<PAGE>
As filed with the Securities and Exchange Commission on February 10, 2000
Registration No. 333-95643
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
AMENDMENT NO. 1
TO
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)
25111 ARCTIC OCEAN
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 RUTAN & TUCKER, LLP
25111 ARCTIC OCEAN 611 ANTON BLVD., SUITE 1400
LAKE FOREST, CALIFORNIA 92630 COSTA MESA, CALIFORNIA 92626
(949) 455-4000 (714) 641-3450
(Name, Address, Including Zip Code, and
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. [ ]
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>
PROSPECTUS
SUBJECT TO COMPLETION DATED FEBRUARY 10, 2000
TELENETICS CORPORATION
4,218,600 SHARES OF COMMON STOCK
The 4,218,600 shares of our company's common stock, no par value,
offered hereby are being offered by certain of our security holders. Our common
stock trades on the NASD's OTC Bulletin Board under the symbol "TLNT."
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
The information in this prospectus is not complete and may be changed.
The securities offered hereby 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 , 2000
<PAGE>
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934. 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
reference 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 being offered hereby 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 Quarterly Report on Form 10-QSB for the quarter ended June
30, 1999.
o Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1999.
o Quarterly Report on Form 10-QSB/A No. 1 for the quarter
ended September 30, 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.
o Current Report on Form 8-K filed with the SEC on July 15,
1999.
o Current Report on Form 8-K filed with the SEC on January 21,
2000.
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 Securities
Exchange Act of 1934. 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
25111 Arctic Ocean
Lake Forest, California 92630
(949) 455-4000
3
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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 $3,065 for the nine
month period ended September 30, 1999, as compared to incurring a net loss of
$584,367 for the nine month period ended September 30, 1998. We incurred a net
loss of $268,416 for the three month period ended September 30, 1999, as
compared to a net loss of $305,646 for the three month period ended September
30, 1998. We realized net income of $271,481 for the six month period ended June
30, 1999, incurred a net loss of $128,952 for the three month period ended June
30, 1999, realized net income of $380,260 for the three month period ended
December 31, 1998 and incurred a net loss of $323,920 for the three month period
ended June 30, 1998. Our accumulated deficit through September 30, 1999 was
$11,625,586, and as of that date, we had shareholders' equity of $1,777,801.
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. We do not believe that cash flow from operations and our
revolving line of credit with Celtic Capital Corporation alone will be adequate
to fund all of our operations for the next twelve months. We will require
additional sources of liquidity through debt and/or equity financing. Any future
financing may not be available on a timely basis, in sufficient amounts or on
terms acceptable to us. Any future 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 wireless communication and device products 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 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 and adversely affected.
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OUR LACK OF DIVERSIFICATION MAY AFFECT OUR BUSINESS IF DEMAND IS REDUCED
Our business is primarily centered on the sale of modems and similar
data communication devices, 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 these types of products. A significant reduction in sales of these products
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. 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
executive 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 wireless communication and device 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
in market conditions or technology will not adversely affect our ability to
compete successfully in the future.
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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 wireless
communication and device products 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 and have several
patents pending. 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 have otherwise obtained the right to use certain
technologies incorporated in our products, including certain technology we
acquired through our recent acquisition of eflex Wireless, Inc. 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 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
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 market as a whole and
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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. To date, we have not experienced any adverse effects
of the Year 2000 issue.
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 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). Historically, our common stock has had a price of less than $5.00 and
thus has been subject to the penny stock rules. 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
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 this 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.
<TABLE>
RESALES OF SHARES COVERED BY THIS PROSPECTUS
<CAPTION>
This prospectus covers the resale of 4,218,600 shares of our company's
common stock that are held or issuable as follows:
<S> <C>
Shares presently held by selling security holders: 817,600
Shares issuable to 19 selling security holders who purchased our 10%
Subordinated Unsecured Promissory Notes due 2001 in a private
transaction, upon exercise of accompanying outstanding warrants to
purchase our company's common stock at a price of $1.75 per share: 1,250,000
Shares issuable to two selling security holders who purchased our 10%
Subordinated Unsecured Promissory Notes due 2000 in a private
transaction, upon exercise of accompanying warrants to purchase our
company's common stock at a price of $1.00 per share: 20,000
Shares issuable to 14 selling security holders who are employees or
consultants to our company upon exercise of options to purchase our
company's common stock at varying exercise prices: 2,131,000
Total: 4,218,600
</TABLE>
This prospectus does not cover the sale or other transfer of options or
warrants or the issuance of shares of common stock to holders of options or
warrants upon exercise. If a selling security holder transfers such holder's
warrants or options prior to exercise, the transferee of the warrants or options
may not sell the shares of common stock issuable upon exercise of the warrants
or options pursuant to this prospectus unless this prospectus is appropriately
amended or supplemented by us.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of our
company's common stock offered hereby by the selling security holders. In the
event that options or 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 options or warrants, if any, for general corporate purposes.
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All of the options and warrants contain anti-dilution and adjustment
provisions providing for the adjustment of the underlying shares and/or the
exercise 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
options and warrants will not be entitled to receive any of our assets available
for distribution to the holders of common stock.
In the event of any reclassification, capital reorganization or other
similar change of our 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 options
and warrants will thereupon become exercisable 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 option or
warrant 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 options and
warrants are not covered hereby.
For the life of the options and warrants, 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 options and warrants. The holders of the options and
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. Further, the terms on which we could obtain
additional capital during the life of the options and warrants may be adversely
affected.
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SELLING SECURITY HOLDERS
The following table sets forth certain information as of January 25,
2000, 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 hereunder.
<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>
William C. Saunders 2,516,179(3) 17.73% 168,750(4) 2,347,429 16.54%
Terry S. Parker 2,516,179(3) 17.73% 168,750(4) 2,347,429 16.54%
Saunders & Parker, Inc. 1,100,000(5) 8.50% 600,000(6) 500,000 3.86%
Dolphin Offshore Partners, L.P. 1,050,000(7) 8.41% 250,000(8) 800,000 6.40%
George Levy 415,302(9) 3.48% 25,000(8) 390,302 3.27%
Edward L. Didion 387,500(10) 3.26% 487,500(11) - -
Interfirst Capital Corp. 300,000(12) 2.47% 300,000(12) - -
Frank R. Ribelin 262,500(13) 2.17% 262,500(13) - -
John D. McLean 175,000(14) 1.47% 375,000(15) - -
Arnold Poliskin 162,000(16) 1.36% 100,000(17) 62,000 *
David L. Stone 155,000(18) 1.29% 100,000(8) 55,000 *
Jerry D. Moen, Trustee, and
Dorothy L. Moen, Trustee 154,571(19) 1.30% 50,000(8) 104,571 *
Yael Elpeleg 150,000(8) 1.25% 150,000(8) - -
Margaret Fisher and Mark
Schlossberg 127,000(20) * 100,000(8) 27,000 *
Shadow Capital, LLC 107,142(21) * 50,000(8) 57,142 *
Charles A. Wittwer TTEE,
Margaret Wittwer, Wittwer Family
Trust UA08-18-92 100,000(8) * 100,000(8) - -
Michael Taglich POA TagKent
Partners 80,039(22) * 37,500(8) 42,539 *
Philip M. Stone 75,000(8) * 75,000(8) - -
Bradley L. Jacobs 90,000(23) * 50,000(8) 40,000 *
Donald F. Mehlhoff 50,000(8) * 50,000(8) - -
Francis M. Chan 49,284(4) * 3,175(4) 46,109 *
Rutan & Tucker, LLP 34,425(24) * 34,425(24) - -
T. Keith Odom 33,333(6) * 100,000(25) - -
Estate of Drew Lance 49,313(26) * 16,000(27) 33,313 *
Bruce W. Barren 30,000(28) * 30,000(28) - -
Alex G. Sieben 25,000(8) * 25,000(8) - -
Mike A. Guendling 25,000(8) * 25,000(8) - -
Michael Elliott Rubin
SSB IRA Custodian
Acct. 353-44232-1-9-752 25,000(8) * 25,000(8) - -
Michael Tittle 25,000(8) * 25,000(8) - -
Manoo Boonsiri 25,000(8) * 25,000(8) - -
Stansbury-Kennedy 25,000(8) * 25,000(8) - -
Robert W. Way 20,000(29) * 100,000(30) - -
Paul and Mariann Springer 10,000(31) * 10,000(31) - -
Hobart Teneff 10,000(31) * 10,000(31) - -
Mikko J. Oijala 6,000(32) * 30,000(33) - -
Robert W. Frankland 5,000(34) * 25,000(35) - -
Ferdinand J. Pirnat, Jr. 5,000(36) * 10,000(37) 1,000 *
James G. Gaston - - 100,000(38) - -
Donald E. Johnson - - 100,000(39) - -
</TABLE>
- ---------------
* Less than 1%.
(1) Based on an aggregate of 11,842,063 shares of common stock issued and
outstanding as of January 25, 2000. 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.
12
<PAGE>
(2) Assumes that all of the shares are sold pursuant to this prospectus.
(3) The selling security holder is an advisor to our company's board of
directors. Represents (i) 500,000 shares of common stock pledged by
Michael A. Armani, a director and the President and Chief Executive
Officer of our company, in favor of Saunders & Parker, Inc., a company
for which the selling security holder is co-president, a director and a
50% shareholder, as security for repayment by our company of a
promissory note made by our company in favor of Saunders & Parker, Inc.
in connection with our company's acquisition of all of the outstanding
capital stock of eflex Wireless, Inc., (ii) 600,000 shares of common
stock underlying an option with an initial exercise price of $1.75
granted to Saunders & Parker, Inc. in connection with a consulting
agreement with our company, (iii) 168,750 shares of common stock held
by the selling security holder and (iv) 1,247,429 shares that may be
issued in connection with the eflex Wireless, Inc. acquisition.
(4) Entire amount represents shares of common stock held by the selling
security holder.
(5) The selling security holder is a consultant to our company. William C.
Saunders and Terry S. Parker share voting and dispositive power.
Represents (i) 500,000 shares of common stock pledged by Michael A.
Armani, a director and the President and Chief Executive Officer of our
company, as security for repayment by our company of a promissory note
made by our company in favor of the selling security holder in
connection with our company's acquisition of all of the outstanding
capital stock of eflex Wireless, Inc. and (ii) 600,000 shares of common
stock underlying an option with an initial exercise price of $1.75
granted in connection with the consulting agreement between the selling
security holder and our company.
(6) Entire amount represents shares of common stock underlying an option
with an initial exercise price of $1.75.
(7) Peter E. Salas, the general partner of the selling security holder, has
sole voting and dispositive power. Represents (i) 250,000 shares of
common stock underlying a warrant with an initial exercise price of
$1.75, (ii) 400,000 shares of common stock underlying a warrant with an
initial exercise price of $1.875 and (iii) 400,000 shares of common
stock held by the selling security holder.
(8) Entire amount represents shares of common stock underlying a warrant
with an initial exercise price of $1.75.
(9) The selling security holder is a director of our company. Represents
(i) 25,000 shares of common stock underlying a warrant with an initial
exercise price of $1.75, (ii) 52,500 shares of common stock underlying
a warrant with an initial exercise price of $1.875, (iii) 317,802
shares of common stock held by the selling security holder directly or
through a trust, (iv) 10,000 shares of common stock held by the spouse
of the selling security holder and (v) 10,000 shares of common stock
underlying an option with an initial exercise price of $1.3125.
(10) The selling security holder is an employee of our company. Represents
(i) 337,500 shares of common stock held by the selling security holder
and (ii) 50,000 shares of common stock underlying an option with an
initial exercise price of $1.75.
(11) Represents (i) 337,500 shares of common stock held by the selling
security holder and (ii) 150,000 shares of common stock underlying an
option with an initial exercise price of $1.75, of which 50,000 shares
are vested and exercisable.
(12) The selling security holder is a financial advisor and consultant to
our company. Represents 300,000 shares of common stock underlying an
option with an initial exercise price of $1.75.
(13) The selling security holder is an employee of our company. Represents
(i) 200,000 shares of common stock underlying an option with an initial
exercise price of $1.50 and (ii) 62,500 shares of common stock
underlying a warrant with an initial exercise price of $1.75.
13
<PAGE>
(14) The selling security holder is an employee of our company. Represents
(i) 75,000 shares of common stock held by the selling security holder
and (ii) 100,000 shares of common stock underlying an option with an
initial exercise price of $1.75.
(15) Represents (i) 75,000 shares of common stock held by the selling
security holder and (ii) 300,000 shares of common stock underlying an
option with an initial exercise price of $1.75, of which 100,000 shares
are vested and exercisable.
(16) The selling security holder is a consultant to our company. Represents
(i) 62,000 shares of common stock held by the selling security holder
and (ii) 100,000 shares of common stock underlying an option with an
initial exercise price of $0.75.
(17) Entire amount represents shares of common stock underlying an option
with an initial exercise price of $0.75.
(18) The selling security holder is the Chief Financial Officer and
Secretary of our company. Represents (i) 100,000 shares of common stock
underlying a warrant with an initial exercise price of $1.75, (ii)
30,000 shares of common stock underlying an option with an initial
exercise price of $1.3125 and (iii) 25,000 shares of common stock
underlying an option with an initial exercise price of $0.71.
(19) Represents (i) 50,000 shares of common stock underlying a warrant with
an initial exercise price of $1.75, (ii) 15,000 shares of common stock
underlying a warrant with an initial exercise price of $1.875 and (iii)
89,571 shares of common stock held by the selling security holder.
(20) Represents (i) 27,000 shares of common stock held by the selling
security holder and (ii) 100,000 shares of common stock underlying a
warrant with an initial exercise price of $1.75.
(21) Represents (i) 50,000 shares of common stock underlying a warrant with
an initial exercise price of $1.75, (ii) 28,571 shares of common stock
underlying a warrant with an initial exercise price of $1.875 and (iii)
28,571 shares of common stock held by the selling security holder.
(22) Mr. Taglich is a principal of Taglich Brothers, D'Amadeo, Wagner &
Company, Inc., which 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. Represents (i)
14,286 shares of common stock underlying a warrant with an initial
exercise price of $1.875 held by Mr. Taglich, (ii) 14,286 shares of
common stock held by Mr. Taglich, (iii) 13,967 shares of common stock
underlying a warrant with an initial exercise price of $1.75 held by
Mr. Taglich and (iv) 37,500 shares of common stock underlying a warrant
with an initial exercise price of $1.75 held by Mr. Taglich under a
power of attorney pursuant to which he has sole voting and dispositive
power over such shares.
(23) The selling security holder is an advisor to our company's board of
directors. Represents (i) 50,000 shares of common stock underlying a
warrant with an initial exercise price of $1.75 and (ii) 40,000 shares
of common stock underlying an option with an initial exercise price of
$2.18 which are scheduled to vest and become exercisable on February
11, 2000.
(24) The selling security holder serves as legal counsel to our company in
various matters. Entire amount represents shares of common stock held
by the selling security holder.
(25) Represents 100,000 shares of common stock underlying an option with an
initial exercise price of $1.75, of which 33,333 shares are vested and
exercisable.
(26) Mr. Lance is a deceased employee of our company. Represents (i) 33,313
shares of common stock held by the selling security holder and (ii)
16,000 shares of common stock underlying an option with an initial
exercise price of $1.60.
14
<PAGE>
(27) Entire amount represents shares of common stock underlying an option
with an initial exercise price of $1.60.
(28) The selling security holder is a consultant to our company. Entire
amount represents shares of common stock issued to the selling security
holder in connection with our consulting arrangement.
(29) The selling security holder is an employee of our company. Entire
amount represents shares of common stock underlying an option with an
initial exercise price of $1.65.
(30) Entire amount represents shares of common stock underlying an option
with an initial exercise price of $1.65, of which 20,000 shares are
vested and exercisable.
(31) Entire amount represents shares of common stock underlying a warrant
with an exercise price of $1.00.
(32) The selling security holder is an employee of our company. Entire
amount represents shares of common stock underlying an option with an
initial exercise price of $1.25.
(33) Entire amount represents shares of common stock underlying an option
with an initial exercise price of $1.25, of which 6,000 shares are
vested and exercisable.
(34) The selling security holder is an employee of our company. Entire
amount represents shares of common stock underlying an option with an
initial exercise price of $1.25.
(35) Entire amount represents shares of common stock underlying an option
with an initial exercise price of $1.25, of which 5,000 shares are
vested and exercisable.
(36) The selling security holder is an employee of our company. Represents
(i) 1,000 shares of common stock held by the selling security holder
and (ii) 4,000 shares of common stock underlying an option with an
initial exercise price of $1.25.
(37) Entire amount represents shares of common stock underlying an option
with an initial exercise price of $1.25, of which 4,000 shares are
vested and exercisable.
(38) Entire amount represents shares of common stock underlying an option
with an initial exercise price of $1.90, of which no shares are
scheduled to become vested and exercisable within 60 days after January
25, 2000.
(39) Entire amount represents shares of common stock underlying an option
with an initial exercise price of $1.05, of which no shares are
scheduled to become vested and exercisable within 60 days after January
25, 2000.
15
<PAGE>
We will prepare and file such amendments and supplements to the
registration statement of which this prospectus is a part 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 offered hereby 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 of our common stock 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 of common stock in one or
more transactions either:
o 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;
o 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;
o directly, at prices and on terms to be determined at the time of
sale; or
o 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. The
shares of common stock offered hereby 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.
In connection with distributions of the shares of common stock or
otherwise, the selling security holders may sell shares of common stock short
and redeliver the shares of common stock 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 of
common stock 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 of common stock registered hereunder to a
broker-dealer, and the broker-dealer may sell the shares of common stock so
loaned or upon a default the broker-dealer may effect sales of the pledged
shares pursuant to this prospectus.
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 Section 4(1) of the
Securities Act or Rule 144 promulgated thereunder may be sold pursuant to such
provisions rather than pursuant to this prospectus. The selling security holders
also may be considered "underwriters" within the meaning of the Securities Act.
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 of
common stock offered hereby will be borne by the selling security holders.
16
<PAGE>
LEGAL PROCEEDINGS
On October 18, 1999, we initiated an action in the Orange County
Superior Court, Central (Case No. 815922) by filing a complaint against Bibicoff
& Associates, and Harvey A. Bibicoff, its primary shareholder and chief
executive officer, alleging, among other things, breach of contract, rescission
based upon fraud, breach of fiduciary duty and declaratory relief arising out of
a consulting agreement entered into between defendants and our company. The
complaint seeks damages according to proof at trial, rescission of the
consulting agreement and restitution of all consideration received by defendants
and a judicial declaration of the rights and liabilities of the parties. On
December 6, 1999, defendants filed an answer to the complaint denying all
material allegations contained therein. Defendants, together with five of our
company's debenture holders and stockholders affiliated with defendants,
concurrently filed a cross-complaint against our company and Michael Armani, who
is a director and the President and Chief Executive Officer of our company, for
damages and rescission based upon alleged misrepresentations, false promises,
and non-disclosures by our company and Mr. Armani in connection with the
cross-complainants' purchase of their interests in our company. The
cross-complaint also contains breach of contract claims arising out of the
consulting agreement between our company and certain of the defendants and
purported oral contracts between our company and certain of the
cross-complainants. Our company and Mr. Armani filed an answer to the
cross-complaint denying all material allegations contained therein. The
litigation is in its initial stages, and discovery has only recently commenced.
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 of which this prospectus is a part 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.
INTEREST OF NAMED EXPERTS AND COUNSEL
Certain legal matters with respect to the legality of the shares
offered hereby will be passed upon by Rutan & Tucker, LLP. Rutan & Tucker, LLP
is the owner of 34,425 shares of common stock of our company, which shares are
being registered for resale pursuant to this prospectus.
Prior period financial statements incorporated by reference in this
prospectus and in the registration statement of which this prospectus is a part
have been audited by George F. Rombach, CPA, independent certified public
accountant, for the year ended March 31, 1998 and to the extent set forth in the
report contained in our Transition Report on Form 10-KSB for the nine months
ended December 31, 1998. As of January 3, 2000, Mr. Rombach was employed by our
company. In connection with his employment, our company is obligated to issue to
Mr. Rombach 60,000 shares of our common stock and options to purchase up to
100,000 shares of our common stock.
17
<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 Bylaws 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 Bylaws 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.
18
<PAGE>
You should rely only on the information contained in this document or to which
we have referred you. We have not authorized anyone to provide you with
information that is different. This document may be used only when it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
------------------------
TABLE OF CONTENTS
PAGE
----
Available Information.................................................. 2
Incorporation of Certain Documents
By Reference......................................................... 3
Risk Factors........................................................... 4
Forward-Looking Statements............................................. 10
Resales of Shares Covered by this
Prospectus........................................................... 10
Use of Proceeds........................................................ 10
Selling Security Holders............................................... 12
Plan of Distribution................................................... 16
Legal Proceedings...................................................... 17
Legal Matters.......................................................... 17
Experts................................................................ 17
Interest of Named Experts and Counsel.................................. 17
Indemnification of Directors and Officers.............................. 18
------------------------
4,218,600 Shares
TELENETICS CORPORATION
COMMON STOCK
-----------------
PROSPECTUS
-----------------
, 2000
<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............................ $ 5,190
NASD filing fee................................. 0
Printing and engraving expenses................. 1,000
Legal fees and expenses......................... 30,000
Blue Sky fees and expenses...................... 2,000
Accounting fees and expenses.................... 8,000
Miscellaneous................................... 2,000
----------
Total....................................... $ 48,190
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 Bylaws 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 Bylaws 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, 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.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
4.1 Stock Purchase Agreement dated as of January 7, 2000 by and among the
Registrant, Edward L. Didion, John D. McLean, William C. Saunders and
Terry S. Parker (1)
4.2 Non-Qualified Stock Option dated January 7, 2000 issued by the
Registrant to Saunders & Parker, Inc. (1)
4.3 Form of Common Stock Purchase Warrant issued by the Registrant in
connection with the making of 10% Subordinated Unsecured Promissory
Notes due 2001 (3)
4.4 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 (2)
4.5 Non-Qualified Stock Option dated January 7, 2000 issued by the
Registrant to Edward L. Didion (1)
4.6 Non-Qualified Stock Option dated October 26, 1999 issued by the
Registrant to Interfirst Capital Corp.
4.7 Non-Qualified Stock Option dated June 30, 1999 made by the Registrant
in favor of Frank R. Ribelin (3)
4.8 Non-Qualified Stock Option dated January 7, 2000 issued by the
Registrant to John D. McLean (1)
4.9 Non-Qualified Stock Option dated January 7, 2000 issued by the
Registrant to T. Keith Odom (1)
4.10 Non-Qualified Stock Option dated as of August 2, 1999 issued by the
Registrant to Drew Lance
4.11 Non-Qualified Stock Option dated as of August 1, 1999 issued by the
Registrant to Robert W. Way
4.12 Non-Qualified Stock Option dated as of November 2, 1998 issued by the
Registrant to Mikko J. Oijala
4.13 Non-Qualified Stock Option dated as of October 12, 1998 issued by the
Registrant to Robert W. Frankland
4.14 Non-Qualified Stock Option dated as of July 9, 1997 issued by the
Registrant to Ferdinand J. Pirnat, Jr.
4.15 Non-Qualified Stock Option dated as of July 6, 1999 issued by the
Registrant to James G. Gaston
4.16 Non-Qualified Stock Option dated as of September 24, 1999 issued by the
Registrant to Donald E. Johnson
II-2
<PAGE>
4.17 Registration Rights Agreement dated January 7, 2000 between the
Registrant and Edward L. Didion (1)
4.18 Registration Rights Agreement dated January 7, 2000 between the
Registrant and John D. McLean (1)
4.19 Registration Rights Agreement dated January 7, 2000 between the
Registrant and Saunders & Parker, Inc. (1)
4.20 Registration Rights Agreement dated January 7, 2000 between the
Registrant and T. Keith Odom (1)
4.21 Registration Rights Agreement dated January 7, 2000 between the
Registrant and Terry S. Parker (1)
4.22 Registration Rights Agreement dated January 7, 2000 between the
Registrant and William C. Saunders (1)
4.23 Non-Qualified Stock Option dated as of November 8, 1999 issued by the
Registrant to Arnold Poliskin
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 in
Exhibit 5.1)(3)
- --------------
(1) Filed as an exhibit to the Registrant's Form 8-K filed with the
Commission on January 21, 2000 and incorporated herein by reference.
(2) Filed as an exhibit to the Registrant's Amendment No. 1 to Form S-3
filed with the Commission on November 24, 1999 (Registration No.
333-84125) and incorporated herein by reference.
(3) Filed as an exhibit to the Registrant's Form S-3 filed with the
Commission on January 27, 2000 and incorporated herein by reference.
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 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, as of February 10,
2000.
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 below by the following persons in the
following capacities as of February 10, 2000.
SIGNATURE TITLE
--------- -----
/S/ MICHAEL A. ARMANI President, Chief
- ----------------------------- Executive Officer,
Michael A. Armani Chairman of the Board
and Director (Principal
Executive Officer)
/S/ DAVID L. STONE Chief Financial Officer and
- ----------------------------- Secretary (Principal
David L. Stone Financial and Principal
Accounting Officer)
* Director
- -----------------------------
Shala Shashani
* Director
- -----------------------------
George Levy
* Director
- -----------------------------
Edmund P. Finamore
* Director
- -----------------------------
Thomas Povinelli
* By: /S/ MICHAEL A. ARMANI
- -----------------------------
Michael A. Armani,
Attorney-In-Fact
II-5
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
--- -----------
4.6 Non-Qualified Stock Option dated October 26, 1999 issued by the
Registrant to Interfirst Capital Corp.
4.10 Non-Qualified Stock Option dated as of August 2, 1999 issued by the
Registrant to Drew Lance
4.11 Non-Qualified Stock Option dated as of August 1, 1999 issued by the
Registrant to Robert W. Way
4.12 Non-Qualified Stock Option dated as of November 2, 1998 issued by the
Registrant to Mikko J. Oijala
4.13 Non-Qualified Stock Option dated as of October 12, 1998 issued by the
Registrant to Robert W. Frankland
4.14 Non-Qualified Stock Option dated as of July 9, 1997 issued by the
Registrant to Ferdinand J. Pirnat, Jr.
4.15 Non-Qualified Stock Option dated as of July 6, 1999 issued by the
Registrant to James G. Gaston
4.16 Non-Qualified Stock Option dated as of September 24, 1999 issued by the
Registrant to Donald E. Johnson
4.23 Non-Qualified Stock Option dated as of November 8, 1999 issued by the
Registrant to Arnold Poliskin
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
II-6
NON-QUALIFIED STOCK OPTION
THIS OPTION HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER THE
SECURITIES ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
Effective as of October 26, 1999
TELENETICS CORPORATION
WHEREAS, in connection with consulting services to be rendered to
Telenetics Corporation, a California corporation (the "COMPANY"), by Interfirst
Capital Corp. ("HOLDER"), the Company desires to grant to Holder a non-qualified
stock option to purchase shares of the Company's common stock, no par value per
share ("COMMON Stock").
NOW, THEREFORE, IN CONSIDERATION OF THE FOREGOING, subject to
adjustment pursuant to SECTION 4, the Company hereby grants to Holder an option
to purchase (this "OPTION") up to Three Hundred Thousand (300,000) shares
(individually, each an "OPTION SHARE," and collectively, the "OPTION SHARES") of
Common Stock of the Company at the Exercise Price (as defined below). This
Option may be exercised in accordance with the terms of this Option by
surrendering this Option, with (i) 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., and (ii) the form of Restricted Stock Letter attached hereto duly
executed by Holder (unless the sale of Option Shares is registered under the
Securities Act), at the Company's principal executive office ("OFFICE"), and by
paying in full the Exercise Price, plus transfer taxes, if any, in United States
currency by cash, certified check, bank cashier's check or money order payable
to the order of the Company.
1. DURATION, VESTING AND EXERCISE OF OPTION.
(a) This Option shall vest and become exercisable in full on
the effective date hereof.
(b) This Option (to the extent not earlier exercised) shall
expire on October 30, 2004 (such date being referred to herein as the
"EXPIRATION DATE"). If this Option is not surrendered to the Company
for exercise in accordance with SECTION 1(c) prior to the close of
business on the Expiration Date it shall be void.
(c) This Option may be exercised, to the extent not previously
exercised, in whole or in part, prior to the Expiration Date at the per
Option Share Exercise Price determined in accordance with SECTIONS 2
AND 4. In order to exercise such right, Holder shall surrender this
Option to the Company at the Office with the form of Election to
Purchase and the Restricted Stock Letter (unless the sale of the Option
Shares is registered under the Securities Act) attached hereto 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
<PAGE>
taxes as are specified in SECTION 7, for each Option Share with respect
to which this Option is 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. If this Option is exercised as to less than all of the Option
Shares purchasable, one or more new option(s) shall be issued to Holder
for the remaining number of Option Shares evidenced by this Option.
2. EXERCISE PRICE. Subject to adjustment pursuant to SECTION 4, the
price per share at which Option Shares shall be purchasable upon exercise of
this Option (the "EXERCISE PRICE") shall be $1.75.
3. ISSUANCE OF OPTION SHARE CERTIFICATES.
(a) Upon surrender of this Option, delivery of an Election to
Purchase and delivery of a Restricted Stock Letter (if the sale of
Option Shares is not registered under the Securities Act) in the forms
attached hereto and payment of the Exercise Price and transfer taxes,
the Company shall issue and deliver certificates representing shares of
Common Stock ("CERTIFICATES") in the manner set forth in the Election
to Purchase delivered by Holder to the Company.
(b) If the shares of Common Stock deliverable upon exercise of
this Option are not registered under the Securities Act, the
Certificates shall bear a legend in substantially the following form:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE `ACT'), AND MAY NOT BE RESOLD, ASSIGNED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY
TO THE ISSUER THAT REGISTRATION UNDER SAID ACT IS NOT
REQUIRED."
4. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF OPTION SHARES
PURCHASABLE. The Exercise Price and the number and kind of Option Shares
purchasable upon the exercise of this Option are subject to adjustment from time
to time upon the occurrence of the events specified in this SECTION 4. If, by
reason of any merger, consolidation, combination, liquidation, reorganization,
recapitalization, stock dividend, stock split, split-off, spin-off, combination
of shares, exchange of shares, or other similar changes in the capital structure
of the Company (each, a "REORGANIZATION"), the outstanding securities of the
same class as the Option Shares (the "OPTION SHARE CLASS OF SECURITIES") are
substituted or exchanged for, combined or changed into any cash, property or
other securities or into a greater or lesser number of shares, the number and/or
kind of shares and/or interests subject to this Option and the Exercise Price
shall be appropriately adjusted to prevent dilution or enlargement of the rights
of Holder so that, thereafter, this Option shall be exercisable for the
securities, cash and/or other property that would have been received in respect
of the Option Shares if this Option had been exercised in full immediately prior
to such event. Such adjustments shall be made successively whenever any event
described in the foregoing sentence occurs. The number of Option Shares and the
Exercise Price set forth in this Option reflect the one-for-five reverse stock
split that was implemented in January 1999.
2
<PAGE>
5. FRACTIONAL OPTION SHARES. The Company shall not be required to issue
fractions of Option Shares upon exercise of this Option or to distribute
certificates that evidence fractional Option Shares. All fractions of Option
Shares to which Holder would otherwise be entitled shall be aggregated and in
lieu of such remaining fractional Option Share, there shall be paid to Holder at
the time this Option is exercised as herein provided an amount in cash equal to
the stated fraction of the fair market value of an Option Share as determined in
good faith by the Board of Directors of the Company.
6. RESERVATION AND ISSUANCE OF OPTION 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 this Option, and (b) there are no restrictions in the Company's
articles of incorporation or bylaws that prevent the Company from issuing shares
of its Common Stock for the purpose of enabling it to satisfy any obligation to
issue Option Shares upon exercise of this Option in accordance with its terms.
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 Option Shares upon exercise of
this Option.
The Company further represents and warrants that all shares of its
Common Stock issued upon exercise of this Option will, upon issuance in
accordance with the terms of this Option, (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 Holder's payment of the Exercise Price.
7. MUTILATED OR MISSING OPTION CERTIFICATES. If this Option is
mutilated, lost, stolen or destroyed, the Company shall issue and deliver, in
exchange and substitution for and upon cancellation of the mutilated Option, or
in lieu of and substitution for the lost, stolen or destroyed Option, a new
option in substantially the same form as this Option and representing an option
to purchase an equivalent number of Option Shares, but only upon receipt of
evidence satisfactory to the Company of such loss, theft or destruction of this
Option and an indemnity or bond, if requested, satisfactory to the Company.
Holder shall also comply with such other reasonable regulations and pay such
other reasonable charges as the Company may prescribe.
8. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes
attributable to the issuance of Option Shares issuable upon the exercise of this
Option; 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 options or any Option Share certificates in a name other than that of
Holder, and the Company shall not be required to issue or deliver such Option
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.
3
<PAGE>
9. CERTAIN NOTICES TO HOLDER. Upon any adjustment to the number of
Option Shares issuable pursuant to exercise of this Option or to the Exercise
Price pursuant to SECTION 4, the Company, within fifteen (15) calendar days
thereafter, shall cause to be given to Holder, at his address appearing on the
Company's records, written notice of such adjustments in accordance with this
SECTION 9. 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 9.
If:
(a) The Company authorizes the issuance or distribution of
securities or assets to holders of its shares of Common Stock or makes
any distribution (other than cash dividends and distributions payable
out of consolidated earnings) to the holders of its shares of Common
Stock;
(b) The Company becomes a party to any consolidation or merger
for which approval of any shareholder of the Company is required,
conveys or transfers all or substantially all of its properties,
assets, or business, shall engage in any reorganization or
recapitalization or makes any tender or exchange offer for shares of
its Common Stock;
(c) The Company becomes subject to voluntary or involuntary
dissolution, liquidation or winding up; or
(d) The Company proposes to take any other action that would
require an adjustment of the Exercise Price pursuant to SECTION 4;
then the Company shall cause to be given to Holder at his address appearing on
the Company's records, at least fifteen (15) calendar days prior to the
applicable record date hereinafter specified, a written notice in accordance
with this SECTION 9 stating (i) the date as of which the holders of record of
Common Stock to be entitled to receive any such securities or assets or
distribution are to be determined, (ii) the initial expiration date set forth in
any tender or exchange offer made by the Company for shares of its Common Stock
or (iii) the date on which any such consolidation or merger, conveyance,
transfer, reorganization or recapitalization, dissolution, liquidation or
winding up is expected to become effective or consummated, and the date as of
which it is expected that holders of record of Common Stock shall be entitled to
exchange such Common Stock 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 9 or any defect therein
shall not affect the legality or validity of any distribution, right, option,
consolidation, conveyance, transfer, reorganization, dissolution, liquidation or
winding up or the vote upon any action.
Nothing contained in this Option shall be construed as conferring upon
Holder the right to vote or to consent or to receive notice as a shareholder 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.
4
<PAGE>
10. NONTRANSFERABILITY OF OPTION. Except by will or the laws of descent
and distribution, this Option is not transferable by Holder.
11. NOTICES. Any notice or demand authorized by this Option to be given
or made by Holder 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 Option to be given by the Company to Holder
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 Holder with the Company) to the address specified in the Company's
records.
12. SUPPLEMENTS AND AMENDMENTS. The Company may from time to time
supplement or amend this Option without the consent or concurrence of Holder in
order to cure any ambiguity, manifest error or other mistake in this Option, 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 Holder.
13. INTENTIONALLY OMITTED.
14. SUCCESSORS. All the representations, warranties, agreements,
covenants and provisions of this Option by or for the benefit of the Company or
Holder shall bind and inure to the benefit of their respective permitted
successors and assigns hereunder.
15. GOVERNING LAW. This Option 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 the State of California
without regard to conflicts of laws principles.
16. BENEFITS OF THIS AGREEMENT. Nothing in this Option shall be
construed to give to any person or entity other than the Company and Holder any
legal or equitable right, remedy or claim under this Option, and this Option
shall be for the sole and exclusive benefit of the Company and Holder.
17. INVALIDITY OF PROVISIONS. If any provision of this Option 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.
18. NO IMPAIRMENT. The Company will not, by amendment of its articles
of incorporation or through any reorganization, recapitalization transfer of
assets, consolidation, merger, dissolution, issuance 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 Option and in the taking of all such actions as may be necessary or
appropriate in order to protect the rights of Holder against impairment.
19. SECTION HEADINGS. The section headings contained in this Option are
for convenience only and shall be without substantive meaning or content.
The Company has caused this Option to be duly executed on January 26,
2000, to be effective as of the day and year first above written.
TELENETICS CORPORATION
By: /S/ Michael A. Armani
-----------------------------------
Michael A. Armani, President
<PAGE>
TELENETICS CORPORATION
NON-QUALIFIED STOCK OPTION
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to purchase ____________
Option Shares issuable upon the exercise of the Non-Qualified Stock Option dated
effective as of August 2, 1999 ("OPTION"), and requests that certificates for
such Option Shares be issued and delivered as follows:
ISSUE TO: _______________________________________________________
(Name)
_______________________________________________________
(Address, including Zip Code)
_______________________________________________________
(Social Security or Tax Identification Number)
DELIVER TO: _______________________________________________________
(Name)
at_____________________________________________________
(Address, including Zip Code)
If the number of Option Shares hereby exercised is less than all the
Option Shares represented by the Option, the undersigned requests that a new
option representing the number of Option Shares not exercised be issued and
delivered as set forth above or otherwise as the undersigned shall direct in
writing.
In full payment of the purchase price of the Option Shares being issued
upon exercise of the Option and transfer taxes, if any, the undersigned hereby
tenders payment of $_____________ by cash, certified check, bank cashier's check
or money order payable in United States currency to the order of Telenetics
Corporation.
Dated: ____________________ ________________________________________
(Signature)
(Signature must conform in all respects
to name of holder as specified on the
face of the Option.)
PLEASE INSERT SOCIAL SECURITY OR TAX
IDENTIFICATION NUMBER OF HOLDER
Signature Guaranteed:
________________________________
<PAGE>
EXHIBIT A
---------
FORM OF RESTRICTED STOCK LETTER
THE UNDERSIGNED (hereinafter referred to as "PURCHASER") is exercising
the Non-Qualified Stock Option tendered with this Restricted Stock Letter, and
in connection with such exercise, makes the following representations and
warranties to Telenetics 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 ("SHARES") to Purchaser upon exercise of the
Non-Qualified Stock Option:
1. Purchaser is acquiring the Shares for investment for Purchaser's 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 (the "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 is an "accredited investor" as defined in the rules and
regulations of the Act and Purchaser has such knowledge and experience in
financial and business matters so as to be capable of evaluating the merits and
risks of Purchaser's investment in the Shares, and Purchaser is capable of
bearing the economic risks of such investment, including the risk of loss of
Purchaser's entire investment in the Shares.
3. Purchaser acknowledges that the Company has made available to
Purchaser or Purchaser's agents all documents and information relating to an
investment in the Shares requested by or on behalf of Purchaser.
4. All Shares issued on delivery of this Restricted Stock Letter shall
bear the legend set forth in SECTION 3 of the annexed Non-Qualified Stock Option
and the Shares received on delivery of this Restricted Stock Letter shall be
subject to the restrictions set forth therein.
Executed ______________________
Purchaser: _____________________________________
Signature: _____________________________________
2
NON-QUALIFIED STOCK OPTION
THIS OPTION HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER THE
SECURITIES ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
Effective as of August 2, 1999
TELENETICS CORPORATION
WHEREAS, in connection with the services to be rendered to Telenetics
Corporation, a California corporation (the "COMPANY"), by Drew Lance, an
individual ("HOLDER"), pursuant to that certain letter agreement of even date
herewith by and between the Company and the Holder (the "LETTER AGREEMENT"), the
Company desires to grant to Holder a non-qualified stock option to purchase
shares of the Company's common stock, no par value per share ("COMMON STOCK").
NOW, THEREFORE, IN CONSIDERATION OF THE FOREGOING, subject to
adjustment pursuant to SECTION 4, the Company hereby grants to Holder an option
to purchase (this "OPTION") up to Eighty Thousand (80,000) shares (individually,
each an "OPTION SHARE," and collectively, the "OPTION SHARES") of Common Stock
of the Company at the Exercise Price (as defined below). This Option may be
exercised in accordance with the terms of this Option by surrendering this
Option, with (i) 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., and (ii) the
form of Restricted Stock Letter attached hereto duly executed by Holder (unless
the sale of Option Shares is registered under the Securities Act), at the
Company's principal executive office ("OFFICE"), and by paying in full the
Exercise Price, plus transfer taxes, if any, in United States currency by cash,
certified check, bank cashier's check or money order payable to the order of the
Company.
1. DURATION, VESTING AND EXERCISE OF OPTION.
(a) This Option shall vest and become exercisable in three
installments, with the first 20% vesting and becoming exercisable on
September 1, 1999, an additional 40% vesting and becoming exercisable
on August 1 2000, and the remaining 40% vesting and becoming
exercisable on August 1, 2001.
(b) This Option (to the extent not earlier exercised) shall
expire on August 2, 2009 (such date being referred to herein as the
"EXPIRATION DATE"). If this Option is not surrendered to the Company
for exercise in accordance with SECTION 1(c) prior to the close of
business on the Expiration Date it shall be void.
(c) This Option may be exercised, to the extent not previously
exercised, in whole or in part, prior to the Expiration Date at the per
Option Share Exercise Price determined in accordance with SECTIONS 2
AND 4. In order to exercise such right, Holder shall surrender this
Option to the Company at the Office with the form of Election to
Purchase and the Restricted Stock Letter (unless the sale of the Option
<PAGE>
Shares is registered under the Securities Act) attached hereto 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 7, for each Option Share with respect
to which this Option is 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. If this Option is exercised as to less than all of the Option
Shares purchasable, one or more new option(s) shall be issued to Holder
for the remaining number of Option Shares evidenced by this Option.
2. EXERCISE PRICE. Subject to adjustment pursuant to SECTION 4, the
price per share at which Option Shares shall be purchasable upon exercise of
this Option (the "EXERCISE PRICE") shall be $1.60.
3. ISSUANCE OF OPTION SHARE CERTIFICATES.
(a) Upon surrender of this Option, delivery of an Election to
Purchase and delivery of a Restricted Stock Letter (if the sale of
Option Shares is not registered under the Securities Act) in the forms
attached hereto and payment of the Exercise Price and transfer taxes,
the Company shall issue and deliver certificates representing shares of
Common Stock ("CERTIFICATES") in the manner set forth in the Election
to Purchase delivered by Holder to the Company.
(b) If the shares of Common Stock deliverable upon exercise of
this Option are not registered under the Securities Act, the
Certificates shall bear a legend in substantially the following form:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE `ACT'), AND MAY NOT BE RESOLD, ASSIGNED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY
TO THE ISSUER THAT REGISTRATION UNDER SAID ACT IS NOT
REQUIRED."
4. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF OPTION SHARES
PURCHASABLE. The Exercise Price and the number and kind of Option Shares
purchasable upon the exercise of this Option are subject to adjustment from time
to time upon the occurrence of the events specified in this SECTION 4. If, by
reason of any merger, consolidation, combination, liquidation, reorganization,
recapitalization, stock dividend, stock split, split-off, spin-off, combination
of shares, exchange of shares, or other similar changes in the capital structure
of the Company (each, a "REORGANIZATION"), the outstanding securities of the
same class as the Option Shares (the "OPTION SHARE CLASS OF SECURITIES") are
substituted or exchanged for, combined or changed into any cash, property or
other securities or into a greater or lesser number of shares, the number and/or
kind of shares and/or interests subject to this Option and the Exercise Price
2
<PAGE>
shall be appropriately adjusted to prevent dilution or enlargement of the rights
of Holder so that, thereafter, this Option shall be exercisable for the
securities, cash and/or other property that would have been received in respect
of the Option Shares if this Option had been exercised in full immediately prior
to such event. Such adjustments shall be made successively whenever any event
described in the foregoing sentence occurs. The number of Option Shares and the
Exercise Price set forth in this Option reflect the one-for-five reverse stock
split that was implemented in January 1999.
5. FRACTIONAL OPTION SHARES. The Company shall not be required to issue
fractions of Option Shares upon exercise of this Option or to distribute
certificates that evidence fractional Option Shares. All fractions of Option
Shares to which Holder would otherwise be entitled shall be aggregated and in
lieu of such remaining fractional Option Share, there shall be paid to Holder at
the time this Option is exercised as herein provided an amount in cash equal to
the stated fraction of the fair market value of an Option Share as determined in
good faith by the Board of Directors of the Company.
6. RESERVATION AND ISSUANCE OF OPTION 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 this Option, and (b) there are no restrictions in the Company's
articles of incorporation or bylaws that prevent the Company from issuing shares
of its Common Stock for the purpose of enabling it to satisfy any obligation to
issue Option Shares upon exercise of this Option in accordance with its terms.
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 Option Shares upon exercise of
this Option.
The Company further represents and warrants that all shares of its
Common Stock issued upon exercise of this Option will, upon issuance in
accordance with the terms of this Option, (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 Holder's payment of the Exercise Price.
7. MUTILATED OR MISSING OPTION CERTIFICATES. If this Option is
mutilated, lost, stolen or destroyed, the Company shall issue and deliver, in
exchange and substitution for and upon cancellation of the mutilated Option, or
in lieu of and substitution for the lost, stolen or destroyed Option, a new
option in substantially the same form as this Option and representing an option
to purchase an equivalent number of Option Shares, but only upon receipt of
evidence satisfactory to the Company of such loss, theft or destruction of this
Option and an indemnity or bond, if requested, satisfactory to the Company.
Holder shall also comply with such other reasonable regulations and pay such
other reasonable charges as the Company may prescribe.
8. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes
attributable to the issuance of Option Shares issuable upon the exercise of this
Option; 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 options or any Option Share certificates in a name other than that of
Holder, and the Company shall not be required to issue or deliver such Option
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.
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<PAGE>
9. CERTAIN NOTICES TO HOLDER. Upon any adjustment to the number of
Option Shares issuable pursuant to exercise of this Option or to the Exercise
Price pursuant to SECTION 4, the Company, within fifteen (15) calendar days
thereafter, shall cause to be given to Holder, at his address appearing on the
Company's records, written notice of such adjustments in accordance with this
SECTION 9. 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 9.
If:
(a) The Company authorizes the issuance or distribution of
securities or assets to holders of its shares of Common Stock or makes
any distribution (other than cash dividends and distributions payable
out of consolidated earnings) to the holders of its shares of Common
Stock;
(b) The Company becomes a party to any consolidation or merger
for which approval of any shareholder of the Company is required,
conveys or transfers all or substantially all of its properties,
assets, or business, shall engage in any reorganization or
recapitalization or makes any tender or exchange offer for shares of
its Common Stock;
(c) The Company becomes subject to voluntary or involuntary
dissolution, liquidation or winding up; or
(d) The Company proposes to take any other action that would
require an adjustment of the Exercise Price pursuant to SECTION 4;
then the Company shall cause to be given to Holder at his address appearing on
the Company's records, at least fifteen (15) calendar days prior to the
applicable record date hereinafter specified, a written notice in accordance
with this SECTION 9 stating (i) the date as of which the holders of record of
Common Stock to be entitled to receive any such securities or assets or
distribution are to be determined, (ii) the initial expiration date set forth in
any tender or exchange offer made by the Company for shares of its Common Stock
or (iii) the date on which any such consolidation or merger, conveyance,
transfer, reorganization or recapitalization, dissolution, liquidation or
winding up is expected to become effective or consummated, and the date as of
which it is expected that holders of record of Common Stock shall be entitled to
exchange such Common Stock 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 9 or any defect therein
shall not affect the legality or validity of any distribution, right, option,
consolidation, conveyance, transfer, reorganization, dissolution, liquidation or
winding up or the vote upon any action.
Nothing contained in this Option shall be construed as conferring upon
Holder the right to vote or to consent or to receive notice as a shareholder 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.
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<PAGE>
10. NONTRANSFERABILITY OF OPTION. Except by will or the laws of descent
and distribution, this Option is not transferable by Holder.
11. NOTICES. Any notice or demand authorized by this Option to be given
or made by Holder 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 Option to be given by the Company to Holder
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 Holder with the Company) to the address specified in the Company's
records.
12. SUPPLEMENTS AND AMENDMENTS. The Company may from time to time
supplement or amend this Option without the consent or concurrence of Holder in
order to cure any ambiguity, manifest error or other mistake in this Option, 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 Holder.
13. TERMINATION OF SERVICE.
(a) GENERAL. In the event of the termination of Holder's
services to the Company pursuant to the Letter Agreement, Holder may at
any time within three (3) months after the effective date of such
termination exercise this Option to the extent that Holder was entitled
to exercise the Option at the date of termination, provided that in no
event shall this Option be exercisable after the Expiration Date. Any
portion of this Option which has not vested as of the effective date of
such termination shall expire immediately as of such date.
(b) DEATH OR DISABILITY OF OPTIONEE. In the event of the death
or Disability (as that term is defined in Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended) of Holder within a period
during which this Option, or any part thereof, could have been
exercised by Holder (the "OPTION PERIOD"), this Option shall lapse
unless it is exercised within the Option Period and in no event later
than twelve (12) months after the date of Holder's death or Disability
by Holder or Holder's legal representative or representatives in the
case of a Disability or, in the case of death, by the person or persons
entitled to do so under Holder's last will and testament or if Holder
fails to make a testamentary disposition of this Option or shall die
intestate, by the person or persons entitled to receive this Option
under the applicable laws of descent and distribution. This Option may
be exercised following the death or Disability of Holder only if this
Option was exercisable by Holder immediately prior to her death or
Disability. In no event shall this Option be exercisable after the
Expiration Date. The Company shall have the right to require evidence
satisfactory to it of the rights of any person or persons seeking to
exercise this Option under this SECTION 13(b).
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<PAGE>
14. SUCCESSORS. All the representations, warranties, agreements,
covenants and provisions of this Option by or for the benefit of the Company or
Holder shall bind and inure to the benefit of their respective permitted
successors and assigns hereunder.
15. GOVERNING LAW. This Option 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 the State of California
without regard to conflicts of laws principles.
16. BENEFITS OF THIS AGREEMENT. Nothing in this Option shall be
construed to give to any person or entity other than the Company and Holder any
legal or equitable right, remedy or claim under this Option, and this Option
shall be for the sole and exclusive benefit of the Company and Holder.
17. INVALIDITY OF PROVISIONS. If any provision of this Option 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.
18. NO IMPAIRMENT. The Company will not, by amendment of its articles
of incorporation or through any reorganization, recapitalization transfer of
assets, consolidation, merger, dissolution, issuance 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 Option and in the taking of all such actions as may be necessary or
appropriate in order to protect the rights of Holder against impairment.
19. SECTION HEADINGS. The section headings contained in this Option are
for convenience only and shall be without substantive meaning or content.
The Company has caused this Option to be duly executed on January 26,
2000, to be effective as of the day and year first above written.
TELENETICS CORPORATION
By: /S/ Michael A. Armani
-------------------------------------
Michael A. Armani, President
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<PAGE>
TELENETICS CORPORATION
NON-QUALIFIED STOCK OPTION
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to purchase ____________
Option Shares issuable upon the exercise of the Non-Qualified Stock Option dated
effective as of August 2, 1999 ("OPTION"), and requests that certificates for
such Option Shares be issued and delivered as follows:
ISSUE TO: _______________________________________________________
(Name)
_______________________________________________________
(Address, including Zip Code)
_______________________________________________________
(Social Security or Tax Identification Number)
DELIVER TO: _______________________________________________________
(Name)
at_____________________________________________________
(Address, including Zip Code)
If the number of Option Shares hereby exercised is less than all the
Option Shares represented by the Option, the undersigned requests that a new
option representing the number of Option Shares not exercised be issued and
delivered as set forth above or otherwise as the undersigned shall direct in
writing.
In full payment of the purchase price of the Option Shares being issued
upon exercise of the Option and transfer taxes, if any, the undersigned hereby
tenders payment of $_____________ by cash, certified check, bank cashier's check
or money order payable in United States currency to the order of Telenetics
Corporation.
Dated: ____________________ ________________________________________
(Signature)
(Signature must conform in all respects
to name of holder as specified on the
face of the Option.)
PLEASE INSERT SOCIAL SECURITY OR TAX
IDENTIFICATION NUMBER OF HOLDER
Signature Guaranteed:
________________________________
<PAGE>
EXHIBIT A
---------
FORM OF RESTRICTED STOCK LETTER
THE UNDERSIGNED (hereinafter referred to as "PURCHASER") is exercising
the Non-Qualified Stock Option tendered with this Restricted Stock Letter, and
in connection with such exercise, makes the following representations and
warranties to Telenetics 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 ("SHARES") to Purchaser upon exercise of the
Non-Qualified Stock Option:
1. Purchaser is acquiring the Shares for investment for Purchaser's 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 (the "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 is an "accredited investor" as defined in the rules and
regulations of the Act and Purchaser has such knowledge and experience in
financial and business matters so as to be capable of evaluating the merits and
risks of Purchaser's investment in the Shares, and Purchaser is capable of
bearing the economic risks of such investment, including the risk of loss of
Purchaser's entire investment in the Shares.
3. Purchaser acknowledges that the Company has made available to
Purchaser or Purchaser's agents all documents and information relating to an
investment in the Shares requested by or on behalf of Purchaser.
4. All Shares issued on delivery of this Restricted Stock Letter shall
bear the legend set forth in SECTION 3 of the annexed Non-Qualified Stock Option
and the Shares received on delivery of this Restricted Stock Letter shall be
subject to the restrictions set forth therein.
Executed ______________________
Purchaser: _____________________________________
Signature: _____________________________________
NON-QUALIFIED STOCK OPTION
THIS OPTION HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER THE
SECURITIES ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
Effective as of August 1, 1999
TELENETICS CORPORATION
WHEREAS, in connection with the services to be rendered to Telenetics
Corporation, a California corporation (the "COMPANY"), by Robert W. Way, an
individual ("HOLDER"), pursuant to that certain letter agreement of even date
herewith by and between the Company and the Holder (the "LETTER AGREEMENT"), the
Company desires to grant to Holder a non-qualified stock option to purchase
shares of the Company's common stock, no par value per share ("COMMON STOCK").
NOW, THEREFORE, IN CONSIDERATION OF THE FOREGOING, subject to
adjustment pursuant to SECTION 4, the Company hereby grants to Holder an option
to purchase (this "OPTION") up to One Hundred Thousand (100,000) shares
(individually, each an "OPTION SHARE," and collectively, the "OPTION SHARES") of
Common Stock of the Company at the Exercise Price (as defined below). This
Option may be exercised in accordance with the terms of this Option by
surrendering this Option, with (i) 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., and (ii) the form of Restricted Stock Letter attached hereto duly
executed by Holder (unless the sale of Option Shares is registered under the
Securities Act), at the Company's principal executive office ("OFFICE"), and by
paying in full the Exercise Price, plus transfer taxes, if any, in United States
currency by cash, certified check, bank cashier's check or money order payable
to the order of the Company.
1. DURATION, VESTING AND EXERCISE OF OPTION.
(a) This Option shall vest and become exercisable in five
equal installments, with the first installment vesting and becoming
exercisable on December 1, 1999, the second installment vesting and
becoming exercisable on August 1, 2000, and the remaining installments
vesting and becoming exercisable on each August 1 thereafter.
(b) This Option (to the extent not earlier exercised) shall
expire on August 1, 2009 (such date being referred to herein as the
"EXPIRATION DATE"). If this Option is not surrendered to the Company
for exercise in accordance with SECTION 1(c) prior to the close of
business on the Expiration Date it shall be void.
(c) This Option may be exercised, to the extent not previously
exercised, in whole or in part, prior to the Expiration Date at the per
Option Share Exercise Price determined in accordance with SECTIONS 2
AND 4. In order to exercise such right, Holder shall surrender this
Option to the Company at the Office with the form of Election to
Purchase and the Restricted Stock Letter (unless the sale of the Option
Shares is registered under the Securities Act) attached hereto duly
completed and signed, and shall tender payment in full of the Exercise
<PAGE>
Price to the Company for the Company's account, together with such
taxes as are specified in SECTION 7, for each Option Share with respect
to which this Option is 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. If this Option is exercised as to less than all of the Option
Shares purchasable, one or more new option(s) shall be issued to Holder
for the remaining number of Option Shares evidenced by this Option.
2. EXERCISE PRICE. Subject to adjustment pursuant to SECTION 4, the
price per share at which Option Shares shall be purchasable upon exercise of
this Option (the "EXERCISE PRICE") shall be $1.65.
3. ISSUANCE OF OPTION SHARE CERTIFICATES.
(a) Upon surrender of this Option, delivery of an Election to
Purchase and delivery of a Restricted Stock Letter (if the sale of
Option Shares is not registered under the Securities Act) in the forms
attached hereto and payment of the Exercise Price and transfer taxes,
the Company shall issue and deliver certificates representing shares of
Common Stock ("CERTIFICATES") in the manner set forth in the Election
to Purchase delivered by Holder to the Company.
(b) If the shares of Common Stock deliverable upon exercise of
this Option are not registered under the Securities Act, the
Certificates shall bear a legend in substantially the following form:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE `ACT'), AND MAY NOT BE RESOLD, ASSIGNED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY
TO THE ISSUER THAT REGISTRATION UNDER SAID ACT IS NOT
REQUIRED."
4. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF OPTION SHARES
PURCHASABLE. The Exercise Price and the number and kind of Option Shares
purchasable upon the exercise of this Option are subject to adjustment from time
to time upon the occurrence of the events specified in this SECTION 4. If, by
reason of any merger, consolidation, combination, liquidation, reorganization,
recapitalization, stock dividend, stock split, split-off, spin-off, combination
of shares, exchange of shares, or other similar changes in the capital structure
of the Company (each, a "REORGANIZATION"), the outstanding securities of the
same class as the Option Shares (the "OPTION SHARE CLASS OF SECURITIES") are
2
<PAGE>
substituted or exchanged for, combined or changed into any cash, property or
other securities or into a greater or lesser number of shares, the number and/or
kind of shares and/or interests subject to this Option and the Exercise Price
shall be appropriately adjusted to prevent dilution or enlargement of the rights
of Holder so that, thereafter, this Option shall be exercisable for the
securities, cash and/or other property that would have been received in respect
of the Option Shares if this Option had been exercised in full immediately prior
to such event. Such adjustments shall be made successively whenever any event
described in the foregoing sentence occurs. The number of Option Shares and the
Exercise Price set forth in this Option reflect the one-for-five reverse stock
split that was implemented in January 1999.
5. FRACTIONAL OPTION SHARES. The Company shall not be required to issue
fractions of Option Shares upon exercise of this Option or to distribute
certificates that evidence fractional Option Shares. All fractions of Option
Shares to which Holder would otherwise be entitled shall be aggregated and in
lieu of such remaining fractional Option Share, there shall be paid to Holder at
the time this Option is exercised as herein provided an amount in cash equal to
the stated fraction of the fair market value of an Option Share as determined in
good faith by the Board of Directors of the Company.
6. RESERVATION AND ISSUANCE OF OPTION 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 this Option, and (b) there are no restrictions in the Company's
articles of incorporation or bylaws that prevent the Company from issuing shares
of its Common Stock for the purpose of enabling it to satisfy any obligation to
issue Option Shares upon exercise of this Option in accordance with its terms.
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 Option Shares upon exercise of
this Option.
The Company further represents and warrants that all shares of its
Common Stock issued upon exercise of this Option will, upon issuance in
accordance with the terms of this Option, (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 Holder's payment of the Exercise Price.
7. MUTILATED OR MISSING OPTION CERTIFICATES. If this Option is
mutilated, lost, stolen or destroyed, the Company shall issue and deliver, in
exchange and substitution for and upon cancellation of the mutilated Option, or
in lieu of and substitution for the lost, stolen or destroyed Option, a new
option in substantially the same form as this Option and representing an option
to purchase an equivalent number of Option Shares, but only upon receipt of
evidence satisfactory to the Company of such loss, theft or destruction of this
Option and an indemnity or bond, if requested, satisfactory to the Company.
Holder shall also comply with such other reasonable regulations and pay such
other reasonable charges as the Company may prescribe.
8. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes
attributable to the issuance of Option Shares issuable upon the exercise of this
Option; 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 options or any Option Share certificates in a name other than that of
Holder, and the Company shall not be required to issue or deliver such Option
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.
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<PAGE>
9. CERTAIN NOTICES TO HOLDER. Upon any adjustment to the number of
Option Shares issuable pursuant to exercise of this Option or to the Exercise
Price pursuant to SECTION 4, the Company, within fifteen (15) calendar days
thereafter, shall cause to be given to Holder, at his address appearing on the
Company's records, written notice of such adjustments in accordance with this
SECTION 9. 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 9.
If:
(a) The Company authorizes the issuance or distribution of
securities or assets to holders of its shares of Common Stock or makes
any distribution (other than cash dividends and distributions payable
out of consolidated earnings) to the holders of its shares of Common
Stock;
(b) The Company becomes a party to any consolidation or merger
for which approval of any shareholder of the Company is required,
conveys or transfers all or substantially all of its properties,
assets, or business, shall engage in any reorganization or
recapitalization or makes any tender or exchange offer for shares of
its Common Stock;
(c) The Company becomes subject to voluntary or involuntary
dissolution, liquidation or winding up; or
(d) The Company proposes to take any other action that would
require an adjustment of the Exercise Price pursuant to SECTION 4;
then the Company shall cause to be given to Holder at his address appearing on
the Company's records, at least fifteen (15) calendar days prior to the
applicable record date hereinafter specified, a written notice in accordance
with this SECTION 9 stating (i) the date as of which the holders of record of
Common Stock to be entitled to receive any such securities or assets or
distribution are to be determined, (ii) the initial expiration date set forth in
any tender or exchange offer made by the Company for shares of its Common Stock
or (iii) the date on which any such consolidation or merger, conveyance,
transfer, reorganization or recapitalization, dissolution, liquidation or
winding up is expected to become effective or consummated, and the date as of
which it is expected that holders of record of Common Stock shall be entitled to
exchange such Common Stock 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 9 or any defect therein
shall not affect the legality or validity of any distribution, right, option,
consolidation, conveyance, transfer, reorganization, dissolution, liquidation or
winding up or the vote upon any action.
4
<PAGE>
Nothing contained in this Option shall be construed as conferring upon
Holder the right to vote or to consent or to receive notice as a shareholder 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.
10. NONTRANSFERABILITY OF OPTION. Except by will or the laws of descent
and distribution, this Option is not transferable by Holder.
11. NOTICES. Any notice or demand authorized by this Option to be given
or made by Holder 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 Option to be given by the Company to Holder
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 Holder with the Company) to the address specified in the Company's
records.
12. SUPPLEMENTS AND AMENDMENTS. The Company may from time to time
supplement or amend this Option without the consent or concurrence of Holder in
order to cure any ambiguity, manifest error or other mistake in this Option, 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 Holder.
13. TERMINATION OF SERVICE.
(a) GENERAL. In the event of the termination of Holder's
services to the Company pursuant to the Letter Agreement, Holder may at
any time within three (3) months after the effective date of such
termination exercise this Option to the extent that Holder was entitled
to exercise the Option at the date of termination, provided that in no
event shall this Option be exercisable after the Expiration Date. Any
portion of this Option which has not vested as of the effective date of
such termination shall expire immediately as of such date.
(b) DEATH OR DISABILITY OF OPTIONEE. In the event of the death
or Disability (as that term is defined in Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended) of Holder within a period
during which this Option, or any part thereof, could have been
exercised by Holder (the "OPTION PERIOD"), this Option shall lapse
unless it is exercised within the Option Period and in no event later
than twelve (12) months after the date of Holder's death or Disability
by Holder or Holder's legal representative or representatives in the
case of a Disability or, in the case of death, by the person or persons
entitled to do so under Holder's last will and testament or if Holder
fails to make a testamentary disposition of this Option or shall die
intestate, by the person or persons entitled to receive this Option
under the applicable laws of descent and distribution. This Option may
be exercised following the death or Disability of Holder only if this
Option was exercisable by Holder immediately prior to her death or
Disability. In no event shall this Option be exercisable after the
Expiration Date. The Company shall have the right to require evidence
satisfactory to it of the rights of any person or persons seeking to
exercise this Option under this SECTION 13(b).
5
<PAGE>
14. SUCCESSORS. All the representations, warranties, agreements,
covenants and provisions of this Option by or for the benefit of the Company or
Holder shall bind and inure to the benefit of their respective permitted
successors and assigns hereunder.
15. GOVERNING LAW. This Option 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 the State of California
without regard to conflicts of laws principles.
16. BENEFITS OF THIS AGREEMENT. Nothing in this Option shall be
construed to give to any person or entity other than the Company and Holder any
legal or equitable right, remedy or claim under this Option, and this Option
shall be for the sole and exclusive benefit of the Company and Holder.
17. INVALIDITY OF PROVISIONS. If any provision of this Option 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.
18. NO IMPAIRMENT. The Company will not, by amendment of its articles
of incorporation or through any reorganization, recapitalization transfer of
assets, consolidation, merger, dissolution, issuance 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 Option and in the taking of all such actions as may be necessary or
appropriate in order to protect the rights of Holder against impairment.
19. SECTION HEADINGS. The section headings contained in this Option are
for convenience only and shall be without substantive meaning or content.
The Company has caused this Option to be duly executed on January 26,
2000, to be effective as of the day and year first above written.
TELENETICS CORPORATION
By: /S/ Michael A. Armani
-----------------------------------
Michael A. Armani, President
6
<PAGE>
TELENETICS CORPORATION
NON-QUALIFIED STOCK OPTION
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to purchase ____________
Option Shares issuable upon the exercise of the Non-Qualified Stock Option dated
effective as of August 2, 1999 ("OPTION"), and requests that certificates for
such Option Shares be issued and delivered as follows:
ISSUE TO: _______________________________________________________
(Name)
_______________________________________________________
(Address, including Zip Code)
_______________________________________________________
(Social Security or Tax Identification Number)
DELIVER TO: _______________________________________________________
(Name)
at_____________________________________________________
(Address, including Zip Code)
If the number of Option Shares hereby exercised is less than all the
Option Shares represented by the Option, the undersigned requests that a new
option representing the number of Option Shares not exercised be issued and
delivered as set forth above or otherwise as the undersigned shall direct in
writing.
In full payment of the purchase price of the Option Shares being issued
upon exercise of the Option and transfer taxes, if any, the undersigned hereby
tenders payment of $_____________ by cash, certified check, bank cashier's check
or money order payable in United States currency to the order of Telenetics
Corporation.
Dated: ____________________ ________________________________________
(Signature)
(Signature must conform in all respects
to name of holder as specified on the
face of the Option.)
PLEASE INSERT SOCIAL SECURITY OR TAX
IDENTIFICATION NUMBER OF HOLDER
Signature Guaranteed:
________________________________
<PAGE>
EXHIBIT A
---------
FORM OF RESTRICTED STOCK LETTER
THE UNDERSIGNED (hereinafter referred to as "PURCHASER") is exercising
the Non-Qualified Stock Option tendered with this Restricted Stock Letter, and
in connection with such exercise, makes the following representations and
warranties to Telenetics 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 ("SHARES") to Purchaser upon exercise of the
Non-Qualified Stock Option:
1. Purchaser is acquiring the Shares for investment for Purchaser's 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 (the "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 is an "accredited investor" as defined in the rules and
regulations of the Act and Purchaser has such knowledge and experience in
financial and business matters so as to be capable of evaluating the merits and
risks of Purchaser's investment in the Shares, and Purchaser is capable of
bearing the economic risks of such investment, including the risk of loss of
Purchaser's entire investment in the Shares.
3. Purchaser acknowledges that the Company has made available to
Purchaser or Purchaser's agents all documents and information relating to an
investment in the Shares requested by or on behalf of Purchaser.
4. All Shares issued on delivery of this Restricted Stock Letter shall
bear the legend set forth in SECTION 3 of the annexed Non-Qualified Stock Option
and the Shares received on delivery of this Restricted Stock Letter shall be
subject to the restrictions set forth therein.
Executed ______________________
Purchaser: _____________________________________
Signature: _____________________________________
NON-QUALIFIED STOCK OPTION
THIS OPTION HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER THE
SECURITIES ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
Effective as of November 2, 1998
TELENETICS CORPORATION
WHEREAS, in connection with the services to be rendered to Telenetics
Corporation, a California corporation (the "COMPANY"), by Mikko J. Oijala, an
individual ("HOLDER"), pursuant to that certain letter agreement of even date
herewith by and between the Company and the Holder (the "LETTER AGREEMENT"), the
Company desires to grant to Holder a non-qualified stock option to purchase
shares of the Company's common stock, no par value per share ("COMMON STOCK").
NOW, THEREFORE, IN CONSIDERATION OF THE FOREGOING, subject to
adjustment pursuant to SECTION 4, the Company hereby grants to Holder an option
to purchase (this "OPTION") up to Thirty Thousand (30,000) shares (individually,
each an "OPTION SHARE," and collectively, the "OPTION SHARES") of Common Stock
of the Company at the Exercise Price (as defined below). This Option may be
exercised in accordance with the terms of this Option by surrendering this
Option, with (i) 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., and (ii) the
form of Restricted Stock Letter attached hereto duly executed by Holder (unless
the sale of Option Shares is registered under the Securities Act), at the
Company's principal executive office ("OFFICE"), and by paying in full the
Exercise Price, plus transfer taxes, if any, in United States currency by cash,
certified check, bank cashier's check or money order payable to the order of the
Company.
1. DURATION, VESTING AND EXERCISE OF OPTION.
a) This Option shall vest and become exercisable in five equal
annual installments commencing on November 2, 1999.
(b) This Option (to the extent not earlier exercised) shall expire
on November 2, 2008 (such date being referred to herein as the
"EXPIRATION DATE"). If this Option is not surrendered to the Company
for exercise in accordance with SECTION 1(c) prior to the close of
business on the Expiration Date it shall be void.
(c) This Option may be exercised, to the extent not previously
exercised, in whole or in part, prior to the Expiration Date at the per
Option Share Exercise Price determined in accordance with SECTIONS 2
AND 4. In order to exercise such right, Holder shall surrender this
Option to the Company at the Office with the form of Election to
Purchase and the Restricted Stock Letter (unless the sale of the Option
Shares is registered under the Securities Act) attached hereto duly
completed and signed, and shall tender payment in full of the Exercise
<PAGE>
Price to the Company for the Company's account, together with such
taxes as are specified in SECTION 7, for each Option Share with respect
to which this Option is 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. If this Option is exercised as to less than all of the Option
Shares purchasable, one or more new option(s) shall be issued to Holder
for the remaining number of Option Shares evidenced by this Option.
2. EXERCISE PRICE. Subject to adjustment pursuant to SECTION 4, the
price per share at which Option Shares shall be purchasable upon exercise of
this Option (the "EXERCISE PRICE") shall be $1.25.
3. ISSUANCE OF OPTION SHARE CERTIFICATES.
(a) Upon surrender of this Option, delivery of an Election to
Purchase and delivery of a Restricted Stock Letter (if the sale of
Option Shares is not registered under the Securities Act) in the forms
attached hereto and payment of the Exercise Price and transfer taxes,
the Company shall issue and deliver certificates representing shares of
Common Stock ("CERTIFICATES") in the manner set forth in the Election
to Purchase delivered by Holder to the Company.
(b) If the shares of Common Stock deliverable upon exercise of this
Option are not registered under the Securities Act, the Certificates
shall bear a legend in substantially the following form:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE `ACT'), AND MAY NOT BE RESOLD, ASSIGNED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY
TO THE ISSUER THAT REGISTRATION UNDER SAID ACT IS NOT
REQUIRED."
4. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF OPTION SHARES
PURCHASABLE. The Exercise Price and the number and kind of Option Shares
purchasable upon the exercise of this Option are subject to adjustment from time
to time upon the occurrence of the events specified in this SECTION 4. If, by
reason of any merger, consolidation, combination, liquidation, reorganization,
recapitalization, stock dividend, stock split, split-off, spin-off, combination
of shares, exchange of shares, or other similar changes in the capital structure
of the Company (each, a "REORGANIZATION"), the outstanding securities of the
same class as the Option Shares (the "OPTION SHARE CLASS OF SECURITIES") are
substituted or exchanged for, combined or changed into any cash, property or
other securities or into a greater or lesser number of shares, the number and/or
kind of shares and/or interests subject to this Option and the Exercise Price
shall be appropriately adjusted to prevent dilution or enlargement of the rights
2
<PAGE>
of Holder so that, thereafter, this Option shall be exercisable for the
securities, cash and/or other property that would have been received in respect
of the Option Shares if this Option had been exercised in full immediately prior
to such event. Such adjustments shall be made successively whenever any event
described in the foregoing sentence occurs. The number of Option Shares and the
Exercise Price set forth in this Option reflect the one-for-five reverse stock
split that was implemented in January 1999.
5. FRACTIONAL OPTION SHARES. The Company shall not be required to issue
fractions of Option Shares upon exercise of this Option or to distribute
certificates that evidence fractional Option Shares. All fractions of Option
Shares to which Holder would otherwise be entitled shall be aggregated and in
lieu of such remaining fractional Option Share, there shall be paid to Holder at
the time this Option is exercised as herein provided an amount in cash equal to
the stated fraction of the fair market value of an Option Share as determined in
good faith by the Board of Directors of the Company.
6. RESERVATION AND ISSUANCE OF OPTION 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 this Option, and (b) there are no restrictions in the Company's
articles of incorporation or bylaws that prevent the Company from issuing shares
of its Common Stock for the purpose of enabling it to satisfy any obligation to
issue Option Shares upon exercise of this Option in accordance with its terms.
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 Option Shares upon exercise of
this Option.
The Company further represents and warrants that all shares of its
Common Stock issued upon exercise of this Option will, upon issuance in
accordance with the terms of this Option, (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 Holder's payment of the Exercise Price.
7. MUTILATED OR MISSING OPTION CERTIFICATES. If this Option is
mutilated, lost, stolen or destroyed, the Company shall issue and deliver, in
exchange and substitution for and upon cancellation of the mutilated Option, or
in lieu of and substitution for the lost, stolen or destroyed Option, a new
option in substantially the same form as this Option and representing an option
to purchase an equivalent number of Option Shares, but only upon receipt of
evidence satisfactory to the Company of such loss, theft or destruction of this
Option and an indemnity or bond, if requested, satisfactory to the Company.
Holder shall also comply with such other reasonable regulations and pay such
other reasonable charges as the Company may prescribe.
8. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes
attributable to the issuance of Option Shares issuable upon the exercise of this
Option; 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 options or any Option Share certificates in a name other than that of
Holder, and the Company shall not be required to issue or deliver such Option
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.
3
<PAGE>
9. CERTAIN NOTICES TO HOLDER. Upon any adjustment to the number of
Option Shares issuable pursuant to exercise of this Option or to the Exercise
Price pursuant to SECTION 4, the Company, within fifteen (15) calendar days
thereafter, shall cause to be given to Holder, at his address appearing on the
Company's records, written notice of such adjustments in accordance with this
SECTION 9. 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 9.
If:
(a) The Company authorizes the issuance or distribution of
securities or assets to holders of its shares of Common Stock or makes
any distribution (other than cash dividends and distributions payable
out of consolidated earnings) to the holders of its shares of Common
Stock;
(b) The Company becomes a party to any consolidation or merger for
which approval of any shareholder of the Company is required, conveys
or transfers all or substantially all of its properties, assets, or
business, shall engage in any reorganization or recapitalization or
makes any tender or exchange offer for shares of its Common Stock;
(c) The Company becomes subject to voluntary or involuntary
dissolution, liquidation or winding up; or
(d) The Company proposes to take any other action that would require
an adjustment of the Exercise Price pursuant to SECTION 4;
then the Company shall cause to be given to Holder at his address appearing on
the Company's records, at least fifteen (15) calendar days prior to the
applicable record date hereinafter specified, a written notice in accordance
with this SECTION 9 stating (i) the date as of which the holders of record of
Common Stock to be entitled to receive any such securities or assets or
distribution are to be determined, (ii) the initial expiration date set forth in
any tender or exchange offer made by the Company for shares of its Common Stock
or (iii) the date on which any such consolidation or merger, conveyance,
transfer, reorganization or recapitalization, dissolution, liquidation or
winding up is expected to become effective or consummated, and the date as of
which it is expected that holders of record of Common Stock shall be entitled to
exchange such Common Stock 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 9 or any defect therein
shall not affect the legality or validity of any distribution, right, option,
consolidation, conveyance, transfer, reorganization, dissolution, liquidation or
winding up or the vote upon any action.
Nothing contained in this Option shall be construed as conferring upon
Holder the right to vote or to consent or to receive notice as a shareholder 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.
4
<PAGE>
10. NONTRANSFERABILITY OF OPTION. Except by will or the laws of descent
and distribution, this Option is not transferable by Holder.
11. NOTICES. Any notice or demand authorized by this Option to be given
or made by Holder 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 Option to be given by the Company to Holder
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 Holder with the Company) to the address specified in the Company's
records.
12. SUPPLEMENTS AND AMENDMENTS. The Company may from time to time
supplement or amend this Option without the consent or concurrence of Holder in
order to cure any ambiguity, manifest error or other mistake in this Option, 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 Holder.
13. TERMINATION OF SERVICE.
(a) GENERAL. In the event of the termination of Holder's services to
the Company pursuant to the Letter Agreement, Holder may at any time
within three (3) months after the effective date of such termination
exercise this Option to the extent that Holder was entitled to exercise
the Option at the date of termination, provided that in no event shall
this Option be exercisable after the Expiration Date. Any portion of
this Option which has not vested as of the effective date of such
termination shall expire immediately as of such date.
(b) DEATH OR DISABILITY OF OPTIONEE. In the event of the death or
Disability (as that term is defined in Section 22(e)(3) of the Internal
Revenue Code of 1986, as amended) of Holder within a period during
which this Option, or any part thereof, could have been exercised by
Holder (the "OPTION PERIOD"), this Option shall lapse unless it is
exercised within the Option Period and in no event later than twelve
(12) months after the date of Holder's death or Disability by Holder or
Holder's legal representative or representatives in the case of a
Disability or, in the case of death, by the person or persons entitled
to do so under Holder's last will and testament or if Holder fails to
make a testamentary disposition of this Option or shall die intestate,
by the person or persons entitled to receive this Option under the
applicable laws of descent and distribution. This Option may be
exercised following the death or Disability of Holder only if this
Option was exercisable by Holder immediately prior to her death or
Disability. In no event shall this Option be exercisable after the
Expiration Date. The Company shall have the right to require evidence
satisfactory to it of the rights of any person or persons seeking to
exercise this Option under this SECTION 13(b).
5
<PAGE>
14. SUCCESSORS. All the representations, warranties, agreements,
covenants and provisions of this Option by or for the benefit of the Company or
Holder shall bind and inure to the benefit of their respective permitted
successors and assigns hereunder.
15. GOVERNING LAW. This Option 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 the State of California
without regard to conflicts of laws principles.
16. BENEFITS OF THIS AGREEMENT. Nothing in this Option shall be
construed to give to any person or entity other than the Company and Holder any
legal or equitable right, remedy or claim under this Option, and this Option
shall be for the sole and exclusive benefit of the Company and Holder.
17. INVALIDITY OF PROVISIONS. If any provision of this Option 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.
18. NO IMPAIRMENT. The Company will not, by amendment of its articles
of incorporation or through any reorganization, recapitalization transfer of
assets, consolidation, merger, dissolution, issuance 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 Option and in the taking of all such actions as may be necessary or
appropriate in order to protect the rights of Holder against impairment.
19. SECTION HEADINGS. The section headings contained in this Option are
for convenience only and shall be without substantive meaning or content.
The Company has caused this Option to be duly executed on January 26,
2000, to be effective as of the day and year first above written.
TELENETICS CORPORATION
By: /S/ Michael A. Armani
-------------------------------------
Michael A. Armani, President
6
<PAGE>
TELENETICS CORPORATION
NON-QUALIFIED STOCK OPTION
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to purchase ____________
Option Shares issuable upon the exercise of the Non-Qualified Stock Option dated
effective as of November 2, 1998 ("OPTION"), and requests that certificates for
such Option Shares be issued and delivered as follows:
ISSUE TO: _____________________________________________________________
(Name)
_____________________________________________________________
(Address, including Zip Code)
_____________________________________________________________
(Social Security or Tax Identification Number)
DELIVER TO: _____________________________________________________________
(Name)
at___________________________________________________________
(Address, including Zip Code)
If the number of Option Shares hereby exercised is less than all the
Option Shares represented by the Option, the undersigned requests that a new
option representing the number of Option Shares not exercised be issued and
delivered as set forth above or otherwise as the undersigned shall direct in
writing.
In full payment of the purchase price of the Option Shares being issued
upon exercise of the Option and transfer taxes, if any, the undersigned hereby
tenders payment of $_____________ by cash, certified check, bank cashier's check
or money order payable in United States currency to the order of Telenetics
Corporation.
Dated: _________________ ____________________________________________
(Signature)
(Signature must conform in all respects
to name of holder as specified on the
face of the Option.)
PLEASE INSERT SOCIAL SECURITY OR TAX
IDENTIFICATION NUMBER OF HOLDER
Signature Guaranteed:
________________________________
<PAGE>
EXHIBIT A
---------
FORM OF RESTRICTED STOCK LETTER
THE UNDERSIGNED (hereinafter referred to as "PURCHASER") is exercising
the Non-Qualified Stock Option tendered with this Restricted Stock Letter, and
in connection with such exercise, makes the following representations and
warranties to Telenetics 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 ("SHARES") to Purchaser upon exercise of the
Non-Qualified Stock Option:
1. Purchaser is acquiring the Shares for investment for Purchaser's 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 (the "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 is an "accredited investor" as defined in the rules and
regulations of the Act and Purchaser has such knowledge and experience in
financial and business matters so as to be capable of evaluating the merits and
risks of Purchaser's investment in the Shares, and Purchaser is capable of
bearing the economic risks of such investment, including the risk of loss of
Purchaser's entire investment in the Shares.
3. Purchaser acknowledges that the Company has made available to
Purchaser or Purchaser's agents all documents and information relating to an
investment in the Shares requested by or on behalf of Purchaser.
4. All Shares issued on delivery of this Restricted Stock Letter shall
bear the legend set forth in SECTION 3 of the annexed Non-Qualified Stock Option
and the Shares received on delivery of this Restricted Stock Letter shall be
subject to the restrictions set forth therein.
Executed ______________________
Purchaser:__________________________
Signature:__________________________
2
NON-QUALIFIED STOCK OPTION
THIS OPTION HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER THE
SECURITIES ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
Effective as of October 12, 1998
TELENETICS CORPORATION
WHEREAS, in connection with the services to be rendered to Telenetics
Corporation, a California corporation (the "COMPANY"), by Robert W. Frankland,
an individual ("HOLDER"), pursuant to that certain letter agreement of even date
herewith by and between the Company and the Holder (the "LETTER AGREEMENT"), the
Company desires to grant to Holder a non-qualified stock option to purchase
shares of the Company's common stock, no par value per share ("COMMON STOCK").
NOW, THEREFORE, IN CONSIDERATION OF THE FOREGOING, subject to
adjustment pursuant to SECTION 4, the Company hereby grants to Holder an option
to purchase (this "OPTION") up to Twenty-five Thousand (25,000) shares
(individually, each an "OPTION SHARE," and collectively, the "OPTION SHARES") of
Common Stock of the Company at the Exercise Price (as defined below). This
Option may be exercised in accordance with the terms of this Option by
surrendering this Option, with (i) 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., and (ii) the form of Restricted Stock Letter attached hereto duly
executed by Holder (unless the sale of Option Shares is registered under the
Securities Act), at the Company's principal executive office ("OFFICE"), and by
paying in full the Exercise Price, plus transfer taxes, if any, in United States
currency by cash, certified check, bank cashier's check or money order payable
to the order of the Company.
1. DURATION, VESTING AND EXERCISE OF OPTION.
(a) This Option shall vest and become exercisable in five equal
annual installments commencing on October 12, 1999.
(b) This Option (to the extent not earlier exercised) shall expire
on October 12, 2008 (such date being referred to herein as the
"EXPIRATION DATE"). If this Option is not surrendered to the Company
for exercise in accordance with SECTION 1(c) prior to the close of
business on the Expiration Date it shall be void.
(c) This Option may be exercised, to the extent not previously
exercised, in whole or in part, prior to the Expiration Date at the per
Option Share Exercise Price determined in accordance with SECTIONS 2
AND 4. In order to exercise such right, Holder shall surrender this
Option to the Company at the Office with the form of Election to
Purchase and the Restricted Stock Letter (unless the sale of the Option
Shares is registered under the Securities Act) attached hereto 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
<PAGE>
taxes as are specified in SECTION 7, for each Option Share with respect
to which this Option is 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. If this Option is exercised as to less than all of the Option
Shares purchasable, one or more new option(s) shall be issued to Holder
for the remaining number of Option Shares evidenced by this Option.
2. EXERCISE PRICE. Subject to adjustment pursuant to SECTION 4, the
price per share at which Option Shares shall be purchasable upon exercise of
this Option (the "EXERCISE PRICE") shall be $1.25.
3. ISSUANCE OF OPTION SHARE CERTIFICATES.
(a) Upon surrender of this Option, delivery of an Election to
Purchase and delivery of a Restricted Stock Letter (if the sale of
Option Shares is not registered under the Securities Act) in the forms
attached hereto and payment of the Exercise Price and transfer taxes,
the Company shall issue and deliver certificates representing shares of
Common Stock ("CERTIFICATES") in the manner set forth in the Election
to Purchase delivered by Holder to the Company.
(b) If the shares of Common Stock deliverable upon exercise of this
Option are not registered under the Securities Act, the Certificates
shall bear a legend in substantially the following form:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE `ACT'), AND MAY NOT BE RESOLD, ASSIGNED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY
TO THE ISSUER THAT REGISTRATION UNDER SAID ACT IS NOT
REQUIRED."
4. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF OPTION SHARES
PURCHASABLE. The Exercise Price and the number and kind of Option Shares
purchasable upon the exercise of this Option are subject to adjustment from time
to time upon the occurrence of the events specified in this SECTION 4. If, by
reason of any merger, consolidation, combination, liquidation, reorganization,
recapitalization, stock dividend, stock split, split-off, spin-off, combination
of shares, exchange of shares, or other similar changes in the capital structure
of the Company (each, a "REORGANIZATION"), the outstanding securities of the
same class as the Option Shares (the "OPTION SHARE CLASS OF SECURITIES") are
substituted or exchanged for, combined or changed into any cash, property or
other securities or into a greater or lesser number of shares, the number and/or
kind of shares and/or interests subject to this Option and the Exercise Price
shall be appropriately adjusted to prevent dilution or enlargement of the rights
of Holder so that, thereafter, this Option shall be exercisable for the
securities, cash and/or other property that would have been received in respect
of the Option Shares if this Option had been exercised in full immediately prior
2
<PAGE>
to such event. Such adjustments shall be made successively whenever any event
described in the foregoing sentence occurs. The number of Option Shares and the
Exercise Price set forth in this Option reflect the one-for-five reverse stock
split that was implemented in January 1999.
5. FRACTIONAL OPTION SHARES. The Company shall not be required to issue
fractions of Option Shares upon exercise of this Option or to distribute
certificates that evidence fractional Option Shares. All fractions of Option
Shares to which Holder would otherwise be entitled shall be aggregated and in
lieu of such remaining fractional Option Share, there shall be paid to Holder at
the time this Option is exercised as herein provided an amount in cash equal to
the stated fraction of the fair market value of an Option Share as determined in
good faith by the Board of Directors of the Company.
6. RESERVATION AND ISSUANCE OF OPTION 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 this Option, and (b) there are no restrictions in the Company's
articles of incorporation or bylaws that prevent the Company from issuing shares
of its Common Stock for the purpose of enabling it to satisfy any obligation to
issue Option Shares upon exercise of this Option in accordance with its terms.
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 Option Shares upon exercise of
this Option.
The Company further represents and warrants that all shares of its
Common Stock issued upon exercise of this Option will, upon issuance in
accordance with the terms of this Option, (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 Holder's payment of the Exercise Price.
7. MUTILATED OR MISSING OPTION CERTIFICATES. If this Option is
mutilated, lost, stolen or destroyed, the Company shall issue and deliver, in
exchange and substitution for and upon cancellation of the mutilated Option, or
in lieu of and substitution for the lost, stolen or destroyed Option, a new
option in substantially the same form as this Option and representing an option
to purchase an equivalent number of Option Shares, but only upon receipt of
evidence satisfactory to the Company of such loss, theft or destruction of this
Option and an indemnity or bond, if requested, satisfactory to the Company.
Holder shall also comply with such other reasonable regulations and pay such
other reasonable charges as the Company may prescribe.
8. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes
attributable to the issuance of Option Shares issuable upon the exercise of this
Option; 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 options or any Option Share certificates in a name other than that of
Holder, and the Company shall not be required to issue or deliver such Option
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.
3
<PAGE>
9. CERTAIN NOTICES TO HOLDER. Upon any adjustment to the number of
Option Shares issuable pursuant to exercise of this Option or to the Exercise
Price pursuant to SECTION 4, the Company, within fifteen (15) calendar days
thereafter, shall cause to be given to Holder, at his address appearing on the
Company's records, written notice of such adjustments in accordance with this
SECTION 9. 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 9.
If:
(a) The Company authorizes the issuance or distribution of
securities or assets to holders of its shares of Common Stock or makes
any distribution (other than cash dividends and distributions payable
out of consolidated earnings) to the holders of its shares of Common
Stock;
(b) The Company becomes a party to any consolidation or merger for
which approval of any shareholder of the Company is required, conveys
or transfers all or substantially all of its properties, assets, or
business, shall engage in any reorganization or recapitalization or
makes any tender or exchange offer for shares of its Common Stock;
(c) The Company becomes subject to voluntary or involuntary
dissolution, liquidation or winding up; or
(d) The Company proposes to take any other action that would require
an adjustment of the Exercise Price pursuant to SECTION 4;
then the Company shall cause to be given to Holder at his address appearing on
the Company's records, at least fifteen (15) calendar days prior to the
applicable record date hereinafter specified, a written notice in accordance
with this SECTION 9 stating (i) the date as of which the holders of record of
Common Stock to be entitled to receive any such securities or assets or
distribution are to be determined, (ii) the initial expiration date set forth in
any tender or exchange offer made by the Company for shares of its Common Stock
or (iii) the date on which any such consolidation or merger, conveyance,
transfer, reorganization or recapitalization, dissolution, liquidation or
winding up is expected to become effective or consummated, and the date as of
which it is expected that holders of record of Common Stock shall be entitled to
exchange such Common Stock 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 9 or any defect therein
shall not affect the legality or validity of any distribution, right, option,
consolidation, conveyance, transfer, reorganization, dissolution, liquidation or
winding up or the vote upon any action.
Nothing contained in this Option shall be construed as conferring upon
Holder the right to vote or to consent or to receive notice as a shareholder 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.
4
<PAGE>
10. NONTRANSFERABILITY OF OPTION. Except by will or the laws of descent
and distribution, this Option is not transferable by Holder.
11. NOTICES. Any notice or demand authorized by this Option to be given
or made by Holder 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 Option to be given by the Company to Holder
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 Holder with the Company) to the address specified in the Company's
records.
12. SUPPLEMENTS AND AMENDMENTS. The Company may from time to time
supplement or amend this Option without the consent or concurrence of Holder in
order to cure any ambiguity, manifest error or other mistake in this Option, 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 Holder.
13. TERMINATION OF SERVICE.
(a) GENERAL. In the event of the termination of Holder's services to
the Company pursuant to the Letter Agreement, Holder may at any time
within three (3) months after the effective date of such termination
exercise this Option to the extent that Holder was entitled to exercise
the Option at the date of termination, provided that in no event shall
this Option be exercisable after the Expiration Date. Any portion of
this Option which has not vested as of the effective date of such
termination shall expire immediately as of such date.
(b) DEATH OR DISABILITY OF OPTIONEE. In the event of the death or
Disability (as that term is defined in Section 22(e)(3) of the Internal
Revenue Code of 1986, as amended) of Holder within a period during
which this Option, or any part thereof, could have been exercised by
Holder (the "OPTION PERIOD"), this Option shall lapse unless it is
exercised within the Option Period and in no event later than twelve
(12) months after the date of Holder's death or Disability by Holder or
Holder's legal representative or representatives in the case of a
Disability or, in the case of death, by the person or persons entitled
to do so under Holder's last will and testament or if Holder fails to
make a testamentary disposition of this Option or shall die intestate,
by the person or persons entitled to receive this Option under the
applicable laws of descent and distribution. This Option may be
exercised following the death or Disability of Holder only if this
Option was exercisable by Holder immediately prior to her death or
Disability. In no event shall this Option be exercisable after the
Expiration Date. The Company shall have the right to require evidence
satisfactory to it of the rights of any person or persons seeking to
exercise this Option under this SECTION 13(b).
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<PAGE>
14. SUCCESSORS. All the representations, warranties, agreements,
covenants and provisions of this Option by or for the benefit of the Company or
Holder shall bind and inure to the benefit of their respective permitted
successors and assigns hereunder.
15. GOVERNING LAW. This Option 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 the State of California
without regard to conflicts of laws principles.
16. BENEFITS OF THIS AGREEMENT. Nothing in this Option shall be
construed to give to any person or entity other than the Company and Holder any
legal or equitable right, remedy or claim under this Option, and this Option
shall be for the sole and exclusive benefit of the Company and Holder.
17. INVALIDITY OF PROVISIONS. If any provision of this Option 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.
18. NO IMPAIRMENT. The Company will not, by amendment of its articles
of incorporation or through any reorganization, recapitalization transfer of
assets, consolidation, merger, dissolution, issuance 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 Option and in the taking of all such actions as may be necessary or
appropriate in order to protect the rights of Holder against impairment.
19. SECTION HEADINGS. The section headings contained in this Option are
for convenience only and shall be without substantive meaning or content.
The Company has caused this Option to be duly executed on January 26,
2000, to be effective as of the day and year first above written.
TELENETICS CORPORATION
By: /S/ Michael A. Armani
-------------------------------------
Michael A. Armani, President
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<PAGE>
TELENETICS CORPORATION
NON-QUALIFIED STOCK OPTION
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to purchase ____________
Option Shares issuable upon the exercise of the Non-Qualified Stock Option dated
effective as of October 12, 1998 ("OPTION"), and requests that certificates for
such Option Shares be issued and delivered as follows:
ISSUE TO: _____________________________________________________________
(Name)
_____________________________________________________________
(Address, including Zip Code)
_____________________________________________________________
(Social Security or Tax Identification Number)
DELIVER TO: _____________________________________________________________
(Name)
at___________________________________________________________
(Address, including Zip Code)
If the number of Option Shares hereby exercised is less than all the
Option Shares represented by the Option, the undersigned requests that a new
option representing the number of Option Shares not exercised be issued and
delivered as set forth above or otherwise as the undersigned shall direct in
writing.
In full payment of the purchase price of the Option Shares being issued
upon exercise of the Option and transfer taxes, if any, the undersigned hereby
tenders payment of $_____________ by cash, certified check, bank cashier's check
or money order payable in United States currency to the order of Telenetics
Corporation.
Dated: _________________ ____________________________________________
(Signature)
(Signature must conform in all respects
to name of holder as specified on the
face of the Option.)
PLEASE INSERT SOCIAL SECURITY OR TAX
IDENTIFICATION NUMBER OF HOLDER
Signature Guaranteed:
________________________________
<PAGE>
EXHIBIT A
---------
FORM OF RESTRICTED STOCK LETTER
THE UNDERSIGNED (hereinafter referred to as "PURCHASER") is exercising
the Non-Qualified Stock Option tendered with this Restricted Stock Letter, and
in connection with such exercise, makes the following representations and
warranties to Telenetics 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 ("SHARES") to Purchaser upon exercise of the
Non-Qualified Stock Option:
1. Purchaser is acquiring the Shares for investment for Purchaser's 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 (the "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 is an "accredited investor" as defined in the rules and
regulations of the Act and Purchaser has such knowledge and experience in
financial and business matters so as to be capable of evaluating the merits and
risks of Purchaser's investment in the Shares, and Purchaser is capable of
bearing the economic risks of such investment, including the risk of loss of
Purchaser's entire investment in the Shares.
3. Purchaser acknowledges that the Company has made available to
Purchaser or Purchaser's agents all documents and information relating to an
investment in the Shares requested by or on behalf of Purchaser.
4. All Shares issued on delivery of this Restricted Stock Letter shall
bear the legend set forth in SECTION 3 of the annexed Non-Qualified Stock Option
and the Shares received on delivery of this Restricted Stock Letter shall be
subject to the restrictions set forth therein.
Executed ______________________
Purchaser:__________________________
Signature:__________________________
2
NON-QUALIFIED STOCK OPTION
THIS OPTION HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER THE
SECURITIES ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
Effective as of July 9, 1997
TELENETICS CORPORATION
WHEREAS, in connection with the services to be rendered to Telenetics
Corporation, a California corporation (the "COMPANY"), by Ferdinand J. Pirnat,
Jr., an individual ("HOLDER"), pursuant to that certain letter agreement of even
date herewith by and between the Company and the Holder (the "LETTER
AGREEMENT"), the Company desires to grant to Holder a non-qualified stock option
to purchase shares of the Company's common stock, no par value per share
("COMMON STOCK").
NOW, THEREFORE, IN CONSIDERATION OF THE FOREGOING, subject to
adjustment pursuant to SECTION 4, the Company hereby grants to Holder an option
to purchase (this "OPTION") up to Ten Thousand (10,000) shares (individually,
each an "OPTION SHARE," and collectively, the "OPTION SHARES") of Common Stock
of the Company at the Exercise Price (as defined below). This Option may be
exercised in accordance with the terms of this Option by surrendering this
Option, with (i) 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., and (ii) the
form of Restricted Stock Letter attached hereto duly executed by Holder (unless
the sale of Option Shares is registered under the Securities Act), at the
Company's principal executive office ("OFFICE"), and by paying in full the
Exercise Price, plus transfer taxes, if any, in United States currency by cash,
certified check, bank cashier's check or money order payable to the order of the
Company.
1. DURATION, VESTING AND EXERCISE OF OPTION.
(a) This Option shall vest and become exercisable in five equal
annual installments commencing on July 9, 1998.
(b) This Option (to the extent not earlier exercised) shall expire
on July 9, 2007 (such date being referred to herein as the "EXPIRATION
DATE"). If this Option is not surrendered to the Company for exercise
in accordance with SECTION 1(c) prior to the close of business on the
Expiration Date it shall be void.
(c) This Option may be exercised, to the extent not previously
exercised, in whole or in part, prior to the Expiration Date at the per
Option Share Exercise Price determined in accordance with SECTIONS 2
AND 4. In order to exercise such right, Holder shall surrender this
Option to the Company at the Office with the form of Election to
Purchase and the Restricted Stock Letter (unless the sale of the Option
Shares is registered under the Securities Act) attached hereto 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
<PAGE>
taxes as are specified in SECTION 7, for each Option Share with respect
to which this Option is 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. If this Option is exercised as to less than all of the Option
Shares purchasable, one or more new option(s) shall be issued to Holder
for the remaining number of Option Shares evidenced by this Option.
2. EXERCISE PRICE. Subject to adjustment pursuant to SECTION 4, the
price per share at which Option Shares shall be purchasable upon exercise of
this Option (the "EXERCISE PRICE") shall be $1.25.
3. ISSUANCE OF OPTION SHARE CERTIFICATES.
(a) Upon surrender of this Option, delivery of an Election to
Purchase and delivery of a Restricted Stock Letter (if the sale of
Option Shares is not registered under the Securities Act) in the forms
attached hereto and payment of the Exercise Price and transfer taxes,
the Company shall issue and deliver certificates representing shares of
Common Stock ("CERTIFICATES") in the manner set forth in the Election
to Purchase delivered by Holder to the Company.
(b) If the shares of Common Stock deliverable upon exercise of this
Option are not registered under the Securities Act, the Certificates
shall bear a legend in substantially the following form:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE `ACT'), AND MAY NOT BE RESOLD, ASSIGNED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY
TO THE ISSUER THAT REGISTRATION UNDER SAID ACT IS NOT
REQUIRED."
4. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF OPTION SHARES
PURCHASABLE. The Exercise Price and the number and kind of Option Shares
purchasable upon the exercise of this Option are subject to adjustment from time
to time upon the occurrence of the events specified in this SECTION 4. If, by
reason of any merger, consolidation, combination, liquidation, reorganization,
recapitalization, stock dividend, stock split, split-off, spin-off, combination
of shares, exchange of shares, or other similar changes in the capital structure
of the Company (each, a "REORGANIZATION"), the outstanding securities of the
same class as the Option Shares (the "OPTION SHARE CLASS OF SECURITIES") are
substituted or exchanged for, combined or changed into any cash, property or
other securities or into a greater or lesser number of shares, the number and/or
kind of shares and/or interests subject to this Option and the Exercise Price
shall be appropriately adjusted to prevent dilution or enlargement of the rights
of Holder so that, thereafter, this Option shall be exercisable for the
2
<PAGE>
securities, cash and/or other property that would have been received in respect
of the Option Shares if this Option had been exercised in full immediately prior
to such event. Such adjustments shall be made successively whenever any event
described in the foregoing sentence occurs. The number of Option Shares and the
Exercise Price set forth in this Option reflect the one-for-five reverse stock
split that was implemented in January 1999.
5. FRACTIONAL OPTION SHARES. The Company shall not be required to issue
fractions of Option Shares upon exercise of this Option or to distribute
certificates that evidence fractional Option Shares. All fractions of Option
Shares to which Holder would otherwise be entitled shall be aggregated and in
lieu of such remaining fractional Option Share, there shall be paid to Holder at
the time this Option is exercised as herein provided an amount in cash equal to
the stated fraction of the fair market value of an Option Share as determined in
good faith by the Board of Directors of the Company.
6. RESERVATION AND ISSUANCE OF OPTION 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 this Option, and (b) there are no restrictions in the Company's
articles of incorporation or bylaws that prevent the Company from issuing shares
of its Common Stock for the purpose of enabling it to satisfy any obligation to
issue Option Shares upon exercise of this Option in accordance with its terms.
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 Option Shares upon exercise of
this Option.
The Company further represents and warrants that all shares of its
Common Stock issued upon exercise of this Option will, upon issuance in
accordance with the terms of this Option, (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 Holder's payment of the Exercise Price.
7. MUTILATED OR MISSING OPTION CERTIFICATES. If this Option is
mutilated, lost, stolen or destroyed, the Company shall issue and deliver, in
exchange and substitution for and upon cancellation of the mutilated Option, or
in lieu of and substitution for the lost, stolen or destroyed Option, a new
option in substantially the same form as this Option and representing an option
to purchase an equivalent number of Option Shares, but only upon receipt of
evidence satisfactory to the Company of such loss, theft or destruction of this
Option and an indemnity or bond, if requested, satisfactory to the Company.
Holder shall also comply with such other reasonable regulations and pay such
other reasonable charges as the Company may prescribe.
8. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes
attributable to the issuance of Option Shares issuable upon the exercise of this
Option; 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 options or any Option Share certificates in a name other than that of
Holder, and the Company shall not be required to issue or deliver such Option
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.
3
<PAGE>
9. CERTAIN NOTICES TO HOLDER. Upon any adjustment to the number of
Option Shares issuable pursuant to exercise of this Option or to the Exercise
Price pursuant to SECTION 4, the Company, within fifteen (15) calendar days
thereafter, shall cause to be given to Holder, at his address appearing on the
Company's records, written notice of such adjustments in accordance with this
SECTION 9. 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 9.
If:
(a) The Company authorizes the issuance or distribution of
securities or assets to holders of its shares of Common Stock or makes
any distribution (other than cash dividends and distributions payable
out of consolidated earnings) to the holders of its shares of Common
Stock;
(b) The Company becomes a party to any consolidation or merger for
which approval of any shareholder of the Company is required, conveys
or transfers all or substantially all of its properties, assets, or
business, shall engage in any reorganization or recapitalization or
makes any tender or exchange offer for shares of its Common Stock;
(c) The Company becomes subject to voluntary or involuntary
dissolution, liquidation or winding up; or (d) The Company proposes to
take any other action that would require an adjustment of the Exercise
Price pursuant to SECTION 4;
then the Company shall cause to be given to Holder at his address appearing on
the Company's records, at least fifteen (15) calendar days prior to the
applicable record date hereinafter specified, a written notice in accordance
with this SECTION 9 stating (i) the date as of which the holders of record of
Common Stock to be entitled to receive any such securities or assets or
distribution are to be determined, (ii) the initial expiration date set forth in
any tender or exchange offer made by the Company for shares of its Common Stock
or (iii) the date on which any such consolidation or merger, conveyance,
transfer, reorganization or recapitalization, dissolution, liquidation or
winding up is expected to become effective or consummated, and the date as of
which it is expected that holders of record of Common Stock shall be entitled to
exchange such Common Stock 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 9 or any defect therein
shall not affect the legality or validity of any distribution, right, option,
consolidation, conveyance, transfer, reorganization, dissolution, liquidation or
winding up or the vote upon any action.
Nothing contained in this Option shall be construed as conferring upon
Holder the right to vote or to consent or to receive notice as a shareholder 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.
4
<PAGE>
10. NONTRANSFERABILITY OF OPTION. Except by will or the laws of descent
and distribution, this Option is not transferable by Holder.
11. NOTICES. Any notice or demand authorized by this Option to be given
or made by Holder 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 Option to be given by the Company to Holder
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 Holder with the Company) to the address specified in the Company's
records.
12. SUPPLEMENTS AND AMENDMENTS. The Company may from time to time
supplement or amend this Option without the consent or concurrence of Holder in
order to cure any ambiguity, manifest error or other mistake in this Option, 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 Holder.
13. TERMINATION OF SERVICE.
(a) GENERAL. In the event of the termination of Holder's services to
the Company pursuant to the Letter Agreement, Holder may at any time
within three (3) months after the effective date of such termination
exercise this Option to the extent that Holder was entitled to exercise
the Option at the date of termination, provided that in no event shall
this Option be exercisable after the Expiration Date. Any portion of
this Option which has not vested as of the effective date of such
termination shall expire immediately as of such date.
(b) DEATH OR DISABILITY OF OPTIONEE. In the event of the death or
Disability (as that term is defined in Section 22(e)(3) of the Internal
Revenue Code of 1986, as amended) of Holder within a period during
which this Option, or any part thereof, could have been exercised by
Holder (the "OPTION PERIOD"), this Option shall lapse unless it is
exercised within the Option Period and in no event later than twelve
(12) months after the date of Holder's death or Disability by Holder or
Holder's legal representative or representatives in the case of a
Disability or, in the case of death, by the person or persons entitled
to do so under Holder's last will and testament or if Holder fails to
make a testamentary disposition of this Option or shall die intestate,
by the person or persons entitled to receive this Option under the
applicable laws of descent and distribution. This Option may be
exercised following the death or Disability of Holder only if this
Option was exercisable by Holder immediately prior to her death or
Disability. In no event shall this Option be exercisable after the
Expiration Date. The Company shall have the right to require evidence
satisfactory to it of the rights of any person or persons seeking to
exercise this Option under this SECTION 13(b).
5
<PAGE>
14. SUCCESSORS. All the representations, warranties, agreements,
covenants and provisions of this Option by or for the benefit of the Company or
Holder shall bind and inure to the benefit of their respective permitted
successors and assigns hereunder.
15. GOVERNING LAW. This Option 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 the State of California
without regard to conflicts of laws principles.
16. BENEFITS OF THIS AGREEMENT. Nothing in this Option shall be
construed to give to any person or entity other than the Company and Holder any
legal or equitable right, remedy or claim under this Option, and this Option
shall be for the sole and exclusive benefit of the Company and Holder.
17. INVALIDITY OF PROVISIONS. If any provision of this Option 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.
18. NO IMPAIRMENT. The Company will not, by amendment of its articles
of incorporation or through any reorganization, recapitalization transfer of
assets, consolidation, merger, dissolution, issuance 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 Option and in the taking of all such actions as may be necessary or
appropriate in order to protect the rights of Holder against impairment.
19. SECTION HEADINGS. The section headings contained in this Option are
for convenience only and shall be without substantive meaning or content.
The Company has caused this Option to be duly executed on January 26,
2000, to be effective as of the day and year first above written.
TELENETICS CORPORATION
By: /S/ Michael A. Armani
-----------------------------------
Michael A. Armani, President
6
<PAGE>
TELENETICS CORPORATION
NON-QUALIFIED STOCK OPTION
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to purchase ____________
Option Shares issuable upon the exercise of the Non-Qualified Stock Option dated
effective as of July 9, 1997 ("OPTION"), and requests that certificates for such
Option Shares be issued and delivered as follows:
ISSUE TO: _____________________________________________________________
(Name)
_____________________________________________________________
(Address, including Zip Code)
_____________________________________________________________
(Social Security or Tax Identification Number)
DELIVER TO: _____________________________________________________________
(Name)
at___________________________________________________________
(Address, including Zip Code)
If the number of Option Shares hereby exercised is less than all the
Option Shares represented by the Option, the undersigned requests that a new
option representing the number of Option Shares not exercised be issued and
delivered as set forth above or otherwise as the undersigned shall direct in
writing.
In full payment of the purchase price of the Option Shares being issued
upon exercise of the Option and transfer taxes, if any, the undersigned hereby
tenders payment of $_____________ by cash, certified check, bank cashier's check
or money order payable in United States currency to the order of Telenetics
Corporation.
Dated: _________________ ____________________________________________
(Signature)
(Signature must conform in all respects
to name of holder as specified on the
face of the Option.)
PLEASE INSERT SOCIAL SECURITY OR TAX
IDENTIFICATION NUMBER OF HOLDER
Signature Guaranteed:
________________________________
<PAGE>
EXHIBIT A
---------
FORM OF RESTRICTED STOCK LETTER
THE UNDERSIGNED (hereinafter referred to as "PURCHASER") is exercising
the Non-Qualified Stock Option tendered with this Restricted Stock Letter, and
in connection with such exercise, makes the following representations and
warranties to Telenetics 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 ("SHARES") to Purchaser upon exercise of the
Non-Qualified Stock Option:
1. Purchaser is acquiring the Shares for investment for Purchaser's 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 (the "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 is an "accredited investor" as defined in the rules and
regulations of the Act and Purchaser has such knowledge and experience in
financial and business matters so as to be capable of evaluating the merits and
risks of Purchaser's investment in the Shares, and Purchaser is capable of
bearing the economic risks of such investment, including the risk of loss of
Purchaser's entire investment in the Shares.
3. Purchaser acknowledges that the Company has made available to
Purchaser or Purchaser's agents all documents and information relating to an
investment in the Shares requested by or on behalf of Purchaser.
4. All Shares issued on delivery of this Restricted Stock Letter shall
bear the legend set forth in SECTION 3 of the annexed Non-Qualified Stock Option
and the Shares received on delivery of this Restricted Stock Letter shall be
subject to the restrictions set forth therein.
Executed ______________________
Purchaser:__________________________
Signature:__________________________
2
NON-QUALIFIED STOCK OPTION
THIS OPTION HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER THE
SECURITIES ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
Effective as of July 6, 1999
TELENETICS CORPORATION
WHEREAS, in connection with the services to be rendered to Telenetics
Corporation, a California corporation (the "COMPANY"), by James G. Gaston, an
individual ("HOLDER"), pursuant to that certain letter agreement of even date
herewith by and between the Company and the Holder (the "LETTER AGREEMENT"), the
Company desires to grant to Holder a non-qualified stock option to purchase
shares of the Company's common stock, no par value per share ("COMMON STOCK").
NOW, THEREFORE, IN CONSIDERATION OF THE FOREGOING, subject to
adjustment pursuant to SECTION 4, the Company hereby grants to Holder an option
to purchase (this "OPTION") up to One Hundred Thousand (100,000) shares
(individually, each an "OPTION SHARE," and collectively, the "OPTION SHARES") of
Common Stock of the Company at the Exercise Price (as defined below). This
Option may be exercised in accordance with the terms of this Option by
surrendering this Option, with (i) 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., and (ii) the form of Restricted Stock Letter attached hereto duly
executed by Holder (unless the sale of Option Shares is registered under the
Securities Act), at the Company's principal executive office ("OFFICE"), and by
paying in full the Exercise Price, plus transfer taxes, if any, in United States
currency by cash, certified check, bank cashier's check or money order payable
to the order of the Company.
1. DURATION, VESTING AND EXERCISE OF OPTION.
(a) This Option shall vest and become exercisable in five equal
installments, with the first installment vesting and becoming
exercisable on July 6, 2000, the second installment vesting and
becoming exercisable on July 1, 2001, and the remaining installments
vesting and becoming exercisable on each July 1 thereafter.
(b) This Option (to the extent not earlier exercised) shall expire
on July 6, 2009 (such date being referred to herein as the "EXPIRATION
DATE"). If this Option is not surrendered to the Company for exercise
in accordance with SECTION 1(c) prior to the close of business on the
Expiration Date it shall be void.
(c) This Option may be exercised, to the extent not previously
exercised, in whole or in part, prior to the Expiration Date at the per
Option Share Exercise Price determined in accordance with SECTIONS 2
AND 4. In order to exercise such right, Holder shall surrender this
Option to the Company at the Office with the form of Election to
<PAGE>
Purchase and the Restricted Stock Letter (unless the sale of the Option
Shares is registered under the Securities Act) attached hereto 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 7, for each Option Share with respect
to which this Option is 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. If this Option is exercised as to less than all of the Option
Shares purchasable, one or more new option(s) shall be issued to Holder
for the remaining number of Option Shares evidenced by this Option.
2. EXERCISE PRICE. Subject to adjustment pursuant to SECTION 4, the
price per share at which Option Shares shall be purchasable upon exercise of
this Option (the "EXERCISE PRICE") shall be $1.90.
3. ISSUANCE OF OPTION SHARE CERTIFICATES.
(a) Upon surrender of this Option, delivery of an Election to
Purchase and delivery of a Restricted Stock Letter (if the sale of
Option Shares is not registered under the Securities Act) in the forms
attached hereto and payment of the Exercise Price and transfer taxes,
the Company shall issue and deliver certificates representing shares of
Common Stock ("CERTIFICATES") in the manner set forth in the Election
to Purchase delivered by Holder to the Company.
(b) If the shares of Common Stock deliverable upon exercise of this
Option are not registered under the Securities Act, the Certificates
shall bear a legend in substantially the following form:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE `ACT'), AND MAY NOT BE RESOLD, ASSIGNED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY
TO THE ISSUER THAT REGISTRATION UNDER SAID ACT IS NOT
REQUIRED."
4. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF OPTION SHARES
PURCHASABLE. The Exercise Price and the number and kind of Option Shares
purchasable upon the exercise of this Option are subject to adjustment from time
to time upon the occurrence of the events specified in this SECTION 4. If, by
reason of any merger, consolidation, combination, liquidation, reorganization,
recapitalization, stock dividend, stock split, split-off, spin-off, combination
of shares, exchange of shares, or other similar changes in the capital structure
of the Company (each, a "REORGANIZATION"), the outstanding securities of the
same class as the Option Shares (the "OPTION SHARE CLASS OF SECURITIES") are
substituted or exchanged for, combined or changed into any cash, property or
other securities or into a greater or lesser number of shares, the number and/or
kind of shares and/or interests subject to this Option and the Exercise Price
shall be appropriately adjusted to prevent dilution or enlargement of the rights
of Holder so that, thereafter, this Option shall be exercisable for the
2
<PAGE>
securities, cash and/or other property that would have been received in respect
of the Option Shares if this Option had been exercised in full immediately prior
to such event. Such adjustments shall be made successively whenever any event
described in the foregoing sentence occurs. The number of Option Shares and the
Exercise Price set forth in this Option reflect the one-for-five reverse stock
split that was implemented in January 1999.
5. FRACTIONAL OPTION SHARES. The Company shall not be required to issue
fractions of Option Shares upon exercise of this Option or to distribute
certificates that evidence fractional Option Shares. All fractions of Option
Shares to which Holder would otherwise be entitled shall be aggregated and in
lieu of such remaining fractional Option Share, there shall be paid to Holder at
the time this Option is exercised as herein provided an amount in cash equal to
the stated fraction of the fair market value of an Option Share as determined in
good faith by the Board of Directors of the Company.
6. RESERVATION AND ISSUANCE OF OPTION 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 this Option, and (b) there are no restrictions in the Company's
articles of incorporation or bylaws that prevent the Company from issuing shares
of its Common Stock for the purpose of enabling it to satisfy any obligation to
issue Option Shares upon exercise of this Option in accordance with its terms.
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 Option Shares upon exercise of
this Option.
The Company further represents and warrants that all shares of its
Common Stock issued upon exercise of this Option will, upon issuance in
accordance with the terms of this Option, (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 Holder's payment of the Exercise Price.
7. MUTILATED OR MISSING OPTION CERTIFICATES. If this Option is
mutilated, lost, stolen or destroyed, the Company shall issue and deliver, in
exchange and substitution for and upon cancellation of the mutilated Option, or
in lieu of and substitution for the lost, stolen or destroyed Option, a new
option in substantially the same form as this Option and representing an option
to purchase an equivalent number of Option Shares, but only upon receipt of
evidence satisfactory to the Company of such loss, theft or destruction of this
Option and an indemnity or bond, if requested, satisfactory to the Company.
Holder shall also comply with such other reasonable regulations and pay such
other reasonable charges as the Company may prescribe.
8. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes
attributable to the issuance of Option Shares issuable upon the exercise of this
Option; 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 options or any Option Share certificates in a name other than that of
Holder, and the Company shall not be required to issue or deliver such Option
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.
3
<PAGE>
9. CERTAIN NOTICES TO HOLDER. Upon any adjustment to the number of
Option Shares issuable pursuant to exercise of this Option or to the Exercise
Price pursuant to SECTION 4, the Company, within fifteen (15) calendar days
thereafter, shall cause to be given to Holder, at his address appearing on the
Company's records, written notice of such adjustments in accordance with this
SECTION 9. 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 9.
If:
(a) The Company authorizes the issuance or distribution of
securities or assets to holders of its shares of Common Stock or makes
any distribution (other than cash dividends and distributions payable
out of consolidated earnings) to the holders of its shares of Common
Stock;
(b) The Company becomes a party to any consolidation or merger for
which approval of any shareholder of the Company is required, conveys
or transfers all or substantially all of its properties, assets, or
business, shall engage in any reorganization or recapitalization or
makes any tender or exchange offer for shares of its Common Stock;
(c) The Company becomes subject to voluntary or involuntary
dissolution, liquidation or winding up; or
(d) The Company proposes to take any other action that would require
an adjustment of the Exercise Price pursuant to SECTION 4;
then the Company shall cause to be given to Holder at his address appearing on
the Company's records, at least fifteen (15) calendar days prior to the
applicable record date hereinafter specified, a written notice in accordance
with this SECTION 9 stating (i) the date as of which the holders of record of
Common Stock to be entitled to receive any such securities or assets or
distribution are to be determined, (ii) the initial expiration date set forth in
any tender or exchange offer made by the Company for shares of its Common Stock
or (iii) the date on which any such consolidation or merger, conveyance,
transfer, reorganization or recapitalization, dissolution, liquidation or
winding up is expected to become effective or consummated, and the date as of
which it is expected that holders of record of Common Stock shall be entitled to
exchange such Common Stock 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 9 or any defect therein
shall not affect the legality or validity of any distribution, right, option,
consolidation, conveyance, transfer, reorganization, dissolution, liquidation or
winding up or the vote upon any action.
4
<PAGE>
Nothing contained in this Option shall be construed as conferring upon
Holder the right to vote or to consent or to receive notice as a shareholder 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.
10. NONTRANSFERABILITY OF OPTION. Except by will or the laws of descent
and distribution, this Option is not transferable by Holder.
11. NOTICES. Any notice or demand authorized by this Option to be given
or made by Holder 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 Option to be given by the Company to Holder
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 Holder with the Company) to the address specified in the Company's
records.
12. SUPPLEMENTS AND AMENDMENTS. The Company may from time to time
supplement or amend this Option without the consent or concurrence of Holder in
order to cure any ambiguity, manifest error or other mistake in this Option, 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 Holder.
13. TERMINATION OF SERVICE.
(a) GENERAL. In the event of the termination of Holder's services to
the Company pursuant to the Letter Agreement, Holder may at any time
within three (3) months after the effective date of such termination
exercise this Option to the extent that Holder was entitled to exercise
the Option at the date of termination, provided that in no event shall
this Option be exercisable after the Expiration Date. Any portion of
this Option which has not vested as of the effective date of such
termination shall expire immediately as of such date.
(b) DEATH OR DISABILITY OF OPTIONEE. In the event of the death or
Disability (as that term is defined in Section 22(e)(3) of the Internal
Revenue Code of 1986, as amended) of Holder within a period during
which this Option, or any part thereof, could have been exercised by
Holder (the "OPTION PERIOD"), this Option shall lapse unless it is
exercised within the Option Period and in no event later than twelve
(12) months after the date of Holder's death or Disability by Holder or
Holder's legal representative or representatives in the case of a
Disability or, in the case of death, by the person or persons entitled
to do so under Holder's last will and testament or if Holder fails to
make a testamentary disposition of this Option or shall die intestate,
by the person or persons entitled to receive this Option under the
applicable laws of descent and distribution. This Option may be
exercised following the death or Disability of Holder only if this
5
<PAGE>
Option was exercisable by Holder immediately prior to her death or
Disability. In no event shall this Option be exercisable after the
Expiration Date. The Company shall have the right to require evidence
satisfactory to it of the rights of any person or persons seeking to
exercise this Option under this SECTION 13(b).
14. SUCCESSORS. All the representations, warranties, agreements,
covenants and provisions of this Option by or for the benefit of the Company or
Holder shall bind and inure to the benefit of their respective permitted
successors and assigns hereunder.
15. GOVERNING LAW. This Option 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 the State of California
without regard to conflicts of laws principles.
16. BENEFITS OF THIS AGREEMENT. Nothing in this Option shall be
construed to give to any person or entity other than the Company and Holder any
legal or equitable right, remedy or claim under this Option, and this Option
shall be for the sole and exclusive benefit of the Company and Holder.
17. INVALIDITY OF PROVISIONS. If any provision of this Option 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.
18. NO IMPAIRMENT. The Company will not, by amendment of its articles
of incorporation or through any reorganization, recapitalization transfer of
assets, consolidation, merger, dissolution, issuance 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 Option and in the taking of all such actions as may be necessary or
appropriate in order to protect the rights of Holder against impairment.
19. SECTION HEADINGS. The section headings contained in this Option are
for convenience only and shall be without substantive meaning or content.
The Company has caused this Option to be duly executed on January 26,
2000, to be effective as of the day and year first above written.
TELENETICS CORPORATION
By: /S/ Michael A. Armani
-------------------------------
Michael A. Armani, President
6
<PAGE>
TELENETICS CORPORATION
NON-QUALIFIED STOCK OPTION
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to purchase ____________
Option Shares issuable upon the exercise of the Non-Qualified Stock Option dated
effective as of July 6, 1999 ("OPTION"), and requests that certificates for such
Option Shares be issued and delivered as follows:
ISSUE TO: _____________________________________________________________
(Name)
_____________________________________________________________
(Address, including Zip Code)
_____________________________________________________________
(Social Security or Tax Identification Number)
DELIVER TO: _____________________________________________________________
(Name)
at___________________________________________________________
(Address, including Zip Code)
If the number of Option Shares hereby exercised is less than all the
Option Shares represented by the Option, the undersigned requests that a new
option representing the number of Option Shares not exercised be issued and
delivered as set forth above or otherwise as the undersigned shall direct in
writing.
In full payment of the purchase price of the Option Shares being issued
upon exercise of the Option and transfer taxes, if any, the undersigned hereby
tenders payment of $_____________ by cash, certified check, bank cashier's check
or money order payable in United States currency to the order of Telenetics
Corporation.
Dated: _________________ ____________________________________________
(Signature)
(Signature must conform in all respects
to name of holder as specified on the
face of the Option.)
PLEASE INSERT SOCIAL SECURITY OR TAX
IDENTIFICATION NUMBER OF HOLDER
Signature Guaranteed:
________________________________
<PAGE>
EXHIBIT A
---------
FORM OF RESTRICTED STOCK LETTER
THE UNDERSIGNED (hereinafter referred to as "PURCHASER") is exercising
the Non-Qualified Stock Option tendered with this Restricted Stock Letter, and
in connection with such exercise, makes the following representations and
warranties to Telenetics 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 ("SHARES") to Purchaser upon exercise of the
Non-Qualified Stock Option:
1. Purchaser is acquiring the Shares for investment for Purchaser's 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 (the "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 is an "accredited investor" as defined in the rules and
regulations of the Act and Purchaser has such knowledge and experience in
financial and business matters so as to be capable of evaluating the merits and
risks of Purchaser's investment in the Shares, and Purchaser is capable of
bearing the economic risks of such investment, including the risk of loss of
Purchaser's entire investment in the Shares.
3. Purchaser acknowledges that the Company has made available to
Purchaser or Purchaser's agents all documents and information relating to an
investment in the Shares requested by or on behalf of Purchaser.
4. All Shares issued on delivery of this Restricted Stock Letter shall
bear the legend set forth in SECTION 3 of the annexed Non-Qualified Stock Option
and the Shares received on delivery of this Restricted Stock Letter shall be
subject to the restrictions set forth therein.
Executed ______________________
Purchaser:__________________________
Signature:__________________________
2
NON-QUALIFIED STOCK OPTION
THIS OPTION HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER THE
SECURITIES ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
Effective as of September 24, 1999
TELENETICS CORPORATION
WHEREAS, in connection with the services to be rendered to Telenetics
Corporation, a California corporation (the "COMPANY"), by Donald E. Johnson, an
individual ("HOLDER"), pursuant to that certain letter agreement of even date
herewith by and between the Company and the Holder (the "LETTER AGREEMENT"), the
Company desires to grant to Holder a non-qualified stock option to purchase
shares of the Company's common stock, no par value per share ("COMMON STOCK").
NOW, THEREFORE, IN CONSIDERATION OF THE FOREGOING, subject to
adjustment pursuant to SECTION 4, the Company hereby grants to Holder an option
to purchase (this "OPTION") up to One Hundred Thousand (100,000) shares
(individually, each an "OPTION SHARE," and collectively, the "OPTION SHARES") of
Common Stock of the Company at the Exercise Price (as defined below). This
Option may be exercised in accordance with the terms of this Option by
surrendering this Option, with (i) 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., and (ii) the form of Restricted Stock Letter attached hereto duly
executed by Holder (unless the sale of Option Shares is registered under the
Securities Act), at the Company's principal executive office ("OFFICE"), and by
paying in full the Exercise Price, plus transfer taxes, if any, in United States
currency by cash, certified check, bank cashier's check or money order payable
to the order of the Company.
1. DURATION, VESTING AND EXERCISE OF OPTION.
(a) This Option shall vest and become exercisable in five
equal installments, with the first installment vesting and becoming
exercisable on September 24, 2000, the second installment vesting and
becoming exercisable on July 1, 2001, and the remaining installments
vesting and becoming exercisable on each July 1 thereafter.
(b) This Option (to the extent not earlier exercised) shall
expire on September 24, 2009 (such date being referred to herein as the
"EXPIRATION DATE"). If this Option is not surrendered to the Company
for exercise in accordance with SECTION 1(c) prior to the close of
business on the Expiration Date it shall be void.
(c) This Option may be exercised, to the extent not previously
exercised, in whole or in part, prior to the Expiration Date at the per
Option Share Exercise Price determined in accordance with SECTIONS 2
AND 4. In order to exercise such right, Holder shall surrender this
Option to the Company at the Office with the form of Election to
Purchase and the Restricted Stock Letter (unless the sale of the Option
<PAGE>
Shares is registered under the Securities Act) attached hereto 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 7, for each Option Share with respect
to which this Option is 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. If this Option is exercised as to less than all of the Option
Shares purchasable, one or more new option(s) shall be issued to Holder
for the remaining number of Option Shares evidenced by this Option.
2. EXERCISE PRICE. Subject to adjustment pursuant to SECTION 4, the
price per share at which Option Shares shall be purchasable upon exercise of
this Option (the "EXERCISE PRICE") shall be $1.05.
3. ISSUANCE OF OPTION SHARE CERTIFICATES.
(a) Upon surrender of this Option, delivery of an Election to
Purchase and delivery of a Restricted Stock Letter (if the sale of
Option Shares is not registered under the Securities Act) in the forms
attached hereto and payment of the Exercise Price and transfer taxes,
the Company shall issue and deliver certificates representing shares of
Common Stock ("CERTIFICATES") in the manner set forth in the Election
to Purchase delivered by Holder to the Company.
(b) If the shares of Common Stock deliverable upon exercise of
this Option are not registered under the Securities Act, the
Certificates shall bear a legend in substantially the following form:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE `ACT'), AND MAY NOT BE RESOLD, ASSIGNED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY
TO THE ISSUER THAT REGISTRATION UNDER SAID ACT IS NOT
REQUIRED."
4. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF OPTION SHARES
PURCHASABLE. The Exercise Price and the number and kind of Option Shares
purchasable upon the exercise of this Option are subject to adjustment from time
to time upon the occurrence of the events specified in this SECTION 4. If, by
reason of any merger, consolidation, combination, liquidation, reorganization,
recapitalization, stock dividend, stock split, split-off, spin-off, combination
of shares, exchange of shares, or other similar changes in the capital structure
of the Company (each, a "REORGANIZATION"), the outstanding securities of the
same class as the Option Shares (the "OPTION SHARE CLASS OF SECURITIES") are
substituted or exchanged for, combined or changed into any cash, property or
other securities or into a greater or lesser number of shares, the number and/or
2
<PAGE>
kind of shares and/or interests subject to this Option and the Exercise Price
shall be appropriately adjusted to prevent dilution or enlargement of the rights
of Holder so that, thereafter, this Option shall be exercisable for the
securities, cash and/or other property that would have been received in respect
of the Option Shares if this Option had been exercised in full immediately prior
to such event. Such adjustments shall be made successively whenever any event
described in the foregoing sentence occurs. The number of Option Shares and the
Exercise Price set forth in this Option reflect the one-for-five reverse stock
split that was implemented in January 1999.
5. FRACTIONAL OPTION SHARES. The Company shall not be required to issue
fractions of Option Shares upon exercise of this Option or to distribute
certificates that evidence fractional Option Shares. All fractions of Option
Shares to which Holder would otherwise be entitled shall be aggregated and in
lieu of such remaining fractional Option Share, there shall be paid to Holder at
the time this Option is exercised as herein provided an amount in cash equal to
the stated fraction of the fair market value of an Option Share as determined in
good faith by the Board of Directors of the Company.
6. RESERVATION AND ISSUANCE OF OPTION 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 this Option, and (b) there are no restrictions in the Company's
articles of incorporation or bylaws that prevent the Company from issuing shares
of its Common Stock for the purpose of enabling it to satisfy any obligation to
issue Option Shares upon exercise of this Option in accordance with its terms.
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 Option Shares upon exercise of
this Option.
The Company further represents and warrants that all shares of its
Common Stock issued upon exercise of this Option will, upon issuance in
accordance with the terms of this Option, (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 Holder's payment of the Exercise Price.
7. MUTILATED OR MISSING OPTION CERTIFICATES. If this Option is
mutilated, lost, stolen or destroyed, the Company shall issue and deliver, in
exchange and substitution for and upon cancellation of the mutilated Option, or
in lieu of and substitution for the lost, stolen or destroyed Option, a new
option in substantially the same form as this Option and representing an option
to purchase an equivalent number of Option Shares, but only upon receipt of
evidence satisfactory to the Company of such loss, theft or destruction of this
Option and an indemnity or bond, if requested, satisfactory to the Company.
Holder shall also comply with such other reasonable regulations and pay such
other reasonable charges as the Company may prescribe.
8. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes
attributable to the issuance of Option Shares issuable upon the exercise of this
Option; 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 options or any Option Share certificates in a name other than that of
Holder, and the Company shall not be required to issue or deliver such Option
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.
3
<PAGE>
9. CERTAIN NOTICES TO HOLDER. Upon any adjustment to the number of
Option Shares issuable pursuant to exercise of this Option or to the Exercise
Price pursuant to SECTION 4, the Company, within fifteen (15) calendar days
thereafter, shall cause to be given to Holder, at his address appearing on the
Company's records, written notice of such adjustments in accordance with this
SECTION 9. 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 9.
If:
(a) The Company authorizes the issuance or distribution of
securities or assets to holders of its shares of Common Stock or makes
any distribution (other than cash dividends and distributions payable
out of consolidated earnings) to the holders of its shares of Common
Stock;
(b) The Company becomes a party to any consolidation or merger
for which approval of any shareholder of the Company is required,
conveys or transfers all or substantially all of its properties,
assets, or business, shall engage in any reorganization or
recapitalization or makes any tender or exchange offer for shares of
its Common Stock;
(c) The Company becomes subject to voluntary or involuntary
dissolution, liquidation or winding up; or
(d) The Company proposes to take any other action that would
require an adjustment of the Exercise Price pursuant to SECTION 4;
then the Company shall cause to be given to Holder at his address appearing on
the Company's records, at least fifteen (15) calendar days prior to the
applicable record date hereinafter specified, a written notice in accordance
with this SECTION 9 stating (i) the date as of which the holders of record of
Common Stock to be entitled to receive any such securities or assets or
distribution are to be determined, (ii) the initial expiration date set forth in
any tender or exchange offer made by the Company for shares of its Common Stock
or (iii) the date on which any such consolidation or merger, conveyance,
transfer, reorganization or recapitalization, dissolution, liquidation or
winding up is expected to become effective or consummated, and the date as of
which it is expected that holders of record of Common Stock shall be entitled to
exchange such Common Stock 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 9 or any defect therein
shall not affect the legality or validity of any distribution, right, option,
consolidation, conveyance, transfer, reorganization, dissolution, liquidation or
winding up or the vote upon any action.
4
<PAGE>
Nothing contained in this Option shall be construed as conferring upon
Holder the right to vote or to consent or to receive notice as a shareholder 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.
10. NONTRANSFERABILITY OF OPTION. Except by will or the laws of descent
and distribution, this Option is not transferable by Holder.
11. NOTICES. Any notice or demand authorized by this Option to be given
or made by Holder 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 Option to be given by the Company to Holder
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 Holder with the Company) to the address specified in the Company's
records.
12. SUPPLEMENTS AND AMENDMENTS. The Company may from time to time
supplement or amend this Option without the consent or concurrence of Holder in
order to cure any ambiguity, manifest error or other mistake in this Option, 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 Holder.
13. TERMINATION OF SERVICE.
(a) GENERAL. In the event of the termination of Holder's
services to the Company pursuant to the Letter Agreement, Holder may at
any time within three (3) months after the effective date of such
termination exercise this Option to the extent that Holder was entitled
to exercise the Option at the date of termination, provided that in no
event shall this Option be exercisable after the Expiration Date. Any
portion of this Option which has not vested as of the effective date of
such termination shall expire immediately as of such date.
(b) DEATH OR DISABILITY OF OPTIONEE. In the event of the death
or Disability (as that term is defined in Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended) of Holder within a period
during which this Option, or any part thereof, could have been
exercised by Holder (the "OPTION PERIOD"), this Option shall lapse
unless it is exercised within the Option Period and in no event later
than twelve (12) months after the date of Holder's death or Disability
by Holder or Holder's legal representative or representatives in the
case of a Disability or, in the case of death, by the person or persons
entitled to do so under Holder's last will and testament or if Holder
fails to make a testamentary disposition of this Option or shall die
intestate, by the person or persons entitled to receive this Option
under the applicable laws of descent and distribution. This Option may
be exercised following the death or Disability of Holder only if this
Option was exercisable by Holder immediately prior to her death or
Disability. In no event shall this Option be exercisable after the
Expiration Date. The Company shall have the right to require evidence
satisfactory to it of the rights of any person or persons seeking to
exercise this Option under this SECTION 13(b).
5
<PAGE>
14. SUCCESSORS. All the representations, warranties, agreements,
covenants and provisions of this Option by or for the benefit of the Company or
Holder shall bind and inure to the benefit of their respective permitted
successors and assigns hereunder.
15. GOVERNING LAW. This Option 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 the State of California
without regard to conflicts of laws principles.
16. BENEFITS OF THIS AGREEMENT. Nothing in this Option shall be
construed to give to any person or entity other than the Company and Holder any
legal or equitable right, remedy or claim under this Option, and this Option
shall be for the sole and exclusive benefit of the Company and Holder.
17. INVALIDITY OF PROVISIONS. If any provision of this Option 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.
18. NO IMPAIRMENT. The Company will not, by amendment of its articles
of incorporation or through any reorganization, recapitalization transfer of
assets, consolidation, merger, dissolution, issuance 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 Option and in the taking of all such actions as may be necessary or
appropriate in order to protect the rights of Holder against impairment.
19. SECTION HEADINGS. The section headings contained in this Option are
for convenience only and shall be without substantive meaning or content.
The Company has caused this Option to be duly executed on January 26,
2000, to be effective as of the day and year first above written.
TELENETICS CORPORATION
By: /S/ Michael A. Armani
-----------------------------------
Michael A. Armani, President
6
<PAGE>
TELENETICS CORPORATION
NON-QUALIFIED STOCK OPTION
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to purchase ____________
Option Shares issuable upon the exercise of the Non-Qualified Stock Option dated
effective as of August 2, 1999 ("OPTION"), and requests that certificates for
such Option Shares be issued and delivered as follows:
ISSUE TO: _______________________________________________________
(Name)
_______________________________________________________
(Address, including Zip Code)
_______________________________________________________
(Social Security or Tax Identification Number)
DELIVER TO: _______________________________________________________
(Name)
at_____________________________________________________
(Address, including Zip Code)
If the number of Option Shares hereby exercised is less than all the
Option Shares represented by the Option, the undersigned requests that a new
option representing the number of Option Shares not exercised be issued and
delivered as set forth above or otherwise as the undersigned shall direct in
writing.
In full payment of the purchase price of the Option Shares being issued
upon exercise of the Option and transfer taxes, if any, the undersigned hereby
tenders payment of $_____________ by cash, certified check, bank cashier's check
or money order payable in United States currency to the order of Telenetics
Corporation.
Dated: ____________________ ________________________________________
(Signature)
(Signature must conform in all respects
to name of holder as specified on the
face of the Option.)
PLEASE INSERT SOCIAL SECURITY OR TAX
IDENTIFICATION NUMBER OF HOLDER
Signature Guaranteed:
________________________________
<PAGE>
EXHIBIT A
---------
FORM OF RESTRICTED STOCK LETTER
THE UNDERSIGNED (hereinafter referred to as "PURCHASER") is exercising
the Non-Qualified Stock Option tendered with this Restricted Stock Letter, and
in connection with such exercise, makes the following representations and
warranties to Telenetics 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 ("SHARES") to Purchaser upon exercise of the
Non-Qualified Stock Option:
1. Purchaser is acquiring the Shares for investment for Purchaser's 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 (the "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 is an "accredited investor" as defined in the rules and
regulations of the Act and Purchaser has such knowledge and experience in
financial and business matters so as to be capable of evaluating the merits and
risks of Purchaser's investment in the Shares, and Purchaser is capable of
bearing the economic risks of such investment, including the risk of loss of
Purchaser's entire investment in the Shares.
3. Purchaser acknowledges that the Company has made available to
Purchaser or Purchaser's agents all documents and information relating to an
investment in the Shares requested by or on behalf of Purchaser.
4. All Shares issued on delivery of this Restricted Stock Letter shall
bear the legend set forth in SECTION 3 of the annexed Non-Qualified Stock Option
and the Shares received on delivery of this Restricted Stock Letter shall be
subject to the restrictions set forth therein.
Executed ______________________
Purchaser: _____________________________________
Signature: _____________________________________
2
NON-QUALIFIED STOCK OPTION
THIS OPTION HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER THE
SECURITIES ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
Effective as of November 8, 1999
TELENETICS CORPORATION
WHEREAS, in connection with consulting services to be rendered to
Telenetics Corporation, a California corporation (the "COMPANY"), by Arnold
Poliskin, an individual ("HOLDER"), the Company desires to grant to Holder a
non-qualified stock option to purchase shares of the Company's common stock, no
par value per share ("COMMON STOCK").
NOW, THEREFORE, IN CONSIDERATION OF THE FOREGOING, subject to
adjustment pursuant to SECTION 4, the Company hereby grants to Holder an option
to purchase (this "OPTION") up to One Hundred Thousand (100,000) shares
(individually, each an "OPTION SHARE," and collectively, the "OPTION SHARES") of
Common Stock of the Company at the Exercise Price (as defined below). This
Option may be exercised in accordance with the terms of this Option by
surrendering this Option, with (i) 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., and (ii) the form of Restricted Stock Letter attached hereto duly
executed by Holder (unless the sale of Option Shares is registered under the
Securities Act), at the Company's principal executive office ("OFFICE"), and by
paying in full the Exercise Price, plus transfer taxes, if any, in United States
currency by cash, certified check, bank cashier's check or money order payable
to the order of the Company or through the use of Appreciation Currency (as
defined below), or any combination thereof.
1. DURATION, VESTING AND EXERCISE OF OPTION.
(a) This Option shall vest and become exercisable in full on
the effective date hereof.
(b) This Option (to the extent not earlier exercised) shall
expire on November 8, 2002 (such date being referred to herein as the
"EXPIRATION DATE"). If this Option is not surrendered to the Company
for exercise in accordance with SECTION 1(c) prior to the close of
business on the Expiration Date it shall be void.
(c) This Option may be exercised, to the extent not previously
exercised, in whole or in part, prior to the Expiration Date at the per
Option Share Exercise Price determined in accordance with SECTIONS 2
AND 4. In order to exercise such right, Holder shall surrender this
Option to the Company at the Office with the form of Election to
Purchase and the Restricted Stock Letter (unless the sale of the Option
Shares is registered under the Securities Act) attached hereto 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 7, for each Option Share with respect
to which this Option is being exercised. Such Exercise Price and taxes
<PAGE>
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 or through the use of Appreciation Currency, or any combination
thereof. If this Option is exercised as to less than all of the Option
Shares purchasable, one or more new option(s) shall be issued to Holder
for the remaining number of Option Shares evidenced by this Option.
2. EXERCISE PRICE.
(a) Subject to adjustment pursuant to SECTION 4, the price per
share at which Option Shares shall be purchasable upon exercise of this
Option (the "EXERCISE PRICE") shall be $0.75.
(b) As used herein, "APPRECIATION CURRENCY" means the
consideration given by the surrender of an Option for such number of
Option Shares as is determined by multiplying the number of Option
Shares with respect to which the Option is being exercised through the
use of Appreciation Currency by a fraction, the numerator of which
shall be the per Option Share Exercise Price and the denominator of
which shall be the difference between the closing price of a share of
Common Stock on the trading day immediately preceding the date in
question and the per Option Share Exercise Price.
3. ISSUANCE OF OPTION SHARE CERTIFICATES.
(a) Upon surrender of this Option, delivery of an Election to
Purchase and delivery of a Restricted Stock Letter (if the sale of
Option Shares is not registered under the Securities Act) in the forms
attached hereto and payment of the Exercise Price and transfer taxes,
the Company shall issue and deliver certificates representing shares of
Common Stock ("CERTIFICATES") in the manner set forth in the Election
to Purchase delivered by Holder to the Company.
(b) If the shares of Common Stock deliverable upon exercise of
this Option are not registered under the Securities Act, the
Certificates shall bear a legend in substantially the following form:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE `ACT'), AND MAY NOT BE RESOLD, ASSIGNED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY
TO THE ISSUER THAT REGISTRATION UNDER SAID ACT IS NOT
REQUIRED."
2
<PAGE>
4. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF OPTION SHARES
PURCHASABLE. The Exercise Price and the number and kind of Option Shares
purchasable upon the exercise of this Option are subject to adjustment from time
to time upon the occurrence of the events specified in this SECTION 4. If, by
reason of any merger, consolidation, combination, liquidation, reorganization,
recapitalization, stock dividend, stock split, split-off, spin-off, combination
of shares, exchange of shares, or other similar changes in the capital structure
of the Company (each, a "REORGANIZATION"), the outstanding securities of the
same class as the Option Shares (the "OPTION SHARE CLASS OF SECURITIES") are
substituted or exchanged for, combined or changed into any cash, property or
other securities or into a greater or lesser number of shares, the number and/or
kind of shares and/or interests subject to this Option and the Exercise Price
shall be appropriately adjusted to prevent dilution or enlargement of the rights
of Holder so that, thereafter, this Option shall be exercisable for the
securities, cash and/or other property that would have been received in respect
of the Option Shares if this Option had been exercised in full immediately prior
to such event. Such adjustments shall be made successively whenever any event
described in the foregoing sentence occurs. The number of Option Shares and the
Exercise Price set forth in this Option reflect the one-for-five reverse stock
split that was implemented in January 1999.
5. FRACTIONAL OPTION SHARES. The Company shall not be required to issue
fractions of Option Shares upon exercise of this Option or to distribute
certificates that evidence fractional Option Shares. All fractions of Option
Shares to which Holder would otherwise be entitled shall be aggregated and in
lieu of such remaining fractional Option Share, there shall be paid to Holder at
the time this Option is exercised as herein provided an amount in cash equal to
the stated fraction of the fair market value of an Option Share as determined in
good faith by the Board of Directors of the Company.
6. RESERVATION AND ISSUANCE OF OPTION 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 this Option, and (b) there are no restrictions in the Company's
articles of incorporation or bylaws that prevent the Company from issuing shares
of its Common Stock for the purpose of enabling it to satisfy any obligation to
issue Option Shares upon exercise of this Option in accordance with its terms.
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 Option Shares upon exercise of
this Option.
The Company further represents and warrants that all shares of its
Common Stock issued upon exercise of this Option will, upon issuance in
accordance with the terms of this Option, (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 Holder's payment of the Exercise Price.
7. MUTILATED OR MISSING OPTION CERTIFICATES. If this Option is
mutilated, lost, stolen or destroyed, the Company shall issue and deliver, in
exchange and substitution for and upon cancellation of the mutilated Option, or
in lieu of and substitution for the lost, stolen or destroyed Option, a new
option in substantially the same form as this Option and representing an option
to purchase an equivalent number of Option Shares, but only upon receipt of
evidence satisfactory to the Company of such loss, theft or destruction of this
Option and an indemnity or bond, if requested, satisfactory to the Company.
Holder shall also comply with such other reasonable regulations and pay such
other reasonable charges as the Company may prescribe.
3
<PAGE>
8. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes
attributable to the issuance of Option Shares issuable upon the exercise of this
Option; 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 options or any Option Share certificates in a name other than that of
Holder, and the Company shall not be required to issue or deliver such Option
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.
9. CERTAIN NOTICES TO HOLDER. Upon any adjustment to the number of
Option Shares issuable pursuant to exercise of this Option or to the Exercise
Price pursuant to SECTION 4, the Company, within fifteen (15) calendar days
thereafter, shall cause to be given to Holder, at his address appearing on the
Company's records, written notice of such adjustments in accordance with this
SECTION 9. 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 9.
If:
(a) The Company authorizes the issuance or distribution of
securities or assets to holders of its shares of Common Stock or makes
any distribution (other than cash dividends and distributions payable
out of consolidated earnings) to the holders of its shares of Common
Stock;
(b) The Company becomes a party to any consolidation or merger
for which approval of any shareholder of the Company is required,
conveys or transfers all or substantially all of its properties,
assets, or business, shall engage in any reorganization or
recapitalization or makes any tender or exchange offer for shares of
its Common Stock;
(c) The Company becomes subject to voluntary or involuntary
dissolution, liquidation or winding up; or
(d) The Company proposes to take any other action that would
require an adjustment of the Exercise Price pursuant to SECTION 4;
then the Company shall cause to be given to Holder at his address appearing on
the Company's records, at least fifteen (15) calendar days prior to the
applicable record date hereinafter specified, a written notice in accordance
with this SECTION 9 stating (i) the date as of which the holders of record of
Common Stock to be entitled to receive any such securities or assets or
distribution are to be determined, (ii) the initial expiration date set forth in
any tender or exchange offer made by the Company for shares of its Common Stock
or (iii) the date on which any such consolidation or merger, conveyance,
transfer, reorganization or recapitalization, dissolution, liquidation or
winding up is expected to become effective or consummated, and the date as of
which it is expected that holders of record of Common Stock shall be entitled to
exchange such Common Stock 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 9 or any defect therein
shall not affect the legality or validity of any distribution, right, option,
consolidation, conveyance, transfer, reorganization, dissolution, liquidation or
winding up or the vote upon any action.
4
<PAGE>
Nothing contained in this Option shall be construed as conferring upon
Holder the right to vote or to consent or to receive notice as a shareholder 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.
10. NONTRANSFERABILITY OF OPTION. Except by will or the laws of descent
and distribution, this Option is not transferable by Holder.
11. NOTICES. Any notice or demand authorized by this Option to be given
or made by Holder 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 Option to be given by the Company to Holder
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 Holder with the Company) to the address specified in the Company's
records.
12. SUPPLEMENTS AND AMENDMENTS. The Company may from time to time
supplement or amend this Option without the consent or concurrence of Holder in
order to cure any ambiguity, manifest error or other mistake in this Option, 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 Holder.
13. INTENTIONALLY OMITTED.
14. SUCCESSORS. All the representations, warranties, agreements,
covenants and provisions of this Option by or for the benefit of the Company or
Holder shall bind and inure to the benefit of their respective permitted
successors and assigns hereunder.
15. GOVERNING LAW. This Option 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 the State of California
without regard to conflicts of laws principles.
16. BENEFITS OF THIS AGREEMENT. Nothing in this Option shall be
construed to give to any person or entity other than the Company and Holder any
legal or equitable right, remedy or claim under this Option, and this Option
shall be for the sole and exclusive benefit of the Company and Holder.
5
<PAGE>
17. INVALIDITY OF PROVISIONS. If any provision of this Option 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.
18. NO IMPAIRMENT. The Company will not, by amendment of its articles
of incorporation or through any reorganization, recapitalization transfer of
assets, consolidation, merger, dissolution, issuance 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 Option and in the taking of all such actions as may be necessary or
appropriate in order to protect the rights of Holder against impairment.
19. SECTION HEADINGS. The section headings contained in this Option are
for convenience only and shall be without substantive meaning or content.
The Company has caused this Option to be duly executed on January 26,
2000, to be effective as of the day and year first above written.
TELENETICS CORPORATION
By: /S/ Michael A. Armani
------------------------------------
Michael A. Armani, President
<PAGE>
TELENETICS CORPORATION
NON-QUALIFIED STOCK OPTION
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to purchase ____________
Option Shares issuable upon the exercise of the Non-Qualified Stock Option dated
effective as of August 2, 1999 ("OPTION"), and requests that certificates for
such Option Shares be issued and delivered as follows:
ISSUE TO: _______________________________________________________
(Name)
_______________________________________________________
(Address, including Zip Code)
_______________________________________________________
(Social Security or Tax Identification Number)
DELIVER TO: _______________________________________________________
(Name)
at_____________________________________________________
(Address, including Zip Code)
If the number of Option Shares hereby exercised is less than all the
Option Shares represented by the Option, the undersigned requests that a new
option representing the number of Option Shares not exercised be issued and
delivered as set forth above or otherwise as the undersigned shall direct in
writing.
In full payment of the purchase price of the Option Shares being issued
upon exercise of the Option and transfer taxes, if any, the undersigned hereby
tenders payment of $_____________ by cash, certified check, bank cashier's check
or money order payable in United States currency to the order of Telenetics
Corporation.
Dated: ____________________ ________________________________________
(Signature)
(Signature must conform in all respects
to name of holder as specified on the
face of the Option.)
PLEASE INSERT SOCIAL SECURITY OR TAX
IDENTIFICATION NUMBER OF HOLDER
Signature Guaranteed:
________________________________
<PAGE>
EXHIBIT A
---------
FORM OF RESTRICTED STOCK LETTER
THE UNDERSIGNED (hereinafter referred to as "PURCHASER") is exercising
the Non-Qualified Stock Option tendered with this Restricted Stock Letter, and
in connection with such exercise, makes the following representations and
warranties to Telenetics 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 ("SHARES") to Purchaser upon exercise of the
Non-Qualified Stock Option:
1. Purchaser is acquiring the Shares for investment for Purchaser's 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 (the "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 is an "accredited investor" as defined in the rules and
regulations of the Act and Purchaser has such knowledge and experience in
financial and business matters so as to be capable of evaluating the merits and
risks of Purchaser's investment in the Shares, and Purchaser is capable of
bearing the economic risks of such investment, including the risk of loss of
Purchaser's entire investment in the Shares.
3. Purchaser acknowledges that the Company has made available to
Purchaser or Purchaser's agents all documents and information relating to an
investment in the Shares requested by or on behalf of Purchaser.
4. All Shares issued on delivery of this Restricted Stock Letter shall
bear the legend set forth in SECTION 3 of the annexed Non-Qualified Stock Option
and the Shares received on delivery of this Restricted Stock Letter shall be
subject to the restrictions set forth therein.
Executed ______________________
Purchaser: _____________________________________
Signature: _____________________________________
2
Exhibit 5.1
February 10, 2000
Telenetics Corporation
25111 Arctic Ocean
Lake Forest, California 92630
Re: Registration Statement on Form S-3 re 4,218,600 Shares
of Common Stock (Registration No. 333-95643)
--------------------------------------------------------
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 4,218,600 shares of
the Company's Common Stock, no par value per share (the "Shares") of which (i)
817,600 shares (the "Resale Shares") are shares presently held by certain
selling security holders, (ii) up to 1,270,000 shares (the "Warrant Shares") are
issuable upon the execution of certain outstanding warrants (the "Warrants") and
(iii) up to 2,131,000 shares (the "Option Shares") are issuable upon the
exercise of certain outstanding options (the "Options").
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 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
February 10, 2000
Page 2
1. The Resale Shares have been duly authorized and validly issued and are
fully paid and non-assessable.
2. The Warrant Shares to be issued upon exercise of each Warrant have been
duly authorized and reserved and, when issued upon exercise of the applicable
Warrant, in accordance with its terms, including payment of the applicable
exercise price, will be validly issued, fully paid and non-assessable.
3. The Option Shares to be issued upon exercise of each Option have been
duly authorized and reserved and, when issued upon exercise of the applicable
Option 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 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"
and under the caption "Interests of named Experts and Counsel" 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
February 10, 2000
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 captions "Experts" and "Interest
of Named Experts and Counsel" in the Prospectus.
/S/ GEORGE F. ROMBACH, CPA
Lake Forest, California
February 10, 2000
