<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 31, 1996
TELEGEN CORPORATION
(Exact name of registrant as specified in its charter)
California 14836 84-067214
- ---------------------------- ---------------- -------------------
(State or other jurisdiction (Commission File (I.R.S. Employer
of incorporation) Number) Identification No.)
101 Saginaw Drive
Redwood City, California 94063
(Address of principal executive offices)
(415) 261-9400
(Registrant's telephone number, including area code)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
------------------------------------
Acquisition of Morning Star Multimedia, Inc.
--------------------------------------------
On December 31, 1996, Telegen Corporation, a California corporation (the
"Registrant"), completed the acquisition (the "Acquisition") of Morning Star
Multimedia, Inc., a New Jersey corporation ("MSM"). The acquisition of MSM was
accomplished pursuant to an Agreement and Plan of Reorganization and Merger
dated December 30, 1996 (the "Agreement") among the Registrant, Morning Star
Acquisition Corporation, a New Jersey corporation a wholly owned subsidiary of
the Registrant, MSM, Daniel J. Kitchen, Kevin Mitchell and Dennis P. Huzey
(Messrs. Kitchen, Mitchell and Huzey are hereinafter collectively referred to as
the "MSM Shareholders").
The purchase price for MSM consisted of an aggregate of 133,333 shares of
the Registrant's common stock which were issued to the MSM Shareholders.
Pursuant to the Agreement, each of the MSM Shareholders executed an
Employment Agreement with the Registrant. Mr. Kitchen is the brother of Jessica
Stevens, President of Registrant.
Prior to the Acquisition, MSM utilized its assets for multimedia software
development. Following the Acquisition, the Registrant intends to use such
assets for the same purposes.
The acquisition of MSM is intended to be a tax-free reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended. The
acquisition of MSM was initially intended to be treated as a pooling for
financial accounting purposes.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(a) Financial Statements of Businesses Acquired.
It is impractical to provide Audited Financial Statements of MSM at
this time. The Registrant will file the required financial information within 60
days of this Report.
(b) Pro Forma Financial Information.
It is also impractical to provide the required pro forma financial
information at this time. The Registrant will file the required financial
information within 60 days of this Report.
(c) Exhibits:
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1.2 Certificate of Merger
2.1 Agreement and Plan of Reorganization and Merger among the
Registrant, Morning Star Acquisition Corporation, a New
Jersey corporation, MSM and the MSM Shareholders.
The Disclosure Schedules which have been omitted contain
general information and specific exceptions to the
representations and warranties made by MSM. Registrant
hereby agrees to furnish supplementally the Commission a
copy of the MSM Disclosure Schedule upon request.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TELEGEN CORPORATION
Dated: January 15, 1997 By: /s/ Warren M. Dillard
-------------------------
Warren M. Dillard,
Chief Financial Officer
<PAGE>
EXHIBIT 1.2
CERTIFICATE OF MERGER
OF
MORNING STAR MULTIMEDIA, INC.
(SURVIVING CORPORATION)
AND
MORNING STAR ACQUISITION CORPORATION
(MERGED CORPORATION)
(PURSUANT TO N.J.S. 14A:10-4.1)
DATED: DECEMBER , 1996
The undersigned corporations, having adopted an Agreement and Plan of
Reorganization and Merger pursuant to N.J.S. 14A:10-1, which Agreement and Plan
of Merger provides for the merger (the "Merger") of Morning Star Acquisition
Corporation, a New Jersey corporation, with and into Morning Star Multimedia,
Inc., a New Jersey corporation, hereby certify as follows:
1. The name of the surviving corporation is MORNING STAR MULTIMEDIA, INC.
("Morning Star"). The name of the merged corporation is MORNING STAR ACQUISITION
CORPORATION ("Acquisition").
2. The Agreement and Plan of Reorganization and Merger, pursuant to which
the Merger will be effected, is attached hereto as Exhibit A (the "Agreement").
3. The Agreement was approved by the shareholders of Morning Star on
December 27, 1996.
4. The number of shares of common stock of Morning Star entitled to vote
on the Agreement was 100. Approval of the Agreement by the shareholders of
Morning Star was given without a meeting by written consent pursuant to N.J.S.
14A:5-6. The number of shares represented by the consent was 100.
5. The Agreement was approved by the sole shareholder of Acquisition on
December 27, 1996.
6. The number of shares of common stock of Acquisition entitled to vote on
the Agreement was 100. Approval of the Agreement by the sole shareholder of
Acquisition was given without a meeting by written consent pursuant to N.J.S.
14A:5-6. The number of shares represented by the consent was 100.
<PAGE>
IN WITNESS WHEREOF, each of the undersigned corporations has caused this
Certificate of Merger to be executed on its behalf by its duly authorized
officer as of the date first written above.
MORNING STAR MULTIMEDIA, INC.
By: /s/ DANIEL J. KITCHEN
-------------------------------
Name: Daniel J. Kitchen
Title: President
MORNING STAR ACQUISITION CORPORATION
By: /s/ JESSICA L. STEVENS
-------------------------------
Name: Jessica L. Stevens
Title: President
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<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
Among
TELEGEN CORPORATION
MORNING STAR ACQUISITION CORPORATION
MORNING STAR MULTIMEDIA, INC.
DANIEL J. KITCHEN
KEVIN C. MITCHELL
And
DENNIS P. HUZEY
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TABLE OF CONTENTS
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<S> <C>
ARTICLE I THE MERGER................................................... 1
1.1 Merger; Effective Time of the Merger............................ 1
1.2 Closing......................................................... 1
1.3 Effects of the Merger........................................... 1
1.4 Tax-Free Reorganization; Pooling of Interests................... 1
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES; SUPPLEMENTARY ACTION.......... 2
2.1 Effect on Capital Stock......................................... 2
2.2 Supplementary Action............................................ 2
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS AND MSM....... 3
3.1 Stock Ownership; Residence...................................... 3
3.2 Organization, Standing and Power................................ 5
3.3 Capital Structure............................................... 6
3.4 Authority....................................................... 6
3.5 Financial Statements............................................ 7
3.6 Compliance with Law............................................. 7
3.7 No Defaults..................................................... 8
3.8 Litigation...................................................... 8
3.9 Conduct in the Ordinary Course.................................. 8
3.10 Absence of Undisclosed Liabilities.............................. 9
3.11 Certain Agreements.............................................. 10
3.12 Plans........................................................... 10
3.13 Major Contracts................................................. 10
3.14 Taxes........................................................... 12
3.15 Intellectual Property........................................... 14
3.16 Interests of Officers........................................... 15
3.17 Employee Agreements............................................. 15
3.18 Restrictions on Business Activities............................. 16
3.19 Title to Properties; Absence of Liens and Encumbrances;
Condition of Equipment.......................................... 16
3.20 Governmental Authorizations and Licenses........................ 16
3.21 Environmental and Safety Laws................................... 16
3.22 Insurance....................................................... 17
3.23 Labor Matters................................................... 17
3.24 Customers; Backlog; Returns and Complaints...................... 17
3.25 Employees....................................................... 17
3.26 Questionable Payments........................................... 17
3.27 Disclosure...................................................... 18
3.28 Minute Books.................................................... 18
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TABLE OF CONTENTS
(CONTINUED)
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3.29 Third-Party Consents............................................. 18
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF TELEGEN AND SUB............. 18
4.1 Organization; Standing and Power................................. 18
4.2 Capital Structure................................................ 19
4.3 Authority........................................................ 19
4.4 Telegen Financial Statements..................................... 20
4.5 Reports.......................................................... 20
4.6 Litigation....................................................... 21
4.7 Compliance with Law.............................................. 21
4.8 No Defaults...................................................... 21
4.9 Absence of Undisclosed Liabilities............................... 21
4.10 Major Contracts.................................................. 22
4.11 Intellectual Property............................................ 22
4.12 Restrictions on Business Activities.............................. 22
4.13 Governmental Authorizations and Licenses......................... 22
4.14 Disclosure....................................................... 23
4.15 Declaration of Effectiveness of Registration Statement........... 23
4.16 Taxes............................................................ 23
ARTICLE V CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE TIME; ADDITIONAL
AGREEMENTS..................................................... 24
5.1 Conduct of Business of MSM....................................... 24
5.2 Telegen Conduct.................................................. 27
5.3 Access to Information; Provision of Interim Financial Statements. 27
5.4 Exclusivity; Acquisition Proposals............................... 28
5.5 Breach of Representations, Warranties and Covenants.............. 28
5.6 Consents......................................................... 29
5.7 All Commercially Reasonable Efforts.............................. 29
5.8 Legal Conditions to the Merger................................... 29
5.9 Brokers or Finders; Professional Fees............................ 30
5.10 Public Announcements............................................. 30
5.11 Affiliates Agreements............................................ 30
5.12 Expenses......................................................... 30
5.13 Issuance of Shares............................................... 30
5.14 Registration Rights.............................................. 30
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TABLE OF CONTENTS
(CONTINUED)
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ARTICLE VI CONDITIONS PRECEDENT........................................ 32
6.1 Conditions to Each Party's Obligation to Effect the Merger.... 32
6.2 Conditions of Obligations of Telegen and Sub.................. 33
6.3 Conditions of Obligation of MSM............................... 34
ARTICLE VII INDEMNIFICATION AND CONTRIBUTION............................ 35
7.1 Indemnification Obligation.................................... 35
7.2 Limitations on Indemnity...................................... 35
7.3 Sole and Exclusive Remedy; Waiver............................. 36
7.4 Procedures of Third Party Claims.............................. 36
7.5 Procedures for Inter-Party Claims............................. 37
ARTICLE VIII TERMINATION................................................. 37
8.1 Termination................................................... 37
ARTICLE IX POST-CLOSING COVENANTS AND GENERAL PROVISIONS............... 38
9.1 Survival of Representations, Warranties and Agreements........ 38
9.2 Amendment..................................................... 38
9.3 Extension; Waiver............................................. 38
9.4 Notices....................................................... 38
9.5 Interpretation................................................ 39
9.6 Counterparts.................................................. 40
9.7 Entire Agreement.............................................. 40
9.8 No Transfer................................................... 40
9.9 Severability.................................................. 40
9.10 Other Remedies................................................ 40
9.11 Further Assurances............................................ 40
9.12 Absence of Third-Party Beneficiary Rights..................... 40
9.13 Mutual Drafting............................................... 41
9.14 Governing Law................................................. 41
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EXHIBITS
<S> <C>
1.2 Certificate of Merger
5.11 Form of Affiliates Agreement
5.14 Indemnification and Contribution with respect to the Registrable
Shares
6.2(i) Form of Employment Agreement
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
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SCHEDULES
MSM Disclosure Schedule
Telegen Disclosure Schedule
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER, dated as of December 31,
1996, among TELEGEN CORPORATION, a California corporation ("Telegen"), MORNING
STAR ACQUISITION CORPORATION, a New Jersey corporation and a wholly-owned
subsidiary of Telegen ("Sub"), MORNING STAR MULTIMEDIA, INC., a New Jersey
corporation ("MSM"), Daniel J. Kitchen, Kevin C. Mitchell and Dennis P. Huzey
(Messrs. Kitchen, Mitchell and Huzey are hereinafter referred to individually as
"Shareholder" and collectively as "Shareholders").
INTENDING TO BE LEGALLY BOUND, and in consideration of the premises and
mutual covenants and agreements contained herein, Telegen, Sub, the Shareholders
and MSM hereby agree as follows:
ARTICLE I
THE MERGER
1.1 MERGER; EFFECTIVE TIME OF THE MERGER. Subject to the terms and
------------------------------------
conditions of this Agreement and Plan of Reorganization and Merger (this
"Agreement") Sub will be merged with and into MSM (the "Merger") in accordance
with the New Jersey Business Corporation Act (the "NJBCA").
Subject to the provisions of this Agreement, the Certificate of Merger
shall be filed in accordance with the NJBCA on the Closing Date (as defined in
SECTION 1.2). The Merger shall become effective upon such filing of the
Certificate of Merger (the date of such filing being hereinafter referred to as
the "Effective Date of the Merger" and the time of confirmation of such filing
being hereinafter referred to as the "Effective Time of the Merger").
1.2 CLOSING. The closing of the Merger (the "Closing") will take place (i)
-------
at the offices of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo
Alto, California, at 2:00 p.m., prevailing time on December ___, 1996, or (ii)
such other place and time and/or on such other date as Telegen and the
Shareholders may agree (the "Closing Date").
1.3 EFFECTS OF THE MERGER. At the Effective Time of the Merger, (a) the
---------------------
separate existence of Sub shall cease and Sub shall be merged with and into MSM
(Sub and MSM are sometimes referred to herein as the "Constituent Corporations"
and MSM after the Merger is sometimes referred to herein as the "Surviving
Corporation"), (b) the Certificate of Incorporation of MSM shall be the
Certificate of Incorporation of the Surviving Corporation, (c) the Bylaws of MSM
shall be the Bylaws of the Surviving Corporation, (d) the directors of MSM shall
be the directors of the Surviving Corporation, (e) the officers of MSM shall
remain the officers of the Surviving Corporation; and (f) the Merger shall, from
and after the Effective Time of the Merger, have all the effects provided by
applicable law.
1.4 TAX-FREE REORGANIZATION; POOLING OF INTERESTS. The Merger is intended
---------------------------------------------
to be a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and to be accounted for as a
pooling of interests.
<PAGE>
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF
CERTIFICATES; SUPPLEMENTARY ACTION
2.1 EFFECT ON CAPITAL STOCK. As of the Effective Time of the Merger, by
-----------------------
virtue of the Merger and without any action on the part of the holder of any
shares of capital stock of MSM:
(a) Capital Stock of Sub. All issued and outstanding shares of capital
--------------------
stock of Sub shall continue to be issued and outstanding and shall be converted
into 100 shares of Common Stock of the Surviving Corporation. Each stock
certificate of Sub evidencing ownership of any such shares shall continue to
evidence ownership of such shares of capital stock of the Surviving Corporation.
(b) Capital Stock of MSM. All issued and outstanding shares of capital
--------------------
stock of MSM which are owned by the Shareholders immediately prior to the
Effective Time shall continue to be issued and outstanding and converted into
133,333 fully paid and non-assessable shares of Common Stock of Telegen
("Telegen Common Stock") (the "Consideration Shares"). Each stock certificate
of MSM evidencing ownership of such shares shall continue to evidence ownership
of such shares of capital stock of Telegen.
(c) Fractional Shares. No fractional shares of Telegen Common Stock
-----------------
shall be issued, but in lieu thereof each holder of shares of MSM capital stock
who would otherwise be entitled to receive a fraction of a share of Telegen
Common Stock shall receive from Telegen an amount of cash equal to the average
of the closing sale prices of Telegen Common Stock reported by the NASDAQ
SmallCap Market during the five (5) consecutive trading days immediately
preceding the trading day prior to the Closing Date multiplied by the fraction
of a share of Telegen Common Stock to which such holder would otherwise be
entitled. The fractional share interests of each MSM stockholder shall be
aggregated, so that no MSM stockholder shall receive cash in an amount greater
than the value of one (1) full share of Telegen Common Stock.
(d) No Further Ownership Rights in Capital Stock of MSM. All Telegen
---------------------------------------------------
Common Stock delivered upon the surrender for exchange of shares of capital
stock of MSM in accordance with the terms hereof shall be deemed to have been
delivered in full satisfaction of all rights pertaining to such shares of
capital stock of MSM. There shall be no further registration of transfers on
the stock transfer books of the Surviving Corporation of the shares of capital
stock of MSM which were outstanding immediately prior to the Effective Time of
the Merger. If, after the Effective Time of the Merger, Certificates are
presented to the Surviving Corporation for any reason, they shall be canceled
and exchanged as provided in this ARTICLE II.
2.2 SUPPLEMENTARY ACTION. If at any time after the Effective Time, any
--------------------
further assignments or assurances in law or any other things are necessary or
desirable to vest or to perfect or confirm of
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<PAGE>
record in the Surviving Corporation the title to any property or rights of
either MSM or Sub, or otherwise to carry out the provisions of this Agreement,
the officers and directors of the Surviving Corporation are hereby authorized
and empowered, in the name of and on behalf of MSM and Sub, to execute and
deliver any and all things necessary or proper to vest or to perfect or confirm
title to such property or rights in the Surviving Corporation, and otherwise to
carry out the purposes and provisions of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS AND MSM
Except as described in the MSM Disclosure Schedule referring specifically
to the representations and warranties in this Agreement which reasonably
identifies the section and subsection to which such disclosure relates and which
is delivered by MSM to Telegen and approved by Telegen prior to the execution of
this Agreement (the "MSM Disclosure Schedule"), the Shareholders, jointly and
severally, and MSM represent and warrant to Telegen and Sub that the
representations and warranties set forth below shall be true and correct, in all
material respects, as of the date hereof. As used in this Agreement, (a)
"Business Condition" with respect to MSM shall mean the financial condition,
results of operations, and assets of MSM; and (b) a disclosure or result will be
deemed "material and adverse" only if, individually or when aggregated with
other disclosures or results, it gives rise to a substantial diminution in the
value of MSM.
3.1 STOCK OWNERSHIP; RESIDENCE.
--------------------------
(a) Each Shareholder is and will be immediately prior to the Effective
Time the lawful owner, of record and beneficially, of the entire right, title
and interest in and to the number of MSM Common Shares set forth in the Company
Disclosure Schedule (in aggregate, the "MSM Shares"), free and clear of all
liens, pledges, claims, charges, encumbrances and security interests of any kind
or nature whatsoever ("Liens"), except such restrictions as may arise under
applicable federal and state securities laws and regulations.
(b) The MSM Shares are the only issued and outstanding shares of
capital stock of MSM. Other than as set forth on the MSM Disclosure Schedule,
there are no options, warrants or other rights to acquire shares of capital
stock of the Company.
(c) Each Shareholder's jurisdiction of residence is New Jersey.
(d) Each Shareholder acknowledges, represents and warrants to Telegen
as follows:
(i) As of the Effective Date, the Shareholder did not own any
shares of Telegen whatsoever.
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<PAGE>
(ii) The Shareholder understands that the shares of Telegen Common
Stock to be issued to the Shareholder in the Merger will not have been
registered under the Securities Act of 1933 (the "Securities Act"), or any state
securities law by reason of specific exemptions under the provisions thereof
which depend in part upon the other representations and warranties made by the
Shareholder in this Agreement. The Shareholder understands that Telegen is
relying upon the Shareholder's representations and warranties contained in this
SECTION 3.1 for the purpose of determining whether this transaction meets the
requirements for such exemptions.
(iii) Without limiting the Shareholder's rights pursuant to SECTION
9.1, the Shareholder has such knowledge, skill and experience in business,
financial and investment matters so that the Shareholder is capable of
evaluating the merits and risk of an investment in Telegen Common Stock pursuant
to the transactions contemplated by this Agreement. To the extent that the
Shareholder has deemed it appropriate to do so, the Shareholder has relied upon
appropriate professional advice regarding the tax, legal and financial merits
and consequences of an investment in Telegen Common Stock pursuant to the
transactions contemplated by this Agreement.
(iv) The Shareholder has made, either alone or together with the
Shareholder's advisors, such independent investigation of Telegen, its
management and related matters as the Shareholder deems to be, or such advisors
have advised to be, necessary or advisable in connection with an investment in
Telegen Common Stock through the transactions contemplated by this Agreement;
and the Shareholder and advisors have received all information and data that the
Shareholder and such advisors believe to be necessary in order to reach an
informed decision as to the advisability of an investment in Telegen Common
Stock pursuant to the transactions contemplated by this Agreement.
(v) The Shareholder has reviewed the Shareholder's financial
condition and commitments, alone and together with the Shareholder's advisors,
and, based on such review, the Shareholder is satisfied that (A) the Shareholder
has adequate means of providing for the Shareholder's financial needs and
possible contingencies and has assets or sources of income which, taken
together, are more than sufficient so that he could bear the risk of loss of the
Shareholder's entire investment in Telegen Common Stock, (B) the Shareholder has
no present or contemplated future need to dispose of all or any portion of
Telegen Common Stock to satisfy any existing or contemplated undertaking, need
or indebtedness, and (C) the Shareholder is capable of bearing the economic risk
of an investment in Telegen Common Stock for the indefinite future. The
Shareholder shall furnish any additional information requested by Telegen to
assure the compliance of this transaction with applicable federal and state
securities laws.
(vi) The Shareholder understands that the shares of Telegen Common
Stock to be received by the Founder in the transactions contemplated hereby will
be "restricted securities" under applicable federal securities laws and that the
Securities Act and the rules of the Commission promulgated thereunder provide in
substance that the Shareholder may dispose of such shares only pursuant to an
effective registration statement under the Securities Act or an exemption from
registration if available. The Shareholder further understands that, except as
provided in SECTION 5.14 of this Agreement, Telegen has no obligation or
intention to register the sale of any of the shares of Telegen Common Stock to
be
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received by the Shareholder in the transactions contemplated hereby, or take
any other action so as to permit sales pursuant to, the Securities Act.
Accordingly, except as provided in SECTION 5.14, the Shareholder understands
that the Shareholder may dispose of such shares only in transactions which are
of a type exempt from registration under the Securities Act, including (without
limitation) a "private placement," in which event the transferee will acquire
such shares as "restricted securities" and subject to the same limitations as in
the hands of the Shareholder. The Shareholder further understands that
applicable state securities laws may impose additional constraints upon the sale
of securities. As a consequence, the Shareholder understands that, except as
provided in SECTION 5.14, the Shareholder may have to bear the economic risks of
an investment in Telegen Common Stock to be received by the Shareholder pursuant
to the transactions contemplated hereby for an indefinite period of time.
(vii) The Shareholder is acquiring shares of Telegen Common Stock
pursuant to the transactions contemplated hereby for investment only and not
with a view to or intention of or in connection with any resale or distribution
of such shares or any interest therein in violation of the Securities Act.
(viii) The certificate(s) evidencing the shares of Telegen Common
Stock to be issued pursuant to the transactions contemplated hereby shall bear
the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or any
state securities laws and may not be sold or transferred in the
absence of such registration or an exemption therefrom under the
Securities Act of 1933, as amended, and applicable state
securities laws."
3.2 ORGANIZATION, STANDING AND POWER. MSM is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of its state of
incorporation and has all requisite corporate power and authority to own,
operate and lease its properties and to carry on its business as now being
conducted. MSM is duly qualified as a foreign corporation and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on MSM's Business Condition. Other than those
Subsidiaries identified in the MSM Disclosure Schedule, MSM has no Subsidiaries
or affiliated companies and does not otherwise own or control, directly or
indirectly, any equity interest in any corporation, association or business
entity. In this Agreement, a "Subsidiary" means (a) any corporation more than
fifty percent (50%) of whose outstanding voting securities are, or any
partnership, joint venture or other entity more than fifty percent (50%) of
whose total equity interest is, directly or indirectly, owned by MSM and (b)
which, in addition, is material to MSM based on its assets, revenues or profits.
No entity that would otherwise be deemed a subsidiary of MSM shall be included
in the defined term "Subsidiary" unless it is material to MSM. The MSM
Disclosure Schedule sets forth a true and complete list of the states and
foreign countries where MSM is qualified as a foreign corporation. MSM has no
direct or indirect equity interest in or loans to any partnership, corporation,
joint venture, business association or other entity. MSM has delivered to
Telegen complete and correct copies of the Certificate of Incorporation and
Bylaws of MSM and each of its Subsidiaries, if any, in each case as amended to
the date hereof, and has delivered or made available minutes of all of
directors' and
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stockholders' meetings, and stock certificate books of MSM, which correctly set
forth the record ownership of all outstanding shares of capital stock of MSM.
3.3 CAPITAL STRUCTURE.
-----------------
(a) The authorized capital stock of MSM consists of 100,000 shares of
Common Stock, no par value. As of the date of this Agreement, there were issued
and outstanding 100 shares of MSM Common Stock. There are no outstanding shares
of MSM capital stock or any other equity securities of MSM (collectively, "MSM
Capital Stock") other than shares of MSM Common Stock as described in the
preceding sentence.
(b) All outstanding shares of MSM capital stock are duly authorized
validly issued, fully paid and nonassessable and not subject to preemptive
rights created by statute, MSM's Certificate of Incorporation or Bylaws or any
agreement to which MSM is a party or by which MSM may be bound. Except as set
forth in the MSM Disclosure Schedule, all outstanding MSM Common Stock has been
issued in compliance with applicable federal and state securities laws. There
are no options, warrants, calls, conversion rights, commitments or agreements of
any character to which MSM is a party or, to the best of MSM's knowledge, by
which MSM may be bound that do or may obligate MSM to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of MSM capital stock or
that do or may obligate MSM to grant, extend or enter into any such option,
warrant, call, conversion right, commitment or agreement.
(c) The MSM Disclosure Schedule contains a complete and accurate list
of, and the number of shares owned of record by, the holders of outstanding MSM
Common Stock.
3.4 AUTHORITY.
---------
(a) MSM has all requisite corporate power and authority to enter into
this Agreement, to perform its obligations hereunder, and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement,
the performance by MSM of its obligations hereunder and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of MSM, including approval by its Board
of Directors and stockholders. This Agreement is a legal, valid and binding
obligation of MSM enforceable against MSM in accordance with its terms, except
as enforcement may be limited by bankruptcy, insolvency, or other similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of equitable remedies is subject to the discretion of the court
before which any proceeding therefor may be brought.
(b) Subject to satisfaction of the conditions set forth in ARTICLE VI
hereto, the execution and delivery of this Agreement does not and the
consummation of the transactions contemplated hereby will not, conflict with or
result in any material violation of any material statute, law, rule, regulation,
judgment, order, decree, or ordinance applicable to MSM or its properties or
assets, or conflict with or result in any breach or default (with or without
notice or lapse of time, or both) under,
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or give rise to a right of termination, cancellation or acceleration of any
material obligation or the loss of a material benefit under, or result in the
creation of a lien or encumbrance on any of the properties or assets of MSM
pursuant to (i) any provision of the Certificate of Incorporation or Bylaws of
MSM, or (ii) any material agreement, contract, note, mortgage, indenture, lease,
instrument, permit, concession, franchise or license to which MSM is a party or
by which MSM or any of its property or assets may be bound or affected, except
for such conflicts, violations, breaches or defaults which, individually or in
the aggregate, would not result in a material adverse change in MSM's Business
Condition.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency, commission,
regulatory authority or other governmental authority or instrumentality, whether
domestic or foreign (a "Governmental Entity"), is required by or with respect to
MSM in connection with the execution and delivery of this Agreement by MSM or
the consummation by MSM of the transactions contemplated hereby, except for (i)
the filing of the Certificate of Merger with the New Jersey Secretary of State
and appropriate documents with the relevant authorities of other states in which
MSM is qualified to do business, (ii) such other consents, approvals,
authorizations, registrations or qualifications as may be required under state
securities or Blue Sky laws in connection with the Merger and (iii)
informational filings. The MSM Disclosure Schedule sets forth a list of all
states in which MSM stockholders reside.
3.5 FINANCIAL STATEMENTS. MSM has furnished to Telegen a complete and
--------------------
accurate copy of its financial statements for the period ended December 13, 1996
(the "MSM Financial Statements"). The MSM Financial Statements have been
prepared in accordance with MSM's books and records and fairly present the
financial position of MSM as at the dates thereof and MSM's results of
operations and cash flows for the periods then ended.
3.6 COMPLIANCE WITH LAW. MSM is in compliance and has conducted its
-------------------
business so as to comply with all laws, rules and regulations, judgments,
decrees or orders of any Governmental Entity applicable to its operations or
with respect to which compliance is a condition of engaging in the business
thereof, except to the extent that failure to comply, individually or in the
aggregate, has not had, and, to the best of MSM's knowledge, is not reasonably
likely to have a material adverse effect on the Business Condition of MSM.
There are no outstanding judgments or orders, injunctions, decrees, stipulations
or awards (whether rendered by a court or administrative agency or by
arbitration) against MSM or against any of its properties or businesses, and to
the best knowledge of MSM, none are pending or threatened. Without limiting the
generality of the foregoing, to the knowledge of MSM, MSM has not violated any
United States and foreign import and export control laws and regulations, export
licensing laws and regulations and customs regulations (including, without
limitation, its obligations under the Foreign Corrupt Practices Act) applicable
to MSM in any manner which would have a material adverse effect on the Business
Condition of MSM. Since its inception, MSM has not been cited by the United
States Department of Commerce, the United States Customs Service or any other
relevant Governmental Entity for any violation of United States laws or
regulations relating to importing or exporting of products, materials or
services. The MSM Disclosure Schedule includes a summary of any violation of,
or conflict with, any applicable statute, law, rule, regulation, ruling, order,
judgment or decree, including any of the foregoing relating to Environmental
Laws (as defined below) occurring to the best of MSM's knowledge,
-7-
<PAGE>
but only to the extent that if such violation had not been resolved, it would
have had a material adverse effect on MSM's Business Condition.
3.7 NO DEFAULTS. MSM is not, and it has not received notice that it is
-----------
or would be with the passage of time (x) in material violation of any provision
of its Certificate of Incorporation or Bylaws or (y) in material default or
violation of any term, condition or provision of (a) any judgment, decree,
order, injunction or stipulation applicable to MSM, or (b) any material
agreement, note, mortgage, indenture, contract, lease, instrument, permit,
concession, franchise or license to which MSM is a party or by which MSM or its
properties or assets may be bound.
3.8 LITIGATION. There is no action, suit, proceeding, claim, arbitration
----------
or investigation pending or, to the best knowledge of MSM, threatened, against
MSM, which in any manner challenges or seeks to prevent, enjoin or materially
delay any of the transactions contemplated hereby. The MSM Disclosure Schedule
sets forth, with respect to each pending action, suit, proceeding, claim,
arbitration or investigation to which MSM is a party, the forum, the parties
thereto, a brief description of the subject matter thereof and the amount of
damages claimed. MSM has not received any notice of any threat of any other
litigation which individually or in the aggregate would reasonably be expected
to have a material adverse effect on MSM's Business Condition. MSM has had no
product liability claims made against it since its inception.
3.9 CONDUCT IN THE ORDINARY COURSE. Since November 30, 1996, MSM has
------------------------------
conducted its business in the ordinary course and there has not occurred:
(a) Any material adverse change in the Business Condition of MSM;
(b) Any amendments or changes in the Certificate of Incorporation or
Bylaws of MSM;
(c) Any material damage, destruction or loss, whether covered by
insurance or not, affecting any of the material properties or businesses of MSM;
(d) Any issuance, redemption, repurchase or other acquisition by MSM
of shares of capital stock of MSM or any declaration, setting aside or payment
of any dividend or other distribution (whether in cash, stock or property) with
respect to MSM capital stock;
(e) Any increase in or modification of the compensation or benefits
payable or to become payable by MSM to any of its directors, employees or
consultants except for merit raises in the ordinary course, changes pursuant to
employment agreements currently in effect, or changes in position;
(f) Any increase in or modification of any bonus, pension, insurance
or other employee benefit plan, payment or arrangement (including, without
limitation, the granting of stock options, restricted stock awards or stock
appreciation rights) made to, for or with any of its employees;
-8-
<PAGE>
(g) Any sale of the property or assets of MSM individually in excess
of $5,000 or in the aggregate in excess of $15,000 other than inventory sales in
the ordinary course of business consistent with past practice;
(h) Any alteration in any term of any outstanding security of MSM;
(i) Any (A) incurrence, assumption or guarantee by MSM of any debt
for borrowed money other than in the ordinary course of business consistent with
past practice; (B) issuance or sale of any securities convertible into or
exchangeable for debt securities of MSM; or (C) issuance or sale of options or
other rights to acquire from MSM, directly or indirectly, debt securities of MSM
or any securities convertible into or exchangeable for any such debt securities;
(j) Any creation or assumption by MSM of any mortgage, pledge, security
interest or lien or other encumbrance on any asset (other than liens arising
under existing lease financing arrangements, liens arising in the ordinary
course of MSM's business which in the aggregate are not material and liens for
taxes not yet due and payable);
(k) Any making of any loan, advance or capital contribution to, or
investment in, any person other than advances made in the ordinary course of
business of MSM;
(l) Any entry into, amendment of, relinquishment, termination or
nonrenewal by MSM of any material contract, lease, commitment or other right or
obligation other than in the ordinary course of business consistent with past
practice;
(m) Any transfer or grant of a right under the MSM Intellectual
Property Rights (as defined in SECTION 3.17) other than those transferred or
granted in the ordinary course of business consistent with past practice;
(n) Any labor dispute, other than routine individual grievances, or
any activity or proceeding by a labor union or representative thereof to
organize any employees of MSM; or
(o) Any agreement or arrangement made by MSM to take any action
which, if taken prior to the date hereof, would have made any representation or
warranty set forth in this SECTION 3.9 untrue or incorrect as of the date when
made.
3.10 ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed or reflected
----------------------------------
in the MSM Balance Sheet (including the Notes thereto) and except for
liabilities and obligations arising after November 30, 1996 in the ordinary
course of business, MSM has no liabilities or obligations (whether absolute,
accrued or contingent, and whether or not determined or determinable) of a
character which, under generally accepted accounting principles ("GAAP") should
be accrued, shown, disclosed or indicated in a balance sheet of MSM (including
the footnotes thereto).
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<PAGE>
3.11 CERTAIN AGREEMENTS. Neither the execution and delivery of this
------------------
Agreement nor the consummation of the transactions contemplated hereby will (a)
result in any payment (including, without limitation, severance, unemployment
compensation, golden parachute, bonus or otherwise) becoming due to any director
or employee of MSM under any Plan (as defined in SECTION 3.13 below) or
otherwise, (b) materially increase any benefits otherwise payable under any
Plan, or (c) result in the acceleration of the time of payment or vesting of any
such benefits.
3.12 PLANS. All plans, programs, policies, commitments or other
-----
arrangements (whether or not set forth in a written document) maintained by or
on behalf of MSM that provide deferred or incentive compensation, stock options
or other stock purchase rights, severance or termination pay, medical, dental,
life, disability or accident benefits (whether or not insured), benefits
described in Sections 125 or 129 of the Code or pension, profit sharing or
retirement benefits to, or for the benefit of, any active, former or retired
employee or consultant of MSM or their spouses or dependents are listed in the
MSM Disclosure Schedule (collectively, the "Plans"). Any Plan intended to be
qualified under Section 401(a) of the Code has either obtained a favorable
determination letter as to its qualified status from the Internal Revenue
Service or still has a remaining period of time under applicable Treasury
Regulations or Internal Revenue Service pronouncements in which to apply for
such determination letter and to make any amendments necessary to obtain a
favorable determination. To the extent any Plan with an existing determination
letter from the Internal Revenue Service must be amended to comply with the
applicable requirements of the Tax Reform Act of 1986 and subsequent
legislation, the time period for effecting such amendments will not expire prior
to the Merger. MSM has furnished to Telegen copies of the Plans and related
Plan documents and, where applicable, will provide, as soon as practicable
hereafter, copies of the most recent Internal Revenue Service determination
letters and Forms 5500 with respect to any such Plan. No Plan is covered by
Title IV of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") or Section 412 of the Code. Neither MSM nor, to the best knowledge of
MSM, any officer or director of MSM is subject to any liability or penalty under
Sections 4975 through 4980 of the Code or Title I of ERISA in connection with
any Plan. Each Plan has been maintained and administered in all respects in
compliance with its terms and with the requirements prescribed by all statutes,
orders, rules and regulations, including but not limited to ERISA and the Code,
which are applicable to such Plan, except to the extent noncompliance would not
have a material adverse effect on the operation of such Plan. No suit,
administrative proceeding, action or other litigation (excluding claims for
benefits incurred in the ordinary course of Plan activities) has been brought,
or to the best knowledge of MSM is threatened, against or with respect to any
such Plan, including any audit or inquiry by the IRS or United States Department
of Labor. All contributions, reserves or premium payments required to be made
or accrued as of the date hereof to the Plans have been made or accrued.
3.13 MAJOR CONTRACTS. Except as disclosed in the MSM Disclosure Schedule,
---------------
MSM is not a party to or subject to:
(a) Any union contract or any employment or consulting contract or
arrangement providing for future compensation, written or oral, with any
director or officer;
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<PAGE>
(b) Any material OEM agreement, distribution agreement, volume
purchase agreement or other similar agreement, or joint venture contract or
arrangement or any other agreement which has involved or is expected to involve
a sharing of profits with other persons;
(c) Any material lease for real or personal property;
(d) Except for trade indebtedness incurred in the ordinary course of
business, any instrument evidencing or related in any way to indebtedness
incurred in the acquisition of companies or other entities or indebtedness for
borrowed money by way of direct loan, sale of debt securities, purchase money
obligation, conditional sale, guarantee, leasehold obligations or otherwise;
(e) Any material license agreement, either as licensor or licensee
excluding those relating to commercially available software;
(f) Any contract containing covenants purporting to materially limit
the freedom of MSM to compete in any line of business in any geographic area;
(g) Any material agreement, contract or commitment relating to capital
expenditures and which involve future payments by MSM in excess of amounts
planned by MSM and disclosed to Telegen;
(h) Any material agreement, contract or commitment relating to the
disposition or acquisition by MSM of any assets (other than Inventory) or any
MSM Intellectual Property Rights;
(i) Any material agreement providing for minimum payment or resale
obligations, ongoing support or research and development obligations, or
warranty obligations on the part of MSM, except arrangements entered into in
the ordinary course of business;
(j) Any agreement for the provision of products or securities to any
Governmental Entity, except customer agreements entered into in the ordinary
course of business; or
(k) Any material agreement requiring a commitment of MSM resources or
personnel to market, distribute or license products or technology, whether on a
best-efforts basis or otherwise.
To the best of MSM's knowledge, each material agreement, contract,
mortgage, indenture, plan, lease, instrument, permit, concession, franchise,
arrangement, license and commitment to which MSM is a party or by which it is
bound (i) is valid and binding on MSM (assuming it is valid and binding on the
other parties thereto), (ii) is in full force and effect, (iii) has not, to the
best knowledge of MSM, been breached by MSM or any other party thereto, and (iv)
contains no material liquidated damages, penalty or similar provision. To the
best knowledge of MSM, no party to any such contract, agreement or instrument
has given notice to MSM that it intends to cancel, withdraw, modify or amend
such contract, agreement or arrangement.
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<PAGE>
3.14 TAXES.
-----
(a) For purposes of this Agreement, the following terms have the
following meanings: "Tax" (and, with correlative meaning, "Taxes" and "Taxable")
means any and all taxes, including, without limitation, (i) any income, profits,
alternative or add-on minimum tax, gross receipts, sales, use, value-added, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, net worth, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or assessment or charge of any kind whatsoever, together with any interest
or any penalty, addition to tax or additional amount imposed by any Governmental
Entity responsible for the imposition of any such tax (domestic or foreign) (a
"Taxing Authority"), (ii) any liability for the payment of any amounts of the
type described in clause (i) above as a result of being a member of an
affiliated, consolidated, combined or unitary group for any Taxable period or as
the result of being a transferee or successor thereof and (iii) any liability
for the payment of any amounts of the type described in clause (i) or (ii) above
as a result of any express or implied obligation to indemnify any other person.
(b) Except as disclosed on MSM's Disclosure Schedules, all Tax
returns, statements, reports and forms (including estimated Tax returns and
reports and information returns and reports) required to be filed with any
Taxing Authority with respect to any Taxable period ending on or before the
Effective Time of the Merger, by or on behalf of MSM (collectively, the "MSM
Returns"), have been or will be filed when due (including any extensions of such
due date), and all amounts shown to be due thereon on or before the Effective
Time have been or will be paid on or before such date. No material Tax
liability has been incurred since the Balance Sheet dated November 30, 1996,
other than in the ordinary course of business and adequate provision has been or
will be made for all Tax liabilities incurred since that date in accordance with
GAAP on at least a quarterly basis. All information set forth in the notes to
the MSM Financial Statements relating to Tax matters is true, complete and
accurate in all material respects.
(c) There is no claim, audit, action, suit, proceeding, or
investigation now pending or, to the best knowledge of MSM, threatened against
or with respect to MSM in respect of any Tax or assessment. There are no
liabilities for Taxes with respect to any notice of deficiency or similar
document of any Tax Authority received by MSM which have not been satisfied in
full (including liabilities for interest, additions to tax and penalties thereon
and related expenses). Neither MSM nor any person on behalf of MSM has entered
into or will enter into any agreement or consent pursuant to Section 341(f) of
the Code. There are no liens for Taxes upon the assets of MSM except liens for
current Taxes not yet due. Except as may be required as a result of the Merger,
MSM has not been and will not be required to include any adjustment in Taxable
income for any Tax period (or portion thereof) pursuant to Section 481 or 263A
of the Code or any comparable provision under state or foreign Tax laws as a
result of transactions, events or accounting methods employed prior to the
Closing.
(d) There is no contract, agreement, plan or arrangement, including,
without limitation, the provisions of this Agreement, covering any employee or
independent contractor or former employee or independent contractor of MSM that,
individually or collectively, could give rise to the
-12-
<PAGE>
payment of any amount that would not be deductible pursuant to Section 280G or
Section 162 of the Code (as determined without regard to Section 280G(b)(4)).
Other than pursuant to this Agreement, MSM is not a party to or bound by (or
will prior to the Effective Date become a party to or bound by) any tax
indemnity, tax sharing or tax allocation agreement (whether written, unwritten
or arising under operation of federal law as a result of being a member of a
group filing consolidated tax returns, under operation of certain state laws as
a result of being a member of a unitary group, or under comparable laws of other
states or foreign jurisdictions) which includes a party other than MSM. MSM has
previously provided or made available to Telegen true and correct copies of all
MSM Returns, and, as reasonably requested by Telegen, prior to or following the
date hereof, presently existing information statements, reports, work papers,
Tax opinions and memoranda and other Tax data and documents.
(e) Following the Merger, MSM will hold at least 90% of the fair
market value of its net assets, at least 70% of the fair market value of its
gross assets, and at least 90% of the fair market value of Sub's net assets and
at least 70% of the fair market value of Sub's gross assets held immediately
prior to the Merger. For purposes of this representation, amounts paid by MSM
or Sub to shareholders who receive cash, amounts used by MSM or Sub to pay
reorganization expenses, and all redemptions and distributions (except for
regular, normal dividends) made by MSM will be included as assets of MSM or Sub,
respectively, immediately prior to the Merger.
(f) MSM has no plan or intention to issue additional shares of its
stock that would result in Telegen losing control of MSM within the meaning of
Section 368(c) of the Code.
(g) At the time of the Merger, MSM will not have outstanding any
warrants, options, convertible securities or any other type of right pursuant to
which any person could acquire stock in MSM that, if exercised or converted,
would affect Telegen's acquisition or retention of control of MSM, as defined in
Section 368(c) of the Code.
(h) Neither MSM nor any Shareholder is an investment company as
defined in Sections 368(a)(2)(F)(iii) and 368(a)(2)(F)(iv) of the Code.
(i) On the date of the Merger, the fair market value of the assets of
MSM will exceed the sum of its liabilities, plus the amount of liabilities, if
any, to which the assets are subject.
(j) MSM is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
(k) MSM and MSM's shareholders will pay their respective expenses, if
any, incurred in connection with the Merger.
(l) There is no plan or intention by the Shareholders to sell,
exchange, or otherwise dispose of a number of shares of Telegen stock received
in the Merger that would reduce the Shareholders' ownership of Telegen stock to
a number of shares having a value, as of the date of the Merger, of less than
50% of the value of all of the formerly outstanding stock of MSM as of the same
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<PAGE>
date. For purposes of this representation, shares of stock exchanged for cash
in lieu of fractional shares of Telegen stock will be treated as outstanding MSM
stock on the date of the Merger. Moreover, shares of MSM stock and shares of
Telegen stock held by the Shareholders and otherwise sold, redeemed or disposed
of prior to or subsequent to the Merger will be considered in making this
representation.
(m) The fair market value of the Telegen stock paid to each
Shareholder will be approximately equal to the fair market value of the MSM
stock surrendered in the Merger by that Shareholder. For purposes of this
representation, shares of MSM stock exchanged for cash in lieu of fractional
shares of Telegen stock are disregarded.
(n) In the Merger, shares of MSM stock representing control of MSM,
as defined in Section 368(c) of the Code, will be exchanged solely for voting
stock of Telegen.
3.15 INTELLECTUAL PROPERTY.
---------------------
(a) MSM owns, or is licensed or otherwise entitled to exercise,
without restriction, all rights to, all patents, trademarks, trade names,
service marks, copyrights, trade secret rights and other intellectual property
rights, and any applications or registrations therefor, and all mask works,
schematics, technology, source code, know-how, computer software programs and
all other tangible and intangible information or material, that in any material
respect are used or currently proposed to be used in the business of MSM as
currently conducted or as currently proposed to be conducted (collectively, the
"MSM Intellectual Property Rights").
(b) The MSM Disclosure Schedule lists (i) all patents and all
registered copyrights, trade dress, trade names, trademarks, service marks and
other company, product or service identifiers and mask work rights included in
the MSM Intellectual Property Rights, and specifies the jurisdictions in which
each such MSM Intellectual Property Right has been registered, including the
respective registration numbers; (ii) all material licenses, sublicenses and
other agreements as to which MSM is a party and pursuant to which MSM or any
other person is authorized to use any MSM Intellectual Property Right (excluding
licenses relating to commercially available software); and (iii) all parties to
whom MSM has delivered copies of MSM source code, whether pursuant to an escrow
arrangement or otherwise, or parties who have the right to receive such source
code. Copies of all licenses, sublicenses, and other agreements identified
pursuant to clause (ii) above have been delivered by MSM to Telegen.
(c) MSM is not, nor as a result of the execution and delivery of this
Agreement or the performance of MSM's obligations hereunder will be, in material
violation of, or lose or in any material way impair any material rights pursuant
to any license, sublicense or agreement described in the MSM Disclosure
Schedule.
(d) MSM is the owner or licensee of, with all necessary right, title
and interest in and to (free and clear of any liens, encumbrances or security
interests), the MSM Intellectual Property Rights and has rights to the use,
sale, license or disposal thereof or the material covered thereby in connection
with the services or products in respect of which the MSM Intellectual Property
Rights are being used.
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<PAGE>
To the best knowledge of MSM, MSM has taken all actions and made all
applications and filings that MSM believes are appropriate, taking cost and
benefit into account, pursuant to applicable laws to perfect or protect their
interests in such MSM Intellectual Property Rights.
(e) No claims with respect to the MSM Intellectual Property Rights
have been asserted or, to the best knowledge of MSM, after reasonable
investigation, are threatened by any person, and MSM knows of no claims (i) to
the effect that the manufacture, marketing, license, sale or use of any product
as now used or offered or proposed for use or sale by MSM infringes any
copyright, patent, trade secret, or other intellectual property right of any
third party or violates any license or agreement with any third party, (ii)
contesting the right of MSM to use, sell, license or dispose of any MSM
Intellectual Property Rights, or (iii) challenging the ownership, validity or
effectiveness of any of the MSM Intellectual Property Rights.
(f) To the best knowledge of MSM, all patents and registered
trademarks, service marks, and other company, product or service identifiers and
registered copyrights held by MSM are valid and subsisting.
(g) To the best knowledge of MSM, there has not been and there is not
now any material unauthorized use, infringement or misappropriation of any of
the MSM Intellectual Property Rights by any third party, including, without
limitation, any employee or former employee of MSM; MSM has not been sued or
charged in writing as a defendant in any claim, suit, action or proceeding which
involves a claim of infringement of any patents, trademarks, service marks,
copyrights or other intellectual property rights and which has not been finally
terminated prior to the date hereof.
(h) No MSM Intellectual Property Right is subject to any outstanding
order, judgment, decree, stipulation or agreement restricting in any manner the
licensing thereof by MSM. MSM has not entered into any agreement to indemnify
any other person against any charge of infringement of any MSM Intellectual
Property Right, except indemnification provided in the ordinary course of
business. MSM has not entered into any agreement granting any third party the
right to bring infringement actions with respect to, or otherwise to enforce
rights with respect to, any MSM Intellectual Property Right except as provided
in the ordinary course of business. MSM has the exclusive right to file,
prosecute and maintain all applications and registrations with respect to the
MSM Intellectual Property Rights.
3.16 INTERESTS OF OFFICERS. None of MSM's officers or directors has any
---------------------
interest in any property, real or personal, tangible or intangible, used in or
pertaining to MSM's business, including any interest in the MSM Intellectual
Property Rights, except for rights as a stockholder.
3.17 EMPLOYEE AGREEMENTS. To the best knowledge of MSM, no employee of
-------------------
MSM is in violation of any term of any employment contract (whether written or
verbal), patent disclosure agreement or any other contract or agreement
relating to the relationship of any such employee with MSM or any other party
(including prior employers) because of the nature of the business now conducted
or now proposed to be conducted by MSM.
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<PAGE>
3.18 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement,
-----------------------------------
judgment, injunction, order or decree binding upon MSM (excluding those in
effect generally in the computer software industry) or which has or could
reasonably be expected to have the effect of prohibiting or significantly
impairing any material business practice of MSM, any material acquisition of
property by MSM, or the continuation of the business of MSM as currently
conducted or as currently proposed to be conducted.
3.19 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES; CONDITION OF
--------------------------------------------------------------------
EQUIPMENT.
---------
(a) MSM does not own any real property anywhere in the world.
(b) All of the existing MSM Real Property leases have been delivered
previously to Telegen. The MSM Disclosure Schedule sets forth a complete and
accurate list of all real property leased by MSM.
(c) MSM has valid leasehold interests in all of its tangible
properties and assets, real, personal and mixed, used in its business, free and
clear of any liens (other than liens for taxes that are not yet delinquent),
charges, pledges, security interests or other encumbrances, except as reflected
in the MSM Financial Statements and except for such imperfections of title and
encumbrances, if any, which are not substantial in character, amount or extent,
and which do not and are not reasonably likely to materially detract from the
value, or interfere with the present use, of the property subject thereto or
affected thereby.
(d) The machinery and equipment (the "Equipment") owned or leased by
MSM is, taken as a whole (i) adequate for the conduct of the business of MSM
consistent with its past practice, (ii) suitable for the uses to which it is
currently employed, (iii) in good operating condition ordinary wear and tear
excepted and (iv) not obsolete, dangerous or in need of renewal or replacement,
except for renewal or replacement in the ordinary course of business.
3.20 GOVERNMENTAL AUTHORIZATIONS AND LICENSES. MSM is the holder of all
----------------------------------------
material licenses, authorizations, permits, concessions, certificates and other
franchises of any Governmental Entity required to operate its business
(collectively, the "Government Licenses") and in material compliance with the
terms, conditions, limitations, restrictions, standards, prohibitions,
requirements and obligations of such Government Licenses. The Government
Licenses are in full force and effect. There is not now pending, or to the best
knowledge of MSM, is there threatened, any action, suit, investigation or
proceeding against MSM before any Governmental Entity with respect to the
Government Licenses, nor is there any issued or outstanding notice, order or
complaint with respect to the violation by MSM of the terms of any Government
License or any rule or regulation applicable thereto.
3.21 ENVIRONMENTAL AND SAFETY LAWS. MSM is in compliance in all material
-----------------------------
respects with all rules, laws and regulations, both foreign and domestic,
relating to the use, treatment, storage and disposal of toxic substances and
protection of health or the environment ("Environmental Laws") which are
applicable to their business, (ii) MSM has not received any notice from any
governmental authority or third party of an asserted claim under Environmental
Laws, and (iii) to the knowledge of MSM, no
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<PAGE>
property which is or has been owned, leased or occupied by MSM or any of its
subsidiaries has been designated as a Superfund site pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended (42 U.S.C. (S) 9601, et seq.), or otherwise designated as a contaminated
site under applicable state or local law.
3.22 INSURANCE. The MSM Disclosure Schedule lists all insurance policies
---------
and fidelity bonds covering the assets, business, equipment, properties,
operations, employees, officers and directors of MSM, the amounts of coverage
under each such policy and bond of MSM. Since November 30, 1996, MSM has not
been refused any requested coverage and no material claim made by MSM has been
denied by the underwriters of such policies or bonds. All premiums payable
under all such policies and bonds have been paid, and MSM is otherwise in
material compliance with the terms of such policies and bonds (or other policies
and bonds providing substantially similar insurance coverage). MSM does not
know of any threatened termination of any of such policies.
3.23 LABOR MATTERS. MSM is, to the best of its knowledge, in compliance
-------------
in all material respects with all currently applicable laws and regulations
respecting employment, discrimination in employment, terms and conditions of
employment and wages and hours and occupational safety and health and employment
practices, and MSM, to the best of its knowledge, is not engaged in any unfair
labor practice. MSM has not received any notice from any Governmental Entity,
and there has not been asserted before any Governmental Entity, any claim,
action or proceeding to which MSM is a party or involving MSM, and there is
neither pending nor, to MSM's best knowledge, threatened any investigation or
hearing concerning MSM arising out of or based upon any such laws, regulations
or practices.
3.24 CUSTOMERS; BACKLOG; RETURNS AND COMPLAINTS. The aggregate amount of
------------------------------------------
MSM's backlog (orders scheduled for shipment within twelve (12) months) as of
November 30, 1996 is set forth in the MSM Disclosure Schedule, and, to the best
knowledge of MSM, no material amount of the purchase orders which constitute
that backlog will be withdrawn or delayed. The MSM Disclosure Schedule sets
forth a complete list of customers on the backlog and their respective orders as
of November 30, 1996. Other than in the ordinary course of business, MSM has
received no customer complaints concerning its products and/or services, and it
has not had any of its products returned by a purchaser thereof.
3.25 EMPLOYEES. Set forth in the MSM Disclosure Schedule is a list
---------
identifying, as of the date hereof, all current employees of MSM, including,
without limitation, all officers of MSM, setting forth the job title of, and
annual salary rate (including bonuses) payable to, each such employee in 1996.
None of such officers or employees has notified MSM of a present intention to
resign or retire as a result of the transactions contemplated hereof.
3.26 QUESTIONABLE PAYMENTS. Neither MSM nor, to the best knowledge of
---------------------
MSM, any director, officer or other employee, agent or representative of MSM has
(a) made any payments or provided services or other favors in the United States
of America or in any foreign country in order to obtain preferential treatment
or consideration by any Governmental Entity with respect to any aspect of the
business of MSM or (b) made any political contributions which, to the best
knowledge of MSM,
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<PAGE>
would not be lawful under the laws of the United States or the foreign country
in which such payments were made. Neither MSM nor, to the best knowledge of MSM,
any director, officer or other employee, agent or representative of MSM or any
customer or supplier of any of them has been the subject of any inquiry or
investigation by any Governmental Entity in connection with payments or benefits
or other favors to or for the benefit of any governmental or armed services
official, agent, representative or employee with respect to any aspect of the
business of MSM or with respect to any political contribution.
3.27 DISCLOSURE. No representation or warranty made by MSM in this
----------
Agreement (including the Schedules hereto), and no financial statement contains
any untrue statement of a material fact, or omits to state a material fact,
necessary to make the statements or facts contained herein or therein not
misleading in light of the circumstances under which they were furnished.
3.28 MINUTE BOOKS. The minute books of MSM delivered to Telegen contain
------------
complete and accurate minutes of all meetings of directors and stockholders or
actions by written consent since the time of incorporation of MSM, and reflect
all transactions referred to in such minutes accurately in all material
respects.
3.29 THIRD-PARTY CONSENTS. No consent or approval is needed from any
--------------------
third party in order to effect the Merger, this Agreement or any of the
transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF TELEGEN AND SUB
Except as described in the Telegen Disclosure Schedule referring
specifically to the representations and warranties in this Agreement which
identifies the section and subsection to which such disclosure relates and which
is delivered by Telegen to MSM prior to the execution of this Agreement (the
"Telegen Disclosure Schedule"), Telegen and Sub represent and warrant to MSM
that the representations and warranties set forth below shall be true and
correct in all material respects as of the date hereof. As used in this
Agreement, (a) "Business Condition" with respect to Telegen shall refer to
Telegen and all of its subsidiaries taken as a whole and shall mean the
financial condition, results of operations and assets of Telegen and all of its
subsidiaries taken as a whole; and (b) a disclosure or result will be deemed
"material and adverse" only if, individually or when aggregated with other
disclosures or results, it gives rise to a substantial diminution in the value
of Telegen and its subsidiaries taken as a whole.
4.1 ORGANIZATION; STANDING AND POWER. Each of Telegen and Sub is a
--------------------------------
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation and has all requisite corporate power and
authority to own, operate and lease its properties and to carry on its business
as now being conducted. Each of Telegen and Sub is duly qualified as a foreign
corporation and is in good standing in each jurisdiction in which the failure to
so qualify would have a material adverse
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<PAGE>
effect on Telegen's Business Condition or, with respect to Sub, Sub's Business
Condition. Other than Sub and those subsidiaries identified in Telegen's filings
made with the Securities and Exchange Commission (the "SEC"), Telegen has no
subsidiaries or affiliated companies and does not otherwise own or control,
directly or indirectly, any material equity interest in any corporation,
association or business entity.
4.2 CAPITAL STRUCTURE.
-----------------
(a) The authorized capital stock of Telegen consists of 100,000,000
shares of Telegen Common Stock, no par value, and 10,000,000 shares of Telegen
Preferred Stock, no par value. As of November 30, 1996, there were issued and
outstanding 4,781,139 shares of Telegen Common Stock, and an aggregate of
2,065,283 shares of Common Stock were reserved for issuance upon the exercise of
options and warrants to acquire Telegen Common Stock ("Telegen Options"). As of
such date, there were no outstanding shares of Telegen capital stock or any
other equity securities of Telegen other than shares of Telegen Common Stock and
Telegen Preferred Stock as described in the preceding sentence.
(b) All the outstanding shares of Telegen Common Stock are validly
issued, fully paid, nonassessable and free of preemptive rights.
(c) The shares of Telegen Common Stock issuable in connection with
the Merger are duly authorized and reserved for issuance and, when issued in
accordance with the terms of the Agreement of Merger, will be validly issued,
fully paid, nonassessable and free of preemptive rights. As of the date hereof,
the authorized capital stock of Sub consists of 1,000 shares of Common Stock, no
par value, all of which are validly issued, fully paid and nonassessable and
owned by Telegen.
(d) Except for the shares described above issuable pursuant to
Telegen Options, there are no options, warrants, calls, conversion rights,
commitments or agreements of any character to which Telegen is a party or, to
the best of Telegen's knowledge, by which Telegen may be bound that do or may
obligate Telegen to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of the capital stock of Telegen or that do or may
obligate Telegen to grant, extend or enter into any such option, warrant, call,
conversion right, commitment or agreement.
4.3 AUTHORITY.
---------
(a) Telegen and Sub have all requisite corporate power and authority
to enter into this Agreement, to perform their respective obligations hereunder,
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement, the performance by Telegen and Sub of their
respective obligations hereunder and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of Telegen and Sub, including approval by their
respective Boards of Directors. This Agreement is a legal, valid and binding
obligation of Telegen and Sub enforceable against Telegen and Sub in accordance
with its terms, except as enforcement may be limited by bankruptcy, insolvency,
or other similar laws affecting the
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<PAGE>
enforcement of creditors' rights generally and except that the availability of
equitable remedies is subject to the discretion of the court before which any
proceeding therefor may be brought.
(b) Subject to satisfaction of the conditions set forth in ARTICLE VI
hereto, the execution and delivery of this Agreement does not and the
consummation of the transactions contemplated hereby will not, conflict with or
result in any material violation of any material statute, law, rule, regulation,
judgment, order, decree, or ordinance applicable to Telegen or Sub or their
respective properties or assets, or conflict with or result in any breach or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any material
obligation or the loss of a material benefit under, or result in the creation of
a lien or encumbrance on any of the properties or assets of Telegen or Sub
pursuant to (i) any provision of their respective Articles of Incorporation or
Bylaws, or (ii) any material agreement, contract, note, mortgage, indenture,
lease, instrument, permit, concession, franchise or license to which Telegen or
Sub is a party or by which Telegen or Sub or any of their respective property or
assets may be bound or affected.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Telegen or Sub in connection with the execution and delivery of this
Agreement or the consummation by Telegen and Sub of the transactions
contemplated hereby, except for (i) the filing of such other documents with, and
the obtaining of such other orders from, the various state securities or "blue
sky" authorities, and the making of such reports under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), as are required in connection with
the transactions contemplated by this Agreement, (ii) the filing of the
Certificate of Merger with the New Jersey Secretary of State and appropriate
documents with the relevant authorities of other states in which Telegen is
qualified to do business; and (iii) informational filings.
4.4 TELEGEN FINANCIAL STATEMENTS. The financial statements of Telegen
----------------------------
included in the annual, quarterly or other reports filed by Telegen with the SEC
(the "Telegen Financial Statements") comply as to form in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles consistently applied (except as
may be indicated in the notes thereto or, in the case of unaudited statements,
as permitted by Form 10-QSB of the SEC) and fairly present the consolidated
financial position of Telegen and its consolidated Subsidiaries at the dates
thereof and the consolidated results of their operations and changes in
financial position for the periods then ended (subject, in the case of unaudited
statements, to normal, recurring audit adjustments). There has been no change
in Telegen's accounting policies or estimates except as described in the notes
to the Telegen Financial Statements.
4.5 REPORTS. Telegen has previously furnished to MSM complete and
-------
accurate copies, as amended or supplemented, of (i) its Quarterly Report on Form
10-QSB for the fiscal quarter ended September 30, 1996 filed pursuant to Section
13 of the Securities Exchange Act of 1934, as amended and (ii) the Information
Statement and Prospectus of Solar Energy Research Corp., a Colorado corporation
("SERC," subsequently redomiciled in California and renamed "Telegen
Corporation"), included in SERC's Registration Statement on Form S-4 (Reg No.
333-4037) filed on May 17, 1996, as
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<PAGE>
amended (the "Form S-4") (such reports and filings, together with any amendments
or supplements thereto, are collectively referred to herein as the "Telegen
Reports"). As of their respective dates, the Telegen Reports did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4.6 LITIGATION. There is no action, suit, proceeding, arbitration,
----------
investigation or claim pending or, to the best knowledge of Telegen, threatened
against Telegen which in any manner challenges or seeks to prevent, enjoin,
alter or materially delay any of the transactions contemplated hereby. Other
than as disclosed in the Telegen Reports, Telegen is not aware of any other
pending or threatened action, suit, proceeding, investigation or claim, or any
reasonable basis therefor, which individually or in the aggregate would
reasonably be expected to have a material adverse effect on Telegen's Business
Condition.
4.7 COMPLIANCE WITH LAW. Telegen is in compliance and has conducted its
-------------------
business so as to comply with all laws, rules and regulations, judgments,
decrees or orders of any Governmental Entity applicable to its operations or
with respect to which compliance is a condition of engaging in the business
thereof, except to the extent that any failure to comply, individually or in the
aggregate, has not had and, to the best knowledge of Telegen, is not reasonably
likely to have, a material adverse effect on the Business Condition of Telegen.
There are no judgments or orders, injunctions, decrees, stipulations or awards
(whether rendered by a court or administrative agency or by arbitration) against
Telegen or any of its properties or businesses, and, to the best knowledge of
Telegen, none are pending or threatened, which individually or in the aggregate
would be reasonably likely to have a material and adverse effect on the Business
Condition of Telegen.
4.8 NO DEFAULTS. Neither Telegen nor Sub is, or has received notice that
-----------
it is or would be with the passage of time nor will the entry by Telegen or Sub
into the Agreement nor the consummation of the transactions contemplated hereby
result, (x) in material violation of any provision of its Articles of
Incorporation or Bylaws or (y) in material default or violation of any term,
condition or provision of (a) any judgment, decree, order, injunction or
stipulation applicable to it, or (b) any material agreement, note, mortgage,
indenture, contract, lease, instrument, permit, concession, franchise or license
to which it is a party or by which it or its properties or assets may be bound,
which violations or defaults have had or are reasonably likely to have
individually or in the aggregate a material and adverse effect on the Business
Condition of Telegen.
4.9 ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in its
----------------------------------
Quarterly Report on Form 10-QSB for the quarter ended September 30, 1996 and for
liabilities and obligations arising after September 30, 1996 in the ordinary
course of business, Telegen and Sub have no liabilities or obligations (whether
absolute, accrued or contingent, and whether or not determined or determinable)
of a character which, under GAAP, should be accrued, shown, disclosed or
indicated in an audited consolidated balance sheet of Telegen (including the
footnotes thereto), or, if not so required is not reasonably likely to have a
material adverse effect on the Business Condition of Telegen.
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<PAGE>
4.10 MAJOR CONTRACTS. Except to the extent not material to the Business
---------------
Condition of Telegen, each agreement, contract, mortgage, indenture, plan,
lease, instrument, permit, concession, franchise, arrangement, license and
commitment to which Telegen or any of its subsidiaries is a party or by which,
to the best of its knowledge, it is bound (i) is valid and binding on Telegen or
Sub, (ii) is in full force and effect, and (iii) has not, to the best knowledge
of Telegen, been breached by Telegen or any other party thereto. To the best
knowledge of Telegen and Sub, no party to any such contract, agreement or
instrument intends to cancel, withdraw, modify or amend such contract, agreement
or arrangement, except to the extent such action would not have a material and
adverse effect on the Business Condition of Telegen.
4.11 INTELLECTUAL PROPERTY. Telegen and its subsidiaries owns, or is
---------------------
licensed or otherwise entitled to exercise without restriction, all rights to
all patents, trademarks, trade names, service marks, copyrights, and any
applications therefor, mask works, net lists, schematics, technology, know-how,
computer software programs or applications and tangible or intangible
proprietary information or material that in any material respect are used in the
business of Telegen as currently conducted or as currently proposed to be
conducted (the "Telegen Intellectual Property Rights"), except to the extent the
failure to have sufficient rights to such Telegen Intellectual Property Rights
has not had and could not reasonably be expected to have a material adverse
effect on the Business Condition of Telegen. No claims challenging Telegen's or
Sub's rights to use Telegen Intellectual Property Rights have been asserted or,
to the knowledge of Telegen and Sub, are threatened by any person, nor does
Telegen or Sub have any knowledge of any valid grounds for any such bona fide
claims, except to the extent such claims have not had and could not reasonably
be expected to have a material adverse effect on the Business Condition of
Telegen.
4.12 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement,
-----------------------------------
judgment, injunction, order or decree binding upon Telegen which has or could
reasonably be expected to have the effect of prohibiting or significantly
impairing any material business practice of Telegen, any material acquisition of
property by Telegen, or the continuation of the business of Telegen as currently
conducted or as currently proposed to be conducted.
4.13 GOVERNMENTAL AUTHORIZATIONS AND LICENSES. Telegen is the holder of
----------------------------------------
all licenses, authorizations, permits, concessions, certificates and other
franchises of any Governmental Entity required to operate its business
(collectively, the "Telegen Government Licenses") which Telegen Government
Licenses are in full force and effect, and is in material compliance with the
terms, conditions, limitations, restrictions, standards, prohibitions,
requirements and obligations of such Telegen Government Licenses except to the
extent failure to hold and maintain such Telegen Government Licenses or to so
comply would not be reasonably likely to have a material and adverse effect on
the Business Condition of Telegen. There is not now pending, or to the best
knowledge of Telegen, is there threatened, any action, suit, investigation or
proceeding against Telegen before any Governmental Entity with respect to the
Telegen Government Licenses, nor is there any issued or outstanding notice,
order or complaint with respect to the violation by Telegen or Sub of the terms
of any Telegen Government License or any rule or regulation applicable thereto,
except to the extent that any such action would not be reasonably likely to have
a material and adverse effect on the Business Condition of Telegen.
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<PAGE>
4.14 DISCLOSURE. No representation or warranty made by Telegen in this
----------
Agreement, nor any document, written information, statement, financial
statement, certificate, schedule or exhibit prepared and furnished or to be
prepared and furnished by Telegen or its representatives pursuant hereto or in
connection with the transactions contemplated hereby, contains any untrue
statement of a material fact, or omits to state a material fact necessary to
make the statements or facts contained herein or therein not misleading in light
of the circumstances under which they were furnished. To the best knowledge of
Telegen, after reasonable inquiry, there is no event, fact or condition that
materially and adversely affects the Business Condition of Telegen, or that
reasonably could be expected to do so, that has not been set forth in this
Agreement or in the Telegen Disclosure Schedule.
4.15 DECLARATION OF EFFECTIVENESS OF REGISTRATION STATEMENT. Telegen has
------------------------------------------------------
not been notified by the SEC of any reason why the Registration Statement filed
pursuant to Section 5.14 hereof will not be declared effective within a
reasonable time after its filing.
4.16 TAXES.
-----
(a) Prior to the Merger, Telegen will be in control of Sub within the
meaning of Section 368(c) of the Code.
(b) Telegen has no plan or intention to reacquire any of its stock
issued in the Merger.
(c) Telegen has no plan or intention to liquidate MSM, to merge MSM
with or into another corporation, to sell or otherwise dispose of the stock of
MSM except for transfers of stock to corporations controlled by Telegen within
the meaning of Section 368(c) of the Code; or to cause MSM to sell or otherwise
dispose of any of its assets or of any assets acquired from Sub, except for
dispositions made in the ordinary course of business or transfers of assets to a
corporation controlled by MSM.
(d) Sub will have no liabilities assumed by MSM, and will not
transfer to MSM any assets subject to liabilities, in the Merger.
(e) Following the Merger, MSM will continue its historic business or
use a significant portion of its historic business assets in a business.
(f) There is no intercorporate indebtedness existing between Telegen
and MSM or between Sub and MSM that was issued, acquired, or will be settled at
a discount.
(g) Telegen does not own, nor has it owned during the past five
years, any shares of MSM stock.
(h) Neither Telegen nor Sub is an investment company as defined in
Sections 368(a)(2)(F)(iii) and 368(a)(2)(F)(iv) of the Code.
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<PAGE>
(i) Telegen and Sub will pay their respective expenses, if any,
incurred in connection with the Merger.
(j) The fair market value of the Telegen stock paid to each
Shareholder will be approximately equal to the fair market value of the MSM
stock surrendered in the Merger by that Shareholder. For purposes of this
representation, shares of MSM stock exchanged for cash in lieu of fractional
shares of Telegen stock are disregarded.
(k) In the Merger, shares of MSM stock representing control of MSM,
as defined in Section 368(c) of the Code, will be exchanged solely for voting
stock of Telegen.
ARTICLE V
CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE
TIME; ADDITIONAL AGREEMENTS
5.1 CONDUCT OF BUSINESS OF MSM.
--------------------------
During the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement or the Effective Time of the Merger
(except to the extent appropriate to provide for the integration of the business
of MSM into that of Telegen), MSM shall carry on its business in the usual,
regular and ordinary course in substantially the same manner as conducted prior
to the date of this Agreement and, to the extent consistent with such business,
use all commercially reasonable efforts consistent with past practice and
policies to preserve intact its present business organizations, keep available
the services of its present officers and key employees and preserve its
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with them, to the end that its goodwill and
ongoing businesses shall be unimpaired at the Effective Time of the Merger
(except to the extent appropriate to provide for the integration of the business
of MSM into that of Telegen). MSM shall promptly notify Telegen of any event or
occurrence not in the ordinary course of business of MSM, and any event which
could have a material and adverse effect on the Business Condition of MSM.
Except as expressly contemplated by this Agreement, MSM, without the prior
written consent of Telegen, which consent shall not be unreasonably withheld,
shall not:
(a) Materially accelerate, amend or change the period of
exercisability of options, warrants, stock or purchase rights or authorize cash
payments in exchange therefor except as may be required pursuant to the terms of
any existing stock compensation plan;
(b) (i) Enter into any commitment or transaction not in the ordinary
course of business to be performed over a period longer than six (6) months in
duration, or, except as in accordance with its existing capital budget
previously disclosed to Telegen, to purchase fixed assets with an aggregate
purchase price exceeding $25,000;
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<PAGE>
(c) Grant any severance or termination pay to any director, officer,
employee or consultant, except mandatory payments made pursuant to standard
written agreements outstanding on the date hereof (with any such agreement or
arrangement to be disclosed in the MSM Disclosure Schedule) or except in
accordance with MSM's past practices unless the proposed agreement or
arrangement is discussed with Telegen in advance;
(d) Transfer to any person or entity any rights to the MSM
Intellectual Property Rights, except licenses of Intellectual Property Rights in
connection with the sale of MSM products in the ordinary course of business
consistent with past practice;
(e) Enter into or amend any agreements pursuant to which any other
party is granted marketing or other similar rights of any type or scope with
respect to any products of MSM;
(f) Except in the ordinary course of business with prior notice to
Telegen, violate, amend or otherwise modify in any material respect the terms of
any of the material contracts listed in the MSM Disclosure Schedule;
(g) Except with prior consultation with Telegen, commence a lawsuit
other than for the routine collection of bills or for a breach of this
Agreement;
(h) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any MSM capital stock, or
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of MSM capital stock, or repurchase or otherwise acquire, directly or
indirectly, any shares of MSM capital stock except repurchases of Common Stock
at cost from former employees, directors and consultants in accordance with the
terms of agreements providing for the repurchase of shares in connection with
any termination of service to MSM;
(i) Issue, deliver or sell or authorize or propose the issuance,
delivery or sale of or authorization of, the purchase of any shares of MSM
capital stock or securities convertible into, or subscriptions, rights, warrants
or options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities;
(j) Cause or permit any amendments to MSM's Certificate of
Incorporation or Bylaws;
(k) Acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the Business
Condition of MSM;
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<PAGE>
(l) Sell, lease, license or otherwise dispose of any of their
properties or assets except in the ordinary course of business and consistent
with past practice;
(m) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee any debt
securities of others;
(n) Adopt or amend any Plan, or enter into any employment contract,
pay any special bonus or special remuneration to any director, employee or
consultant, or increase the salaries or wage rates of its employees other than
pursuant to scheduled employee reviews under MSM's normal employee review cycle
or pursuant to MSM's existing bonus plans, as the case may be, or in connection
with the hiring of employees other than officers in the ordinary course of
business, in all cases consistent with past practice, or otherwise increase or
modify the compensation or benefits payable or to become payable by MSM to any
of its directors, employees or consultants, except for reasonable merit raises
within the scope of past merit raises, changes pursuant to employment agreements
in effect as of the date hereof or changes in position;
(o) Revalue any of its assets, including, without limitation, writing
down the value of inventory or accounts receivable other than in the ordinary
course of business and consistent with past practice or as required by GAAP;
(p) Pay, discharge or satisfy in an amount in excess of $25,000 in
any one case any claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business consistent with past practice of
liabilities reflected or reserved against in the MSM Financial Statements;
(q) Make any material Tax election other than in the ordinary course
of business and consistent with past practice, change any material tax election,
adopt any material Tax accounting method other than in the ordinary course of
business and consistent with past practice, change any material Tax accounting
method, file any material Tax return (other than any estimated tax returns,
payroll tax returns or sales tax returns) or any amendment to a material Tax
return, enter into any closing agreement, settle any Tax claim or assessment or
consent to any Tax claim or assessment;
(r) Fail to pay or otherwise satisfy its material monetary
obligations as they become due or consistent with past practice, except such as
are being contested in good faith;
(s) Waive or commit to waive any rights of substantial value;
(t) Cancel (unless replaced by a comparable policy), materially amend
or, other than in the ordinary course upon expiration of a policy term, renew
any material insurance policy;
(u) Material alter, or enter into any commitment to materially alter,
its interest in any corporation, association, joint venture, partnership or
business entity in which MSM directly or indirectly holds any interest on the
date hereof; or
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(v) Take, or agree (in writing or otherwise) to take, any of the
actions described in this Section 5.1 or any action which would make any of the
representations or warranties or covenants of MSM contained in this Agreement
materially untrue or incorrect.
5.2 TELEGEN CONDUCT. During the period from the date of this Agreement
---------------
and continuing until the earlier of the termination of this Agreement or the
Effective Time of the Merger, Telegen shall promptly notify MSM of any material
event or occurrence or emergency which is not in the ordinary course of business
of Telegen or its subsidiaries and which is material and adverse to the Business
Condition of Telegen and its subsidiaries taken as a whole. Except as expressly
contemplated by this Agreement, Telegen, without the prior written consent of
MSM, shall not:
(a) Amend its Articles of Incorporation or Bylaws in any manner which
would materially adversely affect the rights of holders of Telegen Common Stock,
(b) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any Telegen capital stock, or
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of Telegen capital stock, or repurchase or otherwise acquire,
directly or indirectly, any shares of Telegen capital stock except repurchases
of Common Stock from former employees, directors and consultants in accordance
with the terms of agreements providing for the repurchase of shares in
connection with any termination of service to Telegen;
(c) Take, or agree (in writing or otherwise) to take, any action that
could reasonably be expected to delay or hinder the registration of the
Registrable Shares (as defined in Section 5.14); or
(d) Take, or agree (in writing or otherwise) to take, any of the
actions described in this SECTION 5.2 or any action which would make any of the
representations or warranties or covenants of Telegen contained in this
Agreement materially untrue or incorrect.
5.3 ACCESS TO INFORMATION; PROVISION OF INTERIM FINANCIAL STATEMENTS.
----------------------------------------------------------------
(a) Each of Telegen and MSM shall afford the other party and its
accountants, counsel and other representatives, reasonable access during normal
business hours during the period from the date of this Agreement until the
earlier of the Effective Time of the Merger or the termination of this Agreement
to (i) all properties, books, contracts, commitments and records, and (ii) all
other information concerning the business, properties and personnel as may
reasonably be requested.
(b) Each of Telegen and MSM shall provide the other party an
unaudited monthly balance sheet, income statement and statement of cash flows
within twenty-five (25) days of each month-end prior to the Effective Time of
the Merger as well as copies of such other internal financial statements as may
reasonably be requested.
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5.4 EXCLUSIVITY; ACQUISITION PROPOSALS. Unless and until this Agreement
----------------------------------
shall have been terminated by either party pursuant to Section 8.1 below:
(a) MSM shall not knowingly, directly or indirectly, through any
officer, director, agent or representative (including, without limitation,
investment bankers, attorneys, accountants and consultants), or otherwise:
(i) Solicit, initiate or further the submission of proposals or
offers from, or enter into any agreement with, any firm, corporation,
partnership, association, group (as defined in Section 13(d)(3) of the Exchange
Act) or other person or entity, individually or collectively (including, without
limitation, any managers or other employees of MSM or affiliates), other than
Telegen and Sub (a "Third Party"), relating to any acquisition or purchase of
all or a material portion of the assets of, or any equity interest in, MSM or
any merger, consolidation or business combination with MSM;
(ii) Participate in any discussions or negotiations regarding, or
furnish to any Third Party any confidential information with respect to MSM or
Telegen in connection with any acquisition or purchase of all or a material
portion of the assets of, or any equity interest in, MSM or any merger,
consolidation or business combination with MSM; or
(iii) Otherwise knowingly cooperate in any way with, or assist or
participate in, facilitate or encourage, any effort or attempt by any Third
Party to undertake or seek to undertake any acquisition or purchase of all or a
material portion of the assets of, or any equity interest in, MSM or any merger,
consolidation or business combination with MSM.
(b) In the event MSM receives prior to termination of this Agreement
any offer or indication of interest from any Third Party relating to any
acquisition or purchase of all or a material portion of the assets of, or any
equity interest in, MSM or any merger, consolidation or business combination
with MSM, MSM shall promptly notify Telegen and Sub in writing, and shall in any
such notice, set forth in reasonable detail the identity of the Third Party, the
terms and conditions of any proposal and any other information requested of it
by the Third Party or in connection therewith.
(c) MSM shall immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any Third Party conducted
prior to the date of this Agreement with respect to any of the foregoing.
5.5 BREACH OF REPRESENTATIONS, WARRANTIES AND COVENANTS. Each of
---------------------------------------------------
Telegen, Sub and MSM shall not take, or fail to take, any action which from the
date hereof through the Closing would cause or constitute a breach of any of its
respective representations, warranties and covenants set forth in this
Agreement. In the event of, and promptly after becoming aware of, the actual,
pending or threatened occurrence of any event which would cause or constitute
such a breach or inaccuracy, each party shall give detailed notice thereof to
the other parties and shall use its best efforts to prevent or promptly remedy
such breach or inaccuracy.
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<PAGE>
5.6 CONSENTS. Each of Telegen and MSM shall promptly apply for or
---------
otherwise seek, and use its commercially reasonable efforts to obtain, all
consents and approvals required to be obtained by it for the consummation of the
Merger and the other transactions contemplated hereby, and MSM shall use its
commercially reasonable efforts to obtain all necessary consents, waivers and
approvals under any of MSM's material agreements, contracts, licenses or leases
in connection with the Merger, except such consents and approvals as Telegen and
MSM agree MSM shall not seek to obtain.
5.7 ALL COMMERCIALLY REASONABLE EFFORTS. Each of Telegen and MSM shall
-----------------------------------
use all commercially reasonable efforts to effectuate the transactions
contemplated hereby and to fulfill and cause to be fulfilled the conditions to
closing under this Agreement.
5.8 LEGAL CONDITIONS TO THE MERGER.
------------------------------
(a) MSM shall take all reasonable actions necessary to comply
promptly with all legal requirements which may be imposed on MSM with respect to
the Merger and will promptly cooperate with and furnish information to Telegen
in connection with any such requirements imposed upon Telegen, Sub or any other
subsidiary of Telegen in connection with the Merger. MSM shall take all
reasonable actions to obtain (and to cooperate with Telegen and its Subsidiaries
in obtaining) any consent, authorization, order or approval of, or any exemption
by, any Governmental Entity required to be obtained or made by MSM (or by
Telegen or its Subsidiaries) in connection with the Merger or the taking of any
action contemplated thereby or by this Agreement, and to defend such lawsuits or
other legal proceedings challenging this Agreement or the consummation of the
transactions contemplated hereby as MSM deems advisable in good faith, to lift
or rescind any injunction or restraining order or other order adversely
affecting the ability of the parties to consummate the transactions contemplated
hereby as MSM deems advisable in good faith, and to effect all necessary
registrations and filings and submissions of information as MSM deems advisable
in good faith required by any Governmental Entity, and to fulfill all conditions
to this Agreement.
(b) Each of Telegen and Sub shall take all reasonable actions
necessary to comply promptly with all legal requirements which may be imposed on
them with respect to the Merger and will promptly cooperate with and furnish
information to MSM in connection with any such requirement imposed upon MSM in
connection the their Merger. Telegen and Sub shall take all reasonable actions
to obtain (and to cooperate with MSM in obtaining) any consent, authorization,
order or approval of, or exemption by, any Governmental Entity required to be
obtained or made by Telegen or any of its Subsidiaries (or by MSM) in connection
with the Merger or the taking of any action contemplated thereby or by this
Agreement, and to defend such lawsuits or other legal proceedings challenging
this Agreement or the consummation of the transactions contemplated hereby as
Telegen and Sub deem advisable in good faith, to lift or rescind any injunction
or restraining order or other order adversely affecting the ability of the
parties to consummate the transactions contemplated hereby as Telegen and Sub
deem advisable in good faith, and to effect all necessary registrations and
filings and submissions of information as Telegen and Sub deem advisable in good
faith, required by any Governmental Entity, and to fulfill all conditions to
this Agreement.
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<PAGE>
5.9 BROKERS OR FINDERS; PROFESSIONAL FEES. Except as otherwise set forth
-------------------------------------
in the MSM Disclosure Schedule or the Telegen Disclosure Schedule, as the case
may be, each of Telegen, as to itself and its subsidiaries, and MSM represents
that no agent, broker, investment banker or other firm or person is, or will be,
entitled to any broker's or finder's fee or any other commission or similar fee
in connection with any of the transactions contemplated by this Agreement. The
MSM Disclosure Schedule sets forth, as of December 20, 1996, MSM's total
obligations to attorneys, and others in connection with the Merger contemplated
hereby.
5.10 PUBLIC ANNOUNCEMENTS. Each party will consult in advance with the
--------------------
other concerning the timing and content of any announcements, press releases or
public statements concerning the Merger and will not make any such announcement,
release or statement without the other's consent; provided, however, that
Telegen may make any public statement concerning the Merger without MSM's
consent, after it has used reasonable efforts to obtain MSM's consent, if, in
the opinion of counsel for Telegen, such statement or announcement is required
or advisable to comply with applicable law.
5.11 AFFILIATES AGREEMENTS. The MSM Disclosure Schedule sets forth each
---------------------
person who is, in MSM's reasonable judgment, an "affiliate" of MSM (an
"Affiliate") within the meaning of Rule 145 promulgated under the Securities Act
("Rule 145"). MSM shall provide Telegen such information and documents as
Telegen shall reasonably request for purposes of reviewing such list. MSM shall
use its best efforts to deliver or cause to be delivered to Telegen,
concurrently with the execution of this Agreement from each of the Affiliates,
Agreements in the form attached hereto as Exhibit 5.11. Telegen and Sub shall
------------
be entitled to place appropriate legends on the certificates evidencing any
Telegen Common Stock to be received by such Affiliates pursuant to the terms of
this Agreement and the Agreement of Merger, and subject to SECTION 5.14, to
issue appropriate stop transfer instructions to the transfer agent for Telegen
Common Stock, consistent with the terms of such Affiliates Agreements.
5.12 EXPENSES. Whether or not the Merger is consummated, all costs and
--------
expenses incurred in connection with this Agreement, the Agreement of Merger and
the transactions contemplated hereby and thereby, including fees of any finders
or brokers or investment bankers, attorneys and accountants retained by such
party (subject to the provisions of SECTION 5.9 hereof), shall be paid by the
party incurring such expense; provided, however, that such payment obligation
-----------------
shall not preclude either party from pursuing any remedies conferred hereby or
by law or equity on such party for the repayment of such amounts in connection
with a breach of this Agreement.
5.13 ISSUANCE OF SHARES. Telegen shall, as and when required under this
------------------
Agreement and the Agreement of Merger, issue and deliver certificates
representing the Telegen Common Stock into which the capital stock of MSM
outstanding at the Effective Time of the Merger will be converted.
5.14 REGISTRATION RIGHTS. Telegen covenants and agrees that, after the
-------------------
Closing Date:
(a) Telegen will file with the Commission no later than March 31,
1997, and use its best efforts to cause to become effective promptly following
the expiration of such time as results covering at least thirty (30) days of
post-Closing combined operations of Telegen and MSM have been
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<PAGE>
published by Telegen within the meaning of Section 201.01 of the SEC's
Codification of Financial Reporting Policies, a registration statement on Form
S-3 (or other applicable form) (the "Registration Statement") covering the
shares of Telegen Common Stock to be issued under the provisions of ARTICLE I to
the Shareholders (the "Registrable Shares").
(b) Subject to subparagraph (c), Telegen will use its best efforts to
cause the Registration Statement to remain current (to the extent required by
law) and effective for the shorter of the following two time periods: (i) for
two years following effectiveness thereof (or up to three years to the extent
volume limits specified in Rule 144(d) of the Securities would be exceeded if a
Shareholder were to sell all of his Telegen shares in any ninety (90) day
period), or (ii) until all of the Registrable Shares are sold.
(c) Telegen reserves the right from time to time to notify each
holder of Registrable Shares that the Registrable Shares may not be sold under
such Registration Statements for a period of time because of the pendency of a
transaction or public offering or other material event or because of the
disclosure of material and otherwise non-public information by Telegen, and each
holder of Registrable Shares hereby agrees not to sell any Registrable Shares
under such registration statements for such period of time as Telegen's Board of
Directors may in good faith deem necessary.
(d) Telegen shall prepare and file with Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and the prospectus current and to comply with the provisions of the
Securities Act with respect to the sale of the Registrable Shares and this
Agreement;
(e) Telegen shall furnish to each Shareholder such numbers of copies
of preliminary prospectuses and final prospectuses and each supplement or
amendment thereto and such other documents as each such Shareholder may
reasonably request in order to facilitate the sale or other disposition of the
Registrable Shares owned by such Shareholder in conformity with (A) the
requirements of the Securities Act and (B) such Shareholder's proposed method of
distribution;
(f) Telegen shall register or qualify the Registrable Shares under
the securities laws such jurisdiction within the United States as each
Shareholder shall reasonably request, and do such other reasonable acts and
things as may be required of it to enable each Shareholder to consummate the
sale or other disposition in such jurisdiction of the Registrable Shares owned
by such Shareholder; provided, however, that Telegen shall not be required to
-----------------
(A) qualify as a foreign corporation or consent to a general and unlimited
service of process in any such jurisdictions, or (B) qualify as a dealer in
securities;
(g) Telegen shall furnish, at the request of any Shareholder on the
date the Registration Statement becomes effective, (i) an opinion, dated such
date, of counsel representing Telegen for the purposes of such registration,
addressed to the Shareholder making such request, covering such legal matters
with respect to the registration in respect of which such opinion is being given
as the Shareholder of such Registrable Shares may reasonably request and are
customarily included in such opinions and (ii) letters, dated respectively, (1)
the effective date of the Registration Statement and
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<PAGE>
(2) the date such Shares are delivered to the Shareholders, for sale pursuant to
such registration, from a firm of independent public accountants of recognized
national standing selected by Telegen, addressed to the Shareholder making such
request, covering such financial, statistical and accounting matters with
respect to the registration in respect of which such letters are being given as
the Shareholder of such Registrable Shares may reasonably request and are
customarily included in such letters.
(h) Telegen shall notify each Shareholder of Registrable Shares
covered by such registration statement in the event Telegen has delivered
preliminary or final prospectuses to any such Shareholder, and after having done
so, such prospectus as amended to comply with the requirements of the Act. Upon
such notification, such Shareholders shall immediately cease making offers of
Registrable Shares and return all prospectuses to Telegen. Telegen shall
promptly provide such Shareholders with revised prospectuses and, following
receipt of the revised prospectuses, such Shareholders shall be free to resume
making offers of Registrable Shares;
(i) Telegen shall cooperate and assist in any filings required to be
made with the National Association of Securities Dealers, Inc.; and
(j) Telegen shall be responsible for all expenses incurred in
connection with filing the Registration Statements, including, without
limitation, all registration and filing fees (including all expenses incident to
filing with the NASD), printing expenses and fees and disbursements of counsel
for Telegen; provided, however, Telegen shall not be responsible for the fees
-----------------
and expenses of counsel for any holder of Registrable Shares.
(k) Each holder shall bear all underwriting discounts and commissions
with respect to the Registrable Shares sold by such holder.
(l) Telegen shall use its best efforts to such registration in the
manner contemplated by this Agreement.
(m) The provisions of Exhibit 5.14 hereof shall apply to the
registration and sale of the Registrable Shares.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
----------------------------------------------------------
respective obligation of each party to effect the Merger shall be subject to the
satisfaction prior to the Closing of the following conditions:
(a) 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 shall have been filed, occurred or been obtained.
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<PAGE>
(b) Legal Action. No temporary restraining order, preliminary
------------
injunction or permanent injunction or other order preventing the consummation of
the Merger shall have been issued by any Governmental Entity and remain in
effect, and no litigation shall be pending the ultimate resolution of which is
likely to (i) result in the issuance of such an order or injunction, or the
imposition against MSM, the Surviving Corporation or Telegen of substantial
damages if the Merger is consummated, (ii) prohibit Telegen's or MSM's ownership
or operation of all or a material portion of the business rights of MSM or
Telegen and its Subsidiaries taken as a whole, or to compel Telegen or MSM to
dispose of or hold separate all or a material portion of the business or assets
of MSM or Telegen and its Subsidiaries taken as a whole, as a result of the
Merger, (iii) materially limit or restrict Telegen's conduct or operation of the
business of the Surviving Corporation, or (iv) render Telegen, Sub or MSM unable
to consummate the Merger. In the event any such order or injunction shall have
been issued, each party agrees to use its reasonable efforts to have any such
injunction lifted.
(c) Statutes. No action shall have been taken, and no statute, rule,
--------
regulation or order shall have been enacted, promulgated or issued or deemed
applicable to the Merger by any Governmental Entity which would (i) make the
consummation of the Merger illegal, (ii) prohibit Telegen's or MSM's ownership
or operation of all or a material portion of the business or assets of MSM or
Telegen and its Subsidiaries taken as a whole, or compel Telegen or MSM to
dispose of or hold separate all or a material portion of the business or assets
of MSM or Telegen and its Subsidiaries taken as a whole, as a result of the
Merger, (iii) limit or restrict Telegen's conduct or operation of the business
of MSM, or (iv) render Telegen, Sub or MSM unable to consummate the Merger,
except for any waiting period provisions.
(d) Pooling of Interests Transaction. Telegen's accounting firm,
--------------------------------
Coopers & Lybrand L.L.P. ("C&L") shall have informed Telegen that it is not
aware of any fact that would preclude Telegen from accounting for the Merger as
a pooling of interests, and Telegen shall have received an opinion that the
Merger will qualify as a pooling of interests transaction for financial
reporting purposes.
6.2 CONDITIONS OF OBLIGATIONS OF TELEGEN AND SUB. The obligations of
--------------------------------------------
Telegen and Sub to effect the Merger are subject to the satisfaction of the
following conditions, unless waived by Telegen and Sub:
(a) Representations and Warranties. The representations and
------------------------------
warranties of MSM set forth in this Agreement shall be true and correct in all
material respects (except for such representations and warranties which are
qualified by their terms by a reference to materiality, which representations
and warranties as so qualified shall be true in all respects) as of the date of
this Agreement, except as otherwise contemplated by this Agreement, and except
for any inaccuracies that alone or taken together would not be material and
adverse to the Business Condition of MSM.
(b) No Material Adverse Change. There shall have been no material
--------------------------
adverse change in the Business Condition (either actual or as such condition has
been represented pursuant to Article III hereof) of MSM on or before the Closing
Date, and Telegen shall have received a certificate signed by the chief
executive officer and the chief financial officer of MSM to such effect on the
Closing Date.
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<PAGE>
(c) Performance of Obligations of MSM. MSM shall have performed in
---------------------------------
all material respects all obligations and covenants required to be performed by
it under this Agreement and the Certificate of Merger prior to the Closing Date,
except for such failures of performance that are not material and adverse to the
Business Condition of MSM, and Telegen shall have received a certificate signed
by the chief executive officer and the chief financial officer of MSM to such
effect.
(d) Affiliates Agreements. Telegen shall have received from each
---------------------
person or entity who may be deemed pursuant to Section 5.12 hereof to be an
Affiliate of MSM a duly executed Affiliates Agreement, substantially in the form
attached hereto as Exhibit 5.12.
------------
(e) Opinion of MSM's Counsel. Telegen shall have received an opinion
------------------------
dated the Closing Date of Lowenstein Sandler Kohl Fisher & Boylan, P.C., counsel
to MSM, in form and substance reasonably satisfactory to Telegen and customary
in scope and substance for an opinion delivered by counsel to the acquired
company in acquisitions such as the Merger.
(f) FIRPTA. Telegen shall have received from each Shareholder a
------
properly executed Certification of Non-Foreign Status, conforming to the
requirements of Treasury Regulation Section 1.1445-2(b), which states that the
Shareholder is not a foreign person.
(g) Consents. Telegen shall have received duly executed copies of
--------
all material third-party consents and approvals contemplated by this Agreement
or the MSM Disclosure Schedule in form and substance reasonably satisfactory to
Telegen, except for such consents which if not received would not be material
and adverse to the Business Condition of MSM, and except for those consents
disclosed by MSM to Telegen in Section 3.30 of the MSM Disclosure Schedule.
(h) Employment Agreements. Each Shareholder shall have executed an
---------------------
Employment Agreement substantially in the form of agreement attached as Exhibit
-------
6.2(i).
- ------
6.3 CONDITIONS OF OBLIGATION OF MSM. The obligation of MSM to effect the
-------------------------------
Merger is subject to the satisfaction of the following conditions unless waived
by MSM:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Telegen and Sub set forth in this Agreement shall be true and
correct in all material respects (except for such representations and warranties
which are qualified by their terms by a reference to materiality, which
representations and warranties as so qualified shall be true in all respects) as
of the date of this Agreement, except as otherwise contemplated by this
Agreement, and except for any inaccuracies that alone or taken together would
not be material and adverse to the Business Condition of Telegen and its
Subsidiaries taken as a whole.
(b) Performance of Obligations of Telegen and Sub. Telegen and Sub
---------------------------------------------
shall have performed in all material respects all obligations and covenants
required to be performed by them under this Agreement and the Agreement of
Merger prior to the Closing Date, except for such failures of performance that
are not material and adverse to the Business Condition of Telegen, and MSM shall
have
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<PAGE>
received a certificate signed by an executive officer and the chief financial
officer of Telegen to such effect.
(c) Opinion of Telegen's Counsel. MSM shall have received an opinion
----------------------------
dated the Closing Date of Wilson Sonsini Goodrich & Rosati, counsel to Telegen,
in form and substance reasonably satisfactory to MSM and customary in scope and
substance for an opinion delivered by counsel to an acquiring company in
acquisitions such as the Merger.
(d) No Material Adverse Change. There shall have been no material
--------------------------
adverse change in the Business Condition (either actual or as such condition has
been represented pursuant to Article IV hereof) of Telegen and its Subsidiaries
taken as a whole on or before the Closing Date, and MSM shall have received a
certificate signed by the chief executive officer and the chief financial
officer of Telegen to such effect on the Closing Date. MSM acknowledges that
the announcement of the transactions contemplated by this Agreement may have an
adverse effect on the price of Telegen's Common Stock and be disruptive to the
business of Telegen. MSM agrees that, for the purposes of this Section 6.3(d),
any disruption to Telegen's business or drop in the price of Telegen's Common
Stock attributable to such announcement shall not constitute a material adverse
change in the Business Condition of Telegen.
(e) Telegen shall have delivered to the Transfer Agent a letter of
instruction regarding the resale of the Registrable Shares in a form acceptable
of MSM's counsel.
ARTICLE VII
INDEMNIFICATION AND CONTRIBUTION
7.1 INDEMNIFICATION OBLIGATION.
--------------------------
From and after the Closing, the Shareholders will, severally and not
jointly reimburse, defend, indemnify and hold harmless Telegen and its
successors and assigns (each an "Indemnitee") against and in respect of any and
all damages, losses, deficiencies, liabilities, costs and expenses (including,
without limitation, legal fees and expenses) (collectively "Losses") incurred or
suffered by any Indemnitee that result from, relate to or arise out of any
misrepresentation, breach of warranty or nonfulfillment of MSM or one or more
of the Shareholders, or from any misrepresentation in or omission from any
certificate, schedule, statement, document or instrument furnished to Telegen
pursuant hereto or in connection with the negotiation, execution or performance
of this Agreement, or any action, suit, claim, proceeding, investigation,
demand, assessment, audit, fine, or judgment incident to any of the foregoing
or to the enforcement of this SECTION 7.1.
7.2 LIMITATIONS ON INDEMNITY. The obligations of the Shareholders are
-------------------------
subject to the following limitations:
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<PAGE>
(a) The Shareholders shall only be liable to the extent the Losses
exceed $100,000 in the aggregate.
(b) The Indemnities' sole and exclusive remedy for any damages,
losses, claims, compensation or other costs under this Agreement shall be to
recover from any Shareholder the Consideration Shares or the amount of proceeds
received by such Shareholder from the sale of the Consideration Shares received
by such Shareholder.
(c) The Shareholders shall not be liable with respect to any matter
for which notice
has not been given to the Shareholders within one year of the Closing Date.
7.3 SOLE AND EXCLUSIVE REMEDY; WAIVER. Any person or entity providing
---------------------------------
indemnification pursuant to the provisions of this Article VII is hereinafter
referred to as an "Indemnifying Party" and any person or entity entitled to be
indemnified pursuant to the provisions of this Article VII is hereinafter
referred to as an "Indemnified Party." The provisions of this Article VII shall
constitute the sole and exclusive remedy of any Indemnified Party after the
Effective Time of the Merger for (i) Losses arising out of, resulting from or
incurred in connection with any inaccuracy and/or breach by the Indemnifying
Party of any of its representations or warranties under this Agreement
(including the related financial statements and Disclosure Schedules) or any
certificate delivered in connection herewith, (ii) the failure of the
Indemnifying Party to perform any covenant or agreement under this Agreement, or
(iii) any other act or omission by the Indemnifying Party under this Agreement
or relating to the subject matter hereof. Any other rights to indemnification
or Losses to which an Indemnified Party might otherwise be entitled after the
Effective Time of the Merger, whether now existing or hereafter arising, are
hereby waived to the maximum extent permitted by applicable law. Telegen, Sub
and MSM, on their own behalf and on behalf of their respective affiliates, their
respective officers, directors, employees, agents and representatives, and any
person or entity claiming by or through any of them, hereby waive, to the
maximum extent permitted by applicable law, any and all other claims which may
arise hereunder against the officers, directors, employees, agents and
representatives of Telegen, Sub or MSM.
7.4 PROCEDURES OF THIRD PARTY CLAIMS. In the case of any claim for
--------------------------------
indemnification arising from a claim of a third party (a "Third Party Claim"),
an Indemnified Party shall give prompt written notice to the Indemnifying Party
of any claim or demand of which such Indemnified Party has knowledge and as to
which it may request indemnification hereunder. The Indemnifying Party shall
have the right to defend and to direct the defense against any such Third Party
Claim, in its name or in the name of the Indemnified Party, as the case may be,
at the expense of the Indemnifying Party, and with counsel selected by the
Indemnifying Party unless (i) such Third Party Claim seeks an order, injunction
or other equitable relief against the Indemnified Party, or (ii) the Indemnified
Party shall have reasonably concluded that (x) there is a conflict of interest
between the Indemnified Party and the Indemnifying Party in the conduct of the
defense of such Third Party Claim or (y) the Indemnified Party has one or more
defenses not available to the Indemnifying Party. Notwithstanding anything in
this Agreement to the contrary, the Indemnified Party shall, at the expense of
the Indemnifying Party, cooperate with the Indemnifying Party, and keep the
Indemnifying Party fully informed, in the defense of such Third Party Claim.
The Indemnified Party shall have the right to participate in the defense of any
Third Party Claim
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<PAGE>
with counsel employed at its own expense; provided, however, that, in the case
-----------------
of any Third Party Clam or demand described in clause (i) or (ii) of the second
preceding sentence or as to which the Indemnifying Party shall not in fact have
employed counsel to assume the defense of such Third Party Claim, the reasonable
fees and disbursements of such counsel shall be at the expense of the
Indemnifying Party. The Indemnifying Party shall have no indemnification
obligations with respect to any such Third Party Claim or demand which shall be
settled by the Indemnified Party without the prior written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
7.5 PROCEDURES FOR INTER-PARTY CLAIMS. In the event that an Indemnified
---------------------------------
Party determines that it has a claim for Losses against an Indemnifying Party
hereunder (other than as a result of a Third Party Claim), the Indemnified Party
shall give prompt written notice thereof to the Indemnifying Party, specifying
the amount of such claim and any relevant facts and circumstances relating
thereto. The Indemnified Party shall provide the Indemnifying Party with
reasonable access to its books and records for the purpose of allowing the
Indemnifying Party a reasonable opportunity to verify any such claim for Losses.
The Indemnified Party and the Indemnifying Party shall negotiate in good faith
the resolution of any disputed claims for Losses.
ARTICLE VIII
TERMINATION
8.1 TERMINATION.
-----------
(a) This Agreement may be terminated at any time prior to the
Effective Time of the Merger, whether before or after approval of the Merger by
the stockholders of MSM:
(i) by mutual agreement of the Boards of Directors of Telegen
and MSM;
(ii) by Telegen, if there has been a breach by MSM of any
representation, warranty, covenant or agreement set forth in this Agreement on
the part of MSM resulting in a material adverse change in the Business Condition
of MSM and which MSM fails to cure within five (5) business days after notice
thereof is given by Telegen (except that no cure period shall be provided for a
breach by MSM which by its nature cannot be cured);
(iii) by MSM, if there has been a breach by Telegen or Sub of
any representation, warranty, covenant or agreement set forth in this Agreement
on the part of Telegen or Sub resulting in a material adverse change in the
Business Condition of Telegen and which Telegen or Sub, as the case may be,
fails to cure within five (5) business days after notice thereof is given by MSM
(except that no cure period shall be provided for a breach by Telegen or Sub
which by its nature cannot be cured);
(iv) by MSM or Telegen, if the Merger shall not have been
consummated on or before December 31, 1996;
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<PAGE>
(b) Where action is taken to terminate this Agreement pursuant to
this Section 8.1, it shall be sufficient authorization for such action to be
authorized by the Board of Directors of the party taking such action.
(c) In the event of termination of this Agreement as provided in this
SECTION 8.1, this Agreement shall forthwith become void; provided, however, that
-----------------
the agreements contained or referred to in SECTION 5.9 ("Brokers or Finders;
Professional Fees"), SECTION 5.10 ("Public Announcements"), SECTION 5.12
("Expenses") shall survive. In the event of termination of this Agreement
pursuant to the events or conditions set forth in SUBSECTIONS 8.1(a)(i) AND
(iv), no party shall be liable for any costs, charges, expenses or fees of any
other party. Nothing herein will relieve any party from liability for any breach
of any representation, warranty, agreement or covenant contained herein prior to
such termination. In addition, in no event will any party to this Agreement be
liable for special, consequential or indirect damages relating to or arising out
of this Agreement, except for such damages arising out of actual fraud or
intentional misrepresentation.
ARTICLE IX
POST-CLOSING COVENANTS AND GENERAL PROVISIONS
9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
------------------------------------------------------
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement (each as modified by the MSM Disclosure Schedules)
made by MSM or the Shareholders shall terminate one year after at the Effective
Time of the Merger. All representations and warranties in this Agreement made
by Telegen or in any instrument delivered pursuant to this Agreement (each as
modified by the Telegen Disclosure Schedules) shall terminate at the Effective
Time of the Merger. Thereafter, neither Telegen, nor any stockholder of MSM or
Telegen, nor any officer, director, or employee of MSM or Telegen shall have any
liability hereunder except for his or her own personal, actual fraud.
9.2 AMENDMENT. This Agreement may not be amended except by an instrument
---------
in writing signed on behalf of each of the parties hereto.
9.3 EXTENSION; WAIVER. At any time prior to the Effective Time, each of
-----------------
MSM and Telegen, to the extent legally allowed, (a) may extend the time for the
performance of any of the obligations or other acts of the other, (b) may waive
any inaccuracies in the representations and warranties made to it contained
herein or in any document delivered pursuant hereto, and (c) may waive
compliance with any of the agreements or conditions for the benefit of it
contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party.
9.4 NOTICES. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given (a) on the same day if delivered personally,
(b) three (3) business days after being mailed by registered or certified mail
(return receipt requested), or (c) on the same day if sent by telecopy,
-38-
<PAGE>
confirmation received, to the parties at the following addresses and telecopy
numbers (or at such other address or number for a party as shall be specified by
like notice):
(w) If to Telegen or Sub, to:
Telegen Corporation
101 Saginaw Drive
Redwood City, California 94063
Attention: Warren M. Dillard
Telephone No.: (415) 261-9400
Telecopy No.: (415) 261-9468
with copy to:
(x) Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attn: Thomas C. DeFilipps, Esq.
Telephone No.: (415) 493-9300
Telecopy No.: (415) 493-6811
(y) if to MSM, to:
Morning Star Multimedia, Inc.
29 West Ridgewood Avenue
Ridgewood, New Jersey 07450
Attn: Daniel J. Kitchen
Telephone No.: (201) 251-3628
Telecopy No.: (201) 251-1768
with a copy to:
Lowenstein Sandler Kohl
Fisher & Boylan, P.C.
65 Livingston Avenue
Roseland, New Jersey 07068-1791
Attn: John R. Mackay II, Esq.
Telephone No.: (201) 992-8700
Telecopy No.: (201) 992-5820
9.5 INTERPRETATION. When a reference is made in this Agreement to
--------------
Sections or Exhibits, such references shall be to a Section or Exhibit to this
Agreement unless otherwise indicated. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be followed by
-39-
<PAGE>
the words "without limitation." The table of contents and headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
9.6 COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party.
9.7 ENTIRE AGREEMENT. This Agreement and the documents and instruments
----------------
and other agreements among the parties delivered pursuant hereto constitute the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof and are not intended to
confer upon any other person any rights or remedies hereunder except as
otherwise expressly provided herein.
9.8 NO TRANSFER. This Agreement and the rights and obligations set forth
-----------
herein may not be transferred or assigned by operation of law or otherwise
without the consent of each party hereto. Any assignment in violation of this
Section 8.8 shall be null and void. This Agreement is binding upon and will
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
9.9 SEVERABILITY. If any provision of this Agreement, or the application
------------
thereof, will for any reason and to any extent be invalid or unenforceable, the
remainder of this Agreement and application of such provision to other persons
or circumstances will be interpreted so as reasonably to effect the intent of
the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provision.
9.10 OTHER REMEDIES. Except as otherwise provided herein, any and all
--------------
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby or by law or equity on
such party; and the exercise of any one remedy will not preclude the exercise of
any other.
9.11 FURTHER ASSURANCES. Each party agrees to cooperate fully with the
------------------
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
any other party to evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Agreement.
9.12 ABSENCE OF THIRD-PARTY BENEFICIARY RIGHTS. No provision of this
-----------------------------------------
Agreement is intended, or will be interpreted, to provide to or create for any
third-party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder, employee, partner or any party hereto or any
other person or entity, and all provisions hereof will be personal solely
between the parties to this Agreement.
-40-
<PAGE>
9.13 MUTUAL DRAFTING. This Agreement is the joint product of Telegen and
---------------
MSM, and each provision hereof has been subject to the mutual consultation,
negotiation and agreement of Telegen and MSM, and shall not be construed for or
against any party hereto.
9.14 GOVERNING LAW. This Agreement shall be governed in all respects,
-------------
including validity, interpretation and effect, by the laws of the State of
California (without giving effect to its choice of law principles).
-41-
<PAGE>
IN WITNESS WHEREOF, Telegen, Sub and MSM have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
TELEGEN CORPORATION
By: /s/ Jessica L. Stevens
-----------------------
Jessica L. Stevens
Chairman of the Board and President
MORNING STAR ACQUISITION
CORPORATION
By:/s/ Jessica L. Stevens
----------------------
Jessica L. Stevens
President
MORNING STAR MULTIMEDIA, INC.
By:/s/ Daniel J. Kitchen
---------------------
Daniel J. Kitchen
President
/s/ Daniel J. Kitchen
---------------------
Daniel J. Kitchen
/s/ Kevin C. Mitchell
---------------------
Kevin C. Mitchell
/s/ Dennis P. Huzey
-------------------
Dennis P. Huzey
<PAGE>
AFFILIATES AGREEMENT
This Affiliates Agreement ("Agreement") is entered into as of the ____day
of December, 1996 between Telegen Corporation, a California corporation
("Telegen"), Morning Star Multimedia, Inc., a New Jersey corporation ("MSM")
and the undersigned stockholder (the "Stockholder") of MSM.
MSM, Telegen and Morning Star Acquisition Corporation, a California
corporation and a wholly-owned subsidiary of Telegen ("Sub"), have entered into
an Agreement and Plan of Reorganization and Merger, dated as of December __,
1996 (the "Reorganization Agreement"), providing for the merger of Sub with and
into MSM (the "Merger") pursuant to which MSM will become a wholly-owned
subsidiary of Telegen. Upon the consummation of the Merger and in connection
therewith, the undersigned Stockholder may become the owner of shares of Common
Stock of Telegen (the "Telegen Shares"). It is intended that the Merger will be
treated as a "pooling-of-interests" in accordance with generally accepted
accounting principles and the applicable General Rules and Regulations published
by the Securities and Exchange Commission (the "SEC").
1. The undersigned Stockholder hereby represents, warrants and agrees that:
a. The undersigned Stockholder may be deemed to be an "affiliate" of MSM
within the meaning of Rule 145 under the Securities Act of 1933, as amended (the
"Securities Act"), and Accounting Series Releases 130 and 135, as amended, of
the SEC.
b. The undersigned Stockholder will not sell, exchange, transfer, pledge,
dispose or otherwise reduce his risk relative to any shares of MSM owned by the
undersigned (the "MSM Shares") prior to the Effective Time of the Merger. MSM,
at its discretion, may cause stop transfer orders to be placed with its transfer
agent with respect to the certificates for the MSM Shares.
c. The undersigned Stockholder will not sell, exchange, transfer, pledge,
dispose or otherwise reduce his risk relative to the Telegen Shares or any part
thereof until such time after the Effective Time of the Merger (as defined in
the Merger Agreement) as financial results covering at least thirty (30) days of
the combined operations of Telegen and MSM after the Effective Time of the
Merger have been filed by Telegen with the SEC or published by Telegen in an
Annual Report on Form 10-KSB, a Quarterly Report on Form 10-QSB, a Current
Report on Form 8-K, a quarterly earnings report, a press release or other public
issuance which includes combined sales and income of MSM and Telegen. Telegen
agrees to make such filing or publication as soon as practicable.
d. Subject in any event to paragraph c. of this Section 1., the undersigned
Stockholder agrees not to offer, sell, exchange, transfer, pledge or otherwise
dispose of any of the Telegen Shares unless at that time either:
i. such transaction shall be permitted pursuant to the provisions of
Rule 145(d) under the Securities Act, as evidenced by a representation letter by
the undersigned and a broker's letter each stating that the requirements of Rule
145(d) have been met;
<PAGE>
ii. counsel representing the undersigned Stockholder, satisfactory to
Telegen, shall have advised Telegen in a written opinion letter satisfactory to
Telegen and Telegen's counsel, and upon which Telegen and its counsel may rely,
that no registration under the Securities Act would be required in connection
with the proposed sale, transfer or other disposition;
iii. a registration statement under the Securities Act covering the
Telegen Shares proposed to be sold, transferred or otherwise disposed of,
describing the manner and terms of the proposed sale, transfer or other
disposition, and containing a current prospectus, shall have been filed with the
SEC and made effective under the Securities Act; or
iv. an authorized representative of the SEC shall have rendered written
advice to the undersigned Stockholder (sought by the undersigned Stockholder or
counsel to the undersigned Stockholder, with a copy thereof and of all other
related communications delivered to Telegen) to the effect that the SEC would
take no action, or that the staff of the SEC would not recommend that the SEC
take action, with respect to the proposed sale, transfer or other disposition if
consummated.
e. All certificates representing the Telegen Shares deliverable to the
undersigned Stockholder pursuant to the Merger Agreement and in connection with
the Merger and any certificates subsequently issued with respect thereto or in
substitution therefor shall, unless one or more of the alternative conditions
set forth in the subparagraphs of paragraph d. of this Section 1. shall have
occurred, bear a legend substantially as follows:
"The shares represented by this certificate may not be offered, sold,
pledged, transferred or otherwise disposed of except in accordance with the
requirements of the Securities Act of 1933, as amended, and the other conditions
specified in that certain Affiliates Agreement, dated as of December 31, 1996,
among Telegen Corporation, Morning Star Multimedia, Inc. and certain of the
stockholders of Morning Star Multimedia, Inc., a copy of which Affiliates
Agreement may be inspected by the holder of this certificate at the offices of
Telegen Corporation, 101 Saginaw Road, Redwood City, California, or Telegen
Corporation will furnish, without charge, a copy thereof to the holder of this
certificate upon written request therefor."
Telegen, at its discretion, may cause stop transfer orders to be placed with its
transfer agent(s) with respect to the certificates for the Telegen Shares but
not as to the certificates for any part of the Telegen Shares as to which said
legend is no longer appropriate when one or more of the alternative conditions
set forth in the subparagraphs of paragraph d. of this Section 1. shall have
occurred. Telegen covenants that upon the request of the undersigned
Stockholder, it will remove said legend when one or more of the alternative
conditions set forth in the subparagraphs of paragraph d. of this Section 1.
shall have occurred.
2. Voting of Shares; Proxy. (a) The undersigned Stockholder agrees that he
-----------------------
shall vote all Shares owned by the undersigned Stockholder at any meeting of
MSM's shareholders (whether annual or special and whether or not an adjourned
meeting), or, if applicable, take action by written consent, (A) for adoption
and approval of the Merger and any other transaction contemplated by the Merger
Agreement
-2-
<PAGE>
and (B) against any action, omission or agreement which would or could impede or
interfere with, or have the effect of discouraging, the Merger, including,
without limitation, any Acquisition Proposal (as defined in the Merger
Agreement) other than the Merger. Any such vote shall be cast or consent shall
be given in accordance with such procedures relating thereto as shall ensure
that it is duly counted for purposes of determining that a quorum is present and
for purposes of recording the results of such vote or consent.
a. The undersigned Stockholder will observe and comply with the Securities
Act and the General Rules and Regulations thereunder, as now in effect and as
from time to time amended and including those hereafter enacted or promulgated,
in connection with any offer, sale, pledge, transfer or other disposition of the
Telegen Shares or any part thereof.
3. Reports. From and after the Effective Time of the Merger and for so long as
-------
necessary in order to permit the undersigned Stockholder to sell the Telegen
Shares pursuant to Rule 145 and, to the extent applicable, Rule 144 under the
Securities Act, Telegen will use its best efforts to file on a timely basis all
reports required to be filed by it pursuant to Section 13 of the Securities
Exchange Act of 1934, referred to in paragraph (c)(1) of Rule 144 under the
Securities Act (or, if applicable, Telegen will use its best efforts to make
publicly available the information regarding itself referred to in paragraph
(c)(2) of Rule 144), in order to permit the undersigned Stockholder to sell,
pursuant to the terms and conditions of Rule 145 and the applicable provisions
of Rule 144, the Telegen Shares.
4. Waiver. No waiver by any party hereto of any condition or of any breach of
------
any provision of this Affiliates Agreement shall be effective unless in writing.
5. Notices. All notices, requests, demands or other communications which are
-------
required or may be given pursuant to the terms of this Affiliates Agreement
shall be in writing and shall be deemed to have been duly given if delivered by
hand or (except where receipt thereof is specifically required for purposes of
this Affiliates Agreement) mailed by registered or certified mail, postage
prepaid, as follows:
a. If to the Stockholder, at the address set forth below the Stockholder's
signature at the end hereof.
b. If to Telegen:
Telegen Corporation
101 Saginaw Road
Redwood City, CA 94063
Attn: Warren M. Dillard
Telephone No.: (415) 261-9400
Telecopy No.: (415) 261-9468
-3-
<PAGE>
With a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Attn: Thomas C. DeFilipps, Esq.
Telephone No.: (415) 493-9300
Telecopy No.: (415) 493-6811
c. If to MSM:
Morning Star Multimedia, Inc.
730 Ackerman Avenue
Glen Rock, NJ 07452
Attn: Daniel J. Kitchen
Telephone No.: (201) 253-3628
Telecopy No.: (201) 251-1768
With a copy to:
Lowenstein, Sandler
65 Livingston Avenue
Roseland, NJ 07068-1791
Attn: John MacKay, Esq.
Telephone No.: (415) 843-5000
Telecopy No.: (415) 857-0663
or to such other address as any party hereto may designate for itself by notice
given as herein provided.
6. Counterparts. For the convenience of the parties hereto, this Affiliates
------------
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
document.
7. Successors and Assigns. This Affiliates Agreement shall be enforceable by,
----------------------
and shall inure to the benefit of and be binding upon, the parties hereto and
their respective successors and assigns. As used herein, the term "successors
and assigns" shall mean, where the context so permits, heirs, executors,
administrators, trustees and successor trustees, and personal and other
representatives.
8. Governing Law. This Affiliates Agreement shall be governed by and construed,
-------------
interpreted and enforced in accordance with the laws of the State of California.
9. Severability. This Affiliates Agreement shall become effective at the
------------
Effective Time of the Merger. If a court of competent jurisdiction determines
that any provision of this Affiliates Agreement
-4-
<PAGE>
is not enforceable or enforceable only if limited in time and/or scope, this
Affiliates Agreement shall continue in full force and effect with such provision
stricken or so limited.
10. Attorneys' Fees. In the event of any legal action or proceeding to enforce
---------------
or interpret the provisions hereof, the prevailing party shall be entitled to
reasonable attorneys' fees, whether or not the proceeding results in a final
judgement.
11. Effect of Headings. The section headings herein are for convenience only and
------------------
shall not affect the construction or interpretation of this Affiliates
Agreement.
12. Definitions. All capitalized terms used herein shall have the meaning
-----------
defined in the Reorganization Agreement, unless otherwise defined herein.
13. Third Party Reliance. Counsel to and accountants for the parties shall be
--------------------
entitled to rely upon this Affiliates Agreement as needed.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Affiliates Agreement to be
executed as of the date first above written.
TELEGEN CORPORATION
By:___________________________________
Title:________________________________
MORNING STAR MULTIMEDIA, INC.
By:__________________________________
Title:_______________________________
STOCKHOLDER
_____________________________________
(Print Stockholder Name)
_____________________________________
(Signature)
Address:_____________________________
_____________________________
_____________________________
Telephone No.:_______________________
-6-
<PAGE>
INDEMNIFICATION AND CONTRIBUTION WITH RESPECT TO THE REGISTRABLE SHARES
-----------------------------------------------------------------------
Any capitalized terms not defined in this EXHIBIT 5.14 shall have the
meaning(s) attributed to them in the Agreement and Plan of Reorganization and
Merger among Telegen Corporation, Morning Star Acquisition Corporation, Morning
Star Multimedia, Inc., Daniel J. Kitchen, Kevin C. Mitchell, and Dennis P.
Huzey, dated as of December 31, 1996.
(a) Indemnification by Shareholders of Registrable Shares. In
-----------------------------------------------------
connection with the Registration Statement each Shareholder, whose Registrable
Shares are covered thereby, shall furnish to Telegen in writing such information
and affidavits with respect to such Shareholder as Telegen reasonably requests
for use in connection with such Registration Statement, any related prospectus
or preliminary prospectus, or any amendment or supplement thereto, and shall
indemnify, to the full extent permitted by law, Telegen, Telegen's directors,
officers, employees, and agents, each person who controls Telegen (within the
meaning of the Securities Act) and any investment adviser thereof or agent
therefor, against all losses, claims, damages, liabilities and expenses
(including costs of investigation and legal expenses) arising out of or based
upon any untrue or alleged untrue statement of a material fact contained in the
Registration Statement, any related prospectus or preliminary prospectus, or any
amendment or supplement thereto, or any omission or alleged omission to state,
in any thereof, a material fact required to be stated therein or necessary to
make the statements therein (in the case of a prospectus or prospectus
supplement, in light of the circumstances under which they were made) not
misleading, in each case to the extent, but only to the extent, that the same
arises out of or is based upon an untrue statement or alleged untrue statement
of a material fact or an omission or alleged omission to state a material fact
in such Registration Statement or in such related prospectus, preliminary
prospectus, amendment or supplement, as the case may be, made or omitted, as the
case may be, in reliance upon and in conformity with written information
furnished to Telegen by such Shareholder expressly for use therein.
Notwithstanding any other provisions hereof, in no event shall the
indemnification obligation of any Shareholder be greater in amount than the
dollar amount of the proceeds received by such Shareholder upon the sale of the
Registrable Shares giving rise to such obligation.
(b) Indemnification by the Company. The Company shall indemnify, to
------------------------------
the full extent permitted by law, each Shareholder against all losses, claims,
damages, liabilities and expenses (including costs of investigation and legal
expenses) arising out of or based upon any untrue or alleged untrue statement of
a material fact contained in the Registration Statement, any related prospectus
or preliminary prospectus, or any amendment or supplement thereto, or any
omission or alleged omission to state, in any thereof, a material fact required
to be stated therein (in the case of a prospectus or prospectus supplement, in
light of the circumstances under which they were made) not misleading, except in
each case insofar, but only insofar, as the same arises out of or is based upon
an
<PAGE>
untrue statement or alleged untrue statement of a material fact or an omission
or alleged omission to state a material fact in such Registration Statement,
prospectus, amendment or supplement, as the case may be, made or omitted as the
case may be, in reliance upon and in conformity with written information
furnished to the Company by such Holder expressly for use therein. This
indemnity is in addition to any liability that the Company may otherwise have.
(c) Conduct of Indemnification Proceedings. Any person entitled
--------------------------------------
to indemnification under this EXHIBIT 5.14 agrees to give prompt written notice
to the indemnifying party after the receipt by such person of any written notice
of the commencement of any action, suit proceeding or investigation or threat
thereof made in writing for which such person will claim indemnification or
contribution pursuant to this EXHIBIT 5.14 and, unless in the judgment of such
indemnified party a conflict of interest may exist between such indemnifying
party and the indemnified party with respect to such claim, permit
the indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to such indemnified party. If the indemnifying party is
not entitled to, or elects not to, assume the defense of a claim, it shall not
be obligated to pay the fees and expenses of more than one counsel with respect
to such claim, unless in the judgment of counsel to such indemnified party,
expressed in a writing delivered to the indemnifying party, a conflict of
interest may exist between such indemnified party and any other indemnified
party with respect to such claim, in which event the indemnifying party shall be
obligated to pay the fees and expenses of such additional counsel or counsels
(which shall be limited to one counsel per indemnified party). The indemnifying
party shall not be subject to any liability for any settlement made without its
consent, which consent shall not be unreasonably withheld.
(d) If the indemnification provided for in this EXHIBIT 5.14 from the
indemnifying party is unavailable to any indemnified party hereunder in respect
of any losses, claims, damages, liabilities or expenses referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the action(s) that resulted in
such losses, claims damages, liabilities or expenses, as well as any other
relevant equitable consideration. The relative fault of such indemnifying party
and indemnifying parties shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact, has been made by, or relates intent, knowledge, access to information and
opportunity to correct or prevent such action. The amount paid or payable by a
party as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitation set
forth in SECTION (c) herein, any legal or other fees or expenses reasonably
incurred by such party in connection with any investigation or proceeding.
(e) The parties hereto agree that it would not be just and equitable
if contribution pursuant to this EXHIBIT 5.14 were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding any other provision hereof, in no event shall the contribution
obligation of any Shareholder be greater in amount that the excess of (A) the
dollar amount of the proceeds received by such Shareholder upon the sale of the
Registrable Shares giving rise to such
<PAGE>
contribution obligation over (B) the dollar amount of any damages that such
Shareholder has otherwise been required to pay by reason of the untrue or
alleged untrue statement or omission or alleged omission giving rise to such
obligation. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
(f) If indemnification is available under this EXHIBIT 5.14, the
indemnifying party shall indemnify each indemnified party to the full extent
provided in SECTIONS (a) and (b) herein without regard to the relative fault of
said indemnifying party or indemnified party or any other equitable
consideration provided for in SECTIONS (d) and (e) herein.
<PAGE>
CONTRACT FOR EMPLOYMENT
-----------------------
MORNING STAR MULTIMEDIA, INC. a New Jersey corporation, located at 29 W.
Ridgewood Ave., Ridgewood, New Jersey 07450 or any affiliate or successor to
substantially all of the assets of Morning Star Corporation, hereinafter
referred to as Employer, and hereinafter referred to as the
-------------
Employee, in consideration of the mutual promises made herein, agree as of
January 1, 1997, as follows:
ARTICLE 1. EMPLOYMENT
----------------------
SECTION 1.01. Employer hereby employs Employee and Employee hereby accepts
employment with Employer until terminated as provided herein beginning on
January 1, 1997.
SECTION 1.02. This agreement may be terminated earlier as hereinafter
provided [notwithstanding the provisions of SECTION 1.01, above].
ARTICLE 2. DUTIES OF EMPLOYEE
------------------------------
SECTION 2.01. The Employer desires to retain the Employee to undertake a
variety of duties as may be determined by Employer from time to time.
SECTION 2.02. It is hereby agreed that the Employer does retain and
employ the said Employee subject to the following terms, conditions, and
stipulations:
a. the Employee agrees that to the best of Employee's ability and
experience will at all times loyally and conscientiously perform all of the
duties and obligations either expressly or implicitly required of Employee by
the terms and conditions of this agreement;
b. the Employee's performance of the duties hereunder shall, at all times,
be rendered to Employer's reasonable satisfaction. The Employee expressly
agrees that Employer shall be the sole judge as to whether the services of
Employee are satisfactory.
c. Employee shall perform such duties as specifically directed by Employer
at the times and places reasonably specified by Employer for A period of not
less than 40 hours per week.
ARTICLE 3. COMPENSATION
------------------------
SECTION 3.01. Employer shall pay Employee such compensation for services
as may be rendered under this contract, at the rate of $ ,000 per year in
-----
cash plus standard employee benefits, including the Incentive Stock Option Plan
and stock Purchase Plan adopted by the shareholders of Employer. Upon
completion of 30 days satisfactory service, Employee shall be awarded a grant of
either Common Stock in Employer valued at 5% of the annual salary using the then
market value per share or options to purchase a similar number of
<PAGE>
shares of such stock at such market value, such options to be fully vested and
exercisable within 5 years of the date of grant.
ARTICLE 4. NONCOMPETITION AND CONFIDENTIALITY
----------------------------------------------
SECTION 4.01. During the term of this contract Employee shall not,
directly or indirectly, either as an employee, employer, consultant, agent,
principal, partner, stockholder, corporate officer, director, or in any other
individual or representative capacity, engage or participate in any business
that is in competition in any manner whatsoever with the business of Employer.
Employee Initial here.
- --------------
SECTION 4.02. Employee acknowledges and agrees that the sale or
unauthorized use or disclosure of any of Employer's trade secrets obtained by
Employee during employment with Employer, including information concerning
Employer's current products and any future or proposed products or services, the
facts that those products or services are planned, under consideration, or in
production, as well as any descriptions of the features of those products or
services constitute unfair competition. Employee promises and agrees not to
engage in any unfair competition with Employer either during the term of this
agreement or within five (5) years thereafter.
Employee Initial here.
- --------------
SECTION 4.03. Employee agrees at all times during the term of his/her
employment and thereafter to hold in strictest confidence, and not to use,
except for the benefit of the Company, or to disclose to any person, firm or
corporation without written authorization of the Company, any trade secrets,
confidential knowledge, data or other proprietary information relating to
products, processes, know-how, designs, formulas, developmental or experimental
work, computer programs, data bases, other original works of authorship,
customer lists or other customer information, business plans, financial
information or other subject matter pertaining to any business of the Company or
any of its clients, consultants, or licensees.
Employee Initial here.
- --------------
Page 2
<PAGE>
SECTION 4.04. Employee agrees that he/she will not, during his/her
employment with the Company, improperly use or disclose any proprietary
information or trade secrets of his/her former or concurrent employers or
companies, or any other person, and that he/she will not bring onto the premises
of the Company any unpublished document or any property belonging to his/her
former or concurrent employers or companies, or any other person, unless
consented to in writing by said employers, companies, or other person.
Employee Initial here.
- --------
SECTION 4.05 Employee recognizes that the Company has received and in the
future will receive from third parties their confidential or proprietary
information subject to a duty on the Company's part to maintain the
confidentiality of such information and to use it only for certain limited
purposes. Employee agrees that he/she owes the Company and such third parties,
during the term of his/her employment and thereafter, a duty to hold all such
confidential or proprietary information in the strictest confidence and not to
disclose it to any person, firm or corporation (except as necessary in carrying
out Employee's work for the Company consistent with the Company's agreement with
such third party) or to use it for the benefit of anyone other than for the
Company or such third party (consistent with the Company's agreement with such
third party) without the express written authorization of the Company.
Employee Initial here.
- --------
SECTION 4.06. In the event that Employee breaches the foregoing obligation
not to compete, the Employee shall be enjoined from engaging in any further
competitive activity and shall be liable to Employer for any reasonable damages
for any such breach occurring prior to the issuance of an injunction.
Employee Initial here.
- --------
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ARTICLE 5. OWNERSHIP OF WORK PRODUCT
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SECTION 5.01. Notwithstanding any statutory, regulatory, and/or public
policy considerations to the contrary, Employee agrees that any and all
intellectual properties, including but not limited to all ideas, concepts,
themes, inventions, designs, improvements and discoveries conceived, developed
or written by Employee, either individually or jointly in collaboration with
others, during the term of Employee's employment with Employer shall be the sole
and separate property of Employer.
SECTION 5.02. Employee further agrees that the understanding set forth in
subparagraph 5.01 above constitutes a complete and express waiver by Employee of
any and all rights to the intellectual property described therein.
SECTION 5.03. Employee will, upon reasonable request, execute such
documents as are requested to effectuate the terms of this Contract.
ARTICLE 6. INDEMNIFICATION
---------------------------
SECTION 6.01. Employee shall indemnify and save Employer harmless from all
liability from loss, damage, or injury to persons or property resulting from the
negligence or misconduct of the Employee.
ARTICLE 7. TERMINATION
-----------------------
SECTION 7.01. If Employee willfully breaches or habitually neglects the
duties that Employee is required to perform under the terms of this agreement,
or demonstrates continued incapacity to perform those duties, Employer may at
its option terminate this agreement by giving written notice of termination to
Employee without prejudice to any other remedy to which Employer may be entitled
either at law, in equity, or under this agreement.
SECTION 7.02. This agreement shall terminate immediately on the occurrence
of any one of the following events:
(1) The occurrence of circumstances that make it impossible or
impracticable for the business of Employer to be continued.
(2) The death of the Employee.
(3) The loss by the Employee of legal capacity.
(4) The loss by Employer of legal capacity to contract.
(5) The dissolution of Employer.
SECTION 7.03. The employment of Employee shall continue only as long as
the services rendered by Employee are satisfactory to Employer, regardless of
any other provision contained in this agreement. Employer shall be the sole
judge as to whether the services of
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Employee are satisfactory provided, however, that Employer's determination with
respect to Employee's services are exercised reasonably and in good faith.
SECTION 7.04. In the event that this agreement is terminated prior to the
completion of the term of employment specified herein, Employee shall
automatically and completely forfeit any unearned or unvested rights that
Employee may have for the fiscal year during which termination of this agreement
occurs.
ARTICLE 8. ARBITRATION
-----------------------
SECTION 8.01. Any controversy or claim arising out of or relating to this
agreement, or the breach thereof shall be settled by arbitration in accordance
with the rules of the American Arbitration Association, and judgment on the
award rendered may be entered in any court having jurisdiction.
SECTION 8.02. [Reserved]
SECTION 8.03. Employer and Employee shall each appoint one person to hear
and determine the dispute and, if the two persons so selected are unable to
agree, those two persons shall select a third impartial arbitrator whose
decision shall be final and conclusive upon both parties.
SECTION 8.04. The cost of arbitration shall be borne by the losing party
or in such proportions as the arbitrator decides.
SECTION 8.05. The result of arbitration hereunder shall be binding upon
the parties.
ARTICLE 9. CORPORATE POLICIES
-----------------------------
SECTION 9.01. From time to time Employer shall institute company-wide
policies affecting all of its employees. Employee shall abide by and conform to
those policies.
SECTION 9.02. Employee shall be enrolled in the Employer's medical plan
with the costs thereof for Employee paid by Employer, and the cost thereof for
any dependents of Employee enrolled in the plan paid by the Employee.
SECTION 9.03. Employee shall be granted up to 10 days of sick leave per
year, accruing ratably over the term of employment, and two weeks of paid
vacation per year, accruing ratably during the year, and available to be taken
only after completion of the first six months of employment.
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ARTICLE 10. RULES GOVERNING AGREEMENT
--------------------------------------
SECTION 10.01. Except as expressly provided for herein, nothing in this
agreement shall constitute or be deemed construed to be a waiver or release by
the parties of any rights, claims, causes of action, defenses or offsets against
any other person or entity not a party of this agreement.
SECTION 10.02. The parties agree not to communicate the terms of this
agreement to any person or entity not a party to this agreement, except
as provided in this paragraph. The parties may disclose the terms of this
agreement to their next of kin, attorneys, accountants (to the extent required
to comply with any law or regulation), auditors, law enforcement agencies,
governmental bodies or regulators or tax authorities.
SECTION 10.03. This agreement shall be interpreted and governed by the
laws of the State of New Jersey. Venue and jurisdiction for any dispute
arising out of this agreement shall be in the Superior Court of the State of
New Jersey for the County of Bergen.
SECTION 10.04. In the execution of this agreement and the negotiations
leading thereto, each party was offered the opportunity to be represented by
counsel of its own selection during such negotiations. Prior to the execution of
this agreement by each party, the party's attorney, if any retained, reviewed
this agreement and made all desirable changes, and advised the party with
respect to the advisability of executing this agreement. Accordingly, the normal
rule of construction providing that any ambiguities are to be resolved against
the drafting party shall not be employed in the interpretation or construction
of this agreement.
SECTION 10.05. This agreement, and the language herein, shall be construed
as a whole according to its fair meaning, and not strictly for or against any of
the parties.
SECTION 10.06. This agreement may be executed in counterparts which, taken
together, shall constitute one and the same agreement and shall be effective as
of the date first written above.
SECTION 10.07. This agreement is the sole, only, entire, and complete
Agreement of the parties relating in any way to the subject matter hereof. No
statements, promises, or representations have been made by any party to another
or are relied upon, and no consideration has been or is offered, promised,
expected, or held out other than that constituted by this agreement. The
conditions precedent to the effectiveness of this agreement exist other than as
may be expressly provided herein. All prior discussions and negotiations have
been and are merged and integrated into and are superseded by this agreement.
This agreement may not be altered, amended or modified except by a writing which
expressly refers to this agreement and is signed subsequent to the execution of
this agreement by the party or parties to any such authorization, amendment or
modification.
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SECTION 10.08. This agreement, and each and every portion thereof, shall
be binding on the successors and assigns of the parties hereto, but the same
shall not be assigned by the Employee without written consent of the Employer.
The parties hereto having first read and understood the foregoing terms and
conditions of this Contract for Employment, executed the same at Ridgewood,
-----------------------
New Jersey.
DATED:
-------------------------- ------------------------------
EMPLOYEE
DATED:
-------------------------- ------------------------------
KEVIN MITCHELL, C.O.O.
- -------------------------------- MORNING STAR MULTIMEDIA, INC.
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