SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
___________________________________________________________
SCHEDULE 13D
Under the Securities Exchange Act of 1934
ELECTROSOURCE, INC.
(Name of Issuer)
Common Stock, par value $1.00 per share
(Title of Class of Securities)
286150 20 6
(CUSIP Number)
William C. Ughetta
Senior Vice President &
General Counsel
Corning Incorporated
One Riverfront Plaza
Corning, NY 14831
Telephone: (607) 974-9000
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications
March 27, 1997
(Date of Event which Requires Filing of this Statement)
____________________________________________________________
If the filing person has previously filed a statement on
Schedule 13G to report the acquisition which is the subject of
this Schedule 13D, and is filing this schedule because of Rule
13d1(b)(3) or (4), check the following box [ ].
<PAGE>
CUSIP No.: 286150 20 6
(1) Names of Reporting Persons S. S. or I.R.S. Identification No. of Above
Persons
Corning Incorporated
I.R.S. Identification No.: 16-0393470
(2) Check the Appropriate Box if a Member of a Group (See
Instructions)
(a) ___________________________________________________
(b) ___________________________________________________
(3) SEC Use Only _____________________________________________
(4) Source of Funds (See Instructions): WC
(5) Check if Disclosure of Legal Proceedings is Required
Pursuant to Items 2(d) or 2(e)
________________________________________________________
(6) Citizenship or Place of Organization: New York
Number of (7) Sole Voting Power: 1,227,273
Shares
Beneficially (8) Shared Voting Power: 0
Owned by
Each (9) Sole Dispositive Power: 1,227,273
Reporting
Person (10) Shared Dispositive Power: 0
With
(11) Aggregate Amount Beneficially Owned by Each Reporting
Person:
1,227,273 shares of Common Stock
(12) Check if the Aggregate Amount in Row (11) Excludes Certain
Shares (See Instructions)
_________________________________________________________
(13) Percent of Class Represented by Amount in Row (11):
Approximately 23.6%
(14) Type of Reporting Person (See Instructions): CO
<PAGE>
Item 1. Security and Issuer.
This statement relates to the Common Stock, par value
$1.00 per share ("Common Stock") of Electrosource, Inc.
(the "Issuer").
Issuer: Electrosource, Inc.
Principal executive Offices: 2809 Interstate 35 South
San Marcos, Texas 78666
Item 2. Identity and Background.
The person filing this statement is Corning Incorporated,
a New York corporation ("Corning"), with principal offices
located at One Riverfront Plaza, Corning, New York 14831.
Information relating to Corning's business is described in
Item 1 of Corning's Form 10-K for the fiscal year ended
December 31, 1996, which such Item 1 is hereby
incorporated by reference herein.
Item 3. Source and Amount of Funds or Other Consideration.
For purposes of the federal securities laws, Corning is
presently the beneficial owner of 1,227,273 shares of the
Issuer's Common Stock as a result of Corning and the
Issuer entering into (i) a Note Purchase and Option
Agreement, dated March 27, 1997 (the "Note Purchase
Agreement"), whereby the principal amount of the
Promissory Note issued thereunder may be converted into
727,273 shares of Common Stock and (ii) a Stock Option
Agreement, dated March 27, 1997 (the "Stock Option
Agreement"), whereby Corning has the option to purchase
from the Issuer 500,000 shares of Common Stock. The
source of funds was and is expected to be Corning's working capital.
Item 4. Purpose of Transaction.
Corning has entered into the transactions for investment
purposes. Corning has no plans or proposals which relate
to or would result in any of the matters referred to in
paragraphs (a) through (j) of Item 4 of Schedule 13D.
Corning reserves the right to review or reconsider its
position with respect to any such matters.
Item 5. Interest in Securities of the Issuer.
(a) Corning, for the purposes of the federal securities
laws, is presently the beneficial owner of 1,227,273
shares of the Issuer's Common Stock as a result of Corning
and the Issuer entering into the Note Purchase Agreement
and the Stock Option Agreement.
(b) Corning has the sole power to vote and sole power to
dispose of the shares of the Issuer's Common Stock set
forth in Paragraph (a) above.
(c) Except as set forth in paragraph (a) above, no
transactions in the Common Stock of the Issuer were
effected during the past 60 days by Corning.
(d) None
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or
Relationships With Respect to Securities of the
Issuer.
Corning and Electrosource have entered into the Note
Purchase Agreement and the Stock Option Agreement. The
Note Purchase Agreement and the Stock Option Agreement
provide Corning with certain rights to cause the Issuer to
register any shares of Common Stock acquired under the
Note Purchase Agreement or the Stock Option Agreement.
Item 7. Material to be Filed as Exhibits.
1. Note Purchase and Option Agreement, dated as of March
27, 1997, between Corning Incorporated and
Electrosource, Inc.
2. 5% Convertible Promissory Note, issued March 27, 1997,
to Corning Incorporated.
3. Stock Option Agreement, dated as of March 27, 1997.
SIGNATURE
After reasonable inquiry and to the best of my knowledge
and belief, I certify that the information set forth in this
statement is true, complete and correct.
CORNING INCORPORATED
Date: May 19, 1997 By: /s/ A. John Peck, Jr.
Name: A. John Peck, Jr.
Title: Secretary
<PAGE>
EXHIBIT 1
NOTE PURCHASE AND OPTION AGREEMENT
This Note Purchase and Option Agreement (the "Agreement")
is made and entered into as of March 27, 1997, by and
among Electrosource, Inc., a Delaware corporation (the
"Company"), and Corning Incorporated, a corporation organized
under the laws of the State of New York (the "Investor").
WHEREAS, Investor wishes to purchase a note from the
Company with the right to convert the note to common stock and
thereafter have the right to further increase its equity
interest by exercise of a stock option;
NOW, THEREFORE, the parties hereto agree as follows:
1. Purchase and Sale of Note
Note. The Company agrees to sell to the
Investor and, subject to the terms and conditions set forth
herein, the Investor agrees to purchase from the Company a
5% Convertible Promissory Note (the "Note") in the principal
amount of Four Million Dollars ($4,000,000.00) for the
consideration of Four Million Dollars ($4,000,000.00),
payable as set forth in Section 3. The Note shall be for a five (5)
year term, bearing interest at 5% per annum, payable in kind and
will be convertible into common stock ("Common Stock") of the Company
at a conversion price of Five and 50/100 dollars ($5.50) per
share for Seven Hundred Twenty-seven Thousand Two Hundred
Seventy-three (727,273) shares of Common Stock, subject to
adjustment of the conversion price as provided in the Note.
The form of the Note is set forth in Exhibit "A" attached
hereto.
2. Option to Purchase Common Stock
Investor shall also have the option ("Option") for
a period of two (2) years from the date hereof to purchase up
to Five Hundred Thousand (500,000) shares of original issue
Common Stock ("Common Stock") from the Company. The
exercise prices shall be Seven and No/100 Dollars ($7.00)
per share for Two Hundred Seventy-five Thousand (275,000)
of such shares and Nine and No/100 Dollars ($9.00) per share
for Two Hundred Twenty-five Thousand (225,000) of such shares,
subject to adjustment of such amounts as provided in the
Option Agreement, which is attached hereto as Exhibit "B."
The Option may be exercised by providing written notice to
the Company and by delivery of the purchase price as set
forth in the Option Agreement. The Option may not be
exercised more than thirty (30) days after prepayment of the
Note in full. Upon full conversion of the Note and exercise
of the Option, Investor would hold One Million Two Hundred
Twenty-seven Thousand Two Hundred Seventy-three (1,227,273)
shares of Common Stock.
3. Closing
The closing of the purchase and sale of the Note
(the "Closing") will take place by mail or as the
Parties may otherwise agree. At Closing, the Company will
deliver to the Investor the Note and Option upon payment of
Four Million Dollars ($4,000,000.00) of which Three Million
Five Hundred Dollars ($3,500,000) will be paid in the form
of a check or by a wire transfer of funds to an account
designated by the Company, and the balance of Five Hundred
Thousand Dollars ($500,000) shall be paid by a credit of
the unpaid principal of that certain Promissory Note of
March 6, 1997 in the principal amount of Five Hundred
Thousand Dollars ($500,000) between Investor and the
Company (the "Interim Note"), which Interim Note shall be
marked "paid" and surrendered to the Company. The Closing will
be held on or before April 1, 1997, unless the parties
otherwise agree. Interest on the Interim Note accrued and
unpaid at the date of Closing shall be paid by the Company to
Investor by check or wire transfer immediately after Closing, or may be
deducted by Investor from the Three Million Five Hundred Thousand
Dollars ($3,500,000) to be transferred at Closing, at the
election of Investor.
4. Covenants
The Company covenants and agrees with the Investor
as follows:
4A. Financial Statements and Other Information. The
Company will deliver to Investor so long as such Investor
holds the Note, Option or any other Notes issued in payment of
accrued interest thereon (sometimes referred to herein
collectively with the Note as the "Notes") copies of all reports
required to be filed by the Company pursuant to sections 13 and 14 of
the Securities Exchange Act of 1934.
4B. Representation on Board of Directors and Investor Information
Meetings. At the election of Investor and when so notified by the Investor,
the Company shall use its best reasonable efforts to appoint a qualified
representative of the Investor to the Company's Board of Directors and
will nominate such person, or his qualified replacement, for election at
the then next Annual General Meeting of the Shareholders of the Company
for which such seat stands for election. Additionally, for so long as the
Investor holds the Note or Option convertible in the aggregate into
shares of the company's Common Stock representing at least one
percent (1%) of the total shares of Common Stock outstanding or
holds shares of Common Stock representing at least one percent (1%)
of the total shares of Common Stock outstanding, the Company shall hold
meetings with representatives of the Investor at reasonable intervals
from time to time to discuss the business and prospects of the
Company.
4C. Reservation of Common Stock. The Company will at
all times reserve and keep available out of its authorized
but unissued shares of Common Stock, for the purpose of
issuance upon the conversion of the Note and exercise of
the Option, such number of shares of Common Stock as are
issuable upon the conversion of the Note and exercise of the
Option. All shares of Common Stock which are so issuable will,
when issued, be duly and validly issued, fully paid and non-assessable
and free from all taxes, liens and charges. The Company will take all
such actions as may be necessary to assure that all such
shares of Common Stock may be so issued without violation of
any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon
which shares of Common Stock may be listed.
4D. Ranking of Note. The Company's obligations
under the Note will rank at least pari passu in priority of
payment and in all other respects with all other unsecured
loans, debts or obligations of the Company entered into after the date
hereof. The Company shall not, while any amount of the
Note remains outstanding, offer to borrow funds from any third
party on terms more favorable to the third party lender than
those extended to Investor for the Note with respect to security for
the Note, financial covenants or negative pledges of the Company in
favor of such third party, repayment terms, or other
significant matters, without offering such terms to Investor in
writing.
5. Representations and Warranties
5A. Representations by Company. The Company
represents, warrants and agrees as follows:
(i) The Company is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Delaware and is in good standing as a foreign
corporation in each jurisdiction where the properties owned,
leased or operated, or the business conducted by it require
such qualification, except for such failure to so qualify
or be in such good standing, which, when taken together
with all other such failures, is not reasonably likely
to have a material adverse effect on the financial
condition, properties, business or results of operations
of the Company or the interest of shareholders in the Company
(a "Material Adverse Effect"). The Company has the requisite corporate
power and authority to carry on its business as it is now being conducted.
(ii) The authorized capital stock of the
Company as of the date hereof consists of Fifty Million
(50,000,000) shares of $1.00 par value Common Stock, of which
Four Million One Hundred Forty-three Thousand Four Hundred
Seventy-five (4,143,475) shares were issued and outstanding as of
March 20, 1997, none of which are held in treasury, and Ten
Million (10,000,000) shares of Preferred Stock, par value $1.00
per share ("Preferred Stock"), of which no shares were
issued and outstanding on the date hereof. All of the
outstanding shares of Common Stock have been duly authorized
and are validly issued, fully paid and nonassessable. As of
March 20, 1997, there were reservations for outstanding
options, warrants and agreements to purchase up to an
aggregate of approximately Two Million Seventy-two Thousand
Three Hundred Eight (2,072,308) shares of Common Stock, at
prices ranging from Five and 25/100 Dollars ($5.25) to Fifty-
five and No/100 Dollars ($55.00) per share.
(iii) The Note and Option when issued
in compliance with the provisions of this Agreement, will be
duly authorized and validly issued. The issuance of the
Note and Option will not be subject to any preemptive rights
or rights of first refusal created by the Company. The shares
of Common Stock issuable upon conversion of the Note and
exercise of the Option have been duly and validly reserved.
The shares of Common Stock issuable upon conversion of the
Note and exercise of the Option are not subject to any
preemptive rights or rights of first refusal created by the
Company, and upon conversion and cancellation of the Note and
exercise of the Option will be duly authorized, validly issued,
fully paid and nonassessable.
(iv) The Company has the requisite corporate
power and authority and has taken all corporate action
necessary in order to authorize, execute and deliver this
Agreement and to consummate the transactions contemplated
hereby and to perform the acts contemplated on its part
hereunder. This Agreement is a valid and legally binding
agreement of the Company enforceable against the Company in
accordance with its terms except as such enforcement may be
limited by bankruptcy, insolvency, moratorium or other similar
laws affecting creditors' rights generally or by equitable
principles.
(v) Except as the same shall have been made
or obtained at or prior to the Closing, and except for Form D
and related state securities law filings with the Securities
and Exchange Commission and applicable state securities boards
to be made following the Closing, no notices, reports or
other filings are required to be made by the Company
with, nor are any consents, registrations, approvals,
permits or authorizations required to be obtained by the
Company from, any governmental or regulatory authority,
agency, commission, court or other entity, domestic or
foreign ("Governmental Entity"), in connection with the
execution and delivery of this Agreement by the Company, the
consummation by the Company of the transactions
contemplated hereby and the performance of the acts
contemplated on the part of the Company hereunder.
(vi) The execution and delivery of this
Agreement by the Company do not, and the consummation by the
Company of the transactions contemplated hereby and the
performance of the acts contemplated on the part of the
Company hereunder will not, constitute or result in (A) a
breach or violation of, or a default under, the Certificate
of Incorporation or By-Laws of the Company, or (B) a breach,
violation or event triggering a right of termination of, or
a default under, or the acceleration of or the creation of a
lien, pledge, security interest or other encumbrance on
assets (with or without the giving of notice or the lapse
of time or both) pursuant to any provisions of any
agreement, lease of real or personal property, contract,
note, mortgage, indenture, arrangement or other
obligation ("Contracts") of the Company or any law, rule,
ordinance or regulation, agreement, instrument or judgment,
decree, order or award to which the Company is subject or any
governmental or nongovernmental authorization, consent,
approval, registration, franchise, license or permit under
which the Company conducts its business.
(vii) No investment banker, broker or
finder is entitled to any financial advisory, brokerage or
finder's fee or other similar payment from either the Investor
or the Company based on agreements, arrangements or
undertakings made by the Company or any of its
directors, officers or employees in connection with the
transactions and acts contemplated hereby.
(viii) In furnishing information to
Investor for purposes of this Agreement, it has not made
any untrue statements of a material fact to Investor or
omitted to state a material fact necessary to make such
statements not misleading to Investor in light of the
circumstances under which they were made.
5B. Representations by Investor
The Investor represents, warrants and agrees
as follows:
(i) Investor is purchasing the Note and
Option for its own account for the purpose of investment and
not with a view toward the redistribution or resale of any
part thereof. Investor has no present arrangement,
understanding or agreement for transferring or disposing of
the Note;
(ii) Investor is aware that the purchase of
the Note and Option represent speculative investments;
(iii) Before executing this
Agreement, representatives of Investor were furnished all
information with respect to the Company that they requested
and representatives of Investor were given the opportunity to
ask Company executives all questions that such representatives had
and to inspect the Company's operations as well as meet with the Company's
principal customers;
(iv) Investor confirms that it is an
"Accredited Investor," as such term is defined in Rule 501 of
Regulation D promulgated under the Securities Act;
(v) Investor confirms that it is able to bear
the economic risk inherent in its investment and understands
that there currently is no, and that there may not ever
be any, private or public market for the Note in the event
that Investor needs to liquidate its investment;
(vi) Investor agrees that it will not offer
or sell the Note, Option or any of the shares of Common Stock
into which the Note is convertible or which are issuable upon
exercise of the Option unless the Note or such shares of
Common Stock are registered under the Securities Act and
under all applicable state securities laws, unless Investor
has established to the reasonable satisfaction of the
Company that no such registration is required;
(vii) Investor agrees that
appropriate restrictive endorsements will be placed on
the instrument evidencing the Note, Option and on the
certificate(s) evidencing the shares of Common Stock into
which the Notes are convertible or which are issuable upon
exercise of the Option to reflect the foregoing and that the
Company will give appropriate stop transfer instructions to
the person in charge of the transfer of its securities,
including the Note, Option and the Common Stock; and
(viii) No investment banker, broker or
finder is entitled to any financial advisory, brokerage or
finder's fee or other similar payment from either the Investor
or the Company based on agreements, arrangements or
undertakings made by the Investor or any of its
directors, officers or employees in connection with the
transactions and acts contemplated hereby.
6. Registration Rights
6A. The Investor shall have the following
demand registration rights:
(i) Upon purchase of the Note, the Investor
shall have the right, by written notice to the Company, to
require the Company to use its best reasonable efforts to file
within thirty (30) days thereafter a Form S-3 registration
statement for all shares of Common Stock issued or issuable
upon conversion of the Note and exercise of the Option
owned by the Investor (also "Demand Covered Shares"). If a
Form S-3 is not available, the Company will attempt to
use a Form S-2 or other Form as appropriate.
(ii) The Company shall be entitled to defer
filing any such registration statement for a period of up to
ninety (90) days after such notice upon a good faith
determination by the Company's management that the filing of
a registration statement at such time would be detrimental
to the Company due to the pendency of a material
acquisition or financing or for other reasonable cause.
Investor may request that the Company withdraw any such
registration statement at any time prior to its
effectiveness; provided that, any such withdrawn
registration statement shall be treated as a completed
registration fulfilling the obligations of the Company
pursuant to this section unless the Investor shall reimburse
the Company for all of the Company's costs and expenses
incurred in connection with such withdrawn registration
within thirty days following the request to withdraw.
(iii) The Investor may elect to have
conversion of the Note and exercise of the Option contingent
upon a registration statement hereunder being declared
effective.
(iv) In the event a registration statement on
Form S-3 (or on another form at the Company's discretion) has
not been declared effective within one hundred fifty (150) days
of demand, then for each thirty (30) day period
thereafter until a registration statement becomes
effective, the Company shall be required to issue to Investor
an additional five percent (5%) of the shares issuable upon
conversion of such Note and if the Option has been
exercised, five percent (5%) of those shares also.
6B. The Investor shall also have
"piggyback" registration rights. If the Company proposes to
sell shares of Common Stock for its own account and to
register the sale of such shares under the Securities Act, or
if the Company proposes to register the sale of shares of
Common Stock to be sold for the account of any other
shareholder Registration Statement, it shall give written
notice of such proposed registration to Investor as promptly
as possible and shall use its reasonable efforts to include
in the offering such number of shares of Common Stock
received by Investor upon conversion of the Note and exercise
of the Option ("Piggyback Covered Shares") then owned by
Investor as Investor shall request, within twenty-five (25)
days after the giving of such notice such offering to be
upon the same terms (including method of distribution) as
the securities being sold by the Company or any selling
shareholder pursuant to any such offering. The Company's
obligation to include Piggyback Covered Shares owned by
Investor in any offering shall in all cases be subject to the
following limitations and qualifications:
(i) The Company shall not be required to
give notice to Investor or include such shares in any
such registration if the proposed registration is (A) a
registration of a stock option or compensation plan or of
Common Stock issued or issuable pursuant to any such plan,
(B) a registration of Common Stock proposed to be issued in
exchange for securities or assets of, or in connection with a
merger or consolidation with, another corporation, or (C) to
be on a form of registration statement for which the
Piggyback Covered Shares are not eligible;
(ii) The Company may require that the number
of Piggyback Covered Shares requested to be included in
such registration be reduced, or that all such shares be
excluded from any such registration, if it is advised in
writing by its managing underwriter (or, if the offering is
not underwritten, upon a good faith determination by the
Company's board of directors) that such reduction or
exclusion, as the case may be, is necessary to avoid
materially adversely affecting the public offering of the
securities being offered by the Company. If the Company
shall require such a reduction, Investor shall have the right
to withdraw from the offering;
(iii) In the event that the number of
shares of Common Stock included in any registration is to be
reduced pursuant to Section 6B(ii):
(A) If the registration in question is
one initiated by the Company in order to allow the sale of
Common Stock for the account of the Company, then any reduction in
the number of shares to be included in such registration shall
first affect only shares other than the shares the Company
proposes to sell for its own account.
(B) If the registration in question is
one initiated by any person or persons other than the
Company exercising demand registration rights in order to allow
the sale of Common Stock for the account of such person or
persons, then any reduction in the number of shares to be
included in such registration shall first affect only shares
other than the shares of Common Stock requested to be included
by the person or person initiating the registration by
the exercise of demand registration rights requested to
be included in the registration by Holders; and
(C) Subject to subparagraphs (A) and
(B) above, in the event that the Company requires that the
number of shares to be included in a registration be
reduced, such reduction shall be applied pro rata among all
parties having registration rights in proportion to the
number of shares requested to be registered by each.
(iv) The Company shall not be required to
include any Piggyback Covered Shares in any registration to
the extent that the inclusion thereof would result in a
reduction in the number of shares requested to be included in
the registration by the person or persons (including the
Company) initiating the registration in question or would
reduce the per share price of the offering.
(v) The Company may, in its sole discretion
and without the consent of Investor, withdraw such
registration statement and abandon the proposed offering in
which Investor had requested to participate.
6C. In connection with a registration of
Covered Shares undertaken by the Company pursuant to this
Part 6, the Company shall:
(i) prepare and file with the Commission
such amendments and supplements to such registration statement
and the prospectus used in connection therewith as may be
necessary to keep such registration statement current as long
as is reasonably possible as Investor shall request and to
comply with the provisions of the Securities Act with respect
to the sale of all Covered Shares covered by such registration
statement during such period;
(ii) provide Investor a reasonable opportunity
to review prior to filing any registration statement filed by
the Company in connection with a registration in which
Investor is participating, any amendments or supplements to
such registration statement and any prospectus used in
connection therewith;
(iii) furnish to Investor such number
of conformed copies of such registration statement and of each
such amendment and supplement thereto (in each case
including all exhibits), such number of copies of the
prospectus included in such registration statement, in
conformity with the requirements of the Securities Act, and
such other documents as Investor may reasonably request in
order to facilitate the sale of the Covered Shares covered by
such registration statement;
(iv) use its best efforts to register or
qualify the Covered Shares covered by such registration
statement under such other securities or blue sky laws of such
jurisdictions as Investor shall reasonably request, and do any and
all other acts and things which may be reasonably necessary or
advisable to enable Investor to consummate the sale in such
jurisdictions of such shares; provided that the Company
shall not for any such purpose be required to register or
qualify the covered shares covered by such registration
statement in any jurisdiction in which the Common Stock is
not then qualified for public trading, to qualify generally to
do business as a foreign corporation in any jurisdiction
wherein it would not but for the requirements of this section
be obligated to be so qualified, to subject itself to
taxation in any such jurisdiction or to consent to general
service of process in any such jurisdiction;
(v) notify Investor at any time when a
prospectus relating to the Covered Shares covered by such
registration statement is required to be delivered under the
Securities Act, of the Company's becoming aware that the
prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material
fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing, and at
the request of Investor promptly prepare and furnish to Investor
a reasonable number of copies of a prospectus supplemented or amended
so that, as thereafter delivered to the purchasers of
such shares, such prospectus shall not include an untrue
statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing;
(vi) use its best efforts to cause all of
the Covered Shares included in such registration statement to be
listed on each securities exchange on which securities of
the same class issued by the Company are then listed or, if
there shall then be no such listing, to be accepted for
quotation on NASDAQ;
(vii) provide a transfer agent and
registrar for the Covered Shares covered by such registration
statement not later than the effective date of such
registration statement; and
6D. For as long as Investor shall continue to hold
any Covered Shares, the Company shall use reasonable efforts to
file, on a timely basis, all annual, quarterly and other
reports required to be filed by it under Sections 13 and
15(d) of the Exchange Act, and the rules and regulations of
the Commission thereunder, as amended from time to time. In
the event of any proposed sale of Covered Shares by Investor
pursuant to Rule 144 (or any successor rule) under the
Securities Act, the Company shall cooperate with Investor so
as to enable such sales to be made in accordance with
applicable laws, rules and regulations, the requirements of
the Company's transfer agents, and the reasonable
requirements of the broker through which the sales are proposed
to be executed.
6E. The costs and expenses of any
registration effected pursuant to this Part 6 shall be allocated as
provided in this Section 6E:
(i) "Registration Expenses" shall mean
all expenses incurred by the Company in complying with this
Part 6, including, without limitation, all registration,
qualification and filing fees, printing expenses, escrow fees,
transfer agents' and registrars' fees, fees and disbursements
of counsel for the Company, blue sky fees and expenses,
and the expense the Company's accountants, including the cost
of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company
which shall be paid in any event by the Company);
(ii) "Selling Expenses" shall mean
all underwriting discounts and selling commissions applicable to
the sale and all fees and disbursements of counsel for any
holder;
(iii) In connection with any
registration pursuant to Section 6A, the company shall pay
all Registration Expenses and Investor shall pay all Selling
Expenses;
(iv) In connection with any registration
initiated by the Company in which Investor participates
pursuant to Section 6B, the Company or other person initiating
the registration shall pay all Registration Expenses, and
Investor shall pay all Selling Expenses attributable to the
inclusion in the offering of the Covered Shares being sold
by Investor.
6F. In the case of the registration effected by the
Company pursuant to this part, the Company agrees to
indemnify and hold harmless Investor, each underwriter of
the Covered Shares so registered and each person who
controls any such underwriter within the meaning of Section
15 of the Securities Act, against any and all losses,
claims, damages or liabilities to which they or any of them
may become subject under the Securities Act or any other statute
or common law, including any amount paid in settlement of any
litigation, commenced or threatened, if such settlement is effected with
the written consent of the Company, and to reimburse them for any legal
or other expenses incurred by them in connection with
investigating any claims and defending any actions, insofar as
any such losses, claims, damages, liabilities or actions arise
out of or are based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the
registration statement relating to the sale of the Covered
Shares, or any post-effective amendment thereto, or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, or (ii) any untrue
statement or alleged untrue statement of a material
fact contained in any preliminary prospectus, if used prior
to the effective date of such registration statement, or
contained in the final prospectus (as amended or supplemented
if the Company shall have filed with the Commission any
amendment thereof or supplement thereto) if used within the
period during which the Company is required to keep the
registration statement to which such prospectus relates
current, or the omission or alleged omission to state
therein (if so used) a material fact necessary in order to
make the statements therein, in light of the
circumstances under which they were made, not
misleading; provided, however, that the indemnification
agreement contained in this section shall not (x) apply to
such losses, claims, damages, liabilities or actions arising
out of, or based upon, any such untrue statement or alleged
untrue statement, or any such omission or alleged omission,
if such statement or omission was made in reliance upon and
in conformity with information furnished in writing to
the Company by Investor or such underwriter for use in
connection with the preparation of the registration
statement, any preliminary prospectus or final prospectus
contained in the registration statement, or any amendment
or supplement thereto, or (y) inure to the benefit of any
underwriter or any person controlling such underwriter, if
such underwriter failed to send or give a copy of the
final prospectus to the person asserting the claim at or prior
to the delivery of certificates representing Covered
Shares or of written confirmation of the sale of Covered Shares to such
person and if the untrue statement or omission concerned
had been corrected in such final prospectus.
6G. In the case of a registration effected by
the Company pursuant to this part, Investor and each
underwriter of the Covered Shares to be registered shall
agree in the same manner and to the same extent as set forth
above to indemnify and hold harmless the Company, each person
who controls the Company, the directors of the Company and
those of its officers who shall have signed any such
registration statement, with respect to any untrue statement
or alleged untrue statement in, or omission or alleged
omission from, such registration statement or any post
effective amendment thereto or any preliminary prospectus
or final prospectus (as amended or as supplemented, if
amended or supplemented as aforesaid) contained in such
registration statement, if such statement or omission was made in
reliance upon and in conformity with information furnished in
writing to the Company by Investor or any such underwriter
for use in connection with the preparation of such
registration statement or any preliminary prospectus or final
prospectus contained in such registration statement or any
such amendment or supplement thereto.
6H. Each indemnified party shall, with
reasonable promptness after its receipt of written
notice of the commencement of any action against such indemnified
party in respect of which indemnity may be sought from an
indemnifying party on account of an indemnity agreement
contained in this part, notify the indemnifying party
in writing of the commencement thereof. In case any such action shall
be brought against any indemnified party and it shall so
notify an indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein
and, to the extent it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense
thereof with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party
to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to
such indemnified party under this part for any legal or other
expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable
costs of investigation. The indemnity agreements in this
part shall be in addition to any liabilities that the
indemnifying parties may have pursuant to law.
6I. If the indemnification provided for in this
part shall be unavailable to or insufficient to hold
harmless an indemnified party under sections above in respect
of any losses, claims, damages or liabilities (or actions in
respect thereof) referred to therein, then the
indemnifying parties shall contribute to the amount paid
or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (or actions in
respect thereof) in such proportions as are appropriate to
reflect to the relative benefits received by the respective
indemnifying parties from the offering of the Covered Shares.
If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law, or if
the indemnified party failed to give the notice required
under section 6H above, then each indemnifying party shall
contribute to such amount paid by or payable by such
indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the
relative fault of the indemnifying parties in connection with
the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions in
respect thereof) as well as any other relevant
equitable considerations. The relative benefits received by
the indemnifying parties shall be deemed to be in the same
proportion as the net proceeds to any such party bear to
the total net proceeds from the offering before
deducting expenses. The relative fault shall be determined
by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact
relates to information supplied by the respective indemnifying
party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such
statement or omission. Provided in no event shall
Investor's liability pursuant to these indemnity provisions be
greater than the amount paid for the Note and shares of Common
Stock purchased pursuant to this Agreement and the Exhibits.
7. Miscellaneous
7A. Successors and Assigns. Except as
otherwise expressly provided herein, all covenants and
agreements contained in this Agreement by or on behalf of any
of the parties hereto will bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether
so expressed or not; provided that, the registration rights granted
to the Investor shall not be transferred or assigned by Investor.
7B. Severability. Whenever possible, each
provision of this Agreement will be interpreted in such
manner as to be effective and valid under applicable law, but
if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective
only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
7C. Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, any one of which
need not contain the signatures of more than one party, but
all such counterparts taken together will constitute one
and the same Agreement.
7D. Descriptive Headings. The descriptive headings
of this Agreement are inserted for convenience only and do
not constitute a part of this Agreement.
7E. Governing Law; Venue. The corporate law
of Delaware will govern all issues concerning the relative
rights of the Company and its stockholders. All other
questions concerning the construction, validity and
interpretation of this Agreement and the exhibits, including
the Note and Option, and schedules hereto will be governed by
the internal law, and not the law of conflicts, of Delaware. It is
the intention of the parties that proper venue for any action, suit
or proceeding arising pursuant to this Agreement or in connection
with the transactions contemplated herein shall be in Delaware. Each
party agrees that any such action, suit or proceeding shall be brought
before a state or federal court sitting in the State of
Delaware and waives any objection to venue in such court.
Each party waives the right to demand a jury in any action, suit
or proceeding arising pursuant to this Agreement.
7F. Notices. All notices, demands or other
communications to be given or delivered under or by reason of
the provisions of this Agreement (other than notice of a telephonic
meeting of the Company's board of directors, which may be
given by telephone) will be in writing and will be deemed to
have been given either when delivered personally or three (3)
business days after having been mailed by certified or
registered mail, return receipt requested and postage prepaid,
to the recipient. Such notices, demands and other communications
will be sent to the Investor and to the Company at the address indicated
below:
If to the Company:
Electrosource, Inc.
2809 Interstate 35 South
San Marcos, Texas 78666
Attention: President
With a copy to:
Bret Van Earp
Attorney-at-Law
100 Congress Avenue, Suite 1800
Austin, Texas 78701
If to the Investor:
Corning Incorporated
Attn: Howard Zingler, Vice President
MP-BH-03-1
Corning, New York 14831
or to such other address or to the attention of such other
person as the recipient party has specified by prior written
notice to the sending party.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement on the date first written above.
ELECTROSOURCE, INC. CORNING INCORPORATED
By:/s/ Michael G. Semmens By: /s/ Howard J. Zingler
Michael G. Semmens
President, CEO and Printed Name: Howard J. Zingler
Chairman of the Board Its: Vice President Finance &
Bus. Dev.
<PAGE>
EXHIBIT 2
5% CONVERTIBLE PROMISSORY NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE ("BLUE SKY LAWS"), AND MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
DELIVERY TO THE COMPANY OF EVIDENCE SATISFACTORY TO THE
COMPANY TO THE EFFECT THAT AN EXEMPTION FROM
REGISTRATION THEREUNDER IS AVAILABLE.
Dated March 27, 1997 $4,000,000.00
FOR VALUE RECEIVED, Electrosource, Inc., a
Delaware corporation (the "Company"), hereby promises to pay to
the order of Corning Incorporated, a New York corporation
("Corning" or the "original holder"), the principal sum of
Four Million Dollars ($4,000,000.00) together with interest
thereon calculated from the date hereof, in accordance with the
provisions of this Note.
This Note is the 5% Convertible Promissory Note (the
"Note") issued pursuant to a Note Purchase and Option Agreement
dated as of March 27, 1997, between the Company and Corning
(the "Purchase Agreement"). The Purchase Agreement contains
terms governing the rights and obligations of the holder of
this Note, and all provisions of the Purchase Agreement are
incorporated herein by reference. Unless otherwise indicated
herein, capitalized terms used in this Note have the same
meanings as set forth in the Purchase Agreement.
Part 1. Payment of Interest
lA. Rate of Interest. Interest shall accrue at the rate
of five percent (5%) per annum on the unpaid principal
amount of this Note outstanding from time to time. Interest
shall be paid in cash or, at the option of the Company, in
additional Notes having terms identical to this Note
except in respect of principal amount, dated as of the
Payment Date (as defined below) with respect to which such
interest is payable and having a principal amount equal to
the amount of interest accrued and unpaid as of that Payment
Date.
lB. Payment Dates. On September 27, 1997, and on each
subsequent September 27 and March 27 (each of which dates
shall be a "Payment Date"), all unpaid interest that has
accrued on the unpaid principal amount of this Note on and
prior to such Payment Date or on any overdue interest on this
Note shall become due and payable.
lC. Payment upon Maturity or Prepayment. All accrued
interest that has not theretofore been paid shall be paid in
full on the date on which the entire principal amount
outstanding under this Note is paid, whether upon maturity or upon
prepayment. In the event that any portion less than the
entire outstanding principal amount of this Note is prepaid
pursuant to paragraph 2B, the accrued interest applicable to
such portion prepaid shall be paid as of the effective date
of such partial prepayment.
lD. Saving Clause. All agreements and transactions
between the Company and the holder of this Note, whether now
existing or hereafter arising, whether contained herein or
in any other instrument, and whether written or oral, are
hereby expressly limited so that in no contingency or event
whatsoever, whether by reason of acceleration of the maturity
hereof, prepayment, demand for prepayment or otherwise, shall
the amount contracted for, charged or received by the holder
of this Note from the Company for the use, forbearance or
detention of the principal indebtedness or interest hereof,
which remains unpaid from time to time, exceed the maximum amount
permissible under applicable law, it particularly being the intention
of the parties hereto to conform strictly to the applicable law of
usury. Any interest payable hereunder or under any other
instrument relating to the indebtedness evidenced hereby
that is in excess of the legal maximum, shall, in the
event of acceleration of maturity, prepayment, demand for
prepayment or otherwise, be automatically, as of the date
of such acceleration, prepayment, demand or otherwise,
applied to a reduction of the principal indebtedness hereof
and not to the payment of interest, or if such excessive
interest exceeds the unpaid balance of such principal,
such excess shall be refunded to the Company. To the
extent not prohibited by law, determination of the legal
maximum rate of interest shall at all times be made by
amortizing, prorating, allocating and spreading in equal parts
during the period of the full stated term of the indebtedness, all
interest at any time contracted for, charged or received from the
Company in connection with the indebtedness, so that the
actual rate of interest on account of such indebtedness is
uniform throughout the term hereof.
Part 2. Payment of Principal
2A. Payment upon Maturity. The entire unpaid
principal amount hereof shall be due and payable on March 27,
2002.
2B. Prepayment. The Company may prepay all or any part
of this Note at any time in One Hundred Thousand Dollar
($100,000) increments. The Company shall give not less than
thirty (30) days prior written notice of its intention to
prepay this Note.
Part 3. Registration of Transfer
The Company shall keep at its principal office a
register for the registration of Notes, which shall contain
the name and address of the registered holder (herein
referred to as the holder) of the Note and the principal
and interest of the Note. No transfer of the Note or any
right to receive payments under the Note shall be
permitted unless made upon the Company's register. Upon the
surrender of any Note or Notes at such place, the Company
shall, at the request of the holder of such Note, execute
and deliver (at the Company's expense) a new Note or Notes
in exchange therefor representing in the aggregate the
principal amount represented by the surrendered Note. Each
such new Note shall be registered in such name and shall
represent such principal amount of Note as is requested by the
holder of the surrendered Note and shall be substantially
identical in form to the surrendered Note, and interest shall
accrue on such new Note from the date to which interest has
been fully paid on such Note represented by the surrendered
Note; provided that, if any Note is to be registered in the
name of a person or persons other than the holder of the Note,
there has been compliance with all laws applicable to such
change of registered holder, including but not limited to
federal and state securities laws.
Part 4. Replacement
Upon receipt of evidence reasonably satisfactory to
the Company of the ownership and the loss, theft,
destruction or mutilation of any Note, and in the case of any
such loss, theft or destruction, upon receipt of indemnity
reasonably satisfactory to the Company, or, in the case of
any such mutilation upon surrender of such Note, the
Company shall (at its expense) execute and deliver in lieu
of such Note, a new Note of like kind representing the
principal amount of Note represented by such lost, stolen,
destroyed or mutilated Note and dated the date of such lost,
stolen, destroyed or mutilated Note, and interest shall
accrue on the Note represented by such new Note from the date
to which interest has been fully paid on such lost, stolen,
destroyed or mutilated Note.
Part 5. Cancellation
After all principal and accrued interest at any time owed
on this Note has been paid in full, this Note shall be
surrendered to the Company for cancellation and shall not be
reissued.
Part 6. Waiver of Notice, etc.
The Company hereby waives presentment, demand, notice,
protest and all other demands and notice in connection with
the delivery, acceptance, performance and enforcement of this
Note, and assents to extension of the time of payment or
forbearance or other indulgence without notice.
Part 7. Events of Default
7A. Events of Default. Each of the following
shall constitute an Event of Default:
(i) the Company fails to pay when due the full
amount of any principal or interest on this Note whether at
maturity or by acceleration or otherwise;
(ii) the Company makes an assignment for the benefit
of creditors or admits in writing its inability to pay its
debts generally as they become due; or an order, judgment or
decree is entered adjudicating the Company bankrupt or
insolvent; or the Company petitions or applies to any
tribunal for the appointment of a trustee, receiver or
liquidator of the Company or of any substantial part of the
assets of the Company, or commences any proceeding under any
bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any
jurisdiction; or any such petition or application is filed,
or any such proceeding is commenced against the Company and
either the Company takes any action indicating its approval
thereof, consent thereto, or acquiescence therein or
such petition, application or proceeding is not dismissed
within ninety (90) days;
(iii) the sale by the Company of a material part
of the business or assets of the Company other than in the
ordinary course of business;
(iv) the taking, closing or nationalization of
a material part of the business or assets of the Company
by governmental or legal action. A "material part of the
business or assets of the Company" means more than one-third
of the gross assets of the Company as set forth in its most
recent audited consolidated financial statements;
(v) any representation or warranty of the Company
set forth in the Purchase Agreement is shown to be, or becomes
false or untrue as of the date of this Note.
7B. Remedies. Upon the occurrence and continuance of
any Event or Events of default, the holders of a majority
of the combined aggregate principal amount outstanding under
this Note and any Notes issued in payment of accrued interest
on Notes may, by written notice to the Company, declare all or
any part of the unpaid principal amount of the Notes then
outstanding to be forthwith due and payable, and thereupon
such unpaid principal amount or part thereof, together with
interest accrued thereon, shall become so due and
payable without presentation, presentment, protest, notice
of intent to accelerate, notice of acceleration, or further
demand or notice of any kind, all of which are hereby
expressly waived, and such holder or holders may proceed to
enforce payment of such amount or part thereof in such manner
as it or they may elect. The Company hereby waives to the
extent not prohibited by applicable law which cannot itself
be waived (i) all presentments, demands for performance,
notices of nonperformance (except to the extent required by
the provisions hereof), (ii) any requirement of diligence or
promptness on the part of any holder of Notes in the
enforcement of its rights under the provisions of this Note,
and (iii) any and all notices of every kind and description
which may be required to be given by any statute or rule of law.
Part 8. Conversion
8A. Conversion Procedure.
(i) The holder of this Note may convert all or
any portion of the outstanding principal amount hereof (plus
accrued but unpaid interest on such principal amount or
portion thereof) held by such holder into a number of shares
of the Company's Common Stock computed by dividing the
principal amount of this Note (plus accrued but unpaid
interest thereon) to be converted by the "Conversion Price"
(as defined below in Part 8B).
(ii) Each conversion will be deemed to have
been effected as of the close of business on the date on
which the instrument representing this Note has been
surrendered at the principal office of the Company. At such
time as such conversion has been effected, the rights of the
holder of this Note as such holder will cease and the person
or persons in whose name or names any certificate or
certificates for shares of Common Stock are to be issued
upon such conversion will be deemed to have become the
holder or holders of record of the shares of Common Stock
represented thereby.
(iii) As soon as possible after a conversion
has been effected (but in any event within three (3) business
days in the case of subparagraph (a) below), the Company will
deliver to the converting holder:
(a) a certificate representing the number
of shares of Common Stock issuable by reason of such
conversion in such name or names and such denomination or
denominations as the converting holder has specified (provided
that, in the event that the name specified by the converting
holder is other than that of the converting holder, the
Company has received evidence satisfactory to Company
counsel that the transfer of Common Stock from the converting
holder to the person specified may be accomplished without
violation of applicable law);
(b) a replacement Note having terms identical
to those of this Note other than the principal amount, which
shall be equal to portion of the principal amount of the
original Note not converted; and
(c) the amount payable under subparagraph
(vi) below with respect to fractional shares of Common Stock
otherwise issuable upon such conversion.
(iv) The issuance of certificates for shares of
Common Stock upon conversion of this Note will be made without
charge to the holder of such Note for any issuance tax in
respect thereof or other cost incurred by the Company in
connection with such conversion and the related issuance of
shares of Common Stock. Upon conversion of this Note, the
Company will take all such actions as are necessary in order
to insure that the Common Stock issuable with respect to such
conversion will be validly issued, fully paid and
nonassessable.
(v) The Company will not close its books against
the transfer of this Note or of Common Stock issued or issuable
upon conversion of this Note in any manner which interferes
with the timely conversion of this Note.
(vi) If any fractional interest in a share of
Common Stock would, except for the provisions of this
subparagraph (vi), be deliverable upon any conversion of this Note,
the Company, in lieu of delivering the fractional share therefor, may at
its option pay a cash adjustment for such fractional share
equal to such fraction times the fair market value per share
of the Common Stock at the close of business on the date of
conversion, as determined in good faith by the board of
directors of the Company.
(vii) The provisions of this part 8 shall
be subject to the limitations imposed by section 2B hereof.
8B. Conversion Price. The Conversion Price shall be
Five and 50/100 Dollars ($5.50). In order to prevent dilution
of the conversion rights granted under this part 8, the
Conversion Price will be subject to adjustment from time to
time pursuant to this part 8; provided that the Conversion
Price will in no event be less than One and No/100 Dollars
($1.00), the par value.
8C. Subdivision or Combination of Common Stock. If
the Company at any time subdivides (by any stock split,
stock dividend, recapitalization or otherwise) its outstanding
shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced, and if the
Company at any time combines (by reverse stock split or
otherwise) its outstanding shares of Common Stock into a
smaller number of shares, the Conversion Price in effect
immediately prior to such combination will be proportionately
increased.
8D. Reorganization, Reclassification, Consolidation,
Merger or Sale. Any reorganization, reclassification,
consolidation, merger or sale of all or substantially all
of the Company's assets to another Person which is effected
in such a way that holders of Common Stock are entitled to
receive (either directly or upon subsequent liquidation),
stock, securities or amounts with respect to or in exchange
for Common Stock is referred to herein as an "Organic
Change." Prior to the consummation of any Organic Change, the
Company will make appropriate provisions (in form and
substance satisfactory to the holders of a majority of the
outstanding principal amount of Notes then outstanding) to
insure that each of the holders of Notes will thereafter (for
so long as such holders have the right to convert the
Notes as provided in this part 8) have the right to receive,
in lieu of or in addition to the shares of Common Stock
immediately theretofore issuable upon the conversion of such
holder's Notes, such shares of stock, securities or assets as
such holder would have received in connection with such
Organic Change if such holder had converted his Notes
immediately prior to such Organic Change. In any such case,
the Company will make appropriate provisions (in form and
substance satisfactory to the holders of a majority of the
outstanding principal amount of Notes then outstanding) to
insure that the provisions of this part 8 will thereafter (for
so long as such holders have the right to convert the
Notes as provided in this part 8) be applicable to the Notes.
8E. Notices. Until the maturity of this Note:
(i) Immediately upon any adjustment of the
Conversion Price, the Company will give written notice thereof
to the holder of this Note.
(ii) The Company will give written notice to the
holder of this Note at least twenty (20) days prior to the date
on which the Company closes its books or takes a record (a)
with respect to any dividend or distribution upon Common
Stock, (b) with respect to any pro rata subscription offer
to holders of Common Stock or (c) for determining rights to vote
with respect to any Organic Change, dissolution or liquidation.
(iii) The Company will also give written notice to
the holder of this Note at least thirty (30) days prior to
the date on which any Organic Change will take place.
Part 9. Amendment and Waiver
No amendment, modification or waiver shall be binding
or effective with respect to any provision of this Note without
the prior written consent of the holders of at least sixty-
seven percent (67%) of the combined aggregate principal amount
of this Note and any additional Notes issued in payment
of accrued interest then outstanding.
Part 10. Notices
Except as otherwise expressly provided, all
notices referred to herein will be in writing and will be
delivered by registered or certified mail, return receipt
requested, postage prepaid and will be deemed to have been
given when so mailed (i) to the Company, at its principal
executive offices and (ii) to any holder of this Note, at
such holder's address as it appears in the Note register
maintained pursuant to part 3 hereof (unless otherwise
indicated by any such holder).
IN WITNESS WHEREOF, the Company has executed and
delivered this Note on March 27, 1997.
ELECTROSOURCE, INC.
By:/s/ James M. Rosel
James M. Rosel Vice President
Finance and General Counsel
<PAGE>
EXHIBIT 3
Date of Grant: March 27, 1997
ELECTROSOURCE, INC.
STOCK OPTION AGREEMENT
THIS OPTION HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
UNDER THE SECURITIES LAWS OF ANY STATE ("BLUE SKY
LAWS"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT OR DELIVERY TO THE COMPANY OF EVIDENCE
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT AN
EXEMPTION FROM REGISTRATION THEREUNDER IS AVAILABLE.
Corning Incorporated
Corning, New York 14831
The undersigned, Electrosource, Inc. (the "Company"),
a Delaware corporation, for good and valuable consideration
desires to grant to Corning Incorporated ("Corning" or
"Holder") an option to acquire shares of Common Stock in the
Company. The option covered hereby is granted pursuant to the terms
of a Note Purchase and Option Agreement ("Purchase Agreement") dated
as of March 27, 1997 between the Company and Corning, and all
provisions of that Agreement are incorporated herein
by reference. Defined terms shall have the same meaning as in
the Purchase Agreement.
1. Option. The Company does hereby grant to Corning the
exclusive option to purchase from the Company all or any part
of an aggregate of Five Hundred Thousand (500,000) shares
("shares") of Common Stock of the Company. The exercise
prices shall be Seven and No/100 Dollars ($7.00) per
share for Two Hundred Seventy-five Thousand (275,000)
shares and Nine and No/100 Dollars ($9.00) per share for
Two Hundred Twenty-five Thousand (225,000) shares.
2. Term. The Option shall be exercisable as provided
in the Purchase Agreement and otherwise at any time or times
until the option expires or terminates in accordance with
the provisions hereof. This Option shall in any event terminate
at 5:00 o'clock P.M., San Marcos, Texas time two years after
its date of grant.
3. Exercise. To exercise this option or any part thereof,
Corning shall give written notice of such election to the
Company at its Corporate Headquarters, Attention Corporate
Secretary, so as to be received by the Company within the
period this option is exercisable, which notice shall specify
the number of shares to be purchased and be accompanied by
payment in full. Payment for such shares may be by check or
wire transfer. Exercise of the option may be made in
multiple parts, but in amounts of at least Five Hundred
Thousand and No/100 Dollars ($500,000) per exercise.
4. Share Issue. Upon receipt by the Company of proper
notice of exercise of this Option, the Company as promptly
as practicable and subject to the other provisions in this
Option, shall deliver a certificate or certificates
representing shares so purchased, and shall pay all original
issuance or transfer taxes on the exercise of this Option,
and all other fees and expenses necessarily incurred by
the Company in connection therewith. Certificates
evidencing such shares may have endorsed thereon such language
as may be deemed necessary or advisable by counsel for the
Company in order to ensure compliance with the applicable
securities laws or regulations. Registration rights shall be
as set forth in the Purchase Agreement.
5. Subdivision or Combination of Common Stock. If the
Company at any time subdivides (by any stock split,
stock dividend, recapitalization or otherwise) its outstanding
shares of Common Stock into a greater number of shares, the
exercise price in effect immediately prior to such
subdivision will be proportionately reduced, and if the
Company at any time combines (by reverse stock split or
otherwise) its outstanding shares of Common Stock into a
smaller number of shares, the exercise price in effect
immediately prior to such combination will be
proportionately increased.
6. Reorganization, Reclassification, Consolidation, Merger
or Sale. Any reorganization, reclassification,
consolidation, merger or sale of all or substantially all
of the Company's assets to another entity which is effected
in such a way that holders of Common Stock are entitled to
receive (either directly or upon subsequent liquidation),
stock, securities or amounts with respect to or in exchange
for Common Stock is referred to herein as an "Organic
Change." Prior to the consummation of any Organic Change, the
Company will make appropriate provisions (in form and
substance satisfactory to the holder of the outstanding
principal amount of the Option then outstanding) to insure
that the holder of the Option will thereafter (for so long
as such holder has the right to exercise the Option) have the
right to receive, in lieu of or in addition to the shares of
Common Stock immediately theretofore issuable upon the exercise
of the Option, such shares of stock, securities or assets as such
holder would have received in connection with such Organic
Change if such holder had exercised the Option immediately
prior to such Organic Change. In any such case, the Company
will make appropriate provisions (in form and substance
satisfactory to the holder of the Option) to insure that
the provisions of this part 6 will thereafter (for so long as
such holder has the right to exercise the Option) be
applicable to the Option.
IN WITNESS WHEREOF, the Parties have executed
this Agreement on the date first written above.
ELECTROSOURCE, INC. CORNING INCORPORATED
By:/S/ James M. Rosel By: /s/ Howard J. Zingler
James M. Rosel
Vice President Finance Printed Name: Howard J. Zingler
and General Counsel Its: Vice President, Finance &
Bus. Dev.
