Ex-10.26
Note and Warrant Agreement issued in May 1998
EXHIBIT 10.26
TELEGEN CORPORATION
NOTE AND WARRANT PURCHASE AGREEMENT
This NOTE AND WARRANT PURCHASE AGREEMENT is made as of May 7, 1998, by and
between TELEGEN CORPORATION, a California corporation (the "Company"), and STOCK
ACQUISITION LLC, a Nevada limited liability company (the "Purchaser") for the
purchase of (i) a Convertible Promissory Note evidencing US$515,532 in
indebtedness, convertible to the Company's Common Stock at US$0.38 per share
(the "Note") and (ii) a warrant to purchase 1,356,663 shares of the Company's
Common Stock at a US$0.38 per share exercise price (the "Warrant").
NOW, THEREFORE, in consideration of the promises and the mutual agreements
herein set forth, the parties hereby agree as follows:
1. SALE OF NOTE AND WARRANT
1.1 AUTHORIZATION. The Company has authorized the sale and issuance of up
to US$515,532 in aggregate principal amount of indebtedness, which shall be
represented by a promissory note in substantially the form attached hereto as
EXHIBIT A. The Company has further authorized the issuance to the Purchasers of
a warrant in substantially the form attached hereto as EXHIBIT B to acquire up
to an aggregate maximum of 1,356,663 shares of the Company's Common Stock,
subject to adjustment of the exercise price and number of shares as set forth
therein.
1.2 SALE OF THE NOTE. Subject to the terms and conditions of this
Agreement, the Purchaser agrees to lend to the Company US$515,532 and the
Company agrees to issue to the Purchaser upon delivery by the Purchaser to the
Company of the aggregate consideration therefore, a Note in such principal
amount. The shares of the Company's Common Stock issued or issuable upon
exercise of the Notes are referred to herein as the "Note Stock."
1.3 SALE OF THE WARRANT. In consideration of the Purchaser entering into
this Agreement and purchasing a Note hereunder, the Company agrees to sell and
issue to the Purchaser a Warrant exercisable for 1,356,663 shares of the
Company's Common Stock subject to adjustment of the exercise price and number of
shares as set forth in the Warrant. The shares of the Company's Common Stock
issued or issuable upon exercise of the Warrant are referred to herein as the
"Warrant Stock."
1.4 DELIVERY. Upon execution of this Agreement and delivery by the
Purchaser of the US$515,532 by cashier's check made payable to the Company or a
wire transfer according to the Company's instructions, the Company will deliver
to the Purchaser the Note and Warrant substantially in the forms attached
hereto.
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The undersigned Purchaser hereby represents and warrants to and agrees with
the Company as follows:
2.1 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 in Section
5.5 herein.
2.2 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 Note, Warrant, Note Stock, and Warrant Stock 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 Note, Warrant, Note Stock, and Warrant Stock. The undersigned
represents that it has full power and authority to enter into this Agreement.
2.3 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.
2.4 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 Note, Warrant, Note Stock, and Warrant Stock, 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, 1998, amended on April 30, 1998, the
Quarterly Report on Form 10-Q dated May 15, 1998, and the Current Reports on
Form 8-K dated January 15, 1998, March 24, 1998 and April 7, 1998 (the
"Disclosure Documents").
2.5 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 Note, Warrant, Note Stock, and Warrant Stock. The undersigned
further represents that it has had an opportunity to review the Note, the
Warrant, and this Agreement (the "Note and Warrant Agreements") and ask
questions and receive answers from the Company regarding the terms and
conditions of the offering of the Note, Warrant, Note Stock, and Warrant Stock.
2.6 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.
2.7 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 Note, Warrant, Note Stock, and Warrant
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) 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.
2.8 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 Note and Warrant
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 Note and Warrant 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 the undersigned in connection with the purchase, ownership, or sale of the
Note, Warrant, Note Stock, and Warrant Stock which may result from such action
or inaction.
2.9 LEGENDS. It is understood that the Note, Warrant, 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."
(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.
2.10 NON-AFFILIATE STATUS. The undersigned represents and warrants that it
is not an affiliate, officer, director, or employee of the Company or its
agents, including but not limited to its securities placement agents.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.1 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.
3.2 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.
3.3 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 Note and Warrant
Agreements to which it is or will be a party and to perform its obligations
under each of them. The execution and delivery of, and the consummation of the
transactions contemplated by each of the Note and Warrant 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 Note and
Warrant Agreements to which the Company is or will be a party, except for
causing the Registration Statement (as defined below) to be declared effective
by the SEC.
(c) Each of the Note and Warrant 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.
3.4 NO VIOLATION OF EXISTING AGREEMENTS. Neither the execution and delivery
of the Note and Warrant 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 Note and Warrant Agreements, nor the consummation of the transactions
contemplated hereby or thereby will directly have a material adverse effect on
the Company.
3.5 EXEMPTION. Subject to the accuracy of the Purchaser's representations
in Section 2 herein, the offer, sale, and issuance of the Note and Warrant in
conformity with the terms of this Agreement constitute transactions exempt from
the registration requirements of Section 5 of the Securities Act of 1933, as
amended.
3.6 SAME OFFER TO OTHER INVESTORS. The Company may, subject to applicable
securities laws, offer the Note and Warrant offer to other investors on the same
terms and subject to the same conditions as offered to the Purchaser hereof with
a maximum offering of (i) Notes with a total face value of $1,500,000 and (ii)
Warrants for the issuance of 3,947,370 shares of the Company's Common Stock.
3.7 CERTAIN WARRANTIES OF THE COMPANY. Until the Registration Statement (as
defined below) is declared effective by the Commission (as defined below), the
Company will use its best efforts to continue to (i) comply with Rule 144
reporting requirements, (ii) cooperate with Rule 144A prospective purchasers,
and (iii) to the extent economically reasonable, become listed on an automated
quotation system.
4. REGISTRATION RIGHTS.
The undersigned will be entitled to registration rights as follows: the
Company shall prepare and file as early as practicable after sixty (60) days
from 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 issuance of the Common Stock issued upon conversion of the Note and
upon exercise of the Warrant. To the extent the Warrant is exercised for Common
Stock prior to the effective date of the Registration Statement, as soon as the
Company resumes trading on an automated quotation system, the company shall file
a registration statement covering the resale of such Common Stock. The Company
further agrees to use its best efforts to cause either registration statement
described above to be declared effective by the Securities and Exchange
Commission (the "Commission") after the initial filing of such 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.
5. MISCELLANEOUS
5.1 IN MAKING AN INVESTMENT DECISION, THE PURCHASER MUST RELY ON HIS OWN
EXAMINATION OF THE COMPANY AND THE TERMS OF THIS AGREEMENT, THE NOTE AND THE
WARRANT, INCLUDING THE MERITS AND RISKS INVOLVED. THE SHARES HAVE NOT BEEN
RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY
AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE
ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
5.2 ENTIRE AGREEMENT. This Agreement, the Note, and the Warrant constitute
the full and entire understanding and agreement among the parties with regard to
the subjects hereof and thereof, and supersede any prior or contemporaneous
understandings, agreements, or representations among them that relate to the
subject matter hereof or thereof.
5.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors, and administrators of the parties hereto;
PROVIDED, HOWEVER, that the rights of a Purchaser to purchase the Note and the
Warrant shall not be assignable without the consent of the Company.
5.4 AMENDMENT BY AGREEMENT. Except as expressly provided herein, neither
this Agreement nor any term hereof may be amended, waived, discharged, or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge, or termination is sought;
PROVIDED, HOWEVER, that any provision of this Agreement may be waived, modified,
or amended with the written consent of the Company and the Purchaser.
5.5 NOTICES. Any request, communication, or other notice required or
permitted hereunder shall be in writing and shall be 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 at the
respective addresses or facsimile number of the parties as set forth below. Any
party hereto may be 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.
If to Purchaser: Stock Acquisition LLC
c/o Knapp, Xxxxxxxx & Xxxxxx
000 Xxxxx Xxxxx Xxxxxxxxx, 00xx Xxxxx
Xxxxxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxx Xxxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
If to Company: Telegen Corporation
000 Xxxxxxx Xxxxx
Xxxxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Chief Executive Officer
Tel: (000) 000-0000
Fax: (000) 000-0000
with a copy (which Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
will not constitute 000 Xxxx Xxxx Xxxx
notice) to: Xxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. XxXxxxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
5.6 SEVERABILITY. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, such provision(s) shall be severed from
this Agreement as if such provision(s) were not included, and the balance of
this Agreement shall be enforceable in accordance with its terms.
5.7 EXPENSES. The Company and the Purchaser shall bear their own expenses
and legal fees incurred on its behalf with respect to this Agreement and the
transactions contemplated hereby, except that the Company will pay certain
attorney expenses as described in Section 12 of the Note.
5.8 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO
SUCH QUALIFICATION, OR EXEMPTION THEREFROM, IS UNLAWFUL. THE RIGHTS OF ALL
PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION, OR
EXEMPTION THEREFROM, BEING OBTAINED.
5.9 GOVERNING LAW. This Agreement shall be governed by and construed under
the laws of the State of California as applied to agreements entered and to be
performed entirely within California by California residents.
5.10 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.11 TITLE AND SUBTITLES. The titles and subtitles used in this Agreement
are used for convenience only and not to be considered in construing or
interpreting this Agreement.
IN WITNESS WHEREOF, the parties have executed this Note and Warrant
Purchase Agreement as of the date first above written.
THE COMPANY:
TELEGEN CORPORATION
By: /S/ XXXX XXXXXXXXX
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Xxxx Xxxxxxxxx, Chief Executive Officer
THE PURCHASER:
STOCK ACQUISITION LLC,
a Nevada limited liability company
By: /S/ XXXXXXX XXXXXX
----------------------------------------------------------
Name: Xxxxxxx Xxxxxx
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Title: ATTORNEY-IN FACT
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EXHIBIT A
FORM OF CONVERTIBLE PROMISSORY NOTE
(SEE EXHIBIT 10.27 TO THIS FORM 10-KSB)
EXHIBIT B
FORM OF WARRANT
(SEE EXHIBIT 10.28 TO THIS FORM 10-KSB)
