2
FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission file number 0-16323
ELECTROSOURCE, INC.
(Exact name of Registrant as specified in its charter)
Delaware 742466304
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2809 Interstate 35 South,
San Marcos, Texas 78666
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number,
including area code: (512) 753-6500
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No __
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes __ No __
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date: 7,234,531 shares as of August 14, 1998.
INDEX TO FINANCIAL STATEMENTS
June 30, 1998
ELECTROSOURCE, INC. COMMISSION FILE NUMBER 0-16323
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Balance Sheets at
June 30, 1998 (Unaudited)and
December 31, 1997 Page 3
Condensed Statements of Operations for the
three and six months ended
June 30, 1998 and 1997 (Unaudited) Page 4
Condensed Statements of Cash Flows for the
six months ended
June 30, 1998 and 1997 (Unaudited) Page 5
Notes to Condensed Financial
Statements (Unaudited) Page 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations (Unaudited) Page 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings Page 15
Item 2. Changes in Securities Page 15
Item 3. Defaults Upon Senior Securities Page 15
Item 4. Submission of Matters to a Vote
of Security Holders Page 15
Item 5. Other Information Page 15
Item 6. Exhibits and Reports on Form 8-K Page 16
INDEX TO EXHIBITS Page 19
Part I - Financial Information
Item 1. Financial Statements.
<TABLE>
Electrosource, Inc.
Condensed Balance Sheets
June 30, 1998 December 31,
(Unaudited) 1997
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 648,788 $ 782,918
Trade receivables 177,842 408,230
Inventories 338,382 322,289
Prepaid expenses and other assets 47,029 376,757
TOTAL CURRENT ASSETS 1,212,041 1,890,194
PROPERTY AND EQUIPMENT (net of accumulated depreciation
of $3,654,331 in 1998 and $3,239,817 in 1997) 3,782,118 4,164,459
INTANGIBLE ASSETS (net of accumulated amortization
of $4,096,773 in 1998 and $3,600,213 in 1997) 1,364,787 1,861,347
RESTRICTED CASH --- 81,604
OTHER ASSETS 7,000 8,500
TOTAL ASSETS $6,365,946 $8,006,104
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 462,940 $ 518,808
Accrued liabilities 1,320,421 1,668,718
Deferred revenue and advance payments on batteries 1,049,210 432,599
Current portion of capital lease obligations 74,317 72,685
Convertible notes payable --- 871,920
TOTAL CURRENT LIABILITIES 2,906,888 3,564,730
CONVERTIBLE NOTES PAYABLE (less current portion) --- 2,800,554
CAPITAL LEASE OBLIGATIONS (less current portion) 111,155 148,518
SHAREHOLDERS' EQUITY (DEFICIT)
Common Stock, par value $1.00 per share,
authorized 50,000,000 shares; issued and
outstanding 7,234,531 shares in 1998
and 4,534,531 shares in 1997 7,234,531 4,534,531
Preferred Stock, par value $1.00 per share; authorized
10,000,000 shares, no shares issued or outstanding --- ---
Common Stock subscription receivable (467,663) (467,663)
Warrants --- ---
Paid in capital 51,446,508 51,146,508
Accumulated deficit (54,865,473) (53,721,074)
3,347,903 1,492,302
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $6,365,946 $ 8,006,104
See notes to condensed financial statements.
</TABLE>
<TABLE>
Electrosource, Inc.
Condensed Statements of Operations (Unaudited)
Three Months Ended June 30 Six Months ended June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues
Battery sales $ 143,644 $ 119,820 $ 388,619 $ 663,055
Project revenue 165,941 740,367 214,956 1,204,863
Interest income 18,989 52,353 28,573 55,506
328,574 912,540 632,148 1,923,424
Costs and expenses
Manufacturing 742,085 827,430 1,734,689 1,674,508
Selling, general and 605,054 661,472 1,182,767 1,225,654
administrative
Research and development 483,531 616,153 1,079,642 1,065,661
Technology license and 25,000 25,000 50,000 50,000
royalties
Depreciation and 444,862 477,273 911,073 955,960
amortization
Interest expense 148,164 168,615 350,421 221,901
2,448,696 2,775,943 5,308,592 5,193,684
Loss before income taxes (2,120,122) (1,863,403) (4,676,444) (3,270,260)
Income taxes --- --- --- ---
Loss before extraordinary gain (2,120,122) (1,863,403) (4,676,444) (3,270,260)
Extraordinary gain from early
extinguishment of debt (Note D) 3,532,045 --- 3,532,045 ---
Net income (loss) $1,411,923 $(1,863,403) $(1,144,399) $(3,270,260)
Net income (loss) per common $0.27 $(0.45) $(0.24) $(0.81)
share
Average common shares 5,164,202 4,096,964 4,851,105 4,017,882
outstanding
See notes to condensed financial statements.
</TABLE>
<TABLE>
Electrosource, Inc.
Condensed Statements of Cash Flows (Unaudited)
Six Months Ended June 30,
1998 1997
OPERATING ACTIVITIES
<S> <C> <C>
Net loss $(1,144,399) $(3,270,260)
Adjustments to reconcile net loss to net cash
used in operating activities:
Equity instruments for consulting services 300,000 21,600
Depreciation and amortization 911,074 1,032,712
Non-cash interest expense 359,573 ---
Amortization of prepaid lease expense 213,071 ---
Extraordinary gain from early extinguishment (3,532,045) ---
of debt
Changes in operating assets and liabilities:
(Increase) decrease in trade receivables 230,387 (518,457)
(Increase) decrease in inventories (16,093) 37,526
(Increase) decrease in prepaid expenses and 118,157 (8,145)
other assets
Increase (decrease) in accounts payable and (404,166) 96,727
accrued liabilities
Increase (decrease) in deferred revenue and 616,611 (162,223)
advance payments on batteries
CASH USED IN OPERATING ACTIVITIES (2,347,830) (2,770,520)
INVESTING ACTIVITIES
Purchases of property and equipment, net (32,173) (30,438)
CASH USED IN INVESTING ACTIVITIES (32,173) (30,438)
FINANCING ACTIVITIES
Proceeds from issuances of convertible notes
payable and related warrants 1,000,000 4,000,000
to purchase Common Stock
Payment of notes payable and capital lease (1,535,731) (569,060)
obligations
Proceeds from issuances of common stock, net 2,700,000 643,602
Decrease in restricted cash 81,604 ---
CASH PROVIDED BY FINANCING ACTIVITIES 2,245,873 4,074,542
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (134,130) 1,273,584
Cash and cash equivalents at beginning of period 782,918 367,861
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 648,788 $1,641,445
See notes to condensed financial statements.
</TABLE>
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED).
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they
do not include all of the information and notes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments,
consisting of normal recurring accruals, considered necessary for
a fair presentation have been included. These interim financial
statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997, and are
not necessarily indicative of results for the entire year.
Certain reclassifications have been made to the 1997 financial
statements to conform with the 1998 presentation.
NOTE B - INVENTORIES
June 30, December 31,
1998 1997
Raw materials $169,412 $172,469
Work in progress 65,267 79,774
Finished goods 103,703 70,046
$338,382 $322,289
NOTE C - PROPERTY AND EQUIPMENT
June 30, December 31,
1998 1997
Office equipment $ 801,610 $ 785,529
Production and lab equipment 5,333,821 5,317,729
Leasehold improvements 1,301,018 1,301,018
7,436,449 7,404,276
Less - accumulated
depreciation and amortization (3,654,331) (3,239,817)
Total Property and Equipment $3,782,118 $4,164,459
NOTE D - CONVERTIBLE NOTES PAYABLE
In June 1998, in accordance with the terms of a Stock Purchase
Agreement ("Agreement") with Kamkorp Limited ("Kamkorp"), a
company organized in England, the Company executed an agreement
with Corning Incorporated ("Corning") to retire the full
$6,293,002 in outstanding Convertible Notes Payable and accrued
interest owed to Corning, in exchange for $1,500,000 in cash.
The transaction was completed on June 16, 1998. The Convertible
Notes Payable and accrued interest had a carrying amount of
$5,032,045 (after unamortized discount of $1,260,957), resulting
in an extraordinary gain from the early extinguishment of debt of
$3,532,045 upon completion of the transaction. Basic and diluted
earnings per share for the extraordinary gain from the early
extinguishment of debt were $0.68 and $0.73 per share,
respectively, for the three and six month periods ended June 30,
1998. The $1,500,000 was provided to the Company by Kamkorp from
the sale of 1,500,000 shares of Common Stock under the terms of
the Agreement. (See Note E.)
NOTE E - COMMON STOCK AND CHANGE IN CONTROL
On June 2, 1998, the Company entered into an Agreement with
Kamkorp, for up to $6,000,000 of equity funding. The Agreement
was structured with the intent of providing additional capital
combined with battery orders for use in electric vehicles,
neighborhood electric vehicles and other applications. The
Agreement provides Kamkorp the right to purchase an aggregate of
6,000,000 shares of the Company's Common Stock for cash at $1.00
per share and an option to purchase an additional 3,000,000
shares of the Company's Common Stock at $1.00 per share for cash
or, with the agreement of the Company, for services. Under the
terms of the Agreement, Kamkorp purchased 1,200,000 shares of the
Company's Common Stock at $1.00 per share at closing on June 2,
1998. On June 16, 1998, Kamkorp purchased an additional
1,500,000 shares of the Company's Common Stock for $1,500,000.
The proceeds from the June 16, 1998 sale were used to retire all
Convertible Notes Payable and accrued interest owed to Corning.
(See Note D.) The Agreement requires that Kamkorp purchase up to
an additional $3,300,000 of the Company's Common Stock at $1.00
per share over an 11-month period beginning September 1998. (See
Note I.)
In accordance with the terms of the Agreement, Kamkorp is
entitled to a number of representatives on the Company's Board of
Directors equal to at least one-third of the members of the
Board. On June 2, 1998, Kamkorp nominated, and the Company's
Board appointed, three (3) directors to the Board for a total of
eleven (11) directors. Accordingly, Kamkorp may nominate one
additional director if it so chooses. Kamkorp has the ability to
obtain greater than 50% of the outstanding Common Shares of the
Company on a fully-diluted basis under the terms of the Agreement
and to ultimately have control of the Company's Board of
Directors. Additionally, the Company must obtain express
approval of Kamkorp for all important management policies and
decisions which include the following:
a. the issuance of Common Stock or any security which
provides for the right to acquire Common Stock, or any
other capital stock of the Company;
b. overall policy decisions relating to business
direction and manufacturing capacity;
c. any agreement or commitment that materially
affects or modifies the intellectual property owned by
the Company;
d. approval of the annual operating budget, capital
budget, overhead budgets and business plans of the
Company;
e. approval of any merger, consolidation, partnership
or joint venture;
f. approval of transfer of any assets of the Company
with a fair market value greater than $100,000;
g. incurring indebtedness for borrowed money,
granting any material pledge or security interest in
the assets of the Company;
h. increasing the size of the Company's Board of
Directors;
i. amending the Company's Certificate of
Incorporation or Bylaws;
j. entering into any transaction involving an amount
greater than, or having a value in excess of $100,000
or involving a term or commitment for more than 12
months; and
k. other various management policies and decisions.
Kamkorp is currently the record owner of 2,700,000 shares or
37.3% of the Company's 7,234,531 current outstanding shares of
Common Stock and the beneficial owner of 9,000,000 shares or
66.5% of the Company's Common Stock (assuming purchase of the
full 6,000,000 shares available under the Agreement and full
exercise of the option to purchase 3,000,000 shares). The
Company granted Kamkorp demand and piggyback registration rights
with respect to all such shares. Kamkorp has not yet requested
registration.
The Company anticipates Kamkorp and its affiliates will place
significant orders for the Company's Horizonr batteries and has
received a non-cancelable purchase order and a $507,500 down
payment for 5,800 batteries for delivery during the second half
of 1998. Shipments related to this purchase order began in June.
The purchase order was from Electrosource International Limited
("EIL"), a newly formed distribution company owned 60% by Kamkorp
and 40% by the Company. EIL, in turn, received a purchase order
for 5,800 batteries from Perusahaan Otomobil Elektrik (Malaysia)
("POEM"), a Malaysian joint venture company in which Kamkorp
affiliates hold a minority interest, engaged in the production of
electric vehicles. The parties anticipate that Kamkorp and its
affiliates may place orders for up to 72,000 batteries for
delivery in 1999, however, there is no guarantee or assurance
that any additional batteries will be ordered by, or delivered
to, Kamkorp or its affiliates. The Company is obligated to
establish a dedicated manufacturing line or capacity for
production of batteries to fill such orders. Although an
increase in capacity is currently available, battery production
at those levels, if fully realized, would require significant
expansion of plant capacity. The Company has not yet secured
financing for such expansion, and there can be no assurance that
such financing will be available.
NOTE F - CONTINGENCIES
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 six 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 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.
HBTL claimed damages of approximately $5,100,000 for its expenses
and lost profits related to the Agreement. The Company disputes
the claim for damages and will vigorously defend any action taken
by HBTL to pursue the claims. The Company also filed a petition
in State Court in Travis County, Texas, seeking, among other
things, a declaratory judgment that HBTL had no right to
arbitration or monetary relief. HBTL contested jurisdiction and
removed the proceedings to the U.S. Federal Courts. The Federal
District Court then ruled that it did not have personal
jurisdiction over HBTL and therefore had no power to hear the
case. The Company filed an appeal in the U.S. Fifth Circuit
Court of Appeals from the final judgment and rulings in the
District Court which denied jurisdiction. A decision on the
appeal is expected at any time. If the appeal is successful, the
U.S. Federal Court will have jurisdiction to hear the case. No
liability has been recorded in the financial statements at June
30, 1998, for this uncertainty as management is unable to
determine the likelihood of an unfavorable outcome of this matter
or to estimate the amount or range of potential loss should the
outcome be unfavorable. The resolution of this matter could have
a material adverse effect on the financial position of the
Company.
NOTE G - EARNINGS PER SHARE
Basic and diluted loss per share is based on the average number
of shares of common stock outstanding during each period. Since
the Company has experienced net operating losses (before the
effect of extraordinary items), outstanding options and warrants
and contingently issuable shares to purchase common stock have an
antidilutive effect. Therefore, such options and warrants and
contingently issuable shares were not included in the diluted
loss per share calculation.
NOTE H - COMPREHENSIVE INCOME
In 1997 the Financial Accounting Standards Board issued Statement
130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130
establishes new rules for the reporting and display of
comprehensive income and its components. The Company adopted
SFAS 130 effective January 1, 1998, but does not have any
comprehensive income as defined in SFAS 130.
NOTE I - LIQUIDITY
The Company continues to operate at a cash deficit. In January
and February 1998 the Company borrowed the remaining $1,000,000
of 5% Convertible Notes from Corning in accordance with the terms
of its $2,000,000 Note signed in December 1997. Existing battery
orders and contract work were not adequate to sustain the Company
on an ongoing basis. As a result, in February 1998 the Company
reduced its staffing by approximately 40% to reduce costs and
began to explore strategic alternatives such as a business
combination, the sale of substantially all of the Company's
assets or a strategic alliance.
On June 2, 1998, the Company entered into an Agreement with
Kamkorp for up to $6,000,000 of equity funding. Kamkorp
subsequently purchased 2,700,000 shares of Common Stock at $1.00
per share. The Agreement requires that Kamkorp purchase up to an
additional 3,300,000 shares of Common Stock. (See Note E.)
KamkorpOs obligation to make these purchases is dependent upon
the absence of any material change in the financial position,
business or prospects of the Company and upon certain other
conditions precedent, such as the absence of litigation, absence
of defaults on other contracts and agreements, and compliance
with environmental regulations. The Company believes that it is
currently in compliance with these conditions. While Kamkorp has
provided substantial amounts of financing to the Company to date,
as a private company Kamkorp is not legally required to, and has
not, provided information to the Company sufficient to allow the
Company to determine the financial ability of Kamkorp to make the
remaining required purchases of Company Common Stock.
The Company received a non-cancelable purchase order for 5,800
batteries for delivery during the second half of 1998 from a
Kamkorp affiliate. During July 1998 the Company received
$507,500 as a down payment in accordance with the terms of this
purchase order. The Company began shipments to fill the order in
June 1998. The Company and Kamkorp have discussed possible orders
from Kamkorp and its affiliates for up to an additional 72,000
batteries for delivery in 1999; however, there is no guarantee or
assurance that any additional batteries will be ordered by, or
delivered to, Kamkorp or its affiliates. The Company is
obligated to establish a dedicated manufacturing line or capacity
for production of batteries to fill these orders. Although an
increase in capacity is currently available, battery production
at these levels in 1999, if fully realized, would require an
increase in production levels and plant capacity. The Company
has not yet identified sources of financing for such potential
expansion.
Management believes it has sufficient cash on hand from the
financing transactions completed in June 1998 and from down
payments of battery orders to continue operations at current
levels through August 1998. Under the terms of the Agreement,
Kamkorp is required (subject to certain conditions precedent
discussed above) to purchase 3,300,000 shares of the Company's
Common Stock at a minimum rate of 300,000 shares per month over
an 11 month period at $1.00 per share beginning in September
1998. The anticipated minimum $300,000 funding per month
expected to begin in September 1998 would not, by itself, be
sufficient to continue operations at current levels. Additional
funding beyond $300,000 per month, additional battery orders,
settlement of outstanding amounts due under the Chrysler purchase
order or other financing will be required at least through 1998
to continue operations at current levels. The Company is
discussing the possibility of accelerated or additional financing
from Kamkorp which could be provided under the terms of the
Agreement, including Kamkorp's exercise of its option to purchase
3,000,000 shares of the Company's Common Stock at $1.00 per
share. The Company is also discussing other alternatives with
Kamkorp, including cuts in personnel and potential additional
battery orders. Absent additional funding from Kamkorp or other
sources, the Company would not have the funds necessary to
complete battery orders for Kamkorp affiliates or other
customers, or to pay all outstanding obligations. If minimum
funding is not received from Kamkorp in accordance with the terms
of the Agreement or from another party, the Company will not be
able to continue as a going concern.
The Company's Common Stock is traded in the Over-the-Counter
Market and is reported on the Nasdaq Stock Markets ("Nasdaq").
In order to maintain listing by Nasdaq under rules which went
into effect in February 1998, the Company must maintain a minimum
$2,000,000 of net tangible assets (total assets, excluding
goodwill, minus total liabilities). The Company was not in
compliance with the requirement before the completion of the
financing transactions and debt extinguishment completed in June
1998. In April 1998 the Company received notice from Nasdaq that
it must present a plan for compliance with listing standards on
or before April 16, 1998. The Company submitted such a plan on
April 15, 1998. On May 13, 1998, the Company was notified by
Nasdaq that its plan was not accepted and it would be delisted
from Nasdaq effective the close of business on May 20, 1998. The
Company filed a request for an oral hearing regarding the
decision. The hearing was held on June 18, 1998. On July 1,
1998, the Company received written notice from Nasdaq that its
shares would continue to be listed on the Nasdaq Small Cap
Market, as the Company regained compliance with the financial
listing criteria and provided a plan for continued compliance.
The success of this plan is contingent upon equity funding
anticipated to be provided by Kamkorp in accordance with the
terms of the Agreement and successful execution of the Company's
business plan which includes increased revenues and reduced
operating losses and/or additional equity funding. If such
funding is not provided (by Kamkorp or other parties), the
Company will not be able to maintain the required $2,000,000 of
net tangible assets. If the Company does not maintain the
required listing criteria, it is likely that the Company's shares
would be delisted from the Nasdaq Small Cap Market at a time
specified by Nasdaq, in which event the shares would be quoted on
the Over-the-Counter ("OTC") Bulletin Board and/or the Pink
Sheets of the National Quotation Bureau ("NQB"). In such trading
markets, brokers and dealers effecting trades in the Common Stock
would become subject to the Securities and Exchange Commission
rules covering trading in "penny stocks." Becoming subject to
the "penny stock" rules may likely have a material adverse effect
on both the price and trading liquidity of the Company's Common
Stock.
If the Company is delisted from Nasdaq it may become more
difficult to obtain additional funding. There can be no
assurance that additional funding which will generate sufficient
cash to sustain operations can be obtained on terms acceptable to
the Company, if at all. The financial statements do not include
any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and
classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Unaudited)
Results of Operations:
Revenues.
The Company had battery sales of approximately $144,000 and
$389,000 for the three and six months ended June 30, 1998, as
compared to $120,000 and $663,000 for the three and six months
ended June 30, 1997. Approximately 47% and 78% of battery sales
for the six months ended June 30, 1998 and 1997, respectively,
were to Chrysler Corporation ("Chrysler"). These purchases were
for testing and evaluation of the Horizonr battery in the EPIC
Minivan Program. Chrysler placed a $1,400,000 purchase order
with the Company in February 1998 for further testing and
evaluation of the batteries. Approximately $700,000 was received
from Chrysler in February 1998, in advance of battery shipments,
all of which remained deferred at June 30, 1998. Only a nominal
amount of batteries have been shipped to date under the order.
Chrysler has indicated that it may not complete all purchases
under the $1,400,000 purchase order, but that it will make at
least a partial further payment. The Company and Chrysler are in
discussions regarding payment for the balance of the purchase
order. Future shipments of batteries under the order are
uncertain. The remainder of battery sales in the first six
months of 1998 were to Lockheed Martin, Micro-Vett and
Electrosource International Limited ("EIL").
EIL is a newly formed distribution company owned 60% by Kamkorp
Limited ("Kamkorp") and 40% by the Company. EIL placed a non-
cancelable order for 5,800 batteries to be delivered in the
second half of 1998 with the Company. A down payment of $507,500
on the order was received in July. A significant amount of the
battery shipments for this order are expected to be made in the
third quarter with the final shipments expected to be completed
in December 1998. EIL, in turn, received a purchase order for
5,800 batteries from Perusahaan Otomobil Elektrik (Malaysia)
("POEM"), a Malaysian joint venture company in which Kamkorp
affiliates hold a minority interest, for production of electric
vehicles. POEM is using a portion of the 5,800 Horizonr
batteries in electric vehicles it is producing and supplying to
shuttle athletes and officials at the Commonwealth Games being
held in Kuala Lumpur, Malaysia in September 1998. Kamkorp and
its affiliates have indicated that they may place orders for up
to 72,000 batteries for delivery during 1999 which would require
significant expansion of plant capacity. There is no guarantee
or assurance that any batteries beyond the 5,800 initial order
will be ordered by, or delivered to Kamkorp or its affiliates.
Lockheed Martin is using the batteries for testing and evaluation
in Hybrid Electric Vehicles ("HEVs") and Electric Vehicles
("EVs") in which they are producing drive trains. The HEVs and
EVs are being produced for fleet consumers. The production of
HEVs and EVs has been minimal to date. Micro-Vett is using the
batteries for on-road testing and demonstration and converts
several models of small urban vehicles to electric power under an
exclusive agreement with a major European motor vehicle
manufacturer. Releases under a purchase order from Lockheed
Martin are expected to begin in late 1998/early 1999, and orders
from Micro-Vett and others testing various battery types are
expected to begin in the same general time frame. However,
purchase orders from both customers have been delayed in the past
and continue to be difficult to predict. The amount and timing
of any of these sales remains uncertain. The majority of these
applications are in emerging markets, and the entry of final
products into such markets is difficult to predict.
Management expects to receive Federal Aviation Administration
("FAA") certification of batteries for aircraft and helicopter
starting applications in late 1998/early 1999 at which time sales
of these batteries are expected to commence. However, the amount
and timing of these sales remains uncertain. Moreover, in order
to continue operating at current levels, the Company must obtain
funding from Kamkorp or other sources beyond the minimum amount
of $300,000 per month beginning in September 1998, outlined in
the Company's Agreement with Kamkorp, as the Company will
otherwise be out of cash in early September 1998. (See Liquidity
and Capital Resources below.) If larger orders for batteries are
obtained, expansion of the plant will be required which will
necessitate additional funding which has not yet been obtained.
The Company had project revenue of approximately $166,000 and
$215,000 for the three and six months ended June 30, 1998, as
compared to $740,000 and $1,205,000 for the three and six months
ended June 30, 1997. Essentially all of the revenue generated in
1998 was from cooperative development and research agreements
with the Defense Advance Research Projects Agency ("DARPA") for
HEV and EV applications. Development work continues on other
programs, however, no specific payment milestones were achieved
during 1998 to permit the recognition of revenue on such
programs. The Company received notice on June 8, 1998, from SMH
Automobile of termination of the development contract between the
Company and SMH. The stated reason for termination was problems
with the Company meeting contractual requirements. The
termination is not expected to have an impact on the financial
statements of the Company, as the Company did not recognize any
revenue on this contract in 1998. Management expects project
revenue to increase slightly beyond current levels as programs
with Fiat Auto ("Fiat") and others are completed. However,
project revenue for 1998 is expected to be well below 1997
levels. A significant amount of effort has also been expended on
various internal research and development programs which will not
generate project revenue. Management expects most projects to be
complete in late 1998 at which time orders for prototype
batteries from such customers will be discussed, however, the
timing and amount of any such future orders is uncertain.
Costs and Expenses.
Generally, total costs were slightly lower in the three months
ended June 30, 1998, compared to the same period in 1997, and
were approximately the same for the six months ended June 30,
1998, compared to the same period in 1997. In late February 1998
management reduced staffing significantly to reduce costs. Most
of these reductions were at lower salary levels. The impact of
these labor reductions was not realized until the second quarter
of 1998, thereby causing costs to be lower for the three months
ended June 30, 1998, compared to the same period in 1997. Since
most of these reductions were at lower salary levels, the impact
of these labor reductions did not have a significant impact on
total costs for the six months ended June 30, 1998, compared to
the same period in 1997.
Manufacturing costs have remained high as a percentage of battery
sales, primarily due to the lack of capital required to further
automate the production processes, materials being purchased in
low volumes and the fixed facility cost of leasing and
maintaining the 88,000 square foot manufacturing and office
facility. As a result, manufacturing costs have not fluctuated
significantly from relatively small changes in volume.
Management expects that manufacturing costs can decrease as a
percentage of battery sales if volume production begins, however,
additional capital will be required for manufacturing tooling
required for the large-scale production of prototype battery
models in order to achieve manufacturing efficiencies and to
lower raw material costs. The timing and amount of battery
orders remains uncertain and the sources of capital which would
be required for the related tooling for such orders may not be
available to the Company.
Selling, general and administrative costs have remained
relatively constant during the three and six month periods ended
June 30, 1998, compared to 1997 as the Company has previously
attempted to reduce staffing and costs in this area. The fixed
cost of maintaining a publicly registered company and operating
an 88,000 square foot manufacturing and office facility are
significant and are expected to decrease as a percentage of
revenue if sales volumes increase.
Development work and related costs have decreased in the three
month period ended June 30, 1998, compared to the same period in
1997, which correlates with the decrease in revenue for the
periods. Development costs were approximately the same in the
six month period ended June 30, 1998, compared to the same period
in 1997, even though revenues for the six month period in 1998
decreased significantly from the same period in 1997. The amount
of development work and related costs have remained constant,
however, the nature of the work and costs has shifted in 1998 to
programs which are not generating revenue and to cost-share
programs which generate less revenue than commercial programs.
The Company has incurred more costs in 1998 on testing and
evaluation of batteries (aircraft, helicopter and lawnmower
applications) and improvements in manufacturing processes and
joint research and development efforts with Corning. The costs
of such development efforts have been significant. Research and
development costs decreased upon completion of the joint research
and development efforts with Corning which were completed in May
1998. Such costs were approximately $100,000 and $300,000,
respectively, for the three month and six month periods ended
June 30, 1998. The efforts began in the third quarter of 1997,
thus, no such costs were incurred in the three and six month
periods ended June 30, 1997. Payment for such services provided
by Corning were made through the issuance of options to purchase
Electrosource Common Stock at agreed upon values and exercise
prices.
Interest costs relate primarily to the Company's previous debt
obligations to Corning and will greatly decrease due to the
Company's retirement of its obligations to Corning in June 1998.
During 1997 and early 1998 the Company issued Convertible Notes
Payable to Corning with a principal balance of $6,202,500 at face
interest rates of 5%. The Company was also amortizing discounts
on the Convertible Notes Payable. In June 1998 the Company paid
Corning $1,500,000 in cash in full settlement of its outstanding
obligations to Corning. An extraordinary gain on the early
extinguishment of debt of approximately $3,500,000 was realized
from this transaction. (See Note D to the interim financial
statements.)
Liquidity and Capital Resources.
The Company continues to operate at a cash deficit. In January
and February 1998 the Company borrowed the remaining $1,000,000
of 5% Convertible Notes from Corning Incorporated ("Corning") in
accordance with the terms of its $2,000,000 Note signed in
December 1997. Existing battery orders and contract work were
not adequate to sustain the Company on an ongoing basis. As a
result, in February 1998 the Company reduced its staffing by
approximately 40% to reduce costs and began to explore strategic
alternatives such as a business combination, the sale of
substantially all of the Company's assets or a strategic
alliance.
On June 2, 1998, the Company entered into an Agreement with
Kamkorp Limited ("Kamkorp") for up to $6,000,000 of equity
funding. (See Note E and Note I to the interim financial
statements.)
Management believes that it has sufficient cash on hand to
continue operations at current levels through August 1998.
Absent additional funding from Kamkorp or other sources, the
Company would not have the funds necessary to complete battery
orders for Kamkorp affiliates or other customers, or pay all
outstanding obligations. If minimum funding is not received from
Kamkorp in accordance with the terms of the Agreement or from
another party, the Company will not be able to continue as a
going concern. (See Note I to the interim financial statements.)
In December 1997 the Company issued 299,304 shares of Common
Stock to BDM (now part of TRW) as partial payment for past
obligations owed to BDM for occupancy related costs (which the
Company has accrued) and as prepayment under operating leases for
manufacturing equipment which are guaranteed by BDM. The number
of shares issued was determined based on the fair market value of
the shares at the date of the agreement ($2.56 per share). When
the shares are sold by BDM, the proceeds will be used to satisfy
these past and future obligations. If the proceeds from the sale
of such shares are not sufficient to satisfy the obligations, the
Company will issue additional shares of Common Stock or pay cash
to BDM to make up the deficiency. BDM has agreed to reduce
amounts owed to it by at least $1.00 per share or $299,304 for
the shares issued. BDM will retain any overage from the sale of
such shares in excess of the amounts owed. The Company agreed to
pay $300,000 cash to BDM (for the remaining unpaid occupancy
related costs) from the proceeds received from any fundraising
activities completed by the Company before March 31, 1998, in
excess of $5,000,000, which did not occur. The balance is to be
paid in shares of Common Stock which the Company has not yet
issued. The Company and BDM have agreed to postpone issuance of
the shares in order to discuss other arrangements. The Company's
closing market price as reported by Nasdaq on July 31, 1998, was
$1.56 per share. BDM has not notified the Company of an intent
to sell such shares in the near term; however, unless the value
of the Company's Common Stock improves, based on current market
prices of the Company's Common Stock, additional shares of Common
Stock or cash will be required to settle these obligations under
the terms of this agreement.
Significant capital expenditures will be required in the future
to further automate and achieve consistency in the production
process; however, such expenditures are not expected to be
significant in 1998 to satisfy current battery orders. The
funding required for such expansion has not been fully
identified. There were no capital commitments at June 30, 1998.
The Company is a party to certain litigation that, if resolved in
a manner adverse to the Company, could have a material adverse
effect on the CompanyOs liquidity and capital resources. (See
Note F to the interim financial statements.)
The Company may not be able to continue to meet Nasdaq listing
requirements. Delisting from Nasdaq may have a materially
adverse effect upon the price and trading liquidity of the
CompanyOs Common Stock and upon the CompanyOs ability to obtain
necessary additional financing. (See Note I to the interim
financial statements.)
From time to time, the Company may publish forward-looking
statements relating to such matters as anticipated financial
performance, business prospects, technological development, new
products, research and development activities and similar
matters. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. In order
to comply with the terms of the safe harbor, the Company notes
that a variety of factors could cause the Company's actual
results and experience to differ materially from the anticipated
results or other expectations expressed in the Company's forward-
looking statements. When used in this discussion, the words
"expects," "believes," "anticipates" and similar expressions are
intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. The
risks and uncertainties that may affect the operations,
performance, development and results of the Company's business
primarily include completion of existing battery orders,
uncertainty as to receipt of additional orders, inability to
obtain additional debt or equity financing, continued willingness
and ability of Kamkorp to provide agreed-upon financing,
delisting of the Company's Common Stock on Nasdaq, termination of
the Company's facility lease, delays in shipment or cancellation
of orders, timing of future orders, customer reorganization,
fluctuations in demand primarily associated with governmental
mandates for the production of zero emission vehicles and the
ability to successfully commercialize the Horizon battery.
Readers are cautioned not to place undue reliance on these
forward-looking statements which speak only as of the date
hereof. The Company undertakes no obligation to republish
revised forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence
of unanticipated events. Readers are also urged to carefully
review and consider the various disclosures made by the Company
which attempt to advise interested parties of the factors which
affect the Company's business in this report and in the Company's
periodic reports on Forms 10-K and 8-K filed with the Securities
and Exchange Commission.
Part II - Other Information
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
Recent Sales of Unregistered Securities.
On June 2, 1998, the Company entered into an agreement with
Kamkorp Limited ("Kamkorp") for the sale of 6,000,000 shares
of the Company's Common Stock at a purchase price of $1.00
per share, for an aggregate offering price of $6,000,000.
There were no underwriting discounts or commissions
associated with the sale. The agreement called for issuance
of 1,200,000 shares on June 2, with Kamkorp agreeing,
subject to certain conditions precedent, to purchase a
further 4,800,000 shares prior to August 1999. Kamkorp
purchased an additional 1,500,000 shares on June 16. The
Company also granted Kamkorp an option to purchase up to
3,000,000 shares of Common Stock at a price of $1.00 per
share at any time prior to June 2, 2003.
These sales were effected pursuant to Section 4(2) of the
Securities act of 1933 and Rule 506 of Regulation D. The
offering was made without public solicitation or
advertising, and the only sales were made to a single
accredited investor. The Company filed a Form D pertaining
to the sales.
Item 3. Defaults on Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders held on May
20, 1998, the following items were voted on:
PROPOSITION FOR AGAINST ABSTAIN NON-
VOTE
1.Directors:
Gjelde, Earl E. 3,376,115 52,407 N/A N/A
Graham, William R. 52,298 N/A N/A
3,376,224
2.Approve Ernst & Young
as independent auditors 3,408,365 12,336 7,821 0
for fiscal 1998
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10.1 Lease Agreement between William D. McMorris and
Electrosource, Inc., dated May 29, 1998.
10.2 Agreement dated May 29, 1998 between Corning
Incorporated and Electrosource, Inc. terminating
the Note Purchase and Option Agreement dated March
27, 1997, the Note Purchase Agreement dated
December 19, 1997 and the Research and Development
Umbrella agreement dated July 1, 1997.
10.3 Amendment dated June 15, 1998 to May 29, 1998
Agreement terminating Notes between Corning
Incorporated and Electrosource, Inc. for a one-day
extension for payment.
10.4 Form of Severance Agreements between officers/key
employees and Electrosource, Inc. dated May 18,
1998.
10.5 Director Indemnification Agreement dated June 2,
1998 between Electrosource, Inc. and Kamal
Siddiqi.
10.6 Director Indemnification Agreement dated June 2,
1998 between Electrosource, Inc. and Clifford
Winckless.
10.7 Director Indemnification Agreement dated June 2,
1998 between Electrosource, Inc. and Roger Musson.
27. Financial Data Schedule.
(b) Reports on Form 8-K.
Reports on Form 8-K filed during the quarter ended June
30, 1998 and up to the date of this filing on Form 10-Q
were:
June 11, 1998, Stock Purchase Agreement for
$6,000,000 and Registration Rights Agreement dated
June 2, 1998 between Kamkorp Limited and the
Company.
July 8, 1998, financial information as of June 30,
1998 as requested by Nasdaq Qualifications Panel
in support of compliance for listing requirements.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereto duly authorized.
Date: August 14, 1998 ELECTROSOURCE, INC.
/s/ Michael G. Semmens
Michael G. Semmens
Chairman, President
and Chief Executive Officer
/s/ James M. Rosel
James M. Rosel
Chief Financial Officer
and General Counsel
/s/ Mary Beth Koenig
Mary Beth Koenig
Chief Accounting Officer
and Treasurer/Controller
Washington, D.C. 20549
________________________________________
EXHIBITS TO
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission File Number:
June 30, 1998 0-16323
__________________________________________
ELECTROSOURCE, INC.
(Exact name of Registrant as specified in its charter)
Delaware 742466304
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2809 Interstate 35 South, 78666
San Marcos, Texas
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code:
(512) 753-6500
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
(Title of Class)
INDEX TO EXHIBITS
No. Description Page
10.1 Lease Agreement between William D. McMorris
and Electrosource, Inc. dated May 29, 1998. 20
10.2 Agreement dated May 29, 1998 between Corning
Incorporated and Electrosource, Inc.
terminating the Note Purchase and Option
Agreement dated March 27, 1997, the Note 45
Purchase Agreement dated December 19, 1997 and
the Research and Development Umbrella
agreement dated July 1, 1997.
10.3 Amendment dated June 15, 1998 to May 29, 1998
Agreement terminating Notes between Corning
Incorporated and Electrosource, Inc. for a one- 48
day extension for payment.
10.4 Form of Severance Agreements between
officers/key employees and Electrosource, Inc. 49
dated May 18, 1998.
10.5 Director Indemnification Agreement dated June
2, 1998 between Electrosource, Inc. and Kamal 57
Siddiqi.
10.6 Director Indemnification Agreement dated June
2, 1998 between Electrosource, Inc. and 66
Clifford Winckless.
10.7 Director Indemnification Agreement dated June
2, 1998 between Electrosource, Inc. and Roger 75
Musson.
27. Financial Data Schedule 84
Exhibit 10.1
STATE OF TEXAS
COUNTY OF HAYS
This Lease Agreement ("Lease") made and entered into by and
between William D. McMorris ("Landlord") and Electrosource, Inc.
("Tenant");
1. Premises and Term. In consideration of the obligation of
Tenant to pay rent as provided in this Lease, and in
consideration of the other terms, provisions, and covenants of
this Lease, Landlord hereby demises and leases to Tenant, and
Tenant hereby takes from Landlord certain real property (the
"Land") located in the above-named County and State, more
particularly described in Exhibit A attached hereto and
incorporated herein by this reference, together with any building
(the "Building") on the Land together with any other improvements
upon said premises (the said Land, Building, and other
improvements located therein or thereon being hereinafter
referred to as the "Premises").
To Have and to Hold the Premises, subject to the other terms and
provisions of this Lease, for a term commencing on October 1,
1998 (the "Commencement Date") and ending November 30, 2003.
Tenant acknowledges that it has inspected the Premises and
accepts the Premises in their present condition as suitable for
the purpose for which the Premises are leased. Tenant further
acknowledges that no representations as to the repair of the
Premises, nor promises to alter, remodel, or improve the
Premises, have been made by Landlord.
2. Rent. Tenant agrees to pay to Landlord rent for the Premises
("Rent"), without deduction, set off, or abatement, beginning on
the Commencement Date for the term, as described below:
Time Period Rent
Commencement Date - November 1998 $25,000
December 1998 - November 2001 $30,000
December 2001 - November 2003 $35,000
All monthly installments shall be due and payable in advance
without demand on or before the first day of each month of the
lease term.
Tenant shall have the right to cancel the Lease as of September
30, 2001, with 180 days written notice. In the event Tenant
exercises such right to cancel the Lease, Tenant shall be
obligated to pay Landlord a cancellation fee of $50,000. Landlord
shall have the right to terminate the Lease as of September 30,
2001 with 180 days written notice. In such event, Landlord shall
be obligated to pay Tenant a cancellation fee equal to $50,000.
Such fee may be paid by Landlord in the form of credit against
rent for the last two rental periods of the Lease.
3. Security Deposit. By no later than September 1, 1998, Tenant
shall remit to the Landlord a security deposit of $50,000.00,
which shall remain on deposit with Landlord, as security for the
faithful performance of all the terms and conditions of this
Lease by Tenant. Such security deposit shall be paid in the form
of cash, which shall be held with Landlord in an interest bearing
account (the "Deposit Account"). The interest paid on the Deposit
Account shall be taxable income to Tenant irrespective of the
fact that such interest shall be held in such account to be paid
according to the provisions set forth below. If Tenant should
default in performing any term or provision of this Lease, then
the security deposit, or any part thereof, may be applied on the
damages or expenses sustained by Landlord by reason of such
default. Such application shall not be construed as an agreement
to limit the amount of Landlord's claim or as a waiver of any
damages, but on the contrary, Landlord's claim for damages not
covered by such security deposit shall remain in full force and
effect. If, at the end of the terms of this Lease, Tenant is not
in default in the performance of any provision of this Lease, the
security deposit, and any accrued interest, or any balance
thereof remaining, will be refunded to Tenant. No mortgagee of
Landlord shall have any liability to Tenant for such security
deposit until such mortgagee shall actually have received
possession thereof.
4. Disclaimer of Warranties. Neither Landlord, Landlord's
mortgagee, nor any officer, partner, agent, employee, or
representative of either Landlord or Landlord's mortgagee, makes
or has made any warranties or representations of any kind or
character, express or implied, with respect to the Premises, or
any portion thereof, its physical conditions, income to be
derived therefrom, or expenses to be incurred with respect
thereto, its fitness or suitability for any particular use,
latent defects or any other matter or thing relating to or
affecting the same. There are no oral agreements, warranties, or
representations collateral to or affecting the Premises or any
portion thereof, except as may otherwise be expressly set forth
in this Lease. Landlord and Tenant each hereby agree that the
Premises are leased in an "as is" condition.
Tenant agrees to furnish Landlord with all environmental
assessments of the Premises obtained by Tenant upon completion
thereof.
5. Use.
A. The Premises may be used, to the extent permitted by
applicable law, for general office purposes and for the purpose
of manufacturing, assembling, receiving, storing, shipping, and
selling (other than retail) of an advanced lead acid battery or
such other products as do not involve the use, creation or
storage of any type of Hazardous Substance unless the written
consent of Landlord is first obtained (which approval shall not
be unreasonably withheld or delayed after all required
Environmental Assessments and data are provided to Landlord).
Landlord hereby consents to the use of the substances specified
in Exhibit D, provided all permits necessary for such use are
possessed by Tenant and Tenant continues to comply with all laws,
rules or regulations applicable thereto. Tenant shall at its own
cost and expense obtain and at all time maintain any and all
licenses and permits necessary for any such use. Tenant shall
comply with all governmental laws, ordinances, and regulations
applicable to the use of the Premises and shall promptly comply
with all governmental orders and directives for the correction,
prevention, and abatement of nuisances in, upon, or connected
with the Premises, all at Tenant's sole expense. In the event
any use of the Premises, or any part thereof, whether approved by
Landlord or not, shall ever cause the insurance rates of policies
carried by Landlord to increase, Tenant shall pay on demand from
Landlord, as additional rent, the full amount by which such
insurance rates increase as a result of Tenant's use. Further,
Tenant will not use the Premises in any manner that would result
in the cancellation of any insurance policy carried by Landlord
on the Premises, and Tenant will not introduce into the Premises
or use therein any equipment or fixtures which might be
reasonably expected, due to excess weight, vibration, or any
other characteristic, to cause damage to the Premises or walls or
interior demising walls of the Premises without Landlord's prior
written consent.
B. Without limiting the generality of the provisions of
Paragraph 5.A. above, Tenant expressly agrees that (i) all
activities will be conducted on the Premises in accordance with
all Environmental Laws; (ii) the Premises will not be knowingly,
intentionally, or negligently used in any manner for the storage
or disposal of any Hazardous Substances except for the storage or
disposal of such materials as are used in the ordinary course of
Tenant's business, provided such materials are at all times
properly stored and disposed of in a manner and location meeting
all Environmental Laws; (iii) no portion of the Premises will be
used as a landfill or a dump or other waste management unit; (iv)
Tenant will not install any underground tanks of any type on the
Premises or the Land; (v) Tenant will not permit any Hazardous
Substances to be brought onto, stored, processed, disposed of on,
released, discharged from (including ground water contamination)
or otherwise handled on the Premises, except in accordance with
all Environmental Laws, and if so brought or found located
thereon, the same shall be immediately removed by Tenant, at
Tenant's sole cost and expense, with proper disposal (at a
location other than on the Land or Premises), and all required
cleanup procedures shall be diligently undertaken by Tenant
pursuant to all Environmental Laws. Tenant shall immediately
notify Landlord should Tenant become aware of the presence,
release, discharge or disposal of any Hazardous Substance or
other environmental problem or liability with respect to the
Premises. For purposes of this Lease, "Environmental Laws" shall
mean any and all laws pertaining to health or the environment,
including without limitation, the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, 42 U.S.C.
9601-75, as amended by the Superfund Amendments and
Reauthorization Act, Pub. L. No. 99-499, 100 Stat. 1613 (1986),
as the same may be further amended from time to time, The Toxic
Substances Control Act, 15 U.S.C. 2601, et. seq., as amended
from time to time, the Clean Water Act, 33 U.S.C. 1251 et. seq.,
as amended from time to time, The Safe Drinking Water Act, 42
U.S.C.
300(f)-300(j)-10, as amended from time to time, the Clean Air
Act, 42 U.S.C. 7401 et. seq., as amended from time to time, the
Resource Conservation and Recovery Act of 1976, 42 U.S.C. 6901-
91, as amended from time to time, the Texas Water Code, as
amended from time to time, the Texas Solid Waste Disposal Act, as
amended from time to time, the Hazardous Materials Transportation
Act, as amended from time to time, and the Texas Air Act, as
amended from time to time, together with any and all rules and
regulations promulgated under any of the preceding statutes or
acts, including without limitation, rules and regulations
promulgated by the United States Environmental Protection Agency
and the Texas Natural Resource Conservation Commission, or any
successor agency. Additionally, for purposes of this Lease,
"Hazardous Substances" means any substance (i) the presence of
which requires removal, remediation, or investigation under
Environmental Laws, including without limitation, any hazardous
substance within the meaning of Section 101(14) of the
Comprehensive Environmental Response, Compensation, and Liability
Act, as amended, 42 U.S.C. 9601(14), or (ii) that contains or
consists of gasoline, diesel fuel, oil, fuel oil, or other
petroleum hydrocarbons. Tenant shall indemnify, defend and hold
Landlord (as well as any mortgagee and trustee under any deed of
trust or mortgage on the Premises and their respective agents,
employees, affiliates, officers, directors, shareholders, and
representatives) harmless from all claims, demands, actions,
liabilities, costs (including attorney's fees), expenses, damages
and obligations of any nature, whether threatened, brought,
sought or imposed, arising from or as a result of the use of the
Premises by Tenant, its invitees, agents, contractors, employees,
subcontractors, permitted subtenants, or permitted assignees in
violation of the foregoing provision relating to Hazardous
Substances. The foregoing indemnification shall survive the
termination or expiration of this Lease.
C. Tenant agrees to give Landlord notice of any act, spill or
condition which would be deemed to be a violation of the uses
permitted under this Lease or a violation of an Environmental
Law. In the event Tenant files any type of environmental report
with a governmental agency pertaining to an environmental matter,
Tenant agrees to furnish Landlord a copy of such report within
five (5) days of the filing of such report.
6. Taxes.
A. Tenant agrees to pay, as additional rent, all taxes,
assessments (both general and special), or governmental charges
(hereinafter collectively referred to as "Taxes") lawfully levied
or assessed against the Premises or any part thereof, together
with any tax with respect to this Lease and/or on sums received
by Landlord under this Lease, but excluding any tax based upon
Landlord's net income. Such payment of Taxes shall be made by
Tenant depositing with Landlord along with the Rent payment
required to be made each month, an amount equal to 1/12th of the
prior year's ad valorem taxes. Such monthly payment shall
initially be $6,060.00 per month. Landlord agrees to place such
sums into the Deposit Account; and to pay Taxes prior to their
due date. In the event ad valorem taxes should either be raised
or lowered from time to time, then the amount of such tax deposit
shall be adjusted accordingly. If, at the end of any calendar
year, it is determined that Tenant has overpaid such taxes,
Landlord shall refund to Tenant the amount of such excess, but if
Tenant shall have underpaid, Landlord shall bill or invoice
Tenant for the amount of such underpayment and such underpayment
shall be due within ten (10) days thereafter. Tenant shall
immediately forward to Landlord any tax statement received from
any taxing authority. Tenant shall deposit (or shall cause
Horizon Battery Technologies, Inc., and/or BDM International,
Inc. to deposit) the sum of $61,740.00 (being the estimated taxes
for the period of January 1, 1998, through September 30, 1998,
based on 1997 taxes) with Landlord on or before September 1,
1998, to be deposited into the Deposit Account.
B. Landlord or Tenant may, at their own cost and expense (in its
own name or in the name of both Landlord and Tenant as Landlord
may deem appropriate), dispute and contest the same, and in such
case such disputed item need not be an amount equivalent to the
amount of the assessed taxes. Tenant shall escrow with a
mutually agreeable financial institution the amount of any such
disputed or contested item, including any penalty and interest
which may accrue while the tax is being contested, until such
dispute or contest is resolved. At the conclusion of such
contest, Tenant shall pay the items contested to the extent that
they are held valid, together with all items, court costs,
interest, and penalties relating thereto and noted herein. Both
parties agree to promptly cooperate with each other in providing
information which is relevant in contesting the assessed value of
the Premises. Notwithstanding the above, Tenant shall pay any
tax being contested by it should payment be demanded by holder of
a mortgage on the Premises.
C. Any payment to be made pursuant to this Paragraph 5 with
respect to the real estate tax year in which this Lease
terminates shall bear the same ratio to the payment which would
be required to be made for the full tax year as that part of such
tax year covered by the term of this Lease bears to a full tax
year. Landlord's real estate tax statements, with respect to the
Premises, shall be made available for inspection by Tenant at
Landlord's offices during Landlord's business hours.
D. Landlord agrees that if an abatement of any taxes,
assessments (both general and special), or governmental charges
pertaining to the Premises is granted by the relevant
governmental agency or authority, then the full amount of such
abatement shall be received by Tenant. If any tax, assessment,
or governmental charge is paid prior to the granting of such
abatement, the portion paid either directly or indirectly by
Tenant shall be refunded to Tenant either directly by the
governmental agency or authority or, if refunded to the Landlord,
by the Landlord promptly after its receipt; provided, however,
that Tenant shall deposit with Landlord any such refund and/or
abated taxes until such time as Landlord shall have no contingent
liability for the same due to the failure of Tenant to satisfy
any of the conditions required in order to obtain such abatements
and/or refunds.
E. Tenant agrees that the 1997 ad valorem taxes, penalties,
interest and collection costs shall be paid no later than June
30, 1998.
7. Landlord's Repair Obligations. Landlord shall have no
obligation to maintain any portion of the Premises, but may, if
Tenant fails to do so after reasonable notice, make any necessary
repairs thereto, whereupon Tenant shall reimburse Landlord, on
demand, the full cost of the same to the extent such repairs were
required to be made by Tenant hereunder. Notwithstanding the
above, should latent structural defects in either the foundation
or structural portions of the Building (excluding the roof) exist
upon the Commencement Date of this Lease, but not be discovered
until some later date, which latent defects materially lessen the
usefulness of the Building to Tenant for the purposes for which
Tenant is then using the Building, then Landlord shall, at its
option after receiving written notice of the existence thereof by
Tenant, either perform such repairs as is reasonably required (at
no cost to Tenant), or, shall notify Tenant in writing of
Landlord's refusal to perform such repairs, whereupon Tenant
shall have the option of performing such repairs at its sole cost
and expense or terminating this Lease without penalty. Any such
termination by Tenant must be done by written notice to Landlord
within thirty (30) days after Landlord has notified Tenant of its
refusal to perform such repairs as aforesaid.
8. Tenant's Repairs. Tenant shall, at its own cost and expense,
keep all parts of the Premises, including but not limited to,
foundation, roof, exterior walls, windows, glass and plate glass,
doors (including overhead doors), any special store front,
interior walls, and finish work, floors and floor covering,
heating, ventilating and air conditioning systems, gutters, down
spouts and protective posts therefor, curbs, loading docks, dock
boards, dock bumpers, dock levelers, steps and landings, plumbing
work and fixtures, and gas, electric, water and other utility
lines, landscaping, parking areas, sidewalks, walkways, exterior
lighting, driveways and the like, in good repair and condition,
and shall take good care of the Premises and its fixtures and
suffer no waste. Tenant shall keep the Premises free of all pest
infestation, including but not limited to, termites and rodents,
and shall maintain a regular pest control prevention program.
Except as set forth in the last sentence of this Paragraph 8,
Tenant shall not be obligated to repair any damage caused by
fire, tornado, or other casualty covered by items set forth under
the extended coverage provisions of Landlord's fire insurance
policy. Tenant shall also be obligated to repair any damage to
the Premises or any part thereof caused by the negligent act or
willful misconduct of its Tenant, its agents, customers,
employees, or invitees regardless of whether Tenant would
otherwise be obligated to make such repair by the provisions
hereof. If Tenant fails to make any repairs or do any
maintenance required by this Paragraph 8, Landlord may, but shall
not be obligated to make such repairs or do such maintenance at
Tenant's expense. The reasonable costs of such repairs and
maintenance shall be payable to Landlord by Tenant on demand.
9. Alterations. Tenant shall not make any major alterations,
additions, or improvements to the Premises without the prior
written consent of Landlord. Tenant may, without the consent of
Landlord, but at Tenant's own cost and expense and in a good
workmanlike manner, make such minor alterations, additions, or
improvements or erect, remove or alter such partitions, or erect
such shelves, bins, machinery, coolers, freezers, and trade
fixtures as it may deem advisable, without altering the basic
character of the Building or improvements, without affecting the
structural or load bearing elements of the Building or
improvements, without overloading or damaging such Building or
improvements or any utility systems servicing same, and in each
case complying with all applicable governmental laws, ordinances,
regulations, and other requirements. All shelves, bins,
machinery, coolers, freezers, and trade fixtures installed by
Tenant may be removed by Tenant at the termination of this Lease,
if Tenant so elects, so long as no event of default by Tenant is
then in existence, and shall be removed if required by the
Landlord. All such removals and restorations shall be
accomplished in a good, workmanlike manner so as not to damage
the primary structural qualities of the Building and other
improvements situated on the Premises. As used herein, "trade
fixtures" shall not include any permanent leasehold improvements
including but not limited to any floor, wall or ceiling
coverings, any interior walls or partitions, any lighting
fixtures, track lights or any property which is a part of or
associated with any electrical, plumbing or mechanical systems,
notwithstanding that the same may have been installed in, upon or
about the Premises by Tenant.
10. Signs. Tenant shall have the right to install signs upon
the exterior of the Building and other improvements situated on
the Premises. Tenant's installation of signage shall be subject
to any applicable governmental laws, ordinances, regulations and
other requirements, and subject to applicable restrictive
covenants, if any. Tenant shall remove all such signs at the
termination of this Lease. Such installation and removals shall
be made in such manner as to avoid injury or defacement of the
Building and other improvements situated on the Premises.
11. Inspection.
A. Landlord and Landlord's agents, representatives, and lender
(and the lender's agents and representatives) shall have the
right to enter and inspect the Premises at any time during
reasonable business hours with reasonable prior notification for
the purpose of ascertaining the condition of the Premises
(including without limitation, by means of soil, water and
subsurface testing and investigation), showing the Premises to
prospective purchasers, or in order to make such repairs as may
be permitted to be made by Landlord under the terms of this
Lease, and, during the final six months of the lease term or at
any time while Tenant is in default hereunder, for the purpose of
showing the Premises to prospective tenants and shall have the
right to erect on the Premises a suitable sign indicating that
the Premises are for lease. Landlord shall, at any time, after
Tenant approves of the size and design (which approval shall not
be unreasonably withheld or delayed), also be entitled to erect a
suitable sign indicating that the Premises are for sale.
B. Between October 1, 1998 and October 30, 1998, Tenant shall
cause Hill Country Environmental to enter and inspect the
Premises for the purposes of determining the environmental
condition of the Premises. Such inspection shall be at the sole
cost and expense of Tenant. In the event such inspection
determines there are environmental conditions or activities which
would be a violation of Section 5 of the Lease, Landlord shall
give Tenant notice of such violations. The provisions of
Paragraph 19 hereof shall control the requirements of Tenant to
cure or correct such violations. Nothing in this Paragraph 11(B)
shall waive, diminish, delete, or impair the rights of Landlord
under that certain Lease dated August 17, 1993, between Landlord
and Horizon Battery Technologies, Inc., pertaining to the
Property.
12. Utilities. Tenant shall pay all charges incurred for any
utility services used on or from the Premises and any maintenance
charges for utilities, and shall be responsible for any costs
associated in any manner with any additional utility connections
to the Premises which Tenant may require. Such payments shall be
made directly to the supplier of any utility. Landlord shall in
no event be liable for any interruption or failure of utility
services on the Premises.
13. Assignment and Subletting. Tenant shall not have the right
to assign this Lease or to sublet the whole or any part of the
Premises without the prior written consent of Landlord, which
consent shall not be unreasonably withheld or delayed.
Notwithstanding any assignment or subletting, Tenant shall at all
times remain fully responsible and liable for the payment of the
rent herein specified and for compliance with all of the other
obligations imposed on Tenant under the terms, provisions, and
covenants of this Lease. Upon the occurrence of an "event of
default" as hereinafter defined, if the Premises or any part
thereof are then assigned or sublet, Landlord, in addition to any
other remedies provided, or provided by law, may at its option
collect directly from such assignee or subtenant all rents or
payments becoming due to Tenant under such assignment or sublease
and apply such rent or payment against any sums due to Landlord
by Tenant. No such collection shall be construed to constitute a
release of Tenant from the further performance of its obligations
under this Lease. Landlord shall have the right to assign any of
its rights under this Lease.
14. Fire, Casualty and Pollution Damage.
A. If the Premises should be damaged or destroyed by fire,
tornado, or other casualty, Tenant shall give prompt written
notice thereof to Landlord.
B. If the Premises or the Building should be totally destroyed
by fire, tornado, or other casualty, Tenant shall give prompt
written notice thereof to Landlord.
C. If the Premises or the Building should be damaged by fire,
tornado, or other casualty, but only to such extent that
rebuilding or repairs can be completed within 180 days after the
date upon which Landlord is notified by Tenant of such damage,
this Lease shall not terminate, but Landlord shall, at its sole
cost and expense, proceed with best efforts to rebuild and repair
such Building to substantially the condition in which it existed
prior to such damage, except that (i) Landlord shall not be
required to so rebuild or repair if less than twelve (12) months
remain in the term hereof (or if less than 12 months remain until
Tenant or Landlord may terminate this Lease as provided in
Paragraph 2 herein) after the expiration of such 180 day period;
(ii) Landlord shall not be required to rebuild, repair, or
replace any part of the partitions, fixtures, and other
improvements which may have been placed on the Premises by
Tenant; and (iii) so long as Landlord has complied with the
provisions hereof relating to insurance coverage, Landlord shall
not be obligated to expend any funds in excess of available
insurance proceeds attributable to such damage in rebuilding the
Premises. If the Premises are untenantable in whole or in part
following such damage, the rent payable hereunder during the
period the premises are untenantable shall be reduced to such
extent as may be fair and reasonable under all of the
circumstances, as mutually determined by Tenant and Landlord. In
the event that Landlord should fail to complete such repairs and
rebuilding within 180 days after the date upon which Landlord is
notified by Tenant of such damage, Tenant may, as its sole remedy
and at its option, terminate this Lease by delivering written
notice of termination to Landlord within thirty (30) days after
the expiration of such 180 day period, whereupon all rights and
obligations hereunder shall cease and determine, save and except
Tenant's obligations to indemnify Landlord. Notwithstanding the
above provisions of this Lease, if the Premises or any portion
thereof is damaged by fire or other casualty resulting from the
fault or negligence of Tenant or any of Tenant's agents or
employees, the rent under this Lease will not be abated or
diminished during the repair of that damage, and Tenant will be
liable to Landlord for the cost and expense of the repair and
restoration of the Premises or any part thereof caused thereby to
the extent that cost and expense is not covered by insurance
proceeds (including without limitation, the amount of any
insurance deductible).
D. Any insurance which may be carried by Landlord or Tenant
against loss or damage to the buildings and other improvements
situated on the Premises shall be for the sole benefit of the
party carrying such insurance and under its sole control.
E. Except as noted in subparagraph C above, each of Landlord and
Tenant hereby releases the other from any and all liability or
responsibility to the other or anyone claiming through or under
them by way of subrogation or otherwise for any loss or damage to
property caused by fire or any of the extended coverage
casualties covered by the insurance maintained hereunder, EVEN IF
SUCH FIRE OR OTHER CASUALTY SHALL HAVE BEEN CAUSED BY THE FAULT
OR NEGLIGENCE OF THE OTHER PARTY, or anyone for whom such party
may be responsible; provided, however, that this release shall be
applicable and in force and effect only with respect to loss or
damage occurring during such times as the applicable insurer
consents thereto, to the extent any such consent is required, and
the releaser's policies contain a clause or endorsement to the
effect that any release shall not adversely affect or impair said
policies or prejudice the right of the releaser to recover
thereunder. Each of Landlord and Tenant agrees that it will
request its insurance carriers to include in its policies such a
clause or endorsement.
F. Landlord covenants and agrees to maintain standard fire and
extended coverage insurance covering the Building (exclusive of
any of Tenant's fixtures, furnishings, equipment and other
property attached hereto or located thereon) in an amount not
less then eighty percent (80%) or more, at Tenant's option, of
the replacement cost thereof. On a monthly basis along with the
payment of Rent, Tenant shall pay to Landlord as additional rent,
one-twelfth (1/12) of the amount of the premiums for such
insurance. Such payment shall be placed in the Deposit Account.
The failure to pay such amount shall be treated in the same
manner as a failure to make payment of rent when due. Any and
all payments for losses under such insurance maintained by
Landlord shall be made solely to Landlord, and such insurance may
be obtained by Landlord through blanket or master policies
insuring other entities or properties owned or controlled by
Landlord. Similar provisions regarding the overpayment and
underpayment of such insurance premiums as are contained in
Paragraph 6(A) shall apply to this Paragraph 14(F). Tenant shall
deposit the sum of $6,497.00 (being the estimated premium for the
period January 1, 1998 through September 30, 1998, based on the
1997 premiums) with Landlord on or before September 1, 1998, to
be deposited into the Deposit Account.
G. Tenant shall, at its own expense, during the term of the
Lease, obtain pollution insurance protecting Landlord from any
damages resulting from any act of pollution occurring on the
Premises. Such policy shall be in the amount of $1,000,000.00,
with no greater than a $50,000.00 deductible. The policy shall
provide that any proceeds for loss or damage to the Premises
shall be payable solely to Landlord, which sum Landlord shall use
for the correction or abatement of the pollution resulting in
such payment. On a monthly basis along with the payment of Rent,
Tenant shall pay to Landlord as additional rent, one-twelfth
(1/12) of the amount of the premiums for such insurance. Such
payment shall be placed in the Deposit Account. The failure to
pay such amount shall be treated in the same manner as a failure
to make payment of rent when due. Any and all payments for
losses under such insurance maintained by Landlord shall be made
solely to Landlord, and such insurance may be obtained by
Landlord through blanket or master policies insuring other
entities or properties owned or controlled by Landlord. Similar
provisions regarding the overpayment and underpayment of such
insurance premiums as are contained in Paragraph 6(A) shall apply
to this Paragraph 14(G). Tenant shall provided Landlord with a 12
month prepaid pollution insurance policy under the above terms at
the beginning of this Lease.
15. Liability. Landlord shall not be liable to Tenant or
Tenant's employees, agents, patrons, or visitors, or to any other
person whomsoever, for any injury to person or damage to property
on or about the Premises caused by the negligence or misconduct
of Tenant, its agents, servants, or employees, invitees or
licensees or caused by the Building and improvements located on
the premises becoming out of repair, or caused by leakage of gas,
oil, water, or steam or by electricity emanating from the
Premises, or due to any cause whatsoever, and Tenant agrees to
indemnify Landlord and hold it harmless from any loss, expense,
or claims including attorney's fees, arising out of any such
damage or injury; except to the extent that any injury to person
or damage to property is caused solely by the negligence of
Landlord. Tenant shall procure and maintain throughout the term
of this Lease a policy or policies of insurance (in form and
content reasonably acceptable to Landlord), at its sole cost and
expense, insuring both Landlord and Tenant against all claims,
demands or actions arising out of or in connection with Tenant's
use or occupancy of the Premises, or by the condition of the
Premises, the limits of such policy or policies to be in an
amount not less than $1,000,000.00 in respect of any one
occurrence and a General Aggregate limit of $2,000,000.00, and to
be written by insurance companies reasonably acceptable to
Landlord and qualified to do business in the state in which the
Premises are located. All policies of insurance required to be
maintained by Tenant shall specifically make reference to the
indemnifications of Landlord by Tenant hereunder and shall
provide that the Landlord shall be given at least thirty (30)
days prior written notice of any cancellation or non-renewal of
any such policy. The indemnity provisions contained in this
Paragraph 15 shall survive the termination or expiration of this
Lease and run in favor of not only Landlord, but the Landlord's
agents, employees, affiliates, officers, directors, shareholders,
and representatives (collectively the "Landlord's Related
Parties").
16. Condemnation.
A. If the whole or any substantial part of the Premises or the
Building or Land upon which the Premises are located should be
taken for any public or quasi-public use under governmental law,
ordinance, or regulation, or by right of eminent domain, or by
private purchase in lieu thereof, this Lease shall terminate and
the rent shall be abated during the unexpired portion of this
Lease, effective when the physical taking of said Premises shall
occur. For the purposes hereof "substantial part of the
Premises" shall be deemed to mean such portion of the Premises
the loss of which would, in Landlord's and Tenant's reasonable
opinion, materially lessen the usefulness of the Premises to
Tenant for the purposes for which Tenant is then using the
Premises.
B. If less than a substantial part of the Premises or the
Building or Land upon which the Premises are located shall be
taken for any public or quasi-public use under any governmental
law, ordinance or regulation, or by right of eminent domain, or
by private purchase in lieu thereof, this Lease shall not
terminate, but the rent payable hereunder during the unexpired
portion of this Lease shall be reduced to such extent as may be
fair and reasonable under all of the circumstances as mutually
determined by Landlord and Tenant.
C. In the event of any such taking or private purchase in lieu
thereof, Landlord and Tenant shall each be entitled to receive
and retain such separate awards and/or portion of lump sum awards
as may be allocated to their respective interest in any
condemnation proceedings. Notwithstanding the above, Tenant
agrees that any awards payable as a result of the condemnation
and/or private purchase in lieu of condemnation of the Land not
affecting the Building and/or Parking Area shall be paid solely
to Landlord.
17. Holding Over. Should Tenant, or any of its successors in
interest, hold over the Premises, or any part thereof, after the
expiration of the term of this Lease, as may be renewed or
extended, unless otherwise agreed in writing, such holding over
shall constitute and be construed as creating a month-to-month
tenancy only, cancelable at the will of Landlord, upon thirty
(30) days notice, at a rental equal to one hundred fifty percent
(150%) of the total rental payable for the last month of the term
hereof, payable in full on the first day on which Tenant holds
over and on the first day of each month thereafter during such
holdover period. The inclusion of the preceding sentence shall
not be construed as Landlord's permission for Tenant to hold
over.
18. Quiet Enjoyment. Landlord covenants that it now has good
title to the Premises, free and clear of all liens and
encumbrances, excepting only the lien for current taxes not yet
due, such mortgage or mortgages as are permitted by the terms of
this Lease, zoning ordinances, and other building and fire
ordinances and governmental regulations relating to the use of
such property, and easements, restrictions, and other conditions
of record. Landlord represents and warrants that it has full
right and authority to enter into this Lease and that Tenant,
upon paying the rental and performing its other covenants and
agreements under the terms of this Lease, shall peaceably and
quietly have, hold, and enjoy the Premises for the term hereof
without hindrance or molestation from Landlord, or anyone
claiming by, through, or under Landlord, but not otherwise,
subject to the terms and provisions of this Lease. Nothing
herein shall prohibit Landlord from granting easements over,
above, through or under any portion of the Land provided such
grant (a) does not affect the Building and/or Parking Area, or
(b) does not destroy the current or proposed future operations of
Tenant. Tenant consents to the granting of a 25 foot permanent
and temporary easement to the City of San Marcos along Interstate
35 for the construction and operation of a water line (the Center
Point Transmission Main Project).
19. Events of Default. The following events shall be deemed to
be events of default by Tenant under this Lease:
A. Tenant shall fail to pay any installment of the rent or
additional rent hereby reserved (including, without limitation,
amounts payable pursuant to Paragraphs 5, 6, 8, 12 and 14 hereof)
or shall fail to perform or discharge any other obligation or
liability of Tenant under this Lease requiring the payment of
money when any such payment is due, within five (5) business days
after receipt of written notice from Landlord; provided, however,
that Landlord shall not be required to give more than two (2)
such notices during any twelve (12) month period.
B. Tenant shall make an assignment for the benefit of creditors.
C. Tenant should file a petition under any section or chapter of
the Bankruptcy Code or under any present or future bankruptcy,
insolvency, or similar law or statute of the United States or any
state thereof heretofore or hereinafter enacted; or Tenant shall
have such a petition filed against it involuntarily and such
petition is not withdrawn or otherwise removed within sixty (60)
days of its being filed; or Tenant shall be adjudged bankrupt or
insolvent in proceedings filed against Tenant thereunder.
D. A receiver, trustee, or custodian shall be appointed for, or
shall take possession of, all or substantially all of the assets
of Tenant.
E. Tenant shall fail to comply with any term, provision, or
covenant of this Lease or shall fail to discharge any obligation
or liability hereunder not involving the payment of money, and
shall not cure any such failure within ten (10) days after
written notice thereof to Tenant, provided that if such default
is not susceptible to cure within ten (10) days, Tenant shall be
deemed to have cured such default if Tenant has commenced efforts
to cure such default within such ten (10) day period and
diligently pursues and completes such curative actions within a
reasonably prompt period of time thereafter; and provided,
further, that Landlord shall not be required to give more than
two (2) such notices during any twelve (12) month period.
F. The termination, dissolution or liquidation of Tenant.
20. Remedies. Upon the occurrence of any of such events of
default described herein, Landlord shall have the option to
pursue any one or more of the following remedies without any
notice or demand whatsoever (Tenant hereby expressly waiving any
such notice or demand):
A. Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord without any payment therefor,
and if Tenant fails to do so, Landlord may, without prejudice to
any other remedy which it may have for possession or arrearage in
rent, enter upon and take possession of the Premises and expel or
remove Tenant and any other person who may be occupying such
Premises or any part thereof, by any lawful means, whether
through judicial process or otherwise, without being liable for
any claim of damages therefor; and Tenant agrees to pay to
Landlord on demand the amount of all loss and damage which
Landlord may suffer by reason of such termination, whether
through inability to relet the Premises on satisfactory terms or
otherwise.
B. Enter upon and take possession of the Premises and expel or
remove Tenant and any other person who may be occupying such
Premises or any part thereof, by any lawful means, whether
through judicial process or otherwise, without being liable for
any claim for damages therefor, and relet the Premises, in the
name of Landlord or otherwise, for such term or terms (which may
be greater or lesser than the period which would otherwise have
constituted the balance of the term of this lease) and on such
conditions (which may include concessions or free rent) as
Landlord, in its sole discretion, may determine, and receive the
rent therefor. In the event of any such re-entry or
dispossession, Tenant shall not thereby be relieved of its
liability and obligations under this Lease, which shall survive
any such re-entry or dispossession, and in that event (i) the
rent and other charges required to be paid by Tenant up to the
time of such re-entry or dispossession shall become due and
payable, together with such reasonable expenses as Landlord may
incur for reasonable attorneys' fees, brokerage commissions,
and/or expenses of putting the Premises in such condition as the
Tenant under the provisions hereof is required to maintain, or
for preparing the same for reletting, and (ii) Tenant or the
legal representatives of Tenant shall also pay Landlord, as
liquidated damages for the failure of Tenant to observe and
perform Tenant's covenants herein contained, an amount equal to
the sum of (A) the base rental set forth in Paragraph 2 hereof,
and (B) all additional rental payable by Tenant under the
provisions hereof, as if this Lease were still in effect, less
the net amount, if any, of the rents and all other amounts
collected on account of the lease or leases of the Premises for
each month of the period which would otherwise have constituted
the balance of the term of this Lease as the same may theretofore
have been extended. In computing the amount of such liquidated
damages there shall be included such expenses as Landlord may
incur in connection with reletting, including reasonable
attorneys' fees, brokerage commissions, expenses of keeping the
Premises in the condition Tenant is required to maintain under
the provision of this Lease, or expenses of preparing the same of
reletting. Any such liquidated damages shall be paid in monthly
installments by Tenant on the day specified hereunder, and any
suit brought to collect the amount of the deficiency of any month
shall not prejudice in any way the rights of Landlord to collect
the deficiency for any subsequent month by a similar proceeding
or to bring suit for the net present value of such rents for the
balance of the lease term. Notwithstanding any contrary
provision contained herein, no re-entry and reletting of the
Premises by Landlord shall be construed as an election on the
part of Landlord to terminate this Lease unless a written notice
of such intention is given to Tenant by Landlord. Furthermore,
notwithstanding any such reletting without termination, Landlord
may at any time thereafter elect to terminate this Lease for such
previous default and/or exercise any other available rights in
connection therewith.
C. Enter upon the Premises by any lawful means, whether through
judicial process or otherwise, without terminating this Lease and
without being liable for any claim for damages therefor, and do
whatever Tenant is obligated to do under the terms of this Lease;
and Tenant agrees to reimburse Landlord on demand for any
expenses which Landlord may incur in thus effecting compliance
with Tenant's obligations under this Lease; and Tenant further
agrees that Landlord shall not be liable for any damages
resulting to Tenant from such action, unless caused by the
negligence of Landlord.
In the event Tenant fails to pay any installment of rent or
additional rent hereunder within ten (10) days of when such
installment is due, Tenant shall pay to Landlord on written
demand a late charge in an amount equal to five percent (5%) of
such installment; and the failure to pay such late charge amount
within ten (10) days after such written demand therefor shall be
an event of default hereunder. The provision for such late
charge shall be in addition to all of Landlord's other rights and
remedies hereunder or at law and shall not be construed as
liquidated damages or as limiting Landlord's remedies in any
manner.
Pursuit of any of the foregoing remedies shall not preclude
pursuit of any of the other remedies herein provided or any other
remedies provided by law, nor shall pursuit of any remedy herein
provided constitute a forfeiture or waiver of any rent due to
Landlord hereunder or of any damages accruing to Landlord by
reason of the violation of any of the terms, provisions, and
covenants herein contained. No waiver by Landlord of any
violation or breach of any of the terms, provisions, and
covenants herein contained shall be deemed or construed to
constitute a waiver of any other violation or breach of any of
the terms, provisions, and covenants herein contained.
Landlord's acceptance of the payment of rental or other payments
hereunder after the occurrence of an event of default shall not
be construed as a waiver of such default, unless Landlord so
notifies Tenant in writing. Forbearance by Landlord to enforce
one or more of the remedies herein provided upon an event of
default shall not be deemed or construed to constitute a waiver
of such default. If, on account of any breach or default by
Tenant in Tenant's obligations under the terms and conditions of
this Lease, provided it is adjudged that Tenant did actually
default, it shall become necessary or appropriate for Landlord to
employ or consult with an attorney concerning, or to enforce or
defend, any of Landlord's rights or remedies hereunder, Tenant
agrees to pay any reasonable attorneys' fees. No act or thing
done by the Landlord or its agents during the term hereby granted
shall be deemed an acceptance of the surrender of the Premise and
no agreement to accept a surrender of said Premises shall be
valid unless in writing signed by the Landlord. The receipt by
Landlord of rent with knowledge of the breach of any covenant or
other provision contained in this Lease shall not be deemed or
construed to constitute a waiver of any other violation or breach
of any of the terms, provisions, and covenants contained herein.
21. Mortgages. Tenant accepts this Lease subject and
subordinate to any mortgage(s) and/or deed(s) of trust now or at
any time hereafter constituting a lien or charge upon the
Premises or the improvements situated thereon or any portion
thereof. Tenant shall at any time hereafter on demand execute
any instruments, releases or other documents which may be
reasonably required by any mortgagee for the purpose of
subjecting and subordinating this Lease to the lien of any such
mortgage. With respect to any current or future mortgage(s)
and/or deed(s) of trust at any time hereafter created which
constitute a lien or charge upon the Premises or the improvements
situated thereon, Landlord agrees to obtain from the holder of
such mortgage, and Tenant agrees to execute and deliver to such
lender, a non-disturbance and attornment agreement (in form and
content reasonably acceptable to such lender and Tenant)
providing for Tenant to attorn to such lender (or any purchaser
of the Premises at a foreclosure of such lender's lien against
the Premises) and for such lender to honor this Lease and
Tenant's interest in the Premises so long as Tenant is not in
default hereunder. Tenant specifically requires that Landlord
obtain a non-disturbance and attornment agreement from Chase.
22. Landlord's Default. In the event Landlord should become in
default in any payments due on any such mortgage described in the
above Paragraph 22 or in the payment of taxes or any other items
which might become a lien upon the Premises and which Tenant is
not obligated to pay under the terms and provisions of this
Lease, Tenant is authorized and empowered, after giving Landlord
(and the holder of any mortgage or deed of trust lien encumbering
the Premises of which it has received notice) five (5) days prior
written notice of such default and if Landlord fails to cure such
default, to pay any such items for and on behalf of Landlord, and
the amount of any item so paid by Tenant for or on behalf of
Landlord, together with any interest or penalty required to be
paid in connection therewith, shall be credited against the
installments of rent next payable by Tenant hereunder; provided,
however, that Tenant shall not be authorized and empowered to
make any payment under the terms of this Paragraph 23, unless the
items paid shall be superior to Tenant's interest hereunder.
23. Mechanic's Liens. Tenant shall have no authority, express
or implied, to create or place any lien or encumbrance of any
kind or nature whatsoever upon, or in any manner to bind, the
interest of the Landlord in the Premises or to charge the rentals
payable hereunder for any claim in favor of any person dealing
with Tenant, including those who may furnish materials or perform
labor for any construction or repairs, and each such claim shall
affect and each such lien shall attach, if at all, only to the
leasehold interest granted to Tenant by this instrument. Tenant
covenants and agrees that it will pay or cause to be paid all
sums legally due and payable on it on account of any labor
performed or materials furnished in connection with any work
performed on the Premises on which any lien is and can be validly
and legally asserted against its leasehold interest in the
Premises or the improvements thereon and that it will save and
hold Landlord harmless from any and all loss, cost, or expense
based on or arising out of asserted claims or liens against the
leasehold estate or against the rights, titles, and interest of
Landlord in the Premises or under the terms of this Lease.
Further, Tenant agrees that it will immediately remove and have
released any mechanic's, materialmen's or similar lien which may
become attached to the Premises or any interest therein during
the term hereof; provided, however, that in lieu of removing and
releasing any mechanic's lien, Tenant may post a bond in an
amount of not less than one hundred fifty percent (150%) of the
amount of the claimed mechanic's lien, issued by a surety
acceptable to and approved by Landlord, in form and substance
satisfactory to Landlord, in Landlord's sole and absolute
discretion.
24. Notices. Each provision of this instrument or of any
applicable governmental laws, ordinances, regulations, and other
requirements with reference to the sending, mailing, or delivery
of any notice or the making of any payment by Landlord to Tenant
or with reference to the sending, mailing, or deliver of any
notice or the making of any payment by Tenant to Landlord shall
be deemed to be complied with when and if the following steps are
taken:
A. All rent and other payments required to be made by Tenant to
Landlord hereunder shall be payable to Landlord at the address
hereinbelow set forth or at such other address as Landlord may
specify from time to time by written notice delivered in
accordance herewith.
B. All payments required to be made by Landlord to Tenant
hereunder shall be payable to Tenant at the address hereinbelow
set forth, or at such other address within the continental United
States as Tenant may specify from time to time by written notice
delivered in accordance herewith.
C. Any notice or document required or permitted to be delivered
hereunder (other than a payment, which shall be deemed received
only when actually received) shall be deemed to be delivered
whether actually received or not three (3) days after being
deposited in the United States Mail, postage prepaid, certified
or registered mail, addressed to the appropriate party hereto at
the address set out opposite its name below, or at such other
address as it has theretofore specified by written notice
delivered in accordance herewith:
LANDLORD:
William D. McMorris
P.O. Box 18149
Austin, Texas 78760-8149
With a copy to:
Mark J. Silverstone
Sneed, Vine & Perry, P.C.
P.O. Box 856
Georgetown, Texas 78627
TENANT:
Attn: Jim Rosel
Electrosource, Inc.
2809 IH 35 South
San Marcos, Texas 78666
With a copy to:
John Malone
P.O. Box 8030
Waco, Texas 76714-8030
If and when included within the term "Landlord", as used in this
instrument, there are more than one person, firm, or corporation,
all shall jointly arrange among themselves for their joint
execution of a notice specifying an individual at a specific
address for the receipt of notices and payments to Landlord; if
and when included within the term "Tenant", as used in this
instrument, there are more than one person, firm or corporation,
all shall jointly arrange among themselves for their joint
execution of a notice specifying an individual at a specific
address within the continental United States for the receipt of
notices and payments to Tenant. All parties included within the
terms "Landlord" and "Tenant", respectively, shall be bound by
notices given in accordance with the provisions of this paragraph
to the same effect as if each had received such notice.
25. Miscellaneous.
A. Words of any gender used in this Lease shall be held and
construed to include any other gender, and works in the singular
number shall be held to include the plural and vice versa, unless
the context otherwise requires.
B. The terms, provisions, and covenants and conditions contained
in this Lease shall apply to, inure to the benefit of, and be
binding upon, the parties hereto and upon their respective heirs,
legal representatives, successors, and permitted assigns, except
as otherwise herein expressly provided.
C. The captions are inserted in this Lease for convenience only
and in no way define, limit, or describe the scope or intent of
this Lease, or any provision hereof, nor in any way affect the
interpretation of this Lease.
D. Tenant agrees, within ten (10) business days after request of
Landlord, to deliver to Landlord, or Landlord's designee, an
estoppel certificate stating that this Lease is in full force and
effect, the date to which rent has been paid, the unexpired term
of this Lease, and such other matters pertaining to this Lease as
may be reasonably requested by Landlord. Landlord agrees to
provide a like certificate to Tenant within ten (10) business
days after request by Tenant.
E. This Lease may not be altered, changed, or amended except by
an instrument in writing executed by Landlord and Tenant.
F. This instrument, including any Exhibit (signed or initialed
by Landlord and Tenant) which is attached hereto, constitutes the
entire agreement between Landlord and Tenant. No prior written
or prior or contemporaneous oral statements, promises, or
representations shall be binding.
G. If any provision of this Lease shall ever be held to be
invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provisions of the Lease, but such
other provisions shall continue in full force and effect.
H. This Lease shall be construed and enforced in accordance with
the laws and judicial decisions of the State of Texas.
I. Under no circumstances whatsoever shall Landlord or Tenant
ever be liable hereunder for consequential damages or special
damages.
In the event of the transfer by Landlord of his interest in the
Land, Landlord shall thereupon be released and discharged from
all covenants and obligations of Landlord thereafter accruing,
but such covenants and obligations shall be binding upon each new
owner for the duration of such owner's ownership.
J. In the event of any act or omission by Landlord which would
give Tenant the right to damages from Landlord or the right to
terminate this Lease by reason of a constructive or actual
eviction from all or part of the Premises or otherwise, Tenant
shall not sue for such damages or exercise any such right to
terminate until (a) it shall have given written notice of such
act or omission to Landlord and to the holder(s) of the
indebtedness or other obligations secured by any first mortgage
or first deed of trust affecting the Premises, if the name and
address of such holder(s) shall have previously been furnished to
Tenant; and (b) a reasonable period of time for remedying such
act or omission shall have elapsed following the giving of such
notice, during which time Landlord and such holder(s) or either
of them, their agents or employees, shall be entitled to enter
upon the Premises and do therein whatever may be necessary to
remedy such act or omission.
K. Whenever a period of time is herein prescribed for action to
be taken by Landlord or Tenant, Landlord or Tenant shall not be
liable or responsible for, and there shall be excluded from the
computation for any such period of time, any delays due to
strikes, riots, acts of God, shortages of labor or materials,
war, governmental laws, regulations or restrictions or any other
causes of any kind whatsoever which are beyond the reasonable
control of Landlord or Tenant, provided however, that this
provision shall not apply to any obligation or liability under
this Lease requiring the payment of money when any such payment
is due.
L. Any provision of this Lease to the contrary notwithstanding,
Tenant hereby agrees that, no personal or corporate liability of
any kind or character whatsoever now attaches or at any time
hereafter under any condition shall attach to Landlord or any of
Landlord's Related Parties or any mortgagee of Landlord for
payment of any amounts payable under this Lease or for
performance of any obligation of Landlord under this Lease. The
exclusive remedies of Tenant for the failure of Landlord to
perform any of its obligations under this Lease (in addition to
Tenant's termination rights as set forth in other provisions of
this Lease) shall be to proceed against the interest of Landlord
in and to the Premises. The provision contained in the foregoing
sentence is not intended to, and shall not, limit any right the
Tenant might otherwise have to obtain injunctive relief against
Landlord or Landlord's successors in interest for suit or action
in connection with enforcement or collection of amounts which may
become owing or payable under or on amount of insurance
maintained by Landlord.
26. Return of Premises. At the end of the term covered by this
Lease, or upon such earlier termination of this Lease as provided
herein, Tenant shall surrender the Premises to Landlord in good
order and condition, reasonable wear and tear excepted; provided
that in any case the Premises shall be surrendered to Landlord
reasonably clean and free of debris and without the presence of
any Hazardous Substances used, handled, generated, released,
processed, treated or disposed by Tenant with respect to the
Premises during the life of this Lease. At such time Tenant
shall deliver to Landlord all keys to the Premises. Any
equipment, trade fixtures, or other property of Tenant left in
the Premises after the end of the Lease shall be conclusively
deemed to have been abandoned by Tenant, and Landlord may
thereupon without notice to Tenant take possession of such
property and, at Landlord's option either (i) declare same to be
property of Landlord, or (ii) at the sole cost and expense of
Tenant, dispose of such property in any manner and for whatever
consideration Landlord in its sole discretion shall deem most
advisable. Tenant agrees that it will, promptly upon Landlord's
request, execute at Tenant's sole cost and expense, such bills of
sale or other evidences of title to such property that Landlord
may request.
27. Special Provisions. Additional provisions, if any, set
forth on Exhibits attached hereto and made a part hereof for all
purposes are incorporated herein as if fully set forth in this
Paragraph.
Executed this 29th day of May, 1998.
LANDLORD:
/s/ William D. McMorris
WILLIAM D. McMORRIS
TENANT:
ELECTROSOURCE, INC.
BY: /s/ Michael G. Semmens
Michael G. Semmens
President
EXHIBIT A
PROPERTY DESCRIPTION
Lot 1, Block 1, INTERNATIONAL ELECTRIC CORPORATION ADDITION, a
subdivision in Hays County, Texas, according to the map or plat
of record in Volume 3, page 393, Plat Records of Hays County,
Texas, together with that certain strip of land sixty (60) feet
in width as described in that certain Warranty Deed dated October
3, 1979, from Joe E. Leavines, et al., to Stewart & Stevenson
Realty Corporation, recorded in Volume 332, page 623, Deed
Records of Hays County, Texas to which Deed reference is here
made.
Exhibit 10.2
AGREEMENT
This Agreement, dated as of May 29, 1998 (the "Agreement"),
is between Corning Incorporated, a New York corporation
("Corning") and Electrosource, Inc., a Delaware corporation
("Electrosource").
WITNESSETH
WHEREAS, Corning and Electrosource (together, the "Parties")
entered into a Note Purchase and Option Agreement, dated March
27, 1997 (the "Note Purchase and Option Agreement"); a Note
Purchase Agreement, dated as of December 19, 1997 (the "Note
Purchase Agreement"); and a Research and Development Umbrella
Agreement, dated as of July 1, 1997 (the "RD&E Agreement");
WHEREAS, under the Note Purchase and Option Agreement and
the Note Purchase Agreement, Electrosource Issued to Corning a 5%
Convertible Promissory Note in the principal amount of Four
Million Dollars ($4,000,000.00), dated March 27, 1997 (the "First
Note"); a 5% Convertible Promissory Note in the amount of One
Million Dollars ($1,000,000.00), dated December 19, 1997 (the
"Second Note"); a 5% Convertible Promissory Note in the amount of
Five Hundred Thousand Dollars ($500,000.00), dated January 23,
1998 (the "Third Note"); a 5% Convertible Promissory Note in the
amount of Five Hundred Thousand Dollars ($500,000.00), dated
February 19, 1998 (the "Fourth Note"); a 5% Convertible
Promissory Note in the amount of One Hundred Thousand Dollars
($100,000.00), dated September 27, 1997 (the "Fifth Note"); and a
5% Convertible Promissory Note in the amount of One Hundred and
Two Thousand and Five Hundred Dollars ($102,500.00), dated March
27, 1998 (the "Sixth Note" and, collectively with the First,
Second, Third, Fourth and Fifth Notes, the "Notes");
WHEREAS, under the Note Purchase and Option Agreement,
Electrosource issued in favor of Corning a Stock Option
Agreement, dated March 27, 1997 (the "Option Agreement"),
providing an option to Corning to purchase from Electrosource an
aggregate of Five Hundred Thousand (500,000) shares of Common
Stock of the Company at an exercise price of Seven Dollars
($7.00) per share for Two Hundred Seventy Five Thousand (275,000)
shares and Nine Dollars ($9.00) per share for Two Hundred Twenty
Five Thousand (225,000) shares;
WHEREAS the exercise prices of the Stock Options were
amended by Section 1B of the Note Purchase Agreement to provide
for an exercise price of Four Dollars ($4.00) per share for Two
Hundred Seventy Five Thousand (275,000) shares and Six Dollars
($6.00) per share for Two Hundred Twenty Five Thousand (225,000)
shares; and
WHEREAS, under the RD&E Agreement, Electrosource issued to
Corning options (together with the Option Agreement, the
"Options") to purchase Two Hundred Eighty Thousand (280,000)
shares of Common Stock of the Company at an exercise price of
Seven and One-Eighth Dollars ($7.125).
NOW THEREFORE, in consideration of the premises, the mutual
obligations herein described and other consideration the receipt
of which is hereby acknowledged, the Parties agree as follows:
1. On or before June 15, 1998, Electrosource shall pay to
Corning, by wire transfer of immediately available funds to an
account to be named by Corning, One Million Five Hundred Thousand
Dollars ($1,500,000.00). Corning acknowledges that payment of
such amount by Electrosource is subject to and contingent upon
receipt of the necessary funds from a third party financing. The
Parties agree that this Agreement is conditioned upon the receipt
by Corning of such payment on or prior to June 15, 1998, and this
Agreement shall be deemed null and void if Corning has not
received such payment on or before June 15, 1998. Upon receipt
into such account, such payment shall be considered payment in
full in respect of the Notes.
2. The Note Purchase and Option Agreement is hereby terminated
according to its terms, effective as of the date hereof, except
for Section 6 (Registration Rights) as it applies to the shares
that may be obtained upon exercise of the Options.
3. The Note Purchase Agreement is hereby terminated according
to its terms, effective as of the date hereof, except for Section
1B thereof (the Option Amendment), which shall continue in full
force and effect as long as the Option Agreement is in effect or
any of the Options are outstanding.
4. The RD&E Agreement is hereby terminated according to its
terms, effective as of the date hereof.
5. Electrosource hereby releases and agrees to indemnify and
hold harmless Corning Incorporated and each of its affiliates,
directors, employees and advisors from any and all costs,
expenses, claims, actions, damages and other liabilities, whether
known or unknown, current or future, contingent or otherwise,
whenever and wherever arising or asserted, related to or arising
in connection with or in respect of the RD&E Agreement, the Note
Purchase and Option Agreement, the Note Purchase Agreement or the
Notes.
6. The Option Agreement and the Options, as amended, shall
continue in full force and effect, unaltered by this Agreement or
the transactions contemplated herein.
7. This Agreement shall be governed by the laws of the State of
Delaware, without regard to conflict of interest principles. The
proper venue for any action, suit or proceeding arising pursuant
to this Agreement, the Note Purchase and Option Agreement, the
Note Purchase Agreement, the Notes or the Options or in
connection with the transactions contemplated herein or therein
shall be in the State of Delaware. Each party agrees that any
such action, suit or proceeding shall be brought before a state
or federal court sitting in the State of Delaware and waives any
objection to venue in such court. Each party waives the right to
demand a jury in any action, suit or proceeding arising pursuant
to this Agreement, the Note Purchase and Option Agreement, the
Note Purchase Agreement, the Notes or the Options or in
connection with the transactions contemplated herein or therein.
IN WITNESS WHEREOF, the Parties have executed this Agreement as
of the date first written above by their duly authorized officers
named below.
CORNING INCORPORATED ELECTROSOURCE, INC.
/s/ David H. Fuller /s/ Michael G. Semmens
Name: David H. Fuller Name: Michael G. Semmens
Title: Division Vice President Title: President
Exhibit 10.3
AMENDMENT TO AGREEMENT
This amendment, dated as of June 15, 1998 (the "Amendment"), is
between Corning Incorporated, a New York Corporation ("Corning")
and Electrosource, Inc., a Delaware Corporation
("Electrosource").
WITNESSETH:
WHEREAS, on or about May 29, 1998 Corning and Electrosource (the
"Parties") entered into an agreement (the "Agreement"), a copy of
which is attached hereto; and
WHEREAS, Section 1 on page two of the Agreement provided that on
or before
June 15, 1998 Electrosource shall pay to Corning one million five
hundred thousand dollars ($1,500,000) contingent upon receipt of
the necessary funds from a third party financing; and
WHEREAS, Electrosource has asked for and Corning has agreed to a
one-day extension for payment of such funds to June 16, 1998;
NOW THEREFORE, in consideration of the premises the mutual
obligations herein described and other consideration, the receipt
of which is hereby acknowledged, the Parties agree as follows:
The Agreement is amended in Section 1 on page two by
substituting the date
of June 16, 1998 in place of June 15, 1998, wherever
appearing in said
Section 1 of the Agreement.
The Agreement is not otherwise amended or modified in any
respect.
IN WITNESS WHEREOF, the parties have executed the Amendment as of
the date first above written by their duly authorized officers
named below.
/s/ David H. Fuller /s/ Michael G. Semmens
David H. Fuller Michael G. Semmens
Division Vice President Chairman, President and CEO
Corning Incorporated Electrosource, Inc.
Exhibit 10.4
The following form of Severance Agreement was executed for the
below listed officers/key employees on May 18, 1998:
Michael G. Semmens Chris Morris
Gary R. Sams Mary Beth Koenig
James M. Rosel Ajoy Datta
William F. Griffin Benny Jay
Charles L. Mathews
SEVERANCE AGREEMENT
This Severance Agreement (this "Agreement") is made and
effective as of the 18th of May, 1998, by and between
Electrosource, Inc., a Delaware corporation having its principal
place of business in San Marcos, Hays County, Texas (the
"Company"), and ________________________, an individual currently
residing in _____________ County, Texas ("Employee").
RECITALS:
A. Employee and the Company entered into a written
severance agreement dated August 25, 1997 (the "Prior
Agreement"), setting forth certain terms and conditions governing
the termination of Employee's employment with the Company.
B. The Company and Employee desire to replace the Prior
Agreement with this Agreement.
C. In partial consideration of Employee's agreement to
replace the Prior Agreement with this Agreement, the Company has
agreed to grant severance pay to Employee and to waive the
noncompete provision (but no other provisions) contained in the
Memorandum of Employee's Agreement in the event of a change in
control of the Company.
D. Employee is a key executive or senior technical staff
member of the Company and is an integral member of its management
team.
E. The Company considers the maintenance of a sound
management and senior technical team, essential to protecting and
enhancing the best interests of the Company and its stockholders.
F. The Company recognizes the possibility that a change in
control of the Company may result in the departure or distraction
of management to the detriment of the Company and its
stockholders.
G. The Company has determined that appropriate steps
should be taken to reinforce and encourage the continued
attention and dedication of selected members of the Company's
management team to their assigned duties without the potential
distraction arising from the possibility of a change in control
of the Company.
NOW, THEREFORE, in consideration for Employee's past and
future employment with the Company and other good and valuable
consideration, including the mutual release of the Company and
Employee of their respective obligations under the Prior
Agreement the parties agree as follows:
1. Definitions.
(a) "Base Annual Salary" means Employee's normal
annual base salary, prior to the last voluntary and temporary
reduction on the date of the most recent Change in Control.
(b) "Cause" means any of the following conduct by
Employee:
(i) Willful misconduct or gross negligence
detrimental to the Company, monetarily or otherwise;
(ii) Embezzlement of funds or misappropriation of
other property from the Company;
(iii) Conviction of a felony or of a crime
involving fraud, dishonesty, or moral turpitude;
(iv) Failure to substantially perform Employee's
duties after the Company has delivered to Employee
demand for substantial performance specifying the
manner in which Employee has not substantially
performed his duties. However, Employee's failure
shall not be deemed to be ACause@ if it results from
Employee's illness, injury, or physical or mental
incapacity;
(v) Conduct that, in the good faith opinion of
the Company, is materially detrimental to the Company
or reflects unfavorably on the Company or the Employee;
or
(vi) Willful breach of any of the material
provisions of this Agreement.
(c) A "Change of Control" shall be deemed to have
occurred if:
(i) the individuals who constitute the Board (the
"Incumbent Board") as of the date of this Agreement
cease for any reason to constitute at least 51% of the
Board. Any director who is elected after the date of
this Agreement shall be considered a member of the
Incumbent Board if his or her election, or nomination
for election, by the Company's stockholders was
approved by a vote of more than 50% of the directors of
the Incumbent Board;
(ii) The Company approves a reorganization,
merger, or consolidation which results in persons who
were the stockholders of the Company immediately before
such reorganization, merger, or consolidation owning
less than 50% total of the combined voting power
entitled to vote generally in the election of directors
of the reorganized, merged, or consolidated entity's
then outstanding voting securities; or
(iii) the stockholders of the Company shall
approve a liquidation or dissolution of the Company or
a sale of all or substantially all of the assets of the
Company.
(d) "Disability" shall be deemed the reason for the
termination by the Company of the Executive's employment, if, as
a result of the Executive's incapacity due to physical or mental
illness, the Executive shall have been absent from the full-time
performance of the Executive's duties with the Company for a
period of three (3) consecutive months, and the Company shall
have given the Executive a Notice of Termination for Disability,
provided that, within thirty (30) days after such Notice of
Termination is given, the Executive shall not have returned to
the full-time performance of the Executive's duties.
(e) "Termination Date" means the last date of
Employee's employment with the Company.
(f) "Termination Event" means the Company or any
successor to the Company has terminated Employee employment for
any reason other than Cause.
2. Payment of Severance Amount. If Employee's employment
is terminated by the Company within twenty-four months following
a Change in Control that occurred during the Term for reasons
other than:
(i) Cause, or
(ii) for Death, or Disability
then the Employee shall be entitled to the following amount from
the Company:
(a) an amount equal to Employee's Base Annual Salary
(as defined in paragraph 1) divided by twelve, for each
month that Employee remains unemployed, for up to six
months. Employee's right to such payments shall accrue on
the fifteenth of the month after each month in which
Employee remains unemployed.
(b) reimbursement for any premiums Employee pays for
continuation of insurance coverage at the level provided for
health, dental and vision insurance upon the occurrence of
the Termination Event, for six months after the date
Employee first becomes eligible for continuation coverage or
until the date Employee becomes covered under any other
group health plan(s) providing comparable coverage,
whichever comes first. Employee agrees to timely notify
Company within ten (10) calendar days of the commencement of
such new coverage. As a condition precedent to eligibility
for this reimbursement, Employee must comply with all
requirements for entitlement to continuation coverage under
the Consolidated Omnibus Reconciliation Act of 1985
(ACOBRA@) and must submit the documentation required by the
Company to support any request for reimbursement.
Employee's right to such reimbursements shall accrue on the
fifteenth of the month after Employee submits the requisite
documentation and request for reimbursement.
(c) reimbursement for any premiums Employee pays for
individual continuation of group life insurance (if
permitted by the Company group policy) for six months after
the date Employee first becomes eligible for continuation
coverage or until Employee becomes covered under any other
group life insurance policy with another employer, whichever
comes first. Employee agrees to timely notify Company
within ten (10) calendar days of the commencement of such
new coverage. As a condition precedent to eligibility for
this reimbursement, Employee must comply with all
requirements for any entitlement to conversion coverage
under the relevant policy or policies and must submit the
documentation required by the Company to support any request
for reimbursement. Employee's right to such reimbursements
shall accrue on the fifteenth of the month after Employee
submits the requisite documentation and request for
reimbursement.
3. Release and Waiver.
(a) Employee acknowledges that this Agreement
replaces, in its entirety, the Prior Agreement and Employee
releases all rights Employee may have had under the Prior
Agreement. Employee irrevocably and unconditionally
releases, forever discharges, and covenants not to sue, or
bring any other legal action against the Company with
respect to the Prior Agreement, and any other term,
condition, or benefit of the Prior Agreement.
(b) The Memorandum of Employee's Agreement (the
AMemorandum@) between Employee and the Company, dated
September 15, 1997 including the Memorandum Concerning
Disclosure Obligations and Insider Trading attached as
Exhibit A, remains in full force and effect subject to this
sole exception: in the event of a Change in Control the
noncompete provision contained in the Memorandum is hereby
rendered null and void and of no effect. Employee
acknowledges his remaining obligations under the Memorandum
and that he continues to be bound by it.
(c) Employee acknowledges that the severance described
herein constitutes full accord and satisfaction of the
Company's obligations under the Prior Agreement.
4. Notices. For purposes of this Agreement, notices and
all other communications provided for by this Agreement shall be
in writing and shall be deemed to have been duly given when
personally delivered or when mailed by United States registered
or certified mail, return receipt requested, postage prepaid,
addressed as follows:
To the Company:
Electrosource, Inc.
2809 Interstate 35 South
San Marcos, Texas 78666
To Employee:
A party may change its address, for purposes of notice under this
Agreement, by providing the new address to the other party, in
writing, in accordance with this paragraph. Notices of changes of
address shall be effective only upon actual receipt.
5. Applicable Law. This contract is entered into under,
and shall be governed for all purposes by, the laws of the State
of Texas.
6. Severability. If a court of competent jurisdiction
determines that any provision of this Agreement is invalid or
unenforceable, then the invalidity or unenforceability of that
provision shall not affect the validity or enforceability of any
other provision of this Agreement, and all other provisions shall
remain in full force and effect.
7. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an
original, but all of which together will constitute one and the
same Agreement.
8. Withholding of Taxes. The Company may withhold from
any benefits payable under this Agreement all federal, state,
city, or other taxes as may be required pursuant to any law or
governmental regulation or ruling.
9. No Employment Agreement. Nothing in this Agreement
shall give employee any rights (or impose any obligations) to
continued employment by the Company, its subsidiaries, or its
successors, nor shall it give the Company any rights (or impose
any obligations) with respect to continued performance of duties
by Employee for the Company, its subsidiaries, or its successors.
10. Assignment.
(a) Employee shall not, without the consent of the
Company, assign or transfer this Agreement or any rights or
obligations under this Agreement, except as provided in the
remainder of this paragraph 10. Without limiting the
foregoing, Employee's right to receive payments under this
Agreement shall not be assignable or transferable, whether
by pledge, creation of a security interest, or otherwise,
except that Employee's rights may be transferred by
Employee's will or by the laws of descent or distribution.
If Employee attempts an assignment or transfer contrary to
this paragraph 10, the Company shall have no liability to
pay any amount so attempted to be assigned or transferred.
This Agreement shall inure to the benefit of and be
enforceable by Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees, and legatees.
(b) The Company may assign this Agreement and its
rights hereunder in whole or in part to any corporation with
or into which it may merge or consolidate or to which it may
transfer all or substantially all of its assets. Subject to
the foregoing, this Agreement shall inure to the benefit of
and be enforceable by the Company's successors and assigns.
11. Modifications. This Agreement shall not be varied,
altered, modified, canceled, changed or in any way amended except
by mutual agreement of the parties in a written instrument
executed by the parties or their legal representatives.
12. Term of Agreement. The term of this Agreement shall
commence on the date hereof and shall continue in effect to
January 1, 2000; provided, however, that:
(a) commencing on January 1, 2000, and each January 1
thereafter, the Term shall automatically be extended for one
additional year unless, not later than September 30 of the
preceding year, the Company or the Executive shall have
given notice not to extend the Term;
(b) if a Change in Control shall have occurred during
the Term, the Term shall expire no earlier than twenty-four
(24) months beyond the month in which such change in Control
occurred;
13. Effective Date. This Agreement becomes effective as of
the date and year entered in the first paragraph, above.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed and delivered as of the day and year first above
written.
ELECTROSOURCE, INC.:
By:
Name:
Title:
EMPLOYEE:
Name:
STATE OF TEXAS
COUNTY OF HAYS
BEFORE ME, the undersigned Notary Public, on this day
personally appeared __________________, who being by me duly
sworn on this oath, deposed and said that he/she is
_____________________ of Electrosource, Inc., that he/she has
read the above and foregoing Severance Agreement, that every
statement contained therein is true and correct and that he/she
is authorized to execute this Severance Agreement on behalf of
Electrosource, Inc.
______________________________
SUBSCRIBED AND SWORN TO BEFORE ME this ____ day of
____________, 1998.
My commission expires: _____________________________________
Notary Public, State of Texas
___________________________________
(Type/Print/Stamp Name)
STATE OF TEXAS
COUNTY OF HAYS
BEFORE ME, the undersigned Notary Public, on this day
personally appeared __________________, who being by me duly
sworn on this oath, deposed and said that he/she is an employee
of Electrosource, Inc., that he/she has read the above and
foregoing Severance Agreement, and that every statement contained
therein is true and correct.
______________________________
SUBSCRIBED AND SWORN TO BEFORE ME this ____ day of
____________, 1998.
My commission expires: _____________________________________
Notary Public, State of Texas
___________________________________
(Type/Print/Stamp Name)
Exhibit 10.5
DIRECTOR INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made this 2nd day of June, 1998, between
ELECTROSOURCE, INC., a Delaware corporation ("Corporation") and
KAMAL SIDDIQI ("Director").
WITNESSETH:
WHEREAS, Director is a member of the Board of Directors of
Corporation and in such capacity is performing a valuable service
for Corporation; and
WHEREAS, the Bylaws of the Corporation (the "Bylaws")
provide for the indemnification of the officers, directors,
agents and employees of Corporation; and
WHEREAS, such Bylaws and Section 145 of the Delaware General
Corporation Laws, as amended to date (the "State Statutes"),
specifically provide that they are not exclusive, and thereby
allow that contracts may be entered into between Corporation and
the members of its Board of Directors with respect to
indemnification of such directors; and
WHEREAS, in accordance with the authorization provided by
the State Statutes, Corporation has purchased and presently
maintains a policy or policies of Directors and Officers
Liability Insurance ("D&O Insurance") covering certain
liabilities which may be incurred by its directors and officers
in the performance of their services for Corporation; and
WHEREAS, recent developments with respect to the terms and
availability of D&O Insurance and with respect to the
application, amendment and enforcement of statutory and bylaw
indemnification provisions generally have raised questions
concerning the adequacy and reliability of the protection
afforded to directors thereby; and
WHEREAS, in order to resolve such questions and thereby
induce the Director to continue to serve as a member of the Board
of Directors of Corporation, Corporation has determined and
agreed to enter into this Agreement with Director.
NOW THEREFORE, in consideration of Director's continued
service as a Director after the date hereof, the parties hereto
agree as follows:
1. Indemnity of Director.
Corporation shall hold harmless and indemnify
Director to the full extent authorized or permitted by
the provisions of the State Statutes, or by any
amendment thereof or other statutory provisions
authorizing or permitting such indemnification which is
adopted after the date hereof.
2. Maintenance of Insurance and Self Insurance.
(a) Corporation represents that it presently has
in force and effect a policy of D&O Insurance with
the insurance company and in the amount as follows
(the "Insurance Policy"):
Insurer Policy No. Amount
National Union Fire Ins. Co.486-03-72$2,000,000
Subject only to the provisions of Section 2(b)
hereof, Corporation hereby agrees that, so long as
Director shall continue to serve as a director of
Corporation (or shall continue at the request of
Corporation to serve as a director, officer,
employee or agent of another corporation,
partnership, joint venture, trust or other
enterprise) and thereafter so long as Director
shall be subject to any possible claim or
threatened, pending or completed action, suit or
proceeding, whether civil, criminal or
investigative, by reason of the fact that Director
was a director of Corporation (or served in any of
said other capacities), Corporation will purchase
and maintain in effect for the benefit of Director
one or more valid, binding and enforceable policy
or policies of D&O Insurance providing, in all
respects, coverage at least comparable to that
presently provided pursuant to the Insurance
Policy.
(b) Corporation shall not be required to maintain
said policy or policies of D&O Insurance in effect
if said insurance is not reasonably available or
if, in the reasonable business judgment of the
then directors of Corporation, either (i) the
premium cost for such insurance is substantially
disproportionate to the amount of coverage; or
(ii) the coverage provided by such insurance is so
limited by exclusions that there is insufficient
benefit from such insurance.
(c) In the event Corporation does not purchase
and maintain in effect said policy or policies of
D&O Insurance pursuant to the provisions of
Section 2(b) hereof, Corporation agrees to hold
harmless and indemnify Director to the full extent
of the coverage which would otherwise have been
provided for the benefit of Director pursuant to
the Insurance Policy.
3. Additional Indemnity.
Subject only to the limitations set forth in
Section 4 hereof, and without limitation to Section 1
above, Corporation shall further hold harmless and
indemnify Director:
(a) Against any and all expenses (including
attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably
incurred by Director in connection with any
threatened, pending or completed action, suit or
proceeding, whether civil, criminal,
administrative or investigative (including an
action by or in the right of the Corporation) to
which Director is or was a party or is threatened
to be made a party by reason of the fact that
Director is, was or at any time becomes a director
of the Corporation, or is or was serving or at any
time serves at the request of the Corporation as a
director, officer, employee or agent of another
corporation, partnership, joint venture, trust or
other enterprise; and
(b) Otherwise to the fullest extent that may be
provided to Director by Corporation under the
nonexclusivity provisions of Section 10.5 of the
Bylaws of the Corporation and the State Statutes.
4. Limitations on Additional Indemnity.
No indemnity pursuant to Section 3 hereof shall be paid
by Corporation:
(a) except to the extent the aggregate of losses
to be indemnified thereunder exceeds the amount of
such losses for which the Director is indemnified
either pursuant to Sections 1 or 2 hereof or
pursuant to any D&O Insurance purchased and
maintained by the Corporation; or
(b) in respect to remuneration paid to Director
if it shall be determined by the Reviewing Party
(as defined in Section 5 below), or by a final
judgment or other final adjudication, that such
remuneration was in violation of law; or
(c) if a determination of the Reviewing Party is
made, or if a judgment is rendered against a
Director, that an accounting must be made for
profits made from the purchase or sale by Director
of securities of Corporation in violation of the
provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or
similar provisions of any federal, state or local
statutory law; or
(d) on account of Director's conduct which is
determined by the Reviewing Party, or by a final
judgment or other final adjudication, to have been
knowingly fraudulent, deliberately dishonest or of
willful misconduct; or
(e) if the Reviewing Party or a Court having
jurisdiction in the matter shall determine that
such indemnification is not lawful.
5. Reviewing Party.
"Reviewing Party" means:
(a) the Board of Directors, provided that a
majority of directors are not parties to the
claim, or
(b) special, independent counsel selected and
appointed by the Board of Directors; or
(c) special, independent counsel approved or
chosen pursuant to Section 6 below.
Any determination by the Reviewing Party shall be
conclusive and binding on Corporation and Director. If
the Reviewing Party determines that Director would not
be permitted to be indemnified in whole or in part,
Director shall have the right to commence litigation in
the State of Delaware in any court of proper
jurisdiction seeking an order or judgment by the court
equivalent to the determination of the Reviewing Party
or challenging any such determination by the Reviewing
Party or any aspect thereof.
6. Change in Control of Corporation.
If there is a change in control of Corporation (as
defined below), then with respect to all matters
thereafter arising concerning the rights of Director to
indemnity payments and expense advances under this
Agreement, or any other agreements or Bylaws now or
hereafter in effect relating to director
indemnification, Corporation shall seek legal advice
and shall retain a Reviewing Party only from special,
independent counsel selected by Director and approved
by Corporation (which approval shall not be
unreasonably withheld), and who has not otherwise
performed services for Corporation or Director. In the
event that Director and Corporation are unable to
agree on the selection of the special, independent
counsel, such special, independent counsel shall be
selected by lot from among at least five law firms
designated by Director, each of such law firms having
more than 35 attorneys and having a rating of "av" or
better in the then current Martindale-Hubbell Law
Directory. Such selection shall be made in the
presence of Director (and Director's legal counsel or
either of them, as Director may elect). Such special,
independent counsel, among other relevant appropriate
matters, shall determine whether and to what extent
Director would be permitted to be indemnified under
applicable law and shall render its written opinion to
Corporation and Director to such effect. Corporation
shall pay the reasonable fees of the special,
independent counsel and shall fully indemnify such
counsel against any and all costs and expenses arising
out of or relating to this Agreement or its engagement
pursuant hereto.
"Change in control" of Corporation shall be deemed
to have occurred if (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Act")), other
than a trustee or other fiduciary holding securities
under an employee benefit plan of Corporation, is or
becomes the "beneficial owner" (as defined in rule
13d-3 under the Act), directly or indirectly, of
securities of Corporation representing 20% or more of
the total voting power represented by Corporation's
then outstanding voting securities; (ii) during any
period of two consecutive years, individuals who at the
beginning of such period constitute the Board of
Directors of Corporation and any new director whose
election by the Board of Directors or nomination for
election by Corporation's shareholders was approved by
a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors at the
beginning of the period or whose election or nomination
for election was previously so approved, cease, for any
reason, to constitute a majority of the Board of
Directors; or (iii) the shareholders of Corporation
approve a merger or consolidation of Corporation with
any other corporation, other than a merger or
consolidation that would result in the voting
securities of Corporation outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) at least 80% of the
total voting power represented by the voting securities
of Corporation or the surviving entity, as the case may
be, or an agreement for sale or disposition by
Corporation of all or substantially all Corporation's
assets.
7. Continuation of Indemnity.
All agreements and obligations of Corporation
contained herein shall continue during the period
Director is a director of Corporation (or is or was
serving at the request of Corporation as a director,
officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise),
and shall continue thereafter so long as Director shall
be subject to any possible claim or threatened, pending
or completed action, suit or proceeding, whether,
civil, criminal or investigative, by reason of the fact
that Director was a director of Corporation or serving
in any other capacity referred to herein.
8. Notification and Defense of Claim.
Promptly after receipt by Director of notice of
the commencement of any action, claim, suit or
proceeding, Director will, if a claim in respect
thereof is to be made against Corporation under this
Agreement, notify Corporation of the commencement
thereof; but the omission so to notify Corporation will
not relieve it from any liability which it may have to
Director otherwise than under this Agreement. With
respect to any such action, suit or proceeding as to
which Director notifies Corporation of the commencement
thereof;
(a) Corporation will be entitled to participate
therein at its own expense, and;
(b) Except as otherwise provided below, to the
extent that it may wish, Corporation jointly with
any other indemnifying party similarly notified
will be entitled to assume the defense thereof,
with counsel satisfactory to Director. After
notice from Corporation to Director of its
election so to assume the defense thereof,
Corporation will not be liable to Director under
this Agreement for any legal or other expenses
subsequently incurred by Director in connection
with the defense thereof other than reasonable
costs of investigation or as otherwise provided
below. Director shall have the right to employ
counsel in such action, suite or proceeding, but
the fees and expenses of such counsel incurred
after notice from Corporation of its assumption of
the defense thereof shall be at the expense of
Director unless (i) the employment of counsel by
Director has been authorized by Corporation; (ii)
Director shall have reasonably concluded that
there may be a conflict of interest between
Corporation and Director in the conduct of the
defense of such action; or (iii) Corporation
shall not in fact have employed counsel to assume
the defense of such action, in each of which cases
the fees and expenses of counsel shall be at the
expense of Corporation. Corporation shall not be
entitled to assume the defense of any action, suit
or proceeding brought by or on behalf of
Corporation or as to which Director shall have
made the conclusion provided for in (i) above.
(c) Corporation shall not be liable to indemnify
Director under this Agreement for any amounts paid
in settlement of any action or claim effected
without its written consent. Corporation shall
not settle any action or claim in any manner which
would impose any penalty or limitation on Director
without Director's written consent. Neither
Corporation nor Director will unreasonably
withhold its consent to any proposed settlement.
9. Advancement of Expenses.
Upon the request of Director, and except as
limited by paragraph 8(b) above, Corporation shall
reimburse Director for all reasonable expenses paid by
Director in defending any claim, civil or criminal
action, suit or proceeding for which Director is
entitled to be indemnified by Corporation for such
expenses under the provisions of the State Statutes,
the Bylaws, this Agreement or otherwise.
10. Repayment of Expenses.
Director shall reimburse Corporation for all
reasonable expenses paid or advanced to Director by
Corporation in defending any claim, civil or criminal
action, suit or proceeding against Director in the
event and only to the extent that it shall be
determined by the Reviewing Party that Director is not
entitled to be indemnified by Corporation for such
expenses under the provisions of the State Statutes,
the Bylaws, this Agreement or otherwise.
11. Enforcement.
(a) Corporation expressly confirms and agrees
that it has entered into this Agreement and
assumed the obligations imposed on Corporation
hereby in order to induce Director to continue as
a director of Corporation, and acknowledges that
Director is relying upon this Agreement in
continuing in such capacity.
(b) In the event Director is required to bring
any action to enforce rights or to collect moneys
due under this Agreement and is successful in
such action, Corporation shall reimburse Director
for all of Director's reasonable fees and expenses
in bringing and pursuing such action.
12. Severability.
Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the
others, so that if any provision hereof shall be held
to be valid or unenforceable for any reason, such
invalidity or unenforceability shall not affect the
validity or enforceability of the other provisions
hereof.
13. Governing Law; Binding Effect; Amendment and
Termination.
(a) This Agreement shall be interpreted and
enforced in accordance with the laws of the State
of Delaware.
(b) This Agreement shall be binding upon Director
and upon Corporation, its successors and assigns,
and shall inure to the benefit of Director, his
heirs, personal representatives and assigns and
to the benefit of Corporation, its successors and
assigns.
(c) No amendment, modification, termination or
cancellation of this Agreement shall be effective
unless in writing, signed by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on and as of the day and year first above written.
ELECTROSOURCE, INC. DIRECTOR
By: /s/ Michael G. Semmens /s/ Kamal Siddiqi
Michael G. Semmens Kamal Siddiqi
Chairman, President and CEO
Exhibit 10.6
DIRECTOR INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made this 2nd day of June, 1998, between
ELECTROSOURCE, INC., a Delaware corporation ("Corporation") and
CLIFFORD WINCKLESS ("Director").
WITNESSETH:
WHEREAS, Director is a member of the Board of Directors of
Corporation and in such capacity is performing a valuable service
for Corporation; and
WHEREAS, the Bylaws of the Corporation (the "Bylaws")
provide for the indemnification of the officers, directors,
agents and employees of Corporation; and
WHEREAS, such Bylaws and Section 145 of the Delaware General
Corporation Laws, as amended to date (the "State Statutes"),
specifically provide that they are not exclusive, and thereby
allow that contracts may be entered into between Corporation and
the members of its Board of Directors with respect to
indemnification of such directors; and
WHEREAS, in accordance with the authorization provided by
the State Statutes, Corporation has purchased and presently
maintains a policy or policies of Directors and Officers
Liability Insurance ("D&O Insurance") covering certain
liabilities which may be incurred by its directors and officers
in the performance of their services for Corporation; and
WHEREAS, recent developments with respect to the terms and
availability of D&O Insurance and with respect to the
application, amendment and enforcement of statutory and bylaw
indemnification provisions generally have raised questions
concerning the adequacy and reliability of the protection
afforded to directors thereby; and
WHEREAS, in order to resolve such questions and thereby
induce the Director to continue to serve as a member of the Board
of Directors of Corporation, Corporation has determined and
agreed to enter into this Agreement with Director.
NOW THEREFORE, in consideration of Director's continued
service as a Director after the date hereof, the parties hereto
agree as follows:
1. Indemnity of Director.
Corporation shall hold harmless and indemnify
Director to the full extent authorized or permitted by
the provisions of the State Statutes, or by any
amendment thereof or other statutory provisions
authorizing or permitting such indemnification which is
adopted after the date hereof.
2. Maintenance of Insurance and Self Insurance.
(a) Corporation represents that it presently has
in force and effect a policy of D&O Insurance with
the insurance company and in the amount as follows
(the "Insurance Policy"):
Insurer Policy No. Amount
National Union Fire Ins. Co.486-03-72$2,000,000
Subject only to the provisions of Section 2(b)
hereof, Corporation hereby agrees that, so long as
Director shall continue to serve as a director of
Corporation (or shall continue at the request of
Corporation to serve as a director, officer,
employee or agent of another corporation,
partnership, joint venture, trust or other
enterprise) and thereafter so long as Director
shall be subject to any possible claim or
threatened, pending or completed action, suit or
proceeding, whether civil, criminal or
investigative, by reason of the fact that Director
was a director of Corporation (or served in any of
said other capacities), Corporation will purchase
and maintain in effect for the benefit of Director
one or more valid, binding and enforceable policy
or policies of D&O Insurance providing, in all
respects, coverage at least comparable to that
presently provided pursuant to the Insurance
Policy.
(b) Corporation shall not be required to maintain
said policy or policies of D&O Insurance in effect
if said insurance is not reasonably available or
if, in the reasonable business judgment of the
then directors of Corporation, either (i) the
premium cost for such insurance is substantially
disproportionate to the amount of coverage; or
(ii) the coverage provided by such insurance is so
limited by exclusions that there is insufficient
benefit from such insurance.
(c) In the event Corporation does not purchase
and maintain in effect said policy or policies of
D&O Insurance pursuant to the provisions of
Section 2(b) hereof, Corporation agrees to hold
harmless and indemnify Director to the full extent
of the coverage which would otherwise have been
provided for the benefit of Director pursuant to
the Insurance Policy.
3. Additional Indemnity.
Subject only to the limitations set forth in
Section 4 hereof, and without limitation to Section 1
above, Corporation shall further hold harmless and
indemnify Director:
(a) Against any and all expenses (including
attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably
incurred by Director in connection with any
threatened, pending or completed action, suit or
proceeding, whether civil, criminal,
administrative or investigative (including an
action by or in the right of the Corporation) to
which Director is or was a party or is threatened
to be made a party by reason of the fact that
Director is, was or at any time becomes a director
of the Corporation, or is or was serving or at any
time serves at the request of the Corporation as a
director, officer, employee or agent of another
corporation, partnership, joint venture, trust or
other enterprise; and
(b) Otherwise to the fullest extent that may be
provided to Director by Corporation under the
nonexclusivity provisions of Section 10.5 of the
Bylaws of the Corporation and the State Statutes.
4. Limitations on Additional Indemnity.
No indemnity pursuant to Section 3 hereof shall be paid
by Corporation:
(a) except to the extent the aggregate of losses
to be indemnified thereunder exceeds the amount of
such losses for which the Director is indemnified
either pursuant to Sections 1 or 2 hereof or
pursuant to any D&O Insurance purchased and
maintained by the Corporation; or
(b) in respect to remuneration paid to Director
if it shall be determined by the Reviewing Party
(as defined in Section 5 below), or by a final
judgment or other final adjudication, that such
remuneration was in violation of law; or
(c) if a determination of the Reviewing Party is
made, or if a judgment is rendered against a
Director, that an accounting must be made for
profits made from the purchase or sale by Director
of securities of Corporation in violation of the
provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or
similar provisions of any federal, state or local
statutory law; or
(d) on account of Director's conduct which is
determined by the Reviewing Party, or by a final
judgment or other final adjudication, to have been
knowingly fraudulent, deliberately dishonest or of
willful misconduct; or
(e) if the Reviewing Party or a Court having
jurisdiction in the matter shall determine that
such indemnification is not lawful.
5. Reviewing Party.
"Reviewing Party" means:
(a) the Board of Directors, provided that a
majority of directors are not parties to the
claim, or
(b) special, independent counsel selected and
appointed by the Board of Directors; or
(c) special, independent counsel approved or
chosen pursuant to Section 6 below.
Any determination by the Reviewing Party shall be
conclusive and binding on Corporation and Director. If
the Reviewing Party determines that Director would not
be permitted to be indemnified in whole or in part,
Director shall have the right to commence litigation in
the State of Delaware in any court of proper
jurisdiction seeking an order or judgment by the court
equivalent to the determination of the Reviewing Party
or challenging any such determination by the Reviewing
Party or any aspect thereof.
6. Change in Control of Corporation.
If there is a change in control of Corporation (as
defined below), then with respect to all matters
thereafter arising concerning the rights of Director to
indemnity payments and expense advances under this
Agreement, or any other agreements or Bylaws now or
hereafter in effect relating to director
indemnification, Corporation shall seek legal advice
and shall retain a Reviewing Party only from special,
independent counsel selected by Director and approved
by Corporation (which approval shall not be
unreasonably withheld), and who has not otherwise
performed services for Corporation or Director. In the
event that Director and Corporation are unable to
agree on the selection of the special, independent
counsel, such special, independent counsel shall be
selected by lot from among at least five law firms
designated by Director, each of such law firms having
more than 35 attorneys and having a rating of "av" or
better in the then current Martindale-Hubbell Law
Directory. Such selection shall be made in the
presence of Director (and Director's legal counsel or
either of them, as Director may elect). Such special,
independent counsel, among other relevant appropriate
matters, shall determine whether and to what extent
Director would be permitted to be indemnified under
applicable law and shall render its written opinion to
Corporation and Director to such effect. Corporation
shall pay the reasonable fees of the special,
independent counsel and shall fully indemnify such
counsel against any and all costs and expenses arising
out of or relating to this Agreement or its engagement
pursuant hereto.
"Change in control" of Corporation shall be deemed
to have occurred if (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Act")), other
than a trustee or other fiduciary holding securities
under an employee benefit plan of Corporation, is or
becomes the "beneficial owner" (as defined in rule
13d-3 under the Act), directly or indirectly, of
securities of Corporation representing 20% or more of
the total voting power represented by Corporation's
then outstanding voting securities; (ii) during any
period of two consecutive years, individuals who at the
beginning of such period constitute the Board of
Directors of Corporation and any new director whose
election by the Board of Directors or nomination for
election by Corporation's shareholders was approved by
a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors at the
beginning of the period or whose election or nomination
for election was previously so approved, cease, for any
reason, to constitute a majority of the Board of
Directors; or (iii) the shareholders of Corporation
approve a merger or consolidation of Corporation with
any other corporation, other than a merger or
consolidation that would result in the voting
securities of Corporation outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) at least 80% of the
total voting power represented by the voting securities
of Corporation or the surviving entity, as the case may
be, or an agreement for sale or disposition by
Corporation of all or substantially all Corporation's
assets.
7. Continuation of Indemnity.
All agreements and obligations of Corporation
contained herein shall continue during the period
Director is a director of Corporation (or is or was
serving at the request of Corporation as a director,
officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise),
and shall continue thereafter so long as Director shall
be subject to any possible claim or threatened, pending
or completed action, suit or proceeding, whether,
civil, criminal or investigative, by reason of the fact
that Director was a director of Corporation or serving
in any other capacity referred to herein.
8. Notification and Defense of Claim.
Promptly after receipt by Director of notice of
the commencement of any action, claim, suit or
proceeding, Director will, if a claim in respect
thereof is to be made against Corporation under this
Agreement, notify Corporation of the commencement
thereof; but the omission so to notify Corporation will
not relieve it from any liability which it may have to
Director otherwise than under this Agreement. With
respect to any such action, suit or proceeding as to
which Director notifies Corporation of the commencement
thereof;
(a) Corporation will be entitled to participate
therein at its own expense, and;
(b) Except as otherwise provided below, to the
extent that it may wish, Corporation jointly with
any other indemnifying party similarly notified
will be entitled to assume the defense thereof,
with counsel satisfactory to Director. After
notice from Corporation to Director of its
election so to assume the defense thereof,
Corporation will not be liable to Director under
this Agreement for any legal or other expenses
subsequently incurred by Director in connection
with the defense thereof other than reasonable
costs of investigation or as otherwise provided
below. Director shall have the right to employ
counsel in such action, suite or proceeding, but
the fees and expenses of such counsel incurred
after notice from Corporation of its assumption of
the defense thereof shall be at the expense of
Director unless (i) the employment of counsel by
Director has been authorized by Corporation; (ii)
Director shall have reasonably concluded that
there may be a conflict of interest between
Corporation and Director in the conduct of the
defense of such action; or (iii) Corporation
shall not in fact have employed counsel to assume
the defense of such action, in each of which cases
the fees and expenses of counsel shall be at the
expense of Corporation. Corporation shall not be
entitled to assume the defense of any action, suit
or proceeding brought by or on behalf of
Corporation or as to which Director shall have
made the conclusion provided for in (i) above.
(c) Corporation shall not be liable to indemnify
Director under this Agreement for any amounts paid
in settlement of any action or claim effected
without its written consent. Corporation shall
not settle any action or claim in any manner which
would impose any penalty or limitation on Director
without Director's written consent. Neither
Corporation nor Director will unreasonably
withhold its consent to any proposed settlement.
9. Advancement of Expenses.
Upon the request of Director, and except as
limited by paragraph 8(b) above, Corporation shall
reimburse Director for all reasonable expenses paid by
Director in defending any claim, civil or criminal
action, suit or proceeding for which Director is
entitled to be indemnified by Corporation for such
expenses under the provisions of the State Statutes,
the Bylaws, this Agreement or otherwise.
10. Repayment of Expenses.
Director shall reimburse Corporation for all
reasonable expenses paid or advanced to Director by
Corporation in defending any claim, civil or criminal
action, suit or proceeding against Director in the
event and only to the extent that it shall be
determined by the Reviewing Party that Director is not
entitled to be indemnified by Corporation for such
expenses under the provisions of the State Statutes,
the Bylaws, this Agreement or otherwise.
11. Enforcement.
(a) Corporation expressly confirms and agrees
that it has entered into this Agreement and
assumed the obligations imposed on Corporation
hereby in order to induce Director to continue as
a director of Corporation, and acknowledges that
Director is relying upon this Agreement in
continuing in such capacity.
(b) In the event Director is required to bring
any action to enforce rights or to collect moneys
due under this Agreement and is successful in
such action, Corporation shall reimburse Director
for all of Director's reasonable fees and expenses
in bringing and pursuing such action.
12. Severability.
Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the
others, so that if any provision hereof shall be held
to be valid or unenforceable for any reason, such
invalidity or unenforceability shall not affect the
validity or enforceability of the other provisions
hereof.
13. Governing Law; Binding Effect; Amendment and
Termination.
(a) This Agreement shall be interpreted and
enforced in accordance with the laws of the State
of Delaware.
(b) This Agreement shall be binding upon Director
and upon Corporation, its successors and assigns,
and shall inure to the benefit of Director, his
heirs, personal representatives and assigns and
to the benefit of Corporation, its successors and
assigns.
(c) No amendment, modification, termination or
cancellation of this Agreement shall be effective
unless in writing, signed by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on and as of the day and year first above written.
ELECTROSOURCE, INC. DIRECTOR
By: /s/ Michael G. Semmens /c/ Clifford Winckless
Michael G. Semmens Clifford Winckless
Chairman, President and CEO
Exhibit 10.7
DIRECTOR INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made this 2nd day of June, 1998, between
ELECTROSOURCE, INC., a Delaware corporation ("Corporation") and
ROGER MUSSON ("Director").
WITNESSETH:
WHEREAS, Director is a member of the Board of Directors of
Corporation and in such capacity is performing a valuable service
for Corporation; and
WHEREAS, the Bylaws of the Corporation (the "Bylaws")
provide for the indemnification of the officers, directors,
agents and employees of Corporation; and
WHEREAS, such Bylaws and Section 145 of the Delaware General
Corporation Laws, as amended to date (the "State Statutes"),
specifically provide that they are not exclusive, and thereby
allow that contracts may be entered into between Corporation and
the members of its Board of Directors with respect to
indemnification of such directors; and
WHEREAS, in accordance with the authorization provided by
the State Statutes, Corporation has purchased and presently
maintains a policy or policies of Directors and Officers
Liability Insurance ("D&O Insurance") covering certain
liabilities which may be incurred by its directors and officers
in the performance of their services for Corporation; and
WHEREAS, recent developments with respect to the terms and
availability of D&O Insurance and with respect to the
application, amendment and enforcement of statutory and bylaw
indemnification provisions generally have raised questions
concerning the adequacy and reliability of the protection
afforded to directors thereby; and
WHEREAS, in order to resolve such questions and thereby
induce the Director to continue to serve as a member of the Board
of Directors of Corporation, Corporation has determined and
agreed to enter into this Agreement with Director.
NOW THEREFORE, in consideration of Director's continued
service as a Director after the date hereof, the parties hereto
agree as follows:
1. Indemnity of Director.
Corporation shall hold harmless and indemnify
Director to the full extent authorized or permitted by
the provisions of the State Statutes, or by any
amendment thereof or other statutory provisions
authorizing or permitting such indemnification which is
adopted after the date hereof.
2. Maintenance of Insurance and Self Insurance.
(a) Corporation represents that it presently has
in force and effect a policy of D&O Insurance with
the insurance company and in the amount as follows
(the "Insurance Policy"):
Insurer Policy No. Amount
National Union Fire Ins. Co.486-03-72$2,000,000
Subject only to the provisions of Section 2(b)
hereof, Corporation hereby agrees that, so long as
Director shall continue to serve as a director of
Corporation (or shall continue at the request of
Corporation to serve as a director, officer,
employee or agent of another corporation,
partnership, joint venture, trust or other
enterprise) and thereafter so long as Director
shall be subject to any possible claim or
threatened, pending or completed action, suit or
proceeding, whether civil, criminal or
investigative, by reason of the fact that Director
was a director of Corporation (or served in any of
said other capacities), Corporation will purchase
and maintain in effect for the benefit of Director
one or more valid, binding and enforceable policy
or policies of D&O Insurance providing, in all
respects, coverage at least comparable to that
presently provided pursuant to the Insurance
Policy.
(b) Corporation shall not be required to maintain
said policy or policies of D&O Insurance in effect
if said insurance is not reasonably available or
if, in the reasonable business judgment of the
then directors of Corporation, either (i) the
premium cost for such insurance is substantially
disproportionate to the amount of coverage; or
(ii) the coverage provided by such insurance is so
limited by exclusions that there is insufficient
benefit from such insurance.
(c) In the event Corporation does not purchase
and maintain in effect said policy or policies of
D&O Insurance pursuant to the provisions of
Section 2(b) hereof, Corporation agrees to hold
harmless and indemnify Director to the full extent
of the coverage which would otherwise have been
provided for the benefit of Director pursuant to
the Insurance Policy.
3. Additional Indemnity.
Subject only to the limitations set forth in
Section 4 hereof, and without limitation to Section 1
above, Corporation shall further hold harmless and
indemnify Director:
(a) Against any and all expenses (including
attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably
incurred by Director in connection with any
threatened, pending or completed action, suit or
proceeding, whether civil, criminal,
administrative or investigative (including an
action by or in the right of the Corporation) to
which Director is or was a party or is threatened
to be made a party by reason of the fact that
Director is, was or at any time becomes a director
of the Corporation, or is or was serving or at any
time serves at the request of the Corporation as a
director, officer, employee or agent of another
corporation, partnership, joint venture, trust or
other enterprise; and
(b) Otherwise to the fullest extent that may be
provided to Director by Corporation under the
nonexclusivity provisions of Section 10.5 of the
Bylaws of the Corporation and the State Statutes.
4. Limitations on Additional Indemnity.
No indemnity pursuant to Section 3 hereof shall be paid
by Corporation:
(a) except to the extent the aggregate of losses
to be indemnified thereunder exceeds the amount of
such losses for which the Director is indemnified
either pursuant to Sections 1 or 2 hereof or
pursuant to any D&O Insurance purchased and
maintained by the Corporation; or
(b) in respect to remuneration paid to Director
if it shall be determined by the Reviewing Party
(as defined in Section 5 below), or by a final
judgment or other final adjudication, that such
remuneration was in violation of law; or
(c) if a determination of the Reviewing Party is
made, or if a judgment is rendered against a
Director, that an accounting must be made for
profits made from the purchase or sale by Director
of securities of Corporation in violation of the
provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or
similar provisions of any federal, state or local
statutory law; or
(d) on account of Director's conduct which is
determined by the Reviewing Party, or by a final
judgment or other final adjudication, to have been
knowingly fraudulent, deliberately dishonest or of
willful misconduct; or
(e) if the Reviewing Party or a Court having
jurisdiction in the matter shall determine that
such indemnification is not lawful.
5. Reviewing Party.
"Reviewing Party" means:
(a) the Board of Directors, provided that a
majority of directors are not parties to the
claim, or
(b) special, independent counsel selected and
appointed by the Board of Directors; or
(c) special, independent counsel approved or
chosen pursuant to Section 6 below.
Any determination by the Reviewing Party shall be
conclusive and binding on Corporation and Director. If
the Reviewing Party determines that Director would not
be permitted to be indemnified in whole or in part,
Director shall have the right to commence litigation in
the State of Delaware in any court of proper
jurisdiction seeking an order or judgment by the court
equivalent to the determination of the Reviewing Party
or challenging any such determination by the Reviewing
Party or any aspect thereof.
6. Change in Control of Corporation.
If there is a change in control of Corporation (as
defined below), then with respect to all matters
thereafter arising concerning the rights of Director to
indemnity payments and expense advances under this
Agreement, or any other agreements or Bylaws now or
hereafter in effect relating to director
indemnification, Corporation shall seek legal advice
and shall retain a Reviewing Party only from special,
independent counsel selected by Director and approved
by Corporation (which approval shall not be
unreasonably withheld), and who has not otherwise
performed services for Corporation or Director. In the
event that Director and Corporation are unable to
agree on the selection of the special, independent
counsel, such special, independent counsel shall be
selected by lot from among at least five law firms
designated by Director, each of such law firms having
more than 35 attorneys and having a rating of "av" or
better in the then current Martindale-Hubbell Law
Directory. Such selection shall be made in the
presence of Director (and Director's legal counsel or
either of them, as Director may elect). Such special,
independent counsel, among other relevant appropriate
matters, shall determine whether and to what extent
Director would be permitted to be indemnified under
applicable law and shall render its written opinion to
Corporation and Director to such effect. Corporation
shall pay the reasonable fees of the special,
independent counsel and shall fully indemnify such
counsel against any and all costs and expenses arising
out of or relating to this Agreement or its engagement
pursuant hereto.
"Change in Control" of Corporation shall be deemed
to have occurred if (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Act")), other
than a trustee or other fiduciary holding securities
under an employee benefit plan of Corporation, is or
becomes the "beneficial owner" (as defined in rule 13d-
3 under the Act), directly or indirectly, of securities
of Corporation representing 20% or more of the total
voting power represented by Corporation's then
outstanding voting securities; (ii) during any period
of two consecutive years, individuals who at the
beginning of such period constitute the Board of
Directors of Corporation and any new director whose
election by the Board of Directors or nomination for
election by Corporation's shareholders was approved by
a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors at the
beginning of the period or whose election or nomination
for election was previously so approved, cease, for any
reason, to constitute a majority of the Board of
Directors; or (iii) the shareholders of Corporation
approve a merger or consolidation of Corporation with
any other corporation, other than a merger or
consolidation that would result in the voting
securities of Corporation outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) at least 80% of the
total voting power represented by the voting securities
of Corporation or the surviving entity, as the case may
be, or an agreement for sale or disposition by
Corporation of all or substantially all Corporation's
assets.
7. Continuation of Indemnity.
All agreements and obligations of Corporation
contained herein shall continue during the period
Director is a director of Corporation (or is or was
serving at the request of Corporation as a director,
officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise),
and shall continue thereafter so long as Director shall
be subject to any possible claim or threatened, pending
or completed action, suit or proceeding, whether,
civil, criminal or investigative, by reason of the fact
that Director was a director of Corporation or serving
in any other capacity referred to herein.
8. Notification and Defense of Claim.
Promptly after receipt by Director of notice of
the commencement of any action, claim, suit or
proceeding, Director will, if a claim in respect
thereof is to be made against Corporation under this
Agreement, notify Corporation of the commencement
thereof; but the omission so to notify Corporation will
not relieve it from any liability which it may have to
Director otherwise than under this Agreement. With
respect to any such action, suit or proceeding as to
which Director notifies Corporation of the commencement
thereof;
(a) Corporation will be entitled to participate
therein at its own expense, and;
(b) Except as otherwise provided below, to the
extent that it may wish, Corporation jointly with
any other indemnifying party similarly notified
will be entitled to assume the defense thereof,
with counsel satisfactory to Director. After
notice from Corporation to Director of its
election so to assume the defense thereof,
Corporation will not be liable to Director under
this Agreement for any legal or other expenses
subsequently incurred by Director in connection
with the defense thereof other than reasonable
costs of investigation or as otherwise provided
below. Director shall have the right to employ
counsel in such action, suite or proceeding, but
the fees and expenses of such counsel incurred
after notice from Corporation of its assumption of
the defense thereof shall be at the expense of
Director unless (i) the employment of counsel by
Director has been authorized by Corporation; (ii)
Director shall have reasonably concluded that
there may be a conflict of interest between
Corporation and Director in the conduct of the
defense of such action; or (iii) Corporation
shall not in fact have employed counsel to assume
the defense of such action, in each of which cases
the fees and expenses of counsel shall be at the
expense of Corporation. Corporation shall not be
entitled to assume the defense of any action, suit
or proceeding brought by or on behalf of
Corporation or as to which Director shall have
made the conclusion provided for in (i) above.
(c) Corporation shall not be liable to indemnify
Director under this Agreement for any amounts paid
in settlement of any action or claim effected
without its written consent. Corporation shall
not settle any action or claim in any manner which
would impose any penalty or limitation on Director
without Director's written consent. Neither
Corporation nor Director will unreasonably
withhold its consent to any proposed settlement.
9. Advancement of Expenses.
Upon the request of Director, and except as
limited by paragraph 8(b) above, Corporation shall
reimburse Director for all reasonable expenses paid by
Director in defending any claim, civil or criminal
action, suit or proceeding for which Director is
entitled to be indemnified by Corporation for such
expenses under the provisions of the State Statutes,
the Bylaws, this Agreement or otherwise.
10. Repayment of Expenses.
Director shall reimburse Corporation for all
reasonable expenses paid or advanced to Director by
Corporation in defending any claim, civil or criminal
action, suit or proceeding against Director in the
event and only to the extent that it shall be
determined by the Reviewing Party that Director is not
entitled to be indemnified by Corporation for such
expenses under the provisions of the State Statutes,
the Bylaws, this Agreement or otherwise.
11. Enforcement.
(a) Corporation expressly confirms and agrees
that it has entered into this Agreement and
assumed the obligations imposed on Corporation
hereby in order to induce Director to continue as
a director of Corporation, and acknowledges that
Director is relying upon this Agreement in
continuing in such capacity.
(b) In the event Director is required to bring
any action to enforce rights or to collect moneys
due under this Agreement and is successful in
such action, Corporation shall reimburse Director
for all of Director's reasonable fees and expenses
in bringing and pursuing such action.
12. Severability.
Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the
others, so that if any provision hereof shall be held
to be valid or unenforceable for any reason, such
invalidity or unenforceability shall not affect the
validity or enforceability of the other provisions
hereof.
13. Governing Law; Binding Effect; Amendment and
Termination.
(a) This Agreement shall be interpreted and
enforced in accordance with the laws of the State
of Delaware.
(b) This Agreement shall be binding upon Director
and upon Corporation, its successors and assigns,
and shall inure to the benefit of Director, his
heirs, personal representatives and assigns and
to the benefit of Corporation, its successors and
assigns.
(c) No amendment, modification, termination or
cancellation of this Agreement shall be effective
unless in writing, signed by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on and as of the day and year first above written.
ELECTROSOURCE, INC. DIRECTOR
By: /s/ Michael G. Semmens /s/ Roger Musson
Michael G. Semmens Roger Musson
Chairman, President and CEO
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