STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is entered into as of
January 7, 2000, by and among Telenetics Corporation, a California corporation
("TELENETICS"), and Xxxxxx X. Xxxxxx ("XXXXXX"), Xxxx X. XxXxxx ("XXXXXX"),
Xxxxxxx X. Xxxxxxxx ("XXXXXXXX") and Xxxxx X. Xxxxxx ("XXXXXX"), each an
individual (individually, each a "SELLER," and collectively, the "SELLERS."
R E C I T A L S
A. Sellers own, in the aggregate, all of the issued and outstanding
shares (the "SHARES") of capital stock of eflex Wireless, Inc., a Delaware
corporation (the "COMPANY").
B. Telenetics desires to purchase from Sellers, and Sellers desire to
sell to Telenetics, the Shares on the terms and conditions set forth in this
Agreement.
A G R E E M E N T
NOW, THEREFORE, the parties to this Agreement agree as follows:
1. PURCHASE AND SALE OF SHARES.
1.1 PURCHASE AND SALE. Subject to the terms and conditions set forth
herein, at the Closing (as defined in SECTION 6.1 below), Sellers shall
transfer, convey, assign and deliver the Shares to Telenetics, and Telenetics
shall acquire, purchase and accept the Shares from Sellers.
1.2 CONSIDERATION. The aggregate consideration (the "CONSIDERATION") to
be paid in connection with the acquisition of the Shares shall equal the Base
Purchase Price plus the Earn-Out Purchase Price, which terms are defined as
follows:
(a) The "BASE PURCHASE PRICE" shall consist of an aggregate of
750,000 shares (the "BASE STOCK") of common stock, no par value per
share, of Telenetics ("TELENETICS COMMON STOCK"); and
(b) The "EARN-OUT PURCHASE PRICE" shall consist of an
aggregate of 6,000,558 shares of Telenetics Common Stock (the
"ADDITIONAL STOCK").
(c) PAYMENT OF CONSIDERATION. At the Closing, by virtue of the
acquisition by Telenetics of the Shares, each of the Shares shall be
exchanged for a number of shares of Telenetics Common Stock equal to
the number of shares of Base Stock divided by the total number of
Shares, and (ii) the right to receive a number of shares of Telenetics
Common Stock equal to the number of shares of Additional Stock divided
by the total number of Shares, subject to the conditions contained in
SECTION 1.3 below.
1.3 EARN-OUT CONDITIONS.
(a) For purposes of this SECTION 1.3, the "EARN-OUT PERIOD"
shall mean the period commencing on the Closing Date and ending on the
earlier of December 31, 2004 or the date upon which all shares of
Additional Stock have become issuable pursuant to this SECTION 1.3. The
Earn-Out Purchase Price shall become payable, if at all, in the
following increments based upon the successful implementation by
Telenetics or the Company of the Company's overhead telemetry-based
technology, as described in EXHIBIT A attached hereto and incorporated
herein by reference (the "TECHNOLOGY") and the successful completion
during the Earn-Out Period of the installation of the following numbers
of units equipped with the Technology:
After the Following Telenetics Shall Issue the Following Number
Aggregate Number of of Shares of Telenetics Common Stock
Installations is Completed: Comprising the Additional Stock :
-------------------------- ---------------------------------------------
100,000 1,000,145 shares
200,000 1,029,497 shares
300,000 1,158,184 shares
345,000 249,229 shares
390,000 255,620 shares
435,000 262,259 shares
480,000 269,161 shares
525,000 276,339 shares
570,000 283,807 shares
615,000 291,583 shares
660,000 299,682 shares
705,000 308,124 shares
750,000 316,928 shares
(b) If and when earned, the shares of Telenetics Common Stock
to be issued pursuant to this SECTION 1.3 as the Earn-Out Purchase
Price shall be allocated and issued to Sellers pro rata in proportion
to their ownership of the Shares immediately prior to the Closing. In
no case shall the aggregate number of shares of Telenetics Common Stock
issuable pursuant to this SECTION 1.3 exceed the aggregate number of
shares of Additional Stock, as the same may be adjusted in accordance
with this Agreement.
(c) Notwithstanding anything to the contrary contained in
SECTION 1.3(a), if prior to the expiration of the Earn-Out Period the
Company or Telenetics undertakes to (i) sell, lease, exchange or
otherwise dispose of the Technology or (ii) merge into or consolidate
with any other entity (other than Telenetics or a wholly-owned
subsidiary of Telenetics), or effect any transaction (including a
merger or other reorganization) or series of related transactions, in
which more than 50% of the voting power of Telenetics is disposed of,
then immediately prior to such event Telenetics shall issue the
remaining shares of Additional Stock not yet issued pursuant to SECTION
1.3(a), regardless of the number of installations completed prior to
such date.
2
(d) Notwithstanding anything to the contrary contained in
SECTION 1.3(a), if upon the expiration of the Earn-Out Period the
Company has bona fide fully executed contracts in place pursuant to
which the Company is obligated to perform installations that would have
resulted in the issuance of Additional Stock if the Earn-Out Period had
not yet expired, then Telenetics shall issue upon the expiration of the
Earn-Out Period that number of shares of Additional Stock that would
have been issuable pursuant to SECTION 1.3(a) if the installations had
been completed prior to the expiration of the Earn-Out Period.
(e) Telenetics shall not be required to issue fractions of
shares of Telenetics Common Stock pursuant to this Agreement, and all
such fractions of shares of Telenetics Common Stock to which a Seller
would otherwise be entitled pursuant to this Agreement shall be
aggregated, and in lieu of such remaining fractional shares there shall
be paid to the Seller at the time the shares are issued an amount in
cash equal to the stated fraction of the fair market value of a share
of Telenetics Common Stock, as determined in good faith by the Board of
Directors of Telenetics.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLERS.
Except as set forth in a schedule dated the date of this Agreement and
delivered by Sellers to Telenetics concurrently herewith (the "DISCLOSURE
SCHEDULE") specifically identifying the Section of this Agreement requiring the
delivery of such disclosure, each Seller severally and not jointly makes the
representations and warranties to Telenetics as set forth below; provided,
however, that with respect to the representations and warranties contained in
SECTIONS 2.13, 2.14 AND 2.24, each of Xxxxxxxx and Xxxxxx makes such
representations and warranties to the best of his knowledge.
2.1 ORGANIZATION; GOOD STANDING; QUALIFICATION AND POWER. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation, has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted, and is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes qualification necessary, other than
in jurisdictions where the failure to qualify would not have a Material Adverse
Effect. In this Agreement, any reference to any event, change or effect being
"material" with respect to any entity or group of entities means any material
event, change or effect related to the condition (financial or otherwise),
properties, assets, liabilities, businesses, operations or results of operations
of such entity or group of entities taken as a whole. In this Agreement, the
term "MATERIAL ADVERSE EFFECT" used in connection with a party means any event,
change or effect that is materially adverse to the condition (financial or
otherwise), properties, assets, liabilities, businesses, operations or results
of operations of that party, taken separately or as a whole; provided, however,
that a Material Adverse Effect shall not include any adverse effect resulting
from general economic conditions or conditions affecting the overhead
telemetry-based technology market. The Company does not have any subsidiaries.
The Company has provided to Telenetics or its counsel complete and correct
copies of the certificate of incorporation and bylaws of the Company, as amended
to the date of this Agreement, and copies of all minutes of meetings and actions
by written consent of stockholders, directors and board committees of the
Company.
3
2.2 CAPITAL STRUCTURE.
2.2.1 STOCK AND OPTIONS. The authorized capital stock of the
Company consists of 100,000 shares of common stock, $.01 par value per
share (the "COMMON STOCK"), and no shares of preferred stock. The
Shares are the only shares of Common Stock that are issued and
outstanding. All of the Shares are validly issued, fully paid and
nonassessable and not subject to preemptive rights. Each Seller
represents that the Shares owned by such Seller are owned by such
Seller free and clear of any liens, security interests, pledges,
agreement, claims, charges or encumbrances, and that such Seller has
done nothing, and has not caused the Company to do anything, that would
form the basis upon which any person (other than a Seller as set forth
below in this SECTION 2.2.1) may claim to be in any way the record or
beneficial owner of, or to be entitled to acquire (of record or
beneficially), any shares of the capital stock or other equity
securities of the Company, including without limitation, the Shares.
The Shares are owned by the Sellers in the following proportions:
NAME OF SELLER NUMBER OF SHARES OWNED
-------------- ----------------------
Xxxxxx 4,500
XxXxxx 1,000
Xxxxxxxx 2,250
Xxxxxx 2,250
2.2.2 NO OTHER COMMITMENTS. There are no options, warrants,
calls, rights, commitments, conversion rights or agreements of any
character to which the Company is a party or by which the Company is
bound obligating the Company to issue, deliver or sell, or cause to be
issued, delivered or sold, any shares of capital stock of the Company
or securities convertible into or exchangeable for shares of capital
stock of the Company, or obligating the Company to grant, extend or
enter into any option, warrant, call, right, commitment, conversion
right or agreement. There are no voting trusts or other agreements or
understandings to which the Company or any Seller is a party with
respect to the voting of the capital stock of the Company. In addition,
the Company has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in
respect thereof.
2.3 AUTHORITY.
2.3.1 CORPORATE ACTION. The Company has all requisite
corporate power and authority to enter into this Agreement and the
other agreements contemplated to be entered into by the Company as
described in SECTION 6.2 (collectively, the "COMPANY TRANSACTION
AGREEMENTS"), and to perform its obligations under and to consummate
the transactions contemplated by the Company Transaction Agreements.
The execution and delivery of the Company Transaction Agreements by the
Company and the consummation by the Company of the transactions
contemplated thereby have been duly authorized by all necessary
corporate action on the part of the Company. The Company Transaction
Agreements have been duly executed and delivered by the Company and
constitute the valid and binding obligation of the Company, enforceable
against the Company in accordance with their terms, except that
enforceability may be subject to (i) bankruptcy, insolvency,
reorganization, fraudulent conveyance, fraudulent transfer or other
similar laws affecting or relating to enforcement of creditors' rights
generally and (ii) general equitable principles.
4
2.3.2 SELLERS' AUTHORITY. Each Seller represents that such
Seller has full power and capacity to enter into this Agreement and the
other agreements contemplated to be entered into by such Seller as
described in SECTION 6.2 (the "SELLER TRANSACTION AGREEMENTS"), and
that the Seller Transaction Agreements have been duly executed and
delivered by such Seller and constitute the valid and binding
obligation of such Seller, enforceable against such Seller in
accordance with their terms, except that enforceability may be subject
to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance,
fraudulent transfer or other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii) general equitable
principles.
2.3.3 NO CONFLICT. Neither the execution, delivery and
performance of the Company Transaction Agreements, nor the consummation
of the transactions contemplated thereby nor compliance with the
provisions thereof will conflict with, or result in any violations of,
or cause a default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, amendment, cancellation
or acceleration of any obligation contained in, or the loss of any
material benefit under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the material properties or
assets of the Company under, any term, condition or provision of (x)
the certificate of incorporation or bylaws of the Company or (y) any
loan or credit agreement, note, bond, mortgage, indenture, lease or
other material agreement, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or its
properties or assets, other than any such conflicts, violations,
defaults, losses, liens, security interests, charges, or encumbrances
which, individually or in the aggregate, would not have a Material
Adverse Effect.
2.3.4 GOVERNMENTAL CONSENTS. Each Seller represents that no
consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality, domestic
or foreign (each a "GOVERNMENTAL ENTITY"), is required to be obtained
by the Company or such Seller in connection with the execution and
delivery of the Company Transaction Agreements or the Seller
Transaction Agreements or the consummation of the transactions
contemplated thereby.
2.4 FINANCIAL STATEMENTS. The Company has furnished to Telenetics
copies of the compiled statements of assets, liabilities and equity and the
related statements of revenues and expenses and schedules of retained earnings
for the months of August, September, October and November 1999 and the
respective one, two, three and four month periods then ended. All financial
statements referred to in this SECTION 2.4 (the "FINANCIAL STATEMENTS") have
been prepared on an income tax basis, applied on a consistent basis during the
respective periods, and fairly present the financial condition of the Company as
at the respective dates thereof and the results of operation of the Company for
the respective periods covered by the statements of income contained in therein.
The Company does not have any material obligations or liabilities, contingent or
otherwise, of the type required to be disclosed on financial statements that are
not fully disclosed by the Financial Statements.
5
2.5 COMPLIANCE WITH APPLICABLE LAWS. The business of the Company is not
being conducted in violation of any law, ordinance, regulation, rule or order of
any Governmental Entity where the violation would have a Material Adverse
Effect. Each Seller represents that neither the Company nor such Seller has been
notified by any Governmental Entity that any investigation or review with
respect to the Company is pending or threatened, nor has any Governmental Entity
notified the Company or such Seller of its intention to conduct an investigation
or review. The Company has all permits, licenses and franchises from
Governmental Entities required to conduct its business as now being conducted.
2.6 INSURANCE. The Company does not maintain and has never applied for
fire, casualty, general liability or errors and omissions insurance, and no
events have occurred that would have caused the Company to make a claim under
any such policy.
2.7 LITIGATION. There is no suit, action, arbitration, demand, claim or
proceeding pending or, to the best knowledge of such Seller, threatened against
the Company, nor is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against the Company that,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect. The Company has delivered to Telenetics or its counsel
correct and complete copies of all correspondence prepared by its counsel for
the Company's accountants in connection with each compilation of the Company's
financial statements and any correspondence since the date of the last
compilation.
2.8 LABOR AND EMPLOYMENT.
2.8.1 ERISA. The Company does not maintain, nor has it ever
maintained, any employee benefit plan or arrangement including, but not
limited to deferred compensation, stock option, stock purchase, bonus,
incentive and severance plans and employee benefit plans as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
2.8.2 COBRA. The Company has complied with all of the
requirements of Section 4980B of the Internal Revenue Code of 1986, as
amended (the "CODE"), and Part 6 of Title 1 of ERISA ("COBRA"), with
respect to each employee welfare benefit plan, as defined in Section
3(1) of ERISA, it maintains or has ever maintained. The Company has
provided, or will have provided prior to the Closing, to all
individuals entitled thereto, all required notices and coverage
pursuant to COBRA with respect to any "qualifying event" as defined in
COBRA occurring prior to and including the Closing Date, and no
material tax payable on account of COBRA has been incurred with respect
to any current or former employees (or their beneficiaries) of the
Company.
6
2.8.3 OTHER COMPLIANCE. The Company is in compliance in all
material respects with all applicable laws, agreements and contracts
relating to employment, employment practices, wages, hours, and terms
and conditions of employment, including, but not limited to, employee
compensation matters, but not including ERISA.
2.9 ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed on the
Disclosure Schedule, at November 30, 1999 (the "BALANCE SHEET DATE"), (i) the
Company did not have any liabilities or obligations of any nature (matured or
unmatured, fixed or contingent) which were material to the Company, taken as a
whole, and were not provided for in the balance sheet of the Company at the
Balance Sheet Date, a copy of which has been delivered to Telenetics (the
"BALANCE SHEET"); and (ii) all reserves established by the Company and set forth
in the Balance Sheet were reasonably adequate.
2.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the Balance Sheet Date
there has not occurred:
(a) any change in the condition (financial or otherwise),
properties, assets, liabilities, businesses, operations or results of
operations of the Company, taken separately or as a whole, that could
reasonably constitute a Material Adverse Effect;
(b) any amendments or changes in the certificate of
incorporation or bylaws of the Company;
(c) any damage, destruction or loss, whether covered by
insurance or not, that could reasonably constitute a Material Adverse
Effect;
(d) any redemption, repurchase or other acquisition of shares
of the Common Stock by the Company, or any declaration, setting aside
or payment of any dividend or other distribution (whether in cash,
stock or property) with respect to the Common Stock;
(e) any material increase in or modification of the
compensation or benefits payable or to become payable by the Company to
any of its directors or employees, except in the ordinary course of
business consistent with past practice;
(f) any material increase in or modification of any bonus,
pension, insurance or other benefit (including, but not limited to, the
granting of stock options, restricted stock awards or stock
appreciation rights) made to, for or with any of its employees or
consultants, other than in the ordinary course of business consistent
with past practice;
(g) any acquisition or sale of a material amount of property
or assets of the Company, other than in the ordinary course of business
consistent with past practices;
(h) any alteration in any term of any outstanding security of
the Company;
(i) any (A) incurrence, assumption or guarantee by the Company
of any debt for borrowed money; (B) issuance or sale of any securities
convertible into or exchangeable for debt securities of the Company; or
(C) issuance or sale of options or other rights to acquire from the
Company, directly or indirectly, debt securities of the Company or any
securities convertible into or exchangeable for any such debt
securities;
7
(j) any creation or assumption by the Company of any mortgage,
pledge, security interest or lien or other encumbrance on any asset;
(k) any making of any loan, advance or capital contribution to
or investment in any person other than (i) travel loans or advances
made in the ordinary course of business of the Company, (ii) other
loans and advances in an aggregate amount which does not exceed $25,000
outstanding at any time and (iii) purchases on the open market of
liquid, publicly traded securities;
(l) any entering into, amendment of, relinquishment,
termination or non-renewal by the Company of any contract, lease
transaction, commitment or other right or obligation other than in the
ordinary course of business, except as expressly contemplated in this
Agreement or any other agreement to be executed in connection herewith;
(m) any transfer or grant of a right under the IP Rights (as
defined in SECTION 2.14), other than those transferred or granted in
the ordinary course of business;
(n) any labor dispute or charge of unfair labor practice
(other than routine individual grievances), any activity or proceeding
by a labor union or representative thereof to organize any employees of
the Company or any campaign being conducted to solicit authorization
from employees to be represented by the labor union; or
(o) any agreement or arrangement made by the Company to take
any action which, if taken prior to the date hereof, would have made
any representation or warranty set forth in this Agreement untrue or
incorrect unless otherwise disclosed.
2.11 NO DEFAULTS. The Company is not in default under, and there exists
no event, condition or occurrence which, after notice or lapse of time, or both,
would constitute a default by the Company under, any contract or agreement to
which the Company is a party and which would, if terminated or modified, have a
Material Adverse Effect.
2.12 CERTAIN AGREEMENTS. Neither the execution and delivery of the
Company Transaction Agreements or the Seller Transaction Agreements nor the
consummation of the transactions contemplated thereby will (i) result in any
payment (including, without limitation, severance, unemployment compensation,
golden parachute, bonus or otherwise) becoming due to any director, officer or
employee of the Company from the Company, (ii) materially increase any benefits
otherwise payable or (iii) result in the acceleration of the time of payment or
vesting of any benefits.
2.13 TAXES.
(a) For purposes of this Agreement, "TAX" or collectively
"TAXES" means any and all federal, state, local, and foreign taxes,
assessments, and other governmental charges, duties, impositions, and
liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad
valorem, transfer, franchise, withholding, payroll, recapture,
employment, estimated, excise and property taxes, together with all
interest, penalties, and additions imposed with respect to those
amounts and any obligations under any agreements or arrangements with
any other person with respect to those amounts and including any
liability for taxes of a predecessor entity.
8
(b) As of the Closing, the Company will have prepared and
filed all required federal, state, local, and foreign returns,
estimates, information statements, and reports relating to any and all
Taxes ("RETURNS") concerning or attributable to the Company that are
required to be filed by or with respect to the Company on or prior to
the Closing, and each of the Returns shall be true, correct, and
complete in all material respects and shall have been completed in
accordance with applicable law;
(c) As of the Closing, the Company: (A) will have paid or
accrued in accordance with generally accepted accounting principles all
Taxes concerning or attributable to the Company relating to periods
ending on or before the Closing regardless of whether reflected on
Returns and (B) will have withheld with respect to their employees all
federal and state income taxes, FICA, FUTA, and other Taxes required to
be withheld;
(d) The Company has not been delinquent in the payment of any
Tax nor is there any Tax deficiency outstanding, proposed or assessed
against the Company, nor has the Company executed any waiver of the
statute of limitations on or extending the period for the assessment or
collection of any Taxes;
(e) No audit or other examination of any Return of the Company
is presently in progress, nor has the Company been notified of any
request for an audit or examination;
(f) The Company does not have any liabilities for unpaid
federal, state, local and foreign Taxes which have not been accrued or
reserved in accordance with generally accepted accounting principles on
the Balance Sheet, and such Seller does not have knowledge of any
reasonable basis for the assertion of any liability attributable to the
Company, or any of its assets and operations;
(g) The Company has delivered to Telenetics and its counsel
copies of all federal and state income and all state sales and use Tax
Returns for all periods since its incorporation;
(h) There are (and as of immediately following the Closing
there will be) no liens, pledges, charges, claims, security interests,
or other encumbrances of any sort (the "LIENS") on the assets of the
Company relating or attributable to Taxes other than liens for sales
and payroll taxes not yet due and payable;
(i) Such Seller does not have knowledge of any reasonable
basis for the assertion of any claim relating or attributable to Taxes
which, if adversely determined, would result in any Lien on the assets
of the Company;
9
(j) None of the assets of the Company is property that is
required to be treated as owned by any other person pursuant to the
"safe harbor lease" provisions of former Code Section 168(f)(8), and
none of the assets is treated as "tax-exempt use property" within the
meaning of Code Section 168(h);
(k) The Company has not filed any consent agreement under Code
Section 341(f) or agreed to have Code Section 341(f) apply to any
disposition of a "subsection (f) asset" (as defined in Code Section
341(f)(4)) owned by the Company;
(l) The Company has not been included in any "consolidated,"
"unitary," or "combined" Return provided for under the law of the
United States or any state or locality with respect to Taxes for any
taxable period;
(m) The Company is not a party to a tax sharing, allocation,
indemnification or similar agreement or arrangement, nor does the
Company owe any amount under any agreement or arrangement;
(n) No Return of the Company contains a disclosure statement
under Code Section 6662 (or predecessor provision) or any similar
provision of state, local, or foreign law;
(o) The Company is not nor has it been at any time a "United
States real property holding corporation" within the meaning of Code
Section 897(c)(2);
(p) No indebtedness of the Company consists of "corporate
acquisition indebtedness" within the meaning of Code Section 279;
(q) The Company has not taken any action not in accordance
with past practice that would have the effect of deferring any Tax
liability of the Company from any period ending on before the Closing
Date to any taxable period ending after the Closing Date;
(r) The Company was not acquired in a "qualified stock
purchase" under Code Section 338(d)(3), and no elections under Code
Section 338(g), protective carryover basis elections, or offset
prohibition elections are applicable to the Company or any predecessor
corporations; and
(s) The tax bases of the assets of the Company for purposes of
determining future amortization, depreciation, and other federal income
tax deductions are accurately reflected on the tax books and records of
the Company.
2.14 INTELLECTUAL PROPERTY.
(a) The Company owns or has acquired all material Intellectual
Property Rights (as defined below), including rights to make, use and
sell goods and services, as necessary or required for the conduct of
its business as presently conducted (the Intellectual Property Rights
being referred to as the "IP RIGHTS"), and these rights are reasonably
sufficient for the conduct of its business;
10
(b) The execution, delivery and performance of the Company
Transaction Agreements or the Seller Transaction Agreements and the
consummation of the transactions contemplated thereby will not
constitute a material breach of any instrument or agreement governing
any IP Rights ("IP RIGHTS AGREEMENTS"), will not cause the forfeiture
or termination or give rise to a right of forfeiture or termination of
any IP Right or materially impair the right of the Company or
Telenetics to use, sell or license any IP Right or portion thereof
(except where the breach, forfeiture or termination would not have a
Material Adverse Effect);
(c) Neither the manufacture, marketing, license, sale or
intended use of any product currently licensed or sold by the Company
or currently under development by the Company violates any license or
agreement between the Company and any third party or, to the best
knowledge of such Seller, infringes any Intellectual Property Right of
any other party; and there is no pending or, to the best knowledge of
such Seller, threatened claim or litigation contesting the validity,
ownership or right to use, sell, license or dispose of any IP Right
nor, to the best knowledge of such Seller, is there any basis for any
claim, nor has such Seller received any written notice asserting that
any IP Right or the proposed use, sale, license or disposition thereof
conflicts or will conflict with the rights of any other party, nor, to
the best knowledge of such Seller, is there any basis for any
assertion, and
(d) The Company has taken reasonable and practicable steps
designed to safeguard and maintain its proprietary rights in all
material IP Rights. All officers, employees and consultants of the
Company have executed and delivered to the Company an agreement
regarding the protection of proprietary information and the assignment
to the Company of all Intellectual Property Rights arising from the
services performed for the Company by those persons. No current or
prior officer, employee or consultant of the Company claims an
ownership interest in any IP Rights as a result of having been involved
in the development of that property while employed by or consulting to
the Company, or otherwise.
The term "INTELLECTUAL PROPERTY RIGHTS" shall mean all
worldwide industrial and intellectual property rights, including,
without limitation, patents, patent applications, patent rights,
trademarks, trademark registrations, trademark registration
applications, trade names, service marks, service xxxx registrations,
service xxxx registration applications, copyrights, copyright
registrations, copyright registration applications, franchises,
licenses, inventories, know-how, trade secrets, customer lists,
proprietary processes and formulae, all source and object codes,
algorithms, architecture, structure, display screens, layouts,
inventions, development tools and all documentation and media
constituting, describing or relating to the above, including, without
limitation, manuals, memoranda and records.
2.15 FEES AND EXPENSES. The Company has not paid or become obligated to
pay any fee or commission to any broker, finder or intermediary in connection
with the transactions contemplated by this Agreement.
11
2.16 ENVIRONMENTAL MATTERS.
(a) None of the properties or facilities of the Company is in
violation of any federal, state or local law, ordinance, regulation or
order relating to industrial hygiene or to the environmental conditions
on, under or about the properties or facilities, including, but not
limited to, soil and ground water condition, except where the
violations would not constitute a Material Adverse Effect. During the
time that the Company has owned or leased its properties and
facilities, to the best knowledge of such Seller, no third party has
released, used, generated, manufactured or stored on, under or about
the properties or facilities or transported to or from the properties
or facilities any hazardous materials.
(b) During the time that the Company has owned or leased its
properties and facilities, there has been no litigation brought or
threatened against the Company by, or any settlement reached by the
Company with, any party or parties alleging the presence, disposal,
release or threatened release of any hazardous materials on, from or
under any of the properties or facilities.
2.17 INTERESTED PARTY TRANSACTIONS. Except as disclosed in the
Disclosure Schedule, no officer or director of the Company or any "affiliate" or
"associate" (as those terms are defined in Rule 405 promulgated under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), of any such person
has had, either directly or indirectly, a material interest in: (i) any person
or entity which purchases from or sells, licenses or furnishes to the Company
any material amount of goods, property, technology or intellectual or other
property rights or services; or (ii) any material contract or agreement to which
the Company is a party or by which it may be bound or affected.
2.18 DISCLOSURE. No representation or warranty made by the Company or
Sellers in this Agreement, nor any document, written information, written
statement, financial statement, certificate or exhibit prepared and furnished or
to be prepared and furnished by the Company or its representatives or Sellers
pursuant hereto or in connection with the transactions contemplated hereby, when
taken together, contains any untrue statement of a material fact, or omits to
state a material fact necessary to make the statements or facts contained herein
or therein not misleading in light of the circumstances under which they were
furnished.
2.19 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no material
agreement, judgment, injunction, order or decree binding upon the Company that
has or could reasonably be expected to have the effect of prohibiting or
materially impairing any business practice of the Company, any acquisition of
property by the Company or the conduct of business by the Company as currently
conducted.
2.20 INTENTIONALLY OMITTED.
2.21 PERSONAL PROPERTY. The Company has good title, free and clear of
all title defects, objections and liens, including without limitation, leases,
chattel mortgages, conditional sales contracts, collateral security arrangements
and other title or interest-retaining arrangements, to all of its machinery,
equipment, furniture, inventory and other personal property. All personal
property used in the business of the Company is in good operating condition. All
of the leases to personal property utilized in the business of the Company are
valid and enforceable against the Company and are not in default by the Company,
or to the knowledge of such Seller, are any of the other parties thereto in
default thereof.
12
2.22 REAL PROPERTY. The Company does not own any real property. The
Disclosure Schedule contains a list of all leases for real property to which the
Company is a party, the square footage leased with respect to each lease and the
expiration date of each lease. These leases are valid and enforceable and are
not in default. To the best knowledge of such Seller, the real property leased
or occupied by the Company, the improvements located thereon, and the furniture,
fixtures and equipment relating thereto (including plumbing, heating, air
conditioning and electrical systems), conform to any and all applicable health,
fire, safety, zoning, land use and building laws, ordinances and regulations.
There are no outstanding contracts made by the Company for any improvements made
to the real property leased or occupied by the Company that have not been paid
for.
2.23 WARRANTIES. Neither the Company nor Sellers have made any
warranties or guarantees relating to the Company's products other than as
implied or required by law. The Disclosure Schedule contains a list of all
warranty and indemnification obligations of the Company relating to patents and
other proprietary rights.
2.24 CONTRACTS. The Disclosure Schedule lists all oral or written
agreements, notes, instruments, or contracts to which the Company is a party or
by which its assets or properties may be bound which involve the payment or
receipt of more than $25,000 (on an annual basis), or which have a term of more
than one year, or which involve intellectual property, or which are employment
or consulting agreements, or to which the Company and one or more Sellers or
entities owned or operated by one or more Sellers is a party (the "CONTRACTS").
The Company is not in default in performance of its obligations under any
material provisions of the Contracts. Such Seller has no knowledge of any
violation of any Contract by any other party thereto and such Seller has no
knowledge of any intent by any other party to a Contract not to perform its
obligations under any Contract.
2.25 INTENTIONALLY OMITTED.
2.26 DEVELOPMENT TOOLS. The Disclosure Schedule contains a complete
list of all material software development tools used or currently intended to be
used by the Company in the development of any of the Company Products, except
for any tools that are generally available and are used in their generally
available form (such as standard compilers) ("COMPANY DEVELOPMENT TOOLS"). The
Disclosure Schedule also sets forth, for each Company Development Tool: (a) for
any Company Development Tool not entirely developed internally by the employees
of the Company, the identity of the independent contractors and consultants
involved in a material way in such development and a list of the material
agreements with such independent contractors and consultants with respect to the
Company Development Tools; (b) a list of any third parties with any rights to
receive material royalties or other payments with respect to such Company
Development Tools, and a schedule of all such royalties payable; (c) a list of
any material restrictions on the Company's unrestricted right to use and
distribute the Company Development Tools; and (d) a list of all agreements with
third parties for the use by the third party of the Company Development Tools.
13
2.27 INVESTMENT REPRESENTATION.
(a) Each Seller acknowledges that, upon issuance, the Base
Stock, the options to be issued at the Closing (the "OPTIONS"), the
shares of common stock underlying the Options (the "UNDERLYING STOCK"),
and the Additional Stock, if any, will not have been "registered" and
will therefore be "restricted securities" as these terms are used under
the Securities Act and the rules and regulations thereunder. By their
execution of this Agreement, each Seller agrees, represents and
warrants that (i) his acquisition of the Base Stock, Options,
Underlying Stock and Additional Stock, is for investment only, for his
own account and not with a view to "distribution" as that term is used
under the Securities Act, (ii) he is an "accredited investor" as that
term is used in Regulation D under the Securities Act, and (iii) copies
of Telenetics' Form 10-KSB for the nine months ended December 31, 1998,
and Forms 10-QSB for the quarters ended March 31, June 30 and September
30, 1999 have been made available to him. Each Seller agrees that he
shall not at any time make any sale, pledge, hypothecation, gift or
other transfer of Base Stock, Options, Underlying Stock or Additional
Stock except pursuant to an effective registration statement under the
Securities Act or pursuant to the provisions of Rule 144 under the
Securities Act or another exemption from the registration requirements
of the Securities Act, and in accordance with the provisions of this
SECTION 2.27 and any applicable state "blue sky" or other securities
laws, and that prior to making any sale or other disposition of Base
Stock, Options, Underlying Stock or Additional Stock pursuant to any
such exemption, he shall, if requested by Telenetics, obtain an opinion
of counsel, satisfactory to Telenetics' counsel, that such sale
complies with applicable federal and state securities laws.
(b) Each Seller agrees that he has been informed that the Base
Stock, Options, Underlying Stock and Additional Stock must be held
indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available, and
he understands that any sale of the Base Stock, Options, Underlying
Stock or Additional Stock made in reliance upon Rule 144, or any other
like rule, can be made only in limited amounts in accordance with the
terms and conditions of those rules and, if those rules are not
applicable, any resale may require compliance with another available
exemption under the Securities Act or, in the alternative, may require
registration of the Base Stock, Options, Underlying Stock or Additional
Stock. Sellers acknowledge that Telenetics makes no representation or
covenant that it shall conduct its affairs so as to permit sales under
Rule 144, and except as set forth in the registration rights agreements
that are being entered into by and between Telenetics and each Seller
concurrently with the execution of this Agreement relating to the
Underlying Stock (the "REGISTRATION RIGHTS AGREEMENTS"), Telenetics is
under no obligation to register or repurchase the Base Stock, the
Options, the Underlying Stock or the Additional Stock.
(c) In furtherance of the foregoing, Telenetics and its
transfer agent are hereby authorized to decline to make any transfer of
securities if such transfer would constitute a violation or breach of
this SECTION 2.27. Sellers acknowledge that Telenetics shall cause
appropriate legends to be placed on the certificates representing the
Base Stock, the Additional Stock and the Underlying Stock to reflect
the foregoing.
14
3. REPRESENTATIONS AND WARRANTIES OF TELENETICS.
Telenetics hereby represents and warrants to Sellers that:
3.1 ORGANIZATION; GOOD STANDING; QUALIFICATION AND POWER. Telenetics is
a corporation duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has all requisite corporate power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted, and is duly qualified and in good standing to
do business in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes qualification necessary, other than
in jurisdictions where the failure to qualify would not have a Material Adverse
Effect. Telenetics has made available to the Company and the Sellers or their
respective counsel complete and correct copies of the articles of incorporation
and bylaws of Telenetics as amended to the date of this Agreement.
3.2 CAPITAL STRUCTURE. The authorized capital stock of Telenetics
consists of 25,000,000 shares of common stock, no par value per share
("TELENETICS COMMON STOCK"), 1,480,000 shares of Series A 7.0% Convertible
Redeemable Preferred Stock, no par value per share (the "SERIES A PREFERRED
STOCK"), 128,571 shares of Series B Convertible Preferred Stock, no par value
per share (the "SERIES B PREFERRED STOCK"), 400,000 shares of Series C 7.0%
Convertible Preferred Stock, no par value per share (the "SERIES C PREFERRED
STOCK"), and 2,991,429 shares of undesignated preferred stock, no par value per
share (the "UNDESIGNATED PREFERRED STOCK"). As of the date hereof, 10,273,754
shares of Telenetics Common Stock are issued and outstanding (which amount does
not include the Base Stock issuable hereunder), 12,628,106 shares of Telenetics
Common Stock are reserved for issuance upon the exercise of outstanding options
and warrants to purchase Telenetics Common Stock (which amount includes the
shares underlying the Options and the Additional Stock) and upon conversion of
the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock, 736,884 shares of Series A Preferred Stock are issued and outstanding,
128,571 shares of Series B Preferred Stock are issued and outstanding, 400,000
shares of Series C Preferred Stock are issued and outstanding, and no shares of
Undesignated Preferred Stock are issued and outstanding. Except for the options,
warrants and convertible securities for which shares of Telenetics Common Stock
are reserved for issuance as described in this SECTION 3.2, and except as
provided in the Telenetics Transaction Agreements, there are no options,
warrants, calls, rights, commitments, conversion rights or agreements of any
character to which Telenetics is a party or by which Telenetics is bound
obligating Telenetics to issue, deliver or sell, or cause to be issued,
delivered or sold, any shares of capital stock of Telenetics or securities
convertible into or exchangeable for shares of capital stock of Telenetics, or
obligating Telenetics to grant, extend or enter into any option, warrant, call,
right, commitment, conversion right or other agreement. None of the outstanding
shares of Telenetics Common Stock, Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock are subject to preemptive rights.
15
3.3 AUTHORITY.
3.3.1 CORPORATE ACTION. Telenetics has all requisite corporate
power and authority to enter into this Agreement and the other
agreements contemplated to be entered into by Telenetics as described
in SECTION 6.3 (collectively, the "TELENETICS TRANSACTION AGREEMENTS"),
and to perform its obligations under and to consummate the transactions
contemplated by the Telenetics Transaction Agreements. The execution
and delivery of the Telenetics Transaction Agreements by Telenetics and
the consummation by Telenetics of the transactions contemplated thereby
have been duly authorized by all necessary corporate action on the part
of Telenetics. The Telenetics Transaction Agreements have been duly
executed and delivered by Telenetics and constitute the valid and
binding obligation of Telenetics, enforceable against Telenetics in
accordance with their terms, except that enforceability may be subject
to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance,
fraudulent transfer or other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii) general equitable
principles.
3.3.2 NO CONFLICT. Neither the execution, delivery and
performance of the Telenetics Transaction Agreements, nor the
consummation of the transactions contemplated thereby nor compliance
with the provisions hereof will conflict with, or result in any
violations of, or cause a default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination,
amendment, cancellation or acceleration of any obligation contained in,
or the loss of any material benefit under, or result in the creation of
any lien, security interest, charge or encumbrance upon any of the
material properties or assets of Telenetics under, any term, condition
or provision of (x) the articles of incorporation or bylaws of
Telenetics or (y) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other material agreement, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Telenetics or
its properties or assets, other than any such conflicts, violations,
defaults, losses, liens, security interests, charges or encumbrances
which, individually or in the aggregate, would not have a Material
Adverse Effect.
3.3.3 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity is required to be obtained by Telenetics in
connection with the execution and delivery of the Telenetics
Transaction Agreements or the consummation of the transactions
contemplated thereby, except for securities law filings to be made in
connection with the issuance of the Base Stock, the Additional Stock,
the Options and the Underlying Stock.
3.4 SEC DOCUMENTS.
3.4.1 SEC REPORTS. Telenetics has made available to the
Company or its counsel correct and complete copies of each report,
schedule, registration statement and definitive proxy statement filed
by Telenetics with the Securities and Exchange Commission (the "SEC")
on or after July 14, 1998 (the "TELENETICS SEC DOCUMENTS"), which are
all the documents (other than preliminary material) that Telenetics was
required to file with the SEC on or after that date. As of their
respective dates or, in the case of registration statements, their
effective dates (or if amended or superseded by a filing prior to the
date of this Agreement, then on the date of such filing), none of the
Telenetics SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, and the
Telenetics SEC Documents complied when filed in all material respects
with the then applicable requirements of the Securities Act, or the
Securities Exchange Act of 1934, as amended, as the case may be, and
the rules and regulations promulgated by the SEC thereunder.
16
3.4.2 FINANCIAL STATEMENTS. The financial statements of
Telenetics included in the Telenetics SEC Documents complied as to form
in all material respects with the then applicable accounting
requirements and the published rules and regulations of the SEC with
respect thereto, were prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods
involved (except as may have been indicated in the notes thereto or, in
the case of the unaudited statements, as permitted by Form 10-QSB
promulgated by the SEC) and fairly present the financial position of
Telenetics as at the respective dates thereof and the results of its
operations and cash flows for the respective periods then ended.
3.5 LITIGATION. There is no suit, action, arbitration, demand, claim or
proceeding pending or, to the knowledge of Telenetics, threatened against
Telenetics in connection with or relating to the transactions contemplated by
this Agreement or of any action taken or to be taken in connection herewith or
the consummation of the transactions contemplated hereby.
3.6 FEES AND EXPENSES. Telenetics has not paid or become obligated to
pay any fee or commission to any broker, finder or intermediary in connection
with the transactions contemplated by this Agreement.
3.7 DISCLOSURE. No representation or warranty made by Telenetics in
this Agreement, nor any document, written information, written statement,
financial statement, certificate or exhibits prepared and furnished or to be
prepared and furnished by Telenetics or its representatives pursuant hereto or
in connection with the transactions contemplated hereby, when taken together,
contains any untrue statement of a material fact, or omits to state a material
fact necessary to make the statements or facts contained herein or therein not
misleading in light of the circumstances under which they were furnished.
3.8 INVESTMENT REPRESENTATION. Telenetics agrees, represents and
warrants that its acquisition of the Shares is for investment only, for its own
account and not with a view to "distribution" as that term is used under the
Securities Act.
4. ADDITIONAL AGREEMENTS.
4.1 EMPLOYEE MATTERS. Following the Closing, all employees of the
Company will either (i) continue to be employees of the Company or (ii) be
offered comparable employment by Telenetics. Notwithstanding the foregoing,
Telenetics makes no representation, warranty or promise as to the length of time
that any such employee will remain in the employ of the Company or Telenetics
following the Closing (except with respect to those employees who become parties
to Employment Agreements pursuant to SECTION 4.2).
17
4.2 EMPLOYMENT AGREEMENTS. Concurrently with the Closing, Telenetics
and each of XxXxxx and T. Xxxxx Xxxx shall enter into employment agreements (the
"EMPLOYMENT AGREEMENTS") upon such terms and conditions as are mutually
acceptable to Telenetics and each of such persons, to the extent each is a party
thereto.
4.3 CONSULTING AGREEMENTS. Concurrently with the Closing, Telenetics
and each of Xxxxxx and Xxxxxxxx & Xxxxxx, Inc., a Texas corporation ("S & P")
shall enter into consulting agreements (the "CONSULTING AGREEMENTS") upon such
terms and conditions as are mutually acceptable to Telenetics and each of Xxxxxx
and S & P, to the extent each is a party thereto.
4.4 MEMBERSHIP ON THE TELENETICS BOARD OF DIRECTORS. At the next annual
meeting of the shareholders of Telenetics, and at each annual meeting of the
shareholders of Telenetics occurring prior to the expiration of the Earn-Out
Period, Telenetics shall propose and recommend, at the request of S & P, either
Xxxxxx or Xxxxxxxx on Telenetics' management slate of directors for election by
the shareholders of Telenetics. Whichever of Xxxxxx or Xxxxxxxx is not requested
to be proposed and recommended for election pursuant to the preceding sentence
shall be appointed to serve as an advisor to the Telenetics Board of Directors,
shall be given all notices that are provided to directors of Telenetics, at the
same time and in the same manner that such notices are provided to such
directors, and shall be permitted to attend all meetings of the Board of
Directors of Telenetics. Xxxxxxxx and Xxxxxx shall both serve as advisors to the
Board of Directors of Telenetics until either is appointed to the Board of
Directors of Telenetics pursuant to this SECTION 4.4.
4.5 CERTAIN TAX MATTERS.
4.5.1 TAX RETURNS. Sellers shall prepare or cause to be
prepared and file or cause to be filed all Returns (including any
amended Return) for the Company for all periods ending on or prior to
the Closing Date that are required to be filed after the Closing
("PRE-CLOSING RETURNS"). Telenetics shall cause an authorized officer
of the Company to sign and file or cause to be filed the Pre-Closing
Returns.
4.5.2 AUDITS. Sellers shall have the right, at Sellers' own
expense, to control any audit and to contest, resolve and defend
against any assessment, notice of deficiency or other adjustment or
proposed adjustment of Taxes with respect to any taxable period ending
on or before the Closing Date; provided, however, that Sellers shall
not have the right to agree to any assessment, deficiency, settlement
or other adjustment or proposed adjustment of Taxes with respect to any
taxable period ending after the Closing Date without Telenetics' prior
written consent.
4.5.3 COOPERATION ON TAX MATTERS. Telenetics and Sellers shall
cooperate fully, as and to the extent reasonably requested by the other
party, in connection with the filing of Returns and any audit,
litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and, upon the other party's request, the
provision of records and information that are reasonably relevant to
any such audit, litigation or other proceeding and making employees
available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder.
18
4.6 TRADE PAYABLES. Following the Closing, Telenetics shall cause the
Company to pay the trade payables and attorneys' fees disclosed by the Company
to Telenetics prior to the Closing, plus reasonable attorneys' fees and costs of
MHK&H (as hereinafter defined) incurred by Xxxxxxxx, Xxxxxx and/or the Company
in connection with the negotiation, preparation and execution of this Agreement
and the other documents executed in connection with this Agreement.
4.7 SHAREHOLDER RATIFICATION. At the next annual meeting of the
shareholders of Telenetics, which meeting shall occur no later than May 31,
2000, Telenetics shall seek ratification by its shareholders of the contemplated
issuance of the final 2,098,043 shares (the "FINAL SHARES") of the Additional
Stock that may become issuable by Telenetics pursuant to SECTION 1.3 hereof.
Telenetics, the members of the Board of Directors of Telenetics and Sellers
shall enter into a shareholders agreement whereby each party to the shareholders
agreement shall agree to vote his or her shares of Telenetics Common Stock in
favor of the contemplated issuance of the Final Shares.
5. INDEMNIFICATION OF THE PARTIES.
5.1 INDEMNIFICATION BY SELLERS. Each Seller shall, severally and not
jointly (i.e., in proportion to each such Seller's ownership in the Shares),
indemnify, defend, protect and hold harmless Telenetics, each of its successors
and assigns and each of its directors, officers, employees, agents, subsidiaries
and affiliates (each an "TELENETICS INDEMNIFIED PARTY"), at all times from and
after the date of this Agreement against all losses, claims, damages, actions,
suits, proceedings, demands, assessments, adjustments, costs and expenses
("LOSSES") (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation ("LEGAL EXPENSES")) based upon,
resulting from or arising out of (i) any inaccuracy or breach of any
representation, or warranty of such Seller contained in or made in connection
with this Agreement, and (ii) the breach by such Seller of, or the failure by
such Seller to observe, any of his respective covenants or other agreements
contained in or made in connection with this Agreement.
5.2 INDEMNIFICATION BY TELENETICS. Telenetics shall indemnify, defend,
protect and hold harmless each Seller and such Seller's respective heirs,
successors and assigns (each a "SELLER INDEMNIFIED PARTY"), at all times from
and after the date of this Agreement against all Losses based upon, resulting
from or arising out of (i) any inaccuracy or breach of any representation, or
warranty of Telenetics contained in or made in connection with this Agreement,
and (ii) the breach by Telenetics of, or the failure by Telenetics to observe,
any of its covenants or other agreements contained in or made in connection with
this Agreement.
5.3 ADJUSTMENTS TO INDEMNIFICATION PAYMENTS. Any payment made to any
Telenetics Indemnified Party or any Seller Indemnified Party (each, an
"INDEMNIFIED PARTY") pursuant to this SECTION 5 in respect of any claim will be
net of any insurance proceeds realized by and paid to the indemnified party in
respect of any such claim. The indemnified party will use its reasonable efforts
to make insurance claims relating to any claim for which it is seeking
indemnification pursuant to this SECTION 5; provided, however, that the
indemnified party will not be obligated to make such an insurance claim if the
indemnified party in its reasonable judgment believes the cost of pursuing such
an insurance claim, together with any corresponding increase in insurance
premiums or other chargebacks to the indemnified party, would exceed the value
of the claim for which the indemnified party is seeking indemnification.
19
5.4 INDEMNIFICATION PROCEDURES.
(a) Promptly after receipt by an indemnified party of notice
of the commencement of any action, suit or proceeding by a person not a
party to this Agreement in respect of which the indemnified party will
seek indemnification hereunder (a "THIRD PARTY ACTION"), the
indemnified party shall notify the party required to provide
indemnification (the "INDEMNIFYING PARTY") in writing, but any failure
to so notify the indemnifying party shall not relieve it from any
liability that it may have to the indemnified party under SECTION 5.1
OR 5.2, except to the extent that the indemnifying party is prejudiced
by the failure to give such notice. The indemnifying party shall be
entitled to participate in the defense of such Third Party Action and
to assume control of such defense (including settlement of such Third
Party Action) with counsel reasonably satisfactory to such indemnified
party; provided, however, that:
(i) the indemnified party shall be entitled to
participate in the defense of such Third Party Action and to
employ counsel at its own expense (which shall not constitute
Legal Expenses for purposes of this Agreement) to assist in
the handling of such Third Party Action;
(ii) the indemnifying party shall obtain the prior
written approval of the indemnified party before entering into
any settlement of such Third Party Action or ceasing to defend
against such Third Party Action, if pursuant to or as a result
of such settlement or cessation, injunctive or other equitable
relief would be imposed against the indemnified party or the
indemnified party would be adversely affected thereby (it
being understood and agreed that monetary payments agreed to
and paid by the indemnifying party shall not be deemed to
adversely affect the indemnified party);
(iii) no indemnifying party shall consent to the
entry of any judgment or enter into any settlement that does
not include as an unconditional term thereof the giving by
each claimant or plaintiff to each indemnified party of a
release from all liability in respect of such Third Party
Action; and
(iv) the indemnifying party shall not be entitled to
control the defense of any Third Party Action unless the
indemnifying party confirms in writing its assumption of such
defense and continues to pursue the defense reasonably and in
good faith. After written notice by the indemnifying party to
the indemnified party of its election to assume control of the
defense of any such Third Party Action in accordance with the
foregoing, (i) the indemnifying party shall not be liable to
such indemnified party hereunder for any Legal Expenses
subsequently incurred by such indemnified party attributable
to defending against such Third Party Action, and (ii) as long
as the indemnifying party is reasonably contesting such Third
Party Action in good faith, the indemnified party shall not
admit any liability with respect to, or settle, compromise or
discharge the claim underlying, such Third Party Action
20
without the indemnifying party's prior written consent. If the
indemnifying party does not assume control of the defense of
such Third Party Action in accordance with this SECTION 5.4,
the indemnified party shall have the right to defend and/or
settle such Third Party Action in such manner as it may deem
appropriate at the cost and expense of the indemnifying party,
and the indemnifying party will promptly reimburse the
indemnified party therefor in accordance with this SECTION
5.4. The reimbursement of fees, costs and expenses required by
this SECTION 5.4 shall be made by periodic payments during the
course of the investigation or defense, as and when bills are
received or expenses incurred.
(b) If an indemnified party has actual knowledge of any facts
or circumstances other than the commencement of a Third Party Action
which cause in good faith it to believe that it is entitled to
indemnification under this SECTION 5, then such indemnified party shall
promptly give the indemnifying party notice thereof in writing, but any
failure to so notify the indemnifying party shall not relieve it from
any liability that it may have to the indemnified party under SECTION
5.1 OR 5.2, except to the extent that the indemnifying party is
prejudiced by the failure to give such notice.
5.5 MANNER OF INDEMNIFICATION. All indemnification by a Seller under
this SECTION 5 shall be effected by the payment of cash, the delivery of a bank
cashier's check, the delivery of shares of Base Stock or Additional Stock free
and clear of any liens, security interests, pledges, agreements, claims, charges
or other encumbrances (other than those arising under securities laws and those
created by or at the request of Telenetics), or in Telenetics' sole discretion,
may be accomplished by the set off of any amounts otherwise payable by
Telenetics to Sellers pursuant to the Telenetics Transaction Agreements or by a
combination of the foregoing. For purposes of this SECTION 5.5, the value of a
share of Base Stock or Additional Stock shall be equal to the closing sale price
of a share of Telenetics Common Stock on the date immediately preceding the
delivery of such shares pursuant to this SECTION 5.5. Indemnification by
Telenetics under this SECTION 5 may be effected by the payment of cash or
delivery of a check, or by a combination of the foregoing, and neither the
exercise of nor the failure to exercise such right of set off will constitute an
election of remedies or limit Telenetics in any manner in the enforcement of any
other remedies that may be available to it. The exercise of such right of set
off by Telenetics in good faith, whether or not ultimately determined to be
justified, will not constitute an event of default under any of the Telenetics
Transaction Agreements.
5.6 SURVIVAL. The representations, warranties, covenants and agreements
of the parties made in this Agreement shall survive (and not be affected in any
respect by) the Closing and any examination or investigation conducted by or on
behalf of the parties hereto and any information that any party may receive
pursuant to the Disclosure Schedule or otherwise. Notwithstanding the foregoing,
the rights to indemnification provided for in this SECTION 5 with respect to
each representation and warranty contained in this Agreement shall terminate on
the date (the "SURVIVAL DATE") occurring on the third anniversary of the Closing
Date; provided, however, that (i) the right to indemnification concerning the
matters set forth in SECTIONS 2.8, 2.13 AND 2.16 shall survive until their
applicable statutes of limitation, (ii) the right to indemnification concerning
the matters set forth in SECTION 2.2 shall continue forever and (ii) the right
to indemnification with respect to such representations and warranties, and the
liability of any party with respect thereto, shall not terminate with respect to
any claim, whether or not fixed as to liability or liquidated as to amount, with
respect to which such indemnifying party has been given written notice prior to
the Survival Date.
21
5.7 LIMITATION ON AMOUNT. Notwithstanding anything to the contrary
contained in this Agreement, the aggregate amount to be paid by any Seller to
Telenetics with respect to any Loss based upon, resulting from or arising out of
any inaccuracy or breach of any representation or warranty of such Seller
contained in this Agreement, and the aggregate amount to be paid by Telenetics
to any Seller with respect to any Loss based upon, resulting from or arising out
of any inaccuracy or breach of any representation or warranty of Telenetics
contained in this Agreement, shall not exceed the value of the Base Purchase
Price paid to such Seller, as calculated based upon the closing sale price of a
share of Telenetics Common Stock on the Closing Date (which is $4.062), plus in
the case of Xxxxxxxx, one-half of the aggregate amount paid by Telenetics to S &
P at the Closing and pursuant to the Telenetics Note (as defined below), plus in
the case of Xxxxxx, one-half of the aggregate amount paid by Telenetics to S & P
at the Closing pursuant to the Telenetics Note.
5.8 BASKET. Notwithstanding anything to the contrary contained in this
Agreement, Sellers shall not be liable to Telenetics with respect to any single
Loss based upon, resulting from or arising out of any inaccuracy or breach of
any representation or warranty of Sellers contained in this Agreement that does
not exceed $50,000; provided, however, that when the aggregate amount of all
such Losses reaches $50,000, Sellers shall, subject to the above limitation of
their maximum aggregate liability, thereafter be liable to Telenetics in full
for all such Losses.
6. CLOSING.
6.1 CLOSING DATE. The closing of the transactions contemplated by this
Agreement ("CLOSING") will take place at a location mutually agreed upon by the
parties on the date hereof ("CLOSING DATE").
6.2 DELIVERIES BY SELLERS AT THE CLOSING. At the Closing, Sellers shall
deliver to Telenetics:
(a) Certificates representing all of the Shares, free of liens
or encumbrances (other than encumbrances imposed by applicable
securities laws), accompanied by duly executed stock powers by each
Seller in favor of Telenetics with all necessary transfer stamps
affixed thereto or other evidence of payment of applicable stock
transfer taxes, if any;
(b) The resignations of each of the officers and directors of
the Company;
(c) This Agreement duly executed by each of the Sellers,
accompanied by the consent of each Seller's spouse, as set forth on the
signature pages hereof;
(d) The Employment Agreements duly executed by each of the
individuals who are parties thereto, together with evidence of the
termination of the existing employment relationships between the
Company and each of the individuals who are parties to the Employment
Agreements;
22
(e) The Consulting Agreements duly executed by each of the
individuals or entities who are parties thereto, together with evidence
of the termination of any existing consulting or employment
relationships between the Company and S & P and/or Xxxxxx;
(f) The Registration Rights Agreements, duly executed by each
of the individuals or entities that are parties thereto;
(g) Certificates dated as of a date no longer than ten days
prior to the Closing Date, duly issued by the secretaries of state
and/or other appropriate officials in the Company's state of
incorporation and in each jurisdiction where the Company is qualified
to do business as a foreign corporation, showing that the Company is in
good standing and authorized to do business in each such state and,
where such information is generally made available by the appropriate
authorities, that all state franchise and/or income tax returns have
been filed and taxes paid for the Company for all periods prior to the
Closing;
(h) Required consents of third parties, if any;
(i) The opinion of Xxxxxx Xxxxx Xxxx & Xxxx, P.C., counsel to
the Company, Xxxxxxxx, Xxxxxx and S & P ("MHK&H"); and
(j) Evidence satisfactory to Telenetics and its counsel that
the contracts or agreements listed on the Disclosure Schedule to be
terminated concurrently with the Closing have been terminated.
6.3 DELIVERIES BY TELENETICS AT THE CLOSING. At the Closing, Telenetics
shall deliver to Sellers:
(a) Certificates representing the Base Stock, with facsimile
signatures of appropriate Telenetics officers and endorsement by
Telenetics' transfer agent;
(b) Option agreements representing the Options;
(c) The Employment Agreements;
(d) The Consulting Agreements;
(e) The Registration Rights Agreements;
(f) Check made payable to S & P in the amount of one-half of
the principal and interest due as of the Closing from the Company to S
& P pursuant to the Promissory Note dated August 27, 1999 made by the
Company in favor of S & P (the "S & P NOTE");
(g) Promissory note made by Telenetics in favor of S & P in
the principal amount of one-half of the principal and interest due as
of the Closing from the Company to S & P pursuant to the S & P Note
(the "TELENETICS NOTE");
23
(h) Promissory note made by Telenetics in favor of XxXxxx in
the principal amount of $107,500, as referenced in the Disclosure
Schedule;
(i) Evidence of the appointment of Xxxxxxxx and Xxxxxx as
advisors to the Telenetics Board of Directors;
(j) Required consents of third parties, if any; and (k) The
opinion of Xxxxx & Xxxxxx, LLP, counsel to Telenetics.
6.4 DELIVERIES BY THIRD PARTIES AT THE CLOSING. At the Closing, the
following additional deliveries shall be made:
(a) Sellers shall cause S & P to deliver to Telenetics for
cancellation that certain Promissory Note dated May 10, 1999 in the
principal amount of $30,000 made by the Company in favor of S & P and
the S & P Note.
(b) Sellers shall cause S & P and the Company to provide to
Telenetics evidence satisfactory to Telenetics and its counsel that the
contracts or agreements listed on the Disclosure Schedule to be
terminated concurrently with the Closing have been terminated.
(c) Sellers shall cause S & P to deliver duly executed UCC
termination statements terminating S & P's security interest in the
assets of the Company;
(d) Armani shall execute and deliver to S & P a guaranty and a
stock pledge agreement pledging as security for Telenetics' repayment
of the Telenetics Note 500,000 of the shares of Telenetics Common Stock
owned by Armani immediately prior to the Closing.
7. NON-COMPETITION.
7.1 DEFINITIONS. For purposes of this SECTION 7, the following terms
shall have the following meanings:
(a) "BUSINESS" shall mean the development, production,
manufacture, sale, lease or distribution of the Technology and/or
products and services relating to the Technology, as developed, in
development or conducted by the Company as of, or immediately preceding
the date of this Agreement, or conducted, developed or in development
by the Company or by Telenetics or their respective affiliates,
successors or assigns during the Non-Competition Period, the Employee
Non-Solicitation Period or the Customer Non-Solicitation Period;
(b) "BUSINESS TERRITORY" shall mean the world, including all
countries and political subdivisions thereof.
24
(c) "COMPETE" shall mean, with respect to the Business: (i)
managing, supervising or otherwise participating in a management or
sales capacity; or (ii) otherwise managing, operating, controlling,
participating in the ownership, management or control of, or being
connected with or having any interest in, as a stockholder, agent,
partner, lender, consultant, advisor or otherwise, any business or
person that provides goods, products or services competitive with those
provided by the Business; provided, however, that nothing contained
herein will prohibit a Seller from owning less than one percent of any
class of securities listed on a national securities exchange or traded
publicly in the over-the-counter market or from performing his duties
in accordance with the terms of the Employment Agreement or Consulting
Agreement to which he or an entity by which he is employed is a party;
(d) "CUSTOMER NON-SOLICITATION PERIOD" shall mean, with
respect to each Seller, the later of: (i) the period commencing on the
Closing Date and continuing for a period of two years after the
expiration of the Earn-Out Period; and (ii) two years after the
termination of such Seller's employment or consulting relationship with
the Company, Telenetics or any of their respective successors, assigns,
subsidiaries or affiliates; provided, however, that the Customer
Non-Solicitation Period with respect to each Seller shall be extended
by the number of days in which such Seller is or was engaged in
activities constituting a breach of SECTION 7.4.
(e) The term "CUSTOMERS" shall mean, with respect to each
Seller, any person that, as of or immediately preceding the date of
this Agreement, or during the Non-Competition Period, the Employee
Non-Solicitation Period or the Customer Non-Solicitation Period is or
was a client or customer of the Company, Telenetics or any of their
respective subsidiaries or affiliates.
(f) The words "DIRECTLY OR INDIRECTLY," as they modify the
word "Compete" or "Competing," shall mean: (i) acting as an agent,
representative, consultant, officer, director, member, independent
contractor or employee of any person that is Competing with the
Business; (ii) participating in any such Competing person or enterprise
as an owner, partner, limited partner, joint venturer, member, creditor
or shareholder (except as expressly permitted herein); or (iii)
communicating to any such Competing person or enterprise the names or
addresses or any other information concerning any Customer or any other
confidential information of the Business.
(g) "EMPLOYEES" shall mean: (i) any employee of the Company,
Telenetics or any of their respective subsidiaries or affiliates as of,
or immediately prior to the date of this Agreement or during the
Non-Competition Period, the Employee Non-Solicitation Period or the
Customer Non-Solicitation Period; or (ii) any former employee of the
Company, Telenetics or any of their respective subsidiaries or
affiliates whose employment with the Company, Telenetics, or any of
their respective successors, assigns, subsidiaries or affiliates ceased
less than one year before the date of co-venturing, solicitation,
inducement or recruitment.
(h) "EMPLOYEE NON-SOLICITATION PERIOD" shall mean, with
respect to each Seller, the later of: (i) the period commencing on the
Closing Date and continuing for a period of two years after the
expiration of the Earn-Out Period; and (ii) two years after the
termination of such Seller's employment or consulting relationship with
the Company, Telenetics or any of their respective successors, assigns,
subsidiaries or affiliates; provided, however, that the Employee
Non-Solicitation Period with respect to each Seller shall be extended
by the number of days in which such Seller is or was engaged in
activities constituting a breach of SECTION 7.3.
25
(i) "NON-COMPETITION PERIOD" shall mean, with respect to each
Seller, the later of: (i) the period commencing on the Closing Date and
continuing for a period of two years after the expiration of the
Earn-Out Period; and (ii) two years after the termination of such
Seller's employment or consulting relationship with the Company,
Telenetics or any of their respective successors, assigns, subsidiaries
or affiliates; provided, however, that the Non-Competition Period with
respect to each Seller shall be extended by the number of days in which
such Seller is or was engaged in activities constituting a breach of
SECTION 7.2.
(j) The term "PERSON" shall mean any natural person, firm,
partnership, association, corporation, company, limited liability
company, limited partnership, trust, business trust, Governmental
Entity or other entity.
(k) The term "PROSPECTIVE CUSTOMER" shall mean any person that
Telenetics, the Company, or any of their respective subsidiaries or
affiliates has contacted, or has developed a strategy or plan to
contact, for the purpose of acquiring such person as a customer or
client during the period from January 1, 1999 through the expiration of
the Customer Non-Solicitation Period.
7.2 NON-COMPETITION. During the Non-Competition Period, no Seller
shall, and no Seller shall permit any of such Seller's affiliates to, directly
or indirectly Compete with the Business in the Business Territory. Set forth in
the Company Disclosure Schedule is a complete and accurate listing of all states
within the United States and all foreign countries and territories in which the
Company or its predecessor has sold or marketed its products or services or
conducted its business prior to the date of this Agreement.
7.3 NON-SOLICITATION OF EMPLOYEES. Sellers recognize that the Employees
are a valuable resource of Telenetics and the Company. Accordingly, during the
Employee Non-Solicitation Period, no Seller shall, either alone or in
conjunction with any other person or entity, directly or indirectly go into
business with any Employee or solicit, induce or recruit any Employee to leave
the employ of Telenetics, the Company, or any of their respective successors,
assigns, subsidiaries or affiliates.
7.4 NON-SOLICITATION OF CUSTOMERS. Sellers recognize that the Customers
and Prospective Customers are a valuable resource of Telenetics and the Company.
Accordingly, during the Customer Non-Solicitation Period, no Seller shall,
either alone or in conjunction with any other person or entity, directly or
indirectly call on, solicit, take away, accept as a client, customer or
prospective client or customer, or attempt to call on, solicit, take away,
accept as a client, customer or prospective client or customer a Customer or
Prospective Customer for the purpose of Competing with the Business.
26
7.5 ADDITIONAL AGREEMENTS. Each Seller hereby expressly agrees and
acknowledges that:
(a) Telenetics and the Company have protectable business
interests throughout the Business Territory, and that competition with
and against such business interests would be harmful to Telenetics or
the Company, as the case may be;
(b) the covenants contained in this SECTION 7 are reasonable
as to time and geographical area and do not place any unreasonable
burden upon each Seller's ability to earn a livelihood;
(c) the public will not be harmed as a result of enforcement
of the covenants contained in this SECTION 7; (d) the personal legal
counsel for each of Xxxxxxxx and Xxxxxx has reviewed the covenants
contained in this SECTION 7;
(e) the personal legal counsel for each of XxXxxx and Xxxxxx
has reviewed the covenants contained in this SECTION 7, and/or each of
XxXxxx and Xxxxxx has had ample opportunity but has knowingly and
willingly declined to take advantage of such opportunity for his
personal legal counsel to review the covenants contained in this
SECTION 7;
(f) the parties have entered into the covenants contained
herein in connection with and as a condition precedent to the
consummation of the Agreement, pursuant to which Telenetics shall
acquire the Company; the agreements, actions, covenants, and promises
contained herein are intended to protect and ensure the value of
Business, including its goodwill, which actions, covenants, and
promises are a material consideration to Telenetics in connection with
the Agreement; and, to the extent that the laws of any jurisdiction in
which this Agreement shall be interpreted, construed, and/or enforced
distinguish between covenants given in connection with the sale of a
business and its goodwill and covenants given in connection with
employment, this covenant will be given the broader interpretation
customarily given to covenants in connection with the sale of a
business and the transfer of goodwill to Telenetics, notwithstanding
any employment or engagement as a consultant of each Seller by
Telenetics or the Company following the Closing;
(g) Telenetics and each Seller agree that the provisions of
this SECTION 7 shall survive the Closing; and
(h) each Seller understands and agrees to each and every term
and condition contained in this SECTION 7.
27
7.6 REMEDIES; ENFORCEABILITY. Each Seller recognizes and acknowledges
that irreparable damage will result to Telenetics in the event of a breach by
that Seller or any of that Seller's affiliates of the provisions of this SECTION
7, and, accordingly, in the event of such a breach, Telenetics will be entitled,
in addition to any other legal or equitable damages and remedies to which it may
be entitled or which may be available, to an injunction to restrain the
violation thereof. If any provision of this SECTION 7 shall be adjudicated by a
court of competent jurisdiction to be invalid or unenforceable because of the
scope, duration, area of its applicability, or any other reason, the court
making such determination will have the power to modify such scope, duration, or
area, or all of them, or to strike an invalid or unenforceable provision, in
whole or in part, to the extent necessary to make such scope, duration, area, or
provision valid and enforceable.
8. MISCELLANEOUS.
8.1 GOVERNING LAW. The internal laws of the State of California
(irrespective of its choice of law principles) will govern the validity of this
Agreement, the construction of its terms and the interpretation and enforcement
of the rights and duties of the parties hereto.
8.2 ASSIGNMENT; BINDING UPON SUCCESSORS AND ASSIGNS. No party hereto
may assign any of its rights or obligations hereunder without the prior written
consent of the other parties hereto. Subject to the preceding sentence, this
Agreement will be binding upon and inure to the benefit of the parties hereto
and their respective heirs, successors and permitted assigns. Nothing expressed
or referred to in this Agreement will be construed to give any person or entity
other than the parties to this Agreement any legal or equitable right, remedy or
claim with respect to this Agreement or any provision of this Agreement. This
Agreement and all of its provisions and conditions are for the sole and
exclusive benefit of the parties to this Agreement and their respective heirs,
successors and permitted assigns.
8.3 SEVERABILITY. If any provision of this Agreement, or the
application thereof, will for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances will be interpreted so as reasonably to effect
the interest of the parties hereto. The parties further agree to replace such
void or unenforceable provision of this Agreement with a valid and enforceable
provision that will achieve, to the greatest extent possible, the economic,
business and other purpose of the void unenforceable provision.
8.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original as regards any party
whose signature appears thereon and all of which together will constitute one
and the same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures of
all the parties reflected hereon as signatories.
8.5 OTHER REMEDIES. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby or by law on such party,
and the exercise of any one remedy will not preclude the exercise of any other.
8.6 AMENDMENT AND WAIVERS. Any term or provision of this Agreement may
be amended, and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively) only by a writing signed by the party to be bound thereby. The
waiver by a party of any breach hereof or default in the performance hereof will
not be deemed to constitute a waiver of any other default or any succeeding
breach or default.
28
8.7 EXPENSES. Except as set forth in SECTION 4.6, Telenetics, on the
one hand, and Sellers, on the other, will each bear their own expenses and legal
fees incurred with respect to this Agreement and the transactions contemplated
hereby.
8.8 ATTORNEYS' FEES. Should suit be brought to enforce or interpret any
part of this Agreement, the prevailing party will be entitled to recover, as an
element of the costs of suit and not as damages, reasonable attorneys' fees to
be fixed by the court (including, without limitation, costs, expenses and fees
on any appeal).
8.9 NOTICES. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following address (at such other address for a party as shall be
specified by like notice):
If to the Company to: eflex Wireless, Inc.
000 Xxxxx Xxxx Xxxxxx
Xxxxxxx, Xxxxxxx 00000-0000
Attention: President
Telecopier: (000) 000-0000
With a copy to: Xxxxxx Xxxxx Xxxx & Xxxx, P.C.
0000 Xxxxxxxx Xxxxx
0000 Xxxx Xxxxxx
Xxxxxx, Xxxxx 00000
Attention: Xxxxx X. Xxxxxxxxx, Esq.
Telecopier: (000) 000-0000
If to Telenetics to: Telenetics Corporation
00000 Xxxxxx Xxxxx
Xxxx Xxxxxx, Xxxxxxxxxx 00000
Attention: Chief Executive Officer
Telecopier: (000) 000-0000
With a copy to: Xxxxx & Xxxxxx, LLP
000 Xxxxx Xxxxxxxxx, Xxxxx 0000
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxx, Esq.
Telecopier: (000) 000-0000
If to Xxxxxxxx: Xxxxxxx X. Xxxxxxxx
0000 Xxxxxxxxx Xxxx
Xxxxxx, Xxxxx 00000
29
If to Xxxxxx: Xxxxx X. Xxxxxx
0000 Xxxxx 0000 Xxxx
Xxxxxxxxxx, Xxxxxxx 00000
If to Xxxxxxxx or Xxxxxx,
then with a copy to: Xxxxxx Xxxxx Xxxx & Xxxx, P.C.
0000 Xxxxxxxx Xxxxx
0000 Xxxx Xxxxxx
Xxxxxx, Xxxxx 00000
Attention: Xxxxx X. Xxxxxxxxx, Esq.
Telecopier: (000) 000-0000
If to Xxxxxx: Xxxxxx X. Xxxxxx
0000 Xxxxxxxxx Xxxx
Xxxxx, Xxxxxxx 00000
If to XxXxxx: Xxxx X. XxXxxx
000 Xxxxxxxxx Xxxxx
Xxxxxxx, Xxxxxxx 00000
Telecopier: (000) 000-0000
All notices and other communications shall be deemed to have been
received (a) in the case of personal delivery, on the date of delivery, (b) in
the case of a telecopy, when the party receiving the copy shall have confirmed
receipt of the communication (including by means of a machine-generated
confirmation), (c) in the case of delivery by nationally-recognized overnight
courier, on the business day following dispatch, and (d) in the case of mailing,
on the third business day following such mailing.
8.10 CONSTRUCTION OF AGREEMENT. This Agreement has been negotiated by
the respective parties hereto and their attorneys and the language hereof will
not be construed for or against either party. A reference to a Section or an
Exhibit will mean a Section in, or Exhibit to, this Agreement unless otherwise
explicitly set forth. The titles and headings herein are for reference purposes
only and will not in any manner limit the construction of this Agreement which
will be considered as a whole. This Agreement has been negotiated between
unrelated parties who are sophisticated and knowledgeable in the matters
contained in this Agreement and who have acted in their own self interest. In
addition, each party affirms that it has been afforded the opportunity to
receive independent advice from its respective legal counsel as to the
advisability of entering into this Agreement and to consult and discuss the
provisions of this Agreement with its respective legal counsel and fully
understands the legal effect of each provision. Accordingly, any rule of law,
including Section 1654 of the California Civil Code, as well as any other
statute, law, ordinance or common law principles or other authority of any
jurisdiction of similar effect, or legal decision that would require
interpretation of any ambiguities in this Agreement against the party who has
drafted it is not applicable and is hereby waived. The provisions of this
Agreement shall be interpreted in a reasonable manner to effect the purpose of
the parties, and this Agreement shall not be interpreted or construed against
any party to this Agreement because that party or any attorney or representative
for that party drafted this Agreement or participated in the drafting of this
Agreement. FURTHER, THE LIMITATION OF LIABILITIES AND REMEDIES AND THE EXCLUSION
OF DAMAGES AND WARRANTIES CONTAINED HEREIN REFLECT A BARGAINED FOR ALLOCATION OF
RISKS BASED ON NEGOTIATIONS AND CONSIDERATION EXCHANGED BETWEEN THE PARTIES.
30
8.11 NO JOINT VENTURE. Nothing contained in this Agreement will be
deemed or construed as creating a joint venture or partnership between any of
the parties hereto. No party is by virtue of this Agreement authorized as an
agent, employee or legal representative of any other party. No party will have
the power to control the activities and operations of any other. The status of
the parties hereto is, and at all times will continue to be, that of independent
contractors with respect to each other. No party will have any power or
authority to bind or commit any other. No party will hold itself out as having
any authority or relationship in contravention of this Section.
8.12 FURTHER ASSURANCES. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
any other party to evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Agreement.
8.13 ABSENCE OF THIRD PARTY RIGHTS. No provisions of this Agreement are
intended, nor will be interpreted, to provide or create any third party
beneficiary rights or any other rights of any kind in any client, customer,
affiliate, shareholder or partner of any party hereto or any other person or
entity unless specifically provided otherwise herein, and, except as so
provided, all provisions hereof will be personal solely between the parties to
this Agreement.
8.14 ENTIRE AGREEMENT. This Agreement and the schedules and exhibits
hereto constitute the entire understanding and agreement of the parties hereto
with respect to the subject matter hereof and supersede all prior and
contemporaneous agreements or understandings, inducements or conditions, express
or implied, written or oral, between the parties with respect hereto. The
express terms hereof control and supersede any course of performance or usage of
trade inconsistent with any of the terms hereof.
8.15 CHANGE IN TELENETICS COMMON STOCK. If the outstanding shares of
Telenetics Common Stock are changed, reclassified, split, combined, or converted
into or exchanged for another class of securities or securities of another
issuer, whether by amendment to the articles of incorporation of Telenetics or
by consolidation, merger or otherwise, appropriate adjustment shall be made to
the terms of this Agreement to give effect to such change, reclassification,
split, combination, conversion or exchange.
[remainder of page intentionally left blank]
31
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed by their duly authorized respective officers as of the
date first above written.
TELENETICS CORPORATION,
a California corporation
By: /s/ Xxxxxxx X. Armani
-------------------------------------
Xxxxxxx X. Armani, President
SELLERS:
/s/ Xxxxxx X. Xxxxxx
-------------------------------------
Xxxxxx X. Xxxxxx, an individual
/s/ Xxxx X. XxXxxx
-------------------------------------
Xxxx X. XxXxxx, an individual
/s/ Xxxxxxx X. Xxxxxxxx
-------------------------------------
Xxxxxxx X. Xxxxxxxx, an individual
/s/ Xxxxx X. Xxxxxx
-------------------------------------
Xxxxx X. Xxxxxx, an unmarried man
32
Each of the undersigned spouses has executed this Agreement for purposes of
confirming and acknowledging that they (i) are familiar with this Agreement and
its contents, (ii) consent to the conveyance to Telenetics of their community
property or other interest, if any, in shares of capital stock of the Company
pursuant to this Agreement, (iii) acknowledge that the shares of Telenetics
Common Stock and Options to be delivered to their spouse pursuant to this
Agreement will be issued in the name of their spouse only, and that such
issuance and their spouse's ownership and transfer of such securities is subject
to the terms and conditions of this Agreement.
/s/ Xxxxxxx Xxxxxx
---------------------------------------------
Xxxxxxx Xxxxxx, spouse of Xxxxxx X. Xxxxxx
/s/ Xxxxxxxx X. XxXxxx
---------------------------------------------
Xxxxxxxx X. XxXxxx, spouse of Xxxx X. XxXxxx
/s/ Xxxxx Xxxxxxxx
---------------------------------------------
Xxxxx Xxxxxxxx, spouse of Xxxxxxx X. Xxxxxxxx
33
EXHIBIT A TO EFLEX STOCK PURCHASE AGREEMENT
Description of the Technology
-----------------------------
1. See attached Power Point Presentation, which is incorporated herein by
reference.
2. See attached copy of the Company's website, which is incorporated
herein by reference.
3. See attached Description of Methods/Devices for Registering and
Controlling Remote Cellular Modules, which is incorporated herein by
reference.
FINAL
DISCLOSURE SCHEDULE FOR STOCK PURCHASE AGREEMENT DATED JANUARY 7, 2000
BY AND AMONG TELENETICS CORPORATION ("TELENETICS") AND XXXXXX X. XXXXXX,
XXXX X. XXXXXX, XXXXXXX X. XXXXXXXX AND XXXXX X. XXXXXX ("SELLERS") RELATING
TO THE PURCHASE AND SALE OF THE OUTSTANDING SHARES OF CAPITAL STOCK
OF EFLEX WIRELESS, INC. (THE "COMPANY")
The following section numbers refer to the appropriate sections of the
above-referenced Stock Purchase Agreement and are followed by descriptions of
disclosures being made by Sellers.
2.2. CAPITAL STRUCTURE
2.2.1 - The representations contained therein are subject to any rights
under community property laws, if any; restrictions on transferability
under applicable securities laws; and agreements, encumbrances, and
rights that arose under those contracts listed in Section 2.24 of this
Disclosure Schedule except those described in m, n and o therein.
2.2.2 - The representations contained therein are subject to any
rights, commitments and agreements that arose under those contracts
listed in Section 2.24 of this Disclosure Schedule except those
described in m, n and o therein.
2.4 FINANCIAL STATEMENTS
The only items that may be of significance and are not reflected,
accrued for or shown in footnotes to the Financial Statements are as
follows:
a) Xxxx XxXxxx'x deferred Base Salary of $87,500 as described in
Section 3 of his Employment and Noncompetition Agreement dated
as of June 1, 1999 between Xx. XxXxxx and the Company, as
successor to Residential Utility Meter Service's, Inc. ("RUMS")
and his $20,000 "Completion of Funding" bonus as described in
Section 4 of such agreement. These amounts are being paid by
Telenetics through a note being issued in connection with the
closing.
b) T. Xxxxx Xxxx'x annual $10,000 bonus, which was due after
December 31, 1999 and is being paid by Telenetics as a signing
bonus provided for in the employment agreement being entered
into at the closing between Telenetics and Xx. Xxxx.
The liabilities described in Section 2.9 to this Disclosure Schedule
(to the extent they are not contained on the Financial Statements) are
incorporated herein by reference.
Page 1 of 6
2.9 ABSENCE OF UNDISCLOSED LIABILITIES
The November 30, 1999 Financial Statements show an outstanding Accounts
Payable of $40,797.22. As of that time, $18,573.80 was due to GTE
Telecommunications Services Incorporated ("GTE TSI") and $23,195 was
due to Munsch, Hardt, Xxxx and Xxxx, P.C. If a contract amendment is
completed with GTE TSI, GTE TSI has agreed to reduce the past due
amounts to $5,537. If no such contract amendment is reached with GTE
TSI, the Company would be liable to reimburse GTE TSI for the above
payable plus any development or testing costs that GTE TSI has incurred
on behalf of the Company pursuant to the Information and Network
Products and Services Agreement dated January 16, 1999 between the
Company and GTE TSI (the "Existing GTE Contract"). GTE TSI has provided
significant testing and development support over the last several
months, but they have not provided the Company with any estimated
costs, because they believe the contract will be completed soon and
their support to the Company is not billable to the Company if the
contract is signed. Sellers believe that if billable, the costs will be
less than $100,000.
Sections 2.4, 2.21 and 2.22 of this disclosure schedule are
incorporated herein by reference.
The liabilities that arise under the contracts disclosed in Section
2.24 of this Disclosure Schedule are incorporated herein by reference.
The Company has received an invoice from Xxxxxxxx & Xxxxxx, Inc. in the
amount of $2,051 for legal fees incurred in connection with the
formation of the Company.
Also, the Company has paid a $10,000 retainer to Xxxxx Xxxxxx at
Xxxxxx, Xxxxxx for patent work that is projected to total about
$45,000.
Finally, the Company has been making monthly payments under a
lease/service agreement on a copy machine that is leased by PCS under
an agreement that expires in April 2000; the Company has been paying
GMAC Financial Services approximately $260 for vehicle leased by PCS
for Xx Xxxxxx; and the Company has been reimbursing Xxxx XxXxxx for an
apartment leased by Xx. XxXxxx in Brandon, Florida. In connection with
the Stock Purchase Agreement, the Company has agreed to continue to
make payments due on the copy machine through April 2000. In addition,
the Company and Sellers have agreed that following the closing of the
Stock Purchase Agreement, the Company will no longer be responsible for
payments on the leased vehicle and the apartment.
2.10 ABSENCE OF CERTAIN CHANGES OR EVENTS
2.10 (a) - Since the November 30, 1999 Financial Statements, the
Company borrowed another $40,000 from Xxxxxxxx & Xxxxxx, Inc. Thus, the
`Note Payable to S&P' in the Financial Statements has increased from
$227,000 to $267,000.
2.12 CERTAIN AGREEMENTS
Section 2.4 above is incorporated herein by reference. Also, repayment
of the note from the Company to Xxxxxxxx & Xxxxxx, Inc. is triggered by
this transaction.
Pge 2 of 6
2.14 INTELLECTUAL PROPERTY
2.14 (a) - The Company owns key intellectual property needed to provide
its goods and services, but does not own all intellectual property
rights it requires to conduct its business. To access remote devices
using the `Static TLDN' technology which the Company is in the process
of patenting, the service requires the licensing of a couple of patents
of GTE TSI. In the contract amendment that is under negotiation, GTE
TSI will be granting the Company the right to operate under its
patents.
To access remote devices, the device may be `paged' with one or more
numbers. If more than one number is used (as the service currently is
configured), this `practices' a "Multi-NAM" patent held by another
telecommunications company (possibly Nokia). If the Company continues
to purchase its cellular transceivers from companies licensed to sell
products incorporating the "Multi-NAM" patent (such as Ericcson and
Standard), then the Company is effectively paying a royalty to use the
"Multi-NAM" patent through the price it pays for the transceivers.
There may be many other patents required to conduct the Company's
business (e.g. cellular technologies, etc.), but the company intends to
buy products from licensees so the Company does not need to know about
these patents. If the Company chooses to not buy products from existing
licensees (e.g. in order to further cost reduce the product), then the
Company would be required to obtain licenses from and pay royalties to
the companies holding the patents.
There is a HighwayMaster patent on "data messaging using a feature
request" (Patent #5,771,455), for which Sellers believe GTE TSI shares
licensing rights. This patent appears to cover use of "feature
requests" to send data to a host, which is what the Company uses and
thus may become an issue. The Company asked GTE TSI why they had not
included it in their list of patents in the contract amendment that is
under negotiation, and their intellectual property attorney indicated
that he did not think it applied to our service (only an opinion, not a
full analysis of the issue). The Company's Chief Technical Officer
feels the HighwayMaster patent would not hold up in a court test,
because it is trying to patent "feature requests" that were defined in
the public domain well over a year before the patent application was
filed (i.e. it tries to patent the public IS41 Standard). The Sellers
feel that the patent does not apply to the majority of the Company's
services, as they are stationary, not mobile as claimed in the patent
or they pass through GTE TSI, a licensee. But if the patent does apply
to services of the Company, then the Company faces payment of royalties
to HighwayMaster (or some arrangement), sublicensing through GTE TSI or
others, or contesting the patent in court. The Company has considered
having its patent attorney research and opine on the validity of the
patent, but has not yet initiated that costly undertaking.
2.14 (c) - See Section 2.14 (a) above for patents that may be infringed
by the Company's services.
Page 3 of 6
2.17 INTERESTED PARTY TRANSACTIONS
Contracts contained in Section 2.24 of this Disclosure Schedule are
incorporated herein by reference.
2.21 PERSONAL PROPERTY
The Company has purchased portable computers, desktop computers,
printers, some documents, telephones, supplies and certain software
(such as Office 2000, Visual Basic 6.0, Windows 98, etc.). The receipts
for all these purchases are contained in the Company's expense reports
submitted by its three employees.
The remainder of the tangible personal property in the office is owned
by Progressive Computer Software, Inc., which is a corporation
wholly-owned by Xx Xxxxxx ("PCS"). Pursuant to the Xxxx of Sale,
Assignment, Assumption, and Option Agreement dated August 27, 1999
between PCS and the Company (the "PCS Xxxx of Sale"), the Company
purchased, among other things, all assets needed for the Company's
telemetry/meter reading service system, all hardware and software
developed by Xx Xxxxxx since January 1, 1998 and all assets acquired
since May 10, 1999. The PCS Xxxx of Sale also gives the Company the
unlimited right to use on a rent-free, cost-free basis any and all of
PCS's furniture, fixtures, equipment and supplies that were not
transferred pursuant to the PCS Xxxx of Sale, together with an option
to acquire any or all of such items for their fair market value on or
before April 30, 2000.
2.22 REAL PROPERTY
The building the Company occupies is leased from One Stop Financial
Center, Inc. by PCS pursuant to a Lease Agreement dated November 17,
1998. Pursuant to the PCS Xxxx of Sale, PCS assigned to the Company
PCS's rights under the lease agreement. the Company pays the monthly
lease fees of about $1,076 to One Stop Financial Center, Inc.
2.24 CONTRACTS
The Existing GTE Contract described in Section 2.9 above, as amended by
that certain Agreement to Consent of Assignment and Termination dated
effective September 1, 1999 between GTE TSI, RUMS and the Company, and
the confidentiality and nondisclosure agreements listed below are the
only existing contracts or agreements between the Company and persons
or entities other than the Sellers and/or entities owned or controlled
by one or more of the Sellers:
Xxxxx Xxxx - 11/3/99
Telenetics - 10/15/99
HighwayMaster - 9/20/99
Xxxx South - 6/1/99
Paradigm Manufacturing - 3/4/99
Xxx Xxxxxx - 3/4/99
GTE TSI - 10/12/98
The Company is a party to only the following contracts or agreements
with one or more of the Sellers and/or entities owned or controlled by
one or more of the Sellers:
Page 4 od 6
a) Loan Agreement dated August 27, 1999 between the Company and
Xxxxxxxx & Xxxxxx, Inc. - to be terminated at the closing of the
Stock Purchase Agreement
b) Promissory Note dated August 27, 1999 in the principal amount of
$305,000 made by the Company in favor of Xxxxxxxx & Xxxxxx,
Inc., which note supersedes the Promissory Note dated May 10,
1999 in the principal amount of $30,000, made by RUMS in favor
of Xxxxxxxx & Xxxxxx, Inc. - to be terminated at the closing of
the Stock Purchase Agreement
c) Security Agreement dated August 27, 1999 between the Company and
Xxxxxxxx & Xxxxxx, Inc. - to be terminated at the closing of the
Stock Purchase Agreement
d) Shareholders' Agreement dated August 27, 1999 between the
Company and each of the Sellers - to be terminated at the
closing of the Stock Purchase Agreement
e) Voting Agreement dated August 27, 1999 between the Company and
each of the Sellers - to be terminated at the closing of the
Stock Purchase Agreement
f) Push/Pull Agreement dated August 27, 1999 between the Company,
Xxxxxxx X. Xxxxxxxx and Xxxxx X. Xxxxxx - to be terminated at
the closing of the Stock Purchase Agreement
g) 5% Option Agreement dated August 27, 1999 between the Company
and each of the Sellers - to be terminated at the closing of the
Stock Purchase Agreement
h) Option Agreement dated August 27, 1999 between the Company,
Xxxxxxx X. Xxxxxxxx and Xxxxx X. Xxxxxx - to be terminated at
the closing of the Stock Purchase Agreement
i) Consulting Agreement dated June 1, 1999 between Xxxxxxxx &
Xxxxxx, Inc. and the Company, as successor to RUMS - to be
terminated at the closing of the Stock Purchase Agreement
j) Employment and Noncompetition Agreement dated June 1, 1999
between Xxxx X. XxXxxx and the Company, as successor to RUMS -
to be terminated at the closing of the Stock Purchase Agreement
k) Employment and Noncompetition Agreement dated June 1, 1999
between Xxxxxx X. Xxxxxx and the Company, as successor to RUMS -
to be terminated at the closing of the Stock Purchase Agreement
l) Memorandum of Agreement dated May 10, 1999 between Xxxxxxxx &
Xxxxxx, Inc., Xxxxxxx X. Xxxxxxxx, Xxxxx X. Xxxxxx, Xx Xxxxxx
and the Company, as successor to RUMS - to be terminated at the
closing of the Stock Purchase Agreement
Page 5 of 6
m) Xxxx of Sale and Assignment Agreement dated August 27, 1999
between Xxxxxx X. Xxxxxx and the Company
n) Xxxx of Sale, Assignment, Assumption and Option Agreement dated
August 27, 1999 between Progressive Computer Software, Inc. and
the Company
o) Xxxx of Sale, Assignment and Assumption Agreement dated August
27, 1999 between RUMS and the Company
The actual hardware design of the electronic card that is the basis of
the Company's remote devices has been subcontracted through Paradigm
Manufacturing. Paradigm has developed the card and owns the hardware
design. Paradigm now wants to enter into a formal manufacturing
contract with the Company before they provide the Company with the
latest prototypes. The Company has not entered into any binding
arrangements with Paradigm or any other parties (other than with GTE
TSI, as described above) and is not and will not be responsible for any
of Paradigm's costs unless and until a formal arrangement is executed.
The disclosure contained in Section 2.22 of this Disclosure Schedule
(regarding the lease), Section 2.4 of this Disclosure Schedule
(regarding the obligation to Xxxx), and Section 2.9 of this Disclosure
Schedule (regarding the contracts referenced therein) are incorporated
herein by reference.
The Company also has miscellaneous "off the shelf" software.
2.26 DEVELOPMENT TOOLS
The Company mainly uses generally available software development tools
such as Visual Basic and Windows NT. It has not formally developed and
documented tools of its own, other than macros and databases to assist
in the development process.
Page 6 of 6
