PROSPECTUS
TELEPAD CORPORATION
4,200,000 SHARES OF CLASS A COMMON STOCK
(PAR VALUE $.01 PER SHARE)
The Prospectus relates to the offer and sale from time to time for
the account of certain Securityholders (the "Selling Securityholders") of
TelePad Corporation, a Delaware corporation (the "Company") of up to 4,200,000
shares of Class A Common Stock, par value $.01 per share ("Common Stock"), of
which 1,500,000 shares were issued in May 1998. See "The Company - Recent
Developments" and "Selling Securityholders" and "Plan of Distribution."
The shares offered hereby may be sold by the Selling Securityholders
directly or through agents, underwriters or dealers as designated from time to
time or through a combination of such methods. The Company will not receive any
of the proceeds from any sale of shares by or for the account of the Selling
Securityholders. The Selling Securityholders and any broker-dealers that
participate with the Selling Securityholders in the distribution of the shares
offered hereby may be deemed to be underwriters and any commissions received or
profit realized by them in connection with the resale of the shares may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933, as amended (the "Securities Act"). The Company has agreed to bear all
expenses relating to this registration, other than underwriting discounts and
commissions. In addition, the Company has agreed to indemnify the Selling
Stockholders against certain liabilities. See "Selling Stockholders" and "Plan
of Distribution."
The Common Stock is quoted on the NASDAQ SmallCap Market under the
symbol "TPADA". On July 10, 1998, the closing sale price of the Common Stock as
reported by NASDAQ was $ .75.
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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 7.
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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 DATE OF THIS PROSPECTUS IS JULY 10, 1998.
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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 (the "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, 1997, 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, 1998; (iii) Current Report of Form 8-K filed with the SEC on June 11,
1998, and (iv) 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, are hereby incorporated by reference
into this Prospectus. 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 (the "Registration
Statement"), 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 20170, (703) 834-9000, ATTENTION: ROBERT D. RUSSELL, CHIEF FINANCIAL
AND ACCOUNTING OFFICER.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial statements
and notes thereto appearing elsewhere or incorporated by reference in this
Prospectus.
To inform investors of the Company's future plans and objectives,
this Prospectus (and other reports and statements issued by the Company and its
officers from time to time) contain certain statements concerning the Company's
future results, future performance, intentions, objectives, plans and
expectations that are or may be deemed to be "forward-looking statements." The
Company's ability to do this has been fostered by the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), which provides a "safe harbor"
for forward-looking statements to encourage companies to provide prospective
information so long as those statements are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those discussed in the statement. The Company believes it
is in the best interest of investors to take advantage of the "safe harbor"
provisions of the Reform Act. Such forward-looking statements are subject to a
number of known and unknown risks and uncertainties that, in addition to general
economic and business conditions and those described in "Risk Factors" could
cause the Company's actual results, performance and achievements to differ
materially from those described or implied in the forward-looking statements.
THE COMPANY
TelePad Corporation (the "Company") designs, develops and markets
mobile computing and communication systems for customers whose work forces
include substantial numbers of mobile field workers in remote locations ("Field
Force Workers"). The Company's approach is to provide hardware and software
products that support an enterprise's field force workers, connect the Field
Force Workers to their home office, and direct information to the home office
staff and back to the workers in the field. Through this approach, the Company
believes that its customers can significantly enhance profitability and customer
service by providing more effective tools and communications to their Field
Force Workers.
FIELD FORCE SOLUTIONS STRATEGY
The Company's value proposition is that customers can gain
significant competitive advantages through automation of that portion of their
work forces which operate "in the field", outside a traditional office
environment. To that end, the Company endeavors to provide total field force
solutions comprised of purpose-built computer hardware and software linked to
the enterprise through wireless communications ("Field Force Solutions").
Recognizing the need to tailor such solutions to each individual customer, the
Company's Field Force Solutions strategy incorporates consulting and systems
integration services.
To implement its Field Force Solutions strategy, the Company
developed the TelePad line of computers and peripherals specifically designed
for the unique requirements of Field Force Workers. It also offers its customers
the services of its staff of professional management consultants, engineers, and
application programmers. Furthermore, it supports the integration of its
products with third-party hardware products, software products, and wireless
services. Accordingly, a Field Force Solution may be comprised of off-the-shelf
products combined with custom-built or tailored products and services.
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As the Field Force Solutions strategy necessarily requires expertise
in its customers' business, the Company focuses on a limited set of industries.
Currently, these are the utilities, cable television, public safety, and
military equipment maintenance industries.
From 1993 (the time of the Company's initial public offering)
through 1996, the Company devoted most of its resources to developing and
manufacturing its TelePad line of computer hardware. Since 1996 the Company has
enhanced the TelePad 3 to remain within the competitive range with respect to
technology, but more emphasis is being placed on applying the Company's
knowledge of field force automation by offering integrated solutions to
potential customers. Such solutions include reselling hardware from
manufacturers other than the Company where appropriate and offering software,
systems integration, and services.
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 May 27, 1998, the Company, pursuant to a Share Purchase Agreement
dated as of May 27, 1998 (the "Purchase Agreement"), acquired from Christine
LeMaire and Dean N. Eisenberger (collectively the "L&E Shareholders"), all of
the outstanding capital stock of L&E Mobile Computer Mounts, Inc. ("L&E"). L&E
is a distributor, installer and integrator of vehicle mounted mobile computers,
and a distributor and manufacturer of mobile mounting products. At closing,
among other things, the Company paid a total of $1,300,000 in cash to the L&E
Shareholders ("Cash Consideration") and issued to them a total of (a) 900,000
shares of Common Stock (the "Common Stock Consideration"), and (b) 950,000
shares, having a liquidation preference of $1.00 per share, of a new series of
preferred stock designated Series C 7% Cumulative Redeemable Convertible
Preferred Stock ("Preferred Shares"). The Company is obligated to pay an
additional sum as additional consideration (the "Additional Consideration") to
the L&E Shareholders within a specified number of days after the earlier of (i)
the third anniversary of the closing under the Purchase Agreement (the
"Closing"), (ii) the date on which any event included in the definition of
"Acceleration Event" occurs (including specified changes in control of the
Company and certain other extraordinary events regarding the Company or L&E) and
(iii) at the Company's option, on an earlier date (the "Additional Consideration
Payment Date"). The amount of the Additional Consideration will be based on
either (a) a formula using a multiple of L&E's average annual "stand-alone"
earnings before income taxes, depreciation and amortization (as defined in the
Purchase Agreement) from the Closing to the Additional Consideration Payment
Date, or (b) at the Company's option, the present value on the Additional
Consideration Payment Date of $20,000,000 discounted from the third anniversary
of the Closing, assuming a discount rate of 8.5% per annum. As a condition to
the Closing, as a capital contribution, the Company concurrently issued a
non-recourse $333,000 note payable to L&E, which bears interest at a rate of 12%
per annum, and which matures 60 days following the Closing. The Company is
obligated to make additional capital contributions to L&E of $333,000 on May 27,
1999 and $334,000 on May 27, 2000.
The Company obtained $1,000,000 of the Cash Consideration through a
portion of the proceeds realized on May 27, 1998 from the Company's private sale
(the "Private Placement") of convertible notes in the aggregate principal amount
of $1,500,000 (the "Convertible Notes") to certain private investors
(collectively, the "Investors"). The Company, in connection with the Private
Placement, also issued to certain placement agents warrants to purchase 200,000
shares of Common Stock, at an exercise price of $0.98 per share subject to
certain anti-dilution and other adjustment provisions set forth therein (the
"Warrants"). Each Convertible Note bears interest at a rate of 8% per annum,
matures on the first anniversary of the Closing, and is convertible, in $25,000
increments, at the discretion of the holder into Common Stock from time to time
until the principal balance and
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all unpaid interest on such Convertible Note is paid in full (the "Conversion
Date") at a specified per share conversion price. The Company has issued into
escrow 1,500,000 shares of Common Stock reserved for issuance in connection with
the conversion of the Convertible Notes. The issuance of any additional shares
(in excess of such 1,500,000 shares) to be issued by the Company to the
Investors with respect to the conversion of the Convertible Notes, and issuance
of the Put Notes (if any), or to certain placement agents upon exercise of the
Warrants, are subject to prior approval by the Company's shareholders. The
conversion price of the Convertible Notes will be $0.98 per share if the
conversion occurs within the first 120 days following the Closing, and
thereafter if the average closing bid price for the Common Stock on the NASDAQ
SmallCap Market, or any other securities exchange or securities market on which
the Common Stock is then traded for any five consecutive days is less than
$1.31, then the conversion price per share will be the lesser of (i) 75% of the
average closing bid price of the Common Stock on the NASDAQ SmallCap Market, or
any other securities exchange or securities market on which the Common Stock is
then traded, for the five consecutive trading days immediately preceding the
Conversion Date, or (ii) $0.98. The Company has granted the Investors, a
security interest in all of the Company's assets, other than the L&E Stock, to
secure the Convertible Notes. The Investors have agreed to subordinate their
security interest in the Company's assets in favor of liens in connection with
non-convertible debt financing on reasonable commercial terms by the Company but
up to a maximum prior lien of $1,000,000 and provided the Investors have been
given seven business days prior notice of such financing. The Company is also
entitled, subject to certain conditions, to require the Investors to acquire an
additional aggregate amount of $1,000,000 of notes (with each Investor to
purchase an amount equal to two-thirds of the amount of Convertible Notes
purchased by such Investor in the Private Placement (the "Put Notes"). In the
event of the issuance and conversion of the Put Notes, the conversion price, per
share, of such Notes will be 85% of the average closing bid price for the Common
Stock on the Nasdaq SmallCap Market, or on any securities exchange or other
securities market on which the Common Stock is then being traded for the five
days immediately preceding the conversion date. The Put Notes are also subject
to certain antidilution and other adjustment provisions as agreed upon by the
Company and the Investors.
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THE OFFERING
Securities Registered...................... 4,200,000 shares of Common Stock
Common Stock outstanding
prior to the offering hereby............ 13,021,874 shares of Common Stock(1)
Common Stock outstanding
after the offering hereby............... 14,852,486 shares of Common Stock(2)
Common Stock trading symbol
on NASDAQ............................... TPADA
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(1) Does not include 42,558,921 shares of Common Stock reserved for issuance
upon the exercise of outstanding options and warrants (issued prior to the
Private Placement) to purchase Common Stock.
(2) Assumes conversion of the Convertible Notes and the Put Notes based upon a
price of $.98 per share; also assumes exercise of all the Warrants. Does
not include additional shares that may be issued at a later date (the
"Reset Date") by the Company in the event of certain adjustments in the
number of shares issuable upon conversion of the Convertible Notes and the
Put Notes and changes in market price of the Company's shares (the "Reset
Shares"). See "The Company-Recent Developments". The actual number of
Reset Shares that may be issued pursuant to the Private Placement is
dependent upon the market price of the Common Stock during the five
trading days prior to a Reset Date and will therefore vary according to
actual market conditions prevailing during those time periods. The Company
and the Investors have agreed that Reset Shares shall be reserved, for the
purpose of this offering, by providing for the registration of 20,000
shares for each $10,000 of Convertible Notes issued by the Company in its
$1,500,000 Private Placement, which equals 3,000,000 shares (1,500,000
shares of which have been delivered into escrow by the Company for
delivery to the Investors upon conversion, if any, of the Convertible
Notes). Of such 3,000,000 shares, 1,530,612 shares would be issuable at
the initial conversion price of $.98 per share. Accordingly, up to
1,469,388 shares registered hereby would be available for use as Reset
Shares (to the extent such shares are issued by the Company at a future
date). In the event the Company does not issue any Put Notes, or, the Put
Notes or any portion thereof are issued but not converted, then to the
extent that such Put Notes are not issued and converted, the Company
intends to use up to 1,000,000 shares of Common Stock registered pursuant
to the Registration Statement as additional Reset Shares. The issuance of
2,700,000 of the shares that may be offered hereby are subject to prior
approval of the Company's shareholders in compliance with applicable
Nasdaq requirements.
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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, 1997, 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 doubts as to the Company's
ability to continue as a going concern are the Company losses from operations
and negative operating cash flows. In the event the Company is unable to
generate revenues sufficient to cover operating expenses or obtain additional
financing, the Company may be unable to satisfy most of its current liabilities
and would be unable to sustain its operations at the current level thereafter.
The inability to do so may have a material adverse effect on the Company's
business and financial condition.
LIQUIDITY; WORKING CAPITAL NEEDS. To meet working capital cash
requirements, the Company intends to complete additional financings including
the issuance of the Put Notes. There can be no assurance that the Company can or
will be able to issue the Put Notes or obtain sufficient funds to meet, in whole
or in part, its working capital needs from collections of product sales. There
can be no assurance that the Company will be capable of raising additional
capital thereafter, or that the terms upon which such additional funding would
be available to the Company would be acceptable, in which case the Company could
be required to curtail materially, suspend or cease operations.
DILUTION; IMPACT OF SALE OF COMMON STOCK UPON CONVERSION OF THE
CONVERTIBLE NOTES AND THE PUT NOTES, AND EXERCISE OF THE WARRANTS. The
purchasers of the shares offered hereby may experience substantial dilution in
the net tangible value of their shares in the event of the conversion of any or
all of the Convertible Notes, the Put Notes and the exercise of the Warrants.
The Company may issue Put Notes possibly resulting in the issuance of Common
Stock at discounts from future market prices of the Common Stock, which could
result in substantial dilution to existing holders of Common Stock. The sale of
such Common Stock acquired at a discount could have a negative impact on the
trading price of the Common Stock and could increase the volatility in the
trading price of the Common Stock.
The Convertible Notes and the Put Notes, if any are issued, are
convertible into Common Stock at discounts from future market prices of the
Common Stock which could result in substantial dilution to existing holders of
Common Stock. In addition, the Company may issue additional Shares of Common
Stock in the future that are reserved for issuance upon the exercise of
outstanding options and warrants at various exercise prices which could result
in substantial dilution to existing holders of the Company's Common Stock. See
"The Offering". The sale of such Common Stock acquired at a discount could have
a negative impact on the trading price of the Common Stock and could increase
the volatility in the trading price of the Common Stock.
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 anticipates
that the delays in commencing commercial production of the TelePad 3 it has
experienced, have and may continue to adversely affect the demand for TelePad 3s
as potential customers elect to purchase
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competing products. There can be no assurance that the Company ever will
successfully commercialize the TelePad 3 or any other product. See "Risk Factors
- -- Dependence on Manufacturer and Suppliers," 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 March 31,
1998, the Company had an accumulated deficit since inception of $36,465,089. 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 computers 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 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.
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 continue
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. 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. There is no assurance that the TelePad 3 or any other
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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 "-- Liquidity; Working Capital Needs."
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 or
resources to market its products effectively. 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." 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 prior sole
source supplier of microprocessors), Fujitsu Limited, Toshiba Corp., NEC
Technologies, Panasonic, 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
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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.
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 and Ronald C. Oklewicz,
currently 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 employment agreements with Messrs. Barrett and Oklewicz. 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.
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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.
POSSIBLE ADVERSE EFFECTS OF AUTHORIZATION OF PREFERRED STOCK;
ANTI-TAKEOVER EFFECTS; STAGGERED BOARD. 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
(of which 950,000 Preferred Shares were issued in connection with the
acquisition of L&E). 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. The
classification of the Company's Board of Directors would have the effect of
delaying a change in control of the Company. The rights of the holders of Class
A Common Stock would be subject to, and may be adversely affected by the rights
of the holders of Preferred Stock that may be issued in the future.
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.
VOLATILITY OF STOCK PRICE. The trading price of the Common Stock has
been volatile, and it may continue to be so. Such trading price could be subject
to wide fluctuations in response to announcements of business and technical
developments by the Company or its competitors, quarterly variations in
operating results, and other events or factors, including expectations by
investors and securities analysts and the Company's prospects. In addition,
stock markets have experienced extreme price volatility in recent years. This
volatility has had a substantial effect on the market price of the Company's
shares of Class A Common Stock, at times for reasons unrelated to its operating
performance. Such broad market fluctuations may adversely affect the price of
the Common Stock in the future.
YEAR 2000 ISSUES. The Company is aware of the computing issues
associated with the coming of the millennium (year 2000), most notably whether
computer systems will properly recognize date sensitive information when the
year changes to 2000. Systems that do not properly recognize such information
could generate erroneous data or cause a system to fail. Based on preliminary
investigations, the Company currently believes that computers and software used
in its operations and sold by the Company require that the TelePad 3 computer
clock be reset in order to operate properly after 1999. The Company is working
with its suppliers and customers to either verify year 2000 compliance or
identify and execute appropriate changes to make such
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systems year 2000 compliant. The Company believes that the cost of completing
any modifications for year 2000 compliance to the systems used or sold by the
Company will not be material. However, there can be no assurance that the
Company's suppliers will be correct in their assertions that their products are
year 2000 compliant or that the Company's estimate of the cost of systems
modifications for year 2000 compliance will prove ultimately to be correct.
USE OF PROCEEDS
The shares of Common Stock offered hereby are being registered for
the account of the Selling Securityholders, and accordingly, the Company will
not receive any of the proceeds from the sale of such shares.
DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company consists of an aggregate
of 95,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock. As
of the date hereof, there were outstanding 13,021,874 shares of Common Stock and
950,000 Preferred Shares.
CLASS A COMMON STOCK
Holders of 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 Common Stock carries no conversion rights and is
not subject to redemption or to any sinking fund provisions. All shares of
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
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.
TRANSFER AGENT AND WARRANT AGENT
The Company's transfer agent for Common Stock is American Stock
Transfer & Trust Company, New York, New York.
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<PAGE>
SELLING SECURITYHOLDERS
The Shares being offered for resale by the Selling Securityholders
were acquired in connection with the May 1998 Private Placement under the terms
provided in certain Subscription Agreements. In connection with the Private
Placement, the Company granted the Selling Securityholders certain registration
rights pursuant to which the Company agreed not to take any action to terminate
the Registration Statement, of which this Prospectus is a part, until the
earliest of (i) three years after the effectiveness of the Registration
Statement of which this Prospectus forms a part (or such other Registration
Statement described in the Subscription Agreements), (ii) repayment of the
amounts due under the notes issued pursuant to the Subscription Agreements, or
(iii) the sale by the subscribers and placement agents of all the shares of
Common Stock issuable pursuant to the Subscription Agreement.
The following table sets forth certain information regarding the
ownership of shares of Common Stock by the Selling Securityholders as of June
22, 1998, assuming the conversion of the Preferred Shares, the Convertible
Notes, the Put Notes, and the exercise of the Warrants offered hereby and the
issuance of all the Reset Shares. The information in the table concerning the
Selling Securityholders who may offer shares hereunder from time to time is
based on information currently available to the Company, except for the assumed
conversions and exercise described above. Information concerning the Selling
Securityholders may change from time to time and any changes of which the
Company is advised will be set forth in a Prospectus Supplement to the extent
required. See "Plan of Distribution."
Shares of Maximum
Common Stock Shares of
Owned Prior to Common Stock
Offering(1) to be Sold
-------------- ------------
Libra Finance S.A 100,000 100,000
Sun Capital LLC 7,333 7,333
Ellis Enterprises Ltd. 226,000 226,000
Beeston Investments Ltd. 293,333 293,333
The Hewlett Fund, Inc. 240,000 240,000
Investcor LLC 400,000 400,000
Austrot Anstalt Schaan 1,000,000 1,000,000
Balmore Funds S.A 1,000,000 1,000,000
The Gross Foundation, Inc. 933,333 933,333
--------- ---------
Total 4,199,999(2) 4,199,999(2)
========= =========
- -----------------
(1) Includes (i) 1,530,612 shares of Common Stock, issuable upon conversion of
the Convertible Notes based upon an assumed average closing bid price of
$.98 per share for the five trading days prior to the date of conversion
which have been allocated between the Investors, (ii) an aggregate assumed
total of 1,000,000 shares issuable upon conversion, if any, of the Put
Notes, and (iii) 200,000 shares issuable
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<PAGE>
to certain placement agents in connection with the Private Placement. Also
includes an estimated 1,469,388 Reset Shares that could be issuable at the
Reset Date. The actual number of Reset Shares that may be issued pursuant
to the Agreement is dependent upon the market price of the Common Stock
during the five trading day period prior to a Reset Date, and will
therefore vary according to actual market conditions prevailing during
those time periods. The actual number of Reset Shares that may be issued
cannot be determined at this date and it is possible that no Reset Shares
will be issued by the Company. In the event the Company does not issue any
Put Notes, or, the Put Notes or any portion thereof are issued but not
converted, then to the extent such Put Notes are not issued and converted,
the Company intends to use up to 1,000,000 shares of Common Stock
registered pursuant to the Registration Statement as additional Reset
Shares. See "The Offering".
(2) Total number of shares reflects rounding of fractions to the nearest
share.
The Selling Securityholders are not affiliated with the Company.
Except for Ellis Enterprises Ltd., Libra Finance S.A. and Sun Capital, LCC (who
were placement agents in connection with the Private Placement) the Selling
Securityholders have not had any material relationships with the Company within
the past three years.
PLAN OF DISTRIBUTION
The distribution of the shares offered hereby by the Selling
Securityholders may be effected from time to time in one or more transactions
(which may involve block transactions), in special offerings, exchange
distributions and/or secondary distributions, in negotiated transactions, in
settlement of short sales of Common Stock or a combination or such methods of
sale, at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Such transactions may be
effected on a stock exchange, on the over-the-counter market or privately. The
Selling Stockholders may effect such transactions by selling the Shares to or
through broker-dealers, and such broker-dealers may receive compensation in the
form of underwriting discounts, concessions or commissions from the Selling
Stockholders for whom they may act as agent (which compensation may be in excess
of customary commissions). Without limiting the foregoing, such brokers may act
as dealers by purchasing any and all of the Shares covered by this Prospectus
either as agents for others or as principals for their own accounts and
reselling such securities pursuant to this Prospectus. The Selling Stockholders
and any broker-dealers or other persons acting on the behalf of parties that
participate with such Selling Stockholders in the distribution of the Shares may
be deemed to be underwriters and any commissions received or profit realized by
them on the resale of the Shares may be deemed to be underwriting discounts and
commissions under the Securities Act. As of the date of this Prospectus, the
Company is not aware of any agreement, arrangement or understanding between any
broker or dealer and the Selling Stockholders with respect to the offer or sale
of the Shares pursuant to this Prospectus.
At the time that any particular offering of Shares is made, to the
extent required by the Securities Act, a prospectus supplement will be
distributed, setting forth the terms of the offering, including the aggregate
number of Shares being offered, the names of any underwriters, dealers or
agents, any discounts, commissions and other items constituting compensation
from the Selling Stockholders and any discounts, commissions or concessions
allowed or reallowed or paid to dealers.
Each of the Selling Stockholders may from time to time pledge the
Shares owned by it to secure margin or other loans made to such Selling
Stockholder. Thus, the person or entity receiving the pledge of any of the
Shares may sell them, in a foreclosure sale or otherwise, in the same manner as
described above for such Selling Stockholder.
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<PAGE>
The Company will not receive any of the proceeds from any sale of
the shares of Class A Common Stock by the Selling Stockholders offered hereby.
The Company and the Selling Stockholders have agreed to indemnify
each other against certain liabilities, including liabilities under the
Securities Act. The Company shall bear customary expenses incident to the
registration of the shares of Class A Common Stock for the benefit of the
Selling Stockholders in accordance with such agreements, other than underwriting
discounts commissions and attorneys' fees directly attributable to the sale of
such securities by or on behalf of the Selling Stockholders.
In connection with the Private Placement, the Company granted the
Selling Securityholders certain registration rights pursuant to which the
Company agreed not to take any action to terminate the Registration Statement,
of which this Prospectus is a part, until the earliest of (i) three years after
the effectiveness of the Registration Statement of which this Prospectus forms a
part (or such other Registration Statement described in the Subscription
Agreements), (ii) repayment of the amounts due under the notes issued pursuant
to the Subscription Agreements, or (iii) the sale by the subscribers and
placement agents of all the shares of Common Stock issuable pursuant to the
Subscription Agreement.
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<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby has been 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-KSB) for the year ended December 31, 1997
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon (which contains an explanatory paragraph describing
conditions that raise substantial doubt about the Company's ability to continue
as a going concern as described in Note 8 to the financial statements) included
therein and are 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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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
COMPANY, THE SELLING STOCKHOLDER OR
ANY OTHER PERSON. NEITHER THIS
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 4,200,000 SHARES OF
OFFER TO SELL OR THE SOLICITATION OF CLASS A COMMON STOCK
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
SUPPLEMENT TO THIS PROSPECTUS NOR ANY TELEPAD CORPORATION
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.
PROSPECTUS
-----------------
TABLE OF CONTENTS
PAGE
Available Information............... 2
Information Incorporated by
Reference.......................... 2
Prospectus Summary.................. 3
The Company......................... 3
The Offering........................ 6
Risk Factors........................ 7
Use of Proceeds ....................12
Description of Securities ..........12
Selling Securityholders.............13
Plan of Distribution................14
Legal Matters.......................16
Experts.............................16
Additional Information..............16
July 10 , 1998
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