PROSPECTUS
ELECTROSOURCE, INC.
437,674 Shares of Common Stock, $1.00 par value
The shares offered hereby are outstanding shares of the
Common Stock, $1.00 par value per share ("Common Stock"), of
Electrosource, Inc., a Delaware corporation (the "Company"),
which are being sold by the Selling Shareholders named herein.
The Company will not receive any part of the proceeds from the
sale of such shares.
The Company has agreed to bear all costs of the preparation,
filing and prosecution of the registration statement of which
this Prospectus is a part. Such expenses are estimated to be
approximately $6,650 for the offering.
The Company has been advised that the sale of the shares may
be made from time to time by or for the account of the Selling
Shareholders in the over-the-counter market through broker-
dealers. These sales will be made at market prices prevailing at
the time of sale. The broker-dealers may act as agents of the
Selling Shareholders or may purchase any of the shares as
principal and thereafter may sell such shares from time to time
in the over-the-counter market at prices prevailing at the time
of sale or at negotiated prices. Neither the security to be
offered nor the selling method to be used may be varied.
Broker-dealers used by the Selling Shareholders may be
deemed to be "underwriters" as defined in the Securities Act of
1933. In addition, the Selling Shareholders may be deemed to be
an underwriter within the meaning of the Securities Act of 1933
with respect to the Common Stock offered hereby.
The Common Stock is traded in the over-the-counter market
and is quoted on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") under the symbol "ELSI."
On August 4, 1997, the closing price for a share of Common Stock
as reported on NASDAQ was $6.50 per share.
SEE "RISK FACTORS," ON PAGE 3 OF THIS PROSPECTUS, FOR A
DISCUSSION OF CERTAIN IMPORTANT FACTORS INVOLVED IN THIS
OFFERING.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is August 4, 1997.
AVAILABLE INFORMATION
The Company is subject to the information requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports and other
information with the Securities and Exchange Commission (the
"Commission"). Such reports, together with proxy statements and
other information filed by the Company, can be inspected and
copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, NW, Washington, DC 20549, and at
certain of its Regional Offices located at: 7 World Trade
Center, New York, New York 10007; and Room 1204, Everett McKinley
Dirksen Building, 219 South Dearborn Street, Chicago, Illinois
60604. Copies of such information can also be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, NW,
Washington, DC 20549 at prescribed rates.
The Company has filed with the Commission a registration
statement under the Securities Act of 1933, as amended, with
respect to the securities offered hereby (the "Registration
Statement"). As permitted by the rules and regulations of the
Commission, this Prospectus omits certain information, exhibits
and undertakings contained in the Registration Statement. Such
additional information can be inspected at the principal office
of the Commission, Room 1024, 450 Fifth Street, NW, Washington,
DC 20549, and copies of the Registration Statement can be
obtained from the Commission at prescribed rates by writing to
the Commission at such address. The Commission maintains a Web
site, http://www.sec.gov, that contains reports, proxy and
information statements and other information regarding the
Company.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents, which are on file with the
Commission, are hereby specifically incorporated by reference
into this prospectus:
(1) The Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996;
(2) All other reports filed by the Company pursuant to
Section 13(a) or Section 15(d) of the Exchange Act since
December 31, 1996, including the following:
(i) Form 8-K Current Report dated March 10, 1997;
(ii) Form 8-KA1 Current Report dated April 2, 1997;
(iii) Form 8-K Current Report dated April 3, 1997; and
(iv) The Company's Quarterly Report on Form 10Q for the
quarter ended March 31, 1997.
(3) The description of the Company's Common Stock set forth
under the captions "Description of Electrosource, Inc. Common
Stock" and "Purposes and Effects of Certain Provisions of the
Electrosource, Inc. Certificate and the Electrosource, Inc.
Bylaws" in the Information Statement filed as Exhibit 28.1 to the
Company's Registration Statement on Form 10 filed October 19,
1987 (as amended by Form 8 Amendments filed January 8, 1988 and
January 13, 1988), which description of the Company's Common
Stock was incorporated by reference into the Registration
Statement on Form 10 in response to Item 11, "Description of
Registrant's Securities to be Registered."
All documents filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
December 31, 1996, and prior to the termination of the offering
shall be deemed to be incorporated by reference into this
prospectus.
The Company will provide without charge to each person,
including any beneficial owner, to whom this prospectus is
delivered, upon written or oral request of such person, a copy of
any and all of the information that has been incorporated by
reference in this prospectus (not including exhibits to the
information that is incorporated by reference unless such
exhibits are specifically incorporated by reference into the
information that this prospectus incorporates). Requests should
be directed to Electrosource, Inc., Corporate Secretary, 2809
Interstate 35 South, San Marcos, Texas 78666, telephone (512) 753-
6500.
SUMMARY OF PROSPECTUS
The following summary is qualified in its entirety by, and
should be read in conjunction with, the more detailed information
and financial statements contained elsewhere in this prospectus
and in the documents incorporated by reference herein.
The Company
Electrosource, Inc. (the "Company") is engaged in the
development and commercial application of technologies related to
lead-acid, rechargeable storage batteries and ancillary products.
The Company's principal activity is the development, manufacture
and sale of a new lead-acid battery concept called Horizonr. See
"The Company," below.
The principal executive offices of the Company are located
at 2809 Interstate 35 South, San Marcos, Texas 78666 and its
telephone number is (512) 753-6500.
Recent Developments
The Company received a loan of $4,000,000 from Corning
Incorporated ("Corning") in March 1997. The loan is convertible
into common stock, and the Company has granted options to Corning
to purchase additional shares of common stock. The Company and
Corning are discussing other possible business arrangements. See
"Recent Developments" below.
The Company completed a private placement of common stock
and warrants (in total representing 725,780 shares of the
Company's common stock) with its executive officers and certain
other accredited investors to raise approximately $680,000 for
general corporate purposes. See "Recent Developments" below.
The Company filed an S-3 Registration Statement for the sale
of 127,500 shares by Ally Capital Corporation. This Registration
Statement became effective on August 4, 1997. See "Recent
Developments" below.
The Company has filed suit in Travis County, Texas for a
declaratory judgment with respect to demands and claims from an
Indian entity. See "Recent Developments" below.
The Offering
The shares offered hereby are 71,300 outstanding shares of
the Company's Common Stock, $1.00 par value per share ("Common
Stock"), and 366,374 shares issuable upon the exercise of
associated warrants. The shares and warrants were sold by the
Company in the private placement referenced above in "Recent
Developments" and are now being made available for sale by
certain individuals and institutions who participated in the
private placement (the "Selling Shareholders"). The Company will
not receive any part of the proceeds from the sale of such
shares. See "The Offering" below.
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.
History of Losses and Going Concern Qualification. The
company has a significant accumulated deficit of approximately
$47,300,000 as of March 31, 1997 and a history of losses since
inception in 1987. Additionally, the independent accountants'
report on the Company's financial statements for 1996 includes a
going concern qualification. The Company's ability to
successfully commercialize its technology and generate sufficient
cash flow to fund operations is uncertain. Historically the
Company has been unable to generate enough cash from orders and
development work to fund all operations and may not be able to do
so in the future.
Customer Concentration. A significant portion of the
Company's total revenue (81% and 43% in 1996 and 1995,
respectively) was generated from Chrysler Corporation
("Chrysler"). Loss of this customer could have an adverse impact
on operations.
Financial Constraints. In the absence of additional
financing and without the generation of significant revenue from
operations or offsetting cost reductions, the Company's cash will
be substantially depleted in the first quarter of 1998. There
can be no assurance that significant revenues or additional
financing can be obtained on terms satisfactory to the Company,
if at all. The full depletion of the Company's cash could lead
to the Company's ceasing all operations and activities and,
ultimately, to its dissolution and liquidation.
Contingencies Related to Business Plan and Commercialization
of Product. In June 1994 the Company made the decision 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 has required, and will continue to
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 Horizonr Battery and manufacturing processes
continue, and there can be no assurance that the battery will be
successfully commercialized.
Possible Loss of Trading Liquidity. The Company's Common
Stock is traded on the Over-the-Counter Market and is reported on
NASDAQ. In order to maintain listing by NASDAQ, the Company must
maintain $1 million of stockholders' equity. The Company is
currently in compliance with this requirement. 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. Ordinarily, before
delisting, NASDAQ would provide the Company notice and an
opportunity to present and carry out a plan for compliance. In
the event that the Common Stock were no longer traded on the
NASDAQ market, and its share price fell below $5.00 per share,
brokers and dealers effecting trades in the Common Stock would
become subject to Securities and Exchange Commission rules
covering trading in Openny stocks.O These rules generally require
that such broker-dealers make specified disclosures to customers
including information on available bid and asked prices for the
stock in question and compensation to the broker-dealer and his
associates with respect to the proposed trade, and provide
periodic reports as to the market value of a customerOs position
in penny stocks. The rules also impose heightened Oknow your
customerO requirements that require broker-dealers to obtain
information, including personal financial information, from
customers sufficient to allow the broker-dealer to make a
determination that investment in penny stocks is suitable for the
customer and that the customer is capable of assessing the risks
of such an investment. Broker-dealers may be less willing to
effect trades in any security subject to these rules due to the
additional disclosure, record-keeping and other requirements
imposed by the rules. In addition, some potential investors in
penny stocks may be reluctant to provide the required personal
financial information to broker-dealers, which may reduce the
number of potential investors. These factors could further reduce
trading liquidity in the Common Stock.
Termination of Technology License. The Company holds the
rights to develop and use certain coextrusion technology
necessary to the manufacture of its principal products 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.
Dependence on Key Personnel. Management of the Company is
composed primarily of Michael Semmens, President, Chief Executive
Officer and Chairman of the Board, William Griffin, Executive
Vice President, Chris Morris, Vice President-Technical
Operations, James M. Rosel, Vice President Finance, General
Counsel and Chief Financial Officer, and Mary Beth Koenig,
Treasurer and Chief Accounting Officer. The loss of any of these
executive officers could have a material adverse effect on the
Company. The Company does not have employment contracts with Ms.
Koenig or with Messrs. Rosel and Morris, and the employment
contracts between Mr. Semmens and the Company and Mr. Griffin and
the Company do not impose any material penalty in the event of
resignation.
Dilution. The market price of $6.50 per share of Common
Stock as of August 4, 1997, was substantially greater than the
Company's actual net tangible book value of $0.56 per
outstanding share of Common Stock at March 31, 1997. Purchasers
of Common Stock at the recent market price will suffer an
immediate dilution of $5.94 per share, measured by the difference
between the market price and the Company's net 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 may, under Delaware
corporation law, declare and pay dividends upon its Common Stock
either (1) out of the excess, if any, of total shareholders
equity over the aggregate par value of its Common Stock issued
and outstanding or (2) from net income for the current and the
immediately preceding fiscal year. The Company has reported net
losses in each of the two most recent fiscal years and the par
value of the Company's Common Stock is in excess of total
shareholder's equity at December 31, 1996. The Company has paid
no dividends on its Common Stock to date and does not anticipate,
currently or in the foreseeable future, paying dividends on the
Common Stock. Future cash dividends, if any, will be determined
by the Board of Directors in light of the Company's earnings,
financial condition, and capital requirements.
THE COMPANY
Electrosource, Inc. (the "Company") is engaged in the
development and commercial application of technologies related to
lead-acid, rechargeable storage batteries and ancillary products.
The Company's principal activity is the development, manufacture
and sale of a new lead-acid battery concept called Horizonr. The
Horizonr battery utilizes plate grids made from a patented
coextruded wire. The plates are oriented in a horizontal plane
rather than the vertical plane, as is the practice in
conventional batteries. Current activities are concentrated upon
development of Horizonr concept batteries for use in electric
vehicle and non-electric vehicle applications. The Company is
also developing new processes for the energy-active material for
use in both Horizonr and conventional batteries.
The continued development of the Horizonr battery, as well
as the continued viability of the Company as a going concern, are
contingent upon the Company's ability to increase sales, increase
contractual activity or raise additional capital. There can be
no assurance that such sales, contracts or financing can be
obtained. The offering described in this prospectus will not
result in any proceeds to the Company. See "Risk Factors."
The principal executive offices of the Company are located
at 2809 Interstate 35 South, San Marcos, Texas 78666, and its
telephone number is (512) 753-6500.
RECENT DEVELOPMENTS
In March 1997, the Company entered into a loan agreement
with Corning Incorporated, a Fortune 500 Company ("Corning").
The agreement provides for a $4,000,000, five year loan bearing
interest at 5%. The loan is convertible into Common Stock at the
option of Corning at a conversion price of $5.50 per share. A
$500,000 loan to the Company previously provided by Corning was
canceled and refinanced as part of the $4,000,000 loan. The
Company granted Corning an option to purchase up to 275,000
shares of Common Stock at $7.00 per share and an option to
purchase up to 225,000 shares of Common Stock at $9.00 per share.
These options are exercisable until March 1999. The Company is
also discussing other potential business arrangements with
Corning.
The Company completed a private placement of Common Stock
with certain of its executive officers and other accredited
investors in January 1997 which raised $680,508 for general
corporate purposes. The offering was conducted in two parts.
The terms for the first part, in which the executive officers
participated, were $6.56 per share of Common Stock purchased
(80,897 shares) and one warrant at an exercise price of $7.56 per
share for each dollar invested (530,883 warrants) for proceeds of
$530,883 to the Company. The terms of the second part were $5.25
per share of Common Stock purchased (28,500 shares), with three
warrants per share (85,500 warrants), for proceeds of $149,625.
One-half of the warrants are exercisable at a price of $5.25 per
share and one-half at $6.25 per share. All warrants have a two
year term from date of issue.
The Company agreed to file this registration statement to
register on Form S-3 the shares purchased in the private
placement for those purchasers who were not executive officers.
The Company filed an S-3 Registration Statement on April 18,
1997 for the sale of 127,500 shares held by Ally Capital
Corporation as agent for two entities who received the shares for
prepayment of equipment lease obligations. This Registration
Statement became effective August 4, 1997.
In 1994, the Company signed a "Know-How License Agreement"
(the "Agreement") with Horizon Battery Technologies, Ltd.,
("HBTL"), of Bombay, India, calling for the completion of several
detailed subordinate agreements, with the ultimate purpose to
license the manufacture and sale of batteries in India. The
effectiveness of the Agreement was conditioned upon the
subsequent execution of these related agreements, none of which
were executed. The Company believes, therefore, the Agreement
never became effective and has no force or effect. Separately in
1995, HBTL agreed to pay the Company $250,000 for a Preliminary
Design Review ("PDR") for a potential manufacturing facility in
India, which PDR was required to complete one of the subordinate
agreements. The Company received $100,000 from HBTL and
completed the PDR in 1995. The remaining $150,000 was never paid
by HBTL, in spite of repeated demands by the Company.
In September 1996, the Company received a demand from HBTL
to arbitrate damage claims for alleged breach of the Agreement
between the Company and HBTL. HBTL claims damages of
approximately $5.1 million for its expenses and lost profits
related to the project. The Company disputes the claim for
damages and has filed a petition in Travis County, Texas,
seeking, among other things, a declaratory judgment that HBTL has
no right to arbitration or monetary relief. HBTL contested
jurisdiction and removed the proceedings to the U.S. Federal
Courts. The Court has ruled that it has no jurisdiction. The
Company has asked for a re-hearing and plans to appeal any final
adverse decision on jurisdiction. No liability has been recorded
in the financial statements at March 31, 1997 for this
uncertainty as management is unable to express an opinion with
respect to the likelihood of an unfavorable outcome of this
matter or to estimate the amount or range of potential loss
should the outcome be unfavorable. Resolution of this matter by
the courts in favor of HBTL could have a material adverse effect
on the financial position of the Company.
THE OFFERING
The shares to be offered pursuant to this prospectus are
outstanding shares of the Company's Common Stock acquired by
persons other than executive officers of the Company (the
"Selling Shareholders") in the private placement described above
under "Recent Developments" (see "Selling Shareholders," below).
The shares of Common Stock offered hereby may be sold from
time to time by the Selling Shareholders. Such sales must be
made in the over-the-counter market through broker-dealers at the
then prevailing market price. Neither the security to be offered
nor the selling method may be varied.
There is no underwriting or coordinating broker acting in
connection with this offering. The Selling Shareholders may be
deemed "underwriters" within the meaning of the Securities Act of
1933 (the "Securities Act") with respect to the shares of Common
Stock offered hereunder. The Company and the Selling
Shareholders have agreed to indemnify one another against certain
liabilities, including liabilities under the Securities Act.
In effecting sales, brokers or dealers engaged by the
Selling Shareholders may arrange for other brokers or dealers to
participate. Brokers or dealers will receive commissions or
discounts from Selling Shareholders in amounts to be negotiated
immediately prior to the sale. Such brokers or dealers and any
other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act in
connection with such sales.
The Company has agreed to bear all costs of preparing,
filing and processing the registration statement of which this
prospectus is a part. Such expenses are estimated to be
approximately $6,650 for the offering.
SELLING SHAREHOLDERS
The shares of Common Stock covered by this Prospectus are
being offered by the Selling Shareholders identified below in the
amounts shown:
Shares Shares Percentage
Owned Shares Owned of
PARTICIPANT Prior to Shares Underlying Following Outstanding
Offering Offered Warrants Offering Shares
Joseph U. Barton 3,812 3,812 25,019 0 *
Thomas U. Barton 3,813 3,813 25,019 0 *
Collins Capital
Diversified Fund LP 22,875 22,875 150,117 0 *
Compton Family
Partners Ltd 4,000 4,000 12,000 0 *
Audrey T. Dearing 2,750 2,300 15,094 2,750 *
Fred B. Dulock 16,200 6,000 18,000 10,200 *
Bill N. Goss 5,000 5,000 15,000 0 *
Bill Kemp 10,500 5,000 15,000 5,500 *
James R. Phillips, Jr. 25,500 8,500 25,500 17,000 *
Langhorne Reid, III 11,000 10,000 65,625 1,000 *
*Less than 1%
The Company completed a private placement of Common Stock
with certain of its executive officers and other accredited
investors in January 1997 which raised $680,508 for general
corporate purposes. The offering was conducted in two parts.
The terms for the first part, in which the executive officers
participated, were $6.56 per share of Common Stock purchased
(80,897 shares) and one warrant at an exercise price of $7.56 per
share for each dollar invested (530,883 warrants) for proceeds of
$530,883 to the Company. The terms of the second part were $5.25
per share of Common Stock purchased (28,500 shares), with three
warrants per share (85,500 warrants), for proceeds of $149,625.
One-half of the warrants are exercisable at a price of $5.25 per
share and one-half at $6.25 per share. All warrants have a two
year term from date of issue.
The Company agreed to file a registration statement on Form
S-3 to register for sale the shares of Common Stock purchased by
the Selling Shareholders and the shares of Common Stock issuable
under the associated warrants. The shares offered hereby are
being registered pursuant to such agreement.
Langhorne Reid, III is a consultant to the Company on
financial matters, and has been since February 1996, under a
written consulting agreement which provided for a fee of $3,000
per month and the grant of 200 stock options per month. The
agreement was amended effective August 15, 1996 to extend the
term to August 15, 1997 and modify the cash fee to $2,000 per
month and stock options to 450 options per month. The exercise
price of the options is the market price on date of issue. Under
the agreement, Mr. Reid is also entitled to an advisory success
fee for fundraising activity of 3%-10% of the amounts raised in
various financing activities. The fee is paid half in cash and
half in stock options. The options are granted at the rate of
one option for each $10.00 represented by that one-half of the
fee. The exercise price is equal to market price on the date of
the fundraising activity; the term is for two years, and there
are no registration rights. As part of his regular consulting
duties, during the past three years the Company has paid Mr. Reid
approximately $41,800 and granted 4,800 stock options.
Additionally, Mr. Reid will receive a fee of 10% or approximately
$20,015 (half in cash and half in options) as a result of the
equity participation in this offering directly resulting from his
efforts.
Under a letter agreement dated April 1, 1997, James R.
Phillips, Jr. was entitled to an advisory fee of $15,000 for his
work on this placement and is entitled to participate up to the
amount of $35,000 in any similar offering by the Company within
one year. The Company and Mr. Phillips negotiated the fee
compensation due to a disagreement as to whether Mr. Phillips was
entitled to purchase additional shares and options in the private
placement in lieu of a fee.
The following participants in this offering have
participated in previous Electrosource offerings as follows (see
description of prior offerings below):
<TABLE>
WARRANT
PRIOR AMOUNT SHARES PURCHASED WARRANTS EXERCISE
PARTICIPANT OFFERING LOANED NUMBER AMOUNT OBTAINED PRICE
<C> <C> <C> <C> <C> <C> <C>
Compton Family Private Placement #1 -- 500 $15,000 250 $25.00
Partners -- -- -- 250 $35.00
Private Placement #2 -- 2,500 $27,500 -- --
Fred B. Dulock 1993 Loan Warrant Program $7,500 -- -- 600 $22.50
Private Placement #1 -- 1,000 $30,000 500 $25.00
-- -- -- 500 $35.00
Private Placement #2 -- 3,000 $33,000 -- --
Bill Kemp Private Placement #1 -- 1,000 $30,000 500 $25.00
-- -- -- 500 $35.00
Private Placement #2 -- 3,000 $33,000 -- --
James R. Phillips, Jr. 1993 Loan Warrant Program $92,500 -- $166,500 7,400 $22.50
1993 Loan Warrant Program* -- -- -- 4,000 $22.50
Private Placement #1 -- 7,500 $226,875 3,750 $25.00
-- -- -- 3,750 $35.00
Private Placement #2 -- 10,000 $110,000 -- --
*Mr. Phillips purchased warrants from another participant in the program.
</TABLE>
In October 1994, the Company completed Private Placement #1
for 48,550 shares of Common Stock which resulted in net proceeds
to the Company of $1,386,474. Warrants attached to the offering
allowed the purchase of an equal number of shares; one-half of
which were exercisable at $45 per share until September 1995 and
the remaining one-half were exercisable at $55 per share until
September 1996. The exercise prices were subsequently changed to
$25 per share and $35 per share, respectively, and the expiration
dates were extended to September 1997 for all participants in
Private Placement #2. The Company, pursuant to the terms of the
private placement, agreed to register the shares and subsequently
filed a registration statement covering the shares. The warrants
have registration rights, but have not been registered and remain
unexercised.
In September 1995, the Company completed Private Placement
#2 for 80,633 shares of Common Stock which resulted in net
proceeds to the Company of $886,966. The Company, pursuant to
the terms of the private placement, agreed to register the shares
and subsequently filed a registration statement covering the
shares.
In early 1993, the Company entered into several ten percent
notes payable aggregating $550,000 with warrants to purchase
44,000 shares of Common Stock for a purchase price of $22.50 per
share. Shares issued upon exercise were registered and all
warrants were exercised or have expired.
Audrey Dearing, Electrosource Corporate Secretary, has
received cash compensation of $59,788, $65,416 and $57,996 in the
years ended December 31, 1994, 1995 and 1996, respectively. Ms.
Dearing changed her status from a full-time to part-time employee
in July 1996. Stock options with the following terms have been
granted to Ms. Dearing in 1994 through 1996: 300 options at an
exercise price of $33.75 on 5/31/95, 867 options at an exercise
price of $12.50 on 2/1/96, 3,000 options at an exercise price of
$12.50 on 4/1/96 and 5,000 options at an exercise price of $5.28
on 10/30/96. All exercise prices were equal to market value at
the date of grant.
USE OF PROCEEDS
The Company will realize no proceeds from the offering. The
Company will bear all costs of preparing, filing and processing
the registration statement of which this prospectus is a part.
DILUTION
At March 31, 1997, the Company had a net tangible book value
of $0.56 per share of Common Stock outstanding. "Net tangible
book value per share" represents the amount of total tangible
assets of the Company, reduced by the amount of total liabilities
of the Company, divided by the number of shares of Common Stock
outstanding. Purchasers of Common Stock for cash at the assumed
offering price of $6.50 per share (based on the market price of a
share of Common Stock as quoted by NASDAQ on August 4, 1997) will
therefore incur an immediate dilution of $5.94 per share from the
assumed offering price measured by the difference between the
assumed offering price and the Company's net tangible book value
per share.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Restated Certificate of Incorporation provides
that a director of the Company will not be personally liable to
the Company or its stockholders for monetary damages for breach
of fiduciary duty as a director, except that such provisions will
not eliminate or limit the liability of a director (i) for a
breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of
law, (iii) with respect to unlawful payments of dividends or
unlawful stock purchases or redemptions for which the director is
liable under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the
director derives an improper personal benefit.
The Company's Bylaws provide that, to the extent permitted
by law, the Company will indemnify each of its directors, and
authorize the purchase of insurance with respect thereto. The
Bylaws also provide that the Company may indemnify its officers,
employees or agents who are made or threatened to be made
defendants or respondents to any threatened, pending or completed
action, suit or proceeding due to such person's service to the
Company or to certain other entities at the request of the
Company, so long as such person acted in good faith and in a
manner he reasonably believed to be not opposed to the best
interests of the Company. Such indemnification may be made only
upon a determination that such indemnification is proper in the
circumstances because the person to be indemnified has met the
applicable standard of conduct to permit indemnification under
the law.
In addition to indemnification provided pursuant to the
Company's Restated Certificate of Incorporation and Bylaws, the
Company has entered into a Director Indemnification Agreement
with each director of the Company providing for, among other
things, (i) indemnification by the Company of each director to
the full extent authorized or permitted by Delaware statutes;
(ii) maintenance by the Company of director and officer insurance
coverage for the benefit of each director of up to $2,000,000,
subject to availability at premiums not substantially
disproportionate to the amount of coverage; (iii) indemnification
by the Company of each director in connection with settlements
under certain circumstances; (iv) procedures relating to
independent review of determinations regarding director
indemnification (including special provisions in case of a change
in control of the Company); and (v) the advancement of expenses
to directors in connection with matters for which the director is
entitled to indemnification.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is
therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the Company of expenses incurred or paid by a director,
officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted against
the Company by such director, officer or controlling person in
connection with the securities being registered, the Company
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication
of such issue.
LEGAL MATTERS
The validity of the securities offered hereby will be passed
upon for the Company by Bret Van Earp, Attorney at Law, 100
Congress Avenue, Suite 1800, Austin, Texas 78701.
EXPERTS
The financial statements of the Company appearing in the
Company's Annual Report (Form 10-K) for the year ended December
31, 1996, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon (which contains an
explanatory paragraph with respect to substantial doubt about the
Company's ability to continue as a going concern) included
therein and incorporated herein by reference. Such financial
statements are incorporated herein by reference in reliance upon
such report given upon the authority of such firm as experts in
accounting and auditing.
No dealer, salesman or other
person has been authorized to
give any information or to make
any representation not contained
in this prospectus in connection
with the offer contained herein, ELECTROSOURCE, INC.
and, if given or made, such
information or representation
must not be relied upon as having
been authorized by the Company.
This prospectus does not
constitute an offer to sell, or a
solicitation of an offer to buy,
any securities in any
jurisdiction to any person to
whom it is not lawful to make any
such offer or solicitation in
such jurisdiction. Neither the
delivery of this prospectus nor
any sale made hereunder shall,
under any circumstances, create 437,674 Shares of
an implication that there has
been no change in the affairs of Common Stock
the Company since the date hereof
or that the information herein is
correct as of any time subsequent
to its date
___________________________
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION 2
INCORPORATION OF CERTAIN August 4, 1997
INFORMATION BY REFERENCE 2
SUMMARY OF PROSPECTUS 3
RISK FACTORS 3
THE COMPANY 5
RECENT DEVELOPMENTS 6
THE OFFERING 7
SELLING SHAREHOLDERS 7
USE OF PROCEEDS 9
DILUTION 9
INDEMNIFICATION OF OFFICERS
AND DIRECTORS 9
LEGAL MATTERS 10
EXPERTS 10
