SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NUMBER: 0-14836
TELEGEN CORPORATION
(Exact name of Registrant as Specified in its Charter)
CALIFORNIA
(State or other jurisdiction of
incorporation or organization)
84-067214
(I.R.S. Employer Identification No.)
101 SAGINAW DRIVE
REDWOOD CITY, CA 94063
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (650) 261-9400
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (S)229.405 of this chapter) is not contained herein,
and will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant was approximately $1,933,742.30 as of February
13, 1998, based upon the closing sale price on the Electronic Bulletin Board for
that date.
There were 8,236,216 shares of the Registrant's Common Stock issued and
outstanding as of February 13, 1998.
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Telegen Corporation
Annual Report on Form 10-K
Table of Contents
PART I
ITEM 1. BUSINESS OF TELEGEN........................................ 1
ITEM 2. DESCRIPTION OF PROPERTY.................................... 8
ITEM 3. LEGAL PROCEEDINGS.......................................... 8
PART II
ITEM 5. MARKET FOR COMMON EQUITY................................... 8
ITEM 6. SELECTED FINANCIAL DATA.................................... 10
ITEM 7. TELEGEN MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............. 11
ITEM 8. FINANCIALS & SUPPLEMENTARY DATA............................ 19
ITEM 9. TELEGEN CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE..................... 19
PART III .................................................................. 20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K ............................................... 20
SIGNATURES
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TELEGEN CORPORATION
ITEM 1. BUSINESS OF TELEGEN
Telegen Corporation ("Telegen" or the "Company") is a high technology
company with products in development in the flat panel display market. At
present, Telegen is organized into one active subsidiary and one inactive
subsidiary. Telegen Display Laboratories, Inc. ("TDL"), a California corporation
and a controlled second tier subsidiary of the Company, has developed a low-
cost flat panel display technology to compete with other types of flat panel
displays. Telegen Communications Corporation ("TCC"), a California corporation
and a wholly-owned subsidiary of the Company, formerly developed, manufactured
and marketed a line of internet products and intelligent telecommunications
which provide additional features to existing telephone equipment used by
consumers and small businesses. All of the assets of TCC were sold on April 1,
1998. Morning Start Multimedia Inc., a New Jersey Corporation ("MSM"), was a
wholly-owned subsidiary of the Company until it was sold on December 31, 1997.
MSM is a creator and supplier of interactive CD-ROM and internet-based
edutainment, infotainment and entertainment programs and software. Telegen's
corporate offices are located at 101 Saginaw Road, Redwood City, CA 94063, (650)
261-9400.
Telegen was incorporated in California on August 30, 1996. This
corporation was formed to acquire Telegen Communications Corporation, formerly
known as Telegen Corporation, and Solar Energy Research Corp., a publicly held
shell corporation. In the year ending December 31, 1997, certain significant
developments occurred. On October 31, 1997 the Company's Board of Directors
terminated its three top executives and appointed Fred Y. Kashkooli as acting
Chief Executive Officer. On December 31, 1997 the Company completed its sale of
MSM. In return for all the capital stock of MSM, Telegen received $200,000, plus
certain future royalties. As a subsequent event, on April 1, 1998, the Company
sold substantially all of its assets in TCC. In consideration for such sale, the
Company received (i) a total of $500,000, including $350,000 in cash and
$150,000 in a promissory note, (ii) certain future royalties, and certain TCC
liabilities were assumed by the purchasing entity.
Telegen Display Laboratories, Inc.
Flat Panel Display Technology. Telegen has developed a proprietary flat
panel technology which represents a major departure from the current product
offerings on the market today. The Company believes that such technology has
visual characteristics and potentially relative ease of manufacturing and low
costs that could enable Telegen to become a significant participant in the
display business.
Telegen expects its proprietary flat panel display technology to
compete favorably with existing Active Matrix Liquid Crystal Display ("AMLCD")
technology in terms of resolution, brightness, color, viewing angle, durability
and cost. Telegen also believes a second generation of its technology, to be
developed in the future, could be manufactured in large scale at a significantly
lower cost than AMLCD and other flat panel technologies. Primary differences
between the Telegen
<PAGE>
flat panel display and a good quality CRT monitor include its reduced thickness
and weight, lower operating cost, higher reliability and potentially brighter
presentation. Telegen believes that these features make its display desirable
for many products in the industry.
Telegen believes that its flat panel technology exceeds the performance
of active matrix liquid crystal displays, or AMLCDs, which are currently the
premium laptop computer display and cost the consumer significantly more than
the monochromatic displays and low performing, passive color displays. The
Telegen technology has been fabricated in 10.5" diagonal, full color, full gray
scale prototypes which run a standard NTSC (television standard) signal from a
video tape. Additionally, high brightness test cells have been constructed in
the next step of development for a more advanced and potentially lower cost
display.
Telegen believes that its flat panel technology has substantial value.
Telegen is in active discussion with several prospective partners to obtain
substantial new capital in the form of either equity investment in Telegen, a
new joint venture company or project financing, which Telegen will need to
develop plant and product specifications, and to build a pilot production
facility. TDL's initial research and development facilities are located in
Silicon Valley and it plans to license the manufacturing of the display into a
broad range of display markets in order to facilitate the quickest possible
market acceptance.
Telegen plans to establish a prototype production line in new
facilities in 1998 which could produce a limited number of displays per year,
and build a full scale production plant (one million displays per year capacity)
in 1999/2000 with the proceeds from future funding. Further, in 1996 Telegen
sold a 10% equity interest in TDL to a joint venture investment group based in
Singapore for an investment in TDL. Along with the investment, the joint venture
has an option to acquire licenses to build four plants, each with the capacity
to produce one million flat panel displays per year. If all options are
exercised the total license fees for these plants will be $40 million, plus
royalties. On January 7, 1998, the Singapore based joint venture investment
group (the "Plaintiffs") filed a complaint (the "Complaint") in Superior Court,
San Mateo County, against the Company and certain named directors. The Company
believes that the Complaint is without merit and intends to vigorously defend
such matter. To the extent the Plaintiffs were to succeed in this matter,
Telegen's results of operations and financial condition would be materially
adversely affected (See Item 3. Legal Proceedings).
Display Patents and Manufacturing. In December 1995, Telegen filed for
its first U.S. patent (of an estimated total of seven) on the basic Telegen
technology with broad claims covering displays targeting the entertainment,
computer, automotive and military markets. The Company expects this patent to
protect its proprietary techniques for building highly cost effective flat panel
displays without the use of high-tech semiconductor facilities. A second,
similarly based patent was filed in December, 1996 and a third patent was filed
in March, 1997. Although it is difficult to precisely project the capital costs
for establishing a high volume manufacturing facility, Telegen's initial
estimates indicate the display business entry cost utilizing its technology
could be significantly lower than other competitive emerging technologies.
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Flat Panel Market. The flat panel display market today generates
approximately $17 billion in sales and is predicted by industry sources to grow
to greater than $20 billion by the year 2000. Since Telegen anticipates that its
display may cost less than an equivalent AMLCD display, Telegen expects to have
a significant competitive advantage in a number of the flat panel display
markets.
Telegen's comparisons of its technology costs versus AMLCD costs are
drawn from the current known market costs of AMLCD products readily available on
the market today, as compared with Telegen's estimates of its costs. Telegen's
costs are derived from a careful analysis of (i) the cost of components and
materials, most of which come from specific bids from suppliers, (ii) estimates
of the cost to purchase manufacturing equipment (some of which already have been
bid) to be amortized and charged as a cost of the product, and (iii) the
estimate of labor and other overhead costs required for each step of the
manufacturing process. The labor estimates are derived from the actual
experience Telegen has gained from assembly of prototypes in the past.
Flat Panel Competition. The market for information displays is highly
competitive, and the Company expects this to continue. Telegen believes there is
currently no comparable flat panel display with the potential low cost, full
color, gray scale and other attributes of its technology available commercially
from any other source in volume. The standard flat panel displays currently
available are Passive Matrix LCD and AMLCD. These displays are manufactured in
high volume by a number of Japanese companies, including Toshiba, Hitachi, NEC
and Sharp Electronics. The largest commonly available AMLCD full color screens
are 14" diagonal and cost from $15-$17 per square inch to manufacture.
Several Japanese companies have recently introduced color plasma driven
liquid crystal display ("LCD") flat panel displays of 40" diagonal size which
are available in the U.S. for about $8,000 retail. Full-color plasma screens
which are not in any volume production yet, lack good gray scale and are
estimated to cost upwards of $20-$30 per square inch to manufacture.
Additionally, a number of companies, including Micron Technologies,
Inc. and Candescent, Inc., are developing a technology known as Field Emission
Display (FED). Displays based upon the FED technology are not expected to be
available in volume until the end of the decade and are expected to cost between
$12-$15 per square inch.
The Telegen technology in volume production is expected to sell for
under $5.00 per square inch. Telegen believes that pricing at this level, if
achieved, will give it a competitive advantage, assuming the cost of competing
technologies cannot also be reduced to these levels. No assurances can be given
that these manufacturing costs can ever be achieved.
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,
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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 finished the development
of a completed "proof of concept" of the current generation of its flat panel
display technology. The Company believes it can successfully scale its 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.
The market for flat panel displays is dominated by major Japanese
companies such as Sharp Electronics, Toshiba and Sony. Telegen expects this
competition to continually increase. There can be no assurance that Telegen will
be able to compete effectively against its competitors, many of whom may have
substantially greater financial resources than Telegen. Flat panel displays
manufactured utilizing AMLCD technology have been in production for almost 10
years and have proven market acceptance. New technologies, such as FED and Color
Plasma, are in development by a number of potential competitors, most, if not
all, 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
unique flat panel 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 unique flat panel
technology will be successful or, if patent protection is obtained, that
Telegen's patent(s) will provide adequate protection.
Morning Star Multimedia, Inc.
MSM develops computer software in the following areas: entertainment
CD-ROMs, personal productivity software and movie and recording industry
CD-ROMs. MSM also develops Internet web site content for major corporations and
provides multimedia development services. MSM has developed interactive CD-ROM
multimedia software relating to the "Casper" movie by Steven Spielberg based
upon an adventure through Whipstaff Manor. MSM also developed and released in
early 1998, an interactive CD/ROM featuring Kristi Yamaguchi. Additionally,
scheduled for release in 1998 is similar software relating to the "Swan
Princess" movie which will feature games and activities using actual scenes and
backgrounds from original hand-painted animation cells. MSM has also developed
"Plan and Track" software for Weight Watchers/(R)/ which will simplify and
virtually eliminate the need for tedious paper record keeping and nutritional
planning by helping the dieter plan and track meals with easily produced
computerized text records and charted and graphed records. MSM is developing
another software product for Weight Watchers/(R)/ which is similar to the plan
and track software, but is based upon the newly revamped Weight Watchers/(R)/
system, with more user-friendly graphical icon driven operations.
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MSM Sale. On December 31, 1997 Telegen sold all of the stock in MSM to
its founders for $200,000 in cash plus certain royalties on certain MSM products
for a period of two years.
Telegen Communications Corporation
Telegen Communication Corporation, formerly known as Telegen
Corporation, was organized in May, 1990, for the purpose of designing,
developing, manufacturing and marketing a line of telephone accessory products
for the consumer and small business markets.
The telephone equipment market is a long-standing, well-established
industry. The basis of the industry has historically been the telephone itself.
In the late 1970's, however, a market for telephone peripheral equipment began
to develop because of the invention of the microprocessor chip and deregulation
of the industry. This new peripherals market expanded rapidly and today consists
of designer and specialty telephones, including full-feature and cordless
telephones, cellular telephones, telephone answering machines, FAX machines and
computer modems. This condition in the market has created a business opportunity
for the marketing of Telegen's ACS and MLD to automatically re-route the
appropriate calls to a long distance carrier without additional effort by the
caller, saving the caller money and giving the long distance carriers new
business.
TCC develops, manufactures and markets a line of intelligent
telecommunications products, providing enhanced features to existing telephone
equipment and services for consumers and small businesses. In 1991, TCC
introduced its initial telecommunications product, telephone call restrictor
known as "TeleBlocker", to provide consumers and small businesses with the
ability to restrict outgoing telephone usage in order to control costs. In 1995
- - 1996 TCC developed a line of telephone dialers, known as "Automated Carrier
Selector", to give users the ability to automatically reroute outgoing calls to
alternative long distance companies. TCC products incorporate a proprietary
technology known as "Parallel Technology", which allows one device, plugged
anywhere on a telephone line, to control all instruments on the line regardless
of location and with no requirement for re-wiring.
All of TCC's programmable products utilize a proprietary technology
known as the Remote Programming System ("RPS"). RPS is a combination of
communications hardware, protocols and automated computer systems which enable
TCC's Customer Service Representatives to directly service and program any TCC
product over the telephone line when a customer calls for assistance on the
toll-free Customer Service line.
TCC was granted a very broad (60 claim) patent covering its proprietary
telecom technologies on December 31, 1996. These technologies embody two
especially valuable capabilities known as "Remote Programming System" and
"Parallel Control."
TCC telecom products are currently being manufactured in Hong Kong and
The People's Republic of China by Crystal Field Ltd., a local small manufacturer
who meets TCC's specifications for quality.
All of the assets of TCC were sold to SynerCom, Inc., a Nevada
corporation ("Synercom") organized by a group of investors led by Frederick T.
Lezak, Jr., an executive officer and director of
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the Company, on April 1, 1998 for $500,000, including $350,000 in cash and
$150,000 in the form of an eighteen (18) month promissory note, the assumption
of certain wage, tax and other liabilities, and certain royalties on certain
assets sold for a period of three (3) years.
Telegen Research and Development
Telegen's research and development expenses for the years ending
December 31, 1997, 1996 and 1995 were approximately $4,400,036, $2,386,331 and
$842,026 respectively. Telegen estimates that its total expenditures for
research and development will aggregate at least $4,000,000 for the flat panel
display during 1998. Telegen Display Laboratories portion of 1997 and 1996
research and development which totaled about $2,687,840 and $1,416,540,
respectively, was equipment and related overhead costs. In 1997 and 1996,
Telegen's research and development activities included work toward the
development of MSM and TCC products. In 1995 and prior thereto, substantially
all of the Company's research and development expenses were attributable to
TCC's products. Continued development of the flat panel display technology will
continue to represent significant capital expenditures in the Company's near
term.
Telegen's strong emphasis on new product and technology research and
development will command management's primary attention through 1998 and much of
1999. It will also comprise the primary use of Telegen's financial resources for
these periods. The market for Telegen's products is characterized by rapid
technological change and evolving industry standards and is highly competitive
with respect to timely product innovation. The introduction of products
embodying new technology and the emergence of new industry standards can render
existing products obsolete and unmarketable. Telegen's success will be dependent
in part upon its ability to anticipate changes in technology and industry
standards and to successfully develop and introduce new and enhanced products on
a timely basis. If Telegen is unable for technological or other reasons to
develop products in a timely manner in response to changes in the industry or if
products or product enhancements that Telegen develops do not achieve market
acceptance, Telegen's results of operation will be materially adversely
affected. Telegen has experienced delays in its development of its flat panel
display technology.
Telegen Intellectual Property
Telegen has acquired all rights to the underlying technologies embodied
in its product lines from the founders of Telegen or has developed such
intellectual property internally. Telegen routinely files for both United States
and foreign patents on its technologies. Telegen believes, based upon the advice
of patent counsel, that patent protection may be available to Telegen on
substantial portions of its technologies.
Telegen Display Laboratories filed its first very broad and basic US
patent on the flat panel display in December 1995, its second in December 1996,
its third in March 1997 and plans to file several more key patents on a
continuing basis.
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<PAGE>
Additionally, Telegen believes it retains copyright protection for the
software used in its products as well as for its integrated circuit designs. It
is the policy of Telegen to aggressively protect, through all appropriate means,
all of its legal rights to its technologies.
Telegen relies on a combination of patents, trade secret and other
intellectual property law, nondisclosure agreements and other protective
measures to protect its rights pertaining to its products. Such protection,
however, may not preclude competitors from developing products similar to
Telegen's products. In addition, the laws of certain foreign countries do not
protect Telegen's intellectual property rights to the same extent as do the laws
of the United States. Although Telegen continues to implement protective
measures and intends to defend its proprietary rights vigorously, there can be
no assurance that these efforts will be successful.
Regulatory Matters
Federal law requires that all products which connect with the public
telephone system must comply with Federal Communications Commission ("FCC")
Rules Part 68, as amended. Before such products are sold, they must be tested
for compliance by an accredited independent testing laboratory and the test
results must be submitted to the FCC. The manufacturer then receives an FCC
Registration number which must be displayed on each product. To the Company's
knowledge, up to the sale of substantially all of TCC's assets, TCC has been
compliant with all FCC requirements for its telecommunications products.
Employees
Telegen currently employs 18 persons on a full-time basis, including two
executive officers, 6 senior scientists and a general support staff. Telegen
believes that its relationship with its current employees is satisfactory.
Telegen's future success will depend in significant part upon the continued
service of certain key technical and senior management personnel, and Telegen's
continuing ability to attract, assimilate and retain highly qualified technical,
managerial and sales and marketing personnel. Competition for such personnel is
intense.
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.
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.
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<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
Telegen maintains its corporate offices at 101 Saginaw Drive, Redwood
City, California, 94063. Also located at this address are Telegen's subsidiaries
Telegen Communications Corporation and Telegen Display Laboratories, Inc.
The facilities include 38,000 square feet of office space at a net cost
of approximately $52,000 per month, including Telegen's respective share of the
building's operating expenses. As part of the asset purchase agreement for the
sale of all of the assets of TCC by and between Telegen and Synercom dated April
1, 1998, the Company is subleasing 2,500 square feet of its facilities to
Synercom, rent free until the earlier of (i) December 31, 1998 or (ii) Telegen's
vacating of such facilities. Telegen believes that there is adequate space
available in its location for expansion, but there can be no assurance that
additional space necessary to support its future requirements can be located on
favorable terms or that Telegen will not incur significant expenses if it has to
obtain additional facilities.
ITEM 3. LEGAL PROCEEDINGS
The Company and its Telegen Display Laboratories Inc. subsidiary
("TDL") are named defendants in a complaint (the "Complaint") filed January 7,
1998 in Superior Court, San Mateo County, filed by IPC Corporation, Ltd.,
Transtech Electronics, PTE, LTD., and IPC Transtech Display PTE, LTD
(collectively, the "Plaintiffs"). The Complaint alleges that the Company
committed material misrepresentations when the Company sold TDL Common Stock to
the Plaintiffs for $5,000,000 on May 30, 1996. Additional named defendants
include Jessica L. Stevens, Warren M. Dillard, Bonnie Crystal, and William J.P.
Weiland, all former officers of the Company. The Plaintiffs seek recision of the
original purchase, complete restitution of the $5,000,000, interest, punitive
damages, costs and attorneys' fees. Neither the Company nor TDL has been served
with the Complaint and no action has been initiated against the Company beyond
filing the Complaint. The Company believes that the Complaint is without merit
and intends to vigorously defend such matter. To the extent the Plaintiffs were
to succeed in this matter, Telegen's results of operations and financial
condition would be materially adversely affected.
PART II
ITEM 5. MARKET FOR COMMON EQUITY
The Company currently trades its stock on the over-the-counter
Electronic Bulletin Board (the "EBB"). The EBB is a real-time electronic
quotation service for over-the-counter securities. The EBB is not an automated
quotation system and is characterized by low volume of trading. There is no
assurance that the EBB 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
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trading on the EBB 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.
The following table sets forth the quarterly high and low closing
prices of the Company's Common Stock from October 28, 1996 through December 31,
1997. Such prices represent prices between dealers, do not include retail
mark-ups, mark-downs or commissions and may not represent actual transactions.
High Low
*Fourth Quarter 1996 . . . . . . . . . . . . $19.00 $10.50
First Quarter 1997 . . . . . . . . . . . . $20.25 $6.00
Second Quarter 1997 . . . . . . . . . . . . $8.37 $2.93
Third Quarter 1997 . . . . . . . . . . . . $3.50 $2.12
Fourth Quarter 1997 . . . . . . . . . . . . $2.56 $0.56
*Active trading in Telegen Corporation Common Stock began on October
28, 1996 upon the completion of the Company's merger with and into a
dormant public shell company, Solar Energy Research Corp., a Colorado
corporation.
As of April 13, 1998, there were approximately 2,981 holders of record
of the Company's Common Stock. The Company believes that a significant number of
beneficial owners of its Common Stock hold shares in street name. No dividends
were paid to Telegen's Common Stock shareholders during the last fiscal year and
Telegen does not anticipate paying dividends in the future.
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<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Financial Statements and Notes thereto and other financial
information included elsewhere in this report.
<CAPTION>
Years Ended December 31,
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1997 1996 1995 1994 1993
--------------- ----------- ---------- ---------- --------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues
Sales $ 463,486 $ 23,700 $ 145,795 $ 432,972 $ 498,358
Services 574,916 517,356 0 0 0
Total Revenues 1,038,402 541,056 145,795 432,972 498,358
Cost of Revenues
Sales 234,292 18,083 170,421 314,239 296,285
Services 93,793 68,612 0 0 0
Total Cost of Revenues 328,085 86,695 170,421 314,239 296,285
Gross Profit 710,317 454,361 (24,626) 118,733 202,073
Operating Expenses
Sales and marketing 1,368,767 439,350 89,275 92,170 29,980
Research and development 4,400,036 2,386,331 842,026 830,913 37,955
General and administrative 5,553,209 3,043,530 1,506,531 1,118,312 294,526
Total operating expenses 11,322,012 5,869,211 2,437,832 2,041,395 362,461
Income (loss) from operations (10,611,695) (5,414,850) (2,462,458) (1,922,662) (160,388)
Other income (loss), net (109,098) 194,443 725 9,608 3,154
Interest Expense 60,195 146,650 81,105 30,658 11,488
Minority Interest 325,077 252,031 0 0 0
Income (loss) before provision for
Taxes and extraordinary items (10,455,911) (5,115,026) (2,542,838) (1,943,712) (168,722)
Extraordinary gain 536,179 0 0 0 0
Provision for income taxes 0 0 0 0 0
Net income (loss) (9,919,732) (5,115,026) (2,542,838) (1,943,721) (168,722)
Net income (loss) per share (2.01) (1.16) (0.88) (0.70) (0.07)
Shares used in per share calculation 5,547,015 4,418,099 2,882,961 2,785,957 2,294,627
BALANCE SHEET DATA
Working capital (deficit) (2,291,117) 2,702,061 (1,794,634) (390,017) 827,517
Total assets 2,231,614 5,727,322 935,788 566,952 1,398,635
Notes payable and capital lease 500,000 18,549 167,649 178,976 151,090
Obligations less current portion
Accumulated deficit (21,634,728) (10,441,795) (5,326,769) (2,763,931) (840,219)
Shareholders' equity (deficit) (1,469,752) 4,091,163 (1,589,540) (321,485) 381,088
</TABLE>
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ITEM 7. TELEGEN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. THESE FORWARD LOOKING STATEMENTS ARE SUBJECT TO CERTAIN
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM HISTORICAL RESULTS OR ANTICIPATED RESULTS, INCLUDING THOSE SET FORTH UNDER
"FACTORS THAT MAY AFFECT FUTURE RESULTS" IN THIS MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS
REPORT. THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
"SELECTED FINANCIAL DATA" AND THE COMPANY'S FINANCIAL STATEMENTS AND NOTES
THERETO INCLUDED ELSEWHERE IN THIS REPORT.
Telegen, through its subsidiary TCC, was organized and commenced
operations in May 1990. From inception until 1993, Telegen was principally
engaged in the development and testing of its telecommunications products.
Telegen's first product sales and revenues were realized in 1991. Revenues in
1991 through 1995 were derived primarily from sales of Telegen's
telecommunications products. In 1996, revenues were derived primarily from the
operations of MSM. In 1997 revenues were derived from the operations of MSM and
TCC. Telegen has incurred significant operating losses in every fiscal year
since its inception, and, as of December 31, 1997, Telegen had an accumulated
deficit of $21,634,728. As of December 31, 1997 Telegen had a working capital
deficit of $2,291,117. Telegen expects to continue to incur substantial
operating losses through 1998. In order to become profitable, Telegen must
successfully develop commercial products, manage its operating expenses,
establish manufacturing capabilities, create sales for its products and create a
distribution capability.
Telegen has made significant expenditures for research and development
of its products. In order to become competitive in a changing business
environment, Telegen must continue to make significant expenditures in these
areas. Therefore, Telegen's operating results will depend in large part on
development of a revenue base.
Results of Operations
Revenues. Revenues for 1997 were $1,038,402 compared to $541,056 for
1996, and $145,795 for 1995. 1997 revenues consisted of $574,916 of MSM revenues
from software services under contract and product sales and $463,486 of TCC
revenues. TCC revenues in 1997 included a $300,000 final payment under MCI
contracts with the remainder from product sales. 1996 revenues consisted
primarily of Morning Star Multimedia revenues of $517,356 from software services
under contract. The remaining $23,700 of 1996 revenues consisted of TCC product
sales. Prior to 1996 all revenues were derived from TCC product sales. 1995 TCC
revenues consisted primarily of sales of the ACS 2000.
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TCC's Teleblocker product which made up the bulk of revenues for the first half
of 1995 was taken off the market in June of 1995 for redesign. The redesigned
Teleblocker product was returned to the market in the spring of 1997.
Cost of Goods Sold. Cost of goods sold and contract services was
$328,085 for the year ended December 31, 1997, $86,695 for the year ended
December 31, 1996 and $170,421 for the year ended December 31, 1995. Cost of
goods sold for 1997 consisted of $93,793 for revenues derived from MSM and
$234,292 for revenues derived from TCC. Cost of goods sold for 1996 consisted of
$68,612 for revenues derived from MSM and $18,083 for revenues derived from TCC.
Prior to 1996 all cost of goods sold was related to TCC product sales. TCC's
cost of goods sold for 1995 included a $22,377 charge to write off obsolete
inventory. Excluding this write off, cost of goods sold for 1996 and 1995 were
consistent with revenues from the same periods.
Research and Development. Research and development expenses were
$4,400,036 for the year ended December 31, 1997, $2,386,331 for the year ended
December 31, 1996, and $842,026 for the year ended December 31, 1995. Increased
research and development expenses for 1997 resulted from a full year of
operation of the research facility in TDL and expansion of research and
development activities for MSM and TCC; of the 1997 research and development,
$2,687,840 were attributable to TDL, $1,088,337 were attributable to MSM and
$623,859 were attributable to TCC. Increased research and development expenses
for 1996 resulted from the establishment of a full scale research facility in
TDL and research and development expenses of MSM; of the 1996 research and
development expenses, $1,416,540 were attributable to TDL, $279,175 were
attributable to MSM and $690,616 were attributable to TCC. Of the 1995 research
and development expenses, $15,042 was attributable to MSM and $826,984 was
attributable to TCC. Lower expenses for TCC in 1996 were the result of
completion of development of the ACS product.
Sales and marketing. Sales and marketing expenses for the year ended
December 31, 1997 were $1,368,767 compared with $439,350 for the year ended
December 31, 1996, and $89,275 for the year ended December 31, 1995. Of the 1997
sales and marketing expenses $516,000 was attributable to TDL, $95,949 was
attributable to MSM and $756,818 was attributable to TCC/Telegen Corporation.
Approximately 51% of the sales and marketing expenses attributable to TDL and
TCC/Telegen Corporation were related to participation in the Consumer
Electronics Show in Las Vegas in January of 1997. Of the 1996 sales and
marketing expenses, $14,711 was attributable to TDL, $149,618 was attributable
to MSM, and $275,021 was attributable to TCC and Telegen Corporation. Of the
1995 sales and marketing expenses, $4,808 was attributable to MSM and $275,021
was attributable to TCC. The increase in sales and marketing expenses for 1996
not related to TDL or MSM were related to increases in marketing staff, creation
of new marketing materials, public relations costs related to Telegen as a
public company, and costs related to the Consumer Electronics show in January
1997.
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General and Administrative. General and Administrative expenses for
1997 were $5,553,209 as compared with $3,043,470 for 1996, and $1,506,531 for
1995. Of the 1997 general and administrative expenses $368,791 were attributable
to TDL, $807,723 were attributable to MSM and $4,376,695 were attributable to
TCC and Telegen Corporation. Of the 1996 general and administrative expenses
$306,901 were attributable to TDL, $265,855 were attributable to MSM and
$2,470,714 were attributable to TCC and Telegen Corporation. Of the 1995 general
and administrative expenses, $5,062 was attributable to MSM and $1,501,469 was
attributable to TCC. Increases in TCC and Telegen Corporation in 1997 were
related to legal and consulting fees associated with patent activity, increased
staffing and a full year of occupancy at its larger facility, and increased
legal and accounting fees related to SEC compliance. The increase in general and
administrative expenses not related to TDL or MSM for 1996 as compared to 1995
were related to legal and consulting fees associated with patent activity, legal
and accounting fees related to the merger, the amortization of bridge loan
expenses and the relocation of Telegen to a new and larger facility. The primary
components of general and administrative expenses for 1995 were employee
salaries and legal and accounting expenses.
Interest Income and Expense. Net interest income for 1997 was $60,195
as compared with net interest income of $47,793 for 1996, and net interest
expense of $80,380 for 1995. Of the 1997 interest income and expense TDL
contributed $18,754 of interest income and no interest expense, MSM contributed
no interest income and $6,719 of interest expense, and TCC and Telegen
Corporation contributed $10,415 of interest income and $14,645 of interest
expense. Of the 1996 interest income and expense TDL contributed $94,112 of
interest income and no interest expense, MSM contributed no interest income and
$8,864 of interest expense, and TCC and Telegen Corporation contributed $100,331
of interest income and $137,786 of interest expense. Decreases in interest
income for 1997 for TDL were the result of decreasing balances in interest
bearing accounts. Increases in interest expense for TCC and Telegen Corporation
for 1997 resulted from decrease in interest bearing accounts and amortization of
the discount related to the conversion feature on the $500,000 Convertible
Promissory Notes issued by Telegen in November 1997. Increases in interest
income for 1996 as compared with 1995 for TDL, TCC and Telegen Corporation were
the result of increased interest bearing deposits on account following private
placements of stock. Increases in interest expenses for TCC and Telegen
Corporation for 1996 were the direct result of bridge loan expenses; the bridge
loans were paid off in May 1996 from the proceeds of a private placement
completed in April 1996. This increase in interest expense for 1996 was offset
by a negative interest expense for TCC and Telegen Corporation for the third
quarter of 1996 as a result of a one-time adjustment, a reduction of interest
expense in the amount of $83,798, reflecting a settlement with Bank Sadarat
$100,000 which was significantly less than the combined principal and accrued
interest that the Company had recorded on its books.
Liquidity and Capital Resources
Telegen has funded its operations primarily through private placements
of its equity securities with individual and institutional investors. As of
December 31, 1997, Telegen had raised $15,559,966 in net capital through the
sale of Telegen Common Stock, and $4,605,010 in net capital through the sale of
TDL common stock. Telegen completed in March 1997 a private placement of a new
Series A Convertible preferred stock which resulted in $2.9 million in net
proceeds to Telegen. Prior to the end of 1997 all shares of the new Series A
Convertible preferred stock had been converted into the Company's Common Stock.
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In May 1996, Telegen formed Telegen Display Laboratories, Inc. ("TDL"),
a subsidiary organized for the development and commercialization of it's unique
flat panel display technology. Shortly after TDL's formation, IPC-Transtech
Display Pte. Ltd. ("IPC-Transtech"), a Singapore-based joint venture company,
acquired a 10% equity interest in TDL for a net investment in TDL of $4,600,000.
Along with its investment in TDL, IPC-Transtech acquired an option to purchase
licenses to build up to four flat panel display production plants.
Due to the unavailability of cash resources for operations, Telegen
issued 58,799 shares of common stock, 57,330 shares of common stock, 119,252
shares of common stock and common stock equivalents during 1997, 1996 and 1995,
respectively, in lieu of cash as payment for certain operating expenses, and
primarily legal fees and employee services, amounting to $252,174, $265,954,
and $596,200, respectively.
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. Furthermore, the Company currently has tax debts associated with
federal and state wage withholding taxes and social security taxes in the amount
of $350,000. Under the Agreement to sell the assets of TCC, the purchasers of
TCC assumed $100,000 of such liabilities. To meet such immediate working capital
needs, the Company will need to raise immediate funds, whether through the sale
of the Company's assets or through attracting immediate financing. 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.
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 the 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.
Telegen does not have a final estimate of cost nor the funds available
to build a full scale production plant for the flat panel display and will not
be able to build this plant without securing significant additional capital.
Telegen plans to secure these funds either (1) from a large joint
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venture partner who would then be a co-owner of the plant or (2) through a
future public or private offering of stock. Even if such funding can be
obtained, which cannot be assured, it is currently estimated that a full scale
production plant could not be completed and producing significant numbers of
flat panel displays before late 1999. However, Telegen is currently
contemplating entering into license agreements with large enterprises, such as
IPC-Transtech, to manufacture the displays. The manufacturers would also have
the attributes of established manufacturing expertise, distribution channels to
assure a ready market for the displays and established reputations, enhancing
market acceptance. Further, Telegen would benefit from front-end license fees
plus ongoing royalties for income. However, Telegen does not currently expect to
have any such manufacturing license agreements in place before June 1998, or any
significant production of displays thereunder before late 1999.Telegen is
currently planning a limited production/prototype line which will have the
capacity to manufacture a limited number of marketable displays to produce
moderate revenues. The cost of that production line is estimated to be about $5
million.
Telegen's future capital infusions will depend entirely on its ability
to attract new investment capital based on the appeal of the inherent attributes
of its technology and the belief that that technology can be developed and taken
to profitable manufacturing in the foreseeable future. Efforts are currently
being made with parties with substantial resources to conclude such capital
formation. Such capital formation efforts are intended to infuse $20 million
over a period of two (2) years, including $5 million for a prototype plant.
Telegen's actual working capital needs will depend upon numerous
factors including the progress of Telegen's research and development activities,
the cost of increasing Telegen's sales, marketing and manufacturing activities
and the amount of revenues generated from operations, none of which can be
predicted with certainty.
Telegen anticipates incurring substantial costs for research and
development, sales and marketing activities in 1998. Management believes that
development of commercial products, an active marketing program and a
significant field sales force are essential for Telegen's long-term success.
Telegen estimates that its total expenditures for research and development and
related equipment and overhead costs will aggregate over $4,000,000 during 1998.
Telegen estimates that its total expenditures for sales and marketing will
aggregate over $1,000,000 during 1998. Almost none of such funds outlined above
are presently available to Telegen.
RISK FACTORS
In addition to the other information in this Report on Form 10-K, the
following risk factors should be considered carefully in evaluating the Company
and its business:
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
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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. 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.
History of Telegen Operating Losses; Accumulated Deficit and Minimum Revenues
Telegen's predecessor, now an operating subsidiary, 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 December 31, 1997 was $21,634,728. 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
The Company and its Telegen Display Laboratories Inc. subsidiary
("TDL") are named defendants in a complaint (the "Complaint") filed January 7,
1998 in Superior Court, San Mateo County, filed by IPC Corporation, Ltd.,
Transtech Electronics, PTE, LTD., and IPC Transtech Display PTE, LTD
(collectively, the "Plaintiffs"). The Complaint alleges that the Company
committed material misrepresentations when the Company sold TDL Common Stock to
the Plaintiffs for $5,000,000 on May 30, 1996. Additional named defendants
include Jessica L. Stevens, Warren M. Dillard, Bonnie Crystal, and William J.P.
Weiland, all former officers of the Company. The Plaintiffs seek recision of the
original purchase, complete restitution of the $5,000,000, interest, punitive
damages, costs and attorneys' fees. Neither the Company nor TDL has been served
with the Complaint and no action has been initiated against the Company beyond
filing the Complaint. The Company believes that the Complaint is without merit
and intends to vigorously defend such matter.
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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, it does
have preliminary design concepts which would take it to a larger scale. 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.
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
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whom may have substantially greater financial resources than Telegen. Flat panel
displays manufactured utilizing AMLCD technology have been in production for
almost 10 years and have proven market acceptance. New technologies, such as FED
and Color Plasma, are in development by a number of potential competitors, some
of whom have greater financial resources than Telegen. 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
flat panel 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 flat panel technology will
be successful or, if patent protection is obtained, that Telegen's patent(s)
will provide adequate protection.
Telegen's Dependence Upon Limited Number of Manufacturing Sources and Component
Suppliers
Telegen currently relies upon a limited number of manufacturing sources
for its telecom production capability. Although Telegen is currently seeking to
qualify alternative sources of supply, Telegen has not yet contracted for
alternative suppliers to perform such manufacturing activities. In the event of
an interruption of production or delivery of supplies, Telegen's ability to
deliver its products in a timely fashion would be compromised, which would be
materially adverse to Telegen's results of operations. Certain components used
in Telegen's telecommunications products, such as microprocessors, are available
from only a limited number of sources. Although to date Telegen has generally
been able to obtain adequate supplies of these components, Telegen obtains these
components on a purchase order basis and does not have long-term contracts with
any of these suppliers. In addition, some suppliers require that Telegen either
pre-pay the price of components being purchased or establish an irrevocable
letter of credit for the amount of the purchase. Telegen anticipates that, as it
begins manufacture of other products, it will encounter similar limitations
regarding the components for those products. Telegen's inability in the future
to obtain sufficient limited-source components for its telecommunications and
other products, or to develop alternative sources, could result in delays in
product introductions or shipments, which could have a material adverse effect
on Telegen's results of operations.
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 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
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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.
Listing of the Company's Stock on the OTC Bulletin Board
The Company currently trades its stock on the Over-the-Counter
Electronic Bulletin Board (the "EBB"). The EBB is a real-time electronic
quotation service for over-the-counter securities. The EBB is not an automated
quotation system and is characterized by low volume of trading. There is no
assurance that the EBB 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 EBB 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.
ITEM 8. FINANCIALS & SUPPLEMENTARY DATA
The information required by this Item is set forth in the Company's
Financial Statements and Notes thereto beginning at page F-1 of this report.
ITEM 9. TELEGEN CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Cordovano & Company, P.C., was the Company's independent accountant
when the Company was a dormant public shell. Upon the merger of the Company with
the existing operating company on October 28, 1996 (the "Merger"), Cordovano &
Company P.C. was replaced as Telegen's principal accountant. Coopers & Lybrand
L.L.P. , has been engaged as the independent accountant for Telegen as a result
of the Merger, and is rendering its opinion of Telegen with respect to the
financial statements of Telegen Communications Corporation for the years ended
December 31, 1997 and 1996. Coopers & Lybrand, L.L.P. has audited the financial
statements of Telegen Communications Corporation, the operating company that is
the predecessor to the Registrant, for the past seven fiscal years of operation.
The decision to change accountants was approved by the Board of Directors of
Telegen on November 11, 1996 to become effective upon the filing by Telegen of
its 10-QSB for the period ending September 30, 1996.
During 1996 Cordovano & Company, P.C.'s report on the financial
statements of Telegen for that year did not contain an adverse opinion,
disclaimer of opinion, or was qualified as to uncertainty, audit scope, or
accounting principles. During the three most recent fiscal years prior to
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such dismissal and any subsequent interim period preceding such dismissal there
were no disagreements between Telegen's predecessor dormant public shell and
Cordovano & Company, P.C. regarding any matter of accounting principles or
practice, financial statement disclosure, or auditing scope or procedure.
PART III
Items 10, 11, 12, 13 to be included by amendment to this Form 10-K by
April 30, 1998.
PART IV
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K
(a) Financial Statements.
(1) Report of Independent Accountants;
(2) Consolidated Balance Sheets of December 31, 1997 and 1996;
(3) Consolidated Statement of Operations for the years ended
December 31, 1997, 1996, and 1995;
(4) Consolidated Statements of Shareholders' Equity (Deficit) for
the years ended December 31, 1997, 1996, and 1995;
(5) Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996, and 1995;
(6) Notes to Consolidated Financial Statements.
(7) Unaudited Pro Forma Balance Sheet as of December 31, 1997
(8) Unaudited Pro Forma Consolidated Statement of Operations
for the year ended December 31, 1997
(9) Notes to Unaudited Pro Forma Consolidated Financial Statements
(b) Reports on Form 8-K.
To date from the beginning of the fourth quarter of fiscal year 1997,
the Company has filed four (4) Current Reports on Form 8-K as follows:
(1) Current Report on Form 8-K filed with the Commission
on October 15, 1997 to report the Company's $500,000
Common Stock and Warrant financing;
(2) Current Report on Form 8-K filed with the Commission
on January 15, 1998 to report the Company's sale of
its wholly-owned subsidiary Morning Star Multimedia,
Inc., a New Jersey corporation;
(3) Current Report on Form 8-K filed with the Commission
on March 24, 1998 to report potential materially
adverse legal proceedings;
(4) Current Report on Form 8-K filed with the Commission
on April 7, 1998 to report the Company's sale of
substantially all of the assets of its wholly-owned
subsidiary Telegen Communications Corporation, a
California corporation and the receipt by the Company
of certain funding commitments; contained in this
Annual Report on Form 10-K are the pro forma
financial statements and the asset purchase
agreement, respectively, which the Company was
required to file in connection with this Form 8-K.
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(c) Exhibits.
2.1* Stock Purchase Agreement Among Morning Star Acquisition, Inc.,
Morning Star Multimedia, Inc., and Telegen Corporation dated
December 31, 1997
2.2 Asset Purchase of TCC Agreement by and between Synercom, Inc.
and Telegen Corporation dated April 1, 1997
Certain exhibits and schedules to Exhibit 2.2 are listed on
page 23 thereto and the Registrant agrees to furnish them
supplementally to the Securities and Exchange Commission upon
request.
3.1** Articles of Incorporation of Telegen Corporation dated August
30, 1996 [formerly known as Solar Energy Research Corp. of
California]
3.2** Certificate of Amendment to the Articles of Incorporation of
Telegen Corporation dated October 28, 1996 [formerly known as
Solar Energy Research Corp. of California]
3.3+ Certificate of Determination with respect to the Company's
outstanding Series A Preferred Stock filed with the California
Secretary of State on March 20, 1997
3.4** Bylaws of Telegen Corporation
3.5 Certificate of Amendment of Bylaws effective August 6, 1997
4.1 Form of Convertible Promissory Note issued by the Company in
November 1997
10.1** Service Agreement between MCI Telecommunications Corporation
and Telegen Communications Corporation
10.2** Agreement among Telegen Communications Corporation, Telegen
Display Laboratories, Inc., Transtech Electronics Pte, Ltd.,
and IPC Corporation, Ltd., dated May 30, 1996
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10.3** Manufacturing License Agreement among Telegen Communications
Corporation, Telegen Display Laboratories, Inc., Transtech
Electronics Pte, Ltd., and IPC Corporation, Ltd., dated May
30, 1996
10.4** Lease Agreement between Metropolitan Life Insurance Company
and Telegen Corporation for premises located in Foster City,
California
10.5** Lease Agreement between Metropolitan Life Insurance Company
and Telegen Corporation for premises located in Redwood City,
California
10.6** Warrant Certificate of Telegen Display Laboratories, Inc. by
and between Telegen Display Laboratories, Inc., and W. Edward
Naugler, Jr., to purchase 500,000 shares of Common Stock of
Telegen Display Laboratories, Inc.
10.7** License and Stock Purchase Agreement by and between Telegen
Communications Corporation and Telegen Display Laboratories,
Inc. effective as of May 2, 1996
10.8*** Shareholder Agreement between Janmil Holdings PTE LTD and
Telegen Communications Corporation dated June 4, 1997
10.9+ Subscription Agreement For 8% Convertible Preferred Stock by
and between Telegen Corporation and Silenus Limited dated
March 24, 1997
10.10++ Amendment Agreement to 8% Convertible Preferred Stock of
Telegen Corporation dated July 22, 1997
10.11 Form of Subscription Agreement for the Company's Common Stock
financing August, 1997
10.12 Form of Subscription Agreement for the Company's Common Stock
and Warrant Financing October, 1997
10.13 Form of Subscription Agreement for the Company's Convertible
Note and Warrant Financing November, 1997
10.14 Form of $2.25 Warrant issued to certain purchasers in the
Common Stock Financing August, 1997
10.15 Form of $4.00 Warrant to Purchase Common Stock issued by the
Company to certain purchasers in the Common Stock and Warrant
Financing October, 1997
10.16 Form of $0.01 Warrant to Purchase Common Stock issued to
certain purchasers in the Common Stock and Warrant Financing
October, 1997
-22-
<PAGE>
10.17 Form of $2.25 Warrant to Purchase Common Stock issued by the
Company to certain purchasers in the Convertible Note and
Warrant Financing November, 1997
10.18 Employment Agreement by and between the Company and Jessica L.
Stevens dated May 3, 1990
10.19 Employment Agreement by and between the Company and Bonnie
Crystal dated May 4, 1990.
10.20 Employment Agreement by and between the Company and Warren M.
Dillard dated November 1, 1993.
10.21 Employment Agreement by and between the Company and Fred Y.
Kashkooli dated October 31, 1997
10.22 Exchange Offer Agreement by and between the Company and
certain holders of Common Stock dated March 24, 1998
11.1 Statement Re Computation of Per Share Earnings
12.1 Statement Re Computation of Ratios
21.1 Subsidiaries of the Registrant
24.1+++ Power of Attorney
27.1 Financial Data Schedule
* Incorporated by reference herein to the 8-K filed by the Registrant on
January 15, 1998
** Incorporated by reference herein to the 10-K filed by the Registrant on
March 31, 1997 and amended on April 9 and April 30,1997
*** Incorporated by reference herein to the 8-K filed by the Registrant on July
8, 1997
+ Incorporated by reference herein to the 8-K filed by the Registrant on
March 25, 1997
++ Incorporated by reference herein to the 8-K filed by the Registrant on
August 11, 1997
+++ Incorporated by reference in the signature page herein.
-23-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TELEGEN CORPORATION
By: /s/ FRED Y. KASHKOOLI
--------------------------------
Fred Y. Kashkooli,
Chief Executive Officer
Date: April 15, 1998
POWER OF ATTORNEY
Know all persons by these presents, that each person whose signature
appears below constitutes and appoints Fred Y. Kashkooli, as his or her
attorney-in-fact, with full power of substitution, for him or her in any and all
capacities, to sign any amendments to this Report on Form 10-K, and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission.
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report on Form 10-K has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated:
<CAPTION>
Signature Title Date
- ---------------------------------------- -------------------------------------- -----------------------------------
<S> <C> <C>
/s/ GILBERT F. DECKER Chairman of the Board April 14, 1998
- ----------------------------------------
Gilbert F. Decker
Director
- ----------------------------------------
Greg Bell
/s/ JAMES R. IVERSON Director April 14, 1998
- ----------------------------------------
James R. Iverson
/s/ FREDERICK T. LEZAK, JR. Director April 14, 1998
- ----------------------------------------
Frederick T. Lezak, Jr.
/s/ LARRY J. WELLS Director April 15, 1998
- ----------------------------------------
Larry J. Wells
Director
- ----------------------------------------
Jessica L. Stevens
Director
- ----------------------------------------
Bonnie Crystal
/s/ FRED Y. KASHKOOLI Chief Executive, Financial April 15, 1998
- ---------------------------------------- and Accounting Officer
Fred Y. Kashkooli
</TABLE>
-24-
<PAGE>
TELEGEN CORPORATION AND SUBSIDIARIES
------------------------------------
REPORT ON AUDITS CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND 1996
AND FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
-F1-
<PAGE>
<TABLE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants............................................................................F3
Consolidated Balance Sheets as of December 31, 1997 and 1996.................................................F4
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995............................................................................F6
Consolidated Statements of Shareholders' Equity (Deficit) for the years ended
December 31, 1997, 1996 and 1995............................................................................F8
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995............................................................................F10
Notes to Consolidated Financial Statements...................................................................F12
</TABLE>
-F2-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Shareholders
Telegen Corporation and Subsidiaries
Redwood City, California
We have audited the consolidated balance sheets of Telegen Corporation and
Subsidiaries as of December 31, 1997 and 1996, and related consolidated
statements of operations, shareholders' equity (deficit), and cash flows for
each of the three years ended December 31, 1997, 1996 and 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Telegen Corporation and
Subsidiaries at December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years ended December 31, 1997, 1996
and 1995, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2, the Company
has incurred operating losses, had negative cash flows from operations and has a
deficit shareholders' equity. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regards
to these matters are also described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/S/ COOPERS & LYBRAND L.L.P.
Sacramento, California
April 14, 1998
-F3-
<PAGE>
<TABLE>
TELEGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
----------
<CAPTION>
1997 1996
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 275,891 $ 3,166,657
Accounts receivable:
Trade, net of allowance for doubtful accounts of $66,000 in 1997
and $0 in 1996 -- 17,784
Related parties, net of allowance for doubtful accounts of
$6,753 in 1997 and $0 in 1996 213,121 109,544
Other 27,813 139,159
Inventory 75,760 173,841
Prepaid expenses and other current assets 17,664 387,609
------------ ------------
Total current assets 610,249 3,994,594
Property and equipment, net 1,546,183 1,664,374
Other assets 75,182 68,354
------------ ------------
$ 2,231,614 $ 5,727,322
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Convertible note payable $ 75,000 $ 96,117
Notes payable - shareholder -- 174,799
Accounts payable 1,571,104 357,366
Accrued payroll and related taxes 964,046 554,570
Accrued expenses 99,095 104,694
Deferred rent 46,975 4,987
Dividend payable 145,146 --
------------ ------------
Total current liabilities 2,901,366 1,292,533
Capital lease -- 18,549
Convertible notes payable 500,000 --
------------ ------------
Total liabilities 3,401,366 1,311,082
------------ ------------
Commitments and contingencies (Notes 13 and 14)
Minority interests -- 325,077
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
-F4-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Equity put options on common stock 300,000 --
------------ ------------
Shareholders' equity (deficit):
8% cumulative convertible Series A preferred stock, $1,000 liquidation
preference, authorized 15,000 shares, 0 shares issued and outstanding at
1997 and 1996, respectively
------------ ------------
Common stock, no par value; authorized 100 million shares, 8,235,016 and
5,021,460 shares issued and outstanding at 1997 and 1996, respectively 16,031,336 10,399,318
Additional paid-in capital 4,133,640 4,133,640
Accumulated deficit (21,634,728) (10,441,795)
------------ ------------
Total shareholders' (deficit) equity (1,469,752) 4,091,163
------------ ------------
$ 2,231,614 $ 5,727,322
------------ ------------
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
-F5-
<PAGE>
<TABLE>
TELEGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1997, 1996 and 1995
----------
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Revenues:
Sales of products $ 463,486 $ 23,700 $ 145,795
Contract services 574,916 517,356 --
------------ ------------ ------------
1,038,402 541,056 145,795
------------ ------------ ------------
Cost of goods sold (234,292) (18,083) (170,421)
Cost of contract services (93,793) (68,612) --
------------ ------------ ------------
(328,085) (86,695) (170,421)
------------ ------------ ------------
Gross profit (loss) 710,317 454,361 (24,626)
Operating expenses:
Selling and marketing 1,368,767 439,350 89,275
Research and development 4,400,036 2,386,331 842,026
General and administrative 5,553,209 3,043,530 1,506,531
------------ ------------ ------------
Loss from operations (10,611,695) (5,414,850) (2,462,458)
Other income (expense):
Interest income 29,169 194,443 725
Interest expense (89,364) (146,650) (81,105)
Other (109,098) -- --
------------ ------------ ------------
Loss before minority interests and
extraordinary gain (10,780,988) (5,367,057) (2,542,838)
Minority interests in subsidiary net loss 325,077 252,031 --
------------ ------------ ------------
Loss before extraordinary gain (10,455,911) (5,115,026) (2,542,838)
Extraordinary gain on sale of subsidiary, net of
tax effect of $0 536,179 -- --
------------ ------------ ------------
Net loss $ (9,919,732) $ (5,115,026) $ (2,542,838)
------------ ------------ ------------
Net loss per common share attributable to common
shareholders:
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
-F6-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Basic:
Loss before extraordinary gain $ (2.11) $ (1.16) $ (0.88)
Extraordinary gain 0.10 -- --
------------ ------------ ------------
Net loss $ (2.01) $ (1.16) $ (0.88)
------------ ------------ ------------
Diluted:
Loss before extraordinary gain $ (2.11) $ (1.16) $ (0.88)
Extraordinary gain 0.10 -- --
------------ ------------ ------------
Net loss $ (2.01) $ (1.16) $ (0.88)
------------ ------------ ------------
Weighted average common shares outstanding 5,547,015 4,418,099 2,882,961
------------ ------------ ------------
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
-F7-
<PAGE>
<TABLE>
TELEGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY/(DEFICIT)
for the years ended December 31, 1997, 1996 and 1995
----------
<CAPTION>
Preferred
Stock Common Stock
---------------------------- ------------ ------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 47,500 $ 350,704 2,818,552 $ 2,111,742
Preferred stock issued, net of offering cost of $80,678 65,250 571,822 -- --
Common stock issued, net of offering cost of $70,933 -- -- 96,285 445,966
Issuance of common stock warrants -- -- -- 251,995
Pooling of interests with Morning Star Multimedia -- -- 133,333 5,000
Net loss -- -- -- --
------------ ------------ ------------ ------------
Balance, December 31, 1995 112,750 922,526 3,048,170 2,814,703
Conversion of preferred stock into common stock (112,750) (922,526) 185,500 922,526
Common stock issued, net of offering costs of 2,467,763 -- -- 1,787,790 6,461,929
Issuance of common stock warrants -- -- -- 200,160
Additional paid-in capital (Note 1) -- -- -- --
Net loss -- -- -- --
------------ ------------ ------------ ------------
Balance, December 31, 1996 -- -- 5,021,460 10,399,318
Preferred stock issued, net of offering cost of $336,000 4,000 2,854,925 -- --
Accretion of preferred stock discount -- 1,078,055 -- --
Preferred stock dividends -- -- -- --
Conversion of preferred stock into common stock (4,000) (3,932,980) 1,894,779 3,932,980
Issuance of common stock:
September 1997 Private Placement, net of offering costs of $5,422 -- -- 220,404 490,487
October 1997 Private Placement, net of offering costs of $211,148 -- -- 500,000 888,352
To employees for services -- -- 15,001 87,766
To non-employees for services -- -- 43,798 164,407
Exercise of employee options -- -- 22,743 113,715
Exercise of warrants -- -- 473,815 84,375
To employees under Stock Purchase Plan -- -- 43,016 119,936
Exercise of put option and accretion to the put price -- -- -- (250,000)
Net loss -- -- -- --
------------ ------------ ------------ ------------
Balance, December 31, 1997 -- -- 8,235,016 16,031,336
------------ ------------ ------------ ------------
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
-F8-
<PAGE>
<TABLE>
<CAPTION>
Additional
Paid-in Accumulated
Capital Deficit Total
------------ ------------ ------------
<S> <C> <C> <C>
Balance, December 31, 1994 $ -- $ (2,783,931) $ (321,485)
Preferred stock issued, net of offering cost of $80,678 -- -- 571,822
Common stock issued, net of offering cost of $70,933 -- -- 445,966
Issuance of common stock warrants -- -- 251,995
Pooling of interests with Morning Star Multimedia -- -- 5,000
Net loss -- (2,542,838) (2,542,838)
------------ ------------ ------------
Balance, December 31, 1995 -- (5,326,769) (1,589,540)
Conversion of preferred stock into common stock -- -- --
Common stock issued, net of offering costs of 2,467,763 -- -- 6,461,929
Issuance of common stock warrants -- -- 200,160
Additional paid-in capital (Note 1) 4,133,640 -- 4,133,640
Net loss -- (5,115,026) (5,115,026)
------------ ------------ ------------
Balance, December 31, 1996 4,133,640 (10,441,795) 4,091,163
Preferred stock issued, net of offering cost of $336,000 -- -- 2,854,925
Accretion of preferred stock discount -- (1,078,055) --
Preferred stock dividends -- (145,146) (145,146)
Conversion of preferred stock into common stock -- -- --
Issuance of common stock:
September 1997 Private Placement, net of offering costs of $5,422 -- -- 490,487
October 1997 Private Placement, net of offering costs of $211,148 -- -- 888,352
To employees for services -- -- 87,766
To non-employees for services -- -- 164,407
Exercise of employee options -- -- 113,715
Exercise of warrants -- -- 84,375
To employees under Stock Purchase Plan -- -- 119,936
Exercise of put option and accretion to the put price -- (50,000) (300,000)
Net loss -- (9,919,732) (9,919,732)
------------ ------------ ------------
Balance, December 31, 1997 $ 4,133,640 $(21,634,728) $ (1,469,752)
------------ ------------ ------------
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
-F9-
<PAGE>
<TABLE>
TELEGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997, 1996 and 1995
----------
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (9,919,732) $ (5,115,026) $ (2,542,838)
Adjustments to reconcile net loss to net cash used in
operating activities:
Minority interests in subsidiary's net loss (325,077) (252,031) --
Loss on disposal of assets 5,109 -- --
Extraordinary gain on sale of subsidiary (536,179) -- --
Depreciation and amortization 437,574 187,444 72,053
Amortization of deferred financing costs 68,000 197,248 22,529
Accretion of bridge loan discount -- 156,627 17,833
Allowance for doubtful accounts 72,753 -- 14,113
Provision for inventory write-downs -- 217,985 19,381
Operating expenses paid with issuance of common stock and
common stock equivalents 252,173 325,045 536,964
Interest expense added to note payable principal -- -- 20,853
Changes in operating assets and liabilities:
Accounts receivable (47,965) (255,597) 8,382
Prepaid expenses 368,212 (386,421) 28,044
Inventory 98,081 (14,199) (251,718)
Deposits (68,975) (54,857) --
Accounts payable 1,397,315 (651,966) 697,783
Accrued expenses 698,105 145,519 323,275
------------ ------------ ------------
Net cash used in operating activities (7,500,606) (5,500,229) (1,033,346)
------------ ------------ ------------
Cash flows used in investing activities:
Insurance proceeds on fixed assets -- -- 12,500
Proceeds on sale of subsidiary 200,000 -- --
Purchase of fixed assets (540,205) (1,671,271) --
------------ ------------ ------------
Net cash (used in) provided by investing activities (340,205) (1,671,271) 12,500
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from borrowings 500,000 275,000 457,640
Principal payments on notes payable (101,745) (990,875) (26,203)
Issuance of common stock, net of offering costs 1,696,865 6,270,694 163,165
Issuance of preferred stock, net of offering costs 2,854,925 -- 571,822
Bridge loan offering costs -- -- (84,963)
Issuance of stock by subsidiary, net of offering costs -- 4,604,998 --
------------ ------------ ------------
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
-F10-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Net cash provided by financing activities 4,950,045 10,159,817 1,081,461
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (2,890,766) 2,988,317 60,615
Cash and cash equivalents at beginning of year 3,166,657 178,340 117,725
------------ ------------ ------------
Cash and cash equivalents at end of year $ 275,891 $ 3,166,657 $ 178,340
------------ ------------ ------------
Supplemental disclosures:
Cash paid for interest $ 32,290 $ 146,240 $ 98
------------ ------------ ------------
Cash paid for income taxes $ 800 $ 1,750 $ 800
------------ ------------ ------------
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
-F11-
<PAGE>
TELEGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Summary of Significant Accounting Policies:
Nature of Business
Telegen Corporation (Company) is a diversified, high technology company
with products, both developed and in development, in the flat panel
display, telecommunications, and Internet hardware markets. Currently,
the Company is actively developing its flat panel display technology. In
November 1996, the Company merged with a SEC registrant (Registrant).
Pursuant to the merger agreement, among other things, each share of
common and preferred stock of the Company was converted into shares of
common stock and preferred stock of the Registrant (after giving effect
to a 7.25:1 reverse split of the Registrant's common stock). The
surviving company is know as Telegen Corporation and the directors of
the Company are the directors of the surviving company.
During 1996, the Company formed a subsidiary, Telegen Display
Laboratories (TDL), for the development and commercialization of High
Gain Emissive Display technology.
As discussed in Note 3, the Company sold its interest in Morning Star
MultiMedia, Inc. (Morning Star) on December 31, 1997. The Company had
acquired Morning Star during 1996 through a pooling of interests whereby
all of the outstanding stock of Morning Star was exchanged for shares of
the Company. Morning Star creates and supplies interactive CD-ROM and
Internet-based entertainment and infotainment software.
As disclosed in Note 14, subsequent to December 31, 1997, the Company
entered into an agreement to sell substantially all of the tangible and
intangible assets of its telecommunications subsidiary to a related
party. The buyer also assumed certain liabilities.
Consolidation
The consolidated financial statements include the accounts of Telegen
Corporation and its wholly and majority owned subsidiaries, collectively
"the Company". All material intercompany accounts and transactions have
been eliminated upon consolidation.
Sale of Stock by Subsidiary
During 1996, TDL issued common stock to third parties totaling
approximately $5,200,000 thereby changing the Company's percentage
ownership in TDL. The amount
The accompanying notes are an integral part of these financial
statements.
-F12-
<PAGE>
TELEGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS
per share of the common stock sold to the third parties was greater than
the average carrying amount per share of the Company's investment in
TDL. As a result of the Company's increase in its share of TDL's
shareholders' equity, an increase in additional paid-in-capital was
recorded upon consolidation.
1. Summary of Significant Accounting Policies, continued:
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reported period. Actual results could differ
from the estimates.
Cash and Cash Equivalents
Cash equivalents are defined as highly liquid investments which have
original maturities of three months or less from the date acquired. At
December 31, 1997, the Company's cash deposits included cash in banks of
$143,622, of which $100,000 is federally insured.
Inventory
Inventory of telephone accessory products and component parts is stated
at the lower of cost (weighted average method) or market value.
Property and Equipment
Property and equipment are stated at cost. Depreciation of equipment is
provided using the straight-line method over the estimated useful lives
of five years. Amortization of leasehold improvements is provided on the
straight-line method over the shorter of the estimated useful life of
the improvement or the term of the lease. Furniture and equipment
received in exchange for stock is recorded at the stockholder's basis.
Costs of maintenance and repairs are expensed while major improvements
are capitalized. Gains or losses from disposals of property and
equipment are reflected in current operations.
Revenue Recognition
The Company performs research and development contracts for other
entities. Revenue on long-term software contracts is generally recorded
using the percentage-of-completion method for financial reporting
purposes. Sales of other products or services are recorded
-F13-
<PAGE>
TELEGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------------
as products are shipped or services are rendered.
-F14-
<PAGE>
TELEGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------------
1. Summary of Significant Accounting Policies, continued:
Research and Development Costs
Expenditures relating to the development of new products and processes,
including significant improvements to existing products, are expensed as
incurred.
Income Taxes
The Company reports income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income
Taxes, which requires the liability method in accounting for income
taxes. Deferred tax assets and liabilities arise from the differences
between the tax basis of an asset or liability and its reported amount
in the financial statements.
Deferred tax amounts are determined by using the tax rates expected to
be in effect when the taxes will actually be paid or refunds received,
as provided under currently enacted tax law. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount
expected to be realized. Income tax expense or credit is the tax payable
or refundable, respectively, for the period plus or minus the change
during the period in deferred tax assets and liabilities.
Net Loss Per Common Share
During 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share, which established new standards for computing
and presenting earnings per share for entities with publicly-held common
stock. The Company has adopted and retroactively applied the
requirements of SFAS No. 128 to all periods presented.
Concentration of Credit Risk
Most of the Company's revenues are derived from sales to a few large
companies with significant cash resources. Therefore, the Company
considers its credit risk related to these transactions to be minimal.
The Company invests its excess cash in certificates of deposits and
depository accounts of banks with strong credit ratings. These
certificates of deposits and the Company's cash deposits typically bear
minimal risk and the Company has not experienced any losses on its
investments due to institutional failure or bankruptcy.
-F15-
<PAGE>
TELEGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. Summary of Significant Accounting Policies, continued:
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees (APB 25), and related
interpretations in accounting for its employee stock options. Under APB
25, the Company uses the intrinsic value method to account for its
stock-based compensation plans. The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (see Note 8).
Recently Issued Accounting Pronouncements
In 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income, and SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. SFAS No. 130
establishes standards for reporting comprehensive income and is
effective in 1998. SFAS No. 131 establishes standards for annual and
interim disclosures of operating segments, products and services,
geographic areas and major customers, and is also effective in 1998. The
Company is in the process of evaluating the disclosure requirements of
the new standards, the adoption of which will have no impact on the
Company's results of operations or financial condition.
Reclassifications
Certain amounts in the Company's consolidated financial statements for
the year ended December 31, 1996, have been reclassified to conform with
the presentation of the Company's financial statements for the year
ended December 31, 1997. These reclassifications have no effect on the
Company's equity or net loss for the years ended December 31, 1996 or
1995.
-F16-
<PAGE>
TELEGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. Basis of Presentation:
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern which contemplates the
realization of assets and the satisfaction of liabilities in the normal
course of business. The Company has incurred operating losses, had
negative cash flows from operations and has a deficit shareholders'
equity. The Company is currently experiencing severe cash flow problems.
The Company has deferred the payment of wages to key management and is
delinquent in paying certain amounts in state and federal wage
withholding taxes and social security taxes in 1997. These factors raise
substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments
relating to the recoverability of assets and classification of
liabilities that might result from the outcome of this uncertainty.
As discussed in Note 14, the Company entered into an agreement with
individuals associated with the Company for the sale of Telegen
Communications Corporation, the Company's telecommunications subsidiary
("TCC"), for $500,000 and royalty streams on certain TCC products for up
to three years.
Management has taken steps to reduce administrative overhead which
includes significant payroll reduction and subletting space.
In addition, the Company is currently seeking debt and equity financing
to support its product development, manufacturing and marketing efforts.
There can be no assurance that the Company's efforts described above
will be successful. In addition, there can be no assurance that the sale
of TCC or the Company's financing efforts will produce the necessary
cash flow required to fund the Company's on-going operations.
3. Business Combinations:
Morning Star MultiMedia, Inc.
On December 31, 1996, Morning Star MultiMedia, Inc. (Morning Star) was
merged with and into the Company, and 133,333 shares of the Company's
common stock were issued in exchange for all of the outstanding common
stock of Morning Star. The merger was accounted for as a pooling of
interests, and accordingly, the Company's financial statements for all
periods prior to the merger have been restated to include the accounts
and operations of Morning Star.
-F17-
<PAGE>
TELEGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. Business Combinations, continued:
On December 31, 1997, the Company sold all of its stock holdings in
Morning Star to a company owned by certain of the Company's stockholders
for $200,000 plus royalty streams to be paid to the Company for a period
of two years from December 31, 1997, of 5% to 10% of gross sales of
certain Morning Star CD-ROM products. As a result, the Company
recognized a gain of approximately $536,000 on the sale of its interest
in Morning Star, which is recorded as an extraordinary gain.
Separate results of Telegen and Morning Star for the years ended
December 31, are as follows:
1997 1996 1995
----------- ----------- -----------
Net sales:
Telegen $ 463,486 $ 23,700 $ 145,795
Morning Star 574,916 517,356 --
----------- ----------- -----------
$ 1,038,402 $ 541,056 $ 145,795
----------- ----------- -----------
Net loss:
Telegen $(9,858,233) $(4,860,258) $(2,517,926)
Morning Star (61,499) (254,768) (24,912)
----------- ----------- -----------
$(9,919,732) $(5,115,026) $(2,542,838)
----------- ----------- -----------
SERC
In November 1996, Solar Energy Research Corp. (SERC), a SEC registrant,
acquired all of the outstanding common stock of the Company. For
accounting purposes, the acquisition has been treated as a
recapitalization of the Company with the Company as the acquirer
(Reverse Acquisition). The historical financial statements prior to
November 1996 are those of the Company. Common stock shares have been
restated for all periods presented prior to the transaction to reflect
196,910 shares issued to previous SERC stockholders. Because SERC was a
public shell, no goodwill was recorded as a result of the transaction
and pro forma information is not required to be presented. The Company's
costs of the transaction were approximately $300,000 and were charged to
expense.
-F18-
<PAGE>
TELEGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
4. Inventory:
Inventories consist of the following at December 31:
1997 1996
-------- --------
Raw materials and supplies $ 75,760 $ 88,555
Finished goods -- 85,286
-------- --------
$ 75,760 $173,841
-------- --------
5. Property and Equipment:
Property and equipment are stated at cost and consist of the following
at December 31:
1997 1996
----------- -----------
Machinery and equipment $ 1,456,268 $ 1,343,906
Leasehold improvements 710,567 573,893
Office furniture and fixtures 86,173 75,542
----------- -----------
2,253,008 1,993,341
Less accumulated depreciation
and amortization (706,825) (328,967)
----------- -----------
$ 1,546,183 $ 1,664,374
----------- -----------
-F19-
<PAGE>
TELEGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. Notes Payable:
Notes payable consist of the following at December 31:
1997 1996
Notes payable convertible to common
stock, interest at 6% due quarterly,
principal payable at the Company's
discretion but no later than May
1999, without collateral 500,000 --
Subordinated notes payable convertible
to common stock at lender's option,
interest payable on $50,000 at 10%
and on $25,000 at 18%, principal and
accrued interest due on demand,
without collateral. Notes
subordinated to senior indebtedness
as defined in the agreement 75,000 75,000
Notes payable to shareholders, interest
at 10%, principal and interest due
December 1997, without collateral -- 114,553
Note payable to shareholder, interest
at 10%, principal and interest due
March 1997, without collateral -- 60,246
Other -- 21,117
--------- ---------
575,000 270,916
Less current maturities (75,000) (270,916)
--------- ---------
500,000 --
--------- ---------
During 1997, a board member and the Company's placement agent made
short-term loans to the Company, totaling $125,000. The notes plus
$2,436 of accrued interest were repaid to the lenders during 1997.
-F20-
<PAGE>
TELEGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. Notes Payable, continued:
$75,000 Convertible Subordinated Note Payable
The principal balance of the $75,000 convertible subordinated note
payable is convertible, at the holder's discretion, into common stock of
the Company at a rate of $7 per share.
$500,000 Convertible Promissory Notes
The Company initiated a private offering on a subscription basis of up
to 20 units (each, a "Note Unit") to accredited investors (the "Note
Unit Investors") with a purchase price per Unit of $50,000 (the "Note
Unit Offering"). Each Note Unit consists of (i) a convertible promissory
note with a face value of $50,000 (each a "Unit Note") and (ii) a
warrant to purchase 10,000 shares of common stock, at a $2.25 per share
exercise price (each a "$2.25 Warrant"). Upon closing the offering on
November 26, 1997, the Company sold ten (10) Note Units. As part of the
consideration for placing the Note Units, the Company's placement agent
received a warrant to purchase 80,000 shares of Common Stock for every
$500,000 of Note Units sold; such warrant has the same terms as the
$2.25 Warrants.
Each Note has an 18-month term from the date of issuance and carries
simple interest at 6% per annum payable at the Company's discretion in
cash or stock, and is convertible (after 90 days) into common stock at
the holder's option at a conversion price of the lesser of (i) $2.75, or
(ii) seventy-five percent (75%) of the lowest NASDAQ trading price as
defined in the applicable agreements depending upon the date of
conversion. At maturity, each Note automatically converts to common
stock according to the above conversion formula. The discount resulting
from the below market conversion feature was amortized to interest
expense using the interest method over a period of 90 days. Each $2.25
Warrant has a four-year term from issuance, is immediately exercisable
and may be exercised on a net-exercise basis, at the option of the
holder.
-F21-
<PAGE>
TELEGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
7. Preferred Stock:
Cumulative Preferred Stock (Series A Preferred Stock)
In March 1997, the Company partially completed a private placement with
a face value of up to $15 million to support the Company's research and
development programs and for general working capital purposes. The
private placement agreement provides for 8% Cumulative Series A
Preferred Stock (Series A Preferred Stock) issuable at a 20% discount.
The 20% discount of $800,000 was accrued over the period from issuance
to the earliest conversion date, using the interest method. The
financing was expected to take place in three tranches, each amounting
to $5 million in face value. During 1997, the Company had issued 4,000
shares of Series A Preferred Stock, with a face value of $4,000,000. The
remaining funding of the Series A Preferred Stock is not expected to
occur. In addition, approximately 204,000 warrants were issued to the
holders to purchase common stock in an aggregate amount of 20% of the
value of the Series A Preferred Stock actually funded at a fixed price
per share (fair value at the date of issuance). In addition to an 8%
commission, placement agents received 133,440 warrants to purchase
common stock in an aggregate amount of 10% of the face value of the
Series A Preferred Stock actually funded at a fixed price per share
(fair value at the date of issuance). The Company has also agreed not to
sell any new equity series at a discount except in certain circumstances
as defined in the agreement.
The Company also entered into an Amendment Agreement to the Series A
Preferred Stock Subscription Agreement dated July 7, 1997 (the
"Amendment Agreement") which entitles the Series A Preferred Stock
holder to additional discounts of 3%, 6%, or 9% off of the Conversion
Price, as that term is defined in the Amendment Agreement, based on the
dates on which the preferred stock holder converts the New Series A
Preferred Stock into common stock. The additional discounts of
approximately $269,000 were accrued using the applicable discount rate.
As of December 31, 1997, the Series A Preferred Stock was fully
converted to the Company's common stock.
-F22-
<PAGE>
TELEGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. Common Stock:
Common Stock Issuances During 1997
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"),
at a per-share price of $2.25 (the "Common Offering"), which
approximated fair market value during the period of the offering. As of
September 30, 1997, the Company closed the Common Offering and had sold
220,404 shares of Common Stock pursuant thereto. The Company guaranteed
a third party's put obligation related to 111,111 shares sold under this
private offering at $2.70 per share. At December 31, 1997, the Company
recognized a $250,000 obligation related to the equity put option on
common stock and an additional $50,000 accretion to the put price.
In connection with the Common Offering, the Company also delivered to
certain of the Common Investors an aggregate of 50,000 warrants to
purchase one share of Common Stock at a $0.01 per share ("0.01
Warrants"). The $0.01 Warrants have a four-year term from the date of
issuance and are exercisable immediately upon issuance. The Company has
the right to force the exercise of the $0.01 Warrants at any time after
their issuance.
In October 1997, the Company initiated a private offering on a
subscription basis of up to 500,000 units (each, a "Unit") to accredited
investors (the "Unit Investors"), with a purchase price per Unit of
$2.00 (the "Unit Offering"), which approximated fair market value of the
Company's common stock during the period of the offering. Each Unit
consisted of (i) one share of Common Stock, (ii) 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. As part of the
consideration for placing the Units and for fully subscribing the Unit
Offering, the Company issued the placement agent for the offering 50,000
$0.01 Warrants and accordingly $99,500 was recorded as additional
offering costs.
Units purchased under the Unit Offering and the $0.01 Warrants issued to
the placement agent are subject to lock up provisions which limit the
ability of a holder of common stock 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.
-F23-
<PAGE>
TELEGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. Common Stock, continued:
The $4.00 Warrants have a four-year term from the date of issuance and
are exercisable immediately upon issuance. The Company has the right to
force the exercise of the $4.00 Warrants after the Company's common
stock trades for twenty (20) trading days at $6.00 or more.
In March 1998, as described in Note 14, the Company made available to
the Common Investors and the Unit Investors (Investors) an exchange
offer whereby, for the common stock purchases described above, the
Company offered convertible subordinated promissory notes to the
Investors in exchange for their common stock.
Common Stock Issuances During 1996
In February 1996, the Company initiated a private offering of its common
stock at $5.00 per share. Through May 1996, when the offering was
completed, the Company received gross proceeds of approximately
$6,671,950 for the issuance of 1,334,390 shares of common stock, paid
approximately $1,024,000 in placement agent fees, and issued to the
placement agent warrants to purchase 133,440 common shares at an
exercise price of $3.50 per share. Offering costs of $200,160 were
recorded to reflect the difference between the fair value of the common
stock and the warrants exercise price. In addition, 206,882 shares were
issued as additional commission and, accordingly, $1,034,410 was
recorded as additional offering costs.
1996 Stock Option Plan
In November 1996, the Company authorized a stock option plan under which
options to purchase shares of common stock may be granted to eligible
employees, officers and directors in the form of incentive stock options
(ISO's) and non-qualified stock options. The option exercise price shall
be no less than fair market value on the date of grant (110% in the case
of ISO's). The term of each option shall be stated in the option
agreement. The maximum shares that may be optioned under the plan is
500,000 shares. This plan replaced the October 29, 1993 employee stock
option plan.
In February 1998, the 1996 Stock Option Plan was amended to include a
provision regarding acceleration of vesting in connection with change in
control events. As well, the Company offered to all employees the
opportunity to exchange their outstanding options to purchase the
Company's common stock for the same number of new options with an
exercise price equal to the five day average of the closing trading
price before the effective date of the exchange. The new options will be
subject to a restarted three-year vesting schedule with a three-month
cliff.
-F24-
<PAGE>
TELEGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. Common Stock, continued:
1993 Stock Option Plan
On October 29, 1993, the Company authorized a stock option plan under
which options to purchase shares of common stock may be granted to full
time employees. The number of options granted is based on employee
performance. The plan provides that the option price shall not be less
than the fair market value of the shares on the date of grant. Options
are exercisable on the date of the grant, expire five years from the
date of grant and vest over varying lengths of time, up to twelve
months.
In February 1996, the Board authorized the granting of options to an
employee to purchase 17,000 shares of common stock at $5 per share,
exercisable for a period of up to five years.
In addition, on October 29, 1993, the Company's Board of Directors
authorized granting to full time employees who successfully complete a
probationary period a number of shares of common stock or an option to
purchase a number of shares of common stock whose total market value on
the date of grant is equal to five percent of the employee's annual
salary. In 1996 and 1995, respectively, 4,163 shares and 1,582 shares
were issued to employees and $20,815 and $7,910 was recorded as an
expense. Options granted under this plan are included in the table
below.
In February 1998, the Company granted an officer of the Company an ISO
to purchase 280,000 shares of the Company's common stock under the 1996
Stock Option Plan and an option to purchase 440,000 shares of the
Company's common stock at fair market value of the Company's common
stock outside of the 1996 Stock Option Plan in satisfaction of his
employment contract with the Company.
Board of Director's Compensation
In February 1996, the Company's Board of Directors approved granting to
non-employee members of the Board $1,000 per Board meeting attended. The
Board members may elect to receive their compensation in the form of
common stock of the Company or options to purchase shares of the
Company's common stock at an exercise price equal to the fair value of
the shares at the beginning of the calendar year the options are
granted. Also, the Board approved granting to non-employee members of
the Board, options to purchase, on an annual basis, 20,000 shares of the
Company's common stock. The options will be granted at the beginning of
each calendar year at fair value and vest ratably over the year, unless
the member is discharged from the Board due to a merger, buyout or other
event not in the ordinary course of business, in which case the options
will vest immediately.
-F25-
<PAGE>
TELEGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. Common Stock, continued:
In February 1996, the Board granted certain officers of the company
options to purchase shares of the Company's common stock at a price of
$5.00 per share for a period of five years. Options to purchase 200,000
shares were granted, of which 100,000 vested immediately and the
remaining options vested in 50,000 share increments over the remainder
of 1996.
Employee Stock Purchase Plan
In October 1996, the shareholders approved an Employee Stock Purchase
Plan (ESPP). The ESPP allows eligible employees the right to purchase
common stock on a semi-annual basis at the lower of 85% of the market
price at the beginning or end of each six-month offering period. As of
December 31, 1996, there were 200,000 shares of common stock available
for sale for the ESPP and there had been no issuances to date. The
offering periods commence on November 1 and May 1 of each year. A
liability has been recorded for ESPP withholdings not yet applied
towards the purchase of common stock.
The following summarizes the stock option transactions for the
three-year period ended December 31, 1997:
Weighted
Number Average
of Exercise
Shares Price
------ -----
Outstanding and exercisable at January 1, 1995 356,561 $ 4.97
Issued 98,352 $ 5.00
Exercised (150) $ 5.00
Forfeited (6,501) $ 5.00
----------
Outstanding and exercisable at December 31, 1995 448,262 $ 4.98
Issued 649,624 $ 5.00
Exercised (2,673) $ 3.50
Forfeited (10,410) $ 5.00
----------
Outstanding and exercisable at December 31, 1996 1,084,803 $ 5.00
Issued 366,923 $ 3.64
Exercised (22,743) $ 5.00
Forfeited (43,476) $ 2.90
----------
Outstanding at December 31, 1997 1,385,507 $ 4.71
--------- ------
-F26-
<PAGE>
TELEGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Exercisable at December 31, 1997 1,265,702 $ 4.90
--------- ------
8. Common Stock, continued:
Stock Based Compensation
<TABLE>
The Company applies the measurement provisions of APB Opinion No. 25 and
related interpretations in accounting for the stock option plans.
Compensation costs of $16,000, $21,000 and $8,000, for the years ended
December 31, 1997, 1996 and 1995, respectively, have been recognized for
stock option plans. Had compensation cost for the stock option plans
been determined based on the fair value at the grant dates for awards
under the plans, consistent with the alternative method set forth under
SFAS 123, the Company's net loss and net loss per share would have been:
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net loss:
As reported $ (9,919,732) $ (5,115,026) $ (2,542,838)
Pro Forma $ (10,426,293) $ (5,688,651) $ (2,571,216)
Basic and diluted net loss per share:
As reported $ (2.01) $ (1.16) $ (0.88)
Pro Forma $ (2.10) $ (1.29) $ (0.89)
</TABLE>
<TABLE>
The fair value of the options issued prior to the Reverse Acquisition is
estimated on the date of each grant using the Minimum Value pricing
model. For options issued subsequent to the Reverse Acquisition, the
fair value of the options is estimated on the date of grant using a
modified Black-Scholes option valuation formula. The following are
assumptions of the weighted-average information used to value stock
option grants in 1997, 1996 and 1995:
<CAPTION>
POST PRE
MERGER MERGER
1997 1996 1996 1995
<S> <C> <C> <C> <C>
Dividend yields 0 0 0 0
Expected volatility 102.34% 93.53% N/A* N/A*
Risk-free-interest rates 6.11% 5.44% 5.63%
Expected time to exercise 5 years 1 year 1 year 1 year
<FN>
* No assumption required for grant dates before the Company's stock was publicly traded
</FN>
</TABLE>
The weighted-average grant date fair value of options for the year
ended December 31, 1997, was $3.55, $.27 and $2.76 for the periods
before and after the merger in 1996, respectively, and $.27 for the
year ended December 31, 1995.
-F27-
<PAGE>
TELEGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. Common Stock, continued:
Warrants
<TABLE>
The Company issued and at December 31, 1997, had outstanding warrants to
purchase common stock as follows:
<CAPTION>
Number of
Common
Shares to be
Issued upon
Warrant Exercise
Date of issuance Conversion Price Expiration Date
--------------------- ----------------- ------------- ---------------------------
<S> <C> <C> <C>
August 1995 50,500 $ 0.01 August 2000
February 1997 34,625 3.50 April 2001
February 1997 25,000 7.00 April 2001
March 1997 151,351 6.94 March 2001
May 1997 10,000 4.38 August 2001
June 1997 52,614 2.85 July 2001
August 1997 50,000 0.01 August 2001
October 1997 500,000 4.00 October 2001
October 1997 50,000 0.01 October 2001
October 1997 125,000 0.01 October 2001
November 1997 180,000 2.25 November 2001
-----------
1,229,090
-----------
</TABLE>
In August 1995, a shareholder and officer of the Company was issued
warrants to purchase 50,500 shares of common stock for $.01 per share
for a period of five years. The warrants can be exercised at any time.
Compensation expense totaling $251,995 was recorded to reflect the
difference between the fair value of the common stock and the exercise
price.
In January 1995 an employee was granted an option to purchase 5% of a
yet-to-be formed entity. In May 1996, the entity was formed and the
employee received warrants to purchase 500,000 shares in the newly
formed entity which represented a 5% interest.
In October 1996, an employee was issued warrants to purchase 25,000
shares of common stock. The warrants were exercised immediately and
$125,000 was recorded as compensation expense.
In September 1997, a warrant that was issued during 1996 to a placement
agent to purchase 90,065 shares at $3.50 per share was re-priced to
$0.56 per share. The holder
-F28-
<PAGE>
TELEGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
exercised the warrant in September 1997 resulting in approximately
$164,000 in additional offering costs.
-F29-
<PAGE>
TELEGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. Common Stock, continued:
Earnings Per Share
<TABLE>
A reconciliation of the numerators and denominators of the basic and
diluted earnings per share computations under SFAS No. 128 is as
follows:
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Loss attributable to common shareholders:
Loss before extraordinary gain $(10,455,911) $ (5,115,026) $ (2,542,838)
Reconciling items:
Accretion of preferred stock
discount (1,078,055) -- --
Preferred stock dividends (145,146) -- --
------------ ------------ ------------
Loss attributable to common
shareholders before extraordinary
gain (11,679,112) (5,115,026) (2,542,838)
Extraordinary gain 536,179 -- --
------------ ------------ ------------
Loss attributable to common
shareholders $(11,142,933) $ (5,115,026) $ (2,542,838)
------------ ------------ ------------
Weighted average common shares outstanding
for determination of:
Basic earnings per share 5,547,015 4,418,099 2,882,961
------------ ------------ ------------
Diluted earnings per share 5,547,015 4,418,099 2,882,961
------------ ------------ ------------
</TABLE>
-F30-
<PAGE>
TELEGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. Income Taxes:
<TABLE>
The income tax effect of temporary timing differences between financial
and income tax reporting that give rise to deferred income tax assets at
December 31, 1997, 1996 and 1995, under the provisions of SFAS No. 109
are as follows:
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Federal net operating loss
carryforward $ 4,827,942 $ 2,637,417 $ 1,658,234
State operating loss carryforward 754,856 310,257 292,630
----------- ----------- -----------
5,582,798 2,947,674 1,950,864
Capitalized research and
experimentation 2,412,644 749,162 --
Other (217,730) 96,261 --
----------- ----------- -----------
7,777,712 3,793,097 1,950,864
Less valuation allowance (7,777,712) (3,793,097) (1,950,864)
----------- ----------- -----------
-- -- --
----------- ----------- -----------
</TABLE>
Net operating loss (NOL) carryforwards of $22,738,920 expire from 2005
to 2012 for federal income tax reporting purposes and from 1998 to 2002
for state tax reporting purposes. Under current tax law a change in
ownership of a certain magnitude may limit NOL carryforwards. A change
in ownership occurred in April 1996 resulting in a limitation on the
utilization of NOL's to a maximum $1,110,780 per year of NOL's incurred
prior to April 1996. Any subsequent ownership changes, as defined in the
income tax law, could result in further limitation on the utilization of
the NOL's.
The Company has recorded a valuation allowance equal to the full value
of the deferred tax asset to reflect the uncertain nature of the
ultimate realization of the deferred tax asset based on past
performance.
-F31-
<PAGE>
TELEGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
10. Disclosure about the Fair Value of Financial Instruments:
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate that value:
Cash and Cash Equivalents
The carrying amount approximates fair value due to the short maturity of
these instruments.
Convertible Notes Payable
The fair value of the Company's $75,000 convertible subordinated note
payable is estimated by discounting the future cash flows using rates
currently available for debt of similar terms and maturity. The $500,000
convertible promissory notes were negotiated in the near term. The
carrying value of these instruments approximates fair value.
11. Supplemental Disclosure of Non-Cash Investing and Financing Activities:
<TABLE>
During the years ended December 31, 1997, 1996 and 1995, the Company
received the following services in exchange for shares of common stock:
1997
----
Services Shares Services Shares Services Shares
Received Issued Received Issued Received Issued
-------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Legal Services $127,074 25,852 $138,690 27,737 $217,000 43,083
Employee Services 87,766 15,001 20,815 4,163 7,900 1,582
Deferred Financing Costs -- -- -- -- 49,500 9,899
Other Services 37,334 17,946 106,449 25,430 66,000 13,788
Accounts Payable -- -- -- -- 3,300 400
</TABLE>
During 1996, the Company exchanged accounts payable to shareholders for
short-term notes payable in the amount of $174,799. In addition, the
Company satisfied $100,000 of the Bridge Loan with 20,000 shares of the
Company's common stock at $5 per share.
During 1996, the Company converted its 112,750 shares of preferred stock
to 185,500 shares of common stock.
-F32-
<PAGE>
TELEGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
11. Supplemental Disclosure of Non-Cash Investing and Financing Activities,
continued:
Capital lease obligations incurred during 1997 and 1996 for various
machinery and equipment were $0 and $18,549, respectively.
In 1995, approximately $252,000 in employee services was received in
exchange for 50,500 common stock warrants. Also, approximately $106,000
in deferred financing costs and $34,000 in common stock offering costs
are included in accounts payable at December 31, 1995.
12. Commitments:
Operating Leases
The Company leases its facilities under long-term, noncancelable lease
agreements which have been accounted for as operating leases. The leases
require that the Company pay all property taxes, insurance costs,
repairs and common area maintenance expenses associated with its portion
of the facilities. The Company's noncancelable lease agreements expire
during 2001. The Company's future minimum lease payments under
noncancelable leases are as follows:
1998 573,453
1999 593,999
2000 616,700
2001 429,954
----------
2,214,106
----------
Rental expense charged to operations for all operating leases was
approximately $640,000, $273,000 and $202,000 for the years ended
December 31 1997, 1996 and 1995, respectively.
In February 1998, the Company entered into an agreement to sublease
office space related to the above leases, under which the Company will
receive minimum future rent of approximately $94,000 in 1998 and $8,000
in 1999.
Royalties
The Company has granted an option to a third party to purchase up to
four manufacturing licenses for certain technology under development.
The options can be exercised based on certain restrictions as defined.
Upon exercise, in addition to license fees, the Company will receive
royalties based on gross revenues from product sales. As of December 31,
1997, the options have not been exercised.
-F33-
<PAGE>
TELEGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. Contingencies:
The Company and its Telegen Display Laboratories Inc. subsidiary ("TDL")
are named defendants in a complaint (the "Complaint") filed on January
7, 1998 by IPC Corporation, Ltd., Transtech Electronics, PTE, LTD., and
IPC Transtech Display PTE, LTD (collectively, the "Plaintiffs"). The
Complaint alleges that the Company committed material misrepresentations
when the Company sold TDL common stock to the Plaintiffs for $5,000,000
on May 30, 1996. Additional named defendants include certain former
officers of the Company. The Plaintiffs seek recision of the original
purchase, complete restitution of the $5,000,000, interest, punitive
damages, costs and attorneys' fees. Neither the Company nor TDL has been
served with the Complaint and no action has been initiated against the
Company beyond filing the Complaint. The Company believes that the
Complaint is without merit and intends to vigorously defend such matter.
The Company is also subject to various legal actions and claims arising
in the ordinary course of business. Management believes the outcome of
these matters will have no material adverse effect on the Company's
financial position, results of operations and cash flows.
14. Subsequent Events:
Sale of Subsidiary
On April 1, 1998, the Company entered into an agreement to sell
substantially all of the assets of Telegen Communications Corporation,
the Company's telecommunications subsidiary ("TCC"), to an affiliate of
the Company for $500,000 and the rights of royalty streams on certain
TCC products for up to three years. The buyer assumed certain
liabilities totaling approximately $223,000. The Company has received a
deposit of $350,000 in cash as part of the sale price. The remaining
$150,000 will be paid in a note with six monthly installments of $25,000
plus interest at 6% commencing on September 15, 1998. The gain of
$133,000 was calculated without regard to the $150,000 note receivable
and royalty rights and will be recorded in the second quarter of 1998.
-F34-
<PAGE>
TELEGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
14. Subsequent Events, continued:
Convertible Promissory Note
On March 31, 1998, the Company received $500,000 in gross proceeds from
the issuance of a one year convertible note in connection with a Note
and Warrant Purchase Agreement. The principal balance and accrued
interest at a rate of 6% are due March 31, 1999. The principal balance
and accrued interest of the note payable are convertible after 60 days
from signing the agreements, at the holder's discretion, into common
stock of the Company at a rate of $0.38 per share, which is equal to
half of the fair market value of each share of common stock on March 31,
1998. In connection with the agreement, the holder was also issued a
warrant to purchase 1,315,790 shares of the Company's common stock for
$0.38 per share. Such warrant expires in May 1998. The discounts
resulting from the below market conversion feature will be amortized to
interest expense using the interest method over 60 days, until the
earliest conversion date.
Exchange Offer
On March 19, 1998, the Company made available to the Common Investors and
Unit Investors (Investors) an exchange offer (the "Exchange Offer") for
the common stock purchases described in Note 8. Under the Exchange Offer,
the 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 and principal 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. The Company may
prepay the Notes at any time after giving fifteen (15) days prior written
notice to holders thereof.
Under the Exchange Offer, 109,293 and 800,000 shares (including warrants
exercised in 1997) were exchanged for Notes by the Common Investors and
Unit Investors, respectively.
-F35-
<PAGE>
TELEGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
14. Subsequent Events, continued:
In October 1997, TSC, LLC, a Delaware limited liability company ("TSC")
entered into an amended and restated stock purchase agreement with a
stockholder for the purchase of 550,000 shares of the Company's common
stock in a private transaction. In addition to the Investors described
above, the Company also made the Exchange Offer available to TSC, who
converted the 550,000 shares of common stock for the Notes.
Upon exchange of the 1,459,293 shares for convertible notes, the Company
will reduce equity and record convertible debt of approximately $724,500
during the first quarter of 1998.
<TABLE>
15. Quarterly Results of Operations (unaudited):
The following is a summary of unaudited quarterly results of operations
for the year ended December 31, 1997 and 1996:
<CAPTION>
Quarter ended in 1997
------------------------------------------------------------
March 31, June 30, September 30, December 31,
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 159,817 $ 489,470 $ 259,926 $ 129,189
Gross profit (loss) 117,458 454,156 221,260 (82,557)
Loss before extraordinary gain (2,643,896) (3,194,228) (2,120,126) (2,497,661)
Net loss (2,643,896) (3,194,228) (2,120,126) (1,961,482)
Loss per common share attributable
to common shareholders:
Loss before extraordinary gain (0.57) (0.72) (0.49) (0.35)
Net loss (0.57) (0.72) (0.49) (0.27)
Quarter ended in 1996
------------------------------------------------------------
March 31, June 30, September 30, December 31,
------------ ------------ ------------ ------------
Net sales $ 113,517 $ 82,873 $ 199,050 $ 145,616
Gross profit 98,261 80,755 195,092 80,253
Net loss (469,995) (1,018,950) (1,304,138) (2,321,943)
Net loss per common share attributable
to common shareholders (0.15) (0.24) (0.26) (0.47)
<FN>
During the quarters ended June 30, 1997 and September 30, 1997, the Company
overstated and (understated) the accretion of preferred stock discount by
approximately $305,000 and (720,000), respectively. Accordingly, the average
common share amounts have been restated. Such restatement had the effect of
decreasing the loss per share amounts by $0.05 for the quarter ended June 30,
1997, and increasing the loss per share amounts by $0.15 for the quarter ended
September 30, 1997.
As discussed in Note 3, the Company sold all of its stock holdings in Morning
Star effective December 31, 1997. As a result, the Company recognized an
extraordinary gain of approximately $536,000 during the quarter ended December
31, 1997.
</FN>
</TABLE>
-F36-
<PAGE>
TELEGEN CORPORATION AND SUBSIDIARIES
------------------------------------
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997
AND FOR THE YEAR ENDED DECEMBER 31, 1997
<PAGE>
<TABLE>
TELEGEN CORPORATION AND SUBSIDIARIES
PRO FORMA BALANCE SHEET
<CAPTION>
Unaudited
------------------------------
Pro Forma
Adjustments
-------------
Less amounts
December 31, attributable
1997, as to Telegen Pro forma
report on Communications December 31,
Form 10-K Corporation 1997
---------- ------------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 275,891 $ $ 275,891
Accounts receivable:
Trade
Related parties 213,121 213,121
Other 27,813 27,813
Inventory 75,760 (75,760) --
Prepaid expenses and other current assets 17,664 17,664
---------- ------------- ------------
Total current assets 610,249 (75,760) 534,489
Property and equipment, net 1,546,183 (128,204) 1,417,979
Other assets 75,182 75,182
---------- ------------- ------------
$2,231,614 $ (203,964) $ 2,027,650
========== ============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Convertible notes payable $ 75,000 $ $ 75,000
Accounts payable 1,571,104 (122,726) 1,448,378
Accrued payroll and related taxes 964,046 (100,000) 864,046
Accrued expenses 99,095 99,095
Deferred rent 46,975 46,975
Dividend payable 145,146 145,146
---------- ------------- ------------
Total current liabilities 2,901,366 (222,726) 2,678,640
Capital lease -- --
Convertible notes payable 500,000 500,000
---------- ------------- ------------
Total liabilities 3,401,366 (222,726) 3,178,640
---------- ------------- ------------
Equity put options on common stock 300,000 -- 300,000
---------- ------------- ------------
Shareholders' equity (deficit):
Common stock 16,031,336 16,031,336
Additional paid-in capital 4,133,640 4,133,640
Accumulated deficit (21,615,966) 18,762 (21,615,966)
----------- ------------- ------------
Total shareholders' (deficit) equity (1,450,990) 18,762 (1,450,990)
----------- ------------- ------------
$2,231,614 $ (203,964) $ 2,027,650
=========== ============= ============
<FN>
See accompanying notes to these pro forma financial statements
</FN>
</TABLE>
-37-
<PAGE>
<TABLE>
TELEGEN CORPORATION AND SUBSIDIARIES
PRO FORMA STATEMENTS OF OPERATIONS
<CAPTION>
Unaudited
----------------------------------------------
Pro Forma Adjustments
------------------------------
For the year
ended Less amounts
December 31, Less amounts attributable to
1997, as attributable to Telegen Pro forma
report on Morning Star Communications December 31,
Form 10-K Multimedia Corporation 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Sales of products $ 463,486 $ $ (463,486) --
Contract services 574,916 (574,916) --
------------ ------------ ------------ ------------
1,038,402 (574,916) (463,486) --
------------ ------------ ------------ ------------
Cost of goods sold (234,292) -- 234,292 --
Cost of contract services (93,793) 93,793 --
------------ ------------ ------------ ------------
(328,085) 93,793 234,292 --
------------ ------------ ------------ ------------
Gross profit (loss) 710,317 (481,123) (229,194) --
Operating expenses:
Selling and marketing 1,368,767 (95,949) (323,018) 949,800
Research and development 4,400,036 (1,088,337) (623,859) 2,687,840
General and administrative 5,553,209 (814,442) (1,208,081) 3,530,686
------------ ------------ ------------ ------------
Loss from operations (10,611,695) (1,517,605) (1,925,764) (7,168,326)
Other income (expense):
Interest income 29,169 -- -- 29,169
Interest expense (89,364) -- -- (89,364)
Other (109,098) -- -- (108,098)
------------ ------------ ------------ ------------
Loss before minority interests and
extraordinary gain (10,780,988) (1,517,605) (1,925,764) (7,337,619)
Minority interests in subsidiary net loss 325,077 -- -- 325,077
------------ ------------ ------------ ------------
Loss before extraordinary gain (10,455,911) (1,517,605) (1,925,764) (7,012,542)
Extraordinary gain on sale of subsidiary 536,179 -- (133,000) 669,179
------------ ------------ ------------ ------------
Net loss $ (9,919,732) $ (1,517,605) $ (2,058,764) $ (6,343,363)
Net loss per common share attributable
to common shareholders:
Basic:
Loss before extraordinary gain $ (2.11) $ (0.27) $ (0.37) $ (1.14)
Extraordinary gain $ 0.10 $ -- $ -- $ --
Net loss $ (2.01) $ (0.27) $ (0.37) $ (1.14)
============ ============ ============ ============
Diluted:
Loss before extraordinary gain $ (2.11) $ (0.27) $ (0.37) $ (1.14)
Extraordinary gain $ 0.10 $ -- $ -- $ --
Net loss $ (2.01) $ (0.27) $ (0.37) $ (1.14)
============ ============ ============ ============
Weighted average common shares outstanding 5,547,015 5,547,015 5,547,015 5,547,015
============ ============ ============ ============
<FN>
See accompanying notes to these pro forma financial statements
</FN>
</TABLE>
-38-
<PAGE>
NOTES TO PRO FORMA FINANCIAL STATEMENTS
1. On December 31, 1997, the Company entered into a Stock Purchase Agreement
with Morning Star Acquisition Corporation, Inc. (MAC) to sell all of the
outstanding stock of its wholly owned subsidiary, Morning Star Multimedia, Inc.
(MSM) to MAC for $200,000 and for royalty streams to be paid to the Company for
a period of two (2) years from December 31, 1997 of Ten Percent (10%) and Five
Percent (5%) of certain gross sales of MSM.
In addition, on April 1, 1998, the Company entered into a agreement to sell
substantially all of the assets of Telegen Communications Corporation, the
Company's telecommunications subsidiary (TCC), to an affiliate of the Company
for $500,000 and the rights of royalty streams on certain TCC products for up to
three (3) years. The buyer assumed certain liabilities totaling approximately
$223,000. The Company has received a deposit of $350,000 in cash as part of the
sale price. The remaining $150,000 will be paid in an note with six monthly
installments of $25,000 plus interest at 6% commencing on September 15, 1998.
The gain of $133,000 was calculated without regard to the $150,000 note
receivable and royalty rights and will be recorded in the second quarter of
1998.
In accordance with Rule 11.02 under Regulation S-X certain pro forma Financial
information is required to be presented herein. The Pro Forma Balance sheet is
as of December 31, 1997, which is the most recent date for which a consolidated
balance sheet of the Company was filed. The Pro Forma Statements of Operations
have been prepared as of December 31, 1997, the most recent fiscal year.
2. The Pro Forma Statement of Operations for the year ended December 31, 1997
reflect the removal from the Company's reports for such period the portion of
sales and expenses attributable to the operation of MSM and TCC previously
consolidated in the Company's financial statements, resulting in pro forma
statements of operations for such period as if MSM and TCC had not been a
subsidiaries thereof for such period.
3. The Pro Forma Balance Sheet as of December 31, 1997, reflects adjustments to
the asset, liability, and equity accounts as previously reported by the Company
by removing the applicable portions of Telegen Communications Corporation's
assets, liabilities, and equity positions.
-39-
<PAGE>
<TABLE>
Exhibit Number Description Page
- -------------- -------------------------------------------------------------- -------------
<S> <C> <C>
2.1* Stock Purchase Agreement Among Morning Star Acquisition, Inc.,
Morning Star Multimedia, Inc., and Telegen Corporation dated
December 31, 1997
2.2 Asset Purchase of TCC Agreement by and between Synercom, Inc.
and Telegen Corporation dated April 1, 1997
Certain exhibits and schedules to Exhibit 2.2 are listed on
page 23 thereto and the Registrant agrees to furnish them
supplementally to the Securities and Exchange Commission upon
request.
3.1** Articles of Incorporation of Telegen Corporation dated August
30, 1996 [formerly known as Solar Energy Research Corp. of
California]
3.2** Certificate of Amendment to the Articles of Incorporation of
Telegen Corporation dated October 28, 1996 [formerly known as
Solar Energy Research Corp. of California]
3.3+ Certificate of Determination with respect to the Company's
outstanding Series A Preferred Stock filed with the California
Secretary of State on March 20, 1997
3.4** Bylaws of Telegen Corporation
3.5 Certificate of Amendment of Bylaws effective August 6, 1997
4.1 Form of Convertible Promissory Note issued by the Company in
November 1997
10.1** Service Agreement between MCI Telecommunications Corporation
and Telegen Communications Corporation
10.2** Agreement among Telegen Communications Corporation, Telegen
Display Laboratories, Inc., Transtech Electronics Pte, Ltd.,
and IPC Corporation, Ltd., dated May 30, 1996
<PAGE>
Exhibit Number Description Page
- -------------- -------------------------------------------------------------- -------------
10.3** Manufacturing License Agreement among Telegen Communications
Corporation, Telegen Display Laboratories, Inc., Transtech
Electronics Pte, Ltd., and IPC Corporation, Ltd., dated May
30, 1996
10.4** Lease Agreement between Metropolitan Life Insurance Company
and Telegen Corporation for premises located in Foster City,
California
10.5** Lease Agreement between Metropolitan Life Insurance Company
and Telegen Corporation for premises located in Redwood City,
California
10.6** Warrant Certificate of Telegen Display Laboratories, Inc. by
and between Telegen Display Laboratories, Inc., and W. Edward
Naugler, Jr., to purchase 500,000 shares of Common Stock of
Telegen Display Laboratories, Inc.
10.7** License and Stock Purchase Agreement by and between Telegen
Communications Corporation and Telegen Display Laboratories,
Inc. effective as of May 2, 1996
10.8*** Shareholder Agreement between Janmil Holdings PTE LTD and
Telegen Communications Corporation dated June 4, 1997
10.9+ Subscription Agreement For 8% Convertible Preferred Stock by
and between Telegen Corporation and Silenus Limited dated
March 24, 1997
10.10++ Amendment Agreement to 8% Convertible Preferred Stock of
Telegen Corporation dated July 22, 1997
10.11 Form of Subscription Agreement for the Company's Common Stock
financing August, 1997
10.12 Form of Subscription Agreement for the Company's Common Stock
and Warrant Financing October, 1997
10.13 Form of Subscription Agreement for the Company's Convertible
Note and Warrant Financing November, 1997
10.14 Form of $2.25 Warrant issued to certain purchasers in the
Common Stock Financing August, 1997
10.15 Form of $4.00 Warrant to Purchase Common Stock issued by the
Company to certain purchasers in the Common Stock and Warrant
Financing October, 1997
10.16 Form of $0.01 Warrant to Purchase Common Stock issued to
certain purchasers in the Common Stock and Warrant Financing
October, 1997
<PAGE>
Exhibit Number Description Page
- -------------- -------------------------------------------------------------- -------------
10.17 Form of $2.25 Warrant to Purchase Common Stock issued by the
Company to certain purchasers in the Convertible Note and
Warrant Financing November, 1997
10.18 Employment Agreement by and between the Company and Jessica L.
Stevens dated May 3, 1990
10.19 Employment Agreement by and between the Company and Bonnie
Crystal dated May 4, 1990.
10.20 Employment Agreement by and between the Company and Warren M.
Dillard dated November 1, 1993.
10.21 Employment Agreement by and between the Company and Fred Y.
Kashkooli dated October 31, 1997
10.22 Exchange Offer Agreement by and between the Company and
certain holders of Common Stock dated March 24, 1998
11.1 Statement Re Computation of Per Share Earnings
12.1 Statement Re Computation of Ratios
21.1 Subsidiaries of the Registrant
24.1+++ Power of Attorney
27.1 Financial Data Schedule
<FN>
* Incorporated by reference herein to the 8-K filed by the Registrant on
January 15, 1998
** Incorporated by reference herein to the 10-K filed by the Registrant on
March 31, 1997 and amended on April 9 and April 30,1997
*** Incorporated by reference herein to the 8-K filed by the Registrant on July
8, 1997
+ Incorporated by reference herein to the 8-K filed by the Registrant on
March 25, 1997
++ Incorporated by reference herein to the 8-K filed by the Registrant on
August 11, 1997
+++ Incorporated by reference in the signature page herein.
</FN>
</TABLE>
EXHIBIT 2.2
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of April 1, 1998, by and among Telegen Corporation, a California
corporation ("Telegen"), Telegen Communications Corporation, a California
corporation and wholly owned subsidiary of Telegen (individually "TCC" and,
together with Telegen, "Selling Parties"), and SynerCom Inc., a Nevada
corporation ("Purchaser"), with reference to the following:
RECITALS
A. TCC is in the business of manufacturing, selling, marketing
and distributing electronic telecommunication products including, without
limitation, the "International Dialer," "ACS2010," "TeleblockerPlus(TM)," "Net
Timer," "Unique Ringer," "ACS2100," and "Multi-Line Dialer" (collectively the
"TCC Business").
B. Selling Parties and Purchaser have entered into a letter of
intent dated February 25, 1998 (the "LOI"), pursuant to which the parties stated
the intent of Selling Parties to sell, and the intent of Purchaser to purchase,
certain property related to the TCC Business, subject to the negotiation and
execution of a definitive agreement between the parties.
C. Purchaser has paid to Telegen the sum of Three Hundred and
Twenty Thousand Dollars ($320,000) in the manner described in Section 2(a)(i),
which sum Telegen shall apply to the Purchase Price (as defined in Section 2(a))
if the transactions contemplated by this Agreement are consummated.
D. Purchaser desires to purchase, and Selling Parties desire
to sell, substantially all of the assets and rights of Selling Parties relating
to the ownership and operation of the TCC Business in exchange for the Purchase
Price, all on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual covenants set forth below, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties, intending to be legally bound, hereby agree as follows:
1. Sale and Purchase of Assets; Assumption of Liabilities.
(a) Sale of Assets.
Upon the terms and subject to the conditions of this
Agreement, at the Closing (as defined below) on the Closing Date (as defined
below), Selling Parties shall sell, convey, transfer, assign and deliver to
Purchaser, and Purchaser shall purchase from Selling Parties all of the right,
title and interest of Selling Parties in and to the Assets (as defined in
Section 1(b)), free and clear of any and all debts, liabilities, obligations,
taxes, security interests, liens, pledges, charges and encumbrances of every
kind (collectively, "Liens"), except for the Assumed Liabilities as defined in
Section 1(d) herein.
<PAGE>
(b) Assets Defined.
The assets to be conveyed to Purchaser shall include all
personal tangible and intangible assets, properties, rights and business owned
by Selling Parties of whatever description that relate in any way to the
ownership, use or operation of the TCC Business, except assets specifically
excluded pursuant to Section 1(c) hereof, but including all property and rights
acquired or obtained by either of the Selling Parties from the date hereof
through the Closing that relate to the TCC Business, (collectively, the
"Assets"). Such Assets shall include, without limitation:
(i) Fixed Assets.
All fixed assets and tangible personal property of Selling
Parties useful in the TCC Business, including, without limitation, furniture,
office equipment, machinery, tools, supplies, computer equipment, telephones,
test equipment, tools, manufacturing equipment, inventory handling equipment,
fixtures and other fixed assets (collectively, the "Fixed Assets"). A list of
Fixed Assets having a net book value in excess of Five Hundred Dollars ($500)
shall be prepared by Selling Parties, approved by Purchaser, and attached hereto
as Schedule 1(b)(i) prior to the Closing. All Fixed Assets are located at (A)
101 Saginaw Drive, Redwood City, California 94063 (the "Premises"), (B) the
residence and business premises of Eldon Saterfield in Gardnerville, Nevada, and
(C) the business premises of Crystal Fields in Hong Kong.
(ii) Inventory.
All of Selling Parties' inventories of raw material, stock,
work-in-process, spare parts, supplies and finished products used and produced
in connection with the TCC Business (collectively, the "Inventory"). Selling
Parties and Purchaser agree that immediately prior to the Closing, a physical
inventory will be taken jointly and the actual inventory purchased by Purchaser
shall be based thereon. A list of the Inventory being purchased shall be
prepared by Selling Parties, approved by Purchaser, and attached hereto as
Schedule 1(b)(ii) prior to the Closing.
(iii) Accounts Receivable.
All of Selling Parties' notes receivable, accounts receivable,
security deposits, deposits by customers and unbilled receivables in connection
with the TCC Business (collectively, the "Accounts Receivable"), including all
interest due and payable on such receivables. A list of the Accounts Receivable
shall be prepared by Selling Parties, approved by Purchaser, and attached hereto
as Schedule 1(b)(iii) prior to the Closing.
(iv) Contracts.
All leases, agreements, contracts, instruments, security
interests, guaranties, and other similar arrangements, and all of Selling
Parties' rights therein, relating to the TCC Business (collectively, the
"Assigned Contracts"). A list of the Assigned Contracts shall be prepared by
Selling Parties, approved by Purchaser, and attached hereto as Schedule 1(b)(iv)
prior to the Closing.
2
<PAGE>
(v) Intangible Property; Intellectual
Property.
All intangible property of Selling Parties useful in the TCC
Business, including, without limitation, all of Selling Parties' claims and
rights under trade secrets, issued patents (including, without limitation, U.S.
Patent No. 5,590,182, dated December 31, 1996), patent rights, applications to
patent, trademarks, registered trademarks (including, without limitation, U.S.
Trademark No. 1,824,133), applications for registration of trademarks, service
marks, trade names, copyrights, inventions, formulas, know-how, confidential
proprietary technical information, licenses, royalty rights, computer programs,
software or firmware, data processing information, any other intellectual
property, held for use by Selling Parties in the TCC Business, and goodwill (the
"Intangible Property"). Included in Intangible Property shall be all
information, documents, designs, files, notes, and records of every kind and
nature prepared or maintained in connection with the research and development
activities of the TCC Business, including without limitation, those concerning
the original development of existing products, enhancements or changes made to
products of the TCC Business (whenever made), enhancements or changes proposed
to be made or being considered to be made to existing products, or the
development of new products. The Intangible Property shall not include such
property that, as of the date hereof, is not necessary for the operation of the
TCC Business and which is used in the business and operation, other than the TCC
Business, of Telegen or any of Telegen's subsidiaries, including but not limited
to the "Telegen" name; provided , however, that for a period of one year
following the Closing Date, Purchaser may use the "Telegen" name as reasonably
needed by Purchaser in connection with the transition of ownership of the Assets
from Selling Parties to Purchaser. Such reasonable use of the "Telegen" name by
Purchaser shall include without limitation use of the "Telegen" name on
previously printed labels, brochures, manuals, circuit boards, parts and other
inventory, and in connection with permits and licenses issued by Underwriters
Laboratories and the Federal Communications Commission until such time that such
licenses are obtained in the name of Purchaser. A list of the Intangible
Property shall be prepared by Selling Parties, approved by Purchaser, and
attached hereto as Schedule 1(b)(v).
(vi) Books and Records.
All of Selling Parties' files (in any format, including paper
and electronic), documents, lists and records useful in the TCC Business,
including those records relating to the customers of and vendors to the TCC
Business (collectively the "Books and Records"). Included in the Books and
Records shall be, without limitation, copies of personnel files of all employees
employed in connection with the TCC Business (such employees, collectively, the
"TCC Employees"), addresses and telephone numbers used by Selling Parties in the
TCC Business, and any yellow pages and trade journal advertising, web site files
and web site links, and all other advertising relating to the TCC Business. A
list of the Books and Records shall be prepared by Selling Parties, approved by
Purchaser, and attached hereto as Schedule 1(b)(vi).
(c) Excluded Assets.
The assets set forth on Schedule 1(c) to this Agreement shall
be retained by Selling Parties and shall not be sold, assigned or transferred to
Purchaser (the "Excluded Assets").
3
<PAGE>
(d) Assumption of Liabilities.
Except for those liabilities and obligations of Selling
Parties that are specifically set forth on Schedule 1(d) (such items disclosed
on Schedule 1(d) collectively referred to herein as the "Assumed Liabilities"),
it is expressly understood that Purchaser shall not assume and in no event shall
Purchaser shall be deemed to have assumed or agreed to pay or perform, and
Selling Parties shall at all times remain solely responsible for, any debts,
contracts, commitments, obligations or other liabilities of Selling Parties of
any kind or nature whatsoever, including without limitation those of the TCC
Business or connected in any way to the Assets arising or accruing prior to the
Closing. In connection with the TCC Business, all liabilities, debts, contracts,
agreements and other obligations of Selling Parties other than the Assumed
Liabilities, are referred to herein as the "Nonassumed Liabilities").
(e) Purchase of Entire TCC Business.
Selling Parties and Purchaser hereby acknowledge and agree
that, except for the Excluded Assets and Nonassumed Liabilities, Purchaser is
purchasing the entire TCC Business owned by Selling Parties.
(f) Risk of Loss.
Until the Closing, Selling Parties shall bear all risk of
loss, injury, damage or destruction of the Assets. If any loss, injury, damage
or destruction substantially impairs the value of the Assets prior to the
Closing, Purchaser may terminate this Agreement at Purchaser's sole option.
2. Purchase Price; Allocation.
(a) Purchase Price and Manner of Payment.
Subject to the other terms and conditions of this Agreement,
and in full consideration for the Assets, Purchaser agrees that the aggregate
purchase price of the Assets (the "Purchase Price") shall be Five Hundred
Thousand Dollars ($500,000) plus any Additional Payments (defined below) and
Assumed Liabilities, payable as follows:
(i) Refundable Deposit.
Purchaser has paid to Telegen Three Hundred and Twenty
Thousand Dollars ($320,000) in the following manner: (A) concurrently with
execution of the LOI, Purchaser paid to Telegen One Hundred and Fifty Thousand
Dollars ($150,000), (B) on March 19, 1998, Purchaser paid to Telegen One Hundred
Thousand Dollars ($100,000), (C) on March 30, 1998, Purchaser paid to Telegen
Seventy Thousand Dollars ($70,000) (such amounts, collectively, the "Refundable
Deposit"). In the event the transactions contemplated by this Agreement are not
consummated within thirty (30) days after the execution of this Agreement,
Telegen shall deliver the Refundable Deposit to Purchaser on demand therefor;
provided, however, that in the event that the failure to consummate the
transactions contemplated herein is caused directly by a material breach of this
Agreement by Purchaser, Purchaser shall forfeit One Hundred and Fifty Thousand
Dollars ($150,000) of the Refundable Deposit to Telegen.
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(ii) Closing Payment.
At the Closing, Purchaser shall pay to Telegen Thirty Thousand
Dollars ($30,000) (the "Closing Payment"), by wire transfer to a trust account
of Wilson Sonsini Goodrich & Rosati, such funds to be received on behalf of
Telegen.
(iii) Promissory Note.
At the Closing, Purchaser shall deliver to Telegen a
promissory note (the "Promissory Note"), substantially in the form of Exhibit A
hereto in the original principal amount of One Hundred and Fifty Thousand
Dollars ($150,000), which shall be payable, net of any Setoff Amounts (as
defined in Section 9(d)), to Telegen in accordance with the terms set forth in
the Promissory Note.
(iv) Additional Payments.
Following the Closing, Purchaser shall pay to Telegen certain
additional payments (the "Additional Payments") on the terms and conditions set
forth below:
(A) Payment of Additional Payments.
For a period of three (3) years after the Closing Date,
Purchaser or any successor in interest, whether by sale, merger, consolidation,
operation at law or otherwise, to the TCC Products listed in this Section
2(a)(iv)(c) below, such successor in interest which shall be bound by the
provisions of this Section 2(a)(iv)(c), shall deliver to Telegen within thirty
(30) days after the end of each calendar quarter, net of any Setoff Amounts, the
amount of Additional Payments accruing to Telegen during such calendar quarter.
Payment shall be accompanied by a summary of the basis for determining the
amount of such payment.
(B) Gross Sales Price.
For purposes of calculating any Additional Payments, "Gross
Sales Price" shall mean the aggregate dollar gross sales of a certain TCC
product made by Purchaser during a calendar quarter. "Gross Sales Price" shall
not include unfilled product orders or costs related to freight, duty or tax in
connection with the sale and delivery of TCC products.
(C) Calculation of Additional
Payments.
Additional Payments be calculated as follows:
(1) International Dialer
Payment.
The "International Dialer Payment" shall equal seven and
one-half percent (7.5%) of the Gross Sales Price of the International Dialer for
each calendar quarter.
(2) Category A Products
Payment.
The "Category A Products Payment" shall equal five percent
(5%) of the aggregate Gross Sales Price of all Category A Products for each
calendar quarter. The "Category
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A Products" shall mean the following TCC products: ACS 2010,
TeleblockerPlus(TM), Net Timer, and Unique Ringer.
(3) Category B Product
Payment.
The "Category B Product Payment" shall equal two and
one-quarter percent (2.25%) of the Gross Sales Price of the Category B Product
for each calendar quarter. The "Category B Product" shall mean the following TCC
product: ACS 2100.
(4) Category C Product.
The "Category C Product Payment" shall equal one and one-half
percent (1.5%) of the Gross Sales Price of the Category C Product for each
calendar quarter. The "Category C Product" shall mean the following TCC product:
Multi-Line Dialer.
(D) Materially Changed Products.
In the event that Purchaser makes a material change to any of
the products described in Section 2(a)(iv)(C) (such product a "Materially
Changed Product"), Purchaser shall have no obligation to make Additional
Payments in connection with sales of such Materially Changed Product. With
respect to whether a new product is a "Materially Changed Product," evidence of
material change shall include, without limitation, the following:
significantly improved functionality.
(b) Allocation of Purchase Price.
At the Closing, Purchaser and Selling Parties in good faith
shall agree on an allocation of the Purchase Price in accordance with the
respective fair market value of the Assets being purchased and as provided for
under Section 1060 of the Internal Revenue Code of 1986, as amended (the
"Code"). Such allocation of Purchase Price shall be listed on a document
substantially in the form of Schedule 2(b) attached hereto. Purchaser and each
of the Selling Parties further agree to file their income tax returns and their
other tax returns reflecting the allocation as determined pursuant to this
Section 2(b).
3. Closing Date and Actions at Closing.
(a) Closing Date.
The closing of the transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of Thelen Marrin Johnson &
Bridges LLP, 333 West San Carlos Street, Ste. 1700, San Jose, California, at
10:00 A.M., Pacific Standard Time, on April 1, 1998, or at such other time and
place as may be mutually agreed upon by the parties (the "Closing Date").
(b) Transfer Documents.
At the Closing, Selling Parties shall execute and deliver to
Purchaser one or more bills of sale, each in substantially the form of Exhibit B
attached hereto (the "Bill of Sale"), and all such other good and sufficient
instruments of sale, transfer and conveyance, including
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assignments of leases, as shall be effective to vest in Purchaser all of Selling
Parties' right and title to, and interest in, the Assets.
(c) Assignment and Assumption Documents.
At the Closing, Purchaser and Selling Parties shall execute
and deliver a general assignment and assumption agreement, in substantially the
form of Exhibit C attached hereto (the "Assignment and Assumption Agreement"),
in order to effect the assignment of the Remaining Assets (as defined therein)
by the Selling Parties and assumption of the Assumed Liabilities by the
Purchaser.
(d) Additional Actions.
Selling Parties and Purchaser shall, on request, both at the
Closing and after the Closing Date, take such further actions as may be
reasonably requested by the other party to carry out the intent of this
Agreement and the Bill of Sale, the Assignment and Assumption Agreement, and all
other documents and agreements to be executed and delivered at the Closing as
agreed to by the parties (collectively, the "Closing Documents").
4. Representations and Warranties of Selling Parties.
The Selling Parties hereby jointly and severally represent,
warrant and covenant to Purchaser as follows:
(a) Organization, Good Standing and Qualification.
Each of the Selling Parties is a corporation duly organized,
validly existing and in good standing under the laws of the State of California,
has all necessary corporate powers to own its property and to carry on its
business as now owned and operated by it, and is duly qualified to do business
and is in good standing in all jurisdictions in which the nature of such Selling
Parties' business or it property makes such qualification necessary.
(b) Corporate Power; Authority.
Selling Parties have all requisite corporate power and
authority to enter into, perform and carry out this Agreement. This Agreement
has been duly authorized, executed and delivered by the Selling Parties, and
constitutes a legal and valid obligation of each of the Selling Parties,
enforceable in accordance with its terms.
(c) Assets.
The Selling Parties are the true and lawful owners of all of
the Assets and have all necessary power and authority to sell the Assets to
Purchaser, free and clear of all Liens. The Assets include all of the operating
assets of the Selling Parties useful and necessary to conduct the TCC Business
as operated by Selling Parties prior to the Closing Date. Except as set forth on
Schedule 4(c), on the Closing Date, Purchaser will acquire good and valid title
to the Assets free and clear of all Liens, except to the extent any of the
Assets are subject to either a purchase
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contract with an outstanding balance, or a lease, in either case only to the
extent set forth on Schedule 4(c).
(d) Compliance with Law.
Selling Parties hold, and at all times have held, all material
licenses, permits and authorizations necessary for the lawful operation of the
TCC Business pursuant to all materially applicable statutes, laws, ordinances,
rules and regulations of all governmental bodies, agencies and subdivisions
having, asserting or claiming jurisdiction over either of Selling Parties, the
TCC Business or any other part of Selling Parties' operations. Except as set
forth on Schedule 4(d), since January 1, 1997, (i) there has been no violation
of any material law, regulation, decree, judgment or order by either of Selling
Parties or concerning the operation of the TCC Business and (ii) there has been
no inspection of the facilities used in connection with TCC Business by or on
behalf of any governmental bodies, agencies or subdivisions.
(e) No Violation of Other Instruments.
Neither the execution of this Agreement nor the consummation
of the transactions contemplated hereby will result in any breach or violation
of the terms of any decree, judgment, law, regulation or order (to which either
of the Selling Parties is subject or is a named party) now in effect of any
court or other governmental body. Except as set forth on Schedule 4(e) no
consent, permit, approval, order or authorization of, or registration,
qualification, or filing with, any governmental agency or authority, or any
other person, is required in connection with the consummation of the
transactions contemplated by this Agreement or the conduct of the TCC Business
by Purchaser after the Closing. The execution and delivery of this Agreement and
consummation of the transactions contemplated hereby will not conflict with, or
result in any breach of, any of the terms, conditions and provisions of, or
constitute a default under or result in the acceleration of any outstanding
indebtedness of either of the Selling Parties or creation of any lien, charge,
or encumbrance upon any of the assets of either of the Selling Parties, pursuant
to either Selling Parties' Articles of Incorporation, Bylaws or any indenture,
mortgage, lease, agreement or other instrument to which any of the Selling
Parties is a party or by which either of the Selling Parties or any Asset is
bound.
(f) Financial Statements; Undisclosed Liabilities.
The Selling Parties have delivered to Purchaser certain
financial information relating to the TCC Business ("TCC's Financial
Information") as described in Schedule 4(f). TCC's Financial Information (i) is
in accordance with the books and records of TCC and (ii) correctly and fully
sets forth the financial position and results of operations of TCC as of the
dates indicated. Purchaser acknowledges that such statements have not been
audited or reviewed by a certified public accountant.
(g) Patents, Trademarks, Tradenames and Copyrights.
To the knowledge of Selling Parties, Schedule 1(b)(v)
comprises a listing of (i) all trademarks (either registered, common law or
registration applied for), trade names, issued patents, patent applications,
copyrights, know-how and trade secrets which are held for use by Selling Parties
and useful in the TCC Business, (ii) all trademarks, trademark registration
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applications, trade names, copyrights, know-how and trade secrets which are
owned by third parties and are used in the TCC Business or in which Selling
Parties have any interest; and (iii) all licenses, sublicenses, assignments or
agreements of any kind relating to the aforesaid. Except as otherwise noted in
Schedule 4(g), no litigation or claim is pending or has been threatened against
Selling Parties or any director, officer, shareholder, agent or employee of
Selling Parties for the infringement of any patents, copyrights, trademarks or
trade names of any third party or for the misuse or misappropriation of any
trade secrets or know-how owned by any third party used in the TCC Business. All
trademarks, copyrights, trade names, designs, trade secrets or know-how which
are necessary to the TCC Business conducted by Selling Parties are owned or are
usable (without restriction or payment) by Selling Parties. Except as set forth
on Schedule 4(g), there has been no infringement or unauthorized use by Selling
Parties of any patent, trademark, trade name, copyright, process, design,
formula, invention, trade secret, know-how, or technology belonging to a third
party in connection with the TCC Business.
(h) Contracts.
Schedule 4(h) describes all currently effective contracts
entered into in connection with the TCC Business, oral or written, known to
Selling Parties to which either of the Selling Parties is a party and which (i)
involve the payment or receipt of more than $10,000, (ii) have a duration of
more than one year, (iii) are financing documents, or (iv) are not for the
purchase or sale of goods or services in the ordinary course of the TCC Business
consistent with past practices. True and complete copies of all such contracts
are attached to Schedule 4(h). Except as set forth on Schedule 4(h), neither of
the Selling Parties nor any party to any such contract is in default in
performance of or not in compliance with any material provision of any such
contract. Selling Parties have no intent, and have no knowledge of any intent by
any other party, not to perform its obligations under any such contract.
(i) Litigation.
Except as set forth in Schedule 4(i), neither of the Selling
Parties nor any of the directors, officers, shareholders, agents or employees of
the Selling Parties is a party to any pending or threatened action, suit,
proceeding or investigation, at law or in equity or otherwise, in, for or by any
court or governmental board, commission, agency, department or office arising
from, relating to or in any way affecting the TCC Business or any of the Assets.
(j) Personnel.
Schedule 4(j) comprises a complete and correct list of (i) all
contractual employment, bonus, profit-sharing, welfare benefit (as that term is
defined in the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), percentage compensation, pension or retirement plans, contracts or
agreements with directors, officers, shareholders or employees, collective
bargaining or consulting agreements, to which either of the Selling Parties is a
party or is subject in connection with the TCC Business, (ii) the names and
current compensation rates and planned increases in compensation of all salaried
and non-salaried employees of Selling Parties employed in the TCC Business, and
(iii) all group insurance programs in effect for TCC Employees. All of the
profit-sharing, pension, welfare benefit and retirement plans set forth on
Schedule 4(j) are qualified under the Internal Revenue Code and ERISA and all
past service liabilities thereunder have been fully funded. Schedule 4(j) sets
forth
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a listing of all bonuses paid to TCC Employees in 1997 and 1998, the aggregate
amount of accrued vacation and sick leave for TCC Employees, and the amount
payable to TCC Employees under other fringe benefit plans.
(k) Consent of Board, Shareholders and Others.
Each of the Selling Parties has obtained or will obtain prior
to the Closing Date, the consent of its Board of Directors, shareholders, and
all others required by its Articles of Incorporation, Bylaws or otherwise, to
the transactions contemplated by this Agreement.
(l) Accuracy of Documents and Information.
There is no fact known to Selling Parties which materially and
adversely affects the TCC Business, any of the Assets, or the transactions
contemplated by this Agreement which has not been expressly and fully set forth
in this Agreement or the exhibits and schedules hereto.
(m) Related Parties; Acknowledgements.
Selling Parties are aware that Fred Lezak ("Lezak") and Dennis
Alan Lempert ("Lempert") are principal shareholders, directors and officers of
Purchaser. Selling Parties are aware that Lezak is an officer of TCC and a
member of the Board of Directors of Telegen, and that Lempert has, in the past,
provided legal representation to Selling Parties. Selling Parties have been
informed by Lempert that the Rules of Professional Conduct of the California
State Bar provide that an attorney shall not enter into any business
relationship with a client without first informing the client of the
advisability that the client consult with an independent attorney to assure that
the business transaction is fair, just and reasonable to client. Selling Parties
previously have been advised of this rule, have had a reasonable period of time
to consult, and to the extent Selling Parties have deemed it advisable, have
consulted independent counsel.
5. Purchaser's Representations and Warranties.
Purchaser hereby represents, warrants and covenants to Selling
Parties as follows:
(a) Organization and Authority.
Purchaser is a corporation duly organized, validly existing
and in good standing under the laws of the State of Nevada. Purchaser has all
requisite corporate power and authority to enter into, perform and carry out
this Agreement.
(b) Compliance with Law and Other Instruments.
The execution and delivery of this Agreement and compliance
with the provisions hereof by Purchaser will not conflict with, result in any
material breach of any of the terms, conditions and provisions of, or constitute
a material default under any Article, Bylaw, indenture, mortgage, lease,
agreement or other instrument to which Purchaser is a party or by which it is
bound.
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6. Conditions to Purchaser's Obligations.
Except as otherwise specifically set forth herein, all
obligations of Purchaser under this Agreement are subject to the fulfillment,
prior to or at the Closing Date or as of such later date as Purchaser may
designate, of each of the following conditions, any one or more of which may be
waived in writing by Purchaser in its sole discretion.
(a) Representations and Warranties True at Closing.
The representations and warranties of the Selling Parties
contained in this Agreement (including the Schedules hereto) shall be deemed to
have been made again at and as of the Closing Date with respect to the state of
facts then existing and shall then be true, complete and correct in all material
respects. On the Closing Date, Selling Parties shall have delivered to Purchaser
a certificate to such effect and to the effect that all conditions set forth in
this Section 6 have been satisfied on or before the Closing Date, which
certificate shall be satisfactory in form and substance to Purchaser. Purchaser
shall not have discovered any error, misstatement or omission in the
representation and warranties made by Selling Parties.
(b) Authority.
All corporate and other proceedings required to be taken by,
or on the part of, Selling Parties to authorize Selling Parties to execute,
deliver and carry out this Agreement and to sell the Assets to Purchaser shall
have been duly and properly taken, including the written approval of all of the
shareholders of TCC to this Agreement and the Promissory Note.
(c) Material Changes.
Between the most recent date of TCC's Financial Information
and the Closing Date (i) there shall have been no materially adverse change in
the position, financial or otherwise, of the Assets or the TCC Business; (ii)
Selling Parties shall not be involved in any labor dispute which materially and
adversely affects Selling Parties; and (iii) Selling Parties shall not have
suffered any liability, judgment, lien or termination of any contract or the
imposition of any obligation, the effect of which shall be materially adverse to
the TCC Business.
(d) Approvals.
Purchaser and Selling Parties, as the case may be, shall
either (i) have received as of the Closing Date all material licenses, permits,
consents, authorizations and approvals of any governmental agency or authority,
or any other person ("Approvals") necessary or appropriate for the operation of
the TCC Business, or (ii) if such Approvals have not been issued prior to the
date first set forth above, Purchaser shall be satisfied in its discretion that
such Approvals will be issued in the ordinary course after such date and that
Purchaser can operate the TCC Business as presently operated after such date
prior to the issuance of such Approvals without incurring any material liability
or obligation based on such operation prior to the issuance of such Approvals.
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(e) Other Documents and Agreements.
In addition to all documents and instruments required pursuant
to Section 1 hereof, Selling Parties shall have delivered to Purchaser the
following documents and agreements: (i) the Bill of Sale substantially in the
form attached hereto as Exhibit B, and (ii) the Assignment substantially in the
form attached hereto as Exhibit C.
(f) No Action to Prevent Completion.
There shall not have been instituted and be continuing or
threatened against Selling Parties or any of the directors, officers,
shareholders, agents or employees of Selling Parties any claim, action or
proceeding which would materially adversely affect the TCC Business, nor shall
there have been instituted and be continuing or threatened any action or
proceeding by or before any court or other governmental body to restrain,
prohibit or invalidate, or to obtain damages in respect of, the transactions
contemplated by this Agreement or which might adversely affect the right of
Purchaser after the Closing Date to own the Assets or to operate or control the
TCC Business, as contemplated by this Agreement.
(g) Failure of Conditions.
In the event any one or more of the conditions set forth in
this Section 6 is not satisfied within the dates required, Purchaser, in its
sole and absolute discretion, may elect: (i) to waive any such condition
precedent, (ii) to terminate this Agreement pursuant to Section 10, or (iii) to
postpone the Closing Date for a period not to exceed 30 days.
7. Conditions to Obligations of Selling Parties.
Except as otherwise specifically set forth herein, all
obligations of Selling Parties under this Agreement are subject to the
fulfillment and satisfaction, prior to or at the Closing, of each of the
following conditions, any one or more of which may be waived in writing by
Selling Parties.
(a) Representations and Warranties True at the
Closing.
The representations and warranties of Purchaser contained in
this Agreement shall be deemed to have been made again at and as of the Closing
Date with respect to the state of facts then existing and shall then be true in
all material respects.
(b) No Action to Prevent Completion.
There shall not have been instituted and be continuing or
threatened any action or proceeding by or before any court or other governmental
body to restrain, prohibit or invalidate, or to obtain substantial money damages
in respect of, the transactions contemplated by this Agreement.
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(c) Authority.
All corporate and other proceedings required to be taken by,
or on the part of, Purchaser, to authorize Purchaser to execute, deliver and
carry out this Agreement, shall have been duly and properly taken.
(d) Delivery of Closing Payment; Promissory Note.
Selling Parties shall have delivered to Purchaser the following
documents and agreements: (i) the Closing Payment and (ii) the Promissory Note
substantially in the form attached hereto as Exhibit A.
8. Covenants.
(a) No Agency.
From and after the date hereof, neither Purchaser nor either
of the Selling Parties shall represent itself as the agent of the other.
(b) Confidentiality.
Neither Selling Parties nor Purchaser shall make a public
announcement about the transactions contemplated hereunder without the prior
written consent of the other party, unless required by law. Selling Parties and
its agents each agree that all confidential and proprietary information relating
to the business or operations of Purchaser shall be treated as confidential, and
each of the Selling Parties shall not use or disclose such information after the
Closing Date; provided, however, that there shall be no obligation to keep in
confidence any information which (i) was permitted in writing by Purchaser to be
used or disclosed or (ii) is within the public domain or comes within the public
domain without any breach of this Agreement.
(c) Access.
To the extent reasonably necessary for a period of 180 days
after the Closing Date, and then with appropriate consideration of the
confidentiality of the subject transaction, Purchaser and its counsel,
accountants and other representatives shall have full access during normal
business hours to all the, books, accounts, records, contracts and documents of
or relating to the Assets, and Selling Parties shall furnish or cause to be
furnished to Purchaser and its representatives all data and information
concerning its business, finances and properties that may be reasonably
requested.
(d) Insurance.
Through and until the Closing Date, either or both of the
Selling Parties shall continue to carry insurance in connection with the TCC
Business and Assets in amounts required to fully replace the same in the event
of loss or damage.
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(e) Cooperation; Employees of TCC.
Selling Parties shall not discourage in any way any of the
employees, customers or suppliers from commencing and maintaining similar
relations with Purchaser. Selling Parties shall use their best efforts to assist
Purchaser in hiring the TCC Employees and Purchaser shall provide each such TCC
Employee employment with Purchaser for a position similar to that held by such
employee with the Selling Parties. Selling Parties shall not persuade or entice
any TCC Employee employed by Purchaser to leave the employment of Purchaser or
terminate their contractual relationship with Purchaser for any reason or
purpose.
(f) Taxes.
All transfer, use, documentary transfer, stamp or excise
taxes, or other similar taxes of any type payable in connection with the sale
and transfer of the Assets or otherwise in connection with the consummation of
the transactions contemplated by this Agreement and the other Closing Documents,
shall be borne by the Selling Parties; provided, however, that Purchaser shall
pay for any sales tax owing to the State of California in connection with this
transaction.
(g) Premises.
Selling Parties shall take all action, including, without
limitation, obtaining all necessary consents, waivers and permits, so as to
allow Purchaser to occupy, rent free, 2500 square feet of the Premises (the "TCC
Premises"), including, without limitation, private offices, engineering and
storage space until December 31, 1998, and conduct the TCC Business therefrom.
Attached hereto as Schedule 8(g) is a detailed floorplan of the TCC Premises. In
the event Selling Parties vacate the Premises, Selling Parties shall provide
Purchaser no less than thirty (30) days notice prior to the date Selling Parties
intend to vacate the Premises; provided, however, that in the event Selling
Parties receive less than thirty (30) days notice to vacate the Premises,
Selling Parties shall use best efforts to promptly inform Purchaser of such
notice and shall have no further obligation to the Purchaser hereunder in
connection with the Premises. Purchaser shall have no liability with respect to
the TCC Premises after it ceases to occupy the Premises. Selling Parties shall
provide Purchaser full access to the Premises, including, without limitation,
the necessary passwords, codes and access codes to gain entry to the Premises.
Purchaser shall pay a pro rata share, based on a ratio of the TCC Premises to
the Premises as a whole, of utilities, common area maintenance costs and
telephone charges in connection with its use of the TCC Premises.
(h) Satisfaction of Conditions.
Each party shall in good faith proceed to take or cause to be
taken all actions within its power necessary to satisfy all conditions to its
obligations to close and consummate the transactions contemplated by this
Agreement.
(i) Conduct of Business Prior to Closing Date.
Between the date hereof and the Closing Date, except with the
consent of Purchaser and except as may be required to effect transactions
contemplated in this Agreement,
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Selling Parties will (i) conduct the TCC Business in the ordinary course thereof
in accordance with past practices; (ii) not make any changes in its accounting
methods or practices except as required by generally accepted by generally
accepted accounting principles; (iii) not enter into any agreement, commitment
or contract of any kind which would be required to be disclosed in a schedule to
this Agreement except those in the ordinary course of the TCC Business and
consistent with past practices; and (iv) not sell or lease, or agree to sell or
lease, all or substantially all of the Assets and the TCC Business.
(j) Litigation.
Selling Parties shall retain control of the prosecution and
defense of all claims in connection with those certain legal actions to which
Telegen and Rates Technology, Inc. are parties; provided, however, that Selling
Parties shall promptly provide written notice to Purchaser in the event the
prosecution, defense or settlement of such action could affect the Assets or TCC
Business.
(k) Release.
In consideration of certain cash advances personally made by
Lezak on behalf of Selling Parties for certain expenses including, without
limitation, travel expenses, spare parts and other expenses related to the TCC
Business, and for other good and valuable consideration, Selling Parties hereby
waive, release and forever discharge Lezak from any and all claims it has in
connection with that certain $10,000 cash advance of salary made by Selling
Parties to Lezak. Selling Parties hereby acknowledge that they have read,
understood, and hereby expressly waive any and all right and benefit which they
now have, or in the future may have, conferred upon them by virtue of the
provisions of Section 1542 of the Civil Code of the State of California which
provides as follows: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT
WITH THE DEBTOR."
(l) Confidentiality Agreements; Non-Competition
Agreements.
Selling Parties acknowledge that all confidentiality
agreements and non-competition agreements entered into between Selling Parties
and the TCC Employees are included in the Assigned Contracts, to the extent they
relate to the Assets only, and will be assigned to Purchaser effective as of the
Closing Date. Selling Parties hereby agree and acknowledge that after the
Closing Date, Purchaser shall have sole authority to enforce such agreements.
(m) Bulk Sale Laws.
The Selling Parties and the Purchaser understand that notices
of bulk sales may be required under California law in connection with the
consummation of this transaction and that no such notices are given hereunder.
9. Indemnity.
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(a) Indemnity of Purchaser.
With respect to claims asserted by Purchaser after the Closing
Date, Selling Parties shall jointly and severally indemnify, hold harmless and
defend Purchaser from and against any and all losses, costs, expenses,
liabilities claims, demands and judgments of every nature (including the defense
thereof and reasonable attorneys' fees incurred) arising out of or in connection
with or related to (i) any and all claims (whether known or unknown, fixed or
contingent), losses, costs, expenses, commitments, agreements, liabilities and
obligations of either of the Selling Parties, or arising from the operations or
commitments of either of the Selling Parties, whether arising or existing either
before or after the Closing, whether accrued, absolute, contingent or otherwise
and whether or not disclosed in this Agreement or on the exhibits or schedules
hereto, to the extent not expressly assumed by Purchaser pursuant to this
Agreement (whether or not such liability or obligation is imposed by statute);
(ii) the breach by either of the Selling Parties of any warranty or
representation made by Selling Parties pursuant to this Agreement, (iii) the
non-performance, partial or total, of any covenant made by either of the Selling
Parties pursuant to this Agreement; (iv) product or testing liabilities relating
to periods prior to the Closing Date; (v) human resource liabilities relating to
periods prior to the Closing Date (including, for example, obligations to
retirees); and (vi) any liabilities resulting from bulk sales laws except for
liabilities resulting from assumption of any and all liabilities by the
Purchaser hereunder.
(b) Indemnity of Selling Parties.
With respect to claims asserted by Selling Parties after the
Closing Date, Buyer shall indemnify and hold Selling Parties harmless from and
against any and all losses, costs, expenses, liabilities, claims, demands and
judgments of every nature (including the defense thereof and reasonable
attorneys' fees incurred) arising out of or in connection with or which are
related to the non-performance, partial or total, of Purchaser's covenant to pay
any sales tax owing to the State of California in connection with this
transaction.
(c) Notice of Claims - Participation in Third Party
Suits.
Any party making a claim for indemnity under this Section 9
("Indemnitee") against the other party ("Indemnitor") shall give notice of such
claim in writing, which notice shall state in general terms the facts upon which
Indemnitee makes such claim for indemnification together with reasonable
documentation of such claim. In the event of any claim or demand asserted
against Indemnitee by a third party upon which Indemnitee may claim
indemnification under this Section 9, Indemnitee shall give Indemnitor written
notice within 15 days after receipt thereof indicating whether Indemnitee
intends to conduct the defense of such claim or demand. Indemnitor shall have
the right, at such Indemnitor's own expense, to participate in such defense, by
written notice given to Indemnitee within 15 days from the date of Indemnitee's
notice of such claim. If Indemnitee conducts the defense and Indemnitor doesn't
participate in such defense, Indemnitee shall have the right fully to control
and to settle the proceeding. If Indemnitor elects to participate in such
defense, Indemnitee shall nonetheless control the proceeding, but shall not
settle the same without the consent of Indemnitor, which consent shall not be
unreasonably withheld. If Indemnitee elects not to conduct the defense,
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<PAGE>
Indemnitor shall conduct such defense and Indemnitor shall not settle the same
without the consent of Indemnitee, which consent shall not be unreasonably
withheld.
(d) Setoff.
Purchaser may, in its sole discretion, setoff the amount, or
any portion thereof (such amounts being "Setoff Amounts"), of any claims for
indemnity for which Selling Parties are liable hereunder against the Purchase
Price. If at any time Purchaser's claims exceed the amounts then payable to
Selling Parties thereunder (or if Purchaser does not elect to effect such Setoff
Amounts), Selling Parties shall be liable to Purchaser for such amount, and
Selling Parties shall make the required payment of such amount in cash within
ten (10) days after receipt of such claims from Purchaser.
10. Termination.
(a) Termination by Mutual Consent.
At any time prior to the Closing, this Agreement may be
terminated by the written consent of Purchaser and the Selling Parties.
(b) Termination by Purchaser or Selling Parties.
(i) Termination by Purchaser.
Purchaser may terminate this Agreement at any time prior to
the Closing by delivery of written notice to Selling Parties if: (A) either of
the Selling Parties has breached or violated this Agreement in any material
respect and, if such breach or violation is curable, has failed to cure such
violations within ten (10) days of receiving written notice thereof; (B) any
representation or warranty made by either of the Selling Parties is false or
inaccurate in any material respect or there is any material misrepresentation or
omission by any of the Selling Parties; or (C) upon the occurrence of an event
that has a material adverse effect on the TCC Business.
(ii) Termination by Selling Parties.
Selling Parties may terminate this Agreement at any time prior
to the Closing by delivery of written notice to Purchaser if: (A) Purchaser has
breached or violated this Agreement in any material respect and, if such breach
or violation is curable, has failed to cure such violations within ten (10) days
of receiving written notice thereof; or (B) any representation or warranty made
by Purchaser is false or inaccurate in any material respect or there is any
material misrepresentation or omission by Purchaser.
(c) Effect of Termination.
In the event of termination as provided above, all parties
hereto shall bear their own costs associated with this Agreement and all
transactions mentioned herein and there shall be no obligation on the part of
either party's officers, directors or stockholders; provided, however, that in
the event that the failure to consummate the transactions contemplated herein is
caused directly by a material breach of this Agreement by Purchaser, Purchaser
shall forfeit One
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Hundred and Fifty Thousand Dollars ($150,000) of the Refundable Deposit to
Telegen. Nothing herein will relieve any party from liability for any breach of
this Agreement prior to termination.
(d) No Election of Remedies.
The election of a party to terminate hereunder shall not be
deemed an election of remedies, and all other remedies allowed hereby will
survive such termination.
11. Miscellaneous.
(a) Assignment.
This Agreement shall be binding upon and inure to the benefit
of the assigns, heirs, administrators, executors, legal representatives and
successors in interest of the parties hereto, provided, however, that this
Agreement shall not be assignable or delegable by either of the Selling Parties.
With the consent of Selling Parties (which shall not be unreasonably withheld),
Purchaser may assign, in whole or in part and to one or more third parties, any
of Purchaser's rights or obligations under this Agreement.
(b) Expenses.
Except as expressly provided herein, Purchaser and Selling
Parties shall each pay their own costs and expenses, including legal and
accounting expenses, relating to the transactions provided for herein,
irrespective of when incurred.
(c) Additional Documentation.
Selling Parties shall from time to time, subsequent to the
date first set forth above, at Purchaser's request and without further
consideration, execute and deliver such other instruments of conveyance,
assignment and transfer and take such other action as Purchaser reasonably may
require in order more effectively to consummate the transactions contemplated by
this Agreement.
(d) Notices.
Any notice required or permitted hereunder shall be in writing
and shall be given by facsimile, personal delivery or telegraph, telex or US
mail, certified or registered with return receipt requested, and shall be deemed
to have been duly given on personal delivery or one business day after confirmed
fax or three days after the mailing to the respective persons named below:
If to Telegen: Telegen Corporation
101 Saginaw Drive
Redwood City, CA 94063
Attn: Fred Kashkooli
Fax: (650) 261-9468
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If to TCC: Telegen Communications Corporation
101 Saginaw Drive
Redwood City, CA 94063
Attn: Fred Kashkooli
Fax: (650) 261-9468
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<PAGE>
If to Purchaser: SynerCom Inc.
101 Saginaw Drive
Redwood City, CA 94063
Attn: Fred Lezak
Fax: (510) 376-9030
With a copy to: Law Offices of Dennis Alan Lempert
160 Saratoga Avenue, 2d Floor
Santa Clara, CA 95051-7334
Attn: Dennis Alan Lempert, Esq.
Fax: (408) 248-5974
(e) Survival of Terms.
All representations, warranties, covenants and agreements made
herein or otherwise referenced herein shall survive the execution and delivery
of this Agreement and the consummation of the transactions contemplated herein.
(f) Governing Law; Consent to Jurisdiction.
This Agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to contracts
executed by residents of California and wholly to be performed in California.
All judicial proceedings brought against Purchaser or Selling Parties with
respect to this Agreement or the transactions contemplated hereby may be brought
in any court of competent jurisdiction in the State of California, and by
execution and delivery of this Agreement, each party hereto hereby submits to
the exclusive jurisdiction and venue of such court. Each party agrees that
service upon such party in any such action or proceeding may be made by first
class mail, certified or registered, return receipt requested as provided by the
giving of notices in Section 11(d).
(g) Attorneys' Fees.
In the event of litigation under this Agreement, the
prevailing party shall be entitled to reimbursement of reasonable attorneys'
fees and costs of suit.
(h) Risk of Loss and Prorations.
Selling Parties and Purchaser hereby acknowledge and agree
that, except as otherwise provided herein, Selling Parties shall have possession
of all of the Assets through the Closing Date, and all risk of loss to said
Assets being sold hereunder prior to the Closing shall be that of the Selling
Parties. Insurance coverage, taxes, rentals, utility bills, and other day-to-day
expenses, except for employee related expenses which are treated in the
following sentence, shall be paid by the Selling Parties through the Closing
Date; any such items pre-paid for time periods after the Closing Date shall be
returned to Telegen. All TCC Employees-related expenses, including wages, taxes,
withholdings, accrued vacation allowances, and all other customary
20
<PAGE>
employee expenses shall be paid by the Selling Parties through January 31, 1998;
any such expenses incurred after such date shall be borne by the Purchaser.
(i) Severability.
If any provision of this Agreement or any other agreement
entered into pursuant hereto is contrary to, prohibited by or deemed invalid
under applicable law or regulation, such provision shall be inapplicable and
deemed omitted to the extent so contrary, prohibited or invalid, but the
remainder hereof shall not be invalidated thereby and shall be given full force
and effect so far as possible.
(j) Preparation of Agreement.
This Agreement has been negotiated between parties who are
sophisticated and knowledgeable in the matters contained in this Agreement and
who have acted in their own self-interest. Accordingly, this Agreement shall not
be construed more strongly against any party regardless of who is responsible
for its preparation. The parties acknowledge each contributed and is equally
responsible for its preparation.
(k) Entire Agreement and Modification.
This Agreement and the schedules and exhibits hereto
constitute and contain the entire agreement of the parties and supersede any and
all prior negotiations, correspondence, understandings and agreements between
the parties respecting the subject matter hereof. This Agreement may only be
amended by a written instrument signed by the parties hereto.
(l) Captions.
The captions to Sections of this Agreement have been inserted
for identification and reference purposes and shall not by themselves determine
the construction or interpretation of this Agreement.
(m) Counterparts.
This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which when taken together
shall constitute one and the same instrument.
[Reminder of this page intentionally left blank.]
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IN WITNESS WHEREOF, the parties hereto have caused this Asset
Purchase Agreement to be executed as of the date first above written.
SELLING PARTIES: Telegen Corporation
By: /s/ FRED Y. KASHKOOLI
--------------------------------------
Name: Fred Y. Kashkooli
----------------------------------
Title: Chief Executive Officer
----------------------------------
Telegen Communications Corporation
By: /s/ WARREN M. DILLARD
-------------------------------------
Name: Warren M. Dillard
----------------------------------
Title: Chief Financial Officer
----------------------------------
PURCHASER: SynerCom Inc.
By: /s/ FREDERICK T. LEZAK JR.
-------------------------------------
Name: Frederick T. Lezak, Jr.
----------------------------------
Title: President
----------------------------------
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LIST OF EXHIBITS AND SCHEDULES TO ASSET PURCHASE AGREEMENT
EXHIBIT A -- SECURED PROMISSORY NOTE FOR $150,000
EXHIBIT B -- BILL OF SALE
EXHIBIT C -- ASSIGNMENT AND ASSUMPTION AGREEMENT
Schedule 1(b)(i) -- Fixed Asset
Schedule 1(b)(ii) -- Inventory
Schedule 1(b)(iii) -- Accounts Receivable
Schedule 1(b)(iv) -- Assigned Contracts
Schedule 1(b)(v) -- Intangible Property
Schedule 1(b)(vi) -- Books and Records
Schedule 1(c) -- Excluded Assets
Schedule 1(d) -- Assumed Liabilities
Schedule 2(b) -- Allocation of Purchase Price
Schedule 4(c) -- Assets
Schedule 4(d) -- Compliance with Law
Schedule 4(e) -- No Violation of Other Instruments
Schedule 4(f) -- Financial Statements; Undisclosed Liabilities
Schedule 4(g) -- Patents, Trademarks, Tradenames and Copyrights
Schedule 4(h) -- Contracts
Schedule 4(i) -- Telegen v. Rates Technology, Inc.
Schedule 4(j) -- Personnel
Schedule 8(g) -- Floorplan of the TCC Premises
EXHIBIT 3.5
CERTIFICATE OF AMENDMENT
OF THE BYLAWS
TELEGEN CORPORATION
Effective as of August 6, 1997
The undersigned, Bonnie Crystal, hereby certifies that:
1. She is the duly elected Secretary of Telegen Corporation, a
California corporation (the "Company").
2. On April 16, 1997, the Company's Board of Directors approved the
amendment to Section 3.2 of the Company's Bylaws described herein.
3. On August 6, 1997 a majority of the outstanding shares of the
Company entitled to vote approved the amendment to Section 3.2 of the Company's
Bylaws described herein.
4. Effective as of the date above, Section 3.2 of the Company's Bylaws
is amended in its entirety to read as follows:
"3.2 Number of Directors
The number of directors shall be not less than five
(5) nor more than nine (9). The exact number of directors
shall be seven (7) until changed, within the limits specified
above, by a bylaw amending this Section 3.2, duly adopted by
the board of directors or by the shareholders. The indefinite
number of directors may be changed, or a definite number may
be fixed without provision for an indefinite number, by a duly
adopted amendment to the articles of incorporation or by an
amendment to this bylaw duly adopted by the vote or written
consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that an amendment
reducing the fixed number or the minimum number of directors
to a number less than five (5) cannot be adopted if the votes
cast against its adoption at a meeting, or the shares not
consenting in the case of an action by written consent, are
equal to more than sixteen and two-thirds percent (16-2/3%) of
the outstanding shares entitled to vote thereon. No amendment
may change the stated maximum number of authorized directors
to a number greater than two (2) times the stated minimum
number of directors minus one (1).
No reduction of the authorized number of directors
shall have the effect of removing any director before that
director's term of office expires."
<PAGE>
IN WITNESS HEREOF, the undersigned has set her hand hereto this
_______day of September, 1997.
/s/ BONNIE CRYSTAL
--------------------------
Bonnie Crystal,
Secretary
EXHIBIT 4.1
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 THERE FROM IS AVAILABLE.
TELEGEN CORPORATION
Convertible Promissory Note
$_______ Redwood City, California
November __, 1997
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"), the sum of ______________ plus
simple interest on the unpaid balance from the date of this Convertible
Promissory Note (the "Note") until paid, at a rate equal to Six Percent (6%) per
annum and will be paid on January 1, April 1, July 1 and October 1 of each year
for a period of eighteen (18) months from the date of the Note. 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
1(a) herein.
This Note is issued pursuant to the Convertible Promissory Note and
Common Stock Warrant Subscription Agreement dated as of _________, 1997 (the
"Subscription 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. Conversion.
(a) Conversion. For the purposes of this Section 1(a), "Look
Back Period" shall mean either (i) Five (5) Nasdaq trading days, (ii) ten (10)
Nasdaq trading days, or (iii) twenty (20) Nasdaq trading days, as applicable.
Anytime up to eighteen (18) months from the date of the Note, the Holder has the
right, at the Holder's option, to convert all or any portion of the outstanding
principal amount of this Note and, upon having obtained permission from the
Company, accrued but unpaid interest thereon into fully paid and nonassessable
shares of Common Stock of the Company at a conversion price of the lower of (i)
$2.75 or (ii) seventy-five percent (75%) of the lowest Nasdaq trading price (x)
over a Look Back Period of five (5) Nasdaq trading days if the Note is converted
during a period between 91 and 150 days from the date of the Holder's
Subscription Agreement (y) over a Look Back Period of ten (10) Nasdaq trading
days if the Note is converted during a period of between 151 and 210 days from
the date of the Holder's Subscription Agreement or (z) over a Look Back Period
of 20 Nasdaq trading days if the Note is converted anytime on or after 211 days
from the date of the Holder's Subscription Agreement (the "Conversion Price").
The number of shares of Common Stock the Note may be converted into shall be
determined by the applicable Conversion
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Price. On the date eighteen months from the date of the Note, the Note shall
automatically convert into the number of shares of Common Stock to which the
Holder would have been entitled had the Note been converted on or after 211 days
from the date of the Note as provided in this Section 1(a).
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 of the Company 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 only upon surrender of this Note for
conversion at the principal office of the Company, accompanied by written notice
of election to convert. The Holder 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 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. To the extent this
Note is not converted in whole, the Company will deliver, in addition to the
certificate referred to above, a new Note of like tenor in the principal amount
remaining after such partial 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.
2. 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 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 2 are satisfied.
(b) Removal of Legend and Transfer Restrictions.
(i) Any legend endorsed on a certificate pursuant to
Section 2(b)(ii) 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.
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<PAGE>
(ii) Any legend endorsed on a certificate pursuant to
Section 2(b)(iii) 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.
3. Prepayment. The Company may not prepay this Note, in whole or in
part, without the written consent of the Noteholder.
4. 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 Subscription 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 and accrued interest of this Note
immediately due and payable without further presentment, demand, protest, or
notice, all of which are hereby waived.
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<PAGE>
5. 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
101Saginaw 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.
6. 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 2. If a
determination has been made pursuant to this Section 6 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 6
shall be null and void.
7. 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 2 and 6 of this Note.
8. Amendment and Waiver. The rights of the Holder may be amended or
waived upon the written consent of the Company and the Holder.
9. Integration; No Shareholder Rights. The Subscription Agreement and
the other documents delivered pursuant thereto at the Closing, including,
without limitation, 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
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<PAGE>
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.
10. 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:________________________________
-5-
EXHIBIT 10.11
TELEGEN CORPORATION
A California Corporation
SUBSCRIPTION PACKAGE
TELEGEN CORPORATION
SUBSCRIPTION INSTRUCTIONS
(Please Read Carefully)
THE COMPANY RESERVES THE RIGHT TO REJECT ANY SUBSCRIPTION, IN WHOLE OR
IN PART, OR TO ALLOT TO ANY PROSPECTIVE PURCHASER FEWER THAN THE NUMBER OF
SHARES SUBSCRIBED FOR BY SUCH PURCHASER. ANY REPRESENTATION TO THE CONTRARY IS
UNAUTHORIZED AND MUST NOT BE RELIED UPON. THE COMPANY WILL UTILIZE SUBSCRIPTION
PROCEEDS IMMEDIATELY UPON ACCEPTANCE.
The shares of the Common Stock (the "Shares") of Telegen Corporation
(the "Company") are being offered for $2.25 per share. This Subscription Booklet
contains all of the materials necessary for you to purchase the Shares.
I. After completing the enclosed Subscription Agreement, please sign the
appropriate signature page and return it to the address set forth below
in Section III. Please make sure that you indicate how the name should
appear on your stock certificate.
II. Payment for the Shares must be made to the Company's Placement Agent,
Capitol Bay Securities by wire transfer or by delivery to the Placement
Agent of a check made payable to "Telegen Corporation."
III. Send the appropriate signature page to the following address:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Jack I. Siegal
IV. Questions regarding completion of subscription documents should be
directed to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Jack I. Siegal
Tel: (650) 493-9300
Fax: (650) 496-4086
V. Questions regarding the offering or the Company should be directed to:
Telegen Corporation
101 Saginaw Drive
Redwood City, CA 94063
Attn: Warren M. Dillard
Tel: (650) 261-9400
Fax: (650) 261-9468
FAILURE TO COMPLY WITH THE SUBSCRIPTION INSTRUCTIONS WILL CONSTITUTE
AN INVALID SUBSCRIPTION, WHICH, IF NOT CORRECTED, WILL RESULT IN THE REJECTION
OF YOUR SUBSCRIPTION REQUEST.
<PAGE>
SUBSCRIPTION AGREEMENT
----------------------
TELEGEN CORPORATION
-------------------
222,222 Shares
of Common Stock
no par value
of TELEGEN CORPORATION
No Minimum Investment
---------------------
To: Telegen Corporation
This Subscription Agreement is made by and between Telegen Corporation,
a California corporation (the "Company"), and the undersigned prospective
purchaser who is subscribing hereby for that number of shares of the Company's
Common Stock, no par value, specified on the signature page hereto (the
"Shares"). The purchase price per Share (the "Purchase Price") is $2.25. This
subscription is submitted to you in accordance with and subject to the terms and
conditions described in this Subscription Agreement, relating to an offering
(the "Offering") of up to 222,222 Shares.
In consideration of the Company's agreement to sell the Shares to the
undersigned on the terms and conditions summarized herein, the undersigned
agrees and represents as follows:
I. SUBSCRIPTION.
(A) The undersigned hereby irrevocably subscribes for and agrees to
purchase that number of the Shares indicated on the signature page hereto at a
purchase price of $2.25 per Share. The undersigned agrees to wire transfer funds
or deliver a check made out to "Telegen Corporation" in an amount equal to the
aggregate purchase price for the Shares (the "Payment") to the Company's
Placement Agent.
(B) The undersigned understands that the Payment (or, in the case of
rejection of a portion of the undersigned's subscription, the part of the
Payment relating to such rejected portion) will be returned promptly, without
interest or deduction, if the undersigned's subscription is rejected in whole or
in part. The Company, if it accepts this subscription, will promptly notify the
undersigned of receipt and acceptance of such subscription. Subject to the
acceptance by the Company of the subscriptions, the Company shall cause to be
issued to the undersigned with reasonable promptness the Shares purchased
hereunder.
(C) The undersigned hereby agrees to be bound hereby upon (i) execution
and delivery to the Company of the signature page to this Subscription Agreement
and (ii) acceptance by the Company of the undersigned's subscription (the
"Subscription").
-1-
<PAGE>
II. REPRESENTATIONS AND WARRANTIES.
The undersigned hereby represents and warrants to and agrees with the
Company as follows:
(A) The undersigned has been furnished with and has carefully read the
Company's Annual Report on Form 10-K dated March 31, 1997, amended on April 9
and April 30, 1997, the Proxy Statement delivered to the Company's Shareholders
dated July 9, 1997, Quarterly Report on Form 10-Q dated May 15, 1997, the
Quarterly Report on Form 10-Q dated August 14, 1997, Current Reports on Form 8-K
dated January 15, 1997 (amended March 14, 1997), January 21, 1997, February 7,
1997, March 25, 1997, May 9, 1997, May 19, 1997, July 8, 1997, and August 11,
1997 and the Company's press releases dated August 7, 1997 and August 19, 1997
(the "Disclosure Documents"). With respect to tax and other economic
considerations involved in this investment, the undersigned is not relying on
the Company or any agent or representative of any of them. The undersigned has
carefully considered and has, to the extent the undersigned believes such
discussion necessary, discussed with the undersigned's professional legal, tax,
accounting, and financial advisors the suitability of an investment in the
Shares for the undersigned's particular tax and financial situation and has
determined that the Shares being subscribed for by the undersigned are a
suitable investment for the undersigned.
(B) The undersigned represents and warrants that the address that
appears on the signature page of this Subscription Agreement is the address of
the undersigned's principal residence.
(C) The undersigned and/or the undersigned's adviser(s) has/have had an
opportunity to ask questions of and receive answers from persons acting on
behalf of the Company concerning the Offering, and all such questions have been
answered to the full satisfaction of the undersigned.
(D) The undersigned represents and warrants that it is an "Accredited
Investor" as that term is defined in Rule 501(a) promulgated pursuant to the
Securities Act of 1933, as amended (the "Act"). The undersigned also represents
and warrants that it either has a pre-existing business or personal relationship
with the Company or any of its officers, directors, or controlling persons, or
by reason of the undersigned's business or financial experience or the business
or financial experience of the undersigned's professional advisors who are
unaffiliated with and who are not compensated by the Company, directly or
indirectly could be reasonably assumed to have the capacity to evaluate the
merits and risks of an investment in the Company and to protect the
undersigned's own interests in connection with these transactions.
(E) If the undersigned is a natural person, the undersigned has reached
the age of twenty-one, has adequate means of providing for the undersigned's
current financial needs and contingencies, is able to bear the substantial
economic risks of an investment in the Shares for an indefinite period of time,
has no need for liquidity in such investment, and at the present time, could
afford a complete loss of such investment.
(F) The undersigned or the undersigned's professional advisor, as the
case may be, has such knowledge and experience in financial, tax and business
matters so as to enable the undersigned to utilize the information made
available to the undersigned in connection with the Offering to evaluate the
merits and risks of an investment in the Shares and to make an informed
investment decision with respect thereto.
(G) The undersigned understands that the Shares have not been
registered with the Securities and Exchange Commission in reliance on an
exemption from the registration requirements of the Securities Act of 1933, as
amended (the "Act"). The undersigned has not offered or sold any portion of the
Shares being acquired nor does the undersigned have any present intention of
dividing such Shares with others or of selling, distributing,
-2-
<PAGE>
or otherwise disposing of any portion of such Shares either currently or after
the passage of a fixed or determinable period of time or upon the occurrence or
nonoccurrence of any predetermined event or circumstance in violation of the
Act.
(H) The undersigned recognizes that investment in the Shares involves
substantial risks, including loss of the entire amount of such investment.
Further, the undersigned has carefully read and considered the risk factors set
forth in the Disclosure Documents and has taken full cognizance of and
understands all of the risks related to the purchase of the Shares.
(I) The undersigned acknowledges that each certificate representing the
Shares shall be stamped or otherwise imprinted with a legend substantially in
the following form, in addition to any other legends which may be required by
the California Commissioner of Corporations:
(a) THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT ONLY AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE
SALE OR DISTRIBUTION THEREOF. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF
COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED.
(J) If this Subscription Agreement is executed and delivered on behalf
of a partnership, corporation, trust, or estate: (i) such partnership,
corporation, trust, or estate has the full legal right and power and all
authority and approval required (a) to execute and deliver or authorize
execution and delivery of this Subscription Agreement and all other instruments
executed and delivered by or on behalf of such partnership, corporation, trust,
or estate in connection with the purchase of the Shares, (b) to delegate
authority pursuant to a power of attorney, and (c) to purchase and hold the
Shares; (ii) the signature of the party signing on behalf of such partnership,
corporation, trust or estate is binding upon such partnership, corporation,
trust, or estate; and (iii) such partnership, corporation, or trust has not been
formed for the specific purpose of acquiring the Shares.
III. UNDERSTANDINGS.
The undersigned understands, acknowledges and agrees with the Company
as follows:
(A) This Subscription may be rejected, in whole or in part, by the
Company, in its sole and absolute discretion, notwithstanding prior receipt by
the undersigned of notice of acceptance of the undersigned's Subscription.
(B) The undersigned hereby acknowledges and agrees that the
subscription hereunder is irrevocable by the undersigned; that, except as
required by law, the undersigned is not entitled to cancel, terminate, or revoke
this Subscription Agreement or any agreements of the undersigned hereunder; and
that this Subscription Agreement and such other agreements shall survive the
death or disability of the undersigned and shall be binding upon and inure to
the benefit of the parties and their heirs, executors, administrators,
successors, legal representatives, and permitted assigns. If the undersigned is
more than one person, the obligations of the undersigned hereunder shall be
joint and several and the agreements, representations, warranties, and
acknowledgments herein contained shall be deemed to be made by and be binding
upon each such person and his/her heirs, executors, administrators, successors,
legal representatives and permitted assigns.
-3-
<PAGE>
(C) IN MAKING AN INVESTMENT DECISION, PURCHASERS MUST RELY ON THEIR OWN
EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. THE SHARES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHER MORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETER MINED THE ADEQUACY OF THE
MEMORANDUM OR THIS DOCUMENT. ANY REPRESENTA TION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
IV. REGISTRATION RIGHTS.
The undersigned will be entitled to registration rights as follows: (i)
the Company shall prepare and file, within ninety (90) days of the delivery date
of the Shares to the undersigned, a Registration Statement on Form S-3 (the
"Registration Statement") covering the resale of the Common Stock subscribed to
hereunder. The Company further agrees to use its best efforts to cause the
Registration Statement to be declared effective by the Securities and Exchange
Commission as soon as possible after the initial filing of the Registration
Statement. The Company shall pay all expenses of such registration and shall
maintain the effectiveness of such Registration Statement for so long as the
Shares cannot be freely resold pursuant to Rule 144.
V. MISCELLANEOUS.
(A) Neither this Subscription Agreement nor any provision hereof shall
be waived, modified, changed, discharged, terminated, revoked, or canceled,
except by an instrument in writing effecting the same signed by the party
against whom any change, discharge, or termination is sought.
(B) Failure of the Company to exercise any right or remedy under this
Subscription Agreement or any other agreement between the Company and the
undersigned, or otherwise, or delay by the Company in exercising such right or
remedy, will not operate as a waiver thereof. No waiver by the Company will be
effective unless and until it is in writing and signed by the Company.
(C) This Subscription Agreement shall be enforced, governed, and
construed in all respects in accordance with the laws of the State of
California, and shall be binding upon the undersigned, the undersigned's heirs,
estate, legal representatives, successors and assigns and shall inure to the
benefit of the Company, its successors, and assigns. Any provision hereof that
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision hereof.
(D) This Subscription Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and may be
amended only by a writing executed by both parties hereto.
VI. SIGNATURE.
The signature page of this Subscription Agreement is contained as part
of the Subscription Package and is entitled "Signature Page."
-4-
<PAGE>
Signature Page Instructions
Each individual investor should then complete all requested
information on page A-1. Investors purchasing through an estate planning,
family, or retirement trust should complete all requested information on page
B-1. Investors purchasing through an Individual Retirement Account should
complete all requested information on page C-1. If you have any questions
concerning the form of investment entity or the correct signature page to use,
please contact the individual identified in Section III of the Subscription
Instructions. All documents should then be returned to Wilson, Sonsini, Goodrich
& Rosati at the address identified in the Subscription Instructions.
<PAGE>
TELEGEN CORPORATION
INDIVIDUAL SIGNATURE PAGE
Your signature on this Individual Signature Page evidences your
agreement to be bound by the Subscription Agreement.
The undersigned investor, hereby subscribes to ______________________
shares of Telegen Corporation's Common Stock (the "Shares") subject to the terms
and conditions of this Subscription Agreement at a purchase price of $2.25 per
share for an aggregate purchase price of $______________ (the "Funds"). Stock
Certificates for the Shares purchased hereunder will be delivered to the
undersigned as soon as practicable after receipt of the Funds and acceptance of
this Subscription Agreement by the Company.
The undersigned represents that (i) he or she has read and understands
this Subscription Agreement, and (ii) he or she will telephone the Company
immediately if any material change in any of the representations and warranties
contained in the Subscription Agreement occurs before the acceptance of his or
her subscription and will promptly send the Company written confirmation of such
change.
Section 1. Form of Ownership. The purchaser wishes to take title to the Shares
with the following form of ownership:
<TABLE>
<CAPTION>
<S> <C>
_____ Individual, as separate property.
_____ Individual Joint Tenants With Right of Survivorship (Both parties must sign below).
_____ Tenants in Common (Both parties must sign below).
_____ Husband and Wife, as Community Property. (One signature required if interest held in
one name--i.e., managing spouse, and two signatures required if interest held in both
names).
</TABLE>
Section 2. Title.
<TABLE>
Please indicate exactly how you wish the name of the holder to appear
on the certificate representing the Shares:_____________________________________
Section 3. Signatures.
<CAPTION>
Signatory 1 (Individual) Signatory 2 (Individual)
<S> <C> <C>
Name: _____________________________________________ ___________________________________________
Signature: _____________________________________________ ___________________________________________
Social Security Number: _____________________________________________ ___________________________________________
Residence Address: _____________________________________________ ___________________________________________
_____________________________________________ ___________________________________________
Mailing Address: _____________________________________________ ___________________________________________
Home Phone: _____________________________________________ ___________________________________________
Work Phone: _____________________________________________ ___________________________________________
Date: _____________________________________________ ___________________________________________
</TABLE>
A-1
<PAGE>
TELEGEN CORPORATION
TRUST SIGNATURE PAGE
Your signature on this Trust Signature Page evidences the agreement by
the Trustee(s), on behalf of the Trust, to be bound by the Subscription
Agreement.
(A) The undersigned investor, hereby subscribes to
______________________ shares of Telegen Corporation's Common Stock (the
"Shares") subject to the terms and conditions of this Subscription Agreement at
a purchase price of $2.25 per share for an aggregate purchase price of
$________________ (the "Funds"). Stock Certificates for the Shares purchased
hereunder will be delivered to the undersigned as soon as practicable after
receipt of the Funds and acceptance of this Subscription Agreement by the
Company.
(B) The undersigned trustees represent that (a) the representations and
warranties contained in the Subscription Agreement are accurate and (b) the
Trust will notify the Company (contact by telephone at the number contained on
page iii hereof) immediately if any material change in any of the
representations and warranties occurs before the acceptance of the Trust's
subscription and will promptly send the Company written confirmation of such
change.
(C) The undersigned trustees hereby certify that they have read and
understand this Subscription Agreement.
(D) The undersigned trustees hereby represent and warrant that the
persons signing this Subscription Agreement on behalf of the Trust are duly
authorized to acquire the Shares and sign this Subscription Agreement on behalf
of the Trust and, further, that the undersigned Trust has all requisite
authority to purchase such Shares and enter into this Subscription Agreement.
<TABLE>
Please Type or Print the Exact Legal Title of Trust as follows: Trustee's name,
as trustee for [Name of Grantor] under Agreement [or Declaration] of Trust dated
[Date of Trust Formation]
<CAPTION>
<S> <C>
Title: __________________________________________________________________________________________________________
Name of Name of
Trustee: _____________________________________________ Trustee:___________________________________________
(Please Type or Print) (Please Type or Print)
By: __________________________________________________ By: _______________________________________________
(Signature of Trustee) (Signature of Trustee)
Date: ________________________________________________ Date: _____________________________________________
</TABLE>
B-1
<PAGE>
TELEGEN CORPORATION
IRA SIGNATURE PAGE
The signature of the Custodian on this IRA Signature Page evidences the
agreement of the Custodian to be bound by the Subscription Agreement.
(A) The undersigned investor, hereby subscribes to
______________________ shares of Telegen Corporation's Common Stock (the
"Shares") subject to the terms and conditions of this Subscription Agreement at
a purchase price of $2.25 per share for an aggregate purchase price of
$________________ (the "Funds"). Stock Certificates for the Shares purchased
hereunder will be delivered to the undersigned as soon as practicable after
receipt of the Funds and acceptance of this Subscription Agreement by the
Company.
(B) The undersigned purchaser represents that (a) the representations
and warranties contained in the Subscription Agreement are accurate and (b) the
purchaser will notify the Company (contact by telephone at the number contained
on page iii hereof) immediately if any material change in any of the
representations and warranties occurs before the acceptance of the purchaser's
subscription and will promptly send the Company written confirmation of such
change.
(C) The undersigned Custodian and purchaser hereby certify that they
have read and understand this Subscription Agreement.
(D) The undersigned Custodian hereby represents and warrants that the
persons signing this Subscription Agreement on behalf of the Custodian are duly
authorized to sign this Subscription Agreement on behalf of the Custodian and,
further, that the undersigned Custodian has all requisite authority to purchase
such Shares and enter into this Subscription Agreement on behalf of the
undersigned purchaser.
<TABLE>
Please Type or Print the Exact Legal Title of Trust as follows: Custodian's
name, as Custodian for Individual Retirement Account of [Name of Purchaser].
<CAPTION>
<S> <C>
Title: ___________________________________________________________________________________________________________________
Account Number:___________________________________________________________________________________________________________
Name of Name of
Custodian: ________________________________________________ Purchaser: _________________________________________________
(Please Type or Print) (Please Type or Print)
By: ___________________________________________________ By: ________________________________________________________
(Authorized Signature) (Signature of Purchaser)
Title: ________________________________________________
Date: ________________________________________________ Date: ______________________________________________________
</TABLE>
C-1
EXHIBIT 10.12
TELEGEN CORPORATION
A Corporation Corporation
COMMON STOCK AND
WARRANTS FOR COMMON STOCK
SUBSCRIPTION PACKAGE
TELEGEN CORPORATION
SUBSCRIPTION INSTRUCTIONS
(Please Read Carefully)
THE COMPANY RESERVES THE RIGHT TO REJECT ANY SUBSCRIPTION, IN WHOLE OR
IN PART, OR TO ALLOT TO ANY PROSPECTIVE PURCHASER FEWER THAN THE NUMBER OF UNITS
SUBSCRIBED FOR BY SUCH PURCHASER. ANY REPRESENTATION TO THE CONTRARY IS
UNAUTHORIZED AND MUST NOT BE RELIED UPON. THE COMPANY WILL UTILIZE SUBSCRIPTION
PROCEEDS IMMEDIATELY UPON ACCEPTANCE.
Units of one share of Common Stock (the "Shares") of Telegen
Corporation (the "Company"), a warrant to purchase one share of Common Stock at
an exercise price of $0.01 per share and a warrant to purchase one share of
Common Stock at an exercise price of $4.00 per share of the Company are being
offered for $2.00 per Unit. This Subscription Booklet contains all of the
materials necessary for you to purchase the Shares.
I. After completing the enclosed Subscription Agreement, please sign the
appropriate signature page and return it to the address set forth below
in Section III. Please make sure that you indicate how the name should
appear on your stock certificate.
II. Payment for the Shares must be remitted to an escrow account
established by the Company's Placement Agent, Capitol Bay Securities,
by check made out to "Telegen Corporation" or by wire transfer
III. Send the appropriate signature page to the following address
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Jack I. Siegal
IV. Questions regarding completion of subscription documents should be
directed to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Jack I. Siegal
Tel: (650) 493-9300
Fax: (650) 496-4086
V. Questions regarding the offering or the Company should be directed to:
Telegen Corporation
101 Saginaw Drive
Redwood City, CA 94063
Attn: Warren M. Dillard
Tel: (650) 261-9400
Fax: (650) 261-9468
FAILURE TO COMPLY WITH THE SUBSCRIPTION INSTRUCTIONS WILL CONSTITUTE AN INVALID
SUBSCRIPTION, WHICH, IF NOT CORRECTED, WILL RESULT IN THE REJECTION OF YOUR
SUBSCRIPTION REQUEST.
<PAGE>
SUBSCRIPTION AGREEMENT
------------
TELEGEN CORPORATION
------------
500,000 Units
of One Share of Common Stock no par value
and One Warrant to purchase One share of Common Stock at a $0.01 exercise price,
and One Warrant to purchase One Share of Common Stock at a $4.00 exercise price
of TELEGEN CORPORATION
$100,000 Minimum Investment
---------------------------
To: Telegen Corporation
This Subscription Agreement is made by and between Telegen Corporation,
a California corporation (the "Company"), and the undersigned prospective
purchaser who is subscribing hereby for that number of units (the "Units"), each
unit consisting of (i) one share of the Company's Common Stock, no par value,
(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") specified on the signature page hereto. The
purchase price per Unit (the "Purchase Price") is $2.00. This subscription is
submitted to you in accordance with and subject to the terms and conditions
described in this Subscription Agreement, relating to an offering (the
"Offering") of up to 500,000 Units.
In consideration of the Company's agreement to sell the Shares to the
undersigned on the terms and conditions summarized herein, the undersigned
agrees and represents as follows:
I. SUBSCRIPTION.
(A) The undersigned hereby irrevocably subscribes for and agrees to
purchase that number of the Shares indicated on the signature page hereto at a
purchase price of $2.00 per Unit. The undersigned agrees to wire transfer funds
or deliver a check made out to "Telegen Corporation" in an amount equal to the
aggregate purchase price for the Units (the "Payment") to an escrow account
established by the Company's Placement Agent as of the date hereof.
(B) The undersigned understands that the Payment (or, in the case of
rejection of a portion of the undersigned's subscription, the part of the
Payment relating to such rejected portion) will be returned promptly, without
interest or deduction, if the undersigned's subscription is rejected in whole or
in part. The Company, if it accepts this subscription, or part thereof and
receipt by the Company of the Payment, will promptly provide written notice to
the undersigned of receipt and acceptance of such subscription, or part thereof.
Subject to the acceptance by the Company of the subscription, or part thereof,
the Company shall cause to be issued to the
<PAGE>
undersigned with reasonable promptness the number of Units represented by the
accepted portion of the subscription.
(C) The undersigned hereby agrees to be bound hereby upon (i) execution
and delivery to the Company of the signature page to this Subscription
Agreement, (ii) acceptance by the Company of the undersigned's subscription (the
"Subscription") and (iii) the form of the Warrants attached hereto as Exhibit A
and Exhibit B, respectively, which specifies the rights afforded to each Warrant
(the "Warrant Agreement"). This Agreement and the Warrant Agreement shall
constitute the Unit Agreements.
II. REPRESENTATIONS AND WARRANTIES OF THE UNDERSIGNED.
The undersigned hereby represents and warrants to and agrees with the
Company as follows:
(A) Authorization; Residence Address. This Agreement constitutes the
undersigned's valid and legally binding obligation, enforceable in accordance
with its terms. The undersigned's residence address is as set forth on the
signature page hereto.
(B) Purchase Entirely for Own Account. This Agreement is made with the
undersigned in reliance upon the undersigned's representation to the Company,
which by the undersigned's execution of this Agreement the undersigned hereby
confirms, that the Units will be acquired for investment for the undersigned's
own account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that the undersigned has no present
intention of selling, granting any participation in, or otherwise distributing
the same. By executing this Agreement, the undersigned further represents that
the undersigned does not presently have any contract, undertaking, agreement, or
arrangement with any person to sell, transfer, or grant participations to such
person or to any third person, with respect to any portion of the Units. The
undersigned represents that it has full power and authority to enter into this
Agreement.
(C) Qualified Investor. The undersigned represents and warrants that it
is an "Accredited Investor" as that term is defined in Rule 501(a) promulgated
pursuant to the Securities Act of 1933, as amended (the "Act"). The undersigned
also represents and warrants that it either has a pre-existing business or
personal relationship with the Company or any of its officers, directors, or
controlling persons, or by reason of the undersigned's business or financial
experience or the business or financial experience of the undersigned's
professional advisors who are unaffiliated with and who are not compensated by
the Company, directly or indirectly could be reasonably assumed to have the
capacity to evaluate the merits and risks of an investment in the Company and to
protect the undersigned's own interests in connection with these transactions.
(D) Disclosure of Information. The undersigned understands that the
Company is a public reporting Company under the 1934 Act and that it is current
on its reporting requirements and that such reports represent all the
information the undersigned considers necessary or appropriate for deciding
whether to acquire the Units, and that in particular, the undersigned has been
furnished with and has carefully read the Company's Annual Report on Form 10-K
dated March 31, 1997, amended on April 9 and April 30, 1997, the Proxy Statement
delivered to the Company's Shareholders dated July 9, 1997, Quarterly Report on
Form 10-Q dated May 15, 1997, the Quarterly Report on Form 10-Q dated August 14,
1997, Current Reports on Form 8-K dated January 15, 1997 (amended March 14,
1997), January 21, 1997, February 7, 1997, March 25, 1997, May 9, 1997, May 19,
1997, July 8, 1997, and August 11, 1997, the Company's press releases dated
August 7, 1997 and August 19, 1997 and the Company's disclosure regarding its
common stock subscription offering in August 1997 (the "Disclosure Documents").
-2-
<PAGE>
(E) Investment Experience. The undersigned is an investor in securities
of companies in the development stage and acknowledges that it is able to fend
for itself, can bear the economic risk of its investment, and has directly, or
indirectly through its agents, advisors or other persons on which it relies,
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Stock. The
undersigned also represents it has not been organized for the purpose of
acquiring the Units. The undersigned further represents that it has had an
opportunity to review the Unit Agreements and ask questions and receive answers
from the Company regarding the terms and conditions of the offering of the
Units.
(F) Restricted Securities. The undersigned understands that the shares
of Common Stock, the Warrants, and the shares of Common Stock issuable upon
conversion thereof will be characterized as "restricted securities" under the
federal securities laws inasmuch as they are being acquired from the Company in
a transaction not involving a public offering and that under such laws and
applicable regulations such shares may be resold without registration under the
Act, only in certain limited circumstances.
(G) Further Limitations on Disposition. Without in any way limiting the
representations set forth above, the undersigned further agrees not to make any
disposition of all or any portion of the Stock unless and until:
(a) There is then in effect a Registration Statement under the
Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) The undersigned shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii)
the undersigned shall have furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company, that such disposition will not require
registration under the Act.
(H) Responsibility for Tax Consequences. The undersigned has had an
opportunity to review the federal, state, local, and foreign tax consequences of
this investment and the transactions contemplated by the Unit Agreements
(including any tax consequences that may result now or in the future under
recently enacted tax legislation) and has had the opportunity to consult with
his tax advisors, if any, regarding such consequences. The undersigned
acknowledges that he is not relying on any statements or representations of the
Company or any of its agents in regard to such tax consequences and understands
that he (and not the Company) shall be responsible for his own tax liability
that may arise as a result of this investment or the transactions contemplated
by the Unit Agreements. The undersigned acknowledges that the Company has no
obligation in regard to the future conduct of its business to act or refrain
from acting in any manner, regardless of the loss of any tax benefit to Investor
in connection with the purchase, ownership, or sale of the Units or Common Stock
issuable upon conversion thereof, which may result from such action or inaction.
(I) Legends. It is understood that the Units and the shares of Common
Stock issuable upon conversion thereof and any securities issued in respect
thereof or exchange therefor may bear one or all of the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED."
-3-
<PAGE>
(b) Any legend required by the laws of the State of
California, including any legend required by the California Department of
Corporations or by the laws of any other state or jurisdiction.
(c) Lock-Up legends as specified under Section IV(B) of this
Agreement.
III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
(A) SEC Documents. The Company has made available to the undersigned a
true and complete copy of the Disclosure Documents. As of their respective
filing dates, the Company has made all necessary filings with the Securities and
Exchange Commission ("SEC"), the Company's SEC Documents (as defined below)
comply in all material respects with the requirements of the Securities Exchange
Act of 1934 or the Securities Act of 1933, as amended, and none of the Company's
SEC Documents contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements made, in light of the circumstances under which they were made, not
misleading. For purposes of this section, the SEC Documents shall mean the
Disclosure Documents, except for Exhibits G and H thereto.
(B) Organization and Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California, and has all requisite corporate power and authority to carry on its
respective businesses as now conducted. The Company is qualified as a foreign
corporation in any jurisdiction in which a failure to so qualify would have a
material adverse effect on the Company.
(C) Power, Authorization and Validity.
(a) The Company has the corporate power and authority to
execute and deliver, and to consummate the transactions contemplated by the Unit
Agreements to which it is or will be a party and to perform its obligations
under each of them. This Subscription has been duly and validly approved and
authorized by the Company. The execution and delivery of, and the consummation
of the transactions contemplated by, each of the Unit Agreements to which the
Company is or will be a party has been duly authorized by all necessary
corporate action on the part of the Company.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental entity, is required
by or with respect to the Company in connection with the execution and delivery
of, and the consummation by it of the transactions contemplated by any of the
Unit Agreements to which the Company is or will be a party, except for causing
the Registration Statement to be declared effective by the SEC.
(c) Each of the Unit Agreements to which the Company is or
will be a party has been, or upon its execution and delivery by the Company will
have been, duly executed and delivered by it, and constitutes or will constitute
upon its execution and delivery, a valid and binding obligation of the Company,
enforceable in accordance with its terms.
(D) No Violation of Existing Agreements. Neither the execution and
delivery of the Unit Agreements nor the consummation of the transactions
contemplated hereby or thereby will conflict with, or result in a material
breach or violation of, any provision of the Articles of Incorporation or Bylaws
of the Company, as currently in effect, any material instrument or contract to
which the Company is a party or by which any such party is bound, or any
federal, state or local judgment, writ, decree, order, statute, rule or
regulation applicable to any such person. Neither the execution and delivery of
the Unit Agreements, nor the consummation of the transactions contemplated
hereby or thereby will directly have a material adverse effect on the Company.
-4-
<PAGE>
(E) Financial Statements. The unaudited financial statements of the
Company included in its Form 10-Q for the quarterly period ending June 30, 1997,
as filed with the Securities and Exchange Commission, have been prepared in
accordance with GAAP and present fairly the financial policies of the Company as
of such date and the results of operations, equity transactions and changes in
financial position of the Company for the periods indicated, except as may be
indicated therein or in the notes thereto.
IV. UNDERSTANDINGS.
The undersigned understands, acknowledges and agrees with the Company
as follows:
(A) This Subscription may be rejected, in whole or in part, by the
Company, in its sole and absolute discretion, notwithstanding prior receipt by
the undersigned of notice of acceptance of the undersigned's Subscription.
(B) The undersigned hereby acknowledges and agrees that the
Subscription hereunder is irrevocable by the undersigned; that, except as
required by law, the undersigned is not entitled to cancel, terminate, or revoke
the Unit Agreements or any agreements of the undersigned hereunder or
thereunder, and that the Unit Agreement shall survive the death or disability of
the undersigned and shall be binding upon and inure to the benefit of the
parties and their heirs, executors, administrators, successors, legal
representatives, and permitted assigns. If the undersigned is more than one
person, the obligations of the undersigned hereunder shall be joint and several
and the agreements, representations, warranties, and acknowledgments herein
contained shall be deemed to be made by and be binding upon each such person and
his/her heirs, executors, administrators, successors, legal representatives and
permitted assigns.
(C) California Corporate Securities Law. THE SALE OF THE SECURITIES
THAT IS THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH
SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF
SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF
THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED UNLESS THE SALE
IS SO EXEMPT.
(D) IN MAKING AN INVESTMENT DECISION, PURCHASERS MUST RELY ON THEIR OWN
EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. THE SHARES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHER MORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETER MINED THE ADEQUACY OF THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
V. REGISTRATION RIGHTS AND LOCK-UP AGREEMENT.
(A) The undersigned will be entitled to registration rights as follows:
(i) the Company shall prepare and file, within thirty (30) days of the date
hereof, a registration statement on Form S-3 or any other Form that is available
to the Company at that time (the "Registration Statement") covering the resale
of the Common Stock purchased hereunder and the issuance of Common Stock upon
exercise of the Warrants under the Unit Agreements. The Company further agrees
to use its best efforts to cause the Registration Statement to be declared
-5-
<PAGE>
effective by the Securities and Exchange Commission within ninety (90) days
after the initial filing of the Registration Statement. The Company shall pay
all expenses of such registration and shall maintain the effectiveness of such
Registration Statement for so long as the Common Stock sold hereunder and Common
Stock issuable under the Warrants cannot be freely resold pursuant to Rule 144.
(B) The undersigned understands, acknowledges and agrees that the
Common Stock purchased hereunder and the Common Stock issuable upon exercise of
the Warrants will be subject to certain lock-up restrictions (the "Locked Common
Stock"). The Locked Common Stock shall be divided into four equal groups (each a
"Locked Common Stock Group"). Each Locked Common Stock Group will be subject to
a lock-up period commencing on the effective date of this Subscription Agreement
and continuing until January 1, 1998, April 1, 1998, July 1, 1998, and October
1, 1998, respectively (each a "Lock-Up Period"). During the Lock-Up Period for
each respective Locked Common Stock Group, the undersigned will not, without the
prior written consent of the Company, offer, sell, contract to sell, pledge,
grant any option to sell, or otherwise dispose of, directly or indirectly any
issued or issuable Common Stock with respect thereto.
Notwithstanding this lock-up provision, if the holder of the
Locked Common Stock is an individual, he or she may transfer shares of Common
Stock on death by gift, will, or intestacy, to his or her immediate family or to
a trust the beneficiaries of which are exclusively a member or members of such
holder's immediate family; provided, however, that in any such case it shall be
a condition to any such transfer that any such transferee execute an agreement
stating that the transferee is receiving and holding such Common Stock subject
to the provisions of this Agreement, and there shall be no further transfer of
such Common Stock except in accordance with this Agreement.
With respect to the Locked Common Stock, all shares of Common
Stock issued shall be stamped or imprinted with a legend in substantially the
following form, except that the Lock-Up Period in the legend below shall
correspond to the applicable Lock-Up Period for each Locked Common Stock Group:
THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
IS SUBJECT TO A LOCK-UP PROVISION UNTIL [JANUARY 1, 1998/APRIL 1,
1998/JULY 1, 1998/OCTOBER 1, 1998] SUBJECT TO THE TERMS AND CONDITIONS
OF A SUBSCRIPTION AGREEMENT, A COPY OF WHICH MAY BE OBTAINED UPON
WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION.
The holder of the Locked Common Stock further understands that
the disposition of any of the Locked Common Stock in contravention of the
lock-up provision herein shall be voidable by the Company and that the Company
will have the right to do all things necessary to void such transfer.
The Company agrees that upon termination of the respective
Lock-Up Periods, the terms and conditions set forth in this subsection shall
cease with respect to the applicable Locked Common Stock Group. The Company also
agrees that upon a Change of Control (as defined below), the terms and
conditions set forth in this subsection shall cease with respect to all of the
Locked Common Stock Groups. A Change of Control shall mean a consolidation or
merger of the Company with or into any other corporation, or any entity or
person, or exchange substantially all of the outstanding stock of the
Corporation for shares of another entity or property, in which, after any such
transaction, the prior shareholders of the Company hold less than fifty percent
(50%) of the voting shares of the continuing or surviving entity.
-6-
<PAGE>
VI. MISCELLANEOUS.
(A) Neither this Subscription Agreement nor any provision hereof shall
be waived, modified, changed, discharged, terminated, revoked, or canceled,
except by an instrument in writing effecting the same signed by the Company and
a majority in interest of the holders of the Common Stock purchased pursuant to
this Subscription offering.
(B) Failure of the Company to exercise any right or remedy under this
Subscription Agreement or any other agreement between the Company and the
undersigned, or otherwise, or delay by the Company in exercising such right or
remedy, will not operate as a waiver thereof. No waiver by the Company will be
effective unless and until it is in writing and signed by the Company.
(C) This Subscription Agreement shall be enforced, governed, and
construed in all respects in accordance with the laws of the State of
California, and shall be binding upon the undersigned, the undersigned's heirs,
estate, legal representatives, successors and assigns and shall inure to the
benefit of the Company, its successors, and assigns. Any provision hereof that
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision hereof.
(D) This Subscription Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and may be
amended only by a writing executed by both parties hereto.
(E) This Subscription Agreement and the signature pages hereto may be
signed in counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
VII. SIGNATURES.
THE COMPANY
By: _______________________________________________________
Warren M. Dillard, Chief Executive Officer
THE PURCHASER
The signature page for the purchaser of Units under this Subscription Agreement
is contained as part of the Subscription Package and is entitled "Signature
Page."
-7-
<PAGE>
Signature Page Instructions
Each individual investor should then complete all requested
information on page A-1. Investors purchasing through an estate planning,
family, or retirement trust should complete all requested information on page
B-1. Investors purchasing through an Individual Retirement Account should
complete all requested information on page C-1. Investors purchasing as a
corporation should complete all requested information on page D-1.
If you have any questions concerning the form of investment entity or
the correct signature page to use, please contact the individual identified in
Section III of the Subscription Instructions. All documents should then be
returned to Wilson, Sonsini, Goodrich & Rosati at the address identified in the
Subscription Instructions.
-8-
<PAGE>
TELEGEN CORPORATION
INDIVIDUAL SIGNATURE PAGE
Your signature on this Individual Signature Page evidences your
agreement to be bound by the Subscription Agreement.
The undersigned investor, hereby subscribes to ______________________
Units (each unit consisting of one share of Common Stock and Warrants for one
share of Common Stock at an exercise price of $0.01 per share and one share of
Common Stock at an exercise price of $4.00 per share) of Telegen Corporation
subject to the terms and conditions of this Subscription Agreement at a purchase
price of $2.00 per Unit (as defined in the Subscription Agreement) for an
aggregate purchase price of $______________ (the "Funds"). Stock certificates
for the Common Stock and Warrant agreements purchased hereunder will be
delivered to the undersigned as soon as practicable after receipt of the Funds
and acceptance of this Subscription Agreement by the Company.
The undersigned represents that (i) he or she has read and understands
this Subscription Agreement and the Warrant Agreement (as defined in the
Subscription Agreement), (ii) the representations and warranties made by the
undersigned in the Subscription Agreement are true, and (iii) he or she will
telephone the Company immediately if any material change in any of the
representations and warranties contained in the Subscription Agreement occurs
before the acceptance of his or her subscription and will promptly send the
Company written confirmation of such change.
Section 1. Form of Ownership. The purchaser wishes to take title to the Shares
with the following form of ownership:
<TABLE>
<CAPTION>
<S> <C>
_____ Individual, as separate property.
_____ Individual Joint Tenants With Right of Survivorship (Both parties must sign below).
_____ Tenants in Common (Both parties must sign below).
_____ Husband and Wife, as Community Property. (One signature required if interest held in
one name--i.e., managing spouse, and two signatures required if interest held in both
names).
</TABLE>
Section 2. Title.
Please indicate exactly how you wish the name of the holder to appear
on the certificate representing the Shares:_____________________________________
<TABLE>
<CAPTION>
Section 3. Signatures.
Signatory 1 (Individual) Signatory 2 (Individual)
<S> <C> <C>
Name: _____________________________________________ ___________________________________________
Signature: _____________________________________________ ___________________________________________
Social Security Number: _____________________________________________ ___________________________________________
Residence Address: _____________________________________________ ___________________________________________
_____________________________________________ ___________________________________________
Mailing Address: _____________________________________________ ___________________________________________
Home Phone: _____________________________________________ ___________________________________________
Work Phone: _____________________________________________ ___________________________________________
Date: _____________________________________________ ___________________________________________
</TABLE>
A-1
<PAGE>
TELEGEN CORPORATION
TRUST SIGNATURE PAGE
Your signature on this Trust Signature Page evidences the agreement by
the Trustee(s), on behalf of the Trust, to be bound by the Subscription
Agreement.
(A) The undersigned investor, hereby subscribes to
______________________ Units (each unit consisting of one share of Common Stock
and Warrants for one share of Common Stock at an exercise price of $0.01 per
share and one share of Common Stock at an exercise price of $4.00 per share) of
Telegen Corporation subject to the terms and conditions of this Subscription
Agreement at a purchase price of $2.00 per Unit (as defined in the Subscription
Agreement) for an aggregate purchase price of $______________ (the "Funds").
Stock certificates for the Common Stock and Warrant Agreements purchased
hereunder will be delivered to the undersigned as soon as practicable after
receipt of the Funds and acceptance of this Subscription Agreement by the
Company.
(B) The undersigned trustees represent that (a) the representations and
warranties made by the undersigned and contained in the Subscription Agreement
are accurate, and (b) the Trust will notify the Company (contact by telephone at
the number contained on page iii hereof) immediately if any material change in
any of the representations and warranties occurs before the acceptance of the
Trust's subscription and will promptly send the Company written confirmation of
such change.
(C) The undersigned trustee(s) hereby certify that they have read and
understand this Subscription Agreement and the Warrant Agreement (as defined in
the Subscription Agreement).
(D) The undersigned trustees hereby represent and warrant that the
persons signing this Subscription Agreement on behalf of the Trust are duly
authorized to acquire the Shares and sign this Subscription Agreement on behalf
of the Trust and, further, that the undersigned Trust has all requisite
authority to purchase such Shares and enter into this Subscription Agreement.
<TABLE>
Please Type or Print the Exact Legal Title of Trust as follows: Trustee's name,
as trustee for [Name of Grantor] under Agreement [or Declaration] of Trust dated
[Date of Trust Formation]
<CAPTION>
<S> <C>
Title: ________________________________________________________________________________________________________
Name of Name of
Trustee: _____________________________________________ Trustee: _________________________________________
(Please Type or Print) (Please Type or Print)
By: __________________________________________________ By: ______________________________________________
(Signature of Trustee) (Signature of Trustee)
Date: ________________________________________________ Date: ____________________________________________
</TABLE>
B-1
<PAGE>
TELEGEN CORPORATION
IRA SIGNATURE PAGE
The signature of the Custodian on this IRA Signature Page evidences the
agreement of the Custodian to be bound by the Subscription Agreement.
(A) The undersigned investor, hereby subscribes to
______________________ Units (each unit consisting of one share of Common Stock
and Warrants for one share of Common Stock at an exercise price of $0.01 per
share and one share of Common Stock at an exercise price of $4.00 per share) of
Telegen Corporation subject to the terms and conditions of this Subscription
Agreement at a purchase price of $2.00 per Unit (as defined in the Subscription
Agreement) for an aggregate purchase price of $______________ (the "Funds").
Stock certificates for the Common Stock and Warrant agreements purchased
hereunder will be delivered to the undersigned as soon as practicable after
receipt of the Funds and acceptance of this Subscription Agreement by the
Company.
(B) The undersigned purchaser represents that (a) the representations
and warranties made by the undersigned and contained in the Subscription
Agreement are accurate and (b) the purchaser will notify the Company (contact by
telephone at the number contained on page iii hereof) immediately if any
material change in any of the representations and warranties occurs before the
acceptance of the purchaser's Subscription and will promptly send the Company
written confirmation of such change.
(C) The undersigned Custodian and purchaser hereby certify that they
have read and understand this Subscription Agreement and the Warrant Agreement
(as defined in the Subscription Agreement).
(D) The undersigned Custodian hereby represents and warrants that the
persons signing this Subscription Agreement on behalf of the Custodian are duly
authorized to sign this Subscription Agreement on behalf of the Custodian and,
further, that the undersigned Custodian has all requisite authority to purchase
such Shares and enter into this Subscription Agreement on behalf of the
undersigned purchaser.
<TABLE>
Please Type or Print the Exact Legal Title of Trust as follows: Custodian's
name, as Custodian for Individual Retirement Account of [Name of Purchaser].
<CAPTION>
<S> <C>
Title: _________________________________________________________________________________________________________________
Account Number: ________________________________________________________________________________________________________
Name of Name of
Custodian: _________________________________________________ Purchaser: _______________________________________________
(Please Type or Print) (Please Type or Print)
By: ________________________________________________________ By: ______________________________________________________
(Authorized Signature) (Signature of Purchaser)
Title: _____________________________________________________
Date: ______________________________________________________ Date: ____________________________________________________
</TABLE>
C-1
<PAGE>
TELEGEN CORPORATION
CORPORATION SIGNATURE PAGE
Your signature on this Corporation Signature Page evidences the
agreement by the officer(s), on behalf of the corporation, to be bound by the
Subscription Agreement.
(A) The undersigned investor, hereby subscribes to
______________________ Units (each unit consisting of one share of Common Stock
and Warrants for one share of Common Stock at an exercise price of $0.01 per
share and one share of Common Stock at an exercise price of $4.00 per share) of
Telegen Corporation subject to the terms and conditions of this Subscription
Agreement at a purchase price of $2.00 per Unit (as defined in the Subscription
Agreement) for an aggregate purchase price of $______________ (the "Funds").
Stock certificates for the Common Stock and Warrant agreements purchased
hereunder will be delivered to the undersigned as soon as practicable after
receipt of the Funds and acceptance of this Subscription Agreement by the
Company.
(B) The undersigned officers represent that (a) the representations and
warranties made by the undersigned and contained in the Subscription Agreement
are accurate and (b) the Corporation will notify the Company (contact by
telephone at the number contained on page iii hereof) immediately if any
material change in any of the representations and warranties occurs before the
acceptance of the corporation's subscription and will promptly send the Company
written confirmation of such change.
(C) The undersigned officer(s) hereby certify that they have read and
understand this Subscription Agreement and the Warrant Agreement (as defined in
the Subscription Agreement).
(D) The undersigned officers hereby represent and warrant that the
persons signing this Subscription Agreement on behalf of the Corporation are
duly authorized to acquire the Shares and sign this Subscription Agreement on
behalf of the Corporation and, further, that the undersigned Corporation has all
requisite authority to purchase such Shares and enter into this Subscription
Agreement.
<TABLE>
<CAPTION>
<S> <C>
Name of
Corporation: ___________________________________________________________________________________________________________
Address of
Principal Offices: _____________________________________________________________________________________________________
Authorized Authorized
Officer: __________________________________________________ Officer: _______________________________________________
(Please Type or Print) (Please Type or Print)
By: ________________________________________________________ By: ______________________________________________________
(Signature of Authorized Officer) (Signature of Authorized Officer)
Date: ______________________________________________________ Date: ____________________________________________________
</TABLE>
D-1
EXHIBIT 10.13
TELEGEN CORPORATION
A California Corporation
CONVERTIBLE PROMISSORY NOTE AND
COMMON STOCK WARRANT
SUBSCRIPTION PACKAGE
TELEGEN CORPORATION
SUBSCRIPTION INSTRUCTIONS
(Please Read Carefully)
THE COMPANY RESERVES THE RIGHT TO REJECT ANY SUBSCRIPTION, IN WHOLE OR
IN PART, OR TO ALLOT TO ANY PROSPECTIVE PURCHASER FEWER THAN THE NUMBER OF UNITS
SUBSCRIBED FOR BY SUCH PURCHASER. ANY REPRESENTATION TO THE CONTRARY IS
UNAUTHORIZED AND MUST NOT BE RELIED UPON. THE COMPANY WILL UTILIZE SUBSCRIPTION
PROCEEDS IMMEDIATELY UPON ACCEPTANCE.
Telegen Corporation (the "Company") is offering Units, each Unit
consisting of (i) a Convertible Promissory Note evidencing $50,000 in
indebtedness and (ii) a warrant to purchase 10,000 shares of Common Stock at an
exercise price of $2.25 per share of the Company for $50,000 per Unit. This
Subscription Booklet contains all of the materials necessary for you to purchase
the Units.
I. After completing the enclosed Subscription Agreement, please sign the
appropriate signature page and return it to the address set forth below
in Section III. Please make sure that you indicate how the name should
appear on your stock certificate.
II. Payment for the Units must be remitted to an escrow account established
by the Company's Placement Agent, Capitol Bay Securities, by check made
out to "Telegen Corporation" or by wire transfer.
III. Send the appropriate signature page to the following address:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Jack I. Siegal
IV. Questions regarding completion of subscription documents should be
directed to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Jack I. Siegal
Tel: (650) 493-9300
Fax: (650) 496-4086
V. Questions regarding the offering or the Company should be directed to:
Telegen Corporation
101 Saginaw Drive
Redwood City, CA 94063
Attn: Fred Kashkooli
Tel: (650) 261-9400
Fax: (650) 261-9468
FAILURE TO COMPLY WITH THE SUBSCRIPTION INSTRUCTIONS WILL CONSTITUTE AN INVALID
SUBSCRIPTION, WHICH, IF NOT CORRECTED, WILL RESULT IN THE REJECTION OF YOUR
SUBSCRIPTION REQUEST.
<PAGE>
SUBSCRIPTION AGREEMENT
----------
TELEGEN CORPORATION
----------
20 Units
with each unit consisting of one Convertible Promissory Note
evidencing $50,000 in indebtedness and One Warrant to purchase Ten
Thousand Shares of Common Stock at a $2.25 per-share exercise price
of TELEGEN CORPORATION
$100,000 Minimum Investment
----------
To: Telegen Corporation
This Subscription Agreement is made by and between Telegen Corporation,
a California corporation (the "Company"), and the undersigned prospective
purchaser who is subscribing hereby for that number of units (the "Units"), each
unit consisting of (i) a Convertible Promissory Note evidencing $50,000 in
indebtedness and (ii) a warrant to purchase ten thousand shares of the Company's
Common Stock at a $2.25 per share exercise price (the "Warrant") specified on
the signature page hereto. The purchase price per Unit (the "Purchase Price") is
$50,000. This subscription is submitted to you in accordance with and subject to
the terms and conditions described in this Subscription Agreement, relating to
an offering (the "Offering") of up to 20 Units. The minimum aggregate investment
in this offering by all subscribers shall be $500,000 and the maximum shall be
$1,000,000.
In consideration of the Company's agreement to sell the Units to the
undersigned on the terms and conditions summarized herein, the undersigned
agrees and represents as follows:
I. SUBSCRIPTION.
(A) The undersigned hereby irrevocably subscribes for and agrees to
purchase that number of the Units (which may include a fraction of a Unit)
indicated on the signature page hereto at a purchase price of $50,000 per Unit.
The undersigned agrees to wire transfer funds or deliver a check made out to
"Telegen Corporation" in an amount equal to the aggregate purchase price for the
Units (the "Payment") to an escrow account established by the Company's
Placement Agent as of the date hereof.
(B) The undersigned understands that the Payment (or, in the case of
rejection of a portion of the undersigned's subscription, the part of the
Payment relating to such rejected portion) will be returned promptly, without
interest or deduction, if the undersigned's subscription is rejected in whole or
in part. The Company, if it accepts this subscription, or part thereof and
receipt by the Company of the Payment, will promptly provide written notice to
the undersigned of receipt and acceptance of such subscription, or part thereof.
Subject to the acceptance by the Company of the subscription, or part thereof,
the Company shall cause to be issued to the undersigned with reasonable
promptness the number of Units represented by the accepted portion of the
subscription.
<PAGE>
(C) The undersigned hereby agrees to be bound hereby upon (i) execution
and delivery to the Company of the signature page to this Subscription
Agreement, (ii) acceptance by the Company of the undersigned's subscription (the
"Subscription"), (iii) the form of the Warrant attached hereto as Exhibit A
which specifies the rights afforded to the Warrant (the "Warrant Agreement") ,
and (iv) the form of the Convertible Promissory Note attached hereto as Exhibit
B, the "Note"). This Agreement, the Warrant Agreement, and the Note shall
constitute the Unit Agreements.
II. REPRESENTATIONS AND WARRANTIES OF THE UNDERSIGNED.
The undersigned hereby represents and warrants to and agrees with the
Company as follows:
(A) Authorization; Residence Address. This Agreement constitutes the
undersigned's valid and legally binding obligation, enforceable in accordance
with its terms. The undersigned's residence address is as set forth on the
signature page hereto.
(B) Purchase Entirely for Own Account. This Agreement is made with the
undersigned in reliance upon the undersigned's representation to the Company,
which by the undersigned's execution of this Agreement the undersigned hereby
confirms, that the Units will be acquired for investment for the undersigned's
own account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that the undersigned has no present
intention of selling, granting any participation in, or otherwise distributing
the same. By executing this Agreement, the undersigned further represents that
the undersigned does not presently have any contract, undertaking, agreement, or
arrangement with any person to sell, transfer, or grant participations to such
person or to any third person, with respect to any portion of the Units. The
undersigned represents that it has full power and authority to enter into this
Agreement.
(C) Qualified Investor. The undersigned represents and warrants that it
is an "Accredited Investor" as that term is defined in Rule 501(a) promulgated
pursuant to the Securities Act of 1933, as amended (the "Act"). The undersigned
also represents and warrants that it either has a pre-existing business or
personal relationship with the Company or any of its officers, directors, or
controlling persons, or by reason of the undersigned's business or financial
experience or the business or financial experience of the undersigned's
professional advisors who are unaffiliated with and who are not compensated by
the Company, directly or indirectly could be reasonably assumed to have the
capacity to evaluate the merits and risks of an investment in the Company and to
protect the undersigned's own interests in connection with these transactions.
(D) Disclosure of Information. The undersigned understands that the
Company is a public reporting Company under the 1934 Act and that it is current
on its reporting requirements and that such reports represent all the
information the undersigned considers necessary or appropriate for deciding
whether to acquire the Units, and that in particular, the undersigned has been
furnished with and has carefully read the Company's Annual Report on Form 10-K
dated March 31, 1997, amended on April 9 and April 30, 1997, the Proxy Statement
delivered to the Company's Shareholders dated July 9, 1997, Quarterly Report on
Form 10-Q dated May 15, 1997, the Quarterly Report on Form 10-Q dated August 14,
1997, Current Reports on Form 8-K dated January 15, 1997 (amended March 14,
1997), January 21, 1997, February 7, 1997, March 25, 1997, May 9, 1997, May 19,
1997, July 8, 1997, August 11, 1997, August 19, 1997 and October 15, 1997, the
Company's press releases dated August 7, 1997 and August 19, 1997, the Company's
disclosure regarding its common stock subscription offering in August 1997, the
Company's press release dated October 31, 1997, and the Company's Quarterly
Report on Form 10-Q for the period ending September 30, 1997 (the "Disclosure
Documents").
-2-
<PAGE>
(E) Investment Experience. The undersigned is an investor in securities
of companies in the development stage and acknowledges that it is able to fend
for itself, can bear the economic risk of its investment, and has directly, or
indirectly through its agents, advisors or other persons on which it relies,
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Stock. The
undersigned also represents it has not been organized for the purpose of
acquiring the Units. The undersigned further represents that it has had an
opportunity to review the Unit Agreements and ask questions and receive answers
from the Company regarding the terms and conditions of the offering of the
Units.
(F) Restricted Securities. The undersigned understands that the Note,
the Warrant, and the shares of Common Stock issuable upon conversion thereof
will be characterized as "restricted securities" under the federal securities
laws inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such shares may be resold without registration under the Act, only in certain
limited circumstances.
(G) Further Limitations on Disposition. Without in any way limiting the
representations set forth above, the undersigned further agrees not to make any
disposition of all or any portion of the Stock unless and until:
(a) There is then in effect a Registration Statement under the
Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) The undersigned shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii)
the undersigned shall have furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company, that such disposition will not require
registration under the Act.
(H) Responsibility for Tax Consequences. The undersigned has had an
opportunity to review the federal, state, local, and foreign tax consequences of
this investment and the transactions contemplated by the Unit Agreements
(including any tax consequences that may result now or in the future under
recently enacted tax legislation) and has had the opportunity to consult with
his tax advisors, if any, regarding such consequences. The undersigned
acknowledges that he is not relying on any statements or representations of the
Company or any of its agents in regard to such tax consequences and understands
that he (and not the Company) shall be responsible for his own tax liability
that may arise as a result of this investment or the transactions contemplated
by the Unit Agreements. The undersigned acknowledges that the Company has no
obligation in regard to the future conduct of its business to act or refrain
from acting in any manner, regardless of the loss of any tax benefit to Investor
in connection with the purchase, ownership, or sale of the Units or Common Stock
issuable upon conversion thereof, which may result from such action or inaction.
(I) Legends. It is understood that the Units and the shares of Common
Stock issuable upon conversion thereof and any securities issued in respect
thereof or exchange therefor may bear one or all of the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
-3-
<PAGE>
(b) Any legend required by the laws of the State of
California, including any legend required by the California Department of
Corporations or by the laws of any other state or jurisdiction.
III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
(A) SEC Documents. The Company has made available to the undersigned a
true and complete copy of the Disclosure Documents. As of their respective
filing dates, the Company has made all necessary filings with the Securities and
Exchange Commission ("SEC"), the Company's SEC Documents (as defined below)
comply in all material respects with the requirements of the Securities Exchange
Act of 1934 or the Securities Act of 1933, as amended, and none of the Company's
SEC Documents contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements made, in light of the circumstances under which they were made, not
misleading. For purposes of this section, the SEC Documents shall mean the
Disclosure Documents, except for Exhibits G and H thereto.
(B) Organization and Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California, and has all requisite corporate power and authority to carry on its
respective businesses as now conducted. The Company is qualified as a foreign
corporation in any jurisdiction in which a failure to so qualify would have a
material adverse effect on the Company.
(C) Power, Authorization and Validity.
(a) The Company has the corporate power and authority to
execute and deliver, and to consummate the transactions contemplated by the Unit
Agreements to which it is or will be a party and to perform its obligations
under each of them. This Subscription has been duly and validly approved and
authorized by the Company. The execution and delivery of, and the consummation
of the transactions contemplated by, each of the Unit Agreements to which the
Company is or will be a party has been duly authorized by all necessary
corporate action on the part of the Company.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental entity, is required
by or with respect to the Company in connection with the execution and delivery
of, and the consummation by it of the transactions contemplated by any of the
Unit Agreements to which the Company is or will be a party, except for causing
the Registration Statement to be declared effective by the SEC.
(c) Each of the Unit Agreements to which the Company is or
will be a party has been, or upon its execution and delivery by the Company will
have been, duly executed and delivered by it, and constitutes or will constitute
upon its execution and delivery, a valid and binding obligation of the Company,
enforceable in accordance with its terms.
(D) No Violation of Existing Agreements. Neither the execution and
delivery of the Unit Agreements nor the consummation of the transactions
contemplated hereby or thereby will conflict with, or result in a material
breach or violation of, any provision of the Articles of Incorporation or Bylaws
of the Company, as currently in effect, any material instrument or contract to
which the Company is a party or by which any such party is bound, or any
federal, state or local judgment, writ, decree, order, statute, rule or
regulation applicable to any such person. Neither the execution and delivery of
the Unit Agreements, nor the consummation of the transactions contemplated
hereby or thereby will directly have a material adverse effect on the Company.
-4-
<PAGE>
(E) Financial Statements. The unaudited financial statements of the
Company included in its Form 10-Q for the quarterly period ending September 30,
1997, as filed with the Securities and Exchange Commission, have been prepared
in accordance with GAAP and present fairly the financial policies of the Company
as of such date and the results of operations, equity transactions and changes
in financial position of the Company for the periods indicated, except as may be
indicated therein or in the notes thereto.
(F) Borkers or Finders. The Company has not incurred, and will not
incur, directly or indirectly, as a result of any action taken by the Company
any liability for brokerage of finders' fees or agents' commissions or any
similar charges in connection with this Subscription Agreement or any
transaction contemplated thereby, except for a 10% cash commission, along with a
warrant to purchase 80,000 shares of the Company's Common Stock on the same
terms as the Warrant offered hereunder for every $500,000 raised by the Company
in this Convertible Note and Common Stock Warrant offering, paid to the
Company's Placement Agent.
IV. UNDERSTANDINGS.
The undersigned understands, acknowledges and agrees with the Company
as follows:
(A) This Subscription may be rejected, in whole or in part, by the
Company, in its sole and absolute discretion, notwithstanding prior receipt by
the undersigned of notice of acceptance of the undersigned's Subscription.
(B) The undersigned hereby acknowledges and agrees that the
Subscription hereunder is irrevocable by the undersigned; that, except as
required by law, the undersigned is not entitled to cancel, terminate, or revoke
the Unit Agreements or any agreements of the undersigned hereunder or
thereunder, and that the Unit Agreement shall survive the death or disability of
the undersigned and shall be binding upon and inure to the benefit of the
parties and their heirs, executors, administrators, successors, legal
representatives, and permitted assigns. If the undersigned is more than one
person, the obligations of the undersigned hereunder shall be joint and several
and the agreements, representations, warranties, and acknowledgments herein
contained shall be deemed to be made by and be binding upon each such person and
his/her heirs, executors, administrators, successors, legal representatives and
permitted assigns.
(C) California Corporate Securities Law. THE SALE OF THE SECURITIES
THAT IS THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH
SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF
SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF
THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED UNLESS THE SALE
IS SO EXEMPT.
(D) IN MAKING AN INVESTMENT DECISION, PURCHASERS MUST RELY ON THEIR OWN
EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. THE SHARES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHER MORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETER MINED THE ADEQUACY OF THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-5-
<PAGE>
V. REGISTRATION RIGHTS
(A) The undersigned will be entitled to registration rights as follows:
the Company shall prepare and file within thirty (30) days of the date hereof, a
registration statement on Form S-3 or any other Form that is available to the
Company at that time (the "Registration Statement") covering the resale of the
Common Stock issued upon conversion of the Note and upon exercise of the
Warrant. The Company further agrees to use its best efforts to cause the
Registration Statement to be declared effective by the Securities and Exchange
Commission within ninety (90) days after the initial filing of the Registration
Statement. The Company shall pay all expenses of such registration and shall
maintain the effectiveness of such Registration Statement for so long as the
Common Stock sold hereunder and Common Stock issuable under the Warrants cannot
be freely resold pursuant to Rule 144. A cash penalty of 2% of the consideration
paid for the Units purchased hereunder shall accrue every thirty (30) day period
beyond one hundred and twenty (120) days from date of this Subscription
Agreement that the Registration Statement fails to be effective and such penalty
shall be paid within thirty (30) days of the end of every such period.
VI. MISCELLANEOUS.
(A) Neither this Subscription Agreement nor any provision hereof shall
be waived, modified, changed, discharged, terminated, revoked, or canceled,
except by an instrument in writing effecting the same signed by the Company and
a majority in interest of the holders of the Common Stock purchased pursuant to
this Subscription offering.
(B) Failure of the Company to exercise any right or remedy under this
Subscription Agreement or any other agreement between the Company and the
undersigned, or otherwise, or delay by the Company in exercising such right or
remedy, will not operate as a waiver thereof. No waiver by the Company will be
effective unless and until it is in writing and signed by the Company.
(C) This Subscription Agreement shall be enforced, governed, and
construed in all respects in accordance with the laws of the State of
California, and shall be binding upon the undersigned, the undersigned's heirs,
estate, legal representatives, successors and assigns and shall inure to the
benefit of the Company, its successors, and assigns. Any provision hereof that
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision hereof.
(D) This Subscription Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and may be
amended only by a writing executed by both parties hereto.
(E) This Subscription Agreement and the signature pages hereto may be
signed in counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
VII. SIGNATURES.
THE COMPANY
By: ___________________________________________________
Fred Kashkooli, Chief Executive Officer
-6-
<PAGE>
THE PURCHASER
The signature page for the purchaser of Units under this Subscription Agreement
is contained as part of the Subscription Package and is entitled "Signature
Page."
-7-
<PAGE>
Signature Page Instructions
Each individual investor should then complete all requested information
on page A-1. Investors purchasing through an estate planning, family, or
retirement trust should complete all requested information on page B-1.
Investors purchasing through an Individual Retirement Account should complete
all requested information on page C-1. Investors purchasing as a corporation
should complete all requested information on page D-1.
If you have any questions concerning the form of investment entity or
the correct signature page to use, please contact the individual identified in
Section III of the Subscription Instructions. All documents should then be
returned to Wilson, Sonsini, Goodrich & Rosati at the address identified in the
Subscription Instructions. Investors purchasing as a partnership should complete
all requested information on page E-1.
-8-
<PAGE>
TELEGEN CORPORATION
INDIVIDUAL SIGNATURE PAGE
Your signature on this Individual Signature Page evidences your
agreement to be bound by the Subscription Agreement.
The undersigned investor, hereby subscribes to ______________________
Units (each unit consisting of a Convertible Promissory Note evidencing $50,000
of indebtedness and a Warrant for ten thousand shares of Common Stock at an
exercise price of $2.25 per share) of Telegen Corporation subject to the terms
and conditions of this Subscription Agreement at a purchase price of $50,000 per
Unit (as defined in the Subscription Agreement) for an aggregate purchase price
of $______________ (the "Funds"). Stock certificates for the Common Stock and
Warrant agreement purchased hereunder will be delivered to the undersigned as
soon as practicable after receipt of the Funds and acceptance of this
Subscription Agreement by the Company.
The undersigned represents that (i) he or she has read and understands
this Subscription Agreement and the Warrant Agreement (as defined in the
Subscription Agreement), (ii) the representations and warranties made by the
undersigned in the Subscription Agreement are true, and (iii) he or she will
telephone the Company immediately if any material change in any of the
representations and warranties contained in the Subscription Agreement occurs
before the acceptance of his or her subscription and will promptly send the
Company written confirmation of such change.
Section 1. Form of Ownership. The purchaser wishes to take title to the Shares
with the following form of ownership:
<TABLE>
<CAPTION>
<S> <C>
_____ Individual, as separate property.
_____ Individual Joint Tenants With Right of Survivorship (Both parties must sign below).
_____ Tenants in Common (Both parties must sign below).
_____ Husband and Wife, as Community Property. (One signature required if interest held in
one name--i.e., managing spouse, and two signatures required if interest held in both
names).
</TABLE>
Section 2. Title.
Please indicate exactly how you wish the name of the holder to appear
on the certificate representing the Shares:_____________________________________
<TABLE>
Section 3. Signatures.
<CAPTION>
Signatory 1 (Individual) Signatory 2 (Individual)
<S> <C> <C>
Name: _____________________________________________ ___________________________________________
Signature: _____________________________________________ ___________________________________________
Social Security Number: _____________________________________________ ___________________________________________
Residence Address: _____________________________________________ ___________________________________________
_____________________________________________ ___________________________________________
Mailing Address: _____________________________________________ ___________________________________________
Home Phone: _____________________________________________ ___________________________________________
Work Phone: _____________________________________________ ___________________________________________
Date: _____________________________________________ ___________________________________________
</TABLE>
A-1
<PAGE>
TELEGEN CORPORATION
TRUST SIGNATURE PAGE
Your signature on this Trust Signature Page evidences the agreement by
the Trustee(s), on behalf of the Trust, to be bound by the Subscription
Agreement.
(A) The undersigned investor, hereby subscribes to
______________________ Units (each unit consisting of a Convertible Promissory
Note evidencing $50,000 of indebtedness and a Warrant for ten thousand shares of
Common Stock at an exercise price of $2.25 per share) of Telegen Corporation
subject to the terms and conditions of this Subscription Agreement at a purchase
price of $50,000 per Unit (as defined in the Subscription Agreement) for an
aggregate purchase price of $______________ (the "Funds"). Stock certificates
for the Common Stock and Warrant Agreements purchased hereunder will be
delivered to the undersigned as soon as practicable after receipt of the Funds
and acceptance of this Subscription Agreement by the Company.
(B) The undersigned trustees represent that (a) the representations and
warranties made by the undersigned and contained in the Subscription Agreement
are accurate, and (b) the Trust will notify the Company (contact by telephone at
the number contained on page iii hereof) immediately if any material change in
any of the representations and warranties occurs before the acceptance of the
Trust's subscription and will promptly send the Company written confirmation of
such change.
(C) The undersigned trustee(s) hereby certify that they have read and
understand this Subscription Agreement and the Warrant Agreement (as defined in
the Subscription Agreement).
(D) The undersigned trustees hereby represent and warrant that the
persons signing this Subscription Agreement on behalf of the Trust are duly
authorized to acquire the Shares and sign this Subscription Agreement on behalf
of the Trust and, further, that the undersigned Trust has all requisite
authority to purchase such Shares and enter into this Subscription Agreement.
<TABLE>
<CAPTION>
Please Type or Print the Exact Legal Title of Trust as follows: Trustee's name,
as trustee for [Name of Grantor] under Agreement [or Declaration] of Trust dated
[Date of Trust Formation]
<S> <C>
Title: _________________________________________________________________________________________________________________
Name of Name of
Trustee: _________________________________________________ Trustee: ________________________________________________
(Please Type or Print) (Please Type or Print)
By: ______________________________________________________ By: _____________________________________________________
(Signature of Trustee) (Signature of Trustee)
Date: ____________________________________________________ Date: ____________________________________________________
</TABLE>
B-1
<PAGE>
TELEGEN CORPORATION
IRA SIGNATURE PAGE
The signature of the Custodian on this IRA Signature Page evidences the
agreement of the Custodian to be bound by the Subscription Agreement.
(A) The undersigned investor, hereby subscribes to
______________________ Units (each unit consisting of a Convertible Promissory
Note evidencing $50,000 in indebtedness and a Warrant for ten housand shares of
Common Stock at an exercise price of $2.25 per share) of Telegen Corporation
subject to the terms and conditions of this Subscription Agreement at a purchase
price of $50,000 per Unit (as defined in the Subscription Agreement) for an
aggregate purchase price of $______________ (the "Funds"). Stock certificates
for the Common Stock and Warrant agreements purchased hereunder will be
delivered to the undersigned as soon as practicable after receipt of the Funds
and acceptance of this Subscription Agreement by the Company.
(B) The undersigned purchaser represents that (a) the representations
and warranties made by the undersigned and contained in the Subscription
Agreement are accurate and (b) the purchaser will notify the Company (contact by
telephone at the number contained on page iii hereof) immediately if any
material change in any of the representations and warranties occurs before the
acceptance of the purchaser's Subscription and will promptly send the Company
written confirmation of such change.
(C) The undersigned Custodian and purchaser hereby certify that they
have read and understand this Subscription Agreement and the Warrant Agreement
(as defined in the Subscription Agreement).
(D) The undersigned Custodian hereby represents and warrants that the
persons signing this Subscription Agreement on behalf of the Custodian are duly
authorized to sign this Subscription Agreement on behalf of the Custodian and,
further, that the undersigned Custodian has all requisite authority to purchase
such Shares and enter into this Subscription Agreement on behalf of the
undersigned purchaser.
<TABLE>
<CAPTION>
Please Type or Print the Exact Legal Title of Trust as follows: Custodian's
name, as Custodian for Individual Retirement Account of [Name of Purchaser].
<S> <C>
Title: ________________________________________________________________________________________________________________________
Account Number: _______________________________________________________________________________________________________________
Name of Name of
Custodian: ________________________________________________ Purchaser: _____________________________________________________
(Please Type or Print) (Please Type or Print)
By: _______________________________________________________ By: ____________________________________________________________
(Authorized Signature) (Signature of Purchaser)
Title: ____________________________________________________
Date: _____________________________________________________ Date: __________________________________________________________
</TABLE>
C-1
<PAGE>
TELEGEN CORPORATION
CORPORATION SIGNATURE PAGE
Your signature on this Corporation Signature Page evidences the
agreement by the officer(s), on behalf of the corporation, to be bound by the
Subscription Agreement.
(A) The undersigned investor, hereby subscribes to
______________________ Units (each unit consisting of a Convertible Promissory
Note evidencing $50,000 of indebtedness and a Warrant for ten thousand shares of
Common Stock at an exercise price of $2.25 per share) of Telegen Corporation
subject to the terms and conditions of this Subscription Agreement at a purchase
price of $50,000 per Unit (as defined in the Subscription Agreement) for an
aggregate purchase price of $______________ (the "Funds"). Stock certificates
for the Common Stock and Warrant agreements purchased hereunder will be
delivered to the undersigned as soon as practicable after receipt of the Funds
and acceptance of this Subscription Agreement by the Company.
(B) The undersigned officers represent that (a) the representations and
warranties made by the undersigned and contained in the Subscription Agreement
are accurate and (b) the Corporation will notify the Company (contact by
telephone at the number contained on page iii hereof) immediately if any
material change in any of the representations and warranties occurs before the
acceptance of the corporation's subscription and will promptly send the Company
written confirmation of such change.
(C) The undersigned officer(s) hereby certify that they have read and
understand this Subscription Agreement and the Warrant Agreement (as defined in
the Subscription Agreement).
(D) The undersigned officers hereby represent and warrant that the
persons signing this Subscription Agreement on behalf of the Corporation are
duly authorized to acquire the Shares and sign this Subscription Agreement on
behalf of the Corporation and, further, that the undersigned Corporation has all
requisite authority to purchase such Shares and enter into this Subscription
Agreement.
<TABLE>
<CAPTION>
<S> <C>
Name of
Corporation: ___________________________________________________________________________________________________________
Address of
Principal Offices: _____________________________________________________________________________________________________
Authorized Authorized
Officer: __________________________________________________ Officer: ________________________________________________
(Please Type or Print) (Please Type or Print)
By: ________________________________________________________ By: ______________________________________________________
(Signature of Authorized Officer) (Signature of Authorized Officer)
Date: ______________________________________________________ Date: ____________________________________________________
</TABLE>
D-1
<PAGE>
TELEGEN CORPORATION
PARTNERSHIP SIGNATURE PAGE
Your signature on this Partnership Signature Page evidences the
agreement by the partner(s), on behalf of the undersigned Partnership, to be
bound by the Subscription Agreement.
(A) The undersigned, hereby subscribes to ______________________ Units
(each unit consisting of a Convertible Promissory Note evidencing $50,000 of
indebtedness and a Warrant for ten thousand shares of Common Stock at an
exercise price of $2.25 per share) of Telegen Corporation subject to the terms
and conditions of this Subscription Agreement at a purchase price of $50,000 per
Unit (as defined in the Subscription Agreement) for an aggregate purchase price
of $______________ (the "Funds"). Stock certificates for the Common Stock and
Warrant agreements purchased hereunder will be delivered to the undersigned as
soon as practicable after receipt of the Funds and acceptance of this
Subscription Agreement by the Company.
(B) The undersigned partners represent that (a) the representations and
warranties made by the undersigned and contained in the Subscription Agreement
are accurate and (b) the Partnership will notify the Company (contact by
telephone at the number contained on page iii hereof) immediately if any
material change in any of the representations and warranties occurs before the
acceptance of the Partnership's subscription and will promptly send the Company
written confirmation of such change.
(C) The undersigned partner(s) hereby certify that they have read and
understand this Subscription Agreement and the Warrant Agreement (as defined in
the Subscription Agreement).
(D) The undersigned partners hereby represent and warrant that the
persons signing this Subscription Agreement on behalf of the Partnership are
duly authorized to acquire the Shares and sign this Subscription Agreement on
behalf of the Partnership and, further, that the undersigned Partnership has all
requisite authority to purchase such Shares and enter into this Subscription
Agreement.
<TABLE>
<CAPTION>
<S> <C>
Name of
Corporation: ___________________________________________________________________________________________________________
Address of
Principal Offices: _____________________________________________________________________________________________________
Authorized Authorized
Officer: __________________________________________________ Officer: ________________________________________________
(Please Type or Print) (Please Type or Print)
By: ________________________________________________________ By: ______________________________________________________
(Signature of Authorized Officer) (Signature of Authorized Officer)
Date: ______________________________________________________ Date: ____________________________________________________
</TABLE>
E-1
EXHIBIT 10.14
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 _____________, 1997
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 $2.25 per share. The initial purchase price
of $2.25 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.
"Exercise Period" means the period commencing on the date hereof and
terminating at the earliest to occur of: (i) 5:00 p.m., Pacific Time on the
fourth anniversary of 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 (iii) a sale of all or
substantially all of the Company's assets.
<PAGE>
"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 Nasdaq SmallCap Market under the symbol TLGN or other
national exchange, including the elctronic bulletin board 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.
"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.
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
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<PAGE>
in the Notice of Exercise (such aggregate Exercise Price the "Total Exercise
Price"). The Total Exercise Price shall be paid by check. 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 Net Exercise.
<TABLE>
(a) Right to Convert. In addition to, and without limiting,
the other rights of the Holder hereunder, the Holder shall have the right (the
"Conversion Right") to convert this Warrant or any part hereof into Warrant
Shares at any time and from time to time during the term hereof. Upon exercise
of the Conversion Right with respect to a particular number of Warrant Shares
(the "Converted Warrant Shares"), the Company shall deliver to the Holder,
without payment by the Holder of any Exercise Price or any cash or other
consideration, that number of Warrant Shares computed using the following
formula:
X= B-A
------
Y
<CAPTION>
<S> <C>
Where: X= The number of Warrant Shares to be issued to the Holder
Y= The Fair Market Value of one Warrant Share as of the Conversion Date
B= The Aggregate Fair Market Value (i.e., Fair Market Value x Converted
Warrant Shares)
A= The Aggregate Exercise Price (i.e., Exercise Price x Converted Warrant
Shares)
</TABLE>
(b) Method of Exercise. The Conversion Right may be exercised
by the Holder by the surrender of this Warrant at the Principal Executive
Office, together with a Notice of Exercise specifying that the Holder intends to
exercise the Conversion Right and indicating the number of Warrant Shares to be
acquired upon exercise of the Conversion Right. Such conversion shall be
effective upon the Company's receipt of this Warrant, together with the Notice
of Exercise, or on
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<PAGE>
such later date as is specified in the Conversion Statement (the "Conversion
Date"). Certificates for the Warrant Shares so acquired shall be delivered to
the Holder within a reasonable time. If applicable, the Company shall, upon
surrender of this Warrant for cancellation, deliver 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 thereto or any other
cost incurred by the Company in connection with the conversion of this Warrant
and the related issuance of Warrant Shares.
2.3 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 or the Conversion Date, as applicable. 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.
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 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
-4-
<PAGE>
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 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
-5-
<PAGE>
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 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, 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.
-6-
<PAGE>
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. Company's Call Option
At any time (i) after two years from the date this Warrant is issued to
the Purchaser, and (ii) while if the Fair Market Value of the Company's Common
Stock is $5.00 or greater, the Company shall have a call option to repurchase
the Warrant from the Purchaser at a purchase price equal to (i) the number of
shares represented by the portion of the Warrant to which the Company is
exercising its call option multiplied by (ii) the Fair Market Value minus the
Exericise Price (the "Call Option"). In exercising its Call Option, the Company
shall provide the Purchaser ten (10) days prior written notice stating that the
Company intends to exercise its Call Option for a certain portion of the Warrant
and all other warrants issued pursuant to the issuance of the Company's Series B
Preferred Stock on a pro-rata basis. Such notice shall designate the date of
exercise (the "Call Exercise Date") for the Call Option and the purchase price
calculation which shall be made by using the Fair Market Value at the end of the
NASDAQ trading day on such date. The Purchaser must return the Warrant, or any
unexercised fraction thereof, to the Company within five (5) days from the Call
Exercise Date. As soon as practicable upon receipt of the Warrant (but in no
case more than five (5) days thereafter), the Company will send (i) a new
Warrant, if applicable, of like tenor for the number of shares of Common Stock
remaining, if any, after exercise by the Company of the Call Option, and (ii)
funds equal to an amount determined using the formula stated in this Section 5
by a check, sent to the address of the Purchaser, as listed on the Company's
records. After the Call Exercise Date the holder of this Warrant shall only have
the right to receive the consideration described in the prior sentence and the
portion of the Warrant so called shall be deemed terminated on the Call Exercise
Date.
6. Miscellaneous
6.1 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
-7-
<PAGE>
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.
6.2 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).
6.3 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.
6.4 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, (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.
6.5 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.
6.6 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.
-8-
<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.
6.7 Integration. This Warrant was initially issued pursuant to that
certain Series B Preferred Stock Subscription Agreement among the Company and
the Holder hereof, entered inot of even date herein (the "Subscription
Agreement"). The Subscription Agreement and the other documents entered into
pursuant theret, 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.
6.8 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 then outstanding Warrants issued pursuant to the
Subscription Agreement.
6.9 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.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer on ________________, 1997.
TELEGEN CORPORATION
By: _____________________________________________
Name: ___________________________________________
Title: __________________________________________
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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))
<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:
(i) makes payment therefor in the amount of $____________________,
all at the price and on the terms and conditions specified in the attached
Warrant; or
(ii) makes a net exercise election.
[Please circle either item (i) or item (ii)]
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.
<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 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
<PAGE>
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, that 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: _____________________, 199__
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.
EXHIBIT 10.15
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 _____________, 1997
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 $4.00 per share. The initial purchase price
of $4.00 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.
"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 on the fourth anniversary of 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 (iii) a sale of all or substantially all of the Company's assets.
<PAGE>
"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 Nasdaq SmallCap Market under the symbol TLGN or other
national exchange, including the electronic bulletin board 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.
"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.
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
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<PAGE>
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 or the Conversion Date, as applicable. 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.
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 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.
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<PAGE>
(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 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
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<PAGE>
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).
(f) Lock-Up Provision. The holder of this Warrant hereby
represents, warrants, and agrees that, commencing on the effective date of this
Warrant and continuing until [January 1, 1998/April 1, 1998/July 1,
1998/September 1, 1998] (the "Lock-Up Period"), the undersigned will not,
without the prior written consent of the Company, offer, sell, contract to sell,
pledge, grant any option to sell, or otherwise dispose of, directly or
indirectly, any shares of Common Stock received or receivable from exercise of
this Warrant of which the holder of this Warrant is now, or may in the future
become, the beneficial owner (within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934, as amended).
Notwithstanding this lock-up provision, if the holder of this
Warrant is an individual, he or she may transfer shares of Common Stock on death
by gift, will, or intestacy, to his or her immediate family or to a trust the
beneficiaries of which are exclusively a member or members of this Warrant
holder's immediate family; provided, however, that in any such case it shall be
a condition to any such transfer that any such transferee execute an agreement
stating that the transferee is receiving and holding such Common Stock subject
to the provisions of this agreement, and there shall be no further transfer of
such Common Stock except in accordance with this agreement.
With respect to this lock-up provision, all shares of Common
Stock issued upon exercise of this Warrant shall be stamped or imprinted with a
legend in substantially the following form:
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<PAGE>
THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
IS SUBJECT TO A LOCK-UP PROVISION UNTIL [JANUARY 1, 1998/APRIL 1,
1998/JULY 1, 1998/SEPTEMBER 1, 1998] SUBJECT TO THE TERMS AND
CONDITIONS OF A WARRANT AGREEMENT A COPY OF WHICH MAY BE OBTAINED UPON
WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION.
The holder of this Warrant further understands that the
disposition of any and all shares of Common Stock issued upon exercise of this
Warrant in contravention of the lock-up provision herein shall be voidable by
the Company and that the Company will have the right to do all things necessary
to void such transfer.
It is understood and agreed that upon termination of the
Lock-Up Period, the terms and conditions set forth in this subsection 3.2(f)
shall cease.
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 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, 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
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<PAGE>
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. Company's Forced Exercise Right
At any time after the date this Warrant is issued to the Purchaser, and
after the Fair Market Value of the Company's Common Stock is $6.00 or greater
for twenty (20) trading days, the Company shall have the right to demand that
the holder of this Warrant exercise this Warrant (the "Demand Right"). In
exercising its Demand Right, the Company shall provide the Purchaser twenty (20)
days prior written notice (the "Demand Notice") stating that the Company intends
to exercise its Demand Right for a portion or all of the Warrant and all other
warrants issued pursuant to the issuance of the Company's Common Stock
Subscription Offering dated as of September 30, 1997, on a pro-rata basis. The
Demand Notice shall designate the date of exercise (the "Forced Exercise Date")
for the Demand Right. Upon receipt of the Demand Notice, the Purchaser shall
have the right to exercise this Warrant for that amount of Shares of Common
Stock as stated in the Demand Notice. To the extent the Purchaser elects to
exercise this Warrant with respect to any or all shares of Common Stock that are
subject to the Demand Notice, the Purchaser shall do so in the manner specified
in Section 2.1 herein and notwithstanding Section 2.1, the Purchaser must return
the Warrant to the Company within five (5) days from the Forced Exercise Date.
As soon as practicable upon receipt of the Warrant (but in no case more than
five (5) days thereafter), the Company will send a new Warrant, if applicable,
of like tenor for the number of shares of Common Stock remaining, if any, after
exercise by the Company of the Demand Right or exercise by the Purchaser of the
Warrant. After the Forced Exercise Date, the portion of the Warrant subject to
the Demand Right and not exercised by the Purchaser as described in this Section
5 shall be deemed terminated on the Forced Exercise Date.
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<PAGE>
6. Miscellaneous
6.1 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 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.
6.2 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).
6.3 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.
6.4 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, (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.
6.5 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.
-8-
<PAGE>
6.6 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.
(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.
6.7 Integration. This Warrant was initially issued pursuant to that
certain Series B Preferred Stock Subscription Agreement among the Company and
the Holder hereof, entered into of even date herein (the "Subscription
Agreement"). The Subscription Agreement 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.
6.8 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
Subscription Agreement with the same terms hereof.
6.9 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.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer on ________________, 1997.
TELEGEN CORPORATION
By: _____________________________________________
Name: ___________________________________________
Title: __________________________________________
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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))
<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 $___________________________, 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.
<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 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
<PAGE>
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, that 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: _____________________, 199__
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.
EXHIBIT 10.16
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 _____________, 1997
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 $0.01 per share. The initial
purchase price of $0.01 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.
"Exercise Period" means, subject to Section 5 herein, the period
commencing immediately from the date hereof and terminating at the earliest to
occur of: (i) 5:00 p.m., Pacific Time on the fourth anniversary of 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
<PAGE>
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 (iii) 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 Nasdaq SmallCap Market under the symbol TLGN or other
national exchange, including the electronic bulletin board 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.
"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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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. 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 or the Conversion Date, as applicable. 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.
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 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.
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<PAGE>
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 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
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<PAGE>
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).
(f) Lock-Up Provision. The holder of this Warrant hereby
represents, warrants, and agrees that, commencing on the effective date of this
Warrant and continuing until [January 1, 1998/April 1, 1998/July 1,
1998/September 1, 1998] (the "Lock-Up Period"), the undersigned will not,
without the prior written consent of the Company, offer, sell, contract to sell,
pledge, grant any option to sell, or otherwise dispose of, directly or
indirectly, any shares of Common Stock received or receivable from exercise of
this Warrant of which the holder of this Warrant is now, or may in the future
become, the beneficial owner (within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934, as amended).
Notwithstanding this lock-up provision, if the holder of this
Warrant is an individual, he or she may transfer shares of Common Stock on death
by gift, will, or intestacy, to his or her immediate family or to a trust the
beneficiaries of which are exclusively a member or members of this Warrant
holder's immediate family; provided, however, that in any such case it shall be
a condition to any such transfer that any such transferee execute an agreement
stating that the transferee is receiving and holding such Common Stock subject
to the provisions of this agreement, and there shall be no further transfer of
such Common Stock except in accordance with this agreement.
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<PAGE>
With respect to this lock-up provision, all shares of Common
Stock issued upon exercise of this Warrant shall be stamped or imprinted with a
legend in substantially the following form:
THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO A LOCK-UP PROVISION UNTIL [JANUARY
1, 1998/APRIL 1, 1998/JULY 1, 1998/SEPTEMBER 1, 1998]
SUBJECT TO THE TERMS AND CONDITIONS OF A WARRANT AGREEMENT A
COPY OF WHICH MAY BE OBTAINED UPON WRITTEN REQUEST TO THE
SECRETARY OF THE CORPORATION.
The holder of this Warrant further understands that the
disposition of any and all shares of Common Stock issued upon exercise of this
Warrant in contravention of the lock-up provision herein shall be voidable by
the Company and that the Company will have the right to do all things necessary
to void such transfer.
It is understood and agreed that upon termination of the
Lock-Up Period, the terms and conditions set forth in this subsection 3.2(d)
shall cease.
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 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.
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<PAGE>
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, 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. Company's Forced Exercise Right
At any time after the date this Warrant is issued to the Purchaser, the
Company shall have the right to demand that the holder of this Warrant exercise
this Warrant (the "Demand Right"). In exercising its Demand Right, the Company
shall provide the Purchaser twenty (20) days prior written notice (the "Demand
Notice") stating that the Company intends to exercise its Demand Right for a
portion or all of the Warrant and all other warrants issued pursuant to the
issuance of the Company's Common Stock Subscription Offering dated as of
September 30, 1997, on a pro-rata basis. The Demand Notice shall designate the
date of exercise (the "Forced Exercise Date") for the Demand Right. Upon receipt
of the Demand Notice, the Purchaser shall have the right to exercise this
Warrant for that amount of Shares of Common Stock as stated in the Demand
Notice. To the extent the Purchaser elects to exercise this Warrant with respect
to any or all shares of Common Stock that are subject to the Demand Notice, the
Purchaser shall do so in the manner specified in Section 2.1 herein and
notwithstanding Section 2.1, the Purchaser must return the Warrant to the
Company within five (5) days from the Forced Exercise Date. As soon as
practicable upon receipt of the Warrant (but in no case more than five (5) days
thereafter), the Company will send a new Warrant, if applicable, of like tenor
for the number of shares of Common Stock remaining, if any, after
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<PAGE>
exercise by the Company of the Demand Right or exercise by the Purchaser of the
Warrant. After the Forced Exercise Date, the portion of the Warrant subject to
the Demand Right and not exercised by the Purchaser as described in this Section
5 shall be deemed terminated on the Forced Exercise Date.
6. Miscellaneous
6.1 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 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.
6.2 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).
6.3 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.
6.4 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, (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.
6.5 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
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<PAGE>
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.
6.6 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.
(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.
6.7 Integration. This Warrant was initially issued pursuant to that
certain Common Stock Subscription Agreement among the Company and the Holder
hereof, entered into of even date herein (the "Subscription Agreement"). The
Subscription Agreement 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.
6.8 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
Subscription Agreement with the same terms hereof.
6.9 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.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer on ________________, 1997.
TELEGEN CORPORATION
By: _____________________________________________
Name: ___________________________________________
Title: __________________________________________
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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))
<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 $______________________, 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.
<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 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
<PAGE>
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:
________________________________________
-2-
<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, that 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: _____________________, 199__
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.
EXHIBIT 10.17
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 _____________, 1997
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 $2.25 per share. The initial purchase price
of $2.25 per share, and the number of shares purchasable hereunder, are subject
to adjustment in certain events, all as more fully set forth under Section 5
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.
"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 on the fourth anniversary of 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 (iii) a sale of all or substantially all of the Company's assets.
<PAGE>
"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 Nasdaq SmallCap Market under the symbol TLGN or other
national exchange, including the electronic bulletin board 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.
"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.
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
-2-
<PAGE>
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 or the Conversion Date, as applicable. 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.
3. Net Exercise.
3.1 Right to Convert. Notwithstanding the payment provisions set forth
in Section 2.1 above,
<TABLE>
(a) Holder shall be entitled to receive shares equal to the
value of this Warrant (or of any portion thereof remaining unexercised) without
payment by the Holder of any exercise price or any cash or other consideration,
in which event the Company shall issue to the Holder a number of shares of the
Company's Common Stock computed using the following formula (and the Holder
shall be deemed to have surrendered this Warrant together with notice of such
election):
X = Y (A-B)
-------
A
<CAPTION>
<S> <C>
Where: X = the number of shares of Common Stock to be issued
to the Holder
-3-
<PAGE>
Y = the number of shares of Warrant Stock purchasable
under this Warrant
A = the fair market value of one share of the Company's
Common Stock
B = the exercise price per share of Common Stock
purchasable under this Warrant (as adjusted to the
date of such calculation)
</TABLE>
3.2 Method of Exercise. The Conversion Right may be exercised by the
Holder by the surrender of this Warrant at the Principal Executive Office,
together with a written statement (the "Conversion Statement") specifying that
the Holder intends to exercise the Conversion Right and indicating the amount of
Common Stock to be acquired upon exercise of the Conversion Right. Such
conversion shall be effective upon the Company's receipt of this Warrant,
together with the Conversion Statement, or on such later date as is specified in
the Conversion Statement (the "Conversion Date"). Certificates evidencing the
Common Stock so acquired shall be delivered to the Holder within a reasonable
time. If applicable, the Company shall, upon surrender of this Warrant for
cancellation, deliver 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 Common Stock 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 thereto or any other cost incurred by the
Company in connection with the conversion of this Warrant and the related
issuance of Warrant Shares.
4. Warrant Records and Transfer
4.1 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 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.
4.2 Restrictions on Transfers.
(b) 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.
(c) 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
-4-
<PAGE>
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.
(d) 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 4.2(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 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.
(e) Warrant Transfer Procedure. Transfer of this Warrant to a
third party, following compliance with the preceding subsections of this Section
4.2, 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
-5-
<PAGE>
transferees, one or more new Warrants representing the right to purchase a like
aggregate number of shares of Common Stock.
(f) Termination of Restrictions. The restrictions imposed
under this Section 4.2 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 4.2(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).
5. Antidilution Provisions
5.1 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 5.4 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 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 Section5.1 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 5.1 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.
5.2 Splits and Combinations. If the Company at any time subdivides any
of its outstanding shares of Common Stock into a greater number of shares, the
Exercise Price in effect immediately prior to such subdivision shall be
proportionately reduced, and, conversely if the
-6-
<PAGE>
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 5.2, 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.
5.3 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 5.3 upon any conversion described in Section 5.1
hereof.
5.4 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.
6. Miscellaneous
6.1 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 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.
6.2 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).
6.3 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
-7-
<PAGE>
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.
6.4 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, (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.
6.5 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.
6.6 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.
(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.
6.7 Integration. This Warrant was initially issued pursuant to that
certain Convertible Note and Common Stock Warrant Subscription Agreement between
the Company and the Holder hereof, entered into of even date herein (the
"Subscription Agreement"). The Subscription Agreement 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.
6.8 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
-8-
<PAGE>
Company and the holders of at least a Majority-in-Interest of all outstanding
Warrants issued pursuant to the Subscription Agreement with the same terms
hereof.
6.9 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.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer on ________________, 1997.
TELEGEN CORPORATION
By: _____________________________________________
Name: ___________________________________________
Title: __________________________________________
-9-
<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))
<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 $_________________, 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.
<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 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
<PAGE>
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:
_____________________________________________
-2-
<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, that 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: _____________________, 199__
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.
CONTRACT FOR EMPLOYMENT
TELEGEN CORPORATION, a California corporation, located at 353 Vintage
Park Drive, Suite H, Foster City, California, hereinafter referred to as
Employer, and JESSICA LYNN STEVENS, hereinafter referred to as the Employee, in
consideration of the mutual promises made herein, agree as of May 3, 1990, as
follows:
ARTICLE 1. EMPLOYMENT
SECTION 1.01. Employer hereby employs Employee and Employee hereby
accepts employment with Employer until terminated as provided herein beginning
on May 3, 1990.
SECTION 1.02. This agreement may be terminated earlier as hereinafter
provided [notwithstanding the provisions of SECTION 1.01, above].
ARTICLE 2. DUTIES OF EMPLOYEE
SECTION 2.01. The Employer desires to retain the Employee to
undertake a variety of technical and/or administrative duties as may be
determined by Employer from time to time.
SECTION 2.02. It is hereby agreed that the Employer does retain and
employ the said Employee subject to the following terms, conditions, and
stipulations:
a. The Employee agrees that to the best of Employee's ability and
experience will at all times loyally and conscientiously perform all of the
duties and obligations either expressly or implicitly required of Employee by
the terms and conditions of this agreement;
b. The Employee's performance of the duties hereunder shall, at all
times, be rendered to Employees reasonable satisfaction. The Employee expressly
agrees that Employer shall be the sole judge as to whether the services of
Employee are satisfactory.
ARTICLE 3. COMPENSATION
SECTION 3.01. Employer shall pay Employee such compensation for
services as may be rendered under this contract, as may be determined in the
sole discretion of the President of the corporation, or the Employee's direct
supervisor.
ARTICLE 4. NONCOMPETITION
SECTION 4.01. During the term of this contract Employee shall not,
directly or indirectly, either as an employee, employer, consultant, agent,
principal, partner, stockholder, corporate officer, director, or in any other
individual or representative capacity, engage or participate in any business
that is in competition in any manner whatsoever with the business of Employer.
<PAGE>
SECTION 4.02. Employee acknowledges and agrees that the sale or
unauthorized use or disclosure of any of Employees trade secrets obtained by
Employee during employment with Employer, including information concerning
Employees current products and any future or proposed products or services, the
facts that those products or services are planned, under consideration, or in
production, as well as any descriptions of/the features of those products or
services constitute unfair competition. Employee promises and agrees not to
engage in any unfair competition with Employer either during the term of this
agreement or within five (5) years thereafter.
SECTION 4.03. In the event that Employee breaches the foregoing
obligation not to compete, the Employee shall be enjoined from engaging in any
further competitive activity and shall be liable to Employer for any reasonable
damages for any such breach occurring prior to the issuance of an injunction.
ARTICLE 5. OWNERSHIP OF WORK PRODUCT
SECTION 5.01. Notwithstanding any statutory, regulatory, and/or
public policy considerations to the contrary, Employee agrees that any and all
intellectual properties, including but not limited to all ideas, concepts,
themes, inventions, designs, improvements and discoveries conceived, developed
or written by Employee, either individually or jointly in collaboration with
others, during the term of Employee's employment with Employer shall be the sole
and separate property of Employer.
SECTION 5.02. Employee further agrees that the understanding set
forth in subparagraph 5.01 above constitutes a complete and express waiver by
Employee of any and all rights to the intellectual property described therein.
SECTION 5.03. Employee will, upon reasonable request, execute such
documents as are requested to effectuate the terms of this Contract.
ARTICLE 6. INDEMNIFICATION
SECTION 6.01. Employee shall indemnify and save Employer harmless
from all liability from loss, damage, or injury to persons or property resulting
from the negligence or misconduct of the Employee.
ARTICLE 7. TERMINATION
SECTION 7.01. If Employee willfully breaches or habitually neglects
the duties that Employee is required to perform under the terms of this
agreement, or demonstrates continued incapacity to perform those duties,
Employer may at its option terminate this agreement by giving written notice of
termination to Employee without prejudice to any other remedy to which Employer
may be entitled either at law, in equity, or under this agreement.
-2-
<PAGE>
SECTION 7.02. This agreement shall terminate immediately on the
occurrence of any one of the following events:
(1) The occurrence of circumstances that make it impossible or
impracticable for the business of Employer to be continued.
(2) The death of the Employee.
(3) The loss by the Employee of legal capacity.
(4) The loss by Employer of legal capacity to contract.
(5) The death or dissolution of Employer.
SECTION 7.03. The employment of Employee shall continue only as long
as the services rendered by Employee are satisfactory to Employer, regardless of
any other provision contained in this agreement. Employer shall be the sole
judge as to whether the services of Employee are satisfactory provided, however,
that Employees determination With respect to Employee's services are exercised
reasonably and in good faith.
SECTION 7.04. In the event that this agreement is terminated prior to
the completion of the term of employment specified herein, Employee shall
automatically and completely forfeit any rights that Employee may have for the
fiscal year during which termination of this agreement occurs.
ARTICLE 8. ARBITRATION
SECTION 8.01. Any controversy or claim arising out of or relating to
this agreement, or the breach thereof shall be settled by arbitration in
accordance with the rules of the American Arbitration Association, and judgment
on the award rendered may be entered in any court having jurisdiction.
SECTION 8.02. Arbitration shall comply with and be governed by the
provisions of the California Arbitration Act, Sections 1280 through 1294.2 of
the California Code of Civil Procedure, which is incorporated herein by
reference.
SECTION 8.03. Employer and Employee shall each appoint one person to
hear and determine the dispute and, if the two persons so selected are unable to
agree, those two persons shall select a third impartial arbitrator whose
decision shall be final and conclusive
SECTION 8.04. The cost of arbitration shall be borne by the losing
party or in such proportions as the arbitrator decides.
SECTION 8.05. The result of arbitration hereunder shall be binding
upon the parties
-3-
<PAGE>
ARTICLE 9. CORPORATE POLICIES
SECTION 9.01. From time to time Employer shall institute company-wide
policies affecting all of its employees. Employee shall abide by and conform to
those policies.
SECTION 9.02. Employee shall be enrolled in the Employees medical plan
with the costs thereof for Employee paid by Employer, and the cost thereof for
any dependents of Employee enrolled in the plan paid by the Employee.
SECTION 9.03. Employee shall be granted up to 10 days of sick leave per
year, accruing ratably over the term of employment, and two weeks of paid
vacation per year, accruing ratable during the year, and available to be taken
only after completion of the first six months of employment.
ARTICLE 10. RULES GOVERNING AGREEMENT
SECTION 10.01. Except as expressly provided for herein, nothing in this
agreement shall constitute or be deemed construed to be a waiver or release by
the parties of any rights, claims, causes of action, defenses or offsets against
any other person or entity not a party of this agreement.
SECTION 10.02. The parties agree not to communicate the terms of this
agreement to any person or entity not a party to this agreement, except as
provided in this paragraph. The parties may disclose the terms of this agreement
to their next of kin, attorneys, accountants (to the extent required to comply
with any law or regulation), auditors, law enforcement agencies, governmental
bodies or regulators or tax authorities.
SECTION 10.03. This agreement shall be interpreted and governed by the
laws of the State of California. Venue and jurisdiction for any dispute arising
out of this agreement shall be in the Superior Court of the State of California
for the County of San Mateo.
SECTION 10.04. In the execution of this agreement and the negotiations
leading thereto, each party was offered the opportunity to be represented by
counsel of its own selection during such negotiations. Prior to the execution of
this agreement by each party, the party's attorney, if any retained, reviewed
this agreement and made all desirable changes, and advised the party with
respect to the advisability of executing this agreement. According y, e normal
rule of construction providing that any ambiguities are to be resolved against
the drafting party shall not be employed in the interpretation or construction
of this agreement.
SECTION 10.05. This agreement, and the language herein, shall be
construed as a whole according to its fair meaning, and not strictly for or
against any of the parties.
SECTION 10.06. This agreement may be executed in counterparts which,
taken together, shall constitute one and the same agreement and shall be
effective as of the date first written above.
-4-
<PAGE>
SECTION 10.07. This agreement is the sole, only, entire, and complete
Agreement of the parties relating in any way to the subject matter hereof. No
statements, promises, or representations have been made by any party to another
or are relied upon, and no consideration has been or is offered, promised,
expected, or held out other than that constituted by this agreement. The
conditions precedent to the effectiveness of this agreement exist other than as
may be expressly provided herein. All prior discussions and negotiations have
been and are merged and integrated into and are superseded by this agreement.
This agreement may not be altered, amended or modified except by a writing which
expressly refers to this agreement and is signed subsequent to the execution of
this agreement by the party or parties to any such authorization, amendment or
modification.
SECTION 10.08. This agreement, and each and every portion thereof,
shall be binding on the successors and assigns of the parties hereto, but the
same shall not be assigned by the Employee without written consent of the
Employer.
The parties hereto having first read and understood the foregoing terms
and conditions of this Contract for Employment, executed the same at Foster
City, California.
DATED:
--------------------- ------------------------------
JESSICA LYNN STEVENS, EMPLOYEE
DATED:
--------------------- ------------------------------
WARREN M. DILLARD
Chief Financial Officer
TELEGEN CORPORATION
- -----------------------------
-5-
CONTRACT FOR EMPLOYMENT
TELEGEN CORPORATION, a California corporation, located at 353 Vintage
Park Drive, Suite H, Foster City, California, hereinafter referred to as
Employer, and BONNIE CRYSTAL, hereinafter referred to as the Employee, in
consideration of the mutual promises made herein, agree as of May 4, 1990, as
follows:
ARTICLE 1. EMPLOYMENT
SECTION 1.01. Employer hereby employs Employee and Employee hereby
accepts employment with Employer until terminated as provided herein beginning
on May 4, 1990.
SECTION 1.02. This agreement may be terminated earlier as hereinafter
provided [notwithstanding the provisions of SECTION 1.01, above].
ARTICLE 2. DUTIES OF EMPLOYEE
SECTION 2.01. The Employer desires to retain the Employee to undertake
a variety of hardware/firmware design and development and/or other technical
duties as may be determined by Employer from time to time.
SECTION 2.02. It is hereby agreed that the Employer does retain and
employ the said Employee subject to the following terms, conditions, and
stipulations:
a. the Employee agrees that to the best of Employee's ability and
experience Employee will at all times loyally and conscientiously perform all of
the duties and obligations either expressly or implicitly required of Employee
by the terms and conditions of this agreement;
b. the Employee's performance of the duties hereunder shall, at all
times, be rendered to Employees reasonable satisfaction. The Employee expressly
agrees that Employer shall be the sole judge as to whether the services of
Employee are satisfactory.
ARTICLE 3. COMPENSATION
SECTION 3.01. Employer shall pay Employee such compensation for
services as may be rendered under this contract, as may be determined in the
sole discretion of the President of the corporation,
ARTICLE 4. NONCOMPETITION
SECTION 4.01. During the term of this contract Employee shall not,
directly or indirectly, either as an employee, employer, consultant, agent,
principal, partner, stockholder, corporate officer, director, or in any other
individual or representative capacity, engage or participate in any business
that is in competition in any manner whatsoever with the business of Employer.
<PAGE>
SECTION 4.02. Employee acknowledges and agrees that the sale or
unauthorized use or disclosure of any of Employees trade secrets obtained by
Employee during employment with Employer, including information concerning
Employees current products and any future or proposed products or services, the
facts that those products or J services are planned, under consideration, or in
production, as well as any descriptions of the features of those products or
services constitute unfair competition. Employee promises and agrees not to
engage in any unfair competition with Employer either during the term of this
agreement or within five (5) years thereafter.
SECTION 4.03. In the event that Employee breaches the foregoing
obligation not to compete, the Employee shall be enjoined from engaging in any
further competitive activity and shall be liable to Employer for any reasonable
damages for any such breach occurring prior to the issuance of an injunction.
ARTICLE 5. OWNERSHIP OF WORK PRODUCT
SECTION 5.01. Notwithstanding any statutory, regulatory, and/or public
policy considerations to the contrary, Employee agrees that any and all
intellectual properties, including but not limited to all ideas, concepts,
themes, inventions, designs, improvements and discoveries conceived, developed
or written by Employee, either individually or jointly in collaboration with
others, during the term of Employee's employment with Employer shall be the sole
and separate property of Employer.
SECTION 5.02. Employee further agrees that the understanding set forth
in subparagraph 5.01 above constitutes a complete and express waiver by Employee
of any and all rights to the intellectual property described therein.
SECTION 5.03. Employee will, upon reasonable request, execute such
documents as are requested to effectuate the terms of this Contract.
ARTICLE 6. INDEMNIFICATION
SECTION 6.01. Employee shall indemnify and save Employer harmless from
all liability from loss, damage, or injury to persons or property resulting from
the negligence or misconduct of the Employee.
ARTICLE 7. TERMINATION
SECTION 7.01. If Employee willfully breaches or habitually neglects
the duties that Employee is required to perform under the terms of this
agreement, or demonstrates continued incapacity to perform those duties,
Employer may at its option terminate this agreement by giving written notice of
termination to Employee without prejudice to any other remedy to which Employer
may be entitled either at law, in equity, or under this agreement.
SECTION 7.02. This agreement shall terminate immediately on the
occurrence of any one of the following events:
-2-
<PAGE>
(1) The occurrence of circumstances that make it impossible or
impracticable for the business of Employer to be continued.
(2) The death of the Employee.
(3) The loss by the Employee of legal capacity.
(4) The loss by Employer of legal capacity to contract.
(5) The death or dissolution of Employer.
SECTION 7.03. The employment of Employee shall continue only as long as
the services rendered by Employee are satisfactory to Employer, regardless of
any other provision contained in this agreement. Employer shall be the sole
judge as to whether the services of Employee are satisfactory provided, however,
that Employees determination with respect to Employee's services are exercised
reasonably and in good faith.
SECTION 7.04. In the event that this agreement is terminated prior to
the completion of the term of employment specified herein, Employee shall
automatically and completely forfeit any rights that Employee may have for the
balance of the fiscal year during which termination of this agreement occurs.
ARTICLE 8. ARBITRATION
SECTION 8.01. Any controversy or claim arising out of or relating to
this agreement, or the breach thereof shall be settled by arbitration in
accordance with the rules of the American Arbitration Association, and judgment
on the award rendered may be entered in any court having jurisdiction.
SECTION 8.02. Arbitration shall comply with and be governed by the
provisions of the California Arbitration Act, Sections 1280 through 1294.2 of
the California Code of Civil Procedure, which is incorporated herein by
reference.
SECTION 8.03. Employer and Employee shall each appoint one person to
hear and determine the dispute and, if the two persons so selected are unable to
agree, those two persons shall select a third impartial arbitrator whose
decision shall be final and conclusive upon both parties.
SECTION 8.04. The cost of arbitration shall be borne by the losing
party or in such proportions as the arbitrator decides.
SECTION 8.05. The result of arbitration hereunder shall be binding
upon the parties.
-3-
<PAGE>
ARTICLE 9. CORPORATE POLICIES
SECTION 9.01. From time to time Employer shall institute company-wide
policies affecting all of its employees. Employee shall abide by and conform to
those policies.
SECTION 9.02. Employee shall be enrolled in the Employers medical plan
with the costs thereof for Employee paid by Employer, and the cost thereof for
any dependents of Employee enrolled in the plan paid by the Employee.
SECTION 9.03. Employee shall be granted up to 10 days of sick leave
per year, accruing ratably over the term of employment, and. two weeks of paid
vacation per year, accruing ratable during the year, and available to be taken
only after completion of the first six months of employment.
ARTICLE 10. RULES GOVERNING AGREEMENT
SECTION 10.01. Except as expressly provided for herein, nothing in this
agreement shall constitute or be deemed construed to be a waiver or release by
the parties of any rights, claims, causes of action, defenses or offsets against
any other person or entity not a party of this agreement.
SECTION 10.02. The parties agree not to communicate the terms of this
agreement to any person or entity not a party to this agreement, except as
provided in this paragraphThe parties may disclose the terms of this agreement
to their next of kin, attorneys, accountants (to the extent required to comply
with any law or regulation), auditors, law enforcement agencies, governmental
bodies or regulators or tax authorities.
SECTION 10.03. This agreement shall be interpreted and governed by the
laws of the State of California. Venue and jurisdiction for any dispute arising
out of this agreement shall be in the Superior Court of the State of California
for the County of San Mateo.
SECTION 10.04. In the execution of this agreement and the negotiations
leading thereto, each party was offered the opportunity to be represented by
counsel of its own selection during such negotiations. Prior to the execution of
this agreement by each party, the party's attorney, if any retained, reviewed
this agreement and made all desirable changes, and advised the party with
respect to the advisability of executing this agreement. Accordingly, the normal
rule of construction providing that any ambiguities are to be resolved against
the drafting party shall not be employed in the interpretation or construction
of this agreement.
SECTION 10.05. This agreement, and the language herein, shall be
construed as a whole according to its fair meaning, and not strictly for or
against any of the parties.
SECTION 10.06. This agreement may be executed in counterparts which,
taken together, shall constitute one and the same agreement and shall be
effective as of the date first written above.
-4-
<PAGE>
SECTION 10.07. This agreement is the sole, only, entire, and complete
Agreement of the parties relating in any way to the subject matter hereof. No
statements, promises, or representations have been made by any party to another
or are relied upon, and no consideration has been or is offered, promised,
expected, or held out other than that constituted by this agreement. The
conditions precedent to the effectiveness of this agreement exist other than as
may be expressly provided herein. All prior discussions and negotiations have
been and are merged and integrated into and are superseded by this agreement.
This agreement may not be altered, amended or modified except by a writing which
expressly refers to this agreement and is signed subsequent to the execution of
this agreement by the party or parties to any such authorization, amendment or
modification.
SECTION 10.08. This agreement, and each and every portion thereof,
shall be binding on the successors and assigns of the parties hereto, but the
same shall not be assigned by the Employee without written consent of the
Employer.
The parties hereto having first read and understood the foregoing terms
and conditions of this Contract for Employment, executed the same at Foster
City, California.
DATED:
--------------------- ------------------------
BONNIE CRYSTAL, EMPLOYEE
DATED: --------------------- ------------------------
JESSICA L. STEVENS
Chief Executive Officer
TELEGEN CORPORATION
- -------------------------------
-5-
CONTRACT FOR SERVICES
TELEGEN CORPORATION, a California corporation, located at 353 Vintage
Park Drive, Suite H, Foster City, California, hereinafter referred to as
Contractor, and WARREN M. DILLARD, hereinafter referred to as the Consultant, in
consideration of the mutual promises made herein, agree as of November 1, 1993,
as follows:
ARTICLE 1. ENGAGEMENT
SECTION 1.01. Contractor hereby engages Consultant and Consultant
hereby accepts engagement with Contractor until terminated as provided herein
beginning on
SECTION 1.02. This agreement may be terminated earlier as hereinafter
provided [notwithstanding the provisions of SECTION 1.01, above].
ARTICLE 2. DUTIES OF CONSULTANT
SECTION 2.01. The Contractor desires to retain the Consultant to
undertake a variety of clerical or administrative duties as may be determined by
Contractor from time to time.
SECTION 2.02. It is hereby agreed that the Contractor does retain the
said Consultant subject to the following terms, conditions, and stipulations:
a. the Consultant agrees that to the best of his ability and experience
will at all times loyally and conscientiously perform all of the duties and
obligations either expressly or implicitly required of him/her by the terms and
conditions of this agreement;
b. the Consultant's performance of the duties hereunder shall, at all
times, be rendered to Contractors reasonable satisfaction. The Consultant
expressly agrees that Contractor shall be the sole judge as to whether the
services of Consultant are satisfactory.
ARTICLE 3. COMPENSATION
SECTION 3.01. Contractor shall pay Consultant such compensation for
services as may be rendered under this contract, as may be determined in the
sole discretion of the President of the corporation, or the Consultant's direct
supervisor.
ARTICLE 4. NONCOMPETITION
SECTION 4.01. During the term of this contract Consultant shall not,
directly or indirectly, either as an Consultant, contractor, consultant, agent,
principal, partner, stockholder, corporate officer, director, or in any other
individual or representative capacity, engage or participate in any business
that is in competition in any manner whatsoever with the business of Contractor.
<PAGE>
SECTION 4.02. Consultant acknowledges and agrees that the sale or
unauthorized use or disclosure of any of Contractor's trade secrets obtained by
Consultant during employment with Contractor, including information concerning
Contractors current products and any future or proposed products or services,
the facts that those products or services are planned, under consideration, or
in production, as well as any descriptions of the features of those products or
services constitute unfair competition. Consultant promises and agrees not to
engage in any unfair competition with Contractor either during the term of this
agreement or within five (5) years thereafter.
SECTION 4.03. In the event that Consultant breaches the foregoing
obligation not to compete, the Consultant shall be enjoined from engaging in any
further competitive activity and shall be liable to Contractor for any
reasonable damages for any such breach occurring prior to the issuance of an
injunction.
ARTICLE 5. OWNERSHIP OF WORK PRODUCT
SECTION 5.01. Notwithstanding any statutory, regulatory, and/or public
policy considerations to the contrary, Consultant agrees that any and all
intellectual properties, including but not limited to all ideas, concepts,
themes, inventions, designs, improvements and discoveries conceived, developed
or written by Consultant, either individually or jointly in collaboration with
others, during the term of his/her employment with Contractor shall be the sole
and separate property of Contractor.
SECTION 5.02. Consultant further agrees that the understanding set
forth in subparagraph 5.01 above constitutes a complete and express waiver by
him/her of any and all rights to the intellectual property described therein.
SECTION 5.03. Consultant will, upon reasonable request, execute such
documents as are requested to effectuate the terms of this Contract.
ARTICLE 6. INDEMNIFICATION
SECTION 6.01. Consultant shall indemnify and save Contractor harmless
from all liability from loss, damage, or injury to persons or property resulting
from the negligence or misconduct of the Consultant.
ARTICLE 7. TERMINATION
SECTION 7.01. If Consultant willfully breaches or habitually neglects
the duties that Consultant is required to perform under the terms of this
agreement, or demonstrates continued incapacity to perform those duties,
Contractor may at its option terminate this agreement by giving written notice
of termination to Consultant without prejudice to any other remedy to which
Contractor may be entitled either at law, in equity, or under this agreement.
-2-
<PAGE>
SECTION 7.02. This agreement shall terminate immediately on the
occurrence of any one of the following events:
(1) The occurrence of circumstances that make it impossible or
impracticable for the business of Contractor to be continued.
(2) The death of the Consultant.
(3) The loss by the Consultant of legal capacity.
(4) The loss by Contractor of legal capacity to contract.
(5) The death or dissolution of Contractor.
SECTION 7.03. The engagement of Consultant shall continue only as long
as the services rendered by Consultant are satisfactory to Contractor,
regardless of any other provision contained in this agreement. Contractor shall
be the sole judge as to whether the services of Consultant are satisfactory
provided, however, that Contractors determination with respect to Consultant's
services are exercised reasonably and in good faith.
SECTION 7.04. In the event that this agreement is terminated prior to
the completion of the term of employment specified herein, Consultant shall
automatically and completely forfeit any rights that he may have for the fiscal
year during which termination of this agreement occurs.
ARTICLE 8. ARBITRATION
SECTION 8.01. Any controversy or claim arising out of or relating to
this agreement, or the breach thereof shall be settled by arbitration in
accordance with the rules of the American Arbitration Association, and judgment
on the award rendered may be entered in any court having jurisdiction.
SECTION 8.02. Arbitration shall comply with and be governed by the
provisions of the California Arbitration Act, Sections 1280 through 1294.2 of
the California Code of Civil Procedure, which is incorporated herein by
reference.
SECTION 8.03. Contractor and Consultant shall each appoint one person
to hear and determine the dispute and, if the two persons so selected are unable
to agree, those two persons shall select a third impartial arbitrator whose
decision shall be final and conclusive upon both parties.
SECTION 8.04. The cost of arbitration shall be borne by the losing
party or in such proportions as the arbitrator decides.
SECTION 8.05. The result of arbitration hereunder shall be binding
upon the parties.
-3-
<PAGE>
ARTICLE 9. CORPORATE POLICIES
SECTION 9.01. From time to time Contractor shall institute
company-wide policies affecting all of its Consultants. Consultant shall abide
by and conform to those policies.
SECTION 9.02. Consultant may be enrolled in the Contractors medical
plan with the costs thereof for Consultant paid by Contractor, and the cost
thereof for any dependents of Consultant enrolled in the plan paid by the
Consultant.
ARTICLE 10. RULES GOVERNING AGREEMENT
SECTION 10.01. Except as expressly provided for herein, nothing in this
agreement shall constitute or be deemed construed to be a waiver or release by
the parties of any rights, claims, causes of action, defenses or offsets against
any other person or entity not a party of this agreement.
SECTION 10.02. The parties agree not to communicate the terms of this
agreement to any person or entity not a party to this agreement, except as
provided in this paragraph. The parties may disclose the terms of this agreement
to their spouses, attorneys, accountants (to the extent required to comply with
any law or regulation), auditors, law enforcement agencies, governmental bodies
or regulators or tax authorities.
SECTION 10.03. This agreement shall be interpreted and governed by the
laws of the State of California. Venue and jurisdiction for any dispute arising
out of this agreement shall be in the Superior Court of the State of California
for the County of San Mateo.
SECTION 10.04. In the execution of this agreement and the negotiations
leading thereto, each party was offered the opportunity to be represented by
counsel of its own selection during such negotiations. Prior to the execution of
this agreement by each party, the party's attorney, if any retained, reviewed
this agreement and made all desirable changes, and advised the party with
respect to the advisability of executing this agreement. Accordingly, the normal
rule of construction providing that any ambiguities are to be resolved against
the drafting party shall not be employed in the interpretation or construction
of this agreement.
SECTION 10.05. This agreement, and the language herein, shall be
construed as a whole according to its fair meaning, and not strictly for or
against any of the parties.
SECTION 10.06. This agreement may be executed in counterparts which,
taken together, shall constitute one and the same agreement and shall be
effective as of the date first written above.
SECTION 10.07. This agreement is the sole, only, entire, and complete
Agreement of the parties relating in any way to the subject matter hereof. No
statements, promises, or representations have been made by any party to another
or are relied upon, and no consideration has been or is offered, promised,
expected, or held out other than that constituted by this agreement. The
conditions precedent to the effectiveness of this agreement exist other than as
may be expressly
-4-
<PAGE>
provided herein. All prior discussions and negotiations have been and are merged
and integrated into and are superseded by this agreement. This agreement may not
be altered, amended or modified except by a writing which expressly refers to
this agreement and is signed subsequent to the execution of this agreement by
the party or parties to any such authorization, amendment or modification.
SECTION 10.08. This agreement, and each and every portion thereof,
shall be binding on the successors and assigns of the parties hereto, but the
same shall not be assigned by the Consultant without written consent of the
Contractor.
The parties hereto having first read and understood the foregoing terms
and conditions of this Contract for Services, executed the same at Foster City,
California.
DATED:
------------------------- -----------------------------
WARREN M. DILLARD, CONSULTANT
DATED:
------------------------- -----------------------------
JESSICA L. STEVENS
Chief Executive Officer
TELEGEN CORPORATION
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EXHIBIT 10.21
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of
October 31, 1997, by and between Telegen, a California corporation (the
"Company"), and Fred Kashkooli (the "Executive").
WHEREAS, the Company desires to employ the Executive as of November 3,
1997, or such other date as the Executive shall first be employed by the Company
(the "Effective Date"), and the Executive desires to accept employment with the
Company on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the foregoing recital and the
respective covenants and agreements of the parties contained in this document,
the Company and the Executive agree as follows:
1. Employment and Duties. The Executive will serve as the President and
Chief Executive Officer of the Company. The duties and responsibilities of the
Executive shall include the duties and responsibilities for the Executive's
corporate offices and positions as set forth in the Company's Bylaws from time
to time in effect and such other duties and responsibilities as the board of
directors of the Company (the "Board of Directors") may from time to time
reasonably assign to the Executive, in all cases to be consistent with the
Executive's corporate offices and positions. The Executive shall report to the
Board at large. The Executive shall perform faithfully the executive duties
assigned to him to the best of his ability. At the next meeting of the Board of
Directors, the Executive will be nominated to serve as a director of the
Company, and, when elected or appointed thereafter, the Executive shall serve in
such capacity without additional compensation.
2. Employment Period.
(a) Basic Rule. The employment period shall begin upon the
Effective Date and shall continue thereafter until terminated by the Company or
the Executive. The Executive acknowledges and agrees that his employment with
the Company is "at will" and may be terminated by either party at any time,
subject only to the terms of this Agreement.
(b) Early Termination. The Company may terminate the
Executive's employment at any time for any reason or no reason. Except with
respect to for-Cause termination as defined in paragraph 2(d) below, the Company
shall provide the Executive with thirty (30) days' advance notice in writing of
such termination. The Executive may terminate his employment by giving the
Company thirty (30) days' advance written notice. Upon termination of the
Executive's employment with the Company, the Executive's rights under any
applicable benefit plans shall be determined under the provisions of those
plans. Any waiver of notice shall be valid only if it is made in writing and
expressly refers to the applicable notice requirement of this paragraph 2(b).
(c) Death. The Executive's employment will terminate in the
event of his death. The Company shall have no obligation to pay or provide any
compensation or benefits under this Agreement on account of the Executive's
death, or for periods following the Executive's death, other than the Company's
obligations applicable under such circumstance under paragraph 13. The
Executive's rights
<PAGE>
under the benefit plans of the Company in the event of the Executive's death
will be determined under the provisions of those plans.
(d) Cause. The Company may terminate the Executive's
employment for cause by giving the Executive notice in writing. For all purposes
under this Agreement, "Cause" shall mean (i) willful failure by the Executive to
perform his duties hereunder and not to cure such willful failure by the
Executive, thirty (30) days after receipt of written notice by the Company of
such willful failure, other than a failure resulting from the Executive's
complete or partial incapacity due to physical or mental illness or impairment
(provided that impairment as a result of substance abuse shall be deemed willful
failure hereunder), (ii) a willful act by the Executive which constitutes gross
misconduct and which is demonstrably injurious to the Company, (iii) a willful
breach by the Executive of a material provision of this Agreement, or (iv) a
material and willful violation by the Executive of a federal or state law or
regulation applicable to the business of the Company. No act, or failure to act,
by the Executive shall be considered "willful" unless committed without good
faith or without a reasonable belief that the act or omission was in the
Company's best interest. No compensation or benefits will be paid or provided to
the Executive under this Agreement on account of a termination for Cause or for
periods following the date when such a termination of employment is effective.
The Executive's rights under the benefit plans of the Company shall be
determined under the provisions of those plans.
(e) Disability. The Company may terminate the Executive's
employment for Disability by giving the Executive thirty (30) days' advance
notice in writing. For all purposes under this Agreement, "Disability" shall
mean that the Executive, at the time notice is given, has been unable to
substantially perform his duties under this Agreement for a period of not less
than ninety (90) days due to physical or mental illness. The determination of
the Executive's Disability hereunder shall be made by a two-thirds (2/3)
majority of the then current members of the Company's Board of Directors
(excluding the Executive) and shall be based upon advice from such medical
professionals and upon such medical and other records as the Company's Board of
Directors may deem appropriate. In the event that the Executive resumes the
performance of substantially all of his duties hereunder before the termination
of his employment under this paragraph 2(e) becomes effective, the notice of
termination shall automatically be deemed to have been revoked. No compensation
or benefits will be paid or provided to the Executive under this Agreement on
account of termination for Disability, or for periods following the date when
such a termination of employment is effective, other than the Company's
obligations applicable under such circumstance under paragraph 13. The
Executive's rights under the benefit plans of the Company shall be determined
under the provisions of those plans.
3. Place of Employment. The Executive's services shall be performed at
the Company's principal executive offices at 101 Saginaw Drive, Redwood City,
California. The parties acknowledge, however, that some travel may be required
in connection with the performance of the Executive's duties hereunder.
4. Base Salary. For all services to be rendered by the Executive
pursuant to this Agreement, the Company agrees to pay the Executive an annual
base salary (the "Base Salary") of $220,000 from the date hereof until the first
anniversary of this Agreement and a Base Salary of $275,000 for the period
between the first anniversary and second anniversary of this Agreement.
Thereafter, for each annual
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<PAGE>
period beginning on or after the second anniversary of the Effective Date, the
Base Salary shall be determined by the Board of Directors prior to each such
anniversary. The Base Salary shall be paid in periodic installments in
accordance with the Company's regular payroll practices. The payment of such
Base Salary to the extent not paid by the Company shall be guaranteed by Telegen
subject to the limitations set forth in paragraph 28.
5. Bonus. During the first year of his employment, the Executive shall
be eligible to receive an annual cash bonus (the "Bonus") of $110,000. This
first year Bonus shall be paid in four (4) quarterly installments of $27,500 at
the end of each three (3) month period after the Effective Date. Upon the second
anniversary of his employment the Executive shall be eligible to receive a
lump-sum cash Bonus of $125,000 on such date. Receipt of the second Bonus will
be based upon certain criteria to be agreed upon by the Executive and the Board
of Directors including revenue and profitability targets and other
organizational milestones (the "Critical Performance Targets"). On or before the
first anniversary the Executive shall prepare and submit to the Board of
Directors for approval a management bonus program (the "Program") that will
include the Critical Performance Targets and any other terms and conditions of
the Executive's Bonus opportunity for the year following such anniversary. The
payment of such Bonuses to the extent not paid by the Company shall be
guaranteed by Telegen subject to the limitations set forth in paragraph 28.
6. Stock Option.
(a) Initial Options. Effective as of the Company's first Board
of Director's meeting hereafter, the Company shall grant the Executive two
options (the "Executive Options") to purchase shares of the Company's Common
Stock at fair market value per share.* The number of shares subject to the first
option shall be for one hundred twenty thousand (120,000)(the "First Option")
and number of shares subject to the second option shall be for six hundred
thousand (600,000) (the "Second Option"). The Executive Options shall vest as
described in paragraph 6(b) below and shall be subject to such other terms and
conditions as are described in paragraph 6(c) below.
(b) Vesting. The First Option shall vest over a twenty-four
(24) month period beginning on the first month anniversary of the Effective Date
and ending on the second (2nd) anniversary of the Effective Date, to the extent
the Executive is employed by the Company. The Second Option shall vest and
become exercisable monthly over a forty eight (48) month period beginning on the
first month anniversary of the Effective Date and ending on the fourth (4th)
anniversary of the Effective Date, to the extent the Executive is employed by
the Company. In the event of a Change of Control (as defined below), the then
unvested portion of the Executive Options shall automatically become vested, and
the Executive shall have the right to exercise all or any portion of the
Executive Options, in addition to any portion of the Executive Options
exercisable prior to such event. For purposes of this Agreement,
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*For the purpose of this agreement, the Telegen Common Stock fair
market value shall mean the value determined by the average of the closing
market price on the NASDAQ for the five working days prior to November 25, 1997.
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<PAGE>
the term "Change of Control" shall mean the occurrence of any of the following
events subsequent to the Effective Date:
(i) Any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of Telegen,
representing fifty percent (50%) or more of the total voting power represented
by Telegen's, as the case may be, then outstanding voting securities (except in
a transaction or transactions in which Telegen or its affiliates or successors
have, maintain or accumulate securities representing more than fifty percent
(50%) of the voting power of the Company);
(ii) A merger or consolidation of Telegen with any
other corporation, other than a merger or consolidation that would result in the
voting securities of Telegen, as the case may be, outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least fifty percent
(50%) of the total voting power represented by the voting securities of Telegen,
as the case may be, or such surviving entity outstanding immediately after such
merger or consolidation; or
(iii) the shareholders of Telegen approve a plan of
complete liquidation of Telegen, as the case may be, or an agreement for the
sale or disposition by Telegen, as the case may be, of all or substantially all
Telegen's assets, as the case may be.
(c) Option Provisions. The Executive Options shall be granted
under the Company's 1996 Stock Option Plan (the "Stock Plan") and, except as
expressly provided otherwise in this paragraph 6, shall be subject to the terms
and conditions of the Stock Plan and form of option agreement; provided,
however, that the Company's Board of Directors may, in its discretion, grant the
Executive Options outside of the Stock Plan, and any such option shall include
such other terms as the Board of Directors may specify that are not inconsistent
with the terms hereof, including (i) the ability to exercise the Executive
Options for one (1) year after the termination of the Executive's employment or
one (1) year after the death or disability of the Executive and (ii) the ability
of the Executive to exercise by cash or full recourse promissory note or a
combination thereof all or part of the Executive Options as to both vested and
unvested shares upon execution of a stock restriction agreement providing for
substantially similar vesting restrictions contained in paragraph 6(b) hereof as
to such unvested shares.
(d) Buy-Back Election. If after the third anniversary from the
date hereof, the Company is not a reporting company under the Exchange Act of
1934, trading on an automated quotation system or a national exchange, the
Executive shall have the right to engage a professional appraiser, at his
expense, to estimate the fair market value, on a net exercise basis (the "Equity
Value") of the vested portion of the Executive Options and give the Company
written notice (the "Notice") of (i) his commitment to exercise his buy-back
election hereunder and (ii) the date he will exercise his buy- back election
hereunder (the "Buy Back Date"), such date not to be less than thirty (30) days
prior to, nor more than forty-five (45) days from the date the Notice is
received by the Company. Without receipt of the Notice by the Company, Telegen
Corporation, a California corporation, shall not be required to
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<PAGE>
effectuate the provisions of this paragraph. Upon receipt of the Notice, the
parties to this Agreement shall be bound to perform the provisions of this
paragraph 6(d).
On the Buy Back date, Telegen shall purchase the Equity Value
from the Executive through the issuance of a number of Telegen common shares
equal to the Equity Value divided by the Telegen common stock fair market value
(the "Telegen Common Stock FMV"). A fractional share resulting from this
calculation, if any, shall be rounded down to zero. The Telegen Common Stock FMV
shall mean the value determined at Telegen's election of the average closing
market price on any exchange, for the five days prior to the Buy Back Date, or
the fair market value of the Telegen common stock as determined by a certified
appraiser.
7. Board Seat. As soon as practicable and in connection with this
Agreement, the Board of Directors of the Company shall duly appoint the
Executive to the Board of Directors of the Company and shall solicit the
shareholders of the Company for their approval, to the extent necessary.
8. Expenses. The Executive shall be entitled to reimbursement by the
Company for all reasonable, ordinary, and necessary travel, entertainment, and
other expenses incurred by the Executive during the term of this Agreement (in
accordance with the policies and procedures established by the Company for its
senior executive officers) in the performance of his duties and responsibilities
under this Agreement; provided, however, that the Executive shall properly
account for such expenses in accordance with the Company's policies and
procedures.
9. Legal Expenses. The legal expenses incurred by the Executive in
connection with the review of and counsel with respect to this Agreement shall
be paid by the Company, up to $2,500.
10. Personal Life Insurance; Other Benefits. The Company shall maintain
and pay for a personal term life insurance policy for the Executive, with a face
value amount of up to $500,000, with the beneficiary of such policy to be
designated by the Executive. The Executive shall be entitled to participate in
employee benefit plans or programs of Telegen, to the extent that his position,
tenure, salary, age, health, and other qualifications make him eligible to
participate, subject to the rules and regulations applicable thereto.
11. Vacations and Holidays. The Executive shall be entitled to paid
vacation time and Company holidays in accordance with the Company's policies in
effect from time to time for its senior executive officers.
12. Other Activities. The Executive shall devote substantially all of
his working time and efforts during the Company's normal business hours to the
business and affairs of the Company and its subsidiaries and to the diligent and
faithful performance of the duties and responsibilities duly assigned to him
pursuant to this Agreement, except for vacations, holidays, and sickness. The
Executive may, however, devote a reasonable amount of his time to civic,
community, or charitable activities and, with the prior written approval of the
Board of Directors, to serve as a director of other corporations and to other
types of business or public activities not expressly mentioned in this
paragraph. No prior Board
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<PAGE>
of Director's approval will be required for the Executive to serves as a
director of other corporations or entities on which the Executive already serves
as a director as of the date hereof.
13. Termination Benefits. In the event the Executive's employment
terminates, then the Executive shall be entitled to receive severance and other
benefits as follows:
(a) Base Salary.
(i) Involuntary Termination Without Cause. If the
Company terminates the Executive's employment without Cause, then in lieu of any
severance benefits to which the Executive may otherwise be entitled under any
Company severance plan or program, the Executive shall be entitled on such date
to a lump-sum payment of his Base Salary for one year from the date of such
termination at the rate applicable on such date;
(ii) Other Termination. In the event the Executive's
employment terminates for any reason other than as described in paragraph
13(a)(i) above, then the Executive shall be entitled to receive severance and
any other benefits only as may then be established under the Company's existing
severance and benefit plans and policies at the time of such termination.
(b) Options.
(i) Involuntary Termination Without Cause. In the
event the Executive's employment is terminated as described in paragraph
13(a)(i), the Executive Options shall be deemed vested as to all the shares
under the First Option, whether vested or not as of such termination date;
vested only as to the vested shares under the Second Option as of such
termination date; and, the Executive shall lose all vesting rights as to any
additional unvested shares under the Second Option.
(ii) Other Termination. In the event the Executive's
employment is terminated for any reason other than as described in paragraph
13(a)(i), then the Executive Options shall be deemed vested only as to the
vested shares as of such date, and shall lose all vesting rights as to any
additional unvested shares under the Executive Options.
(c) Bonuses.
(i) Involuntary Termination Without Cause.
(1) In the event the Executive's employment
is terminated as described in paragraph 13(a)(i) prior to the end of one year
from the Effective Date, then the Executive shall be entitled to receive the
Bonus described in paragraph 5 to the extent he would have been entitled to such
Bonus had he remained an employee of the Company through the end of the first
year following the Effective Date;
(2) In the event the Executive's employment
is terminated as described in paragraph 13(a)(i) on or after one year form the
Effective Date and prior to two years from the
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<PAGE>
Effective Date, then the Executive shall be entitled to receive a pro-rated
portion of the Bonus described in paragraph 5 as if he had remained an employee
of the Company through the end of the second year following the Effective Date
and achieved one hundred percent (I 00%) of the Critical Performance Targets;
provided, however that if the Board of Directors and the Executive had agreed on
interim Critical Performance Targets (whether monthly, quarterly, or
semi-annual), prior to the termination of the Executive, then the assumption
regarding the Executive's achievement will be adjusted to the extent of the
Executive's success in meeting such interim Critical Performance Targets.
(ii) Other Termination. In the event the Executive's
employment is terminated by reason other than as described in 13(a)(i), then the
Executive shall not be entitled to any Bonus which has not accrued as of such
date.
(d) Additional Definition of Involuntary Termination Without
Cause. To the extent the Executive's duties shall be materially reduced in
nature, character or responsibility from those contemplated in paragraph 1, the
Executive shall have the option for thirty (30) days from such date, to (i),
terminate his employment with the Company or (ii) enter into an agreement with
the Company, specifying the Executive's revised duties. To the extent the
Executive terminates his employment under 13(d)(i) or the Executive and the
Company cannot come to an agreement under 13(d)(H), such termination shall be
deemed to be for the purposes of this paragraph 13 to be "Involuntary
Termination Without Cause."
The Executive shall not have the obligation to mitigate damages to receive the
termination benefits under paragraphs 13(a)(i), 13(b)(i), or 13(c)(i).
Notwithstanding any of the above provisions of this paragraph 13, to the extent
the Executive breaches either paragraph 14 or 15 hereunder, he shall not be
entitled to any termination benefits under this paragraph 13.
14. Proprietary Information. The Executive shall not, without the prior
written consent of the Board of Directors, disclose or use for any purpose
(except in the course of his employment under this Agreement and in furtherance
of the business of the Company or any of its affiliates or subsidiaries) any
confidential information or proprietary data of the Company. As an express
condition of the Executive's employment with the Company, the Executive agrees
to execute confidentiality agreements as requested by the Company, including but
not limited to the Company's standard form of proprietary information agreement.
The Executive's obligations under this paragraph 14 shall also be in full force
in effect as to Telegen.
15. Non-Solicit. The Executive covenants and agrees with the Company
that during his employment with the Company and for a period expiring three (3)
years after the date of termination of such employment, he will not solicit any
of the Company's then-current employees to terminate their employment with the
Company or to become employed by any firm, Company, or other business enterprise
with which the Executive may then be connected.
16. Right to Advice of Counsel. The Executive acknowledges that he has
consulted with counsel and is fully aware of his rights and obligations under
this Agreement.
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<PAGE>
17. Successors. The Company and Telegen will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Telegen would be required to perform it if no such
succession had taken place. Failure of Telegen to obtain such assumption
agreement prior to the effectiveness of any such succession shall entitle the
Executive to the benefits described in paragraphs 13(a)(i), 13(b)(i) and
13(c)(i) of this Agreement, subject to the terms and conditions therein.
18. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be Settled exclusively by arbitration in
San Mateo County, California, in accordance with the rules of the American
Arbitration Association then in effect, with the right of discovery limited to
five (5) depositions, thirty-five (35) interrogatories, and reasonable request
for documents, by any party, by an arbitrator selected by both parties within
ten (10) days after either party has notified the other in writing that it
desires a dispute between them to be settled by arbitration. In the event the
parties cannot agree on such arbitrator within such ten- (10-) day period, each
party shall select an arbitrator and inform the other party in writing of such
arbitrator's name and address within five (5) days after the end of such ten-
(10-) day period and the two arbitrators so selected shall select a third
arbitrator within fifteen (15) days thereafter; provided, however, that in the
event of a failure by either party to select an arbitrator and notify the other
party of such selection within the time period provided above, the arbitrator
selected by the other party shall be the sole arbitrator of the dispute. Each
party shall pay its own expenses associated with such arbitration, including the
expense of any arbitrator selected by such party and the Company will pay the
expenses of the jointly selected arbitrator. The decision of the arbitrator or a
majority of the panel of arbitrators shall be binding upon the parties and
judgment in accordance with that decision may be entered in any court having
jurisdiction thereover. Punitive damages shall not be awarded.
19. Absence of Conflict. The Executive represents and warrants that his
employment by the Company as described herein shall not conflict with and will
not be constrained by any prior employment or consulting agreement or
relationship.
20. Assignment. This Agreement and all rights under this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
parties hereto and their respective personal or legal representatives,
executors, administrators, heirs, distributees, devisees, legatees, successors
and assigns. This Agreement is personal in nature, and neither of the parties to
this Agreement shall, without the written consent of the other, assign or
transfer this Agreement or any right or obligation under this Agreement to any
other person or entity; except Telegen may assign this Agreement to any of its
affiliates or wholly-owned subsidiaries, provided, however that such assignment
will not relieve Telegen of its obligations hereunder. If the Executive should
die while any amounts are still payable to the Executive hereunder, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the Executive's devisee, legatee, or other designee
or, if there be no such designee, to the Executive's estate.
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<PAGE>
21. Notices. For purposes of this Agreement, notices and other
communications provided for in this Agreement shall be in writing and shall be
delivered personally or sent by United States certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive: Fred Kashkooli
10830 Santa Teresa Drive
Cupertino, CA 95014
If to the Company: Telegen Corporation
101 Saginaw Drive
Redwood City, CA 94063
Attn: Chairman of the Board
or to such other address or the attention of such other person as the recipient
party has previously furnished to the other party in writing in accordance with
this paragraph. Such notices or other communications shall be effective upon
delivery or, if earlier, three (3) days after they have been mailed as provided
above.
22. Integration. This Agreement represents the entire agreement and
understanding between the parties as to the subject matter hereof and supersedes
all prior or contemporaneous agreements whether written or oral. No waiver,
alteration, or modification of any of the provisions of this Agreement shall be
binding unless in writing and signed by duly authorized representatives of the
parties hereto.
23. Waiver. Failure or delay on the part of either party hereto to
enforce any right, power, or privilege hereunder shall not be deemed to
constitute a waiver thereof. Additionally, a waiver by either party or a breach
of any promise hereof by the other party shall not operate as or be construed to
constitute a waiver of any subsequent waiver by such other party.
24. Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal, or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality, or unenforceability will not affect
any other provision or any other jurisdiction.
25. Headings. The headings of the paragraphs contained in this
Agreement are for reference purposes only and shall not in any way affect the
meaning or interpretation of any provision of this Agreement.
26. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California as applied to agreements
between California residents entered into and to be performed entirely within
California.
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<PAGE>
27. Counterparts. This Agreement may be executed in one or more
counterparts, none of which need contain the signature of more than one party
hereto, and each of which shall be deemed to be an original, and all of which
together shall constitute a single agreement.
28. Termination of Obligations of Telegen. Any obligations of Telegen
hereunder shall cease upon the fifth anniversary of the Effective Date.
IN WITNESS WHEREOF, each of the parties has executed this Employment
Agreement, in the case of the Company by its duly authorized officer, as of the
day and year first above written.
"COMPANY" TELEGEN CORPORATION
By:______________________________________
Gilbert Decker, Chairman of the Board
_________________________________________
"EXECUTIVE" Fred Kashkooli
[Employment Agreement Signature Page]
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EXHIBIT 10.22
TELEGEN CORPORATION
EXCHANGE OFFER
I. GENERAL UNDERSTANDINGS.
1. Eligibility. This Exchange Offer Agreement is being made available
by Telegen Corporation, a California corporation (the "Company") to certain
holders of the Company's unregistered Common Stock (each a "Holder") as of March
___, 1998. Each Holder desiring to enter into this Exchange Offer must execute
this Agreement and provide a complete address on the last page hereof.
2. Exchange Terms. Any eligible Holder, at its election, may
voluntarily enter into this Exchange Offer and deliver to the Company either (i)
its original unregistered Stock Certificate (the "Stock Certificate") evidencing
that the Stock Certificate is being cancelled or (ii) Lost Stock Certificate
Affidavit substantially in the form attached hereto as Exhibit A indicating that
the Stock Certificate being cancelled cannot be located, and shall receive from
the Company a (x) Convertible Subordinated Promissory Note substantially in the
form attached hereto as Exhibit B, evidencing indebtedness in an amount equal to
the number of shares being surrendered multiplied by the average of the five day
closing prices of the Common Stock as reported on the OTC Bulletin Board prior
to March 17, 1998, and (y) the Registration described in Article III below.
II. REPRESENTATIONS AND WARRANTIES.
In connection with the issuance of the Note and the common stock of the
Company (the "Common Stock"), if any, issuable upon conversion of the Note,
Holder hereby represents and warrants as follows:
1. Acquired Entirely for Own Account. Holder's execution of this
Agreement confirms that the Note or any Common Stock will be acquired for
investment for Holder's own account, not as a nominee or agent, and not with a
view to the resale or distribution of any part thereof, and that Holder has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing the Agreement, Holder further represents
that it does not presently have any contract, undertaking, agreement, or
arrangement with any person to sell, transfer, or grant participation to such
person or to any third person, with respect to any portion of the Note or any
Common Stock.
<PAGE>
2. Qualified Investor. Holder represents and warrants that it is an
"Accredited Investor" as that term is defined in Rule 501(a) promulgated
pursuant to the Securities Act of 1933, as amended (the "Act"). Holder also
represents and warrants that it either has a pre-existing business or personal
relationship with Telegen Corporation, a California corporation (the "Company"),
or any of its officers, directors, or controlling persons, or by reason of the
Holder's business or financial experience or the business or financial
experience of the Holder's professional advisors who are unaffiliated with and
who are not compensated by the Company, directly or indirectly could be
reasonably assumed to have the capacity to evaluate the merits and risks of an
investment in the Company and to protect the undersigned's own interests in
connection with these transactions.
3. Disclosure of Information. Holder understands that the Company is a
public reporting Company under the 1934 Act and that it is current in its
reporting requirements and that such reports represent all the information
Holder considers necessary or appropriate for deciding whether to acquire the
Note, and that in particular, the Holder has been furnished with and has
carefully read the Company's Annual Report on Form 10-K dated March 31, 1997,
amended on April 9 and April 30, 1997, the Proxy Statement delivered to the
Company's Shareholders dated July 9, 1997, Quarterly Report on Form 10-Q dated
May 15, 1997, the Quarterly Report on Form 10-Q dated August 14, 1997, the
Quarterly Report on Form 10-Q dated November 14, 1997, Current Reports on Form
8-K dated January 15, 1997 (amended March 14, 1997), January 21, 1997, February
7, 1997, March 25, 1997, May 9, 1997, May 19, 1997, July 8, 1997, August 11,
1997, August 19, 1997, October 15, 1997, January 15, 1998, the Company's press
releases on October 31, 1997 and January 6, 1998, and disclosure regarding the
risk factors relating to the Company, attached hereto as Exhibit C. [needs to be
updated]
4. Investment Experience. Holder is an investor in securities of
companies in the development stage and acknowledges that it is able to fend for
itself, can bear the economic risk of its investment, and has directly, or
indirectly through its agents, advisors or other persons on which it relies,
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Stock.
Holder also represents it has not been organized for the purpose of acquiring
the Note.
5. Restricted Securities. Holder understands that the Note, and any
Common Stock issued upon conversion of the Note, will be characterized as
"restricted securities" under the federal securities laws inasmuch as they are
being acquired from the Company in a transaction not involving a public offering
and that under such laws and applicable regulations the Note, or any Common
Stock issued upon conversion of the Note, may be resold without registration
under the Act only in certain limited circumstances.
2
<PAGE>
6. Further Limitations on Disposition. Without in any way limiting the
representations set forth above, Holder further agrees not to make any
disposition of all or any portion of the Note, or any common stock issued upon
conversion of the Note, unless and until:
(i) There is then in effect a Registration Statement under the
Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(ii) (a) Holder shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (b)
Holder shall have furnished the Company with an opinion of counsel, reasonably
satisfactory to the Company, that such disposition will not require registration
under the Act.
7. Responsibility for Tax Consequences. Holder has had an opportunity
to review the federal, state, local, and foreign tax consequences of this
investment (including any tax consequences that may result now or in the future
under recently enacted tax legislation) and has had the opportunity to consult
with its tax advisors, if any, regarding such consequences. Holder acknowledges
that it is not relying on any statements or representations of the Company or
any of its agents in regard to such tax consequences and understands that Holder
(and not the Company) shall be responsible for his own tax liability that may
arise as a result of this investment. Holder acknowledges that the Company has
no obligation in regard to the future conduct of its business to act or refrain
from acting in any manner, regardless of the loss of any tax benefit to Holder
in connection with the purchase, ownership, or sale of the Note, which may
result from such action or inaction.
8. Legends. It is understood that the Note and any securities issued in
respect thereof or exchange therefor may bear the following legend and any other
legend which is required by law or that the Company deems advisable:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID
ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED."
3
<PAGE>
III. REGISTRATION RIGHTS.
The Company hereby grants to Holder registration rights as follows: the
Company shall prepare and file as soon as practicable, a Registration Statement
on Form S-3 or any other Form that is available to the Company at that time (the
"Registration Statement") covering the issuance of the Common Stock upon
conversion of the Note. The Company further agrees to use its best efforts to
cause the Registration Statement to be declared effective by the Securities and
Exchange Commission after its filing. The Company shall pay all expenses of such
registration and shall maintain the effectiveness of such Registration Statement
for so long as the Common Stock issued upon conversion of the Note cannot be
freely resold pursuant to Rule 144.
IV. MISCELLANEOUS.
1. Neither this Exchange Offer Agreement nor any provision hereof shall
be waived, modified, changed, discharged, terminated, revoked, or canceled,
except by an instrument in writing effecting the same signed by the Company.
2. Failure of the Company to exercise any right or remedy under this
Exchange Offer Agreement or any other agreement between the Company and the
undersigned, or otherwise, or delay by the Company in exercising such right or
remedy, will not operate as a waiver thereof. No waiver by the Company will be
effective unless and until it is in writing and signed by the Company.
3. This Exchange Offer Agreement shall be enforced, governed, and
construed in all respects in accordance with the laws of the State of
California, and shall be binding upon Holder, Holder's heirs, estate, legal
representatives, successors and assigns and shall inure to the benefit of the
Company, its successors, and assigns. Any provision hereof that may prove
invalid or unenforceable under any law shall not affect the validity or
enforceability of any other provision hereof.
4. This Exchange Offer Agreement and the Note constitute the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersede in their entirety all prior undertakings of the Company and Holder
with respect to the subject matter hereof, and may be amended only by a writing
executed by both parties hereto.
5. This Exchange Offer Agreement may be signed in counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
4
<PAGE>
IN WITNESS WHEREOF, the Company and Holder have caused this Exchange
Offer Agreement to be signed by their respective officers thereunto duly
authorized and this Exchange Offer Agreement shall be deemed effective as of the
date first above written.
THE COMPANY
By: _______________________________________________
Fred Y. Kashkooli, Chief Executive Officer
HOLDER:
_________________________________________
By:______________________________________
Name:____________________________________
Title:_____________________________________
HOLDER'S ADDRESS: ______________________________
______________________________
______________________________
5
<PAGE>
Exhibit A
LOST STOCK CERTIFICATE AFFIDAVIT
The undersigned holder of the Common Stock,
_____________________________ (the "Holder"), is holder of the Company's Common
Stock certificate #_______________ (the "Certificate") issued on
_______________, 19____ for _____________ shares of Common Stock of Telegen
Corporation, a California corporation (the "Company").
Holder hereby certifies that said Certificate is lost and cannot, after
diligent search, be found and agrees that in the event it is found, Holder will
forthwith deliver it to the Company.
The Holder further certifies that said Certificate shall be deemed
surrendered for cancellation from the date hereof and releases said corporation
from any and all liability thereunder, except as herein provided.
The Holder agrees to defend and indemnify the Company and hold the
Company harmless from any damage or loss caused by or in any way relating to the
loss of said Certificate, or the issuance of a new Certificate.
The Holder further certifies that Holder has not assigned or
transferred said Certificate or any rights thereunder to any person.
The Holder hereby authorizes any officer of the Company to issue a new
Certificate exercisable for _______________ shares of Common Stock to replace
said lost Certificate.
_________________________________________
Print Name
_________________________________________
Signature
_________________________________________
Date
<PAGE>
Exhibit B
FORM OF CONVERTIBLE SUBORDINATED 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.
[Any additional restrictive legends endorsed on Common Stock certificates
tendered for this Note.]
TELEGEN CORPORATION
Convertible Subordinated Promissory Note
$_________________ Redwood City, California
March ___, 1998
FOR VALUE RECEIVED, TELEGEN CORPORATION, a California corporation
(together with its successors and assigns, the "Company"), promises to pay to
the order of ______________, ______________ (the "Holder"), (i) an amount (the
"Face Value") of ($)___________ which is equal to the average of the five day
closing prices of the Company's Common Stock as reported on the OTC Bulletin
Board prior to March 17, 1998 (the "Conversion Price") multiplied by the number
of shares of Common Stock being surrendered by the Holder for this Convertible
Promissory Note (the "Note") 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, (x) by check or (y)
in stock, if the Holder consents in writing, at the Conversion Price.
This Note is issued pursuant to the Common Stock Exchange Offer dated
as of March __, 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:
<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.
(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. 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 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 Company elects to prepay all or
part of its Repayment Obligations in stock or if the Holder elects to convert
under Section 2(a) above. Upon any such conversion, the Holder 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.
-2-
<PAGE>
(iii) Any other restrictive legends which may
currently exist or the shares of
Common Stock being surrendered for this Note.
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.
(iii) Any legend endorsed on a certificate pursuant
to Section 3(a)(iii) and the stop transfer instructions with respect to the
Shares evidenced by such certificate shall be removed by the Company upon
written request by a holder thereof demonstrating that such legend is
inapplicable at such time.
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":
(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
-3-
<PAGE>
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 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 (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, (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 or necessary
-4-
<PAGE>
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 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 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. Subordination. The indebtedness evidenced by this Note is hereby
expressly subordinated to all existing indebtedness of the Company (the
"Indebtedness"), in right of payment and in liquidation. No payment of principal
or interest shall be made on this Note as long as the Company is in default of
any of the Indebtedness. In liquidation, any payment of the Note shall be
subrogated to any and all payments on the Indebtedness. In addition, no payment
shall be made in respect of the principal or interest on the Note, if such
payment would result directly in an event of default with respect to the
Indebtedness.
9. 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.
10. Amendment and Waiver. The rights of the Holder may be amended or
waived upon the written consent of the Company and the Holder.
11. 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.
-5-
<PAGE>
12. 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: _______________________________
-6-
<TABLE>
Telegen Corporation and Subsidiaries
Computation of Earnings Per Share
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Loss attributable to common shareholders:
Loss before extraordinary gain $(10,455,911) $ (5,115,026) $ (2,542,838)
Reconciling Items:
Accretion of preferred stock discount (1,078,055) 0 0
Preferred stock dividends (145,146) 0 0
------------ ------------ ------------
Loss attributale to common shareholders before extraordinary gain (11,679,112) (5,115,026) (2,542,838)
Extraordinary gain 536,179 0 0
------------ ------------ ------------
Loss attributable to common shareholders $(11,142,933) $ (5,115,026) $ (2,542,838)
Weighted average common shares outstanding for determination of:
Basic earnings per share 5,547,015 4,418,099 2,882,961
============ ============ ============
Diluted earnings per share 5,547,015 4,418,099 2,882,961
============ ============ ============
Net loss per common share attributable to common shareholders:
Basic:
Loss before extraordinary gain $ (2.11) $ (1.16) $ (0.88)
Extraordinary gain $ 0.10 $ 0.00 $ 0.00
------------ ------------ ------------
Net loss $ (2.01) $ (1.16) $ (0.88)
============ ============ ============
Diluted:
Loss before extraordinary gain $ (2.11) $ (1.16) $ (0.88)
Extraordinary gain $ 0.10 $ 0.00 $ 0.00
------------ ------------ ------------
Net loss $ (2.01) $ (1.16) $ (0.88)
============ ============ ============
</TABLE>
<TABLE>
EXHIBIT 12.1
Telegen Corporation
Earnings to fixed charges ratio
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
For the years ended December 31:
Pretax loss ($10,455,911) ($5,115,026) ($2,542,838) ($1,943,712) ($168,722)
------------ ----------- ----------- ----------- ---------
Fixed Charges
Interest 89,364 146,650 58,846 30,658 11,488
Amortized debt expense 0 178,933 22,259 0 0
Rental expense 59,904 25,441 20,262 10,264 5,603
Preferred stock
dividend and
accretion of
preferred stock
discounts requirement 1,223,201 0 0 0 0
------------ ----------- ----------- ----------- ---------
Total fixed charges 1,372,469 351,024 101,367 40,922 17,091
------------ ----------- ----------- ----------- ---------
Earnings ($ 9,083,442) ($4,764,002) ($2,441,471) ($1,902,790) ($151,631)
============ =========== =========== =========== =========
Earnings to fixed charges ratio ($6.62) ($13.57) ($24.09) ($46.50) ($8.87)
============ =========== =========== =========== =========
</TABLE>
SUBSIDIARIES OF THE REGISTRANT
Telegen Communication Corporation (Wholly-Owned Subsidiary)
Telegen Display Laboratories, Inc. (Second Tier Subsidiary)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEETS OF TELEGEN CORPORATION AS OF DECEMBER 31, 1997 AND 1996 AND THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996
AND 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 275,891 3,166,657
<SECURITIES> 0 0
<RECEIVABLES> 66,000 17,784
<ALLOWANCES> 66,000 0
<INVENTORY> 75,760 173,841
<CURRENT-ASSETS> 610,249 3,994,594
<PP&E> 2,253,008 1,193,341
<DEPRECIATION> 706,825 328,967
<TOTAL-ASSETS> 2,231,614 5,727,322
<CURRENT-LIABILITIES> 2,901,366 1,292,533
<BONDS> 0 0
0 0
0 0
<COMMON> 16,031,336 10,399,318
<OTHER-SE> (17,501,088) (6,308,155)
<TOTAL-LIABILITY-AND-EQUITY> 2,231,614 5,727,322
<SALES> 463,486 23,700
<TOTAL-REVENUES> 1,038,402 541,056
<CGS> 234,292 18,083
<TOTAL-COSTS> 328,085 86,695
<OTHER-EXPENSES> 11431110 5869211
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 89,364 146,650
<INCOME-PRETAX> (10,455,911) (5,115,026)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (10,455,911) (5,115,026)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 536,179 0
<CHANGES> 0 0
<NET-INCOME> (9,919,732) (5,115,026)
<EPS-PRIMARY> (2.01) (1.16)
<EPS-DILUTED> (2.01) (1.16)
</TABLE>
