STOCK PURCHASE AGREEMENT
TABLE OF CONTENTS
Page
ARTICLE I SALE OF SHARES..................................................................1
1.01 Purchase and Sale of the Shares. ..............................................1
(a) Basic Transaction.....................................................1
(b) Preliminary Purchase Price............................................1
(c) The Closing...........................................................2
(d) Preparation of Adjustment Date Balance Sheet..........................2
(e) Adjustment to Preliminary Purchase Price. ...........................3
1.02 Additional Consideration........................................................3
(a) ......................................................................3
(b) Definitions...........................................................3
(c) Calculation of Additional Consideration...............................6
(d) Preparation of the Valuation Statement................................7
(e) Purchase Right........................................................7
1.03 Dispute Resolution..............................................................8
1.04 Deliveries by the LLC...........................................................9
1.05 Deliveries by TelePad and the Buyer............................................10
1.06 Further Assurances.............................................................11
ARTICLE II REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE LLC ..................................................11
2.01 Capital Stock..................................................................11
2.02 Investments....................................................................11
2.03 Corporate Organization; Etc....................................................12
2.04 Authorization; Etc.............................................................12
2.05 Restrictive Documents..........................................................13
2.06 Consents.......................................................................13
2.07 Books and Records..............................................................13
2.08 Bank Accounts and Powers of Attorney...........................................13
2.09 Financial Statements...........................................................14
2.10 Accounting Records; Internal Controls; Absence of Certain Payments.............14
(a) Accounting Records...................................................14
(b) Data Processing; Access..............................................15
2.11 Title to Properties; Encumbrances..............................................15
2.12 Real Property..................................................................15
2.13 Absence of Certain Changes.....................................................15
2.14 Accounts Receivable............................................................16
2.15 Leases.........................................................................16
2.16 Assets.........................................................................16
2.17 Patents, Trademarks, Trade Names, Etc..........................................17
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2.18 Government Contracts and Proposals. ..........................................17
2.19 Other Contracts and Commitments................................................19
2.20 Customers and Suppliers........................................................20
2.21 Labor Difficulties.............................................................20
2.22 Personnel......................................................................21
2.23 Employee Benefit Plans.........................................................21
(a) List of Plans........................................................21
(b) Status of Plans......................................................21
(c) Contributions........................................................22
(d) Tax Qualification....................................................22
(e) Compliance With Tax Reform Act of 1986...............................22
(f) Transactions.........................................................22
(g) Triggering Events....................................................23
(h) Other Plans..........................................................23
(i) Documents............................................................23
(j) Terminated Plan......................................................23
2.24 Litigation.....................................................................24
2.25 Compliance with Law............................................................24
2.26 Permits........................................................................24
2.27 Dividends and Other Distributions..............................................25
2.28 Undisclosed Liabilities........................................................25
2.29 Taxes..........................................................................25
2.30 Insurance......................................................................25
2.31 Environmental Laws and Regulations.............................................25
2.32 Absence of Certain Payments....................................................26
2.33 Insider Interests..............................................................27
2.34 Brokers and Finders............................................................27
2.35 Product or Service Liability...................................................27
2.36 Governmental Interaction.......................................................27
2.37 Security Matters...............................................................28
2.38 Government Furnished Property..................................................28
2.39 Estimates......................................................................28
2.40 Disclosure.....................................................................28
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
THE LLC RELATING TO THE SHARES...............................................28
3.01 Ownership......................................................................28
3.02 Title..........................................................................29
3.03 Right to Transfer..............................................................29
3.04 All Shares.....................................................................29
3.05 Binding Agreement..............................................................29
3.06 Conflicts......................................................................29
3.07 Investment.....................................................................29
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
TELEPAD AND THE BUYER........................................................30
4.01 Corporate Organization; Etc....................................................30
4.02 Authorization; Etc.............................................................30
4.03 No Violation...................................................................30
4.04 Brokers and Finders............................................................31
4.05 SEC Filings....................................................................31
4.06 Absence of Certain Changes or Events...........................................31
4.07 Litigation.....................................................................31
4.08 Solvency.......................................................................31
4.09 Assets.........................................................................31
4.10 Information Received...........................................................32
ARTICLE V PRE-CLOSING COVENANTS AND AGREEMENTS...........................................32
5.01 Conduct of Company's Business..................................................32
5.02 Conduct of TelePad's and the Buyer's Business..................................33
5.03 Inspections and Confidentiality................................................34
5.04 Announcements and Federal Securities Law Matters...............................36
5.05 Notification of Certain Matters................................................36
5.06 Permits and Approvals..........................................................36
5.07 Additional Agreements..........................................................37
ARTICLE VI SURVIVAL OF REPRESENTATIONS AND
WARRANTIES; INDEMNIFICATION....................................................37
6.01 Survival of Representations....................................................37
6.02 Statements as Representations..................................................37
6.03 Indemnification Provisions for Benefit of TelePad and the Buyer................37
6.04 Indemnification Provisions for Benefit of the LLC..............................38
6.05 Matters Involving Third Parties................................................38
ARTICLE VII POST-CLOSING COVENANTS AND AGREEMENTS..................................................40
7.01 Board Composition..............................................................40
7.02 Investment Obligations.........................................................40
7.03 Delivery and Maintenance of Short Term Letter of Credit........................40
7.04 Delivery and Maintenance of Long Term Letter of Credit.........................41
7.05 Tax Matters....................................................................41
(a) Tax Periods Ending on or Before the Closing Date.....................41
(b) Tax Periods Beginning Before and Ending After the Closing Date.......42
(c) Cooperation on Tax Matters...........................................42
(d) Tax Sharing Agreements...............................................43
(e) Certain Taxes........................................................43
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ARTICLE VIII DISPUTES; ARBITRATION.................................................................43
8.01 Disputes Generally.............................................................43
8.02 Selection of Arbitrator(s).....................................................43
8.03 Decision of Arbitrators........................................................43
8.04 Expense of Arbitration.........................................................44
ARTICLE IX MISCELLANEOUS PROVISIONS.......................................................44
9.01 Amendment and Modifications....................................................44
9.02 Waiver of Compliance...........................................................44
9.03 Expenses.......................................................................44
9.04 Reasonable Efforts; Further Assurances.........................................44
9.05 Remedies; Waiver...............................................................44
9.06 Knowledge Convention...........................................................45
9.07 Notices........................................................................45
9.08 Assignment.....................................................................46
9.09 Governing Law..................................................................46
9.10 Counterparts...................................................................46
9.11 Construction...................................................................46
9.12 Entire Agreement...............................................................46
9.13 Third Parties..................................................................47
EXHIBITS
EXHIBIT A - Form of Buyer Note
EXHIBIT B - Illustration of Calculation of Additional Consideration
EXHIBIT C - Form of Pledge Agreement
EXHIBIT D - List of Directors
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STOCK PURCHASE AGREEMENT
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This STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of this 27th day of January, 1997, by and among TelePad Corporation, a
Delaware corporation ("TelePad"), TelePad Acquisition, Inc., a Delaware
corporation (the "Buyer"), and Federal Computer Corporation, a Virginia
corporation (the "Company"), Hartland Group, LLC, a Virginia limited liability
company (the "LLC").
W I T N E S S E T H:
--------------------
WHEREAS, immediately prior to the execution of this Agreement ▇▇▇▇▇▇▇
▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇. ▇▇▇▇▇▇ Market, R. ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ (individually, a "Stockholder" and collectively, the
"Stockholders") owned (a) in the aggregate 3,295 shares of the Company's common
stock, par value $.10 per share (the "Shares"), constituting 100% of the
Company's issued and outstanding capital stock, and (b) transferred the Shares
to the LLC as a capital contribution.
WHEREAS, the Stockholders own all of the interests in the LLC;
WHEREAS, the LLC desires to sell, and the Buyer desires to purchase,
the Shares pursuant to this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
ARTICLE I
SALE OF SHARES
1.01 Purchase and Sale of the Shares.
-------------------------------
(a) Basic Transaction. On and subject to the terms and conditions of
this Agreement, the Buyer agrees to purchase from the LLC, and the LLC agrees to
sell to the Buyer, all of the Shares for the consideration specified below in
this Article I.
(b) Preliminary Purchase Price. The Buyer agrees to pay to the LLC at
the Closing $10 million (the "Preliminary Purchase Price") by delivery of (i)
cash in the amount of $5.3 million by wire transfer or other delivery of
immediately available funds and (ii) its promissory note in the principal amount
of $4.7 million in the form of Exhibit A attached hereto (the "Buyer Note"). The
Preliminary Purchase Price will be subject to post-closing adjustment as set
forth below in this Article I.
(c) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Arent Fox ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ & ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇,
concurrent with the satisfaction of the Closing Condition (as defined below).
The "Closing Condition" shall be the delivery by the Buyer to the LLC by wire
transfer or other immediately available funds, of $15 million in cash on or
before the date (the "Closing Date") which is the earlier of (i) ten business
days after TelePad has received on a cumulative basis since the date of this
Agreement at least $15 million in net proceeds from the issuance of its capital
stock, including pursuant to the exercise of warrants or options to purchase
such capital stock, or (ii) August 1, 1997. If the Closing Condition is not
satisfied on or before the Closing Date, this Agreement and all other agreements
executed pursuant hereto shall, absent fraud or other material breach of this
Agreement by a party hereto, become void and have no effect, and there shall be
no obligations or liability on the part of any party or its respective officers,
directors and members; provided that the obligations of the parties contained in
Sections 5.03, 5.04 and 9.03 shall survive such termination.
(d) Preparation of Adjustment Date Balance Sheet.
(i) No later than 60 days after the Closing Date, the Buyer
will prepare and deliver to the LLC a draft consolidated balance sheet
(the "Draft Adjustment Date Balance Sheet") for the Company and its
subsidiaries as of the close of business on the last day of the month
ending immediately prior to the Closing Date (the "Adjustment Date")
for the purpose of determining the amount by which the Preliminary
Purchase Price will be adjusted (the "Adjustment Amount"). The Buyer
will prepare the Draft Adjustment Date Balance Sheet in accordance
with generally accepted accounting principles of the United States
("GAAP") applied on a basis consistent with the preparation of the
Company's financial statements referred to in Section 2.09; provided,
however, that assets, liabilities, gains, losses, revenues and
expenses in interim periods or as of dates other than year-end (which
normally are determined through the application of so-called interim
accounting conventions or procedures) will be determined, for purposes
of the Draft Adjustment Date Balance Sheet, through full application
of the procedures used in preparing the Company's audited balance
sheet as of October 31, 1996. The LLC shall cooperate fully with the
Buyer at Buyer's reasonable request in the preparation of the Draft
Adjustment Date Balance Sheet.
(ii) If the LLC has any objections to the Draft Adjustment
Date Balance Sheet, it will deliver a reasonably detailed statement
describing its objections to the Buyer within 30 days after receiving
the Draft Adjustment Date Balance Sheet. If the LLC does not so object
within such period, such Draft Adjustment Date Balance Sheet shall be
deemed final and conclusive with respect to the determination of the
Adjustment Amount. If the LLC does object within such period, the
Buyer and the LLC will use reasonable efforts to resolve such
objections themselves before resorting to the dispute resolution
procedures set forth in Section 1.03.
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(e) Adjustment to Preliminary Purchase Price.
(i) For purposes of this Section 1.01(e), the following
terms shall have the following meanings:
"Consolidated Net Worth" means the excess of the Company's
total consolidated assets over its total consolidated liabilities as
shown on the Adjustment Date Balance Sheet.
"Net Worth Excess" means the amount, if any, by which the
Consolidated Net Worth exceeds $5,350,000.
"Net Worth Deficiency" means the amount, if any, by which
$5,250,000 exceeds the Consolidated Net Worth.
(ii) If there is a Net Worth Excess, the Adjustment Amount
shall equal the Net Worth Excess and TelePad shall make an equity
contribution to the Buyer in the amount of the Adjustment Amount (plus
interest thereon at the rate of 8.5% per annum from the Closing Date)
and the Buyer shall pay such amount to the LLC by wire transfer or
other delivery of immediately available funds within ten days after
the date on which the Adjustment Amount is finally determined pursuant
to this Article I.
(iii) If there is a Net Worth Deficiency, the Adjustment
Amount shall equal the Net Worth Deficiency and the LLC shall pay the
Adjustment Amount (plus interest thereon at the rate of 8.5% per annum
from the Closing Date) to TelePad by wire transfer or other delivery
of immediately available funds within ten days after the date on which
the Adjustment Amount is finally determined pursuant to this Article
I.
The Preliminary Purchase Price as so adjusted is referred to herein as the
"Initial Purchase Price." The Initial Purchase Price plus the Additional
Consideration determined in accordance with Section 1.02 is referred to herein
as the "Purchase Price."
1.02 Additional Consideration.
------------------------
(a) As additional consideration for the purchase of the Shares, the
Buyer agrees to pay the Additional Consideration to the LLC in cash on the
Payment Date by wire transfer or other delivery of immediately available funds.
(b) Definitions. For purposes of this Section 1.02, the following
terms shall have the following meanings:
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"Additional Consideration" means the amount determined in accordance
with Section 1.02(c).
"Company Value" means the Value of the Company on a consolidated
basis excluding the Investment Subsidiary.
"Consolidated Value" means the Value of the Company and its
subsidiaries, including the Investment Subsidiary.
"Initial Public Offering" means an initial underwritten public
offering of the Company's or the Buyer's capital stock, registered under the
Securities Act of 1933, as amended, on a registration statement on Form S-1 or
SB-2.
"Investment Subsidiary" means the subsidiary, if any, of the Company
formed for the purpose of investing the Investment Amount as defined in Section
1.02(c)(ii).
"Net Worth" means, as of the Valuation Date, an Entity's total assets
less its total liabilities, as determined in accordance with GAAP applied on a
consistent basis.
"Payment Date" means 10 days after the final determination of the
Additional Consideration pursuant to this Section 1.02.
"Subsidiary Value" means the Value of the Investment Subsidiary on a
stand-alone basis.
"Trailing EBITDA" means, for the 12-month period immediately
preceding the Valuation Date, the Entity's net income from continuing operations
and discontinued operations (i.e., income after applicable income taxes, but
excluding extraordinary items and the cumulative effect of accounting changes),
determined in accordance with GAAP applied on a consistent basis, adjusted as
follows: (i) add interest and other finance charges expensed, (ii) add non-cash
charges for depreciation and amortization expensed, and (iii) add income taxes
expensed.
"Trailing Net Income" means, for the 12-month period immediately
preceding the Valuation Date, the Entity's net income, as determined in
accordance with GAAP applied on a consistent basis.
"Transfer of Control" means the happening of any of the following
events: (a) except for an Excluded Person (as defined below), any "person,"
including a "group," as such terms are defined in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended, and the rules promulgated
thereunder (collectively the "Exchange Act"), becomes the beneficial owner, as
defined under the Exchange Act, directly or indirectly, whether by purchase or
acquisition or agreement to act in concert or otherwise, of 45% or more of the
Company's or the Buyer's outstanding capital stock; or (b) except in the case of
a merger or consolidation in which (i) the Company or the Buyer is the surviving
corporation and (ii) Excluded Persons beneficially own,
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directly or indirectly, more than 66 2/3% of the Company's or the Buyer's
outstanding capital stock immediately after such merger or consolidation, the
Company or the Buyer, as the case may be, consummates a merger, consolidation,
liquidation or sale of all or substantially all of the Company's or the Buyer's
assets. An "Excluded Person" shall mean TelePad or any wholly owned subsidiary
of TelePad including the Buyer.
"Valuation Date" means the earliest to occur of (a) the consummation
by the Company or the Buyer of the Initial Public Offering; (b) the effective
date of a Transfer of Control; (c) the third anniversary of the Closing Date,
provided that the date set forth in this clause (c) may be extended in one-year
increments by the LLC in its sole discretion (i) to the fourth anniversary of
the Closing Date upon written notice thereof received by the Buyer during the
30-day period ending 180 days before the third anniversary of the Closing Date
and, provided the first one-year extension has been elected, (ii) to the fifth
anniversary of the Closing Date upon written notice thereof received by the
Buyer during the 30-day period ending 180 days before the fourth anniversary of
the Closing Date; (d) the effective date of the termination of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇'▇
employment (i) by the Company "without cause" (as defined in his employment
agreement to be executed pursuant to Section 1.04(i)), or (ii) by ▇▇. ▇▇▇▇▇▇ due
to (A) a change in his duties or title materially inconsistent with his position
and status with the Company as of the Closing Date or (B) a reduction in the
base salary or benefits to which he is entitled under such employment agreement,
provided that the LLC delivers to TelePad written notice of its election to
treat any such event as a Valuation Date hereunder within 10 days of such
effective date; or (e) the date as of which designees or appointees of the LLC
no longer comprise a majority of the Company's board of directors (the "Board")
(other than as a result of the death or resignation of such designees or
appointees where the LLC elects not to fill the vacancies created thereby),
provided that the LLC delivers to TelePad written notice of its election to
treat such event as a Valuation Date hereunder within 10 days of such date.
"Value" means, as it applies to (a) the Company on a consolidated
basis including the Investment Subsidiary, (b) the Company on a consolidated
basis excluding the Investment Subsidiary, or (c) the Investment Subsidiary on a
stand-alone basis (in each case, an "Entity"), one of the following amounts, as
elected by the LLC pursuant to Section 1.01(d)(i), determined as of the
Valuation Date:
(i) one-third of the sum of (x) the Entity's Trailing EBIDTA
multiplied by five, (y) the Entity's Trailing Net Income multiplied by
13, and (z) the Entity's Net Worth multiplied by two (collectively,
the "Internal Value"); or
(ii) an external valuation of the Entity resulting from the
Initial Public Offering ("IPO Value"); or
(iii) an external valuation of the Entity resulting from a
Transfer of Control ("Transfer of Control Value").
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(c) Calculation of Additional Consideration. The amount of the
Additional Consideration shall be determined as follows:
(i) If TelePad has not yet made an investment in the Company
pursuant to Section 7.02, the Additional Consideration shall equal the
sum of (A) the amount, up to a maximum of $16 million, by which the
Company Value exceeds the Initial Purchase Price and (B) the product
(the "Back-End Amount") obtained by multiplying (i) .6154 times (ii)
the amount, if any, by which the Company Value exceeds the sum of the
Initial Purchase Price and $16 million.
(ii) If TelePad has made an investment in the Company
pursuant to Section 7.02 (the "Investment Amount"), the Additional
Consideration shall equal either of the following amounts, as elected
by the LLC, in its sole discretion, in accordance with Section 7.02.
(A) the sum of (i) the amount, up to a maximum of
$16 million, by which the Consolidated Value exceeds the sum
of (x) the Initial Purchase Price and (y) the Investment
Amount plus a return thereon equal to 25% compounded
annually, and (ii) the product obtained by multiplying (x)
.6154 times (y) the amount, if any, by which the
Consolidated Value exceeds the sum of (1) the Initial
Purchase Price, (2) $16 million and (3) the Investment
Amount plus a return equal to 25% compounded annually; or
(B) (i) the sum of (x) the amount, up to a maximum
of $16 million, by which the Company Value exceeds the
Initial Purchase Price, and (y) the Back-End Amount; plus
(ii) the Subsidiary Value multiplied by
a fraction, the numerator of which equals the
amount, up to $16 million, by which the Subsidiary
Value exceeds the Investment Amount, and the
denominator of which equals the sum of the
numerator, the Investment Amount and the Initial
Purchase Price.
(iii) Notwithstanding the foregoing, if
the obligation to pay the Additional Consideration
accrues pursuant to clause (d) or (e) under the
definition of "Valuation Date", the amount of the
Additional Consideration shall equal the amount
which, if invested on the Valuation Date with an
annual return of 8.5 percent compounded monthly,
would equal $16 million as of the third
anniversary of the Closing Date.
(iv) Examples of the manner in which
Additional Consideration is calculated are set
forth in Exhibit B hereto.
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(d) Preparation of the Valuation Statement.
--------------------------------------
(i) Within 30 days after the Valuation Date, the LLC shall
deliver a written notice to the Buyer setting forth which of the three
methods set forth in Section 1.02(b) for determining Value is to be
used in the determination of the amount of the Additional
Consideration. Within 30 days of receiving such notice, the Buyer will
prepare and deliver to the LLC a draft valuation statement (the "Draft
Valuation Statement") setting forth the amount of the Additional
Consideration, determined in accordance with Section 1.02(c)(i) or
(ii), as applicable, including a detailed statement as to the manner
in which such amount was determined.
(ii) If the LLC has any objections to the Draft Valuation
Statement, it will deliver a reasonably detailed statement describing
its objections to the Buyer within 30 days after receiving the Draft
Valuation Statement. If the LLC does not so object within such period,
such Draft Valuation Statement shall be deemed final and conclusive
with respect to the determination of the Additional Consideration. If
the LLC does object within such period, the Buyer and the LLC will use
reasonable efforts to resolve such objections themselves before
resorting to the dispute resolution procedures set forth in Section
1.03.
(e) Purchase Right.
(i) If the Company receives written notice of a proposed
bona fide Transfer of Control, the LLC may elect, by written notice to
the Buyer (the "Purchase Notice") delivered within 10 days of the
LLC's receipt of notice of such Transfer of Control, in lieu of
receiving the Additional Consideration after the occurrence of the
Transfer of Control, to purchase the Shares from the Buyer, prior to
the earlier of the occurrence of the Transfer of Control or the
disposition of such Shares in connection with such Transfer of
Control, for an amount (the "Offer Amount") equal to the amount by
which the Transfer of Control Value exceeds the Additional
Consideration.
(ii) If the Additional Consideration is determined based
upon the Valuation Date occurring on the third, fourth or fifth
anniversary date of the Closing Date, as applicable, the LLC may
elect, by written notice to the Buyer (the "Purchase Notice"), in lieu
of receiving the Additional Consideration, to purchase the Shares from
the Buyer on or before the Payment Date for an amount (the "Offer
Amount") equal to the amount by which the Internal Value exceeds the
Additional Consideration.
(iii) If the LLC elects to purchase the Shares from the
Buyer pursuant to clause (i) or (ii) above, the Buyer may, within 10
days of its receipt of the Purchase Notice, deliver to the LLC an
offer (the "Counterproposal") to pay to the LLC an amount (the
"Counterproposal Amount") in excess of the Additional Consideration
that would
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have been payable to the LLC absent such election (the "Original
Amount"). Within 10 days of its receipt of the Counterproposal, the
LLC shall deliver a written notice to the Buyer (a) accepting the
Counterproposal, or (b) electing to purchase the Shares from the Buyer
for a purchase price which exceeds the Offer Amount by an amount in
excess of the difference between the Counterproposal Amount and the
Original Amount. The failure of the LLC to timely deliver such notice
shall be deemed to be an acceptance of the Counterproposal.
(iv) Payments by the Buyer to the LLC or by the LLC to the
Buyer pursuant to this Section 1.02(e) shall be in cash by wire
transfer or other delivery of immediately available funds.
(v) The rights set forth in this Section 1.02(e) shall
expire upon the fixing of a Valuation Date as a result of the
occurrence of the Initial Public Offering.
1.03 Dispute Resolution.
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(a) If the parties do not obtain a final resolution within 30 days
after the Buyer has received the statement of objections with respect to the
Draft Adjustment Date Balance Sheet or the Draft Valuation Statement, as the
case may be, the Buyer and the LLC will select an accounting firm mutually
acceptable to them to resolve any remaining objections. If the Buyer and the LLC
are unable to agree on the choice of an accounting firm, they will select a
nationally-recognized accounting firm by lot (after excluding their respective
regular outside accounting firms). The Buyer shall provide to the accounting
firm access to all information and personnel reasonably relevant to the
calculation in dispute. The parties shall not be bound by or restricted to the
claims theretofore made or the positions theretofore asserted. The Buyer and the
LLC shall each be free to assert such claims, take such positions and submit to
the accounting firm such additional documentary or other evidence as such
parties or party may desire (subject only to such rules of procedure or
determinations of materiality and relevance as the accounting firm may make).
The determination of any accounting firm so selected will be set forth in
writing and will be conclusive and binding upon the parties. The Buyer will
revise the Draft Adjustment Date Balance Sheet or the Draft Valuation Statement
as appropriate to reflect the resolution of any objections thereto pursuant to
this Section 1.03(a). The "Adjustment Date Balance Sheet" shall mean the Draft
Adjustment Date Balance Sheet together with any revisions thereto pursuant to
this Section 1.03(a).
(b) If the parties submit any unresolved objections to an accounting
firm for resolution as provided in Section 1.03(a), the Buyer and the LLC will
share responsibility for the fees and expenses of the accounting firm as
follows:
(i) if the accounting firm resolves all of the unresolved
objections in favor of the Buyer (the Consolidated Net Worth or
Additional Consideration so
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determined is referred to herein as the "Low Value"), the LLC will be
responsible for all of the fees and expenses of the accounting firm;
(ii) if the accounting firm resolves all of the unresolved
objections in favor of the LLC (the Consolidated Net Worth or
Additional Consideration so determined is referred to herein as the
"High Value"), the Buyer will be responsible for all of the fees and
expenses of the accounting firm; and
(iii) if the accounting firm resolves some of the unresolved
objections in favor of the Buyer and the rest of the unresolved
objections in favor of the LLC (the Consolidated Net Worth or
Additional Consideration so determined is referred to herein as the
"Actual Value"), the LLC will be responsible for that fraction of the
fees and expenses of the accounting firm equal to (A) the difference
between the High Value and the Actual Value over (B) the difference
between the High Value and the Low Value, and the Buyer will be
responsible for the remainder of the fees and expenses.
(c) The Buyer will make the work papers and back-up materials used in
preparing the Draft Adjustment Date Balance Sheet and the Draft Valuation
Statement available to LLC and its accountants and other representatives at
reasonable times and upon reasonable notice at any time during (i) the
preparation by the Buyer of the Draft Adjustment Date Balance Sheet or the Draft
Valuation Statement, (ii) the review by the LLC of the Draft Adjustment Date
Balance Sheet or the Draft Valuation Statement and (iii) the resolution by the
parties of any objections thereto.
1.04 Deliveries by the LLC. At the Closing, the LLC shall deliver to
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TelePad and the Buyer:
(a) the certificates representing the Shares, duly endorsed in blank,
or accompanied by stock powers duly executed in blank by the LLC, with all
necessary transfer taxes and revenue stamps, acquired at the LLC's expense,
affixed and cancelled;
(b) all required consents, approvals and Permits (as defined in
Section 2.26) listed in Sections 2.06 and 2.26 of the Disclosure Schedule, each
in form and substance reasonably satisfactory to TelePad and the Buyer;
(c) evidence of termination effective as of the Closing Date of the
Stockholder Agreement dated as of July 25, 1996, as amended, by and among the
Company and the Stockholders;
(d) a release, executed by each of the Stockholders, the LLC and the
Company, as agreed to in accordance with Section 5.07 (the "Release").
-9-
(e) certificates from appropriate authorities, dated the most recent
practicable date, as to the good standing and qualification to do business of
each of the Company and the LLC in each jurisdiction where it is so qualified;
(f) copies of (i) the Company's Articles of Incorporation certified by
the State Corporation Commission of Virginia, (ii) the Company's Bylaws
certified by the Company's Secretary and (iii) the LLC's Articles of
Organization and Operating Agreement certified by a duly authorized
representative, in each case as in effect on the Closing Date;
(g) a Stock Pledge, Assignment and Security Agreement, executed by the
LLC, in the form of Exhibit C hereto (the "Pledge Agreement");
(h) a tax sharing agreement between the Company and TelePad, executed
by the Company, in a form satisfactory to the Company and Telepad;
(i) an executed employment agreement between the Company and ▇▇▇▇▇▇▇
▇▇▇▇▇▇, in a form satisfactory to TelePad and the LLC;
(j) an assignment of the Company's life insurance policies on each of
the Stockholders, executed by the Company, in a form satisfactory to the LLC;
(k) executed amendments, if any, to existing employment agreements
with the Stockholders other than ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, as agreed to in accordance with
Section 5.07; and
(l) all other documents specified in this Agreement, or otherwise
agreed to by the parties to be delivered by the LLC on the date of this
Agreement.
1.05 Deliveries by TelePad and the Buyer. At the Closing, TelePad and the
-----------------------------------
Buyer, as applicable, shall deliver to the LLC:
(a) the executed Buyer Note;
(b) the Pledge Agreement executed by TelePad and the Buyer in the form
of Exhibit C hereto, along with the Buyer's Certificate representing the Shares
and TelePad's certificate representing all of the issued and outstanding capital
stock of the Buyer; and
(c) certificates from appropriate authorities, dated the most recent
practicable date, as to the good standing and qualification to do business of
each of TelePad and the Buyer in each jurisdiction where it is so qualified;
(d) or each of TelePad and the Buyer, copies of its (i) certificate of
incorporation certified by the Secretary of State of the State of Delaware and
(ii) bylaws certified by its secretary, in each case as in effect on the Closing
Date;
-10-
(e) a tax sharing agreement between the Company and TelePad, executed
by TelePad, in a form satisfactory to TelePad and the Company; and
(f) all other documents specified in this Agreement, or otherwise
agreed to by the parties, to be delivered by TelePad or the Buyer on the date of
this Agreement.
1.06 Further Assurances. From time to time after the date of this
-------------------
Agreement, each party hereto will, at the request of any other party but without
further consideration, execute and deliver such other and further instruments of
sale, assignment, transfer and conveyance and take such other and further action
as such other party may reasonably request in order to carry out and implement
the transactions contemplated herein.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE LLC
The Company has delivered to TelePad and the Buyer prior to the execution
of this Agreement, a disclosure schedule (the "Disclosure Schedule") containing
information about the Company and identifying certain documents relating to the
Company. The Company and the LLC, jointly and severally, represent and warrant
to TelePad and the Buyer as follows:
2.01 Capital Stock. The Company has an authorized capitalization consisting
-------------
of 20,000 shares of capital stock, including 10,000 shares of common stock, $.10
par value, 3,295 of which are issued and outstanding, and 10,000 shares of
preferred stock, $.10 par value, none of which are issued or outstanding. All of
the Shares have been duly authorized and validly issued and are fully paid and
non-assessable and have been issued in compliance with all applicable securities
laws. There are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other contracts or
commitments that could require the Company to issue, sell, transfer or otherwise
dispose of any the Company's capital stock, other than as contemplated by this
Agreement. Any equity securities of the Company which were issued and reacquired
by the Company were so reacquired in compliance with all applicable laws and the
Company has no outstanding obligation or liability with respect thereto. There
are no voting trusts, proxies or other agreements or understandings with respect
to the voting of any of the Company's capital stock.
2.02 Investments. Section 2.02 of the Disclosure Schedule sets forth for
-----------
each corporation with respect to which the Company or a subsidiary of the
Company owns a majority of the common stock or has the power to vote or direct
the voting of sufficient securities to elect a majority of the directors
(individually, a "Subsidiary" and collectively, the "Subsidiaries") (i) its name
and jurisdiction of incorporation, (ii) the number of shares of authorized
capital stock, (iii)
-11-
the number of issued and outstanding shares of each class of its capital stock,
the names of the holders thereof, and the number of shares held by each such
holder, and (iv) the number of shares of its capital stock held in treasury. All
of the issued and outstanding shares of capital stock of each Subsidiary have
been duly authorized and are validly issued, fully paid and nonassessable. The
Company holds of record and owns beneficially all of the outstanding shares of
each Subsidiary, free and clear of any restrictions on transfer (other than
restrictions under the Securities Act of 1933, as amended (the "Securities
Act"), and state securities laws), taxes, security interests, options, warrants,
purchase rights, contracts, commitments, equities, claims, and demands. There
are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other contracts or
commitments that could require any of the Company and its Subsidiaries to issue,
sell, transfer or otherwise dispose of any capital stock of any of its
Subsidiaries. There are no outstanding stock appreciation, phantom stock, profit
participation or similar rights with respect to any Subsidiary. There are no
voting trusts, proxies or other agreements or understandings with respect to the
voting of any capital stock of any Subsidiary. None of the Company or its
Subsidiaries controls directly or indirectly or has any direct or indirect
equity participation in any corporation, partnership, trust, joint venture or
other business association which is not a Subsidiary.
2.03 Corporate Organization; Etc. The Company and each of the Subsidiaries
----------------------------
is a corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation, as set forth in Section 2.03 of the
Disclosure Schedule. The Company and each of the Subsidiaries has all requisite
corporate power and authority to carry on its business as it is now being
conducted and to own the properties and assets it now owns. The Company and each
of the Subsidiaries is duly qualified or licensed to do business and is in good
standing in the jurisdictions listed in Section 2.03 of the Disclosure Schedule,
which are the only jurisdictions in which the character or location of the
properties owned or leased by the Company and each of the Subsidiaries or the
nature of the business conducted by the Company and each of the Subsidiaries
makes such qualification or licensing necessary, except where the failure to be
so qualified would not have a material adverse effect on the business, assets,
operations or financial condition of the Company or any of its Subsidiaries or
the ability of any of them to perform their respective obligations, if any,
under this Agreement or under any other agreement required to be executed by
them pursuant to this Agreement ("Material Adverse Effect"). Section 2.03 of the
Disclosure Schedule correctly lists the current directors and executives of the
Company and each of the Subsidiaries.
2.04 Authorization; Etc. The Company has full corporate power and authority
------------------
to enter into this Agreement and to carry out the transactions contemplated
hereby. The Company has taken all action required by law, its Articles of
Incorporation (as amended) and Bylaws (as amended) or otherwise to authorize the
execution and delivery of this Agreement and the transactions contemplated
hereby, and this Agreement is a valid and binding agreement of the Company
enforceable against the Company in accordance with its terms, except to the
extent that enforcement may be limited by the effect of bankruptcy, insolvency,
reorganization, moratorium,
-12-
fraudulent transfer or similar laws affecting the enforcement of rights of
creditors and other obligees generally and the scope of equitable remedies which
may be available.
2.05 Restrictive Documents. Except as set forth in Section 2.05 of the
----------------------
Disclosure Schedule, neither the Company nor any of the Subsidiaries is subject
to, or a party to, any charter, bylaw, mortgage, lien, lease, Permit, agreement,
contract, instrument, law, rule, ordinance, regulation, order, judgment or
decree, or any other restriction of any kind or character, which materially and
adversely affects the business practices, operations or financial condition of
the Company, the Subsidiaries or any of their assets or property, or which would
prevent consummation of the transactions contemplated by this Agreement,
compliance by the Company with the terms, conditions and provisions hereof or
the continued operation of the business of the Company or the Subsidiaries after
the date hereof on substantially the same basis as heretofore operated or which
would materially restrict the ability of the Company or any Subsidiary to
acquire any property or conduct business in any area.
2.06 Consents. Section 2.06 of the Disclosure Schedule contains a list of
--------
all consents of any person necessary for the consummation of the transactions
contemplated hereby including, without limitation, consents from parties to
loans, contracts, leases or other agreements and consents from governmental
agencies, whether federal, state or local. All such consents have been obtained
and evidence thereof has been provided to TelePad and the Buyer, except where
the failure to obtain any consent or consents would not in the aggregate have a
Material Adverse Effect.
2.07 Books and Records. The minute books of the Company and the
-------------------
Subsidiaries, as previously made available to TelePad and its representatives,
contain (i) a true, correct and complete copy of the charter documents of the
Company and the Subsidiaries, and (ii) materially accurate records of all
meetings of, and corporate action taken by (including actions taken by written
consent) the stockholders and the board of directors and all committees thereof
of the Company and the Subsidiaries. Neither the Company nor any of the
Subsidiaries has any of its records, systems, controls, data or information
recorded, stored, maintained, operated or otherwise wholly or partly dependent
upon or held by any means (including any electronic, mechanical or photographic
process, whether computerized or not) which (including all means of access
thereto and therefrom) are not under the exclusive ownership and direct control
of the Company or such Subsidiary.
2.08 Bank Accounts and Powers of Attorney. Set forth in Section 2.08 of the
------------------------------------
Disclosure Schedule is an accurate and complete list showing (a) the name and
address of each bank in which the Company and each of the Subsidiaries has an
account or safe deposit box, the number of any such account or any such box and
the names of all persons authorized to draw thereon or to have access thereto,
and (b) the names of all persons, if any, holding powers of attorney from the
Company and each of the Subsidiaries and a summary statement of the terms
thereto.
-13-
2.09 Financial Statements. The Company has heretofore furnished TelePad
---------------------
with audited consolidated balance sheets of the Company and the Subsidiaries
dated as of October 31, 1994, 1995 and 1996 and the related consolidated
statements of earnings, statements of changes in stockholders' equity and
statements of cash flows for the years then ended, all certified by Coopers &
▇▇▇▇▇▇▇ (the Company's audited consolidated balance sheet as at October 31, 1996
is hereinafter referred to as the "Balance Sheet"). Such financial statements,
including the footnotes thereto, except as indicated therein, have been prepared
in accordance with GAAP consistently followed throughout the periods indicated.
The Balance Sheet fairly presents in all material respects the financial
condition of the Company and the Subsidiaries at the date thereof and, except as
indicated therein, reflects, to the extent required by GAAP, all claims against
and all debts and liabilities of the Company and the Subsidiaries, fixed or
contingent, as at the date thereof and the related statements of earnings,
statements of changes in stockholders' equity and statements of cash flows
fairly present in all material respects the results of operations of the Company
and the Subsidiaries and the changes in its financial position for the period
indicated. Such other balance sheets fairly present in all material respects the
financial condition of the Company and the Subsidiaries at the respective dates
thereof and, except as indicated therein, reflect, to the extent required by
GAAP, all claims against and all debts and liabilities of the Company and the
Subsidiaries, fixed or contingent, as at the respective dates thereof, and the
related statements of earnings, statements of changes in stockholders' equity
and statements of cash flows fairly present in all material respects the results
of operations of the Company and the Subsidiaries and the changes in financial
position for the periods indicated. Since October 31, 1996 (the "Balance Sheet
Date") there has been (x) no material adverse change in the assets or
liabilities, or in the business or financial condition, or in the results of
operations, of the Company or the Subsidiaries, whether as a result of any
legislative or regulatory change, revocation of any license or right to do
business, fire, explosion, accident, casualty, labor trouble, flood, drought,
riot, storm, condemnation or act of God or other public force or otherwise and
(y) no change in the assets or liabilities, or in the business or financial
condition, or in the results of operations, of the Company or the Subsidiaries
except in the ordinary course of business or as contemplated by this Agreement;
and to the Company's best knowledge, information and belief no fact or condition
exists or is contemplated or threatened which might cause such a change. The
total liabilities of the Company on a consolidated basis, as determined in
accordance with GAAP applied on a consistent basis, do not exceed $15 million as
of the date of this Agreement.
2.10 Accounting Records; Internal Controls; Absence of Certain Payments.
------------------------------------------------------------------
(a) Accounting Records. The Company has records that accurately and
validly reflect in all material respects the transactions of the Company and the
Subsidiaries, and accounting controls sufficient to insure that such
transactions are (i) executed in accordance with management's general or
specific authorization and (ii) recorded in conformity in all material respects
with GAAP so as to maintain accountability for assets.
-14-
(b) Data Processing; Access. Such records, to the extent they contain
important information that is not easily and readily available elsewhere, have
been duplicated, and such duplicates are stored safely and securely.
2.11 Title to Properties; Encumbrances. Except for properties and assets
-----------------------------------
reflected in the Balance Sheet or acquired since the Balance Sheet Date which
have been sold or otherwise disposed of in the ordinary course of business, the
Company and each of the Subsidiaries has good, valid and marketable title to (a)
all of its properties and assets (personal, tangible and intangible), including,
without limitation, all of the properties and assets reflected in the Balance
Sheet, except as indicated in the notes thereto, and (b) all of the properties
and assets purchased by the Company and each of the Subsidiaries since the
Balance Sheet Date, except where the failure to have such title would not in the
aggregate have a Material Adverse Effect; in each case subject to no
encumbrance, lien, charge or other restriction of any kind or character, except
as set forth in Section 2.11 of the Disclosure Schedule.
2.12 Real Property. Neither the Company nor any of the Subsidiaries owns
-------------
or, except as set forth in Section 2.12 of the Disclosure Schedule, has ever
owned any real property or any interest (other than leasehold interests)
therein.
2.13 Absence of Certain Changes. Since the Balance Sheet Date, neither the
--------------------------
Company nor any of the Subsidiaries has:
(a) conducted its business other than in the usual and ordinary manner
and in the ordinary course of business, including making all regularly scheduled
payments and commitments (e.g., payroll, taxes, rent and lease payments) coming
due through the Closing Date;
(b) suffered any material adverse change in its working capital,
financial condition, assets, liabilities (absolute, accrued, contingent or
otherwise), reserves, business or operations;
(c) written down the value of any inventory;
(d) waived any claims or rights of substantial value;
(e) sold, transferred, or otherwise disposed of any its properties or
assets (real, personal or mixed, tangible or intangible), except in the ordinary
course of business and consistent with past practice;
(f) disposed of or disclosed to any person other than representatives
of TelePad any trade secret, formula, process or know-how of the Company or the
Subsidiary not theretofore a matter of public knowledge, the disclosure of which
would have a material adverse affect on the business, operations, assets or
financial condition of the Company;
-15-
(g) granted any general increase in the compensation of its employees
(including any such increase pursuant to any bonus, pension, profit sharing or
other plan or commitment) or any increase in the compensation payable or to
become payable to any employee, other than in the ordinary course of business or
pursuant to the terms of any existing compensation arrangement otherwise
described in the Disclosure Schedule;
(h) made any change in any method of accounting of accounting practice
which would have a Material Adverse Effect; or
(i) agreed, whether in writing or otherwise, to take any action
described in this Section.
2.14 Accounts Receivable. All accounts receivable, unbilled work in process
-------------------
and other debts due or recorded in the records and books of account of the
Company and the Subsidiaries as being due to either of the Company or any of the
Subsidiaries as at the date of this Agreement and the Closing Date (less the
amount of any provision or reserve therefor made in such records and books of
account) were or will have been actually made in the ordinary course of business
and will be good and collectible in full in the ordinary course of business and
in any event no later than 60 days after the Closing Date; and none of such
accounts receivable or other debts is, or will at the Closing Date be, subject
to any counterclaim or set-off. The Company has delivered to TelePad a
materially complete and accurate aging list of all receivables of the Company
and the Subsidiaries.
2.15 Leases. Attached as an exhibit to Section 2.15 of the Disclosure
------
Schedule are true, correct and complete copies of each equipment and real
property lease to which the Company or any of the Subsidiaries is a party (the
"Leases") and all modifications, amendments and notices relating thereto. The
Leases are valid, binding and enforceable in accordance with their terms, and
are in full force and effect; in each case, the Company or the Subsidiary has
been in peaceable possession since the commencement of the Lease; there are no
existing defaults by the Company or the Subsidiary or, to the Company's
knowledge, the lessors thereunder; no event of default by the Company or any of
the Subsidiaries has occurred which (whether with or without notice, lapse of
time or the happening or occurrence of any other event) would constitute such a
default thereunder; neither the Company, the applicable Subsidiary nor, to the
Company's knowledge, the lessor has violated any of the terms or conditions of
any such lease in any material respect; no waiver, indulgence or postponement of
the obligations of the Company or the Subsidiaries thereunder has been granted
by the lessor; and the Company or the applicable Subsidiary has, or will have,
paid, satisfied or discharged all its obligations under such leases through the
Closing Date, including the payment of rent and operating expenses.
2.16 Assets. The tangible assets and equipment of the Company and the
------
Subsidiaries are as of the date of this Agreement, and will be as of the Closing
Date, in good operating condition and repair and none of such assets or
equipment is or will be at the Closing Date in need of maintenance or repairs
except for ordinary, routine maintenance and repairs which are not
-16-
material in nature or cost. The assets listed in Section 2.16 of the Disclosure
Schedule (the "Assets") constitute all of the assets and properties of the
Company and the Subsidiaries and all of the assets and properties utilized in
the business of the Company and the Subsidiaries as of January 27, 1997.
2.17 Patents, Trademarks, Trade Names, Etc.
--------------------------------------
Neither the Company nor any of the Subsidiaries owns nor leases from any
third party any patents, patent applications, trademarks, service marks, trade
names or copyrights. To conduct its business as it is now being conducted,
neither the Company nor any of the Subsidiaries requires ownership of any
patent, copyright, trademark, service ▇▇▇▇ or trade name or rights to use any
such property of any third party. Neither the Company nor any of the
Subsidiaries has, nor has it been alleged to have, infringed upon any patent,
trademark, trade name or copyright and there exists no basis for such an
allegation except where such infringement would not have a Material Adverse
Effect.
2.18 Government Contracts and Proposals.
----------------------------------
(a) For purposes of this Agreement, "Government Contracts" means with
respect to any person, any contract, agreement, license and order between such
person and the United States Government or any department, agency or
instrumentality thereof or any state or local governmental agency or authority
(the "Government"), and any subcontract at any tier held by such person under a
prime government contract. Section 2.18 of the Disclosure Schedule sets forth a
true, correct and complete list of (i) all Government Contracts to which the
Company or any Subsidiary is a party, (ii) all pending written proposals for
Government Contracts submitted by the Company or a Subsidiary (the "Proposals")
and (iii) all written and material oral teaming arrangements and understandings
between the Company or any Subsidiary and any third party with respect to any
Proposal. Except as set forth in Section 2.18 of the Disclosure Schedule, with
respect to the Government Contracts to which the Company or a Subsidiary is a
party: (i) such Government Contracts constitute valid and binding obligations of
the Company or the Subsidiary, as applicable, and to the Company's knowledge,
the other party or parties thereto, enforceable in accordance with their terms;
(ii) the Company or the Subsidiary, as applicable, has made no materially
incorrect representation or certification and provided no defective cost or
pricing data in connection with the award of, and is in compliance in all
material respects with the terms of, all Government Contracts to which it is a
party and all laws, regulations and contract provisions applicable to the
obtaining, formation, pricing, performance, billing, administration and other
aspects of its Government Contracts, including compliance in all material
respects with the Truth in Negotiations Act (as amended) and with all defective
pricing, price reduction, or similar clauses contained or incorporated in its
Government Contracts, and the Company or the Subsidiary, as applicable, is in
compliance in all material respects with the False Claims Act (as amended), or
any similar applicable statutes or regulations concerning false claims, false
statements, defective pricing, misrepresentation or procurement integrity
concerning any Government Contract; (iii) neither the Company nor the
Subsidiary, as applicable, nor any other party has terminated,
-17-
canceled or waived any material terms or condition of any Government Contract;
(iv) the cost accounting, estimating, property and procurement systems relating
to the Government Contracts of the Company and the Subsidiaries are in
compliance in all material respects with applicable laws, regulations and
contract provisions, including applicable cost principles and applicable cost
accounting standards; and (v) the execution of this Agreement and the
consummation of the transactions contemplated by this Agreement will not cause
or result in any breach or default under any of the Government Contracts or
cause any of the Government Contracts to become terminable or cause any Proposal
to become ineligible for future consideration.
(b) In addition to the representations and warranties set forth in
Section 2.14, (i) each billed account receivable represents a bona fide claim
against the Government for sales, services performed, or other charges arising
on or prior to the date hereof, and all the products delivered and services
performed which gave rise to such accounts were delivered or performed in all
material respects in accordance with applicable Government Contracts; and (ii)
except as set forth in Section 2.18(b) of the Disclosure Schedule, all unbilled
or unreserved amounts included in accounts receivable will, in the ordinary
course of business as currently conducted and consistent with past practices,
mature into and become billed accounts receivable in the same or greater amount.
(c) Except as set forth in Section 2.18 of the Disclosure Schedule,
none of such Government Contracts has a currently incurred or currently
projected cost overrun or loss.
(d) Except for "Permitted Liens" which for purposes of this Agreement
shall mean liens securing obligations under the Company's existing line of
credit with Crestar Bank and those liens made in accordance with the Assignment
of Claims Act (as amended), 31 U.S.C. ss. 3727, and the Assignment of Contracts
Act (as amended), 31 U.S.C. ss. 15, neither the Company nor a Subsidiary has
assigned or otherwise conveyed or transferred, or agreed to assign, to any
person, any Government Contracts to which it is a party, or any account
receivable relating thereto, whether as a security interest or otherwise.
(e) Since December 31, 1994, neither the Company nor a Subsidiary has
received any notice or other communication in any form from the Government
regarding its actual or threatened disqualification, suspension or debarment
from contracting with the Government including without limitation any show cause
notice or cure notice.
(f) Except as set forth on Section 2.18 of the Disclosure Schedule,
there is no: (i) to the Company's knowledge, pending or threatened investigation
relating to any Government Contract, to which the Company or a Subsidiary is a
party, (ii) existing or (to the Company's knowledge) threatened claim, cost
disallowance, pricing adjustment or adverse audit finding relating to any
Government Contract with which the Company or a Subsidiary is a party, (iii)
termination for default or cure notice or show cause notice proposed or
currently in effect, relating to any Government Contract to which the Company or
a Subsidiary is a party, or (iv)
-18-
proposed or (to the Company's knowledge) threatened termination for convenience
of any Government Contract to which the Company or a Subsidiary is a party.
(g) To the Company's knowledge, each Proposal is under active
consideration by the office or agency to which it was submitted and has not been
withdrawn or rejected.
2.19 Other Contracts and Commitments.
--------------------------------
(a) Except as set forth in Section 2.18 or 2.19 of the Disclosure
Schedule, or as contemplated by this Agreement or the agreements and instruments
executed in connection herewith, neither the Company nor any of the Subsidiaries
has or is bound by:
(i) any agreement, contract or commitment which involves or
could involve in excess of $10,000 (or $5,000 if not entered into in
the ordinary course of business) or which had an unexpired term in
excess of five years;
(ii) any agreement, contract or instrument that grants a
power of attorney, agency or similar authority to another person or
entity (other than officers of the Company acting within the scope of
their authority);
(iii) any loan or advance to, investment in, guaranty or
other contingent liability in respect of any indebtedness or
obligation of, any individual, partnership, joint venture,
corporation, trust, unincorporated organization, government or other
entity or any agreement, contract or commitment relating to the making
of any such loan, advance or investment;
(iv) any agreement, contract or commitment relating to the
employment of any person by the Company or any of the Subsidiaries, or
any bonus, deferred compensation, pension, severance, profit sharing,
stock option, employee stock purchase, retirement or other employee
benefit plan;
(v) any management service, consulting, sales
representative, distributor or similar type of contract;
(vi) any confidentiality, non-disclosure or similar
agreement;
(vii) any sales contracts, commitments or proposals which
continue for a period of more than 12 months;
(viii) any agreement, contract or commitment which might
reasonably be expected to have a Material Adverse Effect;
-19-
(ix) any agreement, contract or commitment limiting the
freedom of the Company or any of the Subsidiaries to engage in any
line of business or compete with any person or which restricts in any
material respect the ability of the Company or any of the Subsidiaries
to conduct its business in any manner or place;
(x) any contract or agreement that contains a right of first
refusal; or
(xi) any contract or agreement requiring the Company or any
of the Subsidiaries to buy or sell goods or services with respect to
where there will be costs and expenses materially in excess of
expected receipts.
(b) Each contract, agreement and commitment listed in Section 2.19 of
the Disclosure Schedule is valid and in full force and effect, and there exists
no default or event of default or event, occurrence, condition or act (including
the purchase of the Shares hereunder) which, with the giving of notice, the
lapse of time or the happening of any other event or condition, would become a
default or event of default thereunder by the Company or a Subsidiary or, to the
Company's knowledge, by any other party thereto. The Company and any applicable
Subsidiary have fully performed all of the terms or conditions of any contract
or agreement set forth in Section 2.19 of the Disclosure Schedule (or required
to be set forth in Section 2.19 of the Disclosure Schedule) in all material
respects, and, to the Company's best knowledge, information and belief, all of
the covenants to be performed by any other party thereto have been fully
performed in all material respects. A true, correct, accurate and complete copy
of each contract, agreement or commitment listed in Section 2.19 of the
Disclosure Schedule has heretofore been delivered or made available to TelePad
and the Buyer by the Company.
2.20 Customers and Suppliers. Section 2.20 of the Disclosure Schedule lists
-----------------------
the names of and describes all contracts with and the appropriate percentage of
business attributable to the ten largest customers of and ten most significant
suppliers of the Company's business on a consolidated basis at the date of this
Agreement, and any sole-source suppliers of significant goods or services (other
than electricity, gas, telephone or water) to the Company or any of the
Subsidiaries with respect to which alternative sources of supply are not readily
available on comparable terms and conditions. There has not been any material
adverse change in the business relationship of the Company or any of the
Subsidiaries with any material customer of, or supplier to, the Company or any
of the Subsidiaries since the Balance Sheet Date.
2.21 Labor Difficulties. Except to the extent set forth in Section 2.21 of
------------------
the Disclosure Schedule, (a) each of the Company and the Subsidiaries is in
compliance in all material respects with all federal, state or other applicable
laws respecting employment and employment practices, terms and conditions of
employment and wages and hours, and is not engaged in any unfair labor practice;
(b) there is no labor strike, dispute, slowdown or stoppage actually pending or,
to the Company's knowledge, threatened against or affecting the Company or the
Subsidiaries; (c) none of the employees of the Company or the Subsidiaries are
covered by a collective bargaining agreement or are members of a union and no
representation question exists respecting
-20-
the employees of the Company or the Subsidiaries; (d) there exists no basis for
the assessment of unpaid wages with respect to the employees of the Company or
the Subsidiaries ; (e) neither the Company nor any of the Subsidiaries has
experienced any other labor problems; and (f) there has not been, and to the
Company's knowledge, there will not be, any material adverse change in relations
with the employees of the Company or the Subsidiaries as a result of any
announcement of the transactions contemplated by this Agreement.
2.22 Personnel. Section 2.22 of the Disclosure Schedule sets forth, as of
---------
the date hereof, a true and complete list of:
(a) the name and current salary of all salaried employees of the
Company and the Subsidiaries;
(b) the name and wage rate of all hourly employees of the Company and
the Subsidiaries;
(c) the name and compensation arrangements of any other employees or
consultants of the Company and the Subsidiaries not listed in the Disclosure
Schedule pursuant to paragraph (a) or (b) above; and
(d) the name and employment status of each employee of the Company or
the Subsidiaries currently on long-term or short-term disability, workers'
compensation, sick leave, personal leave, military leave or any similar leave
arrangement.
2.23 Employee Benefit Plans.
----------------------
(a) List of Plans. Set forth in Section 2.23 of the Disclosure
Schedule is an accurate and complete list of all employee benefit plans
("Employee Benefit Plans") within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended, and the rules and
regulations thereunder ("ERISA"), whether or not any such Employee Benefit Plans
are otherwise exempt from the provisions of ERISA, established, maintained or
contributed to by the Company or any of the Subsidiaries (including, for this
purpose and for the purpose of all of the representations in this Section 2.23,
all employers (whether or not incorporated) which by reason of common control
are treated together with the Company as a single employer within the meaning of
Section 414 of the Internal Revenue Code of 1986, as amended (the "Code") since
September 2, 1974. None of the Employee Benefit Plans is, or has ever been,
subject to Title IV of ERISA or Part 3 of Title I of ERISA.
(b) Status of Plans. Neither the Company nor any of the Subsidiaries
maintains or contributes on behalf of the employees of the Company or the
Subsidiaries to any Employee Benefit Plan subject to ERISA which is not, or in
the past has not been, in substantial compliance with ERISA.
-21-
Neither the Company nor any of the Subsidiaries maintains any Employee
Benefit Plan which is a "Group Health Plan" (as such term is defined in Section
5000(b)(1) of the Code) that has not been administered and operated in all
material respects in compliance with the applicable requirements of Section 601
of ERISA and Section 4980B of the Code and neither the Company nor any of the
Subsidiaries is subject to any liability, including, but not limited to,
additional contributions, fines, penalties or loss of tax deduction as a result
of such administration and operation. Neither the Company nor the Subsidiaries
maintains any Employee Benefit Plan (whether qualified or nonqualified within
the meaning of Section 401(a) of the Code) providing for retiree health and/or
life benefits and having unfunded liabilities. Neither the Company nor any of
the Subsidiaries maintains any Employee Benefit Plan which is an "Employee
Welfare Benefit Plan" (as such term is defined in Section 3(1) of ERISA) nor has
the Company or any of the Subsidiaries provided any benefit in Section 4976(b)
of the Code) for which an excise tax would be imposed. Subject to compliance
with applicable law, to the Company's knowledge, except as set forth in Section
2.23 of the Disclosure Schedule, no condition exists which would prevent the
Buyer from amending on a prospective basis or terminating any Employee Welfare
Benefit Plan providing health or medical benefits in respect of any active or
former employee of the Company or any of the Subsidiaries (excluding with
respect to pre-existing medical conditions).
(c) Contributions. Full payment has been made of all amounts which the
Company or any of the Subsidiaries is required, under applicable law or under
any Employee Benefit Plan or any agreement relating to any Employee Benefit Plan
to which the Company or any of the Subsidiaries is a party to have paid as
contributions thereto as of the last day of the most recent fiscal year of such
Employee Benefit Plan ended prior to the date hereof. Each of the Company and
the Subsidiaries has made adequate provision for reserves to meet contributions
that have not been made because they are not yet due under the terms of any
Employee Benefit Plans and each such plan as is represented and has not been
increased subsequent to the date as of which documents have been provided.
(d) Tax Qualification. Each Employee Benefit Plan intended to be
qualified under Section 401(a) of the Code has been determined to be so
qualified by the Internal Revenue Service and, to the Company's knowledge,
nothing has occurred since the date of the last such determination which
resulted in or is likely to result in the revocation of such determination.
(e) Compliance With Tax Reform Act of 1986. Each of the Company and
the Subsidiaries has either adopted on a timely basis all amendments to Employee
Benefit Plans which are required by the Tax Reform Act of 1986 so as to avoid
discrimination in participation or benefits in favor of the highly compensated
employees or has complied with the requirements for obtaining "anti-cutback"
relief provided under Internal Revenue Service Notice 88-131 and the subsequent
Internal Revenue Service pronouncements covering the subject matter of Notice
88- 131 by adopting appropriate amendments to such Employee Benefit Plans.
(f) Transactions. Except as set forth in Section 2.23 of the
Disclosure Schedule, neither the Company nor any of the Subsidiaries has engaged
in any transaction with
-22-
respect to the Employee Benefit Plans which would subject it to a tax, penalty
or liability for prohibited transactions under ERISA or the Code nor has any of
its directors, officers or, to the Company's knowledge, employees to the extent
they or any of them are fiduciaries with respect to such plans, breached any of
their responsibilities or obligations imposed upon fiduciaries under Title I of
ERISA or would result in any claim being made under or by or on behalf of any
such plans by any party with standing to make such a claim.
(g) Triggering Events. The execution of, and consummation of the
transactions contemplated by, this Agreement do not constitute a triggering
event under any Employee Benefit Plan, policy, arrangement, statement,
commitment or agreement, whether or not legally enforceable, which (either alone
or upon the occurrence of any additional or subsequent event) will or may
reasonably be expected to result in any payment (whether of severance pay or
otherwise), acceleration, vesting or increase in benefits to any employee or
former employee or director of the Company or any of the Subsidiaries.
(h) Other Plans. Neither the Company nor any of the Subsidiaries
presently maintains on behalf of its employees any employee benefit plan or any
other foreign pension, welfare or retirement benefit plans other than those
listed in Section 2.23 of the Disclosure Schedule. Any foreign pension, welfare
or retirement benefit plan listed in Section 2.23 of the Disclosure Schedule is
in substantial compliance with applicable law.
(i) Documents. The Company has delivered or caused to be delivered to
TelePad and the Buyer and their counsel true and complete copies of (i) all
Employee Benefit Plans as in effect, together with all amendments thereto which
will become effective at a later date, as well as the latest Internal Revenue
Service determination letter obtained with respect to any such Employee Benefit
Plan qualified under Section 401(a) or tax-exempt under Section 501(a) of the
Code and (ii) Form 5500 for the most recent completed fiscal year for each
Employee Benefit Plan required to file such form.
(j) Terminated Plan. Pursuant to the ESOP Stock Redemption Agreement
(the "Redemption Agreement") dated October 29, 1996 between the Company and
Citizens Bank of Maryland, in its capacity as trustee of the Federal Computer
Corporation Employee Stock Ownership Trust (the "Trust"), established pursuant
to the Federal Computer Corporation Employee Stock Ownership Plan (the "Plan"),
(i) as of October 29, 1996, all of the 3,824 shares of the Company's convertible
preferred stock were redeemed from the Trust, and (ii) as of October 29, 1996
the Plan ceased to be an employee stock ownership plan as defined under ERISA
and the Code and became a profit sharing plan (the "Profit Sharing Plan") as
described in the Code. The Company has paid and satisfied all of its liabilities
and obligations under the Redemption Agreement, the Plan and the Profit Sharing
Plan. The redemption of such convertible preferred stock qualified for the
exemption described in Section 408(e) of ERISA and Section 4975(d)(3) of the
Code, and the Plan pursuant to which the Trust was established has continued to
be qualified under Section 401(a) of the Code.
-23-
2.24 Litigation. Except as set forth in Section 2.24 of the Disclosure
----------
Schedule, there is no action, suit, inquiry, proceeding or, to the Company's
knowledge, investigation by or before any court or governmental or other
regulatory or administrative agency or commission pending or, to the Company's
knowledge, threatened against or involving the Company or any of the
Subsidiaries which, if adversely determined, would in the aggregate have a
Material Adverse Effect, or which questions or challenges the validity of this
Agreement or any action taken or to be taken by the Company pursuant to this
Agreement or in connection with the transactions contemplated hereby; nor, to
the Company's knowledge, is there any valid basis for any such action,
proceeding or investigation. Neither the Company nor any of the Subsidiaries is
in default under or in violation of, nor, to the Company's knowledge, is there
any valid basis for any claim of default under or violation of, any contract,
commitment, indebtedness or restriction to which it is a party or by which it is
bound except for violations or defaults which in the aggregate would not have a
Material Adverse Effect. Neither the Company nor any of the Subsidiaries is
subject to any judgment, order or decree entered in any lawsuit or proceeding
which could reasonably be expected to have a Material Adverse Effect. Except as
set forth in Section 2.24 of the Disclosure Schedule, there is no matter as to
which the Company or any of the Subsidiaries has received any notice, claim or
assertion, or, to the best knowledge, information and belief of the Company,
which otherwise has been threatened or is reasonably expected to be threatened
or initiated, against or affecting any director, officer, agent or
representative of the Company or any of the Subsidiaries or any other person,
nor to the Company's knowledge is there any reasonable basis therefor, in
connection with which any such person has or may reasonably be expected to have
any right to be indemnified by the Company or any of the Subsidiaries.
2.25 Compliance with Law. The business and the other operations of the
--------------------
Company and the Subsidiaries have been conducted in accordance with all
applicable laws, regulations, rules and other requirements of all national
governmental authorities, and of all states, municipalities and other political
subdivisions and agencies thereof, having jurisdiction over the Company and the
Subsidiaries, the non-compliance with which in the aggregate would have a
Material Adverse Effect. Neither the Company nor any of the Subsidiaries has
received any notification of any asserted present or past failure by the Company
or the Subsidiaries to comply with such laws, rules or regulations.
2.26 Permits. Each of the Company and the Subsidiaries hold all permits,
-------
licenses, accreditations, approvals and authorization ("Permits") that are
required by any governmental entity to permit it to conduct its business as now
conducted except where the failure to hold any such permit would not in the
aggregate have a Material Adverse Effect, and all such Permits are valid, in
full force and effect and will remain so upon consummation of the transactions
contemplated by this Agreement, except where the failure to be in full force and
effect would not in the aggregate have a Material Adverse Effect. To the
Company's knowledge, no suspension, cancellation or termination of any of such
Permits is threatened or imminent which suspension, cancellation or termination
could reasonably be expected to have a Material Adverse Effect.
-24-
2.27 Dividends and Other Distributions. Except as set forth in Section 2.27
---------------------------------
of the Disclosure Schedule, there has been no dividend or other distribution of
assets by the Company or any of the Subsidiaries whether consisting of money,
property or any other thing of value, declared, issued or paid to or for the
benefit of the Stockholders or the LLC subsequent to the Balance Sheet Date.
2.28 Undisclosed Liabilities. Neither the Company nor any of the
-------------------------
Subsidiaries has any outstanding claims, liabilities or indebtedness of any
nature, whether accrued, absolute, contingent or otherwise, and whether due, or
to become due, probable of assertion or not, except liabilities (i) set forth in
the Balance Sheet or referred to in the footnotes thereto, (ii) incurred
subsequent to the Balance Sheet Date in the ordinary course of business not
involving borrowings by the Company or any of the Subsidiaries, or (iii) set
forth in Section 2.28 of the Disclosure Schedule.
2.29 Taxes. Each of the Company and the Subsidiaries has filed or caused to
-----
be filed, within the times and within the manner prescribed by law, all federal,
state, local and foreign tax returns and tax reports which are required to be
filed by, or with respect to, the Company or the Subsidiaries. Such returns and
reports, including amendments to date have been prepared in good faith and
reflect completely and accurately in all material respects all liability for
taxes of the Company or the Subsidiaries for the periods covered thereby,
whether or not due and payable and whether or not disputed. All federal, state,
local and foreign income, profits, franchise, sales, use, occupancy, excise and
other taxes and assessments (including interest and penalties) payable by, or
due from, the Company or the Subsidiaries have been fully paid or adequately
disclosed and fully provided for in the Company's books and financial
statements. The federal income tax liability of the Company and the Subsidiaries
has been finally determined for all fiscal years to and including the fiscal
year ended October 31, 1995. To the Company's knowledge, no examination of any
tax return of the Company or any of the Subsidiaries is currently in progress.
There are no outstanding agreements or waivers extending the statutory period of
limitation applicable to any tax return of the Company or any of the
Subsidiaries.
2.30 Insurance. Set forth in Section 2.30 of the Disclosure Schedule is a
---------
complete list of insurance policies which the Company or any of the Subsidiaries
maintains with respect to its business, operations, properties or employees.
Such policies are in full force and effect and are free from any right of
termination on the part of the insurance carriers. Such policies, with respect
to their amounts and types of coverage, are adequate to insure fully against
risks to which the Company or any of the Subsidiaries and its property and
assets are normally exposed in the operation of its business. To the Company's
knowledge, since January 1, 1997, there has not been any material adverse change
in the relationship of the Company or any of the Subsidiaries with its insurers
or in the premiums payable pursuant to such policies.
2.31 Environmental Laws and Regulations. Section 2.31 of the Disclosure
------------------------------------
Schedule contains information relating to the following items:
-25-
(a) the nature and quantities of any Hazardous Materials (as defined
below) generated, transported or disposed of by the Company or any of the
Subsidiaries during the past three years (other than raw material awaiting
manufacturing, work-in-process or finished goods and through the sale of
products in the ordinary course of business), together with a description of the
location of each such activity; and
(b) a summary of the nature and quantities of any Hazardous Materials
that have been disposed of or found at any site or facility owned or operated
presently or at any previous time by the Company or any of the Subsidiaries
(other than raw material awaiting manufacturing, work-in-process or finished
goods and through the sale of products in the ordinary course of business).
Each of the Company and the Subsidiaries is in compliance in all material
respects with all applicable federal, state and local laws and regulations
relating to product registration, pollution control and environmental
contamination including, but not limited to, all laws and regulations governing
the generation, use, collection, discharge or disposal of Hazardous Materials
and all laws and regulations with regard to recordkeeping, notification and
reporting requirements respecting Hazardous Materials. Except as disclosed in
Section 2.31 of the Disclosure Schedule, neither the Company nor any of the
Subsidiaries has been alleged to be in violation of, nor has it been subject to
any administrative or judicial proceeding pursuant to, such laws or regulations
either now or any time during the past three years. Except as disclosed in
Section 2.31 of the Disclosure Schedule, there are no facts or circumstances
which could reasonably be expected to form the basis for the assertion of any
Claim (as defined below) against the Company or any of the Subsidiaries relating
to environmental practices asserted under CERCLA (as defined below) and RCRA (as
defined below), or any other federal, state or local environmental statute,
which might have a Material Adverse Effect.
For purposes of this Section 2.31, the following terms shall have the
following meanings:
(a) "Hazardous Materials" shall mean materials defined as "hazardous
substances", "hazardous wastes" or "solid wastes" in (i) the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
ss.ss.9601-9657, and any amendments thereto ("CERCLA"), (ii) the Resource
Conservation and Recovery Act, 42 U.S.C. ss.ss.6901-6987 and any amendments
thereto ("RCRA") and (iii) any similar federal, state or local environmental
statute; and
(b) "Claim" shall mean any and all claims, demands, causes of action,
suits, proceedings, administrative proceedings, losses, judgments, decrees,
debts, damages, liabilities, court costs, attorneys' fees and any other expenses
incurred, assessed or sustained by or against the Company or any of the
Subsidiaries.
2.32 Absence of Certain Payments. In connection with the business and
----------------------------
operations of the Company and the Subsidiaries, neither the Company, the
Subsidiaries nor any director, officer,
-26-
agent, employee or other person acting on behalf of the Company or any of the
Subsidiaries has used any corporate or other funds for unlawful contributions,
payments, gifts or entertainment, or made any unlawful expenditures relating to
political activity to government officials or others or established or
maintained any unlawful or unrecorded funds. With respect to the business and
operations of the Company and the Subsidiaries, neither the Company, the
Subsidiaries nor any director, officer, or, to the Company's knowledge, agent,
employee or other person acting on their behalf, has accepted or received any
unlawful contributions, payments, gifts or expenditures.
2.33 Insider Interests. Except as set forth in Section 2.33 of the
------------------
Disclosure Schedule, no officer or employee of the Company or any of the
Subsidiaries has any material interest in any property, real or personal,
tangible or intangible of the Company or any of the Subsidiaries, is indebted or
otherwise obligated to the Company or any of the Subsidiaries, has any
contractual relationship with the Company or any of the Subsidiaries or, to the
Company's knowledge, is an officer, director, employee or consultant of a
competitor of the Company or any of the Subsidiaries. Neither the Company nor
any of the Subsidiaries is indebted or otherwise obligated to any such person,
except for amounts due under normal arrangements applicable to all employees
generally as to salary or reimbursement of ordinary business expenses not
unusual in amount or significance. Except as set forth in Section 2.33 of the
Disclosure Schedule, the consummation of the transactions contemplated by this
Agreement will not (either alone, or upon the occurrence of any act or event, or
with the lapse of time, or both) result in any benefit or payment (severance or
other) arising or become due from the Company or the Subsidiaries or the
successor or assign of any thereof to any person.
2.34 Brokers and Finders. Neither the Company, the Subsidiaries nor any of
-------------------
their officers, directors or employees has employed any broker or finder or
incurred any liability for any brokerage fees, commissions or finders' fees in
connection with the transactions contemplated by this Agreement.
2.35 Product or Service Liability. There is no action, suit, inquiry,
-----------------------------
proceeding or, to the Company's knowledge, investigation by or before any court
or governmental or other regulatory or administrative agency or commission
pending or, to the Company's knowledge, threatened against the Company or any of
the Subsidiaries relating to any services alleged to have been performed by the
Company or any of the Subsidiaries and alleged to have been defective or
improperly rendered, or any products delivered or sold by the Company or any of
the Subsidiaries which are alleged to be defective, which, if adversely
determined, could reasonably be expected to have a Material Adverse Effect.
2.36 Governmental Interaction. Section 2.36 of the Disclosure Schedule
-------------------------
lists all governmental reviews, audits, and, to the Company's knowledge,
investigations, whether pending or completed or, to the Company's knowledge,
threatened, within the three year period preceding the date of this Agreement,
relating to the business or operations of the Company or any of the
Subsidiaries.
-27-
2.37 Security Matters. The Company and the Subsidiaries are in compliance
-----------------
in all material respects with all security and related requirements on its
classified contracts. Section 2.37 of the Disclosure Schedule describes the
status and findings of all security compliance inspections completed within the
past two years and all on-going security investigations or inquiries known to
the Company relating to the Company and the Subsidiaries and any of their
directors, officers or employees. Section 2.37 of the Disclosure Schedule also
describes all security problems, incidents or occurrences known to the Company
occurring within the past two years which involve non-compliance by the Company,
the Subsidiaries or their directors, officers or employees with applicable
security requirements.
2.38 Government Furnished Property. Any property or equipment furnished to
-----------------------------
the Company or any of the Subsidiaries prior to the date of this Agreement by
the United States Government or any other customer that has not been returned to
such customer is properly accounted for and in the possession of the Company or
such Subsidiary. Any such property is in good operating condition and state of
repair, ordinary wear and tear excluded.
2.39 Estimates. All documents, schedules and other information provided by
---------
the Company or its authorized agents to TelePad or the Buyer relating to the
Company or the Subsidiaries, including estimates to complete and cash flow for
the active contracts of the Company or the Subsidiaries, represent the Company's
best estimates of the results reasonably expected to occur and represent a good
faith assessment of projected future results.
2.40 Disclosure. None of this Agreement, the Financial Statements, any
----------
Schedule, Exhibit or certificate attached hereto or delivered in accordance with
the terms hereof or any document or statement in writing which has been supplied
by or on behalf of the Company, LLC or the Stockholders in connection with the
transactions contemplated by this Agreement contains any untrue statement of
material fact, or omits any statement of material fact necessary in order to
make the statements contained herein or therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE LLC RELATING TO THE SHARES
The LLC represents and warrants to TelePad and the Buyer with respect to
the Shares, as follows:
3.01 Ownership. Each Stockholder was the record and beneficial owner of the
---------
number of Shares set forth in Section 3.01 of the Disclosure Schedule on the
date they were transferred to the LLC as contemplated by this Agreement. As of
the date of this Agreement, the LLC is the sole record and beneficial owner of
the Shares.
-28-
3.02 Title. On the date of this Agreement the LLC has, and on the Closing
-----
Date the LLC will have, good and marketable title to the Shares free and clear
of all adverse claims, options, liens, security interests, restrictions and
other encumbrances, other than restrictions of a general nature arising under
federal and state securities laws, or as a result of the transactions
contemplated by or related to this Agreement.
3.03 Right to Transfer. On the date of this Agreement the LLC has, and on
-----------------
the Closing Date the LLC will have, full legal right and power to transfer and
deliver to the Buyer the Shares pursuant to Section 1.01, and the Buyer will
receive good and marketable title thereto, free and clear of all adverse claims,
options, liens, security interests, restrictions and other encumbrances, other
than restrictions of a general nature arising under federal and state securities
laws, or as a result of the transactions contemplated by or related to this
Agreement.
3.04 All Shares. On the date of this Agreement and on the Closing Date, the
----------
Shares represent and will represent the LLC's entire ownership interest in the
Company's capital stock and the LLC has and will have no other options,
warrants, rights, calls, commitments, conversion rights, rights of exchange,
plans or other agreements of any character providing for the purchase by the LLC
of any of the Company's capital stock, other than rights arising under this
Agreement or any agreement or instrument contemplated hereby.
3.05 Binding Agreement. The LLC is duly organized and validly existing
------------------
under the laws of the Commonwealth of Virginia. The Stockholders own all of the
interests in the LLC. The LLC has the requisite power and authority to execute,
deliver and perform this Agreement and the Release. This Agreement and the
Release have been duly and validly authorized by the LLC and its members, as
applicable. The LLC has duly executed and delivered this Agreement and the
Release, and this Agreement and the Release are valid and binding obligations of
the LLC enforceable against the LLC in according with their terms, except to the
extent that enforcement may be limited by the effect of bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or similar laws affecting the
enforcement of rights of creditors and other obligees generally and the scope of
equitable remedies which may be available.
3.06 Conflicts. The LLC is not subject to, or a party to, any mortgage,
---------
lien, lease, Permit, agreement, contract, instrument, law, rule, ordinance,
regulation, order, judgment or decree, or any other restriction of any kind or
character which would prevent consummation of the transactions contemplated by
this Agreement or compliance by the LLC with the terms, conditions and
provisions hereof. No consent of any person which has not been obtained is
necessary for the consummation of the transactions contemplated hereby by the
LLC.
3.07 Investment. The LLC (a) understands that the Buyer Note has not been,
----------
and will not be, registered under the Securities Act or under any state
securities laws, and are being offered and sold in reliance upon federal and
state exemptions for transactions not involving any public offering, (b) is
acquiring the Buyer Note solely for its own account for investment purposes, and
not with a view to the distribution thereof, (c) is a sophisticated investor
with
-29-
knowledge and experience in business and financial matters, (d) has received
certain information concerning TelePad and the Buyer and has had the opportunity
to obtain additional information as desired in order to evaluate the merits and
the risks inherent in holding the Buyer Note, (e) is able to bear the economic
risk and lack of liquidity inherent in holding the Buyer Note, and (f) is an
accredited investor as defined in Regulation D under the Securities Act.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
TELEPAD AND THE BUYER
Each of TelePad and the Buyer, jointly and severally, represents and
warrants to the Company and the LLC as follows:
4.01 Corporate Organization; Etc. Each of TelePad and the Buyer is a
-----------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. TelePad owns all of the Buyer's issued and outstanding
capital stock.
4.02 Authorization; Etc. Each of TelePad and the Buyer has full corporate
-------------------
power and authority to enter into each of this Agreement, the Stock Pledge
Agreement and the Buyer Note, as applicable, and to carry out the transactions
contemplated hereby and thereby. Each of TelePad and the Buyer has taken all
action required by law, its Certificate of Incorporation and By-Laws or
otherwise to authorize the execution and delivery of each of this Agreement, the
Stock Pledge Agreement and the Buyer Note, as applicable, and the transactions
contemplated hereby and thereby, and each of this Agreement, the Stock Pledge
Agreement and the Buyer Note, as applicable, is a valid and binding agreement of
TelePad and the Buyer enforceable against TelePad and the Buyer, as applicable,
in accordance with its terms, except to the extent that enforcement may be
limited by the effect of bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or similar laws affecting the enforcement of rights of
creditors or other obligees generally and the scope of equitable remedies which
may be available.
4.03 No Violation. Neither the execution and delivery of this Agreement,
------------
the Stock Pledge Agreement, the Buyer Note, or any other agreement or instrument
contemplated hereby, as applicable, nor the consummation of the transactions
contemplated hereby or thereby will violate any provisions of the Certificate of
Incorporation (as amended) or By-Laws (as amended) of TelePad or the Buyer or
violate, or be in conflict with, or constitute a default under, or cause the
acceleration of the maturity of any debt or obligation pursuant to, any
agreement or commitment to which TelePad or the Buyer is a party or by which
TelePad or the Buyer is bound, or violate any statute or law or any judgment,
decree, order, regulation or rule of any court or governmental authority.
-30-
4.04 Brokers and Finders. Neither TelePad, the Buyer nor any of their
---------------------
respective officers, directors or employees has employed any broker or finder or
incurred any liability for any brokerage fees, commissions or finders' fees in
connection with the transactions contemplated by this Agreement.
4.05 SEC Filings. TelePad has delivered to the LLC TelePad's annual report
-----------
on Form 10-KSB for the year ended December 31, 1995, its quarterly report on
Form 10-QSB for the period ended September 30, 1996 and its registration
statement on Form S-3, filed November 27, 1996, as amended. As of their
respective dates, such reports and statement (including all exhibits and
schedules thereto and documents incorporated by reference therein) did not
contain any untrue statement of material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
audited financial statements and unaudited interim financial statements of
TelePad included or incorporated by reference in such reports have been prepared
in accordance with GAAP applied on a consistent basis during the period involved
(except as may be indicated in the notes thereto), and fairly present in all
material respects the assets, liabilities and financial position of TelePad as
of the dates thereof and the results of their operations and changes in
financial position for the periods then ended (subject, in the case of any
unaudited interim financial statements, to normal year-end adjustments).
4.06 Absence of Certain Changes or Events. Except as contemplated by this
-------------------------------------
Agreement, or reflected in any financial statement or note thereto referred to
in Section 4.05, since September 30, 1996 there has not been (a) any material
adverse change in TelePad's business, assets, operations or financial condition;
(b) any damage, destruction or loss, whether covered by insurance or not, having
a material adverse effect upon TelePad's properties or business; (c) any entry
by TelePad into any commitment or transaction material to TelePad, which is not
in the ordinary course of business; or (d) any change by TelePad in accounting
principles or methods except insofar as may be required by a change in GAAP.
4.07 Litigation. There is no action, suit, inquiry, proceeding or, to the
----------
knowledge of TelePad or the Buyer, investigation by or before any court or
governmental or other regulatory or administrative agency or commission pending
or, to the knowledge of TelePad or the Buyer, threatened which, if adversely
determined, would have a material adverse effect on the business, assets,
operations or financial condition of TelePad or the Buyer or on the ability of
either of them to perform its obligations under this Agreement or under any
other agreement required to be executed by it pursuant to this Agreement.
4.08 Solvency. Neither TelePad nor the Buyer will be rendered insolvent as
--------
a result of the purchase of the Shares pursuant to this Agreement.
4.09 Assets. The Buyer has no assets or liabilities other than those
------
created or incurred in connection with the execution and consummation of this
Agreement.
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4.10 Information Received. Section 2.19 of the Disclosure Schedule is an
---------------------
accurate and complete list of the contracts, agreements or commitments received
by the Buyer and TelePad from the Company.
ARTICLE V
PRE-CLOSING COVENANTS AND AGREEMENTS
5.01 Conduct of Company's Business. The Company and the LLC agree that,
-------------------------------
from and after the date hereof through the Closing Date or the earlier
termination of this Agreement:
(a) The business and operations of the Company and the Subsidiaries
will be conducted only in the ordinary course in all material respects. The
Company will use its reasonable efforts to preserve and maintain the business
and properties of the Company and the Subsidiaries intact, keep available the
services of their employees, and preserve for TelePad and the Buyer the
relationships of the Company and the Subsidiaries with its employees, suppliers,
customers, sales representatives and others having business relations with them.
Notwithstanding the foregoing, the Company may, prior to the Closing, transfer
all of the capital stock or assets of its subsidiary, United World
Communications, Inc., to the Stockholders or any other entity.
(b) Except (i) as may be required by existing contracts or applicable
law, (ii) for such obligations as will be satisfied in full on or prior to the
Closing Date, and (iii) increases not exceeding ten percent per annum to
employees made in the ordinary course of business, the Company will not
increase, or obligate itself to increase, the compensation payable or to become
payable by the Company to any of the directors, officers or employees of the
Company or the Subsidiaries or incur any additional obligations with respect to
any such directors, officers or employees or take any action with respect to the
grant or increase of severance or termination pay payable after the Closing Date
or institute an increase in or otherwise amend any deferred compensation,
insurance, retirement, medical, disability, welfare or other employee benefit
plan, agreement, trust or fund. Notwithstanding the foregoing, the Company shall
be entitled to hire employees in the ordinary course of business.
(c) The Company will furnish to the Buyer when they become available
interim unaudited consolidated financial statements of the Company for periods
ending after October 31, 1996.
(d) Neither the LLC nor any affiliate of the LLC will enter into any
material transaction with the Company or any Subsidiary, except as otherwise
contemplated hereby.
(e) The Company will maintain its books and records in all material
respects in accordance with prior practice.
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(f) The Company will comply in all material respects with all laws,
rules and regulations applicable to it and it will cause the Subsidiaries to do
so.
(g) The Company will provide to the Buyer, promptly upon receipt
thereof, a copy of any notice from any governmental authority of the revocation,
suspension, violation, or limitation of the rights under, or of any proceeding
for the revocation, suspension, or limitation of the rights under (or that such
authority may in the future, as the result of failure to comply with laws or
regulations or for any other reason, revoke, suspend, or limit the rights under)
any Permit held by the Company or any Subsidiary.
(h) The Company will notify the Buyer promptly after learning of the
institution or threat of any action against the Company or any Subsidiary in any
court, or any action against the Company or any Subsidiary before any other
government authority, and notify the Buyer promptly upon receipt of any
administrative or court order relating to any of the assets or business of the
Company or any Subsidiary.
(i) The Company will not issue any capital stock or any warrants,
options or other rights to acquire capital stock or securities convertible into
or exercisable or exchangeable for any the Company capital stock, nor will the
Company authorize or agree to do any of the foregoing or cause any Subsidiary to
do any of the foregoing with respect to such Subsidiary's capital stock.
(j) The LLC shall not sell, pledge, assign, transfer or otherwise
dispose of or encumber any of the Company capital stock, nor grant any right to
vote or acquire any of the Company capital stock.
(k) The Company will not enter into any transaction or take any action
which individually or in the aggregate could reasonably be expected to have a
Material Adverse Effect.
(l) One time prior to the Closing Date, within five days after receipt
of a written request from TelePad and the Buyer, the Company and the LLC will
update their representations and warranties set forth in Article II and III
hereof as if such representations and warranties were made as of the date of
such update.
5.02 Conduct of TelePad's and the Buyer's Business. TelePad and the Buyer,
---------------------------------------------
as applicable, agree that, from and after the date hereof through the Closing or
the earlier termination of this Agreement:
(a) TelePad's business and operations will be conducted only in the
ordinary course in all material respects. TelePad will use its reasonable
efforts to preserve and maintain its business and properties intact, keep
available the services of its employees, and preserve the relationships of
TelePad with its employees, suppliers, customers, sales representatives and
others having business relations with it.
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(b) TelePad will furnish to the Company all of the reports TelePad
files with the Securities and Exchange Commission or otherwise distributes
publicly after the date hereof.
(c) TelePad will maintain its books and records in all material
respects in accordance with prior practice.
(d) Each of TelePad and the Buyer will comply in all material respects
with all laws, rules and regulations applicable to it.
(e) TelePad will provide to the Company, promptly upon receipt
thereof, a copy of any notice from any governmental authority of the revocation,
suspension, violation, or limitation of the rights under, or of any proceeding
for the revocation, suspension, or limitation of the rights under (or that such
authority may in the future, as the result of failure to comply with laws or
regulations or for any other reason, revoke, suspend, or limit the rights under)
any license or Permit held by TelePad or the Buyer.
(f) TelePad will notify the Company promptly after learning of the
institution or threat of any action against TelePad or the Buyer in any court,
or any action against TelePad or the Buyer before any other government
authority, and notify the Company promptly upon receipt of any administrative or
court order relating to any of its assets or business.
(g) TelePad will not enter into any transaction or take any action
which individually or in the aggregate could reasonably be expected to have a
material adverse effect on TelePad or the Buyer or the consummation of the
transactions contemplated hereby.
(h) TelePad and the Buyer will update their representations and
warranties set forth in Article IV at the same time as, and as of the same date
as, the update to be provided by the Company and the LLC pursuant to Section
5.01(l).
(i) The Buyer will not acquire assets, incur any liability or conduct
any business except as contemplated by this Agreement.
5.03 Inspections and Confidentiality.
--------------------------------
(a) Except as may unreasonably interfere with the conduct of or
otherwise jeopardize business of the Company or TelePad, as the case may be,
TelePad, the Company and their respective representatives will have the right at
reasonable times, and upon reasonable prior notice, to examine assets, business
and records of the Company and TelePad, respectively, and to interview the
employees, agents and representatives of the Company and TelePad, respectively,
concerning the operations, business, assets, financial condition and prospects
of such corporation, as may be reasonably requested by the respective party.
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(b) In connection with the transactions contemplated by this
Agreement, the Company and the LLC will furnish to TelePad and the Buyer and
TelePad and the Buyer will furnish to the Company and the LLC certain
information regarding their respective businesses. All information furnished
hereunder to TelePad and the Buyer or to the Company and the LLC or their
respective directors, officers, employees, agents or representatives, including
attorneys, accountants, consultants and financial advisors (collectively
"representatives") and all analyses, compilations, data, studies or other
documents prepared by any party hereto or its respective representatives
containing, or based in whole or in part on, any such information are
hereinafter collectively referred to as the "Information." For all purposes
hereof, however, the term "Information" shall not include (i) information that
is or becomes lawfully available to the public other than as a result of
disclosure by any party hereto in breach of this Agreement; (ii) information
that is or becomes available to any party hereto or their representatives on a
nonconfidential basis; and (iii) information that has been furnished prior to
the date hereof on a nonconfidential basis to TelePad or the Buyer by the
Company or the LLC, or its representatives or to the Company or the LLC by
TelePad or its representatives.
(c) (i) The Information will be kept confidential and will not,
without prior written consent of the party hereto which provided the Information
hereunder, be disclosed by the party to which the Information was provided or
their representatives.
(ii) Subject to the provisions of Section 5.04 hereof, no party
hereto will disclose to any other person or entity the terms,
conditions or other facts with respect to the transactions
contemplated by this Agreement, including the status thereof, except
such disclosure as has been previously approved and as may be required
by law, as reasonably determined by the applicable party based on the
advice of counsel.
(d) If this Agreement is terminated or expires, TelePad and the Buyer
shall, as requested by the Company or the LLC, return or destroy the Information
provided to it by the Company and the LLC, and the Company and the LLC shall, as
requested by TelePad, return or destroy the Information provided to them by
TelePad.
(e) If any party hereto or any of representatives of any party hereto
is requested or becomes legally compelled (by oral questions, interrogatories,
request for information or documents, subpoena, criminal or civil investigative
demand or similar process) to disclose any of the Information relating to a
party other than itself, such other party will be provided with prompt written
notice so that it may seek a protective order or other appropriate remedy and/or
waive compliance with the provisions of this Agreement. If such protective order
or other remedy is not obtained, or if the party that provided the Information
waives compliance with the provisions of this Agreement, the person who has been
the subject of such request or legal compulsion will furnish only that portion
of the Information which is legally required and will exercise all reasonable
efforts to obtain reliable assurance that confidential treatment will be
accorded the Information. Notwithstanding anything herein to the contrary, each
party hereto shall be free to disclose any Information during the course of or
in connection with any litigation,
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arbitration or other proceeding based upon or in connection with the subject
matter of this Agreement.
5.04 Announcements and Federal Securities Law Matters.
------------------------------------------------
(a) Each party hereto and its representatives will exercise all
reasonable efforts to maintain confidentiality with respect to the existence of
this Agreement and the transactions contemplated by this Agreement at all times
prior to the public announcement of the execution and delivery of this
Agreement, except that it is understood that TelePad will, after consulting with
the Company, release a press statement announcing the existence of this
Agreement and the transactions contemplated by this Agreement and file with the
Securities and Exchange Commission a report including disclosure of this
Agreement and the transactions contemplated by this Agreement and a copy hereof
as an exhibit. The provisions of this Section 5.04 will be subject to each
party's obligation to comply with applicable requirements of federal or state
laws or any governmental order or regulation; and in this regard, the Company
and the LLC understand that TelePad is a publicly held corporation and as a
result has disclosure obligations under federal and state securities laws.
(b) The Company and the LLC (i) acknowledge that they are and their
representatives to whom Information will be provided hereunder by TelePad will
be (A) aware that the United States securities laws prohibit any person who has
material nonpublic information about a company from purchasing or selling
securities of such company (whether debt or equity securities), or from
communicating such information to any other person under circumstances in which
it is reasonably foreseeable that such person is likely to purchase or sell such
securities and (B) familiar with the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder and (ii) agree
that neither the Company nor the LLC will use, cause any third party to use and
permit its representatives to use, any such Information in contravention of such
Act or any such rules and regulations, including Rule 10b-5.
5.05 Notification of Certain Matters. The Company and the LLC shall give
--------------------------------
prompt notice to TelePad and the Buyer, and TelePad and the Buyer shall give
prompt notice to the Company and the LLC, of (i) the occurrence, or failure to
occur, of any event that would be likely to cause any representation or warranty
contained in this Agreement and made by such party to be untrue or inaccurate in
any material respect at any time from the date of this Agreement to the Closing
Date and (ii) any failure of TelePad, the Buyer, the Company or the LLC, as the
case may be, to comply with or satisfy, in any material respect, any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement.
5.06 Permits and Approvals.
---------------------
(a) TelePad, the Buyer, the Company and the LLC each agree to
cooperate and use their best efforts to obtain (and will immediately prepare all
filings, applications, requests and notices preliminary to) all approvals and
permits that may be necessary or which may be
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reasonably requested by any such party to consummate the transactions
contemplated by this Agreement.
(b) To the extent that the approval of a third party with respect to
any contract is required in connection with the transactions contemplated by
this Agreement, the Company and the LLC shall use its best efforts to obtain
such approval prior to the Closing Date and if any such approval is not
obtained, the Company and the LLC shall cooperate with TelePad and the Buyer to
ensure that TelePad and the Buyer obtain the benefits of each such contract.
5.07 Additional Agreements. The parties agree to finalize the following
----------------------
documents no later than February 26, 1997: (i) an employment agreement between
the Company and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇; (ii) amendments to existing employment
agreements with the other Stockholders; (iii) an assignment from the Company to
the Stockholders or the LLC of certain life insurance policies; and (iv) a
release, which shall include, inter alia, a release by the Company of claims
with respect to the period after the Closing Date against the Stockholders based
upon their status as former stockholders of the Company.
ARTICLE VI
SURVIVAL OF REPRESENTATIONS AND
WARRANTIES; INDEMNIFICATION
6.01 Survival of Representations. Except for actions based upon (a) fraud
----------------------------
or (b) a breach of representations and warranties contained in Section 2.23,
2.29 or 2.31 (each of which shall continue in full force and effect without
limitation until expiration of the applicable statute of limitations), and
except for those covenants and agreements which, by their terms, expressly
survive for a different period, all representations, warranties, covenants and
agreements of the parties contained in this Agreement or expressly incorporated
herein by reference shall survive the Closing Date and any investigation made by
or on behalf of any party hereto for a period of 18 months after the Closing
Date. Claims relating to fraud or breaches of such representations, warranties,
covenants and agreements occurring prior to the expiration of the applicable
survival period may be asserted up to 30 days after the expiration of such
survival period.
6.02 Statements as Representations. All statements contained herein, in the
-----------------------------
Disclosure Schedule or in any certificate or other document delivered pursuant
to this Agreement, shall be deemed representations and warranties within the
meaning of Section 5.01 hereof.
6.03 Indemnification Provisions for Benefit of TelePad and the Buyer.
---------------------------------------------------------------
(a) If the Company or the LLC (the "Seller Parties") breaches (or in
the event any third party alleges facts that, if true, would mean any of such
parties has breached) any of their representations, warranties and covenants
contained herein, then each of the Seller Parties,
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jointly and severally, agrees to indemnify TelePad and the Buyer from and
against the entirety of any Adverse Consequences (as defined below) TelePad and
the Buyer may suffer through and after the date of the claim for indemnification
resulting from, arising out of, relating to, in the nature of, or caused by the
breach (or the alleged breach). "Adverse Consequences" means all actions, suits,
proceedings, hearings, investigations, charges, complaints, claims, demands,
injunctions, judgments, orders, decrees, rulings, damages, dues, penalties,
fines, costs, amounts paid in settlement, liabilities, obligations, taxes,
liens, losses, expenses and fees, including court costs and reasonable
attorneys' fees and expenses.
(b) Each of the Seller Parties, jointly and severally, agrees to
indemnify TelePad and the Buyer from and against the entirety of any Adverse
Consequences TelePad and the Buyer may suffer resulting from, arising out of,
relating to, in the nature of, or caused by any liability of any of the Company
and the Subsidiaries for any taxes of the Company and the Subsidiaries with
respect to any tax year or portion thereof ending on or before the Closing Date
(or for any tax year beginning before and ending after the Closing Date to the
extent allocable to the portion of such period beginning before and ending on
the Closing Date), to the extent such taxes are not reflected in the reserve for
tax liability (rather than any reserve for deferred taxes established to reflect
timing differences between book and tax income) shown on the face of the
Adjustment Date Balance Sheet.
(c) Each of the Seller Parties, jointly and severally, agrees to
indemnify TelePad and the Buyer from and against the entirety of any Adverse
Consequences TelePad and the Buyer may suffer resulting from, arising out of,
relating to, or caused by any action or inaction of the Company, its
Subsidiaries, or their officers, directors, employees, stockholders,
representatives or agents, including the Trustee, with respect to the Plan, the
Trust, the Redemption Agreement or the Profit Sharing Plan, notwithstanding the
absence of any breach of any representation, warranty or covenant hereunder.
6.04 Indemnification Provisions for Benefit of the LLC. If TelePad or the
--------------------------------------------------
Buyer (individually, a "Buyer Party" and collectively, the "Buyer Parties")
breaches (or in the event any third party alleges facts that, if true, would
mean a Buyer Party has breached) any of its representations, warranties, and
covenants contained herein, then the applicable Buyer Party agrees to indemnify
the LLC from and against the entirety of any Adverse Consequences the LLC may
suffer through and after the date of the claim for indemnification resulting
from, arising out of, relating to, in the nature of, or caused by the breach (or
the alleged breach).
6.05 Matters Involving Third Parties.
-------------------------------
(a) If any third party shall notify any of the Seller Parties or the
Buyer Parties (the "Indemnified Party") with respect to any matter (a "Third
Party Claim") which may give rise to a claim for indemnification against any
other party (the "Indemnifying Party") under this Article VI, then the
Indemnified Party shall promptly notify each Indemnifying Party thereof in
writing; provided, however, that no delay on the part of the Indemnified Party
in notifying any
-38-
Indemnifying Party shall relieve the Indemnifying Party from any obligation
hereunder unless (and then solely to the extent) the Indemnifying Party thereby
is prejudiced.
(b) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of the Indemnifying
Party's choice reasonably satisfactory to the Indemnified Party so long as (i)
the Indemnifying Party notifies the Indemnified Party in writing within 15 days
after the Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party, subject to the terms and conditions hereof, will indemnify
the Indemnified Party from and against the entirety of any Adverse Consequences
the Indemnified Party may suffer resulting from, arising out of, relating to, in
the nature of, or caused by the Third Party Claim, (ii) the Indemnifying Party
provides the Indemnified Party with evidence reasonably acceptable to the
Indemnified Party that the Indemnifying Party will have the financial resources
to defend against the Third Party Claim and fulfill its indemnification
obligations hereunder, (iii) the Third Party Claim involves only money damages
and does not seek an injunction or other equitable relief, (iv) settlement of,
or an adverse judgment with respect to, the Third Party Claim is not, in the
good faith judgment of the Indemnified Party, likely to establish a precedential
custom or practice materially adverse to the continuing business interests of
the Indemnified Party, and (v) the Indemnifying Party conducts the defense of
the Third Party Claim actively and diligently.
(c) So long as the Indemnifying Party is conducting the defense of the
Third Party Claim in accordance with Section 6.05(b), (i) the Indemnified Party
may retain separate co- counsel at its sole cost and expense and participate in
the defense of the Third Party Claim, (ii) the Indemnified Party will not
consent to the entry of any judgment or enter into any settlement with respect
to the Third Party Claim without the prior written consent of the Indemnifying
Party (not to be withheld unreasonably), and (iii) the Indemnifying Party will
not consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of the
Indemnified Party (not to be withheld unreasonably).
(d) If any of the conditions in Section 6.05(b) is or becomes
unsatisfied, however, (i) the Indemnified Party may defend against, and consent
to the entry of any judgment or enter into any settlement with respect to, the
Third Party Claim in any manner it reasonably may deem appropriate (and the
Indemnified Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith), (ii) the Indemnifying Parties will
reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable attorneys' fees
and expenses), and (iii) the Indemnifying Parties will remain responsible for
any Adverse Consequences the Indemnified Party may suffer resulting from,
arising out of, relating to, in the nature of, or caused by the Third Party
Claim to the fullest extent provided in this Article VI.
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ARTICLE VII
POST-CLOSING COVENANTS AND AGREEMENTS
7.01 Board Composition. On the Closing Date, the Board shall consist of the
-----------------
six (6) individuals listed on Exhibit D hereto. Until such time as designees of
the LLC no longer comprise a majority of the Board, directors without the
requisite government clearance shall be excluded from participation in
discussions concerning, and the review of documents reflecting, classified
matters.
7.02 Investment Obligations. On each of (a) the Closing Date and (b) the
-----------------------
date which is 12 months after the Closing Date, TelePad shall negotiate with the
Company in respect of making a $5 million investment in the Company or the
Investment Subsidiary. Each such investment shall be in the form of an equity
contribution the proceeds of which shall be used for the purpose or purposes
determined by a majority of the Company's directors; provided, however, that
either or both of such investment obligations may be nullified by (i) a vote of
a majority of the Company's directors, so long as (A) designees or appointees of
the LLC comprise a majority thereof or (B) the Additional Consideration has
already been paid, or (ii) the LLC, if the LLC's designees no longer comprise a
majority of the Board and the Additional Consideration has not been paid. As a
condition to TelePad's obligation to make each such $5 million investment, the
LLC must, concurrent with the Company's specification of the form of such
investment, advise TelePad in writing as to the formula to be used for the
calculation of Additional Consideration under Section 1.02(c)(ii).
7.03 Delivery and Maintenance of Short Term Letter of Credit. On or before
-------------------------------------------------------
the Closing Date, the Buyer shall deliver to the LLC a letter of credit in the
face amount of $4.7 million (the "Short Term Letter of Credit"), in form and
substance reasonably satisfactory to the LLC, and issued by Central Fidelity
Bank or another bank acceptable to the Buyer and the LLC (the "Bank"), as
collateral security for the Buyer's obligations under the Buyer Note. The Short
Term Letter of Credit shall expire on the earlier of full payment of the Buyer
Note or five business days after the "maturity date" of the Buyer Note (as
defined therein) (the "Short Term Expiration Date"), be irrevocable and
unconditional, shall not be transferable, shall permit partial draws, and shall
permit drafts drawn under it to be payable to the order of an escrow agent to be
agreed upon by the Buyer and the LLC (the "Escrow Agent"). The Short Term Letter
of Credit shall specify that a draft in proper form and the original Short Term
Letter of Credit must be presented to draw drafts payable to the Escrow Agent
under it. Drafts may be payable to another payee if the LLC presents to the Bank
written authorization of the Buyer to honor a draft for the amount agreed to by
the parties, payable at sight, and drawn under the Short Term Letter of Credit.
If the Buyer does not agree to issue the foregoing authorization, the LLC may
nonetheless draw upon the Short Term Letter of Credit after it has obtained and
presented to the Bank a final order or decree of a court of competent
jurisdiction or other appropriate agency or arbitrator adjudicating a claim with
respect to the Buyer Note in favor of the LLC. If one day prior to the Short
Term Expiration Date there is a dispute pending with respect to the Buyer's
obligations under the Buyer
-40-
Note, the LLC may draw a draft against the Short Term Letter of Credit in the
amount of the claim under dispute, payable to the order of the Escrow Agent. The
LLC shall deliver to the Escrow Agent all drafts payable to the order of the
Escrow Agent. The LLC and the Buyer agree to finalize and enter into an escrow
agreement with the Escrow Agent with respect to the Short Term Letter of Credit
prior to the Closing Date. The Buyer shall be solely responsible for all fees
and charges related to the issuance of the Short Term Letter of Credit.
7.04 Delivery and Maintenance of Long Term Letter of Credit. On or before
-------------------------------------------------------
the date which is six months after the Closing Date, unless the Additional
Consideration has already been paid, the Buyer shall deliver to the LLC a letter
of credit in the face amount of $5 million (the "Long Term Letter of Credit"),
in form and substance reasonably satisfactory to the LLC, and issued by the
Bank, as collateral security for the Buyer's obligations to pay the Additional
Consideration to the LLC pursuant to Section 1.02 hereof. The Long Term Letter
of Credit shall expire on the earlier of the Payment Date or five business days
after the fifth anniversary of the Closing Date (the "Long Term Expiration
Date"), be irrevocable and unconditional, shall not be transferable, shall
permit partial draws, and shall permit drafts drawn under it to be payable to
the order of the Escrow Agent. The Long Term Letter of Credit shall specify that
a draft in proper form and the original Long Term Letter of Credit must be
presented to draw drafts payable to the Escrow Agent under it. Drafts may be
payable to another payee if the LLC presents to the Bank written authorization
of the Buyer to honor a draft for the amount agreed to by the parties, payable
at sight, and drawn under the Long Term Letter of Credit. If the Buyer does not
agree to issue the foregoing authorization, the LLC may nonetheless draw upon
the Long Term Letter of Credit after it has obtained and presented to the Bank a
final order or decree of a court of competent jurisdiction or other appropriate
agency or arbitrator adjudicating a claim with respect to the Additional
Consideration in favor of the LLC. If five days before the Long Term Expiration
Date there is a dispute pending with respect to the Buyer's obligations with
respect to the Additional Consideration, the LLC may draw a draft against the
Long Term Letter of Credit in the amount of the claim under dispute, payable to
the order of the Escrow Agent. The LLC shall deliver to the Escrow Agent all
drafts payable to the order of the Escrow Agent. The LLC and the Buyer agree to
finalize and enter into an escrow agreement with the Escrow Agent with respect
to the Long Term Letter of Credit prior to the date which is six months after
the Closing Date. The Buyer shall be solely responsible for all fees and charges
related to the issuance of the Long Term Letter of Credit.
7.05 Tax Matters. The following provisions shall govern the allocation of
-----------
responsibility as between the Buyer and the LLC for certain tax matters
following the Closing Date:
(a) Tax Periods Ending on or Before the Closing Date. The LLC shall
prepare or cause to be prepared and file or cause to be filed all tax returns
for the Company and the Subsidiaries for all periods ending on or prior to the
Closing Date which are filed after the Closing Date. The LLC shall permit the
Buyer to review and comment on each such tax return described in the preceding
sentence prior to filing. The LLC shall reimburse TelePad and the Buyer for
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taxes of the Company and the Subsidiaries with respect to such periods within 15
days after payment by the Buyer or the Company and the Subsidiaries of such
taxes to the extent such taxes are not reflected in the reserve for tax
liability (rather than any reserve for deferred taxes established to reflect
timing differences between book and tax income) shown on the face of the
Adjustment Date Balance Sheet.
(b) Tax Periods Beginning Before and Ending After the Closing Date.
The Buyer shall prepare or cause to be prepared and file or cause to be filed
any tax returns of the Company and the Subsidiaries for tax periods which begin
before the Closing Date and end after the Closing Date and have not been filed
as of the date of this Agreement. The LLC shall pay to the Buyer within 15 days
after the date on which taxes are paid with respect to such periods an amount
equal to the portion of such taxes which relates to the portion of such taxable
period ending on the Closing Date to the extent such taxes are not reflected in
the reserve for tax liability (rather than any reserve for deferred taxes
established to reflect timing differences between book and tax income) shown on
the face of the Closing Date Balance Sheet. For purposes of this Section, in the
case of any taxes that are imposed on a periodic basis and are payable for a
taxable period that includes (but does not end on) the Closing Date, the portion
of such tax which relates to the portion of such taxable period ending on the
Closing Date shall (i) in the case of any taxes other than the taxes based upon
or related to income or receipts, be deemed to be the amount of such tax for the
entire taxable period multiplied by a fraction the numerator of which is the
number of days in the taxable period ending on the Closing Date and the
denominator of which is the number of days in the entire taxable period, and
(ii) in the case of any tax based upon or related to income or receipts, be
deemed equal to the amount which would be payable if the relevant taxable period
ended on the Closing Date. Any credits relating to a taxable period that begins
before and ends after the Closing Date shall be taken into account as though the
relevant taxable period ended on the Closing Date. All determinations necessary
to give effect to the foregoing allocations shall be made in a manner consistent
with prior practice of the Company and the Subsidiaries.
(c) Cooperation on Tax Matters. The parties shall cooperate fully, as
and to the extent reasonably requested by another party, in connection with the
filing of tax returns pursuant to this Section and any audit, litigation or
other proceeding with respect to taxes. Such cooperation shall include the
retention and (upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit, litigation or other
proceeding and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. The parties agree (i) to retain all books and records with respect to
tax matters pertinent to the Company and the Subsidiaries relating to any
taxable period beginning before the Closing Date until the expiration of the
statute of limitations (and, to the extent notified by another party, any
extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any taxing authority, and (ii) to
give the other party reasonable written notice prior to transferring, destroying
or discarding any such books and records and, if the other party so requests, to
allow such other party to take possession of such books and records.
-42-
(d) Tax Sharing Agreements. All tax sharing agreements or similar
agreements with respect to or involving the Company and the Subsidiaries shall
be terminated as of the Closing Date and, after the Closing Date, the Company
and the Subsidiaries shall not be bound thereby or have any liability
thereunder. On or before the Closing Date the Company and TelePad shall enter
into a mutually acceptable tax sharing agreement.
(e) Certain Taxes. All transfer, documentary, sales, use, stamp,
registration and other like taxes and fees (including any penalties and
interest) incurred in connection with the Buyer's purchase of the Shares under
this Agreement shall be paid by the LLC when due, and the LLC will, at its own
expense, file all necessary tax returns and other documentation with respect to
all such taxes and fees, and, if required by applicable law, the Buyer and the
Company, as applicable, will, and will cause its affiliates to, join in the
execution of any such tax returns and other documentation.
ARTICLE VIII
DISPUTES; ARBITRATION
8.01 Disputes Generally. The parties hereby undertake to use good faith
-------------------
efforts to settle all disputes arising under this Agreement. Failing settlement,
except as provided with respect to disputes under Article I hereof, all
disputes, including without limitation claims of breach of contract, fraud in
the inducement and negligence shall be referred to binding arbitration in
Washington, D.C. in accordance with the Commercial Rules of Arbitration of the
American Arbitration Association.
8.02 Selection of Arbitrator(s). If, within seven days after receipt by one
--------------------------
party of the other party's notice of intention to arbitrate, the parties are
unable to agree on a single arbitrator, each party shall have 20 days to appoint
its own arbitrator, and the two arbitrators thus chosen shall together, within
seven days of their appointment, appoint a third arbitrator. If either party
fails to appoint its own arbitrator within the specified period, the arbitrator
appointed by the other party shall be the sole arbitrator. If both parties fail
to appoint arbitrators within the specified period, or if the arbitrators
appointed by the parties fail to appoint a third arbitrator within the specified
period, the American Arbitration Association shall make the appointment. The
parties shall use their best efforts to appoint arbitrators who are
knowledgeable in the data processing field.
8.03 Decision of Arbitrators. The decision of the arbitrator(s) shall be
-----------------------
reduced to writing with a full explanation of its factual and legal basis and
shall be rendered within 30 days after all evidence and arguments have been
submitted. Such decision shall be final and may be enforced in any court of
competent jurisdiction.
-43-
8.04 Expense of Arbitration. Each party in any proceeding shall bear (a)
-----------------------
his or its own expenses incurred in connection with arbitration, including all
legal, accounting and other professional fees and expenses and (b) his or its
proportional share of the fees and expenses of the arbitrators.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.01 Amendment and Modifications. Subject to applicable law, this Agreement
---------------------------
may be amended, modified and supplemented only by written agreement between the
parties hereto which states that it is intended to be a modification of this
Agreement.
9.02 Waiver of Compliance. Any failure of the Company and the LLC, on the
---------------------
one hand, or TelePad and the Buyer, on the other, to comply with any obligation,
covenant, agreement or condition herein may be expressly waived in writing by
the other party, but such waiver or failure to insist upon strict compliance
with such obligation, covenant, agreement or condition shall not operate as a
waiver of, or estoppel with respect to, any subsequent or other failure.
9.03 Expenses. Except as otherwise provided herein, the parties agree that
--------
all fees and expenses incurred by them in connection with this Agreement and the
transactions contemplated hereby shall be borne by the party incurring such fees
and expenses, including, without limitation, all fees of counsel, actuaries and
accountants. The Company shall be responsible for any legal, accounting or other
fees and expenses incurred by the Company in connection with the transactions
contemplated hereby and all such fees and expenses incurred through the
Adjustment Date shall be fully accrued, paid or estimated as of the Adjustment
Date and taken into account in calculating the Company's Consolidated Net Worth.
9.04 Reasonable Efforts; Further Assurances. Each party will use its
-----------------------------------------
reasonable efforts to cause all conditions to its and the other parties
obligations hereunder to be timely satisfied and to perform and fulfill all
obligations on its part to be performed and fulfilled under this Agreement, to
the end that the transactions contemplated in this Agreement shall be effected
substantially in accordance with its terms as reasonably practicable. The
parties shall cooperate with each other in such actions and in securing
requisite approvals. Each party shall execute and deliver both before and after
the Closing such further certificates, agreements and other documents and take
such other actions as the other party may reasonably request to consummate or
implement the transactions contemplated hereby or to evidence such events or
matters.
9.05 Remedies; Waiver. To the maximum extent permitted by law, all rights
-----------------
and remedies existing under this Agreement are cumulative to and not exclusive
of, any rights or remedies otherwise available under applicable law. No failure
on the part of any party to exercise
-44-
or delay in exercising any right hereunder shall be deemed a waiver thereof, nor
shall any single or partial exercise preclude any further or other exercise of
such or any other right.
9.06 Knowledge Convention. Whenever any statement herein or in any
---------------------
schedule, exhibit, certificate or other documents delivered to any party
pursuant to this Agreement is made "to the knowledge" or "to the best knowledge"
or words of similar intent or effect of the Company or the LLC or its
representatives, such person shall make such statement only after making
reasonable inquiry of each of the Stockholders and the officers of the Company
to the extent that such person could reasonably be expected to possess the
requisite knowledge and each statement shall be deemed to include a
representation that such inquiry has been conducted. Whenever any statement
herein or in any schedule, exhibit, certificate or other documents delivered to
any party pursuant to this Agreement is made "to the knowledge" or "to the best
knowledge" or words of similar intent or effect of TelePad or the Buyer or its
representatives, such person shall make such statement only after making
reasonable inquiry of each of the officers of TelePad and the Buyer to the
extent that such person could reasonably be expected to possess the requisite
knowledge, and each statement shall be deemed to include a representation that
such inquiry has been conducted
9.07 Notices. All notices, requests, demands and other communications
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered by hand or mailed, certified or registered mail
with postage prepaid:
(a) if the Company or the LLC, to:
Federal Computer Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
with a copy to:
▇▇▇▇▇▇▇ & Berlin, Chartered ▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇., Esquire
or to such other person or address as the Company or the LLC shall furnish to
TelePad and the Buyer in writing;
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(b) if to TelePad or the Buyer, to:
TelePad Corporation
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Chairman and Chief
Executive Officer
with a copy to:
Arent Fox ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇-▇▇▇▇
Attention: Carter Strong, Esquire
or to such other person or address as TelePad or the Buyer shall furnish to the
Company and the LLC in writing.
9.08 Assignment. This Agreement and all of the provisions hereof shall be
----------
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties.
9.09 Governing Law. This Agreement and the legal relations among the
--------------
parties hereto shall be governed by and construed in accordance with the laws of
the Commonwealth of Virginia, excluding such jurisdiction's principles of
conflicts of laws.
9.10 Counterparts. This Agreement may be executed simultaneously in two or
------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and same instrument.
9.11 Construction. The headings of Sections and Articles of this Agreement
------------
are inserted for convenience only and shall not constitute a part hereof or
affect in any way the meaning or interpretation of this Agreement. All
references herein to Articles, Sections and Exhibits shall be deemed to refer to
Articles, Sections and Exhibits of this Agreement.
9.12 Entire Agreement. This Agreement, including the Exhibits and Schedules
----------------
hereto, the Disclosure Schedule and the other documents and certificates
delivered pursuant to the terms hereof, set forth the entire agreement and
understanding of the parties hereto in respect of the subject matter contained
herein, and supersede all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto.
-46-
9.13 Third Parties. Except as specifically set forth or referred to herein,
-------------
nothing herein expressed or implied is intended or shall be construed to confer
upon or give to any person or corporation other than the parties hereto and
their successors or assigns, any rights or remedies under or by reason of this
Agreement.
-47-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and, if applicable, their respective corporate seals to be affixed
hereto, all as of the day and year first above written.
TELEPAD CORPORATION
By: ____________________________________________
Title:___________________________________________
TELEPAD ACQUISITION, INC.
By: ____________________________________________
Title:___________________________________________
FEDERAL COMPUTER CORPORATION
By: ____________________________________________
Title:___________________________________________
HARTLAND GROUP, LLC
By: ____________________________________________
Title:___________________________________________
-48-
EXHIBIT A
---------
PROMISSORY NOTE
---------------
$4,700,000.00, Virginia _______, 1997
FOR VALUE RECEIVED, on or before one hundred and eighty (180) days
after the date hereof (__________, 1997), the undersigned, TELEPAD ACQUISITION,
INC., a Delaware corporation (the "Maker"), promises to pay to the order of
Hartland Group, LLC, a Virginia limited liability company (the "Lender", which
shall include any holder of this Note), with offices at ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or at such other place as the holder hereof may
from time to time designate in writing, the principal sum of Four Million Seven
Hundred Thousand Dollars ($4,700,000.00), plus interest on the principal balance
thereof from time to time outstanding at a rate which is at all times eight and
one-half percent (8.5%) per annum, payable in equal successive monthly
installments of interest only, commencing on _____________, 1997, and continuing
on the ___ day of each succeeding month thereafter until the date which is one
hundred and eighty (180) days after the date hereof, the "maturity date" hereof,
when the entire principal balance hereof, all accrued and unpaid interest
thereon, and all applicable fees, costs and charges if any, shall be due and
payable in full, unless the payment of such amount is accelerated subject to the
terms hereof.
Interest hereon shall be calculated on the basis of the actual number
of days elapsed in a 360-day year. All payments of principal and/or interest
hereon shall be payable in lawful money of the United States and in immediately
available funds.
In the event that any payment of principal and/or interest is not
actually received by the holder hereof within five (5) business days of the date
such payment is due, the Maker agrees to pay a late charge equal to five percent
(5%) of the total amount of the delinquent installment. All payments received
hereon shall be applied, at the Lender's option, first to late charges, if any,
then to interest and then to principal.
Notwithstanding anything set forth herein to the contrary, after the
maturity date of this Note, whether at the stated maturity date or by
acceleration, interest on this Note shall be payable at a rate of thirteen and
one-half percent (13.5%) per annum, but in no event shall the rate of interest
applicable hereto be greater than the highest rate permissible under law.
Any of the following shall constitute a default hereunder: (1) if
default be made: (a) in the payment of any installment (or part thereof) due
hereunder; or (b) in the performance or observance in any material respect of
any other covenant or agreement set forth in this Note or in any other of the
"Loan Documents" (hereinafter defined) and such non-monetary default continues
for more than ten (10) business days after notice thereof is delivered to the
Maker; (2) if any warranty or representation of the Maker or TelePad
Corporation, a Delaware corporation ("TelePad") in the Loan Documents is untrue
or misleading in any material respect; (3) the
inability of the Maker or TelePad to pay its debts generally as they become due,
or the insolvency of the Maker or TelePad or any assignment for the benefit of
creditors, or the filing of a petition by or against the Maker or TelePad under
the provisions of any bankruptcy (provided that, in the case of an involuntary
filing for bankruptcy protection under the United States Bankruptcy Code against
Maker, such petition is not dismissed within thirty (30) days), insolvency, or
similar law for the relief of debtors, or the issuance or service of any
attachment, levy or garnishment against the Maker or TelePad or any of the
Maker's property or the property of TelePad; (4) if TelePad shall dissolve or
cease to be a going concern; (5) the acceleration of the maturity of any
indebtedness, obligation or liability of any kind and/or nature of Maker (or any
subsidiary or affiliate) to any person or entity, including but not limited to
Lender, whether now existing or hereafter created or arising, direct or
indirect, matured or unmatured, and whether absolute or contingent, joint,
several or joint and several, and howsoever owned, held or acquired, the
principal amount of which exceeds an aggregate of One Hundred Thousand Dollars
($100,000.00); or (6) the failure of Maker (or any subsidiary or affiliate) to
satisfy any judgments in excess of the aggregate amount of One Hundred Thousand
Dollars ($100,000.00) within thirty (30) days after such judgment becomes final
and enforceable by lien, levy and execution under applicable law, unless such
execution is stayed.
Any of the following shall constitute an "Acceleration Event"
hereunder: (a) except for an "Excluded Person" (as defined below), any "person,"
including a "group," as such terms are defined in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended, and the rules promulgated
thereunder (collectively, the "Exchange Act"), becomes the "beneficial owner"
(as defined under the Exchange Act), directly or indirectly, whether by purchase
or acquisition or agreement to act in concert or otherwise, of forty-five
percent (45%) or more of the outstanding capital stock of the Maker, TelePad or
Federal Computer Corporation, a Virginia corporation ("FCC"); (b) except in the
case of a merger or consolidation in which (i) the Maker, TelePad or FCC is the
surviving corporation, and (ii) in the case of a merger or consolidation of
Maker or FCC, Excluded Persons beneficially own, directly or indirectly, more
than sixty-six and two-thirds percent (66 2/3%) of the Maker's or FCC's
outstanding capital stock immediately after such merger or consolidation, the
Maker, TelePad or FCC consummates a merger, consolidation, liquidation or sale
of all or substantially all of the Maker's, TelePad's or FCC's assets; (c) the
consummation by the Maker or FCC of an initial underwritten public offering of
FCC's or the Maker's capital stock, registered under the Securities Act of 1933,
as amended, on a registration statement on Form S-1 or SB-2; or (d) the
composition of the board of directors of FCC (the "Board") is altered, modified
or otherwise amended such that the designees or appointees of the Lender do not
comprise a majority of the Board and the Lender elects to receive the
"Additional Consideration" (as defined in the "Purchase Agreement" hereinafter
defined) as a result thereof pursuant to Section 1.02 of the "Purchase
Agreement" (hereinafter defined). As used herein, an "Excluded Person" shall
mean TelePad or any wholly owned subsidiary of TelePad.
In the event of any default hereunder, subject to any applicable cure
period provided herein, or in the event of an Acceleration Event, as applicable:
(1) the entire principal
-2-
balance hereof, all accrued and unpaid interest thereon, and all other
applicable fees, costs and charges, if any, shall at once become due and payable
at the option of the holder of this Note; (2) the Lender shall have all other
rights and remedies provided hereunder and under the other Loan Documents and
available at law or in equity, which rights and remedies shall be cumulative and
not alternative and may be exercised successively or concurrently; and (3) the
Lender may set-off against the balance hereof, or may seize, hold and/or
impress, any and all credits, money, stocks, bonds or other security or property
of any nature whatsoever on deposit with, or held by, or in the possession of,
the Lender, to the credit of or for the account of the Maker, without notice to
or consent by the Maker.
This Note may be prepaid, in whole, without penalty; provided however,
that any prepayments of principal shall be applied against the installments or
other payments of principal hereunder in their inverse order of maturity.
Each party liable hereon in any capacity, whether as maker, endorser,
surety, guarantor or otherwise, (i) waives presentment, demand, protest and
notice of presentment, notice of protest and notice of dishonor of this debt and
each and every other notice of any kind respecting this Note (except as
otherwise expressly provided for herein), (ii) agrees that the holder hereof, at
any time or times, without notice to it or its consent, may grant extensions of
time, without limit as to the number or the aggregate period of such extensions,
for the payment of any principal and/or interest due hereon[, and (iii) to the
extent not prohibited by law, waives the benefit of any law or rule of law
intended for its advantage or protection as an obligor hereunder or providing
for its release or discharge from liability hereon, in whole or in part, on
account of any facts or circumstances other than full and complete payment of
all amounts due hereunder].
THE MAKER AND ANY OTHER PARTY LIABLE HEREON IN ANY CAPACITY, WHETHER
AS ENDORSER, SURETY, GUARANTOR, OR OTHERWISE IF ANY, EACH WAIVES TRIAL BY JURY
WITH RESPECT TO ANY ACTION, CLAIM, SUIT OR PROCEEDING IN RESPECT OF OR ARISING
OUT OF THE LOAN EVIDENCED HEREBY AND/OR THE CONDUCT OF THE RELATIONSHIP BETWEEN
THE LENDER, THE MAKER AND/OR ANY OTHER PARTY LIABLE HEREON IN ANY CAPACITY,
WHETHER AS ENDORSER, SURETY, GUARANTOR, OR OTHERWISE.
The Maker promises to pay all costs of collection, including, but not
limited to, reasonable attorneys' fees, if this Note is not paid in full when
due, whether at the stated maturity or by reason of acceleration of maturity
under the terms hereof or under the terms of any other of the Loan Documents,
whether suit be brought or not.
In case any one or more of the provisions contained in this Note or in
any other of the Loan Documents shall be invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions of this Note and the other of the Loan Documents shall in no way be
affected or impaired thereby.
-3-
This Note may not be changed orally, but only by an agreement in
writing signed by the parties against whom enforcement of any waiver, change,
modification or discharge is sought.
This Note is secured by (i) that certain Stock Pledge, Assignment and
Security Agreement of even date herewith, by and between the Maker, TelePad and
the Lender, providing the Lender with an assignment and a first priority lien,
as applicable, against certain property including one hundred percent (100%) of
the outstanding capital stock of the Maker and one hundred percent (100%) of
FCC's outstanding capital stock being purchased in connection herewith by the
Maker, as more particularly described therein (the "Pledge Agreement"); and (ii)
that certain Irrevocable Letter of Credit in the amount of Four Million Seven
Hundred Thousand Dollars ($4,700,000.00), as more particularly set forth in the
"Purchase Agreement" (as defined below) (the "Letter of Credit"). This Note is
issued in connection with that certain Stock Purchase Agreement dated January
27, 1997, by and among the Maker, TelePad, the Lender, and FCC (the "Purchase
Agreement"). This Note, the Pledge Agreement, the Letter of Credit, and the
Purchase Agreement, together with all other documents now and/or hereafter
issued, executed and/or delivered in connection with the loan evidenced hereby,
are herein collectively referred to as the "Loan Documents".
All of the terms, covenants, provisions, conditions, stipulations,
promises and agreements contained in the Loan Documents to be kept, observed and
performed by the Maker and/or by any other parties to any one or more of the
Loan Documents (except for the Lender) are hereby made a part of this Note and
incorporated herein by reference to the same extent and with the same force and
effect as if they were fully set forth herein, and the Maker promises and agrees
to keep, observe and perform them or cause them to be kept, observed and
performed, strictly in accordance with the terms and provisions thereof.
The Maker warrants and represents that the loan evidenced hereby is
being made for business or investment purposes. The Maker warrants, represents
and covenants that the debt evidenced by this Note shall be senior to any and
all other debt now existing or hereinafter incurred by the Maker.
This Note shall be governed in all respects by the laws of the
Commonwealth of Virginia and shall be binding upon and shall insure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, personal representatives, successors and assigns. This Note
shall not be assigned or transferred by the Lender without the express prior
written consent of the Maker, which shall not be unreasonably withheld,
conditioned or delayed.
-4-
WITNESS the due execution hereof under seal the day and year first
above written.
ATTEST: TELEPAD ACQUISITION, INC., a
Delaware corporation
----------------------
By:______________________________
Name:____________________________
Title:___________________________
-5-
EXHIBIT B
---------
[TO BE PROVIDED AND INSERTED HERE]
EXHIBIT C
---------
STOCK PLEDGE, ASSIGNMENT AND SECURITY AGREEMENT
-----------------------------------------------
TELEPAD ACQUISITION, INC., a Delaware corporation ("Debtor"), with
principal place of business located at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, requests that Hartland Group, LLC, a Virginia limited liability
company ("Lender"), extend financial accommodations to Debtor, subject to the
terms and conditions hereof and evidenced by Debtor's promissory note referenced
below and that certain Stock Purchase Agreement of even date herewith, by and
between Debtor, Lender, TelePad Corporation, a Delaware corporation ("TelePad"),
and Federal Computer Corporation, a Virginia corporation ("FCC") (the "Purchase
Agreement"). In consideration of Lender's extending such accommodations, Debtor
and TelePad make the representations and warranties to Lender contained herein
and, as long as this Agreement has not been terminated by Lender, agree with
Lender as follows:
1. Commitment.
----------
(a) Lender shall extend to Debtor a secured term loan in the amount of
Four Million Seven Hundred Thousand Dollars ($4,700,000.00), bearing interest
and being payable to the order of Lender in the original principal amount of
Four Million Seven Hundred Thousand Dollars ($4,700,000.00), together with all
extensions, renewals and modifications thereof, and substitutions therefor
(collectively, the "Term Note"). The Term Note is secured by, among other
things, the pledge of one hundred percent (100%) of the outstanding capital
stock of FCC, being purchased in connection herewith by Debtor (the "FCC
Shares") and one hundred percent (100%) of the outstanding capital stock of
Debtor (the "Newco Shares," the Newco Shares and the FCC Shares are collectively
referred to as the "Property"), as more particularly described on Schedule A
hereto and incorporated herein. The Term Note shall also be secured by a certain
Irrevocable Letter of Credit in the amount of Four Million Seven Hundred
Thousand Dollars ($4,700,000.00) issued in accordance with the terms of the
Purchase Agreement (the "Short Term Letter of Credit"). This Agreement, the
Purchase Agreement, the Term Note, the "Letters of Credit" (hereinafter
defined), and any other document executed in connection therewith are
hereinafter referred to as the "Loan Documents."
(b) Pursuant to Section 1.02 of the Purchase Agreement, Debtor is
obligated to pay the "Additional Consideration" (as defined in the Purchase
Agreement) under certain circumstances. The satisfaction of the Additional
Consideration obligation shall be further secured by a certain Irrevocable
Letter of Credit in the amount of Five Million Dollars ($5,000,000.00), issued
in accordance with the terms of the Purchase Agreement (the "Long Term Letter of
Credit"). The Short Term Letter of Credit and the Long Term Letter of Credit
shall be collectively referred to as the "Letters of Credit."
(c) The obligations evidenced by the Loan Documents are sometimes
herein referred to as the "Loan."
2. Grant of Security Interest and Assignment. As collateral security for
------------------------------------------
the Loan, as well as for any and all other liabilities and obligations of Debtor
and TelePad to Lender, whether now existing or hereafter created or arising,
direct or indirect, matured or unmatured, and whether absolute or contingent,
joint, several, or joint and several, and no matter how the same may be
evidenced or shall arise, including without limitation all sums due under the
Term Note or in connection with the Loan and the obligation to pay to Lender the
Additional Consideration provided for in Section 1.02 of the Purchase Agreement,
up to the aggregate amount of $16 million (all of which are hereinafter
collectively called the "Obligations"), (A) TelePad hereby grants to Lender a
security interest in, and pledges to Lender, the Newco Shares free and clear of
any mortgage, pledge, lien on, security interest in, hypothecation, assignment,
charge, right, encumbrance or other restriction or liability, other than those
which result by operation of the Loan Documents (collectively "Liens"), (B)
Debtor hereby grants a security interest in, and pledges to Lender, the FCC
Shares, free and clear of all Liens, and (C) TelePad and Debtor, as applicable,
hereby pledge, grant and convey to Lender (i) all cash, securities, dividends
and other property at any time and from time to time received, receivable or
otherwise distributed in respect of or in exchange for any of the Newco Shares
or FCC Shares; (ii) all additional shares of stock of any class issued by Newco
or FCC at any time and from time to time in any manner, and the certificates
representing such additional shares, and all cash, securities, dividends, and
other property at any time and from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
additional shares; and (iii) all securities hereafter delivered hereunder to
Lender in substitution for or in addition to any of the foregoing, all
certificates and instruments representing or evidencing such securities, and all
cash, securities, dividends and other property at any time and from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of the foregoing (the "Collateral").
3. Delivery of Property. Debtor and TelePad shall, upon the full execution
--------------------
of this Agreement, deliver to Lender, or its respective duly appointed nominee,
the certificates representing the Property, together with stock powers in blank
duly executed by Debtor or TelePad (or such nominee). If at any time and from
time to time following the execution of this Agreement Debtor or TelePad shall
become entitled to receive or shall receive in connection with any of the
Property, any:
(i) stock certificate, including, without limitation, any certificate
representing a stock dividend or in connection with any increase
or reduction of capital, reclassification, merger, consolidation,
sale of assets, combination of shares, stock split, spinoff of
splitoff; or
(ii) option, warrant, or right, whether as an addition to or in
substitution of or in exchange for any of the Property or
otherwise;
then, Debtor or TelePad, as the case may be, shall accept the same as Lender's
agent, in trust for Lender (as part of the Collateral), and shall deliver the
same immediately to Lender, in the exact form received, with the appropriate
endorsement when necessary, or appropriate stock powers
-2-
duly executed in blank, together with any documentary tax stamps and any other
documents necessary to cause Lender to have a good, valid and perfected first
pledge of, lien on, and security interest in the Collateral, as applicable, free
and clear of any Lien. At any time following an "Event of Default" (as defined
in Section 13 hereof), any or all securities comprising the Collateral held by
Lender hereunder may, at the option of Lender, be registered in the name of
Lender or in the name of its nominee, and Debtor or TelePad, as the case may be,
hereby covenants that, upon demand therefor by Lender, Debtor or TelePad, as the
case may be, shall effect such registration or cause such registration to be
effected. Nothing in this Section 3 shall be construed to authorize the issuance
by FCC, Debtor or TelePad of any securities, or the taking of any other action,
the issuance or taking of which would constitute a default hereunder.
4. Rights Incident to Property. Until the occurrence of an Event of
------------------------------
Default, Debtor or TelePad, as the case may be, shall be granted a revocable
license to all voting rights with respect to the Property. Immediately, and
without further notice, upon the occurrence of an Event of Default, whether or
not the Collateral shall have been registered in the name of Lender or its
nominee, the abovereferenced license shall be deemed immediately and
automatically revoked and Lender or its nominee shall have, with respect to the
Collateral, the right to exercise all voting rights as to all of the Collateral,
together with all other corporate rights and all conversion, exchange,
subscription or other rights, privileges or options pertaining thereto as if it
were the absolute owner thereof, including, without limitation, the right to
exchange any or all of the Collateral upon the merger, consolidation,
reorganization, recapitalization or other readjustment of the issuer thereof, or
upon the exercise by such issuer of any right, privilege, or option pertaining
to any of the Collateral to any committees, depository, transfer agent,
registrar or other designated agency upon such terms and conditions as it may
determine, all without liability except to account for Collateral actually
received by it; but Lender shall have no duty to exercise any of the aforesaid
rights, privileges or options and shall not be responsible for any failure to do
so or delay in doing so.
5. Dividends. Until the occurrence of an Event of Default, Debtor or
---------
TelePad, as the case may be, shall be granted a revokable license entitling
Debtor or TelePad to receive and retain regular cash dividends payable on the
FCC Shares and the Newco Shares, respectively, but any and all other dividends
or stock or liquidation dividends, distributions of property, returns of capital
or other distributions made on or in respect of the Property, whether resulting
from a subdivision, combination or reclassification of the outstanding capital
stock of Debtor or FCC or received in exchange for the Property or any part
thereof, any and all cash and other property received in exchange for or
redemption of any Property, shall become part of the Collateral to be held by
the Lender in accordance with the terms hereof. The Lender shall execute and
deliver to TelePad and Debtor all such powers of attorney, dividend orders, and
other instruments as TelePad or Debtor may request for the purpose of enabling
TelePad or Debtor to receive the dividends which it is authorized to receive and
retain pursuant to this Section 5. Upon the occurrence of an Event of Default,
such license shall be deemed immediately and automatically revoked and Lender
shall be entitled to any and all cash dividends thereafter (or simultaneously)
made for the benefit of Debtor or TelePad, as the case may be, which shall be
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promptly delivered to Lender as additional security hereunder or applied toward
the satisfaction of the Obligations in Lender's sole discretion. Nothing
contained in this Section 5 or in Section 4 hereof shall be construed to
authorize the payment of any dividend, in cash or otherwise, or the making of
any distribution, or the taking of any action by FCC, Debtor or TelePad or
otherwise, the making, taking or payment of which is otherwise prohibited, or
which would otherwise constitute a default hereunder.
6. Business and Status of Debtor, Authorization. Debtor is and will remain
--------------------------------------------
a corporation under the laws of Delaware, in good standing, licensed and in full
compliance with all applicable laws and regulations. The execution and delivery
of this Agreement by each of Debtor and TelePad is duly authorized and will not
contravene any agreement, order or regulation to which Debtor or TelePad is
subject.
7. Financial Statements.
--------------------
(a) Debtor or TelePad, as the case may be, shall provide Lender: (i)
on or before ninety (90) days after the close of each of Debtor's fiscal years,
Debtor's balance sheet as of the end of such year and related statements of
income and retained earnings and of cash flow for each fiscal year, reported on
by an independent certified public accountant; (ii) on or before fortyfive (45)
days after the end of each of the first three (3) fiscal quarters for each
fiscal year of Debtor, the unaudited balance sheet of Debtor as of the end of
each such quarter and the related unaudited statements of income and retained
earnings and of cash flow of Debtor, certified by a senior officer of Debtor as
being fairly stated in all material respects when considered in relation to
Debtor's audited annual financial statements (subject to normal yearend
adjustments); or (iii) all Securities and Exchange Commission ("SEC") reports
and filings submitted by TelePad within three (3) days after filing with the
SEC. All such financial statements of Debtor and TelePad which have been or may
be delivered to Lender are or will be complete and do or will fully and fairly
reflect Debtor's and TelePad's respective financial condition and results of
operations as of and for the periods presented. Debtor will maintain books and
financial records in accordance with generally accepted accounting principles
consistently applied.
(b) Debtor agrees at all reasonable times to permit a representative
of Lender to examine and audit Debtor's books and records and to keep Lender
fully advised regarding any litigation involving Debtor the adverse
determination of which might substantially prejudice repayment of the
Obligations.
8. Insurance. In addition to any other agreement which may be entered into
---------
between Lender and Debtor with reference to insurance, Debtor will at all times
carry adequate insurance with responsible companies satisfactory to Lender in
such amounts and against such risks as is usually carried by similar businesses
and by owners of similar property in the same general area. Debtor will obtain
and keep in force such additional insurance as Lender may from time to time
require. All policies covering any tangible portion of the Collateral shall name
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Lender as mortgagee under a "standard" mortgage clause. Policies and
endorsements or satisfactory evidence thereof are to be delivered to Lender.
9. Taxes. Each of Debtor and TelePad has filed all U.S., state and local
-----
tax returns required to be filed and has paid or made provision for payment of
all taxes due pursuant thereto. Each of Debtor and TelePad will pay when due all
taxes, assessments and similar levies including, but not limited to, income,
franchise and sales taxes imposed on Debtor, TelePad, the Collateral or the
Property and/or any other of Debtor's property.
10. Warranties and Representations. Each of Debtor and TelePad represents
-------------------------------
and warrants that:
(i) It has all requisite power and authority to enter into this
Agreement, to pledge and assign, as applicable, the Collateral,
and to carry out the transactions contemplated by this Agreement;
(ii) It is the legal and beneficial owner of all of the Collateral
(including the Property which is currently outstanding);
(iii)The Property constitutes one hundred percent (100%) of the FCC
Shares and the Newco Shares (collectively, the "Shares");
(iv) All of the Shares currently outstanding have been duly and
validly issued, are fully paid and nonassessable, and are owned
by Debtor (with respect to the FCC Shares) or by TelePad (with
respect to the Newco Shares) free of any Lien;
(v) The Shares represent the only class of capital stock of Debtor
and FCC, respectively, that are authorized or outstanding on the
date hereof; and
(vi) Upon delivery of the Property to Lender or its agent, this
Agreement shall be the valid and binding obligation of Debtor and
TelePad, fully enforceable in accordance with its terms, and
shall create a valid first lien upon and perfected security
interest in, and assignment of, as applicable, the Collateral,
including the Property, and the proceeds and products thereof,
subject to no prior Liens or agreements purporting to grant to
any third party a security interest in or assignment of the
property or assets of Debtor or TelePad which would include the
Collateral.
11. Affirmative Covenants. Debtor and TelePad each covenants and agrees
----------------------
that, until this Agreement has been terminated, Debtor and TelePad (as
applicable) shall:
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(i) Pay all of the Obligations when due.
(ii) Keep Debtor's books and records at the address specified in the
introductory paragraph of this Agreement.
(iii)Remain liable for any deficiency resulting from a sale of any or
all of the Collateral and pay any such deficiency to Lender
forthwith on demand.
(iv) Take such steps and promptly execute and deliver such financing
statements, continuation statements and other papers as may be
necessary or advisable to comply with the Assignment of Claims
Act of 1940 and to perfect or continue any security interests
granted to Lender hereby, and to execute and deliver such further
documents as Lender may from time to time request to more fully
carry out the intent of this Agreement. Each of Debtor and
TelePad warrants and covenants that it will, at its own expense,
defend Lender's right, title, special property and security
interest in and to and assignment of the Collateral against the
claims of any person, firm, corporation or other entity (other
than claims relating to the validity of the transfer of title to
the FCC Shares from Lender to Debtor).
(v) Upon demand from Lender at any time or times, provide Lender with
such additional documents and/or further assurances of title to
the Collateral as Lender may request in order to perfect Lender's
pledge, security interest therein and assignment thereof, as
applicable.
12. Negative Covenants. Each of TelePad and Debtor covenants and agrees
-------------------
that, until this Agreement has been terminated, and without the express, prior
written consent of Lender, Debtor shall not, and shall cause FCC not to:
(a) Sell, exchange, assign, loan, deliver, lease, mortgage or
otherwise transfer or dispose of any of its assets, except in the
ordinary course of FCC's business.
(b) Excluding any borrowings pursuant to or arising under any
existing credit facilities or Loan Documents, create, incur,
assume or in any manner become liable in any respect for (or
otherwise redeem or repay) any indebtedness whether for borrowed
money, as deferred payment for the purchase of assets, or
otherwise, other than to Lender, except for (i) normal trade
debts incurred in the ordinary course of FCC's business, in an
amount not to exceed at any time an aggregate of Fifteen Million
Dollars ($15,000,000.00), and (ii) indebtedness that is
-6-
not senior to the Obligations, in an amount not to exceed at any time an
aggregate of Fifteen Million Dollars ($15,000,000.00), on terms reasonably
satisfactory to Lender.
(c) Merge, consolidate into or with any company, enterprise or other
entity, nor purchase or acquire any other entity, any substantial part of any
other entity's assets or business, nor otherwise substantially change its legal
structure or the general character of its business as it is presently conducted;
or sell or otherwise acquire or transfer all or any substantial part of its
assets to any other person, firm, corporation or other entity.
(d) (i) Make any dividend or other distribution on the capital stock
of FCC or (ii) purchase, repurchase, redeem, retire or otherwise acquire any
Debtor or FCC capital stock or indebtedness subordinated to the Term Note, other
than cash dividends or acquisitions which do not exceed, in the aggregate, ten
percent (10%) of FCC's net income (less one hundred percent (100%) of losses)
subsequent to September 30, 1996, taken as one period; provided, however, that
dividends once properly made in compliance with the terms of the Loan Documents
shall not be subject to recision or otherwise rendered invalid as a result of
any subsequent losses.
(e) Consent to, approve or authorize the issuance of any additional
shares of any class of capital stock of FCC or Debtor or any securities
convertible voluntarily by the holder thereof or automatically upon the
occurrence or nonoccurrence of any event or condition into, or exchangeable for,
any such shares; or any warrants, options, rights or other commitments entitling
any person, firm, corporation or other entity to purchase or otherwise acquire
any such shares.
(f) Modify or otherwise amend the Charter or Bylaws of FCC.
Notwithstanding anything to the contrary contained in this Section 12, the
restrictions with respect to FCC contained in these negative covenants shall not
apply unless and until the designees or appointees of Lender do not comprise a
majority of the board of directors of FCC.
13. Default. Any one of the following events shall be considered an "Event
-------
of Default": Any default under the Term Note; or any failure of Debtor to make
the Additional Consideration payments to Lender; or if Debtor or TelePad shall
fail to perform any other covenant or agreement herein or in any of the other
Loan Documents, and such failure shall remain unremedied for ten (10) days after
notice thereof; or if any warranty or representation of Debtor or TelePad made
to Lender in any of the Loan Documents shall be untrue in any material respect.
14. Remedies. If Debtor or TelePad shall default in the performance when
--------
due of any of the provisions of this Agreement, the Term Note, or any other of
the Loan Documents, Lender may perform the same for Debtor's account and any
monies expended in so doing shall be chargeable with interest to Debtor (at the
default rate provided for in the Term Note) and shall be
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added to the indebtedness secured hereby and the same shall be immediately due
and payable upon demand. Upon the occurrence of any Event of Default, Lender
may, in its sole discretion, do any one or more of the following:
(a) Declare all principal, interest and other sums on the Obligations
immediately due and payable without demand, protest, notice of protest, notice
of default, presentment for payment or further notice of any kind, all of which
are hereby waived by Debtor;
(b) Offset against the Obligations any and all credits, stocks, bonds,
or other securities or property of any nature whatsoever on deposit with, or
held by, or in the possession of, Lender, to the credit of or for the account of
Debtor, without notice;
(c) Proceed to enforce such other and additional rights and remedies
as Lender may have hereunder or under any other Loan Documents or as may be
provided by law.
15. Termination. Upon indefeasible satisfaction of the Obligations, this
-----------
Agreement shall terminate and the Collateral not otherwise applied toward such
satisfaction shall be promptly returned to TelePad or Debtor, as applicable.
Lender shall not be deemed to have made any representation or warranty with
respect to the Collateral so returned, except that such Collateral is free and
clear, on the date of delivery, of any and all liens, charges and encumbrances
arising from Lender's own acts.
16. Miscellaneous. All rights and remedies of Lender hereunder are
-------------
cumulative and not alternative. Indulgence by Lender with respect to any of the
terms and conditions herein contained or the failure of Lender to exercise any
of its rights hereunder shall not constitute a waiver thereof, and Debtor and
TelePad shall remain liable for the strict performance hereof until all of the
Obligations shall have been fully paid in accordance with their terms and this
Agreement shall have been terminated. No provision hereof may be waived or
modified orally, but all such waivers or modifications shall be in writing. This
Agreement and the other written Loan Documents issued in conjunction herewith or
pursuant hereto constitute the entire agreement of the parties and shall
continue in full force and effect for so long as all of the Obligations shall
have been fully satisfied and released in accordance with their terms, until
this Agreement shall have been terminated by Lender, and until all liabilities
of Debtor to Lender incurred or contracted before receipt of such notice shall
have been fully paid, plus applicable interest, fees, costs and attorneys' fees.
All warranties, representations and agreements of Debtor and TelePad herein
shall survive the execution and delivery hereof. In addition to any other sums
payable by Debtor hereunder, after the occurrence of any "Event of Default",
Debtor agrees to pay Lender's costs of collection and reasonable attorneys' fees
incurred in the enforcement of any provision hereof, whether suit be brought or
not. This Agreement shall be governed in all respects by the laws of the
Commonwealth of Virginia, excluding such jurisdiction's conflict of laws
principles, and shall be binding upon and shall inure to the benefit of the
parties hereto and their respective heirs, executors, administrators, personal
representatives, successors and assigns.
-8-
This Agreement is signed, sealed and delivered this day of , 1997.
ATTEST: TELEPAD ACQUISITION, INC., a
Delaware corporation
By:____________________________ By:__________________________________
Name:__________________________ Name:________________________________
Title:_________________________ Title:_______________________________
ATTEST: TELEPAD CORPORATION, a Delaware
corporation
By:____________________________ By:__________________________________
Name:__________________________ Name:________________________________
Title:_________________________ Title:_______________________________
ATTEST: HARTLAND GROUP, LLC, a
Virginia limited liability corporation
By:____________________________ By:__________________________________
Name:__________________________ Name:________________________________
Title:_________________________ Title:_______________________________
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EXHIBIT D
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List of Directors
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Designees of the LLC
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇ Market
Designees of TelePad
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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