EXHIBIT 10.1
AMENDED AND RESTATED
NOTE AND WARRANT PURCHASE AGREEMENT
TABLE OF CONTENTS
PAGE
ARTICLE I AMENDED AND RESTATED NOTES AND WARRANTS..................................1
Section 1.1 Amended and Restated Notes and Warrants..................................1
Section 1.2 Issuance of Common Stock.................................................2
Section 1.4 Warrants.................................................................2
Section 1.5 Warrant Shares...........................................................2
Section 1.6 Registration Rights. ...................................................2
Section 1.7 Security Agreements......................................................2
Section 1.8 Closing. ................................................................3
ARTICLE II REPRESENTATIONS AND WARRANTIES...........................................3
Section 2.1 Representations and Warranties of the Company............................3
Section 2.2 Representations and Warranties of the Purchasers........................13
ARTICLE III COVENANTS...............................................................15
Section 3.1 Securities Compliance...................................................15
Section 3.2 Registration and Listing................................................15
Section 3.3 Inspection Rights.......................................................15
Section 3.4 Compliance with Laws....................................................15
Section 3.5 Keeping of Records and Books of Account.................................15
Section 3.6 Reporting Requirements..................................................16
Section 3.7 Amendments..............................................................16
Section 3.8 Other Agreements........................................................16
Section 3.9 Distributions...........................................................16
Section 3.10 Registration Rights.....................................................16
Section 3.11 Reservation of Shares...................................................16
Section 3.12 Transfer Agent Instructions.............................................17
Section 3.13 Disposition of Assets...................................................17
Section 3.14 Repayment of Other Indebtedness.........................................17
Section 3.15 Non-public Information..................................................18
Section 3.16 Annual Report on Form 10-KSB............................................18
ARTICLE IV CONDITIONS..............................................................18
Section 4.1 Conditions Precedent to the Obligation of the Company to
Close and to Sell the Common Stock, the Notes and Warrants..............18
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to
Close and to Purchase the Common Stock, the Notes and Warrants..........19
ARTICLE V CERTIFICATE LEGEND......................................................21
Section 5.1 Legend..................................................................21
ARTICLE VI TERMINATION.............................................................21
Section 6.1 Termination by Mutual Consent...........................................21
Section 6.2 Effect of Termination...................................................22
ARTICLE VII INDEMNIFICATION.........................................................22
Section 7.1 General Indemnity.......................................................22
Section 7.2 Indemnification Procedure...............................................22
ARTICLE VIII MISCELLANEOUS...........................................................23
Section 8.1 Fees and Expenses.......................................................23
Section 8.2 Specific Enforcement; Consent to Jurisdiction...........................23
Section 8.3 Entire Agreement; Amendment.............................................24
Section 8.4 Notices.................................................................24
Section 8.5 Waivers.................................................................25
Section 8.6 Headings................................................................25
Section 8.7 Successors and Assigns..................................................25
Section 8.8 No Third Party Beneficiaries............................................25
Section 8.9 Governing Law...........................................................25
Section 8.10 Survival................................................................25
Section 8.11 Counterparts............................................................25
Section 8.12 Publicity...............................................................26
Section 8.13 Severability............................................................26
Section 8.14 Further Assurances......................................................26
AMENDED AND RESTATED
NOTE AND WARRANT PURCHASE AGREEMENT
This AMENDED AND RESTATED NOTE AND WARRANT PURCHASE AGREEMENT (this
"AGREEMENT") is dated as of March 1, 2003 (the "EFFECTIVE DATE"), by and between
TELENETICS CORPORATION, a California corporation (the "COMPANY"), and the
entities listed on EXHIBIT A hereto (each a "PURCHASER" and collectively, the
"PURCHASERS").
R E C I T A L S
A. As of January 23, 2002, March 1, 2002, and April 1, 2002, the
Company entered into Note and Warrant Purchase Agreements, Security Agreements,
Registration Rights Agreements, Senior Secured Convertible Promissory Notes and
Secured Convertible Promissory Notes (collectively, the "ORIGINAL NOTES"), and
Warrants to Purchase Shares of Common Stock (the "ORIGINAL WARRANTS") of the
Company (collectively, the "ORIGINAL DOCUMENTS") with the Purchasers.
B. The Company and the Purchasers acknowledge and agree that, due to a
worsening United States economy, the Company is experiencing cash flow problems
that negatively impact its ability to meet its obligations to the Purchasers.
C. The Company and the Purchasers agree that a restructuring as set
forth herein of the debt incurred by the Company pursuant to the Original
Documents will aid in the ability of the Company to meet its obligations to the
Purchasers.
D. This Agreement is intended to and shall replace the Note and Warrant
Purchase Agreements executed by the parties as part of the Original Documents.
E. This Agreement has been mutually negotiated between informed,
sophisticated, consensual parties over an extended period of time.
NOW, THEREFORE, in consideration of the premises contained herein and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the Company and the Purchasers agree as follows:
ARTICLE I
AMENDED AND RESTATED NOTES AND WARRANTS
---------------------------------------
SECTION 1.1 AMENDED AND RESTATED NOTES AND WARRANTS. On or before the
Closing Date (as defined in SECTION 1.7) , each Purchaser shall surrender and
deliver to the Company the Original Note and the Original Warrant that were
issued to such Purchaser. Upon surrender and delivery by the Purchasers of all
of the Original Notes and Original Warrants (and the cancellation thereof), and
the execution of this Agreement by the parties, the Company shall deliver to
each Purchaser an Amended and Restated Secured Promissory Note (collectively,
the "NOTES") in a form substantially similar to that attached hereto as EXHIBIT
B, and an Amended and Restated Warrant to Purchase Shares of Common Stock
(collectively, the "WARRANTS") in a form substantially similar to that attached
hereto as EXHIBIT C.
The Company and the Purchasers are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded by Section 4(2) of the U.S. Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder (the "SECURITIES
ACT"), including Regulation D ("REGULATION D"), and/or upon such other exemption
from the registration requirements of the Securities Act as may be available
with respect to any or all of the investments to be made hereunder.
SECTION 1.2 ISSUANCE OF COMMON STOCK. As part of the consideration for
entering into this Agreement, at the Closing, the Company shall issue shares of
its common stock (the "COMMON STOCK") to each of the Purchasers in the amounts
set forth next to each Purchaser's name on EXHIBIT A.
SECTION 1.3 WAIVER OF PRIOR BREACHES, DEFAULTS, ETC. As part of the
consideration for entering into this Agreement and receiving the Common Stock,
each of the Purchasers, as of the Closing and as of the Effective Date, hereby
waives any and all rights, remedies, causes of action and any other claims that
it may have against the Company relating to any breach, default, penalty,
failure to pay or any other transgression or noncompliance on the part of the
Company under the terms of the Original Documents.
SECTION 1.4 WARRANTS. At the Closing, the Company shall issue to the
Purchasers Warrants to purchase an aggregate of 7,429,543 shares of the
Company's common stock which shall provide for an exercise price equal to the
Warrant Price as calculated under the terms of the Original Warrants on the
Closing Date. The Warrants shall be exercisable through February 28, 2007 and
shall have a fixed exercise price as set forth in the Warrants.
SECTION 1.5 WARRANT SHARES. The Company has authorized and has reserved
and covenants to continue to reserve, free of preemptive rights and other
similar contractual rights of stockholders, a minimum of 7,429,543 shares of the
Company's common stock issuable under the terms of the Warrants. Any shares of
common stock issuable upon exercise of the Warrants (and such shares when
issued) are herein referred to as the "WARRANT SHARES." The Common Stock, the
Notes, the Warrants, and the Warrant Shares are sometimes collectively referred
to herein as the "SECURITIES."
SECTION 1.6 REGISTRATION RIGHTS. Except as set forth in SECTION 3.10
hereof, the Securities shall not carry registration rights. Therefore, the
Registration Rights Agreements that were executed by the parties as part of the
Original Documents shall be terminated and of no force and effect as of the
Effective Date.
SECTION 1.7 SECURITY AGREEMENTS. At the Closing, the Company shall
execute and deliver to the Purchasers Amended and Restated Security Agreements
which are intended to and shall replace the Security Agreements executed by the
parties as part of the Original Documents. The Security Agreements executed by
the parties as part of the Original Documents shall be terminated and of no
force and effect as of the Closing Date. It is the intention of the Company and
the Purchasers that the security interest granted by the Company to all of the
Purchasers (except the security interest granted to Dolphin Offshore Partners,
L.P. ("DOLPHIN")) shall be pari passu and shall be senior to the security
interest granted to Dolphin.
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SECTION 1.8 CLOSING. The closing (the "CLOSING") of the execution and
delivery of this Agreement shall occur upon delivery by facsimile of executed
signature pages of this Agreement and all other documents, instruments and
writings required to be delivered pursuant to this Agreement to ▇▇▇▇▇ & ▇▇▇▇▇▇,
LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇. The Closing
shall take place no later than April 30, 2003, and shall take place at the
offices of ▇▇▇▇▇ & ▇▇▇▇▇▇, LLP at 5:00 p.m. (California time) upon the
satisfaction of each of the conditions set forth in ARTICLE IV hereof (the
"CLOSING DATE"). Notwithstanding the actual Closing Date, the parties
acknowledge and agree that the terms and conditions of this Agreement
contemplate that the transactions provided for herein shall be deemed effective
as of the Effective Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
SECTION 2.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. In order to
induce the Purchasers to enter into this Agreement and to purchase the Notes and
the Warrants, the Company hereby makes the following representations and
warranties to the Purchasers:
(a) ORGANIZATION, GOOD STANDING AND POWER. The Company is a
corporation duly incorporated, validly existing and in good standing
under the laws of the State of California and has the requisite
corporate power to own, lease and operate its properties and assets and
to conduct its business as it is now being conducted. The Company does
not have any Subsidiaries (as defined in SECTION 2.1(g)) or own
securities of any kind in any other entity (except as set forth on
SCHEDULE 2.1(g) hereto. The Company and each such Subsidiary is duly
qualified as a foreign corporation to do business and is in good
standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary
except for any jurisdiction(s) (alone or in the aggregate) in which the
failure to be so qualified will not have a Material Adverse Effect. For
the purposes of this Agreement, "MATERIAL ADVERSE EFFECT" means any
adverse effect on the business, operations, properties, prospects or
financial condition of the Company or its Subsidiaries and which is
material to such entity or other entities controlling or controlled by
such entity or which is likely to materially hinder the performance by
the Company of its obligations hereunder and under the other
Transaction Documents (as defined in SECTION 2.1(b) hereof).
(b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and perform this Agreement,
the Amended and Restated Security Agreements, the Notes, the Warrants
and the Irrevocable Transfer Agent Instructions (as defined in SECTION
3.12) (collectively, the "TRANSACTION DOCUMENTS") and to issue and sell
the Securities (as defined in SECTION 1.5) in accordance with the terms
hereof and the Notes and the Warrants, as applicable. The execution,
delivery and performance of the Transaction Documents by the Company
and the consummation by it of the transactions contemplated thereby
have been duly and validly authorized by all necessary corporate
action, and no further consent or authorization of the Company or its
Board of Directors or stockholders is required. This Agreement has been
duly executed and delivered by the Company. The other Transaction
Documents will have been duly executed and delivered by the Company at
the Closing. Each of the Transaction Documents constitutes, or shall
constitute when executed and delivered, a valid and binding obligation
of the Company enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor's rights and remedies or by
other equitable principles of general application.
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(C) CAPITALIZATION. The authorized capital stock of the
Company and the shares thereof issued and outstanding as of March 1,
2003 are set forth on SCHEDULE 2.1(c) hereto. All of the outstanding
shares of the Company's common stock and any other security of the
Company have been duly and validly authorized. Except as set forth in
this Agreement or on SCHEDULE 2.1(c) hereto, no shares of common stock
or any other security of the Company are entitled to preemptive rights
or registration rights and there are no outstanding options, warrants,
scrip, rights to subscribe to, call or commitments of any character
whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company. Furthermore, except as set
forth in this Agreement or on SCHEDULE 2.1(c) hereto, there are no
contracts, commitments, understandings, or arrangements by which the
Company is or may become bound to issue additional shares of the
capital stock of the Company or options, securities or rights
convertible into shares of capital stock of the Company. Except for
customary transfer restrictions contained in agreements entered into by
the Company in order to sell restricted securities or as provided on
SCHEDULE 2.1(C) hereto, the Company is not a party to or bound by any
agreement or understanding granting registration or anti-dilution
rights to any person with respect to any of its equity or debt
securities. Except as set forth on SCHEDULE 2.1(c), the Company is not
a party to, and it has no knowledge of, any agreement or understanding
restricting the voting or transfer of any shares of the capital stock
of the Company. Except as set forth on SCHEDULE 2.1(c) hereto, the
offer and sale of all capital stock, convertible securities, rights,
warrants, or options of the Company issued prior to the Closing
complied with all applicable federal and state securities laws, and no
holder of such securities has a right of rescission or claim for
damages with respect thereto which could have a Material Adverse
Effect. The Company has furnished or made available to the Purchasers
true and correct copies of the Company's Articles of Incorporation as
in effect on the date hereof (the "Articles"), and the Company's Bylaws
as in effect on the date hereof (the "BYLAWS").
(d) ISSUANCE OF SECURITIES. The Common Stock, the Notes and
the Warrants to be issued at the Closing have been duly authorized by
all necessary corporate action and, when issued upon cancellation of
the Original Notes and the Original Warrants in accordance with the
terms hereof, shall be validly issued and outstanding, free and clear
of all liens, encumbrances and rights of refusal of any kind (other
than federal and state securities law restrictions). When the Warrant
Shares are issued and paid for in accordance with the terms of this
Agreement and as set forth in the Warrants, such shares will be duly
authorized by all necessary corporate action and validly issued and
outstanding, fully paid and nonassessable, free and clear of all liens,
encumbrances and rights of refusal of any kind (other than federal and
state securities law restrictions) and the holders shall be entitled to
all rights accorded to a holder of common stock.
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(e) NO CONFLICTS. Except as disclosed on SCHEDULE 2.1(E), the
execution, delivery and performance of the Transaction Documents by the
Company and the consummation by the Company of the transactions
contemplated hereby and thereby do not and will not (i) violate any
provision of the Company's Articles or Bylaws or any Subsidiary's
comparable charter documents, (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would
become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, mortgage,
deed of trust, indenture, note, bond, license, lease agreement,
instrument or obligation to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its
Subsidiaries' respective properties or assets are bound (other than as
expressly contemplated by the Transaction Documents), (iii) create or
impose a lien, mortgage, security interest, charge or encumbrance of
any nature on any property or asset of the Company or any of its
Subsidiaries under any agreement or any commitment to which the Company
or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound or by which any of their respective
properties or assets are bound, or (iv) result in a violation of any
federal, state, local or foreign statute, rule, regulation, order,
judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its Subsidiaries
are bound or affected, except, in all cases other than violations
pursuant to clauses (i) or (iv) above, for such conflicts, defaults,
terminations, amendments, acceleration, cancellations and violations as
would not, individually or in the aggregate, have a Material Adverse
Effect. The business of the Company and its Subsidiaries is not being
conducted in violation of any laws, ordinances or regulations of any
governmental entity, except for possible violations which singularly or
in the aggregate do not and will not have a Material Adverse Effect.
Neither the Company nor any of its Subsidiaries is required under
federal, state, foreign or local law, rule or regulation to obtain any
consent, authorization or order of, or make any filing or registration
with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under the Transaction
Documents or issue and sell the Notes, the Common Stock, the Warrants
and the Warrant Shares in accordance with the terms hereof or thereof
(other than any filings which may be required to be made by the Company
with the Commission, the OTCBB prior to or subsequent to the Closing,
or state securities administrators subsequent to the Closing, or any
registration statement which may be filed pursuant hereto).
(f) COMMISSION DOCUMENTS, FINANCIAL STATEMENTS. The common
stock of the Company is registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and,
except as disclosed in this SECTION 2.1(f) and on SCHEDULE 2.1(f)
hereto, since January 1, 2002, the Company has timely filed all
reports, schedules, forms, statements and other documents required to
be filed by it with the Commission pursuant to the reporting
requirements of the Exchange Act, including material filed pursuant to
Section 13(a) or 15(d) of the Exchange Act (all of the foregoing
including filings incorporated by reference therein being referred to
herein as the "COMMISSION DOCUMENTS"). The Company has delivered or
made available to the Purchasers true and complete copies of the
Commission Documents filed with the Commission since January 1, 2002.
The Company has not provided to the Purchasers any material non-public
information or other information which, according to applicable law,
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rule or regulation, should have been disclosed publicly by the Company
but which has not been so disclosed, other than with respect to the
transactions contemplated by this Agreement. At the time of its filing,
the Form 10-QSB for the fiscal quarter ended September 30, 2002 (the
"FORM 10-QSB") complied in all material respects with the requirements
of the Exchange Act and the rules and regulations of the Commission
promulgated thereunder and other federal, state and local laws, rules
and regulations applicable to such documents, and the Form 10-QSB did
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading. As of their respective dates, the
financial statements of the Company included in the Commission
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission or other applicable rules and regulations with respect
thereto. Such financial statements have been prepared in accordance
with generally accepted accounting principles ("GAAP") applied on a
consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they
may not include footnotes or may be condensed or summary statements),
and fairly present in all material respects the financial position of
the Company and its Subsidiaries as of the dates thereof and the
results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). Notwithstanding anything contained in this Section
2.1(f), the Company hereby imparts to the Purchasers that the Company's
independent auditors withdrew their previously issued review reports
with respect to the condensed consolidated financial statements
included in the Company's Form 10-QSBs for March 31, 2002 and June 30,
2002.
(g) SUBSIDIARIES. SCHEDULE 2.1(g) hereto sets forth each
Subsidiary of the Company, showing the jurisdiction of its
incorporation or organization and showing the percentage of each
person's ownership of the outstanding stock or other interests of such
Subsidiary. For the purposes of this Agreement, "SUBSIDIARY" shall mean
any corporation or other entity of which at least a majority of the
securities or other ownership interest having ordinary voting power
(absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other Subsidiaries. All of
the outstanding shares of capital stock of each Subsidiary have been
duly authorized and validly issued, and are fully paid and
nonassessable. There are no outstanding preemptive, conversion or other
rights, options, warrants or agreements granted or issued by or binding
upon any Subsidiary for the purchase or acquisition of any shares of
capital stock of any Subsidiary or any other securities convertible
into, exchangeable for or evidencing the rights to subscribe for any
shares of such capital stock. Neither the Company nor any Subsidiary is
subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any shares of the capital stock of any
Subsidiary or any convertible securities, rights, warrants or options
of the type described in the preceding sentence except as set forth on
SCHEDULE 2.1(g) hereto. Neither the Company nor any Subsidiary is party
to, nor has any knowledge of, any agreement restricting the voting or
transfer of any shares of the capital stock of any Subsidiary.
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(h) NO MATERIAL ADVERSE CHANGE. Since September 30, 2002, the
Company has not experienced or suffered any Material Adverse Effect,
except as disclosed on SCHEDULE 2.1(h) hereto and except that the
Company is unable to file two years of audited financial statements
with its Form 10-KSB for the period ending December 31, 2002.
(i) NO UNDISCLOSED LIABILITIES. Except as disclosed in the
Commission Documents, neither the Company nor any of its Subsidiaries
has any liabilities, obligations, claims or losses (whether liquidated
or unliquidated, secured or unsecured, absolute, accrued, contingent or
otherwise) other than those incurred in the ordinary course of the
Company's or its Subsidiaries respective businesses since September 30,
2002 and which, individually or in the aggregate, do not or would not
have a Material Adverse Effect on the Company or its Subsidiaries.
(j) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since September
30, 2002, except as disclosed on SCHEDULE 2.1(j) hereto, no event or
circumstance has occurred or exists with respect to the Company or its
Subsidiaries or their respective businesses, properties, prospects,
operations or financial condition, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company
but which has not been so publicly announced or disclosed.
(k) INDEBTEDNESS. SCHEDULE 2.1(k) hereto sets forth as of the
date hereof all outstanding secured and unsecured Indebtedness of the
Company or any Subsidiary, or for which the Company or any Subsidiary
has commitments. For the purposes of this Agreement, "INDEBTEDNESS"
shall mean (a) any liabilities for borrowed money or amounts owed in
excess of $25,000 (other than trade accounts payable incurred in the
ordinary course of business), (b) all guaranties, endorsements and
other contingent obligations in respect of Indebtedness of others,
whether or not the same are or should be reflected in the Company's
balance sheet (or the notes thereto), except guaranties by endorsement
of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present
value of any lease payments in excess of $25,000 due under leases
required to be capitalized in accordance with GAAP. Except as disclosed
on SCHEDULE 2.1(K), neither the Company nor any Subsidiary is in
default with respect to any Indebtedness.
(l) TITLE TO ASSETS. Each of the Company and the Subsidiaries
has good and marketable title to all of its real and personal property,
free and clear of any mortgages, pledges, charges, liens, security
interests or other encumbrances of any nature whatsoever, except for
those indicated on SCHEDULE 2.1(l) hereto or such that, individually or
in the aggregate, would not have a Material Adverse Effect as of the
Effective Date. All said leases of the Company and each of its
Subsidiaries are valid and subsisting and in full force and effect.
(m) ACTIONS PENDING. There is no action, suit, claim,
investigation, arbitration, alternative dispute resolution proceeding
or other proceeding pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary which questions the
validity of this Agreement or any of the other Transaction Documents or
any of the transactions contemplated hereby or thereby or any action
taken or to be taken pursuant hereto or thereto. Except as set forth on
SCHEDULE 2.1(m) hereto, there is no action, suit, claim, investigation,
arbitration, alternative dispute resolution proceeding or other
proceeding pending or, to the knowledge of the Company, threatened,
against or involving the Company, any Subsidiary or any of their
respective properties or assets, which individually or in the
aggregate, would have a Material Adverse Effect as of the Closing Date.
There are no outstanding orders, judgments, injunctions, awards or
decrees of any court, arbitrator or governmental or regulatory body
against the Company or any Subsidiary or any officers or directors of
the Company or Subsidiary in their capacities as such, which
individually or in the aggregate, would have a Material Adverse Effect
as of the Effective Date.
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(n) COMPLIANCE WITH LAW. The business of the Company and the
Subsidiaries has been and is presently being conducted in accordance
with all applicable federal, state and local governmental laws, rules,
regulations and ordinances, except as set forth on SCHEDULE 2.1(n)
hereto or such that, individually or in the aggregate, the
noncompliance therewith would not have a Material Adverse Effect. The
Company and each of its Subsidiaries have all franchises, permits,
licenses, consents and other governmental or regulatory authorizations
and approvals necessary for the conduct of its business as now being
conducted by it unless the failure to possess such franchises, permits,
licenses, consents and other governmental or regulatory authorizations
and approvals, individually or in the aggregate, could not reasonably
be expected to have a Material Adverse Effect.
(o) TAXES. Except as set forth on SCHEDULE 2.1(o) hereto, the
Company and each of the Subsidiaries has accurately prepared and filed
all federal, state and other tax returns required by law to be filed by
it, has paid or made provisions for the payment of all taxes shown to
be due and all additional assessments, and adequate provisions have
been and are reflected in the financial statements of the Company and
the Subsidiaries for all current taxes and other charges to which the
Company or any Subsidiary is subject and which are not currently due
and payable. Except as disclosed on SCHEDULE 2.1(o) hereto, none of the
federal income tax returns of the Company or any Subsidiary have been
audited by the Internal Revenue Service. The Company has no knowledge
of any additional assessments, adjustments or contingent tax liability
(whether federal or state) of any nature whatsoever, whether pending or
threatened against the Company or any Subsidiary for any period, nor of
any basis for any such assessment, adjustment or contingency.
(p) CERTAIN FEES. Except as set forth on SCHEDULE 2.1(p)
hereto, the Company has not employed any broker or finder or incurred
any liability for any brokerage or investment banking fees,
commissions, finders' structuring fees, financial advisory fees or
other similar fees in connection with the Transaction Documents.
(q) DISCLOSURE. To the best of the Company's knowledge,
neither this Agreement or the Schedules hereto nor any other documents,
certificates or instruments furnished to the Purchasers by or on behalf
of the Company or any Subsidiary in connection with the transactions
contemplated by this Agreement contain any untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements made herein or therein, in the light of the
circumstances under which they were made herein or therein, not
misleading.
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(r) OPERATION OF BUSINESS. Except as disclosed on SCHEDULE
2.1(r), the Company and each of the Subsidiaries owns or possesses all
patents, trademarks, domain names (whether or not registered) and any
patentable improvements or copyrightable derivative works thereof,
websites and intellectual property rights relating thereto, service
marks, trade names, copyrights, licenses and authorizations, including,
but not limited to, those listed on SCHEDULE 2.1(r) hereto, and all
rights with respect to the foregoing, which are necessary for the
conduct of its business as now conducted without any conflict with the
rights of others.
(s) ENVIRONMENTAL COMPLIANCE. Except as disclosed on SCHEDULE
2.1(s) hereto, the Company and each of its Subsidiaries have obtained
all material approvals, authorization, certificates, consents,
licenses, orders and permits or other similar authorizations of all
governmental authorities, or from any other person, that are required
under any Environmental Laws. SCHEDULE 2.1(s) hereto sets forth all
material permits, licenses and other authorizations issued under any
Environmental Laws to the Company or its Subsidiaries. "ENVIRONMENTAL
LAWS" shall mean all applicable laws relating to the protection of the
environment including, without limitation, all requirements pertaining
to reporting, licensing, permitting, controlling, investigating or
remediating emissions, discharges, releases or threatened releases of
hazardous substances, chemical substances, pollutants, contaminants or
toxic substances, materials or wastes, whether solid, liquid or gaseous
in nature, into the air, surface water, groundwater or land, or
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of hazardous substances,
chemical substances, pollutants, contaminants or toxic substances,
material or wastes, whether solid, liquid or gaseous in nature. Except
as set forth on SCHEDULE 2.1(s) hereto, the Company has all necessary
governmental approvals required under all Environmental Laws and used
in its business or in the business of any of its Subsidiaries. The
Company and each of its Subsidiaries are also in compliance with all
other limitations, restrictions, conditions, standards, requirements,
schedules and timetables required or imposed under all Environmental
Laws. Except for such instances as would not individually or in the
aggregate have a Material Adverse Effect, there are no past or present
events, conditions, circumstances, incidents, actions or omissions
relating to or in any way affecting the Company or its Subsidiaries
that violate or may violate any Environmental Law after the Closing or
that may give rise to any environmental liability, or otherwise form
the basis of any claim, action, demand, suit, proceeding, hearing,
study or investigation (i) under any Environmental Law, or (ii) based
on or related to the manufacture, processing, distribution, use,
treatment, storage (including, without limitation, underground storage
tanks), disposal, transport or handling, or the emission, discharge,
release or threatened release of any hazardous substance.
"ENVIRONMENTAL LIABILITIES" means all liabilities of a person (whether
such liabilities are owed by such person to governmental authorities,
third parties or otherwise) whether currently in existence or arising
hereafter which arise under or relate to any Environmental Law.
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(t) BOOKS AND RECORDS; INTERNAL ACCOUNTING CONTROLS. The
records and documents of the Company and its Subsidiaries accurately
reflect in all material respects the information relating to the
business of the Company and the Subsidiaries, the location and
collection of their assets, and the nature of all transactions giving
rise to the obligations or accounts receivable of the Company or any
Subsidiary. The Company and each of its Subsidiaries maintain a system
of internal accounting controls sufficient, in the judgment of the
Company's board of directors, to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate actions are taken with respect to
any differences.
(u) MATERIAL AGREEMENTS. Except for the Transaction Documents
and as set forth in the Commission Documents and on SCHEDULE 2.1(u)
hereto, neither the Company nor any Subsidiary is a party to any
written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement, a copy of which would be required to
be filed with the Commission (collectively, "MATERIAL AGREEMENTS") if
the Company or any Subsidiary were registering securities under the
Securities Act. Except as disclosed on SCHEDULED 2.1(u), to the best of
the Company's knowledge neither the Company nor any subsidiary is in
default under any Material Agreement now in effect, the result of which
could cause a Material Adverse Effect. Except as disclosed on SCHEDULE
2.1(u), no written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement of the Company or of any Subsidiary
limits or shall limit the payment of interest on the Notes, or
dividends on its common stock.
(v) TRANSACTIONS WITH AFFILIATES. Except as set forth on
SCHEDULE 2.1(v) hereto, there are no loans, leases, agreements,
contracts, royalty agreements, management contracts or arrangements or
other continuing transactions exceeding $50,000 individually or in the
aggregate between (a) the Company, any Subsidiary or any of their
respective customers or suppliers on the one hand, and (b) on the other
hand, any officer, employee, consultant or director of the Company, or
any of its Subsidiaries, or any person owning any capital stock of the
Company or any Subsidiary or any member of the immediate family of such
officer, employee, consultant, director or stockholder or any
corporation or other entity controlled by such officer, employee,
consultant, director or stockholder, or a member of the immediate
family of such officer, employee, consultant, director or stockholder.
(w) SECURITIES ACT OF 1933. The Company has complied and will
comply with all applicable federal and state securities laws in
connection with the offer, issuance and sale of the Securities. Neither
the Company nor anyone acting on its behalf, directly or indirectly,
has sold or will sell, offer to sell or solicit offers to buy any of
the Securities, or similar securities to, or solicit offers with
respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any person, or has taken or will
take any action so as to bring the issuance and sale of any of the
Securities under the registration provisions of the Securities Act and
applicable state securities laws. Neither the Company nor any of its
affiliates, nor any person acting on its or their behalf, has engaged
in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Securities Act) in connection with
the offer or sale of any of the Securities.
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(x) GOVERNMENTAL APPROVALS. Except as set forth on SCHEDULE
2.1(x) hereto, and except for the filing of any notice prior or
subsequent to the Closing that may be required under applicable state
and/or federal securities laws (which if required, shall be filed on a
timely basis), no authorization, consent, approval, license, exemption
of, filing or registration with any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or
foreign, is or will be necessary for, or in connection with, the
execution or delivery of the Notes and the Warrants, or for the
performance by the Company of its obligations under the Transaction
Documents.
(y) EMPLOYEES. Neither the Company nor any Subsidiary has any
collective bargaining arrangements or agreements covering any of its
employees. Except as set forth on SCHEDULE 2.1(y) hereto, neither the
Company nor any Subsidiary has any employment contract, agreement
regarding proprietary information, non-competition agreement,
non-solicitation agreement, confidentiality agreement, or any other
similar contract or restrictive covenant, relating to the right of any
officer, employee or consultant to be employed or engaged by the
Company or such Subsidiary. Since September 30, 2002, no officer,
consultant or key employee of the Company or any Subsidiary whose
termination, either individually or in the aggregate, could have a
Material Adverse Effect, has terminated or, to the knowledge of the
Company, has any present intention of terminating his or her employment
or engagement with the Company or any Subsidiary.
(z) ABSENCE OF CERTAIN DEVELOPMENTS. Except as set forth on
SCHEDULE 2.1(Z) hereto, since September 30, 2002, neither the Company
nor any Subsidiary has:
(i) issued any stock, bonds or other corporate
securities or any rights, options or warrants with respect
thereto;
(ii) borrowed any amount or incurred or become
subject to any liabilities (absolute or contingent) except
current liabilities incurred in the ordinary course of
business which are comparable in nature and amount to the
current liabilities incurred in the ordinary course of
business during the comparable portion of its prior fiscal
year, as adjusted to reflect the current nature and volume of
the Company's or such Subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance
or paid any obligation or liability (absolute or contingent),
other than current liabilities paid in the ordinary course of
business;
(iv) declared or made any payment or distribution of
cash or other property to stockholders with respect to its
stock, or purchased or redeemed, or made any agreements so to
purchase or redeem, any shares of its capital stock;
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(v) sold, assigned or transferred any other tangible
assets, or canceled any debts or claims, except in the
ordinary course of business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other
intangible assets or intellectual property rights, or
disclosed any proprietary confidential information to any
person except in the ordinary course of business or to the
Purchasers or its representatives;
(vii) suffered any substantial losses or waived any
rights of material value, whether or not in the ordinary
course of business, or suffered the loss of any material
amount of prospective business;
(viii) made any changes in employee compensation
except in the ordinary course of business and consistent with
past practices;
(ix) made capital expenditures or commitments
therefor that aggregate in excess of $25,000;
(x) entered into any other transaction other than in
the ordinary course of business, or entered into any other
material transaction, whether or not in the ordinary course of
business;
(xi) made charitable contributions or pledges in
excess of $25,000;
(xii) suffered any material damage, destruction or
casualty loss, whether or not covered by insurance; (xiii)
experienced any material problems with labor or management in
connection with the terms and conditions of their employment;
(xiv) effected any two or more events of the
foregoing kind which in the aggregate would cause a Material
Adverse Effect; or
(xv) entered into an agreement, written or otherwise
(other than the Transaction Documents), to take any of the
foregoing actions.
(aa) USE OF PROCEEDS. The proceeds from the sale of the Notes
and the Warrant Shares will be used by the Company for working capital
purposes and shall not be used to prepay any outstanding Indebtedness
or make any loans to any officer, director, affiliate or insider of the
Company.
(bb) PUBLIC UTILITY HOLDING COMPANY ACT AND INVESTMENT COMPANY
ACT STATUS. The Company is not a "HOLDING COMPANY" or a "PUBLIC UTILITY
COMPANY" as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended. The Company is not, and as a result of
and immediately upon Closing will not be, an "INVESTMENT COMPANY" or a
company "CONTROLLED" by an "INVESTMENT COMPANY," within the meaning of
the Investment Company Act of 1940, as amended.
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(cc) ERISA. No liability to the Pension Benefit Guaranty
Corporation has been incurred with respect to any Plan by the Company
or any of its Subsidiaries which is or would cause a Material Adverse
Effect. The execution and delivery of this Agreement and the issue and
sale of the Common Stock and the Warrant Shares will not involve any
transaction which is subject to the prohibitions of Section 406 of
ERISA or in connection with which a tax could be imposed pursuant to
Section 4975 of the Internal Revenue Code of 1986, as amended, provided
that, if any Purchaser, or any person or entity that owns a beneficial
interest in any Purchaser, is an "EMPLOYEE PENSION BENEFIT PLAN"
(within the meaning of Section 3(2) of ERISA) with respect to which the
Company is a "PARTY IN INTEREST" (within the meaning of Section 3(14)
of ERISA), the requirements of Sections 407(d)(5) and 408(e) of ERISA,
if applicable, are met. As used in this SECTION 2.1(vv), the term
"PLAN" shall mean an "EMPLOYEE PENSION BENEFIT PLAN" (as defined in
Section 3 of ERISA) which is or has been established or maintained, or
to which contributions are or have been made, by the Company or any
Subsidiary or by any trade or business, whether or not incorporated,
which, together with the Company or any Subsidiary, is under common
control, as described in Section 414(b) or (c) of the Code.
SECTION 2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each of
the Purchasers hereby makes the following representations and warranties to the
Company with respect solely to itself and not with respect to any other
Purchaser:
(a) ORGANIZATION AND STANDING OF THE PURCHASERS. If the
Purchaser is an entity, such Purchaser is a corporation, limited
liability company or partnership duly incorporated or organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization.
(b) AUTHORIZATION AND POWER. Each Purchaser has the requisite
power and authority to enter into and perform the Transaction Documents
and to purchase the Securities being sold to it hereunder. The
execution, delivery and performance of the Transaction Documents by
each Purchaser and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary
corporate or partnership action, and no further consent or
authorization of such Purchaser or its Board of Directors,
stockholders, members or partners, as the case may be, is required.
This Agreement has been duly authorized, executed and delivered by each
Purchaser. The other Transaction Documents constitute, or shall
constitute when executed and delivered, valid and binding obligations
of each Purchaser enforceable against such Purchaser in accordance with
their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor's rights and remedies or by
other equitable principles of general application.
(c) ACQUISITION FOR INVESTMENT. Each Purchaser is acquiring
the Securities solely for its own account for the purpose of investment
and not with a view to or for sale in connection with a distribution.
Each Purchaser does not have a present intention to sell any of the
Securities, nor a present arrangement (whether or not legally binding)
or intention to effect any distribution of any of the Securities to or
through any person or entity; provided, however, that by making the
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representations herein and subject to SECTION 2.2(e) below, each
Purchaser does not agree to hold any of the Securities for any minimum
or other specific term and reserves the right to dispose of any of the
Securities at any time in accordance with federal and state securities
laws applicable to such disposition. Each Purchaser acknowledges that
it (i) has such knowledge and experience in financial and business
matters such that Purchaser is capable of evaluating the merits and
risks of Purchaser's investment in the Company and is (ii) able to bear
the financial risks associated with an investment in the Securities and
(iii) that it has been given full access to such records of the Company
and the Subsidiaries and to the officers of the Company and the
Subsidiaries as it has deemed necessary or appropriate to conduct its
due diligence investigation.
(d) RULE 144. Each Purchaser understands that the Securities
must be held indefinitely unless such Securities are registered under
the Securities Act or an exemption from registration is available. Each
Purchaser acknowledges that such person is familiar with Rule 144 of
the rules and regulations of the Commission, as amended, promulgated
pursuant to the Securities Act ("RULE 144"), and that such Purchaser
has been advised that Rule 144 permits resales only under certain
circumstances. Each Purchaser understands that to the extent that Rule
144 is not available, such Purchaser will be unable to sell any
Securities without either registration under the Securities Act or the
existence of another exemption from such registration requirement.
(e) GENERAL. Each Purchaser understands that the Securities
are being offered and sold in reliance on a transactional exemption
from the registration requirements of federal and state securities laws
and the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and
understandings of such Purchaser set forth herein in order to determine
the applicability of such exemptions and the suitability of such
Purchaser to acquire the Securities. Each Purchaser understands that no
United States federal or state agency or any government or governmental
agency has passed upon or made any recommendation or endorsement of the
Securities.
(f) OPPORTUNITIES FOR ADDITIONAL INFORMATION. Each Purchaser
acknowledges that such Purchaser has had the opportunity to ask
questions of and receive answers from, or obtain additional information
from, the executive officers of the Company concerning the financial
and other affairs of the Company, and to the extent deemed necessary in
light of such Purchaser's personal knowledge of the Company's affairs,
such Purchaser has asked such questions and received answers to the
full satisfaction of such Purchaser, and such Purchaser desires to
invest in the Company.
(g) NO GENERAL SOLICITATION. Each Purchaser acknowledges that
the Securities were not offered to such Purchaser by means of any form
of general or public solicitation or general advertising, or publicly
disseminated advertisements or sales literature, including (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine, or similar media, or broadcast over television or
radio, or (ii) any seminar or meeting to which such Purchaser was
invited by any of the foregoing means of communications.
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(h) ACCREDITED INVESTOR. Each Purchaser is an accredited
investor (as defined in Rule 501 of Regulation D), and such Purchaser
has such experience in business and financial matters that it is
capable of evaluating the merits and risks of an investment in the
Securities. Each Purchaser acknowledges that an investment in the
Securities is speculative and involves a high degree of risk.
(i) LIMITATIONS ON SHORT SALES. So long as no Event of Default
(as defined in the Notes) has occurred and is continuing, neither the
Purchasers nor their affiliates will undertake any special selling
activities with respect to the Common Stock or the Warrant Shares,
which includes, without limitation, any short sale.
The Company and the Purchasers acknowledge and agree that the Schedules
to be prepared by the Company and subsequently attached hereto may be delivered
by the Company to the Purchasers post-Closing; provided, however, that such
Schedules shall be delivered no later than June 30, 2003.
ARTICLE III
COVENANTS
---------
The Company covenants with each Purchaser as follows, which covenants
are for the benefit of each Purchaser and their respective permitted assignees,
as follows:
SECTION 3.1 SECURITIES COMPLIANCE. The Company shall notify the
Commission in accordance with their rules and regulations, of the transactions
contemplated by any of the Transaction Documents and shall take all other
necessary action and proceedings as may be required and permitted by applicable
law, rule and regulation, for the legal and valid issuance of the Securities to
the Purchasers, or their respective subsequent holders.
SECTION 3.2 INTENTIONALLY OMITTED.
SECTION 3.3 INSPECTION RIGHTS. Subject to SECTION 3.15 hereof, the
Company shall permit, during normal business hours and upon reasonable request
and reasonable notice, a Purchaser or any employees, agents or representatives
thereof, so long as a Purchaser shall own the Common Stock, the Warrant Shares
or the Warrants which, in the aggregate, represent more than two percent (2%) of
the total combined voting power of all voting securities then outstanding, to
examine and make reasonable copies of and extracts from the records and books of
account of, and visit and inspect, during the term of the Notes, the properties,
assets, operations and business of the Company and any Subsidiary, and to
discuss the affairs, finances and accounts of the Company and any Subsidiary
with any of its officers, consultants, directors, and key employees.
SECTION 3.4 INTENTIONALLY OMITTED.
SECTION 3.5 KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company shall
keep and cause each Subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
Subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
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SECTION 3.6 REPORTING REQUIREMENTS. The Company shall furnish or make
available three (3) copies of the following to the Purchasers in a timely manner
so long as the Purchasers shall be obligated hereunder to purchase the Notes or
shall beneficially own the Notes or Warrants, or shall own Warrant Shares which,
in the aggregate, represent more than one percent (1%) of the total combined
voting power of all voting securities then outstanding:
(a) Quarterly Reports filed with the Commission on Form 10-QSB
as soon as available, and in any event within fifty-one (51) days after
the end of each of the first three (3) fiscal quarters of the Company;
(b) Annual Reports filed with the Commission on Form 10-KSB as
soon as available, and in any event within one hundred six (106) days
after the end of each fiscal year of the Company; and
(c) Copies of all notices and information, including without
limitation notices and proxy statements in connection with any
meetings, that are provided to holders of shares of the Company's
common stock, contemporaneously with the delivery of such notices or
information to such holders of common stock.
SECTION 3.7 AMENDMENTS. The Company shall not amend or waive any
provision of the Articles or Bylaws of the Company in any way that would
adversely affect the exercise rights, voting rights, prepayment rights or
redemption rights of the holder of the Notes or the Warrants; provided, however,
that the Company shall not be prohibited from amending its Articles to increase
its authorized capital stock.
SECTION 3.8 OTHER AGREEMENTS. The Company shall not enter into any
agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any Subsidiary under any
Transaction Document.
SECTION 3.9 DISTRIBUTIONS. Except as set forth on SCHEDULE 3.9 hereto,
so long as any Notes remain outstanding, the Company agrees that it shall not,
without the prior written consent of the holders of a majority of the principal
amount of the Notes outstanding at the time consent is required, which consent
may be granted or denied in the sole discretion of the Purchasers, (i) declare
or pay any dividends (other than a stock dividend or stock split) or make any
distributions to any holder(s) of the Company's common stock or (ii) purchase or
otherwise acquire for value, directly or indirectly, any common stock or other
equity security of the Company.
SECTION 3.10 REGISTRATION RIGHTS. Each Purchaser that holds the Common
Stock and the Warrant Shares shall have those certain registration rights
expressly set forth in the Amended and Restated Registration Rights Agreement,
which shall be substantially in the form set forth in EXHIBIT D.
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SECTION 3.11 RESERVATION OF SHARES. So long as the Warrants remain
outstanding, the Company shall take all action necessary to at all times have
authorized, and reserved for the purpose of issuance, 100% of the aggregate
number of Warrant Shares initially issuable under the Warrants.
SECTION 3.12 TRANSFER AGENT INSTRUCTIONS. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of the Purchasers or their
respective nominee(s), for the Warrant Shares in such amounts as specified from
time to time by the Purchasers to the Company upon exercise of the Warrants, in
the form of EXHIBIT E attached hereto (the "IRREVOCABLE TRANSFER AGENT
INSTRUCTIONS"). All such certificates shall bear the restrictive legend
specified in SECTION 5.1 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this SECTION 3.12 will be given by the Company to its transfer agent other
than as contemplated by the Irrevocable Transfer Agent Instructions and that the
Securities shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement. Nothing in this
SECTION 3.12 shall affect in any way the Purchasers' obligations and agreements
set forth in SECTION 5.1 to comply with all applicable prospectus delivery or
other requirements, if any, upon the resale of the Common Stock and the Warrant
Shares. If a Purchaser provides the Company with an opinion of counsel, in form,
substance and scope generally acceptable to the Company, to the effect that a
public sale, assignment or transfer of the Securities may be made without
registration under the Securities Act or the Purchasers provide the Company with
reasonable assurances that the Securities can be sold pursuant to Rule 144
without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold, the Company shall permit the
transfer, and, in the case of the Common Stock and the Warrant Shares, promptly
instruct its transfer agent to issue one or more certificates in such name and
in such denominations as specified by the Purchasers and without any restrictive
legend. The Company acknowledges that a breach by it of its obligations under
this SECTION 3.12 will cause irreparable harm to the Purchasers by vitiating the
intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this SECTION 3.12 will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions of this SECTION 3.12, that
the Purchasers shall be entitled, in addition to all other available remedies,
to an order and/or injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss and
without any bond or other security being required.
SECTION 3.13 DISPOSITION OF ASSETS. So long as the Notes remain
outstanding, neither the Company nor any Subsidiary shall sell, transfer or
otherwise dispose of any material amount of its properties, assets and rights
including, without limitation, its software and intellectual property, to any
person except for sales to customers in the ordinary course of business, sales
of inventory to subcontractors, sales or assignments of accounts receivable to
the Company's contract manufacturers or their lenders, without the prior written
consent of the holders of a majority of the principal amount of the Notes then
outstanding.
SECTION 3.14 REPAYMENT OF OTHER INDEBTEDNESS. So long as the Notes
remain outstanding, the Company shall not prepay any Indebtedness for borrowed
money owed by the Company to any officer, director, affiliate or insider of the
Company.
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SECTION 3.15 NON-PUBLIC INFORMATION. Except as required under the
Transaction Documents, neither the Company nor any of its officers or agents
shall disclose any material non-public information about the Company to the
Purchasers and neither the Purchasers nor any of their affiliates, officers or
agents will solicit any material non-public information from the Company. Each
Purchaser agrees that, without the prior written consent of the Board of
Directors of the Company, until such time as any and all material non-public
information disclosed to the Purchaser pursuant to the Transaction Documents has
been disclosed publicly and until such time as that information is no longer
considered material, neither the Purchaser nor any of its affiliates (as such
term is defined in Rule 12b-2 of the Exchange Act), acting alone or as part of a
group, will: (a) acquire, propose, or offer to acquire, or agree to acquire,
directly or indirectly, by purchase or otherwise, any securities or direct or
indirect rights to acquire any securities of the Company, or (b) sell any
securities of the Company.
SECTION 3.16 ANNUAL REPORT ON FORM 10-KSB. The Company shall file its
Annual Report on Form 10-KSB for the year ended December 31, 2002 (including
audited financial statements) with the Commission no later than April 15, 2003.
ARTICLE IV
CONDITIONS
----------
SECTION 4.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO
CLOSE AND TO SELL THE COMMON STOCK, THE NOTES AND WARRANTS. The obligation
hereunder of the Company to close and issue and sell the Common Stock, the Notes
and the Warrants to the Purchasers at the Closing is subject to the satisfaction
or waiver, at or before the Closing, of the conditions set forth below. These
conditions are for the Company's sole benefit and may be waived by the Company
in writing at any time in its sole discretion.
(a) ACCURACY OF THE PURCHASERS' REPRESENTATIONS AND
WARRANTIES. The representations and warranties of each Purchaser shall
be true and correct in all material respects as of the date when made
and as of the Closing Date as though made at that time, except for
representations and warranties that are expressly made as of a
particular date, which shall be true and correct in all material
respects as of such date.
(b) PERFORMANCE BY THE PURCHASERS. Each Purchaser shall have
performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Purchasers at or prior to the Closing
Date.
(c) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(d) DELIVERY OF ORIGINAL NOTES AND ORIGINAL WARRANTS. The
Original Notes and Original Warrants shall have been delivered to the
Company at the Closing for cancellation effective as of the Effective
Date.
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(e) DELIVERY OF TRANSACTION DOCUMENTS. The Transaction
Documents shall have been duly executed and delivered by the Purchasers
to the Company, and the Company shall have received such other
certificates and documents as the Company or its counsel shall
reasonably require incident to the Closing.
SECTION 4.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PURCHASERS TO
CLOSE AND TO PURCHASE THE COMMON STOCK, THE NOTES AND WARRANTS. The obligation
hereunder of the Purchasers to purchase the Common Stock, the Notes and the
Warrants and consummate the transactions contemplated by this Agreement is
subject to the satisfaction or waiver, at or before the Closing, of each of the
conditions set forth below. These conditions are for the Purchasers' sole
benefit and may be waived by the Purchasers at any time in their sole
discretion.
(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
Each of the representations and warranties of the Company in this
Agreement, the Amended and Restated Security Agreements and the Notes
shall be true and correct in all material respects as of the Closing
Date, except for representations and warranties that speak as of a
particular date, which shall be true and correct in all material
respects as of such date.
(b) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the Closing.
(c) NO SUSPENSION, ETC. Trading in the Company's common stock
shall not have been suspended by the Commission (except for any
suspension of trading of limited duration agreed to by the Company,
which suspension shall be terminated prior to the Closing), and, at any
time prior to the Closing Date, trading in securities generally as
reported by Bloomberg Financial Markets ("BLOOMBERG") shall not have
been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by Bloomberg, or on
the New York Stock Exchange, nor shall a banking moratorium have been
declared either by the United States or New York State authorities, nor
shall there have occurred any national or international calamity or
crisis of such magnitude in its effect on any financial market which,
in each case, in the reasonable judgment of the Purchasers, makes it
impracticable or inadvisable to purchase the Notes.
(d) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(e) NO PROCEEDINGS OR LITIGATION. No action, suit or
proceeding before any arbitrator or any governmental authority shall
have been commenced, and no investigation by any governmental authority
shall have been threatened, against the Company or any Subsidiary, or
any of the officers, directors or affiliates of the Company or any
Subsidiary seeking to restrain, prevent or change the transactions
contemplated by this Agreement, or seeking damages in connection with
such transactions.
-19-
(f) WARRANTS AND NOTES. The Company shall have delivered the
originally executed Warrants (in such denominations as each Purchaser
may request) to the Purchasers and shall have delivered the originally
executed Notes (in such denominations as each Purchaser may request) to
the Purchasers that are being acquired by the Purchasers at the
Closing.
(g) RESOLUTIONS. The Board of Directors of the Company shall
have adopted resolutions consistent with SECTION 2.1(B) hereof in a
form reasonably acceptable to the Purchasers (the "RESOLUTIONS").
(h) RESERVATION OF SHARES. As of the Closing Date, the Company
shall have reserved out of its authorized and unissued shares of common
stock solely for the purpose of effecting the exercise of the Warrants,
a number of shares of common stock equal to at least 100% of the
aggregate number of shares of common stock initially issuable upon
exercise of the Warrants.
(i) TRANSFER AGENT INSTRUCTIONS. The Irrevocable Transfer
Agent Instructions, in the form of EXHIBIT E attached hereto, shall
have been delivered to and acknowledged in writing by the Company's
transfer agent.
(j) SECRETARY'S CERTIFICATE. The Company shall have delivered
to the Purchasers a secretary's certificate, dated as of the Closing
Date, as to (i) the Resolutions, (ii) the Articles, (iii) the Bylaws,
each as in effect at the Closing, and (iv) the authority and incumbency
of the officers of the Company executing the Transaction Documents and
any other documents required to be executed or delivered in connection
therewith.
(k) OFFICER'S CERTIFICATE. On the Closing Date, the Company
shall have delivered to the Purchasers a certificate of an executive
officer of the Company, dated as of the Closing Date, confirming the
accuracy of the Company's representations, warranties and covenants as
of the Closing Date and confirming the compliance by the Company with
the conditions precedent set forth in this SECTION 4.2 as of the
Closing Date.
(l) AMENDED AND RESTATED SECURITY AGREEMENTS. As of the
Closing Date, the parties shall have entered into the Amended and
Restated Security Agreements in substantially the forms set forth in
EXHIBIT F attached hereto.
(m) UCC-1 FINANCING STATEMENTS. The Company shall have filed
all UCC-1 financing statements or agreements in form and substance
satisfactory to the Purchasers at the appropriate offices to create a
valid and perfected security interest in the Collateral (as defined in
the Amended and Restated Security Agreements).
(n) JUDGMENT, LIEN AND UCC SEARCH. A judgment, lien and UCC
financing statement search shall have been completed by the Purchasers.
(o) MATERIAL ADVERSE EFFECT. No Material Adverse Effect shall
have occurred.
-20-
ARTICLE V
CERTIFICATE LEGEND
------------------
SECTION 5.1 LEGEND. Each certificate representing the Common Stock, the
Warrants and the Warrant Shares shall be stamped or otherwise imprinted with a
legend substantially in the following form (in addition to any legend required
by applicable state securities or "BLUE SKY" laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE
SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR TELENETICS
CORPORATION SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
The Company agrees to reissue certificates representing any of the
Securities, without the legend set forth above if at such time, prior to making
any transfer of any such Securities, such holder thereof shall give written
notice to the Company describing the manner and terms of such transfer and
removal as the Company may reasonably request. Such proposed transfer will not
be effected until: (a) the Company has notified such holder that either (i) in
the opinion of Company counsel, the registration of the Common Stock, Warrants
or Warrant Shares under the Securities Act is not required in connection with
such proposed transfer; or (ii) a registration statement under the Securities
Act covering such proposed disposition has been filed by the Company with the
Commission and has become effective under the Securities Act; and (b) the
Company has notified such holder that either: (i) in the opinion of Company
counsel, the registration or qualification under the securities or "BLUE SKY"
laws of any state is not required in connection with such proposed disposition,
or (ii) compliance with applicable state securities or "BLUE SKY" laws has been
effected. The Company will use its best efforts to respond to any such notice
from a holder within five (5) days. In the case of any proposed transfer under
this SECTION 5, the Company will use reasonable efforts to comply with any such
applicable state securities or "BLUE SKY" laws, but shall in no event be
required, in connection therewith, to qualify to do business in any state where
it is not then qualified or to take any action that would subject it to tax or
to the general service of process in any state where it is not then subject. The
restrictions on transfer contained in SECTION 5.1 shall be in addition to, and
not by way of limitation of, any other restrictions on transfer contained in any
other section of this Agreement.
ARTICLE VI
TERMINATION
-----------
SECTION 6.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated at any time prior to the Closing Date by the mutual written consent
of the Company and the Purchasers.
-21-
SECTION 6.2 EFFECT OF TERMINATION. If this Agreement is terminated as
provided in SECTION 6.1 herein, this Agreement shall become void and of no
further force and effect, except for SECTIONS 8.1 AND 8.2, and ARTICLE VII
herein. Nothing in this SECTION 6.2 shall be deemed to release the Company or
any Purchaser from any liability for any breach under this Agreement, or to
impair the rights of the Company and such Purchaser to compel specific
performance by the other party of its obligations under this Agreement.
ARTICLE VII
INDEMNIFICATION
---------------
SECTION 7.1 GENERAL INDEMNITY. The Company agrees to indemnify and hold
harmless each Purchaser (and its respective directors, officers, affiliates,
agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys' fees, charges and disbursements) incurred by
each Purchaser as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein. The
Purchasers severally but not jointly agree to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys' fees, charges
and disbursements) incurred by the Company as result of any inaccuracy in or
breach of the representations, warranties or covenants made by the Purchasers
herein.
SECTION 7.2 INDEMNIFICATION PROCEDURE. Any party entitled to
indemnification under this ARTICLE VII (an "INDEMNIFIED PARTY") will give
written notice to the indemnifying party of any matters giving rise to a claim
for indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this ARTICLE VII except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect to such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
-22-
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this ARTICLE VII to the
contrary, the indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim. The indemnification
required by this ARTICLE VII shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, so long as the
indemnified party irrevocably agrees to refund such moneys if it is ultimately
determined by a court of competent jurisdiction that such party was not entitled
to indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
ARTICLE VIII
MISCELLANEOUS
-------------
SECTION 8.1 FEES AND EXPENSES. Each party shall pay the fees and
expenses of its advisors, counsel, accountants and other experts, if any, and
all other expenses, incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement.
SECTION 8.2 SPECIFIC ENFORCEMENT; CONSENT TO JURISDICTION.
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions
of this Agreement or the other Transaction Documents were not performed
in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent or cure breaches of the provisions
of this Agreement or the other Transaction Documents and to enforce
specifically the terms and provisions hereof or thereof, this being in
addition to any other remedy to which any of them may be entitled by
law or equity.
(b) The Company and each Purchaser (i) hereby irrevocably
submit to the exclusive jurisdiction of the United States District
Court sitting in the Southern District of New York and the courts of
the State of New York located in New York County for the purposes of
any suit, action or proceeding arising out of or relating to this
Agreement or any of the other Transaction Documents or the transactions
contemplated hereby or thereby and (ii) hereby waive, and agree not to
assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper. The Company and
each Purchaser consent to process being served in any such suit, action
or proceeding by mailing via certified mail, return receipt requested,
a copy thereof to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing in this
SECTION 8.2 shall affect or limit any right to serve process in any
other manner permitted by law.
-23-
SECTION 8.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the
Transaction Documents contain the entire understanding and agreement of the
parties with respect to the matters covered hereby and, except as specifically
set forth herein or in the other Transaction Documents, neither the Company nor
any Purchaser makes any representation, warranty, covenant or undertaking with
respect to such matters, and they supersede all prior understandings and
agreements with respect to said subject matter, all of which are merged herein.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the Company and the holders of at least a majority of the
principal amount of the Notes then outstanding, and no provision hereof may be
waived other than by a written instrument signed by the party against whom
enforcement of any such amendment or waiver is sought. No such amendment shall
be effective to the extent that it applies to less than all of the holders of
the Notes then outstanding. No consideration shall be offered or paid to any
person to amend or consent to a waiver or modification of any provision of any
of the Transaction Documents unless the same consideration is also offered to
all of the parties to the Transaction Documents or holders of Notes, as the case
may be.
SECTION 8.4 NOTICES. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telecopy or facsimile at the
address or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:
If to the Company: Telenetics Corporation
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
Attention: Chief Financial Officer
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
with copies (which copies
shall not constitute notice
to the Company) to: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇ & ▇▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
-24-
If to any Purchaser: At the address of such Purchaser set
forth on EXHIBIT A to this
Agreement.
Any party hereto may from time to time change its address for notices
by giving at least ten (10) days written notice of such changed address to the
other parties hereto.
SECTION 8.5 WAIVERS. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
SECTION 8.6 HEADINGS. The article, section and subsection headings in
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
SECTION 8.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
After the Closing, the assignment by a party to this Agreement of any rights
hereunder shall not affect the obligations of such party under this Agreement.
Subject to applicable federal and state securities laws, the Purchasers may
assign the Notes, the Warrants and their rights under this Agreement and the
other Transaction Documents and any other rights hereto and thereto without the
consent of the Company; provided, however, that any assignee shall first provide
the Company with duly executed representations and warranties in the form
contained in SECTION 2.2 of this Agreement.
SECTION 8.8 NO THIRD PARTY BENEFICIARIES. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
SECTION 8.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to choice of law provisions. This Agreement shall not be
interpreted or construed with any presumption against the party causing this
Agreement to be drafted.
SECTION 8.10 SURVIVAL. The representations and warranties of the
Company and the Purchasers contained in SECTIONS 2.1(o) AND 2.1(s) should
survive until the expiration of the applicable statutes of limitation, and those
contained in ARTICLE II, with the exception of SECTIONS 2.1(o) AND 2.1(s), shall
survive the execution and delivery hereof and the Closing until the date three
(3) years from the Closing Date, and the agreements and covenants set forth in
ARTICLES I, III, V, VII AND VIII of this Agreement shall survive the execution
and delivery hereof and the Closing hereunder.
SECTION 8.11 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart.
-25-
SECTION 8.12 PUBLICITY. The Company agrees that it will not disclose,
and will not include in any public announcement, the names of the Purchasers
without the consent of the Purchasers in accordance with SECTION 8.3, which
consent shall not be unreasonably withheld or delayed, or unless and until such
disclosure is required by law, rule or applicable regulation, and then only to
the extent of such requirement.
SECTION 8.13 SEVERABILITY. The provisions of this Agreement are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement and this Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of such provision, had
never been contained herein, so that such provisions would be valid, legal and
enforceable to the maximum extent possible.
SECTION 8.14 FURTHER ASSURANCES. From and after the date of this
Agreement, upon the request of the Purchasers or the Company, the Company and
each Purchaser shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement, the Notes,
the Warrants and the Amended and Restated Security Agreements.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-26-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date first above
written.
COMPANY: TELENETICS CORPORATION
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President
PURCHASERS: SDS MERCHANT FUND, L.P.
By: SDS Capital Partners, LLC, its general partner
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
------------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇
Title: Managing Member
/s/ ▇▇▇▇▇▇ ▇▇▇▇
----------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ AND ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
Joint Tenants with Right of Survivorship
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
------------------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇
By: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇
[SIGNATURES CONTINUED ON NEXT PAGE]
-27-
SHADOW CAPITAL LLC
By: /s/ B. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇
------------------------------------------
Name: B. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇
Title: Manager
DRAGON COEUR LLC II-D
By: /s/ ▇. ▇. ▇▇▇▇▇▇
------------------------------------------
Name: ▇. ▇. ▇▇▇▇▇▇
Title:
/s/ ▇▇▇▇▇ Random
----------------------------------------------
▇▇▇▇▇ RANDOM
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇
----------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇
THE ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇. TRUST
DATED APRIL 30, 2002
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇.
----------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇., Trustee
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
[SIGNATURES CONTINUED ON NEXT PAGE]
-28-
TAG KENT PARTNERS
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: General Partner
/s/ ▇▇▇▇▇▇▇ ▇. Brand
----------------------------------------------
▇▇▇▇▇▇▇ ▇. BRAND
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
----------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ TRUST
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
------------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, Trustee
DOLPHIN OFFSHORE PARTNERS, L.P.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: General Partner
-29-
EXHIBIT A
LIST OF PURCHASERS
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
NUMBER OF
ORIGINAL NUMBER
WARRANTS AND PRINCIPAL AND OF SHARES
WARRANTS DOLLAR AMOUNT DOLLAR AMOUNT INTEREST OF COMMON
NAMES AND ISSUED OF OF AMOUNT STOCK ISSUED
ADDRESSES OF PURCHASERS AT CLOSING ORIGINAL NOTE AMENDED NOTE AS OF 2/28/03 AT CLOSING
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
SDS Merchant Fund, L.P. 2,553,105 $1,500,000 cash $ 1,577,490.83 cash $1,531,537.21 5,360,380
c/o SDS Capital Partners
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
▇▇▇▇▇▇ ▇▇▇▇ 85,104 $ 50,000 cash $ 53,307.74 cash $ 51,754.84 181,142
c/o Taglich Brothers, Inc.
1370 Avenue of the ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 85,104 $ 50,000 cash $ 53,307.74 cash $ 51,754.84 181,142
c/o Taglich Brothers, Inc.
1370 Avenue of the ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ 85,104 $ 50,000 cash $ 53,307.74 cash $ 51,754.84 181,142
▇▇▇▇▇▇,
Joint Tenants with Right of
Survivorship
c/o Taglich Brothers, Inc.
1370 Avenue of the ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
▇▇▇▇▇ ▇▇▇▇▇▇ 85,104 $ 50,000 cash $ 53,307.74 cash $ 51,754.84 181,142
c/o Taglich Brothers, Inc.
1370 Avenue of the ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
Shadow Capital LLC 85,104 $ 50,000 cash $ 53,307.74 cash $ 51,754.84 181,142
c/o Taglich Brothers, Inc.
1370 Avenue of the ▇▇▇▇▇▇▇▇
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▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
Dragon Coeur LLC II-D 170,207 $ 100,000 cash $ 106,615.50 cash $ 103,509.70 362,384
c/o Taglich Brothers, Inc.
1370 Avenue of the ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
▇▇▇▇▇ Random 42,552 $ 25,000 cash $ 26,653.88 cash $ 25,877.43 90,571
c/o Taglich Brothers, Inc.
1370 Avenue of the ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
NUMBER OF
ORIGINAL NUMBER
WARRANTS AND PRINCIPAL AND OF SHARES
WARRANTS DOLLAR AMOUNT DOLLAR AMOUNT INTEREST OF COMMON
NAMES AND ISSUED OF OF AMOUNT STOCK ISSUED
ADDRESSES OF PURCHASERS AT CLOSING ORIGINAL NOTE AMENDED NOTE AS OF 2/28/03 AT CLOSING
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇ 42,552 $ 25,000 cash $ 26,653.88 cash $ 25,877.43 90,571
c/o Taglich Brothers, Inc.
1370 Avenue of the ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
The ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ Trust 42,552 $ 25,000 cash $ 26,653.88 cash $ 25,877.43 90,571
c/o Taglich Brothers, Inc.
1370 Avenue of the ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 42,552 $ 25,000 cash $ 26,653.88 cash $ 25,877.43 90,571
c/o Taglich Brothers, Inc.
1370 Avenue of the ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 42,552 $ 25,000 cash $ 26,653.88 cash $ 25,877.43 90,571
c/o Taglich Brothers, Inc.
1370 Avenue of the ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
Tag Kent Partners 191,483 $ 112,500 $ 119,926.96 cash $ 116,433.40 407,517
c/o Taglich Brothers, Inc. cancellation of
1370 Avenue of the Americas indebtedness
31st Floor (comprising the
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ $75,000 principal
balance of the
6.5% note issued
January 23, 2001
plus the $37,500
principal balance
of the 10%
note issued
December 23, 1999)
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
▇▇▇▇▇▇▇ ▇. Brand 38,297 $ 22,500 cash $ 24,573.08 cash $ 23,857.24 83,500
c/o Taglich Brothers, Inc.
1370 Avenue of the ▇▇▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 85,104 $ 50,000 cash $ 59,521.45 cash $ 53,016.09 178,556
c/o Taglich Brothers, Inc.
1370 Avenue of the ▇▇▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
▇▇▇▇▇ ▇▇▇▇▇▇ 51,063 $ 30,000 cash $ 32,764.10 cash $ 31,809.66 111,334
c/o Taglich Brothers, Inc.
1370 Avenue of the ▇▇▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
NUMBER OF
ORIGINAL NUMBER
WARRANTS AND PRINCIPAL AND OF SHARES
WARRANTS DOLLAR AMOUNT DOLLAR AMOUNT INTEREST OF COMMON
NAMES AND ISSUED OF OF AMOUNT STOCK ISSUED
ADDRESSES OF PURCHASERS AT CLOSING ORIGINAL NOTE AMENDED NOTE AS OF 2/28/03 AT CLOSING
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
▇▇▇▇▇ ▇. ▇▇▇▇▇ 51,063 $ 30,000 cash $ 32,764.10 cash $ 31,809.66 111,334
c/o Taglich Brothers, Inc.
1370 Avenue of the ▇▇▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ Trust 51,063 $ 30,000 cash $ 32,764.10 cash $ 31,809.66 111,334
c/o Taglich Brothers, Inc.
1370 Avenue of the ▇▇▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
Dolphin Offshore Partners, 3,599,878 $ 2,115,000 $ 2,232,714.65 cash $ 2,167,673.81 7,586,858
L.P. cancellation of
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ indebtedness
New York, N.Y. 10003 (comprising the
remaining
balance of the
7.0% Convertible
Subordinated
Debenture due
January 2, 2003)
EXHIBIT B
FORM OF AMENDED AND RESTATED SECURED PROMISSORY NOTE
EXHIBIT C
FORM OF AMENDED AND RESTATED WARRANT
EXHIBIT D
FORM OF AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
EXHIBIT E
FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
EXHIBIT F
FORM OF AMENDED AND RESTATED SECURITY AGREEMENT
