FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission file number 0-16323
ELECTROSOURCE, INC.
(Exact name of Registrant as specified in its charter.)
Delaware 742466304
(State or other jurisdiction (I.R.S.Employer
of incorporation or organization) Identification No.)
3800-B Drossett Drive
Austin, Texas 78744-1131
(Address of principal (Zip Code)
executive offices)
(512) 445-6606
(Registrant's telephone number, including area code)
__________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
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 period that 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 __
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes __ No __
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date: 27,267,238 shares as of November 10, 1995.
INDEX TO FORM 10-Q
September 30, 1995
Electrosource, Inc.
Commission file number 0-16323
Part I Financial Information
Condensed Balance Sheets at September 30, 1995 (Unaudited)
and December 31, 1994. Page 3
Condensed Statements of Operations for the three and nine
months ended September 30, 1995 and 1994 (Unaudited). Page 4
Condensed Statements of Cash Flows for the nine months ended
September 30, 1995 and 1994 (Unaudited) Page 5
Notes to Condensed Financial Statements Page 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations Page 11
Part II Other Information Page 14
Index to Exhibits Page 17
Part I - Financial Information
Item 1. Financial Statements
Electrosource, Inc.
Condensed Balance Sheets
September 30, 1995 December 31,
(Unaudited) 1994
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 957,886 $ 2,193,290
Trade receivables, net 1,701,454 2,478,311
Inventories 793,213 231,656
Prepaid and other expenses 413,562 24,651
TOTAL CURRENT ASSETS 3,866,115 4,927,908
PLANT AND EQUIPMENT (net of accumulated
depreciation of $1,190,725 in 1995
and $694,307in 1994) 5,381,073 2,632,049
TECHNOLOGY LICENSE AGREEMENT (net of
accumulated amortization of
amortization of $1,432,719 in
1995 and $1,291,104 in 1994) 1,615,955 1,757,570
RESTRICTED CASH 744,824 0
OTHER
237,117 0
TOTAL ASSETS $11,845,084 $ 9,317,527
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES
Accounts payable, accrued
liabilities and other $3,007,615 $ 1,896,296
Deferred revenue 0 1,000,000
TOTAL CURRENT LIABILITIES 3,007,615 2,896,296
CONVERTIBLE NOTES PAYABLE 6,500,000 3,800,000
TECHNOLOGY LICENSE PAYABLE 2,429,346 3,271,343
CAPITAL LEASE OBLIGATIONS (less
current portion) 1,052,159 35,337
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, par value $0.10 per
share; authorized 50,000,000 shares;
shares issued and outstanding
23,866,898 in 1995 and 15,134,463
in 1994 2,386,698 1,513,446
Stock Subscriptions; 806,333 in 1995 886,966 0
Warrants 0 0
Paid in capital 26,602,809 15,356,043
Retained earnings (deficit) (31,020,501) (17,554,938)
(1,144,036) (685,449)
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT) $11,845,084 $ 9,317,527
See notes to condensed financial statements.
Electrosource, Inc.
Condensed Statements of Operations (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
Revenues
Battery sales $408,876 $ 60,388 $ 961,216 $ 60,388
Project revenue 11,000 80,000 889,593 2,103,899
License fees 0 799,995 1,000,000 799,995
Revenue from joint
venture partner 0 0 0 410,414
Royalty revenue 0 0 0 50,000
Interest income 7,401 28,820 77,905 42,692
427,277 969,203 2,928,714 3,467,388
Costs and expenses
Manufacturing 2,178,736 698,018 6,968,825 698,018
Research and development 561,453 242,539 3,168,014 1,530,615
Selling, general and
administrative 2,824,965 1,559,732 5,361,004 2,894,062
Technology license
and royalties 74,705 74,705 224,115 224,115
Depreciation and
amortization 284,004 55,187 552,387 149,447
5,923,863 2,630,181 16,274,345 5,496,257
Loss before income taxes (5,496,586) (1,660,978) (13,345,631) (2,028,869)
Income taxes (foreign) 0 80,000 120,000 80,000
Net loss $(5,496,586) $(1,740,978) $(13,465,631) $(2,108,869)
Net loss per common share $(0.25) $(0.12) $(0.71) $(0.15)
Average common shares
outstanding 21,692,248 14,572,838 18,932,734 13,764,556
See notes to condensed financial statements.
Electrosource, Inc.
Condensed Statements of Cash Flows (Unaudited)
Nine Months Ended
September 30,
1995 1994
OPERATING ACTIVITIES
Net Loss $(13,465,631) $(2,108,869)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 552,387 149,447
Amortization of technology
license agreement 141,615 141,615
Consulting services paid with
Common Stock 1,468,800 0
Changes in operating assets and liabilities:
(Increase) decrease in receivables 776,857 (560,262)
Increase in prepaid expenses
and other (334,062) (4,177)
Increase in inventories (561,557) (121,418)
Increase in accounts payable,
accrued liabilities and other 606,272 1,243,496
Increase (decrease) in
deferred revenue (1,000,000) 1,000,000
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (11,815,319) (260,168)
INVESTING ACTIVITIES
Purchases of plant and equipment (3,245,442) (935,923)
CASH USED IN
INVESTING ACTIVITIES (3,245,442) (935,923)
FINANCING ACTIVITIES
Proceeds from convertible notes payable 8,075,000
Proceeds from issuance of common stock 5,030,510 3,890,311
Proceeds from sale and leaseback
transactions 1,600,851
Increase in restricted cash (744,824)
Payment on note payable and capital
lease obligations (136,180) (770,583)
CASH PROVIDED BY
FINANCING ACTIVITIES 13,825,357 3,119,728
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,235,404) 1,923,637
Cash and cash equivalents at
beginning of period 2,193,290 1,000,723
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 957,886 2,924,360
See notes to condensed financial statements.
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they
do not include all of the information and notes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments,
consisting of normal recurring accruals, considered necessary for
a fair presentation have been included. Operating results for
the three and nine month periods ended September 30, 1995 are not
necessarily indicative of the results that may be expected for
the year ended December 31, 1995. These interim financial
statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
Certain reclassifications have been made to the 1994 financial
statements to conform with the 1995 presentation.
NOTE B - DEVELOPMENT STAGE COMPANY
Prior to 1995 the Company had been a "development stage company"
for financial reporting purposes. In 1995 the Company began to
increase activity at its San Marcos, Texas manufacturing facility
and expects to earn significant revenue from its intended
operations. Accordingly, the Company no longer will report as a
"development stage company".
NOTE C - PROPERTY AND EQUIPMENT
September 30, December 31,
1995 1994
Office Equipment $ 704,289 $ 269,957
Production Equipment 3,601,479 1,404,052
Lab Equipment 692,485 519,543
Leasehold Improvements 1,573,545 1,132,804
6,571,798 3,326,356
Less: Accumulated depreciation
and amortization 1,190,725 694,307
Total Property and Equipment $5,381,073 $ 2,632,049
NOTE D - RESTRICTED CASH
In connection with lease transactions completed during the second
and third quarters, the Company was required to secure the
obligations by establishing standby letters-of-credit in the
amount of $744,824. These letters-of-credit are collateralized
by certificates of deposit of an equal amount.
NOTE E - CONVERTIBLE NOTES PAYABLE
In April 1995 the Company completed an offering of Convertible
Debentures ("the April 1995 Debentures") with a total principal
amount of $6,000,000. The net proceeds to the Company from the
issuance of the April 1995 Debentures was $5,400,000. The April
1995 Debentures are convertible into Common Stock, par value $.10
per share. The Conversion Price is equal to 80 percent of the
Market Price (average closing price of the Common Stock for the
five business days immediately preceding such time as the
debentures are converted). In addition, Warrants to purchase
54,237 shares of Common Stock were issued at a price of $3.6875
per share exercisable until April 5, 2000. As of September 30,
1995, April 1995 Debentures with a total principal amount of
$5,600,000 were converted into 3,690,552 shares of Common Stock.
During July 1995, the Company issued $3,000,000 in principal
amount of new Convertible Debentures (the "July 1995 Debentures")
resulting in net proceeds to the Company of $2,700,000. The July
1995 Debentures are convertible into Common Stock at a price
equal to 80 percent of the closing price of the Common Stock on
the business day immediately preceding such time as the
debentures are converted; however, the conversion price can not
be greater than 120 percent of the closing bid price on July 27,
1995 of $1.53. In addition, Warrants to purchase 1,000,000 shares
of Common Stock at a price of $3.00 per share, and an additional
1,000,000 shares at a price of $4.00 per share, exercisable until
January 27, 1998, were issued to an agent of the holders of the
July 1995 Debentures. In addition, warrants to purchase 250,000
shares of Common Stock at a price of $1.53 per share, the closing
bid price on July 27, 1995, exercisable until July 27, 2000 were
issued to another agent for this transaction. As of September 30,
1995, July 1995 Debentures with a principal amount of $700,000
were converted into 486,103 shares of Common Stock.
NOTE F - TECHNOLOGY LICENSE PAYABLE
During the fourth quarter of 1994, the Company finalized the
Technology License Agreement with BDM Technologies, Inc. ("BDM").
Under the terms of this agreement, the Company obtained an
exclusive license to use certain technologies under development
by BDM for the manufacture of batteries. The Company agreed to:
pay BDM $80,000 cash; issue 1,700,000 shares of Common Stock in
thirty-six equal monthly installments; issue 200,000 additional
shares of Common Stock if the Company decides to maintain the
license perpetually beyond the original three year term; grant
1,000,000 options to purchase shares of Common Stock exercisable
at $4.00 per share; and buy BDM's interest in a corporate joint
venture ("HBTI"), previously created by BDM and the Company, for
100,000 shares of Common Stock. During the first nine months of
1995, the Company issued 524,998 shares of Common Stock to BDM
under the terms of this agreement and has recorded a $860,998
increase to shareholders' equity and a corresponding reduction to
the Technology License Payable.
NOTE G - LEASE OBLIGATIONS
In April 1995 and August 1995, the Company completed agreements
to sell and lease back $991,702 and $666,348, respectively, of
capital equipment. The agreements are for a three-year period,
have monthly lease payments of $32,934 and $22,129 and have been
accounted for as capital leases. The leases are collateralized
by letters-of-credit in the amount of $663,220. The agreements
also provide the lessor with an option to extend the lease term
to four years, at reduced monthly rental rates, at the end of the
first year. In addition, the amount of the letters-of-credit can
be reduced if the Company achieves six consecutive quarters of
profitability or completes an offering of securities with net
proceeds of $20 million or more. In connection with this
transaction, the Lessor was granted warrants to purchase 50,000
shares of Common Stock at an exercise price of $4.00 per share.
In addition, during the second quarter, the Company completed an
agreement to lease $163,208 of furniture for a 5 year term with
monthly payments of $3,411. This agreement is collateralized by
a letter-of-credit in the amount of $81,604.
NOTE H - COMMON STOCK
In January 1995, the Company sold 2,051,282 shares of Common
Stock which resulted in net proceeds to the Company of
$3,000,000. In March 1995, the Company sold 500,000 shares of
Common Stock which resulted in net proceeds to the Company of
$1,000,000.
In September 1995, the Company engaged Liviakis Financial
Communications, Inc. ("Liviakis") to provide consulting services
for a two year period. As consideration for these services, the
Company issued 1,360,000 unregistered, restricted shares of
Common Stock, which have been valued at $1,468,800 and charged
as an expense in the current period, and agreed to issue an additional
120,000 unregistered, restricted shares of Common Stock in six
installments over the two year period which will be expensed when issued.
In addition, in connection with the conversion of $5,600,000 of
the April 1995 Debentures, and $700,000 of the July 1995
Debentures, the Company issued 4,176,655 shares of Common Stock
during 1995.
NOTE I - STOCK SUBSCRIPTIONS
In September 1995, the Company sold 806,333 shares of Common
Stock which resulted in net proceeds to the Company of $886,966
(the "1995 Offering"). While the cash was received for the sale
of these shares in September 1995, the Common Stock was not
issued until October 1995. These shares were sold only to
participants in an offering in September and October 1994 ("the
1994 Offering"). The exercise prices of warrants that were
issued in connection with the 1994 Offering and held by
purchasers in the 1995 Offering were lowered to $2.50 and $3.50
per share from $4.50 and $5.50 per share, and the exercise period
of these warrants was extended to September 1997.
NOTE J - LICENSE FEES
During 1994, the Company and Mitsui Engineering and Shipbuilding
Co. Ltd. ("MES") signed a distribution agreement whereby MES
agreed to pay the Company $2,000,000 for the distribution rights
of the Horizon battery in Japan and an option for a manufacturing
license. The Company recognized $1,000,000 of this license fee
as revenue in the first quarter of 1995 and $800,000 in the third
quarter of 1994. Previously, HBTI had recognized $200,000 of
this license fee.
NOTE K - LIQUIDITY
During the third quarter of 1995, battery sales were less than
projected. In addition, the Company shipped approximately 2,000
batteries to customers during the second and third quarters to
replace batteries that had been shipped previously but failed to
perform as expected. Management has determined that the lower
than expected performance of the battery was due to early
manufacturing problems, which the Company believes it has
addressed, as well as the failure of some customers to properly
charge and discharge a battery pack using a suitable management
system. In addition, the batteries exhibited shelf-life that was
not as long as expected by some of its customers. As a result,
if the batteries were not charged by the customers within a
specified timeframe, they would fail. During the third quarter
the Company discovered that many customers were not using or
charging the batteries upon receipt or within the specified
timeframe. The Company has taken increased measures to improve
customer education on its products so that problems due to proper
charge management and shelf-life maintenance are negated and has
decided to replace the batteries that failed for this reason.
Due to the liquidity constraints resulting from the operating losses
incurred during 1995, the Company has raised significant additioanl capital.
After the sale of the July 1995 Debentures in July 1995, the sale
of $1.5 million of Common Stock in October 1995 and the sale of
the November 1995 Debentures (see Note H and Note L), the Company
has approximately $3,200,000 of unrestricted cash available as of
November 13, 1995. If the Company achieves sales commensurate
with its capacity and continues its efforts to control costs, management
believes that the proceeds from these transactions will be
sufficient enough to continue operating into early 1996.
However, achieving sufficient sales in a timely manner can not be
assured. If the Company's sales are less than expected, the
Company is not successful in controlling its costs, or the
Company experiences additional product introduction problems, it
may be necessary to raise additional financing. In addition, if
the Company experiences rapid sales growth and a corresponding
demand for significant working capital, the proceeds from the
above transactions may not be sufficient and the Company will
need to raise working capital financing. Management is devoting
substantial effort to closing sales and controlling costs and is
continuing to pursue additional capital on terms favorable to the
Company.
The Company Common Stock is traded in the Over-the-Counter Market
and is reported on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") under the symbol "ELSI."
In order to maintain listing by NASDAQ, the Company must maintain
a minimum $1-million of stockholders' equity. As of September
30, 1995, the Company was not in compliance with this
requirement; however, as shown in Note L of the financial
statements, with the sale of Common Stock and the conversion of
the April 1995 Debentures and the July 1995 Debentures that
occurred subsequent to September 30, the Company is in compliance
with the requirement. Management believes that the continuing
impact of its cost control measures, and increases in sales, will
reduce the level of operating losses which should result in
maintaining compliance with this requirement as of year-end;
however, there can be no assurance that this minimum can be
maintained beyond then without additional equity financings. If
the minimum required balance is not maintained, the NASDAQ may
choose to delist the Common Stock of the Company from trading
which would restrict the liquidity of the Common Stock.
Delisting by NASDAQ would be an Event of Default under the terms
of the April 1995 Debentures and the July 1995 Debentures (See
Note L). An Event of Default could trigger a requirement to
repay the Debentures immediately.
NOTE L - SUBSEQUENT EVENT
From September 30, 1995, through November 2, 1995, the holders of
$150,000 of April 1995 Debentures elected to convert their
Debentures into 104,895 shares of Common Stock and the holders of
$1,100,000 of July 1995 Debentures elected to convert their
Debentures into 789,530 shares of Common Stock.
In October 1995, the Company sold 1,170,357 shares of Common
Stock which resulted in net proceeds to the Company of
$1,360,000. In addition, in November 1995 the Company completed
an offering of Convertible Debentures ("the November 1995
Debentures") with a total principal amount of $3,280,000. The
net proceeds to the Company for the issuance of the November 1995
Debentures was $3,017,600. The November 1995 Debentures are
convertible into Common Stock sixty days after the closing of the
purchase of the debentures. The Conversion Price is equal to 75
percent of the Market Price (average closing price of the Common
Stock for the five business days immediately preceding such time
as the debentures are converted). In addition, Warrants to
purchase 49,200 shares of Common Stock at a price of $1.5625 per
share, exercisable until November 10, 1997, will be issued to an
agent of the holders of the November 1995 Debentures.
In November 1995, the Company completed an amendment to the
Business Alliance and License Agreement (the "BAA") dated
September 1, 1993 between the Company and the Electric Power
Research Institute ("EPRI"). The amendment provides for: the
transfer of intellectual property rights, subject to certain
restrictions, held by EPRI, if any, to ELSI; the transfer of
title to certain equipment to ELSI that had been purchased by
EPRI in connection with research activity undertaken by ELSI;
payment by EPRI of $200,000 to ELSI as full payment of all
obligations; the agreement that if EPRI or the participating
utilities elect to exercise the conversion rights under the terms
of the BAA, EPRI and the participating utilities shall be
entitled to an aggregate of 2,158,000 shares of Common Stock of
the Company; and if any of the participating utilities elect not
to convert their rights to future royalties into equity of ELSI
that EPRI will be entitled to the shares of Common Stock that
would otherwise have been issuable to that utility.
The following shows the pro-forma effect of these transactions as
if they had occurred at September 30, 1995:
September 30,
1995
Actual Adjustments Pro-Forma
CURRENT ASSETS $ 3,866,115 1,360,000 (a) $ 8,506,115
3,280,000 (c)
LONG-TERM ASSETS 7,978,969 (103,437) (b) 7,875,532
TOTAL ASSETS $11,845,084 $16,381,647
CURRENT LIABILITIES $ 3,077,615 $ 3,007,615
CONVERTIBLE NOTE PAYABLE 6,500,000 (1,250,000) (b) 8,530,000
3,280,000 (c)
OTHER LONG-TERM LIABILITIES 3,481,505 3,481,505
SHAREHOLDERS' EQUITY
(DEFICIT) (1,144,036) 1,360,000 (a) 1,362,527
1,146,563 (b)
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $11,845,084 $16,381,647
Adjustments:
(a) - To record the sale of 1,170,357 shares of Common Stock
in October 1995.
(b) - To record the conversion of $150,000 of April 1995 Debentures and
$1,100,000 of July 1995 Debentures, net of associated unamortized
financing costs, into 894,425 shares of Common Stock.
(c) - To record the sale of $3,280,000 principal amount of November 1995
Debentures.
Revenues. The Company had revenue from the sale of batteries of
$408,876 and $961,216, for the three and nine months ended
September 30, 1995, respectively as compared to $60,388 for the
three and nine months ended September 30, 1994. The Company has
substantially increased the capacity of the San Marcos, Texas
production facility during the first nine months of 1995 and
expects that this increase in capacity will allow it to meet an
expected increase in battery sales during the fourth quarter and
in 1996. However, the timing of battery sales can not be assured
due to market uncertainties and problems with introducing the
Company's products into certain markets. During the second
quarter of 1995, the Company discovered problems with certain of
the batteries that were produced late in 1994 and early in 1995.
The problems were due to some early developmental difficulties
encountered in the manufacturing process that caused the
batteries not to perform as expected. The Company has determined
the cause, and corrected all of these problems. In addition, the
batteries exhibited shelf-life that was not as long as expected
by some of its customers. As a result, if the batteries were not
charged by the customers within a specified timeframe, they would
fail. During the third quarter the Company discovered that many
customers were not using or charging the batteries upon receipt
or within the specified timeframe. The Company has taken
increased measures to improve customer education on its products
so that problems due to proper charge management and shelf-life
maintenance are negated and has decided to replace the batteries
that failed for this reason. As a result of the problems
described, the Company decided to replace approximately 2,000
batteries at no cost to the customers. These replacements have
resulted in lost revenue, and corresponding cash flow, of
approximately $1,000,000, the majority of which occurred during
the second and third quarters of 1995. Due to these product
introduction problems, during the first and second quarters of
1995, the Company did not recognize any revenue for sales to
affected customers until replacement batteries were sent. As a
result, approximately $205,000 of the revenue in the third
quarter is from the shipment of replacement batteries. Beginning
in July 1995, the Company believes it has determined the cause
and has corrected the manufacturing problems; therefore, revenue
is recognized on all batteries when shipped and a warranty
reserve of aproximately $31,000 has been recorded.
The Company had project revenue of $11,000 and $889,593 for the
three and nine months ended September 30, 1995, respectively, as
compared to $80,000 and $2,103,899 for the three and nine months
ended September 30, 1994, respectively. Revenue of $778,593 in
1995 was generated from an agreement with the Chrysler
Corporation for the retrofit of the Horizon Battery for their NS
mini-van program. This agreement concluded in the first quarter
of 1995 and resulted in the selection of the Company as the
preferred supplier of batteries for the Chrysler electric mini-
van program. Pursuant to this selection, Chrysler may purchase
up to $75 million of Horizon batteries over a three-year period
beginning in 1996, subject to issuance of firm purchase orders.
Of the remaining revenue during 1995, $100,000 was generated from
a program to perform a Preliminary Design Review ("PDR") on
behalf of Horizon Battery Technologies, Ltd. ("HBTL"), of Bombay,
India, for a potential manufacturing facility in India. The
Company and HBTL had previously signed an agreement that could
lead to the distribution and manufacture of Horizon batteries in
India. The Company completed the PDR during the third quarter
and expects to collect an additional $150,000 from HBTL and will
recognize the revenue when the proceeds are collected. If the
Company and HBTL execute collateral agreements to effectuate and
amend the definitive license agreement previously executed in
September, 1994, it is expected that the cash received from the
PDR will be applied against the license fee payable. The project
revenue in 1994 was all generated from an agreement with the
Electric Power Research Institute ("EPRI") for the development
and commercialization of the Company's proprietary advanced lead-
acid battery. The EPRI agreement was essentially concluded in
1994; however, the Company is continuing to pursue other project
agreements.
During 1994, the Company and Mitsui Engineering and Shipbuilding
Co. Ltd. ("MES") signed a distribution agreement whereby MES
agreed to pay the Company $2,000,000 for the distribution rights
of the Horizon battery in Japan and an option for a manufacturing
license. The Company recognized $1,000,000 of this license fee
as revenue in the first quarter of 1995 and approximately
$800,000 in the third quarter of 1994. Previously HBTI had
recognized $200,000 of this license fee.
Costs and Expenses. Costs and expenses increased substantially
during the three and nine months ended September 30, 1995 as
compared to the three and nine months ended September 30, 1994,
primarily as a result of the assumption of operational control of
the production facility in San Marcos, Texas in July 1994, and
its subsequent expansion. The assumption of operational control
of the San Marcos facility corresponded with the decision by the
Company to become the North American manufacturer of the Horizon
battery. Previously the Company planned to license the
manufacturing to third parties, and to use the San Marcos
facility as the first manufacturing plant in North America. As
the manufacturer of the Horizon battery, the Company began
incurring production costs for the first time in its history and
increased the sales, marketing and administrative staffs
significantly. In addition, the Company is pursuing
opportunities to license the manufacturing and distribution of
the Horizon battery outside of North America which also results
in the need for additional marketing and administrative
expenditures. This increased need for sales, marketing and
administrative staffs resulted in the increase in selling,
general and administrative expenses to $5,361,004 for the nine
months ended Septemer 30, 1995 as compared to $2,894,062 for the
nine months ended September 30, 1994. As discussed below,
certain reductions in workforce were made during the third
quarter of 1995 which contributed to the decrease in selling,
general and administrative expenses; however, this decrease was offset
by a non-cash charge of $1,468,800 from the issuance of
1,360,000 shares of Common Stock for consulting services (see Note H)
resulting in an overall increase in selling, general and administrative
expense to $2,824,965 from $1,559,732 for the three months ended
September 30, 1995 and 1994, respectively.
During the three months ended September 30, 1995, manufacturing
costs decreased to $2,178,736 as compared to $2,865,418 for the
second quarter of 1995. The high costs in the second quarter
were a result of a concentrated effort to increase production
capacity and capability. The Company believes that the high
level of activity undertaken during early 1995, particularly the
three months ended June 30, 1995, has demonstrated that it can
produce its product at high levels in an automated manufacturing
environment. These achievements now enable the Company to reduce
the expenditure levels, as evidenced by the lower costs in the
third quarter, slow down the production output at its San Marcos
facility to react to a temporarily softened market for electric
vehicle batteries, and reduce the staffing throughout the Company
while still increasing the capacity of the San Marcos plant.
During July and October 1995, the Company reduced its workforce
by a total of approximately 30% by eliminating 65 positions, but
because of the achievements made in the second quarter, the
Company believes that it is now in a position to continually
adjust the output levels at the facility to correspond with the
market demands for its products and expects that, if sales
increase as expected, production costs as a percentage of total
revenue will stabilize.
Research and development expenses increased to $3,168,014 from
$1,530,615 for the nine months ended September 30, 1995 and 1994,
respectively, and to $561,453 from $242,539 for the three months
ended September 30, 1995 and 1994, respectively. The increase in
1995 is due to the wind-down of activities on the EPRI Agreement
in 1994 and the commencement of work for Chrysler for the
retrofit of the Horizonr battery for their NS mini-van which
began significant activity in the fourth quarter of 1994. While
the work for Chrysler was substantially completed during early
1995, the Company has continued to carry out research and
development to improve the battery and manufacturing process as
well as to develop new products that will enable it to enter
markets other than electric vehicles.
Liquidity and Capital Resources. As of October 31, 1995, the
Company had sold 4,647,472 shares of Common Stock which resulted
in net proceeds to the Company of $6,390,511 during 1995. In
April 1995, July 1995 and November 1995 the Company completed
offerings of Convertible Debentures that resulted in net proceeds
to the Company of $5,400,000, $2,700,000, and $3,017,600
respectively. Also in April 1995 and August 1995, the Company
completed sale and leaseback agreements for $991,702 and
$666,348, respectively, of capital equipment. The lease
agreements required letters-of-credit as collateral in the amount
of $663,220 resulting in net proceeds to the Company of $994,830.
The funds from these sources have been used for the substantially
increased working capital and capital expenditure needs of the
Company that resulted from the decision to become the North
American manufacturer of the Horizon battery. The working
capital and capital expenditures were necessary to increase the
production capacity of the San Marcos facility to a level that
management believes is the minimum necessary to demonstrate the
ability to manufacture the Horizon battery in commercial
quantities.
As of September 30, 1995, several working capital items had
changed significantly since December 31, 1994. Accounts
receivable had decreased approximately $775,000 due to the fact
that a substantial portion of the production output from the San
Marcos facility was being used to replace previously shipped
batteries; therefore these shipments were not generating new
receivables. In addition, the Company received payment of
$850,000 from Chrysler for work on the program to retrofit the
Horizon Battery for their NS mini-van program. Inventory had
increased approximately $562,000 due to the increased production
activity in San Marcos, and lower than expected sales, while
accounts payable increased approximately $1.2-million as a result
of the increased expenditure level and closer management of cash
resources. $270,000 of the increase in prepaid and other expenses
was the result of the financing costs associated with the
issuance of Debentures and the lease transactions. These costs
will be amortized over the life of the Debentures and the leases,
or reclassified as a reduction to paid-in capital if the
Debentures are converted into Common Stock.
As described above, during the second quarter of 1995, the
Company discovered problems with certain of the batteries that
were produced late in 1994 and early in 1995. The problems were
due to some early developmental difficulties encountered in the
manufacturing process that caused the batteries not to perform as
expected. The Company has determined the cause, and corrected all
of these problems. In addition, the batteries exhibited shelf-
life that was not as long as expected by some of its customers.
As a result, if the batteries were not charged by the customers
within a specified timeframe, they would fail. During the third
quarter the Company discovered that many customers were not using
or charging the batteries upon receipt or within the specified
timeframe. The Company has taken increased measures to improve
customer education on its products so that problems due to proper
charge management and shelf-life maintenance are negated and has
decided to replace the batteries that failed for this reason. As
a result of the problems described, the Company has decided to
replace approximately 2,000 batteries at no cost to the
customers. These replacements will result in lost revenue, and
corresponding cash flow, of approximately $1,000,000. This
combined with the increases in costs during the second and third
quarters, which were necessary to achieve the Company's
manufacturing objectives and correct the above problems,
significantly depleted the cash resources of the Company. To raise the
necessary capital, the Company completed the sale of 1,170,357
shares of Common Stock in October 1995 and sold $3,280,000 in
principal amount of November 1995 Debentures (see Note H and L)
resulting in net proceeds to the Company of $1,360,000 and
$3,017,600, respectively.
After the sale of the Common Stock in October 1995 and the
November 1995 Debentures in November 1995, and the payment of
certain accounts payable, the Company has approximately
$3,200,000 of unrestricted cash available as of November 13,
1995. If the Company is able to achieve its sales forecasts, and
continue its efforts to control costs, it believes that the
proceeds from these transactions will be sufficient enough to
continue operating for the next twelve months. However, if the
Company is not able to meet its forecasts, or control its costs,
it may be necessary to raise additional financing. In addition,
if it becomes necessary for the Company to finance significant
working capital growth in the near future, these proceeds will
not be sufficient and the Company will need to raise working
capital financing. Management is devoting substantial effort to
closing sales and controlling costs and is continuing to pursue
capital on terms favorable to the Company.
The Company Common Stock is traded in the Over-the-Counter Market
and is reported on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") under the symbol "ELSI."
In order to maintain listing by NASDAQ, the Company must maintain
a minimum $1-million of stockholders' equity. As of September
30, 1995, the Company was not in compliance with this
requirement; however, as shown in Note L of the financial
statements, with the sale of Common Stock and the conversion of
the April 1995 Debentures and the July 1995 Debentures that
occurred subsequent to September 30, the Company is in compliance
with the requirement. Management believes that the continuing
impact of its cost control measures, and increases in sales, will
reduce the level of operating losses which should result in
maintaining compliance with this requirement as of year-end;
however, there can be no assurance that this minimum can be
maintained beyond year-end without additional equity financings.
If the minimum required balances are not maintained, the NASDAQ
may choose to delist the Common Stock of the Company from trading
which would restrict the liquidity of the Common Stock.
Delisting by NASDAQ would be an Event of Default under the terms
of the April 1995 Debentures and the July 1995 Debentures. An
Event of Default could trigger a requirement to repay the notes
immediately.
Part II - Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults on Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
On September 25, 1995, Michael Rosen, Vice President and
Chief Financial and Accounting Officer resigned his position
with the Company to be effective no later than December 31,
1995. In November 1995, the Company hired Mary Beth Koenig
to assume the position of Treasurer, Controller and Chief
Accounting Officer.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Subscription Agreement entered into with 21 Investors as
shown on Subscription Register
4.2 Letter Agreement dated October 3 1995, between
Electrosource, Inc., and Shoreline Pacific
4.3 Offshore Securities Subscription Agreement entered into with
two buyers for the purchase of $1.5 million equity as shown
on Subscription Register
4.4 Letter Agreement dated October 25, 1995, between
Electrosource, Inc., and Shoreline Pacific
4.5 Offshore Convertible Securities Subscription Agreement
entered into with six buyers for the purchase of Convertible
Debentures Due November 9, 1997
4.6 Form of Convertible Debenture issued to six buyers for an
aggregate of $3,280,000 in amounts as shown on Debenture
Register
10.1 Equipment Lease Agreement between Ally Capital Corporation
and Electrosource, Inc.
10.2 Amendment to the Business Alliance and License Agreement
between Electrosource, Inc., and Electric Power Research
Institute dated November 1, 1995
10.3 Consulting Agreement between Electrosource, Inc., and
Liviakis Financial Communications, Inc., dated September 1,
1995
27. Financial Data Schedule
(b) Reports on Form 8-K.
Reports on Form 8-K filed during the quarter ended
September 30, 1995 were:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereto duly authorized.
Date: November 14, 1995 ELECTROSOURCE, INC.
/s/
Michael G. Semmens
Chairman, President and
Chief Executive Officer
(Executive Officer)
/s/
Michael Rosen
Vice President and Chief
Financial Officer
(Chief Accounting Officer)
Form 10-Q
Securities and Exchange Commission
Washington, D.C. 20549
____________________________
EXHIBITS TO
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission file
September 30, 1995 Number 0-16323
___________________________
ELECTROSOURCE, INC.
(Exact name of Registrant as specified in its charter)
Delaware 742466304
(State or otherjurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3800B Drossett Drive
Austin, Texas 78744-1131
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including
area code: (512) 445-6606
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
INDEX TO EXHIBITS
4.1 Subscription Agreement entered into with 21 Investors as
shown on Subscription Register
4.2 Letter Agreement dated October 3, 1995, between Electrosource, Inc.,
and Shoreline Pacific
4.3 Offshore Securities Subscription Agreement entered into with two buyers
for the purchase of $1.5 million equity as shown on Subscription Register
4.4 Letter Agreement dated October 25, 1995, between Electrosource, Inc.,
and Shoreline Pacific
4.5 Offshore Convertible Securities Subscription Agreement entered into
with six buyers for the purchase of Convertible Debentures Due
November 9, 1997
4.6 Form of Convertible Debenture issued to six buyers for an aggregate
of $3,280,000 in amounts as shown on Debenture Register
10.1 Equipment Lease Agreement between Ally Capital Corporation
and Electrosource, Inc.
10.2 Amendment to the Business Alliance and License Agreement
between Electrosource, Inc., and Electric Power Research
Institute dated November 1, 1995
10.3 Consulting Agreement between Electrosource, Inc., and
Liviakis Financial Communications, Inc., dated September 1,
1995
27. Financial Data Schedule
(b) Reports on Form 8-K.
Reports on Form 8-K filed during the quarter ended
September 30, 1995 were:
None
SUBSCRIPTION AGREEMENT
THE OFFERING OF SECURITIES OF ELECTROSOURCE, INC. HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
OSECURITIES ACTO), IN RELIANCE UPON THE AVAILABILITY OF EXEMPTION
FROM REGISTRATION PROVIDED BY SECTION 4(2) OF SAID ACT AND REGULATION
D OF THE GENERAL RULES AND REGULATIONS PROMULGATED THEREUNDER. THERE
ARE SUBSTANTIAL RESTRICTIONS UPON TRANSFER OF THE SECURITIES.
ACCORDINGLY, THE SECURITIES ARE NOT FREELY TRANSFERABLE AND MAY HAVE
TO BE HELD UNTIL TRANSFER MAY BE MADE PURSUANT TO A REGISTERED
TRANSACTION OR AN EXEMPTION FROM REGISTRATION.
ELECTROSOURCE, INC.
SUBSCRIPTION AGREEMENT
To Be Fully Completed by Subscriber
Along with Related Appendix
When accepted by Electrosource, Inc., a Delaware corporation (the
"Company"), this Subscription Agreement shall constitute a
subscription to purchase shares of the Common Stock, no par value
(the "Shares"), of the Company for a purchase price of $1.10 per
Share. Each person participating in the current offering of Shares
was also a participant in an offering of shares of Common Stock and
of warrants to purchase Common Stock (the "Warrants") conducted by
the Company in 1994 (the "Prior Offering"). THIS AGREEMENT AMENDS
CERTAIN PROVISIONS OF THE DOCUMENTS GOVERNING THE PRIOR OFFERING.
Each part of this subscription Agreement must be completed by the
subscriber, and by his execution below, he acknowledges that he
understands that the Company is relying upon the accuracy and
completeness hereof in complying with its obligations under
applicable securities laws.
Please read and complete, as thoroughly as possible, sign, date and
deliver one copy of this Subscription Agreement and of the required
Annex to:
Electrosource, Inc.
3800B Drossett Drive
Austin, Texas 78744
Attention: Audrey T. Dearing
Each subscriber hereto must complete the Subscription Agreement.
1. Subscription. Subject to the terms and conditions hereof, the
undersigned subscribes for the number of Shares set forth on the
signature page hereof by his execution and tender of this
Subscription Agreement, together with the following:
(a) In respect of the Shares, payment of the purchase price
by check made payable to Electrosource, Inc.;
(b) A completed and executed Purchaser Questionnaire (Annex
l);
Upon acceptance of this subscription by the Company (which shall be
in the sole discretion of the Company), the undersigned agrees to
execute the documents described herein and all other documents as may
be required by the Company.
2. Amendment of Prior Agreements. By executing this Agreement, the
undersigned agrees to the following amendments to the Subscription
Agreement entered into between the undersigned and the Company in
connection with the Prior Offering (the "Prior Offering Document")
and to the Warrants issued and sold in connection with the Prior
Offering:
(a) The provisions of paragraph 11 below shall apply with
respect to the registration of the Shares and of the shares of
Common Stock purchased by the undersigned in the Prior Offering;
paragraph 9 of the Prior Offering Document shall be deleted
therefrom and shall no longer be of any force or effect.
(b) The Exercise Price per share (as defined in the Warrants)
of those Warrants having an original Exercise Price of $4.50 shall
be reduced to $2.50 per share, and the Exercise Price of those
Warrants having an original Exercise Price of $5.50 per share
shall be reduced to $3.50 per share.
(c) The Exercise Period (as defined in the Warrants) of each
Warrant is extended to September 12, 1997.
3. Representations and Warranties of the Undersigned. The
undersigned hereby represents and warrants to the Company as follows:
(a) The undersigned has received and read and is familiar
with the Private Placement Memorandum dated August 29, 1995, all
exhibits thereto, and this Subscription Agreement. Except as set
forth in the Private Placement Memorandum, no representations or
warranties have been made to the undersigned by the Company, or any
agent, employee or affiliate of any of them, and in entering into
this transaction the undersigned is not relying upon any information
other than the information contained in the Private Placement
Memorandum and the exhibits thereto, or resulting from his own
independent investigation.
(b) The undersigned, before the date hereof, has had an
opportunity to ask questions and receive answers from the Company or
a person or persons acting on its behalf, concerning the terms and
conditions of this investment and has had an opportunity to examine
all applicable documents and such applicable information as specified
in Schedule A to the Securities Act, to the extent such documents and
information are relevant to this transaction and are possessed by the
Company or are obtainable by the Company without unreasonable effort
or expense, and all such questions have been answered and documents
and information have been supplied to the full satisfaction of the
undersigned.
(c) The undersigned has been furnished and has carefully
read the Private Placement Memorandum and the documents attached as
exhibits thereto, and he is aware that:
(i) there are substantial risks incident to an investment
in the company, and such investment is speculative and involves
a high degree of risk of loss of his entire investment in the
Company;
(ii) no Federal or state agency has passed upon the sale of
the Securities or made any finding or determination concerning
the fairness of this investment, and the terms of the offering
may not conform to the guidelines of certain state securities
administrators;
(iii) the Company has and may continue to have a
significant need for cash for operating expenses and other
purposes; that the aggregate proceeds from the sale of the
Securities alone may not be sufficient to satisfy the cash
requirements of the Company for any appreciable period of time;
that other sources of funds may not be available to the Company;
and that, if such other sources are not available, the Company
could be expected to terminate its business, which could result
in the loss of his entire investment;
(iv) the Company is a development stage company, and
therefore, all risks attendant to such enterprises apply, and
while management believes the business prospects to be viable,
there can be no assurance that the business plan contemplated by
management will be realized; and
(v) the industry in which the Company is engaged is
occupied by several firms, some of which will be substantially
greater in size and have financial resources and personnel staff
larger and more established than those of the Company, and there
can be no assurance that the Company will be able to compete in
the market effectively;
(d) The undersigned understands that an investment in the
Company is an illiquid investment and further recognizes and agrees
that as a result of the restrictions described in the Private
Placement Memorandum, the undersignedOs investment in the Company
will, most likely, be held for a lengthy period of time.
(e) The undersigned acknowledges awareness that there are
substantial restrictions on the transferability of the Securities.
Since the Securities will not be registered under the Securities Act
(except as provided herein) or any applicable state securities law,
the Securities may not be, and the undersigned agrees that they shall
not be, sold unless such sale is exempt from such registration under
the Securities Act and any other applicable state blue sky laws or
regulations. The undersigned further acknowledges that the Company is
under no obligation to aid him in obtaining any exemption from the
registration requirements. The undersigned also acknowledges
responsibility for compliance with all conditions on transfer imposed
by any securities administrator of any state and for any expenses
incurred by the Company for legal or accounting services in
connection with reviewing such a proposed transfer and/or issuing
opinions in connection therewith.
(f) The undersigned:
(i) is an "Accredited Investor," as such term is defined
in Rule 501 promulgated under the Securities Act, who
(A) is a natural person that either alone or together with
his spouse has a net worth of at least $1,000,000; or
(B) is a natural person that had individual income of not
less than $200,000 in each of 1993 and 1994 and reasonably
expects Income of at least $200,000 in 1995; or
(C) is a natural person that had a joint income with his
spouse in excess of $300,000 in each of 1993 and 1994 and
reasonably expects joint income of at least $300,000 in 1995.
(g) The undersigned has been furnished with all materials
relating to the Company, its proposed activities, the offering of the
Securities or anything set forth in the Private Placement Memorandum
and exhibits which he has requested, and has been afforded the
opportunity to obtain any additional information necessary to verify
the accuracy of any representations or information set forth in the
Private Placement Memorandum.
(h) The Company has answered all inquiries that the
undersigned has asked concerning the Company and its proposed
activities, and all other matters relating to the formation of the
Company and the offering and sale of the Securities.
(i) The undersigned has not been furnished any offering
literature other than the Private Placement Memorandum and the
documents attached as exhibits thereto, and he has relied on only the
information contained in the Private Placement Memorandum and such
exhibits and the information, as described in subparagraphs (g) and
(h) above, furnished or made available to them by the Company.
(j) If the undersigned is a corporation, partnership, trust
or other form of business entity, it is authorized and otherwise duly
qualified to purchase and hold Securities in the Company and
recognizes that the information under the captions as set forth in
(f) above relates to investments by an individual, and such entity
has its principal place of business as set forth on the signature
page of the Subscription Agreement and has not been formed for the
specific purpose of acquiring Securities in the Company. (If the
undersigned is one of the aforementioned entities, it must agree to
supply any additional written information that may be required of
it.)
(k) The undersigned is acquiring the Securities for which he
hereby subscribes for his own account, as principal, for investment
purposes only and not with a view to the distribution thereof.
(l) The undersigned has not distributed the Private
Placement Memorandum to anyone, and no one has used the Private
Placement Memorandum, and he has not made any copies thereof.
(m) The undersigned has adequate means of providing for his
current needs and personal contingencies and has no need for
liquidity in his investment.
(n) The undersigned has previously purchased securities
which were sold in reliance on a private offering exemption from
registration under the Securities Act.
4. Delivery of Securities. The Company agrees to deliver to the
undersigned the securities acquired pursuant to this Subscription
Agreement no later than ten (10) days from the date of acceptance of
the subject subscription. The undersigned acknowledges that the
securities to be delivered shall bear appropriate restrictive legends
as to transfer.
5. Brokerage Fees. No brokerage fees will be paid to persons,
entities or brokers who have referred the purchaser to the Company.
6. Conditions of Acceptance. It is understood that this
Subscription Agreement is not binding on the Company until the
Company accepts it, which acceptance is in its sole discretion.
7. Transferability. This subscription is not transferable or
assignable by the undersigned.
8. Revocation. The undersigned agrees that the undersigned shall
not cancel, terminate or revoke this Subscription Agreement or any
agreement of the undersigned made hereunder and that this
Subscription Agreement shall survive the death or disability of the
undersigned.
9. Governing Law. This Subscription Agreement shall be governed
by the internal laws of the State of Texas.
10. Registration Rights.
(a) The Company undertakes to use its reasonable best efforts
to file, on or before October 30, 1995, a registration statement
under the Securities Act of 1933, as amended (the "Securities
Act") covering the sale of the Shares and of the shares of Common
Stock purchased by the undersigned in the Prior Offering
(collectively referred to in this paragraph 11 as "Covered
Shares"). Such registration statement will be applicable only to
sales of Covered Shares made through registered broker-dealers at
market prices prevailing at the time of sale. Shares of Common
Stock acquired upon exercise of Warrants prior to the date of the
initial filing of the registration statement may be included in
such registration statement, but any such inclusion shall have no
effect upon the period of time that the Company is required to
keep such registrations statement effective. Except as provided
in the preceding sentence, such registration statement shall not
be applicable to any shares of Common Stock acquired pursuant to
the exercise of Warrants; the Purchaser acknowledges and agrees
that the obligations of the Company with respect to registration
of shares of Common Stock acquired upon exercise of Warrants are
set forth in the form of Warrant itself.
(b) In connection with the registration of Covered Shares
undertaken by the Company pursuant to this paragraph 11, the
Company shall:
(i) prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement with
respect to such shares and use its reasonable best efforts
to cause such registration statement to become effective;
(ii) 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 at any time that
sales are proposed to be made thereunder for a period
expiring on the earlier of (A) three years following the
date of the closing of the offering described in the Private
Placement Memorandum and (B) the date that all of the
Covered Shares acquired at such closing have been sold by
the original purchasers thereof, 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;
(iii) provide Purchaser a reasonable opportunity to review
prior to filing (A) any registration statement filed by the
Company in connection with a registration in which Purchaser
is participating pursuant to this paragraph 11, and (B) any
amendments or supplements to such registration statement and
any prospectus used in connection therewith;
(iv) furnish to Purchaser 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 (including each preliminary
prospectus and prospectus supplement), in conformity with
the requirements of the Securities Act, and such other
documents as Purchaser may reasonably request in order to
facilitate the sale of the Covered Shares covered by such
registration statement;
(v) 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
Purchaser shall reasonably request, and do any and all other
acts and things which may be reasonably necessary or
advisable to enable Purchaser 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
paragraph 11(c)(v) 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, and provided further that, in the event that
the Company proposes to limit the number of states in which
it will sell shares, the expense of registration or
qualification in any states other than those in which the
Company proposes to sell, including all legal fees incurred
in connection with such additional registrations or
qualifications, shall be borne by Purchaser;
(vi) notify Purchaser 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 Purchaser promptly prepare and furnish to Purchaser 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;
(vii) use its best efforts to cause all of the Covered
Shares by 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; and
(viii) 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.
(d) For as long as Purchaser 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 Purchaser pursuant to Rule 144 (or any
successor rule) under the Securities Act, the Company shall
cooperate with Purchaser 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.
(e) In connection with any registration pursuant to this
paragraph 11, the Company shall pay all registration and filing
fees, underwriting discounts, commissions and expenses (other
than those attributable to Covered Shares being sold by
Purchaser), printing expenses, fees and disbursements of the
Company's legal counsel and accountants, and transfer agentsO and
registrars' fees. Purchaser shall pay only those out-of-pocket
expenses attributable to the inclusion in the offering of the
Covered Shares being sold by Purchaser including, without
limitation, registration and filing fees and underwriting
discounts, commissions and expenses attributable thereto and fees
and disbursements of Purchaser's legal counsel and accountants.
(f) In the case of each registration effected by the Company
pursuant to this paragraph 11, the Company agrees to indemnify
and hold harmless Purchaser, 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 statement therein, in light of the
circumstances under which they were made, not misleading;
provided, however, that the indemnification agreement contained
in this paragraph (f) 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 Purchaser 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
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.
(g) In the case of a registration effected by the Company
pursuant to this paragraph 11, Purchaser and each underwriter of
the Covered Shares to be registered shall agree in the same
manner and to the same extent as set forth in paragraph 11(f) 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 and Purchaser 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.
(h) 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 paragraph 11, 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 paragraph 11 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 paragraph 11
shall be in addition to any liabilities that the indemnifying
parties may have pursuant to law.
(i) If the indemnification provided for in this paragraph 11
shall be unavailable to or insufficient to hold harmless an
indemnified party under paragraphs 11(f) or 11(g) 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 paragraph 11(h) 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 partiesO relative intent, knowledge,
access to information and opportunity to correct or prevent such
statement or omission.
(j) In connection with any registered offering of the Covered
Shares:
(i) Offers and Sales; Notices to the Company. At least ten
business days prior to making any offer or sale of Covered
Shares pursuant to the registration statement pertaining to
the sale (the "Registration Statement"), each Purchaser
participating in such registered offering (a "Selling
Shareholder") shall advise the Company that such Selling
Shareholder proposes to make offers or sales of Covered
Shares, the number of Covered Shares proposed to be offered
and sold, the name and address of each broker or dealer to
or through which such offers and sales are proposed to be
made, and the approximate period of time in which such
offers and sales are proposed to be made. If, in the
reasonable judgment of the Company, it is necessary to amend
or supplement the Registration Statement or the prospectus
contained therein (the "Prospectus") prior to or in
connection with any such offer or sale or during the period
any such offer or sale is being made, the Company will
advise the Selling Shareholder, who shall promptly notify
each broker or dealer named by the Selling Shareholder as
participating in the offer or sale of Covered Shares by the
Selling Shareholder. The Selling Shareholder and each broker
or dealer participating in the offer or sale of Covered
Shares by the Selling Shareholder shall not make any offer
or sale of Covered Shares until the expiration of ten
business days after such Selling Shareholder has advised the
Company that he proposes to make such offers and sales and,
following such ten-day period, shall offer and sell Covered
Shares only during the period specified by such Selling
Shareholder in the notice given to the Company.
Notwithstanding the foregoing, if the Company shall advise
the Selling Shareholder of its determination that it is
necessary to amend or supplement the Registration Statement
or Prospectus, the Selling Shareholder and each broker or
dealer participating in the offer and sale of Covered Shares
by the Selling Shareholder shall make no offers or sales of
Covered Shares until the Company notifies the Selling
Shareholder that such supplement has been filed with or that
such amendment has been declared effective by the
Commission. Shareholder shall promptly notify the Company of
each sale of Covered Shares and shall promptly notify the
Company when the sale or other distribution of all Covered
Shares held by such Selling Shareholder has been completed.
(ii) Copies of Registration Statement and Prospectus. The
Company will furnish to each Selling Shareholder a conformed
copy of the Registration Statement and of each amendment
thereto. From time to time, for such period as in the
opinion of counsel for the Company the Prospectus is
required by law to be delivered in connection with offers or
sales of Covered Shares pursuant to the Registration
Statement, the Company will deliver to the Selling
Shareholder, in such quantities as the Selling Shareholder
may reasonably request, copies of the Prospectus (and of any
amendments or supplements thereto). The Company consents to
the use of the Prospectus (and of any amendments or
supplements thereto) only in accordance with the Securities
Act in connection with the offer or sale of the Covered
Shares and for such period of time thereafter, if any, as
the Prospectus is required by law to be delivered in
connection therewith. If during such period any event shall
occur as a result of which it is in the judgment of the
Company necessary to amend or supplement the Registration
Statement or Prospectus in order to make the statements
therein not misleading or to comply with the Securities Act
or any other law or any undertaking made by the Company in
the Registration Statement or Prospectus, the Company will
promptly prepare and file with the Commission an appropriate
amendment to the Registration Statement or supplement to the
Prospectus. No person is authorized by the Company, and no
Selling Shareholder shall give or shall authorize or permit
any other person to give any information or make any
representations other than as contained in the Prospectus or
any amendment or supplement thereto in connection with the
offering and sale of Covered Shares.
(iii) Compliance with Laws. The Company and each Selling
Shareholder agree to comply with all applicable federal and
state laws and regulations in connection with the
registration, qualification, offering and sale of Covered
Shares, including but not limited to the Securities Act, the
Securities Exchange Act of 1934 (the "Exchange Act"), the
rules and regulations promulgated by the Commission under
the Securities Act and the Exchange Act and, particularly,
Rules 10b-2, 10b-6 and 10b-7 of the Commission under the
Exchange Act.
(iv) Prohibition Against Trading by Persons Interested in
the Distribution. Each Selling Shareholder hereby represents
and warrants to the Company and for the benefit of each
other shareholder participating in the Registration that no
broker, dealer, Underwriter, Prospective Underwriter,
Affiliated Purchaser or other person who has agreed to
Participate or is Participating in the Distribution
contemplated hereby on behalf of or at the direction of such
Shareholder, shall directly or indirectly, by the use of any
means or instrumentality of interstate commerce, or of the
mails, or of any facility of any national securities
exchange, either alone or with one or more other persons,
bid for or purchase for any account in which he has a
beneficial interest, any shares of Common Stock, or any
right to purchase shares of Common Stock, or attempt to
induce any person to purchase any shares of Common Stock or
rights until after he has completed his Participation in
such Distribution. A Selling Shareholder shall be deemed to
have completed his Participation in the Distribution when he
has sold all Covered Shares owned by him. So long as such
transactions are not engaged in for the purpose of creating
actual, or apparent, active trading in or raising the price
of the Common Stock, this paragraph shall not prohibit (i)
transactions in connection with the Distribution
contemplated hereby effected otherwise than on a securities
exchange with the Company or the Selling Shareholders on
whose behalf such distribution is being made or among
Underwriters, Prospective Underwriters or other persons who
have agreed to Participate or are Participating in such
Distribution; or (ii) unsolicited, privately negotiated
purchases, each involving at least a block of shares, that
are not effected from or through a broker or dealer; or
(iii) purchases by the Company effected more than 40 days
after the effective date of the Registration Statement
covering the Common Stock to be distributed hereunder, for
the purpose of satisfying a sinking fund or similar
obligation to which the Company is subject and which becomes
due as of a date that does not exceed twelve months from the
date of such purchases; or (iv) odd-lot transactions and
round-lot transactions that offset odd-lot transactions
previously or simultaneously executed or reasonably
anticipated in the usual course of business by a person who
acts in the capacity of an odd-lot dealer; or (v) brokerage
transactions not involving solicitation of the customer's
order; or (vi) brokerage transactions involving the
solicitation of a customer's order made prior to the later
of nine business days before commencement of offers or sales
of the Covered Shares to be Distributed or the time the
broker-dealer becomes a Participant in the Distribution; or
(vii) offers to sell or the solicitation of offers to buy
Covered Shares being Distributed or securities or rights
offered as principal by the person making such offer to sell
or solicitation; or (viii) the exercise of any right or
conversion privilege set forth in the instrument governing a
security, to acquire any security directly from the Company;
or (ix) bids or purchases by an Underwriter, Prospective
Underwriter, Affiliated Purchaser or dealer, if all such
bids or purchases are made (a) prior to the later of nine
business days prior to the commencement of offers or sales
of the shares of Common Stock to be Distributed or the time
such person becomes a Participant in the Distribution or (b)
in the case of unsolicited purchases, prior to the later of
the date of commencement of offers or sales of the shares of
Common Stock to be Distributed or the time such person
becomes a Participant in the Distribution; or (x) bids or
purchases by the Company or the Selling Shareholders or by
an Affiliated Purchaser if all such bids and purchases are
made (a) nine or more business days prior to the
commencement of offers or sales of the shares of Common
Stock to be Distributed or (b) in the case of unsolicited
purchases, prior to the date of commencement of offers or
sales of the Covered Shares. Capitalized terms used in this
paragraph and not defined in this Agreement shall have the
meanings assigned to such terms in Rule 10b-6 of the
Commission.
11. Prohibition of Stabilizing Transactions. Neither any
Selling Shareholder nor any broker or dealer or other person
acting for or on behalf of the Selling Shareholder shall place
any bid or effect any purchase for the purpose of pegging, fixing
or stabilizing the price of the Covered Shares to be offered as
contemplated herein.
12. Prospectus Delivery Requirements. Each Selling Shareholder
shall comply with all applicable requirements with respect to the
delivery of Prospectuses set forth in sections 5 and 10 of the
Securities Act and all applicable rules thereunder.
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, subject to acceptance by the Company, the
undersigned has completed this Subscription Agreement to evidence his
subscription to Electrosource, Inc. this __ day of August, 1995.
PURCHASER:
Printed Name:
Amount of Subscription: $
Number of Covered Shares:
SUBSCRIBERS ALSO MUST EXECUTE THE APPENDIX ATTACHED HERETO.
The Company has accepted this Subscription this __ day of __________,
1995.
ELECTROSOURCE, INC.
By:
Its:
ANNEX TO SUBSCRIPTION AGREEMENT
ALL INFORMATION WILL BE TREATED CONFIDENTIALLY
PURCHASER QUESTIONNAIRE
Electrosource, Inc.
3800B Drossett Drive
Austin, Texas 78744
Gentlemen:
The information contained herein is being furnished to you in
order to determine whether ______________________________ (insert
name of proposed purchaser) may purchase Shares of the Common Stock
of ELECTROSOURCE, INC. (the OCompanyO), pursuant to the private
offering exemption from registration provided by the Securities Act
of 1933, as amended (the OSecurities ActO). The undersigned
understands that (i) the Company will rely upon the information
contained herein for purposes of such determination, (ii) the Shares
will not be registered under the Securities Act in reliance upon the
private offering exemption from registration provided by the
Securities Act, and (iii) this questionnaire is not an offer of the
Shares or any other securities to the undersigned or to the
above-named proposed purchaser.
I herewith furnish you with the following representations and
information:
1. Name:
2. Residence Address:
3. Financial Data - see Subscription Agreement, Section 3(f).
(a) Individual income* during 1993: $ _____________
(b) Individual income* during 1994: $ _____________
(c) Estimated individual income* during 1995: $ _____________
(d) Joint income* with spouse during 1993: $ _______________
(e) Joint income* with spouse during 1994: $ _______________
(f) Estimated joint income* with spouse during 1995: $
___________
(g) Current net worth of undersigned (including homes,
furnishings and automobiles)):
$ _____________
(h) Current net worth of undersigned (excluding homes,
furnishings and automobiles)):
$ _____________
(i) Current net worth of spouse, if any (including homes,
furnishings and automobiles):
$ _______________
(j) Current net worth of spouse, if any (excluding homes,
furnishings and automobiles):
$ _______________
* The term "Income" shall be deemed to mean adjusted gross income of
the undersigned (as shown on the undersignedOs Federal Income
Tax returns).
4. I have such knowledge and experience in financial and business
matters so as to be capable of evaluating the merits and risks of the
proposed investment. I can bear the economic risks in and can afford
a complete loss of any investment I may make by virtue of my
purchasing Securities and can afford to hold any such investment for
an indefinite period. If I acquire any Securities, such acquisition
shall be for my own account, for investment and not with a view to
the resale or distribution thereof.
5. I represent to you that (a) the information contained herein is
complete and accurate and may be relied upon by you, and (b) I will
notify you immediately of any material change in any of such
information occurring prior to the closing of my purchase of
Securities. I agree that, notwithstanding the confidential treatment
to be accorded the information contained herein, you may divulge such
information in whole or in part or present all or any part of this
document to such parties as you may deem appropriate in connection
with establishing the availability of an exemption under any Federal
or state securities laws, rules or regulations.
IN WITNESS WHEREOF, I have executed this Purchaser Questionnaire this
__ day of August, 1995, and declare that it is truthful and correct.
PURCHASER:
Sworn to before me this __ day of August, 1995.
Notary Public in and for the State of , County of _____________.
Printed Name: My Commission Expires:
SUBSCRIPTION REGISTER
Participants Shares Purchased Amount
Caskey, Stan 56,000 $61,600
Caskey, Steve 56,000 61,600
Compton, Carter 25,000 27,500
Dixon, Al 20,000 22,000
Drake Goodwin & Co. 30,000 33,000
Dulock, Fred 30,000 33,000
First London 60,000 66,000
Ganter, Carl 20,000 22,000
Gordon, Larry 50,000 55,000
Grey, James 20,000 22,000
Kemp, Bill 30,000 33,000
Malone, Dan 115,000 126,500
McCool, William and Joan 30,000 33,000
Phillips, Jim 100,000 110,000
Semmens, Mike 10,000 11,000
Sharratt, Marilyn 2,000 2,200
Templeton, Jay 60,000 66,000
Trembath, Rhoda 33,333 36,666
Wilson Trust 50,000 55,000
Winchester, Dorothy 9,000 9,900
Total 806,333 $886,966
Shoreline Pacific
Institutional Finance
October 3, 1995 The Institutional Division
of Financial West Group
Via Facsimile
(512-445-0583)
Mr. Michael G. Semmens
Chairman
Electrosource, Inc.
3800 Drossett Drive
Austin, Tx 78744
Dear Mr. Semmens:
We are writing to confirm our understanding with respect to the
placement of up to Five Million Dollars ($5,000,000) U.S. of
common stock (the "Shares") of Electrosource, Inc. (ELSI) (the
"Company") at Forty (40%) Percent off the Closing Price of the
Shares. You agree that Shoreline Pacific, Institutional Finance
Division of Financial West Group ("Shoreline Pacific") shall be
entitled to a commission equal to the difference between the
actual purchase price of the Shares and the amount which is 40%
off the Closing Price, such amount to be deducted from the gross
proceeds held in escrow for the closing of this transaction. You
further agree to pay Shoreline Pacific with 15,000 two (2) year
warrants per million dollars of Shares sold, and the pro-rata
portion of any amount that is not a multiple of $1,000,000,
payable to Shoreline Pacific or its designee. The warrants will
be issued at the Closing Price of the Shares and will be in the
form annexed hereto as Exhibit 2. As used herein, the term
"Closing Price" refers to the average closing price of the Shares
as reported by Bloomberg, L.P. over the five-day trading period
ending on the date on which verbal agreement to purchase with
respect to each Closing (as defined below) is reached with a
minimum net price to the Company of $0.80 per share after all
discounts. Our engagement shall be for a period (the "Engagement
Period") commencing on the date Shoreline Pacific receives
written approval, in the form attached hereto as Attachment "A:,
of the form of subscription agreement, and extending through and
including Thirty (30) days from such date. There may be multiple
closings within the Engagement Period (each a "Closing").
During the Engagement Period, we shall have the exclusive right
to identify buyers for the Shares. We will also assist in
arrangements for the Closings. Our identification and
solicitation of potential investors will be conducted in
compliance with Rule 903 of Regulation S, promulgated under the
Securities Act of 1933, as amended, and in compliance with the
laws of each jurisdiction in which the offering is conducted. We
will use no offering materials other than your publicly-filed
reports and such other materials, including a subscription
agreement, as you shall have approved. Each investor will be
required to execute a standard form of subscription agreement,
which will include, without limitation, representations regarding
domicile, method of offering, and reliance only on specified
offering materials.
In the event the placement is completed in the amount of at least
$4,000,000, you agree not to offer any other shares of the
Company's common stock, or any other securities convertible into
shares of the Company's common stock, pursuant to a discounted
transaction for 90 days from the end of the Engagement Period.
If you wish to make any further sales within that 90-day period,
you will offer the stock on a right-of-first-refusal basis to
Shoreline Pacific, which will have five (5) business days from
the time of the offer to accept or reject it. If Shoreline
Pacific rejects the offer, the Company shall be permitted to
proceed with the additional offering.
You hereby agree to the foregoing, agree to use your reasonable
best efforts to assist our participation in this transaction, and
agree not to take any actions which will be materially
detrimental to our selling efforts. You undertake and represent
to us that the number of Shares necessary to fulfill the
$5,000,000 placement referred to herein will be available at the
Closings. You further agree, in consideration of our
identification of buyers for the Shares as set out above, to be
fully bound by the Indemnification Provisions which are attached
hereto as Attachment "B" and which are hereby incorporated by
reference.
Please acknowledge by your signature below that, for a period of
two (2) years after the date of this letter agreement, you will
not contact any purchaser of Shares for the purpose of entering
into a securities transaction with such institution unless such
transaction is effected through Shoreline Pacific upon terms
acceptable to Shoreline Pacific.
We look forward to working with you,
Sincerely, Agreed and Accepted:
/s/ /s/
Harlan P. Kleiman Michael G. Semmens
Executive Vice President Chairman
Institutional Sales Electrosource Inc.
Date:
LETTER AGREEMENT #1, Attachment A
APPROVAL
The undersigned hereby approves the use of the Form of
Offshore Convertible Securities Subscription Agreement attached
hereto as Exhibit 1 and the Form of Warrants attached hereto as
Exhibit 2 in connection with the placement of common stock of
Electrosource Inc. ("ELSI") by Shoreline Pacific, Institutional
Finance Divisions of Financial West Group ("Shoreline Pacific")
referred to in the Engagement Letter between Electrosource and
Shoreline Pacific dated October 3, 1995. This Approval may be
sent to Shoreline Pacific by facsimile to (415) 380-8911 and
shall be effective upon transmission thereof, or may be sent by
any other method so long as Shoreline Pacific receives proof of
the date of such delivery. The Thirty (30) day period referred
to in the Engagement Letter will commence following receipt of
this Approval by Shoreline Pacific, in the manner set forth
above. In the event this Approval is not received by Shoreline
Pacific until after 12:00 noon Pacific Standard Time, the
Engagement Period will commence the following day.
/s/
Michael G. Semmens
Chairman
Electrosource Inc.
Date:
LETTER AGREEMENT #1, Attachment B
Indemnification Provisions
Electrosource, Inc. (the "Company") agrees to indemnify and
hold harmless Shoreline Pacific, Institutional Finance Division
of Financial West Group ("Shoreline Pacific") and its agents,
employees, affiliates, control persons, and successors and
assignees (collectively, the "Indemnitees" and each individually
an "Indemnitee") from and against any and all losses, claims,
damages, liabilities, obligations, penalties, judgments, awards,
costs, expenses, and disbursements (and any and all actions,
suits, proceedings, and investigations in respect thereof) and
any and all legal and other costs, expenses, or disbursements
relating thereto, including, without limitation, any loss
occasioned by the Indemnitees or prospective purchasers of the
Shares identified by Shoreline Pacific by reason of the Shares
not being available upon any Closing, for whatever reason, and
including the costs, expenses, and disbursements, as and when
incurred, of investigating, preparing, or defending any such
action, suit, proceeding, or investigation (whether or not in
connection with litigation in which any Indemnitee is a party),
directly or indirectly, caused by, relating to, based upon,
arising out of or in connection with (a) any Indemnitee acting
for the Company, including, without limitation, any act or
omission by any Indemnitee in connection with its acceptance of
or the performance or non-performance of the Indemnitee's
obligation under the letter agreement dated October 3, 1995,
between Shoreline Pacific and the Company, as it may be amended
from time to time (the "Agreement"), or (b) any untrue statement
or alleged untrue statement of a material fact contained in, or
omissions or alleged omissions from, information furnished by the
Company to any Indemnitee or any prospective purchaser, provided,
however, such indemnity agreement shall not apply to any portion
of any such loss, claim, damage, obligation, penalty, judgment,
award, liability, cost, expense or disbursement to the extent it
is found in a final judgment by a court of competent jurisdiction
(not subject to further appeal) to have resulted primarily and
directly from the gross negligence or willful misconduct of the
Indemnitee seeking indemnification hereunder. The Company also
agrees that the Indemnitees shall not have any liability (whether
direct or indirect, in contract or tort or otherwise) to the
Company or to any person (including, without limitation, Company
shareholders) claiming through the Company for or in connection
with the engagement of Shoreline Pacific or for or in connection
with the acts or omissions of any Indemnitee except to the extent
that any such liability is found in a final judgment by a court
of competent jurisdiction (not subject to further appeal) to have
resulted primarily and directly from the gross negligence or
willful misconduct of the Indemnitee seeking indemnification.
These Indemnification Provisions shall be in addition to any
liability which the Company may otherwise have to the Indemnitees
or the buyer in the transaction contemplated by the Agreement.
If any action, suit, proceeding or investigation is
commenced, as to which any Indemnitee proposes to demand
indemnification, the Indemnitee shall notify the Company with
reasonable promptness; provided, however, that any failure by an
Indemnitee to notify the Company shall not relieve the Company
from its obligations hereunder. Each Indemnitee shall have the
right to retain counsel of its own choice to represent it, and
the Company shall pay the fees, expenses and disbursements of
such counsel; and such counsel shall, to the extent consistent
with its professional responsibilities, cooperate with the
Company and any counsel designated by the Company. The Company
shall be liable for any payment of any award or settlement of any
claim against any Indemnitee made with the Company's written
consent, which consent shall not be unreasonably withheld. The
Company shall not, without the prior written consent of the
Indemnitee seeking indemnification, settle or compromise any
claim, or permit a default or consent to the entry of any
judgment in respect thereof, unless such settlement, compromise
or consent includes, as an unconditional term thereof, the giving
by the claimant to the Indemnitee seeking indemnification an
unconditional release from all liability in respect of such
claim.
In order to provide for just and equitable contribution, if
a claim for indemnification pursuant to these Indemnification
Provisions is made but is found in a final judgment by a court of
competent jurisdiction (not subject to further appeal) that such
indemnification may not be enforced in such case, even though the
express provisions hereof provide for indemnification in such
case, then the Company, on the one hand, and the Indemnitees on
the other hand, shall contribute to the losses, claims, damages,
obligations, penalties, judgments, awards, liabilities, costs,
expenses and disbursements to which the indemnified persons may
be subject in accordance with the relative benefits received by
the Company, on the one hand, and the Indemnitees, on the other
hand, in connection with the statements, acts or omissions which
resulted in such losses, claims, damages, obligations, penalties,
judgments, awards, liabilities, costs, expenses and
disbursements, and the relevant equitable considerations shall
also be considered. No person found liable for a fraudulent
misrepresentation shall be entitled to contribution from any
person who is not also found liable for such fraudulent
misrepresentation. Notwithstanding the foregoing, the
Indemnitees shall not be obligated to contribute any amount
hereunder that exceeds the amount of fees actually received by
Shoreline Pacific pursuant to the Agreement.
Neither termination nor completion of the engagement of
Shoreline Pacific referred to above shall affect these
Indemnification Provisions, which shall then remain operative and
in full force and effect.
LETTER AGREEMENT #1
ATTACHMENT A, EXHIBIT 1
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
Electrosource, Inc./Buyer
[Date]
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER
(THE "1933 ACT"), AND MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES (AS DEFINED IN REGULATION S OF THE 1933 ACT) OR TO,
OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN
REGULATION S OF THE 1933 ACT) EXCEPT PURSUANT TO REGISTRATION
UNDER OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
1933 ACT.
THIS OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT (hereinafter
the "Agreement") has been executed by the undersigned in
connection with the sale of certain shares of common stock
(hereinafter the "Shares") of Electrosource, Inc. (ELSI), 3800 B
Drossett Drive, Austin, Texas, a corporation organized under the
laws of Delaware (hereinafter "Seller") to [Buyer], located
[Address], a corporation organized under the laws of [area of
incorporation] (hereinafter "Buyer"). Seller and Buyer
(hereinafter collectively the "parties") each hereby represents,
warrants and agrees as follows:
Section 1
AGREEMENT TO SUBSCRIBE PURCHASE PRICE
1.1 Buyer hereby subscribes for [written amount of
shares] (#) Shares of (ELSI) common stock at ($___) U.S. per
share for an aggregate purchase price of [written dollar
amount] ($) U.S. payable in United States Dollars.
1.2 Buyer shall pay the purchase price by delivering
same day funds in United States Dollars to an escrow agent
or as otherwise agreed between the parties, to be delivered
to the order of Seller upon Delivery of the Shares.
1.3 This Agreement has been executed in connection
with an offering (the "Offering") by Seller of its common
stock (including the Shares) pursuant to Regulation S
("Regulation S") promulgated under the Securities Act of
1933, as amended (the "Securities Act"). Buyer will be
notified of the date of the conclusion of the Offering.
Section 2
BUYER'S REPRESENTATIONS
Buyer represents and warrants to Seller as follows:
2.1 Buyer is not a "U.S. Person" as defined by Rule
902 of Regulation S, was not organized under the laws of any
U.S. jurisdiction, and was not formed for the purpose of
investing in securities not registered under the Securities
Act;
2.2 At the time the buy order for this transaction was
originated, Buyer was outside the United States;
2.3 No offer to purchase the Shares was made in the
United States;
2.4 Buyer is either (a) purchasing the Shares for its
own account for investment purposes and not with a view
towards distribution, or (b) acting as agent for a principal
that has made the representations contained in Exhibit A
hereto;
2.5 All subsequent offers and sales of the Shares will
be made (a) outside the United States in compliance with
Rule 903 or Rule 904 of Regulation S, (b) pursuant to
registration of the Shares under the Securities Act, or (c)
pursuant to an exemption from such registration. Buyer
understands the conditions of the exemption from
registration afforded by Section 4(1) of the Securities Act
and acknowledges that there can be no assurance that it will
be able to rely on such exemption. In any case, Buyer will
not resell the shares to U.S. Persons or with the United
States until after the end of the forty (40) day period
commencing on the date of completion of the Offering (as
defined above) (the "Restricted Period");
2.6 Buyer agrees that it has not entered into and will
not enter into any short sales with respect to the common
stock of Seller at any time after the execution of this
Agreement by Buyer and prior to the expiration of the
Restricted Period. Buyer further agrees that, at all times
after the Restricted Period, it will keep its purchase of
the Shares confidential, except as required by law and
except as necessary in the ordinary course of Buyer's
business;
2.7 Buyer understands that the Shares are being
offered and sold to it in reliance on specific provisions of
federal and state securities laws and that Seller is relying
upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings
of Buyer set forth herein in order to determine the
applicability of such provisions. Accordingly, Buyer agrees
to notify Seller of any events which would cause the
representations and warranties of Buyer to be untrue or
breached at any time after the execution of this Agreement
by Buyer and prior to the expiration of the Restricted
Period;
2.8 This Agreement has been duly authorized, validly
executed, and delivered on behalf of Buyer and is a valid
and binding agreement enforceable in accordance with its
terms, subject to general principles of equity and to
bankruptcy or other laws affecting the enforcement of
creditors' rights generally;
2.9 Any offering documents received by Buyer include
statements to the effect that the Shares have not been
registered under the Securities Act and may not be offered
or sold in the United States or to U.S. Persons during the
Restricted Period;
2.10 Buyer, in making the decision to purchase the
Shares subscribed for, has relied upon independent
investigations made by it and has not relied on any
information or representations made by third parties;
2.11 In the event of resale of the Shares during the
Restricted Period, Buyer shall provide a written
confirmation or other written notice to any distributor,
dealer, or person receiving a selling concession, fee, or
other remuneration in respect of the Shares stating that
such purchaser is subject to the same restrictions on offers
and sales that apply to the undersigned, and shall require
that any such purchaser shall provide such written
confirmation or other notice upon resale during the
Restricted Period; and
2.12 Buyer has not taken any action that would cause
Seller to be subject to any claim for commission or other
fee or remuneration by any broker, finder, or other person
and Buyer hereby indemnifies Seller against any such claim
caused by the actions of Buyer or any of its employees or
agents.
Section 3
SELLER'S REPRESENTATIONS
Seller represents and warrants to Buyer as follows:
3.1 Seller is a "Domestic Issuer" and a "Reporting
Issuer," as such terms are defined by Rule 902 of Regulation
S. Seller has registered its common stock pursuant to
Section 12(b) or (g) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), is in full compliance with
all reporting requirements of either Section 13(a) or 15(d)
of the Exchange Act, and Seller's common stock trades on the
NASDAQ Small Cap Market;
3.2 Seller has furnished Buyer with copies of Seller's
most recent Annual Report on its Form 10-K filed with the
Securities and Exchange Commission, all Forms 10-Q and 8K
filed thereafter, and the use of process and risk factors,
prepared by Seller, which are attached hereto as Exhibit B;
3.3 Seller has not offered the Shares to any person in
the United States, any identifiable group of U.S. citizens
abroad, or to any U.S. Person;
3.4 At the time the buy order was originated, Seller
and/or its agents reasonably believed Buyer was outside the
United States and was not a U.S. Person;
3.5 Seller and/or its agents reasonably believe that
the sale of the Shares has not been prearranged with a Buyer
in the United States.
3.6 Seller has not conducted any "directed selling
efforts" with respect to the Shares nor has Seller conducted
any general solicitation (as that term is used in Regulation
D under the Securities Act) with respect to any of its
securities;
3.7 The Shares when issued and delivered will be duly
and validly authorized and issued, fully-paid and
nonassessable and will not subject the holders thereof to
personal liability by reason of being such holders. There
are no preemptive rights of any shareholder of Seller with
respect to the Shares;
3.8 This Agreement has been duly authorized, validly
executed and delivered on behalf of Seller and is a valid
and binding agreement in accordance with its terms, subject
to general principles of equity and to bankruptcy or other
laws affecting the enforcement of creditors' rights
generally;
3.9 The execution and delivery of this Agreement and
the consummation of the issuance of the Shares and the
transactions contemplated by this Agreement do not and will
not conflict with or result in a breach by Seller of any of
the terms or provisions of, or constitute a default under,
the articles of incorporation or bylaws of Seller, or any
indenture, mortgage, deed of trust or other material
agreement or instrument to which Seller is a party or by
which it or any of its properties or assets are bound, or
any existing applicable decree, judgment or order of any
court, Federal or State regulatory body, administrative
agency or other governmental body having jurisdiction over
Seller or any of its properties or assets;
3.10 Seller is not aware of any authorization, approval
or consent of any governmental body which is legally
required for the issuance and sale of the Shares as
contemplated by this Agreement;
3.11 Seller will instruct its transfer agent to issue
one or more share certificates representing the Shares
without restrictive legend in the name of Buyer and in such
denominations to be specified by Buyer prior to closing.
Seller further warrants that no instructions other than
these instructions, and instructions for a "stop transfer"
until the end of the Restricted Period, have been given to
the transfer agent and also warrants that the Shares shall
otherwise be freely transferable on the books and records of
Seller. Seller will notify the transfer agent of the date
of completion of the Offering and of the date of expiration
of the Restricted Period. Nothing in this section shall
affect in any way Buyer's obligations and agreement to
comply with all applicable securities laws upon resale of
the Shares;
3.12 Seller has taken and will take no action that will
affect in any way the running of the Restricted Period or
the ability of Buyer to freely resell the Shares in
accordance with applicable securities laws and this
Agreement; and
3.13 Seller will comply with all applicable securities
laws with respect to the sale of the Shares, including but
not limited to the filing of all reports required to be
filed in connection therewith with the Securities and
Exchange Commission or any stock exchange or the NASDAQ
stock market or any other regulatory authority.
Section 4
CLOSING
4.1 Share certificates shall be delivered to Buyer and
the funds therefor shall be delivered to Seller on
________________ or at such time to be mutually agreed.
Section 5
CONDITIONS TO CLOSING
5.1 Buyer understands that Seller's obligation to sell
the Shares is conditioned upon delivery into escrow or
otherwise as agreed between Buyer and Seller by Buyer of the
amount set forth in Section 1 hereof.
5.2 Seller understands that Buyer's obligation to
purchase the Shares is conditioned upon delivery of
certificate(s) representing shares of common stock without
restrictive legend as described herein and provision of an
opinion of counsel confirming the matters et out in Section
3.1, 3.7, 3.8, 3.9, and 3.10 above.
Section 6
GOVERNING LAW; INTERPRETATION
6.1 This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New
York. Facsimile signatures of this Agreement shall be
binding on all parties hereto. All terms used herein that
are defined in Regulation S under the Securities Act shall
have the meanings set forth therein.
IN WITNESS WHEREOF, this Agreement was duly executed on the
date first written above.
Official Signatory of Buyer:
Official Signatory of Seller:
Electrosource, Inc.
Michael G. Semmens
President
SUBSCRIPTION AGREEMENT, EXHIBIT A
In connection with the Offshore Securities Subscription Agreement
between Electrosource, Inc. ("Seller") and ____________ dated
_________________ (the "Agreement"), the undersigned represents
and warrants as follows:
(i) The undersigned is not a U.S. Person as defined by Rule
902 of Regulation S, was not organized under the laws of any U.S.
jurisdiction, and was not formed for the purpose of investing in
securities not registered under the Securities Act of 1933, as
amended (the "Securities Act");
(ii) At the time the buy order for the Shares (as such term
is defined in the Agreement) was originated, the undersigned was
outside the United States;
(iii) No offer to purchase the Shares was made in the
United States;
(iv) The undersigned is purchasing the Shares for its own
account for investment purposes and not with a view towards
distribution;
(v) All subsequent offers and sales of the Shares will be
made (a) outside the United States in compliance with Rule 9033
or Rule 904 of Regulation S, (b) pursuant to registration of the
Shares under the Securities Act or (c) pursuant to an exemption
from such registration. The undersigned understands the
conditions of the exemption from registration afforded by Section
4(1) of the Securities Act and acknowledges that there can be no
assurance that it will be able to rely on such exemption. In any
case, the Shares will not be resold to U.S. Persons or within the
United States until after the end of the "Restricted Period" (as
such term is defined in the Agreement);
(vi) The undersigned agrees not to enter into any short
sales with respect to the common stock of Seller at any time
after the execution of these representations by the undersigned
and prior to the expiration of the Restricted Period. The
undersigned further agrees that, at al times after the execution
of these representations by the undersigned and prior to the
expiration of the Restricted Period, it will keep its purchase of
the Shares confidential, except as required by law and except as
necessary in the ordinary course of the undersigned's business;
(vii) The undersigned understands that the Shares are
being offered and sold to it in reliance on specific provisions
of federal and state securities laws and that Seller is relying
upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings set forth herein
in order to determine the applicability of such provisions.
Accordingly, the undersigned agrees to notify Seller of any
events which would cause the representations and warranties of
the undersigned to be untrue or breached at any time after the
execution of these representations by the undersigned and prior
to the expiration of the Restricted Period;
(viii) Any offering documents received by the undersigned
include statements to the effect that the Shares have not been
registered under the Securities Act and may not be offered or
sold in the United States or to U.S. Persons during the
Restricted Period;
(ix) The undersigned, in making the decision to purchase the
Shares subscribed for, has relied upon independent investigations
made by it and has not relied on any information or
representations made by third parties;
(x) In the event of resale of the Shares during the
Restricted Period, the undersigned shall provide a written
confirmation or other written notice to any distributor, dealer
or person receiving a selling concession, fee or other
remuneration in respect of the Shares stating that such purchaser
is subject to the same restrictions on offers and sales that
apply to the undersigned, and shall required that any such
purchaser shall provide such written confirmation or other notice
upon resale during the Restricted Period; and
(xi) The undersigned has not taken any action that would
cause Seller to be subject to any claim for commission or other
fee or remuneration by any broker, finder or other person and
hereby indemnifies Seller against any such claim caused by the
actions of the undersigned or any of its employees or agents.
SUBSCRIPTION AGREEMENT, EXHIBIT B
USE OF PROCEEDS
RISK FACTORS
USE OF PROCEEDS
The proceeds from the Reg S offering will be used for
working capital and general corporate purposes.
RISK FACTORS
An investment in the Common Stock offered hereby involves a
high degree of risk. The following factors should be considered
in evaluating an investment in the Company.
Contingencies Related to Business Plan and Commercialization of
Product. In June 1994 the Company determined to become the North
American manufacturer of the Horizonr battery, while continuing
its previous plans with respect to licensing of third party
manufacturers overseas. The shift from research and development
to manufacturing will require significant additional outlays for
capital equipment as well as greatly increased managerial and
production staffing, which will in turn require significant
amounts of new capital. There can be no assurance that the
Company will be able to raise this capital on terms satisfactory
to the Company, or at all. Development of the Horizon batteries
and manufacturing processes continue and there is no assurance
that the battery will be successfully commercialized.
Limited Cash Resources. The Company had approximately
$1,100,000 in unrestricted cash available at September 26, 1995.
The Company is in discussions concerning potential sources of
additional capital. If the Company is able to close certain
financing transactions and to meet its sales forecasts,
management believes that there will be sufficient cash resources
to finance operations through the end of 1995. Otherwise, the
Company may not be able to continue operations.
Possible Loss of Trading Liquidity. The Company's Common Stock
is currently traded on the NASDAQ market. Listing standards for
NASDAQ stocks require a minimum of $1,000,000 in shareholders
equity. At June 30, 1995, the Company reported a negative balance
in shareholders equity of $1,625,494, although the amount of
shareholders equity has subsequently increased (to approximately
$1,374,506 on a pro forma basis as of June 30, 1995) due to the
conversion of certain outstanding convertible debentures. Unless
the Company achieves profitability on a sustainable basis or is
able to raise sufficient new equity capital to offset operating
losses such that shareholders equity remains above the minimum
required level, its shares may no longer be eligible for trading
on the NASDAQ system. Loss of NASDAQ trading privileges would
have a material adverse effect on the liquidity of any investment
in the Company's Common Stock, and would constitute an event of
default with respect to indebtedness of the Company having an
outstanding principal amount as of September 26, 1995, of
approximately $2,900,000.
Limited Operating History. The Company has only a limited
operating history. The Company was incorporated in June 1987 and
became subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), in January
1988. The Company was until the first quarter of 1995 a
development stage company. The Company has generated a net loss
from the development program in each fiscal quarter since
inception. There can be no assurance that the Company will be
able to generate sufficient income to cover losses. The
likelihood of the Company's future success must be considered in
light of the risks, expenses, difficulties and delays frequently
encountered in connection with the operation and development of a
new business and research and development activities generally.
Termination of Technology License. The Company holds the rights
to develop and use the coextrusion technology in the field of
lead-acid battery applications under an exclusive license from
Blanyer-Mathews Associates, Inc. ("Blanyer-Mathews"). This
license is subject to termination by Blanyer-Mathews in the event
that the Company enters bankruptcy proceedings or defaults in its
obligation to pay royalties. Loss of the rights to the
coextrusion technology would have a severe adverse impact upon
the Company's continued viability.
Loss of Trade Secret Protection. The Company has elected to
protect certain aspects of its technology under state trade
secret laws, rather than under federal patent laws. Trade secret
protection requires that the Company preserve the confidentiality
of the technology subject to trade secret status. In the event
that such confidentiality cannot be maintained, or if third
parties can successfully "reverse-engineer" the affected
technology, trade secret status may be lost. Loss of trade secret
protection would allow third parties to utilize the technology
without obtaining a license from the Company.
Competition. The lead-acid battery industry is highly
competitive and includes a number of firms, many with greater
financial, technological, manufacturing, marketing and other
resources and longer operating histories than the Company. There
is no assurance that the Company will be able to compete
successfully in this highly competitive environment due to the
Company's limited financial resources and lack of established
products.
Conflicts of Interest. Charles Mathews and John Malone,
directors of the Company, are also directors of Blanyer-Mathews,
which holds the coextrusion patents under which the Company is a
licensee. This relationships may give rise to conflicts of
interest on the part of such persons in connection with
transactions of the Company involving Blanyer-Mathews in which
such persons may have an incentive to put the interests of
Blanyer-Mathews above those of the Company.
Dependence on Key Personnel. Executive management of the
Company is primarily the responsibility of Michael Semmens,
President, Chief Executive Officer and Chairman of the Board. The
loss of Mr. Semmens or other executives could have a material
adverse effect on the Company. Michael Weinstein, Vice President
of Communications, ceased employment with the Company on
September 15, 1995.
Dilution. The market price of $1.72 per share of Common Stock
as of September 25, 1995, was substantially greater than the
Company's actual net negative tangible book value of ($0.17) per
outstanding share of Common Stock at June 30, 1995. Purchasers of
Common Stock at the recent market price will suffer an immediate
dilution of $1.89 per share, measured by the difference between
the market price and the Company's net negative tangible book
value per share. See "Dilution."
Certain Antitakeover Effects. Certain provisions contained in
the Delaware General Corporation Law and in the Company's
Restated Certificate of Incorporation and bylaws may make it
difficult for any third party to effect or attempt an acquisition
of the Company without the approval of the Company's Board of
Directors. The Restated Certificate of Incorporation also divides
the Company's Board of Directors into three classes serving
staggered terms. This provision may hinder or delay any attempt
to gain control of the Company by replacing the Board of
Directors. Such potential antitakeover effects may depress the
market value of the Common Stock. In addition, certain provisions
of the Company's Restated Certificate of Incorporation and bylaws
require the affirmative vote of 90% of the Company's outstanding
Common Stock.
Absence of Dividends. The Company has never declared or paid
any dividends on its outstanding Common Stock, and it is unlikely
that it will do so in the foreseeable future.
LETTER AGREEMENT #1
ATTACHMENT A, Exhibit 2
NEITHER THIS WARRANT NOR ANY SHARES OF COMMON STOCK ISSUABLE UPON
THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS
PROMULGATED THEREUNDER (THE "SECURITIES ACT"). THIS WARRANT AND
THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT
BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
REGISTRATION UNDER THE SECURITIES ACT OR SUCH OFFER, SALE OR
TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
Dated: October ____, 1995
[Number ( )] Warrants
to Purchase [Number ( )] Shares
of Common Stock, $0.10 Par Value Per Share
ELECTROSOURCE, INC., a Delaware corporation (the "Company"),
hereby certifies that [Holder], its permissible transferees,
designees, successors and assigns (collectively, the "Holder"),
for value received, is entitled to purchase from the Company at
any time commencing on October __, 1995 up to [Number] ( ) shares
(the "Shares") of the Company's common stock, par value $0.10 per
share (the "Common Stock"), at [$_____] per share (the "Exercise
Price").
1. Exercise of Warrants. Upon presentation and surrender
of this Common Stock Purchase Warrant Certificate ("Warrant
Certificate" or "this Certificate"), with the attached Purchase
Form duly executed, at the principal office of the Company at
3800 Drossett Drive, Austin, TX 78744, together with a check
payable to the Company in the amount of the Exercise Price
multiplied by the number of Shares being purchased, the Company,
or the Company's Transfer Agent as the case may be, shall deliver
to the holder hereof, certificates of Common Stock which in the
aggregate represent the number of Shares being purchased. All or
less than all of the Warrants represented by this Certificate may
be exercised and, in case of the exercise of less than all, the
Company, upon surrender hereof, will deliver to the holder a new
Warrant Certificate or Certificates of like tenor and dated the
date hereof entitling said holder to purchase the number of
Shares represented by this Certificate which have not been
exercised and to receive Registration Rights with respect to such
Shares.
2. Exchange and Transfer. This Certificate at any time
prior to the exercise hereof, upon presentation and surrender to
the Company, may be exchanged, alone or with other Certificates
of like tenor registered in the name of the same holder, for
another Certificate or Certificates of like tenor in the name of
such holder exercisable for the aggregate number of Shares as the
Certificate or Certificates surrendered.
3. Rights and Obligations of Holders of this Certificate.
(a) The holder of this Certificate shall not, by virtue hereof,
be entitled to any rights of a stockholder in the Company, either
at law or in equity; provided, however, that in the event any
certificate representing shares of Common Stock or other
securities is issued to the holder hereof upon exercise of some
or all of the Warrants, such holder shall, for all purposes, be
deemed to have become the holder of record of such Common Stock
on the date on which this Certificate, together with a duly
executed Purchase Form, was surrendered and payment of the
aggregate Exercise Price was made, irrespective of the date of
delivery of such share certificate.
(b) In case the Company shall (i) pay a dividend in Common
Stock or make a distribution in Common Stock, (ii) subdivide its
outstanding Common Stock into a greater number of shares, or
(iii) combine its outstanding Common Stock into a smaller number
of shares (including a recapitalization in connection with a
consolidation or merger in which the Company is the continuing
corporation), then (x) the Exercise Price on the record date of
such division or the effective date of such action shall be
adjusted by multiplying such Exercise Price by a fraction, the
numerator of which is the number of shares of Common Stock
outstanding immediately before such event and the denominator of
which is the number of shares of Common Stock outstanding
immediately after such event and (y) the number of shares of
Common Stock for which this Warrant Certificate may be exercised
immediately before such event shall be adjusted by multiplying
such number by a fraction, the numerator of which is the Exercise
Price immediately before such event and the denominator of which
is the Exercise Price immediately after such event.
(c) In case of any consolidation or merger of the Company
with or into another corporation (other than any consolidation or
merger in which the Company is the continuing corporation and
which does not result in any reclassification of the outstanding
shares of Common Stock or the conversion of such outstanding
shares of Common Stock into shares or other stock or other
securities or property), or the sale or transfer of the property
of the Company as an entirety or substantially as an entirety,
there shall be deliverable upon exercise of the Warrant
Certificate (in lieu of the number of shares of Common Stock
theretofore deliverable) the number of shares of stock or other
securities or property to which a holder of the number of shares
of Common Stock which would otherwise have been deliverable upon
the exercise of this Warrant Certificate would have been entitled
upon such action if this Warrant Certificate had been exercised
immediately prior to such action.
4. Common Stock. (a) The Company covenants and agrees
that all shares of Common Stock of this Warrant Certificate
will, upon delivery, be duly and validly authorized and issued,
fully-paid and non-assessable.
(b) The Company covenants and agrees that it will at all
times reserve and keep available an authorized number of shares
of its Common Stock and other applicable securities sufficient to
permit the exercise in full of all outstanding options, warrants
and rights, including the Warrants.
5. Issuance of Certificates. As soon as possible after
full or partial exercise of this Warrant, the Company, at its
expense, will cause to be issued in the name of and delivered to
the holder of this Warrant, a certificate or certificates for the
number of fully paid and non-assessable shares of Common Stock to
which that holder shall be entitled on such exercise. No
fractional shares will be issued on exercise of this Warrant. If
on any exercise of this Warrant a fraction of a share results,
the Company will pay the cash value of that fractional share,
calculated on the basis of the Exercise Price. All such
certificates shall bear a restrictive legend to the effect that
the Shares represented by such certificate have not been
registered under the Securities Act of 1933, as amended, and the
Shares may not be sold or transferred in the absence of such
registration or an exemption therefrom, such legend to be
substantially in the form of the bold face language appearing on
Page 1 of this Warrant Certificate.
6. Disposition of Warrants or Shares. The holder of this
Warrant Certificate, each transferee hereof and any holder and
transferee of any Shares, by his or its acceptance thereof,
agrees that no public distribution of Warrants or Shares will be
made in violation of the provisions of the Securities Act of
1933, as amended, and the rules and regulations promulgated
thereunder (collectively, the "Act"). Furthermore, it shall be a
condition to the transfer of the Warrants that any transferee
thereof deliver to the Company his or its written agreement to
accept and be bound by all of the terms and conditions contained
in this Warrant Certificate.
7. Notices. Except as otherwise specified herein to the
contrary, all notices, requests, demands and other communications
required or desired to be given hereunder shall only be effective
if given in writing by certified or registered mail, return
receipt requested, postage prepaid, or by U. S. express mail
service, or by private overnight mail service (e.g. Federal
Express). Any such notice shall be deemed to have been given (a)
on the business day immediately subsequent to mailing, if sent by
U. S. express mail service or private overnight mail service, or
(b) three (3) business days following the mailing thereof, if
mailed by certified or registered mail, postage prepaid, return
receipt requested, and all such notices shall be sent to the
following addresses (or to such other address or addresses as a
party may have advised the other in the manner provided in this
Section 7):
If to the Company:
[Name]
Electrosource, Inc.
3800 Drossett Drive
Austin, TX 78744
If to the Holder:
Harlan P. Kleiman
Shoreline Pacific
591 Redwood Highway, Suite 2255
Mill Valley, CA 94941
8. Governing Law. This Warrant Certificate and all rights
and obligations hereunder shall be deemed to be made under and
governed by the laws of the State of California without giving
effect to the conflicts of laws provisions. The Holder hereby
irrevocably consents to the venue and jurisdiction of the State
and Federal Courts located in the State of California, County of
Marin.
9. Successors and Assigns. This Warrant Certificate shall
be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns.
10. Headings. The headings of various sections of this
Warrant Certificate have been inserted for reference only and
shall not be a part of this Certificate.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or by facsimile, by one
of its officers thereunto duly authorized.
ELECTROSOURCE, INC.
Date:_____________ By:____________________________
[Name and Title]
ELECTION TO PURCHASE
To Be Executed by the Holder
in Order to Exercise the Common Stock
Purchase Warrant Certificate
The undersigned Holder hereby irrevocably elects to exercise
_______ of the Warrants represented by this Common Stock Warrant
Certificate, and to purchase the shares of Common Stock issuable
upon the exercise of such Warrants and requests that certificates
for securities be issued in the name of:
_________________________________________________
(Please type or print name and address)
_________________________________________________
_________________________________________________
_________________________________________________
(Social Security or tax identification number)
and delivered to_________________________________________________
_________________________________________________________________
(Please type or print name and address)
and, if such number of Warrants shall not be all the Warrants
evidenced by this Common Stock Warrant Certificate, that a new
Common Stock Warrant Certificate for the balance of such Warrants
be registered in the name of, and delivered to, the Holder at the
address stated below.
In full payment of the purchase price with respect to the
Warrants exercised and transfer taxes, if any, the undersigned
hereby tenders payment of $__________ by check or money order
payable in United States currency to the order of Electrosource,
Inc.
[HOLDER]
Dated:___________________ By:___________________________
Name:
Title:
________________________________
(Address)
________________________________
________________________________
(Social Security or tax identification
number)
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
Electrosource, Inc./Buyer
October 10, 1995
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER
(THE "1933 ACT"), AND MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES (AS DEFINED IN REGULATION S OF THE 1933 ACT) OR TO,
OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN
REGULATION S OF THE 1933 ACT) EXCEPT PURSUANT TO REGISTRATION
UNDER OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
1933 ACT.
THIS OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT (hereinafter
the "Agreement") has been executed by the undersigned in
connection with the sale of certain shares of common stock
(hereinafter the "Shares") of Electrosource, Inc. (ELSI), 3800 B
Drossett Drive, Austin, Texas, a corporation organized under the
laws of Delaware (hereinafter "Seller") to [Buyer], located
[Address], a corporation organized under the laws of [area of
incorporation] (hereinafter "Buyer"). Seller and Buyer
(hereinafter collectively the "parties") each hereby represents,
warrants and agrees as follows:
Section 1
AGREEMENT TO SUBSCRIBE PURCHASE PRICE
1.1 Buyer hereby subscribes for [written amount of
shares] (#) Shares of (ELSI) common stock at ($___) U.S. per
share for an aggregate purchase price of [written dollar
amount] ($) U.S. payable in United States Dollars.
1.2 Buyer shall pay the purchase price by delivering
same day funds in United States Dollars to an escrow agent
or as otherwise agreed between the parties, to be delivered
to the order of Seller upon Delivery of the Shares.
1.3 This Agreement has been executed in connection
with an offering (the "Offering") by Seller of its common
stock (including the Shares) pursuant to Regulation S
("Regulation S") promulgated under the Securities Act of
1933, as amended (the "Securities Act"). Buyer will be
notified of the date of the conclusion of the Offering.
Section 2
BUYER'S REPRESENTATIONS
Buyer represents and warrants to Seller as follows:
2.1 Buyer is not a "U.S. Person" as defined by Rule
902 of Regulation S, was not organized under the laws of any
U.S. jurisdiction, and was not formed for the purpose of
investing in securities not registered under the Securities
Act;
2.2 At the time the buy order for this transaction was
originated, Buyer was outside the United States;
2.3 No offer to purchase the Shares was made in the
United States;
2.4 Buyer is either (a) purchasing the Shares for its
own account for investment purposes and not with a view
towards distribution, or (b) acting as agent for a principal
that has made the representations contained in Exhibit A
hereto;
2.5 All subsequent offers and sales of the Shares will
be made (a) outside the United States in compliance with
Rule 903 or Rule 904 of Regulation S, (b) pursuant to
registration of the Shares under the Securities Act, or (c)
pursuant to an exemption from such registration. Buyer
understands the conditions of the exemption from
registration afforded by Section 4(1) of the Securities Act
and acknowledges that there can be no assurance that it will
be able to rely on such exemption. In any case, Buyer will
not resell the shares to U.S. Persons or with the United
States until after the end of the forty (40) day period
commencing on the date of completion of the Offering (as
defined above) (the "Restricted Period");
2.6 Buyer agrees that it has not entered into and will
not enter into any short sales with respect to the common
stock of Seller at any time after the execution of this
Agreement by Buyer and prior to the expiration of the
Restricted Period. Buyer further agrees that, at all times
after the Restricted Period, it will keep its purchase of
the Shares confidential, except as required by law and
except as necessary in the ordinary course of Buyer's
business;
2.7 Buyer understands that the Shares are being
offered and sold to it in reliance on specific provisions of
federal and state securities laws and that Seller is relying
upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings
of Buyer set forth herein in order to determine the
applicability of such provisions. Accordingly, Buyer agrees
to notify Seller of any events which would cause the
representations and warranties of Buyer to be untrue or
breached at any time after the execution of this Agreement
by Buyer and prior to the expiration of the Restricted
Period;
2.8 This Agreement has been duly authorized, validly
executed, and delivered on behalf of Buyer and is a valid
and binding agreement enforceable in accordance with its
terms, subject to general principles of equity and to
bankruptcy or other laws affecting the enforcement of
creditors' rights generally;
2.9 Any offering documents received by Buyer include
statements to the effect that the Shares have not been
registered under the Securities Act and may not be offered
or sold in the United States or to U.S. Persons during the
Restricted Period;
2.10 Buyer, in making the decision to purchase the
Shares subscribed for, has relied upon independent
investigations made by it and has not relied on any
information or representations made by third parties;
2.11 In the event of resale of the Shares during the
Restricted Period, Buyer shall provide a written
confirmation or other written notice to any distributor,
dealer, or person receiving a selling concession, fee, or
other remuneration in respect of the Shares stating that
such purchaser is subject to the same restrictions on offers
and sales that apply to the undersigned, and shall require
that any such purchaser shall provide such written
confirmation or other notice upon resale during the
Restricted Period; and
2.12 Buyer has not taken any action that would cause
Seller to be subject to any claim for commission or other
fee or remuneration by any broker, finder, or other person
and Buyer hereby indemnifies Seller against any such claim
caused by the actions of Buyer or any of its employees or
agents.
Section 3
SELLER'S REPRESENTATIONS
Seller represents and warrants to Buyer as follows:
3.1 Seller is a "Domestic Issuer" and a "Reporting
Issuer," as such terms are defined by Rule 902 of Regulation
S. Seller has registered its common stock pursuant to
Section 12(b) or (g) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), is in full compliance with
all reporting requirements of either Section 13(a) or 15(d)
of the Exchange Act, and Seller's common stock trades on the
NASDAQ Small Cap Market;
3.2 Seller has furnished Buyer with copies of Seller's
most recent Annual Report on its Form 10-K filed with the
Securities and Exchange Commission, all Forms 10-Q and 8K
filed thereafter, and the use of process and risk factors,
prepared by Seller, which are attached hereto as Exhibit B;
3.3 Seller has not offered the Shares to any person in
the United States, any identifiable group of U.S. citizens
abroad, or to any U.S. Person;
3.4 At the time the buy order was originated, Seller
and/or its agents reasonably believed Buyer was outside the
United States and was not a U.S. Person;
3.5 Seller and/or its agents reasonably believe that
the sale of the Shares has not been prearranged with a Buyer
in the United States.
3.6 Seller has not conducted any "directed selling
efforts" with respect to the Shares nor has Seller conducted
any general solicitation (as that term is used in Regulation
D under the Securities Act) with respect to any of its
securities;
3.7 The Shares when issued and delivered will be duly
and validly authorized and issued, fully-paid and
nonassessable and will not subject the holders thereof to
personal liability by reason of being such holders. There
are no preemptive rights of any shareholder of Seller with
respect to the Shares;
3.8 This Agreement has been duly authorized, validly
executed and delivered on behalf of Seller and is a valid
and binding agreement in accordance with its terms, subject
to general principles of equity and to bankruptcy or other
laws affecting the enforcement of creditors' rights
generally;
3.9 The execution and delivery of this Agreement and
the consummation of the issuance of the Shares and the
transactions contemplated by this Agreement do not and will
not conflict with or result in a breach by Seller of any of
the terms or provisions of, or constitute a default under,
the articles of incorporation or bylaws of Seller, or any
indenture, mortgage, deed of trust or other material
agreement or instrument to which Seller is a party or by
which it or any of its properties or assets are bound, or
any existing applicable decree, judgment or order of any
court, Federal or State regulatory body, administrative
agency or other governmental body having jurisdiction over
Seller or any of its properties or assets;
3.10 Seller is not aware of any authorization, approval
or consent of any governmental body which is legally
required for the issuance and sale of the Shares as
contemplated by this Agreement;
3.11 Seller will instruct its transfer agent to issue
one or more share certificates representing the Shares
without restrictive legend in the name of Buyer and in such
denominations to be specified by Buyer prior to closing.
Seller further warrants that no instructions other than
these instructions, and instructions for a "stop transfer"
until the end of the Restricted Period, have been given to
the transfer agent and also warrants that the Shares shall
otherwise be freely transferable on the books and records of
Seller. Seller will notify the transfer agent of the date
of completion of the Offering and of the date of expiration
of the Restricted Period. Nothing in this section shall
affect in any way Buyer's obligations and agreement to
comply with all applicable securities laws upon resale of
the Shares;
3.12 Seller has taken and will take no action that will
affect in any way the running of the Restricted Period or
the ability of Buyer to freely resell the Shares in
accordance with applicable securities laws and this
Agreement; and
3.13 Seller will comply with all applicable securities
laws with respect to the sale of the Shares, including but
not limited to the filing of all reports required to be
filed in connection therewith with the Securities and
Exchange Commission or any stock exchange or the NASDAQ
stock market or any other regulatory authority.
Section 4
CLOSING
4.1 Share certificates shall be delivered to Buyer and
the funds therefor shall be delivered to Seller on
________________ or at such time to be mutually agreed.
Section 5
CONDITIONS TO CLOSING
5.1 Buyer understands that Seller's obligation to sell
the Shares is conditioned upon delivery into escrow or
otherwise as agreed between Buyer and Seller by Buyer of the
amount set forth in Section 1 hereof.
5.2 Seller understands that Buyer's obligation to
purchase the Shares is conditioned upon delivery of
certificate(s) representing shares of common stock without
restrictive legend as described herein and provision of an
opinion of counsel confirming the matters et out in Section
3.1, 3.7, 3.8, 3.9, and 3.10 above.
Section 6
GOVERNING LAW; INTERPRETATION
6.1 This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New
York. Facsimile signatures of this Agreement shall be
binding on all parties hereto. All terms used herein that
are defined in Regulation S under the Securities Act shall
have the meanings set forth therein.
IN WITNESS WHEREOF, this Agreement was duly executed on the
date first written above.
Official Signatory of Buyer:
Official Signatory of Seller:
Electrosource, Inc.
Michael G. Semmens
President
SUBSCRIPTION REGISTER
Purchaser No. Shares Amount
St. Andrews Investors Intl. 770,357 $1,000,000.42
Caledonian House P.O.Box 1043
Georgetown, Grand Cayman
Cayman Islands
Concord Capital Corporation Ltd. 400,000 519,240.00
Suite 194, 48 Par-la-ville Road
Hamilton HM 11, Bermuda
Shoreline Pacific
Institutional Finance
The Institutional Division
October 25, 1995 of Financial West Group
Via Facsimile
(512-445-0583)
Mr. Michael G. Semmens
Chairman
Electrosource, Inc.
3800 Drossett Drive
Austin, TX 78744
Dear Mr. Semmens:
We are writing to confirm our understanding with respect to the
placement of up to Five Million Dollars ($5,000,000) U.S.
principal amount of Convertible Debentures (the "Debentures"),
convertible into shares of common stock (the "Common Shares") of
Electrosource Inc. (ELSI) (the "Company"). The Debentures will
be convertible into Common Shares at the option of the holders
sixty (60) days after the closing of the purchase of the
Debentures (the "Closing") at a conversion price of twenty-five
percent (25%) off the Closing Price of the Common Shares. The
Debentures will bear interest at Eight percent (8%) per annum,
payable quarterly in arrears, on any unconverted portion thereof.
If a holder converts a Debenture during any quarter, the Company
will pay the holder the pro-rata portion of accrued interest on
the Debenture on the date of conversion. Any Debentures
remaining outstanding on the second anniversary of the purchase
thereof will be automatically converted into Common Shares on
such date. As used herein, the term "Closing Price" refers to
the average closing bid prices of the Common Shares as reported
by Bloomberg, L.P. over the five-day period ending on the day
prior to the conversion date in question.
The Company agrees to pay Shoreline Pacific, Institutional
Finance Division of Financial West Group ("Shoreline Pacific") a
commission of Eight percent (8%) of the principal amount of
Debentures sold, said fee to be deducted from the Company's gross
proceeds and paid to Shoreline Pacific from the escrow upon
closing. In addition, the Company will pay Shoreline Pacific
with 15,000 two (2) year warrants per million dollars of
Debentures sold, and the pro-rata portion of any amount that is
not a multiple of $1,000,000, payable to Shoreline Pacific or its
designee. The warrants will be issued at the Closing Price of
the Shares and will be in the form annexed hereto as Exhibit 1.
Our engagement shall be for a period (the "Engagement Period")
commencing on the date Shoreline Pacific receives written
approval, in the form attached hereto as Attachment "A," of the
form of subscription documents, and extending through and
including Ten (10) business days from such date. There may be
multiple closings within the Engagement Period (each a
"Closing").
During the Engagement Period, we shall have the exclusive right
to identify buyers for the Debentures. We will also assist in
arrangements for the Closings. Our identification and
solicitation of potential investors will be conducted in
compliance with Rule 903 of Regulation S, promulgated under the
Securities Act of 1933, as amended, and in compliance with the
laws of each jurisdiction in which the offering is conducted. We
will use no offering materials other than your publicly-filed
reports and such other materials, including a subscription
agreement, as you shall have approved. Each investor will be
required to execute a standard form of subscription agreement,
which will include, without limitation, representations regarding
domicile, method of offering, and reliance only on specified
offering materials.
In the event this placement and any other placement completed by
Shoreline Pacific for the Company, is completed in the amount of
at least $4,000,000, you agree not to offer any other shares of
the Company's common stock, or any other securities convertible
into shares of the Company's common stock, pursuant to a
discounted transaction for 90 days from the end of the Engagement
Period. If you wish to make any further sales within that 90-day
period, you will offer the stock on a right-of-first-refusal
basis to Shoreline Pacific, which will have five (5) business
days from the time of the offer to accept or reject it. If
Shoreline Pacific rejects the offer, the Company shall be
permitted to proceed with the additional offering.
You hereby agree to the foregoing, agree to use your reasonable
best efforts to assist our participation in this transaction, and
agree not to take any actions which will be materially
detrimental to our selling efforts. You undertake and represent
to us that the number of Debentures necessary to fulfill the
placement referred to herein will be available at the Closings
and that the number of Common Shares issuable upon conversion of
the Preferred Shares will be available upon each conversion date.
You further agree, in consideration of our identification of
buyers for the Debentures as set out above, to be fully bound by
the Indemnification Provisions which are attached hereto as
Attachment "B" and which are hereby incorporated by reference.
Please acknowledge by your signature below that, for a period of
two (2) years after the date of this letter agreement, you will
not contact any purchaser of Debentures for the purpose of
entering into a securities transaction with such institution
unless such transaction is effected through Shoreline Pacific
upon terms acceptable to Shoreline Pacific.
We look forward to working with you,
Sincerely, Agreed and Accepted:
/s/ /s/
Harlan P. Kleiman Michael G. Semmens
Executive Vice President Chairman
Institutional Sales Electrosource Inc.
Date:
LETTER AGREEMENT #2, Attachment A
APPROVAL
The undersigned hereby approves the use of the Form of
Offshore Convertible Securities Subscription Agreement attached
hereto as Exhibit 1 and the Form of Debenture attached hereto as
Exhibit 2 in connection with the placement of Convertible
Debentures of Electrosource Inc. by Shoreline Pacific,
Institutional Finance Divisions of Financial West Group
("Shoreline Pacific") referred to in the Engagement Letter
between Electrosource and Shoreline Pacific dated October 25,
1995. This Approval may be sent to Shoreline Pacific by
facsimile to (415) 380-8911 and shall be effective upon
transmission thereof, or may be sent by any other method so long
as Shoreline Pacific receives proof of the date of such delivery.
The Ten (10) business day period referred to in the Engagement
Letter will commence following receipt of this Approval by
Shoreline Pacific, in the manner set forth above. In the event
this Approval is not received by Shoreline Pacific until after
12:00 noon Pacific Standard Time, the Engagement Period will
commence the following day.
/s/
Michael G. Semmens
Chairman
Electrosource Inc.
Date:
LETTER AGREEMENT #2, Attachment B
Indemnification Provisions
Electrosource, Inc. (the "Company") agrees to indemnify and
hold harmless Shoreline Pacific, Institutional Finance Division
of Financial West Group ("Shoreline Pacific") and its agents,
employees, affiliates, control persons, and successors and
assignees (collectively, the "Indemnitees" and each individually
an "Indemnitee") from and against any and all losses, claims,
damages, liabilities, obligations, penalties, judgments, awards,
costs, expenses, and disbursements (and any and all actions,
suits, proceedings, and investigations in respect thereof) and
any and all legal and other costs, expenses, or disbursements
relating thereto, including, without limitation, any loss
occasioned by the Indemnitees or prospective purchasers of the
Shares identified by Shoreline Pacific by reason of the Shares
not being available upon any Closing, for whatever reason, and
including the costs, expenses, and disbursements, as and when
incurred, of investigating, preparing, or defending any such
action, suit, proceeding, or investigation (whether or not in
connection with litigation in which any Indemnitee is a party),
directly or indirectly, caused by, relating to, based upon,
arising out of or in connection with (a) any Indemnitee acting
for the Company, including, without limitation, any act or
omission by any Indemnitee in connection with its acceptance of
or the performance or non-performance of the Indemnitee's
obligation under the letter agreement dated October 25, 1995,
between Shoreline Pacific and the Company, as it may be amended
from time to time (the "Agreement"), or (b) any untrue statement
or alleged untrue statement of a material fact contained in, or
omissions or alleged omissions from, information furnished by the
Company to any Indemnitee or any prospective purchaser, provided,
however, such indemnity agreement shall not apply to any portion
of any such loss, claim, damage, obligation, penalty, judgment,
award, liability, cost, expense or disbursement to the extent it
is found in a final judgment by a court of competent jurisdiction
(not subject to further appeal) to have resulted primarily and
directly from the gross negligence or willful misconduct of the
Indemnitee seeking indemnification hereunder. The Company also
agrees that the Indemnitees shall not have any liability (whether
direct or indirect, in contract or tort or otherwise) to the
Company or to any person (including, without limitation, Company
shareholders) claiming through the Company for or in connection
with the engagement of Shoreline Pacific or for or in connection
with the acts or omissions of any Indemnitee except to the extent
that any such liability is found in a final judgment by a court
of competent jurisdiction (not subject to further appeal) to have
resulted primarily and directly from the gross negligence or
willful misconduct of the Indemnitee seeking indemnification.
These Indemnification Provisions shall be in addition to any
liability which the Company may otherwise have to the Indemnitees
or the buyer in the transaction contemplated by the Agreement.
If any action, suit, proceeding or investigation is
commenced, as to which any Indemnitee proposes to demand
indemnification, the Indemnitee shall notify the Company with
reasonable promptness; provided, however, that any failure by an
Indemnitee to notify the Company shall not relieve the Company
from its obligations hereunder. Each Indemnitee shall have the
right to retain counsel of its own choice to represent it, and
the Company shall pay the fees, expenses and disbursements of
such counsel; and such counsel shall, to the extent consistent
with its professional responsibilities, cooperate with the
Company and any counsel designated by the Company. The Company
shall be liable for any payment of any award or settlement of any
claim against any Indemnitee made with the Company's written
consent, which consent shall not be unreasonably withheld. The
company shall not, without the prior written consent of the
Indemnitee seeking indemnification, settle or compromise any
claim, or permit a default or consent to the entry of any
judgment in respect thereof, unless such settlement, compromise
or consent includes, as an unconditional term thereof, the giving
by the claimant to the Indemnitee seeking indemnification an
unconditional release from all liability in respect of such
claim.
In order to provide for just and equitable contribution, if
a claim for indemnification pursuant to these Indemnification
Provisions is made but is found in a final judgment by a court of
competent jurisdiction (not subject to further appeal) that such
indemnification may not be enforced in such case, even though the
express provisions hereof provide for indemnification in such
case, then the Company, on the one hand, and the Indemnitees on
the other hand, shall contribute to the losses, claims, damages,
obligations, penalties, judgments, awards, liabilities, costs,
expenses and disbursements to which the indemnified persons may
be subject in accordance with the relative benefits received by
the Company, on the one hand, and the Indemnitees, on the other
hand, in connection with the statements, acts or omissions which
resulted in such losses, claims, damages, obligations, penalties,
judgments, awards, liabilities, costs, expenses and
disbursements, and the relevant equitable considerations shall
also be considered. No person found liable for a fraudulent
misrepresentation shall be entitled to contribution from any
person who is not also found liable for such fraudulent
misrepresentation. Notwithstanding the foregoing, the
Indemnitees shall not be obligated to contribute any amount
hereunder that exceeds the amount of fees actually received by
Shoreline Pacific pursuant to the Agreement.
Neither termination nor completion of the engagement of
Shoreline Pacific referred to above shall affect these
Indemnification Provisions, which shall then remain operative and
in full force and effect.
LETTER AGREEMENT #2, Exhibit 1
NEITHER THIS WARRANT NOR ANY SHARES OF COMMON STOCK ISSUABLE UPON
THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS
PROMULGATED THEREUNDER (THE "SECURITIES ACT"). THIS WARRANT AND
THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT
BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
REGISTRATION UNDER THE SECURITIES ACT OR SUCH OFFER, SALE OR
TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
Dated: October ____, 1995
[Number ( )] Warrants
to Purchase [Number ( )] Shares
of Common Stock, $0.10 Par Value Per Share
ELECTROSOURCE, INC., a Delaware corporation (the "Company"),
hereby certifies that [Holder], its permissible transferees,
designees, successors and assigns (collectively, the "Holder"),
for value received, is entitled to purchase from the Company at
any time commencing on October __, 1995 up to [Number] ( ) shares
(the "Shares") of the Company's common stock, par value $0.10 per
share (the "Common Stock"), at [$_____] per share (the "Exercise
Price").
1. Exercise of Warrants. Upon presentation and surrender
of this Common Stock Purchase Warrant Certificate ("Warrant
Certificate" or "this Certificate"), with the attached Purchase
Form duly executed, at the principal office of the Company at
3800 Drossett Drive, Austin, TX 78744, together with a check
payable to the Company in the amount of the Exercise Price
multiplied by the number of Shares being purchased, the Company,
or the Company's Transfer Agent as the case may be, shall deliver
to the holder hereof, certificates of Common Stock which in the
aggregate represent the number of Shares being purchased. All or
less than all of the Warrants represented by this Certificate may
be exercised and, in case of the exercise of less than all, the
Company, upon surrender hereof, will deliver to the holder a new
Warrant Certificate or Certificates of like tenor and dated the
date hereof entitling said holder to purchase the number of
Shares represented by this Certificate which have not been
exercised and to receive Registration Rights with respect to such
Shares.
2. Exchange and Transfer. This Certificate at any time
prior to the exercise hereof, upon presentation and surrender to
the Company, may be exchanged, alone or with other Certificates
of like tenor registered in the name of the same holder, for
another Certificate or Certificates of like tenor in the name of
such holder exercisable for the aggregate number of Shares as the
Certificate or Certificates surrendered.
3. Rights and Obligations of Holders of this Certificate.
(a) The holder of this Certificate shall not, by virtue hereof,
be entitled to any rights of a stockholder in the Company, either
at law or in equity; provided, however, that in the event any
certificate representing shares of Common Stock or other
securities is issued to the holder hereof upon exercise of some
or all of the Warrants, such holder shall, for all purposes, be
deemed to have become the holder of record of such Common Stock
on the date on which this Certificate, together with a duly
executed Purchase Form, was surrendered and payment of the
aggregate Exercise Price was made, irrespective of the date of
delivery of such share certificate.
(b) In case the Company shall (i) pay a dividend in Common
Stock or make a distribution in Common Stock, (ii) subdivide its
outstanding Common Stock into a greater number of shares, or
(iii) combine its outstanding Common Stock into a smaller number
of shares (including a recapitalization in connection with a
consolidation or merger in which the Company is the continuing
corporation), then (x) the Exercise Price on the record date of
such division or the effective date of such action shall be
adjusted by multiplying such Exercise Price by a fraction, the
numerator of which is the number of shares of Common Stock
outstanding immediately before such event and the denominator of
which is the number of shares of Common Stock outstanding
immediately after such event and (y) the number of shares of
Common Stock for which this Warrant Certificate may be exercised
immediately before such event shall be adjusted by multiplying
such number by a fraction, the numerator of which is the Exercise
Price immediately before such event and the denominator of which
is the Exercise Price immediately after such event.
(c) In case of any consolidation or merger of the Company
with or into another corporation (other than any consolidation or
merger in which the Company is the continuing corporation and
which does not result in any reclassification of the outstanding
shares of Common Stock or the conversion of such outstanding
shares of Common Stock into shares or other stock or other
securities or property), or the sale or transfer of the property
of the Company as an entirety or substantially as an entirety,
there shall be deliverable upon exercise of the Warrant
Certificate (in lieu of the number of shares of Common Stock
theretofore deliverable) the number of shares of stock or other
securities or property to which a holder of the number of shares
of Common Stock which would otherwise have been deliverable upon
the exercise of this Warrant Certificate would have been entitled
upon such action if this Warrant Certificate had been exercised
immediately prior to such action.
4. Common Stock. (a) The Company covenants and agrees
that all shares of Common Stock of this Warrant Certificate
will, upon delivery, be duly and validly authorized and issued,
fully-paid and non-assessable.
(b) The Company covenants and agrees that it will at all
times reserve and keep available an authorized number of shares
of its Common Stock and other applicable securities sufficient to
permit the exercise in full of all outstanding options, warrants
and rights, including the Warrants.
5. Issuance of Certificates. As soon as possible after
full or partial exercise of this Warrant, the Company, at its
expense, will cause to be issued in the name of and delivered to
the holder of this Warrant, a certificate or certificates for the
number of fully paid and non-assessable shares of Common Stock to
which that holder shall be entitled on such exercise. No
fractional shares will be issued on exercise of this Warrant. If
on any exercise of this Warrant a fraction of a share results,
the Company will pay the cash value of that fractional share,
calculated on the basis of the Exercise Price. All such
certificates shall bear a restrictive legend to the effect that
the Shares represented by such certificate have not been
registered under the Securities Act of 1933, as amended, and the
Shares may not be sold or transferred in the absence of such
registration or an exemption therefrom, such legend to be
substantially in the form of the bold face language appearing on
Page 1 of this Warrant Certificate.
6. Disposition of Warrants or Shares. The holder of this
Warrant Certificate, each transferee hereof and any holder and
transferee of any Shares, by his or its acceptance thereof,
agrees that no public distribution of Warrants or Shares will be
made in violation of the provisions of the Securities Act of
1933, as amended, and the rules and regulations promulgated
thereunder (collectively, the "Act"). Furthermore, it shall be a
condition to the transfer of the Warrants that any transferee
thereof deliver to the Company his or its written agreement to
accept and be bound by all of the terms and conditions contained
in this Warrant Certificate.
7. Notices. Except as otherwise specified herein to the
contrary, all notices, requests, demands and other communications
required or desired to be given hereunder shall only be effective
if given in writing by certified or registered mail, return
receipt requested, postage prepaid, or by U. S. express mail
service, or by private overnight mail service (e.g. Federal
Express). Any such notice shall be deemed to have been given (a)
on the business day immediately subsequent to mailing, if sent by
U. S. express mail service or private overnight mail service, or
(b) three (3) business days following the mailing thereof, if
mailed by certified or registered mail, postage prepaid, return
receipt requested, and all such notices shall be sent to the
following addresses (or to such other address or addresses as a
party may have advised the other in the manner provided in this
Section 7):
If to the Company:
[Name]
Electrosource, Inc.
3800 Drossett Drive
Austin, TX 78744
If to the Holder:
Harlan P. Kleiman
Shoreline Pacific
591 Redwood Highway, Suite 2255
Mill Valley, CA 94941
8. Governing Law. This Warrant Certificate and all rights
and obligations hereunder shall be deemed to be made under and
governed by the laws of the State of California without giving
effect to the conflicts of laws provisions. The Holder hereby
irrevocably consents to the venue and jurisdiction of the State
and Federal Courts located in the State of California, County of
Marin.
9. Successors and Assigns. This Warrant Certificate shall
be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns.
10. Headings. The headings of various sections of this
Warrant Certificate have been inserted for reference only and
shall not be a part of this Certificate.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or by facsimile, by one
of its officers thereunto duly authorized.
ELECTROSOURCE, INC.
Date:_________________ By:______________________________
[Name and Title]
ELECTION TO PURCHASE
To Be Executed by the Holder
in Order to Exercise the Common Stock
Purchase Warrant Certificate
The undersigned Holder hereby irrevocably elects to exercise
_______ of the Warrants represented by this Common Stock Warrant
Certificate, and to purchase the shares of Common Stock issuable
upon the exercise of such Warrants and requests that certificates
for securities be issued in the name of:
_________________________________________________
(Please type or print name and address)
_________________________________________________
_________________________________________________
_________________________________________________
(Social Security or tax identification number)
and delivered to ________________________________________________
_________________________________________________________________
(Please type or print name and address)
and, if such number of Warrants shall not be all the Warrants
evidenced by this Common Stock Warrant Certificate, that a new
Common Stock Warrant Certificate for the balance of such Warrants
be registered in the name of, and delivered to, the Holder at the
address stated below.
In full payment of the purchase price with respect to the
Warrants exercised and transfer taxes, if any, the undersigned
hereby tenders payment of $__________by check or money order
payable in United States currency to the order of Electrosource,
Inc.
[HOLDER]
Dated:________________ By:_________________________________
Name:
Title:
____________________________________
(Address)
___________________________________
___________________________________
(Social Security or tax identification
number)
ATTACHMENT A, EXHIBIT 1
OFFSHORE CONVERTIBLE SECURITIES SUBSCRIPTION AGREEMENT
Electrosource, Inc./Buyer
[Date]
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER
(THE "1933 ACT"), AND MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES (AS DEFINED IN REGULATION S OF THE 1933 ACT) OR TO,
OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN
REGULATION S OF THE 1933 ACT) EXCEPT PURSUANT TO REGISTRATION
UNDER OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
1933 ACT.
THIS OFFSHORE CONVERTIBLE SECURITIES SUBSCRIPTION AGREEMENT
(hereinafter the "Agreement") has been executed by the
undersigned in connection with the sale of Convertible Debentures
(hereinafter the "Debentures"), convertible into shares of common
stock (hereinafter the "Shares") of Electrosource, Inc. (ELSI),
3800 B Drossett Drive, Austin, Texas, 78744, a corporation
organized under the laws of Delaware (hereinafter "Seller") to
[Buyer], located [Address], a corporation organized under the
laws of [area of incorporation] (hereinafter "Buyer"). Seller
and Buyer (hereinafter collectively the "parties") each hereby
represents, warrants and agrees as follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE
(i) Buyer hereby subscribes for [written amount of
dollars] (#) U.S. principal amount of Debentures,
convertible into shares of ELSI common stock in accordance
with the terms set forth in the form of Debenture attached
as Exhibit A to this Agreement.
(ii) Buyer shall pay the purchase price by delivering
same day funds in United States Dollars to an escrow agent
or as otherwise agreed between the parties, to be delivered
to the order of Seller upon Delivery of the Debentures.
(iii) This Agreement has been executed in
connection with an offering (the "Offering") by Seller of
the Debentures pursuant to Regulation S ("Regulation S")
promulgated under the Securities Act of 1933, as amended
(the "Securities Act"). Buyer will be notified of the date
of the conclusion of the Offering.
2. BUYER'S REPRESENTATIONS
Buyer represents and warrants to Seller as follows:
(i) Buyer is not a "U.S. Person" as defined by
Rule 902 of Regulation S, was not organized under the
laws of any U.S. jurisdiction, and was not formed for
the purpose of investing in securities not registered
under the Securities Act;
(ii) At the time the buy order for this
transaction was originated, Buyer was outside the
United States;
(iii) No offer to purchase the Debentures was
made in the United States;
(iv) Buyer is either (a) purchasing the Debentures
for its own account for investment purposes and not
with a view towards distribution, or (b) acting as
agent for a principal that has made the representations
contained in Exhibit B hereto;
(v) All subsequent offers and sales of the
Debentures or the Shares will be made (a) outside the
United States in compliance with Rule 903 or Rule 904
of Regulation S, (b) pursuant to registration of the
Debentures or the Shares, respectively, under the
Securities Act, or (c) pursuant to an exemption from
such registration. Buyer understands the conditions of
the exemption from registration afforded by Section
4(1) of the Securities Act and acknowledges that there
can be no assurance that it will be able to rely on
such exemption. In any case, Buyer will not resell the
Debentures or the Shares to U.S. Persons or within the
United States until after the end of the forty (40) day
period commencing on the date of completion of the
Offering (as defined above) (the "Restricted Period");
(vi) Buyer agrees not to enter into any short
sales with respect to the common stock of Seller at any
time after the execution of this Agreement by Buyer and
prior to the expiration of the Restricted Period.
Buyer further agrees that, at all times after the
execution of this Agreement by Buyer and prior to the
expiration of the Restricted Period, it will keep its
purchase of the Debentures confidential, except as
required by law and except as necessary in the ordinary
course of Buyer's business;
(vii) Buyer understands that the Debentures
are being offered and sold to it in reliance on
specific provisions of federal and state securities
laws and that Seller is relying upon the truth and
accuracy of the representations, warranties,
agreements, acknowledgments and understandings of Buyer
set forth herein in order to determine the
applicability of such provisions. Accordingly, Buyer
agrees to notify Seller of any events which would cause
the representations and warranties of Buyer to be
untrue or breached at any time after the execution of
this Agreement by Buyer and prior to the expiration of
the Restricted Period;
(viii) This Agreement has been duly authorized,
validly executed, and delivered on behalf of Buyer and
is a valid and binding agreement enforceable in
accordance with its terms, subject to general
principles of equity and to bankruptcy or other laws
affecting the enforcement of creditors' rights
generally;
(ix) Any offering documents received by Buyer
include statements to the effect that neither the
Debentures nor the Shares have been registered under
the Securities Act and such securities may not be
offered or sold in the United States or to U.S. Persons
during the Restricted Period;
(x) Buyer, in making the decision to purchase the
Debentures subscribed for, has relied upon independent
investigations made by it and has not relied on any
information or representations made by third parties;
(xi) In the event of resale of the Debentures or
the Shares during the Restricted Period, Buyer shall
provide a written confirmation or other written notice
to any distributor, dealer, or person receiving a
selling concession, fee, or other remuneration in
respect of the Debentures or the Shares stating that
such purchaser is subject to the same restrictions on
offers and sales that apply to the undersigned, and
shall require that any such purchaser shall provide
such written confirmation or other notice upon resale
during the Restricted Period; and
(xii) Buyer has not taken any action that
would cause Seller to be subject to any claim for
commission or other fee or remuneration by any broker,
finder, or other person and Buyer hereby indemnifies
Seller against any such claim caused by the actions of
Buyer or any of its employees or agents.
3. SELLER'S REPRESENTATIONS
Seller represents and warrants to Buyer as follows:
(i) Seller is a "Domestic Issuer" and a
"Reporting Issuer," as such terms are defined by Rule
902 of Regulation S. Seller has registered its common
stock pursuant to Section 12(b) or (g) of the
Securities Exchange Act of 1934, as amended (the
"Exchange Act"), is in full compliance with all
reporting requirements of either Section 13(a) or 15(d)
of the Exchange Act, and Seller's common stock trades
on the NASDAQ Small Cap Market;
(ii) Seller has furnished Buyer with copies of
Seller's most recent Annual Report on its Form 10-K
filed with the Securities and Exchange Commission and
all Forms 10-Q and 8K filed thereafter;
(iii) Seller has not offered the Debentures to
any person in the United States, any identifiable group
of U.S. citizens abroad, or to any U.S. Person;
(iv) At the time the buy order was originated,
Seller reasonably believed Buyer was outside the United
States and was not a U.S. Person;
(v) Seller reasonably believes that the sale of
Debentures has not been prearranged with a Buyer in the
United States.
(vi) Seller has not conducted any "directed
selling efforts" with respect to the Debentures nor has
Seller conducted any general solicitation (as that term
is used in Regulation D under the Securities Act) with
respect to any of its securities;
(vii) The Debentures and the Shares when
issued and delivered will be duly and validly
authorized and issued, fully-paid and nonassessable and
will not subject the holders thereof to personal
liability by reason of being such holders. There are
no preemptive rights of any shareholder of Seller with
respect to the Debentures or the Shares;
(viii) This Agreement has been duly authorized,
validly executed and delivered on behalf of Seller and
is a valid and binding agreement in accordance with its
terms, subject to general principles of equity and to
bankruptcy or other laws affecting the enforcement of
creditors' rights generally;
(ix) The execution and delivery of this Agreement
and the consummation of the issuance of the Debentures
and the Shares and the transactions contemplated by
this Agreement do not and will not conflict with or
result in a breach by Seller of any of the terms or
provisions of, or constitute a default under, the
articles of incorporation or bylaws of Seller, or any
indenture, mortgage, deed of trust or other material
agreement or instrument to which Seller is a party or
by which it or any of its properties or assets are
bound, or any existing applicable decree, judgment or
order of any court, Federal or State regulatory body,
administrative agency or other governmental body having
jurisdiction over Seller or any of its properties or
assets;
(x) Seller is not aware of any authorization,
approval or consent of any governmental body which is
legally required for the issuance and sale of the
Debentures as contemplated by this Agreement;
(xi) Seller will issue one or more certificates
representing the Debentures in the name of Buyer and in
such denominations to be specified by Buyer prior to
closing. Upon conversion of the Debentures, Seller
will issue one or more certificates representing
theShares in the name of Buyer without a restrictive
legend and in such denominations to be specified by
Buyer prior to conversion. Seller further warrants
that no instructions other than these instructions, and
instructions for a "stop transfer" until the end of the
Restricted Period, have been given to the transfer
agent and also warrants that the Debentures and the
Shares shall otherwise be freely transferable by the
Buyer on the books and records of Seller subject to
compliance with Federal and State securities laws.
Seller will notify the transfer agent of the date of
completion of the Offering and of the date of
expiration of the Restricted Period. Nothing in this
section shall affect in any way Buyer's obligations and
agreement to comply with all applicable securities laws
upon resale of the Debentures or the Shares;
(xii) Seller has taken and will take no action
that will affect in any way the running of the
Restricted Period or the ability of Buyer to freely
resell the Debentures or the Shares in accordance with
applicable securities laws and this Agreement; and
(xiii) Seller will comply with all applicable
securities laws with respect to the sale of the
Debentures and the Shares, including but not limited to
the filing of all reports required to be filed in
connection therewith with the Securities and Exchange
Commission or any stock exchange or the NASDAQ stock
market or any other regulatory authority.
4. CLOSING. Debenture certificates shall be delivered to
Buyer and the funds therefor shall be delivered to Seller on
Friday, November 3, 1995 or at such time to be mutually
agreed.
5. CONDITIONS TO CLOSING.
(i) Buyer understands that Seller's obligation to
sell the Debentures is conditioned upon delivery into
escrow or otherwise as agreed between Buyer and Seller
by Buyer of the amount set forth in Section 1 hereof.
(ii) Seller understands that Buyer's obligation to
purchase the Debentures is conditioned upon delivery of
certificate(s) representing Debentures as described
herein and provision of an opinion of counsel
confirming the matters et out in Section 3(i), (vii),
(viii), (ix), and (x) above.
6. GOVERNING LAW; INTERPRETATION. This Agreement shall be
governed by and interpreted in accordance with the laws of
the State of New York. Facsimile signatures of this
Agreement shall be binding on all parties hereto. All terms
used herein that are defined in Regulation S under the
Securities Act shall have the meanings set forth therein.
IN WITNESS WHEREOF, this Agreement was duly executed on the
date first written above.
Official Signatory of Buyer:
Official Signatory of Seller:
Electrosource, Inc.
Michael G. Semmens
President
SUBSCRIPTION AGREEMENT, EXHIBIT A
8% Convertible Debenture Due November __, 1997
See Attachment A, Exhibit 2
ATTACHMENT A, Exhibit 2
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE
RULES AND REGULATIONS PROMULGATED THEREUNDER (THE "1933 ACT"),
AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO OR
FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS (AS SUCH TERMS ARE
DEFINED IN REGULATION S UNDER THE 1933 ACT), FOR A PERIOD OF
FORTY (40) DAYS AFTER COMPLETION OF THE OFFERING PURSUANT TO
WHICH THESE DEBENTURES WERE ISSUED, AND THEREAFTER MAY ONLY BE
OFFERED OR SOLD PURSUANT TO REGISTRATION UNDER OR AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT.
8% CONVERTIBLE DEBENTURE DUE November____, 1997
$___________ November [ ], 1995
Number ____
FOR VALUE RECEIVED, Electrosource, Inc., a Delaware
corporation (the "Company"), hereby promises to pay to
_______________________, or registered assigns (the "Holder") on
November____, 1997 (the "Maturity Date"), the principal amount of
______________________________Dollars ($___________), and to pay
interest on the principal amount hereof, in such amounts, at such
times and on such terms and conditions as are specified herein.
Article 1. Interest
The Company shall pay interest on the unpaid principal
amount of this Debenture (this "Debenture") at the rate of Eight
Percent (8%) per year, payable quarterly in arrears until the
principal hereof is paid in full or has been converted. Interest
on this Debenture shall accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from
[date of issuance]. Interest shall be computed on the basis of a
360-day year of 12 30-day months. If the Holder shall convert
this Debenture during any quarter, the Company shall pay to the
Holder, upon conversion, the pro-rata portion of accrued interest
payable through the conversion date.
Article 2. Method of Payment
This Debenture must be surrendered to the Company in order
for the Holder to receive payment of the principal amount hereof.
The Company shall pay the principal of and interest on this
Debenture in United States dollars. However, the Company may pay
principal and interest by a check payable in such money. The
Company may draw a check for the payment of interest to the order
of the Holder of this Note and mail it to the Holder's address as
shown on the Register (as defined in Section 7.2 below).
Interest and principal payments shall be subject to withholding
under applicable United States Federal Internal Revenue Service
Regulations.
Article 3. Conversion
Section 3.1. Conversion Privilege
(a) The Holder of this Debenture shall have the right, at
its option, to convert it into shares of common stock, par value
$0.10 per share, of the Company ("Common Stock") at any time
which is before the close of business on the Maturity Date,
except as set forth in Section 3.1(c) below. The number of
shares of Common Stock issuable upon the conversion of this
Debenture is determined by dividing the principal amount hereof
to be converted plus all accrued interest thereon minus any
required withholding by the conversion price in effect on the
conversion date (as defined in paragraph (b) of this Section 3.1
below) and rounding the result to the nearest 1/100th of a share.
On conversion, no payment of or adjustment (other than as
provided in the previous sentence) for accrued interest shall be
made whether or not such conversion occurs before, on or after an
interest payment date.
(b) The conversion price is Seventy Five Percent (75%) of
the current market price of the Common Stock on the conversion
date.
(c) Less than all of the principal amount of this Debenture
may be converted into Common Stock if the portion converted is
$10,000 or a whole multiple of $10,000 and the provisions of this
Article 3 that apply to the conversion of all of the Debenture
also apply to the conversion of a portion of it. All accrued
interest on this Debenture shall be added to the amount converted
if less than all of the principal amount of this Debenture is
converted and shall be deemed to be paid and discharged thereby.
This Debenture may not be converted until Sixty (60) days
following the closing of the purchase of this Debenture.
(d) In the event any Debentures remain outstanding on the
second anniversary of the date hereof, the unconverted portion of
such Debentures will automatically be converted into shares of
Common Stock on such date in the manner set forth in this Section
3.1.
Section 3.2. Conversion Procedure. To convert this
Debenture into Common Stock, the Holder must (a) complete and
sign the Notice of Conversion attached hereto, (b) surrender the
Debenture to the Company, (c) furnish appropriate endorsements
and transfer documents if so requested by the Company and (d)
subject to Section 3.4 pay any transfer or similar tax if
required by the Company. The date upon which all of the
foregoing requirements are satisfied is the conversion date.
Within five business days thereafter, the Company shall deliver a
certificate for the number of full shares of Common Stock
issuable upon the conversion and a check for any fraction of a
share. The person in whose name the certificate of Common Stock
is to be registered shall be treated as a shareholder of record
on and after the conversion date. No payment or adjustment shall
be made for accrued interest on a converted Debenture whether the
conversion date is on, at or after an interest payment date. If
one person converts more than one Debenture at the same time, the
number of full shares issuable upon the conversion shall be based
on the total principal amount of Debentures converted. Upon
surrender of a Debenture that is to be converted in part, the
Company shall issue to the Holder a new Debenture equal in
principal amount to the unconverted portion of the Debenture
surrendered.
Section 3.3. Fractional Shares. The Company shall not
issue a fractional share of Common Stock upon the conversion of
this Debenture. Instead, the Company shall pay in lieu of any
fractional share the cash value thereof at the then current
market price of the Common Stock as determined under Section 3.7
below.
Section 3.4. Taxes on Conversion. The Company shall pay
any documentary, stamp or similar issue or transfer tax due on
the issue of shares of Common Stock upon the conversion of this
Debenture. However, the Holder shall pay any such tax which is
due because the shares are issued in a name other than its name.
Section 3.5. Company to Reserve Stock. The Company shall
reserve out of its authorized but unissued Common Stock or Common
Stock held in treasury enough shares of Common Stock to permit
the conversion of this Debenture. All shares of Common Stock
which may be issued upon the conversion hereof shall be fully
paid and nonassesssable.
Section 3.6. Restrictions on Transfer. This Debenture and
the Common Stock issuable upon the conversion hereof have not
been registered under the Securities Act of 1933 (the "Act") and
have been sold pursuant to Regulation S under the Act
("Regulation S"). The Debentures may not be transferred or
resold in the United States, or to a U.S. Person, or to or for
the account or benefit of a U.S. Person (as defined in Regulation
S) for a period of Forty (40) days from the date hereof and
thereafter may only be offered or sold pursuant to registration
under or an exemption from the Act.
Section 3.7. Current Market Price.
(a) In Sections 3.1 and 3.3, the current market price per
share of Common Stock on any date is the average of the quoted
prices of the Common Stock for five consecutive trading days
ending on the trading day before the date in question.
(b) As used in this Section 3.7, the term quoted price
shall mean (i) the closing bid prices thereof on any such trading
date, as reported by Bloomberg, L.P. or (ii) in the event the
Common Stock is not reported on such system, the fair market
value of the Common Stock as determined by the Board of Directors
of the Company in its good faith judgment.
Section 3.8. Mergers, Etc. If the Company merges or
consolidates with another corporation or sells or transfers all
or substantially all of its assets to another person and the
holders of the Common Stock are entitled to receive stock,
securities or property in respect of or in exchange for Common
Stock, then as a condition of such merger, consolidation, sale or
transfer, the Company and any such successor, purchaser or
transferee shall amend this Debenture to provide that it may
thereafter be converted on the terms and subject to the
conditions set forth above into the kind and amount of stock,
securities or property receivable upon such merger,
consolidation, sale or transfer by a holder of the number of
shares of Common Stock into which this Debenture might have been
converted immediately before such merger, consolidation, sale or
transfer, subject to adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for
in this Article 3.
Article 4. Mergers
The Company shall not consolidate or merge into, or transfer
all or substantially all of its assets to, any person, unless
such person assumes the obligations of the Company under this
Debenture and immediately after such transaction no Event of
Default exists. Any reference herein to the Company shall refer
to such surviving or transferee corporation and the obligations
of the Company shall terminate upon such assumption.
Article 5. Reports
The Company will mail to the Holder hereof at its address as
shown on the Register a copy of any annual, quarterly or current
report that it files with the Securities and Exchange Commission
promptly after the filing thereof and a copy of any annual,
quarterly or other report or proxy statement that it gives to its
shareholders generally at the time such report or statement is
sent to shareholders.
Article 6. Defaults and Remedies
Section 6.1. Events of Default. An "Event of Default"
occurs if (a) the Company does not make the payment of the
principal of this Debenture when the same becomes due and payable
at maturity, upon redemption or otherwise, (b) the Company does
not make a payment for a period of 5 days thereafter, (c) the
Company fails to comply with any of its other agreements in this
Debenture and such failure continues for the period and after the
notice specified below, (d) the Company pursuant to or within the
meaning of any Bankruptcy Law (as hereinafter defined): (i)
commences a voluntary case; (ii) consents to the entry of an
order for relief against it in an involuntary case; (iii)
consents to the appointment of a Custodian (as hereinafter
defined) of it or for all or substantially all of its property or
(iv) makes a general assignment for the benefit of its creditors
or (v) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that: (A) is for relief against
the Company in an involuntary case; (B) appoints a Custodian of
the Company or for all or substantially all of its property or
(C) orders the liquidation of the Company, and the order or
decree remains unstayed and in effect for 60 days. As used in
this Section 6.1, the term "Bankruptcy Law" means Title 11 of the
United States Code or any similar federal or state law for the
relief of debtors. The term "Custodian" means any receiver,
trustee, assignee, liquidator or similar official under any
Bankruptcy Law. A default under clause (c) above is not an Event
of Default until the holders of at least 25% of the aggregate
principal amount of the Debentures notify the Company of such
default and the Company does not cure it within 5 days after the
receipt of such notice, which must specify the default, demand
that it be remedied and state that it is a "Notice of Default."
Section 6.2. Acceleration. If an Event of Default occurs
and is continuing, the Holder hereof by notice to the Company,
may declare the principal of and accrued interest on this
Debenture to be due and payable. Upon such declaration, the
principal and interest hereof shall be due and payable
immediately.
Article 7. Registered Debentures
Section 7.1. Series. This Debenture is one of a numbered
series of Debentures having an aggregate principal amount of not
more than $5,000,000 which are identical except as to the
principal amount and date of issuance thereof and as to any
restriction on the transfer thereof in order to comply with the
Securities Act of 1933 and the regulations of the Securities and
Exchange Commission promulgated thereunder. Such Debentures are
referred to herein collectively as the "Debentures". The
Debentures shall be issued in whole multiples of $10,000.
Section 7.2. Record Ownership. The Company shall maintain
a register of the holders of the Debentures (the "Register")
showing their names and addresses and the serial numbers and
principal amounts of Debentures issued to or transferred of
record by them from time to time. The Register may be maintained
in electronic, magnetic or other computerized form. The Company
may treat the person named as the Holder of this Debenture in the
Register as the sole owner of this Debenture. The Holder of this
Debenture is the person exclusively entitled to receive payments
of interest on this Debenture, receive notifications with respect
to this Debenture, convert it into Common Stock and otherwise
exercise all of the rights and powers as the absolute owner
hereof.
Section 7.3. Registration of Transfer. Transfers of this
Debenture may be registered on the books of the Company
maintained for such purpose pursuant to Section 7.2 above (i.e.,
the Register). Transfers shall be registered when this Debenture
is presented to the Company with a request to register the
transfer hereof and the Debenture is duly endorsed by the
appropriate person, reasonable assurances are given that the
endorsements are genuine and effective, and the Company has
received evidence satisfactory to it that such transfer is
rightful and in compliance with all applicable laws, including
tax laws and state and federal securities laws. When this
Debenture is presented for transfer and duly transferred
hereunder, it shall be canceled and a new Debenture showing the
name of the transferee as the record holder thereof shall be
issued in lieu hereof. When this Debenture is presented to the
Company with a reasonable request to exchange it for an equal
principal amount of Debentures of other denominations, the
Company shall make such exchange and shall cancel this Debenture
and issue in lieu thereof Debentures having a total principal
amount equal to this Debenture in the denominations requested by
the Holder. The Company may charge a reasonable fee for any
registration of transfer or exchange other than one occasioned by
a notice of redemption or the conversion hereof.
Section 7.4. Worn and Lost Debentures. If this Debenture
becomes worn, defaced or mutilated but is still substantially
intact and recognizable, the Company or its agent may issue a new
Debenture in lieu hereof upon its surrender. Where the Holder of
this Debenture claims that the Debenture has been lost, destroyed
or wrongfully taken, the Company shall issue a new Debenture in
place of the original Debenture if the Holder so requests by
written notice to the Company actually received by the Company
before it is notified that the Debenture has been acquired by a
bona fide purchaser and the Holder has delivered to the Company
an indemnity bond in such amount and issued by such surety as the
Company deems satisfactory together with an affidavit of the
Holder setting forth the facts concerning such loss, destruction
or wrongful taking and such other information in such form with
such proof or verification as the Company may request.
Article 8. Notices
Any notice which is required or convenient under the terms
of this Debenture shall be duly given if it is in writing and
delivered in person or mailed by first class mail, postage
prepaid and directed to the Holder of the Debenture at its
address as it appears on the Register or if to the Company to its
principal executive offices. The time when such notice is sent
shall be the time of the giving of the notice.
Article 9. Time
Where this Debenture authorizes or requires the payment of
money or the performance of a condition or obligation on a
Saturday or Sunday or a public holiday, or authorizes or requires
the payment of money or the performance of a condition or
obligation within, before or after a period of time computed from
a certain date, and such period of time ends on a Saturday or a
Sunday or a public holiday, such payment may be made or condition
or obligation performed on the next succeeding business day, and
if the period ends at a specified hour, such payment may be made
or condition performed, at or before the same hour of such next
succeeding business day, with the same force and effect as if
made or performed in accordance with the terms of this Debenture.
Where time is extended by virtue of the provisions of this
Article 9, such extended time shall not be included in the
computation of interest.
Article 10. Waivers
The holders of a majority in principal amount of the
Debentures may waive a default or rescind the declaration of an
Event of Default and its consequences except for a default in the
payment of principal of or interest on any Debenture.
Article 11. Rules of Construction
In this Debenture, unless the context otherwise requires,
words in the singular number include the plural, and in the
plural include the singular, and words of the masculine gender
include the feminine and the neuter, and when the sense so
indicates, words of the neuter gender may refer to any gender.
The numbers and titles of sections contained in this Debenture
are inserted for convenience of reference only, and they neither
form a part of this Debenture nor are they to be used in the
construction or interpretation hereof. Wherever, in this
Debenture, a determination of the Company is required or allowed,
such determination shall be made by a majority of the Board of
Directors of the Company and if it is made in good faith, it
shall be conclusive and binding upon the Company and the Holder
of this Debenture.
Article 12. Governing Law
The validity, terms, performance and enforcement of this
Debenture shall be governed and construed by the provisions
hereof and in accordance with the laws of the State of New York
applicable to agreements that are negotiated, executed, delivered
and performed solely in the State of New York.
IN WITNESS WHEREOF, the Company has duly executed this
Debenture as of the date first written above.
ELECTROSOURCE, INC.
By_____________________________________
Name__________________________________
Title___________________________________
NOTICE OF CONVERSION
[To be completed and signed only upon conversion of
Debenture]
The undersigned, the Holder of this Debenture, hereby
irrevocably elects to exercise the right to convert it into
common stock, par value $___ per share, of [Issuer] as follows:
[Complete if less than ____________________Dollars($__________)*___
all of principal amount ($10,000 or integral multiples of $10,000)
is to be converted]
[Signature must be ___________________________________________
guaranteed if registered (Name of Holder of shares if different than
holder of stock differs registered Holder of Debenture)
from registered Holder of
Debenture)
___________________________________________
(Address of Holder if different than address of
registered Holder of Debenture)
__________________________________________
(Social Security or EIN of Holder of shares
if different than Holder of Debenture)
*If the principal amount of the Debenture to be converted is
less than the entire principal amount thereof, a new
Debenture for the balance of the principal amount shall be
returned to the Holder of the Debenture.
Date:________________ Sign:_____________________________________
(Signature must conform in all respects
to name of Holder shown on face of this
Debenture)
Signature Guaranteed:
Assignment of Note
The undersigned hereby sell(s) and assign(s) and transfer(s) unto
________________________________________________________________________
(name, address and SSN or EIN of assignee)
__________________________________________________Dollars($_________)___
(principal amount of Debenture, $10,000 or integral multiples of $10,000)
of principal amount of this Debenture together with all accrued
interest hereon.
Date:________ Sign:__________________________________________
(Signature must conform in all respects to
name of Holder shown on face of Debenture)
Signature Guaranteed:
OFFSHORE CONVERTIBLE SECURITIES SUBSCRIPTION AGREEMENT
Electrosource, Inc./Buyer
November _, 1995
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER
(THE "1933 ACT"), AND MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES (AS DEFINED IN REGULATION S OF THE 1933 ACT) OR TO,
OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN
REGULATION S OF THE 1933 ACT) EXCEPT PURSUANT TO REGISTRATION
UNDER OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
1933 ACT.
THIS OFFSHORE CONVERTIBLE SECURITIES SUBSCRIPTION AGREEMENT
(hereinafter the "Agreement") has been executed by the
undersigned in connection with the sale of Convertible Debentures
(hereinafter the "Debentures"), convertible into shares of common
stock (hereinafter the "Shares") of Electrosource, Inc. (ELSI),
3800 B Drossett Drive, Austin, Texas, 78744, a corporation
organized under the laws of Delaware (hereinafter "Seller") to
[Buyer], located [Address], a corporation organized under the
laws of [area of incorporation] (hereinafter "Buyer"). Seller
and Buyer (hereinafter collectively the "parties") each hereby
represents, warrants and agrees as follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE
(i) Buyer hereby subscribes for [written amount of
dollars] (#) U.S. principal amount of Debentures,
convertible into shares of ELSI common stock in accordance
with the terms set forth in the form of Debenture attached
as Exhibit A to this Agreement.
(ii) Buyer shall pay the purchase price by delivering
same day funds in United States Dollars to an escrow agent
or as otherwise agreed between the parties, to be delivered
to the order of Seller upon Delivery of the Debentures.
(iii) This Agreement has been executed in
connection with an offering (the "Offering") by Seller of
the Debentures pursuant to Regulation S ("Regulation S")
promulgated under the Securities Act of 1933, as amended
(the "Securities Act"). Buyer will be notified of the date
of the conclusion of the Offering.
2. BUYER'S REPRESENTATIONS
Buyer represents and warrants to Seller as follows:
(i) Buyer is not a "U.S. Person" as defined by
Rule 902 of Regulation S, was not organized under the
laws of any U.S. jurisdiction, and was not formed for
the purpose of investing in securities not registered
under the Securities Act;
(ii) At the time the buy order for this
transaction was originated, Buyer was outside the
United States;
(iii) No offer to purchase the Debentures was
made in the United States;
(iv) Buyer is either (a) purchasing the Debentures
for its own account for investment purposes and not
with a view towards distribution, or (b) acting as
agent for a principal that has made the representations
contained in Exhibit B hereto;
(v) All subsequent offers and sales of the
Debentures or the Shares will be made (a) outside the
United States in compliance with Rule 903 or Rule 904
of Regulation S, (b) pursuant to registration of the
Debentures or the Shares, respectively, under the
Securities Act, or (c) pursuant to an exemption from
such registration. Buyer understands the conditions of
the exemption from registration afforded by Section
4(1) of the Securities Act and acknowledges that there
can be no assurance that it will be able to rely on
such exemption. In any case, Buyer will not resell the
Debentures or the Shares to U.S. Persons or within the
United States until after the end of the forty (40) day
period commencing on the date of completion of the
Offering (as defined above) (the "Restricted Period");
(vi) Buyer agrees not to enter into any short
sales with respect to the common stock of Seller at any
time after the execution of this Agreement by Buyer and
prior to the expiration of the Restricted Period.
Buyer further agrees that, at all times after the
execution of this Agreement by Buyer and prior to the
expiration of the Restricted Period, it will keep its
purchase of the Debentures confidential, except as
required by law and except as necessary in the ordinary
course of Buyer's business;
(vii) Buyer understands that the Debentures
are being offered and sold to it in reliance on
specific provisions of federal and state securities
laws and that Seller is relying upon the truth and
accuracy of the representations, warranties,
agreements, acknowledgments and understandings of Buyer
set forth herein in order to determine the
applicability of such provisions. Accordingly, Buyer
agrees to notify Seller of any events which would cause
the representations and warranties of Buyer to be
untrue or breached at any time after the execution of
this Agreement by Buyer and prior to the expiration of
the Restricted Period;
(viii) This Agreement has been duly authorized,
validly executed, and delivered on behalf of Buyer and
is a valid and binding agreement enforceable in
accordance with its terms, subject to general
principles of equity and to bankruptcy or other laws
affecting the enforcement of creditors' rights
generally;
(ix) Any offering documents received by Buyer
include statements to the effect that neither the
Debentures nor the Shares have been registered under
the Securities Act and such securities may not be
offered or sold in the United States or to U.S. Persons
during the Restricted Period;
(x) Buyer, in making the decision to purchase the
Debentures subscribed for, has relied upon independent
investigations made by it and has not relied on any
information or representations made by third parties;
(xi) In the event of resale of the Debentures or
the Shares during the Restricted Period, Buyer shall
provide a written confirmation or other written notice
to any distributor, dealer, or person receiving a
selling concession, fee, or other remuneration in
respect of the Debentures or the Shares stating that
such purchaser is subject to the same restrictions on
offers and sales that apply to the undersigned, and
shall require that any such purchaser shall provide
such written confirmation or other notice upon resale
during the Restricted Period; and
(xii) Buyer has not taken any action that
would cause Seller to be subject to any claim for
commission or other fee or remuneration by any broker,
finder, or other person and Buyer hereby indemnifies
Seller against any such claim caused by the actions of
Buyer or any of its employees or agents.
3. SELLER'S REPRESENTATIONS
Seller represents and warrants to Buyer as follows:
(i) Seller is a "Domestic Issuer" and a
"Reporting Issuer," as such terms are defined by Rule
902 of Regulation S. Seller has registered its common
stock pursuant to Section 12(b) or (g) of the
Securities Exchange Act of 1934, as amended (the
"Exchange Act"), is in full compliance with all
reporting requirements of either Section 13(a) or 15(d)
of the Exchange Act, and Seller's common stock trades
on the NASDAQ Small Cap Market;
(ii) Seller has furnished Buyer with copies of
Seller's most recent Annual Report on its Form 10-K
filed with the Securities and Exchange Commission and
all Forms 10-Q and 8K filed thereafter;
(iii) Seller has not offered the Debentures to
any person in the United States, any identifiable group
of U.S. citizens abroad, or to any U.S. Person;
(iv) At the time the buy order was originated,
Seller reasonably believed Buyer was outside the United
States and was not a U.S. Person;
(v) Seller reasonably believes that the sale of
Debentures has not been prearranged with a Buyer in the
United States.
(vi) Seller has not conducted any "directed
selling efforts" with respect to the Debentures nor has
Seller conducted any general solicitation (as that term
is used in Regulation D under the Securities Act) with
respect to any of its securities;
(vii) The Debentures and the Shares when
issued and delivered will be duly and validly
authorized and issued, fully-paid and nonassessable and
will not subject the holders thereof to personal
liability by reason of being such holders. There are
no preemptive rights of any shareholder of Seller with
respect to the Debentures or the Shares;
(viii) This Agreement has been duly authorized,
validly executed and delivered on behalf of Seller and
is a valid and binding agreement in accordance with its
terms, subject to general principles of equity and to
bankruptcy or other laws affecting the enforcement of
creditors' rights generally;
(ix) The execution and delivery of this Agreement
and the consummation of the issuance of the Debentures
and the Shares and the transactions contemplated by
this Agreement do not and will not conflict with or
result in a breach by Seller of any of the terms or
provisions of, or constitute a default under, the
articles of incorporation or bylaws of Seller, or any
indenture, mortgage, deed of trust or other material
agreement or instrument to which Seller is a party or
by which it or any of its properties or assets are
bound, or any existing applicable decree, judgment or
order of any court, Federal or State regulatory body,
administrative agency or other governmental body having
jurisdiction over Seller or any of its properties or
assets;
(x) Seller is not aware of any authorization,
approval or consent of any governmental body which is
legally required for the issuance and sale of the
Debentures as contemplated by this Agreement;
(xi) Seller will issue one or more certificates
representing the Debentures in the name of Buyer and in
such denominations to be specified by Buyer prior to
closing. Upon conversion of the Debentures, Seller
will issue one or more certificates representing
theShares in the name of Buyer without a restrictive
legend and in such denominations to be specified by
Buyer prior to conversion. Seller further warrants
that no instructions other than these instructions, and
instructions for a "stop transfer" until the end of the
Restricted Period, have been given to the transfer
agent and also warrants that the Debentures and the
Shares shall otherwise be freely transferable by the
Buyer on the books and records of Seller subject to
compliance with Federal and State securities laws.
Seller will notify the transfer agent of the date of
completion of the Offering and of the date of
expiration of the Restricted Period. Nothing in this
section shall affect in any way Buyer's obligations and
agreement to comply with all applicable securities laws
upon resale of the Debentures or the Shares;
(xii) Seller has taken and will take no action
that will affect in any way the running of the
Restricted Period or the ability of Buyer to freely
resell the Debentures or the Shares in accordance with
applicable securities laws and this Agreement; and
(xiii) Seller will comply with all applicable
securities laws with respect to the sale of the
Debentures and the Shares, including but not limited to
the filing of all reports required to be filed in
connection therewith with the Securities and Exchange
Commission or any stock exchange or the NASDAQ stock
market or any other regulatory authority.
4. CLOSING. Debenture certificates shall be delivered to
Buyer and the funds therefor shall be delivered to Seller on
Friday, November 3, 1995 or at such time to be mutually
agreed.
5. CONDITIONS TO CLOSING.
(i) Buyer understands that Seller's obligation to
sell the Debentures is conditioned upon delivery into
escrow or otherwise as agreed between Buyer and Seller
by Buyer of the amount set forth in Section 1 hereof.
(ii) Seller understands that Buyer's obligation to
purchase the Debentures is conditioned upon delivery of
certificate(s) representing Debentures as described
herein and provision of an opinion of counsel
confirming the matters et out in Section 3(i), (vii),
(viii), (ix), and (x) above.
6. GOVERNING LAW; INTERPRETATION. This Agreement shall be
governed by and interpreted in accordance with the laws of
the State of New York. Facsimile signatures of this
Agreement shall be binding on all parties hereto. All terms
used herein that are defined in Regulation S under the
Securities Act shall have the meanings set forth therein.
IN WITNESS WHEREOF, this Agreement was duly executed on the
date first written above.
Official Signatory of Buyer:
Official Signatory of Seller:
Electrosource, Inc.
ELECTROSOURCE, INC.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE
RULES AND REGULATIONS PROMULGATED THEREUNDER (THE "1933 ACT"),
AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO OR
FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS (AS SUCH TERMS ARE
DEFINED IN REGULATION S UNDER THE 1933 ACT), FOR A PERIOD OF
FORTY (40) DAYS AFTER COMPLETION OF THE OFFERING PURSUANT TO
WHICH THESE DEBENTURES WERE ISSUED, AND THEREAFTER MAY ONLY BE
OFFERED OR SOLD PURSUANT TO REGISTRATION UNDER OR AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT.
8% CONVERTIBLE DEBENTURE DUE November 9, 1997
$_______ November 10,1995
Number ________
FOR VALUE RECEIVED, Electrosource, Inc., a Delaware
corporation (the "Company"), hereby promises to pay to
_________________ or registered assigns (the "Holder") on
November 9, 1997 (the "Maturity Date"), the principal amount of
_________________________ Dollars ($_______) U.S., and to pay
interest on the principal amount hereof, in such amounts, at such
times and on such terms and conditions as are specified herein.
Article 1. Interest
The Company shall pay interest on the unpaid principal
amount of this Debenture (this "Debenture") at the rate of Eight
Percent (8%) per year, payable quarterly in arrears until the
principal hereof is paid in full or has been converted. Interest
on this Debenture shall accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from
November 10, 1995. Interest shall be computed on the basis of a
360-day year of 12 30-day months. If the Holder shall convert
this Debenture during any quarter, the Company shall pay to the
Holder, upon conversion, the pro-rata portion of accrued interest
payable through the conversion date.
Article 2. Method of Payment
This Debenture must be surrendered to the Company in order
for the Holder to receive payment of the principal amount hereof.
The Company shall pay the principal of and interest on this
Debenture in United States dollars. However, the Company may pay
principal and interest by a check payable in such money. The
Company may draw a check for the payment of interest to the order
of the Holder of this Note and mail it to the Holder's address as
shown on the Register (as defined in Section 7.2 below).
Interest and principal payments shall be subject to withholding
under applicable United States Federal Internal Revenue Service
Regulations.
Article 3. Conversion
Section 3.1. Conversion Privilege
(a) The Holder of this Debenture shall have the right, at
its option, to convert it into shares of common stock, par value
$0.10 per share, of the Company ("Common Stock") at any time
which is before the close of business on the Maturity Date,
except as set forth in Section 3.1(c) below. The number of
shares of Common Stock issuable upon the conversion of this
Debenture is determined by dividing the principal amount hereof
to be converted plus all accrued interest thereon minus any
required withholding by the conversion price in effect on the
conversion date (as defined in paragraph (b) of this Section 3.1
below) and rounding the result to the nearest 1/100th of a share.
On conversion, no payment of or adjustment (other than as
provided in the previous sentence) for accrued interest shall be
made whether or not such conversion occurs before, on or after an
interest payment date.
(b) The conversion price is Seventy Five Percent (75%) of
the current market price of the Common Stock on the conversion
date.
(c) Less than all of the principal amount of this Debenture
may be converted into Common Stock if the portion converted is
$10,000 or a whole multiple of $10,000 and the provisions of this
Article 3 that apply to the conversion of all of the Debenture
also apply to the conversion of a portion of it. All accrued
interest on this Debenture shall be added to the amount converted
if less than all of the principal amount of this Debenture is
converted and shall be deemed to be paid and discharged thereby.
This Debenture may not be converted until Sixty (60) days
following the closing of the purchase of this Debenture.
(d) In the event any Debentures remain outstanding on the
second anniversary of the date hereof, the unconverted portion of
such Debentures will automatically be converted into shares of
Common Stock on such date in the manner set forth in this Section
3.1.
Section 3.2. Conversion Procedure. To convert this
Debenture into Common Stock, the Holder must (a) complete and
sign the Notice of Conversion attached hereto, (b) surrender the
Debenture to the Company, (c) furnish appropriate endorsements
and transfer documents if so requested by the Company and (d)
subject to Section 3.4 pay any transfer or similar tax if
required by the Company. The date upon which all of the
foregoing requirements are satisfied is the conversion date.
Within five business days thereafter, the Company shall deliver a
certificate for the number of full shares of Common Stock
issuable upon the conversion and a check for any fraction of a
share. The person in whose name the certificate of Common Stock
is to be registered shall be treated as a shareholder of record
on and after the conversion date. No payment or adjustment shall
be made for accrued interest on a converted Debenture whether the
conversion date is on, at or after an interest payment date. If
one person converts more than one Debenture at the same time, the
number of full shares issuable upon the conversion shall be based
on the total principal amount of Debentures converted. Upon
surrender of a Debenture that is to be converted in part, the
Company shall issue to the Holder a new Debenture equal in
principal amount to the unconverted portion of the Debenture
surrendered.
Section 3.3. Fractional Shares. The Company shall not
issue a fractional share of Common Stock upon the conversion of
this Debenture. Instead, the Company shall pay in lieu of any
fractional share the cash value thereof at the then current
market price of the Common Stock as determined under Section 3.7
below.
Section 3.4. Taxes on Conversion. The Company shall pay
any documentary, stamp or similar issue or transfer tax due on
the issue of shares of Common Stock upon the conversion of this
Debenture. However, the Holder shall pay any such tax which is
due because the shares are issued in a name other than its name.
Section 3.5. Company to Reserve Stock. The Company shall
reserve out of its authorized but unissued Common Stock or Common
Stock held in treasury enough shares of Common Stock to permit
the conversion of this Debenture. All shares of Common Stock
which may be issued upon the conversion hereof shall be fully
paid and nonassesssable.
Section 3.6. Restrictions on Transfer. This Debenture and
the Common Stock issuable upon the conversion hereof have not
been registered under the Securities Act of 1933 (the "Act") and
have been sold pursuant to Regulation S under the Act
("Regulation S"). The Debentures may not be transferred or
resold in the United States, or to a U.S. Person, or to or for
the account or benefit of a U.S. Person (as defined in Regulation
S) for a period of Forty (40) days from the date hereof and
thereafter may only be offered or sold pursuant to registration
under or an exemption from the Act.
Section 3.7. Current Market Price.
(a) In Sections 3.1 and 3.3, the current market price per
share of Common Stock on any date is the average of the quoted
prices of the Common Stock for five consecutive trading days
ending on the trading day before the date in question.
(b) As used in this Section 3.7, the term quoted price
shall mean (i) the closing bid prices thereof on any such trading
date, as reported by Bloomberg, L.P. or (ii) in the event the
Common Stock is not reported on such system, the fair market
value of the Common Stock as determined by the Board of Directors
of the Company in its good faith judgment.
Section 3.8. Mergers, Etc. If the Company merges or
consolidates with another corporation or sells or transfers all
or substantially all of its assets to another person and the
holders of the Common Stock are entitled to receive stock,
securities or property in respect of or in exchange for Common
Stock, then as a condition of such merger, consolidation, sale or
transfer, the Company and any such successor, purchaser or
transferee shall amend this Debenture to provide that it may
thereafter be converted on the terms and subject to the
conditions set forth above into the kind and amount of stock,
securities or property receivable upon such merger,
consolidation, sale or transfer by a holder of the number of
shares of Common Stock into which this Debenture might have been
converted immediately before such merger, consolidation, sale or
transfer, subject to adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for
in this Article 3.
Article 4. Mergers
The Company shall not consolidate or merge into, or transfer
all or substantially all of its assets to, any person, unless
such person assumes the obligations of the Company under this
Debenture and immediately after such transaction no Event of
Default exists. Any reference herein to the Company shall refer
to such surviving or transferee corporation and the obligations
of the Company shall terminate upon such assumption.
Article 5. Reports
The Company will mail to the Holder hereof at its address as
shown on the Register a copy of any annual, quarterly or current
report that it files with the Securities and Exchange Commission
promptly after the filing thereof and a copy of any annual,
quarterly or other report or proxy statement that it gives to its
shareholders generally at the time such report or statement is
sent to shareholders.
Article 6. Defaults and Remedies
Section 6.1. Events of Default. An "Event of Default"
occurs if (a) the Company does not make the payment of the
principal of this Debenture when the same becomes due and payable
at maturity, upon redemption or otherwise, (b) the Company does
not make a payment for a period of 5 days thereafter, (c) the
Company fails to comply with any of its other agreements in this
Debenture and such failure continues for the period and after the
notice specified below, (d) the Company pursuant to or within the
meaning of any Bankruptcy Law (as hereinafter defined): (i)
commences a voluntary case; (ii) consents to the entry of an
order for relief against it in an involuntary case; (iii)
consents to the appointment of a Custodian (as hereinafter
defined) of it or for all or substantially all of its property or
(iv) makes a general assignment for the benefit of its creditors
or (v) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that: (A) is for relief against
the Company in an involuntary case; (B) appoints a Custodian of
the Company or for all or substantially all of its property or
(C) orders the liquidation of the Company, and the order or
decree remains unstayed and in effect for 60 days. As used in
this Section 6.1, the term "Bankruptcy Law" means Title 11 of the
United States Code or any similar federal or state law for the
relief of debtors. The term "Custodian" means any receiver,
trustee, assignee, liquidator or similar official under any
Bankruptcy Law. A default under clause (c) above is not an Event
of Default until the holders of at least 25% of the aggregate
principal amount of the Debentures notify the Company of such
default and the Company does not cure it within 5 days after the
receipt of such notice, which must specify the default, demand
that it be remedied and state that it is a "Notice of Default."
Section 6.2. Acceleration. If an Event of Default occurs
and is continuing, the Holder hereof by notice to the Company,
may declare the principal of and accrued interest on this
Debenture to be due and payable. Upon such declaration, the
principal and interest hereof shall be due and payable
immediately.
Article 7. Registered Debentures
Section 7.1. Series. This Debenture is one of a numbered
series of Debentures having an aggregate principal amount of not
more than $5,000,000 which are identical except as to the
principal amount and date of issuance thereof and as to any
restriction on the transfer thereof in order to comply with the
Securities Act of 1933 and the regulations of the Securities and
Exchange Commission promulgated thereunder. Such Debentures are
referred to herein collectively as the "Debentures." The
Debentures shall be issued in whole multiples of $10,000.
Section 7.2. Record Ownership. The Company shall maintain
a register of the holders of the Debentures (the "Register")
showing their names and addresses and the serial numbers and
principal amounts of Debentures issued to or transferred of
record by them from time to time. The Register may be maintained
in electronic, magnetic or other computerized form. The Company
may treat the person named as the Holder of this Debenture in the
Register as the sole owner of this Debenture. The Holder of this
Debenture is the person exclusively entitled to receive payments
of interest on this Debenture, receive notifications with respect
to this Debenture, convert it into Common Stock and otherwise
exercise all of the rights and powers as the absolute owner
hereof.
Section 7.3. Registration of Transfer. Transfers of this
Debenture may be registered on the books of the Company
maintained for such purpose pursuant to Section 7.2 above (i.e.,
the Register). Transfers shall be registered when this Debenture
is presented to the Company with a request to register the
transfer hereof and the Debenture is duly endorsed by the
appropriate person, reasonable assurances are given that the
endorsements are genuine and effective, and the Company has
received evidence satisfactory to it that such transfer is
rightful and in compliance with all applicable laws, including
tax laws and state and federal securities laws. When this
Debenture is presented for transfer and duly transferred
hereunder, it shall be canceled and a new Debenture showing the
name of the transferee as the record holder thereof shall be
issued in lieu hereof. When this Debenture is presented to the
Company with a reasonable request to exchange it for an equal
principal amount of Debentures of other denominations, the
Company shall make such exchange and shall cancel this Debenture
and issue in lieu thereof Debentures having a total principal
amount equal to this Debenture in the denominations requested by
the Holder. The Company may charge a reasonable fee for any
registration of transfer or exchange other than one occasioned by
a notice of redemption or the conversion hereof.
Section 7.4. Worn and Lost Debentures. If this Debenture
becomes worn, defaced or mutilated but is still substantially
intact and recognizable, the Company or its agent may issue a new
Debenture in lieu hereof upon its surrender. Where the Holder of
this Debenture claims that the Debenture has been lost, destroyed
or wrongfully taken, the Company shall issue a new Debenture in
place of the original Debenture if the Holder so requests by
written notice to the Company actually received by the Company
before it is notified that the Debenture has been acquired by a
bona fide purchaser and the Holder has delivered to the Company
an indemnity bond in such amount and issued by such surety as the
Company deems satisfactory together with an affidavit of the
Holder setting forth the facts concerning such loss, destruction
or wrongful taking and such other information in such form with
such proof or verification as the Company may request.
Article 8. Notices
Any notice which is required or convenient under the terms
of this Debenture shall be duly given if it is in writing and
delivered in person or mailed by first class mail, postage
prepaid and directed to the Holder of the Debenture at its
address as it appears on the Register or if to the Company to its
principal executive offices. The time when such notice is sent
shall be the time of the giving of the notice.
Article 9. Time
Where this Debenture authorizes or requires the payment of
money or the performance of a condition or obligation on a
Saturday or Sunday or a public holiday, or authorizes or requires
the payment of money or the performance of a condition or
obligation within, before or after a period of time computed from
a certain date, and such period of time ends on a Saturday or a
Sunday or a public holiday, such payment may be made or condition
or obligation performed on the next succeeding business day, and
if the period ends at a specified hour, such payment may be made
or condition performed, at or before the same hour of such next
succeeding business day, with the same force and effect as if
made or performed in accordance with the terms of this Debenture.
Where time is extended by virtue of the provisions of this
Article 9, such extended time shall not be included in the
computation of interest.
Article 10. Waivers
The holders of a majority in principal amount of the
Debentures may waive a default or rescind the declaration of an
Event of Default and its consequences except for a default in the
payment of principal of or interest on any Debenture.
Article 11. Rules of Construction
In this Debenture, unless the context otherwise requires,
words in the singular number include the plural, and in the
plural include the singular, and words of the masculine gender
include the feminine and the neuter, and when the sense so
indicates, words of the neuter gender may refer to any gender.
The numbers and titles of sections contained in this Debenture
are inserted for convenience of reference only, and they neither
form a part of this Debenture nor are they to be used in the
construction or interpretation hereof. Wherever, in this
Debenture, a determination of the Company is required or allowed,
such determination shall be made by a majority of the Board of
Directors of the Company and if it is made in good faith, it
shall be conclusive and binding upon the Company and the Holder
of this Debenture.
Article 12. Governing Law
The validity, terms, performance and enforcement of this
Debenture shall be governed and construed by the provisions
hereof and in accordance with the laws of the State of New York
applicable to agreements that are negotiated, executed, delivered
and performed solely in the State of New York.
IN WITNESS WHEREOF, the Company has duly executed this
Debenture as of the date first written above.
ELECTROSOURCE, INC.
By /s/
Michael G. Semmens
President
NOTICE OF CONVERSION
[To be completed and signed only upon conversion of
Debenture]
The undersigned, the Holder of this Debenture, hereby
irrevocably elects to exercise the right to convert it into
common stock, par value $0.10 per share, of Electrosource, Inc.,
as follows:
[Complete if less than ____________________Dollars($__________)*___
all of principal amount ($10,000 or integral multiples of $10,000)
is to be converted]
[Signature must be ___________________________________________
guaranteed if registered (Name of Holder of shares if different than
holder of stock differs registered Holder of Debenture)
from registered Holder of
Debenture)
__________________________________________
(Address of Holder if different than address
of registered Holder of Debenture)
__________________________________________
(Social Security or EIN of Holder of shares
if different than Holder of Debenture)
*If the principal amount of the Debenture to be converted is
less than the entire principal amount thereof, a new
Debenture for the balance of the principal amount shall be
returned to the Holder of the Debenture.
Date:________________ Sign:_____________________________________
(Signature must conform in all respects
to name of Holder shown on face of this
Debenture)
Signature Guaranteed:
Assignment of Note
The undersigned hereby sell(s) and assign(s) and transfer(s) unto
________________________________________________________________________
(name, address and SSN or EIN of assignee)
__________________________________________________Dollars($_________)___
(principal amount of Debenture, $10,000 or integral multiples of $10,000)
of principal amount of this Debenture together with all accrued
interest hereon.
Date:________ Sign:__________________________________________
(Signature must conform in all respects to
name of Holder shown on face of Debenture)
Signature Guaranteed:
SUBSCRIPTION REGISTER
Debenture
Number Purchaser Amount
D597-101 Baskerville Trading Corporation $ 250,000
Nassau Bahamas
D597-102 Infinity Investors, Ltd 1,250,000
London, United Kingdom
D597-103 Taryak, Inc. 100,000
Zurich, Switzerland
D597-104 Mifal Klita 900,000
- -D597-121 Downsview, Ontario, Canada
D597-122 Gems of the World London England, Inc. 200,000
- -D597-125 London, England
D597-126 Societe Commerciale Guttenberg SA 580,000
- -D597-136 Herisau, Switzerland
TOTAL $3,280,000
ALLY CAPITAL CORPORATION
Equipment Lease Agreement
THIS EQUIPMENT LEASE AGREEMENT is made as of the 6th day of
April, 1995 by and between ALLY CAPITAL CORPORATION ("Lessor")
and ELECTROSOURCE, INC. ("Lessee"). All of the defined terms and
rules of construction pertaining to this Lease are set forth in
Section 17 hereof.
1. TERM AND RENT.
(a) Lessor agrees to lease to Lessee, and Lessee agrees to
lease from Lessor, the Equipment described in each Equipment
Schedule to be executed pursuant hereto. This Lease shall be
effective from and after the date of execution hereof, whether or
not any Equipment Schedule has been entered into, and as an
inducement to Lessor to enter into this Lease, Lessee agrees that
it shall, pursuant to the terms hereof, be liable for, subject
to, undertake or comply with, as the case may be, all of the
representations, warranties, agreements, disclaimers, waivers and
indemnifications made herein that pertain to Lessee and Lessor
generally, or to events that arise or occur in connection with
transactions that the parties intend to document under an
Equipment Schedule, whether or not such Equipment Schedule is
ever effectively entered into, and any other provisions of any of
the Lease Documents that may be necessary or appropriate for the
interpretation or enforcement of the foregoing. The Term of this
Lease with respect to any item of the Equipment shall consist of
the Term set forth in the Equipment Schedule relating thereto;
and, except as otherwise expressly provided herein Lessor's and
Lessee's respective rights and obligations thereunder (including
Lessee's obligation to pay Basic Rent for the items of Equipment
described therein) shall commence and continue at all times from
and after the effective date thereof, and terminate upon the
expiration of the Term thereof and Lessee's complete performance
of all of its obligations thereunder.
(b) Lessee shall pay Lessor Basic Rent for the Equipment,
without any deduction or setoff and without prior notice or
demand, in the aggregate amounts specified in each Equipment
Schedule, and Supplemental Rent, promptly as such Rent shall
become due and owing. In addition to each such payment of Rent,
on the due date therefor, Lessee shall be liable for and shall
pay to Lessor an Administrative Fee; provided, however, to the
extent such payment of Rent shall be received by Lessor in good
collected indefeasible funds on the due date therefor, Lessee
shall be relieved of its obligation to pay the Administrative Fee
attributable to such Rent payment. Lessee agrees that it shall
have no right to, and it shall not, pay any Rent prior to the due
date thereof. Each equipment Schedule shall be and remain a non-
cancelable net lease, and Lessee shall not be entitled to any
abatement or reduction of Rent due thereunder for any reason.
Without limiting the foregoing, Lessee's obligation to pay Rend,
and to otherwise perform its obligations under the Lease
Documents, are and shall be absolute and unconditional until,
with respect to each Equipment Schedule, such Equipment Schedule
terminates in accordance with its terms and shall not be affected
by any circumstances, happenings or events whatsoever and
whenever and howsoever occurring, including, any right of setoff,
counterclaim, recoupment, deduction, defense or other right which
Lessee may have against Lessor, the manufacturer or vendor of the
Equipment, or anyone else for any reason whatsoever. If for any
reason whatsoever, any Equipment Schedule shall be terminated in
whole or in part by operation of law or otherwise (other than
pursuant to the expiration of the Term of the applicable
Equipment Schedule), Lessee nonetheless agrees to pay to Lessor
an amount equal to each payment of Rent at the time such payment
would have become due and payable in accordance with the terms
hereof had such Equipment Schedule not been terminated in whole
or in part. Rent is payable as and when specified in the
Equipment Schedule, or as otherwise provided herein, by mailing
the same to Lessor at its address specified pursuant to this
Lease; and shall be effective upon receipt. Timeliness of
Lessee's payment and other performance of its obligations under
the Lease Documents is of the essence.
Notwithstanding anything in this Section 1(b) to the contrary,
Lessee shall be entitled to a credit in an amount equal to the
Abatement Amount against its obligation to pay Basic Rent for any
item(s) of Equipment suffering an Impairment of Use conditioned
upon the following: (A) Lessee provides Lessor with written
notice of such Impairment of Use within two business days after
having written notice or actual knowledge thereof (whichever
occurs first), with a full and complete description of such
Impairment of Use, including the nature and extent thereof, and
(B) Lessee provides to Lessor all necessary and appropriate
cooperation with respect to Lessor's or its designee's
investigation, replacement, curing action or other action with
respect to such Impairment of Use. In furtherance of the
foregoing, Lessee (i) agrees that in the event Lessor replaces
any item of Equipment with Replacement Equipment, Lessor shall be
deemed to have cured any Impairment of Use with respect to such
replaced items of Equipment, on and as of the date of Lessee's
acceptance of such Replacement Equipment; (ii) shall execute a
supplement to the appropriate Equipment Schedule thereby
substituting the Replacement Equipment for such replaced item of
Equipment; (iii) shall without further action be deemed to have
conveyed to Lessor good title, free and clear of all Liens, to
any item of Equipment replaced pursuant hereto or for which the
Abatement Period pertaining thereto extends to the expiration of
the Term of the Equipment Schedule, by making it available to
Lessor and (iv) shall execute and deliver to Lessor a bill of
sale pertaining thereto that is acceptable to Lessor.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE.
Lessee represents, warrants and covenants that: (a) It is a
corporation duly organized and validly existing in good standing
under the laws of the state of Delaware, is duly qualified to do
business in all jurisdictions where failure to be so qualified
would have a material adverse effect on the financial condition,
business or operations of Lessee, or impair the enforcement of
its obligations under the Lease Documents. (b) The execution,
delivery and performance of the Lease Documents and compliance
with the terms thereof: (i) have been duly authorized by all
necessary corporate action on the part of Lessee; (ii) do not
require the approval of any stockholder, trustee or holder of any
obligations of Lessee except such as have been duly obtained; and
(iii) do not and will not contravene any Law, now binding on
Lessee, or the charter or by-laws of Lessee under, any indenture,
mortgage, contract or other agreement to which Lessee is a party
or by which it or its property is bound. (c) The Lease
Documents, when entered into, will constitute legal, valid and
binding obligations of Lessee, enforceable against Lessee in
accordance with the terms thereof. (d) There are no pending
actions or proceedings to which Lessee is a party, and there are
no other pending or threatened actions or proceedings of which
Lessee has knowledge, before any Government Authority, which,
either individually or in the aggregate, would adversely affect
the financial condition of Lessee, or the ability of Lessee to
perform its obligations under, or comply with the terms of, the
Lease Documents. (e_ Lessee is not in default under any
obligation for the payment of borrowed money, for the deferred
purchase price of property or for the payment of any rent under
any lease agreement which, either individually or in the
aggregate, would have the same such effect. (f) With respect to
the Equipment covered by each Equipment Schedule, under the
Applicable Laws of the state(s) in which such Equipment is to be
located, such Equipment consists solely of personal property and
not fixtures. (g) The financial statements of Lessee (copies of
which have been furnished to Lessor) have been prepared in
accordance with GAAP, and fairly present Lessee's financial
conditions and the results of its operations as of the date of
and for the period covered by such statements, and since the date
of such statements there has been no material adverse change in
such conditions or operations. (h) The address stated below the
signature of Lessee is the chief place of business and chief
executive office (which terms shall have the meanings provided in
Article 9 of the Code) of Lessee; and Lessee does not conduct
business under a trade, assumed or fictitious name. (i) With
respect to the Equipment covered by each Equipment Schedule,
Lessor will have a valid, perfected, first priority security
interest in such Equipment pursuant to the Code and other
Applicable Law upon its purchase of such Equipment and its filing
all of the UCCs executed by Lessee in connection therewith. (j)
With respect hereto and to each Equipment Schedule, Less has not
permitted, and will not permit, any person to engage in any
activity that could result in the imposition of liability under
Applicable Law on Lessee, Lessor or any owner or operator of the
Equipment, or would otherwise impair Lessor's rights or title
pertaining thereto.
3. FINANCIALS, FURTHER ASSURANCES AND NOTICES. Lessee
covenants and agrees as follows: (a) Lessee will, if requested
by Lessor, furnish Lessor (i) within one hundred twenty (120)
days after the end of each fiscal year of Lessee, a balance sheet
of Lessee as at the end of such year, and the related statement
of income and statement of cash flows of Lessee for such fiscal
year, prepared in accordance with GAAP, all in reasonable detail
and certified by independent certified public accountants of
recognized standing selected by Lessee; (ii) within sixty (0)
days after the end of each quarter of Lessee's fiscal year, a
balance sheet of Lessee as at the end of such quarter, and the
related statement of income and statement of cash flows of Lessee
for such quarter, prepared in accordance with GAAP; and (iii)
within thirty (30) days after the date on which they are filed,
all regular periodic reports, forms and other filings required to
be made by Lessee to the Securities and Exchange Commission, if
any. (b) Lessee will promptly execute and deliver to Lessor such
further documents, instruments and assurances and take such
further action as Lessor from time to time may reasonably request
in order to carry out the intent and purpose of this Lease and to
establish and protect the rights and remedies created or intended
to be created in favor of Lessor under the Lease Documents. (c)
Lessee shall provide written notice to Lessor: (i) thirty (30)
days prior to any contemplated change in the name or address of
Lessee; (ii) promptly upon the occurrence of any default or
Default; and (iii) promptly upon the commencement of proceedings
under Federal bankruptcy laws or any other insolvency laws (as
now or hereafter in effect) involving Lessee or any person (other
than Lessor) holding an interest in the Equipment or related
property as the debtor.
4. CONDITIONS PRECEDENT. Lessor's obligations under each
Equipment Schedule, including Lessor's obligation to purchase and
participate in the financing of any Equipment to be leased
thereunder, are conditioned upon: (a) Lessor having received, at
least two (2) business days prior to the date upon which Lessor
purchases the Equipment or has committed to purchase same (if
sooner), all of the following in form and substance satisfactory
to Lessor: (i) evidence as to due compliance with the insurance
provisions hereof; (ii) UCCs and all other filings and recordings
with respect to the transactions contemplated thereunder which
are necessary or appropriate to establish, protect, perfect or
give first priority to Lessor's title in the Equipment leased
thereunder; (iii) if requested by Lessor, a certificate of
Lessee's Secretary certifying: (1) resolutions of Lessee's Board
of Directors duly authorizing the leasing of the Equipment under
such Equipment Schedule and the execution, delivery and
performance thereof and of all related Lease Documents, and (2)
the incumbency and specimen signatures of the officers of Lessee
authorized to execute such documents; (iv) if requested by
Lessor, an opinion of counsel for Lessee as to each of the
matters set forth in subsections (a) through (i) (other than
subsection (g)) of Section 2 hereof; (v) the only manually
executed original of such Equipment Schedule and all other Lease
Documents; (vi) to the extent requested by Lessor, copies or
reports of searches conducted at the appropriate recordation
offices against Lessee, the Equipment and premises at which the
Equipment is or is to be located; (vii) a copy of an executed
bill of sale to Lessor for the Equipment together with an invoice
of the seller thereof specifying the purchase price for such
Equipment; (viii) all Purchase Documents pertaining to the
Equipment, and, to the extent requested by Lessor, an
acknowledgment and assignment of Lessee's rights, if any, under
such Purchase Documents, including all warranties, indemnities,
licenses, remedies and other rights thereunder, which Lessor
shall be entitled to exercise in connection with its exercise of
its remedies under Section 15 of this Lease; (iv) if Lessor is
purchasing the Equipment from Lessee, all of the operating
records pertaining to the maintenance and use of the Equipment;
and (x) such other documents, agreements, instruments,
certificates, opinions, assurances, as Lessor may reasonably
require.
(b) (i) The representations and warranties of Lessee
herein or in any of the other Lease Documents, and of each other
person (other than Lessor) in any of the other documents or
agreements delivered to Lessor pursuant hereto or thereto shall
be true and correct on and as of the effective date of such
Equipment Schedule with the same effect as though made on and as
of such date (Lessee's execution and delivery of the Equipment
Schedule shall constitute an acknowledgment of the same); and
(ii) there shall be no default or Default under the
Equipment Schedule or any other Lease Documents, nor shall there
have occurred any casualty or Total Loss, or even or condition
which with notice or passage time, or both, would constitute a
casualty or Total Loss with respect to the equipment to be leased
under the Equipment Schedule.
(c) (i) Lessor shall be permitted under all Applicable
Laws to purchase and provide financing to Lessee for the
Equipment and to enter into the transactions contemplated herein
and in the Equipment Schedule; and (ii) there shall have been no
change in Law or proposed change in Law or in Lessee's financial
condition which could make it inadvisable for Lessor to do so, in
Lessor's sole discretion.
(d) (i) If Lessor is purchasing the Equipment from Lessee,
Lessee shall have paid all amounts due to the Supplier (including
any vendor or manufacturer) and to any other persons from whom
Lessee acquired any right, title or interest in the Equipment, or
with respect to any improvements thereon, additions thereto, or
transportation or storage thereof, on or prior to the effective
date of the Equipment Schedule; (ii) the Equipment shall have
been delivered to and accepted by Lessee, and be in the condition
and repair required hereby; and (iii) Lessor shall have received
a bill of sale from the Supplier, on or prior to the effective
date of the Equipment Schedule, that is valid and legally
binding, and effective to convey to Lessor good title to the
Equipment to be leased thereunder, free and clear of any Lien.
5. DELIVERY INSPECTION AND ACCEPTANCE BY LESSEE. Lessee shall
provide an acceptable installation environment as specified in
any applicable manufacturer's manual or by Applicable Law, and,
except as otherwise specified by manufacturer, shall furnish all
labor required to install the Equipment. Upon delivery, Lessee
shall inspect the Equipment and, if the same is found to be in
good order and in compliance with the provisions of any
applicable Supply Contract, accept delivery of the same and
execute and deliver to Lessor an Equipment Schedule containing a
complete description of the accepted Equipment. The Lessee
acknowledges that its execution and delivery of any Equipment
Schedule shall constitute conclusive evidence that as between
Lessor and Lessee, the Equipment shall be deemed to have been
finally and irrevocably accepted by Lessee pursuant to this Lease
and such Equipment Schedule. Lessor shall not be liable for loss
or damage occasioned by any cause, circumstance or event of
whatsoever nature relating to delivery, inspection, installation
or acceptance, including the failure of or delay in delivery,
delivery to the wrong place, delivery of improper equipment or
property other than the Equipment, damage to the Equipment,
governmental regulations, strike, embargo or other cause,
circumstance or event, whether of like or unlike nature. All
expenses incurred in connection with Lessor's purchase of the
Equipment (including taxes, shipment, delivery and installation)
shall be the responsibility of Lessee and shall be either, at
Lessor's sole option, capitalized or expensed or paid by Lessee
upon demand. If as a result of any damage to the Equipment,
strike, embargo or other similar cause certified to Lessor in
writing by Lessee's responsible officer and verified to Lessor's
satisfaction by such other evidence relating thereto as Lessor
may reasonably request, Lessee shall refuse to accept delivery of
the Equipment, Lessee will be assigned all rights and shall
assume, indemnify and hold Lessor harmless from all obligations
as purchaser of the Equipment and all other Claims relating
thereto pursuant to Section 13 hereof.
6. USE AND MAINTENANCE. (a) Lessee shall (i) use the
Equipment solely in the conduct of its business, for the purpose
for which the Equipment was designed, in a careful and proper
manner and not discontinue use of the Equipment; (ii) operate,
maintain, inspect, service, repair, overhaul and test the
Equipment, and maintain all records, logs and other materials
relating thereto, in accordance with (1) all maintenance and
operating manuals or service agreements, whenever furnished or
entered into, including any subsequent amendments, supplements,
renewals or replacements thereof, issued by the manufacturer or
service provider, (2) the requirements of all applicable
insurance policies, (3) the Purchase Documents, so as to preserve
all of Lessee's and Lessor's rights thereunder, including all
rights to any warranties, indemnities or other rights or
remedies, (4) Applicable Laws, and (5) consistent with the
prudent practice of other similar companies in the same business
as Lessee, but in any event, to no lesser standard than that
employed by Lessee for comparable equipment owned or leased by
it; (iii) not change the location of any Equipment as specified
in the Equipment Schedule without the prior written consent of
Lessor; (iv) not attach or incorporate the Equipment to or in any
other item of equipment in such a manner that the Equipment may
be deemed to have become an accession to or a part of such other
item of equipment; (v) cause each principal item of the Equipment
to be continually marked, in a plain and distinct manner, with
the name of Lessor or its designee following by the words "Owner
and Lessor," or other appropriate words designated by Lessor on
labels furnished by Lessor; and (vi) cause the Equipment to be
kept and maintained in good operating condition and in the same
condition as when delivered to Lessee hereunder, except for
ordinary wear and tear resulting despite Lessee's" full
compliance with the terms hereof. With respect to Lessee's
agreement in subclause (ii) above to maintain, inspect, service,
repair, overhaul and test each item of Equipment in accordance
with sub-subclauses (1,), (3) and (5), Lessee shall undertake and
be responsible for the foregoing in exchange for a credit to
Lessee's rental obligations the amount of which has been
calculated and agreed to by both Lessee and Lessor as fair and
complete consideration for such undertaking and responsibility as
it may now and hereafter exist (including the payment of all
charges, fees, costs and expenses relating thereto), and
accounted for in the amount of Basic Rent Lessee has agreed to
pay for such item of Equipment by its execution and delivery of
the Equipment Schedule relating thereto. In furtherance of the
foregoing, Lessee acknowledges and agrees that (A) the credit
provided for in the preceding sentence shall fully discharge
Lessor for all purposes from performing or complying with any of
the obligations specified in such sentence (to the extent Lessor
would be deemed to have had any responsibility therefor), and (B)
it shall also undertake, be responsible for and otherwise fully
perform and comply with all of the obligations provided for
herein that are not specified in the preceding sentence, and that
it shall not be entitled to any credit or other compensation with
respect thereto, nor shall Lessor have any responsibility to
Lessee or any other person with respect to the performance or non-
performance of, or compliance or non-compliance with, any of such
obligations, or any other obligations not expressly assumed by it
hereunder.
(b) If any parts of the Equipment become worn out, lost,
destroyed, damaged beyond repair or otherwise permanently
rendered unfit for use, Lessee, at its own expense, will within a
reasonable time replace such parts with replacement parts that
are free and clear of all Liens and have a value and utility at
least equal to the value, condition and utility that such
replaced parts would have had if maintained in the condition and
repair required by the terms hereof. In the event that any
Applicable Law requires alteration or modification to the
Equipment, Lessee will conform thereto or obtain conformance
therewith, and shall otherwise cause the altered or modified
Equipment to comply with the provisions hereof. With respect to
parts, additions or improvements which are added to the Equipment
that are essential to the operation of the Equipment, are
necessary to cause it to be in compliance with the provisions of
this Lease or which cannot be detached from the Equipment without
materially interfering with the operation of the equipment or
adversely affecting the value, condition and utility which the
Equipment would have had without the addition thereof, title
thereto shall immediately vest in Lessor to the same extent and
with the same priority as Lessor holds in the Equipment, without
cost or expense to Lessor, or any further action by any other
person, and such parts, improvement and additions shall be deemed
incorporated in the Equipment and subject to the terms of this
Lease as if originally leased hereunder. Lessor agrees that upon
Lessee's replacing a part in full compliance with the provisions
of this subsection (b), all of Lessor's right, title and interest
in and to any part so replaced shall without further action vest
in Lessee "AS IS, WHERE IS," and otherwise subject to the
provisions of Section 7 hereof. Lessee shall not make any
material alterations to the Equipment without the prior written
consent of Lessor, which consent shall not be unreasonably
withheld.
(c) Upon the twenty-four (24) hours' written or telephonic
request of Lessor, Lessee shall provide to Lessor any information
reasonably requested by Lessor pertaining to the Equipment or
Lessee, including, the location and condition of the Equipment.
Upon reasonable advance notice (which the parties agree shall be
no less than forty-eight (48) hours' written or telephonic
request) Lessee shall afford Lessor access to Lessee's premises
where the Equipment is located for the purpose of inspecting such
Equipment, all applicable maintenance and other records, Permits,
licenses and any notices or directives from any manufacturer,
vendor, service provider or Governmental Authority, at any
reasonable time during normal business hours; provided, however,
if a Default or default shall have occurred and be continuing, no
notice of any inspection by Lessor shall be required. In the
event Lessee fails or is unable to perform any of its obligations
hereunder, Lessor shall have the right, but not the obligation,
to perform the same, and Lessee shall forthwith reimburse Lessor
on an after-tax basis, as Supplemental Rent, for all costs and
expenses incurred by Lessor in performing the same. Lessor shall
not have any duty to make or cause to be made any inspection,
repair, restoration, replacement, renewal, addition or
improvement of any nature of description with respect to the
Equipment, or the related property or to incur any cost or
expense in connection with any Lease Document and Lessor shall
not incur any liability or obligation to any person by reason of
Lessor's doing, causing to be done or failing to do any of the
foregoing, in its discretion.
7. DISCLAIMER OF WARRANTIES. LESSEE HEREBY ACKNOWLEDGES AND
AGREES THAT: EXCEPT FOR THE WARRANTY IN SECTION 16(d) HEREOF,
THE EQUIPMENT AND THE RIGHTS, TITLE AND INTEREST BEING CONVEYED
HEREIN WITH RESPECT THERETO, ARE BEING CONVEYED AND DELIVERED TO
LESSEE "AS IS" AND "WHERE IS" WITHOUT ANY RECOURSE TO LESSOR, AND
LESSOR HAS NOT MADE, AND HEREBY DISCLAIMS, LIABILITY FOR, AND
LESSEE HEREBY WAIVES ALL RIGHTS AGAINST LESSOR RELATING TO, ANY
AND ALL WARRANTIES, GUARANTIES, REPRESENTATIONS OR OBLIGATIONS OF
ANY KIND WITH RESPECT THERETO, EITHER EXPRESS OR IMPLIED, ARISING
BY APPLICABLE LAW OR OTHERWISE, INCLUDING (A) ANY EXPRESS OR
IMPLIED WARRANTIES, GUARANTIES, REPRESENTATIONS OR OBLIGATIONS OF
OR ARISING FROM OR IN (1) MERCHANTABILITY OR FITNESS FOR
PARTICULAR USE OR PURPOSE, (2) COURSE OF PERFORMANCE, COURSE OF
DEALING OR USAGE OF TRADE OR (3) TORT (WHETHER OR NOT ARISING
FROM THE ACTUAL IMPLIED OR IMPUTED NEGLIGENCE OF LESSOR OR STRICT
LIABILITY) OR UNDER THE CODE OR OTHER APPLICABLE LAW WITH RESPECT
TO THE EQUIPMENT, INCLUDING ITS TITLE OR FREEDOM FROM LIENS,
FREEDOM FROM TRADEMARK, PATENT OR COPYRIGHT INFRINGEMENT, LATENT
DEFECTS (WHETHER OR NOT DISCOVERABLE), CONDITION, MANUFACTURE,
DESIGN, SERVICING OR COMPLIANCE WITH APPLICABLE LAW AND (B) ALL
OBLIGATIONS AND LIABILITIES OF LESSOR, AND RIGHTS AND REMEDIES OF
LESSEE, HOWSOEVER ARISING UNDER ANY APPLICABLE LAW WITH RESPECT
TO THE MATTERS WAIVED AND DISCLAIMED, INCLUDING, FOR LOSS OF USE,
REVENUE OR PROFIT WITH RESPECT TO THE EQUIPMENT, OR ANY LIABILITY
OF LESSEE OR LESSOR TO ANY THIRD PARTY, OR ANY OTHER DIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES (AS SUCH TERMS ARE USED IN
SECTION 2719(3) OF THE CODE, OR OTHER APPLICABLE LAW) EXCEPT TO
THE EXTENT THE WAIVER OF SAME IS PROHIBITED BY APPLICABLE LAW;
all such risks, as between Lessor and Lessee, are to be born by
Lessee; and Lessor's agreement to enter into this Lease and any
Equipment Schedule is in reliance upon the freedom from and the
complete negation of liability or responsibility for the matters
waived and disclaimed herein. Lessee agrees that the only
representations, warranties, guaranties or indemnities made with
respect to the Equipment are those made by the Supplier thereof;
and, provided that no Default or default has then occurred and is
continuing under the pertinent Equipment Schedule, Lessor (a)
shall cooperate fully with Lessee with respect to the resolution
of such claims, in good faith and by appropriate proceedings at
Lessee's expense, (b) hereby assigns to Lessee, for and during
the term of this Lease, any applicable warranties, indemnities or
other similar rights under any Supply Contracts (excluding any
refunds or other similar payments reflecting a decrease in the
value of any such Equipment, which amount shall during the
existence of any default or Default be received by and paid to
Lessor, for application to Lessee's obligations under the
Equipment Schedule relating thereto) applicable to any Equipment,
and (c) hereby authorizes Lessee to obtain all services,
warranties or (except as provided in (b) above) amounts from the
Supplier of such Equipment to be used to repair such Equipment
(and such amounts shall be used by Lessee to repair such
Equipment). Any such claim shall not affect in any manner the
unconditional obligation of Lessee to make rent payments
hereunder.
8. FEES AND TAXES. (a) To the extent permitted by Law, Lessee
shall file any necessary report and return for, shall pay
promptly when due, shall otherwise be liable to reimburse Lessor
(on an after-tax basis) for, and agrees to indemnify and hold
Lessor harmless from all Impositions.
(b) If any report, return or property listing, or any
Imposition is, by Law, required to be filed by, assessed or
billed to, or paid by, Lessor, Lessee will do all things required
to be done by Lessor (to the extent permitted by Law) in
connection therewith and is hereby authorized by Lessor to act on
behalf of Lessor in all respects, including, the contest or
protest, in good faith and by appropriate proceedings, of the
validity of any Imposition, or the amount thereof. Lessor agrees
fully to cooperate with Lessee in any such contest, and Lessee
agrees promptly to indemnify Lessor for all reasonable expenses
incurred by Lessor in the course of such cooperation. An
Imposition or Claim therefor shall be paid, subject to refund
proceedings, if failure to pay would adversely affect the title
or rights of Lessor in the Equipment or otherwise hereunder.
Provided that no Default or default has occurred and is then
continuing, if Lessor obtains a refund of any Imposition which
has been paid (by Lessee, or by Lessor and for which Lessor has
been fully reimbursed by Lessee), Lessor shall promptly pay to
Lessee the net amount of such refund actually received. Lessee
will cause all billings of such charges to Lessor to be made to
Lessor in care of Lessee and will, in preparing any report or
return required by Law, show the ownership of the Equipment in
Lessee, and shall send a copy of any such report or return to
Lessor. If Lessee fails to pay any such charges when due, except
any Imposition being contested in good faith and by appropriate
proceedings as above provided for a reasonable period of time,
Lessor at its option may do so, in which event the amount so paid
(including any penalty incurred as a result of Lessee's failure),
plus an Administrative Fee shall be paid by Lessee to Lessor with
the next installment of Basic Rent.
(c) The provisions of this Section 8 shall not apply to
any Imposition (i) imposed as a result of any voluntary transfer
or disposition by Lessor of all or any portion of its interest in
the Equipment pursuant to Section 15 hereof; (ii) that Lessee is
contesting in good faith, by appropriate proceedings and is
otherwise permitted pursuant to the provisions of this Lease
until the conclusion of such contest; except, that Lessee's right
to contest any Imposition and thereby avoid its obligation to pay
any such Imposition is conditioned upon the existence of such
Imposition during any such contest not causing any material
danger of the sale, forfeiture or loss of the Equipment; or (iii)
imposed on Lessor that is based on, or measured by gross or net
income taxes (including, capital gains taxes, minimum taxes,
income taxes collected by withholding and taxes on tax preference
items), except for Lessee's obligation to pay indemnities and
reimbursements as an "after-tax basis," and as otherwise
expressly provided herein.
9. INTENT, TITLE AND LIENS. (a) The parties intend and agree
that the Equipment shall remain personal property, and that
Lessor's title thereto or the priority of such title not be
impaired, notwithstanding the manner in which it may be affixed
to any real or personal property. Lessee shall obtain and
deliver to Lessor (to be recorded at Lessee's expense), from any
person having an interest in any real or personal property to or
upon which the Equipment is to be attached or located, as the
case may be, waivers of any Lien or which such person might have
or hereafter obtain or claim with respect to the Equipment.
(b) During the Term of each Equipment Schedule, and until
Lessee either purchases such Equipment upon the expiration of the
Initial Term, or upon the expiration of any Renewal Term with
respect thereto, and upon Lessee's full performance of all its
obligations under or relating to such Equipment Schedule, Lessor
shall retain title to such Equipment; provided, that, Lessee and
Lessor acknowledge that transactions documented hereunder and
under each Equipment Schedule shall constitute a "Lease intended
as security," or "security interest," as the case may be, under
Applicable Law (including under Section 1201(37) of the Code).
In furtherance thereof, (i) in order to secure the prompt payment
and performance as and when due to all of Lessee's obligations
(both now existing and hereafter arising) under each such
Equipment Schedule and all of the other Lease Documents, Lessee
shall be deemed to have granted, and it hereby grants to Lessor a
first priority security interest in and assigns and conveys the
following (whether now existing or hereafter created): (A) the
Equipment leased pursuant to such Equipment Schedule, (B) all
subleases thereof (including all of Lessee's rights, but none of
its obligations thereunder, including all amounts payable
thereunder) all accounts, contract rights and general intangibles
(including all licenses, patents, copyrights, maskworks and trade
secrets) relating to the Equipment, and (C) all replacements and
Proceeds (cash and non-cash), including the proceeds of all
insurance policies, of the property and rights described in (A)
and (B), and (ii) Lessee agrees that with respect to the
Equipment, in addition to all the other rights and remedies
available to Lessor hereunder upon the occurrence of a Default,
Lessor shall have all of the rights and remedies of a first
priority perfected secured party under the Code. Lessee may not
dispose of any of the Equipment except to the extent expressly
provided herein, notwithstanding the fact that proceeds
constitute a part of the Equipment.
(c) Lessee will not directly or indirectly create, incur,
assume or suffer to exist any Lien on or with respect to any of
the Equipment, title thereto or any interest therein, except
Permitted Liens. Lessee shall notify Lessor immediately upon
receipt of notice of any Lien affecting the Equipment in whole or
in part, and defend Lessor's title therein and the first priority
thereof against all persons holding or claiming to hold a Lien;
and any Claims suffered by Lessor as a result thereof shall be
covered by the indemnity in Section 13 hereof.
`` (d) Owner for Federal Tax Purposes. It is hereby agreed
between Lessee and Lessor that, for Federal income tax purposes
(i) the Lease is, and will be consistently treated as, a finance
lease rather than a true lease; (ii) Lessee will be the owner of
the Equipment to be delivered under this Lease; (iii) Lessee will
not claim any rental deduction for amounts paid to Lessor under
the Lease; (iv) Lessor will not claim any cost recovery or
depreciation deductions with respect to the Equipment delivered
under this Lease; (v) neither Lessor nor Lessee will at any time
take any action, directly or in directly, or file any returns or
other documents inconsistent with the foregoing; and (vi) Lessor
and Lessee will file such returns, take such actions and execute
such documents as may be reasonable and necessary to facilitate
accomplishment of the intent expressed in subparagraphs (i)
through (iv) of this Section 9(d).
10. INSURANCE. (a) Lessee shall obtain and maintain all-
risk insurance coverages with respect to the Equipment insuring
against, among other things: casualty coverage, including, loss
or damage to the Equipment due to fire and the risks normally
included in extended coverage, malicious mischief and vandalism,
for not less than the greater of the Equipment's full replacement
value or the Stipulated Loss Value; and public liability coverage
including, both personal injury and property damage, with a
combined single limit per occurrence of not less than the amount
specified in each Equipment Schedule, with no deductible. All
such insurance shall be in form and amount and with companies
reasonably satisfactory to Lessor. All insurance for loss or
damage shall provide that losses, if any, shall be payable to
Lessor as sole loss payee and Lessee shall utilize its best
efforts to have all checks relating to any such losses delivered
promptly to Lessor. Lessor shall be named as an additional
insured with respect to all such liability insurance. Lessee
shall pay the premiums therefor and deliver to Lessor evidence
satisfactory to Lessor of such insurance coverage. Lessee shall
cause to be provided to Lessor, not less than fifteen (15) days
prior to the scheduled expiration or lapse of such insurance
coverage, evidence satisfactory to Lessor of renewal or
replacement coverage. Each insurer shall agree, by endorsement
upon the policy or policies issued by it or by independent
instrument furnished to Lessor, that (i) no cancellation, lapse,
expiration or adverse change reducing the coverage thereof shall
be effective unless Lessor has been given thirty (30) days' prior
written notice thereof; (ii) insurance as to the interest of any
named additional insured or loss payee other than Lessee shall
not be invalidated by any actions, inactions, breach of warranty,
declaration or condition or negligence of Lessee or any person
other than such additional insured with respect to such policy
or policies; (iii) such insurance is primary with respect to any
other insurance carried by or available to Lessor; (iv) the
insurer waives any right of subrogation and any setoff,
counterclaim, or other deduction, whether by attachment or
otherwise, against Lessor; and (v) with respect to the liability
coverage, all of the provisions of such coverage, except the
limits of liability, shall operate in the same manner as if there
were a separate policy with and covering Lessee and Lessor. The
proceeds of such insurance payable as a result of loss of or
damage to the Equipment shall be applied as required by the
provisions of Section 11 hereof.
(b) With respect to Lessee's agreement to obtain and
maintain the casualty and liability insurance coverage for each
item of Equipment required in clause (a) above, Lessee shall
undertake and be responsible for the foregoing in exchange for a
credit to Lessee's rental obligations the amount of which has
been calculated and agreed to by both Lessee and Lessor as fair
and complete consideration for such undertaking and
responsibility as it may now and hereafter exist (including the
payment by Lessor of all premiums, costs and expenses relating
thereto), and accounted for in the amount of Basic Rent for such
item of Equipment by its execution and delivery of the Equipment
Schedule relating thereto. In furtherance of the foregoing,
Lessee acknowledges and agrees that (A) the credit provided for
in the preceding sentence shall fully discharge Lessor for all
purposes from so obtaining or maintaining any such insurance
coverage (to the extent Lessor would be deemed to have had any
responsibility therefor) and (B) it shall also undertake, be
responsible for and otherwise fully perform and comply with all
of the obligations provided for herein that are not related to
the obtaining and maintaining of such insurance coverage, and
that it shall not be entitled to any credit or other
compensation, nor shall Lessor have any responsibility to Lessee
or any other person, with respect to such obligations or any
other obligations not expressly assumed by it hereunder.
11. LOSS AND DAMAGE. (a) Lessee assumes the risk of
direct and consequential loss and damage to the Equipment from
all causes. Except as provided in this Section 11 for discharge
upon payment of Stipulated Loss Value, no loss or damage to the
Equipment or any part thereof shall release or impair any
obligations of Lessee under this Lease. Without limiting
Sections 5, 7, 8, 13 or any other provision hereof, Lessee agrees
that Lessor shall not incur any liability to Lessee for any loss
of business, loss of profits, expenses, or any other Claims
resulting to Lessee by reason of any failure of or delay in
delivery or any delay caused by any non-performance, defective
performance, or breakdown of the Equipment, nor shall Lessor at
any time be responsible for person injury or the loss or
destruction of any other property resulting from the Equipment.
In the event of loss or damage to any item of Equipment which
does not constitute a Total Loss, Lessee shall, at its sole cost
and expense, promptly repair and restore such item of Equipment
to the condition required by this Lease. Provided that no
Default or default has occurred and is then continuing, upon
receipt of evidence reasonably satisfactory to Lessor of
completion of such repairs, Lessor will apply any net insurance
proceeds received by Lessor on account of such loss to the cost
of repairs. Upon the occurrence of a Total Loss during the Term
of this Lease, Lessee shall give prompt notice thereof to Lessor.
On the next date for the payment of Basic Rent, Lessee shall pay
to Lessor the Rent due on that date plus the Stipulated Loss
Value of the item or items of the Equipment with respect to which
the Total Loss has occurred and any other sums due hereunder with
respect to that Equipment (less any net insurance proceeds or net
condemnation award actually paid to Lessor to compensate it for
such Total Loss). Upon Lessor's receipt of such payment in good
collected indefeasible funds with respect to an Equipment
Schedule, such Equipment Schedule and the obligation to make
future payments of Basic Rent thereunder shall terminate solely
with respect to the Equipment or items thereof so paid for and
(unless any insurer shall otherwise demand) Lessor shall be
deemed to have conveyed all of its right, title and interest
therein to Lessee "AS IS, WHERE IS" and otherwise subject to
Section 7 hereof. Stipulated Loss Value shall be determined as
of the next date of which a payment of Basic Rent is or would be
due after a Total Loss or other termination of the subject
Equipment Schedule, after payment of any Basic Rent due on such
date, and the applicable percentage factor shall be that which is
set forth on the SLV Schedule with respect to such Basic Rent
payment.
(b) Notwithstanding the foregoing or any other provision
hereof to the contrary, in the event any item(s) of Equipment
suffers a Total Loss and the insurance carrier providing coverage
obtained by Lessee against such Total Loss, has as a result of
such Total Loss, agreed in writing to pay to Lessor as the sole
loss payee proceeds of such coverage in an amount equal to the
Stipulated Loss Value (determined as of the Basic Rent payment
date next preceding such Total Loss, but otherwise in accordance
with the preceding clause (b)), Lessee's obligation to pay future
installments of Basic Rent for such item(s) of Equipment
suffering a Total Loss shall cease as of the Basic Rent payment
date preceding the Total Loss thereof, and Lessee shall thereupon
be relieved of its obligation to pay the Stipulated Loss Value
thereof; provided, that (i) Lessee has given prompt written
notice of such Total Loss to Lessor and the appropriate
insurer(s) (which notice shall include Lessee's written election
that it intends that this clause (b) shall apply to such Total
Loss); (ii) no default or Default occurs prior to Lessor's
receipt of all amounts due from Lessee and such insurer pursuant
hereto in good collected indefeasible funds; (iii) such insurer
neither (A) repudiates its obligation to the amount required
above or fails to pay such amount to Lessor in good collected
indefeasible funds within 90 days after the date of the Total
Loss, nor (B) suffers an event of the type described in Section
14(a)(iv); and (iv) Lessee takes all actions as shall be
requested by Lessor with respect to the insurance coverage, or
otherwise necessary to facilitate the payment of the insurance
proceeds required above. Upon the failure of any of the
conditions set forth in the proviso in the preceding sentence,
Lessee shall immediately be liable to an pay to Lessor the full
amounts that would otherwise have been due pursuant to paragraph
(a) of this Section 11. To the extent Lessee's obligation to pay
the Stipulated Loss Value of any item of Equipment is satisfied
by Lessor's receipt of insurance proceeds as provided above, and
not by funds in such amount paid by Lessee in the manner required
herein, Lessor shall have no obligation to convey such item of
Equipment to Lease.
12. REDELIVERY. (a) In the event Lessor exercises its
remedies under Section 14(c)(2) hereof, Lessee shall, at its own
expense, return the Equipment to Lessor within the period
designated by Lessor, in a condition that satisfies all of the
requirements of this Lease (including Section 6 hereof), and free
and clear of all Liens except Liens resulting from claims against
Lessor not relating to the ownership or operation of such
Equipment, by delivery to such place within the Continental
United States as Lessor shall specify. In addition to Lessor's
other rights and remedies hereunder, if repairs are necessary to
place the Equipment in the condition required in this Section,
Lessee shall be liable for and pay to Lessor the full amount of
the costs and expenses incurred and/or paid by Lessor to
accomplish such repairs.
13. INDEMNITY. Lessee assumes and agrees to indemnify,
defend and keep harmless, even if such Claims are groundless,
false or fraudulent, Lessor (which for the purposes of this
Section 13 shall also include Ally Capital Corporation and its
affiliates ("Ally") and any assignee of Lessor's rights,
obligations, title or interest under any Equipment Schedule
notwithstanding any assignment made by Ally of its interests
herein), its agents and employees, from and against any and all
Claims (other than, with respect to any such indemnitee, such as
may directly and proximately result from the gross negligence or
willful misconduct of such indemnitee; but Lessee does agree to
so indemnify each such indemnitee against its own negligence), by
paying (on an after-tax-basis, if to Lessor) or otherwise
discharging same, when and as such Claims shall become due,
including any Claims arising on account of (a) this Lease, any
Equipment Schedule, or any other Lease Documents, or (b) the
Equipment, or any part thereof, including the ordering,
acquisition, delivery, installation or rejection of the
Equipment, the possession, maintenance, use, condition, or
ownership or operation of any item of Equipment, and by
whomsoever owned, used or operated, during the term of this Lease
or any Equipment Schedule with respect to that item of Equipment,
the existence of latent and other defects (whether or not
discoverable by Lessor or Lessee) any claim in tort for
negligence or strict liability, and any claim for patent,
trademark or copyright infringement, or the loss, damage,
destruction, removal, return, surrender, sale or other
disposition of the Equipment, or any item thereof, or for
whatever other reason whatsoever. Lessor shall give Lessee
prompt notice of any claim or liability hereby indemnified
against and Lessee Shall be entitled to control the defense
thereof, so long as Lessee is not in Default; provided, however,
that Lessor shall have the right to approve defense counsel
selected by Lessee.
14. DEFAULT; REMEDIES. (a) A default shall be deemed to
have occurred hereunder (solely with respect to the obligations
and other matters addressed in the second sentence of Section 1
hereof) and under an Equipment Schedule ("Default") if (i) Lessee
shall fail to make any payment of Rent or any other payment
hereunder, thereunder, or under any other Lease Document relating
thereto, within ten (10) days after the same shall have become
due; or (ii) Lessee shall fail to obtain and maintain the
insurance required pursuant thereto; (iii) (1) Lessee shall fail
to perform or observe any other covenant, condition or agreement
to be performed or observed by it thereunder or under any other
Lease Document relating thereto and such failure shall continue
unremedied for a period of thirty (30) days after the earlier of
(A) actual knowledge thereof by any officer of Lessee, or (B)
written notice thereof to Lessee by Lessor; or (2) Lessee
repudiates this Lease or such Equipment Schedule, or any part
hereof or thereof, or attempts to reject or revoke acceptance of
any Equipment to be leased or leased or revoke acceptance of any
Equipment to be leased or leased thereunder (except for any
rejection permitted by the last sentence of Section 5 of this
Lease), or (iv) Lessee shall (1) be generally not paying its
debts as they become due; or (2) take action for the purpose of
invoking the protection of any bankruptcy or insolvency law, or
any such law is invoked against or with respect to Lessee or its
property, and any such petition filed against Lessee is not
dismissed within sixty (60) days; or (v) Lessee shall make or
permit any unauthorized Lien against or assignment or transfer
thereof or of the Equipment or of any interest therein; (vi) any
certificate, statement, representation, warranty or audit
contained herein, therein or in any other Lease Document
heretofore or hereafter furnished with respect thereto by or on
behalf of Lessee proving to have been false in any material
respect at the time as of which the facts therein set forth were
stated or certified, or having omitted any substantial contingent
or unliquidated liability or claim against Lessee; or (vii)
Lessee shall be in default under any material obligation for the
payment of borrowed money, for the deferred purchase price of
property or for the payment of any rent under any lease
agreement, and the applicable grace period with respect thereto
shall have expired; or (viii) Lessee shall have terminated its
corporate existence, consolidated with, merged into, or conveyed
or leased substantially all of its assets as an entirety to any
person (such actions being referred to as an "Event") unless such
person is organized and existing under the laws of the united
States or any state, and delivers to Lessor an agreement
satisfactory in form and substance to Lessor, in its sole
discretion, containing an effective assumption by such person of
the sole responsibility for, and agreement to pay, perform,
comply with and otherwise be liable for, in a due and punctual
manner, all of Lessee's obligations having previously arisen, or
then or thereafter arising, under any and all of the Lease
Documents; and (2) Lessor is satisfied as to the credit
worthiness of such person, and of its conformance to the other
standard criteria used by Lessor (or Lessor's affiliate or agent
to the extent such affiliate or agent and not Lessor, regularly
makes decisions on Lessor's behalf to participate or not
participate in the extension of lease financing to an equipment
user); or (iv) there occurs a default under any guaranty executed
in connection with such Equipment Schedule; or if there is an
anticipatory repudiation of Lessee's obligations hereunder, under
such Equipment Schedule or any other Lease Documents; or (x) if
Lessee is a privately held corporation and effective control of
Lessee's voting capital stock, issued and outstanding from time
to time, is not retained by the present stockholders (unless
Lessee shall have provided sixty (60) days' prior written notice
to Lessor of the proposed disposition of stock and Lessor shall
have consented thereto in writing); or (xi) if Lessee is a
publicly held corporation and, as a result of or in connection
with a material change in the ownership of Lessee's capital
stock, Lessee's debt to worth ratio then equals or exceeds twice
Lessee's debt to worth ratio as of the date of this Lease,
without the prior written consent of Lessor. As used herein,
"debt to worth ratio" shall mean the ratio of (1) Lessee's total
liabilities which, in accordance with GAAP, would be included in
the liability side of a balance sheet, to (2) Lessee's tangible
net worth including the sum of the par or stated value of all
outstanding capital stock, surplus and undivided profits, less
any amounts attributable to goodwill, patents, copyrights,
mailing lists, catalogs, trademarks, bond discount and
underwriting expenses, organization expense and other
intangibles, all as determined in accordance with GAAP.
(b) Although each Equipment Schedule executed pursuant to
this Lease shall constitute a separate instrument of lease, the
occurrence of a Default hereunder or with respect to any
Equipment Schedule shall, at the sole discretion of Lessor
constitute a Default with respect to any one or more of the
remaining Equipment Schedules. Notwithstanding anything set
forth herein, Lessor may, but shall not have any obligation to
(Lessee hereby waiving any rights it may have to require Lessor
to marshall assets), (i) exercise all rights and remedies
hereunder independently with respect to each Equipment Schedule;
or (ii) apply any collateral and the proceeds thereof in which
Lessor holds a security interest with respect to a particular
Equipment Schedule to Lessee's obligations under such Equipment
Schedule or any one or al of the remaining Equipment Schedules.
(c) Upon a Default hereunder or under an Equipment
Schedule, as the case may be, Lessor may, at its option, declare
this Lease or such Equipment Schedule to be in default either
with or without written notice to Lessee (without election of
remedies), and at any time thereafter, may exercise any and all
rights and remedies of a secured party under the Code and in
addition thereto, at its sole discretion, do any one or more of
the following, all of which are authorized by Lessee with respect
to such Equipment Schedule as Lessor in its sole discretion shall
elect (to the extent permitted by, and subject to compliance
with, any mandatory requirements of Applicable Law then in
effect):
(i)(1) declare the following amounts to be immediately
due and payable, as liquidated damages and not as a penalty (and
in lieu of future rentals and other obligations then due
thereunder), and demand or sue for, collect and apply, (A) all
Basic Rent due and unpaid as of the payment date immediately
preceding the Default, plus a pro-rated daily rent in the amount
set forth in Section 3(b)(i) of such equipment Schedule for the
period from such preceding payment date to the date of Lessor's
declaration (to the extent such daily rent is not accounted for
in clause (B), (B) by acceleration, the unpaid principal portion
of the aggregate Basic Rent payments due on or after such date
for the remaining period of the Initial Term and the Renewal Term
(whether or not Lessee has exercised its renewal option
thereunder) of such Equipment Schedule, which principal amount
shall be equal to the Stipulated Loss Value of the Equipment
leased thereunder (determined as of the Basic Rent date next
preceding the Default), (C) all Supplemental Rent and all other
sums due thereunder as of the date of such Default; and (D) all
such other charges permitted by Applicable Law that, when
received by Lessor together with all other payments due to Lessor
under this Section 15(c), shall make Lessor whole with respect to
all harms, damages, losses and expenses suffered by Lessor as a
result of the Default and Lessee's failure to pay any Rent due as
a result thereof on the date required hereunder; provided, that
if a Default described in subsection (a)(iv) above, or if a
Default shall have occurred and be continuing at any time after
the occurrence of an event that is similar in nature to any of
the events described in subsection (a)(iv), then, without further
action or notice of any kind, the amounts described above shall
immediately become due and payable; and/or
(ii)(1) require Lessee to assemble any or all of the
Equipment at the location to which the Equipment was delivered or
the location to which such Equipment may have been moved by
Lessee or to return promptly, any or all of the Equipment to
Lessor at the location, and otherwise in accordance with all of
the terms of Section 12 hereof; and/or (2) take possession of and
render unusable by Lessee any or all of the Equipment, wherever
it may be located, without any court order or other process of
law (and if Lessor does seek the entry of such an order, Lessee
agrees to waive any notice or opportunity to be heard with
respect thereto) and without liability for any damages occasioned
by such taking of possession (any such taking of possession shall
constitute an automatic termination of this Lease as it applied
to those items taken without further notice, and such taking of
possession shall not prohibit Lessor from exercising its other
remedies hereunder); and/or (3) at Lessor's request, Lessee shall
promptly execute and deliver to Lessor such instruments of title
and other documents as Lessor may deem necessary or advisable to
enable Lessor or an agent or representative designated by Lessor,
at such time or times and place or places as Lessor may specify,
to obtain possession of all or any part of any rights in respect
of the Equipment the possession of which Lessor shall at the time
be entitled hereunder; and if Lessee shall for any reason fail to
execute and delivery such instruments and documents after such
demand by Lessor, Lessor may (A) obtain a judgment conferring on
Lessor the right to immediate possession and requiring Lessee to
deliver such instruments and documents to Lessor, to the entry of
which judgment Lessee hereby specifically consents, and (B)
pursue all or part of such Equipment wherever it may be found and
may enter any of the premises wherever such Equipment may be, or
is supposed to be, and search for such Equipment and take
possession of and remove same; and/or (4) have the right, but
without any obligation, to (A) use, operate, store, control,
insure or manage the Equipment and to carry on the business and
to exercise all rights and powers of Lessee relating to the
Equipment as Lessor shall deem best, including the right to
remove Liens, cure violations of Applicable Law, and enter into
any and all such agreements with respect thereto and with respect
to the maintenance, condition, operation, leasing, storage or
disposition of the Equipment or any part thereof as Lessor may
determine, (B) collect and receive all Proceeds, without
prejudice, however, to the right of Lessor under any provision of
this Lease to collect and receive all cash held by, or required
to be deposited with, Lessor hereunder, and (C) apply such
Proceeds, less costs of collection, in the manner provided in
clause (iii)(A) below, and/or
(iii) subject to any right of Lessee to redeem such
Equipment, sell or otherwise dispose of any or all of such
Equipment, whether or not in Lessor's possession, and without
instituting any legal proceedings whatsoever, in a commercially
reasonable manner at public or private sale with notice to Lessee
(the parties agreeing that ten (10) days' prior written notice
shall constitute adequate notice of any such sale); and such sale
or disposition may be (1) by public auction to the highest
bidder, in one lot as an entirety or in separate lots, either for
cash or on credit and on such terms as Lessor may determine, and
at any place (whether or not it be the location of the Equipment
or any part thereof) designated in such notice, and (2) be
adjourned from time to time by announcement at the time and place
appointed for such sale or sales, or for any such adjourned sale
or sales, without further published notice, and Lessor may bid
for and purchase, at its sole discretion, the Equipment or any
part thereof at such sale, it being understood, however, that
without the consent of Lessor, neither Lessee nor any affiliate
of Lessee or any other person acting directly or indirectly for
or on behalf of Lessee or any affiliate of Lessee may be the
purchaser at any such private sale (except for the full amount
due to Lessor under such Equipment Schedule, and under any other
Lease Documents collateralized thereby); and apply the proceeds
of such disposition and all Proceeds: (A) First, to the payment
of all costs of enforcement, including expenses of any sale,
lease or other disposition, expenses of any taking, attorneys'
fees, court costs and other expenses incurred or advances made by
Lessor in protection of its rights or otherwise pursuant to its
exercise of remedies and to provide adequate indemnity to Lessor
against all Impositions and Liens which by Law have, or may have,
priority over the rights of Lessor to the money so received by
Lessor; (B) Second, to the payment of Lessee's obligations under
the Equipment Schedule, and under any other Lease Documents
collateralized thereby; and (C) Third, to the payment of any
surplus thereafter remaining to Lessee or to whosoever may be
entitled thereto; and in the event that the proceeds and
Remaining Proceeds are insufficient to pay the amounts specified
in clauses (A) and (B) above, Lessor may collect such deficiency
from Lessee; and/or
(iv) terminate this Lease or such Equipment Schedule;
and/or
(v) proceed by appropriate court action, either at law
or in equity or in bankruptcy, whether for the specific
performance of any covenant or agreement herein contained or in
execution or aid of any power herein granted; or for foreclosure
hereunder, or for the appointment of a receiver or receivers for
the Equipment or any part thereof, for the recovery of a judgment
for the obligations thereby secured or for the enforcement of any
other proper, legal or equitable remedy available under
Applicable Law, including Section 9502 et seq. of the Code.
(d) Unless otherwise provided above, a termination pursuant
hereto shall occur only upon written notice by Lessor to Lessee
and, unless Lessor is terminating this Lease, only with respect
to the Equipment Schedule as Lessor specifically elects to
terminate in such notice. Except as to the Equipment Schedule
with respect to which there is a termination, the remaining
Equipment Schedules shall continue in full force and effect and
Lessee shall be and remain liable for the full performance of all
its obligations thereunder and under the remaining Lease
Documents. In addition, Lessee shall be liable for all
reasonable legal feels, all court costs and other expenses
incurred by reason of any Default or the exercise of Lessor's
remedies, including all expenses incurred in connection with the
return of any Equipment in accordance with the terms of Section
12 hereof or in placing such Equipment in the condition required
by Section 12. No right or remedy referred to in this Section 14
is intended to be exclusive, but each shall be cumulative and
shall be in addition to any other remedy referred to above or
otherwise available at law or in equity, and may be exercised
concurrently or separately from time to time. The failure of
Lessor to exercise the rights granted hereunder upon any default
or Default by Lessee shall not constitute a waiver of any such
right upon the continuation or reoccurrence of any such default
or Default. In no event shall the execution of an Equipment
Schedule constitute a waiver by Lessor any pre-existing default
or Default in the performance of the terms and conditions hereof.
15. ASSIGNMENT BY LESSOR AND LESSEE. WITHOUT THE PRIOR
WRITTEN CONSENT OF LESSOR (WHICH SHALL NOT UNREASONABLY BE
WITHHELD), LESSEE WILL NOT ASSIGN ANY OF ITS RIGHTS NOR DELEGATE
ANY OF ITS OBLIGATIONS HEREUNDER, SUBLET THE EQUIPMENT OR
OTHERWISE PERMIT THE EQUIPMENT TO BE OPERATED OR USED BY, OR TO
COME INTO OR REMAIN IN THE POSSESSION OF, ANY ONE BUT LESSEE.
ANY UNPERMITTED SUBLEASE OR ASSIGNMENT BY LESSEE SHALL BE VOID.
AB INITIO. No assignment or sublease, whether authorized in this
Section or in violation of the terms hereof, shall relieve Lessee
of its obligations under any Lease Document and Lessee shall
remain primarily liable under al of the Lease Documents. Lessor
may at any item assign any or al of its rights, obligations,
title and interest under any or all of the Lease documents, to
any other person, so long as notice is sent to Lessee. Such
notice shall provide the name and address of Lessor's assignee
and the percentage interest such assignee has acquired in the
Lease. Lessee shall acknowledge receipt of such notice in
writing. Upon receipt of such notice from Lessor, Lessee shall
enter in its books and records the name and address of the
assignee (and its percentage interest in the Lease) as the new
Lessor under the Lease. In the event Lessor expressly retains
the obligations of the lessor under any Lease Document in any
such assignment, Lessor's assignee shall not be obligated to
perform any duty, covenant or condition required to be performed
by the lessor under the terms o such Lease Document (other than
the covenant of quiet enjoyment specified in Section 16(d)
hereof); and no breach or default by Lessor hereunder or pursuant
to any other agreement between Lessor and Lessee, should there be
one, shall excuse performance by lessee of any provision hereof;
it being understood that in the event of a default or breach by
Lessor that Lessee shall pursue any rights on account thereof
solely against Lessor. Lessee agrees that any such assignment
shall not materially change Lessee's duties or obligations under
the Lease or any Equipment Schedule nor materially increase
Lessee's risks or burdens. Upon such assignment and except as
may otherwise by provided therein all references in this Lease,
or such other assigned Lease Document, to Lessor shall include
such assignee. Subject always to the foregoing, this Lease
inures to the benefit of, and is binding upon, the successors and
assigns of the parties hereto.
16. MISCELLANEOUS. (a) This Lease, each Equipment
Schedule, any other Lease Documents and any commitment letter
executed by the parties pertaining to such Equipment Schedules,
constitute the entire agreement between the parties with respect
to the subject matter hereof and thereof and shall not be amended
or altered in any manner except by a document in writing executed
by both parties. This Lease and all of the other Lease Documents
may be executed in any number of counterparts and by different
parties hereto or thereto on separate counterparts, each of
which, when so executed and delivered, shall be an original, but
all such counterparts shall together consist of but one and the
same instrument; provided, however, that to the extent that this
Lease or any Equipment Schedule constitutes chattel paper (as
such terms is defined in the Code) no security interest in this
Lease or such Equipment Schedule made be created thereby by the
transfer or possession of any counterpart hereof or thereof, as
the case may be, other than the originally executed counterpart
bearing the mark "Original" on the first page hereof or thereof,
which counterpart shall constitute the "Original" hereof or
thereof, as the case may be, for purposes of the Code.
(b) Any provision of this Lease or any other Lease
Document which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Without limiting the generality of the foregoing, in the event
any court shall determine that any provision hereof was
unconscionable when made, such court is hereby authorized by
Lessor and Lessee to limit the application of such unconscionable
provision to the extent necessary to avoid any unconscionable
result.
(c) Each execution by Lessee of an Equipment Schedule
shall be deemed a reaffirmation and warranty that there shall
have been no material adverse change in the business or financial
condition of Lessee from the date of execution hereof. Except as
otherwise expressly provided herein, it is hereby agreed that (i)
all agreements, indemnities, representations and warranties
contained herein or in any other Lease Document shall survive,
and shall continue in effect following the execution and delivery
of this Lease and all such other Lease Documents; and (ii) with
respect to each Equipment Schedule, shall survive the termination
thereof to the extent necessary for their full and complete
performance.
(d) Subject to the terms and conditions hereof, neither
Lessor nor any person authorized by Lessor shall interfere with
Lessee's right to peaceably and quietly hold, possess and use the
Equipment during the term of the Equipment Schedule relating
thereto. Any action by Lessee against Lessor for any default by
Lessor under this Lease or any Equipment Schedule, shall be
commenced within one (1) year after any such cause of action
accrues.
(e) Lessee irrevocably appoints Lessor as Lessee's
attorney-in-fact (which power shall be deemed coupled with an
interest) to execute on Lessee's behalf and file al UCCs and
amendments Lessor deems advisable to establish, protect, perfect
or obtain priority for the security interest granted herein, to
execute, endorse and deliver any documents and checks or drafts
relating to or received in payment for any loss or damage under
the policies of insurance required by the provisions of Section
10 hereof, but only to the extent that the same relates to the
Equipment.
(f) LESSOR AND LESSEE HEREBY WAIVE TRIAL BY JURY IN ANY
ACTION OR PROCEEDING TO WHICH LESSEE AND/OR LESSOR MAYBE PARTIES
ARISING OUT OF OR IN ANYWAY PERTAINING TO THIS LEASE OR ANY OF
THE LEASE DOCUMENTS. IT IS HEREBY AGREED AND UNDERSTOOD THAT
THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS
AGAINST PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS
AGAINST PARTIES WHO ARE NOT PARTIES TO THIS LEASE OR SUCH OTHER
LEASE DOCUMENTS. THIS WAIVER IS KNOWINGLY, WILLINGLY AND
VOLUNTARILY MADE BY THE PARTIES AND THE PARTIES HEREBY
ACKNOWLEDGE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN
MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OR TRIAL BY JURY OR
IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. EACH OF LESSOR AND
LESSEE FURTHER ACKNOWLEDGE THAT IT HAS BEEN REPRESENTED IN THE
SIGNING OF THIS LEASE AND THE OTHER LEASE DOCUMENTS AND IN THE
MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF
THEIR OWN FREE WILL, AND THAT THEY HAVE HAD THE OPPORTUNITY TO
DISCUSS THIS WAIVER WITH COUNSEL.
(g) All notices (excluding billings and communications in
the ordinary course of business) hereunder shall be in writing,
delivered personally or by overnight courier service, set by
facsimile transmission (with confirmation of receipt), or sent by
certified mail, return receipt requested, addressed to the other
party at its respective address stated below the signature of
such party or at such other address as such party shall from time
to time designate in writing to the other party, and shall be
effective from the date of mailing.
(h) This Lease and al of the other Lease Documents shall
not be effective unless and until accepted by execution by an
officer of Lessor at the address, in the State of California, as
set forth below the signature of Lessor. THIS LEASE AND ALL OF
THE OTHER LEASE DOCUMENTS, AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER AND THEREUNDER SHALL IN ALL RESPECTS BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS
OF THE STATE OF CALIFORNIA (WITHOUT REGARD TO THE CONFLICT OF
LAWS PRINCIPLES OF SUCH STATE), INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, REGARDLESS OF THE
LOCATION OF THE EQUIPMENT. The parties agree that any action or
proceeding arising out of or relating to this Lease may be
commenced in any state or Federal court in the State of
California, and agree that a summons and complaint commencing an
action or proceeding in any such court shall be properly served
and shall confer personal jurisdiction if served personally or by
certified mail to it at its address hereinbelow set forth, or as
it may provide in writing from time to time, or as otherwise
provided under the laws of the State of California.
17. DEFINITIONS AND RULES OF CONSTRUCTION. (a) The
following terms, wen capitalized (if applicable) or otherwise
used as below, have the following meanings:
"Abatement Amount": with respect to any Abatement Period, an
amount equal to (i) any installment(s) of Basic Rent, and any
fraction thereof, accruing pursuant to the Equipment Schedule
covering the item of Equipment having suffered an Impairment of
Use, multiplied by (ii) a fraction having (x) a numerator equal
to the amount of Total Invoice Cost allocable to such item of
Equipment, and (y) a denominator equal to the Total Invoice Cost
of all of the items of Equipment then being leased to Lessee
under such Equipment Schedule.
"Abatement Period": with respect to any item of Equipment,
that period commencing upon the Impairment Date relating thereto,
and continuing until the earlier of (i) Lessor having either (x)
cured the Impairment of Use relating thereto, or (y) provided
Lessee with Replacement Equipment in substitution therefore, or
(ii) the expiration of the Term of such Equipment Schedule.
"Administrative Fee": with respect to each payment of Rent
that shall become due and payable hereunder or under or with
respect to any Equipment Schedule, an amount equal to five (5)
percent of such Rent payment; provided, that if such charge
exceeds the highest charges of such type permitted by Applicable
Law, then the Administrative Fee shall be the highest such
charges permitted by Applicable Law.
"Applicable Law": any applicable Law, including any Law that
may apply to Lessee, its properties and operations, the Equipment
or related property or the operation, modification, condition,
maintenance, ownership, leasing or use thereof (including any
product thereof), or any transaction contemplated hereunder or
under any other Lease Document, including any environmental law,
federal or state securities law, commercial law (pertaining to
the rights and obligations of sellers, purchasers, debtors,
secured parties, or to any other pertinent matter), zoning,
sanitation, siting or building law, energy, occupational safety
and health practices, or any other Law.
"Base Lease Commencement Date": for each Equipment Schedule,
as defined in Section 2 thereof.
"Basic Rent": the rental installments payable pursuant to
each Equipment Schedule for the Interim Term, the Basic Term and
the Renewal Term, in the amounts and on the dates set forth
therein.
"business day": any day, other than a Saturday, Sunday, or
legal holiday for commercial banks under the laws of the State of
the governing Law of this Lease.
"Claims": all claims, harms, judgments, good faith
settlements entered into, suits, actions, debts, obligations,
damages (whether incidental, consequential or direct), demands
(for compensation, indemnification, reimbursement or otherwise)
losses, penalties, fines, liabilities (including strict
liability), charges that Lessor has incurred or is responsible
for in the nature of interest, Liens, and costs (including
attorneys' fees and disbursements and any other legal or non-
legal expenses of investigation or defense of any Claim, whether
or not such Claim is ultimately defeated, or enforcing the
rights, remedies or indemnities provided for hereunder, or
otherwise available at law or equity to Lessor), of whatever kind
or nature, contingent or otherwise, matured or unmatured,
foreseeable or unforeseeable, by or against any person.
"Code" or "Uniform Commercial Code": the Uniform Commercial
Code as in effect in California or in any other applicable
jurisdiction; and any reference to an article or section thereof
shall mean the corresponding article or section (however termed)
of any such other applicable version of the Uniform Commercial
Code.
"default": except when inconsistent with the context of any
provision hereof, an event which, but for the lapse of time or
the giving of notice or both, would be a Default.
"Equipment": with respect to each Equipment Schedule, the
property described therein, together with all appliances, parts,
instruments, accessories, furnishings, which are from time to
time incorporated in the Equipment, or having been so
incorporated, are later removed therefrom, unless title thereto
is expressly released by Lessor, and all replacements of, and all
additions, improvements and accessions to any and all thereof,
and all books and records and general intangibles (including all
licenses, patents, copyrights and trade secrets) relating
thereto; and when used in the context of Lessor's title to the
Equipment (whether relating to the creation, grant, perfection,
release, priority, enforcement or application of process thereof)
shall also include all other property in which Lessor is granted
a security interest hereunder or from time to time under any
Equipment Schedule.
"Equipment Schedule": any Equipment Schedule to be executed
pursuant hereto.
"GAAP": generally accepted accounting principle, applied
consistently.
"Governmental Authority": any federal, state, county,
municipal, regional or other governmental authority, agency,
board, body, instrumentality or court, in each case, whether
domestic or foreign.
"Impairment Date": the date of the occurrence of any
Impairment of Use.
"Impairment Event": with respect to any item of Equipment,
Lessor's breach of its agreements in Section 16(d).
"Impairment of Use": Lessee is denied use or possession of
any item of Equipment to a material extent, as a direct and
primary result of an Impairment Event; provided, that such event
is certified to Lessor in writing by Lessee's responsible
officer, and verified to Lessor's satisfaction by Lessor's
independent investigation or such other evidence relating thereto
as Lessor may reasonably request.
"Imposition": with respect to each Equipment Schedule, any
title, recordation, documentary stamp and other fees, taxes,
assessments and all other charges or withholdings of any nature
(together with any penalties or fines thereof) arising at any
item upon or relating thereto or to the Equipment lease
thereunder, or the delivery, acquisition, ownership, use,
operation, leasing or other disposition of such Equipment or upon
the Rent payable thereunder, whether the same be assessed to
Lessor or Lessee.
"Initial Term": for each Equipment Schedule, the monthly
period specified in Section 2 thereof commencing on the Base
Lease Commencement Date.
"Interim Term": for each Equipment Schedule, the period from
the effective date thereof to the Base Lease Commencement Date.
"Law": any law, rule, regulation, ordinance, order, code,
common law, interpretation, judgment, directive, decree, treaty,
injunction, writ, determination, award, Permit or similar norm or
decision of any Governmental Authority.
"Lease": this Equipment Lease Agreement.
"Lease Documents": collectively, the Lease, the Equipment
Schedules, and all instruments, documents, certificates and
agreements delivered pursuant hereto.
"Lien": any mortgage, pledge, lease, sublease, security
interest, attachment, charge, encumbrance or right or claim of
others whatsoever (including any conditional sale or other
retention agreement).
"Permit": any action, approval, certificate of occupancy,
consent, waiver, exemption, variance, franchise, order, permit,
authorization, right or license, or other form of legally
required permission, of or from a Governmental Authority.
"Permitted Lien": (a) Lessor's and Lessee's respective
rights, titles and interest in the Equipment, (b) mechanics,
materialmen, laborers, employees or suppliers Liens and similar
Liens arising by operation of Law and incurred by Lessee in the
ordinary course of business for sums that are not yet delinquent
or are being contested in good faith by negotiations or by
appropriate proceedings which suspend the collection and
enforcement thereof (provided, that the existence of such Lien
while such negotiations or proceedings are pending does not
involve any substantial risk (in Lessor's discretion) of the
sale, forfeiture or loss of the Equipment or any therein, and for
which adequate reserves have been provided in accordance with
GAAP), and (c) Liens arising out of any judgments or awards
against Lessee which have been adequately bonded to protect
Lessor's interests or with respect to which a stay of execution
has been obtained pending an appeal or a proceeding for review.
"person": any individual, corporation, partnership, joint
venture, or other legal entity or a Governmental Authority,
whether related or unrelated to Lessee or Lessor.
"Proceeds": all tolls, rents, revenues, issues, income,
products, profits and other proceeds of the Equipment or any part
thereof.
"Purchase Documents": all documents, instruments, licenses
and agreements pertaining to the acquisition of any of the
rights, title and interests in the Equipment.
"Purchase Price": for each Equipment Schedule, the amount
specified as such therein.
"Renewal Term": for each Equipment Schedule, unless Lessee
elects to purchase the Equipment on the last day of the Initial
Term, the consecutive monthly period set forth therein.
"Rent": collectively, the Basic Rent and the Supplemental
Rent.
"Replacement Equipment": any item(s) of Equipment substituted
by Lessor for any item of Equipment suffering an Impairment of
Use, having the same value, utility and condition that the
replaced item of Equipment had on the date next preceding the
Impairment Date.
"Stipulated Loss Value": with respect to each Equipment
Schedule, the product of the Total Invoice Cost of the Equipment
leased thereunder, and the applicable percentage factors set
forth on the Schedule of Stipulated Loss Values attached hereto.
"Supplemental Rent": all amounts, liabilities and obligations
(other than Basic Rent) which Lessee assumes or agrees to pay to
Lessor or others hereunder, or under any other Lease Document,
with respect to an Equipment Schedule, including the Stipulated
Loss Value, the Purchase Price, all Administrative Fees and
payments constituting indemnities, reimbursements, expenses and
other charges payable pursuant to the terms thereof.
"Supplier": the person from whom Lessor is purchasing the
Equipment.
"Supply Contract": any written contract from the Supplier of
the Equipment, pursuant to which Lessor has purchased the
Equipment for lease to Lessee under an Equipment Schedule.
"Term": the period for which Equipment is leased under any
Equipment Schedule, including the Interim Term, the Initial Term
and, to the extent Lessee does not purchase the Equipment on the
last day of the Initial Term, the Renewal Term.
"title": when used in the context of Lessor's title to any
Equipment, such title retained by Lessor, which, after giving
effect to the provisions of this Lease, constitutes a first
priority security interest in such Equipment under Applicable
Law.
"Total Invoice Cost": with respect to each Equipment
Schedule, the amount specified as such thereon.
"Total Loss": any of (a) the actual or constructive total
loss of any item of the Equipment; or (b) the loss,
disappearance, theft or destruction of any item of the Equipment;
or (c) damage (including any contamination by hazardous
substances) to any item of the Equipment to such extent as shall
make repair thereof uneconomical, or shall render any item of the
Equipment permanently unfit for normal use, for any reason
whatsoever; or (d) the condemnation, confiscation, requisition,
seizure, forfeiture or other taking of title to or use of any
item of the Equipment, or any imposition of a Lien thereon by an
Governmental Authority in excess of $___; or (e) as a result of
any Law or other action taken by any Governmental Authority, the
use of the Equipment in the normal course of Lessee's business
shall have been prohibited (i) indefinitely or (ii) for a period
in excess of (1) 60 days, or (2) for a period that extends beyond
the then existing Term; all of the foregoing, to the extent
established to the reasonable satisfaction of Lessor.
"UCC": a Uniform Commercial Code financing statement.
(b) Any defined term used in the singular preceded by
"any" indicates any number of the members of the relevant class.
(i) "including shall mean containing, embracing or involving all
of the enumerated items, but not limited to such items unless
such term is followed by the words "and limited to," or similar
words; and (ii) use of the word "or" shall mean at lest one, but
not necessarily only one, or the alternatives enumerated. Any
Lease Document or other agreement or instrument referred to
herein means such agreement or instrument as supplemented and
amended from time to time. Any reference to Lessor or Lessee
shall include their permitted successors and assigns. Any
reference to a Law shall also mean such Law as amended,
superseded or replaced from time to time. Unless otherwise
expressly provided herein to the contrary, all actions that
Lessee takes or is required to take under this Lease or any other
Lease Document, shall be taken at Lessee's sole cost and expense,
and all such costs and expenses shall constitute Claims and be
covered by Section 14 hereof. To the extent Lessor is required
to give its consent to Lessee with respect to any matter, the
reasonableness of Lessor's withholding of such consent shall be
determined based on the then existing circumstances; provided,
that Lessor's withholding of its consent shall be deemed
reasonable for all purposes if (i) the taking of the action that
is the subject of such request, might result (in Lessor's
discretion), in (1) an impairment of Lessor's rights, title or
interests hereunder or under any Equipment Schedule or other
Lease Document, or to the Equipment, or (2) expose Lessor to any
Claims, or (ii) to the extent Lessee fails to provide promptly to
Lessor any filings, certificates, opinions or indemnities
specified by Lessor to Lessee in writing.
(c) Lessor and Lessee agree that the definitions and rules
of construction herein shall constitute an integral part of this
Lease.
IN WITNESS WHEREOF, the parties hereto have caused this Lease
to be duly executed as of the day and year first above set forth.
ALLY CAPITAL CORPORATION ELECTROSOURCE, INC.
/s/ /s/
Name: James A. Kamradt Name: James M. Rosel
Title: Vice President-Production Title: Vice
President, Finance, Law & Contracts
2330 Marinship Way, Suite 300 3800 B Drossett Drive
Sausalito, California 94965 Austin, Texas 78744-1131
ENVIRONMENTAL RIDER
RIDER NO. 01
This Rider is a part of that certain Equipment Lease
Agreement dated as of April 6, 1995 (the "Lease") between ALLY
CAPITAL CORPORATION ("Lessor") and ELECTROSOURCE, INC.
("Lessee").
In addition to and without limiting any of the other
provisions of this Lease, Lessee and Lessor hereby agree as
follows:
A. DEFINITIONS AND RULES OF CONSTRUCTION. Section 17 of
this lease is hereby supplemented by adding the following terms,
which when capitalized (or otherwise used) as below, shall have
the following meanings:
"Applicable Law": shall also include any Applicable Permit.
"Applicable Permit": any Permit, including any zoning,
environmental protection, pollution, sanitation, safety, energy,
siting or building Permit that Lessee shall be required to obtain
to comply with Applicable Law, including any Permit that is
necessary to operate, modify, construct, convey, maintain,
acquire, own, lease, sublease or use the Equipment (including any
product thereof), or related property, to own, lease or operate
Lessee's properties, conduct its business or necessary to enter
into any of these Lease Documents or to consummate any of the
transactions contemplated thereby.
"Claims": shall also include all Environmental Claims.
"Environmental Claims": any Claims by a Governmental
Authority or other person that are incurred, arise or effectuated
at any time as a result of the existence of any Environmental
Contamination or violation of any Environmental Law pertaining to
any Equipment or related property, or allegation thereof,
regardless of whether the existence (alleged or otherwise) of
such Environmental Contamination or the violation of
Environmental Law originated or resulted from the Equipment or
related property or arose prior to the present ownership or
operation of the Equipment or related property, including: (a)
Claims for personal injury or injury to or destruction, loss or
diminution in value of property or natural resources occurring
to, upon, near or off any Equipment or related property,
foreseeable or unforeseeable; (b) Claims relating to any Remedial
Action, including any demolition and rebuilding of any
improvements on real property; (c) Claims for indemnity or
reimbursement or for the disgorgement of amounts paid to Lessor
or on its behalf, or resulting from any failure to report
discharges promptly; and (d) Claims incurred for the services of
attorneys, engineers, consultants, contractors, experts,
laboratories and all other costs reasonably incurred in
connection with the investigation or Remedial Actions taken with
respect to Hazardous Substances or violation of Environmental
Law, including the preparation of any feasibility studies or
reports of the performance of any Remedial Action.
"Environmental Contamination": any existence, uncontained
presence, leak, discharge, emission, aggregation, release, or
abandonment, or threat or suspicion of any of the foregoing, or
abandonment of Hazardous Substances in, upon, about, beneath, or
off the Equipment or related property or arising from the
Equipment or related property, that may require Remedial Action
or may result in a violation of any Environmental Law pertaining
to the Equipment or related property, or may result in Claims.
"Environmental Law" or "environmental law": any Applicable
Law relating to safety, land use, pollution or protection of
human health or species of wildlife or plants or the environznent
(including ambient air, surface water, groundwater, land surface
or subsurface strata), including, Laws relating to (a)
maintenance of a public or private nuisance, (b) carrying on of
an abnormally dangerous activity, (c) industrial hygiene, (d)
Environmental Contamination, including to air, water, land,
groundwater or personal property, (e) withdrawal or use of
groundwater, (f) Hazardous Substances, including the treatment,
manufacture, processing, distribution, use, analysis, generation,
storage, disposal, handling or transportation thereof and (g) any
regulation, order, notice or demand issued pursuant to such Laws,
in each case, applicable to Lessee or Lessor, the Equipment or
any related property, or the ownership or operation thereof,
including the following: (i) the Clean Air Act, (ii) the Federal
Water Pollution Control Act, the Clean Water Act and the Safe
Drinking Water Act, (iii) the Toxic Substances Control Act, (iv)
the Comprehensive Environmental Response Compensation Liability
Act of 1980, as amended ("CERCLA"), (v) the Resource Conservation
and Recovery Act ("RCRA"), (vi) the Solid and Hazardous Waste
Amendments of 1984, (vii) the Occupational Safety and Health Act,
(viii) the Emergency Planning and Community Right-to-Know Act of
1978, (ix) the Solid Waste Disposal Act, (x) the Superfund
Amendment and Reauthorization Act ("SARA"), (xi) the Hazardous
Material Transportation Act, (xii) the Endangered Species Act,
(xiii) the Federal Insecticide, Fungicide and Rodenticide Act,
(xiv) the Environmental Laws listed on Annex No. 2 to each
Equipment Schedule and (xv) any other Applicable Laws addressing
matters similar to the foregoing Laws.
"Hazardous Substances" or "hazardous substances": any and
all hazardous or toxic substances, materials, and wastes,
including any material, waste or substance which is (a) oil or
petrolewn, or their products or by-products (including sludge or
residue), chemical liquids or solid, liquid or gaseous products
or by-products, (b) asbestos, (c) polychlorinated biphenils, or
(d) designated as hazardous or toxic or regulated as such under
any Applicable Law, including RCRA, CERCLA, SARA, the Clean Water
Act, the United States Department of Transportation Hazardous
Materials Table or by the Environmental Protection Agency, or
defmed as a "hazardous material," "hazardous substance" or
"hazardous waste" under any other Applicable Laws.
"herein" "hereof," "hereunder," etc.: in, of, under, etc.
this Lease (and not merely in, of, under, etc. the section or
provision where the reference occurs).
"related property": with respect to any Equipment, the land
and buildings at which such Equipment is or shall become located
or any personalty or real property (including any body of water)
to or upon which the Equipment may now or hereafter be attached,
situated on or near, or adjacent to.
"Remedial Action": any clean-up, remedial action, removal,
response, abatement, containment, closure, excavation,
restoration or monitoring where undertaken to comply with
Envirorunental Law, whether or not required by any Government
Authority, or reasonably necessary to make full economic use of
the Equipment or related property.
B. REPRESENTATIONS, WARRANTIES AND COVENANTS. In addition
to the representations, warranties and covenants provided in
Section 2 of this Lease, Lessee hereby represents, warrants to
and covenants with Lessor that:
With respect to the Equipment covered by each Equipment
Schedule: (i) There are no applicably permitted Hazardous
Substances contained therein or at, upon, under or within any
related property that does or shall cause Lessee to be in
violation of this Lease or Applicable Law; (ii) Lessee has not
caused or permitted to occur, or suffered the occurrence of and
shall not permit to exist, any condition which may cause any
Environmental Contan-dnation of such Equipment or at, upon, under
or within any related property that does or shall cause Lessee to
be in violation of this Lease or result in a violation of
Applicable Law; (iii) neither Lessee, nor any other party has
been, is or will be involved in activities relating to the
Equipment or any related property that could lead to (1) the
imposition of liability on Lessor, Lessee, or on any subsequent
or former owner or operator of the Equipment or (2) the creation
of a Lien on the Equipment under Applicable Law (including any
Environmental Laws); (iv) Lessee has not perznitted, and will not
permit, any person to engage in any activity @ could result in
the imposition of liability under any Environmental Laws on
Lessee, Lessor or any owner or operator of the Equipment, or
would otherwise impair Lessor's rights or title pertaining
thereto; (v) all of the Environmental Laws applicable to the
Equipment, or to the operation or ownership thereof, are listed
on Annex No. I to such Equipment Schedule, and Lessee is in full
compliance therewith; and (vi) all Applicable Permits,
registrations, or notices necessary for Lessee to comply with any
Applicable Laws, are listed on Annex No. 2 to such Equipment
Schedule, Lessee has obtained, completed or given, as the case
may be, and is maintaining in good standing, all such Perraits,
registrations, filings or notices and is 'in full compliance with
all of the terms thereof, all actions necessary for the renewal
thereof have timely been taken (including the filing of any
applications); and all of the foregoing are in full force and
effect and there are no proceedings or investigations pending or,
to the best knowledge of Lessee, threatened that seek the
revocation, cancellation, suspension or adverse modification
thereof.
C. NOTICES. In addition to the notices required by
Section 3 of this Lease, Lessee shall provide, vm'tlen notice to
Lessor (i) promptly upon Lessee becoming aware of (A) any alleged
violation of Applicable Law, or (B) any threatened or actual
suspension, revocation or recision of any Permit necessary for
Lessee to be in compliance with the terms hereof-, and (ii)
promptly after any of the Equipment becomes lost, stolen,
missing, destroyed, materially damaged, wom out, or subject to or
causing, or threatening to cause, any Environmental
Contamination.
D. CONDITIONS PRECEDENT. In addition to the conditions
precedent set forth in Section 4 of this Lease, Lessor's
obligations under each Equipment Schedule (including Lessor's
obligation to purchase and participate in the financing of the
Equipment to be leased thereunder) are conditioned upon Lessor's
having received all of the following, in form and substance
satisfactory to Lessor, at least two (2) business days prior to
the date upon which Lessor purchases the Equipment or has
committed to purchase same (if sooner): (i) to the extent
requested by Lessor, a report, audit or opinion, as the case may
be, from an appraiser, environmental engineer, or other expert,
regarding any matters specified by Lessor (1) including the value
of the Equipment as of the effective date of the Equipment
Schedule, and at the expiration of the Initial Term and any
Renewal Term, or (2) the then existing condition of the Equipment
or any of the related property, including, the absence of any
past or existing violations of Applicable Law (including any
Envirorunental Laws); and (ii) if Lessor is purchasing the
Equipment from Lessee, (1) all of the operating records
pertaining to the storage or transportation of the Equipment and
any Envirorunental Contamination relating to the Equipment or the
related property and (2) copies of all enforcement actions for
alleged violations of Applicable Laws (including Environmental
Laws), and any and all information concerning any pending
investigations pertaining to alleged violations of Applicable
Laws (including any Environmental Laws).
E. USE AND MAINTENANCE. In addition to the requirements
of Section 6 of this Lease, and without limiting the generality
of subsection (a) of Section 4 of this Lease, Lessee agrees to
comply strictly and in all respects with all Applicable Laws
(including all Environmental Laws) pertaining to the Equipment or
related property (without regard to which person such Applicable
Laws shall, by their terms, be nominally imposed), unless Lessee
shall be contesting the validity thereof in good faith and by
appropriate proceedings, but only so long as Lessee's failure to
so comply during the existence of such proceedings shall not (i)
involve any material risk of the sale, forfeiture or loss of such
Equipment, or any part thereof or interest therein, (ii) result
in, or involve any substantial probability of resulting in, the
creation of any Lien (other than a Permitted Lien) on or with
respect to such Equipment, or any part thereof or interest
therein, and (iii) involve the risk of the imposition of civil or
criminal fines or penalties on Lessor, Lessee, or generally to
the operators or holders of title to or other interests in the
Equipment, Lessee will maintain all records, logs and other
materials required by any Governmental Authority having
jurisdiction to be maintained in respect of any Equipment,
without regard to which person any such requirements shall, by
their terms, be nominally imposed. Lessee will procure and pay
for all Permits, franchises, inspections and licenses necessary
or appropriate in connection with any Equipment and any repair,
restoration, replacement,- renewal, addition or improvement
thereof and thereto that may be required pursuant to the first
sentence of this paragraph. Lessee shall promptly forward to
Lessor copies of all orders, notices, Permits, applications or
other communications and reports in connection with any discharge
or the presence of any Hazardous Substances or any other matters
relating to the Environmental Laws or similar Applicable Laws, as
they may affect Lessee, the Equipment or Lessor's or Lessee's
right, title, or interest therein. Promptly upon the written
request of Lessor, from time to time, Lessee shall provide Lessor
with environmental site assessments or environmental audit
reports prepared by an environmental engineering firm acceptable
to Lessor, to assess with a reasonable degree of certainty the
presence or absence of any Hazardous Substances and the potential
cost in connection with any Remedial Action pertaining to the
Equipment or related propertv.
F. DISCLAIMER OF WARRANTIES. In addition to the waivers,
disclaimers and acknowledgements made in the Lease and each
Equipment Schedule, Lessee further acknowledges that: Lessor has
made the Equipment available to Lessee for examination, demanded
that Lessee inspect the Equipment using a professional in the
field of inspections pertaining to such Equipment (including
compliance with the Environmental Laws), and Lessee has, pursuant
to such demand examined the Equipment (using such an experienced
inspector); the Equipment is not to be used, and is not being
acquired hereby, for use in any respect for Lessee's or any other
person's personal or family purposes, and as such, the Equipment
does not constitute "consumer goods" as such term is defined
under Applicable Law; the Equipment was selected by Lessee on the
basis of its own respective judgment, Lessee has not asked for,
been given or relied upon any statements, representations,
guaranties or warranties of Lessor; Lessor is not in the business
of manufacturing or assembling Equipment or otherwise in the
business of being a vendor or supplier, but is instead in the
business of providing financial accommodations including lease
financing; AND THE PROVISIONS OF THIS PARAGRAPH F AND SECTION 7
OF THIS LEASE HAVE BEEN NEGOTIATED BY LESSOR AND LESSEE AND,
EXCEPT FOR THE WARRANTY MADE BY LESSOR IN SECTION 16(d) HEREOF,
ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY
REPRESENTATIONS, GUARANTIES, OBLIGATIONS OR WARRANTIES OF LESSOR
EXPRESS OR IMPLIED WITH RESPECT TO THE EQUIPMENT THAT MAY ARISE
PURSUANT TO ANY APPLICABLE LAW (INCLUDING ANY ENVIRONMENTAL LAW)
NOW OR HEREAFTER IN EFFECT.
G. INSURANCE. In addition to the requirements of Section
10 of this Lease, to the extent available, both the casualty and
liability insurance coverage shall insure against loss of or
damage to the Equipment, or liability to Lessor or Lessee,
resulting from Environmental Claims; provided, that Lessee shall
be available at an aggregate cost, with respect to the Equipment,
of no greater than 2.5% of the Total Invoice Cost thereof;
provided, further, that notwithstanding the then current cost of
said coverage, Lessee shall obtain such coverage to the extent it
is typically obtained and maintained by companies and businesses
similar to Lessee, in connection with their ownership or
operation of, or other activities in connection with, equipment
that is the same as or similar to the Equipment, or to the extent
Lessee currently maintains such coverage with respect to its
other similar equipment. All said insurance shall be in form and
amount and with companies reasonably satisfactory to Lessor.
H. REDELIVERY. In addition to the requirements of Section
12 of this Lease, Lessee agrees that with respect to any
Equipment or item thereof that Lessee shall be required to return
or turn over to Lessor, to the extent the continued possession
and operation of the Equipment or item of Equipment is necessary
for Lessee to remain in compliance with Applicable Law, Lessee
shall immediately replace such Equipment or item of Equipment,
and in any event, Lessee shall not upon such removal take any
action or fail to take any action the effect of which will result
in a violation of Applicable Law (including any Environmental
Law); and without limiting the generality of any other provision
hereof, Lessee agrees to return such Equipment or item of
Equipment to Lessor, free from any Hazardous Substances, an
dispose of such Hazardous Substances in compliance with all
Applicable Law.
I. REMEDIES. Section 14 of the Lease shall be
supplemented as follows: (a) Lessee agrees remedies provided in
Section 14 and certain other Sections, of this Lease shall also
expressly include the right to take Remedial Action and be
reimbursed, made whole, indemnified, held harmless and otherwise
protected by Lessee against any resulting or related Claims
incurred or suffered in connection therewith; except that Lessee
agrees that Lessor shall not have any obligation whatsoever to
undertake or consummate the same or to take or refrain from
taking any other action, with respect thereto or otherwise
relating to or arising in connection with any Environmental
Claim, Environmental Contamination, Enviroiunental Law or
Hazardous Substance pursuant to the pertinent terms of this Lease
including Sections 12, 13 and 14;
(b) Lessee agrees that to the extent Lessor's ability to
dispose of the Equipment in a commercially reasonable manner may
be impeded by any violations of Applicable Law that have occurred
with respect thereto, or Lessor's actions with respect to same
might result in an Environmental Claim, Lessee hereby waives,
without limiting the generality of any other waivers, disclaimers
or indemnities herein, any claim, right, action or defense
otherwise available to it against Lessor in connection with such
disposition or Lessor's deficiency claim. Lessee hereby
acknowledges that: (i) Lessor's election to dispose of the
Equipment any any point after a Default has occurred with respect
to an Equipment Schedule may be affected by the Equipment's non-
compliance with the provisions hereof; (ii) Lessee, pursuant to
its represenations, agreements and indemnities hereunder, is
ultimately responsible to Lessor fo rany harms (including any
Enviornmental Claims) suffered by Lessor in connection with any
such non-compliance; and (iii) to avoid or mitigate the
imposition of Claims (including Environmental Claims) resulting
from such non-compliance it willbenefit Lessee even if such
efforts (which may include abandoning the Equipment or selling it
expeditiously or after an extended period) result in there being
a deficiency, or greater amount thereof, under the Equipment
Schedules; and (iv) and furtherance thereof, Lessee hereby
waives, without limiting the generality of any other waivers,
disclaimers or indemnities herein, any claim, right, aciton or
defense otherwise available to it against Lessor in connection
with such disposition or deficiency claim.
J. EFFECT OF RIDER. Except as supplemented hereby, this
Lease remains unmodified by the provisions of this Rider, which
provisions are, for all purposes, hereby incorporated into and
made a part of this Lease and each Equipment Schedule.
ALLY CAPITAL CORPORATION ELECTROSOURCE, INC.
By: /s/ By: /s/
Name: James A. Kamradt Name: James M. Rosel
Title: Vice President-Production Title: Vice President
Finance, Law & Contracts
Annex No. 1
Environmental Laws
1. Resource Conservation and Recovery Act (RCRA)
Section 3010, Subtitle C
Classification: Small Quantity Generator of Hazardous Waste
2. National Pollutant Discharge Elimination System (NPDES)
3. Texas Natural Resource Conservation Commission (TNRCC) Notice of
Registration Section 335, Chapter 31 of Texas Administrative
Code (specifies the notification, recordkeeping, manifesting
and reporting requirements)
4. Occupational Safety and Health Act
Standards for General Industry (29 CFR 1910)
Lead Standard 29 CFR 1910.1025
Annex No. 2
Applicable Permits
1. Environmental Protection Agency
Identification Number: TXD988087219
Region 9
2. National Pollutant Discharge Elimination System (NPDES)
Storm Water General Permit Number TXR00F121
3. Texas Natural Resource Conservation Commission (TNRCC) Notice
of Registration Solid Waste Registration Number: 81162
County: 105 Hays
Air Quality Identification Number: HK-0077-L
Constructed under Standard Exemption (SE) 76, and
currently operated under SE 39, 50, 51, 61, 106, and
118 per authorization dated January 9, 1995.
Draft Air Permit Application is expected to be
submitted in final form as New Source Review Permit
to TNRCC before the end of April, 1995.
4. Texas Department of Public Safety
Permit for Precursor Chemicals and/or Laboratory Apparatus
Number 1905
5. City of San Marcos Industrial User Permit
Section 30-94 of Ordinance Number 1991-55 or as amended
Industrial User Permit Number: 930201
National Categorical Standards (battery) CFR 461.35
Rider No. 02
This Rider is a part of that certain Equipment Lease Agreement
dated as of April 6, 1995 (this "Lease") between ALLY CAPITAL
CORPORATION ("Lessor") and ELECTROSOURCE, INC. ("Lessee").
In addition to and without limiting any of the other provisions of
this Lease, Lessee and Lessor hereby agree to the following
covenants:
1) Lessee shall issue to Lessor a Warrant to purchase Lessee's
Common Stock on the terms set forth in the Warrant.
2) Lessee shall, during the full Term of the Lease, provide
financial statements on a quarterly basis to Lessor, within 60
days of said quarter's end.
3) Lessee shall, during the full Term. of the Lease, provide
internal company projections on a semi-annual basis to Lessor,
due by June 30th and December 30th annually. Additionally, a
revised company Business Plan shall be sent to Lessor as often
as it is updated by the company.
4) Lessee shall, during the full Term of the Lease, provide
minutes to the Board of Director's meetings to Lessor, within 5
business days of said meeting. Lessee shall allow David
Sinutko, Lessor's designated representative, and/or his
designee to attend Lessee's board meetings. Lessee shall use
its best effort to provide Lessor at least 10 days prior notice
of such meeting.
5) Lessee shall provide Lessor with a 40% security deposit in the
form of a letter of credit in favor of Lessor or, a
certificate: of deposit held by Lessee pledged to Lessor. Upon
Lessee achieving two (2) consecutive quarters of profitability,
the security deposit shall be reduced to 25%. Upon two (2)
additional consecutive quarters of profitability, for a total
of (4) consecutive quarters, the security deposit shall be,
reduced to 15% with the balance released upon (2) additional
consecutive quarters of profitability, for a total of (6)
consecutive quarters or, a secondary public offering by Lessee
raising at least $20,000,000 net to Lessee. These funds shall
be released provide there is no material adverse change in
Lessee's financial position, Lessee is not in default, and
Lessee is generally on plan per its projections dated March 20,
1995. In the event Lessee does not meet the requirements for
early release of the letter of credit or certificate of deposit
during the Term of the Lease, the letter of credit or
certificate of deposit shall be fully discharged at the
successful termination of the Lease
6) Lessee shall not pledge or encumber any of its intellectual
property, including technology licenses, without Lessor's prior
written consent.
7) Lessee shall obtain for Lessor an Intercreditor Agreement to
Lessor's satisfaction between any future secured Lenders and
Lessors of Lessee.
Except as supplemented hereby, this Lease remains unmodified by the
provisions of this Rider, which provisions are, for all purposes,
hereby incorporated into and made a part of this Lease and each
Equipment Schedule.
ALLY CAPITAL CORPORATION ELECTROSOURCE, INC.
By: /s/ By: /s/
Name: James A. Kamradt Name: James M. Rosel
Title: Vice President-Production Title: Vice President
Finance, Law & Contracts
RIDER NO. 03
TEXAS RIDER
This Rider is a part of that certain Equipment Lease Agreement
dated as of April 6, 1995 (the "Lease") between ALLY CAPITAL
CORPORATION ("Lessor") and ELECTROSOURCE, INC. ("Lessee").
In addition to and without limiting any of the other provisions of
the Lease, Lessee and Lessor hereby agree to the following:
CONTINGENT MAXIMUM INTEREST RATE. Lessor and Lessee are
corporations managed by individuals with substantial business
and commercial experience, and have been represented by
competent counsel at all stages of the negotiation hereof.
Lessor and Lessee desire that their relations be governed by
the laws of the state of California, and particularly that the
law of the state of California rather than the law of the
state of Texas shall control in all respects, especially with
respect to the maximum rate of interest that may be lawfully
charged. Lessee on behalf of itself and its successors and
assigns waives any rights or remedies it may have under any
provision of article 5069 or any successor provisions thereto
of the Texas civil statutes and reiterates that in any event
said provision is without application to the relations of the
parties hereto. This rider is required by Lessor pursuant to
its standard policies and documentation employed in connection
with transactions having any contacts with the state of Texas.
In the event, and only in the event, that Texas law with
respect to interest rates is applied to this transaction, an
event that both lessee and lessor acknowledge would be in
direct violation of their intention at the date hereof and at
any conceivable time thereafter, then regardless of any other
provision hereof, the interest rate contracted for, charged or
received herein shall be the maximum amount permitted
thereunder, and if Lessor is deemed to contract for, charge or
receive amount that could be construed as interest in excess
thereof, then said excess shall in no event be considered as
interest but rather as amounts applied to an early penalties,
and any remaining excess thereafter shall be promptly refunded
to Lessee, and Lessor shall not be subject to any penalties
for contraction for, charging or receiving interest in excess
of the permitted amount. The undersigned representative of
Lessee represents and warrants to Lessor (A) that he/she is
commercially sophisticated (B) has read and understands this
paragraph and (C) that Lessee has no intention of
characterizing any provision hereof as governed by Texas law.
Failure by Lessee to comply with the conditions of this Rider shall
constitute a Default under the Lease.
Except as supplemented hereby, the Lease remains unmodified by the
provisions of this Rider, which provisions are, for all purposes,
hereby incorporated into and made a part of the Lease and each
Equipment Schedule.
ALLY CAPITAL CORPORATION ELECTROSOURCE, INC.
By: /s/ By: /s/
Name: James A. Kamradt Name: James M. Rosel
Title: Vice President-Production Title: Vice President
Finance, Law & Contracts
AMENDMENT TO THE BUSINESS ALLIANCE
AND LICENSE AGREEMENT
This Amendment (the "Amendment") to the Business Alliance
and License Agreement dated September 1, 1993 by and between
Electrosource, Inc. ("Electrosource") and Electric Power Research
Institute ("EPRI") as amended on September 17, 1993 (the
"Agreement") shall be entered into effective as of this 1st date
of November, 1995. Capitalized terms used herein and not defined
have the same definitions as set forth in the Agreement.
WHEREAS, EPRI purchased certain equipment listed on Exhibit
A hereto in connection with research activities undertaken by
Electrosource on behalf of EPRI and the parties now wish to
transfer title of such equipment to Electrosource.
WHEREAS, pursuant to the Agreement, EPRI granted to
Electrosource a personal, nontransferable, perpetual, worldwide,
royalty-bearing license to use EPRI's Patent Rights and the
Technology, if any, and the parties now desire to transfer all
right, title and interest in the EPRI Patent Rights and the
Technology, if any, to Electrosource subject to any rights held
by the Participating Utilities set forth in the agreements listed
on Exhibit B hereto.
WHEREAS, EPRI has agreed to pay an additional $200,000 to
Electrosource as full payment of all obligations owed to
Electrosource pursuant to the Agreement.
WHEREAS, the parties wish to provide that if any
Participating Utility chooses not to convert its rights to
receive royalties into equity of Electrosource, then EPRI shall
receive the shares that otherwise would have been allocated to
such Participating Utility and the Participating Utility shall
receive a proportionate part of the cash royalties as set forth
in the Agreement.
NOW THEREFORE, the parties hereto, intending to the legally
bound, agree as follows:
1. Section 3 of the Agreement is amended and restated in
its entirety as follows:
"3. Transfer of Title. In consideration for this
Amendment to the Agreement, EPRI sells conveys,
assigns, transfers and delivers to Electrosource
all right, title and interest of EPRI in EPRI's
Patent Rights and the Technology, if any, free and
clear of all liens, pledges, charges, claims,
security interests or other encumbrances;
provided, however, that such transfer shall be
subject to the rights of the Participating
Utilities set forth in the agreements listed in
Exhibit B hereto, copies of which Electrosource
hereby acknowledges receiving."
2. Section 4 of the Agreement is deleted in its
entirety.
3. Title of Equipment. EPRI purchased the equipment
listed on Exhibit A attached to this Amendment for
$581,339.26 and such equipment is now located at
Electrosource facilities. EPRI hereby transfers all right,
title and interest in the equipment listed on Exhibit A (the
"Transferred Equipment") to Electrosource.
4. Settlement of Outstanding Obligations. EPRI agree
to pay Electrosource $200,000 upon execution of this
Amendment and such payment shall be in final settlement of
all amounts or obligations owed or owing by EPRI to
Electrosource under the Agreement.
5. Royalties.
a. Electrosource hereby acknowledges and agrees
that EPRI and the Participating Utilities, or both, are
deemed to have provided funds in an amount satisfactory
under Sections 5.2(b), 5.3 and 5.4 of the Agreement to give
EPRI and the Participating Utilities the right to elect to
exercise the conversion rights under Subarticle 5.3 of the
Agreement. Electrosource agrees that ELSI and the
Participating Utilities may exercise its right to receive
stock in lieu of cash royalties at any time during the six
month period following the effective date of this Amendment.
Electrosource also acknowledges that EPRI and the
Participating Utilities shall be issued any such shares
pursuant to the terms of the Stock Issuance Agreements
attached as Exhibit A to the Agreement.
b. Section 5.4 of the Agreement shall be amended
and restated in its entirety as follows:
"5.4 Number of Shares Issuable for Conversion.
If EPRI or the Participating Utilities elect to
exercise the conversion rights under Subarticle
5.3, EPRI and the Participating Utilities shall be
entitled to an aggregate of 2,158,000 shares of
Common Stock of Electrosource which amount is
equal to 13% of a stipulated 16,600,000 full
diluted number of shares of Common Stock of
Electrosource as of December 31, 1994 (the
"Electrosource Stock"), with EPRI and each such
Participating Utility pursuant to this Agreement.
A schedule of such pro rata amounts is attached as
Exhibit A hereto. In addition, if any
Participating Utility chooses not to exercise its
conversion rights under Subarticle 5.3 within the
six months period following the effective date of
this Amendment, EPRI shall receive the shares of
Common Stock of Electrosource that otherwise would
have been allocated to be issued to such
Participating Utility.:
c. The Participating Utilities who do not elect to
exercise the conversion rights under Subarticle 5.3 of this
Agreement will receive royalties on the terms set forth in
Section 5.1 and 5.2 of the Agreement based on their pro rata
contribution as set forth on Exhibit C.
6. Taxes. Electrosource agrees to pay or to
reimburse EPRI for any and all taxes incurred by either EPRI
or Electrosource in connection with the equipment transfer
contemplated by this Amendment.
7. Miscellaneous Provisions.
a. Counterparts. This amendment may be executed
in any number of counterparts, each of which shall be deemed
an original and all of which together shall be deemed to be
one and the same instrument.
b. Entire Agreement. This Amendment, together
with the Agreement and the Exhibits thereto, constitutes the
entire agreement by and between the parties with respect to
the subject matter hereof and supersedes all prior oral
and/or written understandings and agreements relating
thereto, except for the Research and Development Agreement
(RP2415-15/3593-2) dated July 21, 1992 (the "R&D
Agreement"). Neither party nor any of its agents has made
any representations to the other party which the parties
intend to have any force or effect, except as specifically
set forth therein and in the Agreement or the Exhibits
thereto, and neither party, in executing or performing this
Agreement, is relying upon any statement, covenant,
representation or information, or any nature, whatsoever, to
whomsoever made or given, directly or indirectly, verbally
or in writing, by any person or entity, except as
specifically set forth herein and in the Exhibits hereto.
This Amendment may not be modified or amended, in any way,
except in writing signed by the parties. In the event of
any conflict between the terms of this Amendment and the
Agreement and any of the Exhibits thereto the provisions of
this Amendment shall be controlling.
c. New Agreement. Prior to January 31, 1996,
the parties agree to use reasonable efforts to enter into a
new agreement on mutually acceptable terms which will
replace the Agreement and the R&D Agreement.
d. No Warranty. The equipment is sold "AS IS,"
WITH NO WARRANTY, STATUTORY, EXPRESS OR IMPLIED (INCLUDING
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE AND WARRANTIES ARISING FROM COURSE OF DEALING OR
USAGE OF TRADE).
IN WITNESS WHEREOF, the parties have each caused this
Agreement to be duly executed as of the 1st day of November,
1995.
ELECTRIC POWER RESEARCH INSTITUTE ELECTROSOURCE, INC.
By:____________________________ By: /s/
Michael G. Semmens
Title:__________________________ President, CEO and Chairman
Date:__________________________ Date: October 30, 1995
Exhibit A
Schedule of Equipment
Purchased by EPRI for Electrosource for $581,339.26
Serial EPRI tag
Description Number Number Cost
FYE 12/31/92:
SFUDs Tester upgrade n/a 23047 $14,573.00
Omnipower UPS n/a 23046 1,350.00
Chiller 3788 23045 2,831.22
Power supply 92PS584 23044 1,199.78
Power supply 92PS586 23043 1,199.78
Power supply 92PS583 23042 1,199.78
Power supply 92PS585 23041 1,199.78
Computer 486 MHz n/a 23040 1,379.84
Computer 486 MHz n/a 23039 1,338.58
Computer 486 MHz n/a 23036 1,338.58
Computer 486 MHz n/a 23037 1,338.58
Computer 486 MHz n/a 23038 1,338.58
Computer 486 MHz n/a 23035 1,338.58
Monitor w/keyboard H2GB701149 n/a 400.00
Monitor w/keyboard H2GB701223 n/a 400.00
Monitor w/keyboard H2GB700982 n/a 400.00
Monitor w/keyboard H2GB701170 n/a 400.00
Monitor w/keyboard H2GB701150 n/a 400.00
Monitor w/keyboard H1CB803838 n/a 400.00
FYE 12/31/93:
Power supply n/a 24360 1,199.00
Power supply n/a 24361 1,199.00
Mixer 1930362 24303 1,250.00
Beater n/a 24304 553.00
Mixer and beater 1729085 24301 4,901.00
Freezer n/a 24298 10,390.00
Power supply n/a 24362 1,210.00
Pump n/a 24296 8,075.00
Chiller 4365 24349 2,622.00
Chiller 4435 24353 2,701.00
Chiller 4389 24352 5,513.00
Power supply 93PS743 24325 1,770.00
Power supply 93PS799 24305 2,063.00
Power supply 93PS786 24306 2,063.00
Power supply 93PS794 24307 2,063.00
Power supply 93PS793 24308 2,063.00
Power supply 93PS791 24309 2,063.00
Power supply 93PS802 24310 2,063.00
Power supply 93PS785 24311 2,063.00
Power supply 93PS784 24312 2,063.00
Power supply 93PS800 24313 2,063.00
Power supply 93PS789 24314 2,063.00
Power supply 93PS790 24315 2,063.00
Power supply 93PS787 24316 2,063.00
Power supply 93PS788 24317 2,063.00
Power supply 93PS783 24318 2,063.00
Power supply 93PS797 24319 2,063.00
Power supply 93PS795 24320 2,063.00
Power supply 93PS801 24321 2,063.00
Power supply 93PS792 24322 2,063.00
Power supply 93PS796 24323 2,063.00
Power supply 93PS798 24324 2,063.00
Electric Cabinet Oven 118791 24289 6,767.00
Chiller 4425 24350 2,622.00
Chiller 4540 24351 2,622.00
Chiller 4172 24354 2,701.00
Vacuum chamber n/a 24290 3,308.00
Acid converter n/a 24291 3,293.00
Power supply 93PS737 24326 1,770.00
Power supply 93PS736 24327 1,770.00
Power supply 93PS738 24328 1,770.00
Power supply 93PS745 24329 1,770.00
Power supply 93PS746 24330 1,770.00
Power supply 93PS293 24356 1,782.00
Power supply 93PS290 24358 1,782.00
Power supply 93PS292 24357 1,782.00
Power supply 93PS739 24331 1,770.00
Power supply 93PS742 24332 1,770.00
Power supply 93PS747 24333 1,770.00
Power supply 93PS741 24334 1,770.00
Power supply 93PS744 24335 1,770.00
Power supply 93PS740 24338 1,770.00
Power supply 93PS289 24358 1,782.00
Power supply 93PS291 24359 1,782.00
Computer 386 40 MHz n/a 24337 570.00
Computer 386 40 MHz n/a 24338 570.00
Computer 386 40 MHz n/a 24339 570.00
Computer 386 40 MHz n/a 24340 570.00
Computer 386 40 MHz n/a 24341 570.00
Computer 386 40 MHz n/a 24342 570.00
Computer 386 40 MHz n/a 24343 570.00
Computer 386 40 MHz n/a 24344 570.00
Computer 386 40 MHz n/a 24345 570.00
Computer 386 40 MHz n/a 24346 570.00
Computer 386 40 MHz n/a 24347 570.00
Computer 386 40 MHz n/a 24348 570.00
Raritan computer A8280015 24374 2,495.00
Computer 486 33 MHz n/a 24365 1,444.00
Computer 486 33 MHz n/a 24366 1,444.00
Computer 486 33 MHz n/a 24367 1,444.00
Computer 486 33 MHz n/a 24368 1,444.00
Computer 486 33 MHz n/a 24369 1,444.00
Computer 486 33 MHz n/a 24370 1,444.00
Computer 386 40 MHz n/a 24371 579.00
Printer, laser USA3807916 24373 1,737.00
Computer 486 50 MHz n/a 24384 1,666.00
Station manifold n/a 24295 2,125.00
Electronic balancer 0052310 24300 1,782.00
Micro-ohmmeter B469 24299 3,134.00
Power supply 93PS752 24383 10,864.00
Discharge unit n/a 24292 16,500.00
Wave solder machine n/a 24302 2,815.00
Vacuum pump 14730 24293 5,684.00
Cutter 930159 24294 7,997.00
Pump 3993207003 24297 8,075.00
Data monitor n/a 24372 3,217.00
FYE 12/31/94:
Genie lift 0593-35239 See note 1 1,097.15
Injection mold 0033177 See note 1 4,509.00
Survo motor n/a See note 1 1,821.15
Survo motor n/a See note 1 2,386.35
Load bank on pack tester n/a See note 1 2,545.52
Chiller 230 volt n/a See note 1 6,444.41
Chiller 230-volt n/a See note 1 6,444.41
Enclosure n/a See note 1 1,121.30
Buss n/a See note 1 1,305.46
Air filtration system n/a See note 1 42,288.00
Oven drain pan n/a See note 1 840.78
DC contactor 535 amp n/a See note 1 1,602.09
Transformer 480 volt n/a See note 1 2,208.58
Explore 2010 Electron Microscope E21029388 See note 1
187,198.89
Pasting machine n/a See note 1 44,285.00
Portable lead getter n/a See note 1 16,916.00
BADICHEQ 2000 n/a See note 1 3,240.00
Microscoper attachments n/a See note 1 3,435.56
PS9.0 n/a See note 1 1,113.53
Total $581,339.26
Note 1 - The 1994 capital items have not been submitted to EPRI
yet, thus there are no EPRI tag numbers assigned.
Note 2 - All other capital items billed to EPRI were relatively
minor components used to assemble various machinery.
Exhibit B
Agreements between EPRI and the Participating Utilities
Participating Utility Agreement Date
Oklahoma Gas & Electric Tailored Collaboration Agreement 05/18/93
Empire State Electric Energy
Research Corporation Cofunding Agreement 05/02/94
Pacific Gas &
Electric Company Cofunding Agreement 12/22/93
Houston Lighting & Power
Master Agreement for Tailored
Collaboration Projects 02/23/93
Centerior Energy Corporation Cofunding Agreement 03/23/94
Southern California
Edison Company Cofunding Agreement 12/09/93
Consolidated Edison Company
of New York, Inc. Cofunding Agreement 09/30/93
New York State Electric &
Gas Corporation Cofunding Agreement 11/21/94
Exhibit C
Funding Contributions
EQUITY CALCULATION:
Number of
Name Shares
EPRI 1,571,859
Oklahoma Gas & Electric 161,694
Houston Light & Power Company 161,694
Pacific Gas & Electric Company 101,059
Centerior Energy 161,694
Total 2,158,000
ROYALTY SHARE CALCULATION:
Name Amount Funded % of Royalty
Southern California Edison Company $200,000 20.0%
Empire State Electric Research Corporation 200,000 20.0
Consolidated Edison Company of New York 200,000 20.0
New York State Electric & Gas 400,000 40.0
Total $1,000,000* 100.0%
*Cash royalties will be paid on $1,000,000 with each of the above
four utilities receiving the percentage of royalties indicated
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement"), effective as of
September 1, 1995 is entered into by and between ELECTROSOURCE,
INC, Delaware corporation (herein referred to as the "Company")
and LIVIAKIS FINANCIAL COMMUNICATIONS, INC., a California
corporation (herein referred to as the "Consultant")
RECITALS
WHEREAS, Company is a publicly held corporation with its
common stock traded on the NASDAQ; and
WHEREAS, Consultant has experience in the area of corporate
finance, investor communications and financial and investor
public relations; and
WHEREAS, Company desires to engage the services of
Consultant to assist and consult to the Company in matters
concerning corporate finance and to represent the company in
investors' communications and public relations with existing
shareholders and brokers, dealers and other investment
professionals as to the Company's current and proposed
activities;
NOW THEREFORE, in consideration of the promises and the
mutual covenants and agreements hereinafter set forth, the
parties hereto covenant and agree as follows:
1. Term of Consultancy. Company hereby agrees to retain the
Consultant to act in a consulting capacity to the Company, and
the Consultant hereby agrees to provide services to the Company,
for a term of twenty-four (24) months commencing on the date of
the Agreement and ending on August 31, 1997.
2. Duties of Consultant. The Consultant agrees to provide the
following specified consulting servies through it's officers and
employees during the term specified in Section 1.:
(a) Advise and assist the Company in developing and
implementing appropriate plans and materials for presenting the
Company and its business plans, strategy and personnel to the
financial community, establishing an image for the Company in the
financial community, and creating the foundation for subsequent
financial public relations efforts;
(b) Introduce the Company to the financial community;
(c) With the cooperation of the Company, maintain an awareness
during the term of this Agreement of the Company's plans, strategy
and personnel, as they may evolve during such period, and advise
and assist the Company in communicating appropriate information
regarding such plans, strategy and personnel to the financial community;
(d) Assist and advise the Company with respect to its (i)
corporate finance activities, (ii) stockholder and investor
relations, (iii) relations with brokers, dealers, analysts and
other investment professionals, and (iv) financial public
relations generally;
(e) Perform the functions generally assigned to investor/stockholder
relations and public relations departments in major corporations,
including responding to telephone and written inquiries (which may
be referred to the Consultant by the Company); preparing or reviewing
press releases, reports and other communications with or to shareholders,
the investment community and the general public; advising with respect
to the timing, form, distribution and other matters related to such
releases, reports and communications; and consulting with respect
to corporate symbols, logos, names, the presentation of such symbols,
logos and names, and other matters relating to corporate image;
(f) Disseminate information regarding the company to shareholders,
brokers, dealers, other investment community professionals and the
general investment public;
(g) Conduct meetings, in person or by telephone, with brokers,
dealers, analysts and other investment professionals to advise them of
the Company's plans, goals and activities, and assist the Company in
preparing for press conferences and other forums involving the media,
investment community professionals and the general investment public;
(h) At the Company's request, review business plans, strategies,
mission statements budgets, proposed transactions and other plans for
the purpose of advising the Company of the investment community implications
thereof;
(i) Otherwise perform as the Company's financial relations and public
relations consultant; and,
(j) Make public communications and disclosures regarding the
Company only within the scope of the authorizations conferred by
the Company and not make any such communications or disclosures
of information not provided or authorized by the Company.
3. Allocation of Time and Energies. The Consultant hereby
promises to perform and discharge well and faithfully the
responsibilities which may be assigned to the Consultant from
time to time by the officers and duly authorized representatives
of the Company in connection with the conduct of its financial
and investor public relations and communications activities, so
long as such activities are in compliance with applicable
securities laws and regulations. Consultant shall diligently and
thoroughly provide the consulting services required hereunder.
Although no specific hours-per-day requirement will be required,
Consultant and the Company agree that Consultant will perform the
duties set forth hereinabove in a diligent and professional
manner. At the request of the company, the Consultant will
inform the Company of its specific activities concerning the
Company. The parties acknowledge and agree that a
disproportionately large amount of the effort to be expneded and
the costs to be incurred by the Consulant and the benefits to be
received by the Company are expected to occur upon and shortly
after, and in any eventt, within four or five months of the
effectiveness of this Agreement. Accordingly, the Company agrees
that delayed installments provided in paragraph 4 of this
Agreement are part of the total consideration due hereunder, are
not specifically allocated to the periods in which they are to be
paid, and shall be immediately due and payable upon the
occurrence of any default by the Company under this Agreement or
any termination of this Agreement by either party not based upon
a breach of this Agreement by the Consultant. The Company agrees
that such acceleration is not a penalty but is solely intended to
compensate Consultant fairly for its services, costs and expenses
hereunder.
4. Remuneration. As full and complete compensation for
services described in this Agreement, the Company shall
compensate Consultant as follows:
4.1 For undertaking, this engagement and for other good and
valuable consideration, the Company agrees to issue and
deliver to the Consultant a "Commencement Bonus" payable in
the form of 1,360,000 unregistered, restricted shares of the
Company's Common Stock (the "Common Stock"). This
Commencement Bonus shall be issued to the Consultant
promptly following execution of this Agreement and shall,
when issued and delivered to Consultant, be fully paid and
non-assessable. The Company understands and agrees that
Consultant has foregone significant opportunities to accept
this engagement and that the Company derives substantial
benefit from the execution of this Agreement and the ability
to announce its relationship with Consultant. The 1,360,000
shares issued as a Commencement Bonus, therefore, constitute
payment for Consultant's agreement to represent the company
and are a nonrefundable, non-apportionable, and non-ratable
retainer; such shares are not a prepayment for future
services. In additional, the Company shall pay to the
Consultant 20,000 restricted shares of the Company's Common
Stock, a the end of the fourth, eighth, twelfth, sixteenth,
twentieth and twenty-fourth months after the effective date
of this Agreement, which shares when issued and delivered to
Consultant, be fully paid and non-assessable. If and in the
event the Company is party to any acquisition, merger or
other business combination in which the business of the
Company is not the dominant business within the surviving
entity, payment of all amounts due to the Consultant
hereunder, including installments due under this Section 4.1
which have not been paid, shall be accelerated and shall be
due and pyable to the Consultant and paid by the company no
later than the closing of any such acquisition, merger or
business combination. All shares issued pursuant to this
Agreement shall be evidenced by stock certificate(s) issued
in the name of Liviakis Financial Communications, Inc.
4.2 Consultant acknowledges that the shares of Common Stock
to be issued pursuant to this Agreement (the "Shares") will
not have not been registered under the Securities Act of
1933, and accordingly are "restricted securities" within the
meaning of Rule 144 of the Act. As such, the Shares may
not be resold or transferred unless the Company has received
an opinion of counsel reasonably satisfactory to the Company
that such resale or transfer is exempt from the registration
requirements of that Act and any applicable state securities
laws. It is also understood that the certificates will bear
a legend reflecting the fact that the securities have been
issued without registration under the Securities Act of 1933
and may not be sold or transferred except upon registration
or an exemption therefrom and compliance with any applicable
state securities laws.
4.3 In connection with the acquisition of Shares hereunder,
the Consultant represents and warrants to the Company as
follows:
(a) Consultant has received a copy of the Auditor's Report
for the fiscal year ending December 31, 1994, 1993, 1992.
Consultant acknowledges that the Consultant has been
afforded the opportunity to ask questions of and receive
answers from duly authorized officers or other
representatives of the Company concerning an investment in
the Shares, and any additional information which the
Consultant has requested,
(b) Consultant's investment in restricted securities is
reasonable in relation to the Consultant s net worth, which
is in excess of ten (10) times the Consultant's cost basis
in the Shares. Consultant has had experience in investments
in restricted and publicly traded securities, and Consultant
has had experience in investments in speculative securities
and other investments which involve the risk of loss of
investment. Consultant acknowledges that an investment in
the Shares is speculative and involves the risk of loss.
Consultant has the requisite knowledge to assess the
relative merits and risks of this investment without the
necessity of relying upon other advisors, and Consultant can
afford the risk of loss of his entire investment in the
Shares. Consultant is (i) an accredited investor, as that
term is defined in Regulation D promulgated under the
Securities Act of 1933, and (ii) a purchaser described in
Section 25102 (f) (2) of the California Corporate Securities
Law of 1968, as amended.
(c) Consultant is acquiring the Shares for the Consultant's
own account for long-term investment and not with a view
toward resale or distribution thereof except in accordance
with applicable securities laws.
5. Expenses. Consultant agrees to pay for all its expenses
(phone, mailing, labor, etc.), other than extraordinary items
(travel required by/or specifically requested by the Company,
luncheons or dinners to large groups of investment professionals,
mass faxing to a sizable percentage of the Company's
constituents, investor conference calls, etc.) approved by the
Company prior to its incurring an obligation for reimbursement.
6. Indemnification. The Company warrants and represents
that all oral communications, written documents or materials,
other than those designated by the Company to the Consultant as
"confidential" or "Company private," furnished to Consultant by
the Company with respect to financial affairs, operations,
profitability and strategic planning of the Company are accurate
and Consultant may rely upon the accuracy thereof without
independent investigation. The Company will protect, indemnify
and hold harmless Consultant against any claims or litigation
including any damages, liability, cost and reasonable attorney's
fees with respect thereto resulting from Consultant's
communication or dissemination of any said information, documents
or materials not designated by the Company to the Consultant as
"confidential" or "Company private," excluding any such claims or
litigation resulting from consultants communication or
dissemination of information not provided or authorized by the
Company.
7. Representations. Consultant represents that he is not
required to maintain any licenses and registrations under federal
or any state regulations necessary to perform the services set
forth herein. Consultant acknowledges that, to the best of his
knowledge, the performance of the services set forth under this
Agreement will not violate any rule or provision of any
regulatory agency having jurisdiction over Consultant.
Consultant acknowledges that, to the best of his knowledge,
Consultant is not the subject of any investigation, claim, decree
or judgment involving any violation of the SEC or securities
laws. Consultant further acknowledges that he is not a
securities Broker Dealer or a registered investment advisor.
8. Legal Representation. The Company acknowledges that it
has been represented by independent legal counsel in the
preparation of this Agreement. Consultant represents that he has
consulted with independent legal counsel and/or tax, financial
and business advisors, to the extent the Consultant deemed
necessary.
9. Status as Independent Contractor. Consultant's
engagement pursuant to this Agreement shall be as independent
contractor, and not as an employee, officer or other agent of the
Company. Neither party to Agreement shall represent or hold
itself out to be the employer or employee of the other.
Consultant further acknowledges the consideration provided
hereinabove is a gross amount of consideration and that the
Company will not withhold from such consideration any amounts as
to income taxes, social security payments or any other payroll
taxes. All such income taxes and other such payment shall be
made or provided for by Consultant and the Company shall have no
responsibility or duties regarding such matters. Neither the
Company or the Consultant possess the authority to bind each
other in any agreements without the express written consent of
the entity to be bound.
10. Attorney's Fee. If any legal action or any arbitration
or other proceeding is brought for the enforcement or
interpretation of this Agreement, or because of an alleged
dispute, breach, default or misrepresentation in connection with
or related to this Agreement, the successful or prevailing party
shall be entitled to recover reasonable attorneys' fees and other
costs in connection with that action or proceeding, in addition
to any other relief to which it or they may be entitled.
11. Waiver. The waiver by either party of a breach of any
provision of this Agreement by the other party shall not operate
or be construed as a waiver of any subsequent breach by such
other party.
12. Notices. All notices, requests, and other
communications hereunder shall be deemed to be duly given if sent
by U.S. mail, postage prepaid, addressed to the other party at
the address as set forth herein below:
To the Company: Michael G. Semmens
Chairman & CEO
Electrosource, Inc.
3800-B Drossett Drive
Austin, TX 78744
To the Consultant: Liviakis Financial Communications, Inc.
John M. Liviakis, President
2118 "P" Street, Suite C
Sacramento, California 95816
It is understood that either party may change the address to
which notices for it shall be addressed by providing notice of
such change to the other party in the manner set forth in this
paragraph.
13. Choice of Law, Jurisdiction and Venue. This Agreement
shall be governed by, construed and enforced in accordance with
the laws of the State of California. The parties agree that
Sacramento County, CA will be the venue of any dispute and will
have jurisdiction over all parties.
14. Arbitration. Any controversy or claim arising out of
or relating to this Agreement, or the alleged breach thereof, or
relating to Consultant's activities or remuneration under this
Agreement, shall be settled by binding arbitration in California,
in accordance with the applicable rules of the American
Arbitration Association, and judgment on the award rendered by
the arbitrator(s) shall be binding, on the parties and may be
entered in any court having jurisdiction thereof. The provisions
of Title 9 of Part 3 of the California Code of Civil Procedure,
including section 1283.05, and successor statutes, permitting
expanded discovery proceedings shall be applicable to all
disputes that are arbitrated under this paragraph.
15. Third Party Fees. Consultant will not accept from any
third parties any fees or other remuneration related to services
to be performed under this Agreement except with the prior
written consent of the Company.
16. Complete Agreement. This Agreement instrument contains
the entire agreement of the parties relating to the subject
matter hereof. This Agreement and its terms may not be changed
orally but only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification,
extension or discharge is sought.
AGREED TO:
"Company" ELECTROSOURCE, INC.
Date: September 1, 1995 By: /s/
Michael G. Semmens
Chairman & CEO
"Consultant" LIVIAKIS FINANCIAL COMMUNICATIONS, INC.
Date: September 1, 1995 By: /s/
John M. Liviakis
President
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
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