EXHIBIT 1
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
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January 7, 2000, by and among Telenetics Corporation, a California corporation
("Telenetics"), and Xxxxxx X. Xxxxxx ("Xxxxxx"), Xxxx X. XxXxxx ("XxXxxx"),
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Xxxxxxx X. Xxxxxxxx ("Xxxxxxxx") and Xxxxx X. Xxxxxx ("Xxxxxx"), each an
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individual (individually, each a "Seller," and collectively, the "Sellers."
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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
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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.
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1.1 Purchase and Sale. Subject to the terms and conditions set forth
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herein, at the Closing (as defined in Section 6.1 below), Sellers shall
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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
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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
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shares (the "Base Stock") of common stock, no par value per share, of
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Telenetics ("Telenetics Common Stock"); and
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(b) The "Earn-Out Purchase Price" shall consist of an aggregate of
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6,000,558 shares of Telenetics Common Stock (the "Additional Stock").
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(c) Payment of Consideration. At the Closing, by virtue of the
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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.
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1.3 Earn-Out Conditions.
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(a) For purposes of this Section 1.3, the "Earn-Out Period" shall mean
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the period commencing on the Closing Date and ending on the earlier of
December 31, 2004
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
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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
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incorporated herein by reference (the "Technology") and the successful
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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
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100,000 1,000,145 shares
200,000 1,029,497 shares
300,000 1,158,184 shares
345,000 249,229 shares
390,000 255,620 shares
435,000 262,259 shares
480,000 269,161 shares
525,000 276,339 shares
570,000 283,807 shares
615,000 291,583 shares
660,000 299,682 shares
705,000 308,124 shares
750,000 316,928 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
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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,
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as the same may be adjusted in accordance with this Agreement.
(c) Notwithstanding anything to the contrary contained in Section
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1.3(a), if prior to the expiration of the Earn-Out Period the Company or
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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
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installations completed prior to such date.
(d) Notwithstanding anything to the contrary contained in Section
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1.3(a), if upon the expiration of the Earn-Out Period the Company has bona
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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
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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
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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.
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Except as set forth in a schedule dated the date of this Agreement and
delivered by Sellers to Telenetics concurrently herewith (the "Disclosure
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Schedule") specifically identifying the Section of this Agreement requiring the
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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 Xxxxxxxx and Xxxxxx makes such
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representations and warranties to the best of his knowledge.
2.1 Organization; Good Standing; Qualification and Power. The Company is
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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,
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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.
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2.2 Capital Structure.
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2.2.1 Stock and Options. The authorized capital stock of the Company
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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
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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
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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
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Xxxxxx 4,500
XxXxxx 1,000
Xxxxxxxx 2,250
Xxxxxx 2,250
2.2.2 No Other Commitments. There are no options, warrants, calls, rights,
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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.
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2.3.1 Corporate Action. The Company has all requisite corporate power and
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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
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"Company Transaction Agreements"), and to perform its obligations under and to
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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
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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
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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
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"Seller Transaction Agreements"), and that the Seller Transaction Agreements
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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
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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,
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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
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Entity"), is required to be obtained by the Company or such Seller in connection
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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
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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
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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
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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
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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
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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
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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.
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2.8.1 ERISA. The Company does not maintain, nor has it ever
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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").
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2.8.2 COBRA. The Company has complied with all of the requirements of
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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
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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
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respects with all applicable laws, agreements and contracts relating to
employment, employment
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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
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Disclosure Schedule, at November 30, 1999 (the "Balance Sheet Date"), (i) the
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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
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in the Balance Sheet were reasonably adequate.
2.10 Absence of Certain Changes or Events. Since the Balance Sheet Date
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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;
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(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
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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
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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
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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.
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(a) For purposes of this Agreement, "Tax" or collectively "Taxes"
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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
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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")
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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
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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
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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.
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(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
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for the conduct of its business;
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(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
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Agreements"), will not cause the forfeiture or termination or give rise to
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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
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industrial and intellectual property rights, including, without limitation,
patents, patent applications, patent rights, trademarks, trademark
registrations, trademark registration applications, trade names, service
marks, service xxxx registrations, service xxxx 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
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pay any fee or commission to any broker, finder or intermediary in connection
with the transactions contemplated by this Agreement.
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2.16 Environmental Matters.
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(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
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
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
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
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
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 XxXxxx and T. Xxxxx Xxxx shall enter into employment agreements (the
"Employment
----------
17
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 Xxxxxx and Xxxxxxxx & Xxxxxx, 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 Xxxxxx 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
Xxxxxx or Xxxxxxxx on Telenetics' management slate of directors for election by
the shareholders of Telenetics. Whichever of Xxxxxx or Xxxxxxxx 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. Xxxxxxxx and Xxxxxx 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
Closing, plus reasonable attorneys' fees and costs of MHK&H (as hereinafter
defined) incurred by Xxxxxxxx, Xxxxxx 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
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
(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
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 Xxxxxxxx, 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 Xxxxxx,
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 Xxxxxx;
(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
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 Xxxxxx Xxxxx Xxxx & Xxxx, P.C., counsel to the
Company, Xxxxxxxx, Xxxxxx 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 XxXxxx in the
principal amount of $107,500, as referenced in the Disclosure Schedule;
(i) Evidence of the appointment of Xxxxxxxx and Xxxxxx as advisors to
the Telenetics Board of Directors;
(j) Required consents of third parties, if any; and
(k) The opinion of Xxxxx & Xxxxxx, LLP, counsel to Telenetics.
23
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
(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
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
(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 Xxxxxxxx and Xxxxxx has
reviewed the covenants contained in this Section 7;
---------
(e) the personal legal counsel for each of XxXxxx and Xxxxxx has
reviewed the covenants contained in this Section 7, and/or each of XxXxxx
---------
and Xxxxxx 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
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
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.
000 Xxxxx Xxxx Xxxxxx
Xxxxxxx, Xxxxxxx 00000-0000
Attention: President
Telecopier: (000) 000-0000
With a copy to: Xxxxxx Xxxxx Xxxx & Xxxx, P.C.
0000 Xxxxxxxx Xxxxx
0000 Xxxx Xxxxxx
Xxxxxx, Xxxxx 00000
Attention: Xxxxx X. Xxxxxxxxx, Esq.
Telecopier: (000) 000-0000
If to Telenetics to: Telenetics Corporation
00000 Xxxxxx Xxxxx
Xxxx Xxxxxx, Xxxxxxxxxx 00000
Attention: Chief Executive Officer
Telecopier: (000) 000-0000
With a copy to: Xxxxx & Xxxxxx, LLP
000 Xxxxx Xxxxxxxxx, Xxxxx 0000
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxx, Esq.
Telecopier: (000) 000-0000
If to Xxxxxxxx: Xxxxxxx X. Xxxxxxxx
0000 Xxxxxxxxx Xxxx
Xxxxxx, Xxxxx 00000
If to Xxxxxx: Xxxxx X. Xxxxxx
0000 Xxxxx 0000 Xxxx
Xxxxxxxxxx, Xxxxxxx 00000
If to Xxxxxxxx or Xxxxxx,
29
then with a copy to: Xxxxxx Xxxxx Xxxx & Xxxx, P.C.
0000 Xxxxxxxx Xxxxx
0000 Xxxx Xxxxxx
Xxxxxx, Xxxxx 00000
Attention: Xxxxx X. Xxxxxxxxx, Esq.
Telecopier: (000) 000-0000
If to Xxxxxx: Xxxxxx X. Xxxxxx
0000 Xxxxxxxxx Xxxx
Xxxxx, Xxxxxxx 00000
If to XxXxxx: Xxxx X. XxXxxx
000 Xxxxxxxxx Xxxxx
Xxxxxxx, Xxxxxxx 00000
Telecopier: (000) 000-0000
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
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
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: /s/ Xxxxxxx X. Armani
-----------------------------------------------
Xxxxxxx X. Armani, President
SELLERS:
/s/ Xxxxxx X. Xxxxxx ,
-------------------------------------------------
Xxxxxx X. Xxxxxx, an individual
/s/ Xxxx X. XxXxxx ,
-------------------------------------------------
Xxxx X. XxXxxx, an individual
/s/ Xxxxxxx X. Xxxxxxxx ,
-------------------------------------------------
Xxxxxxx X. Xxxxxxxx, an individual
/s/ Xxxxx X. Xxxxxx ,
-------------------------------------------------
Xxxxx X. Xxxxxx, an unmarried man
32
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.
/s/ Xxxxxxx Xxxxxx
-------------------------------------------------
Xxxxxxx Xxxxxx, spouse of Xxxxxx X. Xxxxxx
/s/ Xxxxxxxx X. XxXxxx
-------------------------------------------------
Xxxxxxxx X. XxXxxx, spouse of Xxxx X. XxXxxx
/s/ Xxxxx Xxxxxxxx
-------------------------------------------------
Xxxxx Xxxxxxxx, spouse of Xxxxxxx X. Xxxxxxxx
33
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.
FINAL
Disclosure Schedule for Stock Purchase Agreement dated January 7, 2000
by and among Telenetics Corporation ("Telenetics") and
Xxxxxx X. Xxxxxx, Xxxx X. XxXxxx, Xxxxxxx X. Xxxxxxxx and
Xxxxx X. Xxxxxx ("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) Xxxx XxXxxx'x deferred Base Salary of $87,500 as described in
Section 3 of his Employment and Noncompetition Agreement dated as
of June 1, 1999 between Xx. XxXxxx 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. Xxxxx Xxxx'x 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 Xx. Xxxx.
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, Xxxx and Xxxx, 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
Sections 2.4, 2.21 and 2.22 of this disclosure schedule are incorporated
herein by reference.
The Company has received an invoice from Xxxxxxxx & Xxxxxx, 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 Xxxxx Xxxxxx at Xxxxxx,
Xxxxxx 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 Xx Xxxxxx; and the Company
has been reimbursing Xxxx XxXxxx for an apartment leased by Xx. XxXxxx 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 Xxxxxxxx & Xxxxxx, 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 Xxxxxxxx & Xxxxxx, 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
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
Xx Xxxxxx ("PCS"). Pursuant to the Xxxx of Sale, Assignment, Assumption,
and Option Agreement dated August 27, 1999 between PCS and the Company (the
"PCS Xxxx 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 Xx Xxxxxx since January 1, 1998 and all
assets acquired since May 10, 1999. The PCS Xxxx 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
Xxxx 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 Xxxx 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:
Xxxxx Xxxx - 11/3/99
Telenetics - 10/15/99
HighwayMaster - 9/20/99
Xxxx South - 6/1/99
Paradigm Manufacturing - 3/4/99
Xxx Xxxxxx - 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
Xxxxxxxx & Xxxxxx, 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 Xxxxxxxx & Xxxxxx, Inc.,
which note supersedes the Promissory Note dated May 10, 1999 in the
principal amount of $30,000, made by RUMS in favor of Xxxxxxxx &
Xxxxxx, Inc. - to be terminated at the closing of the Stock
Purchase Agreement
c) Security Agreement dated August 27, 1999 between the Company and
Xxxxxxxx & Xxxxxx, 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
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,
Xxxxxxx X. Xxxxxxxx and Xxxxx X. Xxxxxx - 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, Xxxxxxx
X. Xxxxxxxx and Xxxxx X. Xxxxxx - to be terminated at the closing
of the Stock Purchase Agreement
i) Consulting Agreement dated June 1, 1999 between Xxxxxxxx & Xxxxxx,
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
Xxxx X. XxXxxx 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
Xxxxxx X. Xxxxxx 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 Xxxxxxxx &
Xxxxxx, Inc., Xxxxxxx X. Xxxxxxxx, Xxxxx X. Xxxxxx, Xx Xxxxxx and
the Company, as successor to RUMS - to be terminated at the closing
of the Stock Purchase Agreement
m) Xxxx of Sale and Assignment Agreement dated August 27, 1999 between
Xxxxxx X. Xxxxxx and the Company
n) Xxxx of Sale, Assignment, Assumption and Option Agreement dated
August 27, 1999 between Progressive Computer Software, Inc. and the
Company
o) Xxxx 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
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
