SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 27, 1998
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TELEPAD CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 0-21934 52-1680936
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(State or other (Commission (IRS Employer
jurisdiction of File Identification
incorporation) Number) Number)
380 HERNDON PARKWAY, SUITE 1900, HERNDON, VIRGINIA 20170
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 834-9000
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Item 1. Changes in Control of Registrant
Not Applicable.
Item 2. Acquisition or Disposition of Assets
On May 27, 1998, TelePad Corporation ("TelePad"), 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, TelePad 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 its Class A Common Stock, par value $.01 per share (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"). TelePad is obligated to pay an additional sum (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 TelePad and certain other extraordinary events regarding TelePad or
L&E); and (iii) at TelePad'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 TelePad'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, TelePad 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 "Note").
TelePad is obligated to make additional capital contributions to L&E of $333,000
on May 27, 1999 and $334,000 on May 27, 2000.
Pursuant to the Certificate of Designations by which the Preferred
Shares were created, each Preferred Share is convertible into one share of
Common Stock, upon approval of such conversion (the "Conversion Proposal") by
the holders of a majority of the outstanding Common Stock voted thereon in
person or by proxy at an annual or special meeting (the "First Meeting"), or a
subsequent annual or special meeting (the "Second Meeting"). TelePad intends to
convene the First Meeting, and if necessary the Second Meeting, to seek
shareholders approval of the Conversion Proposal, no later than the 210th day
following the Closing. If the Conversion Proposal is approved, the 950,000
Preferred Shares will be converted into 950,000 shares of Common Stock (subject
to certain anti-dilution adjustments).
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Subject to TelePad's right to redeem or purchase such shares, failure
of the Preferred Shares to convert into Common Stock on or prior to the 210th
day following the Closing would constitute an event of default under the pledge
agreements between TelePad and the L&E Shareholders as discussed below (the
"Pledge Agreements"), and, as a result, the L&E Shareholders would have a right
to foreclose upon the L&E capital stock acquired by TelePad from the L&E
Shareholders (the "L&E Stock") commencing on the 271st day following the
Closing. The L&E Shareholders and the Investors (defined below) have agreed to
vote all Common Stock held by such persons in favor of the Conversion Proposal.
Dividends, payable annually in cash will begin to accrue on the
Preferred Shares commencing on the earlier of January 1, 2000 and the date on
which the Second Meeting is held if at such meeting shareholder approval of the
Conversion Proposal is not obtained. At any time before, on or after the
dividend commencement date, TelePad may at its option redeem, in whole or in
part, the Preferred Shares at a redemption price equal to their liquidation
preference plus, if the redemption date occurs after the dividend commencement
date, accrued and unpaid dividends thereon to the redemption date.
The Common Stock Consideration and the Preferred Shares are subject to
certain purchase and sale obligations pursuant to the Purchase Agreement.
Specifically, commencing 90 days following the Closing, each L&E Shareholder
shall have the right to cause TelePad to purchase any part, or all, of the
Common Stock Consideration and the Preferred Shares (including all Common Stock
into which such shares may be converted), at a purchase price of $0.38 per share
(the "Put Rights"). The earliest date on which the Put Rights shall terminate is
the 300th day from the Closing, and the latest date is the first anniversary of
the Closing. However, if the Common Stock comprising the Common Stock
Consideration and, if the Conversion Proposal is approved, Common Stock issued
upon conversion of the Preferred Shares are subject to a registration statement
effective under the Securities Act of 1933 as amended (the "Securities Act"),
the Put Right shall terminate on the later to occur of the 300th day after the
Closing and the date such registration statement first becomes effective. If
TelePad fails to file such a registration statement on or before the 210th day
following the Closing an event of default will occur under the Pledge
Agreements, entitling the L&E Shareholders to foreclose upon the L&E Stock as
discussed above.
In addition to its rights to redeem the Preferred Shares under the
Certificate of Designations, TelePad has certain repurchase rights under the
Purchase Agreement (the "Call Rights"). The Call Rights entitle TelePad, from
time to time, to purchase from each L&E Shareholder (a) commencing on the
Closing Date, and expiring on the 210th day following the Closing, up to 450,000
Preferred Shares (or Common Stock if such L&E Shareholder no longer owns any
Preferred Shares) at a purchase price of $0.50 per share; and (b) if the
Conversion Proposal is not approved on or prior to the 210th day following the
Closing, commencing on such 210th day, and expiring 60 days thereafter, up to
475,000 Preferred Shares at a purchase price of $1.00 per share.
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The L&E Shareholders will continue to comprise the senior management of
L&E pursuant to employment agreements with L&E executed at the Closing. Pursuant
to the Purchase Agreement, until the Additional Consideration is paid, (a) the
L&E Shareholders will have the right to nominate three of the five L&E
directors, which three nominees TelePad is obligated to elect, and (b) the
TelePad board of directors is obligated to appoint one of the L&E Shareholders
to the existing vacant seat on TelePad's board of directors, and to nominate
such person as a director.
Until the Additional Consideration has been paid, no dividend or
distribution in respect of the L&E Stock shall be paid or made to TelePad,
except L&E is obligated to pay a dividend at the end of each fiscal quarter, in
respect of the L&E Stock in an aggregate amount equal to the Estimated Tax
Payment. Estimated Tax Payment means (a) 25% of L&E's estimated "stand alone"
tax liability for the then current tax year, less (b) with respect to the
initial tax year in which a change in L&E's method of accounting from "cash
basis" to "accrual basis" occurs, the increase in L&E's estimated "stand alone"
tax liability, if any, incurred solely as a result of such change in accounting
method, to the fullest extent that funds are legally available for declaration
of such dividends.
Pursuant to separate Pledge Agreements, TelePad has granted security
interests in the L&E Stock to L&E and the L&E Shareholders to secure TelePad's
obligations (a) to pay the Note; (b) to pay the Additional Consideration; (c) to
pay the above-discussed additional capital contributions to L&E; (d) to register
the Common Stock of the L&E Shareholders under the Securities Act; (e) to
satisfy the Put Rights, and (f) to nominate as a TelePad director a designee of
the L&E Shareholders (collectively, the "Secured Obligations"). TelePad's
liability in respect of the Secured Obligations is limited to the right of each
L&E Shareholder to foreclose upon the L&E Stock which such L&E Shareholder sold
to TelePad pursuant to the Purchase Agreement. However, as a condition to each
L&E Shareholder's right to foreclose upon L&E Stock prior to the first
anniversary of the Closing, he or she must transfer to TelePad 475,000 Preferred
Shares; provided, however, if such L&E Shareholder owns fewer than 475,000
Preferred Shares, including as a result of the exercise of Put or Call Rights or
redemption rights, then any shortfall shall be satisfied by such L&E Shareholder
by transferring an equal number of shares of Common Stock.
Under the Purchase Agreement, regardless of whether a default under the
Pledge Agreements has occurred, TelePad is entitled at any time to assign and
transfer 50% of the L&E Stock to one L&E Shareholder and the 50% balance of the
L&E Stock to the other L&E Shareholder, in complete satisfaction of all of the
Secured Obligations and in such event TelePad shall not have any personal or
direct obligation or liability for payment, satisfaction or otherwise in respect
of the Secured Obligations. Also, TelePad does not have any personal or direct
obligation or liability in respect of the Secured Obligations except in respect
of foreclosure against the L&E Stock as provided in the Pledge Agreements.
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TelePad obtained $1,000,000 of the Cash Consideration through a portion
of the proceeds realized on May 27, 1998 from TelePad's private sale of
convertible notes in the aggregate principal amount of $1,500,000 (the "Investor
Notes"), to the following private investors: Ellis Enterprises LTD, Beeston
Investments LTD, The Hewlett Fund, Inc., Investcor LLC, Austrot Anstalt Schaan,
Balmore Funds S.A., and The Gross Foundation, Inc. (collectively, the
"Investors"). TelePad 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
contained therein (the "Warrants"). Each Investor 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 Investor Note is paid in full (the "Conversion Date") at a specified per
share conversion price subject to certain anti-dilution and other adjustments.
TelePad has issued into escrow 1,500,000 shares of Common Stock reserved for
delivery to the Investors in the event of the conversion of the Investor Notes.
The issuance of any additional shares (in excess of such 1,500,000 shares) by
TelePad to the Investors with respect to the conversion of the Investor Notes
and the issuance of the Put Notes (if any), or to certain placement agents upon
exercise of the Warrants, is subject to prior approval of TelePad's
shareholders. The conversion price 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. TelePad has granted the Investors, a security
interest in all of TelePad's assets, other than the L&E Stock, to secure the
Investor Notes. The Investors have agreed to subordinate their security interest
in TelePad's assets in favor of liens in connection with non-convertible debt
financing on reasonable commercial terms by TelePad 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.
TelePad is obligated to file with the Securities and Exchange
Commission ("SEC") a registration statement covering all of the Common Stock
issuable upon exercise of the Warrants, and not fewer than 20,000 shares of
Common Stock for each $10,000 of aggregate principal amount of the Investor
Notes (the "Investor Shares"). If such registration statement is not declared
effective within 120 days from the date of issuance of the Investor Notes,
TelePad will be obligated to return one-fifth of the proceeds from the sale of
the Investor Notes, which proceeds were paid into escrow by the Investors, in
return for one fifth of the Investor Notes. The Investors are obligated to
purchase from TelePad convertible notes (the "Put Notes") in the aggregate
principal amount of $1,000,000, if TelePad exercises such right during the
45-day period commencing 30 days after the effective date of a registration
statement covering the Investor Shares ("Put Period"). The Investors'
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obligation to purchase the Put Notes is contingent on, among other things,
TelePad filing a registration statement relating to the Common Stock issuable
upon conversion of the Put Note with the SEC on or before 60 days from Closing
and such registration statement being declared effective by the SEC on or before
180 days from Closing.
Upon the occurrence of certain events ("Investor Acceleration Events"),
(i) the interest rate under the Investor Notes is subject to increase from 8%
per annum to 16% per annum, and (ii) all sums of principal and interest then
remaining unpaid under the Investor Notes and all other amounts payable
thereunder, shall be immediately due and payable, at the holders option, all
without demand, presentment or notice, or grace period. Investor Acceleration
Events include, among other things, (i) the failure of TelePad to obtain the
approval of its shareholders required pursuant to NASDAQ's corporate governance
rules to allow conversion of the Investor Notes and exercise of all the Warrants
and conversion of the Put Notes, but only to the extent of the Investor Notes
that may not be converted due to TelePad's failure to obtain such shareholder
approval and (ii) if the registration statement covering the Investor Shares,
described in the preceding paragraph, is not declared effective by the SEC prior
to the 180th day after Closing.
The above summary of certain terms and provisions of the Purchase
Agreement, Certificate of Designations, Pledge Agreements, and certain documents
executed in connection with such foregoing mentioned agreements does not purport
to be complete and is subject to, and is qualified in its entirety by reference
to, all of the provisions of such documents which are included herewith as
Exhibits 4.1 and 10.1 through 10.6 inclusive.
Item 3. Bankruptcy or Receivership
Not Applicable.
Item 4. Changes in Registrant's Certifying Accountant
Not Applicable.
Item 5. Other Events
Not Applicable.
Item 6. Resignation of Registrant's Directors
Not Applicable.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
The financial statements relating to L&E are not available at this
time. Such financial statements will be filed by amendment not later than 60
days after the date this report is required to be filed.
(b) Pro Forma Financial Information.
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The required pro forma financial information is not available at this
time. Such information will be filed at the time the required financial
statements are filed.
(c) Exhibits.
4.1 Certificate of Designations, Preferences and
Rights of Series C 7% Cumulative Redeemable
Convertible Preferred Stock of TelePad
Corporation filed May 27, 1998 with the
Secretary of State of Delaware.
10.1 Share Purchase Agreement dated as of May 27,
1998 among TelePad Corporation, L&E Mobile
Computer Mounts, Inc., Christine LeMaire and
Dean N. Eisenberger (excluding attachments
and exhibits).
10.2 Registration Rights Provisions incorporated
in Share Purchase Agreement (Exhibit 10.1)
with respect to certain shares of Common
Stock issued to former shareholders of L&E
Mobile Computer Mounts, Inc.
10.3 $333,000 Promissory Note Payable to L&E
Mobile Computer Mounts, Inc., issued
May 27, 1998
10.4 Pledge and Security Agreement between
TelePad Corporation and Christine LeMaire
dated as of May 27, 1998.
10.5 Pledge and Security Agreement between
TelePad Corporation and Dean N. Eisenberger
dated as of May 27, 1998.
10.6 Pledge and Security Agreement between
TelePad Corporation and L&E Mobile Computer
Mounts, Inc. dated as of May 27, 1998.
99.1 Press release dated May 28, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: June 11, 1998
TELEPAD CORPORATION
By: /s/ Donald W. Barrett
________________________________
Donald W. Barrett
Chairman and Chief Executive Officer
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INDEX TO EXHIBITS
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EXHIBIT |
NUMBER | DESCRIPTION
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4.1 | Certificate of Designations, Preferences and
Rights of Series C 7% Cumulative Redeemable
Convertible Preferred Stock of TelePad
Corporation filed May 27, 1998 with the
Secretary of State of Delaware.
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10.1 | Share Purchase Agreement dated as of May 27,
1998 among TelePad Corporation, L&E Mobile
Computer Mounts, Inc., Christine LeMaire and
Dean N. Eisenberger (excluding attachments and
exhibits).
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10.2 | Registration Rights Provisions incorporated in
Share Purchase Agreement (Exhibit 10.1) with
respect to certain shares of Common Stock issued
to former shareholders of L&E Mobile Computer
Mounts, Inc.
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10.3 | $333,000 Promissory Note Payable to L&E Mobile
Computer Mounts, Inc., issued May 27, 1998.
- --------------------------------------------------------------------------------
10.4 | Pledge and Security Agreement between TelePad
Corporation and Christine LeMaire dated as of
May 27, 1998.
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10.5 | Pledge and Security Agreement between TelePad
Corporation and Dean N. Eisenberger dated as of
May 27, 1998.
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10.6 | Pledge and Security Agreement between TelePad
Corporation and L&E Mobile Computer Mounts, Inc.
dated as of May 27, 1998.
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99.1 | Press release dated May 27, 1998.
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8
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF
SERIES C 7% CUMULATIVE REDEEMABLE CONVERTIBLE
PREFERRED STOCK, PAR VALUE $0.01 PER SHARE,
OF
TELEPAD CORPORATION
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Pursuant to Section 151 of the General Corporation
Law of the State of Delaware
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TELEPAD CORPORATION, a Delaware corporation (the "Corporation"),
certifies that, pursuant to the authority contained in Article Fifth of its
Amended Second Restated Certificate of Incorporation, and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, the Corporation's board of directors (the "Board") duly adopted the
following resolution creating a series of preferred stock of the Corporation
designated as "Series C 7% Cumulative Redeemable Convertible Preferred Stock."
RESOLVED, that pursuant to the authority vested in the Board in
accordance with the provisions of the Corporation's Amended Second Restated
Certificate of Incorporation, a series of preferred stock of the Corporation
designated as "Series C 7% Redeemable Convertible Cumulative Preferred Stock"
be, and hereby is, created, and that the designation and amount thereof and the
voting powers, preferences and relative, participating, optional and the special
rights of the shares of such series, and the qualifications, limitations or
restrictions thereof, are as follows:
1. Designation and Amount. The series of preferred stock established
hereby shall be designated the "Series C 7% Cumulative Redeemable Convertible
Preferred Stock," with a par value of $0.01 per share (the "Series C Preferred
Stock"), and the authorized number of shares of Series C Preferred Stock shall
be 950,000.
2. Rank. The Series C Preferred Stock shall, with respect to dividend
distributions and distributions upon the voluntary or involuntary liquidation,
dissolution and winding-up of the Corporation, rank (i) senior to all classes of
Common Stock and each other class of Capital Stock of the Corporation or series
of preferred stock of the Corporation hereafter created which is not Senior
Stock or Parity Stock ("Junior Stock"), (ii) pari passu with any Parity Stock
and (iii) junior to any Senior Stock.
3. Dividends. The Holders shall be entitled to receive, when, as and if
declared by the Board, but only out of funds legally available therefor,
distributions in the form of cash dividends on each share of Series C Preferred
Stock at a rate of 7% per annum of the Liquidation
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Preference and no more. All dividends (i) shall accrue and be cumulative,
whether or not declared by the Board, on a daily basis from the Dividend
Commencement Date, and (ii) when, as and if declared by the Board, shall be
payable annually in arrears on each Dividend Payment Date commencing with the
first Dividend Payment Date after the Dividend Commencement Date. If any
Dividend Payment Date occurs on a date that is not a Business Day, any accrued
dividends otherwise payable on such Dividend Payment Date shall be payable on
the next succeeding Business Day. Each dividend shall be payable with respect to
Series C Preferred Stock held by Holders as they appear on the Corporation's
stock books on each Dividend Record Date. Dividends shall cease to accrue and
accumulate in respect of Series C Preferred Stock on any Redemption Date or
Conversion Date, as the case may be.
(b) Dividend Payments. Dividends on account of arrears for any past
Dividend Period and dividends in connection with any redemption pursuant to
Section 5(a) may be declared and paid at any time, without reference to any
regular Dividend Payment Date, to Holders on such date as may be fixed by the
Board.
(c) Junior Stock Dividends, Redemptions, etc. So long as any Series C
Preferred Stock is outstanding, the Corporation shall not declare, pay or set
apart for payment any dividend on any Junior Stock or make any payment on
account of, or set apart for payment money for a sinking or other similar fund
for, the purchase, redemption or other retirement of, any Junior Stock, or any
warrants, rights, calls or options exercisable for any Junior Stock (except for
the purchase, redemption or other retirement of such securities which are debt
securities or Senior Stock or Parity Stock) or make any distribution in respect
thereof, either directly or indirectly, and whether in cash, obligations or
Capital Stock of the Corporation (or securities convertible or exchangeable for
obligations or Capital Stock of the Corporation) or other property (other than
dividends, payments, purchases, acquisitions, redemptions, retirements or
distributions in Junior Stock and cash in lieu of fractional shares) and shall
not permit any Subsidiary of the Corporation directly or indirectly to do any of
the same in respect of such Junior Stock (other than dividends, payments,
purchases, acquisitions, redemptions, retirements or distributions in Junior
Stock and cash in lieu of fractional shares) unless and until all dividend
arrearages on the Series C Preferred Stock have been paid in full (whether in
cash or in additional Series C Preferred Stock as provided in Section 3(c)) or
declared and a sum of money or a number of shares of additional Series C
Preferred Stock sufficient for the payment thereof has been set apart.
(d) Pro Rata Dividend Payments. Unless and until all dividend
arrearages on the Series C Preferred Stock have been paid in full, all dividends
declared by the Board upon Series C Preferred Stock or Parity Stock, if any,
shall be declared pro rata with respect to all Series C Preferred Stock and
Parity Stock then outstanding so that the amounts of any dividends declared per
share on the Series C Preferred Stock and such Parity Stock bear the same ratio
to each other at the time of declaration as all accrued and unpaid dividends on
the Series C Preferred Stock and the Parity Stock bear to each other.
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(e) Dividend Computations. (i) Dividends payable on the Series C
Preferred Stock shall be computed by multiplying 7% by the Liquidation
Preference and multiplying the result by a fraction, the numerator of which
shall be the number of days in the particular Dividend Period or, as the case
may be, the actual number of days lapsed in the Dividend Period for which
payable, and the denominator of which shall be 365.
(ii) For any Dividend Period in which dividends are not paid in full on
the Dividend Payment Date next succeeding the end of such Dividend Period, then
on such Dividend Payment Date such accrued and unpaid dividends shall be added,
solely for the purpose of calculating dividends payable on the Series C
Preferred Stock outstanding immediately prior to such Dividend Payment Date, to
the Liquidation Preference at the beginning of the Dividend Period succeeding
the Dividend Period as to which such dividends were not paid and shall
thereafter accrue additional dividends in respect thereof at the rate of 7% per
annum until such accrued and unpaid dividends have been paid in full.
(iii) The holders of Series C Preferred Stock shall not be entitled to
any dividends whether payable in cash, property or stock in excess of the full
cumulative dividends, as provided in Section 3 on the Series C Preferred Stock.
4. Liquidation Preference. (a) Liquidation, Dissolution or Winding-Up.
In the event of any voluntary or involuntary liquidation, dissolution or
winding-up of the affairs of the Corporation, the Holders shall be entitled to
be paid out of the assets of the Corporation available for distribution to its
stockholders an amount equal to the Liquidation Preference for each share
outstanding plus all accrued but unpaid dividends thereon (which accrued but
unpaid dividends shall only be paid in the form of cash) to the date of such
liquidation, dissolution or winding-up, before any payment shall be made or any
assets distributed to the holders of any Junior Stock. If, however, the assets
of the Corporation are not sufficient to pay in full the liquidation payments
payable to the Holders and the holders of any outstanding Parity Stock, then the
holders of all such shares shall share ratably in such distribution of assets in
accordance with the amounts which would be payable on such distribution if the
amount to which the Holders and the holders of any outstanding Parity Stock are
entitled were paid in full. Except as provided in this Section 4(a), Holders
shall not be entitled to any distribution in the event of liquidation,
dissolution or winding-up of the affairs of the Corporation.
(b) Asset Transfers, Mergers and Consolidations. For the purposes of
this Section 4, neither the sale, conveyance, exchange or transfer (for cash,
stock, securities or other consideration) of all or substantially all of the
property or assets of the Corporation nor the consolidation or merger of the
Corporation with or into one or more corporations shall be deemed to be a
voluntary or involuntary liquidation, dissolution or winding-up of the affairs
of the Corporation.
5. Redemption. (a) The Corporation (or any Subsidiary thereof) may, at
the Corporation's option redeem at any time and from time to time, from any
source of funds legally
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available therefor, in whole or in part, as provided in Section 5(b), the Series
C Preferred Stock, at a redemption price payable in cash equal to the Redemption
Price.
(b) Redemption Procedure. At least five Business Days and not more than
60 days prior to the date fixed by the Board for any redemption of the Series C
Preferred Stock (the "Redemption Date"), written notice (the "Redemption
Notice") shall be given by first class mail, postage prepaid, to each Holder on
the record date fixed for such redemption of the Series C Preferred Stock at
such Holder's address as the same appears on the Corporation's stock books. The
Redemption Notice shall state:
(1) that such notice constitutes a Redemption Notice pursuant to
Section 5(a);
(2) the Redemption Price;
(3) the Redemption Date;
(4) that the Holder is to surrender to the Corporation his certificate
or certificates representing the Series C Preferred Stock to be redeemed,
specifying the place or places where, and the manner in which, certificates for
Series C Preferred Stock are to be surrendered for redemption;
(5) that dividends on the Series C Preferred Stock to be redeemed shall
cease to accumulate on the Redemption Date, unless the Corporation defaults in
the payment of the amounts necessary for such redemption, in which case,
dividends shall continue to accumulate from the Redemption Date until such
payment is made; and
(6) all funds necessary for such redemption shall, as of the Redemption
Date, have been set aside by the Corporation separate and apart from its other
funds, in trust for the benefit of the Holders pursuant this Section 5.
(ii) Each Holder shall surrender the certificate or certificates
representing such Series C Preferred Stock to the Corporation, duly endorsed, in
the manner and at the place designated in the Redemption Notice, and on the
Redemption Date the full Redemption Price for such shares so surrendered shall
be payable in cash to the Person whose name appears on such certificate or
certificates as the owner thereof, and each surrendered certificate shall be
cancelled and retired.
(iii) If, on or before the Redemption Date, all funds necessary for
such redemption shall have been set aside by the Corporation, separate and apart
from its other funds, in trust for the pro rata benefit of the Holders of the
shares so called for redemption, so as to be and continue to be available
therefor, then, notwithstanding that any certificate for shares so called for
redemption shall not have been surrendered for cancellation, all shares so
called for redemption shall no longer be deemed outstanding on and after such
Redemption Date, and all rights with respect to such shares shall forthwith on
such Redemption Date cease and terminate, except only the right of
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the Holders thereof to receive the amount payable on redemption thereof, without
interest. Any interest accrued on such funds shall be paid to the Corporation
from time to time, as it may request.
(iv) Any funds so set aside or deposited, as the case may be, by the
Corporation and unclaimed as of 90 days after such Redemption Date shall be
released or repaid to the Corporation, after which the Holders of the shares so
called for redemption shall look only to the Corporation for payment thereof.
6. Automatic Conversion. (a) Conversion and Effectiveness. As of the
Conversion Date, the Series C Preferred Stock shall automatically be
reclassified as, and converted into, Class A Common Stock, without any action of
the Holder, as follows (the "Conversion"):
(i) Each share of Series C Preferred Stock shall be converted into such
number of fully paid and nonassessable shares of Class A Common Stock that
equals the Liquidation Preference of the share of Series C Preferred Stock plus
all accrued but unpaid dividends thereon to, but not including, the Conversion
Date divided by the Conversion Price, provided, however, that if the Conversion
Date occurs after the Dividend Commencement Date, the Corporation shall be
entitled, in lieu of issuing Class A Common Stock in respect of all or any part
of the accrued but unpaid dividends, to pay in cash all or any part of such
unpaid dividends (the "Cash Election").
(ii) If the Corporation elects to exercise the Cash Election, it shall
do so on a pro rata basis in respect of the outstanding Series C Preferred
Stock; and
(iii) Within 10 Business Days after the Conversion Date, written notice
of the Conversion and, if applicable, of the Cash Election shall be given by
first class mail, postage prepaid, to each Holder at such Holder's address as
the same appears on the Corporation's stock books, which notice shall state (1)
the number of shares of Class A Common Stock into which the Series C Preferred
Stock has been converted and, if the Cash Election has been exercised, that all
or, as the case may be, that a specified part of the accrued but unpaid
dividends will be paid in cash pursuant to the Cash Election, (2) the Conversion
Date and (3) that the Holder is to surrender to the Corporation his certificate
or certificates formerly representing the Series C Preferred Stock that has been
converted into Class A Common Stock and, if the Cash Election has been
exercised, the right to receive cash in an amount equal to all or such portion
of the accrued but unpaid dividends, as the case may be, for which the Cash
Election was exercised (the "Cash Portion").
(b) Conversion Procedures. The Holder of any Series C Preferred Stock
converted shall surrender the certificate representing such Series C Preferred
Stock (the "Series C Preferred Stock Certificate") at the office or agency then
maintained by the Corporation for the transfer of the Series C Preferred Stock.
Such Holder shall state in the notice tendered with the Series C Stock
Certificate the name or names (with addresses) in which the certificate or
certificates for Class A Common Stock which shall be issuable upon such
conversion shall be issued, and such notice shall be accompanied by transfer
taxes, if required. Each Series C Preferred Stock
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Certificate surrendered for conversion shall, unless the shares issuable on
conversion are to be issued in the same name as the registration of such Series
C Preferred Stock Certificate, be duly endorsed by, or be accompanied by
instruments of transfer in form satisfactory to the Corporation duly executed
by, the Holder or such Holder's duly authorized attorney.
As promptly as practicable, but in no event later than 10 Business
Days, after the surrender of such Series C Preferred Stock Certificate and the
receipt of such notice and funds, if any, as aforesaid, the Corporation shall
issue and shall simultaneously deliver at such office or agency to such Holder,
or on his written order, a certificate or certificates for the number of shares
of Class A Common Stock issuable upon the conversion of such Series C Preferred
Stock represented by the Series C Preferred Stock Certificate so surrendered or
portion thereof in accordance with the provisions of this Section 6. If less
than all of the Series C Preferred Stock represented by a Series C Preferred
Stock Certificate surrendered for conversion is to be converted into Class A
Common Stock as a result of the exercise of the Cash Election, the Corporation
shall simultaneously deliver to or upon the written order of the Holder of such
Series C Preferred Stock Certificate a check in an amount equal to the Cash
Portion.
Upon the Conversion Date, (i) all Series C Preferred Stock shall no
longer be deemed to be outstanding and all rights with respect to such shares,
including the rights, if any, to receive notices and to vote, shall forthwith
cease, except only the right of the Holders thereof, subject to the provisions
of this Section 6, to receive Class A Common Stock in exchange therefor and, if
the Cash Election has been exercised, the Cash Portion, and (ii) the Person or
Persons entitled to receive the Class A Common Stock into which their Series C
Preferred Stock has been converted shall be treated for all purposes, including
dividends and other distributions thereafter in respect of Class A Common Stock,
as having become the owners of such Class A Common Stock.
If any Series C Preferred Stock shall be called for redemption pursuant
to Section 5, such shares shall no longer be subject to conversion into Class A
Common Stock under this Section 6.
(c) The Conversion Price at which Series C Preferred Stock is
convertible into Class A Common Stock shall be subject to adjustment from time
to time as provided in this Section 6(c) (unless otherwise indicated, all
calculations under this Section 6(c) shall be made to the nearest $0.01):
(i) In case the Corporation shall (A) declare a dividend or make a
distribution on the outstanding Class A Common Stock in Capital Stock of the
Corporation, (B) subdivide or reclassify the outstanding Class A Common Stock
into a greater number of shares (or into other securities or property), or (C)
combine or reclassify the outstanding Class A Common Stock into a smaller number
of shares (or into other securities or property), the Conversion Price in effect
at the close of business on the date fixed for the determination of stockholders
entitled to receive such dividend or other distribution, or to be affected by
such subdivision, combination or other reclassification, shall be adjusted by
multiplying such Conversion Price by a fraction, the numerator of which shall be
the total number of outstanding shares of Class A Common Stock
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<PAGE>
immediately prior to such event, and the denominator of which shall be the total
number of outstanding shares of Class A Common Stock immediately after such
event. An adjustment made pursuant to this subparagraph (i) shall become
effective immediately after the record date for such event, or, if there is no
record date, upon the effective date for such event. Any Class A Common Stock
issuable in payment of a dividend shall be deemed to have been issued
immediately prior to the time of the record date for such dividend for purposes
of calculating the number of outstanding shares of Class A Common Stock under
subparagraphs (ii) and (iii) below. Adjustments pursuant to this subparagraph
shall be made successively whenever any event specified above shall occur.
(ii) In case the Corporation shall fix a record date for the issuance
of rights, options or warrants to all holders of Class A Common Stock entitling
them for a specified period not to exceed 21 days from the date of such issuance
to subscribe for or purchase Class A Common Stock (or securities convertible
into or exchangeable for Class A Common Stock) at a price per share (or having a
conversion price or exchange price per share, subject to normal antidilution
adjustments) less than the Current Market Price (as defined in subparagraph
(vii) below) of Class A Common Stock on such record date, the Conversion Price
in effect at the close of business on such record date shall be reduced by
multiplying such Conversion Price by a fraction, the numerator of which shall be
the number of shares of Class A Common Stock outstanding on the date of issuance
of such rights, options or warrants plus the number of shares of Class A Common
Stock which the aggregate offering exercise price for the total number of shares
of Class A Common Stock covered by such rights, options or warrants would
purchase at the Current Market Price as of such record date, and the denominator
of which shall be the number of shares of Class A Common Stock outstanding on
the date of issuance of such rights, options or warrants plus the number of
additional shares of Class A Common Stock offered for subscription or purchase
in connection with such rights, options or warrants. Such adjustment shall be
made whenever such rights, options or warrants are issued, and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights, options or warrants. In case any
rights, options or warrants referred to in this subparagraph (ii) in respect of
which an adjustment shall have been made shall expire unexercised the Conversion
Price shall be readjusted at the time of such expiration to the Conversion Price
that would have been in effect if no adjustment had been made on account of the
distribution or issuance of such expired rights, options or warrants.
(iii) In case the Corporation shall fix a record date for the making of
a distribution to all holders of Class A Common Stock (A) of shares of any class
other than Class A Common Stock, (B) of evidences of indebtedness of the
Corporation or any Subsidiary, (C) of assets or other property or (D) of rights,
options or warrants (excluding those rights, options or warrants resulting in an
adjustment pursuant to subparagraph (ii) above), then in each such case the
Conversion Price shall be reduced so that such price shall equal the price
determined by multiplying the Conversion Price in effect immediately prior to
the effectiveness of the Conversion Price reduction contemplated by this
subparagraph (iii) by a fraction, the numerator of which shall be the Current
Market Price per share of Class A Common Stock as of the record date for such
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<PAGE>
distribution, less the then fair market value (as determined by the Board, whose
reasonable determination shall be described in a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board and to be in full force and effect on the date of such certification
(a "Board Resolution")) of the portion of the securities, evidences of
indebtedness, assets, property or rights, options or warrants so distributed, as
the case may be, which is applicable to one share of Class A Common Stock, and
the denominator of which shall be the Current Market Price per share of Class A
Common Stock as of the record date for such distribution. Such adjustment shall
be made successively whenever such a record date is fixed.
(iv) In case the Corporation shall issue Class A Common Stock for a
consideration per share less than the Current Market Price per share on the date
the Corporation fixes the offering price of such additional shares, the
Conversion Price shall be adjusted immediately thereafter so that it shall equal
the price determined by multiplying the Conversion Price in effect immediately
prior thereto by a fraction, of which the numerator shall be the total number of
shares of Class A Common Stock outstanding immediately prior to the issuance of
such additional shares plus the number of shares of Class A Common Stock which
the aggregate consideration received (determined as provided in subparagraph
(vi) below) for the issuance of such additional shares would purchase at the
Current Market Price per share and the denominator shall be the number of shares
of Class A Common Stock outstanding immediately after the issuance of such
additional shares. Such adjustment shall be made successively whenever such an
issuance is made.
(v) In case the Corporation shall issue any securities convertible into
or exchangeable for Class A Common Stock (excluding (A) securities issued in
transactions resulting in adjustment pursuant to subparagraphs (ii) and (iii)
above, (B) Series C Preferred Stock, and (C) upon conversion of any of such
securities) for a consideration per share of Class A Common Stock deliverable
upon conversion or exchange of such securities (determined as provided in
subparagraph (vi) below and subject to normal antidilution adjustments) less
than the Current Market Price per share in effect immediately prior to the
issuance of such securities, the Conversion Price shall be adjusted immediately
thereafter so that it shall equal the price determined by multiplying the
Conversion Price in effect immediately prior thereto by a fraction, of which the
numerator shall be the number of shares of Class A Common Stock outstanding
immediately prior to the issuance of such securities plus the number of shares
of Class A Common Stock which the aggregate consideration received (determined
as provided in subparagraph (vi) below) for such securities would purchase at
the Current Market Price per share and the denominator shall be the number of
shares of Class A Common Stock outstanding immediately prior to such issuance
plus the maximum number of shares of Class A Common Stock deliverable upon
conversion of or in exchange for such securities at the initial conversion or
exchange price or rate. Such adjustment shall be made successively whenever such
an issuance is made.
Upon the termination of the right to convert or exchange such
securities, the Conversion Price shall forthwith be readjusted to such
Conversion Price as would have been obtained had the adjustments made upon the
issuance of such convertible or exchangeable securities been made
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<PAGE>
upon the basis of the delivery of only the number of shares of Class A Common
Stock actually delivered upon conversion or exchange of such securities and upon
the basis of the consideration actually received by the Corporation (determined
as provided in subparagraph (vi) below) for such securities.
(vi) For purposes of any computation pursuant to subparagraphs (iv) or
(v) above, the following shall apply:
(A) notwithstanding the provisions of subparagraph (iv) or subparagraph
(v), no adjustment to the Conversion Price will be made (1) upon the exercise of
any rights, options or warrants outstanding on the date hereof to subscribe for
or purchase Class A Common Stock (or securities convertible into Class A Common
Stock), (2) upon the exercise of any of the options outstanding on the date
hereof under the Corporation's existing stock option plans or stock option
agreements or upon the exercise of any warrants of the Corporation outstanding
on the date hereof; (3) upon the issuance or exercise of options or warrants
which may hereafter be granted with the Board's approval, or exercised, under
any employee benefit plan or employment or compensation agreement of the
Corporation to one or more officers, directors, employees or consultants of the
Corporation or any Subsidiary, but only with respect to such options or warrants
as are exercisable at prices no lower than the Closing Price of the Class A
Common Stock as of the date of grant thereof; (4) upon the sale of Class A
Common Stock pursuant to stock purchase or similar plans of the Corporation to
officers, directors, employees or consultants of the Company or any Subsidiary,
but only with respect to such sales at prices no lower than 85% of the Closing
Price of the Class A Common Stock as of the date provided in the respective
plan; or (5) upon the sale of any Class A Common Stock, warrants to purchase
Class A Common Stock or convertible securities in an underwritten public
offering, including shares sold upon the exercise of any overallotment option
granted to the underwriters in connection with such offering; (6) upon the sale
of any Class A Common Stock, warrants to purchase Class A Common Stock, put
notes or other convertible securities in connection with Subscription Agreements
between the Corporation and Ellis Enterprises LTD, Beeston Investments LTD,
Hewlett Fund, Inc., Investcor LLC, Austost Anstalt Schaan, Balmore Funds S.A.,
or The Gross Foundation Inc. (collectively, the "Investors"), each dated May
27th, 1998, or the Convertible Notes dated May 27, 1998 issued to the Investors,
or (7) with respect to the issuance of Class A Common Stock upon conversion of
the Series C Preferred Stock, adjusted as appropriate in each case in connection
with any stock split, merger, recapitalization or similar transaction;
(B) in the case of the issuance of Class A Common Stock for cash, the
consideration shall be the amount of such cash, provided that in no case shall
any deductions be made for any commissions, discounts, placement fees or other
expenses incurred by the Corporation for any underwriting or placement of the
issue or otherwise in connection therewith;
(C) in the case of the issuance of Class A Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair market
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<PAGE>
value thereof as determined by the Board, whose reasonable determination shall
be described in a Board Resolution; and
(D) in the case of the issuance of securities convertible into or
exchangeable for Class A Common Stock, the aggregate consideration received
therefor shall be deemed to be the consideration received by the Corporation for
the issuance of such securities plus the additional minimum consideration, if
any, to be received by the Corporation upon the conversion or exchange thereof
(the consideration in each case to be determined in the same manner as provided
in clauses (A) and (B) of this subparagraph (vi)).
(vii) For the purpose of any computation under this Certificate of
Designation, (A) the "Current Market Price" per share at any date shall be
deemed to be the average of the daily Closing Price for the Class A Common Stock
for the 10 consecutive Trading Days commencing 14 Trading Days before such date,
and (B) the "Closing Price" of the Class A Common Stock means the last reported
sale price regular way reported on the NASDAQ "Small Cap" Stock Market or its
successor, or, if not listed or admitted to trading on the NASDAQ "Small Cap"
Stock Market or its successor, the last reported sale price regular way reported
on any other stock exchange or market on which the Class A Common Stock is then
listed or eligible to be quoted for trading, or as reported by the National
Quotation Bureau Incorporated.
(viii) In any case in which this Section shall require that an
adjustment shall become effective immediately after a record date for an event,
the Corporation may defer until the occurrence of such event (A) issuing to the
Holder of any Series C Preferred Stock converted after such record date and
before the occurrence of such event the Class A Common Stock issuable upon such
conversion by reason of the adjustment required by such event over and above the
Class A Common Stock issuable upon such conversion before giving effect to such
adjustment and (B) paying to such Holder an amount in cash in lieu of a
fractional share of Class A Common Stock pursuant to Section 6(h); provided,
however, that the Corporation shall deliver to such Holder a due bill or other
appropriate instrument evidencing such Holder's rights to receive such
additional Class A Common Stock, and such cash, upon the occurrence of the event
requiring such adjustment.
(ix) The Corporation may, but shall not be obligated to, make such
reductions in the Conversion Price, in addition to those required pursuant to
other subparagraphs of this Section 6, as it considers to be advisable so that
any event treated for federal income tax purposes as a dividend of stock or
stock rights shall not be taxable to the recipients.
(x) In case of any consolidation with or merger of the Corporation into
another corporation, or in case of any sale or conveyance of assets to another
corporation of the assets of the Corporation as an entirety or substantially as
an entirety, lawful and adequate provisions shall be made whereby each Holder of
Series C Preferred Stock shall have the right to receive, from such successor or
purchasing corporation, as the case may be, upon the basis and upon the terms
and conditions specified herein, in lieu of the Class A Common Stock immediately
theretofore
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receivable upon the conversion of such Series C Preferred Stock, if any, the
kind and amount of shares of stock, other securities, property or cash or any
combination thereof receivable upon such consolidation, merger, sale or
conveyance by a holder of the number of shares of Class A Common Stock into
which such Series C Preferred Stock might have been converted pursuant hereto
immediately prior to such consolidation, merger, sale or conveyance. In the case
of any such consolidation, merger or sale of substantially all the assets,
appropriate provision shall be made with respect to the rights and interests of
the Holders to the end that the provisions hereof (including provisions for
adjustment of the Conversion Price) shall thereafter be applicable, as nearly as
may be, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise of any conversion rights hereunder.
(xi) In case of any reclassification or change of the Class A Common
Stock issuable upon conversion of Series C Preferred Stock (other than a change
in par value, or from par value to no par value, or as a result of a subdivision
or combination, but including any change in the Class A Common Stock into two or
more classes or series of shares), or in case of any consolidation or merger of
another corporation into the Corporation in which the Corporation is the
continuing corporation and in which there is a reclassification or change
(including a change to the right to receive cash or other property) of the Class
A Common Stock (other than a change in par value, or from par value to no par
value, or as a result of a subdivision or combination, but including any change
in the Class A Common Stock into two or more classes or series of shares),
lawful and adequate provisions shall be made whereby each Holder of Series C
Preferred Stock shall have the right to receive, upon the basis and upon the
terms and conditions specified herein, in lieu of the Class A Common Stock
immediately theretofore receivable upon the conversion of such Series C
Preferred Stock, the kind and amount of shares of stock, other securities,
property or cash or any combination thereof receivable upon such
reclassification, change, consolidation or merger, by a holder of the number of
shares of Class A Common Stock into which such Series C Preferred Stock might
have been converted immediately prior to such reclassification, change,
consolidation or merger.
(xii) Except for repurchases of Class A Common Stock pursuant to the
Share Purchase Agreement, if the Corporation repurchases (by way of tender
offer, exchange offer or otherwise) any Class A Common Stock for a per share
consideration which exceeds the Current Market Price of a share of Class A
Common Stock on the date immediately prior to such repurchase, the Conversion
Price shall be reduced so that such price shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the
effectiveness of the Conversion Price reduction contemplated by this
subparagraph (xii) by a fraction, the numerator of which shall be the number of
shares of Class A Common Stock outstanding immediately prior to such acquisition
multiplied by the Current Market Price per share of the Class A Common Stock on
the immediately preceding Trading Day, and the denominator shall be the sum of
(A) the fair market value (as determined in good faith by the Board) of the
aggregate consideration payable to stockholders as a result of such acquisition,
and (B) the product of the number of shares of Class A Common Stock outstanding
immediately following such acquisition and the Current Market Price per share of
the Class A Common Stock on such immediately preceding Trading Day, such
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<PAGE>
reduction to become effective immediately prior to the opening of business on
the day following such acquisition.
(xiii) If any event occurs as to which the foregoing provisions of this
Section 6(c) are not strictly applicable or, if strictly applicable, would not,
in the good faith judgment of the Board, fairly protect the conversion rights of
the Series C Preferred Stock in accordance with the essential intent and
principles of such provisions, then the Board shall make such adjustments in the
application of such provisions, in accordance with such essential intent and
principles, as shall be reasonably necessary, in the good faith opinion of the
Board, to protect such conversion rights as aforesaid, but in no event shall any
such adjustment have the effect of increasing the Conversion Price, or otherwise
adversely affect the Holders.
(xiv) For purposes of Section 6(c), Class A Common Stock owned or held
at any relevant time by, or for the account of, the Corporation in its treasury
or otherwise, shall not be deemed to be outstanding for purposes of the
calculation and adjustments described therein.
(xv) Nothing in this Section 6 shall in any way affect the
Corporation's right to redeem the Series C Preferred Stock as provided in
Section 5, including redemptions in contemplation of transactions referred to in
the foregoing provisions of this Section 6(c).
(d) Conversion Price Adjustment Deferred. Notwithstanding the foregoing
provisions of this Section 6, (i) no adjustment in the number of shares of Class
A Common Stock into which any Series C Preferred Stock is convertible shall be
required unless such adjustment would require an increase or decrease in such
number of shares of at least 1% and (ii) no adjustment in the Conversion Price
shall be required unless such adjustment would require an increase or decrease
in the Conversion Price of at least $.01 per share; provided, however, that
any adjustments which by reason of this paragraph (d) are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 6 shall be made to the nearest
cent or the nearest 1/100th of a share, as the case may be.
(e) Adjustment Report. Whenever any adjustment is required in the
shares into which any Series C Preferred Stock is convertible, the Corporation
shall forthwith cause a notice of such adjustment, setting forth the adjusted
Conversion Price and the calculation thereof to be mailed to the Holders at
their respective addresses as shown on the Corporation's stock books.
(f) Class A Common Stock. For the purposes of this Section 6, the term
"Class A Common Stock" shall mean (i) the Class A Common Stock or (ii) any other
class of stock resulting from successive changes or reclassifications of such
Class A Common Stock consisting solely of changes in par value or from no par
value to par value, or from par value to no par value. If at any time as a
result of an adjustment made pursuant to the provisions of Section 6(c), the
Holder of any Series C Preferred Stock thereafter surrendered for conversion
shall become entitled to receive any other class of stock such other shares so
receivable upon conversion of any Series C Preferred Stock shall be subject to
adjustment from time to time in a manner and on
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terms as nearly equivalent as practicable to the provisions with respect to the
Class A Common Stock contained in Section 6(c), and the other provisions of this
Section 6 with respect to the Class A Common Stock shall apply on like terms to
any such other shares.
(g) Fractional Shares. The Corporation shall not be required to issue
fractional shares of Class A Common Stock upon the conversion of any Series C
Preferred Stock. If more than one share of Series C Preferred Stock shall be
surrendered for conversion at one time by the same Holder, the number of full
shares of Class A Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares so surrendered. If any
fractional interest in a share of Class A Common Stock would be deliverable upon
the conversion of any Series C Preferred Stock, the Corporation may pay, in lieu
thereof, in cash the appropriate amount based on the Conversion Price.
(h) Termination. The provisions of Section 6 shall automatically
terminate and be null and void as of and after the Dividend Commencement Date.
.
7. Voting Rights. The Series C Preferred Stock shall not be entitled to
vote on any matters submitted to holders of the Corporation's Capital Stock,
except as maybe required by Delaware law.
8. Exclusion of Other Rights. Except as may otherwise be required by
Delaware law, the Series C Preferred Stock shall not have any voting powers,
preferences and relative, participating, optional or other special rights, other
than those specifically set forth in this Certificate of Designation.
9. Reissuances. Series C Preferred Stock that has been issued and
reacquired by the Corporation (or any Subsidiary thereof) in any manner,
including shares surrendered to the Corporation upon conversion, and shares
purchased or redeemed, shall (upon compliance with any applicable provisions of
the laws of Delaware) have the status of authorized and unissued preferred stock
undesignated as to series of preferred stock and may be re-designated and
reissued as part of any series of preferred stock.
10. Business Day. If any payment or redemption shall be required by the
terms hereof to be made on a day that is not a Business Day, such payment or
redemption shall be made on the immediately succeeding Business Day.
11. Headings of Sections. The headings of the various Sections hereof
are for convenience of reference only and shall not affect the interpretation of
any of the provisions hereof.
12. Severability of Provisions. If any right, preference or limitation
of the Series C Preferred Stock set forth in this Certificate of Designation (as
it may be amended from time to time) is invalid, unlawful or incapable of being
enforced by reason of any rule or law or public
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policy, all other rights, preferences and limitations set forth in this
Certificate of Designation (as so amended) which can be given effect without the
invalid, unlawful or unenforceable right, preference or limitation shall,
nevertheless, remain in full force and effect, and no right, preference or
limitation herein set forth shall be deemed dependent upon any other such right,
preference or limitation unless so expressed herein.
13. Record Holders. The Corporation and the transfer agent, if any, for
the Series C Preferred Stock may deem and treat the record holder of any Series
C Preferred Stock as the true and lawful owner thereof for all purposes, and
neither the Corporation nor any agent thereof shall be affected by any notice to
the contrary.
14. Notice. All notices and other communications provided for or
permitted to be given to the Corporation hereunder shall be made by hand
delivery, next day air courier or certified first-class mail to the Corporation
at its principal executive offices at Telepad Corporation, 380 Herndon Parkway,
Suite 1900, Herndon, Virginia 20170, telecopy number (703) 834-9000, Attention:
Chairman, or to such other address as the Corporation shall have designated by
written notice to the Holders.
15. Amendments. This Certificate of Designation may be amended without
notice to or the consent of any Holder to cure any ambiguity, defect or
inconsistency or to make any other amendment provided that any such amendment
does not adversely affect the rights of any Holder. Any provisions of this
Certificate of Designation may also be amended by the Corporation with the vote
or written consent of the Majority Holders.
16. Definitions. As used in this Certificate of Designation, the
following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa),
unless the context otherwise requires:
"Board" means the Corporation's board of directors.
"Board Resolution" has the meaning set forth in Section 6(c)(iii).
"Business Day" means a day that is not a Saturday, a Sunday or a day on
which banking institutions in the State of New York are not required to be open.
Unless specifically stated as a Business Day, all days referred to herein shall
mean calendar days.
"Capital Stock" means, with respect to any Person, any and all shares,
partnership interests, participations, rights in, or other equivalents (however
designated and whether voting or nonvoting) of, such Person's capital stock.
"Cash Election" has the meaning set forth in Section 6(a)(i).
"Cash Portion" has the meaning set forth in Section 6(a)(iii).
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"Certificate of Designation" means this entire Certificate of
Designations, Preferences and Rights of Series C Preferred Stock.
"Charter" means the Corporation's Certificate of Incorporation, as
amended from time to time.
"Class A Common Stock" means the Class A Common Stock, par value $0.01
per share, of the Corporation.
"Class B Common Stock" means the Class B Common Stock, par value $0.01
per share, of the Corporation.
"Closing Price" has the meaning set forth in Section 6(c)(vii).
"Common Stock" means shares of Class A Common Stock and Class B Common
Stock.
"Conversion" has the meaning set forth in Section 6(a).
"Conversion Date" means that the date on which Stockholder Approval has
been obtained.
"Conversion Proposal" means the resolution to be presented to the
holders of Class A Common Stock at the First Meeting and the Second Meeting, as
applicable, with respect to the approval of the reclassification and conversion
of the Series C Preferred Stock into Class A Common Stock pursuant to Section 6.
"Conversion Price" means, initially, $1.00 and, thereafter, such price
as adjusted pursuant to Section 6.
"Corporation" means Telepad Corporation, a Delaware corporation.
"Current Market Price" has the meaning set forth in Section 6(c)(vii).
"Dividend Commencement Date" means the earlier of (a) January 1, 2000
and (b) the date on which the Second Meeting is held if at such meeting
Stockholders Approval is not obtained.
"Dividend Payment Date" means each anniversary of the Dividend
Commencement Date.
"Dividend Period" means the dividend period from and including the
Dividend Commencement Date to, but not including, the first Dividend Payment
Date, and thereafter, each annual period from, and including, the Dividend
Payment Date to, but not including, the next Dividend Payment Date.
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"Dividend Record Date" means the date designated by the Board at a time
a dividend is declared; provided, however, that such date shall not be more than
30 days prior to the respective Dividend Payment Date or such other date
designated by the Board for the payment of dividends in respect of Series C
Preferred Stock.
"First Meeting" means the first special or annual meeting of the
holders of Class A Common Stock held after the date hereof for the purpose of,
among other things, considering and taking action upon a resolution to approve
the Conversion Proposal.
"Holder" means a record holder of one or more outstanding shares of
Series C Preferred Stock.
"Junior Stock" has the meaning set forth in Section 2.
"Liquidation Preference" means, at any time, $1.00 per share of Series
C Preferred Stock.
"Majority Holders" means Holders of Series C Preferred Stock that has a
total Liquidation Preference plus accrued and unpaid dividends thereon that
represents a majority of the total Liquidation Preference of all outstanding
Series C Preferred Stock, plus all accrued and unpaid dividends thereon.
"Parity Stock" means any class or series of stock the terms of which
provide that it is entitled to participate pari passu with the Series C
Preferred Stock with respect to any dividend or distribution or upon
liquidation, dissolution or winding-up of the affairs of the Corporation.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, business trust, joint-stock company,
trust, unincorporated organization or government or agency or political
subdivision thereof.
"Purchase Agreement" means the Share Purchase Agreement dated as of May
27th, 1998, by and among the Corporation, Christine LeMaire, Dean N. Eisenberger
and L&E Mobile Computer Mounts, Inc., a Pennsylvania corporation.
"Redemption Date" has the meaning set forth in Section 5(b).
"Redemption Notice" has the meaning set forth in Section 5(b).
"Redemption Price" means in respect to the referenced Series C
Preferred Stock the sum of (a) its Liquidation Preference; and (b) all accrued
and unpaid dividends thereon to, but not including, the Redemption Date.
"Second Meeting" means the special or annual meeting of the holders of
Class A Common Stock held after the First Meeting (at which Stockholders
Approval was not obtained) but before
16
<PAGE>
January 1, 2000, for the purpose of, among other things, considering and taking
action upon a resolution to approve the Conversion Proposal.
"Senior Stock" means any class or series of stock the terms of which
provide that it is entitled to a preference to the Series C Preferred Stock with
respect to any dividend or distribution or upon voluntary or involuntary
liquidation, dissolution or winding-up of the affairs of the Corporation.
"Series C Preferred Stock" means the 7% Cumulative Redeemable
Convertible Preferred Stock, Series C, par value $0.01 per share, of the
Corporation.
"Series C Preferred Stock Certificate" has the meaning set forth in
Section 6(b).
"Stockholder Approval" means the approval of the Conversion Proposal by
the holders of a majority of the outstanding Class A Common Stock voted thereon
in person or by proxy at the First Meeting, or as the case may be, the Second
Meeting.
"Subsidiary" means, (i) with respect to any Person, a corporation a
majority of whose Capital Stock with voting power under ordinary circumstances
to elect directors is at the time, directly or indirectly, owned by such Person,
by a Subsidiary of such Person or by such Person and a Subsidiary of such
Person, or (ii) any other Person (other than a corporation) of which at least a
majority of the voting interest is at the time, directly or indirectly, owned by
such Person, by a Subsidiary of such Person or by such Person and a Subsidiary
of such Person.
"Trading Day" shall mean a day on which securities are traded or quoted
on the national securities exchange or quotation system or in the over-the-
counter market used to determine the Closing Price.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
duly executed by Donald W. Barrett, its Chairman and Chief Executive Officer,
and attested by Robert D. Russell, its Corporate Secretary, this 27th day of
May, 1998.
TELEPAD CORPORATION
By: /s/ Robert D. Russell
_______________________________
Name: Robert D. Russell
Title: Vice President, Treasurer,
Chief Financial Officer
17
Exhibit 10.1
================================================================================
SHARE PURCHASE AGREEMENT
DATED AS OF MAY 27, 1998
BY AND AMONG
TELEPAD CORPORATION
A DELAWARE CORPORATION,
CHRISTINE LEMAIRE AND DEAN N. EISENBERGER,
AND
L&E MOBILE COMPUTER MOUNTS, INC.,
A PENNSYLVANIA CORPORATION
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
ARTICLE I
DEFINITIONS...........................................................1
Section 1.01. Definitions...........................................1
ARTICLE II
PURCHASE OF SHARES....................................................9
Section 2.01. Basic Transaction.....................................9
Section 2.02. Telepad Share Legends................................11
Section 2.03. Additional Consideration.............................12
Section 2.04. Dispute Resolution...................................13
Section 2.05. Further Assurances...................................14
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
AND THE COMPANY REGARDING THE COMPANY................................14
Section 3.01. Capital Share........................................14
Section 3.02. Investments..........................................14
Section 3.03. Corporate Organization; Etc..........................15
Section 3.04. Power and Authority; Etc.............................15
Section 3.05. Restrictive Documents................................15
Section 3.06. Consents.............................................15
Section 3.07. Books and Records....................................16
Section 3.08. Bank Accounts and Powers of Attorney.................16
Section 3.09. Financial Statements.................................16
Section 3.10. Accounting Records...................................17
Section 3.11. Title to Properties; Encumbrances....................17
Section 3.12. Real Property........................................17
Section 3.13. Absence of Certain Changes...........................17
Section 3.14. Accounts Receivable..................................18
Section 3.15. Leases...............................................18
Section 3.16. Assets...............................................19
Section 3.17. Patents, Trademarks, Trade Names, Etc................19
Section 3.18. Contracts and Commitments............................19
Section 3.19. Customers and Suppliers..............................21
Section 3.20. Labor Difficulties...................................21
Section 3.21. Personnel............................................21
Section 3.22. Employee Plans.......................................21
Section 3.23. Litigation...........................................23
Section 3.24. Compliance with Law..................................24
i
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Section 3.25. Permits..............................................24
Section 3.26. Dividends and Other Distributions....................24
Section 3.27. Undisclosed Liabilities..............................24
Section 3.28. Taxes................................................25
Section 3.29. Insurance............................................25
Section 3.30. Environmental Laws and Regulations...................25
Section 3.31. Absence of Certain Payments..........................26
Section 3.32. Insider Interests....................................26
Section 3.33. Brokers and Finders..................................26
Section 3.34. Product or Service Liability.........................26
Section 3.35. Governmental Interaction.............................26
Section 3.36. Security Matters.....................................27
Section 3.37. Government Furnished Property........................27
Section 3.38. Estimates............................................27
Section 3.39. Disclosure...........................................27
Section 3.40. Cumulative Exceptions................................27
ARTICLE IV
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF SELLERS.................28
Section 4.01. Ownership............................................28
Section 4.02. Conflicts............................................28
Section 4.03. Acquisition of Telepad Shares........................28
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TELEPAD............................29
Section 5.01. Corporate Organization; Etc..........................29
Section 5.02. Authorization; Etc. ................................29
Section 5.03. No Violation.........................................29
Section 5.04. Brokers and Finders..................................30
Section 5.05. Capitalization of Telepad............................30
Section 5.06. No General Solicitation..............................30
Section 5.07. Title to Telepad Shares..............................30
Section 5.08. Nasdaq Filings.......................................30
Section 5.09. SEC Filings..........................................30
Section 5.10. Absence of Certain Changes or Events.................31
Section 5.11. Litigation...........................................31
ARTICLE VI
CERTAIN COVENANTS AND AGREEMENTS.....................................31
Section 6.01. Conduct of Company's Business.......................31
Section 6.03. Confidentiality......................................35
Section 6.04. Announcements and Federal Securities Law Matters.....36
Section 6.05. Notification of Certain Matters......................37
Section 6.06. Permits and Approvals................................37
Section 6.07. No Pledges...........................................37
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Section 6.08. No Imposition of Payments............................37
ARTICLE VII
SURVIVAL; INDEMNIFICATION; NONRECOURSE...............................38
Section 7.01. Survival Periods.....................................38
Section 7.02. Statements as Representations........................38
Section 7.03. Indemnification Provisions for the
Benefit of Telepad.................................38
Section 7.04. Indemnification Provisions for Sellers Benefit.......39
Section 7.05. Matters Involving Third Parties......................39
Section 7.06. Nonrecourse Release of Obligations...................40
ARTICLE VIII
CERTAIN ADDITIONAL POST-CLOSING COVENANTS
AND AGREEMENTS.......................................................40
Section 8.01. Tax Matters..........................................40
Section 8.02. Nomination and Election of Directors.................42
Section 8.03. Capital Investment...................................43
Section 8.04. Non-Competition and Non-Solicitation.................43
Section 8.05. Registration Rights..................................44
Section 8.06. Repurchase Obligations...............................44
Section 8.07. Repurchase Rights....................................44
Section 8.08. Sellers' Obligation to Transfer Telepad Shares.......45
Section 8.09. Telepad Board of Directors...........................45
Section 8.10. Conversion Proposal..................................46
ARTICLE IX
CONDITIONS TO CLOSING................................................46
Section 9.01. Conditions to Obligations of Sellers.................46
Section 9.02. Conditions to Obligations of Telepad.................47
ARTICLE X
TERMINATION..........................................................48
Section 10.01. Termination..........................................48
Section 10.02. Effect of Termination................................48
ARTICLE XI
MISCELLANEOUS PROVISIONS.............................................49
Section 11.01. Amendment and Modifications..........................49
Section 11.02. Waiver of Compliance.................................49
Section 11.03. Expenses.............................................49
Section 11.04. Reasonable Efforts; Further Assurances...............49
Section 11.05. Remedies; Waiver.....................................49
Section 11.06. Knowledge............................................49
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Section 11.07. Notices..............................................50
Section 11.08. Assignment...........................................51
Section 11.09. Governing Law........................................51
Section 11.10. Submission to Jurisdiction; Waiver of Jury Trial.....51
Section 11.11. Counterparts.........................................51
Section 11.12. Construction.........................................52
Section 11.13. Specific Performance.................................52
Section 11.14. Entire Agreement.....................................52
Section 11.15. Third Parties........................................52
EXHIBITS
EXHIBIT A - Illustration of Calculation of Additional Consideration
EXHIBIT B-1 - Form of Pledge Agreement [LeMaire as Secured Party]
EXHIBIT B-2 - Form of Pledge Agreement [Eisenberger as Secured Party]
EXHIBIT B-3 - Form of Pledge Agreement [Company as Secured Party]
EXHIBIT C - Form of Note
EXHIBIT D - Registration Rights
EXHIBIT E - Form of Certificate of Designations
EXHIBIT F-1 - Form of Employment Agreement [LeMaire as Employee]
EXHIBIT F-2 - Form of Employment Agreement [Eisenberger as Employee]
DISCLOSURE SCHEDULES
3.03 - Current Directors and Officers of the Company
3.05 - Restrictive Documents
3.06 - Consents
3.08 - Bank Accounts and Powers of Attorney
3.09 - Changes to the Company's Financial Conditions
3.11 - Liens
3.12 - Real Property
3.13(g) - Compensation
3.15 - Leases
3.16 - Assets
3.18 - Contracts
3.19 - Customers and Suppliers
3.20 - Labor
3.21 - Personnel
3.22 - Employee Plans
3.23 - Litigation
3.26 - Dividends and Other Distributions
3.27 - Undisclosed Liabilities
3.29 - Insurance
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3.30 - Environmental Laws and Regulations
3.32 - Insider Interests
3.35 - Governmental Interaction
3.36 - Security Matters
9.01(d) - Approvals of Governmental Entities
9.02(d) - Approvals of Governmental Entities
9.02(i) - Liens
v
<PAGE>
SHARE PURCHASE AGREEMENT
------------------------
This SHARE PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of May 27, 1998, by and among (a) TelePad Corporation, a Delaware
corporation ("Telepad"); (b) Christine LeMaire ("LeMaire") and Dean N.
Eisenberger ("Eisenberger") (collectively, "Sellers" and each individually a
"Seller"); and (c) L&E Mobile Computer Mounts, Inc., a Pennsylvania corporation
(the "Company").
W I T N E S S E T H:
-------------------
WHEREAS, Sellers own in the aggregate 198 shares of the Company's
common stock, without par value per share (the "Shares"), which constitute all
of the Company's outstanding capital stock.
WHEREAS, Telepad desires to purchase and Sellers desire to sell the
Shares, and Telepad, the Company and Sellers also desire to consummate certain
related transactions, all as provided below.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the Parties agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS.
The following terms used herein shall have the following meanings:
"Acceleration Event" means any of the following events: (i) except for
an Excluded Person (as defined below), any Person, including a "group," as such
term is defined in Sections 13(d)and 14(d) of the Exchange Act, becomes the
beneficial owner, as defined under the Exchange Act, directly or indirectly,
whether by purchase or otherwise, of 45% or more of the Company's outstanding
capital stock; (ii) except in the case of a merger or consolidation or sale of
all or substantially all of the assets of the Company where Excluded Persons or
Telepad's stockholders immediately prior to such merger, consolidation or sale
of assets, beneficially own, directly or indirectly, more than 66 2/3%
outstanding capital stock of the surviving or successor entity immediately after
such merger, consolidation or sale of assets, the Company consummates a merger,
consolidation, liquidation or sale of all or substantially all of the Company's
assets; (iii) the consummation by the Company of an initial public offering of
its capital stock registered under the Securities Act; (iv) the dissolution or
liquidation of the Company; (v) the voluntary commencement by Telepad or the
Company of proceedings in respect of such entity under any bankruptcy or
insolvency laws; or (vi) the appointment of a receiver for any material part of
the Telepad's or the Company's assets, or the commencement of any proceeding
under any
<PAGE>
bankruptcy or insolvency laws against Telepad or the Company which remains
undismissed, undischarged or unbonded for a period of 90 days.
"Additional Consideration" means the amount determined in accordance
with Section 2.03, but in no event less than $0.00.
"Additional Consideration Payment Date" means the date on which Telepad
satisfies its obligations to pay the Additional Consideration pursuant to
Section 2.03.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, government directives, damages, dues, penalties,
fines, costs, amounts paid in settlement, liabilities, obligations, taxes,
liens, losses, expenses and fees, including court costs and reasonable
attorneys' fees and expenses.
"Affiliate" means, with respect to any specified Person, a Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified Person.
"Ancillary Agreements" means the Note and the Pledge Agreements.
"Average Annual EBITDA" means the amount determined by (i) totaling the
EBITDA for each full accounting month within the Determination Period; (ii)
dividing such total EBITDA by the number of full accounting months within the
Determination Period, and (iii) multiplying the result by 12.
"Business" means the Company's business as a distributor, installer and
integrator of mobile computers, and a distributor and manufacturer of mobile
mounting products, as well as a provider of related parts, supplies, maintenance
and service, and all activities incidental to any of the foregoing.
"Certificate of Designations" means the Certificate of Designations,
Preferences and Rights of Series C Cumulative Redeemable Convertible Preferred
Stock, $0.01 par value per share, of Telepad, to be duly adopted by Telepad's
Board at or prior to the Closing Date, in the form of Exhibit E.
"Claims" means any and all claims, demands, causes of action, suits,
proceedings, administrative proceedings, losses, judgments, decrees, debts,
damages, liabilities, court costs, attorneys' fees and any other expenses
incurred, assessed, sustained, or, to Sellers' and the Company's best knowledge,
threatened by or against the Company.
"Closing Date" means the date of the Closing.
2
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" shall have the meaning ascribed to such term in the Pledge
Agreements.
"Company Employees" means those individuals who are employed by the
Company in the Business as of the Closing Date, a preliminary list of whom as of
the date hereof has been delivered by the Company to Telepad and a definitive
list of whom as of the close of business on the date prior to the Closing Date
will be delivered by the Company to Telepad at Closing. Company Employees shall
include all individuals who are described in the first sentence hereof and who
are, as of the Closing Date, on an approved leave of absence with a right to
return to active employment.
"Company Value" means the product of seven times the Average Annual
EBITDA for the Determination Period.
"Contracts" means all oral or written bids, quotations, proposals
(including pending bid proposals), contracts, agreements (including vendor
agreements), commitments, understandings, licenses, teaming arrangements,
subcontracts, memoranda of understanding ("MOUs"), memoranda of agreement
("MOAs"), contract, subcontract or bid awards, sales and purchase orders
(including partially filled purchase orders), and backlog of unexecuted delivery
orders and open market orders on which the Company has not executed, including
those listed on Disclosure Schedule Section 3.18(a).
"Controlled Group Liability" means all Liabilities relating to Employee
Plans and Foreign Plans under (i) Title IV of ERISA, (ii) Section 302 of ERISA,
and (iii) Sections 412 and 4971 of the Code.
"Determination Period" means such period from and including the Closing
Date to and including the Determination Date.
"Determination Date" means the earlier of: (i) the third anniversary of
the Closing Date, (ii) at the Sellers' option, upon the occurrence of an
Acceleration Event and written notice to Telepad, or (iii) at Telepad's option,
any date Telepad specifies in a written notice to Sellers.
"Disclosure Schedule" means the Disclosure Schedule delivered by
Sellers to Telepad simultaneously with the execution and delivery of this
Agreement and initialed by Sellers and Telepad.
"EBITDA" means for the specified period, the sum of (i) the
consolidated income (or loss) of the Company and its Subsidiaries (excluding to
the extent not already deducted income attributable to minority interests in
Subsidiaries for such period), plus (ii) the sum of each of the following
expenses that have been deducted from the determination of the aforesaid
consolidated income for such period, (1) consolidated interest charges paid or
accrued for such period
3
<PAGE>
(including imputed interest on capital lease obligations), (2) all depreciation
and amortization expenses of the Company and its Subsidiaries for such period,
(3) all taxes, federal, state and local, for such period, (4) management costs
imposed by Telepad, (5) SEC filing fees allocated to the Company, if any, and
(6) costs of audited financial statements and accounting fees incurred by the
Company as a result of Telepad having equity securities registered under Section
12 of the Exchange Act (iii) all extraordinary gains added in the determination
of the aforesaid consolidated income of the Company and its Subsidiaries for
such period, in each case determined on a consolidated basis and in accordance
with GAAP.
"Employment Agreements" means the Employment Agreements between the
Company and each of LeMaire and Eisenberger, in the forms of Exhibit F-1 and
F-2, respectively.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means, with respect to any Person, trade or business,
any other Person, trade or business that is a member of a group described in
Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA that
includes the first Person, trade or business, or that is a member of the same
"controlled group" as the first Person, trade or business pursuant to Section
4001(a)(14) of ERISA.
"Employee Plans" means each "employee benefit plan," within the meaning
of Section 3(3) of ERISA, and each employment, severance or other similar
contract, arrangement or policy and each plan or arrangement providing for
insurance coverage (including any self-insured arrangements), workers'
compensation, disability benefits, supplemental unemployment benefits, vacation
benefits, retirement benefits or for deferred compensation, profit-sharing,
bonuses, stock options, stock appreciation or other forms of incentive
compensation or post-retirement insurance, compensation or benefits which is
maintained, administered or contributed to by the Company or any of its ERISA
Affiliates and which covers any Company Employee, other than any such plan,
contract, arrangement or policy which is a Foreign Plan.
"Environmental Laws" means any applicable federal, state, local or
foreign law, treaty, judicial decision, regulation, rule, judgment, order,
decree, injunction, permit, agreement or governmental restriction, each as in
effect on or prior to the Closing Date, relating to the environment or to any
Hazardous Substance.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Excluded Person" shall mean Telepad, any Subsidiary of Telepad, any
Seller or any Affiliate of any Seller.
"Final Determination" shall mean (i) with respect to federal Income
Taxes, a "determination" as defined in Section 1313(a) of the Code or execution
of an Internal Revenue
4
<PAGE>
Service Form 870AD and, with respect to Taxes other than federal Income Taxes,
any final determination of liability in respect of a Tax that, under applicable
law, is not subject to further appeal, review or modification through
proceedings or otherwise (including the expiration of a statute of limitations
or a period for the filing of claims for refunds, amended returns or appeals
from adverse determinations) or (ii) the payment of Tax by any Seller, the
Company, Telepad or any of their Affiliates, whichever is responsible for
payment of such Tax liability under applicable law, with respect to any item
disallowed or adjusted by a Taxing Authority, provided that such responsible
party determines that no action should be taken to recoup such payment and the
indemnifying party, if any, agrees.
"Foreign Plans" means each "employee benefit plan," within the meaning
of Section 3(3) of ERISA, and each employment, severance or other similar
contract, arrangement or policy and each plan or arrangement providing for
insurance coverage (including any self-insured arrangements), workers'
compensation, disability benefits, supplemental unemployment benefits, vacation
benefits, retirement benefits or for deferred compensation, profit-sharing,
bonuses, stock options, stock appreciation or other forms of incentive
compensation or post-retirement insurance, compensation or benefits which is
maintained, administered or contributed to by the Company or any of its ERISA
Affiliates primarily for non-U.S. citizens or non-U.S. residents and which
covers any Company Employee.
"GAAP" means United States generally accepted accounting principles.
"Governmental Entity" means any government or any court, arbitral
tribunal, administrative agency, or commission or other governmental or other
regulatory authority or agency, federal, state, local, transnational or foreign.
"Hazardous Substance" means any substance, pollutant, contaminant,
chemical, waste or material, including petroleum, its derivatives, by-products
and other hydrocarbons, that is listed, identified in, or regulated under any
applicable federal, state, local or foreign law, treaty, judicial decision,
regulation, rule, judgment, order, decree, injunction, permit, agreement or
governmental restriction.
"Income Tax" means any Tax imposed on or measured by net income, net
worth or capital, or any alternative minimum Tax or similar Tax, together with
any interest or any penalty, addition to tax or additional amount imposed by any
Taxing Authority.
"Independent Accountant" means Ernst & Young, LLP.
"Intellectual Property" means all inventions, improvements, domestic
and foreign patents and applications therefor, trade secrets, know how, customer
lists, trade names, common law trademarks and service marks, trademark and
service mark registrations and applications therefor, copyrights, copyright
registrations and applications therefor, mask works, mask work registrations and
applications therefor, rights in computer software and databases (including
5
<PAGE>
customer databases), all rights (including rights to use data) with respect to
any of the foregoing that are granted or retained under Contract, license, law
or regulation.
"Investor's Share" means as of the Determination Date, (i) the sum of
(1) $1,300,000 plus (2) any additional capital investments made at or following
Closing by Telepad in the Company, including such investments made pursuant to
Section 8.03, (discounted at a rate of 8.5% per annum from the date such capital
investments are made to the Determination Date) plus (3) all consideration paid
with respect to Telepad Shares upon exercise of Sellers' option pursuant to
Section 8.06 or Telepad's option pursuant to Section 8.07, and if neither of
such options is exercised with respect to any given Telepad Shares, $1.00 per
such Telepad Share, (ii) divided by $10 million.
"IRS" means the Internal Revenue Service.
"Liabilities" means any and all debts, liabilities, commitments,
claims, allegations, demands and obligations, whether fixed, contingent or
absolute, matured or unmatured, liquidated or unliquidated, accrued or not
accrued, known or unknown, whenever or however arising (including whether
arising out of any contract or tort based on negligence or strict liability) and
whether or not the same would be required by GAAP to be reflected in financial
statements or disclosed in the notes thereto.
"Lien" means any adverse claim, restriction on voting or transfer or
pledge, lien, mortgage, hypothecation, collateral assignment, charge,
encumbrance, Purchase Rights, easement, covenant, restriction, title defect,
encroachment or security interest of any kind.
"Major Transactions" means any (i) recapitalization, redemption or
reclassification of, or, except as provided in Section 8.01(d), distribution or
dividend on, the Company's capital stock, (ii) amendment of its certificate of
incorporation or by-laws, (iii) liquidation, winding-up or dissolution of the
Company or any Significant Subsidiary (as defined in SEC Regulation S-X) of the
Company, (iv) consolidation of the Company or any Significant Subsidiary with,
or merger of the Company or any Significant Subsidiary with or into, any other
Person, except a merger of a wholly owned Subsidiary of the Company into the
Company, with the Company surviving such merger, (v) sale, transfer, lease or
encumbrance by the Company or any Subsidiary of a significant amount of assets
of the Company, and (iv) issuance of securities.
"Material Adverse Effect" means, with respect to any Person (or group
of Persons taken as a whole), such state of facts, events, change or effect as
has had, or would reasonably be expected to have, a material adverse effect on
the business, results of operations or financial condition of the such Person
(or group of Persons, taken as a whole), and with respect to the Company, also
on the ability of the Company to conduct its business following the Closing Date
substantially as currently conducted.
6
<PAGE>
"Note" means the promissory note to be executed and delivered by
Telepad to the Company hereunder at the Closing substantially in the form of
Exhibit C.
"Parties" means the parties hereto, being Telepad, Sellers and the
Company.
"Permit" means any license, franchise, permit, concession, order,
clearance, accreditation, authorization, approval or registration from, of or
with a Governmental Entity or other Person.
"Permitted Liens" means any Liens (i) for Taxes attributable to a
Pre-Closing Tax Period not yet due or payable or being contested in good faith
that are not material, (ii) that are not material and constitute mechanics',
carriers', workers' or like liens incurred in the ordinary course of business or
(iii) that, individually or in the aggregate, do not materially impair the use,
utility or value of the Company's assets to which they apply or otherwise have a
Material Adverse Effect on the Company.
"Person" means an individual, a corporation, a limited liability
company, a partnership, joint venture, unincorporated organization, an
association, a trust or any other entity or organization, including any
Governmental Entity.
"Pledge Agreement" means the security and pledge agreements to be
executed and delivered by Telepad to each Seller and the Company, each
substantially in the form of Exhibit B-1, B-2 and B-3, respectively.
"Pre-Closing Tax Period" means any Tax period, or portion thereof,
ending on or before the close of business on the Closing Date.
"Proprietary Information" means all information with respect to the
Acquired Business that in accordance with the Company's usual practices would be
treated by the Company as "proprietary information - strictly private,"
"proprietary information - internal data" or the equivalent.
"SEC" means the Securities Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Seller and Company Released Obligations" means any and all of Sellers'
and the Company's obligations and liabilities with respect to this Agreement,
except the obligation and liabilities of such Parties under Sections 6.03, 7.01,
7.02, 7.03, 7.06, 8.01, 8.07 and 8.08.
"Sole-Source Supplier" means any supplier of goods or services to the
Company with respect to its business for which no practical alternative source
of such goods or services is
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available on terms and conditions substantially as favorable to the Company as
those available from such supplier.
"Subsidiary" means, with respect to any Person, (i) any corporation of
which such Person owns, either directly or through its Subsidiaries, more than
fifty percent of the total combined voting power of all classes of voting
securities of such corporation or (ii) any partnership, association, joint
venture or other form of business organization, whether or not it constitutes a
legal entity, in which such Person, directly or indirectly, owns more than fifty
percent of the total equity interests.
"Tax" (including with correlative meaning, the terms "Taxes" and
"Taxable") means (i) all forms of taxation, whenever created or imposed, whether
imposed by a local, municipal, state, foreign, federal or other governmental
body or authority, including income, gross receipts, ad valorem, excise,
value-added, sales, use, transfer, franchise, license, stamp, occupation,
withholding, employment, payroll, property or environmental tax or premium,
together with any interest, penalty, addition to tax or additional amount
imposed by any Governmental Entity responsible for the imposition of any such
tax (a "Taxing Authority"), and (ii) any liability for the payment of any
amounts as a result of being party or subject to any agreement or with respect
to the payment of any amounts of the type described in (i) as a result of any
express or implied obligations to indemnify any other Person.
"Tax Return" means any return, report, statement, information statement
and the like required to be filed with any Taxing Authority.
"Telepad Board" means Telepad's board of directors.
"Telepad Bylaws" means the bylaws of Telepad, as amended through the
date of this Agreement.
"Telepad Charter" means the certificate of incorporation of Telepad, as
amended through the date of this Agreement.
"Telepad Common Shares" means the 900,000 shares of Telepad Common
Stock to be issued and delivered by Telepad to Sellers hereunder at the Closing.
"Telepad Common Stock" means the Class A common stock, par value $0.01
per share, of Telepad.
"Telepad Preferred Shares" means the 950,000 shares of series of
preferred stock of Telepad designated Series C 7% cumulative redeemable
preferred stock, par value $0.01 per share, pursuant to the Certificate of
Designations, to be issued and delivered by Telepad to Sellers hereunder at the
Closing.
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"Telepad Released Obligations" means any and all of Telepad's
obligations and liabilities under and in respect of (i) the Note, (ii) the
Pledge Agreement, (iii) the payment of the Additional Consideration under
Sections 2.03 and 2.04, including any interest accrued thereon, (iv) the capital
investments under Section 8.03; (v) the registration rights under Section 8.05
(including Exhibit D); (vi) Sellers' rights under Section 8.06 and (vi) the
representation rights in respect of Telepad's board of directors under Section
8.09.
"Telepad Shares" means the 900,0000 Telepad Common Shares and the
950,000 Telepad Preferred Shares to be issued and delivered by Telepad to
Sellers hereunder at the Closing.
"Termination Date" means July 31, 1998.
"Transactions" means the transactions contemplated by the Transaction
Agreements.
"Transaction Agreements" means this Agreement and the Ancillary
Agreements.
ARTICLE II
PURCHASE OF SHARES
SECTION 2.01. BASIC TRANSACTION.
(a) PURCHASE AND SALE OF SHARES. On the terms and conditions
of this Agreement, Telepad shall purchase from each Seller, and each Seller
shall sell, transfer, assign, and deliver to Telepad, the number of Shares set
forth below opposite such Seller's name at the Closing in exchange for the
consideration of (i) $650,000 in cash being paid to each Seller at the Closing;
(ii) 450,000 Telepad Common Shares and 475,000 Telepad Preferred Shares being
issued and delivered to each Seller at the Closing; and (iii) Telepad's
obligations hereunder to pay 50% of the Additional Consideration to each Seller.
LeMaire - 100 Shares
Eisenberger - 98 Shares
(b) THE CLOSING. The closing of the transactions
contemplated by this Agreement, including the transactions referred to in
Section 2.01(a), shall take place at the offices of Arent Fox Kintner Plotkin &
Kahn, PLLC, 1050 Connecticut Avenue, N.W., Washington, D.C. 20036, on the third
business day following satisfaction (or waiver) of the conditions precedent to
Closing set forth in Article IX, or at such other place or on such other date as
agreed upon in writing by Sellers and Telepad (the "Closing"). The Closing shall
be deemed to occur at 12:01 a.m., Washington, D.C. time, on the Closing Date.
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(c) AT THE CLOSING. At the Closing, the following shall
occur:
(i) Each Seller shall sell, transfer, assign and
deliver to Telepad the number Shares set forth opposite such Seller's name in
Section 2.01(a), including the certificates evidencing such Shares, duly
endorsed to Telepad, in form and substance reasonably satisfactory to Telepad
and its counsel, free and clear of all and any Liens, except as provided under
the Pledge Agreements.
(ii) Telepad shall pay to each Seller $650,000 by
wire transfer to the account designated by such Seller;
(iii) Telepad shall deliver to each Seller
certificates evidencing the 450,000 Telepad Common Shares and 475,000 Preferred
Shares to be delivered to such Seller pursuant to Section 2.01(a), registered in
such Seller's name;
(iv) Telepad shall execute and deliver to the
Company the Note; and
(v) Telepad shall execute and deliver to each
Seller the respective Pledge Agreements and
(vi) Telepad shall deliver to Sellers:
(1) the Telepad Charter, including the
Certificate of Designations, certified by the Secretary of State of the State of
Delaware and the Telepad Bylaws certified by its secretary, in each case as in
effect on the Closing Date;
(2) stock powers duly indorsed in-blank
with respect to the "Collateral"; and
(3) all other documents specified in
this Agreement, or otherwise agreed to by the Parties, to be delivered by
Telepad at the Closing.
(vii) Sellers and the Company shall deliver to
Telepad:
(1) all required consents, approvals and
Permits listed in Disclosure Schedule Section 3.06, each in form and substance
reasonably satisfactory to Telepad;
(3) certificates from appropriate
authorities, dated the most recent practicable date, as to the good standing and
qualification to do business of the Company in each jurisdiction where it is so
qualified;
(4) copies of the Company's (i) articles
of incorporation, certified by the Secretary of State of the Commonwealth of
Pennsylvania ("Company Charter"),
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and (ii) bylaws, certified by the Company's secretary ("Company Bylaws"), in
each case as in effect on the Closing Date;
(5) evidence satisfactory to Telepad and
its counsel that the Shares have been registered in the name of Telepad on the
books and records of the Company; and
(6) all other documents specified in
this Agreement, or otherwise agreed to by the Parties, to be delivered by the
Company at the Closing.
(viii) The Company, Sellers and Telepad shall also
deliver the certificates and other contracts, documents and instruments required
to be delivered under Article IX.
SECTION 2.02. TELEPAD SHARE LEGENDS.
(a) The certificates evidencing the Telepad Shares issued to
the Sellers pursuant to this Agreement and the Telepad Common Stock issuable
upon conversion of the Telepad Preferred Shares shall bear the following
legends:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY APPLICABLE
STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED EXCEPT UPON DELIVERY TO
THE CORPORATION OF AN OPINION OF COUNSEL SATISFACTORY IN FORM AND
SUBSTANCE TO IT THAT SUCH TRANSFER WILL NOT VIOLATE THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW.
THE TRANSFER OF THESE SECURITIES AND CERTAIN OTHER MATTERS REGARDING
THESE SECURITIES, INCLUDING CERTAIN PURCHASE AND SALE RIGHTS, ARE
SUBJECT TO A SHARE PURCHASE AGREEMENT DATED AS OF MAY 27, 1998 BY AND
AMONG TELEPAD CORPORATION, CHRISTINE LEMAIRE, DEAN N. EISENBERGER AND
L&E MOBILE COMPUTER MOUNTS, INC., AND A COPY OF SUCH AGREEMENT CAN BE
OBTAINED BY CONTACTING TELEPAD CORPORATION'S SECRETARY AT 380 HERNDON
PARKWAY, SUITE 1900, HERNDON, VIRGINIA 20170.
(b) Upon receipt of an opinion of legal counsel satisfactory
to Telepad that the Telepad Shares no longer constitute "restricted securities"
under Rule 144 of the Securities Act, the first of the foregoing two legends is
no longer required under applicable securities laws, or the Telepad Shares are
otherwise freely tradable without registration under the Securities Act, Telepad
shall, upon the request of the holder of such Telepad Shares and the submission
of the
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certificate evidencing such Telepad Shares, issue a substitute certificate
without the foregoing restrictive legend thereon.
SECTION 2.03. ADDITIONAL CONSIDERATION.
(a) Subject to Section 7.06, as additional consideration for
the purchase and sale of the Shares hereunder, Telepad agrees to pay, if
applicable, to each Seller (i) 50% of the Additional Consideration in cash by
wire transfer or other delivery of immediately available funds, on the later of
(A) the 10th business day following the delivery of the Draft Determination Date
Financial Information by the Company pursuant to Section 2.03(c), or (B) the
date the Draft Determination Date Financial Information is adjusted pursuant to
Section 2.03(c)(ii), or, as the case may be, Section 2.04: plus, (ii) interest
at the rate of 12% per annum, on the amount of such Additional Consideration due
to such Seller, but unpaid, as provided in the preceding clause (i) of this
Section 2.03(a), which interest shall accrue commencing on the first business
day following the third anniversary of the Closing Date, until such Additional
Consideration is paid.
(b) Additional Consideration. The Additional Consideration
shall be, at Telepad's option, either (i) an amount equal to (1) the Company
Value multiplied by (2) one minus the Investor's Share, or (ii) the value of $20
million dollars discounted at a rate of 8.5% per annum from the third
anniversary of the Closing Date back to the Additional Consideration Payment
Date (assuming a 360-day year consisting of twelve-30-day months). An
illustration of the calculation of the Additional Consideration is set forth in
Exhibit A.
(c) Determination of Additional Consideration.
(i) For the purpose of determining the Company
Value, Investor's Share and the Additional Consideration, within 30 days after
the Determination Date, the Company shall prepare and deliver to Telepad (1) a
determination, in reasonable detail, of the Company's EBITDA for each full
accounting month within the Determination Period, (2) the underlying audited
consolidated financial statements of the Company and its Subsidiaries, including
consolidated balance sheets and statements of earnings, changes in stockholder's
equity and cash flow, for each of the fiscal years ended within the
Determination Period, and (3) unaudited consolidated financial statements of the
Company and its Subsidiaries, for each of the fiscal quarters within the
Determination Period in respect of a fiscal year which will end after the
Determination Date (collectively, the "Draft Determination Date Financial
Information"). The Draft Determination Date Financial Information shall be
prepared in accordance with generally accepted accounting principles ("GAAP"),
consistently applied. The Parties shall cooperate fully in the preparation of
the Draft Closing Date Financial Statements.
(ii) If Telepad has any objections to the Draft
Determination Date Financial Information, Telepad will deliver a reasonably
detailed statement describing its objections to Sellers within 10 business days
after receiving the Draft Determination Date Financial Information. If Telepad
does not so object within such 10-business day period, such
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Draft Determination Date Financial Information shall be deemed final and
conclusive with respect to the determination of the Company Value, Investor's
Share and the Additional Consideration. If Telepad does object within such
10-business day period, Telepad and Sellers will use their reasonable efforts to
resolve such objections themselves before resorting to the dispute resolution
procedures set forth in Section 2.04.
SECTION 2.04. DISPUTE RESOLUTION.
(a) If Telepad and Sellers do not obtain a final resolution
within 10 days after Sellers has received Telepad's statement of objections with
respect to the Draft Determination Date Financial Information, Telepad and
Sellers will select an accounting firm mutually acceptable to them to resolve
any remaining objections. If Telepad and Sellers are unable to agree on the
choice of an accounting firm, they will select a nationally recognized
accounting firm by lot (after excluding their respective regular outside
accounting firms and the regular accounting firm of the Company). The Company
shall provide to the accounting firm selected pursuant to the foregoing process
(the "Accountants") access to all information and personnel reasonably relevant
to the calculations and related issues in dispute. The Parties shall be bound by
or restricted to the claims theretofore made or the positions theretofore
asserted in writing. Telepad and Sellers shall each be free to assert such
claims, take such positions and submit to the Accountants such additional
documentary or other evidence as such parties or party may desire (subject only
to such rules of procedure or determinations of materiality and relevance as the
Accountants may make). The determinations of the Accountants will be set forth
in writing and will be conclusive and binding upon the Parties. The Draft
Determination Date Financial Information shall be adjusted as appropriate to
reflect the resolution of any objections thereto pursuant to this Section 2.04.
(b) If Sellers and Telepad submit any unresolved objections
to the Accountants for resolution as provided in Section 2.04(a), Telepad and
Sellers will share responsibility for the fees and expenses of the Accountants
as follows:
(i) if the Accountants resolve all of the
unresolved objections in Telepad's favor, Sellers will be responsible for all of
the fees and expenses of the Accountants;
(ii) if the Accountants resolve all of the
unresolved objections in Sellers' favor, Telepad will be responsible for all of
the fees and expenses of the Accountants; and
(iii) if the Accountants resolve some of the
unresolved objections in favor of Telepad and the rest of the unresolved
objections in favor of Sellers, Sellers will be responsible for that fraction of
the fees and expenses of the Accountants equal to a fraction the numerator of
which shall be the amount resolved in favor of Sellers and the denominator of
which shall be the aggregate amount claimed by Sellers, and Telepad will be
responsible for the remainder of the fees and expenses.
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(c) The Company and Sellers shall make the work papers and
back-up materials used in preparing the Draft Determination Date Financial
Information available to Telepad and its accountants and other representatives
at reasonable times and upon reasonable notice at any time during (i) the
preparation of such statements, and (ii) the resolution by Sellers and Telepad
of any objections thereto.
SECTION 2.05. FURTHER ASSURANCES. From time to time after the date of
this Agreement, each Party will, at the request of any other party but without
further consideration, execute and deliver such other and further instruments of
sale, assignment, transfer and conveyance and take such other and further action
as such other party may reasonably request to carry out and implement the
Transactions.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF SELLERS AND THE COMPANY REGARDING THE COMPANY
Sellers and the Company delivered to Telepad prior to or concurrently
with the execution of this Agreement, disclosure schedules containing
information about the Company and Sellers and identifying certain documents
relating to the Company and the Sellers (collectively, the "Disclosure
Schedule"). Each Seller and the Company, jointly and severally, represent and
warrant to Telepad as of the date hereof and as of the Closing Date as follows:
SECTION 3.01. CAPITAL SHARE. The Company has an authorized
capitalization consisting of 1,000 shares of capital stock, without par value,
of which 198 shares are issued and outstanding. All of the Company's outstanding
capital stock is owned beneficially and of record by Sellers, with LeMaire
owning 100 Shares and Eisenberger owning 98 Shares, has been duly authorized and
validly issued, is fully paid and nonassessable and has been issued in
compliance with all applicable securities laws. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments that could require
the Company to issue, sell, transfer or otherwise dispose of any capital stock
("Purchase Rights" of the Company). Any equity securities of the Company which
were issued and reacquired by the Company were so reacquired in compliance with
all applicable laws and the Company has no outstanding obligation or liability
with respect thereto. There are no voting trusts, proxies or other agreements or
understandings with respect to the voting of any Company capital stock.
SECTION 3.02. INVESTMENTS. The Company does not own and, since December
31, 1992 has never directly or indirectly owned any capital stock, partnership
interests, beneficial interests or other ownership interests having ordinary
power to vote or direct the voting of sufficient securities or other equity
interests to elect a majority of the directors or other managers of any Person.
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SECTION 3.03. CORPORATE ORGANIZATION; ETC. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania. The Company has all requisite corporate power and
authority to carry on its business as it is now being conducted and to own the
properties and assets it now owns. The Company is duly qualified or licensed to
do business and is in good standing in the jurisdictions listed in Disclosure
Schedule Section 3.03, which are the only jurisdictions in which the character
or location of the properties owned or leased by the Company or the nature of
the business conducted by the Company makes such qualification or licensing
necessary, except where the failure to be so qualified would not have a Material
Adverse Effect on the Company or the ability of the Company to perform its
respective obligations under this Agreement or under any other agreement
required to be executed by it pursuant to this Agreement. Disclosure Schedule
Section 3.03 correctly lists all of the current directors and officers of the
Company.
SECTION 3.04. POWER AND AUTHORITY; ETC. Each Seller and the Company has
full power and authority to enter into this Agreement and to consummate the
Transactions. Sellers and the Company have taken all action required by law, the
Company Charter and Company Bylaws or otherwise to authorize the execution and
delivery of this Agreement and the consummation of Transactions, including all
required approvals of the Sellers and the Company's board of directors, and this
Agreement is a valid and binding agreement of Sellers and the Company
enforceable against each of them in accordance with its terms, except to the
extent that enforcement may be limited by the effect of bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or similar laws affecting the
enforcement of rights of creditors and other obligees generally and the scope of
equitable remedies which may be available.
SECTION 3.05. RESTRICTIVE DOCUMENTS. Except as set forth in Disclosure
Schedule Section 3.05, the Company is not subject to, or a party to, any
charter, bylaw, Lien, lease, Permit, agreement, contract, instrument, law, rule,
ordinance, regulation, order, judgment or decree, or any other restriction of
any kind or character, which materially and adversely affects the business
practices, operations or financial condition of the Company or any of its assets
or properties, or which would prevent consummation of the Transactions,
compliance by either Sellers or the Company with the terms, conditions and
provisions hereof or the continued operation of the business by the Company
after the date hereof on substantially the same basis as heretofore operated or
which would materially restrict the ability of the Company or any Subsidiary
thereof to acquire any property or conduct business in any where in the world.
SECTION 3.06. CONSENTS. Disclosure Schedule Section 3.06 contains a
list of all consents of any Person necessary for the consummation of the
Transactions, including consents from parties to loans, contracts, leases or
other agreements and consents from Governmental Entities. All such consents have
been obtained and evidence thereof has been provided to Telepad, except where
the failure to obtain any consent or consents would not in the aggregate have a
Material Adverse Effect on the Company.
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SECTION 3.07. BOOKS AND RECORDS. The minute books of the Company, as
previously made available to Telepad and its representatives, contain (a) a
true, correct and complete copy of the charter documents of the Company, and (b)
complete and accurate records of all meetings of, and corporate action taken by
(including actions taken by written consent), the Company's stockholders and
board of directors and all committees thereof, except to the extent that any
omitted records would not regard an event or omission (i) that could have a
Material Adverse Effect on the Shares, the Company or the Business, or (ii)
constitute a misrepresentation or breach of representation or warranty by the
Company or either Sellers made in this Agreement . The Company does not have any
of its records, systems, controls, data or information recorded, stored,
maintained, operated or otherwise wholly or partly dependent upon or held by any
means (including any electronic, mechanical or photographic process, whether
computerized or not) which (including all means of access thereto and therefrom)
are not under the exclusive ownership and direct control of the Company.
SECTION 3.08. BANK ACCOUNTS AND POWERS OF ATTORNEY. Set forth in
Disclosure Schedule Section 3.08 is an accurate and complete list showing (a)
the name and address of each bank or other financial institution in which the
Company has an account or safe deposit box, the number of any such account or
any such box and the names of all persons and entities authorized to draw
thereon or to have access thereto, and (b) the names of all persons and
entities, if any, holding powers of attorney from the Company and a summary
statement of the terms thereto.
SECTION 3.09. FINANCIAL STATEMENTS. The Company has previously
furnished Telepad with an unaudited balance sheet of the Company dated as of
December 31, 1997 (the "Balance Sheet") and the related statements of earnings,
changes in stockholders' equity and cash flows for the 12-month period then
ended, an unaudited balance sheet of the Company dated as of December 31, 1996,
unaudited balance sheets of L& E Equipment and Supply, Inc. dated as of December
31, 1996 and December 31, 1995, and related statements of earnings for the
periods then ended (all of the foregoing financial statements are hereinafter
referred to as the "Financial Statements"). The Balance Sheet fairly presents in
all material respects the financial condition of the Company at the date thereof
and, except as indicated therein, reflects, to the extent required by GAAP, all
claims against and all debts and liabilities of the Company, fixed or
contingent, as at the date thereof and the related statements of earnings,
changes in stockholders' equity and cash flows fairly present in all material
respects the results of operations of the Company and the changes in its
financial position for the periods indicated. Such other balance sheets fairly
present in all material respects the financial condition of the Company at the
respective dates thereof and, except as indicated therein, reflect, to the
extent required by GAAP, all claims against and all debts and liabilities of the
Company, fixed or contingent, as at the respective dates thereof, and the
related statements of earnings, changes in stockholders' equity and cash flows
fairly present in all material respects the results of operations of the Company
and the changes in financial position for the periods indicated. Except as set
forth in Disclosure Schedule Section 3.09, since December 31, 1997 (the "Balance
Sheet Date") there has been (a) no material adverse change in the assets or
liabilities, or in the business or financial condition, or in the results of
operations, of the Company, whether as a result of any legislative or regulatory
change, revocation of any
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license or right to do business, fire, explosion, accident, casualty, labor
trouble, flood, drought, riot, storm, condemnation or act of God or other public
force or otherwise and (b) no change in the assets or liabilities, or in the
business or financial condition, or in the results of operations, of the
Company, except in the ordinary course of business or as contemplated by this
Agreement; and to Sellers' and the Company's best knowledge, information and
belief no fact or condition exists or is contemplated or threatened which might
cause such a change. The total liabilities (actual and contingent) of the
Company, as determined in accordance with GAAP, applied on a consistent basis,
do not exceed $1,500,000.
SECTION 3.10. ACCOUNTING RECORDS.
(a) The Company's records accurately and validly reflect in
all material respects the transactions of the Company, and the Company's
accounting controls are sufficient to insure that such transactions are (i)
executed in accordance with management's general or specific authorization and
(ii) recorded in conformity in all material respects with GAAP so as to maintain
accountability for assets.
(b) The Company's records, to the extent they contain
material information that is not easily and readily available elsewhere, have
been duplicated, and such duplicates are stored safely and securely.
SECTION 3.11. TITLE TO PROPERTIES; ENCUMBRANCES. Except for properties
and assets reflected in the Balance Sheet or acquired since the Balance Sheet
Date which have been sold or otherwise disposed of in the ordinary course of
business, the Company has good, valid and marketable title to (a) all of the
assets, including all of the assets reflected in the Balance Sheet, except as
indicated in the notes thereto, and (b) all of the assets purchased by the
Company since the Balance Sheet Date, except where the failure to have such
title would not in the aggregate have a Material Adverse Effect on the Company;
in each case subject to no Lien other than Permitted Liens, except as set forth
in Disclosure Schedule Section 3.11.
SECTION 3.12. REAL PROPERTY. The Company does not own or, except as
set forth in Disclosure Schedule Section 3.12, has never owned any real property
or any interest (other than leasehold interests) therein.
SECTION 3.13. ABSENCE OF CERTAIN CHANGES. Since the Balance Sheet
Date, the Company has not:
(a) conducted its business other than in the usual and
ordinary manner and in the ordinary course of business, including making all
regularly scheduled payments and commitments (e.g., payroll, taxes, rent and
lease payments) coming due through the Closing Date;
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(b) suffered any material adverse change in its working
capital, financial condition, assets, liabilities (absolute, accrued, contingent
or otherwise), reserves, business or operations;
(c) written down the value of any inventory;
(d) waived any claims or rights of substantial value;
(e) sold, transferred, or otherwise disposed of any its
properties or assets (real, personal or mixed, tangible or intangible), except
in the ordinary course of business and consistent with past practice;
(f) disposed of or disclosed to any Person other than
Telepad any trade secret, formula, process or know-how of the Company not
theretofore a matter of public knowledge, the disclosure of which would have a
Material Adverse Effect on the Company;
(g) granted any general increase in the compensation of its
employees (including any such increase pursuant to any bonus, pension, profit
sharing or other plan or commitment) or any increase in the compensation payable
or to become payable to any employee, other than in the ordinary course of
business or pursuant to the terms of any existing compensation arrangement
otherwise described in Disclosure Schedule Section 3.13(g);
(h) made any change in any method of accounting of
accounting practice which would have a Material Adverse Effect on the Company;
or
(i) agreed, whether in writing or otherwise, to take any
action described in this Section 3.13.
SECTION 3.14. ACCOUNTS RECEIVABLE. All accounts receivable, unbilled
work in process and other debts due or recorded in the records and books of
account of the Company as being due to the Company as at the date of this
Agreement and the Closing Date (less the amount of any provision or reserve
therefor made in such records and books of account), including those reflected
in the Balance Sheet, were or will have been actually made in the ordinary
course of business and neither the Company nor any Seller has any reason to
believe that such accounts receivable will not be good and collectible in full
in the ordinary course of business; and no material amount of such accounts
receivable or other debts is, or will at the Closing Date be, subject to any
counterclaim or set-off. Sellers and the Company have delivered to Telepad a
materially complete and accurate aging list of all receivables of the Company.
SECTION 3.15. LEASES. Attached as an exhibit to Disclosure Schedule
Section 3.15 are true, correct and complete copies of each equipment and real
property lease to which the Company is a party and all modifications, amendments
and notices relating thereto (the "Leases"). The Leases are valid, binding and
enforceable in accordance with their terms, and are in full force
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and effect; in each case, the Company has been in peaceable possession since the
commencement of the Lease; there are no existing defaults by the Company or, to
Sellers' and the Company's best knowledge, the lessors thereunder; no event of
default by the Company has occurred which (whether with or without notice, lapse
of time or the happening or occurrence of any other event) would constitute such
a default thereunder; neither the Company, nor, to Sellers' and the Company's
best knowledge, the lessor has violated any of the terms or conditions of any
such lease in any material respect; no waiver, indulgence or postponement of the
obligations of the Company thereunder has been granted by the lessor; and the
Company has, or will have, paid, satisfied or discharged all its obligations
under such leases through the Closing Date, including the payment of rent and
operating expenses.
SECTION 3.16. ASSETS. The Company's tangible assets are as of the date
of this Agreement, and will be as of the Closing Date, in good operating
condition and repair and none of such Acquired Assets is or will be at the
Closing Date in need of maintenance or repairs except for ordinary, routine
maintenance and repairs which are not material in nature or cost. The assets
listed in Disclosure Schedule Section 3.16 constitute all of the assets and
properties of the Company and all of the assets and properties used or held for
use in the business of the Company as of the Balance Sheet Date.
SECTION 3.17. PATENTS, TRADEMARKS, TRADE NAMES, ETC.
The Company does not own or lease from any third party any Intellectual
Property. To conduct its business as it is now being conducted, the Company does
not require ownership of any Intellectual Property or rights to use any
Intellectual Property of any third party. The Company has not, nor has it been
alleged to have, infringed upon any Intellectual Property and there exists no
basis for such an allegation except where such infringement would not have a
Material Adverse Effect on the Company.
SECTION 3.18. CONTRACTS AND COMMITMENTS.
(a) Except as set forth in Disclosure Schedule Section 3.18,
or as contemplated by this Agreement or the agreements and instruments executed
in connection herewith ("Transaction Documents"), the Company does not have or
is bound by:
(i) any agreement, contract or commitment which
involves or could involve in excess of $25,000 (or $10,000 if not entered into
in the ordinary course of business) or which had an unexpired term in excess of
five years;
(ii) any agreement, contract or instrument that
grants a power of attorney, agency or similar authority to another Person (other
than officers of the Company acting within the scope of their authority);
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(iii) any loan or advance to, investment in, guaranty
or other contingent liability in respect of any indebtedness or obligation of,
any Person or any agreement, contract or commitment relating to the making of
any such loan, advance or investment;
(iv) any agreement, contract or commitment
relating to the employment of any Person or by the Company, or any bonus,
deferred compensation, pension, severance, profit sharing, stock option,
employee stock purchase, retirement or other employee benefit plan;
(v) any management service, consulting, sales
representative, distributor or similar type of contract;
(vi) any confidentiality, nondisclosure or
similar agreement;
(vii) any sales contracts, commitments or proposals
which continue for a period of more than 365 days;
(viii) any agreement, contract or commitment which
might reasonably be expected to have a Material Adverse Effect on the Company;
(ix) any agreement, contract or commitment limiting
the freedom of the Company to engage in any line of business or compete with any
Person or which restricts in any material respect the ability of the Company to
conduct its business in any manner or place;
(x) any contract or agreement that contains a right
of first refusal; or
(xi) any contract or agreement requiring the Company
to buy or sell goods or services with respect to where there will be costs and
expenses materially in excess of expected receipts.
(b) Each Contract listed in Disclosure Schedule Section 3.18
is valid and in full force and effect, and there exists no default or event of
default or event, occurrence, condition or act (including the transfer of the
Shares hereunder) which, with the giving of notice, the lapse of time or the
happening of any other event or condition, would become a default or event of
default thereunder by the Company or, to Sellers' and the Company's best
knowledge, by any other party thereto. The Company has fully performed all of
the terms or conditions of any Contract set forth in Disclosure Schedule Section
3.18 (or required to be set forth in Disclosure Schedule Section 3.18) in all
material respects, and, to Sellers' and the Company's best knowledge, all of the
covenants to be performed by any other party thereto have been fully performed
in all material respects. A true, correct, accurate and complete copy of each
Contract listed in Disclosure Schedule Section 3.18 has heretofore been
delivered or made available to Telepad by Sellers and the Company.
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SECTION 3.19. CUSTOMERS AND SUPPLIERS. Disclosure Schedule Section 3.19
lists the names of and describes all Contracts with and the appropriate
percentage of business attributable to the 10 largest customers of and 10 most
significant suppliers of the Company's business on a consolidated basis as of
the date of this Agreement, and any Sole Source Suppliers (other than
electricity, gas, telephone or water) with respect to which alternative sources
of supply are not readily available on comparable terms and conditions. There
has not been any material adverse change in the business relationship of the
Company with any material customer of, or supplier to, the Company since the
Balance Sheet Date.
SECTION 3.20. LABOR DIFFICULTIES. Except to the extent set forth in
Disclosure Schedule Section 3.20, (a) the Company is in compliance in all
material respects with all federal, state or other applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, and is not engaged in any unfair labor practice; (b) there is
no labor strike, dispute, slowdown or stoppage actually pending or, to Sellers'
and the Company's best knowledge, threatened against or affecting the Company;
(c) none of the employees of the Company is covered by a collective bargaining
agreement or are members of a union and no representation question exists
respecting the employees of the Company; (d) there exists no basis for the
assessment of unpaid wages with respect to the employees of the Company; (e) the
Company has not experienced any other labor problems; and (f) there has not
been, and to Sellers' and the Company's best knowledge, there will not be, any
material adverse change in relations with the employees of the Company as a
result of any announcement of the Transactions.
SECTION 3.21. PERSONNEL. Disclosure Schedule Section 3.21 sets forth,
as of the date hereof, a true and complete list of:
(a) the name and current salary of all salaried employees of
the Company;
(b) the name and wage rate of all hourly employees of the
Company;
(c) the name and compensation arrangements of any other
employees or consultants of the Company not listed in Disclosure Schedule
Section 3.21 pursuant to Sections 3.21(a) or (b); and
(d) the name and employment status of each employee of the
Company currently on long-term or short-term disability, workers' compensation,
sick leave, personal leave, military leave or any similar leave arrangement.
SECTION 3.22. EMPLOYEE PLANS.
(a) List of Plans. Set forth in Disclosure Schedule Section
3.22 is an accurate and complete list of all Employee Plans, whether or not any
such Employee Plans are otherwise exempt from ERISA, of established, maintained
or contributed to by the Company (including, for this purpose and for the
purpose of all of the representations in this Section 3.22, all ERISA
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Affiliates of the Company), since September 2, 1974. None of the Employee Plans
is, or has ever been, subject to Title IV of ERISA or Part 3 of Title I of
ERISA.
(b) Status of Plans. The Company does not maintain or
contribute on behalf of the employees of the Company to any Employee Plan
subject to ERISA which is not, or in the past has not been, in substantial
compliance with ERISA.
The Company does not maintain any Employee Plan which is a "Group
Health Plan" (as such term is defined in Code Section 5000(b)(1)) that has not
been administered and operated in all material respects in compliance with the
applicable requirements of Code Sections 601 of ERISA and 4980B, and the Company
is not subject to any liability, including additional contributions, fines,
penalties or loss of tax deduction as a result of such administration and
operation. The Company does not maintain any Employee Plan (whether qualified or
nonqualified within the meaning of Code Section 401(a)) providing for retiree
health and/or life benefits and having unfunded liabilities. The Company does
not maintain any Employee Plan which is an "Employee Welfare Benefit Plan" (as
such term is defined in ERISA Section 3(1) nor has the Company provided any
benefit in Section 4976(b)) for which an excise tax would be imposed. Subject to
compliance with applicable law, to Sellers' and the Company's best knowledge,
except as set forth in Disclosure Schedule Section 3.22, no condition exists
which would prevent L&E from amending on a prospective basis or terminating any
Employee Plan providing health or medical benefits in respect of any active or
former employee of the Company (excluding with respect to pre-existing medical
conditions).
(c) Contributions. Full payment has been made of all amounts
which the Company is required, under applicable law or under any Employee Plan
or any agreement relating to any Employee Plan to which the Company is a party
to have paid as contributions thereto as of the last day of the most recent
fiscal year of such Employee Plan ended prior to the date hereof. The Company
has made adequate provision for reserves to meet contributions that have not
been made because they are not yet due under the terms of any Employee Plans and
each such plan as is represented and has not been increased subsequent to the
date as of which documents have been provided.
(d) Tax Qualification. Each Employee Plan intended to be
qualified under Code Section 401(a) has been determined to be so qualified by
the Internal Revenue Service and, to the Sellers' and Company's best knowledge,
nothing has occurred since the date of the last such determination which
resulted in or is likely to result in the revocation of such determination.
(e) Compliance With Tax Reform Act of 1986. The Company has
either adopted on a timely basis all amendments to Employee Plans which are
required by the Tax Reform Act of 1986, as amended so as to avoid discrimination
in participation or benefits in favor of the highly compensated employees or has
complied with the requirements for obtaining "anti-cutback" relief provided
under Internal Revenue Service Notice 88-131 and the subsequent
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Internal Revenue Service pronouncements covering the subject matter of Notice
88-131 by adopting appropriate amendments to such Employee Plans.
(f) Transactions. Except as set forth in Disclosure Schedule
Section 3.22, the Company has not engaged in any transaction with respect to the
Employee Plans which would subject it to a tax, penalty or liability for
prohibited transactions under ERISA or the Code nor has any of its directors,
officers or, to Sellers' and the Company's best knowledge, employees to the
extent they or any of them are fiduciaries with respect to such plans, breached
any of their responsibilities or obligations imposed upon fiduciaries under
Title I of ERISA or would result in any claim being made under or by or on
behalf of any such plans by any party with standing to make such a claim.
(g) Triggering Events. The execution of this Agreement, and
the consummation of the Transactions, do not and will not constitute a
triggering event under any Employee Plan, policy, arrangement, statement,
commitment or agreement, whether or not legally enforceable, which (either alone
or upon the occurrence of any additional or subsequent event) will or may
reasonably be expected to result in any payment (whether of severance pay or
otherwise), acceleration, vesting or increase in benefits to any employee or
former employee or director of the Company.
(h) Other Plans. The Company does not currently maintain on
behalf of its employees any Foreign Plan.
(i) Documents. The Company has delivered or caused to be
delivered to Telepad and its counsel true and complete copies of (i) all
Employee Plans as in effect, together with all amendments thereto which will
become effective at a later date, as well as the latest Internal Revenue Service
determination letter obtained with respect to any such Employee Plan qualified
under Code Section 401(a) or tax-exempt under Code Section 501(a) and (ii) Form
5500 for the most recent completed fiscal year for each Employee Plan required
to file such form.
(j) Terminated Plan. The Company has no terminated Employee
Plans which may give rise, either now or in the future, to liability to Sellers,
the Company, L&E or Telepad upon or as a result of consummation of the
Transactions.
SECTION 3.23. LITIGATION. Except as set forth in Disclosure Schedule
Section 3.23, there is no action, suit, inquiry, proceeding or, to Sellers and
Company's best knowledge, investigation by or before any Governmental Entity
pending or, to Sellers' and Company's best knowledge, threatened against or
involving the Company or Sellers which, if adversely determined, would in the
aggregate have a Material Adverse Effect on the Company, or which questions or
challenges the validity of this Agreement or any action taken or to be taken by
the Company or Sellers pursuant to this Agreement or in connection with the
Transactions; nor, to Sellers' and the Company's best knowledge, is there any
valid basis for any such action, proceeding or investigation. The Company is not
in default under or in violation of, nor, to Sellers' and the
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Company's best knowledge, is there any valid basis for any claim of default
under or violation of, any Contract, indebtedness or restriction to which it is
a party or by which it is bound except for violations or defaults which in the
aggregate would not have a Material Adverse Effect on the Company. The Company
is not subject to any judgment, order or decree entered in any lawsuit or
proceeding which could reasonably be expected to have a Material Adverse Effect
on the Company. Except as set forth in Disclosure Schedule Section 3.23, there
is no matter as to which the Company has received any notice, claim or
assertion, or, to the Sellers' and Company's best knowledge, which otherwise has
been threatened, or is reasonably expected to be threatened or initiated,
against or affecting any director, officer, agent or representative of the
Company or any other Person, nor to the Sellers' and Company's best knowledge is
there any reasonable basis therefor, in connection with which any such Person
has or may reasonably be expected to have any right to be indemnified by the
Company.
SECTION 3.24. COMPLIANCE WITH LAW. The business and the other
operations of the Company have been conducted in accordance with all applicable
laws, regulations, rules and other requirements of all national governmental
authorities, and of all states, municipalities and other political subdivisions
and agencies thereof, having jurisdiction over the Company, the non-compliance
with which in the aggregate would have a Material Adverse Effect on the Company.
The Company has not received any notification of any asserted current or past
failure by the Company to comply with such laws, rules or regulations.
SECTION 3.25. PERMITS. The Company holds all Permits that are required
by any Governmental Entity to permit it to conduct its business as now conducted
except where the failure to hold any such permit would not in the aggregate have
a Material Adverse Effect on the Company, and all such Permits are valid, in
full force and effect and will remain so upon consummation of the Transactions,
except where the failure to be in full force and effect would not in the
aggregate have a Material Adverse Effect on the Company. To Sellers' and the
Company's best knowledge, no suspension, cancellation or termination of any of
such Permits is threatened or imminent which suspension, cancellation or
termination could reasonably be expected to have a Material Adverse Effect on
the Company.
SECTION 3.26. DIVIDENDS AND OTHER DISTRIBUTIONS. Except as set forth in
Disclosure Schedule Section 3.26, there has been no dividend or other
distribution of assets by the Company whether consisting of money, property,
stock or any other thing of value, declared, issued or paid to or for the
benefit of Sellers (or any other holders of Company capital stock) subsequent to
the Balance Sheet Date.
SECTION 3.27. UNDISCLOSED LIABILITIES. The Company does not have any
outstanding material claims, liabilities or indebtedness of any nature, whether
accrued, absolute, contingent or otherwise, and whether due, or to become due,
probable of assertion or not, except liabilities (a) set forth in the Balance
Sheet or referred to in the footnotes thereto, (b) incurred subsequent to the
Balance Sheet Date in the ordinary course of business not involving borrowings
by the Company, or (c) set forth in Disclosure Schedule Section 3.27.
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SECTION 3.28. TAXES. The Company and Sellers have filed or caused to be
filed, within the times and within the manner prescribed by law, Tax Returns
which are required to be filed by, or with respect to, the Company. Such Tax
Returns including amendments to date have been prepared in good faith and
reflect completely and accurately in all material respects all liability for
Taxes of the Company and of Sellers in respect of the Company, for the periods
covered thereby, whether or not due and payable and whether or not disputed. All
Taxes payable by, or due from, Sellers in respect of the Company and its
Sellers, the Company and Sellers have been fully paid or adequately disclosed
and fully provided for in the Company's books and financial statements. To
Sellers' and the Company's best knowledge, no examination of any Tax Return of
the Company or of Sellers in respect of the Company is currently in progress.
There are no outstanding agreements or waivers extending the statutory period of
limitation applicable to any Tax Return of the Company, or of Sellers in respect
of the Company.
SECTION 3.29. INSURANCE. Set forth in Disclosure Schedule Section 3.29
is a complete list of insurance policies which the Company maintains with
respect to its business, operations, properties or employees. Such policies are
in full force and effect and are free from any right of termination on the part
of the insurance carriers. Such policies, with respect to their amounts and
types of coverage, are adequate to insure fully against risks to which the
Company and its property and assets are normally exposed in the operation of its
business. There has not been any material adverse change in the relationship of
the Company with its insurers or in the premiums payable pursuant to such
policies.
SECTION 3.30. ENVIRONMENTAL LAWS AND REGULATIONS. Disclosure Schedule
Section 3.30 contains information relating to the following items:
(a) the nature and quantities of any Hazardous Substance
generated, transported or disposed of by the Company during the past three years
(other than raw material awaiting manufacturing, work-in-process or finished
goods and through the sale of products in the ordinary course of business),
together with a description of the location of each such activity; and
(b) a summary of the nature and quantities of any Hazardous
Substance that have been disposed of or found at any site or facility owned or
operated presently or at any previous time by the Company (other than raw
material awaiting manufacturing, work-in-process or finished goods and through
the sale of products in the ordinary course of business).
The Company is in compliance in all material respects with all
applicable Environmental Laws. Except as disclosed in Disclosure Schedule
Section 3.30, the Company has not been alleged to be in violation of, nor has it
been subject to any administrative or judicial proceeding pursuant to,
Environmental Laws either now or any time during the past three years. Except as
disclosed in Disclosure Schedule Section 3.30, there are no facts or
circumstances which could reasonably be expected to form the basis for the
assertion of any Claim against the Company relating to Environmental Laws, which
might have a Material Adverse Effect on the Company.
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SECTION 3.31. ABSENCE OF CERTAIN PAYMENTS. In connection with the
business and operations of the Company, neither the Company nor any director,
officer, agent, employee or other Person acting on behalf of the Company has
used any corporate or other funds for unlawful contributions, payments, gifts or
entertainment, or made any unlawful expenditures relating to political activity
to Government Entity officials or others or established or maintained any
unlawful or unrecorded funds. With respect to the business and operations of the
Company, neither the Company nor any director, officer, or, to Sellers' and the
Company's best knowledge, agent, employee or other Person acting on their
behalf, has accepted or received any unlawful contributions, payments, gifts or
expenditures.
SECTION 3.32. INSIDER INTERESTS. Except as set forth in Disclosure
Schedule Section 3.32, no officer or employee of the Company has any material
interest in any property, real or personal, tangible or intangible of the
Company, is indebted or otherwise obligated to the Company, has any contractual
relationship with the Company or, to Sellers' and the Company's best knowledge,
is an officer, director, employee or consultant of a competitor of the Company.
The Company is not indebted or otherwise obligated to any director, officer,
employee or stockholder of the Company, except for amounts due under normal
arrangements applicable to all employees generally as to salary or reimbursement
of ordinary business expenses not unusual in amount or significance. Except as
set forth in Disclosure Schedule Section 3.32 and for the rights of the Company
hereunder, the consummation of the Transactions will not (either alone, or upon
the occurrence of any act or event, or with the lapse of time, or both) result
in any benefit or payment (severance or other) arising or becoming due from the
Company or the successor or assign thereof to any Person.
SECTION 3.33. BROKERS AND FINDERS. Neither Sellers, the Company or any
of its officers, directors or employees has employed any broker or finder or
incurred any liability for any brokerage fees, commissions or finders' fees in
connection with the Transactions.
SECTION 3.34. PRODUCT OR SERVICE LIABILITY. There is no action, suit,
inquiry, proceeding or, to Sellers' and the Company's best knowledge,
investigation by or before any Governmental Entity pending or, to Sellers' and
the Company's best knowledge, threatened against the Company relating to any
services alleged to have been performed by the Company and alleged to have been
defective or improperly rendered, or any products delivered or sold by the
Company which are alleged to be defective, which, if adversely determined, could
reasonably be expected to have a Material Adverse Effect on the Company.
SECTION 3.35. GOVERNMENTAL INTERACTION. Disclosure Schedule
Section 3.35 lists all Governmental Entity reviews, audits, and, to Sellers' and
the Company's best knowledge, investigations, whether pending or completed or,
to Sellers' and the Company's best knowledge, threatened, within the three-year
period preceding the date of this Agreement, relating to the business or
operations of the Company.
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SECTION 3.36. SECURITY MATTERS. The Company is in compliance in all
material respects with all security and related requirements on its classified
Contracts. Disclosure Schedule Section 3.36 describes the status and findings of
all security compliance inspections completed within the past two years and all
on-going security investigations or inquiries known to Sellers and the Company
relating to the Company and any of its directors, officers or employees.
Disclosure Schedule Section 3.36 also describes all security problems, incidents
or occurrences known to Sellers and the Company occurring within the past two
years which involve non-compliance by the Company or its directors, officers or
employees with applicable security requirements.
SECTION 3.37. GOVERNMENT FURNISHED PROPERTY. Any property or equipment
furnished to the Company prior to the date of this Agreement by the United
States Government (or any agent or other party thereof) or any other customer
that has not been returned to such customer is properly accounted for and in the
possession of the Company. Any such property is in good operating condition and
state of repair, ordinary wear and tear excluded.
SECTION 3.38. ESTIMATES. All documents, schedules and other information
provided by Sellers, the Company or its authorized agents to Telepad relating to
the Company, including estimates to complete and cash flow for the active
contracts of the Company, represent Sellers' and the Company's best estimates of
the results reasonably expected to occur and represent a good faith assessment
of projected future results.
SECTION 3.39. DISCLOSURE. None of this Agreement, the Financial
Statements or any document or statement in writing which has been supplied by or
on behalf of Sellers or the Company in connection with the Transactions contains
any untrue statement of material fact, or omits any statement of material fact
necessary to make the statements contained herein or therein not misleading.
SECTION 3.40. CUMULATIVE EXCEPTIONS. The exceptions and qualifications
to the representations and warranties of Sellers and the Company in this Article
III which are based upon such exceptions and qualifications not being "material"
or being "in all material respects" or not having a "Material Adverse Effect" on
the Company will not, individually or in the aggregate, have a Material Adverse
Effect on the Company.
ARTICLE IV
ADDITIONAL REPRESENTATIONS AND
WARRANTIES OF SELLERS
To induce Telepad to enter into the Transaction Agreements and to
consummate the Transactions, each Seller, severally but not jointly, represents
and warrants to Telepad that the statements contained in this Article IV are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date.
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SECTION 4.01. OWNERSHIP. Such Seller is the beneficial owner of the
Shares set forth opposite his or her name in Section 2.01(a), free and clear of
all adverse Liens, other than restrictions of a general nature arising under
federal and state securities laws, or as specifically provided in this
Agreement, and upon consummation of the Closing, Telepad shall have all right,
title and interest in all of the Shares, free and clear of all adverse Liens,
other than restrictions of a general nature arising under federal and state
securities laws, or as specifically provided in this Agreement.
SECTION 4.02. CONFLICTS. Seller is not subject to, or a party to, any
mortgage, Lien, lease, Permit, agreement, contract, instrument, law, rule,
ordinance, regulation, order, judgment or decree, or any other restriction of
any kind or character which would prevent consummation of the Transactions or
compliance by Seller with the terms, conditions and provisions hereof. No
consent of any Person which has not been obtained is necessary for the
consummation of the Transactions by such Seller.
SECTION 4.03. ACQUISITION OF TELEPAD SHARES.
(a) Seller is acquiring the Telepad Shares hereunder solely
for investment purposes, with no present intention of distributing or reselling
any of the Telepad Shares or any interest therein; the Seller acknowledges that
the Telepad Shares have not been registered under the Securities Act or under
any state securities laws.
(b) Seller is aware of the applicable limitations under the
Securities Act relating to a subsequent sale, transfer, pledge, mortgage,
hypothecation, gift, assignment or other encumbrance of the Telepad Shares; and
further acknowledge that the Telepad Shares must be held indefinitely unless
subsequently registered under the Securities Act and applicable state se
curities laws or an exemption from such registration is available.
(c) Seller has received from Telepad adequate access to
financial and other information concerning Telepad and the Telepad Shares,
including (i) Telepad's annual report on Form 10-KSB for the year ended December
31, 1997 and Telepad's quarterly report on Form 10- QSB for the quarter ended
March 31, 1998, and (ii) the warrants to purchase Telepad Common Stock and
convertible securities in connection with subscription agreements between the
Telepad and Ellis Enterprises LTD, Beeston Investments LTD, Hewlett Fund, Inc.,
and East Lane Corporation LTD., each dated as of the Closing Date, and the
convertible securities to be issued to the foregoing Persons and to be dated as
of the Closing Date. Seller has had the opportunity to ask questions of and
receive answers from Telepad concerning the Telepad Shares and to obtain
therefrom any additional information necessary to make an informed decision
regarding the acquisition of the Telepad Shares hereunder.
(d) Seller has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of the
acquisition of the Telepad Shares; and
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such investment in the Telepad Shares is suitable for Seller upon the basis of
the facts regarding its financial situation and needs.
(e) Seller realizes that Telepad is relying on the validity of
its representations and agreements contained herein in issuing the Telepad
Shares to Seller without registration under the Securities Act.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TELEPAD
Telepad represents and warrants to each Seller as of the date hereof
and as of the Closing Date as follows:
SECTION 5.01. CORPORATE ORGANIZATION; ETC. Telepad is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware.
SECTION 5.02. AUTHORIZATION; ETC. Telepad has full corporate power and
authority to enter into this Agreement and the Ancillary Agreements, and to
consummate the Transactions. Telepad has taken all action required by law, the
Telepad Charter and Bylaws or otherwise to authorize the execution and delivery
of each of this Agreement, the Ancillary Agreements, and the consummation of the
Transactions, and each of this Agreement and the Ancillary Agreements is a valid
and binding agreement of Telepad enforceable against Telepad, in accordance with
its terms, except to the extent that enforcement may be limited by the effect of
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
similar laws affecting the enforcement of rights of creditors or other obliges
generally and the scope of equitable remedies which may be available.
SECTION 5.03. NO VIOLATION. Neither the execution and delivery of this
Agreement, the Ancillary Agreements, or any other Transaction Document, as
applicable, nor the consummation of the Transactions will violate Telepad's
Charter or Bylaws or violate, or be in conflict with, or constitute a default
under, or cause the acceleration of the maturity of any debt or obligation
pursuant to, any agreement or commitment to which Telepad is a party or by which
Telepad is bound, or violate any statute or law or any judgment, decree, order,
regulation or rule of any Governmental Entity.
SECTION 5.04. BROKERS AND FINDERS. Neither Telepad nor any of its
officers, directors or employees has employed any broker or finder that will
result in either the Company or any Seller being liable for any brokerage fees,
commissions or finders' fees in connection with the Transactions.
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SECTION 5.05. CAPITALIZATION OF TELEPAD.
(a) On the date hereof, Telepad has an authorized
capitalization consisting of (i) 95,000,000 shares of common stock, par value
$.01 per share, of which 94,406,937 shares are Class A Common Stock and 593,063
are Class B Common Stock, and (ii) 5,000,000 shares of Preferred Stock, par
value $.01 per share ("Preferred Stock"). Telepad's outstanding capital stock
consists of 12,121,874 shares of Class A Common Stock and no shares of either
Class B Telepad Common Stock or preferred stock and no shares of Class A Telepad
Common Stock are in the treasury of Telepad. All of such issued and outstanding
Telepad Common Stock has been duly authorized and validly issued and is fully
paid and nonassessable, and is not subject to any preemptive rights of other
stockholders. Except as otherwise provided herein, the Telepad Shares to be
issued to Sellers pursuant to this Agreement, when issued and delivered and paid
for at the Closing in accordance with the terms hereof, will be validly issued,
fully paid and nonassessable and not subject to any preemptive rights of other
stockholders, and Sellers will not be subject to personal liability by reason of
being a holder of such Telepad Shares. The Telepad Common Stock is currently
traded on the "Small Cap" segment of The Nasdaq Stock Market.
SECTION 5.06. NO GENERAL SOLICITATION. Neither Telepad nor any of its
Affiliates has engaged in any form of general solicitation or general
advertising in connection with the purchase and sale of Telepad Shares
hereunder, nor made any other sales or solicited any other Persons to buy
Telepad securities that would require registration under the Securities Act of
the Telepad Shares contemplated to be sold and purchased hereunder.
SECTION 5.07. TITLE TO TELEPAD SHARES. Upon consummation of the
Closing, each Seller shall have received from Telepad good and marketable title
to the Telepad Shares issued to such Seller hereunder, free and clear of all
Liens other than restrictions of a general nature arising under federal and
state securities laws, or as contemplated hereby.
SECTION 5.08. NASDAQ FILINGS. Prior to the Closing Date, Telepad shall
have made all notice and other filings required by The Nasdaq Stock Market with
regard to the issuance of the Telepad Shares hereunder.
SECTION 5.09. SEC FILINGS. Telepad has delivered to each Seller,
Telepad's annual report on Form 10-KSB for the year ended December 31, 1997 and
Form 10-QSB for the quarter ended March 31, 1998, as filed with the Securities
and Exchange Commission. As of its date, each of such annual report and
quarterly report (including all exhibits and schedules thereto and documents
incorporated by reference therein) did not contain any untrue statement of
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Telepad's audited financial statements and
unaudited interim financial statements included or incorporated by reference in
such reports have been prepared in accordance with GAAP applied on a consistent
basis during the period involved (except as may be indicated in the notes
thereto), and fairly present in all material respects Telepad's assets,
liabilities and financial position as of the
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dates thereof and the results of Telepad's operations and changes in financial
position for the periods then ended (subject, in the case of any unaudited
interim financial statements, to normal year-end adjustments).
SECTION 5.10. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as
contemplated by this Agreement, or reflected in any financial statement or note
thereto referred to in Section 5.09, since March 31, 1998, there has not been
(a) any material adverse change in the Telepad's business, assets, operations or
financial condition; (b) any damage, destruction or loss, whether covered by
insurance or not, having a material adverse effect upon the Telepad's properties
or business; or (c) any change by Telepad in accounting principles or methods
except insofar as may be required by a change in GAAP.
SECTION 5.11. LITIGATION. There is no action, suit, inquiry, proceeding
or, to Telepad's best knowledge, investigation by or before any Governmental
Entity pending or, to Telepad's best knowledge, threatened which, if adversely
determined, would have a material adverse effect on the Telepad's business,
assets, operations or financial condition or on Telepad's ability to perform its
obligations under this Agreement or under any Ancillary Agreement.
ARTICLE VI
CERTAIN COVENANTS AND AGREEMENTS
SECTION 6.01. CONDUCT OF COMPANY'S BUSINESS. Sellers and the Company
agree that, except as Telepad may otherwise grant its prior consent, from and
after the date hereof until the earlier of the Additional Consideration Payment
Date or the termination of this Agreement pursuant to Section 10.01:
(a) The business and operations of the Company will be
conducted only in the ordinary course in all material respects; and Sellers and
the Company will use their reasonable efforts to preserve and maintain the
business and properties of the Company, keep available the services of their
employees, and preserve for Telepad the relationships of the Company with its
employees, suppliers, customers, sales representatives and others having
business relations with the Company.
(b) Except as may be required by existing Contracts or
applicable law, or as permitted in the Employment Agreements, the Company will
not increase, or obligate itself to increase, the compensation payable or to
become payable by the Company to any of the directors, officers or employees of
the Company or incur any additional obligations with respect to any such
directors, officers or employees or take any action with respect to the grant or
increase of severance or termination pay payable after the Closing Date or
institute an increase in or otherwise amend any deferred compensation,
insurance, retirement, medical, disability, welfare or other Employee Plan.
Notwithstanding the foregoing, the Company shall be entitled to hire employees
in the ordinary course of business.
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(c) The Company will not take any action or fail to any action
that would result in any breach of a representation, warranty or covenant
hereunder or otherwise impede the consummation of the Transactions.
(d) The Company shall, upon reasonable notice, afford the
officers, employees, counsel, accountants, financing sources and other
authorized representatives of Telepad or any of its Affiliates
("Representatives") reasonable access during normal business hours to its
properties, books, contracts, commitments and records and personnel and advisors
(who will be instructed by the Company to cooperate) furnish promptly to Telepad
all information concerning its business, properties and personnel as Telepad or
its Representatives may reasonably request; provided that any review will be
conducted in a way that will not interfere unreasonably with the conduct of the
Company's business, and provided, further, that no review pursuant to this
Section 7.01(d) shall affect or be deemed to modify any representation or
warranty made by the Company or any Seller herein.
(e) The Company will furnish to Telepad when they become
available the Company's unaudited and interim unaudited consolidated financial
statements for periods ending after the Closing Date.
(f) Neither the Company or any Subsidiary thereof will enter
into any material transaction with the Company or any Affiliate of the Company
or of either Seller, except for Telepad and its other Subsidiaries.
(g) The Company will maintain its books and records in all
material respects in accordance with generally accepted corporate practice and
will cause its Subsidiaries to do so.
(h) The Company will comply in all material respects with all
laws, rules and regulations applicable to it and will cause its Subsidiaries to
do so.
(i) The Company will provide to Telepad, promptly upon receipt
thereof, a copy of any notice from any Governmental Entity of the revocation,
suspension, violation, or limitation of the rights under, or of any proceeding
for the revocation, suspension, or limitation of the rights under (or that such
authority may in the future, as the result of failure to comply with laws or
regulations or for any other reason, revoke, suspend, or limit the rights under)
any Permit held by the Company or any Subsidiary thereof.
(j) The Company will notify Telepad promptly after learning of
the institution or threat of any action against the Company or any Subsidiary
thereof before any Governmental Entity, or any action against the Company or any
Subsidiary thereof before any Government Entity, and notify Telepad promptly
upon receipt of any Governmental Entity order relating to any of the assets or
business of the Company or any Subsidiary thereof.
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(k) The Company will not issue any capital stock or any
Purchase Rights regarding Company capital stock or securities convertible into
or exercisable or exchangeable for any Company capital stock, nor will the
Company authorize or agree to do any of the foregoing or cause any Subsidiary to
do any of the foregoing with respect to such Subsidiary's capital stock.
(l) Except for the purchase and sale of the Shares hereunder,
the Company not issue, sell, pledge, assign, transfer or otherwise dispose of or
encumber any of the Company capital stock or other securities of the Company,
nor grant any right to vote or acquire any Company capital stock or other
securities of the Company.
(m) The Company shall not engage in, or enter into any
agreement with respect to, or resolve to engage in or to enter into any
agreement with respect to, any Major Transaction.
(n) The Company shall furnish to Telepad:
(i) as soon as available, but in the event
within 60 days after the end of each fiscal year of the Company, a copy of the
consolidated balance sheet of the Company and its Subsidiaries as at the and of
such year and the related consolidated statements of income and retained
earnings, changes in stockholders' equity and cash flows for such year, setting
forth in each case in comparative form the figures for the previous year,
reported on by the Independent Accountant or other independent certified public
accountants of nationally recognized standing acceptable to Telepad;
(ii) as soon as available, but in any event
within 60 days after the end of each fiscal year of the Company, a copy of the
consolidating balance sheet of the Company and its consolidated Subsidiaries as
at the end of such year and the related consolidating statements of income and
retained earnings, changes in stockholders' equity and cash flows for such year,
setting forth in each case in comparative form the figures for the previous
year, certified by an executive officer of the Company as being fairly stated in
all material respects;
(iii) as soon as available, but in any event within
30 days after the end of each of the first three quarterly periods of each
fiscal year of the Company, the unaudited consolidated and consolidating balance
sheet of the Company and its consolidated Subsidiaries as at the end of such
quarter and the related unaudited consolidated and consolidating statements of
income and retained earnings, stockholders' equity and cash flows of the Company
and its consolidated Subsidiaries for such quarter and the portion of the fiscal
year through the end of such quarter, setting forth in each case in comparative
form the figures for the previous year, certified by an executive officer of the
Company as being fairly stated in all material respects when considered in
relation to the consolidated and consolidating financial statements of the
Company and its consolidated Subsidiaries (subject to normal year-end audit
adjustments); all such financial statements specified in (i), (ii) and (iii)
above to be complete and correct in all material respects and to be prepared in
reasonable detail and in accordance with GAAP applied consistently
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throughout the periods reflected therein and with prior periods (except as
approved by such accountants or officer, as the case may be, and disclosed
therein);
(iv) a copy of each report, certificate or other
document or information delivered to the Company's lenders, concurrently with
the delivery thereof to such lenders, including all annexes or attachments
thereto;
(v) as soon as available, but in any event
within 30 days after the end of each fiscal month of the Company, a copy of the
consolidating balance sheet of the Company and its consolidated Subsidiaries as
at the end of each such fiscal month and the related consolidating statement of
income, each certified by an executive office of the Company as being fairly
stated in all material respects;
(vi) as soon as available, but in any event
within 60 days after the Closing Date Closing, the audited consolidated and
consolidating balance sheet of the Company and its consolidated Subsidiaries for
the fiscal years ended December 31, 1997, December 31, 1996, and December 31,
1995, and the related audited consolidated and consolidating statements of
income and retained earnings, stockholders' equity and cash flows of the Company
and its consolidated Subsidiaries for each such fiscal year, reported on by the
Independent Accountant or other independent certified public accountants of
nationally recognized standing acceptable to Telepad, and to be complete and
correct in all material respects and to be prepared in reasonable detail and in
accordance with GAAP applied consistently throughout the periods reflected
therein and with prior periods.
(vii) such other information as Telepad may
reasonably request from time to time, including without limitation, any
information required to be furnished or filed by Telepad to the SEC or Nasdaq in
order to comply with Nasdaq rules and requirements, the requirements of the
Securities Act or the Securities Exchange Act.
(o) The Company and Sellers agree to provide, and shall cause
the Company's Subsidiaries and its and their respective officers and employees
to provide, all necessary cooperation in connection with the arrangement of any
financing to be consummated contemporaneous with or at or after the payment of
the Additional Consideration and the refinancing of the indebtedness of the
Company and its Subsidiaries, including the execution and delivery of any
commercially reasonable commitment and fee letters, term sheets, underwriting or
placement agreements, pledge and security documents, other commercially
reasonable definitive financing documents, or other reasonably requested
certificates or documents, including a certificate of the chief financial
officer of the Company with respect to solvency matters, as may be reasonably
requested by Telepad. In addition, in conjunction with the obtaining of any such
financing, the Company agrees, at the request of Telepad, to call for prepayment
or redemption, or to prepay, redeem and/or renegotiate, as the case may be, any
then existing indebtedness of the Company or of any Subsidiary, provided that no
such prepayment or redemption shall themselves
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actually be made until contemporaneously with or after the payment of the
Additional Consideration.
(q) On or before December 31, 1999, the Company's board of
directors and appropriate officers of the Company shall take all action
necessary or appropriate to amend the Merrill Lynch Simple Retirement Account
Plan maintained by the Company so as to provide that no further contributions
shall be made to such plan subsequent to December 31, 1999. In addition, the
Company's board of directors and appropriate officers shall take all action
necessary or appropriate to effectuate the termination of such plan and the
distribution of the assets of such plan to the plan's participants on or before
December 31, 2001.
SECTION 6.03. CONFIDENTIALITY.
(a) In connection with the Transactions, the Company and
Sellers will furnish to Telepad and Telepad will furnish to the Company and
Sellers certain information regarding their respective businesses. All
information furnished hereunder to Telepad or to the Company and Sellers or
their respective directors, officers, employees, agents or representatives,
including attorneys, accountants, consultants and financial advisors
(collectively "representatives") and all analyses, compilations, data, studies
or other documents prepared by any Party or its respective representatives
containing, or based in whole or in part on, any such information are
hereinafter collectively referred to as the "Information." For all purposes
hereof, however, the term "Information" shall not include (i) information that
is or becomes lawfully available to the public other than as a result of
disclosure by any Party in breach of this Agreement; (ii) information that is or
becomes available to any Party or their representatives on a nonconfidential
basis; and (iii) information that has been furnished prior to the date hereof on
a nonconfidential basis to Telepad by the Company or Sellers, or its
representatives or to the Company or Sellers by Telepad or its representatives.
(b) (i) The Information will be kept confidential and
will not, without prior written consent of the Party which provided the
Information hereunder, be disclosed by the Party to which the Information was
provided or their representatives.
(ii) Subject to the provisions of Section 6.05, no
Party will disclose to any other Person the terms, conditions or other facts
with respect to the Transactions, including the status thereof, except such
disclosure as has been previously approved and as may be required by law, as
reasonably determined by the applicable party based on the advice of counsel.
(c) If this Agreement is terminated or expires, Telepad shall,
as requested by Sellers, return or destroy the Information provided to it by the
Company and Sellers and the Company and Sellers shall, as requested by Telepad,
return or destroy the Information provided to them by Telepad.
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(d) If any Party or any of representatives of any Party is
requested or becomes legally compelled (by oral questions, interrogatories,
request for information or documents, subpoena, criminal or civil investigative
demand or similar process) to disclose any of the Information relating to a
Party other than itself, such other Party will be provided with prompt written
notice so that it may seek a protective order or other appropriate remedy and/or
waive compliance with the provisions of this Agreement. If such protective order
or other remedy is not obtained, or if the Party that provided the Information
waives compliance with the provisions of this Agreement, the person who has been
the subject of such request or legal compulsion will furnish only that portion
of the Information which is legally required and will exercise all reasonable
efforts to obtain reliable assurance that confidential treatment will be
accorded the Information. Notwithstanding anything herein to the contrary, each
Party shall be free to disclose any Information during the course of or in
connection with any litigation, arbitration or other proceeding based upon or in
connection with the subject matter of this Agreement.
SECTION 6.04. ANNOUNCEMENTS AND FEDERAL SECURITIES LAW MATTERS.
(a) Each Party and its representatives will exercise all
reasonable efforts to maintain confidentiality with respect to the existence of
this Agreement and the Transactions at all times prior to the public
announcement of the execution and delivery of this Agreement, except that it is
understood that Telepad will, after consulting with the Company, release a press
statement announcing the existence of this Agreement and the Transactions and
file with the SEC a report including disclosure of this Agreement and the
Transactions and a copy hereof as an exhibit. The provisions of this Section
6.04 will be subject to each Party's obligation to comply with applicable
requirements of federal or state laws or any governmental order or regulation;
and in this regard, Sellers and the Company understand that Telepad is a
publicly held corporation and as a result has disclosure obligations under
federal and state securities laws and under the policies and rules of the
National Association of Securities Dealers, Inc., regarding Telepad and its
affiliated entities, including Subsidiaries.
(b) Until the Additional Consideration Payment Date, except as
may otherwise be required by law or NASDAQ rules, Telepad will exercise
reasonable efforts under the particular circumstance to provide Sellers with an
opportunity to comment on any proposed public communication regarding the
Company before its release to the public.
(c) Sellers and the Company (i) acknowledge that they are and
their representatives to whom Information will be provided hereunder by Telepad
will be (1) aware that the federal and state securities laws prohibit any Person
who has material nonpublic information about a company from purchasing or
selling securities of such company (whether debt or equity securities), or from
communicating such information to any other Person under circumstances in which
it is reasonably foreseeable that such person is likely to purchase or sell such
securities and (2) familiar with the Exchange Act, and (ii) agree that Sellers
and the Company will not use, and will not permit or cause any Person to use,
any such Information in contravention of the Exchange Act, including Rule 10b-5
thereunder.
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SECTION 6.05. NOTIFICATION OF CERTAIN MATTERS. Sellers and the Company
shall give prompt notice to Telepad, and Telepad shall give prompt notice to the
Company, of (a) the occurrence, or failure to occur, of any event that would be
likely to cause any representation or warranty contained in this Agreement and
made by such party to be untrue or inaccurate in any material respect at any
time from the date of this Agreement to the Closing Date and (b) any failure of
Telepad, Sellers or the Company, as the case may be, to comply with or satisfy,
in any material respect, any covenant, condition or agreement to be complied
with or satisfied by it under this Agreement.
SECTION 6.06. PERMITS AND APPROVALS.
(a) The Parties agree to cooperate and use their best
reasonable commercial efforts to obtain (and will immediately prepare all
filings, applications, requests and notices preliminary to) all approvals and
permits that may be necessary or which may be reasonably requested by any such
party to consummate the Transactions.
(b) To the extent that the approval of a third party with
respect to any Contract is required in connection with the Transactions, Sellers
and the Company shall use their best reasonable commercial efforts to obtain
such approval prior to the Closing Date and if any such approval is not
obtained, Sellers and the Company shall cooperate with Telepad to ensure that
the Company continues to enjoy the benefits of each such Contract after the
Closing.
SECTION 6.07. NO PLEDGES. Until the Additional Consideration Payment
Date, Telepad will not pledge, or encumber or hypothecate any Shares, except as
contemplated hereby and under the Pledge Agreements.
SECTION 6.08. NO IMPOSITION OF PAYMENTS. Except with respect to (i) the
dividends required pursuant to Section 8.01(d) and (ii) payments with respect to
contracts or agreements between the Company and Telepad hereafter arising, the
Company shall not make payments for corporate chargebacks, accounting charges
incurred at Telepad's request, or management fees payable to Telepad.
ARTICLE VII
SURVIVAL; INDEMNIFICATION; NONRECOURSE
SECTION 7.01. SURVIVAL PERIODS. Except for actions based upon (a) fraud
or other intentional acts, or (b) a breach of representations and warranties
contained in Sections 3.01, 3.02, 3.12, 3.22, 3.28, 3.30, or 3.32, or Article IV
(each of which shall continue in full force and effect without limitation until
expiration of the applicable statute of limitations), and except for those
covenants and agreements which, by their terms, expressly survive for a
different period of time, including those in Articles V and X, all
representations, warranties, covenants and agreements of the Parties contained
in this Agreement or expressly incorporated herein by reference shall survive
the Closing Date and any investigation made by or on behalf of any Party
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until the first anniversary of the Closing Date. Claims relating to fraud or
breaches of such representations, warranties, covenants and agreements occurring
prior to the expiration of the applicable survival period may be asserted up to
30 days after the expiration of such survival period.
SECTION 7.02. STATEMENTS AS REPRESENTATIONS. All statements contained
herein, in the Disclosure Schedule or in any other Transaction Document, shall
be deemed representations and warranties within the meaning of Section 7.01.
SECTION 7.03. INDEMNIFICATION PROVISIONS FOR THE BENEFIT OF TELEPAD
(a) If either Seller or the Company breaches (or if third
party alleges facts that, if true, would mean either Seller or the Company has
breached) any of its representations, warranties and covenants contained herein,
then each Seller and the Company, jointly and severally, agrees to indemnify and
hold Telepad harmless from and against the entirety of any Adverse Consequences
Telepad or, if the Closing occurs, the Company may suffer through and after the
date of the claim for indemnification resulting from, arising out of, relating
to, in the nature of, or caused by the breach (or the alleged breach); provided,
however, except with respect to a breach of Article IV, Telepad shall not claim
indemnification under this Section 7.03(a) unless the aggregate of all claims by
Telepad for indemnifications under this Section 7.03(a) equals or exceeds
$100,000, in which event, Telepad shall be entitled to make a claim for the
entire amount of the Adverse Consequences.
(b) Each Seller, jointly and severally, agrees to indemnify
and hold Telepad and the Company harmless from and against the entirety of any
Adverse Consequences Telepad or the Company may suffer resulting from, arising
out of, relating to, in the nature of, or caused by any liability of any of the
Company for any Taxes of any Seller or the Company with respect to any Tax year
or portion thereof ending on or before the Closing Date (or for any Tax year
beginning before and ending after the Closing Date to the extent allocable to
the portion of such period beginning before and ending on the Closing Date).
SECTION 7.04. INDEMNIFICATION PROVISIONS FOR SELLERS BENEFIT. Subject
to Section 7.06, if Telepad breaches (or if any third party alleges facts that,
if true, would mean Telepad has breached) any of its representations,
warranties, and covenants contained herein, Telepad agrees to indemnify and hold
each Seller harmless from and against the entirety of any Adverse Consequences
such Seller may suffer through and after the date of the claim for
indemnification resulting from, arising out of, relating to, in the nature of,
or caused by the breach (or the alleged breach).
SECTION 7.05. MATTERS INVOLVING THIRD PARTIES.
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(a) If any third party shall notify any Seller, the Company or
Telepad (the "Indemnified Party") with respect to any matter (a "Third Party
Claim") which may give rise to a claim for indemnification against any other
party (the "Indemnifying Party") under this Article VIII, such Indemnified Party
shall promptly notify each Indemnifying Party thereof in writing; provided,
however, that no delay on the part of the Indemnified Party in notifying any
Indemnifying Party shall relieve the Indemnifying Party from any obligation
hereunder unless, and then solely to the extent, the Indemnifying Party thereby
is prejudiced.
(b) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of the Indemnifying
Party's choice reasonably satisfactory to the Indemnified Party so long as (i)
the Indemnifying Party notifies the Indemnified Party in writing within 15 days
after the Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party, subject to the terms and conditions hereof, will indemnify
the Indemnified Party from and against the entirety of any Adverse Consequences
the Indemnified Party may suffer resulting from, arising out of, relating to, in
the nature of, or caused by the Third Party Claim, (ii) the Indemnifying Party
provides the Indemnified Party with evidence reasonably acceptable to the
Indemnified Party that the Indemnifying Party will have the financial resources
to defend against the Third Party Claim and fulfill its indemnification
obligations hereunder, (iii) the Third Party Claim involves only money damages
and does not seek an injunction or other equitable relief, (iv) settlement of,
or an adverse judgment with respect to, the Third Party Claim is not, in the
good faith judgment of the Indemnified Party, likely to establish a precedential
custom or practice materially adverse to the continuing business interests of
the Indemnified Party, and (v) the Indemnifying Party conducts the defense of
the Third Party Claim actively and diligently.
(c) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with Section 7.05(b), (i) the
Indemnified Party may retain separate co- counsel at its sole cost and expense
and participate in the defense of the Third Party Claim, (ii) the Indemnified
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), and (iii) the Indemnifying
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnified Party (not to be withheld unreasonably).
(d) If, however, any of the conditions in Section 7.05(b) is
or becomes unsatisfied, (i) the Indemnified Party may defend against, and
consent to the entry of any judgment or enter into any settlement with respect
to, the Third Party Claim in any manner it reasonably may deem appropriate (and
the Indemnified Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith), (ii) the Indemnifying Parties will
reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable attorneys' fees
and expenses), and (iii) the Indemnifying Parties will remain responsible for
any Adverse Consequences the Indemnified Party may suffer
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resulting from, arising out of, relating to, in the nature of, or caused by the
Third Party Claim to the fullest extent provided in this Article VII.
SECTION 7.06. NONRECOURSE RELEASE OF OBLIGATIONS.
(a) Notwithstanding anything herein or in any Ancillary
Agreement to the contrary, Telepad shall be entitled at any time to assign and
transfer 50% of the Shares to one Seller and the 50% balance of the Shares to
the other Seller, in complete satisfaction of all of the Telepad Released
Obligations and in such event Telepad shall not have any personal or direct
obligation or liability for payment, satisfaction or otherwise in respect of the
Telepad Released Obligations and if such aforesaid assignment and transfer
occurs on or before the 90th day after the Closing Date, each Seller
concurrently therewith shall transfer and assign to Telepad, free and clear of
any and all Liens, 475,000 Telepad Preferred Shares, plus a written instrument
executed by Seller irrevocably relinquishing all accrued and unpaid dividends
with respect to such shares, provided, however, if (i) the Telepad Preferred
Shares issued to Seller hereunder shall have converted into Telepad Common
Stock, or (ii) a portion of such shares shall have been redeemed by Telepad, or
sold to Telepad pursuant to Seller's rights under Section 8.06, resulting in
Seller owning fewer than 475,000 Telepad Preferred Shares, then any shortfall in
such shares shall be satisfied by Seller transferring and assigning to Telepad
an equal number of shares of Telepad Common Stock. Also, notwithstanding
anything herein or in any Ancillary Agreement to the contrary, Telepad shall not
have any personal or direct obligation or liability in respect of the Telepad
Released Obligations except in respect of the Collateral as provided in the
Pledge Agreements, and Sellers and the Company, jointly and severally, shall
look solely to the Collateral, in satisfaction of the Telepad Released
Obligations, as contemplated by the Pledge Agreement.
(b) Notwithstanding anything herein or in the Ancillary
Agreement to the contrary, neither the Company nor either Sellers shall have any
personal or direct obligation or liability for payment, satisfaction or
otherwise in respect of the Seller and Company Released Obligations, in the
event that (i) Telepad exercises its right pursuant to Section 7.06(a) assign
and transfer 50% of the Shares to one Seller and the 50% balance of the Shares
to the other Seller, in complete satisfaction of all of the Telepad Released
Obligations, or (ii) Sellers become the legal owners of all the Collateral as
the result of foreclosure under the Pledge Agreements.
ARTICLE VIII
CERTAIN ADDITIONAL POST-CLOSING
COVENANTS AND AGREEMENTS
SECTION 8.01. TAX MATTERS. The following provisions shall govern the
allocation of responsibility as between Telepad and Sellers for certain tax
matters following the Closing Date:
(a) Tax Periods Ending on or Before the Closing Date. Sellers
shall prepare or cause to be prepared and file or cause to be filed all Tax
Returns for the Company for all periods
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ending on or prior to the Closing Date which are filed after the Closing Date.
Sellers shall permit Telepad to review and comment on each such Tax Return
described in the preceding sentence prior to filing. All obligations of the
Company and Sellers in respect of Taxes for periods ending on or prior to the
Closing Date shall be retained by Sellers, jointly and severally. If the Company
or Telepad pays any such Taxes, Sellers shall reimburse the Company or Telepad,
as the case may be, within 15 days after payment by the Company or Telepad.
(b) Tax Periods Beginning Before and Ending After the Closing
Date. Except as provided in the immediately following sentence, Sellers, as
directors of the Company shall prepare or cause to be prepared and file or cause
to be filed any Tax Returns of the Company for Tax periods which begin before
the Closing Date and end after the Closing Date, subject to Telepad's prior
review and approval. If, as a result of the transfer of the Shares hereunder to
Telepad, the Company or Telepad is required or agrees to file a Tax Return or
pay Taxes for a period which includes the Closing Date, Sellers shall pay to the
Company or Telepad, as the case may be, within 15 days after the date on which
taxes are paid with respect to such periods an amount equal to the portion of
such Taxes which relates to the portion of such taxable period ending on the
Closing Date. For purposes of this Section 8.01(b), in the case of any Taxes
that are imposed on a periodic basis and are payable for a taxable period that
includes (but does not end on) the Closing Date, the portion of such Tax which
relates to the portion of such taxable period ending on the Closing Date shall
(i) in the case of any Taxes other than the Taxes based upon or related to
income or receipts, be deemed to be the amount of such Tax for the entire
taxable period multiplied by a fraction the numerator of which is the number of
days in the taxable period ending on the Closing Date and the denominator of
which is the number of days in the entire taxable period, and (ii) in the case
of any Tax based upon or related to income or receipts, be deemed equal to the
amount which would be payable if the relevant taxable period ended on the
Closing Date. Any credits relating to a taxable period that begins before and
ends after the Closing Date shall be taken into account as though the relevant
taxable period ended on the Closing Date. All determinations necessary to give
effect to the foregoing allocations shall be made in a manner consistent with
prior practice of the Company.
(c) Cooperation on Tax Matters. The Parties shall cooperate
fully, as and to the extent reasonably requested by another Party, in connection
with the filing of Tax Returns pursuant to this Section 8.01 and any audit,
litigation or other proceeding with respect to taxes. Such cooperation shall
include the retention and (upon the other Party's request) the provision of
records and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. The Parties agree (i) to retain all books and
records with respect to tax matters pertinent to the Company relating to any
taxable period beginning before the Closing Date until the expiration of the
statute of limitations (and, to the extent notified by another Party, any
extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any taxing authority, and (ii) to
give the other Party reasonable written notice prior to transferring, destroying
or discarding any such books and records and, if the other Party so requests, to
allow such other party to take possession
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of such books and records. Sellers and the Company covenant and agree that if
requested by Telepad, Sellers and the Company shall cooperate and take, or cause
to be taken, all actions necessary and appropriate to effect a timely proper
election under Section 338(h)(10) of the Code and the Treasury Regulations
promulgated thereunder (and, to the extent possible, to make similar elections
for state and local income tax purposes) for the deemed purchase of the assets
of the Company pursuant to this Agreement.
(d) Accounting Method / Dividends. From and after the Closing
Date to and until the Additional Consideration Payment Date, the Company shall
be obligated to declare as of the last day of each fiscal quarter, and pay
dividends in respect of the Shares in an aggregate amount equal to (i) 25% of
its estimated "stand alone" tax liability of the Company for the then current
tax year, less (ii) with respect to the initial tax year in which a change in a
Company method of accounting from "cash basis" to "accrual basis" shall occur,
the increase in the Company's estimated "stand alone" tax liability, if any,
incurred solely as a result of such change in accounting method ("Estimated Tax
Payment"), to the fullest extent that funds are legally available for
declaration of such dividends. Until the Additional Consideration has been paid,
no other dividend or distribution in respect of the Company's capital stock
shall be paid or made. If in respect of any quarterly dividend, funds available
for payment of dividends shall be insufficient to permit the payment in full of
a dividend equal to the Estimated Tax Payment, then the entire amount legally
available for payment shall be declared and paid, and the unpaid mandatory
dividends, shall be paid at each successive quarterly payment date to the extent
of legally available funds until fully paid. The above-mentioned dividends shall
be a mandatory obligation of the Company, subject only to the limitations set
forth in Section 1551 of the Business Corporation Law of the Commonwealth of
Pennsylvania with respect to funds legally permitted to be used for the payment
of dividends. In stating that the above-provided dividend obligations are a
mandatory obligation, it is the explicit intent of the Parties to eliminate any
and all discretion of the Company's board of directors with respect to the
declaration and payment of such dividends and to require the Company's board of
directors to declare and pay such dividends as and when provided herein, subject
only to compliance with Section 1551 of the Business Corporation Law of the
Commonwealth of Pennsylvania.
(e) Certain Taxes. All transfer, documentary, sales, use,
stamp, registration and other like Taxes and fees (including any penalties and
interest) incurred in connection with transfer and purchase of the Shares
hereunder shall be paid by Sellers when due, and the Company and Sellers will,
at their own expense, file all necessary Tax Returns and other documentation
with respect to all such Taxes and fees, and, if required by applicable law, the
Company will join in the execution of any such Tax Returns and other
documentation.
SECTION 8.02. NOMINATION AND ELECTION OF DIRECTORS. Notwithstanding
anything herein to the contrary, upon Closing, all necessary actions shall be
taken by Parties to cause the Company's board of directors to consist of five
directors of whom two shall be designees of Telepad and three shall be designees
of Sellers. Until the Additional Consideration Payment Date, Sellers shall have
the right to nominate three of the five directors of the Company, and Telepad
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agrees to vote or otherwise take action in respect of the Shares to elect
Seller's three nominees as Company directors. Notwithstanding anything herein to
the contrary, on the Additional Consideration Payment Date, (a) a special
meeting of the holders of the Company's voting capital stock shall be called to
elect a new board of directors to be nominated and elected at Telepad's
discretion or, at Telepad's option, such new board may be elected by written
consent of holders of the Company's voting capital stock, in lieu of a special
or annual meeting of such holders; and (b)Sellers and their nominees shall
resign all positions they may occupy as officers and directors of the Company.
SECTION 8.03. CAPITAL INVESTMENT. Subject to Section 7.06, Telepad
shall make an offer to the Company's board of directors to invest an aggregate
of $666,667 in the Company in the following increments: $333,333 on the first
anniversary of the Closing and $333,334 on the second anniversary of the
Closing; provided, however, that the Company's board of directors may decline
all or any portion of such investment in its sole discretion.
SECTION 8.04. NON-COMPETITION AND NON-SOLICITATION.
(a) Each Seller and the Company severally agrees that the Company and
Telepad have invested substantial time and effort in assembling and training
their respective staff and personnel and that, as a result of employment by the
Company and Telepad, such staff and personnel have gained knowledge of the
business affairs, marketing, customers and methods of operation of the Company
and Telepad that each Seller and the Company severally agrees constitute
confidential information and trade secrets of the Company and Telepad.
Accordingly, prior to the second anniversary of the Closing Date and provided
that Telepad is not in material breach of this Agreement, each Seller shall not,
and shall not permit any Affiliates of either Seller to, at any time, directly
or indirectly, solicit, encourage, entice or induce for employment any employee
of the Company or Telepad while employed by the Company, Telepad or any other
Affiliate of either the Company or Telepad.
(b) Subject to the consummation of the Closing, each Seller and the
Company severally agrees, until the eighth anniversary of the Closing Date, not
to engage, directly or indirectly, either as principal, agent, proprietor,
stockholder, owner, partner, consultant, member, manager or employee, or
participate in the ownership, management, operation or control of any business
that is engaged in the Business or in a business similar thereto or otherwise in
competition with the Company. Notwithstanding the foregoing, ownership of not
more than two percent of the outstanding securities of any company publicly
traded on any of national securities exchange or NASDAQ or any major foreign
securities exchange shall not be treated as a violation of the foregoing
covenants.
(c) Each Seller and the Company acknowledges that the restrictions set
forth in Section 8.04 are necessary for the protection of Telepad and the
Company, and that any breach thereof may cause Telepad and the Company
irreparable damage. Telepad and the Company shall be entitled to the issuance by
a court of competent jurisdiction of an injunction or other equitable
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relief in favor of Telepad and the Company enjoining the breach or threatened
breach of such restrictions. The foregoing provision shall not constitute a
waiver of any other remedies Telepad and the Company may have in law or in
equity. If any provision or part set forth in this Section 8.04 is held to be
unenforceable because of the duration of such provision or the area covered
thereby, the parties hereto agree to modify such provision, or that the court
making such determination shall have the power to modify such provision, to
reduce the duration or area of such provision or both, or to delete specific
words or phrases herefrom ("blue-penciling"), and, in its reduced or
blue-penciled form, such provision shall then be enforceable and shall be
enforced.
SECTION 8.05. REGISTRATION RIGHTS. Subject to Section 7.06, each
Seller shall be entitled to the registration rights set forth in Exhibit D.
SECTION 8.06. REPURCHASE OBLIGATIONS. Subject to Section 8.07, each
Seller shall have the right, from time to time, at such Seller's option,
exercisable by notice to Telepad, to require Telepad to purchase all or any part
of the Telepad Shares, as designated by Seller, issued hereunder to and then
held beneficially and of record by such Seller, at a repurchase price in cash of
$0.38 per Telepad Share, such right beginning on the 90th day after the Closing
Date and expiring at 5:00 p.m. (Washington, D.C. time) on the later to occur of
(a) the 300th day after the Closing Date, and (b) the earlier of the (i) 180th
day after such Seller's Telepad Common Shares (or in the case of Telepad
Preferred Shares, the Telepad Common Stock into which such Telepad Preferred
Shares are converted) are first subject to a registration statement effective
under the Securities Act (including pursuant to Exhibit D) and (ii) the first
anniversary of the Closing Date. The date fixed for any such repurchase shall be
the 10th business day following the date of Telepad's receipt of the repurchase
notice relating thereto. On or before the repurchase date, each Seller who
elects to have Telepad Shares held by such Seller purchased by Telepad under
this Section 8.06 shall surrender the certificate(s) representing such Telepad
Shares, duly endorsed, to Kane & Silverman, P.C., 2401 Pennsylvania Avenue,
Suite 1C-44, Philadelphia Pennsylvania, 19130, with photostatic copy to be sent
to Telepad together with the election to have such purchase made, and shall be
entitled to receive payment therefor provided in this Section 8.06 upon
concurrent surrender by Kane & Silverman, P.C., of such certificate(s) to
Telepad. If less than all the Telepad Shares represented by any such surrendered
certificate(s) are repurchased, a new certificate shall be issued representing
the unpurchased Telepad Shares. Payment of the repurchase price for the Telepad
Shares shall be made on the later of the repurchase date or the fifth Business
Day after the surrender of such certificate to Kane & Silverman, P.C., (with
photostatic copies and notification of election to Telepad). Dividends with
respect to the Telepad Shares so purchased shall cease to accrue after the
repurchase date, and all rights whatsoever with respect to such Telepad Shares
so purchased shall terminate.
SECTION 8.07. REPURCHASE RIGHTS. Telepad shall have the right, from
time to time, commencing on the Closing Date, at Telepad's option, by notice to
Sellers or either Seller, to require Sellers or such Seller to sell to Telepad,
(i) all or any part of up to 450,000 Telepad Shares (with such shares being
Telepad Preferred Shares, until Sellers or such Seller no longer owns any
Preferred Shares, and thereafter Telepad Common Shares, up to the 450,000-share
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total) at a repurchase price in cash of $0.50 per Telepad Share, with such right
expiring at 5:00 p.m. (Washington, DC time) on the 210th day after the Closing
Date, and (ii) in addition, if the Telepad Preferred Shares have not converted
into Telepad Common Stock on or before the 210th day after the Closing Date, all
or part of up to 500,000 Telepad Preferred Shares, at a repurchase price in cash
of $1.00 per Telepad Share, with such right expiring at 5:00 p.m. (Washington,
DC time) on the 270th day after the Closing Date. The date fixed for any such
repurchase shall be the 10th Business Day following the date of Sellers' or
Seller's receipt of the repurchase notice relating thereto. On or before the
repurchase date, each Seller who has Telepad Shares subject to such a repurchase
notice shall surrender the certificate(s) representing such Telepad Shares to
Telepad and shall thereupon be entitled to receive payment therefor provided in
this Section 8.07. If less than all the Telepad Shares represented by any such
surrendered certificate are repurchased, a new certificate shall be issued
representing the unpurchased Telepad Shares. Payment of the repurchase price for
the Telepad Shares shall be made on the later of the repurchase date or the
fifth Business Day after the surrender of such certificate. Dividends with
respect to the Telepad Shares so purchased shall cease to accrue after the
repurchase date, and all rights whatsoever with respect to such Telepad Shares
so purchased shall terminate.
SECTION 8.08. SELLERS' OBLIGATION TO TRANSFER TELEPAD SHARES. As set
forth in Section 4 of the Pledge Agreements, a Seller seeking to exercise the
remedies provided under the Pledge Agreement to which such Seller is a party
shall be required to transfer and assign to Telepad, free and clear of any
Encumbrances (as defined in the Pledge Agreement), 475,000 Telepad Preferred
Shares, plus a written instrument executed by such Seller irrevocably
relinquishing all accrued and unpaid dividends with respect to such shares, as a
condition precedent to such Seller's right to seek, or take any action as, a
remedy with respect to any one or more "Events of Default" under, and as defined
in, the Pledge Agreement, (a) which occur on or before the first anniversary of
the Closing Date, or (b) which arise out of, or result from, Telepad's failure
on or before the Determination Date if such date occurs on or prior to the first
anniversary of the Closing Date, (i) to pay principal, interest and other
amounts payable under the Note; (ii) to pay the Additional Consideration, (iii)
to pay the repurchase price of the Shares upon exercise by a Seller of its
option under Section 8.06; or (iv) to invest up to $666,700 in the Company as
provided in Section 8.03; provided, however, if (1) the Telepad Preferred Shares
issued to such Seller pursuant to this Agreement shall have converted into
Telepad Common Stock, or (2) a portion of such shares shall have been redeemed
by Telepad or sold to Telepad pursuant to such Seller's rights under this
Agreement, resulting in such Seller owning fewer than 475,000 of such shares,
then any shortfall in the tender of such shares shall be satisfied by
transferring and assigning to Telepad an equal number of shares of Telepad
Common Stock.
SECTION 8.09. TELEPAD BOARD OF DIRECTORS. Within 10 business days after
the Closing Date, Telepad shall take such action as is necessary so that one
Seller shall be appointed to Telepad's board of directors and thereafter, upon
the expiration of such designee's term as a Telepad director until the
Additional Consideration Payment Date, the Company shall designate one Seller as
a nominee for election to Telepad's board of directors.
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SECTION 8.10. CONVERSION PROPOSAL. Each Seller shall vote all Telepad
Common Stock such Seller owns or is otherwise entitled to vote for the approval
of the Conversion Proposal at the First Meeting and, if it occurs, at the Second
Meeting (as such terms Conversion Proposal, First Meeting and Second Meeting are
defined in the Certificate of Designations).
ARTICLE IX
CONDITIONS TO CLOSING
SECTION 9.01. CONDITIONS TO OBLIGATIONS OF SELLERS. The obligations of
Sellers to effect the Transactions shall be further subject to the following
conditions, any one or more of which may be waived by the Company provided,
however, such waiver shall not relieve Telepad from any liability to Sellers as
a result of the failure of such condition:
(a) all representations and warranties of Telepad contained in Article
V shall be true and correct in all material respects as of the Closing Date;
Telepad shall have performed and complied with all of material covenants and
agreements contained in this Agreement required to be performed and complied
with by Telepad at or prior to the Closing;
(b) all documents required to have been delivered by Telepad to Sellers
at or prior to the Closing shall have been delivered, and all actions required
to have been taken by Telepad at or prior to the Closing shall have been taken;
(c) as of the Closing Date, Sellers shall have received from Telepad
the following documents:
(i) a true and complete copy of the resolutions of Telepad's
Board authorizing Telepad's execution, delivery and performance of the
Transaction Agreements, certified by Telepad's secretary or assistant secretary;
and
(ii) a certificate from Telepad's secretary or assistant
secretary as to the incumbency and signatures of its officers who will execute
the Ancillary Agreements at the Closing and who have executed this Agreement.
(iii) concurrent with the Closing, a written consent of
Telepad, as the sole stockholder of the Company, acknowledging the Company's
execution of Employment Agreements.
(d) the consents and approvals of Governmental Entities, and other
Persons set forth in Disclosure Schedule Section 9.01(d) shall have been
obtained by the Parties to permit the Parties to consummate the Transactions.
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(e) the Certificate of Designations shall have been adopted by
Telepad's Board and filed with the Secretary of State of Delaware.
SECTION 9.02. CONDITIONS TO OBLIGATIONS OF TELEPAD. Telepad's
obligations to effect the Transactions shall be further subject to the following
conditions, any one or more of which may be waived by Telepad provided, however,
such waiver shall not relieve Sellers from any liability to Telepad as a result
of the failure of such condition:
(a) all representations and warranties of each Seller and the Company
contained in this Agreement shall be true and correct in all material respects
as of the Closing Date; Sellers and the Company shall have performed and
complied in all material respects with all of their covenants and agreements
contained in this Agreement required to be performed and complied with by them
at or prior to the Closing;
(b) all documents required to have been delivered by any Seller or the
Company to Telepad at or prior to the Closing shall have been delivered, and all
actions required to have been taken by any Seller or the Company at or prior to
the Closing shall have been taken;
(c) as of the Closing Date, Telepad shall have received from the
Company the following documents:
(i) a certificate of existence and tax good standing of the
Company from the state of formation, and from each foreign jurisdiction in which
the Company does business as a foreign entity;
(ii) a true and complete copy of the Company Charter and
Company Bylaws and all amendments thereto; and
(iii) a certificate from the secretary of the Company that the
Company Charter and Company Bylaws have not been amended since the date of the
certificate described in subsection (ii) above, and that nothing has occurred
since the date of issuance of the articles of existence specified in subsection
(i) above, that would adversely affect the Company's corporate existence or good
standing; and
(d) the consents and approvals of Governmental Entities and other
Persons set forth in Disclosure Schedule Section 9.02(d) shall have been
obtained by the Parties to permit the Parties to consummate the Transactions;
(e) there shall have been no event or events causing a Material Adverse
Effect on the Company, nor any development that would, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect on the
Company;
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(f) the Company shall have provided Telepad with an updated Disclosure
Schedule reflecting all employees of the Company which have terminated their
employment with the Company between the date of execution of this Agreement and
Closing, or otherwise given notice of their intention to terminate such
employment; the Company shall have adequate personnel to continue the conduct
its business in the ordinary course; and
(g) Telepad shall have received from the Company the results of a
search of all filings made against any of the Company or against any of its
assets under the Uniform Commercial Code as in effect in any state in which any
assets of Company thereof are located and where the Company is located,
indicating that their assets are free and clear of any Liens except as set forth
in Disclosure Schedule Section 9.02(g) or for which UCC-3 termination statements
are being delivered at the Closing.
ARTICLE X
TERMINATION
SECTION 10.01. TERMINATION. This Agreement may be terminated at any
time prior to the Closing:
(a) by mutual written consent of Telepad and Sellers;
(b) by Telepad or Sellers, if the Closing shall not have occurred on or
before the Termination Date; provided, however, that the right to terminate this
Agreement under this clause (b) shall not be available to any Party whose breach
of a representation or warranty hereunder or failure to fulfill any obligation
hereunder has been the cause of, or resulted in, the failure of the Closing to
occur on or before such date;
(c) by Telepad or Sellers, if any judgment, injunction, order or decree
enjoining any Party from consummating the Transactions is entered and such
judgment, injunction, order or decree shall become final and nonappealable;
provided, however, that the Party seeking to terminate this Agreement shall have
used all reasonable efforts to remove such judgment, injunction, order or
decree;
(d) by Telepad, if there has been a material breach of any
representation, warranty or material covenant or agreement of the Company or any
Seller hereunder; or
(e) by Sellers, if there has been a material breach of any
representation, warranty, or material covenant or agreement of Telepad
hereunder.
SECTION 10.02. EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 10.01, then this Agreement (except for Sections 6.03 and
6.04, Articles VII and X, which shall remain in full force and effect) shall
become void and of no effect with no liability on
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the part of any Party thereunder, except to the extent such termination results
from the breach by a Party of any of its representations, warranties, covenants
or agreements set forth in this Agreement.
ARTICLE XI
MISCELLANEOUS PROVISIONS
SECTION 11.01. AMENDMENT AND MODIFICATIONS. Subject to applicable law,
this Agreement may be amended, modified and supplemented only by written
agreement between the parties hereto which states that it is intended to be a
modification of this Agreement.
SECTION 11.02. WAIVER OF COMPLIANCE. Any failure of the Company or
Sellers, on the one hand, or Telepad, on the other, to comply with any
obligation, covenant, agreement or condition herein may be expressly waived in
writing by the other Party, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
SECTION 11.03. EXPENSES. Except as otherwise provided herein, the
parties agree that all fees and expenses incurred by them in connection with
this Agreement and the Transactions shall be borne by the party incurring such
fees and expenses, including all fees of counsel, actuaries and accountants.
Sellers and the Company shall be responsible for any legal, accounting or other
fees and expenses incurred by them in connection with the Transactions.
SECTION 11.04. REASONABLE EFFORTS; FURTHER ASSURANCES. Each Party will
use its reasonable efforts to cause all conditions to its and the other Parties
obligations hereunder to be timely satisfied and to perform and fulfill all
obligations on its part to be performed and fulfilled under this Agreement, to
the end that the Transactions shall be effected substantially in accordance with
the terms hereof as reasonably practicable. The Parties shall cooperate with
each other in such actions and in securing requisite approvals. Each Party shall
execute and deliver both before and after the Closing such further certificates,
agreements and other documents and take such other actions as the other Party
may reasonably request to consummate or implement the Transactions or to
evidence such events or matters.
SECTION 11.05. REMEDIES; WAIVER. Except as otherwise provided herein or
in the Ancillary Agreements, to the maximum extent permitted by law, all rights
and remedies existing under this Agreement are cumulative to and not exclusive
of, any rights or remedies otherwise available under applicable law. No failure
on the part of any Party to exercise or delay in exercising any right hereunder
shall be deemed a waiver thereof, nor shall any single or partial exercise
preclude any further or other exercise of such or any other right.
SECTION 11.06. KNOWLEDGE. Whenever any statement herein or in any
schedule, exhibit, certificate or other Transaction Documents delivered to any
Party pursuant to this Agreement is made "to the knowledge" or "to the best
knowledge" or words of similar intent or effect of Sellers and the Company or
their representatives, such Person shall make such statement
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only after making reasonable inquiry of each of the officers and employees of
the Company to the extent that such Person could reasonably be expected to
possess the requisite knowledge and each statement shall be deemed to include a
representation that such inquiry has been conducted. Whenever any statement
herein or in any schedule, exhibit, certificate or other Transaction Documents
delivered to any Party pursuant to this Agreement is made "to the knowledge" or
"to the best knowledge" or words of similar intent or effect of Telepad or its
representatives, such Person shall make such statement only after making
reasonable inquiry of each of the officers and employees of Telepad to the
extent that such Person could reasonably be expected to possess the requisite
knowledge, and each statement shall be deemed to include a representation that
such inquiry has been conducted
SECTION 11.07. NOTICES. All notices, requests, demands, consents,
approvals and other communications required or permitted hereunder shall be in
writing and shall be deemed to have been duly given if delivered by hand or
mailed, certified or registered mail with postage prepaid:
(a) if to Sellers or the Company, to:
L&E Mobile Computer Mounts, Inc.
1013 Conshohocken Road
Bldg. 4
Conshohocken, PA 19428-0978
Attention: Christine LeMaire and Dean N. Eisenberger
with a copy to:
Kane & Silverman, P.C.
Suite IC-44
2401 Pennsylvania Avenue
Philadelphia, Pennsylvania 19130
Attention: Michael C. Kane, Esq.
or to such other Person or address as Sellers shall furnish to the Telepad in
writing;
(b) if to Telepad or L&E, to:
TelePad Corporation
380 Herndon Parkway
Suite 1900
Herndon, Virginia 20170
Attention: Donald W. Barrett, Chairman and Chief
Executive Officer
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with a copy to:
Arent Fox Kintner Plotkin & Kahn, PLLC
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036-5339
Attention: Carter Strong, Esq.
.
or to such other Person or address as Telepad shall furnish to the Company in
writing.
Any notice, request, demand, consent, approval or other communication
provided hereunder or in connection herewith by one Seller on behalf of both
Sellers shall be given such effect for all purposes hereunder.
SECTION 11.08. ASSIGNMENT. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the Parties and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the Parties without the prior written consent of the other Parties.
Notwithstanding anything herein or in any Ancillary Agreement to the contrary,
if either Seller shall sell or otherwise transfer any (a) Telepad Common Stock
issued hereunder, including Telepad Common Shares and Telepad Common Stock
issuable upon conversion of Telepad Preferred Shares, or (b) any Telepad
Preferred Shares, such transferred shares shall remain subject to the provisions
of Sections 2.02, 7.06, 8.07 and 8.08, including Telepad's rights thereunder.
SECTION 11.09. GOVERNING LAW. This Agreement and the legal relations
among the Parties shall be governed by and construed in accordance with the laws
of the Commonwealth of Pennsylvania, excluding such jurisdiction's principles of
conflicts of laws.
SECTION 11.10. SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. Each
Party hereby submits to the exclusive jurisdiction of the United States District
Court for the Eastern District of Pennsylvania and of any Commonwealth of
Pennsylvania Court sitting in the City of Philadelphia, Pennsylvania for
purposes of all legal proceedings which may arise hereunder or under any other
documents delivered hereunder. The Parties irrevocably waive, to the fullest
extent permitted by law, any objection which they may have or hereafter have to
the laying of the venue of any such proceeding brought in such a court and any
claim that any such proceeding brought in such a court has been brought in an
inconvenient forum. The Parties hereby consent to process being served in any
such proceeding by the mailing of a copy thereof by registered or certified
mail, postage prepaid, to its address specified in Section 11.07 or in any other
manner permitted by law. Each Party hereby knowingly, voluntarily, and
intentionally waive any rights they may have to a trial by jury in respect of
any litigation based hereon, or arising out of, under, or in connection with,
this Agreement or any other Transaction Document, or any course of conduct,
course of dealing, statements (whether oral or written), of any Party.
SECTION 11.11. COUNTERPARTS. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and same instrument.
SECTION 11.12. CONSTRUCTION. The headings of Sections and Articles of
this Agreement are inserted for convenience only and shall not constitute a part
hereof or affect in any
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way the meaning or interpretation of this Agreement. The parties hereto have
participated jointly in the negotiation and drafting of this Agreement. If an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the Parties and no presumption or burden
of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement. Any reference to any
applicable laws or any federal, state, local or foreign statute or law shall be
deemed also to refer to all rules and regulations promulgated thereunder, unless
the context requires otherwise. Words such as "herein," "hereunder" and "hereof"
shall be deemed to refer to this Agreement as a whole and not to any particular
provision of this Agreement. When a reference is made in this Agreement to an
Article, Section, Schedule or Exhibit, such reference shall be to an Article,
Section, Schedule or Exhibit of this Agreement unless otherwise indicated.
Whenever the words "including", "include" or "includes" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation." All accounting terms defined in this Agreement shall have the
meanings specified by their respective definitions, including as provided in
Exhibit A; all accounting terms not defined in this Agreement shall have the
meaning determined by GAAP.
SECTION 11.13. SPECIFIC PERFORMANCE. Except as otherwise provided
herein or in any Ancillary Agreement, each Party recognizes and affirms that in
the event of breach by such Party of any of the provisions of this Agreement,
money damages would be inadequate and no adequate remedy at law would exist.
Accordingly, each of the Parties agree that, except as otherwise provided herein
or in any Ancillary Agreement, any party shall have the right, in addition to
any other rights and remedies existing in its favor, to enforce its rights and
the obligations of any other Party under this Agreement not only by an action or
actions for damages, but also by an action or action for specific performance,
injunction and/or other equitable relief in order to enforce or prevent any
violations of the provisions of this Agreement.
SECTION 11.14. ENTIRE AGREEMENT. This Agreement, including the Exhibits
and Schedules hereto, the Disclosure Schedule and the other documents and
certificates delivered pursuant to the terms hereof, set forth the entire
agreement and understanding of the Parties hereto in respect of the subject
matter contained herein, and supersede all prior agreements, promises,
covenants, arrangements, communications, representations or warranties, whether
oral or written, by any officer, employee or representative of any Party.
SECTION 11.15. THIRD PARTIES. Except as specifically set forth or
referred to herein, nothing herein expressed or implied is intended or shall be
construed to confer upon or give to any Person other than the Parties and their
successors or assigns, any rights or remedies under or by reason of this
Agreement.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
duly executed, all as of the day and year first above written.
TELEPAD:
TELEPAD CORPORATION, a Delaware corporation
By: /s/ Donald W. Barrett
________________________________________
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________________________________________
Name: Donald W. Barrett Title: Chairman and Chief
Executive Officer
_________________ ___________________
SELLERS
/s/ Christine LeMaire
________________________________________
Christine LeMaire
/s/ Dean N. Eisenberger
________________________________________
Dean N. Eisenberger
THE COMPANY:
L&E MOBILE COMPUTER MOUNTS, INC., a
Pennsylvania corporation
By: /s/ Christine LeMaire
____________________________________
____________________________________
Name: Christine LeMaire Title: President
_________________ _________
53
Exhibit 10.2
Section 1.1 Registration.
(a) Subject to the terms and conditions set forth herein,
Telepad shall prepare and file a registration statement with the SEC within the
first 90 days after the Closing Date and shall use its reasonable efforts to
cause such registration statement to become effective promptly pursuant to Rule
415 of Regulation C promulgated under the Securities Act (or any successor rule)
or otherwise under other applicable rules and regulations under the Securities
Act (the "Registration Statement") providing for the sale by any Seller of all
of its Registrable Securities in accordance with the terms hereof. "Registrable
Securities" shall mean (i) any Telepad Common Shares acquired by Seller on the
Closing Date pursuant to the Agreement, (ii) any Telepad Common Stock issuable
or issued upon conversion of Telepad Preferred Shares; and (iii) any securities
issued or issuable with respect to any Telepad Shares by way of stock dividend
or stock split, or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise.
(b) Subject to Section 1.13, Telepad agrees (i) to use its
reasonable efforts to keep the Registration Statement continuously effective for
a period expiring on the earlier of (x) the date on which all of the Registrable
Securities covered by the Registration Statement have been sold pursuant thereto
or (y) until the first anniversary of the Closing Date (the " Period"), and (ii)
to amend promptly the Registration Statement if and as required by the rules,
regulations or instructions applicable to the registration form used by Telepad
for such Registration Statement or by the Securities Act. Telepad may, in the
exercise of its sole discretion, extend the Registration Statement for a period
beyond the Period but shall in no event be required to do so.
(c) Any Seller intending to make offers or sales of
Registrable Securities pursuant to a Registration Statement prepared in
connection with this Section 1.1 shall provide Telepad with written notice (the
"Distribution Notice") of such intent at least five business days prior to
commencing such offers or sales. If the Distribution Notice reflects a method of
distribution different from that contemplated by the Registration Statement or
is from an Eligible Transferee (as defined below) not identified in the
Registration Statement, such Seller shall promptly provide Telepad such
information as Telepad reasonably requests in order to identify such Seller and
the method of distribution in any necessary post-effective amendment or
supplement to the Registration Statement. Such Seller shall also notify Telepad
in writing upon completion of such offer or sale or at such time as such Seller
no longer intends to make offers or sales under the Registration Statement.
(d) In connection with and as a condition to Telepad's
obligations with respect to any Registration Statement prepared pursuant to this
Section 1.1, each Seller covenants and agrees that (i) it will not offer or sell
any Registrable Securities under the Registration Statement until it has
provided a Distribution Notice, received copies of the Prospectus as then
amended or supplemented and received notice from Telepad that the Registration
Statement and any post-effective amendments thereto have become effective; and
(ii) upon receipt of any notice from Telepad as provided by Section 1.9(g)
hereof, such Seller shall not offer or sell any Registrable
<PAGE>
Securities pursuant to the Registration Statement until such Seller receives
copies of the supplemented or amended Prospectus and receives notice that any
post-effective amendment has become effective, and, if so directed by Telepad,
such Seller will deliver to Telepad (at the expense of Telepad) all copies in
its possession, other than permanent file copies then in such Seller's
possession, of the Prospectus as amended or supplemented at the time of receipt
of such notice.
(e) All offers and sales under the Registration Statement
shall be completed within 30 days after the date on which offers or sales can be
made pursuant to paragraph (c) above, and upon expiration of such 30-day period,
Seller will not offer or sell any Registrable Securities under the Registration
Statement until it has again complied with the provisions of paragraph (c)
above.
Section 1.3 Indemnification by Telepad. Telepad shall, and
hereby does, indemnify and hold harmless each Seller, each other Person who
participates as an underwriter in the offering or sale of Registrable Securities
and each other Person, if any, who controls any such underwriter within the
meaning of Section 15 and Section 20 of the Securities Act against any losses,
claims, damages or liabilities, joint or several, to which Seller or any such
director or officer or underwriter or controlling Person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which the Registrable Securities were registered under the Securities Act,
any preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein in light of the circumstances in which
they were made not misleading, and Telepad shall reimburse the Seller and each
underwriter and controlling Person for any legal or any other expenses
reasonably incurred by it in connection with investigating or defending any such
loss, claim, liability, action or proceeding; provided, however, that Telepad
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with written information about the Seller
furnished to Telepad through an instrument duly executed by or on behalf of
Seller specifically stating that it is for use in the preparation thereof. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Seller or any such controlling Person and shall
survive the transfer of the Registrable Securities by the Seller.
Section 1.4 Indemnification by Sellers. In consideration of
the inclusion of their Registrable Securities in any such registration
statement, Sellers, severally and not jointly, agree to indemnify and hold
harmless (in the same manner and to the same extent as set forth in Section
2
<PAGE>
1.3) Telepad, each director of Telepad, each officer of Telepad signing such
registration statement, each other Person who participates as an underwriter in
the offering or sale of such Registrable Securities and each other Person, if
any, who controls Telepad within the meaning of Section 15 and Section 20 of the
Securities Act with respect to any untrue statement or alleged untrue statement
in or omission or alleged omission from such registration statement, any
preliminary prospectus, final prospectus or summary prospectus contained therein
or any amendment or supplement thereto, if such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon and
in conformity with written information about Seller furnished to Telepad through
an instrument duly executed by Seller specifically stating that it is for use in
the preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement. Such indemnity shall
remain in full force and effect, regardless of any investigation made by or on
behalf of Telepad or any such director, officer or controlling Person and shall
survive the transfer by the seller of the securities of Telepad being
registered.
Section 1.5 Notification. Each indemnified party under this
Exhibit D will, promptly after the receipt of notice of the commencement of any
action or other proceeding against such indemnified party in respect of which
indemnity may be sought from any indemnifying party under this Exhibit D, notify
such indemnifying party in writing of the commencement thereof. The omission of
any indemnified party so to notify any indemnifying party of any such action
shall not relieve such indemnifying party from any liability that it may have to
such indemnified party (a) other than pursuant to this Exhibit D or (b) under
this Exhibit D unless, and only to the extent that, such omission results in
forfeiture of substantive rights or defenses. In case any such action or other
proceeding shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, such indemnifying party
shall be entitled to participate therein and, to the extent that either may
wish, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party; provided, however, that any indemnified party may, at
its own expense, retain separate counsel to participate in such defense.
Notwithstanding the foregoing, in any action or proceeding in which any
indemnifying party and an indemnified party are, or are reasonably likely to
become, a party, such indemnified party shall have the right to employ separate
counsel at the expense of such indemnifying party and to control its own defense
of such action or proceeding if, in the reason able opinion of counsel to such
indemnified party, (i) there are or may be legal defenses available to such
indemnified party or to other indemnified parties that are different from or
additional to those available to such indemnifying party or (ii) any conflict or
potential conflict exists between such indemnifying party and such indemnified
party that would make such separate representation advisable in the view of the
indemnified party; provided, however, that (A) any such separate counsel
employed by the indemnified party at the expense of such indemnifying party
shall be reasonably satisfactory to such indemnifying party, (B) the indemnified
party will not, without the prior written consent of such indemnifying party,
settle, compromise or consent to the entry of any judgment in such action or
proceeding unless such settlement, compromise or consent includes an
unconditional release of such indemnifying party from all liability arising or
that may arise out of such action or proceeding relating to any matter subject
to indemnification hereunder
3
<PAGE>
and (C) in no event shall such indemnifying party be required to pay fees and
expenses under this Exhibit D for more than one firm of attorneys representing
the indemnified parties in any jurisdiction in any one legal action or group of
related legal actions. The rights accorded to indemnified parties hereunder
shall be in addition to any rights that any indemnified party may have at common
law, by separate agreement or otherwise.
Section 1.6 Other Indemnification. Indemnification similar to
that specified in this Exhibit D (with appropriate modifications) shall be given
by Telepad and Sellers with respect to any required registration or other
qualification of Registrable Securities under any federal or state law or
regulation of any government authority other than the Securities Act.
Section 1.7 Contribution. To provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
this Exhibit D is for any reason held to be unenforceable by the indemnified
parties although applicable in accordance with its terms in respect of any
liabilities suffered by an indemnified party referred to therein, each
applicable indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such liabilities, in such proportion as is appropriate to reflect the
relative fault of Telepad on the one hand and of the liable Seller(s) on the
other in connection with the statements or omissions which resulted in such
liabilities, as well as any other relevant equitable considerations. The
relative fault of Telepad on the one hand and of the liable Seller(s)
(including, in each case, that of their respective officers, directors,
employees, agents and controlling Persons) on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by Telepad, on the one hand, or by or on behalf
of Seller(s), on the other, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
Section 1.8 Registration Covenants of Telepad. Telepad
covenants and agrees to:
(a) prior to the filings described above in Sections 1.1, 1.2
and 1.3, furnish to Sellers copies of the Registration Statement and any
amendments or supplements thereto and any prospectus forming a part thereof;
(b) notify Sellers, promptly after Telepad shall receive
notice thereof, of the time when any Registration Statement becomes effective or
when any amendment or supplement or any prospectus forming a part of such
Registration Statement has been filed;
(c) advise the Sellers after Telepad shall receive notice or
otherwise obtain knowledge of the issuance of any order by the SEC suspending
the effectiveness of a Registration Statement or any amendment thereto or of the
initiation or threatening of any proceeding for that purpose and promptly use
its reasonable best efforts to prevent the issuance of any stop order or to
obtain its withdrawal promptly if a stop order should be issued;
4
<PAGE>
(d) subject to Section 1.12, prepare and file with the SEC
such amendments and supplements to the Registration Statement and each
prospectus forming a part thereof as may be necessary to keep the Registration
Statement continuously effective and to permit Sellers comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities covered by the Registration Statement in accordance with
the intended methods of disposition by Sellers set forth in the Registration
Statement;
(e) furnish to Sellers such number of copies of the
Registration Statement, each amendment and supplement thereto, the prospectus
included in the Registration Statement (including each preliminary prospectus)
and such other documents as Sellers may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by Sellers;
(f) use its reasonable efforts to register or qualify such
Registrable Securities under such other securities or "blue sky" laws of such
jurisdictions as determined by the under writers after consultation with Telepad
and the Sellers and do any and all other acts and things which may be reasonably
necessary or advisable to enable Sellers to consummate the disposition in such
jurisdictions of the Registrable Securities (provided that Telepad shall not be
required to (i) qualify generally to do business in any jurisdiction in which it
would not otherwise be re quired to qualify but for this Section 1.8(f), (ii)
subject itself to taxation in any such jurisdiction, or (iii) consent to general
service of process in any such jurisdiction);
(g) notify Sellers, at any time when a prospectus relating to
the Registrable Securities is required to be delivered under the Securities Act,
of the happening of any event as a result of which the Registration Statement
would contain an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and, at the request of Sellers, subject to Section 1.13,
prepare a supplement or amendment to the Registration Statement so that the
Registration Statement shall not, to Telepad's knowledge, contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.
Section 1.9 Expenses. In connection with the Registration
pursuant to Section 1.1, Telepad shall pay all registration, filing and NASD
fees, all fees and expenses of complying with securities or "blue sky" laws
(including fees and disbursements of underwriters' counsel); provided, however,
that Sellers shall pay their pro rata share of any commissions, fees and
disbursements of underwriters customarily paid by sellers of securities (based
upon offering proceeds to be received by it). Telepad shall be responsible for
the fees and disbursements of counsel for Telepad and of its independent public
accountants, printing costs and premiums and other costs of policies of
insurance against liabilities arising out of the public offering of the
Registrable Securities. Sellers shall be responsible for the fees and
disbursements of counsel for Sellers.
5
<PAGE>
Section 1.10. Limitation on Requirement to File or Amend
Registration Statement. Anything in this Exhibit D to the contrary
notwithstanding, Telepad shall not be required to file, and may defer filing,
any Registration Statement, amendment, supplement or post-effective amendment
thereto or prospectus supplement, and may suspend the right of Sellers to sell
Registrable Securities pursuant to the Registration Statement, if Telepad is
then involved in discussions concerning, or otherwise engaged in, an
acquisition, disposition, financing or other material transaction and Telepad
determines in good faith that the making of disclosure with respect to such
matter in such a filing, supplement or amendment at such time would materially
adversely affect or interfere with such transaction or would otherwise be
materially adverse to Telepad or its stockholders; provided, however, that
Telepad shall, as soon as practicable thereafter, make such filing, supplement
or amendment. Telepad shall promptly give Sellers written notice of any such
deferral, containing a general statement of the reasons for such deferral and an
approximation of the anticipated delay, provided, however, that nothing herein
shall require Telepad to disclose any terms of any such transaction or the
identity of any party thereto. Upon receipt of such notice, Sellers shall
immediately suspend the sale of Registrable Securities pursuant to the
Registration, until Telepad shall have made such filing, supplement or amendment
and provided notice thereof to Sellers.
Section 1.11. Term. Except as specifically otherwise provided
herein, the provisions of this Exhibit D shall terminate upon the earlier of (i)
such time as all Registrable Securities have ceased to be restricted securities,
as that terms is defined in Securities Act Rule 144 and (ii) the first
anniversary of the Closing Date.
Section 1.12. Pre-existing Agreements. In the event of any
conflict between this Exhibit D and the pre-existing obligations of Telepad
under any other agreement, such pre-existing obligations shall govern and such
conflicting provisions of this Exhibit D shall be applied in such a manner as to
eliminate any such conflict.
Section 1.13. Compliance with Laws. Each Seller agrees that
any sale of Registrable Securities by or on behalf of such Seller shall be made
in compliance with the requirements of the Securities Act applicable to such
Seller and any broker, dealer or agent acting on such Seller's behalf.
Section 1.14. Delay Payment. If the Registration Statement
does not become effective under the Securities Act prior to the 211th day after
the Closing Date, the sole remedy of each Seller shall be to receive from
Telepad, within five business days after demand therefore, an amount equal to
(a) $0.38 times the number of Registrable Securities held by such Seller (b)
multiplied by .00033 for each day such Registration Statement is not effective
after the 210th day after the Closing Date up to and including the 365th day
after the Closing Date.
6
Exhibit 10.3
NONRECOURSE
PROMISSORY NOTE
$333,000 May 27, 1998
1. The undersigned, Telepad Corporation, a Delaware corporation
("Maker"), promises to pay on July 27, 1998 to the order of L&E Mobile Computer
Mounts, Inc., a Pennsylvania corporation, or its successors or assigns
("Holder"), the principal sum of Three Hundred Thirty-Three Thousand Dollars
($333,000), together with (a) interest accruing from the date hereof to maturity
or the applicable payment date on the unpaid principal balance at the rate of
six percent (6%) per annum (the "Regular Rate") and (b) interest after maturity
or the applicable payment date on the unpaid principal balance at the lesser of
(i) the rate of 12 percent (12%) per annum or (ii) the highest interest rate
permitted by applicable law (the "Default Rate"), in each case computed daily on
the basis of a 360-day year for each day all or any part of the principal
remains outstanding. This Note was delivered pursuant to a Share Purchase
Agreement dated as of the date hereof, by and among Maker, Christine LeMaire,
Dean N. Eisenberger and the Holder (the "Purchase Agreement").
2. Upon the occurrence of any Default (as defined below), the entire
unpaid principal balance of this Note shall thereafter bear interest at the
Default Rate. Upon the occurrence of any Default (as defined below), Holder may,
at Holder's option, and without further notice, declare all amounts payable
under this Note, including the entire unpaid principal balance of this Note plus
accrued interest thereon, immediately due and payable, and exercise any or all
other rights and remedies available under this Note, the Pledge Agreement (as
defined below) or applicable law. A "Default" shall mean any one or more of the
following events: (a) Maker's failure to pay when due any payment of principal
or interest or any other sum required to be paid on this Note; (b) any
dissolution of Maker; (c) the appointment of a receiver, conservator or
liquidator of or for Maker, whether voluntary or, in respect of an appointment
which is not dismissed within 30 days thereafter, involuntary; (d) a general
assignment for the benefit of Maker's creditors; (e) the filing of a voluntary
petition in bankruptcy or the approval of an involuntary petition in bankruptcy,
with respect to Maker, or the filing of an involuntary petition in bankruptcy
with respect to Maker which is not dismissed within 60 days after its filing; or
(f) any Event of Default under the Pledge Agreement.
3. Maker waives demand, presentment for payment, notice of demand,
notice of non-payment, notice of dishonor, protest and notice of protest.
4. All payments on this Note shall be made by Maker without defense,
set-off, recoupment or claim. All payments on this Note shall be made in lawful
money of the United States of America in cash or other immediately available
funds. All payments on this Note shall be made by Maker at the address for
Holder set forth for notices in Section 8 below.
<PAGE>
5. Maker may at any time and from time to time prepay all or any part
of this Note without penalty or premium. Each payment or prepayment upon this
Note when received shall be applied first to unpaid interest and the balance, if
any, to unpaid principal in the order of maturity. Any prepayment of part of
this Note shall not excuse or defer Maker's obligation to continue to make any
required payments when due until this Note is fully paid.
6. (a) This Note and certain obligations of Maker under the Acquisition
Agreement are secured by the Pledge and Security Agreement dated as of the date
hereof between Maker, as Pledgor, and Holder as Secured Party (the "Pledge
Agreement").
(b) Notwithstanding any other provisions to the contrary
contained in this Note or the Purchase Agreement, Maker shall not have any
personal or direct liability for payment of the principal of, interest on or
other amounts payable under this Note and the collection of the principal of,
interest on, and other amounts payable under this Note (collectively, the
Indebtedness) will be enforced solely against the Collateral (as defined in the
Pledge Agreement). Also, this Note is subject to satisfaction pursuant to
Section 7.06 of the Purchase Agreement. By its acceptance hereof, Holder agrees
that in any action or proceeding brought on this Note or on the Pledge Agreement
or any other instrument securing this Note or the indebtedness evidenced hereby
no deficiency or money damages shall be sought or enforced against Maker or its
successors or assigns. Any covenants or agreements contained in this Note or in
any instrument securing this Note to the contrary notwithstanding, in any Event
of Default or of any default in the Pledge Agreement or other instruments
securing this Note, Holder shall look solely to the Collateral for payment of
this Note and the full satisfaction of any liability or obligation otherwise
arising under this Note and the Pledge Agreement and other instruments securing
this Note, and if the Collateral shall be insufficient to pay in full the
indebtedness evidenced by and owing under this Note and to satisfy any
liabilities or obligations arising under this Note and the Pledge Agreement and
other instruments securing this Note, Maker and its successors and assigns shall
not be held personally liable or responsible for the payment of any such
deficiency.
7. If any payment under this Note becomes due and payable on a day
which is not a Business Day (as defined below), the due date shall be the next
following day that is a Business Day. "Business Day" shall mean a day on which
banks located in the Commonwealth of Pennsylvania are open for commercial
banking business other than a Saturday or Sunday.
8. Any notice, demand, request, consent or other communication with
respect to this Note shall be in writing and shall be given either by personal
delivery, or by nationally recognized overnight courier (with charges prepaid)
or by telecopy (with confirmation) and shall be deemed to have been given or
made (i) when personally delivered, (ii) on the day following the date deposited
with such overnight courier service or (iii) when transmitted by telecopy and
confirmed, addressed to the respective parties at the following addresses or
such other address for a party as shall be specified by like notice.
If to Maker: with a copy to:
C - 2
<PAGE>
Telepad Corporation Arent Fox Kintner Plotkin & Kahn, PLLC
380 Herndon Parkway, Suite 1900 1050 Connecticut Avenue, N.W.
Herndon, Virginia20170 Washington, D.C. 20036-5339
Attn: Chief Executive Officer Attention: Carter Strong, Esq.
Telecopy: 703/834-1235 Telecopy: 202/857-6395
If to Holder: with a copy to:
L&E Computer Mounts, Inc. Kane & Silverman, P.C.
1013 Conshohocken Road Suite IC-44
Bldg. 4 2401 Pennsylvania Avenue
Conshohocken, Pennsylvania 19428-0978 Philadelphia, Pennsylvania 19130
Attention: Christine LeMaire and Attention: Michael C. Kane, Esq.
Dean N. Eisenberger
9. No modification or amendment of or to this Note shall be valid or
effective unless in writing signed by Maker and Holder.
10. This Note shall benefit and bind the respective successors and
permitted assigns of Maker and Holder. Except by operation of law, this Note may
not be assigned, pledged or otherwise encumbered or transferred by Holder
without the prior written consent of Maker.
11. Each right, power and remedy of Holder under this Note or under
applicable law shall be cumulative and concurrent, and the exercise of any one
or more of them shall not preclude the concurrent or later exercise by Holder of
any or all such other rights, powers or remedies. No omission or delay by Holder
to insist upon the strict performance of any one or more provisions of this
Note, or to exercise any right, power or remedy consequent upon a breach or
default, shall constitute a waiver thereof, or impair or preclude Holder from
exercising any such right, power or remedy.
12. Maker agrees to pay Holder's reasonable attorneys' fees and costs
to enforce any obligation of Maker under this Note.
13. This Note shall be deemed to be made in the Commonwealth of
Pennsylvania. This Note shall be governed by and construed in accordance with
the domestic laws of the Commonwealth of Pennsylvania without giving effect to
any choice or conflict of law provision, principle or rule (whether of the
Commonwealth of Pennsylvania or any other jurisdiction).
14. Time shall be of the essence as to the Maker's obligations under
this Note.
15. Maker hereby submits to the exclusive jurisdiction of the United
States District Court for the Eastern District of Pennsylvania and of any
Commonwealth of Pennsylvania Court
C - 3
<PAGE>
sitting in the City of Philadelphia, Pennsylvania for purposes of all legal
proceedings which may arise hereunder or under any other documents delivered
hereunder. Maker irrevocably waive, to the fullest extent permitted by law, any
objection which they may have or hereafter have to the laying of the venue of
any such proceeding brought in such a court and any claim that any such
proceeding brought in such a court has been brought in an inconvenient forum.
Maker hereby consents to process being served in any such proceeding by the
mailing of a copy thereof by registered or certified mail, postage prepaid, to
its address specified in Section 8 above or in any other manner permitted by
law. Maker hereby knowingly, voluntarily, and intentionally waive any rights it
may have to a trial by jury in respect of any litigation based hereon, or
arising out of, under, or in connection with this Note.
16. Any provision of this Note which is invalid, prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction only, be
ineffective only to the extent of such invalidity, prohibition or
unenforceability, without affecting or impairing the remaining provisions of
this Note or the validity or enforceability of such other provision in any other
jurisdiction. If any law invalidating such a provision may be waived, Maker
waives such law and its rights thereunder to the fullest extent permitted by law
and this Note shall be deemed to be a valid and binding agreement enforceable
against Maker in accordance with its terms.
ATTEST: MAKER:
Telepad Corporation, a Delaware corporation
By: /s/ Donald W. Barrett
__________________________________________
Donald W. Barrett, Chief Executive Officer
By: /s/ Robert D. Russell
______________________________
Robert D. Russell, Secretary
C - 4
Exhibit 10.4
PLEDGE AND SECURITY AGREEMENT
This Pledge and Security Agreement ("Agreement") is entered into as of
May 27, 1998 by and between Telepad Corporation, a Delaware corporation
("Pledgor"), and Christine LeMaire ("Secured Party").
RECITALS
A. Pursuant to a Share Purchase Agreement dated as of the date hereof
(the "Purchase Agreement"), by and among Pledgor, Secured Party, Dean N.
Eisenberger ("Eisenberger") and L&E Mobile Computer Mounts, Inc., a Pennsylvania
corporation ("L&E"), Pledgor purchased on the date hereof from Secured Party 100
shares of common stock, without par value, of L&E (the "Shares"), which
represents approximately 50.5% of L&E's outstanding capital stock which consists
of a total of 198 shares of such common stock. At the Closing, pursuant to the
Purchase Agreement, Pledgor, among other things, (i) paid a specified amount of
cash and issued and delivered 450,000 Telepad Common Shares and 475,000 Telepad
Preferred Shares (together, the "Telepad Shares") to Secured Party; (ii) issued
and delivered a Note to L&E; (iii) agreed to pay on a date to be determined
after the Closing, as additional consideration for the Shares, 50% of an amount
determined pursuant to Sections 2.03 and 2.04 of the Purchase Agreement and
defined therein as "Additional Consideration"; (iv) granted Secured Party the
option, pursuant to Section 8.06 of the Purchase Agreement, to require Pledgor
to repurchase from Secured Party a specified amount of the Telepad Shares; and
(v) agreed to invest up to $666,700 in L&E.
B. As contemplated by the Purchase Agreement, Pledgor desires to secure
Pledgor's obligations (i) to pay principal, interest and other amounts payable
under the Note; (ii) to pay to Secured Party the Additional Consideration under
Sections 2.03 and 2.04 of the Purchase Agreement; (iii) to pay to Secured Party
the repurchase price of the Telepad Shares upon exercise by Secured Party of its
option under Section 8.06 of the Purchase Agreement; and (iv) to invest up to
$666,700 in L&E under Section 8.03 of the Purchase Agreement, (collectively, the
"Secured Obligations") by granting to Secured Party a security interest in the
Shares ("Pledged Shares") and all dividends and other distributions and rights
associated therewith, and all proceeds of the foregoing property (collectively,
including the Pledged Shares and foregoing distributions and proceeds, the
"Collateral").
C. All capitalized terms used but not defined herein shall have the
meaning ascribed to such terms in the Purchase Agreement.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
SECTION 1. GRANT AND PERFECTION OF SECURITY INTEREST.
(a) GRANT OF SECURITY INTEREST. To secure payment of the Secured
Obligations, Pledgor hereby grants to Secured Party a security interest in all
of Pledgor's right, title and interest in and
<PAGE>
to the Collateral under the Uniform Commercial Code in effect in the
Commonwealth of Pennsylvania (the "Code") and all other applicable laws.
(b) PLEDGED SHARES. Pledgor hereby pledges to Secured Party as the
Collateral for the Secured Obligations all of Pledgor's right, title and
interest in and to the Pledged Shares and in and to all dividends, other
distributions, cash, instruments, stock rights, rights to subscribe and other
property or proceeds in whatever form, from time to time received or receivable
or otherwise distributed in respect of or in exchange for any or all of the
Pledged Shares (collectively, "Distributions").
(c) FINANCING STATEMENTS. Upon the request of Secured Party, Pledgor
will execute and deliver to Secured Party UCC-1 financing statements, suitable
for filing in all appropriate jurisdictions, covering that portion of the
Collateral in which a security interest can or may be perfected under the Code
by filing a UCC-1 financing statement. Secured Party is authorized to file such
financing statements in all places which, in its sole discretion, such filing is
appropriate to protect and perfect its rights hereunder. Secured Party is
irrevocably authorized to execute and file such continuation statements and
other similar documents, which in its sole discretion, it deems appropriate to
protect and perfect its rights.
(d) DELIVERY OF COLLATERAL; FURTHER ASSURANCES. The Pledged Shares have
been or will be deposited with Secured Party contemporaneously with the
execution of this Agreement or, as the case may be, from time to time,
immediately after Pledgor's receipt of the certificates evidencing the Pledged
Shares. All certificates or instruments evidencing or representing the Pledged
Shares and other Collateral shall be delivered to and held by Secured Party
pursuant thereto and shall be in suitable form for transfer by delivery or, as
applicable, shall be accompanied by Pledgor's endorsement where necessary, or
duly executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to Secured Party. Upon the request of Secured Party, and
at Pledgor's sole expense, Pledgor shall execute and deliver such other
instruments and documents as may, in the reasonable opinion of counsel for
Secured Party, be appropriate to protect and perfect Secured Party's rights
under this Agreement, or otherwise effectuate the purposes of this Agreement.
(e) NONRECOURSE. Notwithstanding anything herein, in the other
Ancillary Agreements or the Purchase Agreement, Secured Party acknowledges and
agrees that Pledgor shall not have any personal or direct obligation or
liability for or otherwise in respect of the Secured Obligations, and Secured
Party's only recourse in respect thereof shall be hereunder against the
Collateral and, as a result, Secured Party shall not enforce the obligation and
liability of Pledgor to perform and observe the Secured Obligations by any
action or judgment wherein a money judgment or specific performance judgment
shall be sought against Pledgor, except Secured Party may bring a foreclosure
action, action for specific performance or other appropriate action or
proceeding solely for the purpose of enabling Secured Party to realize upon the
Collateral. Secured Party shall look solely to the Collateral for payment or
other satisfaction of the Secured Obligations and the satisfaction of any
obligation or liability otherwise arising under or in respect of the Secured
Obligations, and if the Collateral shall be insufficient to pay in full or
otherwise satisfy the Secured
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Obligations or to satisfy any obligations or liabilities arising under this
Agreement, Pledgor and its successors and assigns shall not be held personally
liable or responsible for the payment of any such deficiency.
SECTION 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PLEDGOR.
To induce Secured Party to enter into this Agreement, Pledgor
represents and warrants to Secured Party as follows:
(a) FORMAL ACTION. Pledgor has all requisite power and authority to
execute, deliver and perform this Agreement.
(b) ENFORCEABILITY. This Agreement is a legal, valid and binding
obligation of the Pledgor, enforceable against Pledgor in accordance with its
terms.
(c) OWNERSHIP. Pledgor is the sole legal and beneficial owner of the
Pledged Shares and holds the Pledged Shares free and clear of any and all liens,
encumbrances, covenants, conditions, mortgages, security interests, pledges,
claims, options, preemptive rights, transfer restrictions, puts, calls, trusts
and any and all other restrictions of any kind whatsoever (collectively
"Encumbrances"), except for the Permitted Exceptions (as defined below).
"Permitted Exception" shall mean (i) the pledge and security interest hereunder,
(ii) as otherwise provided in the Purchase Agreement and (iii) the subordinate
pledge of the Shares which shall secure the Note, upon its issuance, pursuant to
the Company Pledge Agreement described in Section 6 (the "Subordinate Pledge").
(d) VALID, ENFORCEABLE AND PERFECTED. Secured Party has or, upon the
delivery of the certificates to Secured Party as provided hereby, will have a
valid, enforceable and perfected first priority security interest in all of the
Collateral.
(e) NO TRANSFERS. Except as otherwise provided in Section 7.06 of the
Purchase Agreement, Pledgor shall not sell or otherwise transfer or dispose of
the Pledged Shares or any interest therein during such time as it shall be
pledged to Secured Party hereunder.
(f) NO ENCUMBRANCES. Pledgor shall keep the Pledged Shares free from
any and all Encumbrances, except for the Permitted Exceptions, and shall defend
such Pledged Shares against all claims and demands of all Persons at any time
claiming any interest therein.
SECTION 3. DISTRIBUTIONS AND RIGHT TO VOTE.
(a) DISTRIBUTIONS. Pledgor shall not be entitled to receive and retain
any distributions payable in respect of the Pledged Interests except that, so
long as (i) an Event of Default (as defined below) shall not have occurred and
be continuing and (ii) Secured Party has not in respect of such Event of Default
caused a transfer of the Pledged Shares, pursuant to Section 4(c), Pledgor shall
be entitled to receive and retain all cash dividends payable on the Pledged
Shares, including the dividends paid pursuant to Section 8.01(d) of the Purchase
Agreement. Secured Party shall execute
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and deliver to Pledgor all such powers of attorney, dividend orders, and other
instruments as Pledgor may request for the purpose of enabling Pledgor to
receive the dividends which it is authorized to receive and retain pursuant to
this Section 3(a).
(b) RIGHT TO VOTE. Pledgor shall not have the right to exercise voting
powers pertaining to the Pledged Shares and other Distributions, except that, so
long as (i) an Event of Default shall not have occurred and be continuing and
(ii) Secured Party has not in respect of such Event of Default caused a transfer
of the Pledged Shares, pursuant to Section 4(c), Pledgor shall have the right to
exercise all voting powers pertaining to the Pledged Shares and all other
Distributions.
SECTION 4. EVENTS OF DEFAULT; REMEDIES.
(a) DEFAULT. Each of the following events shall constitute an event of
default ("Event of Default") under this Agreement:
(1) Any material default of Pledgor in respect of payment of
the Secured Obligations.
(2) The failure of Pledgor to perform any of Pledgor's other
material obligations under this Agreement when such performance is due.
(3) As of the 271st day after the Closing Date, the Telepad
Preferred Shares held by Secured Party have not been converted into Telepad
Common Stock pursuant to the Certificate of Designations and Telepad has not
purchased all of the Telepad Preferred Shares that were both (i) issued to
Secured Party at the Closing and, (ii) as of such 271st day, held beneficially
and of record by Secured Party.
(b) ACCELERATION. Upon the occurrence and continuation of an Event of
Default, Secured Party may declare, upon five business day's notice to Pledgor,
all Secured Obligations immediately due and payable, whereupon they shall become
due and payable in their entirety.
(c) UNIFORM COMMERCIAL CODE AND OTHER REMEDIES. Subject to the
provisions of Sections 1(e) and 3, upon the occurrence and continuation of an
Event of Default, Secured Party shall have all of the rights and remedies of a
secured party in respect of the Collateral under the Code and all other
applicable laws, including the following:
(1) Secured Party may transfer the Collateral to itself,
receive all Distributions thereon and hold the Distributions as Collateral or
apply the Distributions to any of the Secured Obligations, and Secured Party may
at any time demand, sue for, collect or make any compromise or settlement with
reference to the Collateral as Secured Party, in its sole discretion, chooses
and exercise all the rights, powers and privileges of ownership of all Pledged
Shares.
(2) Secured Party shall have the right to receive any and all
cash dividends paid in respect of the Pledged Shares and make application
thereof to the Secured Obligations, and all
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Pledged Shares shall, upon the request of Secured Party, be registered in the
name of Secured Party and Secured Party may thereafter exercise (A) all voting,
corporate and other rights pertaining to such Pledged Shares at any meeting of
stockholders or otherwise and (B) any and all rights of conversion, exchange,
subscription and any other rights, privileges or options pertaining to the
Pledged Shares as if Secured Party was the absolute owner thereof (including the
right to exchange at its discretion any and all of the Pledged Shares upon the
merger, consolidation, reorganization, recapitalization or other fundamental
change in L&E's corporate structure, or upon the exercise by Pledgor of any
right, privilege or option pertaining to the Pledged Shares).
(3) Secured Party, without demand of performance or other
demand, presentment or protest of any kind (except the notice provisions set
forth below) to or upon Pledgor or (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, assign, give option or options to
purchase or otherwise dispose of and deliver the Collateral or any part thereof
(or contract to do any of the foregoing), in one or more parts at public or
private sale or sales, in the over-the-counter market, at any exchange, broker's
board or elsewhere upon such terms and conditions as Secured Party may deem
advisable and at such prices as they may deem best, for cash or on credit or for
future delivery without assumption of any credit risk. Secured Party shall have
the right upon any such public sale or sales, and, upon any such private sale or
sales, to purchase the whole or any part of the Collateral so sold, free of any
right or equity of redemption in Pledgor which right or equity is hereby waived
or released. Notwithstanding the "nonrecourse" nature of the Secured
Obligations, notice of a proposed sale or other disposition of Collateral shall
be given at least 10 business days before such sale or other disposition.
(4) Pledgor recognizes that, in the absence of registration
under the Securities Act of 1933, as amended (the "Securities Act"), and
applicable state securities laws, Secured Party may be unable to effect a public
sale of any or all the Pledged Shares, by reason of certain prohibitions
contained in the Securities Act and applicable state securities laws or
otherwise, and may be compelled to resort to one or more private sales thereof
to a restricted group of purchasers which will be obliged to agree, among other
things, to acquire such securities for their own account for investment and not
with a view to the distribution or resale thereof. Pledgor acknowledges and
agrees that any such private sale may result in prices and other terms less
favorable than if such sale were a public sale and, notwithstanding such
circumstances, agrees that any such private sale shall be deemed to have been
made in a commercially reasonable manner. Secured Party shall be under no
obligation to delay a sale of any of the Pledged Shares for the period of time
necessary to permit Pledgor to register such securities for public sale under
the Securities Act, or under applicable state securities laws. Secured Party
shall be entitled to sell all or any part of the Pledged Shares at a price which
it may determine.
(5) Secured Party may take title to all Collateral without
judicial process pursuant to Section 9-503 of the Code, and in such event, as in
the case of any other sale or transfer of the Collateral hereunder, all of the
Secured Obligations shall be deemed for all purposes to be satisfied fully and
terminated and null and void, and Pledgor shall have no right, title and
interest in and to
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the Collateral, nor any claim in respect thereof, even if the value of the
Collateral is greater than the Secured Obligations.
(6) Secured Party may sell or otherwise dispose of all
Collateral pursuant to Section 9-504 of the Code. Any notification required by
Section 9-504 shall be reasonable if given at least 10 business days before the
date of sale.
(7) Secured Party may bid for and purchase the Collateral at
any public or private sale. In any case in which Secured Party purchases any
Collateral, Secured Party shall be entitled to credit to the purchase price of
such Collateral all or any portion of the amounts due to them under this
Agreement or in respect of the Secured Obligations. Nothing herein is intended
to prevent Pledgor from bidding for or purchasing the Collateral at any such
private or public sale.
(8) Secured Party may enforce its rights hereunder without
resort to prior judicial process or judicial hearing, and Pledgor expressly
waives, renounces and knowingly relinquishes any right under the laws of the
United States or any state thereof which might otherwise require a Secured Party
to enforce its rights by judicial process. In so providing for a nonjudicial
remedy, Pledgor recognizes and concedes that such a remedy is consistent with
the usage of the trade, is responsive to commercial necessity, and is the result
of bargain at arm's length. Nothing herein is intended to prevent Pledgor or
Secured Party from resorting to judicial process at either party's option.
(9) Secured Party, as attorney-in-fact pursuant to Section 5
may, in the name and stead of Pledgor, make and execute all conveyances,
assignments and transfers of the Pledged Shares sold in accordance with this
Agreement. Pledgor shall, if so reasonably requested by Pledgor, ratify and
confirm any sale or sales by executing and delivering to Secured Party, or to
such purchaser or purchasers (including Secured Party), all such instruments as
may, in the reasonable judgment of Secured Party, be advisable for such purpose.
(10) The receipt of Secured Party of the purchase money paid
at any such sale of Pledged Shares made by it shall be a sufficient discharge
therefor to any purchaser (including Secured Party) of the Pledged Shares, or
any portion thereof, sold as aforesaid; and no such purchaser or representatives
or assigns (other than Secured Party), after paying such purchase money and
receiving such receipt, shall be bound to see to the application of such
purchase money or any misapplication or non-application of any such purchase
money, or any misapplication or non-application of any such purchase money, or
any part thereof, or be bound to inquire as to the authorization, necessity,
expediency or regularity of any such sale.
(d) NO OTHER REMEDIES; CONDITION PRECEDENT TO ENFORCEMENT OF REMEDIES.
Except for the remedies set forth in this Section 4, upon the occurrence of an
Event of Default, Secured Party shall not be entitled to any other remedies
provided by law. Notwithstanding anything herein to the contrary, Secured Party
shall be required to transfer and assign to Pledgor, free and clear of any
Encumbrances, 475,000 Telepad Preferred Shares, plus a written instrument
executed by Secured Party irrevocably relinquishing all accrued and unpaid
dividends with respect to such shares, as a
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condition precedent to Secured Party's right to seek, or take any action as, a
remedy hereunder with respect to any one or more Events of Default (i) which
occur on or before the first anniversary of the Closing Date, or (ii) which
arise out of, or results from, Pledgor's failure on or before the Determination
Date (as defined in the Purchase Agreement) if such date occurs on or prior to
the first anniversary of the Closing Date, (a) to pay principal, interest and
other amounts payable under the Note; (b) to pay the Additional Consideration
under Section 2.03 of the Acquisition Agreement; (c) to pay the repurchase price
of the Telepad Shares upon exercise by Secured Party of its option under Section
8.06 of the Purchase Agreement; or (d) to invest up to $666,700 in L&E under
Section 8.03 of the Purchase Agreement; provided, however, if (i) the Telepad
Preferred Shares issued to Secured Party pursuant to the Purchase Agreement
shall have converted into Telepad Common Stock, or (ii) a portion of such shares
shall have been redeemed by Pledgor, or sold to Pledgor pursuant to Secured
Party's rights under the Purchase Agreement, resulting in Secured Party owning
fewer than 475,000 Telepad Preferred Shares, then any shortfall in such shares
shall be satisfied by Secured Party transferring and assigning to Pledgor an
equal number of shares of Telepad Common Stock.
(e) PROCEEDS. Secured Party shall apply the cash proceeds actually
received from any foreclosure sale, lease, collection or other disposition of
the Collateral as follows: (1) first, to reasonable attorneys' fees and all
expenses (including court costs, advertising expenses, auctioneer's fees,
premiums for any required bonds, auditor's fees, amounts advanced for taxes and
other expenses) incurred by Secured Party in attempting to enforce the Secured
Obligations or this Agreement or in the prosecution or defense of any action or
proceeding related to the subject matter of this Agreement; (2) second, to the
discharge of the Secured Obligations, and (3) further, to pay any remaining
surplus to Pledgor.
(f) COSTS OF ENFORCEMENT. If an Event of Default occurs, whether or not
Secured Party pursues any of the remedies set forth in this Section 4, Pledgor
shall be responsible for and shall pay on demand all costs and expenses incurred
by Secured Party in protecting or enforcing its rights hereunder, including
reasonable attorneys' fees, all of which obligations are secured by and subject
to this Agreement, including Sections 1(e) and 4(d).
(g) SATISFACTION. Upon the performance in full of the Secured
Obligations in accordance with their respective terms, on the date thereof (i)
all of the pledge and security and other interests of Secured Party hereunder to
and otherwise in respect of the Collateral shall be released and terminated, and
(ii) Secured Party shall return the Collateral to Pledgor free of any and all
Encumbrances.
SECTION 5. ATTORNEY-IN-FACT.
Pledgor hereby appoints Christine LeMaire, her successors and assigns
and all other Persons deriving title under Secured Party, severally, which
appointment is irrevocable and coupled with an interest, as Pledgor's lawful
attorney-in-fact, with full power of substitution, in the name of Pledgor, for
the sole use and benefit of Secured Party while any Event of Default shall be
continuing, to exercise all or any of the following actions with respect to all
or any of the Pledged Shares:
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(i) to vote the Pledged Shares for the purposes of electing and
removing members of L&E's Board of Directors;
(ii) to demand, sue for, collect, receive and give acquittance for any
and all monies due or to become due;
(iii) to settle, compromise, initiate, prosecute or defend any action
or proceedings with respect thereto; and
(iv) to sign, seal and deliver any transfer or other documents or form
in the name of Pledgor which may be necessary or desirable for or in connection
with the perfecting of Secured Party title to or for vesting the Pledged Shares
or its nominee(s), or in any purchaser in any sale of the Pledged Shares, and
otherwise generally to sign, seal and deliver and otherwise perfect any other
pledge, charge, or other obligation referred to in this Agreement provided that
Secured Party shall give Pledgor not fewer than 10 business days prior written
notice of the time and place of any sale or other intended disposition of any
Pledged Shares.
SECTION 6. NOTICE OF BAILMENT FOR SUBORDINATE PLEDGE.
The parties agree and acknowledge that the Collateral is the subject of
a subordinate pledge by Pledgor to L&E to secure Pledgor's obligations under the
Note pursuant to a Pledge and Security Agreement between Pledgor and L&E dated
of even date herewith (the "Company Pledge Agreement"). Secured Party agrees
that it shall hold the Collateral, first as a secured party under this
Agreement, and secondly as bailee and agent for L&E. The parties agree that the
obligations secured by the Company Pledge Agreement are inferior and subordinate
in priority to the interests of Secured Party. The subordination and priorities
herein specified are applicable irrespective of the time or order of attachment
or perfection of security interest; the time or order of filing or recording of
financing statements, deeds, deeds of trust, or mortgages, or the time of giving
or failure to give notice of acquisition or expected acquisition of
purchase-money or other security interests. Until the Secured Obligations have
been satisfied in full, Secured Party shall not be required to enforce any
interests with respect to this Agreement or the Collateral. Until the Secured
Obligations been satisfied in full, Secured Party shall not be obligated, or
have a duty hereunder, to enforce any interests under this Agreement or in or to
the Collateral for the benefit of L&E nor to attach, levy upon, execute against,
exercise any rights to, assert any claim on or interest in, take any action
against, or institute any proceedings with respect to Pledgor or any of
Pledgor's assets. Secured Party may waive, delay or fail to take any action
either to enforce its rights with respect to the Secured Obligations or to
exercise any right or remedy against Pledgor or its assets, without any loss of
any rights by Secured Party in the Secured Obligations, and without affecting
the subordination and priority hereunder, and Secured Party may surrender or
release any Collateral, change, alter, renew, extend, forbear, continue,
compromise, or waive any rights or claims, extend further credit or engage in
other dealings, and fail to, or refuse to, act with respect to any of the
foregoing, without giving rise to any duties or obligations, fiduciary or
otherwise, to L&E, regardless of the effect on the value of the Collateral.
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SECTION 7. MISCELLANEOUS.
(a) GOVERNING LAW; INTERPRETATION. This Agreement shall be governed by
the laws of the Commonwealth of Pennsylvania applicable to contracts executed
and performed within the Commonwealth of Pennsylvania (other than the law
governing conflict of law questions). All terms used in this Agreement which are
defined in the Code shall be construed in accordance with such definitions
unless otherwise required by the context.
(b) ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, representations, warranties,
covenants, or undertakings other than those expressly set forth or referred to
herein. This Agreement supersedes any and all prior agreements and
understandings between the parties with respect to such subject matter.
(c) AMENDMENT. This Agreement may be amended only in a writing signed
by each of the parties.
(d) WAIVER. No waiver shall be effective against any party unless it is
in a writing signed by that party. No waiver by Secured Party of any breach of
any term or covenant contained in this Agreement shall operate as a waiver of
such term or covenant itself, or of any subsequent breach thereof.
(e) COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective successors,
heirs, executors or administrators, representatives and assigns.
(g) CUMULATION OF RIGHTS AND REMEDIES. No right or remedy of Secured
Party under this Agreement is intended to be exclusive of any other right or
remedy contained in this Agreement, or in any instrument or document delivered
in connection with or pursuant to this Agreement and every such right or remedy
shall be cumulative and shall be in addition to every other such right or remedy
contained herein and therein or now or hereafter existing at law or in equity or
by statute, or otherwise.
(h) NOTICE. All notices, requests, consents, demands and other
communications with respect to this Agreement shall be in writing and shall be
deemed duly given when delivered (or refused upon attempted delivery in
accordance herewith), personally or mailed by certified mail, return receipt
requested, postage prepaid, or by an overnight carrier that provides a written
confirmation of delivery, addressed as follows (or at such other address for
Secured Party or Pledgor as shall be specified by like notice):
Secured Party: Christine LeMaire
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9 Bromley Drive
Bluebell, Pennsylvania 19422
with a copy to: Kane & Silverman, P.C.
Suite IC-44
2401 Pennsylvania Avenue
Philadelphia, Pennsylvania 19130
Attention: Michael C. Kane, Esq.
Pledgor: Telepad Corporation
380 Herndon Parkway
Suite 1900
Herndon, Virginia 20170
Attention: Donald W. Barrett, Chairman and
Chief Executive Officer
with copy to:
Arent Fox Kintner Plotkin & Kahn, PLLC
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036-5339
Attention: Carter Strong, Esquire
(i) WAIVER OF CERTAIN DEFENSES. Regardless of consideration, and
without the necessity for any notice to or consent by the holder of any
subordinate lien or security interest on the Collateral, Secured Party may
release the Secured Obligations, may release any Person at any time liable for
any of the Secured Obligations, or may release any part of the security held for
the Secured Obligations and may extend the time of payment or otherwise modify
the terms of the Secured Obligations or this Agreement without in any way
impairing or affecting the existence or priority of the lien and security
interest of this Agreement. Secured Party may resort for the payment of the
Secured Obligations to the Collateral in such order and manner as Secured Party
may elect.
(j) HEADINGS. The headings in this Agreement are intended solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
(k) SEPARABILITY. The invalidity or unenforceability of any provisions
of this Agreement shall not impair the validity or enforceability of any other
provision.
(l) GENERAL INTERPRETIVE RULES. For purposes of this Agreement, except
as otherwise expressly provided or unless the context otherwise requires, (1)
the use of any gender herein shall be deemed to include the other genders; (2)
references herein to "Sections" and other subdivisions without reference to a
document are to designated Sections and other subdivisions of this
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Agreement; (3) reference to a Subsection without further reference to a Section
is a reference to such Subsection contained in the same Section in which the
reference appears and this rule shall also apply to paragraphs and other
subdivisions; (4) "including" means "including but not limited to"; (5) the
words "herein," hereof," "hereunder" and other words of similar import refer to
this Agreement as a whole and not to any particular provision; and (6) the words
"business day" shall mean any day other than a Saturday, a Sunday or a day on
which commercial banks in Philadelphia, Pennsylvania are required or authorized
to close.
(m) JURISDICTION. PLEDGOR (A) HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF
PENNSYLVANIA AND OF ANY COMMONWEALTH OF PENNSYLVANIA COURT SITTING IN THE CITY
OF PHILADELPHIA OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT, AND HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH
ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH CIRCUIT COURT OR
FEDERAL COURT; (B) IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN
ANY SUCH ACTION OR PROCEEDING BY MAILING COPIES OF SUCH PROCESS TO MAKER IN THE
MANNER PROVIDED IN SECTION 6 ABOVE; AND (C) AGREES THAT A FINAL JUDGMENT IN ANY
SUCH ACTION OR PROCEEDING, NOT SUBJECT TO FURTHER APPEAL, SHALL BE CONCLUSIVE
AND MAY BE ENFORCED IN ANY OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY
OTHER MANNER PROVIDED BY LAW.
WAIVER OF JURY TRIAL. PLEDGOR HEREBY (I) COVENANTS AND AGREES NOT
TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (II)
WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL
NOW OR HEREAFTER EXIST. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY
GIVEN, KNOWINGLY AND VOLUNTARILY, BY PLEDGOR, AND THIS WAIVER IS INTENDED TO
ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A
TRIAL BY JURY WOULD OTHERWISE ACCRUE. SECURED PARTY IS HEREBY AUTHORIZED AND
REQUESTED TO SUBMIT THIS AGREEMENT TO ANY COURT HAVING JURISDICTION OVER THE
SUBJECT MATTER AND THE PARTIES HERETO, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF
PLEDGOR'S HEREIN CONTAINED WAIVER OF THE RIGHT TO TRIAL BY JURY. FURTHER,
PLEDGOR HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF SECURED PARTY
(INCLUDING SECURED PARTY'S COUNSEL) HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO
PLEDGOR THAT SECURED PARTY WILL NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO
TRIAL BY JURY PROVISION.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
PLEDGOR:
ATTEST: TELEPAD CORPORATION,
/s/ Robert D. Russell a Delaware corporation
____________________________
Robert D. Russell, Secretary
By: /s/ Donald W. Barrett
____________________________________________
Donald W. Barrett, Chairman of the Board and
Chief Executive Officer
SECURED PARTY:
/s/ Christine LeMaire
__________________________________
Christine LeMaire
12
Exhibit 10.5
PLEDGE AND SECURITY AGREEMENT
This Pledge and Security Agreement ("Agreement") is entered into as of
May 27, 1998 by and between Telepad Corporation, a Delaware corporation
("Pledgor"), and Dean N. Eisenberger ("Secured Party").
RECITALS
A. Pursuant to a Share Purchase Agreement dated as of the date hereof
(the "Purchase Agreement"), by and among Pledgor, Secured Party, Christine
LeMaire ("LeMaire") and L&E Mobile Computer Mounts, Inc., a Pennsylvania
corporation ("L&E"), Pledgor purchased on the date hereof from Secured Party 98
shares of common stock, without par value, of L&E (the "Shares"), which
represents approximately 49.5% of L&E's outstanding capital stock which consists
of a total of 198 shares of such common stock. At the Closing, pursuant to the
Purchase Agreement, Pledgor, among other things, (i) paid a specified amount of
cash and issued and delivered 450,000 Telepad Common Shares and 475,000 Telepad
Preferred Shares (together, the "Telepad Shares") to Secured Party; (ii) issued
and delivered a Note to L&E; (iii) agreed to pay on a date to be determined
after the Closing, as additional consideration for the Shares, 50% of an amount
determined pursuant to Sections 2.03 and 2.04 of the Purchase Agreement and
defined therein as "Additional Consideration"; (iv) granted Secured Party the
option, pursuant to Section 8.06 of the Purchase Agreement, to require Pledgor
to repurchase from Secured Party a specified amount of the Telepad Shares; and
(v) agreed to invest up to $666,700 in L&E.
B. As contemplated by the Purchase Agreement, Pledgor desires to secure
Pledgor's obligations (i) to pay principal, interest and other amounts payable
under the Note; (ii) to pay to Secured Party the Additional Consideration under
Sections 2.03 and 2.04 of the Purchase Agreement; (iii) to pay to Secured Party
the repurchase price of the Telepad Shares upon exercise by Secured Party of its
option under Section 8.06 of the Purchase Agreement; and (iv) to invest up to
$666,700 in L&E under Section 8.03 of the Purchase Agreement, (collectively, the
"Secured Obligations") by granting to Secured Party a security interest in the
Shares ("Pledged Shares") and all dividends and other distributions and rights
associated therewith, and all proceeds of the foregoing property (collectively,
including the Pledged Shares and foregoing distributions and proceeds, the
"Collateral").
C. All capitalized terms used but not defined herein shall have the
meaning ascribed to such terms in the Purchase Agreement.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
SECTION 1. GRANT AND PERFECTION OF SECURITY INTEREST.
(a) GRANT OF SECURITY INTEREST. To secure payment of the Secured
Obligations, Pledgor hereby grants to Secured Party a security interest in all
of Pledgor's right, title and interest in and
<PAGE>
to the Collateral under the Uniform Commercial Code in effect in the
Commonwealth of Pennsylvania (the "Code") and all other applicable laws.
(b) PLEDGED SHARES. Pledgor hereby pledges to Secured Party as the
Collateral for the Secured Obligations all of Pledgor's right, title and
interest in and to the Pledged Shares and in and to all dividends, other
distributions, cash, instruments, stock rights, rights to subscribe and other
property or proceeds in whatever form, from time to time received or receivable
or otherwise distributed in respect of or in exchange for any or all of the
Pledged Shares (collectively, "Distributions").
(c) FINANCING STATEMENTS. Upon the request of Secured Party, Pledgor
will execute and deliver to Secured Party UCC-1 financing statements, suitable
for filing in all appropriate jurisdictions, covering that portion of the
Collateral in which a security interest can or may be perfected under the Code
by filing a UCC-1 financing statement. Secured Party is authorized to file such
financing statements in all places which, in its sole discretion, such filing is
appropriate to protect and perfect its rights hereunder. Secured Party is
irrevocably authorized to execute and file such continuation statements and
other similar documents, which in its sole discretion, it deems appropriate to
protect and perfect its rights.
(d) DELIVERY OF COLLATERAL; FURTHER ASSURANCES. The Pledged Shares have
been or will be deposited with Secured Party contemporaneously with the
execution of this Agreement or, as the case may be, from time to time,
immediately after Pledgor's receipt of the certificates evidencing the Pledged
Shares. All certificates or instruments evidencing or representing the Pledged
Shares and other Collateral shall be delivered to and held by Secured Party
pursuant thereto and shall be in suitable form for transfer by delivery or, as
applicable, shall be accompanied by Pledgor's endorsement where necessary, or
duly executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to Secured Party. Upon the request of Secured Party, and
at Pledgor's sole expense, Pledgor shall execute and deliver such other
instruments and documents as may, in the reasonable opinion of counsel for
Secured Party, be appropriate to protect and perfect Secured Party's rights
under this Agreement, or otherwise effectuate the purposes of this Agreement.
(e) NONRECOURSE. Notwithstanding anything herein, in the other
Ancillary Agreements or the Purchase Agreement, Secured Party acknowledges and
agrees that Pledgor shall not have any personal or direct obligation or
liability for or otherwise in respect of the Secured Obligations, and Secured
Party's only recourse in respect thereof shall be hereunder against the
Collateral and, as a result, Secured Party shall not enforce the obligation and
liability of Pledgor to perform and observe the Secured Obligations by any
action or judgment wherein a money judgment or specific performance judgment
shall be sought against Pledgor, except Secured Party may bring a foreclosure
action, action for specific performance or other appropriate action or
proceeding solely for the purpose of enabling Secured Party to realize upon the
Collateral. Secured Party shall look solely to the Collateral for payment or
other satisfaction of the Secured Obligations and the satisfaction of any
obligation or liability otherwise arising under or in respect of the Secured
Obligations, and if the Collateral shall be insufficient to pay in full or
otherwise satisfy the Secured
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<PAGE>
Obligations or to satisfy any obligations or liabilities arising under this
Agreement, Pledgor and its successors and assigns shall not be held personally
liable or responsible for the payment of any such deficiency.
SECTION 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PLEDGOR.
To induce Secured Party to enter into this Agreement, Pledgor
represents and warrants to Secured Party as follows:
(a) FORMAL ACTION. Pledgor has all requisite power and authority to
execute, deliver and perform this Agreement.
(b) ENFORCEABILITY. This Agreement is a legal, valid and binding
obligation of the Pledgor, enforceable against Pledgor in accordance with its
terms.
(c) OWNERSHIP. Pledgor is the sole legal and beneficial owner of the
Pledged Shares and holds the Pledged Shares free and clear of any and all liens,
encumbrances, covenants, conditions, mortgages, security interests, pledges,
claims, options, preemptive rights, transfer restrictions, puts, calls, trusts
and any and all other restrictions of any kind whatsoever (collectively
"Encumbrances"), except for the Permitted Exceptions (as defined below).
"Permitted Exception" shall mean (i) the pledge and security interest hereunder,
(ii) as otherwise provided in the Purchase Agreement and (iii) the subordinate
pledge of the Shares which shall secure the Note, upon its issuance, pursuant to
the Company Pledge Agreement described in Section 6 (the "Subordinate Pledge").
(d) VALID, ENFORCEABLE AND PERFECTED. Secured Party has or, upon the
delivery of the certificates to Secured Party as provided hereby, will have a
valid, enforceable and perfected first priority security interest in all of the
Collateral.
(e) NO TRANSFERS. Except as provided in Section 7.06 of the Purchase
Agreement, Pledgor shall not sell or otherwise transfer or dispose of the
Pledged Shares or any interest therein during such time as it shall be pledged
to Secured Party hereunder.
(f) NO ENCUMBRANCES. Pledgor shall keep the Pledged Shares free from
any and all Encumbrances, except for the Permitted Exceptions, and shall defend
such Pledged Shares against all claims and demands of all Persons at any time
claiming any interest therein.
SECTION 3. DISTRIBUTIONS AND RIGHT TO VOTE.
(a) DISTRIBUTIONS. Pledgor shall not be entitled to receive and retain
any distributions payable in respect of the Pledged Interests except that, so
long as (i) an Event of Default (as defined below) shall not have occurred and
be continuing and (ii) Secured Party has not in respect of such Event of Default
caused a transfer of the Pledged Shares, pursuant to Section 4(c), Pledgor shall
be entitled to receive and retain all cash dividends payable on the Pledged
Shares, including the dividends paid pursuant to Section 8.01(d) of the Purchase
Agreement. Secured Party shall execute
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<PAGE>
and deliver to Pledgor all such powers of attorney, dividend orders, and other
instruments as Pledgor may request for the purpose of enabling Pledgor to
receive the dividends which it is authorized to receive and retain pursuant to
this Section 3(a).
(b) RIGHT TO VOTE. Pledgor shall not have the right to exercise voting
powers pertaining to the Pledged Shares and other Distributions, except that, so
long as (i) an Event of Default shall not have occurred and be continuing and
(ii) Secured Party has not in respect of such Event of Default caused a transfer
of the Pledged Shares, pursuant to Section 4(c), Pledgor shall have the right to
exercise all voting powers pertaining to the Pledged Shares and all other
Distributions.
SECTION 4. EVENTS OF DEFAULT; REMEDIES.
(a) DEFAULT. Each of the following events shall constitute an event of
default ("Event of Default") under this Agreement:
(1) Any material default of Pledgor in respect of payment of
the Secured Obligations.
(2) The failure of Pledgor to perform any of Pledgor's other
material obligations under this Agreement when such performance is due.
(3) As of the 271st day after the Closing Date, the Telepad
Preferred Shares held by Secured Party have not been converted into Telepad
Common Stock pursuant to the Certificate of Designations and Telepad has not
purchased all of the Telepad Preferred Shares that were both (i) issued to
Secured Party at the Closing and, (ii) as of such 271st day, held beneficially
and of record by Secured Party.
(b) ACCELERATION. Upon the occurrence and continuation of an Event of
Default, Secured Party may declare, upon five business day's notice to Pledgor,
all Secured Obligations immediately due and payable, whereupon they shall become
due and payable in their entirety.
(c) UNIFORM COMMERCIAL CODE AND OTHER REMEDIES. Subject to the
provisions of Sections 1(e) and 3, upon the occurrence and continuation of an
Event of Default, Secured Party shall have all of the rights and remedies of a
secured party in respect of the Collateral under the Code and all other
applicable laws, including the following:
(1) Secured Party may transfer the Collateral to itself,
receive all Distributions thereon and hold the Distributions as Collateral or
apply the Distributions to any of the Secured Obligations, and Secured Party may
at any time demand, sue for, collect or make any compromise or settlement with
reference to the Collateral as Secured Party, in its sole discretion, chooses
and exercise all the rights, powers and privileges of ownership of all Pledged
Shares.
(2) Secured Party shall have the right to receive any and all
cash dividends paid in respect of the Pledged Shares and make application
thereof to the Secured Obligations, and all
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Pledged Shares shall, upon the request of Secured Party, be registered in the
name of Secured Party and Secured Party may thereafter exercise (A) all voting,
corporate and other rights pertaining to such Pledged Shares at any meeting of
stockholders or otherwise and (B) any and all rights of conversion, exchange,
subscription and any other rights, privileges or options pertaining to the
Pledged Shares as if Secured Party was the absolute owner thereof (including the
right to exchange at its discretion any and all of the Pledged Shares upon the
merger, consolidation, reorganization, recapitalization or other fundamental
change in L&E's corporate structure, or upon the exercise by Pledgor of any
right, privilege or option pertaining to the Pledged Shares).
(3) Secured Party, without demand of performance or other
demand, presentment or protest of any kind (except the notice provisions set
forth below) to or upon Pledgor or (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, assign, give option or options to
purchase or otherwise dispose of and deliver the Collateral or any part thereof
(or contract to do any of the foregoing), in one or more parts at public or
private sale or sales, in the over-the-counter market, at any exchange, broker's
board or elsewhere upon such terms and conditions as Secured Party may deem
advisable and at such prices as they may deem best, for cash or on credit or for
future delivery without assumption of any credit risk. Secured Party shall have
the right upon any such public sale or sales, and, upon any such private sale or
sales, to purchase the whole or any part of the Collateral so sold, free of any
right or equity of redemption in Pledgor which right or equity is hereby waived
or released. Notwithstanding the "nonrecourse" nature of the Secured
Obligations, notice of a proposed sale or other disposition of Collateral shall
be given at least 10 business days before such sale or other disposition.
(4) Pledgor recognizes that, in the absence of registration
under the Securities Act of 1933, as amended (the "Securities Act"), and
applicable state securities laws, Secured Party may be unable to effect a public
sale of any or all the Pledged Shares, by reason of certain prohibitions
contained in the Securities Act and applicable state securities laws or
otherwise, and may be compelled to resort to one or more private sales thereof
to a restricted group of purchasers which will be obliged to agree, among other
things, to acquire such securities for their own account for investment and not
with a view to the distribution or resale thereof. Pledgor acknowledges and
agrees that any such private sale may result in prices and other terms less
favorable than if such sale were a public sale and, notwithstanding such
circumstances, agrees that any such private sale shall be deemed to have been
made in a commercially reasonable manner. Secured Party shall be under no
obligation to delay a sale of any of the Pledged Shares for the period of time
necessary to permit Pledgor to register such securities for public sale under
the Securities Act, or under applicable state securities laws. Secured Party
shall be entitled to sell all or any part of the Pledged Shares at a price which
it may determine.
(5) Secured Party may take title to all Collateral without
judicial process pursuant to Section 9-503 of the Code, and in such event, as in
the case of any other sale or transfer of the Collateral hereunder, all of the
Secured Obligations shall be deemed for all purposes to be satisfied fully and
terminated and null and void, and Pledgor shall have no right, title and
interest in and to
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<PAGE>
the Collateral, nor any claim in respect thereof, even if the value of the
Collateral is greater than the Secured Obligations.
(6) Secured Party may sell or otherwise dispose of all
Collateral pursuant to Section 9-504 of the Code. Any notification required by
Section 9-504 shall be reasonable if given at least 10 business days before the
date of sale.
(7) Secured Party may bid for and purchase the Collateral at
any public or private sale. In any case in which Secured Party purchases any
Collateral, Secured Party shall be entitled to credit to the purchase price of
such Collateral all or any portion of the amounts due to them under this
Agreement or in respect of the Secured Obligations. Nothing herein is intended
to prevent Pledgor from bidding for or purchasing the Collateral at any such
private or public sale.
(8) Secured Party may enforce its rights hereunder without
resort to prior judicial process or judicial hearing, and Pledgor expressly
waives, renounces and knowingly relinquishes any right under the laws of the
United States or any state thereof which might otherwise require a Secured Party
to enforce its rights by judicial process. In so providing for a nonjudicial
remedy, Pledgor recognizes and concedes that such a remedy is consistent with
the usage of the trade, is responsive to commercial necessity, and is the result
of bargain at arm's length. Nothing herein is intended to prevent Pledgor or
Secured Party from resorting to judicial process at either party's option.
(9) Secured Party, as attorney-in-fact pursuant to Section 5
may, in the name and stead of Pledgor, make and execute all conveyances,
assignments and transfers of the Pledged Shares sold in accordance with this
Agreement. Pledgor shall, if so reasonably requested by Pledgor, ratify and
confirm any sale or sales by executing and delivering to Secured Party, or to
such purchaser or purchasers (including Secured Party), all such instruments as
may, in the reasonable judgment of Secured Party, be advisable for such purpose.
(10) The receipt of Secured Party of the purchase money paid
at any such sale of Pledged Shares made by it shall be a sufficient discharge
therefor to any purchaser (including Secured Party) of the Pledged Shares, or
any portion thereof, sold as aforesaid; and no such purchaser or representatives
or assigns (other than Secured Party), after paying such purchase money and
receiving such receipt, shall be bound to see to the application of such
purchase money or any misapplication or non-application of any such purchase
money, or any misapplication or non-application of any such purchase money, or
any part thereof, or be bound to inquire as to the authorization, necessity,
expediency or regularity of any such sale.
(d) NO OTHER REMEDIES; CONDITION PRECEDENT TO ENFORCEMENT OF REMEDIES.
Except for the remedies set forth in this Section 4, upon the occurrence of an
Event of Default, Secured Party shall not be entitled to any other remedies
provided by law. Notwithstanding anything herein to the contrary, Secured Party
shall be required to transfer and assign to Pledgor, free and clear of any
Encumbrances, 475,000 Telepad Preferred Shares, plus a written instrument
executed by Secured Party irrevocably relinquishing all accrued and unpaid
dividends with respect to such shares, as a
6
<PAGE>
condition precedent to Secured Party's right to seek, or take any action as, a
remedy hereunder with respect to any one or more Events of Default (i) which
occur on or before the first anniversary of the Closing Date, or (ii) which
arise out of, or results from, Pledgor's failure on or before the Determination
Date (as defined in the Purchase Agreement) if such date occurs on or prior to
the first anniversary of the Closing Date, (a) to pay principal, interest and
other amounts payable under the Note; (b) to pay the Additional Consideration
under Section 2.03 of the Acquisition Agreement; (c) to pay the repurchase price
of the Shares upon exercise by Secured Party of its option under Section 8.06 of
the Purchase Agreement; or (d) to invest up to $666,700 in L&E under Section
8.03 of the Purchase Agreement; provided, however, if (i) the Telepad Preferred
Shares issued to Secured Party pursuant to the Purchase Agreement shall have
converted into Telepad Common Stock, or (ii) a portion of such shares shall have
been redeemed by Pledgor, or sold to Pledgor pursuant to Secured Party's rights
under the Purchase Agreement, resulting in Secured Party owning fewer than
475,000 Telepad Preferred Shares, then any shortfall in such shares shall be
satisfied by Secured Party transferring and assigning to Pledgor an equal number
of shares of Telepad Common Stock.
(e) PROCEEDS. Secured Party shall apply the cash proceeds actually
received from any foreclosure sale, lease, collection or other disposition of
the Collateral as follows: (1) first, to reasonable attorneys' fees and all
expenses (including court costs, advertising expenses, auctioneer's fees,
premiums for any required bonds, auditor's fees, amounts advanced for taxes and
other expenses) incurred by Secured Party in attempting to enforce the Secured
Obligations or this Agreement or in the prosecution or defense of any action or
proceeding related to the subject matter of this Agreement; (2) second, to the
discharge of the Secured Obligations, and (3) further, to pay any remaining
surplus to Pledgor.
(f) COSTS OF ENFORCEMENT. If an Event of Default occurs, whether or not
Secured Party pursues any of the remedies set forth in this Section 4, Pledgor
shall be responsible for and shall pay on demand all costs and expenses incurred
by Secured Party in protecting or enforcing its rights hereunder, including
reasonable attorneys' fees, all of which obligations are secured by and subject
to this Agreement, including Sections 1(e) and 4(d).
(g) SATISFACTION. Upon the performance in full of the Secured
Obligations in accordance with their respective terms, on the date thereof (i)
all of the pledge and security and other interests of Secured Party hereunder to
and otherwise in respect of the Collateral shall be released and terminated, and
(ii) Secured Party shall return the Collateral to Pledgor free of any and all
Encumbrances.
SECTION 5. ATTORNEY-IN-FACT.
Pledgor hereby appoints Dean N. Eisenberger, his successors and assigns
and all other Persons deriving title under Secured Party, severally, which
appointment is irrevocable and coupled with an interest, as Pledgor's lawful
attorney-in-fact, with full power of substitution, in the name of Pledgor, for
the sole use and benefit of Secured Party while any Event of Default shall be
continuing, to exercise all or any of the following actions with respect to all
or any of the Pledged Shares:
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(i) to vote the Pledged Shares for the purposes of electing and
removing members of L&E's Board of Directors;
(ii) to demand, sue for, collect, receive and give acquittance for any
and all monies due or to become due;
(iii) to settle, compromise, initiate, prosecute or defend any action
or proceedings with respect thereto; and
(iv) to sign, seal and deliver any transfer or other documents or form
in the name of Pledgor which may be necessary or desirable for or in connection
with the perfecting of Secured Party title to or for vesting the Pledged Shares
or its nominee(s), or in any purchaser in any sale of the Pledged Shares, and
otherwise generally to sign, seal and deliver and otherwise perfect any other
pledge, charge, or other obligation referred to in this Agreement provided that
Secured Party shall give Pledgor not fewer than 10 business days prior written
notice of the time and place of any sale or other intended disposition of any
Pledged Shares.
SECTION 6. NOTICE OF BAILMENT FOR SUBORDINATE PLEDGE.
The parties agree and acknowledge that the Collateral is the subject of
a subordinate pledge by Pledgor to L&E to secure Pledgor's obligations under the
Note pursuant to a Pledge and Security Agreement between Pledgor and L&E dated
of even date herewith (the "Company Pledge Agreement"). Secured Party agrees
that it shall hold the Collateral, first as a secured party under this
Agreement, and secondly as bailee and agent for L&E. The parties agree that the
obligations secured by the Company Pledge Agreement are inferior and subordinate
in priority to the interests of Secured Party. The subordination and priorities
herein specified are applicable irrespective of the time or order of attachment
or perfection of security interest; the time or order of filing or recording of
financing statements, deeds, deeds of trust, or mortgages, or the time of giving
or failure to give notice of acquisition or expected acquisition of
purchase-money or other security interests. Until the Secured Obligations have
been satisfied in full, Secured Party shall not be required to enforce any
interests with respect to this Agreement or the Collateral. Until the Secured
Obligations been satisfied in full, Secured Party shall not be obligated, or
have a duty hereunder, to enforce any interests under this Agreement or in or to
the Collateral for the benefit of L&E nor to attach, levy upon, execute against,
exercise any rights to, assert any claim on or interest in, take any action
against, or institute any proceedings with respect to Pledgor or any of
Pledgor's assets. Secured Party may waive, delay or fail to take any action
either to enforce its rights with respect to the Secured Obligations or to
exercise any right or remedy against Pledgor or its assets, without any loss of
any rights by Secured Party in the Secured Obligations, and without affecting
the subordination and priority hereunder, and Secured Party may surrender or
release any Collateral, change, alter, renew, extend, forbear, continue,
compromise, or waive any rights or claims, extend further credit or engage in
other dealings, and fail to, or refuse to, act with respect to any of the
foregoing, without giving rise to any duties or obligations, fiduciary or
otherwise, to L&E, regardless of the effect on the value of the Collateral.
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SECTION 7. MISCELLANEOUS.
(a) GOVERNING LAW; INTERPRETATION. This Agreement shall be governed by
the laws of the Commonwealth of Pennsylvania applicable to contracts executed
and performed within the Commonwealth of Pennsylvania (other than the law
governing conflict of law questions). All terms used in this Agreement which are
defined in the Code shall be construed in accordance with such definitions
unless otherwise required by the context.
(b) ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, representations, warranties,
covenants, or undertakings other than those expressly set forth or referred to
herein. This Agreement supersedes any and all prior agreements and
understandings between the parties with respect to such subject matter.
(c) AMENDMENT. This Agreement may be amended only in a writing signed
by each of the parties.
(d) WAIVER. No waiver shall be effective against any party unless it is
in a writing signed by that party. No waiver by Secured Party of any breach of
any term or covenant contained in this Agreement shall operate as a waiver of
such term or covenant itself, or of any subsequent breach thereof.
(e) COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective successors,
heirs, executors or administrators, representatives and assigns.
(g) CUMULATION OF RIGHTS AND REMEDIES. No right or remedy of Secured
Party under this Agreement is intended to be exclusive of any other right or
remedy contained in this Agreement, or in any instrument or document delivered
in connection with or pursuant to this Agreement and every such right or remedy
shall be cumulative and shall be in addition to every other such right or remedy
contained herein and therein or now or hereafter existing at law or in equity or
by statute, or otherwise.
(h) NOTICE. All notices, requests, consents, demands and other
communications with respect to this Agreement shall be in writing and shall be
deemed duly given when delivered (or refused upon attempted delivery in
accordance herewith), personally or mailed by certified mail, return receipt
requested, postage prepaid, or by an overnight carrier that provides a written
confirmation of delivery, addressed as follows (or at such other address for
Secured Party or Pledgor as shall be specified by like notice):
Secured Party: Dean N. Eisenberger
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1013 Conshohocken Road, Bld, 4
Conshohocken, PA 19428-0978
with a copy to: Kane & Silverman, P.C.
Suite IC-44
2401 Pennsylvania Avenue
Philadelphia, Pennsylvania 19130
Attention: Michael C. Kane, Esq.
Pledgor: Telepad Corporation
380 Herndon Parkway
Suite 1900
Herndon, Virginia 20170
Attention: Donald W. Barrett, Chairman and
Chief Executive Officer
with copy to:
Arent Fox Kintner Plotkin & Kahn, PLLC
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036-5339
Attention: Carter Strong, Esquire
(i) WAIVER OF CERTAIN DEFENSES. Regardless of consideration, and
without the necessity for any notice to or consent by the holder of any
subordinate lien or security interest on the Collateral, Secured Party may
release the Secured Obligations, may release any Person at any time liable for
any of the Secured Obligations, or may release any part of the security held for
the Secured Obligations and may extend the time of payment or otherwise modify
the terms of the Secured Obligations or this Agreement without in any way
impairing or affecting the existence or priority of the lien and security
interest of this Agreement. Secured Party may resort for the payment of the
Secured Obligations to the Collateral in such order and manner as Secured Party
may elect.
(j) HEADINGS. The headings in this Agreement are intended solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
(k) SEPARABILITY. The invalidity or unenforceability of any provisions
of this Agreement shall not impair the validity or enforceability of any other
provision.
(l) GENERAL INTERPRETIVE RULES. For purposes of this Agreement, except
as otherwise expressly provided or unless the context otherwise requires, (1)
the use of any gender herein shall be deemed to include the other genders; (2)
references herein to "Sections" and other subdivisions without reference to a
document are to designated Sections and other subdivisions of this
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Agreement; (3) reference to a Subsection without further reference to a Section
is a reference to such Subsection contained in the same Section in which the
reference appears and this rule shall also apply to paragraphs and other
subdivisions; (4) "including" means "including but not limited to"; (5) the
words "herein," hereof," "hereunder" and other words of similar import refer to
this Agreement as a whole and not to any particular provision; and (6) the words
"business day" shall mean any day other than a Saturday, a Sunday or a day on
which commercial banks in Philadelphia, Pennsylvania are required or authorized
to close.
(m) JURISDICTION. PLEDGOR (A) HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF
PENNSYLVANIA AND OF ANY COMMONWEALTH OF PENNSYLVANIA COURT SITTING IN THE CITY
OF PHILADELPHIA OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT, AND HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH
ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH CIRCUIT COURT OR
FEDERAL COURT; (B) IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN
ANY SUCH ACTION OR PROCEEDING BY MAILING COPIES OF SUCH PROCESS TO MAKER IN THE
MANNER PROVIDED IN SECTION 6 ABOVE; AND (C) AGREES THAT A FINAL JUDGMENT IN ANY
SUCH ACTION OR PROCEEDING, NOT SUBJECT TO FURTHER APPEAL, SHALL BE CONCLUSIVE
AND MAY BE ENFORCED IN ANY OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY
OTHER MANNER PROVIDED BY LAW.
WAIVER OF JURY TRIAL. PLEDGOR HEREBY (I) COVENANTS AND AGREES NOT
TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (II)
WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH
RIGHT SHALL NOW OR HEREAFTER EXIST. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS
SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY, BY PLEDGOR, AND THIS WAIVER IS
INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE
RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. SECURED PARTY IS HEREBY
AUTHORIZED AND REQUESTED TO SUBMIT THIS AGREEMENT TO ANY COURT HAVING
JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES HERETO, SO AS TO SERVE AS
CONCLUSIVE EVIDENCE OF PLEDGOR'S HEREIN CONTAINED WAIVER OF THE RIGHT TO TRIAL
BY JURY. FURTHER, PLEDGOR HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF
SECURED PARTY (INCLUDING SECURED PARTY'S COUNSEL) HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, TO PLEDGOR THAT SECURED PARTY WILL NOT SEEK TO ENFORCE THIS WAIVER OF
RIGHT TO TRIAL BY JURY PROVISION.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
PLEDGOR:
ATTEST: TELEPAD CORPORATION,
/s/ Robert D. Russell a Delaware corporation
____________________________
Robert D. Russell, Secretary
By: /s/ Donald W. Barrett
____________________________________________
Donald W. Barrett, Chairman of the Board and
Chief Executive Officer
SECURED PARTY:
/s/ Dean N. Eisenberger
____________________________________________
Dean N. Eisenberger
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Exhibit 10.6
PLEDGE AND SECURITY AGREEMENT
This Pledge and Security Agreement ("Agreement") is entered into as of
May 27, 1998 by and between Telepad Corporation, a Delaware corporation
("Pledgor"), and L&E Mobile Computer Mounts, Inc., a Pennsylvania corporation
("Secured Party").
RECITALS
A. Pursuant to a Share Purchase Agreement dated as of the date hereof
(the "Purchase Agreement"), by and among Pledgor, Secured Party, Dean N.
Eisenberger ("Eisenberger") and Christine LeMaire ("LeMaire"), Pledgor purchased
on the date hereof from LeMaire and Eisenberger a total of 198 shares of common
stock, without par value, of Secured Party (the "Shares"), which represents 100%
of Secured Party's outstanding capital stock. At the Closing, pursuant to the
Purchase Agreement, Pledgor, among other things, issued and delivered a Note to
Secured Party.
B. As contemplated by the Purchase Agreement, Pledgor desires to secure
Pledgor's obligations to pay principal, interest and other amounts payable under
the Note (collectively, the "Secured Obligations") by granting to Secured Party
a security interest in the Shares ("Pledged Shares") and all dividends and other
distributions and rights associated therewith, and all proceeds of the foregoing
property (collectively, including the Pledged Shares and foregoing distributions
and proceeds, the "Collateral").
C. All capitalized terms used but not defined herein shall have the
meaning ascribed to such terms in the Purchase Agreement.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
SECTION 1. GRANT AND PERFECTION OF SECURITY INTEREST.
(a) GRANT OF SECURITY INTEREST. To secure payment of the Secured
Obligations, Pledgor hereby grants to Secured Party a security interest in all
of Pledgor's right, title and interest in and to the Collateral under the
Uniform Commercial Code in effect in the Commonwealth of Pennsylvania (the
"Code") and all other applicable laws.
(b) PLEDGED SHARES. Pledgor hereby pledges to Secured Party as the
Collateral for the Secured Obligations all of Pledgor's right, title and
interest in and to the Pledged Shares and in and to all dividends, other
distributions, cash, instruments, stock rights, rights to subscribe and other
property or proceeds in whatever form, from time to time received or receivable
or otherwise distributed in respect of or in exchange for any or all of the
Pledged Shares (collectively, "Distributions").
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(c) FINANCING STATEMENTS. Upon the request of Secured Party, Pledgor
will execute and deliver to Secured Party UCC-1 financing statements, suitable
for filing in all appropriate jurisdictions, covering that portion of the
Collateral in which a security interest can or may be perfected under the Code
by filing a UCC-1 financing statement. Secured Party is authorized to file such
financing statements in all places which, in its sole discretion, such filing is
appropriate to protect and perfect its rights hereunder. Secured Party is
irrevocably authorized to execute and file such continuation statements and
other similar documents, which in its sole discretion, it deems appropriate to
protect and perfect its rights.
(d) DELIVERY OF COLLATERAL; FURTHER ASSURANCES. Ninety-eight of the
Pledged Shares have been or will be deposited with Eisenberger, and 100 of the
Pledged Shares have been or will be deposited with LeMaire, each first as a
Secured Party under the Superior Agreements described in Section 6 hereof, and
Secondly as agents for the Secured Party, contemporaneously with the execution
of this Agreement or, as the case may be, from time to time, immediately after
Pledgor's receipt of the certificates evidencing the Pledged Shares. All
certificates or instruments evidencing or representing the Pledged Shares and
other Collateral shall be delivered to and held by LeMaire and Eisenberger,
first pursuant to the Superior Agreements and second as Secured Party's agent
and bailee hereunder, and shall be in suitable form for transfer by delivery or,
as applicable, shall be accompanied by Pledgor's endorsement where necessary, or
duly executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to Secured Party. Upon the request of Secured Party, and
at Pledgor's sole expense, Pledgor shall execute and deliver such other
instruments and documents as may, in the reasonable opinion of counsel for
Secured Party, be appropriate to protect and perfect Secured Party's rights
under this Agreement, or otherwise effectuate the purposes of this Agreement.
(e) NONRECOURSE. Notwithstanding anything herein, in the other
Ancillary Agreements or the Purchase Agreement, Secured Party acknowledges and
agrees that Pledgor shall not have any personal or direct obligation or
liability for or otherwise in respect of the Secured Obligations, and Secured
Party's only recourse in respect thereof shall be hereunder against the
Collateral and, as a result, Secured Party shall not enforce the obligation and
liability of Pledgor to perform and observe the Secured Obligations by any
action or judgment wherein a money judgment or specific performance judgment
shall be sought against Pledgor, except Secured Party may bring a foreclosure
action, action for specific performance or other appropriate action or
proceeding solely for the purpose of enabling Secured Party to realize upon the
Collateral. Secured Party shall look solely to the Collateral for payment or
other satisfaction of the Secured Obligations and the satisfaction of any
obligation or liability otherwise arising under or in respect of the Secured
Obligations, and if the Collateral shall be insufficient to pay in full or
otherwise satisfy the Secured Obligations or to satisfy any obligations or
liabilities arising under this Agreement, Pledgor and its successors and assigns
shall not be held personally liable or responsible for the payment of any such
deficiency.
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SECTION 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PLEDGOR.
To induce Secured Party to enter into this Agreement, Pledgor
represents and warrants to Secured Party as follows:
(a) FORMAL ACTION. Pledgor has all requisite power and authority
to execute, deliver and perform this Agreement.
(b) ENFORCEABILITY. This Agreement is a legal, valid and binding
obligation of the Pledgor, enforceable against Pledgor in accordance with its
terms.
(c) OWNERSHIP. Pledgor is the sole legal and beneficial owner of the
Pledged Shares and holds the Pledged Shares free and clear of any and all liens,
encumbrances, covenants, conditions, mortgages, security interests, pledges,
claims, options, preemptive rights, transfer restrictions, puts, calls, trusts
and any and all other restrictions of any kind whatsoever (collectively
"Encumbrances"), except for the Permitted Exceptions (as defined below).
"Permitted Exception" shall mean (i) the pledge and security interest hereunder,
(ii) as otherwise provided in the Purchase Agreement and (iii) the superior
pledges of the Shares which secure certain obligations of Pledgor to LeMaire and
Eisenberger pursuant to the Superior Agreements described in Section 6 (the
"Superior Pledges").
(d) VALID, ENFORCEABLE AND PERFECTED. Secured Party has or, upon the
delivery of the certificates to Secured Party as provided hereby, will have a
valid, enforceable and perfected security interest in all of the Collateral.
(e) NO TRANSFERS. Except pursuant to the Superior Agreements or
Pledgor's rights under the Purchase Agreement, Pledgor shall not sell or
otherwise transfer or dispose of the Pledged Shares or any interest therein
during such time as it shall be pledged to Secured Party hereunder.
(f) NO ENCUMBRANCES. Pledgor shall keep the Pledged Shares free from
any and all Encumbrances, except for the Permitted Exceptions, and shall defend
such Pledged Shares against all claims and demands of all Persons at any time
claiming any interest therein.
SECTION 3. DISTRIBUTIONS AND RIGHT TO VOTE.
(a) DISTRIBUTIONS. Pledgor shall not be entitled to receive and retain
any distributions payable in respect of the Pledged Interests except that, so
long as (i) an Event of Default (as defined below) shall not have occurred and
be continuing and (ii) Secured Party has not in respect of such Event of Default
caused a transfer of the Pledged Shares, pursuant to Section 4(c), Pledgor shall
be entitled to receive and retain all cash dividends payable on the Pledged
Shares, including the dividends paid pursuant to Section 8.01(d) of the Purchase
Agreement. Secured Party shall execute and deliver to Pledgor all such powers of
attorney, dividend orders, and other instruments as Pledgor may request for the
purpose of enabling Pledgor to receive the dividends which it is authorized to
receive and retain pursuant to this Section 3(a).
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(b) RIGHT TO VOTE. Pledgor shall not have the right to exercise voting
powers pertaining to the Pledged Shares and other Distributions, except that, so
long as (i) an Event of Default shall not have occurred and be continuing and
(ii) Secured Party has not in respect of such Event of Default caused a transfer
of the Pledged Shares, pursuant to Section 4(c), Pledgor shall have the right to
exercise all voting powers pertaining to the Pledged Shares and all other
Distributions.
SECTION 4. EVENTS OF DEFAULT; REMEDIES.
(a) Any material default of Pledgor in respect of payment of the
Secured Obligations, shall constitute an event of default ("Event of Default")
under this Agreement.
(b) ACCELERATION. Subject to Section 6, upon the occurrence and
continuation of an Event of Default, Secured Party may declare, upon five
business day's notice to Pledgor, all Secured Obligations immediately due and
payable, whereupon they shall become due and payable in their entirety.
(c) UNIFORM COMMERCIAL CODE AND OTHER REMEDIES. Subject to the
provisions of Sections 1(e), 3 and 6, upon the occurrence and continuation of an
Event of Default, Secured Party shall have all of the rights and remedies of a
secured party in respect of the Collateral under the Code and all other
applicable laws, including the following:
(1) Secured Party may transfer the Collateral to itself,
receive all Distributions thereon and hold the Distributions as Collateral or
apply the Distributions to any of the Secured Obligations, and Secured Party may
at any time demand, sue for, collect or make any compromise or settlement with
reference to the Collateral as Secured Party, in its sole discretion, chooses
and exercise all the rights, powers and privileges of ownership of all Pledged
Shares.
(2) Secured Party shall have the right to receive any and all
cash dividends paid in respect of the Pledged Shares and make application
thereof to the Secured Obligations, and all Pledged Shares shall, upon the
request of Secured Party, be registered in the name of Secured Party and Secured
Party may thereafter exercise (A) all voting, corporate and other rights
pertaining to such Pledged Shares at any meeting of stockholders or otherwise
and (B) any and all rights of conversion, exchange, subscription and any other
rights, privileges or options pertaining to the Pledged Shares as if Secured
Party was the absolute owner thereof (including the right to exchange at its
discretion any and all of the Pledged Shares upon the merger, consolidation,
reorganization, recapitalization or other fundamental change in Secured Party's
corporate structure, or upon the exercise by Pledgor of any right, privilege or
option pertaining to the Pledged Shares).
(3) Secured Party, without demand of performance or other
demand, presentment or protest of any kind (except the notice provisions set
forth below) to or upon Pledgor or (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, assign, give option or options to
purchase or otherwise dispose of and deliver the Collateral or any part thereof
(or contract to do any of the foregoing), in one or
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more parts at public or private sale or sales, in the over-the-counter market,
at any exchange, broker's board or elsewhere upon such terms and conditions as
Secured Party may deem advisable and at such prices as they may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
Secured Party shall have the right upon any such public sale or sales, and, upon
any such private sale or sales, to purchase the whole or any part of the
Collateral so sold, free of any right or equity of redemption in Pledgor which
right or equity is hereby waived or released. Notwithstanding the "nonrecourse"
nature of the Secured Obligations, notice of a proposed sale or other
disposition of Collateral shall be given at least 10 business days before such
sale or other disposition.
(4) Pledgor recognizes that, in the absence of registration
under the Securities Act of 1933, as amended (the "Securities Act"), and
applicable state securities laws, Secured Party may be unable to effect a public
sale of any or all the Pledged Shares, by reason of certain prohibitions
contained in the Securities Act and applicable state securities laws or
otherwise, and may be compelled to resort to one or more private sales thereof
to a restricted group of purchasers which will be obliged to agree, among other
things, to acquire such securities for their own account for investment and not
with a view to the distribution or resale thereof. Pledgor acknowledges and
agrees that any such private sale may result in prices and other terms less
favorable than if such sale were a public sale and, notwithstanding such
circumstances, agrees that any such private sale shall be deemed to have been
made in a commercially reasonable manner. Secured Party shall be under no
obligation to delay a sale of any of the Pledged Shares for the period of time
necessary to permit Pledgor to register such securities for public sale under
the Securities Act, or under applicable state securities laws. Secured Party
shall be entitled to sell all or any part of the Pledged Shares at a price which
it may determine.
(5) Secured Party may take title to all Collateral without
judicial process pursuant to Section 9-503 of the Code, and in such event, as in
the case of any other sale or transfer of the Collateral hereunder, all of the
Secured Obligations shall be deemed for all purposes to be satisfied fully and
terminated and null and void, and Pledgor shall have no right, title and
interest in and to the Collateral, nor any claim in respect thereof, even if the
value of the Collateral is greater than the Secured Obligations.
(6) Secured Party may sell or otherwise dispose of all
Collateral pursuant to Section 9-504 of the Code. Any notification required by
Section 9-504 shall be reasonable if given at least 10 business days before the
date of sale.
(7) Secured Party may bid for and purchase the Collateral at
any public or private sale. In any case in which Secured Party purchases any
Collateral, Secured Party shall be entitled to credit to the purchase price of
such Collateral all or any portion of the amounts due to them under this
Agreement or in respect of the Secured Obligations. Nothing herein is intended
to prevent Pledgor from bidding for or purchasing the Collateral at any such
private or public sale.
(8) Secured Party may enforce its rights hereunder without
resort to prior judicial process or judicial hearing, and Pledgor expressly
waives, renounces and knowingly relinquishes
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any right under the laws of the United States or any state thereof which might
otherwise require a Secured Party to enforce its rights by judicial process. In
so providing for a nonjudicial remedy, Pledgor recognizes and concedes that such
a remedy is consistent with the usage of the trade, is responsive to commercial
necessity, and is the result of bargain at arm's length. Nothing herein is
intended to prevent Pledgor or Secured Party from resorting to judicial process
at either party's option.
(9) Secured Party, as attorney-in-fact pursuant to Section 5
may, in the name and stead of Pledgor, make and execute all conveyances,
assignments and transfers of the Pledged Shares sold in accordance with this
Agreement. Pledgor shall, if so reasonably requested by Pledgor, ratify and
confirm any sale or sales by executing and delivering to Secured Party, or to
such purchaser or purchasers (including Secured Party), all such instruments as
may, in the reasonable judgment of Secured Party, be advisable for such purpose.
(10) The receipt of Secured Party of the purchase money paid
at any such sale of Pledged Shares made by it shall be a sufficient discharge
therefor to any purchaser (including Secured Party) of the Pledged Shares, or
any portion thereof, sold as aforesaid; and no such purchaser or representatives
or assigns (other than Secured Party), after paying such purchase money and
receiving such receipt, shall be bound to see to the application of such
purchase money or any misapplication or non-application of any such purchase
money, or any misapplication or non-application of any such purchase money, or
any part thereof, or be bound to inquire as to the authorization, necessity,
expediency or regularity of any such sale.
(d) NO OTHER REMEDIES; CONDITION PRECEDENT TO ENFORCEMENT OF REMEDIES.
Except for the remedies set forth in this Section 4, upon the occurrence of an
Event of Default, Secured Party shall not be entitled to any other remedies
provided by law. Notwithstanding anything herein to the contrary, LeMaire and
Eisenberger shall be required to transfer and assign to Pledgor, free and clear
of any Encumbrances, 475,000 Telepad Preferred Shares each, plus a written
instrument executed by each of LeMaire and Eisenberger irrevocably relinquishing
all accrued and unpaid dividends with respect to such shares, as a condition
precedent to Secured Party's right to seek, or take any action as, a remedy
hereunder with respect to any one or more Events of Default; provided, however,
if (i) the Telepad Preferred Shares issued to LeMaire and Eisenberger pursuant
to the Purchase Agreement shall have converted into Telepad Class A Common
Stock, or (ii) a portion of such shares shall have been redeemed by Pledgor, or
sold to Pledgor pursuant to LeMaire's or Eisenberger's rights under the Purchase
Agreement, resulting in either LeMaire or Eisenberger owning fewer than 475,000
Telepad Preferred Shares, then any shortfall such shares shall be satisfied by
transferring and assigning to Pledge or an equal number of shares of Telepad
Class A Common Stock.
(E) PROCEEDS. Secured Party shall apply the cash proceeds actually
received from any foreclosure sale, lease, collection or other disposition of
the Collateral as follows: (1) first, to reasonable attorneys' fees and all
expenses (including court costs, advertising expenses, auctioneer's fees,
premiums for any required bonds, auditor's fees, amounts advanced for taxes and
other expenses) incurred by Secured Party in attempting to enforce the Secured
Obligations or this
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Agreement or in the prosecution or defense of any action or proceeding related
to the subject matter of this Agreement; (2) second, to the discharge of the
Secured Obligations, and (3) further, to pay any remaining surplus to Pledgor.
(f) COSTS OF ENFORCEMENT. If an Event of Default occurs, whether or not
Secured Party pursues any of the remedies set forth in this Section 4, Pledgor
shall be responsible for and shall pay on demand all costs and expenses incurred
by Secured Party in protecting or enforcing its rights hereunder, including
reasonable attorneys' fees, all of which obligations are secured by and subject
to this Agreement, including Sections 1(e) and 4(d).
(g) SATISFACTION. Upon the performance in full of the Secured
Obligations in accordance with their respective terms, on the date thereof (i)
all of the pledge and security and other interests of Secured Party hereunder to
and otherwise in respect of the Collateral shall be released and terminated, and
(ii) Secured Party shall return the Collateral to Pledgor free of any and all
Encumbrances.
SECTION 5. ATTORNEY-IN-FACT.
Pledgor hereby appoints the president of Secured Party, her successors
and assigns and all other Persons deriving title under Secured Party, severally,
which appointment is irrevocable and coupled with an interest, as Pledgor's
lawful attorney-in-fact, with full power of substitution, in the name of
Pledgor, for the sole use and benefit of Secured Party while any Event of
Default shall be continuing, to exercise all or any of the following actions
with respect to all or any of the Pledged Shares:
(i) to vote the Pledged Shares for the purposes of electing and
removing members of Secured Party's Board of Directors;
(ii) to demand, sue for, collect, receive and give acquittance for any
and all monies due or to become due;
(iii) to settle, compromise, initiate, prosecute or defend any action
or proceedings with respect thereto; and
(iv) to sign, seal and deliver any transfer or other documents or form
in the name of Pledgor which may be necessary or desirable for or in connection
with the perfecting of Secured Party title to or for vesting the Pledged Shares
or its nominee(s), or in any purchaser in any sale of the Pledged Shares, and
otherwise generally to sign, seal and deliver and otherwise perfect any other
pledge, charge, or other obligation referred to in this Agreement provided that
Secured Party shall give Pledgor not fewer than 10 business days prior written
notice of the time and place of any sale or other intended disposition of any
Pledged Shares.
SECTION 6. NOTICE OF BAILMENT FOR SUBORDINATE PLEDGE.
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The parties agree and acknowledge 100 of the Pledged Shares are subject
to a superior pledge by Pledgor to LeMaire and 98 Pledged Shares are subject to
a superior pledge by Pledgor to Eisenberger, in each case to secure Pledgor's
obligations under the Purchase Agreement pursuant to a Pledge and Security
Agreement between Pledgor and each Seller dated of even date herewith (the
"Superior Agreements"). Secured Party agrees that each Seller shall hold the
Collateral pledged to him or her under the Superior Agreements, first as a
secured party under the Superior Agreements, and secondly as bailee and agent
for Secured Party. The parties agree that the obligations secured by this
Agreement are inferior and subordinate in priority to the interests of Sellers.
The subordination and priorities herein specified are applicable irrespective of
the time or order of attachment or perfection of security interest; the time or
order of filing or recording of financing statements, deeds, deeds of trust, or
mortgages, or the time of giving or failure to give notice of acquisition or
expected acquisition of purchase-money or other security interests. Until the
secured obligations under the Superior Agreements have been satisfied in full,
Secured Party shall not enforce any interests with respect to this Agreement or
the Collateral. Sellers shall not be obligated, or have a duty hereunder, to
enforce any interests under the Superior Agreements or in or to the Collateral
for the benefit of Secured Party nor to attach, levy upon, execute against,
exercise any rights to, assert any claim on or interest in, take any action
against, or institute any proceedings with respect to Pledgor or any of
Pledgor's assets. Sellers may waive, delay or fail to take any action either to
enforce their rights with respect to the secured obligations or to exercise any
right or remedy against Pledgor or its assets, without any loss of any rights by
Sellers in such secured obligations, and without affecting the subordination and
priority hereunder, and Sellers may surrender or release any Collateral, change,
alter, renew, extend, forbear, continue, compromise, or waive any rights or
claims, extend further credit or engage in other dealings, and fail to, or
refuse to, act with respect to any of the foregoing, without giving rise to any
duties or obligations, fiduciary or otherwise, to Secured Party, regardless of
the effect on the value of the Collateral.
SECTION 7. MISCELLANEOUS.
(a) GOVERNING LAW; INTERPRETATION. This Agreement shall be governed by
the laws of the Commonwealth of Pennsylvania applicable to contracts executed
and performed within the Commonwealth of Pennsylvania (other than the law
governing conflict of law questions). All terms used in this Agreement which are
defined in the Code shall be construed in accordance with such definitions
unless otherwise required by the context.
(b) ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, representations, warranties,
covenants, or undertakings other than those expressly set forth or referred to
herein. This Agreement supersedes any and all prior agreements and
understandings between the parties with respect to such subject matter.
(c) AMENDMENT. This Agreement may be amended only in a writing signed
by each of the parties.
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(d) WAIVER. No waiver shall be effective against any party unless it is
in a writing signed by that party. No waiver by Secured Party of any breach of
any term or covenant contained in this Agreement shall operate as a waiver of
such term or covenant itself, or of any subsequent breach thereof.
(e) COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective successors,
heirs, executors or administrators, representatives and assigns.
(g) CUMULATION OF RIGHTS AND REMEDIES. No right or remedy of Secured
Party under this Agreement is intended to be exclusive of any other right or
remedy contained in this Agreement, or in any instrument or document delivered
in connection with or pursuant to this Agreement and every such right or remedy
shall be cumulative and shall be in addition to every other such right or remedy
contained herein and therein or now or hereafter existing at law or in equity or
by statute, or otherwise.
(h) NOTICE. All notices, requests, consents, demands and other
communications with respect to this Agreement shall be in writing and shall be
deemed duly given when delivered (or refused upon attempted delivery in
accordance herewith), personally or mailed by certified mail, return receipt
requested, postage prepaid, or by an overnight carrier that provides a written
confirmation of delivery, addressed as follows (or at such other address for
Secured Party or Pledgor as shall be specified by like notice):
Secured Party: L & E Mobile Computer Mounts, Inc.
1013 Conshohocken Road, Bld.4
Conshohocken, Pennsylvania 19428-0978
Attention: President
with a copy to: Kane & Silverman, P.C.
Suite IC-44
2401 Pennsylvania Avenue
Philadelphia, Pennsylvania 19130
Attention: Michael C. Kane, Esq.
Pledgor: Telepad Corporation
380 Herndon Parkway
Suite 1900
Herndon, Virginia 20170
Attention: Donald W. Barrett, Chairman and
Chief Executive Officer
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with copy to: Arent Fox Kintner Plotkin & Kahn, PLLC
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036-5339
Attention: Carter Strong, Esquire
(i) WAIVER OF CERTAIN DEFENSES. Regardless of consideration, and
without the necessity for any notice to or consent by the holder of any
subordinate lien or security interest on the Collateral, Secured Party may
release the Secured Obligations, may release any Person at any time liable for
any of the Secured Obligations, or may release any part of the security held for
the Secured Obligations and may extend the time of payment or otherwise modify
the terms of the Secured Obligations or this Agreement without in any way
impairing or affecting the existence or priority of the lien and security
interest of this Agreement. Secured Party may resort for the payment of the
Secured Obligations to the Collateral in such order and manner as Secured Party
may elect.
(j) HEADINGS. The headings in this Agreement are intended solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
(k) SEPARABILITY. The invalidity or unenforceability of any provisions
of this Agreement shall not impair the validity or enforceability of any other
provision.
(l) GENERAL INTERPRETIVE RULES. For purposes of this Agreement, except
as otherwise expressly provided or unless the context otherwise requires, (1)
the use of any gender herein shall be deemed to include the other genders; (2)
references herein to "Sections" and other subdivisions without reference to a
document are to designated Sections and other subdivisions of this Agreement;
(3) reference to a Subsection without further reference to a Section is a
reference to such Subsection contained in the same Section in which the
reference appears and this rule shall also apply to paragraphs and other
subdivisions; (4) "including" means "including but not limited to"; (5) the
words "herein," hereof," "hereunder" and other words of similar import refer to
this Agreement as a whole and not to any particular provision; and (6) the words
"business day" shall mean any day other than a Saturday, a Sunday or a day on
which commercial banks in Philadelphia, Pennsylvania are required or authorized
to close.
(m) JURISDICTION. PLEDGOR (A) HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF
PENNSYLVANIA AND OF ANY COMMONWEALTH OF PENNSYLVANIA COURT SITTING IN THE CITY
OF PHILADELPHIA OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT, AND HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH
ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH CIRCUIT COURT OR
FEDERAL COURT; (B) IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN
ANY SUCH ACTION OR PROCEEDING BY MAILING COPIES OF SUCH PROCESS TO MAKER
10
<PAGE>
IN THE MANNER PROVIDED IN SECTION 6 ABOVE; AND (C) AGREES THAT A FINAL JUDGMENT
IN ANY SUCH ACTION OR PROCEEDING, NOT SUBJECT TO FURTHER APPEAL, SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
WAIVER OF JURY TRIAL. PLEDGOR HEREBY (I) COVENANTS AND AGREES NOT TO
ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (II) WAIVES
ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR
HEREAFTER EXIST. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN,
KNOWINGLY AND VOLUNTARILY, BY PLEDGOR, AND THIS WAIVER IS INTENDED TO ENCOMPASS
INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY
JURY WOULD OTHERWISE ACCRUE. SECURED PARTY IS HEREBY AUTHORIZED AND REQUESTED TO
SUBMIT THIS AGREEMENT TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER
AND THE PARTIES HERETO, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF PLEDGOR'S
HEREIN CONTAINED WAIVER OF THE RIGHT TO TRIAL BY JURY. FURTHER, PLEDGOR HEREBY
CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF SECURED PARTY (INCLUDING SECURED
PARTY'S COUNSEL) HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO PLEDGOR THAT
SECURED PARTY WILL NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO TRIAL BY JURY
PROVISION.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
PLEDGOR:
ATTEST: TELEPAD CORPORATION,
/s/ Robert D. Russell a Delaware corporation
____________________________
Robert D. Russell, Secretary
By: /s/ Donald W. Barrett
____________________________________________
Donald W. Barrett, Chairman of the Board and
Chief Executive Officer
SECURED PARTY:
L&E Mobile Computer Mounts, Inc.
/s/ Christine LeMaire
________________________________
By: Christine LeMaire, President
11
Exhibit 99.1
Contact: Allen & Caron, Inc.
Mark Alvino (investors), [email protected]
212-698-1360
Owen Daley (media), [email protected]
714-252-8440
TELEPAD ACQUIRES L&E MOBILE COMPUTER MOUNTS
HERNDON, VA (May 28, 1998)....TELEPAD CORPORATION (Nasdaq:TPADA) announced today
the acquisition of privately-held L&E Mobile Computer Mounts, Inc., based near
Philadelphia, Pennsylvania. L&E is an established integrator of vehicle-mounted
communications hardware. It will continue operations under current management as
a wholly-owned subsidiary of TelePad. Acquisition terms include $1.3 million in
cash, 900,000 TelePad common shares, 950,000 TelePad preferred shares, which
subject to approval of TelePad's shareholders, will be converted into 950,000
common shares, and an earnout payment based upon up to three years of L&E's
post-closing performance. TelePad has certain obligations to repurchase the
TelePad common and preferred shares it issued in the acquisition, and is also
obligated to make certain equity investments in L&E totalling $1,000,000.
TelePad Chairman & CEO Don Barrett commented, "L&E's
industry-recognized systems, services and strong senior management are expected
to enhance our organization's value."
Barrett also said that L&E's established reputation in the public
safety vehicle sector "is expected to further enhance TelePad's presence in that
particular -- and rapidly growing -- mobile communications market."
Simultaneously, TelePad has entered into agreements with private
investors and obtained a portion of the L&E acquisition price through the
issuance of convertible notes by TelePad in an aggregate gross amount of $1.5
million. Such notes are convertible into
<PAGE>
TelePad common stock on certain conditions, including TelePad shareholder
approval with respect to the issuance of a portion of the shares issuable to
such investors.
TelePad Corporation is a recognized leader in the development of
innovative Field Force Automation. TelePad provides "total solutions," including
mobile computer platforms, application software framework, wireless networking
and integration services that enhance the productivity of the mobile
professional.
The statements in this media release that relate to future plans, events or
performance are forward-looking statements that involve risks and uncertainties,
including risks associated with the uncertainties pertaining to acquisitions and
strategic alliances, customer orders, demand for products and services,
development of markets for the Company's products and services and other risks
identified in the Company's SEC filings. Actual results, events and performance
may differ materially. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof. The
Company undertakes no obligation to release publicly the result of any revisions
to these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
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