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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal Year Ended December 31, 1997
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Period From _________ to __________.
Commission File Number: 0-14836
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TELEGEN CORPORATION
(Exact name of Registrant as specified in its charter)
California 84-067214
(State or other jurisdiction of ---------------------------------------
incorporation or organization) (I.R.S. employer identification number)
.
101 Saginaw Drive, Redwood City, CA 94063
(Address of principal executive offices and zip code)
(650) 261-9400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
-----
Securities registered pursuant to Section 12(g) of the Act: Common Stock
------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods as the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of April 15, 1998, the approximate aggregate market value of voting
stock held by nonaffiliates of the Registrant was $5,678,093.25 based upon the
closing sale price on the Electronic Bulletin Board for that date.
As of April 15, 1998, the number of outstanding shares of the
Registrant's Common Stock was 8,173,931.
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<PAGE>
Explanatory Note
This Report on Form 10-K/A No. 1 is being filed to disclose those items
previously omitted from Part III of the Report on Form 10-K filed by the
Registrant on April 15, 1998, in compliance with instruction G(3) to the Form
10-K which allows for an amendment thereto by April 30, 1998 if a definitive
proxy statement is not filed with the Commission by such date.
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<PAGE>
PART III.
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
(a) PROFILES OF DIRECTORS AND EXECUTIVE OFFICERS
GREGORY BELL has a decade of experience in corporate finance,
operations, management issues and systems development. He has held mergers &
acquisitions, strategic planning and operating positions at AMF Industries,
where he restructured new acquisitions, reorganized international operation,
managed the performance of portfolio companies and ran a business unit with
operations in twelve countries. Previously he was a consultant to Booz Allen &
Hamilton, and worked with a commodities trading company. Mr. Bell was appointed
to the Company's Board of Directors in October 1997 and became a member of the
Company's Executive Committee in November 1997.
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 1997, after leaving his position
with the Army. Mr. Decker became Chairman of the Company's Board of Directors in
September 1997 and Chairman of the Company's Executive Committee in November
1997.
JAMES R. (DICK) IVERSON has an extensive background in technology
development including management positions with companies such as Teledyne Ryan
Electronics, General Dynamics, and Gould, Inc., with responsibility for
government and commercial electronics systems. Since January 1995, Mr. Iverson
has been an independent consultant to the electronics industry. Mr. Iverson
serves on the board and compensation committee of Ameriquest Tech, Inc. Mr.
Iverson served on the board of Telegen Communications Corporation, the Company's
predecessor corporation from October 1995 to October 1996 and has been a member
of the Company's Board of Directors since October 28, 1996 and serves on the
Company's Executive Committee, receiving an appointment to such position in
November 1997.
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. Mr. Lezak was also the Chief Financial Officer of TCC,
the Company's wholly-owned subsidiary between January 1991 and July 1993, was
not an officer or employee of TCC thereafter until April 1997 when he became the
President of TCC. Mr. Lezak served on the board of Telegen Communications
Corporation, the Company's predecessor corporation from January 1991 to October
1996 and became a director of the Company on October 28, 1996 and he also serves
on the Company's Executive Committee receiving an appointment to such position
in November 1997.
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 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. Mr. Wells served on the board of Telegen
Communications Corporation, the Company's predecessor corporation from May 1996
to October 1996 and has served as director of the Company since October 28,
1996.
FRED Y. KASHKOOLI has been an independent consultant since 1991 and was
formerly a senior vice president of Research and Development at GE Intersil,
where he was responsible for design, manufacturing and strategic marketing of
analog and digital products. During his eleven year tenure with GE Intersil, Mr.
Kashkooli managed design centers in Singapore, New Jersey, North Carolina and
Florida, and was a director of the microprocessor and memory division with
profit and loss responsibility. Mr. Kashkooli became the Company's Chief
Executive Officer on October 31, 1997.
JESSICA L. STEVENS has been an inventor and an engineer since 1972.
From 1991 to 1996, Ms. Stevens served as Chief Executive Officer, President and
director of Telegen Communications Corporation, the Company's predecessor
corporation. From October 1996 to August of 1997, Ms. Stevens was President,
Chief Executive Officer and a director of the Company. In August 1997 Ms.
Stevens relinquished her title of Chief Executive Officer and was named Chief
Technology Officer. In October 1997 Ms. Stevens was terminated as an employee by
the Company including her positions as President and CTO. Ms. Stevens remains a
director of the Company.
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<PAGE>
BONNIE CRYSTAL has been a telecommunications engineer, consultant and
inventor since 1972. Ms. Crystal served as Executive Vice President, Secretary,
and director of Telegen Communications Corporation, the Company's predecessor
corporation from 1991 to 1996. From October 1996 to October 1997, Ms. Crystal
was a director, Executive Vice-President, and Secretary of the Company. In
November 1997, the Company terminated her from her executive management
positions. Ms. Crystal remains a director of the Company.
WARREN M. DILLARD has been a financial analyst and financial manager
since 1967. In October 1993, he became Chief Financial Officer of Telegen
Communications Corporation, the Company's predecessor corporation, adding the
title of Chief Operating Officer in March 1994. Mr. Dillard served as the
Company's Chief Financial Officer, Chief Operating Officer, and director of the
Company since October 28, 1996, relinquishing the title of Chief Operating
Officer for Chief Executive Officer of the Company in August 1997. In November
1997, Mr. Dillard relinquished all of his executive management and director
positions with the Company.
P. VICTOR KELSEY Ph.D. was formerly the Marketing Development Manager
for eight years for Lanxide Products, a joint venture company with DuPont, where
he was responsible for the sales, marketing and product development of advanced
armor systems. Dr. Kelsey has consulted over his entire career in the area of
luminescent research and display development. Dr. Kelsey joined the Company's
majority-owned subsidiary, Telegen Display Laboratories, Inc. on June 17, 1996
as Manager of Materials Development. In February 1997 Dr. Kelsey was appointed
as Executive Vice President of TDL.
DANIEL J. KITCHEN was a vice president of creative development and a
director of Absolute Entertainment, Inc. from May 1986 through October 1995.
Absolute Entertainment, Inc. was a public reporting company which ceased to do
business in 1995. Mr. Kitchen has been a director, president and chief executive
officer of Morning Star Multimedia, Inc., a New Jersey Corporation ("MSM") since
October of 1995. Mr. Kitchen joined the Company in December of 1996 upon the
Company's acquisition of MSM and he has continued to serve in all such positions
with MSM. On December 31, 1997, MSM was sold by the Company to a corporation
formed for the purpose of acquiring MSM, of which corporation Mr. Kitchen is a
director, president and chief executive officer.
(b) 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, 1997, certain Section 16(a)
filing requirements applicable to its officers, directors, and 10% shareholders
were not complied with. The following directors of the Company failed to file a
timely Form 3: Fred Y. Kashkooli (reported late on a Form 5) Gregory Bell
(reported late on a Form 5). The following 10% beneficial owners also have
failed to file a timely Form 3: Elara Ltd. and Augustine Fund, L.P. The
following insiders failed to file timely Forms 4 and/or 5: Jessica L. Stevens
for two sales and one gift transaction; Larry J. Wells for one purchase
transaction (reported late on a Form 5).
In addition, each of the Company's directors failed to file a Form 4 or
5 for grants of options made pursuant to compensation arrangements with such
directors for board service. As to the Company's officers and directors, the
Company has either confirmed filing of late Forms 4 and/or 5 regarding the above
failures to timely file or expects that those filings will be made in the near
future.
Item 11. Executive Compensation
(a) 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 1997 (the "Named Executive Officers") as well as the total
compensation paid to each such individual for the Company's two previous fiscal
years.
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<PAGE>
<TABLE>
<CAPTION>
============================================================================================================================
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation Awards
------------------- -----------------------------
Restricted
Other Annual Stock
Name and Principal Position Year Salary ($) Bonus($) Compensation Awards(s)($) Options/SAR's (#)
--------------------------- ---- ---------- -------- ------------ ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Fred Y. Kashkooli, Chief 1997 $ 27,500(1) $ -- $ -- $ -- 0(1)
Executive Officer
Jessica L. Stevens, 1997 $ 166,667 $ -- $ -- $ -- 35,712
former President, former 1996(2) $ 170,000 $ -- $ -- $ -- 133,501
Chief Executive Officer and 1995(2) 29,167 -- 252,000(3) -- 20,004
current Director
Bonnie Crystal, 1997 $ 157,500 -- -- -- 35,712
former Executive Vice 1996(2) 157,500 -- -- -- 107,650
President, former Secretary and 1995(2) 60,000 -- -- -- 18,000
current Director
Warren M. Dillard, 1997 153,333 -- -- -- 25,167
former Chief Executive Officer, 1996(2) 136,667 -- -- -- 106,799
former Chief Operating Officer, 1995(2) 53,333 -- -- -- 15,996
and former Chief Financial
Officer
P. Victor Kelsey(4) 1997 111,250 -- -- -- 8,163
1996(2) 43,750 -- -- -- 2,250
============================================================================================================================
<FN>
- ------------------------
(1) Mr. Kashkooli became the Chief Executive Officer of the Company on October 31, 1997. His employment agreement provides
for annual compensation of $220,000 for his first year of employment with an annual bonus of up to $110,000 for his
first year of employment. In connection with his employment agreement Fred Y. Kashkooli was granted on February 24,
1998, options for 720,000 shares of Common Stock of the Company.
(2) Compensation for the fiscal year 1995 and up to October 28, 1996 reflects compensation paid by the Company's
predecessor corporation Telegen Communications Corporation (formerly known as Telegen Corporation).
(3) In August 1995, Ms. 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 $252,000
was recorded to reflect the difference between the fair market value of the common stock at the time of the grant and
the exercise price.
(4) Dr. Kelsey is an Executive Vice President of the Company's wholly-owned subsidiary Telegen Display Laboratories, Inc.
Dr. Kelsey's compensation for the fiscal years 1996 and 1997 was paid by Telegen Display Laboratories, Inc.
</FN>
</TABLE>
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<PAGE>
(b) Option/SAR Grants Table
<TABLE>
The following table summarizes the individual grants of stock options
(whether or not in tandem with SARs), and freestanding SARs made during the last
completed fiscal year to each of the Named Executive Officers.
<CAPTION>
============================================================================================================================
Option/SAR Grants in Last Fiscal Year
Potential Realizable Value
at Assumed Annual
Rates of Stock Price
Appreciation for
Individual Grants Option Term
- --------------------------------------------------------------------------------------------- ----------------------------
Number of % of Total
Securities Options/SARS
Underlying Granted to Exercise or
Options/SARS Employees Base Price Expiration
Name Granted (#) in Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ------------------------- --------------- --------------- ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Jessica L. Stevens 20,000 5.48 5.00 5/1/03 59,136.36 110,372.87
15,000 4.08 2.06 8/6/03 25,635.28 43,837.73
356 .09 2.81 10/31/02 0 0
356 .09 2.81 11/10/02 0 0
20,000(1) 14.00(1) 5.00(1) 5/1/03(1) 0 0
Bonnie Crystal 20,000 5.45 5.00 5/1/03 59,136.36 110,372.87
15,000 9.08 2.06 8/6/03 25,635.28 43,837.73
356 .09 2.81 10/31/02 0 0
356 .09 2.81 11/10/02 0 0
20,000(1) 14.00(1) 5.00(1) 5/1/03(1) 0 0
Warren M. Dillard 1,000 .27 5.63 4/2/03 2,508.04 4,935.03
20,000 5.45 5.00 5/1/03 59,136.36 110,372.87
4,167 .44 2.88 12/31/02 0 0
20,000(1) 14.00(1) 5.00(1) 5/1/03(1) 0 0
P. Victor Kelsey 3,000 .82 9.50 1/31/03 23,763.72 40,590.88
1,038 .28 6.50 9/20/02 0 0
1,000 .27 5.63 4/2/03 0 0
3,125 .85 2.88 12/31/02 0 0
============================================================================================================================
<FN>
- -----------------
(1) These options were granted for common stock of the Company's subsidiary, Telegen Display Laboratories, Inc., a
privately held corporation. There is no market in such common stock and any potential realizable value relating to
appreciation of such stock may never be obtained until such market develops.
</FN>
</TABLE>
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<PAGE>
(c) Fiscal Year-End Option/SAR Value Table
<TABLE>
The following table provides information concerning the value of
unexercised options at fiscal year end for each of the Named Executive Officers.
<CAPTION>
============================================================================================================================
Fiscal Year-End Option/SAR Values
Number of Securities Underlying Value of Unexercised
Unexercised Options/SARs at In-the-Money Options/
FY-End(#) Exercisable/ SARs at FY-End ($)
Name Unexercisable Exercisable/Unexercisable
- -------------------------------------- ---------------------------------------- ---------------------------------------
<S> <C> <C>
Jessica L. Stevens 245,174/27,379 0/0
33,338/6,667(1) 0/0
Bonnie Crystal 210,983/27,379 0/0
33,333/6,667(1) 0/0
Warren M. Dillard 178,784/9,333 0/0
33,333/6,667(1) 0/0
P. Victor Kelsey 9,413/1,000 0/0
37,500/0(1) 0/0
============================================================================================================================
<FN>
- ------------------------
(1) These options represent rights to purchase shares in Telegen Display Laboratories, Inc., a majority owned private
subsidiary of the Company in which no trading market exists. At this time, the Company believes that these options do
not have in-the-money value.
</FN>
</TABLE>
(d) Compensation of Directors
Currently, the Company's non-employee directors receive (i) 356 shares
of the Company's common stock or an option to purchase 356 shares of the
Company's common stock at an exercise price of $2.81, at such directors'
election, and (ii) no cash compensation, for each meeting of the Board of
Directors or a committee of the Board of Directors attended in person, or
attended by telephone. Immediately prior to the Company's 1997 Annual
Shareholder Meeting held on August 6, 1997, the non-employee directors received
(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 $5.00 at such directors
election, and (ii) no cash compensation, for each meeting of the Board of
Directors or committee of the Board 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. Additionally, 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.
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<PAGE>
(e) Employment Contracts, Termination of Employment, and
Change-in-Control Arrangements
Fred Y. Kashkooli (the "Employee") has an employment contract with the
Company (the "Kashkooli Employment Agreement"). The Kashkooli Employment
Agreement provides that Mr. Kashkooli will receive during his first year of
service an annual salary of $220,000 and an annual cash bonus of $110,000, such
amounts to increase to $275,000 and $125,000 respectively for his second year of
service, with increases thereafter subject to determination by the board. The
bonuses are subject to certain performance targets being obtained by the
Company. The Kashkooli Employment Agreement also provides for a grant of 720,000
options. The Employee is also entitled to participate in any pension, insurance,
savings or other employee benefits adopted by the Company.
The Kashkooli Employment Agreement is at-will and may be terminated by
the Company by written notice to the Employee, unless termination is for cause.
Where the Employee is involuntarily terminated without cause, which is defined
in the Kashkooli Employment Agreement, the Employee is eligible for a severance
package which includes lump sum payments and certain acceleration of vesting on
options held by the Employee.
Jessica L. Stevens, Bonnie Crystal, and Warren M. Dillard were
executives of the Company during the last fiscal year until October 1997 (the
"Former Executives") and they did not have employment contracts with the
Company. The Former Executives maintained employment agreements with TCC,
formerly the Company's wholly owned subsidiary (the "Executive Employment
Agreements").
The Executive Employment Agreements provided that Ms. Stevens, Ms.
Crystal, and Mr. Dillard would receive an annual salary of $200,000, $180,000
and $160,000 respectively (which is reviewed annually), and reimbursement for
certain expenses. The Former Executives were also entitled to participate in any
pension insurance, savings or other employee benefits adopted by the Company.
The Executive Employment Agreements were at-will, terminable by TCC by
written notice to any of the Former Executives. The Executive Employment
Agreements would also have terminated 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 a
Former Executive, (iii) the loss by a Former Executive of his or her legal
capacity, (iv) the loss by TCC of the legal capacity to contract and (v) the
dissolution of TCC. Ms. Stevens and Ms. Crystal were terminated by the Company
in October 1997.
P. Victor Kelsey does not have an employment contract with the Company.
Mr. Kelsey maintains an employment agreement (the "Kelsey Employment Agreement")
with Telegen Display Laboratories, Inc., a California corporation and
wholly-owned subsidiary of the Company ("TDL").
The Kelsey Employment Agreement was entered into in June 1996 and
provides that Mr. Kelsey receive an annual income of $120,000 per year in cash
plus options to purchase 25,000 shares of TDL Common Stock at a purchase price
of $1.00 per share, 12,500 shares of such options vested and accrued upon his
completing of ninety (90) days of service, and the balance of 12,500 shares
vested one hundred eight (180) days of service thereafter. Also, upon completion
of ninety (90) days of service, Mr. Kelsey was awarded either a grant of TDL
Common Stock valued at 5% of his annual salary or options to purchase such
number of shares, such options to vest ratably over five (5) years.
The Kelsey Employment Agreement is at-will and may be terminated by TDL
by written notice to Mr. Kelsey. The Kelsey Employment Agreement also terminates
upon the occurrence of any one of the following events: (i) the occurrence of
circumstances that make it impossible or impracticable for the business of TDL
to be continued, (ii) the death of Mr. Kelsey, (iii) the loss by Mr. Kelsey of
his legal capacity, (iv) the loss by TDL of the legal capacity to contract and
(v) the dissolution of TDL.
(f) Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee as of the Company's 1997
fiscal year end were James R. Iverson, Larry J. Wells and Frederick T. Lezak.
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 1997 fiscal year
or at any other time an officer or employee of the Company except that Frederick
T. Lezak, Jr. ceased
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<PAGE>
to be a member of the Compensation Committee on April 1, 1997 when he became the
President of Telegen Communications Corporation, a California corporation
("TCC"), the Company's former wholly-owned subsidiary. Mr. Lezak also served as
Chief Financial Officer of TCC between 1991 and 1993. 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.
Item 12. Security Ownership of Certain Beneficial Owners and Management
<TABLE>
The following tables sets forth the shares of common stock beneficially
owned as of February 13, 1998 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.
<CAPTION>
Shares of Common Stock (1)
--------------------------
Five-Percent Shareholders, Directors, Executive Officers Number Percent
- ------------------------------------------------------------------------------------ ---------------- ------------
<S> <C> <C>
Five-Percent Shareholders, Directors and Executive Officers:
Elara, Ltd.(2)...................................................................... 1,125,000 13.06%
Sundance Venture Partners, L.P.(3) ................................................. 793,132 9.58%
TSC LLC(3)(4) ...................................................................... 793,132 9.58%
Augustine Fund, L.P.(5)............................................................. 1,257,730 13.25%
Triton Equities Fund L.P.(5)........................................................ 874,015 9.59%
Fred Y. Kashkooli(6)................................................................ 105,950 1.27%
Jessica L. Stevens(7)............................................................... 795,102 9.32%
Bonnie Crystal(8)................................................................... 399,596 4.73%
Warren M. Dillard(9) ............................................................... 179,024 2.46%
Victor P. Kelsey(10)................................................................ 10,839 *
Gilbert F. Decker(11)............................................................... 28,490 *
Gregory Bell(12).................................................................... 11,068 *
James R. Iverson(13)................................................................ 51,609 *
Frederick T. Lezak, Jr.(14)......................................................... 52,210 *
Larry J. Wells(3)................................................................... 793,132 9.58%
All Directors and Executive Officers as a Group (11) persons........................ 2,454,979 26.5%
<FN>
- --------------------------
* Indicates less than 1%
(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 February 13, 1998 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 February 13,
1998, Telegen had 8,236,216 shares of common stock outstanding.
(2) Elara Ltd. owns 750,000 shares of Common Stock and has a warrant to acquire 375,000 shares of Common
Stock.
(3) Larry J. Wells individually owns 200 shares of Common Stock and has options to acquire 42,932 shares of
Common Stock. Larry J. Wells is also (i) a director of Sundance Venture Partners, L.P., which owns
200,000 shares of Common Stock and (ii) the manager for TSC LLC, which owns 550,000 shares of Common
Stock.
(4) In October 1997, TSC, LLC, a Delaware limited liability company ("TSC") entered into an amended and
restated stock purchase agreement with Jessica L. Stevens, an executive officer and director of the
Company, for the purchase of 550,000 shares of the Company's common stock in a private transaction.
(5) As of February 13, 1998, Augustine Fund, L.P. and Triton Private Equities Fund, L.P. held Promissory
Notes that are convertible to Common Stock within sixty (60) days of such date at a conversion price
equal to 75% of the lowest trading price of the Common Stock for the five (5) day period prior to such
conversion date. Such conversion price, if calculated based on stock prices for February 13, 1998,
would have been $0.24609375 (75% of the such lowest trading price ($0.328125) ) per share. As of
February 13, 1998, Augustine Fund L.P. and Triton Private Equities Fund, L.P. also held warrants for
59,000 shares of Common Stock and 41,000 shares of Common Stock respectively.
(6) Fred Y. Kashkooli individually owns 950 shares of Common Stock and has options to acquire 105,000
shares of Common Stock.
(7) Jessica L. Stevens individually owns 499,428 shares of Common Stock and has options to acquire 245,174
shares of Common Stock and a warrant to acquire 50,500 shares of Common Stock.
(8) Bonnie Crystal individually owns 188,613 shares of Common Stock and has options to acquire 210,983
shares of Common Stock.
-9-
<PAGE>
(9) Warren M. Dillard individually owns 240 shares of Common Stock and has options to acquire 178,784
shares of Common Stock.
(10) Victor P. Kelsey individually owns 1,426 shares of Common Stock and has options to acquire 9,413 shares
of Common Stock.
(11) Gilbert F. Decker individually owns no shares of Common Stock and has options to acquire 28,490 shares
of Common Stock.
(12) Gregory Bell individually owns no shares of Common Stock and has options to acquire 11,068 shares of
Common Stock.
(13) James R. Iverson individually owns 4,432 shares of Common Stock and has option to acquire 47,177 shares
of Common Stock.
(14) Frederick T. Lezak, Jr. individually owns no shares of Common Stock and has options to acquire 52,210
shares of Common Stock.
</FN>
</TABLE>
Item 13. Certain Business Relationships and Related Transactions
In connection with the Company's Electronic Trade Show in Las Vegas in
January 1997, Jessica L. Stevens hired the services of a nationally-recognized
entertainer for the benefit of the Company's employees. The Company has advanced
$190,000 to Ms. Stevens to cover the expenses relating to such entertainment
services. Ms. Stevens has not repaid the Company's advance as of the date of
this report and the Company is carrying such advance as an account receivable on
its balance sheet dated as of fiscal year end 1997. Ms. Stevens is currently
disputing the above repayment obligations to the Company.
On December 31, 1997, the Company sold all of its stock holdings in
Morning Star Multimedia, Inc., a wholly owned subsidiary of the Company ("MSM"),
to an entity in which Daniel J. Kitchen, an Executive Officer of the Company is
a significant shareholder, for $200,000 plus royalty streams to be paid to the
Company for a period of two years from December 31, 1997, of 5% to 10% of gross
sales of certain MSM CD-ROM products. This transaction was approved by the
Company's board with full knowledge of the above relationship. After the sale of
MSM, Mr. Kitchen resigned from all of his positions with the Company.
On March 19, 1998, the Company made available to certain holders of
common stock including Elara Ltd. and TSC LLC, which beneficially own more than
five percent (5%) of the Company's Common Stock, an exchange offer (the
"Exchange Offer") for their common stock. Under the Exchange Offer, the
Investors were offered convertible subordinated promissory notes (the "Notes")
for their shares of Common Stock with a face value equal to the number of shares
of common stock tendered under the Exchange Offer multiplied by the five-day
average of the Company's closing trading prices on the OTC Bulletin Board prior
to March 17, 1998 (the "Conversion Price"). The Notes have a one-year term with
a six percent (6%) balloon interest payment due at the end of the term of the
Note. the Notes are subordinated to all other existing debt of the Company, both
as to interest and principal and upon liquidation. The Notes are also
convertible to common stock at any time by a holder thereof, such number of
shares of common stock to be determined by dividing the amount of face value of
the Note tendered by the Conversion Price. The Company may prepay the Notes at
any time after giving fifteen (15) days prior written notice to holders thereof.
Under the Exchange Offer, Elara Ltd. and TSC LLC converted their common stock
holdings to Notes in the amounts of $334,156 and $245,781 respectively. A form
S-3 Registration Statement was filed with the Securities and Exchange Commission
on March 24, 1998 and declared effective on April 23, 1998 covering the issuance
of common stock upon the conversion of the Notes.
On April 1, 1998, the Company entered into an agreement to sell
substantially all of the assets of Telegen Communications Corporation, the
Company's telecommunications subsidiary ("TCC"), to an entity in which Frederick
T. Lezak, Jr., an Executive Officer and director of the Company, is a
significant shareholder, for $500,000 ($350,000 in cash and an additional
$150,000 in the form of a promissory note) and the rights of royalty streams on
certain TCC products for up to three years. The buying entity also assumed
certain liabilities totaling approximately $223,000. The Company has received a
deposit of $350,000 in cash as part of the sale price. This transaction was
approved by the Company's board with full knowledge of the above relationship.
After the sale of TCC, Mr. Lezak resigned from all his management positions with
the Company, and he remains a director of the Company.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TELEGEN CORPORATION
By: /S/ FRED Y. KASHKOOLI
-----------------------------
Fred Y. Kashkooli,
Chief Executive Officer
Date: April 29, 1998
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Form 10-K/A has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
*/S/ GILBERT F. DECKER Chairman of the Board April 29, 1998
- ---------------------------------
Gilbert F. Decker
Director
- ---------------------------------
Gregory Bell
*/S/ JAMES R. IVERSON Director April 29, 1998
- ---------------------------------
James R. Iverson
*/S/ FREDERICK T. LEZAK, JR. Director April 29, 1998
- ---------------------------------
Frederick T. Lezak, Jr.
*/S/ LARRY J. WELLS Director April 29, 1998
- ---------------------------------
Larry J. Wells
Director
- ---------------------------------
Jessica L. Stevens
Director
- ---------------------------------
Bonnie Crystal
/S/ FRED Y. KASHKOOLI Chief Executive, Financial April 29, 1998
- --------------------------------- and Accounting Officer
Fred Y. Kashkooli
* /S/ FRED Y. KASHKOOLI
- -------------------------------------------
Fred Y. Kashkooli, Attorney-In-Fact
</TABLE>
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