<PAGE>
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Definitive Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2)
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
TELEGEN CORPORATION
- -------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
BONNIE CRYSTAL
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1)Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2)Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3)Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4)Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5)Total fee paid:
[_] Fee paid previously by written preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
F-13
<PAGE>
TELEGEN CORPORATION
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 6, 1997
To The Shareholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Telegen
Corporation, a California corporation (the "Company"), will be held on August
6, 1997, at 1:30 p.m. local time, at the Hotel Sofitel, 233 Twin Dolphin
Drive, Redwood City, CA 94065, for the following purposes:
1. To elect directors to serve until the next annual meeting of
shareholders or until their successors are elected.
2. To approve an amendment to the Company's bylaws for the purpose of
increasing the range of the Company's board from its present variable range
of four (4) to seven (7) directors to a variable range of five (5) to nine
(9) directors and to fix the current size of the board at seven (7).
3. To ratify the appointment of Coopers & Lybrand L.L.P. as independent
accountants for the Company for the fiscal year ending December 31, 1997.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
THE FOREGOING ITEMS OF BUSINESS ARE MORE FULLY DESCRIBED IN THE PROXY
STATEMENT ACCOMPANYING THIS NOTICE. ONLY SHAREHOLDERS OF RECORD AT THE CLOSE
OF BUSINESS ON JUNE 20, 1997, ARE ENTITLED TO NOTICE OF AND TO VOTE AT THE
MEETING OR ANY ADJOURNMENT THEREOF, AND WILL BE SENT THIS PROXY STATEMENT ON
OR ABOUT JUNE 24.
All shareholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed Proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Shareholders attending the
meeting may vote in person even if they have returned a proxy card.
For the Board of Directors
TELEGEN CORPORATION
Bonnie Crystal
Secretary
Redwood City, California
June 24, 1997
YOUR VOTE IS IMPORTANT.
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE AND RETURN
IT IN THE ENCLOSED ENVELOPE.
<PAGE>
TELEGEN CORPORATION
----------------
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
AUGUST 6, 1997
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Telegen Corporation, a California corporation ("Telegen" or the "Company"),
for use at Telegen's Annual Meeting of Shareholders (the "Annual Meeting") to
be held on August 6, 1997, or at any adjournment(s) or postponement(s)
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting of Shareholders.
In the year ending December 31, 1996, certain significant developments
occurred in the Company's corporate existence. On October 28, 1996 the
Company's predecessor, also named Telegen Corporation, a California
corporation ("Old Telegen") completed its merger (the "Merger") with Solar
Energy Research Corp., a Colorado corporation ("SERC"), a public reporting
company. As a result of the Merger, SERC, was redomiciled to become a
California corporation and changed its name to Telegen Corporation and Old
Telegen changed its name to Telegen Communications Corporation, a California
Corporation, and became a wholly owned subsidiary of SERC. Upon completion of
the Merger, the assets of Old Telegen were substantially all the assets of the
combined companies and 97% of the ownership of the combined companies was held
by the former shareholders of Old Telegen. Since SERC, now Telegen, is
effectively the successor to Old Telegen, substantially all the disclosure in
this proxy statement for the period prior to October 28, 1996 relates to Old
Telegen.
Telegen's principal executive offices are located at 101 Saginaw Drive,
Redwood City, California, 94063. The telephone number at that address is (415)
261-9400.
These proxy solicitation materials were mailed on or about June 24, 1997 to
all shareholders entitled to vote at the Annual Meeting.
RECORD DATE AND SHARES OUTSTANDING
Shareholders of record at the close of business on June 20, 1997 (the
"Record Date") are entitled to notice of, and to vote at, the Annual Meeting.
As of June 10, the Company had issued and outstanding 5,138,758 shares of
common stock of the Company (the "Common Stock"), and 3,200 shares of
preferred stock of the Company (the "Preferred Stock").
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company a written
notice of revocation or a duly executed proxy bearing a later date or by
attending the meeting and voting in person.
VOTING
The Common Stock outstanding was entitled to 5,138,758 votes and the
Preferred Stock outstanding at the close of trading on the Nasdaq SmallCap
Market on June 10 was entitled to 800,000 votes.
For the purpose of electing directors, shareholders of Telegen will be able
to cumulate votes at the annual meeting if a shareholder gives notice at the
meeting, prior to the voting, of such shareholder's intention to cumulate such
shareholder's votes. If any one shareholder gives such notice then
shareholders may cumulate their votes for candidates in nomination. Under
cumulative voting each shareholder may give one candidate a number of votes
equal to the number of directors to be elected multiplied by the number of
votes to which the shareholder's shares are normally entitled, or distribute
the shareholder's votes on the same principle among as many candidates as the
shareholder thinks fit.
<PAGE>
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual Meeting is
a majority of the shares of Common Stock issued and outstanding on the Record
Date. Shares that are voted "FOR," "AGAINST," or "WITHHELD FROM" a matter are
treated as being present at the meeting for purposes of establishing a quorum
and are also treated as shares "represented and voting" at the Annual Meeting
(the "Votes Cast") with respect to such matter.
While there is no definitive statutory or case law authority in California
as to the proper treatment of abstentions, the Company believes that
abstentions should be counted for purposes of determining the presence or
absence of a quorum for the transaction of business, but should not be counted
as Votes Cast with respect to a proposal, since the shareholder has expressly
declined to vote on such proposal. Similarly, broker non-votes will be counted
for purposes of determining the presence or absence of a quorum for the
transaction of business, but will not be counted for purposes of determining
the number of Votes Cast with respect to the proposal on which the broker has
expressly not voted.
Accordingly, abstentions and broker non-votes will not affect the outcome of
the voting on a proposal that requires a majority of the Votes Cast (such as
the ratification of appointment of accountants). However, with respect to a
proposal that requires a majority of the outstanding shares (such as an
amendment to the bylaws to change the size of the board of directors), an
abstention or broker non-vote has the same effect as a vote against the
proposal.
SOLICITATION OF PROXIES
The cost of this solicitation will be borne by the Company. The Company may
reimburse brokerage firms and other persons representing beneficial owners of
shares for their expenses in forwarding soliciting materials to such
beneficial owners. Proxies may also be solicited by certain of the Company's
directors, officers, and regular employees, without additional compensation,
personally or by telephone, telegram, or facsimile.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Proposals of shareholders of the Company intended to be presented by such
shareholders at the Company's 1998 Annual Meeting of Shareholders must be
received by the Company no later than February 24, 1998 in order that they may
be included in the proxy statement and form of proxy related to that meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables sets forth the shares of common stock beneficially
owned as of December 31, 1996 by persons known by the Company to beneficially
own more than 5% of the Company's outstanding stock, by each director of the
Company, by each executive officer, and by all directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK(1)
-----------------
FIVE-PERCENT SHAREHOLDERS, DIRECTORS, EXECUTIVE OFFICERS NUMBER PERCENT
- -------------------------------------------------------- --------- -------
<S> <C> <C>
Five-Percent Shareholders, Directors and Executive Officers:
Jessica L. Stevens(2)........................................ 1,428,635 27.0%
Bonnie Crystal(2)............................................ 369,550 7.1%
Warren M. Dillard(2)(4)...................................... 189,761 3.7%
Frederick T. Lezak, Jr(2).................................... 67,800 1.3%
Larry J. Wells(2)(3)......................................... 220,600 4.2%
James R. Iverson(2).......................................... 20,520 *
All Directors and Officers as a Group (6 persons).............. 2,296,866 38.9%
</TABLE>
2
<PAGE>
- --------
(1) Beneficial ownership includes voting and investment power with respect to
the shares. Shares of common stock subject to options currently
exercisable or exercisable within 60 days of December 31, 1996 are deemed
outstanding for computing the percentage of the person holding such
options, but are not deemed outstanding for computing the percentage of
any other person. Thus, the sum of the individuals' and entities'
ownership as a percent of common stock beneficially owned may exceed 100%.
As of December 31, 1996, Telegen had 5,021,460 shares of common stock
outstanding.
(2) As of December 31, 1996, Ms. Stevens, Ms. Crystal and Messrs. Dillard,
Lezak, Wells, and Iverson had the right to acquire within 60 days, from
outstanding options, 216,841 shares, 182,650 shares, 171,859 shares,
15,600 shares, 20,400 shares, and 15,000 shares of Telegen common stock,
respectively. As of December 31, 1996, Ms. Stevens had the right to
acquire within 60 days, from an outstanding warrant, 50,500 shares of
Telegen Common Stock.
(3) Mr. Wells is a founder and director of Sundance Venture Partners, L.P.,
which is a venture capital fund and the owner of 200,000 common stock
shares of Telegen.
(4) Includes 3,690 shares of the Company's Common Stock owned by Mr. Dillard's
adult son living at home (of which he disclaims beneficial ownership).
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
The Company's Board of Directors is comprised of seven members. The Board of
Directors has nominated the persons named below for election as directors at
the Annual Meeting. Unless otherwise directed, the proxy holders will vote the
proxies received by them for the seven nominees named below. In the event that
any of the seven nominees is unable or declines to serve as a director at the
time of the Annual Meeting, the proxies will be voted for any nominee who
shall be designated by the present Board of Directors to fill the vacancy. It
is not expected that any nominee will be unable or will decline to serve as a
director. The directors elected will hold office until the next annual meeting
of shareholders and until their successors are elected and qualified.
The names of the nominees and certain information about them are set forth
below.
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE POSITION(S) WITH THE COMPANY SINCE
- --------------- --- ---------------------------- --------
<S> <C> <C> <C>
Jessica L. Stevens...... 45 President, Chief Executive Officer, and Director 1996
Bonnie Crystal.......... 43 Executive Vice-President, Secretary and Director 1996
Warren M. Dillard....... 55 Chief Operating Officer, Chief Financial Officer and 1996
Director
Frederick T. Lezak,
Jr. ................... 55 Director 1996
James R. Iverson........ 68 Director 1996
Larry J. Wells.......... 54 Director 1996
Gilbert F. Decker....... 59 Director 1997
</TABLE>
The ages of the director nominees are as of May 31, 1997. There is no family
relationship between any directors or executive officers of the Company.
Jessica L. Stevens is the sister of Daniel J. Kitchen, President of Morning
Star Multimedia, Inc., a wholly-owned subsidiary of Telegen ("MSM"). MSM was
acquired by the Company on December 30, 1996 and for his forty-five percent
(45%) interest in MSM, Mr. Kitchen received sixty thousand (60,000) shares of
the Company's common stock.
VOTE REQUIRED
The seven (7) nominees receiving the highest number of affirmative votes of
the shares entitled to be voted shall be elected as directors of the Company.
Votes withheld from any director are counted for purposes of determining the
presence or absence of a quorum but have no other legal effect under
California law.
3
<PAGE>
BACKGROUND OF DIRECTORS
JESSICA L. STEVENS has been an inventor and engineer since 1972. From 1982
to 1988, Ms. Stevens was Chief Executive Officer, President, Chief Technology
Officer, and a director of Woodside Design Associates, Inc., Redwood City,
California, a high technology think tank. From 1988 to 1989, Ms. Stevens was
Chairperson of the Board of Directors and Vice-President of
Engineering/Manufacturing at Absolute Entertainment, Inc. and Imagineering,
Inc., both of New Jersey. Ms. Stevens has worked as a consultant to numerous
high technology companies, including Apple Computer, Inc., Activision, Inc.,
Coleco Industries, McDonnell Douglas Corp., Parker Brothers, Inc., and has
developed software for the electronic game industry.
BONNIE CRYSTAL has been a telecommunications engineer, consultant and
inventor since 1972. Before joining Telegen, she was Senior Staff Engineer for
Research and Development for Toshiba America MRI, Inc. From 1984 to 1989, she
was Senior Engineer at Astec, USA, Ltd. in Personal Communications Systems,
Cellular and Satellite Earth Stations. She is the inventor of the Video Noise
Reduction (VNR) standard for satellite receivers. She was a founder of
International MedCom, Inc. and SE International, Inc.
WARREN M. DILLARD has been a financial analyst and financial manager since
1967. He managed investment portfolios of securities and real estate for
Capital Group and Shareholders Capital, respectively, both of Los Angeles,
California, from 1967-1975. In 1975, he became Senior Vice-President and CFO
of Pepperdine University, continuing in that position until 1982. Since 1982,
Mr. Dillard has been an independent investment banker, financing early stage
business ventures. In October 1993, he became CFO of Telegen, adding the title
of Chief Operating Officer in April 1994.
FREDERICK T. LEZAK, JR. has been a financial executive since 1969, with
senior positions at Time, Inc., McKesson Corp., The Headquarters Companies and
Visucom Productions, Inc. From 1973 to 1981, he was controller for several
McKesson divisions, most recently Foremost Dairies in San Francisco. From 1981
to 1983, he was Treasurer and Chief Financial Officer of the Headquarters
Companies in San Francisco. Since 1983, Mr. Lezak has been a principal and
owner of Munson, Lezak, Jaspar & Dunn, a consulting firm which specializes in
start-up situations and corporate turnarounds. He has also been a founder and
officer of several start-up companies, including E.M.I., Inc. Mr. Lezak was
also the Chief Financial Officer of TCC, the Company's wholly-owned subsidiary
between 1991 and 1993 and was not an officer or employee of TCC thereafter
until April 1, 1997 when he became the President of TCC.
JAMES R. (DICK) IVERSON has an extensive background in technology
development. Through 1982, he spent 19 years with Teledyne Ryan Electronics,
the last 6 years as General Manager. From 1972-1976, he was General Manager of
the Electronics Division of General Dynamics, managing projects ranging from
satellite systems to aircraft test equipment. He was the developer of the
first Global Positioning Satellite System (GPS). From 1976 through 1986, Mr.
Iverson was Group Vice-President for Gould, Inc., responsible for government
and commercial electronics systems. In 1986, Mr. Iverson was elected President
of the American Electronics Association (AEA), a 3,000 member national trade
association, representing companies in semiconductors, computers,
telecommunications and software. He recently retired from that position and is
now an independent consultant to the electronics industry.
LARRY J. WELLS is the founder and a director of Sundance Venture Partners,
L.P., a venture capital fund, and is the Chairman of Anderson & Wells Company,
which manages Sundance Venture Partners, L.P. and El Dorado Investment
Company. Mr. Wells also has served as a director and President of Sundance
Capital Corporation since May 1989. From 1983 to 1987, Mr. Wells served as
Vice-President of Citicorp Venture Capital and then became Senior Vice-
President of Inco Venture Capital. From May 1969 to June 1983, Mr. Wells was
the founder and President of Creative Strategies International, a market
research consulting firm specializing in emerging markets. Mr. Wells currently
serves on the Board of Directors of Cellegy Pharmaceutical, Inc. and Indentix,
Inc., which are publicly held companies. Mr. Wells also is a director of
Upside Publishing, Inc., Plop Golf Company, VoiceCom Systems, Inc. and Murphex
Corporation.
4
<PAGE>
GILBERT F. DECKER was Assistant Secretary of the Army from April 1994 until
May 1997. Prior to his employment with the Department of the Army, he was
President of ESL Inc. and, after ESL Inc. was acquired by TRW, he headed the
New Ventures Department for TRW. He has also served as President and CEO of
Penn Central Federal Systems Company and President and CEO of Accurex Corp. He
became a member of Telegen's Board of Directors in May 15, 1997, after leaving
his position with the Army.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors and persons who own more than 10% of a
registered class of the Company's equity securities to file reports of
ownership on Form 3 and changes in ownership on Form 4 or 5 with the
Securities and Exchange Commission (the "SEC"). Such officers, directors, and
10% shareholders are also required by SEC rules to furnish the Company with
copies of all Section 16(a) reports they file.
Based solely on its review of the copies of such forms received by it or
written representations from certain reporting persons, the Company believes
that, during the fiscal year ended December 31, 1996, all Section 16(a) filing
requirements applicable to its officers, directors, and 10% shareholders were
complied with, except that Mr. Dillard inadvertently omitted from his initial
report on Form 3 filed on November 6, 1996, the beneficial ownership of 3,690
shares held by his adult son living at home. Such Form 3 was amended by a
filing of a Form 5 with the SEC on February 13, 1997. In making the above
statements, the Company has relied upon the written representations of its
officers and directors.
BOARD AND COMMITTEE MEETINGS
The Board of Directors held six (6) meetings during the fiscal year ended
December 31, 1996 ("fiscal 1996"). The Board of Directors has standing audit
and compensation committees. The Board of Directors has no nominating
committee or any committee performing such function this year. The Board of
Directors acting as a whole performed the function of a nominating committee
and nominated this year's slate of directors.
The members of the Audit Committee are James R. Iverson, Larry J. Wells, and
Gilbert F. Decker. Frederick T. Lezak, Jr. was a member of the Audit Committee
until April of 1997, when he became President of TCC, Telegen's wholly-owned
subsidiary. Mr. Decker became a member of such committee upon his appointment
to the Company's Board of Directors on May 15, 1997. The Audit Committee held
no meetings during fiscal 1996. The purposes of the Audit Committee are to
review with Telegen's management and independent accountants such matters as
internal accounting controls and procedures, the plan and results of the
annual audit, and suggestions of the accountants for improvements in
accounting procedures; to nominate independent accountants; and to provide
such additional information as the committee may deem necessary to make the
Board of Directors aware of significant financial matters which require the
Board's attention.
The members of the Compensation Committee are James R. Iverson, Larry J.
Wells and Gilbert F. Decker. Frederick T. Lezak, Jr. was a member of the
Compensation Committee until April of 1997, when he became President of TCC,
Telegen's wholly-owned subsidiary. Mr. Decker became a member of such
committee upon his appointment to the Company's Board of Directors on May 15,
1997. The Compensation Committee held one meeting during fiscal 1996. The
purposes of the Compensation Committee are to review and approve the
compensation to be paid or provided to Telegen's executive officers, the
aggregate compensation of all employees of Telegen, and the terms of
compensation plans of all types.
During fiscal 1996, no director attended fewer than 75% of the number of
meetings of the Board of Directors and meetings of its committees on which he
or she served.
5
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes the total compensation of the Chief Executive
Officer and the other most highly compensated executive officers of the
Company in fiscal 1996 (the "Named Executive Officers") as well as the total
compensation paid to each such individual for the Company's two previous
fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS
----------------------- ------------------------------
NAME AND PRINCIPAL OTHER ANNUAL RESTRICTED STOCK OPTIONS/SAR'S
POSITION YEAR SALARY($) BONUS($) COMPENSATION AWARD(S)($) (#)
- ------------------ ---- --------- -------- ------------ ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jessica L. Stevens...... 1996 $170,000 $-- $ -- $-- 133,501
President, Chief
Executive 1995 29,167 -- 252,000(1) -- 20,004
Officer and Director 1994 20,833 -- -- -- 63,336
Bonnie Crystal.......... 1996 157,500 -- -- -- 107,650
Executive Vice
President, 1995 60,000 -- -- -- 18,000
Secretary and Director 1994 71,260 -- -- -- 57,000
Warren M. Dillard....... 1996 136,667 -- -- -- 106,799
Chief Operating
Officer, 1995 53,333 -- -- -- 15,996
Chief Financial Officer
and Director 1994 63,333 -- -- -- 49,064
</TABLE>
- --------
(1) In August 1995, Jessica L. Stevens was issued warrants to purchase 50,500
shares of Telegen common stock for $.01 per share for a period of five
years. The warrants can be exercised at any time. Compensation expense of
approximately $252,000 was recorded to reflect the difference between the
fair market value of the common stock at the time of the grant and the
exercise price.
6
<PAGE>
Option/SAR Grants Table
The following table summarizes the individual grants of stock options
(whether or not in tandem with SARs), and freestanding SARs made during the
last completed fiscal year to each of the Named Executive Officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
------------------------------------------------ -----------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ---- ------------ ------------ ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Jessica L. Stevens...... 1,667 0.25 $ 5.00 1/31/01 $ 2,302.79 $ 5,088.68
1,667 0.25 $ 5.00 2/28/01 $ 2,302.79 $ 5,088.68
1,667 0.25 $ 5.00 3/31/01 $ 2,302.79 $ 5,088.68
125,000 18.39 $ 5.00 9/26/01 $172,675.00 $381,575.00
3,500 0.51 $ 5.00 12/31/01 $ 4,834.90 $ 10,684.10
Bonnie Crystal.......... 1,500 0.22 $ 5.00 1/31/01 $ 2,072.10 $ 4,578.90
50,000 7.36 $ 5.00 2/14/01 $ 69,070.00 $152,630.00
1,500 0.22 $ 5.00 2/29/01 $ 2,072.10 $ 4,578.90
1,500 0.22 $ 5.00 3/31/01 $ 2,072.10 $ 4,578.90
50,000 7.36 $ 5.00 3/31/01 $ 69,070.00 $152,630.00
3,150 0.46 $ 5.00 12/31/01 $ 4,351.41 $ 9,615.69
Warren M. Dillard....... 1,333 0.20 $ 5.00 1/31/01 $ 1,839.41 $ 4,069.12
50,000 7.36 $ 5.00 2/14/01 $ 69,070.00 $152,630.00
1,333 0.20 $ 5.00 2/29/01 $ 1,841.41 $ 4,069.12
1,333 0.20 $ 5.00 3/31/01 $ 1,841.41 $ 4,069.12
50,000 7.36 $ 5.00 3/31/01 $ 69,070.00 $152,630.00
2,800 0.41 $ 5.00 12/31/01 $ 3,867.92 $ 8,547.28
</TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Fiscal Year-End Option/SAR Value Table
The following table provides information concerning the value of unexercised
options at fiscal year end for each of the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS AT FY- IN-THE-MONEY OPTIONS/ SARS AT
END (#) EXERCISABLE/ FY-END ($)
NAME UNEXERCISABLE EXERCISABLE/ UNEXERCISABLE(1)
---- ------------------------------- -----------------------------
<S> <C> <C>
Jessica L. Stevens...... 267,341/0 $3,994,769/0
Bonnie Crystal.......... 182,650/0 $2,557,100/0
Warren M. Dillard....... 171,859/0 $2,406,026/0
</TABLE>
- --------
(1) The value of the unexercised in-the-money options and SARs at fiscal year
and is based on a market price of $19.00 per share for the common stock of
Telegen at fiscal year end 1996. As of April 28, 1997, the closing market
price of the common stock of Telegen was $5.00 and the value of the
exercisable in-the-money options and SARs for Ms. Stevens, Ms. Crystal and
Mr. Dillard as of such date was $251,995, $0 and $0, respectively.
Compensation of Directors
Currently, the Company's non-employee directors receive (i) 200 shares of
the Company's common stock or an option to purchase 200 shares of the
Company's common stock at an exercise price of $5, at such directors'
election, and (ii) no cash compensation, for each meeting of the Board of
Directors or a committee of the Board
7
<PAGE>
of Directors attended in person, or attended by telephone. The Company
reimburses each non-employee member of the Board of Directors and its
committees for expenses incurred by such member in connection with the
attendance of such meetings. The Company's non-employee directors receive
options under its 1996 Director Stock Option Plan.
The 1996 Director Option Plan (the "1996 DOP"), under which the Company's
non-employee members of the Board of Directors (the "Outside Directors" or
individually the "Outside Director") are compensated for their service,
provides for the Outside Directors to receive an option to purchase twenty
thousand (20,000) shares of the Company's common stock on each date such
Outside Director is re-elected by the shareholders to serve another term in
office. All option grants under the 1996 DOP to any Outside Director are
limited to once in any given calendar year on the date of the Shareholders'
annual meeting upon their election or re-election to the board. The exercise
price of options acquired pursuant to the 1996 DOP is 100% of the fair market
value per share of Common Stock on the date of the grant. In the event that the
date of grant is not a trading day, the exercise price per share is the fair
market value on the next trading day immediately following the date of grant of
the option. All options granted under the 1996 DOP are fully vested and
exercisable upon the date of grant and remain exercisable only while the
Outside Director remains a director of the Company.
The Company's directors who are also officers of the Company do not receive
any additional compensation for their services as members of the Board of
Directors.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT, AND CHANGE-IN-CONTROL
ARRANGEMENTS
Jessica L. Stevens, Bonnie Crystal, and Warren M. Dillard (the "Employees")
do not have employment contracts with the Company. The Employees maintain
employment agreements with TCC, the Company's wholly owned subsidiary (the
"Employment Agreements").
The Employment Agreements provide that Ms. Stevens, Ms. Crystal, and Mr.
Dillard will receive an annual salary of $200,000, $180,000 and $160,000
respectively (which is reviewed annually), and reimbursement for certain
expenses. The Employees are also entitled to participate in any pension,
insurance, savings or other employee benefits adopted by the Company.
The Employment Agreements are at-will and may be terminated by TCC by written
notice to any of the Employees. The Employment Agreements also terminate on the
occurrence of any one of the following events: (i) the occurrence of
circumstances that make it impossible or impracticable for the business of TCC
to be continued, (ii) the death of the Employee, (iii) the loss by the Employee
of his or her legal capacity, (iv) the loss by TCC of the legal capacity to
contract and (v) the dissolution of TCC.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee as of the Company's 1996 fiscal
year end were James R. Iverson, Larry J. Wells and Frederick T. Lezak, Jr.
Frederick T. Lezak, Jr. ceased to be a member of the Compensation Committee on
April 1, 1997 when he became President of TCC, the Company's wholly owned
subsidiary. Gilbert F. Decker became a member of the Compensation Committee
upon his appointment to the Company's Board of Directors on May 15, 1997. No
member of the Compensation Committee was at any time during the Company's 1996
fiscal year or at any other time an officer or employee of the Company except
that Frederick T. Lezak, Jr. has served as Chief Financial Officer of TCC
between 1991 and 1993 and has served as President of TCC since April 1, 1997.
No executive officer of the Company serves as a member of the Board of
Directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
establishes the general compensation policies of the Company and the
compensation plans and specific compensation levels for senior executives
including the Company's Chief Executive Officer.
8
<PAGE>
General Compensation Philosophy
The primary objectives of the Company's executive compensation policies
include:
. Attracting, motivating, and retaining quality employees,
. Rewarding executives based upon the Company's financial and product
development performance at levels competitive with comparable high-
growth companies, and
. Providing incentives designed to increase shareholder value.
Because Telegen competes against aggressive companies in a dynamic, high-
growth industry, the Company believes that finding, motivating, and retaining
quality employees, particularly senior managers and technical contributors, is
a key factor to the Company's future success. Accordingly, the Committee's
compensation philosophy seeks to align management and shareholder interests by
tying cash compensation and long-term incentive programs to the Company's
financial performance, including increased returns to shareholders. The
Committee also seeks to maintain executives' aggregate compensation, including
salary, and long-term equity incentives, at a level competitive with
comparable high-growth companies.
Base Salary
Base salary is primarily used by the Company as a device to attract,
motivate, reward and retain highly skilled executives. The Committee reviewed
and approved fiscal 1996 base salaries for the Chief Executive Officer and
other executive officers. Base salaries were established by the Committee
based on an executive officer's job responsibilities, level of experience,
individual performance, contribution to the business, the Company's financial
performance for the past year and recommendations from management. The
Committee also took into account the salaries for similar positions at
comparable companies, based on each individual Committee member's industry
experience. In reviewing base salaries, the Committee focused significantly on
each executive officer's prior performance with the Company and expected
contribution to the Company's future success. In making base salary decisions,
the Committee exercised its discretion and judgment using these factors. No
specific formula was applied to determine the weight of each factor.
Stock Options
The Committee provides the Company's Chief Executive Officer and other
executive officers with long-term incentive compensation through grants of
stock options under the Company's 1996 Stock Option Plan. The Committee
believes that stock options provide the Company's executive officers with the
opportunity to purchase and maintain an equity interest in the Company and to
share in the appreciation of the value of the Company's Common Stock. The
Committee believes that stock options directly motivate an executive to
maximize long-term shareholder value. The options also use vesting periods
that encourage key executives to continue in the employ of the Company. All
options granted to executive officers to date have been granted at fair market
value of the Company's Common Stock on the date of grant. The Committee
considers the grant of each option subjectively, considering factors such as
the executive officer's relative position and responsibilities with the
Company, the individual performance of the executive officer over the previous
fiscal year and the anticipated contribution of the executive officer to the
attainment of the Company's long-term strategic performance goals. Stock
options granted in prior years are also taken into consideration. The
Committee views stock option grants as an important component of its long-
term, performance-based compensation philosophy.
Other Compensation Considerations
The Committee has studied Section 162(m) of the Internal Revenue Code and
related regulations of the Internal Revenue Service, which restrict the
deductibility of executive compensation paid to any of the Company's five most
highly-paid executive officers at the end of any fiscal year to the extent
that such compensation exceeds $1 million in any year and does not qualify for
an exemption under the statute or related regulations. The Company has
qualified its 1996 Stock Option Plan as a performance based plan and therefore
9
<PAGE>
compensation realized in connection with exercises of options granted under
the Plan is exempt under the statute. The Committee does not believe that the
other components of the Company's compensation will be likely in the aggregate
to materially exceed $1 million for any executive officer in 1997 and
therefore has concluded that no further action with respect to qualifying such
compensation for deductibility is necessary at this time. The Committee will
continue to evaluate the advisability of qualifying the deductibility of such
compensation in the future.
<TABLE>
<S> <C> <C>
Larry J. Wells, Member Gilbert F. Decker, Member James R. Iverson, Member
Compensation Committee Compensation Committee Compensation Committee
</TABLE>
COMPANY PERFORMANCE GRAPH
The following graph shows a comparison, since November 8, 1996, the
Company's first trading day on the Electronic Bulletin Board after the merger
with Solar Energy Research Corp. ("SERC") on October 28, 1996, of cumulative
total return for the Company through December 31, 1996, relative to the Nasdaq
Stock Market (U.S.) Index and the Nasdaq Non-Financial Index. Trading periods
prior to the merger of SERC, the Company's predecessor, with Telegen
Corporation are not relevant since the trading price of SERC did not reflect
the value of the operating business of Telegen Corporation. Shareholder
returns over the periods indicated should not be considered indicative of
future returns.
[GRAPH OF COMPARISON OF CUMULATIVE TOTAL RETURN OMITTED]
CUMULATIVE TOTAL RETURN TABLE
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
---------------------------
11/06/96 11/96 12/96
--------- ------- -----
<S> <C> <C> <C>
TELEGEN CORPORATION (TLGN) ................... 100 65 92
NASDAQ STOCK MARKET (U.S.) (INAS) ............ 100 104 104
NASDAQ NON-FINANCIAL (INNF) .................. 100 104 103
</TABLE>
Assumes $100 invested on November 6, 1996 in Telegen common stock, Nasdaq
Stock Market (U.S.) Index and Nasdaq Non-Financial Index. Total return assumes
reinvestment of dividends for the Nasdaq Stock Market (U.S.) Index and the
Nasdaq Non-Financial Index. The Company has never paid dividends on its common
stock and has no present plans to do so.
10
<PAGE>
PROPOSAL TWO
AMENDMENT OF COMPANY'S BYLAWS
The Company's Bylaws (the "Bylaws") , as currently in effect, provide that
the authorized number of directors of the Company may range from four (4) to
seven (7). The board of directors and the shareholders are authorized to fix
the exact number within this range, and the number is currently fixed at seven
(7). On April 16, 1997, the Board of Directors authorized an amendment to the
Bylaws to expand the permitted range to five (5) to nine (9) while maintaining
the fixed size of the board at seven (7). Within the proposed new range the
Board of Directors or the shareholders would continue to have the authority to
increase or decrease the number of directors.
Under the proposed amendment, the first two sentences of Article III,
Section 3.2 of the Bylaws would be amended to read as follows:
"The number of directors of the corporation shall be not less than five (5)
nor more than nine (9). The exact number of directors shall be seven (7)
until changed, within the limits specified above, by a bylaw amending this
Section 3.2, duly adopted by the board of directors or by the
shareholders."
PURPOSE AND EFFECT OF AMENDMENT
The principal purpose of the proposed amendment is to increase the maximum
number of directors which the Company may have on its Board of Directors. Upon
approval of the amendment, the Board will be able, without additional
shareholder approval, to increase the size of the Board of Directors to up to
nine (9) directors. Upon an increase in the size of the Board of Directors,
the Board would be able to appoint one or more directors to fill the new
position or positions created. The Board believes the Company will be better
served by having a larger Board of Directors with experienced directors with
varied backgrounds. Because identifying and attracting qualified directors is
often difficult, the Company believes it is important to be able to act
quickly when a desirable candidate becomes available. The Board of Directors
is currently at its maximum allowable size and the Company's ability to
attract new directors may be impaired. The amendment, by giving the Board the
power to increase the size of the Board of Directors beyond its current size
of seven (7), would enhance the Company's ability to attract additional
qualified directors when and if available.
VOTE REQUIRED
The approval of the amendment to the Bylaws requires the affirmative vote of
a majority of the outstanding shares of Common Stock of the Company. An
abstention or nonvote is not an affirmative vote and, therefore, will have the
same effect as a vote against the proposal. THE COMPANY'S BOARD OF DIRECTORS
HAS APPROVED THIS PROPOSAL.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE AMENDMENT
OF THE COMPANY'S BYLAWS.
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Coopers & Lybrand L.L.P., independent
accountants, to audit the financial statements of Telegen for the current
fiscal year ending December 31, 1997. The Company expects that a
representative of Coopers and Lybrand L.L.P. will be present at the Annual
Meeting, will have the opportunity to make a statement if he or she desires to
do so, and will be available to answer any appropriate questions.
11
<PAGE>
Prior to the Merger, Telegen was incorporated as SERC and employed Cordovano
& Company as its principal independent accountant and Old Telegen, employed
Coopers & Lybrand L.L.P. as its principal independent accountant. After the
Merger, the assets of Old Telegen became substantially all the assets of the
combined companies and 97% of the ownership of the combined companies was held
by the former shareholders of Old Telegen. As part of the Merger, Telegen
which is effectively the successor to Old Telegen continued to retain Coopers
& Lybrand L.L.P. as its principal accountant and ended the engagement of
Cordovano & Company by SERC.
As of the date of the Merger, Cordovano & Company's reports on the financial
statements for each of the prior two fiscal years and during any subsequent
interim period preceding the date of the Merger did not contain an adverse
opinion or a disclaimer of opinion, or were qualified as to uncertainty, audit
scope, or accounting principles. At no time since the Merger did SERC have any
disagreements with Cordovano & Company on any matter of accounting principles
or practices, financial statement disclosure, or auditing scopes, or
procedure.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative votes of the holders of a majority of the shares of the
Company's stock present or represented and voting at the Annual Meeting will
be required to approve this proposal. THE COMPANY'S BOARD OF DIRECTORS HAS
APPROVED THIS PROPOSAL.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE RATIFICATION OF THE
SELECTION OF COOPERS & LYBRAND L.L.P.
OTHER MATTERS
The Company knows of no other matters to be submitted at the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed proxy card to vote the shares they represent as
the Board of Directors may recommend.
It is important that your shares be represented at the meeting, regardless
of the number of shares which you hold. You are, therefore, urged to mark,
sign, date, and return the accompanying proxy card as promptly as possible in
the postage-prepaid envelope enclosed for that purpose.
For the Board of Directors
TELEGEN CORPORATION
By: Bonnie Crystal
Secretary
Dated: June 24, 1997
12
<PAGE>
TELEGEN CORPORATION
PROXY FOR 1997 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of TELEGEN CORPORATION, a California
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement, each dated June 24, 1997, and hereby appoints
Jessica L. Stevens and Warren M. Dillard, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in
the name of the undersigned, to represent the undersigned at the 1997 Annual
Meeting of Shareholders of TELEGEN CORPORATION, to be held on Wednesday, August
6, 1997 at 1:30 p.m., local time at the Hotel Sofitel, 233 Twin Dolphin Drive,
Redwood Shores, California, and any adjournment(s) thereof, and to vote all
shares of Common Stock which the undersigned would be entitled to vote if then
and there personally present, on the matters set forth below.
1. Election of directors:
[_] FOR all nominees listed below [_] WITHHOLD AUTHORITY to vote for
(except as indicated) all nominees listed below
INSTRUCTION: If you wish to withhold authority to vote for any individual
nominee, strike a line through that nominee's name in the list below:
Jessica L. Stevens, Bonnie Crystal, Warren M. Dillard, Frederick T.
Lezak, Jr., Larry J. Wells, James R. Iverson, Gilbert F. Decker
2. Proposal to amend the Company's bylaws for the purpose of increasing the
range of the Company's board from a variable range of four (4) to seven (7)
to a variable range of five (5) to nine (9) and to fix the size of the
board at seven (7).
[_] For [_] Against [_] Abstain
3. Proposal to ratify the appointment of Coopers & Lybrand L.L.P. as
independent accountants for the fiscal year ending December 31, 1997.
[_] For [_] Against [_] Abstain
In their discretion, the proxies are authorized to vote upon such other
matter(s) which may properly come before the meeting and at any adjournment(s)
thereof.
<PAGE>
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS INDICATED, WILL BE
VOTED FOR THE LISTED NOMINEES IN THE ELECTION OF DIRECTORS, FOR THE AMENDMENT TO
THE BYLAWS, AND FOR THE RATIFICATION OF THE APPOINTMENT OF COOPERS & LYBRAND
L.L.P. AS INDEPENDENT ACCOUNTANTS FOR THE 1997 FISCAL YEAR.
Both of such attorneys or substitutes (if both are present and acting at said
meeting or any adjournment(s) thereof, or, if only one shall be present and
acting, then that one) shall have and may exercise all of the powers of said
attorneys-in-fact hereunder.
Dated: __________________________, 1997
________________________________________
Signature
________________________________________
Signature
(This Proxy should be marked, dated, signed by the shareholder(s) exactly as his
or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
