As filed with the Securities and Exchange Commission on May 22, 1998
Registration No. 333-________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------------------
TELEGEN CORPORATION
(Exact name of Registrant as specified in its charter)
---------------------------
California 84-0672714
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3665
(Primary Standard Industrial
Classification Code Number)
101 Saginaw Drive
Redwood City, CA 94063
(650) 261-9400
(Address, including zip code, and telephone number,
including area code, of Registrant's
principal executive offices)
-----------------------
Fred Y. Kashkooli
Chief Executive Officer
101 Saginaw Drive
Redwood City, CA 94063
(650) 261-9400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With copy to:
Thomas C. DeFilipps, Esq.
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304
(650) 493-9300
---------------------------
Approximate date of commencement of proposed
sale to the public: As soon as practicable after the
effective date of this Registration Statement.
---------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
<TABLE>
---------------------------
CALCULATION OF REGISTRATION FEE
<CAPTION>
====================================================================================================================================
Proposed Proposed
Amount Maximum Maximum Amount of
Title of Securities to to be Offering Price Aggregate Registration
be Registered Registered Per Share(1) Offering Price Fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock........................... 6,829,725 shares $0.54 $3,688,051.50 $1,087.98
====================================================================================================================================
<FN>
(1) The Proposed Maximum Offering Price Per Share was estimated pursuant to
Rule 457(c) on the basis of the average of the high and low asked prices
reported on the OTC Bulletin Board on May 20, 1998.
</FN>
</TABLE>
---------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
PROSPECTUS
6,829,725 SHARES
TELEGEN CORPORATION
COMMON STOCK
This Prospectus may be used for the offer and sale, from time to time,
of up to 6,829,725 shares (the "Shares") of common stock of Telegen Corporation,
a California Corporation (the "Company" or "Telegen"), for the account of the
security holders identified below (the "Security Holders"), who received certain
securities convertible into the Shares pursuant to an exemption from the
registration requirements of the Securities Act of 1933, as amended (the "Act"),
provided by Section 4(2) thereof, such Shares to be received in connection with
the conversion of Notes and the exercise of Warrants as more fully described
under the section entitled "The Company" herein. The Company will not receive
any proceeds upon conversion of the Notes and will receive up to $1,072,085.26
upon exercise of the Warrants. The expenses incurred in registering the Shares,
including legal and accounting fees, will be paid by the Company. None of the
shares offered pursuant to this Prospectus have been registered prior to the
filing of the Registration Statement of which this Prospectus is a part.
The Company is listed on the OTC Bulletin Board for trading of its
Common Stock under the symbol "TLGN."
---------------------------
See "Risk Factors" on page 6 for a discussion of certain factors that
should be considered by prospective purchasers of the shares offered hereby.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------------
The date of this Prospectus is ________, 1998
-2-
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
and information statements and other information may be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of
the Commission: New York Regional Office, Seven World Trade Center, New York,
New York 10048, and Chicago Regional Office, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549 upon payment of the prescribed fees. In addition, the Commission maintains
a Website (http:\\www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission through the Electronic Data Gathering, Analysis, and
Retrieval system.
This Prospectus constitutes a part of a Registration Statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus does
not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information with respect to the Company and the
shares covered by this prospectus, reference is made to the Registration
Statement. Statements contained herein concerning the provisions of any document
are not necessarily complete, and each such statement is qualified in its
entirety by reference to the copy of such document filed with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
hereby incorporated by reference in this Prospectus: (i) the Company's Annual
Report filed on Form 10-K for the fiscal year ended December 31, 1997 filed with
the Commission on April 15, 1998 and amended on April 30, 1998, (ii) the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998,
(iii) the Company's Report on Form 8-K filed with the Commission on January 15,
1998, (iv) the Company's Report on Form 8-K filed with the Commission on March
24, 1998, and (v) the Company's Report on Form 8-K filed with the Commission on
April 7, 1998.
All reports and other documents subsequently filed by the Company
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
of this Prospectus and prior to the termination of this offering shall be deemed
to be incorporated by reference herein and to be a part hereof from the date of
filing of such reports and documents. Any statement incorporated herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of the Registration Statement or this Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, upon written or oral request of such person, a copy of any or all of
the foregoing documents incorporated herein by reference (other than exhibits to
such documents, unless such exhibits are specifically incorporated by reference
into such documents). Requests for such documents should be submitted in writing
to Investor Relations at the Company's principal executive offices at 101
Saginaw Drive, Redwood City, CA 94063 or by telephone at (650) 261-9400.
---------------------------
-3-
<PAGE>
THE COMPANY
Telegen Corporation ("Telegen" or the "Company") is a high technology
company with products in development in the flat panel display market. At
present, Telegen's only operating business is Telegen Display Laboratories, Inc.
("TDL"), a California corporation, a controlled second tier subsidiary of the
Company which has developed a low-cost flat panel technology to compete with
other types of flat panel displays. Telegen Communications Corporation ("TCC"),
a California corporation and wholly owned subsidiary of the Company, was in the
business of developing and selling products to the telecommunications industry
until TCC sold all of its operating business assets on April 1, 1998. Telegen's
corporate offices are located at 101 Saginaw Road, Redwood City, CA 94063, (650)
261-9400.
Common Stock and Warrants Subscription. On October 7, 1997, Telegen
initiated a private offering on a subscription basis of up to 500,000 units
(each, a "Unit") to accredited investors (the "Unit Investors"), as that term is
defined in Rule 501(a) ("Rule 501(a)") of the Securities Act of 1933 (the
"Act"), with a purchase price per Unit of $2.00 (the "Unit Offering"). Each Unit
consisted of (i) one share of Common Stock, (ii) a warrant to purchase one share
of the Company's Common Stock at a $0.01 per share exercise price (each, a
"$0.01 Warrant"), and (iii) a warrant to purchase one share of the Company's
Common Stock at a $4.00 per share exercise price (each, a "$4.00 Warrant," the
$0.01 Warrants and the $4.00 Warrants are collectively the "Warrants"). As of
October 21, 1997 the Unit Offering was fully subscribed.
Units purchased under the Unit Offering are subject to lock up
provisions which limit the ability of a holder of Common Stock or to sell Common
Stock received upon exercise of the Warrants. The purchased Units are divided
into four (4) equal groups (each, a "Group"), each having a separate lock-up
period (the "Lock-Up Period") for the resale of Common Stock purchased and the
sale of Common Stock upon exercise of the Warrants. The Lock-Up Period for each
Group expires on January 1, 1998, April 1, 1998, July 1, 1998 and October 1,
1998, respectively.
On March 19, 1998, the Company made available to the Unit Investors an
exchange offer for the Common Stock held thereby and received directly in the
Unit Offering or through exercise of warrants received in the Unit Offering (the
"Exchange Offer"). Under the Exchange Offer, the Unit Investors were offered
convertible subordinated promissory notes (the"Notes") for their shares of
Common Stock with a face value equal to the number of shares of Common Stock
tendered under the Exchange Offer multiplied by the five-day average of the
Company's closing trading prices on the OTC Bulletin Board prior to March 17,
1998 (the "Conversion Price"). The Notes have a one-year term with a six percent
(6%) balloon interest payment due at the end of the term of the Note. The Notes
are subordinated to all other existing debt of the Company, both as to interest
payment and upon liquidation. The Notes are also convertible to Common Stock at
any time by a holder thereof, such number of shares of Common Stock to be
determined by dividing the amount of face value of the Note tendered by the
Conversion Price and such shares are also subject to the Lock-Up Period. The
Company in its discretion may prepay any portion of principal or interest of the
Notes in cash or stock subject to a fifteen (15) day prior written notice to
holders thereof. Under the Exchange Offer 875,000 shares of Common Stock were
exchanged for Notes by the Unit Investors, as of the date hereof.
The Notes are "restricted securities" as that term is defined in Rule
144 and this Registration Statement is used to register the issuance of up to
75,000 shares of Common Stock to the holders thereof upon conversion of $33,315
in face value of the Notes to Common Stock.
Convertible Promissory Notes and Warrants. On April 1, 1998, Telegen
initiated a private offering of Convertible Promissory Notes and Warrants to
accredited investors, as that term is defined in Rule 501(a) (the "Note and
Warrant Investors"), pursuant to certain Note and Warrant Purchase Agreements,
(the "Agreements").
-4-
<PAGE>
Under the terms of the Agreements, the Note and Warrant Investors each received
securities consisting of (i) a convertible promissory note, convertible to
Common Stock of the Company at a $0.38 per share conversion price (each a
"Convertible Note") and (ii) a warrant to purchase a certain number of shares of
the Company's Common Stock, at a $0.38 per share exercise price (each a "$0.38
Warrant"). As of May 7, 1998, the Company sold two (2) Convertible Notes with an
aggregate face value evidencing $1,015,532 in indebtedness and two (2) $0.38
Warrants exercisable for an aggregate of 2,672,452 shares of the Company's
Common Stock.
Each Convertible Note has a twelve (12) month term from the date of
issuance and carries simple interest at 6% per annum, payable one year from the
date of issuance. The Company in its discretion may prepay any portion of
principal or interest of the Convertible Note in cash subject to a fifteen (15)
day prior written notice to the holder thereof. The Convertible Note holder may
convert the Convertible Note at any time into Common Stock at a conversion price
of $0.38, such conversion price to be adjusted in a reorganization,
reclassification, stock split, or similar transaction. Each $0.38 Warrant has a
two (2) month term from issuance and is immediately exercisable from the
issuance date thereof.
In connection with placing the Convertible Notes and $0.38 Warrants
with the Note and Warrant Investors, as partial consideration for their
services, R.S. Kirpalani received a Convertible Note with a face value of
$50,000 and an immediately exercisable warrant to purchase 13,158 shares of
Common Stock with a $0.38 per share exercise price with an expiration date of
December 31, 1998 (the "Kirpalani Warrant") and Capitol Bay Securities received
an immediately exercisable warrant to purchase 135,666 shares of Common Stock
with a $0.38 per share exercise price and an expiration date of June 21, 1998
(the "CBS Warrant"). The Kirpalani Warrant and the CBS Warrant are collectively
the "Placement Agent Warrants".
The Convertible Notes, the $0.38 Warrants and the Placement Agent
Warrants are "restricted securities" as that term is defined in Rule 144 and
this Registration Statement is used to register the issuance of Common Stock, if
any, upon conversion of the Convertible Notes to Common Stock and the issuance
of Common Stock upon exercise of the $0.38 Warrants and upon exercise of the
Placement Agent Warrants.
Nevada Anderson Convertible Promissory Note. In August 1997, the
Company initiated a private offering on a subscription basis of 222,222 shares
of its common stock, no par value (the "Common Stock") to accredited investors
(the "Common Investors"), as that term is defined in Rule 501(a) of the
Securities Act of 1933, as amended (the "Act"), at a per-share price of $2.25
(the "Common Offering"). As of September 30, 1997, the Company had closed the
Common Offering and had sold 220,404 shares of Common Stock pursuant thereto.
Nevada Anderson, Inc. a Nevada corporation ("Anderson") purchased
111,111 shares of Common Stock in the Common Offering. In connection with the
Common Offering, Anderson and Three Sons, LLC, an Arizona limited liability
company ("Three Sons") entered into a Put Call Option Agreement (the "Put/Call
Agreement"). Under the Put/Call Agreement Three Sons granted to Anderson the
right to sell to Three Sons 111,111 shares of Common Stock at $2.70 per share
(the "Put"). In addition, under the Put/Call Agreement Three Sons received from
Anderson the right to purchase from Three Sons 111,111 shares of Common Stock at
$2.70 per share. Both of these rights terminate upon mutual consent of Anderson
and Three Sons. In connection with the Common Offering, the Company guaranteed
Three Sons' Put obligation, beginning on the date thirty (30) days after
Anderson's purchase of the Common Stock (the "Guarantee"). The Company and
Anderson have agreed to satisfy their respective rights and obligations under
the Put/Call Agreement and Guarantee under a Satisfaction and Release Agreement
dated May 5, 1998 whereby Anderson would surrender its shares to the Company and
release the Company from its obligations to Anderson under the Guarantee in
exchange for a convertible Promissory Note with a $300,000 face value (the
"Anderson Note").
-5-
<PAGE>
Of the $300,000 in principal of the Anderson Note, $100,000 in
principal must be repaid on June 13, 1998 and thereafter in $50,000 installments
on the 13th day of every month until all the principal on the Anderson Note is
paid in full. The Anderson Note can be repaid in cash or in shares of Common
Stock at the Company's election, the number of such shares determined by
dividing the repayment amount by the Anderson Conversion Price. The Anderson
Conversion Price is equal to the average of the closing market prices of the
Common Stock on the five (5) trading days immediately before such repayment
date.
The Anderson Note is a "restricted security" as that term is defined in
Rule 144 and this Registration Statement is used to register the issuance of
Common Stock, if any, to Anderson upon conversion of principal repayments on the
Anderson Note.
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered by this Prospectus. The discussion in this Prospectus
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in "Risk Factors" and "The Company" as well as those
discussed elsewhere in this Prospectus.
Telegen's Capital Needs
Telegen's current working capital is very limited. The Company has a
limited amount of readily available funds to cover immediate working capital
needs such as employee wages, wage taxes, social security taxes, and lease
payments. There can be no assurance that the Company will be able to obtain such
funding on acceptable terms, or if at all to meet its immediate capital demands.
If adequate funds are not available as required, Telegen will not be able to
continue operations. In connection with the Company's financial condition, the
Company's independent accountants have included in their report for the
financial statements for the fiscal year end 1997 an explanatory paragraph
related to the Company's ability to continue as a going concern.
Assuming Telegen can obtain adequate short-term capital, Telegen's
future capital requirements will depend upon many factors, including the extent
and timing of acceptance of Telegen's products in the market, the progress of
Telegen's research and development, Telegen's operating results and the status
of competitive products. Additionally, Telegen's general working capital needs
will depend upon numerous factors, including the progress of Telegen's research
and development activities, the cost of increasing Telegen's sales, marketing
and manufacturing activities and the amount of revenues generated from
operations. Although Telegen believes it will obtain significant additional
funding through 1998, there can be no assurance that Telegen will be able to
obtain such funding or that it will not require additional funding, or that any
additional financing will be available to Telegen on acceptable terms, if at all
to meet its capital demands through 1998. If adequate funds are not available as
required, Telegen's results of operations will be materially adversely affected.
Telegen believes it requires substantial capital to complete development of a
finished prototype of its flat panel display technology, and that additional
capital will be needed to establish a high volume production capability. There
can be no assurance that any additional financing will be available to Telegen
on acceptable terms, if at all. If adequate funds are not available as required,
Telegen's results of operations from the flat panel technology will be
materially adversely affected.
-6-
<PAGE>
History of Telegen Operating Losses; Accumulated Deficit and Minimum Revenues
Telegen's predecessor, Telegen Communications Corporation ("TCC"), was
incorporated in 1990 and first shipped products in 1991. Telegen has been
engaged in lengthy development of its products and has incurred significant
operating losses in every fiscal year since its inception. The cumulative net
loss for the period from inception through March 31, 1998 was $22,718,761. In
order to become profitable, Telegen must increase sales of its existing
products, develop, commercialize and sustain volume manufacturing of its flat
panel products, develop new products for new and existing markets, manage its
operating expenses and expand its distribution capability. There can be no
assurance that Telegen will meet and realize these objectives or ever achieve
profitability.
Litigation
On January 7, 1998, IPC Corporation, Ltd., Transtech Electronics Pte.
Ltd., and IPC Transtech Display Pte. Ltd. (the "Plaintiffs") filed an action
(the "Complaint") in San Mateo County Superior Court against the Company,
Telegen Display Laboratories, Inc. ("TDL") and certain former officers and/or
directors of the Company. Plaintiffs allege that defendants made false and
misleading statements to the Plaintiffs when the Company sold TDL common stock
for $5,000,000 to the Plaintiffs on or about May 30, 1996. The Complaint alleges
violations of Cal. Corp. Code ss.ss. 25401, 25501, fraud and deceit and
negligent misrepresentation. It seeks rescission of the purchase of TDL common
stock and restitution of $5,000,000, unspecified compensatory and punitive
damages, interest, costs and attorneys' fees. The Company and TDL recently were
served with the Complaint. The Company believes the Complaint is without merit
and intends to defend such matter vigorously. To the extent the Plaintiffs were
to succeed in this matter, Telegen's results of operations and financial
condition would be materially adversely affected.
Telegen's Exposure to Technological and Market Change; Difficulty in Developing
Flat Panel Technology
The market for Telegen's products is characterized by rapid
technological change and evolving industry standards and is highly competitive
with respect to timely product innovation. The introduction of products
embodying new technology and the emergence of new industry standards can render
existing products obsolete and unmarketable. Telegen's success will be dependent
in part upon its ability to anticipate changes in technology and industry
standards and to successfully develop and introduce new and enhanced products on
a timely basis. If Telegen is unable to do so, Telegen's results of operations
will be materially adversely affected.
With regard to its flat panel display technology, there are other more
developed and accepted flat panel display technologies already in commercial
production which will compete with Telegen's technology. The Company has not
finished the development of a completed prototype of the HGED flat panel display
technology. The Company believes it can successfully scale its HGED flat panel
display technology to 10.5 inch diagonal displays. At present, the Company does
not believe that scalability of this generation of its technology beyond such
levels is feasible. However, the Company does have preliminary design concepts
for a second generation of its technology which might provide additional
scalability. There can be no assurance that Telegen will be successful in the
development of its flat panel technology or that Telegen will not encounter
technical or other serious difficulties in its development, commercialization or
volume manufacturing which would be materially adverse to Telegen's results of
operations.
-7-
<PAGE>
Telegen's Dependence Upon Key Personnel
Telegen's future success will depend in significant part upon the
continued service of certain key technical and senior management personnel, and
Telegen's ability to attract, assimilate and retain highly qualified technical,
managerial and sales and marketing personnel. Competition for such personnel is
intense, and there can be no assurance that Telegen can retain its existing key
managerial, technical or sales and marketing personnel or that it can attract,
assimilate and retain such employees in the future. The loss of key personnel or
the inability to hire, assimilate or retain qualified personnel in the future
could have a material adverse effect upon Telegen's results of operations.
Telegen has entered into agreements with each of its executive officers
(as well as all other full-time employees) that prohibit disclosure of
confidential information to anyone outside of Telegen both during and subsequent
to employment and require disclosure and assignment to Telegen of all
proprietary rights to any ideas, discoveries or inventions relating to or
resulting from the officer's work for Telegen.
Flat Panel Competition; Flat Panel Patent(s)
The market for flat panel displays is dominated by major Japanese
companies such as Sharp Electronics, Toshiba and Sony. Telegen expects this
competition to continually increase. There can be no assurance that Telegen will
be able to compete effectively against its competitors, many of whom may have
substantially greater financial resources than Telegen. Flat panel displays
manufactured utilizing AMLCD technology have been in production for almost ten
(10) years and have proven market acceptance. New technologies, such as FED and
Color Plasma, are in development by a number of potential competitors, some of
whom have greater financial resources than Telegen. Telegen does not own or
lease a manufacturing facility for, and has not begun the process of, volume
manufacturing of flat panel displays. There can be no assurance that Telegen's
HGED technology can compete successfully on a cost or display quality basis with
these other technologies. Further, there can be no assurance that Telegen's
efforts to obtain patent protection for its HGED technology will be successful
or, if patent protection is obtained, that Telegen's patent(s) will provide
adequate protection.
Telegen's Need to Develop Marketing Experience
Telegen has limited marketing experience, and expanding Telegen's
markets will require significant expenses, including additions to personnel.
There can be no assurance that Telegen will have all the capital resources
necessary to expand its sales and marketing operations, or that Telegen's
attempts to expand its sales and marketing efforts will be successful.
Intellectual Property
Telegen relies on a combination of patents, trade secret and other
intellectual property law, nondisclosure agreements and other protective
measures to preserve its rights pertaining to its technology and products. Such
protection, however, may not preclude competitors from developing products
similar to those of Telegen. In addition, the laws of certain foreign countries
do not protect Telegen's intellectual property rights to the same extent as do
the laws of the United States. There can also be no assurance that third parties
will not assert intellectual property infringement claims against Telegen. One
such matter was recently dismissed without prejudice to the Company but there is
no assurance that more claims will not be initiated from litigants with more
resources than Telegen. There is no assurance that Telegen will prevail in such
litigation seeking damages or an injunction against the sale of Telegen's
products or that Telegen will be able to obtain any necessary licenses on
reasonable terms or at all.
-8-
<PAGE>
Listing of the Company's Stock on the OTC Bulletin Board
The Company currently trades its stock on the OTC Bulletin Board (the
"OTC BB"). The OTC BB is a real-time electronic quotation service for
over-the-counter securities. The OTC BB is not an automated quotation system and
is characterized by low volume of trading. There is no assurance that the OTC BB
can or will provide sufficient liquidity to holders of the Company's Common
Stock. The Company was trading on the Nasdaq SmallCap Market until January 22,
1998 and intends to return to it as soon as it meets the listing and maintenance
requirements. On February 22, 1998, Nasdaq raised such listing and maintenance
requirements. There can be no assurance that trading on the OTC BB will provide
investors with sufficient liquidity for the purchase and sale of the Common
Stock or that the Company will be able to meet the higher Nasdaq SmallCap Market
("SmallCap") listing and maintenance requirements that have been in effect since
February 22, 1998, in the near future, or if at all, or that if the Company does
meet the SmallCap requirements that a broad trading market will develop in the
Common Stock.
USE OF PROCEEDS
The Company will not receive any proceeds from the conversion of the
Notes by the Security Holders. The Company will receive up to $1,072,085.26 from
the exercise of the $0.38 Warrants and Placement Agent Warrants (the
"Warrants"). The Company intends to use the proceeds of $1,072,085.26 from
exercise of the Warrants for working capital and general corporate purposes.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-9-
<PAGE>
PLAN OF DISTRIBUTION
This Prospectus registers 4,008,446 shares of Common Stock to be issued
upon the conversion of the Notes by the various security holders described
herein and 2,821,276 shares of Common Stock to be issued upon exercise of the
Warrants by the various security holders described herein. For a discussion of
the terms and placement arrangements, if any, of such Notes and Warrants, see
the section entitled "The Company" herein.
The Registrant hereby represents that it has furnished the Security
Holders with written material containing the information required by rule
14a-3(b) under the securities and Exchange Act of 1934, as amended, and items
401, 401 and 403 of Regulation S-K of the Securities Act of 1933, as amended.
Upon conversion of the Notes or exercise of the Warrants, the holders
thereof shall receive registered Common Stock from the Company, which may be
sold in any one or more transactions on the OTC BB, or any exchange on which the
Common Stock may then be listed in the over-the-counter market or otherwise in
negotiated transactions or a combination of such methods of sale, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices.
The following table sets forth as of May 22, 1998 the number of Common
Stock to be issued upon the Conversion of the Notes or exercise of the Warrants
by the Security Holders.
Shares of
Common Stock to be Issued Upon
Conversion of the Notes or
Name of Security Holder Exercise of the Warrants
- ------------------------------------------------ -----------------------------
Exercise of Warrants
- --------------------
Denis S.K. Low ................................. 1,315,790
Stock Acquisition LLC (1) ...................... 1,356,663
R.S. Kirpalani ................................. 13,158
Capitol Bay Securities ......................... 135,666
---------
Sub-Total 2,821,277
Conversion of Notes
- -------------------
Denis S.K. Low ................................. 1,315,790
R.S. Kirpalani ................................. 131,579
Stock Acquisition L.L.C ........................ 1,356,663
Gruber & McBain International .................. 60,000
Lagunitas Partners, L.P. ....................... 15,000
Nevada Anderson, Inc. (2) ...................... 1,129,416
---------
Sub-Total 4,008,448
Total 6,829,725
=========
- ---------------------------
(1) The Company has been informed by Stock Acquisition LLC that Stock
Acquisition LLC will transfer such warrant to Eureka Capital Corp., a Hong
Kong corporation, prior to exercise of such warrant.
(2) For the purposes of determining the numbers of shares to which Nevada
Anderson reasonably could be entitled upon the conversion of the Note, the
number of shares to be issued was calculated by dividing the face value of
$300,000 by a conversion price $0.265624 (as of the date hereof, the lowest
closing price for the Company's Common Stock in 1998). The Company
anticipates that based on market prices for the Company's Common Stock on
the OTC BB that it will issue significantly less shares of Common Stock in
connection with such conversion.
LEGAL MATTERS
Certain legal matters relating to the validity of the securities
offered hereby will be passed upon for the Company by Wilson Sonsini Goodrich &
Rosati, Professional Corporation, Palo Alto, California.
-10-
<PAGE>
EXPERTS
The consolidated balance sheets of Telegen Corporation and Subsidiaries
as of December 31, 1997 and 1996, and the consolidated statements of operations,
shareholders' equity/(deficit), and cash flows for each of the three years in
the period ended December 31, 1997, incorporated by reference in this
Registration Statement from the Form 10-K for the fiscal year ended December 31,
1997, have been incorporated herein in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
-11-
<PAGE>
================================================================================
TABLE OF CONTENTS
Page
----
Available Information ..................................................... 3
Incorporation of Certain Documents by Reference ........................... 3
The Company ............................................................... 4
Risk Factors .............................................................. 6
Use of Proceeds ........................................................... 9
Plan of Distribution ...................................................... 10
Legal Matters ............................................................. 10
Experts ................................................................... 11
---------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information and representations must not
be relied upon as having been authorized by the Company. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy the Shares
by anyone in any jurisdiction in which such offer or solicitation is not
authorized, or in which the person making the offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such offer
or solicitation. Under no circumstances shall the delivery of this Prospectus or
any sale made pursuant to this Prospectus, create any implication that the
information contained in this Prospectus is correct as of any time subsequent to
the date of this Prospectus.
================================================================================
---------------------------
TELEGEN
CORPORATION
---------------------------
Common Stock
PROSPECTUS
_______, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses, all of which will
be paid by the Registrant in connection with the sale and distribution of the
securities being registered, other than underwriting discounts and commissions,
if any. All of the amounts shown are estimates except the SEC registration fee.
SEC registration fee ............................................ $ 1,088
Legal fees and expenses ......................................... $15,000
Accounting fees and expenses .................................... $ 5,500
Transfer agent's and registrar's fees and expenses .............. $ 1,000
Miscellaneous expenses .......................................... $ 2,412
-------
Total ........................................................... $25,000
=======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 317 of the California Corporations Code authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act. Article V of the Company's Amended
Articles of Incorporation and Article VI of the Company's Bylaws provide for
indemnification of its directors, officers, employees and other agents to the
maximum extent permitted by the California Corporations Code. In addition, the
Company has entered into indemnification agreements with its officers and
directors.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the California Corporation Law and Bylaws of the Company,
the Company has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
ITEM 16. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
4.2 Form of Convertible Promissory Note issued by the Company to certain
holders of Common Stock pursuant to certain Exchange Offer Agreements
dated March 24, 1998.+
4.3 Form of Convertible Promissory Note issued by the Company to the
investors and to a placement agent for the Note and Warrant Financing
initiated on April 1, 1998.
4.4 Form of $0.38 Warrant to purchase Common Stock issued by the Company
to investors in the Note and Warrant Financing initiated on April 1,
1998.
4.5 Form of $0.38 Warrant to purchase Common Stock issued by the Company
to placement agents for the Note and Warrant Financing initiated on
April 1, 1998.
II-1
<PAGE>
4.6 Form of Convertible Promissory Note issued to Nevada Anderson
pursuant to that certain Satisfaction and Release Agreement dated May
5, 1998.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
23.1 Consent of Coopers & Lybrand, L.L.P., Independent Accountants
23.2 Consent of Counsel (included in Exhibit 5.1)
24.1 Power of Attorney (included in the signature page herein)
27.1 Financial Data Schedule+
- ---------------------------
+ Incorporated by Reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997 filed with the Commission on April 15,
1998 and amended on April 30, 1998.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
a. To include any prospectus required by Section 10(a)(3) of
the Securities Act;
b. To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement; and
c. To include any material information with respect to the
plan of distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
Provided, however, that paragraphs (a) and (b) above do not
apply if the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the Company
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") that are incorporated by reference in the
Registration Statement.
2. That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
4. That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
II-2
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Telegen Corporation, a corporation organized and existing under the
laws of the State of California, certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form S-3 and has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Redwood City, State of
California, on this 22nd day of May 1998.
TELEGEN CORPORATION
By: /s/ Fred Y. Kashkooli
-----------------------
Fred Y. Kashkooli,
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Fred
Y. Kashkooli as attorney-in-fact for him or her in any and all capacities, to
sign any amendment to this Registration Statement and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting to said attorney-in-fact full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
<TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<CAPTION>
Signature Title Date
- ---------------------------- ----------------------------------- -----------------
<S> <C> <C>
/s/ Fred Y. Kashkooli Chief Executive Officer (principal May 22, 1998
- ---------------------------- executive, financing and accounting
Fred Y. Kashkooli officer)
/s/ Gilbert F. Decker Chairman of the Board of Directors May 22, 1998
- ----------------------------
Gilbert F. Decker
Director
- ----------------------------
James R. Iverson
/s/ Frederick T. Lezak, Jr. Director May 22, 1998
- ---------------------------
Frederick T. Lezak, Jr.
II-4
<PAGE>
Signature Title Date
- ---------------------------- ----------------------------------- -----------------
/s/ Larry J. Wells Director May 22, 1998
- ---------------------------
Larry J. Wells
/s/ Gregory Bell Director May 22, 1998
- ---------------------------
Gregory Bell
____________________________ Director
Jessica L. Stevens
____________________________ Director
Bonnie Crystal
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
------ ----------- -------------
4.2 Form of Convertible Promissory Note issued by the --
Company to certain holders of Common Stock pursuant
to certain Exchange Offer Agreements dated March
24, 1998.+
4.3 Form of Convertible Promissory Note issued by the II-7
Company to the investors and to a placement agent
for the Note and Warrant Financing initiated on
April 1, 1998.
4.4 Form of $0.38 Warrant to purchase Common Stock II-18
issued by the Company to investors in the Note and
Warrant Financing initiated on April 1, 1998.
4.5 Form of $0.38 Warrant to purchase Common Stock II-31
issued by the Company to placement agents for the
Note and Warrant Financing initiated on April 1,
1998.
4.6 Form of Convertible Promissory Note issued to II-35
Nevada Anderson pursuant to that certain
Satisfaction and Release Agreement dated May 5,
1998.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, II-40
Professional Corporation
23.1 Consent of Coopers & Lybrand, L.L.P., Independent II-41
Accountants
23.2 Consent of Counsel (included in Exhibit 5.1) --
24.1 Power of Attorney (included in the signature page --
hereof)
27.1 Financial Data Schedule+ --
- ---------------------------
+ Incorporated by Reference to the Registrant's Annual
Report on Form 10-K for the year ended December 31,
1997 filed with the Commission on April 15, 1998 and
amended on April 30, 1998.
II-6
FORM OF CONVERTIBLE PROMISSORY NOTE
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THESE SECURITIES
HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH,
THE DISTRIBUTION THEREOF. THESE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED, OR
TRANSFERRED UNLESS (I) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT IS IN
EFFECT AS TO THESE SECURITIES OR (II) THERE IS AN OPINION OF COUNSEL, REASONABLY
SATISFACTORY TO THE CORPORATION, THAT AN EXEMPTION THEREFROM IS AVAILABLE.
THIS CONVERTIBLE PROMISSORY NOTE IS SUBJECT TO TRANSFERABILITY RESTRICTIONS
PURSUANT TO SECTION 7 HEREIN AND SHALL NOT BE TRANSFERRED BY THE COMPANY UNLESS
THE HOLDER HEREOF COMPLIES THEREWITH. ANY ATTEMPTED TRANSFER OF SECURITIES NOT
IN COMPLIANCE WITH SUCH SECTION 7 SHALL BE NULL AND VOID.
TELEGEN CORPORATION
Convertible Promissory Note
US$___________ Redwood City, California
_______, 1998
FOR VALUE RECEIVED, TELEGEN CORPORATION, a California corporation
(together with its successors and assigns, the "Company"), promises to pay to
the order of ________ (the "Holder"), (i) an amount (the "Face Value") of
US$_________plus (ii) simple interest on the unpaid balance at the time such
interest is due. Interest on this Note shall be paid at a rate equal to Six
Percent (6%) per annum and shall be payable one year from the date hereof.
Payment of all amounts due hereunder shall be made by wire transfer, subject to
adjustment in certain events as more fully set forth in Section 2 herein.
This Note is issued pursuant to that Certain Note and Warrant Purchase
Agreement dated as of ______, 1998 (the "Agreement"), between the Company and
the Holder.
The following is a statement of the rights of the Holder and the
conditions to which this Note is subject, to which the Holder, by acceptance of
this Note, hereby agrees:
II-7
<PAGE>
1. Repayment Obligation.
(a) Repayment. The Company shall be required to repay all
principal and any outstanding interest on this Note in full one (1) year from
the date hereof (the "Repayment Obligation"). The Company shall be entitled to
prepay any portion of the principal or interest at any time before this Note is
due in full after giving the Holder fifteen (15) days written notice. During
such period, the Holder shall be entitled to convert this note in accordance
with Section 2 herein.
(b) Adjustment in Note's Face Value. Upon any prepayment by
the Company of this Note, the Company will on its books and records reduce the
face value of this Note and send notice of such change to the Holder hereof. To
the extent the Note 's face value is greater than zero on the Company's books
and records, the Company will upon request by the Holder hereof, deliver, a new
Note of like tenor in the principal amount remaining on such Note.
2. Conversion.
(a) Conversion. Holder shall have the right to convert at any
time, in whole or in part, any portion of outstanding principal or interest on
the Note (a "Portion") to the Company's Common Stock by (i) surrender of this
Note, together with (ii) an executed Notice of Conversion, substantially in the
form of Exhibit A attached hereto, at the Company's Principal Executive Office.
The number of shares of Common Stock into which any Portion may be converted
shall be determined by dividing the dollar amount of such Portion by $0.38 (the
"Conversion Price"). No fractional shares or scrip representing fractions of
shares will be issued on conversion, and the number of shares issuable shall be
rounded down to the nearest whole share. The shares of Common Stock issued or
issuable upon conversion of this Note are referred to herein as the "Shares."
(b) Issuance of Securities on Conversion. Conversion of this
Note, in whole or in part, shall occur if the Holder elects to convert under
Section 2(a) above. Upon exercise of all or part of this Note by the Holder, and
unless a registration statement covering the issuance of the underlying Common
Stock is on file with the Commission and currently effective, the Holder shall
confirm in writing, by executing the form attached hereto as Exhibit B, that the
shares of Common Stock purchased thereby are being acquired for investment,
solely for the Holder's own account and not as a nominee for any other Person,
and not with a view toward distribution or resale. As soon as practicable after
conversion of all or part of this Note, the Company at its expense will cause to
be issued, in the name of and delivered to the Holder at the Holder's registered
address, a certificate for the number of shares of the Company's capital stock
to which the Holder shall be entitled on such conversion and a note with
identical terms and conditions as this Note except that the face value of such
note shall be for the outstanding face value of this Note, if any, after
conversion hereof. Such certificate and such note will bear such legends as may
be required by applicable state and federal securities laws in the opinion of
legal counsel for the Company.
(c) Adjustment in Conversion Price. The Conversion Price shall
be proportionately adjusted upon a reorganization, reclassification, which
substantially affects the
II-8
<PAGE>
Company's entire capital stock, or a stock split or similar transaction (an
"Adjustment Transaction"). The issuance of additional capital stock, securities
which are convertible to the Company's capital stock (including but not limited
to warrants and convertible notes) or the issuance of capital stock upon
conversion of any such convertible securities shall not constitute an Adjustment
Transaction.
3. Restrictions on Transfer.
(a) Legends. Each certificate representing the Shares may be
endorsed with the following legends, and the Holder may not make any transfer of
any of the Shares without first complying with the restrictions on transfer
described in all such legends:
(i) The 1933 Securities Act legend set forth on the
face of this Note.
(ii) Any other legends required by applicable state
securities laws.
The Company need not register a transfer of any Shares, and may also instruct
its transfer agent not to register the transfer of such Shares, unless the
conditions specified in this Section 3 are satisfied.
(b) Removal of Legend and Transfer Restrictions.
(i) Any legend endorsed on a certificate pursuant to
Section 3(a)(i) and any stop transfer instructions with respect to the Shares
evidenced by such certificate shall be removed and the Company shall issue a
certificate without such legend to the holder thereof if such Shares are
registered upon issuance under the Securities Act, and if such legend may be
properly removed under the terms of Rule 144 promulgated under the Securities
Act, or if such holder provides the Company with an opinion of counsel for such
holder reasonably satisfactory to legal counsel for the Company, to the effect
that a sale, transfer or assignment of such shares may be made without
registration.
(ii) Any legend endorsed on a certificate pursuant to
Section 3(a)(ii) and the stop transfer instructions with respect to the Shares
evidenced by such certificate shall be removed upon receipt by the Company of an
order of the appropriate state securities authority authorizing such removal.
4. Prepayment. The Company may prepay this Note, in whole or in part,
in accordance with Section 1(a) herein.
5. Events of Default; Acceleration.
(a) So long as this Note is unpaid, each of the following
events will constitute an "Event of Default":
II-9
<PAGE>
(i) default in the payment of the principal or
interest of this Note as and when the same shall become due and payable at
maturity, by declaration or otherwise, and continuance of such default for a
period of 5 days; or
(ii) an involuntary case or other proceeding shall be
commenced against the Company seeking liquidation, reorganization or other
relief with respect to it or its debts under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or seeking the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of the Company or for any substantial part of
the property of the Company or the winding up or liquidation of the affairs of
the Company, and such case or proceeding shall remain unstayed and undismissed
for a period of 60 days, or an order for relief shall be entered against the
Company under the federal bankruptcy laws as now or hereafter in effect; or
(iii) the Company shall commence a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consent to the entry of an order for relief in an
involuntary case under any such law, or consent to the appointment or taking
possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator
(or similar official) of the Company or for any substantial part of the property
of the Company, or the Company shall make any general assignment for the benefit
of creditors, or shall fail generally to pay its debts as they come due, or
shall take any corporate action to authorize any of the foregoing; or
(iv) failure on the part of the Company to observe or
perform any of the covenants contained in this Note (other than a failure to
make a payment specified in clause (i) above) or in the Agreement and the
continuance of such failure for a period of 30 days following receipt of notice
from the Holder specifying such covenant and the nature of the Company's
non-performance.
(b) If an Event of Default shall occur, then the Holder may by
notice to the Company (a "Default Notice"), so long as the Event of Default
exists, (i) declare the unpaid principal and accrued interest, if any, of this
Note immediately due and payable without further presentment, demand, protest,
or notice, all of which are hereby waived, and (ii) be entitled from the date of
Event of Default to an additional 2% simple interest on outstanding principal of
this Note.
6. Notices. Any notice, request, or other communications required or
permitted hereunder shall be in writing and shall deemed to have been duly given
if sent by facsimile, or mailed by registered or certified mail, postage
prepaid, or by recognized overnight courier or personal delivery, addressed (a)
if to the Holder, to it at the last known address appearing on the books of the
Company maintained for such purpose, or (b) if to the Company, to it at 101
Saginaw Drive, Redwood City, California 94063, attention: Chief Executive
Officer, telephone (650) 261-9400, facsimile (650) 261-9468, with a copy (which
will not constitute notice) to Thomas C. DeFilipps, Esq., Wilson Sonsini
Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California 94304, telephone
(650) 493-9300, facsimile (650) 493-6811. Any party hereto may by notice so
given change its address for future notice hereunder. All such notices will be
deemed to have been
II-10
<PAGE>
given (i) upon confirmation of delivery, if sent by facsimile or (ii) upon
delivery, if sent by courier or personal delivery.
7. Transferability. With respect to any offer, sale or other
disposition of any of this Note or the Shares (collectively, the "Securities"),
the Holder will give written notice to the Company prior thereto, describing
briefly the manner thereof, and, if requested by the Company, a written opinion
of the Holder's counsel to the effect that such offer, sale or other
distribution may be effected without registration or qualification under any
federal or state law then in effect or necessary compliance with any other
transferability restrictions relating thereto . Promptly upon receiving such
written notice and reasonably satisfactory opinion, if so requested, the
Company, as promptly as practicable, shall notify the Holder that the Holder may
sell or otherwise dispose of such Securities. Subject to compliance with
applicable state and federal law and the terms of the notice delivered to the
Company, the Holder may transfer such Securities only by surrendering them to
the Company with a duly executed Assignment Form, substantially in the form
attached hereto as Exhibit C and funds sufficient to pay any transfer tax,
whereupon the Company will cancel such Securities and execute and deliver one or
more new Securities in the names and amounts specified in such instrument and,
if the Holder's entire interest in such Securities is not being assigned, in the
name of the Holder for the balance of such interest, unless otherwise specified
in the Assignment Form. Any Note issued upon transfer of this Note shall bear
the legends on the face of this Note. All certificates representing Shares
delivered upon transfer of Securities shall bear the legends required by Section
3. If a determination has been made pursuant to this Section 7 that the opinion
of counsel for the Holder is not reasonably satisfactory to the Company, the
Company shall so notify the Holder promptly after such determination has been
made. Any attempted transfer of Securities not in compliance with this Section 7
shall be null and void.
8. Assignment. The rights and obligations of the Company and the Holder
shall be binding upon and benefit the successors, assigns, heirs,
administrators, and transferees of the parties. The Holder may assign his rights
and obligations hereunder subject to Sections 3 and 7 of this Note. This
provision shall in no way affect the restrictions on transfer contained in
Sections 3 and 7 of this Note. The Company may not assign its rights and
obligations hereunder without the written consent of the Holder unless the
Company enters into a merger, acquisition, sale of substantially all of the
Company's assets or similar change of control transaction.
9. Amendment and Waiver. The rights of the Holder may be amended or
waived upon the written consent of the Company and the Holder.
10. Integration: No Shareholder Rights. The Agreement, this Note, and a
Warrant to Purchase Common Stock issued to the Holder constitute the full and
entire understanding and agreement between the parties hereto and thereto with
regard to the subject matter hereof and thereof, and supersede any prior or
contemporaneous understandings, agreements or representations between them that
relate to the subject matter hereof or thereof. Nothing contained in this Note
shall be construed as conferring upon the Holder or any other person the right
to vote or to consent or to receive notice as a shareholder in respect of
meetings of shareholders for the election of directors of
II-11
<PAGE>
the Company or any other matters or any rights whatsoever as a shareholder of
the Company; and no dividends or interest shall be payable or accrued in respect
of this Note or the interest represented hereby or the Shares obtainable
hereunder until, and only to the extent that, this Note shall have been
converted.
11. California Law. This Note and the obligations of the Company and
the Holder hereunder shall be governed by and construed in accordance with the
laws of the State of California, as such laws are applied to contracts between
California residents entered into and to be performed entirely within
California.
12. Expenses. The Company shall reimburse reasonable attorney fees
incurred by the Holder in connection with the enforcement of his rights under
this Note.
IN WITNESS WHEREOF, the Company has caused this Note to be executed by
its duly authorized representative on the date first above written.
TELEGEN CORPORATION
By:__________________________________________
Fred Y. Kashkooli, Chief Executive Officer
II-12
<PAGE>
SCHEDULE OF EXHIBITS
EXHIBIT A - Notice of Conversion (Section 2(a))
EXHIBIT B - Investment Representation Certificate (Section 2(b))
EXHIBIT C - Assignment Form (Section 7)
II-13
<PAGE>
EXHIBIT A
Notice of Exercise Form
(To be executed only upon partial or full
conversion of the attached Note)
The undersigned registered Holder of the attached Note hereby
irrevocably converts $__________ in face value to Common Stock of Telegen
Corporation at the Conversion Price and on the terms and conditions specified in
the attached Note.
The undersigned requests that a certificate (or certificates in
denominations of _________ shares) for the shares of Common Stock of Telegen
Corporation hereby received be issued in the name of and delivered to (circle
one) (a) the undersigned or (b) __________________, whose address is and, if
such shares of Common Stock shall not include all the shares of Common Stock
issuable as provided in the attached Note, that a new Note of like tenor for the
number of shares of Common Stock of Telegen Corporation not being purchased
hereunder be issued in the name of and delivered to (circle one) (a) the
undersigned or (b) ________________________, whose address is
______________________________________.
Dated: ______________________, 199_
Signature Guaranteed ____________________________________
____________________________________
By: ________________________________
(Signature of Registered Holder)
Title:______________________________
NOTICE: The signature to this Notice of Exercise must correspond with
the name as written upon the face of the attached Note in
every particular, without alteration or enlargement or any
change whatever.
II-14
<PAGE>
EXHIBIT B
Investment Representation Certificate
Purchaser: _____________________________________________________________________
Company: Telegen Corporation, a California corporation
Security: Common Stock
Amount: ________________________________________________________________________
Date: __________________________________________________________________________
In connection with the purchase of the above-listed securities (the
"Securities"), the undersigned (the "Purchaser") represents to the Company as
follows:
(a) The Purchaser is aware of the Company's business affairs and
financial condition, and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Securities. The
Purchaser is purchasing the Securities for its own account for investment
purposes only and not with a view to, or for the resale in connection with, any
"distribution" thereof for purposes of the Securities Act of 1933, as amended
(the "Securities Act");
(b) The Purchaser understands that the Securities may have not been
registered under the Securities Act in reliance upon a specific exemption
therefor, which exemption depends upon, among other things, the bona fide nature
of the Purchaser's investment intent as expressed herein. In this connection,
the Purchaser understands that, in the view of the Securities and Exchange
Commission (the "Commission"), the statutory basis for such exemption may be
unavailable if the Purchaser's representation was predicated solely upon a
present intention to hold these Securities for the minimum capital gains period
specified under tax statutes, for a deferred sale, for or until an increase or
decrease in the market price of the Securities, or for a period of one year or
any other fixed period in the future;
(c) The Purchaser further understands that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from registration is otherwise available. In addition, the
Purchaser understands that the certificate evidencing the Securities will be
imprinted with the legend referred to in the Warrant under which the Securities
are being purchased unless there exists an effective registration statement for
such securities;
(d) The Purchaser is aware of the provisions of Rule 144, promulgated
under the Securities Act, which, in substance, permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, if applicable, including, among other
things: (i) the availability of certain public information about the Company;
(ii) the resale occurring not less
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than one (1) year after the party has purchased and paid for the securities to
be sold; (iii) the sale being made through a broker in an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934) and the amount of securities
being sold during any three-month period not exceeding the specified limitations
stated therein;
(e) The Purchaser further understands that at the time it wishes to
sell the Securities there may be no public market upon which to make such a
sale, and that, even if such a public market upon which to make such a sale then
exists, the Company may not be satisfying the current public information
requirements of Rule 144, and that, in such event, the Purchaser may be
precluded from selling the Securities under Rule 144 even if the one-year
minimum holding period had been satisfied; and
(f) The Purchaser further understands that in the event all of the
requirements of Rule 144 are not satisfied, registration under the Securities
Act, compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rule 144 is not exclusive, the
staff of the Commission has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
Date: __________________________, 199_
PURCHASER:
___________________________
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<PAGE>
EXHIBIT C
Assignment Form
(To be executed only upon the assignment of the attached securities)
FOR VALUE RECEIVED, the undersigned registered Holder of the attached
securities hereby sells, assigns and transfers unto ________________________,
whose address is __________________________ all of the rights of the undersigned
under the attached securities, with respect to ___________________ shares of
Common Stock of Telegen Corporation and, if applicable, if such shares of Common
Stock shall not include all the shares of Common Stock issuable as provided in
the attached Note then a new Note of like tenor for the number of shares of
Common Stock of Telegen Corporation not being transferred hereunder be issued in
the name of and delivered to the undersigned, and does hereby irrevocably
constitute and appoint attorney to register such transfer on the books of
Telegen Corporation maintained for the purpose, with full power of substitution
in the premises.
Dated: _____________________, ____
Signature Guaranteed ____________________________________
____________________________________
By: ________________________________
(Signature of Registered Holder)
Title:______________________________
NOTICE: The signature to this Assignment must correspond with the name
upon the face of the attached certificate of Common Stock or
Note being surrendered herewith in every particular, without
alteration or enlargement or any change whatever.
II-17
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION OF
SUCH SECURITIES MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION
STATEMENT RELATING THERETO, OR (ii) AN OPINION OF COUNSEL FOR THE
HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION
IS NOT REQUIRED.
TELEGEN CORPORATION
WARRANT FOR
COMMON STOCK
Dated ________, 1998
This certifies that for value received:
_________________________________________ (the "Purchaser"),
or registered assigns, is entitled, subject to the terms set forth herein, to
purchase from TELEGEN CORPORATION, a California corporation (the "Company"), up
to________ fully paid and non-assessable shares of the Company's Common Stock,
without par value, at the price of US$0.38 per share. The initial purchase price
of US$0.38 per share, and the number of shares purchasable hereunder, are
subject to adjustment in certain events, all as more fully set forth under
Section 4 herein.
1. Definitions
"Commission" means the Securities and Exchange Commission, or any other
federal agency then administering the Securities Act and the Securities Exchange
Act of 1934.
"Common Stock" means the Company's Common Stock, any stock into which
such stock shall have been changed or any stock resulting from any
reclassification of such stock, and any other capital stock of the Company of
any class or series now or hereafter authorized having the right to share in
distributions either of earnings or assets of the Company without limit as to
amount or percentage.
"Company" means Telegen Corporation, a California corporation, and any
successor corporation.
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<PAGE>
"Exercise Period" means, subject to Section 5 herein, the period
commencing immediately from date hereof and terminating at the earliest to occur
of: (i) 5:00 p.m., Pacific Time, two months from the date hereof, or (ii) the
time immediately prior to the closing of (x) a merger or consolidation of the
Company with or into another entity in which the shareholders of the Company
immediately before such merger or consolidation own less than a majority of the
surviving or resulting entity's outstanding voting stock immediately thereafter,
or (y) a sale of all or substantially all of the Company's assets.
"Exercise Price" means the price per share of Common Stock set forth in
the preamble paragraph to this Warrant, as such price may be adjusted pursuant
to Section 4 hereof.
"Fair Market Value" means the closing sale price or if not available
then the closing bid price on a given trading day of the Company's Common Stock
as reported on the electronic bulletin board under the symbol TLGN or as
determined by the Company's Board of Directors in good faith, as applicable.
"Holder" means the person in whose name this Warrant is registered on
the books of the Company maintained for such purpose which initially shall be
the Purchaser.
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts, government entities and authorities and other organizations, whether or
not legal entities.
"Principal Executive Office" means the Company's office at 101 Saginaw
Drive, Redwood City, California 94063, or such other office as designated in
writing to the Holder by the Company.
"Rule 144" means Rule 144 as promulgated by the Commission under the
Securities Act, as such Rule may be amended from time to time, or any similar
successor rule that the Commission may promulgate.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"Shareholder" means a holder of one or more Warrant Shares or shares of
Common Stock acquired upon conversion of Warrant Shares.
"Warrant" means this Warrant and all warrants issued upon the partial
exercise, transfer or division of or in substitution for this Warrant or any
such warrant.
"Warrant Shares" means the shares of Common Stock issuable upon the
exercise of this Warrant, provided that if under the terms hereof there shall be
a change such that the securities purchasable hereunder shall be issued by an
entity other than the Company or there shall be a change in the type or class of
securities purchasable hereunder, then the term shall mean the securities
issuable upon the exercise of the rights granted hereunder.
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<PAGE>
2. Exercise
2.1 Exercise Right; Manner of Exercise. The purchase rights represented
by this Warrant may be exercised by the Holder, in whole or in part, at any time
and from time to time during the Exercise Period upon (i) surrender of this
Warrant, together with an executed Notice of Exercise, substantially in the form
of Exhibit A attached hereto, at the Principal Executive Office, and (ii)
payment to the Company of the aggregate Exercise Price for the number of Warrant
Shares specified in the Notice of Exercise (such aggregate Exercise Price the
"Total Exercise Price"). The Total Exercise Price shall be paid by check or wire
transfer. The Person or Person(s) in whose name(s) any certificate(s)
representing the Warrant Shares which are issuable upon exercise of this Warrant
shall be deemed to become the holder(s) of, and shall be treated for all
purposes as the record holder(s) of, such Warrant Shares, and such Warrant
Shares shall be deemed to have been issued, immediately prior to the close of
business on the date on which this Warrant and Notice of Exercise are presented
and payment made for such Warrant Shares, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such Warrant Shares shall not then be actually delivered to such
Person or Person(s). Certificates for the Warrant Shares so purchased shall be
delivered to the Holder within a reasonable time. If this Warrant is exercised
in part only, the Company shall, upon surrender of this Warrant for
cancellation, deliver the certificate(s) representing the Warrant Shares and a
new Warrant evidencing the rights of the Holder to purchase the balance of the
Warrant Shares which Holder is entitled to purchase hereunder. The issuance of
Warrant Shares upon exercise of this Warrant shall be made without charge to the
Holder for any issuance tax (as opposed to any income tax on the Holder with
respect to such issuance) with respect thereto or any other cost incurred by the
Company in connection with the exercise of this Warrant and the related issuance
of Warrant Shares.
2.2 Fractional Shares. The Company shall not issue fractional shares of
Common Stock upon any exercise or conversion of this Warrant. As to any
fractional share of Common Stock which the Holder would otherwise be entitled to
purchase from the Company upon such exercise, the Company shall purchase from
the Holder such fractional share at a price equal to an amount calculated by
multiplying such fractional share (calculated to the nearest 1/100th of a share)
by the Fair Market Value of a share of Common Stock on the date of the Notice of
Exercise. Payment of such amount shall be made in cash or by check payable to
the order of the Holder at the time of delivery of any certificate or
certificates arising upon such exercise or conversion.
2.3 Reservation of Shares; Validity of Shares. The Company will reserve
and keep available for issuance upon exercise of this Warrant such number of
shares of Common Stock as shall be sufficient to permit the exercise in whole or
in part of this Warrant. Upon an exercise of this Warrant by the Holder in
compliance with Section 2.1 above, all of the shares issued upon exercise of
this Warrant shall be duly and validly issued, fully paid and non-assessable,
and free and clear of any liens.
3. Warrant Records and Transfer
3.1 Maintenance of Record Books. The Company shall keep at the
Principal Executive Office a record in which, subject to such reasonable
regulations as it may prescribe, it shall provide for the registration and
transfer of this Warrant. The Company and any Company agent may treat
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<PAGE>
the Person in whose name this Warrant is registered as the owner of this Warrant
for all purposes whatsoever and neither the Company nor any Company agent shall
be affected by any notice to the contrary.
3.2 Restrictions on Transfers.
(a) Compliance with Securities Act. Upon exercise of this
Warrant, and unless a registration statement covering the issuance of the
underlying Common Stock is on file with the Commission and currently effective,
the Holder shall confirm in writing, by executing the form attached hereto as
Exhibit B, that the shares of Common Stock purchased thereby are being acquired
for investment, solely for the Holder's own account and not as a nominee for any
other Person, and not with a view toward distribution or resale.
(b) Certificate Legends. This Warrant, all shares of Common
Stock issued upon exercise of this Warrant (unless registered under the
Securities Act), shall be stamped or imprinted with a legend in substantially
the following form (in addition to any legends required by applicable state
securities laws):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION OF
SUCH SECURITIES MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION
STATEMENT RELATING THERETO, OR (ii) AN OPINION OF COUNSEL FOR THE
HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION
IS NOT REQUIRED.
(c) Disposition of Warrant or Shares. With respect to any
offer, sale or other disposition of this Warrant or any shares of Common Stock
issued upon exercise of this Warrant prior to registration under the Securities
Act of such shares, the Holder or the Shareholder, as the case may be, agrees to
give written notice to the Company prior thereto, describing briefly the
circumstances thereof, together with a written opinion of the Holder's or
Shareholder's counsel, to the effect that such offer, sale or other disposition
may be effected without registration under the Securities Act or qualification
under any applicable state securities laws of this Warrant or such shares, as
the case may be, and indicating whether or not under the Securities Act
certificates for this Warrant or such shares, as the case may be, to be sold or
otherwise disposed of require any restrictive legend as to applicable
restrictions on transferability in order to insure compliance with the
Securities Act. Promptly upon receiving such written notice and reasonably
satisfactory opinion, if so requested, the Company, as promptly as practicable,
shall notify the Holder or the Shareholder, as the case may be, that it may sell
or otherwise dispose of this Warrant or such shares, as the case may be, all in
accordance with the terms of the notice delivered to the Company. If a
determination has been made pursuant to this Section 3.2(c) that the opinion of
counsel for the Holder or the Shareholder, as the case may be, is not reasonably
satisfactory to the Company, the Company shall so notify the Holder or the
Shareholder, as the case may be, promptly after such determination has been made
and shall specify the legal analysis supporting any such conclusion.
Notwithstanding the foregoing, this Warrant or such shares, as the case may be,
may be offered, sold or otherwise disposed of in accordance with Rule 144,
provided that the Company shall have been furnished with
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<PAGE>
such information as the Company may reasonable request to provide reasonable
assurance that the provisions of Rule 144 have been satisfied. Each certificate
representing this Warrant or the shares thus transferred (except a transfer
pursuant to Rule 144) shall bear a legend as to the applicable restrictions on
transferability in order to insure compliance with the Securities Act, unless in
the aforesaid reasonably satisfactory opinion of counsel for the Holder or the
Shareholder, as the case may be, such legend is not necessary in order to insure
compliance with the Securities Act. The Company may issue stop transfer
instructions to its transfer agent in connection with such restrictions.
(d) Warrant Transfer Procedure. Transfer of this Warrant to a
third party, following compliance with the preceding subsections of this Section
3.2, shall be effected by execution of the Assignment Form attached hereto as
Exhibit C, and surrender of this Warrant at the Principal Executive Office,
together with funds sufficient to pay any applicable transfer tax. Upon receipt
of the duly executed Assignment Form and the necessary transfer tax funds, if
any, the Company, at its expense, shall execute and deliver, in the name of the
designated transferee or transferees, one or more new Warrants representing the
right to purchase a like aggregate number of shares of Common Stock.
(e) Termination of Restrictions. The restrictions imposed
under this Section 3.2 upon the transferability of the Warrant and the shares of
Common Stock acquired upon the exercise of this Warrant shall cease (i) with
respect to the Common Shares acquired pursuant to the exercise of this Warrant
only, if a registration statement covering the shares of Common Stock to be
issued effective under the Securities Act at the time of such exercise, or (ii)
if the Company is presented with an opinion of counsel reasonably satisfactory
to the Company that such restrictions are no longer required in order to insure
compliance with the Securities Act, or (iii) if such securities may be
transferred in accordance with Rule 144(k). When such restrictions terminate,
the Company shall, or shall instruct its transfer agent to, promptly and without
expense to the Holder or the Shareholder, as the case may be, issue new
securities in the name of the Holder and/or the Shareholder, as the case may be,
not bearing the legends required under Section 3.2(b). In addition, new
securities shall be issued without such legends if such legends may be properly
removed under the terms of Rule 144(k).
4. Antidilution Provisions
4.1 Reorganization, Reclassification or Recapitalization of the
Company. In case of (i) a capital reorganization, reclassification or
recapitalization of the Company's capital stock (other than in the cases
referred to in of Section 4.4 hereof), (ii) the Company's consolidation or
merger with or into another corporation in which the Company is not the
surviving entity, or a reverse triangular merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted, by virtue of the merger, into
other property, whether in the form of securities, cash or otherwise, or (iii)
the sale or transfer of the Company's property as an entirety or substantially
as an entirety, then, as part of such reorganization, reorganization,
recapitalization, merger, consolidation, sale or transfer, lawful provision
shall be made so that there shall thereafter be deliverable upon the exercise of
this Warrant or any portion thereof (in lieu of or in addition to the number of
shares of Common Stock theretofore deliverable, as appropriate), and without
payment of any additional consideration, the number of shares of stock
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<PAGE>
or other securities or property to which the holder of the number of shares of
Common Stock which would otherwise have been deliverable upon the exercise of
this Warrant or any portion thereof at the time of such reorganization,
reclassification, recapitalization, consolidation, merger, sale or transfer
would have been entitled to receive in such reorganization, reclassification,
recapitalization, consolidation, merger, sale or transfer. This Section 4.1
shall apply to successive reorganizations, reclassifications, recapitalizations,
consolidations, mergers, sales and transfers and to the stock or securities of
any other corporation that are at the time receivable upon the exercise of this
Warrant. If the per-share consideration payable to the Holder for shares of
Common Stock in connection with any transaction described in this Section 4.1 is
in a form other than cash or marketable securities, then the value of such
consideration shall be determined in good faith by the Company's Board of
Directors.
4.2 Splits and Combinations. If the Company at any time subdivides any
of its outstanding shares of Common Stock into a greater number of shares or
declares a stock dividend, the Exercise Price in effect immediately prior to
such subdivision shall be proportionately reduced, and, conversely if the
outstanding shares of Common Stock are combined into a smaller number of shares,
the Exercise Price in effect immediately prior to such combination shall be
proportionately increased. Upon any adjustment of the Exercise Price under this
Section 4.2, the number of shares of Common Stock issuable upon exercise of this
Warrant shall equal the number of shares determined by dividing (i) the
aggregate Exercise Price payable for the purchase of all shares issuable upon
exercise of this Warrant immediately prior to such adjustment by (ii) the
Exercise Price per share in effect immediately after such adjustment.
4.3 Reclassifications. If the Company changes any of the securities as
to which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted. No adjustment shall be made
pursuant to this Section 4.3 upon any conversion described in Section 4.1
hereof.
4.4 Liquidation; Dissolution. If the Company shall dissolve, liquidate
or wind up its affairs, the Holder shall have the right, but not the obligation,
to exercise this Warrant effective as of the date of such dissolution,
liquidation or winding up. If any such dissolution, liquidation or winding up
results in any cash distribution to the Holder in excess of the aggregate
Exercise Price for the shares of Common Stock for which this Warrant is
exercised, then the Holder may, at its option, exercise this Warrant without
making payment of such aggregate Exercise Price and, in such case, the Company
shall, upon distribution to the Holder, consider such aggregate Exercise Price
to have been paid in full, and in making such settlement to the Holder, shall
deduct an amount equal to such aggregate Exercise Price from the amount payable
to the Holder.
5. Miscellaneous
5.1 Holder Not a Shareholder. Prior to the exercise of this Warrant as
hereinbefore provided, the Holder shall not be entitled to any of the rights of
a shareholder of the Company including, without limitation, the right as a
shareholder (i) to vote on or consent to any proposed
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action of the Company or (ii) to receive (x) dividends or any other
distributions made to shareholders, (y) notice of or attend any meetings of
shareholders of the Company, or (z) notice of any other proceedings of the
Company.
5.2 Enforcement Costs. If any party to, or beneficiary of, this Warrant
seeks to enforce its rights hereunder by legal proceedings or otherwise, then
the non-prevailing party shall pay all reasonable costs and expenses incurred by
the prevailing party, including, without limitation, all reasonable attorneys'
fees (including the allocable costs of in-house counsel).
5.3 Nonwaiver; Cumulative Remedies. No course of dealing or any delay
or failure to exercise any right hereunder on the part of the Holder and/or any
Shareholder shall operate as a waiver of such right or otherwise prejudice the
rights, powers or remedies of the Holder or such Shareholder. No single or
partial waiver by the Holder and/or any Shareholder of any provision of this
Warrant or of any breach or default hereunder or of any right or remedy shall
operate as a waiver of any other provision, breach, default right or remedy or
of the same provision, breach, default, right or remedy on a future occasion.
The rights and remedies provided in this Warrant are cumulative and are in
addition to all rights and remedies which the Holder and each Shareholder may
have in law or in equity or by statute or otherwise.
5.4 Notices. Any notice, request, or other communications required or
permitted hereunder shall be in writing and shall deemed to have been duly given
if sent by facsimile, or mailed by registered or certified mail, postage
prepaid, or by recognized overnight courier or personal delivery, addressed (a)
if to the Holder or a Shareholder, to it at the last known address appearing on
the books of the Company maintained for such purpose, or (b) if to the Company,
to it at 101 Saginaw Drive, Redwood City, California 94063, attention: Chief
Executive Officer, telephone (650) 261-9400, facsimile (650) 261-9468, with a
copy (which will not constitute notice) to Thomas C. DeFilipps, Esq.,Wilson
Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California 94304,
telephone (650) 493-9300, facsimile (650) 493-6811. Any party hereto may by
notice so given change its address for future notice hereunder. All such notices
will be deemed to have been given (i) upon confirmation of delivery, if sent by
facsimile, or (ii) upon delivery, if sent by courier or personal delivery.
5.5 Successors and Assigns. This Warrant shall be binding upon, the
Company and any Person succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets, and all of the
obligations of the Company with respect to the shares of Common Stock issuable
upon exercise of this Warrant, shall survive the exercise, expiration or
termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the Holder, each Shareholder and their
respective successors and assigns.
5.6 Severability.
(a) If, in any action before any court or agency legally
empowered to enforce any term, any term is found to be unenforceable, then such
term shall be deemed modified to the extent necessary to make it enforceable by
such court or agency.
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<PAGE>
(b) If any term is not curable as set forth in subsection (a)
above, the unenforceability of such term shall not affect the other provisions
of this Warrant but this Warrant shall be construed as if such unenforceable
term had never been contained herein.
5.7 Integration. This Warrant was initially issued pursuant to that
certain Note and Warrant Purchase Agreement among the Company and the Holder
hereof, entered into of even date herein (the "Note Agreement") and the Note
between the Company and the Holder hereof, entered into of even date herein (the
"Note"). The Note Agreement, the Note, and the other documents entered into
pursuant thereto, including, without limitation, this Warrant, constitute the
full and entire understanding and agreement between the parties hereto and
thereto with regard to the subject matter hereof and thereof, and supersede any
prior or contemporaneous understandings, agreements or representations between
them that relate to the subject matter hereof or thereof.
5.8 Waiver and Amendment. Any provision of this Warrant may be amended,
waived, modified or verified, including by way of settlements or otherwise, upon
the written consent of the Company and the holders of at least a
majority-in-interest of all outstanding Warrants issued pursuant to the Note
Agreement with the same terms hereof.
5.9 Governing Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of California applicable to contracts
entered into and to be performed wholly within California by California
residents.
5.10 Express Notice of Exercise Period. To the extent the Exercise
Period shall be determined under subsection (ii) of such definition hereof, the
Company will provide the Holder 15 days prior written notice, and thereafter the
Holder's right to exercise this Warrant shall continue until the termination of
the Exercise Period.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer on _________, 1998.
TELEGEN CORPORATION
By: _________________________________________
Fred Y. Kashkooli, Chief Executive Officer
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<PAGE>
SCHEDULE OF EXHIBITS
EXHIBIT A - Notice of Exercise (Section 2.1)
EXHIBIT B - Investment Representation Certificate (Section 3.2(a))
EXHIBIT C - Assignment Form (Section 3.2(d))
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<PAGE>
EXHIBIT A
Notice of Exercise Form
(To be executed only upon partial or full
exercise of the attached Warrant)
The undersigned registered Holder of the attached Warrant hereby
irrevocably exercises the attached Warrant for and purchases shares of Common
Stock of Telegen Corporation and herewith makes payment therefor in the amount
of US$ ________________________, all at the price and on the terms and
conditions specified in the attached Warrant.
The undersigned requests that a certificate (or _________________
certificates in denominations of shares) for the shares of Common Stock of
Telegen Corporation hereby purchased be issued in the name of and delivered to
(circle one) (a) the undersigned or (b) __________________, whose address is
and, if such shares of Common Stock shall not include all the shares of Common
Stock issuable as provided in the attached Warrant, that a new Warrant of like
tenor for the number of shares of Common Stock of Telegen Corporation not being
purchased hereunder be issued in the name of and delivered to (circle one) (a)
the undersigned or (b) ________________________, whose address is
______________________________________.
Dated: _________________________, 199_
Signature Guaranteed ____________________________________
____________________________________
By: ________________________________
(Signature of Registered Holder)
Title:______________________________
NOTICE: The signature to this Notice of Exercise must correspond with
the name as written upon the face of the attached Warrant in
every particular, without alteration or enlargement or any
change whatever.
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<PAGE>
EXHIBIT B
Investment Representation Certificate
Purchaser: ________________________________________________________________
Company: Telegen Corporation, a California corporation
Security: Common Stock
Amount: ________________________________________________________________
Date: ________________________________________________________________
In connection with the purchase of the above-listed securities (the
"Securities"), the undersigned (the "Purchaser") represents to the Company as
follows:
(a) The Purchaser is aware of the Company's business affairs and
financial condition, and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Securities. The
Purchaser is purchasing the Securities for its own account for investment
purposes only and not with a view to, or for the resale in connection with, any
"distribution" thereof for purposes of the Securities Act of 1933, as amended
(the "Securities Act");
(b) The Purchaser understands that the Securities may have not been
registered under the Securities Act in reliance upon a specific exemption
therefor, which exemption depends upon, among other things, the bona fide nature
of the Purchaser's investment intent as expressed herein. In this connection,
the Purchaser understands that, in the view of the Securities and Exchange
Commission (the "Commission"), the statutory basis for such exemption may be
unavailable if the Purchaser's representation was predicated solely upon a
present intention to hold these Securities for the minimum capital gains period
specified under tax statutes, for a deferred sale, for or until an increase or
decrease in the market price of the Securities, or for a period of one year or
any other fixed period in the future;
(c) The Purchaser further understands that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from registration is otherwise available. In addition, the
Purchaser understands that the certificate evidencing the Securities will be
imprinted with the legend referred to in the Warrant under which the Securities
are being purchased unless there exists an effective registration statement for
such securities;
(d) The Purchaser is aware of the provisions of Rule 144, promulgated
under the Securities Act, which, in substance, permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, if applicable, including, among other
things: (i) the availability of certain public information about the Company;
(ii) the resale occurring not less
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than one (1) year after the party has purchased and paid for the securities to
be sold; (iii) the sale being made through a broker in an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934) and the amount of securities
being sold during any three-month period not exceeding the specified limitations
stated therein;
(e) The Purchaser further understands that at the time it wishes to
sell the Securities there may be no public market upon which to make such a
sale, and that, even if such a public market upon which to make such a sale then
exists, the Company may not be satisfying the current public information
requirements of Rule 144, and that, in such event, the Purchaser may be
precluded from selling the Securities under Rule 144 even if the one-year
minimum holding period had been satisfied; and
(f) The Purchaser further understands that in the event all of the
requirements of Rule 144 are not satisfied, registration under the Securities
Act, compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rule 144 is not exclusive, the
staff of the Commission has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
Date: _____________________________, 199_
PURCHASER:
_______________________________
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<PAGE>
EXHIBIT C
Assignment Form
(To be executed only upon the assignment of the attached Warrant)
FOR VALUE RECEIVED, the undersigned registered Holder of the attached
Warrant hereby sells, assigns and transfers unto ___________________________,
whose address is ______________________________________ all of the rights of the
undersigned under the attached Warrant, with respect to _______________________
shares of Common Stock of Telegen Corporation and, if such shares of Common
Stock shall not include all the shares of Common Stock issuable as provided in
the attached Warrant, then a new Warrant of like tenor for the number of shares
of Common Stock of Telegen Corporation not being transferred hereunder be issued
in the name of and delivered to the undersigned, and does hereby irrevocably
constitute and appoint ____________________ attorney to register such transfer
on the books of Telegen Corporation maintained for the purpose, with full power
of substitution in the premises.
Dated: _____________________, ____
Signature Guaranteed ____________________________________
____________________________________
By: ________________________________
(Signature of Registered Holder)
Title:______________________________
NOTICE: The signature to this Assignment must correspond with the name
upon the face of the attached Warrant in every particular,
without alteration or enlargement or any change whatever.
II-30
TELEGEN CORPORATION
WARRANT CERTIFICATE
Warrant No. Warrant to Purchase _____________
----------------- Shares of Common Stock
WARRANT TO PURCHASE COMMON STOCK
This Warrant Certificate certifies that ___________, or registered
assigns (the "Warrant Holder") is the registered owner of Warrants ("Warrants")
expiring on_______________, 1998 ( the "Expiration Date"). The Warrant entitles
the Warrant Holder to purchase from Telegen Corporation, a California
corporation, paid and non-assessable the number of shares set forth above of
Common Stock of the Company ( the "Warrant Shares") at a purchase price of $0.38
per share ( the "Exercise Price") in lawful money of the United States of
America for the Warrants represented hereby upon surrender of this Warrants
Certificate, with payment to the Exercise Price at the principal office of the
Company, but only subject to the conditions set forth herein which were approved
and adopted by the Board of Directors of the Company as of April 7, 1998 (the
"Warrant Terms")
The Warrants and this Warrant Certificate are subject to restrictions
on transfer under the Securities Act of 1933, as amended (the "Act"), and state
securities laws.
THE WARRANT AND THIS WARRANT CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE " ACT"), AND STATE SECURITIES
LAWS. THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE ACT AND MAY NOT BE OFFERED
FOR SALE, SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS
SO REGISTERED OR QUALIFIED UNDER APPLICABLE LAWS OR UNLESS AN EXEMPTION EXISTS,
THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED BY AN OPINION OF COUNSEL (WHICH
OPINION AND COUNSEL SHALL BOTH BE REASONABLY SATISFACTORY TO THE COMPANY).
The Warrant Holder may exercise the Warrants by forwarding to the
Company the Exercise Price, multiplied by the number of Warrants being
exercised, in the form of lawful money of the United States of America in cash
or by certified or cashier's check or bank draft payable to the order of the
Company. Upon any exercise of the Warrant Certificate in and amount less than
100% of the Warrant Shares so evidenced, there shall be issued to the Warrant
Holder a new
II-31
<PAGE>
Warrant Certificate evidencing the number of Warrant Shares not issued pursuant
to such partial exercise.
No Warrant may be exercised after 5:00 p.m., California time, on the
Expiration Date. Any Warrant not exercised by such time shall become void.
The Company may deem and treat the registered holder as the absolute
owner of this Warrant Certificate (not withstanding any notation of ownership or
other writing hereon made by anyone ) for all purposes and the Company shall not
be affected by any notice to the contrary. No Warrant Holder, as such, shall
have any rights of a shareholder of the Company, either at law or in equity, and
the rights of the Warrant Holder, as such, are limited to those rights expressly
provided in this Warrant Certificate.
The Company shall not be required to issue fractions of Warrant Shares
upon the exercise of any Warrants.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be signed by its President.
Dated:__________________________ TELEGEN Corporation
a California Corporation
By:____________________________
Fred Y. Kashkooli, President
II-32
<PAGE>
ELECTION TO EXERCISE
(TO BE EXECUTED UPON EXERCISE OF THE WARRANT)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to Purchase_____________Shares and
herewith tenders in payment for such Shares $______________in lawful money of
the United States of America, in accordance with the terms hereof. The
undersigned requests that a certificate representing the Shares be registered
and delivered as follows:
-----------------------------------------------
Name
-----------------------------------------------
Address
-----------------------------------------------
Delivery Address (If Different)
If such number of Shares is less that the aggregate number of Shares purchasable
hereunder, the undersigned requests that a new Warrant Certificate representing
the balance of such Shares be registered and delivered as follows:
-----------------------------------------------
Name
-----------------------------------------------
Address
-----------------------------------------------
Delivery Address (If Different)
__________________________________ _______________________________________
Social Security or Other Taxpayer Signature
Identification Number of Holder
_______________________________________
Name
_______________________________________
Title
SIGNATURE GUARANTEED:
______________________________
II-33
<PAGE>
ASSIGNMENT
(TO BE EXECUTED BY THE REGISTERED HOLDER IF SUCH HOLDER
DESIRES TO TRANSFER THE WARRANT CERTIFICATE)
FOR VALUE RECEIVED, the undersigned registered holder hereby sells,
assigns and transfers unto
-----------------------------------------------
Name of Assignee
-----------------------------------------------
Address of Assignee
this Warrant Certificate, together with all right, title and interest therein.
__________________________________ _______________________________________
Social Security or Other Taxpayer Signature
Identification Number of Holder
_______________________________________
Name
_______________________________________
Title
SIGNATURE GUARANTEED:
______________________________
II-34
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THESE SECURITIES
HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH,
THE DISTRIBUTION THEREOF. THESE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED, OR
TRANSFERRED UNLESS (I) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT IS IN
EFFECT AS TO THESE SECURITIES OR (II) THERE IS AN OPINION OF COUNSEL, REASONABLY
SATISFACTORY TO THE CORPORATION, THAT AN EXEMPTION THEREFROM IS AVAILABLE.
THIS CONVERTIBLE PROMISSORY NOTE IS SUBJECT TO TRANSFERABILITY RESTRICTIONS
PURSUANT TO SECTION 7 HEREIN AND SHALL NOT BE TRANSFERRED BY THE COMPANY UNLESS
THE HOLDER HEREOF COMPLIES THEREWITH. ANY ATTEMPTED TRANSFER OF SECURITIES NOT
IN COMPLIANCE WITH SUCH SECTION 7 SHALL BE NULL AND VOID.
TELEGEN CORPORATION
Convertible Promissory Note
$___________ Redwood City, California
__________ ___, 1998
FOR VALUE RECEIVED, TELEGEN CORPORATION, a California corporation
(together with its successors and assigns, the "Company"), promises to pay to
the order of Nevada Anderson, Inc., a Nevada corporation (the "Holder"), the sum
of ______________________________________ ($_________) plus simple interest on
the unpaid balance at the time such interest is due. Interest on this
Convertible Promissory Note (the "Note") shall be paid at a rate equal to Eight
Percent (8%) per annum and will be paid on January 1, April 1, July 1 and
October 1 of each year until this Note is fully paid. Payment of all amounts due
hereunder shall be made, (i) by check or (ii) in stock at the Company's option
at an applicable Conversion Price as specified under Section 2(a) herein.
This Note is issued pursuant to the Satisfaction and Release of
Guarantee Agreement dated as of __________, 1998 (the "Agreement"), between the
Company and the Holder.
The following is a statement of the rights of the Holder and the
conditions to which this Note is subject, to which the Holder, by acceptance of
this Note, hereby agrees:
1. Repayment Obligation.
(a) Repayment Schedule. The Company shall repay
__________________________ ($____________) in principal on __________ ___, 1998
and at least ________________________ ($___________) in principal and any
outstanding interest (the "Repayment Obligation") on the _______ day of every
month thereafter and until all principal and any outstanding interest on this
Note are paid in full.
(b) Adjustment in Note's Face Value. Upon repayment by the
Company of any Repayment Obligation, the Company will on its books and records
reduce the face value of this Note and send notice of such change to the Holder
hereof. To the extent the Note 's face value is greater than zero on the
Company's books and records, the Company will upon request by the Holder hereof,
deliver, a new Note of like tenor in the principal amount remaining on such
Note.
II-35
<PAGE>
2. Conversion.
(a) Conversion. The "Conversion Price" shall mean the average
of the closing market prices of the Common Stock of the Company (the "Common
Stock") on the five (5) trading days immediately before the applicable due date
for the Company's Repayment Obligation under Section 1 herein. The number of
shares of Common Stock into which any Repayment Obligation may be converted into
shall be determined by dividing the dollar amount at such Repayment Obligation
by the applicable Conversion Price. No fractional shares or scrip representing
fractions of shares will be issued on conversion, but the number of shares
issuable shall be rounded down to the nearest whole share. The shares of Common
Stock issued or issuable upon conversion of this Note are referred to herein as
the "Shares."
(b) Issuance of Securities on Conversion. Conversion of this
Note, in whole or in part, shall occur if the Company elects to repay its
Repayment Obligations in stock. Upon such election the Holder hereof shall be
notified of such election and shall execute any documents deemed reasonably
necessary by the Company to effect the issue and sale of the capital stock to be
received by the Holder upon conversion of this Note. As soon as practicable
after conversion of all or part of this Note, the Company at its expense will
cause to be issued, in the name of and delivered to the Holder at the Holder's
registered address, a certificate for the number of shares of the Company's
capital stock to which the Holder shall be entitled on such conversion. Such
certificate will bear such legends as may be required by applicable state and
federal securities laws in the opinion of legal counsel for the Company.
3. Restrictions on Transfer.
(a) Legends. Each certificate representing the Shares may be
endorsed with the following legends, and the Holder may not make any transfer of
any of the Shares without first complying with the restrictions on transfer
described in all such legends:
(i) The 1933 Securities Act legend set forth on the
face of this Note.
(ii) Any other legends required by applicable state
securities laws.
The Company need not register a transfer of any Shares, and may also instruct
its transfer agent not to register the transfer of such Shares, unless the
conditions specified in this Section 3 are satisfied.
(b) Removal of Legend and Transfer Restrictions.
(i) Any legend endorsed on a certificate pursuant to
Section 3(a)(i) and any stop transfer instructions with respect to the Shares
evidenced by such certificate shall be removed and the Company shall issue a
certificate without such legend to the holder thereof if such Shares are
registered upon issuance under the Securities Act, and if such legend may be
properly removed under the terms of Rule 144 promulgated under the Securities
Act, or if such holder provides the Company with an opinion of counsel for such
holder reasonably satisfactory to legal
II-36
<PAGE>
counsel for the Company, to the effect that a sale, transfer or assignment of
such shares may be made without registration.
(ii) Any legend endorsed on a certificate pursuant to
Section 3(a)(ii) and the stop transfer instructions with respect to the Shares
evidenced by such certificate shall be removed upon receipt by the Company of an
order of the appropriate state securities authority authorizing such removal.
4. Prepayment. The Company may prepay this Note, in whole or in part,
without the written consent of the Noteholder.
5. Events of Default; Acceleration.
(a) So long as this Note is unpaid, each of the following
events will constitute an "Event of Default":
(i) default in the payment of the principal or
interest of this Note as and when the same shall become due and payable at
maturity, by declaration or otherwise, and continuance of such default for a
period of 30 days; or
(ii) an involuntary case or other proceeding shall be
commenced against the Company seeking liquidation, reorganization or other
relief with respect to it or its debts under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or seeking the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of the Company or for any substantial part of
the property of the Company or the winding up or liquidation of the affairs of
the Company, and such case or proceeding shall remain unstayed and undismissed
for a period of 60 days, or an order for relief shall be entered against the
Company under the federal bankruptcy laws as now or hereafter in effect; or
(iii) the Company shall commence a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consent to the entry of an order for relief in an
involuntary case under any such law, or consent to the appointment or taking
possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator
(or similar official) of the Company or for any substantial part of the property
of the Company, or the Company shall make any general assignment for the benefit
of creditors, or shall fail generally to pay its debts as they come due, or
shall take any corporate action to authorize any of the foregoing; or
(iv) failure on the part of the Company to observe or
perform any of the covenants contained in this Note (other than a failure to
make a payment specified in clause (i) above) or in the Agreement and the
continuance of such failure for a period of 60 days following receipt of notice
from the Holder specifying such covenant and the nature of the Company's
non-performance.
(b) If an Event of Default shall occur, then the Holder may by
notice to the Company (a "Default Notice"), so long as the Event of Default
exists, declare the unpaid principal
II-37
<PAGE>
and accrued interest, if any, of this Note immediately due and payable without
further presentment, demand, protest, or notice, all of which are hereby waived.
6. Notices. Any notice, request, or other communications required or
permitted hereunder shall be in writing and shall deemed to have been duly given
if sent by facsimile, or mailed by registered or certified mail, postage
prepaid, or by recognized overnight courier or personal delivery, addressed (a)
if to the Holder, to it at the last known address appearing on the books of the
Company maintained for such purpose, or (b) if to the Company, to it at 101
Saginaw Drive, Redwood City, California 94063, attention: Chief Executive
Officer, telephone (650) 261-9400, facsimile (650) 261-9468, with a copy (which
will not constitute notice) to Thomas C. DeFilipps, Esq.,Wilson Sonsini Goodrich
& Rosati, 650 Page Mill Road, Palo Alto, California 94304, telephone (415)
493-9300, facsimile (415) 493-6811. Any party hereto may by notice so given
change its address for future notice hereunder. All such notices will be deemed
to have been given (i) upon confirmation of delivery, if sent by facsimile, (ii)
three days after deposit in the U.S. mails (as determined by reference to the
postmark), if sent by mail, or (iii) upon delivery, if sent by courier or
personal delivery.
7. Transferability. With respect to any offer, sale or other
disposition of any of this Note or the Shares (collectively, the "Securities"),
the Holder will give written notice to the Company prior thereto, describing
briefly the manner thereof, and, if requested by the Company, a written opinion
of the Holder's counsel to the effect that such offer, sale or other
distribution may be effected without registration or qualification under any
federal or state law then in effect. Promptly upon receiving such written notice
and reasonably satisfactory opinion, if so requested, the Company, as promptly
as practicable, shall notify the Holder that the Holder may sell or otherwise
dispose of such Securities. Subject to compliance with applicable state and
federal law and the terms of the notice delivered to the Company, the Holder may
transfer such Securities only by surrendering them to the Company with a duly
executed instrument of assignment in form satisfactory to the Company and funds
sufficient to pay any transfer tax, whereupon the Company will cancel such
Securities and execute and deliver one or more new Securities in the names and
amounts specified in such instrument and, if the Holder's entire interest in
such Securities is not being assigned, in the name of the Holder for the balance
of such interest. Any Note issued upon transfer of this Note shall bear the
legend on the face of this Note. All certificates representing Shares delivered
upon transfer of Securities shall bear the legends required by Section 3. If a
determination has been made pursuant to this Section 7 that the opinion of
counsel for the Holder is not reasonably satisfactory to the Company, the
Company shall so notify the Holder promptly after such determination has been
made. Any attempted transfer of Securities not in compliance with this Section 7
shall be null and void.
8. Assignment. The rights and obligations of the Company and the holder
shall be binding upon and benefit the successors, assigns, heirs,
administrators, and transferees of the parties. This provision shall in no way
affect the restrictions on transfer contained in Sections 3 and 7 of this Note.
9. Amendment and Waiver. The rights of the Holder may be amended or
waived upon the written consent of the Company and the Holder.
II-38
<PAGE>
10. Integration; No Shareholder Rights. The Agreement and this Note
constitute the full and entire understanding and agreement between the parties
hereto and thereto with regard to the subject matter hereof and thereof, and
supersede any prior or contemporaneous understandings, agreements or
representations between them that relate to the subject matter hereof or
thereof. Nothing contained in this Note shall be construed as conferring upon
the Holder or any other person the right to vote or to consent or to receive
notice as a shareholder in respect of meetings of shareholders for the election
of directors of the Company or any other matters or any rights whatsoever as a
shareholder of the Company; and no dividends or interest shall be payable or
accrued in respect of this Note or the interest represented hereby or the Shares
obtainable hereunder until, and only to the extent that, this Note shall have
been converted.
11. California Law. This Note and the obligations of the Company and
the Holder hereunder shall be governed by and construed in accordance with the
laws of the State of California, as such laws are applied to contracts between
California residents entered into and to be performed entirely within
California.
IN WITNESS WHEREOF, the Company has caused this Note to be executed by
its duly authorized representative on the date first above written.
TELEGEN CORPORATION
By: __________________________
Title: _______________________
II-39
Exhibit 5.1
May 22, 1998
Telegen Corporation
101 Saginaw Drive
Redwood City, California 94063
RE: Registration Statement on Form S-3
Ladies and Gentlemen:
We have examined the registration statement on Form S-3 to be filed by
you with the Securities and Exchange Commission on or about May ___, 1998 (the
"Registration Statement"), in connection with the registration under the
Securities Act of 1933, for the issuance of 6,829,725 shares of common stock
upon exercise of certain Warrants and upon conversion of certain Notes (as
defined in the Registration Statement) (the "Conversion Shares"). As your
counsel, we have examined the transactions taken and proposed to be taken in
connection with the issuance of the Conversion Shares to the Security Holders in
the manner set forth in the Registration Statement.
It is our opinion that the Conversion Shares will be legally and
validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and any amendment thereto.
Very truly yours,
/s/ Wilson Sonsini Goodrich & Rosati
--------------------------------------
Wilson Sonsini Goodrich & Rosati
Professional Corporation
II-40
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Telegen Corporation and Subsidiaries on this Form S-3 (dated May 22, 1998) of
our report dated April 14, 1998, on our audits of the consolidated financial
statements of Telegen Corporation and Subsidiaries as of December 31, 1997 and
1996, and for the years ended December 31, 1997, 1996, and 1995, which report is
included in the Annual Report on Form 10-K. We also consent to the reference to
our firm under the caption "Experts".
/s/ COOPERS & LYBRAND L.L.P.
- ----------------------------
Sacramento, California
May 22, 1998
II-41
