SEC Comment Letter for TECOGEN INC. (TGEN) (CIK 0001537435) (TGEN) — Jan 17, 2017
TECOGEN INC. (TGEN) (CIK 0001537435)
Date: Jan. 17, 2017 · CIK: 0001537435 · Accession: 0000000000-17-001719
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 333-215231
Letter
Mail Stop 4631 January 17, 2017 Mr. John N. Hatsopoulos Co-Chief Executive Officer Tecogen Inc. 45 First Avenue Waltham, MA 02451
Re: Tecogen Inc. Registration Statement on Form S -4 Filed December 21, 2016 File No. 333-215231
Dear Mr. Hatsopoulos :
We have reviewed your registration statement and have the following comments. In some of our comments, we may ask you to provide us with information so we may better understand your disclosure.
Please respond to this letter by amending your registration statement and providing the requested information . If you do not believe our comments apply to your facts and circumstances or do not believe an amendment is appropriate, please tell us why in your response.
After reviewin g any amendment to your registration statement and the information you provide in response to these comments, we may have additional comments.
General
1. The tax consequences of the transaction appear to be material under Item 601(b)(8) of Regulation S -K. In this regard, we note that you intend for the merger to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code. Please provide a tax opinion supporting your conclusion that the merger will be tax free. Please refer to Staff Legal Bulletin No. 19, which is available on our website.
Stock Ownership of Directors and Executive Officers of Tecogen, page 6 Stock Ownership of Directors and Executive Officers of ADGE, page 6
2. The disclosure in these sections does not seem to reconcile with the disclosure on page 39. Please revise. In addition, please include the stock ownership of Tecogen after the merger by directors, officers, and affiliates.
John N. Hatsopoulos Tecogen, Inc. January 17, 2017 Page 2
Interests of Tecogen’s Directors and Executive Officers in the Merger, page 6 Interests of ADGE’s Directors and Executive Officers in the Merger, page 6
3. Please disclose all material interests of directors, executive officers, and affiliates and quantify the interests of directors, executive officers, and affiliates in the s ummary. Please also revise pages 26 and 38 as appropriate.
Summary Unaudited Pro Forma Condensed Combined Financial Information, page 10
4. We note that the amounts presented under pro forma condensed combined balance sheet data as of September 30, 2016 on page 10 do not agree to corresponding amounts in the pro forma condensed combined balance sheet on page 13. Please clarify or revise as appropriate.
Unaudited Pro Forma Condensed Combined Financial Information, page 11 Note 2. Basis of Pro Forma Presenta tion, page 16
5. In the fourth paragraph, you state that the pro forma financial statements are “based upon an estimated preliminary consideration of approximately $19.5 million”. However, notes 3 and 4 appear to estimate the preliminary consideration as $1 7.9 million. Please clarify or revise as appropriate.
Note 4. Fair Value Estimate of Assets to be Acquired and Liabilities to be Assumed, page 18
6. Since the acquisition will result in a considerable amount of goodwill relative to the purchase price, plea se provide a qualitative description of the factors that make up the goodwill to be recognized similar to the disclosures required by ASC 805 -30-50-1(a). Please also expand your disclosures to more fully explain how the purchase price was determined. In this regard, we note the significant losses incurred by ADGE and the magnitude of unfavorable contracts.
Note 5. Adjustments to the Pro Forma Balance Sheet, page 18 Note 6. Adjustments to the Pro Forma Income Statements, page 20
7. Refer to footnote 5(b). Please more fully explain and disclose how you determined that the carrying value of ADGE’s inventory will be required to be written -down over 40% to record it at fair value. Please also more fully explain and disclose how and why ADGE determined the carr ying value of inventory in its historical statements was not impaired at September 30, 2016.
8. Refer to footnote 5(c). Please more fully explain and disclose how you determined that the carrying value of ADGE’s property, plant and equipment will be require d to be written -down approximately 8% to record it at fair value. Please also more fully explain
John N. Hatsopoulos Tecogen, Inc. January 17, 2017 Page 3
and disclose how and why ADGE determined the carrying value of property, plant and equipment in its historical statements was not impaired at September 30, 20 16. 9. Refer to footnote 5(d). Please more fully explain and disclose how you determined the fair value of the liability related to ADGE’s guarantee of certain outstanding obligations of former subsidiaries and quantify the total amount of the all the obliga tions that are guaranteed. Please also disclose the specific nature of the estimated merger -related costs of $500,000.
10. Refer to footnotes 5(e) and 6(b). Please expand your disclosures to describe the events and circumstances that resulted in ADGE’s co ntractual arrangements having unfavorable terms for most contracts, including the current terms of the contracts. Please also expand your disclosures to explain how you determined the fair value of the unfavorable contracts, including the significant assu mptions you used.
11. Refer to footnote 5(h). Please more fully explain and disclose how you determined the fair value of the non -controlling interest at September 30, 2016.
12. Refer to footnote 6(b). Based on the amount of the fair value adjustment to net property, please clarify how the related decreases in depreciation expense were determined.
Note 8. Exchange Transactions, page 21
13. Please more fully disclose how you calcul ated the amounts of historical interest expense associated with the convertible indebtedness that you eliminated from the pro forma statements of operations for each period presented.
Comparative Tecogen and ADGE Market Price and Distribution Information, page 23 ADGE Recent Closing Prices, page 24
14. Please present the per share market value of ADGE’s securities on an equivalent per share basis as required by Item 3(g) of Form S -4.
The Merger, page 36 Background of the Merger, page 36 General
15. Please revise the discussion in this section to describe in sufficient detail who initiated contact among the parties, identify all parties present at the meetings, explain the material issues discussed, and the positions taken by those involved in each meeting.
16. Please revise to disclose the members of the original special committee s, how the members were selected and the committee’s duties. Please elaborate on the reasons the original special committee disbanded.
John N. Hatsopoulos Tecogen, Inc. January 17, 2017 Page 4
Additional Considerations, page 39
17. Please revise to quantify here the anticipated synergies and cost savings expected to be realized from the merger that the Tecogen board of directors considered.
Where you can find more information; Incorporation by reference, page 67
18. We note you have incorpora ted by reference Exchange Act reports for both Tecogen and ADGE; please provide your analysis as to how you determined your eligibility for incorporation by reference. In addition, we note that you have not incorporated the quarterly reports for the first two quarters of 2016, as required by Item 11(a)(2) of Form S-4. Please revise or provide your analysis as to how you concluded these reports were not required.
Exhibit 23.4; Opinion of Scarsdale Equities LLC
19. Please revise the second to last paragraph to provide consent to the use and description of the opinion in the S -4.
Exhibit 23.5: Opinion of Cassel Salpeter & Co., LLC
20. Please revise to remove the limitation on who may use and rely upon your opinion. In addition, please include your consent to the opinion’s use and description in the S -4.
We remind you that the company and its management are responsible for the accuracy and adequacy of their disclosures, notwithstanding any review, comments, action or absence of action by the staff.
Refer to Rules 460 and 461 regarding requests for acceleration . Please allow adequate time for us to review any amendment prior to the requested effective date of the registration statement.
John N. Hatsopoulos Tecogen, Inc. January 17, 2017 Page 5
You may contact Dale Welcome, Staff Accou ntant, at (202) 551 -3865, or Anne McConnell, Staff Accountant , at (202) 551 -3709 if you have questions regarding comments on the financial statements and re lated matters. Please contact Kate McHale, Staff Attorney, at (202) 551 -3464 or me at (202) 551 -3754 with any other questions.
Sincerely,
/s/ Asia Timmons -Pierce, for
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Mail Stop 4631 January 17, 2017 Mr. John N. Hatsopoulos Co-Chief Executive Officer Tecogen Inc. 45 First Avenue Waltham, MA 02451 Re: Tecogen Inc. Registration Statement on Form S -4 Filed December 21, 2016 File No. 333-215231 Dear Mr. Hatsopoulos : We have reviewed your registration statement and have the following comments. In some of our comments, we may ask you to provide us with information so we may better understand your disclosure. Please respond to this letter by amending your registration statement and providing the requested information . If you do not believe our comments apply to your facts and circumstances or do not believe an amendment is appropriate, please tell us why in your response. After reviewin g any amendment to your registration statement and the information you provide in response to these comments, we may have additional comments. General 1. The tax consequences of the transaction appear to be material under Item 601(b)(8) of Regulation S -K. In this regard, we note that you intend for the merger to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code. Please provide a tax opinion supporting your conclusion that the merger will be tax free. Please refer to Staff Legal Bulletin No. 19, which is available on our website. Stock Ownership of Directors and Executive Officers of Tecogen, page 6 Stock Ownership of Directors and Executive Officers of ADGE, page 6 2. The disclosure in these sections does not seem to reconcile with the disclosure on page 39. Please revise. In addition, please include the stock ownership of Tecogen after the merger by directors, officers, and affiliates. John N. Hatsopoulos Tecogen, Inc. January 17, 2017 Page 2 Interests of Tecogen’s Directors and Executive Officers in the Merger, page 6 Interests of ADGE’s Directors and Executive Officers in the Merger, page 6 3. Please disclose all material interests of directors, executive officers, and affiliates and quantify the interests of directors, executive officers, and affiliates in the s ummary. Please also revise pages 26 and 38 as appropriate. Summary Unaudited Pro Forma Condensed Combined Financial Information, page 10 4. We note that the amounts presented under pro forma condensed combined balance sheet data as of September 30, 2016 on page 10 do not agree to corresponding amounts in the pro forma condensed combined balance sheet on page 13. Please clarify or revise as appropriate. Unaudited Pro Forma Condensed Combined Financial Information, page 11 Note 2. Basis of Pro Forma Presenta tion, page 16 5. In the fourth paragraph, you state that the pro forma financial statements are “based upon an estimated preliminary consideration of approximately $19.5 million”. However, notes 3 and 4 appear to estimate the preliminary consideration as $1 7.9 million. Please clarify or revise as appropriate. Note 4. Fair Value Estimate of Assets to be Acquired and Liabilities to be Assumed, page 18 6. Since the acquisition will result in a considerable amount of goodwill relative to the purchase price, plea se provide a qualitative description of the factors that make up the goodwill to be recognized similar to the disclosures required by ASC 805 -30-50-1(a). Please also expand your disclosures to more fully explain how the purchase price was determined. In this regard, we note the significant losses incurred by ADGE and the magnitude of unfavorable contracts. Note 5. Adjustments to the Pro Forma Balance Sheet, page 18 Note 6. Adjustments to the Pro Forma Income Statements, page 20 7. Refer to footnote 5(b). Please more fully explain and disclose how you determined that the carrying value of ADGE’s inventory will be required to be written -down over 40% to record it at fair value. Please also more fully explain and disclose how and why ADGE determined the carr ying value of inventory in its historical statements was not impaired at September 30, 2016. 8. Refer to footnote 5(c). Please more fully explain and disclose how you determined that the carrying value of ADGE’s property, plant and equipment will be require d to be written -down approximately 8% to record it at fair value. Please also more fully explain John N. Hatsopoulos Tecogen, Inc. January 17, 2017 Page 3 and disclose how and why ADGE determined the carrying value of property, plant and equipment in its historical statements was not impaired at September 30, 20 16. 9. Refer to footnote 5(d). Please more fully explain and disclose how you determined the fair value of the liability related to ADGE’s guarantee of certain outstanding obligations of former subsidiaries and quantify the total amount of the all the obliga tions that are guaranteed. Please also disclose the specific nature of the estimated merger -related costs of $500,000. 10. Refer to footnotes 5(e) and 6(b). Please expand your disclosures to describe the events and circumstances that resulted in ADGE’s co ntractual arrangements having unfavorable terms for most contracts, including the current terms of the contracts. Please also expand your disclosures to explain how you determined the fair value of the unfavorable contracts, including the significant assu mptions you used. 11. Refer to footnote 5(h). Please more fully explain and disclose how you determined the fair value of the non -controlling interest at September 30, 2016. 12. Refer to footnote 6(b). Based on the amount of the fair value adjustment to net property, please clarify how the related decreases in depreciation expense were determined. Note 8. Exchange Transactions, page 21 13. Please more fully disclose how you calcul ated the amounts of historical interest expense associated with the convertible indebtedness that you eliminated from the pro forma statements of operations for each period presented. Comparative Tecogen and ADGE Market Price and Distribution Information, page 23 ADGE Recent Closing Prices, page 24 14. Please present the per share market value of ADGE’s securities on an equivalent per share basis as required by Item 3(g) of Form S -4. The Merger, page 36 Background of the Merger, page 36 General 15. Please revise the discussion in this section to describe in sufficient detail who initiated contact among the parties, identify all parties present at the meetings, explain the material issues discussed, and the positions taken by those involved in each meeting. 16. Please revise to disclose the members of the original special committee s, how the members were selected and the committee’s duties. Please elaborate on the reasons the original special committee disbanded. John N. Hatsopoulos Tecogen, Inc. January 17, 2017 Page 4 Additional Considerations, page 39 17. Please revise to quantify here the anticipated synergies and cost savings expected to be realized from the merger that the Tecogen board of directors considered. Where you can find more information; Incorporation by reference, page 67 18. We note you have incorpora ted by reference Exchange Act reports for both Tecogen and ADGE; please provide your analysis as to how you determined your eligibility for incorporation by reference. In addition, we note that you have not incorporated the quarterly reports for the first two quarters of 2016, as required by Item 11(a)(2) of Form S-4. Please revise or provide your analysis as to how you concluded these reports were not required. Exhibit 23.4; Opinion of Scarsdale Equities LLC 19. Please revise the second to last paragraph to provide consent to the use and description of the opinion in the S -4. Exhibit 23.5: Opinion of Cassel Salpeter & Co., LLC 20. Please revise to remove the limitation on who may use and rely upon your opinion. In addition, please include your consent to the opinion’s use and description in the S -4. We remind you that the company and its management are responsible for the accuracy and adequacy of their disclosures, notwithstanding any review, comments, action or absence of action by the staff. Refer to Rules 460 and 461 regarding requests for acceleration . Please allow adequate time for us to review any amendment prior to the requested effective date of the registration statement. John N. Hatsopoulos Tecogen, Inc. January 17, 2017 Page 5 You may contact Dale Welcome, Staff Accou ntant, at (202) 551 -3865, or Anne McConnell, Staff Accountant , at (202) 551 -3709 if you have questions regarding comments on the financial statements and re lated matters. Please contact Kate McHale, Staff Attorney, at (202) 551 -3464 or me at (202) 551 -3754 with any other questions. Sincerely, /s/ Asia Timmons -Pierce, for Pamela A. Long Assistant Director Office of Manufacturing and Construction