<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
Telenetics Corporation
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(Name of Issuer)
Common Stock
--------------------------------------------------------
(Title of Class of Securities)
87943P408
--------------------------------------------------------
(CUSIP Number)
Saunders & Parker, Inc.
5735 Prestwick Lane
Dallas, TX 75252
(972)732-0712
With a copy to:
Sally A. Schreiber, Esq.
Munsch Hardt Kopf & Harr, P.C.
4000 Fountain Place
1445 Ross Avenue
Dallas, TX 75202
(214) 855-7500
--------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
January 7, 2000
--------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of (S) (S) 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check
the following box [ ].
NOTE: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 240.13d-7 for other
parties to whom copies are to be sent.
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
(Continued on following page(s))
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Page 2 of 7 Pages
CUSIP No. 87943P408 Schedule 13D
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(1) Names of reporting person. I.R.S. Identification Nos. of Above
Person
Saunders & Parker, Inc.
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(2) Check the Appropriate Box if a Member (a) [ ]
of a Group (b) [X]
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(3) SEC Use Only ___________________
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(4) Source of Funds
OO
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(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e)
[ ]
- -------------------------------------------------------------------------------
(6) Citizenship or Place of Organization
Texas, U.S.A.
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Number of Shares (7) Sole Voting
Beneficially Owned Power
by Each Reporting 1,100,000/1/
Person With --------------------------------------------------
(8) Shared Voting
Power
0
--------------------------------------------------
(9) Sole Dispositive
Power
1,100,000/1/
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(10) Shared Dispositive
Power
0
- -------------------------------------------------------------------------------
(11) Aggregate Amount Beneficially Owned by Each Reporting Person
1,100,000/1/
- -------------------------------------------------------------------------------
(12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares
[ ]
- -------------------------------------------------------------------------------
(13) Percent of Class Represented by Amount in Row (11)
9.5%
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(14) Type of Reporting Person
CO
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/1/ Of these shares, 600,000 are deemed to be beneficially owned as a result of
the ownership of an exercisable option and 500,000 are deemed to be beneficially
owned as a result of the pledge of such shares.
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Page 3 of 7 Pages
ITEM 1. SECURITY AND ISSUER
Common stock, no par value ("Common Stock"), of Telenetics Corporation,
a California corporation ("Telenetics") whose principal executive
offices are at 25111 Arctic Ocean, Lake Forest, CA 92630.
ITEM 2. IDENTITY AND BACKGROUND
(a) Saunders & Parker, Inc. is a Texas corporation (the "Reporting
Person"). William C. Saunders ("Saunders") and Terry S. Parker
("Parker") are the only executive officers, directors and
shareholders of the Reporting Person. Each of Saunders and Parker
is a Co-President, director and 50% shareholder of the Reporting
Person.
(b) The address of the Reporting Person's principal office and
principal business is 5735 Prestwick Lane, Dallas, TX 75252.
Saunders' business address is the same as the Reporting Person's.
Parker's business address is the same as the Reporting Person's.
(c) The principal business of the Reporting Person is consulting and
investment. Saunders' principal employment is with the Reporting
Person. Parker's principal employment is with the Reporting
Person. See Item 2(b) of this Schedule 13D for the address of the
Reporting Person.
(d) In the past five years, neither the Reporting Person, Saunders nor
Parker has been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors).
(e) In the past five years, neither the Reporting Person, Saunders nor
Parker has been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction that resulted in it
or him being subject to a judgment, decree, or final order
enjoining future violations of, or prohibiting or mandating
activities subject to, federal or state securities laws or finding
any violation with respect to such laws.
(f) Both Saunders and Parker are citizens of the United States of
America.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
Of the shares reported on, none are actually owned by the Reporting
Person at the date of this Schedule 13D. Six hundred thousand shares
are subject to options (the "Options") that are presently exercisable
at $1.75 per share and the remaining five hundred thousand shares (the
"Pledged Shares") are held as security for payment of a note, all as
discussed in more detail below.
The Options were granted to the Reporting Person pursuant to that
certain Non-Qualified Stock Option Agreement dated January 7, 2000,
executed by Telenetics ("Non-Qualified Stock Option Agreement"), a copy
of which is filed as an exhibit to this Schedule 13D, as partial
consideration for the services to be performed by the Reporting Person
under that certain Consulting Agreement dated January 7, 2000
("Consulting Agreement"), executed by Telenetics and the Reporting
Person, a copy of which is filed as an exhibit to this Schedule 13D.
The Pledged Shares were pledged to the Reporting Person pursuant to
that certain Pledge Agreement dated January 7, 2000 ("Stock Pledge
<PAGE>
Page 4 of 7 Pages
Agreement"), executed by Michael A. Armani, the President and a
director of Telenetics, in connection with that certain Guaranty dated
January 7, 2000 (the "Guaranty"), executed by Michael A. Armani, which,
in turn, was executed in connection with that certain Promissory Note
dated January 7, 2000 (the "Note"), executed by Telenetics and payable
to the order of the Reporting Person. The Note evidences certain
liabilities assumed by Telenetics in connection with its acquisition of
stock of eflex Wireless, Inc., a Delaware corporation ("eflex"),
pursuant to that certain Stock Purchase Agreement dated January 7, 2000
("Stock Purchase Agreement"), executed by Telenetics and the
shareholders of eflex.
For information on Parker and Saunders, as required in Instruction C,
please see Item 3 of the Schedule 13D executed by each of them on
January 18, 2000, with respect to Telenetics, a copy of each of which
is filed as an exhibit to this Schedule 13D, which information is
incorporated herein by reference.
ITEM 4. PURPOSE OF TRANSACTION
The Reporting Person acquired the Options as partial consideration for
the services to be performed under the Consulting Agreement, and the
Reporting Person took a pledge of the Pledged Shares to secure payment
of the Note. The Reporting Person acquired the shares of Common Stock
reported on hereunder for investment purposes and currently has no
plans or proposals with respect to any of the matters described in (a)
through (j) of Item 4 of Schedule 13D.
For information on Parker and Saunders, as required in Instruction C,
please see Item 4 of the Schedule 13D executed by each of them on
January 18, 2000, with respect to Telenetics, a copy of each of which
is filed as an exhibit to this Schedule 13D, which information is
incorporated herein by reference.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) Number of shares of Common Stock deemed to be beneficially owned
by Reporting Person: 1,100,000, including the 1,000,000 deemed to
be beneficially owned by the Reporting Person.
Number of shares of Common Stock deemed to be beneficially owned
by Parker: 2,516,179, including the 1,100,000 deemed to be
beneficially owned by the Reporting Person.
Number of shares of Common Stock deemed to be beneficially owned
by Saunders: 2,516,179, including the 1,100,000 deemed to be
beneficially owned by the Reporting Person.
Percentage of class of securities deemed to be beneficially owned
by Reporting Person: 9.5%.
Percentage of class of securities deemed to be beneficially owned
by Parker: 19.6%, including the 9.5% deemed to be beneficially
owned by the Reporting Person as described in this Schedule 13D.
Percentage of class of securities deemed to be beneficially owned
by Saunders: 19.6%, including the 9.5% deemed to be beneficially
owned by the Reporting Person as described in this Schedule 13D.
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Page 5 of 7 Pages
(b) Number of shares deemed to be beneficially owned by Reporting
Person as to which it has the sole power to vote: 1,100,000/2/
Number of shares deemed to be beneficially owned by Reporting
Person as to which it has the shared power to vote: 0
Number of shares deemed to be beneficially owned by Reporting
Person as to which it has the sole power to dispose: 1,100,000/2/
Number of shares deemed to be beneficially owned by Reporting
Person as to which it has the shared power to dispose: 0
For information on Parker and Saunders, as required in Instruction
C, please see Item 5(b) of the Schedule 13D executed by each of
them on January 18, 2000, with respect to Telenetics, a copy of
each of which is filed as an exhibit to this Schedule 13D, which
information is incorporated herein by reference.
(c) The Reporting Person has not had any transactions in Common Stock,
except as described herein. The transactions described herein
occurred on January 7, 2000.
For information on Parker and Saunders, as required in Instruction
C, please see Item 5(c) of the Schedule 13D executed by each of
them on January 18, 2000, with respect to Telenetics, a copy of
each of which is filed as an exhibit to this Schedule 13D, which
information is incorporated herein by reference.
(d) Each of Saunders and Parker, as a result of being a 50%
shareholder, director, and Co-President of the Reporting Person,
will be able to influence the power to direct the receipt of
dividends from, or the proceeds from the disposition of, the
shares of Common Stock subject to the Options and the Pledged
Shares.
For information on Parker and Saunders, as required in Instruction
C, please see Item 5(d) of the Schedule 13D executed by each of
them on January 18, 2000, with respect to Telenetics, a copy of
each of which is filed as an exhibit to this Schedule 13D, which
information is incorporated herein by reference.
(e) Not Applicable to Reporting Person, Saunders or Parker.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER.
Reference is made to the Stock Purchase Agreement, the Non-Qualified
Stock Option Agreement, the Consulting Agreement, the Stock Pledge
Agreement, the Guaranty, and the Note. A copy of each of the
aforementioned documents is filed as an exhibit to this Schedule 13D.
For information on Parker and Saunders, as required in Instruction C,
please see Item 6 of the Schedule 13D executed by each of them on
January 18, 2000, with respect to Telenetics, a copy of each of which
is filed as an exhibit to this Schedule 13D, which information is
incorporated herein by reference.
- -------------------------
/2/ Assumes exercise of Options and the existence of an Event of Default under
the Stock Pledge Agreement. For more information, please see Item 3 of this
Schedule 13D.
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Page 6 of 7 Pages
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
The following are filed as exhibits to this Schedule 13D:
(1) Stock Purchase Agreement
(2) Non-Qualified Stock Option Agreement
(3) Consulting Agreement
(4) Stock Pledge Agreement
(5) Guaranty
(6) Note
(7) Schedule 13D of Terry S. Parker with respect to Telenetics dated
January 18, 2000
(8) Schedule 13D of William C. Saunders with respect to Telenetics
dated January 18, 2000
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Page 7 of 7 Pages
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
SAUNDERS & PARKER, INC.
January 18, 2000
----------------------------------------
(Date)
/s/ WILLIAM C. SAUNDERS
----------------------------------------
(Signature)
William C. Saunders, Co-President
<PAGE>
EXHIBIT 1
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
---------
January 7, 2000, by and among Telenetics Corporation, a California corporation
("Telenetics"), and Edward L. Didion ("Didion"), John D. McLean ("McLean"),
---------- ------ ------
William C. Saunders ("Saunders") and Terry S. Parker ("Parker"), each an
-------- ------
individual (individually, each a "Seller," and collectively, the "Sellers."
------ -------
R E C I T A L S
A. Sellers own, in the aggregate, all of the issued and outstanding
shares (the "Shares") of capital stock of eflex Wireless, Inc., a Delaware
------
corporation (the "Company").
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B. Telenetics desires to purchase from Sellers, and Sellers desire to
sell to Telenetics, the Shares on the terms and conditions set forth in this
Agreement.
A G R E E M E N T
NOW, THEREFORE, the parties to this Agreement agree as follows:
1. Purchase and Sale of Shares.
---------------------------
1.1 Purchase and Sale. Subject to the terms and conditions set forth
-----------------
herein, at the Closing (as defined in Section 6.1 below), Sellers shall
-----------
transfer, convey, assign and deliver the Shares to Telenetics, and Telenetics
shall acquire, purchase and accept the Shares from Sellers.
1.2 Consideration. The aggregate consideration (the "Consideration") to
------------- -------------
be paid in connection with the acquisition of the Shares shall equal the Base
Purchase Price plus the Earn-Out Purchase Price, which terms are defined as
follows:
(a) The "Base Purchase Price" shall consist of an aggregate of 750,000
-------------------
shares (the "Base Stock") of common stock, no par value per share, of
----------
Telenetics ("Telenetics Common Stock"); and
-----------------------
(b) The "Earn-Out Purchase Price" shall consist of an aggregate of
-----------------------
5,544,129 shares of Telenetics Common Stock (the "Additional Stock").
----------------
(c) Payment of Consideration. At the Closing, by virtue of the
------------------------
acquisition by Telenetics of the Shares, each of the Shares shall be
exchanged for a number of shares of Telenetics Common Stock equal to the
number of shares of Base Stock divided by the total number of Shares, and
(ii) the right to receive a number of shares of Telenetics Common Stock
equal to the number of shares of Additional Stock divided by the total
number of Shares, subject to the conditions contained in Section 1.3 below.
-----------
1.3 Earn-Out Conditions.
-------------------
(a) For purposes of this Section 1.3, the "Earn-Out Period" shall mean
----------- ---------------
the period commencing on the Closing Date and ending on the earlier of
December 31, 2004
<PAGE>
or the date upon which all shares of Additional Stock have become issuable
pursuant to this Section 1.3. The Earn-Out Purchase Price shall become
-----------
payable, if at all, in the following increments based upon the successful
implementation by Telenetics or the Company of the Company's overhead
telemetry-based technology, as described in Exhibit A attached hereto and
---------
incorporated herein by reference (the "Technology") and the successful
----------
completion during the Earn-Out Period of the installation of the following
numbers of units equipped with the Technology:
After the Following Telenetics Shall Issue the Following Number
Aggregate Number of of Shares of Telenetics Common Stock
Installations is Completed: Comprising the Additional Stock
-------------------------- -------------------------------------------:
100,000 881,811 shares
200,000 959,889 shares
300,000 1,079,876 shares
345,000 232,378 shares
390,000 238,336 shares
435,000 244,527 shares
480,000 250,962 shares
525,000 257,655 shares
570,000 264,618 shares
615,000 271,867 shares
660,000 279,420 shares
705,000 287,291 shares
750,000 295,499 shares
(b) If and when earned, the shares of Telenetics Common Stock to be
issued pursuant to this Section 1.3 as the Earn-Out Purchase Price shall be
-----------
allocated and issued to Sellers pro rata in proportion to their ownership
of the Shares immediately prior to the Closing. In no case shall the
aggregate number of shares of Telenetics Common Stock issuable pursuant to
this Section 1.3 exceed the aggregate number of shares of Additional Stock,
-----------
as the same may be adjusted in accordance with this Agreement.
(c) Notwithstanding anything to the contrary contained in Section
-------
1.3(a), if prior to the expiration of the Earn-Out Period the Company or
------
Telenetics undertakes to (i) sell, lease, exchange or otherwise dispose of
the Technology or (ii) merge into or consolidate with any other entity
(other than Telenetics or a wholly-owned subsidiary of Telenetics), or
effect any transaction (including a merger or other reorganization) or
series of related transactions, in which more than 50% of the voting power
of Telenetics is disposed of, then immediately prior to such event
Telenetics shall issue the remaining shares of Additional Stock not yet
issued pursuant to Section 1.3(a), regardless of the number of
--------------
installations completed prior to such date.
(d) Notwithstanding anything to the contrary contained in Section
-------
1.3(a), if upon the expiration of the Earn-Out Period the Company has bona
------
fide fully executed contracts in place pursuant to which the Company is
obligated to perform installations that would have resulted in the issuance
of Additional Stock if the Earn-Out Period had
2
<PAGE>
not yet expired, then Telenetics shall issue upon the expiration of the
Earn-Out Period that number of shares of Additional Stock that would have
been issuable pursuant to Section 1.3(a) if the installations had been
--------------
completed prior to the expiration of the Earn-Out Period.
(e) Telenetics shall not be required to issue fractions of shares of
Telenetics Common Stock pursuant to this Agreement, and all such fractions
of shares of Telenetics Common Stock to which a Seller would otherwise be
entitled pursuant to this Agreement shall be aggregated, and in lieu of
such remaining fractional shares there shall be paid to the Seller at the
time the shares are issued an amount in cash equal to the stated fraction
of the fair market value of a share of Telenetics Common Stock, as
determined in good faith by the Board of Directors of Telenetics.
2. Representations and Warranties of the Company and Sellers.
---------------------------------------------------------
Except as set forth in a schedule dated the date of this Agreement and
delivered by Sellers to Telenetics concurrently herewith (the "Disclosure
----------
Schedule") specifically identifying the Section of this Agreement requiring the
- --------
delivery of such disclosure, each Seller severally and not jointly makes the
representations and warranties to Telenetics as set forth below; provided,
however, that with respect to the representations and warranties contained in
Sections 2.13, 2.14 and 2.24, each of Saunders and Parker makes such
- ----------------------------
representations and warranties to the best of his knowledge.
2.1 Organization; Good Standing; Qualification and Power. The Company is
----------------------------------------------------
a corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation, has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted, and is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes qualification necessary, other than
in jurisdictions where the failure to qualify would not have a Material Adverse
Effect. In this Agreement, any reference to any event, change or effect being
"material" with respect to any entity or group of entities means any material
event, change or effect related to the condition (financial or otherwise),
properties, assets, liabilities, businesses, operations or results of operations
of such entity or group of entities taken as a whole. In this Agreement, the
term "Material Adverse Effect" used in connection with a party means any event,
-----------------------
change or effect that is materially adverse to the condition (financial or
otherwise), properties, assets, liabilities, businesses, operations or results
of operations of that party, taken separately or as a whole; provided, however,
that a Material Adverse Effect shall not include any adverse effect resulting
from general economic conditions or conditions affecting the overhead telemetry-
based technology market. The Company does not have any subsidiaries. The Company
has provided to Telenetics or its counsel complete and correct copies of the
certificate of incorporation and bylaws of the Company, as amended to the date
of this Agreement, and copies of all minutes of meetings and actions by written
consent of stockholders, directors and board committees of the Company.
3
<PAGE>
2.2 Capital Structure.
-----------------
2.2.1 Stock and Options. The authorized capital stock of the Company
-----------------
consists of 100,000 shares of common stock, $.01 par value per share (the
"Common Stock"), and no shares of preferred stock. The Shares are the only
------------
shares of Common Stock that are issued and outstanding. All of the Shares are
validly issued, fully paid and nonassessable and not subject to preemptive
rights. Each Seller represents that the Shares owned by such Seller are owned by
such Seller free and clear of any liens, security interests, pledges, agreement,
claims, charges or encumbrances, and that such Seller has done nothing, and has
not caused the Company to do anything, that would form the basis upon which any
person (other than a Seller as set forth below in this Section 2.2.1) may claim
-------------
to be in any way the record or beneficial owner of, or to be entitled to acquire
(of record or beneficially), any shares of the capital stock or other equity
securities of the Company, including without limitation, the Shares. The Shares
are owned by the Sellers in the following proportions:
Name of Seller Number of Shares Owned
-------------- ----------------------
Didion 4,500
McLean 1,000
Saunders 2,250
Parker 2,250
2.2.2 No Other Commitments. There are no options, warrants, calls, rights,
--------------------
commitments, conversion rights or agreements of any character to which the
Company is a party or by which the Company is bound obligating the Company to
issue, deliver or sell, or cause to be issued, delivered or sold, any shares of
capital stock of the Company or securities convertible into or exchangeable for
shares of capital stock of the Company, or obligating the Company to grant,
extend or enter into any option, warrant, call, right, commitment, conversion
right or agreement. There are no voting trusts or other agreements or
understandings to which the Company or any Seller is a party with respect to the
voting of the capital stock of the Company. In addition, the Company has no
obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any of its equity securities or any interests therein or to pay any dividend or
make any distribution in respect thereof.
2.3 Authority.
---------
2.3.1 Corporate Action. The Company has all requisite corporate power and
----------------
authority to enter into this Agreement and the other agreements contemplated to
be entered into by the Company as described in Section 6.2 (collectively, the
-----------
"Company Transaction Agreements"), and to perform its obligations under and to
------------------------------
consummate the transactions contemplated by the Company Transaction Agreements.
The execution and delivery of the Company Transaction Agreements by the Company
and the consummation by the Company of the transactions contemplated thereby
have been duly authorized by all necessary corporate action on the part of the
Company. The Company Transaction Agreements have been duly executed and
delivered by the Company and
4
<PAGE>
constitute the valid and binding obligation of the Company, enforceable against
the Company in accordance with their terms, except that enforceability may be
subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance,
fraudulent transfer or other similar laws affecting or relating to enforcement
of creditors' rights generally and (ii) general equitable principles.
2.3.2 Sellers' Authority. Each Seller represents that such Seller has full
------------------
power and capacity to enter into this Agreement and the other agreements
contemplated to be entered into by such Seller as described in Section 6.2 (the
------------
"Seller Transaction Agreements"), and that the Seller Transaction Agreements
-----------------------------
have been duly executed and delivered by such Seller and constitute the valid
and binding obligation of such Seller, enforceable against such Seller in
accordance with their terms, except that enforceability may be subject to (i)
bankruptcy, insolvency, reorganization, fraudulent conveyance, fraudulent
transfer or other similar laws affecting or relating to enforcement of
creditors' rights generally and (ii) general equitable principles.
2.3.3 No Conflict. Neither the execution, delivery and performance of the
-----------
Company Transaction Agreements, nor the consummation of the transactions
contemplated thereby nor compliance with the provisions thereof will conflict
with, or result in any violations of, or cause a default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination,
amendment, cancellation or acceleration of any obligation contained in, or the
loss of any material benefit under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the material properties or
assets of the Company under, any term, condition or provision of (x) the
certificate of incorporation or bylaws of the Company or (y) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other material agreement,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to the Company or its properties or assets, other than any such conflicts,
violations, defaults, losses, liens, security interests, charges, or
encumbrances which, individually or in the aggregate, would not have a Material
Adverse Effect.
2.3.4 Governmental Consents. Each Seller represents that no consent,
---------------------
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign (each a "Governmental
------------
Entity"), is required to be obtained by the Company or such Seller in connection
- ------
with the execution and delivery of the Company Transaction Agreements or the
Seller Transaction Agreements or the consummation of the transactions
contemplated thereby.
2.4 Financial Statements. The Company has furnished to Telenetics copies
--------------------
of the compiled statements of assets, liabilities and equity and the related
statements of revenues and expenses and schedules of retained earnings for the
months of August, September, October and November 1999 and the respective one,
two, three and four month periods then ended. All financial statements referred
to in this Section 2.4 (the "Financial Statements") have been prepared on an
----------- --------------------
income tax basis, applied on a consistent basis during the respective periods,
and fairly present the financial condition of the Company as at the respective
dates thereof and the results of operation of the Company for the respective
periods covered by the statements of
5
<PAGE>
income contained in therein. The Company does not have any material obligations
or liabilities, contingent or otherwise, of the type required to be disclosed on
financial statements that are not fully disclosed by the Financial Statements.
2.5 Compliance with Applicable Laws. The business of the Company is not
-------------------------------
being conducted in violation of any law, ordinance, regulation, rule or order of
any Governmental Entity where the violation would have a Material Adverse
Effect. Each Seller represents that neither the Company nor such Seller has been
notified by any Governmental Entity that any investigation or review with
respect to the Company is pending or threatened, nor has any Governmental Entity
notified the Company or such Seller of its intention to conduct an investigation
or review. The Company has all permits, licenses and franchises from
Governmental Entities required to conduct its business as now being conducted.
2.6 Insurance. The Company does not maintain and has never applied for
---------
fire, casualty, general liability or errors and omissions insurance, and no
events have occurred that would have caused the Company to make a claim under
any such policy.
2.7 Litigation. There is no suit, action, arbitration, demand, claim or
----------
proceeding pending or, to the best knowledge of such Seller, threatened against
the Company, nor is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against the Company that,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect. The Company has delivered to Telenetics or its counsel
correct and complete copies of all correspondence prepared by its counsel for
the Company's accountants in connection with each compilation of the Company's
financial statements and any correspondence since the date of the last
compilation.
2.8 Labor and Employment.
--------------------
2.8.1 ERISA. The Company does not maintain, nor has it ever
-----
maintained, any employee benefit plan or arrangement including, but not
limited to deferred compensation, stock option, stock purchase, bonus,
incentive and severance plans and employee benefit plans as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
-----
2.8.2 COBRA. The Company has complied with all of the requirements of
-----
Section 4980B of the Internal Revenue Code of 1986, as amended (the
"Code"), and Part 6 of Title 1 of ERISA ("COBRA"), with respect to each
---- -----
employee welfare benefit plan, as defined in Section 3(1) of ERISA, it
maintains or has ever maintained. The Company has provided, or will have
provided prior to the Closing, to all individuals entitled thereto, all
required notices and coverage pursuant to COBRA with respect to any
"qualifying event" as defined in COBRA occurring prior to and including the
Closing Date, and no material tax payable on account of COBRA has been
incurred with respect to any current or former employees (or their
beneficiaries) of the Company.
2.8.3 Other Compliance. The Company is in compliance in all material
----------------
respects with all applicable laws, agreements and contracts relating to
employment, employment
6
<PAGE>
practices, wages, hours, and terms and conditions of employment, including,
but not limited to, employee compensation matters, but not including ERISA.
2.9 Absence of Undisclosed Liabilities. Except as disclosed on the
----------------------------------
Disclosure Schedule, at November 30, 1999 (the "Balance Sheet Date"), (i) the
------------------
Company did not have any liabilities or obligations of any nature (matured or
unmatured, fixed or contingent) which were material to the Company, taken as a
whole, and were not provided for in the balance sheet of the Company at the
Balance Sheet Date, a copy of which has been delivered to Telenetics (the
"Balance Sheet"); and (ii) all reserves established by the Company and set forth
-------------
in the Balance Sheet were reasonably adequate.
2.10 Absence of Certain Changes or Events. Since the Balance Sheet Date
------------------------------------
there has not occurred:
(a) any change in the condition (financial or otherwise), properties,
assets, liabilities, businesses, operations or results of operations of the
Company, taken separately or as a whole, that could reasonably constitute a
Material Adverse Effect;
(b) any amendments or changes in the certificate of incorporation or
bylaws of the Company;
(c) any damage, destruction or loss, whether covered by insurance or
not, that could reasonably constitute a Material Adverse Effect;
(d) any redemption, repurchase or other acquisition of shares of the
Common Stock by the Company, or any declaration, setting aside or payment
of any dividend or other distribution (whether in cash, stock or property)
with respect to the Common Stock;
(e) any material increase in or modification of the compensation or
benefits payable or to become payable by the Company to any of its
directors or employees, except in the ordinary course of business
consistent with past practice;
(f) any material increase in or modification of any bonus, pension,
insurance or other benefit (including, but not limited to, the granting of
stock options, restricted stock awards or stock appreciation rights) made
to, for or with any of its employees or consultants, other than in the
ordinary course of business consistent with past practice;
(g) any acquisition or sale of a material amount of property or assets
of the Company, other than in the ordinary course of business consistent
with past practices;
(h) any alteration in any term of any outstanding security of the
Company;
(i) any (A) incurrence, assumption or guarantee by the Company of any
debt for borrowed money; (B) issuance or sale of any securities convertible
into or exchangeable for debt securities of the Company; or (C) issuance or
sale of options or other rights to acquire from the Company, directly or
indirectly, debt securities of the Company or any securities convertible
into or exchangeable for any such debt securities;
7
<PAGE>
(j) any creation or assumption by the Company of any mortgage, pledge,
security interest or lien or other encumbrance on any asset;
(k) any making of any loan, advance or capital contribution to or
investment in any person other than (i) travel loans or advances made in
the ordinary course of business of the Company, (ii) other loans and
advances in an aggregate amount which does not exceed $25,000 outstanding
at any time and (iii) purchases on the open market of liquid, publicly
traded securities;
(l) any entering into, amendment of, relinquishment, termination or
non-renewal by the Company of any contract, lease transaction, commitment
or other right or obligation other than in the ordinary course of business,
except as expressly contemplated in this Agreement or any other agreement
to be executed in connection herewith;
(m) any transfer or grant of a right under the IP Rights (as defined
in Section 2.14), other than those transferred or granted in the ordinary
------------
course of business;
(n) any labor dispute or charge of unfair labor practice (other than
routine individual grievances), any activity or proceeding by a labor union
or representative thereof to organize any employees of the Company or any
campaign being conducted to solicit authorization from employees to be
represented by the labor union; or
(o) any agreement or arrangement made by the Company to take any
action which, if taken prior to the date hereof, would have made any
representation or warranty set forth in this Agreement untrue or incorrect
unless otherwise disclosed.
2.11 No Defaults. The Company is not in default under, and there exists no
-----------
event, condition or occurrence which, after notice or lapse of time, or both,
would constitute a default by the Company under, any contract or agreement to
which the Company is a party and which would, if terminated or modified, have a
Material Adverse Effect.
2.12 Certain Agreements. Neither the execution and delivery of the Company
------------------
Transaction Agreements or the Seller Transaction Agreements nor the consummation
of the transactions contemplated thereby will (i) result in any payment
(including, without limitation, severance, unemployment compensation, golden
parachute, bonus or otherwise) becoming due to any director, officer or employee
of the Company from the Company, (ii) materially increase any benefits otherwise
payable or (iii) result in the acceleration of the time of payment or vesting of
any benefits.
2.13 Taxes.
-----
(a) For purposes of this Agreement, "Tax" or collectively "Taxes"
--- -----
means any and all federal, state, local, and foreign taxes, assessments,
and other governmental charges, duties, impositions, and liabilities,
including taxes based upon or measured by gross receipts, income, profits,
sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, estimated, excise
and property taxes, together with all interest, penalties, and additions
imposed with respect to those amounts and any obligations under any
agreements or arrangements with any other
8
<PAGE>
person with respect to those amounts and including any liability for taxes
of a predecessor entity.
(b) As of the Closing, the Company will have prepared and filed all
required federal, state, local, and foreign returns, estimates, information
statements, and reports relating to any and all Taxes ("Returns")
-------
concerning or attributable to the Company that are required to be filed by
or with respect to the Company on or prior to the Closing, and each of the
Returns shall be true, correct, and complete in all material respects and
shall have been completed in accordance with applicable law;
(c) As of the Closing, the Company: (A) will have paid or accrued in
accordance with generally accepted accounting principles all Taxes
concerning or attributable to the Company relating to periods ending on or
before the Closing regardless of whether reflected on Returns and (B) will
have withheld with respect to their employees all federal and state income
taxes, FICA, FUTA, and other Taxes required to be withheld;
(d) The Company has not been delinquent in the payment of any Tax nor
is there any Tax deficiency outstanding, proposed or assessed against the
Company, nor has the Company executed any waiver of the statute of
limitations on or extending the period for the assessment or collection of
any Taxes;
(e) No audit or other examination of any Return of the Company is
presently in progress, nor has the Company been notified of any request for
an audit or examination;
(f) The Company does not have any liabilities for unpaid federal,
state, local and foreign Taxes which have not been accrued or reserved in
accordance with generally accepted accounting principles on the Balance
Sheet, and such Seller does not have knowledge of any reasonable basis for
the assertion of any liability attributable to the Company, or any of its
assets and operations;
(g) The Company has delivered to Telenetics and its counsel copies of
all federal and state income and all state sales and use Tax Returns for
all periods since its incorporation;
(h) There are (and as of immediately following the Closing there will
be) no liens, pledges, charges, claims, security interests, or other
encumbrances of any sort (the "Liens") on the assets of the Company
-----
relating or attributable to Taxes other than liens for sales and payroll
taxes not yet due and payable;
(i) Such Seller does not have knowledge of any reasonable basis for
the assertion of any claim relating or attributable to Taxes which, if
adversely determined, would result in any Lien on the assets of the
Company;
(j) None of the assets of the Company is property that is required to
be treated as owned by any other person pursuant to the "safe harbor lease"
provisions of former
9
<PAGE>
Code Section 168(f)(8), and none of the assets is treated as "tax-exempt
use property" within the meaning of Code Section 168(h);
(k) The Company has not filed any consent agreement under Code Section
341(f) or agreed to have Code Section 341(f) apply to any disposition of a
"subsection (f) asset" (as defined in Code Section 341(f)(4)) owned by the
Company;
(l) The Company has not been included in any "consolidated,"
"unitary," or "combined" Return provided for under the law of the United
States or any state or locality with respect to Taxes for any taxable
period;
(m) The Company is not a party to a tax sharing, allocation,
indemnification or similar agreement or arrangement, nor does the Company
owe any amount under any agreement or arrangement;
(n) No Return of the Company contains a disclosure statement under
Code Section 6662 (or predecessor provision) or any similar provision of
state, local, or foreign law;
(o) The Company is not nor has it been at any time a "United States
real property holding corporation" within the meaning of Code Section
897(c)(2);
(p) No indebtedness of the Company consists of "corporate acquisition
indebtedness" within the meaning of Code Section 279;
(q) The Company has not taken any action not in accordance with past
practice that would have the effect of deferring any Tax liability of the
Company from any period ending on before the Closing Date to any taxable
period ending after the Closing Date;
(r) The Company was not acquired in a "qualified stock purchase" under
Code Section 338(d)(3), and no elections under Code Section 338(g),
protective carryover basis elections, or offset prohibition elections are
applicable to the Company or any predecessor corporations; and
(s) The tax bases of the assets of the Company for purposes of
determining future amortization, depreciation, and other federal income tax
deductions are accurately reflected on the tax books and records of the
Company.
2.14 Intellectual Property.
---------------------
(a) The Company owns or has acquired all material Intellectual
Property Rights (as defined below), including rights to make, use and sell
goods and services, as necessary or required for the conduct of its
business as presently conducted (the Intellectual Property Rights being
referred to as the "IP Rights"), and these rights are reasonably sufficient
--------
for the conduct of its business;
10
<PAGE>
(b) The execution, delivery and performance of the Company Transaction
Agreements or the Seller Transaction Agreements and the consummation of the
transactions contemplated thereby will not constitute a material breach of
any instrument or agreement governing any IP Rights ("IP Rights
---------
Agreements"), will not cause the forfeiture or termination or give rise to
----------
a right of forfeiture or termination of any IP Right or materially impair
the right of the Company or Telenetics to use, sell or license any IP Right
or portion thereof (except where the breach, forfeiture or termination
would not have a Material Adverse Effect);
(c) Neither the manufacture, marketing, license, sale or intended use
of any product currently licensed or sold by the Company or currently under
development by the Company violates any license or agreement between the
Company and any third party or, to the best knowledge of such Seller,
infringes any Intellectual Property Right of any other party; and there is
no pending or, to the best knowledge of such Seller, threatened claim or
litigation contesting the validity, ownership or right to use, sell,
license or dispose of any IP Right nor, to the best knowledge of such
Seller, is there any basis for any claim, nor has such Seller received any
written notice asserting that any IP Right or the proposed use, sale,
license or disposition thereof conflicts or will conflict with the rights
of any other party, nor, to the best knowledge of such Seller, is there any
basis for any assertion, and
(d) The Company has taken reasonable and practicable steps designed to
safeguard and maintain its proprietary rights in all material IP Rights.
All officers, employees and consultants of the Company have executed and
delivered to the Company an agreement regarding the protection of
proprietary information and the assignment to the Company of all
Intellectual Property Rights arising from the services performed for the
Company by those persons. No current or prior officer, employee or
consultant of the Company claims an ownership interest in any IP Rights as
a result of having been involved in the development of that property while
employed by or consulting to the Company, or otherwise.
The term "Intellectual Property Rights" shall mean all worldwide
----------------------------
industrial and intellectual property rights, including, without limitation,
patents, patent applications, patent rights, trademarks, trademark
registrations, trademark registration applications, trade names, service
marks, service mark registrations, service mark registration applications,
copyrights, copyright registrations, copyright registration applications,
franchises, licenses, inventories, know-how, trade secrets, customer lists,
proprietary processes and formulae, all source and object codes,
algorithms, architecture, structure, display screens, layouts, inventions,
development tools and all documentation and media constituting, describing
or relating to the above, including, without limitation, manuals, memoranda
and records.
2.15 Fees and Expenses. The Company has not paid or become obligated to
-----------------
pay any fee or commission to any broker, finder or intermediary in connection
with the transactions contemplated by this Agreement.
11
<PAGE>
2.16 Environmental Matters.
---------------------
(a) None of the properties or facilities of the Company is in
violation of any federal, state or local law, ordinance, regulation or
order relating to industrial hygiene or to the environmental conditions on,
under or about the properties or facilities, including, but not limited to,
soil and ground water condition, except where the violations would not
constitute a Material Adverse Effect. During the time that the Company has
owned or leased its properties and facilities, to the best knowledge of
such Seller, no third party has released, used, generated, manufactured or
stored on, under or about the properties or facilities or transported to or
from the properties or facilities any hazardous materials.
(b) During the time that the Company has owned or leased its
properties and facilities, there has been no litigation brought or
threatened against the Company by, or any settlement reached by the Company
with, any party or parties alleging the presence, disposal, release or
threatened release of any hazardous materials on, from or under any of the
properties or facilities.
2.17 Interested Party Transactions. Except as disclosed in the Disclosure
-----------------------------
Schedule, no officer or director of the Company or any "affiliate" or
"associate" (as those terms are defined in Rule 405 promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), of any such person
--------------
has had, either directly or indirectly, a material interest in: (i) any person
or entity which purchases from or sells, licenses or furnishes to the Company
any material amount of goods, property, technology or intellectual or other
property rights or services; or (ii) any material contract or agreement to which
the Company is a party or by which it may be bound or affected.
2.18 Disclosure. No representation or warranty made by the Company or
----------
Sellers in this Agreement, nor any document, written information, written
statement, financial statement, certificate or exhibit prepared and furnished or
to be prepared and furnished by the Company or its representatives or Sellers
pursuant hereto or in connection with the transactions contemplated hereby, when
taken together, contains any untrue statement of a material fact, or omits to
state a material fact necessary to make the statements or facts contained herein
or therein not misleading in light of the circumstances under which they were
furnished.
2.19 Restrictions on Business Activities. There is no material agreement,
-----------------------------------
judgment, injunction, order or decree binding upon the Company that has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any business practice of the Company, any acquisition of property by the Company
or the conduct of business by the Company as currently conducted.
2.20 Intentionally Omitted.
---------------------
2.21 Personal Property. The Company has good title, free and clear of all
-----------------
title defects, objections and liens, including without limitation, leases,
chattel mortgages, conditional sales contracts, collateral security arrangements
and other title or interest-retaining arrangements, to all of its machinery,
equipment, furniture, inventory and other personal property. All personal
property used in the business of the Company is in good operating condition. All
of the leases to
12
<PAGE>
personal property utilized in the business of the Company are valid and
enforceable against the Company and are not in default by the Company, or to the
knowledge of such Seller, are any of the other parties thereto in default
thereof.
2.22 Real Property. The Company does not own any real property. The
-------------
Disclosure Schedule contains a list of all leases for real property to which the
Company is a party, the square footage leased with respect to each lease and the
expiration date of each lease. These leases are valid and enforceable and are
not in default. To the best knowledge of such Seller, the real property leased
or occupied by the Company, the improvements located thereon, and the furniture,
fixtures and equipment relating thereto (including plumbing, heating, air
conditioning and electrical systems), conform to any and all applicable health,
fire, safety, zoning, land use and building laws, ordinances and regulations.
There are no outstanding contracts made by the Company for any improvements made
to the real property leased or occupied by the Company that have not been paid
for.
2.23 Warranties. Neither the Company nor Sellers have made any warranties
----------
or guarantees relating to the Company's products other than as implied or
required by law. The Disclosure Schedule contains a list of all warranty and
indemnification obligations of the Company relating to patents and other
proprietary rights.
2.24 Contracts. The Disclosure Schedule lists all oral or written
---------
agreements, notes, instruments, or contracts to which the Company is a party or
by which its assets or properties may be bound which involve the payment or
receipt of more than $25,000 (on an annual basis), or which have a term of more
than one year, or which involve intellectual property, or which are employment
or consulting agreements, or to which the Company and one or more Sellers or
entities owned or operated by one or more Sellers is a party (the "Contracts").
---------
The Company is not in default in performance of its obligations under any
material provisions of the Contracts. Such Seller has no knowledge of any
violation of any Contract by any other party thereto and such Seller has no
knowledge of any intent by any other party to a Contract not to perform its
obligations under any Contract.
2.25 Intentionally Omitted.
---------------------
2.26 Development Tools. The Disclosure Schedule contains a complete list of
-----------------
all material software development tools used or currently intended to be used by
the Company in the development of any of the Company Products, except for any
tools that are generally available and are used in their generally available
form (such as standard compilers) ("Company Development Tools"). The Disclosure
-------------------------
Schedule also sets forth, for each Company Development Tool: (a) for any Company
Development Tool not entirely developed internally by the employees of the
Company, the identity of the independent contractors and consultants involved in
a material way in such development and a list of the material agreements with
such independent contractors and consultants with respect to the Company
Development Tools; (b) a list of any third parties with any rights to receive
material royalties or other payments with respect to such Company Development
Tools, and a schedule of all such royalties payable; (c) a list of any material
restrictions on the Company's unrestricted right to use and distribute the
Company Development Tools; and (d) a list of all agreements with third parties
for the use by the third party of the Company Development Tools.
13
<PAGE>
2.27 Investment Representation.
-------------------------
(a) Each Seller acknowledges that, upon issuance, the Base Stock, the
options to be issued at the Closing (the "Options"), the shares of common
-------
stock underlying the Options (the "Underlying Stock"), and the Additional
----------------
Stock, if any, will not have been "registered" and will therefore be
"restricted securities" as these terms are used under the Securities Act
and the rules and regulations thereunder. By their execution of this
Agreement, each Seller agrees, represents and warrants that (i) his
acquisition of the Base Stock, Options, Underlying Stock and Additional
Stock, is for investment only, for his own account and not with a view to
"distribution" as that term is used under the Securities Act, (ii) he is an
"accredited investor" as that term is used in Regulation D under the
Securities Act, and (iii) copies of Telenetics' Form 10-KSB for the nine
months ended December 31, 1998, and Forms 10-QSB for the quarters ended
March 31, June 30 and September 30, 1999 have been made available to him.
Each Seller agrees that he shall not at any time make any sale, pledge,
hypothecation, gift or other transfer of Base Stock, Options, Underlying
Stock or Additional Stock except pursuant to an effective registration
statement under the Securities Act or pursuant to the provisions of Rule
144 under the Securities Act or another exemption from the registration
requirements of the Securities Act, and in accordance with the provisions
of this Section 2.27 and any applicable state "blue sky" or other
------------
securities laws, and that prior to making any sale or other disposition of
Base Stock, Options, Underlying Stock or Additional Stock pursuant to any
such exemption, he shall, if requested by Telenetics, obtain an opinion of
counsel, satisfactory to Telenetics' counsel, that such sale complies with
applicable federal and state securities laws.
(b) Each Seller agrees that he has been informed that the Base Stock,
Options, Underlying Stock and Additional Stock must be held indefinitely
unless they are subsequently registered under the Securities Act or an
exemption from such registration is available, and he understands that any
sale of the Base Stock, Options, Underlying Stock or Additional Stock made
in reliance upon Rule 144, or any other like rule, can be made only in
limited amounts in accordance with the terms and conditions of those rules
and, if those rules are not applicable, any resale may require compliance
with another available exemption under the Securities Act or, in the
alternative, may require registration of the Base Stock, Options,
Underlying Stock or Additional Stock. Sellers acknowledge that Telenetics
makes no representation or covenant that it shall conduct its affairs so as
to permit sales under Rule 144, and except as set forth in the registration
rights agreements that are being entered into by and between Telenetics and
each Seller concurrently with the execution of this Agreement relating to
the Underlying Stock (the "Registration Rights Agreements"), Telenetics is
------------------------------
under no obligation to register or repurchase the Base Stock, the Options,
the Underlying Stock or the Additional Stock.
(c) In furtherance of the foregoing, Telenetics and its transfer agent
are hereby authorized to decline to make any transfer of securities if such
transfer would constitute a violation or breach of this Section 2.27.
------------
Sellers acknowledge that Telenetics shall cause appropriate legends to be
placed on the certificates representing the Base Stock, the Additional
Stock and the Underlying Stock to reflect the foregoing.
14
<PAGE>
3. Representations and Warranties of Telenetics.
--------------------------------------------
Telenetics hereby represents and warrants to Sellers that:
3.1 Organization; Good Standing; Qualification and Power. Telenetics is a
----------------------------------------------------
corporation duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has all requisite corporate power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted, and is duly qualified and in good standing to
do business in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes qualification necessary, other than
in jurisdictions where the failure to qualify would not have a Material Adverse
Effect. Telenetics has made available to the Company and the Sellers or their
respective counsel complete and correct copies of the articles of incorporation
and bylaws of Telenetics as amended to the date of this Agreement.
3.2 Capital Structure. The authorized capital stock of Telenetics
-----------------
consists of 25,000,000 shares of common stock, no par value per share
("Telenetics Common Stock"), 1,500,000 shares of Series A 7.0% Convertible
-----------------------
Redeemable Preferred Stock, no par value per share (the "Series A Preferred
------------------
Stock"), 128,571 shares of Series B Convertible Preferred Stock, no par value
- -----
per share (the "Series B Preferred Stock"), 400,000 shares of Series C 7.0%
------------------------
Convertible Preferred Stock, no par value per share (the "Series C Preferred
------------------
Stock"), and 2,971,429 shares of undesignated preferred stock, no par value per
- -----
share (the "Undesignated Preferred Stock"). As of the date hereof, 10,196,754
----------------------------
shares of Telenetics Common Stock are issued and outstanding (which amount does
not include the Base Stock issuable hereunder), 11,183,677 shares of Telenetics
Common Stock are reserved for issuance upon the exercise of outstanding options
and warrants to purchase Telenetics Common Stock (which amount includes the
shares underlying the Options and the Additional Stock) and upon conversion of
the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock, 756,884 shares of Series A Preferred Stock are issued and outstanding,
128,571 shares of Series B Preferred Stock are issued and outstanding, 400,000
shares of Series C Preferred Stock are issued and outstanding, and no shares of
Undesignated Preferred Stock are issued and outstanding. Except for the options,
warrants and convertible securities for which shares of Telenetics Common Stock
are reserved for issuance as described in this Section 3.2, and except as
-----------
provided in the Telenetics Transaction Agreements, there are no options,
warrants, calls, rights, commitments, conversion rights or agreements of any
character to which Telenetics is a party or by which Telenetics is bound
obligating Telenetics to issue, deliver or sell, or cause to be issued,
delivered or sold, any shares of capital stock of Telenetics or securities
convertible into or exchangeable for shares of capital stock of Telenetics, or
obligating Telenetics to grant, extend or enter into any option, warrant, call,
right, commitment, conversion right or other agreement. None of the outstanding
shares of Telenetics Common Stock, Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock are subject to preemptive rights.
3.3 Authority.
---------
3.3.1 Corporate Action. Telenetics has all requisite corporate power
----------------
and authority to enter into this Agreement and the other agreements
contemplated to be entered into by Telenetics as described in Section 6.3
-----------
(collectively, the "Telenetics
----------
15
<PAGE>
Transaction Agreements"), and to perform its obligations under and to
----------------------
consummate the transactions contemplated by the Telenetics Transaction
Agreements. The execution and delivery of the Telenetics Transaction
Agreements by Telenetics and the consummation by Telenetics of the
transactions contemplated thereby have been duly authorized by all
necessary corporate action on the part of Telenetics. The Telenetics
Transaction Agreements have been duly executed and delivered by Telenetics
and constitute the valid and binding obligation of Telenetics, enforceable
against Telenetics in accordance with their terms, except that
enforceability may be subject to (i) bankruptcy, insolvency,
reorganization, fraudulent conveyance, fraudulent transfer or other similar
laws affecting or relating to enforcement of creditors' rights generally
and (ii) general equitable principles.
3.3.2 No Conflict. Neither the execution, delivery and performance of
-----------
the Telenetics Transaction Agreements, nor the consummation of the
transactions contemplated thereby nor compliance with the provisions hereof
will conflict with, or result in any violations of, or cause a default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, amendment, cancellation or acceleration of any
obligation contained in, or the loss of any material benefit under, or
result in the creation of any lien, security interest, charge or
encumbrance upon any of the material properties or assets of Telenetics
under, any term, condition or provision of (x) the articles of
incorporation or bylaws of Telenetics or (y) any loan or credit agreement,
note, bond, mortgage, indenture, lease or other material agreement,
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Telenetics or its properties or assets, other than any such
conflicts, violations, defaults, losses, liens, security interests, charges
or encumbrances which, individually or in the aggregate, would not have a
Material Adverse Effect.
3.3.3 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, declaration or filing with, any
Governmental Entity is required to be obtained by Telenetics in connection
with the execution and delivery of the Telenetics Transaction Agreements or
the consummation of the transactions contemplated thereby, except for
securities law filings to be made in connection with the issuance of the
Base Stock, the Additional Stock, the Options and the Underlying Stock.
3.4 SEC Documents.
-------------
3.4.1 SEC Reports. Telenetics has made available to the Company or its
-----------
counsel correct and complete copies of each report, schedule, registration
statement and definitive proxy statement filed by Telenetics with the
Securities and Exchange Commission (the "SEC") on or after July 14, 1998
---
(the "Telenetics SEC Documents"), which are all the documents (other than
------------------------
preliminary material) that Telenetics was required to file with the SEC on
or after that date. As of their respective dates or, in the case of
registration statements, their effective dates (or if amended or superseded
by a filing prior to the date of this Agreement, then on the date of such
filing), none of the Telenetics SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading,
and
16
<PAGE>
the Telenetics SEC Documents complied when filed in all material respects
with the then applicable requirements of the Securities Act, or the
Securities Exchange Act of 1934, as amended, as the case may be, and the
rules and regulations promulgated by the SEC thereunder.
3.4.2 Financial Statements. The financial statements of Telenetics
--------------------
included in the Telenetics SEC Documents complied as to form in all
material respects with the then applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, were
prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except as may
have been indicated in the notes thereto or, in the case of the unaudited
statements, as permitted by Form 10-QSB promulgated by the SEC) and fairly
present the financial position of Telenetics as at the respective dates
thereof and the results of its operations and cash flows for the respective
periods then ended.
3.5 Litigation. There is no suit, action, arbitration, demand, claim or
----------
proceeding pending or, to the knowledge of Telenetics, threatened against
Telenetics in connection with or relating to the transactions contemplated by
this Agreement or of any action taken or to be taken in connection herewith or
the consummation of the transactions contemplated hereby.
3.6 Fees and Expenses. Telenetics has not paid or become obligated to pay
-----------------
any fee or commission to any broker, finder or intermediary in connection with
the transactions contemplated by this Agreement.
3.7 Disclosure. No representation or warranty made by Telenetics in this
----------
Agreement, nor any document, written information, written statement, financial
statement, certificate or exhibits prepared and furnished or to be prepared and
furnished by Telenetics or its representatives pursuant hereto or in connection
with the transactions contemplated hereby, when taken together, contains any
untrue statement of a material fact, or omits to state a material fact necessary
to make the statements or facts contained herein or therein not misleading in
light of the circumstances under which they were furnished.
3.8 Investment Representation. Telenetics agrees, represents and warrants
-------------------------
that its acquisition of the Shares is for investment only, for its own account
and not with a view to "distribution" as that term is used under the Securities
Act.
4. Additional Agreements.
---------------------
4.1 Employee Matters. Following the Closing, all employees of the Company
----------------
will either (i) continue to be employees of the Company or (ii) be offered
comparable employment by Telenetics. Notwithstanding the foregoing, Telenetics
makes no representation, warranty or promise as to the length of time that any
such employee will remain in the employ of the Company or Telenetics following
the Closing (except with respect to those employees who become parties to
Employment Agreements pursuant to Section 4.2).
-----------
4.2 Employment Agreements. Concurrently with the Closing, Telenetics and
---------------------
each of McLean and T. Keith Odom shall enter into employment agreements (the
"Employment
----------
17
<PAGE>
Agreements") upon such terms and conditions as are mutually acceptable to
- ----------
Telenetics and each of such persons, to the extent each is a party thereto.
4.3 Consulting Agreements. Concurrently with the Closing, Telenetics and
---------------------
each of Didion and Saunders & Parker, Inc., a Texas corporation ("S & P") shall
-----
enter into consulting agreements (the "Consulting Agreements") upon such terms
---------------------
and conditions as are mutually acceptable to Telenetics and each of Didion and
S & P, to the extent each is a party thereto.
4.4 Membership on the Telenetics Board of Directors. At the next annual
-----------------------------------------------
meeting of the shareholders of Telenetics, and at each annual meeting of the
shareholders of Telenetics occurring prior to the expiration of the Earn-Out
Period, Telenetics shall propose and recommend, at the request of S & P, either
Parker or Saunders on Telenetics' management slate of directors for election by
the shareholders of Telenetics. Whichever of Parker or Saunders is not requested
to be proposed and recommended for election pursuant to the preceding sentence
shall be appointed to serve as an advisor to the Telenetics Board of Directors,
shall be given all notices that are provided to directors of Telenetics, at the
same time and in the same manner that such notices are provided to such
directors, and shall be permitted to attend all meetings of the Board of
Directors of Telenetics. Saunders and Parker shall both serve as advisors to the
Board of Directors of Telenetics until either is appointed to the Board of
Directors of Telenetics pursuant to this Section 4.4.
-----------
4.5 Certain Tax Matters.
-------------------
4.5.1 Tax Returns. Sellers shall prepare or cause to be prepared and
-----------
file or cause to be filed all Returns (including any amended Return) for
the Company for all periods ending on or prior to the Closing Date that are
required to be filed after the Closing ("Pre-Closing Returns"). Telenetics
-------------------
shall cause an authorized officer of the Company to sign and file or cause
to be filed the Pre-Closing Returns.
4.5.2 Audits. Sellers shall have the right, at Sellers' own expense,
------
to control any audit and to contest, resolve and defend against any
assessment, notice of deficiency or other adjustment or proposed adjustment
of Taxes with respect to any taxable period ending on or before the Closing
Date; provided, however, that Sellers shall not have the right to agree to
any assessment, deficiency, settlement or other adjustment or proposed
adjustment of Taxes with respect to any taxable period ending after the
Closing Date without Telenetics' prior written consent.
4.5.3 Cooperation on Tax Matters. Telenetics and Sellers shall
--------------------------
cooperate fully, as and to the extent reasonably requested by the other
party, in connection with the filing of Returns and any audit, litigation
or other proceeding with respect to Taxes. Such cooperation shall include
the retention and, upon the other party's request, the provision of records
and information that are reasonably relevant to any such audit, litigation
or other proceeding and making employees available on a mutually convenient
basis to provide additional information and explanation of any material
provided hereunder.
4.6 Trade Payables. Following the Closing, Telenetics shall cause the
--------------
Company to pay the trade payables and attorneys' fees disclosed by the Company
to Telenetics prior to the
18
<PAGE>
Closing, plus reasonable attorneys' fees and costs of MHK&H (as hereinafter
defined) incurred by Saunders, Parker and/or the Company in connection with the
negotiation, preparation and execution of this Agreement and the other documents
executed in connection with this Agreement.
5. Indemnification of the Parties.
------------------------------
5.1 Indemnification by Sellers. Each Seller shall, severally and not
--------------------------
jointly (i.e., in proportion to each such Seller's ownership in the Shares),
indemnify, defend, protect and hold harmless Telenetics, each of its successors
and assigns and each of its directors, officers, employees, agents, subsidiaries
and affiliates (each an "Telenetics Indemnified Party"), at all times from and
----------------------------
after the date of this Agreement against all losses, claims, damages, actions,
suits, proceedings, demands, assessments, adjustments, costs and expenses
("Losses") (including specifically, but without limitation, reasonable
------
attorneys' fees and expenses of investigation ("Legal Expenses")) based upon,
--------------
resulting from or arising out of (i) any inaccuracy or breach of any
representation, or warranty of such Seller contained in or made in connection
with this Agreement, and (ii) the breach by such Seller of, or the failure by
such Seller to observe, any of his respective covenants or other agreements
contained in or made in connection with this Agreement.
5.2 Indemnification by Telenetics. Telenetics shall indemnify, defend,
-----------------------------
protect and hold harmless each Seller and such Seller's respective heirs,
successors and assigns (each a "Seller Indemnified Party"), at all times from
------------------------
and after the date of this Agreement against all Losses based upon, resulting
from or arising out of (i) any inaccuracy or breach of any representation, or
warranty of Telenetics contained in or made in connection with this Agreement,
and (ii) the breach by Telenetics of, or the failure by Telenetics to observe,
any of its covenants or other agreements contained in or made in connection with
this Agreement.
5.3 Adjustments to Indemnification Payments. Any payment made to any
---------------------------------------
Telenetics Indemnified Party or any Seller Indemnified Party (each, an
"indemnified party") pursuant to this Section 5 in respect of any claim will be
----------------- ---------
net of any insurance proceeds realized by and paid to the indemnified party in
respect of any such claim. The indemnified party will use its reasonable efforts
to make insurance claims relating to any claim for which it is seeking
indemnification pursuant to this Section 5; provided, however, that the
---------
indemnified party will not be obligated to make such an insurance claim if the
indemnified party in its reasonable judgment believes the cost of pursuing such
an insurance claim, together with any corresponding increase in insurance
premiums or other chargebacks to the indemnified party, would exceed the value
of the claim for which the indemnified party is seeking indemnification.
5.4 Indemnification Procedures.
--------------------------
(a) Promptly after receipt by an indemnified party of notice of the
commencement of any action, suit or proceeding by a person not a party to
this Agreement in respect of which the indemnified party will seek
indemnification hereunder (a "Third Party Action"), the indemnified party
------------------
shall notify the party required to provide indemnification (the
"indemnifying party") in writing, but any failure to so notify the
-------------------
indemnifying party shall not relieve it from any liability that it may have
to the
19
<PAGE>
indemnified party under Section 5.1 or 5.2, except to the extent that the
------------------
indemnifying party is prejudiced by the failure to give such notice. The
indemnifying party shall be entitled to participate in the defense of such
Third Party Action and to assume control of such defense (including
settlement of such Third Party Action) with counsel reasonably satisfactory
to such indemnified party; provided, however, that:
(i) the indemnified party shall be entitled to participate in
the defense of such Third Party Action and to employ counsel at its
own expense (which shall not constitute Legal Expenses for purposes of
this Agreement) to assist in the handling of such Third Party Action;
(ii) the indemnifying party shall obtain the prior written
approval of the indemnified party before entering into any settlement
of such Third Party Action or ceasing to defend against such Third
Party Action, if pursuant to or as a result of such settlement or
cessation, injunctive or other equitable relief would be imposed
against the indemnified party or the indemnified party would be
adversely affected thereby (it being understood and agreed that
monetary payments agreed to and paid by the indemnifying party shall
not be deemed to adversely affect the indemnified party);
(iii) no indemnifying party shall consent to the entry of any
judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by each claimant or plaintiff to
each indemnified party of a release from all liability in respect of
such Third Party Action; and
(iv) the indemnifying party shall not be entitled to control
the defense of any Third Party Action unless the indemnifying party
confirms in writing its assumption of such defense and continues to
pursue the defense reasonably and in good faith. After written notice
by the indemnifying party to the indemnified party of its election to
assume control of the defense of any such Third Party Action in
accordance with the foregoing, (i) the indemnifying party shall not be
liable to such indemnified party hereunder for any Legal Expenses
subsequently incurred by such indemnified party attributable to
defending against such Third Party Action, and (ii) as long as the
indemnifying party is reasonably contesting such Third Party Action in
good faith, the indemnified party shall not admit any liability with
respect to, or settle, compromise or discharge the claim underlying,
such Third Party Action without the indemnifying party's prior written
consent. If the indemnifying party does not assume control of the
defense of such Third Party Action in accordance with this Section
-------
5.4, the indemnified party shall have the right to defend and/or
---
settle such Third Party Action in such manner as it may deem
appropriate at the cost and expense of the indemnifying party, and the
indemnifying party will promptly reimburse the indemnified party
therefor in accordance with this Section 5.4. The reimbursement of
-----------
fees, costs and expenses required by this Section 5.4 shall be made by
-----------
periodic payments during the course of the investigation or defense,
as and when bills are received or expenses incurred.
20
<PAGE>
(b) If an indemnified party has actual knowledge of any facts or
circumstances other than the commencement of a Third Party Action which
cause in good faith it to believe that it is entitled to indemnification
under this Section 5, then such indemnified party shall promptly give the
---------
indemnifying party notice thereof in writing, but any failure to so notify
the indemnifying party shall not relieve it from any liability that it may
have to the indemnified party under Section 5.1 or 5.2, except to the
------------------
extent that the indemnifying party is prejudiced by the failure to give
such notice.
5.5 Manner of Indemnification. All indemnification by a Seller under this
-------------------------
Section 5 shall be effected by the payment of cash, the delivery of a bank
- ----------
cashier's check, the delivery of shares of Base Stock or Additional Stock free
and clear of any liens, security interests, pledges, agreements, claims, charges
or other encumbrances (other than those arising under securities laws and those
created by or at the request of Telenetics), or in Telenetics' sole discretion,
may be accomplished by the set off of any amounts otherwise payable by
Telenetics to Sellers pursuant to the Telenetics Transaction Agreements or by a
combination of the foregoing. For purposes of this Section 5.5, the value of a
-----------
share of Base Stock or Additional Stock shall be equal to the closing sale price
of a share of Telenetics Common Stock on the date immediately preceding the
delivery of such shares pursuant to this Section 5.5. Indemnification by
-----------
Telenetics under this Section 5 may be effected by the payment of cash or
---------
delivery of a check, or by a combination of the foregoing, and neither the
exercise of nor the failure to exercise such right of set off will constitute an
election of remedies or limit Telenetics in any manner in the enforcement of any
other remedies that may be available to it. The exercise of such right of set
off by Telenetics in good faith, whether or not ultimately determined to be
justified, will not constitute an event of default under any of the Telenetics
Transaction Agreements.
5.6 Survival. The representations, warranties, covenants and agreements
--------
of the parties made in this Agreement shall survive (and not be affected in any
respect by) the Closing and any examination or investigation conducted by or on
behalf of the parties hereto and any information that any party may receive
pursuant to the Disclosure Schedule or otherwise. Notwithstanding the foregoing,
the rights to indemnification provided for in this Section 5 with respect to
---------
each representation and warranty contained in this Agreement shall terminate on
the date (the "Survival Date") occurring on the third anniversary of the Closing
-------------
Date; provided, however, that (i) the right to indemnification concerning the
matters set forth in Sections 2.8, 2.13 and 2.16 shall survive until their
---------------------------
applicable statutes of limitation, (ii) the right to indemnification concerning
the matters set forth in Section 2.2 shall continue forever and (ii) the right
-----------
to indemnification with respect to such representations and warranties, and the
liability of any party with respect thereto, shall not terminate with respect to
any claim, whether or not fixed as to liability or liquidated as to amount, with
respect to which such indemnifying party has been given written notice prior to
the Survival Date.
5.7 Limitation on Amount. Notwithstanding anything to the contrary
--------------------
contained in this Agreement, the aggregate amount to be paid by any Seller to
Telenetics with respect to any Loss based upon, resulting from or arising out of
any inaccuracy or breach of any representation or warranty of such Seller
contained in this Agreement, and the aggregate amount to be paid by Telenetics
to any Seller with respect to any Loss based upon, resulting from or arising out
of any inaccuracy or breach of any representation or warranty of Telenetics
contained in this Agreement, shall not exceed the value of the Base Purchase
Price paid to such Seller, as
21
<PAGE>
calculated based upon the closing sale price of a share of Telenetics Common
Stock on the Closing Date (which is $4.062), plus in the case of Saunders, one-
half of the aggregate amount paid by Telenetics to S & P at the Closing and
pursuant to the Telenetics Note (as defined below), plus in the case of Parker,
one-half of the aggregate amount paid by Telenetics to S & P at the Closing
pursuant to the Telenetics Note.
5.8 Basket. Notwithstanding anything to the contrary contained in this
------
Agreement, Sellers shall not be liable to Telenetics with respect to any single
Loss based upon, resulting from or arising out of any inaccuracy or breach of
any representation or warranty of Sellers contained in this Agreement that does
not exceed $50,000; provided, however, that when the aggregate amount of all
such Losses reaches $50,000, Sellers shall, subject to the above limitation of
their maximum aggregate liability, thereafter be liable to Telenetics in full
for all such Losses.
6. Closing.
-------
6.1 Closing Date. The closing of the transactions contemplated by this
------------
Agreement ("Closing") will take place at a location mutually agreed upon by the
-------
parties on the date hereof ("Closing Date").
------------
6.2 Deliveries by Sellers at the Closing. At the Closing, Sellers shall
------------------------------------
deliver to Telenetics:
(a) Certificates representing all of the Shares, free of liens or
encumbrances (other than encumbrances imposed by applicable securities
laws), accompanied by duly executed stock powers by each Seller in favor of
Telenetics with all necessary transfer stamps affixed thereto or other
evidence of payment of applicable stock transfer taxes, if any;
(b) The resignations of each of the officers and directors of the
Company;
(c) This Agreement duly executed by each of the Sellers, accompanied
by the consent of each Seller's spouse, as set forth on the signature pages
hereof;
(d) The Employment Agreements duly executed by each of the individuals
who are parties thereto, together with evidence of the termination of the
existing employment relationships between the Company and each of the
individuals who are parties to the Employment Agreements;
(e) The Consulting Agreements duly executed by each of the individuals
or entities who are parties thereto, together with evidence of the
termination of any existing consulting or employment relationships between
the Company and S & P and/or Didion;
(f) The Registration Rights Agreements, duly executed by each of the
individuals or entities that are parties thereto;
(g) Certificates dated as of a date no longer than ten days prior to
the Closing Date, duly issued by the secretaries of state and/or other
appropriate officials in the
22
<PAGE>
Company's state of incorporation and in each jurisdiction where the Company
is qualified to do business as a foreign corporation, showing that the
Company is in good standing and authorized to do business in each such
state and, where such information is generally made available by the
appropriate authorities, that all state franchise and/or income tax returns
have been filed and taxes paid for the Company for all periods prior to the
Closing;
(h) Required consents of third parties, if any;
(i) The opinion of Munsch Hardt Kopf & Harr, P.C., counsel to the
Company, Saunders, Parker and S & P ("MHK&H"); and
-----
(j) Evidence satisfactory to Telenetics and its counsel that the
contracts or agreements listed on the Disclosure Schedule to be terminated
concurrently with the Closing have been terminated.
6.3 Deliveries by Telenetics at the Closing. At the Closing, Telenetics
---------------------------------------
shall deliver to Sellers:
(a) Certificates representing the Base Stock, with facsimile
signatures of appropriate Telenetics officers and endorsement by
Telenetics' transfer agent;
(b) Option agreements representing the Options;
(c) The Employment Agreements;
(d) The Consulting Agreements;
(e) The Registration Rights Agreements;
(f) Check made payable to S & P in the amount of one-half of the
principal and interest due as of the Closing from the Company to S & P
pursuant to the Promissory Note dated August 27, 1999 made by the Company
in favor of S & P (the "S & P Note");
----------
(g) Promissory note made by Telenetics in favor of S & P in the
principal amount of one-half of the principal and interest due as of the
Closing from the Company to S & P pursuant to the S & P Note (the
"Telenetics Note");
---------------
(h) Promissory note made by Telenetics in favor of McLean in the
principal amount of $107,500, as referenced in the Disclosure Schedule;
(i) Evidence of the appointment of Saunders and Parker as advisors to
the Telenetics Board of Directors;
(j) Required consents of third parties, if any; and
(k) The opinion of Rutan & Tucker, LLP, counsel to Telenetics.
23
<PAGE>
6.4 Deliveries by Third Parties at the Closing. At the Closing, the
------------------------------------------
following additional deliveries shall be made:
(a) Sellers shall cause S & P to deliver to Telenetics for
cancellation that certain Promissory Note dated May 10, 1999 in the
principal amount of $30,000 made by the Company in favor of S & P and the S
S & P Note.
(b) Sellers shall cause S & P and the Company to provide to Telenetics
evidence satisfactory to Telenetics and its counsel that the contracts or
agreements listed on the Disclosure Schedule to be terminated concurrently
with the Closing have been terminated.
(c) Sellers shall cause S & P to deliver duly executed UCC termination
statements terminating S & P's security interest in the assets of the
Company;
(d) Armani shall execute and deliver to S & P a guaranty and a stock
pledge agreement pledging as security for Telenetics' repayment of the
Telenetics Note 500,000 of the shares of Telenetics Common Stock owned by
Armani immediately prior to the Closing.
7. Non-Competition.
---------------
7.1 Definitions. For purposes of this Section 7, the following terms
----------- ---------
shall have the following meanings:
(a) "Business" shall mean the development, production, manufacture,
--------
sale, lease or distribution of the Technology and/or products and services
relating to the Technology, as developed, in development or conducted by
the Company as of, or immediately preceding the date of this Agreement, or
conducted, developed or in development by the Company or by Telenetics or
their respective affiliates, successors or assigns during the Non-
Competition Period, the Employee Non-Solicitation Period or the Customer
Non-Solicitation Period;
(b) "Business Territory" shall mean the world, including all countries
------------------
and political subdivisions thereof.
(c) "Compete" shall mean, with respect to the Business: (i) managing,
-------
supervising or otherwise participating in a management or sales capacity;
or (ii) otherwise managing, operating, controlling, participating in the
ownership, management or control of, or being connected with or having any
interest in, as a stockholder, agent, partner, lender, consultant, advisor
or otherwise, any business or person that provides goods, products or
services competitive with those provided by the Business; provided,
however, that nothing contained herein will prohibit a Seller from owning
less than one percent of any class of securities listed on a national
securities exchange or traded publicly in the over-the-counter market or
from performing his duties in accordance with the terms of the Employment
Agreement or Consulting Agreement to which he or an entity by which he is
employed is a party;
24
<PAGE>
(d) "Customer Non-Solicitation Period" shall mean, with respect to
--------------------------------
each Seller, the later of: (i) the period commencing on the Closing Date
and continuing for a period of two years after the expiration of the Earn-
Out Period; and (ii) two years after the termination of such Seller's
employment or consulting relationship with the Company, Telenetics or any
of their respective successors, assigns, subsidiaries or affiliates;
provided, however, that the Customer Non-Solicitation Period with respect
to each Seller shall be extended by the number of days in which such Seller
is or was engaged in activities constituting a breach of Section 7.4.
-----------
(e) The term "Customers" shall mean, with respect to each Seller, any
---------
person that, as of or immediately preceding the date of this Agreement, or
during the Non-Competition Period, the Employee Non-Solicitation Period or
the Customer Non-Solicitation Period is or was a client or customer of the
Company, Telenetics or any of their respective subsidiaries or affiliates.
(f) The words "directly or indirectly," as they modify the word
----------------------
"Compete" or "Competing," shall mean: (i) acting as an agent,
representative, consultant, officer, director, member, independent
contractor or employee of any person that is Competing with the Business;
(ii) participating in any such Competing person or enterprise as an owner,
partner, limited partner, joint venturer, member, creditor or shareholder
(except as expressly permitted herein); or (iii) communicating to any such
Competing person or enterprise the names or addresses or any other
information concerning any Customer or any other confidential information
of the Business.
(g) "Employees" shall mean: (i) any employee of the Company,
---------
Telenetics or any of their respective subsidiaries or affiliates as of, or
immediately prior to the date of this Agreement or during the Non-
Competition Period, the Employee Non-Solicitation Period or the Customer
Non-Solicitation Period; or (ii) any former employee of the Company,
Telenetics or any of their respective subsidiaries or affiliates whose
employment with the Company, Telenetics, or any of their respective
successors, assigns, subsidiaries or affiliates ceased less than one year
before the date of co-venturing, solicitation, inducement or recruitment.
(h) "Employee Non-Solicitation Period" shall mean, with respect to
--------------------------------
each Seller, the later of: (i) the period commencing on the Closing Date
and continuing for a period of two years after the expiration of the Earn-
Out Period; and (ii) two years after the termination of such Seller's
employment or consulting relationship with the Company, Telenetics or any
of their respective successors, assigns, subsidiaries or affiliates;
provided, however, that the Employee Non-Solicitation Period with respect
to each Seller shall be extended by the number of days in which such Seller
is or was engaged in activities constituting a breach of Section 7.3.
-----------
(i) "Non-Competition Period" shall mean, with respect to each Seller,
----------------------
the later of: (i) the period commencing on the Closing Date and continuing
for a period of two years after the expiration of the Earn-Out Period; and
(ii) two years after the termination of such Seller's employment or
consulting relationship with the Company, Telenetics or any of their
respective successors, assigns, subsidiaries or affiliates;
25
<PAGE>
provided, however, that the Non-Competition Period with respect to each
Seller shall be extended by the number of days in which such Seller is or
was engaged in activities constituting a breach of Section 7.2.
-----------
(j) The term "person" shall mean any natural person, firm,
------
partnership, association, corporation, company, limited liability company,
limited partnership, trust, business trust, Governmental Entity or other
entity.
(k) The term "Prospective Customer" shall mean any person that
--------------------
Telenetics, the Company, or any of their respective subsidiaries or
affiliates has contacted, or has developed a strategy or plan to contact,
for the purpose of acquiring such person as a customer or client during the
period from January 1, 1999 through the expiration of the Customer Non-
Solicitation Period.
7.2 Non-Competition. During the Non-Competition Period, no Seller shall,
---------------
and no Seller shall permit any of such Seller's affiliates to, directly or
indirectly Compete with the Business in the Business Territory. Set forth in the
Company Disclosure Schedule is a complete and accurate listing of all states
within the United States and all foreign countries and territories in which the
Company or its predecessor has sold or marketed its products or services or
conducted its business prior to the date of this Agreement.
7.3 Non-Solicitation of Employees. Sellers recognize that the Employees
-----------------------------
are a valuable resource of Telenetics and the Company. Accordingly, during the
Employee Non-Solicitation Period, no Seller shall, either alone or in
conjunction with any other person or entity, directly or indirectly go into
business with any Employee or solicit, induce or recruit any Employee to leave
the employ of Telenetics, the Company, or any of their respective successors,
assigns, subsidiaries or affiliates.
7.4 Non-Solicitation of Customers. Sellers recognize that the Customers
-----------------------------
and Prospective Customers are a valuable resource of Telenetics and the Company.
Accordingly, during the Customer Non-Solicitation Period, no Seller shall,
either alone or in conjunction with any other person or entity, directly or
indirectly call on, solicit, take away, accept as a client, customer or
prospective client or customer, or attempt to call on, solicit, take away,
accept as a client, customer or prospective client or customer a Customer or
Prospective Customer for the purpose of Competing with the Business.
7.5 Additional Agreements. Each Seller hereby expressly agrees and
---------------------
acknowledges that:
(a) Telenetics and the Company have protectable business interests
throughout the Business Territory, and that competition with and against
such business interests would be harmful to Telenetics or the Company, as
the case may be;
(b) the covenants contained in this Section 7 are reasonable as to
---------
time and geographical area and do not place any unreasonable burden upon
each Seller's ability to earn a livelihood;
26
<PAGE>
(c) the public will not be harmed as a result of enforcement of the
covenants contained in this Section 7;
---------
(d) the personal legal counsel for each of Saunders and Parker has
reviewed the covenants contained in this Section 7;
---------
(e) the personal legal counsel for each of McLean and Didion has
reviewed the covenants contained in this Section 7, and/or each of McLean
---------
and Didion has had ample opportunity but has knowingly and willingly
declined to take advantage of such opportunity for his personal legal
counsel to review the covenants contained in this Section 7;
---------
(f) the parties have entered into the covenants contained herein in
connection with and as a condition precedent to the consummation of the
Agreement, pursuant to which Telenetics shall acquire the Company; the
agreements, actions, covenants, and promises contained herein are intended
to protect and ensure the value of Business, including its goodwill, which
actions, covenants, and promises are a material consideration to Telenetics
in connection with the Agreement; and, to the extent that the laws of any
jurisdiction in which this Agreement shall be interpreted, construed,
and/or enforced distinguish between covenants given in connection with the
sale of a business and its goodwill and covenants given in connection with
employment, this covenant will be given the broader interpretation
customarily given to covenants in connection with the sale of a business
and the transfer of goodwill to Telenetics, notwithstanding any employment
or engagement as a consultant of each Seller by Telenetics or the Company
following the Closing;
(g) Telenetics and each Seller agree that the provisions of this
Section 7 shall survive the Closing; and
---------
(h) each Seller understands and agrees to each and every term and
condition contained in this Section 7.
---------
7.6 Remedies; Enforceability. Each Seller recognizes and acknowledges that
------------------------
irreparable damage will result to Telenetics in the event of a breach by that
Seller or any of that Seller's affiliates of the provisions of this Section 7,
---------
and, accordingly, in the event of such a breach, Telenetics will be entitled, in
addition to any other legal or equitable damages and remedies to which it may be
entitled or which may be available, to an injunction to restrain the violation
thereof. If any provision of this Section 7 shall be adjudicated by a court of
----------
competent jurisdiction to be invalid or unenforceable because of the scope,
duration, area of its applicability, or any other reason, the court making such
determination will have the power to modify such scope, duration, or area, or
all of them, or to strike an invalid or unenforceable provision, in whole or in
part, to the extent necessary to make such scope, duration, area, or provision
valid and enforceable.
8. Miscellaneous.
- -- -------------
27
<PAGE>
8.1 Governing Law. The internal laws of the State of California
-------------
(irrespective of its choice of law principles) will govern the validity of this
Agreement, the construction of its terms and the interpretation and enforcement
of the rights and duties of the parties hereto.
8.2 Assignment; Binding Upon Successors and Assigns. No party hereto may
-----------------------------------------------
assign any of its rights or obligations hereunder without the prior written
consent of the other parties hereto. Subject to the preceding sentence, this
Agreement will be binding upon and inure to the benefit of the parties hereto
and their respective heirs, successors and permitted assigns. Nothing expressed
or referred to in this Agreement will be construed to give any person or entity
other than the parties to this Agreement any legal or equitable right, remedy or
claim with respect to this Agreement or any provision of this Agreement. This
Agreement and all of its provisions and conditions are for the sole and
exclusive benefit of the parties to this Agreement and their respective heirs,
successors and permitted assigns.
8.3 Severability. If any provision of this Agreement, or the application
--- ------------
thereof, will for any reason and to any extent be invalid or unenforceable, the
remainder of this Agreement and application of such provision to other persons
or circumstances will be interpreted so as reasonably to effect the interest of
the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the greatest extent possible, the economic, business and
other purpose of the void unenforceable provision.
8.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be deemed an original as regards any party
whose signature appears thereon and all of which together will constitute one
and the same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures of
all the parties reflected hereon as signatories.
8.5 Other Remedies. Except as otherwise provided herein, any and all
--------------
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby or by law on such party,
and the exercise of any one remedy will not preclude the exercise of any other.
8.6 Amendment and Waivers. Any term or provision of this Agreement may be
---------------------
amended, and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only by a writing signed by the party to be bound thereby. The waiver by a party
of any breach hereof or default in the performance hereof will not be deemed to
constitute a waiver of any other default or any succeeding breach or default.
8.7 Expenses. Except as set forth in Section 4.6, Telenetics, on the one
-------- -----------
hand, and Sellers, on the other, will each bear their own expenses and legal
fees incurred with respect to this Agreement and the transactions contemplated
hereby.
8.8 Attorneys' Fees. Should suit be brought to enforce or interpret any
---------------
part of this Agreement, the prevailing party will be entitled to recover, as an
element of the costs of suit and
28
<PAGE>
not as damages, reasonable attorneys' fees to be fixed by the court (including,
without limitation, costs, expenses and fees on any appeal).
8.9 Notices. All notices and other communications pursuant to this
-------
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following address (at such other address for a party as shall be
specified by like notice):
If to the Company to: eflex Wireless, Inc.
138 North Moon Avenue
Brandon, Florida 33510-4400
Attention: President
Telecopier: (813) 681-2119
With a copy to: Munsch Hardt Kopf & Harr, P.C.
4000 Fountain Place
1445 Ross Avenue
Dallas, Texas 75202
Attention: Sally A. Schreiber, Esq.
Telecopier: (214) 978-4323
If to Telenetics to: Telenetics Corporation
25111 Arctic Ocean
Lake Forest, California 92630
Attention: Chief Executive Officer
Telecopier: (949) 455-9324
With a copy to: Rutan & Tucker, LLP
611 Anton Boulevard, Suite 1400
Costa Mesa, California 92626
Attention: Larry A. Cerutti, Esq.
Telecopier: (714) 546-9035
If to Saunders: William C. Saunders
5735 Prestwick Lane
Dallas, Texas 75252
If to Parker: Terry S. Parker
8463 North 1175 West
Monticello, Indiana 47960
If to Saunders or Parker,
29
<PAGE>
then with a copy to: Munsch Hardt Kopf & Harr, P.C.
4000 Fountain Place
1445 Ross Avenue
Dallas, Texas 75202
Attention: Sally A. Schreiber, Esq.
Telecopier: (214) 978-4323
If to Didion: Edward L. Didion
9828 Gallagher Road
Dover, Florida 33527
If to McLean: John D. McLean
400 Thornwyck Trail
Roswell, Georgia 30076
Telecopier: (770) 643-7816
All notices and other communications shall be deemed to have been received
(a) in the case of personal delivery, on the date of delivery, (b) in the case
of a telecopy, when the party receiving the copy shall have confirmed receipt of
the communication (including by means of a machine-generated confirmation), (c)
in the case of delivery by nationally-recognized overnight courier, on the
business day following dispatch, and (d) in the case of mailing, on the third
business day following such mailing.
8.10 Construction of Agreement. This Agreement has been negotiated by the
-------------------------
respective parties hereto and their attorneys and the language hereof will not
be construed for or against either party. A reference to a Section or an Exhibit
will mean a Section in, or Exhibit to, this Agreement unless otherwise
explicitly set forth. The titles and headings herein are for reference purposes
only and will not in any manner limit the construction of this Agreement which
will be considered as a whole. This Agreement has been negotiated between
unrelated parties who are sophisticated and knowledgeable in the matters
contained in this Agreement and who have acted in their own self interest. In
addition, each party affirms that it has been afforded the opportunity to
receive independent advice from its respective legal counsel as to the
advisability of entering into this Agreement and to consult and discuss the
provisions of this Agreement with its respective legal counsel and fully
understands the legal effect of each provision. Accordingly, any rule of law,
including Section 1654 of the California Civil Code, as well as any other
statute, law, ordinance or common law principles or other authority of any
jurisdiction of similar effect, or legal decision that would require
interpretation of any ambiguities in this Agreement against the party who has
drafted it is not applicable and is hereby waived. The provisions of this
Agreement shall be interpreted in a reasonable manner to effect the purpose of
the parties, and this Agreement shall not be interpreted or construed against
any party to this Agreement because that party or any attorney or representative
for that party drafted this Agreement or participated in the drafting of this
Agreement. FURTHER, THE LIMITATION OF LIABILITIES AND REMEDIES AND THE EXCLUSION
OF DAMAGES AND WARRANTIES CONTAINED HEREIN REFLECT A BARGAINED FOR ALLOCATION OF
RISKS BASED ON NEGOTIATIONS AND CONSIDERATION EXCHANGED BETWEEN THE PARTIES.
30
<PAGE>
8.11 No Joint Venture. Nothing contained in this Agreement will be deemed
----------------
or construed as creating a joint venture or partnership between any of the
parties hereto. No party is by virtue of this Agreement authorized as an agent,
employee or legal representative of any other party. No party will have the
power to control the activities and operations of any other. The status of the
parties hereto is, and at all times will continue to be, that of independent
contractors with respect to each other. No party will have any power or
authority to bind or commit any other. No party will hold itself out as having
any authority or relationship in contravention of this Section.
8.12 Further Assurances. Each party agrees to cooperate fully with the
------------------
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
any other party to evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Agreement.
8.13 Absence of Third Party Rights. No provisions of this Agreement are
-----------------------------
intended, nor will be interpreted, to provide or create any third party
beneficiary rights or any other rights of any kind in any client, customer,
affiliate, shareholder or partner of any party hereto or any other person or
entity unless specifically provided otherwise herein, and, except as so
provided, all provisions hereof will be personal solely between the parties to
this Agreement.
8.14 Entire Agreement. This Agreement and the schedules and exhibits hereto
----------------
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied,
written or oral, between the parties with respect hereto. The express terms
hereof control and supersede any course of performance or usage of trade
inconsistent with any of the terms hereof.
8.15 Change in Telenetics Common Stock. If the outstanding shares of
---------------------------------
Telenetics Common Stock are changed, reclassified, split, combined, or converted
into or exchanged for another class of securities or securities of another
issuer, whether by amendment to the articles of incorporation of Telenetics or
by consolidation, merger or otherwise, appropriate adjustment shall be made to
the terms of this Agreement to give effect to such change, reclassification,
split, combination, conversion or exchange.
[remainder of page intentionally left blank]
31
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed by their duly authorized respective officers as of the
date first above written.
TELENETICS CORPORATION,
a California corporation
By:
-----------------------------------------------
Michael A. Armani, President
SELLERS:
,
-------------------------------------------------
Edward L. Didion, an individual
,
-------------------------------------------------
John D. McLean, an individual
,
-------------------------------------------------
William C. Saunders, an individual
,
-------------------------------------------------
Terry S. Parker, an unmarried man
32
<PAGE>
Each of the undersigned spouses has executed this Agreement for purposes of
confirming and acknowledging that they (i) are familiar with this Agreement and
its contents, (ii) consent to the conveyance to Telenetics of their community
property or other interest, if any, in shares of capital stock of the Company
pursuant to this Agreement, (iii) acknowledge that the shares of Telenetics
Common Stock and Options to be delivered to their spouse pursuant to this
Agreement will be issued in the name of their spouse only, and that such
issuance and their spouse's ownership and transfer of such securities is subject
to the terms and conditions of this Agreement.
-------------------------------------------------
Teralyn Didion, spouse of Edward L. Didion
-------------------------------------------------
Kathleen M. McLean, spouse of John D. McLean
-------------------------------------------------
Paula Saunders, spouse of William C. Saunders
33
<PAGE>
EXHIBIT A TO EFLEX STOCK PURCHASE AGREEMENT
Description of the Technology
-----------------------------
1. See attached Power Point Presentation, which is incorporated herein by
reference.
2. See attached copy of the Company's website, which is incorporated herein by
reference.
3. See attached Description of Methods/Devices for Registering and Controlling
Remote Cellular Modules, which is incorporated herein by reference.
<PAGE>
FINAL
Disclosure Schedule for Stock Purchase Agreement dated January 7, 2000
by and among Telenetics Corporation ("Telenetics") and
Edward L. Didion, John D. McLean, William C. Saunders and
Terry S. Parker ("Sellers")
relating to the purchase and sale of the outstanding
shares of capital stock
of eflex Wireless, Inc. (the "Company")
The following section numbers refer to the appropriate sections of the
above-referenced Stock Purchase Agreement and are followed by descriptions of
disclosures being made by Sellers.
2.4 Financial Statements
--------------------
The only items that may be of significance and are not reflected, accrued
for or shown in footnotes to the Financial Statements are as follows:
a) John McLean's deferred Base Salary of $87,500 as described in
Section 3 of his Employment and Noncompetition Agreement dated as
of June 1, 1999 between Mr. McLean and the Company, as successor to
Residential Utility Meter Service's, Inc. ("RUMS") and his $20,000
"Completion of Funding" bonus as described in Section 4 of such
agreement. These amounts are being paid by Telenetics through a
note being issued in connection with the closing.
b) T. Keith Odom's annual $10,000 bonus, which was due after December
31, 1999 and is being paid by Telenetics as a signing bonus
provided for in the employment agreement being entered into at the
closing between Telenetics and Mr. Odom.
2.9 Absence of Undisclosed Liabilities
----------------------------------
The November 30, 1999 Financial Statements show an outstanding Accounts
Payable of $40,797.22. As of that time, $18,573.80 was due to GTE
Telecommunications Services Incorporated ("GTE TSI") and $23,195 was due to
Munsch, Hardt, Kopf and Harr, P.C. If a contract amendment is completed
with GTE TSI, GTE TSI has agreed to reduce the past due amounts to $5,537.
If no such contract amendment is reached with GTE TSI, the Company would be
liable to reimburse GTE TSI for the above payable plus any development or
testing costs that GTE TSI has incurred on behalf of the Company pursuant
to the Information and Network Products and Services Agreement dated
January 16, 1999 between the Company and GTE TSI (the "Existing GTE
Contract"). GTE TSI has provided significant testing and development
support over the last several months, but they have not provided the
Company with any estimated costs, because they believe the contract will be
completed soon and their support to the Company is not billable to the
Company if the contract is signed. Sellers believe that if billable, the
costs will be less than $100,000.
Page 1 of 6 1/7/2000
<PAGE>
Sections 2.4, 2.21 and 2.22 of this disclosure schedule are incorporated
herein by reference.
The Company has received an invoice from Saunders & Parker, Inc. in the
amount of $2,051 for legal fees incurred in connection with the formation
of the Company.
Also, the Company has paid a $10,000 retainer to Wayne Porter at Trenam,
Kemper for patent work that is projected to total about $45,000.
Finally, the Company has been making monthly payments under a lease/service
agreement on a copy machine that is leased by PCS under an agreement that
expires in April 2000; the Company has been paying GMAC Financial Services
approximately $260 for vehicle leased by PCS for Ed Didion; and the Company
has been reimbursing John McLean for an apartment leased by Mr. McLean in
Brandon, Florida. In connection with the Stock Purchase Agreement, the
Company has agreed to continue to make payments due on the copy machine
through April 2000. In addition, the Company and Sellers have agreed that
following the closing of the Stock Purchase Agreement, the Company will no
longer be responsible for payments on the leased vehicle and the apartment.
2.10 Absence of Certain Changes or Events
------------------------------------
2.10 (a) - Since the November 30, 1999 Financial Statements, the Company
borrowed another $40,000 from Saunders & Parker, Inc. Thus, the 'Note
Payable to S&P' in the Financial Statements has increased from $227,000 to
$267,000.
2.12 Certain Agreements
------------------
Section 2.4 above is incorporated herein by reference. Also, repayment of
the note from the Company to Saunders & Parker, Inc. is triggered by this
transaction.
2.14 Intellectual Property
---------------------
2.14 (a) - The Company owns key intellectual property needed to provide its
goods and services, but does not own all intellectual property rights it
---
requires to conduct its business. To access remote devices using the
'Static TLDN' technology which the Company is in the process of patenting,
the service requires the licensing of a couple of patents of GTE TSI. In
the contract amendment that is under negotiation, GTE TSI will be granting
the Company the right to operate under its patents.
To access remote devices, the device may be 'paged' with one or more
numbers. If more than one number is used (as the service currently is
configured), this 'practices' a "Multi-NAM" patent held by another
telecommunications company (possibly Nokia). If the Company continues to
purchase its cellular transceivers from companies licensed to sell products
incorporating the "Multi-NAM" patent (such as Ericcson and Standard), then
the
Page 2 of 6 1/7/2000
<PAGE>
Company is effectively paying a royalty to use the "Multi-NAM" patent
through the price it pays for the transceivers. There may be many other
patents required to conduct the Company's business (e.g. cellular
technologies, etc.), but the company intends to buy products from licensees
so the Company does not need to know about these patents. If the Company
chooses to not buy products from existing licensees (e.g. in order to
further cost reduce the product), then the Company would be required to
obtain licenses from and pay royalties to the companies holding the
patents.
There is a HighwayMaster patent on "data messaging using a feature request"
(Patent #5,771,455), for which Sellers believe GTE TSI shares licensing
rights. This patent appears to cover use of "feature requests" to send
data to a host, which is what the Company uses and thus may become an
issue. The Company asked GTE TSI why they had not included it in their list
of patents in the contract amendment that is under negotiation, and their
intellectual property attorney indicated that he did not think it applied
to our service (only an opinion, not a full analysis of the issue). The
Company's Chief Technical Officer feels the HighwayMaster patent would not
hold up in a court test, because it is trying to patent "feature requests"
that were defined in the public domain well over a year before the patent
application was filed (i.e. it tries to patent the public IS41 Standard).
The Sellers feel that the patent does not apply to the majority of the
Company's services, as they are stationary, not mobile as claimed in the
patent or they pass through GTE TSI, a licensee. But if the patent does
apply to services of the Company, then the Company faces payment of
royalties to HighwayMaster (or some arrangement), sublicensing through GTE
TSI or others, or contesting the patent in court. The Company has
considered having its patent attorney research and opine on the validity of
the patent, but has not yet initiated that costly undertaking.
2.14 (c) - See Section 2.14 (a) above for patents that may be infringed by
the Company's services.
2.21 Personal Property
-----------------
The Company has purchased portable computers, desktop computers, printers,
some documents, telephones, supplies and certain software (such as Office
2000, Visual Basic 6.0, Windows 98, etc.). The receipts for all these
purchases are contained in the Company's expense reports submitted by its
three employees.
The remainder of the tangible personal property in the office is owned by
Progressive Computer Software, Inc., which is a corporation wholly-owned by
Ed Didion ("PCS"). Pursuant to the Bill of Sale, Assignment, Assumption,
and Option Agreement dated August 27, 1999 between PCS and the Company (the
"PCS Bill of Sale"), the Company purchased, among other things, all assets
needed for the Company's telemetry/meter reading service system, all
hardware and software developed by Ed Didion since January 1, 1998 and all
assets acquired since May 10, 1999. The PCS Bill of Sale also gives the
Company the unlimited right to use on a rent-free, cost-free basis any and
all of PCS's furniture, fixtures, equipment and supplies that were not
transferred pursuant to the PCS
Page 3 of 6 1/7/2000
<PAGE>
Bill of Sale, together with an option to acquire any or all of such items
for their fair market value on or before April 30, 2000.
2.22 Real Property
-------------
The building the Company occupies is leased from One Stop Financial Center,
Inc. by PCS pursuant to a Lease Agreement dated November 17, 1998. Pursuant
to the PCS Bill of Sale, PCS assigned to the Company PCS's rights under the
lease agreement. the Company pays the monthly lease fees of about $1,076 to
One Stop Financial Center, Inc.
2.24 Contracts
---------
The Existing GTE Contract described in Section 2.9 above, as amended by
that certain Agreement to Consent of Assignment and Termination dated
effective September 1, 1999 between GTE TSI, RUMS and the Company, and the
confidentiality and nondisclosure agreements listed below are the only
existing contracts or agreements between the Company and persons or
entities other than the Sellers and/or entities owned or controlled by one
or more of the Sellers:
James Gunn - 11/3/99
Telenetics - 10/15/99
HighwayMaster - 9/20/99
Bell South - 6/1/99
Paradigm Manufacturing - 3/4/99
Bob Bozman - 3/4/99
GTE TSI - 10/12/98
The Company is a party to only the following contracts or agreements with
one or more of the Sellers and/or entities owned or controlled by one or
more of the Sellers:
a) Loan Agreement dated August 27, 1999 between the Company and
Saunders & Parker, Inc. - to be terminated at the closing of the
Stock Purchase Agreement
b) Promissory Note dated August 27, 1999 in the principal amount of
$305,000 made by the Company in favor of Saunders & Parker, Inc.,
which note supersedes the Promissory Note dated May 10, 1999 in the
principal amount of $30,000, made by RUMS in favor of Saunders &
Parker, Inc. - to be terminated at the closing of the Stock
Purchase Agreement
c) Security Agreement dated August 27, 1999 between the Company and
Saunders & Parker, Inc. - to be terminated at the closing of the
Stock Purchase Agreement
d) Shareholders' Agreement dated August 27, 1999 between the Company
and each of the Sellers - to be terminated at the closing of the
Stock Purchase Agreement
Page 4 of 6 1/7/2000
<PAGE>
e) Voting Agreement dated August 27, 1999 between the Company and each
of the Sellers - to be terminated at the closing of the Stock
Purchase Agreement
f) Push/Pull Agreement dated August 27, 1999 between the Company,
William C. Saunders and Terry S. Parker - to be terminated at the
closing of the Stock Purchase Agreement
g) 5% Option Agreement dated August 27, 1999 between the Company and
each of the Sellers - to be terminated at the closing of the Stock
Purchase Agreement
h) Option Agreement dated August 27, 1999 between the Company, William
C. Saunders and Terry S. Parker - to be terminated at the closing
of the Stock Purchase Agreement
i) Consulting Agreement dated June 1, 1999 between Saunders & Parker,
Inc. and the Company, as successor to RUMS - to be terminated at
the closing of the Stock Purchase Agreement
j) Employment and Noncompetition Agreement dated June 1, 1999 between
John D. McLean and the Company, as successor to RUMS - to be
terminated at the closing of the Stock Purchase Agreement
k) Employment and Noncompetition Agreement dated June 1, 1999 between
Edward L. Didion and the Company, as successor to RUMS - to be
terminated at the closing of the Stock Purchase Agreement
l) Memorandum of Agreement dated May 10, 1999 between Saunders &
Parker, Inc., William C. Saunders, Terry S. Parker, Ed Didion and
the Company, as successor to RUMS - to be terminated at the closing
of the Stock Purchase Agreement
m) Bill of Sale and Assignment Agreement dated August 27, 1999 between
Edward L. Didion and the Company
n) Bill of Sale, Assignment, Assumption and Option Agreement dated
August 27, 1999 between Progressive Computer Software, Inc. and the
Company
o) Bill of Sale, Assignment and Assumption Agreement dated August 27,
1999 between RUMS and the Company
The actual hardware design of the electronic card that is the basis of the
Company's remote devices has been subcontracted through Paradigm
Manufacturing. Paradigm has developed the card and owns the hardware
design. Paradigm now wants to enter into a formal manufacturing contract
with the Company before they provide the Company with the latest
prototypes. The Company has not entered into any binding arrangements with
Paradigm or any other parties (other than with GTE TSI, as described above)
and is not
Page 5 of 6 1/7/2000
<PAGE>
and will not be responsible for any of Paradigm's costs unless and until a
formal arrangement is executed.
2.26 Development Tools
-----------------
The Company mainly uses generally available software development tools such
as Visual Basic and Windows NT. It has not formally developed and
documented tools of its own, other than macros and databases to assist in
the development process.
Page 6 of 6 1/7/2000
<PAGE>
EXHIBIT 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.
January 7, 2000
TELENETICS CORPORATION
WHEREAS, in connection with the services to be rendered to Telenetics
Corporation, a California corporation (the "Company"), by Saunders & Parker,
-------
Inc., a Texas corporation ("Holder"), pursuant to that certain Consulting
------
Agreement of even date herewith by and between the Company and Holder (the
"Service 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, the Company hereby
grants to Holder an option to purchase (this "Option") up to Six Hundred
------
Thousand (600,000) shares (such shares as adjusted from time to time are
referred to herein individually, each as an "Option Share," and collectively, as
------------
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 by Holder and (ii) the form of
Restricted Stock Letter attached hereto duly executed by Holder (unless the sale
of the 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, 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
date hereof.
(b) This Option (to the extent not earlier exercised) shall expire on
January 6, 2005 (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
<PAGE>
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 8,
---------
for each Option Share with respect to which this Option is being exercised.
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 the 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
2
<PAGE>
full immediately prior to such event. Such adjustments shall be made
successively whenever any event described in the foregoing sentence occurs.
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) 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,
(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, or (iv) the date on
which any other action that would require an adjustment of the Exercise Price
pursuant to Section 4 is expected to become effective or be consummated and any
---------
relevant record date for holders of Common Stock related thereto. 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. This Option is not transferable by Holder
----------------------------
voluntarily, involuntarily or by operation of law, except that this Option may
be transferred in whole or in part by Holder to William C. Saunders and/or Terry
S. Parker, and if such transfer occurs, this Option may be further transferred
by Mr. Saunders or Mr. Parker only by will, the laws of descent and distribution
or a qualified domestic relations order.
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.
13. Intentionally Omitted.
---------------------
[remainder of page intentionally left blank]
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 heirs, 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, except as otherwise
provided in Section 14.
----------
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 as of the day and
year first above written.
TELENETICS CORPORATION
By:
---------------------------------------
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
January 7, 2000 ("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, 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
<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
<PAGE>
EXHIBIT 3
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement") is made and entered into as of
---------
this 7th day of January, 2000 (the "Effective Date"), by and between TELENETICS
--------------
CORPORATION, a California corporation with offices at 25111 Arctic Ocean, Lake
Forest, California 92630 (the "Company"), and SAUNDERS & PARKER, INC., a Texas
-------
corporation with offices at the address set forth on the signature page hereof
("Consultant"), who may be collectively referred to as the "Parties."
---------- -------
R E C I T A L S
- - - - - - - -
A. The Company, William C. Saunders and Terry S. Parker, who are the
principals of Consultant (the "Principals"), and certain other individuals have
----------
entered into a Stock Purchase Agreement of even date herewith (the "Stock
-----
Purchase Agreement") pursuant to which the Company is purchasing all of the
- ------------------
outstanding capital stock of eflex Wireless, Inc., a Delaware corporation
("eflex").
-----
B. The parties acknowledge that Consultant currently acts as a consultant
to eflex and has abilities and expertise that are unique and valuable to the
Company and, in connection with the Stock Purchase Agreement, the Company
desires to retain Consultant to provide certain consulting services for the
Company, and Consultant is willing to provide the consulting services requested
by the Company.
C. The Company and Consultant have determined that such engagement of
Consultant is mutually beneficial and should be subject to a mutually acceptable
written agreement, and that the retention by eflex of the Consultant as a
consultant is being terminated concurrently with the effectiveness of this
Agreement.
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing premises, the following
mutual covenants and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
each of the Parties hereto, the Parties hereto agree, intending to be legally
bound, as follows:
1. Services To Be Performed By Consultant.
--------------------------------------
1.1 Scope and Nature of Services. Commencing on the Effective Date, the
----------------------------
Company agrees to engage Consultant, and Consultant agrees to offer Consultant's
services to the Company, as a consultant. Consultant agrees to render
Consultant's best business expertise, advice and services to the directors,
executive officers, managers or employees of the Company as the Company may
reasonably request concerning the business of the Company including, without
limitation, the business of eflex. Consultant shall render such services at such
locations as the Company, within its sole discretion, deems appropriate. This
Agreement shall not be construed as obligating the Company to request any amount
(or any specific amount) of consulting services from Consultant.
<PAGE>
1.2 Method of Performing Services. Consultant shall provide the consulting
-----------------------------
services to the Company promptly upon request by the Company during the term of
this Agreement, and it shall be the duty of Consultant in providing these
consulting services to make periodic reports to the Company, from time to time,
as the Company may deem appropriate.
1.3 Place of Work. The consulting services described herein will be
-------------
carried out at such reasonable locations as may be agreed upon by the Company
and Consultant from time to time; provided, however, that no Principal shall be
required by the Company to relocate his home in order to perform services
hereunder. If the Company determines that it is in the best interest of the
Company for the consulting services described herein to be carried out at the
facilities of the Company, such services shall be performed at the facilities of
the Company and the Company shall provide Consultant with such entry and access
to the facilities of the Company (during normal business hours, unless otherwise
authorized by the Company) to the extent necessary to allow Consultant to
perform Consultant's obligations under this Agreement. Except as provided above,
it will be the responsibility of the Consultant to obtain adequate work and
administrative space at Consultant's expense.
2. Term and Termination.
--------------------
2.1 Term. The term of this Agreement (the "Term") shall commence on the
---- ----
Effective Date and shall continue for a period of five years unless terminated
earlier pursuant to the terms of this Agreement. This Agreement may be
terminated by the Company for Good Cause (as defined below) effective upon
delivery of written notice to Consultant given at any time. "Good Cause" shall
----------
exist if:
(a) A Principal is convicted of a felony, or a misdemeanor
constituting moral turpitude;
(b) A Principal in bad faith commits any act (including, but not
limited to, any act that would constitute fraud, misappropriation,
dishonesty, or embezzlement) or in bad faith omits to take any action to
the material detriment of the Company or any of its affiliates;
(c) A Principal intentionally commits during the Term of this
Agreement any act of material misconduct (including, but not limited to,
sexual harassment, racial vilification, or unlawful discrimination);
(d) Consultant fails or refuses to perform consulting duties assigned
to Consultant by the Company and fails to correct such breach within five
days after notice is given to Consultant by the Company of such breach;
(e) Consultant becomes unable fully to discharge its duties hereunder
for a period of more than 30 consecutive days or more than 45 days within
any two-month period;
2
<PAGE>
(f) In the opinion of a medical doctor retained by the Company, after
a physical examination and reasonable diagnostic procedures, a Principal is
found to be addicted to any drug, including alcohol;
(g) Consultant breaches any term of this Agreement and fails to
correct such breach within five days after notice is given to Consultant by
the Company of such breach; or
(h) Consultant attempts to resign in anticipation of discharge for any
reason mentioned in Section 2.1(a) through Section 2.1(g), or the Company
-------------- --------------
accepts Consultant's resignation in lieu of making a termination for any
reason mentioned in Section 2.1(a) through Section 2.1(g).
-------------- --------------
2.2 Effect of Termination. Consultant agrees that in connection with the
---------------------
termination of this Agreement for any reason, except as set forth in Section
-------
2.3, Consultant shall only be entitled to receive the pro rata share of the
- ---
consulting fee earned prior to the termination in accordance with Section 3.1,
-----------
plus reimbursement in accordance with Sections 3.3 and 3.4 for materials and
--------------------
travel expenses incurred prior to the termination. Such payments described in
this Section 2.2 and in Section 2.3, if applicable, shall be the exclusive and
----------- -----------
sole remedy of Consultant for any termination of this Agreement, and Consultant
covenants not to assert or pursue any other remedies, at law or in equity, with
respect to any termination of this Agreement.
2.3 Early Termination. Consultant may terminate this Agreement by delivery
-----------------
of written notice to the Company if the Company breaches any term of this
Agreement and fails to correct such breach within thirty days after notice of
such breach is received by the Company from Consultant. In the event of such
termination, the Company shall pay to Consultant as liquidated damages the
consulting fee for the period commencing on the day following the date of
termination and ending on the date the Term otherwise would have expired
pursuant to Section 2.1, at such intervals and otherwise in such manner as such
-----------
consulting fee would have been paid if Consultant would have remained in the
active service of the Company.
3. Consideration and Payments.
--------------------------
In consideration of the consulting services to be provided by
Consultant pursuant to this Agreement:
3.1 Consulting Fee. The Company shall pay Consultant a consulting fee of
--------------
$4,166.67 per month, which consulting fee shall be increased to $8,333.33 per
month for each month of the Term following the month in which the Company
receives at least $2,500,000 in gross proceeds from the sale of equity
securities of the Company for the account of the Company. The consulting fee
shall be payable in advance in monthly installments commencing on January 15,
2000 and shall be prorated for any partial month occurring during the Term of
this Agreement.
3.2 Options. Concurrently with the execution of this Agreement, Consultant
-------
shall receive an option to purchase shares of Common Stock of the Company, a
copy of which options shall be attached hereto as Exhibit A and incorporated
---------
herein by reference.
3
<PAGE>
3.3 Cost of Materials. If Consultant shall reasonably determine that
-----------------
Consultant will be unable to perform the consulting services under this
Agreement without procuring certain materials with an aggregate cost exceeding
$100, Consultant shall promptly notify the Company in writing of its need to
procure such materials and the date by which such materials must be received by
Consultant. Upon receipt of such notice from Consultant, the Company shall
thereafter have the option to either procure the materials itself or, in the
alternative, authorize Consultant to procure the materials directly. If the
Company should elect to authorize Consultant to procure the materials directly,
it shall notify Consultant of such election, and the Company agrees to reimburse
Consultant within 10 business days of its receipt of a separate invoice from
Consultant for Consultant' actual cost of the materials as authorized by the
Company.
3.4 Travel Expenses. Upon submission of a separate monthly invoice, the
---------------
Company shall also reimburse Consultant for all travel-related expenses
reasonably incurred by Consultant in connection with this Agreement, including
without limitation, air fare, hotel and rental car expenditures. The Company
agrees to pay the amounts due under this Section 3.4 on or before the 30th day
-----------
of the month following the month of submission of such invoice.
4. Nondisclosure and Confidentiality.
---------------------------------
In the course of Consultant providing the consulting services under this
Agreement, Consultant will have access to the Company's trade secrets,
proprietary information and confidential information, the use, application or
disclosure of any of which will cause substantial and possible irreparable
damage to the business and asset value of the Company. Accordingly, Consultant
accepts and agrees to be bound by the following provisions:
4.1 Definitions. For the purposes of this Agreement, the following
-----------
definitions apply:
(a) "Trade Secrets" shall specifically include, but are not limited
-------------
to, the Company's plans, customer lists, compilations, program devices,
formulas, designs, ideas, concepts, prototypes, drawings, methods,
techniques, systems, processes, procedures, computer software, programs or
codes, whether tangible or intangible, and whether or how stored, compiled
or memorialized physically, electronically, graphically, photographically
or in writing (including, without limitation, source and object codes, flow
charts, algorithms, coding sheets, doctrines, subroutines, compilers,
assemblers, design concepts and related documentation and manuals),
discoveries, hardware, machines and devices whether patentable or not,
including, without limitation, the nature and results of technical and
nontechnical research and development activities, "know-how," schematics,
parts lists and specifications. Trade Secrets also includes any information
described above which the Company treats as proprietary or designates as a
Trade Secret, whether or not owned or developed by the Company or
Consultant. Trade Secrets also include any information described in this
paragraph (a) which the Company obtains from another party which the
Company treats as proprietary or designates as Trade Secrets, whether or
not owned or developed by the Company.
(b) "Confidential Information" shall mean any data, materials or
------------------------
information, other than Trade Secrets, that is of value to the Company and
is not generally known to competitors of the Company. Confidential
Information shall include, but not be limited
4
<PAGE>
to, the identity of various suppliers, information about the Company's
executives and employees, financial information, business and marketing
plans, marketing techniques, price lists, pricing policies and the
Company's business methods. Confidential Information also includes any
information described above which the Company obtains from a third party
and which the Company treats as proprietary or designates as Confidential
Information, whether or not owned by or developed by the Company.
Anything in this Agreement to the contrary notwithstanding, Trade Secrets
and Confidential Information shall not include information which is (i) lawfully
disclosed to Consultant by a third party unrelated to the Company, (ii)
generally known in the telemetry services industry other than by the
unauthorized actions of Consultant, or (iii) in the public domain other than by
the unauthorized actions of Consultant.
4.2 Proprietary Information. Consultant hereby acknowledges that all Trade
-----------------------
Secrets and Confidential Information are the exclusive property of the Company.
Specifically, Consultant acknowledges and agrees that all Trade Secrets and
Confidential Information which Consultant has developed, or in which Consultant
has participated in the development, while engaged by the Company or, which
Consultant participates in the development in the future during the term of its
engagement by the Company shall be the exclusive property of the Company and
Consultant shall have no ownership interest therein. Consultant further agrees
that it will not, directly or indirectly, incorporate any Trade Secrets or
Confidential Information, or any part thereof, into any system, product, service
or other item later designed or prepared by Consultant for any party or parties
other than the Company.
4.3 Prohibition on Use of Trade Secrets. Consultant shall not, directly or
-----------------------------------
indirectly, in any manner or form use, disclose, provide or otherwise make
available in any manner in whole or in part any Trade Secrets during the period
Consultant has access to the Trade Secrets and thereafter, other than to the
Company's employees in the scope of their employment, or to other consultants
performing services for the Company in connection with the consulting services
performed by Consultant hereunder.
4.4 Prohibition on Use of Confidential Information. Consultant shall not,
----------------------------------------------
directly or indirectly, in any manner or form use, disclose, provide or
otherwise make available in any manner in whole or in part any Confidential
Information during the period Consultant has access to the Confidential
Information and thereafter, other than to the Company's employees in the scope
of their employment, or to other consultants performing services for the Company
in connection with the consulting services performed by Consultant hereunder.
4.5 Noncompetition and Nonsolicitation. Consultant expressly promises and
----------------------------------
agrees that Consultant will fully comply with the covenants and provisions
contained in Section 7 of the Stock Purchase Agreement, which provisions are
---------
incorporated herein by reference, as if such provisions were set forth in full
herein.
4.6 Prohibition on Reproduction. Consultant shall have no right to print
---------------------------
or copy, directly or indirectly, in whole or in part, any Trade Secrets or
Confidential Information or any documentation pertaining thereto, except as
required to perform Consultant's responsibilities hereunder.
5
<PAGE>
4.7 Protective Measures. Consultant shall take all necessary and
-------------------
appropriate action, whether by instruction, agreement or otherwise to ensure the
protection, confidentiality and security of the Trade Secrets and Confidential
Information and to satisfy Consultant's obligations under this Agreement. The
standard of care which Consultant shall employ shall conform at least to
industry standards and shall be adequate to ensure the protection,
confidentiality and security of the Trade Secrets and Confidential Information.
Consultant agrees that Consultant's obligations with respect to the
confidentiality and security of all materials disclosed to Consultant under the
terms of this Agreement shall survive the termination of this or any agreement
or relationship between the Company and Consultant or the performance of
consulting services by Consultant on behalf of the Company.
4.8 Return of Materials. All notes, data, reference materials, sketches,
-------------------
disks, memoranda, tapes, manuals, files, documentation and records contained in
any medium (written document, electronic or otherwise) in any way relating to
any of the Trade Secrets or Confidential Information or the Company's business
shall belong exclusively to the Company and Consultant agrees to turn over to
the Company all copies of such materials in its possession at the request of the
Company or, in the absence of such a request, upon the termination of
Consultant's consulting services for the Company within three business days of
such termination. Consultant further agrees, upon request by the Company, to
promptly remove from Consultant's possession and dominion and return to the
Company or positively destroy any software programs or data entered into
Consultant's computer or libraries pertaining to the Trade Secrets and
Confidential Information.
5. Intentionally Omitted.
---------------------
6. Employees and Agents of Consultant.
----------------------------------
Except as otherwise approved by the Company in writing, Consultant shall
provide the Company with ten days' advance notice prior to employing or
retaining any employee, subcontractor, or agent (other than the Principals) to
assist with or contribute to Consultant's duties, obligation or performance
hereunder. The Company reserves the right to approve or reject any such
employee, contractor or agent, such approval not to be unreasonably withheld.
Consultant agrees that it shall have and maintain, for so long as this Agreement
is in effect, written agreements with all employees, subcontractors or agents
engaged by Consultant who assist with or contribute to Consultant's duties,
obligations or performance hereunder. Such written agreements shall contain
provisions sufficient to establish the rights and benefits contemplated by, and
to assure compliance with this Agreement, including, but not limited to, the
provisions of Sections 4 and 5, above. Consultant shall furnish the Company with
----------------
copies of such written agreements and shall cause such subcontractors, employees
and agents to execute and deliver such further certificates, acknowledgments,
waivers and assignments as may be appropriate to give effect to the foregoing.
7. Applicability to Prior Dealings.
-------------------------------
Consultant hereby acknowledges that Consultant and Consultant's employees
and agents may have had access to Trade Secrets and Confidential Information
prior to the effective date of
6
<PAGE>
this Agreement. Consultant hereby agrees that any Trade Secrets and Confidential
Information Consultant and Consultant's employees and agents may have acquired
prior to the effective date of this Agreement shall be subject to the terms and
conditions of Sections 4 and 5 above, and that Consultant shall cause each of
----------------
Consultant's employees and agents to treat such Trade Secrets and Confidential
Information accordingly.
8. Survival of Obligations Beyond Termination.
------------------------------------------
The obligations of Consultant under Sections 4 through 7 and the warranties
--------------------
and remedies under Sections 9 through 12 shall not terminate upon the
---------------------
termination of this Agreement, but, rather, shall continue in effect thereafter.
9. Injunctive Relief.
-----------------
Consultant hereby acknowledges and agrees that any violations of Sections
--------
4, 5, 6 and 7 will cause damage to the Company in an amount or amounts difficult
- -------------
to ascertain and any remedies at law for such damages will be inadequate.
Accordingly, in addition to any other relief to which the Company may be
entitled at law or in equity, the Company shall be entitled to temporary and/or
permanent injunctive or other equitable relief from any such breach or
threatened breach by Consultant without proof of actual damages that have been
or may be caused to the Company by such breach or threatened breach.
10. Warranty.
--------
10.1 Express Warranties. As of the date hereof and as of all dates prior to
------------------
the expiration of this Agreement, Consultant warrants and represents to the
Company the following:
10.1.1 Disclosure by Consultant. Consultant hereby acknowledges that
------------------------
the Company does not wish to receive from Consultant any information not
owned by the Company which may be considered confidential or proprietary to
Consultant or to any third party. Any information or materials disclosed or
to be disclosed by Consultant to the Company is not confidential or
proprietary to Consultant or to any third party. Accordingly, no obligation
of any kind is assumed by or to be implied against the Company by virtue of
this Agreement or the relationship between the Parties hereunder or with
respect to any information received (in whatever form or whenever received)
from Consultant relating to the subject matter hereof, and the Company will
be free to reproduce and to use and disclose to others such information
without limitation. Neither this Agreement nor the relationship between the
Parties, will impair the right of the Company to develop, make, use,
procure, or market products or services now or in the future which may be
competitive with those offered by Consultant, nor require the Company to
disclose any planning or other information to Consultant. Consultant
covenants and agrees not to incorporate into any work performed or created
hereunder any material owned or copyrighted or confidential to any third
party.
10.1.2 Authority. Consultant has the authority to enter into this
---------
Agreement. The execution of this Agreement by Consultant and the
performance of the services
7
<PAGE>
contemplated hereunder do not (and will not) violate any other agreement,
policy or order to which Consultant is subject.
10.2 Breach of Warranty. If Consultant is in breach of any warranty or
------------------
representation under this Agreement, the Company shall have all rights and
remedies available to it in law and in equity.
11. Status As Independent Contractor.
--------------------------------
The Parties are entering into this Agreement as independent contractors and
no employment relationship, partnership, joint venture or other association
shall be deemed created by this Agreement.
11.1 Taxes. The Company shall pay Consultant directly, without payroll
-----
deductions of any kind whatsoever, all monies which may become due and payable
hereunder, as, when, and to the extent those payments become payable. Consultant
shall have the entire responsibility to discharge all the obligations under
federal, state or local laws, regulations or orders now or hereafter in effect,
relating to taxes, unemployment compensation or insurance (including, but not
limited to, the Unemployment Insurance Code of the State of California), social
security, worker's compensation, disability pensions and tax withholdings
(collectively, "Tax Obligations"). Consultant shall fully indemnify the Company
---------------
from and against all liabilities, obligations, damages, assessments, penalties,
interest, costs (including, without limitation, any attorneys' fees) and other
expenses incurred by the Company resulting from Consultant's failure to properly
discharge its Tax Obligations or otherwise arising out of or related to the
engagement of Consultant by the Company pursuant to this Agreement.
11.2 Authority. Consultant is not authorized to bind the Company or to
---------
incur any obligation or liability on behalf of the Company except as expressly
authorized by the Company in writing.
11.3 Benefits. Consultant acknowledges that the Company shall not be
--------
providing health insurance, retirement plan contributions, workers' compensation
or other benefits to Consultant and/or Consultant's employees, if any, and
Consultant shall be solely responsible for obtaining and/or providing such
benefits.
11.4 Methods. Except as otherwise provided herein, Consultant shall be free
-------
to pursue whatever means Consultant chooses in performing the services described
herein. The Company recognizes that this is not an exclusive agreement and the
Consultant may perform services for other parties.
11.5 Training. Consultant shall be responsible for providing, at
--------
Consultant's expense, any training or continuing education required by
Consultant and/or Consultant's employees, if any, unless such training or
continuing education is specifically requested by the Company. If the Company
requests Consultant and/or Consultant's employees to obtain specific training or
continuing education, the Company shall be responsible for the expense of such
training and/or continuing education.
8
<PAGE>
12. General Provisions.
------------------
12.1 Attorneys' Fees and Costs. In any suit, action or proceeding
-------------------------
(including arbitration) arising out of or related to the Agreement or the
transactions contemplated hereby, including any appeals (an "Action"), the non-
------
prevailing party in that Action shall pay to the prevailing party a reasonable
sum for ordinary and necessary attorneys', paralegals', accountants' and
experts' fees and costs incurred in connection with prosecuting or defending the
Action and/or enforcing any judgment, order, ruling, or award (collectively, a
"Decision") granted therein, in addition to any damages and costs which the
--------
prevailing party otherwise would be entitled. Any Decision entered in the Action
shall contain a specific provision providing for the recovery of reasonable
attorneys', paralegals', accountants' and experts' fees and costs incurred in
enforcing the Decision. The court or arbitrator may fix the amount of reasonable
attorneys', paralegals', accountants' and experts' fees and costs on the request
of either party. For the purposes of this Section 12.1, all attorneys',
------------
paralegals', accountants' and experts' fees and costs shall include, but not be
limited to, fees and costs incurred in the following: (i) postjudgment motions
and collection actions; (ii) contempt proceedings; (iii) garnishment, levy, and
debtor and third party examinations; (iv) discovery; and (v) bankruptcy.
12.2 Notices. All notices, demands or other communications which are
-------
required or are permitted to be given in this Agreement shall be in writing and
shall be deemed to have been sufficiently given (i) upon personal delivery, (ii)
the third business day following due deposit in the United States mail, postage
prepaid, and sent certified mail, return receipt requested, correctly addressed
or (iii) when receipt is acknowledged if sent via facsimile transmission as
follows: If to the Company, to the address set forth in the introductory
paragraph of this Agreement. If to Consultant, to the address set forth below
Consultant's signature at the end of this Agreement. If notice is sent to the
Company, a copy shall be sent to:
Larry A. Cerutti, Esq.
Rutan & Tucker, LLP
611 Anton Boulevard, 14th Floor
Costa Mesa, California 92626
Telephone: (714) 641-5100
Facsimile: (714) 546-9035
If notice is sent to Consultant, a copy shall be sent to:
Sally A. Schreiber, Esq.
Munsch Hardt Kopf & Harr, P.C.
4000 Fountain Place
1445 Ross Avenue
Dallas, Texas 75202
Telephone: (214) 855-7598
Facsimile: (214) 978-4323
Either party may give written notice of a change of address by certified
mail, return receipt requested, and after notice of such change has been
received, any notice shall be given to such party in the manner above described
at such new address.
9
<PAGE>
12.3 Execution in Counterparts. This Agreement may be executed in any
-------------------------
number of counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument.
12.4 Waiver and Amendment. This Agreement may be amended, supplemented,
--------------------
modified and/or rescinded only through an express written instrument signed by
both Parties or their respective successors and assigns. Either party may
specifically and expressly waive in writing any portion of this Agreement or any
breach hereof, but no such waiver shall constitute a further or continuing
waiver of any preceding or succeeding breach of the same or any other provision.
The consent by one party to any act for which such consent was required shall
not be deemed to imply consent or waiver of the necessity of obtaining such
consent for the same or similar acts in the future.
12.5 Severability. Each provision of this Agreement is intended to be
------------
severable. If any covenant, condition or other provision contained in this
Agreement is held to be invalid, void or illegal by any court of competent
jurisdiction, such provision shall be deemed severable from the remainder of
this Agreement and shall in no way affect, impair or invalidate any other
covenant, condition or other provision contained in this Agreement. If such
condition, covenant or other provision shall be deemed invalid due to its scope
or breadth, such covenant, condition or other provision shall be deemed valid to
the extent of the scope or breadth permitted by law.
12.6 Governing Law. All matters relating to or arising out of this
-------------
Agreement, whether in contract, tort or otherwise, shall be governed by and
interpreted in accordance with the laws of the State of California, including
all matters of construction, validity, performance and enforcement, without
giving effect to principles of conflict of laws. The Parties hereby consent, in
any dispute, action, litigation, arbitration or other proceeding concerning this
Agreement, to the jurisdiction of the state or federal courts of California,
with the County of Orange being the sole venue for the bringing of the action or
proceeding.
12.7 Assignability. Because the Company has agreed to retain the services
-------------
of Consultant based on an investigation of Consultant's capabilities, the
importance of Consultant's services to the ongoing business of the Company and
the personal relationship that has evolved between the Parties, neither this
Agreement nor any interest herein shall be assignable (voluntarily,
involuntarily, by judicial process or otherwise), in whole or in part, by
Consultant without the prior written consent of the Company. Any attempt at such
an assignment without such consent shall be void and, at the option of the
Company, shall be an incurable breach of this Agreement resulting in the
immediate termination of this Agreement.
12.8 Interpretation. The language in all parts of this Agreement shall be
--------------
in all cases construed simply according to its fair meaning and not strictly for
or against any party. Whenever the context requires, all words used in the
singular will be construed to have been used in the plural, and vice versa, and
each gender will include any other gender. The captions of the Sections and
Subsections of this Agreement are for convenience only and shall not affect the
construction or interpretation of any of the provisions of this Agreement.
10
<PAGE>
12.9 Integration. This Agreement, together with the exhibits and schedules
-----------
hereto, incorporate the entire understanding of the parties with respect to the
subject matter hereof and supersede all previous oral and written and all
contemporaneous oral negotiations, commitments, writings, and understandings. In
addition, the parties expressly agree that this Agreement supersedes and
replaces the Consulting Agreement dated as of June 1, 1999 between Consultant
and eflex, as successor to Residential Utility Meter Service's, Inc., a Florida
corporation (the "eflex Consulting Agreement"), and that the eflex Consulting
--------------------------
Agreement is of no further force or effect.
12.10 Survivability. All covenants, agreements, representations and
-------------
warranties made by the Consultant shall survive the termination of this
Agreement.
12.11 Further Assurances. In addition to the documents and instruments to
------------------
be delivered as provided in this Agreement, each of the Parties shall, from time
to time at the request of the other party, execute and deliver to the other
party such other documents and shall take such other action as may be necessary
or proper to more effectively carry out the terms of this Agreement.
[remainder of page intentionally left blank]
11
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement effective as of the
date first set forth above.
TELENETICS CORPORATION,
a California corporation
By:
-----------------------------------------
Michael A. Armani, President
SAUNDERS & PARKER, INC.,
a Texas corporation
By:
-----------------------------------------
William C. Saunders
Its:
-------------------------------------
By:
-----------------------------------------
Terry S. Parker
Its:
-------------------------------------
-----------------------------------------
Street Address
-----------------------------------------
City, State, Zip Code
-----------------------------------------
Business Telephone Number
-----------------------------------------
Business Facsimile Number
-----------------------------------------
Social Security or Federal Tax
Identification Number
12
<PAGE>
EXHIBIT A
---------
Copy of Stock Option Agreement
13
<PAGE>
EXHIBIT 4
STOCK PLEDGE AGREEMENT
(Third Party)
This Stock Pledge Agreement ("Agreement"), dated as of January 7, 2000, is
entered into by and between Michael A. Armani (the "Pledgor"), and Saunders &
Parker, Inc., a Texas corporation ("S&P" or the "Secured Party").
R E C I T A L S
---------------
Section A. Telenetics Corporation (the "Company") has executed that
certain promissory note dated the date of this Agreement in the original
principal amount of $136,444.90 and payable to the order of S&P (as amended,
modified, extended, or renewed from time to time, the "Note").
Section B. The Pledgor has guaranteed the obligations of the Company
under the Note pursuant to that certain Guaranty dated the date of this
Agreement (as amended, modified, extended, or renewed from time to time, the
"Guaranty").
Section C. The Pledgor is the owner of 500,000 shares of the issued and
outstanding common stock of the Company (the "Shares").
Section D. The Note contemplates that the Shares will be pledged and
delivered by the Pledgor to S&P, with duly endorsed instruments of transfer or
assignments in blank on or before January 17, 2000.
Section E. The Pledgor acknowledges that it will receive substantial
benefits as a result of the financial accommodations provided by S&P to the
Company and will receive valuable consideration in connection with its pledge of
stock hereunder.
Section F. S&P has been induced to cancel certain indebtedness owed to
it by eflex Wireless, Inc. and the security therefor in reliance on this
Agreement.
A G R E E M E N T
-----------------
Therefore, in consideration of the foregoing and in order to induce S&P to
accept the Note from the Company and cancel certain indebtedness owed to it by
eflex Wireless, Inc. and the security therefor, and for other good and valuable
consideration, the parties hereto agree as follows:
Section 1. Definitions. Capitalized terms used herein without
-----------
definition that are defined in, or by reference in, the Note shall have the
meaning specified therein.
Section 2. Pledge. The Pledgor hereby pledges and assigns, with duly
------
endorsed instruments of transfer, to the Secured Party, and hereby grants to the
Secured Party a security interest (the "Security Interest") in, the following
(the "Collateral"):
(i) all the Shares and the certificates representing such Shares
and all dividends, cash, securities, instruments, and other property from
time to time paid, payable, or otherwise distributed in respect of or in
exchange for any or all of such Shares;
<PAGE>
(ii) all securities issued by any issuer of such Shares, or any
successor thereto, from time to time acquired by the Pledgor in
substitution for or in addition to any of the foregoing, all certificates
and instruments representing such securities, together with the interest
coupons (if any) attached thereto, and all dividends, cash, securities,
instruments, and other property from time to time paid, payable, or
otherwise distributed in respect of or in exchange for any or all of such
securities; and
(iii) all proceeds of the foregoing.
Section 3. Secured Obligations. The Security Interest shall secure the
-------------------
due and punctual payment and performance of the following:
(i) liabilities, obligations, loans, advances, and indebtedness
of the Company to S&P under the Note;
(ii) all liabilities and obligations of the Pledgor under the
Guaranty;
(iii) all interest, fees, commissions, charges, expenses, and
other liabilities relating to any of the foregoing, including all advances,
charges, costs, and expenses (including attorneys' fees and legal expenses)
incurred in connection with the exercise of any right, power, or remedy
conferred by this Agreement or by law (including attorneys' fees and legal
expenses incurred by the Secured Party in the collection of instruments
deposited with the Secured Party and amounts incurred in connection with
the operation, maintenance, or foreclosure of any and all of the
Collateral);
(iv) all indebtedness, obligations, and liabilities of the
Pledgor now or hereafter existing under this Agreement, including all
amounts that may be advanced by the Secured Party to satisfy amounts
required to be paid by the Pledgor under this Agreement, the Note, or the
Guaranty or any other agreement, document, or instrument executed by
Pledgor as a guaranty of or security for Indebtedness (collectively, the
"Armani Note Documents") or any amount secured hereby or to pay any taxes,
insurance premiums, liens, claims, and charges against the Collateral,
together with interest thereon to the extent provided herein or therein;
and
(v) all amounts advanced or expended by the Secured Party for
the maintenance or preservation of the Collateral or the creation,
perfection, continuation and protection of the Collateral and security
interests therein;
in each case, whether direct or indirect, joint or several, absolute or
contingent, liquidated or unliquidated, now or hereafter existing, renewed or
restructured, whether or not from time to time decreased or extinguished and
later increased, created, or incurred, and including all indebtedness,
obligations, and liabilities of the Company and/or the Pledgor under any
instrument now or hereafter evidencing or securing any of the foregoing (all
indebtedness, obligations, and liabilities of the Pledgor and of the Company
described in this Section 3 are collectively referred to hereinafter as the
---------
"Indebtedness").
Section 4. Delivery of Collateral. All certificates or instruments
----------------------
representing or evidencing the Collateral shall be delivered to the Secured
Party on or before January 17, 2000,
STOCK PLEDGE AGREEMENT - Page 2
<PAGE>
and held by the Secured Party pursuant hereto and shall be in suitable form for
transfer by delivery, or shall be accompanied by duly executed instruments of
transfer or assignment in blank, all in form and substance satisfactory to the
Secured Party. Upon the occurrence and during the continuance of an Event of
Default, the Secured Party shall have the right, at any time in its discretion
and without notice to the Pledgor, to transfer to or to register in the name of
the Secured Party or any of its nominees any or all of the Collateral.
Section 5. Representations and Warranties. The Pledgor represents and
------------------------------
warrants as follows:
(i) The Pledgor is the owner, beneficially and of record, of the
Collateral.
(ii) All legal proceedings have been taken that are necessary for
the execution, delivery, and performance of this Agreement and the Guaranty
by the Pledgor.
(iii) No authorization, approval, or other action by, and no
notice to or filing with, any governmental authority is required for the
exercise by the Secured Party of the voting or other rights provided for in
this Agreement or the remedies in respect of the Collateral pursuant to
this Agreement (except as may be required in connection with such
disposition by laws affecting the offering and sale of securities
generally).
(iv) The Security Interest constitutes a valid and, upon delivery
of the certificates evidencing the Shares, first perfected security
interest in all of the Collateral for payment and performance of the
Indebtedness.
(v) The Collateral is owned by the Pledgor free and clear of all
liens and encumbrances, except for the Security Interest and restrictions
on transfer arising under applicable securities laws.
All representations and warranties of the Pledgor contained herein shall survive
the execution, delivery, and performance of this Agreement until termination of
this Agreement under Section 18.
----------
Section 6. Further Assurances. The Pledgor agrees that at any time and
------------------
from time to time, at the expense of the Pledgor, the Pledgor will promptly
execute and deliver all further instruments and documents, and take all further
action, that the Secured Party may reasonably request in order to perfect and
protect the Security Interest granted or purported to be granted hereby or to
enable the Secured Party to exercise and enforce its rights and remedies
hereunder with respect to any Collateral.
Section 7. Voting Rights: Dividends; etc.
------------------------------
(a) So long as no Event of Default shall have occurred and be
continuing, the Pledgor shall be entitled to exercise any and all voting rights,
if any, and to receive and retain all dividends and other property from time to
time paid, payable or otherwise distributed in respect of the Collateral.
(b) Upon the occurrence and during the continuance of an Event of
Default, all rights of the Pledgor to vote the Collateral and receive any
distributions, which it would otherwise be authorized to receive and retain
pursuant to Section 7(a), shall cease, and all rights to vote and to
------------
STOCK PLEDGE AGREEMENT - Page 3
<PAGE>
receive such distributions and other property shall thereupon be vested in the
Secured Party, who shall thereupon have the sole right to receive and hold as
Collateral such distributions and other property. All dividends and other
property that are received by the Pledgor contrary to the provisions of this
Section 7(b) shall be received in trust for the benefit of the Secured Party,
- ------------
shall be segregated from other property or funds of the Pledgor, and shall be
forthwith delivered to the Secured Party as Collateral in the same form as so
received (with any necessary endorsement).
(c) The Secured Party agrees to release promptly to the Pledgor any
dividends, cash, securities, instruments, and other property paid, payable, or
otherwise distributed in respect of the Collateral that it may receive under
Section 7(b) if, prior to the occurrence of an Acceleration (as defined in
- ------------
Section 11 hereof), all Events of Default and events that, with notice and/or
- ----------
lapse of time, could become Events of Default have been waived or are no longer
continuing.
Section 8. Secured Party Appointed Attorney-in-Fact. The Pledgor hereby
----------------------------------------
irrevocably appoints the Secured Party the Pledgor's attorney-in-fact, with full
authority in the place and stead of the Pledgor and in its name or otherwise,
upon the occurrence of an Event of Default, to take action and to execute any
instrument that the Secured Party may deem reasonably necessary or advisable to
accomplish the purposes of this Agreement, including to receive, endorse, and
collect all instruments made payable to the Pledgor representing any dividend,
interest payment, or other distribution in respect to the Collateral or any part
thereof and to give full discharge for the same, when and to the extent
permitted by this Agreement.
Section 9. Secured Party May Perform. Upon the occurrence and during
-------------------------
the continuance of an Event of Default (including an Event of Default resulting
from a failure to perform any agreement contained herein), if the Pledgor fails
to perform any agreement contained herein, the Secured Party may itself perform,
or cause performance of, such agreement, and the expenses of the Secured Party
incurred in connection therewith shall be payable by the Pledgor under Section
-------
12.
- --
Section 10. Reasonable Care. The Secured Party shall have an obligation
---------------
to exercise reasonable care with respect to Collateral in its possession;
provided that the Secured Party shall be deemed to have exercised reasonable
care if the Collateral is accorded treatment substantially comparable to that
which the Secured Party accords its own property or treatment substantially in
accordance with actions requested by the Pledgor in writing (although the
Secured Party shall not be obligated to comply with any such requests and no
failure to do so shall be deemed to be a failure to exercise reasonable care).
It is agreed and understood that the Secured Party shall not have responsibility
for (a) ascertaining or taking action with respect to calls, conversions,
exchanges, maturities, tenders, or other matters relative to any Collateral,
whether or not the Secured Party has or is deemed to have knowledge of such
matters, or (b) taking any necessary steps to preserve rights against any
parties with respect to any Collateral.
Section 11. Events of Defaults; Remedies Upon Default. An "Event of
-----------------------------------------
Default" hereunder occurs if, prior to the payment and performance in full of
all the Indebtedness there occurs an Event of Default (as defined in the Note)
or if any representation or warranty contained in this Agreement or the Guaranty
is false in any respect or if Pledgor breaches or fails to perform any covenant
or obligation contained in this Agreement or in any other Armani Note Document.
If (a) upon or after the occurrence of any Event of Default, the Secured
Party elects to exercise remedies under this Agreement or (b) there occurs an
Event of Default that would entitle
STOCK PLEDGE AGREEMENT - Page 4
<PAGE>
the Secured Party to accelerate payment of any Indebtedness (the occurrence of
any such event shall be referred to as an "Acceleration"), then, whether or not
all Indebtedness shall have become immediately due and payable:
(a) The Secured Party may exercise (in compliance with all applicable
securities laws) in respect of the Collateral, in addition to other rights and
remedies provided for herein or otherwise available to it, all the rights and
remedies of a secured party after default under the Uniform Commercial Code in
effect in the State of Texas at that time, and the Secured Party may also,
without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any exchange, over
the counter or at any of the Secured Party's offices or elsewhere, for cash, on
credit or for future delivery, and at such price or prices and upon such other
terms as the Secured Party may deem commercially reasonable or otherwise in such
manner as necessary to comply with applicable federal and state securities laws.
Upon consummation of any such sale, the Secured Party shall have the right to
assign, transfer, and deliver to the purchaser or purchasers at any such sale
and such purchasers shall hold the property sold absolutely, free from any claim
or right on the part of the Pledgor, and the Pledgor hereby waives (to the
extent permitted by law) all rights of redemption, stay, or appraisal that it
now has or may at any time in the future have under any rule or law or statute
now existing or hereafter enacted.
To the extent notice of sale shall be required by law, the Secured Party
shall give the Pledgor at least ten days' (or such longer period as shall be
specified by applicable laws) notice of the time and place of any public sale or
the time after which any private sale is to be made, which the Pledgor agrees
shall constitute commercially reasonable notification. At any such sale, the
Secured Party, to the extent permitted by law, may bid (which bid may be, in
whole or in part, in the form of cancellation of Indebtedness) for and purchase
for the account of the Secured Party the whole or any part of the Collateral.
The Secured Party shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Secured Party may adjourn
any public or private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice, be made at the
time and place to which it was so adjourned. If sale of all or any part of the
Collateral is made on credit or for future delivery, the Collateral so sold may
be retained by the Secured Party until the sale price is paid by the purchaser
or purchasers thereof, but the Secured Party shall not incur any liability in
case any such purchaser or purchasers shall fail to take up and pay for the
Collateral so sold and, in case of any such failure, such Collateral may be sold
again upon like notice. The Pledgor agrees that any sale of the Collateral
conducted by the Secured Party in accordance with the foregoing provisions of
this Section 11(a) shall be deemed to be a commercially reasonable sale under
-------------
Section 9.504 of the Texas Business and Commerce Code, as amended.
- -------------
Because of the Securities Act of 1933, as amended, and, possibly, other
laws and regulations, there may be legal restrictions or limitations affecting
Lender in any attempts to dispose of certain portions of the Collateral in the
enforcement of its rights and remedies hereunder. For these reasons Secured
Party is hereby authorized by Pledgor, but not obligated, in the event of any
Event of Default hereunder giving rise to Secured Party's rights to sell or
otherwise dispose of the Collateral, to sell all or any part of the Collateral
at private sale, subject to investment letter or in any other manner that will
not require the Collateral, or any part thereof, to be registered in accordance
with the Securities Act of 1933, as amended, or the rules and regulations
promulgated thereunder, or any other law or regulation, at the best price
reasonably obtainable by Secured Party at any such private sale or other
disposition in the manner mentioned
STOCK PLEDGE AGREEMENT - Page 5
<PAGE>
above. Secured Party is also hereby authorized by Pledgor, but not obligated, to
take such actions, give such notices, obtain such consents, and do such other
things as Secured Party may deem required or appropriate in the event of a sale
or disposition of any of the Collateral. Pledgor clearly understands that
Secured Party may in its discretion approach a restricted number of potential
purchasers and that a sale under such circumstances may yield a lower price for
the Collateral, or any part or parts thereof, than would otherwise be obtainable
if same were registered and sold in the open market. Pledgor agrees that in the
event Secured Party shall, upon any Event of Default hereunder, sell the
Collateral, or any portion thereof, at such private sale or sales, Secured Party
shall have the right to rely upon the advice and opinion of any member firm of a
national securities exchange as to the best price reasonably obtainable upon
such private sale thereof and that such reliance shall be conclusive evidence
that Secured Party handled such matter in a commercially reasonable manner under
the Code.
As an alternative to exercising the power of sale herein conferred upon it,
the Secured Party may proceed by a suit or suits at law or in equity to
foreclose the security interest granted under this Agreement and to sell the
Collateral, or any portion thereof, pursuant to a judgment or decree of a court
or courts of competent jurisdiction.
(b) Any cash held by the Secured Party as Collateral and all cash
proceeds received by the Secured Party in respect of any sale of, collection
from, or other realization upon all or any part of the Collateral (i) prior to
the occurrence of an Acceleration shall be held by the Secured Party as
collateral for the Indebtedness and (ii) following the occurrence of an
Acceleration may be held by the Secured Party as Collateral and/or then or at
any time thereafter applied as follows: (x) first, to the payment to the Secured
Party of the costs and expenses of retaking, holding, and preparing for sale of
the Collateral and any other fees, expenses, claims, demands, losses, judgments,
damages, and liabilities arising out of or related to the Note or the Guaranty
that are payable to the Secured Party pursuant to Section 12, and (y) second, to
----------
the Secured Party for application against or on account of all or any part of
the Indebtedness.
(c) Any surplus of such cash or cash proceeds held by the Secured Party
and remaining after payment in full of all the Indebtedness shall be reassigned
and redelivered as provided in Section 18 hereof.
----------
Section 12. Expenses. The Pledgor will upon demand pay to the Secured
--------
Party the amount of any and all reasonable expenses, including the fees and
expenses of its counsel and of any experts and agents that the Secured Party may
incur in connection with (a) the administration of this Agreement, (b) the
custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (c) the exercise or enforcement of any
of the rights of the Secured Party hereunder, or (d) the failure by the Pledgor
to perform or observe any of the provisions hereof. Any amounts payable under
this Section 12 shall be payable, with interest, on demand, at 10% per annum and
----------
shall be additional Indebtedness secured by the Collateral.
Section 13. Security Interest Absolute. All rights of the Secured Party
--------------------------
hereunder, the Security Interest, and all obligations of the Pledgor hereunder,
shall be absolute and unconditional irrespective of:
STOCK PLEDGE AGREEMENT - Page 6
<PAGE>
(i) any lack of validity or enforceability of the Note or any
other document, agreement, or instrument relating to any or all of the
Indebtedness, or any Armani Note Document or any other document, agreement,
or instrument given as a guaranty of or security for the Note (the "Note
Documents");
(ii) any change in the time, manner, or place of payment of, or
in any other term of, all or any of the Indebtedness or any renewal or
extension of all or any of the Indebtedness or any other amendment or
waiver of or any consent to any departure from this Agreement or any other
Note Document; or
(iii) any sale, exchange, release, or nonperfection of any other
collateral, or any release of any guarantor or any Person liable in any
manner for the collection of any or all of the Indebtedness, or any
amendment or waiver of or consent to or departure from any guaranty, for
all or any of the Indebtedness.
Section 14. Waiver and Consent.
------------------
(a) The Pledgor acknowledges that the Security Interest created or
granted herein will secure the Indebtedness of Persons other than the Pledgor
and, in full recognition of that fact, the Pledgor consents and agrees that the
Secured Party may in its absolute and sole discretion, at any time and from time
to time, without notice or demand, and without affecting the enforceability or
security hereof. (i) modify, amend, extend, renew, accelerate, or otherwise
change the Indebtedness or any of its terms; (ii) decrease or increase the
Indebtedness; (iii) supplement, modify, amend, or waive any provision of, or
enter into or give any agreement, approval or consent with respect to, any Note
Document; (iv) accept new or additional instruments, documents, or agreements in
exchange for or relative to any of the Note Documents or the Indebtedness or any
part thereof; (v) accept payments on the Indebtedness; (vi) receive and hold
additional security or guaranties for the Indebtedness or any part thereof;
(vii) release, reconvey, terminate, waive, abandon, fail to perfect,
subordinate, exchange, substitute, transfer, or enforce any security or
guaranties and apply any security and direct the order or manner of sale
thereof, (viii) release any Person from any personal liability with respect to
the Indebtedness or any part thereof, and (ix) settle, release on terms
satisfactory to the Secured Party or by operation of applicable laws, or
otherwise liquidate or enforce any Indebtedness and any security or guaranty in
any manner, and consent to the transfer of any security.
(b) Upon the occurrence and during the continuance of an Event of
Default, the Secured Party may enforce this Agreement independently from any
other Note Document and independently of any other remedy, security, or guaranty
the Secured Party at any time may have or hold in connection with the
Indebtedness, and it shall not be necessary for the Secured Party to marshal
assets in favor of the Pledgor or any other Person or to proceed upon or against
and/or exhaust any other security or remedy before proceeding to enforce this
Agreement. The Pledgor expressly agrees that the Secured Party may proceed
against any or all of the Collateral or guaranties for the Indebtedness in such
order and in such manner as it shall determine in its sole and absolute
discretion. The Secured Party's rights hereunder shall be reinstated and
revived, and the enforceability of this Agreement shall continue, with respect
to any amount at any time paid on account of the Indebtedness that thereafter
shall be required to be restored or returned by the Secured Party upon
bankruptcy, insolvency, or reorganization of the Pledgor or the Company or
otherwise, all as though such amount had not been paid. The Security Interest
created or granted herein and the enforceability of this Agreement at all times
shall remain effective to secure the full
STOCK PLEDGE AGREEMENT - Page 7
<PAGE>
amount of all the Indebtedness even though the Indebtedness, or any part thereof
or any other security or guaranty therefor, may be or hereafter may become
invalid or otherwise unenforceable as against the Company or any guarantor and
whether or not the Pledgor or other guarantor shall have any personal liability
with respect thereto.
(c) The Pledgor expressly waives any and all defenses now or hereafter
arising or asserted by reason of (i) any disability or other defense of any
guarantor or of the Company with respect to the Indebtedness, (ii) the failure
of priority of any security for the Indebtedness, (iii) the cessation from any
cause whatsoever of the liability of any guarantor or of the Company (other than
by reason of the full payment and performance of all Indebtedness, (iv) any
failure of the Secured Party to give notice of sale or other disposition of any
property securing the Indebtedness to the Pledgor or any other Person or any
defect in any notice that may be given in connection with any sale or
disposition of any property securing the Indebtedness; (v) any failure of the
Secured Party to comply with applicable laws in connection with the sale or
other disposition of any property securing the Indebtedness, including any
failure of the Secured Party to conduct a commercially reasonable sale or other
disposition of any property securing the Indebtedness, (vi) any act or omission
of the Secured Party or others that directly or indirectly results in or aids
the discharge or release of any guarantor, the Company, or the Indebtedness or
any other security or guaranty therefor by operation of law or otherwise, (vii)
any law that provides that the obligation of a surety or guarantor musts neither
be larger in amount nor in other respects more burdensome than that of the
principal or that reduces a surety's or guarantor's obligation in proportion to
the principal's obligation, (viii) any failure of the Secured Party to file or
enforce a claim in any bankruptcy or other proceeding with respect to any
Person, (ix) the election by the Secured Party, in any bankruptcy proceeding of
any Person, of the application or nonapplication of Section 1111 (b)(2) of the
United States Bankruptcy Code, (x) any extension of credit or the grant of any
lien under Section 364 of the United States Bankruptcy Code, (xi) any use of
cash collateral under Section 363 of the United States Bankruptcy Code, (xii)
any agreement or stipulation with respect to the provision of adequate
protection in any bankruptcy proceeding of any Person, (xiii) the avoidance of
any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt,
liquidation, or dissolution proceeding commenced by or against any Person,
including any discharge of, or bar or stay against collecting, all or any of the
Indebtedness in or as a result of any such proceeding, or (xiv) any action taken
by the Secured Party that is authorized by this section or any other provision
of any Note Document.
(d) Pledgor hereby agrees not to seek enforcement of any of its rights
of subrogation, contribution, reimbursement, or indemnity and any and all
similar rights Pledgor may otherwise have against the Company at any time under
any state or federal statute, at law or in equity, until the Indebtedness shall
have been paid and performed in full.
(e) The Pledgor expressly waives all presentments, demands for payment
or performance, notices of nonpayment or nonperformance, protests, notices of
protest, notices of dishonor, and all other notices or demands of any kind or
nature whatsoever with respect to the Indebtedness, and all notices of
acceptance of this Agreement or of the existence, creation, or incurring of new
or additional Indebtedness.
(f) The Pledgor warrants and agrees that each of the waivers set forth
in this Agreement are made with full knowledge of their significance and
consequences and that, under the circumstances, the waivers are reasonable. If
any of such waivers are determined to be
STOCK PLEDGE AGREEMENT - Page 8
<PAGE>
contrary to any applicable law or public policy, such waivers shall be effective
to the maximum extent permitted by law. Should any one or more provisions of
this Agreement be determined to be illegal or unenforceable, all other
provisions thereof shall nevertheless remain effective.
Section 15. Amendments. No amendment or waiver of any provision of this
----------
Agreement nor consent to any departure by the Pledgor herefrom shall in any
event be effective unless the same shall be in writing and signed by the Secured
Party, and then such waiver or consent shall be effective only for the specific
purpose for which given.
Section 16. Waivers. Any party may waive any condition, covenant, term,
-------
or provision of this Agreement, but any such waiver shall be effective only (a)
if in writing and signed by the party sought to be bound by such waiver, (b)
with respect to the specific condition, covenant, term, or provision expressly
made the subject to such waiver (and no other condition, covenant, term, or
provision), and (c) for the specific instance(s) expressly set forth in such
waiver (and no earlier or subsequent instances). Without limiting the foregoing
sentence, none of the following will be constitute a waiver of the rights of a
party to this Agreement to demand exact compliance with the conditions,
covenants, terms, and provisions of this Agreement: (a) a failure of such party
to exercise any power reserved to it in this Agreement; (b) a failure of such
party to insist upon compliance by any other party to this Agreement with any
condition, covenant, term, or provision in this Agreement; (c) a delay,
forbearance, or omission of such party to exercise any power; or (d) any custom
or practice of the parties at variance with the terms of this Agreement. The
consent or approval of any party to this Agreement with respect to the act of
any other party to this Agreement shall not be deemed to waive or render
unnecessary consent to or approval of any subsequent similar act. Subsequent
acceptance by a party to this Agreement of any performance or payment due to it
hereunder or any ancillary agreement will not be deemed to be a waiver by such
first party of any preceding breach by any other party of any terms, provisions,
covenants, or conditions of this Agreement.
Section 17. Time is of the Essence; Cumulative Remedies. Time and
-------------------------------------------
exactitude of each of the terms, obligations, covenants, and conditions of this
Agreement are hereby declared to be of the essence. Except as otherwise
expressly set forth in this Agreement, each party's rights under this Agreement
are cumulative and neither the existence of, nor the exercise or enforcement by
a party of, any right or remedy under this Agreement shall preclude the exercise
or enforcement by such party of any other right or remedy under this Agreement,
any other Note Document, any other agreement, or law.
Section 18. Termination. This Agreement shall terminate when all the
-----------
Indebtedness has been fully paid and performed and the Note has been canceled.
Upon such termination, the Secured Party shall reassign and redeliver (or cause
to be reassigned and redelivered) to the Pledgor, or to such Person or Persons
as the Pledgor shall designate in writing or to whomever may be lawfully
entitled to receive such surplus pursuant to judicial order, against receipt,
such of the Collateral (if any) as shall not have been sold or otherwise applied
by the Secured Party pursuant to the terms hereof and shall still be held by it
hereunder, together with appropriate instruments of reassignment and release.
Any such reassignment shall be without recourse upon or warranty by the Secured
Party and at the expense of the Pledgor.
Section 19. Addresses for Notices. All notices, requests, demands, and
---------------------
other communications hereunder shall be in writing and shall be personally
delivered, delivered by facsimile or courier service, or mailed, certified with
first class postage prepaid, to the address set
STOCK PLEDGE AGREEMENT - Page 9
<PAGE>
forth below. Each such notice, request, demand, or other communication shall be
deemed to have been given (whether actually received or not) on the date of
actual delivery of such notice, request, demand, or other communication, if
personally delivered or delivered by facsimile transmission (if receipt is
confirmed at the time of such transmission by telephone or facsimile-machine-
generated confirmation), or on the third day following the date of mailing, if
mailed in accordance with this Paragraph, or on the day specified for delivery
to the courier service (if such day is one on which the courier service will
give normal assurances that such specified delivery will be made). Any notice,
request, demand, or other communication given otherwise than in accordance with
this Section shall be deemed to have been given on the date actually received.
Any party may change its address for purposes of this Section by giving written
notice of such change to all other parties in the manner hereinabove provided.
Whenever any notice is required to be given by law or by this Agreement, a
written waiver of such notice, signed by the Person entitled to notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of that notice.
Pledgor: Michael A. Armani
25111 Arctic Ocean
Lake Forest, California 92630
with a copy to:
Larry A. Cerutti, Esq.
Rutan & Tucker, LLP
611 Anton Boulevard, 14th Floor
Costa Mesa, California 92626
Secured Party: Saunders & Parker, Inc.
5735 Prestwick Lane
Dallas, Texas 75252
Attention: William C. Saunders
with a copy to:
Sally A. Schreiber
Munsch Hardt Kopf & Harr, P.C.
4000 Fountain Place
1445 Ross Avenue
Dallas, Texas 75202
Section 20. Continuing Security Interest; Assignments. This Agreement
-----------------------------------------
shall create a continuing security interest in the Collateral and shall (a)
remain in full force and effect until termination as provided in Section 18, (b)
----------
be binding upon the Pledgor, the Secured Party, and their respective heirs,
successors, and assigns, and (c) inure, together with the rights, powers, and
remedies of the Pledgor and the Secured Party hereunder, to the benefit of the
Pledgor, the Secured Party, and their respective heirs, successors, transferees,
and assigns, as the case may be. Notwithstanding the foregoing clause (b), the
Pledgor shall not, except as otherwise provided in this Agreement, be permitted
to assign this Agreement or any interest herein. Without limiting the
generality of the foregoing clause (c), the Secured Party may assign or
otherwise transfer all or any portion of its respective rights, benefits, and
obligations under the Indebtedness or any Note
STOCK PLEDGE AGREEMENT - Page 10
<PAGE>
Document to any other Person if such Person agrees in writing with the Pledgor
to be bound by the terms of this Agreement, and such other Person shall
thereupon become vested with all the benefits in respect thereof granted to such
Secured Party herein or otherwise. Unless the context of this Agreement
otherwise requires, references to "Secured Party" herein includes any subsequent
holder of any Indebtedness previously outstanding to a Secured Party.
Section 21. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
-------------
OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS APPLICABLE TO CONTRACTS TO BE
PERFORMED WHOLLY WITHIN SUCH STATE.
Section 22. Severability. Wherever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective. If any
provision of this Agreement is held to be illegal, invalid, or unenforceable
under present or future laws effective during the term of this Agreement, such
provision shall be fully severable and this Agreement shall be construed and
enforced as if such illegal, invalid, or unenforceable provision had never
comprised a part of this Agreement; the remaining provisions of this Agreement
shall remain in full force and effect and shall not be affected by the illegal,
invalid, or unenforceable provision or by its severance from this Agreement.
Furthermore, in lieu of each such illegal, invalid, or unenforceable provision,
there shall be added automatically as a part of this Agreement a provision as
similar in terms to such illegal, invalid, or unenforceable provision as may be
possible and be legal, valid, and enforceable. If any lien, security interest,
or other right of the Secured Party hereunder shall be held to be invalid,
illegal, or unenforceable under applicable law, such invalidity, illegality, or
unenforceability shall not affect any other provision herein or any lien,
security interest, or other right granted hereby.
Section 23. Construction. Unless the context of this Agreement otherwise
------------
clearly requires, references to the plural include the singular and the singular
the plural, and "or" has the inclusive meaning represented by the phrase
"and/or." The words "hereof," "herein," "hereunder," and similar terms in this
Agreement refer to this Agreement as a whole and not to any particular provision
of this Agreement. The term "including" and variations of the term mean
including without limitation. The term "Person" means any individual,
partnership, limited partnership, joint venture, corporation, limited liability
company, trust, estate, custodian, trustee, executor, administrator, nominee,
representative, unincorporated organization, sole proprietorship, trust,
employee benefit plan, tribunal, governmental entity, department, or agency, or
other entity. The section and other headings contained in this Agreement are for
reference purposes only and shall not control or affect the construction of this
Agreement or the interpretation thereof in any respect. Section, Subsection,
Exhibit, and Schedule references are to this Agreement unless otherwise
specified.
Section 24. NO ORAL AGREEMENTS. THIS AGREEMENT, TOGETHER WITH THE OTHER
------------------
NOTE DOCUMENTS AS WRITTEN, REPRESENT THE FINAL AGREEMENTS BETWEEN THE SECURED
PARTY AND THE PLEDGOR AND MAY NOT BE CONTRADICTED BY EVIDENCE OR PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE SECURED PARTY AND THE PLEDGOR WITH RESPECT
TO THE SUBJECT MATTER OF THIS AGREEMENT.
STOCK PLEDGE AGREEMENT - Page 11
<PAGE>
Section 25. No Strict Construction. This Agreement is the result of
----------------------
substantial negotiations among the parties and their counsel and has been
prepared by their joint efforts. Accordingly, the fact that counsel to one party
or another may have drafted this Agreement or any portion of this Agreement is
immaterial and this Agreement will not be strictly construed against any party.
Section 26. Counterparts. This Agreement may be executed in any number
------------
of counterparts and shall be effective when each party to this Agreement has
executed at least one counterpart, with the same effect as if all signing
parties had signed the same document. All counterparts will be construed
together and evidence only one agreement, which, notwithstanding the actual date
of execution of any counterpart, shall be deemed to be dated the day and year
first written above. In making proof of this Agreement, it shall not be
necessary to account for a counterpart executed by any party other than the
party against whom enforcement is sought or to account for more than one
counterpart executed by the party against whom enforcement is sought.
Section 27. Execution by Facsimile. The manual signature of any party to
----------------------
this Agreement that is transmitted to any other party or counsel to any other
party by facsimile shall be deemed for all purposes to be an original signature.
[THIS SPACE LEFT BLANK INTENTIONALLY.]
STOCK PLEDGE AGREEMENT - Page 12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized, as of the date first above written.
SECURED PARTY:
-------------
SAUNDERS & PARKER, INC.
By: ------------------------------------
William C. Saunders, Co-President
PLEDGOR:
-------
-----------------------------------
Michael A. Armani
STOCK PLEDGE AGREEMENT - Page 13
<PAGE>
EXHIBIT 5
GUARANTY
WHEREAS, eflex Wireless, Inc., a Delaware corporation ("eflex"), is
indebted to Saunders & Parker, Inc., a Texas corporation (the "Lender");
WHEREAS, Telenetics Corporation, a California corporation (the "Company"),
desires to acquire all of the outstanding stock of eflex and, as a condition to
such purchase, all of such obligations of eflex to Lender have been canceled and
the Company has agreed to repay such obligations to the Lender;
WHEREAS, the Company has, simultaneously with the delivery of this
Guaranty, repaid one-half of such obligations and delivered that certain
Promissory Note dated of even date herewith in the original principal amount of
$136,444.90 (as amended, modified, extended, or renewed from time to time, the
"Note"), which is the other one-half of such obligations; and
WHEREAS, the Lender has conditioned cancellation of such obligations from
eflex and the acceptance of the Note upon the execution and delivery of this
Guaranty by Michael A. Armani ("Guarantor");
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged and confessed, Guarantor hereby irrevocably and
unconditionally guarantees to the Lender the prompt payment and performance of
the Guaranteed Indebtedness (hereinafter defined), upon the following terms:
1. The term "Guaranteed Indebtedness" means all of the amounts due the
Lender that are evidenced by or that arise under the Note and include any and
all post-petition interest and expenses (including reasonable attorneys' fees)
whether or not allowed under any bankruptcy, insolvency, or other similar law.
2. This instrument shall be an absolute, continuing, irrevocable, and
unconditional guaranty of payment and performance, and not a guaranty of
collection, and Guarantor shall remain liable on its obligations hereunder until
the payment and performance in full of the Guaranteed Indebtedness.
3. If Guarantor becomes liable for any indebtedness owing by the Company
to the Lender by endorsement or otherwise, other than under this Guaranty, such
liability shall not be in any manner impaired or affected hereby, and the rights
of the Lender hereunder shall be cumulative of any and all other rights that the
Lender may ever have against Guarantor. The exercise by the Lender of any right
or remedy hereunder or under any other instrument, or at law or in equity, shall
not preclude the concurrent or subsequent exercise of any other right or remedy.
4. In the event of default by the Company in payment or performance of
the Guaranteed Indebtedness, or any part thereof, when such Guaranteed
Indebtedness becomes due, whether by its terms, by acceleration, or otherwise,
Guarantor shall promptly pay the amount due thereon to the Lender without notice
or demand (except as specifically set forth in the Note), in lawful currency of
the United States, and it shall not be necessary for the Lender, in order to
Guaranty, Page 1
<PAGE>
enforce such payment by Guarantor, first to institute suit or exhaust its
remedies against the Company or others liable on such Guaranteed Indebtedness,
or to enforce any rights against any collateral that shall ever have been given
to secure such Guaranteed Indebtedness. In no event shall Guarantor be
subrogated to the rights of the Lender with respect to the Guaranteed
Indebtedness, even to the extent to which the Guaranteed Indebtedness was
discharged by Guarantor. Furthermore, upon payment by Guarantor of any sums to
the Lender hereunder, all rights of Guarantor against the Company, whether
arising as a result therefrom by way of right of subrogation (which rights are
expressly waived by Guarantor), reimbursement, or otherwise, shall in all
respects be subordinate and junior in right of payment to the prior indefeasible
payment in full of the Guaranteed Indebtedness.
5. Guarantor hereby agrees that its obligations under this Guaranty shall
not be released, diminished, impaired, reduced, or affected by the occurrence of
any reason or event, including, without limitation, one or more of the following
events, whether or not with notice to or the consent of Guarantor: (a) the
taking or accepting of collateral as security for any or all of the Guaranteed
Indebtedness or the release, surrender, exchange, or subordination of any
collateral now or hereafter securing any or all of the Guaranteed Indebtedness;
(b) any partial release of the liability of Guarantor hereunder, or the release
of any other guarantor from liability for any or all of the Guaranteed
Indebtedness; (c) any dissolution, insolvency, or bankruptcy of the Company,
Guarantor, or any party at any time liable for the payment of any or all of the
Guaranteed Indebtedness; (d) any renewal, extension, modification, waiver,
amendment, or rearrangement of any or all of the Guaranteed Indebtedness or any
instrument, document, or agreement evidencing, securing, or otherwise relating
to any or all of the Guaranteed Indebtedness; (e) any adjustment, indulgence,
forbearance, waiver, or compromise that may be granted or given by the Lender to
the Company, Guarantor, or any other party ever liable for any or all of the
Guaranteed Indebtedness; (f) any neglect, delay, omission, failure, or refusal
of the Lender to take or prosecute any action for the collection of any of the
Guaranteed Indebtedness or to foreclose or take or prosecute any action in
connection with any instrument, document, or agreement evidencing, securing, or
otherwise relating to any or all of the Guaranteed Indebtedness; (g) the
unenforceability or invalidity of any or all of the Guaranteed Indebtedness or
any instrument, document, or agreement evidencing, securing, or otherwise
relating to any or all of the Guaranteed Indebtedness; (h) any payment by the
Company or Guarantor to the Lender is held to constitute a preference under the
bankruptcy laws or if for any other reason the Lender is required to refund such
payment or pay the amount thereof to someone else; (i) the settlement or
compromise of any of the Guaranteed Indebtedness; (j) the failure of the Lender
to perfect or continue any security interest or lien securing any or all of the
Guaranteed Indebtedness; (k) the failure of the Lender to preserve, protect,
maintain, or insure any collateral securing any or all of the Guaranteed
Indebtedness; (l) the failure of the Lender to sell any collateral securing any
or all of the Guaranteed Indebtedness in a commercially reasonable manner or as
otherwise required by law; or (m) any other circumstance that might otherwise
constitute a defense available to, or discharge of, the Company or Guarantor.
6. No failure on the part of the Lender to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by the other
Guaranty, Page 2
<PAGE>
Note Documents (as defined in the Note) or by law.
7. This Guaranty is for the benefit of the Lender and its successors and
assigns, and in the event of an assignment of the Guaranteed Indebtedness, or
any part thereof, the rights and benefits hereunder, to the extent applicable to
the indebtedness so assigned, may be transferred with such indebtedness. This
Guaranty is binding on Guarantor and Guarantor's heirs, successors, and assigns.
8. Any acknowledgment or new promise, whether by payment of principal or
interest or otherwise and whether by the Company or others (including
Guarantor), with respect to any of the Guaranteed Indebtedness shall, when the
statute of limitations in favor of Guarantor against the Lender shall commence
to run, toll the running of such statute of limitations and, if the period of
such statute of limitations shall have expired, prevent the operation of such
statute of limitations.
9. Guarantor recognizes that the Lender is relying upon this Guaranty and
the undertakings of Guarantor hereunder in making an extension of credit to the
Company under the Note and further recognizes that the execution and delivery of
this Guaranty is a material inducement to the Lender's cancellation of
obligations from eflex and acceptance of the Note. No condition to the full
effectiveness of this Guaranty exists.
10. This Guaranty shall be governed by and construed in accordance with
the laws of the State of Texas and the applicable laws of the United States of
America.
11. Guarantor hereby waives promptness, diligence, demand of payment,
notice of acceptance of this Guaranty, presentment, notice of protest, notice of
dishonor, notice of the incurring by the Company of additional indebtedness, and
all other notices and demands with respect to the Guaranteed Indebtedness and
this Guaranty except as specifically set forth in the Note.
12. Guarantor agrees that the Lender may exercise any and all rights
granted to it under the Note and the other Note Documents (as defined in the
Note) without affecting the validity or enforceability of this Guaranty.
13. Guarantor hereby represents and warrants to the Lender that Guarantor
has adequate means to obtain from the Company on a continuing basis information
concerning the financial condition of the Company and that Guarantor is not
relying upon the Lender to provide (and the Lender shall have a duty to provide)
any such information to Guarantor either now or in the future.
14. This Guaranty embodies the final, entire agreement of the Guarantor
with respect to the guaranty of the Guaranteed Indebtedness and supersedes any
and all prior commitments, agreements, representations, and understandings,
whether written or oral, relating to the subject matter hereof. This Guaranty
is intended by Guarantor as a final and complete expression of the terms of the
Guaranty. No course of dealing between Guarantor and the Lender, no usage of
trade, and no parol or extrinsic evidence of any nature shall be used to
supplement or modify any term hereof.
Guaranty, Page 3
<PAGE>
[THIS SPACE LEFT BLANK INTENTIONALLY.]
Guaranty, Page 4
<PAGE>
EXECUTED on January __, 2000, be effective as of January 7, 2000.
GUARANTOR:
----------
------------------------------------
Michael A. Armani
<PAGE>
EXHIBIT 6
PROMISSORY NOTE
---------------
$136,444.90 Dallas, Texas January 7, 2000
FOR VALUE RECEIVED, the undersigned, Telenetics Corporation, a California
corporation ("Maker"), hereby unconditionally promises to pay to the order of
Saunders & Parker, Inc., a Texas corporation ("Lender"), or other holder of this
Note (Lender or such holder being called "Payee"), at 5735 Prestwick Lane,
Dallas, Texas 75252, or at such other address given by Payee to Maker, the
principal sum of One Hundred Thirty Six Thousand Four Hundred Forty-Four and
90/100 Dollars ($136,444.90), together with interest thereon at the rate of 10%
per annum. All payments of interest shall be computed on the per annum basis of
a 360-day year composed of twelve 30-day months.
1. Post-Maturity Interest. The entire unpaid principal balance of this
----------------------
Note from day to day outstanding shall, from and after maturity, bear interest
at the highest lawful rate.
2. Payment Terms. The principal of and interest on this Note shall be
-------------
paid as follows:
(a) Principal of and interest on this Note shall be due and payable in
full on February 15, 2000.
(b) Maker shall have the right to prepay all or any part of this Note,
without premium or penalty, prior to the date of maturity.
3. Application of Payments. All payments and prepayments on this Note
-----------------------
shall be applied first to accrued but unpaid interest and then to unpaid
principal in inverse order of maturity.
4. Security. Payment of this Note is secured as set forth in that
--------
certain Stock Pledge Agreement (herein so called) and that certain Guaranty
(herein so called), each dated the date of this Note and executed by Michael A.
Armani ("Armani").
5. Costs of Collection. If this Note is placed in the hands of an
-------------------
attorney for collection, Maker agrees to pay the reasonable attorneys' fees and
costs of collection of the holder hereof.
6. Events of Default and Remedies. The entire unpaid principal balance
------------------------------
of, and all accrued and unpaid interest on, this Note shall immediately become
due and payable at the option of Payee upon the occurrence of one or more of the
following events of default (individually and collectively, hereinafter called a
"Default"):
(a) The failure or refusal of Maker to pay all or any part of the
principal of or accrued interest on this Note as and when the same becomes
due and payable in accordance with the terms hereof, and the continuation
of such failure or refusal for a period of ten days after notice thereof to
Maker from Payee; or
(b) Maker shall (i) voluntarily seek, consent to, or acquiesce in the
benefit or benefits of the Bankruptcy Code of the United States of America
or any other applicable liquidation, conservatorship, bankruptcy,
moratorium, rearrangement, receivership, insolvency, reorganization,
suspension of payments, or similar debtor relief law from time
--------
Page 1 Initials
<PAGE>
to time in effect affecting the rights of creditors generally ("Debtor
Relief Laws") or dissolve or liquidate, or (ii) be made the subject of any
proceeding provided for by any Debtor Relief Law that could suspend or
otherwise affect any of the rights of the holder hereof; provided, however,
if such proceeding described in this clause (ii) is withdrawn or dismissed
within 60 days from the date of the institution of such proceeding, then
such event shall no longer be deemed a Default hereunder; or
(c) The failure of Armani to deliver the Collateral (as defined in the
Stock Pledge Agreement) pursuant to and as required by the Stock Pledge
Agreement by the close of business on January 17, 2000, or the failure of
any of the representations or warranties made by Armani in the Stock Pledge
Agreement to be true and correct when made; or
(d) The failure or refusal by Maker to perform any of its obligations
under this Note (other than those described in (a) immediately above) if
such failure or refusal continues for a period of 30 days after notice
thereof to Maker from Payee; or
(e) The occurrence of a default under the Stock Pledge Agreement or
the Guaranty or any other document, instrument, or agreement executed to
provide a guaranty of or security for this Note (each, a "Note Document").
In the event a Default shall have occurred and be continuing, Payee may
proceed to protect and enforce its rights hereunder and under the Note Documents
either by suit in equity and/or by action at law, or by other appropriate
proceedings, whether for the specific performance of any covenant or agreement
contained herein or in any of the Note Documents or in aid of the exercise of
any power or right granted by this Note or any of the Note Documents or to
enforce any other legal or equitable right of Payee.
--------
Page 2 Initials
<PAGE>
7. Usury Savings Clause. Regardless of any provision contained in this
--------------------
Note or any of the other Note Documents, (a) Payee shall never be deemed to
have contracted for or be entitled to receive, collect, or apply as interest on
this Note any amount in excess of the maximum rate of non-usurious interest
permitted by applicable law; (b) in no event shall Maker be obligated to pay
interest exceeding such maximum legal rate; and (c) all agreements, conditions,
or stipulations, if any, that may in any event or contingency whatsoever operate
to bind, obligate, or compel Maker to pay a rate of interest exceeding the
maximum legal rate shall be without binding force or effect, at law or in
equity, to the extent only of the excess of interest over such maximum legal
rate. If any interest is charged in excess of the maximum legal rate
(hereinafter referred to as "Excess"), Maker acknowledges and stipulates that
any such charge shall be the result of an accidental and bona fide error, and
such Excess shall be first applied to reduce the principal then unpaid
hereunder; second, applied to any other obligation of Maker to Payee, and third,
returned to Maker, it being the intention of the parties hereto not to enter at
any time into an usurious or other illegal relationship. Maker recognizes that
such an unintentional result could inadvertently occur. By the execution of
this Note, Maker covenants that (a) the credit or return of any Excess shall
constitute the acceptance by Maker of such Excess and (b) Maker shall not seek
or pursue any other remedy, legal or equitable, against Payee or any holder
hereof based, in whole or in part, upon the charging or receiving of any
interest in excess of the maximum legal rate. For the purpose of determining
whether or not any Excess has been contracted for, charged, or received by
Payee, Payee and Maker shall, to the maximum, extent permitted by applicable
law, (a) characterize any non-principal payment (other than payments that are
expressly designated as interest payments under this Note) as an expense, fee,
or premium and not as interest; (b) exclude the effects of voluntary
prepayments; and (c) spread, amortize, prorate, and allocate all interest at any
time contracted for, charged, or received by Payee in equal parts during the
entire term of this Note.
8. Waivers. Maker and each surety, endorser, guarantor, and other party
-------
liable for the payment of any sums of money payable on this Note severally waive
presentment and demand for payment, protest, and notice of protest and
nonpayment and agree that their liability on this Note shall not be affected by
any renewal or extension in the time of payment hereof or by any release or
change in any security for the payment of this Note, regardless of the number of
such renewals, extensions, releases, or changes.
9. Business Days. In any case where a payment of principal or interest
-------------
hereon is due on a day which is not a Business Day, Maker shall be entitled to
delay such payment until the next succeeding Business Day, but interest shall
continue to accrue until the payment is, in fact, made. As used herein,
"Business Day" means every day other than a Saturday, Sunday, or other day on
which national banks in the State of Texas are not required to be open for
business.
Maker:
TELENETICS CORPORATION
By:
---------------------------------------------
Its:
---------------------------------------------
Page 3
<PAGE>
EXHIBIT 7
SCHEDULE 13D
TERRY S. PARKER
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
Telenetics Corporation
--------------------------------------------------------
(Name of Issuer)
Common Stock
--------------------------------------------------------
(Title of Class of Securities)
87943P408
--------------------------------------------------------
(CUSIP Number)
Terry S. Parker
c/o Saunders & Parker, Inc.
5735 Prestwick Lane
Dallas, TX 75252
(972)732-0712
With a copy to:
Sally A. Schreiber, Esq.
Munsch Hardt Kopf & Harr, P.C.
4000 Fountain Place
1445 Ross Avenue
Dallas, TX 75202
(214) 855-7500
--------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
January 7, 2000
--------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of (S) (S) 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check
the following box [ ].
NOTE: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 240.13d-7 for other
parties to whom copies are to be sent.
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which could alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
(Continued on following page(s))
<PAGE>
Page 2 of 6 Pages
CUSIP No. 87943P408 Schedule 13D
- -------------------------------------------------------------------------------
(1) Names of reporting person. I.R.S. Identification Nos. of Above
Person
Terry S. Parker
- -------------------------------------------------------------------------------
(2) Check the Appropriate Box if a Member (a) [ ]
(b) [X]
- -------------------------------------------------------------------------------
(3) SEC Use Only ___________________
- -------------------------------------------------------------------------------
(4) Source of Funds
PF
- -------------------------------------------------------------------------------
(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e)
[ ]
- -------------------------------------------------------------------------------
(6) Citizenship or Place of Organization
United States of America
- -------------------------------------------------------------------------------
Number of Shares (7) Sole Voting
Beneficially Owned Power
by Each Reporting 1,416,179/1/
Person With --------------------------------------------------
(8) Shared Voting
Power
1,100,000/2/
--------------------------------------------------
(9) Sole Dispositive
Power
1,416,179/1/
--------------------------------------------------
(10) Shared Dispositive
Power
1,100,000/2/
- -------------------------------------------------------------------------------
(11) Aggregate Amount Beneficially Owned by Each Reporting Person
2,516,179/3/
- -------------------------------------------------------------------------------
(12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares
[ ]
- -------------------------------------------------------------------------------
(13) Percent of Class Represented by Amount in Row (11)
19.6%
- -------------------------------------------------------------------------------
(14) Type of Reporting Person
IN
- -------------------------------------------------------------------------------
- -------------------------
/1/ Of these shares, 168,750 are actually owned by the Reporting Person and
1,247,129 are not currently owned but may be acquired if certain conditions are
met.
/2/ These shares are shares that Saunders & Parker, Inc., a Texas corporation
("S&P"), of which the Reporting Person is an executive officer, director, and
50% shareholder, does not currently own but may acquire. Of these shares,
600,000 are subject to an exercisable option held by S&P and 500,000 are pledged
to S&P.
/3/ See notes 1 and 2 above.
<PAGE>
Page 3 of 6 Pages
ITEM 1. SECURITY AND ISSUER
Common stock, no par value, of Telenetics Corporation, a California
corporation ("Common Stock") whose principal executive offices are at
251 11 Arctic Ocean, Lake Forest, CA 92630 ("Telenetics")
ITEM 2. IDENTITY AND BACKGROUND
(a) The name of the Reporting Person (herein so called) is Terry S.
Parker.
(b) The Reporting Person's business address is c/o Saunders & Parker,
Inc., 5735 Prestwick Lane, Dallas, TX 75252.
(c) The Reporting Person's present principal occupation is as Co-
President of S&P, which has its principal business and office
address at 5735 Prestwick Lane, Dallas, TX 75252. The principal
business of S&P is consulting and investment.
(d) In the past five years, the Reporting Person has not been
convicted in a criminal proceeding (excluding traffic violations
or similar misdemeanors).
(e) In the past five years, the Reporting Person has not been a party
to a civil proceeding of a judicial or administrative body of
competent jurisdiction where as a result of such proceeding the
Reporting Person was or is subject to a judgment, decree, or final
order enjoining future violations of, or prohibiting or mandating
activities subject to, federal or state securities laws or finding
any violation with respect to such laws.
(f) The Reporting Person is a citizen of the United States of America.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
The Reporting Person acquired 168,750 shares of Common Stock and the
potential to receive up to an additional 1,247,429 shares of Common
Stock as consideration for the sale of 2,250 shares of common stock of
eflex Wireless, Inc., a Delaware corporation ("eflex"), owned by the
Reporting Person pursuant to the terms of that certain Stock Purchase
Agreement dated January 7, 2000 (the "Stock Purchase Agreement"),
executed by Telenetics, the Reporting Person, and others, a copy of
which is filed as an exhibit to this Schedule 13D.
The Reporting Person is a Co-President, director, and 50% shareholder
of S&P. As a result, the Reporting Person may also be deemed to be the
beneficial owner of the 1,100,000 shares of Common Stock that are
deemed to be beneficially owned by S&P. Of those 1,100,000 shares, six
hundred thousand are subject to options (the "Options") held by S&P
that are presently exercisable at $1.75 per share and the remaining
five hundred thousand shares (the "Pledged Shares") are held by S&P as
security for payment of a note, all as discussed in more detail below.
S&P beneficially owns the Options pursuant to that certain Non-
Qualified Stock Option Agreement dated January 7, 2000, executed by
Telenetics("Non-Qualified Stock Option Agreement"), a copy of which is
filed as an exhibit to this Schedule 13D. The Options were granted by
Telenetics as partial consideration for the services to be provided by
S&P under that certain Consulting Agreement, dated January 7, 2000,
<PAGE>
Page 4 of 6 Pages
("Consulting Agreement"), executed by Telenetics and S&P. A copy of the
Consulting Agreement is filed as an exhibit to this Schedule 13D.
The Pledged Shares were pledged to S&P pursuant to that certain Pledge
Agreement dated January 7, 2000 ("Stock Pledge Agreement"), executed
personally by Michael A. Armani, the President and a director of
Telenetics, which was executed in connection with that certain Guaranty
dated January 7, 2000 (the "Guaranty"), executed by Michael A. Armani,
which, in turn, was executed in connection with that certain Promissory
Note dated January 7, 2000 (the "Note"), executed by Telenetics and
payable to the order of S&P. The Note evidences certain liabilities
assumed by Telenetics in connection with the Stock Purchase Agreement.
ITEM 4. PURPOSE OF TRANSACTION
The Reporting Person, among others, owned shares of the common stock of
eflex. Telenetics desired to purchase all of the outstanding shares of
eflex. After negotiations between the individual shareholders of eflex
and Telenetics, each share of common stock of eflex was purchased by
Telenetics for 75 shares of Common Stock of Telenetics and the right to
receive up to an additional 554.4 shares of Common Stock through an
earn-out provision in the Stock Purchase Agreement./4/ The Reporting
Person acquired beneficial ownership of the shares of Common Stock
under the Stock Purchase Agreement for investment purposes. Pursuant to
the Stock Purchase Agreement, Telenetics will use its best efforts to
elect either the Reporting Person or William C. Saunders ("Saunders"),
the other Co-President of S&P, to the board of directors of Telenetics.
If the Reporting Person is not elected to the board of directors, he
will be an adviser to the board of directors of Telenetics. Each of the
Reporting Person and Saunders became an adviser to the Telenetics board
of directors on January 7, 2000.
For information concerning the purpose for the acquisition of
beneficial ownership of Common Stock by S&P that the Reporting Person
may be deemed to beneficially own, please see Item 4 of the Schedule
13D executed by S&P on January 18, 2000, with respect to Telenetics, a
copy of which is filed as an exhibit to this Schedule 13D, which
information is incorporated herein by reference.
Except as set forth above, the Reporting Person does not currently have
any plans or proposals with respect to any of the matters described in
(a) through (j) of Item 4 of Schedule 13D.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) Number of shares of Common Stock deemed to be beneficially owned
by Reporting Person: 2,516,179
Percentage of class of securities deemed to be beneficially owned
by Reporting Person: 19.6%
(b) Number of shares deemed to be beneficially owned by Reporting
Person as to which it has the sole power to vote: 1,416,179
- -------------------------
/4/ If the conditions for the earn-out shares are met, an aggregate of 5,544,129
additional shares of Common Stock of Telenetics will be issued to the former
shareholders of eflex but, in accordance with SEC regulations, only the
additional shares to be issued to the Reporting Person are used in calculating
the percentage of shares beneficially owned by the Reporting Person.
<PAGE>
Page 5 of 6 Pages
Number of shares deemed to be beneficially owned by Reporting
Person as to which it has the shared power to vote: 1,100,000
Number of shares deemed to be beneficially owned by Reporting
Person as to which it has the sole power to dispose: 1,416,179
Number of shares deemed to be beneficially owned by Reporting
Person as to which it has the shared power to dispose: 1,100,000
The power to vote and dispose of the 600,000 shares subject to the
Options and the 500,000 Pledged Shares would be held by S&P if the
Options were exercised and/or an event of default under the Stock
Pledge Agreement exists, respectively. Saunders, a Co-President,
director and 50% Shareholder of S&P, and the Reporting Person, who
is also a Co-President, director, and 50% shareholder of S&P,
would share the right to vote or to direct the vote and the power
to dispose or influence the disposition of such shares as a result
of such positions. For information on Saunders and S&P, please see
Item 2 of the Schedule 13D executed by each of them on January 18,
2000, with respect to Telenetics, a copy of each of which is filed
as an exhibit to this Schedule 13D, which information is
incorporated herein by reference.
(c) The Reporting Person has not had any transactions in Telenetics
Common Stock, except as described herein. The transactions
described herein occurred on January 7, 2000.
(d) Except as described in Item 5(b), no other person is known to have
the right to receive or the power to direct the receipt of
dividends from, or the proceeds from the sale of, the securities
listed in Item 5(a).
(e) Not Applicable
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER.
Reference is made to the Stock Purchase Agreement, the Non-Qualified
Stock Option Agreement, the Consulting Agreement, the Stock Pledge
Agreement, the Guaranty, and the Note. A copy of each of the
aforementioned is filed as an Exhibit to this Schedule 13D filing. For
information on Saunders and S&P, as required in Instruction C, please
see Item 6 of the Schedule 13D executed by each of them on January 18,
2000, with respect to Telenetics, a copy of each of which is filed as
an exhibit to this Schedule 13D, which information is incorporated
herein by reference.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
The following agreement is filed as an exhibit to this Schedule 13D;
(1) Stock Purchase Agreement
(2) Non-Qualified Stock Option Agreement
(3) Consulting Agreement
(4) Stock Pledge Agreement
(5) Guaranty
(6) Note
(7) Schedule 13D of S&P with respect to Telenetics dated
January 18, 2000
(8) Schedule 13D of Saunders with respect to Telenetics
dated January 18, 2000
<PAGE>
Page 6 of 6 Pages
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
January 18, 2000
----------------------------------------
(Date)
/s/ TERRY S. PARKER
----------------------------------------
(Signature)
Terry S. Parker
<PAGE>
EXHIBIT 8
SCHEDULE 13D
William C. Saunders
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
Telenetics Corporation
--------------------------------------------------------
(Name of Issuer)
Common Stock
--------------------------------------------------------
(Title of Class of Securities)
87943P408
--------------------------------------------------------
(CUSIP Number)
William C. Saunders
5735 Prestwick Lane
Dallas, TX 75252
(972)732-0712
With a copy to:
Sally A. Schreiber, Esq.
Munsch Hardt Kopf & Harr, P.C.
4000 Fountain Place
1445 Ross Avenue
Dallas, TX 75202
(214) 855-7500
--------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
January 7, 2000
--------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of (S) (S) 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check
the following box [ ].
NOTE: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 240.13d-7 for other
parties to whom copies are to be sent.
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which could alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
(Continued on following page(s))
<PAGE>
Page 2 of 6 Pages
CUSIP No. 87943P408 Schedule 13D
- -------------------------------------------------------------------------------
(1) Names of reporting person. I.R.S. Identification Nos. of Above
Person
William C. Saunders
- -------------------------------------------------------------------------------
(2) Check the Appropriate Box if a Member (a) [ ]
(b) [X]
- -------------------------------------------------------------------------------
(3) SEC Use Only ___________________
- -------------------------------------------------------------------------------
(4) Source of Funds
PF
- -------------------------------------------------------------------------------
(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e)
[ ]
- -------------------------------------------------------------------------------
(6) Citizenship or Place of Organization
United States of America
- -------------------------------------------------------------------------------
Number of Shares (7) Sole Voting
Beneficially Owned Power
by Each Reporting 1,416,179/1/
Person With --------------------------------------------------
(8) Shared Voting
Power
1,100,000/2/
--------------------------------------------------
(9) Sole Dispositive
Power
1,416,179/1/
--------------------------------------------------
(10) Shared Dispositive
Power
1,100,000/2/
- -------------------------------------------------------------------------------
(11) Aggregate Amount Beneficially Owned by Each Reporting Person
2,516,179/3/
- -------------------------------------------------------------------------------
(12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares
[ ]
- -------------------------------------------------------------------------------
(13) Percent of Class Represented by Amount in Row (11)
19.6%
- -------------------------------------------------------------------------------
(14) Type of Reporting Person
IN
- -------------------------------------------------------------------------------
- -------------------------
/1/ Of these shares, 168,750 are actually owned by the Reporting Person and
1,247,129 are not currently owned but may be acquired if certain conditions are
met.
/2/ These shares are shares that Saunders & Parker, Inc., a Texas corporation
("S&P"), of which the Reporting Person is an executive officer, director, and
50% shareholder, does not currently own but may acquire. Of these shares,
600,000 are subject to an exercisable option held by S&P and 500,000 are pledged
to S&P.
/3/ See notes 1 and 2 above.
<PAGE>
Page 3 of 6 Pages
ITEM 1. SECURITY AND ISSUER
Common stock, no par value, of Telenetics Corporation, a California
corporation ("Common Stock") whose principal executive offices are at
25111 Arctic Ocean, Lake Forest, CA 92630 ("Telenetics")
ITEM 2. IDENTITY AND BACKGROUND
(a) The name of the Reporting Person (herein so called) is William C.
Saunders.
(b) The Reporting Person's business address is c/o Saunders & Parker,
Inc., 5735 Prestwick Lane, Dallas, TX 75252.
(c) The Reporting Person's present principal occupation is as Co-
President of S&P, which has its principal business and office
address at 5735 Prestwick Lane, Dallas, TX 75252. The principal
business of S&P is consulting and investment.
(d) In the past five years, the Reporting Person has not been
convicted in a criminal proceeding (excluding traffic violations
or similar misdemeanors).
(e) In the past five years, the Reporting Person has not been a party
to a civil proceeding of a judicial or administrative body of
competent jurisdiction where as a result of such proceeding the
Reporting Person was or is subject to a judgment, decree, or final
order enjoining future violations of, or prohibiting or mandating
activities subject to, federal or state securities laws or finding
any violation with respect to such laws.
(f) The Reporting Person is a citizen of the United States of America.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
The Reporting Person acquired 168,750 shares of Common Stock and the
potential to receive up to an additional 1,247,429 shares of Common
Stock as consideration for the sale of 2,250 shares of common stock of
eflex Wireless, Inc., a Delaware corporation ("eflex"), owned by the
Reporting Person pursuant to the terms of that certain Stock Purchase
Agreement dated January 7, 2000 (the "Stock Purchase Agreement"),
executed by Telenetics, the Reporting Person, and others, a copy of
which is filed as an exhibit to this Schedule 13D.
The Reporting Person is a Co-President, director, and 50% shareholder
of S&P. As a result, the Reporting Person may also be deemed to be the
beneficial owner of the 1,100,000 shares of Common Stock that are
deemed to be beneficially owned by S&P. Of those 1,100,000 shares, six
hundred thousand are subject to options (the "Options") held by S&P
that are presently exercisable at $1.75 per share and the remaining
five hundred thousand shares (the "Pledged Shares") are held by S&P as
security for payment of a note, all as discussed in more detail below.
S&P beneficially owns the Options pursuant to that certain Non-
Qualified Stock Option Agreement dated January 7, 2000, executed by
Telenetics("Non-Qualified Stock Option Agreement"), a copy of which is
filed as an exhibit to this Schedule 13D. The Options were granted by
Telenetics as partial consideration for the services to be provided by
S&P under that certain Consulting Agreement, dated January 7, 2000
<PAGE>
Page 4 of 6 Pages
("Consulting Agreement"), executed by Telenetics and S&P. A copy of the
Consulting Agreement is filed as an exhibit to this Schedule 13D.
The Pledged Shares were pledged to S&P pursuant to that certain Pledge
Agreement dated January 7, 2000 ("Stock Pledge Agreement"), executed
personally by Michael A. Armani, the President and a director of
Telenetics, which was executed in connection with that certain Guaranty
dated January 7, 2000 (the "Guaranty"), executed by Michael A. Armani,
which, in turn, was executed in connection with that certain Promissory
Note dated January 7, 2000 (the "Note"), executed by Telenetics and
payable to the order of S&P. The Note evidences certain liabilities
assumed by Telenetics in connection with the Stock Purchase Agreement.
ITEM 4. PURPOSE OF TRANSACTION
The Reporting Person, among others, owned shares of the common stock of
eflex. Telenetics desired to purchase all of the outstanding shares of
eflex. After negotiations between the individual shareholders of eflex
and Telenetics, each share of common stock of eflex was purchased by
Telenetics for 75 shares of Common Stock of Telenetics and the right to
receive up to an additional 554.4 shares of Common Stock through an
earn-out provision in the Stock Purchase Agreement./4/ The Reporting
Person acquired beneficial ownership of the shares of Common Stock
under the Stock Purchase Agreement for investment purposes. Pursuant to
the Stock Purchase Agreement, Telenetics will use its best efforts to
elect either the Reporting Person or Terry S. Parker ("Parker"), the
other Co-President of S&P, to the board of directors of Telenetics. If
the Reporting Person is not elected to the board of directors, he will
be an adviser to the board of directors of Telenetics. Each of the
Reporting Person and Parker became an adviser to the Telenetics board
of directors on January 7, 2000.
For information concerning the purpose for the acquisition of
beneficial ownership of Common Stock by S&P that the Reporting Person
may be deemed to beneficially own, please see Item 4 of the Schedule
13D executed by S&P on January 18, 2000, with respect to Telenetics, a
copy of which is filed as an exhibit to this Schedule 13D, which
information is incorporated herein by reference.
Except as set forth above, the Reporting Person does not currently have
any plans or proposals with respect to any of the matters described in
(a) through (j) of Item 4 of Schedule 13D.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) Number of shares of Common Stock deemed to be beneficially owned
by Reporting Person: 2,516,179
Percentage of class of securities deemed to be beneficially owned
by Reporting Person: 19.6%
(b) Number of shares deemed to be beneficially owned by Reporting
Person as to which it has the sole power to vote: 1,416,179
- -------------------------
/4/ If the conditions for the earn-out shares are met, an aggregate of 5,544,129
additional shares of Common Stock of Telenetics will be issued to the former
shareholders of eflex but, in accordance with SEC regulations, only the
additional shares to be issued to the Reporting Person are used in calculating
the percentage of shares beneficially owned by the Reporting Person.
<PAGE>
Page 5 of 6 Pages
Number of shares deemed to be beneficially owned by Reporting
Person as to which it has the shared power to vote: 1,100,000
Number of shares deemed to be beneficially owned by Reporting
Person as to which it has the sole power to dispose: 1,416,179
Number of shares deemed to be beneficially owned by Reporting
Person as to which it has the shared power to dispose: 1,100,000
The power to vote and dispose of the 600,000 shares subject to the
Options and the 500,000 Pledged Shares would be held by S&P if the
Options were exercised and/or an event of default under the Stock
Pledge Agreement exists, respectively. Parker, a Co-President,
director and 50% Shareholder of S&P, and the Reporting Person, who
is also a Co-President, director, and 50% shareholder of S&P,
would share the right to vote or to direct the vote and the power
to dispose or influence the disposition of such shares as a result
of such positions. For information on Parker and S&P, please see
Item 2 of the Schedule 13D executed by each of them on January 18,
2000, with respect to Telenetics, a copy of each of which is filed
as an exhibit to this Schedule 13D, which information is
incorporated herein by reference.
(c) The Reporting Person has not had any transactions in Telenetics
Common Stock, except as described herein. The transactions
described herein occurred on January 7, 2000.
(d) Except as described in Item 5(b), no other person is known to have
the right to receive or the power to direct the receipt of
dividends from, or the proceeds from the sale of, the securities
listed in Item 5(a).
(e) Not Applicable
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER.
Reference is made to the Stock Purchase Agreement, the Non-Qualified
Stock Option Agreement, the Consulting Agreement, the Stock Pledge
Agreement, the Guaranty, and the Note. A copy of each of the
aforementioned is filed as an Exhibit to this Schedule 13D filing. For
information on Parker and S&P, as required in Instruction C, please see
Item 6 of the Schedule 13D executed by each of them on January 18,
2000, with respect to Telenetics, a copy of each of which is filed as
an exhibit to this Schedule 13D, which information is incorporated
herein by reference.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
The following agreement is filed as an exhibit to this Schedule 13D;
(1) Stock Purchase Agreement
(2) Non-Qualified Stock Option Agreement
(3) Consulting Agreement
(4) Stock Pledge Agreement
(5) Guaranty
(6) Note
(7) Schedule 13D of S&P with respect to Telenetics dated
January 18, 2000
(8) Schedule 13D of Parker with respect to Telenetics dated
January 18, 2000
<PAGE>
Page 6 of 6 Pages
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
January 18, 2000
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(Date)
/s/ William C. Saunders
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(Signature)
William C. Saunders
