PROSPECTUS
TELEPAD CORPORATION
357,880 SHARES OF CLASS A COMMON STOCK
This Prospectus relates to 357,880 shares of Class A Common Stock par
value $.01 per share ("Class A Common Stock") of TelePad Corporation, a Delaware
corporation (the "Company"). Such shares of Common Stock will be issued by the
Company following the exercise of certain options granted prior to the date
hereof by the Company as described herein (the "Options").
Concurrently with this offering, the Company also has registered for
resale the following securities which may be sold by certain securityholders
(the "Selling Securityholders") as described herein: 550,567 outstanding shares
of Class A Common Stock, 524,317 of which were issued by the Company in certain
1994 private placement offerings and certain 1995 private placement offerings
(the "Private Placements") and 26,250 of which were issued upon the exercise of
a certain option granted by the Company prior to the date hereof, 256,218
redeemable Class C Warrants ("Class C Warrants") of the Company issued in
connection with the Private Placements and pursuant to certain anti-dilution
provisions included in applicable warrant agreements, which may be sold by the
Selling Securityholders, all as described herein, and 256,218 shares of Class A
Common Stock issuable upon the exercise of such Class C Warrants. Each Class C
Warrant issued in connection with the Private Placements entitles the registered
holder thereof to purchase one share of Class A Common Stock at an exercise
price of $3.65 per share through September 27, 2000. See "Description of
Securities" and "Selling Securityholders and Plan of Distribution."
On the date of this Prospectus, the Registration Statement in which
this Prospectus is included (the "Registration Statement") was declared
effective by the Securities and Exchange Commission (the "Commission").
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THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL
DILUTION. AN INVESTMENT IN THESE SECURITIES SHOULD ONLY BE MADE BY INVESTORS
WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" ON
PAGE 6 AND "DILUTION."
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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The Company has agreed, pursuant to certain Warrant Agreements between
the Company and D.H. Blair Investment Banking Corp. ("Blair"), to pay to Blair a
solicitation fee (the "Solicitation Fee") equal to 4% of the exercise price in
connection with the exercise of the Class C Warrants, as well as the Class A and
Class B Warrants (each, a "Warrant" and collectively, the "Warrants"), if (i)
the market price of the Class A Common Stock on the date the Warrant is
exercised is greater than the then applicable Warrant exercise price; (ii) the
exercise of the Warrant was solicited by a member of the National Association of
Securities Dealers, Inc. (the "NASD"); (iii) the Warrant was not held in a
discretionary account; (iv) disclosure of compensation arrangements was made
both at the time of the offering and at the time of exercise of the Warrant; and
(v) the solicitation of exercise of the Warrant was not in violation of Rule
10b-6 as promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or applicable state blue sky laws. The exercise prices of the
Warrants were determined by negotiation between the Company and Blair at the
time such Warrants were offered, and are not necessarily related to the
Company's asset value, net worth or other criteria of value.
The Company's IPO units, consisting of one share of Class A Common
Stock, one Class A Warrant and one Class B Warrant (the "IPO Units"), Class A
Common Stock, Class A Warrants, Class B Warrants, Class C Warrants and Class D
Warrants are listed on the Nasdaq Small Cap Market under the symbols TPADU,
TPADA, TPADW, TPADZ, TPADM and TPADL respectively. Reports and other information
concerning the Company can be inspected at Nasdaq.
The closing bid price as reported by the National Quotation Bureau,
Inc. on the dates indicated below for the IPO Units, the Class A Common Stock,
the Class A Warrants, the Class B Warrants, the Class C Warrants and the Class D
Warrants was $7.125 (November 21, 1996), $5.00 (November 26, 1996), $2.25
(November 26, 1996), $.375 (November 25, 1996), $1.125 (November 22, 1996) and
$2.125 (November 26, 1996), respectively.
The Company will not receive any of the proceeds from the sale of
securities by the Selling Securityholders. See "Use of Proceeds" and "Selling
Securityholders and Plan of Distribution."
THE DATE OF THIS PROSPECTUS IS DECEMBER 12, 1996.
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This Prospectus relates to the possible issuance and sale by the
Company of 357,880 shares of Common Stock upon the exercise of the Options which
include an option granted by the Company to a former Chairman of the Company's
Board of Directors to acquire up to 37,500 shares of Class B Common Stock which
shares are convertible into an equal number of shares of Class A Common Stock.
The Registration Statement of which this Prospectus is a part, also
relates to the possible resale, by the Selling Securityholders, of up to 256,218
Class C Warrants, up to 256,218 shares of Class A Common Stock issuable upon the
exercise of such Class C Warrants, up to 550,567 outstanding shares of Class A
Common Stock issued by the Company in the Private Placements and up to 26,250
shares of Class A Common Stock previously issued upon the exercise of an option
granted by the Company as consideration for certain advisory services.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "1934 Act"), and, in accordance therewith,
files reports, proxy statements and other information with the Securities and
Exchange Commission ("Commission"). Such reports, proxy statements and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices, Seven World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material may be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding the
Company (at http://www.sec.gov).
INFORMATION INCORPORATED BY REFERENCE
The Company's (i) Annual Report on Form 10-KSB for its fiscal year
ended December 31, 1995, heretofore filed by the Company with the Commission
(File No. 0-21934); (ii) Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1996; (iii) Quarterly Report on Form 10-QSB for the quarter ended June
30, 1996, (iv) Quarterly Report on Form 10-QSB for the quarter ended September
30, 1996,(v) the description of the Company's Common Stock contained in the
Registration Statement on Form 8-A filed with the Commission on June 14, 1993
under the 1934 Act, including any amendment or report filed by the Company for
the purpose of updating such description, and (vi) the description of the
Company's Class C Warrants contained in the Registration Statement on Form 8-A
filed with the Commission on March 26, 1996 under the 1934 Act, including any
amendment or report filed by the Company for the purpose of updating such
description, are incorporated herein by reference. Each document filed by the
Company subsequent to the date of the Prospectus pursuant to Sections 13(a),
13(c), 14 or 15(d) of the 1934 Act prior to the termination of this offering
shall be deemed to be incorporated by reference into this Prospectus and to be a
part hereof from the date of filing such document. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is incorporated by reference herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
This Prospectus does not contain all the information set forth in the
Registration Statement of which this Prospectus is a part, including exhibits
relating thereto, which has been filed with the Commission in Washington, D.C.
Copies of the Registration Statement and the exhibits thereto may be obtained,
upon payment of the fee prescribed by the Commission, or may be examined,
without charge, at the office of the Commission.
THE COMPANY WILL PROVIDE, WITHOUT CHARGE, TO EACH PERSON (INCLUDING ANY
BENEFICIAL OWNER) TO WHOM A COPY OF THIS PROSPECTUS IS DELIVERED, UPON THE
WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON, A COPY OF ANY DOCUMENT INCORPORATED
BY REFERENCE IN THIS PROSPECTUS (OTHER THAN EXHIBITS UNLESS SUCH EXHIBITS ARE
EXPRESSLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS). REQUESTS SHOULD BE
DIRECTED TO TELEPAD CORPORATION, 380 HERNDON PARKWAY, SUITE 1900, HERNDON,
VIRGINIA 22070, (703) 834-9000, ATTENTION: ROBERT D. RUSSELL, CHIEF FINANCIAL
AND ACCOUNTING OFFICER.
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INTRODUCTION
THE COMPANY
TelePad Corporation (the "Company") is engaged in the design,
development and marketing of pen-based computing and mobile communications
systems and, to a lesser extent, applications software. The only product
currently being marketed by the Company is the TelePad 3 -- a highly portable,
tablet-sized computing device which offers voice recognition and a pen interface
as well as a detachable keyboard. Its unique modular architecture includes a
base platform currently available with a 66 MHZ processor, a dual scan color
display and up to 36 MB of internal memory. It also features three docking bays
that can hold a variety of hardware accessories. The platform is designed to
facilitate the Company's planned development of upgrades to more powerful
processors, different types of displays and additional memory. The Company plans
to develop additional modules capable of accommodating various communications,
computing and special purpose accessories.
The Company was incorporated in Delaware on April 11, 1990. Its
executive offices are located at 380 Herndon Parkway, Suite 1900, Herndon,
Virginia 22070. The Company's telephone number is (703) 834-9000.
RECENT DEVELOPMENTS
On April 3, 1996, the Company completed a public offering of 20,000
units (the "Units") each unit consisting of 285 shares of Class A Common Stock
and 1,000 Class D Warrants, which Units were sold for $1,000 per Unit for an
aggregate offering of $20,000,000 (the "Unit Offering"). On April 25, 1996, the
Company completed the sale of an additional 3,000 Units as a result of the
exercise of the over-allotment option granted to Blair in connection with the
Unit Offering.
On May 28, 1996, the Company and IBM executed a Letter Agreement
Addendum (the "Addendum") to the January 25, 1996 Letter Agreement executed by
the Company and IBM (the "IBM Resolution Agreement") pursuant to which IBM and
the Company agreed that the following actions would constitute full performance
under the IBM Resolution Agreement without any admission of liability by either
party: (i) issuance by the Company's new contract manufacturer, Sanmina
Corporation ("Sanmina"), of a purchase order to IBM for a single lot purchase of
all TelePad 3 parts available from IBM (excluding parts for Blue Lightning
processor cards and H8 microcontrollers) for the items, unit prices and
quantities specified in IBM's TelePad 3 Parts Listing totaling $1,317,943.00
(the "Listing") attached to the IBM Resolution Agreement, provided that IBM and
Sanmina may mutually agree to differences between the purchase order and the
Listing; (IBM and the Company also agreed that IBM's acceptance of Sanmina's
purchase orders would eliminate any requirement for a Letter of Credit from the
Company for any such inventory and Sanmina's payment for such purchase orders
would eliminate any liability of the Company for such inventory; as for
remaining inventory, the Company and IBM agreed that Sanmina would from time to
time issue purchase orders to IBM for the manufacture of Blue Lightning
processor cards); (ii) except as set forth in (i) above, settlement of all other
financial obligations set forth in the IBM Resolution Agreement by a single
payment to IBM by the Company of $450,000 (which payment was made by the Company
on May 30, 1996); and (iii) delivery by IBM to the Company of a total of 458 H8
microcontrollers programmed with the current version of firmware provided by
IBM's Austin facility. IBM and the Company also agreed that the Addendum would
not in any way change or modify the agreement between IBM and the Company with
respect to the licensing of certain IBM software or the provision of certain
services under a certain services agreement between IBM and the Company. Prior
to the date hereof the Company entered into a number of interim agreements with
Sanmina for the manufacture of TelePad 3s. The Company began shipping TelePad 3s
on June 26, 1996.
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RISK FACTORS
An investment in the securities offered hereby is highly speculative in
nature, involves a high degree of risk and should be made only by investors who
can afford the loss of their entire investment. In addition to the factors set
forth elsewhere in this Prospectus, prospective investors should give careful
consideration to the following risk factors in evaluating the Company and its
business before purchasing any securities offered hereby.
GOING CONCERN CONSIDERATIONS. The Report of the Company's Independent
Auditors accompanying the Company's audited Financial Statements for the year
ended December 31, 1995, contains an explanatory paragraph as to the uncertainty
of the Company's ability to continue as a going concern. Among the factors cited
in that Report as raising substantial doubt as to the Company's ability to
continue as a going concern is that the Company has not generated sufficient
revenues from the sale of its principal products to cover its operating
expenses. The Company is currently negotiating a definitive agreement with
Sanmina to establish a consistent manufacturing process and source of product.
The inability to do so may have a material adverse effect on the Company's
business and financial condition. See "-- Transition to a New Manufacturer."
DELAYS IN PRODUCT COMMERCIALIZATION. The Company has experienced
substantial technical and financial difficulties that have led to significant
delays in the commencement of product commercialization. The Company also may
incur additional delays in product commercialization as a result of the need to
redesign the TelePad 3 processor card to accommodate a different microprocessor
since it has been advised that the Blue Lightning microprocessor, a principal
component of the TelePad 3, is being phased out of production by IBM, the sole
source supplier of such product. The Company anticipates that the delays in
commencing commercial production of the TelePad 3 it has experienced, and will
continue to experience, have and may continue to adversely affect the demand for
TelePad 3s as potential customers elect to purchase competing products. There
can be no assurance that the Company ever will overcome technical difficulties
or successfully commercialize the TelePad 3 or any other product. See "Risk
Factors -- Dependence on Manufacturer and Suppliers," "-- Reliance on
Proprietary Component; Need to Redesign the TelePad 3," and "-- Unproven
Products; Reliance on a Single Product; Need for Market Acceptance."
SUBSTANTIAL OPERATING LOSSES; NO ASSURANCE OF SUCCESS. The Company has
incurred substantial operating losses since its inception. At September 30,
1996, the Company had an accumulated deficit since inception of $27,492,082. The
Company's losses have continued since that date. Such deficits reflect the cost
of developmental and other start-up activities, including the industrial design,
development and marketing of TelePad prototypes and management's efforts to
obtain financing for the Company, without significant offsetting revenues. The
Company expects to continue to incur significant losses in the future. However,
management believes that it has developed a plan of operations which, if
successfully implemented, should permit the Company to achieve and sustain
profitable operations. The Company's proposed operations are subject to numerous
risks associated with establishing any new business, including unforeseeable
expenses, delays and complications, as well as specific risks of the computer
industry. There can be no assurance that the Company's plan of operations will
be successful, that it will be able to market any product on a commercial scale,
that it will achieve or sustain profitable operations or that it will be able to
remain in business.
DEPENDENCE ON MANUFACTURER AND SUPPLIERS. The Company has no
manufacturing capability and, therefore, contracts with third parties to perform
its manufacturing and out-sources production of components. The TelePad 3
currently employs the IBM Blue Lightning microprocessor and, until such time, if
any, as the Company completes a redesign permitting the use of another
microprocessor, the Company (or Sanmina) will be required to purchase the
processor cards for the TelePad 3 from IBM. IBM is the only source of Blue
Lightning microprocessors. IBM has agreed to manufacture the processor cards for
the Company as long as the Company continues to be in compliance with the IBM
Resolution Agreement. See "--Transition to New Manufacturer" and "--Reliance on
Proprietary Component; Need to Redesign the TelePad 3." The components of the
TelePads are supplied by various sources. Certain of the components are highly
technical in nature and, with respect to such components, there can be no
assurance that the Company would be able to locate, on a timely basis or at all,
alternative sources of supply. The inability to locate such alternative sources
of supply may have a material adverse effect on the Company's business and
financial condition.
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RELIANCE ON PROPRIETARY COMPONENT; NEED TO REDESIGN THE TELEPAD 3. The
TelePad 3 currently employs the IBM Blue Lightning microprocessor. IBM has
informed the Company that it no longer produces the Blue Lightning
microprocessor. On January 26, 1996, IBM had an inventory of TelePad 3 parts
which included Blue Lightning processors for approximately 5,000 units. Under
the IBM Resolution Agreement, as amended, IBM has agreed to manufacture
electronic card assemblies (i.e., motherboards, processor cards and WIMM cards)
until the first to occur of (i) the approximately 5,000 Blue Lightning
microprocessors have been utilized, or (ii) June 30, 1997. The Company's
engineering staff has begun redesigning the TelePad 3 processor card to use a
microprocessor not manufactured by IBM. The Company expects to have the new
design ready for production by the end of March 1997, although there can be no
assurance that the time required will not be substantially longer. In the event
that IBM should not reserve Blue Lightning microprocessors, or should the
redesign not be completed prior to the exhaustion of the available supply of
such microprocessors, the Company would be forced to suspend any ongoing
production pending completion of the redesign. Such a suspension would result in
a break in supply of TelePad 3s, and may adversely affect the Company's business
and financial condition.
TRANSITION TO NEW MANUFACTURER. The Company has moved the manufacture
and assembly of the TelePad 3 from IBM to Sanmina. The Company is currently
operating with Sanmina under a letter of intent and certain purchase orders and
is engaged in negotiations with Sanmina to establish a definitive manufacturing
agreement. In addition, until such time, if any, as the Company completes the
redesign of the TelePad 3 permitting the use of a microprocessor other than
IBM's Blue Lightning, it will be required to purchase the microprocessor cards
for the TelePad 3 from IBM. There can be no assurance as to when, if ever, the
Company will be able to enter into an acceptable definitive manufacturing
agreement and there can be no assurance that the Company will not experience
substantial production delays in the event that an acceptable agreement is not
concluded. See "-- Dependence on Manufacturer and Suppliers," "-- Reliance on
Proprietary Component; Need to Redesign the TelePad 3".
RISK OF PRODUCT LIABILITY. The Company is subject to the inherent
business risk of product liability claims in the event that any of its products
are alleged to have resulted in adverse effects to a user of such products. The
Company does not presently carry product liability insurance, but the Company
expects that it will obtain such insurance. However, there can be no assurance
that adequate product liability insurance can be obtained at acceptable costs.
In the event of an uninsured or inadequately insured product liability claim,
the Company's business and financial condition could be materially adversely
affected.
RAPID TECHNOLOGICAL CHANGE; POSSIBLE OBSOLESCENCE. The Company's
products and marketing strategy are subject to rapid technological changes,
short product life cycles, product obsolescence, and rapid price erosion,
particularly with respect to the hardware components which represent the most
significant portion of the Company's business. The Company believes that its
future success will depend in significant part upon its ability to establish
full-scale production and sale of the TelePad 3 and to develop new products and
services incorporating technological changes and meeting changing customer
demands. To the extent products developed by the Company are based upon evolving
new technology, sales of such products may be adversely affected if such
technology ultimately is not widely accepted. If the Company does not
successfully develop and introduce new or enhanced products in a timely manner,
any competitive position the Company may develop could be lost and the Company's
sales, if any, would be reduced. In this regard, IBM has announced that it no
longer produces the Blue Lightning microprocessor used in the TelePad 3. While
IBM has informed management that it has reserved approximately 5,000 Blue
Lightning microprocessors for use in the manufacture of TelePad 3s, and
management believes that this supply would be sufficient to meet the Company's
needs pending design modification to permit the use of another microprocessor,
should the Company not modify the design of the TelePad 3 to permit use of
another microprocessor in a timely fashion, the Company's ability to produce and
market its products, and its business and financial results, would be adversely
affected. See "-- Reliance on Proprietary Component; Need to Redesign TelePad 3.
There can be no assurance that the Company will have sufficient funds to sustain
its development activities, that any such activities will be successful or that
any such activities will enable the Company to obtain or maintain any
competitive advantage. See "-- Going Concern Considerations."
UNPROVEN PRODUCTS; RELIANCE ON SINGLE PRODUCT; NEED FOR MARKET
ACCEPTANCE. The primary product currently being marketed by the Company is the
TelePad 3. The Company purchased IBM's remaining stock of parts for the TelePad
SL (the Company's original product) for $300,000 and intends to build finished
TelePad
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SL units using these parts if a market for the SL is then in existence and the
parts can be assembled at a loss that will yield a profit. These parts are
expected to yield between 200 and 400 finished units, but there is no assurance
as to the number which can ultimately be built. There is no assurance that the
TelePad 3 or any other product the Company may develop will achieve market
acceptance. It is anticipated that many potential purchasers of the TelePad 3
will require that it pass elaborate tests performed both by the Company and, in
many instances, by the user itself, prior to completion of their purchases. No
assurance can be given that the TelePad 3 will satisfactorily pass such tests
or, if it does, that the product will function during actual operating use at
levels acceptable to users or will operate free of maintenance, product control
or other performance problems for sustained periods of time. In addition, users
may be reluctant to purchase any products from the Company unless they are
satisfied as to the Company's ability to provide an adequate supply of its
products, as well as its continued viability, as to neither of which assurance
can be given. See "-- Going Concern Considerations" and "-- Substantial
Operating Losses; No Assurance of Success"
LIMITED MARKETING CAPABILITIES. Because of the sophisticated nature of
its products and the early stage of development of the field force computing
industry, the Company must expend substantial resources to identify prospective
customers and educate them as to the merits of the Company's products and
strategy. There can be no assurance the Company will have sufficient funds to
market its products effectively. Further, the Company reduced its sales force in
January 1995, and, therefore, there can be no assurance that remaining personnel
can be retained, that new, qualified personnel will be attracted by the Company
or that any marketing efforts by such personnel will be successful. In addition,
the Company's marketing efforts have been and will continue to be adversely
affected to the extent that its supply of products is disrupted and design
defects occur. See "-- Delays in Product Commercialization," and "-- Reliance on
Proprietary Component; Need to Redesign the TelePad 3." Failure to market the
Company's products effectively would impair the Company's ability to generate
revenues from product sales.
COMPETITION. The Company currently is subject to substantial
competition and management expects competition in the field force computing
industry to intensify in the future. There can be no assurance that competing
products will not be introduced that achieve greater market acceptance than, or
are technologically superior to, the TelePad 3. Most of the Company's
competitors and future competitors are, or can be expected to be, larger than
the Company and to have more extensive experience and records of successful
operations than the Company. Such competitors also have, or can be expected to
have, greater financial, marketing and other resources, more employees and
larger facilities than the Company now has or can be expected to have in the
foreseeable future. In particular, certain of the Company's present and future
competitors are, or can be expected to be, the most prominent and well-respected
computer manufacturers in the world, including IBM (the Company's sole source
supplier of Blue Lightning microprocessors), Fujitsu Limited, Toshiba Corp., NEC
Technologies, Inc., Zenith Data Systems Corp., Symbol, Telxon, Motorola, Samsung
and others. The Company believes that such companies have the resources and
technological capability to produce and market products competitive with, if not
superior to, the TelePads. In addition, the Company expects that other
competitors will emerge and competing products will be introduced in the near
future. No assurance can be given that the Company will be able to compete
successfully or that competitive pressures will not adversely affect its
financial performance.
LIMITED PATENT PROTECTION. Other than the four patents on the
multi-purpose handle and adjustable locking handle mechanism used on the
TelePads, the Company currently does not have patents relating to its products,
although its patent application for the industrial and mechanical design of the
portable electronic platform which is the basis of the TelePad 3 has been
allowed. There can be no assurance patents will be issued on the basis of the
Company's applications. Further, the Company otherwise does not intend to pursue
patents, because it does not believe that the technology it employs is
patentable. While the Company views the patents relating to the multi-purpose
handle used on the TelePads as important to the value of the TelePads as a
whole, there can be no assurance that any issued patent will provide the Company
with a meaningful competitive advantage, that competitors will not design
alternatives to reduce or eliminate the benefits of any issued patent or that
challenges will not be instituted against the validity or enforceability of
these patents. Other companies may obtain patents claiming products or processes
that are necessary for, or useful to, the development of the Company's products,
in which event the Company may be required to obtain licenses for patents or for
proprietary technology in order to develop, manufacture or market its products.
There can be no assurance that the Company would be able to obtain such licenses
on commercially reasonable terms, if at all.
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It is the Company's practice to protect its proprietary materials and
processes by relying on trade secret laws and non-disclosure and confidentiality
agreements. There can be no assurance that confidentiality or trade secrets will
be maintained or that others will not independently develop or obtain access to
such materials or processes.
DEPENDENCE ON KEY PERSONNEL; NEED TO RETAIN TECHNICAL PERSONNEL. The
Company's success will depend to a large extent upon the continued contributions
of Donald W. Barrett, currently Chief Executive Officer, Ronald C. Oklewicz,
currently President, and Joseph J. Elkins, currently Vice President. The loss of
the services of any or all of the executive personnel could materially adversely
affect the Company. The Company also has entered into an employment agreements
with Messrs. Barrett, Oklewicz and Elkins. The Company has obtained term
key-person life insurance coverage in the amount of $2,000,000 on the life of
Mr. Oklewicz.
The success of the Company also will depend, in part, upon its ability
to retain qualified engineering and other technical and marketing personnel.
There is significant competition for technologically qualified personnel in the
geographical area of the Company's business and there can be no assurance that
the Company will be successful in recruiting or retaining qualified personnel.
GOVERNMENT REGULATION. The TelePad 3 and the TelePad SL are subject to
government regulation of electromagnetic emissions that are conducted from the
devices over power lines, when the devices are operated from AC wiring, and
radiated through the air. In particular, the regulations of the Federal
Communications Commission ("FCC") require products of this kind to have been
approved by the FCC as meeting the Class B digital device requirements under
Parts 2 and 15 of the FCC rules before the products may be marketed (i.e.
imported, sold or leased or advertised for sale or lease). These regulations are
designed to minimize interference with certain other electronic products and
communications services. The approvals (a form of equipment authorization known
as "certification") are granted only after the products have passed various
electromagnetic compatibility tests and an application submitted to the FCC has
been granted. The FCC approves equipment of the kind produced by the Company
only on the condition that operation of the equipment not cause interference to
licensed radio communications and that the equipment accept interference from
licensed radio facilities, even if the interference results in undesirable
operation of the equipment. Modems that the Company sells for the connection of
the TelePad SL and the TelePad 3 to the public switched telephone line are
subject to certification under the FCC Rules in the same manner and subject to
an additional approval requirement of "registration" under Part 68 of the FCC
Rules governing certain telephone equipment.
Although the TelePad 3 and TelePad SL have received FCC certification,
the devices must continue to comply with federal regulations. Changes in the
design of the products generally will require the Company to have the products
reexamined as to continued compliance. Depending on the nature of the change,
the products may be subject to the receipt of new or modified approvals before
the changed products may be marketed.
The Company also must ensure that the TelePad 3 and TelePad SL comply
with the Occupational Safety and Health Act ("OSHA") regulations requiring
electrical equipment to have been approved for safety by a nationally recognized
testing laboratory. Safety approvals for the TelePad SL and the TelePad 3 have
been obtained. Changes in either device may require retesting and further
approvals, which could result in delay that could have an adverse material
effect on the Company.
To the extent that the Company desires to sell its products
internationally, it also will be required to comply with the regulations of
other nations as to electrical emissions and safety, some of which may be
expected to be more stringent than those imposed by the FCC or under regulations
adopted by OSHA. In particular, the TelePad 3 currently is certified for sale
within the European Union (the "EU"), whose standards are more stringent, in
order to permit export to members of the EU, including the United Kingdom.
To the extent that the Company sells products, directly or indirectly,
to the United States Government, the Company's contracts and subcontracts will
be subject to termination, reduction or modification at the Government's
convenience.
Failure to comply with FCC, OSHA and other governmental regulations
would have a material adverse effect on the Company. The delay associated with
obtaining any future approvals may also have a material adverse effect on the
Company.
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POSSIBLE ADVERSE EFFECTS OF AUTHORIZATION OF PREFERRED STOCK;
ANTI-TAKEOVER EFFECTS. The Company's Second Restated Certificate of
Incorporation, as amended (the "Charter"), authorizes the issuance of a maximum
of 5,000,000 shares of Preferred Stock on terms which may be fixed by the
Company's Board of Directors without further stockholder action. The terms of
any series of Preferred Stock, which may include priority claims to assets and
dividends, and special voting rights, could adversely affect the rights of
holders of the Class A Common Stock. The issuance of Preferred Stock could make
the possible takeover of the Company or the removal of management of the Company
more difficult, discourage hostile bids for control of the Company in which
stockholders may receive premiums for their shares of Class A Common Stock, or
otherwise dilute the rights of holders of Class A Common Stock and the market
price of the Class A Common Stock. See "Description of Securities -- Preferred
Stock."
CONTROL BY PRESENT STOCKHOLDERS AND MANAGEMENT. The Company's former
Chairman of the Board of Directors, Scott J. Dankman, owns 150,000 shares of
Class B Common Stock (excluding options), representing approximately 6.15% of
the total voting power of the Company. Mr. Dankman has granted an irrevocable
voting proxy covering all such shares to the Company's non-employee directors.
Including such shares, the Company's officers and directors have approximately
11.5% of the voting power of the Company's Common Stock. As a result, they may
be able to influence the election of the Company's directors and otherwise
influence control over the Company's operations. Furthermore, the
disproportionate vote afforded the Class B Common Stock could also serve to
impede or prevent a change of control of the Company. As a result, potential
acquirers may be discouraged from seeking to acquire control of the Company
through the purchase of Class A Common Stock, which could depress the price of
the Company's securities. See "Description of Securities."
NO DIVIDENDS. The Company has not paid any cash dividends and does not
presently intend to pay cash dividends. It is not likely that any cash dividends
will be paid in the foreseeable future.
POSSIBLE ADVERSE EFFECT OF INVESTIGATION BY SECURITIES AND EXCHANGE
COMMISSION OF D. H. BLAIR INVESTMENT BANKING CORP. AND D.H. BLAIR AND CO., INC.
AND ISSUERS WHOSE SECURITIES WERE UNDERWRITTEN THEREBY. The Commission is
conducting an investigation concerning various business activities of Blair, the
Company's underwriter (the "Underwriter") and D.H. Blair & Co., Inc. ("Blair &
Co."). The investigation appears to be broad in scope, involving numerous
aspects of the Underwriter's and Blair & Co.'s compliance with the Federal
securities laws and compliance with the Federal securities laws by issuers whose
securities were underwritten by the Underwriter or Blair & Co., or in which
Blair & Co. made over-the-counter markets, persons associated with such
entities, such issuers and other persons. The Company has been advised by the
Underwriter that the investigation has been ongoing since at least 1989 and that
the Underwriter is cooperating with the investigation. The Underwriter cannot
predict whether this investigation will ever result in any type of formal
enforcement action against the Underwriter or Blair & Co., or, if so, whether
any such action might have an adverse effect on the Underwriter or the
securities offered hereby. Blair & Co. makes a market in the Company's
securities. An unfavorable resolution of the Commission's investigation could
have the effect of limiting Blair & Co.'s ability to make a market in the
Company's securities, which could adversely affect the liquidity or price of
such securities.
POSSIBLE RESTRICTIONS ON MARKET MAKING ACTIVITIES IN COMPANY'S
SECURITIES. Blair & Co. currently makes a market in the Company's securities.
Rule 10b-6 under the Exchange Act may prohibit Blair & Co. from engaging in any
market making activities with regard to the Company's securities for the period
from nine business days (or such other applicable period as Rule 10b-6 may
provide) prior to any solicitation by Blair & Co. of the exercise of Warrants
until the later of the termination of such solicitation activity or the
termination (by waiver or otherwise) of any right that Blair & Co. may have to
receive a fee for the exercise of Warrants following such solicitation. As a
result, Blair & Co. may be unable to provide a market for the Company's
securities during the period while Warrants are exercisable. In addition, under
applicable rules and regulations under the Exchange Act, any person engaged in
the distribution of the securities offered hereby may not simultaneously engage
in market-making activities with respect to any securities of the Company for
the applicable "cooling off" period (at least two and possibly nine business
days) prior to the commencement of such distribution. Accordingly, in the event
the Underwriter or Blair & Co. is engaged in a distribution of the securities
offered hereby, neither of such firms will be able to make a market in the
Company's securities during the applicable restrictive period. Any temporary
cessation of such market-making activities could have an adverse effect on the
market price of the Company's securities.
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<PAGE>
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. On or prior to
September 27, 2000, the Company may redeem the Class C Warrants at a redemption
price of $.05 per Warrant upon 30 days' prior written notice if the average bid
price per share of the Class A Common Stock exceeds $8.00 (subject to
adjustment) for 30 consecutive trading days ending within 15 days of the notice
of redemption. Redemption of the Class C Warrants could force the holders to
exercise such Warrants and pay the exercise price for such Warrants at a time
when it may be disadvantageous for them to do so, to sell the Warrants at the
then-current market price when they might otherwise wish to hold such Warrants,
or to accept the redemption price, which, at the time such Warrants are called
for redemption, is likely to be substantially less than the market value of such
Warrants. The Company will not call the Class C Warrants for redemption except
pursuant to a currently effective prospectus and registration statement. See
"Description of Securities -- Warrants."
CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE
WARRANTS. A holder only will be able to exercise Class C Warrants if (i) a
current prospectus under the Securities Act, relating to the securities
underlying the Class C Warrants, is then in effect and (ii) such securities are
qualified or registered for sale or exempt from qualification or registration
under the applicable securities laws of the jurisdiction in which the holder
resides. Although the Company has undertaken to use its best efforts to maintain
the effectiveness of a current prospectus relating to the securities underlying
the Class C Warrants, there can be no assurance, due to financial and other
resource constraints, that the Company will be able to do so. The value of the
Class C Warrants may be significantly adversely affected if a current prospectus
relating to the securities issuable upon exercise thereof is not kept effective.
Similarly, the value of the Class C Warrants may be significantly adversely
affected if such securities are not qualified or registered, or exempt from
qualification or registration, in the jurisdiction of residence of a holder
wishing to exercise such Warrants. The Company has qualified or registered its
securities, or established the availability of exemption from registration, with
respect to the securities underlying the Class C Warrants in the following
jurisdictions which, according to the records of the Company and Blair,
represent the jurisdictions in which warrantholders reside: California,
Colorado, Connecticut, Delaware, the District of Columbia, Florida, Georgia,
Illinois, Indiana, Louisiana, Maryland, Nebraska, New Hampshire, New Jersey, New
York, Oregon, Pennsylvania and Virginia. The Warrants may not be exercised in
certain states unless a notice has been filed pursuant to an available exemption
or a registration has been filed. Although none of the IPO Units, 1994 PPO Units
or 1995 PPO Units knowingly were sold to persons residing in jurisdictions in
which they were not qualified or registered for sale or subject to an available
exemption from such qualification or registration, original purchasers may have
moved to jurisdictions, and purchasers of Warrants in the aftermarket may reside
in or may move to jurisdictions, in which the securities underlying the Warrants
are not so qualified, registered or exempt. In this event, the Company would not
be able to issue shares of Class A Stock to a holder desiring to exercise his or
her Class C Warrants until the underlying securities could be qualified or
registered for sale, or an exemption established, in the jurisdiction in which
such holder resides. See "Description of Securities -- Warrants."
RISK OF LOW-PRICED STOCKS. If the Company's securities were delisted
from Nasdaq they may become subject to Rule 15c2-6 under the 1934 Act, which
imposes additional sales practice requirements on broker-dealers which sell such
securities to persons other than established customers and "accredited
investors" (generally, individuals with net worth in excess of $1,000,000 or
annual incomes exceeding $200,000 or $300,000 together with their spouses). For
transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently, the rule may
adversely affect the ability of purchasers in this offering to sell any of the
securities acquired hereby in the secondary market.
The Commission has adopted regulations which define a "penny stock" to
be an equity security that has a market price (as therein defined) less than
$5.00 per share or with an exercise price of less than $5.00 per share, subject
to certain exceptions. For any transaction involving a penny stock, unless
exempt, the rules require delivery, prior to any transaction in a penny stock,
of a disclosure schedule prepared by the Commission relating to the penny stock
market. Disclosure is also required to be made about commissions payable to both
the broker-dealer and the registered representative and current quotations for
the securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stocks.
The foregoing required penny stock restrictions will not apply to the
Company's securities to the extent such securities are listed on Nasdaq and have
certain price and volume information provided on a current and
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continuing basis or meet certain minimum net tangible assets or average revenue
criteria. In any event, even if the Company's securities are exempt from such
restrictions, the Company would remain subject to Section 15(b)(6) of the 1934
Act, which gives the Commission the authority to prohibit any person that is
engaged in unlawful conduct while participating in a distribution of a penny
stock from associating with a broker-dealer or participating in a distribution
of a penny stock, if the Commission finds that such a restriction would be in
the public interest.
If the Company's securities were subject to the rules on penny stocks,
the market liquidity for the Company's securities could be severely adversely
affected.
USE OF PROCEEDS
Holders are not obligated to exercise their Options and there can be no
assurance that holders will exercise all or any of their Options. The Company
intends to use any net proceeds received upon the exercise of the Options for
general corporate purposes and working capital to support anticipated growth,
including possible acquisitions, the production of the TelePad 3 and related
hardware and software products and the development of additional products. The
Company does not currently have any agreements, commitments or arrangements with
respect to any proposed acquisitions and there can be no assurance that any
acquisition will be consummated. There can be no assurance that any Options will
be exercised and, therefore, there can be no assurance that the Company will
realize any net proceeds from the exercise of the Options. The Company will
receive no proceeds from sales of securities, if any, by the Selling
Securityholders. See "Selling Securityholders and Plan of Distribution."
DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company consists of an aggregate of
94,406,937 shares of Class A Common Stock, par value $.01 per share, 593,063
shares of Class B Common Stock, and 5,000,000 shares of Preferred Stock. As of
the date hereof, there were outstanding 11,520,037 shares of Class A Common
Stock and 150,000 shares of Class B Common Stock.
IPO UNITS
Each IPO Unit consists of one share of Class A Common Stock, one Class
A Warrant and one Class B Warrant. Each Class A Warrant currently entitles the
holder to purchase approximately 1.44 shares of Class A Common Stock (as
adjusted) and one Class B Warrant.
Each Class B Warrant currently entitles the holder to purchase
approximately 1.44 shares of Class A Common Stock (as adjusted). The Class A
Common Stock, Class A Warrants and Class B Warrants became separately
transferable upon issuance.
COMMON STOCK
Class A Common Stock
Holders of Class A Common Stock have one vote per share on each matter
submitted to a vote of the stockholders. Holders of the Class A Common Stock do
not have preemptive rights to purchase additional shares of Common Stock or
other subscription rights. The Class A Common Stock carries no conversion rights
and is not subject to redemption or to any sinking fund provisions. All shares
of Class A Common Stock are entitled to share equally in dividends from legally
available sources as determined by the Board of Directors, subject to any
preferential dividend rights of the Preferred Stock (described below). Upon
dissolution or liquidation of the Company, whether voluntary or involuntary,
holders of the Class A Common Stock are entitled to receive assets of the
Company available for distribution to the stockholders, subject to the
preferential rights of the Preferred Stock.
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<PAGE>
Class B Common Stock
The Class B Common Stock is substantially identical to the Class A
Common Stock, except that (i) the holders of Class B Common Stock have five
votes per share on each matter considered by stockholders and the holders of the
Class A Common Stock have one vote per share on each matter considered by
stockholders; (ii) if stock dividends, splits, distributions, reverse splits,
combinations, reclassification of shares, or other recapitalizations
(collectively, "Recapitalizations") are declared or effected, such
Recapitalizations shall be effected in a like manner with respect to the Class A
Common Stock and the Class B Common Stock and payments in shares of capital
stock shall be paid in shares of Class A Common Stock with respect to the Class
A Common Stock and the Class B Common Stock; and (iii) shares of Class B Common
Stock are convertible into shares of Class A Common Stock at the option of the
holder at any time.
In addition, the transferability of the Class B Common Stock is
restricted by the Company's Charter, unless the shares are first converted into
Class A Common Stock. There is no trading market for the Class B Common Stock
and none will develop. All shares of Class B Common Stock held by any
stockholder automatically convert to Class A Common Stock if the beneficial
owner transfers such shares of Class B Common Stock or upon the death of the
holder of the Class B Common Stock. Scott J. Dankman, former Chairman of the
Board of Directors of the Company, holds all of the outstanding shares and
options to purchase shares of Class B Common Stock. Mr. Dankman has granted a
proxy covering these shares to the Directors of the Company who are not also
employees. Presently, there are 150,000 shares of Class B Common Stock issued
and outstanding. There are 37,500 options to purchase Class B Common Stock
outstanding.
The difference in voting rights increases the voting power of holders
of Class B Common Stock (or their proxy) and accordingly may have an
anti-takeover effect. The existence of the Class B Common Stock may make the
Company a less attractive target for a hostile takeover bid or render more
difficult or discourage a merger proposal, an unfriendly tender offer, a proxy
contest, or the removal of incumbent management, even if such transactions were
favored by the Class A stockholders of the Company. Thus, such stockholders may
be deprived of an opportunity to sell their shares at a premium over prevailing
market prices in the event of a hostile takeover bid. Those seeking to acquire
the Company through a business combination will be compelled to consult first
with the holders of Class B Common Stock (or their proxy) in order to negotiate
the terms of such business combination. Any such proposed business combination
will have to be approved by the Board of Directors, and if stockholder approval
were required, the approval of the holders of Class B Common Stock will be
necessary before any such business combination can be consummated.
PREFERRED STOCK
Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is authorized to determine the rights, preferences,
privileges and restrictions granted to, and imposed upon any series of Preferred
Stock and to fix the number of shares of any series of Preferred Stock and the
designation of any such series, subject, to the consent of the existing holders
of preferred stock, in certain instances. The issuance of Preferred Stock could
be used, under certain circumstances, as a method of preventing a takeover of
the Company and could permit the Board of Directors, without any action of the
holders of the Common Stock to issue Preferred Stock which could have a
detrimental effect on the rights of holders of the Common Stock, including loss
of voting control. Anti-takeover provisions that could be included in the
Preferred Stock when issued may depress the market price of the Company's
securities and may limit stockholders' ability to receive a premium on their
shares of Common Stock by discouraging takeover and tender offer bids. As of the
date of this Prospectus, no shares of Preferred Stock were outstanding.
WARRANTS
Class A Warrants
Each Class A Warrant currently entitles the registered holder to
purchase approximately 1.44 shares of Class A Common Stock and one Class B
Warrant, at a per share exercise price of $4.71 through the close of business on
July 15, 1998, provided that at such time a current prospectus relating to the
Class A Common Stock and the Class B Warrants is in effect and the Class A
Common Stock and the Class B Warrants are qualified for
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<PAGE>
sale or exempt from qualification under applicable state securities laws. The
Class A Warrants are transferable separately from the Class A Common Stock
issued with such Class A Warrants as part of the IPO Units.
The Class A Warrants are currently redeemable by the Company on 30
days' prior written notice at a redemption price of $.05 per Class A Warrant,
provided the average closing bid price of the Company's Class A Common Stock for
any 30 consecutive business days ending within 15 days of the notice of
redemption exceeds $9.50 per share (subject to adjustment by the Company, as
described below, in the event of any reverse stock split or similar events). The
notice of redemption will be sent to the registered address of the registered
holder of the Class A Warrant. All Class A Warrants must be redeemed if any are
redeemed; provided, however, that the Class A Warrants underlying the IPO Unit
Purchase Option may not be called for redemption. See "Plan of Distribution."
Class B Warrants
Each Class B Warrant currently entitles the registered holder to
purchase approximately 1.44 shares of Class A Common Stock at a per share
exercise price of $6.81 per share at any time from the date of issuance through
the close of business on July 15, 1998, provided that at such time a current
prospectus relating to the Class A Common Stock is then in effect and the Class
A Common Stock is qualified for sale or exempt from qualification under
applicable state securities laws. The Class B Warrants included in the Units are
transferable separately from the Class A Common Stock and the Class B Warrants
underlying the Class A Warrants will be separately transferable from the Class A
Common Stock received upon exercise of the Class A Warrants.
The Class B Warrants are currently redeemable by the Company on 30
days' prior written notice at a redemption price of $.05 per Class B Warrant,
provided the average closing bid price of the Class A Common Stock for any 30
consecutive business days ending within 15 days of the notice of redemption
exceeds $13.80 per share (subject to adjustment by the Company, as described
below, in the event of any reverse stock split or similar events). The notice of
redemption will be sent to the registered address of the registered holder of
the Class B Warrant. All Class B Warrants must be redeemed if any are redeemed;
provided, however, that the Class B Warrants subject to the IPO Unit Purchase
Option may not be called for redemption. See "Plan of Distribution."
Class C Warrants
Each Class C Warrant currently entitles the registered holder to
purchase one share of Class A Common Stock at an exercise price of $3.65 per
share any time through the close of business on September 27, 2000, provided
that at such time a current prospectus relating to the Class A Common Stock is
then in effect and the Class A Common Stock is qualified for sale or exempt from
qualification under applicable state securities laws.
The Class C Warrants are currently redeemable by the Company on 30
days' prior written notice at a redemption price of $.05 per Class C Warrant,
provided the average closing bid price of the Class A Common Stock for any 30
consecutive business days ending within 15 days of the notice of redemption
exceeds $8.00 per share (subject to adjustment by the Company, as described
below, in the event of any reverse stock split or similar events). The notice of
redemption will be sent to the registered address of the registered holder of
the Class C Warrant. All Class C Warrants must be redeemed if any are redeemed;
provided, however, that the Class C Warrants subject to the 1994 PPO Unit
Purchase Option granted to Blair (the "1994 PPO Unit Purchase Option") and the
1995 PPO Unit Purchase Option granted to Blair (the "1995 PPO Unit Purchase
Option") may not be called for redemption. See "Plan of Distribution."
Class D Warrants
Each Class D Warrant entitles the registered holder to purchase one
share of Class A Common Stock at a per share exercise price of $3.50 at any time
through the close of business on the fifth anniversary of the date of this
Prospectus, provided that at such time a current prospectus relating to the
Class A Common Stock is in effect and the Class A Common Stock is qualified for
sale or exempt from qualification under applicable state securities laws. See
"Risk Factors -- Current Prospectus and State Registration Required to Exercise
Warrants."
The Class D Warrants are subject to redemption by the Company starting
on the first anniversary of the Effective Date at a redemption price of $0.05
per Class D Warrant, on 30 days' written notice, if the closing bid
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<PAGE>
price of the Class A Common Stock exceeds $7.00 (subject to adjustment by the
Company, in the event of any reverse stock split or similar events) for 30
consecutive business days ending within 15 days of the date on which notice of
redemption is given. The notice of redemption will be sent to the registered
address of the registered holder of the Class D Warrant. All Class D Warrants
must be redeemed if any are redeemed; provided, however, that the Class D
Warrants underlying the Unit Purchase Option granted to Blair in connection with
the Company's 1996 unit offering may not be called for redemption. See "Plan of
Distribution."
General
The Class A Warrants, Class B Warrants, Class C Warrants and Class D
Warrants (collectively, "Warrants") were issued pursuant to warrant agreements
(the "Warrant Agreements") among the Company, Blair and American Stock Transfer
& Trust Company as warrant agent (the "Warrant Agent"), and are evidenced by
warrant certificates in registered form. The exercise prices of the Warrants and
the number and kind of shares of Class A Common Stock or other securities and
property to be obtained upon exercise of the Company Warrants are subject to
adjustment in certain circumstances including a stock split of, or stock
dividend on, or a subdivision, combination or recapitalization of, the Common
Stock or the issuance of shares of Common Stock at less than the market price of
the Common Stock. The exercise prices of the Class A Warrants, Class B Warrants
and Class C Warrants and the number of shares of Class A Common Stock underlying
the Warrants have been adjusted to give effect to the dilution caused by the
1994 Private Placements, the 1995 Private Placement and the Company's 1995
bridge financing transaction in connection with the Company's 1996 unit
offering. Additionally, an adjustment would be made upon the sale of all or
substantially all of the assets of the Company for less than the market value, a
merger or other unusual events (other than share issuances pursuant to employee
benefit and stock incentive plans for directors, officers and employees of the
Company) so as to enable Warrant holders to purchase the kind and number of
shares or other securities or property (including cash) receivable in such event
by a holder of the kind and number of shares of Class A Common Stock that might
otherwise have been purchased upon exercise of such Warrant. No adjustment for
previously paid cash dividends, if any, will be made upon exercise of the
Warrants. The Company is not required to issue fractional shares of Class A
Common Stock, and in lieu thereof will make a cash payment based upon the
current market value of such fractional shares.
The Warrants may be exercised upon surrender of the certificate
representing such Warrants on or prior to the expiration date (or earlier
redemption date) of such Warrants at the offices of the Warrant Agent with the
form of "Election of Purchase" on the reverse side of the warrant certificate
completed and executed as indicated, accompanied by payment of the full exercise
price (by certified or bank check payable to the order of the Company) for the
number of Company Warrants being exercised. Shares of Class A Common Stock
issued upon exercise of Company Warrants for which payment has been received in
accordance with the terms of the Warrants, will be fully paid and
non-assessable. The Warrants may not be exercised unless there is an available
exemption or the underlying securities have been registered.
The Warrants do not confer upon the holder any voting or other rights
of the stockholder of the Company. Upon notice to the warrant holders, the
Company has the right to reduce the exercise price or extend the expiration date
of the Class A, Class B and Class C Warrants. Although this right is intended to
benefit Warrant holders, to the extent the Company exercises this right when the
Warrants would otherwise be exercisable at a price higher than the prevailing
market price of the Class A Common Stock, the likelihood of exercise, and
resultant increase in the number of shares outstanding, may result in making
more costly, or impeding, a change in control in the Company.
TRANSFER AGENT AND WARRANT AGENT
The Company's transfer and warrant agent for the IPO Units, Class A
Common Stock and the Warrants is American Stock Transfer & Trust Company, New
York, New York.
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<PAGE>
SELLING SECURITYHOLDERS AND PLAN OF DISTRIBUTION
An aggregate of up to 550,567 outstanding shares of Class A Common
Stock and 256,218 Class C Warrants, may be offered for resale by Selling
Securityholders. Of these, 524,317 shares of Class A Common Stock and all of
such Class C Warrants were received by Securityholders in connection with the
Private Placements, and 26,250 shares were issued upon the exercise of a certain
option previously granted by the Company as described below.
The following table sets forth certain information with respect to each
Selling Securityholder for whom the Company is registering Class A Common Stock
and/or Class C Warrants for resale to the public which shares and Warrants were
issued in connection with the Private Placements. Each Selling Securityholder is
registering or has registered all of the Class C Warrants held thereby and each
such Selling Securityholder, is registering or has registered all of the Class A
Common Stock held thereby. Consequently, in each case with respect to Class C
Warrants and with respect to Class A Common Stock, if the maximum amount is
sold, either pursuant to this Prospectus or pursuant to a prospectus of the
Company dated March 29, 1996, which provided for the registration of certain
securities of the Company (including shares of Class A Common Stock and Class C
Warrants), the Selling Securityholder will own no Class C Warrants or Common
Stock. The Company will not receive any of the proceeds from the sale of such
securities. Except for John Diesel, Sydney Dankman and Ronald Oklewicz, there
are no material relationships between any of such Selling Securityholders and
the Company or any of its predecessors or affiliates, nor have any such material
relationships existed within the past three years other than a prior consulting
arrangement between the Company and Mr. Morris Sedaka. The Warrants may not be
exercised unless there is an available exemption or the underlying securities
have been registered.
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<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS C WARRANTS
BENEFICIAL MAXIMUM BENEFICIAL MAXIMUM
OWNERSHIP AMOUNT OWNERSHIP AMOUNT
SELLING SECURITYHOLDER PRIOR TO OFFERING TO BE SOLD PRIOR TO OFFERING TO BE SOLD
---------------------- ----------------- ---------- ----------------- ----------
<S> <C> <C> <C> <C>
Magid M. Abraham 50,000 0 27,497 1,000
David Boone 12,500 12,500 6,874 6,874
Boyer & Scheive Pension Fund 12,500 12,500 6,875 6,875
James E. Butler 50,000 50,000 27,494 27,494
Calmerica, Inc. 6,250 6,250 3,438 3,438
Michael Cantor 0 0 13,749 500
John Constantino & Marion Constantino 0 0 1,719 124
Philip Cramer 12,500 12,500 6,875 6,875
Sydney J. Dankman 85,286 85,286 13,750 13,750
John P. Diesel & Joy Guernsey Diesel 37,750 2,500 17,187 999
Robert Donohue 6,250 6,250 3,438 3,438
Donald G. Drapkin 62,500 0 34,370 995
Jules Dreyfus 12,500 12,500 6,874 6,874
Ralph Falk II 25,000 25,000 13,747 13,747
Barry Fradkin 6,250 6,250 3,438 1,238
William Frankel 6,250 6,250 3,438 3,438
Irving L. Goldman 31,250 0 17,185 250
James J. Higbee 6,250 6,250 3,437 3,437
Andrew Alan Holder 6,250 0 3,438 3,438
Thomas M. Horrigan 6,250 6,250 3,437 3,437
Steven P. Hurlburt 34,375 0 18,905 909
Douglas M. Jordan & Wendy A. Jordan 12,500 12,500 6,875 6,875
Alan C. Levinson & Stephanie Levinson 0 0 3,438 3,438
David Moiola 12,500 12,500 6,875 6,875
John Motulsky, IRA Account 6,250 6,250 3,438 3,438
Thomas J. Myers Revocable Trust 25,000 0 13,750 13,750
Eric P. Neibart 18,750 0 10,312 497
Ronald C. Oklewicz & Renette G. Oklewicz 17,781 17,781 3,438 3,438
Michael Ornstein 12,500 12,500 6,874 6,874
Melvin Paradise, Julius Horowitz & Elizabeth 12,500
Krulik, Executors, Estate of Lawrence Krulik 12,500 6,875 6,875
Michael Patoff & Mary Patoff 3,125 0 1,719 1,719
Alan Perl 12,500 0 6,875 6,875
Chester A. Powell, IRA 12,500 12,500 6,875 6,875
Darell L. Price & Bonita L. Price 6,250 6,250 3,438 3,438
Prudential Securities C/F Fay R. Devine, IRA 25,000 25,000 13,750 13,750
Matt C. Schilowitz 43,750 43,750 24,060 24,060
Morris Sedaka 26,250 26,250 0 0
Eugene Silverman 18,750 0 10,312 499
Steven Sklow 18,750 0 10,312 499
George R. Slater, Trustee, the George R.
Irrevocable Trust Slater 6,250 6,250 3,438 3,438
Robert M. Smith, IRA 0 0 3,438 3,438
Patrick J. Storm & Marie A. Storm 6,250 6,250 3,438 3,438
Edward Tawil & Susan E. Tawil 6,250 6,250 3,437 3,437
Laurel R. Tennis, IRA 0 0 6,875 6,875
Mike Teofilovich 12,500 12,500 6,875 6,875
Venturetek L.P. 25,000 25,000 13,750 13,750
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS C WARRANTS
BENEFICIAL MAXIMUM BENEFICIAL MAXIMUM
OWNERSHIP AMOUNT OWNERSHIP AMOUNT
SELLING SECURITYHOLDER PRIOR TO OFFERING TO BE SOLD PRIOR TO OFFERING TO BE SOLD
---------------------- ----------------- ---------- ----------------- ----------
<S> <C> <C> <C> <C>
Harold H. Wippler & Charleen E. Wippler 0 0 3,438 3,438
Aaron Wolfson 12,500 12,500 6,874 6,874
Abraham Wolfson 6,250 6,250 3,437 3,437
Morris Wolfson 25,000 25,000 13,747 13,747
Xanadu Associates L.L.C. 12,500 0 6,875 500
Herman Zeller 12,500 12,500 6,874 6,874
- ----------------------------------------------------------------------------------------------------------------------
Total 875,567 550,567 458,877 256,218
======================================================================================================================
</TABLE>
PLAN OF DISTRIBUTION OF THE SELLING SECURITYHOLDERS
The securities offered hereby are being offered on behalf of the
Selling Securityholders. No underwriter is being utilized in connection with
this offering.
The sale of the securities by the Selling Securityholders may be
effected from time to time in transactions (which may include block transactions
by or for the account of the Selling Securityholders) in the over-the-counter
market or in negotiated transactions, through the writing of options on the
securities, a combination of such methods of sale or otherwise. Sales may be
made at final prices which may be changed, at market prices prevailing at the
time of sale, or at negotiated prices.
The Selling Securityholders may effect such transactions by selling
their securities directly to purchasers, through broker-dealers acting as agents
for the Selling Securityholders or to broker-dealers who may purchase shares as
principals and thereafter sell the securities from time to time in the
over-the-counter market in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders or the purchasers
for whom such broker-dealers may act as agents or to whom they may sell as
principals or otherwise (which compensation as to a particular broker-dealer may
exceed customary commission).
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the shares of Class A Common Stock and/or
Warrants of the Selling Securityholders may not simultaneously engage in market
making activities with respect to any securities of the Company for a period of
at least two (and possibly nine) business days prior to the commencement of such
distribution. Accordingly, in the event Blair is engaged in a distribution of
the shares of Class A Common Stock and/or Warrants of the Selling
Securityholders, such firm will not be able to make a market in the Company's
securities during the applicable restrictive period. However, Blair has not
agreed nor is Blair obligated to act as a broker/dealer in the sale of the
shares of Class A Common Stock and/or Warrants of the Selling Securityholders
and the Selling Securityholders may be required, and in the event Blair is a
market maker, will likely be required, to sell such securities through another
broker/dealer. In addition, each Selling Securityholder desiring to sell shares
of Class A Common Stock and/or Warrants will be subject to the applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including without limitation, Rules 10b-6 and 10b-7, which provisions may limit
the timing of the purchases and sales of the Company's securities by such
Selling Securityholders.
The Selling Securityholders and broker-dealers, if any, acting in
connection with such sale might be deemed to be underwriters within the meaning
of Section 2(11) of the Securities Act and any commission received by them and
any profit on the resale of the securities might be deemed to be underwriting
discounts and commissions under the Securities Act.
The Company has agreed to pay Blair a Solicitation Fee of 4% of the
aggregate exercise price of each Warrant which is exercised, if (i) the market
price of the Class A Common Stock on the date the Warrant is exercised is
greater than the exercise price of the Warrant; (ii) the exercise of the Warrant
was solicited by a member of the NASD; (iii) the Warrant is not held in a
discretionary account; (iv) disclosure of compensation arrangements was made
both at the time of the offering and at the time of exercise of the Warrant; and
(v) the
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<PAGE>
solicitation of exercise of the Warrants was not in violation of Rule 10b-6 as
promulgated under the Exchange Act or respective state blue sky laws. Any costs
incurred by the Company in connection with the exercising of the Warrants shall
be borne by the Company. Certain states limit or restrict the payment of
commissions in conjunction with the exercise of warrants. Any exercise of the
Warrants in those states will not result in the payment of the Solicitation Fee.
Unless granted an exemption by the Commission from Rule 10b-6, Blair
will be prohibited from engaging in any market making activities with regard to
the Company's securities for the period from nine business days (or such other
applicable period as Rule 10b-6 may provide) prior to any solicitation of the
exercise of Warrants until the later of the termination of such solicitation
activity or the termination (by waiver or otherwise) of any right that Blair may
have to receive a fee for the exercise of Warrants following such solicitation.
As a result, Blair may be unable to continue to make a market in the Company's
securities during certain periods while the Warrants are exercisable.
Blair acted as the underwriter of the Company's Initial Public Offering
in July 1993, a public offering in March 1996 and as the placement agent in the
Private Placements. In connection with the Initial Public Offering and
subsequent public offering and the Private Placements, the Company and Blair
agreed to indemnify each other against certain liabilities in connection with
such prior offerings and this offering including liabilities under the
Securities Act.
In connection with the Initial Public Offering, the Company agreed to
sell to Blair and its designees, for nominal consideration, the IPO Unit
Purchase Option to purchase up to 155,000 IPO Units at an adjusted exercise
price of $4.90 per IPO Unit. The IPO Unit Purchase Option and the underlying
securities may not be sold, assigned or transferred for three years from the
date of issuance except to officers of Blair or to any NASD member participating
in the offering and is exercisable during the period ending July 15, 1997.
In connection with the 1994 Private Placement, the Company agreed to
sell to Blair and its designees, for nominal consideration, the 1994 PPO Unit
Purchase Option to purchase up to 31,425 PPO Units at an adjusted exercise price
of $3.63 per PPO Unit. The 1994 PPO Unit Purchase Option is exercisable until
the close of business on September 18, 2000.
In connection with the 1995 Private Placement, the Company agreed to
sell to Blair and its designees, for nominal consideration, the 1995 PPO Unit
Purchase Option to purchase up to 15.45 PPO Units at an adjusted exercise price
of $3.65 per PPO Unit. The 1995 PPO Unit Purchase Option is exercisable until
the close of business on September 18, 2000.
In connection with the 1996 public offering, the Company agreed to sell
to Blair and its designees, for nominal consideration, a Unit Purchase Option
(the "1996 Unit Purchase Option") to purchase up to 2,000 units (each unit
consisting of 285 shares of Class A Common Stock and 1,000 Redeemable Class D
Warrants the "1996 Units") at an exercise price of $1,400 per 1996 Unit. The
1996 Unit Purchase Option and the underlying securities may not be sold,
assigned or transferred for three years from the date of issuance except to
officers of Blair or to any NASD member participating in the offering, and is
exercisable during the two-year period commencing March 29, 1999.
Blair has informed the Company that the Commission is conducting an
investigation concerning various business activities of Blair & Co., a selling
group member which distributed substantially all of the securities offered in
the Initial Public Offering, the 1996 public offering and the Private
Placements. The investigation appears to be broad in scope, involving numerous
aspects of Blair and Blair & Co.'s compliance with the federal securities laws
and compliance with federal securities laws by issuers whose securities were
underwritten by Blair or Blair & Co., or in which Blair or Blair & Co. made
over-the-counter markets, persons associated with Blair or Blair & Co., such
issuers and other persons. The Company has been advised by Blair that the
investigation has been ongoing since at least 1989 and that it is cooperating
with the investigation. Blair cannot predict whether this investigation will
ever result in any type of formal enforcement action against Blair or Blair &
Co., or, if so, whether any such action might have an adverse effect on Blair or
the Company's securities, including those offered hereby. Blair & Co. makes a
market in the securities. An unfavorable resolution of the Commission's
investigation could have the effect of limiting such firm's ability to make a
market in the Company's securities, which could affect the liquidity or price of
such securities.
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<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon by
Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of the Americas, New York, New
York.
EXPERTS
The financial statements of TelePad Corporation appearing in Telepad
Corporation's Annual Report (form 10-K SB) for the year ended December 31, 1995
and for the years then ended, incorporated by reference in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon (which report contains an
explanatory paragraph indicating substantial doubt about the ability of the
Company to continue as a going concern as mentioned in Note 2 to the financial
statements) incorporated by reference therein and incorporated herein by
reference. Such financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission, Washington, D.C. 20549, a
Registration Statement under the 1933 Act with respect to the shares of Common
Stock offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits and schedules thereto.
For further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules filed therewith. Statements contained in this Prospectus as to the
contents of any contract or any other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. A copy of the
Registration Statement may be inspected without charge at the Commission's
principal office, and copies of all or any part of the Registration Statement
may be obtained from such office upon the payment of the fees prescribed by the
Commission.
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<PAGE>
======================================= =======================================
NO PERSON HAS BEEN AUTHORIZED IN
CONNECTION WITH THE OFFERING MADE
HEREBY TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATION NOT CONTAINED
IN THIS PROSPECTUS OR A SUPPLEMENT TO
THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE 357,880 SHARES OF CLASS A COMMON STOCK
COMPANY, THE SELLING STOCKHOLDER OR
ANY OTHER PERSON. NEITHER THIS TELEPAD CORPORATION
PROSPECTUS NOR ANY SUPPLEMENT TO THIS
PROSPECTUS CONSTITUTES AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO
BUY, ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES OR AN
OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY SUCH SECURITIES IN ANY
JURISDICTION WHERE, OR TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY PROSPECTUS
SUPPLEMENT TO THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER OR THEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THEREOF OR
THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATES AS OF WHICH SUCH
INFORMATION IS FURNISHED.
-----------------
TABLE OF CONTENTS
PAGE
----
Available Information............... 4
Information Incorporated by
Reference.......................... 4
Introduction........................ 5
The Company......................... 5
Risk Factors........................ 6 DECEMBER 12, 1996
Use of Proceeds.....................12
Description of Securities ..........12
Selling Securityholders and
Plan of Distribution..............16
Legal Matters.......................20
Experts.............................20
Additional Information..............20
======================================= =======================================
