Class A
common stock, 94,406,937 shares designat 11,364,606 and
4,436,175 shares issued and outstanding
at September 30,1996 and December 31, 1995, respectively 113,645 44,361
Class B common stock, 593,063 shares designated,
250,000 and 555,563 shares issued and outstanding
at September 30,1996 and December 31, 1995, respectively 2,500 5,556
Additional paid-in capital 39,190,670 18,657,124
Accumulated deficit (27,492,082) (22,818,896)
Total stockholders' equity (deficit) 11,814,733 (4,111,855)
Total liabilities and stockholders' equity (deficit) $ 14,823,087 $ 2,609,302
============ ============
</TABLE>
See accompanying notes
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<PAGE>
TELEPAD CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
TelePad products $ 821,724 $ 698,866 $ 1,440,922 $ 1,284,659
Service contracts 34,281 127,300 194,055 471,516
------------ ------------ ------------ ------------
Total revenues 856,005 826,166 1,634,977 1,756,175
Costs and expenses:
Cost of goods sold - Telepad products 748,064 672,090 1,410,959 1,030,264
Cost of goods sold - service contracts 12,578 64,911 87,867 273,868
Costs related to manufacturing startup -- -- 317,607 --
Research and development 405,090 244,673 1,197,755 1,109,116
Selling, general and administrative 1,135,210 794,808 3,232,459 2,545,759
------------ ------------ ------------ ------------
Total costs and expenses 2,300,942 1,776,482 6,246,647 4,959,007
------------ ------------ ------------ ------------
Loss from operations (1,444,937) (950,316) (4,611,670) (3,202,832)
Interest income 207,466 10,965 395,637 14,850
Interest expense -- (64,863) (253,197) (64,863)
Amortization of debt issue costs -- (376,926) (118,302) (376,926)
Other expenses -- -- (85,655) --
------------ ------------ ------------ ------------
Net loss $ (1,237,471) $ (1,381,140) $ (4,673,187) $ (3,629,771)
============ ============ ============ ============
Net loss per share $ (0.11) $ (0.28) $ (0.53) $ (0.77)
============ ============ ============ ============
Weighted average shares outstanding 11,604,573 4,950,286 8,786,588 4,703,555
============ ============ ============ ============
</TABLE>
See accompanying notes
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<PAGE>
TELEPAD CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------
1996 1995
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
Operating activities
Net loss $ (4,673,187) $ (3,629,771)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 157,680 493,552
Amortization of debt discount 118,302 --
Provision for loss on accounts receivable 1,061 11,346
Loss on disposal of property and equipment -- 12,584
Common stock issued in lieu of cash for consulting
and employment services -- 313,750
Changes in assets and liabilities:
Accounts receivable 152,097 3,010,798
Inventory (2,056,494) 1,194,075
Other current assets (299,280) (649,445)
Deposits and other assets (6,628) --
Accounts payable and accrued expenses 171,849 (5,347,885)
Deferred revenue (2,953) 18,515
------------ ------------
Net cash used in operating activities (6,437,553) (4,572,481)
Investing activities
Purchase of furniture and equipment (297,113) (132,395)
------------ ------------
Net cash used in investing activities (297,113) (132,395)
Financing activities
Net cash proceeds from issuance of common stock 20,599,774 2,147,197
Proceeds from notes payable 750,000 4,000,000
Repayment of notes payable (4,750,000) --
------------ ------------
Net cash provided by financing activities 16,599,774 6,147,197
------------ ------------
Net increase in cash 9,865,108 1,442,321
Cash and cash equivalents, beginning of period 1,257,948 378,660
------------ ------------
Cash and cash equivalents, end of period $ 11,123,056 $ 1,820,981
============ ============
Supplemental disclosures of cash flow information
Actual cash payments for:
Interest $ 418,685 $ --
============ ============
</TABLE>
See accompanying notes
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<PAGE>
TELEPAD CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE PERIODS ENDED
SEPTEMBER 30, 1996 AND 1995 IS UNAUDITED.)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310 of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three- and nine-month periods ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996. For further information, refer
to the financial statements for the year ended December 31, 1995 and footnotes
thereto included in the Company's Form 10-KSB.
Net Loss Per Share
Net loss per share is calculated using the weighted average number of
common shares outstanding during the period, with shares of Class A common stock
and Class B common stock treated as a single class for purposes of the
calculation. Shares issuable upon the exercise of stock options and warrants
have been excluded from the computation because the effect of their inclusion
would be antidilutive.
2. NOTES PAYABLE
On February 15, 1996, the Company and an individual investor, who had
previously provided his personal guaranty of the Company's obligations to
International Business Machines Corporation ("IBM") for the production of 400
TelePad 3 computers, entered into an agreement whereby the individual investor
loaned the Company $750,000 evidenced by a promissory note which had a term of
one year, but included the right to require early retirement of the obligation
at the final closing of the secondary public offering. The promissory note
carried interest at the rate of 20% and contained a loan origination fee of
approximately $68,000. The promissory note was secured by all of the Company's
assets. The conditions of the agreement required that a portion of the proceeds
from the note be used to satisfy existing obligations to IBM and that IBM
release the guaranty. The Company received net proceeds, after disbursements to
IBM and prepayment of one-half of the annual interest due under the promissory
note, of approximately $193,000. On May 1, 1996, the Company paid $825,000 to
the individual investor to retire the promissory note.
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<PAGE>
The $825,000 payment included the principal amount of $750,000 and $75,000 in
interest. The respective security interest has been released.
3. CONTINGENT MATTERS
In order to secure credit for production of the TelePad 3 computer, the
Company has provided a letter of credit to Sanmina Corporation ("Sanmina") in
the amount of $2,000,000. This letter of credit is secured by $2,000,000, which
is invested in an interest-bearing account and is pledged as security.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
- - ---------------------
Three Months ended September 30, 1996 Compared to the Three Months ended
September 30, 1995
For the three months ended September 30, 1996, the Company recognized
revenues of $856,000 compared to revenues of $826,000 in the same period in
1995. The $30,000 increase is the net result of a $123,000 increase in product
sales and a $93,000 decrease in service sales. Production of the TelePad 3
resumed in June 1996 after a significant delay due to a switch in contract
manufacturers. Due to uncertainties surrounding the timing of the resumption of
production and the corresponding lack of evaluation units that incorporated the
latest engineering changes, the TelePad 3 sales cycle was effectively
interrupted during the change in manufacturers. A reinvigorated sales effort
effectively resumed in June 1996 when a new supply of TelePad 3 computers became
available. Since TelePad 3 computers are generally purchased to automate mobile
field workers, which is a relatively new use of the technology, and are
purchased as capital equipment, the sales cycle is extended. Because of this
extended evaluation and budgeting process, there tends to be a delay between
selling efforts in the current period and new orders.
Cost of products and services sold during the three months ended
September 30, 1996 totaled $761,000 (89% of revenue) compared to $737,000 (89%
of revenue) in the same period in 1995. Product gross margins in the current
quarter are still constrained by the relatively high cost of parts purchased
primarily in 1995 by the prior manufacturer, but not used earlier due to
financial and technical delays.
Research and development ("R&D") expenses for the three months ended
September 30, 1996 were $405,000 compared to $245,000 for the three months ended
September 30, 1995. This 65% increase in R&D spending was due primarily to a
shift in emphasis to product enhancements and the development of new modules to
broaden the TelePad 3 product line as compared with a reduced level of
engineering work focused on production and quality issues following completion
of the initial TelePad 3 development in June 1995.
-7-
<PAGE>
Selling, general and administrative expenses for the three months ended
September 30, 1996 were $1,135,000 compared to $795,000 for the same period in
1995. The $340,000 (43%) increase in expenses was primarily the result of
increases in selling expenses in response to the new supply of TelePad 3 units
and the addition of new space and personnel to expand the Company's
capabilities.
Interest income in the current period was $207,000 compared to $11,000
in the comparison period as a result of the investment of the net proceeds of
the secondary public offering completed in April 1996.
As a result of the foregoing, the Company recorded a net loss of
$1,237,000 or ($0.11) per share for the three-month period ended September 30,
1996 compared to a net loss of $1,381,000 or ($0.28) per share for the same
period in 1995.
Nine Months ended September 30, 1996 Compared to the Nine Months ended September
30, 1995
For the nine months ended September 30, 1996, the Company recognized
revenues of $1,635,000 compared to revenues of $1,756,000 in the same period in
1995. This decrease of $121,000 is the net result of a $156,000 increase in
product sales and a $277,000 decrease in service sales. The decrease in service
revenues resulted from a reduced volume of professional service contracts in the
nine-month period ended September 30, 1996 versus work on one large contract
designing a custom software solution in the same period in 1995.
Cost of products and services sold during the nine months ended
September 30, 1996 totaled $1,499,000 (92% of revenue) compared to $1,304,000
(74% of revenue) in the nine months ended September 30, 1995. Costs in the
current period also include a charge of $318,000 directly related to the shift
in manufacturers and restarting production in a new facility. Product gross
margins in the current period have been constrained by the relatively high cost
of parts purchased primarily in 1995 by the prior manufacturer, but not used
earlier due to financial and technical delays. The cost of products sold
includes a $47,000 charge to expense accessories for the TelePad 3 which were
made obsolete by design modifications. In addition, the cost of products sold
includes $23,000 for warranty costs to incorporate recent engineering changes
into TelePad 3 units built in prior periods.
Research and development expenses for the nine months ended September
30, 1996 were $1,198,000 compared to $1,109,000 for the nine months ended
September 30, 1995. This 8% increase in R&D spending was due primarily to design
and development work to enhance the TelePad 3 and non-recurring expenses
associated with the start up of a new manufacturing facility in the current
period as compared with expenditures for the initial design of the TelePad 3 for
the same period in 1995.
-8-
<PAGE>
Selling, general and administrative expenses for the nine months ended
September 30, 1996 were $3,232,000 compared to $2,546,000 for the same period in
1995. The $686,000 (27%) increase was primarily the result of increases in
selling expenses in response to the new supply of TelePad 3 units and the
addition of new space and personnel to expand the Company's capabilities.
Interest expense of $253,000 and amortization of debt issue costs of
$118,000 in the nine-month period ended September 30, 1996 relate to the
$4,000,000 in bridge notes. These notes were retired with the proceeds from the
secondary offering.
As a result of the foregoing, the Company recorded a net loss of
$4,673,000 or ($0.53) per share for the nine months ended September 30, 1996
compared to a net loss of $3,630,000 or ($0.77) per share for the same period in
1995. The weighted average number of shares increased primarily as a result of
6,555,000 shares sold in the secondary offering.
-9-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
Net cash used in operating activities was $6,438,000 in the nine-month
period ended September 30, 1996 as compared to $4,572,000 in the comparable
period in 1995, primarily due to the net losses incurred in each period.
Inventory increased by $2,056,000 as production of TelePad 3 computers exceeded
sales and by the purchase of $300,000 in TelePad SL parts from IBM. The
$1,194,000 reduction in inventory which occurred in the same period in 1995, was
primarily the result of selling an inventory of parts back to IBM as part of a
settlement with IBM.
Net cash proceeds from issuance of common stock increased by
$20,600,000 in the nine-month period ended September 30, 1996. On April 3, 1996,
the Company completed a public offering of 20,000 units (the "Units"). Each Unit
consisted of 285 shares of Class A common stock and 1,000 Class D warrants and
was sold for $1,000 per Unit, pursuant to which the Company raised $20,000,000.
The net proceeds to the Company from the Unit offering amounted to $17,779,000.
On April 25, 1996, the underwriter exercised the over-allotment option to
purchase an additional 3,000 Units pursuant to which the Company raised an
additional $3,000,000. The Company received net proceeds of $2,736,000 from the
exercise of the over-allotment option.
In July, August and September, 1995, the Company undertook a private
placement of 80 units, each consisting of $50,000 in 10% promissory notes due
upon the earlier to occur of (a) the closing of a public offering of the
Company's Class A common stock and warrants or (b) July 26, 1997, and 25,000
Class D warrants, each of which entitled the holder thereof to purchase one
share of the Company's Class A common stock at an exercise price of $2.50 per
share under certain circumstances. On July 26, 1995, the Company completed the
sale of 46.5 units and received net proceeds therefrom in the amount of
$1,966,663. On August 7, 1995, the Company completed the sale of an additional
29 units and received net proceeds therefrom in the amount of $1,261,500. On
September 8, 1995, the Company completed the sale of an additional 4.5 units and
received net proceeds therefrom in the amount of $195,750. On April 25, 1996 the
Company paid $4,268,685 to repay the $4,000,000 principal amount of the
promissory notes and accrued interest in the amount of $268,685.
On May 1, 1996, the Company paid $825,000 to the individual investor
holding the $750,000 promissory note to repay the $750,000 principal amount and
$75,000 in interest. The Company expects that available cash will enable the
Company to meet its normal operating requirements over the near term.
"Safe Harbor" Statement under the private Securities Litigation Reform Act of
1995: The statements above which are not historical facts are forward-looking
statements that involve risks and uncertainties, including, but not limited to,
demand for the Company's products and market acceptance risks, the effect of
economic conditions, the impact of competitive products and pricing, product
development, commercialization and technological difficulties, capacity, and
supply constraints or difficulties, the results of financing efforts, and other
risks detailed in the Company's Securities and Exchange Commission filings.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual meeting of shareholders of the Registrant was held on
September 19, 1996 for the purpose of (i) amending the Company's by-laws to
provide for the classification of the Board of Directors, (ii) electing seven
directors to serve in three separate classes (with two directors in Class I to
serve for a one-year term expiring in 1997, two directors in Class II to serve
for a two-year term expiring in 1998, and three directors in Class III to serve
for a three-year term expiring in 1999, and in each case until their successors
shall be duly elected and qualified), (iii) approving the adoption of the
Registrant's 1996 Stock Option Plan and (iv) ratifying the appointment of the
Registrant's independent certified public accountant for the fiscal year ending
December 31, 1996. Proxies for the meeting were solicited pursuant to Regulation
14A of the Securities Exchange Act of 1934 and there was no solicitation in
opposition.
The proposal to amend the by-laws to provide for the classification of
the Board of Directors was approved by the following vote:
FOR AGAINST NON VOTES/ABSTENTIONS
--- ------- ---------------------
4,492,697 159,972 93,375
The following directors were elected by the following vote:
VOTES
-----
CLASS FOR AGAINST
----- --- -------
Sydney H. Dankman I 10,642,009 62,312
John M. Toups I 10,634,779 69,542
Ronald C. Oklewicz II 10,644,779 59,542
Alan B. Salisbury II 10,639,579 64,742
Donald W. Barrett III 10,633,579 70,742
John P. Diesel III 10,633,579 70,742
E. Donald Shapiro III 10,644,779 59,542
The proposal to adopt the 1996 Stock Option Plan was approved by the
following vote:
FOR AGAINST NON VOTES/ABSTENTIONS
--- ------- ---------------------
4,129,226 407,313 209,504
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<PAGE>
The proposal to ratify the appointment of the independent certified
public accountant for the fiscal year ending December 31, 1996 was approved by
the following vote:
FOR AGAINST NON VOTES/ABSTENTIONS
--- ------- ---------------------
10,623,258 39,016 42,047
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.4 Amended and Restated By-Laws
10.34 1996 Stock Option Plan
(b) Reports on Form 8-K - None
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TELEPAD CORPORATION
Date: NOVEMBER 14, 1996 /S/ DONALD W. BARRETT
----------------- ---------------------
Donald W. Barrett
Chairman of the Board and Chief Executive
Officer
Date: NOVEMBER 14, 1996 /S/ ROBERT D. RUSSELL
----------------- ---------------------
Robert D. Russell
Vice President and Treasurer
Principal Financial and Accounting Officer
-13-
AMENDED AND RESTATED BY-LAWS
-of-
TELEPAD CORPORATION
(a Delaware corporation)
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal office of the corporation
shall be in the County of Fairfax in the State of Virginia.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at
such other places within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
STOCKHOLDER MEETINGS
SECTION 1. ANNUAL MEETING. The annual meeting of stockholders of the
Corporation shall be held at such time and date as may be determined by the
Board of Directors and as shall be designated in the notice of said meeting for
the purpose of electing a Board of Directors and for the transaction of such
other business as may properly be brought before the meeting.
SECTION 2. SPECIAL MEETINGS. A special meeting of stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the Chairman of the Board of
Directors, the President, the Board of Directors or any officer of the
Corporation instructed by the Board of Directors to call such a meeting, and
shall be called by the President at the request in writing of a majority of the
directors. Such request shall state the purpose or purposes of the proposed
meeting.
SECTION 3. PLACE. Annual meetings and special meetings shall be held
at such place, within or without the State of Delaware, as the Board of
Directors may, from time to time, fix. Whenever the directors shall fail to fix
such place, the meeting shall be held at such place within the County of Fairfax
as may be designated in the notice of such meeting.
<PAGE>
SECTION 4. NOTICE. Notice of all meetings shall be in writing and
shall state the place, date and hour of the meeting and, in the case of a
special meeting, the purpose or purposes for which the meeting is called and to
which its business will be limited. The notice for a special meeting shall also
indicate that it is being issued by or at the direction of the person or persons
calling the meeting. If the Board of Directors shall amend, repeal or adopt a
by-law regulating an impending election of directors, the notice of the next
meeting of stockholders for the election of directors shall set forth the by-law
so amended, repealed or adopted and shall contain a concise statement of the
changes made. A copy of the notice of any meeting shall be given to each
stockholder entitled thereto, personally or by mail, not fewer than ten days nor
more than fifty days before the date of the meeting, provided, however, that a
copy of such notice may be given by third class mail not fewer than twenty-four
nor more than fifteen days before the date of the meeting. If mailed, such
notice shall be deemed given when deposited in a United States post office or
letter box with postage thereon prepaid, directed to the stockholder at his or
her record address or at such other address for the mailing of notices as he or
she may have furnished in writing to the Secretary. Notice of a meeting need not
be given to any stockholder who attends such meeting, in person or by proxy,
without protesting prior to the conclusion of the meeting the lack of notice of
such meeting, or who submits a signed waiver of notice, in person or by proxy,
before or after the meeting.
SECTION 5. FIXING RECORD DATE. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining the stockholders entitled
to receive payment of any dividend or the allotment of any rights, or for the
purpose of any other action, the Board of Directors may fix, in advance, a date
as the record date for any such determination of stockholders. Such date shall
not be more than fifty nor less than ten days before the date of such meeting,
nor more than fifty days prior to any other action. If no record ate is fixed,
the record date for the determination of stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of the business on
the day next preceding the day on which notice is given, or, if no notice is
given, the day on which the meeting is held, and the record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the resolution of the directors relating thereto is adopted. When a
determination of stockholders of record entitled to notice of or to vote at any
meeting of stockholders has been made as provided in this Section 5, such
determination shall apply to any adjournment thereof, unless directors fix a new
record date under this Section 5 for the adjourned meeting.
SECTION 6. ADJOURNED MEETING. No notice need be given of any
adjourned meeting if the time and place thereof are announced at the meeting at
which the adjournment is taken. At any adjourned meeting the Corporation may
transact any business which might have been transacted on the original date of
the meeting. If a new record date is fixed for the adjourned meeting, notice of
the adjourned meeting shall be given to each stockholder of record on the new
record date entitled to notice of the meeting.
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<PAGE>
SECTION 7. CONDUCT OF MEETINGS. Meetings of the stockholders shall be
presided over by the Chairman of the Board, or if none is in office or in the
absence of the Chairman of the Board, the President or, in his absence, by a
Vice President or, if none of the foregoing is in office and present, a chairman
to be chosen by the stockholders. The Secretary of the Corporation or, in his
absence, an Assistant Secretary, shall act as secretary of every meeting, but if
neither the Secretary nor an Assistant Secretary is present, the chairman of the
meeting shall appoint a secretary of the meeting. The order of business at all
meetings of the stockholders shall be determined by the chairman of the meeting.
SECTION 8. APPOINTMENT OF INSPECTORS. The Board of Directors, in
advance of any meeting, may appoint one or more inspectors, who need not be
stockholders, to act at the meeting or any adjournment thereof. If inspectors
are not so appointed, the chairman of the meeting may, but need not, appoint one
or more inspectors. In case any person who may be appointed as an inspector
fails to appear or act, the vacancy may be filled by appointment made at the
meeting by the chairman thereof. Each inspector, if any, before entering upon
the discharge of his duties, shall take and sign an oath faithfully to execute
the duties of inspector at such meeting with strict impartiality and according
to the best of his ability. The inspectors, if any, shall determine the number
of shares outstanding and the voting power of each, the shares represented at
the meeting, the existence of a quorum and the validity and effect of proxies,
and shall receive votes, ballots or consents, hear and determine all challenges
and questions arising in connection with the right to vote, count and tabulate
all votes, ballots or consents, determine the result and do such acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the chairman of the meeting or any stockholders entitled to vote
thereat, the inspectors, if any, shall make a report in writing of any
challenge, question or matter determined by them and execute a certificate of
any fact found by them.
SECTION 9. LIST OF STOCKHOLDERS. A list of the stockholders entitled
to vote at any meeting of stockholders as of the record date for the
determination thereof, certified by the Secretary or by the transfer agent or
agents for the Corporation, shall be produced at such meeting upon the request
of any stockholder made at or prior to such meeting.
SECTION 10. QUORUM. Except as otherwise provided by statute or by the
Certificate of Incorporation, the presence, in person or by proxy, of the
holders of not less than one-third of the issued and outstanding shares of the
Corporation entitled to vote thereat shall constitute a quorum at a meeting of
stockholders for the transaction of any business. When a quorum is once present
to organize a meeting, it is not broken by the subsequent withdrawal of any
stockholders. The stockholders present may adjourn the meeting despite the
absence of a quorum.
SECTION 11. PROXIES. Every stockholder may authorize another person
or persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact. No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and, if, and
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only as long as, it is coupled with an interest in the stock itself or an
interest in the corporation generally.
SECTION 12. VOTING. Except as otherwise provided by statute, the
Certificate of Incorporation or the By-laws, each holder of record of shares of
Common Stock of the Corporation having voting rights shall be entitled at each
meeting of stockholders to one vote for each share of the Corporation standing
in his name on the records of the Corporation on the date fixed as the record
date for the determination of the stockholders entitled to notice of and to vote
at such meeting. Except as otherwise provided by statute or by the Certificate
of Incorporation, any corporate action other than the election of directors to
be taken by vote of the stockholders shall be authorized by a majority of the
votes cast at a meeting of stockholders by the holders of shares present, in
person or by proxy, and entitled to vote on such action. Directors shall be
elected as provided in Section 2 of Article III and Section 14 of this Article.
Unless required by statute or determined by the chairman of the meeting to be
advisable, no vote need be by ballot, but in case of a vote by ballot, each
ballot shall be signed by the voting stockholder or his proxy and shall state
the number of shares voted.
SECTION 13. ACTION WITHOUT A MEETING. Whenever the stockholders are
required or permitted to take any action by vote, such action may be taken
without a meeting on written consent, setting forth the action so taken, signed
by the holders of at least that percentage of shares which are required to take
such action and which are entitled to vote thereon.
Prompt notice of the taking of the corporation action by less than
unanimous written consent shall be given to those Stockholders or members who
have not consented in writing.
SECTION 14. NOTIFICATION OF NOMINATIONS. Nominations for the election
of directors may be made by the Board of Directors or a nominating or proxy
committee appointed by the Board of Directors or by any stockholder entitled to
vote in the election of directors generally. However, any stockholder entitled
to vote in the election of directors generally may nominate one or more persons
for election as directors at a meeting only if written notice of such
stockholder's intent to make such nomination or nominations has been given,
either by personal delivery or by United States mail, postage prepaid, to the
Secretary of the Corporation not later than (i) with respect to an election to
be held at an annual meeting of stockholders, 90 days in advance of such
meeting, and (ii) with respect to an election to be held at a special meeting of
stockholders for the election of directors, the close of business on the seventh
day following the date on which notice of such meeting is first given to
stockholders. Each such notice shall set forth: (a) the name and address of the
stockholder who intends to make the nomination and of the person or persons to
be nominated; (b) a representation that the stockholder is a holder of record of
stock of the Corporation entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice; (c) a description of all arrangements or understandings between
the stockholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the stockholder or pursuant to which votes shall be cast or other
actions taken at any annual or special meeting of the stockholders of the
Corporation; (d) such other information regarding each nominee proposed by such
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stockholders as would have been required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange Commission had
the nominee been nominated, or intended to be nominated, by the Board of
Directors; and (e) the written consent of each nominee to serve as a Director of
the Corporation if so elected. The chairman of the meeting may refuse to
acknowledge the nomination of any person not made in compliance with the
foregoing procedure.
ARTICLE III
DIRECTORS
SECTION 1. POWERS, QUALIFICATIONS AND NUMBER. The property, affairs
and business of the Corporation shall be managed under the direction of its
Board of Directors, which may exercise all such authority and powers of the
Corporation and do all such lawful acts and things as are not by statute or the
Certificate of Incorporation directed or required to be exercised or done by the
stockholders. Each director shall be at least eighteen years of age, but need
not be a stockholder, a citizen of the United States or a resident of the State
of Delaware. The number of directors constituting the Board of Directors shall
be not less than three nor more than eight.
SECTION 2. ELECTION, TERM AND VACANCIES. The Board of Directors shall
be divided into three classes, designated Class I, Class II and Class III. Such
classes shall be as nearly equal in number as the then total number of directors
constituting the entire Board permits. At the September 19, 1996 annual meeting
of stockholders, Class I, Class II and Class III directors shall be elected for
initial terms expiring at the next succeeding annual meeting, the second
succeeding annual and the third succeeding annual meeting, respectively, and
until their respective successors are elected and qualified. At each annual
meeting of stockholders after September 19, 1996, the directors chosen to
succeed those in the class whose terms then expire shall be elected by the
stockholders for terms expiring at the third succeeding annual meeting after
their election and until their respective successors are elected and qualified.
Newly created directorships or any decrease in directorships resulting from
increases and decreases in the number of directors shall be apportioned among
the classes as to make all the classes as nearly equal in number as possible;
provided, that when the Board increases the number of directors and fills the
vacancies created thereby such director will hold office for the term expiring
at the annual meeting of stockholders for the term of the class to which they
have been elected expires. Any director may resign at any time upon written
notice to the corporation. Except as General Corporation Law may otherwise
require, in the term between annual meetings of stockholders or special meetings
of stockholders called for the election of directors and/or the removal of one
or more directors and for the filling of any vacancy in that connection, newly
created directors and any vacancies in the Board of Directors, including
unfilled vacancies from the removal of directors for cause or without cause, may
be filled by the vote of a majority of the remaining directors then in office,
although less than a quorum, or by the sole remaining director. Any person
receiving a plurality of the votes cast at any election held at a meeting of
stockholders shall become a director in the class for which such person is a
nominee. Vacancies on the Board shall not affect the validity of any actions
taken by the Board.
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SECTION 3. RESIGNATION AND REMOVAL. Any director may resign at any
time by giving written notice of his resignation to the Board of Directors, the
Chairman of the Board of Directors, the President or the Secretary. Any such
resignation shall take effect at the time specified therein or, if not time is
specified, immediately upon receipt; unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective. Any
or all of the directors may be removed only with an assignment of cause by the
vote of a majority of the outstanding shares entitled to vote thereon at a
special meeting therefor and, except as otherwise provided by statute or by the
Certificate of Incorporation, may be removed for cause by the Board of
Directors.
SECTION 4. EXECUTIVE COMMITTEE. Whenever there shall be three or more
directors, the Board of Directors may, by resolution adopted by a majority of
the directors which the Corporation would have if there were no vacancies, (a)
designate from among its members two or more directors to constitute an
Executive Committee which, to the extent conferred by the resolution designating
it and except as otherwise provided by statute, shall have and may exercise all
the authority of the Board of Directors, and (b) designate, from among the
members of such Executive Committee, a Chairman of the Executive Committee.
Whenever the Board of Directors is not in session or whenever a quorum fails to
attend any regular or stated or special meeting of the Board of Directors, such
committee shall advise and aid the officers of the Corporation in all matters
concerning the management of its business and affairs and generally, except as
limited above, perform such duties and exercise such powers as may be performed
and exercised by the Board of Directors from time to time, including the power
to authorize the seal of the Corporation to be affixed to all papers which may
require it. Unless the Board of Directors shall provide otherwise, a majority of
the members of the Executive Committee may fix the time and place of, and shall
constitute a quorum for the transaction of business at, any meeting of such
committee, and the act of a majority of the members present at any meeting at
which a quorum is present shall be the act of such committee. The Executive
Committee shall keep written minutes of its proceedings, reporting such minutes
to the Board of Directors, and may make rules for the conduct of its business
and appoint any subcommittees and assistants it considers necessary. The Board
of Directors shall have the power at any time to fill vacancies in, change the
membership of or dissolve such committee.
SECTION 5. OTHER COMMITTEES. Whenever there shall be three or more
directors, the Board of Directors may, by resolution adopted by a majority of
the directors, designate from among its members two or more directors to
constitute committees, other than the Executive Committee, which committees, to
the extent conferred by the resolutions designating such committees and except
as otherwise provided by statute, shall have and may exercise the authority of
the Board of Directors. Unless the Board of Directors shall provide otherwise, a
majority of the members of any such committee may fix the time and place of its
meetings and determine its action. The Board of Directors shall have the power
at any time to fill vacancies in, change the membership of or dissolve any such
committee. Nothing herein shall be deemed to prevent the Board of Directors from
appointing committees consisting in whole or in part of persons who are not
directors of the Corporation, provided, however that no such committee shall
have or may exercise any authority of the Board of Directors.
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SECTION 6. COMPENSATION OF DIRECTORS. The Board of Directors shall
have authority to fix the compensation of directors for services to the
Corporation in any capacity, including a fixed sum and reimbursement of expenses
for attendance at meetings of the Board of Directors and committees thereof.
Nothing herein contained shall be construed to preclude any director from
serving the Corporation, its subsidiaries or affiliates in any capacity and
receiving compensation therefor.
ARTICLE IV
MEETINGS OF THE BOARD OF DIRECTORS
SECTION 1. PLACE, TIME, CALL AND NOTICE. Meetings of the Board of
Directors shall be held at such time and at such place, within or without the
State of Delaware, as the Board of Directors may from time to time fix or as
shall be specified in the notice of any such meeting, except that the first
meeting of a newly-elected Board of Directors for the election or appointment of
officers and the transaction of other business shall be held as soon after its
election as the directors may conveniently assemble and, if possible, at the
place at which the annual meeting of stockholders which elected them was held.
No call or notice shall be required for regular or stated meetings for which the
time and place have been fixed, and no notice shall be required for any first
meeting of a newly-elected Board of Directors which is held immediately
following an annual meeting of stockholders at the same place as such meeting.
If any day fixed for a regular or stated meeting shall be a legal holiday at the
place where the meeting is to be held, such meeting shall be held at the
scheduled hour on the next business day not a legal holiday. Special meetings
may be called by or at the direction of the President or a majority of the
directors of the Corporation. Notice of the time and place of special meetings
and of any first meeting of a newly-elected Board of Directors which is not held
immediately following an annual meeting of stockholders at the same place as
such meeting shall be given by the Secretary to each director (a) by mail,
depositing such notice, in a sealed wrapper addressed to such director, in a
United States Postal Service post office or letter box, with first-class postage
thereon prepaid, at least 72 hours before the time at which such meeting is to
be held, (b) by the "express mail" service of the United States Postal Service,
depositing such notice, in a sealed "express mail" envelope addressed to such
director, in a United States Postal Service post office or "express mail" letter
box, with "express mail" postage prepaid, or by depositing such notice in a
sealed envelope addressed to such director for delivery with another overnight
courier service, in either such case at least 48 hours before the time at which
such meeting is to be held or (c) by telegraph, telecopier or cable addressed to
such director, delivery to him personally or by telephone or any other method of
communication by which such director shall actually receive such notice, at
least 24 hours before the time at which such meeting is to be held. The notice
of any meeting need not specify the purpose thereof. Any requirement of
furnishing a notice shall be waived by any director who submits a signed waiver
of notice before or after the meeting or who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to him.
SECTION 2. QUORUM AND ACTION. A majority of the directors which the
Corporation would have if there were no vacancies shall constitute a quorum
except that when a
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vacancy or vacancies prevent such a majority, a majority of the directors then
in office shall constitute a quorum, provided such majority shall constitute at
least one-third of the directors which the Corporation would have if there were
no vacancies. A majority of the directors present, whether or not a quorum, may
adjourn a meeting to another time and place. Notice of any such adjournment
shall be given to any directors who were not present and, unless announced at
the meeting, to the other directors. At any adjourned meeting at which a quorum
is present, any business may be transacted which might have been transacted at
the meeting originally scheduled. Except as otherwise provided herein or by
statute, the vote of a majority of the directors present at the time of the
vote, a quorum being present at such time, shall be the act of the Board of
Directors.
SECTION 3. CONDUCT OF MEETINGS. The Chairman of the Board, if
present, shall preside at all meetings. Otherwise, the President, if a director
and present, or, if neither of the foregoing is present, any other director
chosen by the Board of Directors, shall preside. The Secretary of the
Corporation, if a director and present, shall act as secretary of the meeting
and keep the minutes thereof. Otherwise, a director appointed by the chairman of
the meeting shall act as secretary and keep the minutes thereof.
SECTION 4. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken by the Board of Directors or any committee thereof may be taken
without a meeting if all members of the Board of Directors or committee consent
in writing to the adoption of a resolution authorizing the action and the
written consent thereto by the members of the Board of Directors or the
committee shall be filed with the minutes of the proceedings of the Board of
Directors or committee.
SECTION 5. ACTION BY CONFERENCE CALL. Any one or more members of the
Board of Directors of the Corporation or of any committee thereof may
participate in a meeting of the Board of Directors or of any such committee by
means of a conference telephone or video or similar communications equipment
allowing all persons participating in the meeting to hear each other at the same
time. Participation by such means shall constitute presence in person at the
meeting.
ARTICLE V
OFFICERS
SECTION 1. NUMBER, ELECTION AND VACANCIES. The Board of Directors at
its first meeting after the election of directors in each year shall elect or
appoint a Chairman of the Board, a President, a Secretary and a Treasurer, and
may at any time and from time to time elect or appoint a Chief Executive
Officer, a Chief Operating Officer, one or more Vice Presidents (one or more of
which may be designated by the Board of Directors as Executive or Senior Vice
Presidents), a Controller, one or more Assistant Vice Presidents, Assistant
Secretaries, Assistant Treasurers and Assistant Controllers and such other
officers, agents and employees as it may deem desirable. Any two or more
officers may be held by the same person, except the offices of President and
Secretary,
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unless all the issued and outstanding shares of the Corporation are owned by one
person, in which case such person may hold all or any combination of offices.
The election or appointment of an officer shall not itself create any contract
rights. A vacancy in any office may be filled for the unexpired term by the
Board of Directors at any meeting.
SECTION 2. TERM OF OFFICE, RESIGNATION AND REMOVAL. Unless otherwise
prescribed by the Board of Directors, each officer of the Corporation shall hold
office until the meeting of the Board of Directors following the next annual
meeting of stockholders and until his successor has been elected and qualified.
Any officer may resign at any time by giving written notice of his or her
resignation to the Board of Directors, the President or the Secretary. Any such
resignation shall take effect at the time specified therein or, if no time is
specified, immediately upon receipt; unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Notwithstanding anything in the foregoing to the contrary, any officer may be
removed at any time by the Board of Directors with cause or without cause.
SECTION 3. SECURITY. The Board of Directors may require any officer,
agent or employee of the Corporation to post a bond or give other security for
the faithful performance of his or her duties.
SECTION 4. CHAIRMAN OF THE BOARD. The Chairman of the Board shall be
a senior executive officer of the Corporation. The Chairman of the Board, if
any, shall, if present, preside at all meetings of the Board of Directors and
shall have such other powers and duties as the Board of Directors may from time
to time assign to him or her.
SECTION 5. PRESIDENT. The President shall be a senior executive
officer of the Corporation. Subject to the control of the Board of Directors, he
or she shall direct the business and affairs of the Corporation. The President,
if a director shall be an EX OFFICIO member of all committees of the Board of
Directors.
SECTION 6. VICE PRESIDENTS. Each Vice President shall have such
designation and seniority as the Board of Directors may determine and such
powers and duties as the Board of Directors or, subject to the control of the
Board of Directors, the Chairman of the Board or the President may from time to
time assign to him or her.
SECTION 7. SECRETARY. The Secretary shall, if present, act as the
secretary of, and keep the minutes of, all meetings of the stockholders and, if
a director, of the Board of Directors, and shall be responsible for the giving
of notice of all meetings of the stockholders and of the Board of Directors. He
or she shall be custodian of the seal of the Corporation, which he or she shall
affix to any instrument requiring it whose execution has been authorized, and of
the corporate records (except accounting records), and shall have such other
powers and duties as generally pertain to the office and as the Board of
Directors or, subject to the control of the Board of Directors, Chairman of the
Board or the President may from time to time assign to him or her.
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SECTION 8. TREASURER. The Treasurer shall be the chief financial
officer of the Corporation. Subject to the direction of the President, he or she
shall have charge of the funds, securities, receipts and disbursements of the
Corporation. He or she shall be responsible for deposits in and withdrawals from
the depositaries of the Corporation, shall render an account of the financial
condition of the Corporation and of his or her transactions as Treasurer
whenever requested by the Board of Directors, the Chairman of the Board or the
President, and shall have such other powers and duties as generally pertain to
the office and as the Board of Directors or, subject to the control of the Board
of Directors, the Chairman of the Board or the President may from time to time
assign to him or her.
SECTION 9. OTHER OFFICERS; ABSENCE AND DISABILITY. The other officers
of the Corporation shall have such powers and duties as generally pertain to
their respective offices and as the Board of Directors or, subject to the
control of the Board of Directors, the President may from time to time assign to
them. The Assistant Vice Presidents, the Assistant Secretaries, the Assistant
Treasurers and the Assistant Controllers, if any, shall, in the order of their
respective seniorities, in case of the absence or disability of a Vice
President, the Secretary, the Treasurer or the Controller, respectively, perform
the duties of such officer and have such powers and other duties as the Board of
Directors or the President may from time to time prescribe. In case of the
absence or disability of any officer of the Corporation and of any person herein
authorized to act in his or her place, the Board of Directors may from time to
time delegate the powers and duties of such officer to any other officer or any
other person whom it may select.
SECTION 10. COMPENSATION OF OFFICERS. The Board of Directors shall
have authority to fix the salary and other compensation, if any, of any officer
of the Corporation or to appoint a committee for such purpose. Nothing herein
contained shall be construed to preclude any officer from receiving a salary or
other compensation by reason of the fact that he is also a director of the
Corporation.
ARTICLE VI
INDEMNIFICATION
The Corporation shall indemnify any director or officer of the
Corporation against expenses (including legal fees), judgments, fines and
amounts paid in settlement, actually and reasonably incurred by him, to the
fullest extent now or hereafter permitted by law in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, brought or threatened to be brought
against him by reason of his performance as a director or officer of the
Corporation, its parent or any of its subsidiaries, or in any other capacity on
behalf of the Corporation, its parent or any of its subsidiaries.
The Board of Directors by resolution adopted in each specific
instance may similarly indemnify any person other than a director or officer of
the Corporation for liabilities incurred by him
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in connection with services rendered by him for or at the request of the
Corporation, its parent or any of its subsidiaries.
The provisions of this section shall be applicable to all actions,
suits or proceedings commenced after its adoption, whether such arise out of
acts or omissions which occurred prior or subsequent to such adoption and shall
continue as to a person who has ceased to be a director or officer or to render
services for or at the request of the Corporation and shall inure to the benefit
of the heirs, executors and administrators of such a person. The rights of
indemnification provided for herein shall not be deemed the exclusive rights to
which any director, officer, employee or agent of the Corporation may be
entitled.
Any and all expenses incurred in defending any action to which an
officer or director may be entitled to indemnification shall be advanced by the
Corporation providing the indemnitee undertakes to repay such advances to the
extent that it is ultimately determined that such person is not entitled to such
indemnification.
ARTICLE VII
BOOKS AND RECORDS; BANK ACCOUNTS
SECTION 1. BOOKS AND RECORDS. The Corporation shall keep correct and
complete books and records of account and shall keep minutes of the proceedings
of the stockholders, of the Board of Directors and of any committee which the
directors may appoint, and shall keep at the office of the Corporation in the
Commonwealth of Pennsylvania or at the office of its transfer agent or
registrar, if any, a record containing the names and addresses of all
stockholders, the number and class of shares held by each and the dates when
they respectively became the owners of record thereof. The person in whose name
shares stand in such record shall be deemed the owner thereof for all purposes
as regards the Corporation. Any of the foregoing books, minutes or records may
be in written form capable of being converted into written form within a
reasonable time.
SECTION 2. BANK ACCOUNTS. The Board of Directors may from time to
time authorize the opening and maintenance of general and special bank accounts
with such banks, trust companies or other depositaries as the Board of Directors
may designate or as may be designated by any officers of the Corporation to whom
such power of designation may from time to time be delegated by the Board of
Directors. The Board of Directors may make such special rules and regulations
with respect to such bank accounts, not inconsistent with the provisions of
these ByLaws, as it may deem expedient.
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ARTICLE VIII
SHARES
SECTION 1. CERTIFICATES REPRESENTING SHARES. Shares of the
Corporation shall be represented by certificates, in such form as shall from
time to time be approved by the Board of Directors, which certificates shall be
signed in the name of the Corporation by the Chairman of the Board, President or
a Vice President and by the Secretary or an Assistant Secretary or the Treasurer
or an Assistant Treasurer and sealed with the seal of the Corporation or a
facsimile thereof. The signatures of the officers upon a certificate may be
facsimiles if the certificate is countersigned by a transfer agent or registered
by a registrar other than the Corporation or its employee. In case any officer
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer before such certificate shall be issued, it
may nevertheless be issued by the Corporation with the same effect as if such
officer were still in office at the date of its issue.
SECTION 2. SHARE TRANSFERS. Transfers of shares of the Corporation
shall be made on the share records of the Corporation by the registered holder
thereof, or by his attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary of the Corporation or with a transfer
agent or transfer clerk appointed as provided in Section 4 of this Article, upon
surrender of the certificate or certificates for such shares properly endorsed
and the payment of all taxes due thereon, together with such proof of the
authenticity of the signature as the Corporation or its agents may reasonably
require, and upon compliance with any provisions restricting the transferability
of such shares. The Board of Directors may from time to time make such
additional rules and regulations as it may deem expedient, not inconsistent with
these By-Laws, concerning the issue, transfer and registration of certificates
for shares of the Corporation.
SECTION 3. LOST, STOLEN, DESTROYED OR MUTILATED CERTIFICATES. No
certificate for shares of the Corporation shall be issued in place of any
certificate alleged to have been lost, destroyed or stolen, except on production
of such evidence of such loss, destruction or theft as the Board of Directors
may require and, in the case of lost or stolen certificates, on delivery to the
Corporation, if the Board of Director shall so require, of a bond of indemnity
in such form and amount and secured by such surety as the Board of Directors may
in its discretion require. The Board of Director shall have the right from time
to time to prescribe such rules and procedures as it shall deem advisable with
respect to lost, stolen, destroyed or mutilated certificates and the issuance of
new certificates in place thereof.
SECTION 4. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may
appoint one or more transfer clerks or one or more transfer agents and one or
more registrars, whose respective duties shall be defined by the Board of
Directors. The duties of transfer agent and registrar may be combined. No
certificate for shares shall be valid unless countersigned by a transfer agent,
if the Corporation has a transfer agent, or by a registrar, if the Corporation
has a registrar. The signature of a transfer agent may be a facsimile.
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ARTICLE IX
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors
shall prescribe. The corporate seal on any corporate bond or other obligation
for the payment of money may be a facsimile.
ARTICLE X
FISCAL YEAR
The fiscal year of the Corporation shall be such fiscal year as the
Board of Directors may from time to time fix.
ARTICLE XI
VOTING OF SHARES IN OTHER CORPORATIONS
Shares in other corporations which are held by the Corporation may be
voted by the Chairman of the Board, the President or a Vice President of the
Corporation, or by a proxy or proxies appointed by one of them, provided,
however, that the Board of Directors may in its discretion appoint some other
person to vote such shares.
Adopted on September 19, 1996
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1996 STOCK INCENTIVE PLAN
OF
TELEPAD CORPORATION
1. PURPOSES OF THE PLAN. This stock incentive plan (the
"Plan") is designed to provide an incentive to key employees (including
directors and officers who are key employees) and to consultants and directors
who are not employees of TELEPAD CORPORATION, a Delaware corporation (the
"Company"), or any of its Subsidiaries (as defined in Paragraph 20), and to
offer an additional inducement in obtaining the services of such persons. The
Plan provides for the grant of "incentive stock options" ("ISOs") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), nonqualified stock options which do not qualify as ISOs ("NQSOs") and
stock of the Company which may be subject to restrictions (collectively,
"Awards"). The Company makes no representation or warranty, express or implied,
as to the qualification of any option as an "incentive stock option" under the
Code.
2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of
Paragraph 13, the aggregate number of shares of Class A Common Stock, $.01 par
value per share, of the Company ("Class A Common Stock") for which Awards may be
granted under the Plan shall not exceed 1,200,000. Such shares of Class A Common
Stock may, in the discretion of the Board of Directors of the Company (the
"Board of Directors"), consist either in whole or in part of authorized but
unissued shares of Class A Common Stock or shares of Class A Common Stock held
in the treasury of the Company. Subject to the provisions of Paragraph 14, any
shares of Class A Common Stock subject to an option which for any reason
expires, is canceled or is terminated unexercised or which ceases for any reason
to be exercisable or a restricted stock Award which for any reason is forfeited,
shall again become available for the granting of Awards under the Plan. The
Company shall at all times during the term of the Plan reserve and keep
available such number of shares of Class A Common Stock as will be sufficient to
satisfy the requirements of the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered
by a committee of the Board of Directors consisting of not less than two
directors (the "Committee"). Each member of the Committee shall be (a) a
"disinterested person" within the meaning of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (as the same may be in effect and
interpreted from time to time, "Rule 16b-3") until such time as the amendments
to Rule 16b-3 adopted by the Securities Exchange Commission on May 30, 1996 in
Release No. 34-37260 become effective with respect to the Plan (the "New Rule
Date") and (b) from and after the New Rule Date, a "non-employee director"
within the meaning of Rule 16b-3. A majority of the members of the Committee
shall constitute a quorum, and the acts of a majority of the members
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present at any meeting at which a quorum is present, and any acts approved in
writing by all members without a meeting, shall be the acts of the Committee.
Subject to the express provisions of the Plan, the Committee
shall have the authority, in its sole discretion, with respect to Awards to key
employees or consultants to determine: the key employees and consultants who
shall be granted Awards; the type of Award to be granted; the times when an
Award shall be granted; the number of shares of Class A Common Stock to be
subject to each Award; the term of each option; the date each option shall
become exercisable; whether an option shall be exercisable in whole, in part or
in installments and, if in installments, the number of shares of Class A Common
Stock to be subject to each installment, whether the installments shall be
cumulative, the date each installment shall become exercisable and the term of
each installment; whether to accelerate the date of exercise of any option or
installment; whether shares of Class A Common Stock may be issued upon the
exercise of an option as partly paid and, if so, the dates when future
installments of the exercise price shall become due and the amounts of such
installments; the exercise price of each option; the form of payment of the
exercise price; whether to restrict the sale or other disposition of a stock
Award or the shares of Class A Common Stock acquired upon the exercise of an
option and, if so, whether and under what conditions to waive any such
restriction; whether and under what conditions to subject all or a portion of
the grant or exercise of an option or the vesting of a stock Award or the shares
acquired pursuant to the exercise of an option to the fulfillment of certain
restrictions or contingencies as specified in the contract referred to in
Paragraph 12 hereof (the "Contract"), including without limitation, restrictions
or contingencies relating to entering into a covenant not to compete with the
Company, any of its Subsidiaries or a Parent (as defined in Paragraph 20), to
financial objectives for the Company, any of its Subsidiaries or a Parent, a
division of any of the foregoing, a product line or other category, and/or to
the period of continued employment of the Award holder with the Company, any of
its Subsidiaries or a Parent, and to determine whether such restrictions or
contingencies have been met; whether an Award holder is Disabled (as defined in
Paragraph 20); and with respect to all Awards, subject prior to the New Rule
Date to the limitations with respect to formula plans under Rule 16b-3 in the
case of Non-Employee Director Options (as defined in Paragraph 20): to determine
the amount, if any, necessary to satisfy the obligation of the Company, a
Subsidiary or Parent to withhold taxes or other amounts; the fair market value
of a share of Class A Common Stock; to construe the respective Contracts and the
Plan; with the consent of the Award holder, to cancel or modify an Award,
PROVIDED, that the modified provision is permitted to be included in an Award
granted under the Plan on the date of the modification, and FURTHER, PROVIDED,
that in the case of a modification (within the meaning of Section 424(h) of the
Code) of an ISO, such Award as modified would be permitted to be granted on the
date of such modification under the terms of the Plan; to prescribe, amend and
rescind rules and regulations relating to the Plan; from and after the New Rule
Date, to approve any provision which under Rule 16b-3 requires the approval of
the Board of Directors, a committee of non-employee directors or the
stockholders to be exempt (unless otherwise specifically provided herein); and
to make all other determinations necessary or advisable for administering the
Plan. Any controversy or claim arising out of or relating to the Plan, any Award
granted under the Plan or any Contract shall be determined
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unilaterally by the Committee in its sole discretion. The determinations of the
Committee on the matters referred to in this Paragraph 3 shall be conclusive and
binding on the parties. No member or former member of the Committee shall be
liable for any action, failure to act or determination made in good faith with
respect to the Plan or any option hereunder.
4. OPTION ELIGIBILITY; GRANTS. The Committee may from time to
time, in its sole discretion, consistent with the purposes of the Plan, grant
Employee Options to key employees (including officers and directors who are key
employees) of, and Consultant Options to consultants to, the Company or any of
its Subsidiaries. Such options granted shall cover such number of shares of
Class A Common Stock as the Committee may determine, in its sole discretion, as
set forth in the applicable Contract; PROVIDED, HOWEVER, that the maximum number
of shares subject to Employee Options that may be granted to any individual
during any calendar year under the Plan (the "162(m) Maximum") shall be 300,000
shares; and FURTHER, PROVIDED, that the aggregate market value (determined at
the time the option is granted in accordance with Paragraph 5) of the shares of
Class A Common Stock for which any eligible employee may be granted ISOs under
the Plan or any other plan of the Company, or of a Parent or a Subsidiary of the
Company, which are exercisable for the first time by such optionee during any
calendar year shall not exceed $100,000. Such ISO limitation shall be applied by
taking ISOs into account in the order in which they were granted. Any option
granted in excess of such ISO limitation amount shall be treated as a NQSO to
the extent of such excess.
Every individual who, on the date the Plan is approved by
stockholders, is a Non- Employee Director (as defined in Paragraph 20) shall be
granted on such date a Non-Employee Director Option to purchase 90,000 shares of
Class A Common Stock. Thereafter, on the date an individual first becomes a
Non-Employee Director, he shall be granted an option to purchase 90,000 shares
of Class A Common Stock. In the event the remaining shares available for grant
under the Plan are not sufficient to grant the Non-Employee Director Options to
each such Non- Employee Director at any time, the number of shares subject to
the Non-Employee Director Options to be granted at such time shall be reduced
proportionately. Each Non-Employee Director Option (i) shall be immediately
exercisable as to one-third of the number of shares subject thereto, (ii) shall
become exercisable as to an additional one-third of the shares upon the first
Annual Meeting of the Company following the completion of the year in which the
grant was made, provided that the Non-Employee Director holding such Option
continues as a director of the Company upon the completion of such Annual
Meeting, and (iii) shall become exercisable as to an additional one-third of the
shares upon the second Annual Meeting of the Company following the completion of
the year in which the grant was made, provided that the Non-Employee Director
holding such Option continues as a director of the Company upon the completion
of such Annual Meeting. The Committee shall not have any discretion with respect
to the selection of directors to receive Non-Employee Director Options or the
amount, the price or the timing with respect thereto.
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5. EXERCISE PRICE. The exercise price of the shares of Class A
Common Stock under each Employee Option and Consultant Option shall be
determined by the Committee, in its sole discretion, as set forth in the
applicable Contract; PROVIDED, HOWEVER, that the exercise price of an ISO shall
not be less than the fair market value of the Class A Common Stock subject to
such option on the date of grant; and FURTHER, PROVIDED, that if, at the time an
ISO is granted, the optionee owns (or is deemed to own under Section 424(d) of
the Code) stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company, of any of its Subsidiaries or of a Parent,
the exercise price of such ISO shall not be less than 110% of the fair market
value of the Class A Common Stock subject to such ISO on the date of grant. The
exercise price of the shares of Class A Common Stock under each Non-Employee
Director Option shall be equal to the fair market value of the Class A Common
Stock subject to such option on the date of grant. Notwithstanding the
foregoing, in no event may the exercise price of any option granted before
September 29, 1997 be less than the fair market value of the underlying shares
on the date of grant or $3.5088 per share, whichever is greater.
The fair market value of a share of Class A Common Stock on
any day shall be (a) if the principal market for the Class A Common Stock is a
national securities exchange, the average of the highest and lowest sales prices
per share of Class A Common Stock on such day as reported by such exchange or on
a composite tape reflecting transactions on such exchange, (b) if the principal
market for the Class A Common Stock is not a national securities exchange and
the Class A Common Stock is quoted on The Nasdaq Stock Market ("Nasdaq"), and
(i) if actual sales price information is available with respect to the Class A
Common Stock, the average of the highest and lowest sales prices per share of
Class A Common Stock on such day on Nasdaq, or (ii) if such information is not
available, the average of the highest bid and lowest asked prices per share of
Class A Common Stock on such day on Nasdaq, or (c) if the principal market for
the Class A Common Stock is not a national securities exchange and the Class A
Common Stock is not quoted on Nasdaq, the average of the highest bid and lowest
asked prices per share of Class A Common Stock on such day as reported on the
OTC Bulletin Board Service or by National Quotation Bureau, Incorporated or a
comparable service; PROVIDED, HOWEVER, that if clauses (a), (b) and (c) of this
Paragraph are all inapplicable, or if no trades have been made or no quotes are
available for such day, the fair market value of the Class A Common Stock shall
be determined by the Board of Directors y any method consistent with applicable
regulations adopted by the Treasury Department relating to stock options.
6. TERM. The term of each Employee Option and Consultant
Option granted pursuant to the Plan shall be such term as is established by the
Committee, in its sole discretion, as set forth in the applicable Contract;
PROVIDED, HOWEVER, that the term of each ISO granted pursuant to the Plan shall
be for a period not exceeding 10 years from the date of grant thereof; and
FURTHER, PROVIDED, that if, at the time an ISO is granted, the optionee owns (or
is deemed to own under Section 424(d) of the Code) stock possessing more than
10% of the total combined voting power of all classes of stock of the Company,
of any of its Subsidiaries or of a Parent, the term of the ISO shall be for a
period not exceeding five years from the date of grant.
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Employee Options and Consultant Options shall be subject to earlier termination
as hereinafter provided. Subject to earlier termination as hereinafter provided,
each Non-Employee Director Option shall be for a term of six years commencing on
the date of grant.
7. EXERCISE. An option (or any part or installment thereof),
to the extent then exercisable, shall be exercised by giving written notice to
the Company at its principal office stating which option is being exercised,
specifying the number of shares of Class A Common Stock as to which such option
is being exercised and accompanied by payment in full of the aggregate exercise
price therefor (or the amount due on exercise if the Contract with respect to an
Employee Option permits installment payments) (a) in cash or by certified check
or (b) in the case of an Employee Option or a Consultant Option, if the
applicable Contract permits, with previously acquired shares of Class A Common
Stock having an aggregate fair market value on the date of exercise (determined
in accordance with Paragraph 5) equal to the aggregate exercise price of all
options being exercised, or with any combination of cash, certified check or
shares of Class A Common Stock having such value. The Company shall not be
required to issue any shares of Class A Common Stock pursuant to any such option
until all required payments, including any required withholding, have been made.
The Committee may, in its sole discretion, permit payment of
the exercise price of an option by delivery by the optionee of a properly
executed notice, together with a copy of his irrevocable instructions to a
broker acceptable to the Committee to deliver promptly to the Company the amount
of sale or loan proceeds sufficient to pay such exercise price. In connection
therewith, the Company may enter into agreements for coordinated procedures with
one or more brokerage firms.
A person entitled to receive Class A Common Stock upon the
exercise of an option shall not have the rights of a stockholder with respect to
such shares of Class A Common Stock until the date of issuance of a stock
certificate for such shares or in the case of uncertificated shares, an entry is
made on the books of the Company's transfer agent representing such shares;
PROVIDED, HOWEVER, that until such stock certificate is issued or book entry is
made, any optionee using previously acquired shares of Class A Common Stock in
payment of an option exercise price shall continue to have the rights of a
stockholder with respect to such previously acquired shares.
In no case may a fraction of a share of Class A Common Stock
be purchased or issued under the Plan.
8. TERMINATION OF RELATIONSHIP. Except as may otherwise be
expressly provided in the applicable Contract, any holder of an Employee Option
or Consultant Option whose relationship with the Company, its Parent and
Subsidiaries as an employee or a consultant has terminated for any reason (other
than as a result of the death or Disability of the optionee) may exercise such
option, to the extent exercisable on the date of such termination, at any time
within three months after the date of termination, but not thereafter and in no
event after
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the date the option would otherwise have expired; PROVIDED, HOWEVER, that if
such relationship is terminated either (a) for Cause (as defined in Paragraph
20), or (b) without the consent of the Company, such option shall terminate
immediately.
For the purposes of the Plan, an employment relationship shall
be deemed to exist between an individual and the Company, any of its
Subsidiaries or a Parent if, at the time of the determination, the individual
was an employee of such corporation for purposes of Section 422(a) of the Code.
As a result, an individual on military, sick leave or other bona fide leave of
absence shall continue to be considered an employee for purposes of the Plan
during such leave if the period of the leave does not exceed 90 days, or, if
longer, so long as the individual's right to reemployment with the Company, any
of its Subsidiaries or a Parent is guaranteed either by statute or by contract.
If the period of leave exceeds 90 days and the individual's right to
reemployment is not guaranteed by statute or by contract, the employment
relationship shall be deemed to have terminated on the 91st day of such leave.
Except as may otherwise be expressly provided in the
applicable Contract, Employee Options and Consultant Options granted under the
Plan shall not be affected by any change in the status of the optionee so long
as the optionee continues to be an employee of, or a consultant to, the Company,
or any of the Subsidiaries or a Parent (regardless of having changed from one to
the other or having been transferred from one corporation to another).
The holder of a Non-Employee Director Option who ceases to be
a director of the Company for any reason (other than as a result of his death or
Disability) may exercise such option, to the extent exercisable on the date of
such termination, at any time within three months after the date of termination,
but not thereafter and in no event after the date the option would otherwise
have expired; PROVIDED, HOWEVER, that if such relationship is terminated for
Cause, such option shall terminate immediately. The Non-Employee Director
Option, however, shall not be affected by the optionee becoming an employee of
the Company, any of its Subsidiaries or a Parent.
Nothing in the Plan or in any option granted under the Plan
shall confer on any optionee any right to continue in the employ of, or as a
consultant to, the Company, any of its Subsidiaries or a Parent, or as a
director of the Company, or interfere in any way with any right of the Company,
any of its Subsidiaries or a Parent to terminate the optionee's relationship at
any time for any reason whatsoever without liability to the Company, any of its
Subsidiaries or a Parent.
9. DEATH OR DISABILITY OF AN OPTIONEE. Except as may otherwise
be expressly provided in the applicable Contract, if an optionee dies (a) while
he is an employee of, or consultant to, the Company, any of its Subsidiaries or
a Parent, (b) within three months after the termination of such relationship
(unless such termination was for Cause or without the consent of the Company) or
(c) within one year following the termination of such relationship by reason of
his Disability, his Employee Option or Consultant Option may be exercised, to
the extent exercisable on the date of his death, by his Legal Representative (as
defined in Paragraph 20)
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at any time within one year after death, but not thereafter and in no event
after the date the option would otherwise have expired.
Except as may otherwise be expressly provided in the
applicable Contract, any optionee whose relationship as an employee of, or
consultant to, the Company, its Parent and Subsidiaries has terminated by reason
of such optionee's Disability may exercise his Employee Option or Consultant
Option, to the extent exercisable upon the effective date of such termination,
at any time within one year after such date, but not thereafter and in no event
after the date the option would otherwise have expired.
The holder of a Non-Employee Director Option who ceases to be
a director of the Company as a result of his death or Disability may exercise
such option, to the extent exercisable on the date of such termination, at any
time within one year after the date of termination, but not thereafter and in no
event after the date the option would otherwise have expired. In the case of the
death of the optionee, the option may be exercised by his Legal Representative.
10. STOCK AWARDS. The Committee may from time, in its sole
discretion, consistent with the purposes of the Plan, grant shares of Class A
Common Stock to key employees (including officers and directors who are key
employees) of, or consultants to, the Company or any of its Subsidiaries, which
maybe subject to such contingencies and restrictions as the Committee may
determine, as set forth in the Contract. Prior to the occurrence of any
specified contingency, the shares shall be considered outstanding shares owned
by the Award holder, who shall, subject to the contingencies and restrictions
set forth in the Award, have all rights of a stockholder of record with respect
to such shares, including the right to vote and to receive distributions. Upon
the occurrence of any such contingency, the Award holder may be required to
forfeit all or a portion of such shares back to the Company. The shares shall
vest in the Award holder when all of the restrictions and contingencies lapse.
Accordingly, the Committee may require that such shares be held by the Company,
together with a stock power duly endorsed in blank by the Award holder, until
the shares vest in the Award holder.
11. COMPLIANCE WITH SECURITIES LAWS. The Committee may
require, in its sole discretion, as a condition to the exercise of any option
that either (a) a Registration Statement under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the shares of Class A Common
Stock to be issued upon such exercise shall be effective and current at the time
of exercise, or (b) there is an exemption from registration under the Securi
ties Act for the issuance of the shares of Class A Common Stock upon such
exercise. Nothing herein shall be construed as requiring the Company to register
shares subject to any option under the Securities Act or to keep any
Registration Statement effective or current.
The Committee may require, in its sole discretion, as a
condition to the receipt of an Award or the exercise of any option that the
Award holder execute and deliver to the Company
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his representations and warranties, in form, substance and scope satisfactory to
the Committee, which the Committee determines are necessary or convenient to
facilitate the perfection of an exemption from the registration requirements of
the Securities Act, applicable state securities laws or other legal requirement,
including without limitation that (a) the shares of Class A Common Stock to be
received under the Award or issued upon the exercise of the option are being
acquired by the Award holder for his own account, for investment only and not
with a view to the resale or distribution thereof, and (b) any subsequent resale
or distribution of shares of Class A Common Stock by such Award holder will be
made only pursuant to (i) a Registration Statement under the Securities Act
which is effective and current with respect to the shares of Class A Common
Stock being sold, or (ii) a specific exemption from the registration
requirements of the Securities Act, but in claiming such exemption, the Award
holder shall prior to any offer of sale or sale of such shares of Class A Common
Stock provide the Company with a favorable written opinion of counsel
satisfactory to the Company, in form, substance and scope satisfactory to the
Company, as to the applicability of such exemption to the proposed sale or
distribution.
In addition, if at any time the Committee shall determine, in
its sole discretion, that the listing or qualification of the shares of Class A
Common Stock subject to any Award or option on any securities exchange, Nasdaq
or under any applicable law, or the consent or approval of any governmental
agency or regulatory body, is necessary or desirable as a condition to, or in
connection with, the granting of an Award or the issuing of shares of Class A
Common Stock thereunder, such Award may not be granted and such option may not
be exercised in whole or in part unless such listing, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Committee.
12. AWARD CONTRACTS. Each Award shall be evidenced by an
appropriate Contract which shall be duly executed by the Company and the Award
holder, and shall contain such terms, provisions and conditions not inconsistent
herewith as may be determined by the Committee. The terms of each Award and
Contract need not be identical.
13. ADJUSTMENTS UPON CHANGES IN CLASS A COMMON STOCK.
Notwithstanding any other provision of the Plan, in the event of a stock
dividend, recapitalization, merger in which the Company is the surviving
corporation, spin-off, split-up, combination or exchange of shares or the like
which results in a change in the number or kind of shares of Class A Common
Stock which is outstanding immediately prior to such event, the aggregate number
and kind of shares subject to the Plan, the aggregate number and kind of shares
subject to each outstanding option and the exercise price thereof, and the
number and kind of shares subject to future grants of Non-Employee Director
Options and the 162(m) Maximum shall be appropriately adjusted by the Board of
Directors, whose determination shall be conclusive and binding on all parties.
Such adjustment may provide for the elimination of fractional shares which might
otherwise be subject to options without payment therefor.
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In the event of (a) the liquidation or dissolution of the
Company, or (b) a merger in which the Company is not the surviving corporation
or a consolidation, any outstanding options or unvested stock shall terminate
upon the earliest of any such event, unless other provision is made therefor in
the transaction.
14. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was
adopted by the Board of Directors on July 10, 1996. No ISO may be granted under
the Plan after July 9, 2006. The Board of Directors, without further approval of
the Company's stockholders, may at any time suspend or terminate the Plan, in
whole or in part, or amend it from time to time in such respects as it may deem
advisable, including, without limitation, in order that ISOs granted hereunder
meet the requirements for "incentive stock options" under the Code, to comply
with the provisions of Rule 16b-3, Section 162(m) of the Code, or any change in
applicable law, regulations, rulings or interpretations of administrative
agencies; PROVIDED, HOWEVER, that no amendment shall be effective without the
requisite prior or subsequent stockholder approval which would (a) except as
contemplated in Paragraph 12, increase the maximum number of shares of Class A
Common Stock for which Awards may be granted under the Plan or the 162(m)
Maximum, (b) prior to the New Rule Date, materially increase the benefits
accruing to participants under the Plan or (c) change the eligibility
requirements to receive Awards hereunder. Notwithstanding the foregoing, prior
to the New Rule Date, the provisions regarding the selection of directors for
participation in, and the amount, the price or the timing of, Non-Employee
Director Options shall not be amended more than once every six months, other
than to comport with changes in the Code, the Employee Retirement Income
Security Act or the rules thereunder. No termination, suspension or amendment of
the Plan shall, without the consent of the holder of an existing and outstanding
Award affected thereby, adversely affect his rights under such option. The power
of the Committee to construe and administer any Awards granted under the Plan
prior to the termination or suspension of the Plan nevertheless shall continue
after such termination or during such suspension.
15. NON-TRANSFERABILITY. No option granted under the Plan
shall be transferable otherwise than by will or the laws of descent and
distribution, and options may be exercised, during the lifetime of the optionee,
only by the optionee or his Legal Representatives. Except as may otherwise be
expressly provided in the Contract, stock Awards which have not vested shall not
be transferable otherwise than by will or the laws of descent and distribution.
Except to the extent provided above, Awards may not be assigned, transferred,
pledged, hypothecated or disposed of in any way (whether by operation of law or
otherwise) and shall not be subject to execution, attachment or similar process,
and any such attempted assignment, transfer, pledge, hypothecation or
disposition shall be null and void AB INITIO and of no force or effect.
16. WITHHOLDING TAXES. The Company, a Subsidiary or Parent may
withhold (a) cash, (b) subject to any limitations under Rule 16b-3, shares of
Class A Common Stock to be issued under a stock Award or upon exercise of an
option having an aggregate fair market value on the relevant date (determined in
accordance with Paragraph 5), or (c) any combination thereof, in an amount equal
to the amount which the Committee determines is
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necessary to satisfy the obligation of the Company, a Subsidiary or Parent to
withhold Federal, state and local income taxes or other amounts incurred by
reason of the grant, vesting or disposition of an Award, the exercise of an
option, or the disposition of the underlying shares of Class A Common Stock.
Alternatively, the Company may require the holder to pay to the Company such
amount, in cash, promptly upon demand.
17. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse such
legend or legends upon the certificates for shares of Class A Common Stock
issued under a stock Award or upon exercise of an option under the Plan and may
issue such "stop transfer" instructions to its transfer agent in respect of such
shares as it determines, in its discretion, to be necessary or appropriate to
(a) prevent a violation of, or to perfect an exemption from, the registration
requirements of the Securities Act and any applicable state securities laws, (b)
implement the provisions of the Plan or any agreement between the Company and
the Award holder with respect to such shares of Class A Common Stock, or (c)
permit the Company to determine the occurrence of a "disqualifying disposition,"
as described in Section 421(b) of the Code, of the shares of Class A Common
Stock issued or transferred upon the exercise of an ISO granted under the Plan.
The Company shall pay all issuance taxes with respect to the
issuance of shares of Class A Common Stock under a stock Award or upon the
exercise of an option granted under the Plan, as well as all fees and expenses
incurred by the Company in connection with such issuance.
18. USE OF PROCEEDS. The cash proceeds received upon the
exercise of an option under the Plan shall be added to the general funds of the
Company and used for such corporate purposes as the Board of Directors may
determine.
19. SUBSTITUTIONS AND ASSUMPTIONS OF AWARDS OF CER TAIN
CONSTITUENT CORPORATIONS. Anything in this Plan to the contrary notwithstanding,
the Board of Directors may, without further approval by the stockholders,
substitute new Awards for prior options or restricted stock of a Constituent
Corporation (as defined in Paragraph 20) or assume the prior options or
restricted stock of such Constituent Corporation.
20. DEFINITIONS. For purposes of the Plan, the following terms
shall be defined as set forth below:
(a) Cause. The term "Cause" shall mean (i) in the case of an
employee or consultant, if there is a written employment or consulting agreement
between the Award holder and the Company, any of its Subsidiaries or a Parent
which defines termination of such relationship for cause, cause as defined in
such agreement, and (ii) in all other cases, cause as defined by applicable
state law.
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(b) Constituent Corporation. The term "Constituent
Corporation" shall mean any corporation which engages with the Company, any of
its Subsidiaries or a Parent in a transaction to which Section 424(a) of the
Code applies (or would apply if the option assumed or substituted were an ISO),
or any Parent or any Subsidiary of such corporation.
(c) Consultant Option. The term "Consultant Option" shall
mean a NQSO granted pursuant to the Plan to a person who, at the time of grant,
is a consultant to the Company or a Subsidiary of the Company, and at such time
is not an employee of the Company or any of its Subsidiaries.
(d) Disability. The term "Disability" shall mean a permanent
and total disability within the meaning of Section 22(e)(3) of the Code.
(e) Employee Option. The term "Employee Option" shall mean
an option granted pursuant to the Plan to an individual who, at the time of
grant, is a key employee of the Company or any of its Subsidiaries.
(f) Legal Representative. The term "Legal Representative"
shall mean the executor, administrator or other person who at the time is
entitled by law to exercise the rights of a deceased or incapacitated optionee
with respect to an option granted under the Plan.
(g) Non-Employee Director. The term "Non-Employee Director"
shall mean a person who is a director of the Company, but is not an employee of
the Company, any of its Subsidiaries or a Parent.
(h) Non-Employee Director Option. The term "Non-Employee
Director Option" shall mean a NQSO granted pursuant to the Plan to a person who,
at the time of the grant, is a Non-Employee Director.
(i) Parent. The term "Parent" shall have the same definition
as "parent corporation" in Section 424(e) of the Code.
(j) Subsidiary. The term "Subsidiary" shall have the same
definition as "subsidiary corporation" in Section 424(f) of the Code.
21. GOVERNING LAW; CONSTRUCTION. The Plan, the Awards and
Contracts hereunder and all related matters shall be governed by, and construed
in accordance with, the laws of the State of Delaware, without regard to
conflict of law provisions.
Neither the Plan nor any Contract shall be construed or
interpreted with any presumption against the Company by reason of the Company
causing the Plan or Contract to be drafted. Whenever from the context it appears
appropriate, any term stated in either the singular or
-11-
<PAGE>
plural shall include the singular and plural, and any term stated in the
masculine, feminine or neuter gender shall include the masculine, feminine and
neuter.
22. PARTIAL INVALIDITY. The invalidity, illegality or
unenforceability of any provision in the Plan, any Award or Contract shall not
affect the validity, legality or enforceability of any other provision, all of
which shall be valid, legal and enforceable to the fullest extent permitted by
applicable law.
23. STOCKHOLDER APPROVAL. The Plan shall be subject to
approval by a majority of the votes present in person or by proxy and entitled
to vote hereon at the next duly held meeting of the Company's stockholders at
which a quorum is present. No options granted hereunder may be exercised and no
stock Award granted hereunder may vest prior to such approval; PROVIDED,
HOWEVER, that the date of grant of any Award shall be determined as if the Plan
had not been subject to such approval. Notwithstanding the foregoing, if the
Plan is not approved by a vote of the stockholders of the Company on or before
July 9, 1997, the Plan and any Awards granted hereunder shall terminate.
-12-
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<NAME> TELEPAD CORPORATION
<S> <C>
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