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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
December 31, 1997
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Date of Report (date of earliest event reported)
TELEGEN CORPORATION
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(Exact name of Registrant as specified in its charter)
California 84-0672714
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
333-4037
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(Commission File Number)
101 Saginaw Drive
Redwood City, California 94063
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(Address of principal executive offices)
Registrant's telephone number, including area code: (415) 261-9400
Not Applicable
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(Former name or former address, if changed since last report)
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<PAGE>
Item 2. Disposition of Assets.
On December 31, 1997, Telegen Corporation, a California corporation
(the "Company"), entered into a Stock Purchase Agreement with Morning Star
Acquisition Corporation, a New Jersey corporation ("MAC"), and Morning Star
Multimedia, Inc., a New Jersey corporation ("MSM"), to sell all of the
outstanding stock of its wholly-owned subsidiary MSM, to MAC for $200,000 and
for royalty streams to be paid to the Company for a period of two (2) years from
December 31, 1997 of ten (10) percent of the gross sales received by MSM or MAC
for each PC CD ROM of a story line of Casper-The Interactive Adventure or any
subsequent versions thereof using the same story line, and of five (5) percent
of the gross sales received by MSM or MAC for each PC CD ROM of the story line
of Kristi Yamaguchi Fantasy Skating or any subsequent versions thereof using the
same story line.
Mr. Kitchen is the brother of Jessica Stevens, a director of the
Company, and is Chairman of the Board, President and Chief Executive Officer of
MAC. Kevin Mitchell is a director, Executive Vice President, and Chief Operating
Officer of MAC. Also, Mr. Kitchen and Mr. Mitchell are President, Chief
Executive Officer and Executive Vice President, Chief Operating Officer,
respectively, of MSM.
Item 7. Financial Statements and Exhibits.
(b) Pro Forma Financial Information:
The pro forma financial information to this Form 8-K was
prepared in accordance with Regulation S-X and is as follows:
<PAGE>
TELEGEN CORPORATION
CURRENT REPORT ON FORM 8K
INDEX TO PRO FORMA FINANCIAL STATEMENTS
1. Unaudited Pro Forma Consolidated Balance Sheet as of
September 30, 1997
2. Unaudited Pro Forma Consolidated Statement of Operations for
the Nine Month Period Ended September 30, 1997
3. Unaudited Pro Forma Consolidated Statement of Operations for
the Fiscal Year Ended December 31, 1997
4. Notes to the Unaudited Pro Forma Financial Statements
<PAGE>
<TABLE>
TELEGEN CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(UNAUDITED)
<CAPTION>
September 30,
1997, as
previously Pro forma
reported on Pro forma September 30,
Form 10Q adjustments 1997
------------- -------------- ------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash & Equivalents $ 735,698 $ 30,396 $ 766,094
Acct Rec Trade 138,429 (53,840) 84,589
Acct Rec Other 412,962 412,962
Inventory 145,822 145,822
---------- --------- ----------
Total Current Assets 1,432,911 (23,444) 1,409,467
Property & Equipment (Net) 1,885,430 (235,432) 1,649,998
Other Assets 158,427 (83,245) 75,182
---------- --------- ----------
Total Assets $3,476,768 ($342,121) $3,134,647
========== ========= ==========
LIABILITIES & SHAREHOLDER EQUITY
Current Liabilities:
Current Mat. Notes Payable 241,757 ($ 92,476) 149,281
Accounts Payable Trade 1,473,178 (187,417) 1,285,761
Accounts Payable Other 0 0
Accrued Expenses 889,995 (102,276) 787,719
---------- --------- ----------
Total Current Liabilities 2,604,930 (382,169) 2,222,761
---------- --------- ----------
Capital lease 6,912 (6,912) 0
---------- --------- ----------
Total Liabilities 2,611,842 (389,081) 2,222,761
---------- --------- ----------
Commitments and Contingencies
Minority Interests 84,721 84,721
---------- --------- ----------
Shareholder's Equity (deficit):
Series A Convertible Preferred Stock 2,429,245 2,429,245
Common Stock 13,445,998 13,445,998
Additional Paid In Capital 3,309,719 3,309,719
Accumulated Deficit (18,404,757) 46,960 (18,357,757)
---------- --------- ----------
Total Shareholder's Deficit 780,205 46,960 827,165
---------- --------- ----------
Total Liabilities & Shareholders Equity $ 3,476,768 ($ 342,121) $3,134,647
=========== ========== ==========
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE PRO FORMA FINANCIAL STATEMENTS
</FN>
</TABLE>
<PAGE>
<TABLE>
TELEGEN CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<CAPTION>
For the nine months
ended September 30, Pro forma for
1997, as previously the nine months
reported on Pro forma ended September
Form 10Q adjustments 30, 1997
------------------- ----------- --------------
<S> <C> <C> <C>
Sales $ 909,212 ($ 499,791) $ 409,421
Cost of Goods Sold 108,481 (72,451) 36,030
---------- ----------- ----------
Gross Profit 800,731 (427,340) 373,391
Operating Expenses:
Selling and Marketing 1,235,274 (57,990) 1,177,284
Research and Development 3,372,520 (826,363) 2,546,157
General and Administrative 4,338,033 (724,804) 3,613,229
---------- ----------- ----------
Loss from Operations (8,145,096) 1,181,817 (6,963,279)
Other income and expense:
Interest Income 29,167 29,167
Interest Expense (13,985) 5,568 (8,417)
---------- ----------- ----------
Loss Before Taxes (8,129,914) 1,187,385 (6,942,529)
---------- ----------- ----------
Provision for Taxes
Net loss before minority interest (8,129,914) 1,187,385 (6,942,529)
Minority interest in subsidiary net loss 166,952 166,952
---------- ----------- ----------
Net Loss (7,962,962) 1,187,385 (6,775,577)
Accretion of Preferred Stock Discounts (809,075) (809,075)
---------- ----------- ----------
Net loss attributable to common shareholders ($8,772,037) $ 1,187,385 ($7,584,652)
========== =========== ==========
Weighted average common shares outstanding 5,310,282 0 5,310,282
========== =========== ==========
Net loss per share ($ 1.65) $ 0.22 ($ 1.43)
========== =========== ==========
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE PRO FORMA FINANCIAL STATEMENTS.
</FN>
</TABLE>
<PAGE>
<TABLE>
TELEGEN CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEAR ENDING DECEMBER 31, 1996
(UNAUDITED)
<CAPTION>
For the year
ended Pro forma adjustments
December 31, --------------------------------------------------
1996 as Less amounts Plus gain on Pro forma for
previously from Morning disposition of the year ended
reported on Start Morning Star December 31,
Form 10-K Multimedia Multimedia 1996
---------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Sales $ 541,056 $ (517,356) $ 23,700
Cost of Goods Sold 86,695 (68,612) 18,083
----------- ---------- ----------- -----------
Gross Profit 454,361 (448,744) 0 5,617
Operating Expenses:
Sales and Marketing 439,350 (149,618) 289,732
Research and Development 2,386,331 (279,175) 2,107,156
General and Administrative 3,043,530 (265,855) 2,777,675
----------- ---------- ----------- -----------
Loss from Operations (5,414,850) 245,904 0 (5,168,946)
Other income and expense:
Interest Income 194,443 0 194,443
Interest Expense 146,650) 8,864 (137,786)
----------- ---------- ----------- -----------
Loss Before extraordinary items and taxes (5,367,057) 254,768 0 (5,112,289)
Extraordinary item:
Gain on disposition of subsidiary 219,912 219,912
----------- ---------- ----------- -----------
Loss before taxes (5,367,057) 254,768 219,912 (4,892,377)
----------- ---------- ----------- -----------
Provision for taxes
Net loss before minority interest (5,367,057) 254,768 219,912 (4,892,377)
Minority interest in subsidiary net loss 252,031 252,031
----------- ---------- ----------- -----------
Net Loss attributable to common shareholders ($5,115,026) $ 254,768 $ 219,912 ($4,640,346)
=========== ========== =========== ===========
Weighted average common shares outstanding 4,418,099 0 0 4,418,099
=========== ========== =========== ===========
Net loss per share ($ 1.16) $ 0.06 $ 0.05 ($ 1.05)
=========== ========== =========== ===========
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE PRO FORMA FINANCIAL STATEMENTS.
</FN>
</TABLE>
<PAGE>
NOTES TO PRO FORMA FINANCIAL STATEMENTS
1. On December 31, 1997, the Company entered into a Stock Purchase
Agreement with MAC and MSM to sell all of the outstanding stock of its
wholly owned subsidiary, MSM, to MAC, for $200,000 and for royalty
streams to be paid to the Company for a period of two (2) years from
December 31, 1997 of Ten Percent (10%) and of Five Percent (5%) of
certain gross sales of MSM. In accordance with Rule 11.02 under
Regulation S-X certain pro forma financial information is required to
be presented herein. The Pro Forma Balance Sheet is as of September 30,
1997, which is the most recent date for which a consolidated balance
sheet of the Company was filed. The Pro Forma Statements of Operations
have been prepared as of December 31, 1996, the most recent fiscal
year, and as of September 30, 1997, the most recent interim date for
which a balance sheet was required.
2. The Pro Forma Statement of Operations for the year ended December 31,
1996 and for the nine months ended September 30, 1997, reflect the
removal from the Company's reports for such periods the portion of
sales and expenses attributable to the operation of MSM and previously
incorporated in the Company's public reports, resulting in pro forma
statements of operations for such respective periods for the Company as
if MSM had not been a subsidiary thereof for such respective periods.
3. The Pro Forma Balance Sheet as of September 30, 1997, reflects
adjustments to the asset, liability, and equity accounts as previously
reported by the Company by removing MSM's portion of such assets,
liabilities, and equity positions.
<PAGE>
(c) Exhibits:
2.3 Stock Purchase Agreement dated December 31, 1997 by
and among the Company, MSM, and MAC
Certain exhibits and schedules to the Stock Purchase
Agreement are listed on page (iv) thereto and the
Registrant agrees to furnish them supplementally to
the Securities and Exchange Commission upon request.
<PAGE>
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.
Dated: January 15, 1998
TELEGEN CORPORATION
By:/S/ Fred Y. Kashkooli
-------------------------------------
Fred Y. Kashkooli
President and Chief Executive Officer
<PAGE>
TELEGEN CORPORATION
CURRENT REPORT ON FORM 8-K
INDEX TO EXHIBITS
Number Description
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2.3 Stock Purchase Agreement dated December 31, 1997 by and among the
Company, MSM, and MAC
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EXHIBIT 2.3
STOCK PURCHASE AGREEMENT
AMONG
MORNING STAR ACQUISITION, INC.,
MORNING STAR MULTIMEDIA, INC.
AND
TELEGEN CORPORATION
December 31, 1997
<PAGE>
TABLE OF CONTENTS
Page
1. DEFINITIONS.................................................................1
2. PURCHASE AND SALE OF TARGET SHARES..........................................4
(a) Basic Transaction.................................................4
(b) Purchase Price....................................................4
(c) Royalty Payments..................................................4
(d) The Closing.......................................................5
(e) Deliveries at the Closing.........................................5
3. REPRESENTATIONS AND WARRANTIES CONCERNING
THE TRANSACTION.......................................................5
(a) Representations and Warranties of the Seller......................5
(i) Organization of Seller...................................6
(ii) Authorization of Transaction............................6
(iii) Noncontravention.......................................6
(iv) Brokers' Fees...........................................6
(v) Target Shares............................................6
(b) Representations and Warranties of the Buyer.......................6
(i) Organization of the Buyer................................7
(ii) Authorization of Transaction............................7
(iii) Noncontravention.......................................7
(iv) Brokers' Fees...........................................7
4. REPRESENTATIONS AND WARRANTIES CONCERNING
THE TARGET............................................................7
(a) Organization, Qualification, and Corporate Power..................7
(b) Capitalization....................................................8
(c) Noncontravention..................................................8
(d) Brokers' Fees.....................................................8
(e) Certain Business Relationships with the Target....................8
(f) Undisclosed Liabilities...........................................8
5. PRE-CLOSING COVENANT....................................................... 9
(a) General...........................................................9
(b) Notices and Consents..............................................9
(c) Operation of Business.............................................9
(d) Exclusivity.......................................................9
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<PAGE>
6. POST-CLOSING COVENANTS......................................................9
(a) General..........................................................10
(b) Transition.......................................................10
(c) Confidentiality..................................................10
(d) Covenant Not to Compete..........................................10
7. CONDITIONS TO OBLIGATION TO CLOSE..........................................11
(a) Conditions to Obligation of the Buyer............................11
(b) Conditions to Obligation of the Seller...........................12
8. REMEDIES FOR BREACHES OF THIS AGREEMENT....................................12
(a) Survival of Representations and Warranties.......................12
(b) Indemnification Provisions for Benefit of the Buyer..............13
(c) Indemnification Provisions for Benefit of the Seller.............13
(d) Matters Involving Third Parties..................................14
(e) Other Indemnification Provisions.................................15
9. TAX MATTERS................................................................15
(a) Tax Periods Ending on or Before the Closing Date.................15
(b) Tax Periods Beginning Before and Ending After
the Closing Date...........................................15
(c) Cooperation on Tax Matters.......................................15
(d) Tax Sharing Agreements...........................................16
(e) Certain Taxes....................................................16
10. TERMINATION...............................................................16
(a) Termination of Agreement.........................................16
(b) Effect of Termination............................................17
11. MISCELLANEOUS.............................................................17
(a) Press Releases and Public Announcements..........................17
(b) No Third-Party Beneficiaries.....................................17
(c) Entire Agreement.................................................17
(d) Succession and Assignment........................................17
(e) Counterparts.....................................................18
(f) Headings.........................................................18
(g) Notices..........................................................18
(h) Governing Law....................................................18
(i) Amendments and Waivers...........................................18
(j) Severability.....................................................19
(k) Expenses.........................................................19
(l) Construction.....................................................19
(m) Incorporation of Exhibits, Annexes, and Schedules................19
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<PAGE>
EXHIBIT A - Quartley Royalty Certificate
DISCLOSURE SCHEDULE
-iv-
<PAGE>
STOCK PURCHASE AGREEMENT
Agreement entered into as of December 31, 1997, among MORNING STAR
ACQUISITION, INC., a New Jersey corporation (the "Buyer"), MORNING STAR
MULTIMEDIA, INC., a New Jersey corporation (the "Target") and TELEGEN
CORPORATION, a California corporation (the "Seller"). The Buyer, Seller and the
Target are referred to collectively herein as the "Parties."
The Seller in the aggregate own all of the outstanding capital stock of
MORNING STAR MULTIMEDIA, INC., a New Jersey corporation (the "Target").
This Agreement contemplates a transaction in which the Buyer will
purchase from the Seller, and the Seller will sell to the Buyer, all of the
outstanding capital stock of the Target in return for cash. Now, therefore, in
consideration of the premises and the mutual promises herein made, and in
consideration of the representations, warranties, and covenants herein
contained, the Parties agree as follows.
1. Definitions.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and reasonable attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Buyer" has the meaning set forth in the preface above.
"Closing" has the meaning set forth in ss.2(c) below.
"Closing Date" has the meaning set forth in ss.2(c) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the
businesses and affairs of the Target that is not already generally available to
the public.
"Disclosure Schedule" has the meaning set forth in ss.4 below.
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<PAGE>
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement, (b) qualified defined
contribution retirement plan or arrangement which is an Employee Pension Benefit
Plan, (c) qualified defined benefit retirement plan or arrangement which is an
Employee Pension Benefit Plan, or (d) Employee Welfare Benefit Plan or material
fringe benefit or other retirement, bonus, or incentive plan or program.
"Environmental, Health, and Safety Requirements" shall mean all
federal, state, local and foreign statutes, regulations, ordinances and other
provisions having the force or effect of law, all judicial and administrative
orders and determinations, all contractual obligations and all common law
concerning public health and safety, worker health and safety, and pollution or
protection of the environment, including without limitation all those relating
to the presence, use, production, generation, handling, transportation,
treatment, storage, disposal, distribution, labeling, testing, processing,
discharge, release, threatened release, control, or cleanup of any hazardous
materials, substances or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise or radiation, each as amended and as
now or hereafter in effect.
"Indemnified Party" has the meaning set forth in ss.8(d) below.
"Indemnifying Party" has the meaning set forth in ss.8(d) below.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof, including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
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<PAGE>
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Most Recent Balance Sheet" means the Target's balance sheet as of
October 31, 1997.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preface above.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"Purchase Price" has the meaning set forth in ss.2(b) below.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for Taxes not yet due and payable, (c) purchase
money liens and liens securing rental payments under capital lease arrangements,
and (d) other liens arising in the Ordinary Course of Business and not incurred
in connection with the borrowing of money.
"Seller" has the meaning set forth in the preface above.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Target" has the meaning set forth in the preface above.
"Target Share" means any share of the Common Stock, no par value, of
the Target.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code ss.59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
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<PAGE>
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating only to federal income taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
"Third Party Claim" has the meaning set forth in ss.8(d) below.
2. Purchase and Sale of Target Shares.
(a) Basic Transaction. On and subject to the terms and conditions
of this Agreement, the Buyer agrees to purchase from the Seller, and the Seller
agrees to sell to the Buyer, all of its Target Shares for the consideration
specified below in this ss.2.
(b) Purchase Price. The Buyer agrees to pay to the Seller at the
Closing $200,000 (the "Purchase Price") by delivery of cash payable by wire
transfer or delivery of other immediately available funds.
(c) Royalty Payments. The Buyer agrees to pay to the Seller, as a
royalty payment (the "Royalty"), ten percent (10%) of the gross sales received
by the Buyer or the Target for each PC CD ROM of the existing version of
Casper-The Interactive Adventure or any subsequent version thereof using the
same storyline and five percent (5%) of the gross sales received by the Buyer
for each PC CD ROM of the initial version of Kristi Yamaguchi Fantasy Skating or
any subsequent version thereof using the same storyline, for a period of two (2)
years from the Closing Date (the "Royalty Period").
Any obligations of the Buyer referred to in this Section 2(c)
shall also be obligations of the Target. The Royalty obligations hereunder shall
also include the following terms:
(i) Notices and Payment. Within thirty (30) days after the end
of each calendar quarter (or portion thereof) during the two (2) year period
following the Closing Date in which Royalty exceeds a minimum of one hundred
(100) dollars, the Buyer shall furnish to the Seller written reports, certified
by an applicable officer of the Buyer as being true and correct (substantially
in a form attached hereto as Exhibit A) setting out for the previous quarter,
the revenues derived from sales of the products subject to the ss.2(c) and the
Royalty due to the Seller. Within ten (10) days of submission of such report,
the Buyer shall pay to the Seller the Royalty. All payment shall be made by the
Buyer to the Seller, by wire transfer of immediately available funds, to such
account as shall be designated by the Seller in writing. In the event any
Royalty due hereunder is not paid by the Buyer by the applicable due date, and
after written notice by the Seller to the Buyer of any such failure to pay such
Royalty, a late payment shall be paid to the Seller with interest thereon, from
the applicable due date to the date
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<PAGE>
of payment, calculated at the per annum rate equal to the rate announced by Bank
of America as its "prime rate" or "base rate" as of the close of business on the
applicable due date.
(ii) Records/Inspection. The Buyer shall retain at its
principal place of business for a period of not less than two (2) years after
the calendar quarter to which such records relate, files, records, and books of
account prepared in the normal course of business which contain data reasonably
required for the computation and verification of the amounts to be paid and the
information to be provided in any Royalty report required under ss.2(c)(i) of
this Agreement (the "Royalty Records"). For the purposes of verifying the
Royalty paid by the Buyer, the Seller may retain a certified public accountant
to audit the Royalty Records, provided that (i) the Seller gives ten (10) days
written notice prior to the audit, (ii) Buyer shall have the right to review
such accountant's determinations and Seller shall consider any reasonable
comments made by Buyer regarding the audit, (iii) such accountant execute the
Buyer's then-current standard non-disclosure agreement, (iv) all audits are
conducted during regular business hours and on the Buyer's premises, (v) such
audits shall only be allowed during the Royalty Period, and (vi) the Seller may
request no more than one audit per quarter in which this ss.2(c)(ii) applies.
The auditor's report and all work papers or other materials relating to the
auditor's examination of the Royalty Records will be treated as confidential
information owned by the Buyer. Furthermore, if the accountant described herein
discovers any material discrepancy between any Royalty report and his audit, the
Buyer shall then pay the Seller the amount of such discrepancy owed to the
Seller within ten (10) days of submission of a copy of such audit to the Buyer.
If such discrepancy is equal to or greater than ten percent (10%) of the amount
the Buyer owes the Seller, then the Seller shall also pay the Buyer the cost of
such audit. Subject to the frequency limitations applicable to the certified
public accountant described herein, Seller shall have complete access to the
Royalty Records during the Royalty Period.
(d) The Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Thelen,
Marrin, Johnson & Bridges LLP in San Francisco, California, commencing at 9:00
a.m. local time on December 31, 1997, or such other date as the Buyer and the
Seller may mutually determine (the "Closing Date").
(e) Deliveries at the Closing. At the Closing, (i) the Seller
will deliver to the Buyer the various certificates, instruments, and documents
referred to in ss.7(a) below, (ii) the Buyer will deliver to the Seller the
various certificates, instruments, and documents referred to in ss.7(b) below,
(iii) the Seller will deliver to the Buyer stock certificates representing all
of its Target Shares, endorsed in blank or accompanied by duly executed
assignment documents, and (iv) the Buyer will deliver to the Seller the
consideration specified in ss.2(b) above.
3. Representations and Warranties Concerning the Transaction.
(a) Representations and Warranties of the Seller. The Seller
represents and warrants to the Buyer that the statements contained in this
ss.3(a) are correct and complete as of
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<PAGE>
the date of this Agreement and will be correct and complete as of the Closing
Date (as though made then and as though the Closing Date were substituted for
the date of this Agreement throughout this ss.3(a)).
(i) Organization of Seller. The Seller is a corporation duly
organized, validly existing, and in good standing under the laws of California.
(ii) Authorization of Transaction. The Seller has full power
and authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of the Seller, enforceable
in accordance with its terms and conditions. The Seller need not give any notice
to, make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order to consummate the transactions
contemplated by this Agreement.
(iii) Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
will (A) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Seller is subject or, any of the
Seller's provisions of its charter or bylaws or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which the Seller is a party or by which it is bound or to which
any of its assets is subject.
(iv) Brokers' Fees. The Seller has no Liability or obligation
to pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for which the Buyer could become
liable or obligated.
(v) Target Shares. The Seller holds of record and owns
beneficially all of the issued and outstanding Target Shares free and clear of
any restrictions on transfer (other than any restrictions under the Securities
Act and state securities laws), Taxes, Security Interests, options, warrants,
purchase rights, contracts, commitments, equities, claims, and demands. The
Seller is not a party to any option, warrant, purchase right, or other contract
or commitment that could require the Seller to sell, transfer, or otherwise
dispose of any capital stock of the Target (other than this Agreement). The
Seller is not a party to any voting trust, proxy, or other agreement or
understanding with respect to the voting of any capital stock of the Target.
(b) Representations and Warranties of the Buyer. The Buyer
represents and warrants to the Seller that the statements contained in this
ss.3(b) are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though
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made then and as though the Closing Date were substituted for the date of this
Agreement throughout this ss.3(b)).
(i) Organization of the Buyer. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of New Jersey.
(ii) Authorization of Transaction. The Buyer has full power
and authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of the Buyer, enforceable
in accordance with its terms and conditions. The Buyer need not give any notice
to, make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order to consummate the transactions
contemplated by this Agreement.
(iii) Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
will (A) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Buyer is subject or any provision of
its charter or bylaws or (B) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Buyer is a party or by which it is bound or to which any of its assets is
subject.
(iv) Brokers' Fees. The Buyer has no Liability or obligation
to pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for which the Seller could
become liable or obligated.
4. Representations and Warranties Concerning the Target. The Seller
represents and warrants to the Buyer that the statements contained in this ss.4
are correct and complete as of the date of this Agreement and will be correct
and complete as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this
ss.4), except as set forth in the disclosure schedule delivered by the Seller to
the Buyer on the date hereof and initialed by the Parties (the "Disclosure
Schedule").
(a) Organization, Qualification, and Corporate Power. The Target
is a corporation duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its incorporation. The Target is duly authorized
to conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required. The Target has full corporate power and
authority and all licenses, permits, and authorizations necessary to carry on
the businesses in which it is engaged and in which it presently proposes to
engage and to own and use the properties owned and used by it. ss.4(a) of the
Disclosure
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Schedule lists the directors and officers of the Target. The Target is not in
default under or in violation of any provision of its charter or bylaws.
(b) Capitalization. The entire authorized capital stock of the
Target consists of 100,000 Target Shares, of which 100 Target Shares are issued
and outstanding and no Target Shares are held in treasury. All of the issued and
outstanding Target Shares have been duly authorized, are validly issued, fully
paid, and nonassessable, and are held of record by the Seller. There are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require the Target to issue, sell, or otherwise cause to become
outstanding any of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation, or similar rights with
respect to the Target. There are no voting trusts, proxies, or other agreements
or understandings with respect to the voting of the capital stock of the Target.
(c) Noncontravention. To the Seller's Knowledge, neither the
execution and the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (i) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which the Target
is subject or any provision of the charter or bylaws of the Target or (ii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Target is a party or by which it
is bound or to which any of its assets is subject (or result in the imposition
of any Security Interest upon any of its assets). The Target is not required to
give any notice to, make any filing with, or obtain any authorization, consent,
or approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
(d) Brokers' Fees. To the Seller's Knowledge, the Target has no
Liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement.
(e) Certain Business Relationships with the Target. None of the
Seller, its Subsidiaries, or, to Seller's Knowledge, its Affiliates have been
involved in any business arrangement or relationship with the Target within the
past 12 months, and none of the Seller, its Subsidiaries, and, to Seller's
Knowledge, its Affiliates owns any asset, tangible or intangible, which is used
in the business of the Target.
(f) Undisclosed Liabilities. Except for Daniel J. Kitchen and
Kevin Mitchell, to Seller's knowledge no director, officer, employee, or agent
of the Target or the Seller has entered into any agreement or made other
commitment, including any oral commitment, on behalf of the Target. As of the
Closing Date, the Target will have no Liability to Leopold Management, and, to
Seller's Knowledge, except for Liabilities that
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may arise under this Agreement, no Liability (including intercompany loans, if
any) to the Seller or any Affiliate or Subsidiary of the Seller.
5. Pre-Closing Covenants. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will use its reasonable efforts
to take all action and to do all things necessary, proper, or advisable in order
to consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, or written waiver, of the closing conditions set forth
in ss.7 below).
(b) Notices and Consents. The Seller will cause the Target to
give any notices to third parties, and will cause the Target to use its
reasonable efforts to obtain any third party consents, that the Buyer reasonably
may request in connection with the matters referred to in ss.4(c) above. Each of
the Parties will (and the Seller will cause the Target to) give any notices to,
make any filings with, and use its reasonable efforts to obtain any
authorizations, consents, and approvals of governments and governmental agencies
in connection with the matters referred to in ss.3(a)(ii), ss.3(b)(ii), and
ss.4(c) above.
(c) Operation of Business. The Seller will not cause or permit
the Target to engage in any practice, take any action, or enter into any
transaction outside the Ordinary Course of Business. Without limiting the
generality of the foregoing, the Seller will not cause or permit the Target to
declare, set aside, or pay any dividend or make any distribution with respect to
its capital stock or redeem, purchase, or otherwise acquire any of its capital
stock.
(d) Exclusivity. The Seller will not (and the Seller will not
cause or permit the Target to) (i) solicit, initiate, or encourage the
submission of any proposal or offer from any Person relating to the acquisition
of any capital stock or other voting securities, or any substantial portion of
the assets, of the Target (including any acquisition structured as a merger,
consolidation, or share exchange) or (ii) participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
Person to do or seek any of the foregoing.
6. Post-Closing Covenants. The Parties agree as follows with respect to
the period following the Closing.
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(a) General. In case at any time after the Closing any further
action is necessary to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under ss.8 below). The
Seller acknowledge and agree that from and after the Closing the Buyer will be
entitled to possession of all documents, books, records (including a copy of all
tax records in the Seller's possession), agreements, and financial data of any
sort relating to the Target.
(b) Transition. The Seller will use reasonable efforts not to
take any action that is designed or intended to have the effect of discouraging
any lessor, licensor, customer, supplier, or other business associate of the
Target from maintaining the same business relationships with the Target after
the Closing as it maintained with the Target prior to the Closing. The Seller
will refer all customer inquiries relating to the businesses of the Target to
the Buyer from and after the Closing.
(c) Confidentiality. The Seller will treat and hold as such all
of the Confidential Information, refrain from using any of the Confidential
Information except in connection with this Agreement, and deliver promptly to
the Buyer or destroy, at the request and option of the Buyer, all tangible
embodiments (and all copies) of the Confidential Information which are in its
possession. In the event that the Seller is requested or required (by oral
question or request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or similar process) to
disclose any Confidential Information, the Seller will notify the Buyer promptly
of the request or requirement so the Buyer may seek an appropriate protective
order or waive compliance with the provisions of this ss.6(d). If, in the
absence of a protective order or the receipt of a waiver hereunder, the Seller
is, on the advice of counsel, compelled to disclose any Confidential Information
to any tribunal or else stand liable for contempt, the Seller may disclose the
Confidential Information to the tribunal; provided, however, the Seller shall
use its reasonable efforts to obtain, at the reasonable request of the Buyer and
at the Buyer's expense, an order or other assurance that confidential treatment
will be accorded to such portion of the Confidential Information required to be
disclosed as the Buyer shall designate. The foregoing provisions shall not apply
to any Confidential Information which is generally available to the public
immediately prior to the time of disclosure or that the Seller must disclose by
law, whether under the securities laws or otherwise.
(d) Covenant Not to Compete. For a period of two (2) years from
and after the Closing Date, none of the Seller or its Subsidiaries will engage
directly or indirectly in any business that the Target conducts as of the
Closing Date.
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7. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer. The obligation of the
Buyer to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in ss.3(a)
and ss.4 above shall be true and correct in all material respects at and as of
the Closing Date;
(ii) the Seller shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement, (B)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, (C) affect adversely the right of the Buyer to own the
Target Shares and to control the Target, or (D) affect adversely the right of
the Target to own its assets and to operate its businesses (and no such
injunction, judgment, order, decree, ruling, or charge shall be in effect);
(iv) except for Daniel J. Kitchen and Kevin Mitchell, to the
Seller's knowledge no director, officer, employee, or agent of the Target or the
Seller has entered into any agreement or made other commitment, including any
oral commitment, on behalf of the Target.
(v) the Target has no Liability to Leopold Management, and, to
Seller's Knowledge, except for Liabilities that may arise under this Agreement,
no Liability to the Seller or any Affiliate or Subsidiary of the Seller.
(vi) the Seller shall have delivered to the Buyer a
certificate to the effect that each of the conditions specified above in
ss.7(a)(i)-(v) is satisfied in all respects;
(vii) the Buyer shall have terminated, effective as of the
Closing, each director and officer of the Target other than those whom the Buyer
shall have specified in writing prior to the Closing; and
(viii) each of the Parties shall have entered into a
Settlement and Mutual Release Agreement, in a form satisfactory to the Parties.
The Buyer may waive any condition specified in this ss.7(a) if it executes a
writing so stating at or prior to the Closing.
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(b) Conditions to Obligation of the Seller. The obligation of the
Seller to consummate the transactions to be performed by them in connection with
the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in ss.3(b)
above shall be true and correct in all material respects at and as of the
Closing Date;
(ii) the Buyer shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement or (B)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation (and no such injunction, judgment, order, decree, ruling,
or charge shall be in effect);
(iv) the Buyer shall have delivered to the Seller a
certificate to the effect that each of the conditions specified above in
ss.7(b)(i)-(iii) is satisfied in all respects;
(v) each of the Parties shall have entered into a Settlement
and Mutual Release Agreement, in a form satisfactory to the Parties; and
(vi) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Seller.
The Seller may waive any condition specified in this ss.7(b) if they execute a
writing so stating at or prior to the Closing.
8. Remedies for Breaches of This Agreement.
(a) Survival of Representations and Warranties. All of the
representations and warranties of the Parties contained in this Agreement shall
survive the Closing hereunder (unless the damaged Party knew or had reason to
know of any misrepresentation or breach of warranty or covenant at the time of
Closing) and continue in full force and effect for two (2) years thereafter
(subject to any applicable statutes of limitations).
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(b) Indemnification Provisions for Benefit of the Buyer.
(i) In the event the Seller breaches (or in the event any
third party alleges facts that, if true, would mean the Seller has breached) any
of its representations, warranties, and covenants contained herein, and, if
there is an applicable survival period pursuant to ss.8(a) above, provided the
Buyer makes a written claim for indemnification against the Seller pursuant to
ss.11(h) below within such survival period, then the Seller agrees to indemnify
the Buyer from and against the entirety of any Adverse Consequences the Buyer
may suffer through and after the date of the claim for indemnification
(including any Adverse Consequences the Buyer may suffer after the end of any
applicable survival period) resulting from, arising out of, relating to, in the
nature of, or caused by the breach (or the alleged breach).
(ii) The Seller agrees to indemnify the Buyer from and against
the entirety of any Adverse Consequences the Buyer may suffer resulting from,
arising out of, relating to, in the nature of, or caused by any Liability of the
Target for only federal income taxes of the Target arising on or after December
31, 1996 and before the Closing Date (or for any such taxes after the Closing
Date to the extent allocable (determined in a manner consistent with ss.9(c)).
(c) Indemnification Provisions for Benefit of the Seller.
(i) In the event the Buyer breaches (or in the event any third
party alleges facts that, if true, would mean the Buyer has breached) any of its
representations, warranties, and covenants contained herein, and, if there is an
applicable survival period pursuant to ss.8(a) above, provided that the Seller
makes a written claim for indemnification against the Buyer pursuant to ss.11(h)
below within such survival period, then the Buyer and the Target agree to
indemnify the Seller, jointly and severally, from and against the entirety of
any Adverse Consequences the Seller may suffer through and after the date of the
claim for indemnification (including any Adverse Consequences the Seller may
suffer after the end of any applicable survival period) resulting from, arising
out of, relating to, in the nature of, or caused by the breach (or the alleged
breach).
(ii) The Buyer and the Target, jointly and severally, agree to
indemnify the Seller from and against the entirety of any Adverse Consequences
the Seller may suffer resulting from, arising out of, relating to, in the nature
of, or caused by any Tax Liability of the Target, other than for federal income
taxes of the Target arising on or after December 31, 1996 and on or before the
Closing Date.
(iii) The Buyer and the Target, jointly and severally, agree
to indemnify the Seller from and against the entirety of any Adverse
Consequences the Seller may suffer resulting from, arising out of, relating to,
in the nature of, or caused by any Liability arising from the Seller's ownership
of the Target.
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(d) Matters Involving Third Parties.
(i) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim") which
may give rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this ss.8, then the Indemnified Party shall promptly
notify each Indemnifying Party thereof in writing; provided, however, that no
delay on the part of the Indemnified Party in notifying any Indemnifying Party
shall relieve the Indemnifying Party from any obligation hereunder unless (and
then solely to the extent) the Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the Indemnifying
Party notifies the Indemnified Party in writing within 15 days after the
Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party will indemnify the Indemnified Party from and against the
entirety of any Adverse Consequences the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the Third
Party Claim, (B) the Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the Indemnifying
Party will have the financial resources to defend against the Third Party Claim
and fulfill its indemnification obligations hereunder, (C) the Third Party Claim
involves only money damages and does not seek an injunction or other equitable
relief, (D) settlement of, or an adverse judgment with respect to, the Third
Party Claim is not, in the good faith judgment of the Indemnified Party, likely
to establish a precedential custom or practice materially adverse to the
continuing business interests of the Indemnified Party, and (E) the Indemnifying
Party conducts the defense of the Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with ss.8(d)(ii) above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and expense
and participate in the defense of the Third Party Claim, (B) the Indemnified
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), and (C) the Indemnifying
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnified Party (not to be withheld unreasonably).
(iv) In the event any of the conditions in ss.8(d)(ii) above
is or becomes unsatisfied, however, (A) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any settlement
with respect to, the Third Party Claim in any manner it reasonably may deem
appropriate (and the Indemnified Party need not consult with, or obtain any
consent from, any Indemnifying Party in connection therewith), (B) the
Indemnifying Parties will reimburse the Indemnified Party promptly and
periodically for the
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costs of defending against the Third Party Claim (including reasonable
attorneys' fees and expenses), and (C) the Indemnifying Parties will remain
responsible for any Adverse Consequences the Indemnified Party may suffer
resulting from, arising out of, relating to, in the nature of, or caused by the
Third Party Claim to the fullest extent provided in this ss.8.
(e) Other Indemnification Provisions. The foregoing
indemnification provisions are in addition to, and not in derogation of, any
statutory, equitable, or common law remedy (including without limitation any
such remedy arising under Environmental, Health, and Safety Requirements) any
Party may have with respect to any other Party, or the transactions contemplated
by this Agreement.
9. Tax Matters. The following provisions shall govern the allocation of
responsibility as between the Buyer and the Seller for certain tax matters
following the Closing Date:
(a) Tax Periods Ending on or Before the Closing Date. The Seller
shall prepare or cause to be prepared and file or cause to be filed all Tax
Returns for the Target for all periods ending on or prior to the Closing Date
which are filed after the Closing Date. The Seller shall permit the Buyer to
review and comment on each such Tax Return described in the preceding sentence
prior to filing. The Seller shall reimburse the Buyer for federal income taxes
of the Target with respect to such periods within fifteen (15) days after
payment by the Buyer or the Target of such federal income taxes to the extent
such federal income taxes are not reflected in the reserve for tax liability
(rather than any reserve for deferred federal income taxes established to
reflect timing differences between book and Tax income) shown on the face of the
Closing Balance Sheet.
(b) Tax Periods After the Closing Date. The Buyer shall prepare
or cause to be prepared and file or cause to be filed any Tax Returns of the
Target for Tax periods after the Closing Date.
(c) Cooperation on Tax Matters.
(i) The Buyer, the Target and the Seller shall cooperate
fully, as and to the extent reasonably requested by the other party, in
connection with the filing of Tax Returns pursuant to this Section and any
audit, litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other party's request) the provision
of records and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. The Target and the Seller agree (A) to retain all
books and records with respect to Tax matters pertinent to the Target relating
to any taxable period beginning before the Closing Date until the expiration of
the statute of limitations (and, to the extent notified by the Buyer or the
Seller, any extensions thereof) of the respective taxable periods, and to abide
by all record retention agreements
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entered into with any taxing authority, and (B) to give the other party
reasonable written notice prior to transferring, destroying or discarding any
such books and records and, if the other party so requests, the Target or the
Seller, as the case may be, shall allow the other party to take possession of
such books and records.
(ii) The Buyer and the Seller further agree, upon request, to
use their best efforts to obtain any certificate or other document from any
governmental authority or any other Person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed (including, but not limited
to, with respect to the transactions contemplated hereby).
(iii) The Buyer and the Seller further agree, upon request, to
provide the other party with all information that either party may be required
to report pursuant to Section 6043 of the Code and all Treasury Department
Regulations promulgated thereunder.
(d) Tax Sharing Agreements. All tax sharing agreements or similar
agreements with respect to or involving the Target shall be terminated as of the
Closing Date and, after the Closing Date, the Target shall not be bound thereby
or have any liability thereunder.
(e) Certain Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement, shall be paid by the Buyer
when due, and the Buyer will, at its own expense, file all necessary Tax Returns
and other documentation with respect to all such transfer, documentary, sales,
use, stamp, registration and other Taxes and fees, and, if required by
applicable law, the Buyer will, and will cause its affiliates to, join in the
execution of any such Tax Returns and other documentation.
10. Termination.
(a) Termination of Agreement. Certain of the Parties may
terminate this Agreement as provided below:
(i) the Buyer and the Seller may terminate this Agreement by
mutual written consent at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement by giving written
notice to the Seller at any time prior to the Closing (A) in the event the
Seller has breached any material representation, warranty, or covenant contained
in this Agreement in any material respect, the Buyer has notified the Seller of
the breach, and the breach has continued without cure for a period of 15 days
after the notice of breach or (B) if the Closing shall not have occurred on or
before December 31,1997, by reason of the failure of any condition precedent
under ss.7(a) hereof (unless the failure results primarily from the Buyer itself
breaching any representation, warranty, or covenant contained in this
Agreement); and
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(iii) the Seller may terminate this Agreement by giving
written notice to the Buyer at any time prior to the Closing (A) in the event
the Buyer has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, the Seller has notified the
Buyer of the breach, and the breach has continued without cure for a period of
15 days after the notice of breach or (B) if the Closing shall not have occurred
on or before December 31, 1997, by reason of the failure of any condition
precedent under ss.7(b) hereof (unless the failure results primarily from the
Seller itself breaching any representation, warranty, or covenant contained in
this Agreement).
(b) Effect of Termination. If any Party terminates this Agreement
pursuant to ss.10(a) above, all rights and obligations of the Parties hereunder
shall terminate without any Liability of any Party to any other Party (except
for any Liability of any Party then in breach).
11. Miscellaneous.
(a) Press Releases and Public Announcements. No Party shall issue
any press release or make any public announcement relating to the subject matter
of this Agreement prior to the Closing without the prior written approval of the
Buyer and the Seller; provided, however, that the Seller may make any public
disclosure it believes in good faith is required by applicable law or any
listing or trading requirements concerning its publicly-traded securities (in
which case the Seller shall allow the Buyer to review such proposed public
disclosure and will incorporate any reasonable change submitted by Buyer). The
Seller will make no other reference to the Target in any press release or public
announcement unless (i) the Seller believes in good faith that it is required by
applicable law or any listing or trading requirements concerning its
publicly-traded securities to make such disclosure and (ii) the Seller allows
the Buyer to review such proposed public disclosure and incorporates all
reasonable change submitted by Buyer.
(b) No Third-Party Beneficiaries. This Agreement shall not confer
any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof.
(d) Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. For purposes of this Agreement, successors
shall include those successors-in-interest resulting from operation of law and
those Persons that, with their Affiliates, have purchased in a transaction or in
a series of transactions a majority of the equity or assets of a Party. No Party
may assign either this Agreement or any of its rights,
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interests, or obligations hereunder without the prior written approval of the
Buyer and the Seller.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Seller: Copy to:
If to the Buyer: Copy to:
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until such party receives a conformation receipt. Any Party may
change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Parties notice
in the manner herein set forth.
(h) Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of California
without giving effect to any choice or conflict of law provision or rule
(whether of the State of California or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
California.
(i) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
parties hereto. No waiver by any Party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
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(j) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) Expenses. Each of the Parties will bear its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby. The Seller agrees that the
Target has neither borne nor will bear any of the Seller's costs and expenses
(including any of its legal fees and expenses) in connection with this Agreement
or any of the transactions contemplated hereby.
(l) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
(m) Incorporation of Exhibits, Annexes, and Schedules. The
Exhibits, Annexes, and Schedules identified in this Agreement are incorporated
herein by reference and made a part hereof.
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IN WITNESS WHEREOF, the Parties herto have executed this Stock Purchase
Agreement as of the date first above written.
BUYER: MORNING STAR ACQUISTION INC.
By: /s/ Daniel J. Kitchen
-----------------------------
Name: Daniel J. Kitchen
----------------------------
Title: Chief Executive Officer
---------------------------
SELLER: TELEGEN CORPORATION
By: /s/ Fred Y. Kashkooli
-----------------------------
Name: Fred Y. Kashkooli
----------------------------
Title: Chief Executive Officer
---------------------------
TARGET: MORNING STAR MULTIMEDIA, INC.
By: /s/ Daniel J. Kitchen
-----------------------------
Name: Daniel J. Kitchen
----------------------------
Title: Chief Executive Officer
---------------------------
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