EXHIBIT 10.38
NOTE AND WARRANT PURCHASE AGREEMENT
This NOTE AND WARRANT PURCHASE AGREEMENT is dated as of January 23,
2002 (this "AGREEMENT") by and between Telenetics Corporation, a California
corporation (the "Company"), and the entities listed on EXHIBIT A hereto (each a
"PURCHASER" and collectively, the "PURCHASERS").
The parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF NOTES AND WARRANTS
Section 1.1 PURCHASE AND SALE OF NOTES AND WARRANTS. Upon the following
terms and conditions, the Company shall issue and sell to the Purchasers, and
the Purchasers shall purchase from the Company, senior secured convertible
promissory notes in the aggregate principal amount of Two Million Eighty-Seven
Thousand Five Hundred Dollars ($2,087,500.00) bearing interest at the rate of
six percent (6%) per annum, convertible into shares of the Company's common
stock, no par value per share (the "COMMON STOCK"), in substantially the form
attached hereto as EXHIBIT B (the "NOTES"), and warrants to purchase shares of
Common Stock, in substantially the form attached hereto as EXHIBIT C (the
"WARRANTS"), set forth with respect to such Purchaser on EXHIBIT A hereto. The
Company and the Purchasers are executing and delivering this Agreement in
accordance with and in reliance upon the exemption from securities registration
afforded by Section 4(2) of the U.S. Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder (the "SECURITIES ACT"), including
Regulation D ("REGULATION D"), and/or upon such other exemption from the
registration requirements of the Securities Act as may be available with respect
to any or all of the investments to be made hereunder.
Section 1.2 PURCHASE PRICE AND CLOSING. The Company agrees to issue and
sell to the Purchasers and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
the Purchasers agree to purchase the Notes and Warrants for an aggregate
purchase price of Two Million Eighty-Seven Thousand Five Hundred Dollars
($2,087,500.00) (the "PURCHASE PRICE"). The closing of the execution and
delivery of this Agreement shall occur upon delivery by facsimile of executed
signature pages of this Agreement and all other documents, instruments and
writings required to be delivered pursuant to this Agreement to Jenkens &
Xxxxxxxxx Xxxxxx Xxxxxx LLP, The Chrysler Building, 000 Xxxxxxxxx Xxxxxx, Xxx
Xxxx, Xxx Xxxx 00000. The Notes and Warrants shall be sold and funded in two
separate closings (each, a "CLOSING"). The initial closing under this Agreement
(the "INITIAL CLOSING") shall take place no later than January 31, 2002 (the
"INITIAL CLOSING DATE") and shall be funded in the amount of $1,500,000.00. The
second closing under this Agreement (the "SECOND CLOSING") shall take place no
later than February 25, 2002 or on such later date as the parties may mutually
agree (the "SECOND CLOSING DATE") and shall be funded in the amount of
$587,500.00. Funding with respect to each Closing shall take place by wire
transfer of immediately available funds and/or by cancellation of outstanding
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indebtedness of the Company to the Purchaser in the amounts shown on EXHIBIT A,
on or prior to the applicable Closing Date (as defined below), so long as the
conditions set forth in Article IV hereof shall be fulfilled or waived in
accordance herewith. Each Closing under this Agreement shall take place at the
offices of Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx LLP at 1:00 p.m. (eastern time)
upon the satisfaction of each of the conditions set forth in Article IV hereof
(each, a "CLOSING DATE").
Section 1.3 WARRANTS. At the Closing, the Company shall have issued to
the Purchasers Warrants to purchase an aggregate of 3,553,075 shares of Common
Stock. The Warrants shall be exercisable for five (5) years from the date of
issuance and shall have an exercise price equal to the Warrant Price (as defined
in the Warrants).
Section 1.4 CONVERSION SHARES / WARRANT SHARES. The Company has
authorized and has reserved and covenants to continue to reserve (subject to
Shareholder Approval (as defined in Section 3.17 hereof)), free of preemptive
rights and other similar contractual rights of stockholders, a number of its
authorized but unissued shares of Common Stock equal to at least 100% of the
aggregate number of shares of Common Stock issuable at a conversion price equal
to the Conversion Price Floor (as defined in the Notes). Any shares of Common
Stock issuable upon conversion of the Notes and exercise of the Warrants (and
such shares when issued) are herein referred to as the "CONVERSION SHAREs" and
the "WARRANT SHARES," respectively. The Notes, the Warrants, the Conversion
Shares and the Warrant Shares are sometimes collectively referred to herein as
the "SECURITIES".
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. In order to
induce the Purchasers to enter into this Agreement and to purchase the Notes and
the Warrants, the Company hereby makes the following representations and
warranties to the Purchasers:
(a) ORGANIZATION, GOOD STANDING AND POWER. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of California and has the requisite corporate power to own,
lease and operate its properties and assets and to conduct its business as it is
now being conducted. The Company does not have any Subsidiaries (as defined in
Section 2.1(g)) or own securities of any kind in any other entity except as set
forth on SCHEDULE 2.1(G) hereto. The Company and each such Subsidiary is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary except for any jurisdiction(s)
(alone or in the aggregate) in which the failure to be so qualified will not
have a Material Adverse Effect. For the purposes of this Agreement, "MATERIAL
ADVERSE EFFECT" means any adverse effect on the business, operations,
properties, prospects or financial condition of the Company or its Subsidiaries
and which is material to such entity or other entities controlling or controlled
by such entity or which is likely to materially hinder the performance by the
Company of its obligations hereunder and under the other Transaction Documents
(as defined in Section 2.1(b) hereof).
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(b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and, subject to Shareholder
Approval, perform this Agreement, the Registration Rights Agreement, the
Security Agreement, the Notes, the Warrants and the Irrevocable Transfer Agent
Instructions (as defined in Section 3.12) (collectively, the "TRANSACTION
DOCUMENTS") and to issue and sell the Securities in accordance with the terms
hereof and the Notes and the Warrants, as applicable. The execution, delivery
and performance of the Transaction Documents by the Company and the consummation
by it of the transactions contemplated thereby have been duly and validly
authorized by all necessary corporate action, and, subject to Shareholder
Approval, no further consent or authorization of the Company or its Board of
Directors or stockholders is required. This Agreement has been duly executed and
delivered by the Company. The other Transaction Documents will have been duly
executed and delivered by the Company at the Closing. Each of the Transaction
Documents constitutes, or shall constitute when executed and delivered, a valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor's rights and remedies or by other
equitable principles of general application.
(c) CAPITALIZATION. The authorized capital stock of the
Company and the shares thereof currently issued and outstanding as of January
23, 2002 are set forth on SCHEDULE 2.1(c) hereto. All of the outstanding shares
of the Company's Common Stock and any other security of the Company have been
duly and validly authorized. Except as set forth in this Agreement or on
SCHEDULE 2.1(C) hereto, no shares of Common Stock or any other security of the
Company are entitled to preemptive rights or registration rights and there are
no outstanding options, warrants, scrip, rights to subscribe to, call or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company. Furthermore,
except as set forth in this Agreement or on SCHEDULE 2.1(c) hereto, there are no
contracts, commitments, understandings, or arrangements by which the Company is
or may become bound to issue additional shares of the capital stock of the
Company or options, securities or rights convertible into shares of capital
stock of the Company. Except for customary transfer restrictions contained in
agreements entered into by the Company in order to sell restricted securities or
as provided on SCHEDULE 2.1(c) hereto, the Company is not a party to or bound by
any agreement or understanding granting registration or anti-dilution rights to
any person with respect to any of its equity or debt securities. Except as set
forth on SCHEDULE 2.1(c), the Company is not a party to, and it has no knowledge
of, any agreement or understanding restricting the voting or transfer of any
shares of the capital stock of the Company. Except as set forth on SCHEDULE
2.1(c) hereto, the offer and sale of all capital stock, convertible securities,
rights, warrants, or options of the Company issued prior to the Closing complied
with all applicable federal and state securities laws, and no holder of such
securities has a right of rescission or claim for damages with respect thereto
which could have a Material Adverse Effect. The Company has furnished or made
available to the Purchasers true and correct copies of the Company's Articles of
Incorporation as in effect on the date hereof (the "ARTICLES"), and the
Company's Bylaws as in effect on the date hereof (the "BYLAWS").
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(d) ISSUANCE OF SECURITIES. The Notes and the Warrants to be
issued at the Closing have been duly authorized by all necessary corporate
action and, when paid for and issued in accordance with the terms hereof, the
Notes shall be validly issued and outstanding, free and clear of all liens,
encumbrances and rights of refusal of any kind (other than federal and state
securities law restrictions). When the Conversion Shares and Warrant Shares are
issued and paid for in accordance with the terms of this Agreement and as set
forth in the Notes and Warrants, such shares will be duly authorized by all
necessary corporate action and validly issued and outstanding, fully paid and
nonassessable, free and clear of all liens, encumbrances and rights of refusal
of any kind (other than federal and state securities law restrictions) and the
holders shall be entitled to all rights accorded to a holder of Common Stock.
(e) NO CONFLICTS. Except as disclosed on Schedule 2.1(e), the
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby do not and will not (i) violate any provision of the Company's Articles
or Bylaws or any Subsidiary's comparable charter documents, (ii) conflict with,
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries' respective properties or assets are bound
(other than as expressly contemplated by the Transaction Documents), (iii)
create or impose a lien, mortgage, security interest, charge or encumbrance of
any nature on any property or asset of the Company or any of its Subsidiaries
under any agreement or any commitment to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound or by which any of their respective properties or assets are bound, or
(iv) result in a violation of any federal, state, local or foreign statute,
rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations) applicable to the Company or any of its
Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries are bound or affected, except, in all cases other than violations
pursuant to clauses (i) or (iv) above, for such conflicts, defaults,
terminations, amendments, acceleration, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect. The
business of the Company and its Subsidiaries is not being conducted in violation
of any laws, ordinances or regulations of any governmental entity, except for
possible violations which singularly or in the aggregate do not and will not
have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries
is required under federal, state, foreign or local law, rule or regulation to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under the Transaction Documents or
issue and sell the Notes, the Warrants, the Conversion Shares and the Warrant
Shares in accordance with the terms hereof or thereof (other than any filings
which may be required to be made by the Company with the Commission, the OTCBB
prior to or subsequent to the Closing, or state securities administrators
subsequent to the Closing, or any registration statement which may be filed
pursuant hereto).
(f) COMMISSION DOCUMENTS, FINANCIAL STATEMENTS. The Common
Stock of the Company is registered pursuant to Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and, except as
disclosed on SCHEDULE 2.1(f) hereto, the Company has timely filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the Commission pursuant to the reporting requirements of the Exchange Act,
including material filed pursuant to Section 13(a) or 15(d) of the Exchange Act
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(all of the foregoing including filings incorporated by reference therein being
referred to herein as the "COMMISSION DOCUMENTS"). The Company has delivered or
made available to the Purchasers true and complete copies of the Commission
Documents filed with the Commission since September 30, 2001. The Company has
not provided to the Purchasers any material non-public information or other
information which, according to applicable law, rule or regulation, should have
been disclosed publicly by the Company but which has not been so disclosed,
other than with respect to the transactions contemplated by this Agreement. At
the time of its filing, the Form 10-QSB for the fiscal quarter ended September
30, 2001 (the "FORM 10-QSB") complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the Commission
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such documents, and the Form 10-QSB did not contain
any untrue statement of a material fact or omit 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. As of their respective dates, the financial statements of the
Company included in the Commission Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the Commission or other applicable rules and regulations with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent basis
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements), and fairly present in all material respects
the financial position of the Company and its Subsidiaries as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
(g) SUBSIDIARIES. SCHEDULE 2.1(g) hereto sets forth each
Subsidiary of the Company, showing the jurisdiction of its incorporation or
organization and showing the percentage of each person's ownership of the
outstanding stock or other interests of such Subsidiary. For the purposes of
this Agreement, "SUBSIDIARY" shall mean any corporation or other entity of which
at least a majority of the securities or other ownership interest having
ordinary voting power (absolutely or contingently) for the election of directors
or other persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other Subsidiaries. All of the
outstanding shares of capital stock of each Subsidiary have been duly authorized
and validly issued, and are fully paid and nonassessable. There are no
outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any Subsidiary for the purchase
or acquisition of any shares of capital stock of any Subsidiary or any other
securities convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such capital stock. Neither the Company nor any
Subsidiary is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of the capital stock of any Subsidiary
or any convertible securities, rights, warrants or options of the type described
in the preceding sentence except as set forth on SCHEDULE 2.1(g) hereto. Neither
the Company nor any Subsidiary is party to, nor has any knowledge of, any
agreement restricting the voting or transfer of any shares of the capital stock
of any Subsidiary.
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(h) NO MATERIAL ADVERSE CHANGE. Since September 30, 2001, the
Company has not experienced or suffered any Material Adverse Effect, except as
disclosed on SCHEDULE 2.1(h) hereto.
(i) NO UNDISCLOSED LIABILITIES. Except as disclosed in the
Commission Documents, neither the Company nor any of its Subsidiaries has any
liabilities, obligations, claims or losses (whether liquidated or unliquidated,
secured or unsecured, absolute, accrued, contingent or otherwise) other than
those incurred in the ordinary course of the Company's or its Subsidiaries
respective businesses since September 30, 2001 and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect on the Company or
its Subsidiaries.
(j) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since September
30, 2001, except as disclosed on SCHEDULE 2.1(j) hereto, no event or
circumstance has occurred or exists with respect to the Company or its
Subsidiaries or their respective businesses, properties, prospects, operations
or financial condition, which, under applicable law, rule or regulation,
requires public disclosure or announcement by the Company but which has not been
so publicly announced or disclosed.
(k) INDEBTEDNESS. SCHEDULE 2.1(k) hereto sets forth as of the
date hereof all outstanding secured and unsecured Indebtedness of the Company or
any Subsidiary, or for which the Company or any Subsidiary has commitments. For
the purposes of this Agreement, "INDEBTEDNESS" shall mean (a) any liabilities
for borrowed money or amounts owed in excess of $25,000 (other than trade
accounts payable incurred in the ordinary course of business), (b) all
guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be reflected in
the Company's balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value of
any lease payments in excess of $25,000 due under leases required to be
capitalized in accordance with GAAP. Except as disclosed on SCHEDULE 2.1(k),
neither the Company nor any Subsidiary is in default with respect to any
Indebtedness.
(l) TITLE TO ASSETS. Each of the Company and the Subsidiaries
has good and marketable title to all of its real and personal property, free and
clear of any mortgages, pledges, charges, liens, security interests or other
encumbrances of any nature whatsoever, except for those indicated on SCHEDULE
2.1(l) hereto or such that, individually or in the aggregate, would not have a
Material Adverse Effect as of the Closing Date. All said leases of the Company
and each of its Subsidiaries are valid and subsisting and in full force and
effect.
(m) ACTIONS PENDING. There is no action, suit, claim,
investigation, arbitration, alternative dispute resolution proceeding or other
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any Subsidiary which questions the validity of this Agreement or any
of the other Transaction Documents or any of the transactions contemplated
hereby or thereby or any action taken or to be taken pursuant hereto or thereto.
Except as set forth on SCHEDULE 2.1(m) hereto, there is no action, suit, claim,
investigation, arbitration, alternative dispute resolution proceeding or other
proceeding pending or, to the knowledge of the Company, threatened, against or
involving the Company, any Subsidiary or any of their respective properties or
assets, which individually or in the aggregate, would have a Material Adverse
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Effect as of the Closing Date. There are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any Subsidiary or any officers or
directors of the Company or Subsidiary in their capacities as such, which
individually or in the aggregate, would have a Material Adverse Effect as of the
Closing Date.
(n) COMPLIANCE WITH LAW. The business of the Company and the
Subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth on SCHEDULE 2.1(n) hereto or such that,
individually or in the aggregate, the noncompliance therewith would not have a
Material Adverse Effect. The Company and each of its Subsidiaries have all
franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals necessary for the conduct of its business as now
being conducted by it unless the failure to possess such franchises, permits,
licenses, consents and other governmental or regulatory authorizations and
approvals, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.
(o) TAXES. Except as set forth on SCHEDULE 2.1(o) hereto, the
Company and each of the Subsidiaries has accurately prepared and filed all
federal, state and other tax returns required by law to be filed by it, has paid
or made provisions for the payment of all taxes shown to be due and all
additional assessments, and adequate provisions have been and are reflected in
the financial statements of the Company and the Subsidiaries for all current
taxes and other charges to which the Company or any Subsidiary is subject and
which are not currently due and payable. Except as disclosed on SCHEDULE 2.1(o)
hereto, none of the federal income tax returns of the Company or any Subsidiary
have been audited by the Internal Revenue Service. The Company has no knowledge
of any additional assessments, adjustments or contingent tax liability (whether
federal or state) of any nature whatsoever, whether pending or threatened
against the Company or any Subsidiary for any period, nor of any basis for any
such assessment, adjustment or contingency.
(p) CERTAIN FEES. Except as set forth on SCHEDULE 2.1(p)
hereto, the Company has not employed any broker or finder or incurred any
liability for any brokerage or investment banking fees, commissions, finders'
structuring fees, financial advisory fees or other similar fees in connection
with the Transaction Documents.
(q) DISCLOSURE. To the best of the Company's knowledge,
neither this Agreement or the Schedules hereto nor any other documents,
certificates or instruments furnished to the Purchasers by or on behalf of the
Company or any Subsidiary in connection with the transactions contemplated by
this Agreement contain any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements made herein or
therein, in the light of the circumstances under which they were made herein or
therein, not misleading.
(r) OPERATION OF BUSINESS. Except as disclosed on SCHEDULE
2.1(r), the Company and each of the Subsidiaries owns or possesses all patents,
trademarks, domain names (whether or not registered) and any patentable
improvements or copyrightable derivative works thereof, websites and
intellectual property rights relating thereto, service marks, trade names,
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copyrights, licenses and authorizations, including, but not limited to, those
listed on SCHEDULE 2.1(R) hereto, and all rights with respect to the foregoing,
which are necessary for the conduct of its business as now conducted without any
conflict with the rights of others.
(s) ENVIRONMENTAL COMPLIANCE. Except as disclosed on SCHEDULE
2.1(s) hereto, the Company and each of its Subsidiaries have obtained all
material approvals, authorization, certificates, consents, licenses, orders and
permits or other similar authorizations of all governmental authorities, or from
any other person, that are required under any Environmental Laws. SCHEDULE
2.1(s) hereto sets forth all material permits, licenses and other authorizations
issued under any Environmental Laws to the Company or its Subsidiaries.
"ENVIRONMENTAL LAWS" shall mean all applicable laws relating to the protection
of the environment including, without limitation, all requirements pertaining to
reporting, licensing, permitting, controlling, investigating or remediating
emissions, discharges, releases or threatened releases of hazardous substances,
chemical substances, pollutants, contaminants or toxic substances, materials or
wastes, whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
material or wastes, whether solid, liquid or gaseous in nature. Except as set
forth on SCHEDULE 2.1(s) hereto, the Company has all necessary governmental
approvals required under all Environmental Laws and used in its business or in
the business of any of its Subsidiaries. The Company and each of its
Subsidiaries are also in compliance with all other limitations, restrictions,
conditions, standards, requirements, schedules and timetables required or
imposed under all Environmental Laws. Except for such instances as would not
individually or in the aggregate have a Material Adverse Effect, there are no
past or present events, conditions, circumstances, incidents, actions or
omissions relating to or in any way affecting the Company or its Subsidiaries
that violate or may violate any Environmental Law after the Closing or that may
give rise to any environmental liability, or otherwise form the basis of any
claim, action, demand, suit, proceeding, hearing, study or investigation (i)
under any Environmental Law, or (ii) based on or related to the manufacture,
processing, distribution, use, treatment, storage (including, without
limitation, underground storage tanks), disposal, transport or handling, or the
emission, discharge, release or threatened release of any hazardous substance.
"ENVIRONMENTAL LIABILITIES" means all liabilities of a person (whether such
liabilities are owed by such person to governmental authorities, third parties
or otherwise) whether currently in existence or arising hereafter which arise
under or relate to any Environmental Law.
(t) BOOKS AND RECORDS; INTERNAL ACCOUNTING CONTROLS. The
records and documents of the Company and its Subsidiaries accurately reflect in
all material respects the information relating to the business of the Company
and the Subsidiaries, the location and collection of their assets, and the
nature of all transactions giving rise to the obligations or accounts receivable
of the Company or any Subsidiary. The Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient, in the judgment of
the Company's board of directors, to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate actions are taken
with respect to any differences.
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(u) MATERIAL AGREEMENTS. Except for the Transaction Documents
and as set forth on SCHEDULE 2.1(u) hereto, neither the Company nor any
Subsidiary is a party to any written or oral contract, instrument, agreement,
commitment, obligation, plan or arrangement, a copy of which would be required
to be filed with the Commission (collectively, "MATERIAL AGREEMENTS") if the
Company or any Subsidiary were registering securities under the Securities Act.
Except as disclosed on SCHEDULED 2.1(u), to the best of the Company's knowledge
neither the Company nor any subsidiary is in default under any Material
Agreement now in effect, the result of which could cause a Material Adverse
Effect. Except as disclosed on SCHEDULE 2.1(u), no written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement of the
Company or of any Subsidiary limits or shall limit the payment of interest on
the Notes, or dividends on its Common Stock.
(v) TRANSACTIONS WITH AFFILIATES. Except as set forth on
SCHEDULE 2.1(v) hereto, there are no loans, leases, agreements, contracts,
royalty agreements, management contracts or arrangements or other continuing
transactions exceeding $50,000 individually or in the aggregate between (a) the
Company, any Subsidiary or any of their respective customers or suppliers on the
one hand, and (b) on the other hand, any officer, employee, consultant or
director of the Company, or any of its Subsidiaries, or any person owning any
capital stock of the Company or any Subsidiary or any member of the immediate
family of such officer, employee, consultant, director or stockholder or any
corporation or other entity controlled by such officer, employee, consultant,
director or stockholder, or a member of the immediate family of such officer,
employee, consultant, director or stockholder.
(w) SECURITIES ACT OF 1933. The Company has complied and will
comply with all applicable federal and state securities laws in connection with
the offer, issuance and sale of the Notes, the Warrants, the Conversion Shares
and the Warrant Shares hereunder. Neither the Company nor anyone acting on its
behalf, directly or indirectly, has or will sell, offer to sell or solicit
offers to buy any of the Securities, or similar securities to, or solicit offers
with respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any person, or has taken or will take any
action so as to bring the issuance and sale of any of the Securities under the
registration provisions of the Securities Act and applicable state securities
laws. Neither the Company nor any of its affiliates, nor any person acting on
its or their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the Securities Act) in
connection with the offer or sale of any of the Securities.
(x) GOVERNMENTAL APPROVALS. Except as set forth on SCHEDULE
2.1(x) hereto, and except for the filing of any notice prior or subsequent to
the Closing that may be required under applicable state and/or federal
securities laws (which if required, shall be filed on a timely basis), no
authorization, consent, approval, license, exemption of, filing or registration
with any court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary for, or in
connection with, the execution or delivery of the Notes and the Warrants, or for
the performance by the Company of its obligations under the Transaction
Documents.
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(y) EMPLOYEES. Neither the Company nor any Subsidiary has any
collective bargaining arrangements or agreements covering any of its employees.
Except as set forth on SCHEDULE 2.1(y) hereto, neither the Company nor any
Subsidiary has any employment contract, agreement regarding proprietary
information, non-competition agreement, non-solicitation agreement,
confidentiality agreement, or any other similar contract or restrictive
covenant, relating to the right of any officer, employee or consultant to be
employed or engaged by the Company or such Subsidiary. Since September 30, 2001,
no officer, consultant or key employee of the Company or any Subsidiary whose
termination, either individually or in the aggregate, could have a Material
Adverse Effect, has terminated or, to the knowledge of the Company, has any
present intention of terminating his or her employment or engagement with the
Company or any Subsidiary.
(z) ABSENCE OF CERTAIN DEVELOPMENTS. Except as set forth on
SCHEDULE 2.1(z) hereto, since September 30, 2001, neither the Company nor any
Subsidiary has:
(i) issued any stock, bonds or other corporate
securities or any rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become
subject to any liabilities (absolute or contingent) except current liabilities
incurred in the ordinary course of business which are comparable in nature and
amount to the current liabilities incurred in the ordinary course of business
during the comparable portion of its prior fiscal year, as adjusted to reflect
the current nature and volume of the Company's or such Subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance
or paid any obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of
cash or other property to stockholders with respect to its stock, or purchased
or redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock;
(v) sold, assigned or transferred any other tangible
assets, or canceled any debts or claims, except in the ordinary course of
business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, or disclosed any proprietary confidential
information to any person except in the ordinary course of business or to the
Purchasers or its representatives;
(vii) suffered any substantial losses or waived any
rights of material value, whether or not in the ordinary course of business, or
suffered the loss of any material amount of prospective business;
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(viii) made any changes in employee compensation
except in the ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments
therefor that aggregate in excess of $25,000;
(x) entered into any other transaction other than in
the ordinary course of business, or entered into any other material transaction,
whether or not in the ordinary course of business;
(xi) made charitable contributions or pledges in
excess of $25,000;
(xii) suffered any material damage, destruction or
casualty loss, whether or not covered by insurance;
(xiii) experienced any material problems with labor
or management in connection with the terms and conditions of their employment;
(xiv) effected any two or more events of the
foregoing kind which in the aggregate would cause a Material Adverse Effect; or
(xv) entered into an agreement, written or otherwise
(other than the Transaction Documents), to take any of the foregoing actions.
(aa) USE OF PROCEEDS. The proceeds from the sale of the Notes
and the Warrant Shares will be used by the Company for working capital purposes
and shall not be used to prepay any outstanding Indebtedness or make any loans
to any officer, director, affiliate or insider of the Company.
(bb) PUBLIC UTILITY HOLDING COMPANY ACT AND INVESTMENT COMPANY
ACT STATUS. The Company is not a "holding company" or a "public utility company"
as such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
(cc) ERISA. No liability to the Pension Benefit Guaranty
Corporation has been incurred with respect to any Plan by the Company or any of
its Subsidiaries which is or would cause a Material Adverse Effect. The
execution and delivery of this Agreement and the issue and sale of the Notes,
the Conversion Shares and the Warrant Shares will not involve any transaction
which is subject to the prohibitions of Section 406 of ERISA or in connection
with which a tax could be imposed pursuant to Section 4975 of the Internal
Revenue Code of 1986, as amended, provided that, if any Purchaser, or any person
or entity that owns a beneficial interest in any Purchaser, is an "employee
pension benefit plan" (within the meaning of Section 3(2) of ERISA) with respect
to which the Company is a "party in interest" (within the meaning of Section
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3(14) of ERISA), the requirements of Sections 407(d)(5) and 408(e) of ERISA, if
applicable, are met. As used in this Section 2.1(cc), the term "Plan" shall mean
an "employee pension benefit plan" (as defined in Section 3 of ERISA) which is
or has been established or maintained, or to which contributions are or have
been made, by the Company or any Subsidiary or by any trade or business, whether
or not incorporated, which, together with the Company or any Subsidiary, is
under common control, as described in Section 414(b) or (c) of the Code.
(dd) DILUTIVE EFFECT. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the Notes and
the Warrant Shares issuable upon exercise of the Warrants will increase in
certain circumstances. The Company further acknowledges that its obligation to
issue Conversion Shares upon conversion of the Notes in accordance with this
Agreement and its obligations to issue the Warrant Shares upon the exercise of
the Warrants in accordance with this Agreement and the Warrants, is, in each
case, absolute and unconditional regardless of the dilutive effect that such
issuance may have on the ownership interest of other stockholders of the
Company.
Section 2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each of
the Purchasers hereby makes the following representations and warranties to the
Company with respect solely to itself and not with respect to any other
Purchaser:
(a) ORGANIZATION AND STANDING OF THE PURCHASERS. If the
Purchaser is an entity, such Purchaser is a corporation, limited liability
company or partnership duly incorporated or organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization.
(b) AUTHORIZATION AND POWER. Each Purchaser has the requisite
power and authority to enter into and perform the Transaction Documents and to
purchase the Notes and Warrants being sold to it hereunder. The execution,
delivery and performance of the Transaction Documents by each Purchaser and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate or partnership action, and no further
consent or authorization of such Purchaser or its Board of Directors,
stockholders, or partners, as the case may be, is required. This Agreement has
been duly authorized, executed and delivered by each Purchaser. The other
Transaction Documents constitute, or shall constitute when executed and
delivered, a valid and binding obligations of each Purchaser enforceable against
such Purchaser in accordance with their terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditor's rights and remedies or by
other equitable principles of general application.
(c) ACQUISITION FOR INVESTMENT. Each Purchaser is purchasing
the Notes and acquiring the Warrants solely for its own account for the purpose
of investment and not with a view to or for sale in connection with a
distribution. Each Purchaser does not have a present intention to sell any of
the Securities, nor a present arrangement (whether or not legally binding) or
intention to effect any distribution of any of the Securities to or through any
person or entity; PROVIDED, HOWEVER, that by making the representations herein
and subject to Section 2.2(e) below, each Purchaser does not agree to hold any
of the Securities for any minimum or other specific term and reserves the right
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to dispose of any of the Securities at any time in accordance with federal and
state securities laws applicable to such disposition. Each Purchaser
acknowledges that it (i) has such knowledge and experience in financial and
business matters such that Purchaser is capable of evaluating the merits and
risks of Purchaser's investment in the Company and is (ii) able to bear the
financial risks associated with an investment in the Securities and (iii) that
it has been given full access to such records of the Company and the
Subsidiaries and to the officers of the Company and the Subsidiaries as it has
deemed necessary or appropriate to conduct its due diligence investigation.
(d) RULE 144. Each Purchaser understands that the Securities
must be held indefinitely unless such Securities are registered under the
Securities Act or an exemption from registration is available. Each Purchaser
acknowledges that such person is familiar with Rule 144 of the rules and
regulations of the Commission, as amended, promulgated pursuant to the
Securities Act ("RULE 144"), and that such Purchaser has been advised that Rule
144 permits resales only under certain circumstances. Each Purchaser understands
that to the extent that Rule 144 is not available, such Purchaser will be unable
to sell any Securities without either registration under the Securities Act or
the existence of another exemption from such registration requirement.
(e) GENERAL. Each Purchaser understands that the Securities
are being offered and sold in reliance on a transactional exemption from the
registration requirements of federal and state securities laws and the Company
is relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Purchaser set forth
herein in order to determine the applicability of such exemptions and the
suitability of such Purchaser to acquire the Securities. Each Purchaser
understands that no United States federal or state agency or any government or
governmental agency has passed upon or made any recommendation or endorsement of
the Securities.
(f) OPPORTUNITIES FOR ADDITIONAL INFORMATION. Each Purchaser
acknowledges that such Purchaser has had the opportunity to ask questions of and
receive answers from, or obtain additional information from, the executive
officers of the Company concerning the financial and other affairs of the
Company, and to the extent deemed necessary in light of such Purchaser's
personal knowledge of the Company's affairs, such Purchaser has asked such
questions and received answers to the full satisfaction of such Purchaser, and
such Purchaser desires to invest in the Company.
(g) NO GENERAL SOLICITATION. Each Purchaser acknowledges that
the Securities were not offered to such Purchaser by means of any form of
general or public solicitation or general advertising, or publicly disseminated
advertisements or sales literature, including (i) any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media, or broadcast over television or radio, or (ii) any seminar or meeting to
which such Purchaser was invited by any of the foregoing means of
communications.
(h) ACCREDITED INVESTOR. Each Purchaser is an accredited
investor (as defined in Rule 501 of Regulation D), and such Purchaser has such
experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in the Securities. Each Purchaser
acknowledges that an investment in the Securities is speculative and involves a
high degree of risk.
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(i) LIMITATIONS ON SHORT SALES. So long as no Event of Default
(as defined in the Notes) has occurred and is continuing, neither the Purchasers
nor their affiliates will undertake any special selling activities with respect
to the Common Stock, which includes, without limitation, any short sale.
ARTICLE III
COVENANTS
---------
The Company covenants with each Purchaser as follows, which covenants
are for the benefit of each Purchaser and their respective permitted assignees.
Section 3.1 SECURITIES COMPLIANCE. The Company shall notify the
Commission in accordance with their rules and regulations, of the transactions
contemplated by any of the Transaction Documents and shall take all other
necessary action and proceedings as may be required and permitted by applicable
law, rule and regulation, for the legal and valid issuance of the Securities to
the Purchasers, or their respective subsequent holders.
Section 3.2 REGISTRATION AND LISTING. The Company will cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, will comply in all respects with its reporting and filing obligations under
the Exchange Act, will comply with all requirements related to any registration
statement filed pursuant to this Agreement, and will not take any action or file
any document (whether or not permitted by the Securities Act or the rules
promulgated thereunder) to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under the Exchange Act
or Securities Act, except as permitted herein. The Company shall take all action
necessary to continue the listing or trading of its Common Stock on the OTCBB or
any successor market. The Company will promptly file the "Listing Application,"
if required, for, or in connection with, the issuance and delivery of the
Conversion Shares and the Warrant Shares.
Section 3.3 INSPECTION RIGHTS. Subject to Section 3.15 hereof, the
Company shall permit, during normal business hours and upon reasonable request
and reasonable notice, a Purchaser or any employees, agents or representatives
thereof, so long as a Purchaser shall be obligated hereunder to purchase the
Notes or shall beneficially own the Notes, or shall own Conversion Shares,
Warrant Shares or the Warrants to purchase Warrant Shares which, in the
aggregate, represent more than two percent (2%) of the total combined voting
power of all voting securities then outstanding, to examine and make reasonable
copies of and extracts from the records and books of account of, and visit and
inspect, during the term of the Notes and Warrants, the properties, assets,
operations and business of the Company and any Subsidiary, and to discuss the
affairs, finances and accounts of the Company and any Subsidiary with any of its
officers, consultants, directors, and key employees.
Section 3.4 COMPLIANCE WITH LAWS. The Company shall comply, and cause
each Subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which the Company reasonably expects would have a
Material Adverse Effect.
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Section 3.5 KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company shall
keep and cause each Subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
Subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 3.6 REPORTING REQUIREMENTS. The Company shall furnish three (3)
copies of the following to the Purchasers in a timely manner so long as the
Purchasers shall be obligated hereunder to purchase the Notes or shall
beneficially own the Notes or Warrants, or shall own Conversion Shares or
Warrant Shares which, in the aggregate, represent more than one percent (1%) of
the total combined voting power of all voting securities then outstanding:
(a) Quarterly Reports filed with the Commission on Form 10-QSB
as soon as available, and in any event within fifty-one (51) days after the end
of each of the first three (3) fiscal quarters of the Company;
(b) Annual Reports filed with the Commission on Form 10-KSB as
soon as available, and in any event within one hundred six (106) days after the
end of each fiscal year of the Company; and
(c) Copies of all notices and information, including without
limitation notices and proxy statements in connection with any meetings, that
are provided to holders of shares of Common Stock, contemporaneously with the
delivery of such notices or information to such holders of Common Stock.
Section 3.7 AMENDMENTS. The Company shall not amend or waive any
provision of the Articles or Bylaws of the Company in any way that would
adversely affect the exercise rights, voting rights, prepayment rights or
redemption rights of the holder of the Notes or the Warrants; PROVIDED, HOWEVER,
that the Company shall not be prohibited from amending its Articles to increase
its authorized capital stock.
Section 3.8 OTHER AGREEMENTS. The Company shall not enter into any
agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any Subsidiary under any
Transaction Document.
Section 3.9 DISTRIBUTIONS. Except as set forth on SCHEDULE 3.9 hereto,
so long as any Notes remain outstanding, the Company agrees that it shall not,
without the prior written consent of the holders of a majority of the principal
amount of the Notes outstanding at the time consent is required, which consent
may be granted or denied in the sole discretion of the Purchasers (i) declare or
pay any dividends (other than a stock dividend or stock split) or make any
distributions to any holder(s) of Common Stock or (ii) purchase or otherwise
acquire for value, directly or indirectly, any Common Stock or other equity
security of the Company.
Section 3.10 SUBSEQUENT FINANCINGS; RIGHT OF FIRST REFUSAL. (a) During
the period commencing on the Closing Date and ending on the earlier of (i) the
two hundred seventieth (270th) day after the Effectiveness Date or (ii) the date
all of the Notes are no longer outstanding, the Company covenants and agrees
that it will not, without the prior written consent of the holders of a
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majority of the principal amount of the Notes outstanding at the time consent is
required, enter into any subsequent offer or sale to, or exchange with (or other
type of distribution to), any third party, of Common Stock or any securities
convertible, exercisable or exchangeable into Common Stock, including
convertible and non-convertible debt securities (collectively, the "FINANCING
SECURITIES"), the primary purpose of which would be to obtain financing for the
Company (a "SUBSEQUENT FINANCING"). For purposes of this Agreement, a Permitted
Financing (as defined hereinafter) shall not be considered a Subsequent
Financing. A "Permitted Financing" shall mean (1) shares of Common Stock to be
issued to strategic partners and/or in connection with a strategic merger or
acquisition; (2) shares of Common Stock or the issuance of options to purchase
shares of Common Stock to employees, officers, directors, consultants and
vendors in accordance with the Company's equity incentive policies; (3) the
issuance of securities pursuant to the conversion or exercise of convertible or
exercisable securities issued or outstanding on or prior to the Closing Date;
(4) the issuance of securities in a public offering; (5) the issuance of up to
100,000 warrants or options to purchase shares of Common Stock in connection
with debt financing for the Company; and (6) the issuance of securities in which
the proceeds received by the Company in connection with such issuance would be
used to prepay the outstanding principal balance of the Notes and all accrued
interest thereon.
(b) For a period of two (2) years following the Effectiveness
Date (as defined in the Registration Rights Agreement), the Company covenants
and agrees to promptly notify (in no event later than five (5) days after making
or receiving an applicable offer) in writing (a "RIGHTS NOTICE") the Purchasers
of any proposed Subsequent Financing. The Rights Notice shall describe, in
reasonable detail, the terms and conditions of the proposed Subsequent
Financing, the proposed closing date of the Subsequent Financing, which shall be
within twenty (20) trading days from the date of the Rights Notice, including,
without limitation, all of the terms and conditions thereof. The Rights Notice
shall provide each Purchaser an option (the "RIGHTS OPTION") during the ten (10)
trading days following delivery of the Rights Notice (the "OPTION PERIOD") to
purchase such amount as the Company and each Purchaser may agree to up to such
Purchaser's pro rata portion of the Purchase Price of the securities being
offered in such Subsequent Financing on the same, absolute terms and conditions
as contemplated by such Subsequent Financing (the "FIRST REFUSAL RIGHTS").
Delivery of any Rights Notice constitutes a representation and warranty by the
Company that there are no other material terms and conditions, arrangements,
agreements or otherwise (except for those disclosed in the Rights Notice), to
provide additional compensation to any party participating in any proposed
Subsequent Financing, including, but not limited to, additional compensation
based on changes in the Purchase Price or any type of reset or adjustment of a
purchase or conversion price or to issue additional securities at any time after
the closing date of a Subsequent Financing. If the Company does not receive
notice of exercise of the Rights Option from any of the Purchasers within the
Option Period, the Company shall have the right to close the Subsequent
Financing on the scheduled closing date with a third party; PROVIDED that all of
the terms and conditions of the closing are the same as those provided to the
Purchasers in the Rights Notice. If the closing of the proposed Subsequent
Financing does not occur on that date, any closing of the contemplated
Subsequent Financing or any other Subsequent Financing shall be subject to all
of the provisions of this Section 3.10, including, without limitation, the
delivery of a new Rights Notice.
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(c) For a period of two (2) years following the Closing Date,
if the Company enters into any Subsequent Financing on terms more favorable than
the terms governing the Notes and Warrants, then, subject to applicable
securities laws, the Purchasers in their sole discretion may exchange the Notes
and Warrants together with accrued but unpaid interest (which interest shall be
payable, at the sole option of the Purchasers, in cash or in the form of the new
securities to be issued in the Subsequent Financing) for the securities issued
or to be issued in the Subsequent Financing. The Company covenants and agrees to
promptly notify in writing the Purchasers of the terms and conditions of any
such proposed Subsequent Financing.
Section 3.11 RESERVATION OF SHARES. So long as the Notes or Warrants
remain outstanding, the Company shall take all action necessary to at all times
have authorized, and reserved for the purpose of issuance (subject to
Shareholder Approval), 100% of the aggregate number of shares of Common Stock
issuable at a conversion price equal to the Conversion Price Floor (as defined
in the Notes). If at any time the number of shares of Common Stock authorized
and reserved for issuance is below 100% of the Conversion Price Floor (as
defined in the Notes), the Company will promptly take all corporate action
necessary to authorize and reserve a sufficient number of shares, including
without limitation, calling a special meeting of shareholders to authorize
additional shares to meet the Company's obligations under this Section 3.11, in
the case of an insufficient number of authorized shares, and using its best
efforts to obtain shareholders approval of an increase in such authorized number
of shares.
Section 3.12 TRANSFER AGENT INSTRUCTIONS. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of the Purchasers or their
respective nominee(s), for the Conversion Shares and the Warrant Shares in such
amounts as specified from time to time by the Purchasers to the Company upon
conversion of the Notes or exercise of the Warrants, in the form of EXHIBIT D
attached hereto (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). Prior to
registration of the Conversion Shares and the Warrant Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in Section 5.1 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 3.12 will be given by the Company to its transfer agent other
than as contemplated by the Irrevocable Transfer Agent Instructions and that the
Securities shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement. Nothing in this
Section 3.12 shall affect in any way the Purchasers' obligations and agreements
set forth in Section 5.1 to comply with all applicable prospectus delivery
requirements, if any, upon the resale of the Conversion Shares and the Warrant
Shares. If a Purchaser provides the Company with an opinion of counsel, in form,
substance and scope generally acceptable to the Company, to the effect that a
public sale, assignment or transfer of the Securities may be made without
registration under the Securities Act or the Purchasers provide the Company with
reasonable assurances that the Securities can be sold pursuant to Rule 144
without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold, the Company shall permit the
transfer, and, in the case of the Conversion Shares and the Warrant Shares,
promptly instruct its transfer agent to issue one or more certificates in such
name and in such denominations as specified by the Purchasers and without any
restrictive legend. The Company acknowledges that a breach by it of its
obligations under this Section 3.12 will cause irreparable harm to the
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Purchasers by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 3.12 will be inadequate and agrees,
in the event of a breach or threatened breach by the Company of the provisions
of this Section 3.12, that the Purchasers shall be entitled, in addition to all
other available remedies, to an order and/or injunction restraining any breach
and requiring immediate issuance and transfer, without the necessity of showing
economic loss and without any bond or other security being required.
Section 3.13 DISPOSITION OF ASSETS. So long as the Notes remain
outstanding, neither the Company nor any Subsidiary shall sell, transfer or
otherwise dispose of any material amount of its properties, assets and rights
including, without limitation, its software and intellectual property, to any
person except for sales to customers in the ordinary course of business, sales
of inventory to subcontractors, sales or assignments of accounts receivable to
the Company's contract manufacturers or their lenders, without the prior written
consent of the holders of a majority of the principal amount of the Notes then
outstanding.
Section 3.14 REPAYMENT OF OTHER INDEBTEDNESS. So long as the Notes
remain outstanding, the Company shall not prepay any Indebtedness for borrowed
money owed by the Company to any officer, director, affiliate or insider of the
Company.
Section 3.15 NON-PUBLIC INFORMATION. Neither the Company nor any of its
officers or agents shall disclose any material non-public information about the
Company to the Purchasers and neither the Purchasers nor any of their
affiliates, officers or agents will solicit any material non-public information
from the Company.
Section 3.16 ANNUAL REPORT ON FORM 10-KSB. The Company shall file its
Annual Report on Form 10-KSB for the year ended December 31, 2001 (including
audited financial statements) with the Commission no later than April 16, 2002.
Section 3.17 SHAREHOLDER APPROVAL. The Company shall obtain the vote of
its shareholders no later than May 20, 2002 to approve an amendment to the
Articles to increase the authorized capital stock of the Company to permit the
Company to reserve at least 100% of the aggregate number of shares of Common
Stock to effect the conversion of the Notes and exercise of the Warrants (the
"SHAREHOLDER APPROVAL").
Section 3.18 RESTRUCTURE OF CURRENT DEBT. On or before April 1, 2002,
the Company shall restructure at least $1,000,000 of principal amount of its
Current Debt so as to extend the maturity date of such Current Debt to February
1, 2004 or later. For purposes of this Agreement, "Current Debt" means any
indebtedness for borrowed money or services provided which indebtedness shall
mature on or before January 2, 2003.
ARTICLE IV
CONDITIONS
----------
Section 4.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO
CLOSE AND TO SELL THE NOTES AND WARRANTS. The obligation hereunder of the
Company to close and issue and sell the Notes and the Warrants to the Purchasers
at the Closing Date is subject to the satisfaction or waiver, at or before the
Closing of the conditions set forth below. These conditions are for the
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Company's sole benefit and may be waived by the Company in writing at any time
in its sole discretion.
(a) ACCURACY OF THE PURCHASERS' REPRESENTATIONS AND
WARRANTIES. The representations and warranties of each Purchaser shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time, except for representations and
warranties that are expressly made as of a particular date, which shall be true
and correct in all material respects as of such date.
(b) PERFORMANCE BY THE PURCHASERS. Each Purchaser shall have
performed, satisfied and complied in all respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Purchasers at or prior to the Closing Date.
(c) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(d) DELIVERY OF PURCHASE PRICE. The Purchase Price for the
Notes and Warrants has been delivered to the Company at the Closing Date.
(e) DELIVERY OF TRANSACTION DOCUMENTS. The Transaction
Documents have been duly executed and delivered by the Purchasers to the
Company, and the Company shall have received such other certificates and
documents as the Company or its counsel shall reasonably require incident to the
Closing.
Section 4.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PURCHASERS TO
CLOSE AND TO PURCHASE THE NOTES AND WARRANTS. The obligation hereunder of the
Purchasers to purchase the Notes and Warrants and consummate the transactions
contemplated by this Agreement is subject to the satisfaction or waiver, at or
before the Closing Date, of each of the conditions set forth below. These
conditions are for the Purchasers' sole benefit and may be waived by the
Purchasers at any time in their sole discretion.
(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
Each of the representations and warranties of the Company in this Agreement, the
Registration Rights Agreement, the Security Agreement and the Notes shall be
true and correct in all material respects as of the Closing Date, except for
representations and warranties that speak as of a particular date, which shall
be true and correct in all material respects as of such date.
(b) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing Date.
(c) NO SUSPENSION, ETC. Trading in the Company's Common Stock
shall not have been suspended by the Commission (except for any suspension of
trading of limited duration agreed to by the Company, which suspension shall be
terminated prior to the Closing), and, at any time prior to the Closing Date,
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trading in securities generally as reported by Bloomberg Financial Markets
("BLOOMBERG") shall not have been suspended or limited, or minimum prices shall
not have been established on securities whose trades are reported by Bloomberg,
or on the New York Stock Exchange, nor shall a banking moratorium have been
declared either by the United States or New York State authorities, nor shall
there have occurred any national or international calamity or crisis of such
magnitude in its effect on any financial market which, in each case, in the
reasonable judgment of the Purchasers, makes it impracticable or inadvisable to
purchase the Notes.
(d) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(e) NO PROCEEDINGS OR LITIGATION. No action, suit or
proceeding before any arbitrator or any governmental authority shall have been
commenced, and no investigation by any governmental authority shall have been
threatened, against the Company or any Subsidiary, or any of the officers,
directors or affiliates of the Company or any Subsidiary seeking to restrain,
prevent or change the transactions contemplated by this Agreement, or seeking
damages in connection with such transactions.
(f) OPINION OF COUNSEL, ETC. The Purchasers shall have
received an opinion of counsel to the Company, dated the Closing Date, in the
form of EXHIBIT E hereto and such other certificates and documents as the
Purchasers or their counsel shall reasonably require incident to the Closing.
(g) WARRANTS AND NOTES. The Company shall have delivered the
originally executed Warrants (in such denominations as each Purchaser may
request) to the Purchasers and shall have delivered the originally executed
Notes (in such denominations as each Purchaser may request) to the Purchasers
that are being acquired by the Purchasers at the Closing.
(h) RESOLUTIONS. The Board of Directors of the Company shall
have adopted resolutions consistent with Section 2.1(b) hereof in a form
reasonably acceptable to the Purchasers (the "RESOLUTIONS").
(i) RESERVATION OF SHARES. As of the Closing Date, the Company
shall have reserved out of its authorized and unissued shares of Common Stock,
subject to Shareholder Approval, solely for the purpose of effecting the
conversion of the Notes and the exercise of the Warrants, a number of shares of
Common Stock equal to at least 100% of the aggregate number of shares of Common
Stock issuable at a conversion price equal to the Conversion Price Floor (as
defined in the Notes).
(j) TRANSFER AGENT INSTRUCTIONS. The Irrevocable Transfer
Agent Instructions, in the form of EXHIBIT D attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
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(k) SECRETARY'S CERTIFICATE. The Company shall have delivered
to the Purchasers a secretary's certificate, dated as of the Closing Date, as to
(i) the Resolutions, (ii) the Articles, (iii) the Bylaws, each as in effect at
the Closing, and (iv) the authority and incumbency of the officers of the
Company executing the Transaction Documents and any other documents required to
be executed or delivered in connection therewith.
(l) OFFICER'S CERTIFICATE. On the Closing Date, the Company
shall have delivered to the Purchasers a certificate of an executive officer of
the Company, dated as of the Closing Date, confirming the accuracy of the
Company's representations, warranties and covenants as of the Closing Date and
confirming the compliance by the Company with the conditions precedent set forth
in this Section 4.2 as of the Closing Date.
(m) SECURITY AGREEMENT. As of the Closing Date, the parties
shall have entered into the security agreement in the form of EXHIBIT F attached
hereto.
(n) UCC-1 FINANCING STATEMENTS. The Company shall have filed
all UCC-1 financing statements in form and substance satisfactory to the
Purchasers at the appropriate offices to create a valid and perfected security
interest in the Collateral (as defined in the Security Agreement).
(o) JUDGMENT, LIEN AND UCC SEARCH. A judgment, lien and UCC
financing statement search shall have been completed by the Purchasers.
(p) FEES AND EXPENSES. As of the Closing Date, all fees and
expenses required to be paid by the Company shall have been or authorized to be
paid by the Company as of the Closing Date.
(q) REGISTRATION RIGHTS AGREEMENT. As of the Closing Date, the
parties shall have entered into the Registration Rights Agreement in the Form of
EXHIBIT G attached hereto.
(r) MATERIAL ADVERSE EFFECT. No Material Adverse Effect shall
have occurred.
ARTICLE V
CERTIFICATE LEGEND
------------------
Section 5.1 LEGEND. Each certificate representing the Notes, the
Conversion Shares, the Warrants and the Warrant Shares shall be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required by applicable state securities or "blue sky"
laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE
SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR TELENETICS
CORPORATION SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
-21-
The Company agrees to reissue certificates representing any of the
Securities, without the legend set forth above if at such time, prior to making
any transfer of any such Securities, such holder thereof shall give written
notice to the Company describing the manner and terms of such transfer and
removal as the Company may reasonably request. Such proposed transfer will not
be effected until: (a) the Company has notified such holder that either (i) in
the opinion of Company counsel, the registration of the Notes, Conversion
Shares, Warrants or Warrant Shares under the Securities Act is not required in
connection with such proposed transfer; or (ii) a registration statement under
the Securities Act covering such proposed disposition has been filed by the
Company with the Commission and has become effective under the Securities Act;
and (b) the Company has notified such holder that either: (i) in the opinion of
Company counsel, the registration or qualification under the securities or "blue
sky" laws of any state is not required in connection with such proposed
disposition, or (ii) compliance with applicable state securities or "blue sky"
laws has been effected. The Company will use its best efforts to respond to any
such notice from a holder within five (5) days. In the case of any proposed
transfer under this Section 5, the Company will use reasonable efforts to comply
with any such applicable state securities or "blue sky" laws, but shall in no
event be required, in connection therewith, to qualify to do business in any
state where it is not then qualified or to take any action that would subject it
to tax or to the general service of process in any state where it is not then
subject. The restrictions on transfer contained in Section 5.1 shall be in
addition to, and not by way of limitation of, any other restrictions on transfer
contained in any other section of this Agreement.
ARTICLE VI
TERMINATION
-----------
Section 6.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated at any time prior to the Closing Date by the mutual written consent
of the Company and the Purchasers.
Section 6.2 EFFECT OF TERMINATION. If this Agreement is terminated as
provided in Section 6.1 herein, this Agreement shall become void and of no
further force and effect, except for Sections 8.1 and 8.2, and Article VII
herein. Nothing in this Section 6.2 shall be deemed to release the Company or
any Purchaser from any liability for any breach under this Agreement, or to
impair the rights of the Company and such Purchaser to compel specific
performance by the other party of its obligations under this Agreement.
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ARTICLE VII
INDEMNIFICATION
---------------
Section 7.1 GENERAL INDEMNITY. The Company agrees to indemnify and hold
harmless each Purchaser (and its respective directors, officers, affiliates,
agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys' fees, charges and disbursements) incurred by
each Purchaser as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein. The
Purchasers severally but not jointly agree to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys' fees, charges
and disbursements) incurred by the Company as result of any inaccuracy in or
breach of the representations, warranties or covenants made by the Purchasers
herein.
Section 7.2 INDEMNIFICATION PROCEDURE. Any party entitled to
indemnification under this Article VII (an "indemnified party") will give
written notice to the indemnifying party of any matters giving rise to a claim
for indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VII except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect to such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article VII to the
contrary, the indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
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indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim. The indemnification
required by this Article VII shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, so long as the
indemnified party irrevocably agrees to refund such moneys if it is ultimately
determined by a court of competent jurisdiction that such party was not entitled
to indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
ARTICLE VIII
MISCELLANEOUS
-------------
Section 8.1 FEES AND EXPENSES. Each party shall pay the fees and
expenses of its advisors, counsel, accountants and other experts, if any, and
all other expenses, incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement, PROVIDED,
HOWEVER, that the Company shall pay such fees and expenses set forth on SCHEDULE
2.1(p) hereto, including all reasonable attorneys' fees and expenses (exclusive
of disbursements and out-of-pocket expenses) incurred by the Purchasers in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Transaction Documents. In addition, the Company shall
pay all reasonable attorney's fees, disbursements and expenses incurred by the
Purchasers to one attorney for the Purchasers in connection with any amendments,
modifications or waivers of this Agreement or any of the other Transaction
Documents or incurred in connection with the enforcement of this Agreement and
any of the other Transaction Documents, including, without limitation, all
reasonable attorneys' fees, disbursements and expenses.
Section 8.2 SPECIFIC ENFORCEMENT; CONSENT TO JURISDICTION.
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement or the other Transaction Documents were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of this Agreement or the other Transaction
Documents and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
(b) The Company and each Purchaser (i) hereby irrevocably
submit to the exclusive jurisdiction of the United States District Court sitting
in the Southern District of New York and the courts of the State of New York
located in New York county for the purposes of any suit, action or proceeding
arising out of or relating to this Agreement or any of the other Transaction
Documents or the transactions contemplated hereby or thereby and (ii) hereby
waive, and agree not to assert in any such suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of such court, that the
suit, action or proceeding is brought in an inconvenient forum or that the venue
-24-
of the suit, action or proceeding is improper. The Company and each Purchaser
consent to process being served in any such suit, action or proceeding by
mailing via certified mail, return receipt requested, a copy thereof to such
party at the address in effect for notices to it under this Agreement and agrees
that such service shall constitute good and sufficient service of process and
notice thereof. Nothing in this Section 8.2 shall affect or limit any right to
serve process in any other manner permitted by law.
Section 8.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the
Transaction Documents contain the entire understanding and agreement of the
parties with respect to the matters covered hereby and, except as specifically
set forth herein or in the other Transaction Documents, neither the Company nor
any Purchaser make any representation, warranty, covenant or undertaking with
respect to such matters, and they supersede all prior understandings and
agreements with respect to said subject matter, all of which are merged herein.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the Company and the holders of at least a majority of the
principal amount of the Notes then outstanding, and no provision hereof may be
waived other than by a written instrument signed by the party against whom
enforcement of any such amendment or waiver is sought. No such amendment shall
be effective to the extent that it applies to less than all of the holders of
the Notes then outstanding. No consideration shall be offered or paid to any
person to amend or consent to a waiver or modification of any provision of any
of the Transaction Documents unless the same consideration is also offered to
all of the parties to the Transaction Documents or holders of Notes, as the case
may be.
Section 8.4 NOTICES. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telecopy or facsimile at the
address or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:
If to the Company: Telenetics Corporation
00000 Xxxxxx Xxxxx
Xxxx Xxxxxx, Xxxxxxxxxx 00000
Attention: President
Attention: Chief Financial Officer
Telecopier: (000) 000-0000
Telephone: (000) 000-0000
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with copies (which copies
shall not constitute notice
to the Company) to: Xxxxx X. Xxxxxxx, Esq.
Xxxxx & Xxxxxx, LLP
000 Xxxxx Xxxxxxxxx, Xxxxx 0000
Xxxxx Xxxx, Xxxxxxxxxx 00000
Telecopier: (000) 000-0000
Telephone: (000) 000-0000
If to any Purchaser: At the address of such Purchaser set forth
on EXHIBIT A to this Agreement.
with copies to: Xxxxxxxxxxx X. Xxxxxxx, Esq.
Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx LLP
The Chrysler Building
000 Xxxxxxxxx Xxx.
Xxx Xxxx, Xxx Xxxx 00000
Telecopier: (000) 000-0000
Telephone: (000) 000-0000
Any party hereto may from time to time change its address for notices
by giving at least ten (10) days written notice of such changed address to the
other parties hereto.
Section 8.5 WAIVERS. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
Section 8.6 HEADINGS. The article, section and subsection headings in
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 8.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
After the Closing, the assignment by a party to this Agreement of any rights
hereunder shall not affect the obligations of such party under this Agreement.
Subject to applicable federal and state securities laws, the Purchasers may
assign the Notes, the Warrants and their rights under this Agreement and the
other Transaction Documents and any other rights hereto and thereto without the
consent of the Company; PROVIDED, HOWEVER, that any assignee shall first provide
the Company with duly executed representations and warranties in the form
contained in Section 2.2 of this Agreement.
Section 8.8 NO THIRD PARTY BENEFICIARIES. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 8.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to the choice of law provisions. This Agreement shall not be
interpreted or construed with any presumption against the party causing this
Agreement to be drafted.
-26-
Section 8.10 SURVIVAL. The representations and warranties of the
Company and the Purchasers contained in Sections 2.1(o) and 2.1(s) should
survive until the expiration of the applicable statutes of limitation, and those
contained in Article II, with the exception of Sections 2.1(o) and 2.1(s), shall
survive the execution and delivery hereof and the Closing until the date three
(3) years from the Closing Date, and the agreements and covenants set forth in
Articles I, III, V, VII and VIII of this Agreement shall survive the execution
and delivery hereof and the Closing hereunder.
Section 8.11 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart.
Section 8.12 PUBLICITY. The Company agrees that it will not disclose,
and will not include in any public announcement, the names of the Purchasers
without the consent of the Purchasers in accordance with Section 8.3, which
consent shall not be unreasonably withheld or delayed, or unless and until such
disclosure is required by law, rule or applicable regulation, and then only to
the extent of such requirement.
Section 8.13 SEVERABILITY. The provisions of this Agreement are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement and this Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of such provision, had
never been contained herein, so that such provisions would be valid, legal and
enforceable to the maximum extent possible.
Section 8.14 FURTHER ASSURANCES. From and after the date of this
Agreement, upon the request of the Purchasers or the Company, the Company and
each Purchaser shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement, the Notes,
the Warrants, the Security Agreement and the Registration Rights Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date first above
written.
COMPANY: TELENETICS CORPORATION
By: /S/ Xxxxx Xxxxxxxx Xxxx
-------------------------------
Name: Xxxxx Xxxxxxxx Xxxx
Title: President
PURCHASERS: SDS MERCHANT FUND, L.P.
By: SDS Capital Partners, LLC,
its general partner
By: /S/ Xxxxx Xxxxx
---------------------------
Name: Xxxxx Xxxxx
Title: Managing Member
/S/ XXXXXX XXXX
-----------------------------------
XXXXXX XXXX
/S/ XXXX XXXXXXX
-----------------------------------
XXXX XXXXXXX
/S/ XXXX XXXXXX
-----------------------------------
XXXX XXXXXX
/S/ XXXXX XXXXXX
-----------------------------------
XXXXX XXXXXX
[SIGNATURES CONTINUED ON NEXT PAGE]
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SHADOW CAPITAL LLC
By: /S/ B. Xxxx Xxxxxxxxxxxx
--------------------------------
Name: B. Xxxx Xxxxxxxxxxxx
Title: Manager
DRAGON COEUR LLC II-D
By: /S/ X. X. Xxxxxx
--------------------------------
Name: X. X. Xxxxxx
Title: Manager
/S/ XXXXX RANDOM
-----------------------------------
XXXXX RANDOM
/S/ XXXXXX XXXXX
-----------------------------------
XXXXXX XXXXX
/S/ XXXXXXX XXXX
-----------------------------------
XXXXXXX XXXX
/S/ XXXXXXX X. XXXXXXX
-----------------------------------
XXXXXXX X. XXXXXXX
/S/ XXXXXX X. XXXXXXX
-----------------------------------
XXXXXX X. XXXXXXX
TAG KENT PARTNERS
By: /S/ Xxxxxxx X. Xxxxxxx
---------------------------------
Name: Xxxxxxx X. Xxxxxxx
Title: General Partner
-29-
EXHIBIT A
LIST OF INVESTORS
------------------------------------------- ----------------------------------- --------------------------------------
NAMES AND ADDRESSES OF PURCHASERS NUMBER OF WARRANTS PURCHASED DOLLAR AMOUNT OF INVESTMENT
------------------------------------------- ----------------------------------- --------------------------------------
SDS Merchant Fund, L.P. 2,553,105 $ 1,500,000 cash
c/o SDS Capital Partners
Xxx Xxxxx Xxxxx Xxxxx
Xxxxxxxxx, XX 00000
------------------------------------------- ----------------------------------- --------------------------------------
Xxxxxx Xxxx
c/o Taglich Brothers, Inc.
1370 Avenue of the Xxxxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000 85,104 $ 50,000 cash
------------------------------------------- ----------------------------------- --------------------------------------
Xxxx X. Xxxxxxx
c/o Taglich Brothers, Inc.
1370 Avenue of the Xxxxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000 85,104 $ 50,000 cash
------------------------------------------- ----------------------------------- --------------------------------------
Xxxx Xxxxxx
c/o Taglich Brothers, Inc.
1370 Avenue of the Xxxxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000 85,104 $ 50,000 cash
------------------------------------------- ----------------------------------- --------------------------------------
Xxxxx Xxxxxx
c/o Taglich Brothers, Inc.
1370 Avenue of the Xxxxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000 85,104 $ 50,000 cash
------------------------------------------- ----------------------------------- --------------------------------------
Shadow Capital LLC
c/o Taglich Brothers, Inc.
1370 Avenue of the Xxxxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000 85,104 $ 50,000 cash
------------------------------------------- ----------------------------------- --------------------------------------
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------------------------------------------- ----------------------------------- --------------------------------------
NAMES AND ADDRESSES OF PURCHASERS NUMBER OF WARRANTS PURCHASED DOLLAR AMOUNT OF INVESTMENT
------------------------------------------- ----------------------------------- --------------------------------------
Dragon Coeur LLC II-D
c/o Taglich Brothers, Inc.
1370 Avenue of the Xxxxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000 170,207 $ 100,000 cash
------------------------------------------- ----------------------------------- --------------------------------------
Xxxxx Random
c/o Taglich Brothers, Inc.
1370 Avenue of the Xxxxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000 42,552 $ 25,000 cash
------------------------------------------- ----------------------------------- --------------------------------------
Xxxxxx X. Xxxxx
c/o Taglich Brothers, Inc.
1370 Avenue of the Xxxxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000 42,552 $ 25,000 cash
------------------------------------------- ----------------------------------- --------------------------------------
Xxxxxxx Xxxx
c/o Taglich Brothers, Inc.
1370 Avenue of the Xxxxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000 42,552 $ 25,000 cash
------------------------------------------- ----------------------------------- --------------------------------------
Xxxxxxx X. Xxxxxxx
c/o Taglich Brothers, Inc.
1370 Avenue of the Xxxxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000 42,552 $ 25,000 cash
------------------------------------------- ----------------------------------- --------------------------------------
Xxxxxx X. Xxxxxxx
c/o Taglich Brothers, Inc.
1370 Avenue of the Xxxxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000 42,552 $ 25,000 cash
------------------------------------------- ----------------------------------- --------------------------------------
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------------------------------------------- ----------------------------------- --------------------------------------
NAMES AND ADDRESSES OF PURCHASERS NUMBER OF WARRANTS PURCHASED DOLLAR AMOUNT OF INVESTMENT
------------------------------------------- ----------------------------------- --------------------------------------
Tag Kent Partners 191,483 $ 112,500
c/o Taglich Brothers, Inc. cancellation of indebtedness
1370 Avenue of the Americas (comprising the $75,000 principal
31st Floor balance of the 6.5% note issued
Xxx Xxxx, XX 00000 January 23, 2001 plus the $37,500
principal balance of the 10% note
issued December 23, 1999)
------------------------------------------- ----------------------------------- --------------------------------------
EXHIBIT B
FORM OF NOTE
EXHIBIT C
FORM OF WARRANT
EXHIBIT D
FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
EXHIBIT E
FORM OF OPINION
EXHIBIT F
FORM OF SECURITY AGREEMENT
EXHIBIT G
FORM OF REGISTRATION RIGHTS AGREEMENT
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