FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission file number 0-16323
ELECTROSOURCE, INC.
(Exact name of Registrant as specified in its charter)
Delaware 742466304
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
2809 Interstate 35 South, San 78666
Marcos, Texas (Address of (Zip Code)
principal executive
offices)
Registrant's telephone number, (512) 753-6500
including area code:
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No __
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes __ No __
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date: 7,834,531 shares as of November 11, 1998.
INDEX TO FINANCIAL STATEMENTS
September 30, 1998
ELECTROSOURCE, INC. COMMISSION FILE NUMBER 0-16323
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Balance Sheets at September 30, 1998 (Unaudited)
and December 31, 1997 Page 3
Condensed Statements of Operations for the three and nine
months ended September 30, 1998 and 1997
(Unaudited) Page 4
Condensed Statements of Cash Flows for the nine months ended
September 30, 1998 and 1997 (Unaudited) Page 5
Notes to Condensed Financial Statements (Unaudited) Page 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Unaudited) Page 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings Page 17
Item 2. Changes in Securities Page 17
Item 3. Defaults Upon Senior Securities Page 17
Item 4. Submission of Matters to a Vote
of Security Holders Page 17
Item 5. Other Information Page 17
Item 6. Exhibits and Reports on Form 8-K Page 17
INDEX TO EXHIBITS Page 20
Part I - Financial Information
Item 1. Financial Statements.
Electrosource, Inc.
Condensed Balance Sheets
<TABLE>
<S> <C> <C> <C>
September 30, December 31,
1998 1997
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 130,114 $ 782,918
Trade receivables 303,892 408,230
Amounts due from related party (Notes E and I) 330,370 --
Inventories 367,482 322,289
Prepaid expenses and other assets 20,172 376,757
TOTAL CURRENT ASSETS 1,152,030 1,890,194
PROPERTY AND EQUIPMENT (net of accumulated
depreciation of $3,838,996 in 1998 and
$3,239,817 in 1997)
3,659,643 4,164,459
INTANGIBLE ASSETS (net of accumulated
amortization of $4,345,053 in 1998 and
$3,600,213 in 1997) 1,116,507 1,861,347
RESTRICTED CASH -- 81,604
OTHER ASSETS 6,250 8,500
TOTAL ASSETS $5,934,430 $8,006,104
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 683,124 $ 518,808
Accrued liabilities 1,316,339 1,668,718
Deferred revenue and advance payments on 1,181,768 432,599
batteries
Advance payments from related party 327,075 --
(Notes E and I)
Current portion of capital lease obligations 75,173 72,685
Convertible notes payable -- 871,920
TOTAL CURRENT LIABILITIES 3,583,479 3,564,730
CONVERTIBLE NOTES PAYABLE (less current portion) -- 2,800,554
CAPITAL LEASE OBLIGATIONS (less current portion) 91,627 148,518
SHAREHOLDERS' EQUITY (DEFICIT)
Common Stock, par value $1.00 per share,
authorized 50,000,000 shares; issued and
outstanding 7,534,531 shares in 1998 and
4,534,531 shares in 1997
7,534,531 4,534,531
Preferred Stock, par value $1.00 per share;
authorized 10,000,000 shares, no shares
issued or outstanding
-- --
Common Stock subscription receivable (467,663) (467,663)
Warrants -- --
Paid in capital 51,446,508 51,146,508
Accumulated deficit (56,254,052) (53,721,074)
2,259,324 1,492,302
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,934,430 $ 8,006,104
(DEFICIT)
See notes to condensed financial statements.
</TABLE>
Electrosource, Inc.
Condensed Statements of Operations (Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months ended
September 30, September 30,
1998 1997 1998 1997
Revenues
Battery sales $ 480,761 $ 122,526 $ 869,380 $ 785,581
Project revenue 413,290 703,951 628,246 1,908,814
Interest income 4,636 28,274 33,209 83,780
898,687 854,751 1,530,835 2,778,175
Costs and expenses
Manufacturing 1,076,316 955,381 2,811,005 2,629,889
Selling, general and 399,243 634,419 1,582,010 1,860,073
administrative
Research and development 347,676 745,782 1,427,318 1,811,443
Technology license and 25,000 25,000 75,000 75,000
royalties
Depreciation and 432,945 471,997 1,344,018 1,427,957
amortization
Interest expense 6,086 117,791 356,507 339,692
Loss on payment of capital -- 189,316 -- 189,316
lease
2,287,266 3,139,686 7,595,858 8,333,370
Loss before income taxes (1,388,579) (2,284,935) (6,065,023) (5,555,195)
Income taxes 0 0 0 0
Loss before extraordinary gain (1,388,579) (2,284,935) (6,065,023) (5,555,195)
Extraordinary gain from
early extinguishment of debt
(Note D) -- -- 3,532,045 --
Net loss $(1,388,579) $(2,284,935) $(2,532,978) $(5,555,195)
Net loss per common share $ (0.22) $ (0.55) $ (0.45) $ (1.37)
Average common shares 6,209,941 4,132,804 5,657,608 4,056,612
outstanding
See notes to condensed financial statements.
</TABLE>
Electrosource, Inc.
Condensed Statements of Cash Flows (Unaudited)
<TABLE>
<S> <C> <C>
Nine Months Ended September 30
1998 1997
OPERATING ACTIVITIES
Net loss $(2,532,978) $(5,555,195)
Adjustments to reconcile net loss to net cash
used in operating activities:
Equity instruments issued for consulting 300,000 164,800
services
Depreciation and amortization 1,344,019 1,598,568
Amortization of discounts on convertible notes
payable
and deferred financing costs -- 75,650
Non-cash interest expense 359,571 100,000
Amortization of prepaid lease expense 319,605 --
Extraordinary gain from early extinguishment (3,532,045) --
of debt
Loss on payment of capital lease -- 189,316
Changes in operating assets and liabilities:
(Increase) in trade and related party (226,032) (533,981)
receivables
(Increase) decrease in inventories (45,193) 14,999
Decrease in prepaid expenses and other assets 39,230 65,434
Increase (decrease) in accounts payable and (188,063) 294,863
accrued liabilities
Increase (decrease) in deferred revenue and 1,076,244 (306,914)
advance payments
CASH USED IN OPERATING ACTIVITIES (3,085,642) (3,892,460)
INVESTING ACTIVITIES
Purchases of property and equipment (94,363) (68,049)
CASH USED IN INVESTING ACTIVITIES (94,363) (68,049)
FINANCING ACTIVITIES
Proceeds from issuance of convertible notes
Payable and related warrants to purchase
Common Stock
1,000,000 4,000,000
Payments of notes payable and capital lease (1,554,403) (638,326)
obligations
Proceeds from issuance of common stock, net 3,000,000 599,294
Proceeds from exercise of stock options -- 50,160
Decrease in restricted cash 81,604 663,220
CASH PROVIDED BY FINANCING ACTIVITIES 2,527,201 4,674,348
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (652,804) 713,839
Cash and cash equivalents at beginning of 782,918 367,861
period
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 130,114 $ 1,081,700
See notes to condensed financial statements.
</TABLE>
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED).
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they
do not include all of the information and notes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments,
consisting of normal recurring accruals, considered necessary for
a fair presentation have been included. These interim financial
statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997, and are
not necessarily indicative of results for the entire year.
Certain reclassifications have been made to the 1997 financial
statements to conform with the 1998 presentation.
NOTE B - INVENTORIES
September 30, December 31,
1998 1997
Raw materials $229,245 $172,469
Work in progress 37,809 79,774
Finished goods 100,428 70,046
$367,482 $322,289
NOTE C - PROPERTY AND EQUIPMENT
September 30, December 31,
1998 1997
Office equipment $ 801,610 $ 785,529
Production and lab equipment 5,396,011 5,317,729
Leasehold improvements 1,301,018 1,301,018
7,498,639 7,404,276
Less - accumulated depreciation
and amortization (3,838,996) (3,239,817)
Total Property and Equipment $3,659,643 $4,164,459
NOTE D - CONVERTIBLE NOTES PAYABLE
In June 1998, in accordance with the terms of a Stock Purchase
Agreement ("Agreement") with Kamkorp Limited ("Kamkorp"), a
company organized in England, the Company executed an agreement
with Corning Incorporated ("Corning") to retire the full
$6,293,002 in outstanding Convertible Notes Payable and accrued
interest owed to Corning, in exchange for $1,500,000 in cash.
The transaction was completed on June 16, 1998. The Convertible
Notes Payable and accrued interest had a carrying amount of
$5,032,045 (after unamortized discount of $1,260,957), resulting
in an extraordinary gain from the early extinguishment of debt of
$3,532,045 upon completion of the transaction. Basic and diluted
earnings per share for the extraordinary gain from the early
extinguishment of debt were $0.68 and $0.73 per share,
respectively, for the three and six month periods ended June 30,
1998. The $1,500,000 was provided to the Company by Kamkorp from
the sale of 1,500,000 shares of Common Stock under the terms of
the Agreement. (See Note E.)
NOTE E - COMMON STOCK AND CHANGE IN CONTROL
On June 2, 1998, the Company entered into an Agreement with
Kamkorp, for up to $6,000,000 of equity funding. The Agreement
was structured with the intent of providing additional capital
combined with battery orders for use in electric vehicles,
neighborhood electric vehicles and other applications. The
Agreement provides Kamkorp the right to purchase an aggregate of
6,000,000 shares of the Company's Common Stock for cash at $1.00
per share and an option to purchase an additional 3,000,000
shares of the Company's Common Stock at $1.00 per share for cash
or, with the agreement of the Company, for services. Under the
terms of the Agreement, Kamkorp purchased 1,200,000 shares of the
Company's Common Stock at $1.00 per share at closing on June 2,
1998. On June 16, 1998, Kamkorp purchased an additional
1,500,000 shares of the Company's Common Stock for $1,500,000.
The proceeds from the June 16, 1998 sale were used to retire all
Convertible Notes Payable and accrued interest owed to Corning.
(See Note D.) As of November 11, 1998, Kamkorp has purchased an
additional $600,000 of the Company's Common Stock at $1.00 per
share. Such payments were generally one week to four weeks past
due. The Agreement requires, subject to certain conditions
precedent, that Kamkorp purchase up to an additional $2,700,000
of the Company's Common Stock at $1.00 per share at a minimum of
$300,000 per month through July 1999. Kamkorp management has
stated that the remaining and future payments (more or less than
those defined in the Agreement) will be made in the amount and
timeframe that Kamkorp and the Company agree are necessary to
sustain operations and the execution of the approved business
plan. (See Note I.)
In accordance with the terms of the Agreement, Kamkorp is
entitled to a number of representatives on the Company's Board of
Directors equal to at least one-third of the members of the
Board. On June 2, 1998, Kamkorp nominated, and the Company's
Board appointed, three (3) directors to the Board for a total of
eleven (11) directors, at that time. Accordingly, Kamkorp may
nominate one additional director if it so chooses. Kamkorp has
the ability to obtain greater than 50% of the outstanding Common
Shares of the Company on a fully-diluted basis under the terms of
the Agreement and to ultimately have control of the Company's
Board of Directors. Additionally, the Company must obtain
express approval of Kamkorp for all important management policies
and decisions, which include the following:
a. the issuance of Common Stock or any security which
provides for the right to acquire Common Stock, or any
other capital stock of the Company;
b. overall policy decisions relating to business
direction and manufacturing capacity;
c. any agreement or commitment that materially
affects or modifies the intellectual property owned by
the Company;
d. approval of the annual operating budget, capital
budget, overhead budgets and business plans of the
Company;
e. approval of any merger, consolidation, partnership
or joint venture;
f. approval of transfer of any assets of the Company
with a fair market value greater than $100,000;
g. incurring indebtedness for borrowed money,
granting any material pledge or security interest in
the assets of the Company;
h. increasing the size of the Company's Board of
Directors;
i. amending the Company's Certificate of
Incorporation or Bylaws;
j. entering into any transaction involving an amount
greater than, or having a value in excess of $100,000
or involving a term or commitment for more than 12
months; and
k. other various management policies and decisions.
As of November 11, 1998, Kamkorp is the record owner of 3,300,000
shares or 42% of the Company's 7,834,531 current outstanding
shares of Common Stock and the beneficial owner of 9,000,000
shares or 66.5% of the Company's Common Stock (assuming purchase
of the full 6,000,000 shares available under the Agreement and
full exercise of the option to purchase 3,000,000 shares). The
Company granted Kamkorp demand and piggyback registration rights
with respect to all such shares. Kamkorp has not yet requested
registration.
The Company received a non-cancelable purchase order and a
$507,500 down payment for 5,800 batteries for delivery during the
second half of 1998. The purchase order was from Electrosource
International Limited ("EIL"), a newly formed distribution
company currently 100% owned by Kamkorp. The ownership structure
is ultimately expected to be 60% owned by Kamkorp and 40% by the
Company. The payment and documentation for the transfer of EIL
shares to Electrosource has not been completed. Accordingly, no
activity related to EIL has been reflected in the Company's
financial statements at September 30, 1998. EIL, in turn,
received a purchase order for 5,800 batteries from Perusahaan
Otomobil Elektrik (Malaysia) ("POEM"), a Malaysian joint venture
company in which Kamkorp affiliates hold a minority interest,
engaged in the production of electric vehicles. Kamkorp
management has indicated that vehicle sales to date have been
less than anticipated due to slower than expected vehicle
production and some delays in customs, which are now resolved.
Kamkorp management has stated that they believe these production
problems are being corrected and no long-term impact to vehicle
sales is expected. As a result, it is anticipated that deliveries
to EIL under the 5,800 battery order will extend into at least
the first quarter of 1999. Additionally, the economic
environment throughout Asia is uncertain and could adversely
affect sales of electric vehicles by POEM. Kamkorp management
has stated their belief that sales in Asia will continue to grow
in addition to non-Asian sales of vehicles. The Company has not
obtained independent information regarding such sales prospects
and there is no assurance that the sales will grow as Kamkorp
anticipates. The possibility of additional orders beyond the
5,800 batteries is tied to the sale of vehicles throughout the
world. The parties anticipate that Kamkorp and its affiliates
may place additional orders for delivery in 1999, however, there
is no guarantee or assurance that any additional batteries will
be ordered by, or delivered to, Kamkorp or its affiliates.
Since September 1998, payments made by Kamkorp under the terms of
the Agreement have not been made on their due dates.
Additionally, EIL has not made payments due under the terms of
the 5,800 battery purchase order, other than the $507,500 down
payment. (See Note I - Liquidity.)
NOTE F - CONTINGENCIES
In 1994 the Company signed a "Know-How License Agreement" (the
"Agreement") with Horizon Battery Technologies, Ltd. ("HBTL"), of
Bombay, India, calling for the completion of several detailed
subordinate agreements with the ultimate purpose to license the
manufacture and sale of batteries in India. The effectiveness of
the Agreement was conditioned upon the subsequent execution of
these six related agreements, none of which were executed. The
Company believes, therefore, the Agreement never became effective
and has no force or effect. Separately in 1995, HBTL agreed to
pay the Company $250,000 for a Preliminary Design Review ("PDR")
for a potential manufacturing facility in India, which was
required to complete one of the subordinate agreements. The
Company received $100,000 from HBTL and completed the PDR in
1995. The remaining $150,000 was never paid by HBTL, in spite of
repeated demands by the Company.
In September 1996 the Company received a demand from HBTL to
arbitrate damage claims for alleged breach of the Agreement.
HBTL claimed damages of approximately $5,100,000 for its expenses
and lost profits related to the Agreement. The Company disputes
the claim for damages and will vigorously defend any action taken
by HBTL to pursue the claims. The Company also filed a petition
in State Court in Travis County, Texas, seeking, among other
things, a declaratory judgment that HBTL had no right to
arbitration or monetary relief. HBTL contested jurisdiction and
removed the proceedings to the U.S. Federal Courts. The Federal
District Court then ruled that it did not have personal
jurisdiction over HBTL and therefore had no power to hear the
case. The Company filed an appeal in the U.S. Fifth Circuit
Court of Appeals from the final judgment and rulings in the
District Court, which denied jurisdiction. A decision on the
appeal is expected at any time. If the appeal is successful, the
U.S. Federal Court will have jurisdiction to hear the case. No
liability has been recorded in the financial statements at
September 30, 1998, for this uncertainty, as management is unable
to determine the likelihood of an unfavorable outcome of this
matter or to estimate the amount or range of potential loss
should the outcome be unfavorable. The resolution of this matter
could have a material adverse effect on the financial position of
the Company.
The Company received notice on June 8, 1998, from SMH Automobile
("SMH") 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
subsequently requested $163,000 from SMH for costs incurred by
the Company in good faith prior to the notice of termination for
the development of a battery for SMH in accordance with the terms
of the development contract. On August 18, 1998, the Company
received a request from SMH for the payment of $210,900 for costs
incurred by SMH due to the Company's inability to meet
contractual requirements. Management of the Company has had
several discussions with SMH management related to the
termination of the contract. The termination is not expected to
have an impact on the financial statements of the Company.
Accordingly, no liability has been recorded in the financial
statements at September 30, 1998, for this uncertainty. However,
if a favorable settlement cannot be reached with SMH, this matter
could have a material adverse effect on the financial position of
the Company.
NOTE G - EARNINGS PER SHARE
Basic and diluted loss per share is based on the average number
of shares of common stock outstanding during each period. Since
the Company has experienced net operating losses (before the
effect of extraordinary items), outstanding options and warrants
and contingently issuable shares to purchase common stock have an
antidilutive effect. Therefore, such options and warrants and
contingently issuable shares were not included in the diluted
loss per share calculation.
NOTE H - COMPREHENSIVE INCOME
In 1997 the Financial Accounting Standards Board issued Statement
130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130
establishes new rules for the reporting and display of
comprehensive income and its components. The Company adopted
SFAS 130 effective January 1, 1998, but does not have any
comprehensive income as defined in SFAS 130.
NOTE I - LIQUIDITY
The Company continues to operate at a cash deficit. In January
and February 1998 the Company borrowed the remaining $1,000,000
of 5% Convertible Notes from Corning in accordance with the terms
of its $2,000,000 Note signed in December 1997. Existing battery
orders and contract work were not adequate to sustain the Company
on an ongoing basis. As a result, in February 1998 the Company
reduced its staffing by approximately 40% to reduce costs and
began to explore strategic alternatives such as a business
combination, the sale of substantially all of the Company's
assets or a strategic alliance.
On June 2, 1998, the Company entered into an Agreement with
Kamkorp for up to $6,000,000 of equity funding. As of November
11, 1998, Kamkorp has purchased 3,300,000 shares of the Company's
Common Stock. The Agreement requires that Kamkorp purchase up to
an additional 2,700,000 shares of Common Stock at $1.00 per share
at a minimum rate of 300,000 shares per month through July 1999.
(See Note E.) Kamkorp's obligation to make these purchases is
dependent upon the absence of any material change in the
financial position, business or prospects of the Company and upon
certain other conditions precedent, such as the absence of
litigation, absence of defaults on other contracts and
agreements, and compliance with environmental regulations. The
Company believes that it is currently in compliance with these
conditions.
The required monthly payments of $300,000 for September and
October 1998 for the purchase of shares of Common Stock in
accordance with the terms of the Agreement have been made,
although the payments were delayed beyond the due dates an
average of two to three weeks. Kamkorp management has stated
such payments were delayed because Kamkorp and the Company have
been discussing and reviewing operational performance and current
and future plans. Kamkorp management has stated that they will
continue payments during the business review, the completion of
which is anticipated by mid-December. Further, Kamkorp
management has stated that the remaining and future payments will
be made in the amount and timeframe that Kamkorp and the Company
agree are necessary to sustain operations and the execution of
the approved business plan. Accordingly, Kamkorp has made a
small payment at the request of Electrosource as the initial
portion of the November 1998 payment, and has stated that the
balance of the November 1998 payment will be paid as required by
the Company's operating cash needs. While Kamkorp has provided
substantial amounts of financing to the Company to date, as a
private company Kamkorp is not legally required to, and has not,
provided information to the Company sufficient to allow the
Company to determine the financial ability of Kamkorp to make the
remaining required purchases of Company Common Stock.
The Company received a non-cancelable purchase order for 5,800
batteries for delivery during the second half of 1998 from a
Kamkorp affiliate ("EIL"). During July 1998 the Company received
$507,500 as a down payment in accordance with the terms of this
purchase order. The terms of the purchase order state that the
down payment is to be applied on a pro-rata basis to the 5,800
batteries with the remaining amounts due 30 days after the
shipment of batteries. As of November 11, 1998, 2,062 batteries
have been delivered. Additionally, Electrosource has incurred
certain payroll, travel and freight costs on behalf of EIL which
EIL management has orally agreed to pay. As of November 11,
1998, the balance owed to Electrosource by EIL for batteries and
other costs is $359,167, nearly one-half of which is more than
sixty days past due. As of September 30, 1998, the balance of
such costs was $330,370. It is management's understanding based
on discussions with Kamkorp and EIL management that the delay in
payment is due to a clarification over the settlement of freight
charges, which has now been resolved. No reserve has been
reflected in the financial statements related to the uncertainty
of this receivable from EIL as advance payments from EIL of
approximately the same amount currently exist.
Management anticipates that deliveries to EIL under the 5,800
battery order will extend into at least the first quarter of 1999
because vehicle sales to date have been less than anticipated. It
is anticipated that Kamkorp and its affiliates may place
additional orders for delivery in 1999, however, there is no
guarantee or assurance that any additional batteries will be
ordered by, or delivered to, Kamkorp or its affiliates.
Additionally, the economic environment throughout Asia is
uncertain and could adversely affect the anticipated sale of
electric vehicles by POEM.
Cash balances have been depleted and the Company is currently
dependent on cash payments from Kamkorp and its affiliates to
continue operations on a day-to-day basis. Cash generated from
battery sales and contracts with other customers is not
sufficient to fund operations. Cash payments from Kamkorp and
its affiliates have not been made in a timely fashion to date and
there is no assurance that future payments from Kamkorp or its
affiliates, if any, will be made in a timeframe sufficient to
sustain operations. Additionally, the anticipated minimum
$300,000 funding per month in accordance with the terms of the
Agreement, will not, by itself, be sufficient to continue
operations at current levels. Funding beyond $300,000 per month,
additional battery orders, or other financing will be required
before the end of 1998 to continue operations at current levels.
The Company is discussing the possibility of accelerated or
additional financing from Kamkorp which could be provided under
the terms of the Agreement, including Kamkorp's exercise of its
option to purchase 3,000,000 shares of the Company's Common Stock
at $1.00 per share. Absent additional funding from Kamkorp or
other sources, the Company will not have the funds necessary to
complete battery orders from Kamkorp affiliates or other
customers, or to pay all outstanding obligations and will not be
able to continue as a going concern.
The Company's Common Stock is traded in the Over-the-Counter
Market and is reported on the Nasdaq Stock Markets ("Nasdaq").
In order to maintain listing by Nasdaq under rules which went
into effect in February 1998, the Company must maintain a minimum
$2,000,000 of net tangible assets (total assets, excluding
goodwill, minus total liabilities). The Company was not in
compliance with the requirement before the completion of the
financing transactions and debt extinguishment completed in June
1998. In April 1998 the Company received notice from Nasdaq that
it must present a plan for compliance with listing standards on
or before April 16, 1998. The Company submitted such a plan on
April 15, 1998. On May 13, 1998, the Company was notified by
Nasdaq that its plan was not accepted and it would be delisted
from Nasdaq effective the close of business on May 20, 1998. The
Company filed a request for an oral hearing regarding the
decision. The hearing was held on June 18, 1998. On July 1,
1998, the Company received written notice from Nasdaq that its
shares would continue to be listed on the Nasdaq Small Cap
Market, as the Company regained compliance with the financial
listing criteria and provided a plan for continued compliance.
The success of this plan is contingent upon equity funding
anticipated to be provided by Kamkorp in accordance with the
terms of the Agreement and successful execution of the Company's
business plan which includes increased revenues and reduced
operating losses and/or additional equity funding. If such
funding is not provided (by Kamkorp or other parties), the
Company will not be able to maintain the required $2,000,000 of
net tangible assets. If the Company does not maintain the
required listing criteria, it is likely that the Company's shares
would be delisted from the Nasdaq Small Cap Market at a time
specified by Nasdaq, in which event the shares would be quoted on
the Over-the-Counter ("OTC") Bulletin Board and/or the Pink
Sheets of the National Quotation Bureau ("NQB"). In such trading
markets, brokers and dealers effecting trades in the Common Stock
would become subject to the Securities and Exchange Commission
rules covering trading in "penny stocks." Becoming subject to
the "penny stock" rules would likely have a material adverse
effect on both the price and trading liquidity of the Company's
Common Stock.
If the Company is delisted from Nasdaq it would likely be more
difficult to obtain additional funding. There can be no
assurance that additional funding which will generate sufficient
cash to sustain operations can be obtained on terms acceptable to
the Company, if at all. The financial statements do not include
any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and
classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Unaudited)
Results of Operations:
Revenues.
The Company had battery sales of $481,000 and $869,000 for the
three and nine months ended September 30, 1998, as compared to
$123,000 and $786,000 for the three and nine months ended
September 30, 1997. Approximately 27% and 65% of the battery
sales for the nine months ended September 30, 1998, and 1997,
respectively, were to Chrysler Corporation ("Chrysler"). These
purchases were for testing and evaluation of the Horizon battery
in the EPIC Minivan program. Chrysler placed a $1,400,000
purchase order with the Company in February 1998 for further
testing and evaluation of the batteries. The purchase order was
amended in September 1998, reducing the total to approximately
$1,100,000. Approximately $700,000 was received in February 1998
and the remaining $400,000 in September 1998, in advance of
battery shipments; approximately $1,000,000 of which remained
deferred at September 30, 1998. The Company and Chrysler are in
discussions regarding the timing and amount of future battery
shipments to Chrysler in accordance with the terms of this
purchase order. The timing and amount of such shipments are
uncertain. The Company does not expect additional cash or orders
from Chrysler in the near term.
The remainder of battery sales in 1998 were to Electrosource
International Limited ("EIL"), Lockheed Martin and Micro-Vett.
Approximately 72% and 42% of battery sales for the three and nine
months ended September 30, 1998, respectively, were to
Electrosource International Limited ("EIL"). EIL is a newly
formed distribution company expected to be owned 60% by Kamkorp
Limited ("Kamkorp") and 40% by the Company. (EIL is currently
100% owned by Kamkorp. The payment and documentation of the sale
of EIL shares to Electrosource has not been completed.
Accordingly, no amounts related to EIL's activity have been
reflected in the Company's financial statements at September 30,
1998.) EIL placed a non-cancelable order for 5,800 batteries to
be delivered in the second half of 1998 with the Company. A down
payment of $507,500 on the order was received in July. EIL, in
turn, received a purchase order for 5,800 batteries from
Perusahaan Otomobil Elektrik (Malaysia) ("POEM"), a Malaysian
joint venture company in which Kamkorp affiliates hold a minority
interest, for production of electric vehicles. POEM used a
portion of the batteries delivered to date in electric vehicles
it produced and supplied to shuttle athletes and officials at the
Commonwealth Games held in Kuala Lumpur, Malaysia in September
1998. The batteries performed very well at the Commonwealth
Games. However, sales of vehicles to date by POEM in Malaysia
have been less than anticipated due to slower than expected
vehicle production and some delays in customs, which are now
resolved. Kamkorp management has stated that they believe these
production problems are being corrected and no long-term impact
to vehicle sales is expected. As a result, management believes
that deliveries under the 5,800 order will extend into at least
the first quarter of 1999. The status of future orders is
uncertain and there is no guarantee or assurance that any
batteries beyond the 5,800 initial order will be ordered by, or
delivered to Kamkorp or its affiliates. (See also Liquidity and
Capital Resources section below.)
Sales of batteries to Lockheed Martin are expected to increase in
1999. Lockheed Martin produces a drive train used in hybrid
buses manufactured by the Orion Bus Company and others. The New
York Transit Authority is currently testing a hybrid diesel bus
on the streets of New York City manufactured by Orion, which is
powered by a Lockheed Martin drive train and Electrosource
batteries. The test is expected to conclude in late 1998. If
the results of such tests are favorable, the New York Transit
Authority may place an order for the hybrid buses powered by
Electrosource Horizon batteries in the first quarter of 1999.
However, the amount and timing of such orders remains uncertain.
Management expects to receive Federal Aviation Administration
("FAA") certification of batteries for helicopter and aircraft
starting applications in late 1998 and early 1999, respectively,
at which time sales of these batteries are expected to commence.
However, the amount and timing of these sales remains uncertain.
The Company had project revenue of approximately $413,000 and
$628,000 for the three and nine months ended September 30, 1998,
as compared to $704,000 and $1,909,000 for the three and nine
months ended September 30, 1997. $215,000 of the revenue
generated in the three month period ended September 30, 1998 was
from the final resolution and settlement of a program with a
customer which remains confidential. Battery orders from this
customer are not expected in the near future, if at all.
Essentially all of the remaining revenue generated in 1998 was
from cooperative development and research agreements with the
Defense Advanced Research Projects Agency ("DARPA") for HEV and
EV applications. Development work continues on the Fiat Auto
program ("Fiat"), however no specific payment milestones were
achieved during 1998 to permit the recognition of revenue on this
program. This development program is expected to be completed by
the end of 1998. Future orders remain uncertain. Project
revenue for 1998 is expected to be well below 1997 levels.
Costs and Expenses.
Generally, total costs were lower in the three and nine month
periods ended September 30, 1998 compared to the same periods in
1997 primarily due to labor reductions in the research and
development and selling, general and administrative departments.
Additionally, interest expense significantly decreased beginning
in June 1998 with the Company's payment of its outstanding
obligations to Corning. The labor reductions occurred in
February 1998 and voluntary payroll reductions were taken by
executive management beginning in early 1998. Average headcount
in 1998 is lower than in 1997 because of these labor reductions.
Manufacturing costs have remained high as a percentage of battery
sales, primarily due to the lack of capital required to further
automate the production processes, materials being purchased in
low volumes and the fixed facility cost of leasing and
maintaining the 88,000 square foot manufacturing and office
facility. As a result, manufacturing costs have not fluctuated
significantly from relatively small changes in volume.
Management expects that manufacturing costs can decrease as a
percentage of battery sales if volume production begins, however,
additional capital will be required for manufacturing tooling
required for the large-scale production of prototype battery
models in order to achieve manufacturing efficiencies and to
lower raw material costs. The timing and amount of battery
orders remains uncertain and the sources of capital which would
be required for the related tooling for such orders may not be
available to the Company.
Selling, general and administrative costs are lower for the three
and nine month periods ended September 30, 1998 compared to the
same periods in 1997 primarily due to labor reductions which
occurred in February 1998 and voluntarily salary reductions taken
by executive management in early 1998. As a result of the
reduction in personnel, travel costs were also lower in 1998
compared to the same period in 1997.
Development work and related costs has decreased in the three and
nine month periods ended September 30, 1998, compared to the same
period in 1997, which correlates with the decrease in revenue for
the periods. The amount of development work and related costs
have not decreased proportionately with revenue as a larger
proportion of development work and related costs has been
incurred in 1998 on programs which are not generating revenue and
on cost-share programs which generate less revenue than
commercial programs. The Company has incurred more costs in 1998
on testing and evaluation of batteries (aircraft, helicopter and
lawnmower applications) and improvements in manufacturing
processes and joint research and development efforts with
Corning. Research and development costs decreased upon
completion of the joint research and development efforts with
Corning, which were completed in May 1998.
Interest costs relate primarily to the Company's previous debt
obligations to Corning and have greatly decreased due to the
Company's retirement of its obligations to Corning in June 1998.
During 1997 and early 1998 the Company issued Convertible Notes
Payable to Corning with a principal balance of $6,202,500 at face
interest rates of 5%. The Company was also amortizing discounts
on the Convertible Notes Payable. In June 1998 the Company paid
Corning $1,500,000 in cash in full settlement of its outstanding
obligations to Corning. An extraordinary gain on the early
extinguishment of debt of approximately $3,500,000 was realized
from this transaction. (See Note D to the interim financial
statements.)
The Company has completed an assessment of its information
technology systems' readiness for the Year 2000 and currently
believes that the modifications necessary for the Year 2000 are
not significant. This is because the Company's information
systems are not complex and have been purchased/installed over
the last few years and the Company believes that most of the
related software is Year 2000 compliant or Year 2000 compliant
replacements are readily available. The Company also believes
embedded software in its manufacturing production equipment is
either not year sensitive or was developed considering the impact
of the Year 2000 issues. The Company began testing its systems
for the Year 2000 readiness in 1998 and the project is estimated
to be complete in late 1999, prior to any estimated impact. The
Company does not expect the costs of this project to be material
or for it to have a significant effect on operations and believes
that with modifications to existing software and conversions to
new software, the Year 2000 issue will not pose significant
operational problems.
The costs of the project and the date on which the Company
believes it will complete the Year 2000 modifications are based
on management's best estimates, which were derived utilizing
numerous assumptions of future events, including the continued
availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved
and actual results could differ materially from those
anticipated. Specific factors that might cause such material
differences include, but are not limited to, the availability and
cost of personnel trained in this area and the ability to locate
and correct all relevant computer codes and similar
uncertainties.
Liquidity and Capital Resources.
The Company continues to operate at a cash deficit. In January
and February 1998 the Company borrowed the remaining $1,000,000
of 5% Convertible Notes from Corning in accordance with the terms
of its $2,000,000 Note signed in December 1997. Existing battery
orders and contract work were not adequate to sustain the Company
on an ongoing basis. As a result, in February 1998 the Company
reduced its staffing by approximately 40% to reduce costs and
began to explore strategic alternatives such as a business
combination, the sale of substantially all of the Company's
assets or a strategic alliance.
On June 2, 1998, the Company entered into an Agreement with
Kamkorp for up to $6,000,000 of equity funding. As of November
11, 1998, Kamkorp has purchased 3,300,000 shares of the Company's
Common Stock. The Agreement requires that Kamkorp purchase up to
an additional 2,700,000 shares of Common Stock at $1.00 per share
at a minimum rate of 300,000 shares per month through July 1999.
(See Note E.) Kamkorp's obligation to make these purchases is
dependent upon the absence of any material change in the
financial position, business or prospects of the Company and upon
certain other conditions precedent, such as the absence of
litigation, absence of defaults on other contracts and
agreements, and compliance with environmental regulations. The
Company believes that it is currently in compliance with these
conditions.
The required monthly payments of $300,000 for September and
October 1998 for the purchase of shares of Common Stock in
accordance with the terms of the Agreement have been made,
although the payments were delayed beyond the due dates an
average of two to three weeks. Kamkorp management has stated
such payments were delayed because Kamkorp and the Company have
been discussing and reviewing operational performance and current
and future plans. Kamkorp management has stated that they will
continue payments during the business review, the completion of
which is anticipated by mid-December. Further, Kamkorp
management has stated that the remaining and future payments will
be made in the amount and timeframe that Kamkorp and the Company
agree are necessary to sustain operations and the execution of
the approved business plan. Accordingly, Kamkorp has made a
small payment at the request of Electrosource as the initial
portion of the November 1998 payment, and has stated that the
balance of the November 1998 payment will be paid as required by
the Company's operating cash needs. While Kamkorp has provided
substantial amounts of financing to the Company to date, as a
private company Kamkorp is not legally required to, and has not,
provided information to the Company sufficient to allow the
Company to determine the financial ability of Kamkorp to make the
remaining required purchases of Company Common Stock.
The Company received a non-cancelable purchase order for 5,800
batteries for delivery during the second half of 1998 from a
Kamkorp affiliate ("EIL"). During July 1998 the Company received
$507,500 as a down payment in accordance with the terms of this
purchase order. The terms of the purchase order state that the
down payment is to be applied on a pro-rata basis to the 5,800
batteries with the remaining amounts due 30 days after the
shipment of batteries. As of November 11, 1998, 2,062 batteries
have been delivered. Additionally, Electrosource has incurred
certain payroll, travel and freight costs on behalf of EIL which
EIL management has orally agreed to pay. As of November 11,
1998, the balance owed to Electrosource by EIL for batteries and
other costs is $359,167, nearly one-half of which is more than
sixty days past due. As of September 30, 1998, the balance of
such costs was $330,370. It is management's understanding based
on discussions with Kamkorp and EIL management that the delay in
payment is due to a clarification over the settlement of freight
charges, which has now been resolved. No reserve has been
reflected in the financial statements related to the uncertainty
of this receivable from EIL as advance payments from EIL of
approximately the same amount currently exist.
Management anticipates that deliveries to EIL under the 5,800
battery order will extend into at least the first quarter of 1999
because vehicle sales to date have been less than anticipated. It
is anticipated that Kamkorp and its affiliates may place
additional orders for delivery in 1999, however, there is no
guarantee or assurance that any additional batteries will be
ordered by, or delivered to, Kamkorp or its affiliates.
Additionally, the economic environment throughout Asia is
uncertain and could adversely affect the anticipated sale of
electric vehicles by POEM.
Cash balances have been depleted and the Company is currently
dependent on cash payments from Kamkorp and its affiliates to
continue operations on a day-to-day basis. Cash generated from
battery sales and contracts with other customers is not
sufficient to fund operations. Cash payments from Kamkorp and
its affiliates have not been made in a timely fashion to date and
there is no assurance that future payments from Kamkorp or its
affiliates, if any, will be made in a timeframe sufficient to
sustain operations. Additionally, the anticipated minimum
$300,000 funding per month in accordance with the terms of the
Agreement, will not, by itself, be sufficient to continue
operations at current levels. Funding beyond $300,000 per month,
additional battery orders, or other financing will be required
before the end of 1998 to continue operations at current levels.
The Company is discussing the possibility of accelerated or
additional financing from Kamkorp which could be provided under
the terms of the Agreement, including Kamkorp's exercise of its
option to purchase 3,000,000 shares of the Company's Common Stock
at $1.00 per share. Absent additional funding from Kamkorp or
other sources, the Company will not have the funds necessary to
complete battery orders from Kamkorp affiliates or other
customers, or to pay all outstanding obligations and will not be
able to continue as a going concern.
The Company's Common Stock is traded in the Over-the-Counter
Market and is reported on the Nasdaq Stock Markets ("Nasdaq").
In order to maintain listing by Nasdaq under rules which went
into effect in February 1998, the Company must maintain a minimum
$2,000,000 of net tangible assets (total assets, excluding
goodwill, minus total liabilities). The Company was not in
compliance with the requirement before the completion of the
financing transactions and debt extinguishment completed in June
1998. In April 1998 the Company received notice from Nasdaq that
it must present a plan for compliance with listing standards on
or before April 16, 1998. The Company submitted such a plan on
April 15, 1998. On May 13, 1998, the Company was notified by
Nasdaq that its plan was not accepted and it would be delisted
from Nasdaq effective the close of business on May 20, 1998. The
Company filed a request for an oral hearing regarding the
decision. The hearing was held on June 18, 1998. On July 1,
1998, the Company received written notice from Nasdaq that its
shares would continue to be listed on the Nasdaq Small Cap
Market, as the Company regained compliance with the financial
listing criteria and provided a plan for continued compliance.
The success of this plan is contingent upon equity funding
anticipated to be provided by Kamkorp in accordance with the
terms of the Agreement and successful execution of the Company's
business plan which includes increased revenues and reduced
operating losses and/or additional equity funding. If such
funding is not provided (by Kamkorp or other parties), the
Company will not be able to maintain the required $2,000,000 of
net tangible assets. If the Company does not maintain the
required listing criteria, it is likely that the Company's shares
would be delisted from the Nasdaq Small Cap Market at a time
specified by Nasdaq, in which event the shares would be quoted on
the Over-the-Counter ("OTC") Bulletin Board and/or the Pink
Sheets of the National Quotation Bureau ("NQB"). In such trading
markets, brokers and dealers effecting trades in the Common Stock
would become subject to the Securities and Exchange Commission
rules covering trading in "penny stocks." Becoming subject to
the "penny stock" rules would likely have a material adverse
effect on both the price and trading liquidity of the Company's
Common Stock.
If the Company is delisted from Nasdaq it would likely be more
difficult to obtain additional funding. There can be no
assurance that additional funding which will generate sufficient
cash to sustain operations can be obtained on terms acceptable to
the Company, if at all. The financial statements do not include
any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and
classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.
In December 1997 the Company issued 299,304 shares of Common
Stock to BDM (now part of TRW) as partial payment for past
obligations owed to BDM for occupancy related costs (which the
Company has accrued) and as prepayment under operating leases for
manufacturing equipment which are guaranteed by BDM. The number
of shares issued was determined based on the fair market value of
the shares at the date of the agreement ($2.56 per share). When
the shares are sold by BDM, the proceeds will be used to satisfy
these past and future obligations. If the proceeds from the sale
of such shares are not sufficient to satisfy the obligations, the
Company will issue additional shares of Common Stock or pay cash
to BDM to make up the deficiency. BDM has agreed to reduce
amounts owed to it by at least $1.00 per share or $299,304 for
the shares issued. BDM will retain any overage from the sale of
such shares in excess of the amounts owed. The Company agreed to
pay $300,000 cash to BDM (for the remaining unpaid occupancy
related costs) from the proceeds received from any fundraising
activities completed by the Company before March 31, 1998, in
excess of $5,000,000, which did not occur. The balance is to be
paid in shares of Common Stock, which the Company has not yet
issued. The Company and BDM have agreed to postpone issuance of
the shares in order to discuss other arrangements. The Company's
closing market price as reported by Nasdaq on November 11, 1998,
was $1.44 per share. BDM has not notified the Company of an
intent to sell such shares in the near term; however, unless the
value of the Company's Common Stock improves, based on current
market prices of the Company's Common Stock, additional shares of
Common Stock or cash will be required to settle these obligations
under the terms of this agreement.
Significant capital expenditures will be required in the future
to further automate and achieve consistency in the production
process if significant orders are received; however, such
expenditures are not expected to be significant in 1998 or early
1999 to satisfy current battery orders. The funding required for
such potential expansion has not been identified. There were no
significant capital commitments at September 30, 1998.
The Company is a party to certain litigation that, if resolved in
a manner adverse to the Company, could have a material adverse
effect on the Company's liquidity and capital resources. (See
Note F to the interim financial statements.)
From time to time, the Company may publish forward-looking
statements relating to such matters as anticipated financial
performance, business prospects, technological development, new
products, research and development activities and similar
matters. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. In order
to comply with the terms of the safe harbor, the Company notes
that a variety of factors could cause the Company's actual
results and experience to differ materially from the anticipated
results or other expectations expressed in the Company's forward-
looking statements. When used in this discussion, the words
"expects," "believes," "anticipates" and similar expressions are
intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. The
risks and uncertainties that may affect the operations,
performance, development and results of the Company's business
primarily include completion of existing battery orders,
uncertainty as to receipt of additional orders, inability to
obtain additional debt or equity financing, continued willingness
and ability of Kamkorp and its affiliates to provide agreed-upon
financing, currency controls and other uncertainties arising from
Malaysia and Far East economies upon which the Company is
dependent for equity financing and battery sales, delisting of
the Company's Common Stock on Nasdaq, termination of the
Company's facility lease, delays in shipment or cancellation of
orders, timing of future orders, customer reorganization,
fluctuations in demand primarily associated with governmental
mandates for the production of zero emission vehicles and the
ability to successfully commercialize the Horizon battery.
Readers are cautioned not to place undue reliance on these
forward-looking statements which speak only as of the date
hereof. The Company undertakes no obligation to republish
revised forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence
of unanticipated events. Readers are also urged to carefully
review and consider the various disclosures made by the Company
which attempt to advise interested parties of the factors which
affect the Company's business in this report and in the Company's
periodic reports on Forms 10-K and 8-K filed with the Securities
and Exchange Commission.
Part II - Other Information
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults on Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
On November 3, 1998, Mr. Richard Williamson submitted his
resignation to the Board of Directors stating that his
current workload was impacting his availability to
participate in the functions required of a Director for the
Company. On November 10, 1998, it was resolved that the
Board would consist of ten (10) members. Future Board
members will be considered if and when presented, and will
be appointed, if deemed appropriate by the Board. No one is
being considered as a new candidate at this time.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10.1 Severance Agreement between James M. Rosel and
Electrosource, Inc. effective August 31, 1998.
10.2 Amendment Number One to Stock Purchase Warrant
dated August 18, 1998, issued under Subscription
Agreements between participants and Electrosource,
Inc. dated January 23, 1997.
27. Financial Data Schedule.
(b) Reports on Form 8-K.
Reports on Form 8-K filed during the quarter ended
September 30, 1998 and up to the date of this filing on
Form 10-Q were:
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereto duly authorized.
Date: November 16, 1998 ELECTROSOURCE, INC.
/s/ Michael G. Semmens
Michael G. Semmens
Chairman, President
and Chief Executive Officer
/s/ Mary Beth Koenig
Mary Beth Koenig
Chief Accounting Officer
and Treasurer
Washington, D.C. 20549
________________________________________
EXHIBITS TO
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission File Number:
September 30, 1998 0-16323
__________________________________________
ELECTROSOURCE, INC.
(Exact name of Registrant as specified in its charter)
Delaware 742466304
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2809 Interstate 35 South, San 78666
Marcos, Texas
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code:
(512) 753-6500
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
(Title of Class)
INDEX TO EXHIBITS
No. Description Page
10.1 Severance Agreement between James M. Rosel and
Electrosource, Inc. effective August 31, 1998. 21
10.2 Amendment Number One to Stock Purchase Warrant
dated August 18, 1998, issued under
Subscription Agreements between participants
and Electrosource, Inc. dated January 23,
1997. 39
27. Financial Data Schedule 40
EXHIBIT 10.1
August 21, 1998
Mr. James M. Rosel VIA HAND DELIVERY
1507 Falcon Ledge
Austin, Texas 78746
Dear Jim:
This letter confirms our discussions and the agreement made
between you and Electrosource, Inc. ("ELSI") regarding your
resignation from your employment with ELSI, ELSI's payment of
special separation compensation, and various related matters. The
terms of ELSI's offer in this regard are stated below, and your
acceptance of such terms will be shown by your signature in the
space provided at the end of this letter. On behalf of ELSI, I
want to express appreciation for your service and contributions,
and wish you success in your future endeavors.
1. Resignation from Employment and from All Offices. Based on
your voluntary resignation for the purpose of retirement, your
employment with ELSI will terminate effective with the close of
business on Monday, August 31, 1998 (the "Separation Date"). By
your agreement and signature below, you also resign effective as
of the Separation Date from your offices of General Counsel and
Vice President, and all other offices, if any, held by you with
ELSI and any of ELSI's subsidiary or affiliated companies.
2. Salary and Benefits. In accordance with ELSI's existing
policies or at its discretion, you have received or will receive
the following payments and benefits pursuant to your employment
with ELSI and your participation in its benefit plans:
(a) Payment of your regular base salary ($10,426.66 per
month), less all legal deductions, through the Separation Date;
(b) Payment of accrued and unused vacation leave benefits,
if any, as of the Separation Date;
(c) Health and dental benefits through the Electrosource
group insurance plan through the Separation Date, subject to your
COBRA continuation rights in accordance with applicable law;
(d) Continuation of your Group Term Life, Accidental Death
and Dismemberment and Short and Long Term Disability insurance
coverage through the Separation Date, with no conversion option
available for any of this insurance;
(e) Participation in the Section 125 Plan through the
Separation Date and return of any unreimbursed election monies
thereafter pursuant to Plan terms;
(f) Payment of vested benefits in the Electrosource 401 k
Plan in accordance with the terms of the Plan;
(g) On your timely election, exercise of options in the
1996 Stock Option Plan of Electrosource, Inc. (the "Plan") in
accordance with the terms of the Plan and Option Grants 00000578,
00000579, 00000580, 00000581, 00000582, 00000583, 00000685, as
amended or replaced prior to the Separation Date, a summary of
which is attached to this letter as Exhibit A and by reference
made a part hereof; and
(h) On your timely election, exercise of contractual
warrants in accordance with the terms January 2, 1997, Securities
Subscription Agreement/Executive Officers and Warrant Agreement
and Stock Purchase Warrant dated January 23, 1997, as amended or
replaced prior to the Separate Date, attached to this letter as
Exhibits B-1 and B-2 and by reference made a part hereof.
The amounts paid in accordance with subparagraphs (a) and (b) of
this paragraph are gross amounts, subject to lawful deductions,
including any deductions you have previously authorized, and will
be paid to you, within six days after the Separation Date.
After the termination of your employment, you are entitled at
your option to continue your group health insurance and dental
coverage at your own expense, in accordance with applicable law.
Please complete a COBRA election form, which will be furnished to
you, and return it to the undersigned at your earliest
convenience, in accordance with the terms of the election form,
if you elect to continue such insurance coverage. Continued
coverage for yourself and your family will cost $424.50 per
month.
ELSI will settle promptly all authorized reimbursable business
expenses, if any, when you have submitted appropriate expense
reports along with the required receipts and documenting
information. Please submit any request for reimbursement as soon
as possible, but not later than September 30, 1998.
By your signature on this letter, you represent and warrant that
on the advice of counsel you have no other claims or entitlements
to Company wages or benefits other than as set forth herein.
3. Special Separation Compensation. Contingent upon your
acceptance of the terms of this Agreement, ELSI offers you, in
consideration of your undertakings set forth in Paragraphs 6
(General Release), 7 (Confidentiality, Nonprosecution,
Nondisparagement, and Cooperation), and 8 (Agreement Not to Seek
Reemployment) of this Agreement, in addition to the pay and
benefits you will receive pursuant to Paragraph 2, the following
Special Separation Compensation:
(a) Continuation of your pay after the Separation Date
stated in this letter through the earlier of (i) your obtaining
full-time employment and receiving cash compensation at or above
your regular base salary rate, or (ii) October 31, 1998, at your
regular base salary rate. Payment will be made in equal bi-
weekly installments of $4,812.31 on ELSI's regular bi-weekly pay
dates commencing on the Effective Date of this Agreement (as
defined in Paragraph 14). The foregoing sums are gross amounts,
subject to lawful deductions. It is expressly the mutual intent
of you and ELSI that the foregoing amounts are tendered and shall
be accepted and treated as wages in lieu of notice for purposes
of the Texas Unemployment Compensation Act, with the result
according to law that you should not be eligible for receipt of
unemployment compensation benefits during the period of time over
which such continuing wages are paid.
(b) If you elect continuation of your group health and
dental insurance coverage under COBRA as referred to in Paragraph
2, payment by ELSI, for a period not to exceed two months after
the Separation Date stated in this letter, of such portion of the
health and dental insurance premiums as is equivalent to the
amount that would have been paid by ELSI on your behalf if you
had continued employment with ELSI during such period. Further
upon your election of such COBRA continuation, by your signature
below you authorize ELSI to withhold from the payments described
in Paragraph 3(a) the portion of premium required to be paid by
you, on the same cost allocation basis as if you had continued
employment with ELSI during the period of ELSI's payments.
By executing this Agreement, you acknowledge and agree
that neither ELSI nor any of the other Released Parties (as
defined in Paragraph 6 below) has any prior legal obligation to
provide all or any portion of the Special Separation Compensation
to you. You also acknowledge and agree that your acceptance of
the Special Separation Compensation and attendant obligations as
described in this Agreement is in consideration of the promises
and undertakings of ELSI as set forth herein.
4. Return of Property/Orderly Transaction. You must return to
ELSI by no later than the close of business on August 31, 1998,
or as soon thereafter as is possible with respect to any items
not then immediately available, any and all items of ELSI's
property, including without limitation keys, computers, software,
calculators, equipment, credit cards, technical data, forms,
files, manuals, correspondence, business records, personnel data,
lists of employees, salary and benefits information, lists of
suppliers and vendors, contracts, contract information,
brochures, catalogs, training materials, computer tapes and
diskettes or other portable media, computer-readable files and
data stored on any hard drive or other installed or portable
device, and data processing reports, any other process- or
technical-procedures-related information, and any and all other
ELSI documents or property which you have had possession of or
control over during the course of your employment with ELSI.
Consistent with your ethical obligations as an attorney, and as
the Company's General Counsel, you will provide me on or before
your Separation Date with a written summary of all outstanding
Company legal and financial matters of which you are aware, the
current status, any applicable deadline dates, and if the matter
is being handled by outside counsel, the name and telephone
number of the counsel.
5. Use of Confidential Information. Whether or not you accept
the terms of this Agreement, you are hereby notified that all of
the documents and information to which you have had access during
your employment, including but not limited to all information
pertaining to any specific business transactions in which ELSI or
any of the other Released Parties (as defined in Paragraph 6
below) were, are, or may be involved, all information concerning
salary and benefits paid to current or former employees of ELSI
or any of the other Released Parties, all personnel information
relating in any way to current or former employees of ELSI or
those of any of the other Released Parties, all information
pertaining in any way to technical processes and procedures of
ELSI, all legal, financial and budgetary information, all other
information specified in Paragraph 4 above, and in general, the
business and operations of ELSI or any of the other Released
Parties, except such information as has been publicly disclosed
by ELSI or any of the other Released Parties, are considered
confidential and are not to be disseminated or disclosed by you
to any other parties, except as may be required by law or
judicial process. In the event it appears that you will be
compelled by law or judicial process to disclose such
confidential information, to avoid potential liability you should
notify ELSI's CEO in writing immediately upon your receipt of a
subpoena or other legal process.
6. General Release. In consideration of the Special Separation
Compensation described in Paragraph 3 above, you and your family
members, heirs, successors, and assigns (collectively the
"Releasing Parties") hereby release, acquit, and forever
discharge any and all claims and demands of whatever kind or
character, whether vicarious, derivative, or direct, that you or
they, individually, collectively, or otherwise, may have or
assert against: (i) ELSI; (ii) any affiliated entity of ELSI or
its shareholders; or (iii) any officer, member of ELSI's or any
affiliate's Board of Directors, fiduciary, agent, employee,
representative, insurer, attorney, or any successors and assigns
of the persons or entities just named (collectively the "Released
Parties"). This General Release includes but is not limited to
any claim or demand based on any federal, state, or local
statutory or common law or constitutional provision that applies
or is asserted to apply, directly or indirectly, to the
formation, continuation, or termination of your employment
relationship with ELSI. Thus, you and the other Releasing
Parties agree not to make any claims or demands against ELSI or
any of the other Released Parties such as for wrongful discharge;
any form of unlawful employment discrimination; retaliation;
breach of contract (express or implied); breach of any duty of
good faith and fair dealing; violation of the public policy of
the United States, the State of Texas, or any other state;
intentional or negligent infliction of emotional distress;
tortious interference with contract; promissory estoppel;
detrimental reliance; defamation of character; duress; negligent
misrepresentation; intentional misrepresentation or fraud;
invasion of privacy; loss of consortium; assault; battery;
conspiracy; bad faith; negligent hiring, retention, or
supervision; any intentional or negligent act of personal injury;
any alleged act of harassment or intimidation; or any other
intentional or negligent tort; or any alleged violation of the
Age Discrimination in Employment Act of 1967, as amended; Title
VII of the Civil Rights Act of 1964, as amended; the Americans
with Disabilities Act of 1990; the Family and Medical Leave Act
of 1993; the Employee Retirement Income Security Act of 1974; the
Fair Labor Standards Act; the Fair Credit Reporting Act; the
Texas Commission on Human Rights Act; and the Texas Wage Payment
Statute.
The effect of your acceptance of this Agreement is to release,
acquit, and forever discharge any and all claims and demands of
whatever kind or character that you or any of the other Releasing
Parties may now have or hereafter have or assert against ELSI or
any of the other Released Parties for any liability, whether
vicarious, derivative, or direct. This release includes any
claims or demands for damages (actual or punitive), back wages,
future wages or front pay, commissions, bonuses, severance
benefits, medical expenses and the costs of any counseling,
reinstatement or priority placement, promotion, accrued vacation
leave benefits, past and future medical or other employment
benefits (except as to which there is existing contractual or
vested entitlement as identified in Paragraph 2 herein) including
contributions to any employee benefit plans, retirement benefits
(except as to which there is vested entitlement as identified in
Paragraph 2 herein), relocation expenses, compensatory damages,
injunctive relief, liquidated damages, penalties, equitable
relief, attorney's fees, costs of court, disbursements, interest,
and any and all other loss, expense, or detriment of whatever
kind or character, resulting from, growing out of, connected
with, or related in any way to the formation, continuation, or
termination of your employment relationship with ELSI. This
General Release does not apply to any rights or claims that may
arise after the date this Agreement is executed.
7. Confidentiality, Nonprosecution, Nondisparagement, and
Cooperation.
(a) The terms of this Agreement shall be and remain
confidential, and shall not be disclosed by you to any persons
other than the Releasing Parties and your spouse, attorney, and
accountant or tax return preparer if such persons have agreed to
keep such information confidential. Notwithstanding the
foregoing, either party may make any disclosures concerning the
terms of this Agreement that are required by law.
(b) Except as requested by ELSI or as compelled by law or
judicial process, you will not assist, cooperate with, or supply
information of any kind to any individual or private-party
litigant or their agents or attorneys (i) in any proceeding,
investigation, or inquiry raising issues under the Age
Discrimination in Employment Act of 1967, Title VII of the Civil
Rights Act of 1964, the Americans with Disabilities Act of 1990,
the Family and Medical Leave Act of 1993, the Employee Retirement
Income Security Act of 1974, the Fair Labor Standards Act, the
Fair Credit Reporting Act, the Texas Commission on Human Rights
Act, the Texas Wage Payment Statute, or any other federal, state,
or local law involving the formation, continuation, or
termination of your employment relationship, or the employment of
other persons, by ELSI or any of the other Released Parties; or
(ii) in any other litigation against ELSI or any of the other
Released Parties.
(c) Except as permitted by law, you will not initiate any
investigation or inquiry, or any other action of any kind,
including an administrative charge with any governmental agency,
with respect to ELSI's facilities, employment practices, or
business operations, relating to the termination of your
employment as provided for in this Agreement or otherwise.
(d) You will not make to any other parties any statement,
oral or written, which directly or indirectly impugns the quality
or integrity of ELSI's or any of the other Released Parties'
business or employment practices, or any other disparaging or
derogatory remarks about ELSI or any of the other Released
Parties, their officers, directors, stockholders, managerial
personnel, or other employees. ELSI shall instruct its officers
not to make any disparaging or derogatory remarks about you.
(e) It shall not be a breach of the obligations set forth
in this Paragraph for you, your spouse, or your attorneys to
state to any person that any differences, if you believe any to
exist, between you and ELSI have been settled or satisfactorily
resolved.
(f) You agree to cooperate fully and completely with ELSI
or any of the other Released Parties in any matter related to
ELSI's business or activities, as follows: (i) to be available at
mutually agreeable times, personally or by telephone, as
necessary, at such reasonable times and without unreasonable
interference with your employment or personal activities, to
provide such information as may be from time to time requested by
ELSI in its sole discretion in connection with various matters in
which you were involved during your employment with ELSI; and
(ii) in all pending and future litigation involving ELSI or any
of the other Released Parties, which obligation includes your
promptly meeting with counsel for ELSI or the other Released
parties at reasonable times upon their request, and providing
testimony in court or upon deposition that is truthful, accurate,
and complete, according to information known to you. If you
appear as a witness in any pending or future litigation at the
request of ELSI or any of the other Released Parties, ELSI agrees
to reimburse you, upon submission of substantiating
documentation, for necessary and reasonable expenses incurred by
you as a result of your testifying.
8. Agreement Not to Seek Reemployment. You acknowledge that
ELSI and the other Released Parties have no obligation to employ
or to hire or rehire you, to consider you for hire, or to deal
with you in any respect with regard to future employment or
potential employment at any location, office, or place of
business. Therefore, and in order to prevent the occurrence of
any future dispute regarding employment opportunities, you hereby
agree: (i) that you will not apply for or otherwise seek
employment by ELSI or its affiliates at any time in the future,
at any location, office, or place of business, and (ii) that your
forbearance to seek future employment as just stated is purely
contractual and is in no way involuntary, discriminatory, or
retaliatory.
9. Nonadmission of Liability or Wrongdoing. This Agreement does
not in any manner constitute an admission of liability or
wrongdoing on the part of ELSI or any of the other Released
Parties, but ELSI and the other Released Parties expressly deny
any such liability or wrongdoing; and, except to the extent
necessary to enforce this Agreement, neither this Agreement nor
any part of it may be construed, used, or admitted into evidence
in any judicial, administrative, or arbitral proceedings as an
admission of any kind by ELSI or any of the other Released
Parties.
10. Authority to Execute. You represent and warrant that you
have the authority to execute this Agreement on behalf of all the
Releasing Parties. You further agree to indemnify fully and hold
harmless ELSI and any of the other Released Parties from any and
all claims brought by the Releasing Parties or derivative of your
own with respect to the subject matter of this Agreement,
including the amount of any such claims ELSI or any of the other
Released Parties are compelled to pay, and the costs and
attorney's fees incurred in defending against all such claims.
11. Governing Law and Interpretation. This Agreement and the
rights and duties of the parties under it shall be governed by
and construed in accordance with the laws of the State of Texas.
If any provision of this Agreement is held to be unenforceable,
such provision shall be considered separate, distinct, and
severable from the other remaining provisions of this Agreement,
and shall not affect the validity or enforceability of such other
remaining provisions; and in all other respects, this Agreement
shall remain in full force and effect. If any provision of this
Agreement is held to be unenforceable as written but may be made
to be enforceable by limitation thereof, then such provision
shall be enforceable to the maximum extent permitted by
applicable law. The language of all parts of this Agreement
shall in all cases be construed as a whole, according to its fair
meaning, and not strictly for or against any of the parties.
12. Breach of Agreement. Should you fail to comply with any of
your obligations as set forth in this Agreement, you further
acknowledge and agree that in addition to any other legal or
equitable remedy available, ELSI will have no obligation to pay
you the Special Separation Compensation described above, and you
may be required to repay the Special Separation Compensation
provided to you by this Agreement; but that all other provisions
of this Agreement shall remain in full force and effect. You may
also be liable for ELSI's damages and its attorney's fees and
expenses resulting from your breach of any provision in this
Agreement.
13. Expiration of Offer. ELSI's offer of the proposed Special
Separation Compensation will expire at 12:01 a.m. on the twenty-
second day following the date of this letter, i.e. on September
12, 1998. You may accept this offer at any time before
expiration by signing this letter in the space provided below,
and returning it to the undersigned by personal or messenger
delivery, or overnight delivery service. Whether or not you
execute this Agreement, you will receive the items set forth in
Paragraph 2, and are required to follow the obligations set forth
in Paragraphs 4 and 5.
14. Effective Date. This Agreement will become effective and
enforceable upon the expiration of seven days after your
execution of it ("Effective Date"). At any time before the
Effective Date of this Agreement, you may revoke your acceptance.
15. Consultation With an Attorney. You have the right and are
encouraged to consult with an attorney of your choosing before
executing this Agreement.
16. Voluntary Agreement. You acknowledge that execution of this
Agreement is knowing and voluntary on your part, and you have had
a reasonable time to deliberate regarding its terms.
17. Entire Agreement. This Agreement, and its attached exhibits
A, B-1 and B-2, together with the plans referenced in paragraph 2
herein contain and constitute the entire understanding and
agreement between you and ELSI, and may be modified only by a
written contemporaneous agreement executed by both you and an
authorized official of ELSI.
________________________________________
If you are in agreement with the foregoing provisions,
please execute, in front of a notary, both originals of this
letter in the space provided below. You should return one
executed original as provided above, and maintain the other in
your files. This letter shall then constitute a valid and
binding agreement by and between ELSI and you, effective as of
the expiration of seven days after the date of your execution.
Sincerely,
ELECTROSOURCE, INC.
By: /s/ Michael G. Semmens
Michael G. Semmens
Chairman, President and CEO
ACCEPTED AND AGREED TO:
/s/ James M. Rosel
James M. Rosel
Date Signed: August 31, 1998
[This agreement must be signed on or after the last date of
employment.]
State of Texas
County of Hays
This instrument was acknowledged before me on 8/31/98 by
James M. Rosel.
/s/ Sherry D. Lindley (Seal)
Notary Public, in and for
The State of Texas
Commission Expires: 7/17/99
EXHIBIT A
to Severance Agreement
dated August 31, 1998
<TABLE>
<S> <C> <S> <C>
Personnel Option Status Electrosource, Inc. Page: 1
ID: 74-2466304-9 File: Optstmt
AS OF 2809 IH 35 South Date: 8/21/98
8/19/98 San Marcos, TX 78666 Time: 1:54:42 PM
James M. Rosel ID: 0157
1507 Falcon Ledge
Austin, TX 78746
</TABLE>
<TABLE>
<C> <C> <C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
Number Option Plan Type Granted Price Exercised Vested Cancelled Unvested Outstanding Exercisable
Date
00000578 10/30/96 1996 ISO 5,000 $36.2500 0 5,000 0 0 5,000 5,000
00000579 10/30/96 1996 ISO 5,000 $35.0000 0 5,000 0 0 5,000 5,000
00000580 10/30/96 1996 ISO 500 $33.7500 0 500 0 0 500 500
00000581 10/30/96 1996 ISO 1,667 $12.5000 0 1,667 0 0 1,667 1,667
00000582 10/30/96 1996 ISO 9,500 $11.6000 0 6,333 0 3,167 9,500 6,333
00000583 10/30/96 1996 ISO 8,500 $5.2800 0 8,500 0 0 8,500 8,500
00000685 6/25/97 1996 ISO 17,500 $6.9380 0 5,833 0 11,667 17,500 5,833
47,667 0 32,833 0 14,834 47,667 32,833
Information Currently on File
Tax Rate % Broker Registration Alternate Address
Federal 28.00
Medicare 1.45
Social Security 6.2
</TABLE>
EXHIBIT B-1
to Severance Agreement
dated August 31, 1998
SECURITIES SUBSCRIPTION AGREEMENT
EXECUTIVE OFFICERS
THE OFFERING OF SECURITIES OF ELECTROSOURCE, INC. HEREUNDER HAS
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), IN RELIANCE UPON THE AVAILABILITY OF
EXEMPTION FROM REGISTRATION PROVIDED BY SECTION 4(2) OF SAID ACT
AND REGULATION D OF THE GENERAL RULES AND REGULATIONS PROMULGATED
THEREUNDER. THERE ARE SUBSTANTIAL RESTRICTIONS UPON TRANSFER OF
THE SECURITIES. ACCORDINGLY, THE SECURITIES ARE NOT FREELY
TRANSFERABLE AND MAY HAVE TO BE HELD UNTIL TRANSFER MAY BE MADE
PURSUANT TO A REGISTERED TRANSACTION OR AN EXEMPTION FROM
REGISTRATION.
THIS SECURITIES SUBSCRIPTION AGREEMENT dated as of January
2, 1997 (the "Agreement"), is executed by the undersigned
"Purchaser" in connection with the private placement of common
stock and warrants of Electrosource, Inc., a corporation
organized under the laws of Delaware, with its principal
executive offices located at 2809 IH 35 South, San Marcos, Texas
78666 (hereinafter referred to as "Company").
1. Agreement to Subscribe; Purchase Price.
(a) Subscription. The undersigned Purchaser hereby
subscribes for and agrees to purchase 3,810 shares of the
Company's Common Stock ("Shares") for $6.5625 per share or
$25,003.13 in total ("Purchase Price").
(b) Warrants. For purchase of the Common Stock, the
Purchaser shall also receive warrants ("Warrants") for
purchase of 25,003 shares (a warrant for every $1.00
invested) of common stock at the exercise price of $7.56 per
share. The warrants shall have a two (2) year term. The
form of the warrant is attached hereto as Exhibit "A."
(c) Payment. The Purchase Price shall be paid by
delivering immediately available funds by check or wire
transfer as directed by Company for delivery of the Shares
and Warrants versus payment.
(d) Closing. The closing of the transactions contemplated
by this Agreement shall occur on or before January 17, 1997,
or such earlier or later date as is mutually agreed to by
Purchaser and Company.
2. Company Representations.
(a) Corporate Power. The Company has all requisite legal
and corporate power to execute and deliver this Agreement,
and all requisite and legal corporate power to sell and
issue the Shares and Warrants and to carry out and perform
its obligations under the terms of this Agreement.
(b) Authorization. All corporate action on the part of The
Company necessary for the authorization, execution, delivery
and performance of this Agreement, the authorization, sale,
issuance and delivery of the Shares and Warrants and the
performance of the company's obligations hereunder has been
taken or will be taken prior to closing. This Agreement,
when executed and delivered, shall constitute the valid and
binding obligation of the Company, enforceable in accordance
with its terms, subject to laws of general application
relating to bankruptcy, insolvency and the relief of
debtors, rules of law governing specific performance,
injunctive relief or other equitable remedies, and
limitations of public policy. The Shares and Warrants
issued in compliance with the provisions of this Agreement
will be validly issued, fully paid and non-assessable and
free of any liens or encumbrances; provided, however, that
the Shares and Warrants are subject to restrictions on
transfer under state and/or federal securities laws as set
forth herein. The Shares and Warrants are not subject to
any preemptive rights or rights of first refusal.
3. Purchaser Representation.
The Purchaser hereby represents and warrants to the Company
as follows, and acknowledges and agrees that the Company will
rely upon such representations and warranties in accepting the
subscription of the undersigned for the purchase of the Shares:
(a) The Purchaser is an executive officer of the Company
and is fully familiar with its business and financial
condition.
(b) No representations or warranties have been made to the
Purchaser by the Company, or any agent, employee or
affiliate of the Company, and in entering into this
transaction the Purchaser is not relying upon any
information other than the information contained in the
documents and reports filed by the Company with the
Securities and Exchange Commission under the Securities
Exchange Act of 1934 (the "SEC filings").
(c) The Purchaser is aware that:
(i) there are substantial risks incident to an
investment in the Shares, and such investment is
speculative and involves a high degree of risk of loss
of its entire investment in the Company;
(ii) no Federal or State agency has passed upon the
sale of the Shares or made any finding or determination
concerning the fairness of this investment, and the
terms of the offering may not conform to the guidelines
of certain state securities administrators;
(iii) the Company has and may continue to have a
significant need for cash for operating expenses and
other purposes; that the aggregate proceeds from the
sale of the Shares alone may not be sufficient to
satisfy the cash requirements of the Company for any
appreciable period of time; that other sources of funds
may not be available;
(iv) the industry in which the Company is engaged is
occupied by several firms, some of which will be
substantially greater in size and have financial
resources and personnel staff larger and more
established than those of the Company, and there can be
no assurance that the Company will be able to compete
in the market effectively;
(d) The Purchaser understands that an investment in the
Company is an illiquid investment and further recognizes and
agrees that because the Shares have not been registered
under applicable securities laws or an exemption from such
registration is available, the Purchaser must bear the
economic risk of the investment for an indefinite period of
time. The Purchaser further acknowledges that each
certificate representing Shares will bear a legend to the
effect that the Shares have not been registered under any
securities law and setting forth or referring to the
restrictions on transferability and sale of the shares. The
Purchaser further acknowledges that the Company will issue
stop transfer orders to its transfer agent restricting
transfer of the Shares in the absence of registration under
the securities laws or exemption therefrom.
(e) The Purchaser acknowledges that there are substantial
restrictions on the transferability of the Shares. Unless
the Shares are registered under the Securities Act and any
applicable state securities law, the Shares may not be, and
the Purchaser agrees that they shall not be, sold unless
such sale is exempt from such registration under the
Securities Act and any other applicable state blue sky laws
or regulations. The Purchaser further acknowledges that the
Company is under no obligation to aid it in obtaining any
exemption from the registration requirements. The Purchaser
also acknowledges responsibility for compliance with all
conditions on transfer imposed by any securities
administrator of any state.
(f) The Purchaser is acquiring the Shares for its own
account, as principal, and not for the account of any other
person.
4. Shareholder Approval.
Purchase of the Shares and Warrants is subject to the
approval of the shareholders of the Company at the next
annual general meeting. If the purchase is not approved,
the purchase price will be returned with interest at the
prime rate.
ELECTROSOURCE, INC. (PURCHASER)
By: /s/ William F. Griffin By: /s/ James M. Rosel
Printed Name: William F. Griffin Printed Name: James M. Rosel
Its: Executive VP, Marketing
EXHIBIT A
to Securities Subscription Agreement
Executive Officers (Exhibit B-1)
(Warrant No.) WT-_______
ELECTROSOURCE, INC.
WARRANT AGREEMENT
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON
ITS EXERCISE HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS
OF ANY STATE. THIS WARRANT MAY NOT BE EXERCISED, AND
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON
ITS EXERCISE MAY BE SOLD, TRANSFERRED, ASSIGNED OR
HYPOTHECATED, IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND SUCH LAWS OR
AN OPINION OF COUNSEL FOR THE HOLDER OF THIS WARRANT
REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT
THAT AN EXEMPTION FROM REGISTRATION THEREUNDER IS
AVAILABLE. NEITHER THE OFFERING OF THIS WARRANT NOR
ANY OFFERING MATERIALS HAVE BEEN REVIEWED BY AN
ADMINISTRATOR UNDER SUCH ACT OR ANY APPLICABLE STATE
LAW.
Warrant to Purchase
January 17, 1997 _________ Shares
of Common Stock
The undersigned, Electrosource, Inc. (the "Company"), a
Delaware corporation, for good and valuable consideration desires
to grant to __________________________________ ("Purchaser") a
warrant or option to acquire shares of Common Stock in the
Company. The option covered hereby is granted pursuant to the
terms of a Subscription Agreement ("Subscription Agreement")
dated as of December 20, 1996 between the Company and Purchaser,
and all provisions of that Agreement are incorporated herein by
reference. Defined terms shall have the same meaning as in the
Subscription Agreement.
1. Warrant. The Company does hereby grant to Purchaser
the exclusive option to purchase from the Company all or any part
of an aggregate of ____________________________ (__________)
shares ("Shares") of Common Stock of the Company at the price of
Seven and 56/100 Dollars ($7.56) per share.
2. Term. The Option shall be exercisable as provided in
the Subscription Agreement and otherwise at any time until the
option expires or terminates in accordance with the provisions
hereof. This option shall in any event terminate at 5:00 o'clock
P.M., San Marcos, Texas time two (2) years after its date of
grant.
3. Exercise. To exercise this option, Purchaser shall
give written notice of such election to the Company at its
Corporate Headquarters, Attention Corporate Secretary, so as to
be received by the Company within the period this option is
exercisable, which notice shall specify the number of shares to
be purchased and be accompanied by payment in full. Payment for
such shares may be by check or wire transfer, as directed by the
Company.
4. Share Issue. Upon receipt by the Company of proper
notice of exercise of this Warrant, the Company as promptly as
practicable and subject to the other provisions in this Warrant,
shall deliver a certificate or certificates representing Shares
so purchased, and shall pay all original issuance or transfer
taxes on the exercise of this Warrant, and all other fees and
expenses necessarily incurred by the Company in connection
therewith. Certificates evidencing such Shares may have endorsed
thereon such language as may be deemed necessary or advisable by
counsel for the Company in order to ensure compliance with the
applicable securities laws or regulations. Registration rights
shall be as set forth in the Subscription Agreement.
5. Change in Capitalization; Merger; Liquidation. The
number of Shares of Common Stock covered by this Warrant, and the
price per share shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common
Stock resulting from a subdivision or combination of shares or
the payment of a stock dividend in shares of Common Stock to
holders of outstanding shares of Common Stock. If the Company
shall be the surviving corporation in any merger or
consolidation, recapitalization, reclassification of shares or
similar reorganization, Purchaser shall be entitled to purchase,
at the same times and upon the same terms and conditions as are
provided in this Warrant, the number and class of shares of stock
or other securities to which it would have been entitled to
receive as a result of such transaction as if the Purchaser had
exercised the Warrant in full on the record date for the
transaction in question. In the event of a dissolution or
liquidation of the company or a merger or consolidation in which
the Company is not the surviving corporation, this Warrant shall
terminate upon the effective date thereof, except to the extent
that another corporation assumes such Warrant or substitutes
another option therefore. In the event of a change of the
Company's shares of Common Stock with par value into the same
number of shares with a different par value or without par value,
the shares resulting from any such change shall be deemed to be
Common Stock.
IN WITNESS WHEREOF, the Parties have executed this
Agreement on the date first written above.
ELECTROSOURCE, INC. (PURCHASER)
By: By:
Printed Name: Printed Name:
Its: Its:
EXHIBIT B-2
to Severance Agreement
dated August 31, 1998
ELECTROSOURCE, INC.
STOCK PURCHASE WARRANT
To Purchase Shares of Common Stock of
ELECTROSOURCE, INC.
Expiring January 23, 1999
No. W10A-102
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON
ITS EXERCISE HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS
OF ANY STATE. THIS WARRANT MAY NOT BE EXERCISED, AND
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON
ITS EXERCISE MAY BE SOLD, TRANSFERRED, ASSIGNED OR
HYPOTHECATED, IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND SUCH LAWS OR
AN OPINION OF COUNSEL FOR THE HOLDER OF THIS WARRANT
REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT
THAT AN EXEMPTION FROM REGISTRATION THEREUNDER IS
AVAILABLE. NEITHER THE OFFERING OF THIS WARRANT NOR
ANY OFFERING MATERIALS HAVE BEEN REVIEWED BY AN
ADMINISTRATOR UNDER SUCH ACT OR ANY APPLICABLE STATE
LAW.
Warrant to Purchase
January 23, 1997 25,003 Shares
of Common Stock
The undersigned, Electrosource, Inc. (the "Company"), a
Delaware corporation, for good and valuable consideration desires
to grant to James M. Rosel ("Purchaser") a warrant or option to
acquire shares of Common Stock in the Company. The option
covered hereby is granted pursuant to the terms of a Subscription
Agreement ("Subscription Agreement") dated as of January 23, 1997
between the Company and Purchaser, and all provisions of that
Agreement are incorporated herein by reference. Defined terms
shall have the same meaning as in the Subscription Agreement.
1. Warrant. The Company does hereby grant to Purchaser
the exclusive option to purchase from the Company all or any part
of an aggregate of Twenty-five Thousand Three (25,003) shares
("Shares") of Common Stock of the Company at the price of Seven
and 56/100 Dollars ($7.56) per share.
2. Term. The Option shall be exercisable upon shareholder
approval and otherwise as provided in the Subscription Agreement
and otherwise at any time until the option expires or terminates
in accordance with the provisions hereof. This option shall in
any event terminate at 5:00 o'clock P.M., San Marcos, Texas time
two years after its date of grant.
3. Exercise. To exercise this option, Purchaser shall
give written notice of such election to the Company at its
Corporate Headquarters, Attention Corporate Secretary, so as to
be received by the Company within the period this option is
exercisable, which notice shall specify the number of shares to
be purchased and be accompanied by payment in full. Payment for
such shares may be by check or wire transfer, as directed by the
Company.
4. Share Issue. Upon receipt by the Company of proper
notice of exercise of this Warrant, the Company as promptly as
practicable and subject to the other provisions in this Warrant,
shall deliver a certificate or certificates representing Shares
so purchased, and shall pay all original issuance or transfer
taxes on the exercise of this Warrant, and all other fees and
expenses necessarily incurred by the Company in connection
therewith. Certificates evidencing such Shares may have endorsed
thereon such language as may be deemed necessary or advisable by
counsel for the Company in order to ensure compliance with the
applicable securities laws or regulations. Registration rights
shall be as set forth in the Subscription Agreement.
5. Change in Capitalization; Merger; Liquidation. The
number of Shares of Common Stock covered by this Warrant, and the
price per share shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common
Stock resulting from a subdivision or combination of shares or
the payment of a stock dividend in shares of Common Stock to
holders of outstanding shares of Common Stock. If the Company
shall be the surviving corporation in any merger or
consolidation, recapitalization, reclassification of shares or
similar reorganization, Purchaser shall be entitled to purchase,
at the same times and upon the same terms and conditions as are
provided in this Warrant, the number and class of shares of stock
or other securities to which it would have been entitled to
receive as a result of such transaction as if the Purchaser had
exercised the Warrant in full on the record date for the
transaction in question. In the event of a dissolution or
liquidation of the company or a merger or consolidation in which
the Company is not the surviving corporation, this Warrant shall
terminate upon the effective date thereof, except to the extent
that another corporation assumes such Warrant or substitutes
another option therefore. In the event of a change of the
Company's shares of Common Stock with par value into the same
number of shares with a different par value or without par value,
the shares resulting from any such change shall be deemed to be
Common Stock.
IN WITNESS WHEREOF, the Parties have executed this
Agreement on the date first written above.
ELECTROSOURCE, INC. PURCHASER
By: /s/ Michael G. Semmens By: /s/ James M. Rosel
Printed Name: Michael G. Semmens Printed Name: James M. Rosel
Its: President Its:
EXHIBIT 10.2
Electrosource, Inc.
AMENDMENT NUMBER ONE
TO
STOCK PURCHASE WARRANT
To Purchase Shares of Common Stock of
ELECTROSOURCE, INC.
Expiring January 23, 1999
August 18, 1998 No. ___________
Warrant to Purchase _________ shares of Common Stock
As of January 23, 1997, the undersigned, Electrosource, Inc.
(the "Company"), a Delaware corporation, for good and valuable
consideration granted to _______________ ("Purchaser") a warrant
to acquire shares of Common Stock in the Company. The Stock
Purchase Warrant ("Warrant") dated January 23, 1997, was granted
pursuant to the terms of a Subscription Agreement ("Subscription
Agreement") dated as of January 23, 1997, between the Company and
the Purchaser. This Amendment Number One to the Warrant
incorporates all provisions of that Subscription Agreement herein
by reference.
1. Warrants. The Company originally granted to Purchaser
the exclusive option to purchase from the Company all or any part
of an aggregate of __________________ (_______) shares ("Shares")
of Common Stock of the Company at the exercise price of _______
and ___/100 Dollars ($__________) per share.
This Amendment Number One hereby adjusts the
exercise price to $2.5630 per share, as approved
by the Board of Directors at their regularly
scheduled meeting held August 18, 1998.
2. Term. The original Warrant terminates at 5:00 o'clock
P.M., San Marcos, Texas time, two years after its date of grant,
January 23, 1999.
This Amendment Number One hereby extends the
termination date to five years from the date of
grant to January 23, 2004, as approved by the
Board of Directors at their regularly scheduled
meeting held August 18, 1998.
The Warrant is not otherwise amended or modified
in any respect.
IN WITNESS WHEREOF, the parties have executed this Amendment
One as of the _____ day of ____________, 1998.
ELECTROSOURCE, INC. PURCHASER
By:__________________________ _____________________________
Michael G. Semmens (Printed name)
Chairman, President and CEO
The above form of Amendment Number One to Stock Purchase Warrant was
issued to the following:
125,000 Michael G. Semmens
25,003 James M. Rosel
50,000 William F. Griffin
25,003 Chris Morris
25,003 Mary Beth Koenig
25,019 Joseph U. Barton
25,019 Thomas U. Barton
150,117 Collins Capital Diversified Fund LP
15,094 Audrey T. Dearing
1,000 Langhorne Reid, III
55,625 Langhorne Reid, III
10,000 Eve Murphy Reid
9,000 Fred B. Dulock
9,000 Fred B. Dulock
7,500 Bill Kemp
7,500 Bill Kemp
12,750 James R. Phllips, Jr.
6,000 Compton Family Partners Ltd.
4,500 Bill N. Goss
3,000 Bill N. Goss
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 130
<SECURITIES> 0
<RECEIVABLES> 634
<ALLOWANCES> 0
<INVENTORY> 367
<CURRENT-ASSETS> 1,152
<PP&E> 7,499
<DEPRECIATION> (3,839)
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<CURRENT-LIABILITIES> 3,583
<BONDS> 91
0
0
<COMMON> 7,534
<OTHER-SE> (5,275)
<TOTAL-LIABILITY-AND-EQUITY> 5,934
<SALES> 1,498
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<CGS> 2,811
<TOTAL-COSTS> 7,239
<OTHER-EXPENSES> 0
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<INCOME-PRETAX> (6,065)
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