As filed with the Securities and Exchange Commission August 21, 1996.
Securities Act Registration No. 333-4037
Securities Exchange Act Registration No. 0-21864
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
SOLAR ENERGY RESEARCH CORP.
(Exact name of registrant as specified in charter)
Colorado 6749 84-0672714
(State or other (Primary Standard I.R.S. (I.R.S. Employer
jurisdiction of Classification Code Number) Identification
incorporation) Number)
10075 E. County Line Road
Longmont, Colorado 80501
(303) 772-3316
(Address, including zip code and telephone number, including
area code, of registrant's principal executive offices)
With copies to:
Roger V. Davidson, Esq. Thomas C. DeFilipps, Esq.
Cohen Brame & Smith P.C. Wilson, Sonsini, Goodrich & Rosati P.C.
1700 Lincoln Street, Suite 1800 650 Page Mill Road
Denver, CO 80203 Palo Alto, CA 94304-1050
(303) 837-8800 (415)493-9300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the consummation of the Acquisition pursuant to the Agreement and
Plan of Reorganization, as amended, described in the enclosed Prospectus and
Information Statement have been satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
<S> <C> <C> <C> <C>
Title of Each
Class of Amount Proposed Maximum Proposed Maximum Amount of
Security to be to be Offering Price Aggregate Offering Registration
Registered Registered Per Share Price(1) Fee(2)
Common Stock, 5,948,303 N/A $6,199,132 $2,137.63
no par value,
issuable upon
acquisition
Series A Preferred 112,750 N/A $ 922,526 $ 318.11
Stock, no par value, _________
issuable upon
acquisition $2,455.74
</TABLE>
(1) Estimated solely for purposes of calculating the Amount of Registration
Fee.
(2) The registration fee for the securities registered hereby has been
calculated pursuant to Rule 457(f) under the Securities Act of 1933, as amended,
by multiplying (i) $6,199,132, the estimated book value of the Telegen
Corporation common stock, assuming the exercise of all of the issued and
outstanding options to acquire 706,281 shares of Telegen common stock and all of
the issued and outstanding warrants to acquire 208,940 shares of Telegen common
stock, and (ii) $922,526, the estimated book value of Telegen Corporation
preferred stock by 1/29 of one percent. Fees of $5,097.28 were paid by the
Registrant in connection with the filing of this Registration Statement on May
17, 1996.
___________________________________
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
Cross-Reference Sheet
Pursuant to Rule 404(a) of the Securities Act of 1933 and
Item 501(4) of Regulation S-B
Showing the Location in Prospectus and
Information Statement of Information
Required by Part I of Form S-4
Note:Both the Registrant and the Company to be Acquired are "small business
issuers." Therefore, pursuant to General Instruction D.3. to Form S-4, the
requirements of Regulation S-B instead of Regulation S-K have been followed
in preparing this Form S-4.
Caption in Prospectus
Form S-4 Item Number and Caption and Information Statement
A. Information about the Transaction
1 Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus Facing Page of Registration
Statement; Cross-Reference Sheet;
Outside Front Cover Page of
Prospectus and Information
Statement
2 Inside Front and Outside Back
Cover Pages of Prospectus Inside Front and Outside Back
Cover Pages of Prospectus and
Information Statement
3 Risk Factors, Ratio of Earnings
to Fixed Charges and Other
Information Introduction; Summary; Risk Factors
4 Terms of the Transaction Summary; The Acquisition
5 Pro Forma Financial Information Financial Statements; Pro Forma
Financial Information
6 Material Contacts with the
Company Being Acquired The Acquisition
7 Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters Not Applicable
8 Interests of Named Experts and
Counsel The Acquisition; Experts; Legal
Matters
9 Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities Indemnification of Directors and
Officers
B. Information About the Registrant
10 Information with Respect to S-3
Registrants Not Applicable
11 Incorporation of Certain
Information By Reference Not Applicable
12 Information with Respect to S-2
or S-3 Registrants Not Applicable
13 Incorporation of Certain
Information by Reference Not Applicable
<PAGE>
14 Information with Respect to
Registrants Other than S-3 or
S-2 Registrants Summary; Risk Factors;
Introduction; The Acquisition;
Information Concerning the SERC
Special Meeting; Business of SERC
SERC Plan of Operation; SERC
Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure; Security
Ownership of Certain Beneficial
Owners and Management; Market for
SERC Common Stock and Related
Stockholder Matters; Legal
Proceedings; Legal Matters;
Experts; Financial Information
C. Information About the Company Being Acquired
15 Information with Respect to S-3
Companies Not Applicable
16 Information with Respect to S-2
or S-3 Companies Not Applicable
17 Information with Respect to
Companies Other than S-3 or
S-2 Companies Summary; Risk Factors;
Introduction; The Acquisition;
Business of Telegen; Telegen
Management's Discussion and
Analysis of Financial Condition
and Results of Operations;
Security Ownership of Certain
Beneficial Owners and Management
Management of Telegen; Certain
Transactions with Management and
Others; Telegen Changes in and
Disagreements with Accountants on
Accounting and Financial
Disclosure; Market for Telegen
Securities and Related
Stockholder Matters; Telegen
Certain Relationships and Related
Transactions; Legal Proceedings;
Legal Matters; Experts; Financial
Statements
D. Voting and Management Information
18 Information if Proxies, Consents
or Authorizations are to be
Solicited Not Applicable
19 Information if Proxies, Consents
or Authorizations are not to be
Solicited in an Exchange Offer Outside and Inside Cover
Pages; Summary; Introduction;
The Acquisition; Information
Concerning the SERC Special
Meeting
As filed with the Securities and Exchange Commission on August 21, 1996
<PAGE>
[LETTERHEAD OF SOLAR ENERGY RESEARCH CORP.]
August 27, 1996
To Our Shareholders:
On behalf of the Board of Directors of Solar Energy Research Corp., a
Colorado corporation ("SERC"), you are cordially invited to attend the Special
Meeting of Shareholders of SERC to be held on September 27, 1996. At the SERC
Special Meeting, you will be asked to consider and vote upon the following
matters: (i) approval of an Agreement and Plan of Reorganization, as amended
(the "Agreement"), by and among SERC, Telegen Corporation, a California
corporation ("Telegen"), Solar Energy Research Corp. of California, a California
corporation and wholly owned subsidiary of SERC ("SERC California"), and Telegen
Acquisition Corporation, a California corporation and wholly owned subsidiary of
SERC ("TAC"), pursuant to which SERC California, after giving effect to the
proposed redomiciliation of SERC as a California corporation through a merger of
SERC with and into SERC California, will acquire all of Telegen's outstanding
capital stock through a merger of TAC with and into Telegen with Telegen thereby
becoming a wholly owned subsidiary of SERC California (the "Acquisition"); (ii)
approval of the redomiciliation of SERC as a California corporation through the
merger of SERC with and into SERC California; (iii) ratification of the one
share-for-seven and one-fourth shares (1 for 7.25) reverse split of the
currently issued and outstanding shares of SERC common stock approved by the
Board of Directors; (iv) election to the SERC California (after giving effect to
the proposed redomiciliation of SERC as a California corporation) board of
directors of the six current Telegen directors to fill the vacancies resulting
from the resignations of the current SERC directors pursuant to the terms of the
Agreement; and (v) approval of an amendment to change the name of SERC
California (after giving effect to the proposed redomiciliation of SERC as a
California corporation) to Telegen Corporation.
The Agreement provides that the Acquisition, which will become effective
upon the closing, will be consummated by SERC's issuance of one share of its
common stock (after giving effect to the redomiciliation of SERC as a California
corporation and the one share-for-seven and one-fourth shares (1 for 7.25)
reverse split of the currently issued and outstanding SERC common stock as
outlined in the above proposals for the SERC Special Meeting of Shareholders)
for each share of Telegen common stock issued and outstanding at the closing. In
addition, SERC will issue one share of its Series A preferred stock (after
giving effect to the redomiciliation of SERC as a California corporation and the
one share-for-seven and one-fourth shares (1 for 7.25) reverse split of the
currently issued and outstanding SERC common stock) for each share of Telegen
preferred stock issued and outstanding at the closing. Further, SERC will issue
one option to acquire a share of SERC's common stock (after giving effect to the
redomiciliation of SERC as a California corporation) in exchange for each
outstanding option to acquire a share of Telegen common stock. The exercise
price of such options to acquire SERC's common stock will be the current
exercise price of the outstanding options to acquire Telegen common stock.
As of July 31, 1996, there were 4,433,455 shares of Telegen common stock
and 112,750 shares of Telegen Series A preferred stock (convertible at the
holder's discretion of the holders into shares of common stock at the rate of
two shares of common stock for each share of Series A preferred stock) issued
and outstanding, as well as options to purchase 706,281 shares of Telegen common
stock at a weighted average exercise price of $4.99 per share and warrants to
purchase 133,440 shares and 75,500 shares of Telegen common stock for $3.50 per
share and $.01 per share, respectively.
When the Acquisition becomes effective, the principal shareholders of
Telegen will become the principal shareholders of SERC. Therefore, a change in
control of SERC will occur if the Acquisition is completed.
Approval of the Agreement, redomiciliation of SERC as a California
corporation and the amendment to change the name of SERC California (after
giving effect to the proposed redomiciliation of SERC as a California
corporation) to Telegen Corporation will require the favorable vote of the
majority of outstanding shares of SERC common stock. The ratification of the one
share-for-seven and one-fourth shares (1 for 7.25) reverse split of the
currently issued and outstanding shares of SERC common stock and the election of
the six current Telegen directors to the SERC California (after giving effect to
the proposed redomiciliation of SERC as a California corporation) Board of
Directors will require the affirmative vote of the majority of a quorum of SERC
common stock represented at the meeting. The undersigned, who beneficially owns
53.7% of the outstanding SERC common stock, will vote in favor of each of the
proposals listed above. Accordingly, each of the above proposals will be
approved by the required affirmative vote and, in the absence of the failure of
regulatory approval or an agreement to terminate the Agreement by the Board of
Directors of both SERC and Telegen, the Agreement will be consummated.
After careful consideration, the SERC Board of Directors has concluded that
the Acquisition is fair to, and in the best interests of, SERC and the
shareholders of SERC and accordingly has approved the Agreement and each of the
other proposals related to the Acquisition listed above. There will be no
solicitation of proxies by the Board of Directors.
Sincerely,
JAMES B. WIEGAND
President
<PAGE>
SOLAR ENERGY RESEARCH CORP.
10075 E. COUNTY LINE ROAD
LONGMONT, COLORADO 80501
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 27, 1996
TO THE SHAREHOLDERS OF SOLAR ENERGY RESEARCH CORP.:
Notice is hereby given that a Special Meeting of Shareholders of Solar
Energy Research Corp., a Colorado corporation ("SERC"), will be held at 201
Steele Street, Suite 300, Denver, Colorado 80206, on September 27, 1996, at 2:00
p.m. local time to consider and vote upon the following matters:
1. Approval of the Agreement and Plan of Reorganization, as amended (the
"Agreement"), by and among SERC, Telegen Corporation, a California
corporation ("Telegen"), Solar Energy Research Corp. of California, a
California corporation and wholly owned subsidiary of SERC ("SERC
California"), and Telegen Acquisition Corporation, a California corporation
and wholly owned subsidiary of SERC ("TAC"), pursuant to which SERC
California, after giving effect to the proposed redomiciliation of SERC as
a California corporation through a merger of SERC with and into SERC
California, will acquire all of Telegen's outstanding capital stock through
a merger of TAC with and into Telegen with Telegen thereby becoming a
wholly owned subsidiary of SERC California (the "Acquisition"). In the
Acquisition, shares of Telegen common stock and preferred stock would be
converted into the right to receive shares of common stock and Series A
preferred stock, respectively, of SERC California (after giving effect to
the redomiciliation of SERC as a California corporation and the one
share-for-seven and one-fourth shares (1 for 7.25) reverse split of the
currently issued and outstanding shares of SERC common stock), all on the
terms and conditions set forth in the Agreement which appears as an exhibit
to the accompanying Information Statement-Prospectus.
2. Approval of the redomiciliation of SERC as a California corporation through
the merger of SERC with and into SERC California.
3. Ratification of the one share-for-seven and one-fourth shares (1 for 7.25)
reverse split of the currently issued and outstanding shares of SERC common
stock approved by the Board of Directors.
4. Election to the SERC California (after giving effect to the proposed
redomiciliation of SERC as a California corporation) board of directors of
the six current Telegen directors to fill the vacancies resulting from the
resignations of the current SERC directors pursuant to the terms of the
Agreement.
5. Approval of an amendment to change the name of SERC California (after
giving effect to the proposed redomiciliation of SERC as a California
corporation) to Telegen Corporation.
6. To transact such other business as may properly come before the Special
Meeting or any adjournment thereof.
The Board of Directors has fixed July 31, 1996, at the close of business,
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the Special Meeting or any adjournment thereof.
THERE WILL BE NO SOLICITATION OF PROXIES BY THE BOARD OF DIRECTORS.
Please carefully read the following Information Statement-Prospectus which
describes the terms of the Acquisition to be voted upon at the Special Meeting.
SERC has filed a Registration Statement with the Securities and Exchange
Commission covering the shares of its common and Series A preferred stock to be
issued in the Acquisition. The accompanying Information Statement also
constitutes the Prospectus of SERC filed as part of such Registration Statement.
______________________________
<PAGE>
NEITHER THIS TRANSACTION NOR THESE SECURITIES HAVE BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION. THE COMMISSION HAS
NOT PASSED UPON THE FAIRNESS OR MERITS OF THIS TRANSACTION NOR UPON THE
ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT-PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
BY ORDER OF THE BOARD OF DIRECTORS
JANET S. COLLINS
August 27, 1996 Secretary
<PAGE>
INFORMATION STATEMENT-PROSPECTUS
SOLAR ENERGY RESEARCH CORP.
10075 E. County Line Road
Longmont, Colorado 80501
--------------------------------------------
This Information Statement-Prospectus is being furnished to the
shareholders of Solar Energy Research Corp. ("SERC") in connection with a
Special Meeting of Shareholders to be held on September 27, 1996, and at any
adjournments thereof, to consider and vote upon the following matters: (i)
approval of an Agreement and Plan of Reorganization, as amended (the
"Agreement"), by and between SERC, Telegen Corporation, a California corporation
("Telegen"), Solar Energy Research Corp. of California, a California corporation
and wholly owned subsidiary of SERC ("SERC California"), and Telegen Acquisition
Corporation, a California corporation and wholly owned subsidiary of SERC
("TAC"), pursuant to which SERC California, after giving effect to the proposed
redomiciliation of SERC as a California corporation through a merger of SERC
with and into SERC California, will acquire all of Telegen's outstanding capital
stock through a merger of TAC with and into Telegen with Telegen thereby
becoming a wholly owned subsidiary of SERC California (the "Acquisition"); (ii)
approval of the redomiciliation of SERC as a California corporation through the
merger of SERC with and into SERC California; (iii) ratification of the one
share-for-seven and one-fourth shares (1 for 7.25) reverse split of the
currently issued and outstanding shares of SERC common stock approved by the
Board of Directors; (iv) election to the SERC California (after giving effect to
the proposed redomiciliation of SERC as a California corporation) board of
directors of the six current Telegen directors to fill the vacancies resulting
from the resignations of the current SERC directors pursuant to the terms of the
Agreement; and (v) approval of an amendment to the SERC Articles of
Incorporation to change the name of SERC California (after giving effect to the
proposed redomiciliation of SERC as a California corporation) to Telegen
Corporation. Upon consummation of the Acquisition, each share of outstanding
Telegen common stock and preferred stock will be converted into the right to
receive one share of SERC California common stock and Series A preferred stock,
respectively (after giving effect to the redomiciliation of SERC as a California
corporation and the one share-for-seven and one-fourth shares (1 for 7.25)
reverse split of the currently issued and outstanding shares of SERC common
stock). Further, SERC California will issue options to acquire shares of SERC
California common stock in exchange for the options to acquire Telegen common
stock outstanding immediately preceding the Acquisition. When the Acquisition
becomes effective, the principal shareholders of Telegen will become the
principal shareholders of SERC. Therefore, a change in control of SERC will
occur if the Acquisition is completed.
All information herein with respect to SERC and Telegen has been furnished
by SERC and Telegen, respectively.
--------------------------------------------
THIS INFORMATION STATEMENT-PROSPECTUS, WHICH IS BEING FURNISHED TO SERC
SHAREHOLDERS FOR PURPOSES OF VOTING UPON THE ACQUISITION AND THE OTHER
PROPOSALS LISTED ABOVE, ALSO CONSTITUTES THE PROSPECTUS OF SERC FOR THE
ISSUANCE OF SERC COMMON STOCK AND SERIES A PREFERRED STOCK.
--------------------------------------------
No person has been authorized to give any information or to make any
representation not contained in this Information Statement-Prospectus in
connection with the offering made hereby and, if given or made, such information
or representation must not be relied upon as having been authorized by SERC or
Telegen. This Information Statement-Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any securities other than the
registered securities to which it relates or an offer to sell or a solicitation
of an offer to buy to any person in any jurisdiction where it is unlawful to
make such offer or solicitation. Neither the delivery of this Information
Statement-Prospectus nor any sale made hereunder shall under any circumstances
create any implication that there has been no change in the information
contained herein since the date hereof.
--------------------------------------------
NEITHER THIS TRANSACTION NOR THESE SECURITIES HAVE BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION. THE COMMISSION HAS NOT
PASSED UPON THE FAIRNESS OR MERITS OF THIS TRANSACTION NOR UPON THE ACCURACY
OR ADEQUACY OF THIS INFORMATION STATEMENT-PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------------------------
The date of this Information Statement-Prospectus is August 21, 1996.
<PAGE>
AVAILABLE INFORMATION
SERC is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Such material can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549-1004. Copies of such material can also be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549, at prescribed
rates.
SERC has filed a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933, as amended, with the Commission
with respect to the shares of SERC common stock and Series A preferred stock to
be issued in the Acquisition. As permitted by the rules and regulations of the
Commission, this Information Statement-Prospectus omits certain information
contained in the Registration Statement. For further information, reference is
made to the Registration Statement. Such additional information can be inspected
at the public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549-1004, and copies of such material can be obtained as
described above. Statements contained herein concerning any document filed as an
exhibit to the Registration Statement are not necessarily complete, and in each
instance reference is made to the copy of such documents filed as an exhibit to
the Registration Statement.
<PAGE>
SOLAR ENERGY RESEARCH CORP.
INFORMATION STATEMENT-PROSPECTUS
TABLE OF CONTENTS
SUMMARY
The Special Meeting of SERC Shareholders
The Acquisition
RISK FACTORS
SERC
Telegen
INTRODUCTION
THE ACQUISITION
The Parties
Background of the Acquisition
Summary of the Agreement
Vote Required
Availability of Appraisal Rights for Dissenting Shareholders
The SERC Board of Directors and Management Following the Acquisition
Resale of SERC Common and Series A Preferred Stock
Federal Income Tax Consequences of the Acquisition
Expenses of the Acquisition
Comparison of Rights of Holders of SERC Stock Under
Colorado and California Law
INFORMATION CONCERNING THE SERC SPECIAL MEETING
Matters to be Considered at Special Meeting
Meeting Procedures
Voting Rights and Votes Required
Stock Ownership of Directors, Executive Officers and their Affiliates
Executive Compensation
SERC
Business of SERC
SERC Plan of Operation
SERC Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Security Ownership of Certain Beneficial Owners and Management
Market for SERC Securities and Related Stockholder Matters
Description of SERC Securities
Legal Proceedings
TELEGEN
Business of Telegen
Telegen Management's Discussion and Analysis of Financial Condition
and Results of Operations
Telegen Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Security Ownership of Certain Beneficial Owners and Management
Management of Telegen
Certain Transactions with Management and Others
Market for Telegen Securities and Related Stockholder Matters
Legal Proceedings
LEGAL MATTERS
EXPERTS
<PAGE>
SUMMARY
The following brief summary is intended to provide certain facts and
highlights from the information contained elsewhere in this Information
Statement-Prospectus. This summary is not intended to be complete, and is
qualified in its entirety by the more detailed information set forth elsewhere
in this Information Statement-Prospectus in its Exhibits. SERC shareholders and
Telegen shareholders are urged to read the entire Information
Statement-Prospectus carefully. This summary contains references to certain
sections of this Information Statement-Prospectus where more complete
information may be found. Unless otherwise defined herein, capitalized terms
used in this summary have the respective meanings assigned to them elsewhere in
this Information Statement-Prospectus.
The Special Meeting of SERC Shareholders
A Special Meeting of SERC shareholders will be held on September 27, 1996
at 2:00 p.m., local time, at 201 Steele Street, Suite 300, Denver, Colorado
80206.
At the special meeting of the shareholders of SERC, the shareholders will
be asked to consider and vote upon the following matters:
1. Approval of an Agreement and Plan of Reorganization, as amended (the
"Agreement"), by and among SERC, Telegen Corporation, a California
corporation ("Telegen"), Solar Energy Research Corp. of California, a
California corporation and wholly owned subsidiary of SERC ("SERC
California"), and Telegen Acquisition Corporation, a California corporation
and wholly owned subsidiary of SERC ("TAC"), pursuant to which SERC
California, after giving effect to the proposed redomiciliation of SERC as
a California corporation through a merger of SERC with and into SERC
California, will acquire all of Telegen's outstanding capital stock through
a merger of TAC with and into Telegen with Telegen thereby becoming a
wholly owned subsidiary of SERC California (the "Acquisition").
2. Approval of the redomiciliation of SERC as a California corporation through
a merger of SERC with and into SERC California.
3. Ratification of the one share-for-seven and one-fourth shares (1 for 7.25)
reverse split of the currently issued and outstanding shares of SERC common
stock approved by the Board of Directors.
4. Election to the SERC California (after giving effect to the proposed
redomiciliation of SERC as a California corporation) board of directors of
the six current Telegen directors to fill the vacancies resulting from the
resignations of the current SERC directors pursuant to the terms of the
Agreement.
5. Approval of an amendment to change the name of SERC California (after
giving effect to the proposed redomiciliation of SERC as a California
corporation) to Telegen Corporation.
Approval of the Agreement, redomiciliation of SERC as a California
corporation and the amendment to change the name of SERC to Telegen Corporation
will require the favorable vote of the majority of outstanding shares of SERC
common stock. The ratification of the one share-for-seven and one-fourth shares
(1 for 7.25) reverse split of SERC common stock and the election of the six
current Telegen directors to the SERC California Board of Directors will require
the affirmative vote of the majority of a quorum of SERC common stock
represented at the meeting. SERC's principal shareholder, who beneficially owns
53.7% of outstanding SERC common stock, will vote in favor of each of the
proposals listed above. Accordingly, each of the above proposals will be
approved by the required affirmative vote and, in the absence of the failure of
regulatory approval or an agreement to terminate the Agreement by the Board of
Directors of both SERC and Telegen, the Agreement will be consummated.
The record date for the stockholders meeting of SERC to determine the
shareholders entitled to vote at the meetings is July 31, 1996. On July 31,
1996, there were 1,427,596 shares of SERC common stock outstanding and
approximately 2,239 shareholders of record. SERC has no other class of shares
outstanding.
The Acquisition
The Parties
SERC. SERC, which was incorporated in Colorado on December 21, 1973, was
formerly engaged in the business of designing, marketing and servicing solar
heating systems. In December 1981, SERC reduced its solar business. SERC
discontinued its solar business in 1983 due to continued losses. The solar
industry segment serviced by SERC generally closed in 1985 with the termination
of Federal Solar Tax Credits. SERC has not provided service to any solar
customers since 1983 and is presently a development stage corporation. SERC's
primary activity during the period from 1985 through the end of 1992 was the
settling of various judgments relating to the discontinued solar business. Since
that time, SERC, which is a development stage corporation subject to the
informational reporting requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), has been actively searching for an operating
business or businesses to acquire. SERC's corporate offices are located at 10075
East County Line Road, Longmont, Colorado 80501; (303) 772-3316. SERC owns all
of the capital stock of SERC California and TAC. SERC California and TAC were
organized by SERC for the purpose of effecting the acquisition by SERC of all of
the outstanding capital stock of Telegen through a merger of TAC with and into
Telegen with Telegen thereby becoming a wholly owned subsidiary of SERC
California (the "Acquisition").
Telegen. Telegen, which was incorporated in California on May 3, 1990, is a
privately owned, multi-faceted, high technology company with unique and
proprietary products, both developed and in development, in the
Telecommunications, Flat Panel Display and Internet Hardware markets. At
present, Telegen is organized into four divisions. The Telecom Products Division
("TPD") develops, manufactures and markets a line of intelligent
telecommunications products, providing advanced features to existing telephone
equipment and unique services for consumers and small businesses. Telegen
Display Laboratories, Inc. ("TDL"), a subsidiary of Telegen, has developed a
unique, low-cost flat panel display technology to compete with other types of
flat panel displays. The Internet Products Division ("IPD"), Telegen's newest
division, is developing low-cost, easy-to-use hardware platforms which will
allow consumers and small businesses to utilize specialized capabilities of the
Internet without the need for a computer. Finally, Telegen Laboratories is an
advanced R&D think tank, developing new products and technologies, which are
then manufactured and marketed through one of the operating divisions. Telegen's
corporate offices are located at 353 Vintage Park Drive, Foster City, California
94404; (415) 349-3220.
SERC California. SERC California, a wholly owned subsidiary of SERC, was
formed for the purpose of effecting the Acquisition as described above and has
engaged in no activities other than activities incidental to the Acquisition.
Telegen Acquisition Corporation. TAC, a wholly owned subsidiary of SERC,
was formed for the purpose of effecting the Acquisition as described above and
has engaged in no activities other than activities incidental to the
Acquisition.
The Terms
Pursuant to the Agreement, SERC California (after giving effect to the
proposed redomiciliation of SERC as a California corporation through a merger of
SERC with and into SERC California) will acquire all of Telegen's outstanding
capital stock through a merger of TAC with and into Telegen with Telegen thereby
becoming a wholly owned subsidiary of SERC California. The separate corporate
existence of TAC will cease and Telegen shall continue as the surviving
corporation. In connection with the Acquisition, which will become effective
upon the closing, all of the shares of Telegen common stock and Telegen
preferred stock will be canceled, and all holders thereof will automatically be
entitled to receive for each of their shares of Telegen common stock a share of
SERC California common stock (after giving effect to the proposed
redomiciliation of SERC as a California corporation and to the one
share-for-seven and one-fourth shares (1 for 7.25) reverse split of the issued
and outstanding shares of SERC common stock as outlined in the proposals for the
Special Meeting of SERC shareholders), and for each of their shares of Telegen
preferred stock a share of SERC California Series A preferred stock. Further,
each option to acquire Telegen common stock outstanding immediately prior to the
Acquisition will be converted into options to acquire the number of shares of
SERC California common stock equal to the number of shares of Telegen common
stock for which the option was exercisable immediately prior to the Acquisition.
The exercise price for any shares of SERC California common stock covered by
each such option will be equal to the exercise price for any shares of Telegen
common stock covered by the option exercisable immediately prior to the
Acquisition.
As of July 31, 1996, there were 4,433,455 shares of Telegen common stock
and 112,750 shares of Telegen Series A preferred stock (convertible at the
discretion of the holders into shares of common stock at the rate of two shares
of common stock for each share of Series A preferred stock) issued and
outstanding, as well as options to purchase 706,281 shares of Telegen common
stock at a weighted average exercise price of $4.99 per share, and warrants to
purchase 133,440 shares and 75,500 shares of Telegen common stock for $3.50 per
share and $.01 per share, respectively.
When the Acquisition becomes effective, the principal shareholders of
Telegen will become the principal shareholders of SERC. Therefore, a change in
control of SERC will occur if the Acquisition is completed. SERC's Board of
Directors has approved the Amended Agreement.
In addition to the acquisition of Telegen's operating business by SERC, the
Agreement provides for the
following items:
a) A $14.50 per share price protection provision for the benefit of current
shareholders of SERC;
b) Certain key employees of Telegen will enter into employment contracts,
effective upon the consummation of the Acquisition.
c) Resignations of all of the current officers and directors of SERC, with the
resulting vacancies to be filled by the appointment of the six current
directors of Telegen.
(See "The Acquisition - Additional Terms.")
Vote Required
To conserve resources, the Agreement was structured such that approval of
the Agreement by the shareholders of SERC and the shareholders of Telegen is not
required by law. Although approval of the Agreement by the shareholders of SERC
is not required by law, shareholder approval of the redomiciliation of SERC as a
California corporation and an amendment to change the name of SERC California to
Telegen Corporation is required. Therefore, since it was necessary for SERC to
hold a shareholders' meeting, the Board of Directors directed that the
Agreement, which underlies the amendments for which a shareholder vote is
required, also be voted on by the shareholders. Accordingly, the SERC Board of
Directors has directed that the Agreement be submitted to the shareholders of
SERC for their approval as outlined in the proposals for the Special Meeting of
SERC shareholders.
Under Colorado law, a shareholder may challenge a corporate action if he or
she can show that it is unlawful or fraudulent with respect to the complaining
shareholder or to the corporation. Such right is not affected by the fact that
the transaction was approved by a vote of shareholders as opposed to the same
transaction being approved by written consent of all the shareholders or without
shareholder approval. Since SERC's principal shareholder, who beneficially owns
53.7% of the outstanding SERC common stock entitled to vote on the Agreement,
will vote in favor of the Agreement, approval of the Agreement by a majority of
SERC shares is assured. Therefore, the shareholders of Telegen will become
shareholders of SERC (after giving effect to the redomiciliation of SERC as a
California corporation through a merger of SERC with and into SERC California)
at the exchange rate of one share of SERC California common stock and one share
of SERC California Series A preferred stock for each issued and outstanding
share of Telegen common stock and preferred stock, respectively. (See "The
Agreement" and Availability of Approval Rights for Dissenting Shareholders).
This Information Statement-Prospectus covers the registration of 5,948,303
shares of SERC common stock and 112,750 shares of SERC Series A preferred stock.
These amounts represent an adequate number of shares to exchange for all Telegen
shares outstanding, shares underlying options and warrants outstanding, shares
into which convertible securities may be converted and an estimated number of
common shares which may be issued under certain price protection provisions of
the Acquisition Agreement.
As a result of the Acquisition, the shareholders of Telegen will own
approximately 95.7% of the total issued and outstanding common shares of SERC
immediately after the Acquisition.
The Acquisition is subject to certain conditions. In addition, either SERC
or Telegen may withdraw from the Acquisition if the Acquisition is not
consummated before September 30, 1996.
SERC Board of Directors' Resolutions
The Board of Directors of SERC believes the Acquisition is in the best
interests of the shareholders of SERC due to a number of factors, including (i)
the enhanced business opportunities resulting from the acquisition of Telegen's
business; (ii) the assets, operations and prospects of Telegen; (iii) the
relative values of SERC capital stock and Telegen capital stock; and (iv) the
belief that the consideration proposed to be paid by SERC in the issuance of its
shares to acquire Telegen is fair to the shareholders of SERC from a financial
point of view. It has therefore approved resolutions in favor of the Acquisition
and each of the other proposals, which are related to the Acquisition, to be
considered and voted upon at the Special Meeting of SERC shareholders.
Description of SERC Securities
SERC's authorized capital currently consists of 100,000,000 shares of $.50
par value common stock and 25,000,000 shares of no par value preferred stock.
After giving effect to the redomiciliation of SERC as a California corporation,
the SERC common stock will have no par value. All shares of SERC's common and
preferred stock have equal voting rights, one vote per share, and are not
assessable. Voting rights are not cumulative; therefore, the holders of more
than 50% of the common and preferred stock of SERC could, if they chose to do
so, elect all the Directors.
Upon liquidation, dissolution or winding up of SERC, the assets of SERC,
after satisfaction of all liabilities and distributions to preferred
shareholders, if any, would be distributed pro rata to the holders of the common
stock. The holders of the common stock do not have preemptive rights to
subscribe for any securities of SERC and have no right to require SERC to redeem
or purchase their shares.
Holders of common stock are entitled to dividends, when and if declared by
the Board of Directors of SERC, out of funds legally available therefor. SERC
has not paid any cash dividends on its common stock, and it is unlikely that any
such dividends will be declared in the foreseeable future.
The Series A Convertible Noncumulative Preferred Stock ("Series A Preferred
Stock") designated by the SERC Board of Directors for exchange with Telegen
preferred shareholders in the Acquisition is entitled to one vote per share of
common stock into which the Series A Preferred Stock is convertible. The Series
A Preferred Stock is convertible into common stock (a) at the holder's
discretion, and (b) automatically in the event of (i) a public offering of
SERC's common stock at a price not less than $15 per share, or (ii) the
affirmative vote of 67% of the shares of the Series A Preferred Stock. In all
cases, the conversion rate will initially be one to two (1:2), subject, in
certain circumstances, to anti-dilutive adjustments. The holders of Series A
Preferred Stock have a noncumulative right to receive dividends at a rate of
$.80 per annum on each outstanding share of Series A Preferred Stock if declared
by the Board of Directors of SERC and in preference to the common stock. In the
event of liquidation, each share of Series A Preferred Stock is entitled to
receive, in preference to the common shareholders, an amount equal to $10,
which, depending on certain circumstances, may be paid in cash or securities of
any entity surviving the liquidation.
Availability of Appraisal Rights for Dissenting Shareholders
Pursuant to the general corporation laws of the states of Colorado and
California, the holders of SERC capital stock will have no dissenter or
appraisal rights as a result of SERC being the surviving corporation in a share
exchange.
Pursuant to the general corporation laws of the State of California, the
holders of Telegen capital stock will have no dissenter or appraisal rights
since Telegen, a California corporation, is being acquired by a California
corporation and Telegen shareholders are receiving in exchange for their shares
of Telegen shares in a California corporation. (See "The Acquisition -
Availability of Appraisal Rights for Dissenting Shareholders".)
Federal Income Tax Consequences of the Acquisition
While the parties have used their best efforts to structure the Acquisition
in such a manner as to minimize federal and state tax consequences to SERC and
Telegen through the Acquisition's treatment for tax purposes as a "tax-free"
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as
amended, there can be no assurance that the Acquisition will result in such tax
treatment. Because of the complexities of the federal income tax laws, it is
recommended that each exchanging stockholder consult with his or her tax advisor
regarding the applicable federal, state and local income tax consequences of the
transactions contemplated by the Agreement. See "The Acquisition - Federal
Income Tax Consequences."
Certain Per Share Comparative Data
The following table sets forth certain per share information for the year
ended December 31, 1995 and for the six-month period ended June 30, 1996. For
each period presented, the following table sets forth (1) the historical net
loss per common share of SERC; (2) the historical net loss per common share of
Telegen; and (3) the unaudited pro forma combined net loss per common share
after giving effect to the proposed Acquisition. The information presented in
the table should be read in conjunction with the unaudited combined pro forma
financial statements and the separate historical consolidated financial
statements of SERC and Telegen and the notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
HISTORICAL PROFORMA PROFORMA
SERC TELEGEN ADJUSTMENTS COMBINED
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Year Ended December 31, 1995:
Loss per common and common
equivalent share: $(0.08) $(0.95) $0.13 $(0.90)
Weighted average shares outstanding 1,070,725 2,652,718 (923,039) 2,800,404
Six Months Ended June 30, 1996
(unaudited):
Loss per common and common
equivalent share $(0.07) $(0.37) $0.09 $(0.35)
Weighted average shares outstanding 1,334,265 3,941,693 (1,150,428) 4,125,730
</TABLE>
<PAGE>
RISK FACTORS
An investment in the securities of SERC will be speculative and involve a
high degree of risk. Accordingly, the following factors, in addition to those
discussed elsewhere in this Information Statement-Prospectus, should be
considered carefully in evaluating the Acquisition and the business of SERC
following the Acquisition. No investor should participate in the Acquisition or
otherwise acquire the securities of SERC unless such investor can afford a
complete loss of an investment in the securities of SERC.
SERC
History of Operating Losses; Accumulated Deficit; No Assurance of
Continuance as Going Concern
SERC is a development stage corporation. As of June 30, 1996, SERC had only
$13,837 in working capital. Further, SERC has had operating losses since its
inception. As noted in the independent auditors' report for the year ended
December 31, 1995, SERC's limited working capital and operating losses since
inception raise substantial doubt about SERC's ability to continue as a going
concern. Accordingly, there is no assurance that SERC can continue as a going
concern on a separate entity basis.
Absence of Public Market for SERC's Securities
There is presently no market for SERC's common stock and there can be no
assurance that any market will develop. The investment community could show
little or no interest in SERC in the future. As a result, persons receiving
SERC's securities may have difficulty in reselling such securities should they
desire to do so.
Telegen intends to apply for the listing of post-Acquisition SERC on the
NASDAQ Small Cap market system after the Registration Statement on Form S-4 of
which this Information Statement-Prospectus is a part becomes effective. As a
result of the Acquisition, it is expected that SERC will have (i) in excess of
$4 million in gross tangible assets, (ii) in excess of $2 million in tangible
net worth, (iii) at least 300 holders of SERC common stock, and (iv) at least
100,000 publicly held shares of SERC common stock and thus, assuming that two
registered and active market makers are obtained and the securities will have a
minimum bid price of $3 per share, will satisfy the requirements for listing on
the NASDAQ Small Cap market system. However, there can be no assurance that a
listing on the NASDAQ Small Cap market system will be obtained.
Material Adverse Effect on SERC's Securities of Securities and Exchange
Commission Penny Stock Regulations
Even if a market for SERC's common stock develops, certain Securities and
Exchange Commission regulations pertaining to penny stocks will have a material
adverse effect on the liquidity of SERC's common stock and Series A preferred
stock. The regulations define a penny stock to be any equity security that has a
market price (as defined) less than $5.00 per share subject to certain
exceptions. Such material adverse effects could include, among other things,
impaired liquidity with respect to SERC's securities and burdensome
transactional requirements associated with transactions in the securities,
including, but not limited to, waiting periods, account and activity reviews,
disclosure of additional personal financial information and substantial written
documentation. Although there are exceptions for an equity security that is
authorized or approved for authorization upon notice of issuance for quotation
on an automated quotation system sponsored by a registered securities
association, it is unlikely that SERC will independently qualify for this
exception prior to the acquisition of a company with sufficient assets to
qualify for quotation on the NASDAQ system.
Dividends
No dividends have been paid on SERC's common stock since inception, and
none are contemplated at any time in the foreseeable future.
Telegen
History of Operating Losses; Accumulated Deficit and Minimum Revenues
Telegen was incorporated in 1990 and first shipped products in 1991.
Telegen has been engaged in lengthy development of its products and has incurred
significant operating losses in every fiscal year since its inception. The
cumulative net loss for the period from inception through June 30, 1996 is
$6,748,808. Telegen may continue to incur operating losses through the remainder
of 1996. In order to become profitable, Telegen must increase sales of its
existing products, sustain volume manufacturing of its products at increased
levels, develop new products for new and existing markets, and manage its
operating expenses and expand its distribution capability. There can be no
assurance that Telegen will meet and realize these objectives or ever achieve
profitability.
Future Capital Needs
Telegen's future capital requirements will depend upon many factors,
including the extent and timing of acceptance of Telegen's products in the
market, the progress of Telegen's research and development, Telegen's operating
results and the status of competitive products. Although Telegen believes that
it currently has adequate capital to meet its forecasts for the following twelve
months, Telegen's actual working capital needs will depend upon numerous
factors, including the progress of Telegen's research and development
activities, the cost of increasing Telegen's sales, marketing and manufacturing
activities and the amount of revenues generated from operations. There can
therefore be no assurance that Telegen will not require additional funding, or
that any additional financing will be available to Telegen on acceptable terms,
if at all. If adequate funds are not available as required, Telegen's results of
operations will be materially adversely affected. See "Telegen - Telegen
Management's Discussion and Analysis of Financial Condition and Results of
Operations".
Exposure to Technological Change
The market for Telegen's products is characterized by rapid technological
change and evolving industry standards and is highly competitive with respect to
timely product innovation. The introduction of products embodying new technology
and the emergence of new industry standards can render existing products
obsolete and unmarketable. Telegen's success will be dependent in part upon its
ability to anticipate changes in technology and industry standards and to
successfully develop and introduce new and enhanced products on a timely basis.
If Telegen is unable to do so, Telegen's results of operations will be
materially adversely affected. For example, Telegen took a longer period time
than expected to develop its ACS product line. Although Telegen believes such
delay has not materially affected its ability to market and sell the ACS
products, there can be no assurance that Telegen will not encounter other
technical or similar difficulties that could in the future delay the
introduction of new products or product enhancements. See "Telegen - Business of
Telegen". With regard to its flat panel display technology, there are other more
developed and accepted flat panel display technologies already in commercial
production which will compete with Telegens technology. There can be no
assurance that Telegen will be successful in the development of its flat panel
technology or that Telegen will not encounter technical or other serious
difficulties in its development or commercialization which would materially
adversely affect Telegen's results of operations.
Dependence Upon Key Personnel
Telegen's future success will depend in significant part upon the continued
service of certain key technical and senior management personnel, and Telegen's
ability to attract, assimilate and retain highly qualified technical, managerial
and sales and marketing personnel. Competition for such personnel is intense,
and there can be no assurance that Telegen can retain its existing key
managerial, technical or sales and marketing personnel or that it can attract,
assimilate and retain such employees in the future. The loss of key personnel or
the inability to hire, assimilate or retain qualified personnel in the future
could have a material adverse effect upon Telegen's results of operations. See
"Telegen - Business of Telegen".
Telegen has entered into agreements with each of its executive officers (as
well as all other full-time employees) that prohibit disclosure of confidential
information to anyone outside of Telegen both during and subsequent to
employment and require disclosure and assignment to Telegen of all proprietary
rights to any ideas, discoveries or inventions relating to or resulting from the
officer's work for Telegen.
Telecommunications Competition
The market for telephone peripheral equipment is highly competitive, is
dominated by successful niche marketers and Telegen expects this competition to
continually increase. There are a number of companies which develop, manufacture
and sell telecommunications devices which perform some of the same functions as
those of Telegens products. There can be no assurance that Telegen will be able
to compete effectively against its competitors, many of whom may have
substantially greater financial resources than Telegen. See
"Business-Competition". Further, some of the telephone call routing functions of
Telegen's products can be provided through reprogramming by Bell Operating
Companies of their Central Office equipment to allow "equal access" by customers
to the long distance carrier of their choice without "dialing around" by
inserting an access code. Since this "dial around" process is the principal
function of Telegen's ACS 2000 and MLD 1000 products, if such an "equal access"
feature were introduced, demand for Telegens present products would be
seriously impaired.
Dependence on Major Customers
Telegen expects that a large proportion of its revenues from its
telecommunications products will be realized from sales to a small number of
companies, primarily the major long distance carriers such as AT&T, MCI, Sprint
and LDDS as well as the Regional Bell Operating Companies such as Bell Atlantic
and SBC. The loss of one or more of these relationships could have a material
negative effect on Telegen's results of operations.
Telegen's largest single customer during 1995 was Bell Atlantic, which
purchased Telegen's TeleBlocker product. Bell Atlantic provided $65,890 in
revenues, or approximately 45% of Telegen's total sales for 1995. Additionally,
sales to SynerNet, Inc. and Sprint of $29,297 and $24,833, respectively, in 1995
accounted for approximately 20% and 17%, respectively, of Telegen's total sales
in 1995.
Sales to Bell Atlantic are expected to be lower for 1996 since Telegen's
TeleBlocker was taken off the market to redesign the product to be produced with
alternative components in lieu of a major electronic component of TeleBlocker
that is no longer available. In March 1996, Telegen and MCI entered into a
contract which provides for a minimum delivery of 6,000 ACS 2000 units over the
following 12 months. Sales of such units would represent approximately $380,000
in revenues, or a majority of Telegen's anticipated sales during 1996. However,
there can be no assurance that such revenue from MCI will ultimately be
realized.
Flat Panel Competition; Flat Panel Patent(s)
The market for flat panel displays is dominated by major Japanese companies
such as Sharp Electronics, Toshiba and Sony. Telegen expects this competition to
continually increase. There can be no assurance that Telegen will be able to
compete effectively against its competitors, many of whom may have substantially
greater financial resources than Telegen. Flat panel displays manufactured
utilizing AMLCD technology have been in production for almost 10 years and have
proven market acceptance. New technologies, such as FED and Color Plasma, are in
development by a number of potential competitors, some of whom have greater
financial resources than Telegen. There can be no assurance that Telegens HGED
technology can compete successfully on a cost or display quality basis with
these other technologies. Further, there can be no assurance that Telegens
efforts to obtain patent protection for its HGED technology will be successful
or, if patent protection is obtained, that Telegens patent(s) will provide
adequate protection.
Future Capital for Flat Panel Development and Production
While Telegen believes it has the capital needed to complete development of
a finished prototype of the HGED technology, additional capital will be needed
to establish a high volume production capability. There can be no assurance that
any additional financing will be available to Telegen on acceptable terms, if at
all. If adequate funds are not available as required, Telegen's results of
operations from the flat panel technology will be materially adversely affected.
Dependence Upon Limited Number of Manufacturing Sources and Component Suppliers
Telegen currently relies upon a limited number of manufacturing sources for
its telecom production capability. Although Telegen is currently seeking to
qualify alternative sources of supply, Telegen has not yet contracted for
alternative suppliers to perform such manufacturing activities. In the event of
an interruption of production or delivery of supplies, Telegen's ability to
deliver its products in a timely fashion would be compromised, which would
materially adversely affect Telegen's results of operations. Certain components
used in Telegen's telecommunications products, such as microprocessors, are
available from only a limited number of sources. Although to date Telegen has
generally been able to obtain adequate supplies of these components, Telegen
obtains these components on a purchase order basis and does not have long-term
contracts with any of these suppliers. In addition, some suppliers require that
Telegen either pre-pay the price of components being purchased or establish an
irrevocable letter of credit for the amount of the purchase. Telegen anticipates
that, as it begins manufacture of other products, it will encounter similar
limitations regarding the components for those products. Telegen's inability in
the future to obtain sufficient limited-source components for its
telecommunications and other products, or to develop alternative sources, could
result in delays in product introductions or shipments, which could have a
material adverse effect on Telegen's results of operations. See "Telegen -
Business of Telegen".
Need to Develop Marketing Experience
Telegen has limited marketing experience, and expanding Telegen's markets
will require significant expenses, including additions to personnel. There can
be no assurance that Telegen will have all the capital resources necessary to
expand its sales and marketing operations, or that Telegen's attempts to expand
its sales and marketing efforts will be successful. See "Telegen - Business of
Telegen".
Intellectual Property
Telegen relies on a combination of patents, trade secret and other
intellectual property law, nondisclosure agreements and other protective
measures to preserve its rights pertaining to its products. Such protection,
however, may not preclude competitors from developing products similar to those
of Telegen. In addition, the laws of certain foreign countries do not protect
Telegen's intellectual property rights to the same extent as do the laws of the
United States. There can also be no assurance that third parties will not assert
intellectual property infringement claims against Telegen. Litigation related to
such matters is currently pending against Telegen and there is no assurance that
more will not be initiated from litigants with more resources than Telegen.
There is no assurance that Telegen will prevail in such litigation seeking
damages or an injunction against the sale of Telegen's products or that Telegen
will be able to obtain any necessary licenses on reasonable terms or at all. See
"Telegen - Business of Telegen".
Dispute Over Canceled Shares
In August 1991, Telegen issued an aggregate of 208,592 shares of common
stock to Sahara Associates, Inc. ("Sahara") in connection with a letter of
credit and related financing to be obtained by Telegen. A letter of credit in
the amount of $300,000 was issued in favor of Telegen by Bank Sadarat but
Telegen was unable to realize any benefit from such a letter of credit. In
September 1992, Bank Sadarat filed a complaint against Telegen in the Superior
Court of the State of California for the County of San Mateo for approximately
$110,000 advanced under a separate letter of credit. In March 1993, Telegen
cancelled the 208,592 shares issued to Sahara and filed a cross-complaint for
declaratory relief against Sahara and others. In that action, Telegen sought a
judicial declaration that the issuance of the aforementioned shares was void for
lack of consideration, that the action of Telegen in cancelling such shares was
valid and that the persons to whom such shares were issued have no rights as
shareholders of Telegen. The case was removed to the Federal District Court for
the Northern District of California. In July 1996, Telegen settled Bank
Sadarat's claim by paying Bank Sadarat $100,000, which is less than the
liability for the Bank Sadarat claim that is reflected in Telegen's Financial
Statements included elsewhere herein. The dispute with Sahara regarding the
cancelled shares has not yet been resolved. The number of shares and percentages
of the outstanding shares referred to in this Registration Statement reflect the
cancellation of the 208,592 shares issued to Sahara. Although Telegen management
currently believes that the reissuance of 208,592 shares to Sahara would not
have a material adverse effect on the financial condition or operations of
Telegen, there can be no assurance as to the ultimate result of the litigation
with Sahara. See "Telegen - Legal Proceedings".
No Public Market
No public market exists for the securities of Telegen, and there can be no
assurance that a public market will develop for such shares. The private
placement memorandum provided to the offerees in the private placement of
1,334,450 shares of Telegen common stock completed in May 1996 disclosed the
pending Acquisition and the contemplated filing of the Registration Statement of
which this Information Statement-Prospectus is a part. To avoid the uncertainty
of whether the private placement should be deemed an integrated transaction with
the Acquisition or the public offering of shares of common stock without an
effective registration statement, the certificates for the 1,334,450 shares of
SERC common stock to be received, if the Acquisition is consummated, by the
purchasers of Telegen common stock in the private placement completed in May
1996 shall bear a restrictive legend which will operate to prevent the transfer
of such SERC stock, unless such stock is separately registered through the
filing of a registration statement under the Securities Act of 1933 (the "1933
Act"), or except for transfers in accordance with Rule 144 of the 1933 Act.
However, the currently required two-year holding period under Rule 144 with
respect to the above mentioned private placement purchasers is deemed to
commence on the date that such purchasers acquired the underlying Telegen common
stock. It is currently expected that any resale of such SERC shares occurring
prior to the expiration of the currently required two-year holding period will
be separately registered through the filing of a registration statement under
the 1933 Act.
Effect of SERC Merger
Pursuant to the terms of the Agreement, the holders of Telegen's
outstanding common stock will receive upon consummation of the Acquisition one
share of SERC common stock for each share of Telegen common stock held by them
immediately prior to the Acquisition. Correspondingly, the holders of Telegen's
outstanding Series A preferred stock will receive one share of SERC's Series A
preferred stock for each share of Telegen Series A preferred stock held by them
immediately prior to the Acquisition.
Although SERC is currently subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the Acquisition has been structured such that Telegen shareholders
will receive registered securities of SERC, if the Acquisition is not
consummated, the Telegen shareholders will be able to transfer their interests
in Telegen only in accordance with the requirements of the 1933 Act and
applicable state securities laws. As discussed in the "No Public Market" section
immediately above, the certificates for the 1,334,450 shares of SERC common
stock to be received, if the Acquisition is consummated, by the purchasers of
Telegen common stock in the private placement completed in May 1996 shall bear a
restrictive legend which will operate to prevent the transfer of such SERC
stock, unless such stock is separately registered through the filing of a
registration statement under the 1933 Act, for a period of two years from the
date that such purchasers acquired the underlying Telegen common stock. It is
currently expected that any resale of such SERC shares occurring prior to the
expiration of the two year period will be separately registered through the
filing of a registration statement under the 1933 Act.
No Requirement to File Exchange Act Reports
Until the completion of the planned Acquisition of Telegen by SERC, Telegen
will not be subject to the informational reporting requirements of the Exchange
Act. Accordingly, in the absence of such Acquisition, Telegen is not required to
file quarterly and annual reports on Forms 10-Q and 10-K in accordance with the
provisions of the Exchange Act, nor will it be subject to the regulations
promulgated by the Securities and Exchange Commission pursuant to the Exchange
Act. Upon completion of the planned Acquisition of Telegen by SERC, Telegen will
become subject to the regulations and provisions of the Exchange Act. However,
there can be no assurance that the Acquisition will be completed or that at any
time in the future Telegen will otherwise become subject to the reporting
requirements of the Exchange Act, and as a result, investors may have less
access to financial and other information concerning Telegen than they would if
Telegen were subject to the reporting requirements of the Exchange Act.
<PAGE>
INTRODUCTION
This Information Statement-Prospectus is being furnished in connection with
a Special Meeting of the Shareholders of SERC to be held on September 27, 1996,
and at any adjournments thereof, to consider and vote upon the following
matters:
1. Approval of the Agreement and Plan of Reorganization, as amended (the
"Agreement"), by and among SERC, Telegen Corporation, a California
corporation ("Telegen"), Solar Energy Research Corp. of California, a
California corporation and wholly owned subsidiary of SERC ("SERC
California"), and Telegen Acquisition Corporation, a California corporation
and wholly owned subsidiary of SERC ("TAC"), pursuant to which SERC
California, after giving effect to the proposed redomiciliation of SERC as
a California corporation through a merger of SERC with and into SERC
California, will acquire all of Telegen's outstanding capital stock through
a merger of TAC with and into Telegen with Telegen thereby becoming a
wholly owned subsidiary of SERC California (the "Acquisition"). In the
Acquisition, all of the shares of common stock and preferred stock of
Telegen would be converted into the right to receive shares of common stock
and Series A preferred stock of SERC California (after giving effect to the
redomiciliation of SERC as a California corporation and the one
share-for-seven and one-fourth shares (1 for 7.25) reverse split of the
currently issued and outstanding SERC common stock as outlined in the
proposals below), all on the terms and conditions set forth in the
Agreement which appears as an exhibit to the accompanying Information
Statement-Prospectus.
2. Approval of the merger of SERC with and into SERC California to effect
a redomiciliation of SERC as a California corporation.
3. Ratification of the one share-for-seven and one-fourth shares (1 for
7.25) reverse split of the currently issued and outstanding shares of
SERC's common stock approved by the Board of Directors.
4. Election to the SERC California Board of Directors of the six current
Telegen directors to fill the vacancies resulting from the
resignations of the current SERC directors pursuant to the terms of
the Agreement.
5. Approval of an amendment to the Articles of Incorporation to change
the name of SERC California to Telegen Corporation.
6. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.
This Information Statement-Prospectus is first being mailed to shareholders
of SERC on or about August 27, 1996.
A principal shareholder of SERC and a member of SERC management, who
beneficially owns 53.7% of outstanding SERC common stock, will vote in favor of
each of the proposals listed above. Accordingly, each of the above proposals
will be approved by the required affirmative vote.
THE MANAGEMENT OF SERC IS NOT SOLICITING PROXIES FROM SERC SHAREHOLDERS AND
THE SHAREHOLDERS ARE REQUESTED NOT TO SEND A PROXY.
<PAGE>
THE ACQUISITION
The description of the terms and conditions of the Acquisition and any
related document in this Information Statement-Prospectus is qualified in its
entirety by reference to the copy of the Agreement and Plan of Reorganization,
as amended (the "Agreement"), which appears as an exhibit to the Information
Statement-Prospectus.
The Agreement provides for the acquisition by SERC California, after giving
effect to the proposed redomiciliation of SERC as a California corporation
through a merger of SERC with and into SERC California, of all of Telegen's
outstanding capital stock through a merger of TAC with and into Telegen with
Telegen thereby becoming a wholly owned subsidiary of SERC California, by way of
an exchange of Telegen common stock and preferred stock for SERC California
common stock and Series A preferred stock, respectively (after giving effect to
the proposed redomiciliation of SERC as a California corporation and the
proposed one share-for-seven and one-fourth shares (1 for 7.25) reverse split of
the currently issued and outstanding SERC common stock). The Agreement provides
that the Acquisition, which will become effective upon the closing, will be
consummated by SERC California's issuance of one (1) share of its common stock
(after giving effect to the one share-for-seven and one-fourth shares (1 for
7.25) reverse split of the issued and outstanding SERC common stock as outlined
in the proposals for the Special Meeting of Shareholders) for each share of
Telegen common stock issued and outstanding at the closing. In addition, SERC
will issue one (1) share of its Series A preferred stock for each share of
Telegen preferred stock issued and outstanding at the closing. Further, SERC
will issue one option to acquire a share of SERC's common stock in exchange for
each outstanding option to acquire a share of Telegen common stock. The exercise
price of such options to acquire SERC's common stock will be the current
exercise price of the outstanding options to acquire Telegen common stock. As of
July 31, 1996, there were 4,433,455 shares of Telegen common stock and 112,750
shares of Telegen Series A preferred stock (convertible at the holder's
discretion of the holders into shares of common stock at the rate of two shares
of common stock for each share of Series A preferred stock) issued and
outstanding, as well as options to purchase 706,281 shares of Telegen common
stock at a weighted average exercise price of $4.99 per share, and warrants to
purchase 133,440 shares and 75,500 shares of Telegen common stock for $3.50 per
share and $.01 per share, respectively. The Telegen Board of Directors has
approved the Agreement.
The Parties
SERC. SERC, which was incorporated in Colorado on December 21, 1973, was
formerly engaged in the business of designing, marketing and servicing solar
heating systems. In December 1981, SERC reduced its solar business. SERC
discontinued its solar business in 1983 due to continued losses. The solar
industry segment serviced by SERC generally closed in 1985 with the termination
of Federal Solar Tax Credits. SERC has not provided service to any solar
customers since 1983 and is presently a development stage corporation. SERC's
primary activity during the period from 1985 through the end of 1992 was the
settling of various judgments relating to the discontinued solar business. Since
that time, SERC, which is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), has been
actively searching for an operating business or businesses to acquire. SERC's
corporate offices are located at 10075 East County Line Road, Longmont, Colorado
80501; (303) 772-3316. SERC owns all of the capital stock of SERC California and
Telegen Acquisition Corporation. SERC California was organized by SERC for the
purpose of effecting a redomiciliation of SERC as a California corporation to
facilitate the Acquisition. Telegen Acquisition Corporation was organized by
SERC for the purpose of effecting the acquisition by SERC of all of the
outstanding capital stock of Telegen with Telegen thereby becoming a wholly
owned subsidiary of SERC (the "Acquisition").
Telegen. Telegen, which was incorporated in California on May 3, 1990, is a
privately owned, multi-faceted, high technology company with unique and
proprietary products, both developed and in development, in the
Telecommunications, Flat Panel Display and Internet Hardware markets. At
present, Telegen is organized into four divisions. The Telecom Products Division
("TPD") develops, manufactures and markets a line of intelligent
telecommunications products, providing advanced features to existing telephone
equipment and unique services for consumers and small businesses. Telegen
Display Laboratories, Inc. ("TDL"), a subsidiary of Telegen, has developed a
unique, low-cost flat panel display technology to compete with other types of
flat panel displays. The Internet Products Division ("IPD"), Telegen's newest
division, is developing low-cost, easy-to-use hardware platforms which will
allow consumers and small businesses to utilize specialized capabilities of the
Internet without the need for a computer. Finally, Telegen Laboratories is an
advanced R&D think tank, developing new products and technologies, which are
then manufactured and marketed through one of the operating divisions. Telegen's
corporate offices are located at 353 Vintage Park Drive, Foster City, California
94404; (415) 349-3220.
SERC California. SERC California, a wholly owned subsidiary of SERC, was
formed for the purpose of effecting a redomiciliation of SERC as a California
corporation to facilitate the Acquisition as described above and has engaged in
no activities other than activities incidental to the Acquisition.
Telegen Acquisition Corporation. TAC, a wholly owned subsidiary of SERC,
was formed to facilitate the Acquisition as described above and has engaged in
no activities other than activities incidental to the Acquisition.
Background of the Acquisition
Since approximately 1992, SERC has engaged solely in the business of
searching for acquisitions and/or mergers in an effort to recommence operations.
Management has focused on locating a company with operations or products which
SERC could acquire to form the basis of an operating entity. In furtherance of
this goal, management determined to file a registration statement on Form 10
during July 1992 based on its belief that it would be more attractive to a
potential merger candidate if it was a reporting company at the time of the
completed transaction. The basis of this belief was comments received from
several potential merger candidates. As part of management's search, they
periodically placed an advertisement in the Wall Street Journal and generally
discussed the structure of their public development stage corporation with
persons they believed would possibly come in contact with people or
organizations who were searching for a reporting dormant corporation. SERC
management has received responses to its advertisements in the Wall Street
Journal which indicated general preliminary interest in SERC's status as a
publicly reporting company. However, no formal proposals of the terms of an
acquisition emanated from such responses, other than from the Telegen response
discussed below, primarily because the responding entities either did not show
the adequate promise sought by management, failed to stand up to scrutiny during
preliminary due diligence inquiries, failed to establish the validity of the
business concept, or failed to demonstrate the ability of the responding
entity's management to carry out the concept under the circumstances.
During the spring of 1995, SERC explored acquiring the assets of Carlton
Terry Oil Company ("Carlton Terry"). Those negotiations evolved to include the
consideration of a $2 million private placement to be effected through brokers
with whom SERC and Carlton Terry were acquainted. The funds to be raised through
such private placement were planned for the payment of debt and to drill an oil
well. SERC's negotiations broke off in late May 1995 following the decision by
Carlton Terry to pursue an alternative transaction. Several brokers who had
expressed an interest in the proposed SERC - Carlton Terry transaction indicated
an interest in considering a similar funding mechanism if an attractive target
company could be located by SERC.
In June 1995, SERC placed its ad in the "business opportunity" section of
the Wall Street Journal. Mr. Warren Dillard, Chief Operating Officer of Telegen,
spotted this ad and on June 22 responded by way of letters to SERC. Thereafter,
James Wiegand, president of SERC, communicated on a few occasions with Mr.
Dillard obtaining copies of financial statements and a private placement
memorandum which had been utilized for a private placement. After review of all
the documentation requested by Mr. Wiegand, SERC determined to visit the Telegen
plant. In an effort to conserve capital, a close friend of Mr. Wiegand who lived
near the Telegen plant site made the initial visit on behalf of SERC in
mid-July. Mr. Wiegand's friend responded very favorably to the visit and Telegen
and SERC commenced negotiations for a letter of intent. None of the directors or
affiliates of SERC or Telegen had any prior dealings or contact with any
affiliates of the other company prior to Telegen's introduction to SERC on June
22, 1995 and all negotiations were carried on at arm's length without the
assistance of any third parties.
After several drafts of the letter of intent were discussed, Mr. Wiegand on
behalf of SERC flew to the Telegen corporate headquarters on or about August 9,
1995 with the execution draft. Upon being satisfied that the technology and
prospects of Telegen were in line with his expectations, the parties signed a
letter of intent on August 9, 1995. Subsequent to entering into the letter of
intent, the parties contacted their attorneys and auditors in an effort to
conceptualize the efforts necessary to complete the transaction in accordance
with the desires of the parties and the fees and costs which would be entailed
to accomplish same. Based on these discussions, on September 27, 1995 the
parties entered into Amendment No. 1 to the Letter of Intent which added
provisions for the raising of approximately $100,000 by SERC to be utilized by
both parties to cover the expenses of the transaction, including the expenses
for filing the Form S-4 registration statement of which this Information
Statement-Prospectus is a part. The amendment also included the original
agreement of the parties related to the cancellation of the transaction by
Telegen, whereby Telegen was required to repay to SERC at the time of the
cancellation any funds which had been advanced by SERC for the payment of
Telegen's or its expenses to the date of that cancellation in order to make SERC
whole. This cancellation provision does not apply, however, to a cancellation by
Telegen for "cause."
Almost immediately after the amendment to the letter of intent was entered
into in September 1995, the parties' counsel commenced drafting and negotiating
the final terms of a proposed agreement and plan of reorganization which was
formerly approved by the Boards of Directors of both Telegen and SERC and
executed on November 16, 1995. A prerequisite to the Board of Directors'
approval by Telegen was that the agreement provided that the securities issued
to the Telegen shareholders would be issued without restrictive legend. The
parties originally decided to accomplish this by relying on the exemption from
registration contained in Section 3(a)(10) of the Securities Act of 1933, as
amended (the "Securities Act").
On January 25, 1996, SERC filed an application with the Department of
Corporations for the State of California under the Corporate Securities Law of
1968 seeking a permit qualifying the issuance of the SERC shares following a
public hearing to be conducted by the California Commissioner of Corporations.
Subsequently, however, this application was withdrawn and the parties determined
to file a registration statement on Form S-4 of which this Information
Statement-Prospectus is part.
In preparation for the filing of the Form S-4, the parties decided that it
was in their best interests to amend the agreement to update the parties'
understanding relative to the issues included in the S-4 registration statement.
Additionally, from August 9 through mid-January, various items had changed
slightly so that when the amendment was accomplished, incorporated in that
amendment were updates to describe the current status of the parties. These
amendments, which are included in the First Amendment dated as of January 18,
1996 to the Agreement and Plan of Reorganization included reference to the
completion of negotiations for the Telegen bridge and private placement
financing, the slight increase of the amount of private placement financing to
be accomplished by SERC in order to fully fund the acquisition process and the
addition of indemnification provisions relative to Mr. Wiegand intended to give
comfort to the Telegen Board of Directors that there were no undisclosed
liabilities of SERC. These amendments included the provision of the pre-closing
approval by the shareholders of SERC of all of the propositions required in the
agreement, including the approval of the acquisition of Telegen and appointment
of the Telegen board as the board of SERC, the name change from SERC to Telegen,
the approval of the reverse split of one share for each 7.25 shares outstanding
and the redomiciliation of SERC into the State of California. In addition, a
Second Amendment dated as of April 9, 1996 to the Agreement and Plan of
Reorganization provides for, among other things, (i) the additions of the
conditions that a registration statement on Form S-4 must be filed by SERC, be
declared effective by the SEC and shareholder approval of SERC shall be obtained
prior to closing as conditions precedent to the obligation of Telegen to effect
the closing; (ii) the reincorporation of SERC as a California corporation at or
prior to the Effective Time of the Acquisition and substituting the newly formed
California corporation as the corporation subject to the informational reporting
requirements of the 1934 Act; and (iii) the increase from $130,000 to $200,000
in the amount Telegen shall reimburse SERC should Telegen cancel the Agreement
for any reason other than the failure of SERC to cure any breach of its
representations and warranties or to promptly close and permitting additional
fund raising activity on behalf of both SERC and Telegen; (iv) the extension of
the date beyond which either Telegen or SERC may terminate the Agreement from
April 30, 1996 to August 31, 1996; and (v) the requirement for audited Telegen
financial statements for the year ended December 31, 1995. Further, a Third
Amendment dated as of July 10, 1996 to the Agreement and Plan of Reorganization
provides for, among other things, (i) the extension of the date beyond which
either Telegen or SERC may terminate the Acquisition Agreement from August 31,
1996 to September 30, 1996 and (ii) the decrease in the amount that Telegen
shall reimburse to SERC should Telegen cancel the Acquisition Agreement for any
reason other than the failure of SERC to cure a breach of SERC's representations
and warranties or to promptly close from a maximum of $200,000 to an amount of
approximately $172,000. Also, a Fourth Amendment dated as of August 13, 1996 to
the Agreement and Plan of Reorganization provides for, among other things, the
addition of restrictions on the transferability of the SERC California common
stock to be issued in connection with the Acquisition to the purchasers of
Telegen Common stock pursuant to a private placement memorandum dated February
15, 1996.
SERC believes that Telegen will realize various benefits from the
reorganization by eliminating certain cost uncertainties, including general
stock market uncertainties that could negatively impact the successful sale of
new stock, which are associated with conducting a public offering pursuant to
the Securities Act through an underwriter. SERC and Telegen have actively
pursued and have established broker/dealer interest in making a market for
SERC's securities once the Acquisition is consummated and believe that a market
will develop, given that the private placement of Telegen shares raised
sufficient proceeds such that post-Acquisition SERC should have adequate assets
to allow it to qualify for the NASDAQ Small Cap Market. Further, Telegen has
developed and has in place prospective traders and market makers for the
post-Acquisition securities of SERC.
Telegen intends to apply for listing on the NASDAQ Small Cap market system
after the Registration Statement on Form S-4 of which this Information Statement
- -Prospectus is a part becomes effective. As a result of the Acquisition, it is
expected that SERC will (i) have in excess of $4 million in gross tangible
assets (ii) in excess of and $2 million in tangible net worth, (iii) at least
300 holders of SERC common stock and (iv) at least 100,000 publicaly held shares
of SERC common stock and thus, assuming that two registered and active market
makers are obtained and the securities will have a minimum bid price of $3 per
share, will satisfy the requirements for listing on the NASDAQ Small Cap market
system. However, there can be no assurance that a listing on the NASDAQ Small
Cap market system will be obtained.
Based on Management's expectations of the total shares to be outstanding
subsequent to the acquisition on a fully diluted basis, the current shareholders
of SERC will retain approximately 4.3% of the total issued and outstanding
common shares immediately after the Acquisition while providing what is
estimated to be a total of less than 1% of the total assets of the combined
companies on a proforma basis. During the negotiations of the structure of the
Acquisition in the latter part of 1995, a range of forecasted Telegen revenues
and earnings per share for 1996 was presented by the management of Telegen to
the management of SERC, and the parties agreed that a reasonable mid-point of
the range was approximately $.81 per share for 1996. Accordingly, from the
Telegen earnings per share estimate of approximately $.81, for which there is
now substantial doubt, based on Telegen's unaudited net loss of $1,446,952 for
the six months ended June 30, 1996, that actual Telegen results for 1996 will
reach, SERC management determined and Telegen management agreed that the
estimated market value of the combined companies should be approximately $14.50
per share on or before December 31, 1997, based on a price-earnings multiple of
18, which the parties agreed at that time was a reasonable multiple since it
approximated the average price-earnings multiple for companies in Telegen's
industry that were publicly traded. Because (i) the Telegen forcasts were from
documents internally generated for planning purposes only and accordingly did
not present in detail the underlying assumptions necessary to facilitate
verification, and (ii) any estimate of future revenues and earnings is
inherently subject to assumed levels of activity which may or may not actually
be realized, or which may take longer than expected to be realized, the parties
agreed to price protection provisions which reflect a two-year period ending
December 31, 1997 during which Telegen can meet the annual earnings per share
level of $.81 discussed above, for the protection of the current shareholders of
SERC against material differences between forecasts presented during the
negotiations of the value of Telegen and actual results whereby additional
shares will be issued to the shareholders of record of SERC on the date of
closing if the closing bid price of the combined companies, as adjusted for
stock splits and similar events, as reported either in the pink sheets, the
Bulletin Board maintained by NASDAQ, on NASDAQ or any national stock exchange
does not equal or exceed $14.50 per share on any ninety trading days for the
period commencing on the closing date and ending December 31, 1997 (the "Price
Protection Period"). Should the pricing fail to satisfy this provision,
additional shares will be issued to each of the current SERC shareholders based
on a formula hereinafter more fully described.
The reorganization has been structured such that Telegen shareholders will
receive registered securities. However, to avoid the uncertainty of whether the
private placement of 1,334,450 shares of Telegen common stock completed in May
1996 should, in part as a result of the disclosure in the related private
placement memorandum of the pending Acquisition and contemplated filing of the
Registration Statement of which this Information Statement-Prospectus is a part,
be deemed an integrated transaction with the Acquisition or the public offering
of shares of common stock without an effective registration statement, the
certificates for the 1,334,450 shares of SERC common stock to be received, if
the Acquisition is consummated, by the purchasers of Telegen common stock in the
private placement completed in May 1996 shall bear a restrictive legend which
will operate to prevent the transfer of such SERC stock, unless such stock is
separately registered through the filing of a registration statement under the
Securities Act of 1933 (the "1933 Act"), for a period of two years from the date
that such purchasers acquired the underlying Telegen common stock. It is
currently expected that any resale of such SERC shares occurring prior to the
expiration of the two year period will be separately registered through the
filing of a registration statement under the 1933 Act.
If a trading market again develops for SERC's common stock, Telegen
shareholders, other than the purchasers of 1,334,450 shares of Telegen common
stock in the private placement completed in May 1996, will own "publicly traded"
as opposed to "privately-held" securities. SERC believes that shares in a
publicly traded company could have an increased value as they are more liquid
and in some instances may be used by Telegen as payment for additional assets or
businesses that it may wish to acquire in the future.
The officers and directors of SERC have not conducted market research and
are not aware of statistical data which would support the perceived benefits of
a merger or acquisition transaction to Telegen shareholders. Additionally,
neither of the parties to the transaction had the benefit of an independent
evaluation of the fairness and reasonableness of the terms and conditions of the
transaction, but are relying solely on their arm's-length negotiations.
Current management of SERC has agreed to resign upon closing of the
reorganization and will not participate in future management unless invited to
do so.
The parties have retained the services of counsel and accountants in order
to properly effect the Acquisition. Through May 31, 1996, approximately $172,000
in legal and accounting fees had been incurred in connection with the
Acquisition. It is anticipated that an additional $98,000 will be spent on legal
and accounting fees to consummate the Acquisition. The parties believe that the
cash presently available to Telegen, which under the Agreement must pay for all
expenses related to the Acquisition incurred subsequent to May 31, 1996, is
adequate to cover all anticipated remaining expenses.
Summary of the Agreement
Introduction. The terms of the Acquisition are contained in the Agreement,
a copy of which appears as an exhibit to this Information Statement-Prospectus.
The statements in this Information Statement-Prospectus with respect to the
terms of the Acquisition are qualified in their entirety by reference to the
Agreement.
Under the Agreement, SERC California will acquire the capital stock of
Telegen with Telegen thereby becoming a wholly owned subsidiary of SERC
California.
Effective Time of the Acquisition. The Agreement provides that, as soon as
practicable on or after the closing, the parties are to cause the Acquisition to
be consummated by filing with the Secretary of State of the State of California
any documents required by law to effectuate the Acquisition. The Acquisition
shall be effective at the time such documents are duly filed and accepted for
record by the California Secretary of State (the "Effective Time").
Exchange Ratio of Telegen Common and Preferred Stock. At the Effective
Time, (i) each share of Telegen common stock issued and outstanding immediately
prior to the Effective Time shall, by virtue of the Acquisition and without any
action on the part of any holder, automatically be converted into, and
constitute a right to receive, one (1) share of SERC California common stock,
and (ii) each share of Telegen preferred stock issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Acquisition and
without any action on the part of any holder, automatically be converted into,
and constitute a right to receive, one (1) share of SERC California Series A
preferred stock.
Exchange of Certificates. As soon as practicable after the Effective Time,
United Stock Transfer, Inc. (the "Exchange Agent") shall mail to each holder of
record of Telegen common or preferred stock instructions for surrendering their
Telegen stock certificates (the "Old Telegen Certificates") in exchange for a
certificate or certificates representing the common or Series A preferred stock
of SERC California, which by then is expected to have changed its name to
Telegen (the "New Telegen Certificates"). Such instructions, which will include
a form letter of transmittal, shall specify that delivery of the New Telegen
Certificates shall be effected, and the risk of loss and title to the New
Telegen Certificates shall pass, only upon the Exchange Agent's receipt of the
Old Telegen Certificate from a holder of Telegen shares. Upon surrender of the
Old Telegen Certificate for exchange to the Exchange Agent, together with such
letter of transmittal and an Assignment Separate from Certificate duly executed
by the holder, the holder of such Old Telegen Certificate shall receive as soon
as possible in exchange therefor a New Telegen Certificate representing the SERC
California common or Series A preferred stock issuable pursuant to the
Acquisition.
From and after the Effective Time, the holders of Old Telegen Certificates
shall cease to have any rights as shareholders of Telegen, except the right to
enforce the obligation of SERC to issue the applicable number of shares of SERC
California common or Series A preferred stock as provided in the immediately
preceding paragraph.
Treatment of Telegen Stock Options. Outstanding options to purchase shares
of Telegen common stock issued and not previously exercised will be converted
into options to receive that number of shares of SERC California common stock as
equals the number of shares of Telegen common stock or Telegen preferred stock
for which such options were exercisable. All other terms of such options and
warrants shall remain in effect.
Conditions to the Acquisition. The obligations of SERC and Telegen to
consummate the Acquisition are subject to the satisfaction or waiver, at or
before the Effective Time, of certain conditions, including, but not limited to,
the following: (i) the registration statement on Form S-4 under the Securities
Act filed by SERC (the "Registration Statement") having become effective and no
stop order with respect to the Registration Statement being in effect or
threatened; (ii) neither SERC nor Telegen shall be subject to any order, decree
or injunction which enjoins or prohibits the consummation of the Acquisition;
and (iii) receipt by SERC of the requisite approval from the SERC stockholders
to consummate the Acquisition.
In addition to the conditions set forth in the first paragraph of this
subsection, the obligations of SERC to consummate the Acquisition are subject to
the fulfillment or waiver in writing by SERC of the following conditions: (i)
the representations and warranties made by Telegen being true in all material
respects; (ii) Telegen having performed all material agreements, obligations and
conditions contained in the Agreement required to be performed by it at or prior
to the Effective Time in all material respects; (iii) no material adverse
changes in the business, affairs, prospects, operations, properties, assets or
condition of Telegen and its subsidiaries, taken as a whole, having occurred;
(iv) all proceedings and documents in connection with the transactions
contemplated at the closing of the Acquisition being reasonably satisfactory to
SERC; and (v) all consents and approvals that in the reasonable opinion of
counsel for SERC are necessary to permit the Acquisition having been granted or
issued and having become effective.
In addition to the conditions set forth above, the obligations of Telegen
to consummate the Acquisition are subject to the fulfillment or waiver in
writing by Telegen of the following conditions: (i) the representations and
warranties made by SERC being true in all material respects; (ii) SERC having
performed all material agreements, obligations and conditions contained in the
Agreement required to be performed by it at or prior to the Effective Time in
all material respects; (iii) no material adverse changes in the business,
affairs, prospects, operations, properties, assets or condition of SERC, taken
as a whole, having occurred; (iv) all proceedings and documents in connection
with the transactions contemplated at the closing of the Acquisition being
reasonably satisfactory to Telegen; (v) all consents and approvals that in the
reasonable opinion of counsel for Telegen are necessary to permit the
Acquisition having been granted or issued and having become effective; (vi) the
SERC Board having amended the Articles of Incorporation of SERC pursuant to the
Agreement to effect a one share-for-seven and one-fourth shares (1 for 7.25)
reverse split of the common stock of SERC, and obtained the resignations of all
current SERC officers and directors, and shall have approved all necessary
resolutions such that immediately after the Effective Time, the current Telegen
directors will become members of the SERC California Board of Directors; and
(vii) the redomiciliation of SERC as a California corporation. See "SERC -
Matters to be Considered at the Special Meeting - Election of Directors" and " -
Description of the Agreement - Directors and Management of SERC Following the
Acquisition."
Certain Covenants. Pursuant to the Agreement, SERC has agreed that, during
the period between the execution of the Agreement and the Effective Time, it
will not engage in any practice, take any action, embark on any course of
inaction or enter into any transaction outside the ordinary course of business
without the consent of Telegen. In particular, SERC will not (i) declare, set
aside or pay any dividend or make any distribution with respect to its capital
stock or redeem, purchase or otherwise acquire any of its capital stock or (ii)
otherwise engage in any practice, take any action, embark on any course of
inaction or enter into any transaction which would result in a material adverse
change in the assets, liabilities, business, financial condition, operations,
results of operations or future prospects of SERC. In addition, SERC has agreed
that it shall not, without the prior written consent of Telegen, issue any
additional shares of any of its equity securities or any other securities
convertible into its equity securities. Further, SERC has terminated its
advertisements soliciting the interest of other potential target companies.
Pursuant to the Agreement, Telegen has agreed that during the period
between the execution of the Agreement and the Effective Time, Telegen will not
(i) declare, set aside or pay any dividend or make any distribution with respect
to its capital stock or redeem, purchase or otherwise acquire any of its capital
stock, (ii) otherwise engage in any practice, take any action, embark on any
course of inaction or enter into any transaction which would result in a
material adverse change in the assets, liabilities, business, financial
condition, operations, results of operations or future prospects of Telegen. In
addition, Telegen has agreed not to issue any equity securities without the
prior consent of SERC other than in connection with the bridge financing and the
private placement.
Nonsolicitation. The Agreement provides that neither party will, directly
or indirectly, or through representatives retained by such party, entertain or
enter into any agreement or understanding, or engage in any discussions with, or
furnish any information to, any person or entity, other than SERC or Telegen
with respect to any acquisition or merger transaction involving SERC or Telegen
or any of their subsidiaries. If Telegen receives any bona fide offer relating
to such a transaction, Telegen will provide SERC with immediate notice thereof
and shall not enter into any transaction or letter of intent with a third party
until SERC has the opportunity to discuss the opportunity and match or improve
upon the terms of such offer.
Representations and Warranties. The Agreement contains various
representations and warranties relating to, among other things: (i) each of
SERC's and Telegen's and certain of their respective subsidiaries' organizations
and similar corporate matters; (ii) each of SERC's and Telegen's and certain of
their respective subsidiaries; capital structures; (iii) the authorization by
SERC of the issuance of the SERC California common stock to the Telegen
shareholders; (iv) the corporate actions necessary for the execution of the
Agreement; (v) the accuracy of each of SERC's and Telegen's recent financial
statements and certain accounting matters; (vi) the absence of certain
liabilities; (vii) the absence of certain changes or events; (viii) legal
proceedings; (ix) the absence of certain labor controversies; (x) taxes; (xi)
retirement and other employee plans and matters relating to the Employee
Retirement Income Security Act of 1974, as amended; (xii) violations of law;
(xiii) title to property and sufficiency of assets; (xiv) ownership of patents,
trademarks, copyrights and other proprietary rights; (xv) compliance with
applicable U.S., federal, state and local laws and regulations; (xvi) accurate
disclosure of information, specifically the documents and reports filed by SERC
with the SEC and the accuracy of the information contained therein, and (xvii)
material agreements of SERC and Telegen.
Price Protection Provisions. Pursuant to the terms of the Agreement,
additional SERC California common shares are to be issued to those persons who
are shareholders of SERC immediately prior to the Effective Time (the "Protected
Shareholders") if the closing bid price of SERC California post-Acquisition (as
adjusted for stock splits and similar events), as reported in the Pink Sheets,
the Bulletin Board maintained by NASDAQ, or on the NASDAQ Stock Market or on a
national stock exchange, does not exceed or equal $14.50 per share on any ninety
trading days over the period occurring between the closing of the Acquisition
and December 31, 1997 (the "Price Protection Period"). If the closing bid price
does not exceed $14.50 for any ninety trading days over the Price Protection
Period, then additional SERC California shares will be issued under the
Agreement based on the average closing bid price for those ninety trading days
during the Price Protection Period with the highest average closing bid price
(the "Bid Price Factor"). Any SERC California common shares issued thereby are
to be distributed to the Protected Shareholders on a pro rata basis based on the
number of shares owned by each Protected Shareholder immediately prior to the
Effective Time. The number of additional shares to be distributed to the
Protected Shareholders, if any, is to be based on a formula whereby:
N = the number of shares to be issued
and N = (196,909 x (14.50 divided by Bid Price Factor)) - 196,909
(where 196,909 equals the number of
SERC common shares outstanding
immediately prior to the Effective Time
of the Acquisition, as adjusted to reflect
the proposed one share-for-seven and
one-fourth (1 for 7.25) reverse split of the
currently issued and outstanding shares of
SERC common stock)
The above formula has been adjusted to reflect the outstanding shares of
SERC common stock assuming shareholder approval of the one share-for-seven and
one-fourth shares (1 for 7.25) reverse split of the currently issued and
outstanding shares of SERC common stock approved by the Board of Directors. The
price protection formula is subject to adjustments for future changes in the
capitalization of SERC such as stock dividends and stock splits.
For purposes of the Registration Statement of which this Information
Statement-Prospectus is a part, 374,127 shares of SERC common stock are being
registered in connection with the possible issuance of such shares under the
price protection provisions. The share amount of 374,127 represents an estimate
based on the application of the above price protection formula using an
estimated Bid Price Factor of $5 per share, which is the share price received by
Telegen in connection with a private placement of in excess of 1.3 million
common shares completed in May 1996. To the extent that the number of shares, if
any, issued under the price protection provisions does not exceed 374,127, which
would be the result if the actual Bid Price Factor during the Price Protection
Period is no less than $5, the Protected Shareholders will receive shares
registered under the Registration Statement of which this Information
Statement-Prospectus is a part. To the extent that the number of shares issued
under the price protection formula exceeds 374,127, Telegen intends to satisfy
all state and federal securities laws in connection with the possible issuance
of such price protection shares, including the filing of a registration
statement under the Securities Act of 1933, if required.
Indemnity and Share Escrow. Pursuant to the terms of the Agreement, James
B. Wiegand, who currently is the principal shareholder of SERC, is to execute an
Indemnification Agreement with respect to any breaches of representations and
warranties or covenants under the Agreement by SERC. Telegen's sole and
exclusive recourse under such Indemnification Agreement will be to an escrow
established for such purpose into which Mr. Wiegand is to contribute 70,000
shares of SERC common stock, which number of shares is subject to adjustment
from stock splits or other adjustments.
Termination. The Agreement may be terminated prior to the Effective Time:
(i) by the mutual consent of SERC and Telegen; (ii) by either SERC or Telegen if
there has been a material breach of any representation, warranty, covenant or
agreement contained in the Agreement on the part of the other party set forth in
the Agreement and such breach of a covenant or agreement has not been promptly
cured; (iii) by either SERC or Telegen if the Acquisition shall not have been
consummated on or before September 30, 1996; (iv) by either SERC or Telegen if
(a) there shall be a final nonappealable order of a federal or state court in
effect preventing consummation of the Acquisition or (b) there shall be any
action deemed applicable to the Acquisition by any governmental entity which
would make a consummation of the Acquisition illegal; (v) by either SERC or
Telegen if there shall be any action taken, or any statute, rule, regulation or
order that would render SERC or Telegen unable to consummate the Acquisition,
except for any waiting period provisions.
Liability for Expenses Upon Termination. If the Agreement is terminated by
Telegen for any reason other than the failure of SERC to cure a breach of SERC's
representations and warranties or a failure to close the Acquisition on a timely
basis, Telegen must reimburse the actual legal fees and expenses incurred by
SERC and advanced to Telegen by SERC to assist Telegen in completion of the
Agreement through the date of termination, in an amount not to exceed $172,000.
Waiver and Amendment. The Agreement may, to the maximum extent permitted by
law, be amended by the written agreement of SERC and Telegen, by action taken by
their respective Boards of Directors. In addition, any term, provision or
condition of the Agreement may be waived in writing by the party which is
entitled to the benefits thereof.
Vote Required
To conserve resources, the Agreement was structured such that approval of
the Agreement by the shareholders of SERC and the shareholders of Telegen is not
required by law. However, the SERC Board of Directors has directed that the
Agreement be submitted to the shareholders of SERC for their approval as
outlined in the proposals for the Special Meetings of SERC shareholders. Since
SERC's principal shareholder, who beneficially owns 53.7% of the outstanding
SERC common stock entitled to vote on the Agreement, will vote in favor of the
Agreement, approval of the Agreement by a majority of SERC shares is assured.
Therefore, assuming that neither SERC nor Telegen terminates the Agreement, the
shareholders of Telegen will become shareholders of SERC California (after
giving effect to the proposed redomiciliation of SERC as a California
corporation) at the exchange rate of one share of SERC California common stock
(after giving effect to the proposed one share-for-seven and one-fourth (1 for
7.25) reverse split of the currently issued and outstanding shares of SERC
common stock) and one share of SERC Series A preferred stock for each issued and
outstanding share of Telegen common stock and preferred stock, respectively.
(See "The Agreement" and Availability of Appraisal Rights for Dissenting
Shareholders).
Availability of Appraisal Rights for Dissenting Shareholders
Under Colorado and California law, appraisal rights for dissenting
shareholders will not be available to the shareholders of SERC with respect to
the Acquisition since SERC is the acquiring entity in the Acquisition.
Under California law, appraisal rights for dissenting shareholders will not
be available to the shareholders of Telegen with respect to the Acquisition
since Telegen is being acquired by a California corporation and the Telegen
shareholders are receiving in exchange for their shares of Telegen shares of a
California corporation.
The SERC Board of Directors and Management Following the Acquisition
Pursuant to the terms of the Agreement, the SERC California Board of
Directors following the Acquisition is to be made up of the six current
directors of Telegen. Three of the current Telegen directors are independent
directors, as defined in the Rules of the National Associated of Securities
Dealers, Inc., and such independent directors are to be appointed to the Audit
and Compensation Committees of the SERC California Board of Directors.
Resale of SERC Common and Series A Preferred Stock
The shares of SERC California common and Series A preferred stock to be
issued to the shareholders of Telegen in connection with the Acquisition are
being registered under the Securities Act by the Registration Statement within
which this Information Statement-Prospectus is being included. In addition, for
purposes of the Registration Statement of which this Information
Statement-Prospectus is a part, 374,127 shares of SERC common stock are being
registered in connection with the possible issuance of such shares under the
price protection provisions. The share amount of 374,127 represents an estimate
based on the application of the above price protection formula using an
estimated Bid Price Factor of $5 per share, which is the share price received by
Telegen in connection with a private placement of in excess of 1.3 million
common shares completed in May 1996. To the extent that the number of shares, if
any, issued under the price protection provisions does not exceed 374,127, which
would be the result if the actual Bid Price Factor during the Price Protection
Period is no less than $5, the Protected Shareholders will receive shares
registered under the Registration Statement of which this Information
Statement-Prospectus is a part. To the extent that the number of shares issued
under the price protection formula exceeds 374,127, Telegen intends to satisfy
all state and federal securities laws in connection with the possible issuance
of such price protection shares, including the filing of a registration
statement under the Securities Act of 1933, if required. No lockup agreements
were required as a result of agreement to the Price Protection Provisions
contained in the Agreement.
The private placement memorandum provided to the offerees in the private
placement of 1,334,450 shares of Telegen common stock completed in May 1996
disclosed the pending Acquisition and the contemplated filing of the
Registration Statement of which this Information Statement-Prospectus is a part.
To avoid the uncertainty of whether the private placement should be deemed an
integrated transaction with the Acquisition or the public offering of shares of
common stock without an effective registration statement, the certificates for
the 1,334,450 shares of SERC common stock to be received, if the Acquisition is
consummated, by the purchasers of Telegen common stock in the private placement
completed in May 1996 shall bear a restrictive legend which will operate to
prevent the transfer of such SERC stock, unless such stock is separately
registered through the filing of a registration statement under the Securities
Act of 1933 (the "1933 Act"), for a period of two years from the date that such
purchasers acquired the underlying Telegen common stock. It is currently
expected that any resale of such SERC shares occurring prior to the expiration
of the two year period will be separately registered through the filing of a
registration statement under the Securities Act of 1933 Act.
Federal Income Tax Consequences of the Acquisition
A ruling from the Internal Revenue Service concerning the tax consequences
of the Acquisition has not been requested. While the parties have used their
best efforts to structure the Acquisition in such a manner as to minimize
federal and state tax consequences to SERC and Telegen through the Acquisition's
treatment for tax purposes as a "tax-free" reorganization under Section 368(a)
of the Internal Revenue Code of 1986, as amended, there can be no assurance that
the Acquisition will result in such tax treatment. However, since SERC is a
development stage company with essentially no operating assets and minimal net
worth, the parties believe that any taxable gain to be recognized on the receipt
of SERC's shares by the shareholders of Telegen would be insignificant.
Accordingly, the respective managements of SERC and Telegen believe that the tax
consequences of the Acquisition are not material to investors.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION PURPOSES ONLY. BECAUSE OF THE COMPLEXITIES OF FEDERAL INCOME TAX
LAWS, EACH TELEGEN SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR AS
TO THE SPECIFIC TAX CONSEQUENCES OF THE ACQUISITION TO HIM OR HER, INCLUDING
INCOME TAX RETURN REPORTING REQUIREMENTS AND THE APPLICABILITY AND EFFECT OF
STATE, LOCAL AND OTHER TAX LAWS.
Expenses of the Acquisition
SERC has advanced to Telegen and has incurred certain costs and expenses on
Telegen's behalf, including its legal and accounting fees, to assist Telegen in
the completion of the Acquisition. Should Telegen cancel the Agreement for any
reason other than a failure of SERC to cure a breach of SERC's representations
and warranties under the Agreement, Telegen is obligated under the Agreement to
reimburse SERC for such costs and expenses, and other expenses incurred by SERC
related to the Agreement, up to $172,000.
Comparison of Rights of Holders of SERC Stock Under Colorado and California Law
SERC and Telegen are incorporated under the laws of the States of Colorado
and California, respectively. As part of the Acquisition, it is intended that
SERC redomicile as a California corporation. As a result, the rights of SERC
shareholders which are currently governed by the laws of the State of Colorado
will be governed by the State of California. The corporation laws of Colorado
and California differ in many respects. In particular, the rights of
shareholders are materially different with respect to the removal of directors,
the classification of the board of directors, indemnification and limitation of
liability, inspection of shareholder lists, dividends and repurchase of shares,
shareholder voting, interested director transactions, shareholder derivative
suits, appraisal rights and dissolution. See "INFORMATION CONCERNING THE SERC
SPECIAL MEETING - Matters to be Considered at Special Meeting."
INFORMATION CONCERNING THE SERC SPECIAL MEETING
Matters to be Considered at Special Meeting
At the SERC Special Meeting of Shareholders, the SERC shareholders will
consider and vote upon the following matters:
1. Approval of an Agreement and Plan of Reorganization, as amended (the
"Agreement"), by and among SERC, Telegen Corporation, a California
corporation ("Telegen"), Solar Energy Research Corp. of California, a
California corporation and wholly owned subsidiary of SERC ("SERC
California"), and Telegen Acquisition Corporation, a California corporation
and wholly owned subsidiary of SERC ("TAC"), pursuant to which SERC
California will acquire all of Telegen's outstanding capital stock through
a merger of TAC with and into Telegen with Telegen thereby becoming a
wholly owned subsidiary of SERC California (the "Acquisition").
2. Approval of the redomiciliation of SERC as a California corporation.
3. Ratification of the one share-for-seven and one-fourth shares (1 for 7.25)
reverse split of the currently issued and outstanding shares of SERC common
stock approved by the Board of Directors.
4. Election to the SERC board of directors of the six current Telegen
directors to fill the vacancies resulting from the resignations of the
current SERC directors pursuant to the terms of the Agreement.
5. Approval of an amendment to the Articles of Incorporation to change the
name of SERC California to Telegen Corporation.
HOLDERS OF SERC STOCK ARE NOT BEING ASKED FOR A PROXY AND ARE REQUESTED NOT TO
SEND A PROXY.
Arrangements will be made with brokerage houses and other custodians,
nominees and fiduciaries for the forwarding of this Information-Prospectus to
the beneficial owners of stock held of record by such persons, and SERC will
reimburse such custodians, nominees and fiduciaries for reasonable out-of-pocket
expenses incurred in connection therewith. SERC is being assisted by ADP in this
regard.
A majority in interest of the common shareholders on the record date must
be present, in person or by proxy, at the Meeting to constitute a quorum. Each
share of common stock will carry one vote on each of both proposals described
below, as well as on any other matters which may properly come before the
Meeting.
So far as SERC is aware, no matters other than the ones outlined in this
Information Statement will be presented at the Meeting for action on the part of
the shareholders. If any other matters are properly brought before the Meeting,
the persons present will vote as they feel appropriate in accordance with their
best judgment.
The shares beneficially owned by James B. Wiegand, Chairman of the Board of
Directors and President of SERC, which total approximately 53.7% of the
outstanding shares, will be voted in favor of each of both proposals described
below. Therefore, all of the proposals will be approved by the required
affirmative vote.
1. Approval of the Acquisition. The Board of Directors of SERC have
approved and directed for submission to the SERC shareholders for approval the
Agreement and Plan of Reorganization, as amended (the "Agreement"), by and among
SERC, Telegen Corporation, a California corporation ("Telegen"), Solar Energy
Research Corp. of California, a California corporation and wholly owned
subsidiary of SERC ("SERC California"), and Telegen Acquisition Corporation, a
California corporation and wholly owned subsidiary of SERC ("TAC"), pursuant to
which: (i) SERC California (after giving effect to the proposed redomiciliation
of SERC as a California corporation) will acquire all of Telegen's outstanding
capital stock through a merger of TAC with and into Telegen with Telegen thereby
becoming a wholly owned subsidiary of SERC California (the "Acquisition"); (ii)
SERC California will issue one (1) share of its common stock (after giving
effect to the one share-for-seven and one-fourth shares (1 for 7.25) reverse
split of the issued and outstanding SERC common stock as outlined below) for
each share of Telegen common stock issued and outstanding at the closing; (iii)
SERC California will issue one (1) share of its Series A preferred stock for
each share of Telegen preferred stock issued and outstanding at the closing; and
(iv) SERC California will issue one option to acquire a share of SERC
California's common stock in exchange for each outstanding option to acquire a
share of Telegen common stock.
The SERC Board of Directors believes the Acquisition is in the best
interests of SERC and its shareholders due to a number of factors, including (i)
the enhanced business opportunities resulting from the acquisition of Telegen's
business; (ii) the assets, operations and prospects of Telegen; (iii) the
relative value of SERC capital stock resulting from SERC's status as a
development state corporation with substantial doubt abouts its ability to
continue as a going concern but subject to the informational reporting
requirements of the Exchange Act, as compared to the estimated value of Telegen
capital stock as incorporated into the price protection provisions of the
Agreement which protect the currant shareholders of SERC; and (iv) the belief
that the consideration proposed to be paid by SERC in the issuance of its shares
to acquire Telegen is fair to the shareholders of SERC from a financial point of
view. See "THE ACQUISITION - Background of the Acquisition" and "Summary of
Agreement."
2. Redomiciliation of SERC in California. The SERC Board of Directors has
determined that, for the purpose of corporate governance, it is in the best
interest of SERC to reincorporate SERC pursuant to the laws of the State of
California. California is the corporate domicile of Telegen. The intention of
the Board once shareholder approval is received, is to merge SERC with and into
SERC California. Shareholders will have the option of returning their stock
certificates for reissuance of the same number of shares, with the same par
value and rights as they currently have, or in the alternative, will be able to
keep their share certificates knowing that upon transfer, new certificates will
be issued listing California as the state of incorporation. The number of shares
that will be authorized for issuance, issued and outstanding will be identical
before and after the completion of the redomiciliation of SERC.
Introduction
The Board of Directors believes that the best interests of SERC and its
shareholders will be served by changing the state of incorporation of SERC from
Colorado to California (the "Reincorporation Proposal" or the "Proposed
Reincorporation").
Under the circumstances of the Agreement, SERC may exchange its shares for
all of the issued and outstanding shares of Telegen without a shareholder vote
and without dissenter's rights or rights of appraisal if it is being acquired by
a California corporation. In preparation for the completion of the Agreement
with Telegen, SERC agreed to reincorporate into the State of California in an
effort to eliminate the requirement and therefore reduce the costs and expenses
of completing the Agreement. Management had previously agreed to reincorporate
into California subsequent to the merger and since SERC determined to deliver an
Information Statement-Prospectus, it elected to include the Reincorporation
Proposal with this document.
The proposed California certificate of incorporation and bylaws are
substantially similar to those currently in effect in Colorado, with the
exception that cumulative voting (permitted but never to date exercised by
SERC's shareholders) and par value will be eliminated. The Reincorporation
Proposal is not being proposed in order to prevent an unsolicited takeover
attempt, nor is it in response to any present attempt known to the Board of
Directors to acquire control of the Company, obtain representation on the Board
of Directors or take significant action that affects the Company. Throughout the
Information Statement, the term "SERC Colorado" refers to the existing Colorado
corporation and the term "SERC California" refers to the new proposed California
corporation, a wholly-owned subsidiary of SERC Colorado, which is the proposed
successor to SERC Colorado.
The Reincorporation Proposal will be effected by merging SERC Colorado into
SERC California (the "Reincorporation Merger"). Upon completion of the Merger,
SERC Colorado will cease to exist and SERC California will continue to operate
the business of the Company under the name SERC, Inc. Pursuant to the Agreement
and Plan of Merger between SERC California and SERC Colorado each outstanding
share of SERC Colorado Common Stock, $.50 par value, will automatically be
converted into one share of SERC California Common Stock, no par value. IT IS
NOT NECESSARY FOR SHAREHOLDERS TO EXCHANGE THEIR EXISTING STOCK CERTIFICATES FOR
STOCK CERTIFICATES OF SERC CALIFORNIA.
Upon the date on which the Reincorporation Merger is effective, SERC
California will also assume and continue the outstanding stock warrants of SERC
Colorado. Each outstanding and unexercised warrant or other right to purchase
shares of SERC Colorado Common Stock will become an warrant or right to purchase
the same number of shares of SERC California Common Stock on the same terms and
conditions and at the same exercise price applicable to any such SERC Colorado
option or stock purchase right at the Effective Date.
The Proposed Reincorporation has been unanimously approved by SERC
Colorado's Board of Directors. It is anticipated that the effective date of the
Reincorporation Merger will be as soon as reasonably practicable following the
Special Meeting of Shareholders where formal shareholder approval is assured.
However, pursuant to the reincorporation merger agreement, the Reincorporation
Merger may be abandoned or the merger agreement may be amended by the Board of
Directors (except that certain principal terms may not be amended without
shareholder approval) either before or after shareholder approval has been
obtained and prior to the Effective Date of the Proposed Reincorporation if, in
the opinion of the Board of Directors of either company, circumstances arise
that make it inadvisable to proceed. Such would be the case if the Agreement to
acquire Telegen is terminated or abandoned by any party thereto.
Shareholders of SERC Colorado will have no dissenter's rights of appraisal
with respect to the Reincorporation Proposal. The discussion set forth below is
qualified in its entirety by reference to the Reincorporation Merger Agreement,
the Certificate of Incorporation and the Bylaws of SERC California, copies of
which may be obtained from SERC free of charge upon request.
Vote Required for the Reincorporation Proposal
Approval of the Reincorporation Proposal, which will also constitute
approval of the (i) Merger Agreement, the Certificate of Incorporation and the
Bylaws of SERC California, and (ii) the assumption of SERC Colorado's
outstanding stock options by SERC California, will require the affirmative vote
of the holders of a majority of the outstanding shares of SERC Colorado Common
Stock. Since Management has agreed to vote in favor of the Reincorporation
Proposal passage is assured.
Principal Reasons for the Proposed Reincorporation
Based on the above, management of SERC and Telegen determined that an
effort to cut back on the substantial costs of a shareholder meeting and the
additional potential expense relating to dissenter's and appraisal rights, it
was in the best interest of the parties to the agreement to accomplish the
reincorporation of SERC prior to the closing of the Telegen Acquisition.
This reincorporation is a condition precedent to the completion of the
agreement as amended. All agreements that are in effect by and between SERC and
Telegen at or prior to the effective date of the reincorporation will become the
obligations of SERC California. The Proposed Reincorporation will not result in
any change in the name, business, management, fiscal year, assets or liabilities
(except to the extent of legal and other costs of affecting the Reincorporation)
or location of the principal facilities of SERC. The officers and directors of
SERC Colorado prior to the Reincorporation will become the officers and
directors of SERC California. All employee agreements and compensation
agreements of SERC Colorado will be assumed and continued by SERC California.
All stock options, warrants or other rights to acquire common stock of SERC
Colorado will automatically be converted into an option or right to purchase the
same number of shares of SERC California common stock at the same price per
share on the same terms and subject to the same conditions.
The Charters and Bylaws of SERC Colorado and SERC California
The provisions of the SERC Colorado Articles of Incorporation and Bylaws
are substantially similar to those of the SERC California Articles of
Incorporation and Bylaws in all respects except that the SERC California
Articles, as a requirement of California law, require that shareholders be
permitted to vote their shares cumulatively under certain circumstances relating
to the election of the Board of Directors. (For a detailed discussion of
cumulative voting rights in California, see "Significant Differences Between the
Corporation Laws of Colorado and California".)
The Articles of Incorporation of SERC Colorado currently authorize the
company to issue up to 100,000,000 shares of common stock, $.50 par value, and
25,000,000 shares of no par value Series A preferred stock. The Certificate of
Incorporation of SERC California provides for the same capital structure except
there is no par value for the Common Shares. The Board of Directors has the
authority under both Colorado and California law to determine the powers,
preferences and rights and the qualifications, limitations or restrictions of
the authorized and unissued Series A preferred stock. Thus effectively the Board
of Directors without shareholder approval could authorize the issuance of a
class of preferred stock under either the laws of Colorado or California which
could have the effect of delaying or preventing a change in control of the
company or of modifying the rights of holders of the company's issued and
outstanding common stock. The Board of Directors could also utilize such shares
for further financings, possible acquisitions or other uses.
Compliance with Colorado and California Law
Following the Special Meeting of Shareholders, SERC will submit the Merger
Agreement to the offices of the Colorado Secretary of State and to the office of
the California Secretary of State for filing. The redomiciliation will be
effective upon the filings being accepted by the Secretaries of State.
Significant Differences Between the Corporation Laws of Colorado and California
The corporation laws of Colorado and California differ in many respects.
Although all the differences are not set forth in this Information
Statement-Prospectus, certain provisions which could materially affect the
rights of shareholders, are discussed below.
Removal of Directors
The corporation may remove directors, with or without cause, with the
approval of a majority of the outstanding shares entitled to vote. However, no
director may be removed if the number of votes cast against such removal would
be sufficient to elect the director. Under Colorado law, a director of a
corporation that does not have a staggered board of directors or cumulative
voting may be removed with or without cause with the approval of a majority of
the outstanding shares entitled to vote at an election of directors. In the case
of a Colorado corporation having cumulative voting, if less than the entire
board is to be removed, a director may not be removed without cause if the
number of shares voted against such removal would be sufficient to elect the
director under cumulative voting. Under California law, any director or the
entire board of directors may be removed, with or without cause, with the
approval of a majority of the outstanding shares entitled to vote; however, no
individual director may be removed (unless the entire board is removed) if the
number of votes cast against such removal would be sufficient to elect the
director under cumulative voting.
Classified Board of Directors
A classified or staggered (term in Colorado) board is one on which a
certain number, but not all, of the directors are elected on a rotating basis
each year. This method of electing directors makes changes in the composition of
the board of directors more difficult, and thus a potential change in control of
a corporation a lengthier and more difficult process. The SERC Colorado
Certificate of Incorporation and Bylaws do not provide for a staggered board and
SERC Colorado presently does not intend to establish a staggered board. The
establishment of a classified board following the Proposed Reincorporation would
require the approval of the stockholders of SERC Colorado. Pursuant to
legislation which became effective on January 1, 1990, California law now
permits certain qualifying corporations to provide for a classified board of
directors by adopting amendments to their articles of incorporation or bylaws,
which amendments must be approved by the shareholders. Although SERC California
qualifies to adopt a classified board of directors, its Board of Directors has
no present intention of doing so. Colorado law permits, but does not require, a
staggered board of directors, pursuant to which the directors can be divided
into as many as three classes with staggered terms of office, with only one
class of directors standing for election each year.
Indemnification and Limitation of Liability
California and Colorado have similar laws respecting indemnification by a
corporation of its officers, directors, employees and other agents. The laws of
both states also permit, with certain exceptions, a corporation to adopt a
provision in its articles of incorporation or certificate of incorporation, as
the case may be, eliminating the liability of a director to the corporation or
its shareholders for monetary damages for breach of the director's fiduciary
duty. There are nonetheless certain differences between the laws of the two
states respecting indemnification and limitation of liability.
The Articles of Incorporation of SERC California eliminate the liability of
directors to the corporation to the fullest extent permissible under California
law. California law does not permit the elimination of monetary liability where
such liability is based on: (a) intentional misconduct or knowing and culpable
violation of law; (b) acts or omissions that a director believes to be contrary
to the best interests of the corporation or its shareholders, or that involve
the absence of good faith on the part of the director; (c) receipt of an
improper personal benefit; (d) acts or omissions that show reckless disregard
for the director's duty to the corporation or its shareholders, where the
director in the ordinary course of performing a director's duties should be
aware of a risk of serious injury to the corporation or its shareholders; (e)
acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the director's duty to the corporation and its
shareholders; (f) interested transactions between the corporation and a director
in which a director has a material financial interest; and (g) liability for
improper distributions, loans or guarantees.
While Colorado law provides for the elimination of director liability, the
Certificate of Incorporation of SERC Colorado does not eliminate the liability
of directors to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director.
Colorado law generally permits indemnification of director expenses,
including attorney's fees, actually and reasonably incurred in the defense or
settlement of a derivative or third-party action, provided there is a
determination by a majority vote of a disinterested quorum of the directors, by
independent legal counsel or by a majority vote of a quorum of the stockholders
that the person seeking indemnification acted in good faith and in a manner
reasonably believed to be in the best interests of the corporation. Without
court approval, however, no indemnification may be made in respect of any
derivative action in which such person is adjudged liable for negligence or
misconduct in the performance of his or her duty to the corporation. Colorado
law requires indemnification of director expenses when the individual being
indemnified has successfully defended any action, claim, issue, or matter
therein, on the merits or otherwise.
California law permits indemnification of expenses incurred in derivative
or third-party actions, except that with respect to derivative actions (a) no
indemnification may be made when a person is adjudged liable to the corporation
in the performance of that person's duty to the corporation and its shareholders
unless a court determines such person is entitled to indemnify for expenses, and
then such indemnification may be made only to the extent that such court shall
determine, and (b) no indemnification may be made without court approval in
respect of amounts paid or expenses incurred in settling or otherwise disposing
of a threatened or pending action or amounts incurred in defending a pending
action that is settled or otherwise disposed of without court approval.
California law requires indemnification when the individual has defended
successfully the action on the merits (as opposed to Colorado law, which
requires indemnification relating to a successful defense on the merits or
otherwise).
Expenses incurred by an officer or director in defending an action may be
paid in advance, under Colorado law and California law, if such director or
officer undertakes to repay such amounts if it is ultimately determined that he
or she is not entitled to indemnification. In addition, the laws of both states
authorize a corporation's purchase of indemnity insurance for the benefit of its
officers, directors, employees and agents whether or not the corporation would
have the power to indemnify against the liability covered by the policy.
California law permits a California corporation to provide rights to
indemnification beyond those provided therein to the extent such additional
indemnification is authorized in the corporation's articles of incorporation.
Thus, if so authorized, rights to indemnification may be provided pursuant to
agreements or bylaw provisions which make mandatory the permissive
indemnification provided by California law. Under California law, there are two
limitations on such additional rights to indemnification; (i) such
indemnification is not permitted for acts, omissions or transactions from which
a director of a California corporation may not be relieved of personal liability
as described above; and (ii) such indemnification is not permitted in
circumstances where California law expressly prohibits indemnification, as
described above. SERC California's Articles of Incorporation permit
indemnification beyond that expressly mandated by the California Corporations
Code and limits director monetary liability to the extent permitted by
California law. SERC California plans to adopt the indemnification agreements
that are in force with the Telegen officers and directors.
A provision of Colorado law states that, except with regard to directors,
the indemnifications provided by statute shall not be deemed exclusive of any
other rights under any bylaw, agreement, vote of stockholders or directors or
otherwise. SERC Colorado has no additional rights of indemnification in place
except as provided by Colorado law.
Inspection of Shareholder List
Both California and Colorado law allow any shareholder to inspect the
shareholder list for a purpose reasonably related to such person's interests as
a shareholder. California law provides, in addition, for an absolute right to
inspect and copy the corporation's shareholder list by persons holding an
aggregate of five percent (5%) or more of a corporation's voting shares, or
shareholders holding an aggregate of one percent (1%) or more of such shares who
have filed a Schedule 14B under the revised proxy rules. Under California law,
such absolute inspection rights also apply to a corporation formed under the
laws of any other state if its principal executive offices are in California or
if it customarily holds meetings of its board in California. Colorado law
contains no provisions comparable to the absolute right of inspection provided
by California law to certain shareholders and limits the inspection rights to
periods after notice of a meeting through and including during the meeting.
Dividends and Repurchases of Shares
Both Colorado and California law dispense with the concepts of par value of
shares as well as statutory definitions of capital, surplus and the like.
Colorado law permits a corporation to declare and pay dividends unless,
after giving it effect: (a) the corporation would not be able to pay its debts
as they become due in the usual course of business; or (b) the corporation's
total assets would be less than the sum of its total liabilities plus (unless
the articles of incorporation permit otherwise) the amount that would be needed,
if the corporation were to be dissolved at the time of the distribution, to
satisfy the preferential rights upon dissolution of shareholders whose
preferential rights are superior to those receiving the distribution.
Under California law, a corporation may not make any distribution
(including dividends, whether in cash or other property, and repurchase of its
shares, other than repurchase of its shares issued under employee stock plans
contemplated by Section 408 of the California Corporations Code) unless either
(i) the corporation's retained earnings immediately prior to the proposed
distribution equal or exceed the amount of the proposed distribution, or (ii)
immediately after giving effect to such distribution, the corporation's assets
(exclusive of goodwill, capitalized research and development expenses and
deferred charges) would be at least equal to 1 1/4 times its liabilities (not
including deferred taxes, deferred income and other deferred credits), and the
corporation's current assets would be at least equal to its current liabilities
(or 1 1/4 times its current liabilities if the average pre-tax and pre-interest
expense earnings for the preceding two fiscal years were less than the average
interest expenses for such years). Such tests are applied to California
corporations on a consolidated basis.
To date, the Company has not paid any cash dividends.
Shareholder Voting
Both California and Colorado law generally require that a majority of the
shareholders of both acquiring and target corporations approve statutory
mergers. Colorado law does not require a stockholder vote of the surviving
corporation in a merger (unless the corporation provides otherwise in its
certificate of incorporation) if (a) the merger agreement does not amend the
existing certificate of incorporation, (b) each share of the stock of the
surviving corporations outstanding immediately before the effective date of the
merger is an identical outstanding of treasury share after the merger, and (c)
either no shares of common stock of the surviving corporation and no shares,
securities or obligations convertible into such stock are to be issued or
delivered under the plan of merger, or the authorized unissued shares or the
treasury shares of common stock of the surviving corporation to be issued or
delivered under the plan of merger plus those initially issuable upon conversion
of any other shares, securities or obligations to be issued or delivered under
such plan do not exceed twenty percent (20%) of the shares of common stock of
such constituent corporation outstanding immediately prior to the effective date
of the merger. California law contains a similar exception to its voting
requirements for reorganizations where shareholders of the corporation itself,
or both, immediately prior to the reorganization will own immediately after the
reorganization equity securities constituting more than five sixths of the
voting power of the surviving or acquiring corporation or its parent entity.
Both California law and Colorado law also require that a sale of all or
substantially all of the assets of a corporation be approved by a majority of
the outstanding voting shares of the corporation transferring such assets.
With certain exceptions, California law also requires that mergers,
reorganizations, certain sales of assets, and similar transactions be approved
by a majority vote of each class of shares outstanding. In contrast, Colorado
law generally does not require class voting, except in certain transactions
involving an amendment to the certificate of incorporation that adversely
affects a specific class of shares or where the class of securities designates
such a right. As a result, shareholder approval of such transactions may be
easier to obtain under Colorado law for companies which have more than one class
of shares outstanding.
California law also requires that holders of nonredeemable common stock
receive nonredeemable common stock in a merger of the corporation with the
holder of more than fifty percent (50%) but less than ninety percent (90%) of
such common stock or its affiliate unless all of the holders of such common
stock consent to the transaction. This provision of California law may have the
affect of making a "cash-out" merger by a majority shareholder more difficult to
accomplish. Colorado law does not parallel California law in this respect.
California law provides that, except in certain circumstances, when a
tender offer or a proposal for a reorganization or for a sale of assets is made
by an interested party (generally a controlling or managing person of the target
corporation), an affirmative opinion in writing as to the fairness of the
consideration to be paid to the shareholders must be delivered to shareholders.
This fairness opinion requirement does not apply to a corporation that does not
have shares held of record by at least 100 persons, or to a transaction that has
been qualified under California state securities laws. Furthermore, if a tender
of shares or vote is sought pursuant to an interested party's proposal and a
later proposal is made by another party at least ten days prior to the date of
the acceptance of the interested party proposal, the shareholders must be
informed of the later offer and be afforded a reasonable opportunity to withdraw
any vote, consent or proxy, or to withdraw any tendered shares. Colorado law has
no comparable provision.
Interested Director Transactions
Under both California and Colorado law, certain contracts or transactions
in which one or more of a corporation's directors has an interest are not void
or voidable because of such interest provided that certain conditions, such as
obtaining the required approval and fulfilling the requirements of good faith
and full disclosure, are met. With certain exceptions, the conditions are
similar under California and Colorado law. Under California and Colorado law,
(a) either the shareholders or the board of directors must approve any such
contract or transaction after full disclosure of the material facts, and, in the
case of board approval, the contract or transaction must also be "just and
reasonable" (in California) or "fair" (in Colorado) to the corporation, or (b)
the contract or transaction must have been just and reasonable or fair as to the
corporation at the time it was approved. In the latter case, California law
explicitly places the burden of proof on the interested director. Under
California law, if shareholder approval is sought, the interested director is
not entitled to vote his shares at a shareholder meeting with respect to any
action regarding such contract or transaction. If board approval is sought, the
contract or transaction must be approved by a majority vote of a quorum of the
directors, without counting the vote of any interested directors (except that
interested directors may be counted for purposes of establishing a quorum).
Therefore, certain transactions that the Board of Directors of SERC California
might not be able to approve because of the number of interested directors,
could be approved by a majority of the disinterested directors of Colorado,
although less than a majority of a quorum. The Company is not aware of any plans
to propose any transaction involving directors of the Company that could not be
so approved under California law but could be so approved under Colorado law.
Shareholder Derivative Suits
California law provides that a shareholder bringing a derivative action on
behalf of a corporation need not have been a shareholder at the time of the
transaction in question, provided that certain tests are met. Under Colorado
law, a stockholder may bring a derivative action on behalf of the corporation
only if the stockholder was a stockholder of the corporation at the time of the
transaction in question or if his or her stock thereafter devolved upon him or
her by operation of law. Both Colorado and California law also provide that the
corporation or the defendant in a derivative suit may make a motion to the court
for an order requiring the plaintiff shareholder to furnish a security bond.
Appraisal Rights
Under both California and Colorado law, a shareholder of a corporation
participating in certain major corporate transactions may, under varying
circumstances, be entitled to appraisal/dissenters' rights pursuant to which
such shareholder may receive cash in the amount of the fair market value of his
or her shares in lieu of the consideration he or she would otherwise receive in
the transaction. Under Colorado law, such fair market value is determined
exclusive of any element of value arising from the accomplishment or expectation
of the merger or consolidation and such appraisal rights are not available to
stockholders of a corporation surviving a merger if no vote of the stockholders
of the surviving corporation is required to approve the merger or share exchange
under certain provisions of Colorado law. Appraisal or dissenters' rights are
not available to shareholders of SERC Colorado with respect to the
Reincorporation Proposal. California law generally affords appraisal rights in
sale or asset reorganizations.
The limitations on the availability of appraisal rights under California
law are different from those under Colorado law. Shareholders of a California
corporation whose shares are listed on a national securities exchange or on a
list of over-the-counter margin stocks issued by the Board of Governors of the
Federal Reserve System generally do not have such appraisal rights unless the
holders of at least five percent (5%) of the class of outstanding shares claim
the right of the corporation or any law restricts the transfer of such shares.
Appraisal rights are also unavailable if the shareholders of a corporation or
the corporation itself, or both, immediately prior to the reorganization will
own immediately after the reorganization equity securities constituting more
than five-sixths of the voting power of the surviving or acquiring corporation
or its parent entity.
Dissolution
Under California law, shareholders holding fifty percent (50%) or more of
the total voting power may authorize a corporation's dissolution, with or
without the approval of the corporation's board of directors, and this right may
not be modified by the articles of incorporation. Under Colorado law, if the
dissolution is initially approved by the board of directors, it may be approved
by a simple majority of the outstanding shares of the corporation's stock
entitled to vote. In the event of such a board-initiated dissolution, Colorado
law allows a Colorado corporation to include in its certificate of incorporation
a supermajority (greater than a simple majority) voting requirement in
connection with dissolutions. Under Colorado law, shareholders may only initiate
dissolution by way of a judicial proceeding.
An affirmative vote will give SERC management the authority to take all
action deemed necessary to change the domicile of SERC.
3. Ratification of 1 for 7.25 Reverse Split of Common Shares. Pursuant to
the terms of the Agreement, the SERC Board of Directors adopted on January 5,
1996 a resolution, subject to completion of Acquisition described above, to
reverse split the issued and outstanding shares of the SERC's $.50 par value
common stock one share for seven and one-fourth shares (1 for 7.25). Proposed
for approval by shareholder vote is such reverse split. There will be no
adjustment to the par value.
The SERC Board believes the reverse split is in the best interests of SERC
and its shareholders in that it will adjust the number of shares of SERC's
common stock outstanding in a manner conducive to effectuating the Acquisition
described above.
The reverse split will result in one share of common stock, par value $.50,
being outstanding for each seven and one-fourth issued and outstanding shares of
common stock, par value $.50. In lieu of the issuance of any resulting
fractional shares, the number of shares owned by a shareholder will be rounded
up to the next whole number. SERC is presently authorized to issue 100,000,000
shares of common stock, of which 1,427,596 shares were issued and outstanding as
of July 31, 1996.
Each existing certificate representing shares of SERC's $.50 par value
common stock will, until surrendered or exchanged as described below, be deemed,
for all corporate purposes, to evidence ownership of the whole number of shares
of SERC's common stock as appropriately adjusted for the reverse split and if
transferred or sold, will automatically be reissued in the transferee's name in
the new post-split number of shares. Further, any rights to acquire SERC common
stock will be subject to automatic adjustment to reflect the one-for-seven and
one-fourth (1 for 7.25) reverse split of the common shares.
Once the Acquisition discussed above is completed, the conversion of shares
of SERC's common stock will occur immediately and without any action on the part
of shareholders of the Company and without regard to the date or dates
certificates representing shares of SERC's $.50 par value common stock are, at
the option of shareholders, physically surrendered for transfer or exchange.
Shareholders need not contact SERC or its transfer agent as a result of the
reverse split. If requested by a shareholder to issue a new certificate, SERC's
transfer agent, United Stock Transfer Inc. (the "Transfer Agent"), will effect
the exchange of certificates. The cost of the exchange will be borne by the
shareholder seeking the reissued certificate. The address of United Stock
Transfer Inc. is 13275 East Fremont Place, Suite 302, Englewood, Colorado
80112-3910.
4. Election of Directors. Pursuant to the terms of the Agreement and in
connection with the consummation of the Acquisition of Telegen, the six current
Telegen directors are to be elected to fill the vacancies resulting from the
resignations of the current SERC directors.
The SERC Board of Directors believes that election of the six current
Telegen directors to the SERC Board of Directors to fill the vacancies resulting
from the current SERC directors, subject to the consummation of the Acquisition,
is in the best interests of SERC and its shareholders in that it will continue
the management associated with the business to be acquired pursuant to the
Acquisition and carried on subsequent to closing. See "TELEGEN - Management of
Telegen."
5. Approval of Name Change. The full text of Articles of Amendment to the
Articles of Incorporation described in proposals 2 and 5 is set forth as an
exhibit hereto and the description of such is qualified in its entirety by
reference to the exhibit.
The Board of Directors of SERC has adopted, subject to shareholder
approval, a resolution to amend Article FIRST of the Articles of Incorporation
to change the name of SERC, subject to completion of the Acquisition, to Telegen
Corporation. The Board of Directors believes that the amendment is in the best
interests of SERC and its shareholders in that it will continue the identity
associated with the business to be acquired pursuant to the Acquisition and
carried on subsequent to closing. The amendment will in actuality affect only
SERC California.
Article FIRST is presently set forth in the Articles of Incorporation. The
resolution amending Article FIRST is set forth as an exhibit to this Information
Statement-Prospectus.
Accordingly, the following resolution will be offered at the meeting:
RESOLVED, that Article FIRST of the Articles of Incorporation of SERC, Inc.
be amended with respect to the name of the Company and restated to read
substantially as shown in the Articles of Amendment set forth as an exhibit
attached to this Information Statement accompanying the Notice of the September
27, 1996 Special Meeting of the Shareholders of Solar Energy Research Corp. and
that the Board of Directors be authorized to provide for the filing of such
Articles of Amendment with the California Secretary of State to give effect to
the amendments authorized at the Special Meeting.
Other Business. As of the date of this Information Statement-Prospectus,
the SERC Board of Directors does not know of any matters other than the matters
described above that are expected to be presented for consideration at the SERC
Special Meeting of Shareholders. Proposals of security holders need to have been
received by SERC within a reasonable time prior to the date of this Information
Statement-Prospectus to have been considered for inclusion herein and
presentation at the Special Meeting of SERC shareholders.
Meeting Procedures
The minute book, Bylaws and Articles of Incorporation will be open to
inspection before, during, and after the meeting. SERC's auditor and transfer
agent will not send representatives to the meeting. The meeting will be
conducted by SERC's management with assistance and participation of shareholders
in attendance, if any. Tally of voting on proposals will be done by management
and witnessed by an inspector selected at random from those in attendance and
duly sworn to oath by a notary public in attendance.
The meeting shall be called to order by the Chairman and the Secretary
shall read the Notice. The Secretary will present the certified shareholder list
as of the record date. The affidavit of mailing of Notice shall be displayed.
The shares present will be polled by management and witnessed by the inspector
to determine a quorum. If a quorum is present, the meeting will be declared
lawfully and properly convened.
The Chairman will present the proposals and after discussion or questions,
if any, a resolution will be entertained, seconded and a vote taken on each. The
inspector will tally votes for and against each proposal and the Chairman will
announce the results. SERC will retain the inspector's worksheets for each vote
and file any approved Articles of Amendment to the Articles of Incorporation and
the Agreement and Plan of Merger between SERC Colorado and SERC California with
the California Secretary of State and with the Colorado Secretary of State.
Voting Rights and Votes Required
Approval of the Agreement, the Reincorporation Proposal and the Amendment
to the Articles of Incorporation to change the name of SERC California to
Telegen Corporation will require the affirmative vote of the majority of shares
of SERC common stock outstanding as of the record date, or at a minimum 713,799
shares. The election of the six current Telegen directors to the SERC Board of
Directors and approval of the one-for-seven and one-fourth reverse split of the
shares of SERC California common stock issued and outstanding will require the
affirmative vote of the majority of a quorum of SERC common stock represented at
the meeting.
Abstentions and shares held by a broker in a "street name" will have the
same effect as the votes cast in opposition to the Approval of the Agreement,
the Reincorporation Proposal and the Amendment to the Articles of Incorporation
to change the name of SERC California to Telegen Corporation. Abstentions and
shares held by a broker in a "street name" that are not voted in the election of
directors and the one-for-seven and one-fourth reverse split of the shares of
SERC California common stock will not be included in determining the number of
votes cast.
Only holders of record of SERC common stock on the close of business on
July 31, 1996 are entitled to receive notice and to vote at the SERC Special
Meeting. As of July 31, 1996, there were 1,427,596 shares of SERC common stock
outstanding and entitled to vote with each such share entitled to one (1) vote.
James B. Wiegand, a principal shareholder of SERC and a member of SERC
management owns 53.7% of the outstanding shares of SERC common stock and will
vote such shares in favor of each of the above proposals. Therefore, as of the
date of this Information Statement-Prospectus, approval of each of the proposals
by the required affirmative vote is assured.
Stock Ownership of Directors, Executive Officers and their Affiliates
As of July 31, 1996, the directors and executive officers of SERC and their
respective affiliates owned 771,772 shares of SERC common stock, representing
approximately 54.1% of the outstanding shares of SERC common stock. For a
schedule of the security ownership of certain beneficial owners and management
of SERC, which includes outstanding rights to acquire SERC common stock, see
"SERC - Security Ownership of Certain Beneficial Owners and Management."
Executive Compensation
SERC's directors receive no compensation for their services. SERC has no
retirement, pension, profit sharing, insurance or medical reimbursements plans
covering its officers or directors. Further, no compensatory plan or arrangement
exists between SERC and any executive officer, except as discussed herein.
During 1995, the SERC Board of Directors awarded the President of SERC
52,500 shares of SERC common stock valued at $26,250, as compensation. With the
exception of $8,750 paid in cash to SERC's President during 1995, no cash
compensation has been paid or accrued with respect to any SERC officer or
director since 1983. All SERC officers and directors are reimbursed by SERC for
actual out-of-pocket expenses incurred on behalf of SERC.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h)
Other
Name Annual Restricted Securities All Other
and Compen- Stock Underlying LTIP Compen-
Principal sation Award(s) Options/ Payouts sation
Position Year Salary($) Bonus($) ($) (1) ($) SAR's(#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James B.
Wiegand,
President 1995 $8,750 $ - $ 26,250 $ - - $ - $ -
1994 $ - $ - $ 35,000 $ - - $ - $ -
1993 $ - $ - $ 41,500 $ - - $ - $ -
</TABLE>
(1) During 1995, 1994 and 1993, the SERC Board of Directors awarded Mr. Wiegand
52,500 shares, 70,000 shares and 83,000 shares, respectively, of SERC
common stock valued at $26,250, $35,000 and $41,500, respectively, which
represented the par value of the shares granted at $0.50 per share. In
1993, the SERC Board of Directors granted to Mr. Wiegand warrants to
acquire SERC common stock at the then designated value of SERC common stock
of $0.50 per share.
All noncash compensation is reported in the table above as valued by SERC's
Board of Directors and was paid in SERC common stock at the rate of one share
for each $0.50 of compensation. Warrants to acquire SERC common stock for $0.50
per share were valued by SERC's Board of Directors at zero at the time of issue.
For executive compensation information with respect to the current
directors and executive officers of Telegen who, pursuant to the terms of the
Agreement, will serve as directors and executive officers of SERC California,
the acquiring corporation, upon consummation of the Acquisition, see "TELEGEN -
Management of Telegen."
<PAGE>
SERC
Business of SERC
Introduction
SERC, which was incorporated in Colorado on December 21, 1973, was formerly
engaged in the business of designing, marketing and servicing solar heating
systems. In December 1981, SERC reduced its solar business. SERC discontinued
its solar business in 1983 due to continued losses. The solar industry segment
serviced by SERC generally closed in 1985 with the termination of Federal Solar
Tax Credits. SERC has not provided service to any solar customers since 1983 and
is presently a development stage corporation. SERC's primary activity from 1985
through 1992 was the settling of various judgments relating to the discontinued
solar business. Since that time, SERC, which is subject to the informational
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), has been actively searching for an operating business or
businesses to acquire. SERC's corporate offices are located at 10075 East County
Line Road, Longmont, Colorado 80501; (303) 772-3316. SERC owns all of the
capital stock of SERC California and Telegen Acquisition Corporation ("TAC").
SERC California and TAC were organized by SERC for the purpose of effecting the
Acquisition by a redomiciliation of SERC as a California corporation through a
merger of SERC with and into SERC California and the acquisition by SERC
California of all of the outstanding capital stock of Telegen through a merger
of TAC with and into Telegen with Telegen thereby becoming a wholly owned
subsidiary of SERC California (the "Acquisition").
On January 7, 1994, the shareholders of SERC met and approved a one
share-for-fifty shares reverse split of SERC's common stock, a simultaneous
increase of the par value of the common stock from $.01 to $.50 per share and
other related matters. This Information Statement-Prospectus and the
accompanying financial statements are stated to give effect to this reverse
split and the change in par value of the common stock. Accordingly, reference
herein to SERC's common shares refers to the $.50 par value common stock of SERC
in post-split amounts.
History of SERC
SERC was originally organized to engage in the business of designing,
marketing and servicing solar heating systems. From 1973 to 1983, SERC's
operations consisted of assembling, manufacturing, marketing and installing
solar heating systems including collectors, heat exchangers, controls and the
packaging of these with purchased special components manufactured by others such
as heat pumps, tanks, pipes, plumbing items and related hardware products. In
November 1975, SERC sold 100,000 shares of its common stock in an initial public
offering through an underwriter. At that time, SERC became subject to the
informational reporting requirements of the Exchange Act. SERC ceased filing
informational reports with the Securities and Exchange Commission ("SEC") in
1979 after a registered rights offering to shareholders failed to yield adequate
funds to expand SERC's solar business or to continue incurring the expense of
public reporting. In December 1981, SERC reduced its solar business. SERC
discontinued its solar business in 1983 due to continued losses. The solar
industry segment serviced by SERC generally closed in 1985 with termination of
Federal Solar Tax Credits. SERC has not provided service to any solar customers
since 1983 and is presently a development stage corporation. SERC's primary
activity from 1985 through 1992 was the settling of various judgments relating
to the discontinued solar business. SERC resumed filing informational reports
with the SEC in 1992. SERC has never entered into bankruptcy, a receivership or
any similar proceeding.
In November 1992, SERC reorganized and recommenced operations in an effort
to located and acquire a privately owned operating business desiring to obtain
greater access to the capital markets by having securities registered under the
Securities Act through a merger with an entity already subject to the
informational reporting requirements of the Exchange Act.
In July of 1993, SERC filed a Registration Statement on Form 10 with the
SEC. Registration of SERC's securities under the Exchange Act became effective
in September 1993. Thereafter pursuant to SEC rules, SERC became subject to
reporting requirements under the Exchange Act. SERC's first report to the SEC
under the Exchange Act was Form 10-QSB filed in September 1993. Since that time
SERC has remained current in all reporting obligations to the SEC and the State
of Colorado.
Present Activities of SERC
SERC, now a development stage corporation subject to the informational
reporting requirements of the Exchange Act, has recently been conducting a
search for a merger/acquisition with a privately owned operating business that,
when acquired, will continue operations as part of SERC. As a result of such
search, SERC entered into the Agreement with respect to the Acquisition of
Telegen to which this Information Statement-Prospectus relates. SERC, in light
of its present Agreement with Telegen Corporation, believes it has completed its
search to identify its most suitable candidate. In compliance with the terms of
the Agreement, SERC has terminated its advertisements soliciting the interest of
other potential target companies. See "The Acquisition."
SERC has retained the services of counsel and an accounting firm in order
to properly effect the Acquisition. SERC has incurred significant legal fees and
accounting costs to complete the Acquisition. Management has completed certain
private placements of its common stock to accredited investors to provide a cash
reserve to pay certain costs to complete the Telegen Acquisition. Management
believes that cash presently available for certain merger costs will increase
the likelihood of the consummation of a merger by SERC, however there is no
assurance even given sufficient available cash, that the Acquisition under terms
favorable to SERC will be consummated. The ongoing primary goals of management
are to increase the value and liquidity of SERC's common stock.
In 1995, SERC issued 190,000 common shares to accredited investors for
$95,000 cash, and 75,000 common shares to related parties for compensation and
other expenses. During the six months ended June 30, 1996, SERC issued (i)
10,000 common shares in consideration of $5,000 in legal fees associated with
the Telegen Acquisition and (ii) 143,746 common shares to accredited investors
in exchange for $71,873 in cash.
Competition
SERC is an insignificant participant among the firms which engage in
mergers with and acquisitions of privately financed entities. There are many
established venture capital and financial concerns which have significantly
greater financial and personnel resources and technical expertise than SERC. The
combined financial resources and management availability of SERC and SERC's
affiliate are limited, under the terms of the Agreement, Telegen may
unilaterally terminate the Agreement upon the failure of SERC to cure a breach
of SERC's representations and warranties or a failure to close the Acquisition
on a timely basis. If Telegen terminates the Agreement for any other reason,
Telegen must provide for the reimbursement to SERC of all expenses incurred by
SERC and advanced by SERC to Telegen to assist Telegen in the completion of this
Agreement through the date of termination, in an amount not to exceed $172,000.
Regulation and Taxation
SERC could be subject to regulation under the Investment Company Act of
1940 in the event SERC obtains and continues to hold a minority interest in a
number of entities. However, management intends to seek at most one merger or
acquisition and management's plan of operation is based upon SERC obtaining a
controlling interest in any merger or acquisition target company and,
accordingly, SERC may be required to discontinue any prospective merger or
acquisition of any company in which a controlling interest will not be obtained.
Any securities which SERC acquires in exchange for its common stock will be
"restricted securities" within the meaning of the Securities Act. If SERC
elected to resell such securities, such sale could not proceed unless a
registration statement had been declared effective by the Securities and
Exchange Commission or an exemption from registration was available. Section
4(2) of the Securities Act, which exempts sales of securities not involving any
public offering, would in all likelihood be available since it is likely that
any such sale would be a block sale to a private investor to raise additional
capital. Although management's plan of operation does not contemplate resale of
securities acquired, in the event such a sale were necessary, SERC would be
required to comply with the provisions of the Securities Act.
While the parties have used their best efforts to structure the Acquisition
in such a manner as to minimize federal and state tax consequences to SERC and
Telegen through the Acquisition's treatment for tax purposes as a "tax-free"
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as
amended, there can be no assurance that the Acquisition will result in such tax
treatment.
Properties
SERC's offices are located at 10075 East County Line Road, Longmont,
Colorado 80501 at the residence of its President on a rent free basis. SERC
utilizes at no cost computer, fax machine and other general office equipment
owned by an affiliate company which occupies adjacent facilities. Following the
completion of an acquisition these arrangements will be terminated. SERC owns no
real estate.
SERC Plan of Operation
Liquidity and Capital Resources
SERC's liquidity has been dependent on the proceeds from private placements
of its common stock. In addition, an affiliate has in the past infused capital
into SERC on an as-needed basis in exchange for shares of common stock. Under
this arrangement during 1995, SERC issued its affiliate 22,500 shares of SERC's
common stock in exchange for expenses paid on behalf of SERC.
SERC faces a lack of capital and management has limited experience; should
SERC's affiliate or SERC's president be unable to assist SERC, SERC would have
to locate capital and/or management assistance. In the past, SERC has
experienced substantial costs to achieve and maintain current reporting with the
SEC as well as significant additional costs to conduct a merger search and there
is no assurance that SERC can locate financial and management resources
sufficient to maintain timely SEC reporting or continue merger search activities
should the proposed acquisition of Telegen Corporation discussed below not be
completed. Should SERC fall behind or cease SEC reporting, the likelihood of
completing a merger will be reduced. As of December 31, 1995 and 1994, SERC had
five judgments outstanding totaling $17,997 plus accrued interest. There was no
liquidation of judgments by SERC during the current year.
In November 1995, SERC entered into an Agreement and Plan of Reorganization
(the "Agreement") with Telegen Corporation pursuant to which SERC is to acquire
all of the outstanding capital stock of Telegen in exchange for shares of SERC
common stock and shares of SERC Series A preferred stock (the "Acquisition").
Telegen is engaged in the design, development, manufacture (through contract
manufacturers) and sale (through manufacturers' representatives and private
label resellers), in Telegen communications products which provide supplementary
features to existing telephone equipment and services for customers and small
businesses. As part of the Telegen Acquisition, SERC is to execute a one
share-for-seven and one-fourth shares (1 for 7.25) reverse split of its shares
of common stock outstanding immediately prior to consummation of the Telegen
Acquisition.
SERC has advanced to Telegen and otherwise incurred certain costs and
expenses on Telegen's behalf, including Telegen's legal and accounting fees, to
assist Telegen in the completion of the Telegen Acquisition. In addition, SERC
has incurred other expenses related to the Acquisition. As of May 31, 1996, SERC
had incurred a total of approximately $172,000 for Acquisition costs and
expenses, including advances to Telegen of $40,000, which were funded by the
private placement of SERC's common stock at $.50 per share. Should Telegen
cancel the Agreement for any reason other than a failure of SERC to cure a
breach of SERC's representations and warranties under the Agreement or to
promptly close, Telegen is obligated under the Agreement to reimburse SERC
$172,000 for such costs and expenses related to the Acquisition. Under the
Agreement, Telegen is to pay the remaining costs and expenses related to
completing the Acquisition incurred subsequent to May 31, 1996, and has advanced
to SERC approximately $28,000 for SERC's remaining Acquisition costs and
expenses.
SERC is relying on its limited cash and the agreement by Telegen to pay for
SERC's remaining costs related to the Acquisition. SERC is aware of the present
operating cash flow deficit of Telegen. However, SERC believes Telegen has
obtained sufficient cash through its financing activities to meet Telegen's and
SERC's foreseeable needs with respect to completing the Acquisition.
As part of the Acquisition SERC will execute a 7.25 for 1 reverse split of
its shares. SERC plans to issue approximately 4,453,455 (post-split) shares of
common stock to acquire all of the then outstanding shares of Telegen. In
addition, SERC plans to reincorporate in California and the definitive agreement
calls for Telegen to be acquired by the California corporation.
During the six months ended June 30, 1996, SERC issued (i)
10,000 shares of its common stock in payment for $5,000 of legal fees associated
with the Telegen Acquisition and (ii) 143,746 shares of its common stock for
$71,873 in cash, which was used to pay expenses related to the Telegen
Acquisition.
Results of Operations
SERC is a development stage corporation which had no operations for the
years ended December 31, 1995 and 1994 apart from the search for a privately
owned operating business to acquire. The majority of expenses in 1995 consisted
of compensation, legal, travel and interest expense which were the primary items
making up the $81,729 net loss. This compares with a $50,777 net loss for 1994.
Substantially all of SERC's expenses were paid by an affiliate in exchange for
common stock or were in the form of compensation contributed by an officer in
exchange for common stock. SERC accrued interest expense on its five judgments
related to the discontinuation of its solar energy business of $1,556 and $1,555
in 1995 and 1994, respectively.
No operations were conducted by SERC during the six months ended June 30,
1996 apart from those related to the Telegen Acquisition. The increase in
expenses during the six months ended June 30, 1996 as compared to the six months
ended June 30, 1995 is primarily attributable to costs related to the Telegen
Acquisition.
SERC's management believes it can ultimately achieve successful operations
through a merger or acquisition. However, SERC presently faces all the risks
which are usually associated with any new business and management has only
limited experience in operating a public company. Further, there can be no
assurance that the Telegen Acquisition will be consummated under terms favorable
to SERC. SERC is a minor participant in the business of seeking mergers with and
acquisitions of small private businesses. A large number of established and well
financed entities, including venture capital firms, have merger and acquisition
activities and have greater financial resources and managerial capabilities than
SERC. Because of limited funds, SERC is at a competitive disadvantage in
identifying and concluding a transaction with a suitable domestic merger
candidate.
As of March 31, 1996, SERC had working capital of only $4,476. SERC's
limited working capital and operating losses since inception raise substantial
doubt about SERC's ability to continue as a going concern. Further, a failure of
the Acquisition to be consummated would likely have an adverse effect on SERC's
results of operations and financial condition. Accordingly, there is no
assurance that SERC can continue for any significant length of time as a going
concern on a separate entity basis should the Acquisition of Telegen not be
consummated.
The Acquisition will be treated for accounting purposes as a
recapitalization of Telegen with Telegen being the acquiror (a "reverse
acquisition"). Accordingly, the post-merger historical financial statements of
SERC will be those of Telegen.
SERC Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
SERC has not experienced a change in its independent accountants during its
three most recent fiscal years or subsequent interim period. Further, SERC has
not had any disagreements with its independent accountants on any matter of
accounting principles or practices or financial disclosure.
Security Ownership of Certain Beneficial Owners and Management
The following tabulates holdings of SERC's $.50 par value common stock, as
of the date of this Information Statement-Prospectus, held of record by all
Directors and Officers of SERC individually and as a group, and other Principal
shareholders:
Shares (including shares that the listed beneficial owner has a right
to acquire within sixty days from warrants)
Name and Address of Beneficially % Beneficial Ownership of
Beneficial Owner Owned (4, 5) Common Shares (4, 5)
Mark E. A. Wiegand (1,2) 2,822 0.2%
4800 Baseline, E102
Boulder, CO 80303
James B. Wiegand (1,2,3) 815,950 54.2%
10077 E. County Line Road
Longmont, CO 80501
Janet S. Collins (1,3) 13,000 0.9%
10077 E. County Line Road
Longmont, CO 80501
All Officers and Directors 831,772 55.9%
as a group (3 individuals)
Norrlanska Kross, Inc. (3) 130,209 9.1%
615 N. Main St., Suite 678
Longmont, CO 80501
(1) Officers and Directors
(2) Related family members
(3) James B. Wiegand is a beneficial owner of shares owned by Norrlanska
Kross, Inc. SERC is controlled by James B. Wiegand by virtue of beneficial
ownership of the 130,209 shares held by Norrlanska Kross, Inc. and direct
ownership of 685,741 shares (including 50,000 shares that Mr. Weigand has a
right to acquire within sixty days from warrants). James B. Wiegand and Janet S.
Collins are common law husband and wife. Janet S. Collins disclaims any
beneficial ownership of shares owned by James B. Wiegand.
(4) Shares of common stock subject to warrants currently exercisable are deemed
outstanding for computing the percentage of the person holding such
warrants, but are not deemed outstanding for computing the percentage of
any other person. Thus, the sum of individuals and entities outstanding as
a percent of common stock beneficially owned may exceed 100%.
(5) As of July 31, 1996, SERC has 1,427,596 shares of common stock
outstanding. As of July 31, 1996, Mr. James B. Wiegand and Ms. Collins had the
right to acquire within sixty days under outstanding warrants 50,000 shares and
10,000 shares of SERC common stock, respectively.
<PAGE>
Market for SERC's Securities and Related Stockholder Matters
Market Information
SERC conducted an Initial Public Offering in November 1975. A market for
its securities existed from 1975 until shortly after SERC ceased its voluntary
SEC reporting. No public market presently exists for SERC securities. There are
no market makers and no trading activity has occurred since SERC closed its
solar business and ceased voluntary reporting. SERC, by virtue of effectiveness
of Form 10 filed with the SEC in 1993 to register its securities, is presently
subject to the informational reporting requirements of the Exchange Act. SERC is
presently current with SEC filings and has been current with SEC filings since
registration under the Exchange Act.
In the event of a private sale or other event requiring a transfer of
SERC's shares, SERC's transfer agent effects the cancellation of the old
certificate and the issuance of a new certificate.
Telegen plans to apply for a listing of post-Acquisition SERC on the NASDAQ
Small Cap Market once the Registration Statement of which this Information
Statement-Prospectus is a part becomes effective. As a result of the
Acquisition, it is expected that SERC will have (i) in excess of $4 million in
gross tangible assets, (ii) in excess of $2 million in tangible net worth, (iii)
at least 300 holders of SERC common stock, and (iv) at least 100,000 publicly -
held shares of SERC common stock and thus, assuming that two registered and
active market makers are obtained and the securities will have a minimum bid
price of $3 per share, will satisfy the requirements for listing on the NASDAQ
Small Cap market system. However, there is no assurance that (i) SERC will
indeed qualify for such listing or (ii) following the Acquisition a regular
trading market will in fact develop for purchase or resale of SERC's securities.
The following table shows the high and low bid of SERC's common stock
during the last three years. SERC believes that there has been no public trading
activity during the periods shown.
SERC Common Stock
Per Share Per Share
High Bid Low Bid
1993
3rd Quarter $0.00 $0.00
4th Quarter $0.00 $0.00
1994
1st Quarter $0.00 $0.00
2nd Quarter $0.00 $0.00
3rd Quarter $0.00 $0.00
4th Quarter $0.00 $0.00
1995
1st Quarter $0.00 $0.00
2nd Quarter $0.00 $0.00
3rd Quarter $0.00 $0.00
4th Quarter $0.00 $0.00
1996
1st Quarter $0.00 $0.00
2nd Quarter $0.00 $0.00
Holders
As of July 31, 1996, there were approximately 2,239 shareholders of record
of SERC's common stock. Based upon requests received by SERC for copies of its
recent Information Statement issued in connection with the Special Meeting of
Shareholders, SERC believes approximately 20 out of the total 2,239 shareholders
of record are brokerage firms or other similar entities which hold SERC's shares
in street name for their clients. SERC's transfer agent is United Stock Transfer
Inc., 13275 East Fremont Place, Suite 302, Englewood, Colorado 80112-3910.
SERC has never paid a cash dividend on its common stock and has no present
intention to declare or pay cash dividends on the common stock in the
foreseeable future. SERC intends to retain any earnings which it may realize in
the foreseeable future to finance its operations. Future dividends, if any, will
depend on earnings, financing requirements and other factors.
Description of SERC Securities
SERC is authorized to issue 100,000,000 shares of $.50 par value common
stock and 25,000,000 shares of no par value voting preferred stock. After giving
effect to the redomiciliation of SERC as a California corporation, the SERC
common stock will have no par value. Shares of SERC's common stock have equal
voting rights, one vote per share, and are not assessable. All shares of
preferred stock have voting rights and are not assessable. Voting rights are not
cumulative, and, therefore, the holders of shares entitled to cast more than 50%
of the total votes possible could, if they chose to do so, elect all the
Directors. SERC's Articles of Incorporation permit its Board of Directors to
issue its preferred stock in series designated by the Board. Each series must
designate the number of shares in the series and each share of a series must
have identical rights of (1) dividend, (2) redemption, (3) preferences in
liquidation, (4) sinking fund provisions for the redemption of shares, and (5)
terms of conversion. No preferred stock is currently issued or outstanding.
Upon liquidation, dissolution or winding up of SERC, the assets of SERC,
after satisfaction of all liabilities and distribution to preferred
shareholders, if any, would be distributed pro rata to the holders of the common
stock. The holders of the common stock do not have preemptive rights to
subscribe for any securities of SERC and have no right to require SERC to redeem
or purchase their shares.
Holders of common stock are entitled to dividends, when and if declared by
the Board of Directors of SERC, out of funds legally available therefor. SERC
has not paid any cash dividends on its common stock, and it is unlikely that any
such dividends will be declared in the foreseeable future.
The SERC Board of Directors has designated 150,000 of the authorized shares
of SERC preferred stock as Series A Convertible Noncumulative Preferred Stock
("Series A Preferred Stock") of which 112,750 shares are to be exchanged with
Telegen preferred shareholders in the Acquisition. The holder of each share of
Series A Preferred Stock is entitled to one vote per share of common stock into
which the Series A Preferred Stock is convertible. The Series A Preferred Stock
is convertible into common stock (a) at the holder's discretion, and (b)
automatically in the event of (i) a public offering of SERC's common stock at a
price not less than $15 per share, or (ii) the affirmative vote of 67% of the
shares of the Series A Preferred Stock. In all cases, the conversion rate will
initially be one to two (1:2), subject, in certain circumstances, to
anti-dilutive adjustments. The holders of Series A Preferred Stock have a
noncumulative right to receive dividends at a rate of $.80 per annum on each
outstanding share of Series A Preferred Stock if declared by the SERC Board of
Directors and in preference to the common stock. In the event of liquidation,
each share of Series A Preferred Stock is entitled to receive, in preference to
the common shareholders, an amount equal to $10, depending on certain
circumstances, which may be paid in cash or securities of any entity surviving
the liquidation.
Legal Proceedings
There currently is no pending or threatened litigation against SERC, any
officer, director, affiliate, or beneficial owner of 5% or more of the common
stock of SERC.
SERC's primary activity from 1985 through 1992 was the settling of various
judgments relating to SERC's discontinued solar business. During 1992, SERC
settled a judgment from 1981 for $6,600 to be paid when SERC has sufficient
cash. SERC has continued to negotiate directly with four of the creditors
holding judgments as of December 31, 1995. These negotiations were activated in
1992. SERC believes a settlement can be concluded to satisfy the four remaining
judgments for an additional $11,397 plus accrued interest of on all matters
totaling $4,551. SERC believes that no further representation by counsel will be
necessary to conclude these matters.
SERC has been represented by legal counsel with respect to the old debts of
its discontinued solar business. Counsel has agreed to accept up to 40% of fees
for such representation in shares of SERC's common stock. As of December 31,
1995 counsel was issued 345 common shares and is owed $839 cash for such
services. No services were required by counsel during 1994 and 1995 and there
was no change in this arrangement for services or compensation.
TELEGEN
Business of Telegen
Telegen Corporation is engaged in the conception, development and marketing
of proprietary products in the Telecommunications, Flat Panel Display and
Internet Hardware markets. At present, Telegen is organized into three
divisions, including one product-related division (Telecom Products Division),
one developmental stage division (Internet Products Division) and Telegen
Laboratories, an advanced R&D "think tank", plus a subsidiary, Telegen Display
Laboratories, Inc.
Telecommunications Industry Background
The consumer electronics market is one of the fastest growing segments of
today's economy. Witness the proliferation of electronic products and services
that are pervading every aspect of our lives. The consumer electronics industry
swept into the decade of the 1980's on a substantial trend toward technology
with a new generation of home and commercial products, all made possible by the
microprocessor chip. This trend has continued into the 1990's as more products
continue to be introduced that impact the lives and lifestyles of consumers.
Within the Consumer Electronics industry, the information delivery market
has enjoyed rapid growth fueled, to a large extent, by the substantial demand
for easy, quick and low cost access to information. The home and small business
information equipment market itself is estimated by industry sources to
currently be a $25 billion annual market. This market includes
telecommunications products such as telephone equipment, wireless communications
and Internet access products. Telegen expects the telephone equipment portion of
the consumer electronics market to grow at a faster rate than the overall
economy throughout the balance of the 1990's.
The telephone equipment market is a long-standing, well-established
industry. The basis of the industry has historically been the telephone itself.
In the late 1970's, however, a market for telephone peripheral equipment began
to develop because of the invention of the microprocessor chip and deregulation
of the industry. This new peripherals market expanded rapidly and today consists
of designer and specialty telephones, including full-feature and cordless
telephones, cellular telephones, telephone answering machines, FAX machines and
computer modems.
In addition to these peripherals products, the telephone companies
themselves have adapted strategies to offer a wide range of new services to both
business and residential consumers. By the early 1990's, the local telephone
companies were offering a full complement of auxiliary features in addition to
basic telephone service, features such as Speed Dial 8/30, Call Waiting, 3-Way
Calling, Call Forwarding and Caller ID. The local telephone companies had
discovered the substantial profit potential of these products, since the
incremental cost for these new services are insignificant (they are just
"programmable options" in the Central Office computer switches). Depending upon
the local telephone company, consumers can pay up to $5.00 per month for each
service as well as up to $20.00 to initially activate the service. The telephone
companies, however, are careful about the types of services they offer their
customers. All these services are designed to increase usage of telephone
service, such as spend more time on the phone (Speed Dial 8/30), not to miss a
call (Call Waiting, Call Forwarding), even to have two calls at the same time on
one line (3-Way Calling). The telephone companies generally do not offer
services to lower the cost of calls or to restrict outgoing calls.
In the small business market, the local telephone companies have discovered
a large market for a low-cost, easy-to-install telephone system for offices with
less than 20 lines. This service, known as "Centrex" or "Comstar", provides the
basic functions of Call Pickup, Call Transfer and Conference Calling to
businesses with as few as 2 lines. With small PBX systems costing around $2,000,
Centrex/Comstar, at installation costs of up to $100 per line (extension) and
monthly charges of under $35 per extension, provides small business with a
comparatively cost effective solution. This calculates to a total cost for a
4-line typical Centrex installation over a 5-year period of approximately
$8,800. Since most small businesses cannot afford the up-front cost of
installation of a traditional PBX, Centrex/Comstar has remained the only
solution to their needs. In California alone, there are over 1.4 million Centrex
lines in service today.
Along with this period of rapid growth and expansion in the
telecommunications industry, the breakup of AT&T in 1984 ushered in the advent
of telephone deregulation. Initially, only long distance service was deregulated
nationwide and, over a period of a few years, consumers were given the
opportunity to select a carrier for long distance calls independent of their
local telephone company. Today, Telegen believes that more than 700 suppliers
compete for the $80 billion a year long distance market.
In order to provide the Regional Bell Operating Companies (often called
"RBOCs" or "LECs"), with a secure source of revenue, the FCC devised a two-tier
system of long distance dialing. Calls between states (inter-state or
"Inter-LATA" calls) were deregulated and could be carried by any long distance
company (but not by the RBOC). Within each state, geographical areas were
devised, based upon traffic patterns, called Local Access Transport Areas
("LATA"). Calls inside these LATAs ("Intra-LATA calls" or local toll calls)
could only be carried by the RBOC. Without competition, rates for these
IntraLATA calls remained high, sometimes many times higher than calling across
country.
Over the past few years, deregulation has finally come to the IntraLATA
market, with states across the country opening up their monopoly local telephone
markets to competition. Long distance and local toll call traffic is now
deregulated. Telephone users now have the opportunity to select a long-distance
carrier to carry their local toll calls at a substantial savings over the rates
of the RBOCs. In order to preserve enough IntraLATA revenue for the RBOCs to
maintain low cost basic service, callers must first dial the selected
long-distance carrier's five-digit access code before each call that is to be
re-routed to a long distance carrier. Calls dialed without this access code are
carried by the RBOC, usually at higher cost.
Further complicating this procedure is the fact that most consumers have a
free calling area that is paid for in basic monthly service. For these calls, a
consumer would probably prefer to use the RBOC as opposed to a long distance
carrier. The effect is that the caller needs to know the exact geographical area
in his LATA, the exact calls that fall into the local free area but exclude
those already automatically routed to his long distance carrier, and then
remember to first enter the access code before dialing the telephone number.
Based on industry estimates, Telegen believes that this complexity results in
only 5% of such calls being effectively routed, and most of those are done by
sophisticated business telephone systems that are pre-programmed.
This complexity in the market has created a business opportunity for the
marketing of Telegen's ACS to automatically re-route the appropriate Intra-LATA
calls to a long distance carrier without additional effort by the caller, saving
the caller money and giving the long distance carriers new business. The major
long-distance carriers have expressed significant interest in the ACS product
and are presently in market trials to evaluate use of Telegen's products.
California, which deregulated in January 1995, represents about 30% of the
nation's estimated annual $12 billion Intra-LATA toll call market
The advent of Caller ID services offered by various phone companies across
the U.S. and the hardware necessary to utilize such services, is further raising
the consciousness of consumers and businesses to the expanding ways they can use
the telephone as an information tool. Telegen has been advised that by
legislation, Caller ID must be offered in all states as of 1996. The service is
scheduled for introduction in California in June 1996.
Caller ID allows the recipient of a call, with proper equipment, to know
the caller's telephone number whether listed or unlisted (and with some
equipment, the Caller's name) before accepting the call. This scenario brings up
some serious privacy issues, especially in California, where according to
industry information up to 62% of consumers (10.6 million people) have unlisted
telephone numbers. Telegen's ID Blocker is a device designed to selectively
block the transmission of a caller's identity to a telephone capable of
identifying the telephone number of the calling party. ID Blocker does not
interfere with 911 calling number delivery.
Telegen products are designed for sale to the consumer and small business
segments of the telecommunications accessories products industry. The
TeleBlocker and ID Blocker are intended to serve consumers in residential
environments who wish to control their telephones, and are thus considered
"retail telephone accessories." The ACS 2000 is sold to long distance telephone
companies for use in the premises of their small business customers, and is thus
considered a "small business telephone accessory".
Telecom Products Division
The Telecom Products Division ("Telecom") develops, manufactures and
markets a line of intelligent telecommunications products, providing enhanced
features to existing telephone equipment and services for consumers and small
businesses. In 1991, Telegen introduced its initial telecommunications products,
a series of four (4) outgoing telephone call restrictors known as "TeleBlocker".
These accessories, priced from $49.99 to $149.99, provide consumers and small
businesses with the ability to restrict outgoing telephone usage in order to
control costs. The most advanced version, the TeleBlocker Plus, incorporates a
proprietary technology known as "Parallel Technology", which allows one device,
plugged anywhere on a telephone line, to control all instruments on the line
regardless of location and with no requirement for re-wiring.
All of Telegen's programmable products utilize a proprietary technology
known as the Remote Programming System ("RPS"). RPS is a combination of
communications hardware, protocols and automated computer systems which enable
Telegen's Customer Service Representatives to directly service and program any
Telegen product over the telephone line when a customer calls for assistance on
the toll-free Customer Service line. This capability allows even the most
complicated products to be set-up and installed, without the need of a user's
manual by the average consumer. Telegen believes that this patent pending
capability is not available in other comparably-priced programmable consumer
products and allows the marketing of products previously considered too
complicated for the mass market.
In 1993, Telegen began development of a series of telecommunications
products, based upon its proprietary Parallel and RPS Technologies, which are
designed to give consumers and small businesses greater control of their local
telephone service by replacing most of the functions previously provided by the
local telephone company. The first products based upon this new technology are a
series of call-routing devices called Automatic Carrier Selectors ("ACS"). The
ACS 2000, announced in January 1995, is a single-line device which intercepts
calls destined for the user's local toll call area (an Intra-LATA toll call) and
re-routes that call onto the network of the user's long-distance carrier in
order to take advantage of generally lower calling expense. The ACS 2000 also
provides a number of custom calling features, such as Outgoing Call Restricting
and Intelligent Redialing.
In October 1995, an upgraded model, the ACS 2010, was introduced to support
Centrex systems and the new "Fax and Forward" networks being installed by the
long distance carriers. More advanced and feature rich models of the ACS series
are expected to be introduced in 1996, including a complete home PBX product
priced under $200 at retail.
Telegen has also developed a four-line call-routing system called the
Multi-Line Device ("MLD"), aimed at the small business market. The MLD 1000,
first in the MLD series of products, provides enhanced routing capabilities and
expandability up to 60 lines, as well as custom calling features such as Speed
Dialing, Account Codes, Call Hold, Redial and Credit Card Dialing. The second
model in the product line, the MLD 2000, is expected to be introduced in the
third quarter of 1996, providing small businesses with full PBX features at a
cost below that of competing systems.
Telegen has also introduced a product called "ID Blocker", which allows
consumers to maintain privacy by automatically blocking a caller's telephone
number from appearing on the screen of receiving telephones equipped to identify
the telephone numbers of incoming callers (a service known nationwide as Caller
ID). This device utilizes Telegen's Parallel Technology (one device for all
telephones on a line) to provide a solution to the privacy concerns of
consumers.
Current Telecom Products
TeleBlocker. The TeleBlocker is a series of outgoing call restrictors,
designed to enable consumers and business owners/managers to eliminate or reduce
expensive 976, 900, long distance, 411, international and other toll calls.
Several models can also restrict specific calls to specified times of the day
and for specified periods of time. The TeleBlocker series of products provides
to the consumer electronics marketplace certain advanced features previously
available only on expensive PBX and business telephone systems. All products are
designed to be easily programmable either by the user or by the Telegen Remote
Programming System and meet the needs of the general consumer at an affordable
price. The TeleBlocker series of products was originally introduced in 1991 and
includes the TeleBlocker 100, 200, 300 and Plus, designed to retail from $50 to
$150.
This pricing structure has been achieved by designing each product for
high-volume, low-cost manufacturing in relatively unsophisticated assembly
plants. Additionally, each product has been designed for easy mechanical
assembly into a low-cost molded plastic case which snaps together with just two
screws. The assembled product in the plastic case is then fully tested in less
than one minute on a fully-automated test system developed by and proprietary to
Telegen. This automated testing capability, which is built into every Telegen
product, allows for 100% testing of every product produced at the assembly
facility as well as random lot testing and post-installation testing at any
Telegen approved location or over the telephone by the Remote Programming
System. Partially because of this automated testing capability, Telegen provides
a one year warranty on all of its products for parts and labor.
The TeleBlocker line includes products to control the usage of a single
instrument, multiple instruments or entire telephone lines. These products are
marketed under the trademark "TeleBlocker." One model of TeleBlocker has also
been produced by Telegen for AT&T under private label, using their trade
designation "Call Controller 9050."
The principal microprocessor, a major electronic component of the
TeleBlocker product, went out of production and is no longer available. Telegen
has now redesigned the TeleBlocker product to be produced using alternative
components and the manufacturer is now ready to commence production of the
redesigned unit.
Remote Programming System ("RPS"). All programmable Telegen products are
capable of being programmed and serviced over the telephone lines from the
Telegen Customer Service Center using the RPS. The Telegen Customer Service
Representative is able to diagnose the unit remotely over the telephone line
while the customer is still on the line. The representative is then able to
download any programming appropriate to the specific unit over the telephone
line while the customer is still on the line. Telegen believes this feature is a
unique technology for inexpensive programmable consumer products. The RPS also
provides the ability to support other types of electronic products attached to
the telephone lines and could be licensed to third party manufacturers for this
purpose. See "Licensing".
Automatic Carrier Selector ("ACS"). Using a long distance carrier for
Intra-LATA calls is generally a lower-cost option for consumers than using the
local telephone company. However, in order to take advantage of this cost-saving
opportunity, the caller must first enter the long distance carrier's five-digit
access code before each call. This requires that the caller know which calls are
of that type, as opposed to local free calls or already automatically routed
long distance calls, and then remember to first enter the long distance
carrier's access code before dialing the number. These procedures are used by
very few callers and the complexity results in only 5% of such calls being
effectively re-routed, and most of those are routed by sophisticated business
telephone systems that are programmed by automated computer systems.
Telegen's ACS 2000 is a telephone accessory that enables consumers to
realize significant savings in many areas. Because the ACS 2000 utilizes
Telegen's Parallel Technology, only one unit is required to cover all telephones
on a line. Installation is as easy as plugging in a telephone, and programming
and set up are accomplished by dialing a phone number to receive automated
programming over the telephone line.
Since the deregulated calling area for each subscriber is based on one's
unique telephone number and is regulated by state agencies, each ACS must be
individually programmed to recognize the types of calls to be routed. This type
of programming would be extremely difficult for most consumers and could take
literally hours to do. Commercial routing devices for business applications take
approximately 45 minutes to program with a specialized computer. However, with
the ACS 2000, programming is accomplished with minimal customer involvement by
using Telegen's RPS. The customer plugs the unit into a standard telephone wall
jack, lifts the handset and dials "111*" on the keypad of the telephone. The ACS
automatically dials Telegen's toll-free Customer Service Center. The customer is
asked a few questions and then the appropriate routing information is
electronically transmitted to the ACS within a few minutes.
After programming, the ACS will automatically insert the access code of the
caller's desired long distance carrier in front of all calls appropriate to
reroute onto the long distance network. For local free calls and Inter-LATA long
distance calls, no rerouting will be required or inserted by the ACS. The user
will automatically receive the benefits of the rerouting without having to
change their normal dialing pattern and without the risk of re-routing an
otherwise free call, as can happen with manual dialing. When changes occur in a
customer's dialing area (new area codes or prefixes), the ACS automatically
calls into the RPS to receive new programming instructions. Telegen knows of no
other comparable device presently on the market which provides this re-routing
capability to consumers.
Besides its routing capabilities, the ACS also features Caller ID Blocking,
Last Number Redial and Call Restricting functions. Caller ID Blocking produces a
signal to the local telephone company's central office that will block the
identification of the caller each time an outgoing number is dialed. Last Number
Redial allows the caller to redial the last correct telephone number dialed with
a brief code rather that dialing the entire number again. The Call Restricting
feature enables the consumer to restrict certain types of outgoing calls such as
pay-per-use (976/900) numbers (800) numbers, 411, international or unauthorized
long distance calls.
The long distance carriers have expressed interest in purchasing ACS
products since it would allow them to capture a portion of the IntraLATA traffic
that presently is carried by the RBOCs, as well as allowing them to retain their
existing customers by providing features not available from the RBOCs or other
carriers. Telegen and MCI signed a contract in March 1996 providing for a
minimum deliver of 6,000 ACS 2000 units during the first year of the contract.
The ACS 2000 was announced in the first half of 1995 and commercial shipments
commenced in mid-1995. Further, Sprint has been conducting a market trial of the
ACS 2000, with their customers. However, sales of Telegen's ACS 2000 product
have not been significant to date.
Telegen entered into a Nationwide Master Distribution and Service Agreement
for the ACS series of products with MCI Telecommunications, Inc. in March 1996.
Telegen's research and development plans for 1996 including adding a number of
additional new features to the ACS, enabling it to become effectively a full
service "PBX" type device for the home.
Multi-Line Device ("MLD"). The Multi Line Device ("MLD") is a four-line
routing system designed to accomplish the same function as the ACS 2000, except
that it is designed for use by small businesses with up to 60 telephone lines
and with no sophisticated central telephone system. The MLD 1000 enables small
businesses to realize savings in areas where local toll calls have been
deregulated, as well as providing additional custom features such as Speed
Dialer, Account Codes, Hold, Intelligent Redial and Credit Card dialing. The
installation, programming and use of MLD are similar to those of ACS 2000, as
described above. MLD is presently being field tested. The MLD 1000 was announced
in the first half of 1995. The MLD 1000 is in final Beta testing (test
installations in the field) and production and shipments could commence as early
as the fourth quarter of 1996 although there is no assurance that production and
shipment will commence at that time and the actual time may be affected by the
results of the Beta tests.
In addition, Telegen is now developing an advanced MLD model which is
designed to provide sophisticated PBX-type features to small businesses at a
cost significantly below comparable products currently known to be available in
the market. This product, called MLD 2000, is aimed at the business market
presently using Centrex or Comstar services from the local phone company. It
provides advanced routing capabilities (up to 8 carriers) as well as full
Centrex operation and key system PBX features, at a price comparable to just the
installation cost of Centrex. MLD 2000 is scheduled to be introduced in the
second half of 1996.
ID Blocker. Caller ID service has become popular with consumers and is
presently available or planned in 48 states. This service, available through the
local telephone company, allows the user to read the telephone number, and
sometimes even the name, of a person calling in, regardless of whether that
number is listed or unlisted.
This service has raised concerns regarding privacy and created interest in
the ability of a caller to protect his or her identity when making calls. In
fact, state regulators usually require telephone companies to provide their
customers with a way to protect their identities when making a call as part of
the regulatory permission they have received to offer Caller ID. The FCC has
mandated this "Per Call" feature in its 1995 ruling allowing interstate Caller
ID service. This feature is usually provided by dialing "*67" prior to each call
in order to block Caller ID on that outgoing call. Any call not preceded by *67
will not have its Caller ID service blocked. Since most consumers do not like to
dial extra digits when making a call, Telegen believes there is a large market
for a simple telephone accessory to provide complete and seamless protection.
Telegen's ID Blocker is a simple accessory that automatically dials "*67"
before each and every call, eliminating the need for the caller to both remember
and then dial the code. ID Blocker installs by simply plugging into any
telephone wall jack. It requires no set up or programming. Telegen's ID Blocker
is in final Beta testing (test installations in the field) and production and
shipments could commence as early as the fourth quater of 1996 although there is
no assurance that production and shipment will commence at that time and the
actual time may be affected by the results of the Beta tests..
In addition to its value as a stand-alone product, the ID Blocker
technology has been included as a programmable feature in the ACS and MLD
products, enhancing their value to the consumer.
Telecom Strategy
Telegen's Telecom Products Division's business strategy is to invent,
design, and produce products with enhanced and proprietary technologies
providing cost savings and competitive advantages. Telegen only pursues
development of products that it believes will have a significant market and
broad consumer appeal, and that it expects will provide substantial cost savings
or functional advantages to the user. Telegen designs into its products what it
believes are unique functions or services to distinguish it from its
competitors. Telegen does not develop or market products where competition is
intense and margins are thin. Telegen's distribution strategy is to sell through
manufacturers' representatives or to nationally-recognized distributors under
both its own label and private label. Telegen believes this approach to selling
its products will give it the widest distribution possible, while minimizing
investment in distribution. Telegen's manufacturing strategy is to outsource all
production practicable to third-party contract manufacturers who specialize in
the manufacture of similar products, thereby enhancing quality assurance while
minimizing investment in plant and equipment.
Telecom Sales and Marketing
In the summer of 1992, Telegen began discussions with AT&T regarding
purchase and private label of the Telegen TeleBlocker 200. AT&T, after much
study and consumer focus groups, determined that a telephone call restrictor for
home and small business use was a desirable product with substantial market
potential. Telegen was advised by AT&T that, because of its quality, features
and ease of use, TeleBlocker was chosen as the initial product offering,
marketed as the AT&T Call Controller 9050. The first Call Controller 9050s were
delivered to AT&T on May 31, 1993, with the first market being the 400 AT&T
Phone Center Stores nationwide. See "Licensing".
Current distribution channels for Telegen's TeleBlocker products include
the RBOCs, specialty catalogs and other distributors, such as retail phone
stores. In addition, Telegen has access to several RBOCs to sell its products
through retail catalog and telemarketing channels. Other distribution
arrangements include agreements with specialty mail order catalogs such as
Sharper Image.
Telegen has entered into distribution agreements with several large
national equipment distributors such as C & L Communications, Inc. and Advantage
Telecom Supply, who are distributors to smaller long distance carriers and to
"value-added resellers" of telecommunications equipment to the small business
market. These distribution channels will be key in the marketing of the MLD 1000
and ACS 2000 into the traditional telecom industry.
Telegen has developed distribution relationships directly with a number of
the large long distance carriers. Currently, Telegen is distributing ACS units
to Sprint for use in a consumer marketing trial in California. Telegen has also
distributed ACS units to MCI for market field trials and has recently entered
into a Nationwide Master Distribution and Service Agreement with MCI. Telegen is
also in discussions with two other national distributors for OEM relationships
for its full line of products.
Telegen has initiated a marketing program to re-introduce certain of its
products directly into the retail market in 1996. Telegen has begun efforts to
re-establish a national sales representative network. Five regional
representatives entered into agreements with Telegen in 1995. Significant new
facets of Telegen's marketing capabilities, including new sales material,
packaging and point of sale displays, may require substantial additional
expenditures including additions to facilities and personnel.
Telecom Competition
TeleBlocker. Telegen believes that, based upon its marketing research,
although there are directly competing products or services available in this
market, its TeleBlocker products offer significant feature advantages over the
available competing products. For example, unlike any other "telephone blocking
device," the TeleBlocker is able to block specific telephone numbers, allow
calls to a specific telephone number for only a specified number of calls per
day and/or permit a call to a certain number to stay connected for only a
limited number of minutes in length. Telegen also believes its products are
superior in quality and have advantages over the competition such as cost
controls, ease of use, performance and RPS capabilities.
As a result of consumer activism, the local telephone companies have been
forced to provide blocking for 900 and 976 numbers. The telephone companies
provide this blocking as a one-time, complete restriction service free of charge
in areas where the central office can accommodate such restriction. If the
service is deactivated at the consumer's request and subsequently reinstated,
many of the phone companies charge a one-time installation fee with a monthly
fee thereafter. In addition, no local telephone company offers a service which
restricts all outgoing calls, selected outgoing calls or long distance calls.
Telegen believes that, because these services are the basis of the telephone
companies' revenues, it is unlikely that such a service will be offered.
ACS Devices. There are limited alternatives to ACS for single line
telephones. For example, Hy-Tek Controls, Inc. sells one and two line dialers
which route calls to long distance carriers. However, they differ substantially
from Telegen's in that they are (1) only in-line series, (2) are not parallel
(one device for all telephone instruments), (3) are programmed manually through
the telephone keypad, a process that can take up to 1 hour (as opposed to
Telegen's RPS in 5 minutes or less) and (4) retail at prices of 2-3 times the
retail price of the ACS. Telegen believes that there are no other devices which
operate in parallel or that are supported and programmed by a system comparable
to RPS.
Competition could arise in the future, however, through reprogramming of
local telephone companies' central office equipment to allow electronic
connection by the local telephone company customers to the long distance carrier
of their choice ("equal access") without "dialing around" by manually inserting
the preferred long distance carrier's access code before dailing each long
distance telephone call. Since this "dial around" process is the principle
function of Telegen's ACS 2000 product, its useful life could effectively end if
such "equal access" features were introduced. Availability of "equal access"
would have to come about through regulatory proceedings at the various state
Public Utilities Commissions. A number of states have already mandated the
introduction of "equal access" and it is unknown if and when "equal access" will
be mandated in all states. The Federal Telecommunications Act of 1996 has opened
up significant competition for local toll service and has added to the
competitive environment in which Telegen's ACS 2000 is attractive due to its
capability of enabling the telephone to automatically connect with a desired
carrier. Telegen is developing upgraded versions of the ACS series which will
include numerous Custom Calling features as well as routing capabilities, to
enhance the market acceptance of the products after "equal access" is broadly
available. Telegen's management believes that the Telecommunications Act of 1996
will not have a material adverse effect on Telegen's financial condition and
results of operations.
Multi-Line Device ("MLD"). The principal competition to Telegen's MLD is a
four-line programmable dialer made by Mitel Corporation called the "Mitel Smart
One." This is a unit that has been on the market in various versions for about
ten years. Telegen believes that the "Mitel Smart One" is more difficult and
costly to install and program than the MLD, as well as lacking expandability.
Also, unlike the MLD, it is incompatible with calling patterns in certain areas
of the country. Telegen believes this, along with its ease of programming via
RPS, provides the MLD product with a significant competitive advantage in those
areas. A four line dialer similar to that of Mitel is offered by IQtel, Inc. It
has similar installation features and disadvantages as compared to Telegen's MLD
as does the Mitel Smart One.
ID Blocker. Telegen knows of only one automatic consumer device currently
available which competes with its ID Blocker. That device is priced higher than
the expected retail price of Telegen's ID Blocker. Telegen believes that most
consumers concerned about privacy where Caller ID is available are currently
limited to manually inserting the "*67" blocking code as called for by the Local
Exchange Carrier. There are also a few states which permit the consumer to block
all outgoing Caller ID information on a "per-line" basis. Most states with
Caller ID service do not offer that capability to consumers and the FCC has not
mandated it for inter-state Caller ID.
Telecom Licensing
Telegen has established a corporate policy to actively explore licensing
opportunities for both its products and technologies. Telegen has a number of
proprietary technologies, for which it has secured either patent or trade secret
protection, and which Telegen believes are licensable. Chief among these are the
Parallel Technology (as used in ACS) and the RPS technology (used in all Telegen
programmable products). These technologies can be used to enhance or develop a
wide variety of products. Telegen has had discussions with a number of companies
regarding licenses for these and other technologies, and believes that the
issuance of the US Patent for the Parallel Technology and RPS Technology,
expected in 1996, would greatly enhance licensing opportunities. Telegen has
also been approached by a number of manufacturers to sell or license the ACS
technology for incorporation into finished telephones. See "Intellectual
Property".
In conjunction with the sale of Call Controller 9050 to AT&T, Telegen
entered into a license agreement with AT&T providing for the sale of two RPS
computer systems and software for a one-time fixed charge with the limitation
that such systems be used by AT&T only for the programming of Call Controllers
sold by AT&T, and that all rights and title to the technology remain with
Telegen. Telegen is also presently in discussions with MCI regarding the
purchase of up to 8 RPS computer systems and the licensing of their use in
supporting future ACS and MLD deliveries by MCI.
Telecom Manufacturing, Suppliers, Service and Warranty
Telegen telecom products are currently being manufactured in Hong Kong and
The People's Republic of China by Crystal Field Ltd., a local small unrelated
contract manufacturer who meets Telegen's specifications for quality. Telegen
has had a manufacturing relationship with Crystal Field since May 1991 and
believes it currently has adequate capacity at an acceptable level of quality
through Crystal Field to meet all of Telegen's projected requirements for the
next two years. However, Telegen contracts with Crystal Field on a purchase
order basis without a long-term supply arrangement and does not currently have
alternative capabilities to manufacture its products under contract, either
internally or through third parties. In the event that there were an
interruption of production or delivery, Telegen's ability to deliver products in
a timely fashion would be compromised, which would materially adversely affect
Telegen's results of operations. Telegen believes that having a second
manufacturing source will limit the effects of any regional component shortages,
potential transportation problems and manufacturing capacity limitations.
Several qualified assembly facilities located in the United States and the Far
East have been identified as alternative manufacturers, and Telegen is currently
negotiating with another manufacturer in Malaysia to provide additional and
alternative production capacity.
Telegen also plans to consolidate many of the components in certain of its
products into custom integrated circuits, which Telegen believes will materially
simplify and reduce the cost of manufacturing, potentially making manufacture of
Telegen's products in the United States economically feasible.
Telegen has developed a custom integrated circuit known as an ASIC for its
ACS products. This ASIC should contribute to further cost reductions for the
products. These ASICs were phased into the production of the ACS product in
early 1995. Other ASICs are being designed for use in MLD as well. Certain
components used in Telegen's products, such as the microprocessors, are
available from only a limited number of sources. Although to date Telegen has
generally been able to obtain adequate supplies of these components, Telegen
obtains these components on a purchase order basis and does not have long-term
contracts with any of these suppliers. In addition, some suppliers require that
Telegen either pre-pay the price of components being purchased or establish an
irrevocable letter of credit for the amount of the purchase. See "Risk
Factors-Dependence Upon Single Manufacturing Source; Limited Number of Component
Suppliers".
Telegen provides a one year warranty for parts and labor on all products.
The customer must return the product to Telegen's facility, shipping pre-paid,
for repair or replacement. Telegen charges cost of goods sold for the estimated
expense associated with providing this warranty service. Management believes
that it has adequately provided for the costs of warranty service.
Telegen Display Laboratories, Inc.
Flat Panel Display Technology. Telegen has developed a proprietary flat
panel technology which represents a major departure from the current product
offerings on the market today. The visual characteristics, relative ease of
manufacturing and low costs of this technology could enable Telegen to become a
significant participant in the display business.
Telegen expects its proprietary flat panel display technology to compete
favorably with existing Active Matrix LCD technology in terms of resolution,
brightness, color, viewing angle, durability and cost. Telegen also believes its
technology can be manufactured in large scale at a significantly lower cost than
Active Matrix LCD and other flat panel technologies. Primary differences between
the Telegen flat panel display and a good quality CRT monitor include its
reduced thickness and weight, lower manufacturing and operating cost, higher
reliability and potentially brighter presentation. Telegen believes that these
features make its display desirable for many products in the industry.
Telegen's High Gain Emissive Display, or HGED is a full color, high
resolution, high brightness, and high contrast flat panel display which can be
produced in sizes ranging from 10 inch, notebook computer size to full, large
screen television size of 30 inches or more. The relatively inexpensive HGED
technology produces the same or better performance than the bulky, heavy and
high voltage cathode ray tube (CRT) used in television sets, but in a flat,
low-weight package.
Telegen believes that HGEDs exceed the performance of active matrix liquid
crystal displays, or AMLCDs, which are currently the premium laptop computer
display and costs the consumer an average of $1,000 above the monochromatic
displays and low performing, passive color displays. The HGED has been
fabricated in 6" diagonal, full color, full gray scale prototypes which run a
standard NTSC (television standard) signal from a computer. Additionally, high
brightness test cells have been constructed in the next step of development for
a more advanced and potentially lower cost display.
Telegen believes that its HGED has substantial value, potentially exceeding
that of all of its telecommunications products. Telegen is actively negotiating
with several prospective strategic partners to obtain substantial new capital in
the form of either equity investment in TDL or project financing to complete the
application design of its HGED production processes, to develop plant and
product specifications, and to build a prototype production facility. Topics
currently being negotiated include the protection of all intellectual property
rights and specifications for the initial plant and equipment. Telegen plans to
retain at least a 50% ownership in any joint venture and has determined to keep
all development, funding, and management of the flat panel display technology
independent from its telecommunications activities. To facilitate this, Telegen
has created Telegen Display Laboratories, Inc., a subsidiary of Telegen ("TDL").
TDL's initial production facilities will be located in Silicon Valley and it
plans to license the manufacture of the display into a broad range of display
markets in order to facilitate the quickest possible market acceptance.
Telegen plans to establish a limited production line in its new facilities
in 1996 which could produce up to 40,000 displays per year, and to build a full
scale production plant (one million displays per year capacity) in 1997 with the
proceeds from a future funding. Further, Telegen has sold to IPC - Transtech
Display (Pte.) Ltd., a Singapore joint venture investment group, a 10% equity
investment in TDL in exchange for $5 million cash. Along with the investment,
the joint venture will have an option to acquire licenses to build four plants,
each with the capacity to produce one million flat panel displays per year. The
total license fees for these plants is $40 million, plus royalties.
Display Patents. In December 1995, Telegen filed for its first U.S. patent
(of an estimated total of seven) on the basic HGED technology with broad claims
covering displays targeting the entertainment, computer, automotive and military
markets. This basic patent allows the building of highly cost effective flat
panel displays without the use of high-tech, semiconductor facilities. Although
it is difficult to precisely project the capital costs for establishing a high
volume manufacturing facility, Telegen's initial estimates indicate its
technology could lower the display business entry cost from $1 billion to less
than $50 million for a facility which can produce one million 10 inch diagonal
flat panel displays per year.
Flat Panel Market. Since Telegen anticipates that an HGED display may cost
less than 20% of an equivalent AMLCD display, Telegen believes it may have a
competitive advantage in a number of the flat panel display markets.
Telegen's comparisons of HGED costs versus AMLCD costs are drawn from the
current known market costs of AMLCD products readily available on the market
today, as compared with Telegen's estimates of the HGED costs. HGED costs are
derived from a careful analysis of (i) the cost of components and materials,
most of which come from specific bids from suppliers, (ii) estimates of the cost
to purchase manufacturing equipment (some of which have already been bid) to be
amortized and charged as a cost of the product, and (iii) the estimate of labor
and other overhead costs required for each step of the manufacturing process.
The labor estimates are derived from the actual experience gained from assembly
of HGED prototypes in the past.
TDL's initial plan is to produce a 20 inch diagonal, high resolution
workstation flat panel display aimed at the growing computer aided design and
computer aided manufacturing (CAD/CAM) markets led by systems houses such as Sun
Microsystems and Silicon Graphics, which are potential customers. TDL picked
this market to introduce the HGED because it knows of no competitors with a 20
inch flat panel product.
Initial commercial shipments of HGED products in limited quantities are
currently expected to commence before the end of 1997. However this estimate is
subject to change.
Flat Panel Competition. Telegen believes there is currently no comparable
flat panel display with the potential low cost, full color, gray scale and other
attributes of HGED available commercially from any other source in volume. The
standard flat panel displays currently available are Passive Matrix LCD and
Active Matrix LCD (AMLCD). Of the two LCD technologies, the AMLCD is far
superior in terms of image quality. These displays are manufactured in high
volume by a number of Japanese companies, including Toshiba and Sharp
Electronics. The largest commonly available AMLCD full color screens are 11"
diagonal and cost from $15-$17 per square inch to manufacture.
Sony has recently introduced a color plasma flat panel display of 17"
diagonal size which will be available in Japan for $15,000 retail. Full-color
plasma screens which are not in any volume production yet, lack gray scale and
are estimated to cost upwards of $20-$30 per square inch to manufacture.
Additionally, a number of companies, including SI Diamond Technologies,
Inc., Micron Technologies, Inc. and Silicon Video, Inc., are developing a
technology known as Field Emission Display (FED). Displays based upon the FED
technology are not expected to be available in volume until the end of the
decade and are expected to cost between $12-$15 per square inch.
The HGED in volume production is expected to cost about $1.50 per square
inch. Telegen believes that pricing at this level, if achieved, will give it a
competitive advantage, assuming the cost of competing technologies cannot also
be reduced to these levels. No assurances can be given that these manufacturing
costs can ever be achieved.
Internet Products Division
According to industry sources, less than 20 million people "surf" the
Internet in the United States today. Telegen Laboratories is presently
developing easy-to-use consumer products which are intended to allow
non-computer literate consumers to access some of the capabilities of the
Internet. These products, called "InterNet Appliances", require no computer or
external software to operate and, if they do require any set-up, will be
supported by Telegen's RPS system.
At present, the IPD is developing InterNet Appliances for use by E-mail
systems and to utilize the Internet for making world-wide telephone and data
calls at lower cost compared to standard telephone rates.
All IPD products are currently in a development stage and may never result
in commercially feasible or marketable products.
Internet Products Competition. Most Internet "products" are currently
software. Telegen knows of no other telephone accessories similar to those
planned by Telegen which are designed to operate with the Internet as conceived
by Telegen. However, since much of the value of these planned products is in the
software, it is possible that such software is currently under design or
possibly even available to operate within large telephone PBX/Key Systems in
larger business environments.
Telegen Research and Development
Telegen's research and development expenses for the years ending
December 31, 1995, 1994, 1993 and 1992 were approximately $826,984, $830,913,
$37,955, and $9,317, respectively. Telegen estimates that its total expenditures
for research and development will aggregate at least $2,800,000, including the
flat panel display (HGED), during the 12 months following completion of the
Acquisition. Much of the Telegen Display Laboratories portion of R&D, which
totals about $1.5 million, is equipment and related overhead costs. In 1993,
Telegen's primary research and development activities included the AT&T Call
Controller 9050. In 1994 and 1995, Telegen's research and development activities
included work toward the development of ACS, MLD and other products not yet
introduced. A number of these products became commercially available in 1995,
and Telegen believes increasing sales of these products will be reflected in
Telegen's 1996 revenues. Continued development of enhancements of the ACS and
MLD products as well as the flat panel display technology will be significant
relative to Telegen's near term sales. This will be a drain on Telegen's
resources during 1996, but Telegen believes that its investment in research and
development may generate positive cash flow in late 1996 and early 1997. There
can be no assurances, however, that such investment in additional research and
development will result in products that are commercially successful or
profitable.
The market for Telegen's products is characterized by rapid technological
change and evolving industry standards and is highly competitive with respect to
timely product innovation. The introduction of products embodying new technology
and the emergence of new industry standards can render existing products
obsolete and unmarketable. Telegen's success will be dependent in part upon its
ability to anticipate changes in technology and industry standards and to
successfully develop and introduce new and enhanced products on a timely basis.
If Telegen is unable for technological or other reasons to develop products in a
timely manner in response to changes in the industry or if products or product
enhancements that Telegen develops do not achieve market acceptance, Telegen's
results of operation will be materially adversely affected. Telegen has
experienced delays in its development of the ACS product line. The delays in the
development of ACS product resulted in the loss of about six months' of sales
and earnings opportunity. This resulted in Telegen absorbing the total operating
costs, without any revenues, of about $1.25 million during that period.
Telegen Intellectual Property
Telegen has acquired all rights to the underlying technologies embodied in
its product lines from the founders of Telegen or has developed such
intellectual property internally. Telegen routinely files for both United States
and foreign patents on its technologies. Telegen believes, based upon the advice
of patent counsel, that patent protection may be available to Telegen on
substantial portions of its technologies. A broad patent related to ACS was
filed in June 1994, and is expected to be issued in 1996.
Telegen Display Laboratories filed its first very broad and basic U.S.
patent on the HGED in December 1995.
Additionally, Telegen believes it retains copyright protection for the
software used in its products as well as for its integrated circuit designs.
It is the policy of Telegen to aggressively protect, through all
appropriate means, all of its legal rights to its technologies. In January 1991,
a claim against the TeleBlocker technology was made by the founder's former
employer. Telegen vigorously defended the claim and the former employer
relinquished all claims made against the technology.
Telegen relies on a combination of patents, trade secret and other
intellectual property law, nondisclosure agreements and other protective
measures to protect its rights pertaining to its products. Such protection,
however, may not preclude competitors from developing products similar to
Telegen's products. In addition, the laws of certain foreign countries do not
protect Telegen's intellectual property rights to the same extent as do the laws
of the United States. Although Telegen continues to implement protective
measures and intends to defend its proprietary rights vigorously, there can be
no assurance that these efforts will be successful. See "Risk
Factors-Intellectual Property".
Regulatory Matters
Federal law requires that all products which connect with the public
telephone system must comply with Federal Communications Commission ("FCC")
Rules Part 68, as amended. Before such products are sold, they must be tested
for compliance by an accredited independent testing laboratory and the test
results must be submitted to the FCC. The manufacturer then receives an FCC
Registration number which must be displayed on each product. Additionally, all
microprocessor-based products (including all of Telegen's product line), must
conform to FCC Rules, Part 15, as applied to radiated interference.
In order to fully comply with these regulations, Telegen retains the
services of a communications consultant, who has advised and assisted Telegen
throughout the design process regarding FCC compliance. In addition, Telegen's
Executive Vice President, Bonnie Crystal, has extensive experience in
communications engineering to meet the requirements of FCC regulations.
Telegen has submitted the TeleBlocker and ACS series of products to an
independent testing laboratory accredited by the FCC for compliance with
applicable interconnect rules. Telegen received such approvals for the
TeleBlocker product in January 1991. The ACS product received such approvals in
May 1994. Telegen believes that all other contemplated products as designed will
have to meet applicable FCC regulations, including MLD, which is currently under
such review and expected to be approved shortly.
At this time, of the Telegen products, only the A/C adapter which provides
the power to Telegen's products described above requires UL approval. These
adapters are purchased as an off-the-shelf component and already are UL
approved. However, at the request of AT&T, the Call Controller 9050 was tested
by and received UL listing. The TeleBlocker meets all UL standards but has not
been submitted for such approval. At the request of MCI, in August of 1995, the
ACS product was tested by and received UL listing. MLD will similarly require
such approval, which Telegen does not expect to have difficulty obtaining.
Employees
Telegen currently employs 24 persons on a full-time basis, including three
executive officers, 8 software programmers and hardware engineers, one marketing
and sales employee, and a general support staff. Telegen considers that its
employee relations are good. Telegen's future success will depend in significant
part upon the continued service of certain key technical and senior management
personnel, and Telegen's continuing ability to attract, assimilate and retain
highly qualified technical, managerial and sales and marketing personnel.
Competition for such personnel is intense. See "Risk Factors-Dependence on Key
Personnel".
Facilities
Telegen's corporate offices, as well as the offices of Telegen Display
Laboratories, Inc., are currently located in Foster City, California, where
Telegen leases approximately 10,000 square feet of space at a cost of
approximately $15,000 per month, including common area charges, under a lease
that expires in August 1996. Telegen plans to relocate its corporate offices to
Redwood City, California pursuant to an executed five-year lease (the term of
which commences in August 1996) of approximately 30,000 square feet of office
space at a cost of approximately $46,000 per month. Telegen believes there is
adequate space available in the new location for expansion, but there can be no
assurance that additional space necessary to support its future requirements can
be located on favorable terms or that Telegen will not incur significant
expenses if it has to obtain additional facilities.
Telegen Management's Discussion and Analysis of Financial Condition and Results
of Operations
Telegen was organized and commenced operations in May 1990. From inception
until 1993, Telegen was principally engaged in the development and testing of
its products. Telegen's first product sales and revenues were realized in 1991.
Revenues in 1991, 1992, 1993, and 1994 were derived primarily from sales of
Telegen's TeleBlocker products and in 1995 from its ACS products. Telegen has
incurred significant operating losses in every fiscal year since its inception,
and, as of December 31, 1995, Telegen had an accumulated deficit of $5,301,857
and working capital deficit of $1,762,182. Telegen expects to continue to incur
substantial operating losses through 1996. In order to become profitable,
Telegen must successfully increase sales of its existing products, develop new
products for its existing markets and for new markets, increase gross margins
through higher volumes and manufacturing efficiencies, manage its operating
expenses and expand its distribution capability.
Telegen has made significant expenditures for research and development of
its products, and for the establishment of its sales and marketing operations.
In order to remain competitive in a changing business environment, Telegen must
continue to make significant expenditures in these areas. Therefore, Telegen's
operating results will depend in large part on substantial expansion in
Telegen's revenue base.
Results of Operations
Revenues. Product revenues for 1994 were $432,972, compared to $498,358 for
1993, $162,447 for 1992 and $81,175 for 1991. These sales consisted primarily of
TeleBlocker and, after 1992, AT&T Call Controllers. In 1994 Telegen experienced
a significant delivery of Call Controllers to AT&T, representing a non-recurring
revenue infusion of $254,297. Product revenues for the year ended December 31,
1995, were $145,795, compared to $432,972 for the comparable period in 1994.
These revenues consisted primarily of sales of the ACS 2000 in 1995 and
TeleBlocker in 1994. Product revenues for the first half of 1996 were $14,945
compared with $106,235 for the first half of 1995. Delays which resulted in the
MCI contract not being finalized until March 1996 significantly impacted ACS
revenues for the first half of 1996. In addition, the Company's TeleBlocker
product which made up the bulk of revenues for the first half of 1995 was taken
off the market for redesign. The removal of TeleBlocker from the market in 1995
resulted in an estimated loss of about $115,000 in sales and $15,000 in gross
profits and net cash flow.
Delays in government deregulation of the Local Access Transport Area
("Intra-LATA") phone service in California, which represents 30% of all
Intra-LATA toll call service nationwide, resulted in lower revenues in fiscal
1994 as compared to fiscal 1993 and significantly lower revenues in the first
ten months of 1995. This delay in deregulation, which was originally scheduled
for early 1994, significantly limited the market for Telegen's ACS line of
products. Market and lab testing of the ACS 2000 by long distance carriers,
previously expected in 1994, was delayed into 1995. With deregulation in
California implemented in early 1995, one year behind schedule, Telegen's
principle customers, the long distance carriers, commenced significant
laboratory and beta testing of the ACS product line, resulting in approvals by
AT&T Bell Laboratories, Sprint Labs and the MCI Developers and Network Labs. In
the last quarter of 1995, Sprint began a consumer market trial of the ACS 2000
in California. That trial is on-going. In March 1996, MCI and Telegen entered
into a Nationwide Master Distribution and Service Agreement for the ACS 2000
series of products. Telegen will begin shipping significant amounts of these
products as early as the second half of 1996.
Cost of Goods Sold. Cost of goods sold for the first half of 1996 was
$12,082 and for the first half of 1995 was $97,025. These costs were consistent
with revenues for the same periods. Cost of goods sold of $170,421 for the year
ended December 31, 1995, and $314,239 for the comparable period in 1994,
consisted of the direct manufacturing costs, transportation, duty and warranty
costs of the units sold. In addition, cost of goods sold for 1995 included a
one-time charge to write off obsolete inventory. The inventory write-off in 1995
related to components originally purchased for ACS 2000 units which, following
some redesign work, were no longer usable. Telegen has now adopted a purchasing
policy designed to prevent the purchase of components unless they are for
current designs of products for which there is an existing order or which has,
in the opinion of Telegen management, a relatively immediate alternative market.
Certain overhead costs associated with Telegen's operations are allocated to
research and development expenses. Cost of goods sold for 1994 was $314,239,
compared to $296,285 for 1993. Margins in 1993 and 1994 were affected by
temporary shortages, and resulting higher costs then in 1992, of microprocessors
used in Telegen's products, and of amortization of costs incurred in 1992, but
expensed in 1993 and 1994 (which amortization is now completed).
Research and Development. Research and development expenses were $291,075
for the first half of 1996 and $351,826 for the first half of 1995. Lower 1996
expenses were the result of cost cutting measures enacted in mid-1995 and
completion of development of the ACS product. Research and development expenses
of $826,984 for the year ended December 31, 1995, and $830,913 for the
comparable period in 1994, were associated primarily with design and development
of ACS and MLD. Research and development expenses for 1993 were $37,955,
compared to $9,317 for 1992. The increase in years 1994 and 1995 was primarily
due to creation of a full-scale research and development division, Telegen
Laboratories.
Sales and Marketing. Sales and marketing expenses for the first half of
1996 were $5,249 compared to $62,088 for the comparable period in 1995. The
reduced expenses were the result of a reduction in marketing staff in 1995, the
elimination of trade show activity for the first half of 1996 and concentration
on contract negotiations with long distance carriers, which expenses have been
classified as general and administrative expenses. Sales and marketing expenses
for the year ended December 31, 1995, were $84,467, compared to $92,170 for the
comparable period in 1994, the decrease attributable largely to a reduction in
the marketing staff in mid-1995. Sales and marketing expenses were $92,170 in
1994, $29,980 in 1993, and $11,007 in 1992. The increase from 1993 to 1994 was
primarily due to an increase in promotional expenses related to the introduction
of Telegen's Call Controller products and initial marketing of ACS. In late
1993, Telegen hired a Director of Telecom Products (its first full-time sales
staff position).
General and Administrative. General and administrative expenses for the
first half of 1996 were $994,033 compared with $483,823 for the same period in
1995. The increased costs were primarily associated with legal and consulting
fees related to patent activity and costs associated with the amortization of
bridge loan expenses. General and administrative expenses for the year ended
December 31, 1995, were $1,501,469, compared to $1,118,312 for the comparable
period in 1994. The primary components of general and administrative expenses
were employee salaries and legal and accounting expenses for both periods.
General and administrative expenses were $1,118,312 for the full year 1994, as
compared with $294,526 for 1993, and $103,277 for 1992, due to expanded office
quarters and significant staff increases. General and administrative expenses
for 1992 were $103,277, compared to $402,506 in 1991, a decrease of $299,229
Interest Income and Expense. Net interest expense for the first half of
1996 was $159,458 compared with $8,631 for the first half of 1995. The increased
expense for 1996 was the direct result of bridge loan interest expense; the
bridge loans were paid off in May 1996 from the proceeds of a private placement
completed in April 1996. Net interest expense for the year ended December 31,
1995 was $80,380, compared to $21,050 for the comparable period in 1994.
Interest income for the year ended December 31, 1994, was $9,608, compared to
$3,154 in 1993. Interest expense for 1994 was $30,658, compared to $11,488 for
1993, and $13,433 in 1992. The increase was primarily due to the incurring of
debt in late 1992 and 1993, which remained outstanding throughout 1994.
Liquidity and Capital Resources
Telegen has funded its operations primarily through private placements of
its equity securities with individual investors. As of June 30, 1996, Telegen
had raised a total of $13,577,632 in net capital through the sale of common
stock, $922,526 of net capital through the sale of Series A preferred stock and
$558,373 through the placement of debt securities. In February 1996, Telegen
initiated a private offering of its common stock at $5.00 per share. Through May
1996, when the offering was completed, Telegen had received gross proceeds from
this offering of approximately $6,672,250 for the issuance of 1,334,450 shares
of common stock and paid approximately $1,000,837 in placement agent fees. A
portion of the proceeds from the offering in the amount of $715,000 was used by
Telegen to repay in full the one-year promissory notes related to $715,000 in
Bridge Financing provided through the issuance of one-year notes and 34,892
shares of Telegen's common stock.
Due to the unavailability of cash resources for operations, Telegen issued
118,252 shares of common stock and common stock equivalents and 52,865 shares of
common stock during 1995 and 1994, respectively, in lieu of cash as payment for
certain operating expenses, primarily legal fees and employees services,
amounting to $536,964 and $209,219, respectively. During the six-month periods
ended June 30, 1996 and June 30, 1995, Telegen issued 23,240 shares of common
stock and 16,124 shares of common stock, respectively, in lieu of cash as
payment for legal fees and other additional services amounting to $100,498 and
$82,618, respectively. In July 1996, Telegen issued 11,933 shares of common
stock and 4,000 shares of common stock in lieu of cash as payment for legal and
employee services valued at $58,865, and equipment valued at $60,000,
respectively. Over $25,000 of the amount issued for services represents the
retirement of payables arising from services rendered during prior periods.
In 1994, Telegen purchased various office equipment items to establish its
general administrative offices at an aggregate cost of approximately $117,125.
In May 1996, Telegen formed Telegen Display Laboratories, Inc. ("TDL"), a
subsidiary for the development and commercialization of High Gain Emissive
Display ("HGED") technology. Shortly after TDL's formation, IPC-Transtech
Display (Pte.) Ltd. ("IPC-Transtech"), a Singapore-based joint venture company,
acquired a 10% equity interest in TDL for an investment in TDL of $5,000,000.
Along with its investment in TDL, IPC-Transtech acquired an option to purchase
licenses to build up to four flat panel display production plants in exchange
for aggregate fees of up to $40 million plus royalities of 10% of the gross
revenues from the sale of HGED displays by IPC-Transtech. In connection with
this transaction, TDL paid $400,000 in broker fees.
A full scale production plant for the flat panel display is currently
estimated to cost $30 million for equipment, $10 million in plant infrastructure
plus working capital of about $30 million, or a total of about $70 million. This
is in addition to the real property, which is expected to be leased. Telegen
does not have these funds available and will not be able to build this plant
without securing significant additional capital. Telegen plans to secure these
funds either (1) from a large joint venture partner who would then be a co-owner
of the plant or (2) through a future public offering of stock.
However, Telegen is currently contemplating entering into license
agreements with a number of large, capital rich enterprises, such as
IPC-Transtech, to manufacture the displays. The manufacturers would also have
the attributes of established manufacturing expertise, distribution sources to
assure a ready market for the displays and established reputations enhancing the
market's prospectus of enthusiastically purchasing the product. This would
eliminate any real requirements for additional capital by Telegen since these
other, large manufacturers would provide all of the capital required to get the
displays into the marketplace. Further, Telegen would benefit from front-end
license fees plus ongoing royalties for income.
Telegen is currently building a limited production line which will have the
capacity to manufacture an adequate number of marketable displays to produce
significant revenues and positive net income and cash flow before the end of
1997. The cost of that production line is estimated to be about $2,333,000,
which funds are currently in hand. Telegen believes that it does not require any
additional funds to proceed to positive income and cash flow.
Telegen's other future capital requirements will depend upon many factors,
including the timing of acceptance of Telegen's products in the market, the
progress of Telegen's research and development efforts, Telegen's operating
results and the status of competitive products. Telegen anticipates that its
existing capital resources and revenues from operations will be adequate to meet
Telegen's forecasts through 1996. Thereafter, Telegen expects that further R&D
of its Telecom and Internet products will be funded from operating income. As
discussed above, Telegen's current commitments for capital expenditures is
related to the purchase of equipment which is required to establish a laboratory
for its subsidiary TDL and a limited, prototype production line for the flat
panel display. TDL will require significant additional capital to move into a
manufacturing phase. The total amount of funds expected to be required to build
that limited production line is approximately $2.3 million, of which $100,000
has already been spent and approximately $50,000 is currently legally commited,
even though Telegen's management contemplates spending the entire amount by the
end of August 1996.
Telegen's actual working capital needs will depend upon numerous factors
including the progress of Telegen's research and development activities, the
cost of increasing Telegen's sales, marketing and manufacturing activities and
the amount of revenues generated from operations, none of which can be predicted
with certainty. Therefore, there can be no assurance that Telegen will not
require additional equity or debt financing within twelve months following
completion of the Acquisition.
Telegen anticipates incurring substantial costs for research and
development, sales and marketing activities, and an increase in production
capability in the next twelve months. Management believes that constant efforts
to improve existing products and develop new products, an active marketing
program and a significant field sales force are essential for Telegen's
long-term success. Telegen estimates that its total expenditures for research
and development and related equipment and overhead costs will aggregate over
$3,000,000 during the 12 months following consummation of the Acquisition.
Telegen estimates that its total expenditures for sales and marketing will
aggregate over $1,000,000 during the 12 months following consummation of the
Acquisition. All such funds outlined above are presently available to Telegen.
Telegen Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Telegen has not experienced a change in its independent accountants during
its three most recent fiscal years or subsequent interim period. Further,
Telegen has not had any disagreements with its independent accountants on any
matter of accounting principles or practices or financial disclosure.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding beneficial
ownership of Telegen's common stock as of July 31, 1996. The table sets forth
(i) each shareholder known by Telegen to be the beneficial owner of more than 5%
of any class of Telegen's securities, (ii) each director of Telegen, (iii) each
executive officer of Telegen and (iv) all directors and executive officers as a
group.
<TABLE>
<CAPTION>
Amount Percentage
Beneficially Beneficially
Name Position Owned(2) Owned(1)(2)
<S> <C> <C> <C>
Jessica L. Stevens President, Chief Executive 1,321,137 28.7%
Officer and Director
Bonnie A. Crystal Executive Vice President, 366,400 7.9%
Secretary and Director
Warren M. Dillard Chief Operating Officer, Chief 192,231 4.2%
Financial Officer and Director
Frederick T. Lezak, Jr. Director 60,733 1.4%
James R. Iverson Director 12,623 0.3%
Larry J. Wells(3) Director 206,867 4.6%
All directors and executive
officers as a group
(6 persons) 2,159,991 43.5%
<FN>
(1) Beneficial ownership includes voting and investment power with respect to
the shares. Shares of common stock subject to options currently exercisable
or exercisable within 60 days of July 22, 1996 are deemed outstanding for
computing the percentage of the person holding such options, but are not
deemed outstanding for computing the percentage of any other person. Thus,
the sum of individuals' and entities' ownership as a percent of common
stock beneficially owned may exceed 100%.
(2) As of July 31, 1996, Telegen had 4,433,455 shares of common stock, and
112,750 shares of Series A preferred stock outstanding. The number of
common shares outstanding excludes 208,592 shares of common stock cancelled
for lack of consideration. See "Telegen - Legal Proceedings." As of July
22, 1996, Ms. Stevens, Ms. Crystal and Messrs. Dillard, Lezak, Iverson and
Wells had the right to acquire within 60 days, from outstanding options,
88,341 shares, 179,500 shares, 169,059 shares, 8,733 shares, 8,333 shares
and 6,867 shares of Telegen common stock, respectively.
(3) Mr. Wells is a founder and director of Sundance Venture Partners, L.P.,
which is a venture capital fund and the owner of 200,000 common shares of
Telegen.
</FN>
</TABLE>
Management of Telegen
The following information is presented with respect to the current
directors and executive officers of Telegen who, pursuant to the terms of the
Agreement, will serve as directors and executive officers of SERC, the acquiring
corporation, upon consummation of the Acquisition.
Profiles of Directors and Executive Officers
Jessica L. Stevens has been an inventor and an engineer since 1972. From
1982 to 1988, Ms. Stevens was Chief Executive Officer, President, Chief
Technology Officer, and a Director of Woodside Design Associates, Inc., Redwood
City, California, a high technology think tank. From 1988 to 1989, Ms. Stevens
was Chairperson of the Board of Directors and Vice President of
Engineering/Manufacturing at Absolute Entertainment, Inc. and Imagineering,
Inc., both of New Jersey. Ms. Stevens has worked as a consultant to numerous
high technology companies, including Apple Computer, Inc., Activision, Inc.
Coleco Industries, McDonnell Douglas, Parker Brokers, and has developed software
for the electronic game industry.
Bonnie A. Crystal has been a telecommunications engineer, consultant and
inventor since 1972. Before joining Telegen, she was Senior Staff Engineer for
Research and Development for Toshiba America MRI, Inc. From 1984 to 1989, she
was Senior Engineer at Astec, USA, Ltd. in Personal Communications Systems,
Cellular and Satellite Earth Stations. She is the inventor of the Video Noise
Reduction (VNR) standard for satellite receivers. She was a founder of
International MedCom, Inc. and SE International, Inc.
Warren M. Dillard has been a financial analyst and financial manager since
1967. He managed investment portfolios of securities and real estate for Capital
Group and Shareholders Capital, respectively, both of Los Angeles, California,
from 1967 until 1975. In 1975, he became Senior Vice President and CFO of
Pepperdine University, continuing in that position until 1982. Since 1982, Mr.
Dillard has been an independent investment banker, financing early stage
business ventures. In October 1993, he became CFO of Telegen, adding the title
of Chief Operating Officer in April 1994.
Frederick T. Lezak, Jr. has been a financial executive since 1969, with
senior positions at Time, Inc., McKesson Corp., The Headquarters Companies and
Visucom Productions, Inc. From 1973 to 1981, he was a controller for several
McKesson divisions, most recently Foremost Dairies in San Francisco. From 1981
to 1983, he was Treasurer and Chief Financial Officer of The Headquarters
Companies in San Francisco. Since 1983, Mr. Lezak has been a principal and owner
of Munson, Lezak, Jaspar & Dunn, a consulting firm which specializes in start-up
situations and corporate turnarounds. He has also been a founder and officer of
several start-up companies, including E.M.I., Inc.
James R. (Dick) Iverson has an extensive background in technology
development. Through 1982, he spent 19 years with Teledyne Ryan Electronics, the
last 6 years as General Manager. From 1972-1976, he was General Manager of the
Electronics Division of General Dynamics, managing projects ranging from
satellite systems to aircraft test equipment. He was the developer of the first
Global Positioning Satellite System (GPS). From 1976 through 1986, Mr. Iverson
was Group Vice President for Gould, Inc., responsible for government and
commercial electronics systems. In 1986, Mr. Iverson was elected President of
the American Electronics Association (AEA), a 3,000 member national trade
association, representing companies in semiconductors, computers,
telecommunications and software. He recently retired from that position and is
now an independent consultant to the electronics industry.
Larry J. Wells is the founder and a director of Sundance Venture Partners,
L.P., a venture capital fund, and is the Chairman of Anderson & Wells Company,
which manages Sundance Venture Partners, L.P. and El Dorado Investment Company.
Mr. Wells also has served as a director and President of Sundance Capital
Corporation since May 1989. From 1983 to 1987, Mr. Wells served as Vice
President of Citicorp Venture Capital and then became Senior Vice President of
Inco Venture Capital. From May 1969 to June 1983, Mr. Wells was the founder and
President of Creative Strategies International, a market research consulting
firm specializing in emerging markets. Mr. Wells currently serves on the board
of directors of Cellegy Pharmaceutical, Inc. and Indentix, Inc., which are
publicly held companies. Mr. Wells also is a director of Upside Publishing,
Inc., Plop Golf Company, VoiceCom Systems, Inc. and Murphex Corporation.
Executive Compensation
The following information is presented with respect to the current
directors and executive officers of Telegen who, pursuant to the terms of the
Agreement, will serve as directors and executive officers of SERC, the acquiring
corporation, upon consummation of the Acquisition:
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h)
Other
Name Annual Restricted Securities All Other
and Compen- Stock Underlying LTIP Compen-
Principal sation Award(s) Options/ Payouts sation
Position Year Salary($) Bonus($) ($) ($) SAR's(#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jessica L. 1995 $29,167 $ - $ 252,000 (1) $ - 20,004 $ - $ -
Stevens, 1994 $20,833 $ - $ - $ - 63,336 $ - $ -
President, 1993 $ - $ - $ - $ - - $ - $ -
Chief Executive Officer
and Director
Bonnie A. 1995 $60,000 $ - $ - $ - 18,000 $ - $ -
Crystal, 1994 $71,260 $ - $ - $ - 57,000 $ - $ -
Executive 1993 $ - $ - $ - $ - - $ - $ -
Vice President,
Secretary and
Director
Warren M.. 1995 $53,333 $ - $ - $ - 15,996 $ - $ -
Dillard, 1994 $63,333 $ - $ - $ - 49,064 $ - $ -
Chief 1993 $ - $ - $ - $ - - $ - $ -
Operating
Officer, Chief
Financial Officer
and Director
<FN>
(1) In August 1995, Jessica L. Stevens was issued warrants to purchase
50,500 shares of Telegen common stock for $.01 per share for a period of five
years. The warrants can be exercised at any time. Compensation expense of
approximately $252,000 was recorded to reflect the difference between the fair
value of the common stock and the exercise price.
</FN>
</TABLE>
Option/SAR Grants in Last Fiscal Year
Individual Grants
- --------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/SH) Date
- --------------------------------------------------------------------------------
Jessica L. Stevens 20,004 8.6% $5.00 2000
Bonnie A. Crystal 18,000 7.8% $5.00 2000
Warren M. Dillard 15,996 6.9% $5.00 2000
Aggregated Options/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying In-the-Money
Unexercised Options/SARs
Options/SARs at FY-End ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
- --------------------------------------------------------------------------------
Jessica L. Stevens $ - $ - 83,340/0 $0/$0
Bonnie A. Crystal $ - $ - 75,000/0 $0/$0
Warren M. Dillard $ - $ - 65,060/0 $0/$0
Certain Transactions with Management and Others
The following information is presented with respect to the current
directors and executive officers of Telegen, who, pursuant to the terms of the
Agreement, will serve as directors and executive officers of SERC, the acquiring
corporation, upon consummation of the Acquisition:
Telegen has entered into agreements with each of its full-time employees
(including its executive officers) that prohibit disclosure of confidential
information to anyone outside of Telegen both during and subsequent to
employment and require disclosure and assignment to Telegen of all proprietary
rights to any ideas, discoveries or inventions relating to or resulting from the
employee's work for Telegen.
In order to preserve the cash resources of Telegen, Jessica L. Stevens,
Bonnie A. Crystal and Warren M. Dillard have accepted Telegen stock options in
connection with their agreement to accept reduced salary compensation.
Telegen was advanced funds by Jessica L. Stevens in 1991 and 1992. The
outstanding balance as of December 31, 1995 was $167,649. A note was issued to
Ms. Stevens for such amount bearing interest at 8% per annum. The note remains
unpaid.
In August 1995, Jessica L. Stevens was issued warrants to purchase 50,500
shares of Telegen common stock for $.01 per share for a period of five years.
The warrants can be exercised at any time. Compensation expense totaling
$251,995 was recorded to reflect the difference between the fair value of the
common stock and the exercise price.
In late 1993, Telegen purchased furnishings and art work from Warren M.
Dillard for 2,800 shares of Telegen common stock, then valued at $14,000.
Mr. Frederick T. Lezak, Jr., a director of Telegen, is a principal of
SynerNet, Inc., a marketer and distributor of telecommunications products and
services, including products manufactured and sold by Telegen. During the last
12 months, SynerNet has purchased approximately $30,000 of such products on
terms and conditions no more favorable than those granted to other such
distributors.
Mr. W. Edward Naugler, Jr., Executive Vice-President and director of
Telegen Display Laboratories, Inc. ("TDL"), was granted a five-year option in
May 1996 to purchase 5% of the capital stock of TDL, adjusted for TDL's initial
financial capitalization, for $5,000.
Mr. Larry Wells is Chairman of the Board of Anderson & Wells, a private
venture fund management organization, which purchased 200,000 shares of
Telegen's common stock in March 1996 for $1,000,000.
Market for Telegen Securities and Related Stockholder Matters
No public market exists for the securities of Telegen. Telegen has never
paid any cash dividends on its common stock, intends to retain any future
earnings to fund the development of its business and therefore does not
anticipate paying any cash dividends in the foreseeable future.
Legal Proceedings
In August 1991, Telegen issued an aggregate of 208,592 shares of common
stock to Sahara Associates, Inc. ("Sahara") in connection with a letter of
credit and related financing to be obtained by Telegen. A letter of credit in
the amount of $300,000 was issued in favor of Telegen by Bank Sadarat but
Telegen was unable to realize any benefit from such a letter of credit. In
September 1992, Bank Sadarat filed a complaint against Telegen in the Superior
Court of the State of California for the County of San Mateo for approximately
$110,000 advanced under a separate letter of credit. In March 1993, Telegen
cancelled the 208,592 shares issued to Sahara and filed a cross-complaint for
declaratory relief against Sahara and others. In that action, Telegen sought a
judicial declaration that the issuance of the aforementioned shares was void for
lack of consideration, that the action of Telegen in cancelling such shares was
valid and that the persons to whom such shares were issued have no rights as
shareholders of Telegen. The case was removed to the Federal District Court for
the Northern District of California. In July 1996, Telegen settled Bank
Sadarat's claim by paying Bank Sadarat $100,000, which is less than the
liability for the Bank Sadarat claim that is reflected in Telegen's Financial
Statements included elsewhere herein. The dispute with Sahara regarding the
cancelled shares has not yet been resolved. The number of shares and percentages
of the outstanding shares referred to in this Registration Statement reflect the
cancellation of the 208,592 shares issued to Sahara. Although Telegen management
currently believes that the reissuance of 208,592 shares to Sahara would not
have a material adverse effect on the financial condition or operations of
Telegen, there can be no assurance as to the ultimate result of the litigation
with Sahara.
On July 11, 1995, Rates Technology, Inc. a Delaware corporation ("Rates"),
filed suit against Telegen in the United States District Court for the Southern
District of New York, alleging infringement by Telegen of a patent held by Rates
relating to "least cost" call routing. Rates sought in its complaint unspecified
damages estimated by Rates to be in excess of $50,000, the trebling of such
damages, and injunctive relief with respect to the alleged patent infringements.
Telegen denied the claims of Rates on the grounds that the patent sued upon
was invalid. In addition, Telegen challenged the personal jurisdiction of the
Court over Telegen. Prior to the Court ruling on jurisdictional issue, Rates
requested Telegen's concurrence to its unconditional voluntary dismissal of the
lawsuit. Telegen ultimately did stipulate to Rates' requested withdrawal of the
suit and the entire litigation was dismissed, without prejudice, on June 3,
1996. However, there can be no assurance that Rates wil not seek to revive this
action at some future date.
LEGAL MATTERS
An opinion as to the validity of the securities of SERC to be issued in
connection with the Acquisition will be given for SERC by the firm of Cohen
Brame & Smith Professional Corporation, 1700 Lincoln Street, Suite 1800, Denver,
Colorado 80203. SERC has issued 10,000 shares of its common stock to Cohen Brame
& Smith Professional Corporation for services rendered in connection with the
Acquisition.
The firm of Wilson, Sonsini, Goodrich & Rosati, Professional Corporation
has rendered legal services in connection with certain issues related to the
Acquisition.
EXPERTS
The financial statements included in this Prospectus to the extent and for
the periods indicated in their reports, have been included herein in reliance on
the report for SERC by Cordovano and Company, P.C. (whose report contained an
explanatory paragraph indicating substantial doubt about SERC's ability to
continue as a going concern); and for Telegen by Coopers & Lybrand L.L.P.,
Independent Accountants, given on the authority of such firms as experts in
accounting and auditing.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Unaudited Pro Forma Condensed Balance Sheet, June 30, 1996
Unaudited Pro Forma Condensed Statements of Operations, Year Ended
December 31, 1995 and for the Six-Month Period Ended June 30, 1996
Solar Energy Research Corp.
Independent Auditors' Report
Consolidated Statement of Operations, for the Years Ended December 31,
1995, 1994, and for the Period from January 1, 1992 (Inception) Through
December 31, 1995
Consolidated Balance Sheet at December 31, 1995
Consolidated Statement of Cash Flows for the Years Ended December 31,
1995, 1994, and for the Period from January 1, 1992 (Inception) Through
December 31, 1995
Consolidated Statement of Changes in Stockholders' Equity, for the Years
Ended December 31, 1995, 1994, and for the Period from January 1,
1992 (Inception) Through December 31, 1995
Notes to Consolidated Financial Statements, December 31, 1995
Consolidated, Condensed Balance Sheets as of June 30, 1996 and
December 31, 1995 (Unaudited)
Consolidated, Condensed Statements of Operations for the Six-Month
Periods Ended June 30, 1996 and June 30, 1995 and from January 1, 1992
(Inception) Through June 30, 1996 (Unaudited)
Consolidated, Condensed Statements of Cash Flows for the Six-Month
Periods Ended June 30, 1996 and June 30, 1995 and from January 1, 1992
(Inception) Through June 30, 1996 (Unaudited)
Notes to Consolidated, Condensed Financial Statements, June 30, 1996
Telegen Corporation
Report of Independent Certified Public Accountants
Balance Sheets as of December 31, 1995 and 1994
Statements of Operations for the Years Ended December 31,
1995 and 1994
Statements of Changes in Stockholders' Equity (Deficit) for the Years
Ended December 31, 1995 and 1994
Statements of Cash Flows for the Years Ended December 31,
1995 and 1994
Notes to Financial Statements
Balance Sheet as of June 30, 1996 (Unaudited)
Statement of Operations for the Six-Month Periods Ended June 30,
1996 and June 30, 1995 (Unaudited)
Statement of Cash Flows for the Six-Month Periods Ended June 30,
1996 and June 30, 1995 (Unaudited)
Note to Financial Statements (Unaudited)
<PAGE>
<TABLE>
<CAPTION>
Telegen Corporation (NEWCO)
Pro Forma Condensed Balance Sheet
June 30, 1996
(Unaudited)
Historical Pro forma
Solar Energy Telegen
Telegen Research (NEW CO)
Corporation Corp. Adjustments Corporation
<S> <C> <C> <C> <C>
Cash $ 7,895,577 $ 633 - $ 7,896,210
Accounts receivable, trade 4,998 - - 4,998
Accounts receivable, other 24,545 40,000 $ (40,000) A 24,545
Inventory 334,031 - - 334,031
Prepaid & other current assets - 915 - 915
---------- ------- ------ ---------
Total current assets 8,259,151 41,548 (40,000) 8,260,699
Deferred financing cost, net - - - -
Property and equipment, net 231,078 - - 231,078
Other assets 63,496 - - 63,496
---------- ------- ------ ---------
Total assets $ 8,553,725 $ 41,548 $ (40,000) $ 8,555,273
---------- ------- ------ ---------
Current Liabilities
Current maturities of notes payable $ 334,666 - - $ 334,666
Current maturities of notes payable
-shareholder - - - -
Accounts payable, trade 199,942 $ 1,574 - 201,516
Accounts payable, other - - - -
Accrued expenses 267,767 25,222 - 292,989
---------- ------- ------ ---------
Total current liabilities 802,375 26,796 - 829,171
Note payable-shareholder, long-term - - - -
---------- ------- ------ ---------
Total liabilities 802,375 26,796 - 829,171
Shareholders' equity (deficit)
Series A convertible preferred stock, 922,526 - - 922,526
Common stock 13,577,632 713,798 $ (699,046) B 13,592,384
Additional paid in capital - 954,061 (954,061) B -
Accumulated deficit (6,748,808) (1,653,107) 1,613,107 B (6,788,808)
---------- ------- ------ ---------
Total shareholders' equity
(deficit) 7,751,350 14,752 (40,000) 7,726,102
---------- ------- ------ ---------
Total liabilities and shareholders'
deficit $ 8,553,725 $ 41,548 $ (40,000) $ 8,555,273
---------- ------- ------ ---------
The accompanying notes are an integral part of these pro forma financial statements.
<PAGE>
Telegen Corporation (NEWCO)
Pro Forma Condensed Statement of Operations
for the year ended December 31, 1995
(Unaudited)
<CAPTION>
Historical Pro forma
Solar Energy Telegen
Telegen Research (NEW CO)
Corporation Corp. Adjustments Corporation
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Sales $ 145,795 - - $ 145,795
Cost of goods sold (170,421) - - (170,421)
-------------- ------------ ---------- ------------
Gross profit (loss) (24,626) - - (24,626)
Operating expenses
Selling and marketing 84,467 - - 84,467
Research and development 826,984 - - 826,984
General and administrative 1,501,469 $ 33,301 $ (33,301) C 1,501,469
General and administrative-related party - 46,872 (46,872) C -
-------------- ------------ ---------- ------------
Loss from operations (2,437,546) (80,173) 80,173 (2,437,546)
Other income/(expense)
Interest income 725 - - 725
Interest expense (81,105) (1,556) - (82,661)
-------------- ------------ ---------- ------------
Net loss $ (2,517,926) $ (81,729) $ 80,173 $ (2,519,482)
-------------- ------------ ---------- ------------
Weighted average shares outstanding 2,652,718 1,070,725 2,800,404
------------- ------------ ------------
Net loss per common and common
equivalent share $ (0.95) $ (0.08) $ (0.90)
------------- ------------ ------------
The accompanying notes are an integral part of these pro forma financial statements.
<PAGE>
<CAPTION>
Telegen Corporation (NEWCO)
Pro Forma Condensed Statement of Operations
for the six-month period ended June 30, 1996
(Unaudited)
Historical Pro forma
Solar Energy Telegen
Telegen Research (NEW CO)
Corporation Corp. Adjustments Corporation
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Sales $ 14,945 - - $ 14,945
Cost of goods sold (12,082) - - (12,082)
---------- ------- ------ ---------
Gross profit (loss) 2,863 - - 2,863
Operating expenses
Selling and marketing 5,249 - - 5,249
Research and development 291,075 - - 291,075
Proposed merger costs - $ 63,213 $ (63,213) C -
General and administrative 994,033 17,154 (17,154) C 994,033
General and administrative-related party - 7,500 (7,500) C -
---------- ------- ------ ---------
Loss from operations (1,287,494) (87,867) 87,867 (1,287,494)
Other income/(expense)
Interest income 55,608 - - 55,608
Interest expense (215,066) (902) - (215,968)
---------- ------- ------ ---------
Net loss $ (1,446,952) $ (88,769) $ 87,867 (1,447,854)
Weighted average shares outstanding 3,941,693 1,334,265 4,125,730
---------- ------- ------ ---------
Net loss per common and common
equivalent share $ (0.37) (0.07) $ (0.35)
---------- ------- ------ ---------
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
<PAGE>
TELEGEN CORPORATION (NEW CO)
NOTES TO THE PRO FORMA FINANCIAL STATEMENTS,
for the year ended December 31, 1995
and the six-month period ended June 30, 1996
(Unaudited)
1. Organization and Basis of Presentation:
Solar Energy Research Corp. (SERC) intends to file a registration statement
on Form S-4 with the Securities and Exchange Commission with respect to the
acquisition of all outstanding capital stock of Telegen Corporation (Telegen) by
Telegen Acquisition Company (TAC), a wholly owned subsidiary of SERC, through a
merger of TAC with and into Telegen. Telegen will thereby become a wholly owned
subsidiary of SERC. Effective upon closing, SERC (i) will issue one share of its
common stock (after giving effect to the 7.25 to 1 reverse split of the
currently issued and outstanding SERC common stock) for each share of Telegen
common stock issued and outstanding at closing; (ii) will issue one share of
Class A preferred stock for each share of Telegen preferred stock issued and
outstanding at closing; and (iii) will issue one option to acquire a share of
SERC's common stock in exchange for each outstanding option to acquire Telegen
common stock.
The acquisition has been treated as a recapitalization of Telegen with
Telegen as the acquirer (reverse acquisition). The pro forma financial
statements of Telegen Corporation (New Co) have been prepared based on the
historical financial statements of Telegen considering the effects of the
Agreement and Plan of Reorganization transactions. The pro forma balance sheet
of the New Co. at June 30, 1996 has been prepared as if the acquisition and the
reorganization transactions had been consummated at June 30, 1996. The pro forma
income statement for the year ended December 31, 1995 and the six-month period
ended June 30, 1996 has been prepared as if the acquisition and the
reorganization transactions had been consummated at January 1, 1995 and January
1, 1996, respectively. The pro forma financial statements should be read in
conjunction with the historical financial statements, and related notes thereto,
of SERC and of Telegen included elsewhere herein.
The computation of the pro forma primary loss per common share is based
upon the weighted average number of outstanding common shares for the year ended
December 31, 1995 and for the period ended June 30, 1996 and excludes the
anti-dilutive effect of contingent shares issuable upon the exercise of stock
options, stock warrants and other contingent shares related to the price
protection provisions. For the year ended December 31, 1995 and the period ended
June 30, 1996, the pro forma fully diluted loss per common share is considered
to be the same as the pro forma primary loss per common share since the effect
of the common stock equivalents and any contingent shares associated with the
price protection provisions would be anti-dilutive.
The unaudited pro forma financial statements are not necessarily indicative
of what the actual financial position would have been at June 30, 1996, nor of
the actual results of operations for the year ended December 31, 1995 or the
six-month period ended June 30, 1996, had the acquisition and the reorganization
transactions occurred on June 30, 1996, January 1, 1995 and January 1, 1996,
respectively, nor does it purport to present the future financial position or
results of operations of the New Co.
2. Assumptions:
Certain assumptions regarding the operations of the New Co. have been made
in connection with the preparation of the pro forma financial statements. Those
assumptions are as follows:
(a) Pro forma net income per share information for the year ended December
31, 1995 is calculated using weighted average shares outstanding of 147,686
shares for SERC (after giving effect to the 7.25 to 1 reverse split of the SERC
outstanding common stock) prior to the merger plus the weighted average shares
outstanding of 2,652,718 shares for Telegen.
(b) Pro forma net income per share information for the six-month period
ended June 30, 1996 is calculated using weighted average shares outstanding of
184,037 shares for SERC (after giving effect to the 7.25 to 1 reverse split of
the SERC outstanding common stock) prior to the merger plus the weighted average
shares outstanding of 3,941,693 shares for Telegen.
(c) The New Co. anticipates that the reorganization will qualify as a tax
free reorganization under Section 368(a)(1)(B) of the Internal Revenue Code.
SERC anticipates limitation of the use of its tax net operating loss
carryforwards as a result of a change in ownership as defined in Section 382 of
the Internal Revenue Code. SERC and Telegen can utilize their existing net
operating loss carryforwards, subject to the limitation on SERC set out above,
on future taxable income generated by their respective companies.
The New Co. will provide a full valuation allowance against its deferred
tax asset due to the uncertainty of its realization. The deferred tax asset is
primarily attributable to approximately $3.2 million in net operating loss
carryforwards expiring from 1998 through 2010.
3. The Pro Forma Adjustments:
(A) Elimination of the deferred merger costs as part of the purchase price
of Telegen.
(B) Elimination of SERC common stock, additional paid-in capital and
stockholders' deficit. The elimination of SERC common stock is offset by SERC's
net assets (pre acquisition) of $27,148 at December 31, 1995 and June 30, 1996,
respectively, and the elimination of SERC's accumulated deficit is offset by
SERC's prepaid acquisition costs of $40,000 (post acquisition) at December 31,
1995 and June 30, 1996.
(C) Reflects the elimination of expenses incurred by SERC due to the
Agreement and Plan of Reorganization. SERC's offices will be relocated to the
office location of Telegen.
4. Subsequent Events:
In July 1996, Telegen received $58,865 in legal and employee services and
equipment valued at $60,000 in exchange for 11,933 shares and 4,000 shares of
its common stock, respectively.
<PAGE>
SOLAR ENERGY RESEARCH CORP. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
with
INDEPENDENT AUDITORS' REPORT
December 31, 1995
SOLAR ENERGY RESEARCH CORP. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
Index to Consolidated Financial Statements
Independent auditors' report
Consolidated balance sheet as of December 31, 1995
Consolidated statements of operations, for the years ended
December 31, 1995 and 1994 and from January 1, 1992
(inception) through December 31, 1995
Consolidated statements of cash flows, for the years ended
December 31, 1995 and 1994 and from January 1, 1992
(inception) through December 31, 1995.
Consolidated statements of shareholders' equity,
January 1, 1992 (inception) through December 31, 1995
Summary of significant accounting policies
Notes to consolidated financial statements
<PAGE>
Board of Directors
Solar Energy Research Corp. and subsidiary
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheet of Solar Energy
Research Corp. and subsidiary (a development stage company) as of December 31,
1995, and the related consolidated statements of operations, shareholders'
equity, and cash flows for the years ended December 31, 1995 and 1994 and from
January 1, 1992 (inception of development stage) through December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Solar Energy
Research Corp. and subsidiary as of December 31, 1995 and the results of its
operations and its cash flows for the years ended December 31, 1995 and 1994 and
from January 1, 1992 through December 31, 1995, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
H to the consolidated financial statements, the Company has no operations as of
December 31, 1995 and the Company's operating losses since inception raise
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note H. The consolidated
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
Cordovano and Company, P.C.
Denver, Colorado
January 22, 1996
<PAGE>
SOLAR ENERGY RESEARCH CORP. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
December 31, 1995
ASSETS
CURRENT ASSETS
Cash................................................. $ 12,509
Advances to merger candidate......................... 40,000
---------
TOTAL CURRENT ASSETS............................... 52,509
OTHER ASSETS
Organization costs................................... 915
Deferred offering costs.............................. 500
---------
$ 53,924
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable..................................... $ 4,228
Judgments payable (Note C)........................... 17,997
Accrued interest payable on judgments................ 4,551
---------
TOTAL CURRENT LIABILITIES.......................... 26,776
---------
COMMITMENT AND CONTINGENCY (Note F).................... -
SHAREHOLDERS' EQUITY (Note D)
Preferred stock, 25,000,000 shares authorized,
no par value; no shares outstanding......... -
Common stock, 100,000,000 shares
authorized,
$.50 par value; 1,273,850 shares issued and
outstanding........................................ 636,925
Additional paid-in capital....................... 954,061
Accumulated retained deficit, ($221,170
accumulated during development stage)................ (1,563,838)
---------
TOTAL SHAREHOLDERS' EQUITY........................ 27,148
---------
$ 53,924
=========
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<PAGE>
SOLAR ENERGY RESEARCH CORP. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
January 1, 1992
(inception)
Through
Years Ended December 31, December 31,
1995 1994 1995
COSTS AND EXPENSES
General and administrative,
Related parties (Note B). $ 46,872 $ 42,462 $ 129,834
General and administrative. 33,301 6,760 86,470
Interest expense........... 1,556 1,555 4,551
NET LOSS................ $(81,729) $(50,777) $(220,855)
_________ _________ __________
WEIGHTED AVERAGE SHARES
OUTSTANDING................ 1,070,725 908,195 405,662
___________ ___________ ____________
NET LOSS PER SHARE........... $ (0.08) $ (0.06) $ (0.54)
___________ ___________ ____________
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<PAGE>
SOLAR ENERGY RESEARCH CORP. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
January 1, 1992
(inception)
Through
Years Ended December 31, December 31,
1995 1994 1995
OPERATING ACTIVITIES
NET LOSS.. $ (81,729) $ (50,777) $ (220,855)
Expenses not requiring cash
Shares issued for
services, (Note B)..... 11,250 15,000 66,750
Shares issued for
compensation (Note B).. 26,250 35,000 104,250
___________ ___________ ____________
(44,229) (777) (49,855)
Changes in current assets and
liabilities
Advances to merger
candidate and other
current assets......... (41,415) - (41,415)
Accounts and interest
payable................ 3,153 777 8,779
___________ ___________ ____________
Cash used in operating
activities........... (82,491) - (82,491)
___________ ___________ ____________
FINANCING ACTIVITIES
Sale of common stock....... 95,000 - 95,000
___________ ___________ ____________
Cash provided by
financing activities.. 95,000 - 95,000
___________ ___________ ____________
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS.. 12,509 - 12,509
Cash and cash equivalents at
beginning of period........ - - -
___________ ___________ ____________
CASH AND CASH EQUIVALENTS AT
END OF PERIOD.............. $ 12,509 $ - $ 12,509
___________ ___________ ____________
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<PAGE>
SOLAR ENERGY RESEARCH CORP. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONCLUDED
January 1, 1992
(inception)
Through
Years Ended December 31, December 31,
1995 1994 1995
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest................. $ - $ - $ -
Income taxes............. $ - $ - $ -
NONCASH FINANCING ACTIVITIES
Shares issued to the
president of the Company
in exchange for debt
(Note B)............... $ - $ - $ 40,018
Shares issued to related
parties in exchange for
debt (Note B).......... $ - $ - $ 558,206
Shares issued to judgment
creditors in exchange
for satisfaction of
judgment................ $ - $ - $ 21,815
Shares issued for
services (Note B)...... $ 11,250 $ 15,000 $ 66,750
Shares issued for
compensation:
President (Note B)... $ 26,250 $ 35,000 $ 102,750
Secretary (Note B)... $ - $ - $ 1,500
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
SOLAR ENERGY RESEARCH CORP. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
January 1, 1992 (inception) through December 31, 1995
Preferred Additional
Stock Common Stock Paid-in Accumulated
Shares Shares Par Value Capital Deficit Total
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1992............... - 328,944 $ 164,472 $ 540,475 $(1,342,983) $(638,036)
Shares issued in exchange
for judgment debt, July 13, 1992....... - 3,445 1,722 3,274 - 4,996
Shares issued to related parties for
debt, September 10, 1992 (Note B).. - 372,137 186,069 372,137 558,206
Shares issued in exchange
for judgment debt, September 18, 1992 - 8,800 4,400 8,788 13,188
Shares issued in exchange
for judgment debt, December 15, 1992. - 2,500 1,250 2,381 - 3,631
Shares issued to president of Company
December 31, 1992(Note B)........... - 26,679 13,340 26,678 - 40,018
Shares issued to an affiliate
December 31, 1992 (Note B)........... - 25,345 12,672 328 - 13,000
Net loss............................. - - - - (13,839) (13,839)
-------- ------- ------- ------- ---------- -------
BALANCE AT DECEMBER 31, 1992......... - 767,850 383,925 954,061 (1,356,822) (18,836)
Shares issued to an affiliate
December 31, 1993 (Note B)........... - 55,000 27,500 - - 27,500
Shares issued to the president of the
Company, December 31, 1993 (Note B).. - 83,000 41,500 - - 41,500
Shares issued to an officer December
31, 1993 (Note B).................... - 3,000 1,500 - - 1,500
Net loss............................. - - - - (74,510) (74,510)
-------- ------- ------- ------- ---------- -------
BALANCE AT DECEMBER 31, 1993......... - 908,850 454,425 954,061 (1,431,332) (22,846)
Shares issued to an affiliate December
27, 1994 (Note B).................... - 30,000 15,000 - - 15,000
Shares issued to the president of the
Company, December 27, 1994 (Note B).. - 70,000 35,000 - - 35,000
Net loss............................... - - - - (50,777) (50,777)
-------- ------- ------- ------- ---------- -------
BALANCE AT DECEMBER 31,1994............ - 1,008,850 504,425 954,061 (1,482,109) (23,623)
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
SOLAR ENERGY RESEARCH CORP. AND
SUBSIDIARY (A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY, CONTINUED
January 1, 1992 (Inception) through December 31, 1995
Preferred Additional
Stock Common Stock Paid-in Accumulated
Shares Shares Par Value Capital Deficit Total
<S> <C> <C> <C> <C> <C> <C>
Shares issued to an affiliate
May 26, 1995 (Note B)................. - 15,000 7,500 - - 7,500
Shares issued to president of the
Company, May 26, 1995 (Note B)........ - 35,000 17,500 - - 17,500
Shares issued for cash
September 30, 1995................... - 50,000 25,000 - - 25,000
Shares issued for cash
October 3, 1995...................... - 50,000 25,000 - - 25,000
Shares issued for cash
October 20, 1995..................... - 20,000 10,000 - - 10,000
Shares issued for cash
November 30, 1995.................... - 10,000 5,000 - - 5,000
Shares issued for cash
December 16, 1995.................... - 10,000 5,000 - - 5,000
Shares issued for cash
December 27, 1995.................... - 20,000 10,000 - - 10,000
Shares issued for cash
December 28, 1995.................... - 30,000 15,000 - - 15,000
Shares issued to an affiliate
December 31, 1995 (Note B)........... - 7,500 3,750 - - 3,750
Shares issued to the president of the
Company, December 31, 1995 (Note B).. - 17,500 8,750 - - 8,750
Net loss.............................. - - - - (81,729) (81,729)
_________ ___________ ____________ _________ ____________ _________
BALANCE AT DECEMBER 31, 1995......... - 1,273,850 $ 636,925 $ 954,061 $(1,563,838) $ 27,148
_________ ___________ ____________ _________ ____________ _________
</TABLE>
All share amounts restated for stock split (See Note D)
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<PAGE>
SOLAR ENERGY RESEARCH CORP. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY)
Summary of Significant Accounting Policies
December 31, 1995
Basis of presentation
The accompanying consolidated financial statements include the transactions
of Solar Energy Research Corp. and Telegen Acquisitions, Inc., a wholly owned
subsidiary of Solar Energy Research Corp. All material intercompany transactions
have been eliminated in the accompanying financial statements.
Development stage company
The Company entered the development stage in accordance with SFAS No. 7 on
January 1, 1992 and its purpose is to evaluate, structure and complete a merger
with, or acquisition of a privately owned corporation.
Cash equivalents
For financial accounting purposes and the statement of cash flows, cash
equivalents include time deposits, certificates of deposit, and all highly
liquid debt instruments with original maturities of three months or less.
Net loss per share
Net loss per share is based on the weighted average number of common shares
outstanding for the periods presented according to the rules of the Securities
and Exchange Commission. Such rules require that any shares sold at a nominal
value prior to a public offering, should be considered outstanding for all
periods presented.
Organization costs
Costs incurred in connection with the organization of a subsidiary company
will be amortized over 60 months once the subsidiary has commenced operations.
Deferred offering costs
Offering costs, consisting of legal fees, are deferred until completion of
the Company's private placement offering. Upon completion, the deferred offering
costs will be offset against the proceeds from the offering.
<PAGE>
SOLAR ENERGY RESEARCH CORP. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
Notes To Consolidated Financial Statements
December 31, 1995
Note A: Nature of organization
Solar Energy Research Corp. and subsidiary (the Company) was incorporated
under the laws of Colorado on December 19, 1973, for the purposes of designing,
marketing and serving solar heating systems. Effective December 31, 1981, the
Company began to wind down operations and from shortly after that date through
December 31, 1991, the Company was inactive. Effective January 1, 1992, the
Company returned to the development stage in accordance with SFAS No. 7.
Principal activities since December 31, 1991 include organizational matters and
the restructuring of debt relative to the discontinued solar energy operations.
Currently, the Company is a "shell corporation" and is seeking financing to
complete a merger with a privately owned company.
Note B: Related party transactions
The Company utilized office space on a rent-free basis from the president
during all periods presented. The Company does not anticipate changing this
arrangement until the Company's operations have commenced.
Since the Company re-entered the development stage in 1992, it has issued
232,179 shares of its $0.50 par value common stock to the president of the
Company for compensation valued at $142,768.
Since the Company re-entered the development stage in 1992, certain
expenses in connection with a search for a merger candidate have been paid by an
affiliate of the Company. Since 1992, the Company issued 130,845 shares of its
common stock for expenses totalling $66,750.
In 1993, the Company issued 3,000 shares of its $0.50 par value common
stock to an officer of the Company for compensation valued at $1,500.
In 1992, the Company exchanged indebtedness, including accrued interest
through 1985, to various officers and shareholders totalling $372,137 for
558,206 shares of its $0.50 par value common stock.
In 1985, the Company liquidated debt to the president of the Company
totalling $6,452, including accrued interest, from the proceeds of the sale of
equipment.
<PAGE>
SOLAR ENERGY RESEARCH CORP. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
Notes To Consolidated Financial Statements, Continued
December 31, 1995
Note C: Judgments payable
Outstanding judgments at December 31, 1995, resulting from trade payables,
are as follows:
No. 80002014........................... $ 1,123
No. 80005430........................... 2,962
No. 80002837........................... 895
No. 80004601........................... 6,417
No. 81008312 less
amount forgiven by creditor.......... 6,600
_______
$17,997
_______
Note D: Shareholders' equity
Effective October 23, 1993, the Board of Directors declared a 1 for 50
reverse stock split. All common shares reflected in the accompanying
consolidated financial statements have been restated.
Shareholders have authorized a class of no par value, voting preferred
stock. Series may be established by action of the Board of Directors designating
dividend conversion, liquidation and redemption rights and privileges. No voting
preferred shares have been issued.
Beginning on September 28, 1995, the Company offered for sale 200,000
shares of $.50 par value common stock in a private placement offering at a price
of $.50 per share. Proceeds from the offering will be used to pay the costs of
acquisition of a privately held company. Anticipated costs include attorneys'
and accountants' fees as well as registration filing costs. Should the
acquisition be terminated, any remaining proceeds will be deposited to the
Company's general account to be used for future transactional expenses and
working capital.
<PAGE>
SOLAR ENERGY RESEARCH CORP. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
Notes To Consolidated Financial Statements, Continued
December 31, 1995
Note E: Income taxes
At December 31, 1994, deferred taxes consisted of:
December 31,
1995 1994
Deferred tax asset, net
operating loss carryforward ... $ 509,804 $ 490,941
Valuation allowance ............. (509,804) (490,941)
___________ ___________
Net deferred taxes .............. $ - $ -
___________ ___________
The valuation allowance offsets the net deferred tax asset for which there
is no assurance of recovery.
The Company has available, as of December 31, 1995, unused operating loss
carryforwards for Federal and State purposes of approximately $1,533,983 each,
which expire through the year 2010. The ability of the Company to utilize the
carryforwards may be severely limited should its line of business (solar) or its
ownership change.
Note F: Commitment
Pursuant to a letter of intent signed on August 9, 1995,
to acquire a privately held operating company, the Company is committed to
paying certain legal, accounting and other fees in connection with the
acquisition. The Company estimates that its commitment for these costs at
December 31, 1995 is approximately $23,400.
Contingency
The Company is contingently liable on judgment claims totalling $4,017,
plus accrued interest, to creditors who are no longer in business.
Note G: Proposed merger
The Company entered into a letter of intent dated August 9, 1995, to
acquire a privately held operating company. Subject to the successful completion
of a private placement of 200,000 shares of it's $.50 par value common stock,
the Company plans to acquire 100 percent of the stock of the operating company
by issuing approximately 19,669,366 shares of restricted common stock and
112,750 shares of voting preferred stock to shareholders of the operating
company. Upon completion of the transaction, approximately 95 percent of the
shares of the Company's common stock (fully diluted) will be held by
shareholders of the operating company.
<PAGE>
SOLAR ENERGY RESEARCH CORP. AND
SUBSIDIARY (A DEVELOPMENT STAGE COMPANY)
Notes To Consolidated Financial Statements, Concluded
December 31, 1995
Note H: Basis of presentation
In the course of its development activities, the Company has sustained
continuing operating losses and expects such losses to continue for the
foreseeable future. The Company plans to continue to finance its operations with
a combination of stock sales and in the longer term, revenues from the
operations of its proposed merger candidate. The Company's ability to continue
as a going concern is dependent upon successful completion of its private
placement and additional financings and, ultimately, upon achieving profitable
operations.
Note I: Subsequent events
On January 23, 1996, an individual purchased 10,000 shares of the Company's
$.50 par value common stock for $5,000.
On February 13, 1996, an individual purchased 20,000 shares of the
Company's $.50 par value common stock for $10,000.
<PAGE>
SOLAR ENERGY RESEARCH CORP. AND SUBSIDIARY
(a Development Stage Enterprise)
Consolidated, Condensed Balance Sheets
ASSETS
June 30, December 31,
1996 1995
------------ ------------
ASSETS
Cash.................................... $ 633 $ 12,509
Advance to merger candidate (Note E).... 40,000 40,000
Organization costs...................... 915 915
Deferred offering costs (Note F)........ - 500
------------ ------------
$ 41,548 $ 53,924
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable.......................$ 1,574 $ 4,228
Other current liabilities.............. 25,222 22,548
------------ ------------
Total liabilities.................... 26,796 26,776
------------ ------------
SHAREHOLDERS' EQUITY (Note D)
Common stock........................... 713,798 636,925
Other shareholders' deficit............. (699,046) (609,777)
------------ ------------
Total shareholders' equity............ 14,752 27,148
------------ ------------
$ 41,548 $ 53,924
============ ============
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
SOLAR ENERGY RESEARCH CORP. AND SUBSIDIARY
(A Development Stage Enterprise)
Consolidated, Condensed Statements of Operations
January 1, 1992
Six Months Ended (Inception)
June 30, Through
----------------------- June 30,
1996 1995 1996
----------- ---------- ------------
<S> <C> <C> <C>
COSTS AND EXPENSES
General and administrative,
related parties, (Note B)................... $ 7,500 $ 4,456 $ 137,334
General and administrative.................... 17,154 22,687 51,186
Cost of proposed acquisition.................. 63,213 - 115,651
Interest expense.............................. 902 778 5,453
----------- ---------- ------------
88,769 27,921 309,624
NET LOSS........................................ $ (88,769) $ (27,921) $ (309,624)
----------- ---------- ------------
Weighted average shares outstanding............. 1,334,265 1,008,759 427,315
----------- ----------- ------------
Net loss per share.............................. $ (.07) $ (.03) $ (.72)
----------- ----------- ------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SOLAR ENERGY RESEARCH CORP. AND SUBSIDIARY
(a Development Stage Enterprise)
Consolidated, Condensed Statements of Cash Flows
January 1,
Six Months Ended 1992
June 30, Through
------------------------- June 30,
1996 1995 1996
------------ ------------ ------------
Cash flows from operating
activities:
Cash used in operating
activities................. $ (83,249) $ (3,044) $ (165,740)
------------ ------------ ------------
Cash flows from financing
activities:
Contributed capital ....... - 3,044 -
Offering costs incurred
(Note F)................. (500) - (500)
Sale of common stock
(Note D)................. 71,873 - 166,873
------------ ------------ ------------
Cash provided by
financing activities....... 71,373 3,044 166,373
------------ ------------ ------------
Net increase (decrease) in
cash and cash equivalents.. (11,876) - 633
Cash and cash equivalents at
beginning of period......... 12,509 - -
------------ ------------ ------------
Cash and cash equivalents at
end of period.............. $ 633 $ - $ 633
============ =========== ============
Supplementary disclosure of
cash flow information:
Cash paid during the
period for:
Interest................ $ - $ - $ -
Income taxes............ $ - $ - $ -
Noncash financing activities:
Shares issued to the
president of the Company
in exchange for debt..... $ - $ - $ 40,018
Shares issued to related
parties in exchange for
debt..................... $ - $ - $ 558,206
Shares issued to judgement
creditors in exchange for
satisfaction of judgement $ - $ - $ 21,815
See accompanying notes to financial statements.
<PAGE>
SOLAR ENERGY RESEARCH CORP. AND SUBSIDIARY
(a Development Stage Enterprise)
Consolidated, Condensed Statements of Cash Flows, Concluded
January 1,
Six Months Ended 1992
June 30, Through
------------------------- June 30,
1996 1995 1996
------------ ------------ ------------
Noncash financing activities,
continued:
Shares issued for services $ 5,000 $ - $ 71,750
Shares issued for
compensation:
President............. $ - $ - $ 102,750
Secretary............. $ - $ - $ 1,500
See accompanying notes to financial statements.
<PAGE>
SOLAR ENERGY RESEARCH CORP. AND SUBSIDIARY
(a Development Stage Enterprise)
Notes to Consolidated, Condensed Financial Statements
June 30, 1996
Note A: Basis of presentation
The financial statements presented herein have been prepared by the
Company in accordance with the accounting policies in its Form 10-KSB
report dated December 31, 1995 and should be read in conjunction with
the notes thereto.
In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) which are necessary to a fair
presentation of operating results for the interim periods presented
have been made.
Interim financial data presented herein are unaudited.
Note B: Related party transactions
During the six months ended June 30, 1996, the Company paid $7,500,
for services and payments made on behalf of the Company, to an
unconsolidated affiliate.
Note C: Income taxes
At June 30, 1996, deferred taxes consisted of:
June 30,
1996 1995
------------ ------------
Deferred tax asset, net
operating loss carryforward.... $ 539,986 $ 500,435
Valuation allowance.............. (539,986) (500,435)
Net deferred taxes............... $ - $ -
------------ ------------
The valuation allowance offsets the net deferred tax asset for which
there is no assurance of recovery.
The Company has available, as of December 31, 1995, unused operating
loss carryforwards for Federal and State purposes of approximately
$1,533,983 each, which expire through the year 2010. The ability of
the Company to utilize the carryforwards may be severely limited
should its line of business (solar) or its ownership change.
<PAGE>
SOLAR ENERGY
RESEARCH CORP. AND SUBSIDIARY
(a Development Stage Enterprise)
Notes to Consolidated, Condensed Financial Statements, Continued
June 30, 1996
Note D: Shareholders' equity
During the six months ended June 30, 1996, the Company issued 128,746
shares of its $.50 par value common stock to accredited investors for
$64,373 cash. The Company has utilized this cash together with cash
from the sale of its common stock to other accredited investors to pay
certain expenses in connection with the reverse acquisition of Telegen
Corporation, an operating California corporation. The Company also
issued 10,000 shares of common stock as payment for legal services
valued at $5,000. Shareholders' equity transactions during the six
months ended June 30, 1996, consisted of the following:
Other
Common Stock Shareholders'
Shares Par Value Equity
----------- ----------- -----------
Balance at
December 31, 1995.... 1,273,850 $ 636,925 $ (609,777)
Shares issued for cash,
January 23, 1996..... 10,000 5,000 -
Shares issued for cash,
February 13, 1996.... 20,000 10,000 -
Shares issued for
services,
April 3, 1996........ 10,000 5,000 -
Shares issued for cash,
April 17, 1996....... 10,000 5,000 -
Shares issued for cash,
April 26, 1996....... 58,746 29,373 -
Shares issued for cash,
May 28, 1996......... 22,500 11,250 -
Shares issued for cash,
June 6, 1996......... 22,500 11,250 -
Offering costs incurred - - (500)
Net loss for the six
months ended
June 30, 1996........ - - (88,769)
----------- ----------- -----------
Balance at
June 30, 1996........ 1,427,596 $ 713,798 $ (699,046)
=========== =========== ===========
<PAGE>
SOLAR ENERGY
RESEARCH CORP. AND SUBSIDIARY
(a Development Stage Enterprise)
Notes to Consolidated, Condensed Financial Statements, Continued
June 30, 1996
Note E: Proposed merger
The Company, together with its merger candidate Telegen Corporation
(Telegen), have executed a definitive agreement and amendments whereby
the Company will acquire Telegen in a reverse acquisition. Telegen was
founded in 1990, and is engaged in the design, development,
manufacture (through contract manufacturers) and sales (through
manufacturers representatives and private label resellers),
intelligent telecommunications products which provide supplementary
features to existing telephone equipment and services for customers
and small businesses.
In an amendment to the agreement, Telegen agreed to pay all
professional fees related to the acquisition after May 31, 1996.
Telegen also agreed to advance the Company $28,127 toward the $200,000
required to be raised by the Company to cover legal and accounting
preacquisition costs. Should Telegen cancel the transaction, it is
required to reimburse the Company for pre-acquisition costs up to
$171,873. As of June 30, 1996, the Company had incurred
pre-acquisition costs totalling $155,651; $40,000, previously advanced
to Telegen plus the costs-to-date of the merger, paid by the Company,
totalling $115,651.
The Company received the $28,127 advance from Telegen on July 26,
1996. Management believes this advance is sufficient to cover the
Company's current liabilities and future expenses up to the time of
the acquisition's completion.
As part of the reorganization, the Company will execute a 7.25 for 1
reverse split of its shares. The Company plans to issue approximately
3,917,287 (post-split) shares of common stock to acquire all of the
then outstanding shares of Telegen. In addition, the Company plans to
re-incorporate in California and the definitive agreement calls for
Telegen to merge into the California corporation.
<PAGE>
SOLAR ENERGY
RESEARCH CORP. AND SUBSIDIARY
(a Development Stage Enterprise)
Notes to Consolidated, Condensed Financial Statements, Concluded
June 30, 1996
Note F: Private offering
During the three months ended June 30, 1996, the Company completed a
private offering of its $.50 par value common stock in which it raised
$171,873 for pre-acquisition costs related to the proposed merger.
In connection with the offering of its common shares, the Company
incurred offering costs consisting of legal fees totalling $500. No
commissions were paid to underwriters. The Company completed the
private offering during the three months ended June 30, 1996 and
offset the offering costs against additional paid-in capital in the
accompanying financial statements in other shareholders' equity.
Note G: Subsequent event
On July 26, 1996, the Company received $28,127 from Telegen to be used
to pay general and administrative expenses and all costs for the
completion of the reorganization agreement except professional fees.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Shareholders
Telegen Corporation
Foster City, California
We have audited the balance sheets of Telegen Corporation as of December 31,
1995 and 1994, and related statements of operations, shareholders' equity
(deficit), and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Telegen Corporation at December
31, 1995 and 1994, and the results of its operations and its cash flows for each
of the years then ended in conformity with generally accepted accounting
principles.
Sacramento, California Coopers & Lybrand, L.L.P.
April 19, 1996
<PAGE>
TELEGEN CORPORATION BALANCE SHEETS
as of December 31, 1995 and 1994
ASSETS
1995 1994
Current assets:
Cash and cash equivalents $177,904 $ 97,725
Restricted cash - 20,000
Accounts receivable, trade 3,704 9,407
Accounts receivable, other (net of allowance
for doubtful accounts of $14,113 and $0 at 1995
and 1994, respectively) 2,186 18,978
Inventory 377,627 145,290
Prepaid expenses and other current assets - 28,044
------- -------
Total current assets 561,421 319,444
Property and equipment, net 147,243 218,527
Deferred financing costs, net 197,248 -
Other assets 15,712 28,981
------- -------
$ 921,624 $ 566,952
------- -------
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable $ 279,343 $ 158,851
Current maturities of notes payable
- shareholder 375,473 14,515
Accounts payable, trade 1,147,953 332,521
Accounts payable, other 2,102 8,117
Accrued expenses 518,732 195,457
------- -------
Total current liabilities 2,323,603 709,461
Notes payable - shareholder, long-term portion 167,649 178,976
------- -------
Total liabilities 2,491,252 888,437
------- -------
Commitments and contingencies (Notes 6, 12 and 13)
Shareholders' equity (deficit):
Series A Convertible preferred stock, $10
liquidation preference, authorized 550,000
shares, 112,750 and 47,500 shares issued
and outstanding at 1995 and 1994,
respectively (Note 7) 922,526 350,704
Common stock, no par value; authorized
10 million shares, 2,717,927 and 2,621,642 shares
issued and outstanding at 1995 and 1994,
respectively 2,809,703 2,111,742
Accumulated deficit (5,301,857) (2,783,931)
------- -------
Total shareholders' deficit (1,569,628) (321,485)
------- -------
$ 921,624 $ 566,952
------- -------
The accompanying notes are an integral part of these financial statements
<PAGE>
TELEGEN CORPORATION STATEMENTS OF OPERATIONS
for the years ended December 31, 1995 and 1994
1995 1994
Sales $ 145,795 $ 432,972
Cost of goods sold (170,421) (314,239)
------- -------
Gross profit (loss) (24,626) 118,733
Operating expenses:
Selling and marketing 84,467 92,170
Research and development 826,984 830,913
General and administrative 1,501,469 1,118,312
------- -------
Loss from operations (2,437,546) (1,922,662)
Other income/(expense):
Interest income 725 9,608
Interest expense (81,105) (30,658)
------- -------
Net loss $(2,517,926) $(1,943,712)
------- -------
The accompanying notes are an integral part of these financial statements
<PAGE>
<TABLE>
<CAPTION>
TELEGEN CORPORATION STATEMENTS OF SHAREHOLDERS' EQUITY/(DEFICIT)
for the years ended December 31, 1995 and 1994
Preferred Stock Common Stock Accumulated
Shares Amount Shares Amount Deficit Total
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 - - 2,532,657 $ 1,708,166 $(840,219) $ 867,947
Preferred stock issued 47,500 $ 350,704 - - - 350,704
Common stock issued - - 88,985 403,576 - 403,576
Net loss - - - - (1,943,712) (1,943,712)
------- ------- --------- --------- ---------- ----------
Balance, December 31, 1994 47,500 350,704 2,621,642 2,111,742 (2,783,931) (321,485)
Preferred stock issued, net of
offering cost of $80,678 65,250 571,822 - - - 571,822
Common stock issued, net of
offering costs of $70,933 - - 96,285 445,966 - 445,966
Issuance of common stock
warrants - - - 251,995 - 251,995
Net loss - - - - (2,517,926) (2,517,926)
------- ------- --------- --------- ---------- ----------
Balance, December 31, 1995 112,750 $922,526 2,717,927 $2,809,703 $(5,301,857) $(1,569,628)
------- ------- --------- --------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
TELEGEN CORPORATION STATEMENTS OF CASH FLOWS
for the years ended December 31, 1995 and 1994
1995 1994
Cash flows from operating activities:
Net loss $(2,517,926) $(1,943,712)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 58,784 53,509
Amortization 13,269 13,251
Amortization of deferred financing costs 22,529 -
Accretion of bridge loan discount 17,833 -
Allowance for doubtful accounts 14,113 -
Provision for inventory write-downs 19,381 -
Operating expenses paid with issuance of
common stock and common stock equivalents 536,964 209,219
Interest expense added to note payable
principal 20,853 28,162
Changes in assets and liabilities:
Decrease (increase) in accounts
receivable 8,382 167,089
Decrease (increase) in prepaid expenses 28,044 (28,044)
(Increase) in inventory (251,718) (130,885)
Decrease in other assets - 5,497
Increase in trade and other accounts
payable 672,435 204,314
Increase in accrued expenses 323,275 147,999
--------- -------
Total adjustments 1,484,144 670,111
--------- -------
Net cash used in operating
activities (1,033,782) (1,273,601)
--------- -------
Cash flows used in investing activities:
Insurance proceeds on fixed assets 12,500 -
Purchase of fixed assets - (117,125)
Purchase of intangible assets - (1,120)
--------- -------
Net cash provided by (used in)
investing activities 12,500 (118,245)
--------- -------
Cash flows from financing activities:
Proceeds from borrowings 457,640 19,311
Principal payments on notes payable (26,203) -
Issuance of common stock 163,165 142,320
Issuance of preferred stock, net of
offering costs 571,822 350,704
Bridge loan offering costs (84,963) -
--------- -------
Net cash provided by financing
activities 1, 081,461 512,335
--------- -------
Net increase (decrease) in cash and cash
equivalents 60,179 (879,511)
Cash and cash equivalents at beginning of year 117,725 997,236
--------- -------
Cash and cash equivalents at end of year $ 177,904 $ 117,725
--------- -------
Supplemental disclosures:
Cash paid for interest $ 98 $ -
--------- -------
Cash paid for income taxes $ 800 $ 800
--------- -------
The accompanying notes are an integral part of these financial statements
<PAGE>
TELEGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Nature of Business
Telegen Corporation (the Company) was incorporated in the state of
California on May 3, 1990. The Company designs, develops and manufactures
intelligent telecommunication, internet hardware, and flat panel display
products. Currently, the Company is only marketing its telecommunications
products. Subsequent to year-end the Company formed a subsidiary, Telegen
Display Laboratories to oversee the development of the Company's flat panel
products.
Cash and Cash Equivalents
Cash equivalents are defined as highly liquid investments which have
original maturities of three months or less from the date acquired.
Inventory
Inventory of telephone accessory products and component parts is stated at
the lower of cost (weighted average method) or market value.
Property and Equipment
Property and equipment are stated at cost. Depreciation of equipment is
provided using the straight-line method over the estimated useful lives of five
years. Amortization of leasehold improvements is provided on the straight-line
method over the shorter of the estimated useful life of the improvement or the
term of the lease. Furniture and equipment received in exchange for stock is
recorded at the stockholder's basis. Costs of maintenance and repairs are
expensed while major improvements are capitalized. Gains or losses from
disposals of property and equipment are reflected in current operations.
Deferred Financing Costs
Deferred financing costs, which were incurred by the Company in connection
with the Bridge Financing (Note 6), are charged to operations as additional
interest expense over the life of the underlying debt using the interest method.
Other Assets
Other assets consist of deposits, trademarks, patents and organization
costs. The trademarks, patents and organization costs are carried at cost and
are amortized on a straight-line basis over five years.
Revenue Recognition
The Company recognizes revenues when products are shipped.
Research and Development Costs
Expenditures relating to the development of new products and processes,
including significant improvements to existing products, are expensed as
incurred.
Income Taxes
The Company reports income taxes in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, which requires the
liability method in accounting for income taxes. Deferred tax assets and
liabilities arise from the differences between the tax basis of an asset or
liability and its reported amount in the financial statements.
Deferred tax amounts are determined by using the tax rates expected to be
in effect when the taxes will actually be paid or refunds received, as provided
under currently enacted tax law. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense or credit is the tax payable or refundable, respectively, for
the period plus or minus the change during the period in deferred tax assets and
liabilities.
Concentration of Credit Risk
Most of the Company's revenues are derived from sales to a few major
telecommunications companies with significant cash resources. Therefore, the
Company considers its credit risk related to these transactions to be minimal.
The Company invests its excess cash in certificates of deposits and
depository accounts of banks with strong credit ratings. These certificates of
deposits and the Company's cash deposits typically bear minimal risk and the
Company has not experienced any losses on its investments due to institutional
failure or bankruptcy.
New Accounting Pronouncement
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 establishes fair value based accounting and reporting
standards for stock-based employee compensation plans. The statement defines a
fair value based method of accounting for an employee stock option or similar
equity instrument and allows parties to elect to continue to measure
compensation costs using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25 Accounting for Stock Issued to Employees. SFAS
No. 123 requires, for those electing to remain with the APB Opinion No. 25
accounting, pro forma disclosure of net income and earnings per share as if the
fair value based method had been applied.
The Company will adopt SFAS No. 123 for 1996 and is expected to elect to
continue to measure and record compensation costs as defined in APB Opinion No.
25. The Company is currently determining the impact of the adoption of SFAS No.
123 on its disclosures in its financial statements.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from the estimates.
Reclassifications
The Company has made certain reclassifications to prior year amounts in
order to conform with the current presentation. The reclassifications have no
impact on net income or common shareholders' equity.
2. Inventory:
Inventories at December 31, consist of the following:
1995 1994
Raw materials and supplies $360,046 $118,255
Finished goods - Teleblocker 11,043 27,035
Finished goods - ACS 6,538 -
-------- --------
$377,627 $145,290
-------- --------
3. Property and Equipment:
Property and equipment are stated at cost and consist of the following at
December 31:
1995 1994
Machinery and equipment $ 136,762 $ 151,762
Leasehold improvements 3,453 3,453
Office furniture and fixtures 156,437 156,437
------- ---------
296,652 311,652
Less accumulated depreciation (149,409) (93,125)
------- ---------
$ 147,243 $ 218,527
------- ---------
4. Other Assets:
Other assets are stated at cost and consist of the following:
1995 1994
Organizational costs $ 5,930 $ 5,930
Trademarks 47,755 47,755
Patents 13,225 13,225
------- ---------
66,910 66,910
Less accumulated amortization (64,694) (51,425)
------- ---------
2,216 15,485
Deposits 13,496 13,496
------- ---------
$ 15,712 $ 28,981
------- ---------
5. Notes Payable:
Notes payable consist of the following at December 31:
1995 1994
Note payable to shareholder,
interest at 8%, principal and
accrued interest due July 1,
1997, without collateral. $ 167,649 $ 193,491
Note payable (line of credit),
including accrued interest
to a bank with interest at
13%, without collateral. 172,370 152,540
Note payable (Bridge Loans) to
shareholders, interest at 15%,
principal due October 1996 through
December 1996, interest due quarterly
beginning March 1996, collateralized
by equipment, receivables, and
inventory (see Note 6). 350,473 -
Convertible subordinated note payable,
interest at 18%, principal and accrued
interest due August 1995, without
collateral. 100,000 -
Note payable to shareholder, interest at
10%, principal and accrued interest due
February 1995, without collateral. 25,000 -
Note payable to others, including,
accrued interest 6,973 6,311
-------- --------
822,465 352,342
Less current maturities (654,816) (173,366)
-------- --------
$ 167,649 $ 178,976
-------- --------
The terms of the note payable to a shareholder for $167,649 were amended in
November 1995. As a result of the amendment, this balance has been recorded as
long-term. Accrued interest totaling $1,023 and $13,514 at December 31, 1995 and
1994, respectively, are included in the note balances above.
The principal balance of the convertible subordinated note payable is
convertible, at the holder's discretion, into common stock of the Company at a
rate of $7 per share.
The note payable to a bank is the subject of litigation between the lender
and the Company. The lender has sued the Company for non-payment. The Company
alleges that the lender did not perform under the terms of the original note.
Common stock totaling 208,000 shares originally issued to intermediaries in the
transaction were canceled in 1993 due to failure to perform and conflict of
interest. Such shares are not recorded as issued or outstanding. While the
ultimate outcome of this litigation cannot be determined at this time, the
Company believes it has meritorious defenses under the terms of the note and the
outcome will not have a materially adverse effect on its financial condition or
results of operations. The full balance of the note and interest accrued thereon
at 13% per annum are reflected as current liabilities as of December 31, 1995
and 1994.
6. Bridge Financing:
On October 23, 1995, the Company entered into a Bridge Loan and Consulting
Agreement with a Placement Agent (Agent) pursuant to which the Agent assisted
the Company in obtaining new capital in the form of one-year notes (see Note 5)
bearing interest at 15% per annum (Bridge Loan). The Company granted to the
purchasers of the notes, common stock of Telegen in an amount equal to one
percent of the then outstanding common stock. The Agent has guaranteed the
payment of the principal and accrued interest of the notes. The Company has
issued common stock to the Agent in an amount determined by formula and paid the
Agent commissions totaling 15% of the gross amount raised.
As of December 31, 1995, the Company had received gross Bridge Loan
proceeds of $440,000 from the issuance of one-year notes and 21,472 shares of
the Company's common stock. Of the total proceeds, $107,360 was allocated to
common stock and $332,640 was allocated to debt. The Agent received $69,390 from
the proceeds and 41,149 shares of common stock. Other offering expenses were
approximately $15,600. Aggregate financing costs of $290,710 were allocated to
debt financing costs and common stock in the amounts of $219,777 and $70,933,
respectively.
Subsequent to year end, the Company received an additional $275,000 from
the issuance of one-year notes and 13,420 shares of the Company's common stock.
Of the total proceeds, $67,100 was allocated to common stock and $207,900 was
allocated to debt. The Agent received $42,540 from the proceeds and 25,719
shares of common stock as commission on the transaction. Other offering expenses
were approximately $17,500. Aggregate financing costs of $188,668 were allocated
to debt financing costs and common stock in the amounts of $142,633 and $46,035,
respectively.
7. Shareholders' Equity:
Convertible Preferred Stock
The Company has 1,000,000 shares of Preferred Stock authorized of which
550,000 shares are designated Series A. Each share of Series A Convertible
Noncumulative Preferred Stock is entitled to one vote per share of common stock
into which the Preferred is convertible into common stock at the holder's
discretion. The Series A Preferred Stock will automatically convert into Common
Stock in the event of 1) a public offering of not less than $15 per share, or 2)
the affirmative vote of 67% of the outstanding Preferred Shares. In all cases,
the conversion rate will initially be 1:1, subject, in certain circumstances, to
anti-dilutive adjustments. Each share of Series A Preferred Stock is entitled to
receive noncumulative dividends at a rate of 8% per annum if declared by the
directors of the Company and in preference to the Common Stock. In the event of
liquidation, each share of Preferred is entitled to receive, in preference to
the Common shareholders, an amount equal to $10 per Preferred Share, which
depending on circumstances, may be paid in cash or securities of any entity
surviving the liquidation.
Stock Option and Incentive Plan
On October 29, 1993, the Company authorized a stock option plan under which
options to purchase shares of common stock may be granted to full time
employees. The number of options granted is based on employee performance. The
plan provides that the option price shall not be less than the fair market value
of the shares on the date of grant. Options are exercisable on the date of the
grant, expire five years from the date of grant and vest over varying lengths of
time, up to twelve months.
In addition, on October 29, 1993, the Company's Board of Directors
authorized granting to full time employees who successfully complete a
probationary period a number of shares of common stock or an option to purchase
a number of shares of common stock whose total market value on the date of grant
is equal to five percent of the employee's annual salary. In 1995 and 1994,
respectively 1,582 shares and 7,392 shares were issued to employees and $7,910
and $36,960 was recorded as an expense. Options granted under this plan are
included in the table below.
The following summarizes the stock option transactions for the two-year
period ended December 31, 1995:
Number of Option Price Per
Shares Share
Outstanding and exercisable at
December 31, 1993 13,216
Issued 1,873 $ 1.00
2,266 $ 4.00
346,499 $ 5.00
Exercised (150) $ 5.00
Canceled -
-------
Outstanding and exercisable at
December 31, 1994 363,704
Issued 92,195 $ 5.00
Exercised (1,061) $ 5.00
Canceled -
-------
Outstanding and exercisable at
December 31, 1995 454,838
In February 1996, the Company's Board of Directors approved granting to
non-employee members of the Board $1,000 per Board meeting attended. The Board
members may elect to receive their compensation in the form of common stock of
the Company or options to purchase shares of the Company's common stock at an
exercise price equal to the fair value of the shares at the beginning of the
calendar year the options are granted. Also, the Board approved granting to
non-employee members of the Board, options to purchase, on an annual basis,
20,000 shares of the Company's common stock. The options will be granted at the
beginning of each calendar year at fair value and vest ratably over the year,
unless the member is discharged from the Board due to a merger, buyout or other
event not in the ordinary course of business, in which case the options will
vest immediately.
In February 1996, the Board granted certain officers of the company options
to purchase shares of the Company's common stock at a price of $5.00 per share
for a period of five years. A total of 200,000 options were granted, of which
100,000 vest immediately and the remaining options vest in 50,000 share
increments upon the Company achieving certain performance goals.
In February 1996, the Board authorized the granting of 17,000 options to an
employee to purchase company stock at $5 per share, exercisable for a period of
up to five years. In addition, options to purchase additional shares would be
granted in certain circumstances.
Warrants
In August 1995, a shareholder and officer of the Company was issued
warrants to purchase 50,500 shares of common stock for $.01 per share for a
period of five years. The warrants can be exercised at any time. Compensation
expense totaling $251,995 was recorded to reflect the difference between the
fair value of the common stock and the exercise price.
8. Income Taxes:
The income tax effect of temporary timing differences between financial and
income tax reporting that give rise to deferred income tax assets at December
31, 1995 and 1994, under the provisions of SFAS No. 109 are as follows:
1995 1994
Federal net operating loss carryforward $ 1,658,234 $ 873,684
State operating loss carryforward 292,630 154,084
--------- ---------
1,950,864 1,027,768
Less valuation allowance (1,950,864) (1,027,768)
--------- ---------
$ - $ -
--------- ---------
Net operating loss carryforwards of $4,877,159 expire from 2005 to 2010 for
federal income tax reporting purposes and from 1998 to 2000 for state tax
reporting purposes.
The Company has recorded a valuation allowance equal to the full value of
the deferred tax asset to reflect the uncertain nature of the ultimate
realization of the deferred tax asset based on past performance.
9. Disclosure about the Fair Value of Financial Instruments:
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and Cash Equivalents
The carrying amount approximates fair value due to the short maturity of
these instruments.
Line of Credit
The carrying value of the Company's line of credit is assumed to
approximate fair values due to its short-term maturities.
Notes Payable
The fair value of the Company's notes payable is estimated by discounting
the future cash flows using rates currently available for debt of similar terms
and maturity. The carrying value of these instruments approximates fair value.
10. Supplemental Disclosure of Non-Cash Investing and Financing Activities:
During the years ended December 31, 1995 and 1994, the Company received the
following services in exchange for common stock:
1995 1994
---- ----
Services Shares Services Shares
Received Issued Received Issued
-------- ------ -------- ------
Legal Services $217,000 43,083 $166,000 38,421
Employee Services 7,900 1,582 37,000 7.342
Deferred Financing Costs 49,500 9,899 -- --
Other Services 51,000 23,687 19,000 3,418
Accounts Payable 3,300 400 52,000 14,010
In addition, approximately $252,000 in employee services was received in
exchange for common stock warrants (Note 7). Also, approximately $106,000 in
deferred financing costs and $34,000 in common stock offering costs are included
in accounts payable at December 31, 1995. Also, approximately $106,000 in
deferred financing costs and $34,000 in common stock offering costs are included
in accounts payable at December 31, 1995. In addition, approximately $252,000 in
employee services was received in exchange for common stock warrants (Note 7).
Common stock issued in exchange for services were recorded at estimated fair
market value.
In 1994, the Company received a vehicle in exchange for $5,000 in cash and
a note payable to the seller for $10,000.
In 1994, the Company received a vehicle in exchange for $5,000 in cash and
a note payable to the seller for $10,000.
11. Proposed Merger:
The Company has entered into an agreement dated November 16, 1995, as
amended by Amendment No. 1, dated January 18, 1996, and Amendment No. 2, dated
April 9, 1996, whereby the Company would merge with a SEC registrant
(Registrant). Pursuant to the merger agreement, among other things, each share
of common and preferred stock of the Company would be converted into shares of
common stock and preferred stock of the Registrant (after giving effect to a
7.25:1 reverse split of the Registrant's common stock). The surviving company
would be known as Telegen Corporation and the directors of the Company
immediately prior to the merger will be the directors of the surviving company.
Additionally, certain key employees of the Company will enter into employment
contracts, effective upon the consummation of the merger. Among other
conditions, the proposed merger is subject to the approval of the majority of
the outstanding voting shares of the Registrant. Under certain circumstances, if
the agreement is terminated, the Company may be liable for up to $200,000 in
expenses incurred by the Registrant related to this transaction. Additional
shares may be issued to shareholders of the Registrant if certain post-merger
stock price parameters are not met over the period occurring between the merger
closing date and December 31, 1997.
12. Commitments:
The Company leases its facilities and certain equipment under long-term,
noncancelable lease agreements which have been accounted for as operating
leases. The leases require that the Company pay all property taxes, insurance
costs, repairs and common area maintenance expenses associated with its portion
of the facilities. The Company's noncancelable lease agreement expires during
1996. Minimum payments during 1996 under the lease terms are $97,698.
Rental expense charged to operations for all operating leases was
approximately $202,000 and $189,000 for the years ended December 31, 1995 and
1994, respectively.
Subsequent to December 31, 1995, the Company's Board of Directors approved
the future grant of a 5% interest in the Company's subsidiary, Telegen Display
Laboratories, to a director of the subsidiary.
In March 1996, the Company consummated an Agreement to sell a minimum of
$360,000 in products and services to a telecommunications company by March 1997.
Currently, all of the Company's telecommunication products are manufactured in
Hong Kong and The People's Republic of China by a single manufacturer. The
Company contracts with the manufacturer on a purchase order basis and does not
have a long-term agreement with the manufacturer. The Company is currently
pursuing additional assembly sources which meet the Company's quality
specifications. Nonetheless, the Company believes that it has adequate capacity
through its current manufacturer to meet its requirements through the next year.
13. Contingencies:
The Company is subject to various legal actions and claims arising in the
ordinary course of business. Management believes the outcome of these matters
will have no material adverse effect on the Company's financial position,
results of operations and cash flows.
14. Related Party Transactions:
Revenues for the year ended December 31, 1995, includes approximately
$30,000 in sales to a business whose principal is a director of the Company.
15. Subsequent Events:
In February 1996, the Company initiated a private offering of up to
1,320,000 shares of common stock at $5 per share. The placement agent will
receive a commission of 15% of the funds raised and will pay $100 for warrants
to purchase a number of shares equal to 10% of the shares sold in the offering.
The warrants would be exercisable at $3.50 per share. The placement agent may
also be granted up to 136,000 shares of common stock based on certain parameters
related to the offering. Through April 1996, Telegen had received gross proceeds
of approximately $6,500,000 and had paid approximately $990,000 in fees to the
placement agent.
<PAGE>
TELEGEN CORPORATION BALANCE SHEET AS OF JUNE 30, 1996
(Unaudited)
ASSETS
CURRENT ASSETS:
CASH EQUIVALENTS $ 7,895,577
ACCOUNTS RECEIVABLE TRADE 4,998
ACCOUNTS RECEIVABLE OTHER 24,545
INVENTORY 334,031
__________
TOTAL CURRENT ASSETS 8,259,151
PROPERTY & EQUIPMENT (NET) 231,078
OTHER ASSETS 63,496
__________
$ 8,553,725
__________
__________
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
CURRENT MATURITIES NOTES PAYABLE $ 334,666
TRADE ACCOUNTS PAYABLE 199,942
ACCOUNTS PAYABLE OTHER -
ACCRUED EXPENSES 267,767
___________
TOTAL CURRENT LIABILITIES 802,375
NOTES PAYABLE LONG TERM -
___________
TOTAL LIABILITIES 802,375
___________
SHAREHOLDERS' EQUITY
SERIES A CONVERTIBLE
PREFERRED STOCK 922,526
COMMON STOCK 13,577,632
ACCUMULATED DEFICIT (6,748,808)
___________
TOTAL SHAREHOLDERS' EQUITY 7,751,350
$ 8,553,725
___________
___________
See accompanying notes to financial statements
<PAGE>
TELEGEN CORPORATION STATEMENT OF OPERATIONS FOR
THE SIX MONTHS ENDED JUNE 30, 1996
(Unaudited)
SALES $ 14,945
COST OF GOODS SOLD 12,082
________
GROSS PROFIT 2,863
OPERATING EXPENSE:
SALES & MARKETING 5,249
RESEARCH & DEVELOPMENT 291,075
GENERAL & ADMINISTRATIVE 994,033
________
LOSS FROM OPERATIONS (1,287,494)
OTHER INCOME & EXPENSE
INTEREST INCOME 55,608
INTEREST EXPENSE 215,066
________
LOSS BEFORE INCOME TAXES (1,446,952)
PROVISION FOR IMCOME TAXES --
_______
NET LOSS $ (1,446,952)
_______
_______
See accompanying notes to financial statements.
<PAGE>
TELEGEN CORPORATION STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(Unaudited)
SALES $ 106,235
COST OF GOODS SOLD 97,025
________
GROSS PROFIT 9,210
OPERATING EXPENSE:
SALES & MARKETING 62,088
RESEARCH & DEVELOPMENT 351,826
GENERAL & ADMINISTRATIVE 483,823
________
LOSS FROM OPERATIONS (888,527)
OTHER INCOME & EXPENSE
INTEREST INCOME 325
INTEREST EXPENSE 8,956
________
LOSS BEFORE INCOME TAXES (897,158)
PROVISION FOR INCOME TAXES --
________
NET LOSS $ (897,158)
________
________
See accompanying notes to financial statements.
<PAGE>
TELEGEN CORPORATION STATEMENT OF CASH FLOWS FOR
THE SIX MONTHS ENDED JUNE 30, 1996
(Unaudited)
CASH FLOW FROM OPERATING ACTIVITIES
NET LOSS $ (1,446,952)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
DEPRECIATION 31,873
AMORTIZATION 2,217
AMORTIZATION OF DEFERRED FINANCE COST 197,248
OPERATING EXPENSES PAID WITH
ISSUANCE OF COMMON STOCK 100,498
INTEREST EXPENSE ADDED TO NOTE PAYABLE 188,560
CHANGES IN ASSETS & LIABILITIES
DECREASE (INCREASE) IN ACCOUNTS RECEIVABLE (23,653)
DECREASE (INCREASE) IN INVENTORY 43,596
DECREASE (INCREASE) OTHER ASSETS (50,000)
INCREASE (DECREASE) IN ACCOUNTS PAYABLE (950,114)
INCREASE (DECREASE) IN ACCRUED EXPENSES (250,965)
--------
TOTAL ADJUSTMENTS (710,740)
--------
NET CASH USED IN OPERATING ACTIVITIES (2,157,692)
CASH FLOWS USED IN INVESTING ACTIVITIES
PURCHASE OF FIXED ASSETS (115,709)
PURCHASE OF INTANGIBLE ASSETS --
--------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (115,709)
CASH FLOWS FROM FINANCING ACTIVITIES:
NET PROCEEDS FROM BORROWINGS 207,900
PRINCIPAL PAYMENTS ON NOTES PAYABLE (884,257)
ISSUANCE OF COMMON STOCK 10,667,431
---------
ISSUANCE OF PREFERRED STOCK, NET OF OFFERING COSTS --
NET CASH PROVIDED BY FINANCING ACTIVITIES 9,991,074
---------
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS 7,717,673
CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD 177,904
---------
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 7,895,577
=========
SUPPLEMENTAL DISCLOSURES:
CASH PAID FOR INTEREST $ --
=============
CASH PAID FOR INCOME TAXES $ 800
=============
See accompanying notes to financial statements.
<PAGE>
TELEGEN CORPORATION STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(Unaudited)
CASH FLOW FROM OPERATING ACTIVITIES
NET LOSS $ (897,158)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
DEPRECIATION 29,392
AMORTIZATION 6,635
AMORTIZATION OF DEFERRED FINANCE COST --
OPERATING EXPENSES PAID WITH
ISSUANCE OF COMMON STOCK 82,618
INTEREST EXPENSE ADDED TO NOTE PAYABLE 8,956
CHANGES IN ASSETS & LIABILITIES
DECREASE (INCREASE) IN ACCOUNTS RECEIVABLE (4,148)
DECREASE (INCREASE) IN INVENTORY 93,966
DECREASE (INCREASE) OTHER ASSETS 22,465
INCREASE (DECREASE) IN ACCOUNTS PAYABLE (57,111)
INCREASE (DECREASE) IN ACCRUED EXPENSES 182,493
---------
TOTAL ADJUSTMENTS 365,266
---------
NET CASH USED IN OPERATING ACTIVITIES (531,892)
CASH FLOWS USED IN INVESTING ACTIVITIES:
PURCHASE/DISPOSAL OF FIXED ASSETS 12,500
PURCHASE/DISPOSAL OF INTANGIBLE ASSETS --
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 12,500
CASH FLOWS FROM FINANCING ACTIVITIES:
NET PROCEEDS FROM BORROWINGS 100,366
PRINCIPAL PAYMENTS ON NOTES PAYABLE --
ISSUANCE OF COMMON STOCK 55,805
ISSUANCE OF PREFERRED STOCK, NET OF OFFERING COSTS 343,243
NET CASH PROVIDED BY FINANCING ACTIVITIES 499,414
---------
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS (19,978)
CASH & CASH EQUIVALENTS AT BEGINNING OF QUARTER 117,725
---------
CASH & CASH EQUIVALENTS AT END OF QUARTER $ 97,747
=========
SUPPLEMENTAL DISCLOSURES:
CASH PAID FOR INTEREST $ 98
=========
CASH PAID FOR INCOME TAXES $ --
=========
See accompanying notes to financial statements.
<PAGE>
TELEGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation:
The unaudited interim period financial statements presented herein have
been prepared by Telegen Corporation (the "Company") in accordance with the
accounting policies used in the preparation of the financial statements for the
year ended December 31, 1995 and should be read in conjunction with the notes
thereto. In the opinion of the Company's management, all adjustments (consisting
only of normal recurring adjustments) which are necessary to a fair presentation
of the interim period financial statements have been made.
2. Shareholders' Equity:
In February 1996, the Company initiated a private offering of its common
stock at $5.00 per share. Through May 1996, when the offering was completed, the
Company received gross proceeds of approximately $6,672,250 for the issuance of
1,334,450 shares of common stock, paid approximately $1,000,837 in placement
agent fees, and issued to the placement agent warrants to purchase 133,440
common shares at an exercise price of $3.50 per share.
In May 1996, the Company formed Telegen Display Laboratories, Inc. ("TDL"),
a subsidiary for the development and commercialization of High Gain Emissive
Display ("HGED") technology. Shortly after TDL's formation, IPC-Transtech
Display (Pte.) Ltd. ("IPC-Transtech"), a Singapore-based joint venture company,
acquired a ten percent equity interest in TDL for an investment in TDL of
$5,000,000. Along with its investment in TDL, IPC-Transtech acquired an option
to purchase up to four manufacturing licenses for fees in the aggregate of up to
$40 million plus royalties of ten percent of the gross revenues from the sale of
HGED display by IPC-Transtech. In connection with this transaction, TDL paid
$400,000 in broker fees.
In May 1996, Telegen granted a five-year option to purchase 5% of the
capital stock of TDL for $5,000 to TDL's executive vice president, in return for
his product development efforts. In May 1996, the Company used $715,000 of the
proceeds from the private offering of its common stock initiated in February
1996 to repay in full the one year promissory notes related to the $715,000
Bridge Financing provided through the issuance of the one-year notes and 34,892
shares of the Company's common stock.
3. Supplemental Disclosure of Non-Cash Investing and Financing Activities:
During the six-month periods ended June 30, 1996 and June 30, 1995, the
Company issued 23,240 shares of common stock and 16,124 shares of common stock,
respectively, in lieu of cash as payment for legal fees and other additional
services amounting to $100,498 and $82,618, respectively. From July 1, 1996
through July 31, 1996, the Company issued 11,933 shares of common stock and
4,000 shares of common stock in lieu of cash as payment for legal and employee
services valued at $58,865, and equipment valued at $60,000, respectively.
4. Contingencies:
The Company is subject to various legal actions and claims arising in the
ordinary course of business. The Company's management believes that the outcome
of these matters will not have a material adverse effect on the Company's
financial position, results of operations and cash flows.
5. Commitments:
In June 1996, the Company entered into a five-year office lease (the term
of which commences in August 1996) for minimum payments of $40,000 per month.
In July 1996, the Company and the SEC registrant with which it has agreed
to reorganize amended the merger agreement to provide that the Company would pay
the remaining amount of expenses related to the reorganization incurred
subsequent to May 31, 1996, and that if the Company cancels the reorganization
under certain circumstances, the Company may be liable to the SEC registrant for
$172,000 in expenses incurred by the SEC registrant.
<PAGE>
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The only statute, charter provision, bylaw, contract, or other arrangement
under which any controlling person, director or officer of SERC or SERC
California is insured or indemnified in any manner against any liability which
he may incur in his capacity as such, is as follows:
The Colorado Business Corporation Act gives each corporation the power to
indemnify against liability any current or former directors, officers, employees
and agents. A Director must show that (1) he conducted himself in good faith,
(2) that his conduct was not opposed to the corporation's best interests, or if
acting in his official capacity, that his conduct was in the corporation's best
interests and (3) that in a criminal proceeding, he had no reasonable cause to
believe his conduct was unlawful.
The Colorado Business Corporation Act also gives each corporation the power
to eliminate or limit the personal liability of a Director to the Corporation or
its shareholders for monetary damages for breach of fiduciary duty as a director
unless the breach of fiduciary duty involves breach of loyalty to the
corporation or its shareholders, acts or omissions involving misconduct or a
knowing violation of law, acts specified in the law or any transaction whereby
the Director derived an improper personal benefit.
California law does not permit the elimination of monetary liability of
directors where such liability is based on: (a) intentional misconduct or
knowing or culpable violation of law; (b) acts or omissions that a director
believes to be contrary to the best interests of the corporation or its
shareholders, or that involve the absence of good faith on the part of the
director; (c) receipt of an improper personal benefit; (d) acts or omissions
that show reckless disregard for the director's duty to the corporation or its
shareholders, where the director in the ordinary course of performing a
director's duties should be aware of a risk of serious injury to the corporation
or its shareholders; (e) acts or omissions that constitute an unexcused pattern
of inattention that amounts to an abdication of the director's duty to the
corporation and its shareholders; (f) interested transactions between the
corporation and a director in which a director has a material financial
interest; and (g) liability for improper distributions, loans or guarantees.
California law permits indemnification of expenses incurred in derivative
or third-party actions, except that with respect to derivative actions (a) no
indemnification may be made when a person is adjudged liable to the corporation
in the performance of that person's duty to the corporation and its shareholders
unless a court determines that such person is entitled to indemnity for
expenses, and then such indemnification may be made only to the extent that such
court shall determine, and (b) no indemnification may be made without court
approval in respect of amounts paid or expenses incurred in settling or
otherwise disposing of a threatened or pending action or amounts incurred in
defending a pending action that is settled or otherwise disposed of without
court approval.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling SERC and SERC
California pursuant to the foregoing provisions, SERC and SERC California has
been informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
<PAGE>
Item 21. Exhibits and Financial Statement Schedules
Exhibits
Exhibit No. Title
1 Underwriting Agreement*
2 Plan of Acquisition
3 Articles of Incorporation and Bylaws
4 Instruments Defining the Rights of Holders*
5 Opinion re: Legality of Securities
7 Opinion re: Liquidation Preference*
8 Opinion re: Tax Matters*
9 Voting Trust Agreements*
10 Material Contracts**
11 Statement re: Computation of Per Share Earnings
12 Computation of Ratio of Earnings to Fixed Charges*
13 Annual or Quarterly Reports*
14 Material Foreign Patents*
15 Letter on Unaudited Interim Financial Information*
16 Letter on Change in Certifying Accountant*
21 Subsidiaries of SERC and Telegen
23 Consent of Experts and Counsel
24 Power of Attorney*
25 Statement of Eligibility of Trustee*
26 Invitations for Competitive Bids*
27 Financial Data Schedules
28 Information from Reports Furnished to State Insurance
Regulatory Authorities*
99 Additional Exhibits*
* Not Applicable
** Confidential treatment of portions of certain contracts requested.
Item 22. Undertakings
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, in the capacity and on the date indicated, thereunto
duly authorized in the City of Denver, State of Colorado.
SOLAR ENERGY RESEARCH CORP.
Signed: August 21, 1996 By: /s/ JAMES B. WIEGAND
James B. Wiegand, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
Date: August 21, 1996 By: /s/ JAMES B. WIEGAND
James B. Wiegand, President, Chief
Accounting Officer and Chairman of
the Board of Directors
Date: August 21, 1996 By: /s/ MARK E. A. WIEGAND
Mark E. A. Wiegand, Treasurer,
Chief Financial Officer and Director
Date: August 21, 1996 By: /s/ JANET S. COLLINS
Janet S. Collins, Secretary and
Director
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
SOLAR ENERGY RESEARCH CORP.
TELEGEN CORPORATION
AGREEMENT AND PLAN OF REORGANIZATION
SOLAR ENERGY RESEARCH CORP.
TELEGEN CORPORATION
This Agreement and Plan of Reorganization is entered into this 16th day of
November 1995, by and among Solar Energy Research Corp., a Colorado corporation
(the "Acquiror"), Telegen Corporation, a California corporation ("Telegen"), and
Telegen Acquisition Corporation, a California corporation and wholly-owned
subsidiary of Acquiror ("Merger Sub").
RECITALS
A. The Boards of Directors of each of the Acquiror, Telegen, and Merger Sub
believe it to be in the best interests of each such company and each such
company's respective shareholders that Telegen and Merger Sub combine into a
single company through the statutory merger of Merger Sub with and into Telegen
(the "Merger") and, in furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, all the outstanding shares
of Common Stock of Telegen ("Telegen Common") will be converted into shares of
Common Stock of Acquiror, par value $.50 per share ("Acquiror Common"), and all
the outstanding shares of Preferred Stock of Telegen ("Telegen Preferred") will
be converted into shares of Preferred Stock of Acquiror ("Acquiror Preferred"),
at the rate determined herein.
C. Telegen, the Acquiror, and Merger Sub wish to make certain
representations and other agreements in connection with the Merger.
D. The parties intend that this Plan of Reorganization be a reorganization
within the meaning of Section 368(a)(1)(B) of the Internal Revenue Code of 1986,
as amended.
In order to consummate such plan of reorganization, the parties hereto, in
consideration of the mutual agreements and on the basis of the representations
and warranties hereinafter set forth, do hereby agree as follows:
ARTICLE
THE MERGER
Section . The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement, an Agreement of
Merger to be prepared consistent with this Agreement (the "Merger Agreement"),
and the applicable provisions of the General Corporation Law of the State of
California ("California Law"), Merger Sub shall be merged with and into Telegen,
the separate corporate existence of Merger Sub shall cease, and Telegen shall
continue as the surviving corporation. Telegen as the surviving corporation
after the Merger is hereinafter sometimes referred to as the "Surviving
Corporation."
Section . Effective Time of the Merger. As soon as practicable on or after
the Closing Date (as defined in Article 2), the parties hereto shall cause the
Merger to be consummated by filing the Merger Agreement and required officers'
certificates with the Secretary of State of California in such form as required
by and executed in accordance with the relevant provisions of California Law
(the "Merger Documents"). The Merger shall become effective as of the time and
date such Merger Documents are so filed (the "Effective Time").
Section . Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of California Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all rights, privileges, powers, and franchises of Merger Sub
shall vest in the Surviving Corporation, and all debts, liabilities, and duties
of Merger Sub shall become the debts, liabilities, and duties of the Surviving
Corporation.
Section . Articles of Incorporation; Bylaws.
(a) At the Effective Time, the Amended and Restated Articles of
Incorporation of Telegen, as in effect immediately prior to the Effective Time
(the "Telegen Articles"), shall be the Articles of Incorporation of the
Surviving Corporation until thereafter amended as provided by California Law and
such Articles of Incorporation.
(b) The Bylaws of Telegen, as in effect immediately prior to the Effective
Time (the "Telegen Bylaws"), shall be the Bylaws of the Surviving Corporation
until thereafter amended.
Section 1.5. Directors and Officers. The director(s) of Telegen immediately
prior to the Effective Time shall be the director(s) of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation, and the officers of
Telegen immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
Section 1.6 Effect on Capital Stock. As of the Effective Time, by virtue of
the Merger, and without any action on the part of the holder of any shares of
the issued and outstanding shares of Telegen Common or Telegen Preferred:
(a) Cancellation of Acquiror-Owned and Telegen-Owned Stock. All shares of
Telegen Common or Telegen Preferred that are owned directly or indirectly by
Telegen or any subsidiary of Telegen, or by Acquiror or any subsidiary of
Acquiror, shall be cancelled and extinguished, and no stock of the Acquiror or
other consideration shall be delivered in exchange therefor.
(b) Conversion of Telegen Common and Telegen Preferred. Other than shares
to be cancelled pursuant to Section 1.6(a) above, Dissenting Shares (as defined
in Section 1.7(a) below), and fractional shares, if any, as provided in Section
1.6(e) below, each share of Telegen Common issued and outstanding immediately
prior to the Effective Time shall be cancelled and extinguished and shall be
converted automatically, without any action on the part of the holder thereof,
into the right to receive 7.25 shares of Acquiror Common (the "Common Exchange
Ratio"), and each share of Telegen Preferred issued and outstanding immediately
prior to the Effective Time shall be converted automatically, without any action
on the part of the holder thereof, into the right to receive 7.25 shares of
Acquiror Preferred (the "Preferred Exchange Ratio"), respectively, each upon
surrender in the manner provided in Section 1.8 hereof of the certificate
representing such shares of Telegen Common or Telegen Preferred. The Common
Exchange Ratio and the Preferred Exchange Ratio are referred to collectively
herein as the "Exchange Ratios."
(c) Capital Stock of Merger Sub. Each share of common stock of Merger Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid, and
nonassessable share of common stock, without par value, of the Surviving
Corporation.
(d) Adjustments to Exchange Ratios. The Exchange Ratios shall be adjusted
to reflect fully the effect of any stock split, reverse stock split, stock
dividend (including any dividend or distribution of securities convertible into
Acquiror Common or Telegen Common), reorganization, recapitalization, or other
like change with respect to Acquiror Common, Acquiror Preferred, Telegen Common,
or Telegen Preferred occurring after the date hereof and prior to the Effective
Time.
(e) Fractional Shares. No fractional shares of Acquiror Common shall be
issued, but in lieu thereof, each holder of shares of Telegen Common or Telegen
Preferred who would otherwise be entitled to receive a fraction of a share of
Acquiror Common or Acquiror Preferred (after aggregating all fractional shares
of Acquiror Common or Acquiror Preferred to be received by such holder) shall be
entitled to receive from Acquiror a whole share, as the case may be, of Acquiror
Common or Acquiror Preferred.
Section 1.7 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary, any
shares ("Dissenting Shares") of Telegen's capital stock held by a holder
("Dissenting Shareholder") who has demanded and perfected dissenter's rights for
such shares in accordance with Chapter 13 of California Law and who, as of the
Effective Time, has not effectively withdrawn or lost such dissenter's rights,
shall not be converted into Acquiror Common or Acquiror Preferred, as the case
may be, pursuant to Section 1.6(b), and the holder thereof shall only be
entitled to such rights as are granted by California Law.
(b) Notwithstanding the provisions of subsection (a) above, if any
Dissenting Shareholder shall effectively withdraw or lose (through failure to
perfect or otherwise) the right to dissent, then, as of the later of the
Effective Time and the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive the
shares of Acquiror Common or Acquiror Preferred to which such Dissenting
Shareholder is then entitled under this Agreement and California Law, without
interest thereon and upon surrender of the certificate representing such shares.
Section 1.8 Exchange of Certificates.
(a) Exchange Agent. Prior to the Effective Time, Acquiror shall appoint
United Stock Transfer, Inc. to act as exchange agent (the "Exchange Agent") in
the Merger.
(b) Acquiror to Provide Stock. Promptly after the Effective Time, Acquiror
shall make available to the Exchange Agent for exchange in accordance with this
Article 1, the shares of Acquiror Common and Acquiror Preferred issuable
pursuant to Section 1.6 in exchange for outstanding shares of Telegen Common and
Telegen Preferred.
(c) Exchange Procedures. As soon as practicable after the Effective Time,
the Exchange Agent shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of Telegen Common or Telegen Preferred (the "Certificates")
whose shares were converted into Acquiror Common or Acquiror Preferred pursuant
to Section 1.6, (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Acquiror may reasonably specify) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for Acquiror Common or Acquiror Preferred, as the case may be. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Acquiror, together with such letter
of transmittal, duly executed, and subject to the requirements and restrictions
of any other agreement entered into between Acquiror and any holder of Telegen
Common or Telegen Preferred on or before the Effective Time, the holder of such
Certificate shall be entitled to receive in exchange therefor the number of
whole shares of Acquiror Common or Acquiror Preferred to which the holder of
Telegen Common or Telegen Preferred is entitled pursuant to Section 1.6 and is
represented by the Certificate so surrendered. The Certificate so surrendered
shall forthwith be cancelled. Until surrendered as contemplated by this Section
1.8, each outstanding Certificate that, prior to the Effective Time, represented
Telegen Common or Telegen Preferred shall be deemed from and after the Effective
Time, for all corporate purposes to represent solely the right to receive upon
such surrender the number of shares of Acquiror Common or Acquiror Preferred as
provided by this Agreement and the provisions of California Law.
(d) Distributions With Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time with respect to Acquiror
Common or Acquiror Preferred with a record date after the Effective Time will be
paid to the holder of any unsurrendered Certificate with respect to the shares
of Acquiror Common or Acquiror Preferred represented thereby until the holder of
record of such Certificate shall surrender such Certificate. Subject to
applicable law, following surrender of any such Certificate, there shall be paid
to the record holder of the certificates representing whole shares of Acquiror
Common or Acquiror Preferred issued in exchange therefor, without interest, at
the time of such surrender, the amount of dividends or other distributions with
a record date after the Effective Time theretofore paid with respect to such
whole shares of Acquiror Common or Acquiror Preferred.
(e) No Liability. Notwithstanding anything to the contrary in this Section
1.8, none of the Exchange Agent, the Surviving Corporation, or any party hereto
shall be liable to a holder of shares of Acquiror Common, Acquiror Preferred,
Telegen Common, or Telegen Preferred for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat, or similar law.
Section 1.9 No Further Ownership Rights in Telegen Common or Telegen
Preferred. All Acquiror Common or Acquiror Preferred delivered upon the
surrender for exchange of shares of Telegen Common or Telegen Preferred in
accordance with the terms hereof shall be deemed to have been delivered in full
satisfaction of all rights pertaining to such shares of Telegen Common or
Telegen Preferred. There shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the shares of Telegen
Common or Telegen Preferred which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be cancelled and exchanged as
provided in this Article 1.
Section 1.10 Lost, Stolen or Destroyed Certificates. In the event any
certificates evidencing shares of Telegen Common or Telegen Preferred shall have
been lost, stolen, or destroyed, the Exchange Agent shall issue in exchange for
such lost, stolen, or destroyed certificates, upon the making of an affidavit of
that fact by the holder thereof, such shares of Acquiror Common as may be
required pursuant to Section 1.6; provided, however, that Acquiror may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen, or destroyed certificates to deliver a bond in such
sum as it may reasonably direct as indemnity against any claim that may be made
against Acquiror or Exchange Agent with respect to the certificates alleged to
have been lost, stolen, or destroyed.
Section 1.11 Telegen Options. By virtue of the Merger and without any
further action on the part of any person or entity, options to acquire shares of
the Telegen Common outstanding immediately prior to the Effective Time (the
"Telegen Options") will be treated as follows:
(a) Each separate Telegen Option will be converted into a separate option,
each a "New Acquiror Option," and collectively, the "New Acquiror Options," to
purchase a number of shares of Acquiror Common equal to the product of the
number of shares of Telegen Common for which such Telegen Option was exercisable
immediately prior to the Effective Time (without regard to vesting provisions,
if any) multiplied by the Common Exchange Ratio. The aggregate exercise price
for any shares of Acquiror Common covered by each such New Acquiror Option will
be equal to the aggregate exercise price for any shares of Telegen covered by
such Telegen Option. The per-share exercise price for each New Acquiror Option
will equal the aggregate exercise price of such option divided by the number of
shares of Acquiror Common issuable in connection with such New Acquiror Option.
All of the other terms and conditions of such New Acquiror Option will be
identical to the terms and conditions of such Telegen Option immediately prior
to the Effective Time. The intention of such conversion is for Acquiror to
assume the Telegen Options to the extent such Telegen Options are not exercised
prior to the Closing Date.
(b) Notwithstanding the foregoing, no New Acquiror Option will be
exercisable with respect to fractional shares of Acquiror Common. In lieu
thereof, the number of shares otherwise issuable under any New Acquiror Option
shall be rounded up to the next whole number.
Section 1.12 Tax Consequences. It is intended by the parties hereto that
the Merger shall constitute a reorganization within the meaning of Section 368
of the Internal Revenue Code of 1986, as amended. The parties to this Agreement
hereby adopt this Agreement as a "plan of reorganization" within the meaning of
Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations. No
party shall take any action that would cause the Merger to fail to qualify as
such a reorganization.
Section1.13. Taking of Necessary Action; Further Action. If, at any time
after the Effective Time, any such further action is necessary or desirable to
carry out the purposes of this Agreement and to vest the Surviving Corporation
with full right, title, and possession to all assets, property, rights,
privileges, powers and franchises of Telegen and Merger Sub, the officers and
directors of Telegen and Merger Sub shall be fully authorized in the name of
their respective corporations or otherwise to take, and will take, all such
lawful and necessary action.
ARTICLE
CLOSING
Section 2.1 The Closing and the Closing Date. The closing (the "Closing")
shall be held at the offices of Cohen Brame & Smith, Professional Corporation,
at 10:00 a.m. on January 15, 1996, or such other date as the parties shall agree
following the receipt of a permit from the California Department of Corporations
qualifying the issuance of the Acquiror Common and Acquiror Preferred pursuant
to Section 25110 of California Law (the "Closing Date").
Section 2.2 Filing Date. Subject to the provisions of this Agreement, on
the Closing Date, the Merger Documents shall be filed with the Secretary of
State of California, all in accordance with the provisions of this Agreement,
the Merger Agreement, and California Law.
ARTICLE
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties by Telegen. As a material
inducement to the Acquiror to execute and perform its obligations under this
Agreement, Telegen represents and warrants to the Acquiror, subject to the
exceptions specifically disclosed in the schedules, referencing the appropriate
section number, delivered by Telegen to Acquiror prior to signing this Agreement
(the "Telegen Schedules") as follows:
(a) Organization and Standing of Telegen. Telegen is a corporation duly
organized and validly existing and in good standing under the laws of the State
of California. It has all requisite corporate power and authority to carry on
its business as now being conducted, to enter into this Agreement, and to carry
out and perform the terms and provisions of this Agreement. Telegen is duly
qualified to do business and is in good standing in each jurisdiction in which
the failure to be so qualified would have a material adverse effect on the
condition (financial or otherwise), business, net worth, assets (including
intangible assets), properties or operations ("Material Adverse Effect") of
Telegen. Telegen has no subsidiaries and, further, has no direct or indirect
interest, either by way of stock ownership or otherwise, in any other firm,
corporation, association, or business other than as disclosed in Schedule
3.1(a).
(b) (i) Capitalization and Indebtedness for Borrowed Moneys. Telegen is
duly and lawfully authorized by the Telegen Articles to issue 10,000,000 shares
of Telegen Common, no par value per share, of which 2,713,061 shares are validly
issued and outstanding on the date of this Agreement. Telegen has no treasury
stock. Further, Telegen has authorized 2,000,000 shares of Telegen Preferred, of
which 550,000 shares have been designated as Series A Preferred Stock. 112,750
shares of Series A Preferred Stock are issued and outstanding. All the
outstanding shares of Telegen Common and Telegen Preferred have been duly
authorized and validly issued and are fully paid and nonassessable.
(ii) Telegen is not presently liable on account of any indebtedness for
borrowed moneys, except as reflected in the financial statements described in
subparagraph (e) below. The borrowed indebtedness of Telegen as of the Closing
Date is set forth in Schedule 3.1(b)(ii).
(iii) Except for conversion rights of Telegen Preferred, there are no
outstanding subscriptions, options, warrants, calls, contracts, demands,
commitments, convertible securities, or other agreements or arrangements of any
character or nature whatever under which Telegen is or may be obligated to issue
or purchase shares of its capital stock, other than options to purchase 486,200
shares of Telegen Common at a weighted average exercise price of $4.86 per share
issued to then-current employees of Telegen in connection with their performance
of services.
(c) Ownership of Telegen Common and Telegen Preferred. Schedule 3.1(c) sets
forth a complete and accurate list of all issued and outstanding shares of
Telegen Common and Telegen Preferred and outstanding warrants, options, or
similar rights to acquire Telegen Common or Telegen Preferred and the names of
the holders thereof.
(d) Telegen's Authority. Telegen has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery, and performance of this Agreement
has been duly authorized by all requisite corporate action. This Agreement has
been duly executed and delivered by Telegen and constitutes a valid and binding
obligation of Telegen enforceable in accordance with its terms (except as
limited by bankruptcy, insolvency, or other laws affecting the enforcement of
creditors' rights). The execution and delivery of this Agreement by Telegen and
the consummation of the transactions contemplated hereby will not conflict with
or result in any violation of or default under (with or without notice or lapse
of time or both) or give right to a right of termination, cancellation,
acceleration of any obligation or to loss of a material benefit under (i) any
provision of the Telegen Articles or the Telegen Bylaws or (ii) any mortgage,
indenture, lease, contract, or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Telegen or its properties or assets.
No consent, approval, order, or authorization of, or registration, declaration
or filing with, any court, administrative agency or commission or other
governmental authority or instrumentality ("Governmental Entity") is required by
or with respect to Telegen in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby and
thereby, except for (i) the filing of the Merger Documents with the Secretary of
State of California and the filing of appropriate documents with the relevant
authorities of other states in which Telegen is qualified to do business and
(ii) such consents, approvals, orders, authorizations, registrations,
declarations, and filings as may be required under applicable state securities
laws, including the filing of the permit application contemplated by Section
4.3.
(e) Financial Statements. Telegen has furnished the Acquiror with unaudited
financial statements of Telegen as of December 31, 1994 and September 30, 1995,
and audited financial statements as of December 31, 1992 and 1993. All such
financial statements present fairly the financial condition of Telegen at such
date, and the results of its operations for the period therein specified, and
the audited Financial Statements were prepared in accordance with generally
accepted accounting principles applied upon a basis consistent with prior
accounting periods. Telegen's unaudited balance sheet at September 30, 1995 is
hereinafter referred to as the "Telegen Balance Sheet," and all such financial
statements are hereinafter referred to as the "Telegen Financial Statements."
Except as set forth in Schedule 3.1(g), Telegen has no liabilities or
obligations, fixed, contingent, or otherwise not reflected on the Telegen
Balance Sheet, except for (i) liabilities incurred in the ordinary course
business since the date of the Telegen Balance Sheet which in the aggregate do
not exceed $10,000 and which in the aggregate do not exceed $50,000 and are
usual and normal for Telegen and (ii) liabilities and obligations as may have
arisen in the ordinary course of business prior to the date of the Telegen
Balance Sheet which under generally accepted accounting principles were not
required to be reflected on the Telegen Balance Sheet and which individually do
not exceed $25,000.
(f) Present Status. Since the date of the Telegen Balance Sheet (or such
other date specifically set forth herein), except as otherwise contemplated by
this Agreement and except as described in Schedule 3.1(f), Telegen has conducted
its business only in the ordinary and usual course and, without limiting the
generality of the foregoing:
(i) Telegen has not sustained any damage, destruction, or loss by reason of
fire, explosion, earthquake, casualty, labor trouble (including but not limited
to any claim of wrongful discharge or other unlawful labor practice),
requisition or taking of property by any government or agent thereof, windstorm,
embargo, riot, act of God or public enemy, flood, accident, revocation of
license or right to do business, total or partial termination, suspension,
default or modification of contracts, governmental restriction or regulation,
other calamity, or other similar or dissimilar event (whether or not covered by
insurance) that would result in a Material Adverse Effect on Telegen.
(ii) There have been no changes in the condition (financial or otherwise),
business, net worth, assets, properties, operations, obligations or liabilities
(fixed or contingent) of Telegen which, individually or in the aggregate, have
resulted or may be reasonably expected (whether before or after the Effective
Time) to result in a Material Adverse Effect on Telegen.
(iii) Telegen has not issued, or authorized for issuance, any equity
security, bond, note or other security of Telegen. Telegen has not granted or
entered into any commitment or obligation to issue or sell any such equity
security, bond, note or other security of Telegen, whether pursuant to offers,
stock option agreements, stock bonus agreements, stock purchase plans, incentive
compensation plans, warrants, calls, conversion rights or otherwise.
(iv) Telegen has not incurred any additional debt for borrowed money, nor
incurred any obligation or liability (fixed, contingent or otherwise) except in
the ordinary and usual course of the business of Telegen.
(v) Telegen has not paid any obligation or liability (fixed, contingent
or otherwise), or discharged or satisfied any lien or encumbrance, or settled
any liability, claim, dispute, proceeding, suit, or appeal, pending or
threatened against it or any of its assets or properties, except for current
liabilities included in Telegen Balance Sheet and current liabilities incurred
since the date of Telegen Balance Sheet in the ordinary and usual course of the
business of Telegen.
(vi) Telegen has not declared, set aside for payment, or paid any dividend,
payment, or other distribution on or with respect to any share of capital stock
of Telegen.
(vii) Telegen has not purchased, redeemed or otherwise acquired or
committed itself to acquire, directly or indirectly, any share or shares of
capital stock of Telegen.
(viii) Telegen has not mortgaged, pledged, otherwise encumbered or
subjected to lien any of its assets or properties, tangible or intangible, nor
has it committed itself to do any of the foregoing, except for liens for current
taxes which are not yet due and payable and purchase money liens arising out of
the purchase or sale of products or services made in the ordinary and usual
course of business.
(ix) Telegen has not disposed of, or agreed to dispose of, any asset or
property, tangible or intangible, except in the ordinary and usual course of
business, and in each case for a consideration at least equal to the fair value
of such asset or property, nor has Telegen leased or licensed to others
(including officers and directors of Telegen), or agreed so to lease or license,
any asset or property.
(x) Telegen has not purchased or agreed to purchase or otherwise acquire
any debt or equity securities of any corporation, partnership, joint venture,
firm or other entity. Telegen has not made any expenditure or commitment for the
purchase, acquisition, construction or improvement of a capital asset.
(xi) Telegen has not entered into any transaction or contract, or made any
commitment to do the same. Telegen has not waived any right of substantial value
or cancelled any debts or claims or voluntarily suffered any extraordinary
losses, which individually or in the aggregate would result in a Material
Adverse Effect on Telegen.
(xii) Telegen has not effected or agreed to effect any amendment or
supplement to any employee profit sharing, stock option, stock purchase,
pension, bonus, incentive, retirement, medical reimbursement, life insurance,
deferred compensation or any other employee benefit plan or arrangement.
(xii) Telegen has not effected or agreed to effect any change, including by
way of hiring or involuntary termination, in its directors, executive officers,
or key employees.
(xiv) Telegen has not effected or committed itself to effect any amendment
or modification of the Telegen Articles or the Telegen Bylaws.
(xv) To the knowledge of Telegen, no statute has been enacted nor has any
rule or regulation been adopted (whether before or after the date of Telegen
Balance Sheet) which may reasonably be expected to result in a Material Adverse
Effect on Telegen.
(xvi) Telegen has not changed in any way its accounting methods or
practices (including any change in depreciation or amortization policies or
rates, or any changes in policies in making or reversing accruals).
(xvii) Telegen has not made any loan to any person or entity, and Telegen
has not guaranteed the payment of any loan or debt of any person or entity.
(xviii) Telegen has not negotiated or agreed to do any of the things
described in the preceding clauses (i) through (xvii) (other than negotiations
with Telegen and its representatives regarding the transactions contemplated by
this Agreement).
(g) Litigation. Except as set forth in Schedule 3.1(g), there is no claim,
dispute, action, proceeding, suit or appeal, or investigation, at law or in
equity, pending against Telegen, or involving any of its assets of properties,
before any court, agency, authority, arbitration panel or other tribunal, and,
to the knowledge of Telegen, none have been threatened against Telegen. To the
knowledge of Telegen, there are no facts which, if known to shareholders,
customers, governmental authorities, or other persons, would result in any such
claim, dispute, action, proceeding, suit or appeal or investigation which would
have a Material Adverse Effect on Telegen. Telegen is not subject to any order,
writ, injunction or decree of any court, agency, authority, arbitration panel or
other tribunal, and Telegen is not in default with respect to any notice, order,
writ, injunction or decree.
(h) Compliance With the Law and other Instruments. The business operation
of Telegen has been and is being conducted in all material respects in
accordance with all applicable laws, rules, and regulations of all authorities.
Telegen has not received any notice of violation with respect to any applicable
laws, regulations, orders, or other requirements of a Governmental Entity or
other authority, including, without limiting the generality of the foregoing,
the Employee Retirement Income Security Act of 1974, as amended. Telegen is not
in violation of, or in default under, any term or provision of the Telegen
Articles or the Telegen Bylaws. Telegen has in all material respects performed,
or is now performing the obligations of, and Telegen is not in default (and
would not by the lapse of time or giving of notice be in default) in respect of
any note, debt instrument, lien, mortgage, lease, order, judgment, or decree, or
any other contract, agreement, or commitment binding upon it or its assets or
properties or material to the conduct of its business. There is no agreement
(assuming the parties thereto other than Telegen performed their respective
obligations thereunder as required), judgment, injunction, order or decree
binding upon Telegen which has or could reasonably be expected to have the
effect of materially prohibiting or materially impairing any business practice
of Telegen, any acquisition of property by Telegen, or the conduct of business
by Telegen as currently conducted or as proposed to be conducted following the
Merger. Schedule 3.1(h) contains a full and complete list of all necessary
consents, waivers, and approvals of third parties that are required to be
obtained by Telegen in connection with the execution and delivery by Telegen of
this Agreement and the performance of the Telegen's obligations hereunder.
(i) Title to Properties and Assets. Telegen has good and marketable title
to all its properties and assets, including without limitation those reflected
in the Telegen Financial Statements and those used or located on property
controlled by Telegen in its business on the date of the Telegen Balance Sheet
and acquired thereafter (except assets sold in the ordinary course of business),
subject to no mortgage, pledge, lien, charge, security interest, encumbrance, or
restriction except those which (i) are disclosed in the Telegen Balance Sheet as
securing specified liabilities; or (ii) do not materially adversely affect the
use thereof. The buildings and equipment of Telegen are in good condition and
repair, reasonable wear and tear excepted. Telegen has not been, to the
knowledge of any officer of Telegen, threatened with any action or proceeding
under any building or zoning ordinance, regulation, or law. Except as otherwise
provided in Schedule 3.1(i) of this Agreement, Telegen owns, free and clear of
any liens, claims, encumbrances, royalty interests, or other restrictions or
limitations of any nature whatsoever, any and all patents, trade secrets,
copyrights, procedures, techniques, business plans, methods of management, or
other information utilized in connection with Telegen's business and set forth
in Schedule 3.1(i). To the best of Telegen's knowledge, the products Telegen
manufactures and/or markets, or plans to market, and its plan of operation do
not infringe on the patents, copyrights, trade secrets, or other proprietary
rights of any third person. Telegen owns or is licensed to use all intellectual
property necessary to develop and sell products based on the intellectual
property embodied in the telecommunications products currently marketed and sold
by Telegen and in the flat panel display and voice recognition products under
development by Telegen. All current Telegen research and business development
activities related to Telegen's business are listed on Schedule 3.1(i) and,
except as noted on Schedule 3.1(i), have been conducted and are currently owned
by Telegen.
(j) Telegen Leases. There are no related party leases, and all leases have
been negotiated at "arm's length."
(k) Schedule of Leases and Insurance. Schedule 3.1(k) contains a true and
complete description of each indenture, lease, sublease, or any instrument under
which Telegen claims or holds a leasehold interest for either equipment,
automobiles, or real property. Telegen has good and valid leasehold interests in
such properties and all such instruments are in effect and enforceable according
to their respective terms; and a complete schedule of all fire and other
casualty and liability policies of Telegen in effect at the time of delivery of
said schedule.
(l) Creditor's Arrangements. Telegen has not made any assignment for the
benefit of creditors nor has any involuntary or voluntary petition in bankruptcy
been filed by or against Telegen.
(m) Contracts and Other Obligations. Except with respect to this
transaction, Telegen is not a party to, or otherwise bound by, any written or
oral:
(i) Contract or agreement not made in the ordinary course of business,
except as disclosed on Schedule 3.1(m)(i);
(ii) Employment or consultant contract which is not terminable at will
without cost or other liability to Telegen or any successor, except as disclosed
on Schedule 3.1(m)(ii);
(iii) Contract with any labor union, except as disclosed on Schedule
3.1(m)(iii);
(iv) Bonus, pension, profit-sharing, retirement, share purchase, stock
option, hospitalization, group insurance, or similar plan providing employee
benefits except as disclosed on Schedule 3.1(m)(iv);
(v) Advertising contract or contract for public relations services, except
as disclosed on Schedule 3.1(m)(v);
(vi) Purchase, supply, or service contracts in excess of $25,000 each, or
in the aggregate of $150,000 for all such contracts whether below or above
$25,000, except as disclosed on Schedule 3.1(m)(vi);
(vii) Deed of trust, mortgage, conditional sales contract, security
agreement, pledge agreement, trust receipt, or any other agreement or
arrangement whereby any of the assets or properties of Telegen are subjected to
a lien, encumbrance, charge, or other restriction, except as disclosed on
Schedule 3.1(m)(vii);
(viii) Contract or other commitment continuing for a period of more than 30
days and which is not terminable without cost or other liability to Telegen or
its successor, except as disclosed on Schedule 3.1(m)(viii);
(ix) Contract which (a) contains a redetermination of price or similar type
of provision; or (b) provides for a fixed price for goods or services sold,
except as disclosed on Schedule 3.1(m)(i); or
(x) Contract or arrangement containing any covenant limiting the right of
Telegen to compete in any business or with any person.
Telegen has in all material respects performed all obligations required to
be performed by it to date and is not in material default under any of the
contracts, agreements, leases, documents, or other arrangements to which it is a
party or by which it is otherwise bound. To the best of Telegen's knowledge, all
parties with whom Telegen has contractual arrangements are in material
compliance therewith and are not in default thereunder.
(n) Changes in Compensation. Since the date of the Telegen Balance Sheet,
there has not been any general pay increase to employees or any change in the
rate of compensation, commission, bonus, or other remuneration payable to any
officer, employee, director, agent, or shareholder of Telegen other than in the
ordinary course of business.
(o) Inventories. Since the date of the Telegen Balance Sheet, Telegen has
continued to replenish its inventories in a normal and customary manner
consistent with prior practice and prudent practice prevailing in the businesses
of Telegen, and will continue to do so until the Closing Date.
(p) Records. The books of account, minute books, stock certificate books,
and stock transfer ledgers of Telegen are complete and correct, and there have
been no transactions involving the business of Telegen which properly should
have been set forth in said respective books, other than those set forth
therein.
(q) Brokers or Finders. All negotiations on the part of Telegen relative to
this Agreement and the transactions contemplated hereby have been carried on by
Telegen without the intervention of any person or as the result of any act of
Telegen in such manner as to give rise to any valid claim against Telegen or the
Acquiror for a brokerage commission, finder's fee, or other like payment.
(r) Taxes. Except as disclosed in Schedule 3.1(r), Telegen has accurately
prepared and timely filed all federal, state, county and local income,
franchise, excise, real and personal property and other tax returns and reports
(including, but not limited to, those relating to social security, withholding,
unemployment insurance, and occupation (sales) and use taxes) required to have
been filed by Telegen up to the date hereof. All of the foregoing returns are
true and correct in all material respects and Telegen has paid all taxes,
interest and penalties shown on such returns or reports as being due. Telegen
has withheld with respect to its employees all federal and state income taxes,
FICA, FUTA, and other taxes that Telegen is required to withhold. The accruals
for Telegen's taxes on the books and records of Telegen are sufficient to
discharge the taxes for all periods (or the portion of any period) ending on or
prior to the Closing Date. Telegen has not been delinquent in the payment of any
tax nor is there any tax deficiency outstanding, proposed, or assessed against
Telegen, nor has Telegen executed any waiver of any statute of limitations on or
extending the period for the assessment or collection of any tax. No audit or
other examination of any return of Telegen filed with any taxing authority is
presently in progress. Telegen does not have any liabilities for unpaid,
federal, state, local, or foreign taxes, whether asserted or unasserted, known
or unknown, contingent or otherwise, and Telegen has no knowledge of any basis
for the assertion of any such liability attributable to Telegen, its assets, or
operations. Telegen is not (and has never been) required to join with any other
entity in the filing of a consolidated tax return for federal tax purposes or a
consolidated or combined return or report for state tax purposes. Telegen is not
a party to or bound by any tax indemnity, tax sharing, or tax allocation
agreement. Telegen has provided to Telegen or its legal counsel copies of all
federal and state income and all state sales and use tax returns for all periods
since December 31, 1990. There are (and as of immediately following the Closing
there will be) no liens on the assets of Telegen relating to or attributable to
taxes). Telegen has no knowledge of any basis for the assertion of any claim
which, if adversely determined, would result in liens on the assets of Telegen.
(s) Environmental Matters. Telegen's operations of its business and assets
has been in material compliance with and Telegen has complied in all material
respects with and is not in violation of applicable federal, state, and local
laws, ordinances, regulations and orders relating to environmental matters,
including but not limited to matters related to air pollution, water pollution,
and the handling of hazardous substances (as defined in the Comprehensive
Environmental Response, compensation, and liability Act of 1990 ("CERCLA")).
There are no actions, proceedings or investigations pending or, to the actual
knowledge of Telegen, threatened before any federal or state environmental
regulatory body, or before any federal or state court, alleging noncompliance by
Telegen with CERCLA or any other Environmental Law (as hereinafter defined). To
the actual knowledge of Telegen: (i) there is no reasonable basis for the
institution of any action, proceeding or investigation against Telegen under any
Environmental Law; (ii) Telegen is not responsible under any environmental law
for any release by any person at or in the vicinity of real property of any
hazardous substance (as defined by CERCLA), caused by the spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping or disposing of any such hazardous substance into the
environment; (iii) Telegen is not responsible for any costs of any remedial
action required by virtue of any release of any toxic or hazardous substance,
pollutant or contaminant into the environment including, without limitation,
costs arising from security fencing, alternative water supplies, temporary
evacuation and housing and other emergency assistance undertaken by any
environmental regulatory body; (iv) Telegen is in compliance with all applicable
Environmental Laws; and (v) no real property used, owned, managed or controlled
by Telegen contains any toxic or hazardous substance including, without
limitation, any asbestos, PCBs or petroleum products or byproducts in any form,
the presence, location or condition of which (a) violates any Environmental Law,
or (b) otherwise would pose any significant health or safety risk unless
remedial measures were taken. For purposes of this Agreement, "Environmental
Law" shall mean any federal, state, local or municipal statute, ordinance or
regulation, or order, ruling or other decision of any court, administrative
agency, or other governmental authority pertaining to the release of hazardous
substances (as defined in CERCLA) into the environment.
(t) Indemnification Liabilities. There are no existing liabilities or facts
know to Telegen which would require Telegen to indemnify its officers or
directors for acts or omissions by such persons acting in behalf of Telegen.
(u) Accounts Receivable. All accounts receivable of Telegen shown on the
Telegen Balance Sheet or thereafter acquired arose and are collectible in the
ordinary and usual course of its business, except that the value of any account
receivable, the collection of which is doubtful or which is subject to a defense
or set-off, has been written down to an amount not in excess of net realizable
value or adequate reserves or allowances therefor have been provided. The values
at which accounts receivable are carried reflect the accounts receivable
valuation policy of Telegen, which is consistent with its past practice and in
accordance with generally accepted accounting principles applied on a consistent
basis. To the knowledge of Telegen, none of the receivables of Telegen is
subject to any claim of offset, recoupment, set off, or counterclaim, and there
are no facts or circumstances (whether asserted or unasserted) that would give
rise to any claim. No receivables are contingent upon the performance by Telegen
of any obligation or contract. No person or entity has any lien, charge, pledge,
security interest, or other encumbrance on any such receivables, and no
agreement for deduction or discount has been made with respect to any of such
receivables.
(v) Bank Accounts. Schedule 3.2(v) constitutes a full and complete list of
all the bank accounts of Telegen, together with the names of the persons
authorized to draw thereon. All cash in such accounts is held in demand deposits
and is not subject to any restriction or limitation as to withdrawal.
(w) Certain Advances. There are no receivables of Telegen owing by
directors or officers of Telegen, or owing by any Affiliate of any director or
officer of Telegen. For purposes of this Agreement, "Affiliate" shall mean the
officers and directors of Telegen and any stockholder of Telegen who owns five
percent (5%) or more the outstanding capital stock of Telegen.
(x) Insurance. Schedule 3.2(x) lists all insurance policies and fidelity
bonds covering the assets, business, equipment, properties, operations,
employees, officers, and directors of Telegen as well as all claims made under
any insurance policy by Telegen since December 31, 1990. There is no claim by
Telegen pending under any of such policies or bonds as to which coverage has
been questioned, denied, or disputed by the underwriters of such policies or
bonds. All premiums payable under all such policies and bonds have been paid,
and Telegen is otherwise in compliance in all material respects with the terms
of such policies and bonds (or other policies and bonds providing substantially
similar insurance coverage). Such policies of insurance and bonds are of the
type and in amounts customarily carried by persons conducting businesses similar
to those of Telegen. Telegen does not know of any threatened termination of or
material premium increase with respect to any of such policies. Telegen has
never been denied insurance coverage nor has any insurance policy of Telegen
ever been cancelled for any reason.
(y) FIRPTA Status. Telegen is not, and has not been at any time during the
five year period preceding the date hereof, a "United States real property
holding corporation" as defined in Section 897 of the Internal Revenue Code of
1954, as amended, and the regulations promulgated thereunder.
(z) Representations Complete. None of the representations or warranties
made by Telegen, nor any statement made in any schedule, exhibit, or certificate
furnished by Telegen pursuant to this Agreement, contains or will contain any
untrue statement of a material fact or omits or will omit to state any material
fact necessary in order to make the statements contained herein or therein, in
light of the circumstances under which they were made, not misleading.
Section 3.2 Representations and Warranties by the Acquiror and Merger Sub.
As a material inducement to Telegen to execute and perform its obligations under
this Agreement, the Acquiror and Merger Sub represent and warrant to Telegen,
subject to the exceptions specifically disclosed in the schedules, referencing
the appropriate section number, delivered by Acquiror to Telegen prior to
signing this Agreement (the "Acquiror Schedules") as follows:
(a) Organization and Standing of Acquiror. The Acquiror is a corporation
duly organized and validly existing and in good standing under the laws of the
State of Colorado. It has all requisite corporate power and authority to carry
on its business as now being conducted and as proposed to be conducted, to enter
into this Agreement and to carry out and perform the terms and provisions of
this Agreement. The Acquiror is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction in which the failure to
be so qualified would have a Material Adverse Effect on the Acquiror. The
Acquiror does not now and has not within the two years prior to the date of this
Agreement conducted business in any jurisdiction other than the State of
Colorado such as to require it to seek authority from such state to do business
as a foreign corporation. The Acquiror has delivered a true and correct copy of
its Articles of Incorporation (the "Acquiror Articles") and its Bylaws (the
"Acquiror Bylaws"), each as amended to date, to counsel for Telegen. The
Acquiror has one wholly owned subsidiary, Merger Sub, and, further, has no
direct or indirect interest, either by way of stock ownership or otherwise, in
any other firm, corporation, association, or business other than as disclosed in
Schedule 3.2(a).
(b) (i) Capitalization and Indebtedness for Borrowed Moneys. The Acquiror
is duly and lawfully authorized by the Acquiror Articles to issue 100,000,000
shares of Acquiror Common Stock, of which 1,178,759 shares are issued and
outstanding as of the date hereof and 25,000,000 shares of Acquiror Preferred,
of which no shares are issued and outstanding. Additionally, there are
outstanding warrants to acquire 60,000 shares of Acquiror Common (the
"Warrants"). The Acquiror has no treasury stock and no other authorized series
or class of stock. All the outstanding shares of Acquiror Common have been duly
authorized and validly issued and are fully paid and nonassessable and free of
preemptive rights. All of the shares of Acquiror Common and Acquiror Preferred
to be issued by Acquiror in connection with the Merger shall be duly authorized,
validly issued, fully paid, nonassessable, and not subject to preemptive rights
created by statute, the Acquiror Articles, or any agreement to which the
Acquiror is a party or bound. The Acquiror Common and Acquiror Preferred will be
issued in compliance with all applicable state and federal securities laws and,
upon compliance with the exemption set forth in Section 3(a)(10) of the
Securities Act of 1933, as amended (the "1933 Act"), will be freely tradeable
subject to the resale limitations of Rules 144 and 145 under the 1933 Act, and
the provisions of Sections 6.1 and 6.2 of this Agreement.
(ii) The Acquiror is not presently liable on account of any indebtedness
for borrowed moneys, except as reflected in the financial statements described
in subparagraph (e) below. The borrowed indebtedness of the Acquiror as of the
Closing Date is set forth in Schedule 3.1(b)(ii).
(iii) With the exception of an ongoing private placement of 200,000 shares
of Common Stock and the Warrants, there are no outstanding subscriptions,
options, warrants, calls, contracts, demands, commitments, convertible
securities, or other agreements or arrangements of any character or nature
whatever under which the Acquiror is or may be obligated to issue or purchase
shares of its capital stock other than as disclosed in Schedule 3.2(b)(iii).
(c) Ownership of Acquiror Capital Stock. Schedule 3.2(c) sets forth a
complete and accurate list of all issued and outstanding shares and warrants,
options, or similar rights to acquire such shares of the Acquiror's capital
stock and the names of the holders thereof.
(d) Organization and Capitalization of Merger Sub. Merger Sub is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of California, and at the Effective Time, will have full power
and authority to carry out the transactions contemplated in this Agreement to be
carried out by it. The authorized capital stock of Merger Sub consists of 1,000
shares of Common Stock, all of which, as of the date of this Agreement, are
issued and outstanding and held by Acquiror. As of the date hereof, Merger Sub
has no assets and Merger Sub does not and will not have any liabilities, except
liabilities for organizational expenses. Acquiror has delivered true and correct
copies of the Articles of Incorporation of Merger Sub (the "Merger Sub
Articles") and the Bylaws of Merger Sub (the "Merger Sub Bylaws"), each as
amended to date, to counsel for Telegen.
(e) Acquiror's Authority. Acquiror has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery, and performance of this Agreement
shall have been duly authorized by all requisite corporate action. This
Agreement has been duly executed and delivered by Acquiror and constitutes a
valid and binding obligation of the Acquiror enforceable in accordance with its
terms (except as limited by bankruptcy, insolvency, or other laws affecting the
enforcement of creditors' rights). The execution and delivery of this Agreement
by the Acquiror does not and the consummation of the transactions contemplated
hereby will not conflict with or result in any violation of or default under
(with or without notice or lapse of time, or both) or give rise to a right of
termination, cancellation, or acceleration of any obligation or to loss of a
material benefit under (i) any provision of the Acquiror Articles or the
Acquiror's Bylaws or (ii) any mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
Acquiror or its properties or assets. No consent, approval, order, or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required by or with respect to Acquiror in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (i) the filing of the Merger Documents with the
Secretary of State of California and the filing of appropriate documents with
the relevant authorities of other states in which the Acquiror is qualified to
do business and (ii) such consents, approvals, orders, authorizations,
registrations, declarations, and filings as may be required under applicable
state securities laws, including the filing of the permit application
contemplated by Section 4.3.
(f) Financial Statements. The Acquiror has timely filed with the Securities
and Exchange Commission (the "Commission") all reports and other document
required to be filed by the Acquiror with the Commission pursuant to the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and the rules and
regulations promulgated thereunder. The Acquiror has delivered to Telegen and
Telegen's counsel true and complete copies of all reports and other filings made
by the Acquiror with the Commission pursuant to the 1933 Act, or the 1934 Act
since December 31, 1992 and through the date hereof (collectively, the "SEC
Documents"). As of their respective filing dates, the SEC Documents complied in
all material respects with the requirements of the 1933 Act or the 1934 Act, as
applicable, and none of the SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of Acquiror contained in the SEC Documents (the "Acquiror
Financial Statements") are complete and correct, comply as to form in all
respects with applicable accounting requirements and with the published rules
and regulations of the Commission with respect thereto, have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods involved, and fairly present the consolidated
financial position of the Acquiror and the results of its operations and cash
flows as of the respective dates and for the periods indicated thereon (subject,
in the case of the unaudited statements, to normal recurring accounting
adjustments). There has been no change in the Acquiror's accounting policies or
estimates except as described in the notes to the Acquiror Financial Statements.
Acquiror has no liabilities or obligations, fixed, contingent, or otherwise not
reflected on the most recent balance sheet included in the Acquiror Financial
Statements (the "Acquiror Balance Sheet"), except for (i) liabilities incurred
in the ordinary course of the Acquiror's business since the date of the Acquiror
Balance Sheet which individually do not exceed $5,000 and in the aggregate do
not exceed $25,000 and are usual and normal for the Acquiror and (ii)
liabilities and obligations as may have arisen in the ordinary course of
business prior to the date of the Acquiror Balance Sheet, which under generally
accepted accounting principles were not required to be reflected on the Acquiror
Balance Sheet, and which do not exceed $5,000 individually or $25,000 in the
aggregate. All such financial statements present fairly the financial condition
of the Acquiror at such date, and the results of its operations for the period
therein specified, and were prepared in accordance with generally accepted
accounting principles applied upon a basis consistent with prior accounting
periods.
(g) Present Status. Since the date of the Acquiror Balance Sheet (or such
other date specifically set forth herein), except as otherwise contemplated by
this Agreement and except as described in Schedule 3.2(g), the Acquiror has
conducted its business in the usual and ordinary course and without limiting the
generality of the foregoing:
(i) The Acquiror has not sustained any damage, destruction, or loss by
reason of fire, explosion, earthquake, casualty, labor trouble (including but
not limited to any claim of wrongful discharge or other unlawful labor
practice), requisition or taking of property by any government or agent thereof,
windstorm, embargo, riot, act of God or public enemy, flood, accident,
revocation of license or right to do business, total or partial termination,
suspension, default or modification of contracts, governmental restriction or
regulation, other calamity, or other similar or dissimilar event (whether or not
covered by insurance) that would result in a Material Adverse Effect on the
Acquiror.
(ii) There have been no changes in the condition (financial or otherwise),
business, net worth, assets, properties, operations, obligations or liabilities
(fixed or contingent) of the Acquiror which, individually or in the aggregate,
have resulted or may be reasonably expected (whether before or after the
Effective Time) to result in a Material Adverse Effect on the Acquiror.
(iii) The Acquiror has not issued, or authorized for issuance, any equity
security, bond, note or other security of the Acquiror. The Acquiror has not
granted or entered into any commitment or obligation to issue or sell any such
equity security, bond, note or other security of the Acquiror, whether pursuant
to offers, stock option agreements, stock bonus agreements, stock purchase
plans, incentive compensation plans, warrants, calls, conversion rights or
otherwise.
(iv) The Acquiror has not incurred any additional debt for borrowed money,
nor incurred any obligation or liability (fixed, contingent or otherwise) except
in the ordinary and usual course of the business of the Acquiror.
(v) The Acquiror has not paid any obligation or liability (fixed,
contingent or otherwise), or discharged or satisfied any lien or encumbrance, or
settled any liability, claim, dispute, proceeding, suit, or appeal, pending or
threatened against it or any of its assets or properties, except for current
liabilities included in the Acquiror Balance Sheet and current liabilities
incurred since the date of the Acquiror Balance Sheet in the ordinary and usual
course of the business of the Acquiror.
(vi) The Acquiror has not declared, set aside for payment, or paid any
dividend, payment, or other distribution on or with respect to any share of
capital stock of the Acquiror.
(vii) The Acquiror has not purchased, redeemed or otherwise acquired or
committed itself to acquire, directly or indirectly, any share or shares of
capital stock of the Acquiror.
(viii) The Acquiror has not mortgaged, pledged, otherwise encumbered or
subjected to lien any of its assets or properties, tangible or intangible, nor
has it committed itself to do any of the foregoing, except for liens for current
taxes which are not yet due and payable and purchase money liens arising out of
the purchase or sale of products or services made in the ordinary and usual
course of business.
(ix) The Acquiror has not disposed of, or agreed to dispose of, any asset
or property, tangible or intangible, except in the ordinary and usual course of
business, and in each case for a consideration at least equal to the fair value
of such asset or property, nor has the Acquiror leased or licensed to others
(including officers and directors of the Acquiror), or agreed so to lease or
license, any asset or property.
(x) The Acquiror has not purchased or agreed to purchase or otherwise
acquire any debt or equity securities of any corporation, partnership, joint
venture, firm or other entity. The Acquiror has not made any expenditure or
commitment for the purchase, acquisition, construction or improvement of a
capital asset.
(xi) The Acquiror has not entered into any transaction or contract, or made
any commitment to do the same. The Acquiror has not waived any right of
substantial value or cancelled any debts or claims or voluntarily suffered any
extraordinary losses, which individually or in the aggregate would result in a
Material Adverse Effect on the Acquiror.
(xii) The Acquiror has not effected or agreed to effect any amendment or
supplement to any employee profit sharing, stock option, stock purchase,
pension, bonus, incentive, retirement, medical reimbursement, life insurance,
deferred compensation or any other employee benefit plan or arrangement.
(xiii) The Acquiror has not effected or agreed to effect any change,
including by way of hiring or involuntary termination, in its directors,
executive officers, or employees.
(xiv) The Acquiror has not effected or committed itself to effect any
amendment or modification of the Acquiror Articles or the Acquiror Bylaws.
(xv) To the knowledge of the Acquiror, no statute has been enacted nor has
any rule or regulation been adopted (whether before or after the date of the
Acquiror Balance Sheet) which may reasonably be expected to result in a Material
Adverse Effect on the Acquiror.
(xvi) The Acquiror has not changed in any way its accounting methods or
practices (including any change in depreciation or amortization policies or
rates, or any changes in policies in making or reversing accruals).
(xvii) The Acquiror has not made any loan to any person or entity, and the
Acquiror has not guaranteed the payment of any loan or debt of any person or
entity.
(xviii) The Acquiror has not negotiated or agreed to do any of the things
described in the preceding clauses (i) through (xvii) (other than negotiations
with Telegen and its representatives regarding the transactions contemplated by
this Agreement).
(h) Litigation. Except as disclosed in the Acquiror Financial Statements or
Schedule 3.2(h), there is no claim, dispute, action, proceeding, suit or appeal,
or investigation, at law or in equity, pending against the Acquiror, or
involving any of its assets or properties, before any court, agency, authority,
arbitration panel or other tribunal, and, the knowledge of the Acquiror, none
have been threatened against the Acquiror. To the knowledge of the Acquiror,
there are no facts which, if known to stockholders, customers, governmental
authorities or other persons, would result in any such claim, dispute, action,
proceeding, suit or appeal or investigation which would have a Material Adverse
Effect on the Acquiror. The Acquiror is not subject to any order, writ,
injunction or decree of any court, agency, authority, arbitration panel or other
tribunal, and the Acquiror is not in default with respect to any notice, order,
writ, injunction or decree.
(i) Compliance With the Law and Other Instruments. The business operation
of the Acquiror has been and is being conducted in all material respects in
accordance with all applicable laws, rules, and regulations of all authorities.
The Acquiror has not received any notice of violation with respect to any
applicable laws, regulations, orders, or other requirements of a Governmental
Entity or other authority, including, without limiting the generality of the
foregoing, the Employee Retirement Income Security Act of 1974, as amended. The
Acquiror is not in violation of, or in default under, any term or provision of
the Acquiror Articles, or the Acquiror Bylaws, as amended. The Acquiror has in
all material respects performed, or is now performing the obligations of, and
the Acquiror is not in default (and would not by the lapse of time or giving of
notice be in default) in respect of any note, debt instrument, lien, mortgage,
lease, order, judgment, or decree, or any other contract, agreement, or
commitment binding upon it or its assets or properties or material to the
conduct of its business. There is no agreement (assuming the parties thereto
other than the Acquiror performed their respective obligations thereunder as
required), judgment, injunction, order or decree binding upon the Acquiror which
has or could reasonably be expected to have the effect of materially prohibiting
or materially impairing any business practice of the Acquiror, any acquisition
of property by the Acquiror, or the conduct of business by the Acquiror as
currently conducted or as proposed to be conducted following the Merger.
Schedule 3.2(i) contains a full and complete list of all necessary consents,
waivers, and approvals of third parties that are required to be obtained by the
Acquiror in connection with the execution and delivery of this Agreement by the
Acquiror and the performance of the Acquiror's obligations hereunder.
(j) Title to Properties and Assets. The Acquiror has good and marketable
title to all its properties and assets, including without limitation those
reflected in the Acquiror's Financial Statements and those used or located on
property controlled by the Acquiror in its business on the date of the Acquiror
Balance Sheet and acquired thereafter (except assets sold in the ordinary course
of business), subject to no mortgage, pledge, lien, charge, security interest,
encumbrance, or restriction except those which (i) are disclosed in the Acquiror
Financial Statements as securing specified liabilities; or (ii) do not
materially adversely affect the use thereof. The buildings and equipment of the
Acquiror are in good condition and repair, reasonable wear and tear excepted.
The Acquiror has not been, to the knowledge of any officer of Acquiror,
threatened with any action or proceeding under any building or zoning ordinance,
regulation, or law. The Acquiror does not currently, nor has it in the past,
owned any real property.
(k) Acquiror Leases. The Acquiror is not liable on any lease for property,
equipment, or real estate.
(l) Creditor's Arrangements. The Acquiror has not made any assignment for
the benefit of creditors, nor has any involuntary or voluntary petition in
bankruptcy been filed by or against the Acquiror.
(m) Contracts and Other Obligations. Schedule 3.2(m) constitutes a full and
complete list (subject to the dollar amounts set forth in clause (vii) below) of
each partially or totally executory contract or agreement to which the Acquiror
is a party or by which it is bound. Other than as set forth on Schedule 3.2(m),
the Acquiror is not a party to or otherwise bound by, any written or oral:
(i) Contract or agreement not made in the ordinary course of business;
(ii) Employment or consultant contract which is not terminable at will
without cost or other liability to the Acquiror or any successor, except as
disclosed on Schedule 3.2(m)(ii) hereto;
(iii) Contract with any labor union;
(iv) Bonus, pension, profit-sharing, retirement, share purchase, stock
option, hospitalization, group insurance, or similar plan providing employee
benefits, except as disclosed in its filings with the Securities and Exchange
Commission;
(v) Lease with respect to any property, real or personal, whether as lessor
or lessee;
(vi) Advertising contract or contract for public relations services;
(vii) Purchase, supply, or service contracts in excess of $1,000 each, or
in the aggregate of $10,000 for all such contracts whether below or above
$1,000;
(viii) Deed of trust, mortgage, conditional sales contract, security
agreement, pledge agreement, trust receipt, or any other agreement or
arrangement whereby any of the assets or properties of the Acquiror are
subjected to a lien, encumbrance, charge, or other restriction, except as
disclosed on Schedule 3.2(m)(viii) thereto;
(ix) Contract or other commitment continuing for a period of more than 30
days and which is not terminable without cost or other liability to the Acquiror
or its successor; or
(x) Contract which (a) contains a redetermination of price or similar type
of provision or (b) provides for a fixed price for goods or services sold.
(xi) Contract or arrangement which will result in an excess parachute
payment under Code Section 280G of the Internal Revenue Code.
(xii) Contract or arrangement containing any covenant limiting the right of
the Acquiror to compete in any business or with any person.
The Acquiror has performed all obligations required to be performed by it
to date and is not in default under any of the contracts, agreements, leases,
documents, or other arrangements to which it is a party or bound. To the best of
Acquiror's knowledge, all parties with whom the Acquiror has contractual
arrangements are in compliance therewith and are not in default thereunder.
(n) Changes in Compensation. Schedule 3.2(n) constitutes a full and
complete list of all directors, officers, employees of or consultants to the
Acquiror as of the date of the Acquiror Balance Sheet and specifies each of
their names and job designations, the total amount paid or payable to such
director, officer, employee, or consultant in their prior fiscal year and from
the beginning of the current fiscal year through the date of the Acquiror
Balance Sheet and the basis of such compensation, whether fixed or commission or
a combination thereof. Since September 30, 1995, there has not been any general
pay increase to employees or any change in the rate of compensation, commission,
bonus, or other remuneration payable to any officer, employee, director, agent,
or stockholder of the Acquiror.
(o) Inventories. Acquiror has no inventories.
(p) Records. The books of account, minute books, stock certificate books,
and stock transfer ledgers of the Acquiror are complete and correct, and there
have been no transactions involving the business of the Acquiror which properly
should have been set forth in said respective books, other than those set forth
therein.
(q) Brokers or Finders. All negotiations on the part of the Acquiror
relative to this Agreement and the transactions contemplated hereby have been
carried on by Acquiror without the intervention of any person or as the result
of any act of the Acquiror in such manner as to give rise to any valid claim
against Telegen for a brokerage commission, finder's fee, or other like payment.
(r) Taxes. The Acquiror has accurately prepared and timely filed all
federal, state, county and local income, franchise, excise, real and personal
property and other tax returns and reports (including, but not limited to, those
relating to social security, withholding, unemployment insurance, and occupation
(sales) and use taxes) required to have been filed by the Acquiror up to the
date hereof. All of the foregoing returns are true and correct in all material
respects and the Acquiror has paid all taxes, interest and penalties shown on
such returns or reports as being due. The Acquiror has withheld with respect to
its employees all federal and state income taxes, FICA, FUTA, and other taxes
that the Acquiror is required to withhold. The accruals for the Acquiror's taxes
on the books and records of the Acquiror are sufficient to discharge the taxes
for all periods (or the portion of any period) ending on or prior to the Closing
Date. The Acquiror has not been delinquent in the payment of any tax nor is
there any tax deficiency outstanding, proposed, or assessed against the
Acquiror, nor has the Acquiror executed any waiver of any statute of limitations
on or extending the period for the assessment or collection of any tax. No audit
or other examination of any return of the Acquiror filed with any taxing
authority is presently in progress. The Acquiror does not have any liabilities
for unpaid, federal, state, local, or foreign taxes, whether asserted or
unasserted, known or unknown, contingent or otherwise, and the Acquiror has no
knowledge of any basis for the assertion of any such liability attributable to
the Acquiror, its assets, or operations. The Acquiror is not (and has never
been) required to join with any other entity in the filing of a consolidated tax
return for federal tax purposes or a consolidated or combined return or report
for state tax purposes. The Acquiror is not a party to or bound by any tax
indemnity, tax sharing, or tax allocation agreement. The Acquiror has provided
to Telegen or its legal counsel copies of all federal and state income and all
state sales and use tax returns for all periods since December 31, 1990. There
are (and as of immediately following the Closing there will be) no liens on the
assets of the Acquiror relating to or attributable to taxes). The Acquiror has
no knowledge of any basis for the assertion of any claim which, if adversely
determined, would result in liens on the assets of the Acquiror.
(s) Environmental Matters. The Acquiror's operations of its business and
assets has been in material compliance with and the Acquiror has complied in all
material respects with and is not in violation of applicable federal, state, and
local laws, ordinances, regulations, and orders relating to environmental
matters, including but not limited to matters related to air pollution, water
pollution, and the handling of hazardous substances (as defined by CERCLA).
There are no actions, proceedings or investigations pending or, to the actual
knowledge of the Acquiror, threatened before any federal or state environmental
regulatory body, or before any federal or state court, alleging noncompliance by
the Acquiror with CERCLA or any other Environmental Laws. To the actual
knowledge of the Acquiror: (i) there is no reasonable basis for the institution
of any action, proceeding or investigation against the Acquiror under any
Environmental Law; (ii) the Acquiror is not responsible under any Environmental
Law for any release by any person at or in the vicinity of real property of any
hazardous substance (as defined by CERCLA), caused by the spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping or disposing of any such hazardous substance into the
environment; (iii) the Acquiror is not responsible for any costs of any remedial
action required by virtue of any release of any toxic or hazardous substance,
pollutant or contaminant into the environment including, without limitation,
costs arising from security fencing, alternative water supplies, temporary
evacuation and housing and other emergency assistance undertaken by any
environmental regulatory body; (iv) the Acquiror is in compliance with all
applicable Environmental Laws; and (v) no real property used, owned, managed or
controlled by the Acquiror contains any toxic or hazardous substance including,
without limitation, any asbestos, PCBs or petroleum products or byproducts in
any form, the presence, location, or condition of which (a) violates any
Environmental Law or (b) otherwise would pose any significant health or safety
risk unless remedial measures were taken.
(t) Indemnification Liabilities. There are no existing liabilities or facts
known to Acquiror which would require Acquiror to indemnify its officers or
directors for acts or omissions by such persons acting on behalf of Acquiror.
(u) Accounts Receivable. All accounts receivable of the Acquiror shown on
the Acquiror Balance Sheet or thereafter acquired arose and are collectible in
the ordinary and usual course of its business, except that the value of any
account receivable, the collection of which is doubtful or which is subject to a
defense or set-off, has been written down to an amount not in excess of net
realizable value or adequate reserves or allowances therefor have been provided.
The values at which accounts receivable are carried reflect the accounts
receivable valuation policy of the Acquiror, which is consistent with its past
practice and in accordance with generally accepted accounting principles applied
on a consistent basis. To the knowledge of the Acquiror, none of the receivables
of the Acquiror is subject to any claim of offset, recoupment, set off, or
counterclaim, and there are no facts or circumstances (whether asserted or
unasserted) that would give rise to any claim. No receivables are contingent
upon the performance by the Acquiror of any obligation or contract. No person or
entity has any lien, charge, pledge, security interest, or other encumbrance on
any such receivables, and no agreement for deduction or discount has been made
with respect to any of such receivables.
(v) Bank Accounts. Schedule 3.2(v) constitutes a full and complete list of
all the bank accounts of the Acquiror, together with the names of the persons
authorized to draw thereon. All cash in such accounts is held in demand deposits
and is not subject to any restriction or limitation as to withdrawal.
(w) Certain Advances. There are no receivables of the Acquiror owing by
directors, officers, employees, consultants or stockholders of the Acquiror, or
owing by any Affiliate of any director or officer of the Acquiror.
(x) Insurance. Schedule 3.2(x) lists all insurance policies and fidelity
bonds covering the assets, business, equipment, properties, operations,
employees, officers, and directors of the Acquiror as well as all claims made
under any insurance policy by the Acquiror since December 31, 1990. There is no
claim by the Acquiror pending under any of such policies or bonds as to which
coverage has been questioned, denied, or disputed by the underwriters of such
policies or bonds. All premiums payable under all such policies and bonds have
been paid, and the Acquiror is otherwise in compliance in all material respects
with the terms of such policies and bonds (or other policies and bonds providing
substantially similar insurance coverage). Such policies of insurance and bonds
are of the type and in amounts customarily carried by persons conducting
businesses similar to those of the Acquiror. The Acquiror does not know of any
threatened termination of or material premium increase with respect to any of
such policies. The Acquiror has never been denied insurance coverage nor has any
insurance policy of the Acquiror ever been cancelled for any reason.
(y) FIRPTA Status. The Acquiror is not, and has not been at any time during
the five year period preceding the date hereof, a "United States real property
holding corporation" as defined in Section 897 of the Internal Revenue Code of
1954, as amended, and the regulations promulgated thereunder.
(z) Representations Complete. None of the representations or warranties
made by the Acquiror, nor any statement made in any schedule, exhibit, or
certificate furnished by the Acquiror pursuant to this Agreement, contains or
will contain any untrue statement of a material fact or omits or will omit to
state any material fact necessary in order to make the statements contained
herein or therein, in light of the circumstances under which they were made, not
misleading.
ARTICLE 4
ACTIONS AND OBLIGATIONS OF THE
ACQUIROR AND TELEGEN BEFORE AND
AFTER THE CLOSING AND SECURITIES ACT MATTERS
Section 4.1 Actions of Telegen Pending Closing. Telegen covenants with the
Acquiror that from the date hereof to and including the Closing Date:
(a) Correct as of Closing. Each representation and warranty of Telegen set
forth in Section 3.1 of this Agreement shall be true and correct on and as of
the Closing Date.
(b) Operations. Except with the prior written consent of the Acquiror,
which consent will not be unreasonably withheld, Telegen will:
(i) Conduct its affairs and business only in the ordinary course of
business;
(ii) Not create or incur any material liabilities other than current
liabilities incurred in the ordinary course of business, except as set forth in
the Telegen Schedules;
(iii) Not create or incur, or suffer to exist, any mortgage, lien, pledge,
hypothecation, charge, encumbrance, or restriction of any kind which is not
otherwise disclosed in this Agreement or the Telegen Schedules;
(iv) Not make any capital expenditures, or capital additions or betterment,
except as many be involved in ordinary repairs, maintenance, and replacement;
(v) Not enter into, renew, extend, amend, or modify any contract or
commitment, except in the ordinary course of business, pursuant to which it will
be obligated to expend, or entitled to receive, in excess of $100,000 annually;
(vi) Maintain its assets and properties in good condition and repair, and
not sell, lease, license, or otherwise dispose of, any of its material assets or
properties, except sales out of inventory in the ordinary course of business;
(vii) Not declare or pay any dividend on, or make any other distribution
upon, or purchase, retire, or redeem, any shares of Telegen Common or Telegen
Preferred, or set aside any funds for any such purpose;
(viii) Not issue or sell, or obligate itself to issue or sell any
additional shares of Telegen Common or Preferred, whether or not such shares
have been previously authorized or issued, or issue or sell any warrants,
rights, or options to acquire any such shares, or acquire any stock of any
corporation, or any interest in any business enterprise, except as set forth in
the Telegen Schedules;
(ix) Not amend the Telegen Articles or the Telegen Bylaws;
(x) Not pay, or agree to pay, conditionally or otherwise, any bonus, extra
compensation, pension, or severance pay to any director, shareholder, officer,
consultant, agent, or employee under any pension plan or otherwise, or increase
the compensation paid by it (except increases in the ordinary course of business
in accordance with Telegen's employee appraisal and salary adjustment programs
currently in effect or pursuant to written agreements outstanding on the date
hereof) at the date of the Telegen Balance Sheet to any officer, director,
agent, consultant, or employee;
(xi) Not discharge or satisfy any material lien, charge, or encumbrance,
nor pay any obligation or liability, absolute or contingent, except (i) current
liabilities shown on the Telegen Balance Sheet or current liabilities incurred
since such date in the ordinary course of business and (ii) expenses incurred in
connection with the transactions contemplated by this Agreement (including,
without limitation, reasonable attorneys' fees, accounting fees, and costs);
(xii) Except with respect to the transactions contemplated by this
Agreement, not merge or consolidate, or obligate itself to do so, with, or into
any other entity;
(xiii) Use reasonable commercial efforts to preserve its business
organization in tact;
(xiv) Use reasonable commercial efforts to preserve the goodwill of its
suppliers, customers, and those having business relations with it;
(xv) Not enter into any transactions, or take any acts which if effected or
performed prior to the date of this Agreement, would constitute a breach of the
representations, warranties, and agreements contained herein; and
(xvi) Not institute, settle, or agree to settle any action or proceeding
before any court or governmental body;
(xvii) Not effect or agree to effect, including by way of hiring or
involuntary termination, any change in the directors or officers of Telegen;
(xviii) Not take, or agree to take, any of the actions described in (i)
through (xvii) above, or any action that would make any of the representations,
covenants, or warranties of Telegen set forth herein untrue and incorrect.
(c) Access to Records. Telegen will afford the Acquiror, its
representatives, counsel, agents, and employees, at reasonable times, and in a
manner and under circumstances which will not cause unreasonable interference
with the operation of Telegen's business, access to all of the properties of
Telegen, and its books, files, records, insurance policies, and other corporate
books and records, for the purpose of audit, inspection, and examination
thereof, and will do, and cause Telegen to do, everything reasonably necessary
to enable the Acquiror to make a complete examination of the assets and
properties of Telegen, and the condition thereof. No such examination, however,
shall constitute a waiver or relinquishment, on the part of the Acquiror, of its
right to rely upon the covenants, representations, and warranties made by
Telegen and the Stockholders in the provisions of this Agreement.
(d) Consultation. Telegen will endeavor to keep the Acquiror apprised with
respect to the operation and conduct of Telegen's business prior to the Closing
Date.
Section 4.2 Actions of Acquiror Pending Closing. The Acquiror covenants
with Telegen that from the date hereof to and including the Closing Date:
(a) Correct as of Closing. Each representation and warranty of the Acquiror
set forth in Section 3.2 of this Agreement shall be true and correct on and as
of the Closing Date.
(b) Operations. Except with the prior written consent of Telegen, which
consent will not be unreasonably withheld, the Acquiror will:
(i) Conduct its affairs and business only in the ordinary course of
business;
(ii) Not create or incur any liabilities other than current liabilities
incurred in connection with the transactions contemplated by this Agreement;
(iii) Not create or incur, or suffer to exist, any mortgage, lien, pledge,
hypothecation, charge, encumbrance, or restriction of any kind;
(iv) Not make any capital expenditures or capital additions or betterment
except as many be involved in ordinary repairs, maintenance, and replacement;
(v) Except in connection with the transactions contemplated by this
Agreement, not enter into, renew, extend, amend, or modify any contract or
commitment pursuant to which it will be obligated to expend, or entitled to
receive, in excess of $5,000 in amount;
(vi) Maintain its assets and properties in good condition and repair, and
not sell, lease, license, or otherwise dispose of any of its assets or
properties;
(vii) Not declare or pay any dividend on or make any other distribution
upon, or purchase, retire or redeem, any shares of Acquiror Common or Acquiror
Preferred, or set aside any funds for any such purpose;
(viii) Not issue or sell or obligate itself to issue or sell any additional
shares of Acquiror Common or Acquiror Preferred, whether or not such shares have
been previously authorized or issued, or issue or sell any warrants, rights, or
options to acquire any such shares, or acquire any stock of any corporation or
any interest in any business enterprise;
(ix) Not amend the Acquiror Articles or the Acquiror Bylaws;
(x) Not pay or agree to pay, conditionally or otherwise, any bonus, extra
compensation, pension, or severance pay to any director, stockholder, officer,
consultant, agent, or employee under any pension plan or otherwise, or increase
the compensation paid by it at the date of the Acquiror Balance Sheet (other
than as identified on Schedule 3.2(b)) to any officer, director, agent,
consultant, or employee;
(xi) Not discharge or satisfy any lien, charge or encumbrance, nor pay any
obligation or liability, absolute or contingent, except (i) current liabilities
shown on the Acquiror Balance Sheet or current liabilities incurred since said
date in the ordinary course of business and (ii) expenses incurred in connection
with the transactions contemplated by this Agreement (including, without
limitation, reasonable attorneys' fees, accounting fees, and costs);
(xii) Use reasonable commercial efforts to preserve its business
organization in tact;
(xiii) Except with respect to the transactions contemplated by this
Agreement, not merge or consolidate with or into, or acquire the assets of, with
or into any other entity;
(xiv) Use reasonable commercial efforts to preserve the goodwill of its
suppliers, customers, and those having business relations with it;
(xv) Not enter into any transactions or take any acts which if effected or
performed prior to the date of this Agreement, would constitute a breach of the
representations, warranties, and agreements contained herein; and
(xvi) Not institute, settle, or agree to settle any action or proceeding
before any court or governmental body;
(xvii) Not effect or agree to effect, including by way of hiring or
involuntary termination, any change in the directors, officers, or employees of
the Acquiror;
(xviii) Not take, or agree to take, any of the actions described in (i)
through (xvii) above, or any action that would make any of the representations,
covenants, or warranties of the Acquiror set forth herein untrue or incorrect.
(c) Access to Records. The Acquiror will afford Telegen, its
representatives, counsel, agents, and employees, at reasonable times and in a
manner and under circumstances which will not cause unreasonable interference
with the operation of the Acquiror's business, access to all of the properties
of the Acquiror and its books, files, records, insurance policies, and other
corporate books and records, for the purpose of audit, inspection, and
examination thereof, and will do, and cause the Acquiror to do, everything
reasonable necessary to enable the Acquiror to make a complete examination of
the assets and properties of the Acquiror and the condition thereof. No such
examination, however, shall constitute a waiver or relinquishment on the part of
the Acquiror of its right to rely upon the covenants, representations, and
warranties made by the Acquiror in the provisions of this Agreement.
(d) Consultation. The Acquiror will endeavor to keep Telegen apprised with
respect to the operation and conduct of the Acquiror's business prior to the
Closing Date.
Section 4.3 Fairness Hearing. The Acquiror Common and the Acquiror
Preferred to be issued pursuant to this Agreement will not be registered under
the 1933 Act in reliance on the exemption from registration set forth in Section
3(a)(10) thereof. Promptly following the execution of this Agreement, the
Acquiror shall file an application for permit (the "Permit") with the California
Department of Corporations for the purpose of qualification of the issuance of
the shares of Acquiror Common and Acquiror Preferred to be issued hereunder
pursuant to Section 25110 of California Law and in connection therewith shall
request that a hearing be held on the fairness of the transaction pursuant to
Section 25142 of California Law (the "Fairness Hearing") in order to qualify the
shares of Acquiror Common and Acquiror Preferred for the exemption from
registration provided in Section 3(a)(10) of the 1933 Act. Telegen shall use its
reasonable efforts to assist the Acquiror and its counsel in filing such
application to obtain the Permit. The Acquiror and Telegen shall each use its
best efforts to prosecute such application and hearing.
Section 4.4 Undertakings of Acquiror and Telegen.
(a) The Acquiror and Telegen each will hold, and will cause its respective
officers, directors, employees, consultants, advisors and agents to hold, in
confidence, unless compelled to disclose by judicial or administrative process
or by other requirements of law, all confidential documents and information
concerning the parties furnished to any other party in connection with the
transactions contemplated by this Agreement, except to the extent that such
information can be shown to have been (i) previously known on a non-confidential
basis by the disclosing party; (ii) in the public domain; or (iii) later
lawfully acquired by the closing party from sources other than as a result of
the transactions contemplated herein; provided that each party may disclose such
information to its officers, directors, employees, consultants, advisors and
agents in connection with the transactions contemplated by this Agreement, so
long as such persons are informed of the confidential nature of such information
and are directed to treat such information confidentially in accordance
herewith. Each party's obligation to hold any such information in confidence
shall be satisfied if it exercises the same care with respect to such
information as it would take to preserve the confidentiality of its own similar
information. Subject to the foregoing and Section 4.4(b) below, each party shall
keep confidential the terms of this Agreement and of the transactions
contemplated hereby except to the extent such information is legally required to
be disclosed. If this Agreement is terminated, such confidence shall be
maintained and each party will, and will use its best efforts to cause its
officers, directors, employees, consultants, advisors and agents to, destroy or
deliver to each other party, upon request, all documents and other materials,
and all copies thereof, obtained by such party in connection with this
Agreement, that are subject to such confidence. The parties obligations under
this Section 4.4(a) shall terminate on the Closing Date.
(b) No press release or other public disclosure of matters related to this
Agreement or any of the transactions contemplated hereby shall be made by the
Acquiror or Telegen unless the other parties shall have provided its consent to
the form and substance thereof; provided, however, that nothing herein shall be
deemed to prohibit any party hereto from making any disclosure which its counsel
deems necessary or advisable in order to fulfill such party's disclosure
obligations imposed by law.
(c) Each party shall provide the others with adequate opportunity to
conduct such reviews and examinations of the business, properties and conditions
(financial and otherwise) of the others as each party shall deem prudent,
provided that such investigations shall not interfere unreasonably with the
normal operations of the party being reviewed.
ARTICLE 5
CONDITIONS PRECEDENT
Section 5.1 Conditions to Obligations of Each Party to Effect the Merger.
The respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) Shareholder Approval. This Agreement and the Merger and the other
transactions contemplated hereby shall have been approved and adopted by the
vote or consent of the requisite number of shareholders of Telegen. Shareholders
of Telegen holding not less than 66-_% of the outstanding voting stock of
Telegen shall have delivered to Acquiror an agreement pursuant to which such
shareholders agree to vote all shares of Telegen Common or Telegen Preferred
held by such shareholders in favor of the Merger, this Agreement, the Merger
Agreement, and the transactions contemplated hereby and thereby. Each such
shareholder of Telegen shall, in connection with the execution and delivery of
such agreement, deliver to Acquiror an irrevocable proxy which shall cover all
shares of Telegen Common or Telegen Preferred held by such shareholder, which
shall be irrevocable to the maximum extent provided by California Law, and which
shall be executed in accordance with Section 705 of California Law. In addition,
approval of the shareholders of Acquiror, if and to the extent required under
the laws of the State of Colorado, shall also have been obtained.
(b) Government Approvals. All authorizations, consents, orders, or
approvals of, or declarations or filings with, or expiration of waiting periods
imposed by, any Governmental Entity necessary for the consummation of the
transactions contemplated by this Agreement, including but not limited to the
filing of the Merger Documents with the Secretary of State of California and the
issuance of the Permit by the California Department of Corporations, and such
requirements under applicable state securities laws, shall have been filed,
occurred, or been obtained, other than filings with and approvals by foreign
governments relating to the Merger if failure to make such filings or obtain
such approvals would not be materially adverse to Telegen or the Acquiror.
(c) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect, nor shall any proceeding brought
by an administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the foregoing be pending;
nor shall there be any action taken, or any statute, rule, regulation, or order
enacted, entered, enforced, or deemed applicable to the Merger which makes the
consummation of the Merger illegal.
Section 5.2 Conditions Precedent to Obligations of Telegen. Except as may
be waived in writing by Telegen, the obligations of Telegen are subject to the
fulfillment, prior to or at the Closing on the Closing Date, of each of the
following conditions:
(a) No Material Errors. The representations and warranties of the Acquiror
in Section 3.2 hereof shall be true and correct in all material respects as of
the Closing Date, subject to any changes contemplated by this Agreement.
(b) Opinion of Acquiror's Counsel. The Acquiror shall have delivered to
Telegen the opinion, dated the Closing Date, of Acquiror's counsel, Cohen Brame
& Smith, P.C., in form attached hereto as Schedule 5.2(b).
(c) Directors' Approval. Consummation of the transactions contemplated
herein shall have been approved by the Board of Directors of Acquiror at special
meetings of the Board of Directors to be held for the purpose of obtaining such
approvals.
(d) Third-Party Consents. On or before the Closing Date, all material
consents or approvals by any third party, if any, which are required to be
obtained by Acquiror in connection with the execution, delivery or performance
of this Agreement or the consummation of the transactions contemplated herein
shall have been obtained.
(e) Compliance with Agreements. The Acquiror shall have performed and
complied with all agreements or conditions required by this Agreement to be
performed and complied with by it prior to or on the Closing Date.
(f) Certificate of Officers. The Acquiror shall have delivered to Telegen a
certificate dated the Closing Date, executed in its corporate name by, and
verified by, the oath of its President and Chief Financial Officer certifying to
the fulfillment of the conditions specified in this Section 5.1.
(g) Post-Closing Officers and Directors. The Acquiror shall have delivered
to Telegen the written resignations, effective as of the Closing, of all
officers and directors of Acquiror, and Acquiror shall have taken such actions
prior to the Closing as Telegen shall reasonably determine in order to appoint
persons designated by Telegen to such positions immediately after the Closing;
provided, however, that two of the directors designated by Telegen to be
appointed to the Board of Directors of Acquiror shall be independent directors,
as defined in the Rules of the National Association of Securities Dealers, Inc.,
and such independent directors shall be appointed to the Audit and Compensation
Committees of Acquiror's Board of Directors.
(h) Tax Opinion. Telegen shall have received from its legal counsel,
Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, an opinion, dated
the Closing Date, to the effect that the acquisition of Telegen by Acquiror
pursuant hereto will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code. In rendering
such opinion, counsel may rely upon representations and certificates of
Acquiror, Merger Sub, Telegen, and certain shareholders of Telegen.
(i) Indemnity and Share Escrow. James B. Wiegand shall have executed an
indemnity agreement in regard to breaches of representations and warranties or
covenants hereunder by Acquiror. Telegen's sole and exclusive recourse under
such indemnity agreement shall be to an escrow established for such purpose into
which Mr. Wiegand shall have contributed 70,000 shares of Acquiror Common Stock.
Mr. Wiegand and Telegen shall execute such indemnity agreement and escrow
agreement and shall have contributed such shares prior to the Closing Date.
Section 5.3 Conditions Precedent to Obligations of Acquiror. Except as may
be waived in writing by the Acquiror, all of the obligations of the Acquiror
under this Agreement are subject to fulfillment, prior to or at the Closing on
the Closing Date, of each of the following conditions:
(a) No Material Errors. The representations and warranties of Telegen in
Section 3.1 hereof shall be true and correct as of the Closing Date, subject to
any changes contemplated by this Agreement.
(b) Third-Party Consents. On or before the Closing Date, all material
consents or approvals by any third party, if any, which are required to be
obtained, including the Stockholders of Telegen in connection with the
execution, delivery or performance of this Agreement or the consummation of the
transactions contemplated herein shall have been obtained.
(c) Dissenters' Rights. Holders of Telegen Common or Telegen Preferred
representing no more than ten percent of Telegen's outstanding capital stock
shall have exercised, nor shall they continue to have the right to exercise
dissenters rights with respect to the transactions contemplated by this
Agreement.
(d) Compliance With Agreement. Telegen shall have performed and complied
with all agreements or conditions required by this Agreement to be performed and
complied with by them prior to or on the Closing Date.
(e) Certificate of Officers. Telegen shall have delivered to the Acquiror a
certificate, dated the Closing Date, executed in its corporate name by, and
verified by, the oath of its President or any Vice President and its Secretary
or an Assistant Secretary, certifying to the fulfillment of the conditions
specified in this Section 5.3 and certifying specifically as to the accuracy of
the Company's representations set forth in Sections 3.1(f)(i) and 3.1(i) and
that no contract of Telegen has been terminated if such termination would have a
Material Adverse Effect on Telegen.
(f) Opinion of Telegen's Counsel. Telegen shall have delivered to the
Acquiror an opinion of Wilson, Sonsini, Goodrich & Rosati, Professional
Corporation, dated the Closing Date, in the form attached hereto as Schedule
5.3(f).
(g) Employment Agreements. Jessica Stevens, Warren Dillard, and Bonnie
Crystal shall all be living on the Closing Date, shall not be incapacitated so
as to render them unavailable for employment by the Acquiror and shall execute
or assign to the Acquiror on the Closing Date, Employment Agreements in the form
mutually acceptable to the Acquiror, Stevens, Dillard, and Crystal as set forth
on Schedule 5.3(g).
ARTICLE 6
POST-CLOSING COVENANTS
Section 6.1 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Shareholders of Telegen the benefits of Rule 144 and 145
promulgated under the Act and any other rule or regulation of the SEC that may
at any time permit a Shareholder to sell securities of the Acquiror to the
public without registration, the Acquiror agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other documents
required of the Acquiror under the 1933 Act and the 1934 Act; and
(c) furnish to any Stockholder, so long as the Stockholder owns any Common
Stock, forthwith upon request (i) a written statement by the Acquiror that it
has complied with the reporting requirements of Rule 144, the Act and the 1934
Act, (ii) a copy of the most recent annual report of the Acquiror and such other
reports and documents so filed by the Acquiror, and (iii) such other information
as may be reasonably requested in availing any Stockholder of any rule or
regulation of the SEC which permits the selling of any such securities without
registration or pursuant to such form.
Section 6.2 Price Protection Provisions. During negotiations of this
Agreement, certain representations were made by Telegen to the Acquiror,
relating to its projected net earnings on a fully diluted post-Merger basis of
the combined companies, upon which Acquiror relied in determining the number of
shares to be issued to Telegen's shareholders. Based on these representations,
the parties hereto have agreed that additional shares will be issued to those
persons who are shareholders of Acquiror immediately prior to the Effective Time
if the closing bid price of Acquiror post-Merger (as adjusted for stock splits
and similar events), as reported in the Pink Sheets, the Bulletin Board
maintained by Nasdaq, or on the Nasdaq Stock Market or on a national stock
exchange, does not equal or exceed $2.00 per share on any ninety (90) trading
days over the period occurring between the Closing Date and December 31, 1997
(the "Price Protection Period"). If the closing bid price does not exceed $2.00
for any ninety (90) trading days over the Price Protection Period, then
additional shares will be issued under this Section 6.2 based on the average
closing bid price for those ninety (90) trading days during the Price Protection
Period with the highest average closing bid price (the "Bid Price Factor").
These additional shares will be issued from the Acquiror's authorized but
unissued Common Stock, and distributed to the shareholders set forth on Schedule
6.2 on a pro rata basis based on the number of shares owned by such shareholder
immediately prior to the Effective Time. The number of additional shares to be
distributed to the shareholders, if any, in accordance with Schedule 6.2, shall
be based on a formula whereby:
N = the number of shares to be issued
and
N = (1,308,758 x (2 divided by Bid Price Factor)) - 1,308,758
The Acquiror agrees to make a determination, pursuant to this provision,
within ten (10) days subsequent to December 31, 1997, and to issue the necessary
certificates on a pro rata basis, pursuant to Schedule 6.2, and to, at all times
pertinent hereto, maintain a reserve of authorized but unissued shares of not
less than 2,000,000 shares to fulfill this obligation (as adjusted for stock
splits and similar events). This provision shall automatically expire on the day
after the date the closing bid price has exceeded $2.00 per share for any ninety
(90) trading days during the Price Protection Period.
Section 6.3 Nasdaq Qualification. It is the understanding of the parties
hereto that, as soon as practicable subsequent to the Closing Date, the parties
will undertake such actions as will allow the Acquiror to qualify for a Nasdaq
listing.
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER:
Section 7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of matters
presented in connection with the Merger by the shareholders of Telegen:
(a) by mutual consent of Telegen and the Acquiror;
(b) by either Telegen or the Acquiror if there has been a material breach
of any representation, warranty, covenant or agreement contained in this
Agreement on the part of the other party set forth in this Agreement and such
breach of a covenant or agreement has not been promptly cured;
(c) by either the Acquiror or Telegen if the Merger shall not have been
consummated before March 31, 1996;
(d) by either the Acquiror or Telegen if (i) there shall be a final
nonappealable order of a federal or state court in effect preventing
consummation of the Merger or (ii) there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any Governmental Entity which would make
consummation of the Merger illegal;
(e) by either the Acquiror or Telegen if there shall be any action taken,
or any statute, rule, regulation or order enacted, promulgated or issued or
deemed applicable to the Merger by any Governmental Entity, which would (i)
prohibit Telegen's or the Acquiror's ownership or operation of all or a material
portion of the business or assets of Telegen or the Acquiror , or compel the
Acquiror or Telegen to dispose of or hold separate all or a material portion of
the business or assets of Telegen or the Acquiror as a result of the Merger or
(ii) render the Acquiror or Telegen unable to consummate the Merger, except for
any waiting period provisions; or
(e) by either party if any required approval of the shareholders of Telegen
shall not have been obtained.
Where action is taken to terminate this Agreement pursuant to this Section
7.1, it shall be sufficient for such action to be authorized by the Board of
Directors of the party taking such action.
Section 7.2 Effect of Termination. In the event of termination of this
Agreement by either the Acquiror or Telegen as provided in Section 7.1, this
Agreement shall forthwith become void, and there shall be no liability or
obligation on the part of the Acquiror, Merger Sub, or Telegen, or their
respective officers or directors except as set forth in Sections 4.4(a) and 8.7
and except to the extent that such termination results from the willful breach
by a party hereto of any of its representations, warranties, covenants, or
agreements set forth in this Agreement.
Section 7.3 Amendment. This Agreement may be amended by the parties hereto
at any time before or after approval of matters presented in connection with the
Merger by the shareholders of Telegen and Merger Sub but, after any such
shareholder approval, no amendment shall be made which by law requires the
further approval of shareholders without obtaining such further approval. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
Section 7.4 Extension; Waiver. At any time prior to the Effective Time, any
party hereto, by action taken by its Board of Directors, may, to the extent
legally allowed, (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto, and (iii) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid if set forth in an instrument in writing signed on behalf
of such party.
ARTICLE 8
MISCELLANEOUS
Section 8.1 Assignment. Neither this Agreement nor any right created hereby
shall be assignable by Telegen (or their successors in interest) or the Acquiror
without the prior written consent of the others. Nothing in this Agreement,
express or implied, is intended to confer upon any person, other than the
parties hereto and their respective successors, assigns, heirs, executors,
administrators, or personal representations, any rights or remedies under or by
reason of this Agreement.
Section 8.2 Notices. Any notice, communication, request, reply, or advice,
hereinafter severally and collectively called "notice," in this Agreement
provided or permitted to be given, made, or accepted by either party to the
other must be in writing and may be given or be served by depositing the same in
the United States mail, addressed to the party to be notified, postage prepaid
and registered or certified with return receipt requested, or by delivering the
same in person to an officer of such party. Notice deposited in the mail in the
manner hereinabove described shall be effective only if and when received by the
parties to be notified. For purposes of notice the addresses of the parties
shall, until changed as hereinafter provided, be as follows:
(a) If to Acquiror:
James Wiegand, President
Solar Energy Research Corp.
10075 East County Line Road
Longmont, Colorado 80501
with a copy to:
Roger V. Davidson, Esq.
Cohen Brame & Smith, P.C.
1700 Lincoln Street, Suite 1800
Denver, Colorado 80203
(b) If to Telegen:
Warren M. Dillard
Chief Operating and Financial Officer
Telegen Corporation
353 Vintage Park Drive
Foster City, California 94404
with a copy to:
Thomas C. DeFilipps, Esq.
Wilson, Sonsini, Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
or at such other addresses as any party may have advised the others in
writing.
Section 8.3 Paragraph and Other Headings. Paragraph and other headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
Section 8.4 Severability. In the event that any one or more 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 other provisions of this Agreement, but
this Agreement shall be constructed as if such invalid, illegal, or
unenforceable provisions had never been contained therein.
Section 8.5 California Law to Apply. This Agreement shall be construed
under and in accordance with the laws of the State of California as applied to
agreements between California residents entered into and to be performed
entirely within California.
Section 8.6 Parties in Interest. This Agreement shall be binding on and
inure to the benefit of and be enforceable by the stockholders and the Acquiror,
their respective heirs, executors, administrators, legal representatives,
successors, and assigns except as otherwise expressly provided herein.
Section 8.7 Cancellation by Telegen. Should this Agreement be cancelled by
Telegen prior to Closing, for any reason other than a failure of Acquiror to
cure a breach of its representations and warranties contained in Section 3.2 or
to timely close, then Telegen shall promptly reimburse to Acquiror all expenses
incurred by Acquiror on its behalf, and advanced to Telegen, to assist Telegen
in the completion of this Agreement, including its legal and accounting fees, in
order to compensate Acquiror for its efforts and expenses prior to cancelling or
terminating this transaction. Any dispute relative to a breach by Acquiror, or
in the amount of the reimbursement (which shall not exceed $100,000), shall be
submitted to binding arbitration by the American Arbitration Association in
Denver, Colorado, in accordance with the rules then pertaining. Any decision by
the arbitration panel may include the expenses and attorneys' fees of the
successful party, and such decision shall be final and may be made a judgment of
any court of competent jurisdiction. Should arbitration proceedings be commenced
and Telegen desire to complete an alternate transaction pending the arbitration
award, Telegen may do so on the condition that it shall deposit into escrow, in
accordance with escrow terms approved by the parties hereto and the arbitration
panel, all of the outstanding claimed expenses of the Acquiror, not to exceed
$100,000, plus $15,000 to cover the possibility of an award of attorneys' fees
and the arbitration expenses. The escrow provision shall provide that the escrow
shall break and the funds shall be delivered by the escrow agent to the party in
accordance with the award of the arbitration panel, or upon a settlement of the
dispute by the parties hereto.
Section 8.8 Attorneys' Fees. If any action at law or in equity, including
an action for declaratory relief, is brought to enforce or interpret the
provisions of this Agreement, the prevailing party shall be entitled to recover
reasonable attorney's fees from the other party, which fees may be set by the
court in the trial of such on or may be enforced in a separate action brought
for that purpose, and which fees shall be in addition to any other relief which
may be awarded.
Section 8.9 Counterparts. This Agreement and all other copies of this
Agreement insofar as they relate to the rights, duties, and remedies of parties,
shall be deemed to be one agreement. This Agreement may be executed concurrently
in one or more counterparts, each which shall be deemed an original, but all
which together shall constitute one and the same instrument. Facsimile
signatures shall be treated as original until replaced by the original copy
which shall then be substituted.
Section 8.10 Integrated Agreement. This Agreement constitutes the entire
agreement between the parties hereto, and there are no agreements,
understandings, restrictions, warranties, or representations between the parties
other than those set forth herein or herein provided for.
IN WITNESS WHEREOF, this Agreement and Plan of Reorganization has been
executed the day and year set forth above.
ACQUIROR:
SOLAR ENERGY RESEARCH CORP.
By:
James B. Wiegand, President
TELEGEN:
TELEGEN CORPORATION
By:
Jessica L. Stevens, President
MERGER SUB:
TELEGEN ACQUISITION CORPORATION
By:
James B. Wiegand, President
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
<PAGE>
FIRST AMENDMENT
DATED AS OF JANUARY 18, 1996
TO THE
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
SOLAR ENERGY RESEARCH CORP.,
TELEGEN CORPORATION AND
TELEGEN ACQUISITION CORPORATION
WHEREAS, the parties hereto desire to amend certain provisions of that
certain Agreement and Plan of Reorganization by and among Solar Energy Research
Corp. ("Acquiror"), Telegen Corporation ("Telegen") and Telegen Acquisition
Corporation ("Merger Sub") dated November 16, 1995 ("Reorganization Agreement")
in order to provide for, among other things, (i) the addition of the conditions
that the Shareholders of the Acquiror shall have approved a 7.25 reverse stock
split of its capital stock and a name change to Telegen Corporation effective
upon the closing as conditions precedent to the obligation of Telegen to effect
the closing; (ii) the increase from $100,000 to $130,000 in the amount Telegen
shall reimburse to Acquiror should Telegen cancel the Reorganization Agreement
for any reason other than a failure of Acquiror to cure a breach of its
representations and warranties or to promptly close; (iii) the extension of the
date beyond which either Acquiror or Telegen may terminate the Reorganization
Agreement from March 31, 1996 to April 30, 1996; (iv) the addition to the
Telegen Schedule of information relating to a private placement of Telegen
Common Stock pursuant to a letter of engagement with Capitol Bay Securities,
Inc. to offer up to 1,200,000 shares of the Common Stock of Telegen at an
offering price of $5.00 per share; and (v) the completed addition to the
Acquiror's year end Shareholder List relating to issuance of an aggregate of
125,000 shares of Acquiror Common Stock and agreements to issue up to 17,500
shares of Acquiror Common Stock to James Wiegand and up to 7,500 shares of
Acquiror Common Stock to Norrlanska Kross, Inc. at the end of each quarter, in
lieu of any unpaid salary and fees for services, respectively.
AGREEMENT
NOW, THEREFOR, pursuant to Section 7.3 of the Reorganization Agreement, the
undersigned being the parties to the Reorganization Agreement, hereby agree to
the following amendments (together "Amendment") to the Reorganization Agreement:
1 . Section 5.2 is hereby amended by adding the following entry immediately
following 5.2(i):
" (j) Reverse Split of Acquiror Common Stock. The shareholders of the
Acquiror shall have approved a 7.25 to 1 reverse stock split of all outstanding
Acquiror Common Stock to be effective upon the Closing.
(k) Change of Name of Acquiror. The shareholders of the Acquiror shall have
approved a name change to "Telegen Corporation" to be effective upon the
Closing."
2. Section 7.1(c) is hereby amended in its entirety and is amended by
substituting therefore the following:
" (c) by either the Acquiror or Telegen if the Merger shall have not been
consummated before April 30, 1996 (except that the deadline shall be further
extended automatically because of delays caused as a result of governmental
shutdowns or other acts of God or government beyond the control of the parties
hereto or their counsel)."
3 . Section 8.7 is hereby amended in its entirety and is amended by
substituting therefore the following:
" Section 8.7 Cancellation by Telegen. Should this Agreement be canceled by
Telegen prior to Closing, for any reason other than a failure of Acquiror to
cure a breach of its representations and warranties contained in Section 3.2 or
to timely close, or should the shareholders executing Voting Agreements in the
form attached hereto as Exhibit A fail to vote their shares in favor of the
Agreement which failure should cause the Agreement not to be approved, then
Telegen shall promptly reimburse to Acquiror all expenses incurred by Acquiror
on its behalf, and advanced to Telegen, to assist Telegen in the completion of
this Agreement, including its legal and accounting fees, in order to compensate
Acquiror for its efforts and expenses prior to canceling or terminating this
transaction. Any dispute relative to a breach by Acquiror, or in the amount of
the reimbursement (which shall not exceed $130,000), shall be submitted to
binding arbitration by the American Arbitration Association in Denver, Colorado,
in accordance with the rules then pertaining. Any decision by the arbitration
panel may include the expenses and attorneys' fees of the successful party, and
such decision shall be final and may be made a judgment of any court of
competent jurisdiction. Should arbitration proceedings be commenced and Telegen
desire to complete an alternate transaction pending the arbitration award,
Telegen may do so on the condition that it shall deposit into escrow, in
accordance with escrow terms approved by the parties hereto and the arbitration
panel, all of the outstanding claimed expenses of the Acquiror, not to exceed
$130,000, plus $15,000 to cover the possibility of an award of attorneys' fees
and the arbitration expenses. The escrow provision shall provide that the escrow
shall break and the funds shall be delivered by the escrow agent to the party in
accordance with the award of the arbitration panel, or upon a settlement of the
dispute by the parties hereto."
4 . Section 5.1(a) is hereby amended in its entirety and is amended by
substituting therefore the following:
" (a) Shareholder Approval. This Agreement and the Merger and the other
transactions contemplated hereby shall have been approved and adopted by the
vote or consent of the requisite number of shareholders of Telegen. Shareholders
of Telegen holding not less than 66-_% of the outstanding voting stock of
Telegen shall have delivered to Acquiror an agreement in the form attached to
this Agreement as Exhibit A ("Voting Agreement") pursuant to which such
shareholders agree to vote all shares of Telegen Common or Telegen Preferred
held by such shareholders in favor of the Merger, this Agreement, the Merger
Agreement, and the transactions contemplated hereby and thereby. In addition,
approval of the shareholders of Acquiror, if and to the extent required under
the laws of the State of Colorado, shall also have been obtained."
5 . Section 5.2(i) is hereby amended in its entirety and is amended by
substituting therefore the following:
" (i) Indemnity and Share Escrow. James B. Wiegand shall have executed an
indemnity agreement in the form attached to this Agreement as Exhibit B
("Indemnification Agreement") in regard to breaches of representations and
warranties or covenants hereunder by Acquiror. Telegen's sole and exclusive
recourse under such Indemnity Agreement shall be to an escrow established for
such purpose into which Mr. Wiegand shall have contributed 70,000 shares of
Acquiror Common Stock, which number of shares is subject to adjustment from
stock splits or other adjustments. Mr. Wiegand and Telegen shall execute such
Indemnity Agreement and an escrow agreement in the form attached to this
Agreement as Exhibit C ("Escrow Agreement") and shall have contributed such
shares, as adjusted, prior to the Closing Date."
6 . Schedule 3.1(f) is hereby amended in its entirety and is amended by
substituting therefore the following:
"Schedule 3.1(f)
Bridge Loan and Consulting Agreement
On October 23, 1995, Telegen entered into a "Bridge Loan and Consulting
Agreement" with Pacific Acquisition Group, Inc. ("PAG") under which PAG will
assist Telegen in obtaining up to $575,000 of new capital in the form of
one-year notes bearing interest at 15% per annum. Telegen will additionally
grant the purchasers of the notes Common Stock of Telegen in an amount equal to
1% of the outstanding stock of Telegen if all the notes are subscribed, such
additional consideration to total 28,045 shares if the loan program is fully
subscribed. Further, Telegen will pay to brokers placing the notes commissions
of 15% of the gross amount raised and will pay to PAG Common Stock of Telegen
equal to 1.9% of the outstanding stock of Telegen for its services in the
placement of these notes, such additional consideration to total 53,775 shares
if the loan program is fully subscribed.
Private Placement of Telegen Common Stock
Upon completion of the bridge loan offering, PAG will directly or through
an affiliate arrange for a private placement of the Common Stock of Telegen
adequate to net Telegen $5 million, and for such services be compensated by a
grant of Common Stock of Telegen equal to 2% of the then outstanding stock
(estimated to be approximately 100,000 shares), the details of which are more
particularly outlined in the Bridge Loan and Consulting Agreement.
On December 28, 1995, Telegen entered into a letter of engagement with
Capitol Bay Securities, Inc. ("Capitol"), an affiliate of PAG for the purposes
above, to offer up to 1,200,000 shares of the Common Stock of Telegen at an
offering price of $5.00 per share, and that Capitol be compensated with a cash
commission of 15% of the funds raised, less all expenses of the offering, plus
warrants to purchase a number of shares equal to 10% of those shares actually
sold (up to a maximum of 120,000 shares of the Common Stock of Telegen), such
warrants exercisable at $3.50 per share. Further, Telegen will issue 136,000
shares of its Common Stock as compensation to Capitol and other finders."
Common Stock or Option Grants
Telegen may grant up to 20,000 shares of Common Stock or options to
purchase Common Stock to certain employees or consultants as compensation for
services rendered prior to December 31, 1995.
7. Schedule 3.2(c) is hereby amended by adding the following entry:
"In addition to the shareholders listed in the Shareholders List, which was
Schedule 3.2(c), since November 16, 1995, the following shares of SERC have been
issued:
To J.B. Wiegand (salary) - 17,500
To Norrlanska Kross, Inc. (services) - 7,500
100,000 shares to private placement
participants, as follows:
Larry Johnson - 20,000
Lo Family Limited Partnership - 40,000
Yu-Chinh Chen - 40,000
SERC has agreements to issue up to 17,500 shares to Mr. Wiegand and up to
7,500 shares to Norrlanska Kross, Inc. at the end of each quarter, in lieu of
any unpaid salary and fees for services, respectively."
8. Price Protection Provisions. Section 6.2 shall be amended to update the
formula to account for the issuance of additional shares of the Acquiror as
follows:
N = 1,363,850 x 2
------- - 1,363,850
Bid
Price
Factor
Additionally, upon putting into effect the proposed reverse split of
Acquiror's Common Stock, the parties acknowledge that the number of shares and
the price protection are subject to automatic adjustment.
[Remainder of page intentionally blank]
IN WITNESS WHEREOF, the undersigned have executed this Amendment to the
Reorganization Agreement as of the date first written above.
ACQUIROR:
SOLAR ENERGY RESEARCH CORP.
By:
James B. Wiegand, President
TELEGEN:
TELEGEN CORPORATION
By:
Jessica L. Stevens, President
MERGER SUB:
TELEGEN ACQUISITION CORPORATION
By:
James B. Wiegand, President
<PAGE>
SIGNATURE PAGE TO AMENDMENT TO AGREEMENT
AND PLAN OF REORGANIZATION
SECOND AMENDMENT DATED AS OF APRIL 9, 1996
TO THE AGREEMENT AND
PLAN OF REORGANIZATION BY AND AMONG
SOLAR ENERGY RESEARCH CORP.
TELEGEN CORPORATION AND
TELEGEN ACQUISITION CORPORATION
WHEREAS, the parties hereto desire to amend certain provisions of that
certain Agreement and Plan of Reorganization by and among Solar Energy Research
Corp. ("Acquiror"), Telegen Corporation ("Telegen") and Telegen Acquisition
Corporation ("Merger Sub") dated November 16, 1995 ("Reorganization Agreement")
in order to provide among other things:
(i) the addition of the conditions that a registration statement on Form
S-4 must be filed by Acquiror, be declared effective by the Commission and
shareholder approval of Acquiror shall be obtained prior to closing as
conditions precedent to the obligation of Telegen to effect the closing;
(ii) providing for the reincorporation of Acquiror as a California
corporation at or prior to the Effective Time of the Merge and substituting the
newly formed California corporation as the corporation subject to the reporting
requirements of the '34 Act;
(iii) the increase from $130,000 to $200,000 in the amount Telegen shall
reimburse to Acquiror should Telegen cancel the Reorganization Agreement for any
reason other than failure of Acquiror to cure a breach of its representations
and warranties or to promptly close and permitting additional fund raising
activity on behalf of both Acquiror and Telegen;
(iv) the extension of the date beyond which either Telegen or Acquiror may
terminate the Reorganization Agreement from April 30, 1996 to August 31, 1996;
and
(v) the addition to the Telegen financial statements of the audit for the
year ended December 31, 1995.
NOW THEREFORE, pursuant to Section 7.3 of the Reorganization Agreement, the
undersigned being the parties to the Reorganization Agreement, hereby agree to
the following amendments (together "Second Amendment") to the Reorganization
Agreement as amended:
1. Section 1.7 - Dissenting Shareholders shall be deleted in its entirety.
Additionally, any provision elsewhere in the Agreement relating to dissenting
shareholders shall be treated as having been deleted.
2. Section 2.1 - The Closing and Closing Date shall be amended by deleting
the first paragraph and replacing it as follows:
The closing ("Closing") shall be held at the offices of Cohen Brame & Smith
Professional Corporation on Friday, July 12, 1996 or such other date as the
parties shall agree after (i) the Securities and Exchange Commission (the
"Commission") has declared the Acquiror's registration statement on Form S-4
effective, (ii) all Blue Sky filings including registration and/or exemption in
those states where Telegen shareholders reside have been declared effective or
otherwise are in effect, (iii) the Acquiror having received approval of all
matters submitted to a shareholder vote pursuant to the Registration/Information
Statement on Form S-4 and (iv) the Acquiror having accomplished a
reincorporation pursuant to the laws of the state of California (the "Closing
Date").
3. Section 3.1(e) - Financial Statements shall be amended by deleting the
first paragraph and replacing it as follows:
Telegen has furnished the Acquiror with audited financial statements of
Telegen as of December 31, 1994 and 1995. All such financial statements present
fairly the financial condition of Telegen at such date, and the results of its
operations for the period therein specified and the audited financial statements
were prepared in accordance with generally accepted accounting principles
applied upon a basis consistent with prior accounting periods. Telegen's audited
balance sheet at December 31, 1995 is hereinafter referred to as "Telegen
Balance Sheet," and all such financial statements are hereinafter referred to as
the "Telegen Financial Statements."
4. Section 4.3 shall be amended by deleting it in its entirety and
replacing it with the following:
Registration of Acquiror's Shares. The Acquiror Common and the Acquiror
Preferred to be issued pursuant to this Agreement will be registered pursuant to
the 33 Act as part of a Registration Information Statement on Form S-4. Promptly
following the execution of this Second Amendment, the Acquiror shall draft the
Registration/Information Statement and deliver such draft to Telegen for its
review. Once Acquiror has obtained the agreement of Telegen to file the
Registration/Information Statement, it shall promptly take what action is deemed
necessary to accomplish same and use its best efforts to have said
Registration/Information Statement declared effective at the earliest
practicable date. Telegen agrees to use its best efforts to provide Acquiror
with all information necessary to accomplish Acquiror's obligation pursuant to
this section 4.3 including the delivery of the Telegen Financial Statements and
necessary reports and consents of its auditors. Acquiror agrees to deliver to
Telegen copies of each filing of the Registration/Information Statements,
including all correspondence it receives from the Commission and Telegen agrees
to cooperate fully with Acquiror's efforts to respond to any comments received
from the Commission in order to allow it to refile the Registration/Information
Statement expeditiously.
5. Article 5 - Conditions Precedent shall be amended generally to delete
reference to any requirements for shareholder approval of the transaction on
behalf of Telegen, the requirement for the receipt of a permit from the
California Department of Corporations and any reference to dissenter's rights on
behalf of the shareholders of Telegen.
6. Schedule 3.1(f) shall be allowed to be further amended to provide for
the issuance of an additional 400,000 shares of common stock and additional
shares as may be necessary compensation to the Placement Agent to raise an
additional $3,000,000 in a private placement. Additionally, authority is hereby
given to Telegen to complete the sale of up to 10% of its subsidiary, Telegen
Display Laboratories, Inc., for $5,000,000 at or prior to the Closing Date.
7. Section 6.2 shall be amended as necessary to reflect additional shares
being issued and outstanding as a result of funds being raised by Acquiror to
pay the additional expenses of the parties to the Agreement, as amended, up to a
total of 400,000 common shares ($200,000). The parties agree that the Acquiror
shall be permitted to amend Schedule 3.2(c) at or immediately prior to Closing
to reflect the final capitalization of Acquiror.
8. Section 7.1(c) shall be amended to read as follows:
"by either the Acquiror or Telegen if the Merger shall not have been
consummated before August 31, 1996."
9. Section 8.7 - Cancellation by Telegen shall be amended as necessary to
provide that "$200,000" shall be substituted wherever the amended agreement sets
forth "$130,000."
IN WITNESS WHEREOF, the undersigned have executed this Second Amendment to
the Reorganization Agreement as of the date first written above.
ACQUIROR:
SOLAR ENERGY RESEARCH
By:______________________________
James B. Wiegand, President
TELEGEN:
TELEGEN CORPORATION CORP.
By:______________________________
Jessica L. Stephens, President
MERGER SUB:
TELEGEN ACQUISITION CORPORATION
CORPORATION
By:_____________________________________
James B. Wiegand, President
SIGNATURE PAGE TO AMENDMENT TO AGREEMENT
AND PLAN OF REORGANIZATION
<PAGE>
THIRD AMENDMENT DATED AS OF JULY 10, 1996
TO THE AGREEMENT AND
PLAN OF REORGANIZATION BY AND AMONG
SOLAR ENERGY RESEARCH CORP.,
TELEGEN CORPORATION AND
TELEGEN ACQUISITION CORPORATION
WHEREAS, the parties hereto desire to further amend certain provisions of
the Agreement and Plan of Reorganization by and among Solar Energy Research
Corp., a Colorado corporation (the "Acquiror"), Telegen Corporation, a
California corporation ("Telegen") and Telegen Acquisition Corporation, a
California corporation and wholly owned subsidiary of Acquiror ("Merger Sub"),
dated November 16, 1995, as amended on January 18, 1996 and April 9, 1996 (the
"Reorganization Agreement") in order to, among other things, provide for:
(i) the addition of Telegen's unaudited financial statements as of March
31, 1996 with respect to the representations and warranties made by Telegen;
(ii) the deletion of the condition precedent to the obligations of Telegen
that Telegen shall have received from its legal counsel, Wilson, Sonsini,
Goodrich & Rosati, Professional Corporation, an opinion to the effect that the
acquisition of Telegen by the Acquiror pursuant to the Reorganization Agreement
will be treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code;
(iii) the change in the Acquiror Capitalization representations and the
Price Protection Provisions to reflect additional common stock issued by the
Acquiror;
(iv) the extension of the date beyond which either Telegen or the Acquiror
may terminate the Reorganization Agreement from August 31, 1996 to September 30,
1996; and
(v) the decrease in the amount that Telegen shall reimburse to the Acquiror
should Telegen cancel the Reorganization Agreement for any reason other than the
failure of the Acquiror to cure a breach of the Acquiror's representations and
warranties or to promptly close from a maximum of $200,000 to a final amount of
$171,873.50.
NOW THEREFORE, pursuant to Section 7.3 of the Reorganization Agreement, the
undersigned, being the parties to the Reorganization Agreement, hereby agree to
the following amendments (together the "Third Amendment") to the Reorganization
Agreement:
1. Section 3.1(b)(iii) shall be amended to reflect the outstanding options
to purchase 672,730 shares of Telegen Common at a weighted average exercise
price of $4.99 per share issued to then current employees of Telegen and the
outstanding warrants to purchase 50,500 shares of Telegen Common for $.01 per
share issued to Jessica L. Stevens.
2. Section 3.1(e) - Financial Statements shall be amended by deleting the
first paragraph in its entirety and substituting therefore the following:
(e) Financial Statements. Telegen has furnished the Acquiror with audited
financial statements of Telegen as of December 31, 1994 and 1995 and unaudited
financial statements of Telegen as of March 31, 1996. All such financial
statements (i) present fairly the financial condition of Telegen at their
respective dates, and the results of Telegen's operations and cash flows for the
periods therein specified and (ii) were prepared in accordance with generally
accepted accounting principles applied upon a basis consistent with prior
accounting periods. Telegen's unaudited balance sheet as of March 31, 1996 is
hereinafter referred to as the "Telegen Balance Sheet," and all of the above
financial statements are hereinafter referred to as the "Telegen Financial
Statements."
The second paragraph of Section 3.1(e) shall remain unchanged by this
amendment.
3. Section 3.2(a) - Organization and Standing of Acquiror shall be amended
by deleting the last sentence in its entirety and substituting therefore the
following:
The Acquiror, which has one wholly owned subsidiary, Merger Sub, and
which intends to form another wholly owned subsidiary to effect the
proposed redomiciliation of the Acquiror as a California corporation, has
no direct or indirect interest, either by way of stock ownership or
otherwise, in any other firm corporation, association, or business other
than as disclosed in Schedule 3.2(a).
The remainder of Section 3.2(a) shall remain unchanged by this amendment.
4. Section 3.2(b)(i) - Capitalization and Indebtedness for Borrowed Moneys
and Section 6.2 - Price Protection Provisions shall be amended as necessary to
reflect the issuance by the Acquiror of additional common shares to raise funds
for the expenses of the parties in connection with the Reorganization Agreement
and the resulting final amount of issued and outstanding capital stock of the
Acquiror immediately prior to the Closing of 1,437,596 common shares.
Accordingly, the price protection formula set forth in Section 6.2, which shall
remain subject to automatic adjustment upon the consummation of the proposed one
share-for-seven and one-fourth shares (1 for 7.25) reverse split of all of the
Acquiror's issued and outstanding common stock as described in the Information
Statement-Prospectus contained in the Acquiror's Registration Statement on Form
S-4, shall be amended to provide as follows:
N = (1,437,596 x (2 divided by Bid Price Factor)) - 1,437,596
The parties agree that the Acquiror shall be permitted to amend Schedule
3.2(c) at or immediately prior to the Closing to reflect the final
capitalization of the Acquiror immediately prior to the Closing.
5. Section 3.2(b)(iii) shall be amended to delete the reference to an
ongoing private placement of 200,000 shares of the Acquiror's Common Stock and
the Warrants.
6. Section 5.2(h) - Tax Opinion shall be deleted in its entirety.
Additionally, any provision elsewhere in the Reorganization Agreement which
refers to a tax opinion shall be treated as having been deleted.
7. Section 7.1(c) shall be amended in its entirety by substituting
therefore the following:
(c) by either the Acquiror or Telegen if the Merger shall not have
been consummated before September 30, 1996;
8. Section 8.7 - Cancellation by Telegen shall be amended as necessary to
provide that "$171,873.50" shall be substituted wherever the Reorganization
Agreement sets forth "$200,000." Further, a second paragraph shall be added to
Section 8.7 as follows:
In consideration for the agreement by the Acquiror to reject at
Telegen's request subscriptions to purchase additional shares of common
stock to be issued by the Acquiror for $28,127 and to terminate effective
June 30, 1996 the efforts by the Acquiror to raise funds to pay the
expenses to complete the Agreement through the private placement of its
common stock believed by Telegen to be dilutive, Telegen agrees to pay, and
advance where necessary, all reasonable and necessary expenses and
professional fees incurred subsequent to May 31, 1996 by the parties to the
Agreement in connection with the completion of the Agreement and the
transactions contemplated thereby. Additionally, Telegen shall advance to
the Acquiror by July 15, 1996 the sum of $28,127, which is to be used by
the Acquiror solely to pay for expenses of completing the Agreement,
including printing and mailing costs associated with obtaining approval of
the Agreement by the Acquiror's shareholders, as well as Blue Sky expenses
and filing costs. All expenses to be paid by Telegen in accordance with the
foregoing provisions must be paid in full at or before the Closing.
This Third Amendment to the Reorganization Agreement may be executed in two
or more counterparts by facsimile signature, each of which shall be deemed an
original and all of which together shall constitute but one and the same
document. Capitalized terms used but not defined in this Third Amendment to the
Reorganization Agreement shall have the meanings given them in the
Reorganization Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Third Amendment to
the Reorganization Agreement as of the date first written above.
ACQUIROR: TELEGEN:
SOLAR ENERGY RESEARCH TELEGEN CORPORATION
CORP.
By:______________________________ By:______________________________________
James B. Wiegand, President Jessica L. Stevens, President and Chief
Executive Officer
MERGER SUB:
TELEGEN ACQUISITION CORPORATION
By:_____________________________________
James B. Wiegand, President
<PAGE>
FOURTH AMENDMENT DATED AS OF AUGUST 13, 1996
TO THE AGREEMENT AND
PLAN OF REORGANIZATION BY AND AMONG
SOLAR ENERGY RESEARCH CORP.,
TELEGEN CORPORATION AND
TELEGEN ACQUISITION CORPORATION
WHEREAS, the parties hereto desire to further amend certain provisions of
the Agreement and Plan of Reorganization by and among Solar Energy Research
Corp., a Colorado corporation (the "Acquiror"), Telegen Corporation, a
California corporation ("Telegen"), and Telegen Acquisition Corporation, a
California corporation and wholly-owned subsidiary of Acquiror ("Merger Sub"),
dated November 16, 1995, as amended on January 18, 1996, April 9, 1996 and
July 10, 1996 (the "Reorganization Agreement") in order to provide, among other
things, the addition of restrictions on the transferability of the Common Stock
issued in connection with the Reorganization Agreement to the purchasers of
Telegen Common Stock pursuant to the Private Placement Memorandum dated
February 15, 1996.
NOW, THEREFORE, pursuant to Section 7.3 of the Reorganization Agreement,
the undersigned being the parties to the Reorganization Agreement, hereby agree
to the following amendment (the "Fourth Amendment") to the Reorganization
Agreement as amended:
1. The Recitals are hereby amended by adding the following entry immediately
following D:
E. Pursuant to comments made by the Securities and Exchange Commission in
connection with the Form S-4 Registration Statement filed pursuant to
the Reorganization Agreement, the parties intend that the transfer of
the stock issued in connection with the Reorganization Agreement to
the holders of Telegen Common Stock (the "Private Placement Shares")
purchased pursuant to the Private Placement Memorandum filed by
Telegen on February 15, 1996 (the "Private Placement Memorandum") be
restricted so that such transfer of those specific shares may only
occur as described herein.
2. Article 6 is hereby amended by adding the following immediately following
Section 6.3:
6.4 Restriction on Transferability of Shares Issued to Purchasers of
Telegen Common Stock pursuant to the Private Placement Memorandum.
Telegen agrees to restrict the transfer of any shares issued pursuant
to the Reorganization Agreement to the holders of Private Placement
Shares so that the subsequent transfer of such shares may only occur
pursuant to:
<PAGE>
(a) an effective Registration Statement filed pursuant to the Securities
Act of 1933 (the "Securities Act") registering the resale of such
shares; or
(b) the requirements set forth in Rule 144 under the Securities Act,
provided, however, that the holding period calculated for compliance
with Rule 144 shall be deemed to begin on the date of the original
purchase of the Private Placement Shares.
To enforce compliance with these restrictions, Telegen agrees to:
(a) instruct the Acquiror's transfer agent not to transfer any shares
issued pursuant to the Reorganization agreement to the holders of
Private Placement Shares unless Telegen certifies to the Acquiror's
transfer agent that the transfer will be made pursuant to this
Section; and
(b) maintain a legend condition on each certificate representing shares
issued pursuant to the Reorganization Agreement to the holders of
Private Placement Shares restricting transfer of such shares as
required by this Section; and
(c) solicit and require receipt of an acknowledgement from each purchaser
of Private Placement Shares acknowledging and agreeing to the
restrictions contained in this Section.
IN WITNESS WHEREOF, the undersigned have executed this Amendment to the
Reorganization Agreement as of the date first written above.
ACQUIROR:
SOLAR ENERGY RESEARCH CORP.
By:
James B. Wiegand, President
TELEGEN:
TELEGEN CORPORATION
By:
Jessica L. Stevens, President
MERGER SUB:
TELEGEN ACQUISITION CORPORATION
By: __
James B. Wiegand, President
<PAGE>
ARTICLES OF INCORPORATION
of
SOLAR ENERGY RESEARCH CORP.
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned incorporator, being a natural person of the age of
eighteen (18) years or more, and desiring to form a corporation under the laws
of the State of Colorado, does hereby sign, verify, and deliver in duplicate to
the Secretary of State of the State of Colorado these ARTICLES OF INCORPORATION.
FIRST: The name of the corporation is SOLAR ENERGY RESEARCH CORP.
SECOND: The period of its duration is perpetual.
THIRD: The purposes and objects for which the corporation is formed and
organized are as follows:
A. To engage in any business relating directly or indirectly to the discovery,
development or application of all forms of energy; to build, manufacture,
fabricate, design and develop equipment and devices for the development of
all forms of energy, including, but not limited to, solar energy and the
application and use of such energy.
B. To engage in the research, development, manufacturing and marketing of
heating and cooling systems utilizing solar energy and any and all other
products and devices of every type, nature and description utilizing solar
energy.
C. To establish, maintain and operate chemical, physical, thermal and solar
energy laboratories; to carry on research of any kind and character and to
produce, manufacture, make and use and sell or otherwise dispose of the
articles, systems, devices, matters and substances invented thereby, to own
the inventions developed thereby, to protect the same by letters of patent
or by holding them as secret processes and to grant licenses and franchises
and to make other lawful agreement or arrangements for the employment or
use of such inventions by such other persons.
D. To carry on and conduct a general engineering and construction business,
included, but not limited to, the erection, construction, rebuilding,
enlargement, alteration, improvement, maintenance, management and
operations of any and all kind of buildings, houses, stores, greenhouses,
offices, shops, warehouses, factories, mills, machinery, plants, and any
and all other structures which may in the judgement of the Board of
Directors, at any time be necessary, useful, or advantageous, for the
purposes of the corporation, and which can lawfully be done under the laws
of the State of Colorado.
E. To manufacture, buy, sell, and generally deal in any article, product, or
commodity produced as the result of or through the use of any inventions,
devices, processes, discoveries, formulae, improvements and/or
modifications of any thereof, or any articles, products, commodities,
supplies and materials used or suitable to be used in connection therewith
or in any manner applicable or incidental thereto; to grant licenses,
sublicenses, rights, interest, and/or privileges in respect of any of the
foregoing; to supervise or otherwise exercise such control over its
licenses or franchisees or grantees and the business conducted by them, as
may be agreed upon in its contracts or agreements with such licensees or
franchisees or grantees, for the protection of its rights and interest
therein; and to secure to it the payment of agreed royalties or other
considerations.
F. To enter into agreements with dealers, merchants, suppliers and others for
the distribution and sale of all and every type of manufactured goods or
merchandise, including, but not limited to, solar heating devices and
systems.
G. To carry on and conduct a general consulting business, including, but not
limited to, providing service, consulting, managerial assistance and
otherwise dealing with any and all kinds of solar heating projects, systems
and devices and any and all other programs which may in the judgement of
the Board of Directors at any time be necessary, useful, or advantageous
for the purposes of the Corporation, and which can lawfully be done under
the laws of the State of Colorado.
H. To acquire, construct, maintain, develop, improve, rent, use, mortgage and
dispose of real property and interest in estates and rights herein.
I. To subscribe for, purchase, acquire in any manner, take, own, hold, buy,
sell, invest in, assign, dispose of, transfer, pledge, hypothecate,
exchange, mortgage, loan or borrow money upon, realize upon, and generally
deal and trade in and with, as principal, factor, agent, or broker, and
upon commission or otherwise, all forms and kinds of securities, shares of
stock, bonds, debentures, trust certificates, acceptances, drafts,
warehouse receipts, notes, certificates of indebtedness, certificates of
interest, warrants of all kinds, evidences of indebtedness of every kind,
nature or character (now known or hereafter originated), commercial paper,
mortgages, trust deed in the nature of mortgages, chattel mortgages and
other similar instruments and rights, obligations, and investments of all
kinds, whether secured or unsecured, including bills and accounts
receivable, choses in action, leases, contracts of additional sale,
contracts for sale on the installment plan, and any and all kinds of
negotiable or non-negotiable paper (secured as well as unsecured),
evidencing or connected with the purchase, sale, or exchange of any and all
kinds of personal properties; to acquire or become interested in any such
securities, property, or rights by original subscription, underwriting,
participation by syndicates or otherwise; to enter into contracts, either
alone or with others, for the purchase, issuance and sale of any such
securities, property, or rights.
J. To guarantee, purchase or otherwise acquire, hold, sell, assign, transfer,
mortgage, pledge or otherwise dispose of shares of the capital stock,
bonds, or other evidence of indebtedness created by other corporations, and
while the holder of such stock, to exercise all of the rights and
privileges of ownership, including the right to vote therein, to the sole
extent as a natural person might or could do.
K. To draw, make, accept, endorse, discount, execute, and issue promissory
notes, drafts, bills of exchange, warrants, debentures, and other
negotiable transferable instruments.
L. To enter into, make and perform contracts of every kind of any lawful
purpose, without limit as to amount, with any person, firm association or
corporation, town, city, county, state, territory or government.
M. To borrow money, to issue bonds, debentures or obligations, and to secure
the same mortgage, pledge or deed of trust or otherwise.
N. To purchase, hold, sell and transfer the shares of its capital stock.
O. To have one or more offices and to conduct any or all of its operations and
business and to promote its objections within or without the State of
Colorado without restriction as to place or amount.
P. To do any or all of the things herein set forth as principal, agent,
contractor, trustee or otherwise, alone or in company with others.
Q. Without in any manner limiting any of the express powers enumerated, this
corporation shall have and exercise all of the powers conferred by the laws
of the State of Colorado, and to do any or all of the things hereinabove
set forth to do to the same extent as natural persons might or could do,
the foregoing clauses to be construed both as objects and powers and it
being expressly provided that the foregoing enumeration of specific powers
shall not be held to limit or restrict in any manner all powers as this
corporation may have and exercise not inconsistent with the laws of the
State of Colorado and the Articles of Incorporation.
R. To purchase, process, store, transport, sell, plant, grow, harvest and
deliver plants, vegetables and other food products and commodities, of all
kind, sorts and descriptions.
S. To manufacture, buy, or otherwise acquire, import, export, sell, distribute
and deal in any and all kinds of plants and vegetables, foods and food
products of all kinds and sorts whatsoever.
T. To produce, manufacture, prepare, purchase or acquire in any manner, to
own, hold, develop, process, promote or use, to sell, distribute and
otherwise dispose of, at wholesale or retail, and for its own account or
for others, and, generally, in any lawful manner to deal in and with plants
and vegetables, foods and food products and, generally, all other food and
plant and incidental products of every kind and description whatever.
FOURTH: The aggregate number of shares which the corporation shall have
authority to issue is as follows:
"The aggregate number of shares and the amount of the total authorized
capital of the said corporation shall consist of forty million (40,000,000)
shares of $0.01 par value common stock.
All shares will be equal to each other, and when issued, will be fully paid
and non-assessable, and the private property of shareholders shall not be liable
for corporate debts. Each shareholder of record shall have one vote for each
share of stock outstanding in his name on the books of the corporation and shall
be entitled to vote said stock."
FIFTH: Cumulative voting of shares of stock shall not be permitted and
allowed."
SIXTH: "The following provisions deny to shareholder the preemptive right
to acquire additional or treasury shares of the corporation.
No stockholder of this corporation shall, because of his ownership of
stock, have a pre-emptive or other right to purchase, subscribe for, or take any
part of any stock or any part of the notes, debentures, bonds, or other
securities convertible into or carrying options or warrants to purchase stock of
this corporation issued, optioned or sold by it after its incorporation. Any
part of the capital stock and any part of the notes, debentures, bonds or other
securities convertible into or carrying options or warrants to purchase stock of
this corporation offered by these Articles of Incorporation or by Amended
Articles of Incorporation duly filed, may at any time be issued, optioned for
sale, and sold or disposed of by this corporation pursuant to resolution of its
Board of Directors to such persons and upon such terms as may to such Board of
Directors deem proper without first offering such stock or securities or any
part thereof to existing shareholders."
SEVENTH: "The address of the initial registered office of the corporation
is and shall be--10075 East County Line Road, Longmont, Colorado, 80501, and the
name of the initial registered agent at said address is JAMES B. WIEGAND."
EIGHTH: Address of the place of business shall be: 10075 East County Line
Road, Longmont, Colorado, 80501. The corporation may have such other offices in
the State of Colorado as it may deem proper for the carrying out of the business
of the corporation.
The stock books and ledgers and other books and records required by the
statutes of Colorado to be kept for inspection by stockholders or creditors
shall be kept at the principal office of the corporation in the County of
Boulder, State of Colorado.
Meetings of the Board of Directors and of the shareholders may be held from
time to time within the State of Colorado at such times and places as may be
designated in the By-Laws or resolutions of the Board of Directors."
NINTH: "The corporate powers shall be exercised by a Board of Directors of
not less than three directors, who may or may not be stockholders of this
corporation, and the following persons are hereby named to manage the affairs of
the corporation for the first year of its existence and until their successors
shall be selected:
NAME ADDRESS
James B. Wiegand 10077 East County Line Road
Longmont, Colorado 80501
Janet S. Collins 10077 East County Line Road
Longmont, Colorado 80501
Mark E.A. Wiegand 615 North Main Street, Suite 678
Longmont, Colorado 80501
If in the interval between the annual meetings of shareholders of the
corporation, the Board of Directors of the corporation deems it desirable that
the number of directors increase, additional directors may be appointed by the
Board of Directors of the corporation then in office.
The number of directors comprising the whole Board of Directors may be
increased or decreased from time to time within such foregoing limit by the
stockholders of the corporation at the annual meeting."
"In furtherance and not in limitation of the powers hereinabove conferred,
or conferred by the statutes and laws of the State of Colorado, the Board of
Directors shall have the following powers:
1. To make, alter, amend, or repeal By-Laws for the corporation.
2. From time to time, to fix and determine, and to vary, the amount of working
capital this corporation, to determine and direct the use and disposition
thereof, to set apart out of any funds of the corporation available for
dividends from time to time out of any funds available therefor.
3. To designate by resolution passed by a majority of the whole Board, and
executive committee and such other, committee, as the Board shall deem
desirable, each committee to consist of at least two members of the Board,
which committee or committees, to the extent provided in such resolution or
in the By-Laws, shall have and may exercise the powers of the Board of
Directors in the intervals between meetings of the Board, and the
management of the business and affairs of the corporation.
4. The Board of Directors shall also have power to authorize and cause to be
executed mortgage and liens upon all property of the corporation or any
part thereof, and from time to time to sell, lease, exchange, pledge,
assign, transfer, list or otherwise dispose of all of the property and
assets of the corporation, including its good will and corporate franchise,
upon such terms and conditions and upon such consideration as the Board of
Directors may deem expedient and for the best interests of the corporation;
provided, that the sale, exchange, lease, or disposal of all, or the
principal part, of the business, assets, property or franchise shall be
authorized or ratified by the affirmative vote of the holders of at least
2/3 of the capital stock then issued and outstanding (or of each class of
stock, if more than one class), such vote to be taken at a meeting of the
stockholders, duly called for that purpose, as provided by the statutes of
Colorado.
5. To confer in its By-Laws, additional powers to its Board of Directors,, in
addition to the power and authority expressly conferred upon them by law
and by virtue of these Articles of Incorporation."
6. "The right is expressly reserved to amend, alter, change, or repeal any
provision or provisions contained in these Articles of Incorporation or any
Article herein in any manner or respect now or hereafter permitted or
provided by the Corporation Laws of the State of Colorado, and the rights
of all officers, directors and stockholders are expressly made subject to
such reservation."
TENTH: The name and address of the incorporator is: JAMES B. WIEGAND, 10077
East County Line Road, Longmont, Colorado, 80501.
IN WITNESS WHEREOF, the above-named incorporator signed these ARTICLES OF
INCORPORATION on this 23rd day of November, 1992.
__________________________________________
Incorporator
ACKNOWLEDGEMENT
STATE OF COLORADO
COUNTY OF BOULDER
On this _______ day of ______________, 19____, __________________________
personally appeared before me, a Notary Public in and for Boulder County,
Colorado, known or proved to me to be the person described in and who executed
the foregoing instrument, who acknowledged to me that he/she executed the same
freely and voluntarily and for the uses and purposes therein mentioned.
WITNESS my hand and official seal, the day and year in this acknowledgement
first above written.
(SEAL)
NOTARY PUBLIC
DATE COMMISSION EXPIRES
<PAGE>
ARTICLES OF AMENDMENT
to the
ARTICLES OF INCORPORATION
of
SOLAR ENERGY RESEARCH CORP.
Pursuant to the provisions of the Colorado Corporation Code the undersigned
Corporation adopts the following Articles of Amendment to its Articles of
Incorporation:
FIRST: The name of the Corporation is Solar Energy Research Corp.
SECOND: The following amendments to the Articles of Incorporation were
adopted by the Stockholders of the Corporation on January 7, 1994, in the manner
prescribed by the Colorado Corporation Code:
Article FOURTH of the Articles of Incorporation of Solar Energy Research
Corp. is hereby amended to increase the par value of the Company's Common Stock
to $0.50 per share, which amendment shall be effected immediately and
simultaneously with the one-for-fifty reverse split.
Article FOURTH of the Articles of Incorporation is hereby repealed so that
Article FOURTH would read in its entirety as follows:
FOURTH, The total number of shares of stock which the Corporation shall
have authority to issue is one hundred twenty five million (125,000,000) divided
into one hundred million (100,000,000) shares of Common Stock with a par value
of $.50 per share and twenty five million (25,000,000) shares of voting
Preferred Stock with no par value.
Article NINTH, sub-section 4, of the Articles of Incorporation of Solar
Energy Research Corp. is hereby amended to reduce the necessary vote of
shareholders from two-thirds of the outstanding shares to a majority of the
outstanding shares.
A new Article, ELEVENTH, is hereby added to the Articles of Incorporation
of Solar Energy Research Corp. as follows:
ELEVENTH, VOTING OF SHAREHOLDERS. With respect to any action to be taken by
shareholders by this Corporation, a vote or concurrence of the holders of a
majority of the outstanding shares of the shares entitled to vote thereon, or of
any class or series, shall be required.
THIRD: The number of shares of the Corporation outstanding at the time of
such adoption was 37,100,327 shares and the number of shares entitled to vote
thereon was 37,100,327 shares.
FOURTH: The designation and number of outstanding shares of each class
entitled to vote thereon as a class were as follows: none.
FIFTH: The number of shares voted for the amendment were:
Increase Par Value 24,873,411
Authorize Voting Preferred 24,873,411
Additional Common 24,873,411
Adopt Majority Vote 24,873,411
The number of shares voted against the amendment were:
Increase Par Value -0-
Authorize Voting Preferred -0-
Additional Common -0-
Adopt Majority Vote -0-
SIXTH: The number of shares of each class entitled to vote thereon as a
class for or against the amendments was: none.
SEVENTH: The manner if not set forth in such amendment, in which any
exchange, reclassification or cancellation of issued shares provided for in the
amendment shall be effected, is as follows:
The Company's transfer agent is immediately authorized by virtue of the
one-for-fifty reverse split to exchange all share certificates of $.01 par value
common stock presented for $.50 par value share certificates. The transfer agent
is authorized to charge ten dollars for each certificate issued. Shareholder
payments for exchange are to be made by check payable to United Stock Transfer,
Inc. and are to accompany the tendered share certificate. Any fractional shares
will be rounded up.
EIGHTH: The manner in which such amendments effect a change in the amount
of stated capital, and the amount of stated capital as changed by such
amendments, are as follows:
Stated capital is unchanged as a result of the increase in par value.
Dated as of the 7th day of January, 1994.
SOLAR ENERGY RESEARCH CORP.
By
Janet S. Collins, Secretary James B. Wiegand, President
<PAGE>
CERTIFICATE OF CORRECTION
TO THE ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
SOLAR ENERGY RESEARCH CORP.
This Certificate of Correction is being filed pursuant to C.R.S. 7-10-205
(formerly 7-2-115) of the Colorado Business Corporation Act. The following
changes should be made to the original Articles of Amendment to the Articles of
Incorporation for Solar Energy Research Corp.
1. Article IV fails to completely set forth the proposal which was approved
by the shareholders at the Special Meeting of Shareholders held on January7,
1994 and should therefore be amended as set forth below:
Fourth: The aggregate number of shares which this corporation shall have
the authority to issue is One Hundred Million (100,000,000) shares, with a par
value of $.50 per share, which shares shall be designated common stock. No share
shall be issued until it has been paid for, and it shall thereafter be
nonassessable. The corporation may also issue up to Twenty-Five Million
(25,000,000) shares of no par value preferred stock. The preferred stock of the
corporation shall be issued in one or more series as may be determined from time
to time by the Board of Directors. In establishing a series, the Board of
Directors shall give to it a distinctive designation so as to distinguish it
from the shares of all other series and classes, shall fix the number of shares
in such series, and the preferences, rights and restrictions thereof. All shares
in a series shall be alike. Each series may vary in the following respects: (1)
the rate of the dividend; (2) the price at the terms and conditions on which
shares shall be redeemed; (3) the amount payable upon shares in the event of
involuntary liquidation; (4) the amount payable upon shares in the event of
voluntary liquidation; (5) sinking fund provisions for the redemption of shares;
(6) the terms and conditions on which shares may be converted if the shares of
any series are issued with the privilege of conversion; and (7) voting powers.
Dated this 11th day of October, 1995.
SOLAR ENERGY RESEARCH CORP.,
a Colorado corporation
By:
James B. Wiegand, President
ATTEST:
By:
Janet S. Collins, Secretary
<PAGE>
BY-LAWS OF SOLAR ENERGY RESEARCH CORP.ARTICLE I
Offices
Section 1. Principal Office. The principal place of business of the
corporation shall be Longmont, Colorado. The corporation may also have one or
more offices at such other place or places within or without the State of
Colorado as the Board of Directors may from time to time determine or as the
business of the corporation may require. Section 2. Registered Office. The
registered office of the corporation shall be as set forth in the Articles of
Incorporation, unless changed as provided by the Colorado Corporation Code.
ARTICLE II Section 1. Stock Certificates. The certificates for shares of the
capital stock of the corporation shall be in such form, not inconsistent with
the Colorado Corporation Code and the Articles of Incorporation, as shall be
approved by the Board of Directors. Each certificate shall be signed by the
President or a Vice President and also by the Secretary or an Assistant
Secretary. All certificates shall be consecutively numbered and the names of the
persons owning shares represented thereby, with the number of such shares and
the date of issue, shall be entered on the corporation's books. In case any
officer or officers who shall have signed a certificate ceases to hold such
office prior to the issuance or delivery of the certificate, whether because of
death, resignation, or otherwise such certificate may nevertheless be issued and
delivered by the corporation as though the officer who signs such certificate,
or whose facsimile signature shall have been used thereon, had not cease to be
such officer of the corporation. Section 2. Transfer of Stock. Transfers of the
shares of the corporation shall be made only on the books of the corporation by
the registered holder thereof, or by his attorney thereunto authorized by Power
of Attorney duly executed and filed with the Secretary and upon the surrender of
certificate or certificates for such shares. The corporation, under the articles
of Incorporation, has the right to impose restrictions upon the transfer of any
shares of stock of the corporation, or any interest therein, from time to time
issued, and any transfer or transfers of any of the shares of the stock of the
corporation, or any interest therein, shall be made in accordance with the
subject to any such restrictions from time to time so imposed. Section 3. Lost
and Destroyed Certificates. In case any certificate of stock of the corporation
shall be alleged to have been destroyed or lost, the corporation shall not be
required to issue a new certificate in lieu thereof, except upon receipt of
evidence satisfactory to the Board of Directors of the destruction or the loss
of such certificate, and if so required by the Board of Directors, upon receipt
also on a bond in such sum as the Board of Directors may direct, not exceeding
double the value of such stock, and if so required, with surety or sureties
satisfactory to the Board, to indemnify the corporations against any claim that
may be made against it on account of the alleged destruction or loss of such
certificate. Section 4. Dividends. The Board of Directors may, from time to
time, declare and the corporation may pay dividends on its outstanding shares in
cash, property, or its own shares, except when the corporation is insolvent or
when the declaration or payment thereof would be contrary to any restrictions
contained in the Articles of Incorporation or the laws of the State of Colorado.
Before payment of any dividend, there may be set aside out of any funds of the
corporation available for dividends such sum or sums as the directors, from time
to time, in their absolute discretion, think proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the corporation, or for such other purpose as the directors shall
think conductive to the interest of the corporation, and the directors may
abolish any such reserve in the manner in which it was created. ARTICLE III
Stockholders and Meetings
Section 1. Annual Meeting. The annual meeting of shareholders of the
corporation for the election of directors to succeed those whose terms expire
and for the transaction of such other business as may come before the meeting
shall be held each year on the 4th day of June, at 2:00 o'clock p.m. If the day
so fixed for such annual meeting shall be a legal holiday, then such meeting
shall be held on the next succeeding business day.
Section 2. Special Meetings. Special meetings of shareholders for any
purpose or purposes, unless otherwise prescribed by the Colorado Corporation
Code or by the articles of incorporation, may be called at any time by the
President, or the Board of Directors, and shall be called by the President or
Secretary upon the request (which shall state the purpose or purposes thereof)
of the holders of not less than one-tenth (1/10th) of the outstanding shares of
the corporation entitled to vote at the meeting.
Section 3. Place of Meeting. Meetings of shareholders, whether annual or
special, shall be held at the principal office of the corporation or at such
other place or places, within or without the State of Colorado, as may be from
time to time determined by the Board of Directors.
Section 4. Notice of Meetings. Notice of each meeting of shareholders,
whether annual or special, shall be given not less than ten (10) days or more
than fifty (50) days prior thereto to each shareholder of record entitled to
vote thereat by delivering written or printed notice thereof to such shareholder
personally or by mailing the same to his address as it appears on the stock
transfer book of the corporation; provided, however, that if the authorized
shares of the corporation are proposed to be increased, at least thirty (30)
days' notice in like manner shall be given. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail, properly
addressed to the shareholder, with postage thereon prepaid. The notice of a
special meeting shall, in addition, state the purposes thereof, and not other
business shall be transacted at such special meeting unless it is in accord with
the purpose or purposes stated in such notice.
Section 5. Record Date Closing Stock Books. The Board of Directors may fix
in advance a date, not less than ten (10) nor more than fifty (50) days
preceding the date of any meeting of shareholders, or the day for payment of any
dividend, or the date for the allotment of rights or the date when any change or
conversion or exchange of authorized shares shall go into effect, or a date
fixed as the final date for obtaining such consent, or a record date for the
determination of the shareholders entitled to notice thereof, and to vote at,
any such meeting and any adjournment thereof, if entitled to receive any such
dividend, or to any such allotment of rights, or to exercise the rights in
respect of any such change, conversion, or exchange of capital stock, or to give
such consent, and in such case any such shareholders as shall be shareholders of
record on the date so fixed shall be entitled to notice of, and to vote at, such
meeting and any adjournment thereof, or to receive payment of such dividend, or
to receive such allotment of rights, or to exercise such rights, or to give
consent, as the case may be, notwithstanding any transfer of any shares on the
books of the corporation after such record date fixed as aforesaid. The Board of
Directors may alternatively order the stock transfer books of the corporation
closed against transfers of shares during the whole or any part of the period of
not less than ten (10) nor more than fifty (50) days prior to the date of a
stockholders' meeting, the date when the right to any dividend, distribution, or
allotment or rights vest, or the effective date of any change, conversion, or
exchange of shares.
Section 6. Shareholders Entitled to Vote. Registered shareholders only
shall be entitled to be treated by the corporation as holders in fact of the
stock standing in their respective names; and the corporation shall not be bound
to recognize any equitable or other claim to or interest in any shares on the
part of any person, firm, or corporation, whether or not it shall have express
or other notice thereof, except as expressly provided by the laws of the State
of Colorado.
Section 7. Adjourned Meetings and Notice Thereof. Any shareholders'
meeting, annual or special, whether or not a quorum is present, may be adjourned
from time to time by the vote of majority of the shares, the holders of which
are either present in person or represented by proxy thereat, but in the absence
of a quorum no other business may be transacted at such meeting; provided,
however, that any one adjournment may be for a period not to exceed sixty (60)
days. When any shareholders' meeting, either annual or special, is adjourned for
thirty (30) days or more, notice of the adjourned meeting shall be given as in
the case of an original meeting. Save as aforesaid, it shall not be necessary to
give any notice of any adjournment or of the business to be transacted at the
adjourned meeting other than by announcement at the meeting at which such
adjournment is taken.
Section 8. List of Shareholders. A complete list of the shareholders
entitled to vote at any meeting or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each,
shall be prepared by the officer or agent having charge of the stock transfer
books at least ten (10) days before each meeting of shareholders. Such
shareholder list, for a period of ten (10) days prior to such meeting, shall be
kept on file at the principal office of the corporation, whether within or
without Colorado, and shall be subject to inspection by any shareholder at any
time during usual business hours. Such list shall also be produced and kept open
at the time and place of the meeting and shall be subject to the inspection of
any shareholder during the whole time of the meeting. The original stock
transfer books shall be prima facie evidence as to the shareholders who are
entitled to examine such list of stock transfer books or to vote at any meetings
of shareholders.
Section 9. Quorum. The holders of a majority of the shares issued and
outstanding and entitled to vote thereat shall, when present in person or
represented by proxy, be requisite to and shall constitute a quorum at all
meetings of shareholders for the transaction of business except as otherwise
provided by statute, or by the Articles of Incorporation. If a quorum is
present, the affirmative vote of a majority of the shares represented at the
meeting entitled to vote on the subject matter shall be necessary for share
holder action, unless the vote of a greater number is required by law.
Section 10. Organization. The President or Vice President shall call
meetings of shareholders to order and act as Chairman of such meeting. In the
absence of the Secretary and Assistant Secretary of the corporation, any person
appointed by the Chairman shall act as Secretary of such meeting. Section 11.
Voting. At every meeting of shareholders each shareholder having the right to
vote shall be entitled to vote in person or by proxy executed in writing by such
shareholder or by his duly authorized attorney-in-fact; provided, however, that
no such proxy shall be valid after eleven (11) months from the date of its
execution, unless such proxy expressly provides for a longer period. In all
elections of directors there shall not be cumulative voting.
ARTICLE IV
Directors
Section 1. Number of Directors. The Board of Directors shall consist of not
less than three persons, who need not be either shareholders or residents of the
State of Colorado, and who shall be elected at the annual meeting of
shareholders, or any adjournment thereof, and shall hold office for one year or
until their successors shall be duly elected and qualified.
Section 2. Increase
or Decrease in Number of Directors. The number of directors may be increased or
decreased from time to time by amendment to the By-Laws, but no decrease shall
have the effect of shortening the term of any incumbent director.
Section 3. Vacancies. Any vacancy occurring in the Board of Directors may
be filled by the affirmative vote of a majority of the remaining directors,
though less than a quorum of the Board of Directors. A director elected to fill
a vacancy shall be elected for the unexpired term of his predecessor in office.
Any Directorship to be filled by reason of an increase in the number of
directors, shall be filled by the affirmative vote of a majority of the
directors then in office, or by an election at an annual meeting, or at a
special meeting of shareholders called for that purpose. A director chosen to
fill a position resulting from an increase in the number of directors shall hold
office until the next annual meeting of shareholders.
Section 4. Removals. At any meeting of the shareholders called expressly
for that purpose, the entire Board of Directors, or any lesser number, may be
removed, with or without cause, by vote of the holders of the majority of the
shares entitled to vote at an election of directors' provided, however, that in
the case of cumulative voting, if less than the entire Board of Directors is to
be removed, no one of the directors may be removed if the votes of a sufficient
number of shares are cast against his removal which, if then cumulatively voted
at an election of the entire Board of Directors, or at an election of the class
of directors of which he is a part, would be sufficient to elect him.
Section 5. Resignations. Any director may resign at any time by mailing or
delivering or by transmitting by telegraph or cable written notice of his
resignation to the President or the Secretary of the corporation. Any such
resignation shall be effective at the time specified therein, or if not stated
in such resignation, the effective date shall be the date said resignation is
received.
Section 6. Powers. Subject to limitations of the Articles of Incorporation,
of the By-Laws, and of the laws of the State of Colorado as to action which
shall be authorized or approved by the shareholders, all corporate powers shall
be exercised by or under the authority of, and the business affairs of the
corporation shall be controlled by, the Board of Directors. Without prejudice,
to such general powers, but subject to the same limitations, it is hereby
expressly declared that the directors shall have the following powers,
to-wit:
(a) To select and remove all the officers, agents, and employees of the
corporation, prescribe such powers and duties for them as may not be
inconsistent with law, with the Articles of Incorporation, or the
By-Laws, and fix their compensation.
(b) To conduct, manage, and control the affairs and business of the
corporation, and to make such rules and regulations therefore not
inconsistent with law, or with the Articles of Incorporation, or the
By-Laws, as they may deem best.
(c) To change the principal office for the transaction of the business of
the corporation and to fix and locate, from time to time, one or more
subsidiary offices of the corporation within or without the State of
Colorado.
(d) To adopt, make, and use a corporate seal, and to prescribe to form of
certificates of stock, and to alter the form of such seal and of such
certificate, from time to time, as in their judgment they may deem
best, provided such seal and such certificate shall at all times
comply with the provisions of the law.
(e) To authorize the issuance of shares of stock of the corporation from
time to time upon such terms and for such considerations as may be
lawful.
(f) To borrow money and incur indebtedness for the purposes of the
corporation, and to cause to be executed and delivered therefor, in
the corporate name, promissory notes, bonds, debentures, deeds of
trust, mortgages, pledges, hypothecation's or other evidence of debt
and securities therefor.
(g) To declare dividends pursuant to the provisions of the laws of the
State of Colorado.
A majority of the Board of Directors may, by resolution, designate two or
more directors to constitute an executive committee, which, to the extent
provided in such resolution, shall and may exercise all of the authority of the
Board of Directors in the management of the corporation; provided, however, the
designation of such committee and the delegation thereto of authority shall not
operate to relieve the Board of Directors, or any member thereof of any
responsibility imposed upon it or him by law.
Section 7. Annual Meeting. A meeting of each newly elected Board of
Directors may be held without notice in each year immediately following the
annual meeting of shareholders.
Section 8. Regular Meeting. Regular meetings of the Board of Directors may
be held without notice at such time and place which, from time to time, may be
determined by the Board of Directors.
Section 9. Special Meeting. Special meetings of the Board of Directors may
be called at any time and at any place within or without the State of Colorado.
Section 10. Quorum. At all meetings of the Board of Directors, a quorum
shall consist of a majority of the members, and the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors. In the absence of a quorum at any such meeting, a majority of the
directors present may adjourn the meeting from time to time without further
notice until a quorum shall be present
Section 11. Fees and Compensation. Directors shall not receive any stated
salary for the services as directors, but, by resolution of the Board of
Directors, a fixed fee, with or without expenses of attendance, may be allowed
one or more of the directors for attendance at each meeting. Nothing herein
contained shall be construed to preclude any director from serving the
corporation in any other capacity as an officer, agent, employee, or otherwise,
and receiving compensation therefor.
Section 12. Chairman of the Board. The Board of Directors may elect one of
their number to fill the office of the Chairman of the Board of Directors. In
the event the President of the corporation is also on the Board of Directors and
no Chairman of the Board of Directors is elected, the President will act as ex
officio Chairman of the Board of Directors.
The Chairman of the Board of Directors, if such officer shall be chosen by
the Board of Directors, shall preside at all meetings of the Board of Directors
at which he is present. He shall, subject to the direction of the Board of
Directors, have general oversight over the affairs of the corporation and shall,
from time to time, consult and advise with the President in the direction and
management of the corporation's business and affairs. He shall also do and
perform such other duties as may, from time to time, be assigned to him by the
Board of Directors.
ARTICLE V
Officers
Section 1. Officers. The officers of the corporation shall be a President,
a Secretary and a Treasurer. The corporation may also have, at the discretion of
the Board of Directors, one or more Vice Presidents, one or more Executive Vice
Presidents, one or more Assistant Secretaries, and one or more Assistant
Treasurers, and such other officers and/or agents as may be appointed and as the
business or the corporation may require. Any two or more offices may be held by
the same person, except the offices of President and Secretary.
Section 2. Election. The Board of Directors at its first meeting after each
annual meeting of shareholders, shall choose the officers, and may, not
inconsistent with the By-Laws, fix the powers and duties of any officer. Each
officer so chosen shall hold office until his successor shall be chosen and
shall qualify, unless he shall sooner resign or be removed as herein in these
By-Laws provided.
Section 3. Salaries. The salaries of the President, each Vice President,
the Secretary, and the Treasurer shall be fixed by the Board of Directors. The
salaries and wages of all other officers, agents, and employees of the
corporation shall be fixed in regular course by the active management of the
corporation subject to approval of the Board of Directors.
Section 4. Removals, Resignations, and Vacancies. Any officers or agents
may be removed, with or without cause, at any time by the Board of Directors
then in office.
Any officer may resign at any time by giving written notice to the Board of
Directors or to the President, or to the Secretary of the corporation. Any such
resignation shall take effect at the date of the receipt of such notice by the
Board of Directors, the President, or the Secretary of the corporation, unless a
later time is specified in such notice of resignation; and, unless otherwise
specified in such notice, the acceptance of such resignation shall not be
necessary to make it effective.
A vacancy in any office because of death, resignation, removal,
disqualification, or any other cause shall be filled in the manner prescribed in
the By-Laws for regular appointments to such office.
Section 5. President. Subject to such supervisory powers, if any, as may be
given by the Board of Directors to the Chairman of the Board, if there be such
an officer, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction, and control of the business and officers of the
corporation. He shall have the general powers and duties as may be prescribed by
the Board of Directors or these By-Laws.
Section 6. Vice Presidents. In the absence or disability of the Presidents,
the Vice Presidents, or Executive Vice Presidents, in order of their rank as
fixed by the Board of Directors, or if not ranked, the Vice President or
Executive Vice President designated by the Board of Directors, shall perform all
the duties of the President, and when so acting shall have all the powers of,
and be subject to all the restrictions upon the President. The Vice Presidents
and Executive Vice Presidents shall have such other powers and perform such
other duties as, from time to time, may be prescribed for them respectively by
the Board of Directors or these By-Laws.
In the event no individual or individuals have been designated as Vice
President, or Executive Vice President, the Secretary or the Treasurer, in that
order, shall, in the absence or disability of the President, perform all the
duties of the President, and when so acting shall have all the powers of, and be
subject to all the restrictions upon the President.
Section 7. Secretary. The Secretary shall attend all sessions of the Board
of Directors and all meetings of the shareholders and record all votes and the
minutes of all proceedings in a book to be kept for that purpose, and shall
perform like duties for the standing committees when required. He shall keep, or
cause to be kept, a stock register showing the names of the shareholders, number
and date of certificates issued, and the number and date of cancellation of
every certificate surrendered for cancellation. He shall give, or cause to be
given, notice of all meetings of the shareholders and meetings of the Board of
Directors as required. He shall perform such other duties as may be prescribed
by the Board of Directors.
Section 8. Treasurer. The Treasurer shall keep and maintain, or cause to be
kept and maintained, adequate and correct accounting records affecting the
cooperation. The books of account shall at all reasonable times be open to
inspection by any director.
The Treasurer shall deposit all monies and other valuables in the name and
to the credit of the corporation with such depositories as may be designated by
the Board of Directors. He shall disburse the funds of the corporation as may be
ordered by the Board of Directors, shall render to the President and directors,
whenever they request it, an account of all of his transactions as Treasurer,
and of the financial condition of the corporation. He shall have such other
powers and perform such other duties as may be prescribed by the Board of
Directors of these By-Laws.
If required by the Board of Directors, the Treasurer shall give the
corporation a bond in such sum with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of his
death, resignation, retirement, or removal from office, of all books, papers,
vouchers, money, and other property of whatsoever kind in his possession or
under his control belonging to the corporation.
Section 9. Assistants. Any assistant officer shall, in the order of their
seniority, unless otherwise designated by the Board of Directors, and in the
absence or disability of the officer to whom they are an assistant, perform the
duties of such officer, and when so acting they shall have all the powers of,
and be subject to all the restrictions upon such officer. They shall have such
other powers, and perform such other duties as, from time to time, may be
prescribed for them respectively by the Board of Directors, the officers of the
corporation, or these By-Laws.
<PAGE>
AMENDED AND RESTATED ARTICLES OF INCORPORATION OF
TELEGEN CORPORATION
Jessica Stevens and Bonnie Crystal certify that:
1. They are the President and Secretary, respectively, of Telegen
Corporation, a California corporation.
2. The articles of incorporation of this corporation are hereby amended and
restated to read as follows:
"I.
The name of the Corporation is Telegen Corporation.
II.
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than die banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
III.
A. This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the corporation is authorized to issue is twelve million
(12,000,000) shares, ten million (10,000,000) shares of which shall be Common
Stock and two million (2,000,000) shares of which shall be Preferred Stock.
B. Five hundred fifty thousand (550,000) of the authorized shares of Series
A Preferred Stock are hereby designated "Series A Preferred Stock."
C. The rights, preferences, privileges, restrictions and other matters
relating to the five hundred fifty thousand (550,000) shares of Series A
Preferred Stock are as follows:
1. Dividends. In each fiscal year of the Corporation, the holders of Series
A Preferred Stock shall be entitled to receive, out of funds legally available
therefor, when and if declared by the Board of Directors, before any cash
dividends shall be declared and paid upon or set aside for the Common Stock in
such fiscal year, a dividend at the rate of $0.80 per annum on each outstanding
share of Series A Preferred Stock (as adjusted for any stock split, stock
dividend, recapitalization or the like with respect to such shares). No
dividends (other than those payable solely in the Common Stock of the
Corporation) shall be declared or paid on any Common Stock of the Corporation
during any fiscal year of the Corporation until the full annual dividend on the
Series A Preferred Stock shall have been paid or declared and set apart. The
right to any dividends under this paragraph I shall not be cumulative, and no
right shall accrue to holders of Series A Preferred Stock by reason of the fact
that dividends on such shares are not declared or paid in any prior year.
Dividends, if paid, or if declared and set apart for payment, must be paid on,
or declared and set apart for payment on, all outstanding shares of Series A
Preferred Stock.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of Series A Preferred
Stock shall be entitled to receive, prior and in preference to any distribution
of any of the assets or surplus funds of the Corporation to the holders of the
Common Stock by reason of their ownership thereof, the amount equal to ten
dollars ($10.00) per share for each share of Series A Preferred Stock then held
by them (as adjusted for any combinations, consolidations, stock distributions
or stock dividends with respect to such shares) plus all declared but unpaid
dividends on their respective shares of Series A Preferred Stock then held by
them and no more (the "Series A Preferred Liquidation Preference"). If upon the
occurrence of such event, the assets and funds thus distributed among the
holders of the Series A Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amounts, then the
entire assets and funds of the Corporation legally available for distribution
shall be distributed ratably among the holders of the Series A Preferred Stock
in proportion to the shares then held by them.
(b) After payment to the holders of Series A Preferred Stock of the amounts
set forth in subparagraph (a) above, the entire remaining assets and funds of
the Corporation legally available for distribution, if any, shall be distributed
among the holders of the Common Stock, in proportion to the shares of Common
Stock then held by them.
(c) A consolidation or merger of the Corporation with or into any other
corporation or corporations, or a sale of all or substantially all of the assets
of the Corporation shall be deemed a liquidation, dissolution or winding up
within the meaning of this Section if more than fifty percent (50%) of the
surviving entity is not owned by persons who were holders of capital stock or
securities convertible into capital stock of the Corporation immediately prior
to such merger, consolidation or sale. In such event, the Series A Preferred
Liquidation Preference may be paid in cash or securities of any entity surviving
such liquidation event.
(d) As authorized by Section 402.5(c) of the California Corporations Code,
the provisions of Sections 502 and 503 of the California Corporations Code shall
not apply with respect to distributions made by the Corporation in connection
with the repurchase of shares of Common Stock issued to or held by employees,
directors or consultants of or to the Corporation or any of its subsidiaries
upon termination of their employment or services pursuant to agreements
providing for the right of such repurchase between the Corporation and such
persons.
(e) Notices of Record Date. In the event of any taking by the Corporation
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend) or other distribution, any security or right convertible
into or entitling the holder thereof to receive Additional Shares of Common
Stock, or any right to subscribe for, purchase or otherwise acquire any shares
of stock of any class or any other securities or property, or to receive any
other right, the Corporation shall mail to each holder of Series A Preferred
Stock at least twenty (20) days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend, distribution, security or right, and the amount and character of
such dividend, distribution, security or right.
3. Voting Rights. Except as otherwise expressly provided herein or as
required by law, the holder of each share of the Series A Preferred Stock shall
be entitled to the number of votes equal to the number of shares of Common Stock
into which such share of Series A Preferred Stock could be converted and shall
have voting rights and powers equal to the voting rights and powers of the
Common Stock (except as otherwise expressly provided herein or as required by
law, voting together with the Common Stock as a single class) and shall be
entitled to notice of any shareholders' meeting in accordance with the Bylaws of
the Corporation. Fractional votes shall not, however, be permitted and any
fractional voting rights resulting from the above formula (after aggregating all
shares into which shares of Series A Preferred Stock held by each holder could
be converted) shall be rounded to the nearest whole number (with one-half being
rounded upward).
4. Conversion. The holders of the Series A Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert.
(i) Optional Conversion. Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at the office of the
Corporation or any transfer agent for the Series A Preferred Stock, into Common
Stock. The number of shares of Common Stock into which one share of Series A
Preferred will be converted will be equal to $10.00 (the "Series A Original
Purchase Price") divided by the Series A Conversion Price (as hereinafter
defined) then in effect, such conversion ratio being referred to as the "Series
A Conversion Rate." The initial Series A Conversion Price will be the Series A
Original Purchase Price and will be subject to adjustment as provided herein.
Upon any decrease or increase of the Series A Conversion Price or the Series A
Conversion Rate as described in this Section C.4, the Series A Conversion Rate
or Series A Conversion Price, as the case may be, will be increased or decreased
appropriately.
(ii) Automatic Conversion of Series A Preferred Stock. Each share of Series
A Preferred Stock will be converted into shares of Common Stock at the then
effective Series A Conversion Rate immediately upon the closing of the sale of
stock pursuant to a registration statement under the Securities Act of 1933, as
amended, for a bona fide, firm commitment underwritten public offering (other
than a registration on Form S-8, Form S-4 or comparable forms) of the
Corporation's Common Stock that has a public offering price of not less than
$15.00 per share (as adjusted for any Recapitalization Events).
(iii) Fractional Shares Upon Conversion. No fractional shares of Common
Stock will be issued upon conversion of Series A Preferred Stock, and any
fractional share that otherwise would result from conversion by a holder of all
of such holder's shares of Series A Preferred Stock (in the aggregate) will be
redeemed by payment in an amount equal to such fraction of the then effective
Series A Conversion Price as promptly as funds legally are available therefor.
(b) Mechanics of Conversion. Any holder of Series A Preferred Stock wishing
to convert shares of Series A Preferred Stock into Common Stock pursuant to
Section C.4(a)(i) shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or any transfer agent for the Series
A Preferred Stock and will give the Corporation written notice stating the name
or names in which the holder wishes the certificate or certificates for shares
of Common Stock to be issued. Any conversion pursuant to Section C.4(a)(i) shall
be deemed to be effective for all purposes upon receipt by the Corporation or a
transfer agent for the Series A Preferred Stock of such certificates, duly
endorsed, and such written notice and shall be deemed to have been made
immediately prior to the close of business on the date thereof. As soon as
practicable after the effectiveness of any conversion of Series A Preferred
Stock and receipt by the Corporation or the appropriate transfer agent of
certificates representing such Series A Preferred Stock, duly endorsed, together
with written notice stating the name or names in which the holder wishes the
certificate or certificates for shares of Common Stock to be issued, the
Corporation shall cause to be issued and delivered pursuant to the written
instructions of the holder of the converted Series A P - referred Stock
certificates representing the Common Stock into which such Series A Preferred
Stock has been converted; provided, however, that the Corporation shall not be
required to issue certificates for Common Stock in any name other than that of
the holder in the absence of assurances reasonably satisfactory to the
Corporation that all stamp and other transfer taxes relating to the transfer of
such securities have been or will be paid. Notwithstanding any issuance or lack
thereof of certificates representing Common Stock, from and after the
effectiveness of any conversion of Series A Preferred Stock, the person or
persons entitled to receive the, shares of Common Stock issuable upon conversion
shall be treated by the Corporation for all purposes as the record holders of
the Common Stock obtainable upon such conversion and shall cease to have any
other rights of holders of Series A Preferred Stock.
(c) Adjustment for Subdivisions or Combinations of Common Stock. In the
event the Corporation at any time or from time to time effects a subdivision or
combination of its outstanding Common Stock into a greater or lesser number of
shares without a proportionate and corresponding subdivision or combination of
Series A Preferred Stock, then the existing Series A Conversion Price will be
decreased or increased proportionately.
(d) Adjustment for Dividends, Distributions and Common Stock Equivalents.
In the event the Corporation at any time or from time to time makes or issues,
or fixes a record date for the determination of holders of Common Stock (but not
holders of Series A Preferred Stock) entitled to receive, a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights (hereinafter referred to as "Common Stock Equivalents") convertible into
or entitling the holder thereof to receive additional shares of Common Stock
without payment of any consideration by such holder for such Common Stock
Equivalents or the additional shares of Common Stock, then and in each such
event the maximum number of shares (as set forth in the instrument relating
thereto without regard to any provisions contained therein for a subsequent
adjustment of such number) of Common Stock issuable in payment of such dividend
or distribution or upon conversion or exercise of such Common Stock Equivalents
will be deemed to be issued and outstanding as of the time of such issuance or,
in the event such a record date has been fixed, as of the close of business on
such record date. In each such event, the then existing Series A Conversion Rate
will be increased as of the time of such issuance or, in the event such a record
date has been fixed, as of the close of business on such record date, by
multiplying the then effective Series A Conversion Rate by a fraction,
(i) the numerator of which will be the total number of shares of Common
Stock issued and outstanding immediately prior-to the time of such issuance on
the close of business on such record date plus the number of shares of Common
Stock issuable in payment of such dividend or distribution or upon conversion or
exercise of such Common Stock Equivalents, and
(ii) the denominator of which will be the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date; provided, however, that if such
record date has been fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Series A
Conversion Rate will be recomputed accordingly as of the close of business on
such record date and thereafter the Series A Conversion Rate will be adjusted
pursuant to this Section C.4(d) as of the time of actual payment of such
dividends or distribution.
(e) Adjustment for Sale of Additional Stock. If at any time the Corporation
issues or sells any Additional Stock (as defined below) without consideration or
at a price per share less than the Series A Conversion Price in effect
immediately prior to the issuance of such Additional Stock, then and in each
such case, the Series A Conversion Price in effect immediately prior to such
issuance shall automatically (except as otherwise provided below) be reduced,
concurrently with such issue, to a price determined by multiplying such Series A
Conversion Price by a fraction, the numerator of which shall be the number of
shares of Series A Preferred Stock outstanding immediately prior to such issue
plus the number of shares of Series A Preferred Stock which the aggregate
consideration received by the Corporation for the total number of shares of
Additional Stock so issued would purchase at such Conversion Price; and the
denominator of which shall be the number of shares of Series A Preferred Stock
outstanding immediately prior to such issue plus the number of such shares of
Additional Stock so issued.
(i) No adjustment of the Series A Conversion Price shall be made in an
amount less than one cent per share, provided that any adjustment that is not
required to be made by reason of this Section C(4)(e)(i) shall be carried
forward and taken into account in any subsequent adjustment.
(ii) Except to the limited extent provided for in Sections
C.4(e)(iii)(D)(3) and C.4(e)(iii)(D)(4), no adjustment of the Series A
Conversion Price shall have the effect of increasing the Series A Conversion
Price above the Series A Conversion Price in effect immediately prior to such
adjustment.
(iii) For the purpose of making any adjustment in the Series A Conversion
Price as provided above, the consideration received by the Corporation for any
issue or sale of Additional Stock will be computed as follows:
(A) To the extent it consists of cash, the amount of cash received by the
Corporation before deduction of any offering expenses payable by the Corporation
and any reasonable underwriting or similar commissions, compensation, or
concessions paid or allowed by the Corporation in connection with such issue or
sale.
(B) To the extent it consists of consideration in whole or in part other
than cash, the consideration other than cash shall be deemed to be at the fair
market value of that property as determined in good faith by the Corporation's
Board of Directors.
(C) If Additional Stock is issued or sold together with other stock or
securities or other assets of the Corporation for a consideration which covers
both, as the portion of the consideration so received that may be reasonably
determined in good faith by the Board of Directors to be allocable to such
Additional Stock.
(D) In the case of the issuance of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock or options to purchase or rights to subscribe for
such convertible or exchangeable securities (where the shares of Common Stock
issuable upon exercise of such options or rights or upon conversion or exchange
of such securities are not excluded from the definition of Additional Stock),
the following provisions shall apply:
(1) the aggregate maximum number of shares of Common Stock deliverable upon
exercise of such options to purchase or rights to subscribe for Common Stock
shall be deemed to have been issued at the time such options or rights were
issued and for a consideration equal to the consideration (determined in the
manner provided in Sections C.4(e)(iii)(A)-(C), if any, received by the
Corporation upon the issuance of such options or rights plus the minimum
purchase price provided in such options or rights for the Common Stock covered
thereby;
(2) the aggregate maximum number of shares of Common Stock deliverable upon
conversion of or in exchange for any such convertible or exchangeable securities
or upon the exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such securities were
issued or such options or rights were issued and for a consideration equal to
the consideration, if any, received by the Corporation for any such securities
and related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by the Corporation upon the conversion or exchange of such
securities or the exercise of any related options or rights (the consideration
in each case to be determined in the manner provided in Sections
C.4(e)(iii)(A)(C);
(3) in the event of any change in the number of shares of Common Stock
deliverable upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof, the
Series A Conversion Price in effect at the time shall forthwith be readjusted to
such Series A Conversion Price as would have been obtained had the adjustment
that was made upon the issuance of such options, rights or securities not
converted prior to such change or the options or rights related to such
securities not converted prior to such change been made upon the basis of such
change, but no further adjustment shall be made for the actual issuance of
Common Stock upon the exercise of any such options or rights or the conversion
or exchange of such securities; and
(4) upon the expiration of any such options or rights, the termination of
any such rights to convert or exchange or the expiration of any options or
rights related to such convertible or exchangeable securities, the Series A
Conversion Price shall forthwith be readjusted to such Series A Conversion Price
as would have been obtained had the adjustment which was made upon the issuance
of such options, rights or securities or options or rights related to such
securities been made upon the basis of the issuance of only the number of shares
of Common Stock actually issued upon the exercise of such options or rights,
upon the conversion or exchange of such securities or upon the exercise of the
options or rights related to such securities.
(E) "Additional Stock" shall mean any shares of Common Stock issued (or
deemed to have been issued pursuant to Section C.4(e)(iii)(D) by this
Corporation after the date of filing of these Articles of Incorporation (the
"Effective Date"), other than:
(1) Common Stock issued to effect any stock split or stock dividend by the
Corporation.
(2) Common Stock issued or issuable to employees, directors or consultants
of this Corporation for the purpose of incentive or under any stock option,
stock purchase or similar plan which is approved by a majority of the Board.
(3) Common Stock issued or issuable upon conversion of shares of Series A
Preferred Stock.
(4) Common Stock issued in connection with the acquisition of another
corporation.
(f) No Impairment. The Corporation, whether by amendment of its Certificate
of Incorporation or through any reorganization, transfer of assets, merger,
dissolution, issue or sale of securities or any other voluntary action, will not
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but at all times in good
faith will assist in the carrying out of all of such action as may be necessary
or appropriate in order to protect the conversion rights pursuant to this
Section C.4 of the holders of Series A Preferred Stock against impairment.
(g) Certificate as to Adjustments. Upon the occurrence of each adjustment
or readjustment of the Series A Conversion Rate pursuant to this Section C.4,
the Corporation at its expense will compute such adjustment or readjustment in
accordance with the terms hereof and prepare and promptly furnish to each holder
of Series A Preferred Stock a certificate setting forth (i) such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based, (ii) the Series A Conversion Rate at the time in effect
and (iii) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of Series A
Preferred Stock held by such holder.
(h) Notices of Record Date. In the event of any taking by the Corporation
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend) or other distribution, any Common Stock Equivalents or any
right to subscribe for or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
will deliver to each holder of Series A Preferred Stock at least ten (10) days
prior to the date specified therein, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend, distribution or
rights, and the amount and character of such dividend, distribution or right.
(i) Reservation of Stock Issuable Upon Conversion. The Corporation at all
times will reserve and keep available out of its authorized but unissued shares
of Common Stock solely for the purpose of effecting the conversion of the shares
of Series A Preferred Stock such number of its shares of Common Stock as from
time to time will be sufficient to effect the conversion of all then outstanding
shares of Series A Preferred Stock; and if at any time the number of authorized
but unissued shares of Common Stock is not sufficient to effect the conversion
of all then outstanding shares of Series A Preferred Stock, in addition to such
other remedies as may be available to the holders of Series A Preferred Stock
for such failure, the Corporation will take such corporate action as, in the
opinion of its counsel, may be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as will be sufficient for such
purpose.
(j) Notices. Any notices required by the provisions of this Section C.4 to
be given to the holders of shares of Series A Preferred Stock must be in writing
and will be deemed given when delivered at the address of the recipient;
provided, however, that such address shall have been furnished in writing to the
person giving notice and the address shall be at an entity that maintains
regular business hours (except for holidays) throughout the entire year. In the
event that the address furnished is not at an entity that maintains regular
business hours, notice shall be deemed given upon the earlier of personal
delivery or, if sent by registered or certified mail, at the earlier of its
receipt or seventy-two (72) hours after deposit in a regularly maintained
receptacle for the deposit of the United States mail, addressed and mailed as
aforesaid.
5. Amendment. Any term relating to the Series A Preferred Stock may be
amended only with the vote or written consent of holders of not less am
sixty-seven percent (67%) of all Series A Preferred Stock then outstanding. Any
amendment so effected shall be binding upon the Corporation and any holder of
Series A Preferred Stock.
IV.
(a) The liability of the directors of the Corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
(b) The Corporation is authorized to indemnity the directors and officers
of the Corporation to the fullest extent permissible under California law.
(c) Any repeal or modification of this Article shall only be prospective
and shall not affect the rights under this Article in effect at the time of the
alleged occurrence of any action or omission to act giving rise to liability."
3. The foregoing amendment and restatement of the articles of incorporation
has been duly approved by the Board of Directors of this Corporation.
4. The foregoing amendment and restatement of the articles of incorporation
has been duly approved by the required vote of shareholders in accordance with
Section 902 of the Corporations Code. The total number of outstanding shares of
the Corporation is 2,594,058 shares of Common Stock. The number of shares voting
in favor of the amendment equaled or exceeded the vote required. The percentage
vote required was more than fifty percent (50%) of the outstanding shares of
Common Stock.
We further declare under penalty of perjury that the matters set forth in
the foregoing certificate are true and correct of our own knowledge.
Executed at Palo Alto, California, on September 2, 1994.
Jessica Stevens, President
Bonnie Crystal, Secretary
<PAGE>
1. Certificate of Amendment of the Amended and Restated Articles of
Incorporation
RESOLVED: That Article III, Section C.4(a)(i) and (ii) of the Amended and
Restated Articles of Incorporation of the Company be amended in their entirety
as follows:
(a) Right to Convert.
(i) Optional Conversion. Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at the office of the
Corporation or any transfer agent for the Series A Preferred Stock, into
Common Stock. The number of shares of Common Stock into which one share of
Series A Preferred will be converted will be equal to $10.00 (the "Series A
Original Purchase Price") divided by the Series A Conversion Price (as
hereinafter defined) then in effect, such conversion ratio being referred
to as the "Series A Conversion Rate." The initial Series A Conversion
Price will be $5.00 and will be subject to adjustment as provided herein.
Upon any decrease or increase of the Series A Conversion Price or the
Series A Conversion Rate as described in this Section C.4, the Series A
Conversion Rate or Series A Conversion Price, as the case may be, will be
increased or decreased appropriately.
(ii) Automatic Conversion of Series A Preferred Stock. Each share of Series A
Preferred Stock will be converted into shares of Common Stock at the then
effective Series A Conversion Rate immediately upon (i) the eletion by
shareholders representing not less than 67% of the outstanding Series A
Preferred to convert the Series A Preferred Stock into Common Stock, or
(ii) the closing of the sale of stock pursuant to a registration statement
under the Sercurities Act of 1933, as amended, for a bona fide, firm
commitment underwritten public offering (other than a registration on Form
S-8, Form S-4 or comparable forms) of the Corporation's Common Stock that
has a public offering price of not less than $15.00 per share (as adjusted
for any Recapitalization Events.)
<PAGE>
BYLAWS
OF
TELEGEN CORPORATION
SECTION I
Offices
1.1 Principal Executive Office. The Board of Directors shall designate the
location of the first principal executive office and may change the principal
executive office from one location to another within the State of California.
1.2 Other Offices. Branch or subordinate offices may at any time be
established by the Board of Directors at any place or places where the
Corporation is qualified to do business.
SECTION II
Meetings of Shareholders
2.1 Place of Meetings. All annual meetings of shareholders and all other
meetings of shareholders shall be held either at the principal executive office
or at any other place within or without the State of California which may be
designated either by the Board of Directors or by the written consent of all
shareholders entitled to vote at the meeting, given either before or after the
meeting and filed with the Secretary of the Corporation.
2.2 Annual Meetings. An annual meeting of shareholder shall be held on the
1st day of May in each year at the hour of 10:00 a.m. to elect Directors and to
transact any other proper business. If the day provided herein should fall upon
a Saturday, Sunday or legal holiday, then the annual meeting shall be held at
the same time and place on the next succeeding business day which is not a legal
holiday. If an annual meeting is not held as provided herein, the Directors may
be elected at any meeting of the shareholders thereafter called in the manner
provided herein.
2.3 Special Meetings. Special meetings of the shareholders, for any purpose
or purposes whatsoever, may be called at any time by the Board, the Chairperson
of the Board, the President, or by one or more of the shareholders entitled to
cast, in the aggregate, not less than 10% of the votes at the meeting.
To call a special meeting, the person(s) entitled to call such meeting
shall submit a request for such meeting in writing to the Chairperson of the
Board, the President, the Vice President, or Secretary of the Corporation, and
such officer shall, within 20 days of receipt of such request, cause notice to
be given to all shareholders entitled to vote thereat that a meeting will be
held at the time requested by the person or persons calling the meeting. This
request shall be given not less than 35 nor more than 60 days prior to the date
of the special meeting being called.
2.4 Notice of Annual and Special Meetings. Written notice of any annual or
special meetings of shareholders shall be given not than 10 nor more than 60
days before the date of the meeting to each shareholder entitled to vote at such
meeting. Such notice shall state the place, date and hour of the meeting and (1)
in the case of a special meeting, the general nature of the business to be
transacted and no other business may be transacted, or (2) in the case of the
annual meeting, those matters which the Board, at the time of the mailing of the
notice, intends to present for action by the shareholders. Notice of any meeting
at which directors are to be elected shall include the names of nominees
intended at the time of the notice to be presented by management for election.
Any shareholder approval at the meeting, other than unanimous approval by those
entitled to vote, shall be valid only if the general nature of the proposal so
approved was stated in the notice of meeting or in any written waiver of notice.
Such notice shall be given either personally or by first class mail or
other means of written communication, addressed to the shareholder at the
address of such shareholder appearing on the books of the Corporation or given
by the shareholder to the Corporation for the purpose of notice; or if no such
address appears or is given, at the place where the principal executive office
of the Corporation is located or by publication at least once in a newspaper of
general circulation in the county in which the principal executive office is
located. The notice shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by other means of written
communication.
If a notice addressed to a shareholder at the address of the shareholder
appearing on the books of the Corporation is returned to the Corporation by the
United States Postal Service, marked to indicate that the United States Postal
Service is unable to deliver the notice to the shareholder at such address, all
future notices shall be deemed to have been duly given without further mailing
if the same shall be available for the shareholder upon written demand at the
principal executive office of the Corporation for a period of one year from the
date of the giving of the notice to all other shareholders.
2.5 Adjourned Meetings and Notice Thereof. When any shareholders' meeting
is adjourned to another time or place, notice of the adjourned meeting need not
be given if the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting, the Corporation may transact any
business which it might have transacted at the original meeting. If adjournment
is for more than 45 days or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each shareholder of record entitled to vote at the meeting.
2.6 Voting. Except as otherwise provided in the Articles of Incorporation
and except for cumulative voting as is provided for in paragraph 2.7 below, each
outstanding share, regardless of class, is entitled to one vote on each matter
submitted to a vote of shareholders and any shareholder may vote part of his
shares in favor of a proposal and refrain from voting his remaining shares or
vote them against the proposal. Such vote may be viva voce or by ballot;
provided, however, that all elections for Directors must be by ballot upon
demand made by any share holder before the voting begins.
2.7 Cumulative Voting. Every shareholder entitled to vote at any election
for Directors may cumulate his votes and give one candidate a number of votes
equal to the number of Directors to be elected multiplied by the number of votes
to which his shares are normally entitled, or to distribute his votes on the
same principle among as many candidates as he thinks fit, provided that no
shareholder shall be entitled to cumulate votes unless such candidate or
candidates' names have been placed in nomination prior to the voting and at
least one shareholder has given notice at the meeting prior to the voting of his
intention to cumulate his votes. The candidates receiving the highest number of
votes of shares entitled to vote for them up to the number of Directors to be
elected shall be elected.
2.8 Quorum. A majority of the shares entitled to vote, represented in
person or by proxy, shall constitute a quorum at a meeting of the shareholders.
Shares shall not be counted to constitute a quorum if voting of them has been
enjoined or they cannot lawfully be voted at the meeting. The shareholders
present at a duly called or held meeting at which a quorum is present may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough shareholders so as to leave less than a quorum, if any action taken
(other than adjournment) is approved by at least a majority of the shares
required to constitute a quorum.
2.9 Consent of Absentees - Waiver of Notice. The transactions of any
meeting of shareholders, either annual or special, however called and noticed,
shall be as valid as though had at a meeting duly held after regular call and
notice, if a quorum be present either in person or by proxy, and if, either
before or after the meeting, each of the persons entitled to vote, not present
in person or by proxy, signs a written waiver of notice or a consent to the
holding of such meeting, or an approval of the minutes thereof. All such
waivers, consents or approvals shall be filed with the corporate records or made
a part of the minutes of the meeting.
Attendance of a person at a meeting shall constitute waiver of notice of
and presence at the meeting, except when the person objects, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened, and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters required by law to
be included in the notice but not so included, if such objection is expressly
made at the meeting.
2.10 Action Without Meeting. Except as otherwise provided in the Articles
of Incorporation, any action which may be taken at any annual or special meeting
of the shareholders may be taken without a meeting and without prior notice, if
a consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting where all
shares entitled to vote thereon were present and voted; provided that unless the
consents of all shareholders entitled to vote have been solicited in writing,
notice of any shareholder approval pursuant to Section 310, 317, 1201 or 2007 of
the California General Corporation Law without a meeting by less than unanimous
written consent shall be given each shareholder as provided in paragraph 2.4 at
least 10 days before consummation of the action authorized by such approval, and
prompt notice shall be given of the taking of any other corporate action
approved by shareholders without a meeting by less than unanimous written
consent; and provided, further, that Directors may not be elected by written
consent unless such consent is unanimous. Section 310 relates to interested
directors' transactions; Section 317 relates to indemnification of officers and
directors; Section 1201 relates to reorganizations; Section 2007 relates to
certain distributions to shareholders during liquidation.
2.11 Proxies. Every person entitled to vote shares may authorize another
person or persons to act by proxy with respect to such shares. Every proxy
continues in full force and effect until revoked by the person executing it
prior to the vote pursuant thereto, provided that no proxy shall be valid after
the expiration of 11 months from the date thereof unless otherwise provided in
the proxy. Revocation of a proxy may be effected by a writing delivered to the
Corporation stating that the proxy is revoked or by a subsequent proxy executed
by the person executing the prior proxy and presented to the meeting or, as to
any meeting by attendance at such meeting and voting in person by the person
executing the proxy. The dates contained and the forms of proxy presumptively
determine the order of execution regardless of the postmarked dates on the
envelopes in which they are mailed.
2.12 Procedures for Conduct of Meeting. The chairman of the meeting shall
establish the procedural rules to govern a meeting of shareholders and shall
have the power to make final and binding decisions on any procedural questions
raised at the meeting. In advance of any meeting of shareholders the Board may
appoint inspectors of election to act at the meeting and any adjournment
thereof. If inspectors of election are not so appointed, or if any persons so
appointed fail to appear or refuse to act, the chairman of any meeting of
shareholders may, and on the request of any shareholder or shareholder's proxy
shall, appoint inspectors of election (or persons to replace those who so fail
or refuse) at the meeting. The number of inspectors shall be either one or
three. If appointed at a meeting on the request of one or more shareholders or
proxies, the majority of shares represented in person or by proxy shall
determine whether one or three inspectors are to be appointed.
SECTION III
Directors
3.1 Powers. Subject to any limitations in the Articles of Incorporation,
these Bylaws, and the California General Corporation Law as to action required
to be approved by the shareholders, or by the outstanding shares, the business
and affairs of the Corporation shall be managed and all corporate powers shall
be exercised by or under the direction of the Board of Directors. The Board may
delegate the management of the day-to-day operation of the business of the
Corporation to a management company or other person provided that the business
and affairs of the Corporation shall be managed and all corporate powers shall
be exercised under the ultimate direction of the Board.
3.2 Number of Directors. The authorized number of Directors shall be no
less than five (5) and no more than nine (9), with the precise number to be set
by a duly adopted resolution of the Board of Directors.
3.3 Election and Term of Office. The Directors shall be elected at each
annual meeting of shareholders to hold office until the next annual meeting, but
if any such annual meeting is not held, or the Directors are not elected
thereat, the Directors may be elected at any special meeting of shareholders
held for that purpose. Each Director, including a Director elected to fill a
vacancy, shall hold office until the expiration of the term for which elected
and until a successor is elected and qualified.
3.4 Vacancies. A vacancy or vacancies in the Board of Directors shall be
deemed to exist in case of the death, resignation or removal of any Director, or
if a vacancy is declared by the Board as provided in paragraph 3. 5 below, or if
the authorized number of Directors is increased. No reduction of the authorized
number of Directors shall have the effect of removing any Director prior to the
expiration of his term of office. Except for a vacancy created by the removal of
a Director, vacancies in the Board of Directors may be filled by majority of the
remaining directors, though less than a quorum, or by a sole remaining Director.
Vacancies created by the removal of a Director may be filled only by approval of
the shareholders. The shareholders may elect a Director at any time to fill any
vacancy not filled by the Directors. Any such election by written consent other
than to fill a vacancy created by removal requires the consent of. a majority of
the outstanding shares entitled to vote.
3.5 Removal. The Board of Directors may declare vacant the office of a
Director who has been declared of unsound mind by order of court or who has been
convicted of a felony. The entire Board of Directors or any individual Director
may be removed from office without cause if such removal is approved by the
outstanding shares; provided, however, that unless the entire Board is removed,
no individual Director may be removed when the votes cast against removal, or
not consenting in writing to such removal, would be sufficient to elect such
Director if voted cumulatively at an election at which the same total number of
votes cast were cast (or, if such removal is taken by written consent, all
shares entitled to vote were voted) and the entire number of Directors
authorized at the time of the Directors' most recent election were then being
elected.
3.6 Resignations. Any Director may resign effective upon giving written
notice to the Chairperson of the Board, the President, the Secretary or to the
entire Board of Directors, unless such notice specifies a later time for the
effectiveness of such resignation. If such resignation is effective at a future
time, a successor may be elected to take office when the resignation becomes
effective.
3.7 Place of Meeting. Meetings of the Board of Directors may be held at any
place within or without the State of California which has been designated in the
notice of the meeting, or if not stated in the notice, or if there is no notice,
designated herein or by resolution of the Board. In the absence of such
designation, regular meetings shall be held at the principal executive office.
3.8 Organization Meeting. Immediately following each annual meeting of
shareholders, the Board of Directors shall hold a regular meeting for the
purpose of organization, election of officers and the transaction of other
business. Notice of such meeting is hereby dispensed with.
3.9 Special Meetings. Special meetings of the Board for any purpose may be
called at any time by the Chairperson of the Board, the President or any Vice
President or the Secretary, or any two Directors. Notice of the time and place
of all special meetings of the Board of Directors shall be delivered personally
or by telephone or telegraph to each Director at least 48 hours prior to the
meeting or sent to each Director by first class mail, postage prepaid, at least
four days before the meeting. Notice of any meeting need not be given to any
Director who signs a waiver of notice, whether before or' after the meeting, or
who attends a meeting and does not object to the lack of notice either prior to
or at the commencement of that meeting.
3.10 Participation by Telephone. Members of the Board of Directors may
participate in a meeting through use of conference telephone or similar
communications equipment, so long as all members of the Board participating in
such meeting can hear one another.
3.11 Waiver of Notice. The transactions of any meeting of the Board of
Directors, however called and noticed or wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice of a quorum be
present and if, either before or after the meeting, each of the Directors not
present signs a written waiver of notice, a consent to holding the meeting, or
an approval of the minutes thereof. All such waivers, consents or approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting.
3.12 Quorum. A majority of the authorized number of Directors constitutes a
quorum of the Board for the transaction of business. Every act or decision done
or made by a majority of the Directors present at a meeting duly held at which a
quorum is present shall be regarded as the act of the Board of Directors, unless
a greater number be required by these Bylaws, by the California General
Corporation Law or by the Articles of Incorporation. A meeting at which a quorum
is initially present may continue to transact business notwithstanding the
withdrawal of Directors, if any action taken is approved by at least a majority
of the required quorum for such meeting. A majority of the Directors present,
whether or not a quorum is present, may adjourn any meeting to another time and
place. If a meeting is adjourned for more than 24 hours, notice of any
adjournment to another time or place shall be given prior to the time of the
adjourned meeting to the Directors who were not present at the time of the
adjournment.
3.13 Action Without Meeting. Any action required or permitted to be taken
by the Board of Directors may be taken without a meeting, if all members of the
Board shall individually or collectively consent in writing to such action. Such
written consent or consents shall be filed with the minutes of the proceedings
of the Board. Such action by written consent shall have the same force and
effect as a unanimous vote of such Directors.
3.14 Fees and Compensation. Directors shall not receive any stated salary
for their services as Directors, but, by resolution of the Board, a fixed fee,
with or without expenses of attendance, may be allowed the Directors for
attendance at each meeting. Nothing herein contained shall be construed to
preclude any Director from serving the Corporation in any other capacity as an
officer, agent, employee or otherwise and receiving compensation therefor.
3.15 Committees. The Board of Directors may, by resolution adopted by a
majority of the authorized number of Directors, designate one or more
committees, each consisting of two or more directors, to serve at the pleasure
of the Board of Directors. The Board of Directors may designate one or more
Directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee. The appointment of members or alternate
members of a committee requires the vote of a majority of the authorized number
of Directors. Any such committee, to the extent provided in the resolution of
the Board of Directors, shall have all the authority of the Board of Directors
in the management of the business and the affairs of the Corporation except with
respect to (a) the approval of any action also requiring shareholders' approval
or approval of the outstanding shares, (b) the filling of vacancies on the Board
of Directors or any committee, (c) the fixing of compensation of Directors for
serving on the Board of Directors which by its express terms is not so amendable
or repealable, (d) a distribution to shareholders, except at a rate or in a
periodic amount or within a price range determined by the Board, or (e) the
appointment of other committees of the Board of Directors or the members
thereof.
3.16 Right of Inspection. Every Director shall have the absolute right to
inspect and copy at any reasonable time all books, records, documents of every
kind, and to inspect the physical properties of the Corporation and of its
subsidiaries, domestic or foreign. Such inspection by a Director may be made in
person or by agent or attorney, and the right of inspection includes the right
to copy and make extracts.
3.17 Standard of Care. Directors shall perform the duties of a Director
including duties as a member of any committee of the Board on which the Director
may serve, in good faith, in a manner which Director believes to be in 'the best
interests of the Corporation and with such care, including reasonable inquiry,
as an ordinarily prudent person in a like position would use under similar
circumstances. SECTION IV
Officers
4.1 Officers. The officers of the Corporation shall be a Chairperson of the
Board, or a President, or a Chief Executive Officer, or all of the foregoing, a
Secretary and a Chief Financial Officer. The Corporation may also have, at the
discretion of the Board of Directors, such other officers as may be appointed in
accordance with the provisions of paragraph 4.3. Any number of offices may be
held by the same person.
4.2 Subordinate Officers, Etc. The Board of Directors may appoint such
other officers with such titles and duties as are provided in these Bylaws or as
the Board of Directors may from time to time specify.
4.3 Removal and Resignation. Any officer may be removed at any time, with
or without cause, by a majority of the Directors at the time in office, at any
regular or special meeting of the Board. Any officer may resign at any time by
giving written notice of such resignation to the Corporation. The giving of such
resignation shall not operate to waive any rights the Corporation may have under
any employment agreements or understandings with such officers. Any such
resignation shall take effect at the date of the receipt of such notice or at
any later time specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
4.4 Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be filled in the manner
prescribed in the Bylaws for regular appointment to such office.
4.5 Chairperson of the Board. The Chairperson of the Board shall, if
present, preside at all meetings of the Board of Directors, and exercise and
perform such other powers and duties as may be from time to time assigned to him
by the Board of Directors or prescribed by these Bylaws.
4.6 President. Subject to such supervisory powers, if any, as may be given
by the Board of Directors to the Chairperson of the Board, and if the
Corporation does not have a Chief Executive Officer, the President shall be the
chief executive officer of the Corporation and shall, subject to the control of
the Board of Directors, have general supervision, direction and control of the
business and affairs of the Corporation. She or he shall preside at all meetings
of the shareholders and, in the absence of the Chairperson of the Board, at all
meetings of the Board of Directors.
4.7 Vice President. In the absence or disability of the President, the Vice
Presidents, if any, in order of their rank as fixed by the Board of Directors,
or if not ranked, the Vice President designated by the Board of Directors, shall
perform all the duties of the President, and when so acting shall have all the
powers of, and be subject to all the restrictions upon, the President. The Vice
Presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the Board of Directors
or these Bylaws.
4.8 Secretary. The Secretary shall record, or cause to be recorded, actions
taken at meetings of shareholders and Directors and committees in a book of
written minutes to be kept at the principal executive office and such other
places as the Board of Directors may order, with the time and place of holding,
whether regular or special, and, if special, how authorized, the notice thereof
given, the names of those present at Directors' and committee meetings, the
number of shares present or represented at shareholders' meetings and the
proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal executive
office or at the office of the Corporation's transfer agent, a record of its
shareholders, giving the names and addresses of shareholders, the number and
class of shares held by each, and the number and date of cancellation of every
certificate surrendered for cancellation. The aforementioned information may be
maintained either in written form or in any other form capable of being
converted into written form, including without limitation, punch cards, magnetic
tape or any other information storage device related to electronic data
processing equipment, provided that such card, tape or other equipment is
capable of reproducing the information in written form.
Unless another officer is designated by the Board of Directors or these
Bylaws, the Secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the Board of Directors required by these Bylaws or
the California General Corporation Law to be given, shall keep the Seal of the
Corporation in safe custody and shall have such other powers and perform such
other duties as may be prescribed by the Board of Directors or these Bylaws. If
for any reason the Secretary shall fail to give notice of any special meeting of
the Board of Directors called by one or more of the persons identified in
paragraph 3.9, or if she or he shall fail to give notice of any special meeting
of the shareholders called by one or more of the persons identified in paragraph
2.3, then any such person or persons may give notice of any such special
meeting.
If there is no Vice President, then in the absence or disability of the
President, the Secretary shall perform all the duties of the President and when
so acting shall have all the powers of, and be subject to all the restrictions
on, the President.
4.9 Chief Financial Officer. The Chief Financial Officer shall keep and
maintain, or cause to be kept and maintained, adequate and correct books and
records of account of the properties and business transactions of the
Corporation. The Chief Financial Officer shall deposit all moneys and other
valuables in the name and to the credit of the Corporation with such
depositories as may be designated by the Board of Directors. She or he shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, shall render to the Chairperson of the Board, the President and Board
of Directors, whenever any of them request it, an account of all financial
transactions of the Corporation and of the financial condition of the
Corporation and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or these Bylaws.
SECTION V
Miscellaneous
5.1 Record Date and Closing Stock Books. The Board of Directors may fix, in
advance, a record date for the determination of the shareholders entitled to
notice of and to vote at any meeting of shareholders or entitled to receive any
dividend or distribution, or any allotment of rights or entitled to exercise any
rights in respect of any other lawful action. The record date so fixed shall be
not more than 60 days nor less than 10 days prior to the date of the meeting nor
more than 60 days prior to the event for the purposes of which it is fixed. When
a record date is so fixed, only shareholders of record on that date are entitled
to notice of and to vote at the meeting or to receive the dividend,
distribution, or allotment of rights, or to exercise any rights, as the case may
be, notwithstanding any transfer of any shares on the books of the Corporation
after the record date. If no record date is fixed, the record date for
determining shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the business day next
preceding the day on which notice is given, or if notice is waived, at the close
of business on the business day next preceding the day on which the meeting is
held. The record date for determining shareholders entitled to give consent to
corporate action in writing without a meeting, when no prior action by the Board
is necessary, should be the day on which the first written consent is given. The
record date for determining shareholders for any other purpose shall be at the
close of business on the day on which the Board adopts the resolution relating
thereto, or the sixtieth day prior to the date of such action, whichever is
later.
5.2 Share Certificates. Every holder of shares in the Corporation shall be
entitled to have a certificate signed in the name of the Corporation by the
Chairperson of the Board, or vice Chairperson of the Board, or the President or
Vice President and by the Chief Financial Officer, or an Assistant Treasurer, or
the Secretary or any Assistant Secretary, certifying the number of shares and
the class or series of shares owned by the shareholder. Any or all of the
signatures on the certificate may be facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the corporation
with the same effect as if such person were an officer, transfer agent or
registrar at the date of issue. The foregoing notwithstanding, in the event that
the corporation is an issuer of securities registered under the Securities and
Exchange Act of 1934 or which is registered under the Investment Company Act of
1940, the Corporation may adopt a system of issuance, recordation and transfer
of its shares by electronic or other means not involving any issuance of
certificates, including provisions for notice to purchasers in substitution of
the statements required to be placed upon the certificates pursuant to Sections
417 and 418 of the California General Corporation Law, which system has been
approved by the Commissioner of Corporations or the Securities and Exchange
commission or which is authorized by any statute of the United States.
5.3 Inspection of Corporate Records. Any shareholder or shareholders
holding in the aggregate at least five percent (5%) of the outstanding voting
shares of the Corporation or who hold at least one percent (1%) of such voting
shares and have filed Schedule 14B with the Securities and Exchange Commission,
shall have an absolute right to do either or both of the following: (1) inspect
and copy the records of shareholders' names and addresses and shareholdings
during usual business hours upon five business days, prior written demand upon
the Corporation; or (2) obtain from the transfer agent for the Corporation upon
five (5) days' prior written demand and upon the tender of its usual charges for
such a list (the amount of which charges shall be stated to the shareholder by
the transfer agent upon request), a list of the shareholders' names and
addresses who are entitled to vote for the election of Directors, and their
shareholdings, as of the most recent record date for which it has been compiled
or as of the date specified by the shareholders subsequent to the date of
demand. The Corporation shall have the responsibility to cause its transfer
agent to comply with such demand. The record of shareholders shall also be open
to inspection and copying by any shareholder or holders of a voting trust
certificate at any time during usual business hours upon written demand on the
Corporation for a purpose reasonably related to such holders' interests as a
shareholder or holder of a voting trust certificate. The accounting books and
records and minutes of proceedings of the shareholders, the Board of Directors
and committees of the Board of Directors shall be open to inspection upon the
written demand on the Corporation of any shareholder or holder of a voting trust
certificate at any reasonable time during usual business hours for a purpose
reasonably related to such holder's interest as a shareholder or as a holder of
such voting trust certificate. This right of inspection shall extend to the
records of each subsidiary of the Corporation. The right of inspection includes
the right to copy and make extracts. Any inspection and copying under this
section may be made in person or by an agent or attorney.
5.4 Checks, Drafts, Etc. All checks, drafts or other orders for payment of
money, notes or other evidence of indebtedness, issued in the name of, or
payable to, the Corporation shall be signed or endorsed by such person or
persons and in such manner as, from time to time, shall be determined by
resolution of the Board of Directors.
5.5 Annual Report. So long as this Corporation has less than 100 holders of
record of its shares, in the manner determined by Section 605 of the California
General Corporation Law, the annual report to shareholders referred to in
Section 1501(a) of the California General Corporation Law is dispensed with. The
Board of Directors may cause annual or other periodic reports to be sent to the
shareholders in any form that it considers appropriate. 5.6 Contract, Etc., How
Executed. The Board of Directors, except as these Bylaws otherwise provide, may
authorize any officer or officer's agent or agents to enter into any contract or
execute any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances; but, unless so
authorized by the Board of Directors, no officer, agent or employee shall have
any power or authority to bind the Corporation by any contract or engagement or
to pledge its credit or to render it liable for any purpose or in any amount.
5.7 Representation of Shares of Other Corporations. The Chairperson of the
Board, or the President or any Vice President, and the Secretary, or the
Assistant Secretary, of this Corporation are authorized to vote, represent and
exercise on behalf of this Corporation all rights incident to any and all shares
of any other corporation or corporations standing in the name of this
Corporation. The authority herein granted to said officers to vote or represent
on behalf of this Corporation any and all shares held by this Corporation in any
other corporation or corporations may be exercised either by such officers in
person or by any person authorized so to do by proxy or power of attorney duly
executed by said officers.
5.8 Accounting Period. The accounting period of the Corporation shall be
the twelve-month period beginning on January 1 of each year and ending on
December 31 of the same year.
5.9 Indemnification of Directors, Officers, Employees and Other Agents. (a)
Agents, Proceedings, and Expenses. For the purposes of this section, "agent"
means any person who is or was a director, officer, attorney, agent or employee
of this Corporation, or is or was serving at the request of this Corporation as
a director, officer, attorney, agent or employee of another foreign or domestic
corporation, partnership, joint venture, trust or other enterprise, or was a
director, officer, attorney, agent or employee of a domestic corporation which
was a predecessor corporation of this Corporation or of another enterprise at
the request of such. predecessor Corporation; "proceeding" means any threatened,
pending or completed action or proceeding, whether civil, criminal,
administrative, or investigative; and "expenses" includes, without limitation,
attorneys' fees and any expenses of establishing a right to indemnification
under (a) or (e) of this section.
(b) Actions Other than by the Corporation. This Corporation shall indemnify
any person who was or is a party, or is threatened to be made a party, to any
proceeding (other than an action by or in the right of this Corporation to
procure a judgment in its favor) by reason of the fact that such person is or
was an agent of this Corporation, against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with such proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in the best interests of this Corporation and,
in the case of a criminal proceeding, had no reasonable cause to believe the
conduct of such person was unlawful. The termination of any proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in the best interests of this Corporation or that the person had reasonable
cause to believe that the person's conduct was unlawful.
(c) Actions by or in the right of the Corporation. This Corporation shall
indemnify' any person who was or is a party, or is threatened to be made a
party, to any threatened, pending or completed action by or in the right of this
Corporation to procure a judgment in its favor by reason of the fact that such
person is or was an agent of this Corporation, against expenses actually and
reasonably incurred by such person in connection with the defense or settlement
of such action if such person acted in good faith, in a manner such person
believed to be in the best interests of this Corporation and its shareholders.
No indemnification shall be made under (c) of this section for any of the
following:
i. In respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to this Corporation in the performance of such
person's duty to the Corporation and its shareholders, unless and only to the
extent that the court in which such proceeding is or was pending shall determine
upon application that, in view of all the circumstances of the case, such person
is fairly and reasonably entitled to indemnity for the expenses which the court
shall determine; or
ii. Of amounts paid in settling or otherwise disposing of a pending action
without a court approval; or
iii. of expenses incurred in defending a pending action which is settled or
otherwise disposed of without court approval.
(d) Successful Defense by Agent. To the extent that any agent of this
Corporation has been successful on the merits in defense of any proceeding
referred to in (b) or (c) above or in defense of any claim, issue or matter
herein, the agent shall be indemnified against expenses actually and reasonably
incurred by the agent in connection therewith.
(e) Required Approval. Except as provided in (d) above, any indemnification
under this section shall be made by this Corporation only if authorized in the
specific case, upon a determination that indemnification of the agent is proper
in the circumstances because the agent has met the applicable standard of
conduct set forth in (b) or (c) above, by any of the following:
i. A majority vote of a quorum consisting of directors who are not parties
to such proceeding;
ii. If such a quorum of directors is not obtainable, by independent legal
counsel in written opinion;
iii. Approval of the shareholders, with the shares owned by the person to
be indemnified not being entitled to vote thereon. For the purposes of this
subsection, "approval of the shareholders" means approved or ratified by the
affirmative vote of a majority of the shares of this Corporation represented and
voting at a duly held meeting at which a quorum is present (which shares voting
affirmatively shall also constitute at least a majority of the required quorum)
or by the written consent signed by the holders of a majority of the outstanding
shares entitled to vote, which written consent shall be procedurally procured in
the manner provided by law; or
iv. The court in which the proceeding is or was pending upon application
made by this Corporation or the agent or the attorney or other person rendering
services in connection with the defense, whether or not such application by the
agent, attorney, or other person is opposed by this Corporation.
(f) Advance of Expenses. Expenses incurred in defending any proceeding
shall be advanced by this Corporation prior to the final disposition of the
proceedings on receipt of an undertaking by or on behalf of the agent to repay
the amount of the advance if it shall be determined ultimately that the agent is
not entitled to be indemnified as authorized in this section.
(g) Other Rights Authorized. The indemnification provided by this section
shall not be exclusive of any other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
shareholders, or vote of disinterested directors or otherwise, both as to action
in an official capacity and as to action in another capacity while holding such
office, to the extent such additional rights to indemnification are authorized
in the Articles of Incorporation of this Corporation. The right to indemnify
hereunder shall continued as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of the person. Nothing contained in this section
shall affect any right to indemnification to which any director, officer,
attorney, agent and employee of this Corporation or any subsidiary hereof may be
entitled by contract, written agreement or under these bylaws.
(h) Limitations. No indemnification or advance shall be made under this
section, except as provided in (d) or (e)(iii), in any circumstances where it
appears:
i. That it would be inconsistent with a provision of the articles or
bylaws, a resolution of the shareholders of an agreement in effect at the time
of the accrual of the alleged cause of action asserted in the proceeding in
which the expenses were incurred or other amounts were paid, which prohibits or
otherwise limits indemnification; or
ii. That it would be inconsistent with any condition expressly imposed by
the court in approval a settlement.
(i) Insurance. Upon and in the event of a determination by the Board of
Directors of this Corporation to purchase such insurance, this Corporation may
purchase and maintain insurance on behalf of any agent of the Corporation
against any liability asserted against or incurred by the agent in such capacity
or arising out of the agent's status as such whether or not this Corporation
would have the power to indemnify the agent against that liability under the
provisions of this section.
(j) Fiduciaries of Corporate Employee Benefit Plan. This section does not
apply to any proceeding against any trustee, investment manager or other
fiduciary of an employee benefit plan in that person's capacity as such, even
though that person may also be an agent of the Corporation as defined in (a) of
this section. Nothing contained in this section shall limit any right to
indemnification to which such a trustee, investment manager or other fiduciary
may be entitled by contract or otherwise, which shall be enforceable to the
extent permitted by applicable law.
(k) Authorization for Contract. The Board of Directors may authorize the
Corporation to enter into agreements, including any amendments or modifications
thereto, with any of its directors, officers or other persons described in (a)
of this section providing for indemnification of such persons to the maximum
extent permitted under applicable law or the Corporation's Articles of
Incorporation and Bylaws. SECTION VI
Amendments
6.1 Shareholders. New Bylaws may be adopted, or these Bylaws may be amended
or repealed, by the affirmative vote of a majority of the shares entitled to
vote represented at a meeting duly held at which a quorum is present or by the
written consent of shareholders as provided in paragraph 2.101 of these Bylaws.
6.2 Power of Directors. Subject to the right of shareholders as provided in
paragraph 6.1 of these Bylaws, Bylaws other than a bylaw or amendment thereof
changing the authorized number of Directors may be adopted, amended or repealed
by the Board of Directors.
<PAGE>
SOLAR ENERGY RESEARCH CORP.
REGISTRATION STATEMENT ON FORM S-4
EXHIBIT 5
OPINION RE: LEGALITY OF SECURITIES
August 14, 1996
Solar Energy Research Corp.
10075 E. County Line Road
Longmont, CO 80501
Re: Solar Energy Research Corp. Registration Statement on Form S-4
Gentlemen:
We have represented Solar Energy Research Corp., a Colorado corporation
("SERC"), and Solar Energy Research Corp. of California, a California
corporation and wholly owned subsidiary of SERC ("SERC California"), in
connection with the filing by SERC of a Registration Statement on Form S-4 (the
"Registration Statement") with the Securities and Exchange Commission relating
to the issuance by SERC California, after giving effect to the proposed
redomiciliation of SERC as a California corporation through a merger of SERC
with and into SERC California, of (i) 4,433,455 shares of common stock and
112,750 shares of Series A Preferred Stock to the holders of the common stock
and Series A Preferred Stock of Telegen Corporation, a California corporation
("Telegen"), in connection with the acquisition of Telegen by SERC pursuant to
the Plan and Agreement of Reorganization by and among SERC, Telegen and Telegen
Acquisition Corporation, a California corporation and wholly owned subsidiary of
SERC, dated November 16, 1995, as amended on January 18, 1996, April 9, 1996 and
on July 10, 1996 (as amended, the "Acquisition Agreement"), (ii) 915,221 shares
of common stock upon the exercise of options and warrants to be issued pursuant
to the Acquisition Agreement, (iii) 225,500 shares of common stock upon the
conversion of the 112,750 shares of Series A Preferred Stock, and (iv) 374,127
shares of common stock in the event that certain price protection provisions of
the Acquisition Agreement are triggered, pursuant to the Acquisition Agreement.
In connection with the foregoing transaction, you have requested the opinion of
this firm hereinafter set forth.
In rendering this opinion, we have reviewed the Acquisition Agreement,
examined originals or copies certified to our satisfaction of all corporate
records of SERC and SERC California and examined such other agreements and
documents relating to SERC and SERC California and certificates of officers of
SERC and SERC California and matters of law that we have deemed necessary as a
basis for the opinions hereafter expressed. Further, we have assumed the
genuineness of all signatures of documents not signed in our presence and the
authenticity of all documents submitted to us as originals and the conformity
with the originals of all documents submitted to us as certified copies.
Capitalized terms used but not defined herein shall have the meanings given them
in the Acquisition Agreement.
Based upon the foregoing, we are of the opinion that:
(i) SERC California is authorized to issue the 4,433,455 shares of common
stock and 112,750 shares of Series A Preferred Stock being registered by the
Registration Statement, and that such securities will be, when issued pursuant
to the terms of the Acquisition Agreement and the Registration Statement,
validly issued and outstanding, fully paid and nonassessable;
(ii) SERC California is authorized to issue the 915,221 shares of common
stock being registered by the Registration Statement, which shares are to be
issued upon the exercise of the options and warrants to be issued pursuant to
the Acquisition Agreement and the Registration Statement and, assuming (a) the
shares of common stock so issuable upon the exercise of the options and warrants
will be validly authorized on the dates of exercise, (b) there remain
sufficient, authorized but unissued shares of common stock available for
issuance, (c) on the dates of exercise, the options and warrants will have been
duly executed, authenticated, issued, and delivered, the options and warrants
will constitute the legal, valid, and binding obligations of SERC California,
and the options and warrants will (subject to applicable bankruptcy, insolvency,
and other laws affecting the enforceability of creditors' rights generally) be
enforceable as to SERC California in accordance with their terms, (d) no change
occurs in the applicable law or the pertinent facts, (e) the pertinent
provisions of such "blue sky," securities, and other laws as may be pertinent
have been complied with and (f) the options and warrants are exercised in
accordance with their terms, the shares of common stock so issuable will be,
when issued, validly issued and outstanding, fully paid, and nonassessable;
(iii) SERC California is authorized to issue the 225,500 shares of common
stock being registered by the Registration Statement, which shares are to be
issued upon the conversion of the 112,750 shares of Series A Preferred Stock to
be issued pursuant to the Acquisition Agreement and the Registration Statement
and, assuming (a) the shares of common stock so issuable upon the conversion of
the shares of Series A Preferred Stock will be validly authorized on the dates
of conversion, (b) there remain sufficient, authorized but unissued shares of
common stock available for issuance, (c) on the dates of conversion, the shares
of Series A Preferred Stock are validly authorized, validly issued, fully paid,
and nonassessable, (d) no change occurs in the applicable law or the pertinent
facts, (e) the pertinent provisions of such "blue sky," securities, and other
laws as may be pertinent have been complied with and (f) the shares of Series A
Preferred Stock are converted in accordance with the terms of the Articles of
Incorporation of SERC California and any other applicable documents governing
the rights and preferences of the shares of Series A Preferred Stock, the shares
of common stock so issuable will be, when issued, validly issued and
outstanding, fully paid, and nonassessable; and
(iv) SERC California is authorized to issue the 374,127 shares of common
stock being registered by the Registration Statement, which shares are to be
issued in the event that certain price protection provisions of the Acquisition
Agreement are triggered and pursuant to the Acquisition Agreement and the
Registration Statement and, assuming (a) the shares of common stock so issuable
in the event that certain price protection provisions of the Acquisition
Agreement are triggered will be validly authorized on the date that the price
protection provisions are triggered, (b) there remain sufficient, authorized but
unissued shares of common stock available for issuance, (c) on the date that the
price protection provisions are triggered, if at all, the Acquisition Agreement
will constitute a legal, valid, and binding obligation of SERC California, and
the Acquisition Agreement will (subject to applicable bankruptcy, insolvency,
and other laws affecting the enforceability of creditors' rights generally) be
enforceable as to SERC California in accordance with its terms, (d) no change
occurs in the applicable law or the pertinent facts, (e) the pertinent
provisions of such "blue sky", securities, and other laws as may be pertinent
have been complied with and (f) the shares of common stock are issued in
accordance with the terms of the Acquisition Agreement and the Registration
Statement, the shares of common stock so issuable will be, when issued, validly
issued and outstanding, fully paid, and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form S-4 and the reference to this firm under the
caption "Legal Matters" in the Prospectus contained in Registration Statement.
Very truly yours,
COHEN BRAME & SMITH
PROFESSIONAL CORPORATION
<PAGE>
SOLAR ENERGY RESEARCH CORP.
REGISTRATION STATEMENT ON FORM S-4
Exhibit 10 - Material Contracts * Confidential treatment of portions of certain
contracts has been requested.
Material Contracts of Solar Energy Research Corp:
None
Material Contracts of Telegen Corporation:
INDEX TO MATERIAL CONTRACTS OF TELEGEN CORPORATION
1. Service Agreement between MCI Telecommunications Corporation and Telegen
Corporation. * Confidential treatment of certain portions of this contract
requested.
2. Agreement among Telegen Corporation Telegen Display Laboratories, Inc.,
Transtech Electronics Pte., Ltd. and IPC Corporation, Ltd. dated as of May 30,
1996. * Confidential treatment of certain portions of this contract has been
requested.
3. Manufacturing License Agreement among Telegen Corporation, Telegen
Display Laboratories, Inc., Transtech Electronics Pte., Ltd. and IPC
Corporation, Ltd., dated May 30, 1996. * Confidential treatment of certain
portions of this contract has been requested.
4. Agreement between Telegen Display Laboratories, Inc. and Prescient,
Inc., dated as of June __, 1996.
5. Lease Agreement between Metropolitan Life Insurance Company and Telegen
Corporation.
<PAGE>
MCI CONFIDENTIAL * Confidential treatment of portions of this contract indicated
by asterisks enclosed in brackets has been requested.
MCI CONFIDENTIAL
MASTER SERVICES AGREEMENT
This Services Agreement (the "Agreement") together with any Exhibits
referenced herein and attached hereto is between MCI TELECOMMUNICATIONS
CORPORATION ("MCI") having a place of business at Three Ravinia Drive, Atlanta,
Georgia 30346 and TELEGEN CORPORATION ("Telegen") having a place of business at
353 Vintage Park Drive, Suite H, Foster City, California 94404.
WHEREAS, Telegen desires to distribute equipment and sell certain Services
(as defined below), in accordance with the terms and conditions contained in
this Agreement; and
WHEREAS, MCI desires to procure services and equipment from Telegen and to
have Telegen provide such Services to MCI Customers on MCI's behalf, in
accordance with the terms and conditions contained in this Agreement;
NOW, THEREFORE, for the mutual considerations stated herein, the Parties
agree as follows:
ARTICLE 1 - DEFINITIONS
As used throughout this Agreement, the following shall have the meanings
set forth below unless otherwise indicated:
(a) The term "Accessories" refers to related hardware, users' manuals, ,
power supplies, , , and all other parts, materials, and supplies necessary for
the installation and functioning of the Equipment as listed in Exhibit 3
attached hereto.
(b) The term "Adapters" refers to other wiring devices necessary to
interface the Equipment with the Customer Premises Equipment( and listed in
Exhibit 3 attached hereto) or with the equipment of the Local Exchange Carriers'
central offices.
(c) The term "Affiliate" of a named party means a corporation, partnership,
joint venture or other entity controlling, controlled by or under common control
with such party.
(d) The term "Agreement" includes the terms and conditions of all sections
contained herein, all Exhibits attached hereto, the Statement of Work (as
defined hereinbelow), and any other documents made a part of this Agreement or
incorporated by reference, including any written amendments to the foregoing
which have been mutually agreed upon and signed by the authorized
representatives of the Parties.
(e) The term "Business Day" shall mean any day of the week excluding
Saturday and Sunday and excluding holidays observed by the United States
government.
(f) The term "Customer" refers to MCI's Customer to whom the Services
hereunder will be provided by Telegen on behalf of MCI.
(g) The term "Customer Premises Equipment" refers to all Customer owned
telephone equipment on Site.
(h) The term "Database" refers to the computerized collection of data
containing information provided on the Distribution Order.
(i) The term "Degraded Condition" shall mean quality impairments to the
Customer's telephone service. including clicking, cross-talk, static, etc.
and/or, elongated connect times, due to the failure of Equipment or Equipment
Programming.
(j) The term "Distribution Order" for purposes of this Agreement shall mean
MCI's order for Distribution Services and shall specify the name of the Customer
at whose Site the equipment will be delivered, the requested delivery date,
number of units of Equipment to be shipped, Customer information, and all other
information required in the Work Order as defined below.
(k) The term "Distribution Service Cycle" means all stages of the
Distribution Service to be performed by Telegen including Staging, inventory
control, and all other services necessary for the performance of Distribution
Services.
(l) The term "Distribution Services" shall mean Telegen's performance of
the Distribution Services Cycle such that the Equipment switches the Customer's
IntraLATA long distance traffic to the MCI network. Distribution Services shall
be delivered as contemplated herein. The Parties shall on an ongoing basis
develop and agree on procedures for the delivery of Distribution Services during
the course of this Agreement.
(m) The term "Documentation" means Customer lists, Work Orders (as defined
below), procedures, checklists, instructions, marketing materials, and all other
materials provided by MCI to Telegen either electronically or in hard copy under
this Agreement. MCI is and shall remain the owner of such Documentation.
(n) The term "Effective Date" is the date specified on the signature page
of this Agreement.
(o) The term "Equipment" which Telegen distributes for purposes of this
Agreement shall refer to the automatic dialing devices mutually agreed upon by
the Parties and used to switch an MCI Customer's IntraLATA long distance traffic
to MCI's network and perform other functions as contemplated herein, but does
not include Adapters.
(p) The term "Equipment Programming", shall mean the process of defining
and configuring the automatic dialing device's memory with dialing sequences,
out-pulsing digits and related parameters in accordance with the Equipment
Software specifications for the purpose of switching Customer's intraLATA long
distance traffic to MCI's network, as specified by the engineering
specifications submitted to and approved by Network MCI Developers Lab and
attached hereto as Exhibit 8.
(q) The term "Equipment Software" is defined as the coding which controls
the operation of the Equipment. Telegen is and shall remain the owner of the
Equipment Software.
(r) The term "Installation Order" for purposes of this Agreement shall mean
MCI's order for Installation Services and shall specify the name of the Customer
at whose Site the Equipment will be delivered, the requested delivery date,
number of units of Equipment to be shipped, Customer information, and all other
information required in the Work Order as defined below.
(s) The term "Installation Service Cycle" means all stages of the
Installation Service to be performed by Telegen including Staging, inventory
control, customer service, remote programming and all other services necessary
for the performance of Installation Services.
(t) The term "Installation Services" shall mean a third party's,
performance of installation at Customer's site when MCI requests such services
on a Time and Materials basis. Installation services shall also mean the
physical installation of the equipment at the Customer's site, including but not
limited to, wiring, modular connection to the Customer's Equipment, installation
of wiring adapter and power supplies, and the installation of any other
equipment required to switch the Customer's traffic to MCI.
(u) The term "MCI" means MCI Telecommunications Corporation and its
Affiliates (as defined above), its employees, directors, officers, subsidiaries,
successors, designees, agents and assigns existing now or created in the future.
(v) The term "Minimum Amount" shall mean MCI's obligation to purchase six
thousand (6,000) units of Equipment provided the Agreement is terminated by MCI
in accordance with Article 16, "Termination of Agreement" during the Initial
Term.
(v.1) The term "out-of box failure" shall mean the failure of the Equipment
to perform its functions as specified by the engineering specifications
submitted to and approved by Network MCI Developers Lab and attached hereto as
Exhibit 8, effectively after having been properly installed on Customer premises
equipment for which it was designed to be installed. This term shall not include
failures due to damage, loss, misuse or abuse sustained by the Equipment after
its delivery to the Customer.
(w) The term "Party", in its singular or plural form, refers to either MCI
or Telegen or both, as dictated by the use.
(x) The term "Period" is defined as the first day of a particular month and
ending on the last day of such month during the Term of this Agreement.
(y) The term "Price List" refers to the list of prices attached to this
Agreement as Exhibit 2, incorporated herein.
(z) The term "Services" is the subject matter of this Agreement and refers
to Telegen's services, as more particularly described in this Agreement and the
attached Statement of Work.
(aa) The term "Service Interruption" shall mean the Customer's inability to
place local, long distance or international calls, experience disconnects of
telephone service, inaudible telephone calls, facsimile, or modem problems, or
inability to perform telephone functions, as tested and reported on in the
Network MCI Lab Evaluation Report attached hereto as Exhibit 9, due to the
failure of Equipment or Equipment Programming.
(bb) The term "Site" is defined as the Customer location where the
Equipment is to be installed.
(cc) The term "Software" applies to the Work Order tracking system software
supplied by MCI in connection with Distribution Services, as well as new
versions, new releases, updates, and modifications of the Software made by MCI.
MCI is and shall remain the owner of such Software.
(dd) The term "Staging" shall mean Telegen's responsibility to receive,
warehouse ship, and deliver the Equipment to the Customer Site, as more
specifically provided in Article 6.1.
(ee) The term "Status Changes" refers to the movement of the Installation
Orders through the Installation Service Cycle.
(ff) The term "Telegen" means Telegen Corporation, its employees,
directors, officers, subsidiaries, agents, Affiliates (as defined above),
successors, designees, and assigns existing now or created in the future.
(gg) The term "Telegen Personnel" will mean any and all Telegen employees,
agents, servants, and subcontractors supplied hereunder on either a permanent or
temporary basis by Telegen to perform Services for MCI and in no event or for
any purpose will these persons be considered employees of or be entitled to
benefits from MCI.
(hh) The term "Work Order" or "Order" means a written or electronic
requirement by MCI for Services to be performed by Telegen under this Agreement
and will be in the form of an Order for Distribution Services. Each order shall
be implemented as a separate agreement and substantially in the form attached
hereto as Exhibit 4.
ARTICLE 2 - TERM OF AGREEMENT AND SCOPE OF WORK
The Initial Term of this Agreement shall commence on the Effective Date and
shall remain in full force and effect until one year from the Effective Date
(the "Initial Term"). MCI has the option, exercisable in its sole discretion, to
extend the term of this Agreement for up to two (2) successive one (1) year
periods (the "Renewal Term"), by giving Telegen written notice of its election
to extend this Agreement at least sixty (60) days before its then current
expiration date. The Initial One (1) Year Term of this Agreement, plus the
Renewal Term, shall be the "Term" of this Agreement. MCI will be deemed to have
elected not to extend this Agreement beyond the Initial or Renewal Term if it
does not give timely notice of its election to extend. Notwithstanding an
election by MCI to extend the term of this Agreement, MCI may exercise its
termination rights pursuant to Article 16, "Termination of Agreement" upon
ninety (90) days written notice.
ARTICLE 3 - SCOPE OF WORK
Telegen will distribute the Equipment or sell certain Services all as more
particularly set forth in Article 6 and Exhibit 1 attached hereto. MCI agrees to
purchase the Minimum Amount during the Initial Term of this Agreement at the
price set forth in Telegen's proposal for services to MCI, with such proposal
being attached hereto as Exhibit 7 and incorporated herein by this reference.
The Parties understand that said price is the price for the Minimum Amount to be
purchased hereunder and that the price for future purchases of Equipment by MCI
pursuant to this Agreement shall be at the price agreed upon by the Parties
hereto at such time.
ARTICLE 4 - PAYMENT AND CREDITS
(a) Telegen will invoice MCI every 30 days for all Services performed
hereunder. With the exception of disputed invoices, MCI shall pay Telegen all
undisputed charges within thirty (30) days of the date of the invoice. Unless
specified otherwise, the prices set forth in the Price List, Exhibit 2, are
inclusive of the Equipment, Accessories and Services.
(b) Telegen shall submit all original invoices to the MCI Program Manager
as directed by MCI. Any disputed charges will be handled in accordance with
Article 11.
(c) MCI shall receive a 2% discount for all invoices paid within ten (10)
days of the date of the invoice delivered to MCI.
(d) MCI shall have no responsibility for reporting and payment obligations
with respect to Telegen Personnel including but not limited to compensation,
FICA, income tax and unemployment compensation, withholdings or other
employer-related obligations.
(e) Telegen shall credit MCI for all Equipment returned to Telegen pursuant
to Article 6.5 below.
ARTICLE 5 - WORK ORDER
(a) Telegen shall perform the Services specified in an individually issued
Work Order arising under this Agreement.
(b) Orders issued under this Agreement which require the delivery of
Services to extend beyond the expiration of the Term of the Agreement shall
remain in full force and effect through the performance period stated in the
Work Order. Any renewal of such Work Order shall be under the terms and
conditions in effect on the effective date of the renewal. This condition and
MCI's payment obligation for the payment of Services performed pursuant to this
Article shall survive the termination of this Agreement.
(c) Telegen shall update the Work Order tracking system to reflect Work
Order status in the Distribution Cycle on a daily basis.
ARTICLE 6 - DISTRIBUTION SERVICES
6.1 Staging.
Telegen will warehouse and deliver the Equipment to MCI Customers. This
Service will consist of the following functions:
(a) Warehouse the Equipment;
(b Package the Equipment and Accessories in accordance with MCI's
instructions including the insertion of MCI fulfillment materials as mutually
agreed upon by the Parties;
(c) Arrange for proper tracking of shipments by shipping entities in the
event a shipment does not reach its destination within the allotted delivery
time as set forth in this agreement;
(d) Ship the Equipment, Accessories, and Adapters (as identified in the
Work Order) within the timeframe provided in the Statement of Work, Exhibit 1.
Prior to the shipment, Telegen agrees to notify MCI of the shipment time and the
estimated time of arrival by updating the Work Order Tracking System/Database.
Telegen will ship the Equipment, Accessories, and necessary Adapters in
accordance with MCI's instructions as provided in the Work Order;
(e) Perform the function of Equipment Programming remotely when contacted
by the Customer including loading the Databases and configuring Equipment
Software;
(f) MCI shall request the Distribution Services by Work Order submitted in
writing or electronically. Telegen shall perform the Distribution Services as
requested in the Distribution Order and as set forth in the Statement of Work.
Timely performance as outlined herein of Distribution Services is of the essence
of this Agreement; therefore, failure to timely perform ordered Distribution
Services under this Agreement, including the Statement Of Work as provided in
Exhibit 1, shall constitute a breach of this Agreement. MCI recognizes that
Telegen is not responsible for delays due to the United States Postal Services
or any other shipping entities not affiliated with Telegen;
(g) Ship an alternate unit within 5 business days of the original estimated
date of arrival if the Customer has not received the equipment by such time.
Telegen shall be responsible for the cost of non-delivered overnight shipping
(if applicable); and
(i) Provide a shorter Distribution Cycle for all expedited orders.
6.2 - Installation Services
(a) If the customer Requires on-site installation, MCI shall order such
services from third parties.
(b) Telegen shall, after a second attempt of remote installation support or
as requested by MCI, allow on-site installation from a third party who shall be
designated by MCI. Telegen shall work in cooperation with the third party vendor
to complete the installation and programming of the Equipment within the
parameters set forth in this Agreement.
6.3 - Shipping
For all distribution services, Telegen agrees to utilize standard shipping
via a recognized international common carrier (e.g. UPS or equivalent) which
shall be paid by Telegen. MCI shall pay for the shipping services of all
expedites requested by MCI per the price schedule in Exhibit 2 attached hereto.
6.4 - Inventory Control.
Telegen shall maintain accurate inventory reporting containing the
following information Equipment serial number(s), weigh bill number, shipping
time/date, and estimated time of arrival.
6.5 - Out-of-Box Failures.
Telegen agrees to ship the Equipment to Site's via overnight mail with next
day delivery in order to support out-of-box failures. Under these circumstances
Telegen will provide return instructions and labels. Telegen will be financially
responsible for the costs of all such returned shipment(s) by Customer(s).
<PAGE>
* Confidential treatment of the portions of this page indicated by asterisks
enclosed in brackets has been requested.
ARTICLE 7 - SPECIAL INSTALLATION PROGRAMMING REQUESTS.
Upon the election of MCI, Telegen shall perform the following Special
Installation Programming requests for MCI Customers:
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
ARTICLE 8 - MAINTENANCE SERVICES.
(a) Telegen shall perform Maintenance Services for the Term of this
Agreement for all Customer Equipment installed either under this Agreement by
Telegen, the Customer, or any third parties. Telegen shall perform such
Maintenance Services as set forth in the attached Statement of Work and in
accordance with the Orders. Timely performance of the Maintenance Services is of
the essence of this Agreement; therefore, failure to timely perform ordered
Maintenance Services under this Agreement, including the Statement of Work,
shall constitute a breach of this Agreement. Said maintenance services shall be
invoiced by Telegen at the prices set forth in Exhibit 2, and shall be paid by
MCI.
(b) MCI shall notify Telegen by telephone or electronically of each request
for Maintenance Services of the Equipment. Unless otherwise mutually agreed upon
by the Parties, Telegen shall be available for emergencies at all times
twenty-four hours a day, seven days a week 365 days a year
(c) If the Customer incorrectly programs such Equipment, Telegen must
attempt to correct the problem remotely. If Telegen, after their best effort to
do so, is unable to solve the problem remotely and a third party vendor's
on-site assistance is required, Telegen shall refer the applicable maintenance
order to MCI for resolution. MCI must be notified of all such actions initiated
by the Customer to Telegen for services rendered under this Agreement.
ARTICLE 9 - CUSTOMER COMPLAINTS
9.1 - Response.
Telegen agrees to respond to all Installation or Maintenance Service
complaints received from MCI Customers, MCI's Third Party Vendor or MCI. MCI
agrees to provide Telegen with written notice of such complaints and supporting
documentation. Telegen has fifteen (15) Business Days from the receipt of any
complaint to investigate the complaint and provide MCI with a written response
and corrective plan, if needed. Any unresolved dispute after the fifteen (15)
Business Day resolution period will be handled in accordance with Article 10.
9.2 - Refunds.
In the event that MCI loses a Customer due to a failure by Telegen to
deliver Services, as MCI's remedy, Telegen agrees to refund to MCI amounts paid
by MCI to Telegen for any Services not so delivered.
ARTICLE 10 - RELATED SERVICES, ACCESSORIES AND EQUIPMENT
10.1 - Database.
MCI shall provide Telegen access to the Database that contains Work Order
information. Telegen is not granted title or ownership rights to the Database;
such rights shall remain solely with MCI. The Database and each item of
information included in the Database, as it now or hereafter exists, are MCI's
confidential and proprietary information, and as such are subject to the terms
and conditions of the Non-Disclosure Agreement, attached hereto as Exhibit 6,
and entered into by MCI and Telegen concurrently with this Agreement. MCI shall
update the Database as Work Orders are received. Telegen shall:
(a) utilize the Database solely in conjunction with the Services for which
it is supplied, unless otherwise agreed in writing by MCI;
(b) not duplicate, copy or modify the Database, in whole or in part, except
solely for Status Changes, unless otherwise agreed to by the Parties;
(c) update the Database for Status Changes; and
(d) forthwith return to MCI the Database and/or software, documentation and
all replacements, updates, or modifications to the Database upon termination of
the Agreement pursuant to Articles 16 and 17.
<PAGE>
* Confidential treatment of the portions of this page indicated by asterisks
enclosed in brackets has been requested.
10.2 - Distributed Database/Remote Access
Initially, Telegen will program all Equipment to dial the 10222 access
number and configure the Equipment to meet the Customer's telephone equipment
configuration and Equipment function preferences as specified in the engineering
specifications submitted to and approved by Network MCI Developers Lab (see
Exhibit 8). Further, Telegen will program all applicable Equipment to recognize
answer supervision and progression tones from the MCI Network and to
subsequently outpulse the appropriate customer authorization code provided by
MCI. Telegen will also program into the Equipment the passcodes and identifier
numbers; i.e., serial numbers, needed for remote access by Telegen. Finally,
Telegen agrees to remotely access the Equipment, with the Customer on the line,
upon request of MCI in order to change Customer specifications, disable units of
Equipment, verify, test and/or correct the operation of the Equipment.
Additionally, Telegen will instruct each unit of the Equipment to call into
Telegen's Customer Service Department automatically on schedules set and paid
for by MCI (as outlined in Exhibit 2) in order to obtain appropriate new routing
instructions in an affected geographic area during the permissive dialing period
(prior to the mandatory dialing period) to update the Equipment software for
routing changes affected by NPA splits, new NNXes or other dialing plan changes.
10.3 - Accessories.
10.3.1 - Telegen shall supply the Accessories and Adapters necessary for
the proper installation and functioning of the Equipment at prices and on terms
outlined in Exhibit 2. Telegen will provide only new Accessories. The warranty
applicable to Accessories shall be the Telegen's warranty for such Accessories
as provided in the Accessory List, attached hereto as Exhibit 3, and will be
passed through to MCI and its Customers. MCI has approved by the execution
hereof the selection of all Accessories listed in Exhibit 3 to be used by
Telegen. Upon the delivery of the Accessories to the Customer Site and receipted
by the Customer therefor, Customer shall take title to such Accessories.
10.4 - Equipment.
10.4.1 - Telegen will provide the necessary Equipment to the Customer for
Distribution Services and will retain title to such Equipment until the
Equipment is delivered; at which time title shall pass to the Customer. Telegen
bears the risk of loss for the Equipment through the completion date of the
Distribution Order until the Equipment is delivered at the Customer Site.
Telegen agrees to properly store the Equipment in a conveniently located
facility and adequately insure such Equipment, in accordance with Article 19,
throughout the Distribution Service Cycle.
10.4.2 - Telegen shall convey good title, free from any claim or
encumbrance, to MCI's Customers for all Equipment delivered under this
Agreement.
10.4.3 - Telegen and MCI agree that the Equipment types must be mutually
agreed upon by both parties.
10.4.4 - MCI agrees to provide Telegen with a monthly Equipment forecast
outlining its expected Equipment delivery requirements for the forward six
months, [*****]. Both parties recognize that the Equipment forecast is subject
to changing market conditions and will need to be reevaluated based upon actual
monthly performance. Telegen agrees to use its best efforts to adjust and
maintain their inventories to meet market demand in the timeframes specified in
the Statement of Work.
10.4.5 - All Equipment shall be packaged by Telegen in an attractive format
that is also designed to protect the Equipment and minimize damage during
shipping.
10.5 - Centralized Support.
Unless otherwise stated in this Agreement, Telegen will have a service
support group available to answer questions regarding service and technical
information, provide emergency shipment of replacement dialers and coordinate
all Services. Telegen Personnel will be available via telephone during normal
business hours (8:00 a.m. to 10:00 p.m. Monday through Friday, eastern time).
ARTICLE 11 - DISPUTE RESOLUTION
(a) Any claim, controversy or dispute arising out of or under this
Agreement including disputed invoices, Installation or Maintenance Services, or
Personnel (the "Dispute") will, prior to any other action being taken, first be
brought to the attention of the MCI and Telegen Program Managers for resolution.
These individuals will, within five (5) Business Days, or such other time period
agreed to by the parties, resolve the claim, controversy or dispute and reduce
their decision to writing to become a part of the respective program records of
each party.
Should the above designated representatives be unable to reach agreement
within the time allotted, each Party shall reduce the issues to writing,
including a settlement of the Dispute being sought, and both of these written
settlements shall be provided to the next executive level of each Party for
resolution. These individuals will, within five (5) Business Days or such other
time period agreed to by the parties, resolve the dispute, reduce their decision
to writing and provide their decision to each of the MCI and Telegen Program
Managers.
Should the above designated representatives be unable to reach agreement
within the time allotted, each Party shall reduce the issues to writing,
including a settlement of the Dispute being sought, and both of these written
settlements shall be provided to the Parties Corporate Officers (or designated
replacement) for resolution. These individuals will, within ten (10) Business
Days or such other time period agreed to by the Parties, resolve the dispute,
reduce their decision to writing and provide the decision to each of the MCI and
Telegen Program Managers.
(b) If the Parties continue to be unable to resolve the Dispute, then the
Dispute shall be exclusively resolved pursuant to binding arbitration in
accordance with the American Arbitration Association Rules and Procedures, as
amended by this Agreement. The arbitration shall be conducted in the State of
Georgia. The arbitrator shall determine declaratory and compensatory relief as
permitted by the terms of this Agreement and shall award reasonable attorney's
fees and costs to the prevailing party. The decision of the arbitrator shall be
final and shall be entitled to enforcement in any court of competent
jurisdiction. The arbitrator shall not be authorized to award damages of a type
or in any amount not expressly authorized under this Agreement. This provision
shall not be construed to prohibit either party from seeking preliminary or
permanent injunctive relief in any court of competent jurisdiction. The time
allowed for resolution under this Article, including the time for arbitration,
is in addition to the time allowed to cure under the Article of this Agreement
entitled "Termination for Default".
ARTICLE 12 - EXCUSABLE DELAY
(a) If the performance of this Agreement or a specific Order, or of any
obligation hereunder, is prevented, restricted or interfered with by reason of:
(i) acts of God;
(ii) wars, revolution, civil commotion, acts of public
enemies, blockage or embargo;
(iii) acts of Government in its sovereign capacity;
(iv) labor difficulties, including, without limitation,
strikes, slowdowns, picketing or boycotts; or
The Party affected, upon giving prompt notice to the other Party, but in no
event to exceed more than five (5) days for conditions (i) through (iv) above,
after either Party learning of such event or after the time when such Party
should have known of event, shall be excused from such performance on a
day-to-day basis to the extent of such prevention, restriction, or interference
(and the other Party shall likewise be excused from performance of its
obligations on a day-to-day basis to the extent such Party's obligations related
to the performance so prevented, restricted or interfered with); provided,
however, that the Party so affected shall use its best efforts to avoid or
remove such causes of non-performance and both Parties shall proceed whenever
such causes are removed or ceased.
(b) Any delay that will or does exceed thirty (30) days duration may, at
the option of non-offending Party, be cause for termination. Such a termination
shall be a Termination For Convenience and managed under the requirements of the
applicable sections of this Agreement titled "Termination of Agreement",
regardless of any restrictions to the contrary contained in the Agreement.
ARTICLE 13 - TELEGEN PERSONNEL
(a) Telegen Personnel assigned by Telegen to perform Services must have the
skills necessary to provide the types of Services described in this Agreement.
Telegen will provide descriptions, resumes or statement of qualification, if
requested by MCI. MCI's Program Manager may raise any suspected violations of
Telegen policy by Telegen Personnel to the Telegen Program Manager, requesting
resolution. The Telegen Program Manager will promptly resolve the issue with
MCI's Program Manager which resolution may include, by mutual agreement of the
Parties, removal of the individual(s) involved.
(b) Telegen agrees and covenants that Telegen will be in compliance with
the Immigration Reform and Control Act of 1986 and its implementing regulations
("IRCA") and Title VII of the Civil Rights Act of 1964, as amended, the Age
Documentation Act of 1990 ("ADA") and all other applicable Federal, State and
Local employment laws and regulations with respect to Telegen Personnel who
provide Services to MCI under this Agreement.
(c) In the event any Telegen Personnel working under this Agreement is
determined to be working in violation of the IRCA, Telegen will immediately
remove such individual from performing work or providing Services hereunder and
replace such individual with one whose employment is in compliance with IRCA.
(d) Telegen shall indemnify and hold harmless MCI from and against any and
all liabilities, damages, losses, claims or expenses (including attorneys' fees)
arising out of any breach by Telegen of this Article.
(e) Telegen agrees that all Telegen Personnel must abide by the
confidentiality obligations set forth in this Agreement and in the attached
Non-Disclosure Agreement, which is attached hereto as Exhibit 6.
(f) Telegen agrees that, without prior approval of MCI, not more than five
percent (5%) of Telegen Personnel will be subcontractors to Telegen.
ARTICLE 14 - CONFLICT OF INTEREST
(a) MCI reserves the right to contract with other firms or individuals
during the Term of this Agreement to provide or receive Services similar to
those being performed under this Agreement.
(c) Nothing in this Agreement, express or implied, is intended or shall be
construed to confer upon any person or entity, other than the Parties and their
respective successors and assigns permitted by this Agreement, any right, remedy
or claim under or by reason of this Agreement.
ARTICLE 15 - WARRANTY
(a) Warranty for Services.
Telegen warrants that the Services furnished under this Agreement will be
delivered in a workmanlike manner in accordance with this Agreement. In the
event that any Services hereunder are not so delivered, Telegen will, upon
notice from MCI, reperform such Services within the existing intervals for
Services set forth in the Statement of Work, incorporated herein. In the event
that Telegen is unable to successfully complete the Services as contemplated
herein, Telegen will provide to MCI a credit equal to the amounts paid to
Telegen by MCI for all charges related to any incomplete, non-conforming, or
incorrectly performed Services.
(b) Warranty for Equipment.
For each unit of Equipment, Telegen warrants that it:
(a) is free from defects in materials and workmanship;
(b) and conforms to the specifications and requirements as
submitted to and approved by Network MCI Developers Lab and
attached hereto as Exhibit 8 .
The Equipment is warranted only to the original purchaser of the Equipment
and is valid only with respect to purchasers within the United States of
America, subject to the following conditions, should the Equipment prove
defective by reason of improper workmanship or material during the period of one
(1) year from the date of original purchase, Telegen will repair or replace the
Equipment, free of charge, at Telegen's option.
This limited warranty does not apply to damage which occurs during shipment
or (a) to any product damaged by accident, misuse, abuse, improper line voltage,
lightning, fire, water, war (whether declared or not), civil disturbances,
natural disasters or other acts of God, or (b) if the product is altered or
repaired by anyone other than Telegen or an authorized Telegen service center.
Except to the extent prohibited by applicable law, all implied warranties
made by Telegen in connection with the product are limited in duration to a
period of one (1) year from the date of original purchase, and no warranties
whether express or implied, shall apply to the Equipment after said period.
Should the Equipment prove defective in workmanship or material, the
purchaser's sole remedies shall be such repair or replacement as is hereinabove
provided. Under no circumstances shall Telegen be liable for any loss or damage,
direct, consequential, or incidental, arising out of the use of or inability to
use the Equipment.
ARTICLE 16 - TERMINATION OF AGREEMENT
(a) Upon ninety (90) days written notice, MCI may terminate this Agreement,
at any time for MCI's convenience
(b) Upon thirty (30) days written notice, either Party may terminate this
Agreement at any time during the Term of this Agreement if the other Party takes
any of the actions listed in Article 28 of this Agreement titled "Bankruptcy".
(c) In the event of termination of this Agreement under this Article, MCI
shall be liable for payment only for Equipment and Services performed prior to
the effective date of the termination notice plus and work in process costs
incurred as of the Termination Date pursuant to the monthly rolling forecast
provided for in Article 10.4.4 above. Telegen will use its best efforts to
dispose of such work in process started in reliance on such forecasts; however,
in no event shall Telegen's inability to dispose of said work in process release
MCI from its liability under this section. MCI also agrees to pay the Minimum
Amount plus the binding portion of the monthly rolling forecast of Equipment and
Services if it terminates the Agreement under this Article. However, in no event
shall MCI be liable for anticipated profits for Installation, Maintenance, or
Distribution Services not performed.
(d) In the event of termination under this Article, and regardless of any
disputes which may exist between Telegen and MCI, all of MCI's property,
including Equipment, Software, Databases, Documentation, or any and all other
documents in the possession of Telegen and/or Telegen Personnel in any way
pertaining to Telegen's Services for MCI, shall be delivered to MCI, with the
exception of copies of documentation concerning a dispute.
(e) Telegen shall complete performance of any Work Order(s) pending prior
to the termination of the Agreement. This condition will survive termination or
expiration of the Agreement. MCI shall have no obligation to Telegen with
respect to such Work Order except as its payment obligations provided hereunder.
ARTICLE 17 - TERMINATION FOR DEFAULT
(a) By written notice of default, either Party may terminate this
Agreement, in whole or in part, in any one of the following circumstances:
(i) If either Party fails materially to meet the requirements
set forth in the Statement of Work, incorporated herein, in
a Period or fails to perform any condition or requirement of
this Agreement, and in either of these two circumstances
does not cure within a period of thirty (30) days (or such
longer period as the defaulted Party may authorize in
writing) after receipt of notice from the defaulted Party
specifying such failure; or
(ii)If either Party commits a material breach of the Agreement
which is not remedied within thirty (30) days after receipt
of notice from the other Party specifying such anticipatory
breach.
(b) In the event of default by Telegen under this Article, Telegen shall
repay to MCI any payments made by MCI for Services not performed.
(c) In the event of termination of this Agreement under this Article, MCI
shall be liable for payment only for Services performed prior to the effective
date of the termination notice. MCI also agrees to purchase and pay the Minimum
plus the binding portion of the monthly rolling forecast amount to Telegen if it
terminates the Agreement under this Article. However, in no event shall MCI be
liable for anticipated profits for Installation, Maintenance or Distribution
Services not performed.
(d) In the event of termination under this Article, and regardless of any
disputes which may exist between Telegen and MCI, all of MCI's property,
including Equipment, Software, Databases, Documentation, or any and all other
documents in the possession of Telegen and/or Telegen personnel in any way
pertaining to Telegen's Services for MCI, shall be delivered to MCI, with the
exception of copies of documentation concerning a dispute.
ARTICLE 18 - LIMITATION OF LIABILITY
(This section to be left in with mutual application)ARTICLE 19 - INSURANCE
(a) During the Term of this Agreement the following insurance shall be
maintained by Telegen:
(i) General Liability Insurance:
Comprehensive General Liability Insurance naming Telegen as the named
insured. MCI is to be named as an additional insured for purposes of this
Agreement at no additional charge. This policy shall cover liability for injury
to or death of persons or damage to property, limited to Services associated
with this Agreement, including such liability as may arise from contractual
liability assumed under this Agreement, including without limitation such
liability as may arise from the use of independent contractors. The policy shall
provide a limit of Two Million Dollars ($2,000,000) per occurrence for personal
injury and/or property damage.
Such insurance shall:
(a) Cover completed operations/products liability.
(b) Cover broad form/blanket contractual liability (written contracts).
(c) Cover personal injury liability.
(d) Cover employees as additional insureds.
(ii) Business Automobile Liability Insurance
Business Automobile Liability Insurance including coverage for owned,
hired, and non-owned vehicles in the amount of $1,000,000 per occurrence for
bodily injury and property damage.
(iii) Workers' Compensation & Employers' Liability Insurance:
Worker's Compensation in the maximum amount(s) and with benefits required
by the laws of the state in which the Work is performed and the state(s) in
which employees are hired, if the state(s) are other than that in which the Work
is performed. Employers' Liability with minimum limit of liability of:
$1,000,000 for bodily injury by accident/each accident
(b) Certificates of such insurance shall be submitted to MCI on or prior to
the start of any Services associated with this Agreement. The certificates shall
certify that no adverse alteration, adverse modification or termination of such
coverage shall be effective without at least ten (10) days advance notice to
MCI.
(c) Telegen shall require any subcontractors to provide and maintain, at
all times during the Term of this Agreement, insurance equivalent to that which
is required of Telegen when the subcontractor is to be performing Services at
the Customer Site or MCI facilities. Telegen and its subcontractors shall waive
all rights of recovery against MCI for any injuries to persons or damage to
property in the execution of the Services performed under this Agreement
exclusive of such liability resulting from MCI's negligence or intentional
misconduct. MCI agrees that neither Telegen nor its subcontractors are assuming
liability for injuries to persons or damage to property caused by any other
person.
ARTICLE 20 - INTELLECTUAL PROPERTY INDEMNIFICATION AND DEFENSE
(a) Telegen shall directly defend, at its expense, any claim (including any
suit) brought against MCI alleging that any Telegen Services furnished hereunder
infringes or misappropriates a United States patent, copyright, trade secret or
other third party proprietary right and shall pay all liabilities, costs and
damages awarded or settled and not otherwise subject to appeal, provided that
MCI gives Telegen prompt written notice of such claim, and information,
reasonable assistance, and authority to defend or settle the claim. In the
defense or settlement of the claim, or in the event of a final injunction,
Telegen shall either obtain for MCI the right to continue using the Services, or
replace or modify the Services so it becomes non-infringing while still meeting
the other requirements of this Agreement, as if such remedies are not readily
available, grant MCI a credit for such Services.
(b) Notwithstanding the above, Telegen shall not have any liability for a
claim alleging that the Services infringe or misappropriate a U.S. patent,
copyright trade secret, or other third party proprietary right:
(i) if the Services alleged to be infringing was developed based
on design specifications furnished by written direction
given by MCI, or
(ii) if the alleged infringements relate to the combination of
Telegen and third party products by other than Telegen,
except that where there would be infringement even in the
absence of a combination, Telegen shall be liable for the
infringement that is not based on the combination, or
(iii)if the trade secret alleged to be misappropriated consists,
in whole or in part, of information furnished by MCI.
(c) MCI and Telegen warrant that each has the right to disclose to the
other, and to use for the purpose disclosed, any information furnished to the
other for use in performing this Agreement. MCI and Telegen shall each indemnify
the other and shall defend, at its expense, any claim (including any suit)
brought by a third party against the other arising out of, or in connection
with, the breach of the foregoing warranty, and shall pay all liabilities, costs
and damages awarded or settled and not otherwise subject to appeal.
(d) MCI DISCLAIMS ALL LIABILITY FOR MISAPPROPRIATION OR INFRINGEMENT OF
INTELLECTUAL PROPERTY RIGHTS, TRADE SECRET RIGHTS OR PROPRIETARY RIGHTS.
ARTICLE 21 - INDEMNIFICATION
Telegen, at its own expense, shall indemnify and hold MCI, from any loss,
damage, liability or expense, on account of damage to property and injuries,
including death, to all persons, arising from any occurrence caused by any act
or omission of Telegen or Telegen Personnel related to their performance of this
Agreement. Provided that MCI gives Telegen prompt notice of any and all claims
for which MCI expects indemnification, Telegen, at its expense, shall directly
defend any suit or dispose of any claim or other proceedings brought against MCI
on account of such damage or injury, and shall pay all expenses, including
Telegen's attorney's fees, and satisfy all judgments which may be incurred by or
rendered against MCI. Notwithstanding the foregoing, MCI shall have the right,
but not the obligation, to participate in any such defense.
ARTICLE 22 - SECURITY
Telegen agrees that, when informed by MCI of its physical security
requirements, Telegen Personnel will, when in MCI or its Customer Site, comply
with the physical security regulations in effect there. Telegen must protect MCI
Database processes and customer information from MCI competitors with whom
Telegen may be engaged in other business opportunities per the MCI
Confidentiality Agreement as referenced in Article 36.
ARTICLE 23 - WAIVER
The failure of either Party to insist on the strict performance of any
terms, covenants and condition of this Agreement at any time, or in any one or
more instances, or its failure to take advantage of any of its rights adhered to
hereunder, or any course of conduct or dealing shall not be construed as a
waiver or relinquishment of any such rights or conditions at any future time and
shall in no way effect the continuance in full force and effect of all the
provisions of this Agreement.
ARTICLE 24 - ASSIGNMENT
The respective rights and obligations provided in this Agreement shall bind
and inure to the benefit of the Parties hereto, their legal representatives,
successors and assigns. There shall be no assignments by either Party of all or
part of this Agreement without the express written permission of the other
Party. Nothing in this Article shall limit Telegen's right to have payments sent
to a financial institution or other entity.
ARTICLE 25 - ENTIRE UNDERSTANDING, AMENDMENTS
This Agreement shall become binding when signed by authorized
representatives of both Parties. This Agreement is a general statement of the
manner in which the Parties intend to conduct business. The Agreement shall
constitute the entire understanding of the Parties regarding the subject matter
of their Agreement, and supersedes all prior or contemporaneous written and oral
agreements, with respect to the subject matter thereof. This Agreement may not
be modified or amended except in writing signed by both Parties. No person nor a
party hereto shall have any interest herein or be deemed a third party
beneficiary hereof.
ARTICLE 26 - SEVERABILITY
If any provision of this Agreement is held, in whole or in part, to be
illegal, invalid, or unenforceable, the remaining Term(s) shall not be affected
and the Agreement shall be interpreted as if such term had not been included.
Such term shall be replaced by a mutually acceptable provision which being valid
and enforceable, comes closest to the intention of the Parties underlying the
invalid or unenforceable provision.
ARTICLE 27 - INDEPENDENT CONTRACTOR
Nothing contained in this Agreement shall be deemed or construed as
creating a joint venture or partnership between Telegen and MCI. Neither Party
is by virtue of this Agreement authorized as an agent, employee or legal
representative of the other. Except as specifically set forth herein, neither
Party shall have power to control the activities and operations of the other and
their status is, and at all times will continue to be, that of independent
contractors. Neither Party shall have any power or authority to bind or commit
the other.
Telegen warrants that it qualifies as a independent contractor under the
provisions of the Internal Revenue Code's common law rules enacted as part of
Section 1706 of the 1986 Tax Reform Act. In the event Telegen's independent
status is denied or changed and Telegen Personnel are declared to have "common
law" status with respect to the Services, Telegen agrees to hold MCI harmless
from all direct costs which MCI may incur as a result of such denial or change
in status, exclusive of legal and attorneys' fees incurred by MCI, provided that
MCI gives Telegen prompt written notice of such denial or change, and
information, reasonable assistance and sole authority to challenge the denial or
change. Further, Telegen specifically agrees to indemnify and hold MCI harmless
from any and all claims and expenses, exclusive of legal and attorneys' fees
incurred by MCI, relating to Telegen's reporting and payment obligations with
respect to Telegen Personnel.
ARTICLE 28 - BANKRUPTCY
In the event either Party shall (i) apply for or consent to the appointment
of or the taking of possession by a receiver, custodian, trustee, or liquidator
of itself or of all or a substantial part of its property, (ii) make a general
assignment for the benefit of creditors, (iii) commence a voluntary case under
the Federal Bankruptcy Code (as now or hereinafter in effect) or (iv) fail to
contest in a timely or appropriate manner or acquiesces in writing to any
petition filed against it in a involuntary case under such Bankruptcy Code or
any application for the appointment of a receiver, custodian, trustee, or
liquidation of itself or of all or a substantial part of its property, or its
liquidation, reorganization, or dissolution, the other Party may terminate this
Agreement as provided in the Article of this Agreement titled "Termination of
Agreement."
ARTICLE 29 - PUBLIC RELEASE OF INFORMATION
No news releases, articles, brochures, advertisements, speeches or other
information releases concerning this Agreement or the Term of this Agreement
shall be made without the prior written approval of both Parties except as may
be required under the disclosure rules of the Securities and Exchange
Commission. The Parties agree to give the other Party reasonable advance time
for review of any material submitted to the other for approval.
ARTICLE 30 - AUTHORITY
Each Party represents and warrants that it has full power and authority to
enter into and perform this Agreement, and the person signing this Agreement on
behalf of such Party has been properly authorized and empowered to enter into
this Agreement. EACH PARTY FURTHER ACKNOWLEDGES THAT IT HAS READ THIS AGREEMENT,
UNDERSTANDS IT, AND AGREES TO BE BOUND BY IT.
ARTICLE 31 - APPLICABLE LAW
(a) This Agreement shall be interpreted, construed and governed by the laws
of the State of New York, without regard to conflict of law provisions.
(b) Telegen agrees that Services purchased by MCI under this Agreement,
shall comply with the applicable permits and license and the requirements of all
applicable laws, regulations and standards.
(c) Telegen will comply, in all material respects, with all statutes, laws,
and regulations. If the FCC or any other governmental entity shall require any
material additions, deletions, or modifications to the terms or conditions of
this Agreement, MCI and Telegen shall use reasonable efforts to reconstruct this
Agreement to comply with such requirements.
ARTICLE 32 - HEADINGS
Headings used in this Agreement are for reference only and shall not be
deemed a part of this Agreement.
ARTICLE 33 - INTERPRETATION
33.1 - The parties have participated jointly in the negotiations and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any of the provisions of
this Agreement.
33.2 - Unless the context otherwise clearly requires, references to the
plural include the singular and the singular the plural. References to
"including" shall mean "including but not limited to."
ARTICLE 34 - NOTICES
All notices, requests, demands, or communications required or permitted
under this Agreement shall be in writing, delivered personally or by telex,
telegram, or certified, registered, or express mail at the respective addresses
set forth below (or at such other addresses as shall be given in writing by
either Party to the other). All notices, requests, demands or communications
shall be deemed effective upon personal delivery on the calendar day following
the date of the telex, telegram, or when received if sent by registered,
certified, or express mail. Notices specific to an Order will be sent to the
Point of Contact identified herein:
If concerning this Agreement generally to:
MCI: MCI Telecommunications Corporation
6 Concourse Parkway
Atlanta, GA 30328
Attn: Matt Sines or such other person
designated by such addressee
Telegen: Telegen Corporation
353 Vintage Park Drive
Suite H
Foster City, California 94404
Attn: Warren M. Dillard
ARTICLE 35 - EXCLUSIVITY
ARTICLE 36 - CONFIDENTIALITY
The Parties agree that the disclosure of confidential and/or proprietary
information will be administered under the following terms and conditions:
(a) Each Party has and expects, from time to time, to disclose to the other
Party certain trade secrets, proprietary business and technical information
including, but not limited to, systems, products, Databases, pricing, technology
and/or processes.
(b) With respect to such information disclosed, each Party agrees to be
bound by the Non-Disclosure Agreement attached hereto as Exhibit 6.
(c) All tangible forms of Confidential Information disclosed under this
Agreement shall be and remain the property of the disclosing Party, and all such
tangible information shall be promptly returned to such disclosing party upon
written request to such Party, or destroyed at the disclosing Party's option.
(i) Each Party shall have the right to duplicate, reproduce,
copy, distribute, disclose or disseminate confidential or
proprietary information unless otherwise agreed to in
writing by the other Party except to carry out the terms and
intent of this Agreement.
(ii) Each Party agrees to use Confidential Information only for
the purposes for which disclosure was made under this
Agreement unless otherwise agreed to by the other Party.
(d) By the act of disclosure, the disclosing Party grants no license under
any patents, copyrights or trade secrets under this Agreement. Such license, if
any, is specifically provided for elsewhere under this Agreement.
(e) The rights granted hereunder may not be assigned, sublicensed, or
otherwise transferred by either party without prior written consent from the
other party.
IN WITNESS WHEREOF, the Parties set forth their hand this day of , 1996.
MCI TELECOMMUNICATIONS TELEGEN CORPORATION
CORPORATION
SIGNED: SIGNED:
- ----------------------------------- -----------------------------------------
NAME: NAME:
- ----------------------------------- -----------------------------------------
TITLE: TITLE:
- ----------------------------------- -----------------------------------------
DATE: DATE:
- ----------------------------------- -----------------------------------------
EXHIBIT A
"Statement of Work
Telegen shall provide the following to MCI:
A. Programming Specifications:
A.1. Telegen must be able to support the following multiple Local Exchange
Carrier (LEC) intraLATA dialing patterns as specified by the engineering
specifications submitted to and approved by Network MCI Developers Lab (see
Exhibit 8).
A.1.2. Telegen must support the following installation scenarios:
1. Where MCI sells Equipment through MCI telemarketing organizations
2. Where MCI sells Equipment through MCI sales personnel.
A.1.2. 1. MCI Telemarketing Distribution:
MCI may utilize it's Telemarketing resources to distribute Equipment.
Equipment Orders will be made available to Telegen in the Work Order Tracking
System (WOTS) in the Vendor Approval Request queue. Telegen will package, ship
and track the Equipment through to delivery to the customer location, remote
programming and order completion in the Work Order Entry System.
A.1.2. 2. MCI Sales Team Distribution:
MCI may utilize it's Sales Teams (i.e., account teams, branch sales, etc.)
to distribute Equipment. Equipment Orders will be made available to Telegen in
the Work Order Tracking System (WOTS) in the Vendor Approval Request queue.
Telegen will package, ship and track the Equipment through to delivery to the
customer location, remote programming and order completion in the Work Order
Entry System.
A.1.3. Telegen must be able to support the Hospitality Industry dialing
patterns as specified by the engineering specifications submitted to and
approved by Network MCI Developers Lab (see Exhibit 8).
B. Installation Intervals:
B.1. Telegen must meet the following "Installation Intervals" defined
below:
B.1.1. Autodialer distribution must be completed within a four ( 4)
business day interval of the date the Installation Order is released to Telegen.
However, it is understood that Telegen shall not be held responsible for delays
other than those caused by Telegen.
B.1.2. At least ninety-nine percent (99%) of the Installation Orders
released to Telegen by MCI that are within the forecast parameters of Article
10.4.4., should meet the specification set forth in A.2.1.1 above in a thirty
(30) day period.
B.1.3. In the event the customer has not contacted Telegen for initial
programming, Telegen will research the distribution system to track where the
distribution vendor (i.e., UPS) indicates delivery has been made. In the event
the Equipment has not been delivered, Telegen will take steps to insure timely
re-distribution (i.e., expedite stalled delivery, distribute a second unit,
etc.) and notify MCI of the status of delivery by updating the Work Order
Tracking System.
MCI shall, upon notice from Telegen that the delivery of Equipment is
delayed, contact the customer and notify them of the new delivery date.
In the event that Telegen's research indicates that the unit has been
delivered by the distribution vendor to the customer location Telegen will
notify MCI of the status by updating the Work Order Tracking System.
MCI shall, upon notice from Telegen that the delivery of Equipment has been
completed, ascertain if there are any issues with the customer's installation.
MCI shall refer the customer to Telegen for initial program loading/setup of the
Equipment using the 111* feature.
In the event that the Customer, after being referred to Telegen for
programming by MCI, fails to call Telegen within five (5) business days, the
Distribution Service Cycle shall be deemed to have been completed and Telegen
may invoice MCI for the full amount due for the Distribution Services.
Notwithstanding the foregoing, Telegen shall remain responsible for the
uncompleted portion of the Distribution Service Cycle when the Customer calls
Telegen's Customer Service Center.
B.1. 4. Telegen will determine when working with customers during the
initial setup/programming if adapters or accessories are necessary to complete
the set up. Telegen will distribute the adapters/accessories to the customer
location to complete the installation and invoice MCI for the adapter /accessory
devices.
C. Installation Performance Specifications
Telegen agrees to the following conditions, as to the volumes of Equipment
delivered as specified by the forecasts provided for in Article 10.4.4. of the
Agreement:
C.1 At least ninety percent (90%) of Distribution Services should meet the
date originally scheduled by Telegen with the Customer, as referenced on the
Distribution Order, except for those Customer installations delayed by acts of
the distribution vendor, Customer acts and excusable delays pursuant to Article
12 of the Agreement.
C.1. 1. At least ninety-five (95%) of all Distribution Orders shall be
completed by Telegen and meet the manufacturer's specification for performance
and Statement of Work during a Period.
C.1. 2. No more than two percent ( 2 %) of the Distribution Orders
completed by Telegen during a Period shall result in written Installation
Service complaints (to be defined) from Customers or MCI Personnel.
C.1. 3. No more than five percent (5%) of the Distribution Orders completed
by Telegen during a Period should result in service interruptions within five(5)
business days of the completion of the Distribution Services.
C.1. 4. No more than five percent (5%) of the scheduled Distribution Orders
completed by Telegen for quantities within the forecast amounts provided by
Article 10.4.4. shall be rescheduled for Distribution at Telegen's request
(i.e., rescheduling distribution for customer delivery or installation support
to a later time).
C.1. 5. Telegen will staff their Service Center with the appropriate
resources such that:
Call Abandonment does not exceed 5% Average call answer rate does not
exceed 30 seconds with 90 % of the calls meeting objective
D. Distribution Services Scheduling.
D. 1. Distribution Services Reporting.
D. 1. 1. Telegen will use the MCI Work Order Tracking System (WOTS) to
receive, update and complete Distribution Orders electronically.
D. 1. 2. Telegen will, on a monthly basis, provide statistics indicating
performance for remotely updating routing tables into Equipment in the following
categories:
- - % of Equipment that has been completed.
- - % of Equipment that has not been completed.
- - Detailed information of those unable to be contacted for reprogramming. MCI
shall contact this customer list and determine the cause for
inaccessibility of Equipment for reprogramming and notify Telegen of
further actions required.
D. 1. 3. Telegen will work with customers directly, via their remote
service center, to resolve any/all installation issues that the customer may
experience. In the event Telegen cannot resolve the customer issue, Telegen will
determine if additional Equipment, adapters or accessories are required to
resolve the installation issues. In the event Telegen determines that additional
devices (i.e., Equipment, adapters or accessories) will not resolve the customer
issues or on site support is necessary, Telegen will notify MCI for a dispatch
to Digital for on site support/dispatch.
D. 2. Telegen agrees to update the Database to reflect the appropriate
order status as follows:
D. 2.1. Shipping is deemed complete when the Customer receives the
Equipment from Telegen.
D. 2.2. The Distribution Services Cycle shall be considered complete when
the Equipment has been programmed by Telegen to switch the Customer's intraLATA
traffic to MCI.
D. 2.3. Telegen agrees to make and report follow up calls to the customer.
verifying receipt of the Equipment 2 days past the shipping date. Further,
Telegen shall redistribute Equipment to the customer location if the Equipment
has not been received by the customer 2 days past the verification call.
E. Maintenance Services:
E.1. Telegen agrees that on occurrence of customer difficulty during dialer
installation that they will provide customer remote support.
E.1.1. Telegen agrees that if the customer installation cannot be completed
with the existing Equipment an additional dialer will be shipped to the
customer's location within 24 hours and customer installation re-attempted.
Telegen shall arrange, at its own expense, for the return of the originally
delivered Equipment, and advise MCI of the date and status of the recall of the
originally delivered Equipment. If the Customer does not return the originally
delivered Equipment to Telegen within ten (10) business days from the above
date, said Equipment shall be deemed to be sold to MCI and Telegen shall invoice
MCI for the full amount of the Distribution Services of the originally delivered
Equipment in addition to the replacement Equipment.
E.1.2. In the event the customer cannot install the second dialer sent to
them, Telegen agrees to notify MCI for a dispatch of Digital Equipment
Corporation for on site support.
E.1.3. Telegen must escalate to MCI for on site support within twenty-four
hours of determination that the second dialer was not installed successfully.
E.1.4. Telegen will establish a support function where customers who are
experiencing technical difficulty post installation can call to obtain technical
assistance. This includes 24x7 coverage, 365 days a year via MCI provided 1-800
number.
F. Shipping Services:
F.1. Telegen must ship the Equipment for arrival to Site(s) within four( 4)
Business Days after receipt of the Distribution Order; provided however that the
Order is received prior to 12:00 p.m. (noon) PST. Distribution Orders received
after 12:00 p.m. . (noon) PST on a Business Day will be shipped for arrival to
Site(s) within five ( 5) Business Days of receipt of the Distribution.
The above commitment shall apply only to quantities up to the Forecast
Quantities +10%. Notwithstanding the above, Telegen shall use its best efforts
to meet MCI's Distribution Order shipping requirements in excess thereof.
F.2. Packaging of the Equipment must be of such quality to prevent damage
to the Equipment during shipping/distribution and be acceptable to both parties.
F.3. All shipments will include the Equipment, all necessary Accessories
and Adapters as defined in the initial Distribution Order, and any complete
fulfillment package supplied by MCI and approved by Telegen as to size and
weight and delivered to Telegen 90 days prior to such shipments.
F.4. Telegen shall maintain information on each Equipment order which will
include the serial number, weight bill number, shipping time, shipping date, an
estimated time of arrival.
F.5. Telegen will ship replacement units to the Customer location to
support out of box failures via overnight delivery to arrive the next business
day.
F. 6. Telegen shall provide ship back instructions and labels in replacing
packages. Telegen shall provide for return pick up shipping at no charge to the
Customer and will track return processing and reason for return.
<PAGE>
<TABLE>
<CAPTION>
* Confidential treatment of the portions of this page indicated by asterisks
enclosed in brackets has been requested.
EXHIBIT 2
"Price List"
<S> <C> <C> <C> <C>
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
Manufacturer Manufacturer Part # Model Designation Price Per
Unit
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
Equipment
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
ACS 2000 Telegen T1A00012 T1A00012 [***]
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
ACS 2010 Telegen T1A00021 T1A00021 [***]
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
-------------------- --------------------- ------------------- --------------
Adapters
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
Triplex Adapter Radio Shack 279-402 TEJ00131 [***]
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
Two line Splitter Graybar AT267B TEJ00141 [***]
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
T Adapter Graybar AT267A TEJ00151 [***]
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
In line Coupler Woods Wire 0704 TEJ00161 [***]
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
Modular Exten. Cord 25' Woods Wire 0710 TEJ00171 [***]
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
Modular Exten. Cord 14' Woods Wire 0906 TEJ00181 [***]
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
Modular Exten. Cord 7' Woods Wire 0914 TEJ00191 [***]
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
Accessories
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
Power Adapter Telegen TEA00011 TEA00011 [***]
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
Manual Telegen TQA00011 TQA00011 [***]
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
Fees
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
Shipping Charge [***]
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
Expedite Fee [***]
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
Monthly Dialer Table Updates [***]
- ------------------------------------------ -------------------- --------------------- ------------------- --------------
<PAGE>
</TABLE>
Exhibit 3
Equipment List
- ---------------------------------- --------------- -------------- --------------
Manufacturer Manufacturer Model
Part # Designation
- ---------------------------------- --------------- -------------- --------------
- ---------------------------------- --------------- -------------- --------------
Equipment
- ---------------------------------- --------------- -------------- --------------
- ---------------------------------- --------------- -------------- --------------
ACS 2000 Telegen T1A00012 T1A00012
- ---------------------------------- --------------- -------------- --------------
- ---------------------------------- --------------- -------------- --------------
ACS 2010 Telegen T1A00021 T1A00021
- ---------------------------------- --------------- -------------- --------------
- ---------------------------------- --------------- -------------- --------------
- ---------------------------------- --------------- -------------- --------------
Adapter List
- ---------------------------------- --------------- -------------- --------------
Manufacturer Manufacturer Model
Part # Designation
- ---------------------------------- --------------- -------------- --------------
- ---------------------------------- --------------- -------------- --------------
Adapters
- ---------------------------------- --------------- -------------- --------------
- ---------------------------------- --------------- -------------- --------------
Triplex Adapter Radio Shack 279-402 TEJ00131
- ---------------------------------- --------------- -------------- --------------
- ---------------------------------- --------------- -------------- --------------
Two line Splitter Graybar AT267B TEJ00141
- ---------------------------------- --------------- -------------- --------------
- ---------------------------------- --------------- -------------- --------------
T Adapter Graybar AT267A TEJ00151
- ---------------------------------- --------------- -------------- --------------
- ---------------------------------- --------------- -------------- --------------
In line Coupler Woods Wire 0704 TEJ00161
- ---------------------------------- --------------- -------------- --------------
- ---------------------------------- --------------- -------------- --------------
Modular Exten. Cord 25' Woods Wire 0710 TEJ00171
- ---------------------------------- --------------- -------------- --------------
- ---------------------------------- --------------- -------------- --------------
Modular Exten. Cord 14' Woods Wire 0906 TEJ00181
- ---------------------------------- --------------- -------------- --------------
- ---------------------------------- --------------- -------------- --------------
Modular Exten. Cord 7' Woods Wire 0914 TEJ00191
- ---------------------------------- --------------- -------------- --------------
Accessory List
- ---------------------------------- --------------- -------------- --------------
Manufacturer Manufacturer Model
Part # Designation
- ---------------------------------- --------------- -------------- --------------
- ---------------------------------- --------------- -------------- --------------
Accessories
- ---------------------------------- --------------- -------------- --------------
- ---------------------------------- --------------- -------------- --------------
Power Adapter Telegen TEA00011 TEA00011
- ---------------------------------- --------------- -------------- --------------
- ---------------------------------- --------------- -------------- --------------
Manual Telegen TQA00011 TQA00011
- ---------------------------------- --------------- -------------- --------------
Fees List
- ---------------------------------- --------------- -------------- --------------
Manufacturer Manufacturer Model
Part # Designation
- ---------------------------------- --------------- -------------- --------------
- ---------------------------------- --------------- -------------- --------------
Fees
- ---------------------------------- --------------- -------------- --------------
- ---------------------------------- --------------- -------------- --------------
Shipping Charge
- ---------------------------------- --------------- -------------- --------------
- ---------------------------------- --------------- -------------- --------------
Expedite Fee
- ---------------------------------- --------------- -------------- --------------
- ---------------------------------- --------------- -------------- --------------
Monthly Dialer Table Updates
- ---------------------------------- --------------- -------------- --------------
- ---------------------------------- --------------- -------------- --------------
- ---------------------------------- --------------- -------------- --------------
EXHIBIT 4
"Work Order"
EXHIBIT 5
"Telegen Holidays"
New Year's Day
President's Day
Memorial Day
Independence Day
Labor Day
Thanksgiving Day
Christmas Day
EXHIBIT 6
"Non-Disclosure Agreement"
EXHIBIT 7
"Telegen Proposal"
EXHIBIT 8
TELEGEN ACS TEST ENGINEER REPORT
(TO BE SUPPLIED)
EXHIBIT 9
NETWORK MCI DEVELOPERS LAB
LAB EVALUATION REPORT
(TO BE SUPPLIED)
<PAGE>
* Confidential treatment of the portions of this contract, including a portion
of this page, indicated by asterisks enclosed in brackets has been requested.
MASTER AGREEMENT
THIS AGREEMENT (the "Agreement") is made as of May 30th, 1996 by and among
TELEGEN CORPORATION, a California corporation with offices at 353 Vintage Park
Drive, Foster City, California 94404, U.S.A. ("Telegen"), its wholly-owned
subsidiary TELEGEN DISPLAY LABORATORIES, INC. ("TDL") with offices at the same
location, TRANSTECH ELECTRONICS PTE. LTD., a Singapore limited liability company
with offices at 71 Ayer Rajah Crescent, #03-23 Singapore 139951 ("Transtech")
and IPC CORPORATION LTD., a Singapore corporation with offices at 23 Tai Seng
Drive, IPC Building, Singapore 535224 ("IPC"). Each of the aforementioned is
sometimes referred to individually as a "Party" and collectively they are
sometimes referred to as the "Parties." It is intended that JVCO (defined below)
shall execute this Agreement promptly after it is fully organized and thereby
also become a Party. Transtech and IPC are sometimes referred to collectively in
this Agreement as "Investors" and each individually, an "Investor."
B A C K G R O U N D
WHEREAS, Investors are in the business of developing, manufacturing and
marketing to original equipment manufacturers and end users certain computer and
electronic products and Investors desire to manufacture flat-panel display
devices in the Territory (as hereinafter defined) and to market and sell such
products on a worldwide basis;
WHEREAS, Telegen believes it has developed a patentable High Gain Emissive
Display technology (as defined below) suitable for flat-panel display devices
and Telegen intends to license (with a right to acquire full ownership in the
future) to its newly-formed, wholly- owned subsidiary, TDL, all its proprietary
intellectual property rights associated with such technology;
WHEREAS, Investors intend to establish a joint venture corporation under
the laws of Singapore ("JVCO") to obtain from TDL exclusive licenses to
manufacture in the Territory (defined below) and sell on a non-exclusive basis
throughout the world, flat-panel display devices based upon the High Gain
Emissive Display technology;
WHEREAS, Telegen and TDL desire that Investors purchase or cause JVCO to
purchase ten percent (10%) of TDL's Common Stock (defined below); and
WHEREAS, TDL is willing to grant Investors and/or JVCO exclusive licenses
for manufacture of the Products (defined below) in the Territory and
non-exclusive licenses to market, sell, and support the Products throughout the
world;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
representations and agreements set forth herein, and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
Parties, intending to be legally bound, hereby agree as follows:
1. DEFINITIONS
As used herein, the following words, phrases, or terms in this Agreement
shall have the following meanings:
"Affiliate" means, as to any Party, any individual, corporation,
partnership, limited liability company or other entity, which at any time during
the term of this Agreement directly or indirectly controls, or is controlled by,
or is under common control with, that Party. In this context, "control" means
the power to direct or cause the direction of management and policies, whether
through ownership of voting securities, by contract or otherwise, and shall,
without limiting the foregoing, be deemed to exist in case of ownership of
shares comprising fifty percent (50%) or more of the voting power of a
corporation.
"Closing Date" means the date which is ten (10) California business days
after the date of this Agreement shown on page 1, to wit May 30th, 1996.
"Common Stock" means common stock of TDL.
"Critical Materials" means [********] which are specified in the Technology
Release Package as components of a Product or which are incorporated in any
Improvement licensed by TDL under the Manufacturing License Agreement, as well
as any other component of a Product which cannot be obtained from at least two
sources, one of which is not under the control, by contractual restriction or
ownership, of TDL or Telegen.
"Exercise Date" means, in respect of any Manufacturing License Agreement,
the date when the Licensee gave written notice of exercise of the relevant
option to obtain that license pursuant to Section 3.1 of this Agreement.
<PAGE>
* Confidential treatment of the portions of this page indicated by asterisks
enclosed in brackets has been requested.
"HGED Technology" and "High Gain Emissive Display Technology" mean all
proprietary elements of the flat-panel display technology disclosed by Telegen
or TDL to any Licensee as part of the Technology Package Release (defined
below), and all Improvements thereto made from time to time during the term of
any license granted pursuant to this Agreement which Telegen or TDL have the
right to license or sublicense. Such technology includes manufacturing methods,
interface hardware and control software licensed exclusively to TDL, whether
patented or not patented, including trade secret information, formulations and
manufacturing know-how.
"Investor Agreement" has the meaning set forth in Section 2.1.
"Improvement" means any change to a Product or how a Product is
manufactured made after the Technology Release Date which makes the Product or
the manufacture thereof less expensive or more effective or which makes a
Product more useful or valuable or which make it in any way a preferable article
in commerce.
"Licensee" means JVCO unless TDL shall receive a written notice signed by
all of the Investors authorizing one of the Investors to exercise an option to
obtain a license as set forth in Section 3.1 below, in which case, for purposes
of that license, "Licensee" shall mean such Investor.
"Manufacturing License Agreement" means a license agreement for manufacture
of Products in the Territory using the HGED Technology and for distribution,
marketing, sale, repair and support of Products worldwide, all upon the terms
and conditions set forth in Exhibit A.
"Product" means every device manufactured by Licensee incorporating the
licensed HGED Technology.
"Technology Release Package" means a complete set of specifications and
plans necessary and adequate to establish and maintain a facility for high
volume manufacturing (40,000 units per production line per annum) of Products
incorporating the HGED Technology at a location designated by Licensee.
"Technology Release Date for Monochrome" means the date that TDL notifies
Licensee that the Technology Release Package with respect to Monochrome Products
is complete and ready for release to a Licensee.
"Technology Release Date for Full Color" means the date that TDL notifies
Licensee that the Technology Release Package with respect to Full Color Products
is complete and ready for release to a Licensee.
"Territory" means the country or countries where Products incorporating
HGED Technology licensed under this Agreement may be manufactured, specifically,
Malaysia, Singapore, and Guangdong Province, Peoples Republic of China.
2. TRANSACTIONS TO TAKE PLACE AT OR BEFORE THE CLOSING
2.1. Purchase and Sale of Common Stock. On or before the Closing Date the
Parties shall have entered or in the case of Investors shall have caused JVCO to
enter into an agreement for the purchase by JVCO and sale by TDL of one million
(1,000,000) shares of Common Stock (the "Investor Agreement") upon the terms and
conditions set forth therein. At the Closing Telegen will cause TDL to issue and
deliver such shares to JVCO and the Investors will cause JVCO to purchase such
shares and make payment of the purchase price of Five Million U.S. Dollars
(US$5,000,000), all in accordance with the Investor Agreement. Telegen and TDL
acknowledge that TDL has already received a non-refundable deposit against such
purchase price in the amount of [********] and the balance shall be wire
transferred at the Closing to the account of:
Telegen Display Laboratories, Inc.
[********]
[********]
[********]
[********]
[********]
Timely payment of this balance is of the essence and failure to make timely
payment by JVCO or the Investors shall entitle Telegen to rescind this Agreement
by written notice to the Investors at any time before full payment shall have
been received.
2.2. License and Purchase Agreement between Telegen and TDL. At or before
the Technology Release Date for Monochrome, Telegen and TDL shall enter into an
"Agreement for the License and Purchase of HGED Technology" providing for the
license by Telegen to TDL upon the filing of each necessary U.S. and
international patent, trademark and copyright application relating to the HGED
Technology of exclusive worldwide rights thereunder, with right of sublicense.
Said license shall include the right of TDL, with right of sublicense, to make
use, and sell the HGED Technology covered thereby throughout the world.
Notwithstanding any conditions therein to the contrary, upon receipt by Telegen
from TDL of the payment of [********], whether as royalties, purchase price or
otherwise, Telegen shall transfer, full and unencumbered title to TDL of all of
the HGED Technology, including all patents, trademarks, and copyrights
pertaining thereto, without further payment of any kind to Telegen. It is the
intent of this clause to ensure that no arrangements between Telegen and TDL
deprive the Investors of the economic value of their investment in TDL, which is
the sole entity among Telegen and its Affiliates intended to exploit the HGED
Technology.
<PAGE>
* Confidential treatment of the portions of this page indicated by asterisks
enclosed in brackets has been requested.
3. POST-CLOSING OBLIGATIONS AND TRANSACTIONS
3.1. Option to Obtain Licenses.
(a) Telegen and TDL shall use their best efforts to achieve Technology
Release Dates for Monochrome and Full Color as early as commercially possible
and, in no event shall either of such Technology Release Dates be later than the
earlier of (i) the date of any other release of comparable information to any
third party and (ii) the commencement of commercial production of Products (a
production rate of one million or more units) at any facility or facilities
owned or operated by Telegen, TDL or any Affiliate of either of them.
(b) TDL shall notify the Investors promptly of each Technology Release
Date. At any time during the period commencing upon the Technology Release Date
for Monochrome and terminating on the third anniversary of the Technology
Release Date for Full Color, JVCO may:
(i) by written notice and the payment of [********] require TDL to
enter into a Manufacturing License Agreement; and
(ii) by written notice and the payment of [********] require TDL to
enter into a second Manufacturing License Agreement;
(c) At any time prior to the later of the third anniversary of the
Technology Release Date for Full Color and the second anniversary of the
Exercise Date for the Manufacturing License Agreement referred to in
subparagraph (ii) of the preceding clause (b), JVCO may:
(i) by written notice and the payment of [********] require TDL to
enter into a third Manufacturing License Agreement;
(ii) by written notice and the payment of [********] require TDL to
enter into a fourth Manufacturing License Agreement;
(iii) if at any time prior to the Exercise Date of the third
Manufacturing License Agreement TDL shall have agreed to grant to any
licensee rights to manufacture Products any place in Asia, Australia, New
Zealand, Micronesia or any other Pacific Ocean island (other than in the
State of Hawaii) upon terms whereby the lump sum fee per million Adjusted
Units of annual licensed production is less than [********], then the
payment required of JVCO under subparagraph (i) of this clause (c) shall be
reduced to equal the amount of such lump sum fee per million Adjusted
Units. To illustrate, if TDL agrees to grant a license for the manufacture
in Indonesia of [********] Actual Units per annum and the lump sum fee
payable by the licensee is [********], then JVCO's option exercise payment
under subparagraph (i) shall be [********]; and
(iv) if at any time prior to the Exercise Date of the fourth
Manufacturing License Agreement TDL shall have agreed to grant to any
licensee rights to manufacture Products any place in Asia, Australia, New
Zealand, Micronesia or any other Pacific Ocean island (other than in the
State of Hawaii) upon terms whereby the lump sum fee per million Adjusted
Units of annual licensed production is less than [********], then the
payment required of JVCO under subparagraph (ii) of this clause (c) shall
be reduced to equal the amount of such lump sum fee per million Adjusted
Units.
(d) At any time after signing of the fourth Manufacturing License Agreement
referred to above, JVCO shall have the right to purchase additional
manufacturing licenses at the then current market price based upon world-wide
demand for Products incorporating HGED Technology and subject to a future
written agreement between JVCO and TDL.
(e) Notwithstanding anything to the contrary in this Agreement or any
Manufacturing License Agreement, if TDL at any time enters into a license
agreement for all or part of the HGED Technology with any licensee for any
territory upon royalty terms that are more favorable than those contained in any
license agreement entered into in connection with this Agreement, all the
Manufacturing License Agreements shall promptly be amended to incorporate such
more favorable royalty terms.
(f) If JVCO and all of the Investors notify TDL in writing that they wish
that one of the Investors enter into one or more of the agreements mentioned in
subsections (b), (c) and (d), then such designee may replace JVCO as "Licensee"
for purposes of that Agreement. The intent of the Parties is that once an option
is exercised, each Manufacturing License Agreement shall be independent and that
the obligations of the Licensees not be joint and several.
3.2. Assurances of Critical Materials Availability.
(a) TDL agrees that it will at all times during the term of any License
Agreement, subject to events beyond its reasonable control, have available or
cause its designee to have available for purchase by Licensee upon reasonable
commercial terms sufficient quantities of Critical Materials to meet each
Licensee's reasonable production needs within the scope of its license and have
a nine-month reserve on-site in its facility. If TDL or any Affiliate of TDL
shall itself be a source of Critical Materials, TDL shall sell such Critical
Materials to Licensee at prices and upon terms that are no less favorable than
the prices and terms which TDL offers to its most favored customer.
(b) Contemporaneously with signing of each Manufacturing License Agreement,
TDL shall (i) enter into an escrow agreement ("Escrow Agreement") with the
relevant Licensee and Data Securities International Inc. ("DSI") Inc.
substantially in the form of Exhibit B and (ii) place into escrow with that
escrow agent a complete technology package (including, without limitation,
formulae, manufacturing process instructions, material and supplier lists and
drawings) which will enable the Licensee to establish its own production
facilities for all Critical Materials in the event that during any consecutive
six-month period TDL shall not have available for purchase by Licensee a
sufficient supply of any Critical Materials to meet Licensee's reasonable
production needs within the scope of its license. At the time of deposit of the
escrowed materials, TDL shall deliver to DSI a certificate signed by Dr. Jessica
Stevens or her successor as Chief Executive Officer of TDL attesting as to the
completeness and accuracy of the technology package (including the decryption
software).
<PAGE>
3.3. Telegen Assurance of TDL's Performance. Telegen covenants to each
Investor and JVCO that, should the License and Purchase Agreement referred to in
Section 2.2 between Telegen and TDL be revoked, canceled, rescinded or never
come into existence for any reason (a "Replacement Event"), Telegen will honor
the obligations of TDL set forth in Sections 3.1 and 3.2 and will enter into
Manufacturing License Agreements and Escrow Agreements upon the same terms and
conditions directly with the Party exercising the options granted in Section
3.1. If a Manufacturing License Agreement shall already have been entered into
at the time of a Replacement Event, Telegen shall ensure that, notwithstanding
such Replacement Event, so long as a Licensee performs its obligations under
such agreement, it shall enjoy all of its rights set forth therein.
3.4 Efforts to Obtain and Maintain Patents. Telegen and TDL covenant to
each Investor and to JVCO that each of them will use its best efforts to obtain
a patent in each country of the Territory for each patent application it files
in the United States and that it will maintain throughout the term of each
Manufacturing License Agreement every patent obtained in the Territory unless it
also ceases to maintain the corresponding U.S. Patent.
4. REPRESENTATIONS AND WARRANTIES BY PARTIES
Each Party hereby represents and warrants to the other Parties that:
4.1. Authorization. That Party has full corporate right and power to enter
into this Agreement and to carry out the transactions contemplated hereby and
that Party may execute, deliver and perform this Agreement without the necessity
of obtaining any consent, approval authority or waiver or giving any notice to
or from any person, other than consents, approvals, authorizations or waivers
which have been, or prior to the Closing Date will be, obtained and in full
force and effect on the Closing Date and notices which have been given or prior
to the Closing Date will be, duly given.
4.2. Binding Effect. This Agreement has been duly signed and delivered by
that Party and constitutes that Party's legal, valid and binding obligation,
enforceable against that Party in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
and other laws that generally affect creditors and except as may be limited by
general principles of common law equity.
4.3. Absence of Conflict. Neither the signing and delivery of this
Agreement by that Party nor the consummation by that Party of any transaction
contemplated by this Agreement will, with or without notice or the passage of
time: (a) violate any statute, rule, regulation, law or judicial or
administrative order, judgment or decree applicable to that Party or (b) result
in the breach of, cause an acceleration of any obligation under, permit the
termination of, or otherwise constitute a default under, any agreement or other
instrument to which that Party is subject or under any corporate charter
document, by-law or similar document applicable to it.
4.4. Litigation and Claims. Except as referred to in Section 4.5 there is
no suit, action, investigation or other proceeding pending or, to that Party's
knowledge, threatened against it relating to any of the transactions
contemplated by this Agreement.
4.5. Finders and Brokers. The Parties acknowledge that Mark Toberoff and
George Matin have claimed entitlement to a finder's fee in connection with the
transactions contemplated in this Agreement. Each Party represents to the other
Parties that no person or entity other than Messrs. Tuberoff and Matin has acted
as a finder, broker or other intermediary on behalf of such Party in connection
with this Agreement or any transactions contemplated by this Agreement, and no
person, other than Messrs. Tuberoff and Matin, nor any entity is entitled to any
broker's or finder's fee or similar fee with respect to this Agreement or such
transactions as a result of actions taken by such Party. The issue of fee claims
from Messrs. Tuberoff and Matin has been covered separately.
5. REPRESENTATIONS AND WARRANTIES OF TELEGEN
To induce the Investors to enter into this Agreement, Telegen hereby
represents and warrants to them that, as of the date of this Agreement:
5.1. Organization and Good Standing. TDL is a corporation duly organized,
validly existing and in good standing under the laws of the State of California
and is duly qualified to conduct its business in each jurisdiction where failure
to be so qualified would have a material adverse effect upon its business or
financial condition.
5.2. No Liabilities of TDL. TDL has no material liability or obligation of
any kind, whether actual or contingent, asserted or unasserted, whether in
respect of taxes, contract performance or non-performance, tort, indebtedness or
otherwise, and Telegen has no knowledge of any threatened or asserted claim made
against TDL.
5.3. Compliance with Laws. TDL is in substantial compliance with all
applicable federal, state, local and foreign statutes, rules, regulations and
other laws pertaining to its business. No claim has been asserted by any
governmental authority against TDL (and no such claim is anticipated) to the
effect that TDL's business fails to comply with any statute, rule, regulation or
other law or that a license, permit, certificate or authorization which has not
been obtained is required with respect to the operation of its business.
6. CLOSING
6.1. Time and Place. The Closing shall take place at Telegen's offices at
11:00 a.m. local time on the Closing Date or at such other place, date and time
as all of the Parties may mutually agree.
6.2. Truth of Representations. If any of the representations and warranties
of Telegen or TDL on the one hand or the other Parties on the other hand set
forth in Article 4 or Article 5 or in the Investor Agreement are not true and
correct as of the Closing Date, the Parties belonging to the group whose
representations and warranties are true and correct shall have no obligation to
complete the Closing. All representations and warranties shall survive the
Closing. If any of the representations and warranties of Telegen set forth in
Article 5 (status of TDL) are not true and correct as of the Closing and Telegen
shall fail to notify the other Parties of that fact in writing and provide a
reasonably complete explanation at least 48 hours prior to the Closing, Telegen
shall indemnify and hold the other Parties harmless from and against any and all
liabilities, obligations, damages, losses, claims, demands, costs or expenses
(including, without limitation, interest, penalties, additions to tax and
reasonable attorneys' fees and disbursements) which any of them may incur in
connection with or arising out of such untrue or incorrect representation or
warranty.
7. ARBITRATION
7.1. General. Any dispute, claim or controversy arising out of or relating
to a breach of this Agreement or any of the documents which form Exhibits hereto
by any Party ("Dispute") shall be submitted to, and finally settled by, binding
arbitration under this Article 7. In addition, any Party that reasonably
anticipates a dispute, controversy or claim arising out of or relating to a
breach, or matters of interpretation, of any of the agreements referred to in
the preceding sentence, may submit such anticipated dispute, controversy or
claim to binding and final arbitration under this Article.
7.2. Exclusive Means of Dispute Resolution. Each Party covenants not to
commence any action with respect to any Dispute, except as otherwise provided in
Section 7.3. While any arbitration proceeding commenced in accordance with this
Article is pending, no separate arbitration proceeding shall be initiated by any
Party against any other Party unless the other Party agrees in writing or the
Tribunal shall have issued a written determination that the questions proposed
for resolution by arbitration can be more quickly and economically resolved in
separate arbitration proceedings. Any such separate proceedings shall be subject
to this Article. This paragraph shall not prevent any action to enforce a
Party's arbitration award or other permitted remedies to the extent such
enforcement must be pursuant to court order under applicable law.
7.3. Exception to Arbitration Requirement. The requirement that all
Disputes between the Parties be resolved by arbitration shall not apply to a
Dispute in which:
(a) a Party seeks immediate equitable or provisional relief from a court of
competent jurisdiction to prevent irreparable harm (alleged to arise from the
alleged breach) pending arbitral relief, provided, however, that this exception
to the arbitration requirement shall only apply to such immediate equitable or
provisional relief; or
(b) any claim by a Party against another Party that arises out of the
subject matter of any court litigation or proceeding commenced by an unrelated
plaintiff (that is not also a Party) against the first Party in which the second
Party is an indispensable party or third party defendant; or
(c) any claim is asserted with respect to which a third party (that is not
a Party), which is not bound and will not, upon request of any Party, agree to
arbitrate subject to the arbitration rules provided herein, is an indispensable
(or necessary) party.
7.4. Arbitration Procedure. Unless the parties to the arbitration mutually
agree otherwise, the arbitration proceedings shall be conducted in San Mateo
County, California, and, except to the extent modified by this Section 7.4,
shall be conducted in accordance with the International Commercial Arbitration
Rules of the American Arbitration Association ("AAA") that are then current (the
"Rules").
(a) Commencement. Any Party (the "Demanding Party") may commence an
arbitration by submitting a Demand for Arbitration under the AAA Rules and by
notice to the other Parties (the "Respondent"). Such notice shall set forth in
reasonable detail the basic operative facts upon which the Demanding Party seeks
relief and specific reference to the clauses of this Agreement, the amount
claimed, if any, and any nonmonetary relief sought against the Respondent. After
the initial list of issues to be resolved has been submitted, the Tribunal
(defined below) shall permit any party to the arbitration to propose additional
issues for resolution in the pending proceedings.
(b) Tribunal Selection. If the parties to the arbitration fail to agree
upon the membership of the tribunal panel, a tribunal of three arbitrators shall
be chosen in accordance with the AAA procedures. All the arbitrators shall be
fluent in the English language and be selected on the basis of experience in,
and knowledge about, high technology businesses. At least one arbitrator shall
be an attorney. The three arbitrators are sometimes referred to as the
"Tribunal." In the event that one or more of the arbitrators shall be no longer
able to serve as an arbitrator, then that arbitrator shall be deemed to have
involuntarily withdrawn and a new arbitrator shall be chosen in the same fashion
as the arbitrator he is replacing had been chosen and the Tribunal shall rehear
and reexamine any evidence submitted to it before the withdrawal of the
arbitrator. The majority decision of the Tribunal shall be final and conclusive
upon the parties to such arbitration.
(c) Limited Discovery. Upon request of any party to the arbitration, the
Tribunal shall order such documentary and other pretrial discovery (including
third-party discovery) as the Tribunal shall determine is reasonably necessary
under the circumstances, but shall impose reasonable schedules for conducting
and concluding any such discovery and shall sanction any party to the
arbitration for abuse or delay of discovery.
(d) Evidence Submission. Any party to the arbitration may submit any
evidence on any question properly presented to the Tribunal and may be
represented by counsel at all times during the proceedings. The Tribunal shall
be entitled to consider all documents, papers (including any Pre- or
Post-Hearing Statements any party to the arbitration may submit), testimony or
other evidence which a party to the arbitration shall offer for submission which
the Tribunal considers reasonably material or relevant, even though not
otherwise admissible as evidence in a court of law in the State of California.
(e) Expedited Procedure Option. Any party to the arbitration may elect, by
notice to the other parties, that the dispute or controversy identified in the
notice be submitted to arbitration under expedited procedure. Thereafter, with
respect to the identified dispute or controversy, the Tribunal shall be
empowered to expedite all proceedings including, without limitation, promptly
scheduling discovery, directing Prehearing Statements and any other submissions
within abbreviated time periods, limiting the number of witnesses and accepting
documentary evidence without formal hearings, in each case, however, consistent
with a fair hearing of the dispute or controversy. The provisions of this
Article shall apply to the expedited procedure in all other respects.
(f) Stenographic Record. At the request of any party to the arbitration, a
stenographic transcript shall be taken of all Tribunal-ordered discovery and of
all proceedings before the Tribunal.
(g) Contract Terms Govern. In deciding any matter duly submitted hereunder
to the Tribunal, the Tribunal shall be bound to apply the pertinent contractual
provisions of this Agreement and the Exhibits. After the conclusion of the
hearing the Tribunal shall, at the request of any party to the arbitration, hear
post-hearing argument and receive post-hearing briefs.
(h) Opportunity for Explanation. Prior to issuing any award or written
opinion the Tribunal shall first circulate it to the parties to the arbitration
and give such parties, at the request of any of them, the opportunity (1) to
submit in writing a reasoned statement questioning any factual or legal
determination expressed or implied therein, and (2) to be heard thereon. The
Tribunal shall thereupon reconsider the issues so raised and any supporting
papers presented, and either confirm or change its decision, which shall be
issued pursuant to sub-clause (i).
(i) Final Award. The award ("Award") of the Tribunal shall be issued in
accordance with a dated, written opinion, which shall set forth the Tribunal's
findings of fact and conclusions of law and shall include any dissenting opinion
by an arbitrator. Counterparts of the Award and opinion shall be promptly sent
to the parties to the arbitration.
(j) Interlocutory Decisions. The Tribunal shall be empowered to issue final
decisions and Awards as to particular questions to be resolved in the
proceeding, notwithstanding the continuing pendency of other questions requiring
resolution. Subject to subparagraph (g) of this Article, the Tribunal may award
whatever relief it deems appropriate in the circumstances, whether legal and/or
equitable, commensurate with the request for relief made and the extent to which
such relief has been found to be justified and may award interest, if any, at
whatever rate the Tribunal may deem to be the appropriate market rate. The
Tribunal, however, may not award punitive damages.
(k) Finality. An Award issued in accordance with this Article shall be
final, binding and nonappealable and shall be carried out voluntarily and
without delay by each of the parties as required by its terms. Failing this,
judgment upon the Award rendered by the arbitrators may be entered in any court
having jurisdiction over the party to the arbitration against whom the Award is
sought to be enforced.
(l) Attorneys' Fees. The prevailing party shall be awarded, in addition to
any other relief, reasonable attorneys' fees and costs.
8. GENERAL PROVISIONS
8.1. Further Assurances. The Parties shall do and perform, or cause to be
done and performed, all such further acts and things and shall sign and deliver
all other documents and instruments as may from time to time be reasonably
necessary to carry out the intent and purposes of this Agreement and consummate
or memorialize the transactions contemplated by this Agreement. No Party shall
voluntarily undertake any course of action inconsistent with its obligations
under this Agreement, and each Party shall try to perform as early as is
practicable the obligations it is required to perform under this Agreement.
8.2. Notices. All notices and other communications required or permitted by
this Agreement to be delivered by one Party to one or more other Parties shall
be delivered in writing, either personally, by facsimile transmission or by
registered, certified or express mail, return receipt requested, postage
prepaid, to the address set forth below or to such other address as may be
specified by a Party by means of a notice given in accordance with this Section
8.2:
if to Telegen or TDL: Office of the Corporate Counsel
Telegen Corporation
353 Vintage Park Drive, Suite H
Foster City, CA 94404
U.S.A.
Fax number within destination country:
(415) 349-9404
if to JVCO or any
Investor(s): Mr. Isao Kakimoto
Chairman
Transtech Electronics Pte. Ltd.
71 Ayer Rajah Crescent #03-23
Singapore 139951
Fax number within destination country:
779-4306
with a copy to: Mr. Patrick Ngiam
President
IPC Corporation Ltd.
23 Tai Seng Drive
IPC Building
Singapore 535224
Fax number within destination country:
287-6808
and
George H. Shenk, Esq.
Heller Ehrman White & McAuliffe
333 Bush Street
San Francisco, CA 94104
U.S.A.
Fax: (415) 772-6268
8.3. Amendments. This Agreement may only be amended by a writing signed by
all the Parties.
8.4. Entire Agreement. This Agreement including its exhibits and the
schedules hereto and thereto, and the side-letter agreement relating to finders
fees, constitute the entire agreement of the Parties respecting the subject
matter and supersede all prior oral and written understandings and agreements
between or among the Parties relating to that subject matter.
8.5. Successors and Assigns. This Agreement may not be assigned by any
Party without the written consent of the other Parties.
8.6. Counterparts and Headings. This Agreement may be signed concurrently
in multiple counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument. Headings in
this Agreement are for convenience of reference purposes only and shall not be
deemed to have substantive effect.
8.7. Severability. If any provision of this Agreement is held to be illegal
or unenforceable, it shall be modified to the extent necessary to make it legal
and enforceable, if that can be accomplished, and in all events the other
provisions of this Agreement shall remain unaffected.
8.8. No Implied Waivers. No failure or delay by any Party in enforcing any
right or remedy under this Agreement shall be construed as a waiver of any
future exercise of such right or remedy.
8.9. Force Majeure.
(a) If any Party is prevented from or delayed in performing its respective
obligations for reasons outside its control, including but not limited to civil
commotion, insurrections, riots, fires, foreign or civil war or warlike
operations, Acts of God, acts of a public enemy, strikes, lockouts and other
industrial action, or governmental acts, the effects of such delay shall, if
they give rise to what otherwise would be a breach of contract and if the Party
affected by such delay gives notice to the other Parties as required by this
Section, be deemed not to have given rise to a breach of this Agreement. The
portion of this Agreement affected by such event of force majeure shall, but
only to such limited extent necessary to take into account the consequences of
such event, be suspended during such delay as aforesaid and upon cessation of
the cause of the delay shall again become operative. The Parties agree that the
provisions of this force majeure clause shall not apply to the release
conditions of the Escrow Agreement except to the extent that supply of Critical
Materials to the relevant Licensee is prohibited by applicable U.S. law.
(b) Where any Party to this Agreement becomes aware of circumstances
referred to in paragraph (a) of this Section, that Party shall, as soon as
practicable, notify the other Parties of the cause and extent of such
circumstances and the probable delay in performance of obligations that will
result.
(c) If such circumstances or the total of several of such circumstances
delay a Party from performing any of its obligations under this Agreement for
365 days, then the Parties shall together in good faith take such steps as are
fair and equitable to safeguard the interests of all the Parties.
8.10. Third Party Beneficiaries. This Agreement is for the sole benefit of
the Parties and is not for the benefit of any other person or entity.
8.11. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California (including applicable
United States Federal law) without reference to its choice of law rules.
IN WITNESS WHEREOF, the Parties have signed and delivered this Agreement as
of the date that appears in its first paragraph. TELEGEN CORPORATION
By:
Typed Name: Jessica L. Stevens
Its: President
TELEGEN DISPLAY LABORATORIES,
INC.
By:
Typed Name: Jessica L. Stevens
Its: President
TRANSTECH ELECTRONICS PTE.
LTD.
By:
Typed Name:
Its:
IPC CORPORATION LTD.
By:
Typed Name:
Its:
JVCO
By:
Typed Name:
Its:
<PAGE>
* Confidential treatment of the portions of this contract indicated by
asterisks enclosed in brackets has been requested.
EXHIBIT A
MANUFACTURING LICENSE AGREEMENT
This Manufacturing License Agreement supplements that certain Master
Agreement dated May 30th, 1996 by and among Telegen Corporation, Telegen Display
Laboratories, Inc., Transtech Electronics Pte. Ltd., IPC Corporation Ltd. and
the entity which subsequently signed that agreement and is referred to therein
as "JVCO." This Agreement is made between TELEGEN DISPLAY LABORATORIES, INC.
("TDL") and the entity (designated pursuant to the notice of exercise of option
in accordance with Section 3.1 of that Master Agreement) that is to become the
licensee under this Agreement (the "Licensee"). Those two contracting parties
are herein referred to as "Parties."
1. DEFINITIONS
Terms defined in the Master Agreement shall have the same meanings when
used in this Agreement. In addition, the following words, phrases, or terms
shall have the following meanings when used in this Agreement:
"Actual Units" is a measure of quantity used in calculating satisfaction of
Licensee's minimum production requirements in Section 3.5 of this Agreement.
Each individual unit of any Product manufactured counts as one Actual Unit. See
also "Adjusted Units" below.
"Adjusted Unit" is a measure of quantity used in calculating the number of
Products which Licensee may manufacture under this Agreement. Actual units
manufactured shall be adjusted by multiplying the number of units of Products
having the display screen size (measured in terms of active diagonal) and
characteristics indicated below by the corresponding decimal:
Display Screen Size Multiplier Additional Multiplier
if Monochrome
Under 10" .50 .66
10" to 15" .66 .66
15" to 20" .80 .66
20" and over 1.00 .66
========================== =================== ============================
To illustrate, a Product having an active diagonal of 10" would count as
.66 of an Adjusted Unit if able to display more than one color and would count
as .44 of an Adjusted Unit if the display were monochromatic.
"Calendar Year" means the twelve month period commencing January 1st and
ending December 31st.
"Calendar Quarter" means any three-month period beginning January 1st,
April 1st, July 1st, and October 1st, and ending respectively March 31st, June
30th, September 30th, and December 31st.
"Eligible Sublicensee" means an Investor or any entity in which one or more
of the Investors and/or JVCO owns not less than fifty percent (50%) of the
voting and equity interests, provided that in the document conveying the
sublicense such sublicensee irrevocably agrees to ensure compliance with the
obligations of the Licensee to TDL.
"Gross Sales" means the total price invoiced for all Products less amounts
included on such invoices with respect to applicable excise, sales or similar
taxes, customs duties, insurance and freight charges and the cost of any special
packaging, provided, however, that for sales of Products as part of a system or
as part of an integrated item in which the Product cannot operate separately or
for sales to Affiliates, the price used shall be determined on the basis of the
prevailing average invoice price for sales of similar Products by Licensee to
non-Affiliates at the time nearest the time of sale or, if approximately the
same, the actual interdivisional or intercompany transfer price used by Licensee
in its accounting records.
"Trademarks" means the trademark "Isis" and any other trademarks specified
in a Schedule A if attached hereto.
2. LICENSE GRANT AND TECHNOLOGY TRANSFER
2.1 Grant of License and Reservation of Ownership.
(a) This is a license agreement and not an agreement for sale of
intellectual property rights. TDL and Telegen Corporation are the only persons
who have ownership rights to the HGED Technology. TDL hereby grants to Licensee,
subject to the terms and conditions of this Agreement, and Licensee hereby
accepts from TDL: (i) an exclusive (except as provided in the Master Agreement),
nontransferable license, with right to sublicense only to an Eligible
Sublicensee, to manufacture within the Territory Products incorporating the HGED
Technology and (ii) a non-exclusive, nontransferable license, with right of
sublicense, to distribute, market, sell, repair and support anywhere in the
world Products incorporating the HGED Technology.
<PAGE>
* Confidential treatment of the portions of this page indicated by asterisks
enclosed in brackets has been requested.
(b) The licenses granted under the preceding paragraph shall permit
Licensee to create one or more manufacturing plants in the Territory and to
produce collectively in such plants up to One Million (1,000,000) Adjusted Units
per Calendar Year during the term of this Agreement.
2.2 Technology Transfer.
(a) Immediately upon the effectiveness of this Agreement, TDL shall deliver
to Licensee the Technology Release Package for Monochrome, and, if ready for
release, the Technology Release Package for Full Color. If the latter is not yet
ready, TDL shall deliver it to Licensee as soon as possible. Upon the request of
Licensee, TDL shall permit a reasonable number of employees of Licensee such
access to TDL's own production facility for Products and TDL employees there as
may be reasonably necessary to learn how to apply the HGED Technology. The costs
of such visits shall be borne by Licensee. Upon reasonable request of Licensee,
TDL shall, send to Licensee's production plants in the Territory appropriate
employees to provide Licensee's employees with manufacturing and technical
information relating to the Products and to assist Licensee in correcting
problems relating to application of the HGED Technology. The cost of such
visits, including travel and accommodation expenses, shall be borne by TDL.
Licensee and TDL shall each bear all employment compensation costs of their own
employees.
(b) TDL represents that the Technology Release Package for Monochrome is
sufficient, and the Technology Release Package for Full Color when delivered
will be sufficient, to enable Licensee to manufacture monochromatic or full
color, as the case may be, Products with the same quality as those being
manufactured by TDL if:
(i) the raw materials used by Licensee have the same quality and
characteristics;
(ii) the machinery and equipment in Licensee's production facilities are of
the same quality and comply with the same standards as the machinery and
equipment used in TDL's production facilities;
(iii) Licensee's personnel have been duly trained and perform their jobs
properly; and
(iv) Licensee complies with the instructions in the relevant Technology
Release Package and such additional instructions as TDL shall deliver to
Licensee in writing.
(c) TDL further represents that, except as discussed in (e) below, TDL has
no knowledge that Licensee cannot meet the conditions set forth in (i) through
(iv) above.
(d) THE FOREGOING REPRESENTATIONS AND WARRANTIES AND THE INTELLECTUAL
PROPERTY INDEMNITY SET FORTH IN SECTION 9.1 BELOW CONSTITUTE TDL'S SOLE
WARRANTIES WITH RESPECT TO THE HGED TECHNOLOGY. LICENSEE SHALL BEAR FULL
RESPONSIBILITY FOR APPLYING THE HGED TECHNOLOGY IN THE CREATION OF MERCHANTABLE
PRODUCTS AND WARRANTING THEIR FITNESS TO ITS CUSTOMERS.
(e) It is understood and agreed that TDL shall not be obligated to disclose
in either Technology Release Package how [********] constituting Critical
Materials are manufactured. The Parties contemplate that all information
relative to the phosphors manufacturing process will be covered by the
arrangements set forth in Section 3.2 of the Master Agreement and the Escrow
Agreement referred to therein.
(f) In addition to the foregoing technical assistance, TDL shall, subject
to availability of TDL's personnel, provide Licensee with such additional
technical support as Licensee may reasonably request from time to time to
implement initial commercial production of any Product. If costs associated with
such support will be substantial, TDL shall advise Licensee in advance of
rendering such assistance of any amounts it intends to charge related thereto.
In any event, TDL shall not charge Licensee more than TDL's actual costs for
providing such assistance.
3. ROYALTIES
3.1 Acknowledgment of Lump Sum. In order to exercise the option contained
in the Master Agreement, Licensee has paid to TDL a lump sum [********].
3.2 Running Royalty. In addition to the amount referred to in Section 3.1,
Licensee shall pay to TDL a royalty on all Gross Sales of Products by Licensee
and by any Eligible Sublicensee to parties other than Licensee (there shall be
no double counting). This royalty shall be at the rate of [********] or such
lower rate as may at the time of sale of any Products be payable under any other
license granted by TDL for use of the HGED Technology. The Parties acknowledge
that the royalty rate may decrease several times during the term of this
Agreement. TDL shall notify Licensee promptly if the applicable rate has
decreased. Such royalty shall be payable in U.S. Dollars, but any sales made by
Licensee in currencies other than U.S. Dollars shall be converted to U.S.
Dollars at the rate quoted by the Asian Wall Street Journal on the last business
day of the relevant Calendar Quarter.
<PAGE>
* Confidential treatment of the portions of this page indicated by asterisks
enclosed in brackets has been requested.
3.3 Royalty Reports and Timing of Payment. Licensee shall provide TDL,
within thirty (30) days after the close of each Calendar Quarter, with a
reasonably detailed statement in terms of both revenues (expressed in U.S.
Dollars) and volume of Adjusted Units of all Gross Sales made during such
Calendar Quarter. Royalty payments shall be due and payable on the sixtieth day
following the close of the Calendar Quarter. All royalty and production
information shall be subject to the confidentiality provisions of this Agreement
and TDL shall protect such information as it protects its own confidential
business information, shall disclose it only to persons within TDL having a need
to know such information, and shall not disclose it to persons within TDL who
are primarily responsible for pricing or marketing competing products
manufactured by TDL.
3.4 Audit Rights. TDL shall have the right, no more than once each Calendar
Year, to audit the books and records of Licensee relating to Products to
determine whether Licensee has complied with all of the terms and conditions of
this Agreement, including payment of full royalties and observance of maximum
production limits. Licensee agrees to provide TDL's auditors, subject to their
execution of customary confidentiality agreements, with all reasonable
assistance to conduct such audits, including access to records, telephone and
office space and equipment at Licensee's facilities. TDL shall bear the cost of
any such audit, unless it is discovered that Licensee has underpaid royalties
for the period under audit by in excess of four percent (4%) of the amount due,
in which case Licensee shall bear the cost of such audit and any single
subsequent audit selected by TDL.
3.5 Minimum Production and/or Royalties.
(a) To Maintain Exclusivity. TDL shall have the right to convert the
manufacturing license granted in Section 2.1(a) to a non-exclusive license if
"X" in the following formula is positive and TDL shall not have received the
"Exclusivity Compensation Payment" referred to below before January 31 of the
Calendar Year immediately following the Calendar Year for which the following
calculations are made. In the following formula:
N = The total number of Manufacturing License Agreements made
pursuant to the Master Agreement, including this Agreement.
P1 = Total Production of Actual Units subject to royalty
manufactured by Licensee during each full month of the Calendar
Year which followed the 30th month after the Exercise Date for
this Manufacturing License Agreement.
M1 = the number of full calendar months in such Calendar Year which
followed the 30th month after the Exercise Date for this
Manufacturing License Agreement.
P0 = Total Production of Actual Units subject to royalty
manufactured under Manufacturing License Agreements other than
this one during each full month of the Calendar Year following
the 30th month after the relevant Exercise Date for each such
Manufacturing License Agreement.
M0 = the aggregate number of full calendar months in such Calendar
Year which followed the 30th month after the relevant Exercise
Date for each such Manufacturing License Agreement. For this
purpose the month of June, for example, might be counted more
than once if the 30-month period had expired in April for one
such licensee and in May for another.
X = 250,000 _ (P1 + P0)
12 (M1 + M0)
If X is a positive number, then Licensee may nevertheless maintain the
exclusivity of its manufacturing license if Licensee and all the other licensees
under Manufacturing License Agreements shall collectively have paid to TDL an
amount equal to Z in the following formula:
Z = (N x [********]) - [(12N - (M1 + M0)) x [********]] - R
where R is the aggregate amount of royalties paid to TDL for the portion of the
Calendar Year for which the calculation is made. Z is the "Exclusivity
Compensation Amount."
(b) To Maintain the Manufacturing License. TDL shall have the right to
terminate the manufacturing license granted in Section 2.1(a) upon ninety (90)
days' prior written notice delivered during the period between January 31 and
March 31 of the year following the Calendar Year for which the following
calculations are made if "Y" in the following formula is positive and TDL shall
not have received the "License Compensation Payment" referred to below before
such January 31.
<PAGE>
* Confidential treatment of the portions of this page indicated by asterisks
enclosed in brackets has been requested.
In the following formulae N, P1, M1, P0 and M0 have the same meanings as
above.
Y = 100,000 _ (P1 + P0)
12 (M1 + M0)
If Y is a positive number, then Licensee may nevertheless maintain its
manufacturing license if Licensee and all the other licensees under
Manufacturing License Agreements shall collectively have paid to TDL an amount
equal to Z1 in the following formula:
Z1 = (N x [********]) - [(12N - (M1 + M0)) x [********]] - R
where R is the aggregate amount of royalties paid to TDL for the portion of the
Calendar Year for which the calculation is made. Z1 is the "License Compensation
Amount."
(c) Exception to Minimums. If TDL or Telegen shall, at any time during the
Calendar Year for which the minimum production and royalty calculations set
forth in subparagraphs (a) and (b) are made, have been in default of obligations
to supply Licensee or any of the other licensees relevant to the calculation
with Critical Materials, then an equitable adjustment shall be made in such
calculations to reflect the full impact that such unavailability may have had
upon Licensee's and those other licensees' production.
4. IMPROVEMENTS
4.1 Licensee's Obligations. Licensee shall, without charge, make available
and license to TDL any and all Improvements which may be developed by Licensee
or any Eligible Sublicensee during the term of this Agreement. Improvements so
licensed shall be sublicensable by TDL only to persons who have contractually
obligated themselves and their sublicensees to make their Improvements available
to TDL under equivalent sublicensing arrangements. This obligation to make
Improvements available and sublicense them to TDL shall automatically cease if
TDL enters into any license or sublicense agreement with respect to the HGED
Technology which grants TDL or any of its affiliates a right to use
Improvements, but does not grant TDL the right to sublicense to Licensee the
same rights to use the Improvements without additional charge.
4.2 TDL Obligations. TDL shall make available to Licensee without further
charge any Improvements which may be developed during the term of this Agreement
and which it has the right to license or sublicense. TDL shall use reasonable
efforts to obtain from all its other licensees and sublicensees of the HGED
Technology the right to sublicense all of their Improvements to Licensee. TDL
shall notify Licensee promptly if Licensee's obligation to share Improvements
shall cease pursuant to the preceding Section.
5. CONFIDENTIALITY
5.1 Reciprocal Obligations. Except for information relating to HGED
Technology and Improvements which a Party may rightfully sublicense pursuant to
Section 4, the following confidentiality obligations shall apply to all
information exchanged between the Parties. All information which a party wishes
be kept confidential shall be marked "CONFIDENTIAL" or with marking of similar
meaning. Information not so marked shall not be deemed confidential information
hereunder. If confidential information is disclosed orally and is identified as
such at that time and is subsequently reduced to writing with the "CONFIDENTIAL"
or similar marking and sent to the other Party within 30 days, the receiving
Party shall treat it as if marked "CONFIDENTIAL" at the time of disclosure.
5.2 Non-Disclosure and Non-Use. For the term of this Agreement plus a ten-
year period beginning upon the termination of this Agreement, each Party shall
use the same degree of care in protecting confidential information that it
receives from the other Party as it uses to protect its own proprietary or
confidential information, such care to be no less than reasonable care.
Confidential information received from the other Party shall be used only in
accordance with this Agreement. No Party shall disclose the other Party's
confidential information to anyone except those consultants, employees,
officers, or officials actually involved and having a need to know such
information in the performance of their duties related to proper activities
contemplated under this Agreement. Each Party shall advise such persons to whom
it makes disclosure of their obligations and receive their personal
acknowledgment in writing of their continuing obligations to preserve the
confidentiality of the other Party's confidential information disclosed in
connection with this Agreement, whether such persons continue in the service of
a Party or not. The Parties shall bind their respective successor(s) in interest
to the obligations of this Agreement.
5.3 No Unnecessary Copying. No Party shall copy or reproduce any
confidential information of the other Party except for purposes in the ordinary
course of business contemplated by this Agreement or with the permission of that
Party.
5.4 Exclusions. The obligations under this Section 5 shall not apply to any
information which becomes known to the receiving party free of an obligation to
keep it confidential or which is or becomes publicly available through acts not
attributable to the receiving party. Moreover, the obligations hereunder shall
not apply to any such information already known by the receiving party free of
an obligation of confidentiality or which is independently developed by
employees of the receiving party not in privity to the information received
under this Agreement.
6. TRADEMARKS
6.1 Trademark Use Rights. TDL grants to Licensee, for a term co-extensive
with the licenses granted in Section 2.1(a), a nontransferable, non-exclusive,
worldwide right, with right of sublicense, to use the Isis trademark and any
other Trademarks in connection with the promotion, advertising, use,
sublicensing, or distribution of Products containing the HGED Technology,
provided that TDL shall have prior review of such use.
6.2 Required Product Identification. Licensee agrees that every Product
sold shall, to the extent feasible, be marked with the Isis trademark.
Subdistributors, if any, shall be permitted rights to use the Trademarks under
Licensee's management and control and in strict compliance with the terms of
this Agreement.
7. QUALITY ASSURANCE
7.1 Quality Assurance Inspector. During the term of this Agreement, TDL
shall have the right to maintain, at its own expense, a quality assurance ("QA")
inspector within Licensee's manufacturing facility and Licensee shall provide
reasonable office space, supplies, and communication and support facilities for
such person, including, at a minimum, an enclosed, private, locking office of at
least 100 square feet, international telephone and facsimile capability within
said private office and parking space for one car.
7.2 Access. Subject to Licensee's right to preserve the confidentiality of
Improvements which it is not obliged to disclose to TDL under Section 4.1, the
QA Inspector shall have unlimited access during all operating hours to all parts
of the manufacturing facility involved with the HGED Technology or the
manufacture or distribution of Products, including, but not limited to,
production line(s), engineering, Licensee's own quality assurance facilities,
shipping and receiving facilities, storage areas and warehouse, and records
relating to Products.
7.3 Incidents of Non-Compliance with Quality Standards. In the event that
the QA Inspector finds that Licensee's manufacturing systems and processes
deviate from the manufacturing processes defined by TDL or are not in compliance
with the manufacturing standards set forth in the HGED Technology transfer
documents, the QA Inspector shall immediately notify the Licensee and TDL of the
manufacturing process deviation or manufacturing standards non-compliance.
Licensee shall, within ten (10) days, explain in writing to TDL how such
manufacturing processes comply or why they deviate from TDL's manufacturing
processes or standards. Within thirty (30) days after receipt of written request
from TDL to comply with the QA Inspector's directions, Licensee will cease such
deviation and/or comply with the manufacturing standards. If Licensee fails to
do so, Licensee shall be deemed in breach of this Agreement and TDL may withdraw
the license for that manufacturing facility, provided, however, that TDL may not
do so if such facility is and remains qualified under ISO 9002.
8. EXPORT REGULATIONS
To the extent that any goods, services or technology provided to Licensee
by TDL is subject to export controls of the United States of America as
administered by the Bureau of Export Control, United States Department of
Commerce and the United States Department of State or the Coordinating Committee
for Multilateral Export Controls, Licensee shall comply with any applicable
restrictions on re-export to prohibited destinations. Upon request by TDL,
Licensee will provide TDL with appropriate certification of such compliance.
9. INFRINGEMENT AND OTHER INDEMNITIES
9.1 Intellectual Property Indemnity.
(a) For the term of the licenses granted under this Agreement, TDL shall,
at its own expense, defend and hold harmless Licensee, its successors and
permitted assigns, officers, directors, employees, agents, contractors,
sublicensees and customers ("Licensee Indemnitees") from and against any and all
claims, liabilities, damages, losses, demands, recoveries, costs and expenses
(including, without limitation, interest and reasonable attorneys' fees and
disbursements) ("Damages") which any Licensee Indemnitee may suffer or incur in
connection with or arising out of a claim that any third party's intellectual
property rights have been infringed by use in the Territory of any of the HGED
Technology furnished under this Agreement in the manner contemplated by this
Agreement. Such indemnity shall not apply, however, to use of the HGED
Technology in a manner identical to actual use within the United States of
America that infringes no third party's intellectual property right. This
exception to the indemnity obligation shall not apply if infringement is only
avoided by virtue of a license enjoyed by TDL but not sublicensed to Licensee
hereunder. TDL shall also have no indemnity obligation with respect to any claim
of infringement resulting from Licensee's modification or alteration of the HGED
Technology without TDL's consent. In no event shall TDL be liable to the
Licensee Indemnitees collectively for an amount in excess of total royalties
received by TDL from Licensee (including subsequently received royalties as they
come due).
<PAGE>
* Confidential treatment of the portions of this page indicated by asterisks
enclosed in brackets has been requested.
(b) If any Product containing HGED Technology licensed under this
Agreement, in the opinion of TDL, may become subject to a claim of infringement,
TDL, shall obtain the right for Licensee and all parties in its distribution
chain through and including end-users, to continue using the HGED Technology in
connection therewith, or at TDL's option, replace or modify the HGED Technology
so as to make it non-infringing. If, in the reasonable judgment of TDL acting in
good faith, none of these alternatives is available on commercially reasonable
terms, Licensee shall cease manufacture of the infringing Products and return
all related HGED Technology furnished under this Agreement to TDL upon TDL's
written request.
9.2 Product Liability. Except for claims arising from any Critical
Materials or component obtained from TDL and claims arising from gross
negligence attributed to any part of any Technology Release Package, Licensee
shall defend and hold TDL, its successors and permitted assigns, officers,
directors, employees and agents ("TDL Indemnitees") harmless from and against
any and all Damages which any TDL Indemnitee may suffer or incur in connection
with or arising out a claim that any Product manufactured under this Agreement
has caused injury or death to any third party. To the extent that Licensee
desires to obtain insurance which will provide protection against risks
resulting from this section by having TDL appear as an additional named insured
on Licensees' liability insurance policies, TDL shall cooperate with Licensee in
educating such insurers to the applicable product liability risks related to the
Products.
9.3 Procedure for Handling Third Party Claims. If any action or claim (a
"Third Party Claim") is commenced against any Licensee Indemnitee or TDL
Indemnitee (in either case, an "Indemnitee") in respect of which an Indemnitee
seeks or will seek indemnification from the other Party (an "Indemnitor") under
this Article, the Indemnitee shall promptly furnish the Indemnitor with a copy
of that claim (if the Third Party Claim was asserted in writing) or (if the
Third Party Claim was not asserted in writing) shall promptly give the
Indemnitor a written notice that summarizes the nature of the Third Party Claim
and the basis upon which it appears to have been asserted. Any delay in
furnishing such a copy or giving such a notice shall not affect the rights of
the Indemnitee under this Agreement unless the Indemnitor demonstrates that such
delay materially prejudiced its rights with respect to the Third Party Claim.
Within 20 days after an Indemnitee gives such a notice, the Indemnitor shall
notify the Indemnitee in writing whether the Indemnitor will defend the Third
Party Claim. The Indemnitor may elect to defend subject to a reservation of
rights. If the Indemnitor so elects to defend, it will not settle or compromise
the Third Party Claim without the Indemnitee's prior written consent. However,
such consent shall not be unreasonably withheld. If the Indemnitor does not
defend the Third Party Claim, the Indemnitee shall be entitled, but not
obligated, to defend the Third Party Claim. Whether or not the Indemnitor
defends, the Indemnitor shall pay all reasonable costs and expenses of the
defense if the claim is indemnifiable, albeit subject to any applicable limits
set forth in this Agreement. Whether or not the Indemnitor defends, each Party
shall cooperate with the defending Party to defend against such Third Party
Claim.
10. TERM AND TERMINATION
10.1 Term. This Agreement shall expire on December 31 of the eighth full
Calendar Year after its commencement, unless earlier terminated pursuant to
Section 10.2. Licensee shall be eligible to extend this Agreement for two
successive renewal periods of eight (8) years each, if prior to the date which
is 180 days before it would otherwise expire TDL has not notified Licensee that
the Agreement will be terminated on the expiration date for reasons which would
justify termination for breach under Section 10.2. Absent such notification,
Licensee may extend the Agreement by payment to TDL on or before the 90th day
prior to expiration of a renewal fee in the amount of [********].
10.2 Termination for Cause.
(a) This Agreement may be terminated for cause by TDL if (i) Licensee
substantially fails to perform any of its material obligations hereunder and
such failure is not corrected within thirty (30) days after delivery of a
written cancellation notice from TDL specifying the cause, or (ii) Licensee
fails to pay royalties when due and fails to cure such failure within ten (10)
days after notice of non-payment.
(b) This Agreement may be terminated by Licensee for cause, in the event
that TDL substantially fails to perform any of its material obligations
hereunder and such failure is not corrected within thirty (30) days after
delivery of a written cancellation notice from Licensee specifying such cause.
(c) In the event of termination hereunder, all licenses granted to the non-
terminating Party shall be deemed terminated and such Party shall cease using
the corresponding intellectual property rights and return to the non-terminating
Party all confidential information which is in tangible form received from such
Party. No termination shall affect the obligation of Licensee to make running
royalty payments pursuant to Section 3.2.
(d) If Licensee terminates this Agreement for cause, Licensee shall retain
the licenses set forth in Section 2.1 to use the HGED Technology as it may then
exist, but only until the date this Agreement would otherwise have expired
pursuant to Section 10.1 or until the date of Licensee's failure to cure within
the applicable grace period a breach of Licensee's on-going obligations (such as
would have entitled TDL to terminate this Agreement under Section 10.2(a)).
11. GENERAL PROVISIONS
11.1 Arbitration. All of Article 7 of the Master Agreement is hereby
incorporated by reference, but for purposes of this Agreement the references
therein to a "Party" or "Parties" shall include only the Parties as defined in
this Agreement and the selection of the arbitration Tribunal shall be achieved
by each Party appointing one arbitrator and the two arbitrators so chosen
appointing a third.
11.2 Incorporation by Reference of General Provisions. All of the General
Provisions set forth in Article 8 of the Master Agreement are hereby
incorporated by reference as if fully set forth herein.
11.3 Non-Assignability. Licensee may not assign this Agreement or
Licensee's rights hereunder without the prior written consent of TDL, which
shall not be unreasonably withheld. Any purported assignment without such
consent shall be null and void.
11.4 Effectiveness. This Agreement shall automatically become binding upon
the Parties by exercise of the option set forth in the Master Agreement. For the
sake of good order, however, the Parties shall have their duly authorized
representatives confirm its effectiveness by signing below.
TELEGEN DISPLAY LABORATORIES, INC.
By:
[Name of Licensee]
By:
<PAGE>
MASTER AGREEMENT
THIS AGREEMENT (the "Agreement") is made as of June __, 1996 by and among
TELEGEN DISPLAY LABORATORIES, INC., a California corporation with offices at 353
Vintage Park Drive, Foster City, California 94404, U.S.A. ("TDL") and Prescient,
Inc. a California Corporation, with offices at ____________________________
("Licensee"). Each of the aforementioned is sometimes referred to individually
as a "Party" and collectively they are sometimes referred to as the "Parties."
B A C K G R O U N D
WHEREAS, Licensee is in the business of developing, manufacturing and
marketing to original equipment manufacturers and end users certain computer and
electronic products and Licensee desire to manufacture flat-panel display
devices in the Territory (as hereinafter defined) and to market and sell such
products on a worldwide basis;
WHEREAS, TDL has acquired from it parent corporation, ("Telegen")
Corporation, rights to all proprietary, intellectual property owned by Telegen
associated with a High Gain Emissive Display technology (as defined below)
suitable for flat-panel display devices;
WHEREAS, Licensee intends to obtain from TDL non-exclusive licenses to
manufacture in the Territory (defined below) and sell on a non-exclusive basis
throughout the world, flat- panel display devices based upon a High Gain
Emissive Display technology; and
WHEREAS, TDL is willing to grant Licensee non-exclusive licenses for
manufacture of the Products (defined below) in the Territory and non-exclusive
licenses to market, sell, and support the Products throughout the world;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
representations and agreements set forth herein, and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
Parties, intending to be legally bound, hereby agree as follows:
1. DEFINITIONS
As used herein, the following words, phrases, or terms in this Agreement
shall have the following meanings:
"Affiliate" means, as to any Party, any individual, corporation,
partnership, limited liability company or other entity, which at any time during
the term of this Agreement directly or indirectly controls, or is controlled by,
or is under common control with, that Party. In this context, "control" means
the power to direct or cause the direction of management and policies, whether
through ownership of voting securities, by contract or otherwise, and shall,
without limiting the foregoing, be deemed to exist in case of ownership of
shares comprising fifty percent (50%) or more of the voting power of a
corporation. "Critical Materials" means the phosphors which are specified in the
Technology Release Package as components of a Product or which are incorporated
in any Improvement licensed by TDL under the Manufacturing License Agreement, as
well as any other component of a Product which cannot be obtained from at least
two sources, one of which is not under the control, by contractual restriction
or ownership, of TDL or Telegen.
"Exercise Date" means, in respect of any Manufacturing License Agreement,
the date when the Licensee gave written notice of exercise of the relevant
option to obtain that license pursuant to Section 3.1 of this Agreement.
"HGED Technology" and "High Gain Emissive Display Technology" mean all
proprietary elements of the flat-panel display technology disclosed by TDL to
any Licensee as part of the Technology Package Release (defined below), and all
Improvements thereto made from time to time during the term of any license
granted pursuant to this Agreement which TDL has the right to license or
sublicense. Such technology includes manufacturing methods, interface hardware
and control software licensed exclusively to TDL, whether patented or not
patented, including trade secret information, formulations and manufacturing
know-how, but excluding Critical Materials.
"Improvement" means any change to a Product or how a Product is
manufactured made after the Technology Release Date which makes the Product or
the manufacture thereof less expensive or more effective or which makes a
Product more useful or valuable or which make it in any way a preferable article
in commerce.
"Licensee" means Prescient, Inc.
"Manufacturing License Agreement" means a license agreement for manufacture
of Products in the Territory using the HGED Technology and for distribution,
marketing, sale, repair and support of Products worldwide, all upon the terms
and conditions set forth in Exhibit A.
"Product" means every device manufactured by Licensee incorporating the
licensed HGED Technology.
"Technology Release Package" means a complete set of specifications and
plans necessary and adequate to establish and maintain a facility for high
volume manufacturing (1,000,000 units or more) of Products incorporating the
HGED Technology at a location designated by Licensee.
"Technology Release Date" means the date that TDL notifies Licensee that
the Technology Release Package is complete and ready for release to a Licensee.
"Territory" means the country or countries where Products incorporating
HGED Technology licensed under this Agreement may be manufactured, specifically,
Canada, The United States of America, and Mexico.
2. LICENSE AND PURCHASE AGREEMENT BETWEEN TELEGEN
AND TDL. At or before the Technology Release Date, Telegen and TDL shall
enter into an "Agreement for the License and Purchase of HGED Technology"
providing for the license by Telegen to TDL upon the filing of each necessary
U.S. and international patent, trademark and copyright application relating to
the HGED Technology of exclusive worldwide rights thereunder, with right of
sublicense. Said license shall include the right of TDL, with right of
sublicense, to make use, and sell the HGED Technology covered thereby throughout
the world.
3. OPTION TO OBTAIN LICENSES.
(a) TDL shall use its best efforts to achieve Technology Release Date for
as early as commercially possible and, in no event shall such Technology Release
Dates be later than the earlier of (I) the date of any other release of
comparable information to any third party and (ii) the commencement of
commercial production of Products (a production rate of one million or more
units) at any facility or facilities owned or operated by Telegen, TDL or any
Affiliate of either of them.
(b) TDL shall notify the Licensee promptly of the Technology Release Date.
At any time during the period commencing upon the Technology Release Date
Licensee may:
(I) by written notice and the payment of Ten Million U.S. Dollars
(US$10,000,000) require TDL to enter into a Manufacturing License
Agreement.
(c) Notwithstanding anything to the contrary in this Agreement or any
Manufacturing License Agreement, if TDL at any time enters into a license
agreement for all or part of the HGED Technology with any licensee for any
territory upon royalty terms that are more favorable than those contained in any
license agreement entered into in connection with this Agreement, all the
Manufacturing License Agreement shall promptly be amended to incorporate such
more favorable royalty terms.
3.2 Assurances of Critical Materials Availability.
(a) TDL agrees that it will at all times during the term of any License
Agreement, subject to events beyond its reasonable control, have available or
cause its designee to have available for purchase by Licensee upon reasonable
commercial terms sufficient quantities of Critical Materials to meet each
Licensee's reasonable production needs within the scope of its license and have
a nine-month reserve on-site in its facility. If TDL or any Affiliate of TDL
shall itself be a source of Critical Materials, TDL shall sell such Critical
Materials to Licensee at prices and upon terms that are no less favorable than
the prices and terms which TDL offers to its most favored customer.
(b) Contemporaneously with signing of each Manufacturing License Agreement,
TDL shall (I) enter into an escrow agreement ("Escrow Agreement") with the
relevant Licensee and Data Securities International, Inc. substantially in the
form of Exhibit B and (ii) place into escrow with that escrow agent a complete
technology package (including, without limitation, formulae, manufacturing
process instructions, material and supplier lists and drawings) which will
enable the Licensee to establish its own production facilities for all Critical
Materials in the event that any of the events allowing release from escrow shall
have occurred. Such events are described in the Escrow Agreement and include the
failure by TDL during any consecutive six- month period to have available for
purchase by Licensee a sufficient supply of any Critical Material to meet
Licensee's reasonable production needs within the scope of its license. A second
example of a release event is sale by TDL of its own phosphor manufacturing
facility.
3.2 Efforts to Obtain and Maintain Patents. TDL covenants to Prescient that
it will use its best efforts to obtain a patent in each country of the Territory
for each patent application it files in the United States and that it will
maintain throughout the term of each Manufacturing License Agreement every
patent obtained in the Territory unless it also ceases to maintain the
corresponding U.S. Patent.
4. REPRESENTATIONS AND WARRANTIES BY PARTIES
Each Party hereby represents and warrants to the other Parties that:
4.1 Authorization. That Party has full corporate right and power to enter
into this Agreement and to carry out the transactions contemplated hereby and
that Party may execute, deliver and perform this Agreement without the necessity
of obtaining any consent, approval authority or waiver or giving any notice to
or from any person.
4.2 Binding Effect. This Agreement has been duly signed and delivered by
that Party and constitutes that Party's legal, valid and binding obligation,
enforceable against that Party in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
and other laws that generally affect creditors and except as may be limited by
general principles of common law equity.
4.3 Absence of Conflict. Neither the signing and delivery of this Agreement
by that Party nor the consummation by that Party of any transaction contemplated
by this Agreement will, with or without notice or the passage of time:
(a) violate any statute, rule, regulation, law or judicial or administrative
order, judgment or decree applicable to that Party or (b) result in the breach
of, cause an acceleration of any obligation under, permit the termination of, or
otherwise constitute a default under, any agreement or other instrument to which
that Party is subject or under any corporate charter document, by-law or similar
document applicable to it.
4.4 Litigation and Claims. TDL covenants that there is no suit, action,
investigation or other proceeding pending or, to that Party's knowledge,
threatened against it relating to any of the transactions contemplated by this
Agreement.
5. REPRESENTATIONS AND WARRANTIES OF TDL
To induce the Licensee to enter into this Agreement, TDL hereby represents
and warrants to them that, as of the date of this Agreement:
5.1 Organization and Good Standing. TDL is a corporation duly organized,
validly existing and in good standing under the laws of the State of California
and is duly qualified to conduct its business in each jurisdiction where failure
to be so qualified would have a material adverse effect upon its business or
financial condition.
5.2 No Liabilities of TDL. TDL has no liability or obligation of any kind,
whether actual or contingent, asserted or unasserted, whether in respect of
taxes, contract performance or non-performance, tort, indebtedness or otherwise,
and Telegen has no knowledge of any threatened or asserted claim made against
TDL.
5.3 Compliance with Laws. TDL is in substantial compliance with all
applicable federal, state, local and foreign statutes, rules, regulations and
other laws pertaining to its business. No claim has been asserted by any
governmental authority against TDL (and no such claim is anticipated) to the
effect that TDL's business fails to comply with any statute, rule, regulation or
other law or that a license, permit, certificate or authorization which has not
been obtained is required with respect to the operation of its business.
6. ARBITRATION
6.1 General. Any dispute, claim or controversy arising out of or relating
to a breach of this Agreement or any of the documents which form Exhibits hereto
by any Party ("Dispute") shall be submitted to, and finally settled by, binding
arbitration under this Article 7. In addition, any Party that reasonably
anticipates a dispute, controversy or claim arising out of or relating to a
breach, or matters of interpretation, of any of the agreements referred to in
the preceding sentence, may submit such anticipated dispute, controversy or
claim to binding and final arbitration under this Article.
6.2 Exclusive Means of Dispute Resolution. Each Party covenants not to
commence any action with respect to any Dispute, except as otherwise provided in
Section 7.3. While any arbitration proceeding commenced in accordance with this
Article is pending, no separate arbitration proceeding shall be initiated by any
Party against any other Party unless the other Party agrees in writing or the
Tribunal shall have issued a written determination that the questions proposed
for resolution by arbitration can be more quickly and economically resolved in
separate arbitration proceedings. Any such separate proceedings shall be subject
to this Article. This paragraph shall not prevent any action to enforce a
Party's arbitration award or other permitted remedies to the extent such
enforcement must be pursuant to court order under applicable law.
6.3 Exception to Arbitration Requirement. The requirement that all Disputes
between the Parties be resolved by arbitration shall not apply to a Dispute in
which:
(a) a Party seeks immediate equitable or provisional relief from a court of
competent jurisdiction to prevent irreparable harm (alleged to arise from the
alleged breach) pending arbitral relief, provided, however, that this exception
to the arbitration requirement shall only apply to such immediate equitable or
provisional relief; or
(b) any claim by a Party against another Party that arises out of the
subject matter of any court litigation or proceeding commenced by an unrelated
plaintiff (that is not also a Party) against the first Party in which the second
Party is an indispensable party or third party defendant; or
(c) any claim is asserted with respect to which a third party (that is not
a Party), which is not bound and will not, upon request of any Party, agree to
arbitrate subject to the arbitration rules provided herein, is an indispensable
(or necessary) party.
6.4 Arbitration Procedure. Unless the parties to the arbitration mutually
agree otherwise, the arbitration proceedings shall be conducted in San Mateo
County, California, and, except to the extent modified by this Section 7.4,
shall be conducted in accordance with the Commercial Arbitration Rules of the
American Arbitration Association ("AAA") that are then current (the "Rules").
(a) Commencement. Any Party (the "Demanding Party") may commence an
arbitration by submitting a Demand for Arbitration under the AAA Rules and by
notice to the other Parties (the "Respondent"). Such notice shall set forth in
reasonable detail the basic operative facts upon which the Demanding Party seeks
relief and specific reference to the clauses of this Agreement, the amount
claimed, if any, and any nonmonetary relief sought against the Respondent. After
the initial list of issues to be resolved has been submitted, the Tribunal
(defined below) shall permit any party to the arbitration to propose additional
issues for resolution in the pending proceedings.
(b) Tribunal Selection. If the parties to the arbitration fail to agree
upon the membership of the tribunal panel, a tribunal of three arbitrators shall
be chosen in accordance with the AAA procedures. All the arbitrators shall be
fluent in the English language and be selected on the basis of experience in,
and knowledge about, high technology businesses. At least one arbitrator shall
be an attorney. The three arbitrators are sometimes referred to as the
"Tribunal." In the event that one or more of the arbitrators shall be no longer
able to serve as an arbitrator, then that arbitrator shall be deemed to have
involuntarily withdrawn and a new arbitrator shall be chosen in the same fashion
as the arbitrator he is replacing had been chosen and the Tribunal shall rehear
and reexamine any evidence submitted to it before the withdrawal of the
arbitrator. The majority decision of the Tribunal shall be final and conclusive
upon the parties to such arbitration.
(c) Limited Discovery. Upon request of any party to the arbitration, the
Tribunal shall order such documentary and other pretrial discovery (including
third-party discovery) as the Tribunal shall determine is reasonably necessary
under the circumstances, but shall impose reasonable schedules for conducting
and concluding any such discovery and shall sanction any party to the
arbitration for abuse or delay of discovery.
(d) Evidence Submission. Any party to the arbitration may submit any
evidence on any question properly presented to the Tribunal and may be
represented by counsel at all times during the proceedings. The Tribunal shall
be entitled to consider all documents, papers (including any Pre- or
Post-Hearing Statements any party to the arbitration may submit), testimony or
other evidence which a party to the arbitration shall offer for submission which
the Tribunal considers reasonably material or relevant, even though not
otherwise admissible as evidence in a court of law in the State of California.
(e) Expedited Procedure Option. Any party to the arbitration may elect, by
notice to the other parties, that the dispute or controversy identified in the
notice be submitted to arbitration under expedited procedure. Thereafter, with
respect to the identified dispute or controversy, the Tribunal shall be
empowered to expedite all proceedings including, without limitation, promptly
scheduling discovery, directing Prehearing Statements and any other submissions
within abbreviated time periods, limiting the number of witnesses and accepting
documentary evidence without formal hearings, in each case, however, consistent
with a fair hearing of the dispute or controversy. The provisions of this
Article shall apply to the expedited procedure in all other respects.
(f) Stenographic Record. At the request of any party to the arbitration, a
stenographic transcript shall be taken of all Tribunal-ordered discovery and of
all proceedings before the Tribunal.
(g) Contract Terms Govern. In deciding any matter duly submitted hereunder
to the Tribunal, the Tribunal shall be bound to apply the pertinent contractual
provisions of this Agreement and the Exhibits. After the conclusion of the
hearing the Tribunal shall, at the request of any party to the arbitration, hear
post-hearing argument and receive post-hearing briefs.
(h) Opportunity for Explanation. Prior to issuing any award or written
opinion the Tribunal shall first circulate it to the parties to the arbitration
and give such parties, at the request of any of them, the opportunity (1) to
submit in writing a reasoned statement questioning any factual or legal
determination expressed or implied therein, and (2) to be heard thereon. The
Tribunal shall thereupon reconsider the issues so raised and any supporting
papers presented, and either confirm or change its decision, which shall be
issued pursuant to sub-clause (I).
(I) Final Award. The award ("Award") of the Tribunal shall be issued in
accordance with a dated, written opinion, which shall set forth the Tribunal's
findings of fact and conclusions of law and shall include any dissenting opinion
by an arbitrator. Counterparts of the Award and opinion shall be promptly sent
to the parties to the arbitration.
(j) Interlocutory Decisions. The Tribunal shall be empowered to issue final
decisions and Awards as to particular questions to be resolved in the
proceeding, notwithstanding the continuing pendency of other questions requiring
resolution. Subject to subparagraph (g) of this Article, the Tribunal may award
whatever relief it deems appropriate in the circumstances, whether legal and/or
equitable, commensurate with the request for relief made and the extent to which
such relief has been found to be justified and may award interest, if any, at
whatever rate the Tribunal may deem to be the appropriate market rate. The
Tribunal, however, may not award punitive damages.
(k) Finality. An Award issued in accordance with this Article shall be
final, binding and nonappealable and shall be carried out voluntarily and
without delay by each of the parties as required by its terms. Failing this,
judgment upon the Award rendered by the arbitrators may be entered in any court
having jurisdiction over the party to the arbitration against whom the Award is
sought to be enforced.
(l) Attorneys' Fees. The prevailing party shall be awarded, in addition to
any other relief, reasonable attorneys' fees and costs.
7. GENERAL PROVISIONS
7.1 Further Assurances. The Parties shall do and perform, or cause to be
done and performed, all such further acts and things and shall sign and deliver
all other documents and instruments as may from time to time be reasonably
necessary to carry out the intent and purposes of this Agreement and consummate
or memorialize the transactions contemplated by this Agreement. No Party shall
voluntarily undertake any course of action inconsistent with its obligations
under this Agreement, and each Party shall try to perform as early as is
practicable the obligations it is required to perform under this Agreement.
7.2 Notices. All notices and other communications required or permitted by
this Agreement to be delivered by one Party to one or more other Parties shall
be delivered in writing, either personally, by facsimile transmission or by
registered, certified or express mail, return receipt requested, postage
prepaid, to the address set forth below or to such other address as may be
specified by a Party by means of a notice given in accordance with this Section
8.2:
if to Telegen or TDL: Office of the Corporate Counsel
Telegen Corporation
353 Vintage Park Drive, Suite H
Foster City, CA 94404
U.S.A.
Fax number within destination country:
(415) 349-9404
if to Licensee or any
Investor(s):
7.3 Amendments. This Agreement may only be amended by a writing signed by
all the Parties.
7.4 Entire Agreement. This Agreement including its exhibits and the
schedules hereto and thereto, constitute the entire agreement of the Parties
respecting the subject matter and supersede all prior oral and written
understandings and agreements between or among the Parties relating to that
subject matter.
7.5 Successors and Assigns. This Agreement may not be assigned by any Party
without the written consent of the other Parties.
7.6 Counterparts and Headings. This Agreement may be signed concurrently in
multiple counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument. Headings in
this Agreement are for convenience of reference purposes only and shall not be
deemed to have substantive effect.
7.7 Severability. If any provision of this Agreement is held to be illegal
or unenforceable, it shall be modified to the extent necessary to make it legal
and enforceable, if that can be accomplished, and in all events the other
provisions of this Agreement shall remain unaffected.
7.8 No Implied Waivers. No failure or delay by any Party in enforcing any
right or remedy under this Agreement shall be construed as a waiver of any
future exercise of such right or remedy.
7.9 Force Majeure.
(a) If any Party is prevented from or delayed in performing its respective
obligations for reasons outside its control, including but not limited to civil
commotion, insurrections, riots, fires, foreign or civil war or warlike
operations, Acts of God, acts of a public enemy, strikes, lockouts and other
industrial action, or governmental acts, the effects of such delay shall, if
they give rise to what otherwise would be a breach of contract and if the Party
affected by such delay gives notice to the other Parties as required by this
Section, be deemed not to have given rise to a breach of this Agreement. The
portion of this Agreement affected by such event of force majeure shall, but
only to such limited extent necessary to take into account the consequences of
such event, be suspended during such delay as aforesaid and upon cessation of
the cause of the delay shall again become operative. The Parties agree that the
provisions of this force majeure clause shall not apply to the release
conditions of the Escrow Agreement except to the extent that supply of Critical
Materials to the relevant Licensee is prohibited by applicable U.S. law.
(b) Where any Party to this Agreement becomes aware of circumstances
referred to in paragraph (a) of this Section, that Party shall, as soon as
practicable, notify the other Parties of the cause and extent of such
circumstances and the probable delay in performance of obligations that will
result.
(c) If such circumstances or the total of several of such circumstances
delay a Party from performing any of its obligations under this Agreement for
365 days, then the Parties shall together in good faith take such steps as are
fair and equitable to safeguard the interests of all the Parties.
7.10 Third Party Beneficiaries. This Agreement is for the sole benefit of
the Parties and is not for the benefit of any other person or entity.
7.11 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California (including applicable
United States Federal law) without reference to its choice of law rules.
IN WITNESS WHEREOF, the Parties have signed and delivered this Agreement as
of the date that appears in its first paragraph.
TELEGEN DISPLAY LABORATORIES, INC.
Typed Name: Jessica L. Stevens
Its: President
PRESCIENT, INC.
Typed Name:
Its:
<PAGE>
LEASE
METROPOLITAN LIFE INSURANCE COMPANY
a New York corporation
as Landlord
and
TELEGEN CORPORATION
a California corporation
as Tenant
SEAPORT CENTRE
REDWOOD CITY, CALIFORNIA
LEASE
THIS LEASE is made as of _____________________, 1996 by and between
METROPOLITAN LIFE INSURANCE COMPANY, a New York corporation ("Landlord"), and
TELEGEN CORPORATION, a California corporation ("Tenant").
BASIC LEASE PROVISIONS
1. PREMISES LOCATION: Building One; Phase I of Seaport Centre; 101 Saginaw
Drive, Redwood City, California 94063. (A.P.N. 054-321-010)
2. RENTABLE AREA: Approximately 29,921 square feet.
3. INITIAL BASIC ANNUAL RENT: $412,909.80 ($13.80 per rentable square foot per
year)
4. INITIAL MONTHLY RENTAL INSTALLMENTS: $34,409.15 ($1.15 per rentable square
foot)
5. RENT ADJUSTMENT DATES (AND BASIC ANNUAL RENT AND MONTHLY RENTAL
INSTALLMENTS THEREAFTER):
MONTH ANNUAL RENT MONTHLY INSTALLMENT
Months 01-12 $412,909.80 $34,409.15
Months 13-24 $430,862.40 $35,905.20
Months 25-36 $448,815.00 $37,401.25
Months 37-48 $466,767.60 $38,897.30
Months 49-60 $484,720.20 $40,393.35
6. TENANT'S SHARE OF OPERATING EXPENSES:
Tenant's Building Share: 48.78%
Tenant's Phase Share: 9.913%
Tenant's Project Share: 2.99%
7. TERM OF LEASE: Five (5) Years and Zero (0) Months
8. COMMENCEMENT DATE: August 1, 1996 (but see Paragraph 1(c) of this Lease).
9. EXPIRATION DATE: Five (5) years after the Commencement Date.
10. SECURITY DEPOSIT: $50,000 due upon execution and delivery of this Lease by
Tenant.
11. LISTING BROKER: Cornish & Carey Commercial
12. COOPERATING BROKER: Dillard Investments
13. SOLE PERMITTED USE: General office, electronics research and development,
laboratory and prototype production of electronics devices, warehousing and
distribution of electronics devices; however, in no event in violation of
any provision of any rules and regulations for the Project.
14. PARKING SPACES: 98.
IN WITNESS WHEREOF, the parties hereto have executed this Lease, consisting
of the foregoing Basic Lease Provisions and Paragraphs 1 through 47 which
follow, together with the attached Addendum to Office Lease, Construction
Addendum and Exhibits A through E inclusive, incorporated herein by this
reference, as of the date first above written. The foregoing Basic Lease
Provisions are an integral part of this Lease; however, in the event of any
conflict between any Basic Lease Provision and the balance of this Lease, the
latter shall control.
LANDLORD:
METROPOLITAN LIFE INSURANCE COMPANY,
a New York corporation
By: _________________________
Its: ________________________
TENANT:
TELEGEN CORPORATION
a California corporation
By: _________________________
Its: ________________________
<PAGE>
LEASE OF PREMISES; TERM
PARAGRAPH 1
(a) Seaport Centre. The real property shown on the map attached hereto as
Exhibit A, together with all improvements now or hereafter located on such real
property, is referred to in this Lease as the "Project." The Project is more
commonly known as Seaport Centre and is located in Redwood City, California. The
Project is comprised of Phase I, Phase II and Phase III, which are generally
designated on Exhibit A, each of which shall individually be referred to in this
Lease as a "Phase." The Phase in which the Premises (as defined in Paragraph
1(b) herein) are located is indicated in Item 1 of the Basic Lease Provisions
and is referred to in this Lease as "Tenant's Phase." The building in which the
Premises are located is indicated in Item 1 of the Basic Lease Provisions and is
referred to in this Lease as the "Building." Landlord reserves the right to
amend at any time the definition of "Tenant's Phase" (without additional cost to
Tenant) to include any other buildings located in the Project which are owned by
Landlord, in which event Tenant's Phase Share (as defined in Paragraph 3(a)
below) shall be adjusted to reflect the inclusion of any such additional
buildings in the definition of "Tenant's Phase."
(b) Lease of Premises. Landlord hereby leases to Tenant and Tenant hereby
hires from Landlord, subject to all the terms and conditions hereinafter set
forth, those certain premises (the "Premises") described in Items 1 and 2 of the
Basic Lease Provisions above and substantially as shown in the floor plan
attached hereto as Exhibit B.
(c) Term. The term of this Lease (the "Term") shall be as shown in Item 7
of the Basic Lease Provisions and shall commence on the earlier to occur of (i)
the commencement date shown in Item 8 of the Basic Lease Provisions or (ii) the
date of Substantial Completion of the Tenant Improvements (defined in the
Construction Addendum attached hereto) and issuance of a certificate of
occupancy or equivalent document by the City of Redwood City, or (iii) such
earlier date as Tenant takes possession or commences use of all or any portion
of the Premises for any purpose other than the storage of Tenant's equipment and
materials or the construction and installation therein of the Tenant
Improvements (the "Commencement Date") and shall expire, if not sooner
terminated pursuant to the terms of this Lease, as of the date set forth in Item
9 of the Basic Lease Provisions (the "Expiration Date"). As used herein,
"Substantial Completion" of the Tenant Improvements shall mean that the work of
constructing the Tenant Improvements shall be complete, as stated in a notice
prepared by Landlord's architect, notwithstanding that minor details of
construction, mechanical adjustments or decorations which do not materially
interfere with Tenant's use of the Premises (so-called "punchlist" items) remain
to be performed or that Tenant's furniture, telephones, telecopiers,
photocopiers, computers and other business machines or equipment have not been
installed by Tenant. The actual Commencement Date and Expiration Date shall be
confirmed by Landlord in the Confirmation of Lease Term attached hereto as
Exhibit C upon such commencement.
BASIC ANNUAL RENT AND RENT ADJUSTMENTS
PARAGRAPH 2
(a) Basic Annual Rent. Tenant agrees to pay as Basic Annual Rent for the
Premises the initial sum shown in Item 3 of the Basic Lease Provisions,
increased as set forth in Paragraph 2(b) below. The Basic Annual Rent shall be
payable in equal monthly installments as shown in Items 4 and 5 of the Basic
Lease Provisions, each payable in advance and without deduction, abatement or
offset. A monthly installment shall be paid to Landlord on the date of this
Lease in the full amount and, subsequently, monthly installments shall be paid
to Landlord on the first day of the first calendar month commencing after the
Commencement Date and continuing on the first day of each calendar month during
the Term thereafter. If the Term commences or ends on a day other than the first
or last day, respectively, of a calendar month, then the Basic Annual Rent for
each such partial month shall be prorated in the proportion that the number of
days this Lease is in effect during such partial month bears to the total number
of days in such calendar month, and such Basic Annual Rent shall be payable at
the commencement of such partial month.
(b) Rent Increases. The amount of Basic Annual Rent and the Monthly Rental
Installments shall be adjusted on each Rent Adjustment Date set forth in Item 5
of the Basic Lease Provisions, to be the amount shown in the Basic Lease
Provisions.
(c) Rent. Tenant acknowledges and agrees that Landlord has entered into
this Lease in reliance upon Tenant's agreement to timely pay all of the Basic
Annual Rent, the Additional Rent (as defined in Paragraph 3 below) and all other
amounts required to be paid under this Lease (including all Addenda and Exhibits
hereto and subsequent amendments hereof) and in no event would Landlord have
agreed to grant any occupancy rights in and to the Premises to Tenant for less
than all such amounts, however described or designated herein. Accordingly, all
sums payable by Tenant to Landlord hereunder are sometimes collectively referred
to as, and shall collectively constitute, "rent" for all purposes hereunder, at
law and in equity.
ADDITIONAL RENT
PARAGRAPH 3
(a) Tenant's Share of Costs. Tenant shall pay as "Additional Rent" Tenant's
proportionate share ("Tenant's Building Share") of the Building Operating
Expenses (as defined below), plus Tenant's proportionate share ("Tenant's Phase
Share") of Phase Operating Expenses (as defined below), plus Tenant's
proportionate share ("Tenant's Project Share") of Project Operating Expenses (as
defined below). Tenant's Building Share shall be the percentage obtained by
dividing the rentable square footage of the Premises by the total rentable
square footage of the Building and Tenant's Phase Share shall be the percentage
obtained by dividing the rentable square footage of the Premises by the total
rentable square footage of the Phase. Tenant's Project Share shall be the
percentage obtained by dividing the rentable square footage of the Premises by
the total rentable square footage of the Project. Tenant's Building Share,
Tenant's Phase Share and Tenant's Project Share shall initially be as set forth
in Item 6 of the Basic Lease Provisions.
(b) Operating Expenses Defined. "Operating Expenses" shall include all
costs incurred by Landlord in the management, operation, maintenance and repair
of the Building, Tenant's Phase and the Project. "Building Operating Expenses"
shall include Operating Expenses that are directly and separately identifiable
to the operation and maintenance of the Building. "Project Operating Expenses"
shall include all Operating Expenses incurred in the operation and maintenance
of the Project which are neither Building Operating Expenses nor Operating
Expenses directly and separately identifiable to the operation and maintenance
of any other office building in the Project. "Phase Operating Expenses" may
include Building Operating Expenses that are incurred by each building,
including the Building, in Tenant's Phase, and also may include Project
Operating Expenses that are separately identifiable to Tenant's Phase. Landlord
shall have the right to allocate a particular expense as a Building Operating
Expense, Project Operating Expense or Phase Operating Expense; however, in no
event shall any portion of Building Operating Expenses, Project Operating
Expenses or Phase Operating Expenses be assessed or counted against Tenant more
than once.
(c) Examples of Operating Expenses. Operating Expenses shall include the
following costs, by way of illustration only and not limitation: (1) all
"Property Taxes" (as defined below), and all costs and expenses to contest the
amount or validity of any of the same; (2) all insurance premiums and other
costs (including deductibles), including the cost of rental insurance; (3) all
license, permit and inspection fees; (4) all costs of utilities, fuels and
related services, including water, sewer, light, telephone, power and steam
connection, service and related charges; (5) all costs to repair, maintain and
operate heating, ventilating and air conditioning systems, including, without
limitation, preventive maintenance; (6) all janitorial, landscaping and security
services; (7) all wages, salaries, payroll taxes, fringe benefits and other
labor costs, including the cost of workers' compensation and disability
insurance; (8) all costs of operation, maintenance and repair of all parking
facilities and other common areas; (9) all supplies, materials, equipment and
tools; (10) dues of and expenses and assessments incurred in connection with
membership in the Seaport Centre Owners' Association; (11) modifications to the
Building or the Project occasioned by any applicable laws, statutes, ordinances,
orders, requirements, rules or regulations now or hereafter in effect of any
governmental or quasi-governmental authority; (12) the total charges of any
independent contractors employed in the care, operation, maintenance, repair and
cleaning of the Project, including, without limitation, landscaping, roof
maintenance, and repair, maintenance and monitoring of life-safety systems,
plumbing systems, electrical wiring and Project signage; (13) the cost of
accounting services necessary to compute the rents and charges payable by
tenants at the Project; (14) window and exterior wall cleaning and painting;
(15) managerial and administrative expenses; (16) all costs in connection with
the exercise facility at the Project; (17) all costs and expenses related to
Landlord's retention of consultants in connection with the routine review,
inspection, testing, monitoring, analysis, and control of Hazardous Materials
(defined in Paragraph 9(b) below) and retention of consultants in connection
with the clean-up of Hazardous Materials (to the extent not recoverable from a
particular tenant of the Project, and excluding costs and expenses arising from
the clean-up of Hazardous Materials released on or beneath the Project prior to
the Commencement Date hereof), and all costs and expenses related to the
implementation of recommendations made by such consultants concerning the use,
generation, storage, manufacture, production, storage, release, discharge,
disposal or clean-up of Hazardous Materials on, under or about the Premises or
the Project (to the extent not recoverable from a particular tenant of the
Project, and excluding costs and expenses arising from the clean-up of Hazardous
Materials released on or beneath the Project prior to the Commencement Date
hereof); (18) all capital improvements made that reduce other Operating
Expenses, and all other capital expenditures, but only as amortized over such
reasonable period as Landlord shall determine, with a return on capital at the
rate of ten percent (10%) per annum or at such higher rate as may have been
available to Landlord on funds borrowed for the purpose of constructing such
capital improvements; (19) all property management costs and fees, including,
without limitation, all costs incurred in connection with the Project property
management office; and (20) all fees or other charges incurred in conjunction
with voluntary or involuntary membership in any energy conservation, air
quality, environmental, traffic management or similar organizations.
(d) Property Taxes. "Property Taxes" shall include (1) all real estate
taxes, personal property taxes and other taxes, charges and general and special
assessments which are levied with respect to any portion of the Building or the
Project or any improvements, fixtures, equipment or other property of Landlord,
real or personal, located in or about the Building or Project or used in
connection with the operation thereof, (2) any tax, surcharge, assessment or
service or other fee which shall be levied or collected in addition to or in
lieu of real estate or personal property taxes, other than taxes covered by
Paragraph 12 below, (3) any service or other fees collected by governmental
agencies in addition to or in lieu of property taxes for services provided by
such agencies, and (4) any rental, excise, sales, transaction privilege or other
tax or levy, however denominated, imposed upon or measured by any rent reserved
hereunder or on Landlord's business of leasing the Premises, excepting only net
income taxes.
(e) Statement of Expenses. Prior to the commencement of the Term and of
each calendar year thereafter, Landlord shall give Tenant a written estimate of
the amount of Operating Expenses for the applicable year, as well as Tenant's
share thereof, which amount shall be payable by Tenant as Additional Rent for
the ensuing year or portion thereof. During the calendar year that is the
subject of Landlord's statement of estimated Operating Expenses, Tenant shall
pay such estimated amount to Landlord in twelve (12) equal monthly installments,
in advance, on the first (1st) day of each calendar month. Within one hundred
twenty (120) days after the end of each calendar year or as soon thereafter as
reasonably possible, Landlord shall furnish to Tenant a statement (the
"Statement") showing in reasonable detail the actual Building Operating
Expenses, Phase Operating Expenses and Project Operating Expenses incurred by
Landlord for such period and Tenant's proportionate share thereof in accordance
with this Paragraph 3, and Tenant shall within thirty (30) days thereafter make
any payment necessary to adjust its previous actual payments to the amount shown
as due from Tenant on such annual statement. Any actual overpayment by Tenant
shall be credited against installments of Additional Rent next coming due from
Tenant under this Paragraph 3. Nothing contained in this Paragraph 3(e) shall be
construed to limit the right of Landlord from time to time during any calendar
year to revise its estimates of the Operating Expenses which are the subject of
this Paragraph and to reflect such revision by prospective adjustments in
billings to Tenant for Tenant's monthly installments payable under this
Paragraph over the remainder of such year. Tenant's share of such Operating
Expenses for any partial year during the Term shall be that proportion of
Tenant's Building Share of Building Operating Expenses, Tenant's Phase Share of
Phase Operating Expenses and Tenant's Project Share of Project Operating
Expenses for the full year which is the same proportion as the number of days in
such partial year is to three hundred sixty-five (365).
(f) Adjustment to Operating Expenses. Notwithstanding anything to the
contrary contained in this Paragraph 3, as to each specific category of
Operating Expense which one or more tenants of the Building either pays directly
to third parties or specifically reimburses to Landlord (for example, separately
contracted janitorial services or property taxes directly reimbursed to
Landlord), then, on a category by category basis, the amount of Operating
Expenses for the affected period shall be adjusted as follows: (1) all such
tenant payments with respect to such category of expense and all of Landlord's
costs reimbursed thereby shall be excluded from Operating Expenses and Tenant's
Building Share, Tenant's Phase Share or Tenant's Project Share, as the case may
be, for such category of Operating Expense shall be adjusted by excluding the
square footage of all such tenants, and (2) if Tenant pays or directly
reimburses Landlord for such category of Operating Expense, such category of
Operating Expense shall be excluded from the determination of Operating Expenses
for the purposes of this Lease.
(g) Inspection Rights. (i) Within thirty (30) days after receipt of the
Statement ("Examination Request Period"), Tenant shall be entitled, upon five
(5) days prior written notice (made within the Examination Request Period) and
during normal business hours at Landlord's office in Foster City, California, or
such other place in San Mateo County, California as Landlord shall designate, to
copy (at Tenant's expense), inspect, examine and audit those books and records
of Landlord relating to the determination of Operating Expenses for the calendar
year for which such Statement was prepared. In no event shall Tenant have the
right to audit any particular year more than once. If Tenant does not audit any
particular year within the time periods set forth in this Paragraph 3(g), the
Statement for that year shall be considered final, correct and accepted by
Tenant.
(ii) The initial inspection of Landlord's records may be conducted by a
current or former employee of Tenant, a recognized regional accounting firm or
such other person designated by Tenant that is reasonably acceptable to
Landlord. In connection therewith and in connection with any audit described in
Paragraph 3(g)(iii) hereof, Tenant acknowledges that it shall be reasonable for
Landlord to object to the proposed use by Tenant of any competitors engaged in
the development and ownership of real estate, real estate brokers, or persons
engaged in the business of auditing building owners' books and records on a
contingent fee basis. If, after inspection and examination of such books and
records, which must be conducted within thirty (30) days of such books and
records being made available to Tenant ("Examination Period"), Tenant disputes
the amounts of Operating Expenses charged by Landlord, Tenant shall have until
ten (10) days after the expiration of the Examination Period (the "Audit Request
Period"), by written notice to Landlord, to request an independent audit of such
books and records, which notice shall specifically describe the item or items
disputed by Tenant. Unless Tenant takes written exception to any item or items
of Operating Expenses within the Audit Request Period, such Statement shall be
considered final, correct and accepted by Tenant.
(iii) The independent audit of the books and records shall be conducted by
a certified public accountant ("CPA") acceptable to both Landlord and Tenant,
during normal business hours at Landlord's office in Foster City, California, or
such other place in San Mateo County, California as Landlord shall designate, on
a date acceptable to Landlord and Tenant but in any event within sixty (60) days
after Tenant's notice electing an independent audit as set forth in (ii) above
(the "Audit Period"). If, within thirty (30) days after Landlord's receipt of
Tenant's notice requesting an audit, Landlord and Tenant are unable to agree on
the CPA to conduct such audit, then Landlord shall designate a nationally
recognized accounting firm (other than Landlord's then current accounting firm)
to conduct such audit. The audit shall occur during the Audit Period and shall
not extend beyond five (5) business days. The audit shall be limited to the
determination of the amount of Operating Expenses for the subject calendar year.
If the audit determines that the amount of Operating Expenses for such year was
incorrect, a written audit report shall specifically describe those items of
Operating Expenses which are incorrect.
(iv) If the audit report determines that the amount of Operating Expenses
billed to Tenant was incorrect, Tenant shall have fifteen (15) business days
after the completion of the audit to send the audit report to Landlord, which
report shall include the specific items of Operating Expenses in dispute. If
Landlord disagrees with any part of the CPA's determination, then Landlord shall
be entitled to meet with the CPA and Tenant to discuss corrections or revisions
in the CPA's report, to attempt to resolve any differences for a period of sixty
(60) business days after Landlord's receipt of the CPA's written report of its
review. The CPA shall take into consideration any comments of Landlord or Tenant
and shall issue its final written report, with such corrections or changes as
the CPA deems appropriate and consistent with this Lease, within thirty (30)
days after termination of discussions with Landlord. If Landlord disagrees with
any item of Operating Expense on the CPA's final report, then Landlord may
notify Tenant thereof and Tenant may, by written notice to Landlord within ten
(10) business days after Landlord notifies Tenant of the items disputed by
Landlord, either (i) accept Landlord's determination, in which event such
accepted items shall be deemed final, correct and accepted by Tenant, or (ii)
elect to submit the dispute to arbitration in accordance with Paragraph 3(g)(v)
hereof. If the dispute is submitted to arbitration, only the disputed items
shall be the subject of the arbitration, and the remaining portion of such
Statement shall be considered final, correct and accepted by Tenant. Landlord
shall also submit to Tenant in writing Landlord's opinion of the actual amount
of the disputed items of Operating Expenses for the applicable year, and the
CPA's written report shall be deemed to be Tenant's opinion thereof. Unless
Tenant elects to submit any particular item to arbitration within the ten-day
period set forth above, such Statement shall be considered as final, correct and
accepted by Tenant.
(v) A. Within seven (7) days after Tenant elects arbitration pursuant to
Paragraph 3(g) hereof, the parties shall select as an arbitrator a mutually
acceptable partner in a Big 6 accounting firm with at least five (5) years'
experience in reviewing tenants' operating expenses in Northern California. If
either party has had any other business or contractual relationship with any
proposed arbitrator within the previous five (5) years, it must disclose this
fact in writing. If the parties cannot agree on an arbitrator within such seven
(7) day period, then within a second period of seven (7) days, each shall select
and inform the other party of an certified public accountant meeting the
aforementioned criteria and within a third period of seven (7) days, the two
arbitrators shall select a third arbitrator meeting the aforementioned criteria
and which does not have an existing business relationship with either party and
the three arbitrators shall determine the amount of the disputed items of
Operating Expenses due pursuant to this Paragraph 3(g)(vi). If one party shall
fail to make such appointment within said second seven (7) day period, then the
arbitrator chosen by the other party shall be the sole arbitrator, who shall
determine the actual amount of the disputed items of Operating Expenses due
pursuant to this Paragraph.
B. Once the arbitrators have been selected as provided for above, then, as
soon thereafter as practicable but in any case within fourteen (14) days, the
arbitrators shall select either the Landlord's opinion or Tenant's (i.e. the
CPA's) opinion of the actual amount of Operating Expenses due, and the selection
must be the one that is closer to the actual amount of Operating Expenses as
determined by the majority of the arbitrators. The arbitrators' selection shall
be binding upon Landlord and Tenant. Both Landlord and Tenant shall be entitled
to present evidence supporting their respective positions to the panel of three
arbitrators. Additionally, if the arbitrators believe that expert advice would
materially assist them, they may retain one or more qualified persons, including
but not limited to accountants, legal counsel, brokers, architects or engineers,
to provide such expert advice. Each party shall bear the costs of its counsel,
experts and its arbitrator. The party whose estimate is not chosen by the
arbitrators shall also pay the costs and expenses of the third arbitrator and
any experts retained by the three arbitrators.
(vi) If the CPA's final report, or in the event the matter is submitted to
arbitration, the arbitrators' final determination, reveals that the amount of
Operating Expenses billed to Tenant was incorrect, the appropriate party shall,
within thirty (30) days following the date of such determination, pay to the
other party the deficiency or overpayment, as applicable. All costs and expenses
of the audit shall be paid by Tenant unless the audit shows that Landlord
overstated Operating Expenses for the subject calendar year by more than ten
percent (10%), in which case Landlord shall pay all costs and expenses of the
audit. Tenant shall keep any information gained from such audit confidential and
shall not disclose it to any party except where Tenant is legally required to do
so. The exercise by Tenant of its audit rights hereunder shall not relieve
Tenant of its obligation to pay prior to the request for an inspection and
examination of Landlord's books and records or any audit all sums due hereunder,
including, without limitation, the disputed Operating Expenses. If Tenant does
not elect to inspect or audit during the Examination Period or the Audit Period,
as the case may be, or does not examine the books and records during the
Examination Period, or does not cause the books and records to be audited during
the Audit Period, or does not arbitrate any disputed item or otherwise exercise
any of its rights set forth herein within the time constraints set forth in this
Paragraph 3(g), then Landlord's Statement shall conclusively be deemed to be
final, correct and accepted by Tenant, and Tenant shall be bound by Landlord's
determination.
(h) Cap on Controllable Operating Expenses. During the Initial Term (as
defined in Paragraph 47(a) hereof) only, for each calendar year subsequent to
the 1996 calendar year, Controllable Operating Expenses (as hereinafter defined)
shall increase no more than ten percent (10%) on a cumulative, compounded basis,
over the previous calendar year (except that when computing the cap for the 1997
calendar year, the amount for the 1996 calendar year shall be re-computed as if
Tenant had leased the Premises for the entire 1996 calendar year). As used
herein, "Controllable Operating Expenses" shall include only (i) employees'
salaries and benefits (other than those required by law or union contract) and
(ii) payments to third party contractors (but only to the extent comparable
services can be obtained from reputable vendors or contractors for lower total
payments, and only to the extent of the difference between the actual payment
and such lower total payments), and Controllable Operating Expenses shall
expressly not include, without limitation, utility payments, insurance premiums,
Taxes, and all other expenses not within the control of Landlord.
By way of example only, assume that the Controllable Operating Expenses
(without regard to the application of the cap) for the entire 1996 calendar year
is $100, then (1) if actual Controllable Operating Expenses for the 1997
calendar year equal $105, Tenant would be charged $105 in Controllable Operating
Expenses, and (2) if actual Controllable Operating Expenses for the 1998
calendar year equal $125, Tenant would be charged $121 in Controllable Operating
Expenses, and (3) if actual Controllable Operating Expenses for the 1999
calendar year equal $132, Tenant would be charged $132 in Controllable Operating
Expenses, and (4) if actual Controllable Operating Expenses for the 2000
calendar year equal $150, Tenant would be charged $146.41 in Controllable
Operating Expenses.
SECURITY DEPOSIT
PARAGRAPH 4
Tenant has paid or, upon execution of this Lease, will pay Landlord the sum
set forth in Item 9 of the Basic Lease Provisions (the "Security Deposit") as
security for the performance of the terms of this Lease by Tenant. Landlord
shall not be required to keep the Security Deposit separate from its general
funds, and Tenant shall not be entitled to interest thereon. If Tenant defaults
with respect to any provision of this Lease, including, without limitation, the
provisions relating to the payment of rent or the condition of the Premises upon
the termination of this Lease, Landlord may, but shall not be required to, use,
apply or retain all or any part of the Security Deposit for the payment of any
rent or other sum in default or any other amount which Landlord may spend or
become obligated to spend by reason of Tenant's default or to compensate
Landlord for any other loss or damage which Landlord may suffer by reason of
Tenant's default, including, without limitation, costs and attorneys' fees
incurred by Landlord to recover possession of the Premises following a default
by Tenant hereunder. If any portion of the Security Deposit is so used or
applied, Tenant shall, within ten (10) days following Landlord's demand
therefor, deposit cash with Landlord in an amount sufficient to restore the
Security Deposit to its original amount, and Tenant's failure to do so within
ten (10) days following Landlord's demand, shall constitute a default hereunder
by Tenant. If Tenant shall fully and faithfully perform every provision of this
Lease to be performed by it, the Security Deposit or any balance thereof shall
be returned, without interest, to Tenant (or, at Landlord's option, to the last
assignee of Tenant's interest hereunder) within a reasonable time after the
expiration of the Term and surrender of possession of the Premises to Landlord.
SUBSTITUTED PREMISES
PARAGRAPH 5
Intentionally Omitted.
REPAIRS
PARAGRAPH 6
(a) Landlord's Repairs. Subject to Paragraph 6(b), Landlord shall maintain
the structural portions of the Building, the roof, exterior walls and exterior
doors, foundation, and underslab standard sewer system of the Building in good,
clean and safe condition, and shall use reasonable efforts, through Landlord's
program of regularly scheduled preventive maintenance, to keep the Building's
standard heating, ventilation and air conditioning ("HVAC") equipment in
reasonably good order and condition. Notwithstanding the foregoing, Landlord
shall have no responsibility to repair the Building's standard heating,
ventilation and air conditioning equipment, and all such repairs shall be
performed by Tenant pursuant to the terms of Paragraph 6(b) below. Landlord
shall also maintain the landscaping, parking facilities and other common areas
of the Project. Except as provided in Paragraphs 13 and 14, there shall be no
abatement of rent, no allowance to Tenant for diminution of rental value and no
liability of Landlord by reason of inconvenience, annoyance or any injury to or
interference with Tenant's business arising from the making of or the failure to
make any repairs, alterations or improvements in or to any portion of the
Project or in or to any fixtures, appurtenances or equipment therein. Tenant
waives the right to make repairs at Landlord's expense under any law, statute or
ordinance now or hereafter in effect.
(b) Tenant's Repairs. Tenant shall, at Tenant's sole cost and expense, make
all repairs to the Premises and fixtures therein which Landlord is not required
to make pursuant to Paragraph 6(a) above, including, without limitation, repairs
to the interior walls, ceilings and windows of the Premises, the interior doors,
Tenant's signage, and the electrical, life-safety, plumbing and heating,
ventilation and air conditioning systems located within or serving the Premises
and shall maintain the Premises, the fixtures and utilities systems therein, and
the area immediately surrounding the Premises (including all garbage
enclosures), in a good, clean and safe condition. Tenant shall deliver to
Landlord a copy of any maintenance contract entered into by Tenant with respect
to the Premises. Tenant shall also, at Tenant's expense, keep any non- standard
heating, ventilating and air conditioning equipment and other non-standard
equipment in the Building in good condition and repair, using contractors
approved in advance, in writing, by Landlord, which approval shall not be
unreasonably withheld. Notwithstanding Paragraph 6(a) above, Tenant will pay for
any repairs to the Building or the Project which are caused by any negligence or
carelessness of Tenant or its assignees, subtenants or employees, or of the
respective agents of any of the foregoing persons, or of any other persons
permitted in the Building or elsewhere in the Project by Tenant or any of them.
Tenant will maintain the Premises, and will leave the Premises upon termination
of this Lease, in a safe, clean, neat and sanitary condition.
IMPROVEMENTS AND ALTERATIONS
PARAGRAPH 7
(a) Common Area. Landlord shall have the right at any time to change the
arrangement and location of the common area of the Building or the Project and,
upon giving Tenant reasonable notice thereof, to change any name, number or
designation by which the Premises, the Building, the Phase or the Project is
commonly known.
(b) Alterations.
(1) Tenant shall not make any alterations, additions, or improvements of or
to the Premises without the prior written consent of Landlord, which Landlord
may give or deny in its sole and absolute discretion. At the time such consent
is requested, Tenant shall furnish to Landlord for Landlord's written approval
(which shall not be unreasonably withheld) the names of Tenant's architect,
Tenant's contractor(s) and all subcontractors who will be supplying materials or
performing work in connection with such alterations, additions and improvements,
a copy of all plans for the proposed work, an estimate of the cost thereof and
such other information as shall be requested by Landlord substantiating Tenant's
ability to pay for such work. No less than ten (10) days prior to the
commencement of any alterations, additions and improvements of or to the
Premises, Tenant shall deliver to Landlord certificates of insurance from the
carrier(s) providing insurance to Tenant's architect and Tenant's contractor(s)
evidencing the following types of coverage in such amounts as are reasonably
determined by Landlord to be necessary: (i) professional liability insurance;
(ii) commercial general liability insurance; (iii) business automobile liability
insurance; (iv) workers' compensation insurance; and (v) umbrella liability
insurance. The insurance specified in (i), (ii), (iii) and (v) above shall name
Landlord as an additional insured, and all such policies shall provide that
thirty (30) days' written notice must be given to Landlord prior to termination
or cancellation. Landlord, at its sole option, may require as a condition to the
granting of such consent to any work costing in excess of $10,000, that Tenant
provide to Landlord, at Tenant's sole cost and expense, a lien and completion
bond in an amount equal to one and one-half (1-1/2) times any and all estimated
costs of the proposed work, to insure Landlord against any liability for
mechanics' and materialmen's liens and to insure completion of the work.
Landlord may also require as a condition to Landlord's consent to any
alterations, additions or improvements pursuant to this Paragraph 7(b) that,
following completion of any such alterations, additions or improvements, Tenant
shall provide Landlord with unconditional waivers of lien in statutory form from
all parties performing labor and/or supplying equipment and/or materials in
connection with such alterations, additions or improvements, including Tenant's
architect(s). Before commencing any work, Tenant shall give Landlord at least
ten (10) days written notice of the proposed commencement of such work in order
to give Landlord an opportunity to prepare, post and record such notice as may
be permitted by law to protect Landlord's interest in the Premises and the
Building from mechanics' and materialmen's liens. Within a reasonable period
following completion of any work, Tenant shall furnish to Landlord, at Tenant's
cost, "as built" plans showing the changes made to the Premises including one
(1) complete set of reproducible drawings for the entire Premises (including,
but not limited to, a floor plan, HVAC, plumbing, electrical and reflected
ceiling), including such alterations, additions or improvements.
(2) All such alterations, additions and improvements shall be made at
Tenant's sole expense (including, without limitation, the reasonable cost of any
review of Tenant's plans by Landlord's architect and/or Landlord's engineer) and
in conformity with plans therefor approved by Landlord in writing prior to the
commencement of such work, and such work shall be performed by a contractor(s)
approved by Landlord. All work performed by Tenant shall comply with the laws,
rules, orders, directions, regulations and requirements of all governmental
entities having jurisdiction over such work and shall comply with the rules,
orders, directions, regulations and requirements of any nationally recognized
board of insurance underwriters. Tenant shall use all commercially reasonable
efforts (including, without limitation, scheduling overtime and weekend work)
not to interfere with other tenants in the Building and the Project when
performing any alterations, additions or improvements. All such alterations,
additions or improvements (except movable furniture, furnishings and trade
fixtures) shall, at Landlord's option, become the property of Landlord and shall
be surrendered with the Premises, as a part thereof, at the expiration or
earlier termination of the Term. Upon any termination of this Lease, Tenant
shall, upon demand by Landlord and at Tenant's sole expense, immediately remove
any alterations, additions or improvements installed at the Premises and Tenant
shall repair and restore the Premises to their original condition, reasonable
wear and tear excepted. Any personal property left on the Premises at the
expiration or other termination of this Lease may, at the option of Landlord,
either be deemed abandoned or be placed in storage at a public warehouse in the
name of and for the account of and at the expense and risk of Tenant or
otherwise disposed of by Landlord in the manner provided by law; or,
alternatively, in the event that Tenant leaves personal property on the Premises
following the expiration or other termination of this Lease, Landlord may, in
Landlord's sole and absolute discretion, deem Tenant to be holding over pursuant
to the terms of Paragraph 26 below. Tenant expressly releases Landlord of and
from any and all claims and liability for damage to or destruction or loss of
property left by Tenant upon the Premises at the expiration or other termination
of this Lease and, to the extent permitted by then applicable law, Tenant shall
protect, indemnify, defend and hold Landlord harmless from and against any and
all claims and liability with respect thereto.
LIENS
PARAGRAPH 8
Tenant shall keep the Premises free from any liens arising out of any work
performed, materials furnished or obligations incurred by or for Tenant, its
assignees or sublessees. In the event that Tenant shall not, within ten (10)
days following the imposition of any such lien, cause such lien to be released
of record by payment or posting of a proper bond, Landlord shall have, in
addition to all other remedies provided herein and by law, the right but not the
obligation to cause such lien to be released by such means as Landlord shall
deem proper, including payment of or defense against the claim giving rise to
such lien. All sums paid by Landlord and all expenses incurred by it in
connection therewith shall create automatically an obligation of Tenant to pay
an equivalent amount to Landlord as rent on Landlord's demand therefor, together
with interest at the maximum rate per annum then permitted by law until paid to
Landlord. Nothing herein shall imply any consent by Landlord to subject
Landlord's estate to liability under any mechanics' or other lien law.
Tenant shall give Landlord adequate opportunity, and Landlord shall have
the right at all times, to post such notices of nonresponsibility as are
provided for in the mechanics' lien laws of California.
USE OF PREMISES
PARAGRAPH 9
(a) Compliance with Law. Tenant shall use the Premises only as set forth in
Item 13 of the Basic Lease Provisions and shall not use or permit the Premises
to be used for any other purpose. Tenant shall not use or occupy the Premises in
violation of any law or of the certificate of occupancy issued for the Building
and shall, upon five (5) days' written notice from Landlord, discontinue any use
of the Premises which is declared by any governmental authority having
jurisdiction to be a violation of law or of such certificate of occupancy.
Tenant shall comply with any direction of any governmental authority having
jurisdiction which shall, by reason of the nature of Tenant's use or occupancy
of the Premises, impose any duty upon Tenant or Landlord with respect to the
Premises or with respect to the use or occupancy thereof.
Tenant shall comply with all covenants, conditions and restrictions
affecting the Project, as such may be amended from time to time, and all
articles, bylaws and rules of the Seaport Centre Owners' Association; provided
that Landlord shall not enact amendments to any of the foregoing if such
amendments would prevent Tenant from using the Premises in accordance with this
Lease and as permitted under Item 13 of the Basic Lease Provisions. Tenant shall
be responsible for obtaining all necessary governmental approvals in connection
with Tenant's use of the Premises. Tenant shall not do or permit to be done
anything which will invalidate, or increase the cost of, any fire, extended
coverage or other insurance policy covering any part of the Project or any
property located thereon. Notwithstanding the provisions of Paragraph 3 above,
Tenant shall, within ten (10) days following Landlord's demand, reimburse
Landlord for the full amount of any additional premium charged for any such
policy by reason of Tenant's failure to comply with the provisions of this
Paragraph 9(a), it being understood that such demand for reimbursement shall not
be Landlord's exclusive remedy. Tenant shall not in any way obstruct or
interfere with the rights of other tenants or occupants of the Building or the
Project, or injure or annoy them, or use or allow the Premises to be used for
any improper, immoral, unlawful or objectionable purpose; nor shall Tenant
cause, maintain or permit any nuisance in, on or about the Premises or commit or
suffer to be committed any waste in or upon the Premises.
(b) Hazardous Materials. Tenant shall not use, generate, manufacture,
produce, store, release, discharge, or dispose of, on, under or about the
Premises or any part of the Project, or transport to or from the Premises or any
part of the Project, any Hazardous Material (as defined below) or allow its
employees, agents, contractors, licensees, invitees or any other person or
entity to do so.
(1) Notwithstanding the foregoing, Tenant shall be permitted to use and
store in, and transport to and from, the Premises the Hazardous Materials
("Permitted Hazardous Materials") identified on Exhibit D hereto and by this
reference incorporated herein ("Permitted Hazardous Materials List") so long as:
(a) each of the Permitted Hazardous Materials is used or stored in, or
transported to and from, the Premises only to the extent necessary for Tenant's
operation of its business at the Premises; (b) at no time shall any Permitted
Hazardous Material be on, under or about the Premises in excess of the quantity
specified therefor in the Permitted Hazardous Materials List, and (c) the
conditions set forth in this Paragraph 9(b) are strictly complied with. The
right to use and store in, and transport to and from, the Premises the Permitted
Hazardous Materials is personal to Telegen Corporation, a California
corporation, and any subsidiary corporations of which Telegen Corporation owns
at least a fifty percent (50%) interest, and may not be assigned or otherwise
transferred by Telegen Corporation without the prior written consent of
Landlord, which consent may be withheld in Landlord's sole discretion. Any
consent by Landlord pursuant to Paragraph 15 of this Lease to an assignment,
transfer, subletting, mortgage, pledge, hypothecation or encumbrance of this
Lease, and any interest therein or right or privilege appurtenant thereto, shall
not constitute consent by Landlord to the use or storage in, or transportation
to, the Premises of any Hazardous Material (including a Permitted Hazardous
Material) by any such assignee, sublessee or transferee unless Landlord
expressly agrees otherwise in writing. Any consent by Landlord to the use or
storage in, or transportation to or from the Premises, of any Hazardous Material
(including a Permitted Hazardous Material) by an assignee, sublessee or
transferee of Tenant shall not constitute a waiver of Landlord's right to refuse
such consent as to any subsequent assignee or transferee. All amendments to the
Permitted Hazardous Materials List shall be made in accordance with Paragraph
9(b)(17) hereof.
(2) Tenant shall comply with and shall cause Tenant's employees, agents,
contractors, licensees and invitees (collectively, "Tenant's Agents") to comply
with, and shall keep and maintain the Premises and cause Tenant's Agents to keep
and maintain the Premises, in compliance with all Environmental Laws (as defined
below). Neither Tenant nor Tenant's Agents shall violate, or cause or permit the
Premises to be in violation of, any Environmental Laws.
Tenant shall, at its own expense prior to Tenant's use and occupancy,
procure, maintain in effect and comply with all conditions of any and all
permits, licenses and other governmental and regulatory approvals required for
Tenant's use of the Premises. Tenant shall cause any and all Hazardous Materials
removed from the Premises to be removed and transported solely by duly licensed
handlers to duly licensed facilities for final disposal of such materials and
wastes. Tenant acknowledges that the sewer piping at the Project is made of ABS
plastic. Accordingly, without Landlord's prior written consent, which may be
given or withheld in Landlord's sole discretion, only ordinary domestic sewage
is permitted to be put into the drains at the Premises. UNDER NO CIRCUMSTANCES
SHALL TENANT EVER DEPOSIT ANY ESTERS OR KETONES (USUALLY FOUND IN SOLVENTS TO
CLEAN UP PETROLEUM PRODUCTS) IN THE DRAINS AT THE PREMISES. If Tenant desires to
put any substances other than ordinary domestic sewage into the drains, it shall
first submit to Landlord a complete description of each such substance,
including its chemical composition, and a sample of such substance suitable for
laboratory testing. Landlord shall promptly determine whether or not the
substance can be deposited into the drains and its determination shall be
absolutely binding on Tenant. Upon demand, Tenant shall reimburse Landlord for
expenses incurred by Landlord in making such determination. If any substances
not so approved hereunder are deposited in the drains in Tenant's Premises,
Tenant shall be liable to Landlord for all damages resulting therefrom,
including, but not limited to, all costs and expenses incurred by Landlord in
repairing or replacing the piping so damaged.
Tenant agrees to provide Landlord with: (a) a copy of any hazardous
material management plan or similar document required by any federal, state or
local governmental or regulatory authority to be submitted by Tenant; (b) copies
of all permits, licenses and other governmental and regulatory approvals with
respect to the use of Hazardous Materials; (c) copies of hazardous waste
manifests reflecting the legal and proper disposal of all Hazardous Materials
removed from the Premises; and (d) copies of all reports, studies and written
results of tests or inspections concerning the Premises or any part of the
Project with respect to Hazardous Materials, including, without limitation, the
"Plans" hereinafter defined (collectively "Documents"). Tenant shall deliver all
Documents to Landlord promptly following the earlier of (i) Tenant's submission
of such Documents to the requesting governmental agency, or (ii) Tenant's
receipt of such Documents (Tenant hereby agreeing that it shall exercise
diligent efforts to expeditiously obtain copies of any such Documents known by
Tenant to exist).
(3) Upon commencing any activity involving Hazardous Materials on the
Premises, and continuing thereafter throughout the term of this Lease, Tenant
shall initiate and maintain the systems set forth in the following
(collectively, "Plans") in order to ensure the routine monitoring of the levels
of Hazardous Materials which may be present on, under or about the Premises or
any part of the Project or properties adjoining or in the vicinity of the
Project as the result of the activities of Tenant or Tenant's Agents and to
ensure continued compliance with the procedures and regulations concerning the
handling, storage, use and disposal of Hazardous Materials: (a) each permit,
license or other governmental or regulatory approval with respect to the use of
Hazardous Materials, (b) each Hazardous Materials management plan or similar
document required by any federal, state, or local governmental or regulatory
entity, (c) each plan for handling and disposing of Hazardous Materials
necessary to comply with Environmental Laws prepared by or on behalf of Tenant
or Tenant's Agents (whether or not required to be submitted to a governmental
agency). Copies of the foregoing described Plans are listed on Exhibit E hereto
and attached to this Lease as Exhibits E-1 through E-.
(4) Not less often than once each calendar quarter during the term of this
Lease, Tenant shall provide Landlord with a written report which shall set forth
the results of the monitoring of Hazardous Materials during the previous
calendar quarter. Landlord may elect (but shall not be obligated) to retain an
independent consultant experienced in the use and management of Hazardous
Materials for the purpose of reviewing any information received by Landlord in
connection with Hazardous Materials. Pursuant to such review, Landlord's
consultant may make recommendations in connection with Tenant's control of
Hazardous Materials on the Premises, and Tenant shall implement, at Tenant's
sole cost, the recommendations of Landlord's consultant. Landlord's failure to
appoint any consultant shall not relieve Tenant of any of Tenant's obligations
under this Lease relating to Hazardous Materials nor constitute a waiver of
Landlord's rights under this Lease.
(5) Landlord may install permanent or other testing wells or devices at or
about the Premises or any part of the Project, and may cause the ground water to
be tested to detect the presence of Hazardous Materials at least once every
twelve (12) months during the term of this Lease by the use of such wells or
devices as are then customarily used for such purposes. If Tenant so requests in
writing, Landlord shall supply Tenant with a copy of any such test results. The
costs of any such tests, and the installation, maintenance, repair, removal,
closure and replacement of such wells or devices shall be an Operating Expense
pursuant to Paragraph 3 of this Lease; provided, however, such costs shall be
borne solely by Tenant if Tenant is in breach of its obligations under this
Paragraph 9(b) or if the presence of Hazardous Materials is detected and Tenant
or Tenant's Agents are responsible therefor. Tenant's obligations under this
Paragraph 9(b)(5) shall survive the expiration or earlier termination of this
Lease.
(6) Landlord and its representative shall have the right, at the following
times, to enter the Premises and to: (i) conduct any testing, monitoring and
analysis for Hazardous Materials; (ii) review any documents, materials,
inventory, financial data or notices or correspondence to or from private
parties or governmental or regulatory authorities in connection therewith; and
(iii) review all storage, use, transportation and disposal facilities and
procedures associated with the storage, use, transportation and disposal of
Hazardous Materials (collectively, "Inspection"):
a. Once every three months for the first twelve (12) months after the later
of the date Tenant introduces Hazardous Materials to the Premises pursuant to
this Paragraph 9(b) or notifies Landlord of such use, and once every twelve (12)
months thereafter throughout the term of this Lease; and
b. At any time during the term of this Lease if, in Landlord's reasonable
judgment, Tenant is breaching its obligation under this Paragraph 9(b) or is not
in compliance with any other provision of this Lease.
All costs and expenses incurred by Landlord in connection with any
Inspection pursuant to this Paragraph 9(b)(6) shall, subject to Paragraph
9(b)(15) below, become due and payable by Tenant as Additional Rent, upon
presentation by Landlord of an invoice therefor.
(7) Tenant shall give prompt written notice to Landlord of:
a. any proceeding or inquiry by, notice from, or order of any governmental
authority (including, without limitation, the California State Department of
Health Services) with respect to the presence of any Hazardous Material on,
under or about the Premises or any part of the Project or the migration thereof
from or to other property;
b. all claims made or threatened by any third party against Tenant, the
Premises or any part of the Project relating to any loss or injury resulting
from any Hazardous Materials; and
c. any spill, release, discharge or nonroutine disposal of Hazardous
Materials that occurs with respect to the Premises or operations at the Premises
by Tenant or Tenant's Agents;
d. all matters of which Tenant is required to give notice pursuant to
Sections 25249.5 et seq. and 25359.7 of the California Health and Safety Code;
and
e. Tenant's discovery of any occurrence or condition on, under or about the
Premises or any part of the Project or any real property adjoining or in the
vicinity of the Premises or the Project that could cause the Premises or any
part of the Project to be subject to any restrictions on the ownership,
occupancy, transferability or use of the Premises or any part of the Project
under any Environmental Law, including without limitation, Tenant's discovery of
any occurrence or condition on any real property adjoining or in the vicinity of
the Premises or the Project that could cause the Premises or any part of the
Project to be classified as "border zone property" under the provisions of
California Health and Safety Code Sections 25220 et seq. or any regulation
adopted in accordance therewith, or to be otherwise subject to any restrictions
on the ownership, occupancy, transferability or use of the Premises or any part
of the Project under any Environmental Law.
(8) Landlord shall have the right to join and participate in, as a party if
it so elects, any legal proceedings or actions affecting the Premises or any
part of the Project initiated in connection with any Environmental Law and have
its attorneys' fees in connection therewith paid by Tenant. In addition, Tenant
shall not take any remedial action in response to the presence of any Hazardous
Materials in, under, or about the Premises or the Project (except in the case
where loss of life or substantial property damage is imminent or immediate
action is required by any governmental entity, in which event Tenant shall take
immediate remedial action), nor enter into any settlement agreement, consent
decree or other compromise in respect to any claims relating to any Hazardous
Materials in any way connected with the Premises or the Project, without first
notifying Landlord of Tenant's intention to do so and affording Landlord ample
opportunity to appear, intervene or otherwise appropriately assert and protect
Landlord's interest with respect thereto.
(9) To the fullest extent permitted by law, Tenant shall protect, defend,
indemnify and hold harmless Landlord, its directors, officers, partners,
employees, agents, successors and assigns from and against any and all claims,
fines, judgments, penalties, losses, damages, costs, expenses or liability
(including attorneys' fees and costs) directly or indirectly arising out of or
attributable to the use, generation, manufacture, production, storage, release,
threatened release, discharge, disposal, transportation to or from, or presence
of any Hazardous Material on, under or about the Premises or any part of the
Project (collectively a "Release") including, without limitation: (a) all
foreseeable consequential damages, including, without limitation, loss of rental
income and diminution in property value; (b) the costs of any investigation,
monitoring, removal, restoration, abatement, repair, cleanup, detoxification or
other ameliorative work of any kind or nature (collectively "Remedial Work") and
the preparation and implementation of any closure, remedial or other required
plans; (c) any injury to or death of persons or damage to or destruction of
property; and (d) any failure of Tenant or Tenant's Agents to observe the
foregoing covenants. For purposes of this Paragraph 9(b)(9), any acts or
omissions of Tenant or Tenant's Agents (whether or not they are negligent,
intentional, willful or unlawful) shall be strictly attributable to Tenant.
Tenant's obligations under this Paragraph 9(b)(9) shall survive the expiration
or earlier termination of this Lease.
In no event shall Landlord be responsible to Tenant for the presence of
Hazardous Materials in, on or about the Premises or the Project to the extent
caused or contributed to by any third party.
(10) Within forty-five (45) days following the end of Tenant's fiscal year,
Tenant shall provide Landlord with consolidated financial statements prepared in
accordance with generally accepted accounting principles consistently applied
and certified as true and correct by Tenant's independent certified public
accountant setting forth Tenant's performance for the applicable fiscal year. As
of the execution of this Lease, Tenant's fiscal year ends __________. Tenant
shall provide Landlord with prompt written notice of any change in Tenant's
fiscal year. If at any time it reasonably appears to Landlord that Tenant is not
maintaining sufficient insurance or is not otherwise financially capable of
fulfilling its obligations under this Paragraph 9(b), whether or not such
obligations have accrued, become liquidated, conditional or contingent, Tenant
shall procure and thereafter maintain in full force and effect such insurance or
other form of financial assurance, with or from companies or persons and in
forms reasonably acceptable to Landlord, as Landlord may from time to time
request.
(11) Upon any Release, Tenant shall, subject to Paragraph 9(b)(8), promptly
notify Landlord of the Release and shall, at its sole expense and immediately
after demand by Landlord, commence to perform and thereafter diligently
prosecute to completion such Remedial Work as is necessary to restore the
Premises, Project or any other property affected by the Release to the condition
existing prior to the use of any Hazardous Materials. All such Remedial Work
shall be performed: (a) in conformance with the requirements of all applicable
Environmental Laws; (b) by one or more contractors, approved in advance in
writing by Landlord; and (c) under the supervision of a consulting engineer
approved in advance in writing by Landlord. All costs and expenses of such
Remedial Work shall be paid by Tenant including, without limita- tion, the
charges of such contractor(s) and/or the consulting engineer and Landlord's
reasonable attorneys' fees and costs incurred in connection with the monitoring
or review of such Remedial Work. In the event Tenant shall fail to timely
commence, or cause to be commenced, or fail to diligently prosecute to
completion, such Remedial Work, Landlord may, but shall not be required to,
cause such Remedial Work to be performed and all costs and expenses thereof, or
incurred in connection therewith, shall become immediately due and payable by
Tenant. Tenant's obligations under this Paragraph 9(b)(11) shall survive the
expiration or sooner termination of this Lease.
(12) "Hazardous Materials" shall include, without limitation, (i) those
substances included within the definitions of "hazardous substances," "hazardous
materials," "toxic substances" or "solid waste" under all present and future
federal, state and local laws (whether under common law, statute, rule,
regulation or otherwise) relating to the protection of human health or the
environment, including, without limitation, California Senate Bill 245 (Statutes
of 1987, Chapter 1302), the Safe Drinking Water and Toxic Enforcement Act of
1986 (commonly known as Proposition 65) and the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section
9601 et seq., the Resource Conservation and Recovery Act of 1976, 42 U.S.C.
Section 6901 et seq., and the Hazardous Materials Transportation Act, 49 U.S.C.
Sections 1801, et seq., all as heretofore and hereafter amended, or in any
regulations promulgated pursuant to said laws; (ii) those substances defined as
"hazardous wastes" in Section 25117 of the California Health & Safety Code or as
"hazardous substances" in Section 25316 of the California Health & Safety Code,
or in any regulations promulgated pursuant to said laws; (iii) those substances
listed in the United States Department of Transportation Table (49 CFR 172.101
and amendments thereto) or designated by the Environmental Protection Agency (or
any successor agency) as hazardous substances (see, e.g., 40 CFR Part 302 and
amendments thereto); (iv) such other substances, materials and wastes which are
or become regulated under applicable local, state or federal law or by the
United States government or which are or become classified as hazardous or toxic
under federal, state or local laws or regulations, including, without
limitation, California Health & Safety Code, Division 20, and Title 26 of the
California Code of Regulations; and (v)any material, waste or substance which
contains petroleum, asbestos or polychlorinated biphenyls, is designated as a
"hazardous substance" pursuant to Section 311 of the Clean Water Act of 1977, 33
U.S.C. Sections 1251, et seq. (33 U.S.C. S 1321) or listed pursuant to Section
307 of the Clean Water Act of 1977 (33 U.S.C. S 1317) or contains any flammable,
explosive or radioactive material.
(13) "Environmental Laws" shall mean any federal, state or local law,
statute, ordinance, or regulation now in effect or hereafter enacted pertaining
to health, industrial hygiene, or the environmental conditions on, under or
about the Premises or any part of the Project, including without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
("CERCLA") as amended, 42 U.S.C. section 9601 et seq., and the Resource
Conservation and Recovery Act of 1976 ("RCRA"), 42 U.S.C. sections 6901 et seq.
(14) In addition to Tenant's obligations pursuant to Paragraph 27(b) of
this Lease, Tenant shall, on the expiration or sooner termination of this Lease,
surrender the Premises to Landlord free of Hazardous Materials. If Tenant fails
to so surrender the Premises and the Project, the provisions of
Paragraph 9(b)(9) shall apply. Landlord shall have the right, but not the
obligation, to appoint a consultant, at Tenant's expense, to conduct an
investigation to determine whether any Hazardous Materials are located in or
about the Premises or the Project, and to determine the corrective measures
required to remove such Hazardous Materials. Tenant, at its expense, shall
comply with all recommendations of the consultant. A failure by Landlord to
appoint such a consultant shall in no way relieve Tenant of any of Tenant's
obligations set forth in this Lease relating to Hazardous Materials, nor
constitute a waiver of Landlord's rights under this Lease. Tenant's obligations
under this Paragraph 9(b)(14) shall survive the expiration or earlier
termination of this Lease.
(15) Except as otherwise provided in Paragraphs 9(b)(4) (concerning the
implementation of consultant recommendations) and 9(b)(11) (concerning the
monitoring and review of Remedial Work), all costs incurred by Landlord in
retaining a consultant for any purpose contained in this Paragraph 9(b) shall be
an Operating Expense under Paragraph 3 of this Lease unless Landlord retains a
consultant pursuant to this Paragraph 9(b), and such consultant reasonably
determines after appropriate review of information and/or inspection that Tenant
is breaching its obligations under this Lease to comply with this
Paragraph 9(b), in which event all costs and expenses incurred by Landlord in
connection with any such review, inspection, and/or implementation of
recommendations pursuant to this Paragraph 9(b) shall become due and payable by
Tenant as Additional Rent, upon presentation by Landlord of an invoice therefor.
(16) Upon any violation of any of the foregoing covenants, Landlord shall
be entitled to exercise all remedies available to a landlord against a
defaulting tenant, including but not limited to those set forth in Paragraph
25(b) of this Lease. Without limiting the generality of the foregoing, Tenant
expressly agrees that upon any such violation Landlord may, at its option (i)
immediately terminate this Lease, or (ii) continue this Lease in effect until
compliance by Tenant with its clean-up and removal covenant (notwithstanding the
expiration of the Term). No action by Landlord hereunder shall impair the
obligations of Tenant pursuant to this Paragraph 9(b).
(17) Tenant may request permission to use and store in, and transport to
and from the Premises Hazardous Materials not identified on the Permitted
Hazardous Materials List by delivering to Landlord Tenant's written request
containing the following information for each Hazardous Material for which
permission is requested: (i) disclosure of the Hazardous Materials
classification (i.e., whether toxic, corrosive, combustible, flammable,
poisonous or reactive), as the same may be defined in California Code of
Regulations, Title 23, Division 4; (ii) the chemical name of such Hazardous
Materials; (iii) the maximum amount of such Hazardous Materials which would be
on the Premises at any given time; and (iv) a detailed description of how such
materials will be transported to and from the Premises and the location and
manner in which such Hazardous Materials will be stored on the Premises.
Landlord agrees to promptly commence review of Tenant's written request upon
receipt of all of the information described in the previous sentence, and
Landlord agrees to use commercially reasonable efforts to respond to Tenant's
request within ten (10) business days following receipt of such information. In
the event Landlord uses a consultant to review Tenant's request, Tenant shall
pay the reasonable fees and costs of such consultant within ten (10) business
days after Landlord's request for payment. Landlord shall have the right to
reasonably disapprove Tenant's request or to impose reasonable conditions or
restrictions on the use, storage, handling or transportation of the Hazardous
Materials which are the subject of Tenant's request. Without limiting the
criteria upon which Landlord can disapprove such request, Landlord shall have
the right to disapprove of such request if the use, storage or handling of such
additional Hazardous Materials at the Premises could potentially pose an
increased risk of contamination, explosion or fire danger to any portion of the
Project.
(c) ADA. Tenant acknowledges that the Americans with Disabilities Act of
1990 (as amended and as supplemented by further laws from time to time, the
"ADA") imposes certain requirements upon the owners, lessees and operators of
commercial facilities and places of public accommodation, including, without
limitation, prohibitions on discrimination against any individual on the basis
of disability. Accordingly, but without limiting the generality of and in
addition to all other requirements under this Lease, Tenant agrees to take all
proper and necessary action to cause the Premises to be maintained, used and
occupied in compliance with the ADA and, further, to otherwise assume all
responsibility to ensure the Premises' continued compliance with all provisions
of the ADA throughout the Term.
UTILITIES AND SERVICES
PARAGRAPH 10
(a) Payment by Tenant. Tenant shall be responsible for and shall pay
promptly all charges for gas, electricity, sewer, heat, light, power, telephone,
refuse pickup (to be performed on a regularly scheduled basis so that
accumulated refuse does not exceed the capacity of Tenant's refuse bins),
janitorial service and all other utilities, materials and services furnished
directly to or used by Tenant in, on or about the Premises, together with all
taxes thereon. Tenant shall contract directly with the providing companies for
such utilities and services.
(b) No Abatement of Rent. Landlord shall not be liable for, and Tenant
shall not be entitled to, any abatement or reduction of rent by reason of any
failure or interruption of any utility or other service furnished to the
Premises or the Project. No such failure, stoppage, or interruption of any such
utility or service shall constitute an eviction of Tenant or relieve Tenant of
the obligation to perform any covenant or agreement of this Lease to be
performed by Tenant. In the event of any such failure, stoppage or interruption
of the utilities or services to be supplied by Landlord, Landlord shall use good
faith efforts to have service promptly resumed. Where the cause of any such
failure, stoppage or interruption of such utilities or services is within the
control of a public utility or other public or quasi-public entity outside
Landlord's control, notification to such utility or entity of such failure,
stoppage or interruption and request to remedy the same shall constitute "good
faith efforts" by Landlord to have service promptly resumed.
RULES AND REGULATIONS
PARAGRAPH 11
Tenant agrees to abide by all rules and regulations for use of the
Premises, the Building, the Phase and the Project imposed by Landlord, as the
same may be revised from time to time, including, without limitation, the
following: (a) Tenant shall comply with all of the requirements of Landlord's
emergency response plan, as the same may be amended from time to time; and (b)
Tenant shall not place any furniture, furnishings, fixtures or equipment in the
Premises in a manner so as to obstruct the windows of the Premises to cause the
Building, in Landlord's good faith determination, to appear unsightly from the
exterior. Such rules and regulations are and shall be imposed for the
cleanliness, good appearance, proper maintenance, good order and reasonable use
of the Premises, the Building, the Phase and the Project and as may be necessary
for the enjoyment of the Building and the Project by all tenants and their
clients, customers, and employees. Landlord shall not be liable for the failure
of any tenant or of the agents or employees of any tenant to conform to such
rules and regulations.
TAXES ON TENANT'S PROPERTY
PARAGRAPH 12
Tenant shall be liable for, and shall pay, at least ten (10) days before
delinquency, all taxes, levies and assessments levied against any personal
property or trade fixtures placed by Tenant in or about the Premises or against
the cost or value of any leasehold improvements made in or to the Premises by or
for Tenant regardless of whether title to such improvements shall be in Tenant
or Landlord. If any such tax, levy or assessment on Tenant's personal property,
trade fixtures or leasehold improvements is levied against Landlord or
Landlord's property, or if the assessed value of the Building or the Project is
increased by the inclusion therein of a value placed upon such personal
property, trade fixtures or leasehold improvements of Tenant and if Landlord
pays such taxes, levies or assessment based upon such increased assessment
(which Landlord shall have the right to do regardless of the validity thereof),
Tenant shall upon demand repay to Landlord the amount of such taxes, levies or
assessments so levied against Landlord, or the proportion of any taxes, levies
or assessments resulting from such increase in assessment. Tenant shall also be
liable for and shall upon demand repay to Landlord the amount of any rental,
excise, sales, transaction privilege or other tax or levy, however denominated,
imposed upon or measured by the rent reserved hereunder or on Landlord's
business of leasing the Premises, excepting only net income taxes, franchise
taxes and estate, inheritance or gift taxes.
FIRE OR CASUALTY
PARAGRAPH 13
(a) Obligation to Restore. Except as otherwise provided below, in the event
the Premises or access thereto is wholly or partially destroyed by fire or other
casualty covered by the form of fire and extended coverage insurance maintained
by Landlord, Landlord shall rebuild, repair or restore the Premises and access
thereto to substantially the same condition as when the same were furnished to
Tenant, excluding any improvements installed by Tenant, and this Lease shall
continue in full force and effect, except that rent shall abate during the
period which, and to the extent to which, any portion of the Premises is
untenantable and is not used by Tenant. Notwithstanding the foregoing, in no
event shall Landlord be required to expend more than the amount of insurance
proceeds received by Landlord in respect of any such casualty in connection with
Landlord's restoration of the Premises.
(b) Election Not to Restore. In the event that the Building is damaged or
destroyed to the extent of more than twenty-five percent (25%) of its
replacement cost or to any extent by a casualty not so covered, or if the
buildings at the Project shall be damaged to the extent of fifty percent (50%)
or more of the replacement value or to any extent by a casualty not so covered,
and regardless of whether or not the Premises be damaged, Landlord may elect by
written notice to Tenant given within thirty (30) days after the occurrence of
the casualty to terminate this Lease in lieu of so restoring the Premises, in
which event this Lease shall terminate as of the date specified in Landlord's
notice, which date shall be no later than sixty (60) days following the date of
Landlord's notice.
(c) Restoration. Upon the occurrence of a casualty as to which Landlord
does not elect to terminate this Lease, Landlord shall, within thirty (30) days
after the date of such casualty, or as soon thereafter as reasonably possible,
notify Tenant in writing of the time estimated by Landlord to repair or restore
the damage caused by such casualty. If Landlord's estimated time to complete
such restoration is more than nine (9) months from the date of the occurrence
and such damage or destruction materially adversely interferes with Tenant's use
of the Premises, Tenant may elect to terminate this Lease by written notice to
Landlord given within fifteen (15) days after receipt of Landlord's estimate. If
Tenant has the right to terminate this Lease and timely and properly exercises
such right, this Lease shall terminate on the date of Tenant's notice to
Landlord. If Tenant is not entitled to terminate this Lease or if Tenant is so
entitled but fails to do so in time and in the manner herein specified, Landlord
shall repair or restore the Premises as promptly as practicable and this Lease
shall continue in effect. Landlord shall in no event be obligated to make any
repairs or replacement of any items other than those items installed by and at
the expense of Landlord. If the Premises are rendered totally untenantable, rent
shall abate during the period that the Premises remain untenantable and Tenant
does not use the Premises. However, in no event shall Tenant be entitled to any
compensation or damages for loss of the use of the whole or any part of the
Premises, for damage to Tenant's personal property in or improvements to the
Premises or for any inconvenience or annoyance occasioned by any such
destruction, rebuilding or restoration of the Premises or the Building or access
thereto. Tenant waives the provisions of California Civil Code Sections 1932(2)
and 1933(4) and any present or future laws or case decisions to the same effect.
(d) Landlord, in repairing the Building and the Premises, shall repair any
damage to the Building itself, including any damage to the shell of the Premises
as existing as of the date hereof, and Tenant shall pay the cost of repairing or
replacing the Tenant Improvements in the Premises existing immediately prior to
the occurrence of any damage, and Tenant shall repair or replace all of Tenant's
trade fixtures, furnishings, equipment and other personal property. Landlord
shall not be required to repair any injury or damage to the personal property of
Tenant, or to make any repairs to or replacement of any alterations, additions,
improvements or fixtures installed on the Premises by or for Tenant.
EMINENT DOMAIN
PARAGRAPH 14
(a) Termination of Lease. In case the whole of the Premises, or such part
thereof as shall substantially interfere with Tenant's use and occupancy
thereof, shall be taken by any lawful power or authority by exercise of the
right of eminent domain, or shall be sold to prevent such taking, either Tenant
or Landlord may terminate this Lease effective as of the date possession is
required to be surrendered to such authority. If at least twenty- five percent
(25%) of the leasable area of Tenant's Phase, or twenty-five percent (25%) of
the leasable area of the Project, is taken by any lawful power or authority by
exercise of the right of eminent domain, or shall be sold to prevent such
taking, Landlord may terminate this Lease effective as of the date possession is
required to be surrendered to such authority. Landlord may, without any
obligation to Tenant, agree to sell or convey to the taking authority the
Premises, the Building, Tenant's Phase, the Project or any portion thereof
sought by the taking authority, free from this Lease and the right of Tenant
hereunder, without first requiring that any action or proceeding be instituted
or, if instituted, pursued to a judgment.
(b) Partial Taking. In the event the amount of property or the type of
estate taken shall not substantially interfere with Tenant's use of the
Premises, and neither Landlord nor Tenant shall have terminated this Lease
pursuant to Paragraph 14(a) above, then Landlord shall promptly restore the
Premises to substantially their condition prior to such partial taking and this
Lease shall continue in full force and effect except that a proportionate
allowance shall be made to Tenant for the rent corresponding to the time during
which, and to the part of the Premises of which, Tenant shall be deprived on
account of such taking and restoration.
(c) Awards. Except as expressly provided herein, Tenant shall not because
of any taking of all or any portion of the Premises assert any claim against
Landlord or the taking authority for any compensation because of such taking,
and Landlord shall be entitled to receive the entire amount of any award
therefor without deduction for any estate or interest of Tenant. Nothing
contained in this subparagraph, however, shall be deemed to give Landlord any
interest in, or prevent Tenant from seeking any award against the taking
authority independent of Landlord, and without in any manner interfering with or
reducing any claim of Landlord against the taking authority for, the taking of
personal property and fixtures belonging to Tenant or for relocation or business
interruption expenses recoverable from the taking authority.
ASSIGNMENT AND SUBLETTING
PARAGRAPH 15
(a) Landlord's Consent. Tenant shall not voluntarily or involuntarily
assign, sublet, mortgage or otherwise transfer or encumber all or any portion of
its interest in this Lease or in the Premises or permit the use of the Premises
by any party other than Tenant without obtaining the prior written consent of
Landlord, which consent shall not be unreasonably withheld. Any such attempted
assignment, subletting, mortgaging, transfer or other encumbering without such
consent shall be null and void and of no effect. Without limiting the generality
of the foregoing, it shall be reasonable for Landlord to deny any proposed
assignment or sublease if (1) the use to be made of the Premises by the proposed
assignee or subtenant is not generally consistent with the character and nature
of all other tenancies in the Project, or (2) the proposed assignee or subtenant
uses Hazardous Materials, or (3) the character, reputation or financial
responsibility of the proposed assignee or subtenant is not satisfactory to
Landlord or in any event is not at least equal to that which was possessed by
Tenant as of the date of execution of this Lease, or (4) the proposed assignee
or subtenant is an existing tenant in the Project or is negotiating with
Landlord or Landlord's representative, or the owner (or the owner's
representative) of any other Phase of the Project, to lease space at the
Project, or (5) Tenant is in default hereunder, or a condition exists which,
with the passage of time or the giving of notice or both, would constitute such
a default.
(b) No Relief. No permitted assignment, subletting, mortgaging or other
encumbering of Tenant's interest in this Lease shall relieve Tenant of its
obligation to pay the rent and to perform all of the other obligations to be
performed by Tenant hereunder. The acceptance of rent by Landlord from any
person other than Tenant shall not be deemed to be a waiver by Landlord of any
provision of this Lease or to be a consent to any subletting, assignment,
mortgaging or other encumbering of the Premises. Consent to an assignment,
sublease, mortgage or other encumbrance shall not be deemed to constitute
consent to any subsequent attempted assignment, sublease, mortgage or other
encumbrance.
(c) Notice to Landlord. If Tenant desires at any time to assign this Lease
or to sublet the Premises or any portion thereof, it shall first notify Landlord
of its desire to do so and shall submit in writing to Landlord (1) the name of
the proposed subtenant or assignee, (2) the nature of the proposed subtenant's
or assignee's business to be carried on in the Premises, (3) copies of all
applicable documentation in connection with the proposed sublease or assignment,
and (4) such financial and other information as Landlord may reasonably request
concerning the proposed subtenant or assignee.
(d) Condition to Consent. As a condition to Landlord's consent to such
assignment or subletting, if the net aggregate rental paid or given by any
sublessee or assignee exceeds, on a square foot basis, the amount per square
foot payable by Tenant to Landlord for the Premises, then Tenant shall pay to
Landlord as additional rental hereunder, monthly as received, twenty-five
percent (25%) of such excess rental. Net aggregate rental as used herein shall
mean gross rental and additional consideration of any kind or type received by
Tenant with respect to the subleased or assigned premises, less the following
actual and documented out-of- pocket costs incurred by Tenant (amortized, in the
case of a sublease, over the term of said sublease, on a straight line basis):
Tenant's actual costs of any commercially reasonable commission paid by Tenant
to a broker independent of Tenant in connection with such sublease or
assignment, reasonable legal fees in processing such assignment or subletting,
reasonable advertising costs and commercially reasonable costs to remodel or
renovate the area subject to such subletting or assignment. "Sublet" and
"sublease" shall include a sublease as to which Tenant is sublessor and any
sub-sublease or other sub-subtenancy, irrespective of the number of tenancies
and tenancy levels between the ultimate occupant and Landlord, as to which
Tenant receives any consideration. Tenant shall require on any sublease which it
executes that Tenant receive all profit from all sub-subtenancies, irrespective
of the number of levels thereof. Any rent or other consideration which is to be
passed through to Landlord by Tenant pursuant to this Paragraph 15(d) shall be
paid to Landlord promptly upon receipt by Tenant and shall be paid in cash,
irrespective of the form in which received by Tenant from any subtenant or
assignee. In the event that any rent or other consideration received by Tenant
from a subtenant or assignee is in a form other than cash, Tenant shall pay to
Landlord in cash the fair value of such consideration.
(e) Landlord's Election. At any time within thirty (30) days after
Landlord's receipt of the information specified in Para- graph 15(c) above,
Landlord may by written notice to Tenant elect to (1) consent to the proposed
sublease or assignment; (2) sublease the Premises or the portion thereof so
proposed to be subleased by Tenant or take an assignment of Tenant's leasehold
estate hereunder or such part thereof as shall be specified in such notice to
Landlord, in each case upon the same terms stated in this Lease, and
concurrently enter into the proposed sublease or assignment to the proposed
subtenant or assignee on the same terms as those offered by Tenant, as the case
may be; (3) terminate this Lease as to the portion (including all) of the
Premises so proposed to be subleased or assigned, with a proportionate abatement
in the rent payable hereunder; or (4) reasonably withhold its consent to the
proposed sublease or assignment.
(f) No Merger. The voluntary or other surrender of this Lease by Tenant or
a mutual cancellation hereof shall not work a merger but shall, at the option of
Landlord, either terminate all or any existing subleases or subtenancies or
operate as an assignment to Landlord of such subleases or subtenancies. If
Tenant is a corporation which under the then current guidelines published by the
Commissioner of Corporations of the State of California, is not deemed to be a
public corporation or is an unincorporated association or partnership, then the
transfer, assignment or hypothecation of any stock or interest in such
corporation, association or partnership in the aggregate in excess of
twenty-five percent (25%) shall be deemed to be an assignment within the meaning
and provisions of this Paragraph 15.
(g) Assignment of Rent. Tenant immediately and irrevocably assigns to
Landlord, as security for Tenant's obligations under this Lease, all rent from
any subletting of all or a part of the Premises as permitted by this Lease, and
Landlord, as assignee and attorney-in-fact for Tenant, or a receiver for Tenant
appointed on Landlord's application, may collect such rent and apply it toward
Tenant's obligation under this Lease; except that, until the occurrence of an
act of default by Tenant, Tenant shall have the right to collect such rent.
(h) Landlord's Costs. Tenant agrees to reimburse Landlord for Landlord's
costs and attorneys' fees incurred in conjunction with the processing and
documentation of any requested assignment, subletting, transfer, change of
ownership or hypothecation of this Lease or Tenant's interest in and to the
Premises which is submitted for approval to Landlord, whether or not Landlord
approves the same.
(i) Assignment to SERC, Inc.. Notwithstanding Paragraph 15(a) hereof, in
the event that Tenant merges with SERC, Inc., a Colorado corporation, to create
a new corporation entitled Telegen Corporation ("TC"), and provided that all of
the assets of Tenant are assigned to TC and the obligations under this Lease are
assumed by TC, then (1) Tenant shall not be obligated to obtain Landlord's
consent to the assignment of this Lease to TC, and (2) all of the terms of this
Paragraph 15 shall apply to such assignment, other than the obligation to obtain
Landlord's consent thereto, and other than Paragraphs 15(d) and (e) hereof.
(j) Sublease to Affiliates. Notwithstanding Paragraph 15(a) hereof, Tenant
shall have the right to sublet the Premises, without obtaining Landlord's prior
written consent, to any any subsidiary corporations of which Telegen Corporation
owns at least a fifty percent (50%) interest; provided that all of the terms of
this Paragraph 15 shall apply to such subleases, other than the obligation to
obtain Landlord's consent thereto, and other than Paragraphs 15(d) and (e)
hereof.
ACCESS
PARAGRAPH 16
(a) Access to Premises. Subject to the provisions of this Paragraph 16,
Landlord reserves and shall have the right to enter the Premises upon
twenty-four (24) hours notice (except in case of emergency, when no notice shall
be required) to inspect the same, to supply any service to be provided by
Landlord to Tenant hereunder, to submit the Premises to prospective purchasers
or (during the last six (6) months of the term only) prospective tenants, to
post notices of nonresponsibility, to use and maintain pipes and conduits in and
through the Premises and to alter, improve or repair the Premises or any other
portion of the Building, all without being deemed guilty of an eviction of
Tenant and without abatement of rent. Tenant shall have the right to have a
representative of Tenant accompany Landlord when Landlord enters the Premises
(except in case of emergency). Landlord may, for the purpose of altering,
improving or repairing the Premises or any other portion of the Building, erect
scaffolding and other necessary structures where reasonably required by the
character of the work to be performed. Landlord shall use commercially
reasonable efforts where practicable to conduct such entries and activities in a
workmanlike manner so as to reasonably minimize interference with Tenant's
ability to conduct its business at the Premises and Tenant hereby waives any
claim for damages for any injury or inconvenience to or interference with
Tenant's business, any loss of occupancy or quiet enjoyment of the Premises and
any other loss occasioned thereby or arising therefrom. No provision of this
Paragraph 16 shall be construed as obligating Landlord to perform any repairs,
alterations or decoration not otherwise expressly required of Landlord under
this Lease.
(b) Restricted Area. A portion of the Premises may be designated by Tenant
as a "Restricted Area," based upon a commercially reasonable business purpose,
such as safety or confidentiality, for doing so. Landlord shall not possess a
key to any Restricted Area; provided that (i) Tenant shall cooperate with
Landlord in connection with Landlord's rights of access to the Restricted Area;
(ii) during Tenant's business hours, Tenant shall always have a representative
present to admit Landlord into the Restricted Area, (iii) the foregoing shall be
subject to all federal, state and local laws, rules and regulations, including
without limitation restrictions imposed by the City of Redwood City or the
County of San Mateo Fire Department or other emergency services department, and
Tenant shall be responsible for determining whether the access limitations set
forth herein comply with all such legal requirements, and (iv) Tenant shall pay
all fees and charges imposed by any governmental authority in connection with
the limitations on access set forth herein.
(c) Proprietary Area. A portion of the Premises may be designated by Tenant
as a "Proprietary Area," based upon a commercially reasonable business purpose,
such as safety or confidentiality, for doing so. Landlord shall have the right
at all times to have and retain a key with which to unlock all of the doors in,
upon and about the Proprietary Area, excluding Tenant's vaults and safes
therein, if any. Landlord shall not enter any Proprietary Area unless Landlord
is accompanied by a representative of Tenant; provided that (i) Tenant shall
cooperate with Landlord in connection with Landlord's rights of access to the
Proprietary Area; (ii) during Tenant's business hours, Tenant shall always have
a representative present to admit Landlord into the Proprietary Area, (iii) the
foregoing shall be subject to all federal, state and local laws, rules and
regulations, including without limitation restrictions imposed by the City of
Redwood City or the County of San Mateo Fire Department or other emergency
services department, and Tenant shall be responsible for determining whether the
access limitations set forth herein comply with all such legal requirements, and
(iv) Tenant shall pay all fees and charges imposed by any governmental authority
in connection with the limitations on access set forth herein.
(c) Unrestricted Area. All portions of the Premises which are not
Restricted Area or Proprietary Area shall be referred to herein as "Unrestricted
Area." Landlord shall have the right at all times to have and retain a key with
which to unlock all of the doors in, upon and about the Unrestricted Area,
excluding Tenant's vaults and safes therein, if any.
(d) Emergencies. Landlord shall have the right to use any and all means
which Landlord may deem proper to open doors to the Premises in an emergency in
order to obtain entry to the Premises and any such entry shall not under any
circumstances be construed or deemed to be a forcible or unlawful entry into, or
a detainer of, the Premises or an eviction of Tenant from the Premises or any
portion thereof.
(e) Indemnification. To the fullest extent permitted by then applicable
law, Tenant shall protect, indemnify and hold Landlord harmless from, and defend
Landlord against any and all claims, losses, costs, damages, expenses, or
liabilities, including, without limitation, attorneys' fees and costs of
defense, for any injury or damage to any person or property whatsoever caused in
part or in whole by the restrictions on Landlord's access to the Premises set
forth in this Paragraph 16; excluding, however, such damage to the extent caused
solely by the gross active negligence or intentional misconduct of Landlord.
This indemnity shall not require payment by Landlord as a condition precedent to
recovery from Tenant.
SUBORDINATION; ATTORNMENT; ESTOPPEL CERTIFICATES
PARAGRAPH 17
(a) Subordination. Subject to the last sentence of this Paragraph 17(a),
this Lease is junior, subject and subordinate to all declarations of
restrictions and all mortgages, deeds of trust and other security instruments of
any kind now covering the Premises, the Project, or any portion of thereof.
Landlord reserves the right to place liens or encumbrances on the Premises, the
Project, or any part of or interest in any of the foregoing, and, subject to the
last sentence of this Paragraph 17(a), this Lease shall be subject and
subordinate to any such liens or encumbrances now or hereafter imposed by
Landlord without the necessity of the execution and delivery of any further
instruments on the part of Tenant to effectuate such subordination.
Notwithstanding the foregoing, Tenant covenants and agrees to execute and
deliver upon demand such further instruments evidencing any such subordination
of this Lease as may be requested by Landlord. In the event Tenant fails to so
execute any such further instrument within ten (10) business days after demand
therefor, Landlord may execute such instrument on behalf of Tenant as Tenant's
attorney-in-fact (and Tenant hereby makes, constitutes and irrevocably appoints
Landlord as Tenant's attorney-in-fact and in Tenant's name, place and stead to
execute such instruments) and such failure shall constitute a material breach of
this Lease. In the event of the foreclosure of any such lien or encumbrance,
Tenant shall attorn to the then owner who owns or acquires title to the Premises
or the Project and will recognize such owner as Landlord under this Lease.
Tenant hereby waives any right to terminate this Lease because of any such
foreclosure. Notwithstanding the foregoing, Tenant agrees that if any holder of
a mortgage, deed of trust or other security instrument covering the Premises or
the Project desires this Lease to be senior to the lien of such mortgage, deed
of trust or security instrument, upon written notice from Landlord or such
holder to Tenant indicating such desire, this Lease shall automatically become
senior to such mortgage, deed of trust or security instrument and Tenant agrees
to execute, promptly upon Landlord's or such holder's demand therefor, such
instruments as Landlord or such holder shall reasonably require confirming the
priority of this Lease, but Tenant's failure to execute such instrument shall
not affect such holder's election to cause this Lease to be superior to such
holder's lien.
(b) Estoppel Certificates. Tenant shall at any time and from time to time,
upon not less than three (3) days' prior notice from Landlord, execute,
acknowledge and deliver to Landlord a statement in writing certifying that this
Lease is unmodified and in full force and effect (or if there have been
modifications, that this Lease is in full force and effect as modified and
describing the same), the dates through which the Basic Annual Rent, Additional
Rent and all other charges have been paid in advance, if any, and stating
whether or not, to the best knowledge of Tenant, Landlord is in default in the
performance of any covenant, agreement or condition contained in this Lease and,
if so, specifying each such default. Any such statement delivered pursuant to
this Paragraph 17(b) may be relied upon by any prospective purchaser or
encumbrancer (and all successors thereof) of any interest of Landlord in or to
Tenant's Phase or the Project and Tenant shall be liable for all loss, cost or
expense resulting from the failure of any sale or funding of any loan caused by
any material misstatement contained in any such statement or other estoppel
certificate supplied to Landlord by Tenant. Tenant's failure to timely deliver
any such statement shall be conclusive upon Tenant that (1) this Lease is in
full force and effect, without modification except as may be represented by
Landlord, (2) there are no uncured defaults in Landlord's performance, and
(3) not more than one month's Basic Annual Rent has been paid in advance.
SALE BY LANDLORD
PARAGRAPH 18
In the event of a sale or conveyance by Landlord of the Premises, such
transfer shall operate to release Landlord from any and all liability under this
Lease. Subject to the provisions of Paragraph 17 above, Tenant's right to quiet
possession of the Premises shall not, however, be disturbed on account of such
transfer, so long as Tenant shall pay all rent and observe and perform all
provisions of this Lease to be observed and performed by Tenant, unless this
Lease is terminated pursuant to specific provisions relating to termination
contained in this Lease. If any security deposit has been made by Tenant,
Landlord may transfer the then balance of such deposit to Landlord's transferee
in connection with the sale or conveyance of the Premises, and thereupon
Landlord shall be discharged from any further liability in connection with such
deposit.
NON-LIABILITY AND INDEMNIFICATION OF LANDLORD; INSURANCE
PARAGRAPH 19
(a) Landlord's Non-Liability. Except to the extent caused solely by the
active negligence or intentional misconduct of Landlord, Landlord shall not be
liable for any injury or damage which may be sustained by any person or any
goods, wares, merchandise or other property of Tenant, of Tenant's employees,
invitees or customers or of any other person in or about the Premises resulting
from any cause whatsoever (including, without limitation, fire, steam,
electricity, gas, water, rain or dampness which may occur, leak or flow from or
into any part of the Premises or any other place, any breakage, leakage,
obstruction or other defect in the pipes, sprinklers, wires, appliances,
plumbing, air conditioning or lighting fixtures of the Premises, theft,
explosion or falling plaster). In no event shall Landlord be liable for any
damage arising from any act or neglect of any other tenant of the Project or any
of their officers, employees, agents, representatives, customers, visitors or
invitees, for any damage to Tenant's property entrusted to employees of Landlord
or its agents, for any interference with light or other incorporeal
hereditaments or for any damage arising from any latent defect in the Premises
or the Project.
(b) Indemnification. To the fullest extent permitted by then applicable
law, Tenant shall protect, indemnify and hold Landlord harmless from, and defend
Landlord against any and all claims, losses, costs, damages, expenses, or
liabilities, including, without limitation, attorneys' fees and costs of
defense, for any injury or damage to any person or property whatsoever caused in
part or in whole by the act, neglect, fault or omission of Tenant or its
assignees, subtenants or agents, of the respective servants, employees or
invitees of any of the foregoing persons or of any other persons permitted in
the Building or elsewhere in the Project by Tenant or any of such persons;
excluding, however, such damage to the extent caused solely by the active
negligence or intentional misconduct of Landlord. This indemnity shall not
require payment by Landlord as a condition precedent to recovery from Tenant. In
addition, if any person not a party to this Lease shall institute any other type
of action against Tenant in which Landlord, involuntarily and without cause,
shall be made a party defendant, Tenant shall indemnify Landlord, hold Landlord
harmless from, and defend Landlord against any and all claims, losses, costs,
damages, expenses or liabilities by reason thereof, except to the extent such
claims, losses, costs, damages, expenses or liabilities result directly from
Landlord's active negligence or intentional misconduct.
(c) Tenant's Insurance. Tenant hereby agrees to maintain in full force and
effect at all times during the Term and any other period of its occupancy or
possession of the Premises, at its own expense, for the protection of Tenant and
Landlord, as their interests may appear, policies of insurance which afford the
following coverages: (1) Worker's Compensation and Employer's Liability
Insurance to the extent required by then applicable law, (2) Commercial General
Liability Insurance with a Broad Form Liability Endorsement (including
protective liability coverage on operations of independent contractors engaged
in construction, coverage of Tenant's indemnity obligations under this Lease and
blanket contractual liability insurance) on an "occurrence" basis against claims
for "personal injury" liability, including, without limitation, bodily injury,
death and property damage liability, with a limit of not less than Three Million
Dollars ($3,000,000) in the event of "personal injury" to any number of persons
or of damages to property arising out of any single "occurrence," (3) insurance
against loss or damage by fire and such other risks and hazards as are insurable
under then applicable standard forms of "all risk" fire and extended coverage
insurance policies to all of the Tenant Improvements and the personal property,
furniture, furnishings and fixtures belonging to Tenant used or located in the
Premises for not less than one hundred percent (100%) of the actual replacement
value thereof (the proceeds of which insurance, so long as this Lease remains in
effect, shall be used to repair or replace such personal property, furnishings
and fixtures in the Premises; provided, however, that upon any termination of
this Lease pursuant to Paragraph 13 above, all such proceeds shall be the
property of Landlord), and (4) business interruption or loss of income insurance
in an amount equal to the Basic Annual Rent for a period of at least twelve (12)
months commencing with the date of loss (the proceeds of which insurance shall
be paid to Landlord to the extent of any abatement of rent under the Lease).
(d) Deductibles. Tenant may, with the prior written consent of Landlord,
elect to have reasonable deductibles in connection with the policies of
insurance required to be maintained by Tenant under Paragraph 19(c)(3) above.
(e) Certificates of Insurance. Tenant shall deliver to Landlord at least
thirty (30) days prior to the time such insurance is first required to be
carried by Tenant, and thereafter at least thirty (30) days prior to expiration
of each such policy, certificates of insurance from the carrier providing such
insurance evidencing the above coverages with limits not less than those
specified above. Such certificates, with the exception of worker's compensation,
shall designate Landlord, each of its partners, subsidiaries, affiliates,
directors, agents and employees, as additional insureds and shall expressly
provide that the interest of such persons therein shall not be affected by any
breach by Tenant of any policy provision for which such certificates evidence
coverage. Further, each such certificate shall expressly provide that no less
than thirty (30) days' prior written notice shall be given to Landlord in the
event of a material alteration to or cancellation of the coverages evidenced by
such certificate. The insurance which Tenant is required to maintain in force
and effect under this Paragraph 19 shall be primary insurance as respects
Landlord (and any other additional insureds designated by Landlord) and not
excess over or contributory with any other available insurance. Certificates of
insurance evidencing the liability insurance coverage required under
Paragraph 19(c)(2) above shall contain an endorsement providing, in substance,
that such insurance as is afforded thereby for the benefit of Landlord (and any
other additional insureds designated by Landlord) shall be primary and any
insurance carried by Landlord (and any other such additional insureds) shall be
excess and not contributory.
(f) Increase in Coverage. Upon demand, Tenant shall provide Landlord, at
Tenant's expense, with such increased amounts of existing insurance and such
other coverages and insurance as Landlord may reasonably require.
(g) No Co-Insurance. If on account of the failure of Tenant to comply with
the provisions of this Paragraph 19, Landlord or any other person is adjudged a
co-insurer by its insurance carrier, then any loss or damage which Landlord or
such other person shall sustain by reason thereof shall be borne by Tenant and
shall be immediately paid by Tenant upon receipt of a bill therefor and evidence
of such loss.
(h) Insurance Limits. Landlord makes no representation that the limits of
liability specified to be carried by Tenant under this Lease are adequate to
protect Tenant against Tenant's undertaking under this Lease. In the event
Tenant believes that any such required coverage is insufficient, Tenant shall
provide, at its own expense, such additional insurance as Tenant deems adequate.
In no event shall the limits of any coverage maintained by Tenant pursuant to
this Paragraph 19 be considered as limiting Tenant's liability under this Lease.
(i) Consequential Damages. In no event shall Landlord be liable to Tenant
for any damage by reason of loss of profits, business interruption or other
consequential damage.
(j) General Requirements. All insurance required to be carried by Tenant
hereunder shall be with companies reasonably acceptable to Landlord. All
policies and certificates delivered by Tenant pursuant to this Paragraph shall
contain liability limits not less than those set forth herein, shall list all
additional insureds and shall specify all endorsements and special coverages
required by this Paragraph. Any insurance required to be maintained by Tenant
may be maintained pursuant to so-called "blanket" policies of insurance so long
as the Premises are specifically identified therein (by endorsement or
otherwise) as included in the coverage provided and such policies otherwise
comply with the provisions of this Lease.
WAIVER OF SUBROGATION
PARAGRAPH 20
(a) Without affecting any other rights or remedies hereunder, at law or in
equity, Landlord and Tenant each hereby waives all rights of recovery against
the other, any other tenant or occupant in the Building or the Project and all
officers, employees, agents, representatives, customers and business visitors of
such persons for loss of or damage to property at the Project arising from any
cause insured against under any policy of all-risk insurance either required to
be carried by such waiving party pursuant to the provisions of this Lease or
actually carried by such waiving party. The foregoing waiver shall be effective
whether or not such waiving party shall actually obtain and maintain the "all
risk" insurance required pursuant to this Lease. Tenant shall, upon obtaining
the policies of insurance which it is required to maintain under this Lease,
give notice to its insurance carriers that the foregoing waiver of subrogation
is contained in this Lease.
(b) In the event either Landlord or Tenant notifies the other that an
insurer under any policy described in Paragraph 20(a) above has refused to
consent to or permit the waiver of subrogation thereunder in any fashion or has
conditioned the same upon the payment of an additional premium, then such waiver
shall be of no force or effect with respect to loss or damage covered by such
policy during the period commencing five (5) business days after such other
party's receipt of such notice and continuing until such insurer reinstates such
consent; provided, however, that if such other party elects to reimburse the
notifying party for any required additional premium, the notifying party shall
obtain such insurer's consent.
ATTORNEYS' FEES
PARAGRAPH 21
In the event any party to this Lease brings any suit or other proceeding
with respect to the subject matter or enforcement of this Lease (including all
addenda and exhibits hereto), the prevailing party (as determined by the court,
agency or other authority before which such suit or proceeding is commenced)
shall, in addition to such other relief as may be awarded, be entitled to
recover reasonable attorneys' fees, expenses and costs of investigation as
actually incurred (including, without limitation, attorneys' fees, expenses and
costs of investigation incurred in appellate proceedings or in connection with
the enforcement or collection of any judgment obtained in any suit or other
proceeding with respect to the subject matter or enforcement of this Lease,
costs incurred in establishing any right to indemnification, or in any action or
participation, or in connection with, any case or proceeding under Chapters 7,
11 or 13 of the Bankruptcy Code, 11 United States Code Section 101 et seq., or
any successor statutes). The parties hereto expressly agree that (i) any
attorneys' fees incurred in connection with the enforcement or collection of any
judgment obtained in any suit or other proceeding with respect to the subject
matter or enforcement of this Lease shall be recoverable as a separate item,
(ii) the provisions of this Paragraph 21 shall survive the entry of any judgment
with respect to the subject matter or enforcement of this Lease, and (iii) the
provisions of this Paragraph 21 will not merge, or be deemed to have merged,
into any such judgment.
WAIVER
PARAGRAPH 22
No waiver by Landlord of any provision of this Lease or of any breach by
Tenant hereunder shall be deemed to be a waiver of any other provision hereof or
of any subsequent breach by Tenant of the same or any other provision.
Landlord's consent to or approval of any act by Tenant requiring Landlord's
consent or approval shall not be deemed to render unnecessary the obtaining of
Landlord's consent to or approval of any subsequent act of Tenant. No act or
thing done by Landlord or Landlord's agents during the Term, including, without
limitation, Tenant's delivery of the keys to the Premises to any employee or
agent of Landlord, shall operate as or be deemed to be a termination of this
Lease, a surrender of the Premises or an acceptance of a surrender of the
Premises unless expressly stated in a writing signed by Landlord. The acceptance
of any rent by Landlord following a breach of this Lease by Tenant shall not
constitute a waiver by Landlord of such breach or any other breach unless such
waiver is expressly stated in a writing signed by Landlord. The acceptance of
any payment from a debtor- in-possession, a trustee, a receiver or any other
person acting on behalf of Tenant or Tenant's estate shall not constitute a
waiver of or cure a default under Paragraphs 15 or 24 hereof.
NOTICES
PARAGRAPH 23
(a) Any notice required by law to be given by Landlord to Tenant as a
condition to the filing of an action alleging an unlawful detainer of the
Premises, including, without limitation, any three (3) days' notice under
Section 1161(2) or (3) of the California Code of Civil Procedure, and any
service of process made by Landlord in connection with any action arising out of
or related to this Lease or the Premises shall be effective only if in writing
and either sent by registered or certified mail, return receipt requested, or
delivered personally to Tenant either (1) at the Premises, or (2) at any place
where Tenant or any agent or employee of Tenant may be found.
(b) Except as otherwise expressly provided in this Lease, any notice,
demand, request or other communication not described in (a) above given or
required to be given by Landlord hereunder shall be effective only if in writing
and either sent by registered or certified mail, return receipt requested, or by
recognized overnight courier or delivered personally to the following:
Telegen Corporation
101 Saginaw Drive
Redwood City, CA 94063
(c) Except as otherwise expressly provided in this Lease, any notice,
demand, request or other communication given or required to be given by Tenant
hereunder shall be effective only if in writing and either sent by registered or
certified mail, return receipt requested, or by recognized overnight courier or
delivered personally to each of the following:
(1) METROPOLITAN LIFE INSURANCE COMPANY
101 Lincoln Centre Drive, Sixth Floor
Foster City, California 94404
Attention: Assistant Vice President
(2) METROPOLITAN LIFE INSURANCE COMPANY
101 Lincoln Centre Drive, Sixth Floor
Foster City, California 94404
Attention: Associate General Counsel
(3) LINCOLN PROPERTY COMPANY N.C., INC.
101 Lincoln Centre Drive, Fourth Floor
Foster City, California 94404
Attention: Director of Property Management,
Seaport Centre
(d) Tenant and Landlord may designate new addresses for notice for the
purposes of (b) or (c) above (however, in no event may any party have more than
four (4) separate designations at any one time) by notice given to the other in
accordance with the provisions of this Paragraph 23.
(e) Any notice hereunder shall be deemed effectively given upon its
delivery or the addressee's refusal to accept delivery as indicated by the
person attempting such personal delivery, by the applicable return receipt, if
sent by registered or certified mail, or by similar advice from the recognized
courier company, as the case may be.
INSOLVENCY OR BANKRUPTCY
PARAGRAPH 24
(a) Prior to Term. If at any time prior to the date herein fixed as the
commencement of the Term there shall be filed by or against Tenant in any court
pursuant to any statute either of the United States or of any State a petition
in bankruptcy or insolvency or for reorganization or for the appointment of a
receiver or trustee or conservator of all or a portion of Tenant's property, or
if Tenant makes an assignment for the benefit of creditors (collectively, an
"Insolvency Event"), this Lease shall ipso facto be canceled and terminated and
in such event neither Tenant nor any person claiming through or under Tenant or
by virtue of any statute or by an order of any court shall be entitled to
possession of the Premises and Landlord, in addition to the other rights and
remedies given by Paragraph 25(b) hereof or by virtue of any other provision in
this Lease contained or by virtue of any statute or rule of law, may retain as
damages any rent, security, deposit or moneys received by it from Tenant or
others on behalf of Tenant.
(b) No Assignment. In no event shall this Lease be assigned or assignable
by operation of law and in no event shall this Lease be an asset of Tenant in
any receivership, bankruptcy, insolvency or reorganization proceeding.
DEFAULT
PARAGRAPH 25
(a) Default by Tenant. The occurrence of any of the following shall
constitute a material default and breach of this Lease by Tenant:
(1) Any failure by Tenant to pay rent or to make any other payment required
to be made by Tenant hereunder at the time specified for payment.
(2) Any abandonment or vacation of the Premises by Tenant.
(3) Any warranty, representation or statement made or furnished by Tenant
to Landlord at any time in connection with this Lease or any other agreement to
which Tenant and Landlord are parties is determined to have been false or
misleading in any material respect when made or furnished.
(4) Any attempted assignment, sublease, mortgage or encumbrance in
violation of Paragraph 15 above.
(5) The occurrence of any Insolvency Event filed against Tenant by a third
party other than Landlord which is not dismissed within thirty (30) days after
such occurrence or the occurrence of any other Insolvency Event.
(6) Any failure by Tenant to observe and perform any other provision of
this Lease (or of the addenda attached hereto) to be observed or performed by
Tenant, where such failure continues for fifteen (15) days (except where a
different period is specified in this Lease or in the addenda) after written
notice thereof by Landlord to Tenant; provided, however, that any such notice
shall be in lieu of, and not in addition to, any notice required under Section
1161 et seq. of the California Code of Civil Procedure, and provided, further,
that if the nature of such default is such that the same cannot reasonably be
cured within such fifteen (15) day period, Tenant shall not be deemed to be
default if Tenant shall within such period commence such cure and thereafter
diligently prosecute the same to completion; but in no event shall any such cure
period exceed ninety (90) days in the aggregate.
(b) Remedies. In the event of any such default by Tenant, then in addition
to all other remedies available to Landlord at law or in equity:
(1) Landlord shall have the immediate option to terminate this Lease and
all rights of Tenant hereunder by giving Tenant written notice of such intention
to terminate, in which event Landlord may recover from Tenant all of the
following: (i) the worth at the time of award of any unpaid rent which had been
earned at the time of such termination; plus (ii) the worth at the time of award
of the amount by which the unpaid rent which would have been earned after
termination until the time of award exceeds the amount of such rental loss
Tenant proves reasonably could have been avoided; plus (iii) the worth at the
time of award of the amount by which the unpaid rent for the balance of the term
after the time of award exceeds the amount of such rental loss that Tenant
proves reasonably could be avoided; plus (iv) any other amount necessary to
compensate Landlord for all the detriment proximately caused by Tenant's failure
to perform its obligations under this Lease or which in the ordinary course of
things would be likely to result therefrom; plus (v) at Landlord's election,
such other amounts in addition to or in lieu of the foregoing as may be
permitted from time to time by applicable California law. As used in (i) and
(ii) above, the "worth at the time of award" shall be computed by allowing
interest at the rate specified in Paragraph 36(a) below and as used in (iii)
above, the "worth at the time of award" shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent (1%).
(2) Landlord shall also have the right, with or without terminating this
Lease, to re-enter the Premises and remove all persons and property from the
Premises. Such property may be removed and stored in a public warehouse or
elsewhere at the cost of and for the account of Tenant.
(3) In the event Landlord elects to re-enter the Premises under (2) above
or takes possession of the Premises pursuant to any proceeding or notice
provided by law or Tenant vacates or abandons the Premises, but Landlord does
not elect to terminate this Lease as provided in this Paragraph 25, Landlord may
from time to time without terminating this Lease either recover from Tenant all
rent as it becomes due or relet the Premises or any part thereof upon such terms
and conditions as Landlord in its sole discretion may deem advisable, with the
right of Landlord to make alterations and repairs to the Premises. In the event
of any such reletting, rental and other charges received by Landlord therefrom
shall be applied in the following order: (i) to the payment of any indebtedness
other than rent due hereunder from Tenant to Landlord, (ii) to the payment of
all costs of such reletting, (iii) to the payment of the cost of any alterations
and repairs to the Premises, and (iv) to the payment of rent and other charges
due and unpaid hereunder. The residue, if any, shall be held by Landlord and
applied in payment of future rent and other charges due hereunder, as the same
may become due. In the event the rental and other charges received by Landlord
from such reletting are at any time less than the then aggregate of (i) through
(iv) above, Tenant shall pay such deficiency to Landlord immediately upon demand
therefor, but not more often than monthly.
(4) No re-entry or taking possession of the Premises by Landlord pursuant
to this Paragraph 25 shall be construed as an election to terminate this Lease
unless a written notice of such intention shall be given to Tenant or unless
such termination shall be decreed by a court of competent jurisdiction.
Notwithstanding any reletting without termination by Landlord because of any
default by Tenant, Landlord may at any time after such reletting elect to
terminate this Lease for any such default.
(5) In any action for unlawful detainer commenced by Landlord against
Tenant by reason of any default hereunder, the reasonable rental value of the
Premises for the period of the unlawful detainer shall be the amount of rent
reserved in this Lease for such period, unless Landlord or Tenant shall prove to
the contrary by competent evidence. The rights and remedies reserved to Landlord
herein, including those not specifically described, shall be cumulative and,
except as otherwise provided by then applicable California law, Landlord may
pursue any or all of such rights and remedies at the same time or otherwise.
(6) Provided that Landlord serves notice in accordance with the provisions
of this Paragraph 25 and Paragraph 23 above, Tenant hereby waives any notice
required by Section 1161 of the California Code of Civil Procedure.
(c) Default by Landlord. Landlord shall not be in default or breach of this
Lease unless Landlord fails to observe or perform an obligation required under
this Lease to be observed or performed by Landlord and such failure continues
for thirty (30) days (except where a different period is specified in this
Lease) after written notice thereof by Tenant to Landlord; provided, however,
that if the nature of such default is such that the same cannot reasonably be
cured within such thirty (30) day period, Landlord shall not be deemed to be
default if Landlord shall within such period commence such cure and thereafter
diligently prosecute the same to completion.
HOLDING OVER
PARAGRAPH 26
If Tenant holds over after the expiration or earlier termination of the
Term without the express written consent of Landlord, Tenant shall become a
tenant at sufferance only at either the then prevailing market rate, as
determined by Landlord in its sole and absolute discretion, for the Premises or,
at Landlord's option, one hundred fifty percent (150%) of the Basic Annual
Rental, in each case in effect upon the date of such expiration or earlier
termination (subject to such adjustments as may be provided for in Paragraph 2
above and prorated on a daily basis) and otherwise upon the terms, covenants and
conditions herein specified, so far as applicable. Acceptance by Landlord of
rent after such expiration or earlier termination shall not constitute a consent
to a holdover hereunder or result in a renewal of this Lease. The foregoing
provisions of this Paragraph are in addition to and do not affect Landlord's
right of re-entry or any other rights of Landlord hereunder or as otherwise
provided by law, including without limitation Landlord's right to receive
damages, consequential and direct, sustained by reason of Tenant's retention of
possession.
CONDITION OF PREMISES
PARAGRAPH 27
(a) Possession of Premises. Tenant acknowledges that except as may be
expressly specifically provided herein, if at all, neither Landlord nor any
agent of Landlord has made any representation or warranty with respect to the
Premises, the Building or the Project or with respect to the suitability of any
part of the same for the conduct of Tenant's business. The taking of possession
of the Premises by Tenant shall conclusively establish that the Premises and the
Building were at such time in a good and sanitary order, condition and repair
acceptable to Tenant.
(b) Surrender of Premises. Upon the expiration or early termination of this
Lease, Tenant shall surrender the Premises to Landlord in safe, clean and good
condition (except for ordinary wear and tear associated with normal office use)
and free of Hazardous Materials. Tenant shall remove all of its personal
property as of the expiration date or termination date, as the case may be. In
addition, at Landlord's option, Landlord may require Tenant to remove all
alterations installed by Tenant or for Tenant's benefit at the Premises. If
Tenant shall remove or restore any such property or alterations, Tenant shall
repair any damage arising from such removal. The terms of this Paragraph 27(b)
shall survive the expiration or earlier termination of this Lease.
QUIET POSSESSION
PARAGRAPH 28
Upon Tenant's paying the rent reserved hereunder and observing and
performing all of the covenants, conditions and provisions on Tenant's part to
be observed and performed hereunder, Tenant shall have quiet possession of the
Premises for the entire Term, subject to all the provisions of this Lease.
NOTICE OF DAMAGE
PARAGRAPH 29
Tenant shall give prompt notice to Landlord in case of fire or accidents in
the Premises or at the Project or of any defects discovered therein or in their
fixtures or equipment.
GOVERNING LAW
PARAGRAPH 30
This Lease shall be governed by, and construed in accordance
with the laws of the State of California.
COMMON FACILITIES; PARKING
PARAGRAPH 31
(a) Right to Use Common Facilities. Tenant shall have the non-exclusive
right, in common with others, to the use of any common entrances, ramps, drives
and similar access and serviceways and other common facilities in the Project.
The rights of Tenant hereunder in and to the common facilities shall at all
times be subject to the rights of Landlord and other tenants and owners in the
Project who use the same in common with Tenant, and it shall be the duty of
Tenant to keep all the common facilities free and clear of any obstructions
created or permitted by Tenant or resulting from Tenant's operations. Tenant
shall not use the common areas of the Building or the Project, including,
without limitation, the Building's electrical room, parking lot or trash
enclosures, for storage purposes. Nothing herein shall affect the right of
Landlord at any time to remove any persons not authorized to use the common
facilities from such facilities or to prevent the use of such facilities by
unauthorized persons.
(b) Changes in Common Facilities. Landlord reserves the right, at any time
and from time to time to (i) make alterations in or additions to the common
areas or facilities of the Project, including, without limitation, constructing
new buildings or changing the location, size, shape or number of the driveways,
entrances, parking spaces, parking areas, loading and unloading areas, landscape
areas and walkways, (ii) designate property to be included in or eliminate
property from the common areas or facilities of the Project, (iii) close
temporarily any of the common areas or facilities of the Project for maintenance
purposes, and (4) use the common areas and facilities of the Project while
engaged in making alterations in or additions and repairs to the Project;
provided, however, that reasonable access to the Premises and parking at or near
the Project remains available.
(c) Parking. Tenant shall have the right to use the number of parking
spaces indicated on Item 14 of the Basic Lease Provisions on an unassigned basis
on that portion of the Project designated by Landlord from time to time for
parking. The parking spaces shall be used for parking only by vehicles no larger
than full-sized passenger automobiles or pick-up trucks, and, except as provided
in the following sentence, Tenant shall park no vehicles at the Project
overnight. Tenant's employees may park at the Project overnight when such
employees are working, and Tenant shall have the right to store one
company-owned vehicle at the Project overnight. Landlord shall have the right to
impose rules and regulations on parking at the Project. Landlord shall also have
the right, in addition to all other rights and remedies that it may have under
this Lease, to remove or tow away a vehicle which is in violation of Landlord's
rules, without prior notice to Tenant, and Tenant shall pay the cost thereof to
Landlord within ten (10) days after notice from Landlord to Tenant. Upon any
sale by Landlord of any building located at the Project, Landlord shall have the
right to alter the parking area.
SIGNAGE
PARAGRAPH 32
Tenant shall not install any signage within the Project, the Building or
the Premises without obtaining the prior written approval of Landlord, and
Tenant shall be responsible for the maintenance of any such signage installed by
Tenant. Any such signage shall comply with Landlord's current Project signage
criteria and all applicable governmental requirements.
SUCCESSORS AND ASSIGNS
PARAGRAPH 33
Except as otherwise provided in this Lease, and subject to the terms of
Paragraph 15 above, all of the covenants, conditions, and provisions of this
Lease shall be binding upon and shall inure to the benefit of the parties hereto
and their respective heirs, personal representatives, successors, and assigns.
BROKERS
PARAGRAPH 34
Tenant warrants that it has had no dealings with any real estate broker or
agent in connection with the negotiation of this Lease, excepting only the
broker named in Item 12 of the Basic Lease Provisions as the "Cooperating
Broker", and that it knows of no other real estate broker or agent who is or
might be entitled to a commission or finder's or similar fee in connection with
this Lease. Tenant agrees to indemnify, protect, defend and hold Landlord
harmless from and against any and all costs, expenses and liabilities for any
compensation claimed by any such broker in excess of the maximum commission
previously disclosed in writing to Landlord or claimed by any other broker,
finder or agent in connection with the negotiation of this Lease other than
brokers claiming solely through Landlord.
NAME
PARAGRAPH 35
Tenant shall not, without the prior written consent of Landlord, use the
name of the Building or the Project for any purpose other than as the address of
the business to be conducted by Tenant in the Premises and in no event shall
Tenant acquire any rights in or to such names.
EXAMINATION OF LEASE
PARAGRAPH 36
Submission of this Lease for examination or signature by Tenant does not
constitute a reservation of or option for lease, and it is not effective as a
lease or otherwise until execution by and delivery to both Landlord and Tenant.
INTEREST ON TENANT'S OBLIGATIONS; LATE CHARGE
PARAGRAPH 37
(a) Any amount due from Tenant to Landlord which is not paid when due shall
bear interest at the lesser of eighteen percent (18%) per annum or the maximum
rate then permitted by law in this context from the date such payment is due
until paid. The rate so determined shall continue in effect following any
default by Tenant pursuant to this Lease. Payment of such interest shall not
excuse or cure any default by Tenant under this Lease.
(b) In the event Landlord does not receive any installment of rent due
under this Lease on the date such installment is due, Tenant shall pay Landlord
a late charge equal to five percent (5%) of the delinquent installment of rent.
The parties agree that the amount of such late charge represents a reasonable
estimate of the cost and expense that will be incurred by Landlord in processing
each delinquent payment of rent by Tenant and that such late charge shall be
paid to Landlord as liquidated damages for each delinquent payment pursuant to
Section 1671 of the California Civil Code. The parties further agree that the
payment of late charges and the payment of interest provided for in
Paragraph 36(a) above are distinct and separate from one another in that the
payment of interest is to compensate Landlord for its inability to use the money
improperly withheld by Tenant, while the payment of late charges is to
compensate Landlord for its additional administrative expenses in handling and
processing delinquent payments.
TIME
PARAGRAPH 38
Time is and shall be of the essence of this Lease and each and
all of its provisions.
DEFINED TERMS AND MARGINAL HEADINGS
PARAGRAPH 39
The words "Landlord" and "Tenant" as used herein shall include the plural
as well as the singular. If more than one person is named as Tenant under this
Lease, the obligations of such persons shall be joint and several. Whenever
under the provisions of this Lease Landlord is required or agrees to take
certain action, Landlord's obligation to do so shall be deemed fulfilled if
Landlord causes such action to be taken by any other person. The marginal
headings and titles to the Paragraphs and other divisions of this Lease are not
a part of this Lease and shall have no effect upon the construction or
interpretation of any part hereof.
PRIOR AGREEMENTS; SEVERABILITY
PARAGRAPH 40
This Lease, including all of the Addenda and Exhibits attached hereto,
contains all of the agreements of the parties hereto with respect to any matter
covered or mentioned in this Lease, and no prior agreement, understanding or
representation pertaining to any such matter shall be effective for any purpose.
No provision of this Lease may be amended or added to except by an agreement in
writing signed by the parties hereto or their respective successors in interest.
If any term or provision of this Lease the deletion of which would not adversely
affect the receipt of any material benefit by either party hereunder shall be
held invalid or unenforceable to any extent, the remainder of this Lease shall
not be affected thereby and each term and provision of this Lease shall be valid
and enforceable to the fullest extent permitted by law.
CORPORATE AUTHORITY
PARAGRAPH 41
Each individual executing this Lease on behalf of Landlord and Tenant
represents and warrants that (a) such individual has full power and authority to
execute this Lease on behalf of its party, and (b) the execution and delivery of
this Lease have been duly authorized by such party. If Tenant is a corporation
Tenant shall, within ten (10) days after execution of this Lease, deliver to
Landlord a certified copy of a resolution of the Board of Directors of Tenant
authorizing or ratifying the execution of this Lease.
NO LIGHT, AIR OR VIEW EASEMENTS
PARAGRAPH 42
Any diminution or shutting off of light, air or view by any structure which
may be erected on lands adjacent to the Building or the Project shall in no way
affect this Lease or impose any liability on Landlord.
LANDLORD'S APPROVALS
PARAGRAPH 43
In no event shall the review, approval, inspection or examination by
Landlord of any item to be reviewed, approved, inspected or examined by Landlord
under the terms of this Lease be deemed to be an approval of or representation
or warranty as to the adequacy, accuracy, sufficiency or soundness of any such
item or the quality or suitability of such item for its intended use. Any such
review, approval, inspection or examination by Landlord shall be for the sole
purpose of protecting Landlord's interests in the Building and the Project and
under this Lease and no third parties shall have any rights pursuant thereto.
EXERCISE FACILITY
PARAGRAPH 44
Tenant agrees to inform all employees of Tenant of the following: (i) the
exercise facility is available for the use of the employees of tenants of the
Project only and for no other person; (ii) use of the facility is at the risk of
Tenant or Tenant's employees, and all users must sign a release; (iii) the
facility is unsupervised; and (iv) users of the facility must report any needed
equipment maintenance or any unsafe conditions to the Landlord immediately.
Landlord may discontinue providing such facility at Landlord's sole option at
any time without incurring any liability. As a condition to the use of the
exercise facility, Tenant and each of Tenant's employees that uses the exercise
facility shall first sign a written release in form and substance acceptable to
Landlord. Landlord may change the rules and/or hours of the exercise facility at
any time, and Landlord reserves the right to deny access to the exercise
facility to anyone due to misuse of the facility or noncompliance with rules and
regulations of the facility. Tenant will indemnify, defend and hold harmless
Landlord from any claims, liabilities or damages resulting from use of the
exercise facility in the Project by Tenant, Tenant's employees or invitees.
MISCELLANEOUS
PARAGRAPH 45
(a) At the expiration or earlier termination of this Lease, Tenant shall
execute, acknowledge and deliver to Landlord, within five (5) days after written
demand from Landlord to Tenant, any quitclaim deed or other document as may be
reasonably requested by any title insurance company to remove this Lease as a
matter affecting title to the Premises.
(b) Tenant acknowledges that the liability of Landlord with respect to its
obligations pursuant to this Lease is limited to Landlord's equity interest in
the Building. Tenant shall look solely to Landlord's equity interest in the
Building to satisfy any claim or judgment against or any liability or obligation
of Landlord to Tenant. No recourse shall be had by Tenant against Landlord or
the assets of Landlord (other than the equity interest of Landlord in the
Building) to satisfy any claim or judgment of Tenant against Landlord or any
obligation or liability of Landlord to Tenant.
WAIVER OF JURY TRIAL
PARAGRAPH 46
Landlord and Tenant (including any assignee, successor or personal
representative of such party) HEREBY WAIVE THEIR RESPECTIVE RIGHT TO TRIAL BY
JURY of any cause of action, claim, counterclaim or cross-complaint in any
action, proceeding and/or hearing brought by either Landlord against Tenant or
Tenant against Landlord on any matter whatsoever arising out of, or in any way
connected with, this Lease, the relationship of Landlord and Tenant, Tenant's
use or occupancy of the Premises, or any claim of injury or damage, or the
enforcement of any remedy under any law, statute, or regulation, emergency or
otherwise, now or hereafter in effect. Neither party will seek to consolidate
any such action in which a jury has been waived, with any other action in which
a jury trial cannot or has not been waived. THE PROVISIONS OF THIS PARAGRAPH
HAVE BEEN FULLY DISCUSSED BY THE PARTIES HERETO, AND EACH PARTY HAS RECEIVED THE
ADVICE OF COUNSEL WITH RESPECT TO SUCH WAIVER. IT IS THE INTENTION OF THE
PARTIES THAT THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. BY EXECUTING
THIS LEASE, LANDLORD AND TENANT AGREE THAT THIS PROVISION MAY BE FILED BY ANY
PARTY HERETO WITH THE CLERK OR JUDGE BEFORE WHOM ANY ACTION IS INSTITUTED, WHICH
FILING SHALL CONSTITUTE THE WRITTEN CONSENT TO A WAIVER OF JURY TRIAL REQUIRED
PURSUANT TO AND IN ACCORDANCE WITH SECTION 631 OF THE CALIFORNIA CODE OF CIVIL
PROCEDURE. NO PARTY HAS IN ANY WAY AGREED WITH OR REPRESENTED TO ANY OTHER PARTY
THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.
OPTION TO EXTEND
PARAGRAPH 47
(a) Landlord hereby grants to Tenant one (1) option (the "Option") to
extend the initial five-year Term (the "Initial Term") for an additional five
(5) years (the "Option Term"), but only in strict accordance with the terms and
conditions set forth below:
(1) The Option must be exercised, if at all, by written notice to Landlord
at least nine (9) and not more than twelve (12) months prior to the Expiration
Date of the Initial Term. All of the terms and conditions of the Lease
applicable as of such Expiration Date shall continue to apply during the Option
Term, except that the Basic Annual Rent during the Option Term shall be the
greater of (i) the Prevailing Market Rental as of the date of the Landlord's
Notice (both as defined below), or (ii) the Basic Annual Rent in effect
immediately prior to the Expiration Date of the Initial Term.
(2) The "Prevailing Market Rental" shall mean and include all rental and
other monetary payments, together with all escalations, including, without
limitation, consumer price indexing, which the Landlord could obtain from a
third party desiring to lease the Premises for the Option Term, taking into
account the age of the Building, the size, location and floor level of the
Premises, the quality of construction of the Building and the Premises, the
services provided under the terms of the Lease, the rental then being obtained
for new leases of space comparable to the Premises in the San Mateo County area
and all other factors that would be relevant to such third party; provided,
however, that Prevailing Market Rental shall be stated net of any free rent
concessions included in such market rental and no allowance or credit for the
construction of tenant improvements (or reduction in rental as a result of the
absence of such allowance or credit) shall be taken into account in determining
Prevailing Market Rental.
(3) In the event Tenant exercises the Option, Landlord shall determine the
Prevailing Market Rental and shall use commercially reasonable efforts to notify
Tenant of the Prevailing Market Rental at least one hundred fifty (150) days
prior to the Expiration Date of the Initial Term (the "Landlord's Notice").
Within thirty (30) days following its receipt of the Landlord's Notice, Tenant
shall deliver written notice ("Tenant's Notice") to Landlord either accepting
the Prevailing Market Rental set forth in the Landlord's Notice or revoking the
Option. Failure to timely give a proper Tenant's Notice shall be conclusively
deemed to be Tenant's waiver and revocation of the Option.
(b) Upon the occurrence of any of the following events, Landlord shall have
the option, exercisable at any time prior to the commencement of the Option
Term, to terminate all of the provisions of this Paragraph 47 whereupon no prior
or subsequent exercise of the Option shall be of any force or effect:
(1) Tenant's failure to timely exercise the Option in strict accordance
with Paragraph 47(a)(1) above or to timely deliver a proper Tenant's Notice in
strict accordance with Paragraph 47(a)(3) above.
(2) The existence at the time Tenant exercises the Option or as of the
commencement of the Option Term of any default on the part of Tenant under the
Lease or of any state of facts which with the passage of time or the giving of
notice, or both, would constitute such a default.
(3) Tenant's third default under the Lease prior to the commencement of the
Option Term, notwithstanding that all such defaults may subsequently be cured.
(4) Tenant's assignment or subleasing of all or any portion of the
Premises.
(c) The Option is personal to Telegen Corporation, a California
corporation, and any Affiliate (as defined below), and may not be exercised by,
and shall not be transferable to, any other person or entity. As used herein,
"Affiliate" shall mean an entity in which Telegen Corporation has not less than
a fifty-one percent (51%) interest.
(d) Without limiting the generality of Paragraph 38 of the Lease, time
shall be of the essence with respect to all of the provisions of this Paragraph
47.
EXHIBIT A
SITE PLAN OF PROJECT
Exhibit A - Page 1
EXHIBIT B
SITE PLAN OF PREMISES
Exhibit B - Page 1
EXHIBIT C
CONFIRMATION OF LEASE TERM
THIS MEMORANDUM is made on ____________________, 19___, between
_____________________________________ ("Landlord"), and
_____________________________________ ("Tenant"), who entered into a lease dated
for reference purposes as of ________________, 19___, covering certain premises
located at Seaport Centre, Redwood City, California, which premises are commonly
known as ________________, California. All capitalized terms, if not defined
herein, shall be defined as they are defined in the Lease.
1. The parties to this Memorandum hereby agree that the date of
_________________, 19___ is the "Commencement Date" of the Term and that
_______________, 19___ is the "Expiration Date" of the Term.
2. Tenant hereby confirms the following:
(a) That it has accepted possession of the Premises pursuant to the terms
of the Lease;
(b) That Landlord has fulfilled all of its duties of an inducement nature;
(c) That the Lease has not been modified, altered or amended, except as
follows:
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
(d) That there are no offsets or credits against rentals, nor has any
security deposit been paid except as provided pursuant to the terms of the
Lease; and
(e) That the Lease is in full force and effect.
Exhibit C - Page 1
EXHIBIT D
PERMITTED HAZARDOUS MATERIALS
Exhibit C - Page 2
EXHIBIT E
PLANS
Exhibit D - Page 1
TABLE OF CONTENTS
Page(s)
PARAGRAPH 1 - LEASE OF PREMISES; TERM...................................... 1
PARAGRAPH 2 - BASIC ANNUAL RENT AND RENT ADJUSTMENTS....................... 2
PARAGRAPH 3 - ADDITIONAL RENT.............................................. 3
PARAGRAPH 4 - SECURITY DEPOSIT............................................. 6
PARAGRAPH 5 - SUBSTITUTED PREMISES......................................... 7
PARAGRAPH 6 - REPAIRS...................................................... 7
PARAGRAPH 7 - IMPROVEMENTS AND ALTERATIONS................................. 8
PARAGRAPH 8 - LIENS........................................................10
PARAGRAPH 9 - USE OF PREMISES..............................................11
PARAGRAPH 10 - UTILITIES AND SERVICES.......................................14
PARAGRAPH 11 - RULES AND REGULATIONS........................................15
PARAGRAPH 12 - TAXES ON TENANT'S PROPERTY...................................15
PARAGRAPH 13 - FIRE OR CASUALTY.............................................16
PARAGRAPH 14 - EMINENT DOMAIN...............................................17
PARAGRAPH 15 - ASSIGNMENT AND SUBLETTING....................................18
PARAGRAPH 16 - ACCESS.......................................................21
PARAGRAPH 17 - SUBORDINATION; ATTORNMENT; ESTOPPEL
CERTIFICATES.................................................22
PARAGRAPH 18 - SALE BY LANDLORD.............................................23
PARAGRAPH 19 - NON-LIABILITY AND INDEMNIFICATION OF LANDLORD;
INSURANCE....................................................23
PARAGRAPH 20 - WAIVER OF SUBROGATION........................................26
PARAGRAPH 21 - ATTORNEYS' FEES..............................................27
PARAGRAPH 22 - WAIVER.......................................................28
PARAGRAPH 23 - NOTICES......................................................28
PARAGRAPH 24 - INSOLVENCY OR BANKRUPTCY.....................................30
PARAGRAPH 25 - DEFAULT......................................................30
PARAGRAPH 26 - HOLDING OVER.................................................33
PARAGRAPH 27 - CONDITION OF PREMISES........................................33
PARAGRAPH 28 - QUIET POSSESSION.............................................34
PARAGRAPH 29 - NOTICE OF DAMAGE.............................................34
PARAGRAPH 30 - GOVERNING LAW................................................34
PARAGRAPH 31 - COMMON FACILITIES; PARKING...................................34
PARAGRAPH 32 - SIGNAGE......................................................35
PARAGRAPH 33 - SUCCESSORS AND ASSIGNS.......................................36
PARAGRAPH 34 - BROKERS......................................................36
PARAGRAPH 35 - NAME.........................................................36
PARAGRAPH 36 - EXAMINATION OF LEASE.........................................36
PARAGRAPH 37 - INTEREST ON TENANT'S OBLIGATIONS;
LATE CHARGE..................................................37
PARAGRAPH 38 - TIME.........................................................37
PARAGRAPH 39 - DEFINED TERMS AND MARGINAL HEADINGS..........................37
PARAGRAPH 40 - PRIOR AGREEMENTS; SEVERABILITY...............................38
PARAGRAPH 41 - CORPORATE AUTHORITY..........................................38
PARAGRAPH 42 - NO LIGHT, AIR OR VIEW EASEMENTS..............................38
PARAGRAPH 43 - LANDLORD'S APPROVALS.........................................39
PARAGRAPH 44 - EXERCISE FACILITY............................................39
PARAGRAPH 45 - MISCELLANEOUS................................................39
PARAGRAPH 46 - WAIVER OF JURY TRIAL.........................................40
PARAGRAPH 47 - OPTION TO EXTEND.............................................40
CONSTRUCTION ADDENDUM
EXHIBIT A Site Plan of Project
EXHIBIT B Site Plan of Premises
EXHIBIT C Confirmation of Lease Term
EXHIBIT D Permitted Hazardous Materials
EXHIBIT E Plans
<PAGE>
SOLAR ENERGY RESEARCH CORP.
REGISTRATION STATEMENT ON FORM S-4
Exhibit 11 - Statements Re: Computation of Earnings Per Share
TELEGEN CORPORATION
COMPUTATION OF EARNINGS PER SHARE
For the Year For the Six
Ended Months Ended
December 31, June 30,
1995 1996
---- ----
Net Loss $ (2,517,926) $ (1,446,952)
============= =============
Weighted average number
of common shares outstanding 2,652,718 3,941,693
Loss per common share $ (0.95) $ (0.37)
============= =============
TELEGEN CORPORATION (NEWCO)
COMPUTATION OF PRO FORMA EARNINGS PER SHARE
For the Year For the Six
Ended Months Ended
December 31, June 30,
1995 1996
---- ----
Pro Forma Net Loss $ (2,519,482) $ (1,447,854)
============= =============
Telegen weighted average number
of common shares outstanding 2,652,718 3,941,693
SERC post reverse split weighted
average common shares outstanding 147,686 184,037
------------- -------------
Total weighted average common
shares outstanding 2,800,404 4,125,730
------------- -------------
Pro Forma Loss per common share $ (0.90) $ (0.35)
============= =============
Pro Forma loss per share amounts for the year ended December 31, 1995 and
the six months ended June 30, 1996 as reported in the Pro Forma Condensed
Statement of Operations were based on the weighted average number of common
shares outstanding for the respective periods.
The computation of earnings per share for Solar Energy Research Corp.
("SERC") can be clearly determined from the SERC financial statements included
in this Registration Statement on Form S-4.
<PAGE>
SOLAR ENERGY RESEARCH CORP.
REGISTRATION STATEMENT ON FORM S-4
Exhibit 21 - Subsidiaries of the Small Business Issuer
The subsidiaries of Solar Energy Research Corp., a Colorado corporation, are as
follows:
1. Telegen Acquisition Corporation, a California corporation
2. Solar Energy Research Corp. of California, a California corporation
The subsidiaries of Telegen Corporation, a California corporation, are as
follows:
1. Telegen Display Laboratories, Inc., a California corporation
<PAGE>
SOLAR ENERGY RESEARCH CORP.
REGISTRATION STATEMENT ON FORM S-4
Exhibit 23 - Consent of Experts and Counsel
CONSENT OF INDEPENDENT ACCOUNTANTS
Solar Energy Research Corp.
615 N. Main Street, Suite 678
Longmont, Colorado 80501
We hereby consent to the use and the inclusion of our report dated January
22, 1996, in this Form S-4 Registration Statement, and to the reference to us
under the heading "Experts" in such Prospectus.
Cordovano and Company, P.C.
Certified Public Accountants
Denver, Colorado
August 20, 1996
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this registration statement on Amendment No.
2 to Form S-4 (File No. 333-4037) of our report dated April 19, 1996, on our
audits of the financial statements of Telegen Corporation. We also consent to
the reference to our firm under the caption "Experts."
Coopers & Lybrand, L.L.P.
August 20, 1996
Sacramento, California
<PAGE>
See Exhibit 5 for Consent of Counsel
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 5
<CIK> 0000906448
<NAME> Solar Energy Research Corp.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1.000
<CASH> 633
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
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<CURRENT-ASSETS> 40,633
<PP&E> 0
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<TOTAL-ASSETS> 41,548
<CURRENT-LIABILITIES> 26,796
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0
0
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