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As filed with the Securities and Exchange Commission on July __, 1999
Registration No. 333-________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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TELENETICS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
CALIFORNIA 33-0061894
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
26772 VISTA TERRACE DRIVE
LAKE FOREST, CALIFORNIA 92630
(949) 455-4000
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
------------------
MICHAEL ARMANI, PRESIDENT COPIES TO:
AND CHIEF EXECUTIVE OFFICER LARRY A. CERUTTI, ESQ.
TELENETICS CORPORATION CRISTY LOMENZO PARKER, ESQ.
26772 VISTA TERRACE DRIVE RUTAN & TUCKER, LLP
LAKE FOREST, CALIFORNIA 92630 611 ANTON BLVD., SUITE 1400
(949) 455-4000 COSTA MESA, CALIFORNIA 92626
(Name, Address, Including Zip Code, and (714) 641-3450
Telephone Number, Including
Area Code, of Agent for Service)
------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
reinvestment plans, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ___________________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
Title of Each Class of Amount To Be Proposed Maximum Offering Proposed Maximum Amount of
Securities Registered(1) Price Per Share(2) Aggregate Offering Price(2) Registration Fee
To Be Registered
=================================================================================================================================
<S> <C> <C> <C> <C>
Common Stock, 2,577,926 shares $1.75 $4,511,371 $1,254.16
no par value
=================================================================================================================================
</TABLE>
(1) In the event of a stock split, stock dividend, or similar transaction
involving Common Stock of the Registrant, in order to prevent dilution, the
number of shares registered shall be automatically increased to cover the
additional shares in accordance with Rule 416(a) under the Securities Act.
(2) Estimated solely for the purpose of determining the registration fee.
Calculated pursuant to Rule 457(h), on the basis of the average of the bid
and asked price per share as reported for such securities by the OTC
Electronic Bulletin Board on July 28, 1999.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 30, 1999
PROSPECTUS
TELENETICS CORPORATION
2,577,926 SHARES OF COMMON STOCK
This Prospectus relates to an offering of up to 2,577,926 shares of our
company's common stock, no par value. The offering consists of the periodic sale
by certain persons or entities listed in the "Selling Security Holders" section
of this Prospectus of up to 1,093,048 shares of common stock that may be issued
upon exercise of outstanding warrants that were issued in two private placement
transactions, up to 734,284 shares of common stock that may be issued upon
conversion of shares of our Series A 7.0% Convertible Redeemable Preferred Stock
(the "preferred stock") that were issued in two private placement transactions,
up to 160,000 shares of common stock that may be issued upon exercise of
outstanding options that were issued in two private placement transactions, up
to 480,000 shares of common stock issued in connection with the exercise of
warrants and options that were issued in two private placement transactions and
up to 110,594 shares of common stock issued in connection with the acquisition
of certain assets of another company (collectively, the "Shares"). Our common
stock trades on the OTC Bulletin Board under the symbol "TLNT." On July 28,
1999, the average of the bid and asked prices of our common stock on the OTC
Bulletin Board was $1.75 per share.
We will not receive any portion of the proceeds from the sale of the
Shares offered by this Prospectus. The Selling Security Holders will receive all
the net proceeds from the sale of the Shares and pay all selling commissions, if
any, applicable to any sale. We are responsible for payment of all other
expenses incident to the offer and sale of the Shares.
The Selling Security Holders may sell their Shares from time to time
directly to purchasers or through agents, underwriters or dealers. Such sales
may occur in one or more transactions on the OTC Bulletin Board, in negotiated
transactions, in private transactions, or otherwise, or in a combination of
these methods of sale. These sales may occur at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices. More information is provided in the section titled "Plan of
Distribution."
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY INVESTORS.
The information in this Prospectus is not complete and may be changed.
The securities may not be sold until the registration statement filed with the
Securities and Exchange Commission, of which this prospectus is a part, is
declared effective. This Prospectus is not an offer to sell these securities and
it is not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
___________________
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
This Prospectus is dated ________, 1999
<PAGE>
AVAILABLE INFORMATION
We are subject to the informational requirements of the Exchange Act.
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission ("SEC"). Our SEC filings
are available to the public over the Internet at the SEC's website at
HTTP://WWW.SEC.GOV. You may also read and copy any document we file with the SEC
at its public reference facilities at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the SEC's Midwest Regional Offices at 500 West Madison Street,
Chicago, Illinois 60606 and Northeast Regional Office at 7 World Trade Center,
New York, New York 10048. You can also obtain copies of such material at
prescribed rates from the Public Reference Section of the SEC at its principal
office at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1- 800-SEC-0330 for further information on the operation of the public
references facilities.
This Prospectus is part of a registration statement we filed with the
SEC. You should rely only on the information incorporated by reference or
provided in this Prospectus. We have not authorized anyone else to provide you
with different information. The Selling Security Holders will not make an offer
of the Shares in any state where the offer is not permitted. You should not
assume that the information in this Prospectus is accurate as of any date other
than the date on the front of this document.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this Prospectus, and information that we will file
later with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below:
o Transition Report on Form 10-KSB for the nine months ended
December 31, 1998.
o Quarterly Report on Form 10-QSB for the quarter ended March
31, 1999.
o Current Report on Form 8-K filed with the SEC on January 13,
1999.
o Current Report on Form 8-K filed with the SEC on January 22,
1999.
We also incorporate by this reference any future filings we make with
the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act.
Documents filed with the SEC after the date of this Prospectus are made a part
of this Prospectus as of the date such documents are filed with the SEC.
Any statement in a document incorporated or deemed to be incorporated
by reference in this Prospectus is deemed to be modified or superseded to the
extent that a statement contained in this Prospectus, or in any other document
we subsequently file with the SEC, modifies or supersedes such statement. If any
statement is so modified or superseded, it does not constitute a part of this
Prospectus, except as so modified or superseded.
You may request a copy of the documents incorporated by reference in
this Prospectus, other than exhibits to such documents, at no cost, by writing
to or telephoning us at the following address:
Telenetics Corporation
Attention: David Stone, Chief Financial Officer
26772 Vista Terrace Drive
Lake Forest, California 92630
(949) 455-4000
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RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should consider the following factors carefully before deciding to purchase any
shares of our common stock.
WE HAVE A HISTORY OF LOSSES AND AN ACCUMULATED DEFICIT WHICH MAY CONTINUE IN THE
FUTURE AND WHICH MAY ADVERSELY IMPACT OUR BUSINESS AND OUR SHAREHOLDERS
We have incurred net losses in each fiscal year since our inception,
with the exception of the fiscal year ended March 31, 1998, in which we realized
nominal net income of $93,654. For the nine month transition period ended
December 31, 1998, we reported a net loss of $249,306. Our accumulated deficit
through December 31, 1998 was $11,610,638, and as of that date we had a total
shareholders' deficit of $508,256. We realized net income of $400,433 for the
three month period ended March 31, 1999, as compared to realizing net income of
$380,260 for the three month period ended December 31, 1998, incurring a net
loss of $305,646 for the three month period ended September 30, 1998 and
incurring a net loss of $323,920 for the three month period ended June 30, 1998.
Our accumulated deficit through March 31, 1999 was $11,210,205, and as of that
date, we had a shareholders' deficit of $107,823. These losses may continue in
the future and therefore we cannot assure you that we will ever maintain
profitable operations in the future.
WE MAY NEED AND BE UNABLE TO OBTAIN ADDITIONAL FUNDING ON SATISFACTORY TERMS,
WHICH COULD DILUTE OUR SHAREHOLDERS OR IMPOSE BURDENSOME FINANCIAL RESTRICTIONS
ON OUR BUSINESS
Historically, we have relied upon cash from financing activities to
fund most of the cash requirements of our company's operating and investing
activities. Although we have been able to generate some cash from our operating
activities in the past, we cannot assure you that we will be able to continue to
do so in the future. As a result, we may require additional financing. This may
not be available on a timely basis, in sufficient amounts or on terms acceptable
to us. This financing may also dilute existing shareholders. Any debt financing
or other financing of securities senior to common stock will likely include
financial and other covenants that will restrict our flexibility. At a minimum,
we expect these covenants to include restrictions on our ability to pay
dividends on our common stock. Any failure to comply with these covenants would
have a material adverse effect on our business, prospects, financial condition
and results of operations.
OUR OPERATING RESULTS IN ONE OR MORE FUTURE PERIODS ARE LIKELY TO FLUCTUATE
SIGNIFICANTLY AND MAY NEGATIVELY IMPACT OUR STOCK PRICE
Our quarterly results have varied significantly in the past and will
likely continue to do so in the future due to a variety of factors, many of
which are beyond our control, including the timing and nature of revenues from
product sales that are recognized during any particular quarter, the impact of
price competition on our average selling prices, the availability and pricing of
components for our products, market acceptance of new product introductions by
us and our competitors, the timing of expenditures in anticipation of future
sales, product returns, the financial health of our customers, the overall state
of the modem and data communications industry and economic conditions generally.
The volume and timing of orders received during a quarter are difficult to
forecast. As a result, it is likely that in some future periods our operating
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results will be below the expectations of securities analysts and investors. If
this happens, the trading price of our common stock would likely be materially
affected.
OUR LACK OF DIVERSIFICATION MAY AFFECT OUR BUSINESS IF DEMAND IS REDUCED
Our business is primarily centered on the sale of modems, which
typically accounts for over 90% of our total revenues. Although our customers
typically standardize the unique or special components that are manufactured for
them by or through us to be incorporated in the customers' end product, in most
cases we do not have long-term contracts with our customers. Accordingly, we are
highly dependent on the successful sales of this one type of product. A
significant reduction in sales of modems resulting from changes in the industry,
including the entry of new competitors into the market, from the introduction of
new or improved technology or an unanticipated shift in the needs of our
customers, or for other reasons, would have a material adverse effect on our
business, prospects, financial condition and results of operations.
WE RELY ON A RELATIVELY LIMITED NUMBER OF CUSTOMERS, AND THE LOSS OF ANY
SIGNIFICANT CUSTOMER COULD MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS AND
FINANCIAL CONDITION
We derive a significant portion of our revenues from a relatively
limited number of customers. For the three months ended March 31, 1999, our ten
largest customers in the aggregate accounted for approximately 93% of our total
net revenues. We anticipate that our five or six largest customers will continue
to account for the majority of our revenues for the foreseeable future. The loss
of any one or more of these major customers would likely have a material adverse
effect on our business, prospects, financial condition and results of
operations.
OUR BUSINESS COULD SUFFER IF WE ARE UNABLE TO OBTAIN COMPONENTS OF OUR PRODUCTS
FROM OUTSIDE SUPPLIERS
The major components of our products include circuit boards,
microprocessors, chipsets and memory components. Most of these components are
available from multiple sources. However, certain components used in our
products are currently obtained from single or limited sources. Certain modem
chipsets used in our company's data communications products have been in short
supply and are frequently on allocation by semiconductor manufacturers. Similar
to others in the modem industry, we have, from time to time, experienced
difficulty in obtaining certain components. Our company does not have guaranteed
supply arrangements with any of our suppliers, and there can be no assurance
that these suppliers will continue to meet our requirements. Shortages of
components could not only limit our production capacity but also could result in
higher costs due to the higher costs of components in short supply or the need
to utilize higher cost substitute components. An extended interruption in the
supply of any of these components or a reduction in their quality or reliability
would have a material adverse effect on our financial condition and results of
operations. While we believe that with respect to our single source components
we could obtain similar components from other sources, we could be required to
alter product designs to use alternative components. There can be no assurance
that severe shortages of components will not occur in the future that could
increase the cost or delay the shipment of our products and have a material
adverse effect on our financial condition and results of operations. Significant
increases in the prices of these components could also have a material adverse
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effect on our results of operations because we may not be able to adjust product
pricing to reflect the increases in component costs.
WE RELY HEAVILY ON OUR KEY EMPLOYEES, AND THE LOSS OF THEIR SERVICES COULD
MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS
Our success is highly dependent upon the continued services of key
members of our management, including our Chairman of the Board, President and
Chief Executive Officer, Michael A. Armani, and our Chief Financial Officer,
David Stone. The loss of either Mr. Armani or Mr. Stone or one or more other key
members of management could have a material adverse effect on our company. We
have not entered into any employment agreement with Mr. Armani or any other
officer of our company other than a written employment offer with Mr. Stone. We
do not maintain key-man life insurance policies on any member of management.
THE MARKETS IN WHICH WE COMPETE ARE HIGHLY COMPETITIVE, AND OUR GROWTH PROSPECTS
COULD BE MATERIALLY AND ADVERSELY AFFECTED IF WE ARE UNSUCCESSFUL IN OUR EFFORTS
TO COMPETE
The modem and data communications products industry is intensely
competitive and characterized by rapid technological advances and changes in
industry standards, resulting in constant pricing pressures. These changes also
result in frequent introductions of new products with added capabilities and
features, and continuous improvements in the relative functionality and price of
modems and other data communications products. If we were to fail to keep pace
with technological advances, our competitive position and results of operations
would be adversely affected.
Although management believes that our products are marketed and sold
primarily within a relatively narrow scope of market segments with only a
handful of known direct competitors, such as CellNet, Itron, eT Communication,
Dataforth (Europe), Teltone, Dymec and Cermeteck, our competitors in the general
modem and data communications products industry include many large, well-known
companies such as Boca Research, Zoom Telephonics, Inc., Diamond Multimedia,
GVC, Global Village, Motorola, Newcom and 3Com Corp. These companies and some of
our other existing competitors have significantly more financial, engineering,
product development, manufacturing and marketing resources than our company.
Although we are not aware of any announcements or published plans of any of
these companies to enter into the industrial automation modem markets, any of
these companies could enter one or more of our markets at any time. The entry
into the industrial automation modem markets by one or more of these companies
would likely have a material adverse effect on our competitive position and
results of operations. In addition, the difficult modem environment during the
past several years may bring on a period of consolidation that has possible
benefits, but also has risks.
Our products compete on the basis of product features, price, quality,
reliability, brand name recognition, product breadth, developed sales channels,
product documentation, product warranties and technical support and service. We
believe that we are competitive in each of these areas. However, there can be no
assurance that competitors will not introduce comparable or superior products
incorporating more advanced technology at lower prices, or that other changes
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in market conditions or technology will not adversely affect our ability to
compete successfully in the future.
BECAUSE WE BELIEVE THAT PROPRIETARY RIGHTS ARE MATERIAL TO OUR SUCCESS,
MISAPPROPRIATION OF THESE RIGHTS OR CLAIMS OF INFRINGEMENT OR LEGAL ACTIONS
RELATED TO INTELLECTUAL PROPERTY COULD ADVERSELY IMPACT OUR FINANCIAL CONDITION
We do not hold any patents. We currently rely on a combination of
contractual rights, copyrights, trademarks and trade secrets to protect our
proprietary rights. Historically, management of our company believed that
because of the rapid pace of technological change in the modem and data
communications industry, the legal intellectual property protection for our
company's products is a less significant factor in our success than the
knowledge, abilities and experience of our employees, the frequency of our
product enhancements, the effectiveness of our marketing activities and the
timeliness and quality of our support services. However, we now believe that
several of our current products and some products in development could benefit
from patent protection. Accordingly, we have retained the services of a patent
and trademark law firm to file patent applications for those products with the
U.S. Patent and Trademark Office. Although we rely to a great extent on trade
secret protection for much of our technology, there can be no assurance that our
means of protecting our proprietary rights will be adequate or that our
competitors or customers will not independently develop comparable or superior
technologies or obtain unauthorized access to our proprietary technology.
We own, license or we have otherwise obtained the right to use certain
technologies incorporated in our products. In addition, we purchase modem
chipsets that incorporate sophisticated modem technology. Although we have not
to date received any infringement claims, we may in the future receive
infringement claims from third parties relating to our products and
technologies. In such event, we intend to investigate the validity of any such
claims and, if we believe the claims have merit, we intend to respond through
licensing or other appropriate actions. Certain of these claims may relate to
technology included in modem chipsets or other components purchased by us from
third party vendors for incorporation into our products. In such event, we would
forward these claims to the appropriate vendor. If we or our component
manufacturers were unable to license or otherwise provide any such necessary
technology on a cost-effective basis, we could be prohibited from marketing
products containing that technology, incur substantial costs in redesigning
products incorporating that technology, or incur substantial costs defending any
legal action taken against us, all of which could have a material adverse effect
on our business, prospects, financial condition and results of operations.
THERE ARE RISKS THAT OUR PRODUCTS MAY BE RETURNED BY OUR CUSTOMERS
We are exposed to the risk of product returns from our customers as a
result of returns due to defective products or product components. Returned used
products are tested, repaired and used as warranty replacements. Products
returned to us due to faulty work by our subcontractors are returned to the
subcontractors for credit against future purchase orders. Historically, product
returns have not had a material impact on our operations or financial condition.
While we believe that product returns should not be material in future periods,
it is expected
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that a relatively modest number of returns will continue. However, there can be
no assurance that significant levels of product returns will not occur in the
future, which may have a material adverse effect on our operations.
OUR PRINCIPAL SHAREHOLDERS AND MANAGEMENT OWN A SIGNIFICANT PERCENTAGE OF OUR
COMMON STOCK AND WILL BE ABLE TO EXERCISE SIGNIFICANT INFLUENCE
Of the 9,527,165 shares of common stock outstanding as of July 13,
1999, the current directors of our company beneficially own and control
4,931,420 shares, or approximately 51.5% of our outstanding common stock. As a
result, those persons will have sufficient voting power to control the outcome
of all corporate matters submitted to the vote of the shareholders. Those
matters could include the election of directors, changes in the size and
composition of the Board of Directors (and, thereby, the qualification and
appointment of our officers), and mergers and other business combinations
involving our company. In addition, through their control of the Board of
Directors and beneficial ownership of our common stock, they will be able to
control certain decisions, including decisions with respect to our company's
dividend policy, our access to capital (including borrowing from third-party
lenders and the issuance of additional equity securities), and the acquisition
or disposition of our assets. In addition, this concentration of ownership could
have the effect of delaying or preventing a change in control of our company and
may affect the market price of our common stock.
OUR FAILURE TO MANAGE GROWTH EFFECTIVELY COULD IMPAIR OUR BUSINESS
Our strategy envisions a period of rapid growth that may put a strain
on our administrative and operational resources. While we believe that we have
established a significant infrastructure to support growth, our ability to
effectively manage growth will require us to continue to expand the capabilities
of our operational and management systems and to attract, train, manage and
retain qualified engineers, technicians, salesperson and other personnel. There
can be no assurance that we will be able to do so. If we are unable to
successfully manage our growth, our business, prospects, financial condition and
results of operations could be adversely affected.
OUR STOCK PRICE IS SUBJECT TO SIGNIFICANT VOLATILITY WHICH COULD RESULT IN
LITIGATION AGAINST US
There is currently an extremely limited trading market for our common
stock. After being de-listed from the Nasdaq National Market System in 1991 and
prior to October 16, 1998, our common stock had been quoted only sporadically
from time to time in the over-the-counter market in the "pink sheets," an ad hoc
forum for quotations of securities prices intended to match potential buyers and
sellers, which is not monitored or supervised by any regulatory authority or
agency. On October 16, 1998, our common stock began trading on the OTC
Electronic Bulletin Board under the symbol "TLNT." There can be no assurance
that any regular trading market for our common stock will develop or, if
developed, will be sustained. The trading prices of our common stock could be
subject to wide fluctuations in response to quarter-to-quarter variations in our
operating results, material announcements of technological innovations, price
reductions, significant customer orders or establishment of strategic
partnerships by us or our competitors or providers of alternative products,
general conditions in the modem and data communications industry, or other
events or factors, many of which are beyond our control. In addition, the stock
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market as a whole and individual stocks have experienced extreme price and
volume fluctuations, which have often been unrelated to the performance of the
related corporations. Our operating results in future quarters may be below the
expectations of market makers, securities analysts and investors. In any such
event, the price of our common stock will likely decline, perhaps substantially.
In the past, following periods of volatility in the market price of a company's
securities, securities class action litigation has occurred against the issuing
company. There can be no assurance that such litigation will not occur in the
future with respect to our company. Such litigation could result in substantial
costs and a diversion of management's attention and resources, which could have
a material adverse effect on our business, prospects, financial condition and
results of operations. Any adverse determination in such litigation could also
subject us to substantial liabilities.
OUR FAILURE AND THE FAILURE OF THIRD PARTIES TO BE YEAR 2000 COMPLIANT COULD
NEGATIVELY IMPACT OUR BUSINESS
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of our
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in major system
failure or miscalculations. We have performed a review of our internal systems
to identify and resolve the effect of Year 2000 software issues on the integrity
and reliability of our financial and operational systems.
Based on this review, our management believes that our internal systems
are substantially compliant with Year 2000 issues. In addition, we are also
communicating with our principal service providers to ensure Year 2000 issues
will not have an adverse impact on us. If we, and third parties upon which we
rely, are unable to address this issue in a timely manner, it could result in a
material financial risk to us. In order to assure that this does not occur, we
plan to devote all resources required to resolve any significant Year 2000
issues in a timely manner.
BECAUSE WE ARE SUBJECT TO THE "PENNY STOCK" RULES, THE LEVEL OF TRADING ACTIVITY
IN OUR STOCK MAY BE REDUCED
Broker-dealer practices in connection with transactions in "penny
stocks" are regulated by certain penny stock rules adopted by the SEC. Penny
stocks, like shares of our common stock, generally are equity securities with a
price of less than $5.00 (other than securities registered on certain national
securities exchanges or quoted on Nasdaq). The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document that provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker-dealer also must provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker-dealer
and its salesperson in the transaction, and, if the broker-dealer is the sole
market maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market, and monthly account statements showing the
market value of each penny stock held in the customer's account. In addition,
broker-dealers who sell these securities to persons other than established
customers and "accredited investors" must make a special written determination
that the penny stock is a suitable investment for the purchaser and receive the
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purchaser's written agreement to the transaction. Consequently, these
requirements may have the effect of reducing the level of trading activity, if
any, in the secondary market for a security subject to the penny stock rules,
and investors in our common stock may find it difficult to sell their shares.
FORWARD-LOOKING STATEMENTS ARE INHERENTLY UNCERTAIN, AND THEREFORE ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY FORWARD-LOOKING
STATEMENTS
Some statements contained in this Prospectus are forward-looking
statements. These forward-looking statements include, but are not limited to,
statements about our industry, plans, objectives, expectations, intentions and
assumptions and other statements contained in the Prospectus that are not
historical facts. When used in this Prospectus, the words "expect,"
"anticipate," "intend," "plan," "believe," "seek," "estimate" and similar
expressions are generally intended to identify forward-looking statements.
Because these forward-looking statements involve risks and uncertainties,
including those described in this "Risk Factors" section, actual results may
differ materially from those expressed or implied by these forward-looking
statements.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the Shares by the
Selling Security Holders. In the event that warrants to purchase common stock
are exercised, we may receive proceeds from such exercise. We intend to use the
proceeds received from the exercise of the warrants, if any, for general
corporate purposes.
RESALES OF SHARES COVERED BY THIS PROSPECTUS
This Prospectus covers the resale by the Selling Security Holders of an
aggregate of up to 1,093,048 shares of common stock that may be issued upon
exercise of outstanding warrants that were issued in two separate private
placement transactions not involving a public offering, up to 734,284 shares of
common stock that may be issued upon conversion of our preferred stock that were
issued in two private placement transactions not involving a public offering, up
to 160,000 shares of common stock that may be issued upon exercise of
outstanding options that were issued in two private placement transactions not
involving a public offering, up to 480,000 shares of common stock that were
issued in connection with the exercise of warrants and options that were issued
in two private placement transactions not involving a public offering and up to
110,594 shares of common stock issued in a private placement transaction not
involving a public offering in connection with the acquisition of certain assets
of Sierra Digital Communications, Inc. This Prospectus does not cover the sale
or other transfer of warrants or options or the issuance of shares of common
stock to holders of warrants or options upon exercise or to holders of preferred
stock upon conversion. If a Selling Security Holder transfers such holder's
warrants or options or preferred stock prior to exercise or conversion, as the
case may be, the transferee of the warrants, options or preferred stock may not
sell the shares of common stock issuable upon exercise of the warrants or
options or conversion of the preferred stock pursuant to this Prospectus unless
this Prospectus is appropriately amended or supplemented by us.
10
<PAGE>
All of the warrants and preferred stock contain anti-dilution and
adjustment provisions providing for the adjustment of the underlying shares
and/or the exercise or conversion price upon the occurrence of certain events,
including recapitalizations, reclassifications, share dividends, share splits or
combinations, mergers or acquisitions or similar transactions. In the event of
the liquidation, dissolution or winding up of our company, holders of the
warrants or options will not be entitled to receive any of our assets available
for distribution to the holders of common stock while holders of our preferred
stock will receive assets available for distribution prior to the holders of
common stock.
In the event of any reclassification, capital reorganization or other
similar change of outstanding common stock, any consolidation or merger
involving our company (other than a consolidation or merger which does not
result in any reclassification, capital reorganization or other similar change
in the outstanding common stock) or a sale or conveyance to another corporation
of all or substantially all of the property of our company, each of the warrants
and shares of preferred stock will thereupon become exercisable or convertible,
as the case may be, for the kind and number of shares of stock or other
securities, assets or cash to which a holder of the number of shares of common
stock issuable (at the time of such reclassification, reorganization,
consolidation, merger or sale) upon exercise of such warrant or upon conversion
of such preferred stock, as the case may be, would have been entitled upon such
reclassification, reorganization, consolidation, merger or sale. However, this
Prospectus covers only our common stock, and any other securities received upon
exercise of the warrants or upon conversion of the preferred stock are not
offered hereby.
For the life of the warrants and for the period a shareholder holds
shares of our preferred stock, the holders thereof have the opportunity to
profit from a rise in the market price of our common stock without assuming the
risk of ownership of the shares of common stock issuable upon the exercise of
the warrants or conversion of the preferred stock. The holders of the warrants
may be expected to exercise at times when the exercise price is less than the
market price for our common stock, with resulting dilution in the interests of
our shareholders. Similarly, the holders of preferred stock may be expected to
voluntarily convert their shares of preferred stock for common stock when the
conversion price is less than the market price for our common stock. Further,
the terms on which we could obtain additional capital during the life of the
warrants and the period during which the preferred stock remains outstanding may
be adversely affected.
11
<PAGE>
SELLING SECURITY HOLDERS
The following table sets forth certain information as of July 13, 1999,
with respect to each Selling Security Holder for whom we are registering Shares
for resale to the public. We will not receive any of the proceeds from the sale
of the Shares by the Selling Security Holders.
<TABLE>
<CAPTION>
SHARES OF COMMON SHARES OF COMMON SHARES OF COMMON
NAME OF STOCK BENEFICIALLY STOCK BEING STOCK BENEFICIALLY
SELLING OWNED PRIOR TO OFFERED PURSUANT OWNED AFTER
SECURITY HOLDER THIS OFFERING(1) TO THIS PROSPECTUS OFFERING(2)
------------------ ------------------ ------------------ ------------------
NUMBER PERCENT NUMBER PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
SMC Group (3) 2,067,477 21.68% 50,000 (4) 2,017,477 21.15%
Dolphin Offshore
Partners, L.P. (5) 800,000 7.75% 800,000 (6) - -
Harvey Bibicoff (7) 623,478 6.37% 602,858 (8) 100,620 1.06%
George Levy (9) 442,802 4.56% 235,000(10) 207,802 2.46%
Carl Shaifer (11) 316,691 3.32% 5,800(12) 310,891 3.26%
Peter K. Nitz 127,142 1.32% 97,142 (6) 30,000 *
Taglich Brothers,
D'Amadeo, Wagner &
Company, Inc. (13) 114,286 1.19% 114,286 (6) - -
Jerry D. Moen 63,571 * 63,571(14) - -
Sandra K. Nitz 58,572 * 38,572 (6) 20,000 *
T. Brent Henderson 58,207 * 58,207 - -
Dennis and Barbara Stead 57,701 * 10,000(12) 47,701 *
Shadow Capital LLC 57,142 * 57,142 (6) - -
Michael N. Taglich (15) 42,539 * 42,539 (6) - -
Robert F. Taglich (15) 42,537 * 42,537 (6) - -
Terri MacInnis (7) 40,000 * 60,000(16) - -
Drew Lance 33,313 * 33,313 - -
Craig Cohen 30,000 * 30,000(17) - -
Vincent P. Pipia 30,000 * 30,000(17) - -
Delbert M. Robben 26,071 * 26,071(18) - -
Danny G. Snow 26,071 * 26,071(18) - -
Lesly Pompy 20,000 * 20,000(12) - -
Michael Associates 15,820 * 15,820(12) - -
Douglas E. Hailey (15) 15,456 * 15,456(12) - -
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
SHARES OF COMMON SHARES OF COMMON SHARES OF COMMON
NAME OF STOCK BENEFICIALLY STOCK BEING STOCK BENEFICIALLY
SELLING OWNED PRIOR TO OFFERED PURSUANT OWNED AFTER
SECURITY HOLDER THIS OFFERING(1) TO THIS PROSPECTUS OFFERING(2)
------------------ ------------------ ------------------ ------------------
NUMBER PERCENT NUMBER PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Hal Tenney 15,142 * 15,142 - -
Joseph G. D'Amadeo (15) 13,967 * 13,967(12) - -
Linda M. Berglas 10,000 * 10,000(12) - -
Dan Charny 10,000 * 10,000 - -
Perry Sendukas 10,000 * 10,000(12) - -
Paul D. and Mariann Springer 10,000 * 10,000(12) - -
Stanford C. Stoddard 10,000 * 10,000 - -
Hobart Teneff 10,000 * 10,000(12) - -
David E. Landau 8,000 * 5,000(12) 3,000 *
Robert McLean 3,932 * 3,932 - -
William G. Ryon (15) 2,500 * 2,500(12) - -
Richard C. Oh (15) 2,000 * 2,000(12) - -
Vincent M. Palmieri (15) 1,000 * 1,000(12) - -
</TABLE>
- ---------------
* Less than 1%.
(1) Based on an aggregate of 9,527,165 shares of common stock issued and
outstanding as of July 13, 1999. Beneficial ownership is determined in
accordance with the rules of the SEC and generally includes voting or
investment power with respect to securities. Except as otherwise
indicated by footnote and subject to applicable community property
laws, the persons named in the table above have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them. All information with respect to beneficial
ownership is based on filings made by the respective beneficial owners
with the SEC or information provided to our company by such beneficial
owners.
(2) Assumes that all of the shares are sold pursuant to this Prospectus.
(3) SMC Group is a fictitious business name used by Shala Shashani, who is
the Secretary and a director of our company.
(4) Entire amount represents shares of common stock.
(5) Peter E. Salas, general partner of Dolphin Offshore Partners, L.P., has
sole voting and dispositive power over the securities owned.
13
<PAGE>
(6) Entire amount represents shares of common stock issuable upon exercise
of warrants and conversion of preferred stock.
(7) Individual is an employee or principal of Bibicoff & Associates, Inc.,
our company's investor relations and fund raising consultant.
(8) Represents (i) 260,000 shares of common stock, (ii) 191,429 shares of
common stock issuable upon exercise of warrants, (iii) 71,429 shares
of common stock issuable upon conversion of preferred stock and (iv)
80,000 shares of common stock issuable upon exercise of options that
vest October 20, 1999.
(9) Mr. Levy is a director of our company. Shares of common stock
beneficially owned prior to this offering include 10,000 shares of
common stock held of record by Mr. Levy's spouse.
(10) Represents (i) 70,000 shares of common stock, (ii) 105,000 shares of
common stock issuable upon exercise of warrants and (iii) 60,000 shares
of common stock issuable upon conversion of preferred stock.
(11) Mr. Shaifer acts as an advisor to the board of directors of our company
and is a former director of our company. Shares of common stock
beneficially owned prior to this offering include 217,967 shares of
common stock held of record by Mr. Shaifer's spouse.
(12) Entire amount represents shares of common stock issuable upon exercise
of warrants.
(13) Taglich Brothers, D'Amadeo, Wagner & Company, Inc. is an NASD
registered broker- dealer that acted as placement agent for our company
in connection with our company's private placement of preferred stock
in April 1999.
(14) Represents (i) 20,000 shares of common stock, (ii) 15,000 shares of
common stock issuable upon exercise of warrants and (iii) 28,571 shares
of common stock issuable upon conversion of preferred stock.
(15) The individual is an employee, officer or principal of Taglich
Brothers, D'Amadeo, Wagner & Company, Inc.
(16) Includes 20,000 shares of common stock issuable upon exercise of
options that vest October 20, 1999.
(17) Entire amount represents shares of common stock issuable upon exercise
of options.
(18) Represents (i) 10,000 shares of common stock, (ii) 7,500 shares of
common stock issuable upon exercise of warrants and (iii) 8,571 shares
of common stock issuable upon conversion of preferred stock.
14
<PAGE>
We will prepare and file such amendments and supplements to the
Registration Statement as may be necessary in accordance with the rules and
regulations of the Securities Act of 1933, as amended (the "Securities Act") to
keep it effective until the earlier to occur of (i) the date as of which all
Shares may be resold in a public transaction without volume limitations or other
material restrictions without registration under the Securities Act, including
without limitation, pursuant to Rule 144 under the Securities Act or (ii) the
date as of which all Shares offered hereby have been resold. We have agreed to
pay the expenses, other than broker discounts and commissions, if any, in
connection with this Prospectus.
PLAN OF DISTRIBUTION
We have no specific information concerning whether or when any offers
or sales of Shares covered by this Prospectus will be made, or if made, what the
price, terms or conditions of any such offers or sales will be. Based on
information available to us, it is our understanding that the Selling Security
Holders may offer and sell the Shares in one or more transactions either: (i) by
one or more broker-dealers as agents for the Selling Security Holders at a price
or prices related to the then current market price of the common stock on the
OTC Bulletin Board, with such commission to be paid by the Selling Security
Holders to the broker-dealers as shall be agreed upon by them; or (ii) by the
Selling Security Holders to the broker-dealers (for resale by the broker-dealers
as principals) at a price or prices related to the then current market price of
our common stock, less such discount, if any, as shall be agreed upon by the
Selling Security Holders and the broker-dealers; or (iii) directly, at prices
and on terms to be determined at the time of sale; or (iv) by a combination of
the methods described above. In effecting sales, broker-dealers engaged by the
Selling Security Holders may arrange for other broker-dealers to participate in
resales. Shares may also be offered or sold as described above by pledgees,
donees, transferees, or other successors in interest to the Selling Security
Holders, subject to any appropriate amendment or supplement to this Prospectus.
We will bear the expense of preparation and filing of the registration
statement (of which this Prospectus is a part) and certain other expenses.
Commissions and discounts, if any, attributable to the sale of the Shares will
be borne by the Selling Security Holders.
In connection with distributions of the Shares or otherwise, the
Selling Security Holders may sell Shares short and redeliver the Shares to close
out such short positions. The Selling Security Holders may also enter into
option or other transactions with broker-dealers which require the delivery to
the broker-dealer of the Shares registered hereunder, which the broker-dealer
may resell or otherwise transfer pursuant to this Prospectus. The Selling
Security Holders may also loan or pledge the Shares registered hereunder to a
broker-dealer and the broker-dealer may sell the Shares so loaned or upon a
default the broker-dealer may effect sales of the pledged Shares pursuant to
this Prospectus.
15
<PAGE>
We have agreed to indemnify certain Selling Security Holders and each
of such Selling Security Holder's officers, directors and partners and any
person who controls such Selling Security Holder against liabilities under the
Securities Act, and to contribute to payments such Selling Security Holder and
such persons may be required to make in respect thereof. The Selling Security
Holders may agree to indemnify any broker-dealer or agent that participates in
transactions involving sales of the Shares against certain liabilities under the
Securities Act.
Broker-dealers or agents may receive compensation in the form of
commissions, discounts, or concessions from Selling Security Holders in amounts
to be negotiated in connection with the sale. Such broker-dealers and any other
participating broker-dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales and any such
commission, discount or concession may be deemed to be underwriting discounts or
commissions under the Securities Act. In addition, any securities covered by
this Prospectus which qualify for sale pursuant to Rule 144 may be sold under
Rule 144 rather than pursuant to this Prospectus. The Selling Security Holders
also may be considered "underwriters" within the meaning of the Securities Act.
See the section entitled "Selling Security Holders" for information concerning
the beneficial ownership of our securities by such Selling Security Holders.
LEGAL MATTERS
Certain legal matters with respect to the legality of the Shares
offered pursuant to this Prospectus will be passed upon for us by Rutan &
Tucker, LLP, Costa Mesa, California.
EXPERTS
The financial statements incorporated by reference in this Prospectus
and in the Registration Statement have been audited by BDO Seidman, LLP and by
George F. Rombach, CPA, independent certified public accountants, to the extent
and for the periods set forth in the respective reports of such firms contained
in our Transition Report on Form 10-KSB for the nine months ended December 31,
1998. All such financial statements have been included in reliance upon such
reports given upon the authority of such firms as experts in auditing and
accounting.
16
<PAGE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Restated and Amended Articles of Incorporation provide that the
liability of our company's directors for monetary damages shall be eliminated to
the fullest extent permissible under California law. This is intended to
eliminate the personal liability of a director for monetary damages in an action
brought by or in the right of our company for breach of a director's duties to
our company or our shareholders except for liability: (i) for acts or omissions
that involve intentional misconduct or a knowing and culpable violation of law;
(ii) for acts or omissions that a director believes to be contrary to the best
interests of our company or our shareholders or that involve the absence of good
faith on the part of the director; (iii) for any transaction for which a
director derived an improper personal benefit; (iv) for acts or omissions that
show a reckless disregard for the director's duty to our company or our
shareholders in circumstances in which the director was aware, or should have
been aware, in the ordinary course of performing a director's duties, of a risk
of serious injury to our company or our shareholders; (v) for acts or omissions
that constitute an unexcused pattern of inattention that amounts to an
abdication of the director's duty to our company or our shareholders; and (vi)
for engaging in transactions described in the California Corporations Code or
California case law which result in liability, or approving the same kinds of
transactions.
The Restated and Amended Articles of Incorporation also provide that
our company is authorized to provide indemnification to its agents, as defined
in Section 317 of the California Corporations Code, through our Restated and
Amended By-Laws or through agreements with such agents or both, for breach of
duty to our company and our shareholders, in excess of the indemnification
otherwise permitted by Section 317 of the California Corporations Code, subject
to the limits on such excess indemnification set forth in Section 204 of the
California Corporations Code.
Our Restated and Amended By-Laws provide for indemnification of our
officers, directors, employees, and other agents to the extent and under the
circumstances permitted by California law. In all cases where indemnification is
permitted by the Restated and Amended ByLaws, a determination to indemnify such
person must be made when ordered by a court and must be made in a specific case
upon a determination that indemnification is required or proper in the
circumstances. Such determination must be made: (a) by our Board of Directors by
a majority vote of a quorum consisting of directors who were not parties to the
action, suit or proceeding which is the subject of the request for
indemnification, or (b) if such a quorum is not obtainable, or, even if
obtainable, a majority vote of a quorum of disinterested directors so directs,
by independent legal counsel in a written opinion, or (c) by a majority of the
shareholders.
To the extent indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers and controlling
persons pursuant to the foregoing provisions, or otherwise, we have been advised
that in the opinion of the SEC, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
Certain of the Selling Security Holders and our company each have
agreed to indemnify the other and their respective officers, directors and other
controlling persons against certain liabilities in connection with this
registration, including liabilities under the Securities Act, and to contribute
to payments such persons may be required to make in respect thereof. The
obligation of certain of the Selling Security Holders that have agreed to
indemnify our company is limited to an amount equal to the proceeds such Selling
Security Holder receives from the sale of shares of our common stock pursuant to
this Prospectus.
17
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations in connection with the offering
described in this Prospectus other than those contained in this Prospectus, and,
if given or made, such information or representations must not be relied upon as
having been authorized by Telenetics Corporation or any of the Selling Security
Holders. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy, nor shall there be any sale of these securities by any
person in any jurisdiction in which such an offer, solicitation or sale would be
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of Telenetics Corporation since the date of this
Prospectus or that the information contained in this Prospectus is correct as of
any time subsequent to the date of this Prospectus.
------------------------
TABLE OF CONTENTS
PAGE
----
Available Information.................................................. 2
Incorporation of Certain Documents
By Reference......................................................... 3
Risk Factors........................................................... 4
Use of Proceeds........................................................10
Resales of Shares Covered by this
Prospectus...........................................................10
Selling Security Holders...............................................12
Plan of Distribution...................................................15
Legal Matters..........................................................15
Experts................................................................16
Indemnification of Directors and Officers..............................17
------------------------
2,577,926 Shares
TELENETICS CORPORATION
COMMON STOCK
-----------------
PROSPECTUS
-----------------
__________ , 1999
19
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCES AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with the
Offering described in this Registration Statement:
SEC registration fee............................ $
NASD filing fee................................. 0
Printing and engraving expenses................. 2,000
Legal fees and expenses......................... 35,000
Blue Sky fees and expenses...................... 7,500
Accounting fees and expenses.................... 8,000
Miscellaneous................................... 5,000
----------
Total....................................... $ 57,500
All of the above expenses will be paid by the Registrant.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Restated and Amended Articles of Incorporation limit,
to the maximum extent permitted by California law, the personal liability of
directors for monetary damages in an action brought by or in the right of the
Registrant for breach of a director's duties to the Registrant or its
shareholders, except for liability: (i) for acts or omissions that involve
intentional misconduct or a knowing and culpable violation of law; (ii) for acts
or omissions that a director believes to be contrary to the best interests of
the Registrant or its shareholders or that involve the absence of good faith on
the part of the director; (iii) for any transaction for which a director derived
an improper personal benefit; (iv) for acts or omission that show a reckless
disregard for the director's duty to the Registrant or its shareholders in
circumstances in which the director was aware, or should have been aware, in the
ordinary course of performing a director's duties, of a risk of serious injury
to the Registrant or its shareholders; (v) for acts or omissions that constitute
an unexcused pattern of inattention that amounts to an abdication of the
director's duty to the Registrant or its shareholders; and (vi) for engaging in
transactions described in the California Corporations Code or California case
law which result in liability, or approving the same kinds of transactions.
The Registrant's Restated and Amended Articles of Incorporation also
authorize the Registrant to provide indemnification to its agents, as defined in
Section 317 of the California Corporations Code, through the Registrant's
Restated and Amended By-Laws or through agreements with such agents or both, for
breach of duty to the Registrant and its shareholders, in excess of the
indemnification to agents or both, for breach of duty to the Registrant and its
shareholders, in excess of the indemnification otherwise permitted by Section
317 of the California Corporations Code, subject to the limits on such excess
indemnification set forth in Section 204 of the California Corporations Code.
II-1
<PAGE>
The Registrant's Restated and Amended By-Laws provide for
indemnification of the Registrant's officers, directors, employees, and other
agents to the extent and under the circumstances permitted by California law.
Certain of the Selling Security Holders and the Registrant each have
agreed to indemnify the other and their respective officers, directors and other
controlling persons against certain liabilities in connection with this
registration, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"), and to contribute to payments such persons may be
required to make in respect thereof. The obligation of certain of the Selling
Security Holders that have agreed to indemnify the Registrant is limited to an
amount equal to the proceeds such Selling Security Holder receives from the sale
of shares of common stock pursuant to this registration.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
4.1................................ Restated and Amended Articles of Incorporation of
the Registrant*
4.2................................ Restated and Amended By-Laws of the Registrant*
4.3................................ Certificate of Determination of Rights, Preferences,
Privileges and Restrictions of Series A 7.0%
Convertible Redeemable Preferred Stock of the
Registrant*
4.4................................ Preferred Stock Purchase Agreement dated April 9,
1999 between the Registrant and certain Selling
Security Holders named therein
4.5................................ Preferred Stock Purchase Agreement dated April 15,
1999 between the Registrant and certain Selling
Security Holders named therein
4.6................................ Letter Agreement dated October 20, 1998 between
Bibicoff & Associates, Inc. and the Registrant
4.7................................ Registration Rights Agreement dated July 26, 1999
between the Registrant and Robert McLean
4.8................................ Registration Rights Agreement dated July 26, 1999
between the Registrant and T. Brent Henderson
4.9................................ Registration Rights Agreement dated July 26, 1999
between the Registrant and Drew Lance
II-2
<PAGE>
4.10............................... Registration Rights Agreement dated July 26, 1999
between the Registrant and Hal Tenney
4.11............................... Form of Certificate for Common Stock Purchase
Warrants issued by the
Registrant in connection
with the making of 10%
Subordinated Unsecured
Promissory Notes due 2000
4.12............................... Form of Common Stock Purchase Warrant issued by
the Registrant to investors in connection with the
sale of Series A Preferred Stock
4.13............................... Form of Common Stock Purchase Warrant issued by
the Registrant to the placement agent in connection
with the sale of Series A Preferred Stock
5.1................................ Opinion of Rutan & Tucker, LLP***
23.1............................... Consent of BDO Seidman, LLP, independent certified
public accountants
23.2............................... Consent of George F. Rombach, CPA, independent
certified public accountant
23.3............................... Consent of Rutan & Tucker, LLP (contained in the
opinion included as Exhibit 5.1)***
</TABLE>
- ---------------
* Filed as an exhibit to the Registrant's Form 10-KSB for the nine month
transition period ended December 31, 1998 and incorporated herein by
reference.
** Filed as an exhibit to the Registrant's Form 10-KSB for the fiscal year
ended March 31, 1998 and incorporated herein by reference.
*** To be filed by amendment.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information in the registration
statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the
total value of securities offered would not exceed that
which was registered) and any deviation from the low or
II-3
<PAGE>
high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price present no
more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration
Statement;
(iii) Include any additional or changed material information
on the plan of distribution;
(2) For determining any liability under the Securities Act, treat
each post-effective amendment as a new registration statement
of securities offered, and the offering of the securities at
that time to be the initial BONA FIDE offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
(c) The undersigned Registrant hereby undertakes that it will:
(1) For determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the registrant
under Rule 424(b)(1), or (4), or 497(h) under the Securities
Act as part of this registration statement as of the time the
Commission declared it effective.
(2) For determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities
offered in the registration statement, and that offering of
the securities at that time as the initial BONA FIDE offering
of those securities.
(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Lake Forest, State of California, on July 28, 1999.
TELENETICS CORPORATION
By: /S/ MICHAEL A. ARMANI
-----------------------------------------
Michael A. Armani, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/S/ MICHAEL A. ARMANI President, Chief July 28, 1999
- ----------------------------- Executive Officer,
Michael A. Armani Chairman of the Board
and Director (Principal
Executive Officer)
/S/ DAVID STONE Chief Financial Officer July 28, 1999
- ----------------------------- (Principal Financial and
David Stone Principal Accounting
Officer)
/S/ SHALA SHASHANI Secretary and Director July 28, 1999
- -----------------------------
Shala Shashani
/S/ GEORGE LEVY Director July 28, 1999
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George Levy
/S/ EDMUND P. FINAMORE Director July 28, 1999
- -----------------------------
Edmund P. Finamore
/S/ THOMAS POVINELLI Director July 28, 1999
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Thomas Povinelli
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EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
--- -----------
4.4 Preferred Stock Purchase Agreement dated April 9, 1999 between
the Registrant and certain Selling Security Holders named
therein
4.5 Preferred Stock Purchase Agreement dated April 15, 1999
between the Registrant and certain Selling Security Holders
named therein
4.6 Letter Agreement dated October 20, 1998 between Bibicoff &
Associates, Inc. and the Registrant
4.7 Registration Rights Agreement dated July 26, 1999 between the
Registrant and Robert McLean
4.8 Registration Rights Agreement dated July 26, 1999 between the
Registrant and T. Brent Henderson
4.9 Registration Rights Agreement dated July 26, 1999 between the
Registrant and Drew Lance
4.10 Registration Rights Agreement dated July 26, 1999 between the
Registrant and Hal Tenney
4.11 Form of Certificate for Common Stock Purchase Warrants issued
by the Registrant in connection with the making of 10%
Subordinated Unsecured Promissory Notes due 2000
4.12 Form of Common Stock Purchase Warrant issued by the Registrant
to investors in connection with the sale of Series A Preferred
Stock
4.13 Form of Common Stock Purchase Warrant issued by the Registrant
to the placement agent in connection with the sale of Series A
Preferred Stock
23.1 Consent of BDO Seidman, LLP, independent certified public
accountants
23.2 Consent of George F. Rombach, CPA, independent certified
public accountant
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PREFERRED STOCK PURCHASE AGREEMENT
PREFERRED STOCK PURCHASE AGREEMENT ("Agreement") made as of
this 9th day of April, 1999 between TELENETICS CORPORATION, a California
corporation, with its principal offices at 26772 Vista Terrace Drive, Lake
Forest, California 92630 (the "Company") and the undersigned (the "Subscriber").
W I T N E S S E T H :
---------------------
WHEREAS, the Company desires to issue shares of its Series A
7.0% Convertible Redeemable Preferred Stock (the "Preferred Stock") at $1.75 per
share with a minimum aggregate purchase price of $750,000 and, in one or more
tranches, a maximum aggregate purchase price of $1,250,000; and
WHEREAS, each share of Preferred Stock is convertible into
shares of the Company's Common Stock, no par value per share (the "Common
Stock"), at the price per share, subject to adjustment (the "Conversion Price")
as set forth in the Company's Confidential Private Placement Memorandum dated
March 16, 1999, as amended by First Amended dated April 8, 1999, together with
all exhibits thereto, as same may thereafter be supplemented and/or amended
(collectively, the "Memorandum"); and
WHEREAS, with each share of Preferred Stock issued by the
Company, the Company will also issue a five (5) year Common Stock Purchase
Warrant (the "Warrants") to purchase one (1) share of Common Stock at $1.875 per
share, subject to adjustment (the "Exercise Price"); and
WHEREAS, Subscriber desires to acquire shares of Preferred
Stock having an aggregate purchase price set forth on the signature page hereof
(the "Purchase Price").
NOW, THEREFORE, for and in consideration of the premises and
the mutual covenants hereinafter set forth, the parties hereto do hereby agree
as follows:
1. SUBSCRIPTION FOR SECURITIES AND REPRESENTATIONS BY
SUBSCRIBER.
1.1 Subject to the terms and conditions hereinafter
set forth, the Subscriber hereby subscribes for and agrees to purchase from the
Company for $1.75 per share, shares of Preferred Stock aggregating the Purchase
Price and the Company agrees to sell such Preferred Stock to the Subscriber for
the Purchase Price, subject to the Company's right to sell to the Subscriber
such lesser amount of Preferred Stock as it may, in its sole discretion, deem
necessary or desirable. The Purchase Price is payable by wire transfer or by
check, subject to collection, as set forth in the "INSTRUCTIONS TO SUBSCRIBERS"
contained in the Subscription Documents Booklet of which this Agreement is a
part. The Company also agrees to issue the applicable number of Warrants to
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the Subscriber (e.g., if the Subscriber purchases 400,000 shares of Preferred
Stock, the Company will issue Warrants to purchase 400,000 shares of Common
Stock to the Subscriber).
1.2 The Subscriber recognizes that the purchase of
the Preferred Stock and Warrants involves a high degree of risk in that (i) no
public market exists for the Preferred Stock or Warrants; (ii) the shares of
Common Stock issuable upon conversion of the Preferred Stock and upon exercise
of the Warrants (collectively, the "Conversion Shares") have not been registered
under the Securities Act of 1933, as amended ("1933 Act"), and the Company has
no obligation to register the Conversion Shares, except as set forth in Section
3 below; (iii) an investment in the Preferred Stock and Warrants is highly
speculative and only investors who can afford the loss of their entire
investment should consider investing in the Company and the Preferred Stock and
Warrants; (iv) the Subscriber may not be able to liquidate the Subscriber's
investment; and (v) the Subscriber could sustain the loss of Subscriber's entire
investment. Such risks are more fully set forth in the Memorandum.
1.3 The private placement of the Preferred Stock and
Warrants by the Company (the "Offering") pursuant to the Memorandum shall
continue for a period commencing on the date of the Memorandum and ending on the
date set forth in the Memorandum.
1.4 The Subscriber represents as follows:
(a) The Subscriber represents that the Subscriber
is an Accredited Investor (as defined in Rule 501 of Regulation D promulgated
under the 1933 Act) as indicated by the Subscriber's responses to the
Confidential Investor Questionnaire, a copy of which is included in the
Subscription Documents Booklet, and that the Subscriber is able to bear the
economic risk of an investment in the Preferred Stock and Warrants.
(b) The Subscriber acknowledges that the
Subscriber has significant prior investment experience, including investment in
non-listed and non-registered securities. The Subscriber recognizes the highly
speculative nature of this investment. The Subscriber acknowledges that the
Subscriber has carefully read the Memorandum, including but not limited to, the
Company's Form 12b-25 relating to the Company's Form 10-KSB to be filed for the
interim fiscal year ended December 31, 1998, the Company's Form 10-KSB for the
fiscal year ended March 31, 1998, the Company's Form 10-QSBs for the fiscal
quarters ended June 30 and September 30, 1998, and the terms and conditions of
the Preferred Stock and Warrants and fully understands the contents thereof.
(c) The Subscriber hereby acknowledges that this
Offering, the Preferred Stock, the Warrants and the Memorandum have not been
reviewed by the United States Securities and Exchange Commission ("SEC") or by
any state securities regulator because it is intended to be a nonpublic offering
pursuant to Sections 3(a), 4(2) and 4(6) of the 1933 Act and Rule 506 of
Regulation D promulgated thereunder. The Subscriber represents that the
Preferred Stock and Warrants are being purchased for the Subscriber's own
account, for investment purposes only and not for distribution or resale to
others. The Subscriber agrees that the Subscriber will not sell or otherwise
transfer the Preferred Stock, the Warrants or Conversion Shares unless they are
registered under the 1933 Act or unless an exemption from such registration is
available.
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(d) The Subscriber understands that the Preferred
Stock and Warrants have not been registered under the 1933 Act by reason of a
claimed exemption under the provisions of the 1933 Act which depends, in part,
upon the Subscriber's investment intention. In this connection, the Subscriber
understands that it is the position of the SEC that the statutory basis for such
exemption would not be present if the Subscriber's representation merely meant
that the Subscriber's present intention was to hold the Preferred Stock and
Warrants (and/or the Conversion Shares) for a short period, such as the capital
gains period of tax statutes, for a deferred sale, for a market rise, assuming
that a market develops, or for any other fixed period. The Subscriber realizes
that, in the view of the SEC, a purchase now with an intent to resell after a
pre-determined amount of time would represent a purchase with an intent
inconsistent with the Subscriber's representation to the Company, and the SEC
might regard such a sale or disposition as a deferred sale to which such
exemptions are not available.
(e) The Subscriber understands that Rule 144 (the
"Rule") promulgated by the SEC under the 1933 Act requires, among other
conditions, a one year holding period prior to the resale (in limited amounts)
of securities acquired in a non-public offering without having to satisfy the
registration requirements under the 1933 Act. The Subscriber understands and
hereby acknowledges that the Company is the only entity that can register the
Conversion Shares under the 1933 Act and that the Company is under no obligation
to register the Preferred Stock, the Warrants or Conversion Shares under the
1933 Act, with the exception of certain registration rights set forth in Section
3 below. The Subscriber acknowledges that the Company may, if it desires, permit
the transfer of the Preferred Stock, the Warrants or the Conversion Shares out
of the Subscriber's name only when the Subscriber's request for transfer is
accompanied by an opinion of counsel reasonably satisfactory to the Company that
neither the sale nor the proposed transfer results in a violation of the 1933
Act or any applicable state "blue sky" laws and subject to the provisions of
Section 1.4(f) hereof.
(f) The Subscriber consents to the placement of a
legend on any certificate or other document evidencing the Preferred Stock, the
Warrants and the Conversion Shares stating that they have not been registered
under the 1933 Act and under applicable state securities laws and setting forth
or referring to the restrictions on transferability and sale thereof.
(g) The Subscriber understands that the Company
will review this Agreement and the Confidential Investor Questionnaire; and it
is further agreed that the Company reserves the unrestricted right to reject or
limit any subscription and to close the Offering at any time.
(h) The Subscriber hereby represents that the
address of Subscriber furnished by the Subscriber at the end of this Agreement
is the Subscriber's principal residence, if the Subscriber is an individual, or
its principal business address, if the Subscriber is a corporation or other
entity.
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(i) The Subscriber has had a reasonable
opportunity to ask questions of and receive answers from the Company concerning
the Company and the Offering, and all such questions, if any, have been answered
to the full satisfaction of the Subscriber; and the Company shall provide
Subscriber with the opportunity to ask additional questions of and receive
answers (all of which information shall be limited to information in the public
realm) from the Company concerning the Company during the period which the
Subscriber owns the Preferred Stock and/or Warrants.
(j) The Subscriber has such knowledge and
expertise in financial and business matters that the Subscriber is capable of
evaluating the merits and risks involved in an investment in the Preferred Stock
and Warrants.
(k) The Subscriber has full power and authority
to execute and deliver this Agreement and to perform the obligations of the
undersigned hereunder; and this Agreement is a legally binding obligation of the
Subscriber enforceable in accordance with its terms.
(l) Except as set forth in this Agreement, the
Preferred Stock, the Warrants and the Memorandum, no representations or
warranties have been made to the Subscriber by the Company, the Placement Agent
(as defined in the Memorandum) or any of their respective agents, employees or
affiliates, and in entering into this transaction, the Subscriber is not relying
on any information, other than that contained in the Preferred Stock, the
Memorandum and the public documents of the Company (e.g., the Form 12b-25, the
fiscal 1998 Form 10-KSB, the Form 10-QSBs for the first two quarters of fiscal
1999), and the results of an independent investigation by the Subscriber.
(m) The Subscriber agrees that Subscriber will
not sell or otherwise transfer the Preferred Stock, the Warrants or Conversion
Shares unless they are registered under the 1933 Act and applicable state "blue
sky" laws or unless an exemption from such registration is available. The
Subscriber represents that (i) the Subscriber has adequate means of providing
for the Subscriber's current needs and possible personal contingencies, (ii) the
Subscriber has no need for liquidity in this investment, (iii) the Subscriber is
able to bear the substantial economic risk of an investment in the Preferred
Stock and Warrants for an indefinite period, and (iv) at the present time the
Subscriber could afford a complete loss of such investment.
(n) It is understood that all documents, records
and books pertaining to this investment have been made available for the
inspection by the Subscriber's attorney and/or accountant and the Subscriber.
2. TERMS OF SUBSCRIPTION.
The Offering of the Preferred Stock and Warrants is
being made on a "best efforts" basis as more particularly set forth in the
Memorandum.
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3. REGISTRATION RIGHTS.
(a) As soon as possible after the Final Closing
Date, but in no event later than July 31, 1999 (regardless of whether the
maximum number of shares of Preferred Stock (and Warrants) shall have been
sold), the Company shall, at its sole cost and expense, file a registration
statement on the appropriate form under the 1933 Act with the SEC covering all
of the Conversion Shares and such additional shares of Common Stock that may be
issued as a result of any adjustment to the Conversion Price for the Preferred
Stock and/or the Exercise Price for the Warrants as set forth in the Memorandum
and as set forth below (collectively, the "Registrable Securities") for all
holders of the Preferred Stock, the Warrants and Registrable Securities
(collectively, the "Registered Holders"), time being of the essence. The Company
will use its best efforts to have such registration statement declared effective
as soon as possible after filing, and to keep such registration statement
current and effective for at least three (3) years from the Final Closing Date
or until such earlier date as all of the Registrable Securities registered
pursuant to such registration statement shall have been sold. Notwithstanding
anything to the contrary contained herein, if such registration statement shall
not be filed with the SEC by July 31, 1999 or the Registration Statement shall
not be declared effective by December 31, 1999 (regardless of whether the
maximum number of shares of Preferred Stock (and Warrants) shall have been
sold), then (i) with respect to the failure to file the Registration Statement
by July 31, 1999, the Conversion Price for the Preferred Stock and the Exercise
Price for the Warrants shall be reduced (and concomitantly the number of shares
of Common Stock issuable upon the conversion of the Preferred Stock and upon the
exercise of the Warrants shall increase) by the percentage resulting from
multiplying six (6%) percent by the number of thirty (30) day periods, or any
part thereof, beyond July 31, 1999, until the initial registration statement
described herein covering the Registered Securities is filed with the SEC and/or
(ii) with respect to the Registration Statement not being declared effective by
December 31, 1999, the Conversion Price for the Preferred Stock and the Exercise
Price for the Warrants shall be reduced (and concomitantly the number of shares
of Common Stock issuable upon the conversion of the Preferred Stock and upon the
exercise of the Warrants shall increase) by the percentage resulting from
multiplying six (6%) percent by the number of thirty (30) day periods, or any
part thereof, beyond December 31, 1999, until the initial registration statement
described herein covering the Registered Securities is declared effective. The
maximum reduction pursuant to this provision shall be thirty-six (36%) percent.
(b) If the Company effects any registration under
the 1933 Act of any Registrable Securities pursuant to Section 3(a) above or
3(g) below, the Company shall indemnify, to the extent permitted by law, and
hold harmless any person or entity whose Registrable Securities are included in
such registration statement (each, a "Seller"), any underwriter, any officer,
director, affiliate, shareholder, employee or agent of any Seller or
underwriter, and each other person, if any, who controls any Seller or
underwriter within the meaning of Section 15 of the 1933 Act, against any
losses, claims, damages, liabilities, judgment, fines, penalties, costs and
expenses, joint or several, or actions in respect thereof (collectively, the
"Claims"), to which each such indemnified party becomes subject, under the 1933
Act or otherwise, insofar as such Claims arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement or prospectus or any amendment or supplement thereto
or any document filed under a state securities or blue sky law (collectively,
the "Registration Documents") or insofar as such Claims arise out of or are
based upon the omission or alleged omission to state in any Registration
Document a material fact required to be stated therein or necessary to make the
statements made therein not misleading, and will reimburse any such indemnified
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party for any legal or other expenses reasonably incurred by such indemnified
party in investigating or defending any such Claim; provided that the Company
shall not be liable in any such case to a particular indemnified party to the
extent such Claim is based upon an untrue statement or alleged untrue statement
of a material fact or omission or alleged omission of a material fact made in
any Registration Document in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such indemnified party
specifically for use in the preparation of such Registration Document.
(c) In connection with any registration statement in
which any Seller is participating, each Seller, severally and not jointly, shall
indemnify, to the extent permitted by law, and hold harmless the Company, each
of its directors, each of its officers who have signed the registration
statement, each other person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act, each other Seller and each underwriter,
any officer, director, affiliate, shareholder, employee or agent of any such
other Seller or underwriter and each other person, if any, who controls such
other Seller or underwriter within the meaning of Section 15 of the 1933 Act
against any Claims to which each such indemnified party may become subject under
the 1933 Act or otherwise, insofar as such Claims (or actions in respect
thereof) are based upon any untrue statement or alleged untrue statement of any
material fact contained in any Registration Document, or insofar as any Claims
are based upon the omission or alleged omission to state in any Registration
Document a material fact required to be stated therein or necessary to make the
statements made therein not misleading, and will reimburse any such indemnified
party for any legal or other expenses reasonably incurred by such indemnified
party in investigating or defending any such Claim; provided, however, that such
indemnification or reimbursement shall be payable only if, and to the extent
that, any such Claim arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in any
Registration Document in reliance upon and in conformity with written
information furnished to the Company by the Seller specifically for use in the
preparation thereof.
(d) Any person entitled to indemnification under
Section 3(b) or 3(c) above shall notify promptly the indemnifying party in
writing of the commencement of any Claim if a claim for indemnification in
respect thereof is to be made against an indemnifying party under this Section
3(d), but the omission of such notice shall not relieve the indemnifying party
from any liability which it may have to any indemnified party otherwise than
under Section 3(b) or 3(c) above, except to the extent that such failure shall
materially adversely affect any indemnifying party or its rights hereunder. In
case any action is brought against the indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in, and, to the extent that it chooses, to assume the
defense thereof with counsel reasonably satisfactory to the indemnified party;
and, after notice from the indemnifying party to the indemnified party that it
so chooses, the indemnifying party shall not be liable for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof; provided, however, that (i) if the indemnifying party fails to
take reasonable steps necessary to defend diligently the Claim within twenty
(20) days after receiving notice from the indemnified party that the indemnified
party believes it has failed to do so; (ii) if the indemnified party who is a
defendant in any action or proceeding which is also brought against the
indemnifying party reasonably shall have concluded that there are legal defenses
available to the indemnified party which are not available to the indemnifying
party; or (iii) if representation of both parties by the same counsel is
otherwise inappropriate under applicable standards of professional conduct, the
indemnified party shall have the right to assume or continue its own defense as
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set forth above (but with no more than one firm of counsel for all indemnified
parties, except to the extent any indemnified party or parties reasonably shall
have concluded that there are legal defenses available to such party or parties
which are not available to the other indemnified parties or to the extent
representation of all indemnified parties by the same counsel is otherwise
inappropriate under applicable standards of professional conduct) and the
indemnifying party shall be liable for any reasonable expenses therefor;
provided, that no indemnifying party shall be subject to any liability for any
settlement of a Claim made without its consent (which may not be unreasonably
withheld, delayed or conditioned). If the indemnifying party assumes the defense
of any Claim hereunder, such indemnifying party shall not enter into any
settlement without the consent of the indemnified party if such settlement
attributes liability to the indemnified party.
(e) If for any reason the indemnity provided in
Section 3(b) or 3(c) above is unavailable, or is insufficient to hold harmless,
an indemnified party, then the indemnifying party shall contribute to the amount
paid or payable by the indemnified party as a result of any Claim in such
proportion as is appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other from
the transactions contemplated by this Agreement. If, however, the allocation
provided in the immediately preceding sentence is not permitted by applicable
law, then each indemnifying party shall contribute to the amount paid or payable
by such indemnified party in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the indemnifying
party and the indemnified party as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The amount paid or payable in
respect of any Claim shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such Claim. Notwithstanding the foregoing, no underwriter or
controlling person thereof, if any, shall be required to contribute, in respect
of such underwriter's participation as an underwriter in the offering, any
amount in excess of the amount by which the total price at which the Registrable
Securities underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The obligation of any underwriters to contribute pursuant to
this paragraph (e) shall be several in proportion to their respective
underwriting commitments and not joint.
(f) The provisions of Section 3(b) through 3(e) of
this Agreement shall be in addition to any other rights to indemnification or
contribution which any indemnified party may have pursuant to law or contract
and shall remain operative and in full force and effect regardless of any
investigation made or omitted by or on behalf of any indemnified party and shall
survive the transfer of the Registrable Securities by any such party.
(g) The Registered Holders shall have certain
"piggy-back" registration rights with respect to the Registrable Securities as
hereinafter provided:
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A. If at any time after the date of the Final
Closing Date and prior to the date that the Registrable Securities are
registered under the 1933 Act pursuant to Section 3(a) above, the Company shall
file with the SEC a registration statement under the 1933 Act (other than a
registration statement on Form S-4 or Form S-8, or any successor thereto, or
filed in connection with an exchange offer or an offering of securities solely
to the Company's existing shareholders) registering any shares of Common Stock,
the Company shall give written notice to each Registered Holder thereof prior to
such filing.
B. Within fifteen (15) days after such notice
from the Company, each Registered Holder shall give written notice to the
Company as to whether or not the Registered Holder desires to have all or any of
the Registered Holder's Registrable Securities included in the registration
statement. If a Registered Holder fails to give such notice within such period,
such Registered Holder shall not have the right to have such Registered Holder's
Registrable Securities registered pursuant to such registration statement. If a
Registered Holder gives such notice, then the Company shall include such
Registered Holder's Registrable Securities in the registration statement, at the
Company's sole cost and expense, subject to the remaining terms of this Section
3(g); provided, however, that each Registered Holder shall pay all underwriting
discounts, commissions and transfer taxes as well as his, her or its own counsel
fees, if any, relating to the sale of such Registered Holder's Registrable
Securities.
C. If the registration statement relates to an
underwritten offering, and the underwriter shall determine in writing that the
total number of shares of Common Stock to be included in the offering, including
the Registrable Securities, shall exceed the amount which the underwriter in its
sole discretion deems to be appropriate for the offering, the number of shares
of the Registrable Securities shall be reduced pro rata (based on the number of
Registrable Securities requested to be included). The Registered Holders
participating in the offering shall enter into such agreements as may be
reasonably required by the underwriters.
D. The Registered Holders shall have two (2)
opportunities to have the Registrable Securities registered under this Section
3(g); provided however that their Registrable Securities are not sooner
registered under the 1933 Act pursuant to Section 3(a) above.
E. The Registered Holder shall furnish in
writing to the Company such information as the Company shall reasonably require
in connection with a registration statement.
F. The Company may, at any time and in its sole
discretion, decide not to proceed with the filing of a registration statement
which may have give rise to "piggy back" rights under this Section 3(g) or may
at any time terminate or suspend such registration, in which event each
Registered Holder's rights under this Section 3(g) as to the number of
opportunities to "piggy-back" shall be reset.
(h) If and whenever the Company is required by the
provisions of this Section 3(a) to use its best efforts to register any
Registrable Securities under the 1933 Act, the Company shall, as expeditiously
as possible under the circumstances and subject to the terms of this Section 3:
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A. Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective as soon as possible
after filing and remain effective.
B. Prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
current and effective and to comply with the provisions of the 1933 Act, and any
regulations promulgated thereunder, with respect to the sale or disposition of
all Registrable Securities covered by the registration statement required to
effect the distribution of the securities, but in no event shall the Company be
required to do so for a period of more than three (3) years following the Final
Closing Date.
C. Furnish to the Sellers participating in the
offering, copies (in reasonable quantities) of summary, preliminary, final,
amended or supplemented prospectuses, in conformity with the requirements of the
1933 Act and any regulations promulgated thereunder, and other documents as
reasonably may be required in order to facilitate the disposition of the
securities, but only while the Company is required under the provisions hereof
to keep the registration statement current.
D. Use its best efforts to register or qualify
the Registrable Securities covered by such registration statement under such
other securities or blue sky laws of such jurisdictions of the United States as
the Sellers participating in the offering shall reasonably request, and do any
and all other acts and things which may be reasonably necessary to enable each
participating Seller to consummate the disposition of the Registrable Securities
in such jurisdictions.
E. Notify each Seller selling Registrable
Securities, at any time when a prospectus relating to any such Registrable
Securities covered by such registration statement is required to be delivered
under the 1933 Act, of the Company's becoming aware that the prospectus included
in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances then existing, and promptly prepare and furnish to each
such Seller selling Registrable Securities a reasonable number of copies of a
prospectus supplemented or amended so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing.
F. As soon as practicable after the effective
date of the registration statement, and in any event within eighteen (18) months
thereafter, make generally available to Sellers participating in the offering an
earnings statement (which need not be audited) covering a period of at least
twelve (12) consecutive months beginning after the effective date of the
registration statement which earnings statement shall satisfy the provisions of
Section 11(a) of the 1933 Act, including, at the Company's option, Rule 158
thereunder. To the extent that the Company files such information with the SEC
in satisfaction of the foregoing, the Company need not deliver the above
referenced earnings statement to Seller.
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G. Upon request, deliver promptly to counsel of
each Seller participating in the offering copies of all correspondence between
the SEC and the Company, its counsel or auditors and all memoranda relating to
discussions with the SEC or its staff with respect to the registration statement
and permit each such Seller to do such investigation at such Seller's sole cost
and expense, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary. Each Seller agrees that it will use its best efforts not to interfere
unreasonably with the Company's business when conducting any such investigation
and each Seller shall keep any such information received pursuant to this
Section confidential.
H. Provide a transfer agent located in the
United States for all such Registrable Securities covered by such registration
statement not later than the effective date of such registration statement.
I. List the Registrable Securities covered by
such registration statement on such exchanges and/or on the NASDAQ as the Common
Stock is then currently listed upon.
J. Pay all Registration Expenses incurred in
connection with a registration of Registrable Securities, whether or not such
registration statement shall become effective; provided that each Seller shall
pay all underwriting discounts, commissions and transfer taxes, and their own
counsel fees, if any, relating to the sale or disposition of such Seller's
Registrable Securities pursuant to a registration statement. As used herein,
"Registration Expenses" means any and all reasonable and customary expenses
incident to performance of or compliance with the registration rights set forth
herein, including, without limitation, (i) all SEC and stock exchange or
National Association of Securities Dealers, Inc. registration and filing fees,
(ii) all fees and expenses of complying with state securities or blue sky laws
(including reasonable fees and disbursements of counsel for the underwriters in
connection with blue sky qualifications of the Registrable Securities but no
other expenses of the underwriters or their counsel), (iii) all printing,
messenger and delivery expenses, and (iv) the reasonable fees and disbursements
of counsel for the Company and the Company's independent public accountants.
(i) The Company acknowledges that there is no
adequate remedy at law for failure by it to comply with the provisions of this
Section 3 and that such failure would not be adequately compensable in damages,
and therefore agrees that its agreements contained in this Section 3 may be
specifically enforced. In the event that the Company shall fail to file such
registration statement when required pursuant to Section 3(a) above or to keep
any registration statement effective as provided in this Section 3 or otherwise
fails to comply with its obligations and agreements in this Section 3, then, in
addition to any other rights or remedies the Registered Holders may have at law
or in equity, including without limitation, the right of rescission, the Issuer
shall indemnify and hold harmless the Registered Holders from and against any
and all manner or loss which they may incur as a result of such failure. In
addition, the Issuer shall also reimburse the Registered Holders for any and all
reasonable legal fees and expenses incurred by them in successfully enforcing
their rights pursuant to this Section 3, regardless of whether any litigation
was commenced.
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<PAGE>
4. MISCELLANEOUS.
4.1 The Company agrees to use its best efforts to
file timely all reports required to be filed by it pursuant to Sections 13 or 15
of the Securities Exchange Act of 1934, as amended, and to provide such
information as will permit the Holder to sell the Preferred Stock, Warrants or
any shares of Common Stock acquired upon the conversion of the Preferred Stock
and/or the exercise of the Warrant, respectively, in accordance with Rule 144
under the 1933 Act.
4.2 All notices, consents and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given (a) when delivered by hand, (b) one business day after the business day of
transmission if sent by telecopier (with receipt confirmed), provided that a
copy is mailed by certified mail, return receipt requested, or (c) one business
day after the business day of deposit with the carrier, if sent for next
business day delivery by Express Mail, Federal Express or other recognized
express delivery service (receipt requested), in each case addressed to the
Company at the address indicated on the first page of this Agreement marked
"Attention: Michael Armani, President", and to the Subscriber at the
Subscriber's address indicated on the last page of this Agreement (or to such
other addresses and telecopier numbers as a party may designate as to itself by
notice to the other parties).
4.3 This Agreement shall not be changed, modified or
amended except by a writing signed by the parties to be charged, and this
Agreement may not be discharged except by performance in accordance with its
terms or by a writing signed by the party to be charged.
4.4 This Agreement shall be binding upon and inure to
the benefit of the parties hereto and to their respective heirs, legal
representatives, successors and assigns. This Agreement sets forth the entire
agreement and understanding between the parties as to the subject matter thereof
and merges and supersedes all prior discussions, agreements and understandings
of any and every nature among them.
4.5 Notwithstanding the place where this Agreement
may be executed by any of the parties hereto, the parties expressly agree that
all the terms and provisions hereof shall be construed in accordance with and
governed by the laws of the State of New York. The parties hereby agree that any
dispute which may arise between them arising out of or in connection with this
Agreement shall be adjudicated before a court located in New York and they
hereby submit to the exclusive jurisdiction of the courts of the State of New
York and of the federal courts in New York with respect to any action or legal
proceeding commenced by any party, and irrevocably waive any objection they now
or hereafter may have respecting the venue of any such action or proceeding
brought in such a court or respecting the fact that such court is an
inconvenient forum, relating to or arising out of this Agreement or any acts or
omissions relating to the sale of the securities hereunder, and consent to the
service of process in any such action or legal proceeding by means of registered
or certified mail, return receipt requested, in case of the address set forth
below or such other address as the undersigned shall furnish in writing to the
other.
4.6 This Agreement may be executed in counterparts.
Upon the execution and delivery of this Agreement by the Subscriber, this
Agreement shall become a binding obligation of the Subscriber with respect to
the purchase of the Preferred Stock and Warrants as herein provided; subject,
however, to the right hereby reserved to the Company to enter into the same
agreements with other subscribers and to add and/or to delete other persons as
subscribers.
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<PAGE>
4.7 The holding of any provision of this Agreement to
be invalid or unenforceable by a court of competent jurisdiction shall not
affect any other provision of this Agreement, which shall remain in full force
and effect.
4.8 It is agreed that a waiver by either party of a
breach of any provision of this Agreement shall not operate, or be construed, as
a waiver of any subsequent breach by that same party.
4.9 The parties agree to execute and deliver all such
further documents, agreements and instruments and take such other and further
action as may be necessary or appropriate to carry out the purposes and intent
of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
TO BE COMPLETED BY SUBSCRIBER
Dolphin Offshore Partners, L.P.
-------------------------------
Print Name
Signature for Individual Subscriber Signature of Subscriber Other than
Individual
_________________________ By: /S/ PETER E. SALAS, G.P.
Signature ----------------------------
Name: Peter E. Salas
Title: General Partner
129 East 17th Street
--------------------------------------------------
Address
New York NY 10007
--------------------------------------------------
City State Zip Code
$700,000
--------------------------------------------------
Aggregate Purchase Price for Preferred Stock
22-3065417
--------------------------------------------------
Social Security or Employer Identification
Number
SUBSCRIPTION ACCEPTED:
TELENETICS CORPORATION
By: /S/ MICHAEL ARMANI
-------------------------------------
Name: Michael Armani
Title: President
Date: 4/9/99
-----------------------------------
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
TO BE COMPLETED BY SUBSCRIBER
Michael Taglich
------------------------------
Print Name
Signature for Individual Subscriber Signature of Subscriber Other than
Individual
/S/ MICHAEL TAGLICH By:
- ---------------------------- ----------------------------
Signature Name:
Title:
100 Wall Street, 10th Floor
--------------------------------------------------
Address
New York NY 10005
--------------------------------------------------
City State Zip Code
$25,000
--------------------------------------------------
Aggregate Purchase Price for Preferred Stock
###-##-####
--------------------------------------------------
Social Security or Employer Identification
Number
SUBSCRIPTION ACCEPTED:
TELENETICS CORPORATION
By: /S/ MICHAEL ARMANI
-------------------------------------
Name: Michael Armani
Title: President
Date: 4/9/99
-----------------------------------
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
TO BE COMPLETED BY SUBSCRIBER
Robert Taglich
-------------------------------------
Print Name
Signature for Individual Subscriber Signature of Subscriber Other than
Individual
/S/ ROBERT TAGLICH By:
- ----------------------------------- ----------------------------
Signature Name:
Title:
100 Wall Street, 10th Floor
--------------------------------------------------
Address
New York NY 10005
--------------------------------------------------
City State Zip Code
$25,000
--------------------------------------------------
Aggregate Purchase Price for Preferred Stock
###-##-####
--------------------------------------------------
Social Security or Employer Identification
Number
SUBSCRIPTION ACCEPTED:
TELENETICS CORPORATION
By: /S/ MICHAEL ARMANI
-------------------------------------
Name: Michael Armani
Title: President
Date: 4/9/99
-----------------------------------
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<PAGE>
PREFERRED STOCK PURCHASE AGREEMENT
PREFERRED STOCK PURCHASE AGREEMENT ("Agreement") made as of
this 15th day of April, 1999 between TELENETICS CORPORATION, a California
corporation, with its principal offices at 26772 Vista Terrace Drive, Lake
Forest, California 92630 (the "Company") and the undersigned (the "Subscriber").
W I T N E S S E T H :
---------------------
WHEREAS, the Company desires to issue shares of its Series A
7.0% Convertible Redeemable Preferred Stock (the "Preferred Stock") at $1.75 per
share with a minimum aggregate purchase price of $750,000 and, in one or more
tranches, a maximum aggregate purchase price of $1,250,000; and
WHEREAS, each share of Preferred Stock is convertible into
shares of the Company's Common Stock, no par value per share (the "Common
Stock"), at the price per share, subject to adjustment (the "Conversion Price")
as set forth in the Company's Confidential Private Placement Memorandum dated
March 16, 1999, as amended by First Amended dated April 8, 1999, together with
all exhibits thereto, as same may thereafter be supplemented and/or amended
(collectively, the "Memorandum"); and
WHEREAS, with each share of Preferred Stock issued by the
Company, the Company will also issue a five (5) year Common Stock Purchase
Warrant (the "Warrants") to purchase one (1) share of Common Stock at $1.875 per
share, subject to adjustment (the "Exercise Price"); and
WHEREAS, Subscriber desires to acquire shares of Preferred
Stock having an aggregate purchase price set forth on the signature page hereof
(the "Purchase Price").
NOW, THEREFORE, for and in consideration of the premises and
the mutual covenants hereinafter set forth, the parties hereto do hereby agree
as follows:
1. SUBSCRIPTION FOR SECURITIES AND REPRESENTATIONS BY
SUBSCRIBER.
1.1 Subject to the terms and conditions hereinafter
set forth, the Subscriber hereby subscribes for and agrees to purchase from the
Company for $1.75 per share, shares of Preferred Stock aggregating the Purchase
Price and the Company agrees to sell such Preferred Stock to the Subscriber for
the Purchase Price, subject to the Company's right to sell to the Subscriber
such lesser amount of Preferred Stock as it may, in its sole discretion, deem
necessary or desirable. The Purchase Price is payable by wire transfer or by
check, subject to collection, as set forth in the "INSTRUCTIONS TO SUBSCRIBERS"
contained in the Subscription Documents Booklet of which this Agreement is a
part. The Company also agrees to issue the applicable number of Warrants to
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<PAGE>
the Subscriber (e.g., if the Subscriber purchases 400,000 shares of Preferred
Stock, the Company will issue Warrants to purchase 400,000 shares of Common
Stock to the Subscriber).
1.2 The Subscriber recognizes that the purchase of
the Preferred Stock and Warrants involves a high degree of risk in that (i) no
public market exists for the Preferred Stock or Warrants; (ii) the shares of
Common Stock issuable upon conversion of the Preferred Stock and upon exercise
of the Warrants (collectively, the "Conversion Shares") have not been registered
under the Securities Act of 1933, as amended ("1933 Act"), and the Company has
no obligation to register the Conversion Shares, except as set forth in Section
3 below; (iii) an investment in the Preferred Stock and Warrants is highly
speculative and only investors who can afford the loss of their entire
investment should consider investing in the Company and the Preferred Stock and
Warrants; (iv) the Subscriber may not be able to liquidate the Subscriber's
investment; and (v) the Subscriber could sustain the loss of Subscriber's entire
investment. Such risks are more fully set forth in the Memorandum.
1.3 The private placement of the Preferred Stock and
Warrants by the Company (the "Offering") pursuant to the Memorandum shall
continue for a period commencing on the date of the Memorandum and ending on the
date set forth in the Memorandum.
1.4 The Subscriber represents as follows:
(a) The Subscriber represents that the Subscriber
is an Accredited Investor (as defined in Rule 501 of Regulation D promulgated
under the 1933 Act) as indicated by the Subscriber's responses to the
Confidential Investor Questionnaire, a copy of which is included in the
Subscription Documents Booklet, and that the Subscriber is able to bear the
economic risk of an investment in the Preferred Stock and Warrants.
(b) The Subscriber acknowledges that the
Subscriber has significant prior investment experience, including investment in
non-listed and non-registered securities. The Subscriber recognizes the highly
speculative nature of this investment. The Subscriber acknowledges that the
Subscriber has carefully read the Memorandum, including but not limited to, the
Company's Form 12b-25 relating to the Company's Form 10-KSB to be filed for the
interim fiscal year ended December 31, 1998, the Company's Form 10-KSB for the
fiscal year ended March 31, 1998, the Company's Form 10-QSBs for the fiscal
quarters ended June 30 and September 30, 1998, and the terms and conditions of
the Preferred Stock and Warrants and fully understands the contents thereof.
(c) The Subscriber hereby acknowledges that this
Offering, the Preferred Stock, the Warrants and the Memorandum have not been
reviewed by the United States Securities and Exchange Commission ("SEC") or by
any state securities regulator because it is intended to be a nonpublic offering
pursuant to Sections 3(a), 4(2) and 4(6) of the 1933 Act and Rule 506 of
Regulation D promulgated thereunder. The Subscriber represents that the
Preferred Stock and Warrants are being purchased for the Subscriber's own
account, for investment purposes only and not for distribution or resale to
others. The Subscriber agrees that the Subscriber will not sell or otherwise
transfer the Preferred Stock, the Warrants or Conversion Shares unless they are
registered under the 1933 Act or unless an exemption from such registration is
available.
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<PAGE>
(d) The Subscriber understands that the Preferred
Stock and Warrants have not been registered under the 1933 Act by reason of a
claimed exemption under the provisions of the 1933 Act which depends, in part,
upon the Subscriber's investment intention. In this connection, the Subscriber
understands that it is the position of the SEC that the statutory basis for such
exemption would not be present if the Subscriber's representation merely meant
that the Subscriber's present intention was to hold the Preferred Stock and
Warrants (and/or the Conversion Shares) for a short period, such as the capital
gains period of tax statutes, for a deferred sale, for a market rise, assuming
that a market develops, or for any other fixed period. The Subscriber realizes
that, in the view of the SEC, a purchase now with an intent to resell after a
pre-determined amount of time would represent a purchase with an intent
inconsistent with the Subscriber's representation to the Company, and the SEC
might regard such a sale or disposition as a deferred sale to which such
exemptions are not available.
(e) The Subscriber understands that Rule 144 (the
"Rule") promulgated by the SEC under the 1933 Act requires, among other
conditions, a one year holding period prior to the resale (in limited amounts)
of securities acquired in a non-public offering without having to satisfy the
registration requirements under the 1933 Act. The Subscriber understands and
hereby acknowledges that the Company is the only entity that can register the
Conversion Shares under the 1933 Act and that the Company is under no obligation
to register the Preferred Stock, the Warrants or Conversion Shares under the
1933 Act, with the exception of certain registration rights set forth in Section
3 below. The Subscriber acknowledges that the Company may, if it desires, permit
the transfer of the Preferred Stock, the Warrants or the Conversion Shares out
of the Subscriber's name only when the Subscriber's request for transfer is
accompanied by an opinion of counsel reasonably satisfactory to the Company that
neither the sale nor the proposed transfer results in a violation of the 1933
Act or any applicable state "blue sky" laws and subject to the provisions of
Section 1.4(f) hereof.
(f) The Subscriber consents to the placement of a
legend on any certificate or other document evidencing the Preferred Stock, the
Warrants and the Conversion Shares stating that they have not been registered
under the 1933 Act and under applicable state securities laws and setting forth
or referring to the restrictions on transferability and sale thereof.
(g) The Subscriber understands that the Company
will review this Agreement and the Confidential Investor Questionnaire; and it
is further agreed that the Company reserves the unrestricted right to reject or
limit any subscription and to close the Offering at any time.
(h) The Subscriber hereby represents that the
address of Subscriber furnished by the Subscriber at the end of this Agreement
is the Subscriber's principal residence, if the Subscriber is an individual, or
its principal business address, if the Subscriber is a corporation or other
entity.
-3-
<PAGE>
(i) The Subscriber has had a reasonable
opportunity to ask questions of and receive answers from the Company concerning
the Company and the Offering, and all such questions, if any, have been answered
to the full satisfaction of the Subscriber; and the Company shall provide
Subscriber with the opportunity to ask additional questions of and receive
answers (all of which information shall be limited to information in the public
realm) from the Company concerning the Company during the period which the
Subscriber owns the Preferred Stock and/or Warrants.
(j) The Subscriber has such knowledge and
expertise in financial and business matters that the Subscriber is capable of
evaluating the merits and risks involved in an investment in the Preferred Stock
and Warrants.
(k) The Subscriber has full power and authority
to execute and deliver this Agreement and to perform the obligations of the
undersigned hereunder; and this Agreement is a legally binding obligation of the
Subscriber enforceable in accordance with its terms.
(l) Except as set forth in this Agreement, the
Preferred Stock, the Warrants and the Memorandum, no representations or
warranties have been made to the Subscriber by the Company, the Placement Agent
(as defined in the Memorandum) or any of their respective agents, employees or
affiliates, and in entering into this transaction, the Subscriber is not relying
on any information, other than that contained in the Preferred Stock, the
Memorandum and the public documents of the Company (e.g., the Form 12b-25, the
fiscal 1998 Form 10-KSB, the Form 10-QSBs for the first two quarters of fiscal
1999), and the results of an independent investigation by the Subscriber.
(m) The Subscriber agrees that Subscriber will
not sell or otherwise transfer the Preferred Stock, the Warrants or Conversion
Shares unless they are registered under the 1933 Act and applicable state "blue
sky" laws or unless an exemption from such registration is available. The
Subscriber represents that (i) the Subscriber has adequate means of providing
for the Subscriber's current needs and possible personal contingencies, (ii) the
Subscriber has no need for liquidity in this investment, (iii) the Subscriber is
able to bear the substantial economic risk of an investment in the Preferred
Stock and Warrants for an indefinite period, and (iv) at the present time the
Subscriber could afford a complete loss of such investment.
(n) It is understood that all documents, records
and books pertaining to this investment have been made available for the
inspection by the Subscriber's attorney and/or accountant and the Subscriber.
2. TERMS OF SUBSCRIPTION.
The Offering of the Preferred Stock and Warrants is
being made on a "best efforts" basis as more particularly set forth in the
Memorandum.
-4-
<PAGE>
3. REGISTRATION RIGHTS.
(a) As soon as possible after the Final Closing
Date, but in no event later than July 31, 1999 (regardless of whether the
maximum number of shares of Preferred Stock (and Warrants) shall have been
sold), the Company shall, at its sole cost and expense, file a registration
statement on the appropriate form under the 1933 Act with the SEC covering all
of the Conversion Shares and such additional shares of Common Stock that may be
issued as a result of any adjustment to the Conversion Price for the Preferred
Stock and/or the Exercise Price for the Warrants as set forth in the Memorandum
and as set forth below (collectively, the "Registrable Securities") for all
holders of the Preferred Stock, the Warrants and Registrable Securities
(collectively, the "Registered Holders"), time being of the essence. The Company
will use its best efforts to have such registration statement declared effective
as soon as possible after filing, and to keep such registration statement
current and effective for at least three (3) years from the Final Closing Date
or until such earlier date as all of the Registrable Securities registered
pursuant to such registration statement shall have been sold. Notwithstanding
anything to the contrary contained herein, if such registration statement shall
not be filed with the SEC by July 31, 1999 or the Registration Statement shall
not be declared effective by December 31, 1999 (regardless of whether the
maximum number of shares of Preferred Stock (and Warrants) shall have been
sold), then (i) with respect to the failure to file the Registration Statement
by July 31, 1999, the Conversion Price for the Preferred Stock and the Exercise
Price for the Warrants shall be reduced (and concomitantly the number of shares
of Common Stock issuable upon the conversion of the Preferred Stock and upon the
exercise of the Warrants shall increase) by the percentage resulting from
multiplying six (6%) percent by the number of thirty (30) day periods, or any
part thereof, beyond July 31, 1999, until the initial registration statement
described herein covering the Registered Securities is filed with the SEC and/or
(ii) with respect to the Registration Statement not being declared effective by
December 31, 1999, the Conversion Price for the Preferred Stock and the Exercise
Price for the Warrants shall be reduced (and concomitantly the number of shares
of Common Stock issuable upon the conversion of the Preferred Stock and upon the
exercise of the Warrants shall increase) by the percentage resulting from
multiplying six (6%) percent by the number of thirty (30) day periods, or any
part thereof, beyond December 31, 1999, until the initial registration statement
described herein covering the Registered Securities is declared effective. The
maximum reduction pursuant to this provision shall be thirty-six (36%) percent.
(b) If the Company effects any registration under
the 1933 Act of any Registrable Securities pursuant to Section 3(a) above or
3(g) below, the Company shall indemnify, to the extent permitted by law, and
hold harmless any person or entity whose Registrable Securities are included in
such registration statement (each, a "Seller"), any underwriter, any officer,
director, affiliate, shareholder, employee or agent of any Seller or
underwriter, and each other person, if any, who controls any Seller or
underwriter within the meaning of Section 15 of the 1933 Act, against any
losses, claims, damages, liabilities, judgment, fines, penalties, costs and
expenses, joint or several, or actions in respect thereof (collectively, the
"Claims"), to which each such indemnified party becomes subject, under the 1933
Act or otherwise, insofar as such Claims arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement or prospectus or any amendment or supplement thereto
or any document filed under a state securities or blue sky law (collectively,
the "Registration Documents") or insofar as such Claims arise out of or are
based upon the omission or alleged omission to state in any Registration
Document a material fact required to be stated therein or necessary to make the
statements made therein not misleading, and will reimburse any such indemnified
-5-
<PAGE>
party for any legal or other expenses reasonably incurred by such indemnified
party in investigating or defending any such Claim; provided that the Company
shall not be liable in any such case to a particular indemnified party to the
extent such Claim is based upon an untrue statement or alleged untrue statement
of a material fact or omission or alleged omission of a material fact made in
any Registration Document in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such indemnified party
specifically for use in the preparation of such Registration Document.
(c) In connection with any registration statement in
which any Seller is participating, each Seller, severally and not jointly, shall
indemnify, to the extent permitted by law, and hold harmless the Company, each
of its directors, each of its officers who have signed the registration
statement, each other person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act, each other Seller and each underwriter,
any officer, director, affiliate, shareholder, employee or agent of any such
other Seller or underwriter and each other person, if any, who controls such
other Seller or underwriter within the meaning of Section 15 of the 1933 Act
against any Claims to which each such indemnified party may become subject under
the 1933 Act or otherwise, insofar as such Claims (or actions in respect
thereof) are based upon any untrue statement or alleged untrue statement of any
material fact contained in any Registration Document, or insofar as any Claims
are based upon the omission or alleged omission to state in any Registration
Document a material fact required to be stated therein or necessary to make the
statements made therein not misleading, and will reimburse any such indemnified
party for any legal or other expenses reasonably incurred by such indemnified
party in investigating or defending any such Claim; provided, however, that such
indemnification or reimbursement shall be payable only if, and to the extent
that, any such Claim arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in any
Registration Document in reliance upon and in conformity with written
information furnished to the Company by the Seller specifically for use in the
preparation thereof.
(d) Any person entitled to indemnification under
Section 3(b) or 3(c) above shall notify promptly the indemnifying party in
writing of the commencement of any Claim if a claim for indemnification in
respect thereof is to be made against an indemnifying party under this Section
3(d), but the omission of such notice shall not relieve the indemnifying party
from any liability which it may have to any indemnified party otherwise than
under Section 3(b) or 3(c) above, except to the extent that such failure shall
materially adversely affect any indemnifying party or its rights hereunder. In
case any action is brought against the indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in, and, to the extent that it chooses, to assume the
defense thereof with counsel reasonably satisfactory to the indemnified party;
and, after notice from the indemnifying party to the indemnified party that it
so chooses, the indemnifying party shall not be liable for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof; provided, however, that (i) if the indemnifying party fails to
take reasonable steps necessary to defend diligently the Claim within twenty
(20) days after receiving notice from the indemnified party that the indemnified
party believes it has failed to do so; (ii) if the indemnified party who is a
defendant in any action or proceeding which is also brought against the
indemnifying party reasonably shall have concluded that there are legal defenses
available to the indemnified party which are not available to the indemnifying
party; or (iii) if representation of both parties by the same counsel is
otherwise inappropriate under applicable standards of professional conduct, the
indemnified party shall have the right to assume or continue its own defense as
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<PAGE>
set forth above (but with no more than one firm of counsel for all indemnified
parties, except to the extent any indemnified party or parties reasonably shall
have concluded that there are legal defenses available to such party or parties
which are not available to the other indemnified parties or to the extent
representation of all indemnified parties by the same counsel is otherwise
inappropriate under applicable standards of professional conduct) and the
indemnifying party shall be liable for any reasonable expenses therefor;
provided, that no indemnifying party shall be subject to any liability for any
settlement of a Claim made without its consent (which may not be unreasonably
withheld, delayed or conditioned). If the indemnifying party assumes the defense
of any Claim hereunder, such indemnifying party shall not enter into any
settlement without the consent of the indemnified party if such settlement
attributes liability to the indemnified party.
(e) If for any reason the indemnity provided in
Section 3(b) or 3(c) above is unavailable, or is insufficient to hold harmless,
an indemnified party, then the indemnifying party shall contribute to the amount
paid or payable by the indemnified party as a result of any Claim in such
proportion as is appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other from
the transactions contemplated by this Agreement. If, however, the allocation
provided in the immediately preceding sentence is not permitted by applicable
law, then each indemnifying party shall contribute to the amount paid or payable
by such indemnified party in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the indemnifying
party and the indemnified party as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The amount paid or payable in
respect of any Claim shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such Claim. Notwithstanding the foregoing, no underwriter or
controlling person thereof, if any, shall be required to contribute, in respect
of such underwriter's participation as an underwriter in the offering, any
amount in excess of the amount by which the total price at which the Registrable
Securities underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The obligation of any underwriters to contribute pursuant to
this paragraph (e) shall be several in proportion to their respective
underwriting commitments and not joint.
(f) The provisions of Section 3(b) through 3(e) of
this Agreement shall be in addition to any other rights to indemnification or
contribution which any indemnified party may have pursuant to law or contract
and shall remain operative and in full force and effect regardless of any
investigation made or omitted by or on behalf of any indemnified party and shall
survive the transfer of the Registrable Securities by any such party.
(g) The Registered Holders shall have certain
"piggy-back" registration rights with respect to the Registrable Securities as
hereinafter provided:
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A. If at any time after the date of the Final
Closing Date and prior to the date that the Registrable Securities are
registered under the 1933 Act pursuant to Section 3(a) above, the Company shall
file with the SEC a registration statement under the 1933 Act (other than a
registration statement on Form S-4 or Form S-8, or any successor thereto, or
filed in connection with an exchange offer or an offering of securities solely
to the Company's existing shareholders) registering any shares of Common Stock,
the Company shall give written notice to each Registered Holder thereof prior to
such filing.
B. Within fifteen (15) days after such notice
from the Company, each Registered Holder shall give written notice to the
Company as to whether or not the Registered Holder desires to have all or any of
the Registered Holder's Registrable Securities included in the registration
statement. If a Registered Holder fails to give such notice within such period,
such Registered Holder shall not have the right to have such Registered Holder's
Registrable Securities registered pursuant to such registration statement. If a
Registered Holder gives such notice, then the Company shall include such
Registered Holder's Registrable Securities in the registration statement, at the
Company's sole cost and expense, subject to the remaining terms of this Section
3(g); provided, however, that each Registered Holder shall pay all underwriting
discounts, commissions and transfer taxes as well as his, her or its own counsel
fees, if any, relating to the sale of such Registered Holder's Registrable
Securities.
C. If the registration statement relates to an
underwritten offering, and the underwriter shall determine in writing that the
total number of shares of Common Stock to be included in the offering, including
the Registrable Securities, shall exceed the amount which the underwriter in its
sole discretion deems to be appropriate for the offering, the number of shares
of the Registrable Securities shall be reduced pro rata (based on the number of
Registrable Securities requested to be included). The Registered Holders
participating in the offering shall enter into such agreements as may be
reasonably required by the underwriters.
D. The Registered Holders shall have two (2)
opportunities to have the Registrable Securities registered under this Section
3(g); provided however that their Registrable Securities are not sooner
registered under the 1933 Act pursuant to Section 3(a) above.
E. The Registered Holder shall furnish in
writing to the Company such information as the Company shall reasonably require
in connection with a registration statement.
F. The Company may, at any time and in its sole
discretion, decide not to proceed with the filing of a registration statement
which may have give rise to "piggy back" rights under this Section 3(g) or may
at any time terminate or suspend such registration, in which event each
Registered Holder's rights under this Section 3(g) as to the number of
opportunities to "piggy-back" shall be reset.
(h) If and whenever the Company is required by the
provisions of this Section 3(a) to use its best efforts to register any
Registrable Securities under the 1933 Act, the Company shall, as expeditiously
as possible under the circumstances and subject to the terms of this Section 3:
-8-
<PAGE>
A. Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective as soon as possible
after filing and remain effective.
B. Prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
current and effective and to comply with the provisions of the 1933 Act, and any
regulations promulgated thereunder, with respect to the sale or disposition of
all Registrable Securities covered by the registration statement required to
effect the distribution of the securities, but in no event shall the Company be
required to do so for a period of more than three (3) years following the Final
Closing Date.
C. Furnish to the Sellers participating in the
offering, copies (in reasonable quantities) of summary, preliminary, final,
amended or supplemented prospectuses, in conformity with the requirements of the
1933 Act and any regulations promulgated thereunder, and other documents as
reasonably may be required in order to facilitate the disposition of the
securities, but only while the Company is required under the provisions hereof
to keep the registration statement current.
D. Use its best efforts to register or qualify
the Registrable Securities covered by such registration statement under such
other securities or blue sky laws of such jurisdictions of the United States as
the Sellers participating in the offering shall reasonably request, and do any
and all other acts and things which may be reasonably necessary to enable each
participating Seller to consummate the disposition of the Registrable Securities
in such jurisdictions.
E. Notify each Seller selling Registrable
Securities, at any time when a prospectus relating to any such Registrable
Securities covered by such registration statement is required to be delivered
under the 1933 Act, of the Company's becoming aware that the prospectus included
in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances then existing, and promptly prepare and furnish to each
such Seller selling Registrable Securities a reasonable number of copies of a
prospectus supplemented or amended so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing.
F. As soon as practicable after the effective
date of the registration statement, and in any event within eighteen (18) months
thereafter, make generally available to Sellers participating in the offering an
earnings statement (which need not be audited) covering a period of at least
twelve (12) consecutive months beginning after the effective date of the
registration statement which earnings statement shall satisfy the provisions of
Section 11(a) of the 1933 Act, including, at the Company's option, Rule 158
thereunder. To the extent that the Company files such information with the SEC
in satisfaction of the foregoing, the Company need not deliver the above
referenced earnings statement to Seller.
-9-
<PAGE>
G. Upon request, deliver promptly to counsel of
each Seller participating in the offering copies of all correspondence between
the SEC and the Company, its counsel or auditors and all memoranda relating to
discussions with the SEC or its staff with respect to the registration statement
and permit each such Seller to do such investigation at such Seller's sole cost
and expense, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary. Each Seller agrees that it will use its best efforts not to interfere
unreasonably with the Company's business when conducting any such investigation
and each Seller shall keep any such information received pursuant to this
Section confidential.
H. Provide a transfer agent located in the
United States for all such Registrable Securities covered by such registration
statement not later than the effective date of such registration statement.
I. List the Registrable Securities covered by
such registration statement on such exchanges and/or on the NASDAQ as the Common
Stock is then currently listed upon.
J. Pay all Registration Expenses incurred in
connection with a registration of Registrable Securities, whether or not such
registration statement shall become effective; provided that each Seller shall
pay all underwriting discounts, commissions and transfer taxes, and their own
counsel fees, if any, relating to the sale or disposition of such Seller's
Registrable Securities pursuant to a registration statement. As used herein,
"Registration Expenses" means any and all reasonable and customary expenses
incident to performance of or compliance with the registration rights set forth
herein, including, without limitation, (i) all SEC and stock exchange or
National Association of Securities Dealers, Inc. registration and filing fees,
(ii) all fees and expenses of complying with state securities or blue sky laws
(including reasonable fees and disbursements of counsel for the underwriters in
connection with blue sky qualifications of the Registrable Securities but no
other expenses of the underwriters or their counsel), (iii) all printing,
messenger and delivery expenses, and (iv) the reasonable fees and disbursements
of counsel for the Company and the Company's independent public accountants.
(i) The Company acknowledges that there is no
adequate remedy at law for failure by it to comply with the provisions of this
Section 3 and that such failure would not be adequately compensable in damages,
and therefore agrees that its agreements contained in this Section 3 may be
specifically enforced. In the event that the Company shall fail to file such
registration statement when required pursuant to Section 3(a) above or to keep
any registration statement effective as provided in this Section 3 or otherwise
fails to comply with its obligations and agreements in this Section 3, then, in
addition to any other rights or remedies the Registered Holders may have at law
or in equity, including without limitation, the right of rescission, the Issuer
shall indemnify and hold harmless the Registered Holders from and against any
and all manner or loss which they may incur as a result of such failure. In
addition, the Issuer shall also reimburse the Registered Holders for any and all
reasonable legal fees and expenses incurred by them in successfully enforcing
their rights pursuant to this Section 3, regardless of whether any litigation
was commenced.
-10-
<PAGE>
4. MISCELLANEOUS.
4.1 The Company agrees to use its best efforts to
file timely all reports required to be filed by it pursuant to Sections 13 or 15
of the Securities Exchange Act of 1934, as amended, and to provide such
information as will permit the Holder to sell the Preferred Stock, Warrants or
any shares of Common Stock acquired upon the conversion of the Preferred Stock
and/or the exercise of the Warrant, respectively, in accordance with Rule 144
under the 1933 Act.
4.2 All notices, consents and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given (a) when delivered by hand, (b) one business day after the business day of
transmission if sent by telecopier (with receipt confirmed), provided that a
copy is mailed by certified mail, return receipt requested, or (c) one business
day after the business day of deposit with the carrier, if sent for next
business day delivery by Express Mail, Federal Express or other recognized
express delivery service (receipt requested), in each case addressed to the
Company at the address indicated on the first page of this Agreement marked
"Attention: Michael Armani, President", and to the Subscriber at the
Subscriber's address indicated on the last page of this Agreement (or to such
other addresses and telecopier numbers as a party may designate as to itself by
notice to the other parties).
4.3 This Agreement shall not be changed, modified or
amended except by a writing signed by the parties to be charged, and this
Agreement may not be discharged except by performance in accordance with its
terms or by a writing signed by the party to be charged.
4.4 This Agreement shall be binding upon and inure to
the benefit of the parties hereto and to their respective heirs, legal
representatives, successors and assigns. This Agreement sets forth the entire
agreement and understanding between the parties as to the subject matter thereof
and merges and supersedes all prior discussions, agreements and understandings
of any and every nature among them.
4.5 Notwithstanding the place where this Agreement
may be executed by any of the parties hereto, the parties expressly agree that
all the terms and provisions hereof shall be construed in accordance with and
governed by the laws of the State of New York. The parties hereby agree that any
dispute which may arise between them arising out of or in connection with this
Agreement shall be adjudicated before a court located in New York and they
hereby submit to the exclusive jurisdiction of the courts of the State of New
York and of the federal courts in New York with respect to any action or legal
proceeding commenced by any party, and irrevocably waive any objection they now
or hereafter may have respecting the venue of any such action or proceeding
brought in such a court or respecting the fact that such court is an
inconvenient forum, relating to or arising out of this Agreement or any acts or
omissions relating to the sale of the securities hereunder, and consent to the
service of process in any such action or legal proceeding by means of registered
or certified mail, return receipt requested, in case of the address set forth
below or such other address as the undersigned shall furnish in writing to the
other.
4.6 This Agreement may be executed in counterparts.
Upon the execution and delivery of this Agreement by the Subscriber, this
Agreement shall become a binding obligation of the Subscriber with respect to
the purchase of the Preferred Stock and Warrants as herein provided; subject,
however, to the right hereby reserved to the Company to enter into the same
agreements with other subscribers and to add and/or to delete other persons as
subscribers.
-11-
<PAGE>
4.7 The holding of any provision of this Agreement to
be invalid or unenforceable by a court of competent jurisdiction shall not
affect any other provision of this Agreement, which shall remain in full force
and effect.
4.8 It is agreed that a waiver by either party of a
breach of any provision of this Agreement shall not operate, or be construed, as
a waiver of any subsequent breach by that same party.
4.9 The parties agree to execute and deliver all such
further documents, agreements and instruments and take such other and further
action as may be necessary or appropriate to carry out the purposes and intent
of this Agreement.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
TO BE COMPLETED BY SUBSCRIBER
Harvey Bibicoff
-------------------------------------
Print Name
Signature for Individual Subscriber Signature of Subscriber Other than
Individual
/S/ HARVEY BIBICOFF By:__________________________________
- ----------------------------------- Name:
Signature Title:
4101 Clarinda Drive
--------------------------------------------------
Address
Tarzana CA 91356
--------------------------------------------------
City State Zip Code
$200,000
--------------------------------------------------
Aggregate Purchase Price for Preferred Stock
###-##-####
--------------------------------------------------
Social Security or Employer Identification
Number
SUBSCRIPTION ACCEPTED:
TELENETICS CORPORATION
By: /S/ MICHAEL ARMANI
-------------------------------------
Name: Michael Armani
Title: President
Date: 4/15/99
-----------------------------------
-13-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
TO BE COMPLETED BY SUBSCRIBER
Shadow Capital LLC
-------------------------------------
Print Name
Signature for Individual Subscriber Signature of Subscriber Other than
Individual
By: /S/ B. KENT GARLINGHOUSE
- ----------------------------------- ---------------------------------
Signature Name: B. Kent Garlinghouse
Title: Manager
3601 W. 29th Street
--------------------------------------------------
Address
Topeka KS 66614
--------------------------------------------------
City State Zip Code
$50,000
--------------------------------------------------
Aggregate Purchase Price for Preferred Stock
48-1196021
--------------------------------------------------
Social Security or Employer Identification
Number
SUBSCRIPTION ACCEPTED:
TELENETICS CORPORATION
By: /S/ MICHAEL ARMANI
-------------------------------------
Name: Michael Armani
Title: President
Date: 4/15/99
-----------------------------------
-14-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
TO BE COMPLETED BY SUBSCRIBER
Taglich Brothers, D'Amadeo, Wagner & Co., Inc.
----------------------------------------------
Print Name
Signature for Individual Subscriber Signature of Subscriber Other than
Individual
By: /S/ RICHARD C. OH
- ---------------------------------- ---------------------------------
Signature Name: Richard C. Oh
Title: Vice President
100 Wall Street, 10th Floor
--------------------------------------------------
Address
New York NY 10005
--------------------------------------------------
City State Zip Code
$100,000
--------------------------------------------------
Aggregate Purchase Price for Preferred Stock
13-3638581
--------------------------------------------------
Social Security or Employer Identification
Number
SUBSCRIPTION ACCEPTED:
TELENETICS CORPORATION
By: /S/ MICHAEL ARMANI
-------------------------------------
Name: Michael Armani
Title: President
Date: 4/15/99
-----------------------------------
-15-
<PAGE>
BIBICOFF &
ASSOCIATES, INC.
October 20, 1998
Mr. Michael Armani
Chief Executive Officer
Telenetics Corporation
26772 Vista Terrace Drive
Lake Forest, CA 92630
Dear Michael:
This will confirm our understanding and agreement regarding the
relationship between Bibicoff & Associates, Inc. ("Bibicoff") and Telenetics
Corporation ("Telenetics"):
1. Bibicoff will be the exclusive representative of Telenetics in
the areas of stockholder and financial community relations and
will serve as a consultant to the Board of Directors in its
relations with the investment community.
2. The term of our Agreement will be for twelve months beginning
on October 15, 1998. The Agreement may be terminated by
Telenetics for the following reasons only: (a) Harvey Bibicoff
leaves Bibicoff or sells a controlling interest to another
entity or person, or (b) Harvey Bibicoff becomes disabled.
Disabled in this case means unable to perform his usual duties
for eight consecutive weeks or nine weeks out of twelve weeks.
3. Bibicoff will be paid a fee of $10,500 per month plus actual
out-of-pocket expenses. Thirty percent of the fee will be
paid when billed and seventy percent will be accrued until
such time as the company completes a financing of one
million dollars or more.
4. In addition to the above fee, Bibicoff will be granted
500,000 shares of stock and will be granted options to
purchase 1,500,000 shares of stock at an exercise price of
$.05 per share. It is understood that both the shares
purchased and the shares into which the options are
exercisable ("option shares") are not registered and may not
be sold unless they are registered or unless they are exempt
from registration. Bibicoff will have piggyback registration
rights on both the shares and option shares. The options
will vest and be issued 500,000 upon execution of this
Agreement, 500,000 at the end of six months and 500,000 at
the end of twelve months.
<PAGE>
Should Telenetics terminate this Agreement without
cause, all of its financial obligations pursuant to the
Agreement would continue and any unvested options would
immediately vest.
Should Telenetics terminate this Agreement with
cause, then the financial obligations of Telenetics would
cease and any unvested options would be terminated.
Should Bibicoff terminate the Agreement for
reasonable cause, all of the financial obligations of
Telenetics would continue and any unvested options would vest
immediately.
Should Bibicoff terminate the Agreement without
cause, all of the financial obligations of Telenetics would
cease and any unvested options would vest immediately.
5. Should Bibicoff be successful in directly introducing
Telenetics to a source of capital, Bibicoff would receive a
finders fee of 3% of any amount raised if there is another
finder to be compensated or 5% if there is no other finder to
be compensated.
6. It is the intent of the parties to this Agreement that
Bibicoff will have meaningful input into all decisions that
directly effect the stockholders and financial community e.g.
where the shares are to be listed; possible splits; selection
of materials to be used in the financial relations program;
timing of information releases.
7. Bibicoff will continuously receive current information
regarding the status of the company. The information will be
materially complete and correct and will not contain any
untrue statements of material fact or omit to state a material
fact needed to make the statements not misleading. In the
material which is currently public information provided by
Telenetics, there are no untrue statements of material fact
nor are there omissions of material fact needed to make the
information not misleading.
8. Bibicoff will represent no more than three public companies
without the prior written consent of Telenetics.
If the above is acceptable to you, please so indicate by signing in the
space provided below.
Very truly yours,
/s/ HARVEY BIBICOFF
Harvey Bibicoff
Chief Executive Officer
<PAGE>
AGREED TO AND ACCEPTED
/S/ MICHAEL ARMANI
- --------------------------
Telenetics Corporation, by
Michael Armani, CEO
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated
as of July 26, 1999, is made and entered into by and between Telenetics
Corporation, a California corporation ("Company"), and Robert McLean ("Holder").
RECITALS
A. Holder has been issued 3,932 shares (the "Shares") of the
Company's Common Stock, no par value per share (the "Common Stock"), pursuant to
the terms and conditions of that certain Asset Purchase Agreement dated of even
date herewith among the Company, Holder, T. Brent Henderson, Drew Lance and Hal
Tenney (the "Asset Purchase Agreement").
B. In accordance with the requirements of the Asset Purchase
Agreement, the Company desires to provide Holder with registration rights with
respect to the Shares owned by Holder upon the terms and conditions hereinafter
set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and conditions hereinafter set forth, the parties hereto hereby
agree as follows:
1. DEFINITIONS.
1.1 "COMMON STOCK" shall mean the Common Stock, no par
value per share, of the Company.
1.2 "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended.
1.3 "REGISTRABLE SECURITIES" shall mean (i) the Shares and
(ii) any securities issued or issuable with respect to such Shares by way of a
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consideration or other reorganization. As to any
particular Registrable Securities, once issued, such shares shall cease to be
Registrable Securities when (a) such shares shall have been registered under the
Securities Act, the registration statement with respect to the sale of such
shares shall have become effective under the Securities Act and such shares
shall have been disposed of pursuant to such effective registration statement,
(b) such shares shall have been distributed pursuant to Rule 144 (or any similar
provision relating to the disposition of securities then in force) under the
Securities Act, (c) such shares shall have been otherwise transferred, new
certificates or other evidences of ownership for them not bearing a legend
restricting further transfer and not subject to any stop-transfer order or other
restrictions on transfer shall have been delivered by the Company and subsequent
disposition of such shares shall not require registration or qualification of
such shares under the Securities Act or any state securities laws then in force,
or (d) such shares shall cease to be outstanding, including as a result of the
provisions of Section 2(c) of the Asset Purchase Agreement.
1.4 "REGISTRATION EXPENSES" shall have the meaning set forth
in Section 2.4.
1
<PAGE>
1.5 "SEC" shall mean the Securities and Exchange Commission.
1.6 "SECURITIES ACT" shall mean the Securities Act of 1993, as
amended.
1.7 "SHARES" shall have the meaning set forth in the recitals
to this Agreement.
2. REGISTRATION UPON OCCURRENCE OF CERTAIN EVENT.
2.1 REGISTRATION OBLIGATION. The Company shall use its best
efforts to file with the SEC on or before July 31, 1999 a registration statement
with respect to the Registrable Securities in the manner described in Section 3
hereof and use its best efforts to cause such registration statement to become
effective on or before November 1, 1999.
2.2 REGISTRATION EXPENSES. The Company will pay all
Registration Expenses (as defined in Section 2.4) in connection with a
registration requested pursuant to this Section 2, whether or not such
registration becomes effective under the Securities Act.
2.3 EFFECTIVE REGISTRATION STATEMENT. A registration pursuant
to this Section 2 will not be deemed to have been effected unless the
registration statement relating thereto has become effective under the
Securities Act; PROVIDED, HOWEVER, that if, after such registration statement
has become effective, the offering of Registrable Shares pursuant to such
registration is interfered with by any stop order, injunction or other order or
requirement of the SEC or other governmental agency or court, such registration
will be deemed not to have been effected.
2.4 REGISTRATION EXPENSES. As used in this Agreement,
"Registration Expenses" shall mean all expenses incident to the Company's
performance of or compliance with this Agreement, including, without limitation,
all SEC, stock exchange, National Association of Securities Dealers, Inc. or
Nasdaq registration and filing fees and expenses, fees and expenses of
compliance with securities or blue sky laws (including, without limitation,
reasonable fees and disbursements of counsel for the Company in connection with
blue sky qualification of the Registrable Securities), rating agency fees,
printing expenses, messenger and delivery expenses, fees and disbursements of
counsel for the Company and all independent certified public accountants
(including the expenses of any annual audit, special audit or "cold comfort"
letters required by or incident to such performance and compliance), securities
acts liability insurance (if the Company so desires), the reasonable fees and
expenses of any special experts retained by the Company in connection with such
registration, and fees and expenses of other persons retained by the Company.
3. REGISTRATION PROCEDURE. In effecting the registration of
the Registrable Securities as provided in this Agreement, the Company shall, at
its sole expense:
(a) Prepare and file with the SEC a registration statement
with respect to the Registrable Securities and use its best efforts to cause
such registration statement to become effective; PROVIDED, HOWEVER, that before
filing with the SEC a registration statement or prospectus or any amendments or
supplements thereto, the Company will (i) furnish to counsel selected by Holder
copies of all such documents proposed to be filed, which documents will be
subject to the review of such counsel, and (ii) notify Holder of any stop order
issued or threatened by the SEC and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered;
2
<PAGE>
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to keep such registration
statement effective until April 15, 2002 or such shorter period which will
terminate when all Registrable Securities covered by such registration statement
have been sold, and comply with the provisions of the Act with respect to the
disposition of all the Registrable Securities covered by such registration
statement during such period;
(c) Furnish to Holder copies of the registration statement,
each amendment and supplement thereto (in each case including all exhibits
thereto), the prospectus included in such registration statement (including each
preliminary prospectus) in conformity with the requirements of the Securities
Act and such other documents as Holder may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by Holder;
(d) Use its best efforts to register or qualify the
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as shall be reasonably requested by Holder and do any and all
other acts and things which may be reasonably necessary or advisable to enable
Holder to consummate the disposition in such jurisdictions of the Registrable
Securities owned by Holder; PROVIDED, that the Company shall not be required in
connection therewith or as a condition thereto to (i) qualify generally to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this paragraph (d), (ii) subject itself to taxation in any such
jurisdiction, or (iii) file a general consent to service of process in any such
jurisdiction;
(e) Use its best efforts to cause the Registrable Securities
covered by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company to enable Holder to consummate the
disposition of such Registrable Securities;
(f) Immediately notify Holder at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in such
registration statement contains an untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading and the Company will promptly prepare and
furnish to Holder a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading;
(g) Enter into such customary agreements and take all such
other actions as Holder reasonably requests in order to expedite or facilitate
the disposition of such Registrable Securities, including customary
indemnification;
(h) Make available for inspection by Holder and any attorney,
accountant or other agent retained by Holder (collectively, the "Inspectors"),
all financial and other records, pertinent corporate documents and properties of
the Company as shall be reasonably necessary to enable them to exercise their
due diligence responsibility, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such Inspector
in connection with such registration statement; and
3
<PAGE>
(i) Otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC.
The Company may require Holder to furnish to the Company such
information regarding the distribution of such Registrable Securities as the
Company may from time to time reasonably request in writing.
Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in paragraph 3(f),
Holder will forthwith discontinue disposition of Registrable Securities,
pursuant to the registration statement covering such Registrable Securities
until Holder's receipt of the copies of the supplemented or amended prospectus
contemplated by paragraph 3(f), and, if so directed by the Company, Holder will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in Holder's possession, of the prospectus covering
such Registrable Securities current at the time of receipt of such notice. In
the event the Company shall give any such notice, the period mentioned in
paragraph 3(b) shall be extended by the greater of (i) three months or (ii) the
number of days during the period from and including the date of the giving of
such notice pursuant to paragraph 3(f) to and including the date when Holder
shall have received the copies of the supplemented or amended prospectus
contemplated by paragraph 3(f).
4. INDEMNIFICATION.
4.1 INDEMNIFICATION BY THE COMPANY. In connection with the
registration of the Registrable Securities under the Securities Act pursuant to
this Agreement, the Company will, and it hereby does, indemnify and hold
harmless, to the full extent permitted by law, Holder, each other person who
participates as an underwriter in the offering or sale of such securities and
each other person, if any, who controls Holder or any such underwriter within
the meaning of the Securities Act, against any and all losses, claims, damages
or liabilities, joint or several, and expenses (including any amounts paid in
any settlement effected with the Company's prior written consent) to which
Holder or any such underwriter or controlling person may become subject under
the Securities Act, common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) or
expenses arising out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such securities were registered under the Securities Act, any
preliminary, final or summary prospectus contained therein, or any amendment or
supplement thereto, or (ii) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and the Company will reimburse Holder and each such
underwriter and controlling person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending such
loss, claim, liability, action or proceedings; PROVIDED, that the Company shall
not be liable in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expenses arises out of
or is based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement or amendment or supplement
thereto or in any such preliminary, final or summary prospectus in reliance upon
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and in conformity with written information furnished to the Company through an
instrument duly executed by Holder or underwriter or controlling person
specifically stating that it is for use in the preparation thereof; and
PROVIDED, FURTHER, that the Company will not be liable to Holder or any person
who participates as an underwriter in the offering or sale of Registrable
Securities or any other person, if any, who controls such underwriter within the
meaning of the Securities Act, under the indemnity agreement in this Section 4.1
with respect to any preliminary prospectus as then amended or supplemented as
the case may be, to the extent that any such loss, claim, damage or liability of
Holder, underwriter or controlling person results from the fact that Holder or
underwriter or controlling person sold Registrable Securities to a person to
whom there was not sent or give, at or prior to the written confirmation of such
sale, a copy of the final prospectus (including any documents incorporated by
reference therein), whichever is most recent, if the Company has previously
furnished copies thereof to Holder or underwriter or controlling person and such
final prospectus, as then amended or supplemented, has corrected any such
misstatement or omission. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of Holder or any
underwriter or controlling person and shall survive the transfer of such
securities by Holder.
4.2 INDEMNIFICATION BY HOLDER. The Company may require, as a
condition to including the Registrable Securities in any registration statement
filed in accordance with this Agreement, that the Company shall have received an
undertaking reasonably satisfactory to it from Holder or any underwriter, to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in Section 4.1) the Company and its controlling persons and all other
prospective sellers and their respective controlling persons with respect to any
statement or alleged statement in or omission or alleged omission from such
registration statement, any preliminary, final or summary prospectus contained
therein, or any amendment or supplement, if such statement or alleged statement
or omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company through an instruction duly
executed by Holder or underwriter specifically stating that it is for use in the
preparation of such registration statement, preliminary, final or summary
prospectus or amendment or supplement, or a document incorporated by reference
into any of the foregoing. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company or Holder
and shall survive the transfer of such securities by Holder; PROVIDED, HOWEVER,
that Holder shall not be liable to the Company under this Section 4.2 for any
amounts exceeding the product of the purchase price per Registrable Security and
the number of Registrable Securities being sold pursuant to such registration
statement or prospectus by Holder.
4.3 NOTICES OF CLAIMS, ETC. Promptly after receipt by an
indemnified party hereunder of written notice of the commencement of any action
or proceeding with respect to which a claim for indemnification may be made
pursuant to this Section 4, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, promptly give written
notice to the latter of the commencement of such action; PROVIDED, that the
failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under the preceding
subsections of this Section 4, except to the extent that the indemnifying party
is actually materially prejudiced by such failure to give notice. In case any
such action is brought against an indemnified party, unless in such indemnified
party's reasonable judgement a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, the indemnifying party
will be entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified to the extent that it may
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wish, with counsel reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties arises in respect of such claim after the assumption of the
defense thereof, and the indemnifying party will not be subject to any liability
for any settlement made without its consent (which consent shall not be
unreasonably withheld). No indemnifying party will consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect to such claim or litigation. An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim, in which event the
indemnifying party shall be obligated to pay the fees and expenses of such
additional counsel or counsels.
4.4 OTHER INDEMNIFICATION. Indemnification similar to that
specified in the preceding Sections 4.1, 4.2 and 4.3 (with appropriate
modifications) shall be give by the Company and Holder with respect to any
required registration or other qualification of securities under any federal or
state law or regulation of governmental authority other than the Securities Act.
5. RULE 144. The Company hereby covenants that the Company
shall file in a timely manner all reports required to be filed by it under the
Securities Act and the Exchange Act (to the extent the Company is subject to the
Exchange Act) and the rules and regulations adopted by the SEC thereunder, and
it will take such further action as Holder may reasonably request, all to the
extent required from time to time to enable Holder to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (i) Rule 144 under the Securities Act, as such
rule may be amended from time to time, or (ii) any similar rule or regulation
hereafter adopted by the SEC relating to the disposition of securities. Upon the
request of Holder, the Company will deliver to Holder a written statement as to
whether it has complied with such requirements, in addition, the Company hereby
agrees that for a period of three months following the date on which a
registration statement filed pursuant to this Agreement shall have become
effective, the Company shall not deregister such securities under Section 12 of
the Exchange Act (even if then permitted to do so pursuant to the Exchange Act
and the rules and regulations promulgated thereunder).
6. NO INCONSISTENT AGREEMENTS. The Company will not hereafter
enter into any agreement with respect to any of its securities which is
inconsistent with the rights granted to Holder in this Agreement.
7. REMEDIES. The Company acknowledges and agrees that in the
event of any breach of this Agreement by it, Holder would be irreparably harmed
and could not be made whole by monetary damages. The Company accordingly agrees
to waive the defense in any action for specific performance that a remedy at law
would be adequate and that Holder, in addition to any other remedy to which they
may be entitled at law or in equity, shall be entitled to compel specific
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performance of this Agreement in any action instituted in any court of the
United States or any state thereof having subject matter jurisdiction for such
action.
8. SALE WITHOUT REGISTRATION. At the time of any transfer of
any Registrable Securities which shall not be registered under the Securities
Act, the Company may require, as a condition of allowing such transfer, that
Holder or the transferee furnish to the Company: (a) such information as is
reasonably necessary in order to establish that such transfer may be made
without registration under the Securities Act; and (b) at the expense of Holder
or the transferee, an opinion of counsel, satisfactory in form and substance to
the Company, to the effect that such transfer may be made without registration
under the Securities Act; PROVIDED, that nothing contained in this Section 8
shall relieve the Company from complying with any request for registration,
qualification or compliance made pursuant to these registration rights
provisions.
9. GENERAL PROVISIONS.
9.1 WAIVERS. No action taken pursuant to this Agreement,
including any investigation by or on behalf of any party hereto, shall be deemed
to constitute a waiver by the party taking such action or compliance with any
representation, warranty, covenant, or agreement contained herein or in any
ancillary document. The waiver by any party hereto of a breach of any provision
of this Agreement shall not operate or be construed as a waiver of any other or
subsequent breach. The waiver by any party of any of the conditions precedent to
its respective obligations under this Agreement shall not preclude it from
seeking redress for breach of this Agreement.
9.2 NOTICES. All notices and other communications which are
required or may be given under this Agreement shall be in writing and shall be
deemed to have been duly given if delivered personally, by courier service,
telecopied, or mailed by registered or certified mail, postage prepaid, return
receipt requested, to the party to whom the same is so delivered or mailed:
(a) if to the Company:
Telenetics Corporation
26772 Vista Terrace Drive
Lake Forest, California 92630
Attn: Michael A. Armani
With a copy to:
Rutan & Tucker, L.L.P.
611 Anton Blvd., Ste. 1400
Costa Mesa, California 92626
Attn: Larry A. Cerutti, Esq.
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(b) if to Holder:
Robert McLean
8278 Cantershire Way
Granite Bay, California 95742
or to such other address as any of the above shall have specified by notice
hereunder. Notices delivered personally, by mail or telecopied shall be deemed
communicated as of actual receipt.
9.3 ENTIRE AGREEMENT; AMENDMENTS. This Agreement constitutes
the entire agreement among the parties hereto with respect to the subject matter
hereof, and supersedes any and all prior agreements and undertakings, oral or
written, concerning the subject matter hereof. This Agreement may not be changed
or terminated orally, and may only be changed or terminated by a writing signed
by the party against whom such change or termination is sought.
9.4 BINDING EFFECT; BENEFITS. This Agreement shall inure to
the benefit of and shall be binding upon and enforceable by the parties hereto
and their respective heirs, legal representatives, successors, and assigns.
Nothing in this Agreement, expressed or implied, is intended to or shall confer
on any person other than the parties hereto any rights, remedies, obligations,
or liabilities under or by reason of this Agreement.
9.5 HEADINGS. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
9.6 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall be deemed to be one and the same instrument.
9.7 RULES OF CONSTRUCTION. In this Agreement, unless the
context otherwise requires, words in the singular include the plural, and in the
plural include the singular, and words of the masculine gender include the
feminine and the neuter, and, when the sense so indicates, words of the neuter
gender may refer to any gender.
9.8 ASSIGNMENT. This Agreement is not assignable without the
prior written consent of the nonassigning party or parties.
9.9 GOVERNING LAW; VENUE. The validity, performance, and
enforcement of this Agreement shall be governed by the laws of the State of
California. Any action commenced hereunder shall be conducted before a court of
appropriate jurisdiction in Orange County, California.
9.10 COOPERATION. The parties agree to execute such further
documents and take such further actions as necessary to carry out the provisions
of this Agreement and to fully accomplish its purpose and intent.
9.11 DISPUTE RESOLUTION. Except for matters with respect to
which injunctive relief is sought, all claims, disputes and other matters in
controversy (a "dispute") arising directly or indirectly out of or related to
this Agreement, or the breach thereof, whether contractual or noncontractual,
and whether during the term or after the termination of this Agreement, shall be
resolved exclusively according to the procedures set forth in this Section 9.11.
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(a) MEDIATION. Neither party shall commence an
arbitration proceeding pursuant to the provisions of Section 9.11(b) unless that
party first gives a written notice (a "Dispute Notice") to the other party
setting forth the nature of the dispute. The parties shall attempt in good faith
to resolve the dispute by mediation under the Commercial Mediation Rules of the
American Arbitration Association ("AAA") in effect on the date of the Dispute
Notice. If the parties cannot agree on the selection of a mediator within twenty
(20) days after delivery of the Dispute Notice, the mediator will be selected by
the AAA. If the dispute has not been resolved by mediation as provided above
within sixty (60) days after delivery of the Dispute Notice, then the dispute
shall be determined by arbitration in accordance with the provisions of Section
9.11(b).
(b) ARBITRATION.
(1) Any dispute that is not settled through mediation
as provided in Section 9.11(a) above shall be resolved by arbitration in Orange
County, California, governed by the Federal Arbitration Act, 9 U.S.C. ss. 1 et
seq, and administered by the American Arbitration Association under its
Commercial Arbitration Rules in effect on the date of the Dispute Notice, as
modified by the provisions of this Section 9.11(b), by a single arbitrator.
Persons eligible to be selected as an arbitrator shall be limited to lawyers
with excellent academic and professional credentials (i) who are or have been a
partner in a highly respected law firm for at least 15 years specializing in
either general commercial litigation or general corporate and commercial matters
and (ii) who have had both training and experience as an arbitrator. Each party
shall be entitled to strike on a peremptory basis, for any reason or no reason,
any or all of the names of potential arbitrators on the list submitted to the
parties by the AAA as being qualified in accordance with the criteria set forth
herein. If the parties cannot agree on a mutually acceptable single arbitrator
from the one or more lists submitted by the AAA, the AAA shall designate three
persons who, in its opinion, meet the criteria set forth herein, which designees
may include persons named on any list previously submitted by the AAA. Each
party shall be entitled to strike one of such three designees on a peremptory
basis, indicating its order of preference with respect to the remaining
designees, and the selection of the arbitrator shall be made from among such
designee(s) which have not been so stricken by either party in accordance with
their indicated order of mutual preference to the extent possible. The
arbitrator shall base the award on applicable law and judicial precedent and,
unless both parties agree otherwise, shall include in such award the findings of
fact and conclusions of law upon which the award is based. Judgment on the award
rendered by the arbitrator(s) may be entered in any court having jurisdiction
thereof.
(2) Notwithstanding the foregoing, if the dispute is
determined by a single arbitrator as contemplated, or if the parties agree to a
panel of three arbitrators to be selected in accordance with the applicable AAA
rules, and in the event the dispute is determined by less than the unanimous
decision of the three arbitrators, then upon the application by either party to
a court for an order confirming, modifying or vacating the award, the court
shall have the power to review whether, as a matter of law based on the findings
of fact determined by the arbitrator, the award should be confirmed, modified or
vacated in order to correct any errors of law made by the arbitrator. In order
to effectuate judicial review limited to issues of law, the parties agree (and
shall stipulate to the court) that the findings of fact made by the arbitrator
shall be final and binding on the parties and shall serve as the facts to be
submitted to and relied on by the court in determining the extent to which the
award should be confirmed, modified or vacated.
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(c) COSTS AND ATTORNEYS' FEES. If either party fails to
proceed with mediation or arbitration as provided herein or unsuccessfully seeks
to stay such mediation or arbitration, or fails to comply with any arbitration
award, or is unsuccessful in vacating or modifying the award pursuant to a
petition or application for judicial review, the other party shall be entitled
to be awarded costs, including reasonable attorneys' fees, paid or incurred by
such other party in successfully compelling such arbitration or defending
against the attempt to stay, vacate or modify such arbitration award and/or
successfully defending or enforcing the award.
(d) TOLLING STATUTE OF LIMITATIONS. All applicable
statutes of limitations and defenses based upon the passage of time shall be
tolled while the procedures specified in this Section 9.11 are pending. The
parties will take such action, if any, required to effectuate such tolling.
9.12 ATTORNEYS' FEES. The prevailing party in any proceedings
(including, without limitation any arbitration proceedings) arising in
connection with this Agreement shall be entitled to reimbursement for his or its
reasonable costs incurred in connection therewith, including attorneys' fees.
9.13 SET-OFF. Each party hereto shall be entitled to set-off
against any amount it may owe to any other party under this Agreement or any
other agreement executed in connection herewith any and all amounts that are due
to that party by such other party under or in connection with the terms of this
Agreement.
9.14 TIME OF ESSENCE. Time is of essence in connection with
the performance of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the day and date first above written.
TELENETICS CORPORATION
By:/S/ Michael A. Armani
------------------------------------
Michael A. Armani, President
"Company"
/S/ Robert McLean
------------------------------------
Robert McLean
"Holder"
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated
as of July 26, 1999, is made and entered into by and between Telenetics
Corporation, a California corporation ("Company"), and T. Brent Henderson
("Holder").
RECITALS
A. Holder has been issued 58,207 shares (the "Shares") of the
Company's Common Stock, no par value per share (the "Common Stock"), pursuant to
the terms and conditions of that certain Asset Purchase Agreement dated of even
date herewith among the Company, Holder, Robert McLean, Drew Lance and Hal
Tenney (the "Asset Purchase Agreement").
B. In accordance with the requirements of the Asset Purchase
Agreement, the Company desires to provide Holder with registration rights with
respect to the Shares owned by Holder upon the terms and conditions hereinafter
set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and conditions hereinafter set forth, the parties hereto hereby
agree as follows:
1. DEFINITIONS.
1.1 "COMMON STOCK" shall mean the Common Stock, no par value
per share, of the Company.
1.2 "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended.
1.3 "REGISTRABLE SECURITIES" shall mean (i) the Shares and
(ii) any securities issued or issuable with respect to such Shares by way of a
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consideration or other reorganization. As to any
particular Registrable Securities, once issued, such shares shall cease to be
Registrable Securities when (a) such shares shall have been registered under the
Securities Act, the registration statement with respect to the sale of such
shares shall have become effective under the Securities Act and such shares
shall have been disposed of pursuant to such effective registration statement,
(b) such shares shall have been distributed pursuant to Rule 144 (or any similar
provision relating to the disposition of securities then in force) under the
Securities Act, (c) such shares shall have been otherwise transferred, new
certificates or other evidences of ownership for them not bearing a legend
restricting further transfer and not subject to any stop-transfer order or other
restrictions on transfer shall have been delivered by the Company and subsequent
disposition of such shares shall not require registration or qualification of
such shares under the Securities Act or any state securities laws then in force,
or (d) such shares shall cease to be outstanding, including as a result of the
provisions of Section 2(c) of the Asset Purchase Agreement.
1.4 "REGISTRATION EXPENSES" shall have the meaning set forth
in Section 2.4.
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1.5 "SEC" shall mean the Securities and Exchange Commission.
1.6 "SECURITIES ACT" shall mean the Securities Act of 1993, as
amended.
1.7 "SHARES" shall have the meaning set forth in the recitals
to this Agreement.
2. REGISTRATION UPON OCCURRENCE OF CERTAIN EVENT.
2.1 REGISTRATION OBLIGATION. The Company shall use its best
efforts to file with the SEC on or before July 31, 1999 a registration statement
with respect to the Registrable Securities in the manner described in Section 3
hereof and use its best efforts to cause such registration statement to become
effective on or before November 1, 1999.
2.2 REGISTRATION EXPENSES. The Company will pay all
Registration Expenses (as defined in Section 2.4) in connection with a
registration requested pursuant to this Section 2, whether or not such
registration becomes effective under the Securities Act.
2.3 EFFECTIVE REGISTRATION STATEMENT. A registration pursuant
to this Section 2 will not be deemed to have been effected unless the
registration statement relating thereto has become effective under the
Securities Act; PROVIDED, HOWEVER, that if, after such registration statement
has become effective, the offering of Registrable Shares pursuant to such
registration is interfered with by any stop order, injunction or other order or
requirement of the SEC or other governmental agency or court, such registration
will be deemed not to have been effected.
2.4 REGISTRATION EXPENSES. As used in this Agreement,
"Registration Expenses" shall mean all expenses incident to the Company's
performance of or compliance with this Agreement, including, without limitation,
all SEC, stock exchange, National Association of Securities Dealers, Inc. or
Nasdaq registration and filing fees and expenses, fees and expenses of
compliance with securities or blue sky laws (including, without limitation,
reasonable fees and disbursements of counsel for the Company in connection with
blue sky qualification of the Registrable Securities), rating agency fees,
printing expenses, messenger and delivery expenses, fees and disbursements of
counsel for the Company and all independent certified public accountants
(including the expenses of any annual audit, special audit or "cold comfort"
letters required by or incident to such performance and compliance), securities
acts liability insurance (if the Company so desires), the reasonable fees and
expenses of any special experts retained by the Company in connection with such
registration, and fees and expenses of other persons retained by the Company.
3. REGISTRATION PROCEDURE. In effecting the registration of the
Registrable Securities as provided in this Agreement, the Company shall, at its
sole expense:
(a) Prepare and file with the SEC a registration statement
with respect to the Registrable Securities and use its best efforts to cause
such registration statement to become effective; PROVIDED, HOWEVER, that before
filing with the SEC a registration statement or prospectus or any amendments or
supplements thereto, the Company will (i) furnish to counsel selected by Holder
copies of all such documents proposed to be filed, which documents will be
subject to the review of such counsel, and (ii) notify Holder of any stop order
issued or threatened by the SEC and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered;
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(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to keep such registration
statement effective until April 15, 2002 or such shorter period which will
terminate when all Registrable Securities covered by such registration statement
have been sold, and comply with the provisions of the Act with respect to the
disposition of all the Registrable Securities covered by such registration
statement during such period;
(c) Furnish to Holder copies of the registration statement,
each amendment and supplement thereto (in each case including all exhibits
thereto), the prospectus included in such registration statement (including each
preliminary prospectus) in conformity with the requirements of the Securities
Act and such other documents as Holder may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by Holder;
(d) Use its best efforts to register or qualify the
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as shall be reasonably requested by Holder and do any and all
other acts and things which may be reasonably necessary or advisable to enable
Holder to consummate the disposition in such jurisdictions of the Registrable
Securities owned by Holder; PROVIDED, that the Company shall not be required in
connection therewith or as a condition thereto to (i) qualify generally to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this paragraph (d), (ii) subject itself to taxation in any such
jurisdiction, or (iii) file a general consent to service of process in any such
jurisdiction;
(e) Use its best efforts to cause the Registrable Securities
covered by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company to enable Holder to consummate the
disposition of such Registrable Securities;
(f) Immediately notify Holder at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in such
registration statement contains an untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading and the Company will promptly prepare and
furnish to Holder a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading;
(g) Enter into such customary agreements and take all such
other actions as Holder reasonably requests in order to expedite or facilitate
the disposition of such Registrable Securities, including customary
indemnification;
(h) Make available for inspection by Holder and any attorney,
accountant or other agent retained by Holder (collectively, the "Inspectors"),
all financial and other records, pertinent corporate documents and properties of
the Company as shall be reasonably necessary to enable them to exercise their
due diligence responsibility, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such Inspector
in connection with such registration statement; and
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(i) Otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC.
The Company may require Holder to furnish to the Company such
information regarding the distribution of such Registrable Securities as the
Company may from time to time reasonably request in writing.
Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in paragraph 3(f),
Holder will forthwith discontinue disposition of Registrable Securities,
pursuant to the registration statement covering such Registrable Securities
until Holder's receipt of the copies of the supplemented or amended prospectus
contemplated by paragraph 3(f), and, if so directed by the Company, Holder will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in Holder's possession, of the prospectus covering
such Registrable Securities current at the time of receipt of such notice. In
the event the Company shall give any such notice, the period mentioned in
paragraph 3(b) shall be extended by the greater of (i) three months or (ii) the
number of days during the period from and including the date of the giving of
such notice pursuant to paragraph 3(f) to and including the date when Holder
shall have received the copies of the supplemented or amended prospectus
contemplated by paragraph 3(f).
4. INDEMNIFICATION.
4.1 INDEMNIFICATION BY THE COMPANY. In connection with the
registration of the Registrable Securities under the Securities Act pursuant to
this Agreement, the Company will, and it hereby does, indemnify and hold
harmless, to the full extent permitted by law, Holder, each other person who
participates as an underwriter in the offering or sale of such securities and
each other person, if any, who controls Holder or any such underwriter within
the meaning of the Securities Act, against any and all losses, claims, damages
or liabilities, joint or several, and expenses (including any amounts paid in
any settlement effected with the Company's prior written consent) to which
Holder or any such underwriter or controlling person may become subject under
the Securities Act, common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) or
expenses arising out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such securities were registered under the Securities Act, any
preliminary, final or summary prospectus contained therein, or any amendment or
supplement thereto, or (ii) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and the Company will reimburse Holder and each such
underwriter and controlling person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending such
loss, claim, liability, action or proceedings; PROVIDED, that the Company shall
not be liable in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expenses arises out of
or is based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement or amendment or supplement
thereto or in any such preliminary, final or summary prospectus in reliance upon
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and in conformity with written information furnished to the Company through an
instrument duly executed by Holder or underwriter or controlling person
specifically stating that it is for use in the preparation thereof; and
PROVIDED, FURTHER, that the Company will not be liable to Holder or any person
who participates as an underwriter in the offering or sale of Registrable
Securities or any other person, if any, who controls such underwriter within the
meaning of the Securities Act, under the indemnity agreement in this Section 4.1
with respect to any preliminary prospectus as then amended or supplemented as
the case may be, to the extent that any such loss, claim, damage or liability of
Holder, underwriter or controlling person results from the fact that Holder or
underwriter or controlling person sold Registrable Securities to a person to
whom there was not sent or give, at or prior to the written confirmation of such
sale, a copy of the final prospectus (including any documents incorporated by
reference therein), whichever is most recent, if the Company has previously
furnished copies thereof to Holder or underwriter or controlling person and such
final prospectus, as then amended or supplemented, has corrected any such
misstatement or omission. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of Holder or any
underwriter or controlling person and shall survive the transfer of such
securities by Holder.
4.2 INDEMNIFICATION BY HOLDER. The Company may require, as a
condition to including the Registrable Securities in any registration statement
filed in accordance with this Agreement, that the Company shall have received an
undertaking reasonably satisfactory to it from Holder or any underwriter, to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in Section 4.1) the Company and its controlling persons and all other
prospective sellers and their respective controlling persons with respect to any
statement or alleged statement in or omission or alleged omission from such
registration statement, any preliminary, final or summary prospectus contained
therein, or any amendment or supplement, if such statement or alleged statement
or omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company through an instruction duly
executed by Holder or underwriter specifically stating that it is for use in the
preparation of such registration statement, preliminary, final or summary
prospectus or amendment or supplement, or a document incorporated by reference
into any of the foregoing. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company or Holder
and shall survive the transfer of such securities by Holder; PROVIDED, HOWEVER,
that Holder shall not be liable to the Company under this Section 4.2 for any
amounts exceeding the product of the purchase price per Registrable Security and
the number of Registrable Securities being sold pursuant to such registration
statement or prospectus by Holder.
4.3 NOTICES OF CLAIMS, ETC. Promptly after receipt by an
indemnified party hereunder of written notice of the commencement of any action
or proceeding with respect to which a claim for indemnification may be made
pursuant to this Section 4, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, promptly give written
notice to the latter of the commencement of such action; PROVIDED, that the
failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under the preceding
subsections of this Section 4, except to the extent that the indemnifying party
is actually materially prejudiced by such failure to give notice. In case any
such action is brought against an indemnified party, unless in such indemnified
party's reasonable judgement a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, the indemnifying party
will be entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified to the extent that it may
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wish, with counsel reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties arises in respect of such claim after the assumption of the
defense thereof, and the indemnifying party will not be subject to any liability
for any settlement made without its consent (which consent shall not be
unreasonably withheld). No indemnifying party will consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect to such claim or litigation. An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim, in which event the
indemnifying party shall be obligated to pay the fees and expenses of such
additional counsel or counsels.
4.4 OTHER INDEMNIFICATION. Indemnification similar to that
specified in the preceding Sections 4.1, 4.2 and 4.3 (with appropriate
modifications) shall be give by the Company and Holder with respect to any
required registration or other qualification of securities under any federal or
state law or regulation of governmental authority other than the Securities Act.
5. RULE 144. The Company hereby covenants that the Company
shall file in a timely manner all reports required to be filed by it under the
Securities Act and the Exchange Act (to the extent the Company is subject to the
Exchange Act) and the rules and regulations adopted by the SEC thereunder, and
it will take such further action as Holder may reasonably request, all to the
extent required from time to time to enable Holder to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (i) Rule 144 under the Securities Act, as such
rule may be amended from time to time, or (ii) any similar rule or regulation
hereafter adopted by the SEC relating to the disposition of securities. Upon the
request of Holder, the Company will deliver to Holder a written statement as to
whether it has complied with such requirements, in addition, the Company hereby
agrees that for a period of three months following the date on which a
registration statement filed pursuant to this Agreement shall have become
effective, the Company shall not deregister such securities under Section 12 of
the Exchange Act (even if then permitted to do so pursuant to the Exchange Act
and the rules and regulations promulgated thereunder).
6. NO INCONSISTENT AGREEMENTS. The Company will not hereafter
enter into any agreement with respect to any of its securities which is
inconsistent with the rights granted to Holder in this Agreement.
7. REMEDIES. The Company acknowledges and agrees that in the
event of any breach of this Agreement by it, Holder would be irreparably harmed
and could not be made whole by monetary damages. The Company accordingly agrees
to waive the defense in any action for specific performance that a remedy at law
would be adequate and that Holder, in addition to any other remedy to which they
may be entitled at law or in equity, shall be entitled to compel specific
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performance of this Agreement in any action instituted in any court of the
United States or any state thereof having subject matter jurisdiction for such
action.
8. SALE WITHOUT REGISTRATION. At the time of any transfer of
any Registrable Securities which shall not be registered under the Securities
Act, the Company may require, as a condition of allowing such transfer, that
Holder or the transferee furnish to the Company: (a) such information as is
reasonably necessary in order to establish that such transfer may be made
without registration under the Securities Act; and (b) at the expense of Holder
or the transferee, an opinion of counsel, satisfactory in form and substance to
the Company, to the effect that such transfer may be made without registration
under the Securities Act; PROVIDED, that nothing contained in this Section 8
shall relieve the Company from complying with any request for registration,
qualification or compliance made pursuant to these registration rights
provisions.
9. GENERAL PROVISIONS.
9.1 WAIVERS. No action taken pursuant to this Agreement,
including any investigation by or on behalf of any party hereto, shall be deemed
to constitute a waiver by the party taking such action or compliance with any
representation, warranty, covenant, or agreement contained herein or in any
ancillary document. The waiver by any party hereto of a breach of any provision
of this Agreement shall not operate or be construed as a waiver of any other or
subsequent breach. The waiver by any party of any of the conditions precedent to
its respective obligations under this Agreement shall not preclude it from
seeking redress for breach of this Agreement.
9.2 NOTICES. All notices and other communications which are
required or may be given under this Agreement shall be in writing and shall be
deemed to have been duly given if delivered personally, by courier service,
telecopied, or mailed by registered or certified mail, postage prepaid, return
receipt requested, to the party to whom the same is so delivered or mailed:
(a) if to the Company:
Telenetics Corporation
26772 Vista Terrace Drive
Lake Forest, California 92630
Attn: Michael A. Armani
With a copy to:
Rutan & Tucker, L.L.P.
611 Anton Blvd., Ste. 1400
Costa Mesa, California 92626
Attn: Larry A. Cerutti, Esq.
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(b) if to Holder:
T. Brent Henderson
3115 Gold Valley Drive
Rancho Cordova, California 95742-6588
or to such other address as any of the above shall have specified by notice
hereunder. Notices delivered personally, by mail or telecopied shall be deemed
communicated as of actual receipt.
9.3 ENTIRE AGREEMENT; AMENDMENTS. This Agreement constitutes
the entire agreement among the parties hereto with respect to the subject matter
hereof, and supersedes any and all prior agreements and undertakings, oral or
written, concerning the subject matter hereof. This Agreement may not be changed
or terminated orally, and may only be changed or terminated by a writing signed
by the party against whom such change or termination is sought.
9.4 BINDING EFFECT; BENEFITS. This Agreement shall inure to
the benefit of and shall be binding upon and enforceable by the parties hereto
and their respective heirs, legal representatives, successors, and assigns.
Nothing in this Agreement, expressed or implied, is intended to or shall confer
on any person other than the parties hereto any rights, remedies, obligations,
or liabilities under or by reason of this Agreement.
9.5 HEADINGS. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
9.6 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall be deemed to be one and the same instrument.
9.7 RULES OF CONSTRUCTION. In this Agreement, unless the
context otherwise requires, words in the singular include the plural, and in the
plural include the singular, and words of the masculine gender include the
feminine and the neuter, and, when the sense so indicates, words of the neuter
gender may refer to any gender.
9.8 ASSIGNMENT. This Agreement is not assignable without the
prior written consent of the nonassigning party or parties.
9.9 GOVERNING LAW; VENUE. The validity, performance, and
enforcement of this Agreement shall be governed by the laws of the State of
California. Any action commenced hereunder shall be conducted before a court of
appropriate jurisdiction in Orange County, California.
9.10 COOPERATION. The parties agree to execute such further
documents and take such further actions as necessary to carry out the provisions
of this Agreement and to fully accomplish its purpose and intent.
9.11 DISPUTE RESOLUTION. Except for matters with respect to
which injunctive relief is sought, all claims, disputes and other matters in
controversy (a "dispute") arising directly or indirectly out of or related to
this Agreement, or the breach thereof, whether contractual or noncontractual,
and whether during the term or after the termination of this Agreement, shall be
resolved exclusively according to the procedures set forth in this Section 9.11.
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(a) MEDIATION. Neither party shall commence an
arbitration proceeding pursuant to the provisions of Section 9.11(b) unless that
party first gives a written notice (a "Dispute Notice") to the other party
setting forth the nature of the dispute. The parties shall attempt in good faith
to resolve the dispute by mediation under the Commercial Mediation Rules of the
American Arbitration Association ("AAA") in effect on the date of the Dispute
Notice. If the parties cannot agree on the selection of a mediator within twenty
(20) days after delivery of the Dispute Notice, the mediator will be selected by
the AAA. If the dispute has not been resolved by mediation as provided above
within sixty (60) days after delivery of the Dispute Notice, then the dispute
shall be determined by arbitration in accordance with the provisions of Section
9.11(b).
(b) ARBITRATION.
(1) Any dispute that is not settled through mediation
as provided in Section 9.11(a) above shall be resolved by arbitration in Orange
County, California, governed by the Federal Arbitration Act, 9 U.S.C. ss. 1 et
seq, and administered by the American Arbitration Association under its
Commercial Arbitration Rules in effect on the date of the Dispute Notice, as
modified by the provisions of this Section 9.11(b), by a single arbitrator.
Persons eligible to be selected as an arbitrator shall be limited to lawyers
with excellent academic and professional credentials (i) who are or have been a
partner in a highly respected law firm for at least 15 years specializing in
either general commercial litigation or general corporate and commercial matters
and (ii) who have had both training and experience as an arbitrator. Each party
shall be entitled to strike on a peremptory basis, for any reason or no reason,
any or all of the names of potential arbitrators on the list submitted to the
parties by the AAA as being qualified in accordance with the criteria set forth
herein. If the parties cannot agree on a mutually acceptable single arbitrator
from the one or more lists submitted by the AAA, the AAA shall designate three
persons who, in its opinion, meet the criteria set forth herein, which designees
may include persons named on any list previously submitted by the AAA. Each
party shall be entitled to strike one of such three designees on a peremptory
basis, indicating its order of preference with respect to the remaining
designees, and the selection of the arbitrator shall be made from among such
designee(s) which have not been so stricken by either party in accordance with
their indicated order of mutual preference to the extent possible. The
arbitrator shall base the award on applicable law and judicial precedent and,
unless both parties agree otherwise, shall include in such award the findings of
fact and conclusions of law upon which the award is based. Judgment on the award
rendered by the arbitrator(s) may be entered in any court having jurisdiction
thereof.
(2) Notwithstanding the foregoing, if the dispute is
determined by a single arbitrator as contemplated, or if the parties agree to a
panel of three arbitrators to be selected in accordance with the applicable AAA
rules, and in the event the dispute is determined by less than the unanimous
decision of the three arbitrators, then upon the application by either party to
a court for an order confirming, modifying or vacating the award, the court
shall have the power to review whether, as a matter of law based on the findings
of fact determined by the arbitrator, the award should be confirmed, modified or
vacated in order to correct any errors of law made by the arbitrator. In order
to effectuate judicial review limited to issues of law, the parties agree (and
shall stipulate to the court) that the findings of fact made by the arbitrator
shall be final and binding on the parties and shall serve as the facts to be
submitted to and relied on by the court in determining the extent to which the
award should be confirmed, modified or vacated.
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(c) COSTS AND ATTORNEYS' FEES. If either party fails to
proceed with mediation or arbitration as provided herein or unsuccessfully seeks
to stay such mediation or arbitration, or fails to comply with any arbitration
award, or is unsuccessful in vacating or modifying the award pursuant to a
petition or application for judicial review, the other party shall be entitled
to be awarded costs, including reasonable attorneys' fees, paid or incurred by
such other party in successfully compelling such arbitration or defending
against the attempt to stay, vacate or modify such arbitration award and/or
successfully defending or enforcing the award.
(d) TOLLING STATUTE OF LIMITATIONS. All applicable
statutes of limitations and defenses based upon the passage of time shall be
tolled while the procedures specified in this Section 9.11 are pending. The
parties will take such action, if any, required to effectuate such tolling.
9.12 ATTORNEYS' FEES. The prevailing party in any proceedings
(including, without limitation any arbitration proceedings) arising in
connection with this Agreement shall be entitled to reimbursement for his or its
reasonable costs incurred in connection therewith, including attorneys' fees.
9.13 SET-OFF. Each party hereto shall be entitled to set-off
against any amount it may owe to any other party under this Agreement or any
other agreement executed in connection herewith any and all amounts that are due
to that party by such other party under or in connection with the terms of this
Agreement.
9.14 TIME OF ESSENCE. Time is of essence in connection with
the performance of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the day and date first above written.
TELENETICS CORPORATION
By:/S/ Michael A. Armani
---------------------------------
Michael A. Armani, President
"Company"
/S/ T. Brent Henderson
---------------------------------
T. Brent Henderson
"Holder"
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated
as of July 26, 1999, is made and entered into by and between Telenetics
Corporation, a California corporation ("Company"), and Drew Lance ("Holder").
RECITALS
A. Holder has been issued 33,313 shares (the "Shares") of the
Company's Common Stock, no par value per share (the "Common Stock"), pursuant to
the terms and conditions of that certain Asset Purchase Agreement dated of even
date herewith among the Company, Holder, T. Brent Henderson, Robert McLean and
Hal Tenney (the "Asset Purchase Agreement").
B. In accordance with the requirements of the Asset Purchase
Agreement, the Company desires to provide Holder with registration rights with
respect to the Shares owned by Holder upon the terms and conditions hereinafter
set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and conditions hereinafter set forth, the parties hereto hereby
agree as follows:
1. DEFINITIONS.
1.1 "COMMON STOCK" shall mean the Common Stock, no par value
per share, of the Company.
1.2 "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended.
1.3 "REGISTRABLE SECURITIES" shall mean (i) the Shares and
(ii) any securities issued or issuable with respect to such Shares by way of a
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consideration or other reorganization. As to any
particular Registrable Securities, once issued, such shares shall cease to be
Registrable Securities when (a) such shares shall have been registered under the
Securities Act, the registration statement with respect to the sale of such
shares shall have become effective under the Securities Act and such shares
shall have been disposed of pursuant to such effective registration statement,
(b) such shares shall have been distributed pursuant to Rule 144 (or any similar
provision relating to the disposition of securities then in force) under the
Securities Act, (c) such shares shall have been otherwise transferred, new
certificates or other evidences of ownership for them not bearing a legend
restricting further transfer and not subject to any stop-transfer order or other
restrictions on transfer shall have been delivered by the Company and subsequent
disposition of such shares shall not require registration or qualification of
such shares under the Securities Act or any state securities laws then in force,
or (d) such shares shall cease to be outstanding, including as a result of the
provisions of Section 2(c) of the Asset Purchase Agreement.
1.4 "REGISTRATION EXPENSES" shall have the meaning set forth
in Section 2.4.
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1.5 "SEC" shall mean the Securities and Exchange Commission.
1.6 "SECURITIES ACT" shall mean the Securities Act of 1993, as
amended.
1.7 "SHARES" shall have the meaning set forth in the recitals
to this Agreement.
2. REGISTRATION UPON OCCURRENCE OF CERTAIN EVENT.
2.1 REGISTRATION OBLIGATION. The Company shall use its best
efforts to file with the SEC on or before July 31, 1999 a registration statement
with respect to the Registrable Securities in the manner described in Section 3
hereof and use its best efforts to cause such registration statement to become
effective on or before November 1, 1999.
2.2 REGISTRATION EXPENSES. The Company will pay all
Registration Expenses (as defined in Section 2.4) in connection with a
registration requested pursuant to this Section 2, whether or not such
registration becomes effective under the Securities Act.
2.3 EFFECTIVE REGISTRATION STATEMENT. A registration pursuant
to this Section 2 will not be deemed to have been effected unless the
registration statement relating thereto has become effective under the
Securities Act; PROVIDED, HOWEVER, that if, after such registration statement
has become effective, the offering of Registrable Shares pursuant to such
registration is interfered with by any stop order, injunction or other order or
requirement of the SEC or other governmental agency or court, such registration
will be deemed not to have been effected.
2.4 REGISTRATION EXPENSES. As used in this Agreement,
"Registration Expenses" shall mean all expenses incident to the Company's
performance of or compliance with this Agreement, including, without limitation,
all SEC, stock exchange, National Association of Securities Dealers, Inc. or
Nasdaq registration and filing fees and expenses, fees and expenses of
compliance with securities or blue sky laws (including, without limitation,
reasonable fees and disbursements of counsel for the Company in connection with
blue sky qualification of the Registrable Securities), rating agency fees,
printing expenses, messenger and delivery expenses, fees and disbursements of
counsel for the Company and all independent certified public accountants
(including the expenses of any annual audit, special audit or "cold comfort"
letters required by or incident to such performance and compliance), securities
acts liability insurance (if the Company so desires), the reasonable fees and
expenses of any special experts retained by the Company in connection with such
registration, and fees and expenses of other persons retained by the Company.
3. REGISTRATION PROCEDURE. In effecting the registration of
the Registrable Securities as provided in this Agreement, the Company shall, at
its sole expense:
(a) Prepare and file with the SEC a registration statement
with respect to the Registrable Securities and use its best efforts to cause
such registration statement to become effective; PROVIDED, HOWEVER, that before
filing with the SEC a registration statement or prospectus or any amendments or
supplements thereto, the Company will (i) furnish to counsel selected by Holder
copies of all such documents proposed to be filed, which documents will be
subject to the review of such counsel, and (ii) notify Holder of any stop order
issued or threatened by the SEC and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered;
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(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to keep such registration
statement effective until April 15, 2002 or such shorter period which will
terminate when all Registrable Securities covered by such registration statement
have been sold, and comply with the provisions of the Act with respect to the
disposition of all the Registrable Securities covered by such registration
statement during such period;
(c) Furnish to Holder copies of the registration statement,
each amendment and supplement thereto (in each case including all exhibits
thereto), the prospectus included in such registration statement (including each
preliminary prospectus) in conformity with the requirements of the Securities
Act and such other documents as Holder may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by Holder;
(d) Use its best efforts to register or qualify the
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as shall be reasonably requested by Holder and do any and all
other acts and things which may be reasonably necessary or advisable to enable
Holder to consummate the disposition in such jurisdictions of the Registrable
Securities owned by Holder; PROVIDED, that the Company shall not be required in
connection therewith or as a condition thereto to (i) qualify generally to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this paragraph (d), (ii) subject itself to taxation in any such
jurisdiction, or (iii) file a general consent to service of process in any such
jurisdiction;
(e) Use its best efforts to cause the Registrable Securities
covered by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company to enable Holder to consummate the
disposition of such Registrable Securities;
(f) Immediately notify Holder at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in such
registration statement contains an untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading and the Company will promptly prepare and
furnish to Holder a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading;
(g) Enter into such customary agreements and take all such
other actions as Holder reasonably requests in order to expedite or facilitate
the disposition of such Registrable Securities, including customary
indemnification;
(h) Make available for inspection by Holder and any attorney,
accountant or other agent retained by Holder (collectively, the "Inspectors"),
all financial and other records, pertinent corporate documents and properties of
the Company as shall be reasonably necessary to enable them to exercise their
due diligence responsibility, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such Inspector
in connection with such registration statement; and
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(i) Otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC.
The Company may require Holder to furnish to the Company such
information regarding the distribution of such Registrable Securities as the
Company may from time to time reasonably request in writing.
Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in paragraph 3(f),
Holder will forthwith discontinue disposition of Registrable Securities,
pursuant to the registration statement covering such Registrable Securities
until Holder's receipt of the copies of the supplemented or amended prospectus
contemplated by paragraph 3(f), and, if so directed by the Company, Holder will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in Holder's possession, of the prospectus covering
such Registrable Securities current at the time of receipt of such notice. In
the event the Company shall give any such notice, the period mentioned in
paragraph 3(b) shall be extended by the greater of (i) three months or (ii) the
number of days during the period from and including the date of the giving of
such notice pursuant to paragraph 3(f) to and including the date when Holder
shall have received the copies of the supplemented or amended prospectus
contemplated by paragraph 3(f).
4. INDEMNIFICATION.
4.1 INDEMNIFICATION BY THE COMPANY. In connection with the
registration of the Registrable Securities under the Securities Act pursuant to
this Agreement, the Company will, and it hereby does, indemnify and hold
harmless, to the full extent permitted by law, Holder, each other person who
participates as an underwriter in the offering or sale of such securities and
each other person, if any, who controls Holder or any such underwriter within
the meaning of the Securities Act, against any and all losses, claims, damages
or liabilities, joint or several, and expenses (including any amounts paid in
any settlement effected with the Company's prior written consent) to which
Holder or any such underwriter or controlling person may become subject under
the Securities Act, common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) or
expenses arising out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such securities were registered under the Securities Act, any
preliminary, final or summary prospectus contained therein, or any amendment or
supplement thereto, or (ii) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and the Company will reimburse Holder and each such
underwriter and controlling person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending such
loss, claim, liability, action or proceedings; PROVIDED, that the Company shall
not be liable in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expenses arises out of
or is based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement or amendment or supplement
thereto or in any such preliminary, final or summary prospectus in reliance upon
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and in conformity with written information furnished to the Company through an
instrument duly executed by Holder or underwriter or controlling person
specifically stating that it is for use in the preparation thereof; and
PROVIDED, FURTHER, that the Company will not be liable to Holder or any person
who participates as an underwriter in the offering or sale of Registrable
Securities or any other person, if any, who controls such underwriter within the
meaning of the Securities Act, under the indemnity agreement in this Section 4.1
with respect to any preliminary prospectus as then amended or supplemented as
the case may be, to the extent that any such loss, claim, damage or liability of
Holder, underwriter or controlling person results from the fact that Holder or
underwriter or controlling person sold Registrable Securities to a person to
whom there was not sent or give, at or prior to the written confirmation of such
sale, a copy of the final prospectus (including any documents incorporated by
reference therein), whichever is most recent, if the Company has previously
furnished copies thereof to Holder or underwriter or controlling person and such
final prospectus, as then amended or supplemented, has corrected any such
misstatement or omission. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of Holder or any
underwriter or controlling person and shall survive the transfer of such
securities by Holder.
4.2 INDEMNIFICATION BY HOLDER. The Company may require, as a
condition to including the Registrable Securities in any registration statement
filed in accordance with this Agreement, that the Company shall have received an
undertaking reasonably satisfactory to it from Holder or any underwriter, to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in Section 4.1) the Company and its controlling persons and all other
prospective sellers and their respective controlling persons with respect to any
statement or alleged statement in or omission or alleged omission from such
registration statement, any preliminary, final or summary prospectus contained
therein, or any amendment or supplement, if such statement or alleged statement
or omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company through an instruction duly
executed by Holder or underwriter specifically stating that it is for use in the
preparation of such registration statement, preliminary, final or summary
prospectus or amendment or supplement, or a document incorporated by reference
into any of the foregoing. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company or Holder
and shall survive the transfer of such securities by Holder; PROVIDED, HOWEVER,
that Holder shall not be liable to the Company under this Section 4.2 for any
amounts exceeding the product of the purchase price per Registrable Security and
the number of Registrable Securities being sold pursuant to such registration
statement or prospectus by Holder.
4.3 NOTICES OF CLAIMS, ETC. Promptly after receipt by an
indemnified party hereunder of written notice of the commencement of any action
or proceeding with respect to which a claim for indemnification may be made
pursuant to this Section 4, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, promptly give written
notice to the latter of the commencement of such action; PROVIDED, that the
failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under the preceding
subsections of this Section 4, except to the extent that the indemnifying party
is actually materially prejudiced by such failure to give notice. In case any
such action is brought against an indemnified party, unless in such indemnified
party's reasonable judgement a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, the indemnifying party
will be entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified to the extent that it may
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wish, with counsel reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties arises in respect of such claim after the assumption of the
defense thereof, and the indemnifying party will not be subject to any liability
for any settlement made without its consent (which consent shall not be
unreasonably withheld). No indemnifying party will consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect to such claim or litigation. An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim, in which event the
indemnifying party shall be obligated to pay the fees and expenses of such
additional counsel or counsels.
4.4 OTHER INDEMNIFICATION. Indemnification similar to that
specified in the preceding Sections 4.1, 4.2 and 4.3 (with appropriate
modifications) shall be give by the Company and Holder with respect to any
required registration or other qualification of securities under any federal or
state law or regulation of governmental authority other than the Securities Act.
5. RULE 144. The Company hereby covenants that the Company
shall file in a timely manner all reports required to be filed by it under the
Securities Act and the Exchange Act (to the extent the Company is subject to the
Exchange Act) and the rules and regulations adopted by the SEC thereunder, and
it will take such further action as Holder may reasonably request, all to the
extent required from time to time to enable Holder to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (i) Rule 144 under the Securities Act, as such
rule may be amended from time to time, or (ii) any similar rule or regulation
hereafter adopted by the SEC relating to the disposition of securities. Upon the
request of Holder, the Company will deliver to Holder a written statement as to
whether it has complied with such requirements, in addition, the Company hereby
agrees that for a period of three months following the date on which a
registration statement filed pursuant to this Agreement shall have become
effective, the Company shall not deregister such securities under Section 12 of
the Exchange Act (even if then permitted to do so pursuant to the Exchange Act
and the rules and regulations promulgated thereunder).
6. NO INCONSISTENT AGREEMENTS. The Company will not hereafter
enter into any agreement with respect to any of its securities which is
inconsistent with the rights granted to Holder in this Agreement.
7. REMEDIES. The Company acknowledges and agrees that in the
event of any breach of this Agreement by it, Holder would be irreparably harmed
and could not be made whole by monetary damages. The Company accordingly agrees
to waive the defense in any action for specific performance that a remedy at law
would be adequate and that Holder, in addition to any other remedy to which they
may be entitled at law or in equity, shall be entitled to compel specific
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performance of this Agreement in any action instituted in any court of the
United States or any state thereof having subject matter jurisdiction for such
action.
8. SALE WITHOUT REGISTRATION. At the time of any transfer of
any Registrable Securities which shall not be registered under the Securities
Act, the Company may require, as a condition of allowing such transfer, that
Holder or the transferee furnish to the Company: (a) such information as is
reasonably necessary in order to establish that such transfer may be made
without registration under the Securities Act; and (b) at the expense of Holder
or the transferee, an opinion of counsel, satisfactory in form and substance to
the Company, to the effect that such transfer may be made without registration
under the Securities Act; PROVIDED, that nothing contained in this Section 8
shall relieve the Company from complying with any request for registration,
qualification or compliance made pursuant to these registration rights
provisions.
9. GENERAL PROVISIONS.
9.1 WAIVERS. No action taken pursuant to this Agreement,
including any investigation by or on behalf of any party hereto, shall be deemed
to constitute a waiver by the party taking such action or compliance with any
representation, warranty, covenant, or agreement contained herein or in any
ancillary document. The waiver by any party hereto of a breach of any provision
of this Agreement shall not operate or be construed as a waiver of any other or
subsequent breach. The waiver by any party of any of the conditions precedent to
its respective obligations under this Agreement shall not preclude it from
seeking redress for breach of this Agreement.
9.2 NOTICES. All notices and other communications which are
required or may be given under this Agreement shall be in writing and shall be
deemed to have been duly given if delivered personally, by courier service,
telecopied, or mailed by registered or certified mail, postage prepaid, return
receipt requested, to the party to whom the same is so delivered or mailed:
(a) if to the Company:
Telenetics Corporation
26772 Vista Terrace Drive
Lake Forest, California 92630
Attn: Michael A. Armani
With a copy to:
Rutan & Tucker, L.L.P.
611 Anton Blvd., Ste. 1400
Costa Mesa, California 92626
Attn: Larry A. Cerutti, Esq.
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(b) if to Holder:
Drew Lance
P.O. Box 6953
Tahoe City, California 96145
or to such other address as any of the above shall have specified by notice
hereunder. Notices delivered personally, by mail or telecopied shall be deemed
communicated as of actual receipt.
9.3 ENTIRE AGREEMENT; AMENDMENTS. This Agreement constitutes
the entire agreement among the parties hereto with respect to the subject matter
hereof, and supersedes any and all prior agreements and undertakings, oral or
written, concerning the subject matter hereof. This Agreement may not be changed
or terminated orally, and may only be changed or terminated by a writing signed
by the party against whom such change or termination is sought.
9.4 BINDING EFFECT; BENEFITS. This Agreement shall inure to
the benefit of and shall be binding upon and enforceable by the parties hereto
and their respective heirs, legal representatives, successors, and assigns.
Nothing in this Agreement, expressed or implied, is intended to or shall confer
on any person other than the parties hereto any rights, remedies, obligations,
or liabilities under or by reason of this Agreement.
9.5 HEADINGS. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
9.6 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall be deemed to be one and the same instrument.
9.7 RULES OF CONSTRUCTION. In this Agreement, unless the
context otherwise requires, words in the singular include the plural, and in the
plural include the singular, and words of the masculine gender include the
feminine and the neuter, and, when the sense so indicates, words of the neuter
gender may refer to any gender.
9.8 ASSIGNMENT. This Agreement is not assignable without the
prior written consent of the nonassigning party or parties.
9.9 GOVERNING LAW; VENUE. The validity, performance, and
enforcement of this Agreement shall be governed by the laws of the State of
California. Any action commenced hereunder shall be conducted before a court of
appropriate jurisdiction in Orange County, California.
9.10 COOPERATION. The parties agree to execute such further
documents and take such further actions as necessary to carry out the provisions
of this Agreement and to fully accomplish its purpose and intent.
9.11 DISPUTE RESOLUTION. Except for matters with respect to
which injunctive relief is sought, all claims, disputes and other matters in
controversy (a "dispute") arising directly or indirectly out of or related to
this Agreement, or the breach thereof, whether contractual or noncontractual,
and whether during the term or after the termination of this Agreement, shall be
resolved exclusively according to the procedures set forth in this Section 9.11.
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(a) MEDIATION. Neither party shall commence an
arbitration proceeding pursuant to the provisions of Section 9.11(b) unless that
party first gives a written notice (a "Dispute Notice") to the other party
setting forth the nature of the dispute. The parties shall attempt in good faith
to resolve the dispute by mediation under the Commercial Mediation Rules of the
American Arbitration Association ("AAA") in effect on the date of the Dispute
Notice. If the parties cannot agree on the selection of a mediator within twenty
(20) days after delivery of the Dispute Notice, the mediator will be selected by
the AAA. If the dispute has not been resolved by mediation as provided above
within sixty (60) days after delivery of the Dispute Notice, then the dispute
shall be determined by arbitration in accordance with the provisions of Section
9.11(b).
(b) ARBITRATION.
(1) Any dispute that is not settled through mediation
as provided in Section 9.11(a) above shall be resolved by arbitration in Orange
County, California, governed by the Federal Arbitration Act, 9 U.S.C. ss. 1 et
seq, and administered by the American Arbitration Association under its
Commercial Arbitration Rules in effect on the date of the Dispute Notice, as
modified by the provisions of this Section 9.11(b), by a single arbitrator.
Persons eligible to be selected as an arbitrator shall be limited to lawyers
with excellent academic and professional credentials (i) who are or have been a
partner in a highly respected law firm for at least 15 years specializing in
either general commercial litigation or general corporate and commercial matters
and (ii) who have had both training and experience as an arbitrator. Each party
shall be entitled to strike on a peremptory basis, for any reason or no reason,
any or all of the names of potential arbitrators on the list submitted to the
parties by the AAA as being qualified in accordance with the criteria set forth
herein. If the parties cannot agree on a mutually acceptable single arbitrator
from the one or more lists submitted by the AAA, the AAA shall designate three
persons who, in its opinion, meet the criteria set forth herein, which designees
may include persons named on any list previously submitted by the AAA. Each
party shall be entitled to strike one of such three designees on a peremptory
basis, indicating its order of preference with respect to the remaining
designees, and the selection of the arbitrator shall be made from among such
designee(s) which have not been so stricken by either party in accordance with
their indicated order of mutual preference to the extent possible. The
arbitrator shall base the award on applicable law and judicial precedent and,
unless both parties agree otherwise, shall include in such award the findings of
fact and conclusions of law upon which the award is based. Judgment on the award
rendered by the arbitrator(s) may be entered in any court having jurisdiction
thereof.
(2) Notwithstanding the foregoing, if the dispute is
determined by a single arbitrator as contemplated, or if the parties agree to a
panel of three arbitrators to be selected in accordance with the applicable AAA
rules, and in the event the dispute is determined by less than the unanimous
decision of the three arbitrators, then upon the application by either party to
a court for an order confirming, modifying or vacating the award, the court
shall have the power to review whether, as a matter of law based on the findings
of fact determined by the arbitrator, the award should be confirmed, modified or
vacated in order to correct any errors of law made by the arbitrator. In order
to effectuate judicial review limited to issues of law, the parties agree (and
shall stipulate to the court) that the findings of fact made by the arbitrator
shall be final and binding on the parties and shall serve as the facts to be
submitted to and relied on by the court in determining the extent to which the
award should be confirmed, modified or vacated.
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(c) COSTS AND ATTORNEYS' FEES. If either party fails to
proceed with mediation or arbitration as provided herein or unsuccessfully seeks
to stay such mediation or arbitration, or fails to comply with any arbitration
award, or is unsuccessful in vacating or modifying the award pursuant to a
petition or application for judicial review, the other party shall be entitled
to be awarded costs, including reasonable attorneys' fees, paid or incurred by
such other party in successfully compelling such arbitration or defending
against the attempt to stay, vacate or modify such arbitration award and/or
successfully defending or enforcing the award.
(d) TOLLING STATUTE OF LIMITATIONS. All applicable
statutes of limitations and defenses based upon the passage of time shall be
tolled while the procedures specified in this Section 9.11 are pending. The
parties will take such action, if any, required to effectuate such tolling.
9.12 ATTORNEYS' FEES. The prevailing party in any proceedings
(including, without limitation any arbitration proceedings) arising in
connection with this Agreement shall be entitled to reimbursement for his or its
reasonable costs incurred in connection therewith, including attorneys' fees.
9.13 SET-OFF. Each party hereto shall be entitled to set-off
against any amount it may owe to any other party under this Agreement or any
other agreement executed in connection herewith any and all amounts that are due
to that party by such other party under or in connection with the terms of this
Agreement.
9.14 TIME OF ESSENCE. Time is of essence in connection with
the performance of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the day and date first above written.
TELENETICS CORPORATION
By:/S/ Michael A. Armani
----------------------------------
Michael A. Armani, President
"Company"
/S/ Drew Lance
----------------------------------
Drew Lance
"Holder"
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated
as of July 26, 1999, is made and entered into by and between Telenetics
Corporation, a California corporation ("Company"), and Hal Tenney ("Holder").
RECITALS
A. Holder has been issued 15,142 shares (the "Shares") of the
Company's Common Stock, no par value per share (the "Common Stock"), pursuant to
the terms and conditions of that certain Asset Purchase Agreement dated of even
date herewith among the Company, Holder, T. Brent Henderson, Robert McLean and
Drew Lance (the "Asset Purchase Agreement").
B. In accordance with the requirements of the Asset Purchase
Agreement, the Company desires to provide Holder with registration rights with
respect to the Shares owned by Holder upon the terms and conditions hereinafter
set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and conditions hereinafter set forth, the parties hereto hereby
agree as follows:
1. DEFINITIONS.
1.1 "COMMON STOCK" shall mean the Common Stock, no par value
per share, of the Company.
1.2 "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended.
1.3 "REGISTRABLE SECURITIES" shall mean (i) the Shares and
(ii) any securities issued or issuable with respect to such Shares by way of a
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consideration or other reorganization. As to any
particular Registrable Securities, once issued, such shares shall cease to be
Registrable Securities when (a) such shares shall have been registered under the
Securities Act, the registration statement with respect to the sale of such
shares shall have become effective under the Securities Act and such shares
shall have been disposed of pursuant to such effective registration statement,
(b) such shares shall have been distributed pursuant to Rule 144 (or any similar
provision relating to the disposition of securities then in force) under the
Securities Act, (c) such shares shall have been otherwise transferred, new
certificates or other evidences of ownership for them not bearing a legend
restricting further transfer and not subject to any stop-transfer order or other
restrictions on transfer shall have been delivered by the Company and subsequent
disposition of such shares shall not require registration or qualification of
such shares under the Securities Act or any state securities laws then in force,
or (d) such shares shall cease to be outstanding, including as a result of the
provisions of Section 2(c) of the Asset Purchase Agreement.
1.4 "REGISTRATION EXPENSES" shall have the meaning set forth
in Section 2.4.
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1.5 "SEC" shall mean the Securities and Exchange Commission.
1.6 "SECURITIES ACT" shall mean the Securities Act of 1993, as
amended.
1.7 "SHARES" shall have the meaning set forth in the recitals
to this Agreement.
2. REGISTRATION UPON OCCURRENCE OF CERTAIN EVENT.
2.1 REGISTRATION OBLIGATION. The Company shall use its best
efforts to file with the SEC on or before July 31, 1999 a registration statement
with respect to the Registrable Securities in the manner described in Section 3
hereof and use its best efforts to cause such registration statement to become
effective on or before November 1, 1999.
2.2 REGISTRATION EXPENSES. The Company will pay all
Registration Expenses (as defined in Section 2.4) in connection with a
registration requested pursuant to this Section 2, whether or not such
registration becomes effective under the Securities Act.
2.3 EFFECTIVE REGISTRATION STATEMENT. A registration pursuant
to this Section 2 will not be deemed to have been effected unless the
registration statement relating thereto has become effective under the
Securities Act; PROVIDED, HOWEVER, that if, after such registration statement
has become effective, the offering of Registrable Shares pursuant to such
registration is interfered with by any stop order, injunction or other order or
requirement of the SEC or other governmental agency or court, such registration
will be deemed not to have been effected.
2.4 REGISTRATION EXPENSES. As used in this Agreement,
"Registration Expenses" shall mean all expenses incident to the Company's
performance of or compliance with this Agreement, including, without limitation,
all SEC, stock exchange, National Association of Securities Dealers, Inc. or
Nasdaq registration and filing fees and expenses, fees and expenses of
compliance with securities or blue sky laws (including, without limitation,
reasonable fees and disbursements of counsel for the Company in connection with
blue sky qualification of the Registrable Securities), rating agency fees,
printing expenses, messenger and delivery expenses, fees and disbursements of
counsel for the Company and all independent certified public accountants
(including the expenses of any annual audit, special audit or "cold comfort"
letters required by or incident to such performance and compliance), securities
acts liability insurance (if the Company so desires), the reasonable fees and
expenses of any special experts retained by the Company in connection with such
registration, and fees and expenses of other persons retained by the Company.
3. REGISTRATION PROCEDURE. In effecting the registration of
the Registrable Securities as provided in this Agreement, the Company shall, at
its sole expense:
(a) Prepare and file with the SEC a registration statement
with respect to the Registrable Securities and use its best efforts to cause
such registration statement to become effective; PROVIDED, HOWEVER, that before
filing with the SEC a registration statement or prospectus or any amendments or
supplements thereto, the Company will (i) furnish to counsel selected by Holder
copies of all such documents proposed to be filed, which documents will be
subject to the review of such counsel, and (ii) notify Holder of any stop order
issued or threatened by the SEC and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered;
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(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to keep such registration
statement effective until April 15, 2002 or such shorter period which will
terminate when all Registrable Securities covered by such registration statement
have been sold, and comply with the provisions of the Act with respect to the
disposition of all the Registrable Securities covered by such registration
statement during such period;
(c) Furnish to Holder copies of the registration statement,
each amendment and supplement thereto (in each case including all exhibits
thereto), the prospectus included in such registration statement (including each
preliminary prospectus) in conformity with the requirements of the Securities
Act and such other documents as Holder may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by Holder;
(d) Use its best efforts to register or qualify the
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as shall be reasonably requested by Holder and do any and all
other acts and things which may be reasonably necessary or advisable to enable
Holder to consummate the disposition in such jurisdictions of the Registrable
Securities owned by Holder; PROVIDED, that the Company shall not be required in
connection therewith or as a condition thereto to (i) qualify generally to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this paragraph (d), (ii) subject itself to taxation in any such
jurisdiction, or (iii) file a general consent to service of process in any such
jurisdiction;
(e) Use its best efforts to cause the Registrable Securities
covered by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company to enable Holder to consummate the
disposition of such Registrable Securities;
(f) Immediately notify Holder at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in such
registration statement contains an untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading and the Company will promptly prepare and
furnish to Holder a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading;
(g) Enter into such customary agreements and take all such
other actions as Holder reasonably requests in order to expedite or facilitate
the disposition of such Registrable Securities, including customary
indemnification;
(h) Make available for inspection by Holder and any attorney,
accountant or other agent retained by Holder (collectively, the "Inspectors"),
all financial and other records, pertinent corporate documents and properties of
the Company as shall be reasonably necessary to enable them to exercise their
due diligence responsibility, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such Inspector
in connection with such registration statement; and
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(i) Otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC.
The Company may require Holder to furnish to the Company such
information regarding the distribution of such Registrable Securities as the
Company may from time to time reasonably request in writing.
Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in paragraph 3(f),
Holder will forthwith discontinue disposition of Registrable Securities,
pursuant to the registration statement covering such Registrable Securities
until Holder's receipt of the copies of the supplemented or amended prospectus
contemplated by paragraph 3(f), and, if so directed by the Company, Holder will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in Holder's possession, of the prospectus covering
such Registrable Securities current at the time of receipt of such notice. In
the event the Company shall give any such notice, the period mentioned in
paragraph 3(b) shall be extended by the greater of (i) three months or (ii) the
number of days during the period from and including the date of the giving of
such notice pursuant to paragraph 3(f) to and including the date when Holder
shall have received the copies of the supplemented or amended prospectus
contemplated by paragraph 3(f).
4. INDEMNIFICATION.
4.1 INDEMNIFICATION BY THE COMPANY. In connection with the
registration of the Registrable Securities under the Securities Act pursuant to
this Agreement, the Company will, and it hereby does, indemnify and hold
harmless, to the full extent permitted by law, Holder, each other person who
participates as an underwriter in the offering or sale of such securities and
each other person, if any, who controls Holder or any such underwriter within
the meaning of the Securities Act, against any and all losses, claims, damages
or liabilities, joint or several, and expenses (including any amounts paid in
any settlement effected with the Company's prior written consent) to which
Holder or any such underwriter or controlling person may become subject under
the Securities Act, common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) or
expenses arising out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such securities were registered under the Securities Act, any
preliminary, final or summary prospectus contained therein, or any amendment or
supplement thereto, or (ii) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and the Company will reimburse Holder and each such
underwriter and controlling person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending such
loss, claim, liability, action or proceedings; PROVIDED, that the Company shall
not be liable in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expenses arises out of
or is based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement or amendment or supplement
thereto or in any such preliminary, final or summary prospectus in reliance upon
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and in conformity with written information furnished to the Company through an
instrument duly executed by Holder or underwriter or controlling person
specifically stating that it is for use in the preparation thereof; and
PROVIDED, FURTHER, that the Company will not be liable to Holder or any person
who participates as an underwriter in the offering or sale of Registrable
Securities or any other person, if any, who controls such underwriter within the
meaning of the Securities Act, under the indemnity agreement in this Section 4.1
with respect to any preliminary prospectus as then amended or supplemented as
the case may be, to the extent that any such loss, claim, damage or liability of
Holder, underwriter or controlling person results from the fact that Holder or
underwriter or controlling person sold Registrable Securities to a person to
whom there was not sent or give, at or prior to the written confirmation of such
sale, a copy of the final prospectus (including any documents incorporated by
reference therein), whichever is most recent, if the Company has previously
furnished copies thereof to Holder or underwriter or controlling person and such
final prospectus, as then amended or supplemented, has corrected any such
misstatement or omission. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of Holder or any
underwriter or controlling person and shall survive the transfer of such
securities by Holder.
4.2 INDEMNIFICATION BY HOLDER. The Company may require, as a
condition to including the Registrable Securities in any registration statement
filed in accordance with this Agreement, that the Company shall have received an
undertaking reasonably satisfactory to it from Holder or any underwriter, to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in Section 4.1) the Company and its controlling persons and all other
prospective sellers and their respective controlling persons with respect to any
statement or alleged statement in or omission or alleged omission from such
registration statement, any preliminary, final or summary prospectus contained
therein, or any amendment or supplement, if such statement or alleged statement
or omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company through an instruction duly
executed by Holder or underwriter specifically stating that it is for use in the
preparation of such registration statement, preliminary, final or summary
prospectus or amendment or supplement, or a document incorporated by reference
into any of the foregoing. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company or Holder
and shall survive the transfer of such securities by Holder; PROVIDED, HOWEVER,
that Holder shall not be liable to the Company under this Section 4.2 for any
amounts exceeding the product of the purchase price per Registrable Security and
the number of Registrable Securities being sold pursuant to such registration
statement or prospectus by Holder.
4.3 NOTICES OF CLAIMS, ETC. Promptly after receipt by an
indemnified party hereunder of written notice of the commencement of any action
or proceeding with respect to which a claim for indemnification may be made
pursuant to this Section 4, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, promptly give written
notice to the latter of the commencement of such action; PROVIDED, that the
failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under the preceding
subsections of this Section 4, except to the extent that the indemnifying party
is actually materially prejudiced by such failure to give notice. In case any
such action is brought against an indemnified party, unless in such indemnified
party's reasonable judgement a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, the indemnifying party
will be entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified to the extent that it may
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wish, with counsel reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties arises in respect of such claim after the assumption of the
defense thereof, and the indemnifying party will not be subject to any liability
for any settlement made without its consent (which consent shall not be
unreasonably withheld). No indemnifying party will consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect to such claim or litigation. An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim, in which event the
indemnifying party shall be obligated to pay the fees and expenses of such
additional counsel or counsels.
4.4 OTHER INDEMNIFICATION. Indemnification similar to that
specified in the preceding Sections 4.1, 4.2 and 4.3 (with appropriate
modifications) shall be give by the Company and Holder with respect to any
required registration or other qualification of securities under any federal or
state law or regulation of governmental authority other than the Securities Act.
5. RULE 144. The Company hereby covenants that the Company
shall file in a timely manner all reports required to be filed by it under the
Securities Act and the Exchange Act (to the extent the Company is subject to the
Exchange Act) and the rules and regulations adopted by the SEC thereunder, and
it will take such further action as Holder may reasonably request, all to the
extent required from time to time to enable Holder to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (i) Rule 144 under the Securities Act, as such
rule may be amended from time to time, or (ii) any similar rule or regulation
hereafter adopted by the SEC relating to the disposition of securities. Upon the
request of Holder, the Company will deliver to Holder a written statement as to
whether it has complied with such requirements, in addition, the Company hereby
agrees that for a period of three months following the date on which a
registration statement filed pursuant to this Agreement shall have become
effective, the Company shall not deregister such securities under Section 12 of
the Exchange Act (even if then permitted to do so pursuant to the Exchange Act
and the rules and regulations promulgated thereunder).
6. NO INCONSISTENT AGREEMENTS. The Company will not hereafter
enter into any agreement with respect to any of its securities which is
inconsistent with the rights granted to Holder in this Agreement.
7. REMEDIES. The Company acknowledges and agrees that in the
event of any breach of this Agreement by it, Holder would be irreparably harmed
and could not be made whole by monetary damages. The Company accordingly agrees
to waive the defense in any action for specific performance that a remedy at law
would be adequate and that Holder, in addition to any other remedy to which they
may be entitled at law or in equity, shall be entitled to compel specific
6
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performance of this Agreement in any action instituted in any court of the
United States or any state thereof having subject matter jurisdiction for such
action.
8. SALE WITHOUT REGISTRATION. At the time of any transfer of
any Registrable Securities which shall not be registered under the Securities
Act, the Company may require, as a condition of allowing such transfer, that
Holder or the transferee furnish to the Company: (a) such information as is
reasonably necessary in order to establish that such transfer may be made
without registration under the Securities Act; and (b) at the expense of Holder
or the transferee, an opinion of counsel, satisfactory in form and substance to
the Company, to the effect that such transfer may be made without registration
under the Securities Act; PROVIDED, that nothing contained in this Section 8
shall relieve the Company from complying with any request for registration,
qualification or compliance made pursuant to these registration rights
provisions.
9. GENERAL PROVISIONS.
9.1 WAIVERS. No action taken pursuant to this Agreement,
including any investigation by or on behalf of any party hereto, shall be deemed
to constitute a waiver by the party taking such action or compliance with any
representation, warranty, covenant, or agreement contained herein or in any
ancillary document. The waiver by any party hereto of a breach of any provision
of this Agreement shall not operate or be construed as a waiver of any other or
subsequent breach. The waiver by any party of any of the conditions precedent to
its respective obligations under this Agreement shall not preclude it from
seeking redress for breach of this Agreement.
9.2 NOTICES. All notices and other communications which are
required or may be given under this Agreement shall be in writing and shall be
deemed to have been duly given if delivered personally, by courier service,
telecopied, or mailed by registered or certified mail, postage prepaid, return
receipt requested, to the party to whom the same is so delivered or mailed:
(a) if to the Company:
Telenetics Corporation
26772 Vista Terrace Drive
Lake Forest, California 92630
Attn: Michael A. Armani
With a copy to:
Rutan & Tucker, L.L.P.
611 Anton Blvd., Ste. 1400
Costa Mesa, California 92626
Attn: Larry A. Cerutti, Esq.
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(b) if to Holder:
Hal Tenney
9117 Turtle Creek Lane
Fair Oaks, California 95628
or to such other address as any of the above shall have specified by notice
hereunder. Notices delivered personally, by mail or telecopied shall be deemed
communicated as of actual receipt.
9.3 ENTIRE AGREEMENT; AMENDMENTS. This Agreement constitutes
the entire agreement among the parties hereto with respect to the subject matter
hereof, and supersedes any and all prior agreements and undertakings, oral or
written, concerning the subject matter hereof. This Agreement may not be changed
or terminated orally, and may only be changed or terminated by a writing signed
by the party against whom such change or termination is sought.
9.4 BINDING EFFECT; BENEFITS. This Agreement shall inure to
the benefit of and shall be binding upon and enforceable by the parties hereto
and their respective heirs, legal representatives, successors, and assigns.
Nothing in this Agreement, expressed or implied, is intended to or shall confer
on any person other than the parties hereto any rights, remedies, obligations,
or liabilities under or by reason of this Agreement.
9.5 HEADINGS. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
9.6 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall be deemed to be one and the same instrument.
9.7 RULES OF CONSTRUCTION. In this Agreement, unless the
context otherwise requires, words in the singular include the plural, and in the
plural include the singular, and words of the masculine gender include the
feminine and the neuter, and, when the sense so indicates, words of the neuter
gender may refer to any gender.
9.8 ASSIGNMENT. This Agreement is not assignable without the
prior written consent of the nonassigning party or parties.
9.9 GOVERNING LAW; VENUE. The validity, performance, and
enforcement of this Agreement shall be governed by the laws of the State of
California. Any action commenced hereunder shall be conducted before a court of
appropriate jurisdiction in Orange County, California.
9.10 COOPERATION. The parties agree to execute such further
documents and take such further actions as necessary to carry out the provisions
of this Agreement and to fully accomplish its purpose and intent.
9.11 DISPUTE RESOLUTION. Except for matters with respect to
which injunctive relief is sought, all claims, disputes and other matters in
controversy (a "dispute") arising directly or indirectly out of or related to
this Agreement, or the breach thereof, whether contractual or noncontractual,
and whether during the term or after the termination of this Agreement, shall be
resolved exclusively according to the procedures set forth in this Section 9.11.
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(a) MEDIATION. Neither party shall commence an
arbitration proceeding pursuant to the provisions of Section 9.11(b) unless that
party first gives a written notice (a "Dispute Notice") to the other party
setting forth the nature of the dispute. The parties shall attempt in good faith
to resolve the dispute by mediation under the Commercial Mediation Rules of the
American Arbitration Association ("AAA") in effect on the date of the Dispute
Notice. If the parties cannot agree on the selection of a mediator within twenty
(20) days after delivery of the Dispute Notice, the mediator will be selected by
the AAA. If the dispute has not been resolved by mediation as provided above
within sixty (60) days after delivery of the Dispute Notice, then the dispute
shall be determined by arbitration in accordance with the provisions of Section
9.11(b).
(b) ARBITRATION.
(1) Any dispute that is not settled through mediation
as provided in Section 9.11(a) above shall be resolved by arbitration in Orange
County, California, governed by the Federal Arbitration Act, 9 U.S.C. ss. 1 et
seq, and administered by the American Arbitration Association under its
Commercial Arbitration Rules in effect on the date of the Dispute Notice, as
modified by the provisions of this Section 9.11(b), by a single arbitrator.
Persons eligible to be selected as an arbitrator shall be limited to lawyers
with excellent academic and professional credentials (i) who are or have been a
partner in a highly respected law firm for at least 15 years specializing in
either general commercial litigation or general corporate and commercial matters
and (ii) who have had both training and experience as an arbitrator. Each party
shall be entitled to strike on a peremptory basis, for any reason or no reason,
any or all of the names of potential arbitrators on the list submitted to the
parties by the AAA as being qualified in accordance with the criteria set forth
herein. If the parties cannot agree on a mutually acceptable single arbitrator
from the one or more lists submitted by the AAA, the AAA shall designate three
persons who, in its opinion, meet the criteria set forth herein, which designees
may include persons named on any list previously submitted by the AAA. Each
party shall be entitled to strike one of such three designees on a peremptory
basis, indicating its order of preference with respect to the remaining
designees, and the selection of the arbitrator shall be made from among such
designee(s) which have not been so stricken by either party in accordance with
their indicated order of mutual preference to the extent possible. The
arbitrator shall base the award on applicable law and judicial precedent and,
unless both parties agree otherwise, shall include in such award the findings of
fact and conclusions of law upon which the award is based. Judgment on the award
rendered by the arbitrator(s) may be entered in any court having jurisdiction
thereof.
(2) Notwithstanding the foregoing, if the dispute is
determined by a single arbitrator as contemplated, or if the parties agree to a
panel of three arbitrators to be selected in accordance with the applicable AAA
rules, and in the event the dispute is determined by less than the unanimous
decision of the three arbitrators, then upon the application by either party to
a court for an order confirming, modifying or vacating the award, the court
shall have the power to review whether, as a matter of law based on the findings
of fact determined by the arbitrator, the award should be confirmed, modified or
vacated in order to correct any errors of law made by the arbitrator. In order
to effectuate judicial review limited to issues of law, the parties agree (and
shall stipulate to the court) that the findings of fact made by the arbitrator
shall be final and binding on the parties and shall serve as the facts to be
submitted to and relied on by the court in determining the extent to which the
award should be confirmed, modified or vacated.
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(c) COSTS AND ATTORNEYS' FEES. If either party fails to
proceed with mediation or arbitration as provided herein or unsuccessfully seeks
to stay such mediation or arbitration, or fails to comply with any arbitration
award, or is unsuccessful in vacating or modifying the award pursuant to a
petition or application for judicial review, the other party shall be entitled
to be awarded costs, including reasonable attorneys' fees, paid or incurred by
such other party in successfully compelling such arbitration or defending
against the attempt to stay, vacate or modify such arbitration award and/or
successfully defending or enforcing the award.
(d) TOLLING STATUTE OF LIMITATIONS. All applicable
statutes of limitations and defenses based upon the passage of time shall be
tolled while the procedures specified in this Section 9.11 are pending. The
parties will take such action, if any, required to effectuate such tolling.
9.12 ATTORNEYS' FEES. The prevailing party in any proceedings
(including, without limitation any arbitration proceedings) arising in
connection with this Agreement shall be entitled to reimbursement for his or its
reasonable costs incurred in connection therewith, including attorneys' fees.
9.13 SET-OFF. Each party hereto shall be entitled to set-off
against any amount it may owe to any other party under this Agreement or any
other agreement executed in connection herewith any and all amounts that are due
to that party by such other party under or in connection with the terms of this
Agreement.
9.14 TIME OF ESSENCE. Time is of essence in connection with
the performance of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the day and date first above written.
TELENETICS CORPORATION
By: /S/ Michael A. Armani
---------------------------------
Michael A. Armani, President
"Company"
/S/ Hal Tenney
--------------------------------
Hal Tenney
"Holder"
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WARRANT CERTIFICATE
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN
REGISTERED UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
No. W-____ _____________, 1998
Certificate for _______ Common Stock Purchase Warrants
EXERCISABLE COMMENCING ON THE DATE OF ISSUANCE
HEREOF AND ENDING ON THE EXPIRATION DATE
THIS CERTIFIES that ________________________ or his or its registered
transferees or assigns is the registered holder (the "Warrantholder") of the
number of Common Stock Purchase Warrants ("Warrants") set forth above, each of
which represents the right to purchase one share ("Share") of common stock, no
par value per share ("Common Stock"), of Telenetics Corporation, a California
corporation (the "Company"), at the exercise price determined as provided
hereinafter (such exercise price per share as adjusted from time to time is
referred to herein as the "Exercise Price"), at any time prior to the Expiration
Date (as hereinafter defined), by surrendering this Warrant Certificate (the
"Warrant Certificate"), with the form of Election to Purchase set forth hereon
duly executed with signatures guaranteed by a member firm of a national
securities exchange, a commercial bank or a trust company located in the United
States of America, or a member of the National Association of Securities
Dealers, Inc., at the Company's principal executive office ("Office"), and by
paying in full the Exercise Price, plus transfer taxes, if any, in the manner
set forth in Section 4(b).
1. REGISTRATION.
(a) This Warrant Certificate shall be numbered and registered
in the name of the record holder to whom it is distributed, as provided by the
Company; and the Company shall maintain a list showing the name, address and
number of Warrants held by each of the Warrantholders of record.
(b) The Company may deem and treat the Warrantholder of record
as the absolute owner of the Warrant Certificate (notwithstanding any notation
of ownership or other writing thereon made by anyone) for the purpose of any
exercise thereof and any distribution to the holder thereof and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
2. REGISTRATION OF TRANSFERS AND EXCHANGES.
(a) The Company shall register the transfer of this Warrant
Certificate upon the records to be maintained by it for that purpose, upon
surrender of this Warrant Certificate accompanied (if so required by the
Company) by (i) a written instrument or instruments of transfer in form
satisfactory to the Company, duly executed by the registered holder(s) thereof
or by the duly appointed legal representative thereof or by a duly authorized
attorney, and (ii) an opinion of counsel, reasonably satisfactory to the
Company, that such transfer is exempt from registration under the Securities Act
of 1933, as amended (the "Securities Act"). Upon any such registration or
transfer, a new Warrant Certificate shall be issued to the transferee, and the
surrendered Warrant Certificate shall be cancelled by the Company.
(b) Warrant Certificates may be exchanged for another Warrant
Certificate or Warrant Certificates of like tenor entitling the holder thereof
to purchase a like aggregate number of Shares as the Warrant Certificate(s)
surrendered then entitle such holder to purchase. Any holder of a Warrant
desiring to exchange Warrant Certificates shall make such request in writing
delivered to the Company, and shall surrender, properly endorsed, the
certificate(s) evidencing the Warrant or Warrants to be so exchanged. Thereupon,
the Company shall countersign and deliver to the person entitled thereto a new
Warrant Certificate or Certificates, as the case may be, as so requested.
Warrant Certificates surrendered for exchange, transfer or exercise shall be
cancelled by the Company.
<PAGE>
3. MUTILATED OR MISSING WARRANT CERTIFICATES. If this Warrant
Certificate shall be mutilated, lost, stolen or destroyed, the Company shall
issue and deliver, in exchange and substitution for and upon cancellation of the
mutilated Warrant Certificate, or in lieu of and substitution for the Warrant
Certificate lost, stolen or destroyed, a new Warrant Certificate of like tenor
and representing an equivalent number of Warrants, but only upon receipt of
evidence satisfactory to the Company of such loss, theft or destruction of such
Warrant Certificate and an indemnity or bond, if requested, satisfactory to the
Company. Applicants for such substitute Warrant Certificates shall also comply
with such other reasonable regulations and pay such other reasonable charges as
the Company may prescribe.
4. DURATION AND EXERCISE OF WARRANTS.
(a) The Warrants represented by this Warrant Certificate shall
expire at 5:00 p.m., Lake Forest, California time, on September 30, 2000.
(b) Subject to the provisions of this Warrant Certificate and
prior to the close of business on the Expiration Date, the Warrantholder shall
have the right to purchase from the Company the number of Shares specified above
at the per Share Exercise Price determined in accordance with Section 5. In
order to exercise such right, the Warrantholder shall surrender this Warrant
Certificate(s) evidencing such Warrants to the Company at the Office with the
form of Election to Purchase set forth hereon duly completed and signed, and
shall tender payment in full of the Exercise Price to the Company for the
Company's account, together with such taxes as are specified in Section 10, for
each Share with respect to which such Warrants are being exercised. Such
Exercise Price and taxes shall be paid in full by cash, certified check, bank
cashier's check or money order, payable in United States currency to the order
of the Company. The Warrantholder shall, as a condition to exercise of the
Warrants, deliver a duly executed certificate substantially in the form of
EXHIBIT A hereto.
(c) The Warrants evidenced by this Warrant Certificate shall
be exercisable only in multiples of one (1) Warrant. In the event that less than
all of the Warrants evidenced by this Warrant Certificate are exercised at any
time prior to the close of business on the Expiration Date, one or more new
Warrant Certificate(s) shall be issued to the Warrantholder, or his duly
authorized assigns, by the Company for the remaining number of Warrants
evidenced by the Warrant Certificate so surrendered.
5. EXERCISE PRICE. Subject to adjustment pursuant to Section 7
hereof, the price per share at which Shares shall be purchasable upon exercise
of Warrants ("Exercise Price") shall be $.20.
6. ISSUANCE OF SHARE CERTIFICATES.
(a) Upon surrender of this Warrant Certificate, payment of the
Exercise Price and the delivery of a certificate in the form of EXHIBIT A
hereto, the Company shall issue certificates representing Shares (the "Share
Certificates") in the name of the tendering Warrantholder and deliver the Share
Certificates to the tendering Warrantholder or his designee.
(b) The Share Certificate shall bear a legend in substantially
the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("ACT"), AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF
UNLESS THEY HAVE BEEN REGISTERED UNDER THE ACT OR AN EXEMPTION
FROM REGISTRATION IS AVAILABLE."
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7. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES PURCHASABLE
PER NUMBER OF WARRANTS. The Exercise Price and the number of Shares purchasable
upon the exercise of each Warrant are subject to adjustment from time to time
upon the occurrence of the events specified in this Section 7.
(a) ADJUSTMENTS OF EXERCISE PRICE FOR STOCK DIVIDENDS AND FOR
COMBINATIONS OR SUBDIVISIONS OF COMMON STOCK. If the Company shall at any time
after the date of this Warrant Certificate (i) declare any dividend or make any
other distribution on shares of Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding shares of Common Stock, (iii) combine the
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, or (iv) issue any equity securities (the "New Shares") in a
reclassification of the shares of Common Stock, the Exercise Price in effect at
the record date for such distribution or at the effective date of such
subdivision, combination or reclassification, and/or the number or kind of
equity securities issuable on such date, shall be proportionately adjusted
upward or downward, as the case may be, so that the holder of any Warrant
exercised after such time shall be entitled to receive the aggregate number and
kind of Shares or New Shares, as applicable, that, if such Warrant had been
exercised immediately prior to such date, he would have owned upon such exercise
and have been entitled to receive by virtue of such distribution, subdivision,
combination or reclassification. Such adjustment shall be made successively
whenever any event listed above shall occur.
(b) ADJUSTMENTS OF EXERCISE PRICE UPON ISSUANCE OF ADDITIONAL
SHARES OF COMMON STOCK. If the Company shall sell or issue any shares of Common
Stock (including deemed issuances of additional shares of Common Stock as
described in subsection (c) below) without consideration or for a consideration
per Share less than the Exercise Price in effect immediately prior to the time
of such issuance or sale, then in each such case the Exercise Price shall be
reduced, concurrently with such issuance or sale, to a price determined by
multiplying the Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be (i) an amount equal to the sum of (A)
the number of Shares outstanding immediately prior to such sale or issuance plus
(B) the number of Shares which the aggregate consideration received by the
Company for such sale or issuance would purchase at such Exercise Price per
Share in effect immediately prior to such sale or issuance, and the denominator
of which shall be (ii) the total number of Shares outstanding immediately after
such sale and issuance; PROVIDED, HOWEVER, that no adjustment of the Exercise
Price shall be made with respect to additional Shares which are distributed to
the holders of Shares as a distribution or subdivision for which an adjustment
is provided under Section 7(a) above. For the purpose of the above calculation,
the number of shares of Common Stock outstanding immediately prior to such
issuance or sale shall be calculated on a fully diluted basis, as if all
Warrants and all of the Company's outstanding evidences of indebtedness, shares
or other securities convertible into or exchangeable for Common Stock had been
fully converted into shares of Common Stock immediately prior to such issuance
and any outstanding warrants, options or other rights for the purchase of shares
of stock or convertible securities had been fully exercised immediately prior to
such issuance (and the resulting securities fully converted into shares of
Common Stock, if so convertible) as of such date, but not including in such
calculation any additional shares of Common Stock issuable with respect to the
Warrants, or other evidences of indebtedness, shares or other securities
convertible into or exchangeable for Common Stock, or outstanding options,
warrants or other rights for the purchase of shares of stock or convertible
securities, solely as a result of the adjustment of the respective exercise or
conversion prices resulting from the issuance of shares of Common Stock causing
such adjustment.
In any determination of an adjusted Exercise Price,
(i) in the case of the issuance of Shares for cash, the consideration received
by the Company therefor shall be deemed to be the aggregate amount of cash
received by the Company for such Shares, excluding amounts paid or payable for
accrued interest or accrued dividends and all costs, expenses, fees and
commissions borne by the Company incidental to the issue or sale thereof, and
(ii) in the case of the issuance of Shares for consideration other than cash,
the fair value of the consideration received shall be determined in good faith
by the Company's Board of Directors (the "Board").
(c) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK. In case
of the issuance by the Company of any security that is convertible into Shares
or of any rights, options (other than options issued by the Company to officers,
directors and/or employees of the Company pursuant to the terms of any stock
option plan adopted by the Company's Board of Directors) or warrants to purchase
Shares, (i) the Company shall be deemed, for purposes of the Exercise Price
adjustment set forth in the first sentence of subsection (b) of this Section 7,
to have issued the maximum number of Shares deliverable upon the exercise of
such conversion privileges or rights, options or warrants, and (ii) the
consideration therefor shall be deemed to be the consideration received by the
Company for such convertible securities or for such rights, options or warrants
as the case may be, excluding amounts paid or payable for costs, expenses, fees
and commissions borne by the Company incidental to the issue and sale thereof,
plus: (A) in the case of convertible securities, any consideration or adjustment
payment to be received by the Company in connection with such conversion, or (B)
in the case of such rights, options or warrants, the minimum price at which
Shares are to be delivered upon the exercise of such rights, options or
warrants. No further adjustment of the Exercise Price shall be made as a result
of the actual issuance of the Shares referred to in this Section 7(c). On the
expiration of such rights, options or warrants, or the termination of such
privilege to convert, the Exercise Price and/or the number of Shares purchasable
upon exercise of the Warrants shall be readjusted to such Exercise Price and/or
such number of Shares as would have pertained had the adjustments made upon the
issuance of such rights, options, warrants or convertible securities been made
upon the basis of the issuance of only the number of Shares actually delivered
upon the exercise of such rights, options or warrants, or upon the conversion of
such securities.
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(d) WHEN ADJUSTMENT NOT REQUIRED. No adjustment in the
Exercise Price shall be required (i) in connection with the issuance of Shares
upon exercise of any of the Warrants; and (ii) unless such adjustment would
require an increase or decrease of at least one percent in the Exercise Price;
PROVIDED, HOWEVER, that any adjustments that by reason of clause (ii) of this
Section 7(d) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 7
shall be made to the nearest tenths of a cent or one hundredths of a share, as
the case may be; PROVIDED, HOWEVER, that no fractional Share will be issued.
(e) ADJUSTMENT FOR NEW SHARES. If at any time, as a result of
an adjustment made pursuant to Section 7(a) , the holder of any Warrant
thereafter exercised shall become entitled to receive any New Shares, thereafter
the Exercise Price and/or number of such New Shares so receivable upon exercise
of any Warrant shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect to
the Shares contained in Section 7(a), and the provisions of Sections 6, 7(d),
(f), (g), (h) and (i), 8, 9, 10, and 11 with respect to the Shares shall apply
on like terms to any such New Shares.
(f) ELECTION TO DEFER ISSUANCE. In any case in which this
Section 7 shall require that any adjustment in the Exercise Price be made
effective as of a record date for a specified event, the Company may elect to
defer until the occurrence of such event the issuing to the holder of any
Warrant exercised on or after such record date the Shares or New Shares, if any,
issuable upon such exercise on the basis of the Exercise Price in effect prior
to such adjustment; PROVIDED, HOWEVER, that the Company shall deliver to such
holder a due bill or other appropriate instrument evidencing such holder's right
to receive such Shares or New Shares upon the occurrence of the event requiring
such adjustment.
(g) ADJUSTMENT TO SHARES PURCHASABLE. Unless the Company shall
have exercised its election as provided in Section 7(h), upon each adjustment of
the Exercise Price as a result of the calculations made in Sections 7(a), (b) or
(c), each Warrant outstanding immediately prior to the making of such adjustment
shall thereafter evidence the right to purchase, at the adjusted Exercise Price,
that number of Shares obtained by (A) multiplying (i) the number of Shares
purchasable upon exercise of a Warrant immediately prior to such adjustment of
the Exercise Price by (ii) the Exercise Price in effect immediately prior to
such adjustment of the Exercise Price and (B) dividing the product so obtained
by the Exercise Price in effect immediately after such adjustment of the
Exercise Price.
(h) ADJUSTMENT TO NUMBER OF WARRANTS. The Company may elect,
on or after the date of any adjustment of the Exercise Price, to adjust the
number of Warrants in substitution for an adjustment in the number of Shares
purchasable upon the exercise of a Warrant as provided in Section 7(g).
(i) ADJUSTMENTS FOR REORGANIZATION, CONSOLIDATION, ETC. In
case of any capital reorganization of the Company, or in case of the
consolidation or merger of the Company with any other corporation (other than a
consolidation or merger in which the Company is the surviving corporation), or
in case of any sale or conveyance of the properties, assets or business of the
Company as, or substantially as, an entirety to any other legal entity, each
Warrant shall thereafter be exercisable upon the terms and conditions specified
in this Warrant Certificate, for the number of shares of common stock or other
securities or property receivable upon such capital reorganization,
consolidation, merger, or sale, as the case may be, by a holder of the number of
Shares purchasable upon exercise of such Warrant immediately prior to such
capital reorganization, consolidation, merger, or sale, as the case may be, and
in any such case, if necessary, the provisions set forth in this Section 7 with
respect to the rights and interests thereafter of the holders of the Warrants
shall be appropriately adjusted so as to be applicable, as nearly as may
reasonably be, to any such shares or other securities or property thereafter
deliverable on the exercise of the Warrants. The Company shall not effect any
such consolidation, merger, or sale, unless prior to or simultaneously with the
consummation thereof the successor resulting from such consolidation or merger
or the legal entity purchasing such assets shall assume the obligation to
deliver to the holder of each Warrant such shares, securities or assets as, in
accordance with the foregoing provisions, such holders may be entitled to
purchase and the other obligations under this Warrant Certificate.
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8. FRACTIONAL WARRANTS AND FRACTIONAL SHARES.
(a) The Company shall not issue fractions of Warrants on any
distribution of Warrants to Warrantholders or distribute Warrant Certificates
that evidence fractional Warrants. All fractions of Warrants to which a
Warrantholder would otherwise be entitled shall be aggregated, and in lieu of
such remaining fractional Warrant there shall be paid to the Warrantholder with
regard to which such fractional Warrant would otherwise be issuable, an amount
in cash equal to the same fraction of the fair value of a full Warrant, as
determined in good faith by the Board.
(b) The Company shall not be required to issue fractions of
Shares upon exercise of the Warrants or to distribute certificates that evidence
fractional Shares. All fractions of Shares to which a Warrantholder would
otherwise be entitled shall be aggregated, and in lieu of such remaining
fractional Share, there shall be paid to the Warrantholder at the time such
Warrant Certificates are exercised as herein provided an amount in cash equal to
the same fraction of the fair market value of a Share as determined in good
faith by the Board.
9. RESERVATION AND ISSUANCE OF SHARES. The Company represents and
warrants that (a) there have been reserved, and the Company shall at all times
keep reserved, out of its authorized Common Stock a number of shares of Common
Stock sufficient to provide for the exercise of the rights of purchase
represented by the Warrants, and (b) there are no restrictions in the Company's
articles of incorporation or bylaws that prevent the Company from issuing shares
of Common Stock for the purpose of enabling it to satisfy any obligation to
issue Shares upon exercise of Warrants, through the close of business on the
Expiration Date. The Company covenants and agrees that it will not amend its
articles of incorporation or bylaws in any manner, or take any other action,
that could adversely affect the Company's ability to issue Shares on exercise of
the Warrants pursuant to the terms of this Warrant Certificate.
The Company represents and warrants that all Shares issued
upon exercise of the Warrants will, upon issuance in accordance with the terms
of this Warrant Certificate, (a) be legally issued and free from all taxes,
liens, charges, encumbrances and security interests created by the Company with
respect to the issuance thereof and (b) be duly and validly issued, fully paid
and nonassessable Common Stock as to which no holder shall have any liability
other than the Warrantholder's payment of the Exercise Price.
10. PAYMENT OF TAXES. The Company will pay all documentary stamp
taxes attributable to the initial issuance of Shares issuable upon the exercise
of Warrants; PROVIDED, HOWEVER, that the Company shall not be required to pay
any tax or taxes that may be payable in respect of any transfer involved in the
issuance of any Warrant Certificates or any Share Certificates in a name other
than that of the Warrantholder of record, and the Company shall not be required
to issue or deliver such Share Certificates unless and until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
11. NOTICES TO WARRANTHOLDERS.
(a) Upon any adjustment to the number of Shares issuable
pursuant to exercise of a Warrant or the Exercise Price pursuant to Section 7,
the Company within fifteen (15) calendar days thereafter shall cause to be given
to the Warrantholder, at his address appearing on the Warrant register, written
notice of such adjustments in accordance with Section 12 hereof. Where
appropriate such notice may be given in advance and included as part of the
notice required to be mailed under the other provisions of this Section 11.
(b) If:
(i) the Company shall offer to the holders of its
Shares any additional shares of Common Stock or any securities convertible into
shares of Common Stock or any rights or warrants to subscribe for or purchase
additional Shares or any other subscription rights or warrants;
(ii) the Company shall declare any dividend payable
in any securities upon its shares of Common Stock or make any distribution
(other than cash dividends and distributions payable out of consolidated
earnings) to the holders of its Shares;
(iii) the Company shall be a party to any
consolidation or merger for which approval of any shareholder of the Company is
required, shall convey or transfer all or substantially all of its properties,
assets, or business, or shall engage in any reorganization or recapitalization;
5
<PAGE>
(iv) the Company shall be subject to voluntary or
involuntary dissolution, liquidation or winding up; or
(v) the Company shall propose to take any other
action that would require an adjustment of the Exercise Price pursuant to
Section 7;
the Company shall cause to be given to the Warrantholder at its or his address
appearing on the Warrant register, at least fifteen (15) calendar days prior to
the applicable record date hereinafter specified, a written notice in accordance
with Section 12 stating (A) the date as of which the holders of record of Shares
to be entitled to receive any such rights, warrants or distribution are to be
determined or (B) the date on which any such consolidation or merger,
conveyance, transfer, reorganization or recapitalization, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of record of the Shares shall be entitled to
exchange such Shares for securities or other property that may be deliverable
upon such consolidation or merger, conveyance, transfer, reorganization or
recapitalization, dissolution, liquidation or winding up. The failure to give
the notice required by this Section 11(b) or any defect therein shall not affect
the legality or validity of any distribution, right, warrant, consolidation,
conveyance, transfer, reorganization, dissolution, liquidation or winding up or
the vote upon any action.
(c) If the Company shall effect any of the events described in
Sections 4(b) or (c) prior to the date contained in Section 4(a), the Company
shall cause to be given to the Warrantholder at its or his address appearing on
the Warrant register, at least thirty (30) calendar days prior to the effective
date of the events described in Sections 4(b) or (c), a written notice in
accordance with Section 12 stating the date on which the events described in
Sections 4(b) or (c) is expected to become effective. The failure to give the
notice required by this Section 11(c) or any defect therein shall not affect the
legality or validity of any of the events described in Sections 4(b) or (c).
(d) Nothing contained in this Warrant Certificate shall be
construed as conferring upon the Warrantholder the right to vote or to consent
or to receive notice as a shareholder of the Company in respect of any rights or
other matter whatsoever as a shareholder of the Company, or any other rights or
liabilities as a shareholder of the Company.
12. NOTICE. Any notice or demand authorized by this Warrant
Certificate to be given or made by the Warrantholder to or on the Company shall
be sufficiently given or made if personally delivered or sent by first class
United States mail, by overnight courier guaranteeing next-day delivery, or by
facsimile confirmed by letter, addressed (until another address is given in
writing by the Company) to the Office.
Any notice pursuant to this Warrant Certificate to be given by
the Company to the Warrantholder shall be sufficiently given if personally
delivered or sent by first class United States mail, by overnight courier
guaranteeing next-day delivery, or by facsimile confirmed by letter, addressed
(until another address is filed in writing by the Warrantholder with the
Company) to the address specified in the Warrant register maintained by the
Company.
13. SUPPLEMENTS AND AMENDMENTS. The Company may from time to time
supplement or amend this Warrant Certificate without the consent or concurrence
of the Warrantholder in order to cure any ambiguity, manifest error or other
mistake in this Warrant Certificate, or to make provision in regard to any
matters or questions arising hereunder that the Company may deem necessary or
desirable and that shall not adversely affect, alter or change the interests of
the Warrantholder.
14. WARRANT AGENT. The Company may, by written notice to the
Warrantholder, appoint an agent for the purpose of issuing Shares on the
exercise of the Warrants, exchanging Warrants, replacing Warrants or any of the
foregoing, and thereafter any such issuance, exchange or replacement shall be
made at such office by such agent.
15. SUCCESSORS. All the representations, warranties, agreements,
covenants and provisions of this Warrant Certificate by or for the benefit of
the Company or the Warrantholder shall bind and inure to the benefit of their
respective permitted successors and assigns hereunder.
16. GOVERNING LAW. This Warrant Certificate shall be deemed to be
a contract made under the laws of the State of California and for all purposes
shall be construed in accordance with the internal laws of said State without
regard to conflicts of laws principles.
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17. BENEFITS OF THIS WARRANT CERTIFICATE. Nothing in this Warrant
Certificate shall be construed to give to any person or entity other than the
Company and the Warrantholder any legal or equitable right, remedy or claim
under this Warrant Certificate; and this Warrant Certificate shall be for the
sole and exclusive benefit of the Company and the Warrantholder.
18. INVALIDITY OF PROVISIONS. If any provision of this Warrant
Certificate is or becomes invalid, illegal or unenforceable in any respect, such
provision shall be deemed amended to the extent necessary to cause it to express
the intent of the parties to the maximum possible extent and be valid, legal and
enforceable. The invalidity or deemed amendment of such provision shall not
affect the validity, legality or enforceability of any other provision hereof.
19. NO IMPAIRMENT. The Company will not, by amendment of its
certificate of incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Warrant Certificate and in the taking of all such action
as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
20. SECTION HEADINGS. The section headings contained in this
Warrant Certificate are for convenience only and shall be without substantive
meaning or content.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed and its corporate seal to be impressed hereon
and attested by its Secretary, as of the day and year first above written.
TELENETICS CORPORATION
By:
-----------------------------------
Michael A. Armani, President
Attest:
By:
-----------------------------------
Shala Shashani, Secretary
(Corporate Seal)
7
<PAGE>
ELECTION TO PURCHASE
--------------------
(To be signed only upon exercise of Warrant)
TO: Telenetics Corporation
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by the Warrant for, and to
purchase thereunder, _____________________________ (_____) shares of Common
Stock of Telenetics Corporation and herewith makes payment in cash in the amount
of ______________ ______________________________ Dollars ($_______) therefor,
and requests that the certificates for such shares be issued in the name of, and
delivered to:
___________________________
___________________________
___________________________
___________________________
DATE: ______________
--------------------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
__________________________________________________
__________________________________________________
(Address)
8
<PAGE>
EXHIBIT A
FORM OF WARRANTHOLDERS CERTIFICATE
COMMON STOCK WARRANTS
THE UNDERSIGNED (hereinafter referred to as "Purchaser") is exercising
the Warrants tendered with this Certificate, and in connection with such
exercise, makes the following representations and warranties to Telenetics
Corporation, a California corporation (the "Company") with the knowledge and
intent that the Company shall be entitled to rely thereon in delivering shares
of the Company's Common Stock, no par value per share (the "Shares"), to
Purchaser upon exercise of the Warrants:
1. Purchaser is acquiring the Shares for investment for its or his own
account, and not with a view to or for sale in connection with any distribution
thereof. Purchaser understands that the Shares to be purchased have not been
registered pursuant to the Securities Act of 1933, as amended ("Act"), and the
offer and sale of the Shares is intended to be exempt from registration under
the Act, which exemption depends upon, among other things, the bona fide nature
of the investment intent and the accuracy of Purchaser's representations as
expressed herein.
2. Purchaser has such knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of its
investment in the Shares, and Purchaser is capable of bearing the economic risks
of such investment, including the risk of loss of its entire investment in the
Shares.
3. Purchaser acknowledges that the Company has made available to
Purchaser or its agents all documents and information relating to an investment
in the Shares requested by or on behalf of Purchaser.
4. Purchaser meets the investor suitability requirements set forth in
the Company's Confidential Term Sheet dated August 28, 1998.
5. All Shares issued on delivery of this Certificate shall bear the
legend set forth in Section 6 of the annexed Warrant Certificate.
Executed as of ___________________, ____.
PURCHASER:
___________________________________
___________________________________
___________________________________
___________________________________
Signature
9
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("1933 ACT"), OR ANY STATE
SECURITIES LAWS AND SHALL NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED,
OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR CONSIDERATION, BY THE
HOLDER EXCEPT UPON THE ISSUANCE TO THE COMPANY OF A FAVORABLE OPINION
OF ITS COUNSEL OR THE SUBMISSION TO THE COMPANY OF SUCH OTHER EVIDENCE
AS MAY BE SATISFACTORY TO COUNSEL FOR THE COMPANY, IN EITHER CASE, TO
THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE 1933
ACT AND APPLICABLE STATE SECURITIES LAWS.
TELENETICS CORPORATION
Common Stock Purchase Warrant
to
Purchase _________ Shares
of
Common Stock
This Common Stock Purchase Warrant is issued to:
--------------------
-------------
-------------
by TELENETICS CORPORATION, a California corporation (hereinafter called the
"Company", which term shall include its successors and assigns).
FOR VALUE RECEIVED and subject to the terms and conditions hereinafter
set out, the registered holder of this Warrant as set forth on the books and
records of the Company (the "Holder") is entitled upon surrender of this Warrant
to purchase from the Company ______________________ (________) fully paid and
nonassessable shares of Common Stock, no par value per share (the "Common
Stock"), at the Exercise Price (as defined below) per share.
This Warrant shall expire at the close of business on April ___, 2004.
1. (a) The right to purchase shares of Common Stock represented by this
Warrant may be exercised by the Holder, in whole or in part, by the surrender of
this Warrant (properly endorsed if required) at the principal office of the
Company at 26772 Vista Terrace Drive, Lake Forest, California 92630 (or such
other office or agency of the Company as it may designate by notice in writing
to the Holder at the address of the Holder appearing on the books of the
Company), and upon payment to the Company, by cash or by certified check or bank
draft, of the Exercise Price for such shares. The Company agrees that the shares
of Common Stock so purchased shall be deemed to be issued to the Holder as the
record owner of such shares of Common Stock as of the close of business on the
<PAGE>
date on which this Warrant shall have been surrendered and payment made for such
shares of Common Stock as aforesaid. Certificates for the shares of Common Stock
so purchased (together with a cash adjustment in lieu of any fraction of a
share) shall be delivered to the Holder within a reasonable time, not exceeding
five (5) business days, after the rights represented by this Warrant shall have
been so exercised, and, unless this Warrant has expired, a new Warrant
representing the number of shares of Common Stock, if any, with respect to which
this Warrant shall not then have been exercised, in all other respects identical
with this Warrant, shall also be issued and delivered to the Holder within such
time, or, at the request of the Holder, appropriate notation may be made on this
Warrant and the same returned to the Holder.
(b) This Warrant may be exercised to acquire, from and after the
date hereof, the number of shares of Common Stock set forth on the first page
hereof (subject to adjustments described in this Warrant); provided, however,
the right hereunder to purchase such shares of Common Stock shall expire at the
close of business on April ___, 2004.
2. This Warrant is being issued by the Company pursuant to the terms of
the Company's Confidential Private Placement Memorandum dated March 16, 1999, as
amended by the First Amendment dated April 8, 1999 (the "Memorandum").
3. The Company covenants and agrees that all Common Stock upon issuance
against payment in full of the Exercise Price by the Holder pursuant to this
Warrant will be validly issued, fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issue thereof (except to the extent
resulting from the Holder's own circumstances, actions or omissions); and,
without limiting the generality of the foregoing, the Company covenants and
agrees that it will take from time to time all such action as may be requisite
to assure that the par value per share of the Common Stock is at all times equal
to or less than the then effective Exercise Price. The Company further covenants
and agrees that during the period within which the rights represented by this
Warrant may be exercised, the Company will have at all times authorized, and
reserved for the purpose of issue or transfer upon exercise of the rights
evidenced by this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of the rights represented by this Warrant, and will
procure at its sole expense upon each such reservation of shares the listing
thereof (subject to issuance or notice of issuance) on all stock exchanges on
which the Common Stock is then listed or inter-dealer trading systems on which
the Common Stock is then traded. The Company will take all such action as may be
necessary to assure that such shares of Common Stock may be so issued without
violation of any applicable law or regulation, or of any requirements of any
national securities exchange upon which the Common Stock may be listed or
inter-dealer trading system on which the Common Stock is then traded. The
Company will not take any action which would result in any adjustment in the
number of shares of Common Stock purchasable hereunder if the total number of
shares of Common Stock issuable pursuant to the terms of this Warrant after such
action upon full exercise of this Warrant and, together with all shares of
Common Stock then outstanding and all shares of Common Stock then issuable upon
exercise of all options and other rights to purchase shares of Common Stock then
outstanding, would exceed the total number of shares of Common Stock then
authorized by the Company's Restated and Amended Articles of Incorporation, as
then amended.
-2-
<PAGE>
4. The Initial Exercise Price is $1.875 per share of Common Stock
("Initial Exercise Price"). The Initial Exercise Price shall be adjusted as
provided for below in this Section 4 (the Initial Exercise Price, and the
Initial Exercise Price, as thereafter then adjusted, shall be referred to as the
"Exercise Price") and the Exercise Price from time to time shall be further
adjusted as provided for below in this Section 4. Upon each adjustment of the
Exercise Price, the Holder shall thereafter be entitled to receive upon exercise
of this Warrant, at the Exercise Price resulting from such adjustment, the
number of shares of Common Stock obtained by (i) multiplying the Exercise Price
in effect immediately prior to such adjustment by the number of shares of Common
Stock purchasable hereunder immediately prior to such adjustment, and (ii)
dividing the product thereof by the Exercise Price resulting from such
adjustment. The Exercise Price shall be adjusted as follows:
(i) In the case of any amendment to the Company's
Restated and Amended Articles of Incorporation to change the
designation of the Common Stock or the rights, privileges,
restrictions or conditions in respect to the Common Stock or
division of the Common Stock, this Warrant shall be adjusted so
as to provide that upon exercise thereof, the Holder shall
receive, in lieu of each share of Common Stock theretofore
issuable upon such exercise, the kind and amount of shares,
other securities, money and property receivable upon such
designation, change or division by the Holder issuable upon such
exercise had the exercise occurred immediately prior to such
designation, change or division. This Warrant shall be deemed
thereafter to provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for
in this Section 4. The provisions of this Subsection 4(i) shall
apply in the same manner to successive reclassifications,
changes, consolidations and mergers.
(ii) If the Company shall at any time subdivide its
outstanding shares of Common Stock into a greater number of
shares of Common Stock, or declare a dividend or make any other
distribution upon the Common Stock payable in shares of Common
Stock, the Exercise Price in effect immediately prior to such
subdivision or dividend or other distribution shall be
proportionately reduced, and conversely, in case the outstanding
shares of Common Stock shall be combined into a smaller number
of shares of Common Stock, the Exercise Price in effect
immediately prior to such combination shall be proportionately
increased.
(iii) If the Company shall, through either a private
placement or a public offering (but other than pursuant to
options granted under the Company's directors' and employee
stock option and stock purchase plans or shares or options
issued in an acquisition or shares issuable upon conversion of
shares of the Company's Series A 7.0% Convertible Redeemable
Preferred Stock (the "Preferred Stock") or the shares of Common
Stock issuable upon the exercise of the warrants issued in
connection with the sale of the Preferred Stock or shares
issuable pursuant to the exercise of warrants outstanding on
February 16, 1999, and other than warrants granted to Taglich
Brothers and/or its designees and other than the issuance of up
to an aggregate of 500,000 shares of Common Stock pursuant to
transactions not described in this parenthetical) issues shares
of Common Stock, or options to purchase Common Stock or rights
-3-
<PAGE>
to subcribe for Common Stock or securities convertible into or
exchangeable for Common Stock at a price (such price, if other
than cash, as determined by the Board of Directors) less than
the Conversion Price (the "Lower Price"), the Conversion Price
shall be automatically reduced to the Lower Price.
Notwithstanding the foregoing, in no event shall the Exercise
Price ever be increased as a result of this Subsection 4(iii).
There will be no adjustment in the event that the Company pays a
dividend in cash to its holders of Common Stock; provided,
however, the Company will give the holder of this Warrant
written notice at least thirty (30) days prior to the record
date for the cash dividend, that the Company intends to declare
a cash dividend.
(iv) If any capital reorganization or reclassification
of the capital stock of the Company, or any consolidation or
merger of the Company with or into another corporation or other
entity, or the sale of all or substantially all of the Company's
assets to another corporation or other entity shall be effected
in such a way that holders of shares of Common Stock shall be
entitled to receive stock, securities, other evidence of equity
ownership or assets with respect to or in exchange for shares of
Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale (except as
otherwise provided below in this Section 4), lawful and adequate
provisions shall be made whereby the Holder shall thereafter
have the right to receive upon the exercise hereof upon the
basis and upon the terms and conditions specified herein, such
shares of stock, securities, other evidence of equity ownership
or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock
equal to the number of shares of Common Stock immediately
theretofore purchasable and receivable upon the exercise of this
Warrant under this Section 4 had such reorganization,
reclassification, consolidation, merger or sale not taken place,
and in any such case appropriate provisions shall be made with
respect to the rights and interests of the Holder to the end
that the provisions hereof (including, without limitation,
provisions for adjustments of the Exercise Price and of the
number of shares of Common Stock receivable upon the exercise of
this Warrant) shall thereafter be applicable, as nearly as may
be, in relation to any shares of stock, securities, other
evidence of equity ownership or assets thereafter deliverable
upon the exercise hereof (including an immediate adjustment, by
reason of such consolidation or merger, of the Exercise Price to
the value for the Common Stock reflected by the terms of such
consolidation or merger if the value so reflected is less than
the Exercise Price in effect immediately prior to such
consolidation or merger. Subject to the terms of this Warrant,
in the event of a merger or consolidation of the Company with or
into another corporation or other entity as a result of which
the number of shares of common stock of the surviving
corporation or other entity issuable to holders of Common Stock,
is greater or lesser than the number of shares of Common Stock
outstanding immediately prior to such merger or consolidation,
then the Exercise Price in effect immediately prior to such
merger or consolidation shall be adjusted in the same manner as
though there were a subdivision or combination of the
outstanding shares of Common Stock. The Company shall not effect
any such consolidation, merger or sale, unless, prior to the
-4-
<PAGE>
consummation thereof, the successor corporation (if other than
the Company) resulting from such consolidation or merger or the
corporation purchasing such assets shall assume by written
instrument executed and mailed or delivered to the Holder, the
obligation to deliver to the Holder such shares of stock,
securities, other evidence of equity ownership or assets as, in
accordance with the foregoing provisions, the Holder may be
entitled to receive or otherwise acquire. If a purchase, tender
or exchange offer is made to and accepted by the holders of more
than fifty (50%) percent of the outstanding shares of Common
Stock, the Company shall not effect any consolidation, merger or
sale with the person having made such offer or with any
affiliate of such person, unless prior to the consummation of
such consolidation, merger or sale the Holder of this Warrant
shall have been given a reasonable opportunity to then elect to
receive upon the exercise of this Warrant the amount of stock,
securities, other evidence of equity ownership or assets then
issuable with respect to the number of shares of Common Stock in
accordance with such offer.
(v) In case the Company shall, at any time prior to
exercise of this Warrant, consolidate or merge with any other
corporation or other entity (where the Company is not the
surviving entity) or transfer all or substantially all of its
assets to any other corporation or other entity, then the
Company shall, as a condition precedent to such transaction,
cause effective provision to be made so that the Holder of this
Warrant upon the exercise of this Warrant after the effective
date of such transaction shall be entitled to receive the kind
and amount of shares, evidences of indebtedness and/or other
securities or property receivable on such transaction by a
holder of the number of shares of Common Stock as to which this
Warrant was exercisable immediately prior to such transaction
(without giving effect to any restriction upon such exercise);
and, in any such case, appropriate provision shall be made with
respect to the rights and interest of the Holder of this Warrant
to the end that the provisions of this Warrant shall thereafter
be applicable (as nearly as may be practicable) with respect to
any shares, evidences of indebtedness or other securities or
assets thereafter deliverable upon exercise of this Warrant.
Upon the occurrence of any event described in this Section 4(v),
the holder of this Warrant shall have the right to (i) exercise
this Warrant immediately prior to such event at an Exercise
Price equal to lesser of (1) the then Exercise Price or (2) the
price per share of Common Stock paid in such event, or (ii)
retain ownership of this Warrant, in which event, appropriate
provisions shall be made so that the Warrant shall be
exercisable at the Holder's option into shares of stock,
securities or other equity ownership of the surviving or
acquiring entity.
-5-
<PAGE>
Whenever the Exercise Price shall be adjusted pursuant to this
Section 4, the Company shall issue a certificate signed by its President or Vice
President and by its Treasurer, Assistant Treasurer, Secretary or Assistant
Secretary, setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Board of
Directors of the Company made any determination hereunder), and the Exercise
Price after giving effect to such adjustment, and shall cause copies of such
certificates to be mailed (by first-class mail, postage prepaid) to the Holder
of this Warrant. The Company shall make such certificate and mail it to the
Holder promptly after each adjustment.
No fractional shares of Common Stock shall be issued in
connection with any exercise of this Warrant, but in lieu of such fractional
shares, the Company shall make a cash payment therefor equal in amount to the
product of the applicable fraction multiplied by the Exercise Price then in
effect.
5. In the event the Company grants rights (other than rights granted
pursuant to a shareholder rights or poison pill plan) to all shareholders to
purchase Common Stock, the Holder shall have the same rights as if this Warrant
had been exercised immediately prior to such grant.
6. The Holder shall, with respect to the shares of Common Stock issuable
upon the exercise of this Warrant, have the registration rights and "piggy back"
registration rights set forth in the Preferred Stock Purchase Agreement between
the Company and the Holder pursuant to which the Company is, among other things,
issuing this Warrant. Such registration rights and "piggy back" registration
rights are incorporated herein by this reference as if such provisions had been
set forth herein in full.
7. If the Company fails to file a registration statement (the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") in accordance with its registration rights obligations contained
in the Preferred Stock Purchase Agreement between the Company and the Holders by
July 31, 1999, the Exercise Price shall be reduced (and concomitantly the number
of shares of Common Stock issuable upon the exercise of this Warrant shall
increase) by the percentage resulting from multiplying six (6%) percent by the
number of thirty (30) day periods, or any part thereof, beyond July 31, 1999,
until the initial registration statement described herein covering the shares of
Common Stock issuable upon the exercise of this Warrant is filed with the
Commission and/or (ii) if the Registration Statement is not declared effective
by December 31, 1999, the Exercise Price shall be reduced (and concomitantly the
number of shares of Common Stock issuable upon the exercise of the Warrant shall
increase) by the percentage resulting from multiplying six (6%) percent by the
number of thirty (30) day periods, or any part thereof, beyond December 31,
1999, until the Registration Statement is declared effective by the Commission.
The maximum reduction pursuant to this Section 7 shall be thirty-six (36%)
percent.
8. This Warrant may be redeemed by the Company, for one ($.01) cent per
Warrant, on not less than thirty (30) days or more than forty-five (45) days
written notice, provided that at the time such notice is given and on the
effective date of redemption, (A) the shares of Common Stock issuable upon the
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<PAGE>
exercise of this Warrant have been registered pursuant to the 1933 Act as
provided for in the Preferred Stock Purchase Agreement and such registration is
then currently effective and (B) the average closing bid price of the Common
Stock or, if the Common Stock is listed on the National Association of
Securities Dealers Automated Quotation System, the New York Stock Exchange or
American Stock Exchange, the last reported sales price, if a sale is made on
such date, during twenty (20) out of the last thirty (30) consecutive trading
day period ending five (5) business days prior to the date that written notice
of the Warrants redemption is given is at least three dollars and seventy-five
cents ($3.75) per share of Common Stock.
9. This Warrant need not be changed because of any change in the
Exercise Price or in the number of shares of Common Stock purchased hereunder.
10. The terms defined in this paragraph, whenever used in this Warrant,
shall, unless the context otherwise requires, have the respective meanings
hereinafter specified. The term "Common Stock shall mean and include the
Company's Common Stock, no par value per share, authorized on the date of the
original issue of this Warrant and shall also include in case of any
reorganization, reclassification, consolidation, merger or sale of assets of the
character referred to in Section 4 hereof, the stock, securities or assets
provided for in such paragraph. The term "Company" shall also include any
successor corporation to TELENETICS CORPORATION by merger, consolidation or
otherwise. The term "outstanding" when used with reference to Common Stock shall
mean at any date as of which the number of shares thereof is to be determined,
all issued shares of Common Stock, except shares then owned or held by or for
the account of the Company. The term "1933 Act" shall mean the Securities Act of
1933, as amended, or any successor Federal statute, and the rules and
regulations of the Securities and Exchange Commission, or any other Federal
agency then administering the 1933 Act, thereunder, all as the same shall be in
effect at the time.
11. This Warrant is exchangeable, upon the surrender hereby by the
Holder at the office or agency of the Company, for new Warrants of like tenor
representing in the aggregate the right to subscribe for and purchase the number
of shares of Common Stock which may be subscribed for and purchased hereunder,
each of such new Warrants to represent the right to subscribe for and purchase
such number of shares of Common Stock as shall be designated by the Holder at
the time of such surrender. Upon receipt of evidence satisfactory to the Company
of the loss, theft, destruction or mutilation of this Warrant or any such new
Warrants and, in the case of any such loss, theft, or destruction, upon delivery
of a bond of indemnity, reasonably satisfactory to the Company, or, in the case
of any such mutilation, upon surrender or cancellation of this Warrant or such
new Warrants, the Company will issue to the Holder a new Warrant of like tenor,
in lieu of this Warrant or such new Warrants, representing the right to
subscribe for and purchase the number of shares of Common Stock which may be
subscribed for and purchased hereunder.
12. The Company agrees to use its best efforts to file timely all
reports required to be filed by it pursuant to Sections 13 or 15 of the
Securities Exchange Act of 1934, as amended, and to provide such information as
will permit the Holder to sell this Warrant or any shares of Common Stock
acquired upon exercise of this Warrant in accordance with Rule 144 under the
1933 Act.
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<PAGE>
13. The Company will at no time close its transfer books against the
transfer of this Warrant or of any shares of Common Stock issued or issuable
upon the exercise of this Warrant in any manner which interferes with the timely
exercise of this Warrant. This Warrant shall not entitle the Holder to any
voting rights or any rights as a shareholder of the Company. The rights and
obligations of the Company, of the Holder, and of any holder of shares of Common
Stock issuable hereunder, shall survive the exercise of this Warrant.
14. This Warrant sets forth the entire agreement of the Company and the
Holder of the Common Stock issuable upon the exercise of this Warrant with
respect to the rights of the Holder and the Common Stock issuable upon the
exercise of this Warrant, notwithstanding the knowledge of such Holder of any
other agreement or the provisions of any agreement, whether or not known to the
Holder, and the Company represents that there are no agreements inconsistent
with the terms hereof or which purport in any way to bind the Holder of this
Warrant or the Common Stock.
15. The validity, interpretation and performance of this Warrant and
each of its terms and provisions shall be governed by the laws of the State of
New York.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer under its corporate seal and dated as of
____________, 1999.
TELENETICS CORPORATION
By:
---------------------------------------
Name: Michael A. Armani
Title: President
-8-
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("1933 ACT"), OR ANY STATE
SECURITIES LAWS AND SHALL NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED,
OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR CONSIDERATION, BY THE
HOLDER EXCEPT UPON THE ISSUANCE TO THE COMPANY OF A FAVORABLE OPINION
OF ITS COUNSEL OR THE SUBMISSION TO THE COMPANY OF SUCH OTHER EVIDENCE
AS MAY BE SATISFACTORY TO COUNSEL FOR THE COMPANY, IN EITHER CASE, TO
THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE 1933
ACT AND APPLICABLE STATE SECURITIES LAWS.
TELENETICS CORPORATION
Common Stock Purchase Warrant
to
Purchase _________ Shares
of
Common Stock
This Common Stock Purchase Warrant is issued to:
--------------------
by TELENETICS CORPORATION, a California corporation (hereinafter called the
"Company", which term shall include its successors and assigns).
FOR VALUE RECEIVED and subject to the terms and conditions hereinafter
set out, the registered holder of this Warrant as set forth on the books and
records of the Company (the "Holder") is entitled upon surrender of this Warrant
to purchase from the Company ______________________ (________) fully paid and
nonassessable shares of Common Stock, no par value per share (the "Common
Stock"), at the Exercise Price (as defined below) per share.
This Warrant shall expire at the close of business on April 14, 2004.
1. (a) The right to purchase shares of Common Stock represented by this
Warrant may be exercised by the Holder, in whole or in part, by the surrender of
this Warrant (properly endorsed if required) at the principal office of the
Company at 26772 Vista Terrace Drive, Lake Forest, California 92630 (or such
other office or agency of the Company as it may designate by notice in writing
to the Holder at the address of the Holder appearing on the books of the
Company), and upon payment to the Company, by cash or by certified check or bank
draft, of the Exercise Price for such shares. The Company agrees that the shares
of Common Stock so purchased shall be deemed to be issued to the Holder as the
record owner of such shares of Common Stock as of the close of business on the
date on which this Warrant shall have been surrendered and payment made for such
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<PAGE>
shares of Common Stock as aforesaid. Certificates for the shares of Common Stock
so purchased (together with a cash adjustment in lieu of any fraction of a
share) shall be delivered to the Holder within a reasonable time, not exceeding
five (5) business days, after the rights represented by this Warrant shall have
been so exercised, and, unless this Warrant has expired, a new Warrant
representing the number of shares of Common Stock, if any, with respect to which
this Warrant shall not then have been exercised, in all other respects identical
with this Warrant, shall also be issued and delivered to the Holder within such
time, or, at the request of the Holder, appropriate notation may be made on this
Warrant and the same returned to the Holder.
(b) This Warrant may be exercised to acquire, from and after the
date hereof, the number of shares of Common Stock set forth on the first page
hereof (subject to adjustments described in this Warrant); provided, however,
the right hereunder to purchase such shares of Common Stock shall expire at the
close of business on April 14, 2004.
2. This Warrant is being issued by the Company to Taglich Brothers,
D'Amadeo, Wagner & Company, Incorporated ("Taglich Brothers"), or its designee
(provided that such designee is an "accredited investor" as defined in the rules
and regulations of the Securities and Exchange Commission promulgated under the
1933 Act), pursuant to a Preferred Stock Placement Agreement between the Company
and Taglich Brothers dated as of April 9, 1999 (the "Placement Agreement"). This
Warrant is being issued today pursuant to the terms of the Company's
Confidential Private Placement Memorandum dated March 16, 1999, as amended by
First Amendment dated April 8, 1999 (the "Memorandum") pursuant to which the
Company agreed to issue warrants to purchase shares of common stock as partial
compensation for the sale by Taglich Brothers of shares of the Company's Series
A 7.0% Convertible Redeemable Preferred Stock.
3. The Company covenants and agrees that all Common Stock upon issuance
against payment in full of the Exercise Price by the Holder pursuant to this
Warrant will be validly issued, fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issue thereof (except to the extent
resulting from the Holder's own circumstances, actions or omissions); and,
without limiting the generality of the foregoing, the Company covenants and
agrees that it will take from time to time all such action as may be requisite
to assure that the par value per share of the Common Stock is at all times equal
to or less than the then effective Exercise Price. The Company further covenants
and agrees that during the period within which the rights represented by this
Warrant may be exercised, the Company will have at all times authorized, and
reserved for the purpose of issue or transfer upon exercise of the rights
evidenced by this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of the rights represented by this Warrant, and will
procure at its sole expense upon each such reservation of shares the listing
thereof (subject to issuance or notice of issuance) on all stock exchanges on
which the Common Stock is then listed or inter-dealer trading systems on which
the Common Stock is then traded. The Company will take all such action as may be
necessary to assure that such shares of Common Stock may be so issued without
violation of any applicable law or regulation, or of any requirements of any
national securities exchange upon which the Common Stock may be listed or
inter-dealer trading system on which the Common Stock is then traded. The
Company will not take any action which would result in any adjustment in the
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<PAGE>
number of shares of Common Stock purchasable hereunder if the total number of
shares of Common Stock issuable pursuant to the terms of this Warrant after such
action upon full exercise of this Warrant and, together with all shares of
Common Stock then outstanding and all shares of Common Stock then issuable upon
exercise of all options and other rights to purchase shares of Common Stock then
outstanding, would exceed the total number of shares of Common Stock then
authorized by the Company's Restated and Amended Articles of Incorporation, as
then amended.
4. The Initial Exercise Price is $2.10 per share of Common Stock
("Initial Exercise Price"). The Initial Exercise Price shall be adjusted as
provided for below in this Section 4 (the Initial Exercise Price, and the
Initial Exercise Price, as thereafter then adjusted, shall be referred to as the
"Exercise Price") and the Exercise Price from time to time shall be further
adjusted as provided for below in this Section 4. Upon each adjustment of the
Exercise Price, the Holder shall thereafter be entitled to receive upon exercise
of this Warrant, at the Exercise Price resulting from such adjustment, the
number of shares of Common Stock obtained by (i) multiplying the Exercise Price
in effect immediately prior to such adjustment by the number of shares of Common
Stock purchasable hereunder immediately prior to such adjustment, and (ii)
dividing the product thereof by the Exercise Price resulting from such
adjustment. The Exercise Price shall be adjusted as follows:
(i) In the case of any amendment to the Company's
Restated and Amended Articles of Incorporation to change the
designation of the Common Stock or the rights, privileges,
restrictions or conditions in respect to the Common Stock or
division of the Common Stock, this Warrant shall be adjusted so
as to provide that upon exercise thereof, the Holder shall
receive, in lieu of each share of Common Stock theretofore
issuable upon such exercise, the kind and amount of shares,
other securities, money and property receivable upon such
designation, change or division by the Holder issuable upon such
exercise had the exercise occurred immediately prior to such
designation, change or division. This Warrant shall be deemed
thereafter to provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for
in this Section 4. The provisions of this Subsection 4(i) shall
apply in the same manner to successive reclassifications,
changes, consolidations and mergers.
(ii) If the Company shall at any time subdivide its
outstanding shares of Common Stock into a greater number of
shares of Common Stock, or declare a dividend or make any other
distribution upon the Common Stock payable in shares of Common
Stock, the Exercise Price in effect immediately prior to such
subdivision or dividend or other distribution shall be
proportionately reduced, and conversely, in case the outstanding
shares of Common Stock shall be combined into a smaller number
of shares of Common Stock, the Exercise Price in effect
immediately prior to such combination shall be proportionately
increased.
(iii) If the Company shall, through either a private
placement or a public offering (but other than pursuant to
options granted under the Company's directors' and employee
stock option and stock purchase plans or shares or options
issued in an acquisition or shares issuable upon conversion of
shares of the Company's Series A 7.0% Convertible Redeemable
Preferred Stock or shares issuable pursuant to the exercise of
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<PAGE>
warrants outstanding on February 16, 1999, and other than
warrants granted to Taglich Brothers and/or its designees and
other than additional warrants granted pursuant to the
Memorandum and other than the issuance of up to an aggregate of
500,000 shares of Common Stock pursuant to transactions not
described in this parenthetical) issues shares of Common Stock,
or options to purchase Common Stock or rights to subscribe for
Common Stock or securities convertible into or exchangeable for
Common Stock at a price (such price, if other than cash, as
determined by the Board of Directors) less than the Conversion
Price (the "Lower Price"), the Conversion Price shall be
automatically reduced to the Lower Price. Notwithstanding the
foregoing, in no event shall the Exercise Price ever be
increased as a result of this Subsection 4(iii). There will be
no adjustment in the event that the Company pays a dividend in
cash to its holders of Common Stock; provided, however, the
Company will give the holder of this Warrant written notice at
least thirty (30) days prior to the record date for the cash
dividend, that the Company intends to declare a cash dividend.
(iv) If any capital reorganization or reclassification
of the capital stock of the Company, or any consolidation or
merger of the Company with or into another corporation or other
entity, or the sale of all or substantially all of the Company's
assets to another corporation or other entity shall be effected
in such a way that holders of shares of Common Stock shall be
entitled to receive stock, securities, other evidence of equity
ownership or assets with respect to or in exchange for shares of
Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale (except as
otherwise provided below in this Section 4), lawful and adequate
provisions shall be made whereby the Holder shall thereafter
have the right to receive upon the exercise hereof upon the
basis and upon the terms and conditions specified herein, such
shares of stock, securities, other evidence of equity ownership
or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock
equal to the number of shares of Common Stock immediately
theretofore purchasable and receivable upon the exercise of this
Warrant under this Section 4 had such reorganization,
reclassification, consolidation, merger or sale not taken place,
and in any such case appropriate provisions shall be made with
respect to the rights and interests of the Holder to the end
that the provisions hereof (including, without limitation,
provisions for adjustments of the Exercise Price and of the
number of shares of Common Stock receivable upon the exercise of
this Warrant) shall thereafter be applicable, as nearly as may
be, in relation to any shares of stock, securities, other
evidence of equity ownership or assets thereafter deliverable
upon the exercise hereof (including an immediate adjustment, by
reason of such consolidation or merger, of the Exercise Price to
the value for the Common Stock reflected by the terms of such
consolidation or merger if the value so reflected is less than
the Exercise Price in effect immediately prior to such
consolidation or merger. Subject to the terms of this Warrant,
in the event of a merger or consolidation of the Company with or
into another corporation or other entity as a result of which
-4-
<PAGE>
the number of shares of common stock of the surviving
corporation or other entity issuable to holders of Common Stock,
is greater or lesser than the number of shares of Common Stock
outstanding immediately prior to such merger or consolidation,
then the Exercise Price in effect immediately prior to such
merger or consolidation shall be adjusted in the same manner as
though there were a subdivision or combination of the
outstanding shares of Common Stock. The Company shall not effect
any such consolidation, merger or sale, unless, prior to the
consummation thereof, the successor corporation (if other than
the Company) resulting from such consolidation or merger or the
corporation purchasing such assets shall assume by written
instrument executed and mailed or delivered to the Holder, the
obligation to deliver to the Holder such shares of stock,
securities, other evidence of equity ownership or assets as, in
accordance with the foregoing provisions, the Holder may be
entitled to receive or otherwise acquire. If a purchase, tender
or exchange offer is made to and accepted by the holders of more
than fifty (50%) percent of the outstanding shares of Common
Stock, the Company shall not effect any consolidation, merger or
sale with the person having made such offer or with any
affiliate of such person, unless prior to the consummation of
such consolidation, merger or sale the Holder of this Warrant
shall have been given a reasonable opportunity to then elect to
receive upon the exercise of this Warrant the amount of stock,
securities, other evidence of equity ownership or assets then
issuable with respect to the number of shares of Common Stock in
accordance with such offer.
(v) In case the Company shall, at any time prior to
exercise of this Warrant, consolidate or merge with any other
corporation or other entity (where the Company is not the
surviving entity) or transfer all or substantially all of its
assets to any other corporation or other entity, then the
Company shall, as a condition precedent to such transaction,
cause effective provision to be made so that the Holder of this
Warrant upon the exercise of this Warrant after the effective
date of such transaction shall be entitled to receive the kind
and amount of shares, evidences of indebtedness and/or other
securities or property receivable on such transaction by a
holder of the number of shares of Common Stock as to which this
Warrant was exercisable immediately prior to such transaction
(without giving effect to any restriction upon such exercise);
and, in any such case, appropriate provision shall be made with
respect to the rights and interest of the Holder of this Warrant
to the end that the provisions of this Warrant shall thereafter
be applicable (as nearly as may be practicable) with respect to
any shares, evidences of indebtedness or other securities or
assets thereafter deliverable upon exercise of this Warrant.
Upon the occurrence of any event described in this Section 4(v),
the holder of this Warrant shall have the right to (i) exercise
this Warrant immediately prior to such event at an Exercise
Price equal to lesser of (1) the then Exercise Price or (2) the
price per share of Common Stock paid in such event, or (ii)
retain ownership of this Warrant, in which event, appropriate
provisions shall be made so that the Warrant shall be
exercisable at the Holder's option into shares of stock,
securities or other equity ownership of the surviving or
acquiring entity.
-5-
<PAGE>
Whenever the Exercise Price shall be adjusted pursuant to this
Section 4, the Company shall issue a certificate signed by its President or Vice
President and by its Treasurer, Assistant Treasurer, Secretary or Assistant
Secretary, setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Board of
Directors of the Company made any determination hereunder), and the Exercise
Price after giving effect to such adjustment, and shall cause copies of such
certificates to be mailed (by first-class mail, postage prepaid) to the Holder
of this Warrant. The Company shall make such certificate and mail it to the
Holder promptly after each adjustment.
No fractional shares of Common Stock shall be issued in
connection with any exercise of this Warrant, but in lieu of such fractional
shares, the Company shall make a cash payment therefor equal in amount to the
product of the applicable fraction multiplied by the Exercise Price then in
effect.
5. In the event the Company grants rights (other than rights granted
pursuant to a shareholder rights or poison pill plan) to all shareholders to
purchase Common Stock, the Holder shall have the same rights as if this Warrant
had been exercised immediately prior to such grant.
6. The Holder shall, with respect to the shares of Common Stock issuable
upon the exercise of this Warrant, have the registration rights and "piggy back"
registration rights set forth in the Placement Agreement. Such registration
rights and "piggy back" registration rights are incorporated herein by this
reference as if such provisions had been set forth herein in full.
7. This Warrant need not be changed because of any change in the
Exercise Price or in the number of shares of Common Stock purchased hereunder.
8. The terms defined in this paragraph, whenever used in this Warrant,
shall, unless the context otherwise requires, have the respective meanings
hereinafter specified. The term "Common Stock" shall mean and include the
Company's Common Stock, no par value per share, authorized on the date of the
original issue of this Warrant and shall also include in case of any
reorganization, reclassification, consolidation, merger or sale of assets of the
character referred to in Section 4 hereof, the stock, securities or assets
provided for in such paragraph. The term "Company" shall also include any
successor corporation to TELENETICS CORPORATION by merger, consolidation or
otherwise. The term "outstanding" when used with reference to Common Stock shall
mean at any date as of which the number of shares thereof is to be determined,
all issued shares of Common Stock, except shares then owned or held by or for
the account of the Company. The term "1933 Act" and regulations of the
Securities and Exchange Commission, or any other Federal agency then
administering the 1933 Act, thereunder, all as the same shall be in effect at
the time.
9. This Warrant is exchangeable, upon surrender hereby by the Holder at
the office or agency of the Company, for new Warrants of like tenor representing
in the aggregate the right to subscribe for and purchase the number of shares of
Common Stock which may be subscribed for and purchased hereunder, each of such
new Warrants to represent the right to subscribe for and purchase such number of
shares of Common Stock as shall be designated by the Holder at the time of such
surrender. Upon receipt of evidence satisfactory to the Company of the loss,
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<PAGE>
theft, destruction or mutilation of this Warrant or any such new Warrants and,
in the case of any such loss, theft, or destruction, upon delivery of a bond of
indemnity, reasonably satisfactory to the Company, or, in the case of any such
mutilation, upon surrender or cancellation of this Warrant or such new Warrants,
the Company will issue to the Holder a new Warrant of like tenor, in lieu of
this Warrant or such new Warrants, representing the right to subscribe for and
purchase the number of shares of Common Stock which may be subscribed for and
purchased hereunder.
10. The Company agrees to use its best efforts to file timely all
reports required to be filed by it pursuant to Sections 13 or 15 of the
Securities Exchange Act of 1934, as amended, and to provide such information as
will permit the Holder to sell this Warrant or any shares of Common Stock
acquired upon exercise of this Warrant in accordance with Rule 144 under the
1933 Act.
11. The Company will at no time close its transfer books against the
transfer of this Warrant or of any shares of Common Stock issued or issuable
upon the exercise of this Warrant in any manner which interferes with the timely
exercise of this Warrant. This Warrant shall not entitle the Holder to any
voting rights or any rights as a shareholder of the Company. The rights and
obligations of the Company, of the Holder, and of any holder of shares of Common
Stock issuable hereunder, shall survive the exercise of this Warrant.
12. This Warrant sets forth the entire agreement of the Company and the
Holder of the Common Stock issuable upon the exercise of this Warrant with
respect to the rights of the Holder and the Common Stock issuable upon the
exercise of this Warrant, notwithstanding the knowledge of such Holder of any
other agreement or the provisions of any agreement, whether or not known to the
Holder, and the Company represents that there are no agreements inconsistent
with the terms hereof or which purport in any way to bind the Holder of this
Warrant or the Common Stock.
13. The validity, interpretation and performance of this Warrant and
each of its terms and provisions shall be governed by the laws of the State of
New York.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer under its corporate seal and dated as of April 15,
1999.
TELENETICS CORPORATION
By: /S/ MICHAEL A. ARMANI
--------------------------
Name: Michael A. Armani
Title: President
-7-
Exhibit 5.1
July 30, 1999
Telenetics Corporation
26772 Vista Terrace Drive
Lake Forest, California 92630
Re: Registration Statement on Form S-3 re 2,527,926 Shares
OF COMMON STOCK (REGISTRATION NO. 333- )
--------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Telenetics Corporation, a California
corporation (the "Company"), in connection with the filing of a Registration
Statement to which this opinion is an Exhibit (the "Registration Statement")
with respect to the offer and sale of up to an aggregate of 2,527,926 shares of
the Company's Common Stock, no par value per share (the "Shares"), of which (i)
640,594 shares (the "Resale Shares") were issued by the Company pursuant to the
exercise of certain then outstanding warrants and options to purchase shares of
the Company's common stock and pursuant to the acquisition of certain assets of
Sierra Digital Communications, Inc., (ii) up to 1,121,619 shares (the "Warrant
Shares") are issuable upon exercise of certain outstanding warrants (the
"Warrants"), (iii) up to 705,713 shares (the "Convertible Shares") are issuable
upon conversion of shares of the Company's Series A 7.0% Convertible Redeemable
Preferred Stock (the "Preferred Stock") and (iv) up to 60,000 shares (the
"Option Shares") are issuable upon exercise of certain outstanding options (the
"Options"), all as described in the Registration Statement, by the holders
thereof (the "Selling Security Holders").
We are familiar with the corporate actions taken and proposed to be taken
by the Company in connection with the authorization, issuance and sale of the
Resale Shares, Warrant Shares, Convertible Shares and Option Shares and have
made such other legal and factual inquiries as we deem necessary for purposes of
rendering this opinion.
We have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as copies, the authenticity of the originals of
such copied documents, and, except with respect to the Company, that all
individuals executing and delivering such documents were duly authorized to do
so.
Based on the foregoing and in reliance thereon, and subject to the
qualifications and limitations set forth below, we are of the opinion that:
<PAGE>
Telenetics Corporation
July __, 1999
Page 2
1. The Resale Shares have been duly authorized and validly issued and are
fully paid and non-assessable.
2. The Warrant Shares and Option Shares to be issued upon exercise of each
Warrant and Option, respectively, have been duly authorized and reserved and,
when issued upon exercise of the applicable Warrant and Option, respectively, in
accordance with its terms, including payment of the applicable exercise price,
will be validly issued, fully paid and non-assessable.
3. The Convertible Shares to be issued upon conversion of each share of
Preferred Stock have been duly authorized and reserved and, when issued upon
conversion of the applicable shares of Preferred Stock in accordance with its
terms, including payment of the applicable conversion price, will be validly
issued, fully paid and non-assessable.
You have informed us that the Selling Security Holders may sell the Resale
Shares, the Warrant Shares, the Convertible Shares and the Option Shares from
time to time on a delayed or continuous basis. This opinion is limited to the
laws referred to above as in effect on the date hereof and to all facts as they
presently exist.
We hereby consent to the use of our name under the caption "Legal Matters"
in the Prospectus forming a part of the Registration Statement and to the filing
of this opinion as Exhibit 5.1 to the Registration Statement. In giving this
consent, we do not admit that we are within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the General Rules and Regulations of the Securities and Exchange Commission.
Very truly yours,
/S/ RUTAN & TUCKER, LLP
2
Exhibit 23.1
CONSENT OF BDO SEIDMAN, LLP, INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------------------------
Telenetics Corporation
Lake Forest, California
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated March 18,
1999, except as to Note 14, which is as of April 15, 1999, relating to the
financial statements of Telenetics Corporation appearing in the Company's
Transition Report on Form 10-KSB for the nine months ended December 31, 1998.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/S/ BDO SEIDMAN, LLP
Orange County, California
July 29, 1999
<PAGE>
Exhibit 23.2
CONSENT OF GEORGE F. ROMBACH, CPA, INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
To the Board of Directors
Telenetics Corporation
I consent to incorporation by reference in the Prospectus constituting a
part of this Registration Statement of my report dated July 13, 1998, relating
to the financial statements of Telenetics Corporation appearing in the Company's
Transition Report on Form 10-KSB for the nine months ended December 31, 1998.
I also consent to my reference under the caption "Experts" in the
Prospectus.
/S/ GEORGE F. ROMBACH, CPA
Lake Forest, California
July 30, 1999
