Schedule 14A Information
Proxy Statement Pursuant to Section 14(A)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
ELECTROSOURCE, INC.
(Name of Registrant as Specified In Its Charter)
ELECTROSOURCE, INC.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: ____
(2) Aggregate number of securities to which transaction applies: ______
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: __/
(4) Proposed maximum aggregate value of transaction: ______
__/ Set forth the amount on which the filing fee is calculated and
state how it was determined.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ______
(2) Form, Schedule or Registration Statement No. ____
(3) Filing Party: _____
(4) Date Filed: ______
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Electrosource, Inc. (the "Company") will be held at the Offices of the
Company, 2809 Interstate 35 South, San Marcos, Texas, on May 22, 1997
at 10:00 o'clock A.M., Texas time, for the following purposes:
1. To elect three of the nine members of the Board of Directors.
2. To consider and act upon a proposal to approve the adoption of the
Company's 1996 Stock Option Plan.
3. To consider and act upon a proposal to ratify the purchase of Company
securities by certain executive officers in a 1996 private placement.
4. To consider and act upon a proposal to approve the selection by the Board
of Directors of Ernst & Young LLP as the firm of independent auditors to
audit the accounts of the Company for the fiscal year ending December 31,
1997.
5. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
Holders of record of Common Stock at the close of business on March 24,
1997, will be entitled to notice of and to vote at such meeting or any
adjournment thereof. The transfer books of the Company will not be closed.
It is important that your shares be represented at this meeting in order
that the presence of a quorum may be assured. Enclosed is a form of proxy
that you are urged to sign and forward in the accompanying envelope, whether
or not you expect to attend in person. Stockholders who attend the meeting
in person may revoke their proxies and vote in person if they desire.
All Stockholders are cordially invited to attend the Annual Meeting of the
Stockholders.
/s/
Austin, Texas Michael G. Semmens,
April 23, 1997 President
PROXY STATEMENT
GENERAL INFORMATION
SOLICITATION AND REVOCATION OF PROXIES
This Proxy Statement is furnished to Stockholders in
connection with the solicitation of proxies by and on behalf of
the management of ELECTROSOURCE, INC. (hereinafter referred to as
the "Company," located at 2809 Interstate 35 South, San Marcos,
Texas 78666), for use at the Annual Meeting of Stockholders of
the Company, and at any adjournment thereof. The Annual Meeting
will be held at 10:00 o'clock A.M., May 22, 1997, at the Company
headquarters, 2809 Interstate 35 South, San Marcos, Texas 78666.
When a proxy is properly executed and returned, the shares it
represents will be voted at the Annual Meeting in accordance with
any instructions noted thereon or, if no instructions are
indicated, it will be voted for the election as directors of the
three nominees named in this Proxy Statement, for the approval of
the adoption of the Company's 1996 Stock Option Plan, for
ratification of the purchase of Company securities by certain
executive officers, and for the approval of the selection of
auditors. Execution of a proxy confers discretionary authority
to vote with respect to any matter which the Board of Directors
do not know, a reasonable time before the mailing of this Proxy
Statement, is to be presented at the meeting, with respect to the
approval of minutes of the prior meeting (if such approval does
not amount to ratification of the action taken at that meeting),
with respect to the election of any person to any office for
which a bona fide nominee is named in the Proxy Statement if such
nominee is unable to serve or for good cause will not serve, and
with respect to matters incident to the conduct of the meeting.
Any proxy given pursuant to this solicitation may be revoked by
the Stockholder who has given it at any time before it is
exercised.
The close of business on March 24, 1997, has been fixed as
the record date for determination of Stockholders entitled to
notice of and to vote at the Annual Meeting. As of such date,
there were issued and outstanding 4,143,475 shares of Common
Stock, $1.00 par value per share, of the Company ("Common Stock")
and no shares of the Company's Preferred Stock, $1.00 par value
per share. Each Stockholder of record on such date is entitled
to one vote for each share of Common Stock then held by such
Stockholder.
The costs of solicitation of proxies, including the cost of
preparing and mailing this Proxy Statement, will be borne by the
Company. Employees of the Company, at no additional
compensation, may communicate with Stockholders to solicit their
proxies. In addition, the Company has retained Harris Trust and
Savings Bank, the Company's Transfer Agent, to distribute the
proxy materials to Stockholders of record and to tabulate the
vote and Corporate Investor Communications, Inc., to distribute
the proxy materials to brokers and to solicit proxies from banks,
brokers, nominees and institutions for which they will be paid
fees estimated not to exceed $5,000 in the aggregate. Brokers
and others holding stock in their names, or in the names of
nominees, may be requested to forward copies of the proxy
soliciting material to beneficial owners and to seek authority
for execution of proxies, and the Company will reimburse them for
reasonable direct and indirect expenses incurred in connection
with completing the mailing of annual reports and proxy
statements to and the solicitation of proxies of beneficial
owners at approved rates.
This Proxy Statement is first being mailed to Stockholders of
the Company on or about April 23, 1997.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of March 14, 1997, the
number of shares owned by each of the current directors, the most
highly paid executive officers and by the current directors and
executive officers of the Company as a group, the nature of such
ownership, and the percentage of the outstanding shares of each
class of voting securities represented thereby. To the Company's
knowledge, there is no person who is an owner of more than five
percent of the Company's Common Stock.
COMMON STOCK
Name and Address of
Beneficial Owner Beneficially Owned (1) Percentage of Class
Michael G. Semmens 207,556 (2) 4.79%
Chairman of the Board,
President and CEO
2809 Interstate 35 S
San Marcos, Texas 78666
Richard E. Balzhiser 15,000 (3) .36%
Director
560 Sand Hill Circle
Menlo Park, California 94025
William R. Graham 13,300 (4) .32%
Director
7517 Royal Oak Drive
McLean, Virginia 22101
Norman Hackerman 15,403 (5) .37%
Director
2001 Pecos Street
Austin, Texas 78703
John D. Malone 59,046 (6) 1.42%
Director
6011 Bosque Boulevard
Waco, Texas 76710
Charles L. Mathews 35,671 (7) .85%
Director
1111 Cardinal Drive
Paige, Texas 78659
Nathan P. Morton 13,000 (8) .31%
Director
4228 San Carlos Drive
Dallas, Texas 75205
Richard S. Williamson 15,000 (9) .36%
Director
190 S. LaSalle Street
Chicago, Illinois 60603
Thomas S. Wilson 60,305 (10) 1.45%
Director
5 Revere Road
Northbrook, Illinois 60062
OTHER EXECUTIVE OFFICERS
William F. Griffin 75,052 (11) 1.78%
Executive Vice President,
Marketing
10938 Blue Roan Road
Oakton, Virginia 22124
James M. Rosel 52,5079 (12) 1.25%
Vice President, Finance
and General Counsel
1507 Falcon Ledge Drive
Austin, Texas 78746
Chris Morris 48,146 (13) 1.15%
Vice President,
Technical Operations
10909 Ballybunion Place
Austin, Texas 78747
Mary Beth Koenig 35,479 (14) .85%
Treasurer and Chief
Accounting Officer
8017 Long Canyon Drive
Austin, Texas 78748
All Directors and Executive 705,873 (15) 14.96 %
Officers as a Group
(13 persons) (Notes 2-13)
(1) Shares are owned beneficially and of record unless otherwise indicated.
(2) Includes 35,834 shares of Common Stock receivable upon the exercise of
options; 567 shares of Common Stock receivable upon the exercise of
warrants; and 40 shares of Common Stock are owned by Mr. Semmens' spouse
as custodian for minor children. Includes 21,115 shares of Common Stock
and warrants to purchase 125,000 shares of Common Stock acquired under the
terms of a private placement, and an option to purchase 25,000 shares of
Common Stock granted under the 1996 Stock Option Plan, all of which are
contingent upon Stockholder approval.
(3) Includes 15,000 shares of Common Stock granted under the 1996 Stock Option
Plan contingent upon Stockholder approval.
(4) Includes 3,500 shares of Common Stock receivable upon the exercise of
options. Also includes an option to purchase 9,500 shares of Common
Stock granted under the 1996 Stock Option Plan, contingent on Stockholder
approval.
(5) Includes 5,500 shares of Common Stock receivable upon the exercise of
options. Also includes an option to purchase 9,500 shares of Common
Stock granted under the 1996 Stock Option Plan, contingent on Stockholder
approval.
(6) Includes 5,500 shares of Common Stock receivable upon the exercise of
options. Also includes an option to purchase 11,500 shares of Common
Stock granted under the 1996 Stock Option Plan, contingent on Stockholder
approval.
(7) Includes 7,834 shares of Common Stock receivable upon the exercise of
options and 4 shares of Common Stock held by Mr. Mathews' wife, as to
which shares Mr. Mathews disclaims beneficial ownership. Also includes an
option to purchase 26,166 shares of Common Stock granted under the 1996
Stock Option Plan, contingent on Stockholder approval.
(8) Includes 3,500 shares of Common Stock receivable upon the exercise of
options. Also includes an option to purchase 9,500 shares of Common
Stock granted under the 1996 Stock Option Plan, contingent on Stockholder
approval.
(9) Includes 5,500 shares of Common Stock receivable upon the exercise of
options. Also includes an option to purchase 9,500 shares of Common
Stock granted under the 1996 Stock Option Plan, contingent on Stockholder
approval.
(10 Includes 5,500 shares of Common Stock receivable upon the exercise of
options; 180 shares of Common Stock held in Mr. Wilson's Individual
Retirement Account; 575 shares held by Mr. Wilson as Custodian for his
minor children as to which Mr. Wilson has sole voting power; 11,500 shares
in a life estate trust of which he is one of the three final remaindermen
and has shared voting and investment control; and 10,000 shares of Common
Stock and 5,000 warrants to purchase shares in a charitable trust of which
he has shared voting and investment control. Mr. Wilson disclaims
beneficial ownership of shares held by the Charitable Trust. Included are
3,200 shares received by Mr. Wilson in exchange for the transfer to the
Company of an electric vehicle at the Fair Market Value. Also includes an
option to purchase 9,500 shares of Common Stock granted under the 1996
Stock Option Plan, contingent on Stockholder approval.
(11) Includes 9,333 shares of Common Stock receivable upon the exercise of
options. Includes 7,619 shares of Common Stock and warrants to purchase
50,000 shares of Common Stock acquired under the terms of a private
placement and an option to purchase 7,000 shares of Common Stock granted
under the 1996 Stock Option Plan, all of which are contingent upon
Stockholder approval.
(12) Includes 15,166 shares of Common Stock receivable upon the exercise of
options. Includes 3,810 shares of Common Stock and warrants to purchase
25,003 shares of Common Stock acquired under the terms of a private
placement and an option to purchase 8,500 shares of Common Stock granted
under the 1996 Stock Option Plan, all of which are contingent upon
Stockholder approval.
(13) Includes 12,833 shares of Common Stock receivable upon the exercise of
options. Includes 3,810 shares of Common Stock and warrants to purchase
25,003 shares of Common Stock acquired under the terms of a private
placement and an option to purchase 6,500 shares of Common Stock granted
under the 1996 Stock Option Plan, all of which are contingent upon
Stockholder approval.
(14) Includes 4,166 shares of Common Stock receivable upon the exercise of
options. Includes 3,810 shares of Common Stock and warrants to purchase
25,003 shares of Common Stock acquired under the terms of a private
placement and an option to purchase 2,500 shares of Common Stock granted
under the 1996 Stock Option Plan, all of which are contingent upon
Stockholder approval.
(15) Includes 60,336 shares of Common Stock receivable upon the exercise of
options in addition to option shares described in Notes (2) through (14).
Of the additional 60,336 option shares, all are outstanding under Prior
Plans.
ITEM 1
ELECTION OF DIRECTORS
The Company has a Board of Directors consisting of nine members
serving staggered terms. The terms of directors Michael G.
Semmens, Nathan Morton and Richard E. Balzhiser will expire at
the 1997 Annual Meeting and accordingly, three directors are to
be elected at such meeting. Messrs. Semmens and Morton and Dr.
Balzhiser have been nominated by the Nominating Committee of the
Board of Directors for reelection as directors. The nominees
receiving the greatest number of votes will be elected directors
of the Company to serve until the Annual Meeting of Stockholders
to be held in 2000, and until their respective successors shall
have been elected and shall have qualified, or their respective
terms of office shall have been otherwise terminated as provided
in the Bylaws.
The following table sets forth certain information as to the
directors and nominees for director and the executive officers of
the Company.
Name and Offices Principal Occupation During Term to Expire at
Held with the Company Age Past five Years Annual Meeting in
Michael G. Semmens 46 President, Chief Executive 1997
President, Chief Officer and Chairman of the
Executive Officer and Board, Electrosource, Inc.,
Chairman of the Board June 1994 to present; Corporate
of Directors Vice President, BDM
Technologies, Inc., 1992-1994;
(Managing Director of BDM Europe,
B.V.) 1992-1994; Corporate Vice
President, BDM International,
Inc., 1988-1992.
Richard E. Balzhiser 64 1996-Present, President Emeritus, 1997
Director Electric Power Research Institute
(EPRI); 1988-1996, President and
CEO, EPRI; 1996-Present, Director,
Houston Industries.
Nathan P. Morton 48 Senior Partner, Channel Marketing 1997
Director Corporation, 1996-present; President
and Chief Executive Officer, Open
Environment Corporation, 1994-1996;
Chairman, President, and Chief
Executive Officer, COMPUSA, 1989-1993.
William R. Graham 59 Senior Vice President, The Defense 1998
Director Group, Washington, D.C. 1994-
present; Director and subsequently
President, C-COR Electronics, Inc.,
1990-1993; Director, Watkins-Johnson
Corporation.
Thomas S. Wilson 37 Vice President-Investments, Smith 1998
Director Barney, June 1993-present;
Stockholder, brokerage firm of
Berean Capital, Inc., 1989-1993.
John D. Malone 47 President and stockholder, John 1998
Director Malone, P.C. since January, 1997;
President and stockholder in the law
firm of Vander Woude, Malone & Istre,
1992-1996; Vice President and
stockholder in the law firm of Clark,
Malone, Knapp & Raybold, P.C., for
more than 5 years previous to 1992;
General Counsel to Electrosource,
Inc., 1992-1993.
Charles L. Mathews 62 Consultant to Electrosource, Inc., 1999
1995-present; President and CEO,
Bastrop Metal Products, Inc., 1995-
present; Chief Scientific Officer,
Electrosource, Inc., 1994-1995;
Chairman of the Board, Electrosource,
Inc., 1992-1994; Treasurer,
Electrosource, Inc., 1992-1993;
Director, Blanyer Mathews Associates,
Inc., 1982 - 1994.
Norman Hackerman 85 Chairman, Scientific Advisory Board, 1999
Director Robert A. Welch Foundation, for more
than five years; Director, Van Campen/
American Capital, Inc., Director,
American General Portfolio Fund, for
more than five years; Director,
Scientific Measurements Systems, Inc.,
1988-present.
Richard S. Williamson 47 Partner, Mayer, Brown & Platt, 1999
Director for more than five years; Director,
Federal Home Loan Bank of Chicago,
1990-present.
OTHER EXECUTIVE OFFICERS
William F. Griffin 49 Executive Vice President/Marketing,
Executive Vice President, April, 1996-present; VicePresident,
Marketing 1990-1995, COMPUSA.
James M. Rosel 48 Vice President and General Counsel,
Vice President, 1994-present; Vice President and
Finance and Secretary, Nord Pacific Ltd., 1990-
General Counsel 1994.
Chris Morris 50 Vice President, Technical Operations
Vice President, Electrosource, Inc., 1995-present;
Technical Chief Engineer, Electrosource, Inc.,
Operations 1994-1995; consultant, Chris Morris &
Associates, 1991-1994.
Mary Beth Koenig 35 Treasurer and Controller, Electrosource,
Treasurer and Inc., 1995-present; Senior Manager,
Controller Ernst & Young LLP, 1984-1995.
The members of the Board of Directors hold office for staggered
three-year terms, until their successors are elected or until
their earlier death, resignation or removal. Mr. Mathews served
as a director of the Company from March 1990 to January 1991 and
was reappointed in January 1992. Dr. Hackerman was appointed to
fill the vacancy created by the resignation of Donald S. Thomas
effective September 1, 1993. Dr. Hackerman was a director of the
Company from 1988 until 1991. Messrs. Malone and Wilson were
appointed to the Board in January and November, 1992,
respectively. Mr. Semmens has served as President, Chief
Executive Officer, and Chairman of the Company since June 1994.
Mr. Williamson was appointed to the Board in November 1994. Dr.
William R. Graham and Mr. Nathan P. Morton were appointed to the
Board in June 1995. Dr. Richard E. Balzhiser was appointed to
the Board in March 1997.
Mr. Nathan Morton, Director, and Mr. William F. Griffin,
Executive Vice President, are related as brothers-in-law.
Committees of the Board of Directors
The Board of Directors held nine meetings and gave two written
consents during the year ended December 31, 1996. Each of the
members of the Board of Directors attended at least 75 percent of
the number of meetings of the Board and of each committee on
which he served during 1996.
The Company's Board of Directors has five committees: the
Audit Committee, the Executive Committee, the Finance Committee,
the Nominating Committee and the Compensation/Stock Option
Committee.
The Audit Committee acts as a liaison between the Company's
Board of Directors and the Company's independent certified public
accountants. The Audit Committee meets periodically with the
accountants to review the Company's accounting and reporting
practices and its accounting and financial controls. The members
of the Audit Committee are Messrs. Williamson, Malone and
Mathews. The Audit Committee met one time during the year ended
December 31, 1996.
The Executive Committee has the authority to act in behalf of
the Board of Directors at such times as the Board is not in
session except in regard to certain matters with respect to which
its authority is limited by Delaware corporate statutes. Messrs.
Semmens, Malone, and Mathews and Dr. Hackerman are members of the
Executive Committee. The Executive Committee had no meetings
during the year ended December 31, 1996.
The Finance Committee periodically reviews and makes
recommendations to the Board of Directors with respect to the
capital structure of the Company and the Company's commercial and
investment banking relationships. The members of the Finance
Committee are Messrs. Morton and Wilson and Dr. Graham. There
were two formal meetings of the Finance Committee during the
fiscal year 1996; however, on numerous occasions the entire Board
acted in such capacity.
The Nominating Committee recommends to the Company's Board of
Directors candidates for election as directors of the Company.
The Nominating Committee consisted of Dr. Graham and Messrs.
Williamson and Wilson. Mr. Williamson was appointed to serve on
the Nominating Committee on June 26, 1996, replacing Mr. John
Akin, a former director. The Nominating Committee met two times
during the year ended December 31, 1996. The names of potential
director candidates are drawn from a number of sources, including
recommendations from members of the Board, management, and
Stockholders. Stockholders wishing to recommend director nominees
should submit name and address and pertinent information about
the proposed nominee similar to that set forth for the nominees
named herein. The Restated Certificate of Incorporation requires
that any such nominations be directed to the corporate secretary
in writing not less than sixty days prior to the scheduled date
of the meeting by a Stockholder of record, accompanied by the
consent of the person nominated to serve if elected.
The Compensation/Stock Option Committee makes recommendations
to the Company's Board of Directors regarding compensation of the
Company's officers, and is responsible for the administration of
the Company's stock option plans. The members of the
Compensation/Stock Option Committee are Messrs. Malone and Morton
and Dr. Hackerman who have served in such capacities for the
entire year. For the period of January 1 until June 26, 1996,
Mr. Williamson also served on this Committee. The
Compensation/Stock Option Committee met eight times during the
year ended December 31, 1996.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the
"Exchange Act") requires the Company's officers and directors,
and persons who own more than 10 percent of a registered class of
the Company's equity securities to file reports of ownership and
changes in ownership with the Securities and Exchange Commission
and the National Association of Securities Dealers Automated
Quotation System ("NASDAQ"). Officers, directors and greater than
10 percent Stockholders are required by Securities and Exchange
Commission regulation to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely on its review of the copies of such forms received
by it, the Company believes that during 1996, except as described
below, its officers, directors and greater than 10 percent
beneficial owners complied with all filing requirements
applicable to them.
A Form 4 Statement of Changes in Beneficial Ownership required
to be filed in connection with the acquisition of shares by
Thomas S. Wilson which occurred in September, 1996, was not filed
until October 17, 1996. A Form 3 Initial Statement of Beneficial
Ownership to be filed in connection with the appointment of
William F. Griffin as Executive Vice President of the Company
which occurred on March 26, 1996, was not filed until June 19,
1996.
Compensation of Executive Officers and Directors
The following tables set forth the cash and non-cash
compensation paid during the fiscal year ended December 31, 1996
to the Chief Executive Officer of the Company and to each other
executive officer of the Company earning $100,000 or more 1996.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term Compensation (1)
Awards Payouts
Annual Compensation
Other Restricted Securities All Other
Annual Stock Underlying LTIP Compen-
Name and Principal Compen- Award(s) Options/ Payouts sation
Position (2) Year Salary($) Bonus($) sation($) $ SARS(#) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
Michael G. Semmens 1996 $176,923 $1,769(3) 28,334(4)
President, Chief 1995 200,000 $2,000(3) $37,399(5)
Executive Officer 1994 175,285 47,500 37,602(5)
Chairman of the
Board
William F. Griffin 1996 $111,323 $1,113(3) 35,000(6) $36,000(7)
Executive Vice 42,715(8)
President 1995 32,000(0)
Chris Morris 1996 $106,512 $1,065(3) 16,000(10)
Vice President 1995 110,173 $5,000(11) $1,149(3) 7,200
Technical Operations 1994 18,801 3,000
James M. Rosel 1996 $110,704 $1,107(3) 18,000(12)
Vice President, 1995 113,750 1,136(3) 500 $15,650(13)
Finance and 1994 50,878 10,000 35,390(13)
General Counsel
Benny Jay 1996 $100,000 $1,008(3) 13,166(15)
Chief Scientist 1995 124,885 1,260(3) 3,000
1994 128,000
</TABLE>
(1) The Company has made no restricted stock awards and has no long-term
incentive plans.
(2) No executive officer serving during 1996 (other than officers shown in
table) earned in excess of $100,000 in annual salary and bonus in 1994,
1995, or 1996.
(3) Messrs. Semmens, Griffin, Morris, Rosel and Jay received the amounts
shown as a Company contribution under the 401(k) plan which is available
to all employees of the Company and is paid as a uniform percentage of
the amount of employee contribution.
(4) Includes options to purchase 25,000 shares of Common Stock contingent upon
Stockholder approval of the 1996 Stock Option Plan.
(5) Partial moving expenses paid by the Company on behalf of Mr. Semmens.
(6) Includes options to purchase 7,000 shares of Common Stock contingent upon
Stockholder approval of the 1996 Stock Option Plan.
(7) Mr. Griffin was paid as a Consultant for the period of January 1 until
March 25, 1996, at which time he became an employee.
(8) Includes $28,122 which was travel between residence and place of business;
and $14,593 including lodging, local transportation and miscellaneous
expenses for the period from March 25 through December 31, 1996.
(9) Mr. Griffin acted in the capacity of a Consultant to the Company for the
period of September 1 through December 31, 1995.
(10) Includes options to purchase 6,500 shares of Common Stock contingent upon
Stockholder approval of the 1996 Stock Option Plan.
(11) Mr. Morris received this bonus prior to his appointment as Vice President
while his assignment was that of Chief Engineer.
(12) Includes options to purchase 8,500 shares of Common Stock contingent upon
Stockholder approval of the 1996 Stock Option Plan.
(13) Partial moving expenses paid by the Company on behalf of Mr. Rosel.
(14) Mr. Jay was not an executive officer at December 31, 1996; however, he
continues to serve the Company as Chief Scientist.
(15) Includes options to purchase 13,166 shares of Common Stock contingent upon
Stockholder approval of the 1996 Stock Option Plan.
Michael G. Semmens was hired to be the President and Chief Executive Officer
of the Company in June 1994 at an annual base salary of $200,000 and a $50,000
signing bonus. In addition, Mr. Semmens was granted options to purchase 47,500
shares of Common Stock; of these, options on 32,500 shares vest over a 30-month
period from the date of grant, and options on the remaining 15,000 shares become
exercisable upon the share price reaching certain thresholds. Mr. Semmens'
Letter of Employment provided for a three-year employment contract, with a
provision for a one year's salary severance in the event of termination. The
Letter of Employment included the above terms and an annual performance-based
bonus of up to 50 percent of base compensation. In addition, the implementation
of a management incentive program for which Mr. Semmens would be eligible was
authorized.
The following table sets forth certain information concerning options/SARs
granted during 1996 to the named executives:
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term
% of Total
Number of Options/
Securities SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted Fiscal Year ($/Share)(1) Date 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Michael G. Semmens 3,334(2) $12.50 1/31/2001 $11,502 $ 25,438
25,000(3) 9.7 5.28(3) 10/29/2006 83,000 210,250
William F. Griffin 28,000(4) $11.60 3/25/2006 $204,400 $517,720
7,000(3) 11.9 5.28(3) 10/29/2006 23,240 58,870
Chris Morris 1,667(2) $12.50 1/31/2001 $ 5,751 $ 12,719
9,500(4) 11.60 3/25/2006 69,350 175,655
6,500(3) 6.0 5.28(3) 10/29/2006 21,580 54,665
James M. Rosel 1,667(2) $12.50 1/31/2001 $ 5,751 $ 12,719
9,500(4) 11.60 3/25/2006 69,350 175,655
8,500(3) 6.7 5.28(3) 10/29/2006 28,220 71,485
Benny E. Jay 13,166(3) 4.5 $5.28(3) 10/29/2006 $43,711 $110,726
</TABLE>
(1) The exercise price of all options is equal to the market price of the
Common Stock as of the date of grant.
(2) Exercisable on August 1, 1996.
(3) Granted under the 1996 Stock Option Plan and become exercisable after
May 22, 1997, contingent upon Stockholder approval.
(4) Exercisable 1/3 on September 26, 1996; 1/3 on September 26, 1997; and
1/3 on September 26, 1998.
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<CAPTION>
Number of Securities
Underlying Value of unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
Shares Acquired (#) ($)
on Exercise Value Realized Exercisable(E)/ Exercisable(E)/
Name (#) ($) Unexercisable(U) Unexercisable(U)(1)
<S> <C> <C> <C> <C>
Michael G. Semmens 0 0 35,834 (E) (2)
40,000(3)(U)
William F. Griffin 0 0 9,333 (E) (2)
25,667(3)(U)
Chris Morris 0 0 12,833 (E) (2)
15,334(3)(U)
James M. Rosel 0 0 15,166 (E) (2)
15,001(3)(U)
Benny E. Jay 0 0 5,834 (E) (2)
14,166(3)(U)
</TABLE>
(1) Based on the $6.22 per share market price of the Common Stock as reported
on NASDAQ as of December 31, 1996, (last market day of year).
(2) Option price exceeded the market price at December 31, 1996.
(3) Includes options granted under the 1996 Stock Option Plan contingent on
Stockholder approval and shown in previous Table entitled Option/SAR Grants
in Last Fiscal Year.
The Company's directors are not paid any fee for attendance at
Board or Committee meetings; however, they are reimbursed for
expenses incurred in attending Board or Committee meetings
including travel costs. Directors and members of Committees of
the Board who are employees of the Company are not separately
compensated for their Board and Committee activities.
In November, 1995, Charles L. Mathews and the Company entered
into a Consulting Agreement for a period of two years to assist
the Company with respect to all matters pertaining to battery
development, engineering, production equipment, materials and
related matters. Under the terms of this Agreement, Mr. Mathews
will be paid a consulting fee of $5,000 per month. During 1996,
Mr. Mathews was paid $60,000 pursuant to this agreement.
Pursuant to the Company's 1988 Non-Employee Director Stock
Option Plan, each director of the Company that is not an employee
or officer of the Company receives a one-time grant of options to
purchase 5,500 shares of Common Stock at the time such person
becomes a director. All options are exercisable as to 1,500
shares starting six months from the date of grant, as to 2,000
shares starting eighteen months from the date of grant, and the
remaining 2,000 shares thirty months from the date of grant. Upon
approval of the 1996 Stock Option Plan, the grant awarded at the
time a director assumes a position on the Board is increased to
an aggregate of 15,000 shares, which will include any grants
previously made under the 1988 Non-Employee Director Stock Option
Plan. In addition, each director will be awarded 2,000 shares
annually commencing with the second anniversary of the date on
which the director joined the Board. Directors of the Company
that are also employees or officers of the Company are eligible
for grants of options under the Company's 1987 Stock Option Plan
and the 1994 Stock Option Plan; the number of options granted and
the vesting schedule of such options are determined by the
Company's Compenation Committee. The exercise price of each
option granted under all plans is not less than the market price
of the Common Stock at the date of grant.
Compensation Committee Interlocks and Insider Participation.
The Company's Compensation/Stock Option Committee consists of
Messrs. John D. Malone, Nathan Morton and Dr. Norman Hackerman.
Mr. Williamson also served on this Committee during a portion of
1996. None of these members is or has been and officer or
employee of the Company.
Messrs. Malone and Wilson own approximately 3% and 1%,
respectively, of the outstanding common shares of Blanyer-Mathews
Associates, Inc. ("Blanyer-Mathews"). Until March 2, 1996, Mr.
Malone served as a director of Blanyer-Mathews.
Blanyer-Mathews is the holder of the patent relating to
coextruded wire under which the Company holds an exclusive
license. The Company paid minimum royalties under this license
totaling $100,000 to Blanyer-Mathews during 1996.
Each of the members of the Compensation/Stock Option Committee
has received options to purchase 5,500 shares of Common Stock
under the Company's 1988 Non-Employee Director Stock Option Plan
as well as an option to purchase 9,500 shares of Common Stock
under the Company's 1996 Stock Option Plan. Grants under the
1996 Stock Option Plan are contingent upon the approval of such
plan at the Annual Meeting of Stockholders. Under the 1996 Stock
Option Plan, if approved by the Stockholders, each director will
automatically receive an additional grant of 2,000 shares
annually commencing with the second anniversary of his initial
election.
Certain Relationships and Related Transactions
Contract with Bastrop Metal Products
Mr. Charles L. Mathews, a director, is the sole owner, director
and officer of Bastrop Metal Products, Inc. In November 1995, a
Development Agreement and Agreement for Purchase of Machinery and
Supplies between the Company and Charles L. Mathews was executed
under which Mr. Mathews contracts to manufacture and provide to
the Company co-extruders for use in present and anticipated
Company production facilities at a set price per single head
coextruder. The Agreement provides that the Company will advance
50 percent of anticipated construction cost of each co-extruder.
In addition, Mr. Mathews agrees to develop certain other
equipment to be utilized in the Company's manufacturing
operations. The Company will own all intellectual property
rights as well as all engineering drawings to this equipment.
The term for the development work shall be eighteen months funded
at $3,611 per month. Under this Agreement, the Company paid
$43,332 in 1996 and expects to pay $14,444 in 1997. The Company
has made no advances for construction costs for a coextruder. In
December 1996, the Company entered into an agreement with Bastrop
Metal Products for the lease of warehouse space for storage
purposes. The lease of approximately 4,000 square feet is for a
period of one year ending December 1, 1997, at a total cost of
$4,800 for that period. The Company paid $400 for rental of such
space in 1996, and anticipates the payment of $4,400 in 1997.
Participation in Equity Placement
In January 1997 certain of the Company's executive officers
participated as purchasers in a private placement of the
Company's common stock. The terms of the offering called for the
sale of shares of common stock at price, payable in cash, of
$6.56 per share. Purchasers in the offering received one warrant
to purchase an additional share of common stock at an exercise
price of $7.56 per share for each dollar invested in common stock
at the closing of the offering. All warrants expire in January
1999.
The participation of executive management in this offering
is set forth below:
Name of Officer Shares Purchased Warrants Issued Total Investment
Michael G. Semmens 19,048 125,000 $125,000
James M. Rosel 3,810 25,003 $25,003
William F. Griffin 7,619 50,000 $50,000
Chris Morris 3,810 25,003 $25,003
Mary Beth Koenig 3,810 25,003 $25,003
Totals 38,097 250,009 $250,009
In the aggregate, including the shares listed above, the
Company sold 80,897 shares in the offering for total
consideration of $530,883. The Company agreed to file a
registration statement with the Securities and Exchange
Commission to register the sale of shares purchased in the
offering by persons other than members of the Company's executive
management and the sale of shares to be issued to persons other
than members of the Company's executive management upon exercise
of warrants granted in the offering.
The Company also sold to a separate group of purchasers
during the period of the offering described above an aggregate of
28,500 shares of its Common Stock at a price of $5.25 per share,
for total proceeds of $149,625, and issued two-year warrants to
purchase a total of 85,500 additional shares of Common Stock at
exercise prices from $5.25 to $6.25 per share. No members of the
Company's executive management participated in this offering.
Purchases by members of executive management were made
subject to the condition that the purchases be approved by the
Stockholders of the Company at its next Annual Meeting of
Stockholders. See "Ratification of Management Equity Purchases,"
below. In the event that the Stockholders do not approve the
participation of management in the offering, the Company will
rescind the sales of stock and warrants to the participating
members of management and refund the purchase price with interest
at the prime rate from the date of purchase.
Compensation Committee Report on Executive Compensation.
During fiscal 1996, executive compensation consisted of three
components: (a) base pay; (b) year-end bonus; and (c) awards
under the Company's Stock Option Plans (the "Plans").
Total Cash Compensation. As a part of cost containment
efforts, early in 1996 the Compensation Committee made the
recommendation to accept, and the Board of Directors unanimously
approved, an offer from the officers and some of the director-
level management to participate in a six month salary reduction
program. Reductions ranged from twenty-five percent for the
Chief Executive Officer to nine percent for some of the other
participants with an average of approximately nineteen percent.
The salary reductions involved sixteen individuals. In exchange
for such reductions, stock options were granted on the basis of
1.3 shares for each dollar of salary foregone. In August of
1996, full salaries were reinstated for those individuals who had
participated in the salary reduction program.
In 1996, the Compensation Committee proposed selected salary
increases ranging from 6.1 percent to 14.8 percent for certain
executives to make their salaries more competitive with
prevailing salaries of executives of comparable experience.
These salaries were unanimously adopted by the Board of
Directors. The Committee currently has under consideration a
plan linking the performance of each executive to the amount of
compensation paid to such executive. The Compensation Committee
reserves the right to make some subjective judgments in assessing
compensation relative to an individual executive's contribution
to the overall performance of the Company.
Year-end Bonus. Year-end bonuses of less than $1,200 are
determined by management. A bonus for any employee in excess of
$1,200 must be approved by the Compensation Committee. No
bonuses were authorized by the Compensation Committee during 1996
for an employee at or above the level of vice president and/or
director. All employees below the level of Vice President and/or
Director were given a bonus of $100 each.
1987 Stock Option Plan. The 1987 Stock Option Plan is a long-
term incentive compensation plan for key employees of the
Company. During 1996, a number of options were granted to
individual executive officers under the plan based upon the
ability of such individual to impact the long-term success of the
Company. Additionally, certain grants under the 1987 Stock
Option Plan were made as a part of the salary reduction program.
1994 Stock Option Plan. The 1994 Stock Option Plan is a long-
term compensation plan for key employees of the Company. During
1996, a number of options were granted to individual executive
officers under the plan based upon the ability of such individual
to impact the long-term success of the Company. Additionally,
certain grants under the 1994 Stock Option Plan were made as a
part of the salary reduction program. The 1994 Stock Option Plan
was approved by the Stockholders of the Company at the 1995
Annual Meeting.
1996 Stock Option Plan. The 1996 Stock Option Plan was approved
by the Board of Directors in August of 1996, subject to
shareholder approval at the 1997 Annual Meeting. Under the
proposed 1996 Stock Option Plan, it is proposed that all
outstanding options under the various plans presently in place
would be aggregated under the 1996 Plan, and all the various
other plans would be terminated. The Compensation Committee
recommended, and the Board of Directors approved, an award of
additional shares to selected executives based upon the ability
of such individuals to impact the long-term success of the
Company.
Compensation of CEO and President. Michael G. Semmens was hired
to be the President and Chief Executive Officer of the Company in
June of 1994 at an annual base salary of $200,000 with a $50,000
signing bonus. In addition, Mr. Semmens was granted options to
purchase 47,500 shares of Common Stock; of these, options on 32,500
shares vest over a 30 month period from the date of grant, and options
on the remaining 15,000 shares become exercisable upon the share price
reaching certain thresholds. Mr. Semmens' Letter of Employment provided
for a three year employment contract, with a provision for a one year's
salary severance in the event of termination. The letter of employment
included the above terms and an annual performance-based bonus of up to
50 percent of base compensation. In addition, the implementation of a
management incentive program for which Mr. Semmens would be eligible
was authorized.
Mr. Semmens' salary was not adjusted in 1996 (other than to be reduced
under the previously described salary reduction program), and has not
been adjusted since his hiring. The Compensation Committee sought
outside sources in determining that the cash component of Mr. Semmens'
1996 salary as President and CEO is in line with the compensation paid
by other companies similarly situated. In October of 1996, Mr. Semmens
was granted an option to purchase 25,000 shares at $5.28 per share
contingent upon Shareholder approval of the 1996 Stock Option Plan.
Such grant was based upon Mr. Semmens' individual performance and the
progress made by the Company under his leadership in 1996. Such progress
was evidenced by the development of relationships with several OEM's.
The above recommendations were approved by the following non
employee directors who comprised the Compensation Committee from
November 1995 to June 1996, and from June 1996 to the present:
November 1995/June 1996 June 1996/Present
John D. Malone John D. Malone
Nathan Morton Nathan Morton
Norman Hackerman Norman Hackerman
Richard S. Williamson
Comparative Performance of Company's Securities.
The following chart presents the total stockholder return with
respect to the Company's Common Stock for each of the last five
years, compared to the total return over the same period of (i)
all NASDAQ U.S. stocks and (ii) all NASDAQ electronic components
stocks. Stockholder return for a given year is measured by
dividing dividends paid during the year plus the difference
between the Company's share price at the end and the beginning of
the year by the average of the bid and asked prices of a share of
the Company's Common Stock as of the beginning of the year;
dividends are not a factor in the computation of the Company's
total return since the Company paid no dividends during the
periods presented. Closing prices at the end of each year have
been compared to the beginning index value, with cumulative
returns for each subsequent year measured as a change from that
base.
1991 1992 1993 1994 1995 1996
NASDAQ U.S. Stocks 187.203 217.864 250.093 244.461 345.717 425.247
100.000 116.378 133.595 130.586 184.675 227.158
Electronic Components 173.344 271.027 372.098 411.090 680.895 1176.530
100.000 156.352 214.659 237.153 392.800 678.726
Electrosource, Inc. 4.063 23.750 41.875 30.625 14.375 6.219
100.000 584.619 1030.769 753.846 353.846 153.077
Electronic
NASDAQ Components ELECTROSOURCE
1991 100.00 100.00 100.00
1992 116.38 156.35 584.62
1993 133.59 214.66 1030.77
1994 130.59 237.15 753.85
1995 184.67 392.80 353.85
1996 227.16 678.73 153.08
ITEM 2
PROPOSAL CONCERNING NEW 1996 STOCK OPTION PLAN
The Company has options outstanding under four stock option
plans - the 1987 Employee Stock Option Plan, the 1988 Non-
employee Director Stock Option Plan, the 1993 Consultant Stock
Option Plan, and the 1994 Stock Option Plan. All plans are
hereinafter collectively referred to as the "Plans." On August
7, 1996, the Board of Directors approved the consolidation of all
of the listed plans under one plan (the 1996 Stock Option Plan)
and at the same time increased the number of shares available for
grant. All share amounts given below give effect to a one-for-
ten reverse stock split in 1996.
The 1987 Employee Stock Option Plan was approved by the Board
of Directors of the Company on October 5, 1987 and subsequently
approved by the Stockholders of the Company. The 1987 Plan
initially was created with a total of 60,000 shares of Common
Stock, and subsequently amended by action of the Board and
approval of the Stockholders to an aggregate total of 150,000
shares. The 1987 Plan will expire under its own terms on October
5, 1997. At the present time, there are options to purchase
103,181 shares of Common Stock outstanding under such plan;
options to purchase 41,165 shares were previously granted and
exercised, and 5,654 shares remain ungranted. At the expiration
of the Plan, no further shares may be granted under the Plan;
however, those options to purchase shares of Common Stock
outstanding may be exercised until each expires under its own
terms.
The 1988 Non-Employee Director Stock Option Plan was approved
by the Board of Directors of the company on April 27, 1988 and
subsequently approved by the Stockholders of the Company on April
26, 1989. The 1988 Plan initially was created with a total of
17,500 shares of Common Stock, and subsequently amended by action
of the Board and approval of the Stockholders to an aggregate
total of 100,000 shares. The terms of the 1988 Plan provided
that each Director, upon his election to the Board of Directors,
receive a grant of 5,500 shares. No provision for continuing
grants to the Directors were included in the 1988 Plan as
approved by the Board of Directors and the Stockholders. The
1988 Plan will expire under its own terms on October 5, 1998. At
the present time, there are options to purchase 33,000 shares of
Common Stock outstanding under this plan; options to purchase
7,000 shares have been exercised, and 60,000 shares remain
ungranted. At the expiration of the Plan, no further shares may
be granted under the Plan; however, those options to purchase
shares of Common Stock outstanding may be exercised until each
expires under its own terms.
The 1993 Consultant Plan was approved by the Board of Directors
of the company on May 19, 1993. The 1993 Plan initially was
created with a total of 20,000 shares of Common Stock. The 1993
Plan will expire under its own terms on May 18, 2003. At the
present time, there are 9,600 options outstanding under this
plan, no options have been exercised, and 10,400 shares remain
available for grant under the Plan. At the expiration of the
Plan, no further shares may be granted under the Plan; however,
those options to purchase shares of Common Stock outstanding may
be exercised until each expires under its own terms.
The 1994 Employee Stock Option Plan was approved by the Board
of Directors of the Company on November 2, 1994 and subsequently
approved by the Stockholders of the Company on May 31, 1995. The
1994 Plan initially was created with a total of 150,000 shares of
Common Stock. The 1994 Plan will expire under its own terms on
November 1, 2004. At the present time, there are outstanding
under the 1994 Plan options to purchase 119,820 shares of Common
Stock. None of these options has been exercised, and 30,180
shares remain available for grant under this Plan. At the
expiration of the Plan, no further shares may be granted under
the Plan; however, those options to purchase shares of Common
Stock outstanding may be exercised until each expires under its
own terms.
DISTRIBUTION OF SHARES OUTSTANDING UNDER
THE 1987, 1988, 1993 AND 1994 STOCK OPTION PLANS
NAME AND POSITION DOLLAR VALUE ($)(1) NUMBER OF UNITS
Michael G. Semmens $1,704,175 50,834(2)
President, CEO and Chairman
William F. Griffin $324,800 28,000(3)
Executive Vice President
Chris Morris $357,388 21,667(4)
Vice President
Technical Operations
James M. Rosel $504,163 21,667(5)
Vice President/Finance
and General Counsel
Benny E. Jay $141,890 6,834(6)
Chief Scientist
All current $3,031,151 132,668(7)
executive officers
as a group (5 persons)
All directors that $855,800 33,000(8)
are not executive
officers as a group
(6 persons)
All consultants as $199,400 9,600(9)
a grou (3 persons)
All Non-executive $99,838 6,917(10)
officers as a
group (1 person)
Nominees for Director:
Nathan Morton $151,250 5,500
Richard E. Balzhiser 0 0
Michael G. Semmens See above
Each person receiving 5% or
more of options granted:
Michael G. Semmens See above
William F. Griff See above
James M. Rosel See above
Chris Morris See above
All employees, including $1,695,994 89,733(11)
officers that are not
executive officers,
as a group (27 persons)
(1) The Dollar Value was determined by multiplying the per share market value
on the date of grant by the total number of option shares.
(2) All of these options are outstanding under the 1987 Plan at prices ranging
from $12.50 to $35.00.
(3) All of these options are outstanding under the 1994 Plan at a price of
$11.60 per share.
(4) 1,667 of these options are outstanding under the 1987 Plan and 20,000
options are outstanding under the 1994 Plan at prices ranging from
$11.60 to $35.00 per share.
(5) 6,667 of these options are outstanding under the 1987 Plan and 15,000
options are outstanding under the 1994 Plan at prices ranging from
$11.60 to $36.25 per share.
(6) 3,834 of these options are outstanding under the 1987 Plan and 3,000
options are outstanding under the 1994 Plan at prices ranging from
$10.60 to $33.75 per share.
(7) 60,168 of these options are outstanding under the 1987 Plan and 72,500
options are outstanding under the 1994 Plan at prices ranging from
$11.60 to $36.25 per share.
(8) All 33,000 of these options are outstanding under the 1988 Non-employee
Director Plan at prices ranging from $10.60 to $37.50 per share.
(9) All 9,600 of these options are outstanding under the 1993 Non- employee
Consultant Plan at prices ranging from $7.00 to $27.50 per share.
(10) 6,617 of these options are outstanding under the 1987 Plan and 300
options are outstanding under the 1994 Plan at prices ranging from
$10.60 to $33.75 per share.
(11) 43,013 of these options are outstanding under the 1987 Plan and 46,720
options are outstanding under the 1994 Plan at prices ranging from
$12.50 to $35.00 per share.
Creation of the 1996 Plan
With the creation of the 1996 Stock Option Plan, it is proposed
that all outstanding options under the 1987 Stock Option Plan of
Electrosource, Inc., the 1988 Non-Employee Director Stock Option
Plan of Electrosource, Inc., the 1993 Non-Employee Consultant
Stock Option Plan of Electrosource, Inc., and the 1994 Stock
Option Plan (the "Prior Plans") would be consolidated under the
1996 Plan and all the Prior Plans would be terminated. The Prior
Plans were created over a ten year period and have various terms
and conditions relative to vesting, exercise, termination, and
other provisions, making administration more difficult than
necessary. Management believes that the combination of all of
these Plans under the 1996 Plan would allow the better
utilization of the shares reserved for options by making them
available in one pool rather than segregating them into various
pools. The entire pool of shares would be an aggregate of
960,000 shares, 420,000 of which are presently reserved under the
various Plans already in place; adoption of the 1996 Plan
therefore increases the number of shares reserved for the grant
of options by 540,000 shares. Upon consolidation of the 1987
Stock Option Plan, the 1988 Non-Employee Director Stock Option
Plan, the 1993 Non-Employee Consultant Plan and the 1994 Stock
Option Plan, there would be outstanding options to purchase
265,601 shares arising from grants under these plans. In
addition, grants covering 245,144 shares have been made under the
1996 Stock Option Plan contingent upon Stockholder approval.
There would be 449,255 shares remaining for grants to key
employees and consultants and for grants to non-employee
Directors as such directors continue to serve without cash compensation.
Management believes that it is in the best interests of the
Company to consolidate all Plans under a common Plan in order to
ease the record keeping burden associated with the Plans.
Effect on Options Granted under Prior Plans
Upon approval of the 1996 Stock Option Plan, it is anticipated
that those options granted and outstanding under the Prior Plans
will be consolidated under the 1996 Stock Option Plan under the
terms and conditions of that Plan. Upon Stockholder approval of
the 196 Stock Option Plan, such Prior Plans would be terminated.
The Compensation Committee has granted options under the 1996
Plan to each participant under the Prior Plans that mirror the
exercise price and vesting terms of the options held by such
participants. The exercise period of each such option is ten
years from the date of grant of the mirror option. This
represents an extension of the terms of options originally
granted under the 1987 Employee Stock Option Plan and the 1993
Non-Employee Consultant Plan; options granted under the 1988 Non-
Employee Director Stock Option Plan and the 1994 Stock Option
Plan already provided for a ten-year term. These grants are
conditioned upon Stockholder approval of the 1996 Plan and upon
surrender of the agreements evidencing the options granted under
the Prior Plans that are to be replaced by the mirror options
under the 1996 Plan.
In the event that Stockholder approval is withheld, the Prior
Plans would continue under their existing terms until expiration
or amendment by the Board of Directors and options granted under
such Plan would remain outstanding.
Material Features of the 1996 Stock Option Plan
The Plan provides for the grant of options to purchase Common
Stock. Options granted under the Plan may be incentive stock
options ("ISO's") meeting the requirements of section 422 of the
Internal Revenue Code (the "Code") or non-qualified stock options
("non-qualified options") that do not meet such requirements.
The following summary describes the principal features of the
Plan.
Covered Shares. A maximum 960,000 shares of Common Stock,
$1.00 par value, may be issued pursuant to options granted under
the Plan. The Plan provides for adjustments in the number of
shares subject to the Plan and issuable pursuant to options
granted under the Plan in the event of stock dividends or stock
splits or combinations, and for adjustments in the case of
recapitalization, merger or sale of the assets of the Company.
If any option granted under the Plan expires or terminates
without having been exercised, the unpurchased shares subject to
the option will become available for further option grants.
Administration and Eligibility. The Plan is administered by
the Company's Compensation/Stock Option Plan Committee (the
"Committee"), which is composed of not less than three members of
the Board of Directors, each of which must be a "Nonemployee
Director" (as such term is defined in Rule 16b-3 promulgated by
the Securities and Exchange Commission, which provides that such
persons may not be employees of or consultants to the Company and
may not be engaged in related party transactions or relationships
with the Company). The Committee has full authority in its
discretion to determine the officers, directors, key employees,
and consultants of the Company and its subsidiaries to whom
Options (as defined below) shall be granted, the number of shares
of Stock covered thereby and the terms and provisions thereof,
subject to the Plan. The Committee's decisions are final and
binding on all participants in the Plan. At March 3, 1997, two
employee directors, seven non-employee directors, five officers,
approximately 30 identified key employees, and seven consultants
were eligible to participate in the Plan.
Under the terms of the 1988 Nonemployee Director Plan, a new
director, who was not also an employee, was given a one-time
option to purchase 5,500 shares of Common Stock initially upon
becoming a member of the Board of Directors. Under the 1996
Stock Purchase Plan, the initial option would be increased to
15,000 shares of Common Stock, with the addition of an annual
grant of an option to purchase 2,000 shares commencing with the
second anniversary of his initial election. Grants under the
1988 Non-employee Director Plan were, and grants to directors
that are not also employees will be, automatic and will not be
dependent on any exercise of discretion by the Committee.
Termination and Amendment. The Plan will terminate on August
6, 2006. Termination will not affect any option outstanding as
of the date of termination. The Plan may be amended by the Board
of Directors; amendments that would materially increase the
benefits accruing to participants, materially increase the number
of securities which may be issued, or materially modify the
requirements as to eligibility for participation must be approved
by the Stockholders. No amendment will affect the terms of
options granted prior to the amendment.
Terms and Conditions. Each option awarded under the Plan is
evidenced by a Stock Option Agreement (an "Option Agreement")
containing terms and conditions consistent with the terms of the
Plan and otherwise satisfactory to the Committee. The Plan does
not provide for any payment or consideration to be given to the
Company for the granting or extension of any option. The
purchase price of the shares of Common Stock covered by any ISO
granted under the Plan must be not less than the fair market
value of such shares as of the date of grant and may be granted
to officers (including directors that are also officers), and
employees of the Company only; the exercise price of non-
qualified options granted under the Plan is not limited to fair
market value. The options granted under this plan are
exercisable for a period of ten years from the date of grant;
however, no ISO option can be exercised within six months from
the date of grant. The exercise price can be paid in cash,
check, shares of Common Stock having a market value equal to the
aggregate exercise price, or any combination of the foregoing.
The Company may allow "cashless exercise" of options, whereby
shares are delivered to a broker-dealer or other financial
institution for the account of the option holder prior to payment
by the option holder of the exercise price upon the Company's
receipt of assurance of payment by such broker or financial
institution. Options granted under the Plan must be exercised
within three months from the date of the option holder's
termination of employment (to the extent exercisable at the
termination date) for any reason other than death or disability.
Upon termination of employment by reason of disability, any
Option held at the date of such termination may, to the extent
then exercisable, be exercised within twelve months after the
date of such termination. If the holder of an Option dies, any
Option held at the date of death may be exercised by the holder's
heirs, legatees or person representatives within twelve (12)
months after the holder's death for the full number of shares
under this option not theretofore purchased at the time of death.
If the holder of an Option retires at normal retirement age (age
65 or older), any Options held at the date of retirement may be
exercised in full, whether or not the Options are fully vested at
such time, within twelve (12) months after the holder's
retirement. All Options granted under the Plan expire not later
than ten years from the date of grant. Options granted under the
Plan are transferable only by will or by the laws of descent and
distribution, and can be exercised during the holder's lifetime
only by the holder.
Change in Capitalization; Merger; Liquidation. The number of
shares of Common Stock as to which Options may be granted, the
number of shares covered by each outstanding Option, and the
price per share of each outstanding Option will be
proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a
subdivision or combination of shares or the payment of a stock
dividend in shares of Common Stock to holders of outstanding
shares of Common Stock or any other increase or decrease in the
number of such shares effected without receipt of consideration
by the Company. If the Company is the surviving corporation in
any merger or consolidation, recapitalization, reclassification
of shares or similar reorganization, the holder of each
outstanding Option will be entitled to purchase, at the same
times and upon the same terms and conditions as are then provided
in the Option, the number and class of shares of stock or other
securities to which a holder of the number of shares of Common
Stock subject to the Option at the time of such transaction would
have been entitled to receive as a result of such transaction.
In the event of any such changes in capitalization of the
Company, the Committee may make such additional adjustments in
the number and class of shares of Common Stock or other
securities with respect to which outstanding Options are
exercisable and with respect to which future Options may be
granted as the Committee deems appropriate, subject to the
provisions to prevent dilution or enlargement of rights. The
optionee will have the right, immediately prior to dissolution,
liquidation, merger or consolidation of the Company (to the
extent the Company is not the surviving entity in such merger or
consolidation), to exercise his Options in full without regard to
any installment exercise provisions. In the event of a
dissolution or liquidation of the Company or a merger or
consolidation in which the Company is not the surviving
corporation, each outstanding Option will terminate unless
another corporation assumes the Option or substitutes another
option in its place. In the event of a change of the Company's
shares of Common Stock with par value into the same number of
shares with a different par value or without par value, the
shares resulting from any such change will be deemed to be the
Common Stock within the meaning of the Plan.
Tax Consequences of Grant and Exercise. The Committee will
determine, within the limits set by the Code, what portion of any
award under the Plan will constitute ISO's and what portion will
constitute non-qualified options. The Code provides that the
aggregate fair market value (measured as of the date of grant) of
stock covered by ISO's granted to any participant cannot exceed
$100,000 in the year in which such ISO's first become
exercisable. In addition, any ISO granted to a holder of
securities representing more than ten percent of the combined
voting power of all the Company's capital stock must have an
exercise price not less than 110 percent of fair market value and
must have a term of not more than five years. A participant in
the Plan will recognize no income at the time that an ISO is
granted, and the Company will obtain no tax benefit at the time
of the grant. Participants receiving non-qualified options may
recognize income upon grant if the exercise price of the option
is less than the fair market value of the covered shares. When a
non-qualified option is exercised, the holder will recognize
ordinary income equal to the excess of the fair market value of
the shares of Common Stock acquired as of the date of exercise
over the option price of those shares, and the Company will
receive a corresponding income tax deduction. Exercise of an ISO
generally does not give rise to income on the part of the option
holder or deduction on the part of the Company, although the
difference between the fair market value of the shares purchased
and the exercise price of such shares is taken into account by
the option holder in determining alternative minimum taxable
income. If an option holder sells any shares acquired upon
exercise of an ISO within two years from the date of grant of the
option or within one year from the date of exercise, the option
will no longer qualify for ISO treatment, and the tax treatment
of exercise will be the same as that applicable to non-qualified
options. Taxability of the sale of shares acquired upon exercise
of options will otherwise be similar to that of any other
investor in the Company's Common Stock.
The following table presents certain information regarding
options that have been granted under the Plan as of the date of
this Proxy Statement. Since these grants are contingent on
Stockholder approval, they have not been reflected in the Pro
Forma Compensation Expense Disclosures in the Notes to the
Financial Statements. The information below does not include
those options granted under the 1996 Plan to replace options
outstanding under Prior Plans at the date of adoption of the 1996
Plan. See "Effect on Options Granted under Prior Plans," above.
The number and dollar value of such options is identical to that
given for outstanding options in the table entitled "Distribution
of Shares Outstanding under the 1987, 1988, 1993 and 1994 Common
Stock Option Plans," above.
NEW PLAN BENEFITS
1996 STOCK OPTION PLAN
NAME AND POSITION DOLLAR VALUE ($)(1) NUMBER OF UNITS
Michael G. Semmens $132,000 25,000
President, CEO and
Chairman
William F. Griffin $36,960 7,000
Executive Vice President
Chris Morris $34,320 6,500
Vice President
Technical Operations
James M. Rosel $44,880 8,500
Vice President,Finance
amd Gemeral Counsel
Benny E. Jay $69,516 13,166
Chief Scientist
All current $261,360 49,500
executive officers
as a group (5 persons)
All directors that are $401,310 72,000
not executive officers
as a group (7 persons)
All consultants as $235,767 44,192
a group (7 persons)
All non-executive $26,400 5,000
officers as a group
(1 person)
Nominees for director:
Nathan Morton $50,160 9,500
Richard E. Balzhiser $100,350(2) 15,000
Michael G. Semmens See above
Each person receiving 5% or
more of options granted:
Alfred Dixon $116,160 22,000
Benny E. Jay See above
Chales L. Mathews $138,156 26,166
Michael G. Semmens See above
Richard E. Balzhiser See above
All employees, including $416,507 79,452
officer that are not
executive officers,
as a group (27 persons)
(1) The Dollar Value was determined by multiplying the per share
market value on the date of grant by the total number of option shares.
(2) Based on the closing market value of $6.69 per share of Common Stock on
March 3, 1997, the date on which Dr. Balzhiser joined the Board of
Directors.
The market price of the Common Stock was $6.50 per share on March 14, 1997.
Management recommends approval of the 1996 Plan.
ITEM 3
RATIFICATION OF MANAGEMENT PARTICIPATION IN EQUITY OFFERING
In January 1997 certain of the CompanyOs executive officers
participated as purchasers in a portion of a private placement of
the CompanyOs Common Stock. The terms of the offering called for
the sale of shares of Common Stock at price, payable in cash, of
$6.56 per share. Purchasers in the offering received one warrant
to purchase an additional share of Common Stock at an exercise
price of $7.56 per share for each dollar invested in Common Stock
at the closing of the offering. On these terms $530,883 was
raised, of which $250,009.39 was from the executive officers.
All warrants expire in January 1999.
See "Certain Relationships and Related Transactions-Participation
in Equity Placement," above, for a detailed listing of the executive
officers involved in the offering and the extent of their participation
therein.
Because the terms of the offering were largely negotiated by
management, and to avoid the appearance of a conflict of
interest, the participation of the executive officers in the
offering was expressly conditioned upon ratification of such
participation by the Company's Stockholders at the Annual Meeting
of Stockholders. In the event that the Stockholders do not
approve the participation of management in the offering, the
Company will rescind the sales of stock and warrants to the
participating members of management and refund the purchase price
with interest at the prime rate from the date of purchase.
Management believes that the terms of the offering, particularly
those available to the participating executive officers, reflect
arms-length terms that are fair to the Company.
The price of the Common Stock as reported on the NASDAQ Stock
Market during the period during which the offering was open
ranged from a low of $4.38 per share to a high of $7.25 per
share. The price on the date of the closing of the offering was
$5.22 per share.
The Company effected a second part of the private placement of
its Common Stock to a separate group of purchasers during the
period of the offering described above. No members of the
Company's management participated in this offering. In this
second part of the offering, the Company sold an aggregate of
28,500 shares of its Common Stock at a price of $5.25 per share,
for total proceeds of $149,625, and issued two-year warrants to
purchase a total of 85,500 additional shares of Common Stock at
exercise prices from $5.25 to $6.25 per share.
The Company agreed to file a registration statement with the
Securities and Exchange Commission to register the sale of shares
purchased in the offering and the sale of shares to be issued
upon exercise of warrants granted in the offering except for the
shares and warrants purchased by the executive officers. If the
participation by the executive officers is ratified, a subsequent
registration may be made for such shares. The Board has made no
determination as to whether it will file a registration statement
or not.
The executive officers paid a premium over the price available
in public markets and the price paid was the same as that paid by
the outside investors for the larger part ($530,883) of the
offering and in excess of the price paid by purchasers in the
smaller part ($149,625) of the offering. Participants in the
larger part of the offering received one warrant for each dollar
invested in Common Stock, but the warrants granted had an
exercise price substantially over market price at the time. In
addition, the participating executive officers do not have the
benefit of an agreement to file a registration statement covering
the resale of shares purchased in the offering; as a result,
unless the Board of Directors determines to file a registration
statement covering such resales, any resale of the shares
purchased by executive officers will have to be made pursuant to
Rule 144 of the Securities and Exchange Commission, which
requires that the shares be held for a minimum of one year from
the date of purchase (one year from the date of exercise in the
case of shares acquired upon exercise of warrants) before any
sales can be made. The investment by the CompanyOs executive
officers may therefore be substantially less liquid than that of
the other investors in the offering or of a purchaser on the
NASDAQ Stock Market.
Management recommends a vote FOR this proposal.
ITEM 4
SELECTION OF INDEPENDENT AUDITORS
The Board of Directors of the Company has voted to appoint
Ernst & Young LLP, independent auditors, to audit the accounts of
the Company for the fiscal year ended December 31, 1997. A
representative of Ernst & Young LLP is expected to attend the
Annual Meeting and will have the opportunity to make a statement
if desired. Such representative is expected to be available to
respond to appropriate questions.
OTHER BUSINESS
Management does not know of any matters to be acted upon at the
Annual Meeting other than those described above.
VOTE REQUIRED FOR APPROVAL
Directors will be elected by a plurality of the votes cast by
holders of shares entitled to vote at the Annual Meeting.
Approval of the proposed adoption of the 1996 Stock Option Plan
will require the affirmative vote of holders of a majority of the
shares represented at the Annual Meeting. Ratification of the
purchase of Company securities by executive officers of the
Company will require the affirmative vote of holders of a
majority of the Common Shares outstanding as of the record date
for the Annual Meeting. All other matters will be decided by the
affirmative vote of holders of a majority of the shares
represented in person or by proxy and entitled to vote at the
Annual Meeting. Abstentions and broker nonvotes will not affect
the election of directors. Since all other matters to be
considered at the Annual Meeting require the affirmative vote of
a given percentage of shares outstanding or present at the
meeting, abstentions will have the effect of a vote against any
matter other than the election of directors. Broker nonvotes are
counted for purposes of determining the presence or absence of a
quorum, but are not counted for purposes of determining the
number of votes cast for or against the particular proposal for
which authorization to vote was withheld. A broker nonvote will
therefore have the effect of a vote against the ratification of
the purchase of Company securities (which requires an affirmative
vote of a majority of shares outstanding), but will have no
effect with respect to the other proposals to be considered
(which require only the affirmative vote of a majority of shares
represented and voting on the proposal in question). Votes will
be tabulated by Harris Trust and Savings Bank .
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
It is currently anticipated that the 1998 Annual Meeting of
Stockholders of the Company will be held on or about May 20,
1998. Stockholder proposals to be presented at the 1998 Annual
Meeting must be received in writing by the Company at its
principal executive offices not later than December 12, 1997.
FORM 10-K
The Company will, upon written request, furnish without charge
to each person who was a beneficial owner of its securities on
March 24, 1997, the record date for the Company's Annual Meeting,
a copy of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, including financial statements and
schedule, as filed with the Securities and Exchange Commission.
Requests for copies of such report should be directed to the
Corporate Secretary, Electrosource, Inc., 2809 Interstate 35
South, San Marcos, Texas 78666.
The date of this Proxy Statement is April 23, 1997.
PROXY
Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby constitutes and appoints Michael G.
Semmens and James M. Rosel, or either of them as Proxies, each
with full power of substitution, to represent and to vote, as
designated below, all shares of Common Stock of Electrosource.
Inc., held of record by the undersigned on March 24, 1997, at the
Annual Meeting of Shareholders to be held at 10:00 A.M., May 22,
1997, at the Corporate Headquarters, 2809 Interstate 35 South,
San Marcos, Texas, or any adjournments thereof.
1. ELECTION OF DIRECTORS, NOMINEES:
Richard E. Balzhiser Nathan Morton Michael G. Semmens
2. Proposal to approve the adoption of the 1996 Stock Option Plan.
3. Proposal to ratify the purchase of Company securities by
certain executive officers in a 1996 private placement.
4. Proposal to approve the appointment of Ernst & Young LLP as auditors.
5. In their discretion, the Proxies are authorized to vote upon
such business as may properly come before the meeting or any
adjournment thereof as provided in the accompanying Proxy
Statement.
This Proxy when properly executed will be voted in the manner
directed by the undersigned shareholder. If no direction is
made, this Proxy will be voted FOR Proposals 1, 2, 3, and 4. If
this Proxy is executed by the undersigned shareholder in such a
manner as not to withhold authority to vote for the election of
any nominees, such authority shall be deemed granted. The Proxy
tabulator cannot vote your shares unless you sign and return this
card in the enclosed envelope.
Check box for address change.
(Change of Address)
________________________________________
________________________________________
________________________________________
________________________________________
(If you have written in the above space,
please mark the box)
SIGNATURE(S) __________________________________ DATE ___________________
SIGNATURE(S) __________________________________ DATE ___________________
NOTE: Please sign exactly as name appears hereon. Joint owners
should each sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title
as such.
