424(b)(3)
PROSPECTUS
TELEPAD CORPORATION
1,850,000 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 1,850,000 shares of
Class A Common Stock, par value $.01 per share ("Common Stock"), of which
900,000 shares of Common Stock were issued in May 1998 and of which 950,000
shares of Common Stock are issuable upon conversion of the Company's outstanding
Series C 7% Cumulative Redeemable Convertible Preferred Stock ("Preferred
Shares") issued in May 1998 in connection with the Company's acquisition of L&E
Mobile Computer Mounts, Inc. ("L&E"). See "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
Securityholders against certain liabilities. See "Selling Securityholders" and
"Plan of Distribution."
The Common Stock is quoted on the NASDAQ SmallCap Market under the
symbol "TPADA". On October 16, 1998, the closing sale price of the Common Stock
as reported by NASDAQ was $ .4688.
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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 October 16, 1998.
<PAGE>
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) Quarterly Report on Form 10-QSB for the quarter ended June
30, 1998; (iv) Current Report on Form 8-K filed with the SEC on June 11, 1998,
(v) Current Report on Form 8-K/A filed with the SEC on August 10, 1998; and (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. 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. In May 1998, the Company acquired all of the outstanding Capital
Stock of L&E. L&E is a distributor, installer and integrator of vehicle mounted
mobile computers, and a distributor and manufacturer of mobile mounting
products.
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.
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. 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 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 6% per annum, which matured on July 27, 1998, and as
of the date hereof, remained unpaid pending negotiations regarding a possible
amendment of such note. The Company is obligated to make additional capital
contributions to L&E of $333,333 on May 27, 1999 and $334,333 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 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, 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
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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 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.
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THE OFFERING
Securities Registered................. 1,850,000 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.......... 14,871,874 shares of Common Stock (1)
Common Stock trading symbol TPADA
on NASDAQ..........................
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(1) Does not include 32,232,742 shares of Common Stock reserved for
issuance upon the exercise of outstanding options and warrants (issued
prior to the date hereof) to purchase Common Stock and 1,500,000 shares
of Common Stock delivered into escrow with respect to the sale by the
Company of certain Convertible Notes in May 1998. Does not include
shares issuable upon conversion of the Convertible Notes and certain
Put Notes based upon a price of $.98 per share, or shares issuable upon
the exercise of Warrants to purchase 200,000 shares of Common Stock
issued to certain placement agents in connection with the issuance of
the Convertible Notes by the Company. Also 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").
The actual number of Reset Shares that may be issued 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 issuance of
950,000 of the shares that may be offered hereby upon conversion of the
Preferred Shares 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. There can
be no assurance that the Company will 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
Preferred Shares and Convertible 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 Preferred Shares and Convertible Notes and the exercise of the
Warrants. 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 Preferred Shares and Convertible Notes, if any are converted, and
the Warrants if any are exercised, 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. 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 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."
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Substantial Operating Losses; No Assurance of Success. The Company has
incurred substantial operating losses since its inception. At June 30, 1998, the
Company had an accumulated deficit since inception of $37,905,783. 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.
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 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
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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.
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
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
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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 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.
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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. On February 27, 1998, the Company was notified
by The Nasdaq Stock Market, Inc. that the market price for Class A Common Stock
does not meet the quantitative maintenance requirements for minimum bid price
and the Company is therefore subject to being delisted from the NASDAQ SmallCap
Market if this situation is not remedied by May 28, 1998, which time may be
extended through the review process. On June 1, 1998 the Company was notified by
The Nasdaq Stock Market, Inc. that the market price for Class A Common Stock was
again in compliance with the closing bid requirement for continued listing on
The Nasdaq Stock Market. On July 30, 1998, the Company was again notified by The
Nasdaq Stock Market, Inc. that the market price for Class A Common Stock does
not meet the quantitative maintenance requirements for minimum bid price and the
Company is therefore subject to being delisted from the NASDAQ SmallCap Market
if this situation is not remedied by October 30, 1998, which time may be
extended through the review process. There can be no assurance that the Company
will be able to maintain its Nasdaq listing.
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
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<PAGE>
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 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. 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 of Common Stock being offered for resale by the Selling
Securityholders were acquired in connection with the May 1998 acquisition by the
Company of L&E. In connection with the acquisition by the Company of L&E, the
Company granted the Selling Securityholders certain registration rights pursuant
to which the Company agreed to register the shares of Common Stock as described
in this Prospectus.
The following table sets forth certain information regarding the
ownership of shares of Common Stock by the Selling Securityholders as of August
24, 1998, assuming the conversion of the Preferred 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. See "Plan of
Distribution."
Shares of Maximum
Common Stock Shares of
Owned Prior to Common Stock
Offering(1) to be Sold
----------------------- --------------------
Dean N. Eisenberger 925,000 925,000
Christine LeMair 925,000 925,000
----------------------- --------------------
Total 1,850,000 1,850,000
======================= ====================
- -----------------
(1) Includes (i) 950,000 shares of Common Stock, issuable upon conversion
of the Preferred Shares and (ii) 900,000 shares issued to the Selling
Shareholders in May 1998. Dean N. Eisenberg and Christine LeMair are
officers and directors of L&E.
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
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<PAGE>
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.
The Company will not receive any of the proceeds from any sale of the
shares of 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 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.
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<PAGE>
LEGAL MATTERS
The validity of the shares of 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-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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<PAGE>
======================================== =======================================
No person has been authorized in 1,850,000 Shares of
connection with the offering made hereby Class A Common Stock
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 TELEPAD CORPORATION
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 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 PROSPECTUS
solicitation. Neither the delivery of
this Prospectus nor any 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.
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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............ 13
Legal Matters................... 15
Experts......................... 15
Additional Information.......... 15 October 16, 1998
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