DEBENTURE PLACEMENT AGREEMENT
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DEBENTURE PLACEMENT AGREEMENT ("Agreement") dated as of the
2nd day of January 2001, by and between TELENETICS CORPORATION, a California
corporation (the "Company"), TAGLICH BROTHERS, INC., a New York corporation,
("Placement Agent"), either on its own behalf or on behalf of other lenders, and
the persons and entities listed on EXHIBIT A to this Agreement (such persons and
entities being referred to individually as "Lender" and collectively, as
"Lenders").
W I T N E S S E T H :
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WHEREAS, in reliance upon the representations, warranties, terms and
conditions hereinafter set forth, Placement Agent will use its best efforts to
privately place $2,115,000 in principal amount of 7.0% convertible subordinated
debentures of the Company due January 2, 2003 (the "Debentures"), the Debentures
being convertible into shares of common stock, no par value per share (the
"Common Stock"), of the Company at $0.67 per share (the "Conversion Price"); and
WHEREAS, the Debentures are being issued pursuant to an exemption from
the registration requirements of the Securities Act of 1933, as amended (the
"1933 Act").
NOW, THEREFORE, in consideration of the premises and the respective
promises hereinafter set forth, the Company and the Placement Agent hereby agree
as follows:
1. SALE AND PURCHASE OF DEBENTURES.
(a) Subject to the terms and conditions of this Agreement, the
Company shall sell to the Lender the Debentures.
(b) The sale and purchase described in Section 1(a) of this
Agreement shall take place at a closing (the "Closing") at the offices of
XXXXXXXX XXXXXXXXX XXXXXX XXXXXXXX & XXXXXX LLP, 0000 Xxxxxx xx xxx Xxxxxxxx,
Xxx Xxxx, XX 00000 or such other place as shall be acceptable to the Company and
Placement Agent on such date as Placement Agent shall advise the Company.
2. PAYMENT. At the Closing, the Company or its agent shall deliver to
Placement Agent, on behalf of the Lender, the original executed and sealed
Debentures being purchased by the Lender, against its receipt of payment
therefor by certified or bank check drawn on a bank located in the United
States, or by Federal wire transfer, in the amount of the aggregate purchase
price for such Debentures being sold, less the amount of cash fees payable to
Placement Agent pursuant to Section 10(a) of this Agreement and the
reimbursement of the Placement Agent's expenses pursuant to Section 10(b) of
this Agreement. All Debentures being purchased by the Lender shall be issued in
the name of the Lender in accordance with instructions provided by Placement
Agent not later than the day of Closing.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company (on its
behalf and on behalf of its Subsidiaries) hereby represents and warrants to and
covenants and agrees with the Placement Agent, as of the date hereof and as of
the date of each Closing, as follows:
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and is
qualified and in good standing as a foreign corporation in each jurisdiction in
which the nature of the business conducted by the Company or the property owned
or leased by the Company requires such qualification. The Company has no
subsidiaries and does not own any equity interest and has not made any loans or
advances to or guarantees of indebtedness to any person, corporation,
partnership or other entity.
(b) The authorized capital of the Company consists of
25,000,000 shares of Common Stock and 5,000,000 shares of preferred stock, of
which, as of the date of this Agreement, (i) 16,434,611 shares of Common Stock
are issued and outstanding, (ii) no shares of Common Stock are held in treasury,
(iii) 110 shares of Preferred Stock are issued and outstanding, and (iv)
6,990,572 shares of Common Stock have been reserved for issuance upon conversion
or exercise of outstanding debentures, options, warrants and other rights to
acquire Common Stock and upon the exercise of options granted pursuant to the
Company's stock option plans and pursuant to other agreements, excluding the
shares of Common Stock issuable upon conversion of the Debentures (the
"Conversion Shares"). Except as set forth in the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1999, the Company's Quarterly
Report on Form 10-QSB for the fiscal quarter ended March 31, 2000, as amended by
the Company's Form 10-QSB/A dated July 25, 2000, the Company's Quarterly Report
on Form 10-QSB for the fiscal quarter ended June 30, 2000, the Company's
Quarterly Report on Form 10-QSB for the fiscal quarter ended September 30, 2000,
the Company's Form 8-K dated January 21, 2000, the Company's Form 8-K/A dated
March 22, 2000 and the Company's Form 8-K dated September 27, 2000
(collectively, the "Public Documents") and/or on EXHIBIT B attached hereto, the
Company is not a party to any agreement to issue, nor has it issued, any
warrants, options or rights or preferred stock, notes or other evidence of
indebtedness or other securities, instruments or agreements upon the exercise or
conversion of which or pursuant to the terms of which additional shares of
capital stock of the Company may become issuable. Except as set forth in the
Public Documents, no holder of any of the Company's securities have preemptive
rights or contractual rights of first refusal.
(c) The Company has the full right, power and authority to
execute, deliver and perform under this Agreement and the Debentures. This
Agreement has been duly executed by the Company and, at the Closing, the
Debentures being issued will have been duly executed by the Company, and this
Agreement and the Debentures and the transactions contemplated by this Agreement
and the Debentures have been duly authorized by all necessary corporate action
and each constitute, the legal, valid and binding obligations of the Company,
enforceable in accordance with their respective terms.
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(d) All of the issued and outstanding shares of Common Stock
of the Company have been duly and validly authorized and issued and are fully
paid and nonassessable, with no personal liability attaching to the holders
thereof, and such shares of Common Stock have not been issued in violation of
the preemptive rights or rights of first refusal of any holder of securities of
the Company. All of the issued and outstanding shares of Common Stock of the
Company have been issued pursuant to either a current effective registration
statement under the 1933 Act or an exemption from the registration requirements
of the 1933 Act and were issued in accordance with all applicable Federal and
state securities laws.
(e) The Debentures to be issued at the Closing and the shares
of Common Stock included in the Conversion Shares have been validly authorized
for issuance and, when issued pursuant to this Agreement and the terms of the
Debenture, will be duly and validly authorized and issued, fully paid and
nonassessable and free from preemptive rights or rights of first refusal held by
any person, provided, however, that the Company currently does not have
sufficient authorized and unissued shares of Common Stock which are not
otherwise reserved for issuance, to reserve for issuance upon conversion of all
of the Debentures.
(f) The following financial statements of the Company
(hereinafter collectively, the "Financial Statements") are included in the
Public Documents: (i) consolidated balance sheets as of December 31, 1999 and
consolidated statements of operations, shareholders' equity and cash flows for
the fiscal year ended December 31, 1999 and the related notes thereto, which
have been audited by BDO Xxxxxxx, LLP, independent certified public accountants,
and (ii) unaudited balance sheets as of March 31, 2000, June 30, 2000 and
September 30, 2000, and unaudited statement of operations, stockholders' equity
and cash flows for the fiscal quarters ended March 31, 2000, June 30, 2000 and
September 30, 2000, and the related notes thereto, which have been prepared by
the Company. The Financial Statements, which are included in the Public
Documents, were prepared in accordance with generally accepted accounting
principles consistently applied and present and reflect fairly the financial
position of the Company at the respective balance sheet dates and the results of
its operations, changes in stockholders' equity and cash flows for the periods
then ended, PROVIDED, HOWEVER, that the financial statements included in the
Public Documents (other than those within the Company's Form 10-KSB for the
fiscal year ended December 31, 1999) are subject to normal year-end adjustments
and lack footnotes and other presentation items. During the period of BDO
Xxxxxxx, LLP's engagement as the Company's independent certified public
accountants, there has been no disagreements between the accounting firm and the
Company on any matters of accounting principles or practices, financial
statement disclosure or auditing scope or procedure and no events required to be
reported on a current report on Form 8-K relating to the relationship between
the Company and the accounting firm. The Company has made and kept books and
records and accounts which are in reasonable detail and which fairly and
accurately reflect the activities of the Company, subject only to year-end
adjustments.
(g) The Company has good and marketable title to all of its
material property and assets and, except as set forth in the Financial
Statements or on EXHIBIT C attached hereto, none of such property or assets of
the Company is subject to any lien, mortgage, pledge, encumbrance or other
security interest.
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(h) There has not been any material adverse change in the
financial condition or in the operations, business or prospects of the Company
from that shown in the Public Documents or any damage or destruction, not
covered by insurance, which affects the business, property or assets of the
Company.
(i) Neither the execution or delivery of this Agreement or the
Debentures by the Company nor the performance by the Company of the transactions
contemplated by this Agreement or the Debentures: (i) requires the consent,
waiver, approval, license or authorization of or filing with or notice to any
person, entity or public authority (except any filings required by Federal or
state securities laws, which filings have been or will be made by the Company on
a timely basis); (ii) violates or constitutes a default under or breach of any
law, rule or regulation applicable to the Company; or (iii) conflicts with or
results in a breach or termination of any provision of, or constitutes a default
under, or will result in the creation of any lien, charge or encumbrance upon
any of the property or assets of the Company with or without the giving of
notice, the passage of time or both, pursuant to (A) the Company's articles of
incorporation or by-laws, (B) any mortgage, deed of trust, indenture, note, loan
agreement, security agreement, contract, lease, license, alliance agreement,
joint venture agreement, or other agreement or instrument, or (C) any order,
judgment, decree, statute, regulation or any other restriction of any kind or
character to which the Company is a party or by which any of the assets of the
Company may be bound; PROVIDED, HOWEVER, that the failure to comply herewith
shall not be deemed a breach hereof unless such failure would have a material
adverse effect on the business, financial condition or results of operations of
Issuer and its subsidiaries, taken as a whole (a "Material Adverse Effect").
(j) Except for an indebtedness of $390,000 to Xxxxx Xxxxxxxx
and $25,000 to Xxxx XxXxxx, the Company has no indebtedness to any officer,
director, 5% stockholder or other Affiliate (as defined in the Rules and
Regulations of the SEC under the 0000 Xxx) of the Company.
(k) The Company is in compliance with all laws, rules and
regulations of all Federal, state and local government agencies having
jurisdiction over the Company or affecting the business, assets or properties of
the Company, except where the failure to comply has not and will not have a
Material Adverse Effect. The Company possesses all licenses, permits, consents,
approvals and agreements which are required to be issued by any and all
applicable Federal, state or local authorities necessary for the operation of
its business and/or in connection with its assets or properties, except where
the failure to possess such licenses, permits, consents, approvals or agreements
has not and will not have a Material Adverse Effect.
(l) Except as set forth on EXHIBIT D attached hereto, the
Company is not in default under any note, loan agreement, security agreement,
mortgage, contract, franchise agreement, distribution agreement, lease, alliance
agreement, joint venture agreement, agreement, license, permit, consent,
approval or instrument to which it is a party, and no event has occurred which,
with or without the lapse of time or giving of notice, or both, would constitute
such default thereof by the Company or would cause acceleration of any
obligation of the Company or would adversely affect the business, operations,
financial condition or prospects of the Company, except where such default or
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event, whether with or without the lapse of time or giving of notice, or both,
has not and will not have a Material Adverse Effect. To the best of the
knowledge of the Company, no party to any note, loan agreement, security
agreement, mortgage, contract, franchise agreement, distribution agreement,
lease, alliance agreement, joint venture agreement, agreement, license, permit,
consent, approval or instrument with or given to the Company is in default
thereunder and no event has occurred with respect to such party, which, with or
without the lapse of time or giving of notice, or both, would constitute a
default by such party or would cause acceleration of any obligations of such
party.
(m) To the best of the Company's knowledge, no officer,
director or 5% stockholder of the Company and no Affiliate of any such person
either (i) holds any interest in any corporation, partnership, business, trust,
sole proprietorship or any other entity which is engaged in a business similar
to that conducted by the Company (other than a passive immaterial interest in a
public company engaged in any such business) or (ii) engages in business with
the Company.
(n) Except as set forth on EXHIBIT D attached hereto, there
are no material (i.e., involving an asserted liability that reasonably could be
expected to result in a judgment in excess of twenty-five thousand dollars
($25,000)) claims, actions, suits, proceedings or labor disputes, inquiries or
investigations (whether or not purportedly on behalf of the Company), pending
or, to the best of the Company's knowledge, threatened, against the Company, at
law or in equity or by or before any Federal, state, county, municipal or other
governmental department, SEC, National Association of Securities Dealers, Inc.,
board, bureau, agency or instrumentality, domestic or foreign, whether legal or
administrative or in arbitration or mediation, nor is there any basis for any
such action or proceeding. Neither the Company nor any of its assets are subject
to, nor is the Company in default with respect to, any order, writ, injunction,
judgment or decree that could adversely affect the financial condition,
business, assets or prospects of the Company.
(o) The accounts receivable of the Company represent
receivables generated from the sale of goods and services in the ordinary course
of business. The Company knows of no material disputes concerning accounts
receivable of the Company.
(p) Except as set forth in the Public Documents and on EXHIBIT
D attached hereto, the Company has (i) no written employment contracts and no
oral employment contracts not terminable at will by the Company, with any 5%
percent shareholder, officer or director of the Company or any Subsidiary, as
applicable, (ii) no consulting agreement or other compensation agreement with
any 5% percent shareholder, officer or director of the Company, or (iii) no
agreement or contract with any 5% percent shareholder, officer or director of
the Company, that will result in the payment by the Company, or the creation of
any commitment or obligation (absolute or contingent), of the Company, to pay
any severance, termination, "golden parachute", or similar payment to any
present or former personnel of the Company, following termination of employment.
No director, executive officer or other key employee of the Company has advised
the Company that he or she intends to resign as director and/or executive
officer of the Company or to terminate his or her employment with the Company.
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(q) The accounts payable of the Company represent bona fide
payables to third parties incurred in the ordinary course of business and
represent bona fide debts for services and/or goods provided to the Company.
(r) The Company is not a party to a labor agreement with
respect to any of its respective employees with any labor organization, union,
group or association and there are no employee unions (nor any similar labor or
employee organizations). There is no labor strike or labor stoppage or slowdown
pending, or, to the knowledge of the Company, threatened against the Company nor
has the Company experienced in the last five (5) years any work stoppage or
other labor difficulty. The Company is in compliance with all applicable laws,
rules and regulations regarding employment practices, employee documentation,
terms or conditions of employment and wage and hours and the Company is not
engaged in any unfair labor practices. Except as set forth on EXHIBIT D attached
hereto, there are no unfair labor practices charges or complaints against the
Company pending before the National Labor Relations Board or any other
governmental agency.
(s) Except for the Company's 401(k) plan, which plan does not
require a contribution by the Company, there are no employee pension, retirement
or other benefit plans, maintained, contributed to or required to be contributed
to by the Company covering any employee or former employee of the Company. The
Company has no liability or obligation of any kind or nature, whether accrued or
contingent, matured or unmatured, known or unknown, under any provision of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") or any
provision of the Internal Revenue Code of 1986, as amended, specifically
relating to persons subject to ERISA.
(t) Except as set forth on EXHIBIT D attached hereto, the
Company has filed with the appropriate taxing authorities all returns in respect
of taxes required to be filed through the date hereof and has paid all taxes
that it is required to pay or has established an adequate reserve therefor.
There are no pending or, to the knowledge of the Company, threatened audits,
investigations or claims for or relating to any liability of the Company in
respect of taxes.
(u) The Company has no liabilities of any kind or nature
whether accrued or contingent, matured or unmatured, known or unknown, except as
set forth in the Financial Statements, and those liabilities incurred by the
Company in the ordinary course of business since September 30, 2000.
(v) There are no finder's fees or brokerage commissions
payable with respect to the transactions contemplated by this Agreement, except
as provided in Section 10 of this Agreement, and the Company agrees to indemnify
and hold harmless the Placement Agent from and against any and all cost, damage,
liability, judgment and expense (including reasonable fees and expenses of
counsel) arising out of or relating to claims for such fees or commissions (and
to pay the Placement Agent pursuant to a separate agreement between the Company
and the Placement Agent).
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(w) The Company is not currently and has not during the past
six (6) months been engaged in negotiations with respect to: (i) any merger or
consolidation of the Company where the Company would not be the surviving
entity; or (ii) the sale of the Company or any of its assets other than sales in
the ordinary course of business.
(x) The Company has the right to conduct its business in the
manner in which its business has been heretofore conducted. The conduct of such
businesses by the Company do not violate or infringe upon the patent, copyright,
trade secret or other proprietary rights of any third party, and, except as set
forth on EXHIBIT D attached hereto, the Company has not received any notice of
any claim of any such violation or infringement.
(y) The Company is currently in compliance in all respects
with all applicable Environmental Laws (as defined below), including, without
limitation, obtaining and maintaining in effect all permits, licenses, consents
and other authorizations required by applicable Environmental Laws and the
Company is currently in compliance with all such permits, licenses, consents and
other authorizations, except where the failure to comply has not and will not
have a Material Adverse Effect. The Company has not received notice from any
property owner, landlord, tenant or Governmental Authority (as defined below)
that Hazardous Wastes (as defined below) are being improperly used, stored or
disposed of at any property currently or formerly owned or leased by the Company
or that any soil or ground water contamination has emanated from any such
property. For purposes hereof, the term "Environmental Laws" means,
collectively, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, the Superfund Amendments and Reauthorization
Act of 1986, the Resource Conservation and Recovery Act, the Toxic Substances
Act, as amended, the Clean Air Act, as amended, the Clean Water Act, as amended,
any other "Superfund" or "Superlien" law or any other federal, state or local
statute, law, ordinance, code, rule, regulation, order or decree regulating,
relating to, or imposing liability or standards of conduct concerning any
hazardous, toxic or dangerous waste, substance or material, as now or at any
time hereafter in effect. For purposes hereof, the term "Governmental Authority"
shall mean the Federal Government of the United States of America, any state or
any political subdivision of the Federal Government or any state, including but
not limited to courts, departments, commissions, boards, bureaus, agencies,
ministries or other instrumentalities. For purposes hereof, the term "Hazardous
Waste" shall mean any regulated quantity of hazardous substances as listed by
the United States Environmental Protection Agency ("EPA") and the list of toxic
pollutants designated by the United States Congress and/or the EPA or defined by
any other Federal, state or local statute, law, ordinance, code, rule,
regulation, order, or decree regulating, relating to or imposing liability for
standards of conduct concerning any hazardous, toxic substance or material.
(z) The information contained in the Public Documents, taken
together, describe in all material respects the business and financial condition
of the Company, and such material, taken together, does not contain any
misstatement of a material fact or omit to state a material fact necessary to
make the information not misleading. The Lender and Placement Agent shall be
entitled to rely on such material notwithstanding any investigation they or any
of them may have made.
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4. SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION. The
representations and warranties of the Company set forth in Section 3 of this
Agreement shall survive the execution and delivery of the Debentures.
5. USE OF PROCEEDS. The net proceeds from the sale of the Debentures
will be used by the Company for payments to Motorola, Inc., working capital and
other general corporate purposes.
6. UNREGISTERED SECURITIES. None of the Debenture or the Conversion
Shares have been registered under the 1933 Act, in reliance upon the
applicability of Section 4(2), 4(6) and/or Rule 506 of Regulation D of the 1933
Act to the transactions contemplated hereby. The certificates representing the
Debentures will bear an investment legend and the certificate representing the
Conversion Shares issued prior to their respective registration under Section 3
of the Debenture Purchase Agreement.
7. CONDITIONS. The following obligations of the Company shall be
satisfied or fulfilled on or prior to the date of the Closing, unless otherwise
agreed to in writing by the Placement Agent:
(a) The Company shall have delivered to the Placement Agent,
at the Closing, (i) a currently-dated long-form good standing certificate or
telegram from the Secretary of State where the Company is incorporated and each
other jurisdiction in which the Company is qualified to do business as a foreign
corporation; (ii) the articles of incorporation of the Company, as currently in
effect, certified by the Secretary of State of the state where the Company is
incorporated; (iii) by- laws of the Company certified by the secretary of the
Company; and (iv) certified resolutions of the Board of Directors of the Company
approving this Agreement and the sale of the Debentures.
(b) There shall have occurred no event which had a Material
Adverse Effect on the Company or any of its businesses, assets, prospects or the
Company's securities since the date of this Agreement.
(c) No litigation or administrative proceeding shall have been
threatened or commenced against the Company which (i) seeks to enjoin or
otherwise prohibit or restrict the consummation of the transactions contemplated
by this Agreement or (ii) if adversely determined, would have a Material Adverse
Effect on the Company or the Company's securities.
(d) The Company shall have delivered to the Placement Agent a
certificate of its principal executive and financial officers as to the matters
set forth in Sections 7(a), (b) and (c) of this Agreement and to the further
effect that (i) the Company is not in default, in any respect, under any note,
loan agreement, security agreement, mortgage, deed of trust, indenture,
contract, alliance agreement, lease, license, joint venture agreement, agreement
or other instrument to which it is a party, except where such default has not
and will not have a Material Adverse Effect; (ii) the Company's representations
and warranties contained in this Agreement are true and correct in all respects
on such date with the same force and effect as if made on such date; (iii) there
has been no amendment or changes to the Company's articles of incorporation or
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by-laws or authorizing resolutions from those delivered pursuant to Section 7(a)
of this Agreement; and (iv) no event has occurred which, with or without the
lapse of time or giving of notice, or both, would constitute a breach or default
thereof by the Company or would cause acceleration of any obligation of the
Company, or could adversely affect the business, operations, financial condition
or prospects of the Company.
(e) The Placement Agent shall have received the opinion of
Xxxxx & Xxxxxx, LLP, counsel for the Company, dated as of the Closing date in
form and substance reasonably satisfactory to the Placement Agent and its
counsel.
(f) The Company shall have prepared and filed or delivered to
counsel for filing with the SEC and any states in which such filing is required,
a Form D relating to the sale of the Debentures and such other documents and
certificates as are required.
(g) Subscriptions for the Debentures shall have been accepted
by the Company.
(h) In addition to the right of the Placement Agent to
terminate this Agreement and not consummate the transactions contemplated by
this Agreement as a result of the failure of the Company to comply with any of
its obligations set forth in this Agreement, this Agreement may be terminated by
the Placement Agent by written notice to the Company at any time prior to the
Closing if, in the Placement Agent's sole judgment, (i) the Company shall have
sustained a loss that is material to the Company, taken as a whole, whether or
not insured, by reason of fire, earthquake, flood, accident or other calamity,
or from any labor dispute or court or government action, order or decree; (ii)
trading in securities on any exchange or system shall have been suspended or
limited, either generally or specifically, with respect to the Company's Common
Stock; (iii) material governmental restrictions have been imposed on trading in
securities, generally or specifically, with respect to the Company's Common
Stock (not in force and effect on the date of this Agreement); (iv) a banking
moratorium shall have been declared by Federal or New York State authorities;
(v) an outbreak of major international hostilities or other national or
international calamity shall have occurred; (vi) the Congress of the United
States or any state legislative body shall have passed or taken any action or
measure, or such bodies or any governmental body or any authoritative accounting
institute, or board, or any governmental executive shall have adopted any
orders, rules or regulations, which the Placement Agent reasonably believes is
likely to have a Material Adverse Effect on the business, financial condition or
financial statements of the Company or the market for the Common Stock; (vii)
the Common Stock shall have been delisted from NASDAQ or the Company shall have
received notice from NASDAQ advising the Company of its intention to have the
Common Stock delisted from NASDAQ, whether conditional or otherwise, or the
Company shall fail to meet the requirements for continued listing on NASDAQ; or
(viii) there shall have been, in the Placement Agent's judgment, a material
decline in the Dow Xxxxx Industrial Index or the market price of the Common
Stock at any time subsequent to the date of this Agreement.
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8. COVENANTS OF THE COMPANY.
(a) The Company agrees at all times after the filing of an
amendment to its articles of incorporation reflecting the matters described in
Section 8(b) and as long as the Debentures may be converted or exercised, to use
its best efforts to keep reserved from the authorized and unissued Common Stock,
such number of shares of Common Stock as may be, from time to time, issuable
upon conversion of the Debentures, provided, however, that if the Company does
not have a sufficient number of authorized and unissued shares of Common Stock,
which are not otherwise reserved for issuance, reserved for issuance upon the
conversion of all of the Debentures by July 2, 2001, the Debentures shall, at
the holder's option, become immediately due and payable (together with accrued
interest) and shall bear interest at the rate of twenty (20%) percent per annum.
(b) The Company agrees to use its best efforts to obtain
shareholder approval of its proposals at the upcoming special meeting of
shareholders, which is scheduled for January 26, 2001 and in any event no later
than July 2, 2001, to (i) increase the number of authorized shares of Common
Stock from 25,000,000 shares to 50,000,000 shares.
9. RIGHT TO NOMINATE DIRECTORS.
(a) The Placement Agent shall have the right (but not the
obligation) to nominate one (1) director to the Board of Directors of the
Company (the "Right to Nominate"). The Company shall, as soon as practicable
after the Placement Agent exercises its Right to Nominate, appoint the Placement
Agent's nominee to the Board of Directors and shall thereafter for a period of
three (3) years from the date hereof include the Placement Agent's nominee in
the slate of nominees recommended by the Company's Board of Directors to
shareholders for election as a director at each subsequent meeting at which
directors of the Company are to be elected, and shall use its best efforts to
cause the election of such nominee. If elected to the Company's Board of
Directors, the Placement Agent's nominee shall receive a fee for serving on the
Board of Directors of $25,000 per year, plus reasonable expenses and five (5)
year options to purchase 20,000 shares of Common Stock, at an exercise price
equal to the higher of (i) ten (10%) percent above the closing price of the
Common Stock on the date the Placement Agent's nominee is elected to the Board
of Directors, and (ii) $1.31 per share. Notwithstanding anything to the contrary
in the foregoing, if (i) there is no vacancy on the Board of Directors of the
Company, (ii) the Company can not otherwise immediately place the Placement
Agent's nominee on its Board of Directors, or (iii) the Placement Agent's
nominee is not elected to the Board of Directors of the Company, the Placement
Agent's nominee shall be designated by the Company as an official observer of
the Board of Directors. As an observer of the Board of Directors, the Placement
Agent's nominee shall have the right to (A) receive copies of all documents
delivered to the Board of Directors, (B) receive advance notice of all meetings
of the Board of Directors, (C) attend in person all meetings of the Board of
Directors or otherwise participate in such meetings by telephone, and (D)
receive the fee and options as described above as if such nominee was elected to
the Board of Directors.
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10. FEES.
(a) Upon the receipt by the Company of the payment from the
Lenders, the Company will pay the Placement Agent a fee, in cash, (the "Cash
Fee") equal to ten (10.0%) percent of the gross proceeds raised from the sale of
the Debentures. Such amount of the Cash Fee may be deducted by the Placement
Agent from the payment being made to the Company pursuant to Section 2 of this
Agreement.
(b) The Company shall reimburse the Placement Agent for up to
$32,500 of its reasonable expenses (including reasonable fees and expenses of
its counsel) incurred in connection with the transaction contemplated by this
Agreement, which amount shall be deducted from the gross proceeds raised from
the sale of the Debentures.
(c) The Company shall pay any fees required in connection of
the qualification of the sale of the Debentures under the state securities or
"blue sky" laws of any state which the Placement Agent reasonably deems
necessary and any other out-of-pocket expenses incurred by the Placement Agent
in connection with the transaction contemplated by this Agreement.
11. NOTICES. All notices provided for in this Agreement shall be in
writing signed by the party giving such notice, and delivered personally or sent
by overnight courier or messenger against receipt thereof or sent by registered
or certified mail, return receipt requested, or by facsimile transmission, if
confirmed by mail as provided in this Section 11. Notices shall be deemed to
have been received on the date of personal delivery or facsimile or, if sent by
certified or registered mail, return receipt requested, shall be deemed to be
delivered on the third business day after the date of mailing. Notices shall be
sent to the following addresses:
TO THE COMPANY:
TELENETICS CORPORATION
00000 Xxxxxx Xxxxx
Xxxx Xxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
Attention: Xxxxx X. Xxxxxx
WITH A COPY TO:
Xxxxx & Xxxxxx, LLP
000 Xxxxx Xxxx., Xxxxx 0000
Xxxxx Xxxx, XX 00000-0000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
Attention: Xxxxx X. Xxxxxxx, Esq.
-11-
TO PLACEMENT AGENT:
TAGLICH BROTHERS, INC.
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xx. Xxxxxxx X. Oh
WITH A COPY TO:
XXXXXXXX XXXXXXXXX XXXXXX AROHNSON
& XXXXXX LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxx, Esq.
or to such other address as any party shall designate in the manner provided in
this Paragraph 11.
12. INDEMNIFICATION.
(a) The Company shall indemnify and hold harmless: (i) the
Placement Agent, (ii) each person and entity that directly, or indirectly though
one or more intermediaries, controls or is controlled by, or is under common
control with, the Placement Agent (each, an "Affiliate"), and (iii) the
Placement Agent's and each Affiliate's respective officers, directors,
affiliates, shareholders, agents and employees (collectively, the "Other
Parties" and individually "Other Party") from and against any loss, claim,
penalty, fine, judgment, damage or liability, joint or several of any sort of
kind, and any action in respect thereof, to which the Placement Agent, any
Affiliate or any Other Party may become subject, under the Securities Act of
1933, as amended ("1933 Act"), the Securities Exchange Act of 1934, as amended
("1934 Act"), any state law or otherwise, insofar as such loss, claim, penalty,
fine, judgment, damage, liability or action relates to or arises out of (x) any
alleged untrue statement of a material fact contained in any information or
documents issued or supplied by the Company to the Placement Agent, or the
alleged omission to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, (y) any transaction contemplated by the engagement of the Placement
Agent pursuant to, and the performance by the Placement Agent of the services
contemplated by, this Agreement, (iii) any breach by the Company of the
representations, warranties or covenants contained in this Agreement and the
debenture purchase agreement to be entered into between the Company and each
investor acquiring the securities being offered; and shall reimburse the
Placement Agent, any Affiliate and each Other Party for any legal or other
expenses reasonably incurred by the Placement Agent, any Affiliate and/or such
Other Party in connection with investigating or defending any such loss, claim,
penalty, fine, judgment, damage, liability or action; PROVIDED, HOWEVER, that
the Company will not be liable in any such case to the extent that any such
loss, claim, penalty, fine, judgment, damage, liability or action relates to or
arises out of any alleged untrue statement or alleged omission contained therein
relating to the Placement Agent, any Affiliate or such Other Party or that was
made in reliance upon and in conformity with information furnished to the
Company in writing by the Placement Agent, any Affiliate or such Other Party,
provided, further, that the Company will not be liable under clause (ii) above
-12-
for any loss, claim, penalty, fine, judgment, damage, liability or action (or
expenses relating thereto) that are finally judicially determined by a court of
competent jurisdiction to have resulted from: (A) the bad faith, gross
negligence, or willful misconduct of the Placement Agent; or (B) the breach by
the Placement Agent of any agreement executed in connection with this Agreement
that results from the gross negligence or willful misconduct of the Placement
Agent. The foregoing indemnity is in addition to any liability, which the
Company may otherwise have to the Placement Agent, any Affiliate and/or any
Other Party. In the event the Placement Agent, any Affiliate or any Other Party
is requested or required to appear as a witness in any action brought by or on
behalf of or against the Company or any participant in a transaction covered
hereby in which the Placement Agent, any Affiliate or such Other Party is not
named as a defendant, the Company agrees to reimburse the Placement Agent,
Affiliate and/or such Other Party for all out of pocket expenses reasonably
incurred by it in connection with such party's appearing and preparing to appear
as a witness, including, without limitation the reasonable fees and
disbursements of its legal counsel.
(b) The Placement Agent shall indemnify and hold harmless the
Company and its officers, directors, affiliates, agents and employees and any
person who controls the Company within the meaning of the 1933 Act or the 1934
Act from and against any loss, claim, penalty, fine, judgment, damage or
liability, joint or several, or any action in respect thereof, to which the
Company or any officer, director, affiliates, agents, employee or person who
controls the Company or any of them may become subject under the 1933 Act, the
1934 Act, any state law or otherwise, insofar as such loss, claim, penalty,
fine, judgment, damage, liability or action relates to or arises out of (i) the
bad faith, negligence or willful misconduct of the Placement Agent, any
Affiliate or Other Party or the breach by the Placement Agent of any agreement
executed in connection with this Agreement that results from the gross
negligence or willful misconduct of the Placement Agent; or (ii) any alleged
untrue statement of a material fact that relates to the Placement Agent, any
Affiliate or Other Party or that was made in reliance upon and in conformity
with the information furnished to the Company in writing by the Placement Agent,
any Affiliate or Other Party, in any such case expressly for use therein or the
omission or alleged omission to state therein a material fact that relates to
the Placement Agent, any Affiliates or Other Party or that was made in reliance
upon and in conformity with information furnished to the Company in writing by
the Placement Agent, any Affiliate or Other Party, necessary to make the
statements therein, in the light of the circumstances under which they were made
not misleading, and the Placement Agent shall reimburse the Company and each
such party for any legal or other expenses reasonably incurred by the Company,
or such indemnified party in connection with investigating or defending any such
loss, claim, penalty, fine, judgment, damage, liability or action. The only
information provided to the Company by the Placement Agent, any Affiliate or
Other Party is the Placement Agent's name. The foregoing indemnity is in
addition to any liability, which the Placement Agent may otherwise have to the
Company, or such indemnified party.
(c) Promptly after receipt by an indemnified party under this
Section of notice of any claim or the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section, notify such indemnifying party in writing
of the claim or the commencement of that action provided that the failure to
notify the indemnifying party will not relieve it from any liability which it
may have to an indemnified party otherwise than under this Section. If any such
claim or action is brought against any indemnified party, and it shall notify an
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein, and, to the extent that it wishes, jointly with any other
-13-
similarly notified party, to assume the defense thereof, with counsel reasonably
satisfactory to the indemnified party (which shall not, except with the consent
of the indemnified party, be counsel to the indemnifying party, which consent
may not be unreasonably withheld). After notice from the indemnifying party to
the indemnified party of its election to assume the defense of such claim or
action, the indemnifying party shall not be liable to the indemnified party
under this Section for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof other than reasonable
out-of-pocket costs of investigation incurred prior to the indemnifying party
assuming the defense thereof. With respect to any such claim or action for which
the indemnifying party does not assume the defense thereof, the indemnifying
party shall not be obligated to pay the reasonable fees and expenses of more
than one counsel for the indemnified party or parties.
(d) If the indemnification provided for in this Section shall
for any reason be unavailable to an indemnified party under subsections (a) or
(b) herein in respect of any loss, claim, penalty, fine, judgment, damage or
liability, or any action in respect thereof, referred to therein, then the
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, penalty, fine, judgment, damage or liability, or action in
respect thereof, (i) in such proportion as shall be appropriate to reflect the
relative benefits received by the Company on the one hand and the Placement
Agent on the other from the private placement of the securities by the Company
pursuant to this Agreement, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company on the one hand and the Placement Agent
on the other with respect to the statements or omissions which resulted in such
loss, claim, penalty, fine, judgment, damage, or liability, or action in respect
thereof, as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Placement Agent on the
other with respect to the private placement of the securities shall be deemed to
be in the same proportion as the total net proceeds received by the Company from
the private placement (before deducting expenses) bears to the total
compensation received by the Placement Agent with respect to the private
placement, provided, that in no event shall liability of the Placement Agent or
any Affiliate exceed the aggregate placement fees paid to the Placement Agent.
The relative fault shall be determined be reference to: (i) whether the untrue
or alleged untrue statement of a material fact or omission or alleged omission
to state a material fact relates to information supplied by the Company, on the
one hand, or the Placement Agent, on the other, (ii) whether there was a breach
of a representation, warranty or covenant by the Company, or (iii) the intent of
the parties and their relative knowledge, access to information and opportunity
to correct or prevent such statement, omission or breach. The parties agree that
it would not be just and equitable if contributions pursuant to this subsection
(d) were to be determined by pro rata allocation or by any other method of
allocation which does not take into account the equitable considerations
referred to herein. The amount paid or payable by an indemnified party as a
result of the loss, claim, penalty, fine, judgment, damage, or liability, or
action in respect thereof, referred to above in this subsection (d) shall be
deemed to include, for purposes of this subsection (d), any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim.
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13. MISCELLANEOUS.
(a) This Agreement constitutes the entire agreement between
the parties relating to the subject matter hereof, superseding any and all prior
or contemporaneous oral and prior written agreements and understandings. This
Agreement may not be modified or amended nor may any right be waived except by a
writing which expressly refers to this Agreement, states that it is a
modification, amendment or waiver and is signed by all parties with respect to a
modification or amendment or the party granting the waiver with respect to a
waiver. No course of conduct or dealing and no trade custom or usage shall
modify any provisions of this Agreement.
(b) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed entirely within such state. Each party hereby consents to
the exclusive jurisdiction of the Federal and state courts situated in New York
County, New York in connection with any action arising out of or based upon this
Agreement and the transactions contemplated by this Agreement.
(c) This Agreement shall be binding upon and inure to the
benefit of the parties hereto, and their respective personal representatives,
successors and permitted assigns.
(d) In the event that any provision of this Agreement becomes
or is declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Agreement shall continue in full force and effect without said
provision.
(e) Each party shall, without payment of any additional
consideration by any other party, at any time on or after the date of any
Closings take such further action and execute such other and further documents
and instruments as the other party may request in order to provide the other
party with the benefits of this Agreement.
(f) The captions and headings contained herein are solely for
convenience and reference and do not constitute a part of this Agreement.
(g) All references to any gender shall be deemed to include
the masculine, feminine or neuter gender, the singular shall include the plural
and the plural shall include the singular.
(h) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same document.
-15-
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first aforesaid.
TELENETICS CORPORATION TAGLICH BROTHERS, INC.
By: /S/ Xxxxx X. Xxxxxx By: /S/ Xxxxxxx Xxxxxxx
------------------------------------------- ------------------------
Name: Xxxxx X. Xxxxxx Name: Xxxxxxx Xxxxxxx
Title: President and Chief Executive Officer Title: President
-16-
EXHIBIT A
---------
NAMES, ADDRESSES AND SOCIAL SECURITY OR
EMPLOYER IDENTIFICATION PRINCIPAL AMOUNT
NUMBERS OF LENDERS OF DEBENTURES
------------------ -------------
Dolphin Offshore Partners, L.P. $2,115,000
00 Xxxxx Xxxxx Xxxxxx
Xxx Xxxxx, Xxx Xxxx 00000
Attn: Xxxxx Xxxxx
EIN# 3065417
EXHIBIT B
---------
Attached are the following schedules dated December 31, 2000:
1. Summary Warrant Roll-Forward.
2. Summary Warrants Outstanding.
3. Option Roll-Forward.
4. Notes Payable.
EXHIBIT C
---------
Attached is the results of a UCC lien and judgment lien search
conducted through December 5, 2000 by Xxxxxxx Xxxxxx and Associates, Inc. on
December 27, 2000.
EXHIBIT D
---------
EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES
--------------------------------------------
The following are exceptions to the indicated representations and
warranties of the Company contained in Section 3 of the Debenture Placement
Agreement (the "Agreement"):
1. SECTION 3(l).
-- -------------
(a) The Company is in default on a $300,000 payment to Xxxxxx
Xxxxxxxx in connection with the settlement of certain litigation with Xx.
Xxxxxxxx.
(b) The Company is a party to a letter agreement with
Ladenberg Xxxxxxx & Co. Inc. ("Ladenburg"), pursuant to which Ladenburg may or
may not have a right of first refusal with respect to the transactions
contemplated by the Agreement. It is unclear whether this Agreement or the
transactions contemplated hereby will constitute a default under the letter
agreement. Pursuant to the terms of such letter agreement, however, the Company
may terminate the letter agreement by paying Ladenberg a break-up fee in the
amount of $200,000. Upon such termination, Ladenberg must relinquish to the
Company the warrants granted to it under the letter agreement.
(c) By entering into this transaction, the Company will be in
default of its equity line agreement with Helenville Holdings Limited.
2. SECTION 3(n).
-- -------------
(a) The disclosure made in paragraph 1(a) above is
incorporated herein by reference.
(b) U.S. Equal Employment Opportunity Commission, Charge No.
345980495 -Claimant Xxxx Xxxxx, who never commenced any form of employment
relationship with the Telenetics, claims sexual harassment by Xxxxxxx Armani in
connection with an alleged offer of employment made during a social
relationship.
(c) Aeris Communications v. the Company, filed in Northern
District of California (No. C00-3727JL), claiming patent infringement in
connection with technology acquired by the Company when the Company acquired
Eflex Wireless, Inc. in January 2000 (this suit follows C00-00328MJJ, which was
dismissed).
(d) In Matter of Xxxxxxx & Company Securities Inc., filed with
the American Arbitration Association Commercial Panel in New York (No. 12 113
00904 00), claiming failure to issue shares under pursuant to an investment
banking agreement.
3. SECTION 3(p).
-- -------------
The Company has agreed with Xxxxxxx Armani, the Company's
former President and Chief Executive Officer, to engage Mr. Armani as a
consultant for one year at the rate he was previously paid as an employee of the
Company and to grant to Mr. Armani options to purchase 500,000 shares of common
stock. The option is to be granted only if Mr. Armani pays his note payable to
the Company in the amount of approximately $200,000.
4. SECTION 3(r).
-- -------------
U.S. Equal Employment Opportunity Commission, Charge No.
345980495 - Claimant Xxxx Xxxxx, who never commenced any form of employment
relationship with the Telenetics, claims sexual harassment by Xxxxxxx Armani in
connection with an alleged offer of employment made during a social
relationship.
5. SECTION 3(t).
-- -------------
All liabilities for corporate income, payroll and other taxes
have been paid in full. All payroll taxes returns have been filed through the
quarter ended March 31, 2000. All business taxes and licenses returns are filed
as to California operations. As to Nevada, the Company is in the process of
obtaining licenses and approvals for the GDI division which it acquired in June
1999. Pending those approvals the Company is continuing to report and pay under
GDI's previous licenses. As to the "eFlex" subsidiary in Florida acquired in
January 2000, the licenses held by that corporation continue in full force and
effect. However, the State of Florida is currently reviewing whether or not the
Company has a licensure requirement in that state.
All corporate income taxes have been paid in full, and returns
relating to operations have been prepared for all periods through December 1998.
These and/or pro forma returns have been filed as required in order to
effectuate payment of any minimum taxes which may have been due. However,
amendments of, and adjustments to, these returns are required to correctly set
forth "Net Operating Loss CarryForwards." A reconciliation of the impact on the
"Net Operating Loss CarryForwards" of various issuances of the Company's common
stock from 1994 through December 31, 1999 has not yet been completed. The
project is expected to be completed prior to December 31, 2000.
In connection with the purchase of GDI, the Company assumed up
to $175,000 of GDI's prior tax liability as duly recorded in the Company's
financial statements. To date, no tax payments have been made.
Extensions to file the corporate income tax return for the
year ended December 31, 1999 have been filed.
-2-
6. SECTION 3(x).
-- -------------
Aeris Communications v. the Company, filed in Northern
District of California (No. C00-3727JL), claiming patent infringement in
connection with technology acquired by the Company when the Company acquired
Eflex Wireless, Inc. in January 2000 (this suit follows C00-00328MJJ, which was
dismissed).
-3-
