<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Telenetics Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
---------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------------------------------------------
(5) Total fee paid:
---------------------------------------------------
|_| Fee paid previously with preliminary materials.
<PAGE>
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
TELENETICS CORPORATION
26772 VISTA TERRACE DRIVE
LAKE FOREST, CA 92630
May 10, 1999
To Our Shareholders:
You are cordially invited to attend the 1999 Annual Meeting of
Shareholders of Telenetics Corporation (the "Company") which will be held at
2:00 p.m. on June 4, 1999, at the Hampton Inn, 27102 Town Center Drive, Foothill
Ranch, California 92610 (the "Annual Meeting"). All holders of the Company's
outstanding common stock as of April 16, 1999 are entitled to vote at the Annual
Meeting.
Enclosed is a copy of the Notice of Annual Meeting of Shareholders,
proxy statement and proxy card. A current report on the business operations of
the Company will be presented at the meeting, and shareholders will have an
opportunity to ask questions.
We hope you will be able to attend the Annual Meeting. Whether or not
you expect to attend, it is important you complete, sign, date and return the
proxy card in the enclosed envelope in order to make certain that your shares
will be represented at the Annual Meeting.
Sincerely,
/S/ MICHAEL ARMANI
Michael A. Armani
President and Chief Executive Officer
<PAGE>
TELENETICS CORPORATION
26772 VISTA TERRACE DRIVE
LAKE FOREST, CA 92630
NOTICE OF 1999 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 4, 1999
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Shareholders of
Telenetics Corporation, a California corporation (the "Company"), will be held
at 2:00 p.m. local time, on June 4, 1999, at the Hampton Inn, 27102 Town Center
Drive, Foothill Ranch, California 92610 (the "Annual Meeting") for the following
purposes:
1. To elect five directors to the Board of Directors;
2. To approve adoption of the Company's 1998 Stock Option Plan;
3. To approve the selection of BDO Seidman, LLP as the Company's
independent certified public accountants and to audit the
financial statements of the Company for the fiscal year
beginning January 1, 1999; and
4. To transact such other business as may properly come before
the Annual Meeting or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on April 16,
1999, as the record date for the determination of shareholders entitled to
notice of and to vote at the Annual Meeting and all adjourned meetings thereof.
By Order of the Board of Directors
/S/ MICHAEL ARMANI
Michael A. Armani
President and Chief Executive Officer
Dated: April 30, 1999
PLEASE FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE RETURN ENVELOPE
FURNISHED FOR THAT PURPOSE AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO
ATTEND THE ANNUAL MEETING. IF YOU LATER DESIRE TO REVOKE YOUR PROXY FOR ANY
REASON, YOU MAY DO SO IN THE MANNER DESCRIBED IN THE ATTACHED PROXY STATEMENT.
<PAGE>
TELENETICS CORPORATION
26772 VISTA TERRACE DRIVE
LAKE FOREST, CA 92630
PROXY STATEMENT
1999 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 4, 1999
----------
VOTING AND PROXY
This proxy statement is being furnished in connection with the
solicitation of proxies by the Board of Directors of Telenetics Corporation (the
"Company") for use at the 1999 Annual Meeting of Shareholders to be held at 2:00
p.m., local time, on June 4, 1999, at the Hampton Inn, 27102 Town Center Drive,
Foothill Ranch, California 92610 (the "Annual Meeting"), and at any adjournments
thereof. When such proxy is properly executed and returned, the shares it
represents will be voted in accordance with any directions noted thereon. If no
specification is indicated, the shares will be voted "for" the election as
directors of the five nominees listed thereon. Any shareholder giving a proxy
has the power to revoke it at any time before it is voted by written notice to
the Secretary of the Company, by issuance of a subsequent proxy or by voting at
the Annual Meeting in person.
At the close of business on April 16, 1999, the record date for
determining shareholders entitled to notice of and to vote at the Annual
Meeting, the Company had issued and outstanding 9,527,165 shares of Common
Stock, no par value per share ("Common Stock"). Each share of Common Stock
entitles the holder of record thereof to one vote on any matter coming before
the Annual Meeting. In voting for directors, however, if any shareholder gives
notice at the Annual Meeting, prior to voting, of an intention to cumulate
votes, then each shareholder has the right to cumulate votes and to give any one
or more of the nominees whose names have been placed in nomination prior to the
voting a number of votes equal to the number of directors to be elected (i.e.,
five) multiplied by the number of shares which the shareholder is entitled to
vote. Discretionary authority to cumulate votes and distribute such votes among
some or all of the nominees if cumulative voting is invoked by any shareholder
is solicited by the Board of Directors. Only shareholders of record at the close
of business on April 16, 1999 are entitled to notice of and to vote at the
Annual Meeting or at any adjournments thereof.
Under California law and the Company's Bylaws, a majority of the shares
entitled to vote, represented in person or by proxy, will constitute a quorum at
a meeting of shareholders. Generally, if a quorum is present, the affirmative
vote of a majority of the shares represented and voting on any matter will
constitute the act of the shareholders provided the number of shares voting in
favor of any proposal equals at least a majority of the quorum. Although
abstentions and "broker non-votes" are not counted either "for" or "against" any
proposals, if the number of abstentions or "broker non-votes" results in the
votes "for" a proposal not equaling at least a majority of the quorum required
for the meeting, the proposal will not be approved. This will be the case even
though the number of votes "for" the proposal exceeds the votes "against" the
proposal.
<PAGE>
The Company will pay the expenses of soliciting proxies for the Annual
Meeting, including the cost of preparing, assembling and mailing the proxy
solicitation materials. Proxies may be solicited personally, or by mail or by
telephone, by directors, officers and regular employees of the Company who will
not be additionally compensated therefor. It is anticipated that this proxy
statement and accompanying proxy card will be mailed on or about May 10, 1999 to
all shareholders entitled to vote at the Annual Meeting.
The matters to be considered and acted upon at the Annual Meeting are
referred to in the preceding notice and are more fully discussed below.
2
<PAGE>
ELECTION OF DIRECTORS
(Proposal 1)
Directors are elected annually and hold office until the next annual
meeting of shareholders or until their respective successors are elected and
qualify. It is intended that the proxies solicited by the Board of Directors
will be voted for election of the five nominees listed below unless a contrary
instruction is made on the proxy. If for any reason one or more of these
nominees should be unavailable as a candidate for director, an event which is
not anticipated, the person named in the accompanying proxy will vote for
another candidate or candidates nominated by the Board of Directors. All of the
nominees for director, except Messrs. Finamore and Povinelli, are, at present,
directors of the Company.
The following table sets forth certain information with respect to (i)
each nominee for director of the Company, (ii) the named executive officers in
the Summary Compensation Table on page 8 and (iii) all director nominees and
executive officers of the Company as a group at April 12, 1999, including the
number of shares of Common Stock beneficially owned by each of them. The persons
named hold sole voting and investment power with respect to the shares shown
opposite their respective names, unless otherwise indicated. The information
with respect to each person specified is as supplied or confirmed by such person
or based upon statements filed with the Securities and Exchange Commission
("Commission").
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF
OF BENEFICIAL CLASS OF
NAME OR DIRECTOR OWNERSHIP OF COMMON
IDENTITY OF GROUP(1) AGE SINCE COMMON STOCK(1) STOCK
- -------------------- --- ----- --------------- -----
<S> <C> <C> <C> <C>
Michael A. Armani(2) 47 1993 2,257,477 23.7%
Shala Shashani(2) 48 1996 2,007,477 21.1%
George Levy, M.D.(3) 49 1998 267,802 2.8%
Edmund P. Finamore 48 -- -- --
Thomas Povinelli(4) 39 -- 107,664 1.1%
All Director Nominees 4,640,420 48.35%
and executive officers
of the Company as a group
(5 persons)(4)
</TABLE>
- ---------------
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Except as indicated by footnote, and subject to community
property laws where applicable, 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. Shares of Common Stock subject
to options or warrants currently exercisable, or exercisable within 60
days after April 12, 1999, are deemed to be outstanding in calculating the
percentage ownership of a person or group but are not deemed to be
outstanding as to any other person or group.
(2) Executive officer of the Company.
(3) Includes an aggregate of 70,000 shares of Common Stock underlying two
warrants to purchase Common Stock.
(4) Includes 80,000 shares of Common Stock owned by Gilman & Ciocia, Inc.
(NASDAQ: GTAX), a corporation of which Mr. Povinelli is a director, the
Chief Operating Officer and a major shareholder.
3
<PAGE>
BUSINESS EXPERIENCE
NOMINEES FOR DIRECTOR
MICHAEL A. ARMANI has served as President and as a member of the Board
of Directors of the Company since July 1993. He assumed the positions of Chief
Executive Officer and Chief Financial Officer and became Chairman of the Board
in September 1996. Prior to joining the Company as the representative of
investors of SMC Group ("SMC") in 1992, Mr. Armani was Vice President of SMC.
Mr. Armani founded and managed an independent publishing company from 1984 to
1990 and has been engaged in entrepreneurial business and manufacturing concerns
for over 20 years.
SHALA SHASHANI has served as Secretary and as a member of the Board of
Directors of the Company since September 1996. Ms. Shashani has been founder and
owner of SMC, a consulting and human resources firm, since 1987. Ms. Shashani
has over 16 years of managerial and consulting experience in the data
communications industry.
GEORGE LEVY, M.D. has served as a member of the Board of Directors
since November 1998. Since 1981, Dr. Levy has practiced facial plastic and
reconstructive surgery in Monroe, Michigan. Dr. Levy is a member of the board of
directors of La-Z-Boy, Inc.
EDMUND P. FINAMORE has served as an advisor to the Board of Directors
of the Company since September 1998. Mr. Finamore is project manager of the
Customer Advanced Reliability System(TM) at Duquesne Light Company, based in
Pittsburgh, Pennsylvania.
THOMAS POVINELLI has served as Chief Operating Officer and as a member
of the board of directors of Gilman & Ciocia, Inc. (NASDAQ:GTAX), a preparer of
federal, state and local income tax returns for individuals predominately in
middle and upper income brackets, since November 1984. Mr. Povinelli is a
registered representative of JT Securities and Royal Alliance.
ADVISOR TO THE BOARD OF DIRECTORS
BRADLEY JACOBS has served as advisor to the Board of Directors of the
Company since February 1999. Until January 1999, Mr. Jacobs served as the
Assessor of Orange County, California, a position he held since 1975. Prior to
that, Mr. Jacobs spent 23 years in various positions in private enterprises
including, among others, senior scientist at Lockheed Aircraft Service, product
manager at General Dynamics and western regional manager at duPont Glore Forgan.
Mr. Jacobs holds a master of business economics degree from Claremont University
and a B.S. in physics from Rensselaer Polytechnic Institute.
CARL SHAIFER has served on the Board of Directors of the Company since
September 1996 and is expected to become an advisor to the Board of Directors
effective upon the election of his successor at the Annual Meeting. Mr. Shaifer
is also Chairman of the Board of Directors of MicroLeague Multimedia, Inc.
("MMI"), a reporting company that manufactures educational and computer game
software products. Mr. Shaifer has been a director of MMI since 1989. Mr.
Shaifer has been involved in financial and managerial positions in the printing
industry since 1960.
4
<PAGE>
KEY EMPLOYEES
DAVID L. STONE has served as Chief Financial Officer of the Company
since April 1999. Prior to joining the Company, Mr. Stone held the positions of
Vice President of Finance and Chief Financial Officer of SmartDisk Corporation
from 1987 to 1998 and held a variety of executive positions, including Executive
Vice President and Chief Financial Officer of Tylan General Inc., a manufacturer
of process control instrumentation, from 1980 to 1997.
DAVID BRAY has served as Director of Sales for Industrial Automation
Markets since June 1995. Prior to joining the Company, Mr. Bray was Manager of
Western Region Operation of GEC/Alsthom. He joined GEC/Alsthom in 1968.
STEVE MITCHELL has served as Director of Operations since February
1998. He joined the Company in October 1996 as Director of Manufacturing. Prior
to joining the Company, Mr. Mitchell served as Director of Manufacturing of
Kofax, which he joined in 1987.
WILLIAM KOSOFF has served as Director of Business Development since
February 1998. Mr. Kosoff was one of the original founders of the Company in
1984 and has served in various positions, including President and Chairman of
the Board. Mr. Kosoff rejoined the Company after working for five years as
founder and President of Blue Line Communications.
NELSON NGAI has served as Director of Engineering since April 1998.
Prior to joining the Company, he was Director of Engineering at CPI since 1995.
Prior to that Mr. Ngai served as Manager of Engineering at Calcomp for three
years. Mr. Ngai has over 20 years of experience in design and management in the
modem industry.
All directors hold office until the next annual shareholders' meeting
or until their respective successors are elected or until their earlier death,
resignation or removal. Each officer of the Company serves at the discretion of
the Board of Directors. Mr. Armani and Ms. Shashani were formerly husband and
wife. There are no other family relationships between or among any other
directors, officers or key employees of the Company.
BOARD OF DIRECTORS MEETINGS
The Board of Directors of the Company held four meetings during the
nine months ended December 31, 1998, and took action by unanimous written
consent on three occasions.
COMMITTEES
The Board of Directors has established a Compensation Committee and a
Stock Option Committee. The Board of Directors has no audit committee or
nominating committee. Selection of nominees for the Board of Directors is made
by the entire Board of Directors.
The Compensation Committee makes recommendations to the Board of
Directors concerning salaries and incentive compensation for employees and
consultants of the Company. The Compensation Committee currently consists of
Shala Shashani and Dr. George Levy. The Compensation Committee held no meetings
during the nine months ended December 31, 1998.
The Stock Option Committee selects the persons entitled to receive
options under the Company's 1998 Stock Option Plan (the "1998 Plan") and
establishes the number of shares, exercise price, vesting period and other terms
of the options granted under the 1998 Plan. During the nine months ended
December 31, 1998, the Stock Option Committee consisted of Michael Armani, Shala
Shashani and Carl Shaifer. The Stock Option Committee took action by unanimous
written consent on three occasions during the nine months ended December 31,
1998. The Stock Option Committee currently consists of Michael Armani, Shala
Shashani and Carl Shaifer.
5
<PAGE>
DIRECTORS' COMPENSATION
Beginning February 1999, the Company's directors became entitled to
receive compensation for their services as directors at the rate of $500 per
Board of Directors meeting, up to a maximum of $2,500 per fiscal year. In
addition, directors may be reimbursed for certain expenses in connection with
attendance at Board of Directors and committee meetings.
COMPLIANCE WITH BENEFICIAL OWNERSHIP REPORTING RULES
Section 16(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), requires the Company's executive officers and directors, and
persons who beneficially own more than 10% of a registered class of the
Company's Common Stock to file initial reports of ownership and reports of
changes in ownership with the Commission. Such officers, directors and
shareholders are required by Commission regulations to furnish the Company with
copies of all such reports that they file.
Based solely upon a review of copies of such reports furnished to the
Company during the nine months ended December 31, 1998 and thereafter, or any
written representations received by the Company from a director, officer or
beneficial owner of more than 10% of the Company's Common Stock ("reporting
persons") that no other reports were required, the Company believes that, during
the nine months ended December 31, 1998, all Section 16(a) filing requirements
applicable to the Company's reporting persons were complied with, except that
Shala Shashani inadvertently failed to file a Form 4 with respect to the
exercise in October 1998 of an option to purchase 300,000 shares of Common Stock
and the acquisition and exercise in October 1998 of a warrant to purchase 50,000
shares of Common Stock, and Dr. Levy inadvertently failed to report on his Form
3 for November 13, 1999 his ownership of a warrant to purchase 50,000 shares of
Common Stock. Ms. Shashani filed a late Form 4 on or about May 3, 1999 and Dr.
Levy is in the process of preparing and filing an amended Form 3 to reflect the
foregoing.
6
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth as of April 12, 1999, the identity of
each person known to the Company to be the beneficial owner of more than 5% of
the Company's Common Stock and the respective beneficial ownerships of those
persons.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
OF BENEFICIAL OWNER OF COMMON STOCK(1) OF COMMON STOCK
- ------------------- ------------------ ---------------
<S> <C> <C>
Michael A. Armani 2,257,477 23.7%
26772 Vista Terrace Drive
Lake Forest, CA 92630
Shala Shashani(2) 2,007,477 21.1%
26772 Vista Terrace Drive
Lake Forest, CA 92630
All directors and executive
officers as a group (4 persons)(3) 4,833,647 50.37%
</TABLE>
- ---------------
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Except as indicated by footnote, and subject to community
property laws where applicable, 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. Shares of Common Stock subject to
options or warrants currently exercisable, or exercisable within 60 days
after April 12, 1999 are deemed to be outstanding in calculating the
percentage ownership of a person or group but are not deemed to be
outstanding as to any other person or group.
(2) Includes 400,000 shares of Common Stock held indirectly by Ms. Shashani
through her children.
(3) Includes 70,000 shares of Common Stock underlying two warrants to purchase
Common Stock.
7
<PAGE>
EXECUTIVE COMPENSATION
There is shown below information concerning the annual and long-term
compensation for services in all capacities to the Company of the Company's
Chief Executive Officer (the "Named Executive Officer") during the fiscal years
ended March 31, 1997 and 1998 and the nine months ended December 31, 1998. There
are no other executive officers whose annual salary and bonus compensation
exceeded $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
----------------------------------- ---------------------------
Awards Payouts
Other
Annual Securities All Other
Compen- Underlying Compen-
Name and Salary Bonus sation(2) Options sation
Principal Position Year ($) ($) ($) (#) ($)
------------------ ---- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Michael A. Armani 1998(1) 112,500 3,125 -- -- --
President and Chief 1998 117,500 400 -- -- --
Executive Officer 1997 120,000 -- -- 600,000 (3) --
</TABLE>
- ---------------
(1) For the nine months ended December 31, 1998.
(2) The costs of certain benefits are not included because they did not exceed,
in the case of the Named Executive Officer, the lesser of $50,000 or 10% of
the total annual salary and bonus as reported above.
(3) Figure has been adjusted to reflect the one-for-five reverse stock split
that was subsequently effected on January 8, 1999.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
Shown below is information with respect to the number of shares of the
Company's Common Stock acquired upon exercise of options, the value realized
therefor, the number of unexercised options at December 31, 1998 and the value
of unexercised in-the-money options at December 31, 1998 for the Company's Named
Executive Officer in the Summary Compensation Table above. The Company's Named
Executive Officer did not hold any stock appreciation rights during the nine
months ended December 31, 1998.
<TABLE>
<CAPTION>
Number of Securities
Underlying
Unexercised Value of Unexercised
Shares Options at Fiscal In-the-Money Options
Acquired on Value Year-End (#) at Fiscal Year-End ($)
Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------ ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Michael A. Armani 600,000 $240,000 --- ---
Shala Shashani 300,000 $0 --- ---
</TABLE>
EMPLOYMENT AGREEMENTS
The Company's Board of Directors has approved an annual salary of
$150,000 for Michael A. Armani, the Company's President and Chief Executive
Officer, commencing January 1, 1998. In addition, David Stone, the Company's
Chief Financial Officer, accepted effective as of April 19, 1999 a written
employment offer providing for an annual salary of $130,000 and the right to
receive grants of options to purchase the Company's Common Stock in the future.
The Company has no other written employment agreements with any of its
employees.
8
<PAGE>
APPROVAL OF 1998 STOCK OPTION PLAN
(Proposal 2)
1998 STOCK OPTION PLAN
In August 1998, the Board of Directors adopted the 1998 Plan by action
taken without a meeting of the directors by written consent. The 1998 Plan is
designed to enable the Company to offer an incentive based compensation system
to key employees, officers and directors of the Company and to employees of
companies who do business with the Company. The 1998 Plan provides for the grant
of incentive stock options ("ISOs") and nonqualified stock options ("NQOs")
(ISOs and NQOs, collectively called "Options"). As of April 12, 1999, the
Company had a total of 9 employees, officers and directors eligible to receive
Options under the 1998 Plan.
As of April 12, 1998, a total of 560,000 NQOs and ISOs granted under
the 1998 Plan were outstanding.
The following summary description of the 1998 Plan is qualified in its
entirety by reference to the full text of the 1998 Plan. A copy of the 1998 Plan
is attached to this proxy statement as EXHIBIT A.
SHARES SUBJECT TO THE 1998 PLAN
A total of 1,000,000 shares of the Company's Common Stock are
authorized for issuance under the 1998 Plan. Any shares of Common Stock which
are subject to an award but are not used because the terms and conditions of the
award are not met, or any shares which are used by participants to pay all or
part of the purchase price of any Option, may again be used for awards under the
1998 Plan.
ADMINISTRATION
The 1998 Plan is administered by a Committee ("Committee") of not less
than two nor more than five persons appointed by the Board of Directors, each of
whom must be a director of the Company. It is the intent of the 1998 Plan that
it be administered in a manner such that option grants and exercises would be
"exempt" under Rule 16b-3 of the Exchange Act. The Committee currently is
comprised of Michael Armani, Shala Shashani and Carl Shaifer.
The Committee is empowered to select those eligible persons to whom
Options shall be granted under the 1998 Plan; to determine the time or times at
which each Option shall be granted, whether Options will be ISOs or NQOs, and
the number of shares to be subject to each Option; and to fix the time and
manner in which each such Option may be exercised, including the exercise price
and option period, and other terms and conditions of such Options, all subject
to the terms and conditions of the 1998 Plan. The Committee has sole discretion
to interpret and administer the 1998 Plan, and its decisions regarding the 1998
Plan are final.
OPTION TERMS
ISOs granted under the 1998 Plan must have an exercise price of not
less than 100% of the fair market value of the Common Stock on the date the ISO
is granted and must be exercised within ten years from the date of grant. In the
case of an ISO granted to an optionee who owns more than 10% of the total voting
securities of the Company on the date of grant, such exercise price shall be not
less than 110% of fair market value on the date of grant, and the option period
9
<PAGE>
may not exceed five years. NQOs granted under the 1998 Plan must have an
exercise price of not less than 85% of the fair market value of the Common Stock
on the date the NQO is granted.
Options may be exercised during a period of time fixed by the Committee
except that no Option (other than an ISO granted to a shareholder owning more
than 10% of the voting securities of the Company) may be exercised more than ten
years after the date of grant. In the discretion of the Committee, payment of
the purchase price for the shares of stock acquired through the exercise of an
Option may be made in cash, shares of the Company's Common Stock or a
combination of cash and shares of the Company's Common Stock.
AMENDMENT AND TERMINATION
The 1998 Plan may be wholly or partially amended or otherwise modified,
suspended or terminated at any time and from time to time by the Board of
Directors. The Board of Directors may not (i) materially impair any outstanding
Options without the express consent of the optionee or (ii) materially increase
the number of shares subject to the 1998 Plan, materially increase the benefits
acquiring to optionees under the 1998 Plan, materially modify the requirements
as to eligibility to participate in the 1998 Plan or alter the method of
determining the Option exercise price without shareholder approval. No Option
may be granted under the 1998 Plan after July 31, 2008.
FEDERAL INCOME TAX CONSEQUENCES
Set forth below is a brief summary of some of the federal income tax
consequences relating to the exercise of NQOs and ISOs and the disposition of
shares acquired upon exercise. The summary is necessarily incomplete, and the
tax laws and regulations described are subject to change. Holders of Options
should consult a tax adviser before exercising the Options or disposing of the
shares acquired upon exercise.
NQOS.
Holders of NQOs do not realize income as a result of a grant of the
Option, but normally realize compensation income upon exercise of an NQO to the
extent that the fair market value of the shares of Common Stock on the date of
exercise of the NQO exceeds the exercise price paid. The Company will be
required to withhold taxes on ordinary income realized by an optionee upon the
exercise of a NQO.
In the case of an optionee subject to the "short-swing" profit
recapture provisions of Section 16(b) of the Exchange Act, the optionee realizes
income only upon the lapse of the six-month period under Section 16(b), unless
the optionee elects to recognize income immediately upon exercise of his Option.
ISOS.
Holders of ISOs will not be considered to have received taxable income
upon either the grant of the Option or its exercise. Upon the sale or other
taxable disposition of the shares, long-term capital gain will normally be
recognized on the full amount of the difference between the amount realized and
the Option exercise price paid if no disposition of the shares has taken place
within either (a) two years from the date of grant of the Option or (b) one year
from the date of transfer of the shares to the optionee upon exercise. If the
shares are sold or otherwise disposed of before the end of the one-year or
two-year periods, the holder of the ISO must include the gain realized as
ordinary income to the extent of the lesser of (1) the fair market value of the
Option stock minus the Option price, or (2) the amount realized minus the Option
price. Any gain in excess of these amounts, presumably, will be treated as
capital gain. The Company will be entitled to a tax deduction in regard to an
ISO only to the extent the optionee has ordinary income upon the sale or other
disposition of the Option shares.
10
<PAGE>
Upon the exercise of an ISO, the amount by which the fair market value
of the purchased shares at the time of exercise exceeds the Option price will be
an "item of tax preference" for purposes of computing the optionee's alternative
minimum tax for the year of exercise. If the shares so acquired are disposed of
prior to the expiration of the one-year or two-year periods described above,
there should be no "item of tax preference" arising from the Option exercise.
POSSIBLE ANTI-TAKEOVER EFFECTS
Although not intended as an anti-takeover measure by the Board of
Directors, one of the possible effects of the 1998 Plan could be to place
additional shares, and to increase the percentage of the total number of shares
outstanding, in the hands of the directors and officers of the Company. Such
persons may be viewed as part of, or friendly to, incumbent management and may,
therefore, under certain circumstances be expected to make investment and voting
decisions in response to a hostile takeover attempt that may serve to discourage
or render more difficult the accomplishment of such attempt.
In addition, Options may, in the discretion of the Committee, contain a
provision providing for the acceleration of the exercisability of outstanding,
but unexercisable, installments upon the first public announcement of a tender
offer, merger, consolidation, sale of all or substantially all of the assets of
the Company, or other attempted changes in the control of the Company. In the
opinion of the Board of Directors, such an acceleration provision merely ensures
that optionees under the 1998 Plan will be able to exercise their Options as
intended by the Board of Directors and shareholders of the Company prior to any
such extraordinary corporate transaction which might serve to limit or restrict
such right. The Board of Directors is, however, presently unaware of the
possibility of any hostile takeovers involving the Company.
REQUIRED VOTE OF SHAREHOLDERS
The favorable vote of a majority of the shares of Common Stock voting
in person or by proxy at the Annual Meeting is required to approve the 1998
Plan. As noted, the Board approved the 1998 Plan. Shareholders should be aware,
however, that the Board may be viewed as having a conflict of interest in
approving, and recommending that shareholders approve, the 1998 Plan. If the
1998 Plan is approved by the shareholders, Options granted under the 1998 Plan,
including those granted to directors or director nominees of the Company, will
be confirmed.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL
OF THE 1998 PLAN.
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INDEPENDENT AUDITORS
(Proposal 3)
The Board of Directors has selected the independent certified public
accounting firm of BDO Seidman, LLP to audit and comment on the Company's
financial statements for the fiscal year ending December 31, 1999, and to
conduct whatever audit functions are deemed necessary pursuant thereto. BDO
Seidman, LLP audited the Company's financial statements for the nine months
ended December 31, 1998 included in the Company's latest Form 10-KSB.
It is anticipated that a representative of BDO Seidman, LLP will be
present at the Annual Meeting and will be given the opportunity to make a
statement, if desired, and to respond to appropriate questions, if any,
concerning their engagement.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 15, 1993, the Company's Board of Directors approved a
compensation package for Michael Armani which included a bonus of $60,000 for
his services from January 1, 1992 to that date; a salary of $72,000 per annum
effective April 1, 1993, with authority for increases to $120,000 per annum at
unspecified later date(s); and future bonuses equal to 2% of the Company's
annual gross profits. Amounts due under the package were deferred based on the
financial condition of the Company, and an option good through December 31, 1996
to convert all or any portion of deferred salary, bonuses and any approved
expenses to shares of Common Stock at the rate of $0.01 per share was granted.
Through December 31, 1995, Mr. Armani received certain advances against
reimbursement of expenses as well as against the above compensation package.
Since January 1, 1996, he has received a regular salary at the rate of $120,000
per annum. From April 1, 1993 through July 31, 1996, the total amount of
payments to Mr. Armani other than salary amounted to $75,900. The Company and
Mr. Armani agreed that the total amount of deferred salary, bonuses and unpaid
approved expenses as of July 31, 1996 amounted to $300,000, which Mr. Armani
agreed to convert to 3,000,000 shares of Common Stock and an option to acquire
an additional 3,000,000 shares at $0.01 per share which Mr. Armani exercised in
July 1998 (prior to the Company's one-for-five reverse stock split that was
effected in January 1999). In addition there have been advances between the
Company and Mr. Armani during the year ended December 31, 1998. As of December
31, 1998, Mr. Armani was indebted to the Company in the net amount of $106,362.
Effective January 1, 1998, Mr. Armani's salary was increased to $150,000 per
annum.
In 1994, the Company was ordered to vacate the premises upon which the
Company's facilities are located as a result of a legal action between the
Company and its landlord. To avoid a potentially serious disruption of the
Company's activities that could have resulted from an eviction, SMC Group, a
consulting and human resource group owned by Ms. Shashani ("SMC"), acquired the
premises in July 1994 and leased them to the Company. As of December 31, 1998,
no unpaid rents were due under this arrangement.
In May 1995, SMC established a credit card merchant account for the
exclusive benefit of the Company. During the nine months ended December 31,
1998, the Company deposited into this account $44,969 in revenue received in the
form of credit card charges. Funds deposited in that account are either
transferred to the Company's other bank accounts or otherwise expended for its
benefit. The results of the transactions through such account are included in
the Company's financial statements.
In September 1996, the Company, SMC and SMC Communications Group, Inc.
entered into a compromise agreement and mutual release that reduced the number
of shares of the Company's Common Stock that SMC was entitled to receive in
connection with SMC's investments in the Company. The compromise agreement was
amended in December 1997. Pursuant to the amended compromise agreement,
1,000,000 shares of the Company's Common Stock were issued to SMC and its
assignees in March 1998.
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In connection with the amended compromise agreement, the Company agreed
to enter into a technology transfer agreement with SMC whereby SMC transferred
all right, title and interest in certain products sold by the Company. In
exchange, the Company issued SMC a five-year warrant to purchase 300,000 shares
of common stock at an exercise price of $.50. In October 1998, the outstanding
SMC balance was reduced by $150,000 to exercise the warrant for 300,000 shares
of common stock. In addition, $125,000 of the outstanding SMC loan balance was
converted into a subordinated promissory note with an attached warrant to
purchase shares of Common Stock. The warrant was exercised immediately by
converting $50,000 of the subordinated promissory note to Common Stock.
In November 1997, the Company loaned $30,000 to the Company's President
and Chief Executive Officer, Michael A. Armani, pursuant to a promissory note
which was due and payable on November 29, 1998, together with accrued interest
at a rate of 7% per annum. All amounts outstanding under this promissory note
were paid in full in December 1998.
The Company's current executive offices occupy approximately 6,675
square feet of leased space at 26772 Vista Terrace Drive, Lake Forest,
California 92630. The Company leases this space from SMC under a lease agreement
with an initial lease term that expires on July 31, 1999 and an option to extend
for an additional year. The annual rental presently is $78,000 under the terms
of the lease.
On April 12, 1999, the Company entered into an agreement with an
unrelated party to lease a new corporate and manufacturing facility of
approximately 26,232 square feet of space located at 25111 Arctic Ocean, Lake
Forest, California 92630. The lease has an initial term of five years and one
five-year option to extend. The initial monthly base rent is $23,871, and the
lease includes an annual 3% rent escalation provision. The lease also provides
for certain options for the Company to purchase the building, which options are
transferable by the Company independent of the Company's other rights and
obligations under the lease. In connection with the lease, Mr. Armani executed a
performance guarantee of the Company's obligations under the lease. If the
Company were to default under the lease, Mr. Armani could be held liable for
payment of the Company's $175,000 tenant improvement allowance, all tenant
improvement amounts in excess of $450,000, two years of base rent under the
lease plus the landlord's brokerage commission expenses and costs of enforcing
the guarantee.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before
the Annual Meeting. However, if other matters should come before the Annual
Meeting, it is the intention of the person named in the proxy to vote such proxy
in accordance with his judgment on such matters.
FORM 10-KSB REPORT
A copy of the Company's annual report to the Securities and Exchange
Commission on Form 10-KSB is available without charge to shareholders and may be
obtained by writing to Investor Relations Department, Telenetics Corporation,
26772 Vista Terrace Drive, Lake Forest, CA 92630.
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SHAREHOLDER PROPOSALS
Pursuant to Rule 14a-8 of the Securities and Exchange Commission,
proposals by shareholders which are intended for inclusion in the Company's
proxy statement and proxy and to be presented at the Company's next annual
meeting must be received by the Company by December 31, 1999 in order to be
considered for inclusion in the Company's proxy materials. Such proposals shall
be addressed to the Company's Secretary and may be included in next year's proxy
materials if they comply with certain rules and regulations of the Securities
and Exchange Commission governing shareholder proposals. For all other proposals
by shareholders to be timely, a shareholder's notice must be delivered to, or
mailed and received at, the principal executive offices of the Company not later
than March 25, 2000. If a shareholder fails to so notify the Company of any such
proposal prior to such date, management of the Company will be allowed to use
their discretionary voting authority with respect to proxies held by management
when the proposal is raised at the annual meeting (without any discussion of the
matter in the Company's proxy statement).
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EXHIBIT A
TELENETICS CORPORATION
1998 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN. The purpose of this 1998 Stock Option Plan
("Plan") of Telenetics Corporation, a California corporation ("Company"), is to
provide the Company with a means of attracting and retaining the services of
highly motivated and qualified directors and key personnel. The Plan is intended
to advance the interests of the Company by affording to directors and key
employees, upon whose skill, judgment, initiative and efforts the Company is
largely dependent for the successful conduct of its business, an opportunity
for investment in the Company and the incentives inherent in stock ownership in
the Company. In addition, the Plan contemplates the opportunity for investment
in the Company by employees of companies that do business with the Company. For
purposes of this Plan, the term Company shall include subsidiaries, if any, of
the Company.
2. LEGAL COMPLIANCE. It is the intent of the Plan that all options
granted under it ("Options") shall be either "Incentive Stock Options" ("ISOs"),
as such term is defined in Section 422 of the Internal Revenue Code of 1986, as
amended ("Code"), or non-qualified stock options ("NQOs"); provided, however,
ISOs shall be granted only to employees of the Company. An Option shall be
identified as an ISO or an NQO in writing in the document or documents
evidencing the grant of the Option. All Options that are not so identified as
ISOs are intended to be NQOs. In addition, the Plan provides for the grant of
NQOs to employees of companies that do business with the Company. It is the
further intent of the Plan that it conform in all respects with the requirements
of Rule 16b-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended ("Rule 16b-3"). To the extent that any aspect
of the Plan or its administration is at any time viewed as inconsistent with the
requirements of Rule 16b-3 or, in connection with ISOs, the Code, that aspect
shall be deemed to be modified, deleted or otherwise changed as necessary to
ensure continued compliance with the Rule 16b-3 requirements.
3. ADMINISTRATION OF THE PLAN.
3.1 PLAN COMMITTEE. The Plan shall be administered by a
committee ("Committee"). The members of the Committee shall be appointed from
time to time by the Board of Directors of the Company ("Board") and shall
consist of not less than two nor more than five persons, who shall be directors
of the Company.
3.2 GRANTS OF OPTIONS BY THE COMMITTEE. In accordance with the
provisions of the Plan, the Committee, by resolution, shall select those
eligible persons to whom Options shall be granted ("Optionees"); shall determine
the time or times at which each Option shall be granted, whether an Option is an
ISO or an NQO and the number of shares to be subject to each Option; and shall
fix the time and manner in which the Option may be exercised, the Option
exercise price, and the Option period. The Committee shall determine the form of
option agreement to evidence the foregoing terms and conditions of each Option,
which need not be identical, in the form provided for in SECTION 7. The option
agreement may include such other provisions as the Committee may deem necessary
or desirable consistent with the Plan, the Code and Rule 16b-3; provided,
however, that in no event shall an Option vest at less than twenty percent (20%)
per year over a consecutive five (5) year period.
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3.3 COMMITTEE PROCEDURES. The Committee from time to time may
adopt whatever rules and regulations for carrying out the purposes of the Plan
as it may deem proper and in the best interests of the Company. The Committee
shall keep minutes of its meetings and records of its actions. A majority of the
members of the Committee shall constitute a quorum for the transaction of any
business by the Committee. The Committee may act at any time by an affirmative
vote of a majority of those members voting. The vote may be taken at a meeting
(which may be conducted in person or by any telecommunication medium) or by
written consent of Committee members without a meeting.
3.4 FINALITY OF COMMITTEE ACTION. The Committee shall resolve
all questions arising under the Plan and option agreements entered into pursuant
to the Plan. Each determination, interpretation, or other action made or taken
by the Committee shall be final and conclusive and binding on all persons,
including, without limitation, the Company, its shareholders, the Committee and
each of the members of the Committee, and the directors, officers and employees
of the Company, including Optionees and their respective successors in interest.
3.5 NON-LIABILITY OF COMMITTEE MEMBERS. No Committee member
shall be liable for any action or determination made by him or her in good faith
with respect to the Plan or any Option granted under it.
4. BOARD POWER TO AMEND, SUSPEND, OR TERMINATE THE PLAN. The Board may,
from time to time, make whatever changes in or additions to the Plan as it may
deem proper and in the best interests of the Company and its shareholders. The
Board may also suspend or terminate the Plan at any time, without notice, and in
its sole discretion. Notwithstanding the foregoing, no change, addition,
suspension, or termination by the Board shall (i) materially impair any option
previously granted under the Plan without the express written consent of the
optionee; or (ii) materially increase the number of shares subject to the Plan,
materially increase the benefits accruing to optionees under the Plan,
materially modify the requirements as to eligibility to participate in the Plan
or alter the method of determining the option exercise price described in
SECTION 8, without shareholder approval.
5. SHARES SUBJECT TO THE PLAN. For purposes of the Plan, the Committee
is authorized to grant Options for up to 1,000,000 shares of the Company's
common stock ("Common Stock"), or the number and kind of shares of stock or
other securities which, in accordance with SECTION 13, shall be substituted for
shares of Common Stock or to which shares of Common Stock shall be adjusted. The
Committee is authorized to grant Options under the Plan with respect to those
shares. Any or all unsold shares subject to an Option which for any reason
expires or otherwise terminates (excluding shares returned to the Company in
payment of the exercise price for additional shares) may again be made subject
to grant under the Plan.
6. OPTIONEES. Options shall be granted only to officers, directors or
key employees of the Company or employees of companies that do business with the
Company designated by the Committee from time to time as Optionees. Any Optionee
may hold more than one option to purchase Common Stock, whether the option is an
Option held pursuant to the Plan or otherwise. An Optionee who is an employee of
the Company ("Employee Optionee") and who holds an Option must remain a
continuous full or part-time employee of the Company from the time of grant of
the Option to him until the time of its exercise, except as provided in SECTION
10.3.
7. GRANTS OF OPTIONS. The Committee shall have the sole discretion to
grant Options under the Plan and to determine whether any Option shall be an ISO
or NQO. The terms and conditions of Options granted under the Plan may differ
from one another as the Committee, in its absolute discretion, determines, as
long as all Options granted under the Plan satisfy the requirements of the Plan.
Upon determination by the Committee that an Option is to be granted to an
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Optionee, a written option agreement evidencing the Option shall be given to the
Optionee, specifying the number of shares subject to the Option, the Option
exercise price, whether the Option is an ISO or an NQO, and the other individual
terms and conditions of the Option. The option agreement may incorporate
generally applicable provisions from the Plan, a copy of which shall be provided
to all Optionees at the time of their initial grants under the Plan. The Option
shall be deemed granted as of the date specified in the grant resolution of the
Committee, and the option agreement shall be dated as of the date of the
resolution. Notwithstanding the foregoing, unless the Committee consists solely
of non-employee directors, any Option granted to an executive officer, director
or 10% beneficial owner for purposes of Section 16 of the Securities Exchange
Act of 1934, as amended ("Section 16 of the 1934 Act"), shall either be (a)
conditioned upon the Optionee's agreement not to sell the shares of Common Stock
underlying the Option for at least six months after the date of grant or (b)
approved by the entire Board or by the shareholders of the Company.
8. OPTION EXERCISE PRICE. The price per share to be paid by the
Optionee at the time an ISO is exercised shall not be less than 100% of the Fair
Market Value (as hereinafter defined) of one share of the Company's Common Stock
on the date on which the Option is granted. No ISO may be granted under the Plan
to any person who, at the time of grant, owns (within the meaning of Section
424(d) of the Code) stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or of any parent thereof, unless
the exercise price of the ISO is at least equal to 110% of Fair Market Value on
the date of grant. The price per share to be paid by the Optionee at the time an
NQO is exercised shall not be less than 85% of the Fair Market Value on the date
on which the NQO is granted, as determined by the Committee. For purposes of the
Plan, the "Fair Market Value" of a share of the Company's Common Stock as of a
given date shall be: (i) the closing price of a share of the Company's Common
Stock on the principal exchange on which shares of the Company's Common Stock
are then trading, if any, on the day immediately preceding that date, or, if
shares were not traded on that date, then on the next preceding trading day
during which a sale occurred; or (ii) if the Company's Common Stock is not
traded on an exchange but is quoted on Nasdaq or a successor quotation system,
the last sale price for the Common Stock on the day immediately preceding that
date as reported by Nasdaq or the successor quotation system; or (iii) if the
Company's Common Stock is not publicly traded on an exchange and not quoted on
Nasdaq or a successor quotation system, the closing bid price for the Common
Stock on that date as determined in good faith by the Committee; or (iv) if the
Company's Common Stock is not publicly traded, the fair market value established
by the Committee acting in good faith. In addition, with respect to any ISO, the
Fair Market Value on any given date shall be determined in a manner consistent
with any regulations issued by the Secretary of the Treasury for the purpose of
determining fair market value of securities subject to an ISO plan under the
Code.
9. CEILING OF ISO GRANTS. The aggregate Fair Market Value (determined
at the time any ISO is granted) of the Common Stock with respect to which an
Optionee's ISOs, together with incentive stock options granted under any other
plan of the Company and any parent, are exercisable for the first time by such
Optionee during any calendar year shall not exceed $100,000. If an Optionee
holds incentive stock options that become first exercisable (including as a
result of acceleration of exercisability under the Plan) in any one year for
shares having a Fair Market Value at the date of grant in excess of $100,000,
then the most recently granted of the ISOs, to the extent that they are
exercisable for shares having an aggregate Fair Market Value in excess of the
limit, shall be deemed to be NQOs.
10. DURATION, EXERCISABILITY, AND TERMINATION OF OPTIONS.
10.1 OPTION PERIOD. The option period shall be determined by
the Committee with respect to each Option granted. In no event, however, may the
option period exceed ten years from the date on which the Option is granted, or
five years in the case of a grant of an ISO to an Optionee who is a 10%
shareholder at the date on which the Option is granted as described in SECTION
8.
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10.2 EXERCISABILITY OF OPTIONS. Each Option shall be
exercisable in whole or in consecutive installments, cumulative or otherwise,
during its term as determined in the discretion of the Committee.
10.3 TERMINATION OF OPTIONS DUE TO TERMINATION OF EMPLOYMENT,
DISABILITY, OR DEATH OF OPTIONEE; TERMINATION FOR "CAUSE", OR RESIGNATION IN
VIOLATION OF AN EMPLOYMENT AGREEMENT. All Options granted under the Plan to any
Employee Optionee shall terminate and may no longer be exercised if the Employee
Optionee ceases, at any time during the period between the grant of the Option
and its exercise, to be an employee of the Company; provided, however, that the
Committee may alter the termination date of the Option if the Optionee transfers
to an affiliate of the Company. Notwithstanding the foregoing, (i) if the
Employee Optionee's employment with the Company terminates for any reason (other
than involuntary dismissal for "cause" or voluntary resignation in violation of
any agreement to remain in the employ of the Company, including, without
limitation, any such agreement pursuant to SECTION 15), he or she may, at any
time before the expiration of three months after termination or before
expiration of the Option, whichever first occurs, exercise the Option (to the
extent that the Option was exercisable by him or her on the date of the
termination of his or her employment); (ii) if the Employee Optionee's
employment terminates due to disability (as defined in Section 22(e)(3) of the
Code and subject to such proof of disability as the Committee may require), the
Option may be exercised by the Employee Optionee (or by his guardian(s), or
conservator(s), or other legal representative(s)) before the expiration of 12
months after termination or before expiration of the Option, whichever first
occurs (to the extent that the Option was exercisable by him or her on the date
of the termination of his or her employment); (iii) in the event of the death of
the Employee Optionee, an Option exercisable by him or her at the date of his or
her death shall be exercisable by his or her legal representative(s),
legatee(s), or heir(s), or by his or her beneficiary or beneficiaries so
designated by him or her, as the case may be, within 12 months after his or her
death or before the expiration of the Option, whichever first occurs (to the
extent that the Option was exercisable by him or her on the date of his or her
death); and (iv) if the Employee Optionee's employment is terminated for "cause"
or in violation of any agreement to remain in the employ of the Company,
including, without limitation, any such agreement pursuant to SECTION 14, his or
her Option shall terminate immediately upon termination of employment, and the
Option shall be deemed to have been forfeited by the Optionee. For purposes of
the Plan, "cause" may include, without limitation, any illegal or improper
conduct which (1) injures or impairs the reputation, goodwill, or business of
the Company; (2) involves the misappropriation of funds of the Company, or the
misuse of data, information or documents acquired in connection with employment
by the Company; or (3) violates any other directive or policy promulgated by the
Company. A termination for "cause" may also include any resignation in
anticipation of discharge for "cause" or resignation accepted by the Company in
lieu of a formal discharge for "cause."
11. MANNER OF OPTION EXERCISE; RIGHTS AND OBLIGATIONS OF OPTIONEES.
11.1 WRITTEN NOTICE OF EXERCISE. An Optionee may elect to
exercise an Option in whole or in part, from time to time, subject to the terms
and conditions contained in the Plan and in the agreement evidencing the Option,
by giving written notice of exercise to the Company at its principal executive
office.
11.2 CASH PAYMENT FOR OPTIONED SHARES. If an Option is
exercised for cash, the exercise notice shall be accompanied by a cashier's or
personal check, or money order, made payable to the Company for the full
exercise price of the shares purchased.
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11.3 STOCK SWAP FEATURE. At the time of the Option exercise,
and subject to the discretion of the Committee to accept payment in cash only,
the Optionee may determine whether the total purchase price of the shares to be
purchased shall be paid solely in cash or by transfer from the Optionee to the
Company of previously acquired shares of Common Stock, or by a combination
thereof. If the Optionee elects to pay the total purchase price in whole or in
part with previously acquired shares of Common Stock, the value of the shares
shall be equal to their Fair Market Value on the date of exercise, determined by
the Committee in the same manner used for determining Fair Market Value at the
time of grant for purposes of SECTION 8.
11.4 INVESTMENT REPRESENTATION FOR NON-REGISTERED SHARES AND
LEGALITY OF ISSUANCE. The receipt of shares of Common Stock upon the exercise of
an Option shall be conditioned upon the Optionee (or any other person who
exercises the Option on his or her behalf as permitted by SECTION 10.3)
providing to the Committee a written representation that, at the time of such
exercise, it is the intent of that person(s) to acquire the shares for
investment only and not with a view toward distribution. The certificate for
unregistered shares issued for investment shall be restricted by the Company as
to transfer unless the Company receives an opinion of counsel satisfactory to
the Company to the effect that the restriction is not necessary under then
pertaining law. The providing of the representation and the restrictions on
transfer shall not, however, be required upon any person's receipt of shares of
Common Stock under the Plan if, at the time of grant of the Option relating to
receipt or upon receipt, whichever is the appropriate measure under applicable
federal or state securities laws, the shares subject to the Option shall be (i)
covered by an effective and current registration statement under the Securities
Act of 1933, as amended, and (ii) either qualified or exempt from qualification
under applicable state securities laws. The Company shall, however, under no
circumstances be required to sell or issue any shares under the Plan if, in the
opinion of the Committee, (i) the issuance of the shares would constitute a
violation by the Optionee or the Company of any applicable law or regulation of
any governmental authority or (ii) the consent or approval of any governmental
body is necessary or desirable as a condition of, or in connection with, the
issuance of the shares.
11.5 SHAREHOLDER RIGHTS OF OPTIONEE. Upon exercise, the
Optionee (or any other person who exercises the Option on his or her behalf as
permitted by SECTION 10.3) shall be recorded on the books of the Company as the
owner of the shares, and the Company shall deliver to the record owner one or
more duly issued stock certificates evidencing ownership. No person shall have
any rights as a shareholder with respect to any shares of Common Stock covered
by an Option granted pursuant to the Plan until that person has become the
holder of record of the shares. Except as provided in SECTION 13, no adjustments
shall be made for cash dividends or other distributions or other rights as to
which there is a record date preceding the date that person becomes the holder
of record of the shares.
11.6 HOLDING PERIODS FOR TAX PURPOSES. The Plan does not
provide that an Optionee must hold shares of Common Stock acquired under the
Plan for any minimum period of time. Optionees are urged to consult with their
own tax advisors with respect to the tax consequences to them of their
individual participation in the Plan.
12. SUCCESSIVE GRANTS. Successive grants of Options may be made to any
Optionee under the Plan.
13. ADJUSTMENTS.
(a) If the outstanding Common Stock is hereafter increased or
decreased, or changed into or exchanged for a different number or kind of shares
or other securities of the Company or of another corporation, by reason of a
recapitalization, reclassification, reorganization, merger, consolidation, share
exchange or other business combination in which the Company is the surviving
parent corporation, stock split-up, combination of shares or dividend or other
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distribution payable in capital stock or rights to acquire capital stock,
appropriate adjustment shall be made by the Committee in the number and kind of
shares for which options may be granted under the Plan. In addition, the
Committee shall make appropriate adjustment in the number and kind of shares as
to which outstanding and unexercised options shall be exercisable, to the end
that the proportionate interest of the holder of the option shall, to the extent
practicable, be maintained as before the occurrence of the event. The adjustment
in outstanding options shall be made without change in the total price
applicable to the unexercised portion of the option but with a corresponding
adjustment in the exercise price per share.
(b) In the event of the dissolution or liquidation of the
Company, any outstanding and unexercised options shall terminate as of a future
date to be fixed by the Committee.
(c) In the event of a Reorganization (as hereinafter defined),
then,
(i) If there is no plan or agreement with respect to
the Reorganization ("Reorganization Agreement"), or if the Reorganization
Agreement does not specifically provide for the adjustment, change, conversion,
or exchange of the outstanding and unexercised options for cash or other
property or securities of another corporation, then any outstanding and
unexercised options shall terminate as of a future date to be fixed by the
Committee; or
(ii) If there is a Reorganization Agreement, and the
Reorganization Agreement specifically provides for the adjustment, change,
conversion or exchange of the outstanding and unexercised options for cash or
other property or securities of another corporation, then the Committee shall
adjust the shares under the outstanding and unexercised options, and shall
adjust the shares remaining under the Plan which are then available for the
issuance of options under the Plan if the Reorganization Agreement makes
specific provisions therefor, in a manner not inconsistent with the provisions
of the Reorganization Agreement for the adjustment, change, conversion, or
exchange of the options and shares.
(d) The term "Reorganization" as used in this SECTION 13 means
any reorganization, merger, consolidation, share exchange or other business
combination pursuant to which the Company is not the surviving parent
corporation after the effective date of the Reorganization, or any sale or lease
of all or substantially all of the assets of the Company. Nothing herein shall
require the Company to adopt a Reorganization Agreement, or to make provision
for the adjustment, change, conversion, or exchange of any options or the shares
subject thereto, in any Reorganization Agreement which it does adopt.
(e) The Committee shall provide to each optionee then holding
an outstanding and unexercised option not less than 30 calendar days' advanced
written notice of any date fixed by the Committee pursuant to this SECTION 13
and of the terms of any Reorganization Agreement providing for the adjustment,
change, conversion, or exchange of outstanding and unexercised options. Except
as the Committee may otherwise provide, each optionee shall have the right
during that period to exercise his or her option only to the extent that the
option was exercisable on the date the notice was provided to the optionee.
Any adjustment to any outstanding ISO pursuant to
this SECTION 13, if made by reason of a transaction described in Section 424(a)
of the Code, shall be made so as to conform to the requirements of that Section
and the regulations thereunder. If any other transaction described in Section
424(a) of the Code affects the Common Stock subject to any unexercised ISO
theretofore granted under the Plan ("old option"), the Board of Directors of the
Company or of any surviving or acquiring corporation may take such action as it
deems appropriate, in conformity with the requirements of that Code Section and
the regulations thereunder, to substitute a new option for the old option, in
order to make the new option, as nearly as may be practicable, equivalent to the
old option, or to assume the old option.
6
<PAGE>
(f) No modification, extension, renewal, or other change in
any option granted under the Plan may be made, after the grant of the option,
without the optionee's consent, unless it is permitted by the provisions of the
Plan and the option agreement. In the case of an ISO, optionees are hereby
advised that certain changes may disqualify the ISO from being considered as
such under Section 422 of the Code, or constitute a modification, extension, or
renewal of the ISO under Section 424(h) of the Code.
(g) All adjustments and determinations under this SECTION 13
shall be made by the Committee in good faith in its sole discretion.
14. CONTINUED EMPLOYMENT. As determined in the sole discretion of the
Committee at the time of grant and if so stated in a writing signed by the
Company, each Option may have as a condition the requirement of an Employee
Optionee to remain in the employ of the Company, or of its affiliates, and to
render to it his or her exclusive service, at such compensation as may be
determined from time to time by it, for a period not to exceed the term of the
Option, except for earlier termination of employment by or with the express
written consent of the Company or on account of disability or death. The failure
of any Employee Optionee to abide by this agreement as to any Option under the
Plan may result in the termination of all of his or her then outstanding Options
granted pursuant to the Plan. Neither the creation of the Plan nor the granting
of Option(s) under it shall be deemed to create a right in an Employee Optionee
to continued employment with the Company, and each Employee Optionee shall be
and shall remain subject to discharge by the Company as though the Plan had
never come into existence. Except as specifically provided by the Committee in
any particular case, the loss of existing or potential profit in options granted
under this Plan shall not constitute an element of damages in the event of
termination of the employment of an employee even if the termination is in
violation of an obligation of the Company to the employee by contract or
otherwise.
15. TAX WITHHOLDING. The exercise of any Option granted under the Plan
is subject to the condition that if at any time the Company determines, in its
discretion, that the satisfaction of withholding tax or other withholding
liabilities under any federal, state or local law is necessary or desirable as a
condition of, or in connection with, the exercise or a later lapsing of time or
restrictions on or disposition of the shares of Common Stock received upon the
exercise, then in that event, the exercise of the Option shall not be effective
unless the withholding has been effected or obtained in a manner acceptable to
the Company. When an Optionee is required to pay to the Company an amount
required to be withheld under applicable income tax laws in connection with the
exercise of any Option, the Optionee may, subject to the approval of the
Committee, which approval shall not have been disapproved at any time after the
election is made, satisfy the obligation, in whole or in part, by electing to
have the Company withhold shares of Common Stock having a value equal to the
amount required to be withheld. The value of the Common Stock withheld pursuant
to the election shall be determined by the Committee, in accordance with the
criteria set forth in SECTION 8, with reference to the date the amount of tax to
be withheld is determined. The Optionee shall pay to the Company in cash any
amount required to be withheld that would otherwise result in the withholding of
a fractional share. The election by an Optionee who is an officer of the Company
within the meaning of Section 16 of the 1934 Act, to be effective, must meet all
of the requirements of Section 16 of the 1934 Act.
16. TERM OF PLAN.
16.1 EFFECTIVE DATE. Subject to shareholder approval, the Plan
shall become effective as of August 1, 1998.
7
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16.2 TERMINATION DATE. Except as to options granted and
outstanding under the Plan prior to that time, the Plan shall terminate at
midnight on July 31, 2008, and no Option shall be granted after that time.
Options then outstanding may continue to be exercised in accordance with their
terms. The Plan may be suspended or terminated at any earlier time by the Board
within the limitations set forth in SECTION 4.
17. NON-EXCLUSIVITY OF THE PLAN. Nothing contained in the Plan is
intended to amend, modify, or rescind any previously approved compensation
plans, programs or options entered into by the Company. This Plan shall be
construed to be in addition to and independent of any and all other
arrangements. Neither the adoption of the Plan by the Board nor the submission
of the Plan to the shareholders of the Company for approval shall be construed
as creating any limitations on the power or authority of the Board to adopt,
with or without shareholder approval, such additional or other compensation
arrangements as the Board may from time to time deem desirable.
18. GOVERNING LAW. The Plan and all rights and obligations under it
shall be construed and enforced in accordance with the laws of the State of
California.
19. INFORMATION TO OPTIONEES. Optionees under the Plan who do not
otherwise have access to financial statements of the Company will receive the
Company's financial statements at least annually.
8
<PAGE>
TELENETICS CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Telenetics Corporation ("Company") hereby
constitutes and appoints Michael A. Armani, with the power to appoint his
substitution, as attorney and proxy, to appear, attend and vote all of the
shares of common stock of the Company standing in the name of the undersigned on
the record date at the 1999 Annual Meeting of Shareholders of the Company to be
held at the Hampton Inn, 27012 Town Center Drive, Foothill Ranch, California
92610 on June 4, 1999, at 2:00 p.m. local time, and at any adjournment thereof,
upon the following:
<TABLE>
<CAPTION>
1. To elect five directors as follows:
<S> <C>
[ ] FOR all nominees listed below, [ ] WITHHOLD AUTHORITY to vote for
except as marked to the contrary below all nominees listed below
</TABLE>
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list provided below.)
Michael A. Armani Shala Shashani George Levy, M.D.
Edmund P. Finamore Thomas Povinelli
2. To consider and vote upon a proposal to adopt the Company's 1998
Stock Option Plan.
[ ] FOR approval [ ] AGAINST approval [ ] ABSTAIN
3. To consider and vote upon a proposal to ratify the appointment of BDO
Seidman, LLP as independent certified public accountants of the Company
for the fiscal year beginning January 1, 1999.
[ ] FOR approval [ ] AGAINST approval [ ] ABSTAIN
4. To vote in his discretion on such other business as may properly come
before the meeting, or any adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE PROPOSALS INDICATED AND IN ACCORDANCE WITH THE DISCRETION OF THE PROXY
HOLDER ON ANY OTHER BUSINESS. ALL OTHER PROXIES HERETOFORE GIVEN BY THE
UNDERSIGNED IN CONNECTION WITH THE ACTIONS PROPOSED ON THE REVERSE ARE HEREBY
EXPRESSLY REVOKED. THIS PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED BY
WRITTEN NOTICE TO THE SECRETARY OF THE COMPANY, BY ISSUANCE OF A SUBSEQUENT
PROXY OR BY VOTING AT THE ANNUAL MEETING IN PERSON.
Please mark, date, sign and return this proxy promptly in the enclosed
envelope. When shares are held by joint tenants, both should sign. When signing
as attorney, as executor, administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full corporate name by President
or other authorized officer. If a partnership, please sign in partnership name
by authorized person.
DATED:
-----------------------------------
------------------------------------------
(Signature of Shareholder(s))
------------------------------------------
(Print Name(s) Here)
[ ] PLEASE CHECK IF YOU ARE PLANNING TO
ATTEND THE ANNUAL MEETING.
