<PAGE> 1
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to .
------- ------
Commission File Number 0-23212
TELULAR CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 36-3885440
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
920 Deerfield Parkway
Buffalo Grove, Illinois
60089
(Address of principal executive offices)
(Zip Code)
(847) 465-4500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the Registrant's common stock, par value
$.01, as of July 31, 1996, the latest practicable date, was 30,960,365 shares.
<PAGE> 2
TELULAR CORPORATION
INDEX
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION PAGE NO.
----------
Item 1. Financial Statements:
Consolidated Balance Sheets
June 30, 1996 and September 30, 1995 3
Consolidated Statements of Operations
Three Months Ended June 30, 1996 and 1995 4
Consolidated Statements of Operations
Nine Months Ended June 30, 1996 and 1995 5
Consolidated Statement of Equity
Period from September 30, 1995 to June 30, 1996 6
Consolidated Statements of Cash Flows
Nine Months Ended June 30, 1996 and 1995 7
Notes to the Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
</TABLE>
2
<PAGE> 3
TELULAR CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1995
-------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,382,581 $ 21,552,372
Receivables:
Trade, net of allowance for doubtful accounts of
$992,000 and $218,000 at June 30, 1996
and September 30, 1995, respectively 5,276,399 5,782,269
Related parties 160,463 2,717,573
------------- --------------
5,436,862 8,499,842
Inventories, net 10,304,026 12,313,679
Prepaid expenses and other current assets 323,344 355,374
------------- --------------
Total current assets 32,446,813 42,721,267
Property and equipment, net 2,498,118 3,851,250
Other assets:
Intangible assets, net 200,000 8,106,325
Investment in affiliate 3,187,500 0
Deposits and other 61,004 68,388
------------- --------------
3,448,504 8,174,713
------------- --------------
Total assets $ 38,393,435 $ 54,747,230
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit $ 0 $ 10,000,000
Accounts payable:
Trade 2,345,987 3,157,240
Related parties 2,116,700 797,310
Accrued liabilities 2,199,893 2,836,905
------------- --------------
Total current liabilities 6,662,580 16,791,455
Convertible debentures 1,750,000 0
Commitments and contingencies 0 0
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized; none outstanding 0 0
Common stock; $.01 par value; 40,000,000 shares
authorized; 30,960,365 and 23,646,266 outstanding
at June 30, 1996 and September 30, 1995, 315,205 242,064
respectively
Additional paid-in capital 108,053,807 88,977,434
Deficit (76,781,450) (49,657,016)
Treasury stock, 560,000 shares at cost (1,606,707) (1,606,707)
------------- --------------
Total stockholders' equity 29,980,855 37,955,775
------------- --------------
Total liabilities and stockholders' equity $ 38,393,435 $ 54,747,230
============= ==============
</TABLE>
See accompanying notes.
3
<PAGE> 4
TELULAR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30
1996 1995
-------- --------
<S> <C> <C>
Net sales to customers $3,158,002 $8,463,584
Net sales to related parties 1,591,645 192,331
Total net sales 4,749,647 8,655,915
Cost of sales 3,571,569 6,808,658
------------ ------------
1,178,078 1,847,257
Engineering and development expenses 1,108,138 1,042,141
Selling and marketing expenses 1,259,796 2,107,232
General and administrative expenses 1,834,801 2,471,854
Allowance for doubtful accounts 659,128 129,586
Amortization charges 40,223 218,224
Restructuring and impairment charges 1,112,338 0.00
------------ ------------
Loss from operations (4,836,346) (4,121,780)
Other income 341,454 361,061
------------ ------------
Net loss ($4,494,892) ($3,760,719)
============ ============
Net loss per common share ($0.15) ($0.16)
============ ============
Weighted average number of common shares outstanding 30,478,543 23,367,983
============ ============
</TABLE>
See accompanying notes.
4
<PAGE> 5
TELULAR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30
1996 1995
<S> <C> <C>
Net sales to customers $11,041,518 $22,641,480
Net sales to related parties 2,310,906 1,043,021
------------ ------------
Total net sales 13,352,424 23,684,501
Cost of sales 13,881,016 19,026,806
------------ ------------
(528,592) 4,657,695
Engineering and development expenses 3,875,925 2,957,310
Selling and marketing expenses 5,078,360 7,914,221
General and administrative expenses 5,732,611 7,186,408
Allowance for doubtful accounts 839,079 199,665
Amortization charges 564,950 634,672
Restructuring and impairment charges 11,018,939 0.00
------------ ------------
Loss from operations (27,638,456) (14,234,581)
Other income 514,022 1,546,756
------------ ------------
Net loss ($27,124,434) $(12,687,825)
============ ============
Net loss per common share ($1.02) ($0.54)
============ ============
Weighted average number of common shares outstanding 26,476,097 23,286,085
============ ============
</TABLE>
See accompanying notes.
5
<PAGE> 6
TELULAR CORPORATION
CONSOLIDATED STATEMENT OF EQUITY
<TABLE>
<CAPTION>
Additional Total
Preferred Common Paid-In Treasury Stockholders'
Stock Stock Capital Deficit Stock Equity
--------- ------- ----------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1995 $ - $242,064 $88,977,434 ($49,657,016) ($1,606,707) $37,955,775
Proceeds from issuances of
common stock - 3,651 551,169 - - 554,820
Conversion of debentures into - 65,990 16,341,204 - - 16,407,194
6,599,000 shares of common
stock
Stock issued in connection wi - 3,500 2,184,000 - - 2,187,500
investment in TelePath Corp.
Net loss for period from October 1,
1995 to June 30, 1996 - - - (27,124,434) - (27,124,434)
------ -------- ------------ ------------ ----------- -----------
Balance at June 30, 1996 $ - $315,205 $108,053,807 ($76,781,450) ($1,606,707) $29,980,855
====== ======== ============ ============ =========== ===========
</TABLE>
See accompanying notes.
6
<PAGE> 7
TELULAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended June 30,
1996 1995
------- -------
<S> <C> <C>
Operating Activities:
Net loss ($27,124,434) ($12,687,825)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation 898,527 980,350
Amortization 564,950 634,672
Compensation expense 99,067 101,835
Interest expense on debentures converted 157,194 0
Restructuring and impairment charges, net of 8,493,489 0
Common stock issued for services 0 308,337
Changes in assets and liabilities:
Receivables 505,870 (2,113,059)
Related parties 3,876,500 2,186,766
Inventories 2,009,653 (2,441,452)
Prepaid expenses, deposits and other 39,414 (2,216,471)
Accounts payable (729,254) (599,292)
Accrued liabilities (719,011) 623,107
----------- -----------
Net cash used in operating activities (11,928,035) (15,223,032)
Investing Activities:
Investment in TelePath Corporation (1,000,000) 0
Acquisition of property and equipment (1,200,487) (539,378)
Acquisition of intellectual property 0 (320,000)
Proceeds from the disposal of equipment 502,978 0
----------- -----------
Net cash used in investing activities (1,697,509) (859,378)
Financing Activities:
Proceeds from issuance of common stock 455,753 308,420
Payments on revolving line of credit (10,000,000) 0
Proceeds from convertible debentures 18,000,000 0
----------- -----------
Net cash provided by financing activities 8,455,753 308,420
----------- -----------
Net decrease in cash and cash equivalents (5,169,791) (15,773,990)
Cash and cash equivalents, beginning of period 21,552,372 36,188,822
----------- -----------
Cash and cash equivalents, end of period $16,382,581 $20,414,832
=========== ===========
</TABLE>
See accompanying notes.
7
<PAGE> 8
TELULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the nine months ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the full
fiscal year ending September 30, 1996. For further information, refer to
the consolidated financial statements for the fiscal year ended September
30, 1995.
2. INVESTMENT IN TELEPATH CORPORATION
On June 28, 1996, the Company acquired a one-third interest in TelePath
Corporation ("TelePath") in exchange for $1,000,000 in cash and common
stock of the Company valued at $2,187,500. The agreement calls for the
Company to increase its equity position in TelePath to fifty percent by
August of 1997 by purchasing an additional one-sixth of TelePath for
150,000 shares of the Company's common stock as well as payments totaling
$500,000. The agreement contemplates a multi-year product development
program designed to provide the next generation of fixed wireless
terminals pursuant to which TelePath will provide and the Company will
purchase certain services.
3. RESTRUCTURING AND IMPAIRMENT COSTS
On January 22, 1996, the Company announced a restructuring program to be
implemented during the second and third quarters of fiscal 1996. The
difficulty in predicting demand for the Company's products, due in part
to immature foreign markets, underscored the importance of properly
aligning costs and expenses to attainable levels of revenue.
Manufacturing and engineering consolidation, outsourcing and the
elimination of non-core product lines were the focus of the
restructuring. The Company's Puerto Rico and Illinois manufacturing
operations were phased out during the second fiscal quarter, and
production was consolidated at the Company's Atlanta, Georgia facility.
The restructuring program has reduced general, administrative and
manufacturing costs Company-wide. The number of employees decreased
from over 250 in January to less than 110 at the end of June.
8
<PAGE> 9
TELULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
Restructuring charges related to the activities discussed above through
June 30, 1996 were approximately $6.7 million and consisted of
intangible, inventory and fixed asset write-offs as well as severance
payments to employees separated from the Company. Restructuring payments
were approximately $675,000 through June 30, 1996.
In addition, impairment charges through June 30, 1996 of $4.3 million
were recorded, which represented specific intangibles that were
determined to be impaired based on estimated cash flows over the
remaining business life cycle of the related assets(See Note 5 below).
Events related to a change in management and the corresponding change in
business direction, and the restructuring plan prompted the evaluation of
these intangibles.
Third quarter restructuring and impairment charges were approximately
$1.1 million. Third quarter restructuring charges were approximately
$0.6 million and consisted primarily of severance payments($0.3 million)
and fixed asset charges ($0.2 million). Impairment charges during the
third quarter were approximately $0.5 million and represented specific
intangibles that were determined to be impaired as the result of a
corresponding change in business direction.
4. INVENTORIES
The components of inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1995
----------- -----------
<S> <C> <C>
Raw materials $ 8,306,824 $ 8,512,969
Work in process 995,624 1,155,481
Finished goods 4,482,578 3,957,229
----------- -----------
13,785,026 13,625,679
Less: Reserve for obsolescence 3,481,000 1,312,000
----------- -----------
$10,304,026 $12,313,679
=========== ===========
</TABLE>
9
<PAGE> 10
TELULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
JUNE 30, 1996
5. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1995
-------------- -------------
<S> <C> <C>
Patents $ - $ 35,690
Licenses and technology 320,000 3,180,000
Excess of cost over fair
value of net assets acquired - 6,799,139
-------- ----------
320,000 10,014,829
Less: Accumulated amortization 120,000 1,908,504
-------- ----------
$200,000 $8,106,325
======== ==========
</TABLE>
6. CONVERTIBLE DEBENTURES
On December 11, 1995, the Company issued $18,000,000 in convertible
debentures (the "Debentures") at 4% per annum, which mature on December
11, 1997. The Debentures were issued under the provisions of Regulation
S as promulgated under the United States Securities Act of 1933, as
amended. Holders of the Debentures are entitled, at their option any
time after issuance until December 10, 1997, to convert principal and
interest accrued thereon, in whole or in part, into shares of common
stock using defined conversion formulas based on NASDAQ closing bids for
the Company's common stock. The Company is entitled, at its option any
time commencing one year after issuance (and under certain circumstances
prior to that date) through maturity, to require the holders to convert
the principal and accrued interest into shares of common stock of the
Company using defined conversion formulas based on NASDAQ closing bids
for the Company's common stock. The Company also has the right to redeem
the Debentures for cash at defined terms. Through June 30, 1996, the
holders elected to convert $16,250,000 in debentures plus interest
accrued thereon into 6,599,000 shares of common stock.
7. CONTINGENCIES
The Company is involved in legal proceedings which arise in the ordinary
course of business. While any litigation contains an element of
uncertainty, based upon the opinion of the Company's counsel, management
believes that the outcome of such proceedings will not have a material
adverse effect on the Company's consolidated financial position and
results of operations.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company designs, develops, manufactures and markets products based on its
proprietary interface technologies, which allow most standard wireline customer
premises equipment -- phones, facsimile machines, computer modems, PBXs, and
key systems, among others -- to operate over wireless telecommunications
networks. The Company devotes a substantial portion of its resources to
international market development, extension of its core product line to new
wireless standards, expansion and protection of its intellectual property
rights, and development of underlying radio technology.
Sales volumes have been volatile and have not been sufficient to achieve
profitability. The Company anticipates that losses will continue through
fiscal 1996. The Company's operating expense levels are based, in large part,
on expectations of future revenues. If anticipated sales in any quarter do not
occur as expected, expenditure and inventory levels could be disproportionately
high, and the Company's operating results for that quarter, and potentially for
future quarters, could be adversely affected.
RESTRUCTURING AND ORGANIZATIONAL CHANGES
On January 22, 1996, the Company announced a restructuring program to be
implemented during the second and third quarters of fiscal 1996. The difficulty
in predicting demand for the Company's products, due in part to immature
foreign markets, underscored the importance of properly aligning costs and
expenses to attainable levels of revenue. Manufacturing and engineering
consolidation, outsourcing and the elimination of non-core product lines were
the focus of the restructuring. The Company's Puerto Rico and Illinois
manufacturing operations were phased out during the second fiscal quarter, and
production was consolidated at the Company's Atlanta, Georgia facility. The
restructuring program has reduced general, administrative and manufacturing
costs Company-wide. The number of employees decreased from over 250 in January
to less than 110 at the end of June.
Restructuring charges related to the activities discussed above through June
30, 1996 were approximately $6.7 million and consisted of intangible, inventory
and fixed asset write-offs as well as severance payments to employees separated
from the Company. Restructuring payments were approximately $675,000 through
June 30, 1996.
In addition, impairment charges through June 30, 1996 of $4.3 million were
recorded, which represented specific intangibles that were determined to be
impaired based on estimated cash flows over the remaining business life cycle
of the related assets. Events related to a change in management and the
corresponding change in business direction, and the restructuring plan
prompted the evaluation of these intangibles.
11
<PAGE> 12
Third quarter restructuring and impairment charges were approximately $1.1
million. Third quarter restructuring charges were approximately $0.6 million
and consisted primarily of severance payments($0.3 million) and fixed asset
($0.2 million) charges. Impairment charges during the third quarter were
approximately $0.5 million and represented specific intangibles that were
determined to be impaired as the result of a corresponding change in business
direction.
The Company appointed Kenneth E. Millard, 49, President and Chief Executive
Officer (CEO) effective April 18, 1996. Mr. Millard also serves as a member of
the Board of Directors. He joined Telular with over twenty-five years of
telecommunications experience, most recently as President and Chief Operating
Officer of Oncor Communications, based in Bethesda, Maryland. On July 1, 1996,
Frank J.M. ten Brink, 39, joined the Company as Senior Vice President and Chief
Financial Officer, replacing Daniel O. Wagster. Mr. ten Brink brings over
fifteen years of finance, international business and manufacturing experience,
most recently as Executive Director with Tenneco Packaging, Hexacomb Products.
INVESTMENT IN TELEPATH CORPORATION
On June 28, 1996, the Company acquired a one-third interest in TelePath
Corporation for $1,000,000 in cash and common stock of the Company valued at
$2,187,500. TelePath is a radio developer, based in Hauppauge, New York, that
specializes in the design of advanced cellular and personal communication
services products. The agreement calls for the Company to increase its equity
position in TelePath Corporation to fifty percent by August of 1997 by
purchasing an additional one-sixth of TelePath for 150,000 shares of the
Company's common stock as well as payments totaling $500,000. The agreement
includes a multi-year product development program designed to provide a new
generation of state-of-the-art fixed wireless terminals, which include both
analog and digital radio standards, for markets worldwide. The agreement
contemplates that TelePath will provide and the Company will purchase certain
development services including the conversion of Telular's patented interface
technology into a chip set, integration of Telular's patented interface
technology with new and existing cellular radio standards, and development of
new feature functions for future generations of analog and digital terminals.
MOTOROLA
The Company was awarded a contract to supply a specifically customized version
of its PHONECELL(R) SX product to Motorola's Cellular Infrastructure Group for
deployment in existing and future Wireless Local Loop (WLL) projects in
Hungary. In March 1996, the Company and Motorola, which owned approximately
15.4% of the outstanding shares of common stock at June 30, 1996, announced
that Motorola issued a purchase order for $25 million of PHONECELL(R) SX
product in connection with the project. The delivery schedule provides for $19
million of product to be shipped during calendar 1996, and another $6 million
to be scheduled for delivery in early calendar 1997. Shipments commenced
during the third quarter of fiscal 1996.
12
<PAGE> 13
RESULTS OF OPERATIONS
Net Sales. Third quarter fiscal 1996 sales decreased by $3.9 million compared
to the same period in fiscal 1995. Revenues for the third quarter of fiscal
1996 were lower than the same quarter of fiscal 1995 due in part to large
non-recurring orders shipped in fiscal 1995, particularly from the Latin
American and Middle Eastern sales regions. Shipments to Motorola for the WLL
project in Hungary anticipated in the third quarter were delayed. Shipments
commenced in June 1996, with approximately $19.0 million of the order scheduled
for delivery during the fourth quarter of fiscal 1996 and the first quarter of
fiscal 1997.
For the first nine months of fiscal 1996, sales decreased by $10.3 million
compared to the same period in fiscal 1995. The decrease in year-to-date
revenues is primarily due to lower sales in the Latin American and Middle
Eastern sales regions, returns during the first quarter of fiscal 1996 of GSM
PhoneCell product requiring engineering modifications, and delays in the
network installation of WLL programs in Eastern Europe, Africa and Middle East.
Gross Profit. Third quarter fiscal 1996 gross profit decreased by $0.7 million
compared to the same period in fiscal 1995. The aforementioned lower sales
volume primarily accounted for the decrease in gross profit.
Gross profit for the first nine months of fiscal 1996 was negative and
decreased by $5.2 million compared to the same period in fiscal 1995. A $2.5
million charge during the second fiscal quarter for inventory determined to be
excess or obsolete as part of the consolidation of the Company's manufacturing
facilities accounted for almost one-half of the decrease. In addition, gross
profit was less than in the same period of fiscal 1995 because of lower sales
in fiscal 1996, the inventory reduction program resulted in sales with lower
margins, and factory throughput was down due to the consolidation of the
manufacturing facilities which resulted in the absorption of higher fixed costs
over fewer units than in the same period in fiscal 1995.
Engineering and Development Expenses. Engineering and development expenses
increased 6.3% compared to the same quarter in fiscal 1995. Although the
Company did consolidate engineering as part of the restructuring program,
management considers engineering and product development to be integral to the
future success of the Company, and the increase in engineering and development
expenses reflects the Company's commitment to the development of future
generations of product.
Engineering and development expenses for the first nine months of fiscal 1996
increased 31.1% compared to the same period in fiscal 1995. The increase is
primarily due to aforementioned commitment by the Company to develop future
generations of product.
Selling and Marketing expenses. Selling and marketing expenses for the third
quarter of fiscal 1996 decreased 40.2% compared to the same quarter in fiscal
1995. The Company, as part of the restructuring program, realigned its
worldwide sales organization during fiscal 1996. In addition, the sales support
functions were consolidated during fiscal 1995 and 1996, which resulted in the
closing of the Company's sales support office in Memphis and the execution of a
domestic, non-exclusive master distribution agreement with a related party.
The realignment and consolidation programs were primarily responsible for the
significant reduction in sales and marketing expenses in the third quarter of
fiscal 1996 compared to the third quarter of fiscal 1995.
Selling and Marketing expenses for the first nine months of fiscal 1996
decreased 35.8% compared to the same period in fiscal 1995.
13
<PAGE> 14
This was primarily due to the aforementioned realignment of the Company's
worldwide sales organization and consolidation of sales support functions during
fiscal 1996.
General and Administrative Expenses (G&A). G&A for the third quarter decreased
25.8% compared to the same quarter of fiscal 1995. The decrease is primarily
attributable to the reduction or elimination of expenditures, primarily through
headcount reductions, achieved through the restructuring program implemented
during the second and third fiscal quarters of fiscal 1996.
G&A for the first nine months of fiscal 1996 decreased 20.2% compared to the
same period in fiscal 1995. This was primarily due to the aforementioned
restructuring program implemented during the second and third fiscal quarters
of fiscal 1996.
Allowance for doubtful accounts. The allowance for doubtful account expense
increased 408.6% compared to the same quarter in fiscal 1995. The increase
reflected $0.5 million reserved during the third quarter of fiscal 1996 for a
trade receivable due from one customer.
The allowance for doubtful account expense increased 320.2% for the first nine
months of fiscal 1996 compared to the same period in fiscal 1995 primarily due
to the aforementioned $0.5 million trade receivable reserved for during fiscal
1996.
Amortization Charges. Amortization charges for the third quarter decreased by
81.6% compared to the same quarter in fiscal 1995. Intangible assets written
off as part of the aforementioned restructuring and impairment charges
significantly reduced the intangible asset balance and related amortization
charges in fiscal 1996 compared to fiscal 1995.
Amortization charges decreased by 11.0% for the first nine months of fiscal
1996 compared to the same period in fiscal 1995. The aforementioned intangible
assets written off as restructuring and impairment charges reduced fiscal 1996
amortization charges compared to fiscal 1995 amortization charges.
Other Income (Expense). Third fiscal quarter 1996 net other income (expense)
was slightly lower compared to the same fiscal quarter in 1995 primarily due to
lower interest income as cash balances in interest bearing accounts were lower
in fiscal 1996 compared to fiscal 1995.
Other income for the first nine months of fiscal 1996 decreased by $1.0 million
compared to the same period in fiscal 1995. This was primarily due to the
aforementioned decrease in interest income as well as a decrease in royalty
revenues.
Net Loss. The Company's net loss for the third quarter in fiscal 1996
increased by $0.7 million compared to the same quarter in the prior fiscal
period. Restructuring charges accounted for $1.1 million of the loss.
Excluding the restructuring charges, the net loss decreased from $3.8 million
($0.16/share) in the third quarter of 1995 to a loss of $3.4 million
($0.11/share) in 1996.
14
<PAGE> 15
The net loss for the first nine months of fiscal 1996 increased approximately
$14.4 million compared to the same period in the prior year. Restructuring and
impairment charges accounted for $11.0 million of the loss. Before
restructuring and impairment charges, the net loss amounted to $16.1 million
($0.61/share) for the first nine months of fiscal 1996, compared to a loss of
$12.7 million ($0.54/share) in the same period of 1995.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had $16.4 million in cash and cash equivalents
with a working capital surplus of approximately $25.8 million.
Net cash used in operating activities was $11.9 million during the first nine
months of fiscal 1996 compared to $15.2 million in fiscal 1995. The $27.1
million loss for the current period included approximately $11.9 million of
non-cash operating expenses. For the third fiscal quarter of 1996, the net cash
used in operating activities amounted to $1.3 million.
Cash used for capital spending and other investing activities was approximately
$1.7 million during fiscal 1996, $1.0 million of which reflects the investment
in TelePath Corporation, compared to $0.9 million in fiscal 1995.
Financing activities generated $8.5 million during the first nine months of
fiscal 1996 compared to $0.3 million during the same period in fiscal 1995.
The current period's increase resulted primarily from proceeds received
pursuant to the issuance of $18.0 million of convertible debentures (see
below), which were offset in part by $10.0 million in payments against the
Company's revolving line of credit.
During fiscal 1995, the Company entered into a Loan and Security Agreement (the
"Agreement") with LaSalle National Bank that, among other things, provides a
credit facility with a loan limit of $20.0 million. Borrowings under the
Agreement are subject to borrowing base requirements and other conditions.
Under the Agreement, the Company also is required to comply with certain
affirmative and negative covenants. There were no borrowings under the
Agreement at June 30, 1996.
On December 11, 1995, the Company issued $18,000,000 in convertible debentures
(the "Debentures") at 4% per annum which mature on December 11, 1997. The
Debentures were issued under the provisions of Regulation S as promulgated
under the United States Securities Act of 1933, as amended. Holders of the
Debentures are entitled, at their option any time after issuance until December
10, 1997, to convert principal and interest accrued thereon, in whole or in
part, into shares of common stock using defined conversion formulas based on
NASDAQ closing bids for the Company's
15
<PAGE> 16
common stock. The Company is entitled, at its option any time commencing
one year after issuance (and under certain circumstances prior to that date)
through maturity, to require the holders to convert the principal and accrued
interest into shares of common stock of the Company using defined conversion
formulas based on NASDAQ closing bids for the Company's common stock. The
Company also has the right to redeem the Debentures for cash at defined terms,
subject to immediate exercise of the conversion option. Through June 30, 1996,
the holders elected to convert $16,250,000 in debentures plus interest accrued
thereon into 6,599,000 shares of common stock.
Based on its current operating plan, the Company believes its existing capital
resources, including the credit facility and proceeds from the issuance of the
Debentures, should enable it to maintain its current and planned operations
through 1996. Management is exploring the possibility of raising additional
capital during the fourth fiscal quarter of 1996. Expected future uses of cash
include working capital requirements, research and product development,
marketing and sales support programs in anticipation of future revenues and
certain capital expenditures. Cash requirements may vary and are difficult to
predict given the nature of the developing markets targeted by the Company.
The amount of royalty income from the Company's licensees is unpredictable, but
could have an impact on the Company's actual cash flow.
The Company requires letters of credit or qualification for export credit
insurance underwritten by the Export-Import Bank of the United States on a
substantial portion of its international sales orders. Also, to mitigate the
effects of currency fluctuations on the Company's results of operations, the
Company endeavors to conduct all of its international transactions in U.S.
dollars. To date, the Company's sales have not been adversely affected by
currency fluctuations; however, as the Company's international operations grow,
foreign exchange or the inflation of a foreign currency may pose greater risks
for the Company, and the Company may be required to develop and implement
additional strategies to manage these risks.
16
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (listed by number according to Exhibit table of Item 601 in
Regulation S-K)
EXHIBIT
NUMBER DESCRIPTION REFERENCE
- ------- ----------- ---------
3.1 Certificate of Incorporation Filed as Exhibit 3.1
to the Registration Statement
No. 33-72096
(the "Registration Statement")
3.2 Amendment No. 1 to Certificate Filed as Exhibit 3.2 to
of Incorporation the Registration Statement
3.3 Amendment No. 2 to Certificate Filed as Exhibit 3.3 to
of Incorporation the Registration Statement
3.4 By-Laws Filed as Exhibit 3.4 to the
Registration Statement
4.1 Loan Agreement with LaSalle Filed as Exhibit
National Bank and Amendment 4.1 to Form 10-K
thereto filed December 27, 1995
4.2 Debenture Agreements dated Filed as Exhibit
December 11, 1995 4.2 to Form 10-K
filed December 27, 1995
10.1 Employment Agreement with Filed Herewith
Kenneth E. Millard
10.2 Stock Option Agreement with Filed Herewith
Kenneth E. Millard
10.3 Stock Purchase Agreement By Filed Herewith*
and Among Telular Corporation
and TelePath Corporation
11 Computation of Earnings Per Filed Herewith
Share
27 Financial Data Schedule Filed Herewith
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three months
ended June 30, 1996.
*Confidential treatment has been requested for portions of this
exhibit, which portions have been omitted from the attached exhibit and filed
separately with the Securities and Exchange Commission.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant duly caused this Report of Form 10-Q to be signed on its behalf by
the undersigned, thereunto duly authorized.
Telular Corporation
--------------------
Date August 14, 1996 By: /s/ Kenneth E. Millard
---------------- ----------------------
Kenneth E. Millard
Chief Executive Officer
Date August 14, 1996 /s/ Timothy L. Walsh
----------------- --------------------------
Timothy L. Walsh
Chief Accounting Officer
18
<PAGE> 19
EXHIBIT
NUMBER DESCRIPTION REFERENCE
- ------- ----------- ---------
3.1 Certificate of Incorporation Filed as Exhibit 3.1
to the Registration Statement
No. 33-72096
(the "Registration Statement")
3.2 Amendment No. 1 to Certificate Filed as Exhibit 3.2 to
of Incorporation the Registration Statement
3.3 Amendment No. 2 to Certificate Filed as Exhibit 3.3 to
of Incorporation the Registration Statement
3.4 By-Laws Filed as Exhibit 3.4 to the
Registration Statement
4.1 Loan Agreement with LaSalle Filed as Exhibit
National Bank and Amendment 4.1 to Form 10-K
thereto filed December 27, 1995
4.2 Debenture Agreements dated Filed as Exhibit
December 11, 1995 4.2 to Form 10-K
filed December 27, 1995
10.1 Employment Agreement with Filed Herewith
Kenneth E. Millard
10.2 Stock Option Agreement with Filed Herewith
Kenneth E. Millard
10.3 Stock Purchase Agreement By Filed Herewith*
and Among Telular Corporation
and TelePath Corporation
11 Computation of Earnings Per Filed Herewith
Share
27 Financial Data Schedule Filed Herewith
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three months
ended June 30, 1996.
*Confidential treatment has been requested for portions of this
exhibit, which portions have been omitted from the attached exhibit and filed
separately with the Securities and Exchange Commission.
19
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, dated as of April 18, 1996, by and between
TELULAR CORPORATION, a Delaware corporation (the "Company"), and KENNETH
MILLARD, a resident of the District of Columbia (the "Executive");
WITNESSETH:
WHEREAS, the Company wishes to employ the Executive as its President and
Chief Executive Officer; and
WHEREAS, the Executive wishes to be employed in this capacity by the
Company, on the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the mutual obligations set forth
herein, the parties hereto hereby agree as follows:
1. Engagement. The Company hereby agrees to employ the Executive as its
President and Chief Executive Officer and the Executive hereby accepts such
employment, on the terms and conditions hereinafter set forth. The Executive's
principal place of business shall be at the headquarters of the Company, and
the Executive shall promptly establish a residence in the Chicago metropolitan
area.
2. Term of Employment. The Executive's employment by the Company shall
commence on April 17, 1996 (the "Effective Date"). Employment shall be on an
"at-will" basis
<PAGE> 2
- 2 -
and shall continue in effect until terminated by either party upon at least 60
days prior notice. The period of employment of the Executive by the
Company is referred to herein as the "Term."
3. Duties. During the Term, the Executive shall serve as the Company's
Chief Executive Officer and shall have such duties and responsibilities as are
set forth in the Company's Bylaws and such other executive responsibilities and
performances as may be assigned to him from time to time by the Board of
Directors of the Company (the "Board"). The Executive shall use his best
efforts and shall act in good faith in performing all duties reasonably
required to be performed under this Agreement.
4. Availability. The Executive shall devote his entire working time,
attention and energies to the Company's business and, during the term of this
Agreement, shall not be engaged in any other business activity without the
express written approval of the Board.
5. Expenses. (a) The Company shall reimburse the Executive, promptly
upon presentation of itemized vouchers, for all ordinary and necessary business
expenses incurred by the Executive in the performance of his duties hereunder.
<PAGE> 3
- 3 -
(b) The Company shall reimburse the Executive for his reasonable costs
and expenses incurred in connection with the relocation of his residence from
Washington, D.C., to the Chicago metropolitan area (including without
limitation costs of selling the Executive's Washington residence and closing
costs and points incurred in the Executive's purchase of a Chicago residence),
up to a maximum reimbursement of $30,000. The Executive shall provide the
Company with reasonable supporting documentation for all expenses for which
reimbursement is sought.
6. Compensation. As compensation for the services to be rendered
hereunder, the Company agrees as follows:
(a) The Company shall pay to the Executive an annual base salary (the
"Base Salary") which shall be at the annual rate of $250,000. The Base Salary
shall be paid in bi-monthly installments or in such other installments as to
which the Company and the Executive may agree.
(b) The Board shall establish performance targets for the Executive for
each fiscal year during which the Executive remains employed by the Company,
and for the partial fiscal year between the date of this Agreement and
September 30, 1996 (the "Partial Year"). For any fiscal year for which the
Executive achieves 100% of the performance targets
<PAGE> 4
- 4 -
established for that year, the Company shall, except as provided below for the
Partial Year and subject to Section 2(d), pay to the Executive, not later than
90 days after the end of such fiscal year, an incentive bonus (the "Incentive
Bonus") of $200,000, of which $100,000 shall be paid in cash and $100,000 in
the form of Common Stock, par value $.01 per share, of the Company ("Common
Stock"), having a Market Value (as defined below) of $100,000. For the Partial
Year, the amount of the Incentive Bonus payable pursuant to this Section 5(b)
shall be $91,257 (which is equal to $200,000 times 167/366), of which $45,629
shall be payable in cash and $45,628 in the form of Common Stock having a
Market Value of $45,628.
(c) For purposes of Section 5(b), the "Market Value" of a share of
Common Stock shall be the average closing bid price of the Common Stock over
the five consecutive trading days ending on last day of period for which
objectives are set. (For example, in the case of objectives established for
the period ending September 30, 1996, the Market Value would be the average
closing bid price on September 24, 25, 26, 27, and 30, 1996.)
(d) No Incentive Bonus shall be payable for any fiscal year or partial
fiscal year if (i) the Executive for
<PAGE> 5
- 5 -
any reason was not an employee of the Company for at least one-half of such
fiscal year or partial fiscal year or (ii) the Executive was not an employee of
the Company at the end of such fiscal year or partial fiscal year by reason of
either the prior resignation of the Executive or the prior termination of the
Executive by the Company for Cause (as defined below).
(e) The Company shall permit the Executive to participate in such
pension, 401(k), and other employee benefit plans as are made available to
employees of the Company generally. The Executive shall be entitled to four
weeks of paid vacation per year.
1. Stock Options. Under an Option Agreement of even date herewith, the
Company is granting to the Executive certain stock options under the Company's
Stock Incentive Plan.
2. Ownership of Material Information. All right, title and interest
of every kind and nature whatsoever in and to discoveries, inventions,
improvements, patents (and applications therefor), copyrights, ideas, know-how,
laboratory notebooks, creations, properties and all other proprietary rights
arising from, or in any way related to, the Executive's employment hereunder
shall become and remain the
<PAGE> 6
-6-
exclusive property of the Company, and the Executive shall have no interest
therein.
3. Trade Secrets. The Executive shall not, during the term of this
Agreement or thereafter, disclose to anyone (except to the extent reasonably
necessary for the Executive to perform his duties hereunder or as may be
required by law) any confidential information concerning the business or
affairs of the Company (or of any affiliate or subsidiary of the Company),
including but not limited to lists of customers, business plans, joint
ventures, financial or cost information, and confidential scientific and
technological information (whether of the Company or entrusted to the Company
by a third party under a confidentiality agreement or understanding) which the
Executive shall have acquired in the course of, or incident to, the performance
of his duties pursuant to the terms of this Agreement or pursuant to any prior
dealings with the Company or any affiliate or subsidiary of the Company. In
the event of a breach or threatened breach by the Executive of the provisions
of this Section 9, the Company shall be entitled to an injunction restraining
the Executive from disclosing, in whole or in part, such information or from
rendering any services to any person, firm, corporation, association or other
entity to whom such information has been
<PAGE> 7
- 7 -
disclosed or is threatened to be disclosed. Nothing herein shall be construed
as prohibiting the Company from pursuing any other remedies available to the
Company for such breach or threatened breach, including the recovery of damages
from the Executive. Nothing herein shall be construed as prohibiting the
Executive from disclosing to anyone any information which is, or which becomes,
available to the public (other than by reason of a violation of this Section 9)
or which is a matter of general business knowledge or experience.
4. Termination For Cause. The Company may terminate the employment of
the Executive under this Agreement in the event that the Board determines that
the Executive (a) has materially and substantially breached his obligations
under Section 4, 9, or 13 of this Agreement, provided that the employment of
the Executive shall not be terminated under this clause (a) unless the
Executive is given notice in writing that the conduct in question constitutes
grounds for termination under this Section 10 and the Executive is allowed at
least thirty (30) days to remedy the refusal or failure, (b) has been convicted
of a felony constituting a crime of moral turpitude (whether or not in
conjunction with the performance by the Executive of his duties under this
Agreement), or (c) has through willful misconduct or gross
<PAGE> 8
-8-
negligence engaged in an act or course of conduct that causes material injury
to the Company (or any affiliate or subsidiary of the Company). If the
employment of the Executive under this Agreement is terminated under this
Section 10, the Board shall give written notice to the Executive specifying the
cause of such action. Upon a termination of employment under this Section 10,
the Company shall be relieved of all further obligations under this Agreement.
Notwithstanding such termination of employment, the Executive shall continue to
be bound by the provisions of Sections 8, 9, and 13.
5. Termination Without Cause.
(a) If, except as otherwise provided in Section 12, the employment of
the Executive is terminated by the Company other than for Cause or by
resignation of the Executive, or if the responsibilities and duties of the
Executive are, other than for Cause, materially diminished or changed by the
Company in a manner that materially impairs the Executive's ability to function
as the Chief Executive Officer of the Company, the Executive shall be entitled
to receive, upon such termination, a severance payment in an amount equal to
$250,000.
<PAGE> 9
-9-
(b) Termination of employment under this Section 11 shall not terminate
the Executive's obligations under Sections 8, 9 and 13.
6. Death or Disability of the Executive. In the event that the
Executive, during the period while employed under this Agreement, shall die or
at any time become unable, due to ill-health, accident, injury or similar
cause, to carry out his duties under this Agreement, the Company may terminate
this Agreement and be relieved of all further obligations hereunder, other than
compensation for services provided prior to such termination, reimbursement for
expenses incurred prior to such termination, and, other than in the case of
death, payment of the severance payment specified in Section 11(a). Termination
of employment under this Section 12 shall not terminate the Executive's
obligations under Section 8, 9 and 13.
7. Non-Competition. The Executive hereby agrees that, during the Term
and for a period of eighteen (18) months following the termination of his
employment under this Agreement, he will not, directly or indirectly and in any
way, (a) own, manage, operate, control, be employed by, participate in, or be
connected in any manner with the ownership, management, operation or control of
any business competing
<PAGE> 10
-10-
with the business of the Company, (b) interfere with, solicit on behalf of
another or attempt to entice away from the Company (or any affiliate or
subsidiary of the Company) (i) any project, financing or customer that the
Company (or any affiliate or subsidiary of the Company) has under contract
(including unfulfilled purchase orders), or any letter of supply or other
supplier contract or arrangement entered into by the Company (or any affiliate
or subsidiary of the Company), and all extensions, renewals and resolicitations
of such contracts or arrangements, (ii) any contract, agreement or arrangement
that the Company (or any affiliate or subsidiary of the Company) is actively
negotiating with any other party, or (iii) any prospective business opportunity
that the Company (or any affiliate or subsidiary of the Company) has
identified, or (c) for himself or another, hire, attempt to hire, or assist in
or facilitate in any way the hiring of any employee of the Company (or any
affiliate or subsidiary of the Company), or any employee of any person, firm or
other entity, the employees of which the Company (or any affiliate or
subsidiary of the Company) has agreed not to hire or endeavor to hire. The
effective time of the limitations imposed by this Section 13 shall be extended
for the period of time equal to any period of time during which
<PAGE> 11
- 11 -
the Executive acts in circumstances that a court of competent jurisdiction
finds to have violated the terms of this Section 13.
Because of the Executive's knowledge of the Company's business, in the
event of the Executive's actual or threatened breach of the provisions of this
Section 13, the Company shall be entitled to, and the Executive hereby consents
to, an injunction restraining the Executive from any of the foregoing. However,
nothing herein shall be construed as prohibiting the Company from pursuing any
other available remedies for such breach or threatened breach, including the
recovery of damages from the Executive. The Executive agrees that the
provisions of this Section 13 are necessary and reasonable to protect the
Company in the conduct of its business. If any restriction contained in this
Section 13 shall be deemed to be invalid or unenforceable by reason of the
extent, duration of geographic scope thereof, then the Company shall have the
right to reduce such extent, duration, geographic scope of other provisions
thereof, and in their reduced form such restrictions shall then be enforceable
in the manner contemplated hereby.
8. Capacity. The Executive represents and warrants to the Company
that he is not now under any
<PAGE> 12
- 12 -
obligation, of a contractual nature or otherwise, to any person, firm,
corporation, association or other entity that is inconsistent or in conflict
with this Agreement or which would prevent, limit or impair in any way the
performance by him of his obligations hereunder.
9. Withholding. The Executive acknowledges that salary and all other
compensation payable under this Agreement shall be subject to withholding for
income and other applicable taxes to the extent required by law, as determined
by the Company in its reasonable judgment.
10. Indemnification. To the greatest extent permitted by applicable
law, and in a manner consistent with any procedures required by applicable law,
the Corporation shall indemnify and hold the Executive harmless from and
against any liability (including, without limitation, reasonable attorneys'
fees) incurred by the Executive in any claim, action, suit, or proceeding
instituted or brought against the Executive as a result of or arising out of
service by the Executive as an officer or director of the Company, or of any
other corporation or other entity at the request or direction of the Company,
except to the extent that such liability is the result of the criminal action
or willful misconduct on the part of the Executive.
<PAGE> 13
- 13 -
11. Waiver. No act, delay, omission or course of dealing on the part
of any party hereto in exercising any right, power or remedy hereunder shall
operate as, or be construed as, a waiver thereof or otherwise prejudice such
party's rights, powers and remedies under this Agreement.
12. Notice. Any and all notices referred to herein shall be sufficient
if furnished in writing and delivered by hand, by facsimile transmission or by
overnight delivery service maintaining records of receipt, to the respective
parties at the following addresses:
If to the Company: Telular Corporation
920 Deerfield Parkway
Buffalo Grove, Illinois 60089
Attn: William L. De Nicolo
Facsimile #: 708-256-3555
with a copy to: Covington & Burling
1201 Pennsylvania Ave., N.W.
P.O. Box 7566
Washington, D.C. 20044
Attn: Michael E. Cutler, Esq.
Facsimile #: 202-662-6291
If to the Executive: Mr. Kenneth Millard
5059 Lakeview Court
Oconomowoc, WI 53066
Facsimile #: 414-567-0121
with a copy to: Mr. Kenneth Millard
c/o/ Telular Corporation
920 Deerfield Parkway
Buffalo Grove, Illinois 60089
Facsimile #: 847-465-4501
<PAGE> 14
- 14 -
or to such other address or addresses as either party may from time to time
designate by notice given as aforesaid. Notices shall be effective when
delivered.
1. Arbitration. Except as provided otherwise in this Agreement, all
disputes arising under or in connection with this Agreement may be submitted to
arbitration in Chicago, Illinois under the rules of the American Arbitration
Association, and the decision of the arbitrator shall be final and binding upon
the parties. Judgment upon the award rendered may be entered and enforced in
any court having jurisdiction.
2. Assignability. The rights and obligations contained herein shall be
binding on and inure to the benefit of the successors and assigns of the
Company. The Executive may not assign his rights or obligations hereunder
without the express written consent of the Company.
3. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois.
4. Completeness. This Agreement and the Option Agreement entered into
pursuant hereto set forth all, and are intended by each party to be an
integration of all, of the
<PAGE> 15
- 15 -
promises, agreements and understandings between the parties hereto with respect
to the subject matter hereof.
5. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original, and all of which
together shall constitute one agreement binding on the parties hereto.
6. Severability. Each provision of this Agreement shall be considered
severable and if for any reason any provision that is not essential to the
effectuation of the basic purpose of the Agreement is determined to be invalid
or contrary to any existing or future law, such invalidity shall not impair the
operation of or affect those provisions of this Agreement that are valid.
7. Headings; Construction. Headings contained in this Agreement are
inserted for reference and convenience only and in no way define, limit, extend
or describe the scope of this Agreement or the meaning or construction of any
of the provisions hereof. As used herein, unless the context otherwise
requires, the single shall include the plural and vice versa, words of any
gender shall include words of any other gender, and "or" is used in the
inclusive sense.
8. Survival of Terms. If this Agreement is terminated for any reason,
the provisions of Sections 8, 9 and
<PAGE> 16
- 16 -
13 shall survive and the Executive and the Company, as the case may be, shall
continue to be bound by the terms thereof to the extent provided therein. IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day
and year first above written.
TELULAR CORPORATION
/s/ Kenneth Millard By: /s/ William L. De Nicolo
- -----------------------------------------------------------------------------
Kenneth Millard William L. De Nicolo
Chairman of the Board
<PAGE> 1
EXHIBIT 10.2
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, is entered into as of the 18 day of April, 1996, by
and between Telular Corporation, a Delaware corporation (the "Company"), having
its principal place of business at Buffalo Grove, Illinois, and Kenneth
Millard, a resident of Washington, D.C. (the "Executive").
WHEREAS, pursuant to the Employment Agreement of even date herewith (the
"Employment Agreement "), the Executive has agreed to become Chief Executive
Officer of the Company; and
WHEREAS, pursuant to the Employment Agreement the Company has agreed to
grant to the Executive, in partial consideration for his agreement to enter
into the Employment Agreement, certain options to purchase shares of common
stock, par value $.01 per share, of the Company ("the Company Shares");
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants set forth herein, the parties hereto, intending to be legally bound,
hereby agree as follows.
1. Grant of Options. The Company hereby grants to the Executive options
to purchase up to 500,000 Company Shares, subject to the terms and conditions
of this Option Agreement and pursuant to, and in accordance with the terms of,
the
<PAGE> 2
-2-
Company's Amended and Restated Stock Incentive Plan (the "Options").
2. Option Vesting. Subject to the termination provisions of Section 3(b),
Options shall vest as follows:
(a) Options to acquire 50,000 Company Shares (the "First Tranche") are
hereby vested.
(b) Options to acquire 150,000 Company Shares (the "Second Tranche")
shall vest in 35 installments of 4,167 Company Shares each and a 36th
installment of 4,155 Company Shares, on the first day of June, 1996, and of
each month thereafter through May, 1998.
(c) Options to acquire 300,000 Company Shares (the "Third Tranche")
shall vest on April 30, 2003; provided, however, that such Options may vest
earlier in accordance with the following provisions:
(i) For each $2.00 increase over the "Base Price" (as defined
below) in the closing bid price on NASDAQ for Company Shares which
remains in effect for 30 consecutive trading days, Options for 25,000
Company Shares in the Third Tranche shall vest on the first business day
after such 30-day period. For purposes of this Section 2(c), "Base
Price" initially shall mean $5.00, but shall be raised by $2.00 after
each accelerated vesting under this
<PAGE> 3
-3-
Section 2(c). For example, Options on Company Shares will vest when the
market price for Company Shares reaches or exceeds $7.00 for the
requisite period (at which time the Base Price will become $7.00), and
again when it reaches or exceeds $9.00 (at which time the Base Price will
become $9.00), and again when it reaches or exceeds $11.00, and so forth.
(ii) The 30-day trading periods specified in Section 2(c)(i) may
be coterminous for periods in which the closing bid price of Company
Shares has increased over the then-applicable Base Price by more than
$4.00.
(iii) Options for no more than 40% of the Company Shares in the
Third Tranche may vest pursuant to this Section 2(c) prior to the first
anniversary of this agreement. Options for no more than 30% of the
Company Shares in the Third Tranche may vest pursuant to this Section
2(c) between the first and the second anniversary of this Agreement.
Options for no more than 30% of the Company Shares in the Third Tranche
may vest pursuant to this Section 2(c) between the second and the third
anniversary of this Agreement.
(d) In the event of any merger or consolidation between the Company
and any other entity (other than one in which the stockholders of the Company
prior to such
<PAGE> 4
-4-
transaction receive, in exchange for their Company shares, stock of the
surviving corporation and such stock constitutes more than 50% of the
outstanding stock of the surviving corporation following such transaction), or
any sale by the Company of all or substantially all of its assets, all Options
then held by the Executive that have not theretofore vested shall vest five
days prior to the earlier of (i) the record date, if any, for such transaction
and (ii) the closing date of such transaction.
3. Option Term. (a) Options may be exercised in whole or in part, at any
time or from time to time from the date upon which they vest until the
termination of such Options; provided, however, that no Option may be exercised
earlier than six months after the date of its grant. All Options not
theretofore exercised or terminated shall terminate, and be of no further force
or effect, on May 1, 2006.
(b) In the event that the employment by the Company of the Executive
terminates for any reason, all Options that, as of the effective date of such
termination, have not vested shall terminate and be of no further force or
effect. All vested Options shall terminate if not exercised within 180 days
after the date of termination of the Executive's employment by the Company.
<PAGE> 5
-5-
1. Option Exercise Price. The option exercise price for Options relating
to the First Tranche shall be $5.00 per share. The option exercise price for
Options relating to the Second Tranche and Options relating to the Third
Tranche shall be $4.50 per share.
2. Issuance of Company Shares. The Executive shall exercise the Options
by giving written notice thereof to the Company and paying the applicable
option exercise price to the Company by certified check or electronic wire
transfer of immediately available funds. Upon receipt of such payment, the
Company shall issue to the Executive certificates evidencing the Company Shares
purchased therewith.
3. Recapitalizations, Etc. If, prior to the Executive's receipt of the
Shares, the Company effects a subdivision or consolidation of interest, stock
split, dividend or distribution of Company Shares or other securities of the
Company, or other recapitalization, capital readjustment or reorganization, the
Company Shares subject to these Options under this Agreement and the applicable
option exercise price for such Options shall be adjusted as follows:
(a) after each such event the number of Company Shares that the
Executive is entitled to receive with respect to any Option will be equal
to the number of Company Shares that the Executive would hold by reason
of
<PAGE> 6
-6-
(i) the exercise of such Option immediately prior to the record date for
such event and (ii) the effect of such event upon the Company Shares
received upon such exercise, subject to further adjustment pursuant to
Section 7 for subsequent events if applicable; and
(b) the applicable option exercise price shall be adjusted ratably
in proportion to any adjustment in the number of Company Shares to be
issued with respect to any Option.
4. Mergers, etc. If one or more corporations or partnerships merge into
the Company, or if the Company merges or consolidates with one or more
corporations or partnerships, the Company shall cause the surviving entity to
assume the Company's obligations under this Agreement, and Company Shares
subject to these Options under this Agreement and the applicable option
exercise price for such Options shall be adjusted as follows:
(a) after each such event the number and nature of securities of the
surviving entity that the Executive is entitled to receive with respect
to any Option will be equal to the number and nature of such securities
that the Executive would hold by reason of (i) the exercise of such
Option immediately prior to the record date for such event and (ii) the
effect of such
<PAGE> 7
-7-
event upon the securities to be received upon such exercise, subject to
further adjustment pursuant to Section 6 for subsequent events if
applicable; and
(b) the applicable option exercise price shall be adjusted ratably
in proportion to any adjustment in the number or nature of any securities
to be issued with respect to any Option.
5. Status as Shareholder. the Executive shall not for any purpose be
deemed to be a holder of any Company Shares pursuant to the exercise of any
Options until exercise of such Options in accordance with the terms hereof and
payment of the applicable option exercise price in full.
6. Choice of Law. This Agreement shall be governed by the laws of the
State of Illinois, without regard to the conflict of law provisions thereof.
Any action to enforce or interpret this Agreement shall be triable only in
courts whose situs is in Cook County, Illinois.
7. Representations and Warranties. The Company represents and warrants to
the Executive that the Options have been duly and validly authorized and issued
by the Company and that the Company Shares, when issued in accordance herewith
upon payment of the option exercise price specified herein, will be duly and
validly issued, fully paid and nonassessable.
<PAGE> 8
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8. Miscellaneous. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, successors and
assigns; provided, however, that the Executive may not assign his rights or
obligations under this Agreement, including without limitation all or any
portion of the Options, to any other person without the prior written consent
of the Company. Any notices to be given hereunder shall be effective only if
in writing and shall be deemed given when delivered in person or when sent by
reputable overnight delivery service to the following addresses:
If to the Company:
Telular Corporation
920 Deerfield Parkway
Buffalo Grove, Illinois 60089
Attn: Treasurer
Facsimile#: 847-465-4501
If to the Executive:
Mr. Kenneth Millard
5059 Lakeview Court
Oconomowoc, WI 53066
Facsimile #: 414-567-0121
with a copy to: Mr. Kenneth Millard
c/o/ Telular Corporation
920 Deerfield Parkway
Buffalo Grove, Illinois 60089
Facsimile #: 847-465-4501
or to such other address as such party may indicate by notice to the other.
This Agreement may be executed in any number
<PAGE> 9
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of counterparts, all of which shall constitute a single instrument.
IN WITNESS WHEREOF, the undersigned have set their hands as of the day and
year first above written.
TELULAR CORPORATION
By: /s/ William L. De Nicolo
----------------------------
William L. DeNicolo,
Chairman of the Board
KENNETH MILLARD
/s/ Kenneth Millard
----------------------------
Kenneth Millard
<PAGE> 1
EXHIBIT 10.3
CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED FOR PORTIONS OF THIS EXHIBIT,
WHICH PORTIONS HAVE BEEN OMITTED FROM
THE ATTACHED EXHIBIT AND FILED
SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. THE OMITTED
PORTIONS HAVE BEEN REPLACED BY AN "X"
ENCLOSED BY BRACKETS ("[X]").
STOCK PURCHASE AGREEMENT
BY AND AMONG
TELULAR CORPORATION
AND
TELEPATH CORPORATION
Dated June 28, 1996
*Confidential treatment has been requested for portions of this
exhibit, which portions have been omitted from the attached exhibit and filed
separately with the Securities and Exchange Commission.
<PAGE> 2
STOCK PURCHASE AGREEMENT
THIS AGREEMENT, made as of this 28th day of June, 1996, by and among
TELULAR CORPORATION, a Delaware corporation ("Telular") and TELEPATH
CORPORATION, a New York corporation ("TelePath").
W I T N E S S E T H
WHEREAS, the Parties desire to set forth in this Stock Purchase
Agreement (the "Agreement") the terms and conditions pursuant to which Telular
will (a) acquire fifty percent (50%) of TelePath's common stock, par value $.01
per share (the "TelePath Stock"), and (b) enter into certain other strategic
relationships with TelePath.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the Parties and Telular hereby agree as
follows:
ARTICLE I
SALE AND PURCHASE OF TELEPATH STOCK
1.1 Sale and Purchase of TelePath Stock.
1.1.1 Initial Tranche. Subject to the terms and conditions of
this Agreement, at the Initial Closing provided for in Section 1.3, TelePath
shall issue and sell to Telular, and Telular shall purchase and accept from
TelePath, two hundred fifty (250) shares of TelePath Stock, representing
thirty-three percent (33%) of the total issued and outstanding TelePath Stock on
a fully-diluted basis, after giving effect to the issuance of such shares by
TelePath and assuming the exercise in full of any and all outstanding options,
warrants, convertible securities, and other rights to acquire TelePath Stock
(the "First Tranche Shares").
1.1.2 Second Tranche. Subject to the terms and conditions of
this Agreement, at the Second Closing provided for in Section 1.3, TelePath
shall issue and sell to Telular, and Telular shall purchase and accept from
TelePath, that number of shares of TelePath Stock that will, when combined with
the shares purchased pursuant to Section 1.1.1, represent forty-three percent
(43%) of the total issued and outstanding TelePath Stock on a fully-diluted
basis, after giving effect to the issuance of such shares by TelePath and
assuming the exercise in full of any and all outstanding
<PAGE> 3
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options, warrants, convertible securities, and other rights to acquire TelePath
Stock (the "Second Tranche Shares").
1.1.3 Third Tranche. Subject to the terms and conditions of
this Agreement, at the Third Closing provided for in Section 1.3, TelePath shall
issue and sell to Telular, and Telular shall purchase and accept from TelePath,
that number of shares of TelePath Stock that will, when combined with the shares
purchased pursuant to Sections 1.1.1 and 1.1.2, represent fifty percent (50%) of
the total issued and outstanding TelePath Stock on a fully-diluted basis, after
giving effect to the issuance of such shares by TelePath and assuming the
exercise in full of any and all outstanding options, warrants, convertible
securities, and other rights to acquire TelePath Stock (the "Third Tranche
Shares" and, together with the First Tranche Shares and the Second Tranche
Shares, the "Purchased Shares").
1.2 Consideration for Purchased Shares
1.2.1 First Tranche. In full consideration for the issuance and
sale by TelePath of the First Tranche Shares to Telular, Telular shall, at the
First Closing:
(i) pay to TelePath the sum of $1 million; and
(ii) issue and deliver to TelePath 350,000 shares of Common Stock, par
value $.01 per share, of Telular Corporation ("Telular Stock").
1.2.2 Second Tranche. In full consideration for the issuance
and sale by TelePath of the Second Tranche Shares to Telular, Telular shall, at
the Second Closing:
(i) pay to TelePath the sum of $250,000; and
(ii) issue and deliver to TelePath 75,000 shares of Telular Stock,
subject to adjustment in accordance with Section 1.2.4.
1.2.3 Third Tranche. In full consideration for the issuance and
sale by TelePath of the Third Tranche Shares to Telular, Telular shall, at the
Third Closing:
(i) pay to TelePath the sum of $250,000; and
(ii) issue and deliver to TelePath 75,000 shares of Telular Stock,
subject to adjustment in accordance with Section 1.2.4.
<PAGE> 4
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1.2.4. Anti-Dilution Protection. The number of shares of
Telular Stock to be issued pursuant to Section 1.2.2 and 1.2.3 shall be adjusted
as necessary to give effect to any recapitalization, stock split, reverse stock
split, stock dividend, or other transaction affecting the Common Stock on a
uniform basis.
1.3 Closings. The closings of the sale and purchase of the Purchased
Shares (collectively, the "Closings") shall take place at the offices of
Covington & Burling, in Washington, D.C., or at such other place as shall be
mutually agreed upon by the Parties, on the following dates (collectively, the
"Closing Dates"):
1.3.1. First Tranche. The closing on the purchase of the First
Tranche Shares (the "First Closing") shall take place at 10:00 a.m. on June 28,
1996, or at such other date and time as to which the parties may agree (the
"First Closing Date"); provided, however, that the Telular Stock to be delivered
pursuant to Section 1.2.1(ii) need not be delivered until satisfaction of the
condition set forth in Section 5.1(d).
1.3.2. Second Tranche. The closing on the purchase of the
Second Tranche Shares (the "Second Closing") shall take place at 10:00 a.m. on
January 31, 1997, or at such other date and time as to which the parties may
agree (the "Second Closing Date").
1.3.3. Third Tranche. The closing on the purchase of the Third
Tranche Shares (the "Third Closing") shall take place at 10:00 a.m. on August
29, 1997, or at such other date and time as to which the parties may agree (the
"Third Closing Date").
1.4 Deliveries. At each Closing, the parties shall take the
following actions:
1.4.1 TelePath shall deliver the TelePath Stock to be delivered
at such Closing, in the form of a stock certificate issued to Telular, with all
issuance and securities taxes, if any, prepaid.
1.4.2 Telular shall deliver to TelePath by wire transfer of
immediately available funds the cash to be paid by Telular at such Closing, as
specified in Section 1.2.
1.4.3 Telular shall deliver the Telular Stock to be delivered at
such Closing, in the form of a stock
<PAGE> 5
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certificate issued to TelePath, with all issuance and securities taxes, if any,
prepaid.
1.4.4. At the Initial Closing, TelePath and Telular shall enter
into a Registration Rights Agreement in the form of Exhibit A hereto (the
"Registration Rights Agreement").
1.4.5 TelePath shall deliver to Telular an officer's
certificate, in form and substance reasonably acceptable to Telular, confirming
the truth and correctness in all material respects of all representations and
warranties of TelePath contained in this Agreement and that, as of the
applicable Closing Date, TelePath has performed and complied, in all material
respects, with all agreements, obligations, covenants, terms and conditions
required by this Agreement to be so performed or complied with by it at or prior
to the Closing.
1.4.6 Telular shall deliver an officer's certificate to TelePath
in form and substance reasonably acceptable to TelePath confirming the truth and
correctness in all material respects of all representations and warranties of
Telular contained in this Agreement and that, as of the applicable Closing Date,
Telular has performed and complied, in all material respects, with all
agreements, obligations, covenants, terms and conditions required by this
Agreement to be so performed or complied with by it at or prior to the Closing.
1.4.7 TelePath shall deliver to Telular true and correct copies
of the following documents, each certified as such by the Secretary of TelePath:
(i) TelePath's certificate of incorporation as in effect on the date hereof and
the applicable Closing Date, certified as such by the appropriate governmental
authority; (ii) TelePath's bylaws as in effect on the date hereof and the
applicable Closing Date; and (iii) the resolutions duly adopted by the board of
directors of TelePath authorizing TelePath to consummate the transactions
contemplated herein in accordance with the terms hereof.
1.4.8 Telular shall deliver to TelePath true and correct copies
of the following documents, each certified as such by the Secretary of Telular:
(i) Telular's certificate of incorporation as in effect on the date hereof and
the applicable Closing Date, certified as such by the Secretary of State of
Delaware; (ii) Telular's bylaws as in effect on the date hereof and the
applicable Closing Date; and (iii) the resolutions duly adopted by the board of
directors
<PAGE> 6
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of Telular authorizing Telular to consummate the transactions contemplated
herein in accordance with the terms hereof.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of TelePath. In order to induce
Telular to enter into this Agreement and to consummate the transactions
contemplated hereby, TelePath represents and warrants to Telular, as of the date
hereof and again at and as of each Closing Date, as follows:
2.1.1 Organization and Corporate Power of TelePath . TelePath
is a corporation duly organized, validly existing and in good standing under the
laws of the State of New York, and has all requisite corporate power and
authority to own, lease and operate its properties and assets and to carry on
the businesses which are currently conducted by it. The copies of the
Certificate of Incorporation and By-Laws of TelePath, as amended to date, which
have been made available to Telular by TelePath, are true, correct and complete.
2.1.2 Authorization of TelePath. TelePath has all requisite
corporate power, authority and capacity to enter into this Agreement and any
other agreements required to be entered into by it hereby, to take, perform and
execute all procedures, acts and instruments required by it to consummate the
sale of the Purchased Shares and otherwise to fulfill its obligations under this
Agreement and any other agreements contemplated hereby. The execution and
delivery of this Agreement and any other agreements, documents and instruments
to be executed and delivered by TelePath hereto, and the consummation by
TelePath of the transactions contemplated hereby, have been duly and validly
authorized by the Board of Directors of TelePath, and no other corporate
proceeding on the part of TelePath or its shareholders is necessary under any
provision of law to authorize the execution and delivery by TelePath of this
Agreement or any other agreement, document or instrument to be executed and
delivered by TelePath pursuant hereto or to consummate any transactions
contemplated hereby. This Agreement and the agreements, documents and
instruments to be executed and delivered by TelePath pursuant to this Agreement
constitute or, when executed and delivered pursuant hereto, will constitute
valid and binding agreements of TelePath, enforceable against TelePath in
accordance with their respective terms, except to the extent that (a) such
enforcement may be subject to any bankruptcy, insolvency, reorganization,
moratorium or other laws, now or hereafter in effect, relating to or limiting
creditors' rights generally
<PAGE> 7
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and (b) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses or to the discretion of
the court before which any proceeding therefor may be brought.
2.1.3 Consents and Approvals; No Violations. The execution and
delivery by TelePath of this Agreement, and the agreements, documents and
instruments to be executed and delivered by TelePath pursuant hereto, and the
consummation by TelePath of the transactions contemplated hereby, will not (a)
violate or conflict with or result in any breach of any provision of the
Certificate of Incorporation or By-laws of TelePath; (b) violate or conflict
with any order, injunction, decree, statute, rule, ordinance or regulation
applicable to TelePath by which any of its properties or assets may be bound;
(c) except as set forth on Schedule 2.1.3, require any filing with, or permit,
consent or approval of, any public governmental or regulatory body, agency or
authority, labor organization or private person; (d) result in a violation or
breach of, or constitute, or with giving of notice or lapse of time or both
constitute, a default (or give rise to any right of termination, cancellation or
acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, franchise, permit, lease, contract,
agreement, collective bargaining agreement, instrument or other arrangement to
which TelePath is a party or by which it or any of its properties or assets may
be bound; or (e) result in the creation or imposition of any lien or encumbrance
on the Purchased Shares.
2.1.4 Proceedings. There is no proceeding pending or, to the
knowledge of TelePath, threatened against TelePath of any kind which questions
or challenges the validity of this Agreement or that, if adversely determined,
would materially adversely affect the ability of TelePath to perform its
obligations hereunder or to conduct its business as recently conducted. TelePath
is not in default with respect to any judgment, order, writ, injunction, decree
or consent of any court or other judicial authority, excluding such defaults
which would not have a material adverse affect on the ability of TelePath to
perform its obligations hereunder.
<PAGE> 8
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2.1.5 TelePath Stock; Subsidiaries. The authorized capital
stock of TelePath is as set forth on Schedule 2.1.5 hereto. The TelePath Stock
constitutes the only authorized class of equity securities of TelePath. Schedule
2.1.5 sets forth a true and complete list of the issued and outstanding shares
of TelePath Stock and the record and beneficial holders thereof. Except as set
forth on Schedule 2.1.5, there are no outstanding options, warrants, convertible
securities, or other contractual or other rights on the part of any person to
purchase, obtain or acquire TelePath Stock. The shares of TelePath Stock that
are currently outstanding are duly and validly issued, fully paid and
nonassessable. TelePath does not have any subsidiaries or hold any partnership
interests, stock, or other equity interests in any other corporation,
partnership, limited liability company, or other entity.
2.1.6 Purchased Shares. The Purchased Shares, when issued in
accordance with the terms of this Agreement, will be duly and validly issued,
fully paid and nonassessable. Upon delivery of certificates for the Purchased
Shares pursuant to the terms of this Agreement, Telular will hold valid and
marketable title to the Purchased Shares, free and clear of all Liens (other
than Liens created by Telular).
2.1.7 Financial Statements. TelePath heretofore has provided to
Telular its unaudited balance sheet as of April 30, 1996 (the "Financial
Statements"). The Financial Statements are true and correct in all material
respects and were prepared in accordance with generally accepted accounting
principles consistently applied. The Financial Statements present fairly the
financial position of TelePath as at April 30, 1996.
2.1.8 Books and Records. The books of account, minute books,
stock record books and other records of TelePath, all of which have been made
available to Telular, are complete and correct in all material respects.
2.1.9 Absence of Material Change. Except as set forth in
Schedule 2.1.9, since the date of the Financial Statements, and except as
expressly reflected in the Interim Statements, there has not been in respect of
TelePath:
(a) the incurrence of any debts, obligations or liabilities
(whether absolute, accrued, contingent or otherwise and
whether due or to become due), except debts, obligations and
liabilities incurred in the ordinary
<PAGE> 9
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course of business consistent with past practice;
(b) any declaration, setting aside or payment of any dividend or
distribution based on its shares, or any direct or indirect
purchase, retirement, redemption or other acquisition of any
of its shares or other securities or any obligation to do
so;
(c) any mortgage, pledge or lien or granting of a security
interest in or other encumbrance on any of its assets,
tangible or intangible, except for (i) those exceptions to
title listed in Schedule 2.1.9, (ii) mechanics', carriers',
workers' repairs, and other similar liens arising or
incurred in the ordinary course of business which relate to
obligations not yet due or delinquent, and (iii) liens on
equipment or goods acquired or held in the ordinary course
of business, incurred solely to secure purchase money
financing for the equipment or goods ("Permitted
Exceptions");
(d) the sale, transfer, lease, license, abandonment or other
disposition, other than in the ordinary course of business
consistent with past practice, of any of its assets,
tangible or intangible;
(e) any damage, destruction or loss in its assets which, in the
aggregate, exceeds Five Thousand Dollars ($5,000) (whether
or not covered by insurance);
(f) any transaction or transactions to which TelePath was a
party having, individually or in the aggregate, a material
adverse affect on the financial condition or operations of
TelePath;
(g) the issue or sale of any shares of stock or other securities
or the granting of any options with respect thereto or any
change in shares of its stock, whether by way of
reclassification, stock split or otherwise;
<PAGE> 10
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(h) any change in accounting practices or any change in
depreciation or amortization policies or rates;
(i) any cancellation of any debts owed or claims held by
TelePath in excess of Five Thousand Dollars ($5,000) in the
aggregate;
(j) any grievance, dispute or organizational activity by any
labor organization or by any employee or group(s) of
employees;
(k) any disposal or lapse of any intellectual property held by
TelePath or used by TelePath which could have a material
adverse affect on the financial condition or operations of
TelePath;
(l) any authorization of any capital expenditures which,
individually, involve an excess of Twenty-Five Thousand
Dollars ($25,000);
(m) any loss of any customers or suppliers which, either
individually or in the aggregate, could have a material
adverse affect on the financial condition or operations of
TelePath;
(n) any agreement by TelePath to take any of the actions
described in paragraphs (a) through (m) above.
2.1.10 Title to Properties. TelePath has good, marketable and
insurable title to all the properties and assets it owns or uses in its business
or purports to own, including, without limitation, those reflected in its books
and records. None of such properties and assets is subject to any mortgage,
pledge, lien, charge, security interest, encumbrance, restriction, lease,
license, easement, liability or adverse claim of any nature whatsoever, direct
or indirect, whether accrued, absolute, contingent or otherwise, except (i) as
expressly set forth in the April 30, 1996 Balance Sheet as securing specific
liabilities or as otherwise expressly permitted by the terms hereof or (ii) for
Permitted Exceptions. All of the properties and assets owned, leased or used by
TelePath are in good operating condition and repair, are suitable for the
purposes used, are adequate and
<PAGE> 11
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sufficient for all current operations of TelePath and are directly related to
the business of TelePath.
2.1.11 Leases of Real and Personal Property. Schedule 2.1.11
sets forth a list of (a) all leases pursuant to which TelePath leases, as
lessee, real property, (b) all leases pursuant to which TelePath leases, as
lessor, real property and (c) all leases pursuant to which TelePath leases, as
lessee, personal property for use in its business. Except as set forth on
Schedule 2.1.11, TelePath as to all leases (a) has performed all material
obligations required to be performed by it to date and (b) is not in default or,
to the knowledge of TelePath, alleged to be in default, in any material respect
thereof. To the knowledge of TelePath, there exists no material default, or any
event which upon the giving of notice or passage of time would give rise to any
material default, in the performance of any obligation to be performed by any
other party to any of such leases.
2.1.12 Tax Matters and Payment of Debts.
2.1.12.1 TelePath has timely filed with the appropriate
governmental agencies all tax returns required to be filed by it on or before
the date hereof (including extensions). TelePath has timely paid the full
amount of taxes, if any, shown to be due on such tax returns or that otherwise
are due or claimed by any taxing authority to be due with respect to such tax
returns. The foregoing tax returns are complete and correct in all material
respects. Except as provided on Schedule 2.1.12, no deficiency for any taxes has
been proposed, asserted, or assessed against TelePath, nor, to the knowledge of
TelePath is there any reasonable basis therefor. There are no tax liens upon
any property or assets of TelePath. Except as provided on Schedule 2.1.12, no
requests for waivers of the time to assess any taxes are pending or have been
granted. TelePath is not a party to any tax sharing or tax allocation
agreement. Complete copies of all tax returns filed by TelePath prior to the
date hereof have been made available to Telular.
2.1.12.2 Schedule 2.1.12 contains a complete and accurate
list of all direct and indirect indebtedness of TelePath as of the date hereof
(whether individual, joint, several or otherwise), excluding (a) current
accounts payable and (b) any indebtedness to any person which, when aggregated
with all other indebtedness of TelePath to such person and its affiliates, does
not exceed Ten Thousand Dollars ($10,000). Schedule 2.1.12 also contains a
complete and accurate list of all guaranties of TelePath (whether individual,
joint, several or otherwise), identifying
<PAGE> 12
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the parties, amounts and maturities. Except as set forth on Schedule 2.1.12,
TelePath had no liability or other obligation that would normally be reflected
or reserved against on a balance sheet prepared in accordance with generally
accepted accounting principles and that was not fully reflected or reserved
against in the Interim Financial Statements. TelePath is current in its payment
of debts.
2.1.13 Compliance With Laws. TelePath is in compliance in all
material respects with all applicable laws, ordinances, rules and regulations of
any federal, state, provincial, local or foreign governmental authority.
TelePath has not received any notification of any asserted present or past
failure by TelePath to comply with such laws, rules and regulations.
2.1.14 Environmental Matters. Except as disclosed in Schedule
2.1.14, all facilities owned, leased, used or operated by TelePath or any
predecessor in interest have been, and continue to be, owned, leased, used and
operated in compliance with all applicable environmental laws. TelePath has
obtained and presently has in force, and Schedule 2.1.14 hereto identifies, all
permits, licenses, registrations and other authorizations and approvals needed
under all applicable environmental laws to maintain and occupy the real property
used by TelePath to operate its business, and to dispose of all substances and
materials used or owned by TelePath.
2.1.15 Certain Contracts and Arrangements. Schedule 2.1.15 sets
forth all contracts, agreements, instruments or arrangements, including all
amendments thereto, whether written or oral, to which TelePath is a party or to
which TelePath or its properties or assets are subject. Except as set forth in
Schedule 2.1.15, such contracts, agreements, instruments or arrangements
constitute the legal, valid and binding obligations of TelePath, enforceable
against TelePath in accordance with their respective terms. To the knowledge of
TelePath, such contracts, agreements, instruments and arrangements constitute
legal, valid and binding obligations of the other parties thereto, enforceable
against such parties in accordance with their respective terms. Except as set
forth in Schedule 2.1.15, neither TelePath nor, to the knowledge of TelePath,
any other party thereto is in default under any of the aforesaid contracts or
arrangements.
2.1.16 Insurance. All material policies of fire, liability,
workers' compensation and other forms of insurance maintained as of the date
hereof by or on behalf of TelePath are listed and described in Schedule 2.1.16
<PAGE> 13
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(specifying the insurer, coverage and type of insurance). All such policies of
insurance are in full force and effect, all premiums with respect thereto
covering all periods up to and including the date hereof have been paid, and no
notice of cancellation or termination has been received with respect to any
such policy which was not replaced on substantially similar terms prior to the
date of such cancellation. Such insurance is reasonably believed by TelePath
to be adequate for the conduct of the business of TelePath.
2.1.17 Employment Matters. Schedule 2.1.17 contains a complete
and accurate list of each officer, director or consultant of TelePath and of
each employee of TelePath (including anyone on leave of absence or layoff
status), specifying for each: name; job title; existence and date of any
employment or other agreement with TelePath, whether oral or written; current
compensation paid or payable by TelePath and showing any change in compensation
since January 1, 1996, and vacation accrued and entitlement. No full time
officer or employee of TelePath is subject to any agreement, arrangement or
understanding with any person that in any way restricts or limits the scope or
type of work in which the officer or employee may be engaged by TelePath or
requires the employee or officer to transfer, assign or disclose any
intellectual property to any person other than TelePath. Each of the employees
identified by an asterisk on Schedule 2.1.17 has entered into an agreement with
TelePath, in substantially the form presented by TelePath to Telular prior to
the date hereof, providing protection to TelePath with respect to (i) ownership
of intellectual property created by such employee in the course of employment by
TelePath, (ii) protection of confidential or proprietary information of TelePath
to which such employee may have access, and (iii) competition with TelePath for
a period of at least one year after termination of such employee's employment
with TelePath.
Except as set forth in Schedule 2.1.17:
(a) there are no outstanding collective bargaining agreements or any
written or oral employment, personal service or consulting agreements
with any employee or consultant, past or present, of TelePath;
(b) TelePath, to the extent required under applicable law, has in all
material respects paid in full to or for all employees all wages,
salaries, bonuses, commissions, holiday, sickness and vacation pay,
and other direct
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compensation for all services performed by them, including severance
and termination benefits due and payable as of the date hereof;
(c) TelePath is in compliance in all material respects with all applicable
federal, state, provincial, foreign, municipal and local laws,
statutes, ordinances, rules, notices, orders and regulations
respecting employment and employment practices or dealing with such
things as occupational safety and health, wages and overtime pay,
hours of employment, unfair labor practices and employment
discrimination and other terms and conditions of employment;
(d) there is no labor strike, slowdown, work stoppage or other job action
pending or, to the knowledge of TelePath, threatened against or
involving TelePath;
(e) no workers' compensation case or claim is pending or, to the knowledge
of TelePath, threatened against TelePath;
(f) TelePath has no agreements or contracts nor has it conducted any
negotiations with any trade union, council of trade unions, labor
organization, employee bargaining agency or affiliated bargaining
agent, nor do any of the foregoing hold any bargaining rights with
respect to any employees of TelePath that are not currently subject to
a collective bargaining agreement;
(g) TelePath is not a party to any pending labor arbitrations,
applications or complaints before any administrative agency or
tribunal;
(h) there are no charges of unfair labor practices, charges of employment
discrimination, or charges of violations of occupational safety and
health laws or wage and hour laws or laws regulating any other term or
condition of employment pending before any federal, state, local,
provincial or foreign agency or tribunal, or, to the knowledge of
TelePath threatened against TelePath, nor, to the knowledge of
TelePath, is there any credible charge that is probable of assertion;
and
(i) to the knowledge of TelePath, the consummation of the transactions
contemplated by this Agreement will not (a) entitle any current or
former director,
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officer, employee or agent of TelePath to any severance pay,
unemployment compensation or other payment, or (b) accelerate the time
of payment or vesting, or increase the amount of compensation or
benefits due to, any such director, officer, employee or consultant,
whether under any contract, agreement, arrangement or otherwise.
2.1.18 Plans.
2.1.18.1 Except as set forth on Schedule 2.1.18, TelePath
does not contribute, make payments or pay benefits to, or have any liability
whatsoever under, any employee pension benefit plan, as such term is defined in
Section 3(2) of ERISA, any "multiemployer benefit plan" as such term is defined
in Section 4001(a)(3) of ERISA, and any employee pension, retirement,
profit-sharing, savings, deferred compensation, stock option, incentive award,
stock bonus, severance pay (whether or not written), fringe benefit or similar
plan (collectively, "Pension Plan"). Set forth on Schedule 2.1.18 is a complete
and correct list of all employee welfare benefit plans as such term is defined
in Section 3(1) of ERISA, any "multiple-employer welfare arrangement" as such
term is defined in Section 3(40) of ERISA, and any employee medical, vision,
dental or other health plan of a life insurance, disability, or other similar
employee benefit plan ("Welfare Plan") to which TelePath contributes or under
which TelePath makes payments or pays benefits or has any liability whatsoever.
TelePath has not made or entered into any plan or commitment, whether legally
binding or not, to create any additional employee benefit plan, program,
agreement or arrangement, or to modify or change any existing employee benefit
plan, program, agreement or arrangement, that would affect any employee or
terminated employee of TelePath. With respect to the Welfare Plans listed on
Schedule 2.1.18 (the "Existing Plans"), TelePath, the Existing Plans, and the
fiduciaries of the Existing Plans have complied in all material respects with
all of the applicable requirements of federal, state and local, law, including,
but not limited to, ERISA, the United States Internal Revenue Code of 1986, as
amended, the United States Age Discrimination in Employment Act, as amended, the
Medicare secondary payer requirements, and any other applicable laws governing
age discrimination, insurance or employee benefits. The Existing Plans do not
have any unfunded liabilities, and TelePath does not have any unfunded
liabilities with respect to the Existing Plans. There are no outstanding legal
actions with respect to the Existing Plans, and TelePath is not aware of any
legal actions that are contemplated with respect to the Existing Plans.
<PAGE> 16
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TelePath has made true and correct copies of the Existing Plans available to
Telular.
2.1.18.2 Neither TelePath nor any Existing Plan has any
obligation to provide any type of life, medical, dental, disability, long-term
care or other benefit to retirees, former employees, former directors or former
independent contractors. TelePath has not made, nor will it be obligated to
make, to any current or former director or employee, any payment in the form of
wages or other compensation as a consequence, in whole or in part, of this
Agreement or of any change in the ownership or effective control of TelePath.
2.1.19 Accounts and Notes Receivable. All of the accounts and
notes receivable reflected in TelePath's balance sheet as of April 30, 1996 or
which have arisen since such date, arose in the ordinary and usual course of
business, represent valid obligations to TelePath, in each case in the aggregate
amounts thereof recorded on the books of TelePath.
2.1.20 Receipt of Telular Information. TelePath has received
and reviewed copies of Telular's annual report on Securities and Exchange
Commission ("SEC") Form 10-K for the fiscal year ended September 30, 1995,
Telular's proxy statement for its January 1996 annual meeting, and Telular's
quarterly reports on SEC Form 10-Q for the periods ended December 31, 1995, and
March 31, 1996, together with a disclosure document provided by Telular and
entitled "Risk Factors" (collectively, the "Telular Information").
2.1.21 Full Disclosure. The representations and warranties made
by TelePath in this Agreement (including Sections 2.1, 2.2 and 2.3), and the
information contained in all exhibits, schedules, lists, certificates, financial
statements and other documents and information furnished or to be furnished by
TelePath pursuant hereto, collectively, when read together, do not and will not
contain any untrue statement of a material fact and do not and will not omit to
state a material fact necessary in order to make the statements contained or to
be contained herein or therein, not false or misleading.
2.2 Representations and Warranties of Telular. In order to
induce TelePath to enter into this Agreement and to consummate the transactions
contemplated hereby, Telular represents and warrants to TelePath, as of the date
hereof and again at and as of each Closing Date, as follows:
<PAGE> 17
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2.2.1 Organization and Corporate Power. Telular is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Telular has all requisite corporate power and
authority to own, lease and operate its properties and assets and to carry on
the businesses which are currently conducted by it. The copies of the
Certificate of Incorporation and By-laws of Telular, as amended to date, which
have been made available to TelePath, are correct and complete.
2.2.2 Authorization of Telular. Telular has all requisite
corporate power, authority and capacity to enter into this Agreement and any
other agreements required to be entered into by it hereby, and Telular has the
requisite power, authority and capacity to take, perform and execute all
proceedings, acts and instruments required by it to consummate the purchase of
the Purchased Shares and to fulfill its obligations under this Agreement and any
other agreements contemplated hereby. The execution and delivery by Telular of
this Agreement and any other agreements, documents and instruments to be
executed and delivered by Telular pursuant hereto, and the consummation by
Telular of the transactions contemplated hereby, have been duly and validly
authorized by the Board of Directors of Telular, and no other corporate
proceedings on the part of Telular are necessary under any provision of law to
authorize the execution and delivery by Telular of this Agreement and any other
agreements, documents and instruments to be executed and delivered by Telular
pursuant hereto or to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by Telular. This
Agreement and any agreement, document and instrument to be executed and
delivered by Telular pursuant to this Agreement constitute the valid and binding
agreements of Telular, enforceable against Telular in accordance with their
respective terms, except to the extent that (a) such enforcement may be subject
to any bankruptcy, insolvency, reorganization, moratorium or other laws, now or
hereafter in effect, relating to or limiting creditors' rights generally and (b)
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses or to the discretion of the court
before which any proceeding therefor may be brought.
<PAGE> 18
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2.2.3 Consents and Approvals; No Violations. The execution and
delivery by Telular of this Agreement and the agreements, documents and
instruments to be executed and delivered by Telular pursuant hereto and the
consummation by Telular of the transactions contemplated hereby will not (a)
violate or conflict with or result in any breach of any provision of the
Certificate of Incorporation or By-laws of Telular; (b) violate or conflict with
any order, injunction, decree, statute, rule, ordinance or regulation applicable
to Telular or by which its properties or assets may be bound; (c) except as set
forth on Schedule 2.2.3 require any filing with, or permit, consent or approval
of, any public governmental or regulatory body, agency or authority, labor
organization or private person; or (d) result in a violation or breach of, or
constitute, or with giving of notice or lapse of time or both constitute, a
default (or give rise to any right of termination, cancellation or acceleration)
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, franchise, permit, lease, contract, agreement, collective
bargaining agreement, instrument or other arrangement to which Telular is a
party or by which any of them or any of its properties or assets may be bound.
2.2.4 Proceedings. There is no proceeding pending or, to the
knowledge of Telular, threatened against Telular of any kind which questions or
challenges the validity of this Agreement or that, if adversely determined,
would materially adversely affect the ability of Telular to perform its
obligations hereunder. Telular is not in default with respect to any judgment,
order, writ, injunction, decree or consent of any court or other judicial
authority, excluding such defaults which would not have a material adverse
affect on the ability of Telular to perform its obligations hereunder.
2.2.5 Acquisition of the Purchased Shares. Telular is acquiring
the Purchased Shares for investment purposes only and not with a view to the
distribution thereof or with any present intention of distributing or reselling
such Purchased Shares, and Telular will not sell or offer to sell or otherwise
transfer such Purchased Shares in violation of the Securities Act or any other
federal, state or other securities law.
2.2.6 Share Restrictions. Telular understands that because the
Purchased Shares which it is purchasing have not been registered under the
Securities Act or any other applicable securities laws it cannot dispose of any
or all of the Purchased Shares unless such Purchased Shares are
<PAGE> 19
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subsequently registered under the Securities Act or other applicable securities
laws or exemptions from such registration are available. Telular understands
that each certificate representing the Purchased Shares will bear the following
legend or one substantially similar thereto:
The shares represented by this certificate have not
been registered under the United States Securities Act
of 1933, as amended, or any other applicable
securities laws. These shares have been acquired for
investment and not with a view to distribution or
resale, and may not be sold, mortgaged, pledged,
hypothecated or otherwise transferred without an
effective registration statement for such shares under
applicable securities laws or an opinion of counsel
satisfactory to the corporation that registration is
not required under such laws.
2.2.7 Full Disclosure. The representations and warranties made
by Telular in this Agreement, and the information contained in the Telular
Information, collectively, when taken together, do not and will not contain any
untrue statement of a material fact and do not and will not omit to state a
material fact necessary in order to make the statements contained or to be
contained herein or therein, not false or misleading.
2.2.8 Telular Shares. The shares of Telular Stock to be issued
to TelePath pursuant to Section 1.2.1, 1.2.2 and 1.2.3 (the "Telular Shares")
will be duly and validly issued, fully paid and nonassessable, and will be owned
beneficially and of record by Telular, free and clear of all Liens. Upon
delivery of certificates for the Telular Shares, pursuant to the terms of this
Agreement, TelePath will hold valid and marketable title to the Telular Shares,
free and clear of all Liens (other than Liens created by TelePath).
2.3 Survival of Representations and Warranties. Except as set forth
in the last sentence of this Section 2.3 the representations and warranties of
the Parties contained in this Agreement and in any document or certificate given
pursuant hereto shall survive each Closing Date and continue until the third
anniversary of the Third Closing Date. Any right of indemnification pursuant to
Article VIII with respect to a claimed breach of a representation or warranty
shall expire at the date of termination of the representation or warranty
claimed to be breached (the "Termination Date"),
<PAGE> 20
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unless on or prior to the Termination Date a Claim Notice (as hereinafter
defined) has been made to the party from whom indemnification is sought.
Provided that a Claim Notice is timely made, the right to indemnification may
continue to be asserted beyond the Termination Date of the representation and
warranty to which such Claim Notice relates. As used in this Agreement, a
"Claim Notice" means a written notice asserting a breach of a representation or
warranty specified in this Agreement which reasonably sets forth, in light of
the information then known to the party giving such notice, a description of,
and estimate (if it is then reasonable to make an estimate) of the amount
involved in, such breach. Notwithstanding anything in this Section 2.3 to the
contrary, the representations and warranties made by TelePath pursuant to
Section 2.1.11 shall survive for a period coterminous with any applicable
statute of limitations, and the representations and warranties made by TelePath
pursuant to Section 2.1.6 and the representations and warranties made by Telular
pursuant to Section 2.2.8 shall survive indefinitely.
ARTICLE III
COVENANTS OF THE PARTIES
3.1 Conduct of Business. Unless otherwise consented to by Telular in
writing, TelePath:
(a) until December 31, 1997, and thereafter for so long as
Telular shall own at least thirty-five percent (35%) of the issued and
outstanding TelePath Shares, shall not, without the approval of the Board
of Directors of TelePath: (i) permit or allow, or agree to permit or allow,
any of its property or assets to be mortgaged, pledged or subjected to any
lien or encumbrance of any nature whatsoever except for Permitted
Exceptions, provided, however, that Telular shall use its best efforts to
cause the Board of Directors of TelePath to approve a pledge or sale of
Telular Shares when and as approved by the directors of TelePath not
nominated by Telular, acting in good faith and in the best interests of
TelePath; (ii) sell, transfer, lease, license, abandon or dispose of any of
its properties or assets, or agree to do any of the foregoing, except in
the ordinary course of business; (iii) borrow any money or incur or
guarantee any debt for borrowed money, or agree to do any of the foregoing,
except for borrowings incurred in the ordinary course of business; (iv)
enter into or amend, or agree to enter into or amend, any employment
agreement or severance agreement with any officer of TelePath; or (vi) make
any change in any of its present accounting methods
<PAGE> 21
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or practices, except as may be required for compliance with GAAP;
(b) shall, until December 31, 1998, and thereafter for so long as
Telular shall own at least twenty-five percent (25%) of the issued and
outstanding TelePath Shares, not issue or sell, or agree to issue or sell,
any shares of its capital stock or issue or sell, or agree to issue or
sell, any securities convertible into, or options with respect to, or
warrants to purchase or rights to subscribe for, any shares of its capital
stock, unless it has, within 90 days prior to such issuance of sale,
offered to issue and sell to Telular such stock or other securities or
instruments, upon terms and conditions not less favorable to Telular than
those offered to any other purchaser or recipient;
(c) shall not at any time before December 31, 1998, (i) effect,
or agree to effect, any recapitalization, reclassification, stock dividend,
stock split or like change in capitalization; or (ii) declare, pay or make,
or set aside for payment or making, any dividend or other distribution in
respect of its capital stock or redeem, purchase or otherwise acquire, or
agree to redeem, purchase or otherwise acquire, any of its capital stock;
(d) until December 31, 1998, and thereafter for so long as
Telular shall own at least thirty-five percent (35%) of the issued and
outstanding TelePath Shares, shall not, without the prior approval of the
Board of Directors of TelePath, make, or agree to make, any capital
expenditure or acquire, or agree to acquire, any fixed assets in excess of
Fifty Thousand Dollars ($50,000), in the aggregate, other than pursuant to
binding commitments made prior to the date hereof;
(e) until December 31, 1998, and thereafter for so long as
Telular shall own at least thirty-five percent (35%) of the issued and
outstanding TelePath Shares, shall not, except for advances for travel and
similar expenses in the ordinary course of business, lend or advance, or
agree to lend or advance, any sum of money to any officer or director of
TelePath;
(f) shall not, at any time before December 31, 1998, (i) amend
its Certificate of Incorporation or By-Laws, or (ii) dissolve or liquidate
itself or acquire, merge or consolidate with or into any other corporation
or entity;
<PAGE> 22
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(g) shall not, at any time before December 31, 1998, directly or
indirectly purchase or otherwise acquire, hold or invest in the securities
of any person other than Telular, or enter into any partnership, joint
venture or other equity investment in any person other than Telular, or
agree to do so;
(h) shall not, at any time before December 31, 1998, sell, or
agree to sell, any TelePath Stock or any options, warrants, securities
convertible into, or other rights to receive or obtain any TelePath Stock;
and
(i) shall maintain its status as a corporation duly organized,
validly existing and in good standing in its jurisdiction of incorporation.
3.2 Public Announcements. The Parties agree to consult promptly with
each other prior to issuing any press release or otherwise making any public
statement with respect to this Agreement and the transactions contemplated
hereby, and shall not issue any such press release or make any such public
statement prior to such consultation with, and the approval of, the other
parties hereto, except as may be required by law.
3.3 Confidentiality. Each party hereby covenants and agrees with the
other party that such party (for purposes of this Section 3.3 only, a
"Disclosing Party") and its affiliates, directors, officers, agents, employees,
stockholders and other representatives shall not, without the prior written
consent of the other party, disclose Confidential Information to any person,
unless in the written opinion of counsel to the Disclosing Party disclosure is
required to be made by law. In the event that the Disclosing Party or any of
the Disclosing Party's affiliates shall be requested or required by documents
subpoena, civil investigative demand, interrogatories, requests for information
or other similar process to disclose any Confidential Information (collectively
an "Inquiry"), the Disclosing Party shall provide the other party with prompt
notice of such Inquiry in order that such other party may seek a protective
order or take any other action such other party may deem appropriate. The
Disclosing Party shall be free to comply with such Inquiry without incurring any
liability hereunder unless prior to the deadline for responding to such Inquiry
the other party (acting at its sole cost and expense) shall have obtained an
order, decision, or determination by a competent authority enjoining, quashing,
staying, withdrawing or otherwise rendering ineffective such Inquiry. The
obliga-
<PAGE> 23
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tions of each party under this Section shall survive the date hereof and shall
remain in effect for so long as Confidential Information shall exist. Each
party acknowledges that money damages alone may not provide adequate relief to
the other party or the affiliates of such other party if Confidential
Information were to be disclosed in violation of this Section. For purposes of
this Section only, "Confidential Information" shall mean knowledge relating to
or concerning the assets, business, creditors, customers, data, employees,
financial condition or affairs, intellectual property, methods, operations,
suppliers and systems of any company, but shall not include information that:
(a) is or hereafter becomes available to the public through no
breach of this Agreement by a Disclosing Party or its affiliates; or
(b) was or becomes available to a third party, on a
non-confidential basis, prior to any disclosure thereof on or after
the date hereof by a Disclosing Party or its affiliates in violation
of this Section.
3.4 Access to Retained Books and Records. From and after the date
hereof and until the earlier of (i) the date on which Telular no longer holds at
least twenty percent (20%) of the issued and outstanding TelePath Shares, and
(ii) December 31, 1998, at all reasonable times and as often as Telular
reasonably may request, TelePath shall, and shall cause each of its affiliates
to, permit Telular (and its accountants, other representatives or attorneys), to
have reasonable access to all books, records and other factual information
retained by TelePath as Telular may reasonably require, and to make copies and
excerpts from them and to discuss them with TelePath's officers and employees.
TelePath acknowledges that all retained books, records and information with
respect to TelePath constitute confidential information and may be disposed of
only by destruction or delivery to Telular. In the event TelePath proposes to
destroy any portion of the retained books, records and information: (i)
TelePath shall give Telular written notice thereof; (ii) Telular shall have a
period of thirty (30) days after receipt of such notice during which it may
elect (by written notice to TelePath) to pick up such portion at its cost and
expense; and (iii) if Telular fails to make such election within that thirty
(30) day period, TelePath may destroy the portion of such retained books,
records and information described in its notice to Telular.
<PAGE> 24
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3.5 Work For Hire Arrangements. TelePath agrees to use its best
efforts so that, as soon as is practicable following the date hereof, all
personnel, including employees, agents, consultants and contractors, who have
contributed to or participated in the conception and development of any of
intellectual property for TelePath (including computer program code and software
programs, whether in source or object code, program documentation and all
technical and descriptive materials relating to the acquisition, design,
development, use or maintenance thereof) execute appropriate instruments of
assignment in favor of its as assignee that convey to TelePath any rights which
such persons may have in and to any such intellectual property. In addition,
TelePath agrees to use its best efforts to cause all personnel of TelePath,
including employees, agents, consultants and contractors, to enter into
"work-for hire" agreements with TelePath, in accordance with applicable law,
that accord TelePath full, effective, exclusive and original ownership of all
tangible and intangible property arising during the course of and in connection
with such person's relationship with TelePath.
3.6 Provision of Telular Documents. Between the date hereof and the
Third Closing Date, Telular shall provide to TelePath (i) promptly after
submission to the SEC, a copy of each report of Telular on SEC Form 10-K, 10-Q
or 8-K (exclusive of exhibits unless specifically requested by TelePath), and
(ii) without prejudice to the provisions of Section 3.2 of this Agreement,
promptly after release, a copy of each press release issued by Telular and
relating to TelePath.
3.7 Use of Proceeds. TelePath shall use the proceeds from the sale of
the Purchased Shares, including the proceeds of any Telular Stock subsequently
sold by TelePath, solely for the purpose of developing the Transceiver
Technology (as such term is defined in Section 6.5.1) in support of Telular
product requirements in accordance with Section 6.1 and for general working
capital purposes.
ARTICLE IV
REGISTRATION AND SALE OF TELULAR STOCK.
4.1. Registration. Within 30 days after each Closing Date and at
Telular's expense, Telular shall file with the SEC a registration statement for
the resale by TelePath of the Telular Stock issued to it at such Closing (a
"Registration Statement"). Telular shall use its best efforts to cause each
Registration Statement to become effective within 90 days after the date upon
which it is filed with the
<PAGE> 25
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SEC, and to remain in effect thereafter until the earlier of (i) the second
anniversary of the date upon which it becomes effective and (ii) the sale by
TelePath of all of the Telular Stock covered thereby.
4.2 Notification. Telular shall immediately notify TelePath (i) at
any time when a prospectus relating thereto is required to be delivered under
the Securities Act of 1933 (the "Securities Act"), (ii) of the receipt by
Telular of any notification with respect to the suspension of the qualification
of the Telular Stock for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, or (iii) of the happening of any
event which comes to Telular's attention if as a result of such event the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and, in each
such case, Telular will promptly prepare and furnish to TelePath a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Telular Stock, such prospectus will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.
4.3 Suspension of Sales. Upon receipt of any notice from Telular of
the happening of any event of the kind described in Section 4.2, TelePath shall
forthwith discontinue disposition of Telular Stock pursuant to any Registration
Statement until TelePath's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 4.2, and, if so directed by Telular, TelePath
shall deliver to Telular (at Telular's expense) all copies, other than permanent
file copies, then in TelePath's possession, of the prospectus covering such
Telular Stock current at the time of receipt of such notice. In the event
Telular shall give any such notice, the period mentioned in Section 4.2 shall be
extended by the greater of (i) one month or (ii) the number of days during the
period from and including the date of the giving of such notice pursuant to
Section 4.2 to and including the date when TelePath shall have received the
copies of the supplemented or amended prospectus contemplated by Section 4.2.
4.4 Inspection. Telular shall make available for inspection by
TelePath in connection with its sale of any Telular Stock, by any underwriter
participating in any disposition pursuant to such registration statement and
amendment thereto, and by any attorney, accountant or other
<PAGE> 26
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agent retained by TelePath or such underwriter (collectively, the "Inspectors"),
all financial and other records, pertinent corporate documents and properties of
Telular and its subsidiaries, if any, as shall be reasonably necessary to enable
them to exercise their due diligence responsibility, and cause the officers,
directors and employees of Telular and its subsidiaries to supply all
information and respond to all inquiries reasonably requested by any such
Inspector in connection with such registration statement and amendments thereto.
4.5 Provision of Information. Promptly prior to the filing of any
document which is to be incorporated by reference into any Registration
Statement or the prospectus included therein (after initial filing of such
Registration Statement), Telular shall provide copies of such document to
counsel to TelePath and to its managing underwriters, if any, make Telular's
representatives available for discussion of such document.
4.6 Disclosure by TelePath. It shall be a condition precedent to the
obligation of Telular to take any action pursuant to this Article IV that
TelePath shall furnish to Telular such information regarding the securities held
by TelePath and the intended method of disposition thereof as Telular shall
reasonably request and as shall be required in connection with the action taken
by Telular.
<PAGE> 27
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4.6 Indemnification.
<PAGE> 28
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(a) Indemnification by Telular. With respect to any Registration
Statement filed by Telular pursuant to Section 4.1 hereof, Telular will,
and it hereby does, indemnify and hold harmless, to the full extent
permitted by law, TelePath and each other person, if any, who controls,
is controlled by or is under common control with TelePath within the
meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act of 1934, as amended (the "Exchange Act") (for purposes of
this Section 4.6(a), an "Indemnified Person"), against any and all
losses, claims, damages or liabilities, joint or several, and expenses
(including any amounts paid in any settlement effected with Telular's
consent) to which such Indemnified Person may become subject under the
Securities Act, the Exchange Act, state securities or blue sky laws,
common law or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) or expenses
arise out of or are based upon (A) any untrue statement or alleged untrue
statement of any material fact contained, on the effective date thereof,
in such Registration Statement, any preliminary, final or summary
prospectus combined therein, or any amendment or supplement thereto, (B)
any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, or (C) any violation by Telular of any federal, state or
common law rule or regulation applicable to Telular and relating to
action required of or inaction by Telular in connection with any such
registration, and, in each case, Telular will reimburse such Indemnified
Person for any reasonable legal or any other expenses reasonably incurred
by him, her or it in connection with investigating or defending such
loss, claim, liability, action or proceeding; provided, however, that
Telular shall not be liable in any such case to the extent that any such
loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense is caused by any untrue statement or alleged untrue
statement or omission or alleged omission made in such registration
statement or amendment or supplement thereto or in any such preliminary,
final or summary prospectus in reliance upon and in conformity with
written information furnished to Telular through an instrument duly
executed by such Indemnified Person specifically stating that it is for
inclusion therein. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified
Person and shall survive the transfer of such securities by such
Indemnified Person.
<PAGE> 29
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(b) Indemnification by TelePath. Telular may require, as a condition
to including any Telular Stock owned by TelePath in any Registration Statement,
that Telular shall have received an undertaking reasonably satisfactory to it
from TelePath, each other person registering Telular securities pursuant to such
Registration Statement or any underwriter or selling agent, to severally and not
jointly, indemnify and hold harmless (in the same manner and to the same extent
as set forth in subsection (a) of this Section 4.6) Telular and its directors,
officers, controlling persons, any underwriter or selling agent and all other
prospective sellers and their respective directors, officers, general and
limited partners, managing directors, and their respective controlling persons
(for purposes of this Section 4.6(b), "Indemnified Persons") but only with
respect to (A) any untrue statement or alleged untrue statement of any material
fact contained, on the effective date thereof, in any such Registration
Statement, any preliminary, final or summary prospectus contained therein, or
any amendment or supplement thereto, or (B) any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case in reliance upon and in
conformity with written information furnished to Telular or its representatives
through an instrument duly executed by or on behalf of such Holder, other
selling person or underwriter or selling agent specifically stating that it is
for inclusion therein. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Persons
and shall survive the transfer of such securities by such indemnifying party;
provided, however, that no such indemnifying party shall be liable under this
Section 4.6(b) for any amounts exceeding the product of the purchase price per
share and the number of shares of Telular Stock being sold pursuant to such
registration statement or prospectus by such indemnifying party.
(c) Third Party Claims; No Limitations. The provisions of Section
8.2 of this Agreement shall apply, and the provisions of Section 8.3 of this
Agreement shall not apply, in respect of indemnification pursuant to this
Section 4.6.
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ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
5.1 Conditions Precedent to Telular's Obligations. Telular's
obligations to purchase and pay for Purchased Shares at each Closing and to
consummate the transactions contemplated by this Agreement at such Closing are
subject to the fulfillment simultaneously with or prior to such Closing of each
of the following conditions (each of which is hereby acknowledged to be for the
exclusive benefit of Telular and may be waived by it in whole or in part):
(a) Representations and Warranties. The representations and
warranties made by TelePath in this Agreement and in any other agreement,
instrument or certificate delivered pursuant hereto, shall be true, in all
material respects, as of the date hereof and at and as of such Closing Date
as though such representations and warranties were made at and as of such
Closing Date (except that any representation or warranty which is stated
herein to be true only as of a specified date shall be true and correct in
all material respects as of such specified date and giving effect, in the
case of the Second Closing and the Third Closing, to any substitute
schedules provided by TelePath to Telular at least five business days prior
to such Closing).
(b) Performance. TelePath shall have performed and complied, in
all material respects, with all agreements, obligations, covenants, terms
and conditions required by this Agreement to be so performed or complied
with by them at or prior to such Closing.
(c) Deliveries. TelePath shall have executed and/or delivered to
Telular, as applicable, each of the agreements or other documents required
to be executed and/or delivered by it at or prior to such Closing pursuant
to Section 1.4.
(d) NASDAQ Listing. The Telular Shares to be issued pursuant
hereto shall have been approved by NASDAQ for listing.
(e) Registration Rights. The Registration Rights Agreement shall
be in force and effect.
<PAGE> 31
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(f) Shareholders Agreement. Each stockholder of TelePath other
than Telular shall have entered into a Shareholders Agreement with Telular
in the form of Exhibit B hereto (the "Shareholders' Agreement"), and the
Shareholders' Agreement shall be in full force and effect.
(g) No Injunction. There shall not be in effect any judgment,
order, injunction or decree of any court of competent jurisdiction
enjoining consummation of the transactions contemplated by this Agreement.
(h) No Government Proceeding or Litigation. There shall not be
any proceeding instituted, pending or threatened which seeks to enjoin,
otherwise prevent consummation of, or modify the transactions contemplated
by this Agreement, which seeks material damages in connection with any of
such transactions or which, in the reasonable judgment of Telular, may have
a material adverse effect on TelePath.
5.2 Conditions Precedent to TelePath's Obligations. The obligations
of TelePath to sell the Purchased Shares to Telular and to consummate the
transactions contemplated by this Agreement are subject to the fulfillment
simultaneously with or prior to Closing of each of the following conditions
(each of which is hereby acknowledged to be for the exclusive benefit of
TelePath and may be waived by them in whole or in part):
(a) Representations and Warranties. The representations and
warranties made by Telular in this Agreement and in any other agreement,
instrument or certificate delivered by such parties pursuant hereto, shall
be true, in all material respects, when made and at and as of the Closing
as though such representations and warranties were made at and as of the
Closing (except that any representation or warranty which is stated herein
to be true only as of a specific date shall be true and correct in all
material respects as of such specified date).
(b) Performance. Telular shall have performed and complied, in
all material respects, with all agreements, obligations, covenants, terms
and conditions required by this Agreement to be so performed or complied
with by it at or prior to the Closing.
<PAGE> 32
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(c) Deliveries. Telular shall have executed and/or delivered to
TelePath each of the agreements or other documents required to be executed
and/or delivered by it pursuant to Section 1.4.
(d) NASDAQ Listing. The Telular Shares to be issued pursuant
hereto shall have been approved by NASDAQ for listing.
(e) No Injunction. There shall not be in effect any judgment,
order, injunction or decree of any court of competent jurisdiction
enjoining consummation of the transactions contemplated by this Agreement.
(f) No Government Proceeding or Litigation. There shall not be
any proceeding instituted, pending or threatened which seeks to enjoin,
otherwise prevent consummation of or modify the transactions contemplated
by this Agreement, which seeks material damages in connection with any of
such transactions or which in the reasonable judgment of TelePath may have
a material adverse effect on Telular.
ARTICLE VI
COMMERCIAL RELATIONSHIP
6.1 Product Development. Simultaneously herewith, Telular is
delivering to TelePath, and TelePath hereby accepts, purchase orders for the
product development programs set forth on Schedule 6.1 hereto, to be produced
and delivered on the timetable set forth therein. Schedule 6.1 also sets forth
ground rules for fixed terminal design specifications.
6.2 Compensation for Product Development. Compensation for product
development pursuant to Section 6.1 ("Product Development") shall be as set
forth on Schedule 6.1, and shall be payable upon completion of milestones agreed
to by the parties at the time of purchase order. Milestones for the product
development programs are attached to Schedule 6.1. For each full month prior to
the specified end date that the type acceptance milestone for that product is
reached, Telular shall pay to TelePath a bonus equal to 2.5% of the purchase
price for the applicable purchase order, up to a maximum bonus of 7.5%. For
each full month after the specified end date that a product shall not have met
a type acceptance milestone, the amount payable by Telular to TelePath shall be
reduced by
<PAGE> 33
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a late delivery penalty equal to 2.5% of the purchase price for the applicable
purchase order, up to a maximum penalty of 7.5%. For purposes of this Section
6.2, the timetable for deliveries shall be extended by any period of Excusable
Delay (as defined in Section 6.13). All amounts owed by Telular under this
Section 6.2 shall be due and payable within 30 days after invoice therefor by
TelePath, accompanied by certification by TelePath that the applicable milestone
has been completed.
6.3 Development Costs. TelePath shall pay and be responsible for all
Product Development, including without limitation costs for development of
circuits, software, printed circuit boards, and custom test fixtures;
development of test methodologies and implementations; employment and overhead
costs for personnel engaged in development activities, and standard
international type approvals as required by the product design specifications.
Telular shall pay and be responsible for all costs of industrial designs, the
development of plastic housings, tooling, and non-standard type approvals or
certifications. Telular shall pay for and be responsible for obtaining all
necessary product safety certifications. Telular shall perform at its expense
any field testing that may be required.
6.4 Termination of Development Work.
6.4.1 Termination by Telular. Telular may terminate any or all
Product Development work at any time upon 30 days written notice to
TelePath. In the event that Telular terminates such work by reason of
TelePath's failure to meet a milestone for such work for a period of more
than 90 days (excluding any days of Excusable Delay resulting from a
failure by Telular to meet its obligations and up to 90 days of other
Excusable Delay), Telular shall have no liability to TelePath by reason of
such termination. In the event of termination for any other reason,
Telular shall pay to TelePath an amount equal to 50% of the remaining
obligations of Telular for the terminated work (assuming no early delivery
premium or late delivery penalty). In lieu of making such payment, Telular
shall have the right to substitute, within 30 days after notice of
termination, a purchase order for other product development work of value
at least substantially equivalent to the remaining obligations of Telular
for the terminated work.
6.4.2 Termination by TelePath. TelePath may terminate any or all
Product Development work at any time in the event that Telular fails to pay
when due any
<PAGE> 34
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obligation hereunder (other than amounts being disputed in good faith),
provided that such failure continues for 30 days after notice by TelePath
to Telular thereof. Upon such termination, Telular shall pay to TelePath
an amount equal to 50% of the remaining obligations of Telular for the
terminated work (assuming no early delivery premium or late delivery
penalty). In the event that TelePath is unable to meet a milestone for its
Product Development work for a period of more than 90 days resulting from a
failure by Telular to meet its obligations under this Agreement (after
giving effect to not more than 90 days Excusable Delay on the part of
Telular), TelePath may terminate any or all of such Product Development
work, and neither Telular nor TelePath shall have any liability to the
other by reason of such termination.
6.5 Ownership and License of Transceiver Technology.
6.5.1 Transceiver Technology. [X] of the [X] technology to be
developed [X] pursuant hereto, [X] (the "Transceiver Technology"). [X],
at its cost and expense when and as reasonably requested [X] execute such
documents and instruments and take such other actions as may be necessary
or desirable in order to confer and confirm [X] such ownership
rights. [X] shall retain, and [X] shall have no rights in or to, the [X]
or any improvements or enhancements thereto or progeny thereof.
6.5.2 License. [X] hereby grants [X] an [X] liscense in and
to the Transceiver Technology, [X]. [X] all rights to [X] not have
the right to [X] other than to [X], except for (i) [X] and (ii) [X]
<PAGE> 35
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[X] ("Permitted Purposes"), without the consent [X] . [X] not enter
into any [X] the Transceiver Technology, except for Permitted
Purposes, without the prior written consent [X] which shall not be
unreasonably withheld or delayed; provided, however, that under no
circumstances shall it be deemed unreasonable [X] to withhold consent
to a sublicense that would conflict with contractual obligations of
[X] not inconsistent with [X] other obligations hereunder.
6.6 Transceiver Technology Royalties. [X] shall pay [X] royalty, at a
rate equal to the percentage that is applicable as specified below,
upon all [X] derived from [X] beginning on [X]. Royalties shall be
payable [X] on a quarterly basis, and shall be accompanied by a statement
of [X] and of the basis for calculation of the royalties. [X] have the
right, upon reasonable request and notice, to review the books and records
of [X] relating such sales in order to verify [X] royalty
calculations. [X] not be entitled to royalties under this Section 6.6 upon
[X] or [X]. The applicable royalty rates referred to above shall be as
follows:
[X] products (or successors): [X]
[X] (or successors): [X]
6.7 Ownership Terminal Product Designs.
6.7.1 Terminal Product Designs. The [X] including all improvements
and enhancements thereto and progeny thereof (the "Terminal Product
Designs") shall be [X] and, whether or not the Terminal Product Designs are
[X] of the Terminal Product Designs. [X], at its cost and
expense when and as reasonably requested [X] execute such documents and
instruments and take such other actions as may be
<PAGE> 36
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necessary or desirable in order to confer and confirm [X] such
ownership rights. Without limitation of the foregoing, if [X] to
obtain patent or other protection for the Terminal Product Designs,
[X] provide [X] all cooperation reasonably requested [X] in order to
obtain such protection.
6.7.2 Other Interface Products. TelePath acknowledges that
Telular shall have exclusive rights to design, manufacture and sell
wireless local loop subscriber terminals, and shall not, directly or
indirectly, design, manufacture or sell such terminals to, with or for any
person other than Telular.
6.7.3 Termination. Upon termination of any purchase order by
Telular pursuant to Section 6.4.1 and payment by Telular of all sums due
from Telular pursuant to such Section or presentation by Telular of a
substitute purchase order as provided in such Section, [X] to such purchase
order as of that date.
6.8 Intellectual Property Representations and Warranties. [X]
represents that the Transceiver Technology and the Terminal Product
Designs (collectively, the "Intellectual Property") are and will be, except as
otherwise provided herein, [X] the use thereof [X] in accordance with the
terms hereof do not violate any copyright, trademark, trade secret or patent
right held by any other person or entity.
6.9 Specifications. The Terminal Product Designs shall meet the
reasonable product specifications provided by Telular, consistent with pricing
quotations to Telular, and accepted by TelePath in accordance with the timeline
specified on Schedule 6.9 hereof, unless the parties agree to a longer period of
time for submission or acceptance, and such acceptance shall not be unreasonably
withheld.
6.10 Design Warranty. TelePath warrants to Telular that each
Terminal Product Design will be free from design defects for the period
commencing with type approval for each such design.
6.11 Intellectual Property Indemnification. TelePath shall indemnify
and hold Telular harmless from and against any loss, liability or damage,
including without limitation attorneys' fees and legal costs, arising out of
any
<PAGE> 37
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claim, suit or action based on a claim that the Intellectual Property infringes
on a patent, copyright, trademark, trade secret or other intellectual property
right. Such indemnification shall be provided subject to and in accordance with
the provisions of Section 8.2 hereof, but shall not be subject to the time
limitations set forth in Section 2.3 or 8.3(a). TelePath shall not be required
to defend or pay the costs and damages if the infringement claim is based on the
use or modification of the Intellectual Property beyond that provided for in the
product specifications.
6.12 Right of First Refusal on Subsequent Product Design. In the
event that, between the date of this Agreement and the fifth anniversary
thereof, Telular wishes to obtain product design work from a third-party, and in
Telular's reasonable judgment TelePath is then capable of providing such product
design work of quality equivalent to work that is otherwise commercially
available, Telular shall, before obtaining such work from a third party, provide
TelePath with an opportunity to offer to provide such work upon terms of
conditions not less favorable to TelePath than those specified by such third
party.
6.13 Excusable Delay. "Excusable Delay" by a party shall mean a delay
caused by an act of God, earthquake, war, insurrection, riot, fire, flood,
epidemic, quarantine restriction, freight embargo, strike, walkout or work
stoppage, delay in transportation, energy shortage, material shortage, enactment
or institution of any law, order, proclamation, regulation, ordinance, demand or
requirement of any governmental agency, or failure by the other party (whether
or not attributable to Excusable Delay on the part of such other party) to
timely perform any of its obligations under this Agreement, including its
delivery obligations for the product development programs in each case if beyond
the reasonable control and without fault or negligence by the party claiming
delay hereunder, provided that written notice thereof is given to the other
party within ten (10) business days after such event occurs. Delay by a party's
vendors in performing their obligations to such party shall not constitute
Excusable Delay by such party unless the vendors delay is attributable to
factors that would otherwise constitute Excusable Delay.
<PAGE> 38
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ARTICLE VII
TERMINATION
7.1 Termination. This agreement may be terminated by a party hereto
(the "Terminating Party") at any time prior to the First Closing Date:
(a) by mutual written consent of each of the parties hereto;
(b) by Telular or by TelePath if the First Closing has not
occurred on or before June 28, 1996, provided that the Terminating Party is
not in breach of its obligations hereunder.
7.2 Procedure and Effect of Termination. In the event of termination
of this Agreement pursuant to Section 7.1(b), written notice thereof shall
forthwith be given to the other parties and this Agreement shall terminate and
the transactions contemplated hereby shall be abandoned, without further action
by any party hereto. If this Agreement is terminated as provided herein:
(a) upon request therefor, each party shall redeliver all
documents, work papers and other material of the other parties relating to
the transactions contemplated hereby, whether obtained before or after the
execution hereof, to the party furnishing the same;
(b) all information received by a party hereto with respect to
the business of any other party or its affiliates (other than information
which (i) was already in the party's possession at the time of disclosure
to it, (ii) is a matter of public knowledge, (iii) has been or is hereafter
published other than through such party, (iv) is lawfully obtained by the
party from a third person not subject to restrictions of confidentiality,
or (v) is independently developed, discovered or arrived at by the party
without use of, or reference to, information disclosed hereunder) shall not
at any time be used for the advantage of such party to the detriment of the
party furnishing such information, and each party shall use its best
efforts to prevent the disclosure thereof to third persons except as may be
required by law; and
(c) no party hereto shall have any liability or further
obligation to the other parties pursuant to this Agreement except as stated
in this Article VII and in Sections 3.2, 3.3, 3.4, 9.1 and 9.3 relating to
<PAGE> 39
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confidentiality and expenses and except that nothing herein shall relieve
any party from liability for any breach of any representation, warranty,
agreement or covenant contained herein which occurred prior to the
termination.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification for Breaches of Warranty, etc.
8.1.1 TelePath shall indemnify and save harmless Telular and its
affiliates, beneficiaries, successors, subsidiaries, directors, officers,
employees, agents and representatives (such parties shall be collectively
referred to herein as the "Telular Indemnified Parties"), effective as of
and from the First Closing Date, from and against any claims, demands,
actions, causes of action, damages, losses, costs, liabilities or expenses
(including, without limitation, the disbursements, expenses and reasonable
fees of its attorneys) (hereinafter in this Article VIII called "Claims")
which may be made or brought against an Telular Indemnified Party, or which
it may suffer or incur, as a result of, in respect of, or arising out of
any non-fulfillment of any covenant or agreement on the part of TelePath
under this Agreement or any incorrectness in or breach of any
representation or warranty of TelePath contained herein or in any
certificate furnished pursuant hereto or thereto.
8.1.2 Telular shall indemnify and save harmless TelePath and its
affiliates, beneficiaries, successors, subsidiaries, directors, officers,
employees, agents and representatives (such parties shall be collectively
referred to herein as the "TelePath Indemnified Parties"), effective as of
and from the First Closing Date, from and against any Claims which may be
made or brought against any TelePath Indemnified Party, or which it may
suffer or incur, as a result of, in respect of, or arising out of, any
non-fulfillment of any covenant or agreement on the part of Telular under
this Agreement or any incorrectness in or breach of any representation or
warranty of Telular contained herein or in any certificate furnished
pursuant hereto.
<PAGE> 40
- 39 -
8.2 Third Party Claims. If any action, suit, investigation or
proceeding shall be brought or asserted by any third party (a "Third Party
Claim") against a Telular Indemnified Party or a TelePath Indemnified Party,
respectively (each, an "Indemnified Party"), in respect of which indemnity may
be sought under Section 6.10, 8.1.1 or 8.1.2 from the relevant indemnifying
person or any successor thereto (the "Indemnifying Party"), then the Third Party
Claim shall be subject to the following terms and conditions:
(a) The Indemnified Party shall promptly provide written notice
of any Third Party Claim asserted against, resulting to, imposed upon or
incurred by the Indemnified Party to the Indemnifying Party. The
Indemnifying Party, upon receiving such written notice, may at its own
expense undertake the defense of such Third Party Claim by counsel of its
own choosing, which shall be reasonably acceptable to the Indemnified
Party; provided, that, the Indemnified Party shall have the right to employ
separate counsel to participate in (but not control) the defense of any
such action, suit, claim or proceeding, but the disbursements, expenses and
fees of such separate counsel shall be at the expense of the Indemnified
Party.
(b) If within twenty (20) business days after written notice of
any Third Party Claim has been provided to the Indemnifying Party, the
Indemnifying Party fails to defend the Indemnified Party, the Indemnified
Party shall have the right to undertake the defense, compromise or
settlement of such Third Party Claim for the account of the Indemnifying
Party.
(c) Anything in this Section 8.2 to the contrary notwithstanding,
(i) if there is a reasonable probability in the Indemnified Party's
judgment that the Third Party Claim may materially and adversely affect the
Indemnified Party other than as a result of money damages or other money
payments, the Indemnified Party shall have the right to defend, co-defend,
compromise or settle such Third Party Claim and (ii) the Indemnifying Party
shall not, without the prior written consent of the Indemnified Party,
settle or compromise any claim or consent to entry of any judgment relating
to any such Third Party Claim, which settlement, compromise or judgment
does not include as an unconditional term thereof the giving by the
claimant or the plaintiff to the Indemnified Party a release from all
liabilities in respect of such Third Party Claim.
<PAGE> 41
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(d) The Indemnifying Party shall provide the Indemnified Party
with access to all records and documents of the Indemnifying Party relating
to any Third Party Claim. The Indemnified Party shall provide the
Indemnifying Party with access to all records and documents of the
Indemnified Party relating to any Third Party Claim.
8.3 Qualifications With Respect to Section 8.1. The obligations of
indemnification in respect of Claims set forth in Section 8.1 shall be subject
to the following limitations:
(a) such obligations shall be subject to the limitation set
forth in Section 2.3 respecting the survival of the representations and
warranties of the parties;
(b) such obligations shall be subject to Section 8.2; and
(c) such obligations shall not be applicable unless and until
the aggregate amount of claims by the party seeking indemnification exceeds
Twenty-Five Thousand Dollars ($25,000), in which event the right of
indemnification shall apply to the full amount of such Claims and not only
those in excess of Twenty-Five Thousand Dollars ($25,000).
ARTICLE IX
GENERAL
9.1 Finders' Fees. Each party hereto is responsible for, and shall
indemnify the other parties against, any agreements made or acts committed by it
which would entitle any third party to a fee, commission, bonus or any other
remuneration as a result of the consummation of the transactions contemplated by
this Agreement.
9.2 Notices. Any notice, demand, request, consent, approval or other
communication which is required or permitted to be given or made by a party to
the other pursuant to any provision of this Agreement shall be given or made in
writing and shall be served personally or sent by prepaid registered mail
addressed to the party as follows:
<PAGE> 42
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(a) TelePath:
TelePath Corporation
140 Fell Court
Hauppage, NY 11788
Attn: Dan Giacopelli
Facsimile: 516-234-8474
with a copy to:
Lowenthal, Landau, Fisher & Bring PC
250 Park Avenue
New York, NY 10177
Attention: Paul Whitby, Esq.
Facsimile: 212-986-0604
(b) Telular:
Telular Corporation
920 Deerfield Parkway
Buffalo Grove, IL 60089
Attn: Kenneth Millard
Facsimile: 847-465-4555
with a copy to:
Covington & Burling
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: Michael Cutler, Esq.
Facsimile: 202-778-5258
or to such other address as a party may from time to time advise the other
party hereto by notice in writing. Every such notice so given shall be deemed
to be received only upon delivery to the party to be charged with notice.
Notwithstanding the foregoing, notices may be given by fax and shall, if
receipt is confirmed electronically to the sender's equipment, be deemed to
have been received the Business Day after sending. Any fax notice shall be
confirmed by mail as provided above.
9.3 Expenses. All costs, fees, and expenses incurred in connection
with, or in anticipation of, this Agreement and the consummation of the
transactions contemplated hereby shall be paid by the party incurring such
expenses.
<PAGE> 43
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9.4 Entire Agreement. This Agreement, including the Schedules
hereto, together with the agreements and other documents to be delivered
pursuant hereto, constitutes the entire agreement between the parties pertaining
to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties, and there are no warranties, representations or other agreements
between the parties in connection with the subject matter hereof except as
specifically set forth herein. This Agreement may not be amended or modified in
any respect except by written instrument signed by all parties.
9.5 Further Assurances. The parties hereto shall use reasonable
diligence to do all such things and provide all such reasonable assurances as
may be required to consummate the transactions contemplated hereby, and each
party shall execute and deliver to the other such further documents,
instruments, papers and information as may be reasonably requested by the other
in order to carry out the purpose and intent of this Agreement whether before or
after the Closing.
9.6 Severability. Should any provision of this Agreement for any
reason be declared invalid or unenforceable, such decision shall not affect the
validity or enforceability of any of the other provisions of this Agreement,
which remaining provisions shall remain in full force and effect, and the
application of such invalid or unenforceable provision to persons or
circumstances other than those as to which it is held invalid or unenforceable
shall be valid and be enforced to the fullest extent permitted by law.
9.7 Law and Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, regardless of
the laws that might govern under that state's principles of conflicts of laws.
9.8 Counterparts. For the convenience of the parties, this Agreement
may be executed in several counterparts, each of which when so executed shall
be, and be deemed to be, an original instrument and such counterparts together
shall constitute one and the same instrument, and notwithstanding their date of
execution shall be deemed to be dated as of the date of this Agreement. A
signature page may after its execution be transmitted by facsimile and a
signature page so received by facsimile shall be deemed an original signature
page.
9.9 Successors and Assigns. The provisions of this Agreement shall
enure to the benefit of and shall be binding upon the parties hereto and their
respective successors and
<PAGE> 44
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assigns. This Agreement shall not be assignable by TelePath or Telular without
the written consent of the other.
9.10 Headings. The descriptive headings of the several Articles and
Sections of this Agreement are inserted for convenience only, do not constitute
a part of this Agreement and shall not affect in any way the meaning or
interpretation of this Agreement.
9.11 Waivers. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision (whether or
not similar) nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided.
9.12 Benefits. Except as otherwise expressly provided herein,
nothing contained in this Agreement, express or implied, is intended to confer
upon any person other than the parties to it and their respective successors and
permitted assigns any rights or remedies under or by reason of this Agreement.
9.13 Schedules. The Schedules to this Agreement shall be deemed to
be an integral part of this Agreement to the same extent as if they had been set
forth verbatim herein.
9.14 Terms Generally. As used herein, except where the context
otherwise requires, the singular shall include the plural and vice versa, words
of any gender shall include words of any other gender, and "or" is used in the
inclusive sense.
<PAGE> 45
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IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the parties hereto as of the date first above written.
TELEPATH CORPORATION
By /s/ Dan Giacopeli
--------------------------------
Name: Dan Giacopelli
Title: Chairman and President/CEO
TELULAR CORPORATION
By /s/ Kenneth Millard
---------------------------------
Name: Kenneth Millard
Title: Chief Executive Officer
<PAGE> 46
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LIST OF SCHEDULES AND EXHIBITS
Schedules
Schedule 2.1.3 Required Consents
Schedule 2.1.5 Capitalization
Schedule 2.1.7 Financial Statements
Schedule 2.1.11 Leases
Schedule 2.1.12 Tax Matters
Schedule 2.1.14 Environmental Matters
Schedule 2.1.15 Contracts
Schedule 2.1.16 Insurance
Schedule 2.1.17 Employment Matters
Schedule 2.1.18 Pension Matters
Schedule 6.1 Product Development
Exhibits
Exhibit A Registration Rights Agreement
Exhibit B Shareholders Agreement
<PAGE> 47
Schedule 2.1.3 - Covenants and Approvals; No Violations
Not applicable
1
<PAGE> 48
Schedule 2.1.5 - TelePath Stock; Subsidiaries
Authorized capital stock:
[X]
Total 500 shares
2
<PAGE> 49
[X]
Page 1
<PAGE> 50
TelePath Corporation
Balance sheet
April 30, 1996
ASSETS
<TABLE>
<S> <C>
Current Assets
Cash $ [X]
Accounts Receivable [X]
-----------
Total Current Assets [X]
-----------
Property, Plant and Equipment (Note 2)
Fixed Assets [X]
Accumulated Depreciation [X]
-----------
Total Property, Plant and Equipment [X]
-----------
Other Assets (Note 3) [X]
-----------
TOTAL ASSETS $ [X]
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable [X]
Income Tax Payable [X]
-----------
Total Current Liabilities [X]
-----------
Stockholder's Equity
Common Stock [X]
Retained Earnings [X]
-----------
Total Stockholder's Equity [X]
-----------
TOTAL LIABILITIES AND EQUITY $ [X]
===========
</TABLE>
See accountant's report and notes to financial statements.
Page 2
<PAGE> 51
Telepath Corporation
Statement of Operations and Retained Earnings
For the Period Commencing October 1, 1995 (date of inception)
to April 30, 1996
<TABLE>
<S> <C>
Sales $ [X]
---------
Cost of Operations
Direct Costs [X]
Office Expense [X]
Rent [X]
Professional Fees [X]
Telephone [X]
Payroll [X]
Payroll Tax [X]
Insurance [X]
General & Administrative [X]
Amortization [X]
Depreciation [X]
---------
Total Expenses [X]
---------
Income From Operations [X]
Other Income and Expense [X]
---------
Income Before Tax [X]
Income Tax Provision [X]
---------
Net Income and Retained Earnings $ [X]
=========
</TABLE>
See accountant's report and notes to financial statements.
Page 3
<PAGE> 52
TelePath Corporation
Statement of Cash Flows
For the Period Commencing October 1, 1995 (date of inception)
to April 30, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ [X]
--------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization [X]
(Increase) decrease in accounts receivable [X]
Increase (decrease) in accounts payable [X]
Increase (decrease) in income taxes payable [X]
--------
Total adjustments [X]
--------
Net cash provided (used) by operating activities [X]
Cash flows from investing activities:
Cash payments for the purchase of property [X]
Cash payments for organization costs [X]
--------
Net cash provided (used) by investing activities [X]
--------
Cash flows from financing activities:
Proceeds from issuance of common stock [X]
--------
Net cash provided (used) by financing activities [X]
--------
Net increase (decrease) in cash and equivalents [X]
Cash - Inception
--------
Cash - End of Period $ [X]
========
Supplemental disclosures of cash flow information:
Cash Paid (or accrued) during the period for:
Income taxes $ [X]
</TABLE>
See accountant's report and notes to financial statements.
Page 4
<PAGE> 53
Telepath Corporation
Notes to Financial Statements
April 30, 1996
Note 1. Description of Business
- --------------------------------
The company is an engineering firm with its focus on the wireless
communications industry. [X]
Note 2. Sumary of Significant Accounting Policies
- --------------------------------------------------
Accounts Receivable:
Accounts receivable are reflected net of any provision for doubtful accounts.
[X]
Depreciation Expense:
[X]
Income Taxes:
The provision for income taxes included in these financial statements includes
Federal and state estimates.
Note 3. Other Assets
- ----------------------
[X]
Page 5
<PAGE> 54
Schedule 2.1.9 -- Absence of Material Change
(g) Telepath effected a recapitalization increasing its authorized
shares from 200 no par to 5,000 with a par value of $.01 per
share and the outstanding shares were converted to 500 shares par
value $.01 per share.
4
<PAGE> 55
Schedule 2.1.11A - Leases of Real and Rental Property
(a) Office Space - Present Location
Property Location 140 Fell Court, Suites 113-116, Hauppauge, NY 11788
Size 1025 sq. ft.
Leased from Shivom Enterprises LLC, 140 Fell Court, Hauppauge, NY
11788
Terms Month-to-month, 30 days' notice to cancel
Cost $1281 per month
Office Space - Future Location
TelePath is currently negotiating a lease for a property commensurate with the
expected needs of the Company after consummating the Stock Purchase Agreement.
This lease will be signed immediately after signing the Stock Purchase
Agreement.
Property Location Hauppauge, NY 11788
Size 9600 sq. ft., $12 per foot
Terms 5 years
Cost $9600 per month
(b) Copier
Model Mita 4555
Leased from IKON Capital, Inc., PO Box 9115, Macon, GA 31208
Terms 12 months, $1 Buyout
Cost $160.21 per month
Lab Equipment
Model - Various RF Test Equipment under Master Lease Agreement 4124-04778
Leased From - Hewlett Packard
Terms - EasyRent Program, exit points at 12 month intervals
Cost $725.70 per month
Model - Tektronix TDS724A-1M Digital Storage Scope
Leased From - McGrath RentCorp, 2500 Grant Avenue, San Lorenzo, CA 94580
Terms - 12 months, $1 Buyout
Cost - $1141.25 per month
5
<PAGE> 56
Schedule 2.1.12 - Tax Matters and Payment of Debt
2.1.12.1 Not applicable
2.1.12.2 Signing bonus payable as set forth on Schedule 2.1.17
6
<PAGE> 57
Schedule 2.1.14 - Environmental Matters
Not applicable
7
<PAGE> 58
Schedule 2.1.15 - Certain Contracts and Agreements
1. Employment Agreements described on Schedule 2.1.17
2. The Agreement, the Registration Rights Agreement and the Shareholders
Agreement
3. Purchase Orders with Telular
8
<PAGE> 59
Schedule 2.1.16 - Insurance
New York Statutory Disability Policy
Policy #8-910-0150672
Effective Date 1/1/96
Number of Employees - 5
National Benefits Life Insurance Company, 333 West 34th Street, New York,
NY 10001
Worker Compensation and Employers Liability Policy
Policy #12-WEC-CZ1522
Effective Date - 1/15/96
Hartford Underwriters Insurance Company, Hartford Plaza, Hartford, CT 06115
Businessowners Liability Policy
Policy #8HCN-57-6473111
Effective Date - 11/28/95
Merchants Insurance Company of New Hampshire, Inc., Buffalo, NY
9
<PAGE> 60
Schedule 2.1.17A - Employment Matters
CONTINUING
DATE OF CURRENT COMPENSATION VACATION
EMPLOY- COMPENSA- ---------------- INCENTIVE ACCRUED/
NAME TITLE MENT TION SALARY BONUS BONUS ENTITLEMENT
[ X ]
Additionally TelePath engages outside consultants on a per hour basis as
needed.
10
<PAGE> 61
Schedule 2.1.18A - Plans
TelePath presently does not have a benefits plan for its employees. However, as
a requirement for attracting and hiring qualified individuals TelePath will
provide the following benefit plans to its employees in the near future.
1. Health Insurance, including medical, dental and vision services
2. Term Life Insurance
3. Disability Insurance
4. Cash Bonus program
5. Profit Sharing, at the Company's discretion
6. 401(k) Plan
Details of these benefit plans remain to be worked out.
11
<PAGE> 62
SCHEDULE 6.1
Product Designs Start Date End Date Program
Cost
[ X ]
[ X ]
<PAGE> 63
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of June 28, 1996 (this
"Agreement"), among TELULAR CORPORATION ("TELULAR," and, together with any of
its successors and assigns, "Holders"), and TelePath Corporation (the
"Company").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Stock Purchase Agreement of even
date herewith, TELULAR has agreed to purchase certain shares of Common Stock of
the Company, par value $.01 per share ("Common Stock"); and
WHEREAS, as a condition to such purchase, TELULAR has required the
Company to grant to Holders certain rights to have the Common Stock owned by
Holders registered under the Securities Act of 1933;
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties hereto hereby agree as follows:
1. Effectiveness. This Agreement shall become effective as of the day and
year first above written.
2. Definitions. As used in this Agreement, the following terms shall have
the following respective meanings:
(a) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute then in effect, and a reference to a
particular section thereof shall be deemed to include a reference to the
comparable section, if any, of any such similar federal statute.
(b) "Registrable Securities" shall mean (i) shares of Common Stock
held by Holders as of the date hereof, (ii) all shares of Common Stock which the
Holders have a contractual obligation, right or option to acquire as of the date
hereof, and (iii) all shares of Common Stock that are issued to Holders in
respect of, in exchange for or in substitution of any shares of Common Stock by
reason of any reorganization, recapitalization, reclassification, merger,
consolidation, spin-off, partial or complete liquidation, stock dividend, stock
split, sale of assets, distribution to shareholders or combination of the shares
of Common Stock or any other change in the Company's capital structure.
<PAGE> 64
- 2 -
As to any particular Registrable Securities, once issued such securities
shall cease to be Registrable Securities when (v) such securities shall have
been registered under the Securities Act, and the registration statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of pursuant to such
effective registration statement, (w) such securities shall have been
distributed pursuant to Rule 144 (or any similar provision which replaces Rule
144) under the Securities Act, (x) counsel to the Company shall have delivered
an opinion letter, satisfactory in form and substance to counsel for the
Holder, to the effect that such securities may be sold in accordance with Rule
144(k) under the Securities Act as presently in effect (or any amended version
thereof or replacement therefor which imposes no greater restrictions upon
resale than those imposed currently by such rule) (y) such securities shall
have been otherwise transferred, if new certificates or other evidences of
ownership for them shall not bear a legend restricting further transfer and
shall not be subject to any stop transfer order or other restrictions on
transfer delivered or imposed by the Company and subsequent disposition of such
securities shall not require registration or qualification of such securities
under the Securities Act or any state securities laws then in force or (z) such
securities shall cease to be outstanding.
(c) "Registration Expenses" shall mean all expenses incident to the
Company's performance of or compliance with this Agreement, including, without
limitation, all filing fees and expenses payable to the SEC and any relevant
stock exchange or quotation system such as the National Association of
Securities Dealers, Inc., registration fees and expenses of compliance with
securities or blue sky laws (including, without limitation, reasonable fees and
disbursements of counsel for the underwriters in connection with blue sky
qualifications of the Registrable Securities), printing expenses, messenger and
delivery expenses, the fees and expenses incurred in connection with the
listing of the securities to be registered on each securities exchange or
national market system on which similar securities issued by the Company are
then listed, fees and disbursements of counsel for the Company and all
independent certified public accountants (including the expenses of any annual
audit, special audit and "cold comfort" letters required by or incident to such
performance and compliance), securities laws liability insurance (if the
Company so desires) the fees and disbursements of underwriters
customarily paid by issuers or sellers of securities (other than commissions
and discounts, if any, attributable to the sale of Registrable Securities by
Holders of such Registrable Securities), the fees and expenses of counsel to
the Company, the reasonable fees and expenses, up to a maximum of $30,000, of
one counsel retained in connection with each such registration by Holders of a
majority of the Registrable Securities being registered, the reasonable fees
and expenses of any special experts retained by the Company in
<PAGE> 65
- 3 -
connection with such registration, and fees and expenses of other persons
retained by the Company (but not including any underwriting discounts or
commissions or transfer taxes, if any, attributable to the sale of Registrable
Securities by the Holders of such Registrable Securities).
(d) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute then in effect, and a reference to a
particular section thereof shall be deemed to include a reference to the
comparable section, if any, of any such similar federal statute.
(e) "SEC" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act or the
Exchange Act.
3. Other Definitions.
Term Defined in
---- Section
----------
Agreement Preamble
Company Preamble
Common Stock Preamble
Demanding Holders Section 4(a)
Holders Preamble
Indemnified Person Section 8(a)
Indemnified Persons Section 8(b)
4. Demand Registration.
(a) Request for Registration. At any time after the date which is 180
days after an initial public offering of Common Stock, upon the written request
of one or more Holders who hold in the aggregate at least 20% of the total
number of Registrable Securities then outstanding, measured on a fully diluted
basis (the "Demanding Holder" or "Demanding Holders", as the case may be),
requesting that the Company effect the registration under the Securities Act of
all or part of the Registrable Securities then held by the Demanding Holders,
the Company will promptly give written notice of such requested registration to
the other Holders at least 30 days prior to the anticipated filing date of the
registration statement relating to such registration, and thereupon will use its
best efforts to effect, as expeditiously as possible, the registration under the
Securities Act of:
(i) The Registrable Securities which the Company has been so requested to
register by each of the Demanding Holders; and
<PAGE> 66
- 4 -
(ii) All other Registrable Securities which the Company has been
requested to register by any other Holders by written request
received by the Company within 20 days after the giving of such
written notice by the Company (which request shall contain such
information as is deemed necessary by the Company to permit the
registration and disposition of the Registrable Securities so
requested to be registered by such other Holders);
provided, however, that (x) the Company shall not be obligated to file a
registration statement relating to a registration request under this Section 4
(other than on Form S-3 if it is then available or any similar short-form
registration statement) within a period of 90 days after the effective date of
any other registration statement of the Company other than registration
statements on Form S-3 if it is then available (or any similar short-form
registration statement) or any successor or similar forms and (y) the Company
shall not be required to effect more than three registrations pursuant to this
Section 4.
In the event a registration requested pursuant to this Section 4 fails to
become effective (other than as a result of a revocation of such requested
registration by Demanding Holders holding greater than 50% of the Registrable
Securities requested to be registered pursuant to subsection (i) above), such
registration shall be deemed not to have been effected for purposes of this
Section 4(a). In the event a registration requested pursuant to this Section 4
fails to become effective as a result of revocation of a requested demand
registration by Demanding Holders holding greater than 50% of the Registrable
Securities requested to be registered pursuant to subsection (i) above, the
Demanding Holders participating in such revocation shall pay the expenses which
the Company has incurred to effect such registration and the registration shall
otherwise be treated as not having been effected and shall not reduce the number
of registrations that the Company is required to effect pursuant to this Section
4.
Promptly after the expiration of the 20-day period referred to in
subsection (ii) above, the Company will notify all the Holders to be included
in the registration of the other Holders and the amount of Registrable
Securities requested to be included therein by each Holder. Demanding Holders
holding greater than 50% of the Registrable Securities requested to be
registered pursuant to subsection (i) above may, at any time prior to the
effective date of the registration statement relating to such registration,
revoke such request by providing a written notice to the Company and the other
Demanding Holders revoking such request signed by such revoking Demanding
Holders.
(b) Expenses. Except as otherwise specifically provided in Section 4(a),
the Company will pay all Registration
<PAGE> 67
- 5 -
Expenses in connection with any registration that the Company is obligated to
effect for the Holders pursuant to this Section 4. Each Holder shall pay all
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of such Holder's Registrable Securities pursuant to a
registration statement requested pursuant to this Section 4.
(c) Effective Registration Statement. A registration requested
pursuant to this Section 4 will not be deemed to have been effected unless the
registration statement relating thereto has become effective under the
Securities Act; provided, however, that if, after such registration statement
has become effective, the offering of Registrable Securities pursuant to such
registration is interfered with by any stop order, injunction or other order or
requirement of the SEC or other governmental agency or court, such registration
will be deemed not to have been effected.
(d) Selection of Underwriters. The Company shall have the right to
select the investment banker and manager or co-managers that will administer an
offering of Registrable Securities requested to be registered pursuant to this
Section 4 with the consent of the Holders, which consent shall not be withheld
or delayed unless, in the reasonable judgment of the Holders, such persons are
not "top tier" firms.
(e) Pro Rata Participation in Requested Registrations. If the
managing underwriter shall advise the Company in writing that, in its opinion,
the number of equity securities requested to be included in such registration
(including securities which the Company requests to be included which are not
Registrable Securities) exceeds the largest number of securities which can be
sold without having an adverse effect on such offering, including the price at
which such securities can be sold, the Company will include in such registration
(i) first, all Registrable Securities requested to be included in such
registration pursuant to Sections 4(a)(i) and (ii) hereof (provided, however,
that if the number of such Registrable Securities exceeds the number which the
Company has been advised can be sold in such offering without having the adverse
effect referred to above, the number of such Registrable Securities included in
such registration shall be allocated pro rata among the Holders requesting
registration on the basis of the relative number of shares of Registrable
Securities each such Holder has requested to be included in such registration)
and (ii) second, to the extent that the number of Registrable Securities
requested to be included in such registration pursuant to Sections 4(a)(i) and
(ii) hereof is, in the aggregate, less than the number of securities which the
Company has been advised can be sold in such offering without having the adverse
effect referred to above, the equity securities proposed to be sold by the
Company and any other person (provided that if the number of securities proposed
to be registered by the Company and such other persons,
<PAGE> 68
- 6 -
together with the number of Registrable Securities to be included in
such registration pursuant to clause (i) of this Section 4(e), exceeds the
number which the Company has been advised can be sold in such offering without
having the adverse effect referred to above, the number of such securities
included in such registration pursuant to this Section 4(e)(ii) shall be
allocated in such manner as the Company may in its sole discretion direct).
5. Incidental Registration.
(a) Right to Include Registrable Securities. If the Company at any
time and from time to time proposes to register any of its equity securities
under the Securities Act (other than a registration on Form S-8, S-4 or any
successor or similar forms and other than pursuant to a registration under
Section 4 hereof), whether or not for sale for its own account, in a manner
which would permit registration of Registrable Securities for sale to the public
under the Securities Act, it will each such time, subject to the provisions of
Section 5(b) hereof, give prompt written notice to each Holder of its intention
to do so and of each Holder's rights under this Section 5, at least 30 days
prior to the anticipated filing date of the registration statement relating to
such registration. Such notice shall offer to each Holder the opportunity to
include in such registration statement such number of Registrable Securities as
each such Holder may request. Upon the written request of any Holder made
within 20 days after the receipt of the Company's notice (which request shall
specify the number of Registrable Securities intended to be disposed of by such
Holder and the intended method of disposition thereof), the Company will use its
best efforts to effect the registration under the Securities Act of all
Registrable Securities which the Company has been so requested to register by
each such Holder, to the extent requisite to permit an underwritten disposition
of the Registrable Securities so to be registered; provided, however, that (x)
the Holders requesting to be included in the Company's registration must sell
their Registrable Securities to the underwriters selected by the Company on the
same terms and conditions as apply to the Company and (y) if, at any time after
giving written notice of its intention to register any Registrable Securities
pursuant to this Section 5(a) and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register its securities, the Company shall
give written notice to each such Holder and, thereupon, the Company shall be
relieved of its obligation to register any Registrable Securities in connection
with such registration (without prejudice, however, to rights of Holders under
Section 4 hereof). The Holders requesting to be included in such registration
may elect, in writing at any time prior to the effective date of the
registration statement filed in connection with such registration, not to
register such securities in connection with such registration. No registration
effected under this Section 5 shall relieve the Company of its obligations to
<PAGE> 69
- 7 -
effect registrations upon request of the Demanding Holder under Section 4
hereof. The Company will pay all Registration Expenses in connection with each
registration of Registrable Securities requested pursuant to this Section 5, and
each Holder shall pay all underwriting discounts and commissions and transfer
taxes, if any, relating to the sale or disposition of its Registrable Securities
pursuant to a registration statement effected pursuant to this Section 5.
(b) Priority in Incidental Registrations. If the managing underwriter
of a registration effected pursuant to this Section advises the Company in
writing that, in its opinion, either (y) the number of equity securities
(including all Registrable Securities) which the Company, the Holders and any
other persons intend to include in such registration exceeds the largest number
of securities which can be sold without having an adverse effect on such
offering, including the price at which such securities can be sold, or (z) the
inclusion in such offering of Registrable Securities would have a material
adverse effect on such offering, then, in either such case, the Company will
include in such registration (i) first, all the securities the Company proposes
to sell for its own account, (ii) second, all the Registrable Securities each
Holder proposes to sell for its own account (provided, however, that if the
number of Registrable Securities requested to be included in such registration
by the Holders pursuant to Section 5(a) hereof, together with the number of
securities to be included in such registration pursuant to clauses (i) of this
Section 5(b), exceeds the number which the Company has been advised can be sold
in such offering without having the adverse effect referred to above, the number
of such Registrable Securities to be included in such registration by the
Holders shall be allocated pro rata among such Holders on the basis of the
relative number of Registrable Securities each such Holder has requested to be
included in such registration), and (iii) third, to the extent that the number
of equity securities which the Company proposes to sell for its own account and
the Registrable Securities which the Holders have requested to be included in
such registration pursuant to Section 5(a) hereof is, in the aggregate, less
than the number of securities which the Company has been advised can be sold in
such offering without having the adverse effect referred to above, the equity
securities requested to be sold for the account of any other persons (provided,
however, that if the number of securities proposed to be registered by such
other persons, together with the number of equity securities to be included in
such registration pursuant to clauses (i) and, (ii) of this Section 5(b),
exceeds the number which the Company has been advised can be sold in such
offering without having the adverse effect referred to above, the number of such
securities included in such registration pursuant to this Section 5(b)(iii)
shall be allocated in such manner as the Company may in its sole discretion
direct).
<PAGE> 70
- 8 -
6. Holdback Agreements.
(a) Registration for Public Sale by Holders. Each Holder of
Registrable Securities agrees, to the extent not inconsistent with applicable
law, and if and to the extent requested by the managing underwriter of a
registration of Registrable Securities, not to effect any public sale or
distribution, including any sale pursuant to Rule 144 under the Securities Act,
of any Registrable Securities, and not to effect any such public sale or
distribution of any other equity security of the Company or of any security
convertible into or exchangeable or exercisable for any equity security of the
Company (in each case, other than as part of such registration) during the 15
days prior to, and for a period of at least 90 days (or such longer period as
each Holder agrees with the underwriter of such offering) beginning on, the
effective date of such registration statement (except as part of such
registration) provided that (i) each Holder of Registrable Securities has
received written notice of such registration at least 30 days prior to such
effective date, and (ii) the officers and directors of the Company and their
affiliates agree to restrictions no less stringent than those applied to the
Holders.
(b) Restrictions for Public Sale by the Company and Others. The
Company agrees, to the extent not inconsistent with applicable law, and if and
to the extent requested by the managing underwriter of a registration of
Registrable Securities, (i) not to effect any public sale or distribution of any
of its equity securities or of any security convertible into or exchangeable or
exercisable for any equity security of the Company (other than any such sale or
distribution for such securities in connection with any merger or consolidation
by the Company or any subsidiary of the Company or the acquisition by the
Company or a subsidiary of the Company of the capital stock or substantially all
the assets of any other person or in connection with an employee stock option or
other benefit plan) during the 15 days prior to, and for a period of at least 90
days (or such longer period as the underwriters retained by the Company may
reasonably request) beginning on, the effective date of such registration
statement (except as part of such registration) and (ii) that any agreement
entered into after the date of this Agreement pursuant to which the Company
issues or agrees to issue any privately placed equity securities shall contain a
provision under which holders of such securities agree not to effect any public
sale or distribution of any such securities during the period referred to in the
foregoing clause (i), including any public sale by such holders pursuant to Rule
144 under the Securities Act (except as part of such registration, if
permitted); provided, however, that the provisions of this paragraph (b) shall
not prevent the conversion or exchange of any securities pursuant to their terms
into or for other securities.
<PAGE> 71
- 9 -
7. Registration Procedures.
If and whenever the Company is required to use its best efforts to effect
or cause the registration of any Registrable Securities under the Securities Act
as provided in this Agreement, the Company will, as expeditiously as possible:
(a) prepare and file with the SEC within 90 days, and use its best
efforts to prepare and so file within 45 days, after receipt of a request for
registration with respect to such Registrable Securities, a registration
statement on any form for which the Company then qualifies or which counsel for
the Company shall deem appropriate, subject to Section 4(b) hereof, and which
form shall be available for the sale of the Registrable Securities as part of
such registration, and use its best efforts to cause such registration statement
to become effective; provided, however, that before filing with the SEC a
registration statement or prospectus or any amendments or supplements thereto,
the Company will (i) furnish to one counsel selected by the Holders of a
majority of the Registrable Securities covered by such registration statement
copies of all such documents proposed to be filed, which documents will be
subject to the review of such counsel, and (ii) notify each Holder of
Registrable Securities covered by such registration statement of any stop order
issued or threatened by the SEC and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective for such period
as the underwriters may reasonably request, which period will terminate when all
Registrable Securities covered by such registration statement have been sold
(but not before the expiration of the 90-day period referred to in Section 4(3)
of the Securities Act and Rule 174 thereunder, if applicable), and comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;
(c) furnish to each Holder and each underwriter, if any, of
Registrable Securities covered by such registration statement such number of
copies of such registration statement, each amendment and supplement thereto (in
each case including all exhibits thereto), the prospectus included in such
registration statement (including each preliminary prospectus) and such other
documents as such Holder may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Holder, in conformity
with the requirements of the Securities Act;
<PAGE> 72
- 10 -
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any Holder and underwriter of Registrable Securities covered by such
registration statement reasonably requests and do any and all other acts and
things which may be reasonably necessary or advisable to enable such Holder and
each underwriter to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such Holder; provided, however, that the Company
will not be required to (i) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this paragraph (d),
(ii) subject itself to taxation in any such jurisdiction or (iii) consent to
general service of process in any such jurisdiction;
(e) use its best efforts to cause the Registrable Securities covered
by such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company to enable the Holder or Holders thereof
to consummate the disposition of such Registrable Securities;
(f) immediately notify each Holder of such Registrable Securities (i)
at any time when a prospectus relating thereto is required to be delivered under
the Securities Act, (ii) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Registrable Securities for
sale in any jurisdiction or the initiation or threatening of any proceeding for
such purpose, or (iii) of the happening of any event which comes to the
Company's attention if as a result of such event the prospectus included in such
registration statement contains an untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading and, in each such case, the Company will
promptly prepare and furnish to such Holder a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain an untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading;
(g) if Registrable Securities are then listed on a national securities
exchange or quoted on a national market system, use its best efforts to cause
all such Registrable Securities to be listed on such national securities
exchange or quoted on such national market system and on each securities
exchange on which similar securities issued by the Company are then listed or
quoted, and enter into such customary agreements including a listing application
or application for quotation and indemnification agreement in customary form,
provided, however, that the applicable listing or quotation requirements are
satisfied, and to provide a transfer agent and registrar for such Registrable
Securities
<PAGE> 73
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covered by such registration statement no later than the effective date of such
registration statement;
(h) enter into such customary agreements (including an underwriting
agreement) and take all such other actions as the Holders of a majority (by
number of shares being sold) of the Registrable Securities or the underwriters
retained by such Holders reasonably request in order to expedite or facilitate
the disposition of such Registrable Securities, including provision of customary
opinions and indemnification;
(i) make available for inspection by any Holder of Registrable
Securities covered by such registration statement, any underwriter participating
in any disposition pursuant to such registration statement and amendment
thereto, and any attorney, accountant or other agent retained by any such Holder
or underwriter (collectively, the "Inspectors"), all financial and other
records, pertinent corporate documents and properties of the Company and its
subsidiaries, if any, as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause the officers, directors
and employees of the Company and its subsidiaries to supply all information and
respond to all inquiries reasonably requested by any such Inspector in
connection with such registration statement and amendments thereto;
(j) use its best efforts to obtain a "cold comfort" letter from the
Company's independent public accountants addressed to the selling Holders and
the underwriters in customary form and covering such matters of the type
customarily covered by "cold comfort" letters as the Holders of a majority (by
number of shares being sold) of the Registrable Securities or the underwriters
retained by such Holders reasonably request;
(k) otherwise use its best efforts to comply in all material respects
with all applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering a period of at least twelve months, beginning with the first month
after the effective date of the registration statement and the effective date of
each post-effective amendment thereto (as the term "effective date" is defined
in Rule 158(c) under the Securities Act), which earnings statement shall satisfy
the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(l) not later than the effective date of the applicable Registration
Statement, use its efforts to provide a CUSIP number for all Registrable
Securities, and provide the applicable transfer agents with printed certificates
for the Registrable Securities which are in a form eligible for deposit with
Depositary Trust Company; and
<PAGE> 74
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(m) promptly prior to the filing of any document which is to be
incorporated by reference into the Registration Statement or the prospectus
(after initial filing of the Registration Statement), provide copies of such
document to counsel to the selling Holders of Registrable Securities and to the
managing underwriters, if any, make the Company's representatives available for
discussion of such document and make such changes in such document prior to the
filing thereof as counsel for such selling holders or underwriters may
reasonably request.
It shall be a condition precedent to the obligation of the Company to take
any action pursuant to this Agreement in respect of the securities which are to
be registered at the request of any Holder of Registrable Securities that such
Holder shall furnish to the Company such information regarding the securities
held by such Holder and the intended method of disposition thereof as the
Company shall reasonably request and as shall be required in connection with
the action taken by the Company.
Each Holder of Registrable Securities agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 7(f) hereof, such Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 7(f) hereof, and, if
so directed by the Company, such Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies, then in such
Holder's possession, of the prospectus covering such Registrable Securities
current at the time of receipt of such notice. In the event the Company shall
give any such notice, the period mentioned in Section 7(b) hereof shall be
extended by the greater of (i) one month or (ii) the number of days during the
period from and including the date of the giving of such notice pursuant to
Section 7(f) hereof to and including the date when each Holder of Registrable
Securities covered by such registration statement shall have received the copies
of the supplemented or amended prospectus contemplated by Section 7(f) hereof.
If for any other reason the effectiveness of any Registration Statement filed
pursuant to Section 4 or 5 hereof is suspended or interrupted prior to the
expiration of the time period regarding the maintenance of the effectiveness of
such Registration Statement required by such Section 4 or 5 so that Registrable
Securities may not be sold pursuant thereto, the applicable time period shall be
extended by the number of days equal to the number of days during the period
beginning with and including the date of such suspension or interruption to and
including the date when the sale of Registrable Securities pursuant to such
Registration Statement may be recommenced.
If any such registration statement or prospectus refers to any Holder by
name or otherwise as the holder of any securities of the
<PAGE> 75
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Company and if, in its sole and exclusive judgment, such Holder is or might be
deemed to be a controlling person of the Company, such Holder shall have the
right to require the insertion therein of language, in form and substance
satisfactory to such Holder and presented to the Company in writing, to the
effect that the holding by such Holder of such securities is not to be construed
as a recommendation by such Holder of the investment quality of the Company's
securities covered thereby and that such holding does not imply that such Holder
will assist in meeting any future financial requirements of the Company.
Furthermore, in each case where any such registration statement or prospectus
refers to any Holder by name where such reference to such Holder by name is not
required by the Securities Act or any similar Federal statute then in force, any
rule or regulation thereunder, or a specific comment by the staff of the
Securities and Exchange Commission, such Holder shall have the right to require
the deletion of such reference to such Holder.
8. Indemnification.
(a) Indemnification by the Company. In the event of any registration
of any securities of the Company under the Securities Act (whether pursuant to
Sections 4 or 5 hereof or otherwise), the Company will, and it hereby does,
indemnify and hold harmless, to the full extent permitted by law, (i) each of
the Holders of any Registrable Securities covered by such registration
statement, and (ii) each other person, if any, who controls, is controlled by or
is under common control with such Holder within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act (for purposes of this Section
8(a), "Indemnified Person"), against any and all losses, claims, damages or
liabilities, joint or several, and expenses (including any amounts paid in any
settlement effected with the Company's consent) to which such Indemnified Person
may become subject under the Securities Act, the Exchange Act, state securities
or blue sky laws, common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) or
expenses arise out of or are based upon (A) any untrue statement or alleged
untrue statement of any material fact contained, on the effective date thereof,
in any registration statement under which such securities were registered under
the Securities Act, any preliminary, final or summary prospectus combined
therein, or any amendment or supplement thereto, (B) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (C) any violation by
the Company of any federal, state or common law rule or regulation applicable to
the Company and relating to action required of or inaction by the Company in
connection with any such registration, and, in each case, the Company will
reimburse such Indemnified Person for any reasonable legal or any other expenses
reasonably incurred by him, her or it in connection with investigating or
defending such loss, claim, liability, action or proceeding;
<PAGE> 76
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provided, however, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense is caused by any untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement or
amendment or supplement thereto or in any such preliminary, final or summary
prospectus in reliance upon and in conformity with written information furnished
to the Company through an instrument duly executed by such Indemnified Person
specifically stating that it is for inclusion therein. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of such Indemnified Person and shall survive the transfer of such
securities by such Indemnified Person.
(b) Indemnification by the Holders, Other Sellers and Underwriters.
The Company may require, as a condition to including any Registrable Securities
in any registration statement filed in accordance with Section 7 hereof, that
the Company shall have received an undertaking reasonably satisfactory to it
from each of the Holders of such Registrable Securities, each other person
registering Company securities pursuant to such registration statement or any
underwriter or selling agent, to severally and not jointly, indemnify and hold
harmless (in the same manner and to the same extent as set forth in subsection
(a) of this Section 8) the Company and its directors, officers, controlling
persons, any underwriter or selling agent and all other prospective sellers and
their respective directors, officers, general and limited partners, managing
directors, and their respective controlling persons (for purposes of this
Section 8(b), "Indemnified Persons") but only with respect to (A) any untrue
statement or alleged untrue statement of any material fact contained, on the
effective date thereof, in any registration statement under which such
securities were registered under the Securities Act, any preliminary, final or
summary prospectus contained therein, or any amendment or supplement thereto, or
(B) any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case in reliance upon and in conformity with written information
furnished to the Company or its representatives through an instrument duly
executed by or on behalf of such Holder, other selling person or underwriter or
selling agent specifically stating that it is for inclusion therein. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Persons and shall survive the transfer
of such securities by such indemnifying party; provided, however, that no such
indemnifying party shall be liable under this Section 8(b) for any amounts
exceeding the product of the purchase price per Registrable Security and the
number of Registrable Securities being sold pursuant to such registration
statement or prospectus by such indemnifying party.
<PAGE> 77
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(c) Notices of Claims, Etc. Promptly after receipt by an indemnified
party hereunder of written notice of the commencement of any action or
proceeding (including any governmental investigation with respect to which a
claim for indemnification may be made pursuant to this Section 8, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, promptly give written notice to the latter of the
commencement of such action; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding subsections of this
Section 8, except to the extent that the indemnifying party is actually
materially prejudiced by such failure to give notice. In case any such action
is brought against an indemnified party, unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, the indemnifying party
will be entitled to participate in and, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, to the extent that it
may wish, with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties arises in respect of such claim after the
assumption of the defense thereof, and the indemnifying party will not be
subject to any liability for any settlement made without its consent (which
consent shall not be unreasonably withheld). No indemnifying party will consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of an unconditional release from all liability arising out of
such claim or litigation. An indemnifying party who is not entitled to, or
elects not to, assume the defense of a claim will not be obligated to pay the
fees and expenses of more than one counsel (and one local counsel) for all
parties indemnified by such indemnifying party with respect to such claim,
unless in the reasonable judgment of any indemnified party a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such claim, in which event the indemnifying
party shall be obligated to pay the fees and expenses of such additional counsel
or counsels. All fees and expenses incurred by an indemnified person which are
covered by the indemnity will be paid on a current basis when billed.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the immediately preceding
sentence, the indemnifying party shall be deemed to have agreed that it shall be
liable for any settlement of any proceeding effected without its
<PAGE> 78
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written consent if (i) such settlement is entered into more than 30 business
days after receipt by such indemnifying party of the aforesaid request, (ii)
such indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement and (iii) such
settlement is entered into more than ten business days after receipt by such
indemnifying party of notice of the terms of the proposed settlement.
(d) Contribution. If the indemnification provided for in Section 8(a)
or (b) is unavailable to the indemnified parties in respect of any losses,
claims, damages or liabilities referred to herein, then each such indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities as between the Company on the one hand and the
selling Holders on the other hand, in such proportion as is appropriate to
reflect the relative fault of the Company and of the selling Holders in
connection with such statements or omissions, as well as any other relevant
equitable considerations. The relative fault of the Company on the one hand and
of the selling Holders on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by such party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company and the selling Holders agree that it would not be just and
equitable if contribution pursuant to this Section 8(d) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages or liabilities referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8(d), no selling Holder shall be
required to contribute any amount in excess of the amount by which the total
price at which the securities of such selling Holder were offered to the public
exceeds the amount of any damages which such selling Holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The selling Holders' obligations to contribute pursuant to
this Section 8(d) are several and not joint, and are allocated in
<PAGE> 79
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proportion to the proceeds of the offering received by the respective selling
Holders relative to the total proceeds of the offering received by all the
selling Holders.
9. Rule 144. The Company hereby covenants that after the Company shall
have filed a registration statement pursuant to the requirements of Section 12
of the Exchange Act or a registration statement pursuant to the requirements of
the Securities Act (excluding a registration statement on Form S-4), the Company
will file in a timely manner all reports required to be filed by it under the
Securities Act and the Exchange Act and the rules and regulations adopted by the
SEC thereunder (or, if the Company is not required to file such reports, it
will, upon the request of any Holder of Registrable Securities, make publicly
available other information so long as necessary to permit sales under Rule 144
under the Securities Act), and it will take such further action as any Holder of
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such Holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (i) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (ii) any similar rule or regulation hereafter adopted by
the SEC. Upon the request of any Holder of Registrable Securities, the Company
will deliver to such Holder a written statement as to whether it has complied
with such requirements. In addition, the Company hereby agrees that for a
period of eighteen months following the date on which a registration statement
filed pursuant to Section 4 shall have become effective, the Company shall not
deregister such securities under Section 12 of the Exchange Act (even if then
permitted to do so pursuant to the Exchange Act and the rules and regulations
promulgated thereunder).
10. Miscellaneous.
(a) No Inconsistent Agreements. The Company will not hereafter enter
into any agreement with respect to its securities which is inconsistent with the
rights granted to the Holders of Registrable Securities in this Agreement. The
Company has not previously entered into any agreement with respect to any of its
equity securities granting any registration rights to any person.
(b) Remedies. The Company acknowledges and agrees that in the event
of any breach of this Agreement by it, the Holders would be irreparably harmed
and could not be made whole by monetary damages. The Company accordingly agrees
to waive the defense in any action for specific performance that a remedy at law
would be adequate and that the Holders, in addition to any other remedy to which
they may be entitled at law or in equity, shall be entitled to compel specific
performance of this Agreement in any action instituted in any court of the
United States or any state thereof having subject matter jurisdiction for such
action.
<PAGE> 80
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(c) Entire Agreement. This Agreement constitutes the entire agreement
and understanding of the parties hereto in respect of the subject matter
contained herein, and there are no restrictions, promises, representations,
warranties, covenants, or undertakings with respect to the subject matter
hereof, other than those expressly set forth or referred to herein. This
Agreement supersedes all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof.
(d) Notices. Any notice, request, instruction or other document to be
given hereunder by any party hereto to another party hereto shall be in writing,
shall be delivered personally or sent by Federal Express or other delivery
service maintaining records of receipt to such person at the following address:
if to the Company: TelePath Corporation
140 Fell Court
Hauppage, NY 11788
Attn: Dan Giacopelli
Facsimile: 516-234-8474
with a copy to: Lowenthal, Landau, Fisher & Bring PC
250 Park Avenue
New York, NY 10177
Attention: Paul Whitby, Esq.
Facsimile: 212-986-0604
if to TELULAR: Telular Corporation
920 Deerfield Parkway
Buffalo Grove, IL 60089
Attn: Kenneth Millard
Facsimile: 847-465-4555
with a copy to: Covington & Burling
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20044
Attention: Michael E. Cutler, Esq.
Facsimile: (202) 778-5258
or, in the case of a transferee of TELULAR, to the address set forth in the
written agreement executed pursuant to Section 10(h) hereof, or to such other
address as the party to whom notice is to be given may provide in a written
notice to the Company, a copy of which written notice shall be maintained on
file with the Secretary of the Company. All notices shall be effective on the
first business day after being sent as provided herein.
(e) Applicable Law. The laws of the State of New York shall govern
the interpretation, validity and performance of the terms of this Agreement,
regardless of the law that might be applied under applicable principles of
conflicts of laws.
<PAGE> 81
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(f) Severability. The invalidity, illegality or unenforceability of
one or more of the provisions of this Agreement in any jurisdiction shall not
affect the validity, legality or enforceability of the remainder of this
Agreement in such jurisdiction or the validity, legality or enforceability of
this Agreement, including any such provision, in any other jurisdiction, it
being intended that all rights and obligations of the parties hereunder shall be
enforceable to the fullest extent permitted by law.
(g) Other Agreements. Nothing contained in this Agreement shall be
deemed to be a waiver of, or release from, any obligations any party hereto may
have under, or any restrictions on the transfer of Registrable Securities or
other securities of the Company imposed by, any other agreement.
(h) Successors; Transferees. The provisions of this Agreement shall
be binding upon and accrue to the benefit of the parties hereto and their
respective successors. Persons who acquire Registrable Securities from a Holder
may become party to this Agreement as a Holder with the consent of the
transferring Holder at the time of the transfer. A Holder who has transferred
Registrable Securities may enter into a separate agreement with the transferee
of such Registrable Securities regarding the exercise of rights and allocation
of responsibilities hereunder provided that such agreement states that it will
be inoperative to the extent that it requires a Holder to violate this
Agreement.
(i) Defaults. A default by any party to this Agreement in such
party's compliance with any of the conditions or covenants hereof or performance
of any of the obligations of such party hereunder shall not constitute a default
by any other party.
(j) Amendments, Waivers. This Agreement may not be amended, modified
or supplemented and no waivers of or consents to departures from the provisions
hereof may be given unless consented to in writing by the Company and each of
the Holders.
(k) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same Agreement.
(l) Attorneys' Fees. In any action or proceeding brought to enforce
any provision of this Agreement, or where any provisions hereof is validly
asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees in addition to any other available remedy.
(m) Headings. The headings and captions contained herein are for
convenience of reference only and shall not control or affect the meaning or
construction of any provision thereof.
<PAGE> 82
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(n) Participation in Underwritten Registrations. No Person may
participate in any underwritten registration hereunder unless such Person (i)
agrees to sell such Person's securities on the basis provided in any
underwriting arrangements selected by the Company pursuant to Section 5(a) or by
the Demanding Holders pursuant to Section 4(d) and (ii) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements and this agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
TELEPATH CORPORATION TELULAR CORPORATION
By /s/ Dan Giacopelli By /s/ Kenneth Millard
------------------------- -------------------------
Dan Giacopelli Kenneth Millard
Chairman and President/CEO Chief Executive Officer
<PAGE> 83
EXHIBIT B
TELEPATH CORPORATION
SHAREHOLDERS AGREEMENT
SHAREHOLDERS AGREEMENT, dated as of June 28, 1996 (the "Agreement"),
by and among TELULAR CORPORATION ("TELULAR"), the persons designated on the
signature page hereto (each of TELULAR and such other persons, together with
each person who becomes a party to this Agreement pursuant to Section 2.3
hereof, hereinafter referred to individually as a "Shareholder" and collectively
as the "Shareholders"), and TELEPATH CORPORATION, a New York corporation (the
"Company").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Stock Purchase Agreement of even
date herewith by and between TELULAR and the Company (the "Stock Purchase
Agreement"), TELULAR has agreed to purchase certain shares of Common Stock, par
value $.01 per share, of the Company (the "Common Stock");
WHEREAS, each of the other Shareholders holds a certain number of
shares of Common Stock;
WHEREAS, the Shareholders are desirous of entering into this Agreement
to set forth their mutual understandings with regard to the ownership and voting
of the Common Stock; and
WHEREAS, the Company, in order to induce the investment by TELULAR in
the Company, wishes to facilitate the agreements of the Shareholders under this
Agreement;
<PAGE> 84
2
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and undertakings of each of the parties hereto unto the others, and
other good and valuable consideration, the legal sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound by the terms of
this Agreement, hereby agree as follows:
ARTICLE I
VOTING; BOARD ACTIONS
SECTION 1.1 NUMBER OF DIRECTORS. Each Shareholder shall vote its
Common Stock so as to cause the Board of Directors of the Company (the "Board")
to consist of six persons.
SECTION 1.2 ELECTION OF DIRECTORS. (a) TELULAR shall have the right
to nominate for election to the Board three members and Dan Giacopelli shall
have to right to nominate for election to the Board three members; provided,
however, that if Telular is in default under its obligations pursuant to Article
I of the Stock Purchase Agreement, TELULAR shall have the right to nominate for
election to the Board two members and Dan Giacopelli shall have to right to
nominate for election to the Board four members.
(b) Each Shareholder shall vote, at a regularly constituted annual or
special meeting called for the election of directors, his shares in favor of the
election of all nominees designated in accordance with Section 1.2(a).
(c) Each Shareholder agrees to vote his or its shares of Common Stock
upon the request of Telular for the removal from the Board of Directors (with or
without cause) of any Telular nominee
<PAGE> 85
3
or upon the request of Dan Giacopelli for the removal from the Board of
Directors (with or without cause) of any Giacopelli nominee in order to fulfill
the obligations set forth in Section 1.2(a). No Shareholder shall take any
action to cause removal from the Board of Directors of the Company of any
director except as provided in this Section 1.2(c).
SECTION 1.3 BUSINESS TRANSACTIONS. Each of the Shareholders other than
Telular and Dan Giacopelli agree that they will not vote in favor of a Business
Transaction or an Amendment to the Certificate of Incorporation of the Company
unless requested by Dan Giacopelli to do so, and then if so requested will so
vote. For this purpose a "Business Transaction" means (i) a merger or
consolidation requiring the approval of shareholders under Section 903 of the
Business Corporation Law (the "BCL"), (ii) a sale, lease or exchange or other
disposition of assets requiring shareholder approval under Section 909 of the
BCL, (iii) a business combination requiring shareholder approval under Section
912 of the BCL, or (iv) a plan of distribution under Section 1001 of the BCL.
ARTICLE II
TRANSFER RESTRICTIONS
SECTION 2.1 PERMITTED TRANSFERS For purposes of this Agreement,
"Permitted Transfer" shall mean a sale, assignment, transfer or conveyance by a
Shareholder of shares of Common Stock (i) to such person's spouse or lineal
descendants, (ii) to a trust or similar entity for the benefit of such
Shareholder or such person's spouse or lineal descendants, (iii) pursuant to
bequest,
<PAGE> 86
4
devise, or the laws of intestate succession, (iv) to a corporation or
other entity controlling, controlled by or under common control with such
Shareholder, (v) to another Shareholder; provided in each case that the
transferee agrees to be subject to and bound by the terms of this Agreement.
SECTION 2.2 RIGHT OF FIRST REFUSAL. No Shareholder shall sell,
assign, transfer or convey ("Transfer") any shares of Common Stock, other than
by a Permitted Transfer, without first complying with the provisions of this
Section 2.2 and of Section 2.3.
(a) Such Shareholder (hereinafter in this Section 2.2 referred to as
the "Selling Shareholder") may not Transfer any shares of Common Stock without
first offering in writing to sell such shares of Common Stock (i) if the Selling
Shareholder is Telular, to the other Shareholders ("Other Shareholders"), and
(ii) if the Selling Shareholder is one of the Other Shareholders, then first to
the Other Shareholders, and if no such Other Shareholder accepts the offer
pursuant to Section 2.2(b) hereof, to Telular. Each such offer shall be made at
a price not more than the price, and upon terms no less favorable to the
Shareholders other than the Selling Shareholder than the price and terms, upon
which the Selling Shareholder is willing to accept pursuant to a bona fide
written offer submitted at arm's length to the Selling Shareholder by a third
party who the Selling Shareholder reasonably believes is capable of and will
carry out the terms of the offer. Such offer
<PAGE> 87
5
shall contain a copy of the third party offer received by the Selling
Shareholder.
(b) Within thirty (30) days after receipt of such written offer under
Section 2.2(a), Telular or each Other Shareholder, as the case may be, may
accept such offer in writing, in which case the Selling Shareholder and the
accepting Shareholder (the "Accepting Shareholder") shall close such sale on a
date specified by the Selling Shareholder, but not later than thirty (30) days
after the acceptance by the Accepting Shareholder. Unless the Accepting
Shareholders (if more than one) agree to another allocation, each Accepting
Shareholder shall purchase that proportion of the Selling Shareholder's shares
of Common Stock to be sold that is equal to a fraction the numerator of which is
equal to number of shares of Common Stock held by the Accepting Shareholder and
the denominator of which is equal to the aggregate number of shares of Common
Stock held by all Accepting Shareholders.
(c) If, by the end of the thirty (30)-day period during which the
option to purchase is available to the Other Shareholders and Telular, none of
the Other Shareholders or Telular has agreed to purchase, on the terms and
conditions provided in the Selling Shareholder's offer, all of the shares of
Common Stock being offered by the Selling Shareholder, then the Selling
Shareholder may, at any time within 180 days from the date of the offer to the
other Shareholders, Transfer all such shares of Common Stock to the third party
offeror disclosed in the Selling Shareholder's offer at
<PAGE> 88
6
a price not less than, and on terms and conditions not less favorable to the
Selling Shareholder than, the price and terms upon which such shares of Stock
were offered to the other Shareholders. If such shares of Common Stock are not
so Transferred within such period of 180 days from the date of the offer to the
other Shareholders, the Selling Shareholder shall, before the Transfer of any
shares of Common Stock, again be obligated to offer it first to each other
Shareholder pursuant to this Section 2.2.
SECTION 2.3 ASSUMPTION OF OBLIGATIONS UNDER THIS AGREEMENT. In
addition to, and without limitation of, the other restrictions and limitations
upon transfer specified herein, the following requirements shall apply to any
transfer of Common Stock:
(i) No Shareholder shall transfer any shares of Common Stock except
to a person who either (a) is a party to this Agreement at the time of
transfer, or (b) assumes in writing the obligations of the transferring
Shareholder under this Agreement.
(ii) No Shareholder shall transfer any shares of Common Stock unless
such Shareholder has provided to the Company an opinion of counsel, in form
reasonably satisfactory to the Company's counsel, or other evidence
satisfactory to the Company's counsel, to the effect that such transfer
does not (i) violate the Securities Act of 1933, as amended, or (ii)
require the registration by the Company of its Common Stock under the
Securities Act of 1933, as amended.
<PAGE> 89
7
2.4 RIGHT TO FORCE SALE. (a) If (i) at any time more than two years
after the date of this Agreement a Shareholder or a group of Shareholders acting
in concert (each such Shareholder or group of Shareholders hereinafter in this
Section referred to as the "Selling Shareholder") proposes to sell to a
purchaser (the "Purchaser") shares of Common Stock equal to fifty percent (50%)
or more of the total outstanding Common Stock pursuant to a written offer
(hereinafter in this Section referred to as the "Offer") submitted at arm's
length to the Selling Shareholder by the Purchaser who the Selling Shareholder
reasonably believes is capable of and will carry out the terms of the Offer, and
(ii) after compliance with Section 2.2 by the Selling Shareholder the other
Shareholders have not exercised the right of first refusal under that provision,
then the Selling Shareholder shall have the right to require all, but not less
than all, of the other Shareholders to sell the shares of Common Stock owned by
them to the Purchaser at a price not less than the price, and upon terms and
conditions no less favorable to the other Shareholders than the terms of the
Offer; provided, however, that if TELULAR is not a Selling Shareholder, the
provisions of this Section 2.4 shall not apply unless the Company has not been
requested to perform at least One Million Dollars ($1,000,000) worth of
services, of the nature and at prices and terms substantially similar to those
then being rendered and being charged by TelePath, for Telular during the
preceding twelve months.
<PAGE> 90
8
(b) Each of the Shareholders other than TELULAR and Dan Giacopelli
hereby (i) agrees to sell the shares of Common Stock owned such Shareholder
pursuant to Section 2.4(a) at any time such Shareholder is requested by Dan
Giacopelli to do so, and (ii) irrevocably appoints and constitutes Dan
Giacopelli as its attorney-in-fact for the purpose of effecting such sales, with
all powers requisite to close the transaction contemplated pursuant to Section
2.4(a).
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 GENERAL REPRESENTATIONS AND WARRANTIES. Each Shareholder
represents and warrants to the other parties hereto as follows:
(a) Such Shareholder has full right, power and authority to
enter into this Agreement, and the entry into this Agreement will not violate
any contracts or agreements by which such Shareholder is bound, nor constitute a
default under any loan or other agreement to which such Shareholder is a party
nor violate any applicable law;
(b) There are no governmental or nongovernmental actions, suits
or proceedings (or claims of which such Shareholder has been notified) which are
pending or, to the best knowledge of such Shareholder, threatened against or
materially affecting such Shareholder or which would prevent or hinder the
execution of this Agreement or the consummation of the transactions contemplated
hereby;
<PAGE> 91
9
(c) This Agreement, when executed and delivered, will constitute
a valid and binding obligation of such Shareholder, fully enforceable against
such Shareholder in accordance with its terms, except insofar as such
enforcement may be limited by bankruptcy, insolvency, reorganization, or other
laws of general application relating to or affecting enforcement of creditors'
rights, or except to the extent that such enforcement may be limited by general
principles of equity;
SECTION 3.2 REPRESENTATIONS OF THE COMPANY.
The Company hereby represents and warrants to each Shareholder that
the Company is a corporation in good standing under the laws of the State of
Delaware, that it has all necessary corporate authorization to enter into and
carry out the terms of this Agreement and that, upon execution of this Agreement
by the proper officers of the Company, this Agreement will constitute a valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except insofar as such enforcement may be limited by
bankruptcy, insolvency, reorganization, or other laws of general application
relating to or affecting enforcement of creditors' rights, or except to the
extent that such enforcement may be limited by general principles of equity.
<PAGE> 92
10
ARTICLE IV
STOCK TRANSFERS
SECTION 4.1 COMPANY COVENANT. The Company covenants not to
effectuate transfers of Common Stock except in accordance with the provisions of
this Agreement.
SECTION 4.2. LEGENDING OF STOCK CERTIFICATES. Each Shareholder
hereby consents to the placement on any certificates representing ownership of
shares of Common Stock held by such Shareholder of the following restrictive
legend:
The shares of stock represented by this
certificate are subject to a Shareholders
Agreement dated as of June 28, 1996 (including any
amendments adopted after such date), a copy of
which is available for examination at the
principal offices of the company, and may not be
offered, sold, transferred, hypothecated, pledged,
given or otherwise disposed of except in
accordance with the terms of such Agreement.
TelePath Corporation will not effectuate transfers
of its stock except in accordance with the
provisions of these Agreements.
ARTICLE VI
MISCELLANEOUS
SECTION 4.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that no party hereto may assign its
rights hereunder except to a person to whom Common Stock is transferred in
accordance with the terms herewith.
SECTION 4.2 AMENDMENTS. Any term, covenant, agreement or condition
of this Agreement may be amended or
<PAGE> 93
11
modified or compliance therewith waived (either generally or in a particular
instance and either retroactively or prospectively), by one or more
substantially concurrent written instruments signed by the holders of not less
than 80% in aggregate number of the shares of Common Stock held by the parties
to this Agreement. Any such amendments, modifications or waivers shall only be
in writing having specific reference to this Agreement and shall be signed by
each applicable Shareholder or his, her or its duly authorized representative.
Any amendment, modification or waiver pursuant to this Section 4.2 shall apply
equally to all Shareholders and shall be binding upon them and upon such future
holder of any Common Stock.
SECTION 4.3 TERMINATION. This Agreement shall terminate upon the
earlier of: (i) the written agreement of all Shareholders; (ii) the completion
of an underwritten initial public offering of any class of securities of the
Company for total consideration of not less than $15 million and the
effectiveness of a registration under the Securities Exchange Act of 1934 of
such class of securities; and (iii) the tenth anniversary of the date hereof,
unless renewed or extended with the consent of each Shareholder. This Agreement
shall terminate as to any Shareholder at such time as such Shareholder ceases to
hold any Common Stock; provided, however, that no such termination shall relieve
a Shareholder of liability for any
<PAGE> 94
12
breach of this Agreement prior to termination or in connection with the
disposition of any Common Stock.
SECTION 4.4 NOTICES. Any notice, letter or other communication
contemplated by this Agreement shall be in writing and shall be deemed to be
given when delivered in person or when sent by an overnight delivery service
maintaining records of receipt to such person at the following address:
If to the Company: TelePath Corporation
140 Fell Court
Hauppage, NY 11788
Attn: Dan Giacopelli
Facsimile: 516-234-8474
with a copy to: Lowenthal, Landau, Fisher & Bring PC
250 Park Avenue
New York, NY 10177
Attention: Paul Whitby, Esq.
Facsimile: 212-986-0604
If to TELULAR: Telular Corporation
920 Deerfield Parkway
Buffalo Grove, IL 60089
Attn: Kenneth Millard
Facsimile: 847-465-4555
with a copy to: Covington & Burling
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: Michael E. Cutler, Esq.
Facsimile: (202) 778-5258
and, with respect to the other Shareholders, to the address designated for such
other Shareholder in Schedule A hereto, or, in each case, at such other address
as such party shall have furnished in writing to each of the others.
SECTION 4.5 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the
<PAGE> 95
13
State of New York, excluding the conflict of laws provisions thereof.
SECTION 4.6 ENFORCEMENT. Each of the parties hereto agrees that
monetary damages in the event of a breach of this Agreement would be inadequate
and that, in the event of a breach, the remedy shall be specific performance.
Each of the parties hereto hereby warrants, covenants and agrees not to object
to, challenge, dispute or contest the propriety of specific performance as a
remedy in the event a court of competent jurisdiction determines that a breach
of this Agreement has occurred.
SECTION 4.7 LOCK-UP. Each of the Shareholders agrees that in the
event the Company determines to effect an initial public offering of its
securities that at the request of the underwriters of the offering each such
Shareholder will agree in writing for a period of up to 180 days from the
effectiveness of the offering not to sell or otherwise engage in any
transactions in the Common Stock or common stock equivalents of the Company.
This provision of this Agreement shall survive the termination of this Agreement
under Section 4.3(ii).
SECTION 4.8 TERMINATION OF PRIOR AGREEMENT. Each of the Shareholders
that is a party to the shareholders agreement dated January 5, 1996 respecting
ownership of shares of Common Stock of the Company agrees that upon the
execution of this Agreement such prior agreement is terminated in its entirety.
<PAGE> 96
14
SECTION 4.9 MISCELLANEOUS. This Agreement represents the entire
agreement and understanding of the parties hereto regarding the subject matter
hereof. This Agreement and any amendments hereto may be executed in one or more
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument. The headings in this Agreement are inserted
for convenience only and shall not constitute a part hereof. As used herein,
except as the context otherwise indicates, the singular shall include the plural
and vice versa, words of any gender shall include any other gender, and "or" is
used in the inclusive sense. If any provision of this Agreement, or the
application thereof, shall, for any reason and to any extent, be found invalid
or unenforceable, the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected thereby but
rather shall be enforced to the maximum extent permissible under applicable law,
so long as and to the extent that such enforceability does not materially
adversely affect the mutual rights and obligations of the parties hereunder.
<PAGE> 97
15
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
day and year first above written.
TELEPATH CORPORATION TELULAR CORPORATION
By /s/ Dan Giacopelli By /s/ Kenneth Millard
--------------------------- --------------------------
Dan Giacopelli Kenneth Millard
Chairman and President/CEO Chief Executive Officer
---------------------------
[ X ]
---------------------------
[ X ]
---------------------------
[ X ]
---------------------------
[ X ]
---------------------------
[ X ]
<PAGE> 98
SCHEDULE A
Dan Giacopelli
Jeffrey Hickey
Rex Nathanson
Alvin Taylor
Frank Bianchini
<PAGE> 1
EXHIBIT 11
EXHIBIT (11) - STATEMENT RE: COMPUTATION OF PRO FORMA EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three months ended June 30,
1996 1995
------------ ----------
<S> <C> <C>
Average number of shares outstanding............ 30,478,543 23,367,983
============ ==========
Net loss $ (4,494,892) $ (3,760,717)
============ ==========
Net loss per share $ (0.15) $ (0.16)
============ ==========
Nine months ended June 30,
1996 1995
------------ ----------
<S> <C> <C>
Average number of shares outstanding............ 26,476,097 23,286,085
============ ==========
Net loss $(27,124,434) $(12,687,825)
============ ==========
Net loss per share $ (1.02) $ (0.54)
============ ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000915324
<NAME> TELULAR CORPORATION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 16,382,581
<SECURITIES> 0
<RECEIVABLES> 6,428,862
<ALLOWANCES> 992,000
<INVENTORY> 10,304,026
<CURRENT-ASSETS> 32,446,813
<PP&E> 4,361,043
<DEPRECIATION> 1,862,925
<TOTAL-ASSETS> 38,393,435
<CURRENT-LIABILITIES> 6,662,580
<BONDS> 1,750,000
0
0
<COMMON> 315,205
<OTHER-SE> 29,665,650
<TOTAL-LIABILITY-AND-EQUITY> 38,393,435
<SALES> 13,352,424
<TOTAL-REVENUES> 13,866,446
<CGS> 13,881,016
<TOTAL-COSTS> 13,881,016
<OTHER-EXPENSES> 27,109,864
<LOSS-PROVISION> 774,000
<INTEREST-EXPENSE> 293,712
<INCOME-PRETAX> (27,638,456)
<INCOME-TAX> 0
<INCOME-CONTINUING> (27,638,456)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,124,434)
<EPS-PRIMARY> (1.024)
<EPS-DILUTED> (1.024)
</TABLE>
