Schedule 14A Information
Proxy Statement Pursuant to Section 14(A)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
ELECTROSOURCE, INC.
(Name of Registrant as Specified In Its Charter)
ELECTROSOURCE, INC.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-
11.
(1) Title of each class of securities to which transaction
applies: ______
(2) Aggregate number of securities to which transaction applies:
______
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11: __/
(4) Proposed maximum aggregate value of transaction: ______
__/ Set forth the amount on which the filing fee is calculated
and state how it was determined.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ______
(2) Form, Schedule or Registration Statement No. ____
(3) Filing Party: _____
(4) Date Filed: ______
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Electrosource, Inc. (the "Company") will be held at the Offices of the
Company, 2809 Interstate 35 South, San Marcos, Texas, on May 20 1998 at
10:00 o'clock A.M., Texas time, for the following purposes:
1. To elect two of the eight members of the Board of Directors.
2. To consider and act upon a proposal to approve the selection
by the Board of Directors of Ernst & Young LLP as the firm of
independent auditors to audit the accounts of the Company for the
fiscal year ending December 31, 1998.
3. To transact such other business as may properly come before
the meeting or any adjournment or adjournments thereof.
Holders of record of Common Stock at the close of business on March
23, 1998, will be entitled to notice of and to vote at such meeting or any
adjournment thereof. The transfer books of the Company will not be closed.
It is important that your shares be represented at this meeting in
order that the presence of a quorum may be assured. Enclosed is a form of
proxy that you are urged to sign and forward in the accompanying envelope,
whether or not you expect to attend in person. Shareholders who attend the
meeting in person may revoke their proxies and vote in person if they
desire.
All Shareholders are cordially invited to attend the Annual Meeting of
the Shareholders.
/s/ Michael G. Semmens
Austin, Texas Michael G. Semmens
April 10, 1998 President
PROXY STATEMENT
GENERAL INFORMATION
SOLICITATION AND REVOCATION OF PROXIES
This Proxy Statement is furnished to Shareholders in connection with
the solicitation of proxies by and on behalf of the management of
ELECTROSOURCE, INC. (hereinafter referred to as the "Company," located at
2809 Interstate 35 South, San Marcos, Texas 78666), for use at the Annual
Meeting of Shareholders of the Company, and at any adjournment thereof. The
Annual Meeting will be held at 10:00 o'clock A.M., May 20, 1998, at the
Company headquarters, 2809 Interstate 35 South, San Marcos, Texas 78666.
When a proxy is properly executed and returned, the shares it represents
will be voted at the Annual Meeting in accordance with any instructions
noted thereon or, if no instructions are indicated, it will be voted for
the election as directors of the three nominees named in this Proxy
Statement, and for the approval of the selection of auditors. Execution of
a proxy confers discretionary authority to vote with respect to any matter
which the Board of Directors do not know, a reasonable time before the
mailing of this Proxy Statement, is to be presented at the meeting, with
respect to the approval of minutes of the prior meeting (if such approval
does not amount to ratification of the action taken at that meeting), with
respect to the election of any person to any office for which a bona fide
nominee is named in the Proxy Statement if such nominee is unable to serve
or for good cause will not serve, and with respect to matters incident to
the conduct of the meeting. Any proxy given pursuant to this solicitation
may be revoked by the Shareholder who has given it at any time before it is
exercised.
The close of business on March 23, 1998, has been fixed as the record
date for determination of Shareholders entitled to notice of and to vote at
the Annual Meeting. As of such date, there were issued and outstanding
4,534,531 shares of Common Stock, $1.00 par value per share, of the Company
("Common Stock") and no shares of the Company's Preferred Stock, $1.00 par
value per share. Each Shareholder of record on such date is entitled to
one vote for each share of Common Stock then held by such Shareholder.
The costs of solicitation of proxies, including the cost of preparing
and mailing this Proxy Statement, will be borne by the Company. Employees
of the Company, at no additional compensation, may communicate with
Shareholders to solicit their proxies. In addition, the Company has
retained Harris Trust and Savings Bank, the Company's Transfer Agent, to
distribute the proxy materials to Shareholders of record and to tabulate
the vote and Corporate Investor Communications, Inc., to distribute the
proxy materials to brokers and to solicit proxies from banks, brokers,
nominees and institutions for which they will be paid fees estimated not to
exceed $4,000 in the aggregate. Brokers and others holding stock in their
names, or in the names of nominees, may be requested to forward copies of
the proxy soliciting material to beneficial owners and to seek authority
for execution of proxies, and the Company will reimburse them for
reasonable direct and indirect expenses incurred in connection with
completing the mailing of annual reports and proxy statements to and the
solicitation of proxies of beneficial owners at approved rates.
This Proxy Statement is first being mailed to Shareholders of the
Company on or about April 10, 1998.
SECURITY OWNERSHIP OF MANAGEMENT
AND FIVE-PERCENT BENEFICIAL OWNERS
The following table sets forth as of March 20, 1998, the number of
shares of Common Stock owned by each of the current directors, the most
highly paid executive officers and by the current directors and executive
officers of the Company as a group, the nature of such ownership, and the
percentage of the outstanding shares of each class of voting securities
represented thereby. To the Company's knowledge, there is no person who is
an owner of more than five percent of the Company's Common Stock other than
BDM International Inc. (subsequently acquired by TRW, Inc.) who owns
499,304 shares of Common Stock or 11 percent of the outstanding. If
Corning Incorporated were to convert their current debt to equity as well
as exercise their options to purchase Common Stock of the Company, it would
own 1,686,157 shares of Common Stock, or 27.1 percent of the then
outstanding shares, which in turn would reduce the BDM ownership to 8
percent of the then outstanding shares.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Amount and Nature of Beneficial
Ownership of Common Stock
Percent
Currently Acquirable within of
Name of Beneficial Owner Owned (1) 60 days Class
Michael G. Semmens (2) 2,067 84,167 Options 4.9
19,048 (3) 125,000 Warrants (3)
Richard E. Balzhiser - 15,000 Options .3
Earl E. Gjelde - 15,000 Options .3
William R. Graham 300 17,000 Options .4
Norman Hackerman 403 17,000 Options .4
Charles L. Mathews (4) 1,667 40,000 Options .9
Nathan P. Morton - 17,000 Options .4
Richard S. Williamson - 17,000 Options .4
Thomas S. Wilson (5) 35,658 (6) 17,000 Options 1.2
OTHER EXECUTIVE OFFICERS
William F. Griffin 1,100 31,499 Options 2.0
Executive Vice 7,619 (3) 50,000 Warrants (3)
President/Marketing
James M. Rosel 100 32,833 Options 1.3
Vice President, Finance 3,810 (3) 25,003 Warrants(3)
and General Counsel
Gary R. Sams (7) - 8,333 Options .2
Vice President, Contracts
and Programs
Chris Morris (8) 3,810 (3) 30,833 Options 1.3
Chief Engineer 25,003 Warrants (3)
Benny E. Jay (9) - 23,333 Options .5
Chief Scientist
FIVE PERCENT BENEFICIAL
HOLDERS
BDM International, 499,304 - 11.0
subsidiary of TRW, Inc.
Corning Incorporated - 1,686,157 Warrants (10) 27.1
ALL DIRECTORS, OFFICERS, 1,025,998 Options (11) 41.7
OTHER HIGHLY PAID PERSONS 581,446 1,223,751 Warrants (11)
AND FIVE PERCENT
BENEFICIAL OWNERS
(1) In each case the beneficial owner has sole voting and investment
power.
(2) Mr. Semmens' spouse owns 40 shares of stock as custodian for minor
children, 140 shares are owned by his mother and 50 shares are owned
by his brother, all to which shares Mr. Semmens disclaims beneficial
ownership.
(3) Acquired in Private Placement of January 1997.
(4) Mr. Mathews' spouse owns 4 shares of stock as to which shares Mr.
Mathews disclaims beneficial ownership.
(5) 10,000 shares of stock are held in a charitable trust as to which Mr.
Wilson disclaims beneficial ownership even though he has shared voting
and investment control.
(6) Includes 180 shares stock held in Mr. Wilson's Individual Retirement
Account; 575 shares of stock held by Mr. Wilson as Custodian for his
minor children; 3,833 shares of stock in a life estate trust of which
he is one of the three final remaindermen and has shared voting and
investment control.
(7) Mr. Sams was appointed as Vice President, Contracts and Programs, on
August 26, 1997.
(8) Mr. Morris served as an Executive Officer during most of 1997;
however, he was not an Executive Officer at year-end.
(9) Non-executive officers.
(10) Includes conversion of current debt to equity and exercise of options
to purchase shares of Common Stock.
(11) Includes 27,416 shares of Common Stock receivable upon the exercise of
options in addition to option shares shown above.
ITEM 1
ELECTION OF DIRECTORS
The Company has a Board of Directors consisting of nine members
serving staggered terms. The terms of directors Earl E. Gjelde, William R.
Graham and Thomas S. Wilson will expire at the 1998 Annual Meeting and
accordingly, three directors were to be elected at such meeting. Mr.
Gjelde and Dr. Graham have been nominated by the Nominating Committee of
the Board of Directors for reelection as directors. Mr. Wilson will not
stand for reelection and as a result the Board of Directors has determined
to decrease the size of the Board to eight members. The nominees receiving
the greatest number of votes will be elected directors of the Company to
serve until the Annual Meeting of Shareholders to be held in 2001, and
until their respective successors shall have been elected and shall have
qualified, or their respective terms of office shall have been otherwise
terminated as provided in the Bylaws.
The following table sets forth certain information as to the directors
and nominees for director and the executive officers of the Company.
Name and Offices Term to Expire
Held with the Principal Occupation During Past at Annual
Company Age Five Years Meeting in
Michael G. Semmens 47 President, Chief Executive Officer and 2000
President, Chief Chairman of the Board, Electrosource,
Executive Inc., June 1994 to present; Corporate
Officer and Vice President, BDM Technologies,
Chairman of the Inc., 1992-1994; (Managing Director of
Board of Directors BDM Europe, B.V.) 1992-1994; Corporate
Vice President, BDM International,
Inc., 1988-1992.
Earl E. Gjelde 55 Managing Director, Summit Group 1998
Director International, Ltd., 1994 to present;
Vice President, WMX Technologies,
Inc., 1991-1993; Vice President,
Chemical Waste Management, Inc., 1989-
1991.
William R. Graham 60 President and Chairman of the Board, 1998
Director National Security Research, 1997 -
present; Senior Vice President, The
Defense Group, Washington, D.C. 1994-
1997; Director and subsequently
President, C-COR Electronics, Inc.,
1990-1993; Director, Watkins-Johnson
Corporation.
Charles L. Mathews 63 Chief Engineer, Electrosource, Inc., 1999
Director and 1997-present; Consultant to
Chief Engineer Electrosource, Inc. 1995-1997;
President and CEO, Bastrop Metal
Products, Inc., 1995-present; Chief
Scientific Officer, Electrosource,
Inc. 1994-1995; Chairman of the Board,
Electrosource, Inc., 1992-1994;
Treasurer, Electrosource, Inc., 1992-
1993; Director, Blanyer Mathews
Associates, Inc., 1982 - 1994.
Norman Hackerman 86 Chairman, Scientific Advisory Board, 1999
Director Robert A. Welch Foundation, for more
than five years; Director, American
General Portfolio Fund, for more than
five years.
Richard S. 48 Partner, Mayer, Brown & Platt, for 1999
Williamson more than five years; Director,
Director Federal Home Loan Bank of Chicago,
1990-present.
Richard E. 65 1996-Present, President Emeritus, 2000
Balzhiser Electric Power Research Institute
Director (EPRI); 1988-1996, President and CEO,
EPRI; 1996-Present, Director, Houston
Industries.
Nathan P. Morton 49 Co-Chairman/Chief Executive Officer, 2000
Director Computer City, Inc. 1996-present;
Senior Partner, Channel Marketing
Corporation, 1996-1997; President and
Chief Executive Officer, Open
Environment Corporation, 1994-1996;
Chairman, President, and Chief
Executive Officer, COMPUSA, 1989-1993.
OTHER EXECUTIVE
OFFICERS
William F. Griffin 50 Executive Vice President/Marketing,
Executive Vice April, 1996-present; Vice President,
President, 1990-1995, COMPUSA.
Marketing
James M. Rosel 49 Vice President, Finance and General
Vice President, Counsel, 1994-present; Vice President
Finance and and Secretary, Nord Pacific Ltd., 1990-
General Counsel 1994.
Gary P. Sams 46 Vice President, Contracts and
Vice President, Programs, Electrosource, Inc., 1997-
Contracts present; Vice President Western
and Programs Business Operations, BDM Federal,
Albuquerque, NM, 1990-1997.
Mary Beth Koenig 35 Treasurer and Controller,
Treasurer and Electrosource, Inc., 1995-present;
Controller Senior Manager, Ernst & Young LLP,
1984-1995.
The members of the Board of Directors hold office for staggered three-
year terms, until their successors are elected or until their earlier
death, resignation or removal. Mr. Mathews served as a director of the
Company from March 1990 to January 1991 and was reappointed in January
1992. Dr. Hackerman was appointed to fill the vacancy created by the
resignation of Donald S. Thomas effective September 1, 1993. Dr. Hackerman
was a director of the Company from 1988 until 1991. Mr. Wilson was
appointed to the Board in November, 1992, with his current term expiring at
the 1998 Annual Meeting. Mr. Wilson is not standing for reelection. Mr.
Semmens has served as President, Chief Executive Officer, and Chairman of
the Company since June 1994. Mr. Williamson was appointed to the Board in
November 1994. Dr. William R. Graham and Mr. Nathan P. Morton were
appointed to the Board in June 1995. Dr. Richard E. Balzhiser was
appointed to the Board in March 1997. Mr. Earl E. Gjelde was appointed to
the Board in August 1997.
Mr. Sams was appointed as Vice President, Contracts and Programs, on
August 26, 1997.
Mr. Nathan Morton, Director, and Mr. William Griffin, Executive Vice
President, are related as brothers-in-law.
Committees of the Board of Directors
The Board of Directors held seven meetings and gave seven written
consents during the year ended December 31, 1997. Each of the members of
the Board of Directors attended at least 75 percent of the number of
meetings of the Board and of each committee on which he served during 1997,
except Mr. Morton who attended 57 percent of the meetings.
The Company's Board of Directors has five committees: the Audit
Committee, the Executive Committee, the Finance Committee, the Nominating
Committee and the Compensation/Stock Option Committee.
The Audit Committee acts as a liaison between the Company's Board of
Directors and the Company's independent certified public accountants. The
Audit Committee meets periodically with the accountants to review the
Company's accounting and reporting practices and its accounting and
financial controls. The members of the Audit Committee are Messrs.
Williamson, Gjelde and Wilson, and Dr. Balzhiser. The Audit Committee met
two times during the year ended December 31, 1997.
The Executive Committee has the authority to act in behalf of the
Board of Directors at such times as the Board is not in session except in
regard to certain matters with respect to which its authority is limited
by Delaware corporate statutes. Messrs. Semmens and Mathews and Drs. Graham
and Hackerman are members of the Executive Committee. The Executive
Committee had no meetings during the year ended December 31, 1997.
The Finance Committee periodically reviews and makes recommendations
to the Board of Directors with respect to the capital structure of the
Company and the Company's commercial and investment banking relationships.
The members of the Finance Committee are Messrs. Morton and Wilson and Drs.
Balzhiser and Graham. There was one formal meeting of the Finance
Committee during the fiscal year 1997; however, on numerous occasions the
entire Board acted in such capacity.
The Nominating Committee recommends to the Company's Board of
Directors candidates for election as directors of the Company. The
Nominating Committee consisted of Dr. Balzhiser and Messrs. Morton and
Williamson. The Nominating Committee met two times during the year ended
December 31, 1997. The names of potential director candidates are drawn
from a number of sources, including recommendations from members of the
Board, management, and Shareholders. Shareholders wishing to recommend
director nominees should submit name and address and pertinent information
about the proposed nominee similar to that set forth for the nominees named
herein. The Restated Certificate of Incorporation requires that any such
nominations be directed to the corporate secretary in writing not less than
sixty days prior to the scheduled date of the meeting by a Shareholder of
record, accompanied by the consent of the person nominated to serve if
elected.
The Compensation/Stock Option Committee makes recommendations to the
Company's Board of Directors regarding compensation of the Company's
officers, and is responsible for the administration of the Company's stock
option plans. The members of the Compensation/Stock Option Committee are
Directors. Graham, Hackerman, Williamson, and Gjelde. Mr. Gjelde was
appointed to this Committee in August 1997; all others served in such
capacity for the entire year. The Compensation/Stock Option Committee held
two meetings and gave two Written Consents during 1997.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's officers and directors, and persons who own
more than 10 percent of a registered class of the Company's equity
securities to file reports of ownership and changes in ownership with the
Securities and Exchange Commission and the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"). Officers,
directors and greater than 10 percent Shareholders are required by
Securities and Exchange Commission regulations to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
the Company believes that during 1997, except as described below, its
officers, directors and greater than 10 percent beneficial owners complied
with all filing requirements applicable to them.
A Form 3 Initial Statement of Beneficial Ownership filed in connection
with the appointment of Dr. Richard E. Balzhiser as a Director of the
Company which occurred on March 3, 1997, was not filed until March 27,
1997. The Form 5 for all Directors and Executive Officers were filed on
February 13, 1998.
Compensation of Executive Officers, Directors and Certain
Other Highly Paid Persons Who are not Executive Officers
The following tables set forth the cash and non-cash compensation paid
during the fiscal year ended December 31, 1997 to the Chief Executive
Officer of the Company, to each other executive officer and to certain
other highly paid persons of the Company earning in excess of $100,000
during 1997:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation(1)
Awards Payouts
Annual Compensation
Other
Annual Restricted Securities All Other
Compen- Stock Underlying LTIP Compen-
Name and Principal sation Awards(s) Options/ Payouts sation
Position(2) Year Salary($) Bonus($) ($)(3) $ SARS (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael G. Semmens 1997 205,962 2,361 25,000(4)
President, Chief 125,000(5)
Executive Officer 1996 176,923 1,769 28,334(4)
and 1995 200,000 2,000 37,399(6)
Chairman of the
Board
William F. Griffin 1997 146,385 2,339 17,500(4) 38,838(7)
Executive Vice 50,000(5)
President, 1996 111,323 1,113 35,000(4) 36,000(8)
Marketing 42,715(9)
1995 32,000(10)
James M. Rosel 1997 134,384 1,988 17,500(4)
Vice President, 25,003(5)
Finance and General 1996 110,704 1,107 18,000(4)
Counsel 1995 113,750 1,136 500(4) 15,650(6)
Gary R. Sams 1997 38,048 25,000(4) 3,296(11)
Vice President,
Contracts and
Programs
Chris Morris (12) 1997 126,769 1,689 17,500(4)
Chief Engineer 25,003(5)
1996 106,512 1,065 16,000(4)
1995 110,173 $5,000(13) 1,149 7,200(4)
Benny E. Jay 1997 107,308 1,069 10,000(4)
Chief Scientist 1996 100,096 1,008 13,166(4)
1995 124,885 1,260 3,000(4)
</TABLE>
(1) The Company has made no restricted stock awards and has no long-term
incentive plans.
(2) No executive officer serving during 1997 (other than officers shown in
table) earned in excess of $100,000 in annual salary and bonus in
1995, 1996, or 1997.
(3) All of the amounts shown were received as a Company contribution under
the 401(k) plan which is available to all employees of the Company and
is paid as a uniform percentage of the amount of employee
contribution.
(4) Reflects options to purchase stated number of shares of Common Stock
granted during respective year.
(5) Reflects warrants to purchase stated number of shares of Common Stock
acquired under the terms of a Private Placement.
(6) Moving expenses paid by the Company.
(7) Includes $31,780 which was travel between residence and place of
business; and $7,058 including lodging, local transportation and
miscellaneous expenses for 1997.
(8) Mr. Griffin was paid as a Consultant for the period of January 1 until
March 25, 1996, at which time he became an employee.
(9) Includes $28,122 which was travel between residence and place of
business; and $14,593 including lodging, local transportation and
miscellaneous expenses for the period from March 25 through December
31, 1996.
(10) Mr. Griffin acted in the capacity of a Consultant to the Company for
the period of September 1 through December 31, 1995.
(11) Mr. Sams was appointed as a Vice President on August 26, 1997, at an
annual rate of $125,000 but earned $38,048 for that portion of 1997 he
was employed. $3,296 was paid by the Company for Mr. Sams for travel
between residence and place of business as well as other miscellaneous
expenses.
(12) Mr. Morris was not an executive officer at December 31, 1997; however,
he continues to serve the Company as Chief Engineer.
(13) Mr. Morris received this bonus prior to his appointment as Vice
President while his assignment was that of Chief Engineer.
Michael G. Semmens was hired to be the President and Chief Executive
Officer of the Company in June 1994 at an annual base salary of $200,000
and a $50,000 signing bonus. In addition, Mr. Semmens was granted options
to purchase 47,500 shares of Common Stock; of these, options on 32,500
shares vest over a 30-month period from the date of grant, and options on
the remaining 15,000 shares become exercisable upon the share price
reaching certain thresholds. Mr. Semmens' Letter of Employment provided
for a three-year employment contract, with a provision for a one year's
salary severance in the event of termination. The Letter of Employment
included the above terms and an annual performance-based bonus of up to 50
percent of base compensation. In addition, the implementation of a
management incentive program for which Mr. Semmens would be eligible was
authorized. The Letter of Employment expired under its own terms in June
1997. The Company provided a new Severance Agreement to Mr. Semmens and
other key executives as described below.
On August 13, 1997, the Board of Directors authorized the execution of
Severance Agreements with eight key executive and/or technical personnel in
the event of a Change in Control of the Company. Such Severance Agreements
provided for compensation to the respective employee in the event the
individual's job is materially changed or lost, other than for cause, as a
result in Change in Control of the Company. Change in Control is defined
to occur upon any of the following: acquisition of 30 percent or more of
the voting securities of the Company by a person or beneficial owner, a
change in the majority representation of the Board currently serving
(including any new director nominated or appointed by the Board), a merger
or consolidation of the Company with any other corporation except for one
in which the shareholders of the Company prior to the transaction maintain
voting control of the resulting entity, or the stockholders of the Company
approve a plan for the sale or disposition by the Company of all or
substantially all the Company's assets other than a sale or disposition by
the Company of such assets to an entity at least seventy-five percent of
the combined voting power of the voting securities of which are owned by
stockholders of the Company in substantially the same proportions as their
ownership of the Company immediately prior to such sale. In the event of
such a Change in Control and the employee's job is materially changed or
lost for reasons other than cause, the employee would be entitled to a lump
sum payment equal to two-year's salary and the immediate vesting of all
stock options. Additionally, if there is a Change in Control and no change
is made in the employee's job, the employee could voluntarily leave the
Company after one year from the Change in Control and receive a lump sum
payment of one year's salary. The term of the Agreements expires January
1, 2000, with provisions to extend the term based on any one of specific
conditions. Agreements were executed with the following individuals: Ajoy
Datta, William F. Griffin, Benny E. Jay, Mary Beth Koenig, Charles L.
Mathews, Chris Morris, James M. Rosel and Michael G. Semmens.
William F. Griffin also has a Letter of Employment Agreement that
provides for a severance payment of three months salary and benefits in the
event of non-voluntary termination for reasons other than cause (e.g.,
illegal, destruction or dishonest conduct). This Agreement would have
effect only if the above described Severance Agreement was not triggered.
___________________________________________________________________________
The following table sets forth certain information concerning
options/SARs granted during 1997 to the named executives:
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<S> <C> <C> <C> <C> <C> <C>
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Price Appreciation
Individual Grants for Option Term
% of Total
Number of Options/
Securities SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted Fiscal Year ($/Share)(1) Date 5% ($) 10% ($)
Michael G. Semmens 25,000(2) 8.4 6.938 6/25/2007 109,082 276,435
William F. Griffin 17,500(2) 5.9 6.938 6/25/2007 76,357 193,504
James M. Rosel 17,500(2) 5.9 6.938 6/25/2007 76,357 193,504
Gary R. Sams 25,000(3) 8.4 6.50 9/12/2007 102,195 258,983
Chris Morris 17,500(2) 5.9 6.938 6/25/2007 76,357 193,504
Benny E. Jay 10,000(2) 3.4 6.938 6/25/2007 43,633 110,574
</TABLE>
(1) The exercise price of all options is equal to the market price of the
Common Stock as of the date of grant.
(2) Exercisable: 1/3 at December 25, 1997, 1998, and 1999.
(3) Exercisable: 1/3 at March 12, 1998, 1999, and 2000.
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<S> <C> <C> <C> <C>
Number of Securities
Underlying Value of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
Fiscal Year-End Fiscal year-end
(#) ($)
Shares Acquired Value Exercisable (E)/ Exercisable (E)/
Name on Exercise (#) Realized($) Unexercisable (U) Unexercisable (U)(1)
Michael G. Semmens 0 0 84,167 (E) (2)
16,667 (U)
William F. Griffin 0 0 31,499 (E) (2)
21,001 (U)
James M. Rosel 0 0 32,833 (E) (2)
14,834 (U)
Gary R. Sams 0 0 0 (E) (2)
25,000 (U)
Chris Morris 0 0 28,433 (E) (2)
17,234 (U)
Benny E. Jay 0 0 23,333 (E) (2)
6,667 (U)
</TABLE>
(1) Based on the $2.375 per share market price of the Common Stock as
reported on NASDAQ as of December 31, 1997, (last market day of year).
(2) Option price exceeded the market price at December 31, 1997.
___________________________________________________________________________
The Company's directors are not paid any fee for attendance at Board
or Committee meetings; however, they are reimbursed for expenses incurred
in attending Board or Committee meetings including travel costs. Directors
and members of Committees of the Board who are employees of the Company are
not separately compensated for their Board and Committee activities.
Pursuant to the Company's 1996 Stock Option Plan, each director of the
Company that is not an employee or officer of the Company receives a one-
time grant of options to purchase 15,000 shares of Common Stock at the time
such person becomes a director. All options are exercisable at six months
from the date of grant Under the 1996 Stock Option Plan In addition, each
director will be awarded 2,000 shares annually commencing with the second
anniversary of the date on which the director joined the Board. Directors
of the Company that are also employees or officers of the Company are
eligible for grants of options under the Company's 1996 Stock Option Plan;
the number of options granted and the vesting schedule of such options are
determined by the Company's Compensation/Stock Option Committee. The
exercise price of each option granted under the plan is not less than the
market price of the Common Stock at the date of grant.
Compensation Committee Interlocks and Insider Participation.
The Company's Compensation/Stock Option Committee consists of Dr.
Graham, Dr. Hackerman, Messrs. Gjelde and Wilson. Mr. Gjelde was appointed
to serve this Committee at the time of his appointment to the Board in
August 1997 replacing Mr. John Malone who resigned as of June 30, 1997.
None of these members is or has been an officer or employee of the Company.
Mr. Malone who resigned as a director in June 1997, and Mr. Wilson,
who is not standing for reelection as a Director, own approximately 3% and
1%, respectively, of the outstanding common shares of Blanyer-Mathews
Associates, Inc. ("Blanyer-Mathews"). Until March 2, 1996, Mr. Malone
served as a director of Blanyer-Mathews.
Blanyer-Mathews is the holder of the patent relating to coextruded
wire under which the Company holds an exclusive license. The Company paid
minimum royalties under this license totaling $100,000 to Blanyer-Mathews
during 1996.
Each of the members of the Compensation/Stock Option Committee has
received options to purchase 15,000 shares of Common Stock under the
Company's 1996 Stock Option Plan. Under the 1996 Stock Option Plan, each
director automatically receives an additional grant of 2,000 shares
annually commencing with the second anniversary of his initial election.
Certain Relationships and Related Transactions
Contract with Bastrop Metal Products
Mr. Charles L. Mathews, a director, is the sole owner, director and
officer of Bastrop Metal Products, Inc. In November 1995, a Development
Agreement and Agreement for Purchase of Machinery and Supplies between the
Company and Charles L. Mathews was executed under which Mr. Mathews
contracted to manufacture and provide to the Company coextruders for use in
present and anticipated Company production facilities at a set price per
single head coextruder. The Agreement provides that the Company will
advance 50 percent of anticipated construction cost of each coextruder. In
addition, Mr. Mathews agrees to develop certain other equipment to be
utilized in the Company's manufacturing operations. The Company will own
all intellectual property rights as well as all engineering drawings to
this equipment. Under this Agreement, the Company paid $32,000 in 1997.
The Company has made no advances for construction costs for a coextruder.
In December 1996, the Company entered into an agreement with Bastrop Metal
Products for the lease of warehouse space for storage purposes. In
addition, the Company has leased approximately 4,000 square feet from
Bastrop Metal Products for a monthly cost of $400 and paid $4,800 under
such agreement during 1997.
Participation in Equity Placement
In January 1997 certain of the CompanyOs executive officers
participated as purchasers in a private placement of the CompanyOs common
stock. The terms of the offering called for the sale of shares of common
stock at a price, payable in cash, of $6.56 per share. Purchasers in the
offering received one warrant to purchase an additional share of common
stock at an exercise price of $7.56 per share for each dollar invested in
common stock at the closing of the offering. All warrants expire in January
1999.
Compensation Committee Report on Executive Compensation.
During fiscal 1997, executive compensation consisted of three
components: (a) base pay; (b) year-end bonus; and (c) awards under the
Company's Stock Option Plans (the "Plans").
Total Cash Compensation. As a part of additional cost containment
efforts, in December 1997 the Compensation Committee made the
recommendation to accept, and the Board of Directors unanimously approved,
a voluntary salary reduction program ranging from eight to forty percent
for executive officers and non-executive officers to become effective
January 5, 1998, with reinstatement of full salaries at the discretion of
the Board at such time as financial conditions permit.
The Committee currently continues consideration of a plan linking the
performance of each executive to the amount of compensation paid to such
executive. The Compensation Committee reserves the right to make some
subjective judgments in assessing compensation relative to an individual
executive's contribution to the overall performance of the Company.
Year-end Bonus. Year-end bonuses of less than $1,200 are determined by
management. A bonus for any employee in excess of $1,200 must be approved
by the Compensation Committee. No bonuses were authorized by the
Compensation Committee during 1997 for any employee.
1996 Stock Option Plan. The 1996 Stock Option Plan was approved by the
Board of Directors in August of 1996, and approved by Shareholders at the
1997 Annual Meeting. Under the 1996 Stock Option Plan, it all outstanding
options under the various plans then in place were aggregated under the
1996 Plan, and all the various other plans were terminated. The
Compensation Committee recommended, and the Board of Directors approved, an
award of additional shares to selected executives based upon the ability of
such individuals to impact the long-term success of the Company.
Compensation of CEO and President. Michael G. Semmens was hired to be the
President and Chief Executive Officer of the Company in June of 1994 at an
annual base salary of $200,000 with a $50,000 signing bonus. In addition,
Mr. Semmens was granted options to purchase 47,500 shares of Common Stock;
of these, options on 32,500 shares vest over a 30 month period from the
date of grant, and options on the remaining 15,000 shares become
exercisable upon the share price reaching certain thresholds. Mr. Semmens'
Letter of Employment provided for a three year employment contract, with a
provision for a one year's salary severance in the event of termination.
The letter of employment included the above terms and an annual performance-
based bonus of up to 50 percent of base compensation. In addition, the
implementation of a management incentive program for which Mr. Semmens
would be eligible was authorized. Mr. Semmens' Letter of Employment
expired under its own terms in June 1997.
Mr. Semmens' salary was adjusted in April 1997 with a five percent
increase. In December 1997, Mr. Semmens' salary was voluntarily adjusted
to reflect a salary reduction of 29 percent.
The above recommendations were approved by the following non employee
directors who comprised the Compensation Committee for the period shown:
May 1997/Present William R. Graham, Norman Hackerman, Richard S.
Williamson; January/May, 1997 John D. Malone; August 1997/Present Earl E.
Gjelde
Comparative Performance of Company's Securities
1992 1993 1994 1995 1996 1997
NASDAQ Stock 100.000 114.796 112.214 158.699 195.196 239.527
Electronic Components 100.000 137.292 151.687 251.266 434.530 455.555
Electrosource 100.000 188.889 136.111 63.889 27.640 10.556
The above chart presents the total shareholder return with respect to
the Company's Common Stock for each of the last five years, compared to the
total return over the same period of (i) all NASDAQ U.S. stocks and (ii)
all NASDAQ electronic components stocks. Shareholder return for a given
year is measured by dividing dividends paid during the year plus the
difference between the Company's share price at the end and the beginning
of the year by the average of the bid and asked prices of a share of the
Company's Common Stock as of the beginning of the year; dividends are not a
factor in the computation of the Company's total return since the Company
paid no dividends during the periods presented. Closing prices at the end
of each year have been compared to the beginning index value, with
cumulative returns for each subsequent year measured as a change from that
base.
ITEM 2
SELECTION OF INDEPENDENT AUDITORS
The Board of Directors of the Company has voted to appoint Ernst &
Young LLP, independent auditors, to audit the accounts of the Company for
the fiscal year ended December 31, 1998. A representative of Ernst & Young
LLP is expected to attend the Annual Meeting and will have the opportunity
to make a statement if desired. Such representative is expected to be
available to respond to appropriate questions.
OTHER BUSINESS
Management does not know of any matters to be acted upon at the Annual
Meeting other than those described above.
VOTE REQUIRED FOR APPROVAL
Directors will be elected by a plurality of the votes cast by holders
of shares entitled to vote at the Annual Meeting. Auditors will be approve
and all other matters will be decided by the affirmative vote of holders of
a majority of the shares represented in person or by proxy and entitled to
vote at the Annual Meeting. Abstentions and broker nonvotes will not
affect the election of directors. Since all other matters to be considered
at the Annual Meeting require the affirmative vote of a given percentage of
shares outstanding or present at the meeting, abstentions will have the
effect of a vote against any matter other than the election of directors.
Broker nonvote are counted for purposes of determining the presence or
absence of a quorum, but are not counted for purposes of determining the
number of votes cast for or against the particular proposal for which
authorization to vote was withheld. Votes will be tabulated by Harris Trust
and Savings Bank.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
It is currently anticipated that the 1999 Annual Meeting of
Shareholders of the Company will be held on or about May 19, 1999.
Shareholder proposals to be presented at the 1999 Annual Meeting must be
received in writing by the Company at its principal executive offices not
later than December 11, 1998.
FORM 10-K
The Company will, upon written request, furnish without charge to each
person who was a beneficial owner of its securities on March 23, 1998, the
record date for the Company's Annual Meeting, a copy of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997,
including financial statements and schedules, as filed with the Securities
and Exchange Commission. Requests for copies of such report should be
directed to the Corporate Secretary, Electrosource, Inc., 2809 Interstate
35 South, San Marcos, Texas 78666.
The date of this Proxy Statement is April 10, 1998.
PROXY CARD
Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby constitutes and appoints Michael G.
Semmens and James M. Rosel, or either of them as Proxies, each
with full power of substitution, to represent and to vote, as
designated below, all shares of Common Stock of Electrosource.
Inc., held of record by the undersigned on March 23, 1998, at the
Annual Meeting of Shareholders to be held at 10:00 A.M., May 20,
1998, at the Corporate Headquarters, 2809 Interstate 35 South,
San Marcos, Texas, or any adjournments thereof.
1. ELECTION OF DIRECTORS, NOMINEES:
William R. Graham Earl E. Gjelde
2. Proposal to approve the appointment of Ernst & Young LLP as
auditors.
3. In their discretion, the Proxies are authorized to vote upon
such business as may properly come before the meeting or any
adjournment thereof as provided in the accompanying Proxy
Statement.
This Proxy when properly executed will be voted in the manner
directed by the undersigned shareholder. If no direction is
made, this Proxy will be voted FOR Proposals 1 and 2. If this
Proxy is executed by the undersigned shareholder in such a manner
as not to withhold authority to vote for the election of any
nominees, such authority shall be deemed granted. The Proxy
tabulator cannot vote your shares unless you sign and return this
card in the enclosed envelope.
Check box for address change.
(Change of Address)
__________________________________
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(If you have written in the above space,
please mark the box)
SIGNATURE(S)________________________________ DATE ______________
SIGNATURE(S)________________________________ DATE ______________
NOTE: Please sign exactly as name appears hereon. Joint
owners should each sign. When signing as attorney,
executor, administrator, trustee or guardian, please
give full title as such.
