FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 executive offices) (Zip Code)
Registrant's telephone number, including area code: (512) 753-6500
Securities registered pursuant to Section 12(b) of None
the Act:
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reported 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
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 27, 1998, 4,534,531 common shares were outstanding
and the aggregate market value of the common shares held by non-
affiliates (based on the closing price of these shares of
$0.6563, as reported by NASDAQ at the close of business on March
27, 1998) was approximately $2,976,013.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference
into the indicated part or parts of this report:
Portions of the Company's Definitive Proxy Statement for the
Annual Meeting of Shareholders scheduled to be held on May 20,
1998, are incorporated by reference into Part III hereof.
PART I
Item 1. Business.
General
Electrosource, Inc. ("ELSI" or the "Company"), is an energy
storage solutions company engaged in the manufacture of advanced
lead-acid, rechargeable storage batteries and the development of
related processes and technologies. The Horizonr battery
utilizes plate grids made from a patented coextruded wire and a
special paste mixture. The Company is devoting its efforts upon
development of Horizonr battery technology for use in many
applications including hybrid power vehicles, lawn and garden
tools, electric vehicles, neighborhood electric vehicles,
electric scooters, power management and starting power.
The principal executive offices of the Company are located at
2809 Interstate 35 South, San Marcos, Texas 78666, and its
telephone number is (512) 753-6500.
Recent Financial Difficulties
As a result of the delays in development work and sales of
batteries and its inability to successfully complete a larger
debt or equity financing, in February 1998, the Company reduced
its staffing by approximately 40% to reduce costs. Management
anticipates that such cost reductions will allow the Company
additional time to explore strategic alternatives such as a
business combination, the sale of assets and/or a strategic
alliance and to attempt to increase revenues and further reduce
costs. The Company is in preliminary discussions regarding
possible transactions, but there can be no assurance of
completion. If additional financing, a business combination,
sale of assets or a strategic alliance cannot be arranged by May
1, 1998, the Company plans further significant reductions in the
work force and possible subsequent elimination or relocation of
manufacturing and other functions with the primary goal of
maintaining research and development capabilities, the corporate
legal entity and protection of the core technology. Such plans
would require additional capital. These alternative plans are
subject to a great deal of risk and uncertainty. There is no
assurance that any of these alternate plans will be successful or
that the Company will be able to continue as a going concern.
The Company anticipates that on April 1, 1998 it will be required
to give notice to cancel its facility lease effective September
30, 1998. The Company is in discussions with the lessor for a
new lease of the facility to be effective upon expiration of the
existing lease on September 30, 1998. If the Company is unable
to renegotiate or replace its lease of the facility by September
30, 1998, its ability to produce batteries would be prohibited or
greatly impaired.
The Company is currently not in compliance with the listing
requirements of NASDAQ and may become delisted unless compliance
is achieved soon or a plan of compliance is submitted by the
Company and approved by NASDAQ.
The Horizonr Battery
The Company has concentrated its efforts on the design of a new
concept of lead-acid battery employing coextruded wire in plates
oriented in the horizontal plane, as opposed to the vertical
plane orientation of conventional batteries. This battery
concept, named "Horizonr," enables design of a lead-acid battery
with significantly higher energy density than is possible with
conventional battery design. The Horizonr design may also be
more economical to manufacture than conventional batteries due to
the elimination of several steps in the manufacturing process.
Several hundred prototypes and production versions of the
Horizonr battery have been built and tested in a variety of
configurations. Testing by the Company and by third parties
indicates that various configurations of the battery meet or
exceed some of the performance goals established by major
governmental and industry groups for electric vehicle batteries.
The Company also believes the Horizon battery has a number of
applications other than electric vehicles, such as hybrid powered
vehicles, portable power tools such as lawn and garden tools,
electric power management, uninterruptible power and for
starting, lighting and ignition ("SLI") batteries for automobiles
and aircraft. The Company has designed various prototype
batteries for such applications which are currently under
evaluation by customers.
Coextrusion Technology
The Company holds an exclusive license for the development and
commercial exploitation of patented coextruded wire. Coextrusion
is a process by which one material is extruded, or forced through
a die, with uniform thickness, onto a core material passing
simultaneously through the same die. The process is capable of
extruding lead (or lead alloy) onto any material having adequate
tensile strength to pass at high speed through the pressurized
dies. The Company refers to this process as C2M technology.
Successfully coextruded core materials include fiberglass, Kevlar
and cross-linked carbon fiber yarns, aluminum, copper and
titanium wire and polypropylene, polyester, nylon and
polyethylene monofilament.
Coextruded lead wire facilitates the use in lead-acid batteries
of pure lead or extremely low concentration lead alloys, which
are difficult to cast repeatedly at the high rates required in
production. The management of the Company believes that grids
made from such wire and used in lead-acid storage batteries have
improved corrosion resistance and, therefore, longer life, or
equivalent life with reduced total material content.
Energy-Active Material Formulation
The Company has also developed a new type of energy-active
material, or paste, for use in lead-acid battery electrodes. The
Company also invented two additional paste formulations, each of
which may contribute to the reduction of battery manufacturing
cost. The Company has protected this proprietary technology as
trade secrets, and does not plan to apply for patents related to
these formulations. The Company is continuing the development of
these formulations in connection with the Horizonr battery
project, but has no current plans for separate commercialization
of the energy active material.
Battery Grid
The Company has patented the use of its coextruded wire in
electrodes for lead-acid batteries. The claims in this patent
encompass not only the present method employed by the Company of
weaving the wire into a woven mesh to form the "bigrids" but also
any non-woven methods of using the coextruded wire in lead-acid
battery electrodes.
Compression Cage
During the development stage of the Company, it was learned
through battery life testing that the plates and separators in a
sealed lead-acid battery must be kept under a constant
compression in order to achieve high cycle life. The Company
developed and patented an idea to encase the plates and
separators in a "compression cage" to comply with this
requirement.
Marketing
The worldwide market for lead-acid batteries can be classified
into the following major segments:
Starting, Lighting and Ignition. For engine starting
applications as used in aircraft, passenger cars, light and heavy
trucks, garden tractors and motorcycles.
Motive Power. For use in electric vehicles, hybrid
vehicles, industrial fork lifts, underground mining equipment,
golf carts and neighborhood electric vehicles. Such batteries
undergo daily discharging and overnight recharging.
Power Management. For use in utility emergency power,
telecommunications, uninterrupted computer and other power
supplies and cellular radio. Such batteries are typically used
as a secondary source of power.
Portable Power. Typically small, lead-acid batteries for
use in such items as portable power tools and outdoor power tool
products, as well as electrically driven medical equipment.
The Company has initiated strategic business relationships and
cooperative development agreements with companies and government
agencies in all of the above markets. Management believes that
in late 1998 some of these customers could move from test phases
to integration of Horizon technology into their commercial
products.
Competition
The lead-acid battery industry is mature, well-established and
highly competitive. The industry is characterized by a few major
domestic and foreign producers including Exide, Delphi, Johnson
Controls, Inc., GNB, Hawker and Yuasa, all of which have
substantially greater financial resources than the Company.
Accordingly, the Company's ability to succeed in this market
depends upon its ability to demonstrate superior performance and
cost attributes of its technology. The Company has historically
concentrated its activities in the electric vehicle segment of
the market with a view to demonstrating improved energy to weight
and longer battery life in comparison to traditional lead-acid
batteries. The principal competitors of the company in the
electric vehicle market (Ovonics and Saft) have directed their
efforts to other battery types, such as nickel-cadmium, nickel-
metal hydride, nickel-iron and sodium-sulfur batteries, rather
than lead-acid formulations, although at least one major
automobile manufacturer and one major battery company are known
to have research and development projects underway to develop
lead-acid batteries for electric vehicles.
Patents and Protection of Technology
Prior to May 1990, the Company held an exclusive sublicense from
Tracor, Inc. ("Tracor") under several US patents covering the
coextruded wire and the coextrusion apparatus for producing
composite wire for use only in lead-acid battery applications.
In May 1990, Tracor assigned to the Company all rights under the
original license agreement between Tracor and Blanyer-Mathews,
the inventors of the coextrusion technology. This assignment
terminated the sublicense between Tracor and the Company and
allowed the Company to apply the technology outside of the area
of lead-acid storage batteries, if any such applications are
available. The license assigned to the Company expires
concurrently with the patents, the earliest of which expires in
2004, and requires payment of annual minimum royalties to Blanyer-
Mathews of the greater of $100,000 or sales-based royalties equal
to 1/2 percent of sales for battery applications. The license
becomes non-exclusive in the event the Company defaults in its
obligation to pay the minimum royalty. The license may be
terminated by the licensor in the event that the Company
defaults in its obligation to pay sales-based royalties or enters
bankruptcy. The Company is responsible for the maintenance and
administration of the licensed patent. Under the terms of the
assignment, the Company is to pay Tracor a royalty of four
percent on all technology sales unrelated to lead-acid storage
batteries for the term of the license.
In March 1990, a patent was issued to the Company covering an
energy-active material formulation, including the processes for
manufacturing this material. In October 1990, a US patent was
issued to the Company for the Horizonr battery design.
In September 1989, a patent was issued to the Company covering
the battery grid and its producing method. In April 1995, a
patent was issued to the Company covering the battery plate
compression assembly.
The know-how relating to the Company's energy-active material
formulation, the application of coextruded wire to battery
electrodes and certain manufacturing processes are confidential
and proprietary to the Company.
Research and Development
Initial research and development programs were directed toward
understanding the behavior of the wire in lead-acid battery
electrodes in various corrosive environments. With the
development of the Horizonr C2M battery concept, the focus of
research work has been redirected toward improving the
performance of the battery in the following areas; longer cycle
life, longer shelf life, and increased specific energy. In
addition, programs are in process to reconfigure the Horizon
battery concept into a number of different applications.
Prototype models of Horizon batteries for specialized markets
(see "Marketing") continue to be built in attempts to optimize
battery electrical performance and life and to meet customer
requests for different battery configurations or performance.
The Company incurred approximately $2,500,000, $1,450,000, and
$3,455,000 in research and development costs in the years ended
December 31, 1997, 1996, and 1995, respectively, of which
approximately $1,400,000, $450,000 and $600,000 related to
customer sponsored research activities in the years ended
December 31, 1997, 1996 and 1995, respectively.
Backlog
As of December 31, 1997 and 1996, the Company has a backlog of
approximately $210,000 and $520,000, respectively, in battery
orders. Additionally, in February 1998, the Company received a
$1.4 million purchase order for batteries from Chrysler. As of
December 31, 1997, the Company has a backlog of approximately
$550,000 in project revenue.
Export Sales
During 1997 and 1996, the Company earned revenue of approximately
$1,100,000 and $208,000, respectively, from sales of Horizon
batteries and project services to foreign customers.
Customer Concentration
A significant portion of the Company's total revenue from battery
sales, project revenue and all other sources (37% and 81% in 1997
and 1996, respectively) was generated from Chrysler Corporation
("Chrysler").
Management is currently working with several customers to design
and build prototype batteries for a variety of applications and
believes that its sales to Chrysler will decrease as a percentage
of total revenue. However, loss of this customer could have an
adverse impact on operations.
Raw Materials
The basic raw materials of lead-acid batteries are lead, sulfuric
acid and plastic, each of which is readily available. The
Company has experienced no material delays in obtaining timely
delivery of these materials.
Environmental Concerns
The Company's laboratory facility and manufacturing plant
includes an enclosed area specifically for the mixing of lead-
oxide paste and the application of such paste to battery
electrodes. The air in these areas is continuously filtered to
remove lead particles. Employees operating in these areas are
instructed in the use of safety equipment such as gloves,
protective aprons, and respirators and are required under
Occupational Safety and Health Administration ("OSHA") guidelines
to submit to blood monitoring tests on a periodic basis. The
analysis of these tests are undertaken by an outside, independent
and OSHA approved laboratory and the results thereof are
communicated to the Company's employees.
The management of the Company believes that the energy-active
material developed by the Company may be safer to manufacture
than energy-active materials currently in general use due to
reductions in potential environmental hazards. The active
material paste used in conventional batteries has a consistency
similar to wet cement and must be allowed to dry for two or three
days after being impressed into the grid of a battery plate.
When dried the plates produce fine lead dust as they are
transported in a plant through the battery assembly process.
This airborne dust poses a potential health risk to workers, and
there are OSHA regulations regarding allowable levels of airborne
lead in a battery plant for which manufacturers must devote
significant resources in prevention, treatment, and compliance.
The Company's energy-active material, on the other hand, has a
consistency similar to toothpaste and contains certain binders
which minimize the generation of lead dust, thus minimizing
worker exposure to airborne lead.
As a part of the battery manufacturing process, the Company
handles and disposes of various hazardous materials such as lead
and sulfuric acid. The Company is subject to strict
environmental regulations and has incurred significant costs in
installing equipment to manage and control hazardous substances
and pollution. The Company expended $2,200, $8,000, and $385,000
in 1997, 1996, and 1995, respectively, in capital expenditures
for such equipment. As part of its on-going operations, the
Company incurred $37,000, $13,000, and $170,000 in non-capital
expenditures in 1997, 1996, and 1995, respectively, to properly
dispose of hazardous materials and waste. As a result of such
preventive measures, the Company has not incurred significant
remediation costs. The management of the Company believes that
the Company is currently in compliance with all applicable local,
state, and federal environmental rules and regulations in all
material respects with the following exceptions. On
March 20, 1998, the Company received two Letters of Violation
from the City of San Marcos; one relative to its lead discharges
in wastewater from July 1997 through December 1997 which were in
excess of the limits established in the National Categorical
Pretreatment Standards ("NCPS") set by the Environmental
Protection Agency ("EPA") and one relative to its zinc discharges
in wastewater beginning in December 1997 which were in excess of
the allowable concentration limits of the Company's permit for
zinc regulated by the City of San Marcos. The City of San Marcos
has indicated that no fines or penalties will be assessed for
these operational violations.
The NCPS compliance calculations for this facility are based on a
ratio consisting of the product of total lead contained in daily
wastewater discharge flows and total daily wastewater discharge
flows divided by daily lead usage. The absolute amount of lead
in the contained in the daily wastewater discharged by the
facility is well below its allowable limits. The Company has
consistently operated at treatment levels approximately 85% below
the maximum allowable local limits of lead emissions. The NCPS
calculations were established for traditional lead-acid battery
manufacturers which use a much larger amount of lead in the
battery manufacturing process than the Company and operate at
higher volumes. The Company is operating at relatively low
production levels. Due to the Company's relatively low lead
usage in the battery manufacturing process and its low production
volume, the calculated concentration limits in the ratio are
difficult for the Company to achieve. The Company can improve
its NCPS compliance calculation ratio by decreasing the amount of
lead contained in its daily wastewater discharge flow or
decreasing the amount of daily wastewater discharged. The
Company has developed a plan that it believes will enable it to
become compliant with the NCPS standards which involve the
recycling and reuse of water within the facility, construction of
roofing over the exterior air scrubber to divert the collection
of rain water in order to reduce the volume of water collected
and treated and other actions. The Company estimates that the
cost of such actions will be approximately $25,000. There can be
no assurance that such actions will allow the Company to become
compliant with the NCPS standards. If these actions do not allow
the Company to operate within the NCPS standards, it will be
necessary for the Company to prepare a request for variance from
the NCPS standards, which would be time-consuming and costly.
The Company does not use zinc in its manufacturing process. The
Company believes that the zinc concentrations were caused by
corrosion of metal brackets in the Company's trenching which
houses its plumbing and wastewater piping. The Company believes
that the repairs to this trenching which will allow it to become
compliant with its permit for zinc emissions will cost
approximately $25,000. There can be no assurance that the
estimated repairs to the trenching will be sufficient to allow
the Company to become compliant with the allowable zinc
concentration limits in its permit.
Other than the costs associated with these two operational
violations, management is not currently aware of any infrequent
or non-recurring clean-up expenditures to be incurred in the
future based on present circumstances and conditions.
Employees
As of March 20, 1998, the Company employed approximately 55 full-
time employees.
Item 2. Properties.
All of the Company's operations are located in an 88,000 square
foot facility located in San Marcos, Texas at 2809 Interstate 35
South. The monthly rental rate is currently $25,000 per month
and escalates over the life of the lease to $35,000 per month
until expiration in 2003. The Company believes this site is
adequate for low-rate production requirements and possesses
enough expansion capacity if the Company elects to expand
capacity at this site.
The Company's $25,000 monthly obligation for the lease of the
manufacturing facility is currently guaranteed by BDM
Technologies, Inc. (now a division of TRW, Inc.)("BDM"). The
Company has agreed to purchase the facility or otherwise remove
BDM as guarantor of the lease by no later than April 1, 1998. In
the event the Company does not purchase the facility or remove
BDM as guarantor by this date, then the Company is required to
give notice to cancel the facility lease effective September 30,
1998. Management of the Company expects that it will be required
on April 1, 1998 to give notice to cancel its facility lease
effective September 30, 1998. Management is discussing the
terms of a new lease to be effective after September 30, 1998
with the lessor of the facility with essentially the same terms
as the existing lease with the exclusion of BDM as guarantor and
the requirement for a $50,000 security deposit. However, there
is no assurance that a satisfactory arrangement can be reached
with the lessor. If the Company terminates the facility lease,
the cost of moving and reinstalling production and pollution
control equipment to a new location, which has not yet been
selected, would be significant and would prohibit or greatly
impair the Company's ability to produce batteries for an
indefinite period of time.
The Company also leases premises covering approximately 30,000
square feet at 3800-B Drossett Drive, Austin, Texas (which
formerly housed the executive offices and research facilities).
The monthly gross rental rate on the amended lease escalates over
the term of the lease from $12,000 per month to $15,500 per month
in the final year of the term. The lease expires in February
1999. The Company subleases this facility to an unrelated party.
The monthly rental of the facilities from the sublease is
approximately the same as the Company's monthly rental payments.
Management believes that all personal property used by the
Company is in good condition.
Item 3. Legal Proceedings.
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 $5.1 million 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 to which the action was removed 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. A decision on the appeal is
expected in three to six months. No liability has been recorded
in the financial statements at December 31, 1997 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.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Shareholder Matters.
Trading Market for ELSI Common Stock
The Company's Common Stock has been traded in the over-the-
counter market and reported on NASDAQ under the symbol "ELSI"
since January 1988. The following table sets forth, for the
periods indicated, the high and low bid price per share of Common
Stock as reported by NASDAQ. Prices represent inter-dealer
quotations, without adjustment for retail markup, markdown or
commission, and may not represent actual transactions. Prices
have been adjusted to retroactively reflect a one-for-ten reverse
stock split which occurred on July 22, 1996.
High Low
1996
First Quarter 17 13/16 10
Second Quarter 15 15/16 5 15/16
Third Quarter 10 5/8 4 1/2
Fourth Quarter 9 3/8 4 13/32
1997
First Quarter 8 3/8 4 5/8
Second Quarter 8 1/4 5 7/16
Third Quarter 7 1/2 5 5/8
Fourth Quarter 7 1/16 1 3/4
The transfer agent and registrar for the Common Stock of the
Company is Harris Trust Co. of New York, 88 Pine Street, 19th
Floor, New York, NY 10005.
The approximate number of record holders of Common Stock at March
20, 1998, was 3,595.
In January 1997, the Company completed a private placement of
109,397 shares of Common Stock with its executive officers and
certain other accredited investors which generated net proceeds
of $654,850. In connection with this offering, the Company
issued 616,383 warrants with a term of two years and exercise
prices ranging from $5.25 to $7.56 per share.
In April 1997, the Company issued 127,500 shares of Common Stock
to Ally Capital Corporation ("Ally") on behalf of its assignees
as prepayment for capital lease obligations owed by the Company.
The shares were valued at $867,000 based upon the quoted market
price of the stock on the date the agreement to issue the 127,500
shares was signed. The shares were sold by Ally on behalf of its
assignees, and the proceeds were used to satisfy the lease
obligations (approximately $550,000) and to exercise the option
to purchase the equipment for approximately $165,000.
Additionally, a loss of $189,316 was recorded upon the completion
of this transaction and the payment of the capital lease. Upon
payment of these lease obligations, letters of credit for
$663,220 which collateralized the lease obligations were canceled
and certificates of deposit of an equal amount that
collateralized the letters of credit were released.
In December 1997, the Company issued 299,304 shares of Common
Stock to BDM as partial payment for past obligations owed to BDM
for occupancy related costs ($314,875, which the Company has
accrued) and as prepayment under operating leases for
manufacturing equipment which are guaranteed by BDM ($452,092).
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 accept a minimum of $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 has
agreed to pay $300,000 to BDM (for the remaining unpaid occupancy
related costs which the Company has also accrued) from the
proceeds received from any fundraising activities completed by
the Company before March 31, 1998 in excess of $5,000,000. The
Company recorded the shares issued to BDM at fair market value on
the date of the agreement ($766,967) and recorded a subscription
receivable for the difference between the fair market value of
the shares and the minimum value for such shares accepted by BDM
which will be recorded as permanent equity upon final
determination of the number of shares to be issued.
In March 1997, the Company entered into a Note Purchase and
Option Agreement and a Convertible Promissory Note and Stock
Option Agreement (the "Agreements") with Corning Incorporated
("Corning") for proceeds of $4 million. The 5% Convertible Note
is for $4,000,000 ("$4 Million Note"), is unsecured and matures
on March 26, 2002. Interest is payable semi-annually in cash or
in additional notes at the option of the Company. The $4 Million Note is
convertible into Common Stock at a conversion price of $5.50 per
share. A note payable in the amount of $100,000 was issued in
September 1997 for interest for the six months then ended with
the same terms and conditions as the $4 Million Note. Under the
Agreements, the Company also granted Corning a warrant to
purchase up to 275,000 shares of Common Stock at $7.00 per share
and a warrant to purchase up to 225,000 shares of Common Stock at
$9.00 per share ("Corning Warrants"). The Corning Warrants are
exercisable until March 1999. The fair market value of the
Corning Warrants were estimated to be $1,462,500, using the Black-
Scholes option valuation model. This amount was recorded as a
discount on the note and is being amortized to interest expense
over the term of the $4 Million Note.
In December 1997, the Company issued to Corning a 5% Convertible Note for
$2,000,000 ("$2 Million Note") to be drawn as follows:
$1,000,000 on or before December 19, 1997; $500,000 on or before
January 24, 1998 and $500,000 on or before February 24, 1998.
$1,000,000 was drawn on December 19, 1997, $500,000 on January
23, 1998 and $500,000 on February 23, 1998. The $2 Million Note
is unsecured and matures on December 19, 1998. The $2 Million
Note is convertible into Convertible Preferred Stock or Common
Stock. The $2 Million Note is convertible into 200,000 shares of
the Company's 5% Cumulative Convertible Preferred Stock, which is
then convertible into Common Stock at a conversion price of $4.06
per share. The $2 Million Note is convertible directly into
Common Stock at a conversion price of $3.56 per share. In
conjunction with the issuance of the $2 Million Note, the Company
agreed to reduce the exercise price of the Corning Warrants from
$7.00 and $9.00 per share to $4.00 and $6.00 per share,
respectively. This increased the estimated fair market value of
the Corning Warrants by $128,080 using the Black-Scholes option
valuation model. This increase in value was recorded as a
discount on the note and is being amortized to interest expense
over the term of the $2 Million Note. The combined effective
interest rate of the $2 Million and $4 Million Notes is
approximately 15%. Because of the complexity of determining the
value of the conversion features of the $4 Million and $2 Million
Notes and the related cost which would be incurred to obtain an
expert valuation, the Company believes it impracticable to
determine the fair value of the $4 Million and $2 Million Notes.
The Company entered into a technical development agreement with
Corning in September 1997 to jointly improve the Company's
products, production processes and automation. The Company paid
Corning for such services by issuing 160,000 warrants which are
convertible into 160,000 shares of the Company's Common Stock at
an exercise price of $7.125 per share expiring on December 31,
2000. The Company expensed the warrants issued in 1997 at their
estimated fair value of approximately $400,000. Work under the
technical development agreement is expected to continue
throughout 1998.
All of the securities described above were issued pursuant to
exemptions from registration under Section 4(2) of the Securities
Act of 1933 and Rule 506 of Regulation D promulgated thereunder.
The securities were sold to domestic parties, all of whom were
"accredited investors," in offerings not involving public
solicitation or advertising.
Dividends and Dividend Policy
The Company has paid no dividends on its Common Stock to date and
does not anticipate, currently or in the foreseeable future,
paying dividends on the Common Stock. Further, the Company
currently has a deficit in its "surplus" account (defined as the
excess of net assets over par value of shares outstanding) which,
under Delaware corporate law, precludes any distributions to
shareholders in a given year unless the Company reports net
income in that year or the preceding year, in which case
dividends could be paid to the extent of net income for the year
in which the dividend is declared and net income for the fiscal
year immediately preceding the year of declaration. In the event
that the earnings of the Company permit payment of dividends
under Delaware law, the timing and amount of such dividends will
be determined by the Board of Directors in light of the Company's
earnings, financial condition and capital requirements.
Item 6. Selected Financial Data.
(In thousands, except per share data)
Year Ended December 31,
1997 1996 1995 1994 1993
Revenues $3,244 $3,563 $3,278 $4,614 $3,373
Net Loss $(7,833) $(7,825) $(20,508) $(8,543) $(197)
Basic (and diluted)
Loss per Share $(1.91) $(2.13) $(9.76) $6.05) $(0.29)
Dividends per Share None None None None None
As of Year Ended December 31,
1997 1996 1995 1994 1993
Working Capital (Deficit) $(1,675) $(2,845) $1,556 $2,032 $1,122
Total Assets $8,006 $9,488 $15,277 $9,318 $4,709
Shareholders' Equity $1,492 $3,847 $1,240 $(685) $3,322
Long-Term Obligations $2,949 $1,768 $11,324 $7,107 $33
See Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations for discussion of material
uncertainties which may cause the data above not to be indicative
of the Company's future financial condition or results of
operations.
The foregoing should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this report.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Disclosure Regarding Forward-Looking 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 inability to complete a business combination,
sale of assets or strategic alliance, inability to obtain
additional debt or equity 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-Q and 8-K filed with the Securities and Exchange
Commission.
Results of Operations
As a result of much lower than anticipated mandate-related sales
of lead-acid batteries in 1996, the Company refocused efforts in
1997 on relationships with customers, sales of production
batteries and continued development of prototype batteries for a
variety of electric vehicle ("EV") hybrid electric vehicle
("HEV"), lawn and garden, electric scooter, aircraft starting and
other applications in domestic and international markets driven
by consumer demand rather than by government legislation.
Strategic alliances with customers and organizations were also
sought to aid penetration of target markets and assist
financially. During late 1996 and 1997, the Company developed
cooperative development agreements with companies and government
agencies such as Black & Decker (portable power tools), Lockheed
Martin (HEVs), Fiat Auto ("Fiat" - EVs and HEVs), SMH Automobile
S. A. ("SMH" - HEVs), the Defense Advanced Project Agency
("DARPA" - EVs and HEVs), and Horizon Aircraft (aircraft
starting). Additionally, the Company entered into a strategic
business relationship with Corning Incorporated ("Corning") in
1997. The Company received $6,000,000 in funding in the form of
Convertible Notes Payable from Corning in 1997 and early 1998 and
also entered into a technical development agreement with Corning
in the third quarter of 1997 to jointly improve the Company's
products, production processes and automation. The Company
agreed to pay Corning for such services by issuing warrants to
purchase common stock at agreed upon values and exercise prices.
The Company is designing products primarily for new products in
emerging markets. Development work for new battery designs and
the integration of such designs into a complete battery pack for
new products in emerging markets has taken longer than
anticipated for a number of reasons. In some circumstances, the
Company has experienced changing requirements for the new
products for which it is designing battery packs. These new
products are being tested with new battery packs and other newly
designed components simultaneously. Such changing requirements
have contributed to the delays in completion of the programs. In
other circumstances, the Company underestimated the amount of
time and effort required to customize a battery to meet the
unique size, weight, and performance characteristics required for
different applications given the Company's limited resources. The
Company did not have the organizational structure or funding
required for numerous simultaneous research and development
programs for new products in emerging markets. Management of the
Company is attempting to develop the organizational structure and
funding required for such programs. Additionally, in order to
successfully commercialize the individual battery types, it was
necessary for the Company to focus attention on the unique
charging and performance management issues associated with each
particular battery pack and application. For instance, in
portable power tool applications, the customer stipulated that
the battery meet certain performance characteristics with a
certain type of charger which is very different than the type of
charger historically used by the Company to charge its batteries.
In EV and HEV applications, certain customers stipulated that the
Company provide a battery management system to monitor and
optimize the performance of a string of batteries in a pack.
These projects required existing and newly hired electrical
engineers and programmers of the Company to focus on designing
and building electrical components and developing related
software for each application with unique battery, packaging and
performance characteristics. The Company either did not
anticipate that these problems would need to be solved internally
or underestimated the difficulty of these projects at the time
these markets were entered given the Company's limited resources.
In most cases, it was assumed that these customers would develop
or outsource their unique chargers and battery management systems
since these systems have historically not been in the Company's
area of expertise. The successful design of a battery pack for
each application (which includes unique charging and battery
management systems) has been one of the most difficult problems
of the Company to overcome in successfully commercializing the
numerous individual batteries currently under development.
Additionally, government certification of the aircraft and
helicopter starting batteries has taken longer than expected due
to the stringent vibration and other testing required to meet
Federal Aviation Administration ("FAA") requirements necessary
for certification, which were never previously encountered by the
Company.
Sales of existing battery types did not increase as expected in
late 1997 primarily due to delays in orders from Chrysler and
Lockheed Martin for batteries to be used in emerging markets.
Chrysler had indicated in the third quarter of 1997 that it would
order batteries from the Company in order to meet 1998 government
mandates for Zero Emission Vehicles ("ZEV") in the states of New
York and Massachusetts. In December of 1997, Chrysler announced
its decision to use Nickel-Metal Hydride batteries in ZEVs for
the 1999 model year. (Chrysler did however place a $1.4 million
order with the Company in early 1998 for existing vehicles.)
Lockheed Martin has indicated that purchases of batteries have
been less than anticipated because of problems with other
suppliers of parts for their HEVs which has delayed production of
such vehicles.
As a result of the delays in development work and sales of
batteries and its inability to successfully complete a larger
debt or equity financing, in February 1998, the Company cut its
staffing by approximately 40% to reduce costs. Management
anticipates that such cost cuts will allow the Company additional
time to explore strategic alternatives such as a business
combination, the sale of assets and/or a strategic alliance and
to attempt to increase revenues and further reduce costs. The
Company is in preliminary discussions regarding possible
transactions, but there can be no assurance of completion. If
additional financing, a business combination, sale of assets or a
strategic alliance cannot be arranged by May 1, 1998, the
Company plans further significant reductions in the work force
and possible subsequent elimination or relocation of
manufacturing and other functions with the primary goal of
maintaining research and development capabilities, the corporate
legal entity and protection of the core technology. Such plans
would require additional capital. These alternative plans are
subject to a great deal of risk and uncertainty. There is no
assurance that any of these alternate plans will be successful or
that the Company will be able to continue as a going concern.
Revenue
The Company generated project revenue of approximately
$2,234,000, $295,000 and $989,000 for the years ended December
31, 1997, 1996 and 1995, respectively. During 1997,
approximately $1,500,000 of revenue was generated from SMH, DARPA
and Fiat for the development and/or evaluation of batteries and
battery packs for HEV and EV applications and $645,000 was
generated from Chrysler for various engineering, environmental
and other tests performed on the battery. Management expects
project revenue to decrease in 1998 as project agreements with
these customers to design and build prototype batteries and
battery packs are expected to be complete in mid and late 1998 at
which time orders for prototype batteries from such customers are
expected to commence; however, the timing and amount of such
revenue is uncertain. Approximately $115,000 in project revenue
in 1996 was generated from Chrysler for environmental and other
tests performed on the Horizon battery and $797,000 was generated
in 1995 for the retrofit of the Horizon battery for their EPIC
Minivan Program. The remainder of project revenue generated in
1996 was from DARPA, Fiat, Black & Decker and others which remain
confidential for the development of prototype batteries for EV,
HEV and portable power tool applications. Project revenue of
$100,000 generated during 1995 was from a program to perform a
Preliminary Design Review ("PDR") for a potential manufacturing
facility in India. This review was concluded in 1995 and work
under this program was terminated.
The Company had battery sales of approximately $915,000,
$823,000 and $1,196,000 for the years ending December 31, 1997,
1996 and 1995, respectively. Approximately 56% of the Company's
1997 battery sales and 50% of 1996 and 1995 battery sales were to
Chrysler. These purchases were for testing and evaluation of the
Horizon battery in the EPIC Minivan Program, as Chrysler has not
yet offered the electric minivan for lease or sale to the general
public. Chrysler announced its decision to use Nickel-Metal
Hydride batteries in its electric minivan for the 1999 model
year, however, it has continued to order small amounts of
batteries from the Company for further testing and evaluation.
Approximately 28% of 1997 battery sales were to Lockheed Martin
for use in HEVs and EVs which they are producing for fleet
consumers. The remainder of battery sales in all years were from
numerous customers requesting batteries for testing and
evaluation. Management expects the level of battery sales to
remain flat or slightly increase in late 1998 as the Company
fills a portion or all of its $1.4 million purchase order from
Chrysler. Releases under a purchase order from Lockheed Martin
are expected to increase in late 1998, and orders from others
testing production or prototype batteries may begin.
Additionally, management expects to receive FAA certification of
its battery designs used in the aircraft and helicopter starting
applications in late 1998 at which time sales of these batteries
are expected to commence. However, 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. Moreover, if
a business combination, sale of assets, a strategic alliance or
additional financing cannot be arranged by May 1, 1998, the
Company plans further personnel reductions and possible
subsequent elimination or relocation of manufacturing and other
operations. Additionally, on April 1, 1998, the Company expects
to be required to give notice to cancel its facility lease
effective September 30, 1998. Management is discussing the terms
of a new lease to be effective after September 30, 1998 with the
lessor of the facility with essentially the same terms as the
existing lease with the exclusion of BDM as guarantor and the
requirement for a $50,000 security deposit. If the Company is
unable to renegotiate or replace its lease of the facility before
September 30, 1998, the cost of moving and reinstalling
production and pollution control equipment to a new location
would be significant and would prohibit or greatly impair the
Company's ability to produce batteries for an indefinite period
of time, and conduct its operations. (See also Liquidity and
Capital Resources below.)
In July 1996, the Company received a $3,000,000 payment from
Chrysler. Chrysler designated $2,366,000 of this payment as
compensation for continued capacity maintenance and ramp-up costs
incurred by the Company in relation to its role as a supplier to
the automaker for its EPIC Minivan Program and $634,000 for
various engineering, research and development ("ER&D") efforts.
During 1996, the Company recorded $2,366,000 as income as all
tasks necessary to earn the income were performed and there were
no further obligations related to such revenue. The Company
recorded $634,000 as deferred revenue which was recognized as
income in 1997 as the ER&D tasks were performed.
The Company also generated $1,000,000 in 1995 in license fees
under a Distribution Agreement with Mitsui Engineering &
Shipbuilding Co., Ltd. ("MES") for the export and exclusive
distribution of the Company's Horizon battery in Japan. In 1996,
the Company completed a Termination Agreement with MES which
terminated the Distribution Agreement and settled all outstanding
financial matters with MES.
Costs and Expenses
Total costs and expenses decreased by approximately $310,000 or
3% during 1997; however the composition of the costs incurred
during 1997 was different than in 1996. Manufacturing costs
decreased by approximately $213,000 or 6% during 1997 while
battery sales increased by 10%. The decrease in such costs was
due to increases in productivity and further refinement of the
production processes. Manufacturing costs have remained high as
a percentage of battery sales primarily due to the fact that the
Company has not had the capital required to further automate the
production processes, materials are being purchased in low
volumes and the fixed facility costs of leasing and maintaining
its 88,000 square foot facility are significant. Management
expects that manufacturing costs can decrease as a percentage of
battery sales if, and when, volume production begins; however,
additional capital will be required for manufacturing tooling
required for the 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 decreased by
approximately $640,000 or 21% during 1997 primarily due to cost
savings associated the consolidation of the Company's corporate
and manufacturing facilities into one location in late 1996,
combined with cost cutting efforts. The Company subleased the
Austin facility, reducing related lease and utility costs by
approximately $250,000 annually. Costs were also reduced
significantly for travel, legal, accounting and consulting fees.
Management expects selling, general and administrative costs to
continue to decrease in 1998 based on the actions taken in
February 1998 to further reduce the work force and control costs.
Research and development costs increased by approximately
$1,040,000 or 72% in 1997 due to the significant increase in
development work associated with the custom design of numerous
batteries and battery packs for customers (SMH, Fiat, SMUD, Black
& Decker, Chrysler and another which remains confidential),
testing and evaluation of batteries (aircraft and helicopter
starting applications) and costs associated with joint research
and development efforts with Corning to improve the Company's
products, production processes and automation. The costs
associated with such development efforts have been significant.
It is anticipated that the current level of research and
development expenditures will remain relatively constant during
1998 as the work on most of these and other programs is expected
to continue for most of the year.
Technology license and royalty costs and depreciation and
amortization costs were comparable from 1997 to 1996 and are
expected to remain relatively constant during 1998.
Interest costs slightly decreased during 1997 and are expected to
increase in 1998 as the Company's debt obligations have increased
during 1997 and early 1998. The Company has issued Convertible
Notes Payable to Corning with a principal balance of $6,100,000
as of February 28, 1998 at face interest rates of 5%. The
Company is also amortizing discounts on the Convertible Notes
Payable and expects interest expense related to this amortization
of approximately $370,000 in 1998.
Total costs and expenses decreased significantly during the year
ended December 31, 1996 compared to 1995. Since sales did not
materialize as anticipated in late 1995 and into 1996, management
began a cost reduction program during 1996. Staffing was reduced
by approximately 50% during 1996. During late 1996, management
made the decision to consolidate its Austin headquarters into the
San Marcos manufacturing plant to further reduce costs. Costs
were also reduced as a result of increases in productivity.
Generally, total costs were higher in 1995 as compared to 1996,
as the Company began to purchase machinery and implement
production processes to manufacture the Horizon battery in
commercial quantities and increased the production, marketing and
administrative staffs accordingly in anticipation of the
production purchase order received from Chrysler in December
1995. During 1995, the Company also incurred significant
nonrecurring costs to replace batteries which failed to perform
as expected due to early manufacturing problems as well as
improper storage and charging of the batteries by customers.
Additionally, the Company issued 136,000 shares of unregistered,
restricted shares of Common Stock in 1995 which were valued at
$1,468,000 and charged to expense, associated with
investor/public relations services to be provided by a consulting
firm. Significant research and development expenditures were
also incurred in 1995 which resulted in technical achievements in
specific energy, power and cycle life from batteries produced on
the manufacturing line, not just laboratory prototypes. Interest
costs were higher in 1995 as well due to the incurrance in 1995
of approximately $13,000,000 in Convertible Debt financing which
generally converted within 90 days of the respective financing.
Interest costs in 1995 included $2,603,250 related to the
conversion discount from market on the Convertible Notes Payable
(generally 20-25%). The discount was amortized over the period
beginning with the issuance of the debt to the first date that
conversion could occur (generally 60 days). Interest costs of
$141,750 were recorded in 1996 for the Convertible Notes Payable
issued in 1995. There were no Convertible Notes Payable issued
in 1996.
As a part of the battery manufacturing process, the Company
handles and disposes of various hazardous materials such as lead
and sulfuric acid. The Company is subject to strict
environmental regulations and has incurred significant costs in
installing equipment to manage and control hazardous substances
and pollution. The Company expended $2,200, $8,000 and $385,000
in 1997, 1996 and 1995, respectively, in capital expenditures for
such equipment. As part of its on-going operations, the Company
incurred $37,000, $13,000, and $170,000 in non-capital
expenditures in 1997, 1996 and 1995, respectively, to properly
dispose of hazardous materials and waste. As a result of such
preventive measures, the Company has not incurred significant
remediation costs. However, on March 20, 1998, the Company
received two Letters of Violation from the City of San Marcos;
one relative to its lead discharges in wastewater from July 1997
through December 1997 which were in excess of the limits
established in the National Categorical Pretreatment Standards
("NCPS") set by the Environmental Protection Agency ("EPA") and
one relative to its zinc discharges in wastewater beginning in
December 1997 which were in excess of the allowable concentration
limits of the Company's permit for zinc regulated by the City of
San Marcos. The City of San Marcos has indicated that no fines
or penalties will be assessed for these operational violations.
The NCPS compliance calculations for this facility are based on a
ratio consisting of the product of total lead contained in daily
wastewater discharge flows and total daily wastewater discharge
flows divided by daily lead usage. The absolute amount of lead
contained in the daily wastewater discharged by the
facility is well below its allowable limits. The Company has
consistently operated at treatment levels approximately 85% below
the maximum allowable local limits of lead emissions. The NCPS
calculations were established for traditional lead-acid battery
manufacturers which use a much larger amount of lead in the
battery manufacturing process than the Company and operate at
higher volumes. The Company is operating at relatively low
production levels. Due to the Company's relatively low lead
usage in the battery manufacturing process and its low production
volume, the calculated concentration limits in the ratio are
difficult for the Company to achieve. The Company can improve
its NCPS compliance calculation ratio by decreasing the amount of
lead contained in its daily wastewater discharge flow or
decreasing the amount of daily wastewater discharged. The
Company has developed a plan that it believes will enable it to
become compliant with the NCPS standards which involve the
recycling and reuse of water within the facility, construction of
roofing over the exterior air scrubber to divert the collection
of rain water in order to reduce the volume of water collected
and treated and other actions. The Company estimates that the
cost of such actions will be approximately $25,000. There can be
no assurance that such actions will allow the Company to become
compliant with the NCPS standards. If these actions do not allow
the Company to operate within the NCPS standards, it will be
necessary for the Company to prepare a request for variance from
the NCPS standards, which would be time-consuming and costly.
The Company does not use zinc in its manufacturing process. The
Company believes that the zinc concentrations were caused by
corrosion of metal brackets in the Company's trenching which
houses its plumbing and wastewater piping. The Company believes
that the repairs to this trenching which will allow it to become
compliant with its permit for zinc emissions will cost
approximately $25,000. There can be no assurance that the
estimated repairs to the trenching will be sufficient to allow
the Company to become compliant with the allowable zinc
concentration limits in its permit.
Other than the costs associated with these two operational
violations, management is not currently aware of any infrequent
or non-recurring clean-up expenditures to be incurred in the
future based on present circumstances and conditions.
The Company has completed an assessment of its information
technology systems' readiness for the year 2000 and currently
believes that the modifications necessary for the year 2000 are
not significant. This is because the Company's information
systems are not complex and have been purchased/installed over
the last few years and the Company believes most of the related
software is year 2000 compliant or year 2000 compliant
replacements are readily available. The Company also believes
embedded software in its manufacturing production equipment is
either not year sensitive or was developed considering the impact
of the year 2000 issues. The Company will be testing its systems
for year 2000 readiness in 1998 and the project is estimated to
be complete in late 1999, prior to any estimated impact. The
Company does not expect the costs of this project to be material
or for it to have a significant effect on operations and believes
that with modifications to existing software and conversions to
new software, the year 2000 issue will not pose significant
operational problems. However, if management's assessment proves
inaccurate or if such modifications and conversions are not made
or are not completed timely, the year 2000 issue might impact the
operations of the Company.
The costs of the project and the date on which the Company
believes it will complete the year 2000 modifications are based
on management's best estimates, which were derived utilizing
numerous assumptions of future events, including the continued
availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved
and actual results could differ materially from those
anticipated. Specific factors that might cause such material
differences include, but are not limited to, the availability and
cost of personnel trained in this area, the ability to locate and
correct all relevant computer codes and similar uncertainties.
During the years ended December 31, 1997, 1996 and 1995, the
Company issued approximately 677,000, 844,000, and 1,500,000
shares of Common Stock, respectively, as a result of financing
transactions, purchases of technology and equipment, payment of
the Technology License Payable and consulting services and the
exercise of stock options. As a result of the increase in shares
for these years, the loss per share in each was less than it
would have been based on the shares outstanding at the end of the
preceding year. Management of the Company believes that the
issuance of shares in these years was necessary to fund the
increased working capital and capital expenditure requirements.
Liquidity and Capital Resources
During 1997, the Company did not generate sufficient cash flow
from operations to fund its working capital needs. As a result,
the Company sold 109,397 shares of Common Stock (combined with
616,383 warrants to purchase Common Stock at prices ranging from
$5.25 to $7.56 per share) which resulted in net proceeds to the
Company of $655,000 during the year. Additionally, in order to
reduce monthly cash expenditures for operating and capital leases
and to obtain release of restricted cash securing letters of
credit securing capital leases, the Company issued 426,804 shares
of Common Stock to settle or prepay such obligations. The
Company issued 127,500 shares of Common Stock to a lessor in
settlement of $550,000 of lease obligations and for the purchase
of $166,000 of capital equipment at which time letters of credit
for $663,220 which collateralized the lease obligations were
canceled and certificates of deposit of an equal amount that
collateralized the letters of credit were released. The Company
issued 299,304 shares of Common Stock to BDM Technologies, Inc.
(now a division of TRW, Inc.)("BDM") toward past due obligations
owed and prepayment under operating leases for certain production
equipment. During 1997, the Company borrowed $5,000,000 in the
form of 5% Convertible Notes from Corning. In January and
February 1998, the Company borrowed an additional $1,000,000 of
5% Convertible Notes from Corning. Funds generated in 1997 from
these activities were used to maintain minimum production
capabilities and to sustain operations, to design and develop
custom batteries and battery packs for several applications and
to pay for the lease and maintenance of its 88,000 square foot
manufacturing facility. Capital expenditures of approximately
$134,000 were incurred in 1997, primarily related to further
automation.
Development work has taken longer than anticipated and battery
sales have been delayed. Cash flow is not sufficient to fund
operations. Therefore, in February 1998, the Company reduced its
staffing by approximately 40% to reduce costs. Management
anticipates that such reductions in cost will allow the Company
additional time to explore strategic alternatives such as a
business combination, the sale of assets and/or a strategic
alliance and to attempt to increase revenues and further reduce
costs. The Company is in preliminary discussions regarding
possible transactions, but there is no assurance that such
transactions can be completed and if completed can generate the
funds required to sustain the Company.
Management believes that it has sufficient cash on hand and to be
received from firm orders for batteries and development work to
continue operations at current levels through May of 1998. If a
business combination, sale of assets, strategic alliance or
additional financing cannot be arranged by May 1, it will be
necessary to make further reductions in the work force, primarily
at the executive management level, which management believes
could allow the Company to operate into August of 1998. If a
significant order for batteries is not completed or a business
combination, sale of assets, strategic alliance or additional
financing cannot be arranged by the end of the second quarter of
1998, it will be necessary for the Company to make significant
reductions in the work force, and eliminate or relocate
manufacturing and/or other functions with the primary goal of
maintaining research and development capabilities, the corporate
legal entity and protection of the core technology. Such plans
would also require the Company to obtain additional capital.
These alternate plans are subject to a great deal of uncertainty
and risk. There is no assurance that such plans will be
successful or that the Company will be able to continue as a
going concern.
The Company's $25,000 monthly obligation for the lease of the
manufacturing facility is currently guaranteed by BDM. The
Company has agreed to purchase the facility or otherwise remove
BDM as guarantor of the lease by no later than April, 1, 1998.
In the event the Company does not purchase the facility or remove
BDM as guarantor by this date, then the Company is required to
give notice to cancel the facility lease effective September 30,
1998. Management of the Company expects that it will be required
on April 1, 1998 to give notice to cancel its facility lease
effective September 30, 1998. Management is discussing the terms
of a new lease to be effective after September 30, 1998 with the
lessor of the facility with essentially the same terms as the
existing lease with the exclusion of BDM as guarantor and the
requirement for a $50,000 security deposit. However, there is no
assurance that a satisfactory arrangement can be reached with the
lessor. If the Company terminates the facility lease, the cost
of moving and reinstalling production and pollution control
equipment to a new location, which has not yet been selected,
would be significant and would prohibit or greatly impair the
Company's ability to produce batteries for an indefinite period
of time, and hence impair the conduct of the Company's
operations.
In December 1997, the Company issued 299,304 shares of Common
Stock to BDM 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 accept a minimum of
$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 has agreed to pay $300,000 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. The Company's
closing market price as reported by NASDAQ on March 20, 1998 was
$0.6563. 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. There
were no significant capital commitments at December 31, 1997.
Convertible Notes Payable of $2,000,000 issued by Corning in late
1997 and early 1998 will mature on December 19, 1998. The
debentures are convertible into Convertible Preferred Stock or
Common Stock. Debentures with a principal balance at $2,000,000
are convertible into 200,000 shares of the Company's 5%
Cumulative Convertible Preferred Stock, which is then convertible
into Common Stock at $4.06 per share. The debentures are
convertible directly into Common Stock at $3.56 per share.
The Company's Common Stock is traded in the Over-the-Counter
Market and is reported on the Nasdaq Stock Marketsm ("NASDAQ").
In order to maintain listing by NASDAQ under new rules which went
into effect in February 1998, the Company must maintain a minimum
$2 million of net tangible assets (total assets, excluding
goodwill, minus total liabilities). The Company is not in
compliance with this new requirement as of December 31, 1997 and
does not expect to be in compliance without the infusion of
additional equity financing, the sale of assets, forgiveness or
conversion of debt or a business combination. The Company is in
preliminary discussions regarding possible arrangements, although
there is no assurance that such a transaction can be completed or
if completed will generate the net tangible assets required by
the new requirement. Additionally, NASDAQ requires a minimum
$1.00 per share minimum bid price to maintain listing. The
Company's closing market price as reported on NASDAQ on March 20,
1998 was $0.6563. The Company expects to be notified by NASDAQ
of its noncompliance with listing requirements. Ordinarily,
before delisting, NASDAQ would provide the Company notice and an
opportunity to present and carry out a plan for compliance with
the listing requirements. In the event that the Common Stock
were no longer traded on the NASDAQ market, brokers and dealers
effecting trades in the Common Stock would become subject to the
Securities and Exchange Commission rules covering trading in
"penny stocks." These rules generally require that such broker-
dealers make specified disclosures to customers including
information on available bid and asked prices for the stock in
question and compensation to the broker-dealer and his associates
with respect to the proposed trade, and provide periodic reports
as to the market value of a customer's position in penny stocks.
The rules also impose heightened "know your customer"
requirements that require broker-dealers to obtain information,
including personal financial information, from customers
sufficient to allow the broker-dealer to make a determination
that investment in penny stocks is suitable for the customer and
that the customer is capable of assessing the risks of such an
investment. Broker-dealers may be less willing to effect trades
in any security subject to these rules due to the additional
disclosure, record-keeping and other requirements imposed by the
rules. In addition, some potential investors in penny stocks may
be reluctant to provide the required personal financial
information to broker-dealers, which may reduce the number of
potential investors. These factors would likely further reduce
trading liquidity in the Common Stock.
If the Company is delisted from NASDAQ and is unable to obtain
significant additional orders for batteries or additional
development contracts, it will be difficult to obtain additional
funding. There can be no assurance that additional funding,
contracts or sales 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.
Other
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 $5.1 million 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 to which the action was removed 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. A decision on the appeal is
expected in three to six months. No liability has been recorded
in the financial statements at December 31, 1997 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.
Management of the Company believes that inflation does not have a
material effect on the Company's results of operations.
Item 8. Financial Statements and Supplementary Data.
See Item 14(a) for an index of the financial statements and
schedules included as a part of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of Registrant.
Information with regard to directors and executive officers and
their business experience is set forth under "ELECTION OF
DIRECTORS" in the Company's Definitive Proxy Statement for the
Annual Meeting of Stockholders to be held on May 20, 1998, and is
incorporated herein by reference.
Information with regard to the filing of reports of ownership and
changes of ownership by the Company's directors, officers, and
persons who beneficially own more than ten percent of a
registered class of the Company equity securities is set forth
under "ELECTION OF DIRECTORS - Section 16(a) Disclosure" in the
Company's Definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on May 20, 1998, and is incorporated
herein by reference.
Item 11. Executive Compensation.
Information with regard to executive compensation and pension or
similar plans is set forth under "ELECTION OF DIRECTORS -
Compensation of Executive Officers and Directors" in the
Company's Definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on May 20, 1998, and is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Information with regard to security ownership of certain
beneficial owners and management is set forth under "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" in the
Company's Definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on May 20, 1998, and is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions.
Information with regard to certain transactions is set forth
under "ELECTION OF DIRECTORS - Compensation Committee Interlocks
and Insider Participation" and "ELECTION OF DIRECTORS - Certain
Relationships and Related Transaction" in the Company's
Definitive Proxy Statement for the Annual Meeting of Stockholders
to be held on May 20, 1998, and is incorporated herein by
reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)(1) The following financial statements of the Company are included in
Item 8:
Page No.
Balance Sheets -- December 31, 1997 and 1996 F-3
Statements of Operations -- For the years ended
December 31, 1997, 1996 and 1995 F-4
Statements of Shareholders' Equity -- For the years ended
December 31, 1997, 1996 and 1995 F-5
Statements of Cash flows -- For the years ended
December 31, 1997, 1996 and 1995 F-6
Notes to Financial Statements -- December 31, 1997 F-7
(a)(2) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are included in the
notes to financial statements, not required under the related instructions
or are inapplicable, and therefore have been omitted.
(a)(3) Exhibits
3.1 Restated Certificate of Incorporation of Electrosource, Inc.
(filed as Exhibit 3.1 to Electrosource, Inc., Registration
Statement on Form 10 filed October 19, 1987, as amended by Form 8
Amendments filed January 8, 1988 and January 13, 1988 (hereinafter
referred to as "Form 10") and incorporated herein by reference).
3.2 Certificate of Designation, Preferences, Rights and Limitations of
1992 Series A Preferred Stock and Series A-1 Preferred Stock of
Electrosource, Inc. as filed of record with the Delaware Secretary
of State on January 15, 1992 (filed as Exhibit 4.1 to
Electrosource, Inc. Form 8-K Current Report for Issuers Subject to
the 1934 Act Reporting Requirements filed December 24, 1991 and
incorporated herein by reference).
3.3 Amendment to Restated Certificate of Incorporation of
Electrosource, Inc., increase in authorized shares to 50,000,000
shares (filed as Exhibit 3.1 to Electrosource, Inc., Quarterly
Report on Form 10-Q for quarter ended June 30, 1995 and
incorporated herein by reference).
3.4 Amendment to Restated Certificate of Incorporation of
Electrosource, Inc., elimination of Certificate of Designation for
Series A and Series A-1 Preferred Stock (filed as Exhibit 3.2 to
Electrosource, Inc., Quarterly Report on Form 10-Q for quarter
ended June 30, 1995 and incorporated hereby by reference).
3.5 Amendment to the Restated Certificate of Incorporation of
Electrosource filed as of July 22, 1996 (filed as Exhibit 3.1 to
Electrosource, Inc. Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996 and incorporated herein by reference).
3.6 Bylaws of Electrosource, Inc. (filed as Exhibit 3.2 to Form 10 and
incorporated herein by reference).
3.7 Amendment to Bylaws of Electrosource, Inc., pursuant to a
Certificate of Secretary dated May 25, 1990 (filed as Exhibit 3.3
to Electrosource, Inc., Annual Report on Form 10-K for the period
ended December 31, 1991 and incorporated herein by reference).
3.8 Amendment to Bylaws of Electrosource, Inc. dated November 3, 1993
(filed as Exhibit 3.5 to Electrosource, Inc., Annual Report on
Form 10-K for the period ended December 31, 1993 and incorporated
herein by reference).
3.9 Amendment to Bylaws of Electrosource, Inc. dated June 23, 1994
(filed as Exhibit 3.6 to Electrosource, Inc. Annual Report filed
on Form 10-K for the period ended December 31, 1994 and
incorporated herein by reference).
3.10 Amendment to Bylaws of Electrosource, Inc. dated November 13, 1996
(filed as Exhibit 3.10 to Electrosource, Inc. Annual Report filed
on Form 10-K for the period ended December 31, 1996 and
incorporated herein by reference).
4.1 Warrant to purchase up to 5,424 shares of Electrosource, Inc.
Common Stock issued to Rosehouse Ltd., a Bermuda-based
institutional buyer, dated April 5, 1995 (filed as an Exhibit to
Electrosource, Inc. Current Report on Form 8-K filed April 12,
1995 and incorporated herein by reference).
4.2 Warrant to purchase up to 5,000 shares of Electrosource, Inc.
Common Stock issued to Ally Capital Management, Inc. on April 17,
1995 (filed as Exhibit 4.1 to Electrosource, Inc. Quarterly Report
on Form 10-Q for the quarter ended June 30, 1995 and incorporated
herein by reference).
4.3 Warrant to purchase up to 25,000 shares of Electrosource, Inc.,
Common Stock, issued to Rosehouse Ltd., a Bermuda-based
institutional buyer, dated July 27, 1995 (filed as Exhibit 4.4 to
Electrosource, Inc. Quarterly Report on Form 10-Q for quarter
ended June 30, 1995 and incorporated herein by reference).
4.4 Warrant to purchase up to 100,000 shares of Electrosource, Inc.,
Common Stock, issued to ACM Advisors, Zurich, Switzerland, dated
July 27, 1995 (filed as Exhibit 4.5 to Electrosource, Inc.,
Quarterly Report of Form 10-Q for quarter ended June 30, 1995 and
incorporated herein by reference).
4.5 Warrant to purchase up to 100,000 shares of Electrosource, Inc.,
Common Stock, issued to ACM Advisors, Zurich, Switzerland, dated
July 27, 1995 (filed as Exhibit 4.6 to Electrosource, Inc.,
Quarterly Report on Form 10-Q for quarter ended June 30, 1995 and
incorporated herein by reference).
4.6 1987 Stock Option Plan of Electrosource, Inc. (filed as Annex A,
pages 44 to 48 of Company's Information Statement filed October
16, 1987 and incorporated herein by reference).
4.7 Amendment No. 1 to 1987 Stock Option Plan of Electrosource, Inc.
dated February 19, 1992 (filed as Exhibit 4.3 to Company's
Registration Statement [No. 33-49049] on Form S-8 filed June 30,
1992 and incorporated herein by reference).
4.8 Amendment No. 2 to 1987 Stock Option Plan of Electrosource, Inc.
(filed as Exhibit 10.36 to Electrosource, Inc., Annual Report on
Form 10-K for the period ended December 31, 1992 and incorporated
herein by reference).
4.9 1988 Non-Employee Director Option Plan of Electrosource, Inc.
(filed as Exhibit 4.2 to Company's Registration Statement [No. 33-
22223] on Form S-8 filed June 7, 1988 and incorporated herein by
reference).
4.10 Amendment No. 1 to 1988 Non-Employee Director Stock Option Plan
(filed as Exhibit 4.3 to Company's Registration Statement [No. 33-
35856] on Form S-8 filed July 12, 1990 and incorporated herein by
reference).
4.11 Amendment No. 2 to 1988 Non-Employee Director Stock Option Plan
(filed as Exhibit 4.4 to Company's Registration Statement [No. 33-
49042] on Form S-8 filed June 30, 1992 and incorporated herein by
reference).
4.12 Amendment No. 3 to 1988 Non-Employee Director Stock Option Plan
(filed as Exhibit 4.4 to Electrosource, Inc. Registration
Statement [No. 33-64108] on Form S-8 filed June 9, 1993 and
incorporated herein by reference).
4.13 1993 Non-Employee Consultant Stock Option Plan for Electrosource,
Inc. (filed as Exhibit 4.2 to Registration Statement [No. 33-
65386] on Form S-8 and incorporated herein by reference).
4.14 1994 Stock Option Plan of Electrosource, Inc. (filed as Exhibit
10.4 to Electrosource, Inc. Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995 and incorporated herein by reference).
4.15 1996 Stock Option Plan for Electrosource, Inc. (filed as Exhibit
4.2 to Registration Statement [No. 333-31101] on Form S-8 and
incorporated herein by reference).
4.16 Warrant (Stock Option Agreement No. W12-101) to purchase up to
20,000 shares of Electrosource, Inc., Common Stock, issued to
Corning Incorporated dated December 31, 1997 for payment of that
certain Project Annex dated October 20, 1997.
4.17 Warrant (Stock Option Agreement No. W12-102A) to purchase up to
70,000 shares of Electrosource, Inc., Common Stock, issued to
Corning Incorporated dated December 31, 1997 for payment on that
certain Project Annex dated October 20, 1997.
4.18 Warrant (Stock Option Agreement No. W12-103A) to purchase up to
70,000 shares of Electrosource, Inc., Common Stock, issued to
Corning Incorporated dated December 31, 1997 for payment on that
certain Project Annex dated October 20, 1997.
10.1 Sublicense Agreement dated as of October 5, 1987 between
Electrosource, Inc. and Tracor, Inc. (filed as Exhibit 10.4 to
Form 10 and incorporated herein by reference).
10.2 Patent and Technology Exclusive License Agreement dated August 14,
1984 between Tracor, Inc. and Blanyer-Mathews Associates, Inc.
("BMA") (filed as Exhibit 10.9 to Registration Statement [No 33-
30486] on Form S-1 filed August 14, 1989 hereinafter referred to
as "Form S-1" and incorporated herein by reference).
10.3 Amendment to Patent and Technology Exclusive License Agreement
dated May 29, 1987 between Tracor, Inc. and BMA (filed as Exhibit
10.10 to Form S-1 and incorporated herein by reference).
10.4 Bonus Royalty Agreement dated May 26, 1989 among Electrosource,
Inc., Tracor, Inc., and BMA (filed as Exhibit 19 to Electrosource,
Inc. Quarterly Report on Form 10-Q for the quarter ended June 30,
1989 and incorporated herein by reference).
10.5 Amendment to Bonus Royalty Agreement entered into as of November
30, 1989 by and among BMA, Tracor, Inc. and Electrosource, Inc.
(filed as Exhibit 10.17 to Post Effective Amendment No. 1 to Form
S-1 Registration Statement [No. 33-34581] filed December 11, 1989
hereinafter referred to as "Post-Effective Amendment" and
incorporated herein by reference).
10.6 Assignment of Patent License dated as of May 14, 1990 by and
between Electrosource, Inc. and Tracor, Inc. (joined by BMA for
limited purposes described therein) (filed as Exhibit 10.20 to the
Company's Annual Report on Form 10-K for the period ended December
31, 1990 hereinafter referred to as the "1990 Form 10-K" and
incorporated herein by reference).
10.7 Letter Agreement dated as of January 15, 1991 between
Electrosource, Inc. and BMA (filed as Exhibit 10.21 to the
Company's 1990 Form 10-K and incorporated herein by reference).
10.8 License Modification Agreement dated January 16, 1992 between
Blanyer Mathews & Associates, Inc., Electrosource, Inc. and
Battery Horizons, Ltd. (filed as Exhibit 10.23 to Electrosource,
Inc. Annual Report on Form 10-K for the period ended December 31,
1991 and incorporated herein by reference).
10.9 First Amendment to Assignment of Patent License dated April 2,
1992 between Electrosource, Inc. and Tracor, Inc. (filed as
Exhibit 10.58 to Company's Registration Statement [No. 33-65248]
on Form S-1 filed June 30, 1993 and incorporated herein by
reference).
10.10 Lease Agreement between Aetna Life Insurance Company and
Electrosource, Inc. dated February 22, 1992 (filed as Exhibit
10.25 to Electrosource, Inc. Annual Report on Form 10-K for the
period ended December 31, 1991 and incorporated herein by
reference).
10.11 First Amendment to Lease Agreement between Aetna Life Insurance
Company and Electrosource, Inc. dated February 24, 1993 (filed as
Exhibit 10.27 to Electrosource, Inc. Annual Report on Form 10-K
for the period ended December 31, 1992 and incorporated herein by
reference).
10.12 Second Amendment to Lease Agreement between Aetna Life Insurance
Company and Electrosource, Inc. dated March 1, 1996 (filed as
Exhibit 10.14 to Electrosource, Inc. Annual Report on Form 10-K
for the period ended December 31, 1995 and incorporated herein by
reference).
10.13 Sublease Agreement between Electrosource, Inc. and Merit Printing,
Inc. dated February 24 1997.
10.14 Lease Agreement between William D. McMorris and Horizon Battery
Technologies, Inc. dated August 17, 1993 (filed as Exhibit 10.42
to Electrosource Inc. Annual Report on Form 10-K for the period
ended December 31, 1994 and incorporated herein by reference).
10.15 Amendment to Business Alliance and License Agreement dated
November 1, 1995 between Electric Power Research Institute and
Electrosource, Inc. (filed as Exhibit 10.2 to Electrosource, Inc.
Quarterly Report on Form 10-Q for the quarter ended September 30,
1995 and incorporated herein by reference).
10.16 Stock Purchase Agreement together with the Asset and Technology
License Agreement dated January 31, 1995 between BDM Technologies,
Inc. and Electrosource, Inc. (filed as Exhibit 10.46 to
Electrosource, Inc. Annual Report on Form 10-K for the period
ended December 31, 1994 and incorporated herein by reference).
10.17 First Amendment to Asset and Technology License Agreement between
BDM International, Inc. and Electrosource, Inc. dated December 18,
1997.
10.18 Termination Agreement between Electrosource, Inc. and Mitsui
Engineering and Shipbuilding Co., Ltd. dated March 6, 1996 (filed
as Exhibit 10.36 to Electrosource, Inc. Annual Report on Form 10-K
for the period ended December 31, 1995 and incorporated herein by
reference).
10.19 Purchase Agreement between Quantum Energy Systems and Technology
LLC and Electrosource, Inc., dated November 14, 1994, (filed as
Exhibit 10.44 to Electrosource, Inc., Annual Report on Form 10-K
for the period ended December 31, 1994 and incorporated herein by
reference).
10.20 Equipment Lease Agreement dated September 7, 1995, between Salem
Capital Corporation and Electrosource, Inc. (filed as Exhibit
10.65 to Electrosource, Inc. Annual Report on Form 10-K for the
period ending December 31, 1995 and incorporated herein by
reference).
10.21 Development Agreement and Agreement for Purchase of Machinery and
Supplies between Electrosource, Inc., and Charles L. Mathews
("Contractor") dated November 1, 1995 (filed as Exhibit 10.68 to
Electrosource, Inc. Annual Report on Form 10-K for the period
ending December 31, 1995 and incorporated herein by reference).
10.22 Purchase Order between Chrysler Corporation and Electrosource,
Inc. dated January 9, 1996 (filed as Exhibit 10.69 to
Electrosource, Inc. Annual Report on Form 10-K for the period
ending December 31, 1995 and incorporated herein by reference).
10.23 Agreement for Aircraft Starting Battery Distribution between
Electrosource, Inc. and Horizon Aviation, Inc. dated February 13,
1996 (filed as Exhibit 10.70 to Electrosource, Inc. Annual Report
on Form 10-K for the period ending December 31, 1995 and
incorporated herein by reference).
10.24 Joint Development Agreement between Electrosource, Inc. and Black
& Decker (U.S.), Inc. dated March 8, 1996 (filed as Exhibit 10.71
to Electrosource, Inc. Annual Report on Form 10-K for the period
ending December 31, 1995 and incorporated herein by reference).
10.25 Memorandum of Understanding between Electrosource, Inc. and
Lockheed Martin Corporation dated March 15, 1996 (filed as Exhibit
10.1 to Electrosource, Inc. Quarterly Report on Form 10-Q for
quarter ended March 31, 1996 and incorporated herein by
reference).
10.26 Letter of Agreement between Electrosource, Inc. and Ally Capital
Corporated dated December 18, 1996 (filed as Exhibit 4.9 to
Electrosource, Inc. Registration Statement [No. 333-20103] Form S-
3 Amendment No. 1 on April 18, 1997 and incorporated herein by
reference).
10.27 Amendment dated January 20, 1997 to Letter of Agreement between
Electrosource, Inc. and Ally Capital Corporation dated December
18, 1996 (filed as Exhibit 4.10 to Electrosource, Inc.
Registration Statement [No. 333-20103] Form S-3 Amendment No. 1 on
April 18, 1997 and incorporated herein by reference).
10.28 Amendment dated April 10, 1997 to Letter Agreement between
Electrosource, Inc. and Ally Capital Corporation dated December
18, 1996 (filed as Exhibit 4.11 to Electrosource, Inc.
Registration Statement [No. 333-20103] Form S-3 Amendment No. 1 on
April 18, 1997 and incorporated herein by reference).
10.29 Subscription Agreements between participants and Electrosource,
Inc. dated January 23, 1997 (filed as Exhibit 4.9 to
Electrosource, Inc. Registration Statement [No. 333-25659] Form S-
3 on April 23, 1997 and incorporated herein by reference).
10.30 Note Purchase and Option Agreement for $4 million dated March 27,
1997 between Electrosource, Inc. and Corning Incorporated (filed
as Exhibit 4.1 to Electrosource, Inc. Quarterly Report on Form 10-
Q for quarter ended March 31, 1997 and incorporated herein by
reference).
10.31 5% Convertible Promissory Note for $100,000 dated September 27,
1997 between Electrosource, Inc. and Corning Incorporated for
payment of interest due on the Note Purchase and Option Agreement
dated March 27, 1997.
10.32 5% Convertible Promissory Note for $102,500 dated March 27, 1998
between Electrosource, Inc. and Corning Incorporated for payment
of interest due on the Note Purchase and Option Agreement dated
March 27, 1997 and Promissory Note dated September 27, 1997.
10.33 Amendment No. 1 dated December 22, 1997 to Stock Option Agreement
dated March 27, 1997 between Corning Incorporated and
Electrosource, Inc.
10.34 Research and Development Umbrella Agreement dated July 1, 1997
between Corning Incorporated and Electrosource, Inc.
10.35 Project Annex dated October 20, 1997 to the Development Umbrella
Agreement dated as of July 1, 1997 by and between Corning
Incorporated and Electrosource, Inc., being further defined in
Exhibit 1, Project Proposal, Physical and Chemical Description of
Battery Electrode "Moss."
10.36 Project Annex dated October 20, 1997 to the Development Umbrella
Agreement dated as of July 1, 1997 by and between Corning
Incorporated and Electrosource, Inc., being further defined in
Exhibit 1, Project Proposal, Engineering Resources.
10.37 Project Annex dated October 20, 1997 to the Development Umbrella
Agreement dated as of July 1, 1997 by and between Corning
Incorporated and Electrosource, Inc., being further defined in
Exhibit 1, Project Proposal, Characterization of Electrode
Materials and Collector Grid Materials.
10.38 Severance Agreement between officers/key employees and
Electrosource, Inc. dated August 25, 1997.
10.39 Note Purchase Agreement for $2 million dated December 19, 1997
between Electrosource, Inc. and Corning Incorporated
10.40 Purchase Order for Horizon Batteries Pack Development Program
between Fiat Auto and Electrosource, Inc. dated September 30,
1996.
10.41 Frame-Development Contract dated March 14, 1997 between SMH
Automobile S.A. and Electrosource, Inc.
10.42 Summary Contract Amendment Terms dated November 12, 1997 for Frame-
Development Contract dated March 14, 1997 between SMH Automobile
S.A. and Electrosource, Inc.
The following exhibits filed under Paragraph 10 of Item 601 are the
Company's compensation plans and arrangements:
10.43 Form of Director Indemnification Agreement (filed as Exhibit 10.8
to Electrosource, Inc., Annual Report on Form 10-K for the period
ended December 31, 1987 and incorporated herein by reference).
10.44 Director Indemnification Agreement dated January 16, 1992 between
Electrosource, Inc. and Charles Mathews (filed as Exhibit 10.26 to
Electrosource, Inc. Annual Report on Form 10-K for the period
ended December 31, 1991 and incorporated herein by reference).
10.45 Director Indemnification Agreement dated November 4, 1992, between
Electrosource, Inc. and Thomas S. Wilson (filed as Exhibit 10.41
to Electrosource, Inc. Annual Report on Form 10-K for the period
ended December 31, 1992 and incorporated herein by reference).
10.46 Director Indemnification Agreement dated September 1, 1993 between
Electrosource, Inc. and Dr. Norman Hackerman (filed as Exhibit
10.57 to Electrosource, Inc. Annual Report on Form 10-K for the
period ended December 31, 1993 and incorporated herein by
reference).
10.47 Director Indemnification Agreement dated June 23, 1994 between
Electrosource, Inc. and Michael G. Semmens (filed as Exhibit 10.72
to Electrosource, Inc. Annual Report on Form 10-K for the period
ended December 31, 1994 and incorporated herein by reference).
10.48 Director Indemnification Agreement dated November 2, 1994 between
Electrosource, Inc. and Richard S. Williamson (filed as Exhibit
10.73 to Electrosource, Inc. Annual Report on Form 10-K for the
period ended December 31, 1994 and incorporated herein by
reference).
10.49 Director Indemnification Agreement dated June 22, 1995 between
Electrosource, Inc. and Nathan Morton (filed as Exhibit 10.2 to
Electrosource, Inc. Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995 and incorporated herein by reference).
10.50 Director Indemnification Agreement dated June 22, 1995 between
Electrosource, Inc. and William R. Graham (filed as Exhibit 10.1
to Electrosource, Inc. Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995 and incorporated herein by reference).
10.51 Director Indemnification Agreement dated March 3, 1997 between
Electrosource, Inc. and Richard E. Balzhiser.
10.52 Director Indemnification Agreement dated August 26, 1997 between
Electrosource, Inc. and Earl E. Gjelde.
10.53 1987 Stock Option Plan of Electrosource, Inc. (filed as Annex A,
pages 44 to 48 of Electrosource, Inc. Information Statement filed
October 16, 1987 and incorporated herein by reference).
10.54 Amendment No. 1 to 1987 Stock Option Plan of Electrosource, Inc.
dated February 19, 1992 (filed as Exhibit 4.3 to Electrosource,
Inc. Registration Statement [No. 33-49049] on Form S-8 filed June
30, 1992 and incorporated herein by reference).
10.55 Amendment No. 2 to 1987 Stock Option Plan of Electrosource, Inc.
(filed as Exhibit 10.36 to Electrosource, Inc. Annual Report on
Form 10-K for the period ended December 31, 1992 and incorporated
herein by reference).
10.56 1988 Non-Employee Director Option Plan of Electrosource, Inc.
(filed as Exhibit 4.2 to Electrosource, Inc. Registration
Statement [No. 33-22223] on Form S-8 filed June 7, 1988 and
incorporated herein by reference).
10.57 Amendment No. 1 to 1988 Non-Employee Director Stock Option Plan
(filed as Exhibit 4.3 to Electrosource, Inc. Registration
Statement [No. 33-35856] on Form S-8 filed July 12, 1990 and
incorporated herein by reference).
10.58 Amendment No. 2 to 1988 Non-Employee Director Stock Option Plan
(filed as Exhibit 4.4 to Electrosource, Inc. Registration
Statement [No. 33-49042] on Form S-8 filed June 30, 1992 and
incorporated herein by reference).
10.59 Amendment No. 3 to 1988 Non-Employee Director Stock Option Plan
(filed as Exhibit 4.4 to Electrosource, Inc. Registration
Statement [No. 33-64108] on Form S-8 filed June 9, 1993 and
incorporated herein by reference).
10.60 1993 Non-Employee Consultant Stock Option Plan for Electrosource,
Inc. (filed as Exhibit 4.2 to Electrosource, Inc. Registration
Statement [No. 33-65386] on Form S-8 filed June 30, 1993 and
incorporated herein by reference).
10.61 1994 Stock Option Plan of Electrosource, Inc. (filed as Exhibit
10.4 to Electrosource, Inc. Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995 and incorporated herein by reference).
10.62 1996 Stock Option Plan for Electrosource, Inc. (filed as Exhibit
4.2 to Registration Statement [No. 333-31101] on Form S-8 and
incorporated herein by reference).
10.63 Consulting Agreement dated March 4, 1995 between Beacon Advisors,
Inc. (Langhorne Reid, III) and Electrosource, Inc. (as filed
Exhibit 10.117 to Electrosource, Inc. Annual Report on Form 10-K
for the period ended December 31, 1995 and incorporated herein by
reference).
10.64 Consulting Agreement dated January 1, 1996 between Jack J. Guy and
Electrosource, Inc. (as filed Exhibit 10.118 to Electrosource,
Inc. Annual Report on Form 10-K for the period ended December 31,
1995 and incorporated herein by reference).
24.1 Consent of Ernst & Young LLP
27. Financial Data Schedule
(b) Reports on Form 8-K.
Reports on Form 8-K filed during the quarter ended December 31,
1997 were:
December 23, 1997, Announcement of $2,000,000 Note
Purchase Agreement with Corning Incorporated.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ELECTROSOURCE, INC.
By: /s/ Michael G. Semmens
Michael G. Semmens, President
Date: March 30, 1998
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Signature Title Date
/s/ Michael G. Semmens Chairman, President and March 30, 1998
Michael G. Semmens Chief Executive Officer
Director March __, 1998
Richard E. Balzhiser
/s/ Earl E. Gjelde Director March 20, 1998
Earl E. Gjelde
/s/ William R. Graham Director March 23, 1998
William R. Graham
/s/ Norman Hackerman Director March 24, 1998
Norman Hackerman
/s/ Charles L. Mathews Director March 19, 1998
Charles L. Mathews
/s/ Nathan P. Morton Director March 30, 1998
Nathan P. Morton
/s/ Richard S. Williamson Director March 23, 1998
Richard S. Williamson
/s/ Thomas S. Wilson Director March 23, 1998
Thomas S. Wilson
/s/ James M. Rosel Vice President Finance March 30, 1998
James M. Rosel and General Counsel
(Chief Financial Officer)
/s/ Mary Beth Koenig Treasurer and Controller March 30, 1998
Mary Beth Koenig (Principal Accounting Officer)
ELECTROSOURCE, INC.
Audited Financial Statements
December 31, 1997
Audited Financial Statements
Report of Independent Auditors F-2
Balance Sheets F-3
Statements of Operations F-4
Statements of Shareholders' Equity F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Electrosource, Inc.
We have audited the accompanying balance sheets of Electrosource,
Inc., as of December 31, 1997 and 1996, and the related statements
of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
Electrosource, Inc. at December 31, 1997 and 1996, and the results
of its operations and its cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As more fully
described in Note P, the Company has incurred recurring operating
losses and revenues have not resulted in sufficient cash flow to
sustain operations. Management's plans in regard to these matters
are also described in Note P. These conditions raise substantial
doubt about the Company's ability to continue as a going concern.
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 outcome of this uncertainty.
/s/ Ernst & Young LLP
Austin, Texas
February 28, 1998, except for Note P,
as to which the date is March 20, 1998
ELECTROSOURCE, INC.
Balance Sheets
<TABLE>
December 31
1997 1996
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 782,918 $ 367,861
Trade receivables (net of allowance for doubtful accounts
of $0 in 1997 and $15,599 in 1996) 408,230 247,631
Inventories 322,289 249,235
Prepaid expenses and other assets 376,757 164,319
TOTAL CURRENT ASSETS 1,890,194 1,029,046
PROPERTY AND EQUIPMENT, Net 4,164,459 4,787,019
INTANGIBLE ASSETS
Technology license agreement 3,048,674 3,048,674
Purchased technology 2,412,886 2,412,886
Less: accumulated amortization (3,600,213) (2,607,093)
NET INTANGIBLE ASSETS 1,861,347 2,854,467
RESTRICTED CASH 81,604 744,824
OTHER ASSETS 8,500 72,950
TOTAL ASSETS $8,006,104 $9,488,306
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 518,808 $ 704,841
Accrued liabilities 1,668,718 1,103,751
Deferred revenue and advance payments on batteries 432,599 1,157,028
Current portion of capital lease obligations 72,685 658,226
Convertible notes payable 871,920 250,000
TOTAL CURRENT LIABILITIES 3,564,730 3,873,846
CONVERTIBLE NOTES PAYABLE (less current portion) 2,800,554 _
TECHNOLOGY LICENSE PAYABLE _ 1,248,684
CAPITAL LEASE OBLIGATIONS (less current portion) 148,518 519,047
COMMITMENTS AND CONTINGENCIES (Notes I, J and P)
SHAREHOLDERS' EQUITY
Common Stock, par value $1.00 per share,
authorized 50,000,000 shares; issued and outstanding
4,534,531 in 1997 and 3,857,912 in 1996 4,534,531 3,857,912
Preferred Stock, par value $1.00 per share; authorized
10,000,000 shares, no shares issued or outstanding _ _
Common Stock subscription receivable (467,663) _
Warrants (Note K) _ _
Paid in capital 51,146,508 45,876,668
Accumulated deficit (53,721,074) (45,887,851)
1,492,302 3,846,729
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $8,006,104 $9,488,306
See notes to financial statements.
</TABLE>
ELECTROSOURCE, INC.
Statements of Operations
<TABLE>
For the years ended December 31,
1997 1996 1995
REVENUES
<S> <C> <C> <C>
Battery sales $ 914,901 $ 822,698 $ 1,195,597
Project revenue 2,233,923 295,015 989,433
Capacity maintenance revenue _ 2,365,535 _
Interest income 94,849 79,263 93,354
License fees _ _ 1,000,000
3,243,673 3,562,511 3,278,384
COSTS AND EXPENSES
Manufacturing 3,448,677 3,661,320 9,365,660
Selling, general and administrative 2,468,778 3,108,909 6,329,776
Research and development 2,490,677 1,450,658 3,454,578
Technology license and royalties 110,000 111,271 110,000
Depreciation and amortization 1,915,942 2,042,007 1,167,461
Interest expense 453,506 487,717 3,238,954
Loss on payment of capital lease 189,316 _ _
Loss on disposal of equipment _ 525,497 _
11,076,896 11,387,379 23,666,429
LOSS BEFORE INCOME TAXES (7,833,223) (7,824,868) (20,388,045)
INCOME TAXES (ALL FOREIGN) _ _ 120,000
NET LOSS $(7,833,223) $(7,824,868) $(20,508,045)
BASIC (AND DILUTED) LOSS PER SHARE $ (1.91) $ (2.13) $ (9.76)
AVERAGE SHARES OUTSTANDING 4,106,695 3,667,776 2,102,295
See notes to financial statements.
</TABLE>
ELECTROSOURCE, INC.
Statements of Shareholders' Equity
<TABLE>
Common
Stock Total
Common Paid In Subscripti Accumulated Shareholder
Stock Capital ons Deficit s'
Receivable Equity
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $1,513,446 $15,356,043 $ _ $(17,554,938) $ (685,449)
Shares issued in Regulation S offerings 372,164 4,987,836 _ _ 5,360,000
Shares issued for Technology License 66,666 1,026,664 _ _ 1,093,330
Stock options exercised 11,950 131,595 _ _ 143,545
Conversion of Convertible Notes Payable 617,123 7,266,104 _ _ 7,883,227
Shares issued for consulting services 136,000 1,332,800 _ _ 1,468,800
Shares issued in Regulation D offering 80,633 806,333 _ _ 886,966
Shares issued for equipment and
purchased technology 215,800 2,778,425 _ _ 2,994,225
Adjustment for conversion discount
on Convertible Notes Payable _ 2,603,250 _ _ 2,603,250
Net loss for year ended December 31, 1995 _ _ _ (20,508,045) (20,508,045
)
Balance at December 31, 1995 3,013,782 36,289,050 _ (38,062,983) 1,239,849
Shares issued in Regulation S offerings 292,084 2,254,908 _ _ 2,546,992
Conversion of Convertible Notes Payable 484,828 6,176,048 _ _ 6,660,876
Conversion discount on
Convertible Notes Payable _ 141,750 _ _ 141,750
Reverse Split - Fractional Shares
(One-for-Ten) 1,353 (1,353) _ _ _
Shares issued for Technology License 56,665 872,665 _ _ 929,330
Shares issued for consulting services 6,000 58,800 _ _ 64,800
Shares issued for equipment 3,200 14,800 _ _ 18,000
Stock options issued for
consulting services _ 70,000 _ _ 70,000
Net loss for year ended December 31, 1996 _ _ _ (7,824,868) (7,824,868)
Balance at December 31, 1996 $3,857,912 $45,876,668 _ $(45,887,851) $3,846,729
Shares issued in Regulation D offering 109,397 545,453 _ _ 654,850
Shares issued for Technology License 76,668 1,172,016 _ _ 1,248,684
Shares issued for capital lease
obligations and equipment purchases 127,500 708,945 _ _ 836,445
Shares issued for operating lease
and other obligations 299,304 467,663 (467,663) _ 299,304
Shares issued for consulting services 6,000 58,800 _ _ 64,800
Exercises of stock options and warrants 57,750 246,383 _ _ 304,133
Stock options issued for technical
and consulting services _ 480,000 _ _ 480,000
Stock options issued in conjunction
with Convertible Notes Payable _ 1,590,580 _ _ 1,590,580
Net loss for year ended December 31, 1997 _ _ _ (7,833,223) (7,833,223)
Balance at December 31, 1997 $4,534,531 $51,146,508 $(467,663) $(53,721,074) $1,492,302
See notes to financial statements.
</TABLE>
ELECTROSOURCE, INC.
Statements of Cash Flows
<TABLE>
1997 1996 1995
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss $(7,833,223) $(7,824,868) $(20,508,045)
Adjustments to reconcile net loss to net cash used
in operating activities:
Equity instruments issued for consulting services 544,800 134,800 1,468,800
Depreciation of property, plant and equipment 922,822 1,048,887 844,592
Amortization of intangible assets 993,120 993,120 322,869
Amortization of discounts on convertible notes payable
and deferred financing costs 188,728 48,349 104,891
Interest expense paid in convertible notes payable
or common stock 100,000 105,103 190,000
Non-cash interest expense (conversion discount) _ 141,750 2,603,250
Loss on payment of capital lease 189,316 _ _
Loss on disposal of equipment _ 575,497 _
Decrease in deferred revenue _ _ (1,000,000)
Changes in operating assets and liabilities:
(Increase) decrease in trade receivables (160,599) 288,118 942,562
(Increase) decrease in inventories (73,054) 155,520 (173,099)
(Increase) decrease in prepaid expenses and
other assets 86,865 80,814 (220,482)
Increase (decrease) in accounts payable
and accrued liabilities 378,934 (234,813) 240,130
Increase (decrease) in deferred revenue and
advance payments on batteries (724,429) 1,157,028 _
CASH USED IN OPERATING ACTIVITIES (5,386,720) (3,330,695) (15,184,532)
INVESTING ACTIVITIES
Purchases of property and equipment, net (134,458) (384,069) (3,640,537)
CASH USED IN INVESTING ACTIVITIES (134,458) (384,069) (3,640,537)
FINANCING ACTIVITIES
Proceeds from issuances of convertible notes payable
and related warrants to purchase Common Stock 5,000,000 _ 12,780,000
Payment of notes payable and capital lease obligations (685,968) (547,399) (330,490)
Proceeds from issuances of common stock, net 958,983 2,546,992 6,390,511
(Increase) decrease in restricted cash 663,220 _ (744,824)
Proceeds from sale and leaseback transactions _ _ 1,998,064
Debt issuance and lease financing costs _ _ (1,378,450)
CASH PROVIDED BY FINANCING ACTIVITIES 5,936,235 1,999,593 18,714,811
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 415,057 (1,715,171) (110,258)
Cash and cash equivalents at beginning of period 367,861 2,083,032 2,193,290
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 782,918 $ 367,861 $ 2,083,032
See notes to financial statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
ELECTROSOURCE, INC.
December 31, 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization: Electrosource, Inc. (the "Company") was incorporated as a
Delaware corporation on June 3, 1987. The Company designs and manufactures
advanced lead-acid batteries for use in four major markets: motive power,
portable power, power management, and starting applications. The majority
of revenue recognized through December 31, 1997, has been derived from the
development and sales of batteries for electric vehicles and hybrid
electric vehicles to automotive manufacturers in the United States, Italy
and Switzerland.
During 1993, the Company and BDM Technologies, Inc. ("BDM"), under a
strategic alliance, formed Horizon Battery Technologies, Inc. ("HBTI") in
order to establish and operate a limited capability facility for
manufacturing and producing advanced technology batteries. Each partner
maintained a 50% interest. During 1994, the Company finalized a Technology
License Agreement with BDM and obtained an exclusive license to use certain
technologies under development by BDM for the manufacture of batteries. In
addition, the Company purchased BDM's interest in HBTI for 100,000 shares
of Common Stock. (See also Note H.)
Cash and Cash Equivalents: The Company's cash and cash equivalents consist
of cash and short-term investments with a maturity of three months or less
when purchased.
Inventories: Inventories are stated at the lower of cost (on a standard,
direct materials and direct labor cost basis) or market value.
Property and Equipment: Property and equipment are recorded at cost. The
Company has also capitalized equipment in accordance with the terms of
related leases. Depreciation of property and equipment (including amounts
recorded under capitalized leases) is computed using the straight-line
method over the estimated useful lives of the assets or the respective
lease term, ranging from 3 to 10 years.
Technology License Agreement and Purchased Technology: The Company has
been assigned all license rights relating to coextruded wire by the
original licensee. (See Note D.) The cost of this license is being
amortized over the legal life of the patents on the technology (17 years).
The patents expire beginning in 2004. On November 1, 1995, the Company
obtained intellectual property rights (purchased technology) developed
under a Research and Development Agreement. (See Note D.) The cost of
this purchased technology is being amortized over three years. On an
ongoing basis, management reviews the valuation and amortization of its
intangibles, taking into consideration any events or circumstances which
might have diminished their value.
Project Revenue: Projects are accounted for under the percentage of
completion method, wherein revenue is recognized based on cumulative costs
incurred and the estimated cost to complete as such relates to total
contract price. All costs are expensed as incurred and losses on contracts
are estimated and recognized when it becomes apparent a loss is to be
incurred.
Stock Compensation: The Company accounts for its stock compensation
arrangements under the provisions of APB 25, "Accounting for Stock Issued
to Employees."
Basic and Diluted Loss 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,
outstanding options and warrants to purchase common stock have an
antidilutive effect. Therefore, such options and warrants were not
included in the diluted loss per share calculation.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128").
Under SFAS 128, the dilutive effect of stock options, warrants and similar
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
securities is excluded in computing basic earnings (loss) per share. Since
the Company has reported net losses in prior periods, SFAS 128 did not
impact the Company's prior reported loss per share amounts. The method of
calculating fully diluted earnings per share remained essentially
unchanged.
Business Segments: The Company is engaged in the manufacture of advanced
lead-acid, rechargeable storage batteries and the development of related
processes and technologies. Accordingly, the Company considers itself to
be operating in one business segment.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("SFAS 131"). SFAS 131 establishes
standards for the way that public business enterprises report information
about operating segments in annual financial statements and requires that
those enterprises report selected information about operating segments in
interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. SFAS 131 is effective for financial statements for fiscal years
beginning after December 15, 1997, and therefore the Company will adopt the
new requirements retroactively in 1998. Management has not completed its
review of SFAS 131, but does not anticipate that the adoption of this
statement will have a significant effect on the Company's reported
segments.
Comprehensive Income: In June 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. Management does not currently
expect that the adoption of this statement will have a material effect on
the Company's financial statements.
Income Taxes: The Company reports income taxes in accordance with the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109
requires that deferred tax assets and liabilities be determined based on
the difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the years in which the
differences are expected to reverse.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Reclassification: Certain reclassifications have been made to the 1996
financial statements to conform with the 1997 presentation.
NOTE B - INVENTORIES
1997 1996
Raw materials $172,469 $151,841
Work in progress 79,774 31,406
Finished goods 70,046 65,988
$322,289 $249,235
NOTE C - PROPERTY AND EQUIPMENT
1997 1996
Office equipment $ 785,529 $ 751,342
Production and lab equipment 5,317,729 5,062,475
Leasehold improvements 1,301,018 1,290,197
7,404,276 7,104,014
Less - accumulated
depreciation and amortization (3,239,817) (2,316,995)
Total Property and Equipment $4,164,459 $4,787,019
Production equipment of $377,780 has been capitalized in accordance with
the terms of related leases at December 31, 1997. Accumulated depreciation
for such equipment was $173,388 at December 31, 1997.
NOTE D - INTANGIBLE ASSETS
Technology License Agreement
At its inception, the Company obtained an exclusive sublicense for the
development, manufacture and commercial exploitation of coextruded wire for
lead-acid battery applications. The Company is responsible for the
maintenance and administration of the licensed patent and has an obligation
to pay the original licensee a royalty of four percent on all technology
sales unrelated to lead-acid, storage batteries for the term of the License
Agreement. The Company is obligated to pay the licensor a royalty of one-
half of one percent of net sales of coextruded wire and wire-related
products, with a minimum annual royalty of $100,000.
Purchased Technology
In November, 1995, the Company completed a research and development
agreement with the Electric Power Research Institute ("EPRI"). In
accordance with the terms of a November 1995 amendment to the agreement,
the Company issued 215,800 shares of Common Stock in exchange for the
transfer of intellectual property rights (purchased technology) and the
transfer of title to certain equipment which had been purchased by EPRI in
connection with research activity undertaken by the Company. The shares
were valued at $2,994,225; recorded as $581,339 to equipment and $2,412,886
to purchased technology. In addition, pursuant to the terms of such
agreement, certain member utilities of EPRI have elected to receive
royalties which result in the payment of royalties by the Company at the
rate of one-tenth of one percent on sales of products containing licensed
technology and on other revenues derived by the Company from license fees,
joint ventures and other arrangements involving the licensed technology.
NOTE E - RESTRICTED CASH
In connection with lease transactions completed during 1995, the Company
was required to collateralize the obligations by establishing standby
letters-of-credit in the amount of $744,824. Certain of these lease
obligations were satisfied in 1997, and the related letters-of-credit in
the amount of $663,220 were released. (See Note I.) Outstanding letters-
of-credit at December 31, 1997 are collateralized by certificates of
deposit of an equal amount.
NOTE F - ACCRUED LIABILITIES
1997 1996
Payroll and related items $ 336,461 $ 240,030
Due to BDM (occupancy related) 614,875 407,269
Other 717,382 456,452
$1,668,718 $1,103,751
NOTE G - CONVERTIBLE NOTES PAYABLE
Convertible Notes Payable consist of the following:
1997 1996
Convertible Notes - 5% $5,100,000 $ _
Convertible Notes - 10% _ 250,000
5,100,000 250,000
Less: Discount (1,427,526)
Convertible Notes Payable,
net of discount $3,672,474 $250,000
The composition of the current and long-term portion of Convertible Notes
Payable at December 31, 1997 is as follows:
Total Current Long-Term
Convertible Notes - Principal $5,100,000 $1,000,000 $4,100,000
Less: Discount (1,427,526) (128,080) (1,299,446)
Convertible Notes Payable, net $3,672,474 $871,920 $2,800,554
of discount
In March 1997, the Company entered into a Note Purchase and Option
Agreement and a Convertible Promissory Note and Stock Option Agreement (the
"Agreements") with Corning Incorporated ("Corning") for proceeds of $4
million. The 5% Convertible Note is for $4,000,000 ("$4 Million Note"), is
unsecured and matures on March 26, 2002. Interest is payable semi-annually
in cash or in kind at the option of the Company. The $4 Million Note is
convertible into Common Stock at a conversion price of $5.50 per share. A
note payable in the amount of $100,000 was issued in September 1997 for
interest for the six months then ended with the same terms and conditions
as the $4 Million Note. Under the Agreements, the Company also granted
Corning a warrant to purchase up to 275,000 shares of Common Stock at $7.00
per share and a warrant to purchase up to 225,000 shares of Common Stock at
$9.00 per share ("Corning Warrants"). The Corning Warrants are exercisable
until March 1999. The fair market value of the Corning Warrants were
estimated to be $1,462,500, using the Black-Scholes option valuation model.
This amount was recorded as a discount on the note and is being amortized
to interest expense over the term of the $4 Million Note.
In December 1997, the Company issued a 5% Convertible Note for $2,000,000
("$2 Million Note") to be drawn as follows: $1,000,000 on or before
December 19, 1997; $500,000 on or before January 24, 1998 and $500,000 on
or before February 24, 1998. $1,000,000 was drawn on December 19, 1997,
$500,000 on January 23, 1998 and $500,000 on February 23, 1998. The $2
Million Note is unsecured and matures on December 19, 1998. The $2 Million
Note is convertible into Convertible Preferred Stock or Common Stock. The
$2 Million Note is convertible into 200,000 shares of the Company's 5%
Cumulative Convertible Preferred Stock, which is then convertible into
Common Stock at a conversion price of $4.06 per share. The $2 Million Note
is convertible directly into Common Stock at a conversion price of $3.56
per share. In conjunction with the issuance of the $2 Million Note, the
Company agreed to reduce the exercise price of the Corning Warrants from
$7.00 and $9.00 per share to $4.00 and $6.00 per share, respectively. This
increased the estimated fair market value of the Corning Warrants by
$128,080 using the Black-Scholes option valuation model. This increase in
value was recorded as a discount on the note and is being amortized to
interest expense over the term of the $2 Million Note. The combined
effective interest rate of the $2 Million and $4 Million Notes is
approximately 15%. Because of the complexity of determining the value of
the conversion features of the $4 Million and $2 Million Notes and the
related cost which would be incurred to obtain an expert valuation, the
Company believes it impracticable to determine the fair value of the $4
Million and $2 Million Notes.
G - CONVERTIBLE NOTES PAYABLE (CONTINUED)
In April 1995, the Company issued $6,000,000 of 10% Convertible Debentures
(the "April 1995 Debentures") resulting in net proceeds to the Company of
$5,375,000. The April 1995 Debentures were convertible into Common Stock
at a conversion price equal to 80% of the average closing price of the
Common Stock for the five business days immediately preceding such time as
the debentures were converted and matured on April 12, 1997. During 1995,
April 1995 Debentures with a total principal amount of $5,750,000 were
converted into 379,548 shares of Common Stock. The remaining $250,000 of
April 1995 Debentures matured on April 12, 1997, and was paid in cash by
the Company.
Cash interest paid by the Company was approximately $128,000, $241,000 and
$342,000 in 1997, 1996 and 1995, respectively.
NOTE H - TECHNOLOGY LICENSE PAYABLE
Through its funding to HBTI for development of a low rate initial
production line for the Horizon battery, BDM owned the rights to certain
technologies for the manufacture of such batteries. During 1994, the
Company finalized a Technology License Agreement with BDM. Under the terms
of this agreement, the Company obtained an exclusive license to use certain
technologies under development by BDM for the manufacture of batteries.
The Company agreed to pay BDM: $80,000 cash; issue 170,000 shares of Common
Stock in thirty-six equal installments; issue 20,000 additional shares of
Common Stock if the Company decided to maintain the license beyond the
original three year term; grant 100,000 options to purchase Common Stock
exercisable at $40.00 per share expiring in January 1998; and buy BDM's
interest in HBTI for 10,000 shares of Common Stock. The Company recorded
an expense of $3,819,350 in 1994 for this transaction based on the fair
market value of the various components of the transaction. This was
treated as an expense as the technological feasibility of the manufacturing
technology licensed had not been completely proven and the Company at that
time had no alternative future uses for this technology. As of December
31, 1997, all shares of stock had been issued to BDM under the terms of
this agreement and the technology license payable was satisfied.
NOTE I - LEASE AND OTHER COMMITMENTS
The Company leases various plant and office facilities, and production,
office and warehouse equipment under operating and capital leases expiring
between 1997 and 2003. Future minimum annual rentals under lease
arrangements at December 31, 1997 are as follows:
Capital Leases
Sale/ Operating
Fiscal Year Total Leaseback Other Leases
s
1998 $95,091 $90,576 $4,515 $ 899,898
1999 90,576 90,576 _ 471,070
2000 75,480 75,480 _ 400,934
2001 _ _ _ 365,000
2002 _ _ _ 420,000
Thereafter _ _ _ _
261,147 256,632 4,515 $2,556,902
Less imputed interest (39,944) (39,717) (227)
Present value of $221,203 $216,915 $4,288
capital lease obligations
The Company's monthly rental rate on its 88,000 square foot facility is
approximately $25,000 per month, expiring in November 2003. The Company's
obligations under this lease are guaranteed by BDM. The Company
NOTE I - LEASE AND OTHER COMMITMENTS (CONTINUED)
has agreed to purchase the facility or otherwise remove BDM as a guarantor
of the lease by no later than April 1, 1998. In the event the Company
shall not have purchased the facility or removed BDM as guarantor by this
date, then the Company will give notice to cancel the facility lease
effective September 30, 1998.
During 1997, the Company issued 127,500 shares of Common Stock to Ally
Capital Corporation ("Ally") on behalf of its assignees as prepayment for
capital lease obligations owed by the Company. The shares were valued at
$867,000 based upon the quoted market price of the stock on the date the
agreement to issue the 127,500 shares was signed. The shares were sold by
Ally on behalf of its assignees, and the proceeds were used to satisfy the
lease obligations (approximately $550,000) and to exercise the option to
purchase the equipment for approximately $165,000. Additionally, a loss of
$189,316 was recorded upon the completion of this transaction and the
payment of the capital lease. Upon payment of these lease obligations,
letters of credit for $663,220 which collateralized the lease obligations
were canceled and certificates of deposit of an equal amount that
collateralized the letters of credit were released.
Rental expense for operating leases for the years ended December 31, 1997,
1996 and 1995 was approximately $898,000, $824,000 and $858,000,
respectively. Sublease rental income of approximately $119,000 was
received in 1997. Future minimum rentals to be received under
noncancelable subleases were $185,000 at December 31, 1997.
Other leased equipment is collateralized by a letter-of-credit in the
amount of $81,604.
In December 1997, the Company issued 299,304 shares of Common Stock to BDM
as partial payment for past obligations owed to BDM for occupancy related
costs ($314,875, which the Company has accrued) and as prepayment under
operating leases for manufacturing equipment which are guaranteed by BDM
($452,092). 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 accept a minimum of $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 has agreed to pay
$300,000 to BDM (for the remaining unpaid occupancy related costs which the
Company has also accrued) from the proceeds received from any fundraising
activities completed by the Company before March 31, 1998 in excess of
$5,000,000. The Company recorded the shares issued to BDM at fair market
value on the date of the agreement ($766,967) and recorded a subscription
receivable for the difference between the fair market value of the shares
and the minimum value for such shares accepted by BDM which will be
recorded as permanent equity upon final determination of the number of
shares to be issued.
NOTE J - 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 $5.1 million for its expenses and lost profits related to
NOTE J - CONTINGENCIES (CONTINUED)
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 to
which the action was removed 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. A decision on the appeal
is expected in three to six months. No liability has been recorded in the
financial statements at December 31, 1997 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.
The Company is also involved in certain other contingencies incidental to
its business. While the ultimate results of these matters cannot be
predicted with certainty, management does not expect them to have a
material adverse effect on the financial position of the Company.
Trade receivables are composed of balances due from a limited customer
base. Although the Company has a concentration of credit risk, the Company
has not experienced significant collection losses from these respective
customers.
Activity in the Company's allowance for doubtful accounts was as follows:
Additions
Balance Charged Charged Write-Off Balance
at to Costs to of at End
Description Beginni and Other Uncollecti of
ng Expense Account ble Period
of s Accounts
Period
Year ended December 31, 1997 $15,599 ($15,599) - 0 - - 0 - - 0 -
Year ended December 31, 1996 $36,223 $15,599 - 0 - $(36,223) $15,599
Year ended December 31, 1995 $7,500 $278,653 - 0 - $(249,930) $36,223
NOTE K - SHAREHOLDERS' EQUITY
Reverse Stock Split
On June 26, 1996, the Company's shareholders approved an amendment to the
Company's Restated Certificate of Incorporation that effected a one-for-ten
reverse stock split. Pursuant to this amendment, each ten shares of Common
Stock outstanding immediately prior to the reverse split ("Old Shares")
were reclassified as one share of new Common Stock ("New Shares"). The par
value per share of the Common Stock was correspondingly increased from
$0.10 per share to $1.00 per share. No fractional New Shares were issued
as a result of the reverse split. In lieu thereof, each shareholder whose
Old Shares were not evenly divisible by ten received one additional New
Share for the fractional New Share that such shareholder would otherwise be
entitled to have received as a result of the reverse split. All references
in the financial statements to share and per share amounts have been
restated to retroactively reflect the reverse split.
In 1997, the Company sold 109,397 shares of Common Stock (combined with
warrants to purchase Common Stock at prices ranging from $5.25 to $7.56 per
share) for net proceeds of approximately $655,000.
NOTE K - SHAREHOLDERS' EQUITY (CONTINUED)
Stock Option Plans
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
FASB Statement No. 123, "Accounting for Stock-Based Compensation," requires
use of option valuation models that were not developed for use in valuing
employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
The Company has one stock option plan, the 1996 Stock Option Plan ("1996
Plan"), which received shareholder approval in 1997. The 1996 Plan
provides for the grant/award of options to employees, directors and
consultants at the discretion of the Compensation/Stock Option Committee to
purchase shares of the Company's Common Stock at a price not less than 100%
of the market price of such stock on the date the option is granted. These
options generally become exercisable in three stages beginning six months
after the date of grant and expire up to ten years from the date of grant.
Upon approval of the 1996 Plan, all outstanding options under the various
stock option plans previously in place were canceled and reissued under the
1996 Plan at the same price and vesting schedule. All preceding stock
option plans were terminated. The 1996 Plan approved by the shareholders
increased the number of shares previously authorized under then existing
plans by 588,165 shares to 960,000 shares.
During 1996, the Compensation/Stock Option Committee approved the creation
of the 1996 Plan as well as the cancellation of options under preceding
stock option plans and the reissuance of such options under the 1996 Plan.
Additionally, the Compensation/Stock Option Committee approved the grants
of options to purchase 219,972 shares during 1996. All such actions were
pending shareholder approval of the 1996 Plan, which was received in 1997.
Accordingly, the information below has been restated for 1996 to reflect
the subsequent approval of the 1996 Plan by the shareholders.
Pro forma information regarding net loss and loss per share is required by
FASB Statement 123 and has been determined as if the Company had accounted
for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1997, 1996 and 1995, respectively: risk-
free interest rates of 5.3%, 6.0% and 6.1%; dividend yield of 0%;
volatility factors of the expected market price of the Company's common
stock of .80, 1.0 and .93; and a weighted-average expected life of the
option of five years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
1997 1996 1995
Pro forma stock-based $1,320,661 $ 716,989 $ 422,610
compensation expense
Pro forma net loss 9,153,884 8,541,857 20,930,655
Pro forma loss per share 2.23 2.33 9.96
NOTE K - SHAREHOLDERS' EQUITY (CONTINUED)
The effects of applying Statement No. 123 for pro forma disclosures are not
necessarily indicative of future amounts due to the prospective adoption of
FASB Statement No. 123's effects on reported net income for future years.
A summary of changes in common stock options during 1995, 1996 and 1997 is
as follows:
Weighted-
Range of Average
Exercise Exercise
Shares Prices ($) Price ($)
Options outstanding January 1, 1995 199,285 10.60 - 46.25 29.31
Granted 75,500 13.72 - 33.75 25.06
Exercised (11,950) 10.60 - 23.10 12.01
Surrendered (24,900) 18.75 - 35.00 31.07
Options outstanding December 31, 1995 237,935 10.60 - 46.25 28.65
Granted 596,676 5.28 - 37.50 13.73
Exercised _ _ _
Surrendered (338,846) 5.28 - 46.25 23.62
Options outstanding December 31, 1996 495,765 5.28 - 37.50 14.13
Granted 298,131 2.94 - 7.75 6.79
Exercised (31,500) 5.28 5.28
Surrendered (28,100) 5.28 - 35.00 9.50
Options outstanding December 31, 1997 734,296 2.94 - 37.50 11.71
Options exercisable, December 31,
1995 132,602 10.60 - 46.25 27.01
1996 181,880 5.28 - 37.50 21.80
1997 525,145 2.94 - 37.50 13.37
The weighted-average fair value of options granted during 1997, 1996 and
1995 was $4.60, $4.49 and $15.58 per share, respectively.
A summary of option information by exercise price as of December 31, 1997
follows:
Total Options Outstanding Currently
Exercisable
Weighted-
Weighted- Average Weighted-
Number Average Remaining Number Average
Exercise of Exercise Contractua of Exercise
Price ($) Options Price l Options Price
Life
2.94 - 4.91 900 $3.92 9.50 450 $4.91
5.28 191,498 5.28 8.83 191,498 5.28
5.29 - 6.87 76,625 6.35 9.55 32,625 6.43
6.94 205,200 6.94 9.48 68,681 6.94
7.00 - 11.60 74,825 10.92 8.87 59,157 10.74
12.50 - 23.10 74,348 14.65 8.83 61,834 14.90
27.50 - 35.00 98,900 33.59 8.83 98,900 33.59
36.25 - 37.50 12,000 36.98 8.83 12,000 36.98
2.94 - 37.50 734,296 $11.71 9.09 525,145 $13.37
NOTE K - SHAREHOLDERS' EQUITY (CONTINUED)
Warrants
The Company has issued numerous warrants associated with various debt and
equity financings and other agreements with varying expiration dates
through 2005.
The Company entered into a technical development agreement with Corning in
September 1997 to jointly improve the Company's products, production
processes and automation. The Company paid Corning for such services by
issuing warrants at agreed upon values and exercise prices. The Company
expensed the warrants issued in 1997 at their estimated fair value of
approximately $400,000. Work under the technical development agreement is
expected to continue throughout 1998.
The following table represents a summary of warrant activity for the three
years ended December 31, 1997:
Price Per
Warrants Warrant ($)
Warrants outstanding January 1, 1995 48,550 25.00 - 55.00
Issued 345,873 15.30 - 40.00
Warrants outstanding December 31, 1995 394,423 15.30 - 55.00
Issued, Exercised or Expired 0 0
Warrants outstanding December 31, 1996 394,423 15.30 - 55.00
Issued 1,277,383 4.00 - 9.00
Exercised (26,250) 5.25
Expired (56,499) 16.13 - 55.00
Warrants outstanding December 31, 1997 1,589,057 4.00 - 50.00
Reserved Shares
At December 31, 1997, shares of the Company's Common Stock were reserved as
follows for issuance under:
Stock option plans 928,500
Exercise of warrants 1,589,057
Conversion of Convertible Notes Payable 1,026,157
3,543,714
NOTE L - REVENUE
Project
In August 1994, Chrysler awarded the Company a $1,600,000 contract to
custom fit the Horizon battery to prototypes of Chrysler's NS electric
minivan. The Company completed the contract in 1995 and recognized
approximately $778,000 in project revenue under this agreement in 1995.
During 1996 and 1997, the Company generated project revenue of
approximately $115,000 and $645,000, respectively, from Chrysler for
various environmental and other tests performed on the Horizon battery.
The majority of the remaining project revenue generated during 1997
(approximately 65%) was from SMH Automobile S.A. ("SMH"), the Defense
Advanced Research Projects Agency ("DARPA") and Fiat Auto for the
development and/or evaluation of batteries for hybrid vehicle and electric
vehicle applications. SMH is located in Switzerland, DARPA in the United
States and Fiat Auto in Italy.
Capacity Maintenance
In July 1996, the Company received a $3,000,000 payment from Chrysler.
Chrysler designated $2,366,000 of this payment as compensation for
continued capacity maintenance and ramp-up costs incurred by the Company in
NOTE L - REVENUE (CONTINUED)
relation to its role as a supplier to the automaker for its electric
vehicle EPIC Minivan Program and $634,000 for various engineering, research
and development (ER&D) efforts. During 1996, the Company recorded
$2,366,000
as income as all tasks necessary to earn the income were performed and
there were no further obligations related to such revenue. The Company
recorded $634,000 as deferred revenue which was recognized in income in
1997 as the ER&D tasks were performed.
Batteries
Approximately 56% of the Company's 1997 battery sales and 50% of 1996 and
1995 battery sales were to Chrysler. In December 1997, Chrysler announced
its decision to use nickel-metal-hydride batteries made by a competitor in
its EPIC Minivan. In February 1998, the Company received a $1.4 million
purchase order from Chrysler for batteries. Chrysler's purchase of a
significant of number additional batteries from the Company beyond the $1.4
million order is uncertain.
NOTE M - INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax asset at December 31,
1997 and 1996 are as follows:
1997 1996
Deferred Tax Assets:
Net operating loss and other tax carry-forwards $14,784,032 $11,432,000
Book depreciation in excess of tax depreciation 1,925,827 576,000
Inventory, accruals and other 954,350 730,000
Total deferred tax assets 17,664,209 12,738,000
Less valuation allowance (17,664,209) (12,738,000)
Deferred tax assets, net $ _ $ _
The reconciliation of income tax computed at the United States federal
statutory tax rates to income tax expense for the years ended December 31,
1997, 1996 and 1995 are as follows:
1997 1996 1995
Income tax benefit at statutory U.S.
federal income tax rate (34.0%) (34.0%) (34.0%)
Increase in valuation allowance 34.0% 34.0% 35.6%
Other 0.0% 0.0% (0.9%)
Effective income tax rate 0.0% 0.0% 0.7%
The Company's valuation allowance increased by $4.9 million and $2.2
million during 1997 and 1996, respectively, primarily as a result of net
operating losses which were generated but may not be realizable. At
December 31, 1997, the Company had net operating loss carryforwards of
approximately $42 million, which will expire from 2002 through 2012,
research and development credits of approximately $400,000 and foreign tax
credits of approximately $200,000 which expire beginning in 2002 and 1999,
respectively. Ownership changes as defined in the Internal Revenue Code
have resulted in utilization of the Company's net operating losses and
other tax attributes being limited if the Company generates taxable income
in the future.
NOTE N - RELATED PARTY TRANSACTIONS
During 1995, the Company entered into agreements with a director of the
Company for the development of certain machinery and materials as well as
general consulting. The Company paid $32,000, $103,000 and $17,000 under
such agreements in 1997, 1996 and 1995, respectively. The Company may also
purchase machinery developed in accordance with this agreement at its
option for an additional fee. During 1997, the Company also began
purchasing certain raw materials from the director. The Company paid
$65,000 for such materials during 1997. In addition, the Company has
leased approximately 4,000 square feet in the director's manufacturing
facility for a monthly cost of $400 and has paid $4,800 under such
agreement during 1997.
NOTE O - EMPLOYEE BENEFIT PLAN
The Company sponsors a qualified defined contribution plan covering all
full-time eligible employees. The Company matches twenty-five percent of a
participant's voluntary contributions up to a maximum of four percent of a
participant's compensation. The Company's contribution expense was
approximately $33,000, $18,000 and $20,000 in 1997, 1996 and 1995,
respectively.
NOTE P - ABILITY TO CONTINUE AS A GOING CONCERN
During 1997, management continued to focus attention on relationships with
customers, sales of production batteries and development of prototype
batteries for a variety of electric vehicle, hybrid electric vehicle, lawn
and garden, electric scooter, aircraft starting and other applications.
Strategic alliances were also sought to aid penetration of target markets,
improve battery development and manufacturing and to provide funds to cover
operating losses. The development work has taken longer than anticipated,
commercial battery sales have been delayed and to date such efforts have
not resulted in sufficient cash flow to sustain operations. Therefore, in
February 1998, the Company cut its work force by approximately 40% to
reduce costs. Management anticipates that such reductions in cost will
allow the Company additional time to explore strategic alternatives, such
as a business combination, sale of assets or a strategic alliance as well
as to attempt to increase revenues and further reduce costs. The Company
is in preliminary discussions regarding possible transactions, although
there is no assurance that such transactions can be completed, and if
completed can generate the funds required to sustain the Company.
Management believes that it has sufficient cash on hand and to be received
from firm orders for batteries and development work to continue operations
at current levels through May of 1998. If a business combination, sale of
assets, strategic alliance or additional financing cannot be arranged by
May 1, it will be necessary to make further reductions in the work force,
primarily at the executive management level, which management believes
would allow the Company to operate into August of 1998. If a significant
order for batteries is not received or a business combination, sale of
assets, strategic alliance or additional financing cannot be arranged by
the end of the second quarter, it will be necessary for the Company to make
large scale reductions in the work force, and would likely eliminate or
relocate manufacturing and other functions with the primary goal of
maintaining research and development capabilities, the corporate legal
entity and protection of the core technology. Such plans would also likely
require the Company to raise additional capital. These alternate plans are
subject to a great deal of uncertainty and risk. There is no assurance
that such plans will be successful or that the Company will be able to
continue as a going concern.
The Company's $25,000 monthly obligation for the lease of the manufacturing
facility is currently guaranteed by BDM. The Company has agreed to
purchase the facility or otherwise remove BDM as guarantor of the lease by
no later than April 1, 1998. In the event the Company does not purchase
the facility or remove BDM as guarantor by this date, then the Company is
required to give notice to cancel the facility lease effective September
30, 1998. Management of the Company expects that it will be required on
April 1, 1998 to give notice to cancel its facility lease effective
September 30, 1998. Management is discussing the terms of a new lease to
be effective after September 30, 1998 with the lessor of the facility with
essentially the same terms as the existing lease with
NOTE P - ABILITY TO CONTINUE AS A GOING CONCERN (CONTINUED)
the exclusion of BDM as guarantor and the requirement for a $50,000
security deposit., However, there is no assurance that a satisfactory
arrangement can be reached with the lessor. If the Company terminates the
facility lease, the cost of moving and reinstalling production and
pollution control equipment to a new location, which has not yet been
selected, would be significant and would prohibit or greatly impair the
Company's ability to produce batteries for an indefinite period of time,
and hence impair the conduct of the Company's operations.
The Company's Common Stock is traded in the Over-the-Counter Market and is
reported on the Nasdaq Stock Marketsm ("NASDAQ"). In order to maintain
listing by NASDAQ under new rules which went into effect in February 1998,
the Company must maintain a minimum $2 million of net tangible assets
(total assets, excluding goodwill, minus total liabilities). The Company
is not in compliance with this new requirement as of December 31, 1997 and
does not expect to be in compliance without the infusion of additional
equity financing, the sale of assets, forgiveness or conversion of debt or
a business combination. The Company is in preliminary discussions
regarding possible arrangements, although there is no assurance that such a
transaction can be completed or if completed will generate the net tangible
assets required by the new requirement. Additionally, NASDAQ requires a
minimum $1.00 per share bid price to maintain listing. The Company's
closing market price as reported on NASDAQ on March 20, 1998 was $0.6563.
The Company expects to be notified by NASDAQ of its noncompliance with
listing requirements. Ordinarily, before delisting, NASDAQ would provide
the Company notice and an opportunity to present and carry out a plan for
compliance with the listing requirements. In the event that the Common
Stock were no longer traded on the NASDAQ market, brokers and dealers
effecting trades in the Common Stock would become subject to the Securities
and Exchange Commission rules covering trading in "penny stocks." These
rules generally require that such broker-dealers make specified disclosures
to customers including information on available bid and asked prices for
the stock in question and compensation to the broker-dealer and his
associates with respect to the proposed trade, and provide periodic reports
as to the market value of a customer's position in penny stocks. The rules
also impose heightened "know your customer" requirements that require
broker-dealers to obtain information, including personal financial
information, from customers sufficient to allow the broker-dealer to make a
determination that investment in penny stocks is suitable for the customer
and that the customer is capable of assessing the risks of such an
investment. Broker-dealers may be less willing to effect trades in any
security subject to these rules due to the additional disclosure, record-
keeping and other requirements imposed by the rules. In addition, some
potential investors in penny stocks may be reluctant to provide the
required personal financial information to broker-dealers, which may reduce
the number of potential investors. These factors would likely further
reduce trading liquidity in the Common Stock.
If the Company is delisted from NASDAQ and is unable to obtain significant
additional orders for batteries or additional development contracts, it
will be difficult to obtain additional funding. There can be no assurance
that additional funding, contracts or sales 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.
Washington, D.C. 20549
________________________________________
EXHIBITS TO
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File
December 31, 1997 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 executive (Zip Code)
offices)
Registrant's telephone number, (512) 753-6500
including area code:
Securities registered pursuant None
to Section 12(b) of the Act:
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
3.1 Restated Certificate of Incorporation of --
Electrosource, Inc. (filed as Exhibit 3.1 to
Electrosource, Inc., Registration Statement on
Form 10 filed October 19, 1987, as amended by Form
8 Amendments filed January 8, 1988 and January 13,
1988 (hereinafter referred to as "Form 10") and
incorporated herein by reference).
3.2 Certificate of Designation, Preferences, Rights --
and Limitations of 1992 Series A Preferred Stock
and Series A-1 Preferred Stock of Electrosource,
Inc. as filed of record with the Delaware
Secretary of State on January 15, 1992 (filed as
Exhibit 4.1 to Electrosource, Inc. Form 8-K
Current Report for Issuers Subject to the 1934 Act
Reporting Requirements filed December 24, 1991 and
incorporated herein by reference).
3.3 Amendment to Restated Certificate of Incorporation --
of Electrosource, Inc., increase in authorized
shares to 50,000,000 shares (filed as Exhibit 3.1
to Electrosource, Inc., Quarterly Report on Form
10-Q for quarter ended June 30, 1995 and
incorporated herein by reference).
3.4 Amendment to Restated Certificate of Incorporation --
of Electrosource, Inc., elimination of Certificate
of Designation for Series A and Series A-1
Preferred Stock (filed as Exhibit 3.2 to
Electrosource, Inc., Quarterly Report on Form 10-Q
for quarter ended June 30, 1995 and incorporated
hereby by reference).
3.5 Amendment to the Restated Certificate of --
Incorporation of Electrosource filed as of July
22, 1996 (filed as Exhibit 3.1 to Electrosource,
Inc. Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996 and incorporated herein by
reference).
3.6 Bylaws of Electrosource, Inc. (filed as Exhibit --
3.2 to Form 10 and incorporated herein by
reference).
3.7 Amendment to Bylaws of Electrosource, Inc., --
pursuant to a Certificate of Secretary dated May
25, 1990 (filed as Exhibit 3.3 to Electrosource,
Inc., Annual Report on Form 10-K for the period
ended December 31, 1991 and incorporated herein by
reference).
3.8 Amendment to Bylaws of Electrosource, Inc. dated --
November 3, 1993 (filed as Exhibit 3.5 to
Electrosource, Inc., Annual Report on Form 10-K
for the period ended December 31, 1993 and
incorporated herein by reference).
3.9 Amendment to Bylaws of Electrosource, Inc. dated --
June 23, 1994 (filed as Exhibit 3.6 to
Electrosource, Inc. Annual Report filed on Form 10-
K for the period ended December 31, 1994).
3.10 Amendment to Bylaws of Electrosource, Inc. dated --
November 13, 1996 (filed as Exhibit 3.10 to
Electrosource, Inc. Annual Report filed on Form 10-
K for the period ended December 31, 1996).
4.1 Warrant to purchase up to 5,424 shares of --
Electrosource, Inc. Common Stock issued to
Rosehouse Ltd., a Bermuda-based institutional
buyer, dated April 5, 1995 (filed as an Exhibit to
Electrosource, Inc. Current Report on Form 8-K
filed April 12, 1995 and incorporated herein by
reference).
4.2 Warrant to purchase up to 5,000 shares of --
Electrosource, Inc. Common Stock issued to Ally
Capital Management, Inc. on April 17, 1995 (filed
as Exhibit 4.1 to Electrosource, Inc. Quarterly
Report on Form 10-Q for the quarter ended June 30,
1995 and incorporated herein by reference).
4.3 Warrant to purchase up to 25,000 shares of --
Electrosource, Inc., Common Stock, issued to
Rosehouse Ltd., a Bermuda-based institutional
buyer, dated July 27, 1995 (filed as Exhibit 4.4
to Electrosource, Inc. Quarterly Report on Form 10-
Q for quarter ended June 30, 1995 and incorporated
herein by reference).
4.4 Warrant to purchase up to 100,000 shares of --
Electrosource, Inc., Common Stock, issued to ACM
Advisors, Zurich, Switzerland, dated July 27, 1995
(filed as Exhibit 4.5 to Electrosource, Inc.,
Quarterly Report of Form 10-Q for quarter ended
June 30, 1995 and incorporated herein by
reference).
4.5 Warrant to purchase up to 100,000 shares of --
Electrosource, Inc., Common Stock, issued to ACM
Advisors, Zurich, Switzerland, dated July 27, 1995
(filed as Exhibit 4.6 to Electrosource, Inc.,
Quarterly Report on Form 10-Q for quarter ended
June 30, 1995 and incorporated herein by
reference).
4.6 1987 Stock Option Plan of Electrosource, Inc. --
(filed as Annex A, pages 44 to 48 of Company's
Information Statement filed October 16, 1987 and
incorporated herein by reference).
4.7 Amendment No. 1 to 1987 Stock Option Plan of --
Electrosource, Inc. dated February 19, 1992 (filed
as Exhibit 4.3 to Company's Registration Statement
[No. 33-49049] on Form S-8 filed June 30, 1992 and
incorporated herein by reference).
4.8 Amendment No. 2 to 1987 Stock Option Plan of --
Electrosource, Inc. (filed as Exhibit 10.36 to
Electrosource, Inc., Annual Report on Form 10-K
for the period ended December 31, 1992 and
incorporated herein by reference).
4.9 1988 Non-Employee Director Option Plan of --
Electrosource, Inc. (filed as Exhibit 4.2 to
Company's Registration Statement [No. 33-22223] on
Form S-8 filed June 7, 1988 and incorporated
herein by reference).
4.10 Amendment No. 1 to 1988 Non-Employee Director --
Stock Option Plan (filed as Exhibit 4.3 to
Company's Registration Statement [No. 33-35856] on
Form S-8 filed July 12, 1990 and incorporated
herein by reference).
4.11 Amendment No. 2 to 1988 Non-Employee Director --
Stock Option Plan (filed as Exhibit 4.4 to
Company's Registration Statement [No. 33-49042] on
Form S-8 filed June 30, 1992 and incorporated
herein by reference).
4.12 Amendment No. 3 to 1988 Non-Employee Director --
Stock Option Plan (filed as Exhibit 4.4 to
Electrosource, Inc. Registration Statement [No. 33-
64108] on Form S-8 filed June 9, 1993 and
incorporated herein by reference).
4.13 1993 Non-Employee Consultant Stock Option Plan for --
Electrosource, Inc. (filed as Exhibit 4.2 to
Registration Statement [No. 33-65386] on Form S-8
and incorporated herein by reference).
4.14 1994 Stock Option Plan of Electrosource, Inc. --
(filed as Exhibit 10.4 to Electrosource, Inc.
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995 and incorporated herein by
reference).
4.15 1996 Stock Option Plan for Electrosource, Inc. --
(filed as Exhibit 4.2 to Registration Statement
[No. 333-31101] on Form S-8 and incorporated
herein by reference).
4.16 Warrant (Stock Option Agreement No. W12-101) to E-10
purchase up to 20,000 shares of Electrosource,
Inc., Common Stock, issued to Corning Incorporated
dated December 31, 1997 for payment of that
certain Project Annex dated October 20, 1997.
4.17 Warrant (Stock Option Agreement No. W12-102A) to E-12
purchase up to 70,000 shares of Electrosource,
Inc., Common Stock, issued to Corning Incorporated
dated December 31, 1997 for payment on that
certain Project Annex dated October 20, 1997.
4.18 Warrant (Stock Option Agreement No. W12-103A) to E-14
purchase up to 70,000 shares of Electrosource,
Inc., Common Stock, issued to Corning Incorporated
dated December 31, 1997 for payment on that
certain Project Annex dated October 20, 1997.
10.1 Sublicense Agreement dated as of October 5, 1987 --
between Electrosource, Inc. and Tracor, Inc.
(filed as Exhibit 10.4 to Form 10 and incorporated
herein by reference).
10.2 Patent and Technology Exclusive License Agreement --
dated August 14, 1984 between Tracor, Inc. and
Blanyer-Mathews Associates, Inc. ("BMA") (filed as
Exhibit 10.9 to Registration Statement [No 33-
30486] on Form S-1 filed August 14, 1989
hereinafter referred to as "Form S-1" and
incorporated herein by reference).
10.3 Amendment to Patent and Technology Exclusive --
License Agreement dated May 29, 1987 between
Tracor, Inc. and BMA (filed as Exhibit 10.10 to
Form S-1 and incorporated herein by reference).
10.4 Bonus Royalty Agreement dated May 26, 1989 among --
Electrosource, Inc., Tracor, Inc., and BMA (filed
as Exhibit 19 to Electrosource, Inc. Quarterly
Report on Form 10-Q for the quarter ended June 30,
1989 and incorporated herein by reference).
10.5 Amendment to Bonus Royalty Agreement entered into --
as of November 30, 1989 by and among BMA, Tracor,
Inc. and Electrosource, Inc. (filed as Exhibit
10.17 to Post Effective Amendment No. 1 to Form S-
1 Registration Statement [No. 33-34581] filed
December 11, 1989 hereinafter referred to as "Post-
Effective Amendment" and incorporated herein by
reference).
10.6 Assignment of Patent License dated as of May 14, --
1990 by and between Electrosource, Inc. and
Tracor, Inc. (joined by BMA for limited purposes
described therein) (filed as Exhibit 10.20 to the
Company's Annual Report on Form 10-K for the
period ended December 31, 1990 hereinafter
referred to as the "1990 Form 10-K" and
incorporated herein by reference).
10.7 Letter Agreement dated as of January 15, 1991 --
between Electrosource, Inc. and BMA (filed as
Exhibit 10.21 to the Company's 1990 Form 10-K and
incorporated herein by reference).
10.8 License Modification Agreement dated January 16, --
1992 between Blanyer Mathews & Associates, Inc.,
Electrosource, Inc. and Battery Horizons, Ltd.
(filed as Exhibit 10.23 to Electrosource, Inc.
Annual Report on Form 10-K for the period ended
December 31, 1991 and incorporated herein by
reference).
10.9 First Amendment to Assignment of Patent License --
dated April 2, 1992 between Electrosource, Inc.
and Tracor, Inc. (filed as Exhibit 10.58 to
Company's Registration Statement [No. 33-65248] on
Form S-1 filed June 30, 1993 and incorporated
herein by reference).
10.10 Lease Agreement between Aetna Life Insurance --
Company and Electrosource, Inc. dated February 22,
1992 (filed as Exhibit 10.25 to Electrosource,
Inc. Annual Report on Form 10-K for the period
ended December 31, 1991 and incorporated herein by
reference).
10.11 First Amendment to Lease Agreement between Aetna --
Life Insurance Company and Electrosource, Inc.
dated February 24, 1993 (filed as Exhibit 10.27 to
Electrosource, Inc. Annual Report on Form 10-K for
the period ended December 31, 1992 and
incorporated herein by reference).
10.12 Second Amendment to Lease Agreement between Aetna --
Life Insurance Company and Electrosource, Inc.
dated March 1, 1996 (filed as Exhibit 10.14 to
Electrosource, Inc. Annual Report on Form 10-K for
the period ended December 31, 1995 and
incorporated herein by reference).
10.13 Sublease Agreement between Electrosource, Inc. and E-16
Merit Printing, Inc. dated February 24 1997.
10.14 Lease Agreement between William D. McMorris and --
Horizon Battery Technologies, Inc. dated August
17, 1993 (filed as Exhibit 10.42 to Electrosource
Inc. Annual Report on Form 10-K for the period
ended December 31, 1994 and incorporated herein by
reference).
10.15 Amendment to Business Alliance and License --
Agreement dated November 1, 1995 between Electric
Power Research Institute and Electrosource, Inc.
(filed as Exhibit 10.2 to Electrosource, Inc.
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995 and incorporated herein
by reference).
10.16 Stock Purchase Agreement together with the Asset --
and Technology License Agreement dated January 31,
1995 between BDM Technologies, Inc. and
Electrosource, Inc. (filed as Exhibit 10.46 to
Electrosource, Inc. Annual Report on Form 10-K for
the period ended December 31, 1994 and
incorporated herein by reference).
10.17 First Amendment to Asset and Technology License E-20
Agreement between BDM International, Inc. and
Electrosource, Inc. dated December 18, 1997.
10.18 Termination Agreement between Electrosource, Inc. --
and Mitsui Engineering and Shipbuilding Co., Ltd.
dated March 6, 1996 (filed as Exhibit 10.36 to
Electrosource, Inc. Annual Report on Form 10-K for
the period ended December 31, 1995 and
incorporated herein by reference).
10.19 Purchase Agreement between Quantum Energy Systems --
and Technology LLC and Electrosource, Inc., dated
November 14, 1994, (filed as Exhibit 10.44 to
Electrosource, Inc., Annual Report on Form 10-K
for the period ended December 31, 1994 and
incorporated herein by reference).
10.20 Equipment Lease Agreement dated September 7, 1995, --
between Salem Capital Corporation and
Electrosource, Inc. (filed as Exhibit 10.65 to
Electrosource, Inc. Annual Report on Form 10-K for
the period ending December 31, 1995 and
incorporated herein by reference).
10.21 Development Agreement and Agreement for Purchase --
of Machinery and Supplies between Electrosource,
Inc., and Charles L. Mathews ("Contractor") dated
November 1, 1995 (filed as Exhibit 10.68 to
Electrosource, Inc. Annual Report on Form 10-K for
the period ending December 31, 1995 and
incorporated herein by reference).
10.22 Purchase Order between Chrysler Corporation and --
Electrosource, Inc. dated January 9, 1996 (filed
as Exhibit 10.69 to Electrosource, Inc. Annual
Report on Form 10-K for the period ending December
31, 1995 and incorporated herein by reference).
10.23 Agreement for Aircraft Starting Battery --
Distribution between Electrosource, Inc. and
Horizon Aviation, Inc. dated February 13, 1996
(filed as Exhibit 10.70 to Electrosource, Inc.
Annual Report on Form 10-K for the period ending
December 31, 1995 and incorporated herein by
reference).
10.24 Joint Development Agreement between Electrosource, --
Inc. and Black & Decker (U.S.), Inc. dated March
8, 1996 (filed as Exhibit 10.71 to Electrosource,
Inc. Annual Report on Form 10-K for the period
ending December 31, 1995 and incorporated herein
by reference).
10.25 Memorandum of Understanding between Electrosource, --
Inc. and Lockheed Martin Corporation dated March
15, 1996 (filed as Exhibit 10.1 to Electrosource,
Inc. Quarterly Report on Form 10-Q for quarter
ended March 31, 1996 and incorporated herein by
reference).
10.26 Letter of Agreement between Electrosource, Inc. --
and Ally Capital Corporated dated December 18,
1996 (filed as Exhibit 4.9 to Electrosource, Inc.
Registration Statement [No. 333-20103] Form S-3
Amendment No. 1 on April 18, 1997 and incorporated
herein by reference).
10.27 Amendment dated January 20, 1997 to Letter of --
Agreement between Electrosource, Inc. and Ally
Capital Corporation dated December 18, 1996 (filed
as Exhibit 4.10 to Electrosource, Inc.
Registration Statement [No. 333-20103] Form S-3
Amendment No. 1 on April 18, 1997 and incorporated
herein by reference).
10.28 Amendment dated April 10, 1997 to Letter Agreement --
between Electrosource, Inc. and Ally Capital
Corporation dated December 18, 1996 (filed as
Exhibit 4.11 to Electrosource, Inc. Registration
Statement [No. 333-20103] Form S-3 Amendment No. 1
on April 18, 1997 and incorporated herein by
reference).
10.29 Subscription Agreements between participants and --
Electrosource, Inc. dated January 23, 1997 (filed
as Exhibit 4.9 to Electrosource, Inc. Registration
Statement [No. 333-25659] Form S-3 on April 23,
1997 and incorporated herein by reference).
10.30 Note Purchase and Option Agreement for $4 million --
dated March 27, 1997 between Electrosource, Inc.
and Corning Incorporated (filed as Exhibit 4.1 to
Electrosource, Inc. Quarterly Report on Form 10-Q
for quarter ended March 31, 1997 and incorporated
herein by reference).
10.31 5% Convertible Promissory Note for $100,000 dated E-26
September 27, 1997 between Electrosource, Inc. and
Corning Incorporated for payment of interest due
on the Note Purchase and Option Agreement dated
March 27, 1997.
10.32 5% Convertible Promissory Note for $102,500 dated E-33
March 27, 1998 between Electrosource, Inc. and
Corning Incorporated for payment of interest due
on the Note Purchase and Option Agreement dated
March 27, 1997 and Promissory Note dated September
27, 1997.
10.33 Amendment No. 1 dated December 22, 1997 to Stock E-40
Option Agreement dated March 27, 1997 between
Corning Incorporated and Electrosource, Inc.
10.34 Research and Development Umbrella Agreement dated E-41
July 1, 1997 between Corning Incorporated and
Electrosource, Inc.
10.35 Project Annex dated October 20, 1997 to the E-53
Development Umbrella Agreement dated as of July 1,
1997 by and between Corning Incorporated and
Electrosource, Inc., being further defined in
Exhibit 1, Project Proposal, Physical and Chemical
Description of Battery Electrode "Moss."
10.36 Project Annex dated October 20, 1997 to the E-55
Development Umbrella Agreement dated as of July 1,
1997 by and between Corning Incorporated and
Electrosource, Inc., being further defined in
Exhibit 1, Project Proposal, Engineering
Resources.
10.37 Project Annex dated October 20, 1997 to the E-58
Development Umbrella Agreement dated as of July 1,
1997 by and between Corning Incorporated and
Electrosource, Inc., being further defined in
Exhibit 1, Project Proposal, Characterization of
Electrode Materials and Collector Grid Materials.
10.38 Severance Agreement between officers/key employees E-61
and Electrosource, Inc. dated August 25, 1997.
10.39 Note Purchase Agreement for $2 million dated E-83
December 19, 1997 between Electrosource, Inc. and
Corning Incorporated
10.40 Purchase Order for Horizon Batteries Pack E-142
Development Program between Fiat Auto and
Electrosource, Inc. dated September 30, 1996.
10.41 Frame-Development Contract dated March 14, 1997 E-159
between SMH Automobile S.A. and Electrosource,
Inc.
10.42 Summary Contract Amendment Terms dated November E-172
12, 1997 for Frame-Development Contract dated
March 14, 1997 between SMH Automobile S.A. and
Electrosource, Inc.
The following exhibits filed under Paragraph 10 of Item 601 are
the Company's compensation plans and arrangements:
10.43 Form of Director Indemnification Agreement (filed --
as Exhibit 10.8 to Electrosource, Inc., Annual
Report on Form 10-K for the period ended December
31, 1987 and incorporated herein by reference).
10.44 Director Indemnification Agreement dated January --
16, 1992 between Electrosource, Inc. and Charles
Mathews (filed as Exhibit 10.26 to Electrosource,
Inc. Annual Report on Form 10-K for the period
ended December 31, 1991 and incorporated herein by
reference).
10.45 Director Indemnification Agreement dated November --
4, 1992, between Electrosource, Inc. and Thomas S.
Wilson (filed as Exhibit 10.41 to Electrosource,
Inc. Annual Report on Form 10-K for the period
ended December 31, 1992 and incorporated herein by
reference).
10.46 Director Indemnification Agreement dated September --
1, 1993 between Electrosource, Inc. and Dr. Norman
Hackerman (filed as Exhibit 10.57 to
Electrosource, Inc. Annual Report on Form 10-K for
the period ended December 31, 1993 and
incorporated herein by reference).
10.47 Director Indemnification Agreement dated June 23, --
1994 between Electrosource, Inc. and Michael G.
Semmens (filed as Exhibit 10.72 to Electrosource,
Inc. Annual Report on Form 10-K for the period
ended December 31, 1994 and incorporated herein by
reference).
10.48 Director Indemnification Agreement dated November --
2, 1994 between Electrosource, Inc. and Richard S.
Williamson (filed as Exhibit 10.73 to
Electrosource, Inc. Annual Report on Form 10-K for
the period ended December 31, 1994 and
incorporated herein by reference).
10.49 Director Indemnification Agreement dated June 22, --
1995 between Electrosource, Inc. and Nathan Morton
(filed as Exhibit 10.2 to Electrosource, Inc.
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995 and incorporated herein by
reference).
10.50 Director Indemnification Agreement dated June 22, --
1995 between Electrosource, Inc. and William R.
Graham (filed as Exhibit 10.1 to Electrosource,
Inc. Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995 and incorporated herein by
reference).
10.51 Director Indemnification Agreement dated March 3, E-173
1997 between Electrosource, Inc. and Richard E.
Balzhiser.
10.52 Director Indemnification Agreement dated August E-179
26, 1997 between Electrosource, Inc. and Earl E.
Gjelde.
10.53 1987 Stock Option Plan of Electrosource, Inc. --
(filed as Annex A, pages 44 to 48 of
Electrosource, Inc. Information Statement filed
October 16, 1987 and incorporated herein by
reference).
10.54 Amendment No. 1 to 1987 Stock Option Plan of --
Electrosource, Inc. dated February 19, 1992 (filed
as Exhibit 4.3 to Electrosource, Inc. Registration
Statement [No. 33-49049] on Form S-8 filed June
30, 1992 and incorporated herein by reference).
10.55 Amendment No. 2 to 1987 Stock Option Plan of --
Electrosource, Inc. (filed as Exhibit 10.36 to
Electrosource, Inc. Annual Report on Form 10-K for
the period ended December 31, 1992 and
incorporated herein by reference).
10.56 1988 Non-Employee Director Option Plan of --
Electrosource, Inc. (filed as Exhibit 4.2 to
Electrosource, Inc. Registration Statement [No. 33-
22223] on Form S-8 filed June 7, 1988 and
incorporated herein by reference).
10.57 Amendment No. 1 to 1988 Non-Employee Director --
Stock Option Plan (filed as Exhibit 4.3 to
Electrosource, Inc. Registration Statement [No. 33-
35856] on Form S-8 filed July 12, 1990 and
incorporated herein by reference).
10.58 Amendment No. 2 to 1988 Non-Employee Director --
Stock Option Plan (filed as Exhibit 4.4 to
Electrosource, Inc. Registration Statement [No. 33-
49042] on Form S-8 filed June 30, 1992 and
incorporated herein by reference).
10.59 Amendment No. 3 to 1988 Non-Employee Director --
Stock Option Plan (filed as Exhibit 4.4 to
Electrosource, Inc. Registration Statement [No. 33-
64108] on Form S-8 filed June 9, 1993 and
incorporated herein by reference).
10.60 1993 Non-Employee Consultant Stock Option Plan for --
Electrosource, Inc. (filed as Exhibit 4.2 to
Electrosource, Inc. Registration Statement [No. 33-
65386] on Form S-8 filed June 30, 1993 and
incorporated herein by reference).
10.61 1994 Stock Option Plan of Electrosource, Inc. --
(filed as Exhibit 10.4 to Electrosource, Inc.
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995 and incorporated herein by
reference).
10.62 1996 Stock Option Plan for Electrosource, Inc. --
(filed as Exhibit 4.2 to Registration Statement
[No. 333-31101] on Form S-8 and incorporated
herein by reference).
10.63 Consulting Agreement dated March 4, 1995 between --
Beacon Advisors, Inc. (Langhorne Reid, III) and
Electrosource, Inc. (as filed Exhibit 10.117 to
Electrosource, Inc. Annual Report on Form 10-K for
the period ended December 31, 1995 and
incorporated herein by reference).
10.64 Consulting Agreement dated January 1, 1996 between --
Jack J. Guy and Electrosource, Inc. (as filed
Exhibit 10.118 to Electrosource, Inc. Annual
Report on Form 10-K for the period ended December
31, 1995 and incorporated herein by reference).
24.1 Consent of Ernst & Young LLP E-185
27. Financial Data Schedule E-186
Exhibit 4.16
Date of Grant: December 31, 1997
ELECTROSOURCE, INC.
STOCK OPTION AGREEMENT
THIS OPTION HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE OACTO), OR
UNDER THE SECURITIES LAWS OF ANY STATE (OBLUE SKY
LAWSO), AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT OR DELIVERY TO THE COMPANY OF EVIDENCE
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT AN
EXEMPTION FROM REGISTRATION THEREUNDER IS AVAILABLE.
Corning Incorporated No. W12-101
Corning, New York 14831 20,000 Shares
The undersigned, Electrosource, Inc. (the "Company"), a
Delaware corporation, for good and valuable consideration desires
to grant to Corning Incorporated ("Corning" or "Holder") an
option to acquire shares of Common Stock in the Company. The
option covered hereby is granted pursuant to the terms of the
Research and Development Umbrella Agreement ("Umbrella
Agreement") dated as of July 1, 1997 between the Company and
Corning, and all provisions of that Umbrella Agreement are
incorporated herein by reference. Defined terms shall have the
same meaning as in the Umbrella Agreement.
1. Option. The Company does hereby grant to Corning the
exclusive option to purchase from the Company all or any part of
an aggregate of Twenty Thousand (20,000) shares ("shares") of
Common Stock of the Company. The exercise price shall be Seven
and .125/100 Dollars ($7.125) per share for Twenty Thousand
(20,000) shares.
2. Term. The Option shall be exercisable at any time or
times until the option expires or terminates in accordance with
the provisions hereof. This Option shall in any event terminate
no later than 5:00 o'clock P.M., San Marcos, Texas time three
years after its date of grant.
3. Exercise. To exercise this option or any part thereof,
Corning shall give written notice of such election to the Company
at its Corporate Headquarters, Attention Corporate Secretary, so
as to be received by the Company within the period this option is
exercisable, which notice shall specify the number of shares to
be purchased and be accompanied by payment in full. Payment for
such shares may be by check or wire transfer. Exercise of the
option may be made in multiple parts, but in amounts of at least
One Hundred Thousand and No/100 Dollars ($100,000.00) per
exercise.
4. Share Issue. Upon receipt by the Company of proper
notice of exercise of this Option, the Company as promptly as
practicable and subject to the other provisions in this Option,
shall deliver a certificate or certificates representing shares
so purchased, and shall pay all original issuance or transfer
taxes on the exercise of this Option, and all other fees and
expenses necessarily incurred by the Company in connection
therewith. Certificates evidencing such shares may have endorsed
thereon such language as may be deemed necessary or advisable by
counsel for the Company in order to ensure compliance with the
applicable securities laws or regulations. Registration rights
shall be as set forth in the Umbrella Agreement.
5. Subdivision or Combination of Common Stock. If the
Company at any time subdivides (by any stock split, stock
dividend, recapitalization or otherwise) its outstanding shares
of Common Stock into a greater number of shares, the exercise
price in effect immediately prior to such subdivision will be
proportionately reduced, and if the Company at any time combines
(by reverse stock split or otherwise) its outstanding shares of
Common Stock into a smaller number of shares, the exercise price
in effect immediately prior to such combination will be
proportionately increased.
6. Reorganization, Reclassification, Consolidation, Merger
or Sale. Any reorganization, reclassification, consolidation,
merger or sale of all or substantially all of the CompanyOs
assets to another entity which is effected in such a way that
holders of Common Stock are entitled to receive (either directly
or upon subsequent liquidation), stock, securities or amounts
with respect to or in exchange for Common Stock is referred to
herein as an OOrganic Change.O Prior to the consummation of any
Organic Change, the Company will make appropriate provisions (in
form and substance satisfactory to the holder of the outstanding
principal amount of the Option then outstanding) to insure that
the holder of the Option will thereafter (for so long as such
holder has the right to exercise the Option) have the right to
receive, in lieu of or in addition to the shares of Common Stock
immediately theretofore issuable upon the exercise of the Option,
such shares of stock, securities or assets as such holder would
have received in connection with such Organic Change if such
holder had exercised the Option immediately prior to such Organic
Change. In any such case, the Company will make appropriate
provisions (in form and substance satisfactory to the holder of
the Option) to insure that the provisions of this part 6 will
thereafter (for so long as such holder has the right to exercise
the Option) be applicable to the Option.
IN WITNESS WHEREOF, the Parties have executed this Agreement
on the date first written above.
ELECTROSOURCE, INC. CORNING INCORPORATED
By: /s/ James M. Rosel By: /s/ David H. Fuller
James M. Rosel
Vice President Finance Printed Name: David H. Fuller
and General Counsel
Its: Division VP & Director
Exhibit 4.17
Date of Grant: December 31, 1997
ELECTROSOURCE, INC.
STOCK OPTION AGREEMENT
THIS OPTION HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE OACTO), OR
UNDER THE SECURITIES LAWS OF ANY STATE (OBLUE SKY
LAWSO), AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT OR DELIVERY TO THE COMPANY OF EVIDENCE
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT AN
EXEMPTION FROM REGISTRATION THEREUNDER IS AVAILABLE.
Corning Incorporated No. W12-102A
Corning, New York 14831 70,000 Shares
The undersigned, Electrosource, Inc. (the "Company"), a
Delaware corporation, for good and valuable consideration desires
to grant to Corning Incorporated ("Corning" or "Holder") an
option to acquire shares of Common Stock in the Company. The
option covered hereby is granted pursuant to the terms of the
Research and Development Umbrella Agreement ("Umbrella
Agreement") dated as of July 1, 1997 between the Company and
Corning, and all provisions of that Umbrella Agreement are
incorporated herein by reference. Defined terms shall have the
same meaning as in the Umbrella Agreement.
1. Option. The Company does hereby grant to Corning the
exclusive option to purchase from the Company all or any part of
an aggregate of Seventy Thousand (70,000) shares ("shares") of
Common Stock of the Company. The exercise price shall be Seven
and .125/100 Dollars ($7.125) per share for Seventy Thousand
(70,000) shares.
2. Term. The Option shall be exercisable at any time or
times until the option expires or terminates in accordance with
the provisions hereof. This Option shall in any event terminate
no later than 5:00 o'clock P.M., San Marcos, Texas time three
years after its date of grant.
3. Exercise. To exercise this option or any part thereof,
Corning shall give written notice of such election to the Company
at its Corporate Headquarters, Attention Corporate Secretary, so
as to be received by the Company within the period this option is
exercisable, which notice shall specify the number of shares to
be purchased and be accompanied by payment in full. Payment for
such shares may be by check or wire transfer. Exercise of the
option may be made in multiple parts, but in amounts of at least
One Hundred Thousand and No/100 Dollars ($100,000.00) per
exercise.
4. Share Issue. Upon receipt by the Company of proper
notice of exercise of this Option, the Company as promptly as
practicable and subject to the other provisions in this Option,
shall deliver a certificate or certificates representing shares
so purchased, and shall pay all original issuance or transfer
taxes on the exercise of this Option, and all other fees and
expenses necessarily incurred by the Company in connection
therewith. Certificates evidencing such shares may have endorsed
thereon such language as may be deemed necessary or advisable by
counsel for the Company in order to ensure compliance with the
applicable securities laws or regulations. Registration rights
shall be as set forth in the Umbrella Agreement.
5. Subdivision or Combination of Common Stock. If the
Company at any time subdivides (by any stock split, stock
dividend, recapitalization or otherwise) its outstanding shares
of Common Stock into a greater number of shares, the exercise
price in effect immediately prior to such subdivision will be
proportionately reduced, and if the Company at any time combines
(by reverse stock split or otherwise) its outstanding shares of
Common Stock into a smaller number of shares, the exercise price
in effect immediately prior to such combination will be
proportionately increased.
6. Reorganization, Reclassification, Consolidation, Merger
or Sale. Any reorganization, reclassification, consolidation,
merger or sale of all or substantially all of the CompanyOs
assets to another entity which is effected in such a way that
holders of Common Stock are entitled to receive (either directly
or upon subsequent liquidation), stock, securities or amounts
with respect to or in exchange for Common Stock is referred to
herein as an OOrganic Change.O Prior to the consummation of any
Organic Change, the Company will make appropriate provisions (in
form and substance satisfactory to the holder of the outstanding
principal amount of the Option then outstanding) to insure that
the holder of the Option will thereafter (for so long as such
holder has the right to exercise the Option) have the right to
receive, in lieu of or in addition to the shares of Common Stock
immediately theretofore issuable upon the exercise of the Option,
such shares of stock, securities or assets as such holder would
have received in connection with such Organic Change if such
holder had exercised the Option immediately prior to such Organic
Change. In any such case, the Company will make appropriate
provisions (in form and substance satisfactory to the holder of
the Option) to insure that the provisions of this part 6 will
thereafter (for so long as such holder has the right to exercise
the Option) be applicable to the Option.
IN WITNESS WHEREOF, the Parties have executed this
Agreement on the date first written above.
ELECTROSOURCE, INC. CORNING INCORPORATED
By: /s/ James M. Rosel By: /s/ David H. Fuller
James M. Rosel
Vice President Finance Printed Name: David H. Fuller
and General Counsel
Its: Division VP & Director
Exhibit 4.18
Date of Grant: December 31, 1997
ELECTROSOURCE, INC.
STOCK OPTION AGREEMENT
THIS OPTION HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE OACTO), OR
UNDER THE SECURITIES LAWS OF ANY STATE (OBLUE SKY
LAWSO), AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT OR DELIVERY TO THE COMPANY OF EVIDENCE
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT AN
EXEMPTION FROM REGISTRATION THEREUNDER IS AVAILABLE.
Corning Incorporated No. W12-103A
Corning, New York 14831 70,000 Shares
The undersigned, Electrosource, Inc. (the "Company"), a
Delaware corporation, for good and valuable consideration desires
to grant to Corning Incorporated ("Corning" or "Holder") an
option to acquire shares of Common Stock in the Company. The
option covered hereby is granted pursuant to the terms of the
Research and Development Umbrella Agreement ("Umbrella
Agreement") dated as of July 1, 1997 between the Company and
Corning, and all provisions of that Umbrella Agreement are
incorporated herein by reference. Defined terms shall have the
same meaning as in the Umbrella Agreement.
1. Option. The Company does hereby grant to Corning the
exclusive option to purchase from the Company all or any part of
an aggregate of Seventy Thousand (70,000) shares ("shares") of
Common Stock of the Company. The exercise price shall be Seven
and .125/100 Dollars ($7.125) per share for Seventy Thousand
(70,000) shares.
2. Term. The Option shall be exercisable at any time or
times until the option expires or terminates in accordance with
the provisions hereof. This Option shall in any event terminate
no later than 5:00 o'clock P.M., San Marcos, Texas time three
years after its date of grant.
3. Exercise. To exercise this option or any part thereof,
Corning shall give written notice of such election to the Company
at its Corporate Headquarters, Attention Corporate Secretary, so
as to be received by the Company within the period this option is
exercisable, which notice shall specify the number of shares to
be purchased and be accompanied by payment in full. Payment for
such shares may be by check or wire transfer. Exercise of the
option may be made in multiple parts, but in amounts of at least
One Hundred Thousand and No/100 Dollars ($100,000.00) per
exercise.
4. Share Issue. Upon receipt by the Company of proper
notice of exercise of this Option, the Company as promptly as
practicable and subject to the other provisions in this Option,
shall deliver a certificate or certificates representing shares
so purchased, and shall pay all original issuance or transfer
taxes on the exercise of this Option, and all other fees and
expenses necessarily incurred by the Company in connection
therewith. Certificates evidencing such shares may have endorsed
thereon such language as may be deemed necessary or advisable by
counsel for the Company in order to ensure compliance with the
applicable securities laws or regulations. Registration rights
shall be as set forth in the Umbrella Agreement.
5. Subdivision or Combination of Common Stock. If the
Company at any time subdivides (by any stock split, stock
dividend, recapitalization or otherwise) its outstanding shares
of Common Stock into a greater number of shares, the exercise
price in effect immediately prior to such subdivision will be
proportionately reduced, and if the Company at any time combines
(by reverse stock split or otherwise) its outstanding shares of
Common Stock into a smaller number of shares, the exercise price
in effect immediately prior to such combination will be
proportionately increased.
6. Reorganization, Reclassification, Consolidation, Merger
or Sale. Any reorganization, reclassification, consolidation,
merger or sale of all or substantially all of the CompanyOs
assets to another entity which is effected in such a way that
holders of Common Stock are entitled to receive (either directly
or upon subsequent liquidation), stock, securities or amounts
with respect to or in exchange for Common Stock is referred to
herein as an OOrganic Change.O Prior to the consummation of any
Organic Change, the Company will make appropriate provisions (in
form and substance satisfactory to the holder of the outstanding
principal amount of the Option then outstanding) to insure that
the holder of the Option will thereafter (for so long as such
holder has the right to exercise the Option) have the right to
receive, in lieu of or in addition to the shares of Common Stock
immediately theretofore issuable upon the exercise of the Option,
such shares of stock, securities or assets as such holder would
have received in connection with such Organic Change if such
holder had exercised the Option immediately prior to such Organic
Change. In any such case, the Company will make appropriate
provisions (in form and substance satisfactory to the holder of
the Option) to insure that the provisions of this part 6 will
thereafter (for so long as such holder has the right to exercise
the Option) be applicable to the Option.
IN WITNESS WHEREOF, the Parties have executed this
Agreement on the date first written above.
ELECTROSOURCE, INC. CORNING INCORPORATED
By: /s/ James M. Rosel By: /s/ David H. Fuller
James M. Rosel
Vice President Finance Printed Name: David H. Fuller
and General Counsel
Its: Division VP & Director
Exhibit 10.13
SUBLEASE AGREEMENT
This Sublease is made this 24th day of February, 1997, at
Travis County, Texas by and between ELECTROSOURCE, INC., (herein,
"Sublessor"), and MERIT PRINTING, INC., a Texas corporation,
(herein, "Sublessee").
Sublessor is the Lessee under that certain Lease, (the "Main
Lease"), by and between AETNA LIFE INSURANCE COMPANY, as
Landlord, (herein "Lessor"), and ELECTROSOURCE, INC., as Tenant,
(herein "Sublessor"), executed on or about February 3, 1992, as
amended, for the premises described in the Main Lease at 3800
Drossett Drive, Austin, Texas, (herein "Leased Premises"), a true
and correct copy of which Main Lease is attached hereto as
Exhibit "A" and incorporated herein by this reference.
In consideration of the mutual promises contained herein,
Sublessor hereby subleases the Leased Premises to Sublessee,
subject to the terms of the Main Lease, and subject further to
the provisions of this Sublease Agreement as follows:
1. Sublessee hereby agrees to abide by and observe
all the terms, covenants and conditions of the Main
Lease.
2. The term of this Sublease shall be for a term of
24 months, commencing on March 1, 1997, and ending
February 28, 1999, provided, however, that this
Sublease shall sooner terminate upon the termination
for any cause whatsoever of the Main Lease.
3. Insofar as the provisions of the Main Lease do not
conflict with the specific provisions of this Sublease
Agreement, they and each of them are incorporated into
this Sublease as if fully completely rewritten herein,
and Sublessee agrees to be bound to the Sublessor by
all the terms of the Main Lease and to assume towards
Sublessor and perform all the obligations and
responsibilities that Sublessor, by the Main Lease,
assumes towards the Lessor, except for the payment of
rent by Sublessee to Sublessor, which is governed by
Paragraph 4 herein. Sublessee further agrees to
indemnify and hold harmless Sublessor for any claim or
liability (including reasonable attorneys' fees) under
the Main Lease for actions or failure to act by
Sublessee. The relationship between Sublessee and
Sublessor shall be the same as that between Sublessor
and Lessor under the Main Lease.
4. Sublessee agrees to pay Sublessor, as rent for the
Leased Premises, the sum of Eleven Thousand Nine
Hundred Eighteen and 40/100 Dollars ($11,918.40) per
month from March 1, 1997 through February 28, 1998
(triple net), and Thirteen Thousand Four Hundred
Thirteen and 40/100 Dollars ($13,413.40) per month from
March 1, 1998 through February 28, 1999 (triple net),
payable in advance on the 1st day of each calendar
month during the term of this Sublease.
5. The following events shall be deemed to be events
of default by Sublessee under this Sublease: any events
of default by Sublessee listed as events of default by
Lessee set forth in the Main Lease, or any default in
the provisions of this Sublease agreement. Upon the
occurrence of any such events of default, and in
addition to any other available remedies provided by
law or in equity, Sublessor shall have all remedies
granted to Lessor in the Main Lease.
6. Upon execution of this Sublease, Sublessee shall
deposit with Sublessor the sum of _____-0-__________
Dollars ($0.00), as a security deposit to be held by
Sublessor pursuant to the provisions of the Main Lease.
7. Sublessee shall be liable for its share of all
operating expenses of the building as set forth in the
Main Lease, including, without limitation, real
property taxes, common area charges, Landlord's
insurance and similar charges for the term of this
Sublease. Sublessee shall also be responsible for its
utilities, trash removal and janitorial services.
Annual charges will be prorated in the usual manner.
Sublessee shall not be liable under the Main Lease for
anything that occurred prior to the term of this
Sublease or that should have reasonably have occurred
or been performed prior to the term of this Sublease.
8. Sublessor agrees to indemnify and hold Sublessee
harmless from any claim, loss or damage (including
reasonable attorney fees) arising related to
environmental contamination of the premises and
surrounding ground resulting from Sublessor's use of
premises existing at the time this Sublease is
executed.
9. Time is of the essence of this Sublease, and each
and all of the terms hereof.
10. Any notice or other communication required or
permitted to be given under this Sublease or under the
Main Lease shall be in writing and shall be deemed to
be delivered on the date it is hand delivered to the
party to whom such notice is given, at the address set
forth below, or if such notice is mailed, on the date
on which it is deposited in the United States mail,
postage prepaid, certified or registered mail, return
receipt requested, addressed to the party to whom such
notice is directed, at the address set forth below:
If to Sublessor:
Mr. James M. Rosel
Vice President Finance and General Counsel
Electrosource, Inc.
2809 Interstate 35 South
San Marcos, Texas 78666
If to Sublessee:
and, if applicable, to
Lessor,
Mr. John T. Bender Aetna Life Insurance Co.,
Vice President By and through its agent:
Merit Printing, Inc. Trammell Crow Central
Texas
3800-B Drossett Drive 301 Congress Avenue,
Suite 1300
Austin, Texas 78746 Austin, Texas 78701
11. Sublessee shall have no right to assign or sublet
any interest in this Sublease without first obtaining
the written consent of the Lessor and Sublessor, which
consent may or may not be granted by the Lessor or
Sublessor in their sole opinion, judgment or
discretion.
12. Sublessor shall have no liability to Sublessee for
any wrongful action or default on the part of Lessor
pursuant to the terms of the Main Lease, and Sublessee
hereby agrees to look solely to Lessor in event of any
such default, the liability and obligations of
Sublessor being solely pursuant to the terms and
conditions of this Sublease Agreement.
13. Sublessor represents and warrants that the Main
Lease is not in default at the time this Sublease is
signed by Sublessor.
14. In the event any one or more of the provisions
contained in this Sublease Agreement shall for any
reason be held invalid, illegal, or unenforceable in
any respect, such invalidity, illegality or
unenforceability shall not affect any other provision
hereof and this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never
been contained herein.
15. This Agreement constitutes the sole and only
agreement of the parties hereto and supersedes any
prior understanding and written or oral agreements
between the parties respecting the subject matter of
this Sublease Agreement.
EXECUTED on the day and year first above written.
ELECTROSOURCE, INC. MERIT PRINTING, INC.
By: /s/ James M. Rosel By: /s/ John T. Bender
Printed Name: James M. Rosel Printed Name: John T. Bender
Its: Vice President Finance Its: Vice President & General Manager
and General Counsel
CONSENT BY LESSOR
AETNA LIFE INSURANCE COMPANY, Lessor under the Main Lease
referred to in this Sublease Agreement, hereby consents to the
foregoing Sublease Agreement. Lessor further represents that the
Main Lease is not in default at the time this consent is
executed.
AETNA LIFE INSURANCE COMPANY
By: /s/ James G. Hughes
Printed Name: James G. Hughes
Its: Vice President
Exhibit 10.17
FIRST AMENDMENT
TO
ASSET AND TECHNOLOGY LICENSE AGREEMENT
This amendment ("Amendment") is made as of the 19th day of
December, 1997 by and between BDM INTERNATIONAL, INC., a Delaware
corporation ("Technologies") and ELECTROSOURCE, INC., a Delaware
corporation ("ELSI").
WITNESSETH:
WHEREAS, BDM Technologies, (also "Technologies") and ELSI
entered into that certain Asset and Technology License Agreement
dated as of January 31, 1995 (the "Agreement"); and
WHEREAS, BDM Technologies was subsequently merged into BDM
International, Inc. ("BDM"); and
WHEREAS, BDM and ELSI have agreed upon a method of payment
for past and future obligations under the Agreement; and
WHEREAS, BDM and ELSI wish to amend the Agreement to so
modify the payment method and schedule;
NOW, THEREFORE, in consideration of the premises and the
covenants of the parties herein contained, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Notwithstanding anything to the contrary in the
Agreement, past due amounts under Section 3.04 and 3.05
and amounts due in the future for equipment leases, all
as summarized as of the date hereof on Exhibit "A,"
which is attached hereto, shall be paid in a
combination of cash and common stock as follows;
A. $100,000 cash to be paid by ELSI to BDM upon
receipt by ELSI of partial funding in the amount
$2 million on or before December 31, 1997. Such
funding is to be supplied by sources unaffiliated
with BDM from a fund raising effort by ELSI that
is underway as of the date of this Amendment.
B. $300,000 cash to be paid by ELSI to BDM upon
completion of additional funding in the amount of
$5 million which is anticipated to be completed by
ELSI on or before March 31, 1998 from sources
unaffiliated with BDM. If the fundraising has not
been successfully completed by March 31, 1998, BDM
and ELSI shall meet in a good faith attempt to
mutually agree upon an arrangement for payment of
such amount. In the event of a failure to agree,
any amounts then owed to BDM shall be calculated
based on cash paid under paragraph 1.A. and B.,
and paid in accordance with procedures set forth
in paragraph 1.C. Payment of such shares shall be
made on April 15, 1998.
C. The balance shall be paid in ELSI common
stock to be issued immediately to BDM with a value
of Seven Hundred Sixty-six Thousand Nine Hundred
Sixty-seven and No/100 Dollars ($766,967.00)
calculated using the latest available closing
price for ELSI common stock as reported by NASDAQ
prior to the date of issue of the stock. The
Seven Hundred Sixty-six Thousand Nine Hundred
Sixty-seven and No/100 Dollars ($766,967.00) value
represents:
i) the sum of past due rents and taxes
under Sections 3.04 and 3.05 of the
Agreement,
ii) less the cash to be paid under A and B
above, and
iii) plus, the amount of future payments for
the equipment leases in Schedule 6 of the
Agreement, which is attached hereto.
D. ELSI shall from the date hereof pay directly
to the Lessor the rental payments for the real
property ("Facility") described in Schedule 6 to
the Agreement, and shall pay directly to the
taxing authorities all taxes for the Facility and
equipment.
E. ELSI shall also purchase the Facility or
otherwise remove BDM as a guarantor of the lease
for the Facility by no later than April 1, 1998.
In the event that ELSI shall not have purchased
the Facility or removed BDM as a guarantor by said
date, then ELSI shall give notice to cancel the
Facility lease effective September 30, 1998 (by
providing 180 days advance written notice to
Landlord as provided in the "Lease Agreement" of
August 17, 1993).
F. In the event that the cash and common stock
delivered hereunder by ELSI to BDM is less than
the amount of the past and future obligations set
forth in Exhibit "A" based on the actual proceeds
of the sale of ELSI common stock by BDM (or a
credit of $1.00 per share, whichever is higher)
such sales to be completed within a reasonable
period of time after a registration statement for
such common stock is effective or after the common
stock otherwise becomes available for sale under
an exemption from registration, ELSI shall, upon
demand from BDM, pay to BDM the difference in
cash. If such cash payment would cause a material
adverse affect on the financial condition of ELSI,
then ELSI may pay the deficiency in additional
shares of common stock valued at the then market
price [if greater than $1.00 per share. If the
market value is less than $1.00 per share, ELSI
shall pay the difference in cash.] ELSI shall
provide to BDM one time demand registration rights
under the terms of Section 7.04 of the Agreement
for any such stock, such registration statement to
be filed within 45 days of notice of demand. If
the proceeds from the sale of such additional
shares prove inadequate to pay the remaining
amounts due, Electrosource will pay that
deficiency in cash upon notice from BDM.
G. If there is a change in the number or kind of
outstanding shares of Common Stock of ELSI by
reason of a stock dividend, stock split,
recapitalization, merger, consolidation,
combination or other similar event, appropriate
adjustments shall be made to the number and kind
of shares to be paid under this Agreement,
including an appropriate adjustment to the par
value thereof and the minimum credit of $1.00 per
share referenced in paragraph 1.F. of this
Agreement.
2. Section 11.02 of the Agreement "Termination" is
amended by adding a new part "(c)" at the end of said
Section as follows:
"(c) BDM waives any defaults for non-payment under
the Agreement prior to the date of this Amendment
and waives any right to terminate the Agreement or
seek any other remedies based upon any such defaults
for so long as ELSI is not in material default under
this Amendment. This waiver shall not apply to any
defaults that may occur from and after the date of
the First Amendment to the Agreement."
The Agreement is not otherwise amended or modified in any
respect, and all provisions thereof continue in full force and
effect except as specifically set forth herein.
IN WITNESS WHEREOF, the parties hereto have caused this
First Amendment to the Agreement to be executed and be effective
the date first above written.
ELECTROSOURCE, INC. BDM INTERNATIONAL, INC.
By: /s/ James M. Rosel By: /s/ C. Thomas Faulders III
James M. Rosel
Vice President Finance Printed Name: C.Thomas Faulders III
and General Counsel
Its: EVP & CFO
EXHIBIT "A"
to First Amendment to Asset and Technology License Agreement
BDM - SCHEDULE OF DEBTS
Amount due to December 15, 1997
Equipment Facility Property
Leases Building Taxes Total
Lease
Past Due Payments
10/15/97 $423,143 $186,999 $153,043 $763,185
Less Payments
through 10/15/97 (125,000)
Net Past Due at $638,185
10/15/97
Adjustments to
12/15/97:
November, December
Payments @ $50,845 $101,690
Less 11/19/97 (25,000)
Payment
Balance Due $714,875
12/15/97
Less Cash To Be (400,000)
Paid
Net Past Due at $314,875
12/15/97
Commitments to end of Leases as of 12/15/97:
Equipment Leases Facility Building Total
Lease
Total Additional
Payments to End of $557,877 $2,270,000 $2,827,877
Term at 9/30/97
Adjustments to
12/31/97
(Oct. Nov. & Dec. ($105,785) ($46,750) ($152,535)
Pmts. @ $50,845)
Total $452,092 $2,223,250 $2,675,342
Stock Payment
Net Past Due Amounts $314,875
Plus Equipment payout $452,092
Amount to be Paid In $766,967
Stock
Exhibit 10.31
5% CONVERTIBLE PROMISSORY NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE (OBLUE SKY LAWSO), AND MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
DELIVERY TO THE COMPANY OF EVIDENCE SATISFACTORY TO THE
COMPANY TO THE EFFECT THAT AN EXEMPTION FROM
REGISTRATION THEREUNDER IS AVAILABLE.
Dated September 27, 1997 $100,000.00
FOR VALUE RECEIVED, Electrosource, Inc., a Delaware
corporation (the "Company"), hereby promises to pay to the order
of Corning Incorporated, a New York corporation ("Corning" or the
"original holder"), the principal sum of One Hundred Thousand
Dollars ($100,000.00) together with interest thereon calculated
from the date hereof, in accordance with the provisions of this
Note.
This Note is the 5% Convertible Promissory Note (the
"September 1997 Note") issued for payment of interest due
pursuant to the 5% Convertible Promissory Note (the "Original
Note") issued pursuant to a Note Purchase and Option Agreement
dated as of March 27, 1997, between the Company and Corning (the
"Purchase Agreement"). The Purchase Agreement contains terms
governing the rights and obligations of the holder of this
September 1997 Note, and all provisions of the Purchase Agreement
are incorporated herein by reference. Unless otherwise indicated
herein, capitalized terms used in this September 1997 Note and in
the Original Note have the same meanings as set forth in the
Purchase Agreement.
Part 1. Payment of Interest
lA. Rate of Interest. Interest shall accrue at the rate of
five percent (5%) per annum on the unpaid principal amount of
this September 1997 Note outstanding from time to time. Interest
shall be paid in cash or, at the option of the Company, in
additional Notes having terms identical to the Original Note
except in respect of principal amount, dated as of the Payment
Date (as defined below) with respect to which such interest is
payable and having a principal amount equal to the amount of
interest accrued and unpaid as of that Payment Date.
lB. Payment Dates. On March 27, 1998, and on each
subsequent September 27 and March 27 (each of which dates shall
be a "Payment Date"), all unpaid interest that has accrued on the
unpaid principal amount of this September 1997 Note on and prior
to such Payment Date or on any overdue interest on this September
1997 Note shall become due and payable.
lC. Payment upon Maturity or Prepayment. All accrued
interest that has not theretofore been paid shall be paid in full
on the date on which the entire principal amount outstanding
under this Note is paid, whether upon maturity or upon
prepayment. In the event that any portion less than the entire
outstanding principal amount of this September 1997 Note is
prepaid pursuant to paragraph 2B, the accrued interest applicable
to such portion prepaid shall be paid as of the effective date of
such partial prepayment.
lD. Saving Clause. All agreements and transactions between
the Company and the holder of this September 1997 Note, whether
now existing or hereafter arising, whether contained herein or in
any other instrument, and whether written or oral, are hereby
expressly limited so that in no contingency or event whatsoever,
whether by reason of acceleration of the maturity hereof,
prepayment, demand for prepayment or otherwise, shall the amount
contracted for, charged or received by the holder of this
September 1997 Note from the Company for the use, forbearance or
detention of the principal indebtedness or interest hereof, which
remains unpaid from time to time, exceed the maximum amount
permissible under applicable law, it particularly being the
intention of the parties hereto to conform strictly to the
applicable law of usury. Any interest payable hereunder or under
any other instrument relating to the indebtedness evidenced
hereby that is in excess of the legal maximum, shall, in the
event of acceleration of maturity, prepayment, demand for
prepayment or otherwise, be automatically, as of the date of such
acceleration, prepayment, demand or otherwise, applied to a
reduction of the principal indebtedness hereof and not to the
payment of interest, or if such excessive interest exceeds the
unpaid balance of such principal, such excess shall be refunded
to the Company. To the extent not prohibited by law,
determination of the legal maximum rate of interest shall at all
times be made by amortizing, prorating, allocating and spreading
in equal parts during the period of the full stated term of the
indebtedness, all interest at any time contracted for, charged or
received from the Company in connection with the indebtedness, so
that the actual rate of interest on account of such indebtedness
is uniform throughout the term hereof.
Part 2. Payment of Principal
2A. Payment upon Maturity. The entire unpaid principal
amount hereof shall be due and payable on March 27, 2002.
2B. Prepayment. The Company may prepay all or any part of
this Note at any time in One Hundred Thousand Dollar ($100,000)
increments. The Company shall give not less than thirty (30)
days prior written notice of its intention to prepay this Note.
Part 3. Registration of Transfer
The Company shall keep at its principal office a register
for the registration of Notes, which shall contain the name and
address of the registered holder (herein referred to as the
holder) of the Note and the principal and interest of the Note.
No transfer of the Note or any right to receive payments under
the Note shall be permitted unless made upon the CompanyOs
register. Upon the surrender of any Note or Notes at such place,
the Company shall, at the request of the holder of such Note,
execute and deliver (at the CompanyOs expense) a new Note or
Notes in exchange therefor representing in the aggregate the
principal amount represented by the surrendered Note. Each such
new Note shall be registered in such name and shall represent
such principal amount of Note as is requested by the holder of
the surrendered Note and shall be substantially identical in form
to the surrendered Note, and interest shall accrue on such new
Note from the date to which interest has been fully paid on such
Note represented by the surrendered Note; provided that, if any
Note is to be registered in the name of a person or persons other
than the holder of the Note, there has been compliance with all
laws applicable to such change of registered holder, including
but not limited to federal and state securities laws.
Part 4. Replacement
Upon receipt of evidence reasonably satisfactory to the
Company of the ownership and the loss, theft, destruction or
mutilation of any Note, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory
to the Company, or, in the case of any such mutilation upon
surrender of such Note, the Company shall (at its expense)
execute and deliver in lieu of such Note, a new Note of like kind
representing the principal amount of Note represented by such
lost, stolen, destroyed or mutilated Note and dated the date of
such lost, stolen, destroyed or mutilated Note, and interest
shall accrue on the Note represented by such new Note from the
date to which interest has been fully paid on such lost, stolen,
destroyed or mutilated Note.
Part 5. Cancellation
After all principal and accrued interest at any time owed on
this September 1997 Note has been paid in full, this September
1997 Note shall be surrendered to the Company for cancellation
and shall not be reissued.
Part 6. Waiver of Notice, etc.
The Company hereby waives presentment, demand, notice,
protest and all other demands and notice in connection with the
delivery, acceptance, performance and enforcement of this
September 1997 Note, and assents to extension of the time of
payment or forbearance or other indulgence without notice.
Part 7. Events of Default
7A. Events of Default. Each of the following shall
constitute an Event of Default:
(i) the Company fails to pay when due the full amount
of any principal or interest on this September 1997 Note whether
at maturity or by acceleration or otherwise;
(ii) the Company makes an assignment for the benefit of
creditors or admits in writing its inability to pay its debts
generally as they become due; or an order, judgment or decree is
entered adjudicating the Company bankrupt or insolvent; or the
Company petitions or applies to any tribunal for the appointment
of a trustee, receiver or liquidator of the Company or of any
substantial part of the assets of the Company, or commences any
proceeding under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation law
of any jurisdiction; or any such petition or application is
filed, or any such proceeding is commenced against the Company
and either the Company takes any action indicating its approval
thereof, consent thereto, or acquiescence therein or such
petition, application or proceeding is not dismissed within
ninety (90) days;
(iii) the sale by the Company of a material part of
the business or assets of the Company other than in the ordinary
course of business;
(iv) the taking, closing or nationalization of a
material part of the business or assets of the Company by
governmental or legal action. A "material part of the business
or assets of the Company" means more than one-third of the gross
assets of the Company as set forth in its most recent audited
consolidated financial statements;
(v) any representation or warranty of the Company set
forth in the Purchase Agreement is shown to be, or becomes false
or untrue as of the date of this September 1997 Note.
7B. Remedies. Upon the occurrence and continuance of any
Event or Events of default, the holders of a majority of the
combined aggregate principal amount outstanding under this
September 1997 Note and any Notes issued in payment of accrued
interest on Notes may, by written notice to the Company, declare
all or any part of the unpaid principal amount of the Notes then
outstanding to be forthwith due and payable, and thereupon such
unpaid principal amount or part thereof, together with interest
accrued thereon, shall become so due and payable without
presentation, presentment, protest, notice of intent to
accelerate, notice of acceleration, or further demand or notice
of any kind, all of which are hereby expressly waived, and such
holder or holders may proceed to enforce payment of such amount
or part thereof in such manner as it or they may elect. The
Company hereby waives to the extent not prohibited by applicable
law which cannot itself be waived (i) all presentments, demands
for performance, notices of nonperformance (except to the extent
required by the provisions hereof), (ii) any requirement of
diligence or promptness on the part of any holder of Notes in the
enforcement of its rights under the provisions of this September
1997 Note, and (iii) any and all notices of every kind and
description which may be required to be given by any statute or
rule of law.
Part 8. Conversion
8A. Conversion Procedure.
(i) The holder of this September 1997 Note may convert
all or any portion of the outstanding principal amount hereof
(plus accrued but unpaid interest on such principal amount or
portion thereof) held by such holder into a number of shares of
the CompanyOs Common Stock computed by dividing the principal
amount of this September 1997 Note (plus accrued but unpaid
interest thereon) to be converted by the OConversion PriceO (as
defined below in Part 8B).
(ii) Each conversion will be deemed to have been
effected as of the close of business on the date on which the
instrument representing this September 1997 Note has been
surrendered at the principal office of the Company. At such time
as such conversion has been effected, the rights of the holder of
this September 1997 Note as such holder will cease and the person
or persons in whose name or names any certificate or certificates
for shares of Common Stock are to be issued upon such conversion
will be deemed to have become the holder or holders of record of
the shares of Common Stock represented thereby.
(iii) As soon as possible after a conversion has
been effected (but in any event within three (3) business days in
the case of subparagraph (a) below), the Company will deliver to
the converting holder:
(a) a certificate representing the number of
shares of Common Stock issuable by reason of such conversion in
such name or names and such denomination or denominations as the
converting holder has specified (provided that, in the event that
the name specified by the converting holder is other than that of
the converting holder, the Company has received evidence
satisfactory to Company counsel that the transfer of Common Stock
from the converting holder to the person specified may be
accomplished without violation of applicable law);
(b) a replacement Note having terms identical to
those of this September 1997 Note other than the principal
amount, which shall be equal to portion of the principal amount
of the original Note not converted; and
(c) the amount payable under subparagraph (vi)
below with respect to fractional shares of Common Stock otherwise
issuable upon such conversion.
(iv) The issuance of certificates for shares of Common
Stock upon conversion of this September 1997 Note will be made
without charge to the holder of such Note for any issuance tax in
respect thereof or other cost incurred by the Company in
connection with such conversion and the related issuance of
shares of Common Stock. Upon conversion of this September 1997
Note, the Company will take all such actions as are necessary in
order to insure that the Common Stock issuable with respect to
such conversion will be validly issued, fully paid and
nonassessable.
(v) The Company will not close its books against the
transfer of this September 1997 Note or of Common Stock issued or
issuable upon conversion of this September 1997 Note in any
manner which interferes with the timely conversion of this
September 1997 Note.
(vi) If any fractional interest in a share of Common
Stock would, except for the provisions of this subparagraph (vi),
be deliverable upon any conversion of this September 1997 Note,
the Company, in lieu of delivering the fractional share therefor,
may at its option pay a cash adjustment for such fractional share
equal to such fraction times the fair market value per share of
the Common Stock at the close of business on the date of
conversion, as determined in good faith by the board of directors
of the Company.
(vii) The provisions of this part 8 shall be
subject to the limitations imposed by section 2B hereof.
8B. Conversion Price. The Conversion Price shall be Five
and 50/100 Dollars ($5.50). In order to prevent dilution of the
conversion rights granted under this part 8, the Conversion Price
will be subject to adjustment from time to time pursuant to this
part 8; provided that the Conversion Price will in no event be
less than One and No/100 Dollars ($1.00), the par value.
8C. Subdivision or Combination of Common Stock. If the
Company at any time subdivides (by any stock split, stock
dividend, recapitalization or otherwise) its outstanding shares
of Common Stock into a greater number of shares, the Conversion
Price in effect immediately prior to such subdivision will be
proportionately reduced, and if the Company at any time combines
(by reverse stock split or otherwise) its outstanding shares of
Common Stock into a smaller number of shares, the Conversion
Price in effect immediately prior to such combination will be
proportionately increased.
8D. Reorganization, Reclassification, Consolidation, Merger
or Sale. Any reorganization, reclassification, consolidation,
merger or sale of all or substantially all of the CompanyOs
assets to another Person which is effected in such a way that
holders of Common Stock are entitled to receive (either directly
or upon subsequent liquidation), stock, securities or amounts
with respect to or in exchange for Common Stock is referred to
herein as an OOrganic Change.O Prior to the consummation of any
Organic Change, the Company will make appropriate provisions (in
form and substance satisfactory to the holders of a majority of
the outstanding principal amount of Notes then outstanding) to
insure that each of the holders of Notes will thereafter (for so
long as such holders have the right to convert the Notes as
provided in this part 8) have the right to receive, in lieu of or
in addition to the shares of Common Stock immediately theretofore
issuable upon the conversion of such holderOs Notes, such shares
of stock, securities or assets as such holder would have received
in connection with such Organic Change if such holder had
converted his Notes immediately prior to such Organic Change. In
any such case, the Company will make appropriate provisions (in
form and substance satisfactory to the holders of a majority of
the outstanding principal amount of Notes then outstanding) to
insure that the provisions of this part 8 will thereafter (for so
long as such holders have the right to convert the Notes as
provided in this part 8) be applicable to the Notes.
8E. Notices. Until the maturity of this September 1997
Note:
(i) Immediately upon any adjustment of the Conversion
Price, the Company will give written notice thereof to the holder
of this September 1997 Note.
(ii) The Company will give written notice to the holder
of this September 1997 Note at least twenty (20) days prior to
the date on which the Company closes its books or takes a record
(a) with respect to any dividend or distribution upon Common
Stock, (b) with respect to any pro rata subscription offer to
holders of Common Stock or (c) for determining rights to vote
with respect to any Organic Change, dissolution or liquidation.
(iii) The Company will also give written notice to
the holder of this September 1997 Note at least thirty (30) days
prior to the date on which any Organic Change will take place.
Part 9. Amendment and Waiver
No amendment, modification or waiver shall be binding or
effective with respect to any provision of this Note without the
prior written consent of the holders of at least sixty-seven
percent (67%) of the combined aggregate principal amount of this
September 1997 Note and any additional Notes issued in payment of
accrued interest then outstanding.
Part 10. Notices
Except as otherwise expressly provided, all notices
referred to herein will be in writing and will be delivered by
registered or certified mail, return receipt requested, postage
prepaid and will be deemed to have been given when so mailed (i)
to the Company, at its principal executive offices and (ii) to
any holder of this September 1997 Note, at such holder's address
as it appears in the Note register maintained pursuant to part 3
hereof (unless otherwise indicated by any such holder).
IN WITNESS WHEREOF, the Company has executed and delivered
this Note as of September 27, 1997.
ELECTROSOURCE, INC.
By: /s/ James M. Rosel
James M. Rosel
Vice President Finance
and General Counsel
Exhibit 10.32
5% CONVERTIBLE PROMISSORY NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE ("BLUE SKY LAWS"), AND MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
DELIVERY TO THE COMPANY OF EVIDENCE SATISFACTORY TO THE
COMPANY TO THE EFFECT THAT AN EXEMPTION FROM
REGISTRATION THEREUNDER IS AVAILABLE.
Dated March 27, 1998 $102,500
FOR VALUE RECEIVED, Electrosource, Inc., a Delaware
corporation (the "Company"), hereby promises to pay to the order
of Corning Incorporated, a New York corporation ("Corning" or the
"original holder"), the principal sum of One Hundred Two Thousand
Five Hundred Dollars ($102,500) together with interest thereon
calculated from the date hereof, in accordance with the
provisions of this Note.
This Note is the 5% Convertible Promissory Note (the "March
1998 Note") issued for payment of interest due pursuant to (i)
the 5% Convertible Promissory Note (the "Original Note") issued
pursuant to a Note Purchase and Option Agreement dated as of
March 27, 1997, between the Company and Corning (the "Purchase
Agreement"), and (ii) the 5% Convertible Promissory Note (the
"September 1997 Note") issued for the payment of interest on the
Original Note. The Purchase Agreement contains terms governing
the rights and obligations of the holder of this March 1998 Note,
and all provisions of the Purchase Agreement are incorporated
herein by reference. Unless otherwise indicated herein,
capitalized terms used in this March 1998 Note and in the
Original Note have the same meanings as set forth in the Purchase
Agreement.
Part 1. Payment of Interest
lA. Rate of Interest. Interest shall accrue at the rate of
five percent (5%) per annum on the unpaid principal amount of
this March 1998 Note outstanding from time to time. Interest
shall be paid in cash or, at the option of the Company, in
additional Notes having terms identical to the Original Note
except in respect of principal amount, dated as of the Payment
Date (as defined below) with respect to which such interest is
payable and having a principal amount equal to the amount of
interest accrued and unpaid as of that Payment Date.
lB. Payment Dates. On March 27, 1998, and on each
subsequent September 27 and March 27 (each of which dates shall
be a OPayment DateO), all unpaid interest that has accrued on the
unpaid principal amount of this March 1998 Note on and prior to
such Payment Date or on any overdue interest on this March 1998
Note shall become due and payable.
lC. Payment upon Maturity or Prepayment. All accrued
interest that has not theretofore been paid shall be paid in full
on the date on which the entire principal amount outstanding
under this March 1998 Note is paid, whether upon maturity or upon
prepayment. In the event that any portion less than the entire
outstanding principal amount of this March 1998 Note is prepaid
pursuant to paragraph 2B, the accrued interest applicable to such
portion prepaid shall be paid as of the effective date of such
partial prepayment.
lD. Saving Clause. All agreements and transactions between
the Company and the holder of this March 1998 Note, whether now
existing or hereafter arising, whether contained herein or in any
other instrument, and whether written or oral, are hereby
expressly limited so that in no contingency or event whatsoever,
whether by reason of acceleration of the maturity hereof,
prepayment, demand for prepayment or otherwise, shall the amount
contracted for, charged or received by the holder of this March
1998 Note from the Company for the use, forbearance or detention
of the principal indebtedness or interest hereof, which remains
unpaid from time to time, exceed the maximum amount permissible
under applicable law, it particularly being the intention of the
parties hereto to conform strictly to the applicable law of
usury. Any interest payable hereunder or under any other
instrument relating to the indebtedness evidenced hereby that is
in excess of the legal maximum, shall, in the event of
acceleration of maturity, prepayment, demand for prepayment or
otherwise, be automatically, as of the date of such acceleration,
prepayment, demand or otherwise, applied to a reduction of the
principal indebtedness hereof and not to the payment of interest,
or if such excessive interest exceeds the unpaid balance of such
principal, such excess shall be refunded to the Company. To the
extent not prohibited by law, determination of the legal maximum
rate of interest shall at all times be made by amortizing,
prorating, allocating and spreading in equal parts during the
period of the full stated term of the indebtedness, all interest
at any time contracted for, charged or received from the Company
in connection with the indebtedness, so that the actual rate of
interest on account of such indebtedness is uniform throughout
the term hereof.
Part 2. Payment of Principal
2A. Payment upon Maturity. The entire unpaid principal
amount hereof shall be due and payable on March 27, 2002.
2B. Prepayment. The Company may prepay all or any part of
this March 1998 Note at any time. The Company shall give not
less than thirty (30) days prior written notice of its intention
to prepay this March 1998 Note.
Part 3. Registration of Transfer
The Company shall keep at its principal office a register
for the registration of Notes, which shall contain the name and
address of the registered holder (herein referred to as the
Holder) of the Note and the principal and interest of the Note.
No transfer of the Note or any right to receive payments under
the Note shall be permitted unless made upon the CompanyOs
register. Upon the surrender of any Note or Notes at such place,
the Company shall, at the request of the Holder of such Note,
execute and deliver (at the CompanyOs expense) a new Note or
Notes in exchange therefor representing in the aggregate the
principal amount represented by the surrendered Note. Each such
new Note shall be registered in such name and shall represent
such principal amount of Note as is requested by the Holder of
the surrendered Note and shall be substantially identical in form
to the surrendered Note, and interest shall accrue on such new
Note from the date to which interest has been fully paid on such
Note represented by the surrendered Note; provided that, if any
Note is to be registered in the name of a person or persons other
than the Holder of the Note, there has been compliance with all
laws applicable to such change of registered holder, including
but not limited to federal and state securities laws.
Part 4. Replacement
Upon receipt of evidence reasonably satisfactory to the
Company of the ownership and the loss, theft, destruction or
mutilation of any Note, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory
to the Company, or, in the case of any such mutilation upon
surrender of such Note, the Company shall (at its expense)
execute and deliver in lieu of such Note, a new Note of like kind
representing the principal amount of Note represented by such
lost, stolen, destroyed or mutilated Note and dated the date of
such lost, stolen, destroyed or mutilated Note, and interest
shall accrue on the Note represented by such new Note from the
date to which interest has been fully paid on such lost, stolen,
destroyed or mutilated Note.
Part 5. Cancellation
After all principal and accrued interest at any time owed on
this March 1998 Note has been paid in full, this March 1998 Note
shall be surrendered to the Company for cancellation and shall
not be reissued.
Part 6. Waiver of Notice, etc.
The Company hereby waives presentment, demand, notice,
protest and all other demands and notice in connection with the
delivery, acceptance, performance and enforcement of this March
1998 Note, and assents to extension of the time of payment or
forbearance or other indulgence without notice.
Part 7. Events of Default
7A. Events of Default. Each of the following shall
constitute an Event of Default:
(i) the Company fails to pay when due the full amount
of any principal or interest on this March 1998 Note whether at
maturity or by acceleration or otherwise;
(ii) the Company makes an assignment for the benefit of
creditors or admits in writing its inability to pay its debts
generally as they become due; or an order, judgment or decree is
entered adjudicating the Company bankrupt or insolvent; or the
Company petitions or applies to any tribunal for the appointment
of a trustee, receiver or liquidator of the Company or of any
substantial part of the assets of the Company, or commences any
proceeding under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation law
of any jurisdiction; or any such petition or application is
filed, or any such proceeding is commenced against the Company
and either the Company takes any action indicating its approval
thereof, consent thereto, or acquiescence therein or such
petition, application or proceeding is not dismissed within
ninety (90) days;
(iii) the sale by the Company of a material part of
the business or assets of the Company other than in the ordinary
course of business;
(iv) the taking, closing or nationalization of a
material part of the business or assets of the Company by
governmental or legal action. A "material part of the business
or assets of the Company" means more than one-third of the gross
assets of the Company as set forth in its most recent audited
consolidated financial statements;
(v) any representation or warranty of the Company set
forth in the Purchase Agreement is shown to be, or becomes false
or untrue as of the date of this March 1998 Note.
7B. Remedies. Upon the occurrence and continuance of any
Event or Events of default, the holders of a majority of the
combined aggregate principal amount outstanding under this March
1998 Note and any Notes issued in payment of accrued interest on
Notes may, by written notice to the Company, declare all or any
part of the unpaid principal amount of the Notes then outstanding
to be forthwith due and payable, and thereupon such unpaid
principal amount or part thereof, together with interest accrued
thereon, shall become so due and payable without presentation,
presentment, protest, notice of intent to accelerate, notice of
acceleration, or further demand or notice of any kind, all of
which are hereby expressly waived, and such holder or holders may
proceed to enforce payment of such amount or part thereof in such
manner as it or they may elect. The Company hereby waives to the
extent not prohibited by applicable law which cannot itself be
waived (i) all presentments, demands for performance, notices of
nonperformance (except to the extent required by the provisions
hereof), (ii) any requirement of diligence or promptness on the
part of any holder of Notes in the enforcement of its rights
under the provisions of this March 1998 Note, and (iii) any and
all notices of every kind and description which may be required
to be given by any statute or rule of law.
Part 8. Conversion
8A. Conversion Procedure.
(i) The holder of this March 1998 Note may convert all
or any portion of the outstanding principal amount hereof (plus
accrued but unpaid interest on such principal amount or portion
thereof) held by such holder into a number of shares of the
CompanyOs Common Stock computed by dividing the principal amount
of this March 1998 Note (plus accrued but unpaid interest
thereon) to be converted by the OConversion PriceO (as defined
below in Part 8B).
(ii) Each conversion will be deemed to have been
effected as of the close of business on the date on which the
instrument representing this March 1998 Note has been surrendered
at the principal office of the Company. At such time as such
conversion has been effected, the rights of the holder of this
March 1998 Note as such holder will cease and the person or
persons in whose name or names any certificate or certificates
for shares of Common Stock are to be issued upon such conversion
will be deemed to have become the holder or holders of record of
the shares of Common Stock represented thereby.
(iii) As soon as possible after a conversion has
been effected (but in any event within three (3) business days in
the case of subparagraph (a) below), the Company will deliver to
the converting holder:
(a) a certificate representing the number of
shares of Common Stock issuable by reason of such conversion in
such name or names and such denomination or denominations as the
converting holder has specified (provided that, in the event that
the name specified by the converting holder is other than that of
the converting holder, the Company has received evidence
satisfactory to Company counsel that the transfer of Common Stock
from the converting holder to the person specified may be
accomplished without violation of applicable law);
(b) a replacement Note having terms identical to
those of this March 1998 Note other than the principal amount,
which shall be equal to portion of the principal amount of the
original Note not converted; and
(c) the amount payable under subparagraph (vi)
below with respect to fractional shares of Common Stock otherwise
issuable upon such conversion.
(iv) The issuance of certificates for shares of Common
Stock upon conversion of this March 1998 Note will be made
without charge to the holder of such Note for any issuance tax in
respect thereof or other cost incurred by the Company in
connection with such conversion and the related issuance of
shares of Common Stock. Upon conversion of this March 1998 Note,
the Company will take all such actions as are necessary in order
to insure that the Common Stock issuable with respect to such
conversion will be validly issued, fully paid and nonassessable.
(v) The Company will not close its books against the
transfer of this March 1998 Note or of Common Stock issued or
issuable upon conversion of this March 1998 Note in any manner
which interferes with the timely conversion of this March 1998
Note.
(vi) If any fractional interest in a share of Common
Stock would, except for the provisions of this subparagraph (vi),
be deliverable upon any conversion of this March 1998 Note, the
Company, in lieu of delivering the fractional share therefore,
may at its option pay a cash adjustment for such fractional share
equal to such fraction times the fair market value per share of
the Common Stock at the close of business on the date of
conversion, as determined in good faith by the board of directors
of the Company.
(vii) The provisions of this part 8 shall be
subject to the limitations imposed by section 2B hereof.
8B. Conversion Price. The Conversion Price shall be Five
and 50/100 Dollars ($5.50). In order to prevent dilution of the
conversion rights granted under this part 8, the Conversion Price
will be subject to adjustment from time to time pursuant to this
part 8; provided that the Conversion Price will in no event be
less than One and No/100 Dollars ($1.00), the par value.
8C. Subdivision or Combination of Common Stock. If the
Company at any time subdivides (by any stock split, stock
dividend, recapitalization or otherwise) its outstanding shares
of Common Stock into a greater number of shares, the Conversion
Price in effect immediately prior to such subdivision will be
proportionately reduced, and if the Company at any time combines
(by reverse stock split or otherwise) its outstanding shares of
Common Stock into a smaller number of shares, the Conversion
Price in effect immediately prior to such combination will be
proportionately increased.
8D. Reorganization, Reclassification, Consolidation, Merger
or Sale. Any reorganization, reclassification, consolidation,
merger or sale of all or substantially all of the CompanyOs
assets to another Person which is effected in such a way that
holders of Common Stock are entitled to receive (either directly
or upon subsequent liquidation), stock, securities or amounts
with respect to or in exchange for Common Stock is referred to
herein as an OOrganic Change.O Prior to the consummation of any
Organic Change, the Company will make appropriate provisions (in
form and substance satisfactory to the holders of a majority of
the outstanding principal amount of Notes then outstanding) to
insure that each of the holders of Notes will thereafter (for so
long as such holders have the right to convert the Notes as
provided in this part 8) have the right to receive, in lieu of or
in addition to the shares of Common Stock immediately theretofore
issuable upon the conversion of such holderOs Notes, such shares
of stock, securities or assets as such holder would have received
in connection with such Organic Change if such holder had
converted his Notes immediately prior to such Organic Change. In
any such case, the Company will make appropriate provisions (in
form and substance satisfactory to the holders of a majority of
the outstanding principal amount of Notes then outstanding) to
insure that the provisions of this part 8 will thereafter (for so
long as such holders have the right to convert the Notes as
provided in this part 8) be applicable to the Notes.
8E. Notices. Until the maturity of this March 1998 Note:
(i) Immediately upon any adjustment of the Conversion
Price, the Company will give written notice thereof to the holder
of this March 1998 Note.
(ii) The Company will give written notice to the holder
of this March 1998 Note at least twenty (20) days prior to the
date on which the Company closes its books or takes a record (a)
with respect to any dividend or distribution upon Common Stock,
(b) with respect to any pro rata subscription offer to holders of
Common Stock or (c) for determining rights to vote with respect
to any Organic Change, dissolution or liquidation.
(iii) The Company will also give written notice to
the holder of this March 1998 Note at least thirty (30) days
prior to the date on which any Organic Change will take place.
Part 9. Amendment and Waiver
No amendment, modification or waiver shall be binding or
effective with respect to any provision of this March 1998 Note
without the prior written consent of the holders of at least
sixty-seven percent (67%) of the combined aggregate principal
amount of this March 1998 Note and any additional Notes issued in
payment of accrued interest then outstanding.
Part 10. Notices
Except as otherwise expressly provided, all notices
referred to herein will be in writing and will be delivered by
registered or certified mail, return receipt requested, postage
prepaid and will be deemed to have been given when so mailed (i)
to the Company, at its principal executive offices and (ii) to
any holder of this March 1998 Note, at such holderOs address as
it appears in the Note register maintained pursuant to part 3
hereof (unless otherwise indicated by any such holder).
IN WITNESS WHEREOF, the Company has executed and delivered
this March 1998 Note as of March 27, 1998.
ELECTROSOURCE, INC.
By: /s/ Michael G. Semmens
Michael G. Semmens
President and CEO
Exhibit 10.33
AMENDMENT NO. 1
TO
ELECTROSOURCE, INC.
STOCK OPTION AGREEMENT
DATED MARCH 27, 1997
GRANTED TO CORNING INCORPORATED
On or about March 27, 1997, Electrosource, Inc. (the
"Company"), a Delaware corporation, granted to Corning
Incorporated ("Corning") an option to acquire Five Hundred
Thousand (500,000) shares of the Company's Common Stock, the
exercise price of which was $7.00 per share for 275,000 shares
and $9.00 per share for 225,000 shares (the "Options").
On December 19, 1997, the Company and Corning entered into
that certain Note Purchase Agreement whereby, among other things,
the exercise price of the Options was agreed to be reduced to
$4.00 per share for 275,000 shares and $6.00 per share for
225,000 shares.
The exercise price of the Options is therefore hereby
amended to $4.00 per share for 275,000 shares and $6.00 per share
for 225,000 shares.
All other terms and conditions of the Stock Option Agreement
remain in full force and effect and are not amended or modified
except as specifically set forth herein.
IN WITNESS WHEREOF, the Parties have executed this Amendment
as of this 22nd day of December, 1997.
ELECTROSOURCE, INC. CORNING INCORPORATED
By: /s/ James M. Rosel By: /s/ David H. Fuller
James M. Rosel
Vice President Finance Printed Name: David H. Fuller
and General Counsel
Its: Division VP & Director
Exhibit 10.34
EXECUTION VERSION
Research and Development Umbrella Agreement
This RESEARCH AND DEVELOPMENT UMBRELLA AGREEMENT is dated as
of July 1, 1997, between CORNING INCORPORATED, a New York
corporation ("Corning"), and ELECTROSOURCE, INC., a Delaware
corporation ("Electrosource").
W I T N E S S E T H:
WHEREAS, Electrosource designs, manufactures and markets
proprietary advanced energy storage technologies and systems,
including deep discharge lead-acid batteries; and
WHEREAS, Corning creates leading-edge technologies and
produces advanced materials for the scientific and environmental
markets; and
WHEREAS, the parties have entered into a Note Purchase and
Option Agreement, dated as of March 27, 1997 (the "Note Purchase
Agreement"), and a Stock Option Agreement dated as of March 27,
1997 (the "Stock Option Agreement"), whereby Corning may purchase
up to 1,227,273 shares of common stock of Electrosource; and
WHEREAS, Corning has loaned to Electrosource $4,000,000 in
consideration of Electrosource issuing to Corning a 5%
Convertible Promissory Note of equivalent face value, dated March
27, 1997 (the "5% Convertible Note").
WHEREAS, the parties believe that it would be in the best
interests of each other to jointly conduct and coordinate certain
projects that may involve research, development and transfers of
technology relating to the design, development arid manufacture
of deep discharge lead-acid batteries (the "Projects"); and
WHEREAS, the parties desire to enter into this Research and
Development Umbrella Agreement to define certain terms and
conditions relating to Lhe joint conduct and coordination of such
Projects (this Research and Development UmbreiJa Agreement,
including any and a]] Project Annexes (as hereinafter defined)
that may be attached hereto from time to time, is referred to
herein as the "Agreement").
NOW, THEREFORE, in consideration of the foregoing premises
and the mutual covenants and undertakings contained herein, and
subject to and on the terms and conditions set forth herein, the
parties agree as follows:
1. Projects. (a) From time to time Electrosource shall develop
and present to Corning various Projects. With respect to each
such Project, Electrosource shall present a written proposal to
Corning defining the technical and business goals of such
Project, the tasks involved and the milestones identified for
successfiil completion of such Project, the suggested involvement
and contributions of each of Electrosource and Corning, and the
period during which the Project shall be completed (each a
"Project Period"). Corning shall review such Project proposal and
decide whether it is in the best interests of Corning to
participate. Within a reasonable time after Electrosource has
presented to Corning such Project proposal, Coming shall notif~
Electrosource whether it elects to participate or not, the terms
on which it shall participate and any suggestions that Coming may
have towards the successfiil conduct and completion of such
Project. Any such Project on which the parties elect to jointly
participate shall be governed by the terms and conditions of this
Agreement, but shall be more particularly defined in an Annex to
be attached hereto, substantially in the form attached hereto as
Exhibit A (each a "Project Annex"), that includes a definition
and goals of such project, a definition of the involvement and
contributions of each of the parties, a schedule of performance,
milestones, payment details, and such other terms and conditions
as the parties shall mutually agree. These Project Annexes shall
be executed and dated by an authorized officer of each party and
shall for all purposes hereof and thereof be an integral part of
this Agreement.
(b) Periodically, representatives of Coming and
Electrosource will meet to identi~ new areas for cooperation and
assistance that may lead to new Projects and to review progress
on any existing Projects, including the monitoring of costs and
expenses related to particular Projects.
2. Project Committees. (a) Each Project shall be governed
by a committee (each a "Project Comrnittee") consisting of two
managers, one designated by Corning and one designated by
Electrosource. The initial Project Committee members shall be
defined in the respective Project Annex. Each member of such
Project Committee shall serve at the pleasure of the party which
designated that Project Committee member and in the event of a
vacancy, a replacement shall be named prior to the next scheduled
Project Committee meeting by the party entitled to fill said
position.
(b) The flinctions, authority and tasks of each such Project
Committee shall be: to provide overall technical, commercial and
financial guidance and control over the respective Project; to
designate a Project Leader (as defined in Section 3); to
initiate, approve (or disapprove) of significant changes to the
schedule ofperformance; to review, amend, disapprove or approve
any significant changes proposed by the Project Leader which
relate to tasks or activities assigned or being performed under
the Project; to review and audit whether Project milestones and
schedules are being met by each party as agreed; to redirect
resources where required in order to meet Project milestones and
schedules; to analyze how and to what extent technology can be
implemented and utilized in products; to ensure that tests are
conducted to use and test such products prior to the end of
respective Project Period; and to decide whether any patent
application(s) (domestic or foreign) should be filed on any
invention(s) created during the course of a Project, the subject
matter and jurisdiction of any patent such applications, and
whether any such patent applications shall be filed, prosecuted
and paid for jointly or by an individual party.
(c) Each Project Committee shall meet as often as necessary to
ensure the success~l oversight and completion of the Project, but
in any case not less frequently that quarterly during the term of
the respective Project Period. Such meetings shall be at mutually
agreed upon times and at equally convenient locations. The host
party shall bear the expenses of providing the meeting
facilities, but each party shall bear all other cost related to
its attendance.
(d) Except as otherwise agreed herein, all decisions of a
Project Committee shall be by unanimous vote.
3. Project Leader Emniovees. (a) Each Project Committee
shall, by unanimous vote, designate a project leader who shall,
unless otherwise agreed unanimously by such Project Committee, be
an employee of Corning (the ~~Project Leader"), and who shall
have the task and responsibility to manage and administer the
Project during the Project Period. Any removal or replacement of
the individual serving as Project Leader shall be subject to the
prior approval of; and be in the discretion of; such Project
Committee. The Project Leader shall be responsible for and shall
report to the Project Committee regarding all significant matters
arising in the course of; or affecting his coordination of; the
activities to be conducted under, and implementation of the
Project in accordance with, this Agreement and the respective
Project Annex.
(b) The Project Leader shall have sufficient authority to
carry out his or her responsibility to administer his assigned
Project and meet the schedule of performance to completion,
including the authority to require that either or both parties
make available or delegate certain personnel of each who have the
expertise or experience necessary to perform the scheduled
activities under the Project. Such Project Leader shall also have
the authority to make changes in the Project schedules as may be
beneficial and necessary from time to time (but only if any such
change does not materially change the overall Project schedule of
performance, milestones, scope, goals, or timing). Any changes
made by the Project Leader which are of a magnitude so as to
constitute a significant revision or change of the overall
Project schedule of performance, milestones, scope, goals or
timing shall require the Project Committee's prior written
approval. The Project Leader shall report to the Project
Committee as often as necessary to si'ccessftilly accomplish the
Project in accordance with the Project schedule of performance,
but in any case not less frequently than quarterly. The research
and technical personnel of either party assigned to work on the
Project by the party shall be subject to the direction of the
Project Leader with respect to Project tasks assigned or assumed
and being performed by such party.
(c) Each party agrees that as deemed necessary by the
Project Leader and for the success of the Project, each person
assigned tasks or performing work under this Agreement and the
respective Project Annex will, whenever reasonably possible,
either work solely on the Project during the period he has been
assigned to the Project or be allowed sufficient hours and
facilities so as to accomplish his tasks with respect to the
Project in a timely manner and in accordance with the schedules
and milestones of the Project.
(d) Each party agrees to require its employees to observe
all confidentiality, security, and safety rules and regulations
in effect at the other party's site as a condition of their
admittance to and presence at the other party's site.
(e) Nothing in this Agreement shall entail an obligation
restricting or limiting in any way the assignment or reassignment
of Electrosource employees within Electrosource, or Corning
employees within the group of companies affiliated with Corning,
including (by way of clarification) the Project Leader.
4. Confidential Information. (a) Corning and
Electrosource recognize that in order to carry out the intent of
this Agreement and any particular Project Annex, the exchange of
certain commercial and technical information will be required and
that such commercial and technical information may constitute
proprietary information of the party fiirnishing the same.
"Confidential Information" shall mean all information received by
one party from the other party pursuant to this Agreement or a
Project Annex relating to a Project, whether flirnished in
writing or orally or visually. Such information which is provided
in written, encoded, graphic or other tangible form shall be
deemed to be Confidential Information only if it is clearly so
marked as being confidential or proprietary.
(b) Until the expiration of five (5) years after the
termination or expiration of this Agreement (including by reason
of any early termination), all Confidential Information (i) shall
be maintained in confidence by the receiving party, (ii) shall
not, unless required by law or after prior written consent of the
disclosing party, be disclosed to any third party, other than
directors, employees, representatives, agents and affiliates of
the receiving party, or consultants that are bound by
confidentiality obligations consistent herewith, and having a
reasonable need for access to such information in order to
flilfill such party's obli~ations under this Agreement, and (iii)
shall be protected with the same degree of care as the receiving
party normally uses in the protection of its own confidential and
proprietary information, but in any event with no less than
reasonable care.
(c) The restrictions herein provided shall not apply with
respect to any Confidential Information which:
(i) is already known by the receiving party at the
time of receipt from the disclosing party as shown by such
party's documents dated prior to such date of receipt;
(ii) is or becomes a part of the public domain without
breach of this Agreement by the receiving party;
(iii) is obtained by the receiving party from a third
party under conditions permitting its disclosure to others;
(iv) is independently developed by the receiving party
without reference to any Confidential Information; or
(v) is disclosed pursuant to valid order or demand of
a court or other governmental body, provided that the
receiving party sh~Lll have first given notice to the
disclosing party and been allowed to make an effort to
obtain a protective order or agreement requiring that the
Confidential Information be used only for the governmental
purposes for which the order or demand was issued.
(d) Following the period of confidentiality under this
Section 4, no obligation is assumed by, or is to be implied
against, either receiving party with respect to disclosure of any
Confidential Information received hereunder.
(e) The receiving party shall limit disclosure of
Confidential Information only to those employees of the receiving
party who have a need to know such Confidential Information.
(f) Prior to receiving Confidential Information, all
employees of the receiving party having access to Confidential
Information shall sign (if they have not already signed
agreements (including labor or employment contracts)) individual
confidential information non-disclosure agreements with their
respective employer, agreeing to maintain in confidence any and
all confidential information received as a result of their
employment. Each party agrees to enforce such confidential
information non-disclosure agreements with respect to the
Confidential Information received from the other party.
5. Intellectual Property Rights in Back~ound Technology.
(a) "Previously Existing Technology" shall mean any and all know-
how, processes, computer programs, technical data, prototypes,
inventions, discoveries, techniques, improvements, modifications,
technical information and all patents, patent applications,
copyrights, trade secrets and proprietary rights related thereto
that exist prior to the date of any Project Annex.
(b) Subject to obligations to third parties existing as of
the date of each Project Annex, each party hereby grants to the
other party a nonexclusive, royalty-free, revocable license to
use Previously Existing Technology, but only to the extent
necessary for such other party to perform its obligations
(including perfoimance through additional related parties as a
particular Project Committee may determine) under this Agreement.
The licenses granted under this paragraph shall automatically
terminate at the end of the respective Project Period for which
such license is necessary or, in any case, no later than the
expiration or termination of this Agreement.
6. Project Technolo~v. (a) "Project Technology" shall
mean any and all know-how, processes, computer programs,
technical data, prototypes, inventions, discoveries, techniques,
improvements, modifications, technical information and all
patents, patent applications, copyrights, trade secrets and
proprietary rights related thereto which, in whole or in part,
are conceived by either or both of the parties in connection with
a Project.
(b) Project Technology that is conceived by either party during
the term of this Agreement in the course of work on a Project
shall be owned exclusively and controlled by the party that
conceived such Project Technology. Project Technology that is
jointly conceived by the parties during the term of this
Agreement in the course of work on a Project shall be jointly
owned by the parties and each party shall have the right to: (i)
unilaterally practice such Project Technology in or outside the
field of deep discharge lead-acid batteries (the "Field) without
consideration to, or approval from, the other party; and (ii)
~icense such party's rights in such Project Technology (A)
without consideration to, or consent from, the other party if
such licensee is not a competitor (and may not reasonably be
considered a potential competitor) of such other party or (B)
with the prior written consent of the other party if such
licensee is a competitor (or may reasonably be considered a
potential competitor) of such other party.
(c) Electrosource may not at any time (except as
specifically provided herein) grant, assign, or transfer any
right, title, or interest in or under Project Technology owned
exclusively by Corning, including any licenses in whole or in
part, directly or indirectly, to any third party without the
prior written consent and approval of Corning.
(d) Corning may not at any time (except as specifically
provided herein) grant, assign, or transfer any right, title, or
interest in or under Project Technology owned exclusively by
Electrosource, including any licenses in whole or in part,
directly or indirectly, within the field of deep discharge lead-
acid batteries to any third party without the prior written
consent and approval of Electro source.
(e) Corning hereby grants to Electrosource a non-exclu~ve
and royalty free worldwide license in respect of Project
Technology owned exclusively by Corning to make, have made, use,
offer to sell or sell deep discharge lead-acid batteries.
Electrosource hereby grants to Corning a non-exclusive and
royalty free worldwide license in respect ofProject Technology
owned exclusively by Electrosource to make, have made, use, offer
to sell or sell products other than deep discharge lead-acid
batteries. Under each such license:
(i) the licensee shall have the right to modit~ or
enhance the licensed Project
Technology, but the licensor shall receive a royalty
free non-exclusive license to
use such modifications or enhancements conceived during
the term of this
Agreement;
(ii)the licensee shall have no right to sublicense the
licensed Project Technology; provided, however, that
in the event that either party desired to license the
manufacture of products to manufacturer(s) located
outside of the United States and such manufacture
required the use of Project Technology owned by the
other party, the party owning such Project Technology
would grant to the other party the right to sublicense
such Project Technology to such foreign licensee(s)
solely for the manufacture outside the United States
of such products to be sold exclusively outside of the
United States, all in exchange for reasonable royalty
payments as shall be negotiated; and
(iii) any and all licensed Project Technology
shall be treated as Confidential Information in
accordance with the terms hereof
The parties shall enter into a license agreement regarding the
licensed Project Technology including the terms set forth herein
and any other appropriate terms and conditions mutually agreed
upon by the parties. As appropriate, the licensor shall provide
to the licensee technical assistance, on terms and conditions to
be agreed to between the parties, to implement the use of the
licensed Project Technology.
(f) In the event that certain licensed Project Technology
(other than patents and patent applications) shall become part of
the public domain without breach of this Agreement by the
licensee thereof; the licenses referred to in paragraph (e) of
this Section 4 in respect of such Project Technology shall
terminate and each party shall be free to use and apply such
Project Technology without restriction.
(g) In the event that a Project Committee decides to file a
joint patent application in respect of Project Technology,
Corning shall have the right of first reftisal to tile and
prosecute such patent application for and on behalf of both
parties. In the event that a Project Committee decides not to
file a joint patent application in respect of Proj ect
Technology, the inventing party may initiate and prosecute
application(s) for patent(s) arising in connection with a
Project, in any jurisdiction, and shall have sole ownership and
control in respect of any such applications and patents;
provided, however, that if any inventing party shall fail or
reflise to initiate or prosecute within a reasonable time or
shall discontinue prosecution of the same in any jurisdiction,
the other party may elect to initiate or prosecute the same. Both
parties shall share all expenses incurred in applying for,
prosecuting, and securing joint patents (provided the relevant
Project Committee has approved such expenditures) and both
parties shall be named as and shall be joint and equal owners
thereof. Both parties shall share equally all maintenance and any
other fees and costs relating to the maintenance of such jointly
owned patents.
(h) In the event of any third party infringement of any
patents, copyrights, trade secrets, or registration rights
hereunder which are jointly owned by the parties, both parties
(or either party in the event that the other party elects not to
participate) may elect in its or their discretion to initiate and
conduct appropriate action or legal proceedings; provided,
however, that (i) in the event that both parties hereto
participate in such action or proceedings, any and all sums
recovered as a result of such action or proceedings shall first
be used to reimburse such party or parties costs and expenses
incurred to recover the same, and any sums remaining or
obligations owed thereafter shall be shared equally between the
parties and (ii) in the event that oniy one party hereto elects
to participate in such action or proceedings, such party shall
bear all costs and expenses associated therewith and shall retain
all sums recovered and shall be solely responsible for all
obligations owed as result of such action or proceedings.
7. Results of Projects. (a) Each Project Leader shall
cause to be delivered to each member of the relevant Project
Committee prior to each quarterly meeting a technical and
commercial report containing the following:
(i) a complete detailed description of all activities of
the Project undertaken by each party (and by any third
party) during that quarter and results, including a
description of any material technology developments and any
areas in respect of which patent filings should be
considered;
(ii) a report of any material commercial transactions
undertaken in connection with the Project; such report
shall include a report on amounts paid out or approved for
payment by the Project Leader for services performed during
such quarter pursuant to the schedule of performance or
otherwise; amounts due and payable by the parties as
adjustments or otherwise and unpaid; any monies received
and the sources and reasons for such.
(b) Each party shall be required to keep accurate technical
records with respect to all activities undertaken pursuant to
this Agreement (including with respect to third party contracts).
Such records shall be maintained at the site where the work was
done of the respective party. Each party shall have access to the
records of the other party during normal business hours, from
time to time, upon written request of the other party, but in no
event less than quarterly each year.
(c) Not later than three (3) months after the end of each
Project Period (or from time to time during each Project Period,
if feasible, and subject to any analyses and assessments by the
relevant Project Committee), the parties shall finalize their
analyses and assessments and analyze which Project Technology can
be exploited and utilized to manufacture products, and the
possible markets for such products. During or at the end of each
Project Period the parties shall use their best efforts to
produce or market all of the proprietary information embodied in
the corresponding Project results.
8. Pavments. (a) Corning shail receive payment for
participation in any Project on a monthly basis, in the amounts
and on the dates specified in the corresponding Project Annex.
Corning compensation shall be in the form of options ("Options")
to purchase Electro source common stock ("Common Stock").
(b) All Options shall be issued on the relevant payment
dates as set forth in the respective Project Annexes. Each Option
issued shall bear an exercise price and be deemed for purposes
hereof and thereof to have a value on the issue date as follows:
Issue Date
Subsequent to On or prior to Exercise Price Value
July 1,1997 June 30, 1998 $7.125 $2.50
July 1,1998 June30, 1999 $8.000 $3.00
July 1,1999 June 30, 2000 $9.000 $3.50
(c) On the relevant payment dates as defined in each Project
Annex, Electrosource shall deliver to Comi~g an agreement or
certificate(s) representing that number of options set forth in
such Project Annex or, if no specific number is set forth, that
number of options calculated by dividing the U.S. dollar value of
the payment then due by the option value deemed to apply
according to the provisions of Section 8(b). Each such agreement
or certificate shall confirm or extend the applicability to such
Options of the representations, warranties and covenants of the
parties made in respect of the options granted under the Note
Purchase Agreement.
(d) Performance hereunder, including the issuance to
Corning of options or the conversion of such options into Common
Stock, shall in no way modi~, supersede or prejudice the rights
and obligations of the parties under the Note Purchase Agreement,
the Stock Option Agreement, the 5% Convertible Note or any
agreements related thereto.
9. Re~istration Ri~hts. In respect of any shares of
Common Stock issued upon conversion of any options issued
hereunder, Coming shall have the registration rights provided
under the provisions of Part 6 of the Note Purchase Agreement,
which provisions are hereby incorporated by reference herein,
provided, however, that (a) in such provisions where there is
reference to a ~'Note" or the '~purchase of' a Note or a similar
reference to a Note, such provision and the construction thereof
shall, for purposes of this Agreement, be interpreted as applying
to the Options granted hereunder and (b) Corning shall exercise
such rights only in combination with the exercise thereunder in
respect of the Notes issued thereunder or, in the alternative, no
more frequently than once during any twelve (12) month period.
10. Costs. Except as otherwise expressly provided herein or
in a Project Annex, each of Corning and Electrosource shall
perform its respective obligations under this Agreement at its
own costs without charge to the other.
11. Conflict of Law. This Agreement shall be subject to and
governed by the substantive laws of the State of New York without
regard to any conflict of laws principles that would lead to a
different result.
12. Publicity. No public releases or advertisements by
either Corning or Electro source relating to the subject of this
Agreement shall be made without the agreement of both parties
except to the extent that either party is advised by its counsel
that disclosure of such subject is required by law.
13. Notices. All notices required to be given hereunder
shall be in writing and shall be given by first class mail,
postage prepaid, addressed to the parties as follows:
To Corning:Corning Incorporated
One Riverfront Plaza
Corning,NY 14831
Attn: David H. Fuller
cc: Corning Incorporated
One Riverfront Plaza
Coming,NY 14831
Attn.: Corporate Secretary
To Electrosource: Electrosource, Inc.
2809 Interstate 35 South
San Marcos, TX 78666
Attn. President
cc: Bret Van Earp
Attorney-at-Law
100 Congress Avenue, Suite 1800
Austin, TX 78701
Either party shall have the right to change the address to which
notices are to be sent by the giving of not less than ten (10)
days written notice to the other party.
14. Relationship. The relationship of the parties hereto
shall be that of independent contractors and nothing herein
contained shall be deemed to create any relationship of agency,
partnership or joint venturers.
15. Entire A~reement. This Agreement constitutes the
entire agreement between the parties regarding the Projects and
supersedes any and all other prior agreements and understandings
whether written, verbal or implied, relating to the subject
matter hereof No changes, alterations, or modifications to this
Agreement shall be effective unless in writing and signed by the
parties hereto.
16. Term and Termination. The term of this Agreement shall
commence as of the date hereof and extend through the date that
is the earlier of (i) three years from the date hereof or (ii)
the date on which all amounts payable (hereunder or otherwise)
from Electrosource to Corning shall have been paid in Ilill and
Corning no longer holds any shares of the common stock of
Electrosource or instmments convertible into such common stock.
Notwithstanding the foregoing sentence, this Agreement may be
terminated by either party at any time and may be extended upon
the mutual written consent of the parties. Upon any termination
of this Agreement, the provisions of Sections 4, 8, 9, 11, 12,
13, 14, 15, 18 and 19 shall survive as provided therein, or if no
date is provided therein then indefinitely.
17. Other Development Activities. Either party hereto,
subject to its obligations hereunder in connection with the other
party's confidential information, may pursue development activity
not related to deep discharge lead-acid batteries, with o~hers or
independently, provided such activity does not otherwise violate
or materially interfere with a party's obligations hereunder.
18. Disclaimer. It is understood and agreed that (i) each party
makes no representation or warranty of any kind (whether express
or implied, written or oral, or otherwise) as to the
participation or continued participation by such party in any
Project or the results or success of any Project undertaken
hereunder, and (ii) each party shall not be responsible or liable
in any way for any failure to meet any levels of expectation or
ar~omplishment with respect to goals that the parties jointly or
severally may consider desirable.
19. indemnification. Except to the extent caused by the
negligence or willfbl misconduct of Corning or its affiliates,
directors, employees or agents, Corning shall not be liable for
any third party claims or charges related to or arising out of:
(a) the infringement or alleged infringement of
proprietary rights, including but not limited to any
infringement or alleged infringement of patents, patent
applications, copyrights, mask work rights, or trade secret
or know-how rights, related to the performance of work in
connection with a Project or Projects or the design,
development, manufacture, production, distribution, sale,
use, misuse, handling, storage or disposal of products or
services arising from or related to a Project or Projects;
or
(b) the performance of work in connection with a
Project or Projects or the design, development, manufacture,
production, distribution, sale, use, misuse, handling,
storage or disposal of products or services arising Out of
or related to a Project or Projects, including in any case,
but not limited to, any direct, indirect, special or
consequential damages such as the loss of capital, use,
production, profits, or claims of Electrosource customers.
Electrosource agrees to defend, indemni~ and hold harmless
Corning and Corning's affiliates, directors, employees and agents
(the "Indemnified Parties") against all claims, suits, costs,
damages, judgments and or penalties incurred, claimed or
sustained by third parties, whether for infringement, personal
injury, property damage or otherwise, arising out of or related
to the performance of work in connection with a Project or
Projects or the design, development, manufacture, production,
distribution, sale, use, misuse, handling, storage or disposal of
products or services arising from or related to a Project or
Projects.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above
written.
CORNING INCORPORATED
By /s/ David H. Fuller
ELECTROSOURCE, INC.
By /s/ Michael G. Semmens
Annex A
Form of
Project Annex
1. The Prolect. The definition and goals of the Project;
the involvement and
contributions of the parties; and the schedule of performance,
the milestones and the Project
Period in respect of the Project each shall be as described in
sections ___ through - of the
Project Proposal attached hereto as Exhibit 1, which such
sections ____ through ___ of such
Project Proposal are hereby incorporated by reference herein.
2. The Project Committee. The initial Project Committee
members shall be _____________________ who is hereby so
designated by Corning, and
who is hereby so designated by Electrosource.
3. Payments. Payments to Corning shall be as follow:
Date Payment Amount
Accepted and agreed this day of___________ ____
CORNING INCORPORATED ELECTROSOURCE, INC.
By By
Name: Name:
Title: Title:
Date: Date:
Exhibit 10.35
Project Annex
to the
Research and Development Umbrella Agreement, dated as of July 1, 1997
by and between
Corning Incorporated and Electrosource, Inc.
1. The Project. The definition and goals of the Project;
the involvement and contributions of the parties; and the
schedule of performance, the milestones and the Project Period in
respect of the Project each shall be as described in sections 1
through 5 of the Project Proposal attached hereto as Exhibit 1,
which such sections 1 through 5 of such Project Proposal are
hereby incorporated by reference herein.
2. The Project Committee, The initial Project Committee
members shall be David H. Fuller, who is hereby so designated by
Corning, and Michael G. Semmens, who is hereby so designated by
Electrosource.
3. Pavments. Payments to Coming shall be as follow:
Date Payment Amount
December 31, 1997$50,000.00
Accepted and agreed this 20th day of October, 1997.
CORNING INCORPORATED ELECTROSOURCE, INC.
By /s/ David H. Fuller By /s/ James M. Rosel
Name: David H. Fuller Name: James M. Rosel
Title: Division VP & Director Title: Vice President Finance
Energy & Technology Development and General Counsel
Exhibit 1
Project Proposal
Physical and Chemical Description of Battery Electrode "Moss"
1. Definition of Project: The Project shall involve the
attempt to identif' the source (i.e., the root cause) of"mossing"
in the Electrosource Horizon battery that leads to premature end-
of-life.
2. Goals of the Project: The goal of the Project is the
development of a final report that (i) details Corning's findings
as to the characterization of battery electrode "moss" in end-of-
life batteries and (ii) recommends future experiments to
determine the ability to control the "mossing" problem.
3. Involvement of the Parties: (a) Electrosource will
provide appropriate samples of 12V, 5a hr C-MAT batteries to
Corning.
(b) Corning will perform analysis at Cl (constant current
one hour discharge) with a C1ICV charge with initial inrush
currents equal to C3 (5 amps), one-half C3 (2.5 amps) and one-
quarter C3 (1.25 amps). Corning will develop the characterization
protocols and perform all chemical and physical testing on
battery electrode "moss." Characterization methods that could be
used are: wet chemistry, SEM, x-ray diffraction, etc. It is
anticipated that "spark" (XRD), organic, and inorganic tests will
be performed by Corning.
(c) Corning and Electrosource will hold appropn.c'Lte
review meetings to assess the data as it becomes available and to
revise the experimental plan as necessary.
4. Schedule of Performance. The Project is expected to
last six (6) months. The Project Period shall be the six (6)
month period, commencing as of the date of the executed Project
Annex relating to this Project.
5. Deliverables. The parties will conduct weekly
conferences by phone or video conference and quarterly review
meetings at the location and on the dates chosen by the parties.
Corning will deliver monthly written test summary reports. It is
not intended that such meetings or reports will overlap, but
rather yield to Lhe more major or less frequently held meeting or
report (e.g., the quarterly meeting and report would displace
either the weekly or monthly meeting or report scheduled to occur
on the same date). Corning will deliver a final written report
that (i) details Corning's findings as to the characterization of
battery electrode "moss" in end-of-life batteries and (ii)
recommends future experiments to determine the ability to
control the "mossing" problem.
Exhibit 10.36
Project Annex
to the
Research and Development Umbrella Agreement, dated as of July 1, 1997
by and between
Corning Incorporated and Electrosource, Inc.
1. The Proiect. The definition and goals of the Project;
the involvement and contributions of the parties; and the
schedule of performance, the milestones and the Project Period in
respect of the Project each shall be as described in sections l
through 4 of the Project Proposal attached hereto as Exhibit 1,
which such sections l through 4 of such Project Proposal are
hereby incorporated by reference herein
2. The Project Committee, The initial Project Committee
members shall be David H. Fuller, who is hereby so designated by
Corning, and Michael G. Semmens who is hereby so designated by
Electrosource.
3, Payments. Payments to Coming shall be as follow:
Date Payment Amount
December 31, 1997 $175,000.00
June30, 1998 $225,000.00
Accepted and agreed this 20th day of October, 1997.
CORNING INCORPORATED ELECTROSOURCE, INC.
By /s/ David H. Fuller By /s/ James M. Rosel
Name: David H. Fuller Name: James M. Rosel
Title: Division VP & Director Title: Vice President Finance
Energy & Technology Development and General Counsel
Exhibit 1
Project Proposal
Engineering Resources
1. Definition of Project: The Project shall involve
certain engineering support provided by Corning Incorporated to
Electrosource, Inc.
2. Goals of the Proiect: The goal of the Project is for
Corning to provide engineering support to work towards increased
manufacturing capacity, reduced production costs and to assist in
the transition from a development/prototype operation to a high
volume manufacturing operation.
3 Involvement of the Parties: (a) El ectro source shall
provide necessary and adequate facilities, equipment, tooling,
and office and administration support for Coming provided
personnel.
(b) Corning wi!l provide the following engineering
resources over a period commencing as of the date of the Project
Annex relating to this Project and ending on June30, 1998:
(i) Two (2) full-time mechanical/automation engineers
(ii) Two (2) full-time process engineers
(iii) One (1) or more engineers with specialization in
heat treat engineering, industrial engineering, and
controls system engineering, each of such engineers to be
provided on a part-time basis at times and for hours
collectively to represent one (1) full-time engineer
(c) The Corning provided personnel shalt have the primary
Ilinction of assisting in increased throughput and cost
reduction, particularly as it pertains to labor reduction.
Additional activity ~ill include (i) assistance in the
understanding of current processes to define product and process
parameters; (ii) assistance in the development of production
scale-up criteria; (iii) assistance in production scale-up and
design for projected production levels; (iv) assistance in the
validation of process design concepts for scale-up; and (v) other
design, build, install and startup assistance as needed. Coming
provided process engineers shall focus initially on (i) in-line
sulfation and drying, both for immediate impact and fliture needs
and (ii) increasing the speed of the plate making process.
Corning provided mechanical engineers shall work on those
activities that are projected to have immediate throughput
results and labor cost reductions, such as: completing the 12N85
Terminal Cast process; addressing the flexibility needs for robot
stacking; implementing the Aircraft and Helicopter preparation
program as outlined in C. Morris' memo dated July 14, 1997;
addressing capacity increase needs in the filling process;
completing installation of 2-head coextruder; speeding up Dornier
weaver; developing an automation plan; installing additional
robots as needed; converting existing 12N95 autocast to helo,
aircraft and B&D; and developing material handling solutions.
4. Schedule of Performance. The Project is expected to
last through the end of 1998. The Project Period shall be the period
commencing as of the date of the executed Project Annex relating to this
Project and ending on June 30, 1998.
Exhibit 10.37
Project Annex
to the
Research and Development Umbrella Agreement, dated as of July 1, 1997
by and between
Corning Incorporated and Electrosource, Inc.
1. The Project. The definition and goals of the Project;
the involvement and contributions of the parties; and the
schedule of performance, the milestones and the Project Period in
respect of the Project each shall be as described in sections 1
through 5 of the Project Proposal attached hereto as Exhibit 1,
which such sections lthrough 5 of such Project Proposal are
hereby incorporated by reference herein.
2. The Project Committee. The initial Project Committee
members shall be David H. Fuller ,who is hereby so designated by
Corning, and Michael G. Semmens, who is hereby so designated by
Electrosource.
3. Pavments. Payments to Corning shall be as follow:
Date Payment Amount
December 31, 1997 $175,000.00
June 30, 1998 $175,000.00
Accepted and agreed this 20th day of October, 1997.
CORNING INCORPORATED ELECTROSOURCE, INC.
By /s/ David H. Fuller By /s/ James M. Rosel
Name: David H. Fuller Name: James M. Rosel
Title: Division VP & Director Title: Vice President Finance
Energy & Technology Development
and General Counsel
Exhibit 1
Project Proposal
Characterization of Electrode Materials and Collector Grid
Materials
1. Definition of Project: The Project shall involve the
characterization of the physical and chemical changes in
electrode and grid materials as Electrosource 12N85 production
modules are cycled.
2. Goals of the Project: The goal of the Project is the
development of a final report that details the physical and
chemical property characterization of the modules at different
periods in the module cycle life, and a recommendation of ft~ture
action to modiiy the material changes.
3. Involvement of the Parties: (a) Electrosource will
build and cycle model 12N85 production modules. It is intended
that twenty-four (24) of such modules will be tested, but a total
of 30 modules will be cycled, 15 modules to a string, to allow
for extra modules that may be used for additional testing or to
replace early failures, Prior to the commencement of cycling, and
at the end of every 50 cycles, Electrosource will ship the
modules to Corning for characterization. Modules will be tested
in strings of 12 modules using formation circuits such that all
modules are cycled under similar conditions. Four (4) modules
will be removed from test at 0/50/100/150/200/250 cycles and
shipped to Corning, two fi~iJy charged with charge inrush
currents of 44 amps and 15 amps respectively, and two (2) Ililly
discharged with discharge currents of 44 amps and 15 amps
respectively. Upon the failure of a module to continue cycling,
the module or plates from such module will be sent to Corning for
analysis.
The cycling and analysis matrix is summarized below.
CYCLE NUMBER STATE OF CHARGE CHARGE CURRENT
INRUSH
(STEP CHARGE)
CHARGED DISCHARGED 44 AMPS 15 AMPS
Dry Plates N/A N/A Several Several for
for baseline
baseline
0 X 1 1
X 1 1
50 X 1 1
X 1 1
100 X 1 1
X 1 1
150 X 1 1
X 1 1
200 X 1 1
X 1 1
250 X 1 1
X 1 1
TOTAL 12 12
(b) Corning will develop characterization protocols and
perform characterization at the beginning of usable life and at
the end of every 50 cycles or when end-of-life is reached.
Characterization methods that could be used are: wet chemistry,
SEM, x-ray diffraction, etc.
(c) Corning and Electrosource will hold appropriate review
meetings to assess the data to date and revise the experimental
plan as necessary.
4. Schedule of Performance. The Project is expected to
last twelve (12) months. The Project Period shall be the twelve
(12) month period, commencing as of the date of the executed
Project Annex relating to this Project.
5. Deliverables. The parties will conduct weekly
conferences by phone or video conference and quarterly review
meetings at the location and on the dates chosen by the parties.
Corning will deliver monthly written test summary reports. It is
not intended that such meetings or reports will overlap, but
rather yield to the more major or less frequently held meeting or
report (e.g., the quarterly meeting and report would displace
either the weekly or monthly meeting or report scheduled to occur
on the same date). Corning will deliver a final written report
that details the physical and chemical property characterization
of the batteries at different periods in the battery cycle life,
and recommends future actions or modifications.
Exhibit 10.38
The following form of Severance Agreement was executed on or about
August 25, 1997 for the below listed officers and key employees:
Michael G. Semmens President, CEO and Chairman
William F. Griffin Executive Vice President Marketing
James M. Rosel Vice President Finance and General Counsel
Mary Beth Koenig Treasurer and Controller
Charles L. Mathews Chief Engineer
Chris Morris Chief Engineer
Benny E. Jay Chief Scientist
Ajoy Datta Technical Vice President
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (the "Agreement"), dated and
effective August 25, 1997, is made by and between ELECTROSOURCE,
INC., a Delaware corporation (the "Company"), and
____________________________ (the "Executive").
WHEREAS, the Company considers it in the best interests of
its stockholders to foster the continued employment of key
management personnel; and
WHEREAS, the Board recognizes that, as is the case with many
publicly held corporations, the possibility of a Change in
Control exists and that such possibility and the uncertainty and
questions which it may raise among management may result in the
departure or distraction of management personnel to the detriment
of the Company and its stockholders; and
WHEREAS, the Board has determined that appropriate steps
should be taken to reinforce and encourage the continued
attention and dedication of members of the Company's management,
including the Executive, to their assigned duties without
distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control and has
adopted a resolution authorizing the Company to enter into a
severance contract in the form of this Agreement with the
Executive;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the Company and the Executive
hereby agree as follows:
1. Defined Terms.
For purposes of this Agreement, the following
terms shall have the meanings indicated below:
(A) "Affiliate" shall have the meaning set
forth in Rule 12b-2 promulgated under Section 12
of the Exchange Act.
(B) "Beneficial Owner" shall have the
meaning set forth in Rule 13d-3 under the Exchange
Act.
(C) "Board" shall mean the Board of
Directors of the Company.
(D) "Cause" shall mean termination by
the Company of the Executive's employment
after a Change of Control based upon,
(i) the failure by the Executive
to satisfactorily perform the Executive's
duties with the Company as detailed in a
written notice to the Executive from the
Board, which demand specifically identifies
the manner in which the Board believes that
the Executive has not satisfactorily
performed his/her duties, except for,
(a) any such failure
resulting from the Executive's
incapacity due to physical or mental
illness,
(b) any such actual or
anticipated failure after the issuance
of a Notice of Termination for Good
Reason by the Executive pursuant to this
Agreement, or
(c) the Company's active
or passive obstruction of the
performance of the Executive's duties
and responsibilities, or
(ii) the engaging by the Executive
in conduct which is demonstrably and
materially injurious to the Company or its
subsidiaries monetarily or otherwise after a
written explanation from the Board detailing
the conduct and the injury is delivered to
the Executive.
(E) "Change in Control" shall mean the
occurrence of any of the following events:
(i) any Person is or becomes the
Beneficial Owner, directly or indirectly, of
voting securities of the Company representing
thirty percent (30%) or more of the combined
voting power of the Company's then
outstanding securities, excluding any Person
who becomes such a Beneficial Owner in
connection with a merger or consolidation
described in Section 1(E)(iii)(a) hereof; or
(ii) the individuals who on the
date hereof constitute the Board and any new
director nominated or appointed by the
approval of the Board cease for any reason to
constitute a majority of the number of
directors then serving; or
(iii) a merger or consolidation
of the Company with any other corporation is
consummated, except for
(a) a merger or
consolidation which would result in the
voting securities of the Company
outstanding immediately prior to such
merger or consolidation continuing to
represent (either by remaining
outstanding or by being converted into
voting securities of the surviving
entity or any parent thereof), at least
fifty percent (50%) of the combined
voting power of the securities of the
Company or such surviving entity or any
parent thereof outstanding immediately
after such merger or consolidation, or
(b) a merger or
consolidation effected to implement a
recapitalization of the Company (or
similar transaction) in which no Person
is or becomes the Beneficial Owner,
directly or indirectly, of securities of
the Company representing thirty percent
(30%) or more of the combined voting
power of the Company's then outstanding
securities; or
(iv) the stockholders of the
Company approve a plan for the sale or
disposition by the Company of all or
substantially all of the Company's assets,
other than a sale or disposition by the
Company of all or substantially all of the
Company's assets to an entity at least
seventy-five percent (75%) of the combined
voting power of the voting securities of
which are owned by stockholders of the
company in substantially the same proportions
as their ownership of the Company immediately
prior to such sale. "The sale or disposition
by the Company of all or substantially all of
the Company's assets" shall mean a sale or
other disposition transaction or series of
related transactions involving assets of the
Company or of any direct or indirect
subsidiary of the Company (including the
stock of any direct or indirect subsidiary of
the Company) in which the value of the assets
or stock being sold or otherwise disposed of
(as measured by the purchase price being paid
therefor or by such other method as the Board
determines is appropriate in a case where
there is no readily ascertainable purchase
price) constitutes more than two-thirds (2/3)
of the fair market value of the Company. For
purposes of the preceding sentence, the "fair
market value of the Company" shall be the sum
of the aggregate market value of the
outstanding Common Stock (on a fully diluted
basis) plus the aggregate market value of the
Company's other outstanding equity
securities, if any. The aggregate market
value of the Common Stock shall be determined
by multiplying the number of shares of Common
Stock (on a fully diluted basis) outstanding
on the date of the execution and delivery of
a definitive agreement with respect to the
sale or disposition by the Company of all or
substantially all of the Company's assets by
the average closing price for the Common
Stock for the ten (10) consecutive trading
days immediately preceding such date. The
aggregate market value of any other equity
securities of the Company shall be determined
in a manner similar to that prescribed in the
immediately preceding sentence for
determining the aggregate market value of the
Common Stock (or by such other method as the
Board shall determine as appropriate).
(F) "Committee" shall mean the individuals
(not fewer than three (3) in number) who, on the
date just prior to a Change in Control, constitute
the Compensation Committee of the Board and if no
Change in Control has occurred, the Committee
shall be the Compensation Committee of the Board,
as constituted from time to time.
(G) "Common Stock" shall mean the common
stock of the Company, par value $1.00 per share.
(H) "Company" shall mean Electrosource,
Inc., a Delaware corporation, and, except in
determining whether or not any Change in Control
of the Company has occurred, shall include any
successor to its business and/or assets which
assumes and agrees to perform this Agreement, by
operation of law or otherwise.
(I) "Date of Termination" with respect to
any purported termination of the Executive's
employment after a Change in Control and during
the Term, shall mean, except as otherwise provided
in Section 7.2 hereof regarding a dispute
concerning Termination,
(i) if the Executive's employment
is terminated for Disability, the date thirty
(30) days after Notice of Termination is
given (provided that the Executive shall not
have returned to the full-time performance of
the Executive's duties during such thirty
(30) day period), and
(ii) if the Executive's employment
is terminated for any other reason, the date
specified in the Notice of Termination which,
in the case of a termination by the Company,
shall not be less than thirty (30) days,
except in the case of a termination for
Cause, nor more than sixty (60) days after
the date of such Notice of Termination and,
in the case of a termination by the
Executive, such date shall not be less than
fifteen (15) days nor more than sixty (60)
days after the date of such Notice of
Termination.
(J) "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.
(K) "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended from time to
time.
(L) "Executive" shall mean the individual
named in the first paragraph of this Agreement.
(M) "Good Reason" for termination by the
Executive of the Executive's employment shall mean
the occurrence within twenty-four (24) months
following the date of a Change in Control of any
one of the following events:
(i) the assignment by the Company
to the Executive of duties that are
materially inconsistent with the Executive's
office with Company prior to the Change in
Control, or the removal by the Company from
the Executive of a material portion of the
Executive's duties usually appertaining to
the Executive's office with the Company at
the time of such removal;
(ii) a material, adverse change by
the Company, without the Executive's prior
written consent, in the nature or status of
the Executive's responsibilities to the
Company just prior to a Change in Control;
(iii) any removal of the
Executive from, or any failure to reelect or
to reappoint the Executive to, the office
held as of the date just prior to a Change in
Control hereof;
(iv) a reduction by the Company in
the amount of the Executive's base salary
below the highest level in effect during the
six (6) months prior to the Change in
Control.
(v) the discontinuance, without
comparable replacement, or material reduction
by the Company of the Executive's
participation in any bonus or other employee
benefit arrangement, in which the Executive
is a participant as in effect on the date
hereof or as may be improved from time to
time hereafter;
(vi) the moving by the Company of
the Executive's principal office space,
related facilities, or support personnel,
from the Company's principal operating
offices or other office location of the
Executive as existing just prior to a Change
in Control. (This provision shall not apply
to moving of the Executive's principal
offices from the Company's principal
operating offices if the Executive does not
live within 100 miles of the Company's
principal operating offices just prior to a
Change in Control.);
(vii) the relocation, without
the Executive's prior written consent, of the
Company's principal operating offices to a
location outside the county in which such
offices are located at the time of the
signing of this Agreement. (This provision
shall not apply if the Executive's principal
residence is not within 100 miles of the
Company's principal operating offices just
prior to a change in control);
(viii) in the event the
Executive consents to a relocation of the
Company's principal operating offices, the
failure of the Company to,
(a) pay or reimburse the
Executive on an after-tax basis for all
reasonable moving expenses incurred by
the Executive in connection with such
relocation or
(b) pay the Executive on
an after-tax basis against any loss
realized by the Executive on the sale of
his principal residence in connection
with such relocation;
(ix) the failure of the Company to
continue to provide the Executive with office
space, related facilities and support
personnel (including, without limitation,
administrative and secretarial assistance)
that are commensurate with the Executive's
responsibilities to and position with the
Company;
(x) the failure by the Company to
promptly reimburse the Executive for the
reasonable business expenses incurred by the
Executive in the performance of the
Executive's duties for the Company; or
(xi) any other breach by Company of
its obligations to Executive hereunder or
under applicable law.
The Executive's right to terminate the
Executive's employment for Good Reason shall not
be affected by the Executive's incapacity due to
physical or mental illness. The Executive's
continued employment shall not constitute consent
to, or a waiver of rights with respect to, any act
or failure to act constituting Good Reason
hereunder.
For purposes of a determination
regarding the existence of Good Reason, any claim
by the Executive that Good Reason exists shall be
presumed to be correct unless the Company
establishes to the Committee by clear and
convincing evidence that Good Reason does not
exist.
(N) "New Incentive Program" shall mean any
incentive compensation, deferred compensation or
other type of bonus program instituted by the
Company after the date hereof, in which the
Executive is either a participant or eligible to
be a participant.
(O) "Notice of Termination" shall mean a
written notice which shall indicate the specific
termination provision in this Agreement relied
upon and shall set forth in reasonable detail the
facts and circumstances claimed to provide a basis
for termination of the Executive's employment
under the provision so indicated. Further, a
Notice of Termination for Cause is required to
include a copy of a resolution duly adopted by the
affirmative vote of the Board at a meeting of the
Board which was called and held for the purpose of
considering such termination (after reasonable
notice to the Executive and an opportunity for the
Executive to be heard before the Board) finding
that, in the good faith opinion of the Board, the
Executive was guilty of conduct set forth in the
definition of Cause herein, and specifying the
particulars thereof.
(P) "Options" shall mean outstanding
options, whether or not then vested or
exercisable, granted to the Executive under the
Company's stock option plans.
(Q) "Person" shall have the meaning given in
Section 3(a)(9) of the Exchange Act, except that
such term shall not include
(i) the Company or any of its
subsidiaries, or
(ii) an underwriter temporarily
holding securities pursuant to an offering of
such securities.
(R) "Retirement" shall mean the termination
by the Executive of the Executive's employment if
such employment is terminated in accordance with
the Company's retirement policy.
(S) "Severance Payments" shall mean the
payments and benefits provided for in Section 6
hereof.
(T) "Stock Option Plans" shall mean such
stock option plans as are in effect by the Company
from time to time.
(U) "Term" shall mean the period of time
described in Section 2 hereof including any
extension, continuation or termination described
herein.
(V) "Total Payments" shall mean any payment
or benefit (including the Severance Payments)
received or to be received by the Executive in
connection with a Change in Control or the
termination of the Executive's employment whether
pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with the
Company.
2. 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;
(C) any rights or obligations which accrue
during the Term may be asserted and enforced by or
against the Company or the Executive, as the case
may be, for a period of sixty (60) days following
the end of the Term and any dispute arising from
such assertion or enforcement may continue until a
final settlement or resolution; and
(D) the decision of the Company prior to a
Change of Control not to extend the Term in
accordance with this Section 2 shall not
constitute Good Reason.
3. Company's Covenants Summarized.
(A) In order to induce the Executive to
remain in the employ of the Company and in
consideration of the Executive's covenants set
forth in Section 4 hereof, the Company agrees,
under the conditions described herein, to pay the
Executive the Severance Payments and the other
payments and benefits described herein. No
Severance Payments shall be payable under this
Agreement unless there shall have been a
termination of the Executive's employment with
the Company during the period of twenty-four (24)
months following a Change in Control and during
the Term.
(B) This Agreement shall not be construed as
creating an express or implied contract of
employment and, except as may otherwise be agreed
in writing between the Executive and the Company,
the Executive shall not have any right to be
retained in the employ of the Company.
4. The Executive's Covenants.
The Executive agrees that, subject to the terms
and conditions of this Agreement, the Executive will
remain in the employ of the Company until the earlier
of,
(A) the date of a Change in Control,
(B) the date of termination by the Executive
of the Executive's employment for Good Reason or
by reason of death, Disability or Retirement, or
(C) the termination by the Company of the
Executive's employment for any reason.
The Executive hereby acknowledges and reaffirms
the "Memorandum of Employee's Agreement" previously
entered into with the Company (a copy of which is
attached hereto as Exhibit "A").
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during
the Term, during any period that the Executive
fails to perform the Executive's full-time duties
with the Company as a result of incapacity due to
physical or mental illness, the Company shall pay
the Executive's full salary, less any disability
insurance benefits paid, to the Executive at the
rate in effect at the commencement of any such
period until the Executive's employment is
terminated by the Company for Disability, together
with all compensation and benefits payable to the
Executive under the terms of any other
compensation or benefit plan, program or
arrangement maintained by the Company during such
period.
5.2 If the Executive's employment shall be
terminated for any reason following a Change in
Control and during the Term, the Company shall pay
the Executive's full salary through the Date of
Termination at the rate in effect immediately
prior to the Date of Termination or, if higher,
the rate in effect immediately prior to the first
occurrence of any event or circumstance
constituting Good Reason, together with all
compensation and benefits otherwise payable to the
Executive through the Date of Termination under
the terms of the Company's compensation and
benefit plans, programs or arrangements as in
effect immediately prior to the Date of
Termination or, if more favorable to the
Executive, as in effect immediately prior to the
first occurrence of an event or circumstance
constituting Good Reason.
6. Severance Payments.
6.1 (A) If the Executive's employment
is terminated by the Company within twenty-
four (24) months following a Change in
Control that occurred during the Term for
reasons other than,
(i) Cause, or
(ii) for death or
disability; or
(iii) if the
Executive terminates employment during
such period without Good Reason (except
as provided in 6.2(B) below);
then the Company shall pay the
Executive the amounts and provide the
Executive the benefits described in Section
6.2(A) below in addition to any payments and
benefits to which the Executive is otherwise
entitled under Section 5. In the event the
Executive's employment is terminated by the
Company for Cause, for death or disability or
if employment is terminated by the Executive
other than for Good Reason, then the Company
shall only be obligated to make payments and
provide benefits to the extent then owed by
the Company to the Executive under its
existing compensation and benefit plans.
(B) For purposes of this
Agreement, the Executive's employment shall
be also deemed to have been terminated
following a Change in Control by the Company
without Cause or by the Executive with Good
Reason, if
(i) the Executive's
employment is terminated by the Company
without Cause prior to a Change in
Control (whether or nor a Change in
Control ever occurs) and such
termination was at the request or
direction of a Person who has entered
into an agreement with the Company the
consummation of which would constitute a
Change in Control, or
(ii) the Executive
terminates his employment for Good
Reason prior to a Change in Control
(whether or not a Change in Control ever
occurs) and such termination or the
circumstances or event which constitutes
Good Reason occurs at the request or
direction of a Person who has entered
into an agreement with the Company the
consummation of which would constitute a
Change in Control.
6.2 (A) In the event of the
termination of the Executive's employment as
specified in Section 6.1(A) above, the
Company shall pay to the Executive a lump sum
amount, in cash, equal to two (2) times the
higher of,
(i) the Executive's
annual base salary in effect immediately
prior to the Date of Termination, or
(ii) the highest annual
base salary paid to the Executive during
the twenty-four (24) months prior to the
Change in Control,
plus two (2) times any cash
bonus paid to the Executive during the twelve
(12) months ending on the date of the Change
in Control;
(B) In the event of termination of
employment by the Executive without Good
Reason within the thirty (30) day period
commencing upon the first anniversary of a
Change in Control, the Company shall pay to
the Executive a lump sum amount, in cash,
equal to one(1) year of annual base salary
and bonus paid, if any, during the prior
twelve (12) months, at the base salary in
effect immediately prior to the Date of
Termination or as in effect prior to the
Change in Control, whichever is higher, plus
any payments and benefits to which the
Executive is otherwise entitled under Section
5.
6.3 In the event of payment under Section
6.2(A) or (B) above, the Executive shall also be
permitted to exercise in full any stock options
previously granted to the Executive and
outstanding as of the Date of Termination,
notwithstanding any other vesting provisions in
the option grant(s), provided such option grant(s)
have been made at least six (6) months prior to
the Date of Termination.
6.4 The Company also shall pay to the
Executive all legal fees and expenses incurred by
the Executive in,
(A) disputing in good faith any
issue hereunder relating to the termination
of the Executive's employment, or
(B) seeking in good faith to
obtain or enforce any benefit or right
provided by this Agreement.
Such payments shall be made within ten
(10) business days after delivery of the
Executive's written requests for payment
accompanied with such evidence of fees and
expenses incurred as the Company reasonably may
require.
7. Termination Procedures and Compensation During Dispute.
7.1 Notice of Termination.
After a Change in Control and during the
Term, any purported termination of the Executive's
employment (other than by reason of death) shall
be communicated by Notice of Termination from one
party hereto to the other party hereto in
accordance with Section 10 hereof.
7.2 Dispute Concerning Termination.
If within fifteen (15) days after any
Notice of Termination is given, or, if later,
prior to the Date of Termination (as determined
without regard to this Section 7.2), the party
receiving such Notice of Termination notifies the
other party that a dispute exists concerning the
effect of the termination under this Agreement
either due to the Company's assertion that the
termination was for Cause or due to the Company's
denial of Good Reason, the Date of Termination
shall be extended until the date on which the
dispute is finally resolved,
(A) either by mutual written
agreement of the parties, or
(B) by a final judgment, order or
decree of an arbitrator (which is not
appealable or with respect to which the time
for appeal therefrom has expired and no
appeal has been perfected) adjudicating the
rights and obligations of the Executive and
the Company under this Agreement with respect
to the termination; provided, however, the
Date of Termination shall be extended by a
notice of dispute given by the Executive only
if such notice is given in good faith and the
executive pursues the resolution of such
dispute with reasonable diligence.
7.3 Compensation During Dispute.
If a purported termination occurs
following a Change in Control and during the Term
and the Date of Termination is extended in
accordance with Section 7.2 hereof, the Company
shall continue to pay the Executive the full
compensation in effect when the notice giving rise
to the dispute was given (including, but not
limited to, salary) and continue the Executive as
a participant in all compensation, benefit and
insurance plans in which the Executive was
participating when the notice giving rise to the
dispute was given, until the Date of Termination,
as determined in accordance with Section 7.2
hereof. Amounts paid under this Section 7.3 are
in addition to all other amounts due under this
Agreement and shall not be offset against or
reduce any other amounts due under this Agreement.
7.4 Release of Claims.
Notwithstanding any other provision
contained in this Agreement, the Company shall
require, as a condition precedent to the payment
of the Severance Payments to the Executive, that
the Executive execute a release and covenant in
favor of the Company and its stockholders,
officers, employees, directors and affiliates, of
all claims, whether known or unknown, in such form
as the Company shall deem, in its sole discretion,
reasonable and appropriate. If the Executive
fails to provide the required release and covenant
and the Company has not alleged Cause or denied
Good Reason in connection with the Notice of
Termination, the sole obligation of the Company to
the Executive under this Agreement shall be the
payment of one twenty-sixth (1/26th) of the
Executive's salary as of the Date of Termination.
8. No Mitigation.
The Company agrees that, if the Executive's
employment with the Company terminates during the Term,
the Executive is not required to seek other employment
or to attempt in any way to reduce any amounts payable
to the Executive by the Company pursuant to this
Agreement. Further, the amount of any payment or
benefit provided for in this Agreement shall not be
reduced by any compensation earned by the Executive as
a result of employment by another employer, by
retirement benefits, by offset against any amount
claimed to be owed by the Executive to the Company, or
otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed
by law upon any successor to the Company, the
Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the
business and/or assets of the Company expressly to
assume and agree to perform this Agreement in the
same manner and to the same extent that the
Company would be required to perform it if no such
succession had taken place. Failure of the
Company to obtain such assumption and agreement
prior to the effectiveness of any such succession
shall constitute Good Reason.
9.2 This Agreement shall inure to the
benefit of and be enforceable by the Executive's
personal or legal representatives, executors,
administrators, successors, heirs, distributees,
devises and legatees. If the Executive shall die
while any amount would still be payable to the
Executive hereunder (other than amounts which, by
their terms, terminate upon the death of the
Executive) if the Executive had continued to live,
all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms
of this Agreement to the executors, personal
representatives or administrators of the
Executive's estate.
10. Notices.
For the purposes of this Agreement, notices and
all other communications provided for in the Agreement
shall be in writing and shall be deemed to have been
duly given when delivered or mailed by United States
registered mail, return receipt requested, postage
prepaid, addressed, if to the Executive, to the address
inserted below the Executive's signature on the final
page hereof and, if to the Company, to the address set
forth below, or to such other address as either party
may have furnished to the other in writing in
accordance herewith, except that notice of change of
address shall be effective only upon actual receipt:
COMPANY: EXECUTIVE:
Electrosource, Inc. (Name)
2809 Interstate 35 South (Address)
San Marcos, Texas 78666
11. Miscellaneous.
11.1 No provision in this Agreement may be
modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing
and signed by the Executive and such officer as
may be specifically designated by the Board. No
waiver by either party hereto at any time of any
breach by the other party hereto of, or of any
lack of compliance with, any condition or
provision of this Agreement to be performed by
such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
11.2 This Agreement supersedes any other
agreements or representations, oral or otherwise,
express or implied, with respect to the subject
matter hereof which have been made by either
party; provided, however, that this Agreement
shall supersede any agreement setting forth the
terms and conditions of the Executive's employment
with the Company only in the event that the
Executive's employment with the Company is
terminated on or following a Change in Control
without Cause or by the Executive for Good Reason.
11.3 The validity, interpretation,
construction and performance of this Agreement
shall be governed by the laws of the State of
Texas.
11.4 All references to sections of the
Exchange Act shall be deemed also to refer to any
successor provisions to such sections.
11.5 Any payments provided for hereunder
shall be paid net of any applicable withholding
required under federal, state or local law and any
additional withholding to which the Executive has
agreed.
11.6 The obligations of the Company and the
Executive under this Agreement which by their
nature may require partial or total performance
after the expiration of the Term shall survive
such expiration.
12. Validity.
The invalidity or unenforceability of any
provision of this Agreement shall not affect the
validity or enforceability of any other provision of
this Agreement, which shall remain in full force and
effect.
13. Indemnification.
13.1 The Company shall pay, on behalf of the
Executive and Executive's executors,
administrators or assigns, any amount which the
Executive is or becomes legally obligated to pay
as a result of any claim or claims made against
the Executive by reason of the Executive's service
as an employee, director or officer of the
Company, as the case may be. The payments that
the Company will be obligated to make shall
include, without limitation, damages, judgments,
settlements, costs and expense of investigation,
costs and expenses for defense of legal actions,
claims and proceedings and appeals therefrom, and
costs of attachment and similar bonds; provided,
however, that the Company shall not be obligated
to pay fines or other obligations or fees imposed
by law or otherwise that the Company is prohibited
by applicable law, or for any other reason, from
paying as indemnity.
13.2 Costs and expenses (including, without
limitation, attorneys' fees) incurred by the
Executive in defending or investigating any
action, suit, proceeding or claims shall be paid
by the Company in advance of the disposition of
such matter upon receipt of a written undertaking
by or on behalf of the Executive to repay any such
amounts if it is ultimately determined that the
Executive is not entitled to indemnification under
this Section 13.
13.3 If a claim under this Section 13 is not
paid by or on behalf of the Company within ninety
(90) days after written claim has been received by
the Company, the Executive may at any time
thereafter proceed under Section 15 hereof against
the Company to recover the unpaid amount of the
claim and, if successful in respect of one or more
material issues, shall also been titled to be paid
the expenses, including attorneys' fees, of
prosecuting such claim.
13.4 In the event of payment under this
Section 13, the Company shall be subrogated to the
extent of such payment to all of the rights of
recovery of the Executive, who shall execute all
documents required and shall do everything that
may be necessary to secure such rights, including
the execution of such documents necessary to
enable the Company effectively to bring suit to
enforce such rights.
13.5 The Company shall not be liable under
this Section 13 to make any payment in connection
with any claim made against the Executive:
(A) for which payment is actually
made to the Executive under an insurance
policy maintained by the Company, except in
respect of any excess beyond the amount of
payment under such insurance;
(B) for which the Executive is
indemnified by the Company otherwise than
pursuant to this Section 13.
(C) based upon or attributable to
the Executive's gaining in fact any personal
profit or advantage to which the Executive
was not legally entitled;
(D) for an accounting of profits
made from the purchase or sale by the
Executive of securities of the Company within
the meaning of Section 16(b) of the Exchange
Act; or
(E) brought about or contributed
to by the dishonesty of the Executive;
provided, however, that notwithstanding
the foregoing, the Executive shall be protected
under this Section 13 as to any claims upon which
suit may be brought alleging dishonesty on the
part of the Executive, unless a judgment or other
final adjudication thereof adverse to the
Executive shall establish that the Executive
committed acts of active and deliberate dishonesty
with actual dishonest purpose and intent, which
acts were material to the cause of action so
adjudicated.
13.6 The Executive, as a condition precedent
to the Executive's right to be indemnified under
this Section 13, shall give to the Company notice
as soon as practicable of any claim made against
the Executive for which indemnity will or could be
sought under this Section 13. The Executive shall
give the Company such information and cooperation
as it may reasonably require and as shall be
within the Executive's power.
13.7 Nothing herein shall be deemed to
diminish or otherwise restrict the Executive's
right to indemnification under any provision of
the Certificate of Incorporation or Bylaws of the
Company, under Delaware law or pursuant to any
indemnification contract or agreement between the
Executive and the Company.
14. Counterparts.
This Agreement may be executed in several
counterparts, each of which shall be deemed to be an
original but all of which together will constitute one
and the same instrument.
15. Resolution of Disputes; Arbitration.
15.1 All claims by the Executive for benefits
under this Agreement shall be directed to and
determined by the Committee and shall be in
writing. Any denial by the Committee of a claim
for benefits under this Agreement shall be
delivered to the Executive in writing and shall
set forth the specific reasons for the denial and
the specific provisions of this Agreement relied
upon. The committee shall afford a reasonable
opportunity to the Executive for a review of the
decision denying a claim and shall further allow
the Executive to appeal to the Committee a
decision of the Committee within sixty (60) days
after notification by the Committee that the
Executive's claim has been denied.
15.2 Any further dispute or controversy
arising under or in connection with this Agreement
shall be settled exclusively by binding
arbitration in Austin, Texas in accordance with
the rules of the American Arbitration Association
then in effect. Judgment may be entered on the
arbitrator's award in any court having
jurisdiction. Notwithstanding any provision of
this Agreement to the contrary, the Executive
shall be entitled to seek specific performance of
the Executive's right to be paid until the Date of
Termination during the pendency of any dispute or
controversy arising under or in connection with
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
this _____ day of August, 1997.
ELECTROSOURCE, INC. EXECUTIVE
(Company)
By: By:
Printed Name: Printed Name:
Its:
Exhibit 10.39
NOTE PURCHASE AGREEMENT
This Note Purchase Agreement (the "Agreement") is made and
entered into as of December 19, 1997, by and among Electrosource,
Inc., a Delaware corporation (the "Company"), and Corning
Incorporated, a corporation organized under the laws of the State
of New York (the "Purchaser").
WHEREAS, Purchaser wishes to purchase a note from the
Company with the option to convert the note in to either common
stock of the Company or 5% cumulative convertible preferred stock
of the Company;
NOW, THEREFORE, the parties hereto agree as follows:
1. Purchase and Sale of Notes.
A. Notes. The Company agrees to sell to the
Purchaser and, subject to the terms and conditions set forth
herein, the Purchaser agrees to purchase from the Company a 5%
Convertible Promissory Notes (the "Notes") in the total principal
amount of Two Million Dollars ($2,000,000.00) for the
consideration of Two Million Dollars ($2,000,000.00), payable as
set forth in Section 2. The Notes shall be for a one (1) year
term, bearing interest at 5% per annum, payable in cash or, upon
prior written approval of the Investor, in kind and will be
convertible, in whole or in part, on or before payment in full of
the outstanding principal and accrued interest into common stock
("Common Stock") of the Company at a conversion price per share
equal to the closing price of the Company's common stock as
reported by NASDAQ on December 19, 1997, plus $1.00, subject to
adjustment of the conversion price as provided in the Notes, or
exchangeable, in whole or in part, for the Company's 5%
cumulative convertible preferred stock ("Preferred Stock"), as
provided in the Notes. The form of the Notes is set forth in
Exhibit "A," the "5% Convertible Promissory Notes," attached
hereto and incorporated herein by reference. The terms of the
Preferred Stock are set forth in Exhibit "B," the "Securities
Purchase Agreement" with attachments, which is attached hereto
and incorporated herein by reference, to the extent not in
conflict herewith.
B. Amendment of Stock Option Agreement. In further
consideration of the purchase of the Notes herein, the Company
and Investor hereby amend that certain Stock Option Agreement
dated March 27, 1997 ("Option Agreement") under the Note Purchase
and Option Agreement of March 27, 1997 to modify the option
exercise prices. The exercise prices are amended to Four and
No/100 Dollars ($4.00) per share for Two Hundred Seventy-five
Thousand (275,000) shares (the previous exercise price was Seven
and No/100 Dollars ($7.00) per share for such shares) and to Six
and No/100 Dollars ($6.00) per share for Two Hundred Twenty-five
Thousand (225,000) shares (the previous exercise price was Nine
and No/100 Dollars ($9.00) per share for such shares). The said
Option Agreement is not otherwise amended and remains in full
force and effect.
2. Closing
The closing of the purchase and sale of the Notes (the
"Closing") will take place in installments of One Million Dollars
($1,000,000) on or before December 24, 1997; Five Hundred
Thousand Dollars ($500,000) on or before January 24, 1998, and
Five Hundred Thousand Dollars ($500,000) on or before February
24, 1998. Closing may be held by mail or as the Parties may
otherwise agree. At each Closing, the Company will deliver to
the Purchaser a Note in the requisite amount upon payment by
Purchaser of the respective purchase price. The purchase price
shall be paid in the form of a check or by a wire transfer of
funds to an account designated by the Company.
3. Covenants
The Company covenants and agrees with the Purchaser as
follows:
3A. Financial Statements and Other Information. The
Company will deliver to Purchaser so long as such Purchaser holds
the Notes or any Notes issued in payment of accrued interest
thereon (sometimes referred to herein collectively with the Notes
as the "Notes") copies of all reports required to be filed by the
Company pursuant to sections 13 and 14 of the Securities Exchange
Act of 1934.
3B. Reservation of Common Stock. The Company will at
all times reserve and keep available out of its authorized but
unissued shares of Common Stock, for the purpose of issuance upon
the conversion of the Notes, such number of shares of Common
Stock as are issuable upon the conversion of the Notes. All
shares of Common Stock which are so issuable will, when issued,
be duly and validly issued, fully paid and non-assessable and
free from all taxes, liens and charges. The Company will take
all such actions as may be necessary to assure that all such
shares of Common Stock may be so issued without violation of any
applicable law or governmental regulation or any requirements of
any domestic securities exchange upon which shares of Common
Stock may be listed.
3C. Authorization of Preferred Stock. Upon Purchaser
electing to exercise its right to exchange each of the Notes into
Preferred Stock, the Company will authorize the issuance of Two
Hundred Thousand (200,000) shares of Preferred Stock at Ten and
No/100 Dollars ($10.00) per share to the Purchaser with the
rights, designations and preferences set forth in Exhibit "B."
3D. Ranking of Notes. The Company's obligations under
the Notes will rank at least pari passu in priority of payment
and in all other respects with all other unsecured loans, debts
or obligations of the Company entered into after the date hereof.
The Company shall not, while any amount of the Notes remains
outstanding, offer to borrow funds from any third party on terms
more favorable to the third party lender than those extended to
Purchaser for the Notes with respect to security for the Notes,
financial covenants or negative pledges of the Company in favor
of such third party, repayment terms, or other significant
matters, without offering such terms to Purchaser in writing.
4. Representations and Warranties
4A. Representations by Company. The Company
represents, warrants and agrees as follows:
(i) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State
of Delaware and is in good standing as a foreign corporation in
each jurisdiction where the properties owned, leased or operated,
or the business conducted by it require such qualification,
except for such failure to so qualify or be in such good
standing, which, when taken together with all other such
failures, is not reasonably likely to have a material adverse
effect on the financial condition, properties, business or
results of operations of the Company or the interest of
shareholders in the Company (a "Material Adverse Effect"). The
Company has the requisite corporate power and authority to carry
on its business as it is now being conducted.
(ii) The authorized capital stock of the Company
as of the date hereof consists of Fifty Million (50,000,000)
shares of $1.00 par value Common Stock, of which Four Million Two
Hundred Thirty Thousand Five Hundred One (4,230,501) shares were
issued and outstanding as of December 5, 1997, none of which are
held in treasury, and Ten Million (10,000,000) shares of
Preferred Stock, par value $1.00 per share ("Preferred Stock"),
of which no shares are issued and outstanding on the date hereof.
All of the outstanding shares of Common Stock have been duly
authorized and are validly issued, fully paid and nonassessable.
As of December 5, 1997, there were reservations for outstanding
options, warrants and agreements to purchase up to an aggregate
of approximately Two Million Nine Hundred One Thousand Four
Hundred Forty-four (2,901,444) shares of Common Stock, at prices
ranging from Five and 25/100 Dollars ($5.25) to Fifty-five and
No/100 Dollars ($55.00) per share.
(iii) The Notes when issued in compliance with
the provisions of this Agreement, will be duly authorized and
validly issued. The issuance of the Notes will not be subject to
any preemptive rights or rights of first refusal created by the
Company. The shares of Common Stock or Preferred Stock issuable
upon conversion of the Notes have been duly and validly reserved.
The shares of Common Stock and Preferred Stock issuable upon
conversion of the Notes are not subject to any preemptive rights
or rights of first refusal created by the Company, and upon
conversion and cancellation of the Notes and exercise of the
Option will be duly authorized, validly issued, fully paid and
nonassessable.
(iv) The Company has the requisite corporate power
and authority and has taken all corporate action necessary in
order to authorize, execute and deliver this Agreement and to
consummate the transactions contemplated hereby and to perform
the acts contemplated on its part hereunder. This Agreement is a
valid and legally binding agreement of the Company enforceable
against the Company in accordance with its terms except as such
enforcement may be limited by bankruptcy, insolvency, moratorium
or other similar laws affecting creditors' rights generally or by
equitable principles.
(v) The offer, sale and issuance of the Notes and
the Preferred Stock or Common Stock issuable upon conversion
thereof as contemplated by this Agreement are exempt from the
registration requirements of the Securities Act of 1933, as
amended (the "Securities Act") and from the registration or
qualification requirements of the laws of any applicable state or
other jurisdiction. Except as the same shall have been made or
obtained at or prior to the Closing, and except for Form D and
related state securities law filings with the Securities and
Exchange Commission and applicable state securities boards to be
made following the Closing, no notices, reports or other filings
are required to be made by the Company with, nor are any
consents, registrations, approvals, permits or authorizations
required to be obtained by the Company from, any governmental or
regulatory authority, agency, commission, court or other entity,
domestic or foreign ("Governmental Entity"), in connection with
the execution and delivery of this Agreement by the Company, the
consummation by the Company of the transactions contemplated
hereby and the performance of the acts contemplated on the part
of the Company hereunder.
(vi) The Company is not in violation of any term
of its Certificate of Incorporation or By-Laws. Except as may be
disclosed in Exhibit "C" hereto, the Company has, to the best of
its knowledge, information and belief, complied in all material
respects with all material leases, contracts, notes, mortgage,
indentures, arrangements or other obligations and commitments
("Contracts") to which the Company is a party or by which the
Company or its assets are bound or subject, and there does not
currently exist any event of default under any such agreement or
any event which, after notice or lapse of time or both, would
constitute an event of default under such agreement, plan,
arrangement or commitment, in each case to the extent that such
failure to comply, event of default or event which would
constitute an event of default would result in a Material Adverse
Effect to the Company. The execution and delivery of this
Agreement by the Company do not, and the consummation by the
Company of the transactions contemplated hereby and the
performance of the acts contemplated on the part of the Company
hereunder will not, constitute or result in (A) a breach or
violation of, or a default under, the Certificate of
Incorporation or By-Laws of the Company, or (B) a breach,
violation or event triggering a right of termination of, or a
default under, or the acceleration of or the creation of a lien,
pledge, security interest or other encumbrance on assets (with or
without the giving of notice or the lapse of time or both)
pursuant to any provisions of any Contract or any law, rule,
ordinance or regulation, agreement, instrument or judgment,
decree, order or award to which the Company is subject or any
governmental or non-governmental authorization, consent,
approval, registration, franchise, license or permit under which
the Company conducts its business.
(vii) No investment banker, broker or finder
is entitled to any financial advisory, brokerage or finder's fee
or other similar payment from either the Purchaser or the Company
based on agreements, arrangements or undertakings made by the
Company or any of its directors, officers or employees in
connection with the transactions and acts contemplated hereby.
(viii) In furnishing information to Purchaser
for purposes of this Agreement, it has not made any untrue
statements of a material fact to Purchaser or omitted to state a
material fact necessary to make such statements not misleading to
Purchaser in light of the circumstances under which they were
made.
(ix) The Company possess all patents, patent
rights, trademarks, service marks, trademark rights, service mark
rights, trade names, trade name rights, copyrights, mask works,
trade secrets, proprietary software, proprietary rights and
process necessary to conduct its business as now conducted and as
planned to be conducted, without, to the best of the Company's
knowledge, conflict with or infringement upon any valid rights of
others, the lack of which could have a Material Adverse Effect,
and has not received any notice of infringement upon or conflict
with the asserted rights of others. The Company has all permits,
licenses and other similar authority necessary for the conduct of
its business as now being conducted and as planned to be
conducted, the lack of which could have a Material Adverse
Effect, and it is not in default in any material respect under
any of such permits, licenses or other similar authority.
(x) The Company has heretofore delivered or made
available to the Investor complete and correct copies of all
reports and other filings filed by The Company with the SEC
pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), since January 1, 1994, through the date hereof
(such reports and other filings are collectively referred to
herein as the "Company Exchange Act Filings"). Except as set
forth in Exhibit "D" hereto, as of their respective dates, the
Company Exchange Act Filings substantially complied in all
material respects with the published rules and regulations of the
SEC with respect thereto and did not contain any untrue statement
of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading. The audited consolidated financial statements of the
Company included in the Company Exchange Act Filings (i) were
prepared from the books and records of the Company, (ii) were
prepared in accordance with generally accepted accounting
principles, except as otherwise permitted under the Exchange Act
and the rules and regulations thereunder and (iii) present fairly
in all material respects the financial position of the Company as
at the dates thereof and the results of its operations and cash
flows for the periods then ended, subject to the qualifications
set forth in the respective Reports of Independent Auditors
thereto. The unaudited consolidated financial statements
included in the Exchange Act Filings comply in all material
respects with the published rules and regulations of the SEC with
respect thereto; and such unaudited consolidated financial
statements (i) were prepared from the books and records of the
Company, (ii) were prepared in accordance with generally accepted
accounting principles, except as otherwise permitted under the
Exchange Act and the rules and regulations thereunder, applied on
a consistent basis (except as may be expressly indicated therein
or in the notes thereto) and (iii) present fairly the financial
position of the Company as at the dates thereof and the results
of its operations and cash flows for the periods then ended,
subject to the same qualifications as set forth in the audited
financial statements in the respective Reports of Independent
Auditors, and subject to normal year-end adjustments which would
not have a material adverse effect on the Company and any other
adjustments expressly described therein or in the notes thereto.
(xi) The Company has no outstanding indebtedness
for borrowed money except as reflected in the Financial
Statements and the notes thereto and is not a guarantor or
otherwise contingently liable for any such indebtedness
(including, without limitation, liability by way of agreement,
contingent or otherwise, to purchase, provide funds for payment,
supply funds or otherwise invest in any debtor or otherwise to
insure any creditor against loss). The Company is not in
material default under the provisions of any instrument
evidencing any indebtedness of the Company or any agreement
relating thereto.
(xii) The Company maintains insurance to protect
the Company and its financial condition against the risks
involved in the business conducted by the Company to the extent
and in the manner customary for companies in similar businesses
similarly situated.
(xiii) There is no litigation, action, suit,
proceeding or investigation pending or threatened against or
affecting the Company before any court or before any governmental
or administrative agency which contests the Company's right to
own, produce, manufacture, update, maintain, sell or use any
product, database, software, process, method, substance, part or
other material presently or planned to be owned, produced,
manufactured, updated, maintained, sold or used by the Company in
connection with the operations of the Company. The Company has
no actual knowledge or belief that (I) there presently exists, or
there is pending or planned, any patent, invention, device,
application or any statute, rule, law regulation, standard or
code which would have a Material Adverse Effect or (ii) there is
any other factor (other than fire, flood, earthquake, accident,
act of war or civil commotion, or any other cause or event beyond
the control of the Company) which may Materially Adversely Effect
the condition (financial or otherwise), prospects or operations
of the Company.
(xiv) Since the latest date of the Financial
Statements, the Company has conducted business only in the
ordinary and usual course of business and, other than as
specifically or generally reflected on the Financial Statements,
there has not been any event or condition of any character which,
alone or in combination, is a Material Adverse Effect, including
but not limited to:
(a) any material adverse change in the
condition, prospects, assets, liabilities or business of the
Company from that reflected in the Financial Statements;
(b) any damage, destruction or loss of any
of the properties or assets of the Company (whether or not
covered by insurance) materially adversely affecting the assets,
properties, financial conditions, operations, prospects, business
or plans of the Company;
(c) any material adverse change or
amendments to a contract or arrangement by which the Company or
any of its assets is bound or subject;
(d) any declaration, setting aside or
payment or other distribution in respect of any of the Company's
capital stock, or any direct or indirect redemption, purchase or
other acquisition of any such stock by the Company;
(e) any waiver by the Company of a valuable
right or material debt owed to it;
(f) any labor trouble, or any event or
condition of any character, materially adversely affecting the
business or plans of the Company.
(xv) The Company has filed within the time
prescribed by law (including extensions of time approved by the
appropriate taxing authority) all tax returns and reports
required to be filed with the United States Internal Revenue
Service and with the State of Delaware and (except to the extent
that the failure to file would not have a Material Adverse
Effect) with all other jurisdictions where such filing is
required by law; and the Company has paid, or made adequate
provision in the Financial Statements for the payment of, all
taxes, interest, penalties, assessments or deficiencies shown to
be due or claimed to be due on or in respect of such tax returns
and reports. The Company knows of (i) no unpaid assessment for
additional taxes for any fiscal period or any basis therefor and
(ii) no other tax returns or reports which are required to be
filed which have not been so filed.
4B. Representations by Purchaser
The Purchaser represents, warrants and agrees as
follows:
(i) Purchaser is purchasing the Notes for its own
account for the purpose of investment and not with a view toward
the redistribution or resale of any part thereof. Purchaser has
no present arrangement, understanding or agreement for
transferring or disposing of the Notes;
(ii) Purchaser is aware that the purchase of the
Notes represent speculative investments;
(iii) Before executing this Agreement,
representatives of Purchaser were furnished all information with
respect to the Company that they requested and representatives of
Purchaser were given the opportunity to ask Company executives
all questions that such representatives had;
(iv) Purchaser confirms that it is an "Accredited
Purchaser," as such term is defined in Rule 501 of Regulation D
promulgated under the Securities Act;
(v) Purchaser confirms that it is able to bear
the economic risk inherent in its investment and understands that
there currently is no, and that there may not ever be any,
private or public market for the Notes in the event that
Purchaser needs to liquidate its investment;
(vi) Purchaser agrees that it will not offer or
sell the Notes or any of the shares of Common Stock or Preferred
Stock into which the Notes is convertible or which are issuable
upon exercise of the Option unless the Notes or such shares of
Common Stock or Preferred Stock are registered under the
Securities Act and under all applicable state securities laws,
unless Purchaser has established to the reasonable satisfaction
of the Company that no such registration is required;
(vii) Purchaser agrees that appropriate
restrictive endorsements will be placed on the instrument
evidencing the Notes and on the certificate(s) evidencing the
shares of Common Stock or Preferred Stock into which the Notes
are convertible or which are issuable upon exercise of the Option
to reflect the foregoing and that the Company will give
appropriate stop transfer instructions to the person in charge of
the transfer of its securities, including the Notes, the Common
Stock and the Preferred Stock. Upon request of the holder of
such Notes or certificates, the Company shall give an instruction
to the transfer agent to process the transfer if (i) with such
request, the Company shall have received either (A) an opinion of
legal counsel, addressed to the Company and reasonably
satisfactory in form and substance to the Company, to the effect
that the proposed transfer of such securities may be effected
without registration under the Securities Act, or (B) a "no-
action" letter from the Securities and Exchange Commission (the
"Commission") to the effect that the distribution of such
securities without registration will not result in a
recommendation by the staff of the Commission that action be
taken with respect thereto, or (ii) such holder is eligible to
utilize paragraph (k) of Rule 144 (or any successor rule) as then
in effect under the Securities Act;
5. Registration Rights
5A. The Purchaser shall have the following demand
registration rights:
(i) Upon purchase of the Notes, the Purchaser
shall have the right, by written notice to the Company, to
require the Company to use its best reasonable efforts to file
within thirty (30) days thereafter a Form S-3 registration
statement for all shares of Common Stock issued or issuable upon
conversion of the Notes owned by the Purchaser (also "Demand
Covered Shares"). If a Form S-3 is not available, the Company
will attempt to use a Form S-2 or other Form as appropriate.
(ii) The Company shall be entitled to defer filing
any such registration statement for a period of up to ninety (90)
days after such notice upon a good faith determination by the
Company's management that the filing of a registration statement
at such time would be detrimental to the Company due to the
pendency of a material acquisition or financing or for other
reasonable cause. Purchaser may request that the Company withdraw
any such registration statement at any time prior to its
effectiveness; provided that, any such withdrawn registration
statement shall be treated as a completed registration fulfilling
the obligations of the Company pursuant to this section unless
the Purchaser shall reimburse the Company for all of the
Company's costs and expenses incurred in connection with such
withdrawn registration within thirty days following the request
to withdraw.
(iii) The Purchaser may elect to have
conversion of the Notes contingent upon a registration statement
hereunder being declared effective.
(iv) In the event a registration statement on Form
S-3 (or on another form at the Company's discretion) has not been
declared effective within one hundred fifty (150) days of demand,
then for each thirty (30) day period thereafter until a
registration statement becomes effective, the Company shall be
required to issue to Purchaser an additional two percent (2%) of
the shares issuable upon conversion of such Notes.
5B. The Purchaser shall also have "piggyback"
registration rights. If the Company proposes to sell shares of
Common Stock for its own account and to register the sale of such
shares under the Securities Act, or if the Company proposes to
register the sale of shares of Common Stock to be sold for the
account of any other shareholder, it shall give written notice of
such proposed registration to Purchaser as promptly as possible
and shall use its reasonable efforts to include in the offering
such number of shares of Common Stock received by Purchaser upon
conversion of the Notes ("Piggyback Covered Shares") then owned
by Purchaser as Purchaser shall request, within twenty-five (25)
days after the giving of such notice such offering to be upon the
same terms (including method of distribution) as the securities
being sold by the Company or any selling shareholder pursuant to
any such offering. The Company's obligation to include Piggyback
Covered Shares owned by Purchaser in any offering shall in all
cases be subject to the following limitations and qualifications:
(i) The Company shall not be required to give
notice to Purchaser or include such shares in any such
registration if the proposed registration is (A) a registration
of a stock option or compensation plan or of Common Stock issued
or issuable pursuant to any such plan, (B) a registration of
Common Stock proposed to be issued in exchange for securities or
assets of, or in connection with a merger or consolidation with,
another corporation, or (C) to be on a form of registration
statement for which the Piggyback Covered Shares are not
eligible;
(ii) The Company may require that the number of
Piggyback Covered Shares requested to be included in such
registration be reduced, or that all such shares be excluded from
any such registration, if it is advised in writing by its
managing underwriter (or, if the offering is not underwritten,
upon a good faith determination by the Company's board of
directors) that such reduction or exclusion, as the case may be,
is necessary to avoid materially adversely affecting the public
offering of the securities being offered by the Company. If the
Company shall require such a reduction, Purchaser shall have the
right to withdraw from the offering;
(iii) In the event that the number of shares
of Common Stock included in any registration is to be reduced
pursuant to Section 6B(ii):
(A) If the registration in question is one
initiated by the Company in order to allow the sale of Common
Stock for the account of the Company, then any reduction in the
number of shares to be included in such registration shall first
affect only shares other than the shares the Company proposes to
sell for its own account.
(B) If the registration in question is one
initiated by any person or persons other than the Company
exercising demand registration rights in order to allow the sale
of Common Stock for the account of such person or persons, then
any reduction in the number of shares to be included in such
registration shall first affect only shares other than the shares
of Common Stock requested to be included by the person or person
initiating the registration by the exercise of demand
registration rights requested to be included in the registration
by Holders; and
(C) Subject to subparagraphs (A) and (B)
above, in the event that the Company requires that the number of
shares to be included in a registration be reduced, such
reduction shall be applied pro rata among all parties having
registration rights in proportion to the number of shares
requested to be registered by each.
(iv) The Company shall not be required to include
any Piggyback Covered Shares in any registration to the extent
that the inclusion thereof would result in a reduction in the
number of shares requested to be included in the registration by
the person or persons (including the Company) initiating the
registration in question or would reduce the per share price of
the offering.
(v) The Company may, in its sole discretion and
without the consent of Purchaser, withdraw such registration
statement and abandon the proposed offering in which Purchaser
had requested to participate.
5C. In connection with a registration of Covered
Shares undertaken by the Company pursuant to this Part 6, the
Company shall:
(i) prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to
keep such registration statement current as long as is reasonably
possible as Purchaser shall request and to comply with the
provisions of the Securities Act with respect to the sale of all
Covered Shares covered by such registration statement during such
period;
(ii) provide Purchaser a reasonable opportunity to
review prior to filing any registration statement filed by the
Company in connection with a registration in which Purchaser is
participating, any amendments or supplements to such registration
statement and any prospectus used in connection therewith;
(iii) furnish to Purchaser such number of
conformed copies of such registration statement and of each such
amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus included in
such registration statement, in conformity with the requirements
of the Securities Act, and such other documents as Purchaser may
reasonably request in order to facilitate the sale of the Covered
Shares covered by such registration statement;
(iv) use its best efforts to register or qualify
the Covered Shares covered by such registration statement under
such other securities or blue sky laws of such jurisdictions as
Purchaser shall reasonably request, and do any and all other acts
and things which may be reasonably necessary or advisable to
enable Purchaser to consummate the sale in such jurisdictions of
such shares; provided that the Company shall not for any such
purpose be required to register or qualify the covered shares
covered by such registration statement in any jurisdiction in
which the Common Stock is not then qualified for public trading,
to qualify generally to do business as a foreign corporation in
any jurisdiction wherein it would not but for the requirements of
this section be obligated to be so qualified, to subject itself
to taxation in any such jurisdiction or to consent to general
service of process in any such jurisdiction;
(v) notify Purchaser at any time when a
prospectus relating to the Covered Shares covered by such
registration statement is required to be delivered under the
Securities Act, of the Company's becoming aware that the
prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits
to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in light
of the circumstances then existing, and at the request of
Purchaser promptly prepare and furnish to Purchaser a reasonable
number of copies of a prospectus supplemented or amended so that,
as thereafter delivered to the purchasers of such shares, such
prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading in light of the circumstances then existing;
(vi) use its best efforts to cause all of the
Covered Shares included in such registration statement to be
listed on each securities exchange on which securities of the
same class issued by the Company are then listed or, if there
shall then be no such listing, to be accepted for quotation on
NASDAQ;
(vii) provide a transfer agent and registrar
for the Covered Shares covered by such registration statement not
later than the effective date of such registration statement; and
5D. For as long as Purchaser shall continue to hold
any Covered Shares, the Company shall use reasonable efforts to
file, on a timely basis, all annual, quarterly and other reports
required to be filed by it under Sections 13 and 15(d) of the
Exchange Act, and the rules and regulations of the Commission
thereunder, as amended from time to time. In the event of any
proposed sale of Covered Shares by Purchaser pursuant to Rule 144
(or any successor rule) under the Securities Act, the Company
shall cooperate with Purchaser so as to enable such sales to be
made in accordance with applicable laws, rules and regulations,
the requirements of the Company's transfer agents, and the
reasonable requirements of the broker through which the sales are
proposed to be executed.
5E. The costs and expenses of any registration
effected pursuant to this Part 6 shall be allocated as provided
in this Section 6E:
(i) "Registration Expenses" shall mean all
expenses incurred by the Company in complying with this Part 6,
including, without limitation, all registration, qualification
and filing fees, printing expenses, escrow fees, transfer agents'
and registrars' fees, fees and disbursements of counsel for the
Company, blue sky fees and expenses, and the expense the
Company's accountants, including the cost of any special audits
incident to or required by any such registration (but excluding
the compensation of regular employees of the Company which shall
be paid in any event by the Company);
(ii) "Selling Expenses" shall mean all
underwriting discounts and selling commissions applicable to the
sale and all fees and disbursements of counsel for any holder;
(iii) In connection with any registration
pursuant to Section 6A, the company shall pay all Registration
Expenses and Purchaser shall pay all Selling Expenses;
(iv) In connection with any registration initiated
by the Company in which Purchaser participates pursuant to
Section 6B, the Company or other person initiating the
registration shall pay all Registration Expenses, and Purchaser
shall pay all Selling Expenses attributable to the inclusion in
the offering of the Covered Shares being sold by Purchaser.
5F. In the case of the registration effected by the
Company pursuant to this part, the Company agrees to indemnify
and hold harmless Purchaser, each underwriter of the Covered
Shares so registered and each person who controls any such
underwriter within the meaning of Section 15 of the Securities
Act, against any and all losses, claims, damages or liabilities
to which they or any of them may become subject under the
Securities Act or any other statute or common law, including any
amount paid in settlement of any litigation, commenced or
threatened, if such settlement is effected with the written
consent of the Company, and to reimburse them for any legal or
other expenses incurred by them in connection with investigating
any claims and defending any actions, insofar as any such losses,
claims, damages, liabilities or actions arise out of or are based
upon (i) any untrue statement or alleged untrue statement of a
material fact contained in the registration statement relating to
the sale of the Covered Shares, or any post-effective amendment
thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, or (ii) any untrue
statement or alleged untrue statement of a material fact
contained in any preliminary prospectus, if used prior to the
effective date of such registration statement, or contained in
the final prospectus (as amended or supplemented if the Company
shall have filed with the Commission any amendment thereof or
supplement thereto) if used within the period during which the
Company is required to keep the registration statement to which
such prospectus relates current, or the omission or alleged
omission to state therein (if so used) a material fact necessary
in order to make the statements therein, in light of the
circumstances under which they were made, not misleading;
provided, however, that the indemnification agreement contained
in this section shall not (x) apply to such losses, claims,
damages, liabilities or actions arising out of, or based upon,
any such untrue statement or alleged untrue statement, or any
such omission or alleged omission, if such statement or omission
was made in reliance upon and in conformity with information
furnished in writing to the Company by Purchaser or such
underwriter for use in connection with the preparation of the
registration statement, any preliminary prospectus or final
prospectus contained in the registration statement, or any
amendment or supplement thereto, or (y) inure to the benefit of
any underwriter or any person controlling such underwriter, if
such underwriter failed to send or give a copy of the final
prospectus to the person asserting the claim at or prior to the
delivery of certificates representing Covered Shares or of
written confirmation of the sale of Covered Shares to such person
and if the untrue statement or omission concerned had been
corrected in such final prospectus.
5G. In the case of a registration effected by the
Company pursuant to this part, Purchaser and each underwriter of
the Covered Shares to be registered shall agree in the same
manner and to the same extent as set forth above to indemnify and
hold harmless the Company, each person who controls the Company,
the directors of the Company and those of its officers who shall
have signed any such registration statement, with respect to any
untrue statement or alleged untrue statement in, or omission or
alleged omission from, such registration statement or any post-
effective amendment thereto or any preliminary prospectus or
final prospectus (as amended or as supplemented, if amended or
supplemented as aforesaid) contained in such registration
statement, if such statement or omission was made in reliance
upon and in conformity with information furnished in writing to
the Company by Purchaser or any such underwriter for use in
connection with the preparation of such registration statement or
any preliminary prospectus or final prospectus contained in such
registration statement or any such amendment or supplement
thereto.
5H. Each indemnified party shall, with reasonable
promptness after its receipt of written notice of the
commencement of any action against such indemnified party in
respect of which indemnity may be sought from an indemnifying
party on account of an indemnity agreement contained in this
part, notify the indemnifying party in writing of the
commencement thereof. In case any such action shall be brought
against any indemnified party and it shall so notify an
indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent
it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not
be liable to such indemnified party under this part for any legal
or other expenses subsequently incurred by such indemnified party
in connection with the defense thereof other than reasonable
costs of investigation. The indemnity agreements in this part
shall be in addition to any liabilities that the indemnifying
parties may have pursuant to law.
5I. If the indemnification provided for in this part
shall be unavailable to or insufficient to hold harmless an
indemnified party under sections above in respect of any losses,
claims, damages or liabilities (or actions in respect thereof)
referred to therein, then the indemnifying parties shall
contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportions as are
appropriate to reflect to the relative benefits received by the
respective indemnifying parties from the offering of the Covered
Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law, or if the
indemnified party failed to give the notice required under
section 6H above, then each indemnifying party shall contribute
to such amount paid by or payable by such indemnified party in
such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the indemnifying
parties in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or
actions in respect thereof) as well as any other relevant
equitable considerations. The relative benefits received by the
indemnifying parties shall be deemed to be in the same proportion
as the net proceeds to any such party bear to the total net
proceeds from the offering before deducting expenses. The
relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a
material fact relates to information supplied by the respective
indemnifying party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
statement or omission. Provided in no event shall Purchaser's
liability pursuant to these indemnity provisions be greater than
the amount paid for the Notes and shares of Common Stock
purchased pursuant to this Agreement and the Exhibits.
6. Miscellaneous
6A. Successors and Assigns. Except as otherwise
expressly provided herein, all covenants and agreements contained
in this Agreement by or on behalf of any of the parties hereto
will bind and inure to the benefit of the respective successors
and assigns of the parties hereto whether so expressed or not;
provided that, the registration rights granted to the Purchaser
shall not be transferred or assigned by Purchaser other than to
an entity wholly owned by Investor.
6B. Severability. Whenever possible, each provision
of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of
this Agreement is held to be prohibited by or invalid under
applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating
the remainder of this Agreement.
6C. Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, any one of which need
not contain the signatures of more than one party, but all such
counterparts taken together will constitute one and the same
Agreement.
6D. Descriptive Headings. The descriptive headings of
this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
6E. Governing Law; Venue. The corporate law of
Delaware will govern all issues concerning the relative rights of
the Company and its stockholders. All other questions concerning
the construction, validity and interpretation of this Agreement
and the exhibits, including the Notes and Option, and schedules
hereto will be governed by the internal law, and not the law of
conflicts, of Delaware. It is the intention of the parties that
proper venue for any action, suit or proceeding arising pursuant
to this Agreement or in connection with the transactions
contemplated herein shall be in Delaware. Each party agrees that
any such action, suit or proceeding shall be brought before a
state or federal court sitting in the State of Delaware and
waives any objection to venue in such court. Each party waives
the right to demand a jury in any action, suit or proceeding
arising pursuant to this Agreement.
6F. Notices. All notices, demands or other
communications to be given or delivered under or by reason of the
provisions of this Agreement (other than notice of a telephonic
meeting of the Company's board of directors, which may be given
by telephone) will be in writing and will be deemed to have been
given either when delivered personally or three (3) business days
after having been mailed by certified or registered mail, return
receipt requested and postage prepaid, to the recipient. Such
notices, demands and other communications will be sent to the
Purchaser and to the Company at the address indicated below:
If to the Company:
Electrosource, Inc.
2809 Interstate 35 South
San Marcos, Texas 78666
Attention: President
With a copy to:
Bret Van Earp
Attorney-at-Law
100 Congress Avenue, Suite 1800
Austin, Texas 78701
If to the Purchaser:
Corning Incorporated
Attn: Corporate Secretary
One Riverfront Plaza
Corning, New York 14831
or to such other address or to the attention of such other person
as the recipient party has specified by prior written notice to
the sending party.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first written above.
ELECTROSOURCE, INC. CORNING INCORPORATED
By: /s/ Michael G. Semmens By: /s/ David H. Fuller
Michael G. Semmens
President, CEO and Printed Name: David H. Fuller
Chairman of the Board
Its: Division VP & Director
EXHIBIT "A"
TO
NOTE PURCHASE AGREEMENT
DATED DECEMBER 19, 1997
5% CONVERTIBLE PROMISSORY NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE ("BLUE SKY LAWS"), AND MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
DELIVERY TO THE COMPANY OF EVIDENCE SATISFACTORY TO THE
COMPANY TO THE EFFECT THAT AN EXEMPTION FROM
REGISTRATION THEREUNDER IS AVAILABLE.
Dated __________ $________________
FOR VALUE RECEIVED, Electrosource, Inc., a Delaware
corporation (the "Company"), hereby promises to pay to the order
of Corning Incorporated, a New York corporation ("Corning" or the
"original holder"), the principal sum of _______________________
($__________) together with interest thereon calculated from the
date hereof, in accordance with the provisions of this Note.
This Note is one of the 5% Convertible Promissory Notes (the
"Note") issued pursuant to a Note Purchase Agreement dated as of
December ___, 1997, between the Company and Corning (the
"Purchase Agreement"). The Purchase Agreement contains terms
governing the rights and obligations of the holder of this Note,
and all provisions of the Purchase Agreement are incorporated
herein by reference. Unless otherwise indicated herein,
capitalized terms used in this Note have the same meanings as set
forth in the Purchase Agreement.
Part 1. Payment of Interest
lA. Rate of Interest. Interest shall accrue at the rate of
five percent (5%) per annum on the unpaid principal amount of
this Note outstanding from time to time. Interest shall be paid
in cash or, upon prior written consent of Corning, in additional
Notes having terms identical to this Note except in respect of
principal amount, dated as of the Payment Date (as defined below)
with respect to which such interest is payable and having a
principal amount equal to the amount of interest accrued and
unpaid as of that Payment Date.
lB. Payment Dates. On June 19, 1998, and December 19, 1998
(each of which dates shall be a "Payment Date"), all unpaid
interest that has accrued on the unpaid principal amount of this
Note on and prior to such Payment Date or on any overdue interest
on this Note shall become due and payable.
lC. Payment upon Maturity or Prepayment. All accrued
interest that has not theretofore been paid shall be paid in full
on the date on which the entire principal amount outstanding
under this Note is paid, whether upon maturity or upon
prepayment. In the event that any portion less than the entire
outstanding principal amount of this Note is prepaid pursuant to
paragraph 2B, the accrued interest applicable to such portion
prepaid shall be paid as of the effective date of such partial
prepayment.
lD. Saving Clause. All agreements and transactions between
the Company and the holder of this Note, whether now existing or
hereafter arising, whether contained herein or in any other
instrument, and whether written or oral, are hereby expressly
limited so that in no contingency or event whatsoever, whether by
reason of acceleration of the maturity hereof, prepayment, demand
for prepayment or otherwise, shall the amount contracted for,
charged or received by the holder of this Note from the Company
for the use, forbearance or detention of the principal
indebtedness or interest hereof, which remains unpaid from time
to time, exceed the maximum amount permissible under applicable
law, it particularly being the intention of the parties hereto to
conform strictly to the applicable law of usury. Any interest
payable hereunder or under any other instrument relating to the
indebtedness evidenced hereby that is in excess of the legal
maximum, shall, in the event of acceleration of maturity,
prepayment, demand for prepayment or otherwise, be automatically,
as of the date of such acceleration, prepayment, demand or
otherwise, applied to a reduction of the principal indebtedness
hereof and not to the payment of interest, or if such excessive
interest exceeds the unpaid balance of such principal, such
excess shall be refunded to the Company. To the extent not
prohibited by law, determination of the legal maximum rate of
interest shall at all times be made by amortizing, prorating,
allocating and spreading in equal parts during the period of the
full stated term of the indebtedness, all interest at any time
contracted for, charged or received from the Company in
connection with the indebtedness, so that the actual rate of
interest on account of such indebtedness is uniform throughout
the term hereof.
Part 2. Payment of Principal
2A. Payment upon Maturity. The entire unpaid principal
amount hereof shall be due and payable on December 19, 1998.
2B. Prepayment. The Company may prepay all or any part of
this Note at any time in One Hundred Thousand Dollar ($100,000)
increments. The Company shall give not less than thirty (30)
days prior written notice of its intention to prepay this Note.
Part 3. Registration of Transfer
The Company shall keep at its principal office a register
for the registration of Notes, which shall contain the name and
address of the registered holder (herein referred to as the
holder) of the Note and the principal and interest of the Note.
No transfer of the Note or any right to receive payments under
the Note shall be permitted unless made upon the Company's
register. Upon the surrender of any Note or Notes at such place,
the Company shall, at the request of the holder of such Note,
execute and deliver (at the Company's expense) a new Note or
Notes in exchange therefor representing in the aggregate the
principal amount represented by the surrendered Note. Each such
new Note shall be registered in such name and shall represent
such principal amount of Note as is requested by the holder of
the surrendered Note and shall be substantially identical in form
to the surrendered Note, and interest shall accrue on such new
Note from the date to which interest has been fully paid on such
Note represented by the surrendered Note; provided that, if any
Note is to be registered in the name of a person or persons other
than the holder of the Note, there has been compliance with all
laws applicable to such change of registered holder, including
but not limited to federal and state securities laws.
Part 4. Replacement
Upon receipt of evidence reasonably satisfactory to the
Company of the ownership and the loss, theft, destruction or
mutilation of any Note, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory
to the Company, or, in the case of any such mutilation upon
surrender of such Note, the Company shall (at its expense)
execute and deliver in lieu of such Note, a new Note of like kind
representing the principal amount of Note represented by such
lost, stolen, destroyed or mutilated Note and dated the date of
such lost, stolen, destroyed or mutilated Note, and interest
shall accrue on the Note represented by such new Note from the
date to which interest has been fully paid on such lost, stolen,
destroyed or mutilated Note.
Part 5. Cancellation
After all principal and accrued interest at any time owed on
this Note has been paid in full, this Note shall be surrendered
to the Company for cancellation and shall not be reissued.
Part 6. Waiver of Notice, etc.
The Company hereby waives presentment, demand, notice,
protest and all other demands and notice in connection with the
delivery, acceptance, performance and enforcement of this Note,
and assents to extension of the time of payment or forbearance or
other indulgence without notice.
Part 7. Events of Default
7A. Events of Default. Each of the following shall
constitute an Event of Default:
(i) the Company fails to pay when due the full amount
of any principal or interest on this Note whether at maturity or
by acceleration or otherwise;
(ii) the Company makes an assignment for the benefit of
creditors or admits in writing its inability to pay its debts
generally as they become due; or an order, judgment or decree is
entered adjudicating the Company bankrupt or insolvent; or the
Company petitions or applies to any tribunal for the appointment
of a trustee, receiver or liquidator of the Company or of any
substantial part of the assets of the Company, or commences any
proceeding under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation law
of any jurisdiction; or any such petition or application is
filed, or any such proceeding is commenced against the Company
and either the Company takes any action indicating its approval
thereof, consent thereto, or acquiescence therein or such
petition, application or proceeding is not dismissed within
ninety (90) days;
(iii) the sale by the Company of a material part of
the business or assets of the Company other than in the ordinary
course of business;
(iv) the taking, closing or nationalization of a
material part of the business or assets of the Company by
governmental or legal action. A "material part of the business
or assets of the Company" means more than one-third of the gross
assets of the Company as set forth in its most recent audited
consolidated financial statements;
(v) any representation or warranty of the Company set
forth in the Purchase Agreement is shown to be, or becomes false
or untrue as of the date of this Note.
7B. Remedies. Upon the occurrence and continuance of any
Event or Events of default, the holders of a majority of the
combined aggregate principal amount outstanding under this Note
and any Notes issued in payment of accrued interest on Notes may,
by written notice to the Company, declare all or any part of the
unpaid principal amount of the Notes then outstanding to be
forthwith due and payable, and thereupon such unpaid principal
amount or part thereof, together with interest accrued thereon,
shall become so due and payable without presentation,
presentment, protest, notice of intent to accelerate, notice of
acceleration, or further demand or notice of any kind, all of
which are hereby expressly waived, and such holder or holders may
proceed to enforce payment of such amount or part thereof in such
manner as it or they may elect. The Company hereby waives to the
extent not prohibited by applicable law which cannot itself be
waived (i) all presentments, demands for performance, notices of
nonperformance (except to the extent required by the provisions
hereof), (ii) any requirement of diligence or promptness on the
part of any holder of Notes in the enforcement of its rights
under the provisions of this Note, and (iii) any and all notices
of every kind and description which may be required to be given
by any statute or rule of law.
Part 8. Conversion into Common Stock
8A. Conversion Procedure.
(i) At any time on or before payment in full of the
principal and accrued interest outstanding hereunder, the holder
of this Note may convert all or any portion of the outstanding
principal amount hereof (plus accrued but unpaid interest on such
principal amount or portion thereof) held by such holder into a
number of shares of the Company's Common Stock computed by
dividing the principal amount of this Note (plus accrued but
unpaid interest thereon) to be converted by the "Conversion
Price" (as defined below in Part 8B).
(ii) Each conversion will be deemed to have been
effected as of the close of business on the date on which the
instrument representing this Note has been surrendered at the
principal office of the Company. At such time as such conversion
has been effected, the rights of the holder of this Note as such
holder will cease and the person or persons in whose name or
names any certificate or certificates for shares of Common Stock
are to be issued upon such conversion will be deemed to have
become the holder or holders of record of the shares of Common
Stock represented thereby.
(iii) As soon as possible after a conversion has
been effected (but in any event within three (3) business days in
the case of subparagraph (a) below), the Company will deliver to
the converting holder:
(a) a certificate representing the number of
shares of Common Stock issuable by reason of such conversion in
such name or names and such denomination or denominations as the
converting holder has specified (provided that, in the event that
the name specified by the converting holder is other than that of
the converting holder, the Company has received evidence
satisfactory to Company counsel that the transfer of Common Stock
from the converting holder to the person specified may be
accomplished without violation of applicable law);
(b) a replacement Note having terms identical to
those of this Note other than the principal amount, which shall
be equal to portion of the principal amount of the original Note
not converted; and
(c) the amount payable under subparagraph (vi)
below with respect to fractional shares of Common Stock otherwise
issuable upon such conversion.
(iv) The issuance of certificates for shares of Common
Stock upon conversion of this Note will be made without charge to
the holder of such Note for any issuance tax in respect thereof
or other cost incurred by the Company in connection with such
conversion and the related issuance of shares of Common Stock.
Upon conversion of this Note, the Company will take all such
actions as are necessary in order to insure that the Common Stock
issuable with respect to such conversion will be validly issued,
fully paid and nonassessable.
(v) The Company will not close its books against the
transfer of this Note or of Common Stock issued or issuable upon
conversion of this Note in any manner which interferes with the
timely conversion of this Note.
(vi) If any fractional interest in a share of Common
Stock would, except for the provisions of this subparagraph (vi),
be deliverable upon any conversion of this Note, the Company, in
lieu of delivering the fractional share therefor, may at its
option pay a cash adjustment for such fractional share equal to
such fraction times the fair market value per share of the Common
Stock at the close of business on the date of conversion, as
determined in good faith by the board of directors of the
Company.
(vii) The provisions of this part 8 shall be
subject to the limitations imposed by section 2B hereof.
8B. Conversion Price. The Conversion Price shall be equal
to the closing price of the Company's common stock as reported by
NASDAQ on December 19, 1997, plus $1.00. In order to prevent
dilution of the conversion rights granted under this part 8, the
Conversion Price will be subject to adjustment from time to time
pursuant to this part 8; provided that the Conversion Price will
in no event be less than One and No/100 Dollars ($1.00), the par
value.
8C. Subdivision or Combination of Common Stock. If the
Company at any time subdivides (by any stock split, stock
dividend, recapitalization or otherwise) its outstanding shares
of Common Stock into a greater number of shares, the Conversion
Price in effect immediately prior to such subdivision will be
proportionately reduced, and if the Company at any time combines
(by reverse stock split or otherwise) its outstanding shares of
Common Stock into a smaller number of shares, the Conversion
Price in effect immediately prior to such combination will be
proportionately increased.
8D. Reorganization, Reclassification, Consolidation, Merger
or Sale. Any reorganization, reclassification, consolidation,
merger or sale of all or substantially all of the Company's
assets to another Person which is effected in such a way that
holders of Common Stock are entitled to receive (either directly
or upon subsequent liquidation), stock, securities or amounts
with respect to or in exchange for Common Stock is referred to
herein as an "Organic Change." Prior to the consummation of any
Organic Change, the Company will make appropriate provisions (in
form and substance satisfactory to the holders of a majority of
the outstanding principal amount of Notes then outstanding) to
insure that each of the holders of Notes will thereafter (for so
long as such holders have the right to convert the Notes as
provided in this part 8) have the right to receive, in lieu of or
in addition to the shares of Common Stock immediately theretofore
issuable upon the conversion of such holder's Notes, such shares
of stock, securities or assets as such holder would have received
in connection with such Organic Change if such holder had
converted his Notes immediately prior to such Organic Change. In
any such case, the Company will make appropriate provisions (in
form and substance satisfactory to the holders of a majority of
the outstanding principal amount of Notes then outstanding) to
insure that the provisions of this part 8 will thereafter (for so
long as such holders have the right to convert the Notes as
provided in this part 8) be applicable to the Notes.
8E. Notices. Until the maturity of this Note:
(i) Immediately upon any adjustment of the Conversion
Price, the Company will give written notice thereof to the holder
of this Note.
(ii) The Company will give written notice to the holder
of this Note at least twenty (20) days prior to the date on which
the Company closes its books or takes a record (a) with respect
to any dividend or distribution upon Common Stock, (b) with
respect to any pro rata subscription offer to holders of Common
Stock or (c) for determining rights to vote with respect to any
Organic Change, dissolution or liquidation.
(iii) The Company will also give written notice to
the holder of this Note at least thirty (30) days prior to the
date on which any Organic Change will take place.
Part 9. Conversion into Preferred Stock.
9A. Conversion Procedure.
At any time on or before payment in full of the
principal and accrued interest outstanding hereunder, the holder
of the Note may apply the principal and accrued interest
outstanding hereunder against the purchase price of 5% Cumulative
Convertible Preferred Stock as provided in Exhibit "B" hereto,
the "Securities Purchase Agreement."
Part 10. Amendment and Waiver
No amendment, modification or waiver shall be binding or
effective with respect to any provision of this Note without the
prior written consent of the holders of at least sixty-seven
percent (67%) of the combined aggregate principal amount of this
Note and any additional Notes issued in payment of accrued
interest then outstanding.
Part 11. Notices
Except as otherwise expressly provided, all notices
referred to herein will be in writing and will be delivered by
registered or certified mail, return receipt requested, postage
prepaid and will be deemed to have been given when so mailed (i)
to the Company, at its principal executive offices and (ii) to
any holder of this Note, at such holder's address as it appears
in the Note register maintained pursuant to part 3 hereof (unless
otherwise indicated by any such holder).
IN WITNESS WHEREOF, the Company has executed and delivered
this Note on __________.
ELECTROSOURCE, INC.
By:
Printed Name:
Its:
EXHIBIT "B"
TO
NOTE PURCHASE AGREEMENT
DATED DECEMBER 19, 1997
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (the "Agreement") is made
and entered into as of December __, 1997, by and among
Electrosource, Inc., a Delaware corporation (the "Company"), and
Corning Incorporated, a New York corporation (the "Investor").
The parties hereto agree as follows:
1. Authorization and Terms of 5% Cumulative Convertible
Preferred Stock. The Company will authorize the issuance and sale
to the Investor of 200,000 shares of the Company's 5% Cumulative
Convertible Preferred Stock par value $1.00 per share ("5%
Cumulative Convertible Preferred Stock") having the designations,
rights and preferences set forth in the Company's Certificate of
Designation attached hereto as Exhibit "A."
2. Purchase and Sale of 5% Cumulative Convertible Preferred
Stock. At the Closing (as defined in part 3), the Investor will
purchase 200,000 shares of 5% Cumulative Convertible Preferred
Stock for an aggregate consideration of Two Million Dollars ($
2,000,000.00). The initial conversion price per common share
shall be equal to the closing price of the Company's common stock
as reported by NASDAQ on December 19, 1997, plus $1.50. The
Investor will deliver the consideration for the 5% Cumulative
Convertible Preferred Stock at the Closing in the form of (i) a
certified, cashier's or other check acceptable to the Company or
by wire transfer of funds to an account designated by the Company
or (ii) the Notes issued pursuant to the Note Purchase Agreement
dated December 19, 1997, marked "paid in full," or (iii) by a
combination thereof, in any case by mail or as the parties may
otherwise agree. Delivery of the Notes marked "paid in full"
shall result in a credit to the Investor of an amount equal to
the principal and accrued interest outstanding thereunder; any
credit balance due to the investor shall be paid to the investor
at the Closing in the form of a certified, cashier's or other
check acceptable to the Investor or by wire transfer of funds to
an account designated by the Investor.
3. Closing. The closing of the purchase and sale of the 5%
Cumulative Convertible Preferred Stock (the "Closing") will take
place by mail or as the parties may otherwise agree. At the
Closing, the Company will deliver to the Investor a certificate
evidencing the 5% Cumulative Convertible Preferred Stock to be
purchased by the Investor, registered in the name of Investor or
its nominee, upon payment of the consideration for the 5%
Cumulative Convertible Preferred Stock purchased at the Closing
in the form and amount described above. The Closing will be held
on or before December 19, 1998, or at such other time and
location as may be mutually agreed upon by the parties.
4. Closing Documents. At the Closing, the Company will deliver
to the Investor all of the following documents:
(i) certified copies of the resolutions duly adopted by
the Company's board of directors authorizing the execution,
delivery and performance of this Agreement, the issuance and
sale of the 5% Cumulative Convertible Preferred Stock and
the consummation of all other transactions contemplated by
this Agreement;
(ii) copies of the Certificate of Incorporation and the
Company's By-Laws, each certified by the Secretary of the
Company as in effect at the Closing;
(iii) a certificate, executed by an officer of the Company
on its behalf, certifying that the representations and
warranties of the Company contained herein are true and
correct in all material respects as of the Closing; and
(iv) such other documents relating to the transactions
contemplated by this Agreement as the Investor may
reasonably request.
5. Covenants. The Company covenants and agrees with the
Investor as follows:
5A. Financial Statements and Other Information. The Company
will deliver to the Investor (so long as such Investor holds any
5% Cumulative Convertible Preferred Stock) copies of all reports
required to be filed by the Company pursuant to sections 13 and
14 of the Securities Exchange Act of 1934.
5B. Reservation of Common Stock. The Company will at all times
reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of issuance upon
the conversion of the 5% Cumulative Convertible Preferred Stock,
such number of shares of Common Stock as are issuable upon the
conversion of the 5% Cumulative Convertible Preferred Stock. All
shares of Common Stock which are so issuable will, when issued,
be duly and validly issued, fully paid and nonassessable and free
from all taxes, liens and charges. The Company will take all such
actions as may be necessary to assure that all such shares of
Common Stock may be so issued without violation of any applicable
law or governmental regulation or any requirements of any
domestic securities exchange upon which shares of Common Stock
may be listed (except for official notice of issuance which will
be immediately transmitted by the Company upon issuance).
5C. Investor's Option to Require More Favorable Terms. If the
Company enters into any agreement (or series of related
agreements) involving the sale of 5% Cumulative Convertible
Preferred Stock or of any other class or series of the Company's
Preferred Stock, $1.00 par value ("Preferred Stock"), having an
aggregate purchase price of at least Five Hundred Thousand
Dollars ($500,000) within two years after the execution of this
Agreement by the Company and the Investor, the Investor shall
have the right, at its option and upon written notice to the
Company:
(i) if the security issued or to be issued pursuant to
such agreement or series of agreements is 5% Cumulative
Convertible Preferred Stock, to require that the terms of
this Agreement be amended to provide, to the extent
reasonably practicable, the same terms and conditions as
those contained in such subsequent agreement or series of
agreements, provided that the aggregate investment in the
Company by the Investor pursuant to such revised agreement
shall not be less than Two Million Dollars ($2,000,000);
(ii) to the extent permitted by applicable laws
(including without limitation laws pertaining to unlawful
distributions and fraudulent conveyance), to rescind this
Agreement, and to enter into a new agreement for the
purchase of securities having an aggregate purchase price of
Two Million Dollars ($2,000,000) on the terms and conditions
offered pursuant to such subsequent agreement or series of
agreements, provided that the Company shall not be required
to pay any amount to the Investor in respect of the
rescission of this Agreement, but shall instead be allowed
to retain the purchase price paid hereunder as payment of
the purchase price under the substituted agreement. The
provisions of this subparagraph (ii) shall not apply unless
the rescission and purchase can be effected pursuant to the
exemption from registration provided by Rule 506 of
Regulation D of the Securities and Exchange Commission.
5D. Company's Option to Require Dividend Reinvestment. The
Company shall pay any regular semiannual dividend payable upon
the 5% Cumulative Convertible Preferred Stock in cash; provided,
however, that the Company may elect when and if the same may be
declared, but only in accordance with the actual declaration of
such dividend, to require the Investor to reinvest all or any
portion of such cash dividends toward the purchase of additional
newly issued shares of 5% Cumulative Convertible Preferred Stock,
at a purchase price per share equal to the Liquidation Value. If
the Company elects to require any such reinvestment, the Company
shall give notice of such election to the Investor within three
(3) business days after such dividend is declared, stating the
total amount of the dividend and the portion thereof as to which
the Company has elected to require such reinvestment. The
Company shall deliver to the Investor a certificate evidencing
the additional shares of 5% Cumulative Convertible Preferred
Stock so issued within five (5) business days after the record
date in respect of such dividend. Any shares of 5% Cumulative
Convertible Preferred Stock issued pursuant to this paragraph 5D
shall be duly authorized, validly issued, fully paid,
nonassessable and subject to and participating in all rights,
privileges, preferences and priorities provided for in this
Agreement. The Company may, as a condition to the Investor's
right to transfer any shares of 5% Cumulative Convertible
Preferred Stock, require that the transferee enter into an
agreement to be bound by the provisions of this Section 5D.
5E. The Company agrees to indemnify and hold harmless the
Investor and each of its directors, employees, agents and
representatives against all losses, damages, claims and expenses
(including reasonable attorneys' fees) arising from the assertion
of claims against the Investor related to the sale to parties
other than the Investor of 5% Cumulative Convertible Preferred
Stock, or securities having similar terms and conditions, however
arising including, without limitation, from representations,
warranties, agreements or other conversations or documents such
as the Private Placement Memorandum of the Company dated October
1997, or any similar memorandum, prospectus or offering circular,
that have been or may be issued or communicated in respect of
such securities, as any such of the above may be amended,
restated or otherwise modified.
6. Representations and Warranties.
6A. Representations by Company. The Company represents,
warrants and agrees as follows:
(i) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware and is in good standing as a foreign corporation in
each jurisdiction where the properties owned, leased or
operated, or the business conducted, by it require such
qualification, except for such failure to so qualify or be
in such good standing, which, when taken together with all
other such failures, is not reasonably likely to have a
material adverse effect on the financial condition,
properties, business or results of operations of the Company
or the interest of shareholders in the Company (a "Material
Adverse Effect"). The Company has the requisite corporate
power and authority to carry on its businesses as they are
now being conducted.
(ii) The authorized capital stock of the Company as of
the date hereof consists of 50,000,000 shares of Common
Stock, of which 4,230,501 were issued and outstanding as of
the date hereof, and none were held in treasury, and
10,000,000 shares of Preferred Stock, par value $1.00 per
share ("Preferred Stock"), of which 0 shares were issued and
outstanding on the date hereof. All of the outstanding
shares of Common Stock have been duly authorized and are
validly issued, fully paid and nonassessable. As the date
hereof, there were outstanding options and warrants to
purchase an aggregate of 3,107,738 shares of Common Stock.
(iii) The 5% Cumulative Convertible Preferred Stock, and
any 5% Cumulative Convertible Preferred Stock issued
pursuant to paragraph 5D above, when issued in compliance
with the provisions of this Agreement, will be duly
authorized and validly issued. The issuance of the 5%
Cumulative Convertible Preferred Stock and any additional 5%
Cumulative Convertible Preferred Stock issued pursuant to
paragraph 5D above will not be subject to any preemptive
rights or rights of first refusal created by the Company.
The shares of Common Stock issuable upon conversion of the
5% Cumulative Convertible Preferred Stock have been duly
authorized and validly reserved. The shares of Common Stock
issuable upon conversion of the 5% Cumulative Convertible
Preferred Stock are not subject to any preemptive rights or
rights of first refusal created by the Company, and upon
conversion and cancellation of the 5% Cumulative Convertible
Preferred Stock will be duly authorized, validly issued,
fully paid and nonassessable and will be free of any liens
and encumbrances created by the Company.
(iv) The Company has the requisite corporate power and
authority and has taken all corporate action necessary in
order to authorize, execute and deliver this Agreement and
to consummate the transactions contemplated hereby and to
perform the acts contemplated on its part hereunder. This
Agreement is a valid and legally binding agreement of the
Company enforceable against the Company in accordance with
its terms except as such enforcement may be limited by
bankruptcy, insolvency, moratorium or other similar laws
affecting creditors' rights generally or by equitable
principles.
(v) The offer, sale and issuance of the 5% Cumulative
Convertible Preferred Stock and the shares of Common Stock
issuable upon conversion thereof as contemplated by this
Agreement are exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities
Act"), and from the registration or qualification
requirement of the laws of any applicable state or other
jurisdiction. Except as the same shall have been made or
obtained at or prior to the Closing, and except for Form D
and related state securities law filings with the Securities
and Exchange Commission and applicable state securities
boards to be made following the Closing, no notices, reports
or other filings are required to be made by the Company
with, nor are any consents, registrations, approvals,
permits or authorizations required to be obtained by the
Company from, any governmental or regulatory authority,
agency, commission, court or other entity, domestic or
foreign ("Governmental Entity"), in connection with the
execution and delivery of this Agreement by the Company, the
consummation by the Company of the transactions contemplated
hereby and the performance of the acts contemplated on the
part of the Company hereunder.
(vi) The Company is not in violation of any term of its
Certificate of Incorporation or By-Laws. Except as may be
disclosed in Exhibit "B" hereto, the Company has, to the
best of its knowledge, information and belief, complied in
all material respects with all material leases, contracts,
notes, mortgage, indentures, arrangements or other
obligations and commitments ("Contracts") to which the
Company is a party or by which the Company or its assets are
bound or subject, and there does not currently exist any
event of default under any such agreement or any event
which, after notice or lapse of time or both, would
constitute an event of default under such agreement, plan,
arrangement or commitment, in each case to the extent that
such failure to comply, event of default or event which
would constitute an event of default would result in a
Material Adverse Effect to the Company. The execution and
delivery of this Agreement by the Company do not, and the
consummation by the Company of the transactions contemplated
hereby and the performance of the acts contemplated on the
part of the Company hereunder will not, constitute or result
in (A) a breach or violation of, or a default under, the
Certificate of Incorporation or By-Laws of the Company, or
(B) a breach, violation or event triggering a right of
termination of, or a default under, or the acceleration of
or the creation of a lien, pledge, security interest or
other encumbrance on assets (with or without the giving of
notice or the lapse of time or both) pursuant to any
provisions of any Contract or any law, rule, ordinance or
regulation, agreement, instrument or judgment, decree, order
or award to which the Company or its assets are bound or any
governmental or non-governmental authorization, consent,
approval, registration, franchise, license or permit under
which the Company conducts its business.
(vii) No investment banker, broker or finder is entitled
to any financial advisory, brokerage or finder's fee or
other similar payment from either the Investor or the
Company based on agreements, arrangements or undertakings
made by the Company or any of its directors, officers or
employees in connection with the transactions and acts
contemplated hereby except as may be disclosed in Exhibit
"C" hereto.
(viii) In furnishing information to the Investor for
purposes of this Agreement, the Company has not made any
untrue statement of material fact or omitted to state any
material fact necessary to make the statements therein, in
the light of the circumstances under which they were made,
not misleading.
(ix) The Company possess all patents, patent rights,
trademarks, service marks, trademark rights, service mark
rights, trade names, trade name rights, copyrights, mask
works, trade secrets, proprietary software, proprietary
rights and process necessary to conduct its business as now
conducted and as planned to be conducted, without, to the
best of the Company's knowledge, conflict with or
infringement upon any valid rights of others, the lack of
which could have a Material Adverse Effect, and has not
received any notice of infringement upon or conflict with
the asserted rights of others. The Company has all permits,
licenses and other similar authority necessary for the
conduct of its business as now being conducted and as
planned to be conducted, the lack of which could have a
Material Adverse Effect, and it is not in default in any
material respect under any of such permits, licenses or
other similar authority.
(x) The Company has heretofore delivered or made
available to the Investor complete and correct copies of all
reports and other filings filed by The Company with the SEC
pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), since January 1, 1994, through the
date hereof (such reports and other filings are collectively
referred to herein as the "Company Exchange Act Filings").
Except as set forth in Exhibit C hereto, as of their
respective dates, the Company Exchange Act Filings
substantially complied in all material respects with the
published rules and regulations of the SEC with respect
thereto and did not contain any untrue statement of a
material fact or omit to state a material fact required to
be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading. The audited consolidated financial
statements of the Company included in the Company Exchange
Act Filings (i) were prepared from the books and records of
the Company, (ii) were prepared in accordance with generally
accepted accounting principles, except as otherwise
permitted under the Exchange Act and the rules and
regulations thereunder and (iii) present fairly in all
material respects the financial position of the Company as
at the dates thereof and the results of its operations and
cash flows for the periods then ended, subject to the
qualifications set forth in the respective Reports of
Independent Auditors thereto. The unaudited consolidated
financial statements included in the Exchange Act Filings
comply in all material respects with the published rules and
regulations of the SEC with respect thereto; and such
unaudited consolidated financial statements (i) were
prepared from the books and records of the Company, (ii)
were prepared in accordance with generally accepted
accounting principles, except as otherwise permitted under
the Exchange Act and the rules and regulations thereunder,
applied on a consistent basis (except as may be expressly
indicated therein or in the notes thereto) and (iii) present
fairly the financial position of the Company as at the dates
thereof and the results of its operations and cash flows for
the periods then ended, subject to the same qualifications
as set forth in the audited financial statements in the
respective Reports of Independent Auditors, and subject to
normal year-end adjustments which would not have a material
adverse effect on the Company and any other adjustments
expressly described therein or in the notes thereto.
(xi) The Private Placement Memorandum of the Company,
dated October 1997 as updated or replaced, and all other
documents, certificates, schedules or written statements
furnished to the Investor by or on behalf of the Company in
connection with the transactions contemplated hereby as of
the date thereof did not contain any untrue statement of a
material fact and do not omit to state any material fact
necessary in order to make the statements contained therein
or herein not misleading in the light of the circumstances
under which they were made.
(xii) The Company has no outstanding indebtedness for
borrowed money except as reflected in the Financial
Statements and the notes thereto and is not a guarantor or
otherwise contingently liable for any such indebtedness
(including, without limitation, liability by way of
agreement, contingent or otherwise, to purchase, provide
funds for payment, supply funds or otherwise invest in any
debtor or otherwise to insure any creditor against loss).
Except as set forth in Exhibit B, the Company is not in
default under the provisions of any instrument evidencing
any indebtedness of the Company or any agreement relating
thereto.
(xiii) The Company maintains insurance to protect the
Company and its financial condition against the risks
involved in the business conducted by the Company to the
extent and in the manner customary for companies in similar
businesses similarly situated.
(xiv) There is no litigation, action, suit, proceeding or
investigation pending or threatened against or affecting the
Company before any court or before any governmental or
administrative agency which contests the Company's right to
own, produce, manufacture, update, maintain, sell or use any
product, database, software, process, method, substance,
part or other material presently or planned to be owned,
produced, manufactured, updated, maintained, sold or used by
the Company in connection with the operations of the
Company. The Company has no actual knowledge or belief that
(I) there presently exists, or there is pending or planned,
any patent, invention, device, application or any statute,
rule, law regulation, standard or code which would have a
Material Adverse Effect or (ii) there is any other factor
(other than fire, flood, earthquake, accident, act of war or
civil commotion, or any other cause or event beyond the
control of the Company) which may Materially Adversely
Effect the condition (financial or otherwise), prospects or
operations of the Company.
(xv) Since the latest date of the Financial Statements,
the Company has conducted business only in the ordinary and
usual course of business and, other than as specifically or
generally reflected on the Financial Statements, there has
not been any event or condition of any character which,
alone or in combination, is a Material Adverse Effect,
including but not limited to:
(a) any material adverse change in the condition,
prospects, assets, liabilities or business of the Company
from that reflected in the Financial Statements;
(b) any damage, destruction or loss of any of the
properties or assets of the Company (whether or not covered
by insurance) materially adversely affecting the assets,
properties, financial conditions, operations, prospects,
business or plans of the Company;
(c) any material adverse change or amendments to a
contract or arrangement by which the Company or any of its
assets is bound or subject;
(d) any declaration, setting aside or payment or other
distribution in respect of any of the Company's capital
stock, or any direct or indirect redemption, purchase or
other acquisition of any such stock by the Company;
(e) any waiver by the Company of a valuable right or
material debt owed to it;
(f) any labor trouble, or any event or condition of
any character, materially adversely affecting the business
or plans of the Company.
(xvi) The Company has filed within the time prescribed by
law (including extensions of time approved by the
appropriate taxing authority) all tax returns and reports
required to be filed with the United States Internal Revenue
Service and with the State of Delaware and (except to the
extent that the failure to file would not have a Material
Adverse Effect) with all other jurisdictions where such
filing is required by law; and the Company has paid, or made
adequate provision in the Financial Statements for the
payment of, all taxes, interest, penalties, assessments or
deficiencies shown to be due or claimed to be due on or in
respect of such tax returns and reports. The Company knows
of (i) no unpaid assessment for additional taxes for any
fiscal period or any basis therefor and (ii) no other tax
returns or reports which are required to be filed which have
not been so filed.
6B. Representations by Investor. The Investor represents,
warrants and agrees as follows:
(i) Investor is purchasing the 5% Cumulative Convertible
Preferred Stock for its own account for the purpose of
investment and not with a view toward the redistribution or
resale of any thereof. Investor is not a party to any
arrangement, understanding or agreement for transferring or
disposing of the 5% Cumulative Convertible Preferred Stock;
(ii) Investor is aware that the purchase of the 5%
Cumulative Convertible Preferred Stock represents a
speculative investment;
(iii) Before executing this Agreement, representatives of
Investor were furnished all information with respect to the
Company that they requested and representatives of Investor
were given the opportunity to ask Company executives all
questions that such representatives had;
(iv) Investor confirms that it is an "Accredited
Investor", as such term is defined in Rule 501 of Regulation
D promulgated under the Securities Act;
(v) Investor confirms that it is able to bear the economic
risk inherent in its investment and understands that there
currently is no, and that there may not ever be any, private
or public market for the 5% Cumulative Convertible Preferred
Stock in the event that Investor needs to liquidate its
investment;
(vi) Investor agrees that it will not offer or sell the
5% Cumulative Convertible Preferred Stock or any of the
shares of Common Stock into which the 5% Cumulative
Convertible Preferred Stock are convertible unless the 5%
Cumulative Convertible Preferred Stock or such shares of
Common Stock are registered under the Securities Act and
under all applicable state securities laws, unless Investor
has established to the reasonable satisfaction of the
Company that no such registration is required;
(vii) Investor agrees that appropriate restrictive
endorsements will be placed on the certificate(s) evidencing
the 5% Cumulative Convertible Preferred Stock and on the
certificate(s) evidencing the shares of Common Stock into
which the 5% Cumulative Convertible Preferred Stock is
convertible to reflect the foregoing and that the Company
will give appropriate stop transfer instructions to the
person in charge of the transfer of its securities,
including the 5% Cumulative Convertible Preferred Stock and
the Common Stock. Upon request of the holder of such
certificate(s), the Company shall give an instruction to the
transfer agent to process the transfer if (i) with such
request, the Company shall have received either (A) an
opinion of legal counsel, addressed to the Company and
reasonably satisfactory in form and substance to the
Company, to the effect that the proposed transfer of such
securities may be effected without registration under the
Securities Act, or (B) a "no-action" letter from the
Securities and Exchange Commission (the "Commission") to the
effect that the distribution of such securities without
registration will not result in a recommendation by the
staff of the Commission that action be taken with respect
thereto, or (ii) such holder is eligible to utilize
paragraph (k) of Rule 144 (or any successor rule) as then in
effect under the Securities Act.
(viii) No investment banker, broker or finder is entitled
to any financial advisory, brokerage or finder's fee or
other similar payment from either the Investor or the
Company based on agreements, arrangements or undertakings
made by the Investor or any of its directors, officers or
employees in connection with the transactions and acts
contemplated hereby.
7. Registration Rights.
7A. The Investor shall have the registration rights set forth
in this section 7A(i) and (ii).
(i) From and after the first anniversary of this
Agreement, the Investor shall have the right, by written
notice to the Company, to require the Company to use its
best reasonable efforts to register the sale under the
Securities Act of 1933, as amended (the "Securities Act") on
up to two occasions all or any shares of the Common Stock
issued or issuable upon conversion of the 5% Cumulative
Convertible Preferred Stock owned by the Investor ("Demand
Covered Shares") representing at least one percent (1%) of
the shares of Common Stock outstanding. The Company shall
have no obligation with respect to the selection by the
Investor of any underwriter to be used in connection with
such sale, but shall have the right to approve such
selection, which approval shall not be unreasonably withheld
or delayed. The Company shall be entitled to sell shares of
Common Stock (to be newly issued or from shares held in
treasury) and/or have other shareholders sell shares of
Common Stock pursuant to such demand registration unless the
Investor's underwriters believe, or if the offering is not
underwritten, upon a good faith determination by the
Investor's Board of Directors or a committee thereof that
such inclusion would adversely affect the success of the
proposed offering by the Investor. The Company shall be
entitled to defer filing any registration statement with
respect to such demand registration (A) for a reasonable
period in order to insure that such filing would not result
in an effective registration statement within six (6) months
of an underwritten offering by the Company of its securities
for its own account or (B) for a period of up to ninety (90)
days upon a good faith determination by the Company's
management that the filing of a registration statement at
such time would be detrimental to the Company due to the
pendency of a material acquisition or financing or for other
reasonable cause. Investor may request that the Company
withdraw any such registration statement at any time prior
to its effectiveness; provided that, any such withdrawn
registration statement shall be treated as a completed
registration fulfilling the obligations of the Company
pursuant to this section 7A(i) unless the Investor shall
reimburse the Company for all of the Company's costs and
expenses incurred in connection with such registration
within thirty days following the request to withdraw. In
the event a registration statement has not been filed within
one hundred eighty (180) days of demand because of the lack
of good faith efforts by the Company, then for each thirty
(30) day period thereafter until a registration statement
has been filed, the Company shall be required to issue to
Investor an additional one percent (1%) of the shares
requested to be registered.
(ii) If the Company proposes to sell shares of Common
Stock for its own account and to register the sale of such
shares under the Securities Act, or if the Company proposes
to register the sale of shares of Common Stock to be sold
for the account of any shareholder, it shall give written
notice of such proposed registration to Investor as promptly
as possible and shall, subject in all cases to section 7B,
use its reasonable efforts to include in the offering such
number of shares of Common Stock received by Investor upon
conversion of the 5% Cumulative Convertible Preferred Stock
then owned by Investor as Investor shall request to be
included ("Piggyback Covered Shares" and together with
Demand Covered Shares, "Covered Shares") within twenty-five
(25) days after the giving of such notice, such offering to
be upon the same terms (including method of distribution) as
the securities being sold by the Company or any selling
shareholder pursuant to any such offering.
7B. The Company's obligation to include Piggyback Covered
Shares owned by Investor in any offering pursuant to section
7A(ii) shall in all cases be subject to the following limitations
and qualifications:
(i) The Company shall not be required to give notice to
Investor or include such shares in any such registration if
the proposed registration is (A) a registration of a stock
option or compensation plan or of Common Stock issued or
issuable pursuant to any such plan, (B) a registration of
Common Stock proposed to be issued in exchange for
securities or assets of, or in connection with a merger or
consolidation with, another corporation, or (C) to be on a
form of registration statement for which the Piggyback
Covered Shares are not eligible;
(ii) The Company may require that the number of Piggyback
Covered Shares requested to be included in such registration
be reduced, or that all such shares be excluded from any
such registration, if it is advised in writing by its
managing underwriter (or, if the offering is not
underwritten, upon a good faith determination by the
Company's board of directors) that such reduction or
exclusion, as the case may be, is necessary to avoid
materially adversely affecting the public offering of the
securities being offered by the Company. If the Company
shall require such a reduction, Investor shall have the
right to withdraw from the offering;
(iii) In the event that the number of shares of Common
Stock included in any registration is to be reduced pursuant
to section 7B(ii):
(A) If the registration in question is one initiated
by any person or persons other than the Company
exercising demand registration rights in order to allow
the sale of Common Stock for the account of such person
or persons, then any reduction in the number of shares
to be included in such registration shall first affect
only shares other than the shares of Common Stock
requested to be included by the person or persons
initiating the registration; and
(B) Subject to subparagraphs 7B(iii)(A) and (B), in
the event that the Company requires that the number of
shares to be included in such registration be reduced,
such reduction shall be applied pro rata among all
parties having registration rights in proportion to the
number of shares requested to be registered by each.
(iv) The Company shall not be required to include any
Piggyback Covered Shares in any registration to the extent
that the inclusion thereof would result in a reduction in
the number of shares included in the registration by the
person or persons (including the Company) initiating the
registration in question or would reduce the per share price
of the offering.
(v) The Company may, in its sole discretion and without
the consent of Investor, withdraw such registration
statement and abandon the proposed offering in which
Investor had requested to participate.
7C In connection with any registration of Covered Shares
undertaken by the Company pursuant to this part 7, the Company
shall:
(i) prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement with
respect to such shares and use its best efforts to cause
such registration statement to become effective;
(ii) prepare and file with the Commission such amendments
and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary
to keep such registration statement current for such period
not to exceed 180 days as Investor shall request and to
comply with the provisions of the Securities Act with
respect to the sale of all Covered Shares covered by such
registration statement during such period;
(iii) provide Investor a reasonable opportunity to review
prior to filing (A) any registration statement filed by the
Company in connection with a registration in which Investor
is participating pursuant to this part 7, and (B) any
amendments or supplements to such registration statement and
any prospectus used in connection therewith;
(iv) furnish to Investor such number of conformed copies
of such registration statement and of each such amendment
and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus included
in such registration statement (including each preliminary
prospectus and prospectus supplement), in conformity with
the requirements of the Securities Act, and such other
documents as Investor may reasonably request in order to
facilitate the sale of the Covered Shares covered by such
registration statement;
(v) use its best efforts to register or qualify the
Covered Shares covered by such registration statement under
such other securities or blue sky laws of such jurisdictions
as Investor shall reasonably request, and do any and all
other acts and things which may be reasonably necessary or
advisable to enable Investor to consummate the sale in such
jurisdictions of such shares; provided that the Company
shall not for any such purpose be required to register or
qualify the covered shares covered by such registration
statement in any jurisdiction in which the Common Stock is
not then qualified for public trading, to qualify generally
to do business as a foreign corporation in any jurisdiction
wherein it would not but for the requirements of this
section 7C(v) be obligated to be so qualified, to subject
itself to taxation in any such jurisdiction or to consent to
general service of process in any such jurisdiction, and
provided further that, in the case of a registration
pursuant to section 7A(ii), in the event that the Investor
proposes to sell such shares in any jurisdiction in which
the Company or any selling shareholder other than Investor
does not propose to sell shares being registered, the
expense of registration or qualification in any such
additional jurisdictions other than those in which the
Company or any selling shareholder other than Investor
proposes to sell, including all legal fees incurred in
connection with such additional registrations or
qualifications, shall be borne by Investor;
(vi) notify Investor at any time when a prospectus
relating to the Covered Shares covered by such registration
statement is required to be delivered under the Securities
Act, of the Company's becoming aware that the prospectus
included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances then existing, and at the request
of Investor promptly prepare and furnish to Investor a
reasonable number of copies of a prospectus supplemented or
amended so that, as thereafter delivered to the purchasers
of such shares, such prospectus shall not include an untrue
statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading in light of the
circumstances then existing;
(vii) use its best efforts to cause all of the Covered
Shares included in such registration statement to be listed
on each securities exchange on which securities of the same
class issued by the Company are then listed or, if there
shall then be no such listing, to be accepted for quotation
on NASDAQ; and
(viii) provide a transfer agent and registrar for the
Covered Shares covered by such registration statement not
later than the effective date of such registration
statement; and
7D. For as long as Investor shall continue to hold any Covered
Shares, the Company shall use reasonable efforts to file, on a
timely basis, all annual, quarterly and other reports required to
be filed by it under Sections 13 and 15(d) of the Exchange Act,
and the rules and regulations of the Commission thereunder, as
amended from time to time. In the event of any proposed sale of
Covered Shares by Investor pursuant to Rule 144 (or any successor
rule) under the Securities Act, the Company shall cooperate with
Investor so as to enable such sales to be made in accordance with
applicable laws, rules and regulations, the requirements of the
Company's transfer agents, and the reasonable requirements of the
broker through which the sales are proposed to be executed.
7E. The costs and expenses of any registration effected
pursuant to this part 7 shall be allocated as provided in this
section 7E:
(i) "Registration Expenses" shall mean all expenses
incurred by the Company in complying with this part 7,
including, without limitation, all registration,
qualification and filing fees, printing expenses, escrow
fees, transfer agents' and registrars' fees, fees and
disbursements of counsel for the Company, blue sky fees and
expenses, and the expense the Company's accountants,
including the cost of any special audits incident to or
required by any such registration (but excluding the
compensation of regular employees of the Company which shall
be paid in any event by the Company).
(ii) "Selling Expenses" shall mean all underwriting
discounts and selling commissions applicable to the sale and
all fees and disbursements of counsel for any holder.
(iii) In connection with any registration pursuant to
section 7A(i), the Company shall pay all Registration
Expenses, and Investor shall pay all Selling Expenses;
provided that, in the event that the Company or any other
person shall include shares of Common Stock in such
registration, Selling Expenses (other than fees and
disbursements of counsel to any such person) shall be shared
among all such persons including shares pro rata based upon
the number of Common Shares included in the registration by
each such person.
(iv) In connection with any registration initiated by the
Company in which Investor participates pursuant to section
7A(ii), the Company shall pay all Registration Expenses, and
Investor shall pay all Selling Expenses attributable to the
inclusion in the offering of the Covered Shares being sold
by Investor.
(v) In connection with any registration initiated by any
person other than the Company or the Investor in which
Investor participates pursuant to section 7A(ii), the
Company or such person shall pay all Registration Expenses,
as may be provided by the agreement granting registration
rights to such person, and Investor shall pay all Selling
Expenses attributable to the inclusion in the offering of
the Covered Shares being sold by Investor.
7F. In the case of each registration effected by the Company
pursuant to this part 7, the Company agrees to indemnify and hold
harmless Investor, each person who controls the Investor, the
directors and employees of Investor, each underwriter of the
Covered Shares so registered and each person who controls any
such underwriter within the meaning of Section 15 of the
Securities Act, against any and all losses, claims, damages or
liabilities to which they or any of them may become subject under
the Securities Act or any other statute or common law, including
any amount paid in settlement of any litigation, commenced or
threatened, if such settlement is effected with the written
consent of the Company, and to reimburse them for any legal or
other expenses incurred by them in connection with investigating
any claims and defending any actions, insofar as any such losses,
claims, damages, liabilities or actions arise out of or are based
upon (i) any untrue statement or alleged untrue statement of a
material fact contained in the registration statement relating to
the sale of the Covered Shares, or any post-effective amendment
thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, or (ii) any untrue
statement or alleged untrue statement of a material fact
contained in any preliminary prospectus, if used prior to the
effective date of such registration statement, or contained in
the final prospectus (as amended or supplemented if the Company
shall have filed with the Commission any amendment thereof or
supplement thereto) if used within the period during which the
Company is required to keep the registration statement to which
such prospectus relates current, or the omission or alleged
omission to state therein (if so used) a material fact necessary
in order to make the statements therein, in light of the
circumstances under which they were made, not misleading;
provided, however, that the indemnification agreement contained
in this section 7F shall not (x) apply to such losses, claims,
damages, liabilities or actions arising out of, or based upon,
any such untrue statement or alleged untrue statement, or any
such omission or alleged omission, if such statement or omission
was made in reliance upon and in conformity with information
furnished in writing to the Company by Investor or such
underwriter for use in connection with the preparation of the
registration statement, any preliminary prospectus or final
prospectus contained in the registration statement, or any
amendment or supplement thereto, or (y) inure to the benefit of
any underwriter or any person controlling such underwriter, if
such underwriter failed to send or give a copy of the final
prospectus to the person asserting the claim at or prior to the
delivery of certificates representing Covered Shares or of
written confirmation of the sale of Covered Shares to such person
and if the untrue statement or omission concerned had been
corrected in such final prospectus.
7G. In the case of a registration effected by the Company
pursuant to this part 7, Investor and each underwriter of the
Covered Shares to be registered shall agree in the same manner
and to the same extent as set forth in section 7F to indemnify
and hold harmless the Company, each person who controls the
Company, the directors of the Company and those of its officers
who shall have signed any such registration statement, with
respect to any untrue statement or alleged untrue statement in,
or omission or alleged omission from, such registration statement
or any post-effective amendment thereto or any preliminary
prospectus or final prospectus (as amended or as supplemented, if
amended or supplemented as aforesaid) contained in such
registration statement, if such statement or omission was made in
reliance upon and in conformity with information furnished in
writing to the Company by Investor or any such underwriter for
use in connection with the preparation of such registration
statement or any preliminary prospectus or final prospectus
contained in such registration statement or any such amendment or
supplement thereto.
7H. Each indemnified party shall, with reasonable promptness
after its receipt of written notice of the commencement of any
action against such indemnified party in respect of which
indemnity may be sought from an indemnifying party on account of
an indemnity agreement contained in this part 7, notify the
indemnifying party in writing of the commencement thereof. In
case any such action shall be brought against any indemnified
party and it shall so notify an indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent it may wish, jointly with
any other indemnifying party similarly notified, to assume the
defense thereof with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party
to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to
such indemnified party under this part 7 for any legal or other
expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs
of investigation. The indemnity agreements in this part 7 shall
be in addition to any liabilities that the indemnifying parties
may have pursuant to law.
7I. If the indemnification provided for in this part 7 shall
be unavailable to or insufficient to hold harmless an indemnified
party under sections 7F or 7G above in respect of any losses,
claims, damages or liabilities (or actions in respect thereof)
referred to therein, then the indemnifying parties shall
contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportions as are
appropriate to reflect to the relative benefits received by the
respective indemnifying parties from the offering of the Covered
Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law, or if the
indemnified party failed to give the notice required under
section 7H above, then each indemnifying party shall contribute
to such amount paid by or payable by such indemnified party in
such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the indemnifying
parties in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or
actions in respect thereof) as well as any other relevant
equitable considerations. The relative benefits received by the
indemnifying parties shall be deemed to be in the same proportion
as the net proceeds to any such party bear to the total net
proceeds from the offering before deducting expenses. The
relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a
material fact relates to information supplied by the respective
indemnifying party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
statement or omission.
7J. The registration rights granted pursuant to this part 7
shall not be available with respect to covered shares if such
Covered Shares then held by the Investor may be sold pursuant to
Rule 144 (or any successor rule) during the three month period
immediately succeeding Investor's notice or request pursuant to
Section 7A.
8. Miscellaneous.
8A. Successors and Assigns. Except as otherwise expressly
provided herein, all covenants and agreements contained in this
Agreement by or on behalf of any of the parties hereto will bind
and inure to the benefit of the respective successors and assigns
of the parties hereto whether so expressed or not; provided that,
the rights granted to the Investor pursuant to part 7 hereof
shall not be transferred or assigned by Investor other than to an
entity wholly owned by Investor.
8B. Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this
Agreement is held to be prohibited by or invalid under applicable
law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the
remainder of this Agreement.
8C. Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, any one of which need not contain
the signatures of more than one party, but all such counterparts
taken together will constitute one and the same Agreement.
8D. Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute
a part of this Agreement.
8E. Governing Law; Venue The corporate law of Delaware will
govern all issues concerning the relative rights of the Company
and its stockholders. All other questions concerning the
construction, validity and interpretation of this Agreement and
the exhibits and schedules hereto will be governed by the
internal law, and not the law of conflicts, of Delaware. It is
the intention of the parties that proper venue for any action,
suit or proceeding arising pursuant to this Agreement or in
connection with the transactions contemplated herein shall be in
Travis County, Texas. Each party agrees that any such action,
suit or proceeding shall be brought before a state or federal
court sitting in the City of Austin, Travis County, Texas 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.
8F. Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this
Agreement (other than notice of a telephonic meeting of the
Company's board of directors, which may be given by telephone)
will be in writing and will be deemed to have been given either
when delivered personally or three business days after having
been mailed by certified or registered mail, return receipt
requested and postage prepaid, to the recipient. Such notices,
demands and other communications will be sent to the Investor and
to the Company at the address indicated below:
If to the Company:
Electrosource, Inc.
2809 IH 35 South
San Marcos, Texas 78666
Attention: Michael G. Semmens
With a copy to:
Bret Van Earp
Attorney-at-Law
100 Congress Avenue, Suite 1800
Austin, Texas 78701
If to the Investor:
Corning Incorporated
Attn: Corporate Secretary
One Riverfront Plaza
Corning, New York 14831
or to such other address or to the attention of such other person
as the recipient party has specified by prior written notice to
the sending party.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first written above.
ELECTROSOURCE, INC. CORNING INCORPORATED
By: By:
Printed Name: Printed Name:
Title: Title:
EXHIBIT "A"
TO SECURITIES PURCHASE AGREEMENT
DATED _____________, 1998
CERTIFICATE OF DESIGNATION
ELECTROSOURCE, INC.
5% CUMULATIVE CONVERTIBLE PREFERRED STOCK,
$1.00 PAR VALUE ("5% CUMULATIVE CONVERTIBLE PREFERRED STOCK")
Pursuant to Section 151 of the General Corporation Law of the
State of Delaware and Article Four of its Restated Certificate of
Incorporation, Electrosource, Inc., a corporation organized and
existing under the laws of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY that pursuant to the authority conferred
upon the Board of Directors of the Corporation by the Restated
Certificate of Incorporation of the Corporation and by the
General Corporation Law of the State of Delaware, said Board of
Directors, at a meeting duly called and held on December 19,
1997, adopted a resolution providing for the creation of a new
series of Preferred Stock, to be designated 5% Cumulative
Convertible Preferred Stock, consisting of not more than
1,000,000 shares, which resolution reads in its entirety as
follows:
RESOLVED, that pursuant to the authority provided in the
Corporation's Restated Certificate of Incorporation and expressly
granted to and vested in the Board of Directors of the
Corporation, this Board of Directors hereby creates out of the
Preferred Stock, $1.00 par value per share, a new series of
Preferred Stock to be designated 5% Cumulative Convertible
Preferred Stock, consisting of 1,000,000 shares, and this Board
of Directors hereby fixes the designation and the powers,
preferences and rights, and the qualifications, limitations and
restrictions thereof, to the extent not otherwise provided in the
Corporation's Restated Certificate of Incorporation, as follows:
Designation of Series
The designation of the new series of Preferred Stock created
by this resolution shall be "5% Cumulative Convertible Preferred
Stock." The powers, preferences and rights, and the
qualifications, limitations and restrictions thereof, to the
extent not otherwise provided in the Corporation's Restated
Certificate of Incorporation, shall be as follows:
Part 1. Dividends.
1A. Cumulative Dividends. Dividends shall accrue on the 5%
Cumulative Convertible Preferred Stock at a rate per annum per
share equal to five percent (5%) of the Liquidation Value of each
share of 5% Cumulative Convertible Preferred Stock, and shall be
payable when and as declared by the Board of Directors. All
dividends declared upon the 5% Cumulative Convertible Preferred
Stock shall be payable semiannually on June 30 and December 31 of
each year. Dividends upon the 5% Cumulative Convertible Preferred
Stock shall be cumulative, and no dividend or distribution shall
be made upon the Common Stock or any Junior Securities until all
dividends accrued with respect to the 5% Cumulative Convertible
Preferred Stock, whether or not declared, have been paid.
Part 2. Liquidation.
2A. Liquidation Preference. Upon any liquidation, dissolution
or winding up of the Corporation, whether voluntary or
involuntary, the holders of outstanding 5% Cumulative Convertible
Preferred Stock will be entitled to be paid, before any
distribution or payment is made upon any Junior Securities, an
amount in cash equal to the aggregate Liquidation Value of all 5%
Cumulative Convertible Preferred Stock outstanding. If, upon any
such liquidation, dissolution or winding up of the Corporation,
the Corporation's assets to be distributed among the holders of
the 5% Cumulative Convertible Preferred Stock are insufficient to
permit payment to such holders of the aggregate amount that they
are entitled to be paid, then the entire assets to be distributed
will be distributed ratably among such holders in proportion to
the full respective preferential amounts to which they are
entitled. Written notice of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation,
stating the payment date or dates when, and the place or places
where, the amounts distributable to holders of 5% Cumulative
Convertible Preferred Stock in such circumstances shall be
payable, shall be given by first-class mail, postage prepaid,
mailed not less than twenty days prior to any payment date stated
therein, to the holders of 5% Cumulative Convertible Preferred
Stock, at the address shown on the books of the Corporation or
the transfer agent for the 5% Cumulative Convertible Preferred
Stock.
Part 3. Redemptions.
3A. Redemption at Option of Corporation. No shares of the 5%
Cumulative Convertible Preferred Stock may be redeemed without
the consent of the holder of such shares prior to January 1,
2000. From and after [January 1, 2000], the Corporation may
redeem from time to time and at such times as it may appoint, all
or any part of the shares of 5% Cumulative Convertible Preferred
Stock outstanding. For each Preferred Share that is to be
redeemed pursuant to this part 3, the Corporation will be
obligated on the redemption date to pay the holder thereof (upon
surrender by such holder at the Corporation's principal office of
the certificate representing such Preferred Share) an amount in
immediately available funds equal to the Liquidation Value
thereof. In the case of a redemption of a part only of the 5%
Cumulative Convertible Preferred Stock, the shares to be redeemed
shall be selected by lot or in such other manner as the Board of
Directors may determine. Notwithstanding the foregoing, if the
Corporation is in default with respect to any dividend payable on
or any sinking or other purchase fund or other requirement
relating to shares of Preferred Stock of the Corporation, it
shall not redeem any shares of 5% Cumulative Convertible
Preferred Stock except pro rata pursuant to offers of sale made
by holders of the all series of Preferred Stock in response to an
invitation for tenders given simultaneously by the Corporation by
mail to the holders of all shares of the Preferred Stock then
outstanding.
3B. Notices. Unless otherwise required by law, notice of
redemption will be sent to holders of 5% Cumulative Convertible
Preferred Stock at the address shown on the books of the
Corporation or any transfer agent for the 5% Cumulative
Convertible Preferred Stock by first-class mail, postage prepaid,
mailed not less than twenty, nor more than sixty days prior to
the redemption date. Each such notice shall state: (i) the
redemption date; (ii) the total number of shares of 5% Cumulative
Convertible Preferred Stock to be redeemed and, if fewer than all
the shares held by such holder are to be redeemed, the number of
such shares to be redeemed from such holder; (iii) the redemption
price; (iv) the place or places where certificates for such
shares are to be surrendered for payment of the redemption price;
and (v) the conversion rights of the shares to be redeemed, the
period within which conversion rights may be exercised, and the
Conversion Price and number of shares of Common Stock issuable
upon conversion of a share of 5% Cumulative Convertible Preferred
Stock on the date such notice is sent.
3C. Redeemed or Otherwise Acquired 5% Cumulative Convertible
Preferred Stock. Any shares of 5% Cumulative Convertible
Preferred Stock that are redeemed or otherwise acquired by the
Corporation will be canceled and will not be reissued, sold or
transferred.
Part 4. Voting Rights
4A. General. Except as required by the General Corporation Law
of Delaware and Section 4B hereof, holders of 5% Cumulative
Convertible Preferred Shares shall not be entitled to vote with
respect to such 5% Cumulative Convertible Preferred Shares on any
matter to be voted upon by the Corporation's shareholders.
4B. So long as any shares of 5% Cumulative Convertible
Preferred Stock are outstanding, the consent of the holders of at
least a majority of the outstanding shares of 5% Cumulative
Convertible Preferred Stock, given in person or by proxy, either
at a regular meeting or at a special meeting called for that
purpose, at which the holders of 5% Cumulative Convertible
Preferred Stock shall vote separately as a series, shall be
necessary for effecting, validating or authorizing any one or
more of the following:
(i) the amendment, alteration or repeal of any of the
provisions of the Certificate of Incorporation, as amended,
of the Corporation or any amendment thereto or any other
certificate filed pursuant to law (including any such
alteration, amendment or repeal effected by any merger or
consolidation to which the Corporation is a party) that would
adversely change any of the rights, powers or preferences of
outstanding shares of 5% Cumulative Convertible Preferred
Stock; or
(ii) any merger or consolidation with or into, or any sale,
transfer, exchange or lease of all or substantially all of
the assets of the Corporation to, any other corporation, in
either case that would adversely change any of the rights,
powers or preferences of outstanding shares of 5% Cumulative
Convertible Preferred Stock.
Part 5. Conversion.
5A. Conversion Procedure.
(i) Any holder of 5% Cumulative Convertible Preferred Stock
may convert all or any portion of the shares of 5%
Cumulative Convertible Preferred Stock held by such holder
into a number of shares of the Corporation's Common Stock
computed by multiplying the number of shares of 5%
Cumulative Convertible Preferred Stock to be converted by
$10.00 and dividing the result by the "Conversion Price" (as
defined below) then in effect.
(ii) Each conversion of 5% Cumulative Convertible Preferred
Stock will be deemed to have been effected as of the close
of business on the date on which the certificate or
certificates representing the shares of 5% Cumulative
Convertible Preferred Stock to be converted have been
surrendered at the principal office of the Corporation duly
assigned or endorsed for transfer to the Corporation (or
accompanied by duly executed stock powers relating thereto)
together with a notice of conversion specifying (i) the
number of shares of 5% Cumulative Convertible Preferred
Stock to be converted and the name or names in which such
holder wishes the certificate or certificates for Common
Stock and for any shares of 5% Cumulative Convertible
Preferred Stock not to be so converted to be issued
(together with an opinion of counsel that the transfer may
be made without registration if the name is different than
that of the holder) and (ii) the address to which such
holder wishes delivery to be made of such new certificates
to be issued upon such conversion. At such time as such
conversion has been effected, the rights of the holder of
such 5% Cumulative Convertible Preferred Stock as such
holder will cease and the Person or Persons in whose name or
names any certificate or certificates for shares of Common
Stock are to be issued upon such conversion will be deemed
to have become the holder or holders of record of the shares
of Common Stock represented thereby.
(iii) As soon as possible after a conversion has been
effected (but in any event within five business days in the
case of subparagraph (a) below), the Corporation will
deliver to the converting holder:
(a) a certificate representing the number of shares
of Common Stock issuable by reason of such conversion
in such name or names and such denomination or
denominations as the converting holder has specified;
(b) the amount payable under subparagraph (vi) below
with respect to fractional shares of Common Stock
otherwise issuable upon such conversion; and
(c) a certificate representing any shares of 5%
Cumulative Convertible Preferred Stock which were
represented by the certificate or certificates
delivered to the Corporation in connection with such
conversion but which were not converted.
(iv) The issuance of certificates for shares of Common Stock
upon conversion of 5% Cumulative Convertible Preferred Stock
will be made without charge to the holders of such 5%
Cumulative Convertible Preferred Stock for any issuance tax
in respect thereof or other cost incurred by the Corporation
in connection with such conversion and the related issuance
of shares of Common Stock. Upon conversion of each share of
5% Cumulative Convertible Preferred Stock, the Corporation
will take all such actions as are necessary in order to
insure that the Common Stock issuable with respect to such
conversion will be duly authorized, validly issued, fully
paid and nonassessable.
(v) The Corporation will not close its books against the
transfer of 5% Cumulative Convertible Preferred Stock or of
Common Stock issued or issuable upon conversion of 5%
Cumulative Convertible Preferred Stock in any manner which
interferes with the timely conversion of 5% Cumulative
Convertible Preferred Stock.
(vi) If any fractional interest in a share of Common Stock
would, except for the provisions of this subparagraph (vi),
be deliverable upon any conversion of 5% Cumulative
Convertible Preferred Stock, the Corporation, in lieu of
delivering the fractional share therefor, may at its option
pay a cash adjustment for such fraction equal to the same
fraction of the greater of (i) the Liquidation Value divided
by the number of shares of Common Stock into which each
share of 5% Cumulative Convertible Preferred Stock is
convertible and (ii) the fair market value per share of the
5% Cumulative Convertible Preferred Stock at the close of
business on the date of conversion, as determined in good
faith by the board of directors of the Corporation.
(vii) The Corporation shall make no payment or
adjustment on account of any dividends accrued on the shares
of 5% Cumulative Convertible Preferred Stock surrendered for
conversion except that all dividends accrued and unpaid on
such shares up to the dividend payment date immediately
preceding such surrender for conversion shall constitute a
debt of the Corporation payable without interest to the
converting shareholder, and no dividend shall be declared or
paid in respect of shares of Common Stock until such debt
shall be fully paid or sufficient funds set apart for the
payment thereof.
5B. Conversion Price. The initial Conversion Price for each
share of 5% Cumulative Convertible Preferred Stock will be equal
to _____________ ($____), on the date of closing. In order to
prevent dilution of the conversion rights granted under this part
5, the Conversion Price will be subject to adjustment from time
to time pursuant to this part 5; provided that the Conversion
Price will in no event be less than the aggregate amount
necessary to equal the par value of the shares of Common Stock
into which a share of 5% Cumulative Convertible Preferred Stock
is convertible.
5C. Subdivision or Combination of Common Stock. If the
Corporation subdivides (by any stock split, common stock
dividend, recapitalization or otherwise) its outstanding shares
of Common Stock into a greater number of shares, the Conversion
Price in effect immediately prior to such subdivision shall be
proportionately reduced, and if the Corporation at any time
combines (by reverse stock split or otherwise) its outstanding
shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination
will be proportionately increased.
5D. Reorganization, Reclassification, Consolidation, Merger or
Sale. In the event that the Corporation shall consummate any
Organic Change, outstanding shares of 5% Cumulative Convertible
Preferred Stock shall, without any action on the part of the
Corporation or any holder thereof, be automatically converted by
virtue of such transaction immediately prior to the consummation
thereof into the number of share of Common Stock into which such
shares of 5% Cumulative Convertible Preferred Stock could have
been converted at such time so that each share of 5% Cumulative
Convertible Preferred Stock shall, by virtue of such transaction
and on the same terms as apply to the holders of Common Stock, be
converted into or exchanged for the aggregate amount of stock,
securities, cash or other property (payable in like kind)
receivable by a holder of the number of shares of Common Stock
into which such shares of 5% Cumulative Convertible Preferred
Stock could have been converted immediately prior to such
transaction if such holder of Common Stock failed to exercise any
rights of election as to the kind or amount of stock, securities,
cash or other property receivable upon such transaction (provided
that, if the kind or amount of stock, securities, cash or other
property receivable upon such transaction is not the same for
each non-electing share, then the kind and amount of stock,
securities, cash or other property receivable upon such
transaction for each non-electing share shall be the kind and
amount so receivable per share by a plurality of the non-electing
shares).
5E. Anti-dilution Adjustments.
(i) In the event the Corporation shall, at any time or
from time to time after December 19, 1997, while any of the
shares of the 5% Cumulative Convertible Preferred Stock are
outstanding, (a) pay a dividend or make a distribution in respect
of the Common Stock, to the extent that such dividend or
distribution consists of shares of Common Stock, (b) subdivide
the outstanding shares of Common Stock, or (c) combine the
outstanding shares of Common Stock into a smaller number of
shares, in each case whether by reclassification of shares,
recapitalization of the Corporation (excluding a recapitalization
effected by a merger or consolidation to which Section 8 hereof
applies) or otherwise, the Conversion Price in effect immediately
prior to such action shall be adjusted by multiplying such
Conversion Price by a fraction the numerator of which shall be
the number of shares of Common Stock outstanding immediately
before such event and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after
such event. An adjustment made pursuant to this paragraph 5E(i)
shall be given effect, upon payment of such a dividend or
distribution, as of the record date for the determination of
holders of Common Stock entitled to receive such dividend or
distribution (on a retroactive basis) and in the case of a
subdivision or combination shall become effective immediately as
of the effective date thereof.
(ii) In the event that the Corporation shall, at any time
or from time to time while any of the shares of 5% Cumulative
Convertible Preferred Stock are outstanding, issue to holders of
shares of Common Stock as a dividend or distribution, including
by way of a reclassification of shares or a recapitalization of
the Corporation, any right or warrant to purchase shares of
Common Stock, such right or warrant by its terms enabling the
holder thereof to acquire shares of Common Stock at a purchase
price per share less than the Fair Market Value (as hereinafter
defined) of a share of Common Stock on the date of issuance of
such right or warrant, then, subject to the provisions of
paragraphs (v) and (vi) of this Section 5E, the Conversion Price
shall be adjusted by multiplying such Conversion Price by a
fraction the numerator of which shall be the number of shares of
Common Stock outstanding plus Common Stock Deemed Outstanding
immediately before such issuance of rights or warrants plus the
number of shares of Common Stock that could be purchased at the
Fair Market Value of a share of Common Stock at the time of such
issuance for the maximum aggregate consideration payable upon
exercise in full of all such rights or warrants and the
denominator of which shall be the number of shares of Common
Stock outstanding plus Common Stock Deemed Outstanding
immediately before such issuance of rights or warrants plus the
maximum number of shares of Common Stock that could be acquired
upon exercise in full of all such rights and warrants. If such
rights or warrants expire unexercised, the conversion price
adjustment will be recalculated to eliminate the effect of any
adjustment made to the conversion price in respect of such rights
or warrants.
(iii) In the event the Corporation shall, at any time or from
time to time while any of the shares of 5% Cumulative Convertible
Preferred Stock are outstanding, issue, sell or exchange shares
of Common Stock (other than pursuant to any employee or director
incentive or benefit plan or arrangement, including any
employment, severance or consulting agreement, of the Corporation
or any subsidiary of the Corporation heretofore or hereafter
adopted) for a consideration having a Fair Market Value on the
date of such issuance, sale or exchange less than the Fair Market
Value of such shares on the date of such issuance, sale or
exchange, then, subject to the provisions of paragraphs (v) and
(vi) of this Section 5E, the Conversion Price shall be adjusted
by multiplying such Conversion Price by a fraction the numerator
of which shall be the sum of (a) the Fair Market Value of all the
shares of Common Stock outstanding plus Common Stock Deemed
Outstanding on the day immediately preceding the first public
announcement of such issuance, sale or exchange plus (b) the Fair
Market Value of the consideration received by the Corporation in
respect of such issuance, sale or exchange of shares of Common
Stock, and the denominator of which shall be the product of (I)
the Fair Market Value of a share of Common Stock on the day
immediately preceding the first public announcement of such
issuance, sale or exchange multiplied by (II) the sum of the
number of shares of Common Stock outstanding plus Common Stock
Deemed Outstanding on such day plus the number of shares of
Common Stock so issued, sold or exchanged by the Corporation. In
the event the Corporation shall, at any time or from time to
time, while any shares of 5% Cumulative Convertible Preferred
Stock are outstanding, issue, sell or exchange any right or
warrant to purchase or acquire shares of Common Stock (including
as such a right or warrant any security convertible into or
exchangeable for shares of Common Stock), other than any such
issuance to holders of shares of Common Stock as a dividend or
distribution (including by way of a reclassification of shares or
a recapitalization of the Corporation) and other than pursuant to
any employee or director incentive or benefit plan or arrangement
(including any employment, severance or consulting agreement) of
the Corporation or any subsidiary of the Corporation heretofore
or hereafter adopted, such right or warrant being issued for a
consideration having a Fair Market Value, on the date of such
issuance, sale or exchange, less than the Non-dilutive Amount (as
hereinafter defined), then, subject to the provisions of
paragraphs (v) and (vi) of this Section 5E, the Conversion Price
shall be adjusted by multiplying such Conversion Price by a
fraction, the numerator of which shall be the sum of (a) the Fair
Market Value of all the shares of Common Stock outstanding plus
Common Stock Deemed Outstanding on the day immediately preceding
the first public announcement of such issuance, sale or exchange
plus (b) the Fair Market Value of the consideration received by
the Corporation in respect of such issuance, sale or exchange of
such right or warrant plus (c) the Fair Market Value at the time
of such issuance of the consideration that the Corporation would
receive upon exercise in full of all such rights or warrants, and
the denominator of which shall be the product of (i) the Fair
Market Value of a share of Common Stock on the day immediately
preceding the first public announcement of such issuance, sale or
exchange multiplied by (ii) the sum of the number of shares of
Common Stock outstanding plus Common Stock Deemed Outstanding on
such day plus the maximum number of shares of Common Stock that
could be acquired pursuant to such rights or warrants at the time
of issuance, sale or exchange of such rights or warrants
(assuming shares of Common Stock could be acquired pursuant to
such rights or warrants at such time). If such convertible or
exchangeable rights expire unexercised, the conversion price
adjustment will be recalculated to eliminate the effect of any
adjustment made to the conversion price in respect of such
convertible or exchangeable rights.
(iv) In the event the Corporation shall, at any time or from
time to time, while any of the shares of 5% Cumulative
Convertible Preferred Stock are outstanding, make an
Extraordinary Distribution (as hereinafter defined) in respect of
the Common Stock, whether by dividend, distribution,
reclassification of shares or recapitalization of the Corporation
(excluding a recapitalization or reclassification effected by a
merger or consolidation to which Section 5D hereof applies) or
effect a Pro Rata Repurchase (as hereinafter defined) of Common
Stock, the Conversion Price in effect immediately following such
Extraordinary Distribution or Pro Rata Repurchase shall, subject
to paragraphs (v) and (vi) of this Section 5E, be adjusted by
multiplying such Conversion Price by a fraction the numerator of
which is the difference between (a) the product of (I) the number
of shares of Common Stock outstanding plus Common Stock Deemed
Outstanding immediately preceding such Extraordinary Distribution
or Pro Rata Repurchase multiplied by (II) the Fair Market Value
of a share of Common Stock on the record date with respect to an
Extraordinary Distribution, or on the applicable expiration date
(including all extensions thereof) of any tender offer or
exchange offer that is a Pro Rata Repurchase, or on the date of
purchase with respect to any Pro Rata Repurchase that is not a
tender offer or exchange offer, as the case may be, minus (b) the
Fair Market Value of the Extraordinary Distribution or the
aggregate purchase price of the Pro Rata Repurchase, as the case
may be, and the denominator of which shall be the product of (a)
the number of shares of Common Stock and Common Stock Deemed
Outstanding outstanding immediately preceding such Extraordinary
Dividend or Pro Rata Repurchase minus, in the case of a Pro Rata
Repurchase, the number of shares of Common Stock repurchased by
the Corporation multiplied by (b) the Fair Market Value of share
of the Corporation on the record date with respect to an
Extraordinary Distribution or on the applicable expiration date
(including all extensions thereof) of any tender offer or
exchange offer that is a Pro Rata Repurchase or on the date of
purchase with respect to any Pro Rata Repurchase that is not a
tender offer or exchange offer, as the case may be. The
Corporation shall send each holder of 5% Cumulative Convertible
Preferred Stock (a) notice of its intent to make any dividend or
distribution and (b) notice of any offer by the Corporation to
make a Pro Rata Repurchase, in each case at the same time as, or
as soon as practicable after, such offer is first communicated
(including by announcement of a record date in accordance with
the rules of any stock exchange on which the Common Stock is
listed or admitted to trading) to holders of Common Stock. Such
notice shall indicate the intended record date and the amount and
nature of such dividend or distribution, or the number of shares
subject to such offer for a Pro Rata Repurchase and the purchase
price payable by the Corporation pursuant to such offer, as well
as the Conversion Price and the number of shares of Common Stock
into which a share of 5% Cumulative Convertible Preferred Stock
may be converted at such time.
(v) Notwithstanding any other provisions of this Section 5E,
the Corporation shall not be required to make any adjustment to
the Conversion Price unless and until such adjustment would
require an increase or decrease of at least two percent in the
Conversion Price. Any lesser adjustment shall be carried forward
and shall be made no later than the time of, and together with,
the next subsequent adjustment that, together with any adjustment
or adjustments so carried forward, shall amount to an increase or
decrease of at least one percent in the Conversion Price. All
adjustments shall be made to the nearest one hundredth of a share
and the nearest cent.
(vi) For the purposes of this Section 5E, the following
definitions shall apply:
"Common Stock Deemed Outstanding" shall mean in the event the
Company at any time or from time to time has issued or after the
date hereof shall issue any rights to subscribe for or to
purchase, or any options for the purchase of, Common Stock or any
stock or other securities (including debt securities) convertible
into or exchangeable for Common Stock (such rights or options
being herein called "Options" and such convertible or
exchangeable stock or securities being herein called "Convertible
Securities") or shall fix a record date for the determination of
holders of any class of securities then entitled to receive any
such Options or Convertible Securities, then the maximum number
of shares (as set forth in the instrument relating thereto
without regard to any provisions contained therein designed to
protect against dilution) of Common Stock issuable upon the
exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of
such Convertible Securities, shall be deemed to be additional
shares of Common Stock issued as of the time of such issue or, in
case such a record date shall have been fixed, as of the close of
business on such record date. For purposes of the antidilution
adjustments contained in this Section 5E, "Common Stock Deemed
Outstanding" shall mean all of such additional shares of Common
Stock other than additional shares of Common Stock issuable on
conversion, exercise or exchange of any security the issuance of
which is the cause of the antidilution adjustment in question.
"Business Day" shall mean each day other than a Saturday,
Sunday or a day on which state or federally chartered banking
institutions in Dallas, Texas are authorized or required to be
closed.
"Extraordinary Distribution" shall mean any dividend or other
distribution to the holders of Common Stock (effected while any
of the shares of 5% Cumulative Convertible Preferred Stock are
outstanding) (a) of cash, where the aggregate amount of such cash
dividend or distribution, together with the amount of all cash
dividends and distributions made during the preceding period of
12 months, when combined with the aggregate amount of all Pro
Rata Repurchases (for this purpose, including only that portion
of the aggregate purchase price of such pro Rata Repurchase that
is in excess of the Fair Market Value of the Common Stock
repurchased as determined on the applicable expiration date
(including all extensions thereof) of any tender offer or
exchange offer that is a Pro Rata Purchase, or the date of
purchase with respect to any other Pro Rata Repurchase that is
not a tender offer or exchange offer made during such period),
exceeds 12-1/2 percent of the aggregate Fair Market Value of all
shares of Common Stock outstanding on the record date for
determining the stockholders entitled to receive such
Extraordinary Distribution and (b) of any shares of capital stock
of the Corporation (other than shares of Common Stock), other
securities of the Corporation (other than securities of the type
referred to in paragraph (ii) or (iii) of this Section 5E),
evidences of indebtedness of the Corporation or any other person
or any other property (including shares of any subsidiary of the
Corporation), or any combination thereof. The Fair Market Value
of an Extraordinary Distribution for purposes of paragraph (iv)
of this Section 5E shall be equal to the sum of the Fair Market
Value of such Extraordinary Distribution plus the amount of any
cash dividends that are not Extraordinary Distributions made
during such twelve month period and not previously included in
the calculation of any adjustment pursuant to paragraph (iv) of
this Section 5E.
"Fair Market Value" shall mean, as to shares of Common Stock
or any other class of capital stock or securities of the
Corporation or any other issuer that are publicly traded, the
average of the Current Market Prices (as hereinafter defined) of
such shares or securities for each day of the Adjustment Period
(as hereinafter defined). "Current Market Price" of publicly
traded shares of Common Stock or any other class of capital stock
or other security of the Corporation or any other issuer for a
given day shall mean the last reported sales price, regular way,
or, in case no sale takes place on such day, the average of the
reported closing bid and asked prices, regular way, in either
case as reported on the New York Stock Exchange Composite Tape
or, if such security is not listed or admitted to trading on the
New York Stock Exchange, on the principal national securities
exchange on which such security is listed or admitted to trading
or, if not listed or admitted to trading on any national
securities exchange, on the NASDAQ National Market System or, if
such security is not quoted on such National Market System, the
average of the closing bid and asked price on such day in the
over-the counter market as reported by NASDAQ or, if bid and
asked prices for such security on each such day shall not have
been reported through NASDAQ, the average of the bid and asked
prices for such day shall not have been reported through NASDAQ,
the average of the bid and asked prices for such day as furnished
by any New York Stock Exchange member firm regularly making a
market in such security selected for such purpose by the Board of
Directors of the Corporation or a committee thereof on each
trading day during the Adjustment Period. "Adjustment Period"
shall mean the period of five consecutive trading days, selected
by the Board of Directors of the Corporation or a committee
thereof, during the 20 days preceding, and including, the date as
of which the Fair Market Value of a security is to be determined.
The "Fair Market Value" of any security that is not publicly
traded or any other property shall mean the fair value thereof as
determined by an independent investment banking or appraisal firm
experienced in the valuation of such securities or property
selected in good faith by the Board of Directors of the
Corporation or a committee thereof, or, if no such investment
banking or appraisal firm is, in the good faith judgment of the
Board of Directors or such committee, available to make such
determination, as determined in good faith by the Board of
Directors of the Corporation or such committee.
"Non-dilutive Amount" in respect of an issuance, sale or
exchange by the Corporation of any right or warrant to purchase
or acquire shares of Common Stock (including any security
convertible into or exchangeable for shares of Common Stock)
shall mean the difference between (a) the product of the Fair
Market Value of a share of Common Stock on the day preceding the
first public announcement (whether by the Corporation or
otherwise) of such issuance, sale or exchange multiplied by the
maximum number of shares of Common Stock that could be acquired
on such date upon the exercise in full of such rights and
warrants (including upon the conversion or exchange of all such
convertible or exchangeable securities), whether or not
exercisable (or convertible or exchangeable) at such date, minus
(b) the aggregate amount payable to the Corporation pursuant to
such right or warrant to purchase or acquire such maximum number
of shares of Common Stock; provided, however, that in no event
shall the Non-dilutive Amount be less than zero. For purposes of
the foregoing sentence, in the case of a security convertible
into or exchangeable for shares of Common Stock, the amount
payable pursuant to a right or warrant to purchase or acquire
shares of Common Stock shall be the Fair Market Value of such
security on the date of the issuance, sale or exchange of such
security by the Corporation.
"Pro Rata Repurchase" shall mean any purchase of shares of
Common Stock by the Corporation or any subsidiary thereof,
whether for cash, shares of capital stock of the Corporation,
other securities of the Corporation, evidences of indebtedness of
the Corporation or any other person or any other property
(including shares of a subsidiary of the Corporation), or any
combination thereof, effected while any of the shares of 5%
Cumulative Convertible Preferred Stock are outstanding pursuant
to any tender offer or exchange offer subject to Section 13(e) of
the Exchange Act or any successor provision of law, or pursuant
to any other offer available to substantially all holders of
Common Stock; provided, however, that no purchase of shares by
the Corporation or any subsidiary thereof made in open market
transactions shall be deemed a Pro Rata Repurchase. For purposes
of this paragraph 5E(vii), shares shall be deemed to have been
purchased by the Corporation or any subsidiary thereof "in open
market transactions" if they have been purchased substantially in
accordance with the requirements of Rule 10b-18 promulgated by
the Securities and Exchange Commission under the Exchange Act, on
the date shares of the 5% Cumulative Convertible Preferred Stock
are initially issued by the Corporation or on such other terms
and conditions as the Board of Directors of the Corporation or a
committee thereof shall have determined are reasonably designed
to prevent such purchases from having a material effect on the
trading market for Common Stock.
(vii) Whenever an adjustment to the Conversion Price and the
related voting rights of the 5% Cumulative Convertible Preferred
Stock is required pursuant to this paragraph 5E, the Corporation
shall forthwith place on file with the transfer agent for the
Common Stock and the 5% Cumulative Convertible Preferred Stock,
if there be one, and with the Secretary of the Corporation, a
statement signed by two officers of the Corporation, stating the
adjusted Conversion Price determined as provided herein and the
resulting conversion ratio, and the voting rights (as
appropriately adjusted) of the 5% Cumulative Convertible
Preferred Stock. Such statement shall set forth in reasonable
detail such facts as shall be necessary to show the reason and
the manner of computing such adjustment, including any
determination of Fair Market Value involved in such computation.
Promptly after each adjustment to the Conversion Price and the
related voting rights of the 5% Cumulative Convertible Preferred
Stock, the Corporation shall mail a notice thereof and of the
then-prevailing Conversion Price (and the resulting conversion
ratio) to each holder of shares of the 5% Cumulative Convertible
Preferred Stock.
(viii) Whenever a conversion price adjustment has been made
due to the issuance of Options or Convertible Securities, no
further adjustment will be made upon the issuance of Common Stock
as a result of the exercise, conversion or exchange of such
options or Convertible Securities.
5F. Certain Events. If any event occurs of the type
contemplated by the provisions of this part 5 but not expressly
provided for by such provisions, then the Corporation's Board of
Directors will make an appropriate adjustment in the Conversion
Price so as to protect the rights of the holders of 5% Cumulative
Convertible Preferred Stock.
5G. Notices.
(i) Upon any adjustment of the Conversion Price, the
Corporation will promptly give written notice thereof to all
holders of 5% Cumulative Convertible Preferred Stock.
(ii) The Corporation will give written notice to all holders
of 5% Cumulative Convertible Preferred Stock at least 20
days prior to the date on which the Corporation closes its
books or takes a record (a) with respect to any dividend or
distribution upon Common Stock, (b) with respect to any pro
rata subscription offer to holders of Common Stock (c) with
respect to any proposed redemption of 5% Cumulative
Convertible Preferred Stock (such notice to be in form
provided for in Section 3B), or (d) for determining rights
to vote with respect to any Organic Change, dissolution or
liquidation.
(iii) The Corporation will also give written notice to
the holders of 5% Cumulative Convertible Preferred Stock at
least 30 days prior to the date on which any Organic Change
will take place.
Part 6. Registration of Transfer.
The Corporation will keep at its principal office a register
for the registration of 5% Cumulative Convertible Preferred
Stock. Subject to compliance with applicable law, including but
not limited to federal and state securities laws, upon the
surrender of any certificate representing 5% Cumulative
Convertible Preferred Stock at such place, the Corporation will,
at the request of the record holder of such certificate, execute
and deliver (at the Corporation's expense) a new certificate or
certificates in exchange therefor representing in the aggregate
the number of shares of 5% Cumulative Convertible Preferred Stock
represented by the surrendered certificate. Each such new
certificate will be registered in such name and will represent
such number of 5% Cumulative Convertible Preferred Stock as is
requested by the holder of the surrendered certificate and will
be substantially identical in form to the surrendered
certificate, and dividends will accrue on the 5% Cumulative
Convertible Preferred Stock represented by such new certificate
from the date to which dividends have been fully paid on such 5%
Cumulative Convertible Preferred Stock represented by the
surrendered certificate.
Part 7. Replacement.
Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder will be
satisfactory) of the ownership and the loss, theft, destruction
or mutilation of any certificate evidencing 5% Cumulative
Convertible Preferred Stock, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation (provided that if the holder is
an institutional investor its own agreement will be
satisfactory), or, in the case of any such mutilation upon
surrender of such certificate, the Corporation will (at its
expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of shares of 5%
Cumulative Convertible Preferred Stock represented by such lost,
stolen, destroyed or mutilated certificate and dated the date of
such lost, stolen, destroyed or mutilated certificate, and
dividends will accrue on the 5% Cumulative Convertible Preferred
Stock represented by such new certificate from the date to which
dividends have been fully paid on such lost, stolen, destroyed or
mutilated certificate.
Part 8. Definitions.
"Common Stock" means, collectively, the Corporation's Common
Stock, par value $.10 per share, provided that if there is a
change such that the securities issuable upon conversion of the
5% Cumulative Convertible Preferred Stock are issued by an entity
other than the Corporation or there is a change in the class of
securities so issuable, then the term "Common Stock" will mean
the security issuable upon conversion of the 5% Cumulative
Convertible Preferred Stock.
"Corporation" means Electrosource, Inc., a Delaware
corporation.
"Junior Securities" means any class or series of equity
securities of the Corporation having a preference in liquidation
or right to dividends junior to the 5% Cumulative Convertible
Preferred Stock, which shall include without limitation any class
or series of common stock and any class or series of preferred
stock that does not expressly provide that it ranks pari passu
with the 5% Cumulative Convertible Preferred Stock.
"Liquidation Value" of any 5% Cumulative Convertible Preferred
Stock as of any particular date will be equal to $10.00 per
share.
"Organic Change" means any reorganization reclassification,
consolidation, merger or sale of all or substantially all of the
Corporation's assets to another Person which is effected in such
a way that holders of Common Stock are entitled to receive
(either directly or upon subsequent liquidation), stock,
securities, cash or other property or assets, or any combination
thereof with respect to or in exchange for Common Stock.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an
unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Preferred Stock" means the Corporation's Preferred Stock, par
value $1.00 per share, including without limitation the 5%
Cumulative Convertible Preferred Stock.
"5% Cumulative Convertible Preferred Stock" means the
Corporation's 5% Cumulative Convertible Preferred Stock, par
value $1.00 per share.
"Subsidiary" means any corporation of which the shares of
stock having a majority of the general voting power in electing
the board of directors are, at the time as of which any
determination is being made, owned by the Corporation either
directly or indirectly through Subsidiaries.
IN WITNESS WHEREOF, the Corporation has caused its corporate
seal to be affixed hereunto and this Certificate of Designation
to be signed by its President and Secretary this ____ day of
____________, 199__.
ELECTROSOURCE, INC. ATTEST:
By: By:
Michael G. Semmens, President Audrey T. Dearing, Secretary
EXHIBIT "C"
TO
NOTE PURCHASE AGREEMENT
DATED DECEMBER 19, 1997
1. BDM. BDM Technologies, Inc. ("BDM") entered into
essentially a 50/50 joint venture with the Company in 1993 to
perfect the battery manufacturing process and to license or
commercialize the Electrosource technology world-wide. Under
this agreement, BDM arranged for and guaranteed the lease of the
Company's plant and certain equipment in San Marcos, Texas and
paid essentially all of the San Marcos operational costs. In mid-
1994, BDM determined to discontinue its interest in the venture,
and an interim arrangement for payment of costs was entered into
whereby the Company had the option of reimbursing BDM for real
and personal property lease payments and property taxes in stock
or cash. The Company and BDM subsequently entered into a
detailed Asset and Technology License Agreement and a Stock
Purchase Agreement (for BDM's 50% of the joint venture company)
on January 31, 1995 that provided for monthly reimbursements by
the Company to BDM in cash only. The Company has since deferred
a number of such payments to BDM, which are disclosed as
liabilities on the Company financial statements. The Company has
not received a notice of default from BDM for such non-payment
and is in discussions with BDM regarding satisfaction of such
liabilities. The Company and BDM entered into a First Amendment
to Asset and Technology License Agreement on December 19, 1997
wherein BDM, among other things, waives default and rights to
terminate for past non-payment
2. Development Contracts. The Company is involved in
approximately fifteen development contracts and programs at the
present time, all but a few of which have been ongoing for many
months. Most of these programs involve contractual research and
development of prototype batteries for specific customers. Due
to the nature of this work, successful prototyping often takes
longer and may be more expensive than originally forecast.
Initial versions of prototypes often lack all of the specified
performance and reliability characteristics necessary for
commercial use. Subsequent development attempts to improve the
different areas while maintaining the acceptable specifications.
This work has met with various degrees of success. As a matter
of general course, the Company maintains close contact with the
customers to discuss progress on the programs and to seek
customer understanding and acceptance of any delays or failures
to achieve all specifications. The Company maintains and
regularly updates a schedule summarizing the status of the
programs and projects. While the Company believes it will
ultimately be successful in most or all of these programs, there
is no assurance of success. It is possible at any point in time
for any one of these programs, such as SMH, Fiat or Black &
Decker, to terminate or be concluded on an unsatisfactory basis.
Day to day changes occur in the work under these contracts, and
it is not certain at this time how or when they will be
concluded.
EXHIBIT "D"
TO
NOTE PURCHASE AGREEMENT
DATED DECEMBER 19, 1997
Certain Exchange Act filings by the Company or its officers
and directors were or could have been deemed to be filed late.
Various Form 3 and 4 filings, which are the responsibility of the
respective officers and directors, were late, as reported in the
Company's Proxy Statements. Several Form C filings for prior
years were filed late. Forms 10C were required for 5% increases
in shares outstanding, however, such reports are no longer
required by the SEC. The Company may be deemed to have late
filed its definitive proxy statement for the Annual Meeting held
on May 22, 1997, in that mailing of proxy materials commenced
several days prior to filing of the definitive proxy. A
preliminary proxy had previously been filed, and the definitive
proxy was filed within 120 days of year end. This could result
in the Company not being eligible to use a Form S-3 Registration
Statement for the one year period from the date of the late
filing, unless an exemption is granted by the SEC.
Exhibit 10.40
(Contract in Italian)
Fiat Auto
Direzione Acquisti
Politiche di Acquisto
Ccy~j (3. A~n~li. 20C - 10135 or~~o
To ~ -Cdse.2POSt~6 1202
TO!c-.~~arnmi Fi~t~~jto - o.iro
TOex 212280 - Fia-ej
Fidi Ail S p.A
Cj'rso (3 Agr~el 200-19135 Tori~c Cepi~:e So~ieIe I .2.000
m~Iiardi
~ b. Thr~~o 2387 - GCIAA Th~in~ 545573 Com~. Esie-c - ~oS'.2
CCIAA T0004175 C&d. F s~aie/PIVA 02285320012
I
Electrosource, Inc.
3800 - B Drosset Drive
AUSTIN - TEXAS 78744
1131 USA
for the attention of Mr. B.E. JAY
~sf i23.757/96 Torino, 30 LugIlo 1996
HORI~ON BATTERIES PACK DEVELOPME~T PROGRAM
Ci nfenamo alla Vostra offerta del 15 Marzo 1996 ed
ate successive intese intercorse con ii Vostro mg.
Gnesutta per confermarVi Itincarico descritto al
successivo punto I
1. OGGETTO
1.1 La Vostra Societa Si irnpegna ad eseguire in
favore di FIAT AUTO le attivita' riportate
neI~AIIegato I (HORIZON PACK DEVELOPMENT PROGRAM)
per Ia progettazione produzione, assemblaggio1 prove e
succeS~iva fornitura di n. ~ pacchi (Packs) composto
ciascuno da 18 moduli di batterie 12 F 72 con
sistema di controllo (BMS) (nel prosieguo denominate
BATTERIE).
1.2 La Vostra Societa' Si impegna inoltre a fornire
alta FIAT AUTO n. 2 set di sistemi di controllo
(BMS) con relativo equipaggiamento gia' assemblati e
testati.
1.3 Le batterie in oggetto, finalizzate a! sistema
di trazione del veicolo elettrico FIAT SElCENTO
dovranno essere realizzate ne! rispetto delIa
specifica di prndotto (AlIegato 2 ) elaborata
dalla FIAT AUTO DIREZIONE TECNICA - PIATTAFORMA
VEICOLI A MINIMO fMPATTO AM8IENTALE (\(AMIA)7 gia'
a Vostre mani, pertanto Ia Vostra Societa' garantisce
che le BATTERIE che saranno fornite a FIAT AUTO saranno
conformi a detta specif~ca di prodotto.
I carta ~cicIata
a
100%
2. TEMPISTICHE
NeII'Allegato 1 sono descritte le diverse fasi in cul 51
articola ii programma di sviluppo e sono correlativamente
fissate le tempistiche di completamento delle singole
attivita ~ di consegna della documentazione tecnica e delle
BATTERIE, pertanto le stesse dovranno essere completate e
consegnate entro I termini delle suddette tempistiche.
3. DATI TECNICl. PRESTAZIONI DI COMPETENZA ~IAT AUTO
3.1 La piattaforma VAM IA a disponibile a forn ire alla
Vostra Societa tutti 911 ulteriori dat e informazioni a Vol
necessari per l'esecuzione del presente incarico.
3.2 Nell1esecuzlone delle prestazioni oggetto del presente
incarico Ia Vostra Societ~ Si atterm' alle indicazioni I
istruzioni che saranno fomite dal nostri tecnici per
garantire II rispetto degli obiettivi ~he FIAT AUTO ha
fissato per Ia rea~izzazione del sistema di traziorie del
veicolo elettrico FIAT SEICENTO e per l4alimentazione,
tramite DC/DC Converter , della batteria ausiliaria e
limpianto a 12 V.
4. CONTROLLI E ACCETTAZIONE
il semplice ricevimento da parte della FIAT AUTO della
documentazione tecnica (vedi elenco nell'art. 7.1
successivo), del le BATTERIE e dei 2 set BMS Si intende quale
accettazione solo dopo esame ed approvazione da parte del
Tecnici FIAT AUTO della piattaforma VAMIA.
5. GARA~IA
5.1 La Vostra Societ~ garantisce che:
a) La documentazione tecnica, le BATTERIE e I sistemi di
controllo BMS da Vol eseguiti in esecuzione del presente
incarico saranno esenti da ~izi, difetti 0 incompletezze,
nonche' conform alla specifica tecnica ed a parametri
tecnico - economici stabiliti;
b) Ia produzione l'uso a Ia commercializzazione in
Italia a aII'estero della BATTERIE, non comportano
violazione di diritti di proprieta' industrial~ di terzi.
2
5.21n Aflegato 3 sono riportati i termini di garanzia
applicati
da~a Vostra Socleta sulle BATTERIE.
6. CONFIOENZIALITA'
Le Parti 51 obbligano a trattare come confidenziale
ii conferimento del presente incarico ed ii contenuto
della presente lettera.
Le Parti Si obbligano altresi a trattare come
confidenziali tutti i dati e te informazioni di
carattere tecnico, commerciale, organizzativo e di altra
natura che Si potranno scambiare 0 di cui siano ~omunque
venuti a conoscenza in retazione aII'esecuzione del
presente incarico;
conseguentemente Si obbligano a non rivelame ii contenuto
a terzi, direttamente 0 anche indirettamente, e cio' anche
dopo Ia cessazione del presente incarico. A tal fine, le
Parti adotteranno tutte le opp~rtune cautele nei
confronti del propno personale e Si renderarino
responsabili nel confronti delI'altra parte per le
conseguenze delta divulgazione dei suddetti dati e
informazioni.
7. REMUNERAZiONE E MODALiTA' Dl PAGAMENTO
7.1 A fronte dell'esecuzione delle attivit~ descritte
al punto 1.1 e della f~rnitura di n. 5 Packs di
BATTERIE, Ia nostra Societ~ Vi riconoscera' Iii~po~~ di
US $ 460.000 (Dollari USA quattrocentossentamila) che
saranno fatturati at completamento delle seguenti fasi.
a) Preliminary Design Pkg
US $ 32.250
b) Syste~ Detail Design Pkg US$ 66.230
c) Prototype lnspsction Report
US $ 226.500
d) Production Inspection Report USs 86.920
e) Delivery of Batteries for five each Seicentos
US$ 48.100
US $ 460.000
7.2Per Ia realizzazione, assemblaggio e tests e fornitura
relativo equipaggiamento di cul al punto 1.2 Ia
n.conoscer~ I'importo di US $ 27.500
ventisettemilacinquecento)
di N. 2 ~MS sets e nostra Societ~ Vi
(Dollad USA
3
7.31 prezzi dl fornitura delle Ginque Batterie devono
intendersi FO~ S.
MARCOS TEXAS.
Gil iniporti di cul BI punto 7.1 saranno pagati da FIAT AUTO
a 60 gg.f.m.data fattura che Ia Vostra Socleta' provveder~
ad emettere al comp~etamento delle relative fasi e
previo benestare del nostri Enti
Tecnlcl preposti sulla
documentazione dl riferimento comprovante l'attivita' da
Vol eseguita, documentazione che dovr~ da Vol essercl
inviata
prima di ogni singola fatturazione.
B OPZIONE DI ACQUISTO
Qualora Ia FIAT AUTO decida di adottare nella
propria produzione di serie le BATTERIE oggetto del presente
Incarico di sviluppo Ia Vostra Societa' riconosce alla
FIAT AUTO medesima, ora per allora, l'opzione di acqulstare
dalla Vostra Socleta' Ia produzione di serle ne~Ie
quantita' che Ia FIAT AUTO VI potr~ richiedere alle
condizioni di acquisto standard applicate da FIAT AUTO. A
questo proposito Ia Vostra Socleta' SI Impegna a far
pervenire a FIAT AUTO un'offerta di prezzo per Ia
fomltura iri ragione dl 100 - 500 - 1000 BATTERIE I anno.
g ALLEGATI
Tutti gil Allegati ella presente lettera ne formano parte
integrante a tutti gIl effetti.
10. MODtFPCH~
Qualunque modifica agli accordi contenuti nella
preBente lettera ser~ valida solo se apportata per
iscritto e debitamente sottoscritta dalle due Parti.
Se quanto sopra corrisponde al Vostro accordo, VI preghlamo
di trascrivere questa nostra su Vostra carta
Intestata e rimettercela debitamente sottoscrltta dal
Vostro legale
rappresentante per accettazione.
Cordlali saluti.
1 Flat AutoA.p.A.
~ezIodI~I
A. Tafuri
4
Teak Nun~e
Start Da~
ALLEGATO N. 1
End OsIl Tetal Co.' (~C)
HORIZON PACK DEVELOPMENT pROr~RAM
~~.ign and Tooling FIAT Bttu~ Pack Req uIrem~riti
~
FIAT h~~_12UB5 m~~e BIn~ MN rl.~um#nt$~ern~PkGt~ -Therm~I
Mana
I. -I.ati~iy Com~wrlm~ts. el e~
~ and Cab~~
IGiIM.n~~3
'Pfearn~nary De~ig~ Review 'Ollall OeuI~n I 2UBS ~
FIAT H~ri:on
'BaIIwy Co m~en~z ~
Coiy'~ei~n cue (e~~ heni
Ice~ ~
~
herd
1TCmiI,iiI ceetlAg "icldi - herd
~
ITwmw~n~ CA3hnp moAl ~
'Centedvi., eftd~CtdvCr ~henl
~
P~a;ute Rei~ VeE~~ - herd PMSi#y N~ VI~
Prld~ttd~ Cell Itode
~ P?*d~LICti~ Yid~ed~ Bitter~ Manig~menl Syttem~~' -
Rede~~~ Puckag. ~FjAT pich
T Ca~ Him e$i ~ Co~10II
i~~?1 IAtwdtec, ~W~AT Mu~ COn~Irn~~r
D~IIQn Intedaca wlF~AT ~
The'~~M~anegmen1 Syitum
C~g~SysI~
~3~n. #~'w~8rd 8ay A m~dae 'D.a,gn: ~ Bay: 5 imoduder
~ Bay: 4 moduias
Cabli i,~ Conne~,:
ace Man~dp
~CcK ~yU5nl Fl~~Catiofl and Aluombly Fib
9aItI~~Compm~ente,
hu~eee, ii~inIVOId
~Pacd' Cej~a~Iei (PD) I - 10
Fab BG::'Co~D.Cc.8~ ~ 10 aech cef
lach
aU~,1ei Ia, P~Ck OCth~.ribI~e to
.ChepgerIPowg~ Supp~ TeII and Integratlan CIdI,Q9rf~Owmu Su~
(5)
integretion mati Tett
~ack Syatum Teat (PST Stationci' Teala
'I[arwvv.i9m~heck
IFST I t.OLp~~Ofl & Glounding PST 2 W~ter immera~ ~SI ~.
Cherie' Conr~ 4 Seftery Iti~e~ernent
PST4 The,meIAA.n~erneni PST S Er~~~Qeflcy ()I3cOh~e(~I
Proof Teet New Ben evy Design leat II Cich IIIAl 2UI~ IlodulCi
ODen CirCuft ~ I eacr~MocluIeI O~en C~rcuIL Sienp ve 'emp a
..~ ~oduiee -
Teat II CCc~IA~# 12U88 Modulel Vih'it~ ena $~Ock ~e eqs 4 ee~ ~
Menufecqun~n1 ?e~I $Upe~1eIOn~~ - -
I
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II
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4~11~
4/f IA'
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4/t1~
U114
w'j'
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$2,'
5,21'
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13011
9-Iso,.'
li-,1s-,'-
5114,91
at i4'~E
9jIIuIIt
g.,Ig'g~
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a '18,95
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1,11/sd
1,28"E
'20,,5
8128111
$I1-j~i-
4ii~ij
1'2i~ii
3'2IleE
~'2119I
'123,Ij
"28,1~
7~OIlI
711t..i
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diul O~i 4'f
-VI, 'fl"i
7,1~
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7,7~~9'gj
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i
$475,628.00
$332,204.10
$32,282.00
5473100
'4.14000
82.080.001
$IC.498 00
*8.73800
*1.7.0.00
110.000 DO
8218,8 '2.01
1254.512.00
*284,3?2.00
8I5,42~.O
5140000
841 ,?2.O
*5.47200
838.000 Do
553,IeO.~
sillo 80
*11.000.80
5171000
33$00000
s.e.es,.e
8)0,48000
5144Q00
51000.00
*8.18000
*10.08000
la.400.00
*8.400.00
31.240.00
*2.400.00
*2.40000
*2.40000
*1.080.00
*980.00
, zir wiN I72~5OO.00
sti.oo.oc
1/2711' s1~.000.oc
1f0.00000
*3.000.00
820.Dao.oo
121,,'Es23,s".ol
3I1.500.0C
12/WIl 812.000.001
~~I18"E
1111 WIlE 123.780.001 ~'2'/9E 81.poo00
Io,~I
8538000
'4.000001
1I-,i',E Si.720.00
lillS/tIl 35.a00 001
Io,I~ 82.48002
5112,91$47,162.00
- -- 'jiziel 85,000.00
1'/2~1 ~ 18.0001 001 I,'/I.~ I~e In, AA
ALLFGA
TO N.
I
4. Propo~ed deliverables and invoicing schedule
The Table be~ow sho'~~s the proposed deliverables and
invoic-ng schedule.
4. Production Inspection Rep~rt 27 50,922
L~ 8atteries for five each Seicentos 48,500
TotaF $454,426.00
.
I
.
t
+
SPECIFICA DI PRODOTTO ALLEGATO N. 2
PROGETTO: SEIC~
J
C OMPONENTE FORNITORE
E
T
RCE
~NE HORIZON
EDIZIONE DATA DESCRIZIONE
1. 21/05/96 EDIZIONE ORIGINALE
INDICE
1. DESCRIZIONE GENERALE DEL SISTEMA
1.1 DESCRIZIONE DEL SISTEMA
1.2 DIAGRA~~ A BLOCCHI DEL SISThMA
1.3 STRUTTURA DEL COMPONENTE E LIMITI DELLA
FORNITURA
2. SPECIFICIIE AMBIENTALI
2.1 SITO INSTALLATWO
2.2 TEMPERATURA
2.3 UMIDITA~ PRESSIONE ED ALTRI
PARAMP'IRI
2.4 VIBRAZIONI
3. SPECIFICIIE ELETTRICIIE
3.1 SICUREZZA ELETTRICA
4. SPECIFICHE FUNZIONALI DEL COMPONENTE
4.1 DESCRIZIONE DETTAGLIATA
4.2 PRESTAZIONi
4.3 PROFILO DI MISSIONE
4.4 PROTEZIONI
4.5 MANUThNZIONE
5. SPECIFICHE FISICHE E COSTRUTT]lVE
5.] DIMENSIONI
5.2 PESO
5.3 CARATTERISTICHE DEL CONThNITORE
5.4 DURATA
5.5 MARCATURA
6. ALTRE SPECIFICRE
6.1 RICICLABILITA
6.2 PRESCRIZIOM PER LA MOVIMENTAZIONE
7. NORME APPLICABILI
2
1. DESCRIZIONE GENERALE DEL SISTEMA
Di seguito e riportata Ia specifica della batteria di
trazione Horizon per ii sistema di trazione del veicolo
elettrico SEICENTO.
1.1 DESCRIZIONE DEL SISTEMA
La batteria di trazione fa parte del sistema di accumulo dcl
veicolo elettrico, che e' formato dai
seguenti componenti:
- - Monoblocchi
- - Dispositivo di controllo isolamento
- - Teleruttore principale
- - Sezionatori e fbsibili
- - Dispositivo di precarica/scarica dei condensatori
- - Sistema di condizionamento
- - Sistema di ventilazione
- - Battery Management Unit (13MU)
La batteria di trazione fornisce I'energia per Ia trazione
elettrica del sistema e per alimentare, trarnite DC/DC
converter, Ia batteria ausiliaria e I'impianto a 12 V.
3
1.2 DIAGRAMMA A BLOCCHI DEL SISTEMA DI AC CUMULO
BMU
f
BATTER IA trEpRLiENRcUIF~REE I
SEZIONATOREI
DI SISTEMA Dl
TRAZIONE LLzfflIBIU
t~ARlcAiScARi~
- - ~ - m 'V
SENSORI
CORRENTE
216V
12V
CANNAN
Bus
Linee di
segnale
220V
Diagnostica
- - - -. - - - - connessione alla scocca
I
FwLiEMADlF;~MADI F~~V\~0
L~loNELZ~LiFjo~NT_'2z2IENTO
m
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- - -
E
1.3 STRUTTURA DEL COMPONENTE E LIMITI DELLA FORNITURA
La batteria di trazione e' composta da 18 moduli a 12 V con
le relative BMU (Connettori + Master controller) e tappetini
riscaldanti
4
2. SPECIFICHE AMBIENTALI
Per le prove climatico-ambientali e meccaniche fare
riferimento al capitolato FIAT 9.90110.
2.1 SITO INSTALLATIVO
La batteria di trazione e' installata nel relativi
contenitori.
2.2 TEMPERAThRA
Temperatura di ftinzionamento
Temperatura di stoccagglo
Temperatura ottimale per Ia ricarica
- -10 ~C + 50 0C 25 0C+85
30 0C
2.3 uMDITA, PRESSIONE ED ALTRI PARAMETRI
Ii componente deve soddisfare le specifiche del capitolato
FIAT 9.90110.
2.4 VIBRAZIONI
Capitolato FIAT 9.90110 classi V2 e V3, Capitolato batteria
trazione (in stesura) e norma DIN 'EC 6S parti
5
3. SPECIFICHE ELETTRICHE
3.1 SICUREZZA ELETTRICA
Entrambe le polarita' della batteria di trazione devono essere
galvanicamente isolate dai circuiti ausiliari a 12 V del veicolo
e dalla carcassa del veicolo.
Protezioni da corto circuiti accidentali mediante apposito
copripolo sul polo positivo 0 sistema di isolamento elettrico,
di
ogni monoblocco. Le connessioni devono soddisfare le norme CEI
445 relative alla sicurezza del cablaggi 95/5 4/CE aggiornata al
31 Ottobre 1995, Ia norma WP29/R 710 (28/08/95) e Ia norma DIN
VDE 0100, parte 410/11.83, paragrafo 5.2.
6
4. SPECIFICHE FUNZIONALI DEL COMPONENTE
4.1 DESCRIZIONE DETFAGLIATA
La batteria di trazi one e' costituita da 18 monoblocchi
al piombo sigillati con tensione nominaTe dii 2 V,
collegati in serie. Essa fornisce energia per Ia trazione
elettrica del veicolo e per alimentare servizi tramite Ia
batteria ausiliaria (attraverso ii DC/DC converter).
Gil accumulatori da installarsi sul veicolo devono
essere totalmente sigillati, senza emissioni di gas
neII'ambiente in condizioni operative standard
(ricarica/scarica), con valvola di massima pressione su ogni
singolo elemento. I morsetti ed i terininali devono essere
realizzati con To stesso materiale, per evitare
I'allentamento del serragglo e del contatto elettrico a causa
di surriscaldamenti (ii coefficiente di dijatazione termica
varia da materiale a materiale).
II contatto tra ii terminaTe ed ii morsetto deve essere
garantito per tutta Ia vita del pacco batterie, superando le
varie prove vibrazionali e di crash.
Si deve prevedere su singolo monoblocco ii collegamento
elettrico per i cavi della BMU.
4.2 PRESTAZIONI
Per ogni monoblocco sono richieste le seguenti prestazioni:
Descrizione Valore Unita' di
misura
Tensione nominale 12 V
Dimensioni (Lx W x H) <271,5x166x191,5 mm
Peso <195 kg
Capacita' C5 (a T=300 C) ~72 Ah
Energia Specifica (Secondo ciclo ECE fornito da FIAT) > 33
Wh'kg
Energia specifica C5 >~36 Wh/kg
Potenza specifica (80% DOD su ciclo SAE 3227) ~ 150
WIkg
Picco di Potenza (30 sec - 80% DOD - 2/3 OCV) > 140
W/kg
Tempo di ricarica normale <~8 h
Tempo di ricarica equalizzata <~12 h
Potenza max da assorbire da rete < 3 kW
4.3 PROFILO DI MISSIONE
Vedere allegato ciclo ECE (da definire con FIAT) e
EUCAR PARAMETER TEST (Settembre 1995 e successive edizioni).
4.4 PROTEZIONI
Valvole di sicurezza per evitare condizioni di
sovrapressioni interne e conseguenti scoppi. Si deve prevedere
sul polo positivo Un copripolo per evitare archi elettrici
e corto circuiti accidentali.
4.5 MANUTENZIONE
II sistema deve essere esente da manutenzione.
7
.4
5. SPECIFICHE FISICHE E COSTRUTTIVE
5.1 DIMENSIONI
Dipendono daT layout dei monoblocchi aIJ'interno del
contenitore.
5.2 PESO
Peso (comprensivo delle corinessioni)~356Kg
5.3 CARATTERI~CHE DEL CONTEMTORE DEL MONOBLOCCO
Ii contenitore deve soddisfare ii Norma materiali FIAT
55246 e deve presentare classe dimensionale secondo norma
DIN.
5.4 DURATA
Cicli dinarnici (ciclo ECE 15):
5.5 MARCATURA
900
La marcatura deve essere effettuata su ogni batteria
secondo Te norme FIAT 19310 e 19310/01 con colori descritti
su norma 00167 e sul cassone con I~ aggiunta del segnale di
alta tensione sec ondo norma ISO 3864 e IEC4I7K standard
comprese nelle norme CEI 44-5. Le etichette devono superare
le prove descritte sul capitolato FIAT 9.03117/01. Vale
Inoltre Ta norma 07416 relativa alla marcatura per ii
riciclaggio e Ia norma WP29/R 710 (28/08/95).
8
6. ALTRE SPECIFICHE
6.1 RICICLABILITA
Conforme alla norma DIN 6120 e 07416.
6.2 PRESCRIZIONI PER LA MOVIMENTAZIONE
I contenitori di ogni singolo monoblocco devono essere
prowisti di maniglie 0 sirnili per Ia presa manuale.
9
7. NORME APPLICABILI
Norme Fiat
0.00013
07412
Marcatura della data di fabbricazione
Marcatura delle parti. Norma di comportamento
Requisiti elettrici
9.91111
9.91191
9.91220
Requisiti climatici
7.G2100
7.G2110
7.G21 15
7.G2120
7.G21 50
7.G2170
7.G2175
7.G2200
7.G2210
50180
Altre norme
IEC 529
'EC 69-783
CEI 64-8
CEI2I-5
CEI 44-5
DIN VDE 0122
DIN VDE 0510
DIN 43-539
Cavi unipolari per alta tensione
Capicorda per accumulatori e relativa guinzioni con i
cavi Particolari isolanti per protezione impianto
elettrico
e ambientali
Prove climatiche e ambientali - generalitA
Prova al caldo umido permanente
Prova al caldo urnido alternato
Prova al caldo secco
Prova a bassa temperatura
Prova ai cicli di temperatura
Prova ai cicli rapidi di temperatura
Prova di resistenza ai prodotti di
condensazione Prova di resistenza agli urti
per caduta libera Resistenza alla nebbia sauna
Classification of degrees of protection provided by
enclosures
Wiring and connectors for electric road vehicles
Impi anti elettrici utilizzatori a tensione nominale non
superi
ore a 1000
Vin ca. e iSOOVin cc..
Batterie al piombo per t?azione: prescrizioni generali
Equipaggiamenti elettrici di macchine industriali
Ecjuipaggiamenti elettrici di veicoli su strada a trazione
elettrica
Accumulatori ed impianti a batterie per I' azionamento di
veicoli a
trazione elettrica
Accumulatori al piombo- elementi e batterie per autotrazione
I0
ALLEGATG N. 3
P!2~~WA'iranAy for ~ and assocl~ted eauIpme~t~
Re~~rdi~g the warrarty on these n~w~y developed it~m~ we
propose tho fottowin~:
Al~ Electrosourc9 products will be replaced for defect~
in ma+~eri~ls and wQ4manship fro~ of char~e (o~cept for
shipptn~ and handIn~) for a period of ~ix months from dellvcry
to ~lAT Auto. Damage ~~u~ed in shipment w~~l be the
re~ponsibiIity of the shipping a~ent. Repla~ment cost of
products which fail after the first sIx months of testing up
to a limit of 300 cycles will b~e sha~ed nq~aIIy by
Electrosourco Inc and FIAT Auto. This ~~rr~nty i~ ~ubject to
the followin~ ~xc1us~ons.
Tne battery pack is to be tn~aU~d lnt~9rLit~d ~nd ~sed
with the Ele~ro5Q~rce or otner approved battery
mana~ement systen~ ~ ~ ~lec;t~r~s~uecC ~pprove~ ch~rgor.
The wa(ranty covers only on smooth road L~sts; th~re is
no warranty for use over un~a~ied sjrtaces
There is no warranty coverage for the bat+~ey
~ontai~er, pack or individ~~l modulo~ for crash, ~
vibration or other structural te~t~ Furi~~er~ore
E~~Ot~~source essu~~s no h'~biM~ for ccnsequen~i~~I
dam~gos Ii~ th~ ~vE~!~t of $(rLictural (6llufes to the
beUeiy
con~g,'~er c~us~d by crash, o2h~r accid~nts or
mishar~dring of the rest vehicle
T~ere is no warranty coverage (or water irnrn~rsl.on,
rai~ conderisation, or other m~I.sture te~~
There are no other warranties of any kind expressed or
implied, including, without limitation, mechantability, or
fitness for a particular purpose other than those stated.
Exhibit 10.41
FRAME-DEVELOPMENT CONTRACT
between
SMH AUTOMOBILE S.A.1
Rue des Pr~s 149 CH-
2500 Biel-Bienne
(hereinafter called (< SHM)))
-in its capacity as the
Principal-
and
ELECTROSOURCE INC.,
2809 IH 35 South USA-
San Marcos, Texas 78666
(hereinafter called <(
ELECIROSQURCE) - in its capacity
as the Contractor-
PREAMBLE
SMH is developing, among other functions, alternative propulsion
systems for cars. In this context, SMH intends to develop an
optimized electric and/or hybrid electric vehicle for on the
road automotive use (hereinafter (<the Automobile).
ELECTROSOURCE is experienced in the fields of engineering
design, development and manufacturing of advanced valve
regulated lead acid batteries, known as the Horizon battery
SMH desires to avail itself of the expertise and know-how of
ELECTROSOURCE in developing a new Battery Module and Pack based
on the Horizon technology (hereinafter the Battery)>),
specifically suited for the application of a small, light and
notexpensive car specified by SMH.
Therefore, ELECTROSOURCE offers SMH its technical support to
jointly develop the Battery for the hybrid electric vehicle.
2
'C
I In consideration
thereof the parties agree to the following:
ART. I SUBJECT OF THE CONTRACT
The subject of the contract is the development of a new Horizon
battery n ~dule and
Pack, control system and vehicle interface according to the
description in A~~endix I
(hereinafter (<the Development).
ART. 2 IMPI ~M~MTATlON
2.1. The Development of the new Battery and the production
of Test Packs will occur in 3 successive development
phases called A, B and C generation, according to the
timetable in AD~endix 2. These phases are:
- phase A: Development of 3 Packs of 9
adapted
batteries (24 Volt each)
- phase Bi: Design of a new Horizon battery
module
prototype and its associated Pack
- phase B2: Development and delivery of 4 Packs
of
new Horizon battery module prototypes as
designed in phase B(i)
- phase C: Manufacturing tools and material for a
production pilot line.
The Results of the different Development phases shall
be presented at the dates reflected in Appendix 2.
The completion of one or more phases of the
Development shall be designated as <( Milestones)> in
the timetable before the signing of the Contract. This
means that at that point the parties will jointly
revise and refine
the
Appendices and from that point onwards the new
written revised Appendices shall be attached to and
considered to be elements of the Contract.
SMH can terminate agreement at such point without
notice period nor consequence.
Parties will define additional Milestones during
the
Development.
ELECTROSOURCE may initiate the next phase of the
Development following the Milestone only with SMH's written
consent.
If agreement cannot be reached concerning the revision
of the Appendices, both parties may terminate the
Contract forthwith without a notice period. In this
case Art. 11 shall apply irrespective of the lack
of notice
of
termination.
3
The dates for supplying the interim results must be
explicitly stated in the timetables and ELECTROSOURCE shall
deliver them accordingly.
2.2. ELECTROSOURCE will perform the Development for SMH
in close contact with SMH to the best of its ability on
the basis of its latest scientific knowledge and state of
the art technology as well as to the applicable norms as
listed in Ap pendix I and by applying its own existing
knowledge and experience acquired during the term of the
Contract.
2.3. ELECTROSOURCE and SMH shall provide each other in
time with all data and information required for
performing the Development.
Any documents, objects or other aids which the parties
may provide to each
other for performing the Development shall be made
available on loan and remain their property. They shall be
used solely for performing the Development and shall
be returned immediately upon termination of the
Contract. Special ref erence is made to the
applicability of Art. 5 if. hereof in this respect.
2.4. Upon request and upon prior notification
ELECTROSOURCE shall at reasonable times allow SMH to
inspect the results of the Development available from
time to time, provide reasonable other information
required by SMH and, after prior
notification, allow SMH's agents or employees
reasonable access during normal working-hours to the
premises where the Development is being carried
on.
2.5. The parties shall agree on a jointly prepared project
structure until (project management, members,
areas of responsibility), this shall be attached hereto as
an A~Dendix 3, to be defined in due time, and may be
amended only with SMH's written consent.
The project manager shall sign all relevant documents
concerning the Development. He shall keep informed and
documented SMH on all relevant information of the
Development, on a weekly basis.
2.6. ELECTROSOURCE may place orders for individual elements
of the Development with third parties, subject to SMH's
prior written consent, which may not be unreasonably
withheld or refused. ELECTROSOURCE's obligations towards
SMH shall remain unimpaired.
That consent may not be refused by SMH without a serious
reason. A serious reason is particularly but not
exclusively competition between the third party and a
Company of the SMH Group.
In such cases, subcontractors' secrecy shall be ensured by
means of a confidentiality agreement (cf. Art. 5.4).
2.7. Upon completion of the Development in accordance with
the specifications, ELECTROSOURCE shall present the
Development to SMH for acceptance in accordance with the
specifications. The complete Development should be ac
4
cepted by SMH within 4 weeks. Partial acceptances are
possible at any time. Acceptance will not be unreasonably
withheld or refused.
ART. 3 REMUNERATION
3.1. ELECTROSOURCE shall receive:
- US$ 310,000.-- as payment for the Development and supply
of the p Packs of 9 adapted batteries, 24 Volt each).
~ase A
(3
- US$ 160'000.- as payment for the Development and supply
of the phase BI (Design of a new Horizon battery module
prototype and its associated Pack).
- US$ 480'000.- as payment for the Development and supply
of the phase B2 (4 Packs of new Horizon battery module
prototypes).
- US$ between 504'000.- and 580'000.-}>, as referenced to
in page 2 of the proposal of December 181996 for the
Development and supply of the phase C, conditions to be
finalized by April 14,1997.
Pavment schedule
A
Start Sto~
3/17/97 7/14/97
$
B1
$
Start
Sto~
3/17/97
7/17/97 1. Signature of contract501000
50'000 2. On completion audit501000
501000
(3/30/97)
3. Delivery of
I pack 5/30/97 100000
2 packs 6/30/97 110000
4. Completion Design
Phase B~ 5/31/97 60'000
5. Delivery of
1 pack B2 7/15/97
3packs B2
3101000 160000
CQuotes $503'719
$ 5801000
to be finalized by April 14
B2
Start Sto~
4/14/97 8/14/97
$
501000
ioa
1001000
230'000
480000
II(
)00
3.2. The agreed payment is binding and may be increased
only with SMH'~ written agreement.
5
prior
3.3. ELECTROSOURCE shall constantly monitor the costs and
ensure that they are not exceeded. SMH must immediately be
informed if events affecting the costs occur or are
foreseeable.
3.4. If increased costs are unavoidable because of SMH's
wish
for modifications or additions1 ELECTROSOURCE shall
calculate the anticipated extra costs and notify SMH
thereof for its written approval, which will not be
unreasonably refuses or delayed.
3.5. Payments shall be made by wire transfer as directed by
ELECTROSOURCE.
Art. 4 _________
4.1. For the term of this Contract ELECTROSOURCE shall not
carry out similar or identical developments of the Horizon
battery technology for itself1 its successors, or for other
principals, for use in hybrid electric cars that could
compete with SMH hybrid cars. Are automatically considered
competing batteries those for micro passenger cars with
hybrid power and four wheels.
EXCLUSIVITY
4.2. If the result of the Development is used by SMH for
its
products) ELECTROSOURCE shall not carry out similar or
identical developments of the Horizon battery for other
principals.
This exclusivity shall last as long as ELECTROSOURCE can
deliver to SMH
100'000 batteries per every time period of 2 years.
However, if for technical1 marketing or other reasons
independent of its will, SMH is not able to order 100'000
batteries per 2 years, the parties shall discuss the
conditions of exclu sivity before ELECTROSOURCE will work
with other principals. SMH intents to order the supply of
said batteries with ELECTROSOURCE, provided they are
delivered in competitive conditions regarding the quality,
quantity, delivery terms and price (see also Art. 10
hereafter).
4.3. A ban on competition with the same effect shall be
imposed upon ELECTROSOURCE's employees with due
consideration to the statutory regulations applicable in
each individual case.
Art.5 SECRECY
5.1. During the term of the Contract and after termination
of
the contractual relationship each party shall neither
exploit nor inform other parties of business or trade
secrets of the other party which have been entrusted to it
or which have become known to it as such during the co-
operation.
6
5.2. ELECTROSOURCE shall employ solely for the Development
any technical information and especially intentions,
experience, knowledge or designs which become accessible to
it on SMH's premises as part of the contractual cooperation
or which ELECTROSOURCE receives from SMH and it shall treat
it as strictly confidential and in no way make it
accessible to third parties even after the termination of
the Contract.
SMH undertakes to treat as confidential the information and
knowledge acquired on ELECTROSOURCE's premises or which SMH
receives from ELECTROSOURCE and which are not directly
related with this Contract. Such information shall in no
way be made accessible to third parties even after
termination of the Contract.
Neither secrecy undertaking shall apply to information and
documents which demonstrably:
a) were already known to the recipient before the
conclusion of the Contract; b) are lawfully received by the
recipient from third parties;
c) were already in the public domain upon conclusion of
the Contract or subsequently entered the public domain
without infringement of the undertakings contained in
this Contract.
5.3. All and every Publication in the fields of this
Development requires SMH5s prior written consent which will
not be unreasonably withheld or delayed.
5.4. The parties undertake to impose corresponding
undertakings upon their employees and any subcontractors in
relation to business and trade secrets and technical
information.
Art. 6 RESULTS AND COPYRIGHTS
6.1. ELECTROSOURCE shall without additional charge assign
to SMH the results of the entire Development, including the
drawings, computer programs (with regard to both hardware and
software) together with commented source codes and other
technical documents, etc. which have been created in the course
of the Development. SMH shall pay the cost of transfer.
If legal restrictions should affect the assignment of the
results, SMH shall be granted exclusive free rights of use,
worldwide and unlimited in time and purview, for all forms
of use without restriction of production and sales areas in
relation to the entire results of the Development,
including the drawings, computer programs together with
commented source codes and other technical documents.
6.2. If legal assignment requires other formal acts,
ELECTROSOURCE undertakes to perform them and also to give
power of attorney therefor.
7
6.3.
SMH shall receive the right to exclusive use of the Development
for all nicro passenger cars with hybrid power and four wheels,
to the exclusion of all third parties and ELECTROSOURCE.
r
6.4. SMH may assign the right of use and may grant rights
of use to third parties.
ELECTROSOURCE shall grant SMH the right to revise and
modify the work or to allow such revision and modification
by third parties.
6.5. If, during or when exploiting the Development, it
becomes necessary to use rights and/or inventions which
had been made or acquired by ELECTROSOURCE before the
conclusion of this Contract or patents applied for or
granted in relation thereto (hereafter ,,background know-
how"), SMH shall receive an irrevocable, world-wide
license, unlimited in time and with Authority to issue sub-
license, restricted to the use of this background know-how
for micro passenger cars with hybrid power and four
wheels, under the following conditions, payment to
ELECTROSOURCE on at least a quarterly basis, of:
- 5% on the first 200'000 batteries
-4% on the following 200'000 batteries
-3% on the batteries exceeding 400'000 units.
These royalties are based on the selling price of the
batteries and the I umber of sold batteries is cumulative.
The royalties shall be paid only during 8 (eight) years
beginning with the first delivery. After that period, the
use of the background know-how according to this Contract
shall be free.
6.6. The rights in the inventions, patents and patent
applications and generally in know-how contained in the
Development are determined by Art. 7.
ART. 7 RESULTS OF THE DEVELOPMENT AND OTHER RIGHTS
7.1. When working on the Development, ELECTROSOURCE shall
endeavor to achieve a result unencumbered by third parties1
rights (cf. Art. 9.3).
7.2. If ELECTROSOURCE knows of third parties' rights which
conflict with the Development, SMH shall be informed of those
rights and the names of the third parties as soon as they
become known and SMH's written decision on their exploitation
or non-exploitation must be obtained. Should this not be
possible, then ELECTROSOURCE shall attempt to do a
reengineering or obtain a license.
Inventions and all other intellectual property rights made
or acquired by ELECTROSOURCE before the conclusion of this
Contract and patents applied for or granted in relation
thereto shall also be disclosed in so far as they could be
applied in the course of the Development (see also Art.
6.5. and Art. 7.3.).
7.3. If, during or when exploiting the Development, it
becomes necessary to use rights and/or inventions which had
been made or acquired by ELECTRO
8 ir
SOURCE before the conclusion of this Contract or patents
appi led for C granted in relation thereto (hereafter
,,background know-how"), SMH shall receive an irrevocable,
world-wide license, unlimited in time and with Authority to
issue sub-license, restricted to the use of this background
know-how for micro passenger cars with hybrid power and
four wheels, under the following conditions:
-5% on the first 200'000 batteries
- 4% on the following 200'000 batteries
- 3% on the batteries exceeding 400'000 units.
These royalties are based on the selling price of the
batteries and the r ~mber of sold batteries is cumulative.
The royalties shall be paid only during 8 (eight) years
beginning with the first delivery. After that period, the
use of the background know-how according to this Contract
shall be free.
IL
7.4. If, in SMH's opinion and as part of the development
work, it is necessary to use rights and/or inventions which
have been acquired or made by SMH before the conclusion of
this Contract or patents which have been applied for or
issued therefor, ELECTROSOURCE shall receive a simple limited
free license, restricted to the term of this Contract, for the
use of those rights, inventions and patents as part of the
development work. Sub-licenses may be issued only with SMH's
written permission.
7.5. If inventions or patents are created under this
Contract or if other rights are established which originate
solely from ELECTROSOURCE's employees, ELECTROSOURCE shall
immediately inform SMH.
The following procedure shall be adopted in relation to all
such rights:
a) Application and registration of such rights shall be
effected by SMH and both the rights themselves and all
other rights resulting therefrom shall belong in their
entirety to SMH, as limited by this Contract.
ELECTROSOURCE shall deliver to SMH the documents required
for the application and registration, such documents being
provided in the required quality, at SMH's cost.
b) If SMH waives the application for and registration of such
rights, ELECTROSOURCE may itself effect the application and
registration.
At SMH's request, however, SMH shall receive a free
unlimited and world-wide exclusive license for a term of 5
years calculated from the date of the 1 St priority
application. SMH shall make that request in writing within
30 days from ELECTROSOURCE's notification. In such cases,
SMH shall bear all costs incurred by ELECTROSOURCE during
that period for the application for, registration and
maintenance of the rights.
During the five-year exclusivity, SMH shall have the right
to grant sub-licenses for the aforesaid rights.
9
7.6.
If, within those 5 years, ELECTROSOURCE intends to use for its
own ~urposes those rights which are exclusively enjoyed by SMH,
SMH's prior written consent must be obtained. If SMH agrees,
ELECTROSOURCE shall reimburse a reasonable proportion of the
development costs paid pursuant to Art. 3.
After 5 years or before when not requested, SMH shall receive a
simple free world-wide license, unlimited in time, to exploit
those patents. SMH shall also receive the right to grant
appropriate sub-licenses.
SMH and ELECTROSOURCE shall immediately inform each other of
development results which appear patentable and in which
employees of both parties are involved. SMH shall have the
right to use those results and arrange protection in its own
name.
7.7. SMH shall also have an option for licenses on all
aforesaid intellectual property rights at most favorable
conditions for the application on other types of
Automobiles then specified in this Contract.
ART. 8 GUARANTEE
8.1. ELECTROSOURCE will use its best effort to perform the
Development and the attached documents correspond to the
specifications as per A~~endix 1.
8.2. ELECTROSOURCE's covenant covers only the care
customary
in the sector and compliance with the recognized technical
standards unless ELECTROSOURCE expressly guarantees
specific characteristics of the Development.
8.3. ELECTROSOURCE shall attempt to remedy defective
developments within a reasonable period. If the defect
cannot be remedied within the reasonable period, the
remuneration shall be partially refunded. If SMH wishes to
use the perfect part of the Development, the remuneration
therefor shall be fixed by agreement.
ART. 9 LIABILITY
9.1. The parties shall have reciprocal liability only in
the
event of deliberate intent or gross negligence. There shall
be no liability for consequential damages except for the
consequences of default as defined in Art. 8.2.
9.2. As soon as ELECTROSOURCE perceives that the agreed
timetable (AD~endix
2) cannot be fulfilled, ELECTROSOURCE shall immediately
inform SMH and give reasons for the delay. In such cases,
the parties shall jointly decide upon appropriate remedial
measures.
9.3. If third parties5 rights are claimed, with SMH's prior
written consent ELECTROSOURCE will attempt to attack the
claimed rights, acquire a license for SMH or
I modify the
Development in such a way that the rights claimed
by third are no longer infringed.
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)arties
9.4. In cases of product liability. ELECTROSOURCE shall fully
compensate SMH if the claims against SMH are based solely
upon a defective development of
ELECTROSOURCE.
ELECTROSOURCE shall take out customary insurance to
cover such financial charges and shall maintain it for
at least three years beyond the term of the
Contract.
ART. 10 MANUFACTURING AND SUPPLY
10.1. Upon successful completion of Development and testing
of the Battery, it is the intent of the parties to
negotiate the supply by ELECTROSOURCE of said Batteries
and packs to fit the Automobile.
ELECTROSOURCE is already committed to deliver the
first 10000 Battery units to SMH and SMH committed to
order, provided that the conditions to be negotiated are
at arm's length and competitive regarding price,
quality, delivery terms and conditions and quantity.
10.2. ELECTROSOURCE shall be a non-exclusive supplier of
the Battery with a preferential status provided that
the
requirements of price, quality, quantity and delivery
dates are met. These requirements can be generally
described in the following terms:
10.2.1. On the date this contract is concluded only
an
approximate quantity allocation can be given.
ELECTROSOURCE agrees that the precise quantities shall
only be determined once the call orders have been
specifically detailed.
10.2.2. ELECTROSOURCE gives an undertaking to supply
the
contract products in the quality and quantity requested
by SMH on the stipulated call dates, provided
sufficient notice is given.
10.2.3. Call orders, shall only be binding providing
these
have been issued or confirmed by SMH or subsidiary of
SMH Group in writing, by fax or telex.
10.2.4. The order confirmation is definitive for
supply
quantity, finish, quality, specification, assorting
and price of the products as well as the binding
delivery dates. If the confirmation differs, in respect
of one of these above points, from the contents of the
order, then a contract is only deemed to have come into
effect providing SMH gives its express approval to the
differing conditions.
10.2.5. Orders may only be passed on to sub-
contracted
suppliers with the written approval of SMH. In this
event ELECTROSOURCE shall be liable for the goods
supplied by its sub-contracted suppliers as it would
be for its own supplies.
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10.2.6.
The parties will set out the specifications for the products
in ai appendix (A~~endix 4) to this contract, to be defined
later on in good faith. Changes to the specifications require
the approval of both parties. On the basis of Appendix 4
ELECTROSOURCE will manufacture a job-lot of units
as prototypes. The prototypes approved by SMH shall be
deemed as samples for the purpose of checking the quality
and specification of subsequent supplies.
10.2.7. ELECTROSOURCE guarantees the technical, functional
and aesthetic quality of the finish in accordance with
the agreed technical drawings, samples, 11technical4ile"
and other standards mutually agreed in writing.
ELECTROSOURCE will produce records of random sample
testing in accordance with the drawing or operational
standards on the basis of A copy of the records will
be forwarded to SMH by ELECTROSOURCE unprompted.
Written proof of the quality testing must be enclosed
with the delivery note for each consignment. In
addition, this proof is to be sent to SMH prior to
dispatch of the consignment if requested by SMH.
SMH is entitled to carry out quality testing at the
supply plant in consultation with ELECTROSOURCE.
10.2.8. The agreed prices are fixed prices and in each case
apply until completion of the entire consignment.
Art. 11 TERM
11.1. This Contract shall come into effect when signed by both
parties and shall end with the delivery of the Development
and the settlement of the final invoice.
11.2. The Contract may be terminated in full or in part by
SMH at any time, allowing 4 weeks' notice. The following
shall generally apply:
ELECTROSOURCE undertakes to give notice of this Contract to
any subordinate contractors employed with SMH's consent and
shall organize legal relations with those subordinate
contractors in accordance herewith.
Should this Contract be terminated, ELECTROSOURCE shall
immediately terminate the legal relations with subordinate
contractors which are based hereupon, protecting SMH's
interests.
SMH shall inform ELECTROSOURCE in writing whether and, if
appropriate, what work which has already begun must be
completed. ELECTROSOURCE undertakes to carry out such work
in accordance with the conditions of the terminated
Contract.
ELECTROSOURCE shall be entitled to remuneration at the
contractual prices for the contractual Development carried
out up to and irrevocable commitments
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made to the date when the notice of termination takes
effect. The sam applies for parts of the performance which
are still to be provided and for orders to subordinate
contractors which can no longer be canceled.
e
The provisions of Art. 6 and 7 shall apply for partial
Development which is provided up to the time of the
termination or which is to be provided after the termi
nation.
No claims may be made for compensation or lucrum cessans as
a consequence of termination. All the payments due under
this Contract may not exceed the sum which ELECTROSOURCE
would have acquired in the event of its complete
fulfillment.
11.3. Both parties shall have the right of immediate
termination for a serious reason. The right of termination
for a serious reason shall constitute the sole possible
ground for termination by ELECTROSOURCE.
11.4. If the purview of individual provisions of this Contract
extends beyond the term fixed herein, the corresponding
provisions shall remain effective beyond the term fixed
herein. This applies particularly for the provisions of
Arts. 4, 5, 6 and
7
Art. 12 MISCELLANEOUS PROVISIONS
12.1.This Contract contains the entire understanding between
the parties hereto and no amendment, modification or waiver
of any provision hereof shall be valid unless set down in
writing and signed by both parties hereto.
Any previous agreement, also orally, between the parties
with respect to the subject matter of this Contract is
hereby fully replaced.
12.2. All the Appendices referred to in the Contract are
elements of the Contract.
12.3. SMH may assign this Contract with all its rights and
obligations to other companies of the SMH Group. The
Contract may be assigned in any other way only with the
other party's prior written consent.
12.4. Should one or more provisions of this Contract be or
become invalid, the validity of the other provisions shall
remain unimpaired. The parties undertake as far as possible
to replace the invalid provision with a valid provision
with the same economic consequences and to conduct
themselves each to the other as if the latter provision had
been agreed from the time of the invalidity.
12.5. The place of service is Austin/Texas, the place of
delivery is Biel, Switzerland. The parties may jointly
agree upon another place of performance.
12.6. This Contract is governed by Swiss law.
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12.7. All disputes arising in connection with the
present Contract shall be fi ally settled under the
Rules of the Swiss-American Chamber of Commerce1
Zurich. Switzerland. by one or more arbitrators
appointed in accordance with the said rules and
acting as amiable compositors.
Bienne, March 14,1997 San Marcos, 3/14, 1997
SMH AUTOMOBILE S A ELECTROSOURCE, INC.
/s/ R. Darwish /s/ Michael G. Semmens
/s/ H. Renstsch
Exhibit 10.42
SUMMARY CONTRACT AMENDMENT TERMS
for
FRAME DEVELOPMENT CONTRACT
between
SMH AUTOMOBILE S.A. and ELECTROSOURCE, INC.
1. After acceptance of a B3 pack, SMH pays U.S.$160,000 for
design (includes all B design). Acceptance will be done in
Laredo with the first pack before the end of the week
beginning November 10, 1997. The money will then be wire
transferred to ELSI on November 17, 1997 at the latest.
2. The first B3 pack was delivered to SMH at Laredo, Texas on
November 6, 1997. ELSI delivers a second pack of B3 to
Laredo the week beginning November 10, 1997 and ships two B3
packs to Biel the week beginning November 17, 1997. Two
further B3 packs shall be shipped from ELSI on Friday
November 21, 1997 to SMH, with the destination to be
designated on November 19, 1997 by SMH. After delivery and
short tests (1 week in Biel), SMH pays for the 6 packs per
the September 5, 1997 Quote from ELSI (a copy of which is
attached): U.S.$39,563.97 per complete pack, later delivery
shall not be accepted.
3. A new B4 battery should be delivered by the end of the first
quarter 1998, with specifications to be mutually agreed upon
by December 1, 1997 by SMH and ELSI in replacement of the
Phase B specification in the Frame Development Agreement.
4. The Frame Development Contract is not otherwise amended or
modified except as specifically set forth herein
AGREED TO this 12th day of November, 1997.
ELECTROSOURCE, INC. SMH AUTOMOBILE S.A.
By: /s/ Gary R. Sams By: /s/ R Darwish /s/ P. Aebersold
Printed Name: Gary Sams Printed Name:
Title: VP Contracts & Programs Title:
Exhibit 10.51
DIRECTOR INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made this 3rd day of March, 1997,
between Electrosource, Inc., a Delaware corporation
("Corporation") and Richard E. Balzhiser ("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 Deductible
National Union Fire Insurance 483-68-89 $2,000,000
Security Claims $250,000
Company of Pittsburgh, PA Other
Claims $100,000
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.
By: /s/ Michael G. Semmens
Michael G. Semmens
President
DIRECTOR
/s/ Richard E. Balzhiser
Richard E. Balzhiser
Exhibit 10.52
DIRECTOR INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made this 26th day of August, 1997,
between Electrosource, Inc., a Delaware corporation
("Corporation") and Earl E. Gjelde ("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 Deductible
National Union Fire Insurance 486-03-72 $2,000,000
Security Claims $250,000
Company of Pittsburgh, PA Other
Claims $100,000
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.
By: /s/ Michael G. Semmens
Michael G. Semmens
President
DIRECTOR
/s/ Earl E. Gjelde
Earl E. Gjelde
Exhibit 24.1
Consent of Independent Auditors
We consent to the incorporation by reference in: (i) the
Registration Statement Number 33-21598 on Form S-8, (ii) the
Registration Statement Number 33-49040 on Form S-8 and (iii) the
Registration Statement Number 33-64110 on Form S-8 pertaining to
the 1987 Stock Option Plan of Electrosource, Inc.; (i) the
Registration Statement Number 33-22223 on Form S-8, (ii) the
Registration Statement Number 33-35856 on Form S-8, (iii) the
Registration Statement Number 33-49042 on Form S-8 and (iv) the
Registration Statement Number 33-64108 on Form S-8 pertaining to
the 1988 Non-Employee Director Stock Option Plan of
Electrosource, Inc.; the Registration Statement Number 33-65386
on Form S-8 pertaining to the 1993 Non-Employee Consultant Stock
Option Plan of Electrosource, Inc.; the Registration Statement
Number 33-63363 on Form S-8 pertaining to the 1994 Stock Option
Plan of Electrosource, Inc.; the Registration Statement Number 33-
31101 on Form S-8 pertaining to the 1996 Stock Option Plan of
Electrosource, Inc.; the Registration Statement (Amendment Number
2 to Form S-3 Number 33-63361) and related Prospectus for the
registration of 185,934 shares of Electrosource, Inc. common
stock; the Registration Statement (Form S-3 Number 333-04637) and
related Prospectus for the registration of 80,610 shares of
Electrosource, Inc. common stock; the Registration Statement
(Form S-3 Number 333-10715) and related Prospectus for the
registration of 1,231 shares of Electrosource, Inc. common
stock; and the Registration Statement (Form S-3 Number 333-25659)
and related Prospectus for the registration of 437,674 shares of
Electrosource, Inc. common stock of our report dated February
28, 1998, except for Note P, as to which the date is March 20,
1998, with respect to the financial statements of Electrosource,
Inc., included in this Annual Report on Form 10-K for the year
ended December 31, 1997.
/s/ Ernst & Young LLP
Austin, Texas
March 27, 1998
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