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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(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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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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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:________________________________
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