Ex-10.36
Selling Agreement by and between the Company and
WMS Financial Planners, Inc. and Pacific West Securities, Inc.
dated March 20, 2000
EXHIBIT 10.36
SELLING AGREEMENT
TELEGEN CORPORATION
$25,000,000
Up to 2,500,000 Shares of Common Stock
March 20, 2000
Xx. Xxxxxxx X. Xxxxxx, XX, CFP
President
WMS Financial Planners, Inc.
0000 Xxxxxxxx Xxx Xxxx,
Xxxxxxx, XX 00000
Xx. Xxxxxxxx Xxxxxxxx
President
Pacific West Securities, Inc.
0000 XX 0xx Xxxxxx, Xxxxx 000,
Xxxxxx, XX 00000
Ladies and Gentlemen:
Telegen Corporation, a California corporation, (the "Company") proposes to
offer, sell and issue in the aggregate up to 2,500,000 shares (the "Shares") of
Common Stock, no par value, (the "Offering") at a price of (i) $10.00 per Share
for the first $10,000,000 raised (the "$10 Shares"), (ii) a price per share to
be determined by market conditions jointly by the Selling Agents and the Company
(the "Second Offering Exercise Price"), for the next $10,000,000 raised (the
"Second Offering Shares") and (iii) a price per share to be determined by market
conditions jointly by the Selling Agents and the Company (the "Third Offering
Exercise Price"), for the last $5,000,000 raised (the "Third Offering Shares"),
for total gross proceeds of up to $25,000,000. The Offering shall commence with
the $10 Shares being offered and sold, and thereafter the Second Offering Shares
shall be offered and sold, and thereafter the Third Offering Shares shall be
offered and sold. The Company hereby engages Pacific West Securities, Inc.
("PW") as its managing broker-dealer (the "Managing Dealer") and WMS Financial
Planners, Inc. ("WMS") as its investment banker (the "Adviser") and PW and WMS
jointly as its agents (PW and WMS are referred to herein as the "Selling
Agents") to offer, offer for sale, and sell the Offering, subject to all of the
terms, provisions, and conditions of this Agreement and pursuant to all of the
terms, provisions, and conditions set forth in a confidential Disclosure
Memorandum of the Company to be issued on or about March 15, 2000 (the
"Memorandum"). Further, the Offering shall be conducted on a "best efforts
basis.
(1) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the Selling Agents that:
a. The Company will carefully and diligently prepare the
Memorandum and all exhibits thereto, all in compliance
with Rule 506 of Regulation D under the Securities Act
of 1933, as amended (the "Act"), and with applicable
provisions of the securities laws of the various states
in which it is contemplated that the Shares will be
offered. The Memorandum shall be supplemented upon the
sale of the $10 Shares to so disclose such sale and the
offering of the Second Offering Shares and shall be
supplemented upon the sale of the Second Offering Shares
to so disclose such sale and the offering of the Third
Offering Shares.
b. The Memorandum, as of the date issued, will conform in
all material respects to the applicable provisions of
the Act and the rules and regulations promulgated
thereunder (the "Rules and Regulations"), and, to the
best of the Company's knowledge, will not contain any
untrue
statement of a material fact or omit to state any
material fact required to be stated therein or necessary
to make the statements therein not misleading.
c. From the effective date of the Memorandum and until the
Termination Date (as defined below), and except as
contemplated in the Memorandum, the Company shall
promptly prepare a supplement to the Memorandum advising
the Managing Dealer and Selling Agents of any of the
following events, if they occur: If the Company incurs
any material liabilities or obligations, direct or
contingent, not in the ordinary course of its business,
or if the Company enters into any material transaction,
not in the ordinary course of its business, or sustains
any loss or damage to its properties, whether or not
insured, which would be material and adverse to the
business of the Company; or if there occurs any material
adverse change in the capital stock or debt of the
Company, or any material adverse change (whether or not
in the ordinary course of business) in the condition,
financial or otherwise, or earnings, affairs, or
business of the Company. Prior to the Termination Date,
the Company shall not declare any dividends or
distributions in respect of its capital stock or change
its Articles of Incorporation or bylaws in any way that
adversely affects the Shares.
d. The Shares shall be duly authorized and, upon receipt by
the Company of the consideration for the Shares, shall
be validly issued, fully paid and nonassessable Shares
of the Company, and shall conform to the description
thereof contained in the Memorandum.
(2) EMPLOYMENT OF THE SELLING AGENT.
a. Subject to the terms and conditions herein set forth,
the Company hereby employs the Selling Agents, for the
purpose of offering and selling the Shares, as provided
in this Agreement on a best efforts basis. The Company
employs the Selling Agents as its agent commencing as of
the date hereof and until the Termination Date or June
30, 2000, whichever date is earliest, (which date may be
extended by written agreement between the Selling Agents
and the Company until September 30, 2000) which date, or
shortened or extended date, is referred to herein as the
"Termination Date." The Selling Agents agree to use
their best efforts to sell the Shares as the Company's
agent. It is understood and agreed that there is no firm
commitment on the part of the Selling Agents to purchase
any of the Shares.
b. The Selling Agents shall offer and sell the Shares
hereunder at prices per Share as set forth in the first
paragraph of this Agreement and on the terms of sale set
forth in the Memorandum. Subject to the receipt by the
Company of the proceeds from the sale thereof, the
Selling Agents shall be entitled to a commission as
follows:
(i) A commission of eight percent (8%) of the gross
proceeds of the sale of the Shares, payable by
the Company to the Selling Agents in cash or
Shares of Common Stock priced at (i) $10.00 per
share for sales of the $10 Shares, (ii) the
Second Offering Exercise Price for the Second
Offering Shares and (iii) the Third Offering
Exercise Price for the Third Offering Shares, or
any combination thereof, at the option of the
Selling Agents.
(ii) An adviser fee of two and one half percent
(2.5%) of the gross proceeds of the sale of the
Shares, payable by the Company to WMS as
Advisor. This commission shall be payable as
follows: one percent (1%) in cash or Shares of
Common Stock priced at (i) $10.00 per share for
sales of the $10 Shares, (ii) the Second
Offering Exercise Price for the Second Offering
Shares and (iii) the Third Offering Exercise
Price for the Third Offering Shares, or any
combination thereof, at the option of WMS, and
one and one half percent (1.5%) in Shares of
Common Stock priced at (i) $10.00 per share for
sales of the $10 Shares, (ii) the Second
Offering Exercise Price for the Second Offering
Shares and (iii) the Third Offering Exercise
Price for the Third Offering Shares; plus
(iii) A commission of two and one half percent (2.5%)
of the gross proceeds of the sale of the Shares,
payable by the Company to PW as Managing Dealer.
This commission shall be payable as follows: one
percent (1%) in cash or Shares of Common Stock
priced at (i) $10.00 per share for sales of the
$10 Shares, (ii) the Second Offering Exercise
Price for the Second Offering Shares and (iii)
the Third Offering Exercise Price for the Third
Offering Shares, or any combination thereof, at
the option of PW, and one and one half percent
(1.5%) in Shares of Common Stock priced at (i)
$10.00 per share for sales of the $10 Shares,
(ii) the Second Offering Exercise Price for the
Second Offering Shares and (iii) the Third
Offering Exercise Price for the Third Offering
Shares; plus
(iv) A commission payable by the Company to the
Selling Agents in three (3) year warrants
substantially in the form attached hereto as
Exhibit 1 exercisable at (i) $10.00 per share
for sales of the $10 Shares, (ii) the Second
Offering Exercise Price for the Second Offering
Shares and (iii) the Third Offering Exercise
Price for the Third Offering Shares, at the rate
of one (1) warrant for every twenty (20) Shares
sold in the Offering (a maximum of 125,000
warrants if the full Offering is sold); plus
(v) A commission payable by the Company to PW as
Managing Dealer in three (3) year warrants
substantially in the form attached hereto as
Exhibit 1 exercisable at (i) $10.00 per share
for sales of the $10 Shares, (ii) the Second
Offering Exercise Price for the Second Offering
Shares and (iii) the Third Offering Exercise
Price for the Third Offering Shares, at the rate
of one (1) warrant for every forty (40) Shares
sold in the Offering (a maximum of 62,500
warrants if the full Offering is sold); plus
(vi) An adviser fee payable by the Company to WMS as
Advisor in three (3) year warrants substantially
in the form attached hereto as Exhibit 1
exercisable at (i) $10.00 per share for sales of
the $10 Shares, (ii) the Second Offering
Exercise Price for the Second Offering Shares
and (iii) the Third Offering Exercise Price for
the Third Offering Shares, at the rate of one
(1) warrant for forty (40) Shares sold in the
Offering (a maximum of 62,500 warrants if the
full Offering is sold).
Commissions payable hereunder shall be paid by the
Company within fifteen (15) days of receipt by the
Company of such proceeds and only following receipt of
an executed Subscription Agreement and Suitability
Questionnaire from each of the purchaser(s) thereof. All
commissions set forth in the preceding subsections shall
be payable regardless of which of the Selling Agents or
their sub-agents sells any particular Shares. Subject to
the limitations of Section 2(c) hereof, allocation of
all commissions payable under subparagraphs (i) and (iv)
of this paragraph shall be at the discretion of the
Selling Agents, and the Company shall have no interest
or responsibility in determining such allocation.
It is understood and acknowledged by the Selling Agents
that receipt of the proceeds by the Company from sale of
Shares and payment of commissions are contingent upon an
order of the U. S. Bankruptcy Court for the Northern
District of California (the "Court") confirming the
Company's Plan of Reorganization (the "Plan"). For all
purposes of this Agreement, receipt by the Company of
the proceeds of sale shall mean actual receipt by the
Company (as to the Shares, not deposit of proceeds into
the escrow fund pursuant to an Escrow Agreement), and
availability of such proceeds for use by the Company as
described in the "Use of Proceeds" section of the
Memorandum.
c. The Managing Dealer may appoint other licensed
broker-dealers to be employed as the non-exclusive
agents of the Company to offer and sell the Shares, upon
fulfillment of the following conditions:
(i) The receipt of the written consent of the
Company, which consent shall not be unreasonably
withheld;
(ii) Delivery to the Company of a Verified Statement,
executed under penalty of perjury, (i) making
the same representations regarding its licensing
status as made by the Selling Agents in
subparagraphs (5) a and (5) b hereof and (ii)
that such person is a disinterested person with
respect to the Debtor and does not hold or
represent an interest adverse to the estate
within the meaning of Section 327 of the U.S.
Bankruptcy Code.
Except as set forth in this subparagraph (c), the
Selling Agents may not appoint or employ any person or
other entity as their agent or subagent or utilize the
services of any other broker or dealer to participate in
the sale of the Shares as a soliciting or participating
dealer or otherwise.
Any such sub-agents or other broker-dealers appointed by
the Selling Agents shall be appointed solely at the
expense of the Selling Agents; the Company shall have no
liability to such persons, and the Selling Agents shall
indemnify and hold the Company harmless therefrom.
Subject to the limitations in the preceding sentence,
the Selling Agents may assign any portion of their
commission payable under this Agreement to any subagent,
broker-dealer, finder or other party by providing the
Company with written notice of assignment stating the
portion of the commission to be paid and the name,
address, phone number and tax ID number of the party to
whom the assignment is made.
d. All proceeds received from the sale of the Shares shall
be placed in an escrow, pursuant to an Escrow Agreement
between the Company, PW and the Escrow, payable to the
Company upon the confirmation of the Plan by the Court.
In the event that the Company is unable to confirm the
Plan by June 30, 2000 (or September 30, 2000, if
extended by the Company and the Selling Agents), all
proceeds from this Offering shall be returned to the
buyers of the Shares and the Offering will terminate.
e. It is understood and agreed that the Company, in its
sole discretion, may (i) terminate the Offering at any
time upon 30 days written notice, and (ii) reject any
subscription for the Shares presented to it by the
Selling Agent with such objection, if any, occurring
within 30 days of receipt by Debtor.
f. Each potential investor in the Offering shall be
required to complete a Suitability Questionnaire in a
form acceptable to the Company, which shall be provided
to the Company upon the sale of the Shares to the
investor. The Company shall determine, in its sole
discretion, whether the potential investor qualifies as
an Accredited Investor as defined in Rule 501(a) of
Regulation D under the Act. If a potential investor does
not qualify as an Accredited Investor as defined in Rule
501(a) of Regulation D under the Act, his investment
will be promptly refunded. The Company may also reject
any investor in the Offering for any reason whatsoever.
g. Certificates for Shares, registered in such names as
shall be provided for in the Subscription Agreements
executed by the purchasers thereof, sold by the Selling
Agents, shall be delivered to the Selling Agents as
promptly as practicable after receipt by the Company of
the proceeds of such sales.
h. The Company shall have the right, subject to the
approval of the Selling Agents, to compensate finders
who refer potential investors in the Offering to the
Company or the Selling Agents. Any fees or commissions
paid by the Company to such finders shall reduce the
fees and commissions due and payable to the Selling
Agents pursuant to this Section 2 by an equal amount,
such that the total fees and commissions payable to the
finder and the Selling Agents shall together equal the
amount payable under this Section 2.
(3) COVENANTS OF THE COMPANY. The Company covenants as follows:
a. To make no amendment or supplement to the Memorandum of
which the Selling Agents have not been furnished with a
copy prior to the use thereof; and to advise the Selling
Agents promptly of the issuance of any stop order or any
similar order by the Securities and Exchange Commission
or any state securities commission or agency.
b. To furnish to the Selling Agents without charge copies
of the Memorandum, including all exhibits thereto, and
all amendments and supplements to any such documents, in
each case as soon as available and in such reasonable
quantities as the Selling Agents may from time to time
request.
c. If any event shall have occurred as a result of which
the Memorandum, as then amended or supplemented, would
include any untrue statement of a material fact, or omit
to state any material fact necessary in order to make
the statements therein not misleading, to notify the
Selling Agents and, upon the request of the Selling
Agents, to prepare and furnish without charge to the
Selling Agents as many copies of a supplement or
amendment to the Memorandum which will correct such
statement or omission as the Selling Agents may from
time to time reasonably request.
(4) EXPENSES. Whether or not the transactions contemplated hereby
are consummated or if this Agreement is terminated, the Company
shall pay all costs and expenses incurred by it incident to the
performance of the obligations of the Company hereunder,
including the fees and expenses of the Company's counsel and the
costs and expenses incident to the preparation and duplication
of the Memorandum. The Selling Agents shall bear their own
expenses in connection with the Offering.
(5) REPRESENTATIONS AND WARRANTIES OF THE SELLING AGENTS. The
Selling Agents hereby represents and warrants that:
a. PW is, and at all relevant times will be, a member in
good standing of the National Association of Securities
Dealers, Inc.
b. PW is, and at all relevant times will be, a registered
broker-dealer with the Securities and Exchange
Commission and licensed and in good standing under the
laws of each state in which it will offer or sell Shares
or is exempt from registration in each such state.
c. Each person employed or appointed by the Selling Agents
to offer or sell the Shares is and will be duly
registered with the Securities and Exchange Commission,
a member in good standing of the NASD, and is and will
be licensed and in good standing under the laws of each
state in which it will offer or sell the Shares.
d. Prior to the date of the Memorandum, the Selling Agents
have not made any offers for sale of the Shares.
(6) COVENANTS OF SELLING AGENTS. The Selling Agents covenant that:
a. Each person to whom the Selling Agents will sell the
Shares shall be an Accredited Investor (as defined in
Rule 501(a) of Regulation D under the Act). The Selling
Agents shall require that each potential investor shall
fill out a Suitability Questionnaire, which shall be
promptly provided to the Company.
b. The Selling Agents will offer the Shares in compliance
with Rule 501(c) and 506 of Regulation D under the Act.
c. The Selling Agents will conduct the Offering in
compliance with all relevant provisions of state
securities laws.
d. The Selling Agents will promptly advise the Company of
the states into which they intend to offer the Shares
and they shall not offer the Shares in those states
unless and until the Company has determined that the
Offering, as applicable, complies with all applicable
state securities laws.
e. The Selling Agents will promptly furnish the Company
with a complete list of all persons or entities to whom
the Shares have been offered or sold together with the
completed and executed Subscription Agreements and
Suitability Questionnaires for each purchaser of the
Shares.
f. Neither the Selling Agents nor any officer or other
person employed by them will provide any information or
make any representations to offerees of the Shares,
other than such information and representations as are
either contained in the Memorandum or are not
inconsistent with information set forth in the
Memorandum.
g. In the event either of them learns of any circumstances
or facts which it believes would make the Memorandum
inaccurate or misleading as to any material fact, such
Selling Agent shall immediately bring such circumstances
or facts to the attention of the Company.
(7) INDEMNIFICATION.
a. The Company shall indemnify and hold harmless the
Selling Agents and each person, if any, who controls the
Selling Agents within the meaning of the Act, jointly
and severally, against any and all losses, claims,
damages, liabilities, costs, and expenses (including
reasonable attorneys' and
experts' fees), to which the Selling Agents or such
controlling person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages,
liabilities, costs, and expenses (including reasonable
attorneys' or experts' fees), or actions in respect
thereto, arise out of or are based upon any untrue
statement or alleged untrue statement of any material
fact contained in the Memorandum, or any amendment or
supplement thereto, or arise out of or are based upon
the omission or alleged omission to state therein a
material fact required to be stated therein or necessary
to make the statements therein not misleading; and shall
reimburse the Selling Agents and each such controlling
person for any reasonable legal or other expenses
incurred by such Selling Agents or such controlling
person in connection with investigating or defending any
such loss, claim, damage, liability, cost, expense, or
action; provided, however, that the Company will not be
liable in any such case to the extent that any such
loss, claim, damage, liability, or expense arises out of
or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the
Memorandum or such amendment or such supplement in
reliance upon and in conformity with information
furnished to the Company by or on behalf of the Selling
Agents.
b. Promptly after receipt by an indemnified party under
this Section 7 of notice of the commencement of any
action, such indemnified party shall, if a claim in
respect thereof is to be made against an indemnifying
party under this Section 7, notify the indemnifying
party of the commencement thereof; but the omission to
so notify the indemnifying party shall not relieve it
from any liability under this Section 7. In case any
such action is brought against any indemnified party,
and it notifies an indemnifying party of the
commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that
it may wish, jointly with any other indemnifying party
similarly notified, assume the defense thereof, with
counsel who shall be to the reasonable satisfaction of
such indemnified party, and notice from the indemnifying
party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under this
Section 7 for any legal or other expenses subsequently
incurred by such indemnified party in connection with
the defense thereof other than reasonable costs of
investigation.
(8) EFFECTIVE DATE AND TERMINATION. This Agreement shall become
effective on the date this Agreement is approved by the Court or
upon such later date as the Selling Agents and the Company shall
agree in writing. This Agreement may be terminated by the
Selling Agents, at the option of the Selling Agent by giving 30
days written notice to the Company and by the Company, at its
option, by giving 30 days written notice to the Selling Agents.
(9) REPRESENTATION AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, and
covenants of the Company and the Selling Agents set forth in
this Agreement shall remain in full force and effect, and shall
survive delivery of and payment for, the Shares.
(10) EFFECT OF TERMINATION OF AGREEMENT. If this Agreement shall be
terminated pursuant to the provisions of Section 2 or Section 8
hereof, the Company shall then be under no liability to the
Selling Agents, except for the payment of commissions as
provided in Section 2 and the indemnities provided for in
Section 7 hereof. Upon termination hereof, the Selling Agents
shall immediately cease and desist in all selling efforts
relating to the Shares.
(11) NOTICES. All requests, notices, and consents required or
permitted to be given hereby shall be in writing, and shall be
delivered either personally, by facsimile, or by courier
service. Such notices, etc., given by facsimile shall be deemed
delivered at the time shown on the confirmation report of the
sender's facsimile machine, and shall be deemed given when
received by the intended recipient if sent by either other
method. Unless a party's delivery address or facsimile number is
changed by written notice given as set forth in this section,
notices, etc. shall be delivered to the Selling Agents at the
addresses set forth at the head of this Agreement or (206)
726-1613 for the Adviser and (000) 000-0000 for the Managing
Dealer, and, shall be sent to the Company at 0000 Xxxxxxx Xxxxx,
Xxxxx 000, Xxxxxx Xxxx, Xxxxxxxxxx 00000, or (000) 000-0000 with
copies to Xxxxx X. Xxxxx, Esq., 0000 Xxxxxxx Xxxx Xxxx, 00xx
Xxxxx, Xxx Xxxxxxx, XX 00000 and (000) 000-0000.
(12) ARBITRATION. Any and all claims or disputes arising out of or
under this Agreement shall be determined and settled by
arbitration to be conducted in San Francisco, California by and
under the auspices of the American Arbitration Association. The
award of the arbitrators may be entered as a
judgment in accordance with California law.
(13) SUCCESSORS, ET CETERA. This Agreement shall be binding upon and
inure solely to the benefit of the Selling Agents and the
Company; neither party may assign its rights or responsibilities
under this Agreement without the prior written consent of the
other party. No purchaser of any of the Shares shall be
construed a beneficiary, successor or assign by reason merely of
such purchase, and this Agreement shall not be construed to be
for the benefit of any third party.
(14) APPLICABLE LAW. This Agreement shall be construed and enforced
in accordance with the laws of the State of California as
applied to contracts made and performed wholly within the State
of California.
(15) COURT APPROVAL. This Agreement is subject to approval by the
U.S. Bankruptcy Court for the Northern District of California.
Upon execution of this Agreement, the Company will promptly seek
the approval of the Court to employ the Selling Agents according
to the terms of this Agreement. The Selling Agents shall not
offer the Shares for sale until receipt of such Court approval.
(16) PRIOR AGREEMENT. This Agreement supersedes and modifies the
prior Selling Agreement entered into between the Company and the
Selling Agents dated March 8, 2000.
(17) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties and no amendment, change,
modification, or alteration of this Agreement shall be valid
unless it is in writing and signed by the parties hereto.
(18) CONSTRUCTION. As provided herein and as the context requires,
the masculine gender shall be deemed to include the feminine and
the neuter genders and vice versa; and the singular shall be
deemed to include the plural and vice versa. This Agreement may
be executed in one or more counterparts, each of which shall be
deemed a duplicate original and all of which, taken together,
shall be deemed a single agreement.
If the foregoing is in accordance with your understanding, please sign and
return to us a counterpart thereof, whereupon this letter and your acceptance
thereof shall constitute a binding agreement between you and the Company.
Very truly yours,
TELEGEN CORPORATION
/s/ XXXXXXX X. XXXXXXX
Xxxxxxx X. Xxxxxxx
President/CEO
ACCEPTED:
WMS Financial Planners, Inc.
/S/ XXXXXXX X. XXXXXX MARCH 20, 2000
------------------------------------------ ---------------------------------
Xx. Xxxxxxx X. Xxxxxx, XX, CFP Date
President
Pacific West Securities, Inc.
/S/ XXXXXXXX XXXXXXXX MARCH 20, 2000
------------------------------------------ ---------------------------------
Xx. Xxxxxxxx Xxxxxxxx Date
President
EXHIBIT 1
Form of Warrant
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
VOID AFTER ___________________
Dated: __________________
Subject to the terms and conditions set forth herein, ________________________
(the "Holder"), or registered assigns, is entitled to purchase from TELEGEN
CORPORATION, a California corporation (the "Company"), at any time from date
hereof and on or before the date of termination of this Warrant, up to
_________________ fully paid and non-assessable shares of the Company's Common
Stock, without par value, at the price of US$_____ per share. The initial
purchase price of US$_____ 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 post reorganization 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, three (3) years from the date hereof, or (ii)
the time immediately prior to the closing of (x) a merger or consolidation of
the Company with or into another entity in which the shareholders of the Company
immediately before such merger or consolidation own less than a majority of the
surviving or resulting entity's outstanding voting stock immediately thereafter,
or (y) a sale of all or substantially all of the Company's assets.
"EXERCISE PRICE" means the price per share of Common Stock set forth in
the preamble paragraph to this Warrant, as such price may be adjusted pursuant
to Section 4 hereof.
"FAIR MARKET VALUE" means the closing sale price or, if not available,
then the closing bid price on a given trading day of the Company's Common Stock
as reported on the electronic bulletin board under the symbol TLGNQ or successor
symbol or as determined by the Company's Board of Directors in good faith, as
applicable.
"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 0000 Xxxxxxx
Xxxxx, Xxxxx 000, Xxx Xxxxx, Xxxxxxxxxx, 00000, 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 in the Notice of Exercise (such aggregate Exercise
Price the "Total Exercise Price"). The Total Exercise Price shall be paid by
check or wire transfer. The Person or Person(s) in whose name(s) any
certificate(s) representing the Warrant Shares which are issuable upon exercise
of this Warrant shall be deemed to become the holder(s) of, and shall be treated
for all purposes as the record holder(s) of, such Warrant Shares, and such
Warrant Shares shall be deemed to have been issued, immediately prior to the
close of business on the date on which this Warrant and Notice of Exercise are
presented and payment made for such Warrant Shares, notwithstanding that the
stock transfer books of the Company shall then be closed or that certificates
representing such Warrant Shares shall not then be actually delivered to such
Person or Person(s). Certificates for the Warrant Shares so purchased shall be
delivered to the Holder within a reasonable time. If this Warrant is exercised
in part only, the Company shall, upon surrender of this Warrant for
cancellation, deliver the certificate(s) representing the Warrant Shares and a
new Warrant evidencing the rights of the Holder to purchase the balance of the
Warrant Shares which Holder is entitled to purchase hereunder. The issuance of
Warrant Shares upon exercise of this Warrant shall be made without charge to the
Holder for any issuance tax (as opposed to any income tax on the Holder with
respect to such issuance) with respect thereto or any other cost incurred by the
Company in connection with the exercise of this Warrant and the related issuance
of Warrant Shares.
2.2 FRACTIONAL SHARES. The Company shall not issue fractional shares
of Common Stock upon any exercise or conversion of this Warrant. As to any
fractional share of Common Stock which the Holder would otherwise be entitled to
purchase from the Company upon such exercise, the Company shall purchase from
the Holder such fractional share at a price equal to an amount calculated by
multiplying such fractional share (calculated to the nearest 1/100th of a share)
by the Fair Market Value of a share of Common Stock on the date of the Notice of
Exercise. Payment of such amount shall be made in cash or by check payable to
the order of the Holder at the time of delivery of any certificate or
certificates arising upon such exercise or conversion.
2.3 RESERVATION OF SHARES; VALIDITY OF SHARES. The Company will
reserve and keep available for issuance upon exercise of this Warrant such
number of shares of Common Stock as shall be sufficient to permit the exercise
in whole or in part of this Warrant. Upon an exercise of this Warrant by the
Holder in compliance with Section 2.1 above, all of the shares issued upon
exercise of this Warrant shall be duly and validly issued, fully paid and
non-assessable, and free and clear of any liens.
3. WARRANT RECORDS AND TRANSFER
3.1 MAINTENANCE OF RECORD BOOKS. The Company shall keep at the
Principal Executive Office a record in which, subject to such reasonable
regulations as it may prescribe, it shall provide for the registration and
transfer of this Warrant. The Company and any Company agent may treat the Person
in whose name this Warrant is registered as the owner of this Warrant for all
purposes whatsoever and neither the Company nor any Company agent shall be
affected by any notice to the contrary.
3.2 RESTRICTIONS ON TRANSFERS.
(a) COMPLIANCE WITH SECURITIES ACT. Upon exercise of this
Warrant, and unless a registration statement covering the issuance of the
underlying Common Stock is on file with the Commission and currently effective,
the Holder shall confirm in writing, by executing the form attached hereto as
EXHIBIT B, that the shares of Common Stock purchased thereby are being acquired
for investment, solely for the Holder's own account and not as a nominee for any
other Person, and not with a view toward distribution or resale.
(b) CERTIFICATE LEGENDS. This Warrant, all shares of Common
Stock issued upon exercise of this Warrant (unless registered under the
Securities Act), shall be stamped or imprinted with a legend in substantially
the following form (in addition to any legends required by applicable state
securities laws):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO
SALE OR DISPOSITION OF SUCH SECURITIES MAY BE EFFECTED WITHOUT
(i) AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO, OR
(ii) AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT
REQUIRED.
(c) DISPOSITION OF WARRANT OR SHARES. With respect to any
offer, sale or other disposition of this Warrant or any shares of Common Stock
issued upon exercise of this Warrant prior to registration under the Securities
Act of such shares, the Holder or the Shareholder, as the case may be, agrees to
give written notice to the Company prior thereto, describing briefly the
circumstances thereof, together with a written opinion of the Holder's or
Shareholder's counsel, to the effect that such offer, sale or other disposition
may be effected without registration under the Securities Act or qualification
under any applicable state securities laws of this Warrant or such shares, as
the case may be, and indicating whether or not under the Securities Act
certificates for this Warrant or such shares, as the case may be, to be sold or
otherwise disposed of require any restrictive legend as to applicable
restrictions on transferability in order to insure compliance with the
Securities Act. Promptly upon receiving such written notice and reasonably
satisfactory opinion, if so requested, the Company, as promptly as practicable,
shall notify the Holder or the Shareholder, as the case may be, that it may sell
or otherwise dispose of this Warrant or such shares, as the case may be, all in
accordance with the terms of the notice delivered to the Company. If a
determination has been made pursuant to this Section 3.2(c) that the opinion of
counsel for the Holder or the Shareholder, as the case may be, is not reasonably
satisfactory to the Company, the Company shall so notify the Holder or the
Shareholder, as the case may be, promptly after such determination has been made
and shall specify the legal analysis supporting any such conclusion.
Notwithstanding the foregoing, this Warrant or such shares, as the case may be,
may be offered, sold or otherwise disposed of in accordance with Rule 144,
provided that the Company shall have been furnished with such information as the
Company may reasonable request to provide reasonable assurance that the
provisions of Rule 144 have been satisfied. Each certificate representing this
Warrant or the shares thus transferred (except a transfer pursuant to Rule 144)
shall bear a legend as to the applicable restrictions on transferability in
order to insure compliance with the Securities Act, unless in the aforesaid
reasonably satisfactory opinion of counsel for the Holder or the Shareholder, as
the case may be, such legend is not necessary in order to insure compliance with
the Securities Act. The Company may issue stop transfer instructions to its
transfer agent in connection with such restrictions.
(d) WARRANT TRANSFER PROCEDURE. Transfer of this Warrant to
a third party, following compliance with the preceding subsections of this
Section 3.2, shall be effected by execution of the Assignment Form attached
hereto as EXHIBIT C, and surrender of this Warrant at the Principal Executive
Office, together with funds sufficient to pay any applicable transfer tax. Upon
receipt of the duly executed Assignment Form and the necessary transfer tax
funds, if any, the Company, at its expense, shall execute and deliver, in the
name of the
designated transferee or transferees, one or more new Warrants representing the
right to purchase a like aggregate number of shares of Common Stock.
(e) TERMINATION OF RESTRICTIONS. The restrictions imposed
under this Section 3.2 upon the transferability of the Warrant and the shares of
Common Stock acquired upon the exercise of this Warrant shall cease (i) with
respect to the Common Shares acquired pursuant to the exercise of this Warrant
only, if a registration statement covering the shares of Common Stock to be
issued effective under the Securities Act at the time of such exercise, or (ii)
if the Company is presented with an opinion of counsel reasonably satisfactory
to the Company that such restrictions are no longer required in order to insure
compliance with the Securities Act, or (iii) if such securities may be
transferred in accordance with Rule 144(k). When such restrictions terminate,
the Company shall, or shall instruct its transfer agent to, promptly and without
expense to the Holder or the Shareholder, as the case may be, issue new
securities in the name of the Holder and/or the Shareholder, as the case may be,
not bearing the legends required under Section 3.2(b). In addition, new
securities shall be issued without such legends if such legends may be properly
removed under the terms of Rule 144(k).
4. ANTIDILUTION PROVISIONS
4.1 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.
4.2 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.
4.3 LIQUIDATION; DISSOLUTION. If the Company shall dissolve,
liquidate or wind up its affairs, the Holder shall have the right, but not the
obligation, to exercise this Warrant effective as of the date of such
dissolution, liquidation or winding up. If any such dissolution, liquidation or
winding up results in any cash distribution to the Holder in excess of the
aggregate Exercise Price for the shares of Common Stock for which this Warrant
is exercised, then the Holder may, at its option, exercise this Warrant without
making payment of such aggregate Exercise Price and, in such case, the Company
shall, upon distribution to the Holder, consider such aggregate Exercise Price
to have been paid in full, and in making such settlement to the Holder, shall
deduct an amount equal to such aggregate Exercise Price from the amount payable
to the Holder.
5. MISCELLANEOUS
5.1 HOLDER NOT A SHAREHOLDER. Prior to the exercise of this Warrant
as hereinbefore provided, the Holder shall not be entitled to any of the rights
of a shareholder of the Company including, without limitation, the right as a
shareholder (i) to vote on or consent to any proposed action of the Company or
(ii) to receive (x) dividends or any other distributions made to shareholders,
(y) notice of or attend any meetings of shareholders of the Company, or (z)
notice of any other proceedings of the Company.
5.2 ENFORCEMENT COSTS. If any party to, or beneficiary of, this
Warrant seeks to enforce its rights hereunder by legal proceedings or otherwise,
then the non-prevailing party shall pay all reasonable costs and expenses
incurred by the prevailing party, including, without limitation, all reasonable
attorneys' fees (including the allocable costs of in-house counsel).
5.3 NONWAIVER; CUMULATIVE REMEDIES. No course of dealing or any
delay or failure to exercise any right hereunder on the part of the Holder
and/or any Shareholder shall operate as a waiver of such right or otherwise
prejudice the rights, powers or remedies of the Holder or such Shareholder. No
single or partial waiver by the Holder and/or any Shareholder of any provision
of this Warrant or of any breach or default hereunder or of any right or remedy
shall operate as a waiver of any other provision, breach, default right or
remedy or of the same provision, breach, default, right or remedy on a future
occasion. The rights and remedies provided in this Warrant are cumulative and
are in addition to all rights and remedies which the Holder and each Shareholder
may have in law or in equity or by statute or otherwise.
5.4 NOTICES. Any notice, request, or other communications required
or permitted hereunder shall be in writing and shall deemed to have been duly
given if sent by facsimile, or mailed by registered or certified mail, postage
prepaid, or by recognized overnight courier or personal delivery, addressed (a)
if to the Holder or a Shareholder, to it at the last known address appearing on
the books of the Company maintained for such purpose, or (b) if to the Company,
to it at 0000 Xxxxxxx Xxxxx, Xxxxx 000, Xxx Xxxxx, Xxxxxxxxxx 00000, attention:
Chief Executive Officer, telephone (000) 000-0000, facsimile (000) 000-0000,
with a copy (which will not constitute notice) to Xxxxx X. Xxxxx, Esq., 0000
Xxxxxxx Xxxx Xxxx, 00xx Xxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000, telephone (310)
000-0000, facsimile (000) 000-0000. Any party hereto may by notice so given
change its address for future notice hereunder. All such notices will be deemed
to have been given (i) upon confirmation of delivery, if sent by facsimile, or
(ii) upon delivery, if sent by courier or personal delivery.
5.5 SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon, the
Company and any Person succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets, and all of the
obligations of the Company with respect to the shares of Common Stock issuable
upon exercise of this Warrant, shall survive the exercise, expiration or
termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the Holder, each Shareholder and their
respective successors and assigns.
5.6 SEVERABILITY.
(a) If, in any action before any court or agency legally
empowered to enforce any term, any term is found to be unenforceable, then such
term shall be deemed modified to the extent necessary to make it enforceable by
such court or agency.
(b) If any term is not curable as set forth in subsection
(a) above, the unenforceability of such term shall not affect the other
provisions of this Warrant but this Warrant shall be construed as if such
unenforceable term had never been contained herein.
5.7 WAIVER AND AMENDMENT. Any provision of this Warrant may be
amended, waived, modified or verified, including by way of settlements or
otherwise, upon the written consent of the Company and the holders of at least a
majority-in-interest of all outstanding Warrants issued pursuant to the Note
Agreement with the same terms hereof.
5.8 GOVERNING LAW. This Warrant shall be governed by, and construed
in accordance with, the laws of the State of California applicable to contracts
entered into and to be performed wholly within California by California
residents.
5.9 EXPRESS NOTICE OF EXERCISE PERIOD. To the extent the Exercise
Period shall be determined under subsection (ii) of such definition hereof, the
Company will provide the Holder 15 days prior written notice, and thereafter the
Holder's right to exercise this Warrant shall continue until the termination of
the Exercise Period.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer on ______________________.
TELEGEN CORPORATION
By:
-------------------------------
Xxxxxxx X. Xxxxxxx
Chief Executive Officer
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))
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 therefore in the
amount of US$ , all at the price and on the terms and conditions
specified in the attached Warrant.
The undersigned requests that a certificate (or _________certificates
in denominations of ______ shares) for the shares of Common Stock of Telegen
Corporation hereby purchased be issued in the name of and delivered to
(circle one) (a) the undersigned or (b) ___________________, whose address
is____________________________________ and, if such shares of Common Stock
shall not include all the shares of Common Stock issuable as provided in the
attached Warrant, that a new Warrant of like tenor for the number of shares
of Common Stock of Telegen Corporation not being purchased hereunder be
issued in the name of and delivered to (circle one) (a) the undersigned or
(b) ________________________, whose address is _______________________.
Dated:
----------------------------
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.
EXHIBIT B
INVESTMENT REPRESENTATION CERTIFICATE
Holder:
---------------------------------------------------
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 "Holder") represents to the Company as
follows:
(a) The Holder 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
Holder 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 Holder 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 Holder's investment intent as expressed herein. In this connection, the
Holder understands that, in the view of the Securities and Exchange Commission
(the "Commission"), the statutory basis for such exemption may be unavailable if
the Holder'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 Holder 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 Holder
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 Holder 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 of securities being sold during any
three-month period not exceeding the specified limitations stated therein;
(e) The Holder 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 Holder may be precluded
from selling the Securities under Rule 144 even if the one-year minimum holding
period had been satisfied; and
(f) The Holder 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:
-------------------------------
HOLDER:
--------------------------------
EXHIBIT C
ASSIGNMENT FORM
(To be executed only upon the assignment of the attached Warrant)
FOR VALUE RECEIVED, the undersigned registered Holder of the attached
Warrant hereby sells, assigns and transfers unto ____________, whose address
is _______________ all of the rights of the undersigned under the attached
Warrant, with respect to ____________ shares of Common Stock of Telegen
Corporation and, if such shares of Common Stock shall not include all the
shares of Common Stock issuable as provided in the attached Warrant, then a
new Warrant of like tenor for the number of shares of Common Stock of Telegen
Corporation not being transferred hereunder be issued in the name of and
delivered to the undersigned, and does hereby irrevocably constitute and
appoint _________________ attorney to register such transfer on the books of
Telegen Corporation maintained for the purpose, with full power of
substitution in the premises.
Dated:
---------------------
Signature Guaranteed
-----------------------------------------
-----------------------------------------
By:
------------------------------------
(Signature of Registered Holder)
Title:
----------------------------------
NOTICE: The signature to this Assignment must correspond with the name
upon the face of the attached Warrant in every particular,
without alteration or enlargement or any change whatever.
