SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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): December 30, 1999
Digital Privacy, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 52-1680936
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
4820 Minnetonka Blvd., Suite 410, St. Louis Park, MN 55416
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (612) 285-1163
Telepad Corporation
Two Logan Square, 12th Floor
Suite 1900, Philadelphia, PA 19103
(Former Name or Former Address if Changed Since Last Report)
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Item 1. Changes in Control of Registrant.
On December 30, 1999 (the "Effective Date"), Telepad
Corporation, a Delaware corporation ("Telepad"), completed a merger (the
"Merger") with Digital Privacy, Inc., a privately held Minnesota corporation
("DPI"), and adopted that company's name (the combined entity, in which Telepad
was the surviving corporation and then changed its name, is herein referred to
as the "Registrant").
Under the terms of the Merger, each share of DPI Common Stock
converted into one share of Telepad Common Stock. The shareholders of DPI
received shares of Common Stock of Registrant ("Common Stock") representing
approximately 65% of the shares outstanding upon completion of the Merger. In
addition, all of DPI's convertible securities convert after the Effective Date
on a one-to-one basis into shares of Registrant's Common Stock. As a result of
the Merger, Registrant's largest shareholder is Howard Miller, Registrant's
President, CEO and Chairman, with approximately 29% of the issued and
outstanding Common Stock. As of the Effective Date, Registrant had an aggregate
of 3,587,113 shares issued and outstanding.
In addition, on the Effective Date, all but one of the
directors and all of the officers resigned from Registrant's Board of Directors
with four new directors appointed with designees of DPI.
The Merger was approved by the Boards of Directors of Telepad
and DPI and by the written consent in lieu of a meeting by all of the
shareholders of Telepad and DPI entitled to vote on the Merger.
See Item 2 for additional disclosures and for additional
information regarding the new nature of the Company.
Item 2. Acquisition or Disposition of Assets.
As stated in Item 1 above, the Registrant acquired, through
the Merger, all of the assets and liabilities of DPI. As previously disclosed,
on March 17, 1999, Telepad sought the protection of the Bankruptcy Court and
started a Chapter 11 proceeding. Telepad's Modified Amended Plan of
Reorganization became effective on November 8, 1999. As a result, Telepad was
shorn of its pre-bankruptcy business and emerged as an empty shell with no
assets or liabilities, other than approximately $12,000 in franchise tax to the
State of Delaware. Thus the business of Telepad following the Merger will be the
business of DPI.
DPI's mission is to become a leading provider of smart card
based computer and data security products and customized multi-application smart
card solutions for corporations and organizations worldwide.
DPI expended a considerable amount of time and resources to
develop a product line for computer and data security which it believes to be
one of the most comprehensive in the industry. DPI designs, develops and markets
multiple security applications utilizing smart card technology for personal
computers, laptops and network computers. DPI's suite of products control access
to systems and information, authenticates users through various techniques and
secures proprietary documents, files and other information through encryption,
all incorporating smart card technology. Digital Privacy's products can also be
integrated with new or existing applications for multi-application solutions.
Key industries for multi-application solutions are facility security, banking
and payment systems, health care, travel and transportation and e-commerce.
Digital Privacy's strength is in its smart card and digital
security expertise. DPI believes that smart cards are destined to become the
interoperable token of the future. This interoperable token, a credit card sized
plastic card with an embedded, programmable computer chip, is an extremely
secure and versatile tool that, with the right applications, can solve the
security issues of today. DPI believes that a major shift is beginning to occur
for smart card solution providers inasmuch as computer system manufacturers and
operating system developers will become the smart card solution providers of the
future. This is a dramatic transition from the niche-market focus that smart
card vendors have today. The confluence of the need for digital security and the
advance of smart card technology present the opportunity DPI intends to attempt
to exploit.
Digital Privacy possesses broad method and apparatus patents
that are valuable for computer and information security, communications,
electronic commerce and telephony markets. Digital Privacy plans to deploy its
unique combination of smart card and security expertise to gain the leadership
position for smart card security while also providing other applications for
that marketplace.
Digital Privacy's strategy is to deploy its unique combination
of security and smart card expertise in open systems architecture design to gain
a leadership position within the information security market.
The smart card and computer security market independently are
growing rapidly. However, the intersection of these two markets occurs because
of the need for a secure digital world. DPI believes that this can be best
achieved through the utilization of smart card technology. Opportunities in
these intersecting markets are enormous. Currently, the computer security market
offers a wide variety of products fulfilling a singular customer need.
Alternatively, the smart card market is characterized by integrating a product
with a uniform physical form (the smart card) that offers many vertical markets
a wide variety of customer applications in addition to a security solution.
Smart cards secure information by controlling end-user access
to both desktop, notebook and network computers. Encryption software extends
protection to wherever the data is stored within the distributed network.
Furthermore, virtual private networks and associated secure messaging products
facilitate the protection of data in transit.
DPI believes that security capabilities will become part of
all standard network components; routers, with their additional functionality,
will subsume firewalls; network directory server functionality will subsume
Certificate Servers; and virtual private networks and secure messaging will be
included in the browser and e-mail products and ultimately will be embedded into
all operating systems. Already, smart card readers are being embedded in
desktop, notebook, Thin-client and Network computers. In all of these instances,
Digital Privacy's Tool Kit with its smart card enabling technology, the most
robust on the market, will be wholly integrated.
In the year 2000, DPI believes that smart cards will begin to
become the single largest industry segment for security. This occurs because the
largest component of an information system is the end-user's computer, which
will have an integrated smart card reader. The inclusion of certification
servers and encryption software within the network structure will enable the
computer to become a secure access point into the network.
DPI's Privacy Suite is the label it has attached to all of the
products which have been derived from its core technology. The DPI Privacy Suite
includes:
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Privacy.ACCESS(TM) - controls access and authenticates thin-clients, NC
or PC users
Privacy.APP(TM) - provides developers with the open migration facility
to incorporate smart cards in their applications
Privacy.FILE(TM) - transparently encrypts / decrypts user proprietary
files and provides non-repudiation with digital signatures
Privacy.WEB(TM) - secures browsers and web-site accessibility
Professional Services - smart card integration services allowing
proprietary applications to reside on a single smart card
Privacy.ACCESS
The ability to identify and authenticate users of computers
and servers has become an increasingly costly and troublesome task for
corporations. With the rapid growth and utilization of mobile computing and
Internet access compounding this problem, organizations are in dire need of a
scalable and extendable solution for authentication and access control. DPI has
developed the ultimate enterprise-wide access solution, Privacy.ACCESS.
Privacy.ACCESS is an access and authentication application
that enables organizations and individuals to easily integrate access control
capabilities into their existing networking systems. Privacy.ACCESS is an easy
to install, user friendly security application that ensures that only authorized
users have access to proprietary computer systems, applications and information.
Upon insertion of a smart card, and after valid
authentication, a user will have access to the system and designated data.
Privacy.ACCESS also offers optional password and fingerprint biometric
authentication for enhanced security and administrative control. Privacy.ACCESS
can be incorporated into a number of platforms and is compatible with the
leading smart card and smart card readers available. DPI also offers a software
only version that does not require a smart card reader.
Privacy.APP
As smart card technology becomes a mainstream peripheral in
the computing world, a number of prominent worldwide corporations such as
Honeywell, Microsoft, HP and IBM are making significant investments in
integrating smart card capabilities. Because smart card applications are just
beginning to emerge from a nascent stage, there is a high degree of
misunderstanding associated with the proper development of applications for the
computing market. DPI has been developing smart card based applications for over
seven years and has created the most comprehensive smart card tool kit available
for developing robust, open, smart card applications.
Privacy.APP is DPI's smart card tool kit that provides an
intuitive Application Program Interface (API) allowing developers to create
smart card based applications. It also permits the integration of smart cards
into existing applications. Smart cards are ideal for controlling data that
requires portability and security. With the protection afforded by an external
physical token, the smart card, software application can be significantly
enhanced by incorporating this technology for added security and
multi-functionality.
Privacy.APP provides three levels of security for
authentication of the smart card. Additionally, the smart card will lock up and
be marked unusable after three unsuccessful log-on attempts by a non-authorized
user.
Privacy.FILE
Organizations, in both the public and private sector, as well
as individuals, are all lacking in the ability to adequately secure proprietary
informational assets. One of the most significant corporate or government needs
is a secure, reliable, cost effective and easy to deploy method of safeguarding
data and information that reside on computers. DPI provides a unique and simple
solution with its Privacy.FILE product.
Privacy.FILE is a high performance data security solution. It
is one of the most comprehensive encryption applications on the market today.
Privacy.FILE protects data by utilizing a unique encryption
key (E-Key(TM)) that is stored on the hard drive or a floppy disk. Privacy.FILE
also offers digital signature capabilities for enhanced security. Privacy.FILE
ensures that only authorized users have access to protected data. In order to
access their protected data, the user must provide the necessary personal
identification responses.
Privacy.FILE is a file encryption application utilizing a
smart card. It ensures trusted security of proprietary information stored on a
laptop, desktop or network computer. It secures data by allowing users to select
individual files or directories which are encrypted utilizing unique encryption
keys that are stored on the smart card. These files can be automatically
decrypted when opened and re-encrypted when closed. The more robust PRO version
of Privacy.FILE offers automatic transparent encryption and selected files and
directories without requiring any action by the end user. As with
Privacy.ACCESS, Privacy.FILE also offers a software version only that does not
require a smart card reader.
Privacy.FILE PRO
Privacy.FILE PRO is the smart card enabled version of DPI's
high performance data security solution Privacy.FILE. It is one of the most
comprehensive encryption applications on the market today.
Privacy.FILE PRO is the full-featured version of Privacy.FILE.
Privacy.FILE PRO protects data by utilizing a unique
encryption key (E-Key(TM)) that is stored on the smart card. Privacy.FILE PRO
also offers digital signature capabilities for enhanced security.
Privay.FILE PRO, through the use of a smart card, ensures that
only authorized users have access to protected data. In order to access their
protected data, users insert their personalized smart card into the smart card
reader and provide the necessary personal identification responses.
Privacy.FILE Lite
Privacy.FILE Lite is designed with all of the functionality of
Privacy.FILE and Privacy FILE PRO with the exception of encrypted directories.
Privacy.FILE Lite also offers smart card based key storage for additional
security.
Privacy.FILE protects data by utilizing a unique encryption
key (E-Key(TM)) that is stored on the smart card. Privacy.FILE also offers
digital signature capabilities for enhanced security.
Privacy.FILE Lite, through the use of a smart card, ensures
that only authorized users have access to protected data. In order to access
their protected data, users insert their personalized smart card into the smart
card reader and provide the necessary personal identification responses.
Privacy.FILE Lite protects data by allowing users to select
individual files to be encrypted and decrypted. Privacy.FILE Lite also allows
users to send encrypted files or attachments over non-secure environments such
as the Internet.
Privacy.WEB
Privacy.WEB is still under development and is being designed
to offer the most secure method to authenticate and deploy secure accessibility
to web-sites on the Internet. Privacy.WEB is a combination smart card and
software product that uses DPI's secure smart card software to ensure that
passwords, digital certificates and other authentication mechanisms are securely
stored and transmitted to their destinations.
Digital certificates are becoming an increasingly accepted
means for user identification throughout the Internet world. Non-repudiation can
be achieved as well as two factor authentication with the use of smart cards
enabled to handle digital certificates. This product uses a cryptographic smart
card to store Verisign certificates for Internet access control. Privacy.WEB can
also be used on intranets when utilized with Verisign OnSiteSM software.
With Internet security becoming an increasingly vital concern
for individuals, corporations and governments, DPI believes that Privacy.WEB
will become an invaluable tool for e-commerce, public network security and other
Internet uses.
DPI currently expects Privacy.WEB to be ready for alpha
testing in March/April 2000.
Professional Services
DPI offers complete software development expertise, smart card
integration and support services. DPI's leading-edge security products and smart
card expertise give organizations the ability to easily add smart card and
multi-functionality to existing and new applications and environments. DPI
provides clients with the necessary tools and our expertise to create complete,
affordable, scaleable smart card enhanced solutions.
<PAGE>
Software Development
DPI has been developing smart card software solutions since it was
established in 1990. All of its solutions incorporate smart card technology with
a primary focus on security applications. DPI has created a line of smart card
security products that meet government standards and has introduced several
leading-edge product offerings for the commercial security marketplace. Our
Professional Services team is dedicated to creating flexible customized security
solutions which meet the specific needs of our clients.
Smart Card Integration
DPI offers integration services to organizations seeking to
incorporate smart cards into existing applications. These services provide a
real benefit to developers with nominal experience in, and exposure to, smart
card technology. A sampling of projects successfully completed include the
incorporation of smart card functionality into the WinFrame and MetaFrame
clients for Citrix Systems, and an ActiveX plug-in for Honeywell's building
security systems. This smart card based technology merges Honeywell's physical
security products with DPI's computer security products creating a complete
security solution.
Support Services
DPI's developer's tool kit, Privacy.APP, is an easy to use
Application Programming Interface (API) that includes sample code for the most
popular compilers. This tool kit allows developers to create smart card based
applications and to integrate smart cards into existing applications. DPI's
support services are available to assist in adding additional features and
providing smart card support.
SDK Integration
DPI currently has integrated eight smart cards and smart card
readers, from various manufacturers, into its Privacy.APP tool kit. Smart card
and reader manufacturers can make their cards and readers available to our
rapidly increasing install base through incorporation of their product code into
DPI's Privacy.APP product.
Citrix ICA Client Integration
Citrix Systems is providing to all ICA licensees hooks for
smart card technology into their WinFrame and MetaFrame clients. These hooks
include the Gemplus MPCOS smart card and Gemplus GCR-410 reader. Hardware
manufacturers that have selected other readers and smart cards can have hooks
for those designated products incorporated into the clients through DPI.
Physical Access Integration
DPI has been collaborating with both the Honeywell Home and
Building Control and Casi Rusco physical access control systems to provide a
single card solution for access to buildings and computers access. Systems
designed with Privacy.APP can also be made compatible to these physical security
systems with the assistance of our Professional Services team.
DPI's primary focus is the Identity/Access smart card market
segment, which includes both facility access (physical access) and computer
access (logical access).
DPI believes that the Corporate segment of Identity/ Access
Control for the smart cards will become the largest market opportunity for DPI
and thus, logically, the primary target because smart cards can be incorporated
into many applications in addition to security. Each individual in an
organization will be distributed a smart card which holds their unique access
profile.
The risks associated with the corporate segment of the
Identity/Access market are the slow rate of adoption of new security technology
and the commitment by organizations to deploy a complete enterprise security
solution. DPI will attempt to influence the rate of adoption and deployment by
delivering a transparent solution to both users and system administrators. This
solution adds significant incremental capabilities and value. One important
capability is single sign on services which allows for one-time (single)
authentication and access to all designated systems, applications and
information. This is a major opportunity for DPI because the solution meets the
complete needs and expectations of the enterprise.
DPI believes that colleges, Government Access, and Government
ID segments will also be likely adopters for DPI's products. Generally, colleges
are often early adopters of technology and will become valuable partners for the
seeding of new ground. Colleges are also pioneering new trends such as distance
learning, tele-medicine and other remote Internet applications. Because of
required security and the potential cost savings that digital access provides,
government applications are expected to require smart cards as tokens for access
and information control. DPI has already developed strategic alliances with
government contractors who have added its Privacy Suite portfolio to their
General Services Administration (GSA) schedules and Blanket Purchase Agreements
(BPA).
The Residential segment of the Identity/Access market is
undefined and will require the proper consumer product partners. There are many
large companies seeking a presence in this market. Because the residential
market is just emerging, consumer needs and product price points are not fully
understood.
The size of the geographic markets and rate of adoption will
dictate where DPI will market its suite of products. DPI has developed an
international version of its Privacy Suite of products and has received
authorization to export from the United States Department of Commerce and
National Security Agency (NSA). Initial international focus will be in Europe
and Asia.
Leadership in ID/access market mandates that the incorporated
security solution must be absolutely transparent to the end-user. When users
open their applications, files must encrypt and decrypt instantaneously and
transparently without perceptible impact on performance. DPI has made this an
integral feature of its technology.
Ease of administration is another significant customer
requirement. Many organizations are reluctant to commit to purchasing security
technology until they experience a security breach or until an effortless, cost
effective solution has been successfully introduced. Again, DPI has developed
the products and possesses the skills to meet all customer requirements
including ease of use.
The corporate and government markets are in need of a complete
and reliable security solution. The complete security solution involves securing
computers, information, building facilities, and other resources. DPI's open and
flexible smart card security solutions provide these markets a comprehensive and
totally secure enterprise environment with the ability to incorporate additional
applications and functionality onto the smart card.
DPI has already completed projects for various organizations
including Citrix Systems and Honeywell Home and Building Control Division. DPI
has also demonstrated compatibility with software that uses the same smart card
platforms such as Casi-Rusco and Hughes ID building control products.
DPI currently is actively working with the following entities
through either partnerships or alliances:
<PAGE>
Citrix Systems, Inc.
GE Capital IT Solutions
Gemplus USA
Honeywell Home and Building Control Division
Simple Technology Inc.
Sytel Systems & Telecommunications
Harramor Enterprises
As discussed earlier, DPI sells into the intersection of the
Computer Security Market and the Smart Card Market. As a result, DPI is faced
with challenges from both markets. Both markets, however, are growing rapidly
and because the Computer Security Market is just emerging, the competition is
not as well defined as it is in the somewhat more mature Smart Card Market.
As computer hardware companies enter the smart card market,
their focus will be primarily as suppliers of smart card systems that include
both the reader and associated software. These systems are referred to in the
industry as the Card Acceptor Device (CAD). When the CAD is packaged with an
application program interface (API) it is known as the CAD API. Major companies
such as IBM and HP currently ship CAD API products which are compatible with
DPI's software.
Registrant will be competing with the following companies. Their names
and products are listed below:
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COMPANY PRODUCT
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Norton/Symantec For your Eyes Only
Security Dynamics SecurPC
AT&T Secret Agent
Alladin Private File
Litronic SecureSmart
Network Associates PGP for Windows
Fischer Watchdog
Aliroo PrivaFile
Most if not all of these companies have greater resources
available for research and development and marketing than Registrant.
DPI's strategy regarding the protection of its intellectual
property is to trademark and patent certain new products thereby providing
barriers to entry for competitors while also attracting valuable alliances for
successful marketing of our product globally.
In addition to DPI's Privacy Suite of products described
earlier which are marked to indicate that we are seeking trademark protection,
we have also filed trademark registrations for "DPI" and "Digital Privacy" as
well as a servicemark for the latter.
The following patents are either issued or pending. Due to the
sensitivity of the information on patents that are pending, only a brief
description will be offered. However, in the case where the patent has already
been issued and the information is now of public record a more detailed
description is offered.
The initial objective of the patent strategy is to insure that
both the Method (process) and Apparatus (device) of the invention are protected.
An additional objective is to utilize continuances in part, which necessitate
further patent filings, which extend and broaden the claim set of the patent.
<PAGE>
Method and Apparatus for preboot protection of unauthorized use of
programs and data with a card reader interface. Patent numbers -
5,327,497 and 5,515,440. The value of this patent is to provide a
method of securing a computer by controlling access to all internal
devices (i.e. hard drive, COM port, printer, etc.) via an integrated
smart card reader. A microprocessor controlled card reader interfaces
logically by connecting to the central processing unit (CPU) of the
computer. The device reads and writes information from and to a smart
card inserted in the smart card reader and performs additional
functions (i.e. access control, authentication, etc.) in response to
commands received from the CPU.
<PAGE>
Method and Apparatus preboot protection for a data security system with
anti-intrusion capabilities. Patent number 5,610,981. The prominent
feature of this patent allows for a hardware encryption chip to encrypt
all data that is stored on the hard disk. The value of this hardware
feature assures faster processing (8 to 10 times faster) and more
effective security of the customer data. A further feature of this
patent is the system protection methods, which regulate access to the
system. Multiple levels of data protection methods are provided.
Method and Apparatus preboot protection for a data security system with
anti-intrusion capabilities. This patent is a continuation of patent
number 5,610,981, which will include an internal audit system. This
will permit the security officer of a corporation to monitor the access
and usage of the enterprise. This patent is pending.
Method and apparatus for a Cellular Phone Call Management System
(CPCMS(R)). Patent number 5,761,624. This invention pertains generally
to cellular communications systems, particularly to a microprocessor,
which controls the memory interface for a cellular telephone. This
permits the recording of calls on a memory device as they are placed or
received. It also contains the computer software to process call
transactions.
Access controlled / crypto system. This invention relates to a trusted
security system for protecting and controlling access to data using a
system of electronic keys (E-Key). This patent is pending.
Card access system supporting multiple cards and card readers. This
invention relates generally to a card access system which supports
multiple cards and card readers and in particular to a integrated
circuit or smart card access system for supporting multiple models and
makes of integrated circuit or smart cards and readers. This patent is
pending.
<PAGE>
DPI Bankruptcy
From December 7, 1990 through December 1998, DPI raised
approximately $5,000,000 through equity and debt financings from private
investors. As a development stage enterprise, DPI incurred losses in excess of
$8 million.
Following the Merger, Registrant's ability to continue is
dependent on its ability to raise additional capital and, ultimately, to
generate sufficient cash flow from operations to support its cost structure. The
following are primary obstacles which DPI feels contributed to its inability to
generate cash flow sufficient to meet scheduled payments and sustain further
operations and forced it into bankruptcy prior to the Merger:
1. DPI experienced significant delays, some unforseeable and
uncontrollable, in the design and development of its products;
2. DPI experienced delays in bringing its products to market because of
the slow adaptation and development of the smart card and security market place
in the United States, and the lack of established distribution channels;
3. DPI's inability to deliver to the government market its hardware
based product and the significant time delay in developing new software
products;
4. DPI expended a considerable amount of time and resources in
preparing for further financing and growth. It was necessary to engage an
independent auditor to review and audit historical financials and operational
procedures and to retain consultants to provide marketing research and prepare a
comprehensive business plan. DPI also retained the services of corporate counsel
to prepare private placement memorandum, review its past sales of securities for
compliance with applicable securities laws and applicable contractual
shareholder obligations, assist in reducing potential liability resulting from
past transactions, and advise on the revaluation and related issues involved in
recapitalization efforts.
DPI recognized only very nominal net revenues in 1998.
Revenues were generated primarily on integration services and the sale of DPI's
developer's tool kit product. 1998 was the first year DPI realized sales.
Inadequate cash flow and lack of capital resources continued
to be the most serious concerns facing DPI's management coming into 1999. At
December 31, 1998, DPI had a significant negative net worth. Having taken steps
to cut expenses and extend the payment schedule on long-term payables, DPI
therefore developed a proposal for a restructuring of its debts that would
involve the conversion of secured and certain unsecured debt into common stock
of the company. Ultimately, DPI concluded that a non-bankruptcy restructuring
was unlikely to be completed in a timely manner. DPI therefore decided to file a
Chapter 11 bankruptcy as the best method for restructuring its obligations. The
need for additional outside financing until cash flows are sufficient will
continue for Registrant following the Merger. Registrant does not currently have
plans regarding raising the additional necessary financing.
Post-Merger Management Team
Mr. Howard Miller, President, CEO and Chairman of the Board. Mr. Miller has been
actively involved in numerous and varied corporate ventures either as an
integral participant of senior management or as a member of the Board. Mr.
Miller has had a successful career as a trader and investment banker with
several prominent Wall Street firms. Mr. Miller graduated from Columbia College
attaining his Bachelor of Arts degree in 1976 and a Masters of Business
Administration in Finance from Columbia Graduate School of Business in 1978.
Mr. Peter E. Christensen, Director. Mr. Christensen is the Chairman and Chief
Executive Officer of ComTec. Prior to joining ComTec, Mr. Christensen was a
Managing Director of PaineWebber, Incorporated for 9 years and a member of their
Board of Directors for 4 years. Mr. Christensen has extensive Wall Street
experience in managing the departments of mortgage backed securities, European
fixed income, quantitative research, credit research, fixed income economics,
structured derivative products and financial institutions investment banking.
Mr. Christensen has also served on the Boards of Directors of various small and
medium sized financial institutions and manufacturing companies.
Mr. Daniel Hilliard, Director. Mr. Hilliard is one of three general partners of
the Hilliard Limited Partnership, a family partnership formed in 1997, with a
focus in private equity investments. He also sits on the Boards of Capital Bank
and Vision Aire, a jet airplane development company. Mr. Hilliard was a member
of management at American Medical Security for 5 years and was a planning
analyst and design engineer at Chevron's Richmond, California refinery for 12
years. Mr. Hilliard graduated from the University of Minnesota with a Bachelor
of Science degree in chemical engineering and a Masters of Business
Administration from San Francisco State University.
Mr. J. Virgil Bradley, Senior Vice President, CTO. Prior to joining DPI, Mr.
Bradley spent 14 years in the U.S. Navy. Mr. Bradley has an extensive background
in computer software and hardware, maintenance, testing, training and project
management. Mr. Bradley is an experienced senior manager within defense,
electronic, computer technologies and military intelligence. Mr. Bradley's
background has resulted in major contributions in the design and implementation
of DPI's new security based products.
Mr. Stuart Eisenberger, Director. Stuart Eisenberger has been involved in
brokerage, ownership and management of real estate investment properties for
more than 25 years. He has also been a consultant to investors and investment
funds relating to real estate companies. Since TelePad Corporation's effective
emergence from bankruptcy on November 8, 1999, Mr. Eisenberger was interim
president until his resignation upon the merger on December 30, 1999. Following
the Merger, Mr. Eisenberger agreed to continue as a director. Mr. Eisenberger
was neither an officer nor a director of TelePad Corporation prior to or during
its bankruptcy.
Mr. Mark Sarna, Director. Mr. Sarna is 45 years old and is a 1976 graduate of
Columbia University and a 1980 graduate from New York Law School. Presently, Mr.
Sarna is a real estate developer.
Mr. Paul Kimlinger, Director of Software Engineering. Mr. Kimlinger has been
with DPI, since its inception. Prior to joining the company, Mr. Kimlinger
worked four years in the Networking Group at Cray Research, Inc and three years
in System Administration at Northwest Airlines. Mr. Kimlinger graduated from
Mankato State University with undergraduate degrees in Finance and Computer
Science as well as post-graduate work in the MBA program.
Mr. Thomas Kimlinger, Software Engineering Manager. Prior to joining DPI, Mr.
Kimlinger worked for 7 years at Unisys as a Systems Programmer in the I/O and
Processor Control areas of their operating system. Prior to Unisys, he worked
for Western Union as a programmer on their Money Transfer and Mailgram systems.
Mr. Kimlinger graduated with honors from Mankato State University with a BS
degree in Computer Science, specializing in systems programming, and Electrical
Engineering. Mr. Kimlinger also has a technical degree in Business Data
Processing and Accounting.
On January 6, 1999, DPI sought the protection of the
Bankruptcy Court and commenced a Chapter 11 proceeding. DPI had its Second
Amended Joint Plan of Reorganization of Debtor and Mark Sarna confirmed on
September 8, 1999. Pursuant to the terms of such Plan, DPI retained its business
and was free of all liabilities except for the $600,000 Convertible Note to Mr.
Sarna and other liabilities totaling approximately $48,000.
As of December 30, 1999, Registrant had six full time
employees, of which one was an executive officer, three were engaged in product
development and sales, and two were engaged in administrative activities.
The Company's employees are not represented by a collective
bargaining unit. The Company believes that its relations with its employees are
good.
The Company now has facilities located in approximately 1,000
square feet of leased office space in St. Louis Park, Minnesota. The lease in
Minnesota is for 12 months (until 8/31/00) with $1,087 in monthly rent payments.
Registrant is not currently involved in any litigation.
As of December 31, 1999, Registrant had 19 holders of Common
Stock and one holder of a $600,000 convertible Note due July 7, 2000 and
convertible into 1,521,828 shares, subject to adjustment under certain
circumstances. Registrant also has 15,000 shares of convertible preferred stock
outstanding which if converted today would convert into 142,800 shares of common
stock. Registrant has a call on another $150,000 which would cause the issuance
of an additional 15,000 shares of convertible Preferred stock. In addition, on
December 31, 1999, Registrant had 371,059 stock options outstanding exercisable
at $.05, 60,000 options exercisable at $.055 and 20,000 options exercisable at
$1.05.
As of December 31, 1999, Registrant had 3,620,113 shares of common
stock outstanding, of which only 1,000,000 are free trading. Registrant intends
to file a registration as soon as possible, but probably not until February
2000, to register all other common shares outstanding as well as the shares
underlying the Convertible Note, convertible Preferred Stock and stock options.
Item 4. Changes in Registrant's Certifying Accountants.
(a) Prior to TelePad's bankruptcy filing on March 17, 1999, TelePad's
independent auditors were Ernst & Young LLP ("E&Y"). E&Y reported on TelePad's
financial statements for the year ended December 31, 1997 and was engaged to
audit TelePad's financial statements for the year ended December 31, 1998;
however the 1998 audit was not completed due to TelePad's bankruptcy filing on
March 17, 1999. E&Y has not performed any professional services for TelePad
subsequent to the date of the bankruptcy filing.
The Registrant has contacted E&Y and anticipates shortly receiving
details regarding their termination and reportable events, if any, during their
tenure.
(b) On December 30, 1999, the effective date of the Merger,
Lurie, Besikof, Lapidus & Co., LLP ("LBL") became Registrant's independent
accountants. Prior to such engagement, LBL was the independent auditor of DPI
who retained them in November 1999, after its emergence from bankruptcy
proceedings, in anticipation of the Merger. LBL was consulted regarding the
filing obligations of the Registrant following the Merger and was consulted
regarding the nature of the financial statements required to be included by the
Registrant in this filing.
Other than as disclosed above, Registrant did not consult with
LBL regarding the application of accounting principles to a specified
transaction, or the type of audit opinion that may be rendered with respect to
the Registrant's financial statements.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a and b) Financial Statements and Pro Forma Financial Statements
The required financial statements will be filed by amendment within the
time period permitted by this Item.
(c) Exhibits
The following exhibits are filed herewith:
2.1 Agreement and Plan of Merger
4.1 Certificate of Designation
4.2 Convertible Note
16.1 Accountant's letter *
99.1 Howard Miller Employment Agreement
99.2 J. Virgil Bradley Employment Agreement
99.3 Stock Option Plan
* To be filed by amendment
<PAGE>
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 hereunto duly authorized.
DIGITAL PRIVACY, INC.
By:/s/ Howard Miller
Howard Miller, President
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as
of this 1st day of December, 1999, between Telepad Corporation, a Delaware
corporation ("Telepad") and Digital Privacy Inc., a Minnesota corporation (the
"Company").
WITNESSETH:
WHEREAS, the authorized capital stock of the Company consists of
20,000,000 shares of common stock, $.01 par value (the "Company Stock"), of
which 2,436,480 shares of Company Stock are deemed issued and outstanding as of
the date hereof;
WHEREAS, the Securityholders (as defined below) collectively own all of
the outstanding shares of Company Stock in the amounts set forth on Schedule A
hereto, representing one hundred percent (100%) of the issued and outstanding
shares of the Company Stock;
WHEREAS, effective upon the filling of a Certificate of Amendment of
Telepad's Certificate of Incorporation the authorized capital stock of Telepad
will consist of 95,000,000 shares of common stock, par value $.01 per share (the
"Telepad Stock"), and 5,000,000 shares of preferred stock, par value $.01 per
share (the "Preferred Stock"), of which 1,000,000 shares of Telepad Stock and no
shares of Preferred Stock are deemed issued and outstanding as of the date
hereof;
WHEREAS, the respective boards of directors of Telepad and the Company
deem it advisable and in the best interests of Telepad, the Company and the
Securityholders that the Company merge with and into Telepad (the "Merger")
pursuant to the terms of this Agreement and the applicable provisions of the
laws of the States of Delaware and Minnesota;
WHEREAS, the securityholders of the Company are listed on Schedule A
hereto (each individually referred to as a "Securityholder" and collectively
referred to as the "Securityholders");
WHEREAS, the parties identified as shareholders on Schedule A are the
only securityholders of the Company entitled to vote on the Merger and they have
voted in favor of the Merger; and
WHEREAS, for United States federal income tax purposes, it is intended
that the Merger will qualify as a tax-free reorganization within the meaning of
Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code").
NOW, THEREFORE, in consideration of the premises and mutual covenants,
conditions and agreements contained herein and for such other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, each intending to be legally bound hereby, agree as follows:
ARTICLE I
TERMS OF THE MERGER
1.1 Merger. Upon the terms and subject to the conditions set forth in
this Agreement, the Company shall be merged with and into Telepad and the
Securityholders shall transfer and convey to Telepad all of each
Securityholder's right, title and interest in and to all of the issued and
outstanding shares of Company Stock. The Securityholders hereby agree, upon the
terms and subject to the conditions set forth herein, to transfer and deliver to
Telepad (for cancellation) certificates, properly endorsed in blank or
accompanied by a properly executed stock power, representing all of the issued
and outstanding shares of Company Stock. 1.2 Merger Consideration. In
consideration of and in exchange for all of the issued and outstanding shares of
Company Stock as set forth in Section 1.1 above, Telepad shall issue to the
Securityholders shares of Telepad Stock, in the amounts set forth on Schedule A
hereto.
1.3 Effective Time of Merger. Subject to the terms and conditions of
this Agreement, the certificate of merger, in substantially the form of Exhibit
1.3 (the "Certificate of Merger"), required by Section 252 of the Delaware
General Corporation Law (the "DGCL") shall be duly executed and acknowledged by
Telepad and the Company and thereafter delivered to the Secretary of the State
of Delaware for filing pursuant to the DGCL, on the day immediately following
the Closing Date (as hereinafter defined). The Merger shall become effective
(the "Effective Time") upon the filing of the Certificate of Merger with the
Secretary of the State of Delaware.
1.4 Effects of the Merger.
(a) At the Effective Time: (i) the separate existence of the
Company shall cease and the Company shall be merged with and into Telepad (the
Company and Telepad are sometimes referred to herein as the "Constituent
Corporations" and Telepad is sometimes referred to herein as the "Surviving
corporation"); (ii) the certificate of incorporation of Telepad, as amended by
the Certificate of Merger, as in effect immediately prior to the Effective Time
shall continue to be the certificate of incorporation of the Surviving
Corporation; and (iii) the bylaws of Telepad as in effect immediately prior to
the Effective Time shall continue to be the bylaws of the Surviving Corporation.
(b) At and after the Effective Time, the Merger shall have the
effects set forth in Section 259 of the DGCL. Without limiting the foregoing, at
the Effective Time, Telepad as the Surviving Corporation shall possess all the
rights, privileges, powers and franchises of a public as well as a private
nature, and be subject to all the restrictions, disabilities and duties of each
of the Constituent Corporations, and all singular rights, privileges, powers and
franchises of each of the Constituent Corporations, and all property, real,
personal and mixed, and all debts due to either of the Constituent Corporations
on whatever account, as well as for stock subscriptions and all other things in
action or belonging to each of the Constituent Corporations, shall be vested in
Telepad as the Surviving Corporation and all property, rights, privileges,
powers and franchises, and all and every other interest shall be thereafter as
effectively the property of the Surviving Corporation as they were of the
Constituent Corporations, and the title to any real estate vested by deed or
otherwise, in either of the Constituent Corporations, shall not revert or be in
any way impaired; but all rights of creditors and all liens upon any property of
either of the Constituent Corporation shall thenceforth attach to Telepad as the
Surviving Corporation, and may be enforced against it to the same extent as if
said debts and liabilities had been incurred by it.
1.5 Directors and Officers of the Surviving Corporation. The directors
and officers of Telepad immediately after the Effective Time shall be the
directors and officers designated on Schedule 1.5 hereto. Such directors and
officers shall serve until their successors shall have been duly elected,
appointed and/or qualified or until their earlier death, resignation or removal
in accordance with the certificate of incorporation and bylaws of Telepad.
1.6 Conversion of Capital Stock. As of the Effective Time, by virtue of
the Merger and without any action on the part of any holder of shares of Company
Stock or shares of Telepad Stock:
(a) Telepad Stock. Each issued and outstanding share of Telepad Stock
shall continue to be issued and outstanding and shall not be affected by the
Merger.
(b) Conversion of Company Stock and Derivatives. The shares of
Company Stock issued and outstanding as of the Effective Time shall be converted
on a one-to-one basis into shares of Telepad Stock, as set forth on Schedule A
hereto. All such shares of Company Stock, when so converted, shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such shares shall cease
to have any rights with respect thereto, except the right to receive the shares
of Telepad Stock to be issued or paid in consideration therefor upon the
surrender of such certificate for exchange to Telepad at the Closing (as
hereinafter defined). All currently outstanding derivative securities of the
Company shall, following the Closing, become exercisable into, or convertible
for, the same number of shares of Telepad Stock, and upon the same terms, as if
the Closing had not occurred and they were being exercised into, or convertible
for, shares of Company Stock.
1.7 Restrictions on Resale of Telepad Stock. The shares of Telepad
Stock received by the Securityholders pursuant to this Agreement shall be issued
by Telepad in reliance upon exemptions from the registration requirements of the
Securities Act and may not be sold, assigned, pledged, hypothecated or
transferred, or any interest therein conveyed to any other person, except in
accordance with the registration provisions of the federal and state securities
laws or applicable exemption therefrom, and the certificates representing such
shares shall contain an appropriate legend to that effect.
1.8 Tax-Free Reorganization. The parties intend that the Merger qualify
as a tax-free reorganization under Section 368(a)(1)(A) of the Code. Unless
required by a final determination of the Internal Revenue Service (or other
governing body having jurisdiction over these matters) or a court of competent
jurisdiction, the parties shall not take any position on any subsequently filed
tax return inconsistent with this section. Each party hereto represents to each
other that there exists no indebtedness between Telepad and the Company and that
such party is not an investment company as defined in Subsections
368(a)(2)(F)(iii) and (iv) of the Code.
In furtherance of the foregoing, Telepad hereby represents, warrants
and covenants that:
(a) it has no plan or intention to reacquire any Telepad
Stock issued to the Securityholders;
(b) it has no plan or intention to sell or otherwise dispose of
any of the assets of the Company, except for transfers
described in Section 368(a)(2)(C) of the Code;
(c) there is no plan or intention by Telepad to acquire, directly
or through parties related to Telepad (within the meaning of
Section 1.368-1(c)(1) and (2) of the Treasury Regulations)
shares of Telepad Stock issued to the Securityholders
hereunder such that the continuity of interest requirement set
forth in Section 1.368-1(e) of the Treasury Regulations (the
"Continuity of Interest Requirement") would be violated;
(d) following the Closing, Telepad will continue the business of
the Company in accordance with Section 1.368-1 of the Treasury
Regulations;
(e) prior to the Closing, the liabilities of the Company were
incurred by the Company in the ordinary course of business;
(f) the Company is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code;
(g) as of the date hereof, the fair market value of the assets of
the Company equals or exceed the sum of the liabilities of the
Company; and
(h) there is no plan or intention by the Securityholders to sell,
exchange or otherwise dispose of shares of Telepad Stock
received by them hereunder to Telepad or persons or parties
related to Telepad such that the Continuity of Interest
Requirement would be violated.
ARTICLE II
CLOSING
2.1 Date and Time of Closing. Subject to satisfaction of the conditions
set forth in this Agreement and compliance with the other provisions hereof, the
closing of the Merger (the "Closing") shall take place on December 22, 1999, at
10:00 a.m., at the offices of Heller, Horowitz & Feit, P.C., 292 Madison Avenue,
20th Floor, New York, New York 10017, or at such other place and time thereafter
as shall be mutually agreeable to the parties hereto, but in no event later than
January 14, 2000, unless otherwise extended by mutual agreement of the parties
hereto (the "Closing Date").
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. The Company
represents and warrants to Telepad as follows:
(a) Authorization. The execution, delivery and performance of
this Agreement and consummation of the Merger have been duly authorized, adopted
and approved by the board of directors of the Company. The Company has taken all
necessary corporate action and has all of the necessary corporate power to enter
into this Agreement and to consummate the Merger. This Agreement has been duly
and validly executed and delivered by an officer of the Company on its behalf,
and assuming that this Agreement is the valid and binding obligation of Telepad,
is the valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as such enforcement may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect, or by legal or equitable principles,
relating to or limiting creditors' rights generally and except that the remedy
of specific performance and injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought. The Company has the legal ability
to consummate the Merger.
(b) Organization; Subsidiaries. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Minnesota. The Company has the corporate power and authority to own and
lease its assets and to carry on its business as it is now being conducted and
is duly qualified to do business as a foreign corporation in each jurisdiction
where it conducts business, except where the failure to be so qualified would
not have a material adverse effect on the business, operations, earnings,
prospects, assets or condition (financial or otherwise) of the Company. As of
the date hereof, the Company is qualified to do business in Minnesota, and is
not currently conducting substantive business in any other jurisdiction. The
Company does not own any shares of capital stock or other interest in any
corporation, partnership, association or other entity.
(c) Capitalization. The number of authorized, issued and
outstanding shares of Company Stock as of the date hereof is as set forth above
in the recitals to this Agreement. The outstanding shares of Company Stock have
been duly authorized, validly issued and are fully paid and non-assessable. The
Company has not issued any shares of capital stock which could give rise to
claims for violation of any federal or state securities laws (including any
rules or regulations promulgated thereunder) or the securities laws of any other
jurisdiction (including any rules or regulations promulgated thereunder). As of
the date hereof, except as set forth in the Written Information (as defined
below) or any deliverable hereunder, there are no options, warrants, calls,
convertible securities or commitments of any kind whatsoever relating to the
shares of the Company Stock subject hereto or any of the unissued shares of
capital stock of the Company, and there are no voting trusts, voting agreements,
securityholder agreements or other agreements or understandings of any kind
whatsoever which relate to the voting of the capital stock of the Company.
(d) Company Documents. The Company has heretofore delivered to
Telepad unaudited financial statements of the Company as at October 31, 1999
(the "Financial Statements"). The Financial Statements present fairly, in all
material respects, the financial position of the Company at October 31, 1999 and
the results of operations and cash flows of the Company for the periods
indicated applied on a consistent basis. The Company and Shareholders have been
provided access to all documents relating to Telepad and its federal bankruptcy
proceeding available at www.uscourts.gov/allinks.html#all ("Telepad Bankruptcy
Information"). The Financial Statements and the Company's bankruptcy documents,
available at the aforedescribed web site are collectively referred to herein as
"Written Information."
(e) Owned Real Property. Except as disclosed in the Written
Information, the Company does not own (of record or beneficially), nor does it
have any interest in, any real property.
(f) Leased Property; Tenancies. Except as disclosed in the
Written Information or on Schedule 3.1(f), the Company does not lease any
property, real or otherwise.
(g) Title. The Company's only assets are those reflected on
the balance sheet of the Financial Statements. The Company has good and
marketable title to all of such assets and those assets purchased by the Company
after the date thereof. The assets reflected on the balance sheet of the
Financial Statements, in the Written Information and those purchased by the
Company after the date thereof and prior to the Closing Date, are owned free and
clear of all adverse claims, liens, mortgages, charges, security interests,
encumbrances and other restrictions or limitations of any kind whatsoever,
except: (A) as stated in the Financial Statements (including the notes thereto)
and the Written Information; (B) for liens for taxes or assessments not yet due
and payable; (C) for minor liens imposed by law for sums not yet due or which
are being contested by the Company in good faith; and (D) for imperfections of
title, adverse claims, charges, restrictions, limitations, encumbrances, liens
or security interests that are minor and which do not detract in any material
respect from the value of any of the assets subject thereto or which do not
impair the operations of the Company in any material respect or affect the
present use of the assets in any material respect. The Company has not made any
commitments or received any notice, oral or written, from any public authority
or other entity with respect to the taking or use of any of the Company's
assets, whether temporarily or permanently, for any purpose whatsoever, nor is
there any proceeding pending or, to the knowledge of the Company, threatened
which could adversely affect any asset owned or used by the Company as of the
date hereof.
(h) Condition of Assets. All documents and agreements pursuant
to which the Company has obtained the assets or the right to use any assets are
valid and enforceable in all respects in accordance with their respective terms,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect, or
by legal or equitable principles, relating to or limiting creditors' rights
generally and except that the remedy of specific performance and injunctive and
other forms of equitable relief are subject to certain equitable defenses and to
the discretion of the court before which any proceeding therefor may be brought.
All licenses, permits and authorizations related to the location or operation of
the business of the Company are in good standing and are valid and enforceable
in all respects in accordance with their respective terms. There is not, under
any of the foregoing instruments, documents or agreements, any existing default,
nor is there any event which, with notice or lapse of time or both, would
constitute a default arising through the Company or any third party which could:
(i) have a material adverse effect on the business, assets, operations,
earnings, prospects or condition (financial or otherwise) of the Company; or
(ii) materially adversely affect its use of any assets. To the Company's
knowledge, it is not in violation of and has complied with all applicable codes,
statutes, regulations, ordinances, notices and orders of any governmental
authority with respect to the use, maintenance, condition, operation and
improvement of any assets, except where the failure to comply with which would
not have a material adverse effect on the business, assets, operations,
earnings, prospects or condition (financial or otherwise) of the Company. To the
Company's knowledge, its use of any improvements for the purposes for which any
of the assets are being used as of the date hereof does not violate any such
code, statute, regulation, ordinance, notice or order. The Company possesses all
licenses, permits and authorizations required to be obtained by the Company with
respect to the Company's ownership, operation and maintenance of the assets for
all uses for which such assets are operated or used by the Company as of the
date hereof, except where the failure to do so would not have a material adverse
effect on the business, assets, operations, earnings, prospects or condition
(financial or otherwise) of the Company. All of the assets are in good operating
condition and repair, subject to normal wear and use and each such item is
usable in a manner consistent with current use by the Company.
(i) Intangible Rights. All patents, patent applications,
copyrights, registered and unregistered trademarks, and tradenames, and licenses
(collectively "Intangibles") owned by the Company are set forth in Schedule
3.1(i). To the Company's knowledge, the Intangibles do not infringe or conflict
with asserted rights of other parties in the jurisdictions in which such
Intangibles are currently being employed or reasonably anticipated to be
employed. To the Company's knowledge, there are no judicial, arbitration or
other adversary proceedings pending, or threatened against the Company
concerning any of the Intangibles. The Company is not aware of any respect in
which the Company's use or sale of the Intangibles violates or infringes on any
Intangible of any person, firm or corporation. Except as set forth in Schedule
3.1(i), to the Company's knowledge, it has good and marketable title under the
laws of the United States and any other jurisdiction as required to any such
Intangibles. Except as listed on Schedule 3.1(i), the Intangibles are free of
restrictions on or conditions to transfer or assignment, and are free and clear
of all liens, encumbrances and claims.
(j) Accounts Receivable. Except as disclosed in the Written
Information, as of the date hereof, the Company has no material accounts
receivable.
(k) Accounts Payable. Except as disclosed in the Written
Information, as of the date hereof, the Company has no material accounts
payable.
(l) Absence of Undisclosed Liabilities. To the best knowledge
of the Company, other than as set forth in the Written Information, the Company
has not had nor does it have any indebtedness, loss or liability of any nature
whatsoever, whether accrued, absolute, contingent or otherwise and whether due
or become due, which is material to the Company's business, assets, operations,
prospects, earnings or condition (financial or otherwise) of the Company.
(m) Absence of Certain Changes or Events. Except as set forth
on Schedule 3.1(m) and except as expressly set forth in this Agreement
(including the Schedules) or in a deliverable hereunder, the Company has not,
since the Company's Effective Date (as defined in Paragraph 3.1(t) hereof:
(i) issued, sold, granted or contracted to issue,
sell or grant any of its stock, notes, bonds, other securities or any
option to purchase any of the same;
(ii) amended its articles of organization or bylaws;
(iii) made any capital expenditures or commitments
for the acquisition or construction of any property, plant or
equipment;
(iv) entered into any transaction, which could be
deemed to be material to the Company or its business;
(v) incurred any damage, destruction or any other
loss to any of its assets in an aggregate amount exceeding Twenty
Thousand Dollars ($20,000) whether or not covered by insurance;
(vi) suffered any loss in an aggregate amount
exceeding Twenty Thousand Dollars ($20,000) and, neither the Company
nor Securityholders has become aware of any intention on the part of
any client, dealer or supplier to discontinue its current relationship
with the Company, the loss or discontinuance of which, alone or in the
aggregate, could have a material adverse effect on the Company's
business, assets, operations, earnings, prospects or condition
(financial or otherwise) of the Company;
(vii) entered into, modified, amended or altered any
contractual arrangement with any client, dealer or supplier, the
execution, performance, modification, amendment or alteration of which,
alone or in the aggregate, could have a material adverse effect on the
Company's business, assets, operations, earnings, prospects or
condition (financial or otherwise) of the Company;
(viii) incurred any material liability or obligation
(absolute or contingent) or made any material expenditure;
(ix) experienced any material adverse change in the
Company's business, assets, operations, earnings, prospects or
condition (financial or otherwise) of the Company or experienced or
have knowledge of any event which could have a material adverse effect
on the Company's business, assets, operations, earnings, prospects or
condition (financial or otherwise) of the Company;
(x) declared, set aside or paid any dividend or other
distribution in respect of the capital stock of the Company;
(xi) redeemed, repurchased, or otherwise acquired any
of its capital stock or securities convertible into or exchangeable for
its capital stock or entered into any agreement with respect to any of
the foregoing;
(xii) purchased, disposed of or contracted to
purchase or dispose of, or granted or received an option or any other
right to purchase or sell, any of its assets;
(xiii) increased the rate of compensation payable or
to become payable to the officers or employees of the Company, or
increased the amounts paid or payable to such officers or employees
under any bonus, insurance, pension or other benefit plan, or made any
arrangements therefor with or for any of said officers or employees;
(xiv) adopted or amended any collective bargaining,
bonus, profit-sharing, compensation, stock option, pension, retirement,
deferred compensation or other plan, agreement, trust, fund or
arrangement for the benefit of its employees; or
(xv) changed any material accounting principle,
procedure or practice followed by the Company or changed the method of
applying such principle, procedure or practice.
(n) Agreements. The Written Information contains a true,
correct and complete list of all contracts, agreements and other instruments
material to the business or operation of the Company, including without
limitation, those to which the Company is a party and those by which any of its
assets are bound (the "Material Agreements"). Copies of all such agreements have
heretofore been delivered or made available by the Company to Telepad. Other
than as described in the Written Information or in this Agreement as of the date
hereof and the Closing Date, there is no contract, agreement or other instrument
to which the Company or any Securityholder is a party or which affects the
assets, liabilities or outstanding securities of the Company. None of the
Material Agreements limits the freedom of the Company to compete in any line of
business or with any person or other entity in any geographic region within or
outside of the United States of America.
Neither the Company nor to the Company's knowledge, any third
party is in default and no event has occurred which, with notice or lapse of
time or both, could cause or become a default by the Company, or any third
party, under any Material Agreement. Each Material Agreement is enforceable in
accordance with its terms, against all other parties thereto, except as such
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect, or by legal or
equitable principles, relating to or limiting creditors' rights generally and
except that the remedy of specific performance and injunctive and other forms of
equitable relief are subject to certain equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought.
(o) Non-Contravention; Consents. Neither the execution and
delivery of this Agreement by the Company, nor consummation of the Merger, does
or will: (i) violate or conflict with any provision of the articles of
incorporation or bylaws of the Company; (ii) violate or, with the passage of
time, result in the violation of any provision of, or result in the acceleration
of or entitle any party to accelerate any obligation under, or result in the
creation an imposition of any lien, charge, pledge, security interest or other
encumbrance upon any of the assets, which are material to the business or
operation of the Company, pursuant to any provision of any mortgage, lien,
lease, agreement, permit, indenture, license, instrument, law, order,
arbitration award, judgment or decree to which the Company is a party or by
which it or any of such assets are bound, the effect of which violation,
acceleration, creation or imposition could have a material adverse effect on the
business, assets, operations, earnings, prospects or (financial or otherwise) of
the Company; (iii) violate or conflict with any other restriction of any kind
whatsoever to which the Company is subject or by which any of their respective
assets may be bound, the effect of any of which violation or conflict could have
a material adverse effect on the business, assets, operations, earnings,
prospects or (financial or otherwise) of the Company; or (iv) constitute an
event permitting termination by a third party of any agreement, including the
Material Agreements, to which the Company is a party or is subject, which
termination could have a material adverse effect on the business, assets,
operations, earnings, prospects or condition (financial or otherwise) of the
Company. No consent, authorization, order or approval of, or filing or
registration with, any governmental commission, board or other regulatory body
is required in connection with the execution, delivery and performance of the
terms of this Agreement and consummation of the Merger.
(p) Employee Benefit Plans. The Company does not have any
"employee benefit plans" as such term is defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (the "Benefit
Plans") covering the employees of the Company.
(q) Labor Relations. There are no agreements with or pending
petitions for recognition of any labor union or association as the exclusive
bargaining agent for any or all of the employees of the Company and to the
Company's knowledge no such petition has been pending at any time since the
Company's inception. To the Company's knowledge, there has not been any
organizing effort by any union or other group seeking to represent any employees
of the Company as its exclusive bargaining agent at any time since the Company's
inception. There are no labor strikes, work stoppages or other labor disputes
now pending or threatened against the Company, nor to the Company's knowledge
has there been any such labor strike, work stoppage or other labor dispute or
grievance at any time since the Company's inception. The Company has no any
knowledge that any executive, key employee or any group of employees of the
Company has any plans to terminate his/her employment with the Company.
(r) Insurance. The Company has no insurance policies or
binders of insurance or programs of self-insurance except as described on
Schedule 3.1(r).
(s) Tax Matters. Except as disclosed on Schedule 3.1(s), the
Company has timely filed with the appropriate taxing authorities all returns
(including, without limitation, information returns and other material
information) in respect of Taxes required to be filed through the date hereof.
The information contained in such returns is complete and accurate in all
material respects. The Company has not requested any extension of time within
which to file returns (including, without limitation, information returns) in
respect of any Taxes. The Company has accurately computed and timely paid all
Taxes for periods beginning before the date hereof, or an adequate reserve has
been established therefor, as set forth in Schedule 3.1(s). No liens for Taxes
exist against any assets to be acquired by Telepad in the Merger. Telepad shall
have no obligation or liability for or with respect to (a) any Taxes or other
assessments as a consequence of the transactions contemplated by this Agreement
all of which Taxes shall be paid by the Company, or each Securityholder, as the
case may be, or (b) any other Taxes or assessments of the Company, or each
Securityholder of any kind whatsoever or any penalties or interest with respect
to such Tax liabilities. The Company has withheld or collected from each payment
made to each of its employees, consultants, contractors and other payees the
amount of Taxes required to be withheld and collected therefrom for all periods
through the date hereof. Any liability for Taxes due and payable through the
date of this Agreement for which no returns are due or have been filed
(including, without limitation, property, payroll and withholding taxes) have
been properly accrued or provided for on the books of the Company. No material
deficiencies for Taxes have been claimed, proposed, or assessed by any taxing or
other governmental authority against the Company. There are no pending or, to
the best knowledge of the Company, threatened audits, investigations or claims
for or relating to any material liability in respect of Taxes, and there are no
matters under discussion with any governmental authorities with respect to Taxes
that, in the reasonable judgment of the Company, or its counsel is likely to
result in a material amount of Taxes. The federal, state and local returns of
the Company has never been audited, and the Company has not been notified that
any taxing authority intends to audit a return for any other period. No
extension of a statute of limitations relating to Taxes is in effect with
respect to the Company. The Company: (i) has been an includible corporation in
an affiliated group that files consolidated income tax returns; (ii) is a party
to any tax-sharing agreements or similar arrangements; (iii) is a "foreign
person" as defined in section 1445(f)(3) of the Code; or (iv) have made or
become obligated to make, and will not, as a result of the Merger, make or
become obligated to make, an "excess parachute payment" as defined in section
280G of the Code.
The term "taxes" or "tax" as used in this section or referred
to elsewhere in this Agreement shall mean all taxes, charges, fees, levies,
penalties, or other assessments, including without limitation, income, capital
gain, profit, gross receipts, ad valorem, excise, property, payroll,
withholding, employment, severance, social security, workers' compensation,
occupation, premium, customs duties, windfall profits, sales, use, and franchise
taxes, imposed by the United States, or any state, county, local or foreign
government or any subdivision or agency thereof, and including any interest,
penalties or additions attributable thereto.
(t) Compliance with Applicable Law. Since the date of the
Company's Second Amended Joint Plan of Reorganization of Debtor and Mark Sarna
dated September 8, 1999 (the "Company's Effective Date"), the Company has been
and is in compliance with all federal, state and local laws, statutes,
ordinances, rules and regulations applicable to the business, except where the
failure to comply with which would not materially adversely affect the business,
assets, operations, earnings, prospects or condition (financial or otherwise) of
the Company or which would subject any officer or director of the Company to
civil or criminal penalties or imprisonment. The Company has complied with the
rules and regulations of all governmental agencies having authority over its
business and its operations, including without limitation, agencies concerned
with intra-state and interstate commerce, occupational safety and employment
practices, except where the failure to comply would not have a material adverse
effect on the business, operations, earnings, prospects, assets or condition
(financial or otherwise) of the Company. Since the Company's Effective Date,the
Company has no knowledge of nor received any notice of violation of any such
rule or regulation since the Company's inception which could result in any
liability of the Company for penalties or damages or which could subject the
Company to any injunction or government writ, order or decree. To the knowledge
of Company, there are no facts, events or conditions that could interfere with,
prevent continued compliance with or give rise to any liability under any
foreign, federal, state or local governmental laws, statutes, ordinances or
regulations applicable to the business, assets, operations, earnings, prospects
or condition (financial or otherwise) of the Company, except where the failure
to do so would not have a material adverse effect on the business, operations,
earnings, prospects, assets or condition (financial or otherwise) of the
Company.
(u) Litigation. There is no action, suit, proceeding or
investigation pending or, to the knowledge of the Company, threatened, which
could restrict the ability of the Company to perform its obligations hereunder
or could have a material adverse effect on the business, assets, operations,
earnings, prospects or condition (financial or otherwise) of the Company. The
Company is not in default in respect of any judgment, order, writ, injunction or
decree of any court or any federal, state, local or other governmental agency,
authority, body, board, bureau, commission, department or instrumentality which
could have a material adverse effect on the business, assets, operations,
earnings, prospects or condition (financial or otherwise) of the Company.
(v) Permits. The Company holds all permits, licenses, orders
and approvals of all federal, state or local governmental or regulatory
authorities, agencies or bodies required for the conduct and operation of the
Company's business as currently conducted, except where the failure to do so
would not have a material adverse effect on the business, operations, earnings,
prospects, assets or condition (financial or otherwise) of the Company. All such
permits, licenses, orders, and approvals are in full force and effect and no
suspension, termination or revocation of any of the foregoing is threatened.
None of such permits, licenses, orders or approvals will be materially adversely
affected by consummation of the Merger. The Company has no knowledge of nor has
received any notice of violation of any of such rules or regulations since the
Company's inception which would result in any liability of the Company for
penalties or damages or which would subject the Company to any injunction or
governmental writ, order or decree.
(w) Unlawful Payments. Since the Company's Effective Date,
none of the Company, officer, director, employee, agent or representative of the
Company has made, directly or indirectly, any bribe or kickback, illegal
political contribution, payment from corporate funds which was incorrectly
recorded on the books and records of the Company, unlawful payment from
corporate funds to governmental or municipal officials in their individual
capacities for the purpose of affecting their action or the actions of the
jurisdiction which they represent to obtain favorable treatment in securing
business or licenses or to obtain special concessions of any kind whatsoever, or
illegal payment from corporate funds to obtain or retain any business.
(x) Intentionally Omitted.
(y) Officers, Directors and Employees. Schedule 3.1(y) hereto
sets forth a true, correct and complete list of all of the officers, directors
and employees of the Company as of the date hereof, including their respective
names, titles, salaries and bonuses. The Company has also provided true, correct
and complete copies of any employment agreements between the Company and any of
the foregoing officers, directors and employees of the Company in effect as of
the date hereof.
(z) Loans to or from Affiliates. Except as disclosed in the
Written Information, there exist no outstanding loans by the Company to any
current or former officer, director, employee, consultant or securityholder of
the Company or any affiliate of any of the foregoing and there are no
outstanding loans to the Company by any current or former officer, director,
employee, consultant or securityholder of the Company.
(aa) Books and Records.
(i) Since the Company's Effective Date, the
books of account and other financial records of the Company are complete and
correct and have been maintained in accordance with good business practices.
(ii) Since the Company's Effective Date, all
material corporate action of the boards of directors of the Company
(including any committees) has been authorized, approved and/or ratified in
the minute books of the Company.
(bb) Solvency of the Company. From the effective date of the
Company's final Plan of Reorganization and through the Closing Date, the Company
has been and will be solvent. "Solvent" shall mean, for purposes of application
of this provision, that: (i) the fair saleable value of the Company's property
is in excess of the total amount of its debts; and (ii) the Company is able to
pay its debts as they mature.
(cc) Agreements with Affiliates. Except as disclosed in the
Written Information or herein, the Company is not a party to any instrument,
license, lease or other agreement, written or oral, with any officer or director
of the Company.
(dd) Accuracy of Information Furnished. The Company represents
that no statement made by the Company set forth herein or in the exhibits or the
schedules hereto, or to the best knowledge of the Company, in the Company's
bankruptcy information, and no statement set forth in any certificate or other
instrument or document required to be delivered by or on behalf of the Company
pursuant hereto or in connection with the consummation of the Merger, contained,
contains or will contain any untrue statement of a material fact, or omits,
omitted or will omit to state any material fact which is necessary to make the
statements contained herein or therein, in light of the circumstances under
which they were made, not misleading.
3.2 Representations and Warranties of Telepad. Telepad represents and
warrants to the Company and the Securityholders as follows:
(a) Authorization. The execution, delivery and performance of
this Agreement and consummation of the Merger have been duly authorized, adopted
and approved by the board of directors of Telepad and prior to Closing by the
Shareholders of Telepad. Telepad has taken all necessary corporate action and
has all of the necessary corporate power to enter into this Agreement and to
consummate the Merger. This Agreement has been duly and validly executed and
delivered by the officers of Telepad on behalf of Telepad and, assuming that
this Agreement is the valid and binding obligation of the Company and the
Securityholders, is the valid and binding obligation of Telepad, enforceable
against it in accordance with its terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect, or by legal or equitable
principles, relating to or limiting creditors' rights generally and except that
the remedy of specific performance and injunctive and other forms of equitable
relief are subject to certain equitable defenses and to the discretion of the
court before which any proceeding therefor may be brought.
(b) Organization. Telepad is a corporation duly organized,
validly existing and not in good standing under the laws of the State of
Delaware. Telepad has the corporate power and authority to own and lease its
properties and assets, and to carry on its business as it is now being
conducted. To the best knowledge of Telepad, Telepad is not qualified to do
business as a foreign corporation in any jurisdiction. To the best knowledge of
Telepad, Telepad will be in good standing in the State of Delaware upon the
payment of $12,349.05 prior to December 31, 1999.
(c) Capitalization. The number of authorized, issued and
outstanding shares of capital stock of Telepad as of the date of Closing will be
as set forth above in the recitals to this Agreement. The outstanding shares of
Telepad Stock have been duly authorized and validly issued and are fully paid
and nonassessable. As of the date of Closing, the number of shares of capital
stock that Telepad will be authorized to issue will be adequate to permit
Telepad to fulfill its obligations hereunder with respect to issuance of the
shares of Telepad Stock to the Securityholders pursuant hereto. On the Closing
Date, the shares of Telepad Stock issuable to the Securityholders pursuant to
Section 1.2 will be duly authorized, validly issued, fully paid and
nonassessable. Since October 8, 1999, Telepad has not issued any shares of
capital stock which would give rise to claims for violation of any federal or
state securities laws (including any rules or regulations promulgated
thereunder) or the securities laws of any other jurisdiction (including any
rules or regulations promulgated thereunder). As of the date hereof, there are
no options, warrants, calls, convertible securities or commitments of any kind
whatsoever relating to the shares of Telepad Stock outstanding or issuable
except as described on Schedule 3.2(c) hereof.
(d) Non-Contravention; Consents. Neither the execution and
delivery of this Agreement, nor consummation of the Merger, does or will: (i)
violate or conflict with any provision of the certificate of incorporation or
bylaws of Telepad; (ii) violate or conflict with any material provision of any
mortgage, lien, lease, agreement, permit, indenture, license, instrument, law,
order, arbitration award, judgment or decree to which Telepad is a party or by
which it or the property or assets which are material to its business or
operation are bound, the effect of any of which violation would have a material
adverse effect on the business, assets, operations, earnings, prospects
(financial or otherwise) of the Company; (iii) violate or conflict with any
other restriction to which Telepad is subject or by which any of the property or
assets which are material to the business or operation of Telepad may be bound,
the effect of any of which violation or conflict would have a material adverse
effect on the business, assets, operations, earnings, prospects (financial or
otherwise) of the Company; or (iv) constitute an event permitting termination of
any agreement to which Telepad is subject by any other party thereto, if in any
such circumstance such termination could have a materially adverse on the
ability of Telepad to fulfill its respective obligations hereunder. Other than
as provided herein, no consent, authorization, order or approval of, or filing
or registration with, any governmental commission, board or other regulatory
body is required in connection with the execution, delivery and performance of
the terms of this Agreement by Telepad and consummation by Telepad of the
Merger.
(e) Litigation. Except as described in the Telepad Bankruptcy
Information, there is no action, suit, proceeding or investigation pending
against or related to Telepad, nor, to the best knowledge of Telepad, has
Telepad been threatened with any such action, suit, proceeding or investigation,
which would restrict the ability of Telepad to perform its obligations hereunder
or which would have a material adverse effect on the business, assets,
operations, earnings, prospects or condition (financial or otherwise) of
Telepad. Telepad is not in default in respect of any judgment, order, writ,
injunction or decree of any court or any federal, state, local or other
governmental agency, authority, body, board, bureau, commission, department or
instrumentality which could have a material adverse effect on the business,
assets, operations, earnings, prospects or condition (financial or otherwise) of
Telepad.
(f) Accuracy of Information Furnished. No statement by Telepad
set forth herein or in the exhibits or the schedules hereto or, to the best
knowledge of Telepad, in the Telepad Bankruptcy Information, and no statement
set forth in any certificate or other instrument or document required to be
delivered by or on behalf of Telepad pursuant hereto or in connection with
consummation of the Merger, contained, contains or will contain any untrue
statement of a material fact, or omitted, omits or will omit to state any
material fact which is necessary to make the statements contained herein or
therein, in light of the circumstances under which they were made, not
misleading.
(g) Bankruptcy Proceedings. Telepad has been provided access
to all documents relating to the Company and its federal bankruptcy proceeding
available at www.uscourts.gov/allinks.html#all.
(h) No Material Adverse Change. Except as set forth on
Schedule 3.2(l), no material adverse change in the business, operations,
affairs, prospects, properties, assets, existing and potential liabilities,
obligations, profits or condition (financial or otherwise) of Telepad has
occurred since October 8, 1999.
(i) Employee Benefit Plans. Telepad has no Benefit
Plans.
(j) Business Operations. Since October 8, 1999, Telepad has
not engaged in any substantive business operations.
(k) Reporting Company. Telepad is subject to the reporting
requirements of Section 12(g) of the Securities Exchange Act of 1934, as
amended.
3.3 Survival of Representations and Warranties. The representations and
warranties set forth in Sections 3.1 and 3.2 hereof shall survive until the
close of business on the second anniversary of the Closing Date, provided that,
notice or demand with respect to any alleged breach thereof is given as required
pursuant to Article V hereof.
ARTICLE IV
CONDITIONS
4.1 Conditions to Obligations of Telepad. The obligation of Telepad to
consummate the Merger is subject to the fulfillment of each of the following
conditions, which may be waived in whole or in part by Telepad to the extent
permitted by applicable law:
(a) No Material Adverse Change. No material adverse change in
the business, assets, operations, earnings, prospects or condition (financial or
otherwise) of the Company, and no event which would materially and adversely
affect the business, assets, operations, earnings, prospects or condition
(financial or otherwise) of the Company not disclosed herein shall have occurred
since the date of the Financial Statements and Written Information.
(b) Copies of Resolutions. The Company shall have furnished
Telepad with certified copies of resolutions duly adopted by the board of
directors of the Company authorizing the execution, delivery and performance of
the terms of this Agreement and all other necessary or proper corporate action
of the Company and required consents of its Securityholders to enable the
Company to comply with the terms of this Agreement.
(c) Certificates of Good Standing. At the Closing, the Company
shall have furnished Telepad with certified copies of certificates of good
standing of the Company dated not more than ten (10) business days prior to the
Closing Date.
(d) Accuracy of Representations and Warranties. Each of the
representations and warranties of the Company and the Securityholders set forth
in this Agreement and agreements signed and to be delivered by the Company's
Securityholders and creditor(s) shall have been true, correct and complete in
all material respects when made and shall also be true, correct and complete in
all material respects at and as of the Closing Date, with the same force and
effect as if made at and as of the Closing Date. The Company and the
Securityholders shall have performed and complied in all material respects with
all agreements and covenants required by this Agreement to be performed by the
Company and the Securityholders at or prior to the Closing Date.
(e) Delivery of Officers' Certificates. The Company shall have
delivered to Telepad certificates, dated as of the Closing Date, and signed by
the President of the Company representing and affirming that: (i) the
representations and warranties made by the Company as set forth in Section 3.1
of this Agreement and referred to in Subsection 4.1(d) above were and are true,
correct and complete as required by Subsection 4.1(d) above and the conditions
set forth in this Section 4.1 have been satisfied. The Company shall also have
delivered certificates signed by the Secretaries of each with respect to the
authority and incumbency of the officers of the Company executing this Agreement
and any documents required to be executed or delivered in connection therewith.
(f) Delivery of Stock Certificates. At the Closing, the
Securityholders shall have delivered to Telepad certificates representing all of
the issued and outstanding capital stock of the Company, which certificates
shall be properly endorsed in blank or shall be accompanied by a properly
executed stock power or an affidavit by President of the Company that no
certificates had been issued since the Company's Effective Date and identifying
by name and amount the parties entitled to receive shares of Company.
(g) Consents and Waivers. Any and all necessary consents,
authorizations, orders or approvals described in Subsection 3.1(o) above shall
have been obtained, except as the same shall have been waived by Telepad.
(h) Litigation. There shall be no effective injunction, writ
or preliminary restraining order or any order of any kind whatsoever with
respect to the Company or the Securityholders issued by a court or governmental
agency (or other governmental or regulatory authority) of competent jurisdiction
restraining or prohibiting the consummation of the Merger or making consummation
thereof unduly burdensome to the Company or the Securityholders. No proceeding
or lawsuit shall have been commenced, be pending or have been threatened by any
governmental or regulatory agency or authority or any other person with respect
to the Merger.
(i) Reporting Compliance. The Company shall have delivered to
Telepad either prior to Closing or within the appropriate time period, if after
Closing, audited financial statements of the Company for all periods and in the
form required by Regulation S-X (17 CFR Part 210) sufficient to enable Telepad
to timely satisfy its reporting requirements under the Securities Exchange Act
of 1934, including the reporting obligations of a Section 12(g) reporting
company, and pursuant to all other applicable securities laws.
(j) Delivery of Documents and Other Information. The Company
shall have delivered to Telepad all of the agreements, contracts, documents and
other instruments required to be delivered pursuant to the provisions of this
Agreement.
4.2 Conditions to Obligations of the Company and the Securityholders.
The obligations of the Company and the Securityholders to consummate the Merger
are subject to the fulfillment of each of the following conditions, which may be
waived in whole or in part by the Company and/or the Securityholders to the
extent permitted by law:
(a) Copies of Resolutions. Telepad shall have furnished the
Company with certified copies of resolutions duly adopted by the board of
directors of Telepad authorizing the execution, delivery and performance of the
terms of this Agreement and all other necessary or proper corporate action to
enable Telepad to comply with the terms of this Agreement.
(b) Certificates of Good Standing. Telepad shall have
furnished the Company with certified copies of certificates of good standing of
Telepad dated not more than ten (10) business days prior to the Closing Date.
(c) Accuracy of Representations and Warranties. Each of the
representations and warranties of Telepad set forth in this Agreement shall have
been true, correct and complete in all material respects when made and shall
also be true, correct and complete in all material respects at and as of the
Closing Date, with the same force and effect as if made at and as of the Closing
Date. Telepad shall have performed and complied with in all material respects
all agreements and covenants required by this Agreement to be performed by
Telepad at or prior to the Closing Date.
(d) Delivery of Officers' Certificates. Telepad shall have
delivered to the Company certificates, dated the Closing Date and signed by the
Chief Executive Officer of Telepad, affirming that: (i) the representations and
warranties of Telepad as set forth in Section 3.2 of this Agreement and referred
to in Subsection 4.2(c) above were and are true, correct and complete as
required by Subsection 4.2(c) above; and (ii) the conditions set forth in this
Section 4.2 have been satisfied. Telepad shall also have delivered a certificate
signed by the Secretary of Telepad with respect to the authority and incumbency
of the officers of Telepad executing this Agreement and any documents required
to be executed or delivered in connection therewith
(e) Stock Certificates. At the Closing, Telepad shall have
issued and delivered to the Securityholders certificates representing the shares
of Telepad Stock issuable pursuant hereto, which certificates shall be in the
name of the respective Securityholders and in the amounts, as set forth on
Schedule A hereto.
(f) Consents and Waivers. Any and all necessary consents,
authorizations, orders or approvals described in Subsection 3.2(d) above shall
have been obtained, except as the same shall have been waived by the Company and
the Securityholders.
(g) Litigation. There shall be no effective injunction, writ
or preliminary restraining order or any order of any kind whatsoever with
respect to Telepad issued by a court or governmental agency (or other
governmental or regulatory authority) of competent jurisdiction restraining or
prohibiting the consummation of the Merger or making the consummation thereof
unduly burdensome to Telepad. On the Closing Date and immediately prior to
consummation of the Merger, no proceeding or lawsuit shall have been commenced,
be pending or have been threatened or by any governmental or regulatory agency
or authority or any other person with respect to the Merger.
(h) No Material Adverse Change. No material adverse change in
the business, assets, operations, earnings, prospects or condition (financial or
otherwise) of Telepad, and no event which would materially and adversely affect
the business, assets, operations, earnings, prospects or condition (financial or
otherwise) of Telepad not disclosed herein shall have occurred since October 8,
1999.
(i) Resignation and Appointment. The current directors and
officers of Telepad will resign effective as of immediately after Closing and
Howard Miller will have been appointed a director of Telepad.
ARTICLE V
ESCROW PROVISIONS
5.1 Terms of the Escrow. At the Closing, Telepad will deliver into
escrow 248,400 shares of Telepad Stock outstanding prior to the Merger. The
shares will remain in escrow, unless earlier delivered or released pursuant
hereto, until May 7, 2000, at which time they will be released to the Escrowers
(as listed on Schedule 5.1). The purpose of this escrow is to have an available
source to pay any valid claims brought against the Surviving Corporation by a
pre-Merger creditor of Telepad. For purposes of this Section, a valid claim must
be a claim that was filed with the Bankruptcy Court prior to May 7, 1999. The
period of the Escrow can be extended by written notice from the Escrow Agent (as
defined below), in its sole discretion, to cover any valid claims made
regardless of the method by which the Escrow Agent is notified of a valid claim,
whether by litigation notice, claim letter or otherwise, prior to May 8, 2000.
The second sentence of this provision notwithstanding, the escrowed shares may
be earlier released provided they are replaced by cash. The amount of cash
necessary to replace the escrowed shares shall be the lower of (i) $1.055 or
(ii) the average last sale price (or closing bid price if last sale price is
unavailable) over the preceding five consecutive trading days. The price
information shall be as reported by the major exchange or quotation bureau, as
the case may be, where the Surviving Corporation's common stock trades or is
quoted, as the case may be. The law firm of Heller, Horowitz & Feit, P.C. shall
be the escrow agent (the "Escrow Agent").
5.2 Responsibility of Escrow Agent.
(a) The Escrow Agent shall, in its sole discretion, determine if a
claim has been made which could result in a charge against the escrow. In the
event it determines such a claim exists, the Escrow Agent shall immediately
inform the Surviving Corporation and send a copy of such notice to the
Escrowers, as though it was to Telepad, pursuant to Section 7.8. The Escrow
Agent shall take instructions from the Surviving Corporation regarding a
response to such claim and, as stated in Section 5.2(e), can represent the
Surviving Corporation in any resulting litigation. In the event the value of the
escrow is at least equal to the maximum amount of the claim, the Escrowers,
acting by vote of a majority of the esrowed shares, may take over defense of the
litigation at their own expense. In the event the value of the escrow does not
exceed the claim, the Escrowers, or any of them, may, at their own expense,
appoint co-counsel to defend the claim, provided that it is understood that the
Surviving Corporation's counsel shall be the lead counsel with authority to make
all final decisions. In the event a claim is awarded to the claimant, the Escrow
Agent is authorized to disburse from the escrow the required amount. Upon the
advice of the Surviving Corporation and the written consent of the Escrowers,
acting by vote of a majority of the escrowed shares, the Escrow Agent may settle
any claim and deliver out of escrow the amount of the settlement.
(b) Other than this Article V, the Escrow Agent shall not be bound in
any way or be deemed to have any responsibility or obligation under or in
respect of any agreement or contract to which either party hereto is a party
(whether or not it has knowledge thereof) and its only duties or
responsibilities shall be as specifically set forth herein. The Escrow Agent
acting in good faith may assume that any notice or instruction received by it
hereunder is authentic and has been duly and validity given, pursuant to due
authorization, by or on behalf of the person by which or on behalf of which it
purports to be given, and the Escrow Agent shall have no duty to inquire with
respect thereto.
(c) The Company, on the one hand, and Telepad, on the other hand, each
hereby agree to, jointly and severally, indemnify the Escrow Agent for, and hold
it harmless against, any loss, liability, damage, claim or expense (including
the reasonable fees and disbursements of its attorneys) incurred by or asserted
against the Escrow Agent, arising out of or in connection with the performance
of its duties hereunder and otherwise with respect hereof, including the costs
and expenses of defending itself against any claim or liability except that the
parties hereto shall not be liable hereunder as to matters in respect of which
the Escrow Agent is determined to have acted in bad faith, provided, that if the
Escrow Agent shall assert any claim for indemnity, it shall assert such claim
and bring any action with respect thereto against both the Company and Telepad.
The Escrow Agent shall have no liability to the parties hereto or any other
person in respect of any action taken or any failure to act in respect of its
duties hereunder if such action was taken or omitted to be taken in good faith.
(d) If any dispute shall arise among the parties with respect to the
escrow, the Escrow Agent may (i) commence an interpleader or similar action
permitted to escrow agents in the courts of the State of New York and deposit
the escrow into the Court where such action has been commenced, or (ii) whether
or not such dispute involves litigation, retain the escrow pending either a
settlement of such dispute or final determination of the rights of the
respective parties thereto.
(e) Notwithstanding any provisions of this Article V or the Escrow
Agent's position as escrowee, the Escrow Agent shall at all times (including
without limitation during and with respect to disputes between the parties,
whether or not involving litigation) be able to represent the Company and the
Surviving Corporation as its attorney in connection with the transactions
contemplated by this Agreement or any resulting litigation.
(f) In the event of litigation with respect to the escrow, the expenses
and fees incurred by the Escrow Agent shall be borne by the party who does not
prevail in such litigation.
5.3 Release of Escrow. Before releasing the escrow, or any of it, the
Escrow Agent shall give notice to the Company and the Escrowers of its
intentions. The Escrow Agent shall not release the escrow pursuant to the notice
until two (2) business days after the notice has been sent to both parties. If
the Escrowers or the Surviving Corporation dispute the Escrow Agent's proposed
delivery of the escrow as disclosed in the notice, the Escrow Agent shall
continue to hold all of the then remaining escrow until the issue of who is
entitled to the escrow is finally determined in a Court of competent
jurisdiction. The escrow may not be terminated except by delivery or release of
all of the escrow in accordance with the terms of this article V. The above
notwithstanding, if no valid claims have been presented on or prior to May 7,
2000, the Escrow Agent shall promptly release the escrow to the Escrowers
without notice.
ARTICLE VI
TERMINATION AND REMEDIES FOR BREACH OF THIS AGREEMENT
6.1 Termination by Mutual Agreement. This Agreement may be terminated
at any time prior to the Closing by unanimous consent of the parties hereto,
provided that such consent to terminate is manifested in writing and is signed
by each of the parties hereto.
6.2 Termination for Failure to Close. This Agreement may be terminated
by any of the parties hereto if the Closing shall not have occurred by January
14, 2000, provided that, the right to terminate this Agreement pursuant to this
section shall not be available to any party whose failure to fulfill any of its
obligations hereunder has been the cause of or resulted in the failure to
consummate the Merger by the foregoing date.
6.3 Termination by Operation of Law. This Agreement may be terminated
by any of the parties hereto if, in the reasonable opinion of counsel to the
respective parties hereto, there shall be any statute, rule or regulation that
renders consummation of the Merger illegal or otherwise prohibited, or a court
of competent jurisdiction or any government (or governmental authority) shall
have issued an order, decree or ruling, or has taken any other action
restraining, enjoining or otherwise prohibiting the consummation of such
transactions and such order, decree, ruling or other action shall have become
final and nonappealable.
6.4 Effect of Termination or Default; Remedies. In the event of
termination of this Agreement as set forth above, this Agreement shall forthwith
become void and there shall be no liability on the part of any Non-Defaulting
Party (as defined below). The foregoing shall not relieve any Defaulting Party
from liability for damages actually incurred as a result of such party's breach
of any term or provision of this Agreement.
6.5 Remedies; Specific Performance. In the event that any party shall
fail or refuse to consummate the Merger (except pursuant to Sections 6.1, 6.2 or
6.3 above) or if any default under or breach of any representation, warranty,
covenant or condition of this Agreement on the part of any party (the
"Defaulting Party") shall have occurred that results in the failure to
consummate the Merger, then in addition to the other remedies provided herein,
the non-defaulting party (the "Non-Defaulting Party") shall be entitled to seek
and obtain money damages from the Defaulting Party and/or may seek to obtain an
order of temporary or permanent injunctive relief and/or specific performance
thereof against the Defaulting Party from a court of competent jurisdiction,
provided that, the Non-Defaulting party seeking any injunctive relief or
specific performance must file its request with such court within forty-five
(45) days after it becomes aware of the Defaulting Party's failure, refusal,
default or breach and further provided, that in no event shall a Defaulting
Party be liable for special, incidental or consequential damages. In addition,
the Non-Defaulting Party shall be entitled to obtain from the Defaulting Party
court costs and attorneys' fees incurred in connection with or in pursuit of
enforcing the rights and remedies provided hereunder.
ARTICLE VII
MISCELLANEOUS
7.1 Fees and Expenses. Except as otherwise described herein, each party
hereto shall pay its own expenses incident to negotiation, execution, delivery
and performance of the terms of this Agreement and the consummation of the
Merger.
7.2 Modification, Amendments and Waiver. The parties hereto may amend,
modify or otherwise waive any provision of this Agreement by unanimous consent,
provided that such consent and any amendment, modification or waiver is in
writing and is signed by each of the parties hereto.
7.3 Assignment. Neither the Company, the Securityholders nor Telepad
shall have the authority to assign its rights or obligations under this
Agreement without the prior written consent of the other parties hereto.
7.4 Burden and Benefit. This Agreement shall be binding upon and, to
the extent permitted in this Agreement, shall inure to the benefit of the
parties and their respective successors and assigns. In the event of a default
by the Company or the Securityholders of any of their respective obligations
hereunder, the sole and exclusive recourse and remedy of Telepad shall be
against the Company and any of the Company's assets; under no circumstances
shall any officer or director of the Company be liable in law or equity for any
obligations of the Company hereunder. In the event of a default by Telepad of
any of its respective obligations hereunder, the sole and exclusive recourse and
remedy of the Securityholders and the Company shall respectively be against
Telepad and its assets; under no circumstances shall any officer, director,
Securityholder or affiliate of Telepad be liable in law or equity for any
obligations of Telepad hereunder.
7.5 Brokers. Except as set forth on Schedule 7.5 hereto, the Company
represents and warrants to Telepad that there are no brokers or finders entitled
to any brokerage or finder's fee or other commission or fee based upon
arrangements made by or on behalf of the Company, or any Securityholder or any
other person in connection with this Agreement or the Merger. Telepad represents
and warrants to the Company that after the Closing no broker or finder is
entitled to any brokerage or finder's fee or other commission or fee based upon
arrangements made by or on behalf of Telepad in connection with this Agreement
or the Merger.
7.6 Entire Agreement. This Agreement and the exhibits, lists and other
documents referred to herein contain the entire agreement among the parties
hereto with respect to the Merger and supersede all prior agreements with
respect thereto, whether written or oral.
7.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard, however, to
such jurisdiction's principles of conflicts of laws. Any action brought by
either party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the State of New York. Both parties and the
individuals executing this Agreement and other agreements on behalf of the
Company agree to submit to the jurisdiction of such courts and waive trial by
jury. The prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any agreement.
7.8 Notices. Any notice, request, instruction or other document to be
given hereunder by any party hereto shall be in writing and delivered
personally, by facsimile transmission or telex, or sent by commercial overnight
delivery service or registered or certified mail (return receipt requested),
postage prepaid, addressed as follows:
If to the Company: Digital Privacy, Inc.
4820 Minnetonka Blvd., Suite 410
St. Louis Park, MN 55416
Attn: Kristin Halko
Facsimile: (612) 285-1366
If to the
Securityholders: Each Securityholder
c/o Heller, Horowitz & Feit, P.C.
292 Madison Avenue
New York, New York 10017
Attn: Irving Rothstein, Esq.
Facsimile: (212) 696-9459
with a copy to: Heller, Horowitz & Feit, P.C.
292 Madison Avenue
New York, New York 10017
Attn: Irving Rothstein, Esq.
Facsimile: (212) 696-9459
If to the Telepad: Telepad Corporation
1550 54TH Street
Brooklyn, NY 11219
Attn: Stuart Eisenberger
Facsimile: (718) 436-0736
with a copy to: Grushko & Mittman
277 Broadway, Suite 801
New York, New York 10007
Facsimile: (212) 227-5865
E-Mail: [email protected]
or to such other persons or addresses as may be designated in writing by the
party to receive such notice. If sent as aforesaid, the date any such notice
shall be deemed to have been delivered on the first business day after
transmission of a facsimile or telex, the first business day after delivery to a
commercial overnight delivery service, or five (5) days after delivery into a
United States Postal facility.
7.9 Counterparts. This Agreement may be executed in two (2) or more
counterparts, each of which shall be an original or a facsimile copy, but all of
which shall constitute but one agreement.
7.10 Rights Cumulative. All rights, powers and privileges conferred
hereunder upon the parties, unless otherwise provided, shall be cumulative and
shall not be restricted to those given by law. Failure to exercise any power
given any party hereunder or to insist upon strict compliance by any other party
shall not constitute a waiver of any party's right to demand exact compliance
with any of the terms or provisions hereof.
7.11 Severability of Provisions. The provisions of this Agreement shall
be considered severable in the event that any of such provisions are held by a
court of competent jurisdiction to be invalid, void or otherwise unenforceable.
Such invalid, void or otherwise unenforceable provisions shall be automatically
replaced by other provisions which are valid and enforceable and which are as
similar as possible in term and intent to those provisions deemed to be invalid,
void or otherwise unenforceable. Notwithstanding the foregoing, the remaining
provisions hereof shall remain enforceable to the fullest extent permitted by
law.
7.12 Headings. The headings set forth in the articles and sections of
this Agreement and in the exhibits and the schedules to this Agreement are
inserted for convenience of reference only and shall not be deemed to constitute
a part hereof.
7.13 Knowledge Standard. When used in this Agreement, the phrase "to
the best knowledge of, " "knowledge of, " "known to" or similar phrases shall
mean the actual knowledge of: (i) with respect to Telepad, the current officers
and directors of Telepad; (ii) with respect to the Company, the current officers
and directors of the Company; and (iii) each Securityholder.
7.14 Joint Preparation. This Agreement was jointly prepared by Telepad
and the Company and is not to be construed against any party hereto. Should any
provision of this Agreement be found to be illegal or unenforceable by any court
of competent jurisdiction and cannot be modified to be enforceable, such
provision shall immediately become null and void leaving the remainder of this
Agreement in effect.
7.15 Execution of Sarna Documents. The Company and Telepad each agree
that at the closing hereunder they will execute the Agreement by and among the
Company, Telepad and Mark Sarna, as well as take all the acts required thereby.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered on the date and year first above written.
TELEPAD CORPORATION DIGITAL PRIVACY, INC.
By:______________________________ By:________________________________
Stuart Eisenberger Howard Miller
<PAGE>
Schedule A
<TABLE>
<S> <C> <C> <C> <C>
Pre-Merger Post-Merger
Digital Privacy Telepad
Shareholder Shares % Shares %
Howard Miller 1,037,837 24.96 1,037,837 19.22
Debra Simon 23,285 .56 23,285 .43
Cedarwest, Inc. 516,424 12.42 516,424 9.56
Hilliard Limited Partnership 446,569 10.74 446,569 8.27
Independence Plaza, Inc. 127,651 3.07 127,651 2.36
Mark Lenowitz 64,033 1.54 64,033 1.19
Andrew Offit 129,314 3.11 129,314 2.39
Assume conversion/exercise:
Mark Sarna 1,521,828 36.60 1,521,828 28.18
Employee Options 291,060 7.00 291,060 5.39
</TABLE>
<PAGE>
Schedule 3.1(f)
Current Lease Extended on exactly same terms until September 30, 2000
Schedule 3.1(i)
[List to be attached]
Mark Sarna has a security interest in all Patents.
Schedule 3.1(m)
10,000 Note to General Dynamics Information Systems, Inc. dated October 14,
1999. 600,000 Note to Mark Sarna dated October 7, 1999. Amended Loan and
Security Agreement between the Company and Mark Sarna dated 10/7/99. Shareholder
Agreement dated 10/7/99 between the Company, Mark Sarna and the then
Shareholders. Employment Agreements with Howard Miller, J. Virgil Bradley and
Kristin Halko.
Schedule 3.1(r)
Insurance Policies with Moores Insurance Management Inc. for Automobile,
Worker's Compensation and Umbrella liability covering personal property,
equipment, etc.
Schedule 3.1(s)
1998 Federal, State and Local Taxes: The Company does not believe any taxes are
due.
Schedule 3.1(y)
Howard Miller President, CEO and Chairman $180,000 + options
James V. Bradley Senior Vice President and CTO $100,000 + options
Kristin Halko Vice President and Director of Operations $ 75,000 + 5,000
bonus
+ options
<PAGE>
Paul Kimlinger Director of Software Engineering $ 76,000
Thomas Kimlinger Manager of Software Engineering $ 75,000
Jack Schmit Network Administrator $ 42,000
Paul Christensen Director
Daniel Hilliard Director
<PAGE>
EXHIBIT 4.1
CERTIFICATE TO SET FORTH DESIGNATIONS, VOTING POWERS,
PREFERENCES, LIMITATIONS, RESTRICTIONS, AND RELATIVE
RIGHTS OF SERIES A 8% CUMULATIVE CONVERTIBLE
PREFERRED STOCK, $.01 PAR VALUE PER SHARE
It is hereby certified that:
I. The name of the corporation is Telepad Corporation
(the "Corporation"), a Delaware corporation.
II. Set forth hereinafter is a statement of the voting powers,
preferences, limitations, restrictions, and relative rights of shares of Series
A 8% Cumulative Convertible Preferred Stock hereinafter designated as contained
in a resolution of the Board of Directors of the Corporation pursuant to a
provision of the Articles of Incorporation of the Corporation permitting the
issuance of said Series A 8% Cumulative Convertible Preferred Stock by
resolution of the Board of Directors:
Series A 8% Cumulative Convertible Preferred Stock, $.01 par value.
1. Designation: Number of Shares. The designation of said series of
Preferred Stock shall be Series A 8% Cumulative Convertible Preferred Stock (the
"Series A Preferred Stock"). The number of shares of Series A Preferred Stock
shall be 40,000. Each share of Series A Preferred Stock shall have a stated
value equal to $10 (as adjusted for any stock dividends, combinations or splits
with respect to such shares) (the "Stated Value"), and a par value of $0.01 per
Series A Preferred Share.
2. Dividends.
<PAGE>
(a) The Holders of outstanding shares of Series A Preferred
Stock shall be entitled to receive preferential dividends in cash out of any
funds of the Corporation legally available at the time for declaration of
dividends before any dividend or other distribution will be paid or declared and
set apart for payment on any shares of any Common Stock, or other class of stock
presently authorized or to be authorized (the Common Stock, and such other stock
being hereinafter collectively the "Junior Stock") at the rate of 8% simple
interest per annum on the Stated Value per share payable quarterly commencing
with the quarter ending March 31, 2000 when as and if declared, provided however
that dividend payments will be made in additional fully paid and non assessable
shares of Series A Preferred Stock at a rate of one share of Series A Preferred
Stock for each $10 of such dividend not paid in cash, and the issuance of such
additional shares shall constitute full payment of such dividend. Dividends may
be paid at the Company's option with Series A Preferred Stock only if the Common
Stock deliverable upon conversion of such Series A Preferred Stock will have
been included for public resale in an effective registration statement filed
with the Securities and Exchange Commission on the dates such dividends are
payable and paid to the Holder, otherwise the dividend will be paid in cash.
(b) The dividends on the Series A Preferred Stock at the rates
provided above shall be cumulative whether or not earned so that if at any time
full cumulative dividends at the rate aforesaid on all shares of the Series A
Preferred Stock then outstanding from the date from and after which dividends
thereon are cumulative to the end of the quarterly dividend period next
preceding such time shall not have been paid or declared and set apart for
payment, or if the full dividend on all such outstanding Series A Preferred
Stock for the then current dividend period shall not have been paid or declared
and set apart for payment, the amount of the deficiency shall be paid or
declared and set apart for payment (but without interest thereon) before any sum
shall be set apart for or applied by the Corporation or a subsidiary of the
Corporation to the purchase, redemption or other acquisition of the Series A
Preferred Stock or any shares of any other class of stock ranking on a parity
with the Series A Preferred Stock ("Parity Stock") and before any dividend or
other distribution shall be paid or declared and set apart for payment on any
Junior Stock and before any sum shall be set aside for or applied to the
purchase, redemption or other acquisition of Junior Stock.
(c) Dividends on all shares of the Series A Preferred Stock
shall begin to accrue and be cumulative from and after the date of issuance
thereof. A dividend period shall be deemed to commence on the day following a
quarterly dividend payment date herein specified and to end on the next
succeeding quarterly dividend payment date herein specified.
3. Liquidation Rights.
<PAGE>
(a) Upon the dissolution, liquidation or winding-up of the
Corporation, whether voluntary or involuntary, the Holders of the Series A
Preferred Stock shall be entitled to receive before any payment or distribution
shall be made on the Junior Stock, out of the assets of the Corporation
available for distribution to stockholders, the Stated Value per share of Series
A Preferred Stock and all accrued and unpaid dividends to and including the date
of payment thereof. Upon the payment in full of all amounts due to Holders of
the Series A Preferred Stock the Holders of the Common Stock of the Corporation
and any other class of Junior Stock shall receive all remaining assets of the
Corporation legally available for distribution. If the assets of the Corporation
available for distribution to the Holders of the Series A Preferred Stock shall
be insufficient to permit payment in full of the amounts payable as aforesaid to
the Holders of Series A Preferred Stock upon such liquidation, dissolution or
winding-up, whether voluntary or involuntary, then all such assets of the
Corporation shall be distributed to the exclusion of the Holders of shares of
Junior Stock ratably among the Holders of the Series A Preferred Stock.
(b) Neither the purchase nor the redemption by the Corporation
of shares of any class of stock nor the merger or consolidation of the
Corporation with or into any other corporation or corporations nor the sale or
transfer by the Corporation of all or any part of its assets shall be deemed to
be a liquidation, dissolution or winding-up of the Corporation for the purposes
of this paragraph 3.
4. Conversion into Common Stock. Shares of Series A Preferred Stock
shall have the following conversion rights and obligations:
(a) Subject to the further provisions of this paragraph 4 each
Holder of shares of Series A Preferred Stock shall have the right at any time
commencing upon the filing of this Certificate of Designation with the Office of
the Secretary of State of Delaware, to convert such shares into fully paid and
non-assessable shares of Common Stock of the Corporation (as defined in
paragraph 4(i) below) determined in accordance with the Conversion Price
provided in paragraph 4(b) below (the "Conversion Price"); provided, that the
aggregate Stated Value to be converted shall be at least $5,000 (unless if at
the time of such conversion the aggregate Stated Value of all shares of Series A
Preferred Stock registered to the Holder is less than $5,000, then the whole
amount may be converted). All issued or accrued but unpaid dividends may be
converted at the election of the Holder simultaneously with the conversion of
principal amount of Stated Value of Series A Preferred Stock being converted.
<PAGE>
(b) The number of shares of Common Stock issuable upon conversion of
each share of Series A Preferred Stock shall equal (i) the sum of (A) the Stated
Value per share and (B) at the Holder's election accrued and unpaid dividends on
such share, divided by (ii) the Conversion Price. The Conversion Price shall be
the lesser of (x) $1.05, or (y) 77.5% of the average of the Closing Bid Prices
for the five (5) trading days immediately preceding the conversion of the
respective shares of Series A Preferred Stock (Lookback Period"). The Closing
Bid Price shall mean the closing bid price of the Corporation's Common Stock as
reported by the NASD OTC Bulletin Board or the principal exchange or market
where traded.
(c) The Holder of any certificate for shares of Series A
Preferred Stock desiring to convert any of such shares may give notice of its
decision to convert the shares into common stock by delivering or telecopying an
executed and completed notice of conversion to the Corporation or the
Corporation's Transfer Agent and delivering within three business days
thereafter, the original notice of conversion and the certificate for the
Preferred Stock properly endorsed for or accompanied by duly executed
instruments of transfer (and such other transfer papers as said Transfer Agent
may reasonably require) to the Corporation or the Corporation's Transfer Agent.
Each date on which a notice of conversion is delivered or telecopied to the
Corporation or the Corporation's Transfer Agent in accordance with the
provisions hereof shall be deemed a Conversion Date. A form of Notice of
Conversion that may be employed by a Holder is annexed hereto as Exhibit A. The
Corporation will transmit the certificates representing the shares of common
stock issuable upon conversion of any Series A Preferred Stock (together with
the Series A Preferred Stock representing the shares not converted) to the
Holder via express courier, by electronic transfer or otherwise, within five
business days after receipt by the Corporation of the original notice of
conversion and the Series A Preferred Stock representing the shares to be
converted ("Delivery Date"). The Holder of the shares so surrendered for
conversion shall be entitled to receive on or before the Delivery Date a
certificate or certificates which shall be expressed to be fully paid and
non-assessable for the number of shares of Common Stock to which such Holder
shall be entitled upon such conversion registered in the name of such Holder.
The Corporation is obligated to deliver to the Holder simultaneously with the
aforedescribed Common Stock, at the election of the Holder, additional Common
Stock representing the conversion at the Conversion Price, of dividends accrued
on the Series A Preferred Stock being converted. In the case of any Series A
Preferred Stock which is converted in part only the Holder of shares of Series A
Preferred Stock shall upon delivery of the certificate or certificates
representing Common Stock also receive a new share certificate representing the
unconverted portion of the shares of Series A Preferred Stock. Nothing herein
shall be construed to give any Holder of shares of Series A Preferred Stock
surrendering the same for conversion the right to receive any additional shares
of Common Stock or other property which results from an adjustment in conversion
rights under the provisions of paragraph (d) or (e) of this paragraph 4 until
Holders of Common Stock are entitled to receive the shares or other property
giving rise to the adjustment.
<PAGE>
In the case of the exercise of the conversion rights set forth in
paragraph 4(a) the conversion privilege shall be deemed to have been exercised
and the shares of Common Stock issuable upon such conversion shall be deemed to
have been issued upon the date of receipt by the Corporation or Transfer Agent
of the Notice of Conversion. The person or entity entitled to receive Common
Stock issuable upon such conversion shall, on the date such conversion privilege
is deemed to have been exercised and thereafter, be treated for all purposes as
the record Holder of such Common Stock and shall on the same date cease to be
treated for any purpose as the record Holder of such shares of Series A
Preferred Stock so converted.
Upon the conversion of any shares of Series A Preferred Stock no
adjustment or payment shall be made with respect to such converted shares on
account of any dividend on the Common Stock, except that the Holder of such
converted shares shall be entitled to be paid any dividends declared on shares
of Common Stock after conversion thereof.
The Corporation shall not be required, in connection with any
conversion of Series A Preferred Stock, and payment of dividends on Series A
Preferred Stock to issue a fraction of a share of its Series A Preferred Stock
and shall instead deliver a stock certificate representing the next whole
number.
The Corporation and Holder may not convert that amount of the Series A
Preferred Stock on a Conversion Date in connection with that number of shares of
Common Stock which would be in excess of the sum of (i) the number of shares of
Common Stock beneficially owned by the Subscriber and its affiliates on such
Conversion Date, and (ii) the number of shares of Common Stock issuable upon the
conversion of the Series A Preferred Stock with respect to which the
determination of this proviso is being made on such Conversion Date, which would
result in beneficial ownership by the Holder and its affiliates of more than
9.99% of the outstanding shares of Common Stock of the Corporation. For the
purposes of the proviso to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
(d) The Conversion Price shall be subject to adjustment from
time to time as follows:
<PAGE>
(i) In case the Corporation shall at any time (A) declare any dividend
or distribution on its Common Stock or other securities of the Corporation other
than the Series A Preferred Stock, (B) split or subdivide the outstanding Common
Stock, (C) combine the outstanding Common Stock into a smaller number of shares,
or (D) issue by reclassification of its Common Stock any shares or other
securities of the Corporation, then in each such event the Conversion Price
shall be adjusted proportionately so that the Holders of Series A Preferred
Stock shall be entitled to receive the kind and number of shares or other
securities of the Corporation which such Holders would have owned or have been
entitled to receive after the happening of any of the events described above had
such shares of Series A Preferred Stock been converted immediately prior to the
happening of such event (or any record date with respect thereto). Such
adjustment shall be made whenever any of the events listed above shall occur. An
adjustment made to the Conversion pursuant to this paragraph 4(d)(i) shall
become effective immediately after the effective date of the event retroactive
to the record date, if any, for the event.
(e) (i) In case of any merger of the Corporation with or into
any other corporation (other than a merger in which the Corporation is the
surviving or continuing corporation and which does not result in any
reclassification, conversion, or change of the outstanding shares of Common
Stock) then unless the right to convert shares of Series A Preferred Stock shall
have terminated, as part of such merger lawful provision shall be made so that
Holders of Series A Preferred Stock shall thereafter have the right to convert
each share of Series A Preferred Stock into the kind and amount of shares of
stock and/or other securities or property receivable upon such merger by a
Holder of the number of shares of Common Stock into which such shares of Series
A Preferred Stock might have been converted immediately prior to such
consolidation or merger. Such provision shall also provide for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in paragraph (d) of this paragraph 4. The foregoing provisions of this
paragraph 4(e) shall similarly apply to successive mergers.
(ii) In case of any sale or conveyance to another person or entity of
the property of the Corporation as an entirety, or substantially as an entirety,
in connection with which shares or other securities or cash or other property
shall be issuable, distributable, payable, or deliverable for outstanding shares
of Common Stock, then, unless the right to convert such shares shall have
terminated, lawful provision shall be made so that the Holders of Series A
Preferred Stock shall thereafter have the right to convert each share of the
Series A Preferred Stock into the kind and amount of shares of stock or other
securities or property that shall be issuable, distributable, payable, or
deliverable upon such sale or conveyance with respect to each share of Common
Stock immediately prior to such conveyance.
<PAGE>
(f) Whenever the number of shares to be issued upon conversion
of the Series A Preferred Stock is required to be adjusted as provided in this
paragraph 4, the Corporation shall forthwith compute the adjusted number of
shares to be so issued and prepare a certificate setting forth such adjusted
conversion amount and the facts upon which such adjustment is based, and such
certificate shall forthwith be filed with the Transfer Agent for the Series A
Preferred Stock and the Common Stock; and the Corporation shall mail to each
Holder of record of Series A Preferred Stock notice of such adjusted conversion
price.
(g) In case at any time the Corporation shall propose:
(i) to pay any dividend or distribution payable in shares upon its
Common Stock or make any distribution (other than cash dividends) to the Holders
of its Common Stock; or
(ii) to offer for subscription to the Holders of its Common Stock any
additional shares of any class or any other rights; or
(iii) any capital reorganization or reclassification of its shares or
the merger of the Corporation with another corporation (other than a merger in
which the Corporation is the surviving or continuing corporation and which does
not result in any reclassification, conversion, or change of the outstanding
shares of Common Stock); or
(iv) the voluntary dissolution, liquidation or winding-up of the
Corporation;
then, and in any one or more of said cases, the Corporation shall cause at least
fifteen (15) days prior notice of the date on which (A) the books of the
Corporation shall close or a record be taken for such stock dividend,
distribution, or subscription rights, or (B) such capital reorganization,
reclassification, merger, dissolution, liquidation or winding-up shall take
place, as the case may be, to be mailed to the Transfer Agent for the Series A
Preferred Stock and for the Common Stock and to the Holders of record of the
Series A Preferred Stock.
(h) So long as any shares of Series A Preferred Stock shall
remain outstanding and the Holders thereof shall have the right to convert the
same in accordance with provisions of this paragraph 4 the Corporation shall at
all times reserve from the authorized and unissued shares of its Common Stock a
sufficient number of shares to provide for such conversions.
(i) The term Common Stock as used in this paragraph 4 shall
mean the $.01 par value Common Stock of the Corporation as such stock is
constituted at the date of issuance thereof or as it may from time to time be
changed or shares of stock of any class of other securities and/or property into
which the shares of Series A Preferred Stock shall at any time become
convertible pursuant to the provisions of this paragraph 4.
<PAGE>
(j) The Corporation shall pay the amount of any and all issue
taxes (but not income taxes) which may be imposed in respect of any issue or
delivery of stock upon the conversion of any shares of Series A Preferred Stock,
but all transfer taxes and income taxes that may be payable in respect of any
change of ownership of Series A Preferred Stock or any rights represented
thereby or of stock receivable upon conversion thereof shall be paid by the
person or persons surrendering such stock for conversion.
(k) In the event a Holder shall elect to convert any shares of
Series A Preferred Stock as provided herein, the Corporation cannot refuse
conversion based on any claim that such Holder or any one associated or
affiliated with such Holder has been engaged in any violation of law, unless, an
injunction from a court, on notice, restraining and or enjoining conversion of
all or part of said shares of Series A Preferred Stock shall have been issued
and the Corporation posts a surety bond for the benefit of such Holder in the
amount of 150% of the Stated Value of the Series A Preferred Stock and dividends
sought to be converted, which is subject to the injunction, which bond shall
remain in effect until the completion of arbitration/litigation of the dispute
and the proceeds of which shall be payable to such Holder in the event it
obtains judgment.
(l) In addition to any other rights available to the Holder,
if the Corporation fails to deliver to the Holder such certificate or
certificates pursuant to Section 4(c) by the Delivery Date and if after the
Delivery Date the Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by such Holder of
the Common Stock which the Holder anticipated receiving upon such conversion (a
"Buy-In"), then the Corporation shall pay in cash to the Holder (in addition to
any remedies available to or elected by the Holder) the amount by which (A) the
Holder's total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (B) the aggregate Stated Value of
the shares of Series A Preferred Stock for which such conversion was not timely
honored, together with interest thereon at a rate of 16% per annum, accruing
until such amount and any accrued interest thereon is paid in full (which amount
shall be paid as liquidated damages and not as a penalty). For example, if the
Holder purchases shares of Common Stock having a total purchase price of $11,000
to cover a Buy-In with respect to an attempted conversion of $10,000 of Stated
Value of Series A Preferred Stock, the Corporation shall be required to pay the
Holder $1,000, plus interest. The Holder shall provide the Corporation written
notice indicating the amounts payable to the Holder in respect of the Buy-In.
5. Mandatory Conversion. The shares of Series A Preferred Stock and
dividends may not be converted without the consent of the Holder except as
provided in Section 7 hereof.
6. Voting Rights. The shares of Series A Preferred Stock shall not have
voting rights.
<PAGE>
7. Redemption. From and after the Effective Date of the Registration
Statement as defined in Section 10.1(iv) of the Subscription Agreement entered
into by the Corporation and Holder (or Holder's predecessor) relating to the
Series A Preferred Stock ("Subscription Agreement"), the Corporation will have
the option on thirty days prior notice ("Notice of Redemption") to the Holder of
redeeming the Series A Preferred Stock ("Optional Redemption") by paying to the
Holder a sum of money equal 125% of the Stated Value of the aggregate of the
Series A Preferred Stock being redeemed plus the dollar amount of accrued
dividends on the Series A Preferred Stock being redeemed ("Redemption Amount").
A Notice of Redemption will not be effective in connection with any Series A
Preferred Stock for which notice of conversion has been given by the Holder
either before or within thirty days after receipt by the Holder of a Notice of
Redemption, such 30th day being the "Redemption Date." A Notice of Redemption
must be accompanied by a certificate signed by the chief executive officer or
chief financial officer of the Corporation stating that the Corporation has on
deposit and segregated ready funds equal to the Redemption Amount. The
Redemption Amount (less any amount that may be converted by a Holder) must be
paid in good funds to the Holder no later than the thirty-fifth day after the
Redemption Date. In the event the Corporation fails to pay the Redemption Amount
by such date, then the Redemption Notice will be null and void and the
Corporation will thereafter have no further right to effect an Optional
Redemption. Any Notice of Redemption must be given to all Holders of Series A
Preferred Stock in proportion to their holdings of Series A Preferred Stock on a
Redemption Date.
<PAGE>
8. Event of Default. The occurrence of any of the following events of
default ("Event of Default") shall, after the applicable period to cure the
Event of Default, cause the dividend rate of 8% described in paragraph 2 hereof
to become 12% from and after the occurrence of such event, and the Holder shall
have the option to require the Corporation to redeem the Series A Preferred
Stock held by such Holder by the immediate payment to the Holder by the
Corporation of a sum of money equal to the number of shares that would be
issuable upon conversion of an amount of Stated Valued and accrued dividends
designated by the Holder, at the Conversion Price in effect as of the trading
day prior to the date notice is given to the Corporation multiplied by the
average of the closing ask prices and closing bid prices of the Corporation's
Common Stock for the same days employed when determining such Conversion Price:
(a) The Corporation fails to pay any dividend payment required
to be paid pursuant to the terms of paragraph 2 hereof or the failure to timely
pay any other sum of money due to the Holder from the Company and such failure
continues for a period of ten (10) days after written notice to the Corporation
from the Holder.
(b) The Corporation breaches any material covenant, term or
condition of the Subscription Agreement entered into between the Corporation and
Holder relating to Series A Preferred Stock or in this Certificate of
Designation, and such breach continues for a period of seven (7) days after
written notice to the Corporation from the Holder.
(c) Any material representation or warranty of the Corporation
made in the Subscription Agreement, or in any agreement, statement or
certificate given in writing pursuant thereto shall be false or misleading.
(d) The Corporation shall make an assignment of a substantial
part of its property or business for the benefit of creditors, or apply for or
consent to the appointment of a receiver or trustee for it or for a substantial
part of its property or business, or such a receiver or trustee shall otherwise
be appointed.
(e) Any money judgment, confession of judgment, writ or
similar process shall be entered against the Corporation or its property or
other assets for more than $50,000, and is not vacated, satisfied, bonded or
stayed within 45 days.
(f) Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Corporation.
(g) An order entered by a court of competent jurisdiction, or
by the Securities and Exchange Commission, or by the National Association of
Securities Dealers, preventing purchase and sale transactions in the
Corporation's Common Stock.
(h) The Corporation's failure to timely deliver Common Stock
to the Holder pursuant to paragraph 4 hereof or the Subscription Agreement.
(i) The occurrence of a Non-Registration Event as described in
Section 10.4 of the Subscription Agreement.
<PAGE>
9. Status of Converted or Redeemed Stock. In case any shares of Series
A Preferred Stock shall be redeemed or otherwise repurchased or reacquired, the
shares so redeemed, converted, or reacquired shall resume the status of
authorized but unissued shares of Preferred Stock and shall no longer be
designated as Series A Preferred Stock.
Dated: December _____, 1999
TELEPAD CORPORATION
By:_________________________________
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To Be Executed By the Registered Holder in Order to Convert the Series
A Convertible Preferred Stock of Telepad Corporation)
The undersigned hereby irrevocably elects to convert $______________ of
the Stated Value of the above Series A Convertible Preferred Stock into shares
of Common Stock of Telepad Corporation (the "Corporation") according to the
conditions hereof, as of the date written below.
Date of Conversion:_______________________________________________
Applicable Conversion Price Per Share:____________________________
Number of Common Shares Issuable Upon This Conversion:_____________
Signature:____________________________________________________________________
Print Name:___________________________________________________________________
Address:______________________________________________________________________
- -----------------------------------------------------------------------------
Deliveries Pursuant to this Notice of Conversion Should Be Made to:
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<PAGE>
EXHIBIT 4.2
THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE ON CONVERSION OF THIS
NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE
STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO (1) REGISTRATION AND COMPLIANCE WITH
SUCH ACT AND SUCH OTHER STATE LAW OR (2) AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH REGISTRATION IS NOT
REQUIRED.
DIGITAL PRIVACY, INC.
CONVERTIBLE PROMISSORY NOTE
$600,000 October 7, 1999
Minneapolis, MN
FOR VALUE RECEIVED, Digital Privacy, Inc., a Minnesota corporation (the
"Company") hereby promises to pay to Mark Sarna or his registered transferees or
assigns (the "Holder") in lawful money of the United States and in immediately
available funds, the principal sum of Six Hundred Thousand Dollars
($600,000.00). Interest shall accrue on the unpaid principal balance (computed
on the basis of the actual number of days in the payment period and a 365-day
year) at the rate of ten percent (10%) simple interest per annum. Accrued
interest shall be due and payable by wire transfer or immediately available
funds to the Holder hereof on the six (6) month anniversary of this Note and
each six months thereafter. If not earlier prepaid or converted, the entire
principal amount of the Note plus accrued interest shall be due and payable to
the Holder hereof on the second anniversary of this Note.
1. Loan and Security Agreement. This Note is executed by the Company
under the provisions of the Amended Loan and Security Agreement of even date
herewith and evidences a loan under, and is entitled to the benefits of said
Loan Agreement, the terms of which are hereby incorporated herein and made a
part hereof. Payment of this Note is secured by the Collateral described in said
Loan Agreement.
2. Conversion. For a period of nine (9) months after the date of this
Note, the Holder shall have the right to elect to convert all of the unpaid
principal on the Note to common stock of the Company ("Common Stock") equal to
thirty-six and 6/10 percent (36.6%) of all issued and outstanding Common Stock
calculated as of the date of this Note.
3. Manner of Conversion. In connection with any conversion of this
Note, the number of shares to be issued on conversion hereunder shall be
appropriately adjusted to reflect and to share in any stock dilution, including
but not limited to any cash dividend, stock split, reverse stock split, stock
dividend, stock option plan or other employee program, or other distribution of
stock or securities, which occurs after the issuance of this Note. No fractional
shares shall be issued, and in lieu thereof the Company will pay the amount of
any fractional interest to the Holder in cash. The Company shall at all times
keep available out of its authorized and unissued Common Stock such number of
shares as shall from time-to-time be sufficient to effect the conversion of the
unpaid principal under this Note.
The Holder shall provide written notice of his election to the Company.
Within three business days following receipt of such written notice, the Company
shall issue to the Holder the shares of Common Stock issuable on conversion of
this Note, which shares shall be validly issued, fully paid and non assessable
shares of the Company's Common Stock. Following the issuance of said shares,
this Note shall be deemed to have been satisfied and discharged.
4. Prepayment. This Note may be prepaid in part or in full, including
all accrued interest, without penalty, at any time after April 6, 2000 and prior
to the due date; provided, however, that in the event the Company intends to
prepay this Note during the nine months following the date of this Note, the
Company shall provide written notice to the Holder of its intention to prepay
not less than five days before the date of prepayment. Following receipt of the
Company's notice of intention to prepay, the Holder may avoid the prepayment by
providing written notice of Holder's election to convert to the Company at any
time before the date of prepayment and within nine months of the date of this
Note.
5. Miscellaneous. The Company agrees to pay all costs of collection or
enforcement, including reasonable attorneys' fees and legal expenses, in the
event this Note is not paid when due including cure periods are set out in the
Loan Agreement. No failure or delay on the part of the Holder in exercising any
right, power or remedy related to this Note shall operate as a waiver, nor shall
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof.
IN WITNESS WHEREOF, the Company has caused this Note to be
duly executed and delivered.
DIGITAL PRIVACY, INC.
By:____________________________
Howard Miller
Its Chief Executive Officer
REEXECUTED, RATIFIED AND ADOPTEDPURSUANT
TO TERMS OF MERGER AGREEMENT DATED AS OF
12/1/99
TELEPAD CORPORATION
By:___________________________
Its______________________
<PAGE>
EXHIBIT 99.1
EMPLOYMENT AGREEMENT ("Agreement"), dated as of November ___, 1999,
between Digital Privacy, Inc., a Minnesota corporation (the "Company"), and
Howard Miller ("Executive").
WHEREAS, the Company is desirous of employing Executive to further the
business purposes of the Company; and
WHEREAS, Executive is desirous of being employed by the Company on the
terms provided herein;
NOW, THEREFORE, the Company and Executive agree as follows:
1. Employment. The Company hereby agrees to employ Executive
on a full time basis as President and Chief Executive Officer; and Executive
hereby agrees to accept such employment and perform the duties of such offices.
Executive shall report to and be under the direction and control of the Board of
Directors of the Company, and shall have the usual and necessary authority,
duties and responsibilities of a President and Chief Executive Officer of a
company. Executive shall devote substantially all of his business time and
attention to the business of the Company and to promoting its best interests.
However, Executive may engage in non-competitive commercial activities, provided
the Board of Directors determines that such activity does not interfere with
Executive's performance of his duties hereunder. The Company shall furnish
Executive with an office, secretarial help and other facilities and services as
are suitable to his position and adequate for the performance of his duties in
accordance with the provisions of this Agreement. In addition, the Company may
provide Executive with such executive perquisites as may be deemed by the Board
of Directors to be commensurate with Executive's position with the Company.
2. Term of Employment. Subject to the provisions for
termination hereinafter provided, the term of Executive's employment hereunder
shall be five (5) years from the date of this Agreement with subsequent
automatic successive five (5) year renewal periods until terminated in
accordance with this Agreement. This Agreement shall not renew if the party
electing not to renew sends the other party written notice of such party's
election not to renew at least sixty (60) days prior to the termination of the
then current Term or any subsequent renewal Term.
3. Place of Performance. In connection with his employment by
the Company, Executive shall alternate, at his option, between the Company's
principal executive offices, currently located in Minnesota, and the Company's
Eastern Office in ___________, New Jersey.
4. Compensation and Expenses.
(a) The Company shall pay to the Executive a base salary at a rate of
$180,000 per year, payable in accordance with the normal payroll practices of
the Company. On each anniversary date of this Agreement, the base salary shall
be increased by the amount of the consumer inflation index for the previous 12
months, as reported in the Wall Street Journal. In the event the Company is a
"public" company, the base salary for the fourth and fifth years shall be the
higher of (i) the salary as computed for the first three years or (ii) the
salary of comparable executives in other companies.
(b) During the term of this Agreement, the Company shall reimburse
Executive for all reasonable Company related travel, entertainment and other
business expenses reasonably necessary and appropriate for the performance of
his duties hereunder, including without being limited to, home telecommunication
(including cellular and on-line) expenses, and travel between the Company's New
Jersey and Minnesota offices (it being understood that Executive will make at
least one round trip weekly) provided that Executive submits receipts or other
expense records to the Company in accordance with the Company's general
reimbursement policy then in effect for executives and other employees of the
Company.
(c) During the term of this Agreement the Company will use its best
efforts to elect Executive the Chairman of the Company.
(d) Executive shall be granted 300,000 Stock Options on the date
hereof, which shall vest in equal parts on December 31 of the five years
following the date of this Agreement. The exercise price of all options granted
shall be $_______ per share which is the fair market value at the time of grant,
it being the intention that these options should qualify as "incentive" stock
options. Upon the occurrence of an event described in Paragraph 6(a) or (b) all
options shall be accelerated and shall vest in full automatically.
(e) Executive shall also be entitled to performance based options. On
December 31, 2000, Executive shall be granted 1,000 options for every $10,000 of
net revenues (i.e., total revenues less the cost of the smartcards and
smartcards reader) for the year then ended. Beginning on December 31, 2001,
Executive shall be granted 50,000 options if the net revenues for any year
exceed the previous year. In addition, Executive shall be granted 1,000 options
multiplied by the amount of the Company's percentage increase in net revenues.
In other words, if the Company's net revenues increase by 54% over the previous
year, Executive shall receive 104,000 additional options. The exercise price of
those options shall be the closing (i.e., last sale) price on December 31 of
each year.
(f) Executive shall also be entitled to receive additional options
based upon the Company's valuation. For purposes of this provision the Company's
valuation shall be determined by multiplying all outstanding shares of common
stock by the last sale price, or if not available, the closing bid price, as
published for the major exchange or quotation service upon which the Company's
common stock is listed for trading or for where quotes are made, as the case may
be. Executive shall earn options equal to 1% of the then outstanding shares of
common stock for meeting each milestone. For purposes of this provision, a
milestone is each multiple of valuation of $25 Million. To meet a milestone, the
valuation must remain at or above such milestone for 10 trading days out of any
90 consecutive day period. In addition, on December 1 of each year, Executive
shall receive a pro rata amount of these bonus options for the partial reaching
of the next milestone. Any options earned for a December 1 partial earn out,
shall be reduced from the number of options Executive shall receive upon
reaching the next milestone. The exercise price of these options shall be the
fair market value on the day a bonus is earned. In the event a milestone is met
due to the Company entering into a business combination (whether by merger,
consolidation, share exchange, sale of assets or otherwise), Executive shall
receive his bonus. However, if Executive earns the bonus due to such a
transaction, Executive shall have the option of receiving all or any part of the
bonus due him in shares of the Company's common stock or in cash or any
combination of both, at his sole discretion.
(g) The shares underlying the options to be delivered to Executive
shall have piggy back registration rights. In the event the Company does not
file a registration statement within six months of the date hereof registering
such shares with the Securities and Exchange Commission, Executive shall have
the right to demand that the Company register the stock underlying the options
at the Company's sole cost and expense.
(h) At the time of any exercise, the purchase price for the shares
underlying the option being exercised, may be paid, at the option of Executive,
in cash (or cash equivalent), in shares of common stock of the Company with the
fair market value the five day average of the closing (i.e., last sale) price
prior to the date of exercise equal to the purchase price, a combination of cash
and shares of common stock on the date of the exercise of the option, by note or
any other method approved by the Board of Directors.
5. Employee Benefit Plans.
(a) During the term of Executive's employment under this Agreement,
Executive, and his family, shall be entitled to participate, to the extent they
are eligible, in all employee benefit plans in effect for executives of the
Company during the term of this Agreement, including without limitation, health,
disability, unemployment insurance, 401(k), profit sharing and a retirement
plan.
(b) During the term of Executive's employment, Executive shall be
entitled to four weeks paid vacation, as well as paid holidays given by the
Company to its employees and Jewish Holidays observed by orthodox Jews. Vacation
time may be carried over and accrued to the next year. Executive shall be
permitted to take one additional week of vacation without pay.
(c) The Company shall purchase director and officer insurance coverage
insuring Executive from liability from certain actions commenced against the
Company and/or Executive.
(d) In addition to any "key man" insurance which the Company may
purchase and for which Executive agrees to submit to any necessary examination,
the Company shall purchase life insurance at standard rates on the Executive's
life in an amount equal to that year's compensation plus $750,000. The
beneficiary of such life insurance policy shall be designated by Executive.
6. Termination.
(a) Death. Executive's employment hereunder shall terminate upon his
death.
(b) Disability. In the event of Executive's disability, the Company
shall give Executive Notice of Termination (as hereinafter defined) which shall
take effect thirty (30) days after the date it is sent to Executive. Disability
shall mean that the Executive has become mentally incapacitated or disabled to
the extent that he has been legally adjudicated incompetent and a conservator,
guardian, custodian, trustee or other fiduciary has been appointed to handle his
business affairs, or physically incapacitated or disabled to the extent that for
a period of sixty consecutive days or any ninety days out of one hundred and
eighty consecutive days, he is unable to perform his duties for the Company in
his customary fashion.
(c) Cause. The Company may terminate Executive's employment hereunder
for Cause. For the purpose of this Agreement, the Company shall have "Cause" to
terminate Executive's employment hereunder upon (i) Executive's conviction of,
or plea of "no contest" to, any felony; or (ii) a final award by an arbitration
panel with jurisdiction over Executive that Executive has committed an act of
fraud, misappropriated funds or property of the Company for Executive's own use,
embezzled property of the Company or materially intentionally breached any
specific provision of this Agreement.
(d) Good Reason. This Agreement may be terminated by Executive for
"Good Reason" upon one hundred eighty (180) days written notice to the Company.
Good Reason is defined to include (i) a material change in the nature or scope
of Executive's responsibilities, duties or authority, (ii) failure by the
Company or successor to comply with this Agreement, (iii) the removal of
Executive as an officer or director of the Company, (iv) ill health of the
Executive or a member of his family, or any other compelling circumstance, which
in the sole discretion of Executive makes his continued employment impossible of
inappropriate and/or (v) a change in control of the Company (or any successor,
if this provision was waived for the previous change in control).
(e) Notice of Termination. Any purported termination by the Company
pursuant to subsections (b) or (c) shall be communicated by written Notice of
Termination to the Executive. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice that shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision indicated.
(f) Date of Termination. The effective date of termination shall be:
(i) If Executive's employment is terminated for Disability, thirty (30)
days after Notice of Termination is given (provided that Executive shall not
have returned to the performance of his duties on a full-time basis during such
thirty (30) day period);
(ii) If Executive's employment is terminated pursuant to paragraph (c)
above, the date specified in the Notice of Termination, though not earlier than
the date of such Notice; and
(iii) If Executive's employment is terminated for any other reason, the
date on which a Notice of Termination is given.
7. Compensation and Other Matters Upon Termination or During
Disability.
(a) If Executive's employment shall be terminated by reason of his
death, the Company shall pay his Estate, an amount equal to his then monthly
salary multiplied by eighteen, payable in equal monthly payments over the
following 36 months.
(b) If Executive is terminated for Cause, he shall receive only his
salary to the Date of Termination and any unvested stock options shall be
canceled and be null and void.
(c) If Executive is terminated without Cause by the Company, resigns
for Good Reason or an election by the Company not to renew this Agreement,
Executive will be entitled to receive, within ninety days of such termination, a
lump sum payment equal to the full value of the remaining Term of this Agreement
plus two times the amount of the salary due him for the fifth year of the then
current Term. Executive shall also receive an amount of stock equal to the
amount of the lump sum payment divided by the closing price (i.e., last sale
price) of the Company's common stock. In addition, the Company shall maintain in
full force and effect, for the longer of two (2) years or the remainder of the
then current Term, all employee benefit plans and programs, life insurance and
health insurance plans in which Executive participated in immediately prior to
Executive's Termination. The amounts of money and stock to be paid or delivered
pursuant to Executive under this subparagraph shall be deemed Executive's
severance for his termination. The parties acknowledge that Executive shall have
no obligation to mitigate his damages and that payments shall be absolute,
unconditional and without any right of offset notwithstanding any income earned
from his ownership interest in the Company or from any other sources and
notwithstanding the amount of potential or actual income or earnings of
Executive during the time period in which such severance payment is due to
Executive.
<PAGE>
(d) Should Executive become disabled, he shall continue to receive
compensation until Terminated in accordance with Section 6 but his salary shall
be reduced during the period of disability by the amounts received by Executive
under the Company's long-term disability programs, if any. Once terminated for
disability, Executive shall receive an amount equal to his then monthly salary
multiplied by eighteen, payable in equal monthly installments over the 36 months
following Termination.
8. Confidentiality. Executive hereby acknowledges that certain
information and materials relating to the Company, its products and the various
phases of their operations including, without limitation, trade secrets,
formulas, source codes, know-how, specifications, drawings, customer,
distributor and supplier lists, books, manuals and other data (collectively,
"Confidential Materials"), heretofore or hereafter obtained by or entrusted to
him in the course of his association with the Company (whether prior to or after
the date hereof), is and/or will be of a confidential or proprietary nature, not
generally known to the Company's competitors, and that the Company would likely
be economically or otherwise disadvantaged or harmed by the direct or indirect
disclosure of any of the Confidential Materials. Executive shall, at all times,
both during and after the term of this Agreement, hold all of the Confidential
Materials in strictest confidence and not use for his own benefit or for the
benefit of any other person or directly or indirectly disclose or suffer the
disclosure of any of the Confidential Materials to any person, firm,
corporation, association or other entity for any reason or purpose whatsoever
(other than in the ordinary course of business of the Company), or render any
services to any person, firm corporation, association or other entity to whom
any Confidential Materials have been disclosed or are threatened to be disclosed
by Executive, directly or indirectly, (other than in the ordinary course of
business of the Company), without the Company's prior written consent. Upon the
termination of Executive's employment, Executive shall return all Confidential
Materials to the Company.
9. Ownership and Return of Materials. All materials and all
other tangible media of expression (including, without limitation, documents,
drawings, models, apparatus, sketches, designs and lists) furnished to Executive
by the Company, shall remain the sole property of the Company. Upon termination
of Executive's employment, Executive will promptly (but no later than fifteen
(15) days after the earlier of the materials furnished to Executive's employment
or the Company's request): (a) deliver to the Company all tangible media of
expression that are in Executive's possession, custody or control that relate in
any matter to the past, present or anticipated business and affairs of the
Company (including, without limitation, any such materials or media that contain
or constitute Confidential Information of the Company or its vendors, suppliers,
strategic partners, clients or customers); and (c) furnish to the Company
written certification of Executive's compliance with Executive's obligations
under this Section 9.
10. No Expectation of Privacy.Executive recognizes and agrees
that he has no expectation of privacy with respect to the Company's
telecommunications, networking or information processing systems (including,
without limitation, stored computer files, email messages and voice messages)
and that Executive's activities and any files or messages on or using any of the
Company's systems may be monitored at any time without notice.
11. Non-Solicitation. Subject to the provisions of Section 10,
during this Agreement and for a period of one (1) year following the conclusion
of this Agreement (the "Limited Period"), Executive shall not, directly or
indirectly, (i) hire, solicit, or encourage to leave the employ of the Company
or any affiliated entity, any person employed by the Company or any affiliated
entity or (ii) participate in the solicitation of any business of any type
presently being conducted or which may from time to time be conducted by the
Company or any affiliated entity during the Limited Period from any person or
entity which was, or which from time to time may be, a customer of the Company
or any affiliated entity during the Limited Period.
12. Non-Competition. During the Limited Period, Executive
shall not be engaged or interested, directly or indirectly, as an officer,
director, stockholder (excepting a less than one percent (1%) interest in a
publicly traded company), employee, partner, individual proprietor, investor or
consultant, or in any other manner or capacity whatsoever, in any business in
which the Company or any affiliated entity at the time of such termination
conducts, without the prior written approval of the Company; provided, however,
that if any provision of Section 9 or this Section 10 would be held to be
unenforceable because of the scope, duration or area of its applicability, the
court making such determination shall have the power to, and shall, modify such
scope, duration or area, or all of them, to the minimum extent necessary to make
such provision, as so modified, enforceable, and such provision shall then be
applicable in such modified form. The above notwithstanding, Executive shall be
entitled to (i) remain on the Board of Directors of any corporations or
associations in which he currently has such a position and (ii) advise or
counsel other persons or entities, provided, such activities are not competitive
with the Company and Executive's name is not publicly associated with such other
entities or activities, unless such publicity would enhance the reputation of
the Company.
13. Enforcement of Confidentiality, Non-Solicitation and
Non-Competition Agreements. Executive hereby acknowledges that the Company will
not have an adequate remedy at law in the event of any breach by him of any
provision of Sections 8, 11 or 12, of this Agreement and that the Company will
suffer irreparable damage and injury as a result of any such breach.
Accordingly, in the event of Executive's breach or threatened breach of any
provision of Sections 8, 11 or 12 of this Agreement, Executive hereby consents
to the granting of a temporary restraining order, preliminary injunction and/or
permanent injunction against his by any court of competent jurisdiction
prohibiting his from committing or continuing any such breach or threatened
breach. Notwithstanding anything herein to the contrary, Executive shall have no
obligation or liability under Sections 11 or 12 of this Agreement upon
termination of this Agreement by the Company without Cause.
14. Notice. For the purpose of this Agreement, notices and all
other communications provided for herein shall be in writing and shall be deemed
to have been duly given when delivered, if personally delivered, one day after
timely delivery to a nationally recognized commercial overnight carrier, or
three (3) days after being mailed by United States certified mail, return
receipt requested, postage prepaid, addressed as follows:
<PAGE>
If, to Executive:
Howard Miller
===================
If, to the Company:
Digital Privacy, Inc.
4820 Minnetonka Blvd., Suite 410
S. Louis Park, MN 55416
Attention: Secretary
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
15. Arbitration. Any and all controversies, claims or disputes
arising out of or relating to this Agreement, or the breach thereof (other than
as covered in Section 14), shall be solely and exclusively settled by
arbitration in accordance with the Commercial Arbitration Rules then in effect
(the "Arbitration Rules") of the American Arbitration Association ("AAA"). The
arbitration shall take place in New York, New York. Each party hereby
irrevocably consents to the sole and exclusive jurisdiction and venue of the
state and Federal courts located in the State of New York in connection with any
matter arising out of the foregoing arbitration or this Agreement, including but
not limited to confirmation of the award rendered by the Arbitrator and
enforcement thereof by entry of judgment thereon or by any other legal remedy.
Service of process in connection with any such arbitration or any proceeding to
enforce an arbitration award may be made in the manner set forth in Section 14
of this Agreement or in any other manner permitted by applicable law.
16. Miscellaneous.
(a) This Agreement sets forth the entire understanding between the
parties as to the subject matter hereof and supersedes all prior agreements,
arrangements and understandings, written or oral, between them as to such
subject matter. There have been no promises, statements, representations or
other inducements to this Agreement other than as set forth herein.
(b) This Agreement may not be amended, nor may any provision be
modified or waived, except by an instrument duly executed by both parties.
(c) Either party's failure at any time to require performance of any of
the terms, provisions or conditions hereof shall not affect such party's right
thereafter to enforce this Agreement or be deemed a waiver of any succeeding
breach.
(d) Paragraph headings contained in this Agreement have been inserted
for convenience of reference only, are not to be considered a part of this
Agreement and shall not affect the interpretation of any provision hereof.
(e) This Agreement shall be governed by and construed in accordance
with the internal laws of the State of New York applicable to contracts made and
to be wholly performed within said State.
(f) This Agreement shall be binding upon and inure to the benefit of
the Company and its successors and assigns, including without limitation, any
corporation which may acquire all or substantially all of the Company's assets
and business or with or into which the Company may be consolidated or merged,
provided that Executive shall assume the positions as negotiated between the
Company and any such other entity it consolidates or merges with. This Agreement
calls for the provision of personal services and, accordingly, shall not be
assignable by Executive. However, the restrictions of Sections 8 and 9 shall be
binding upon Executive's heirs, executors, administrators and legal
representatives.
(g) If any provision of this Agreement or the application of any
provision to this Agreement is declared to be illegal, invalid or otherwise
unenforceable by a court of competent jurisdiction, the remainder of this
Agreement shall not be affected except to the extent necessary to delete such
illegal, invalid or unenforceable provision, unless such declaration shall
substantially impair the benefit of the remaining portions of this Agreement.
(h) In the event of a default in the payment of any compensation or
other benefit to Executive, and such default is not cured within fifteen (15)
days written notice to the Company of such default, the balance of compensation
and other benefits due or to become due hereunder shall become immediately due
and payable to Executive.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the Company and
Executive as of the date first written above.
DIGITAL PRIVACY, INC.
By:
Name:
Title:
------------------------------------------
HOWARD MILLER, Executive
<PAGE>
EXHIBIT 99.2
EMPLOYMENT AGREEMENT ("Agreement"), dated as of November ___, 1999,
between Digital Privacy, Inc., a Minnesota corporation (the "Company"), and
James Virgil Bradley ("Executive").
WHEREAS, the Company is desirous of employing Executive to further the
business purposes of the Company; and
WHEREAS, Executive is desirous of being employed by the Company on the
terms provided herein;
NOW, THEREFORE, the Company and Executive agree as follows:
1. Employment. The Company hereby agrees to employ Executive
on a full time basis as Senior Vice President and Chief Technology Officer; and
Executive hereby agrees to accept such employment and perform the duties of such
offices. Executive shall report to and be under the direction and control of the
President and Chief Executive Officer of the Company, and shall have the usual
and necessary authority, duties and responsibilities of a Senior Vice President
and Chief Technology Officer of a company. Executive shall devote substantially
all of his business time and attention to the business of the Company and to
promoting its best interests. However, Executive may engage in non-competitive
commercial activities, provided the Board of Directors determines that such
activity does not interfere with Executive's performance of his duties
hereunder. The Company shall furnish Executive with an office, secretarial help
and other facilities and services as are suitable to his position and adequate
for the performance of his duties in accordance with the provisions of this
Agreement. In addition, the Company may provide Executive with such executive
perquisites as may be deemed by the Board of Directors to be commensurate with
Executive's position with the Company.
2. Term of Employment. Subject to the provisions for
termination hereinafter provided, the term of Executive's employment hereunder
shall be three (3) years from the date of this Agreement with subsequent
successive three (3) year renewal periods until terminated in accordance with
this Agreement.
3. Place of Performance. In connection with his employment by
the Company, Executive shall be located at the Company's principal executive
offices, currently located in Minnesota, or as otherwise directed by the Board
of Directors.
4. Compensation and Expenses.
(a) The Company shall pay to the Executive a base salary at a rate of
$100,000 per year, payable in accordance with the normal payroll practices of
the Company. On each anniversary date of this Agreement, the base salary shall
be increased by the amount of the consumer inflation index for the previous 12
months, as reported in the Wall Street Journal.
(b) During the term of this Agreement, the Company shall reimburse
Executive for all reasonable Company related travel, entertainment and other
business expenses reasonably necessary and appropriate for the performance of
his duties hereunder, including without being limited to, home telecommunication
(including cellular and on-line) expenses provided that Executive submits
receipts or other expense records to the Company in accordance with the
Company's general reimbursement policy then in effect for executives and other
employees of the Company.
(c) Executive shall be granted 60,000 Stock Options on the date hereof,
one-third of which shall vest immediately with the balance in equal parts on
December 31, 2000 and December 31, 2001. The exercise price of all options
granted shall be $_______ per share which is the fair market value at the time
of grant, it being the intention that these options should qualify as
"incentive" stock options. Upon the occurrence of an event described in
Paragraph 6(a) or (b) all options shall be accelerated and shall vest in full
automatically.
(d) The shares underlying the options to be delivered to Executive
shall have piggy back registration rights. In the event the Company does not
file a registration statement within six months of the date hereof registering
such shares with the Securities and Exchange Commission, Executive shall have
the right to demand that the Company register the stock underlying the options
at the Company's sole cost and expense.
(e) At the time of any exercise, the purchase price for the shares
underlying the option being exercised, may be paid, at the option of Executive,
in cash (or cash equivalent), in shares of common stock of the Company with the
fair market value the five day average of the closing (i.e., last sale) price
prior to the date of exercise equal to the purchase price, a combination of cash
and shares of common stock on the date of the exercise of the option, by note or
any other method approved by the Board of Directors.
(f) In addition, Executive shall receive a cash bonus equal to 1% of
all profitable gross sales, less returns, write-offs and uncollectable accounts.
The amount of sales subject to the bonus shall be based upon the Company's
audited financial statements, and shall be payable upon the earlier to occur of
30 days after public filing of the Company's audited financial statements or 120
days after the close of the Company's fiscal year.
5. Employee Benefit Plans.
(a) During the term of Executive's employment under this Agreement,
Executive, and his family, shall be entitled to participate, to the extent they
are eligible, in all employee benefit plans in effect for executives of the
Company during the term of this Agreement, including without limitation, health,
disability, unemployment insurance, 401(k), profit sharing and a retirement
plan.
(b) During the term of Executive's employment, Executive shall be
entitled to three weeks paid vacation, as well as paid holidays given by the
Company to its employees. Vacation time may be carried over and accrued to the
next year. Executive shall be permitted to take one additional week of vacation
with pay, but this fourth week will not carry over to the following year and
Executive will not receive any additional compensation for not timely utilizing
this additional week.
(c) The Company shall purchase director and officer insurance coverage
insuring Executive from liability from certain actions commenced against the
Company and/or Executive.
(d) In addition to any "key man" insurance which the Company may
purchase and for which Executive agrees to submit to any necessary examination,
the Company shall purchase life insurance at standard rates on the Executive's
life in an amount equal to that year's compensation plus $250,000. The
beneficiary of such life insurance policy shall be designated by Executive.
6. Termination.
(a) Death. Executive's employment hereunder shall terminate upon his
death.
(b) Disability. In the event of Executive's disability, the Company
shall give Executive Notice of Termination (as hereinafter defined) which shall
take effect thirty (30) days after the date it is sent to Executive. Disability
shall mean that the Executive has become mentally incapacitated or disabled to
the extent that he has been legally adjudicated incompetent and a conservator,
guardian, custodian, trustee or other fiduciary has been appointed to handle his
business affairs, or physically incapacitated or disabled to the extent that for
a period of sixty consecutive days or any ninety days out of one hundred and
eighty consecutive days, he is unable to perform his duties for the Company in
his customary fashion.
(c) Cause. The Company may terminate Executive's employment hereunder
for Cause. For the purpose of this Agreement, the Company shall have "Cause" to
terminate Executive's employment hereunder upon (i) Executive's conviction of,
or plea of "no contest" to, any felony; or (ii) a final award by an arbitration
panel with jurisdiction over Executive that Executive has committed an act of
fraud, misappropriated funds or property of the Company for Executive's own use,
embezzled property of the Company or materially intentionally breached any
specific provision of this Agreement.
(d) Notice of Termination. Any purported termination by the Company
pursuant to subsections (b) or (c) shall be communicated by written Notice of
Termination to the Executive. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice that shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision indicated.
(e) Date of Termination. The effective date of termination shall be:
(i) If Executive's employment is terminated for Disability, thirty (30)
days after Notice of Termination is given (provided that Executive shall not
have returned to the performance of his duties on a full-time basis during such
thirty (30) day period);
(ii) If Executive's employment is terminated pursuant to paragraph (c)
above, the date specified in the Notice of Termination, though not earlier than
the date of such Notice; and
(iii) If Executive's employment is terminated for any other reason, the
date on which a Notice of Termination is given.
7. Compensation and Other Matters Upon Termination or During
Disability.
(a) If Executive's employment shall be terminated by reason of his
death, the Company shall pay his Estate, an amount equal to his then monthly
salary multiplied by eighteen, payable in equal monthly payments over the
following 36 months.
(b) If Executive is terminated for Cause, he shall receive only his
salary to the Date of Termination and any unvested stock options shall be
canceled and be null and void.
(c) If Executive is terminated without Cause by the Company, Executive
will be entitled to receive, within ninety days of such termination, a lump sum
payment equal to the greater of one year's salary at the then current salary or
the full value of the remaining Term of this Agreement. In addition, the Company
shall maintain in full force and effect, for the longer of one (1) year or the
remainder of the then current Term, all employee benefit plans and programs,
life insurance and health insurance plans in which Executive participated in
immediately prior to Executive's Termination. The amounts of money and stock to
be paid or delivered pursuant to Executive under this subparagraph shall be
deemed Executive's severance for his termination. The parties acknowledge that
Executive shall have no obligation to mitigate his damages and that payments
shall be absolute, unconditional and without any right of offset notwithstanding
any income earned from her ownership interest in the Company or from any other
sources and notwithstanding the amount of potential or actual income or earnings
of Executive during the time period in which such severance payment is due to
Executive.
(d) Should Executive become disabled, he shall continue to receive
compensation until Terminated in accordance with Section 6 but his salary shall
be reduced during the period of disability by the amounts received by Executive
under the Company's long-term disability programs, if any. Once terminated for
disability, Executive shall receive an amount equal to his then monthly salary
multiplied by twelve, payable in equal monthly installments over the 36 months
following Termination.
<PAGE>
8. Confidentiality. Executive hereby acknowledges that certain
information and materials relating to the Company, its products and the various
phases of their operations including, without limitation, trade secrets,
formulas, source codes, know-how, specifications, drawings, customer,
distributor and supplier lists, books, manuals and other data (collectively,
"Confidential Materials"), heretofore or hereafter obtained by or entrusted to
him in the course of his association with the Company (whether prior to or after
the date hereof), is and/or will be of a confidential or proprietary nature, not
generally known to the Company's competitors, and that the Company would likely
be economically or otherwise disadvantaged or harmed by the direct or indirect
disclosure of any of the Confidential Materials. Executive shall, at all times,
both during and after the term of this Agreement, hold all of the Confidential
Materials in strictest confidence and not use for his own benefit or for the
benefit of any other person or directly or indirectly disclose or suffer the
disclosure of any of the Confidential Materials to any person, firm,
corporation, association or other entity for any reason or purpose whatsoever
(other than in the ordinary course of business of the Company), or render any
services to any person, firm corporation, association or other entity to whom
any Confidential Materials have been disclosed or are threatened to be disclosed
by Executive, directly or indirectly, (other than in the ordinary course of
business of the Company), without the Company's prior written consent. Upon the
termination of Executive's employment, Executive shall return all Confidential
Materials to the Company.
9. Ownership and Return of Materials. All materials and all
other tangible media of expression (including, without limitation, documents,
drawings, models, apparatus, sketches, designs and lists) furnished to Executive
by the Company, shall remain the sole property of the Company. Upon termination
of Executive's employment, Executive will promptly (but no later than fifteen
(15) days after the earlier of Executive's Termination or the Company's
request): (a) deliver to the Company all tangible media of expression that are
in Executive's possession, custody or control that relate in any matter to the
past, present or anticipated business and affairs of the Company (including,
without limitation, any such materials or media that contain or constitute
Confidential Information of the Company or its vendors, suppliers, strategic
partners, clients or customers); and (b) furnish to the Company written
certification of Executive's compliance with Executive's obligations under this
Section 9.
10. No Expectation of Privacy.Executive recognizes and agrees
that he has no expectation of privacy with respect to the Company's
telecommunications, networking or information processing systems (including,
without limitation, stored computer files, email messages and voice messages)
and that Executive's activities and any files or messages on or using any of the
Company's systems may be monitored at any time without notice.
11. Non-Solicitation. Subject to the provisions of Section 10,
during this Agreement and for a period of two (2) years following the conclusion
of this Agreement (the "Limited Period"), Executive shall not, directly or
indirectly, (i) hire, solicit, or encourage to leave the employ of the Company
or any affiliated entity, any person employed by the Company or any affiliated
entity or (ii) participate in the solicitation of any business of any type
presently being conducted or which may from time to time be conducted by the
Company or any affiliated entity during the Limited Period from any person or
entity which was, or which from time to time may be, a customer of the Company
or any affiliated entity during the Limited Period.
12. Non-Competition. During the Limited Period, Executive
shall not be engaged or interested, directly or indirectly, as an officer,
director, stockholder (excepting a less than one percent (1%) interest in a
publicly traded company), employee, partner, individual proprietor, investor or
consultant, or in any other manner or capacity whatsoever, in any business in
which the Company or any affiliated entity at the time of such termination
conducts, without the prior written approval of the Company; provided, however,
that if any provision of Section 9 or this Section 10 would be held to be
unenforceable because of the scope, duration or area of its applicability, the
court making such determination shall have the power to, and shall, modify such
scope, duration or area, or all of them, to the minimum extent necessary to make
such provision, as so modified, enforceable, and such provision shall then be
applicable in such modified form. The above notwithstanding, Executive shall be
entitled to (i) remain on the Board of Directors of any corporations or
associations in which he currently has such a position and (ii) advise or
counsel other persons or entities, provided, such activities are not competitive
with the Company and Executive's name is not publicly associated with such other
entities or activities, unless such publicity would enhance the reputation of
the Company.
13. Innovations.
(a) As used herein, the following terms have the following meanings:
"Innovations" means all (i) inventions, discoveries and improvements (including,
without limitation, any of the foregoing relating to processes, machines,
manufactures or compositions of matter); (ii) works of authorship or information
fixed in any tangible medium of expression or mask works; (iii) trademarks,
service marks or trade names; (iv) ideas, trade secrets and know-how (including,
without limitation, any of the foregoing relating to formulae, patterns,
compilations, programs, methods, techniques or processes); and (v) all other
subject matter protectable under patent, copyright, moral right, mask work,
trademark, trade secret or other laws.
"Company Innovations" means any Innovation which Executive may solely
or jointly conceive, reduce to practice, create, derive, develop or make as an
employee of the Company which either (i) relates, at the time of conception,
reduction to practice, creation, derivation, development, or making of such
Innovation, to the Company's business or actual or demonstrably anticipated
research, development or business; or (ii) is developed on any amount of the
Company's time or with use of any of the Company's equipment, supplies,
facilities or Confidential Information; or (iii) results from any work Executive
has performed for the Company or any task assigned to Executive by the Company.
(b) Ownership of Company Innovations. Executive hereby assigns to the
Company or its designee all of Executive's right, title and interest in and to
each Company Innovation and all related intellectual and other property rights
(including, without limitation, under laws protective or granting patents,
copyrights, moral rights, mask works, trademarks or trade secrets) and agrees
that:
(i) the Company shall own all right, title and interest in and to all
Company Innovations and all related intellectual and other property rights;
(ii) the Company Innovations shall, where applicable, be considered
works made for hire;
(iii) in the event that, by operation of law or otherwise, Executive
shall retain any rights to any Company Innovations or any related intellectual
property or other property rights, Executive will assign to the Company, without
further consideration, my entire right, title and interest in and to such
Company innovations and intellectual property or other property rights;
(iv) to the extent any right, title or interest to any Company
Innovations or any related intellectual property or other property rights cannot
be assigned by Executive to the Company, Executive hereby grants to the Company
an exclusive, royalty-free, transferable, irrevocable, worldwide license (with
rights to sublicense through multiple tiers of sublicenses) to use and practice
such nonassignable right, title and interest; and (v) to the extent any right,
title or interest to any Company Innovations or any related intellectual
property or other property rights can neither be assigned nor licensed by
Executive to the Company, Executive hereby irrevocably waives and agrees never
to assert such nonassignable and non-licensable right, title or interest against
the Company or any of the Company's successors in interest.
(c) Disclosure of Innovations.Executive will promptly disclose
to the Company all Company Innovations.
(d) Maintenance of Records. Executive agrees to keep and
maintain adequate and current written records of all Company Innovations and
their development made by him (solely or jointly with others) during his
employment with the Company. These records may be in the form of notes,
sketches, drawing and any other format that may be specified by the Company.
These records will be available to and remain the sole property of the Company
at all times.
14. Enforcement of Confidentiality, Non-Solicitation and
Non-Competition Agreements. Executive hereby acknowledges that the Company will
not have an adequate remedy at law in the event of any breach by him of any
provision of Sections 8, 11, 12, or 13 of this Agreement and that the Company
will suffer irreparable damage and injury as a result of any such breach.
Accordingly, in the event of Executive's breach or threatened breach of any
provision of Sections 8, 11, 12 or 13 of this Agreement, Executive hereby
consents to the granting of a temporary restraining order, preliminary
injunction and/or permanent injunction against him by any court of competent
jurisdiction prohibiting him from committing or continuing any such breach or
threatened breach. Notwithstanding anything herein to the contrary, Executive
shall have no obligation or liability under Sections 11 or 12 of this Agreement
upon termination of this Agreement by the Company without Cause.
15. Notice. For the purpose of this Agreement, notices and all
other communications provided for herein shall be in writing and shall be deemed
to have been duly given when delivered, if personally delivered, one day after
timely delivery to a nationally recognized commercial overnight carrier, or
three (3) days after being mailed by United States certified mail, return
receipt requested, postage prepaid, addressed as follows:
If, to Executive:
James Virgil Bradley
===================
If, to the Company:
Digital Privacy, Inc.
4820 Minnetonka Blvd., Suite 410
St. Louis Park, MN 55416
Attention: Secretary
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
16. Arbitration. Any and all controversies, claims or disputes
arising out of or relating to this Agreement, or the breach thereof (other than
as covered in Section 14), shall be solely and exclusively settled by
arbitration in accordance with the Commercial Arbitration Rules then in effect
(the "Arbitration Rules") of the American Arbitration Association ("AAA"). The
arbitration shall take place in New York, New York. Each party hereby
irrevocably consents to the sole and exclusive jurisdiction and venue of the
state and Federal courts located in the State of New York in connection with any
matter arising out of the foregoing arbitration or this Agreement, including but
not limited to confirmation of the award rendered by the Arbitrator and
enforcement thereof by entry of judgment thereon or by any other legal remedy.
Service of process in connection with any such arbitration or any proceeding to
enforce an arbitration award may be made in the manner set forth in Section 15
of this Agreement or in any other manner permitted by applicable law.
17. Miscellaneous.
(a) This Agreement sets forth the entire understanding between the
parties as to the subject matter hereof and supersedes all prior agreements,
arrangements and understandings, written or oral, between them as to such
subject matter. There have been no promises, statements, representations or
other inducements to this Agreement other than as set forth herein.
(b) This Agreement may not be amended, nor may any provision be
modified or waived, except by an instrument duly executed by both parties.
(c) Either party's failure at any time to require performance of any of
the terms, provisions or conditions hereof shall not affect such party's right
thereafter to enforce this Agreement or be deemed a waiver of any succeeding
breach.
(d) Paragraph headings contained in this Agreement have been inserted
for convenience of reference only, are not to be considered a part of this
Agreement and shall not affect the interpretation of any provision hereof.
(e) This Agreement shall be governed by and construed in accordance
with the internal laws of the State of New York applicable to contracts made and
to be wholly performed within said State.
(f) This Agreement shall be binding upon and inure to the benefit of
the Company and its successors and assigns, including without limitation, any
corporation which may acquire all or substantially all of the Company's assets
and business or with or into which the Company may be consolidated or merged,
provided that Executive shall assume the positions as negotiated between the
Company and any such other entity it consolidates or merges with. This Agreement
calls for the provision of personal services and, accordingly, shall not be
assignable by Executive. However, the restrictions of Sections 8 and 9 shall be
binding upon Executive's heirs, executors, administrators and legal
representatives.
(g) If any provision of this Agreement or the application of any
provision to this Agreement is declared to be illegal, invalid or otherwise
unenforceable by a court of competent jurisdiction, the remainder of this
Agreement shall not be affected except to the extent necessary to delete such
illegal, invalid or unenforceable provision, unless such declaration shall
substantially impair the benefit of the remaining portions of this Agreement.
(h) In the event of a default in the payment of any compensation or
other benefit to Executive, and such default is not cured within fifteen (15)
days written notice to the Company of such default, the balance of compensation
and other benefits due or to become due hereunder shall become immediately due
and payable to Executive.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the Company and
Executive as of the date first written above.
DIGITAL PRIVACY, INC.
By:
Name: Howard Miller
Title: President
-------------------------------
JAMES VIRGIL BRADLEY, Executive
<PAGE>
EXHIBIT 99.3
DIGITAL PRIVACY, INC.
1998 OMNIBUS STOCK PLAN
1.Purpose. The purpose of this Digital Privacy, Inc. 1998 Omnibus Stock
Plan (the Plan) is to promote the interests of Digital Privacy, Inc., a
Minnesota corporation (the Company), and its shareholders by providing personnel
of the Company and any affiliates thereof with an opportunity to acquire a
proprietary interest in the Company and thereby develop a stronger incentive to
put forth maximum effort for the continued success and growth of the Company. In
addition, the opportunity to acquire a proprietary interest in the Company will
aid in attracting and retaining personnel of outstanding ability.
2.Definitions.
2.1The terms defined in this Section are used (and
capitalized) elsewhere in the Plan.
(a)Affiliate means any corporation that is a parent
corporation or subsidiary corporation of the Company, as those
terms are defined in Code Section 424(e) and (f), or any
successor provisions.
(b)Agreement means (i) a written contract consistent
with the terms of the Plan entered into between the Company or
an Affiliate and a Participant, (ii) containing the terms and
conditions of an Award in such form not inconsistent with this
Plan as the Committee shall approve from time to time,
together with all amendments thereto, which amendments may be
unilaterally made by the Company (with the approval of the
Committee) unless such amendments are deemed by the Committee
to be materially adverse to the Participant and not required
as a matter of law.
(c)Award or Awards means a grant made under this Plan
in the form of Restricted Stock, Options, Stock Appreciation
Rights, Performance Units, Stock or any other stockbased
award.
(d)Board means the Board of Directors of the Company.
(e)Code means the Internal Revenue Code of 1986, as
amended and in effect from time to time, or any successor
statute.
(f)Committee means the One or more NonEmployee
Directors designated by the Board to administer the Plan under
Plan Section 3.1 and, from and after such time as the Stock is
registered under Section 12 of the Exchange Act, constituted
so as to permit grants thereby to comply with Exchange Act
Rule 16b-3. If the Board has not appointed a committee to
administer this Plan, then the Board shall constitute the
Committee.
(g)Company means Digital Privacy, Inc., a Minnesota
corporation, or ...()()()..the successor to all or
substantially all of its businesses by merger, consolidation,
purchase of assets or otherwise.
(h)Effective Date means the date specified in Plan
Section 12.1.
(i)Employee means an employee (including an officer
or director who is also an employee) of the Company or an
Affiliate.
(j)Event means any of the following:
(1)The acquisition by any individual, entity
or group (within the meaning of Exchange Act Sections
13(d)(3) or 14(d)(2)) of beneficial ownership (within
the meaning of Exchange Act Rule 13d3) of 50% or more
of either (i) the then outstanding shares of common
stock of the Company (the Outstanding Company Common
Stock) or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled
to vote generally in the election of the Board (the
Outstanding Company Voting Securities); provided,
however, that the following acquisitions shall not
constitute an Event:
(A)any acquisition of common stock or voting securities of the Company
directly from the Company,
(B)any acquisition of common stock or voting securities of the Company
by the Company or any of its whollyowned Subsidiaries,
(C)any acquisition of common stock or voting securities of the Company
by any employee benefit plan (or related trust) sponsored or maintained by the
Company or any of its Subsidiaries, or
(D)any acquisition by any corporation with respect to which,
immediately following such acquisition, more than 70% of, respectively, the then
outstanding shares of common stock of such corporation and the combined voting
power of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
acquisition in substantially the same proportions as was their ownership,
immediately prior to such acquisition, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, as the case may be;
(2)Individuals who, as of the Effective Date, constitute the Board (the
Incumbent Board) cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director of the Board
subsequent to the Effective Date whose election, or nomination for election by
the Companys shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered a member of
the Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or threatened
election contest that was (or, if threatened, would have been) subject to
Exchange Act Rule 14a11 or its successor provision;
(3)Approval by the shareholders of the Company of a reorganization,
merger, consolidation or statutory exchange of Outstanding Company Voting
Securities, unless immediately following such reorganization, merger,
consolidation or exchange, all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such reorganization, merger, consolidation or exchange beneficially own,
directly or indirectly, more than 70% of, respectively, the then outstanding
shares of common stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such reorganization, merger,
consolidation or exchange in substantially the same proportions as was their
ownership, immediately prior to such reorganization, merger, consolidation or
exchange, of the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be; or
(4)Approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other disposition
of all or substantially all of the assets of the Company, other than to a
corporation with respect to which, immediately following such sale or other
disposition, more than 70% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition in
substantially the same proportion as was their ownership, immediately prior to
such sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be.
Notwithstanding the above, an Event shall not be deemed to occur with
respect to a recipient of an Award if the acquisition of the 50% or greater
interest referred to in paragraph (1) is by a group, acting in concert, that
includes that recipient of an Award or if at least 50% of the then outstanding
common stock or combined voting power of the then outstanding voting securities
(or voting equity interests) of the surviving corporation or of any corporation
(or other entity) acquiring all or substantially all of the assets of the
Company shall be beneficially owned, directly or indirectly, immediately after a
reorganization, merger, consolidation, statutory share exchange or disposition
of assets referred to in paragraphs (3) or (4) by a group, acting in concert,
that includes that recipient of an Award.
(k)Exchange Act means the Securities Exchange Act of 1934, as amended
and in effect from time to time, or any successor statute.
(l)Exchange Act Rule 16b-3 means Rule 16b-3 promulgated by the
Securities and Exchange Commission under the Exchange Act as now in force and in
effect from time to time or any successor regulation.
(m)Fair Market Value as of any date means, unless otherwise expressly
provided in the Plan:
(1) the closing price of a Share on the date immediately preceding that
date or, if no sale of Shares shall have occurred on that date, on the next
preceding day on which a sale of Shares occurred
(A)on the composite tape for New York Stock Exchange listed shares, or
(B)if the Shares are not quoted on the composite tape for New York
Stock Exchange listed shares, on the principal United States Securities Exchange
registered under the Exchange Act on which the Shares are listed, or
