TELENETICS CORPORATION
PLACEMENT AGENT AGREEMENT
Dated as of: October 31, 2000
May ▇▇▇▇▇ Group, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇▇▇
Ladies and Gentlemen:
The undersigned, Telenetics Corporation, (the "Company"), hereby agrees
with May ▇▇▇▇▇ Group, Inc. ("May ▇▇▇▇▇") and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP as follows:
1. OFFERING. The Company hereby engages May ▇▇▇▇▇ to act as its
exclusive placement agent in connection with that certain Securities Purchase
Agreement (the "Purchase Agreement"), dated the date hereof, between the Company
and the investor(s) named therein (the "Investors"), for the issuance and sale
by the Company (the "Offering") of the Company's Series A Convertible Preferred
Stock, no par value (the "Preferred Stock"), which is convertible into shares of
the Company's Common Stock (the "Common Stock"), for an aggregate purchase price
of up to $2,000,000. All capitalized terms used herein and not otherwise defined
shall have the same meaning ascribed to them as in the Purchase Agreement. The
Investor(s) will be granted certain registration rights with respect to the
Common Stock issuable upon conversion of the Preferred Stock, as more fully set
forth in the Registration Rights Agreement between the Company and the
Investor(s) dated the date hereof, and May ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ will be
granted warrants to purchase Common Stock of the Company and certain
registration rights as described herein. The documents to be executed and
delivered in connection with the Offering, including but not limited to this
Agreement, the Purchase Agreement, the Registration Rights Agreement, the escrow
agreement with First Union National Bank (the "Escrow Agreement"), the Placement
Agent's Warrants (as hereinafter defined) and the Placement Agent's Registration
Rights Agreement (as hereinafter defined), together with all of the Company's
SEC Documents, are referred to sometimes hereinafter collectively as the
"Offering Materials." The Company's Preferred Stock and the Placement Agent's
Warrants are sometimes referred to hereinafter collectively as the "Securities."
May ▇▇▇▇▇ shall not be obligated to sell any Securities and this Offering by May
▇▇▇▇▇ shall be solely on a "best efforts basis."
2. INFORMATION.
A. Upon the occurrence of the Closing, the funds received in respect of
the shares of Preferred Stock purchased by the Investor(s) will be disbursed in
accordance with the terms of the Purchase Agreement, net of (i) the commission
payable to May ▇▇▇▇▇, equal to ten percent (10%) of the gross proceeds from the
sale of Preferred Stock pursuant to the Offering, and (ii) legal fees and other
expenses related thereto due to May ▇▇▇▇▇'▇ counsel and the Escrow Agent.
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B. In addition to the foregoing compensation, the Company shall issue
(i) to May ▇▇▇▇▇ upon the execution of the Purchase Agreement a warrant in
substantially the form annexed hereto as Exhibit "A" to purchase 500,000 shares
of Common Stock at an exercise price per share of $3.00, and (ii) to ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ a warrant in substantially the form attached hereto as Exhibit "B" to
purchase 15,000 shares of Common Stock at an exercise price per share of $3.00;
each warrant exercisable in part or in whole at any time by May ▇▇▇▇▇ or ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, as applicable, at its discretion for a period of sixty (60) months
from the date hereof (collectively, the "Placement Agent's Warrants"). The
Placement Agent's Warrants shall be issued to the individuals and in the amounts
set forth on Schedule A attached hereto. May ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ shall be
entitled to certain demand registration rights with respect to the shares of
Common Stock issuable upon exercise of the Placement Agent's Warrants pursuant
to a registration rights agreement in substantially the same form annexed hereto
(the "Placement Agent's Registration Rights Agreement").
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF MAY ▇▇▇▇▇.
A. May ▇▇▇▇▇ represents, warrants and covenants to the Company as
follows:
(i) May ▇▇▇▇▇ has the necessary power to enter into this
Agreement, the Placement Agent's Warrants, the Placement Agent's Registration
Rights Agreement, the Escrow Agreement and to consummate the transactions
contemplated hereby and thereby.
(ii) The execution and delivery by May ▇▇▇▇▇ of this
Agreement, the Placement Agent's Warrants, the Placement Agent's Registration
Rights Agreement, the Escrow Agreement and the consummation of the transactions
contemplated herein and therein will not result in any violation of, or be in
conflict with, or constitute a default under, any agreement or instrument to
which May ▇▇▇▇▇ is a party or by which May ▇▇▇▇▇ or its properties are bound, or
any judgment, decree, order or, to May ▇▇▇▇▇'▇ knowledge, any statute, rule or
regulation applicable to May ▇▇▇▇▇. This Agreement, the Placement Agent's
Warrants, the Placement Agent's Registration Rights Agreement and the Escrow
Agreement when executed and delivered by May ▇▇▇▇▇, ▇▇▇▇ constitute the legal,
valid and binding obligations of May ▇▇▇▇▇, enforceable in accordance with their
respective terms, except to the extent that (a) the enforceability hereof or
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws from time to time in effect and affecting the rights of creditors
generally, (b) the enforceability hereof or thereof is subject to general
principles of equity, or (c) the indemnification provisions hereof or thereof
may be held to be violative of public policy.
(iii) Upon receipt of an executed Purchase Agreement, a
Registration Rights Agreement and Escrow Agreement and the documents related
thereto, May ▇▇▇▇▇ will, through the Escrow Agent, promptly forward copies of
the Purchase Agreement, Registration Rights Agreement and Escrow Agreement and
the documents related thereto to the Company or its counsel.
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(iv) May ▇▇▇▇▇ will not deliver any documents related to the
Offering to any person it does not reasonably believe to be an Accredited
Investor as defined in Rule 501 (a) (3) of Regulation D of the 1933 Act.
(v) May ▇▇▇▇▇ will not intentionally take any action that it
reasonably believes would cause the Offering to violate the provisions of the
1933 Act, the 1934 Act, the respective rules and regulations promulgated there
under (the "Rules and Regulations") or applicable "Blue Sky" laws of any state
or jurisdiction.
(vi) May ▇▇▇▇▇ shall use all reasonable efforts to determine
(a) whether the Investor(s) is an Accredited Investor and (b) that any
information furnished by the Investor(s) is true and accurate. May ▇▇▇▇▇ shall
have no obligation to insure that (x) any check, note, draft or other means of
payment for the Preferred Stock will be honored, paid or enforceable against the
Investor in accordance with its terms, or (y) subject to the performance of May
▇▇▇▇▇' obligations and the accuracy of May ▇▇▇▇▇' representations and warranties
hereunder, (1) the Offering is exempt from the registration requirements of the
1933 Act or any applicable state "Blue Sky" law or (2) the Investor is an
Accredited Investor.
(vii) May ▇▇▇▇▇ is a member of the National Association of
Securities Dealers, Inc., and is a broker-dealer registered as such under the
1934 Act and under the securities laws of the states in which the Securities
will be offered or sold by May ▇▇▇▇▇, unless an exemption for such state
registration is available to May ▇▇▇▇▇. May ▇▇▇▇▇ is in compliance with all
material rules and regulations applicable to May ▇▇▇▇▇ generally and applicable
to May ▇▇▇▇▇'▇ participation in the Offering.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
A. The Company represents and warrants to May ▇▇▇▇▇ as follows:
(i) The execution, delivery and performance of each of this
Agreement, the Purchase Agreement, the Escrow Agreement, the Placement Agent's
Registration Rights Agreements, the Placement Agent's Warrants and the
Registration Rights Agreement executed with the Investor(s) has been or will be
duly and validly authorized by the Company and is, or with respect to this
Agreement, the Purchase Agreement, the Escrow Agreement, the Placement Agent's
Registration Rights Agreements, the Placement Agent's Warrants and the
Registration Rights Agreement executed with the Investor(s) will be, a valid and
binding agreement of the Company, enforceable in accordance with its respective
terms, except to the extent that (a) the enforceability hereof or thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
from time to time in effect and affecting the rights of creditors generally, (b)
the enforceability hereof or thereof is subject to general principles of equity
or (c) the indemnification provisions hereof or thereof may be held to be
violative of public policy. The Securities to be issued pursuant to the
transactions contemplated by this Agreement, the Purchase Agreement and the
Placement Agent's Warrants have been duly authorized and, when issued and paid
for in accordance with (x) this Agreement, the Purchase Agreement and the
Placement Agent's Warrants and the certificates/instruments representing such
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Securities, (y) will be valid and binding obligations of the Company,
enforceable in accordance with their respective terms, except to the extent that
(1) the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws from time to time in effect and
affecting the rights of creditors generally, and (2) the enforceability thereof
is subject to general principles of equity. All corporate action required to be
taken for the authorization, issuance and sale of the Securities has been duly
and validly taken by the Company.
(ii) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Purchase Agreement. The Company is not a
party to or bound by any instrument, agreement or other arrangement providing
for it to issue any capital stock, rights, warrants, options or other
securities, except for this Agreement and the agreements described herein and as
described in the Purchase Agreement. All issued and outstanding securities of
the Company, have been duly authorized and validly issued and are fully paid and
non-assessable; the holders thereof have no rights of rescission or preemptive
rights with respect thereto and are not subject to personal liability solely by
reason of being security holders; and none of such securities was issued in
violation of the preemptive rights of any holders of any security of the
Company. The Company has 25,000,000 shares of authorized Common Stock, of which
16,058,813 will be issued and outstanding as of the date hereof.
(iii) The Preferred Stock to be issued in accordance with the
Purchase Agreement has been duly authorized and when issued and paid for in
accordance with this Agreement, the Purchase Agreement, the Placement Agent's
Warrants and the certificates/instruments representing such Preferred Stock will
be validly issued, fully-paid and non-assessable; the holders thereof will not
be subject to personal liability solely by reason of being such holders; such
securities are not and will not be subject to the preemptive rights of any
holder of any security of the Company.
(iv) The Company has good and marketable title to, or valid
and enforceable leasehold estates in, all items of real and personal property
necessary to conduct its business (including, without limitation any real or
personal property stated in the Offering Materials to be owned or leased by the
Company), free and clear of all liens, encumbrances, claims, security interests
and defects of any material nature whatsoever, other than those set forth in the
Offering Materials and liens for taxes not yet due and payable.
(v) There is no litigation or governmental proceeding pending
or, to the best of the Company's knowledge, threatened against, or involving the
properties or business of the Company, except as set forth in the Offering
Materials.
(vi) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
California. Except as set forth in the Offering Materials, the Company does not
own or control, directly or indirectly, an interest in any other corporation,
partnership, trust, joint venture or other business entity. The Company is duly
qualified or licensed and in good standing as a foreign corporation in each
jurisdiction in which the character of its operations requires such
qualification or licensing and where failure to so qualify would have a material
adverse effect on the Company. The Company has all requisite corporate power and
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authority, and all material and necessary authorizations, approvals, orders,
licenses, certificates and permits of and from all governmental regulatory
officials and bodies (domestic and foreign) to conduct its businesses (and
proposed business) as described in the Offering Materials. Any disclosures in
the Offering Materials concerning the effects of foreign, federal, state and
local regulation on the Company's businesses as currently conducted and as
contemplated are correct in all material respects and do not omit to state a
material fact. The Company has all corporate power and authority to enter into
this Agreement, the Purchase Agreement, the Registration Rights Agreement, the
Escrow Agreement, the Placement Agent's Warrants and the Placement Agent's
Registration Rights Agreement to carry out the provisions and conditions hereof
and thereof, and all consents, authorizations, approvals and orders required in
connection herewith and therewith have been obtained. No consent, authorization
or order of, and no filing with, any court, government agency or other body is
required by the Company for the issuance of the Securities or execution and
delivery of the Purchase Agreement, Registration Rights Agreement, the Escrow
Agreement, the Placement Agent's Warrants and the Placement Agent's Registration
Rights Agreement except for applicable federal and state securities laws. The
Company, since its inception, has not incurred any liability arising under or as
a result of the application of any of the provisions of the 1933 Act, the 1934
Act or the Rules and Regulations.
(vii) There has been no material adverse change in the
condition or prospects of the Company, financial or otherwise, from the latest
dates as of which such condition or prospects, respectively, are set forth in
the Offering Materials, and except for the Company's credit facility with Celtic
Capital, the outstanding debt, the property and the business of the Company
conform in all material respects to the descriptions thereof contained in the
Offering Materials.
(viii) Except as set forth in the Offering Materials, the
Company is not in breach of, or in default under, any term or provision of any
material indenture, mortgage, deed of trust, lease, note, loan or any other
material agreement or instrument evidencing an obligation for borrowed money, or
any other material agreement or instrument to which it is a party or by which it
or any of its properties may be bound or affected. The Company is not in
violation of any provision of its charter or by-laws or in violation of any
franchise, license, permit, judgment, decree or order, or in violation of any
material statute, rule or regulation. Neither the execution and delivery of this
Agreement, the Purchase Agreement, the Registration Rights Agreement, the Escrow
Agreement, the Placement Agent's Warrants, the Placement Agent's Registration
Rights Agreement nor the issuance and sale or delivery of the Securities, nor
the consummation of any of the transactions contemplated herein or in the
Purchase Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Placement Agent's Warrants, or the Placement Agent's Registration Rights
Agreement, nor the compliance by the Company with the terms and provisions
hereof or thereof, has conflicted with or will conflict with, or has resulted in
or will result in a breach of, any of the terms and provisions of, or has
constituted or will constitute a default under, or has resulted in or will
result in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or pursuant to the terms of any indenture,
mortgage, deed of trust, note, loan or Purchase Agreement or any other agreement
or instrument evidencing an obligation for borrowed money, or any other
agreement or instrument to which the Company may be bound or to which any of the
property or assets of the Company is subject except (a) where such default,
lien, charge or encumbrance would not have a material adverse effect on the
Company and (b) as described in the Offering Materials; nor will such action
result in any violation of the provisions of the charter or the by-laws of the
Company or, assuming the due performance by May ▇▇▇▇▇ of its obligations
hereunder, any material statute or any material order, rule or regulation
applicable to the Company of any court or of any foreign, federal, state or
other regulatory authority or other government body having jurisdiction over the
Company.
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(ix) Subsequent to the dates as of which information is given
in the Offering Materials, and except as may otherwise be indicated or
contemplated herein or therein, the Company has not (a) issued any securities or
incurred any liability or obligation, direct or contingent, for borrowed money,
or (b) entered into any transaction other than in the ordinary course of
business, or (c) declared or paid any dividend or made any other distribution on
or in respect of its capital stock. Except as described in the Offering
Materials, and except for loans from its former CEO, the Company has no
outstanding obligations to any officer or director of the Company.
(x) There are no claims for services in the nature of a
finder's or origination fee with respect to the sale of the Preferred Stock or
any other arrangements, agreements or understandings that may affect May ▇▇▇▇▇'
compensation, as determined by the National Association of Securities Dealers,
Inc.
(xi) The Company owns or possesses, free and clear of all
liens or encumbrances and rights thereto or therein by third parties, the
requisite licenses or other rights to use all trademarks, service marks,
copyrights, service names, trade names, patents, patent applications and
licenses necessary to conduct its business (including, without limitation, any
such licenses or rights described in the Offering Materials as being owned or
possessed by the Company) and, except as set forth in the Offering Materials,
there is no claim or action by any person pertaining to, or proceeding, pending
or threatened, which challenges the exclusive rights of the Company with respect
to any trademarks, service marks, copyrights, service names, trade names,
patents, patent applications and licenses used in the conduct of the Company's
businesses (including, without limitation, any such licenses or rights described
in the Offering Materials as being owned or possessed by the Company) except any
claim or action that would not have a material adverse effect on the Company;
the Company's current products, services or processes do not infringe or will
not infringe on the patents currently held by any third party.
(xii) Except as described in the Offering Materials and except
for its arrangements with Motorola, the Company is not under any obligation to
pay royalties or fees of any kind whatsoever to any third party with respect to
any trademarks, service marks, copyrights, service names, trade names, patents,
patent applications, licenses or technology it has developed, uses, employs or
intends to use or employ, other than to their respective licensors.
(xiii) Subject to the performance by May ▇▇▇▇▇ of its
obligations hereunder, the Purchase Agreement and the offer and sale of the
Securities comply, and will continue to comply, up to the Registration Period
(as defined in the Purchase Agreement) in all material respects with the
requirements of Rule 506 of Regulation D promulgated by the SEC pursuant to the
1933 Act and any other applicable federal and state laws, rules, regulations and
executive orders. Neither the Offering Materials nor any amendment or supplement
thereto nor any documents prepared by the Company in connection with the
Offering will contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. All statements of material facts in the Offering Materials are
true and correct as of the date of the Offering Materials and will be true and
correct on the date of the Closing.
6
(xiv) All material taxes which are due and payable from the
Company have been paid in full or adequate provision has been made for such
taxes on the books of the Company except for those taxes disputed in good faith.
The Company does not have any tax deficiency or claim outstanding assessed or
proposed against it.
(xv) None of the Company nor any of its officers, directors,
employees or agents, nor any other person acting on behalf of the Company, has,
directly or indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer or
supplier, or official or employee of any governmental agency or instrumentality
of any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or other person who is or may be in a position to
help or hinder the business of the Company (or assist it in connection with any
actual or proposed transaction) which (A) might subject the Company to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding, or (B) if not given in the past, might have had a materially adverse
effect on the assets, business or operations of the Company as reflected in any
of the financial statements contained in the Offering Materials, or (C) if not
continued in the future, might adversely affect the assets, business, operations
or prospects of the Company in the future.
5. CERTAIN COVENANTS AND AGREEMENTS OF THE COMPANY.
The Company covenants and agrees at its expense and without any expense
to May ▇▇▇▇▇ as follows:
A. To advise May ▇▇▇▇▇ of any material adverse change in the Company's
financial condition, prospects or business or of any development materially
affecting the Company or rendering untrue or misleading any material statement
in the Offering Materials occurring at any time as soon as the Company is either
informed or becomes aware thereof.
B. To use its commercially reasonable efforts to cause the Common Stock
issuable upon conversion of the Preferred Stock in connection with the Purchase
Agreement and upon exercise of the Placement Agent's Warrants to be qualified or
registered for sale on terms consistent with those stated in the Registration
Rights Agreement and the Placement Agent's Registration Rights Agreement,
respectively, and under the securities laws of such jurisdictions as May ▇▇▇▇▇
and the Investor(s) shall reasonably request, provided that such states and
jurisdictions do not require the Company to qualify as a foreign corporation.
Qualification, registration and exemption charges and fees shall be at the sole
cost and expense of the Company.
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C. Upon written request, to provide to each holder of Securities copies
of all quarterly financial statements and audited annual financial statements
prepared by or on behalf of the Company, other reports prepared by or on behalf
of the Company for public disclosure and all documents delivered to the
Company's shareholders.
D. To deliver, during the Registration Period, to May ▇▇▇▇▇, upon May
▇▇▇▇▇' written request, in the manner provided in Section 10(B) of this
Agreement, (i) within forty five (45) days after the close of each fiscal
quarter, a statement of its income for each such quarterly period, and its
balance sheet and a statement of changes in stockholders' equity as of the end
of such quarterly period, all in reasonable detail, certified by its principal
financial or accounting officer; (ii) within ninety (90) days after the close of
each fiscal year, its balance sheet as of the close of such fiscal year,
together with a statement of income, a statement of changes in stockholders'
equity and a statement of cash flow for such fiscal year, such balance sheet,
statement of income, statement of changes in stockholders' equity and statement
of cash flow to be in reasonable detail and accompanied by a copy of the
certificate or report thereon of independent auditors if audited financial
statements are prepared; and (iii) a copy of all documents, reports and
information furnished to its shareholders at the time that such documents,
reports and information are furnished to its shareholders.
E. To comply with the terms of the Purchase Agreement, the Registration
Rights Agreement, the Escrow Agreement, the Placement Agent's Warrants and the
Placement Agent's Registration Rights Agreement.
F. To keep available out of its authorized Common Stock solely for the
purpose of issuance upon the exercise of the Placement Agent's Warrant, such
number of shares of Common Stock as shall then be issuable upon the exercise or
conversion thereof.
G. To issue to May ▇▇▇▇▇, or May ▇▇▇▇▇' designee, upon the execution of
the Purchase Agreement, the Placement Agent Warrants to purchase 500,000 shares
of Common Stock in the form substantially as annexed hereto.
H. To ensure that any transactions between or among the Company, or any
of its officers, directors and affiliates be on terms and conditions that are no
less favorable to the Company than the terms and conditions that would be
available in an "arm's length" transaction with an independent third party.
6. INDEMNIFICATION.
A. The Company hereby agrees that it will indemnify and hold
May ▇▇▇▇▇ and each officer, director, shareholder, employee or representative of
May ▇▇▇▇▇, and each person controlling, controlled by or under common control
with May ▇▇▇▇▇ (collectively, the "May ▇▇▇▇▇ Indemnified Parties") within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act or the SEC's
Rules and Regulations promulgated there under (the "Rules and Regulations"),
harmless from and against any and all loss, claim, damage, liability, cost or
expense whatsoever (including, but not limited to, any and all reasonable legal
fees and other expenses and disbursements incurred in connection with
investigating, preparing to defend or defending any action, suit or proceeding,
including any inquiry or investigation, commenced or threatened, or any claim
8
whatsoever or in appearing or preparing for appearance as a witness in any
action, suit or proceeding, including any inquiry, investigation or pretrial
proceeding such as a deposition) to which any of May ▇▇▇▇▇ Indemnified Parties
becomes subject under the 1933 Act, the 1934 Act, the Rules and Regulations, or
any other federal or state law or regulation, common law or otherwise, arising
out of or based upon (i) any untrue statement of a material fact contained in
(a) Section 4 of this Agreement, (b) the Offering Materials (except those
written statements relating to May ▇▇▇▇▇ given by an indemnified person for
inclusion therein), (c) any application or other document or written
communication executed by the Company or based upon written information
furnished by the Company filed in any jurisdiction in order to qualify the
Common Stock under the securities laws thereof, or any state securities
commission or agency; (ii) the omission from documents described in clauses (a),
(b) or (c) above of a material fact required to be stated therein or necessary
to make the statements therein not misleading; or (iii) the breach of any
representation, warranty, covenant or agreement made by the Company in this
Agreement. The Company further agrees that upon demand by a May ▇▇▇▇▇
Indemnified Party, at any time or from time to time, it will promptly reimburse
such indemnified person for any loss, claim, damage, liability, cost or expense
actually and reasonably paid by a May ▇▇▇▇▇ Indemnified Party as to which the
Company has indemnified such person pursuant hereto. Notwithstanding the
foregoing provisions of this Paragraph 6(A), any such payment or reimbursement
by the Company of fees, expenses or disbursements incurred by an indemnified
person in any proceeding in which a final judgment by a court of competent
jurisdiction (after all appeals or the expiration of time to appeal) is entered
against May ▇▇▇▇▇ or such indemnified person as a direct result of May ▇▇▇▇▇ or
such person's gross negligence or willful misfeasance will be promptly repaid to
the Company.
B. May ▇▇▇▇▇ hereby agrees that it will indemnify and hold the Company
and each officer, director, shareholder, employee or representative of the
Company, and each person controlling, controlled by or under common control with
the Company within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act or the Rules and Regulations (collectively, the "Company
Indemnified Parties"), harmless from and against any and all loss, claim,
damage, liability, cost or expense whatsoever (including, but not limited to,
any and all reasonable legal fees and other expenses and disbursements incurred
in connection with investigating, preparing to defend or defending any action,
suit or proceeding, including any inquiry or investigation, commenced or
threatened, or any claim whatsoever or in appearing or preparing for appearance
as a witness in any action, suit or proceeding, including any inquiry,
investigation or pretrial proceeding such as a deposition) to which the Company
Indemnified Parties may become subject under the 1933 Act, the 1934 Act, the
Rules and Regulations, or any other federal or state law or regulation, common
law or otherwise, arising out of or based upon (i) the conduct of May ▇▇▇▇▇ or
its officers, employees or representatives in its acting as Placement Agent for
the Offering or (ii) the breach of any representation, warranty, covenant or
agreement made by May ▇▇▇▇▇ in this Agreement (iii) any false or misleading
information provided to the Company by any of the May ▇▇▇▇▇ Indemnified Parties.
C. Within five (5) business days after receipt by an indemnified party
of notice of commencement of any action covered by Section 6(A) or 6(B) hereof,
the party to be indemnified shall notify the indemnifying party of the
commencement thereof; provided, however, that the omission by one indemnified
party to so notify the indemnifying party shall not relieve the indemnifying
party of its obligation to indemnify any other indemnified party that has given
such notice and shall not relieve the indemnifying party of any liability
outside of this indemnification if not materially prejudiced thereby. In the
9
event that any action is brought against the indemnified party, the indemnifying
party will be entitled to participate therein and, to the extent it may desire,
to assume and control the defense thereof with counsel chosen by it which is
reasonably acceptable to the indemnified party. After notice from the
indemnifying party to such indemnified party of its election to so assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under such Section 6(A) or 6(B) for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof, but the indemnified party may, at its own expense, participate in such
defense by counsel chosen by it, without, however, impairing the indemnifying
party's control of the defense. Subject to the proviso of this sentence and
notwithstanding any other statement to the contrary contained herein, the
indemnified party or parties shall have the right to choose its or their own
counsel and control the defense of any action, all at the expense of the
indemnifying party if (i) the employment of such counsel shall have been
authorized in writing by the indemnifying party in connection with the defense
of such action at the expense of the indemnifying party, or (ii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
such fees and expenses of one additional counsel shall be borne by the
indemnifying party; provided, however, that the indemnifying party shall not, in
connection with any one action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstance, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys at any time for all such indemnified parties. No
settlement of any action or proceeding against an indemnified party shall be
made without the consent of the indemnifying party.
D. In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in Section 6(A) or 6(B)
is due in accordance with its terms but is for any reason held by a court to be
unavailable on grounds of policy or otherwise, the Company and May ▇▇▇▇▇ shall
contribute to the aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection with the investigation
or defense of same) which the other may incur in such proportion so that May
▇▇▇▇▇ shall be responsible for such percent of the aggregate of such losses,
claims, damages and liabilities as shall equal the percentage of the gross
proceeds paid to May ▇▇▇▇▇ and the Company shall be responsible for the balance;
provided, however, that no person guilty of fraudulent misrepresentation within
the meaning of Section 11(f) of the 1933 Act shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation. For
purposes of this Section 6(D), any person controlling, controlled by or under
common control with May ▇▇▇▇▇, or any partner, director, officer, employee,
representative or any agent of any thereof, shall have the same rights to
10
contribution as May ▇▇▇▇▇ and each person controlling, controlled by or under
common control with the Company within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act and each officer of the Company and each director
of the Company shall have the same rights to contribution as the Company. Any
party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against the other party under this
Section 6(D), notify such party from whom contribution may be sought, but the
omission to so notify such party shall not relieve the party from whom
contribution may be sought from any obligation they may have hereunder or
otherwise if the party from whom contribution may be sought is not materially
prejudiced thereby. The indemnity and contribution agreements contained in this
Section 6 shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified person or any termination
of this Agreement.
7. PAYMENT OF EXPENSES.
Each of the Company and the Investor(s) shall pay all costs and
expenses incurred by such party in connection with the Offering; provided,
however, that the legal fees and expenses incurred by May ▇▇▇▇▇ in connection
with the Offering, up to a maximum of $20,000, shall be paid for by the Company.
8. CONDITIONS OF CLOSING
Closing shall be held at the offices of May ▇▇▇▇▇ or its counsel. The
obligations of May ▇▇▇▇▇ hereunder shall be subject to the continuing accuracy
of the representations and warranties of the Company herein as of the date
hereof and as of the Closing Date with respect to the Company as if it had been
made on and as of such Closing Date; the accuracy on and as of the Closing Date
of the statements of the officers of the Company made pursuant to the provisions
hereof; and the performance by the Company on and as of the Closing Date of its
covenants and obligations hereunder and to the following further conditions:
A. At the Closing, May ▇▇▇▇▇ shall receive the opinion of ▇▇▇▇▇ &
▇▇▇▇▇▇, LLP, dated as of the date of the Closing, which opinion shall be in form
and substance reasonably satisfactory to counsel for May ▇▇▇▇▇.
B. At or prior to the Closing, counsel for May ▇▇▇▇▇ shall have been
furnished such documents and certificates as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in this
Agreement and the Offering Materials, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions herein contained.
C. At and prior to the Closing, (i) there shall have been no material
adverse change nor development involving a prospective material adverse change
in the condition or prospects or the business activities, financial or
otherwise, of the Company from the latest dates as of which such condition is
set forth in the Offering Materials; (ii) there shall have been no transaction,
not in the ordinary course of business, entered into by the Company which has
not been disclosed in the Offering Materials or to May ▇▇▇▇▇ in writing; (iii)
except as set forth in the Offering Materials, the Company shall not be in
default under any provision of any instrument relating to any outstanding
indebtedness for which a waiver or extension has not been otherwise received;
(iv) except as set forth in the Offering Materials, the Company shall not have
11
issued any securities (other than those to be issued as provided in the Offering
Materials) or declared or paid any dividend or made any distribution of its
capital stock of any class and there shall not have been any change in the
indebtedness (long or short term) or liabilities or obligations of the Company
(contingent or otherwise) except for indebtedness to it's former CEO and trade
payable debt; (v) no material amount of the assets of the Company shall have
been pledged or mortgaged, except as indicated in the Offering Materials; and
(vi) no action, suit or proceeding, at law or in equity, against the Company or
affecting any of its properties or businesses shall be pending or threatened
before or by any court or federal or state commission, board or other
administrative agency, domestic or foreign, wherein an unfavorable decision,
ruling or finding would materially adversely affect the businesses, prospects or
financial condition or income of the Company, except as set forth in the
Offering Materials.
D. At the Closing, May ▇▇▇▇▇ shall have received a certificate of the
Company signed by an executive officer of the Company, dated as of the
applicable Closing, to the effect that the conditions set forth in subparagraph
(C) above have been satisfied and that, as of the applicable closing date, the
representations and warranties of the Company set forth herein are true and
correct.
E. At the Closing, the Company shall have duly executed and delivered
to May ▇▇▇▇▇, or its designees, the Placement Agent's Warrants, in the names and
denominations specified by May ▇▇▇▇▇.
9. TERMINATION.
This Agreement shall be co-terminus with, and terminate upon the same
terms and conditions as those set forth in, the Purchase Agreement. The rights
of the Investor(s) and the obligations of the Company under the Registration
Rights Agreement, and the rights of May ▇▇▇▇▇ and the obligations of the Company
under the Placement Agent's Warrants and the Placement Agent's Registration
Rights Agreement shall survive the termination of this Agreement unabridged.
10. MISCELLANEOUS.
A. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but all which shall be deemed to be
one and the same instrument.
B. Any notices, consents, waivers, or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
receipt is received by the sending party); (iii) three (3) days after being sent
by U.S. certified mail, return receipt requested, or (iv) one (1) day after
deposit with a nationally recognized overnight delivery service, in each case
properly addressed to the party to receive the same. The addresses and facsimile
numbers for such communications shall be:
To May ▇▇▇▇▇:
May ▇▇▇▇▇ Group, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
12
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇▇ #▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
To the Company:
Telenetics Corporation
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: President
with copy to:
▇▇▇▇▇ & ▇▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address of which written notice is given to the others.
C. This Agreement shall be governed by and construed in all respects
under the laws of the State of New York, without reference to its conflict of
laws rules or principles. Any suit, action, proceeding or litigation arising out
of or relating to this Agreement shall be brought and prosecuted in such federal
or state court or courts located within the State of New York as provided by
law. The parties hereby irrevocably and unconditionally consent to the
jurisdiction of each such court or courts located within the State of New York
and to service of process by registered or certified mail, return receipt
requested, or by any other manner provided by applicable law, and hereby
irrevocably and unconditionally waive any right to claim that any suit, action,
proceeding or litigation so commenced has been commenced in an inconvenient
forum.
D. This Agreement, the Schedules hereto and the other agreements
referenced herein contain the entire understanding between the parties hereto
and may not be modified or amended except by a writing duly signed by the party
against whom enforcement of the modification or amendment is sought.
E. If any provision of this Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
13
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
TELENETICS CORPORATION
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------
Title: President
----------------------------
MAY ▇▇▇▇▇ GROUP, INC.
By: /S/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: Managing Director
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------------------
Title: Counsel to May ▇▇▇▇▇ Group
----------------------------
14
SCHEDULE A
WARRANTS
--------
NAME AMOUNT
---- ------
The May ▇▇▇▇▇ Group, Inc. 24,333
▇▇▇▇ ▇▇▇▇▇▇ 24,333
▇▇▇▇ ▇▇▇▇▇▇▇ 24,333
Hunter Singer 24,333
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 24,335
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 24,333
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 10,000
▇▇▇▇ ▇▇▇▇▇▇▇ 19,000
▇▇▇▇ ▇▇▇ 60,500
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 2,000
▇▇▇▇▇▇▇▇ ▇▇▇▇▇ 1,000
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 11,500
15
EXHIBIT "A"
Form of May ▇▇▇▇▇ Warrant
(attached hereto)
16
EXHIBIT "B"
Form of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Warrant
(attached hereto)
17
