SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date of Report (date of earliest event reported): June 3, 1998
ELECTROSOURCE, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-16323 74-2466304
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification Number)
incorporation)
2809 Interstate 35 78666
South,
San Marcos, Texas
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including (512) 753-6500
area code:
Previous address:
(Former name or former address, if
changed since last report)
Item 1. Changes in Control of Registrant.
On June 2, 1998, the Company entered into an Agreement with
Kamkorp, Ltd., ("Kamkorp") a company organized in the United
Kingdom, for up to $6 million of equity funding. The principal
shareholders of Kamkorp are Kamal Siddiqi, Clifford Winckless and
Roger Musson, who also serve as its directors. The Agreement
provides that Kamkorp has the right to purchase an aggregate of 6
million shares for cash at $1.00 per share and grants Kamkorp an
option to purchase an additional 3 million shares of the
Company's Common Stock at $1.00 each for cash or, with the
agreement of the Company, for services. Under the terms of the
Agreement, Kamkorp purchased $1.2 million of the Company's Common
Stock at $1.00 per share at closing. The Company expects Kamkorp
to purchase an additional $1.5 million of the Company's Common
Stock at $1.00 per share on or before June 15, 1998 and to
purchase up to an additional $3.3 million of the Company's Common
Stock at $1.00 per share over an 11-month period beginning
September 1998. Kamkorp's obligation to advance funds in excess
of the initial $1.2 million is subject to certain conditions
precedent. There is no guarantee or assurance that the full $6
million of the Company's Common Stock will be purchased by
Kamkorp.
Kamkorp has the ability to obtain greater than 50% of the
outstanding Common Shares of the Company on a fully-diluted basis
under the terms of the Agreement and ultimately have Board
control. On June 2, 1998, Kamkorp nominated and the Company's
Board appointed three (3) directors to the Board for a total of
eleven (11) directors. These new directors are Kamal Siddiqi,
Clifford Winckless and Roger Musson, the principal shareholders
of Kamkorp. In accordance with the terms of the Agreement,
Kamkorp is entitled to a number of representatives on the Board
of Directors equal to at least one-third of the members of the
Board. Accordingly, Kamkorp may nominate one additional director
if it so chooses. Additionally, the Company must obtain express
approval of Kamkorp for all important management policies and
decisions which include the following:
a. the issuance of Common Stock or any security which
provides for the right to acquire Common Stock, or any
other capital stock of the Company,
b. overall policy decisions relating to business
direction and manufacturing capacity,
c. any agreement or commitment that materially
affects or modifies the intellectual property owned by
the Company,
d. approval of the annual operating budget, capital
budget, overhead budgets and business plans of the
Company,
e. approval of any merger, consolidation, partnership
or joint venture,
f. approving the transfer of any assets of the
Company with a fair market value greater than $100,000,
g. incurring indebtedness for borrowed money,
granting any material pledge or security interest in
the assets of the Company,
h. increasing the size of the Company's board of
directors,
i. amending the Company's certificate of
incorporation or bylaws,
j. entering into any transaction involving an amount
greater than, or having a value in excess of $100,000
or involving a term or commitment for more than 12
months, and
k. other various management policies and decisions.
Kamkorp is now the record owner of 1,200,000 shares or 20.9%
of the Company's 5,734,531 current outstanding shares of Common
Stock and the beneficial owner of 9 million shares or 66.5% of
the Company's Common Stock (assuming purchase of the full 6
million shares available under the Agreement and full exercise of
the option to purchase 3 million shares). The Company granted
Kamkorp registration rights with respect to all shares purchased
directly and all shares acquired upon exercise of the option.
The parties anticipate that Kamkorp and its affiliates will
place significant orders for Electrosource's HORIZON batteries,
which may total up to 5,800 batteries for delivery during the
second half of 1998 and up to 72,000 batteries for delivery
during 1999. The Company is obligated to establish a dedicated
manufacturing line for production of batteries to fill these
orders. Battery production at these levels would require
significant expansion of plant capacity. The Company has not yet
identified sources of financing for such expansion and there can
be no assurance that such financing will be available. Further,
Kamkorp is not contractually obligated to purchase any minimum
amount of batteries, and there is no guarantee or assurance that
any batteries will be ordered by, or delivered to, Kamkorp.
Item 5. Other Events.
The Company reached an agreement with Corning Incorporated
("Corning") to pay $1.5 million in cash, on or before June 15,
1998 to retire all of the convertible debt and accrued interest
owed to Corning. The Company anticipates that these funds will
be provided by Kamkorp as part of the total $6 million financing.
Kamkorp's obligation to purchase additional shares of Common
Stock to fund the payment to Corning is subject to a number of
conditions precedent. The Company and Corning concluded their
joint Research and Development Agreement at the end of May, and
Corning has informed the Company that it was eliminating its
energy technology division.
On June 3, 1998, the Company executed a new lease for its
facilities in San Marcos, Texas. The new lease takes effect
October 1, 1998 and contains the same rental rates as the current
lease.
The Company received notice on June 8, 1998 from SMH
Automobile of termination of the development contract between the
Company and SMH. The stated reason for termination was problems
with the Company meeting contractual requirements. The Company
is preparing a response to the notice.
Item 7. Financial Statements and Exhibits.
4.1 Stock Purchase Agreement between Electrosource,
Inc. and Kamkorp Limited dated June 2, 1998
4.2 Registration Rights Agreement between
Electrosource, Inc. and Kamkorp Limited dated June
2, 1998
10.1 SMH Automobile letter to Electrosource, Inc. dated
June 4, 1998
20.1 Electrosource, Inc. press release dated June 3,
1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
ELECTROSOURCE, INC.
By: /s/ James M. Rosel
James M. Rosel
Vice President Finance
and General Counsel
Date: June 11, 1998
Washington, D.C. 20549
________________________________________
EXHIBITS TO
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date of Report (date of earliest event reported): June 3, 1998
__________________________________________
ELECTROSOURCE, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-16323 74-2466304
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification Number)
incorporation)
2809 Interstate 35 78666
South,
San Marcos, Texas
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including (512) 753-6500
area code:
Previous address:
(Former name or former address, if
changed since last report)
INDEX TO EXHIBITS
No. Description Page
4.1 Stock Purchase Agreement between Electrosource, 7
Inc. and Kamkorp Limited dated June 2, 1998
4.2 Registration Rights Agreement between 51
Electrosource, Inc. and Kamkorp Limited dated June
2, 1998
10.1 SMH Automobile letter to Electrosource, Inc. dated 64
June 4, 1998
20.1 Press release dated June 3, 1998 65
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made and
entered into as of June 2, 1998 (the "Execution Date"), by and
between Electrosource, Inc., a Delaware corporation (the
"Seller"), and Kamkorp Limited, a private limited company
registered in England (together with any permitted assigns, the
"Buyer").
RECITALS
A. The Seller has the authority to issue the Shares and
the Option (each as defined below) in accordance with the terms
and conditions set forth herein.
B. The Seller desires to sell the Shares and issue the
Option, and the Buyer desires to purchase the Shares and acquire
the Option, for the consideration and upon the terms and subject
to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing, and for
other consideration, the receipt and sufficiency of which are
acknowledged, the parties agree as follows:
1. Authorization of Shares; Option. On or before the Closing
Date, the Seller will:
1.1 Authorize the issuance and sale to the Buyer of six
million (6,000,000) shares (the "Initial Shares") of the
Seller's voting common stock, par value $1.00 per share (the
"Common Stock"); and
1.2 Authorize the issuance to the Buyer of an option (the
"Option") to acquire up to an additional three million
(3,000,000) shares of Common Stock (the "Option Shares" and,
together with the Initial Shares, the "Shares") at a price of
$1.00 per share (the "Option Price"), exercisable at any time or
times during the Option Exercise Period (as defined below).
2. Purchase and Sale of Initial Shares.
2.1 Purchase Price and Delivery of Shares. Subject to the
terms and conditions in this Agreement, the Buyer will purchase
the Initial Shares from the Seller for an amount equal to $1.00
per share, or a total of $6,000,000 (the "Purchase Price"). The
Purchase Price shall be paid, and the Initial Shares shall be
issued, in accordance with the following:
(a) At the Closing (as defined below), (i) the Buyer
shall pay to the Seller $1,200,000 (the "Initial Payment") of
the Purchase Price in cash, payable by wire transfer or delivery
of other immediately available funds to such account as the
Seller shall designate not fewer than two (2) Business Days
prior to the Closing Date, and (ii) the Seller shall issue and
deliver to the Buyer 1,200,000 of the Initial Shares (the
"Closing Date Shares"). "Business Day" means a day other than a
Saturday, Sunday or other day on which commercial banks in the
City of New York are authorized or required by law or executive
order to close.
(b) The remainder of the Purchase Price and any other
portion of the Outstanding Balance then owing shall be due and
payable in full on or before the last day of the last month
listed on Schedule 2.2(c) hereto (the "Final Payment Date"), net
of any Called Amounts (as defined below) paid by the Buyer
before the Final Payment Date. "Outstanding Balance" means, as
of a given date, the aggregate amount that the Buyer owes to the
Seller as payment for the Shares, including (i) the remaining
balance of the Purchase Price, and (ii) interest accrued
pursuant to Section 2.2(d)(i).
(c) The remainder of the Initial Shares shall be
issued by the Seller immediately upon receipt by the Seller of
each remaining portion of the Purchase Price, based on a rate of
one Initial Share issued per $1.00 of Purchase Price paid.
2.2 Call Notices.
(a) Once every calendar month commencing September
1998, until the Final Payment Date, the Seller may request
partial payment of the Outstanding Balance from the Buyer by
delivering to the Buyer a monthly notice ("Call Notice").
(b) Each Call Notice shall include all of the
information set forth in subsections (i) through (iv) below, and
may at the Seller's option contain the information set forth in
subsection (v) below:
(i) The current Outstanding Balance.
(ii) The Minimum Call Amount.
(iii) Wiring instructions.
(iv) A certificate, executed by an officer of the
Seller on its behalf, certifying that (x) the representations
and warranties of the Seller contained in Section 4.1 are true
and correct in all material respects (in the case of any
representation or warranty without any materiality
qualification) and in all respects (in the case of any
representation or warranty with any materiality qualification)
as of the date of the Call Notice (the "Subsequent Draw Date"),
except for any representation or warranty made as of a
particular date, and all covenants of the Seller contained in
Section 6 continue to have been complied with through the
Subsequent Draw Date, and (y) that each of the statements set
forth in Sections 7.1(b)(i), 7.1(b)(ii), 7.1(b)(iii) and
7.1(b)(ix) (as if the phrase "or the Buyer" were omitted from
Section 7.1(b)(ix)) are true and correct in all respects as of
the Subsequent Draw Date (the "Call Certificate").
(v) Any Additional Call Amount, provided that
the Seller shall also include all financial information and
other information necessary to clearly inform Buyer as to what
circumstances require the Additional Call Amount.
(c) "Called Amount" means the Minimum Call Amount and
the Additional Call Amount. "Additional Call Amount" means an
amount in excess of the Minimum Call Amount that the Seller has
elected to request from Buyer. "Minimum Call Amount" means,
for each monthly Call Notice, the amount set forth on Schedule
2.2(c) for that particular month; provided, however, that if the
Buyer chooses to pay the Seller an Additional Call Amount at any
time before the Final Payment Date or elects to make an Advance
Payment (as defined in Section 2.2(f)), then:
(i) Subject to Section 2.2(c)(ii), the Minimum
Call Amount for each remaining month shall be reduced by an
amount equal to the Additional Call Amount and/or Advance
Payment so paid divided by the number of remaining monthly Call
Notices to be delivered by the Seller (excluding for purposes of
this calculation the number of months having a Minimum Call
Amount of zero immediately prior to the payment of such
Additional Call Amount and/or Advance Payment);
(ii) If the reduction of any Minimum Call Amount
otherwise required pursuant to clause 2.2(c)(i) is greater than
the Minimum Call Amount (prior to the reduction), then that
Minimum Call Amount shall be reduced to zero and all remaining
positive Minimum Call Amounts shall be reduced pro-rata by the
amount of such excess.
(d) All Minimum Call Amounts requested pursuant to a
Call Notice accurately satisfying the requirements of Sections
2.2(a) and 2.2(b) (a "Satisfactory Notice") shall be made by the
Buyer within twenty (20) Business Days of receipt of such
Satisfactory Notice (the "Payment Period").
(i) In the event the Buyer has not paid the
Minimum Call Amount in a Satisfactory Notice by the end of the
Payment Period, then the Minimum Call Amount shall become
immediately payable, plus interest on the unpaid portion of the
Minimum Call Amount, at the Prime Rate plus two percent (2%),
compounded annually, calculated from the first Business Day
after the end of the Payment Period until the date such Minimum
Call Amount (or portion thereof) is paid in full (including
accrued interest thereon). In no event shall the Buyer be
obligated to pay any Additional Call Amount or be liable for
interest on any such Additional Call Amount. For purposes
hereof, the "Prime Rate" means the prime or base rate for
unsecured loans to large commercial borrowers, as reported in
The Wall Street Journal (Eastern Edition) on a specified date
(or, if The Wall Street Journal publishes a range of interest
rates denominated as "prime rates" on such date, the average of
such rates). In the absence of such publication for any reason,
the Prime Rate shall be determined by the parties in good faith
from other available sources.
(ii) In the event the Seller has transmitted a
Satisfactory Notice and the Buyer has not paid the Minimum Call
Amount (plus accrued interest, if any) at any time after the
Payment Period, the Seller may, at its election and subject to
any rights (including any rights to indemnification for
misrepresentations contained herein and not discovered prior to
the date of termination) that have accrued as of the date of
termination, terminate the remaining obligations of Buyer and
Seller under this Agreement, including without limitation the
obligation of Buyer to pay the accrued but unpaid interest
attributable to such unpaid Minimum Call Amount or any remaining
portion of the Outstanding Balance.
(e) The Buyer Board Representatives (as defined
below) shall recuse themselves from a decision of the board of
directors of the Seller (the "Board of Directors") relating to
any Call Notice or the enforcement thereof.
(f) Notwithstanding any of the foregoing in this
Section 2.2, the Buyer shall have the right at any time and from
time to time on or before the Final Payment Date to pay all or
any part of the Outstanding Balance regardless of whether Buyer
has received a Call Notice for such portion (an "Advance
Payment"), and upon the Seller's receipt of such Advance
Payment, the Seller shall immediately issue a number of Shares
equal to the portion of the Outstanding Balance paid.
2.3 The Closing. The closing (the "Closing") of the
Transactions (as defined below) shall take place at such
location in the United States as the parties may mutually agree,
on a date mutually selected by the Buyer and Seller not later
than June 5, 1998 (the "Closing Date").
2.4 Deliveries at the Closing. At the Closing, (i) the
Seller will deliver to the Buyer the various certificates,
instruments and documents referred to in Section 7.1(a), and
(ii) the Buyer will deliver to the Seller the certificates
documents and payment referred to in Section 7.2(a).
2.5 Delivery of Unsatisfactory Call Notice. In the event
that the Seller delivers a Call Notice to the Buyer that Buyer
in good faith believes does not satisfy the requirements of
Sections 2.2(a) and 2.2(b) (an "Unsatisfactory Call Notice"),
then the Buyer shall notify the Seller within five (5) Business
Days of such failure, explaining in reasonable detail the nature
and basis for such belief. The Seller shall have five (5)
Business Days from the date the Buyer's notice is delivered to
cure the Unsatisfactory Call Notice, during which time Buyer's
obligation to pay the Minimum Call Amount shall be tolled.
(a) If the Seller is able to cure the Unsatisfactory
Call Notice and deliver a replacement Satisfactory Call Notice,
then the Buyer shall be obligated to proceed based on the
Satisfactory Call Notice and the Subsequent Draw Date shall be
the date the Satisfactory Call Notice was delivered.
(b) If the Seller fails to deliver a Satisfactory
Call Notice, then the Buyer may, within thirty (30) days of the
Unsatisfactory Call Notice, elect (by giving written notice to
Seller) to do either of the following: (x) not make any further
payments of the Outstanding Balance; or (y) withhold any such
further payments unless and until the reason for such
Unsatisfactory Call Notice is cured.
(c) Notwithstanding any of the foregoing, the Buyer
may at any time send a Claim Notice in accordance with, and
subject to, Section 8.4.
3. Issuance and Exercise of the Option.
3.1 Issuance of the Option. On the Closing Date, subject
to the terms and conditions set forth herein, the Seller shall
issue the Option to the Buyer.
3.2 Exercise of the Option.
(a) At any time and from time to time on or after
the Closing Date, the Buyer may exercise its Option to purchase
part or all of the Option Shares by sending the Seller a written
notice of such election (an "Option Notice"), which Option
Notice shall specify the number of shares to be purchased and
shall be accompanied by an amount equal to the product of (x)
$1.00 and (y) the number of Exercised Shares set forth in the
Option Notice (the "Option Payment").
(b) Within three (3) Business Days of receipt of an
Option Notice, the Seller shall issue to the Buyer the number of
Option Shares exercised pursuant to such Option Notice (the
"Exercised Shares").
(c) In connection with the Transactions (as defined
in Section 4.1(g)), the parties intend to enter into an
agreement pursuant to which the Buyer may provide certain
services, technology, licenses, intellectual property, or other
assets to the Seller (a "Services Agreement"). The parties
intend for all or a part of such services and/or assets to be
paid for by the Seller by issuing Common Stock to the Buyer,
which will be valued at $1.00 per share and, when issued to the
Buyer, shall reduce on a share by share basis the number of
unexercised Option Shares. In the event a Services Agreement is
reached, the parties intend that, so long as the number of
Exercised Shares is less than the number of Option Shares, the
shares of Common Stock that may be issued from time to time
pursuant to such Services Agreement shall be deemed Exercised
Shares, but no other Option Payment shall be due from the Buyer
in connection with such shares or such issuance. In the event
compensation is due under a Services Agreement and all Option
Shares have been issued, the Buyer may, but need not, agree to
accept such compensation in the form of Common Stock.
(d) If the Seller 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 number of shares of Common Stock that were
previously issuable pursuant to the option shall be
proportionately increased and the Option Price in effect
immediately prior to such subdivision will be proportionately
reduced, and if the Seller at any time combines (by reverse
stock split or otherwise) its outstanding shares, the number of
shares of Common Stock that were previously issuable pursuant to
the option shall be proportionately decreased and the exercise
price in effect immediately prior to such combination will be
proportionately increased.
(e) Any reorganization, reclassification,
consolidation, merger or sale of all or substantially all of the
Seller's assets to another entity that is effected in a 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 Seller will make
appropriate provisions (in form and substance satisfactory to
the Buyer) to insure that the Buyer, as holder of the Option
(for so long as the Buyer has the right to exercise the Option)
will 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 the Buyer would have received in connection with such
Organic Change if the Buyer had exercised the Option immediately
prior to such Organic Change. In any such case, the Seller will
make appropriate provisions (in form and substance satisfactory
to the Buyer) to insure that the provisions of this Section
3.2(e) will thereafter (for so long as the Buyer has the right
to exercise the Option) be applicable to the Option.
(f) There have been reserved, and the Seller shall at
all times keep reserved, free from preemptive rights, out of its
authorized common stock, the number of shares of common stock
sufficient to provide for the exercise of the Option. The
transfer agent and every subsequent transfer agent for any
shares of the Seller's common stock issuable upon exercise of
the Option shall be irrevocably authorized and directed at all
times to reserve such number of authorized shares of common
stock of the Seller as shall be required for such purpose. Each
transfer agent for the common stock of the Seller is hereby
irrevocably authorized to cause to be issued from time to time
the stock certificates required to honor the Option upon
exercise thereof in accordance with the terms thereof. The
Seller will supply such transfer agent with duly executed stock
certificates for such purpose.
(g) The Buyer's right to exercise the Option shall
expire upon the later of (x) five (5) years from the Closing
Date, and (y) the date on which Corning Incorporated shall no
longer have any right or ability to acquire from the Seller
shares of Common Stock or preferred stock pursuant to the terms
of the Corning Notes (the "Option Exercise Period"). "Corning
Notes" means all of the following: (i) that certain Note
Purchase and Option Agreement, dated as of March 27, 1997,
between Seller and Corning Incorporated; (ii) that certain Note
Purchase Agreement, dated as of December 19, 1997, between
Seller and Corning Incorporated; (iii) that certain 5%
Convertible Promissory Note, dated December 27, 1997 between
Seller and Corning Incorporated; (iv) that certain 5%
Convertible Promissory Note, dated March 27, 1998 between Seller
and Corning Incorporated; and (v) any and all other convertible
securities arising from, or issued pursuant to, any of the
foregoing.
4. Representations and Warranties.
4.1 Representations by Seller. The Seller represents and
warrants to the Buyer that the statements contained in this
Section 4.1 are correct and complete as of the Execution Date
and, except for any representation or warranty made as of a
particular date, will be correct and complete as of the Closing
Date as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this
Section 4.1.
(a) Organization; Qualification.
(i) The Seller 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 that does not have, and is not reasonably
likely to have, a material adverse effect on the condition,
prospects, properties, business or results of operations of the
Seller or the interest of shareholders in the Seller (a
"Material Adverse Effect"). The Seller has the requisite
corporate power and authority to carry on its businesses as they
are now being conducted.
(ii) A true and complete copy of the Certificate
of Incorporation and Bylaws of the Seller is attached as
Schedule 4.1(a)(ii)hereto.
(iii)Other than this Agreement, no agreement
among the security holders of the Seller exists in which the
Seller, any director or any officer is a party and, to the
actual knowledge of the Seller, no other agreement among the
security holders of the Seller exists.
(b) Capital Stock. The authorized capital stock of
the Seller as of the Execution Date consists of 50,000,000
shares of Common Stock, of which 4,534,531 shares are issued and
outstanding as of the Execution Date and the Closing Date, and
none was held in treasury, and 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 Execution Date or
the Closing Date. All of the outstanding shares of Common Stock
have been duly authorized and are validly issued, fully paid and
nonassessable. As of the Execution Date and the Closing Date,
there are outstanding securities of the Seller convertible into,
and outstanding options and warrants to purchase, an aggregate
of no more than 8,965,246 shares of Common Stock. The Seller
has 8,965,246 shares of Common Stock reserved for issuance
pursuant to outstanding options, warrants, conversion rights and
any stock option plans. Attached as Schedule 4.1(b) is a
current, complete and accurate chart of outstanding convertible
securities, options, warrants and similar Contracts (as defined
in Section 4.1(f)), including the terms governing the exercise
and conversion of each such security.
(c) The Shares. Each of the Shares, when issued and
paid for in compliance with the provisions of this Agreement,
including without limitation those issued upon exercise of the
Option in accordance herewith, will be duly authorized, fully
paid, nonassessable and validly issued, and will be free of any
liens and encumbrances created by the Seller. The issuance of
the Shares will not be subject to any preemptive rights or
rights of first offer or first refusal created by the Seller.
(d) Corporate Authority. The Seller has the
requisite corporate power and authority and has taken all
corporate action (including any necessary security holder action
except as may be required by NASD Marketplace Rule
4310(c)(25)(H)(i)(b)) necessary in order to authorize, execute
and deliver this Agreement and all other Transaction Documents
(as defined in Section 4.1(g)) and to consummate the
Transactions (as defined in Section 4.1(g)) contemplated hereby
and to perform the acts contemplated on its part hereunder.
(e) Compliance with Law, Other Agreements. The
offer, sale and issuance of the Shares 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. Without limiting
any of the foregoing, the execution and delivery of this
Agreement and the other Transaction Documents do not, and the
consummation of the Transactions will not: (i) violate any
statute or law or any rule, regulation, order, writ, injunction,
arbitration award, or decree of any court, administrative or
governmental agency, instrumentality, commission, authority,
board or other body (a "Governmental Authority"), (ii) except as
set forth on Schedule 4.1(e) hereto, require any authorization,
consent, approval, exemption or other action by or notice to any
Governmental Authority or third party, (iii) constitute or
result in a breach or violation of, or a default under, the
Certificate of Incorporation or Bylaws of the Seller, or (iv)
constitute or result in 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 (in each case 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 Seller or its assets are
bound or any governmental or nongovernmental authorization,
consent, approval, registration, franchise, license or permit
under which the Seller conducts its business.
(f) No Current Default. The Seller is not in
violation of any term of its Certificate of Incorporation or
Bylaws. Except as may be disclosed on Schedule 4.1(f) hereto,
and except where the failure to comply would not have a Material
Adverse Effect, the Seller has complied in all respects with all
agreements, leases, contracts, licenses, instruments, notes,
mortgage, indentures, or other obligations, commitments,
understandings, undertakings and arrangements, whether written
or oral ("Contracts") to which the Seller is a party or by which
the Seller or its assets are bound or subject. 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 that would
constitute an event of default would result in a Material
Adverse Effect.
(g) Authorization, Validity and Effect of
Transactions and Transaction Documents. The execution and
delivery of this Agreement and all other Transaction Documents
(as defined below) by the Seller, and the consummation by it of
the transactions contemplated hereby and thereby (the
"Transactions"), have been duly authorized by all requisite
corporate action. This Agreement constitutes, and all other
agreements and documents contemplated hereby, including (i) the
severance agreements, in the form attached as Exhibit A, with
each of the following: Michael G. Semmens, William F. Griffin,
James M. Rosel, Mary Beth Koenig, Charles L. Mathews, Chris
Morris, Benny E. Jay, and Ajoy Datta (the "Severance
Agreements"), (ii) the Registration Rights Agreement (together
with this Agreement, the "Transaction Documents"), which are to
be executed and delivered by the Seller, when executed and
delivered pursuant hereto, will constitute the valid and legally
binding obligations of the Seller, enforceable in accordance
with their respective terms.
(h) No Fees. No investment banker, broker or finder
is entitled to any financial advisory, brokerage or finder's fee
or other similar payment from either the Buyer or the Seller
based on agreements, arrangements or undertakings made by the
Seller or any of its directors, officers or employees in
connection with the transactions and acts contemplated hereby,
except as may be disclosed in Schedule 4.1(h) hereto.
(i) No Misrepresentation or Omission. In furnishing
information to the Buyer for purposes of this Agreement, the
Seller 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.
(j) Intellectual Property. "Intellectual Property"
means any and all of the following: trademarks, service marks,
trade names, trade dress, logos, domain names, copyrights and
similar rights, including registrations and applications to
register or renew the registration of any of the foregoing,
patents and patent applications, and inventions, processes,
designs, compositions, methods, formulae, trade secrets, know-
how, confidential business and technical information, including
but not limited to order guides, customer lists, product
specifications and pricing information, computer software,
firmware, data and documentation, and all similar intellectual
property rights, tangible embodiments of any of the foregoing
(in any medium including electronic media), and licenses of any
of the foregoing.
(i) Schedule 4.1(j)(i) sets forth a complete and
correct list of all Intellectual Property that is owned by the
Seller and related to the business of the Seller ("Owned
Intellectual Property"), except for any Owned Intellectual
Property that consists of (A) inventions, trade secrets,
processes, formulae, compositions, methods, designs, know-how
and confidential business and technical information and (B)
Intellectual Property that is not registered or subject to
application for registration or that is not material to the
business, operations, assets, liabilities and properties of the
Seller (the "Business").
(ii) The Owned Intellectual Property and the
Intellectual Property used pursuant to licenses and other
Contracts (together, the "Seller Intellectual Property")
constitute all the material Intellectual Property owned, used or
held by the Seller for use in the conduct of the business of the
Seller. The Seller owns or has valid rights to use all such
Seller Intellectual Property without conflict with the rights of
others. The Seller has the right to use the Seller Intellectual
Property for the life thereof free from (A) any lien, charge,
pledge, claim, security interest, deed of trust, right of others
or other encumbrance (an "Encumbrance") except for the
Encumbrances set forth on Schedule 4.1(j)(ii) ("Permitted
Encumbrances") and (B) any requirement of any past, present or
future royalty payments, license fees, charges or other
payments, or conditions or restrictions whatsoever, except as
set forth in Schedule 4.1(j)(ii). Immediately after the
Closing, the Seller shall own or have licensed to it all the
Seller Intellectual Property, in each case free from
Encumbrances (except for Permitted Encumbrances) and on the same
terms and conditions as in effect prior to the Closing, except
as otherwise disclosed in Schedule 4.1(j)(ii).
(iii)Except as set forth in Schedule 4.1(j)(iii)
hereto, no claim or demand of any Person has been made or, to
the knowledge of the Seller, threatened, nor is there any
Litigation (as defined below) that is pending or, to the
knowledge of the Seller, threatened, that (A) challenges the
rights of the Seller in respect of the Seller Intellectual
Property, (B) asserts that the operation of the Business of the
Seller is in violation of, is infringing or otherwise in
conflict with, or is (except as set forth in Schedule
4.1(j)(ii)) required to pay any royalty, license fee, charge or
other amount with regard to, any Intellectual Property, or (C)
claims that any default exists under any Contract. To the
knowledge of the Seller, no third party is in violation of or is
infringing upon the Seller Intellectual Property nor is the
Seller Intellectual Property available for use by any Person
without a license or permission from the Seller. To the best of
Seller's actual and reasonable knowledge, information and
belief, the conduct of the Business does not infringe or
otherwise conflict with any rights of any Person in respect of
any Intellectual Property.
(iv) None of the Seller Intellectual Property is
subject to any outstanding order, ruling, decree, judgment or
stipulation ("Order") by or with any court, tribunal, arbitrator
or other Governmental Entity, or has been the subject of any
Order or Litigation within the last ten years. Except as set
forth on Schedule 4.1(j)(iv), the Owned Intellectual Property
has been duly registered with, filed in or issued by, as the
case may be, the United States Patent and Trademark Office, the
United States Copyright Office or other filing offices, domestic
or foreign, to the extent necessary or desirable to ensure full
protection under any applicable law, and the same remain in full
force and effect (except for such failures to register or file
that would not reasonably be expected to have a Material Adverse
Effect). Except as set forth in Schedule 4.1(j)(iv), to the
knowledge of the Seller, the Seller has taken all actions to
ensure full protection of the Seller Intellectual Property
(including maintaining the secrecy of all confidential
Intellectual Property under any applicable law), except where
the failure to take action would not reasonably be expected to
have a Material Adverse Effect.
(v) Except as set forth in Schedule 4.1(j)(v),
all software, firmware, hardware and other technology that
contains or calls on a calendar function, including but not
limited to any function that is indexed to a computer processing
unit clock, provides specific dates or calculates spans of
dates, is able to record, store, process and provide true and
accurate dates and calculations for dates and spans of dates
including and following January 1, 2000.
(k) Provision of Information. The Seller has heretofore
delivered or made available to the Buyer complete and correct
copies of all reports and other filings filed by the Seller with
the Securities and Exchange Commission (the "Commission")
pursuant to the Securities Act and the Securities Exchange Act of
1934, as amended (the "Exchange Act" and, together with the
Securities Act, the "Securities Laws") , since January 1, 1994,
through the Execution Date (such reports and other filings are
collectively referred to herein as the "Seller Filings"). Except
as set forth in Schedule 4.1(k) hereto, as of their respective
dates, the Seller Filings complied in all material respects with
the published rules and regulations of the Commission 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
Seller included in the Seller Filings (the "Audited Financial
Statements") (i) were prepared from the books and records of the
Seller, (ii) were prepared in accordance with generally accepted
accounting principles, except as otherwise permitted under the
Securities Laws and the rules and regulations thereunder and
(iii) present fairly in all material respects (y) the financial
position of the Seller as of the dates thereof and (z) the
results of its operations and cash flows for the periods then
ended, subject in each case to the qualifications set forth in
the respective reports of independent auditors thereto. The
unaudited consolidated financial statements included in the
Seller Filings (the "Unaudited Financial Statements" and,
together with the Audited Financial Statements, the "Financial
Statements") comply in all material respects with the published
rules and regulations of the Commission with respect thereto; and
such unaudited consolidated financial statements (A) were
prepared from the books and records of the Seller, (B) were
prepared in accordance with generally accepted accounting
principles, except as otherwise permitted under the Securities
Laws and the rules and regulations thereunder, applied on a
consistent basis (except as may be expressly indicated therein or
in the notes thereto) and (C) present fairly the financial
position of the Seller 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 that would not have a
Material Adverse Effect on the Seller and any other adjustments
expressly described therein or in the notes thereto.
(l) Indebtedness for Borrowed Money; Contingent
Liability. The Seller 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
liability by way of agreement, contingent or otherwise, to
guaranty, act as surety for, 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 Schedule 4.1(l), the Seller is not in default under the
provisions of any instrument evidencing any indebtedness of the
Seller or any agreement relating thereto.
(m) ERISA.
(i) Schedule 4.1(m)(i) lists each employment, bonus
deferred compensation, pension, stock option, stock appreciation
right, profit-sharing or retirement plan, arrangement or practice,
each medical, vacation, retiree medical, severance pay plan, and each
other agreement or fringe benefit plan, arrangement or practice,
of the Seller, whether legally binding or not, that affects one
or more of its employees, including all "employee benefit plans"
(as defined by Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) (each a "Plan" and
collectively, the "Plans").
(ii) For each Plan that is an "employee benefit plan"
under Section 3(3) of ERISA, the Sellers have delivered to the Buyer
correct and complete copies of the plan documents, plan
amendments, and summary plan descriptions, the determination
letters received from the Internal Revenue Service (the "IRS"),
the most recent Form 5500 Annual Report, and all related trust
agreements, insurance contracts and funding agreements that
implement each such Plan.
(iii)The Seller has no commitment, whether formal or
informal and whether legally binding or not, to (A) create any
additional such Plan, (B) modify or change any Plan; or (C)
maintain for any period of time any such Plan.
(iv) None of the Seller, Plan or trustee, administrator,
fiduciary or sponsor of any Plan has engaged in any "prohibited
transactions" (as defined in Section 406 of ERISA or Section 4975
of the Internal Revenue Code of 1986, as amended (the "IRC")) for
which there is no statutory exemption in Section 408 of ERISA or
Section 4975 of the IRC; all filings, reports and descriptions as
to such Plans (including Form 5500 Annual Reports, Summary Plan
Descriptions and Summary Annual Reports) required to have been
made or distributed to participants, the IRS, the United States
Department of Labor or other governmental agency have been made
in a timely manner; there is no material litigation, disputed
claim, governmental proceeding or investigation pending or
threatened with respect to any of such Plans, the related trusts,
or any fiduciary, trustee, administrator or sponsor of such
Plans; such Plans have been established, maintained and
administered in all material respects in accordance with their
governing documents and applicable provisions of ERISA and the
IRC and regulations promulgated thereunder; and each Plan that is
intended to be a "qualified plan" under Section 401(a) of the IRC
has received, within the last forty months, a favorable
determination letter from the IRS.
(v) The Seller has performed all of its
obligations under all Plans. The Seller and Plan are in
compliance, in all material respects, with ERISA, the IRC and
other applicable legal requirements, and with any applicable
collective bargaining agreement.
(vi) The consummation of the Transactions will
not (i) result in the payment or series of payments by the
Seller to any employee or other person of an "excess parachute
payment" within the meaning of Section 280G of the IRC, or (ii),
except as described in Schedule 4.1(m)(vi) hereto, accelerate
the time of payment or vesting of any stock option, stock
appreciation right, deferred compensation, severance, bonus or
other employee benefits under any Plan (including vacation and
sick pay), under severance agreement or otherwise.
(vii)Except as described in Schedule 4.1(m)(vii) hereto,
no Plan that is a "welfare benefit plan" (as defined in Section 3(1)
of ERISA) provides for continuing benefits or coverage after
termination or retirement from employment, except for COBRA
rights under a "group health plan" (as defined in IRC Section
4980B(g) and ERISA Section 607).
(viii)Neither the Seller nor any other entity that
would be treated as a single employer with the Seller under IRC Section
414 ("ERISA Affiliate") has ever participated in or withdrawn
from a multi-employer plan as defined in Section 4001(a)(3) of
Title IV of ERISA, and the Seller has not incurred and does not
owe any liability as a result of any partial or complete
withdrawal by any employer from such a multi-employer plan as
described under Sections 4201, 4203 or 4205 of ERISA.
(ix) Except as described in Schedule 4.1(m)(ix) hereto, neither
the Seller nor any ERISA Affiliate maintains or contributes or
ever has maintained or contributed to any Plan that is subject to
Title IV of ERISA or the minimum funding standards of Section 412
of the IRC.
(n) Labor Relations; Compliance. Except as described in
Schedule 4.1(n) hereto, the Seller is not, and has never been, a
party to any collective bargaining or other labor Contract.
There is not any pending, existing or threatened: (a) strike,
slowdown, picketing, work stoppage or written employee grievance,
(b) proceeding against or affecting the Seller relating to the
alleged violation of any legal requirement pertaining to labor
relations or employment matters, including any charge or
complaint filed by an employee or union with the National Labor
Relations Board, the Equal Employment Opportunity Commission or
any comparable Governmental Authority, organizational activity,
or other labor or employment dispute against or affecting the
Seller or its premises, or (c) any application for certification
of a collective bargaining agent. No event has occurred or
circumstance exists that could reasonably be expected to provide
the basis for any work stoppage or other labor dispute. There is
no lockout of any employee by the Seller, and no such action is
contemplated by the Seller. The Seller has complied in all
material respects with all legal requirements relating to
employment, equal employment opportunity, nondiscrimination,
immigration, wages, hours, benefits, collective bargaining, the
payment of social security and similar taxes, occupational safety
and health and plant closing. The Seller is not liable for the
payment of any material compensation, damages, taxes, fines,
penalties or other amounts, however designated, for failure to
comply with any of the foregoing legal requirements.
(o) Environmental Compliance.
(i) Except as set forth on Schedule 4.1(o)(i), the
Seller has complied and is in compliance with all federal, state,
local and foreign statutes, regulations, ordinances and other
provisions having the force or effect of law, all judicial and
administrative orders, decrees and determinations, all
contractual obligations and all common law concerning public
health and safety, worker health and safety, and pollution or
protection of the environment, including all those relating to
the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution,
labeling, testing, processing, discharge, release, threatened
release, control, or cleanup of any hazardous materials,
substances or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum
products or byproducts, asbestos, polychlorinated biphenyls,
noise or radiation, as such requirements are enacted and in
effect on or prior to the Closing (collectively "Environmental,
Health, and Safety Requirements"), except for such noncompliance
as would not reasonably be expected to have a Material Adverse
Effect.
(ii) Without limiting the generality of any of the
foregoing, the Seller has obtained and complied with, and with respect
to its present facilities is in compliance with, all permits, licenses
and other authorizations that are (or, with respect to its former
facilities, were) required pursuant to Environmental, Health, and
Safety Requirements for the occupation at the relevant time of
its present and former facilities and the operation at the
relevant time of the Seller's business, except for such permits,
licenses or other authorizations the absence of which would not
have a Material Adverse Effect; a list of all such permits,
licenses and other authorizations for the Seller's present
facilities is set forth on Schedule 4.1(o)(ii).
(iii)Without limiting the generality of any of the
foregoing, the Seller has obtained and complied with, and with
respect to its present facilities is in compliance with, all
permits, licenses, and other authorizations that are (or with
respect to its former facilities were when the Seller occupied
them) required at the relevant time pursuant to all
Environmental, Health, and Safety Requirements arising out of,
promulgated by, and/or required by the Occupational Health and
Safety Act and other relevant Governmental Authorities, including
state and local regulatory agencies for the operation of the
Seller's business and its present and former properties and
facilities, except for such permits, licenses, or other
authorizations for the Seller's present facilities (including the
Facility) the absence of which would not reasonably be expected
to have a Material Adverse Effect; a list of all such permits,
licenses and other authorizations is set forth on Schedule
4.1(o)(iii).
(iv) None of the following exists at any present
property or facility owned or operated by the Seller or existed
at any former property or facility at the time owned or operated
by the Seller: (1) underground storage tanks, (2) asbestos-containing
material in any form or condition, (3) materials or equipment
containing polychlorinated biphenyls, except as such may exist in
utility equipment, including without limitation transformers, that
may exist at such property or facility, or (4) landfills, surface
impoundments, or disposal areas.
(v) Except as disclosed on that certain Phase I
Environmental Site Assessment, dated July, 1993, as it relates to
the Facility (the "Environmental Report"), a complete and correct
copy of which have been provided to the Buyer, the Seller has not
treated, stored, disposed of, arranged for or permitted the
disposal of, transported, handled, or released any substance,
including without limitation any hazardous substance, or owned or
operated any property or facility (and no such property or
facility is contaminated by any such substance) in a manner that
has given or would give rise to material liabilities, including
any material liability for response costs, corrective action
costs, personal injury, property damage, natural resources
damages or attorneys' fees, pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980,
as amended, the Solid Waste Disposal Act, as amended, or any
other Environmental, Health, and Safety Requirements.
(vi) The Transaction Documents, and the consummation
of the Transactions, will not result in any obligations for site
investigation or cleanup, or notification to or consent of
government agencies or third parties, pursuant to any of the so-
called "transaction-triggered" or "responsible property transfer"
Environmental, Health, and Safety Requirements.
(vii)Except as disclosed on the Environmental Report,
the Seller has not, either expressly or by operation of law, assumed
or undertaken any liability, including any obligation for
corrective or remedial action, of any other person relating to
Environmental, Health, and Safety Requirements.
(viii)No facts, events or conditions relating to the
past or present facilities, properties or operations of the Seller
will prevent, hinder or limit continued compliance with Environmental,
Health, and Safety Requirements, give rise to any investigatory,
remedial or corrective obligations pursuant to Environmental,
Health, and Safety Requirements, or give rise to any other
liabilities (whether accrued, absolute, contingent, unliquidated
or otherwise) pursuant to Environmental, Health, and Safety
Requirements, including any relating to onsite or offsite
releases or threatened releases of hazardous materials,
substances or wastes, personal injury, property damage or natural
resources damage.
(ix) The Seller has not received any written notice, report or
other information regarding any actual or alleged violation of
Environmental, Health, and Safety Requirements, or any
liabilities or potential liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise), including any
investigatory, remedial or corrective obligations, relating to
the Seller or its facilities arising under Environmental, Health,
and Safety Requirements, except for any notice, report or other
information regarding a violation that would not reasonably be
expected to have a Material Adverse Effect.
(p) Insurance. The Seller maintains insurance to protect the
Seller and its financial condition against the risks involved in
the business conducted by the Seller to the extent and in the
manner customary for companies in similar businesses similarly
situated. Schedule 4.1(p) is a true and complete list, current
as of the date of the Agreement (and to be updated as required on
the Closing Date and on each Subsequent Draw Date, but in no
event so as to reflect any reduction in coverage from the initial
Schedule), of all such insurance policies and the material terms
of each such policy.
(q) Litigation. Except as set forth on Schedule 4.1(q), Seller
has not been served or otherwise notified (in writing or
otherwise) of the commencement, filing, initiation or pendency of
any litigation, action, suit, proceeding or investigation
("Litigation") and, to the actual knowledge of the Seller, there
is no Litigation threatened against or affecting the Seller
before any court, Governmental Authority or other alternative
dispute resolution forum ("ADR Proceeding"). The Seller 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 that 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 Seller) that may have a Material Adverse
Effect on the condition (financial or otherwise), prospects or
operations of the Seller.
(r) Conduct of Business. Since the latest date of the Audited
Financial Statements, and except as disclosed in the Seller
Filings (or on Schedule 4.1(r)) the Seller 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 that, alone or in combination, has had or is reasonably
likely to have a Material Adverse Effect, including:
(i) any adverse change in the assets, liabilities or
business of the Seller from that reflected in the Audited Financial
Statements;
(ii) any damage, destruction or loss of any of the
properties or assets of the Seller (whether or not covered by insurance)
affecting the assets, properties, financial conditions,
operations, prospects, business or plans of the Seller;
(iii)any amendments (written or oral) to (or default or
event that, but for a waiver would have constituted a default
under) a Contract to which the Seller or any of its assets is
bound or subject;
(iv) any declaration, setting aside or payment or other
distribution in respect of any of the Seller's capital stock, or
any direct or indirect redemption, purchase or other acquisition
of any such stock by the Seller;
(v) any waiver by the Seller of a valuable right or
debt owed to it;
(vi) any labor trouble affecting the business or plans
of theSeller.
(s) Taxes. The Seller 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 States of Delaware and Texas 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 Seller has paid, or made adequate provision in the
Financial Statements for the payment of, all taxes, interest,
penalties, assessments or deficiencies (collectively, "Taxes")
shown to be due or claimed to be due on or in respect of such tax
returns and reports. No additional Taxes for any fiscal period
are owed other than those reserved for on the most recent
Financial Statements, and no other tax returns or reports that
are required to be filed have not been timely filed. The Seller
has duly and timely withheld all employment and withholding Taxes
required to be withheld. The Seller has not waived any statute
of limitations or agreed to any extension of the period for
assessment or collection of any Taxes. The Seller is not
currently the beneficiary of any extension of time within which
to file any Tax return or report (including any schedule or
attachment thereto, and including any amendment thereof). No
deficiency in payment of Taxes for any period has been asserted
by any taxing body and remains unsettled.
4.2 Representations by Buyer. The Buyer represents and warrants
to the Seller that the statements contained in this Section 4.2
are correct and complete as of the Execution Date and, except for
any representation or warranty made as of a particular date, will
be correct and complete as of the Closing Date as though made
then and as though the Closing Date were substituted for the date
of this Agreement throughout this Section 4.2.
(a) Organization; Qualification.
(i) The Buyer is a private limited company existing under
the laws of England. The Buyer has the requisite power and authority
to carry on its businesses as they are now being conducted.
(ii) A true and complete copy of the organizational
documents of the Buyer are attached as Schedule 4.2(a)(ii) hereto.
(b) Authority. The Buyer has the requisite power and authority
and has taken all action (including any necessary security holder
action) necessary in order to authorize, execute and deliver this
Agreement and all other Transaction Documents and to consummate
the Transactions contemplated hereby and to perform the acts
contemplated on its part hereunder.
(c) Compliance with Organizational Documents. The execution
and delivery of this Agreement and the other Transaction Documents do
not, and the consummation of the Transactions will not,
constitute or result in a violation of the organizational
documents of the Buyer.
(d) Authorization, Validity and Effect of Transactions and
Transaction Documents. The execution and delivery of this
Agreement and all other Transaction Documents by the Buyer, and
the consummation by it of the Transactions, have been duly
authorized by all requisite corporate action. The Transaction
Documents that are to be executed and delivered by the Buyer,
when executed and delivered pursuant hereto, will constitute the
valid and legally binding obligations of the Buyer, enforceable
in accordance with their respective terms.
(e) Litigation. Except as set forth on Schedule 4.2(e), Buyer
has not been served or otherwise notified (in writing or
otherwise) of the commencement, filing, initiation or pendency of
any Litigation and, to the actual knowledge of the Seller, there
is no Litigation before any Governmental Authority threatened
against or affecting the Buyer that is reasonably likely to
preclude the Buyer's ability to carry out the material terms of
this Agreement.
(f) Purpose. Buyer is purchasing the Shares for its own account
for the purpose of investment and not with a view toward the
redistribution or resale of any thereof. Buyer is not a party to
any arrangement, understanding or agreement for transferring or
disposing of the Shares, provided, however, that the Buyer may
(i) assign any or all of its rights hereunder to an affiliated
entity (including a parent or subsidiary of the Buyer or a joint
venture in which the Buyer or a related party is a principal
joint venturer) and (ii) transfer, assign or convey all or a part
of the Options or the Shares to any such affiliated entity;
provided that Buyer shall remain obligated to perform its
obligations under this Agreement despite such assignment,
transfer or conveyance (unless Buyer and Seller otherwise agree
in writing).
(g) Investment Speculative. Buyer is aware that the
purchase of the Shares represents a speculative investment.
(h) Information Provided. Before executing this Agreement,
representatives of Buyer were furnished all information with
respect to the Seller that they requested and representatives of
Buyer were given the opportunity to ask Seller executives all
questions that such representatives had.
(i) Investment Experience. Buyer is experienced in evaluating
and investing in securities of companies such as Seller and
acknowledges that it is able to fend for itself, can bear the
economic risk of its investment, and has such knowledge and
experience in financial and business matters that it is capable
of evaluating the merits and risks of the investment in the
Shares. Buyer also represents that it has not been organized for
the purpose of acquiring the Shares.
(j) Accredited Investor. Buyer is a corporation not
formed for the specific purpose of acquiring the Shares and having
total assets in excess of $5,000,000.
(k) Restrictions on Sale. Buyer agrees that it will not offer
or sell the Shares unless the Shares are registered under the
Securities Act and under all applicable state securities laws,
unless Buyer has established to the reasonable satisfaction of
the Seller that no such registration is required.
(l) Restrictive Endorsements. Buyer understands and agrees that
appropriate restrictive endorsements will be placed on the
certificate(s) evidencing the Shares to reflect the foregoing and
that the Seller will give appropriate stop transfer instructions
to the person in charge of the transfer of its securities,
including the Shares. Upon request of the holder of such
certificate(s), the Seller shall give an instruction to the
transfer agent to process the transfer and will issue
certificates without such restrictive endorsements if (i) with
such request, the Seller shall have received either (A) an
opinion of legal counsel, addressed to the Seller and reasonably
satisfactory in form and substance to the Seller, or a
certificate of the holder, in each case 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 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 certifies to the
Seller that it is eligible to utilize Rule 144 (or any successor
rule) as then in effect under the Securities Act.
(m) No Fees. No investment banker, broker or finder is
entitled to any financial advisory, brokerage or finder's fee or other
similar payment from either the Buyer or the Seller based on
agreements, arrangements or undertakings made by the Buyer or any
of its directors, officers or employees in connection with the
transactions and acts contemplated hereby.
5. Pre-Closing Covenants. The Seller and Buyer agree as
follows with respect to the period between the Execution Date and
(x) the Closing Date with respect to covenants set forth in
Section 5.4, and (y) the last Subsequent Draw Date with respect
all other covenants in this Section 5:
5.1 Financial Statements and Other Information. The Seller will
deliver to the Buyer substantially contemporaneously with the
date filed (or required to be filed) copies of all reports
required to be filed by the Seller pursuant to the Securities
Laws, including sections 13 or 14 of the Exchange Act.
5.2 Operation of Business. Except with the express written
consent of the Buyer, the Seller will not engage in any practice,
take any action, or enter into any transaction outside the
ordinary course of business consistent with past practice.
Without limiting the generality of the foregoing, the Seller will
not, during such time, without the express written consent of the
Buyer: (i) declare, set aside, or pay any dividend or make any
distribution with respect to its capital stock or redeem,
purchase or otherwise acquire any of its capital stock or
securities convertible into or providing for the right to acquire
such capital stock, (ii) except as set forth on Schedule 5.2 and
except as to existing stock option plans, stock purchase plans or
restricted stock plans for employees, directors and consultants,
enter into any agreement for the issuance, sale or exchange of
(or issue, sell or exchange) any Common Stock or any security
convertible into Common Stock, or (iii) amend, renegotiate, or
alter the terms of any Contract to provide for, or amend any
Contract currently providing for, the issuance, sale or exchange
of (or issue, sell or exchange) any Common Stock or any security
convertible into Common Stock.
5.3 Notice of Developments. The Seller will give prompt notice
to the Buyer of any development that has caused or is reasonably
likely to cause (i) a breach of any of the representations and
warranties set forth in Section 4, or (ii) a Material Adverse
Effect.
5.4 Exclusivity. The Seller will not (i) solicit or encourage
inquiries or proposals with respect to, furnish any information
relating to, or participate in the negotiations or discussions
concerning, any acquisition or purchase of all or a substantial
portion of the assets of, or a substantial equity interest in,
the Seller or any affiliate of the Seller or any business
combination other than as contemplated by this Agreement; (ii)
authorize any officer, director, agent or affiliate of the Seller
or any affiliate of the Seller to do any of the above; or (iii)
fail to notify the Buyer promptly (within 24 hours) if any such
inquiries or proposals are received, any such information is
requested or required, or any such negotiations or discussions
are sought to be initiated.
6. Post-Closing Covenants. The Seller and Buyer agree as
follows with respect to the period following the Closing and
until (x) Buyer (or any affiliated entity assignee thereof)
beneficially owns a majority of the issued and outstanding shares
of Common Stock (on a fully diluted basis), and (y) Buyer has a
number of Buyer Board Representatives equal to at least a
majority of the Board of Directors:
6.1 General. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of
this Agreement, the Transactions, or the Transaction Documents,
each of the parties will take such further action (including the
execution and delivery of such further documents and instruments)
as the other reasonably may request, all at the sole cost and
expense of the party requesting the action (unless this Agreement
or any other Transaction Document provides that such expense
shall be allocated otherwise).
6.2 Buyer Board Representatives.
(a) The Buyer shall at all times be entitled to a number of
representatives on the Board of Directors ("Buyer Board
Representatives") equal to at least one-third of the members of
the Board of Directors (the "Compliant Number of Buyer Board
Representatives"), and the Seller shall use its best efforts to
ensure that the Buyer has the Compliant Number of Buyer Board
Representatives.
(b) Without limiting the generality of the foregoing:
(i) The Seller shall, at its option, either enlarge the
size of its board of directors or cause the resignation of a sufficient
number of directors to ensure that Buyer has a Compliant Number
of Buyer Board Representatives and shall, to the extent permitted
by law and by the Seller's Certificate of Incorporation and
Bylaws, add new directors or replace departing directors with
additional Buyer Board Representatives in order to ensure that
the Buyer has the Compliant Number of Buyer Board Representatives.
(ii) Prior to the date on which Buyer has a Compliant
Number of Buyer Board Representatives, whenever a vacancy occurs or shall
occur on the Board of Directors, which vacancy is required to be
filled by a director elected by the shareholders of the Seller,
the Buyer shall nominate a replacement director to fill such
vacancy, and the Seller shall, to the extent permitted by law,
support and recommend to such shareholders, in all proxy and
other materials sent to such shareholders, that such shareholders
vote for such nominee.
(iii)Prior to the date on which Buyer has a Compliant
Number of Buyer Board Representatives, whenever a vacancy occurs or
shall occur on the Board of Directors, which vacancy may under
Seller's Certificate of Incorporation and Bylaws be filled by a
director elected by the Board of Directors of the Seller, the
Buyer shall nominate a replacement director to fill such vacancy,
and the Seller shall, to the extent permitted by law, support and
recommend to the Board of Directors that the Board of Directors
elect such nominee.
(iv) Once the Buyer has a Compliant Number of Buyer Board
Representatives, in the event of a vacancy of a position on the
Board of Directors held by a Buyer Board Representative, the
Buyer shall nominate a replacement and the Seller shall, to the
extent permitted by law, support and recommend (A) to the
shareholders of the Seller, in all proxy and other materials sent
to such shareholders, that such shareholders vote for such
nominee or (B) in the event such vacancy may under Seller's
Certificate of Incorporation and Bylaws be filled by a director
elected by the Board of Directors of the Seller to the Board of
Directors that the Board of Directors elect such nominee.
(c) To the extent permitted by law, the Certificate of
Incorporation and Bylaws, (x) no Buyer Board Representative and
(y) if Buyer does not have a Compliant Number of Buyer Board
Representatives, no other member of the Board of Directors, shall
be replaced (other than by election by the shareholders) unless
the Buyer has expressly approved (as evidenced either by an
express written consent of an authorized officer of the Buyer or
the affirmative vote of a majority of the Buyer Board
Representatives) the replacement director.
(d) The Seller shall not cause the Certificate of
Incorporation or Bylaws to be amended in any way inconsistent with the
provisions of this Section 6.2 without the express approval of
the Buyer (as evidenced either by an express written consent of
an authorized officer of the Buyer or the affirmative vote of a
majority of the Buyer Board Representatives).
6.3 Strategic Business Decisions. Without the express approval
of the Buyer (as evidenced by (at Seller's option) either an
express written consent of an authorized officer of the Buyer or
an affirmative vote of the Board of Directors that includes the
affirmative vote of at least one Buyer Board Representative) the
Seller will not take, or commit to take, any of the following
actions:
(a) the amendment, modification, alteration or waiver of the
Agreement, in whole or in part, other than as provided for in the
Agreement;
(b) the approval of any agreement for the issuance, sale or
exchange of any capital stock or any security convertible into or
providing for the right to acquire Common Stock;
(c) the issuance of any capital stock of the Seller, including
the issuance of any stock options, warrants, or other securities
convertible (directly or indirectly) into capital stock,
provided, however, (x) that any stock options issued to officers,
directors, or employees of the Seller pursuant to stock option
plans, stock purchase plans or restricted stock plans for
employees, directors and consultants in effect as of the
Execution Date shall not be subject to this Section 6.3(c), and
any shares of Common Stock or preferred stock issued pursuant to
the exercise of any stock option, warrant or share of preferred
stock outstanding as of the Execution Date shall not be subject
to this Section 6.3(c), so long as, in either case, the Seller
notifies the Buyer within five (5) Business Days prior to the
issuance of any Common Stock or preferred stock pursuant to such
exercise;
(d) approving overall policy decisions relating to the
Seller's business direction and manufacturing capacity;
(e) approving any contract, agreement or commitment of the
Seller or any material amendment or modification thereto or
waiver of any provision thereof, that materially affects, adds
to, reduces or modifies the Intellectual Property of the Seller;
(f) approving annual operating budget, capital budget,
overhead budgets and any business plans for the Seller, and any material
amendments and supplements thereto or material unbudgeted
expenses;
(g) entering into, extending, amending, terminating or waiving
any provision of any Contracts that are proposed to be entered
into between the Seller and any officer, director or employee of
the Seller;
(h) approving any material pledge, encumbrance or the granting
of a material security interest in any of the assets of the
Seller;
(i) approving the entry of the Seller into any merger,
consolidation, partnership or joint venture or the investment of
any of the Seller's liquid assets (other than short-term
investments of excess funds) or the disposition of any such
interest or investment;
(j) approving the acquisition by the Seller of any business or
business division from any person whether by asset purchase,
stock purchase, merger or other business combination;
(k) approving the transfer of any assets of the Seller, or any
interest therein, the fair market value of which may reasonably
be expected to exceed $100,000;
(l) the incurring of indebtedness for borrowed money or the
deferred purchase price of any asset by the Seller or the loaning
of any sum or any other extension of credit by the Seller to any
person;
(m) the guarantee or suretyship of the Seller of any
indebtedness of any other person;
(n) the assumption of any contingent obligation (including any
form of support agreement) by the Seller with respect to any
indebtedness, liability or obligation of any other person;
(o) adopting, amending, restating or revoking the Seller's
Certificate of Incorporation or its Bylaws;
(p) entering into any transaction on behalf of the Seller
involving an amount greater than, or having a value in excess of,
$100,000, or involving a term or commitment or extension thereof,
for more than twelve (12) months;
(q) increasing the number of members on the Board of Directors.
6.4 Consultation. Without limiting anything set forth in
Section 6.3, the Seller shall (i) consult with the Buyer with
respect to decisions regarding the priority of order fulfillment
and the use of manufacturing capacity, (ii) coordinate in advance
the business plans of the Buyer and the Seller as such plans
relate to the Buyer's reasonably likely future requirements for
the Seller's products, and (iii) obtain Buyer's approval (in the
manner set forth in Section 6.3), prior to taking any action that
is reasonably likely to affect adversely Buyer's disclosed
requirements for the Seller's products.
6.5 Renegotiation of Frame Development Agreement. Seller shall
use its commercially reasonable efforts to enter into an
agreement (which agreement shall be pre-approved by Buyer) with
SMH Automobile S.A. ("SMH") to modify, amend and/or clarify the
rights granted to SMH in that certain Frame-Development Contract.
6.6 Southeast Asia Manufacturing. On or before December 1,
1998, the Seller and Buyer will negotiate in good faith in an
attempt to arrive at the terms of a possible joint venture
agreement, pursuant to which certain of the Seller's products
will be manufactured in Malaysia and/or another country in
Southeast Asia.
6.7 U.S. Vehicle Manufacture. On or before December 1, 1998,
the Seller and Buyer will negotiate in good faith in an attempt
to arrive at the terms of a possible agreement, pursuant to which
certain products of the Buyer (or one of the Buyer's subsidiaries
or affiliates) may (i) be manufactured and/or assembled at the
Seller's facility in San Marcos, Texas (the "Facility"), and/or
(ii) be distributed and/or sold in North America, and/or (iii)
include certain of the Seller's products.
6.8 Future Purchase Orders. The Buyer shall use its
commercially reasonable efforts to submit to the Seller one or
more purchase orders for the amount and type of the Seller's
products listed on Schedule 6.8 ("Future Purchase Orders"), it
being the intent of the parties that the Buyer, subject to
successful testing of the Seller's products in the Buyer's
vehicles, order substantial quantities of the Seller's products.
6.9 Dedicated Manufacturing. The Seller shall use commercially
reasonable efforts to establish, as soon as possible after
completion of Buyer's testing of Seller's products and receipt by
Seller of one or more Future Purchase Orders, a dedicated
manufacturing line at the Facility for production of the products
specified in the Future Purchase Orders.
6.10 No Relocation of Seller or Certain Intellectual Property.
The Buyer shall not, without the consent of a majority of the
Board of Directors (excluding Buyer Board Representatives): (i)
cause the executive offices of the Seller to be relocated outside
North America, or (ii) cause the Seller to sell, assign or
license all or substantially all of its entire right, title and
interest in and to any of the Intellectual Property set forth on
Schedule 6.10 to the Buyer or any third party.
6.11 Delivery of Demonstration Vehicles. As soon as reasonably
practicable, the Buyer shall deliver to the Seller one (1) of the
Buyer's "Solar Baby" vehicles and one (1) of the Buyer's "Harrods
Leisure Vehicles" at the Facility for use by the Seller to
develop, test and promote the Seller's products on and with such
vehicles, and to ensure that the Seller's products operate
effectively and in accordance with the Buyer's specifications.
7. Closing Conditions.
7.1 The obligation of the Buyer to consummate the transactions
to be performed by it in connection with the Closing is subject
to the following:
(a) The Seller shall have delivered to the Buyer all of the
following:
(i) Certified copies of the resolutions duly adopted by
the Board of Directors authorizing the execution, delivery and
performance of this Agreement and the Transaction Documents, the
issuance and sale of the Options and the Shares and the
consummation of the Transactions.
(ii) Copies of (a) the Seller's Certificate of
Incorporation, along with a certification by the Secretary of State of
the State of Delaware (dated as of a date reasonably close to the Closing
Date) certifying such Certificate as being in effect as of such
date, and (b) the Seller's Bylaws, in each case certified by the
Secretary of the Seller as in effect at the Closing.
(iii)A Certificate of the Secretary of State of Delaware
certifying as of a date reasonably close to the Closing Date that
the Seller has filed all required reports, paid all required fees
and taxes, and is, as of such date, in good standing and
authorized to transact business as a domestic corporation.
(iv) A Certificate of the Secretary of State of Texas
and any other state in which the Seller is qualified to do business as a
foreign corporation, in each case certifying as of a date
reasonably close to the Closing Date that the Seller has filed
all required reports, paid all required fees and taxes, and is,
as of such date, in good standing and authorized to transact
business as a foreign corporation.
(v) Executed copies of each of the Transaction Documents.
(vi) All Schedules (other than Schedules 2.2(c), 4.2(e),
6.8 and 6.10), with contents satisfactory to Buyer in its sole
discretion.
(vii)The Closing Date Shares.
(viii)A certificate, executed by an officer of the Seller
on its behalf, certifying that the representations and warranties of
the Seller contained herein are true and correct in all material
respects (in the case of any representation or warranty without
any materiality qualification) and in all respects (in the case
of any representation or warranty with any materiality
qualification) as of the Closing Date and no default or event of
default exists.
(ix) Such other documents relating to the transactions
contemplated by this Agreement as the Buyer may reasonably
request.
(x) An agreement signed by Corning Incorporated and the
Seller, on terms reasonably acceptable to Buyer, providing for the payoff
of all outstanding Corning Notes on or reasonably close to the
Closing Date.
(b) All of the following shall be true:
(i) Any and all licenses, permits, authorizations or
approvals from third parties and Governmental Authorities required to
consummate the Transactions shall have been obtained, all
requisite notices, if any, shall have been given and filed, and
any waiting periods shall have expired without adverse action
(unless Buyer has caused the failure).
(ii) No suit, action, investigation, inquiry or other
legal or administrative proceeding by any Governmental Authority or other
person (other than by Buyer (or a transferee or assign of Buyer)
arising out of this Agreement) or ADR Proceeding shall have been
instituted or threatened that questions the validity or legality
of the Transactions or that could reasonably be expected to
adversely affect the ability of Buyer to consummate such
Transactions or would make the consummation of the Transactions
materially more costly or materially less beneficial to the
Buyer.
(iii)As of the Closing, there shall be no effective
injunction, writ, preliminary restraining order or any order of
any nature issued by a court of competent jurisdiction directing
that the Transactions or any of them not be consummated as so
provided, or imposing any material conditions on the consummation
of such Transactions by Buyer (unless Buyer has caused such order
or condition).
(iv) The results of Buyer's due diligence investigation
of the Seller's Intellectual Property and of Seller's compliance with
Environmental, Health, and Safety Requirements shall be
acceptable to Buyer in its discretion.
(v) J.D. Consulting shall have completed its environmental
assessment of the Facility and the results shall be acceptable to
Buyer in its discretion.
(vi) Four Buyer Board Representatives shall have been
elected to the Board of Directors effective as of the Closing Date.
(vii)The Seller shall have received notification from
Nasdaq that the Seller need not comply with Market Rule
4310(c)(25)(H)(i)(b) (requiring shareholder approval of the
Transactions) or any other Nasdaq rule requiring shareholder
approval of the Transactions and that the Seller has been granted
an exception pursuant to Market Rule 4310(c)(25)(H)(ii) and any
other Nasdaq rule necessary to avoid having to obtain such
approval.
(viii)The seller shall have renegotiated and signed a lease
for the Facility, in a form reasonably satisfactory to the Buyer,
to be effective as of October 1, 1998.
(ix) Since the Execution Date, to the knowledge of the
Seller or the Buyer (which knowledge shall be measured as of the Closing
Date), there shall not have occurred any material adverse change
in the Seller's business, client relations, operations,
properties, prospects, assets or condition, and no event shall
have occurred or circumstance shall exist that has specific
application to the Seller (other than general economic or
industry conditions) that could reasonably be expected to result
in such a material adverse change.
7.2 The obligation of the Seller to consummate the transactions
to be performed by it in connection with the Closing is subject
to the following:
(a) Delivery by the Buyer to the Seller of the following:
(i) Executed copies of each of the Transaction Documents
to which Buyer is a signatory.
(ii) The Initial Payment.
(b) All of the following shall be true:
(i) Any and all licenses, permits, authorizations or
approvals from third parties and Governmental Authorities required to
consummate the Transactions shall have been obtained, all
requisite notices, if any, shall have been given and filed, and
any waiting periods shall have expired without adverse action
(unless Seller has caused the failure).
(ii) No suit, action, investigation, inquiry or other
legal or administrative proceeding by any Governmental Authority or other
person (other than by Seller arising out of this Agreement) or
ADR Proceeding shall have been instituted or threatened that
questions the validity or legality of the Transactions or that
could reasonably be expected to adversely affect the ability of
Seller to consummate such Transactions or would make the
consummation of the Transactions materially more costly or
materially less beneficial to the Seller.
(iii)As of the Closing, there shall be no effective
injunction, writ, preliminary restraining order or any order of
any nature issued by a court of competent jurisdiction directing
that the Transactions or any of them not be consummated as so
provided, or imposing any material conditions on the consummation
of such Transactions by Seller (unless Seller has caused such
order or condition).
(iv) The Seller shall have received from First Southwest
Company Seller's investment banker, an opinion reasonably satisfactory to
Seller stating that the Transactions are fair to Seller's
shareholders.
7.3 The obligation of the Buyer to pay all or any part of the
Outstanding Balance is subject to the delivery by the Seller to
the Buyer of a certificate satisfying the requirements of Section
2.2(b)(iv).
8. Indemnification.
8.1 Indemnification by Seller. Upon the terms and subject to
the conditions set forth in Section 8.3 hereof and this Section
8.1, Seller agrees to indemnify, defend and hold Buyer and its
shareholders, officers, directors, representatives, employees and
agents (collectively, "Buyer Indemnified Parties") harmless
against, and will reimburse each Buyer Indemnified Party on
demand for, any payment, liability, loss, cost or expense
(including reasonable attorneys' and other professionals' fees
and reasonable costs of investigation incurred in defending
against such payment, liability, loss, cost or expense or claim
therefor and including all such costs incurred in enforcing this
provision) ("Adverse Consequences") made or incurred by or
asserted against such Buyer Indemnified Party at any time in
respect of any misrepresentation, breach of warranty or
nonfulfillment of any term, provision, covenant or agreement on
the part of Seller contained in this Agreement or any Transaction
Document, or from any misrepresentation in, or omission from, any
certificate or other instrument furnished or to be furnished by
Seller to such Buyer Indemnified Party pursuant to this
Agreement.
8.2 Indemnification by Buyer. Upon the terms and subject to
the conditions set forth in Section 8.3 hereof and this Section
8.1, Buyer agrees to indemnify, defend and hold Seller and its
shareholders, officers, directors, representatives, employees and
agents (collectively, "Seller Indemnified Parties") harmless
against, and will reimburse each Seller Indemnified Party on
demand for, any Adverse Consequences made or incurred by or
asserted against such Seller Indemnified Party at any time in
respect of any omission, misrepresentation, breach of warranty or
nonfulfillment of any term, provision, covenant or agreement on
the part of Buyer contained in this Agreement or any Transaction
Document, or from any misrepresentation in, or omission from, any
certificate or other instrument furnished or to be furnished by
Buyer to such Seller Indemnified Party pursuant to this
Agreement.
8.3 Conditions of Indemnification. With respect to any actual
or potential claim, any written demand, the commencement of any
action, or the occurrence of any other event that involves any
matter or related series of matters (a "Claim") against which a
Seller Indemnified Party or Buyer Indemnified Party (each an
"Indemnified Party") is to be indemnified hereunder by the other
party (the "Indemnifying Party") under Section 8.1 or 8.2 hereof:
(a) Promptly after the Indemnified Party first receives
written documents pertaining to the Claim, or if such Claim does not
involve a third party Claim (a "Third Party Claim"), promptly
after the Indemnified Party first has actual knowledge of such
Claim, the Indemnified Party shall give notice (a "Claim Notice")
to the Indemnifying Party of such Claim in reasonable detail and
stating the amount involved, if known, together with copies of
any such written documents, provided, however, that the failure
of an Indemnified Party to provide such notice shall not preclude
or limit such Indemnified Party's Claim, except to the extent, if
any, that such delay caused actual prejudice to the Indemnifying
Party.
(b) If the Claim involves a Third Party Claim, then the
Indemnifying Party shall have the right, at its sole cost,
expense and ultimate liability regardless of the outcome, and
through counsel of its choice (which counsel shall be reasonably
satisfactory to the Indemnified Party), to litigate, defend,
settle or otherwise attempt to resolve such Third Party Claim;
provided, however, that (x) in no event shall the Indemnifying
Party consent to any settlement with respect to such Third Party
Claim unless such settlement provides the Indemnified Party with
a full and unconditional release from all Claims asserted in the
action in question, or unless the Indemnified Party has consented
to such settlement, and (y) if in the Indemnified Party's
reasonable judgment a conflict of interest may exist between the
Indemnified Party and the Indemnifying Party with respect to such
Third Party Claim, then the Indemnified Party shall be entitled
to select counsel of its own choosing, reasonably satisfactory to
the Indemnifying Party, in which event the Indemnifying Party
shall be obligated to pay the reasonable and documented fees and
expenses of such counsel. Notwithstanding the preceding
sentence, the Indemnified Party may elect, at any time and at the
Indemnified Party's sole cost, expense and ultimate liability,
regardless of the outcome, and through counsel of its choice, to
litigate, defend, settle or otherwise attempt to resolve such
Third Party Claim. If the Indemnified Party so elects (for
reasons other than the Indemnifying Party's failure or refusal to
provide a defense to such Third Party Claim), then the
Indemnifying Party shall have no obligation to indemnify the
Indemnified Party with respect to such Third Party Claim, but (x)
such disposition will be without prejudice to any other right the
Indemnified Party may have to indemnification under Section 8.1
or 8.2 hereof, and (y) the Indemnified Party shall obtain the
consent (which consent shall not be unreasonably withheld or
delayed) of the Indemnifying Party before entering into any
settlement resulting in liability to the Indemnifying Party. If
the Indemnifying Party fails or refuses to provide a defense to
any Third Party Claim, then the Indemnified Party shall have the
right to undertake the defense, compromise or settlement of such
Third Party Claim, through counsel of its choice, on behalf of
and for the account and at the risk of the Indemnifying Party,
and the Indemnifying Party shall be obligated to pay the costs,
expenses and attorney fees incurred by the Indemnified Party in
connection with such Third Party Claim. In any event, Buyer and
Seller shall fully cooperate with each other and their respective
counsel in connection with any such litigation, defense,
settlement or other attempted resolution.
8.4 Default Procedure prior to Final Payment Date. In the event
that a Buyer Indemnified Party transmits a Claim Notice to Seller
at any time before the date that is thirty (30) days after the
Final Payment Date, and if at that time payment for any of the
Initial Shares has not been sent and/or any of the Initial Shares
have not been issued, then within five (5) Business Days upon
receipt of such Claim Notice, Seller shall transmit to such Buyer
Indemnified Party a written response (the "Claim Response") that
does (and specifically references) one of the following (x)
disputes in good faith the Claim, states the basis for such
dispute and states that no attempt to cure will be made by
Seller, (y) acknowledges the validity of the basis for such Claim
and states that Seller will attempt to cure and remedy the
situation giving rise to such Claim, or (z) acknowledges the
validity of the basis for such Claim and states that Seller will
not attempt to cure or remedy the situation giving rise to such
Claim. From the time the Claim Notice is delivered until the
time set forth below, Buyer's obligations to pay any Outstanding
Balance shall be tolled.
(a) In the event Seller's Claim Response complies with and
references Section 8.4(x), then such Buyer Indemnified Party at
its election may seek resolution of its Claim in accordance with
the dispute resolution procedures set forth herein.
(i) If a court of competent jurisdiction upholds such
Claim, then such Buyer Indemnified Party may, in addition to any other
remedies otherwise available, have the number of Buyer Board
Representatives be increased by two (or such other number as
would be necessary to make the number of Buyer Board
Representatives a majority of the Board of Directors); provided,
however, that Buyer shall, within twenty (20) Business Days of
the date on which Buyer Board Representatives number a majority,
pay the Outstanding Balance to Seller (and Seller shall issue the
remaining Initial Shares in accordance with the terms of this
Agreement).
(ii) If a court of competent jurisdiction denies or
rejects such Claim, then Buyer shall immediately pay to Seller an
amount equal to any portion of the Outstanding Balance withheld due to
the transmission of the Claim Notice, plus interest thereon at the
Prime Rate plus two percent (2%) compounded monthly, calculated
from the date of the Claim Notice.
(b) In the event Seller's Claim Response complies with 8.4(y),
then Seller shall have fifteen (15) Business Days in which to
cure and remedy the situation giving rise to such Claim. If,
after the elapse of such time period Seller has not cured to the
reasonable satisfaction of Buyer Indemnified Party, then Buyer
Indemnified Party shall proceed in accordance with Section
8.4(a). If, after the elapse of such time period Seller has
cured to the reasonable satisfaction of Buyer Indemnified Party,
then Buyer shall, within twenty (20) Business Days, pay to Seller
an amount equal to any portion of the Outstanding Balance
withheld due to the transmission of the Claim Notice (but shall
not owe any interest thereon).
(c) In the event Seller's Claim Response complies with 8.4(z),
then Buyer may elect to do any or all of the following: (A) not
make any further payments otherwise owed under this Agreement or
any Transaction Document; (B) elect to make all or any part of
such payments that would otherwise be due (provided that no
interest on any such outstanding payments shall accrue or be
owing notwithstanding any provision herein); (C) proceed in
accordance with Section 8.4(a); or (D) have the number of Buyer
Board Representatives be increased by two (or by a number such
that the number of Buyer Board Representatives would be a
majority of the Board of Directors); provided, however, that
Buyer shall, within twenty (20) Business Days of the date on
which Buyer Board Representatives number a majority, pay the
Outstanding Balance to Seller (and Seller shall issue the
remaining Shares in accordance with the terms of this Agreement).
8.5 Survival of Representations, Warranties and Covenants. All
representations of Buyer will survive the Closing and will remain
in effect until, and will expire, eighteen months after the
Closing Date. All representations, warranties and covenants of
the Seller in or pursuant to this Agreement or in any document
delivered pursuant hereto shall survive the Closing, any
examination, investigation or knowledge by or on behalf of the
Buyer and the consummation of the transactions contemplated
hereby and will remain in effect until, and will terminate at the
later of the dates set forth in clause (a) or (b) as follows:
(a) (1) With respect to claims relating to or arising out of
Sections 4.1(b), 4.1(c), 4.1(m) and 4.1(o), no expiration; (2)
with respect to claims relating to or arising out of Sections
4.1(a), 4.1(d), 4.1(e), 4.1(f), 4.1(g), 4.1(h), 4.1(i), 4.1(j),
4.1(k), 4.1(l), 4.1(n), 4.1(p), 4.1(q), 4.1(r), or 4.1(s), the
date that is three (3) months after the expiration of the longest
applicable federal or state statute of limitations (including
extensions thereof); or (3) with respect to all claims other than
those referred to in clauses (a)(1) or (2), eighteen months after
the Final Payment Date; and
(b) the final payment and satisfaction of all Adverse
Consequences for which indemnification is provided hereunder in
respect of claims or demands made not later than the last day of
the applicable expiration period described in Section 8.5(a) and
still pending as of the relevant expiration date, if any,
described in such Section, whether such Adverse Consequences
arise before or after such date.
9. Miscellaneous.
9.1 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
permitted assigns of the parties hereto whether so expressed or
not. The Buyer may assign all or any part of its rights and
obligations under this Agreement to any affiliate of the Buyer
(including a parent or subsidiary of the Buyer or a joint venture
in which the Buyer or a related party is a principal joint
venturer), so long as Buyer shall remain fully liable for the
performance of all obligations hereunder. The Seller may not
assign any of its rights or obligations hereunder without the
written consent of Buyer, which shall be given or withheld in the
Buyer's sole discretion.
9.2 Severability. Each of the provisions of this Agreement
(and each part of each such provision) is severable from every other
provision hereof (and every other part thereof). In the event
that any provision (or part thereof) contained in this Agreement
shall be declared invalid, illegal or unenforceable, in whole or
in part, in any jurisdiction and to any extent:
(a) The validity, legality and enforceability of such
provision (or such part thereof) in any other jurisdiction and of the
remaining provisions contained in this Agreement (or the
remaining parts of such provision, as the case may be) shall not
in any way be affected or impaired thereby;
(b) The application of such provision (or such part thereof)
to circumstances other than those as to which it is held invalid,
illegal or unenforceable shall not in any way be affected or
impaired thereby;
(c) If possible, such provision (or part thereof) shall be
construed as closely as possible to conform to the intent of the
parties;
(d) If not susceptible to such construction, such provision
(or such part thereof) shall be severed from this Agreement and
ineffective to the extent of such invalidity, illegality or
unenforceability in such jurisdiction and in such circumstances; and
(e) The remaining provisions of this Agreement (or the
remaining parts of such provision, as the case may be) shall
nevertheless remain in full force and effect.
9.3 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but
all of which taken together shall constitute one and the same
instrument. It shall not be necessary to produce more than one
fully-executed counterpart hereof in any proceeding in order to
prove the existence of this Agreement.
9.4 Governing Law. The corporate law of Delaware and the
Securities Laws will govern all issues concerning the relative
rights of the Seller 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.
9.5 Resolution of Disputes.
(a) Any action, suit or proceeding on a Claim where the
amount in controversy as to at least one party, exclusive of interest
and costs, exceeds $1,000,000 ("Summary Proceeding"), arising out
of or relating to any Transaction Document or the breach,
termination or validity thereof, shall be litigated exclusively
in the Superior Court of the State of Delaware (the "Delaware
Superior Court") as a summary proceeding pursuant to Rules 124-
131 of the Delaware Superior Court, or any successor rules (the
"Summary Proceeding Rules"). Each of the parties hereto hereby
irrevocably and unconditionally (A) submits to the jurisdiction
of the Delaware Superior Court for any Summary Proceeding, (B)
agrees not to commence any Summary Proceeding except in the
Delaware Superior Court, (C) waives, and agrees not to plead or
to make, any objection to the venue of any Summary Proceeding in
the Delaware Superior Court, (D) waives, and agrees not to plead
or to make, any claim that any Summary Proceeding brought in the
Delaware Superior Court has been brought in an improper or
otherwise inconvenient forum, (E) waives, and agrees not to plead
or to make, any claim that the Delaware Superior Court lacks
personal jurisdiction over it, (F) waives its right to remove any
Summary Proceeding to the Federal courts except where such courts
are vested with sole and exclusive jurisdiction by statute and
(G) understands and agrees that it shall not seek a jury trial or
punitive damages in any Summary Proceeding based upon or arising
out of or otherwise related to any Transaction Document or the
breach, termination or validity thereof, and waives any and all
rights to any such jury trial or to seek punitive damages.
(b) If any action, suit or proceeding based on a Claim
where the amount in controversy as to at least one party, exclusive of
interest and costs, does not exceed $1,000,000 ("Proceeding"),
arising out of or relating to any Transaction Document or the
breach, termination or validity thereof is brought, the parties
to such Proceeding agree to make application to the Delaware
Superior Court to proceed under the Summary Proceeding Rules.
Until such time as such application is rejected, such Proceeding
shall be treated as a Summary Proceeding and all of the foregoing
provisions of this Section relating to Summary Proceedings shall
apply to such Proceeding.
(c) If a Summary Proceeding is not available to resolve any
dispute hereunder, the controversy or claim shall be settled by
arbitration conducted on a confidential basis, under the US
Arbitration Act, if applicable, and the then current Commercial
Arbitration Rules of the American Arbitration Association (the
"Association") strictly in accordance with the terms of this
Agreement and the substantive law of the State of Delaware. The
arbitration shall be conducted at the Association's regional
office located in the Delaware area by three arbitrators, at
least one of whom shall be knowledgeable in the electric battery
or electric vehicle industry, one of whom shall be an attorney
and one of whom shall be a member of a "Big Six" accounting firm
(other than Seller's or Buyer's accounting firm) familiar with
businesses engaged in electric battery manufacturers and electric
vehicle manufacturers. Judgment upon the arbitrators' award may
be entered and enforced in any court of competent jurisdiction.
Neither party shall institute a proceeding hereunder unless at
least 60 days prior thereto such party shall have given written
notice to the other party of its intent to do so.
9.6 Expenses. Except as otherwise expressly provided in this
Agreement, each party hereto will bear its respective expenses
incurred in connection with the preparation, execution and
performance of this Agreement and the Transactions, including all
fees and expenses or agents, representatives, counsel and
accountants. In the event of termination of this Agreement, the
obligation of each party to pay its own expenses will be subject
to any rights of such party arising from a breach of this
Agreement by another party.
9.7 Entire Agreement. This Agreement supersedes all prior
agreements between the parties with respect to its subject matter
(including the Heads of Agreement between Buyer and Seller dated
April 9, 1998) and constitutes (along with the Transaction
Documents) a complete and exclusive statement of the terms of the
agreement between the parties with respect to its subject matter.
9.8 Notices. All notices provided for under this Agreement
shall be in writing and shall be deemed duly given on the date
delivered if personally delivered, three days after mailing if
mailed by registered or certified mail, on the day after dispatch
if dispatched by prepaid courier, or on the date of transmission
if delivered by facsimile transmission, to the following
addressses:
If to Seller:
Mr. Michael Semmens
Electrosource, Inc.
2809 Interstate 35 South
San Marcos, TX 78666-5930
Phone: 512-753-6500
Fax: 512-753-6581
If to Buyer:
Mr. Kamal Siddiqi
Mytchett Place
Mytchett, Surrey GU 16 6DQ
ENGLAND
Phone: 441-252-520000
Fax: 441-252-520800
With a copy (not constituting notice) to:
Jerry L. Shulman, Esq.
Williams & Connolly
725 Twelfth Street N.W.
Washington, D.C. 20005
Phone: 202-434-5510
Fax: 202-434-5029
9.9 Amendments. This Agreement shall not be amended without the
express written consent of the parties hereto. All amendments to
this Agreement shall be in writing.
9.10 No Waiver; Remedies Cumulative. No waiver by any party
hereto of any one or more defaults by any other party or parties
in the performance of any of the provisions of this Agreement
shall operate or be construed as a waiver of any future default
or defaults, whether of a like or different nature, and any such
waiver shall be in writing signed by the party so waiving. No
failure or delay on the part of any party in exercising any
right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such
right, power or remedy preclude any other or further exercise
thereof or the exercise of any other right, power or remedy. The
remedies provided for herein are cumulative and are not exclusive
of any remedies that may be available to any party hereto at law,
in equity or otherwise. Any party entitled to a damages remedy
hereunder, pursuant to a determination made by a court,
arbitrator or other person with authority hereunder to render
such judgment, shall be entitled to set off such amount against
any amounts that would otherwise be owed from the party entitled
to such remedy.
9.11 Interpretation. No provision of this Agreement shall be
interpreted or construed against any party hereto because that
party or its legal representative drafted that provision. Unless
the context of this Agreement clearly requires otherwise: (i)
references to the plural include the singular, the singular the
plural, and the part the whole, (ii) references to one gender
include all genders, (iii) "or" has the inclusive meaning
frequently identified with the phrase "and/or," (iv) "including"
has the inclusive meaning frequently identified with the phrase
"but not limited to," (v) references to "hereunder" or "herein"
relate to this Agreement as a whole, (vi) "to the actual
knowledge of the Seller" means the knowledge of the Seller or any
of its officers and directors (other than Buyer Board
Representatives), (vii) "to the actual knowledge of the Buyer"
means the knowledge of Kamal Siddiqi, Cliff Winckless or Roger
Musson, and (viii) references to a "person" includes a
corporation, joint venture, trust, partnership, association,
limited liability company, natural person, or any other entity.
The section and other headings contained in this Agreement are
for reference purposes only and shall not control or affect the
construction of this Agreement or the interpretation thereof in
any respect. Any accounting term used herein without specific
definition shall have the meaning ascribed thereto by U.S.
generally accepted accounting practices. Any reference herein to
any agreement, including this Agreement, shall be deemed to
include such agreement as it may be modified, varied, amended or
supplemented from time to time. Any reference herein to any
person or entity shall be deemed to include the heirs, personal
representatives, successors and permitted assigns of such person
or entity.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed and delivered as of the date first set forth
above.
ELECTROSOURCE, INC.
By: /s/ Michael G. Semmens
Michael G. Semmens
President, CEO and Chairman of
the Board
KAMKORP LIMITED
By: /s/ Kamal Siddiqi
Kamal Siddiqi
Chairman
EXHIBIT A
FORM OF SEVERANCE AGREEMENT
SCHEDULE 2.2(c)
MINIMUM CALL AMOUNTS
Month Minimum Call Amount
July, 1998 $0
August, 1998 $0
September, 1998 $400,000
October, 1998 $400,000
November, 1998 $400,000
December, 1998 $400,000
January, 1999 $400,000
February, 1999 $400,000
March, 1999 $400,000
April, 1999 $400,000
May, 1999 $400,000
June, 1999 $400,000
July, 1999 $400,000
August, 1999 $400,000
SCHEDULE 4.2(e)
LITIGATION
NONE
SCHEDULE 6.8
FUTURE PURCHASE ORDERS
SCHEDULE 6.10
RELOCATION OF INTELLECTUAL PROPERTY
Patent and Technology Exclusive License Agreement, dated August
14, 1984, by and between Blayner-Mathews Associates, Inc. and
Tracor, Inc., as amended.
Assignment of Patent License, dated May 14, 1998, by and between
Tracor, Inc. and Electrosource, Inc.
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into as of June __, 1998, by and between Electrosource, Inc., a
Delaware corporation (the "Seller"), and Kamkorp Limited, a private limited
company registered in England (together with any permitted assigns, the
"Buyer").
RECITALS
A. Seller and Buyer have executed that certain Stock
Purchase Agreement, dated as of June 2, 1998, between the Seller
and the Buyer (the "Stock Purchase Agreement"), pursuant to which
the Seller has agreed to sell, and Buyer has agreed to buy, the
Shares, all subject to the terms and conditions set forth therein
(all terms not otherwise defined herein have the meanings set
forth in the Stock Purchase Agreement).
B. It is a condition to Closing that the Seller and the
Buyer enter into this Agreement to govern the terms and
conditions governing the Shares.
C. The Buyer and the Seller desire to enter into this
Agreement upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing, and for
other consideration, the receipt and sufficiency of which are
acknowledged, the parties agree as follows:
1. Registration Rights.
1.1 With respect to the Shares, the Buyer shall have the
registration rights set forth in Section 1.1(a) and 1.1(b).
(a) The Buyer shall have the right, no more than twice in any
calendar year, by written notice to the Seller, to require the
Seller to register the sale under the Securities Act of 1933, as
amended (the "Securities Act") of all or any of the Shares
("Demand Covered Shares") representing at least five percent (5%)
of the shares of Common Stock outstanding. The Seller shall have
no obligation with respect to the selection by the Buyer 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 Seller shall be
entitled to sell shares of Common Stock (to be newly issued or
from shares held in treasury) on the same terms and conditions as
apply to the Buyer's Demand Covered Shares and/or to have other
shareholders sell shares of Common Stock pursuant to such demand
registration pursuant to the same such terms and conditions
unless the Buyer's underwriters believe, or if the offering is
not underwritten, upon a good faith determination by the Buyer's
Board of Directors or a committee thereof that such inclusion
would adversely affect the success of the proposed offering by
the Buyer. The Seller 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 Seller 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 Seller's
management that the filing of a registration statement at such
time would be detrimental to the Seller due to a material
acquisition or financing or for other cause. Buyer may request
that the Seller 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 Seller pursuant to
this section 1.1(a) unless the Buyer shall reimburse the Seller
for all of the Seller's costs and expenses incurred in connection
with such registration within thirty days following the request
to withdraw. The Seller covenants and agrees that it will not
grant any registration rights to any other person that would
conflict or be inconsistent with the provisions of this Section
1.1(a).
(b) If the Seller 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 Seller 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 Buyer as promptly as possible and shall, subject
in all cases to Section 1.2, use its commercially reasonable
efforts to include in the offering such number of shares of
Common Stock then owned by Buyer as Buyer 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 Seller or any selling shareholder pursuant to
any such offering.
1.2 The Seller's obligation to include Piggyback Covered Shares
owned by Buyer in any offering pursuant to Section 1.1(b) shall
in all cases be subject to the following limitations and
qualifications:
(a) The Seller shall not be required to give notice to Buyer 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;
(b) The Seller 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 Seller'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 Seller or other shareholder. If the Seller shall
require such a reduction, Buyer shall have the right to withdraw
from the offering;
(c) In the event that the number of shares of Common Stock
included in any registration is to be reduced pursuant to Section
1.2(b):
(i) If the registration in question is one initiated
exercising such person's demand registration rights by any person or
persons other than the Seller, 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;
(ii) If the registration in question is one initiated by
the Seller in order to allow the sale of Common Stock for the account
of the Seller, then any reduction in the number of shares to be
included in such registration shall be applied pro rata among all
parties having piggyback registration rights in proportion to the
number of shares requested to be registered by each; and
(iii)Subject to Sections 1.2(c)(i) and 1.2(c)(ii), in the
event that the Seller 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 piggyback registration
rights in proportion to the number of shares requested to be
registered by each.
(d) The Seller 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 Seller) initiating the registration in question or
would reduce the per share price of the offering.
(e) The Seller may, in its sole discretion and without the
consent of Buyer, withdraw such registration statement and
abandon the proposed offering in which Buyer had requested to
participate.
1.3 In connection with any registration of Covered Shares
undertaken by the Seller pursuant to this Section 1, the Seller
shall:
(a) prepare and file promptly 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;
(b) 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 Buyer 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;
(c) notify the Buyer of any stop order threatened or issued by
the Commission and take all action required to prevent the entry
of such stop order or to remove it if entered;
(d) provide Buyer a reasonable opportunity to review prior to
filing (A) any registration statement filed by the Seller in
connection with a registration in which Buyer is participating
pursuant to this Section 1, and (B) any amendments or supplements
to such registration statement and any prospectus used in
connection therewith;
(e) 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 Buyer shall
reasonably request, and do any and all other acts and things
which may be reasonably necessary or advisable to enable Buyer to
consummate the sale in such jurisdictions of such shares;
provided that the Seller 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 1.3(e) 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
1.1(b), in the event that the Buyer proposes to sell such shares
in any jurisdiction in which neither the Seller nor any selling
shareholder other than Buyer proposes to sell shares being
registered, the expense of registration or qualification in any
such additional jurisdictions other than those in which the
Seller or any selling shareholder other than Buyer proposes to
sell, including all legal fees incurred in connection with such
additional registrations or qualifications, shall be borne by
Buyer;
(f) notify Buyer 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 Seller'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 Buyer promptly prepare and furnish to Buyer 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;
(g) 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 Seller are then listed or, if there shall then be no such
listing, to be accepted for quotation on NASDAQ in the same
manner as other securities of the same class by Seller are then
quoted; and
(h) 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;
1.4 In the course of, and in connection with, any offering or
sale by the Buyer of Common Stock in connection with the
registration of Covered Shares pursuant to this Section 1:
(a) The Seller shall furnish to Buyer 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 Buyer may
reasonably request;
(b) If the Seller has delivered to the Buyer preliminary or
final prospectuses and, after having done so, the prospectus or
preliminary prospectus must be amended or supplemented in order
to comply with the requirements of the Securities Act, the Seller
shall promptly notify the Buyer and, if reasonably requested by
the Seller, the Buyer shall immediately cease making offers of
Common Stock and return all prospectuses and preliminary
prospectuses then in this possession to the Seller in exchange
for a reasonable number of copies of the revised or supplemented
prospectus or preliminary prospectus, and, following receipt such
revised or supplemented documents, the Buyer shall be free to
resume its offer.
(c) If the Buyer's offering is underwritten and the underwriters
require that the Seller deliver to them in connection with such
offering (i) an opinion of counsel for the Seller or (ii) a
"comfort letter" signed by the Seller's independent public
accountants, the Seller shall use its best efforts to cause the
Buyer and Buyer's underwriters to be named as addressees on any
such letters.
(d) The Seller shall, consistent with conducting its ordinary
business and upon reasonable notice, make its executive officers
generally available to assist in any underwritten offering by the
Buyer, including without limitation for the purposes of
conducting a reasonable number of "road show" presentations in
connection with an underwritten offering, and shall generally
cooperate in all reasonable ways with the Buyer in the conduct of
any offering.
1.5 For as long as Buyer shall continue to hold any Covered
Shares, the Seller 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 Buyer pursuant to Rule 144 (or any successor
rule) under the Securities Act, the Seller shall cooperate with
Buyer so as to enable such sales to be made in accordance with
applicable laws, rules and regulations, the requirements of the
Seller's transfer agents, and the reasonable requirements of the
broker through which the sales are proposed to be executed.
1.6 The costs and expenses of any registration effected pursuant
to this Section 1 shall be allocated as provided in this Section
1.6:
(a) "Registration Expenses" shall mean all expenses incurred
by the Seller in complying with this Section 1, including, without
limitation, all registration, qualification and filing fees,
printing expenses, messenger, telephone, postage and delivery
expenses, escrow fees, transfer agents' and registrars' fees,
fees and disbursements of counsel for the Seller, blue sky fees
and expenses, underwriters (excluding discounts and conversion
but including liability insurance if the Seller so desires or the
underwriters so require) and the expense of the Seller'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 Seller which shall be
paid in any event by the Seller).
(b) "Selling Expenses" shall mean all underwriting discounts
and selling commissions applicable to the sale and all fees and
disbursements of counsel for any holder.
(c) In connection with any registration pursuant to section
1.1(a), the Seller shall pay all Registration Expenses, and Buyer
shall pay all Selling Expenses; provided that, in the event that
the Seller 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.
(d) In connection with any registration initiated by the
Seller in which Buyer participates pursuant to section 1.1(b), the
Seller shall pay all Registration Expenses, and Buyer shall pay
all Selling Expenses attributable to the inclusion in the
offering of the Covered Shares being sold by Buyer.
(e) In connection with any registration initiated by any
person other than the Seller or the Buyer in which Buyer participates
pursuant to section 1.1(b), the Seller or such person shall pay
all Registration Expenses, as may be provided by the agreement
granting registration rights to such person, and Buyer shall pay
all Selling Expenses attributable to the inclusion in the
offering of the Covered Shares being sold by Buyer.
1.7 In the case of each registration effected by the Seller
pursuant to this Section 1, the Seller agrees to indemnify and
hold harmless Buyer, each person who controls the Buyer, the
directors and employees of Buyer, 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 Seller, and to reimburse them for any legal or
other expenses incurred by them in connection with investigating
any claims and defending any actions (including the costs of
enforcing the indemnification obligations hereunder), 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 Seller
shall have filed with the Commission any amendment thereof or
supplement thereto) if used within the period during which the
Seller is required to keep the registration statement to which
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 1.7
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 Seller by Buyer 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.
1.8 In the case of a registration effected by the Seller
pursuant to this Section 1, Buyer and each underwriter of the
Covered Shares to be registered shall severally agree in the same
manner and to the same extent as set forth in Section 1.7 to
indemnify and hold harmless the Seller, each person who controls
the Seller, the directors of the Seller 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 and to the extent such statement or
omission was made in reliance upon and in conformity with
information furnished in writing to the Seller by Buyer or any
such underwriter, respectively, expressly 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.
1.9 Each party entitled to indemnification under Sections 1.7 or
1.8 (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party")
promptly after such Indemnified Party has actual knowledge of any
claim as to which indemnity may be sought, and shall permit the
Indemnifying Party to assume the defense of such claim or any
litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim
or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party (jointly with any other
Indemnifying Party similarly notified) may participate in such
defense at such party's expense, and provided further that the
failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its
obligations hereunder, to the extent such failure is not
prejudicial. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into
any settlement that does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to
such claim or litigation. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall
be reasonably required in connection with defense of such claim
and litigation resulting therefrom. The indemnity agreements in
this Section 1 shall be in addition to any liabilities that the
indemnifying parties may have pursuant to law.
1.10 If the indemnification provided for in this Section 1 shall
be unavailable to or insufficient to hold harmless an Indemnified
Party under Sections 1.7 or 1.8 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 the relative benefits received by the
respective 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 1.9, 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 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 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 party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
statement or omission.
The Buyer agrees not to effect any public sale or distribution of
Covered Shares, including a sale pursuant to Rule 144 (or any
successor rule) during the thirty (30) days prior to and during
the ninety (90) days beginning on the effective date of any
registration statement pursuant to Section 1 (except as part of
such registration).
2. Miscellaneous.
2.1 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.
2.2 Severability. Each of the provisions of this Agreement (and
each part of each such provision) is severable from every other
provision hereof (and every other part thereof). In the event
that any provision (or part thereof) contained in this Agreement
shall be declared invalid, illegal or unenforceable, in whole or
in part, in any jurisdiction and to any extent:
(a) The validity, legality and enforceability of such
provision (or such part thereof) in any other jurisdiction and of the
remaining provisions contained in this Agreement (or the
remaining parts of such provision, as the case may be) shall not
in any way be affected or impaired thereby;
(b) The application of such provision (or such part thereof)
to circumstances other than those as to which it is held invalid,
illegal or unenforceable shall not in any way be affected or
impaired thereby;
(c) If possible, such provision (or part thereof) shall be
construed as closely as possible to conform to the intent of the
parties;
(d) If not susceptible to such construction, such provision
(or such part thereof) shall be severed from this Agreement and
ineffective to the extent of such invalidity, illegality or
unenforceability in such jurisdiction and in such circumstances; and
(e) The remaining provisions of this Agreement (or the
remaining parts of such provision, as the case may be) shall nevertheless
remain in full force and effect.
2.3 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but
all of which taken together shall constitute one and the same
instrument. It shall not be necessary to produce more than one
fully-executed counterpart hereof in any proceeding in order to
prove the existence of this Agreement.
2.4 Governing Law; Venue. The corporate law of Delaware will
govern all issues concerning the relative rights of the Seller
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
Wilmington, Delaware. Each party waives the right to demand a
jury in any action, suit or proceeding arising pursuant to this
Agreement.
2.5 Notices. All notices provided for under this Agreement
shall be in writing and shall be deemed duly given on the date
delivered if personally delivered, three days after mailing if
mailed by registered or certified mail, on the day after dispatch
if dispatched by prepaid courier, or on the date of transmission
if delivered by facsimile transmission, in each case:
If to Seller:
Mr. Michael Semmens
Electrosource, Inc.
2809 Interstate 35 South
San Marcos, TX 78666-5930
Phone: 512-753-6500
Fax: 512-753-6581
If to Buyer:
(a) Mr. Kamal Siddiqi
Mytchett Place
Mytchett, Surrey GU 16 6DQ
ENGLAND
Phone: 441-252-520000
Fax: 441-252-520800
With a copy (not constituting notice) to:
Jerry L. Shulman, Esq.
Williams & Connolly
725 Twelfth Street N.W.
Washington, D.C. 20005
Phone: 202-434-5510
2.6 Interpretation. No provision of this Agreement shall be
interpreted or construed against any party hereto because that
party or its legal representative drafted that provision. Unless
the context of this Agreement clearly requires otherwise: (i)
references to the plural include the singular, the singular the
plural, and the part the whole, (ii) references to one gender
include all genders, (iii) "or" has the inclusive meaning
frequently identified with the phrase "and/or," (iv) "including"
has the inclusive meaning frequently identified with the phrase
"but not limited to," and (v) references to "hereunder" or
"herein" relate to this Agreement as a whole. The section and
other headings contained in this Agreement are for reference
purposes only and shall not control or affect the construction of
this Agreement or the interpretation thereof in any respect. Any
reference herein to any agreement, including this Agreement,
shall be deemed to include such agreement as it may be modified,
varied, amended or supplemented from time to time. Any reference
herein to any person or entity shall be deemed to include the
heirs, personal representatives, successors and permitted assigns
of such person or entity.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed and delivered as of the date first set forth
above.
ELECTROSOURCE, INC.
By: /s/ Michael G. Semmens
Michael G. Semmens
President, CEO and Chairman of
the Board
KAMKORP LIMITED
By: /s/ Kamal Siddiqi
Kamal Siddiqi
Chairman
document3
smh Automobile
Registered Mail + DHL
Management of
Electrosource, Inc.
2809 IH 35 South
USA-San Marcos, Texas 78666
Bienne, June 4, 1998
WIC/SL
Termination of contract
Dear Sirs
Given the problems of your company to meet with the
contractual requirements for the development of the
defined battery, we hereby terminate our contract within
the four (4) weeks notice period by July 5, 1998.
Electrosource, Inc. is required to stop with immediate
effect all work on the Project and deliver us all the
results thereof.
Thanking you for your cooperation, we remain
Yours very truly
SMH Automobile LTD
/s/ Hanspeter Rentsch /s/ Mougahed Darwish
Dr. Hanspeter Rentsch Dr. Mougahed Darwish
Energy Solutions. One Source. Electrosource.
Electrosource, Inc.
2809 Interstate 35 South, San Marcos, Texas 78666-5930 USA
Tel: 512-753-6500 Fax: 512-353-3391
www.electrosource.com Manufacturers of the HORIZONr C2M Battery
ELECTROSOURCE NEWS
ELECTROSOURCE SIGNS $6 MILLION EQUITY FINANCING AGREEMENT
San Marcos, Texas (June 3, 1998) - ELECTROSOURCE, INC.
(Nasdaq: ELSI) today announced that it has executed an agreement
with Kamkorp Limited, a privately held British company, for up to
$6 million of equity funding. The Agreement also contemplates
sale of Electrosource's Horizon batteries to Kamkorp and its
affiliates beginning in the second half of 1998.
Under terms of the agreement, Kamkorp purchased $1.2 million
of the company's common stock at $1.00 per share; is expected to
purchase an additional $1.5 million of the company's common stock
at $1.00 per share on or before June 15, 1998; and will purchase
up to an additional $3.3 million of the company's common stock at
$1.00 per share over an 11-month period beginning September 1998.
Kamkorp's obligation to advance funds in excess of $1.2 million
is subject to certain conditions precedent. There is no
guarantee or assurance that the full $6 million of the company's
common stock will be purchased by Kamkorp in any event.
Kamkorp also received an option to purchase an additional 3
million shares of the company's common stock at $1.00 each for
cash or, with the agreement of the company, for services.
Kamkorp is currently entitled to nominate a minimum of four
directors to the company's current 8-person Board of Directors
(for a total of 12 Directors) and must approve all important
management policies and decisions. Kamkorp is entitled to
purchase a majority of shares at any time and, if this right is
exercised, may ultimately have Board control.
The parties anticipate that Kamkorp and its affiliates will
place significant orders for Electrosource's Horizon batteries,
which may total up to 5,800 batteries for delivery during the
second half of 1998 which would approximate current plant
capacity and up to 72,000 batteries for delivery during 1999
which would require significant expansion of plant capacity.
There is no guarantee or assurance that any batteries will be
ordered by or delivered to Kamkorp or its affiliates, and Kamkorp
is not obligated to order any minimum amount of batteries.
The company will also restructure its debt and has reached
an agreement with Corning Incorporated to pay $1.5 million in
cash, on or before June 15, 1998, to retire all of the
convertible debt and accrued interest owed to Corning. Corning
will retain certain options that it holds to purchase
Electrosource common stock. The company and Corning concluded
their joint Research and Development Agreement at the end of May.
The company also reported that it is scheduled to appear at
a hearing of the Nasdaq Listing Qualifications Panel on June 18,
1998, regarding Nasdaq's decision to delist the company's
securities from the Nasdaq Stock Market for non-compliance with
Nasdaq listing requirements. While completion of the above
transactions will improve the company's financial position, there
is no assurance that the company will be able to meet all of the
continued listing requirements of Nasdaq.
Electrosource, headquartered in San Marcos, Texas, designs,
manufactures and markets proprietary advanced energy storage
technologies and systems. Additional information about the
company is located on the Internet at www.electrosource.com.
Contact: James M. Rosel, Vice President, at 512-753-6500 or Mark
Trinske, Trinske Communications, at 303-665-7760.
This release contains forward-looking statements that
involve risks and uncertainties. Actual results could differ
materially from those discussed in this release. Risks include
financial risks, development risks, manufacturing risks,
uncertainty of market acceptance, delay in shipment or
cancellation of orders, customer financial capability, customer
reorganization, as well as other risks that are detailed from
time to time in the company's Securities and Exchange Commission
filings.
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