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
[ ] Confidential, for Use of the Commission Only (as permitted by
140 14a-6(e)(2))
[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)
-------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] 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 (Set forth the amount on which the
filing fee is calculated and state how it was determined:
(4) Proposed maximum aggregate value of transaction: ______
(5) Total fee paid: ________
[ ] 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
Shareholders of Electrosource, Inc. (the "Company") will be held
at the San Marcos Activity Center, 501 East Hopkins, San Marcos,
Texas, on June 22, 1999, at 10:00 o'clock A.M., Austin, 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 adoption of the
Company's 1999 Stock Option Plan.
3. 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, 1999.
4. 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 May 12, 1999, 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 Shareholders.
Austin, Texas William F. Griffin
May 24, 1999 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., Austin, Texas time on June
22, 1999, at the San Marcos Activity Center, 501 East Hopkins,
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 two nominees named in this Proxy
Statement, for the approval of the 1999 Stock Option Plan, and
for the approval of the selection of auditors. Execution of a
proxy confers discretionary authority to vote on any matter of
which the Company did not have notice before February 25, 1999,
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, with respect to any proposal omitted from this
Proxy Statement and the Form of Proxy pursuant to Securities and
Exchange Commission Rules 14a-8 or 14a-9, 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 May 12, 1999, 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 9,721,631 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. 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. 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.
The Company's Transfer Agent, Harris Trust and Savings Bank,
provides the services of mailing labels, shareholder lists and
vote tabulation for no additional charge under the terms of their
Transfer Agent Agreement. All outside charges for postage,
mailing service for proxy distribution, and printing of proxy
solicitation materials are paid by the Company (approximately
$5,000).
This Proxy Statement and the accompanying Form of Proxy is
first being mailed to Shareholders of the Company on or about May
24, 1999.
SECURITY OWNERSHIP OF MANAGEMENT
AND FIVE-PERCENT BENEFICIAL OWNERS
The following table sets forth as of May 12, 1999, the name
of each person who, to the knowledge of the Company, owned
beneficially more than five percent of any class of the Company's
voting securities outstanding as of such date, the number of
shares of Common Stock owned by each such person and 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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Amount and Nature of
Beneficial Ownership of
Common Stock
Name of Beneficial Owner Currently Acquirable
Owned (1) within Percent
60 days of Class
DIRECTORS AND NOMINEES FOR
DIRECTORS
Richard E. Balzhiser 0 17,000 Options .2
William F. Griffin 8,719 117,500 Options 1.8
President, CEO and Acting 50,000 Warrants(2)
Chairman
Norman Hackerman 403 19,000 Options .2
Nathan P. Morton 500 19,000 Options .2
Roger G. Musson 5,125,000(3) 875,000 Rights (4) 66.2
3,000,000 Options (4)
15,000 Options
James M. Rosel (5) 100 15,000 Options .4
25,003 Warrants (2)
Kamal Siddiqi 5,125,000 (6) 875,000 Rights (7) 66.2
3,000,000 Options (7)
15,000 Options
Clifford G. Winckless 5,125,000 (8) 875,000 Rights (9) 66.2
3,000,000 Options (9)
15,000 Options
OTHER EXECUTIVE OFFICERS
Michael Semmens (10) 21,115 0 (11) 1.5
Former President, CEO and 125,000 Warrants (2)
Chairman
Gary R. Sams, Vice President 0 0 ptions (12) 0
Product Development and Research
Benny E. Jay (13) 0 45,000 Options .5
Executive Vice President
Chief Technical Officer
Charles L. Mathews (14) 1,667 45,000 Options .5
Chief Engineer
ALL DIRECTORS, NOMINEES 5,161,314 3,383,000 Options (15) 65.8
FOR DIRECTOR, AND 225,006 Warrants (16)
EXECUTIVE OFFICERS AS A
GROUP
FIVE PERCENT BENEFICIAL HOLDERS
BDM International,
subsidiary of TRW, Inc. 499,304 - 5.1
4001 N. Fairfax Drive
Arlington VA 22203
Corning Incorporated 0 760,000 Warrants 7.3
One Waterfront Plaza
Corning New York
14831
5,125,000 875,000 (17) 66.2
Kamkorp Limited 3,000,000 (18)
Mytchett Place, Mytchett
Surrey GU16 6DQ England
(1) In each case the beneficial owner has sole voting and
investment power except as otherwise indicated in Notes 3,4, 6, 7, 8
and 9 where the voting and investment powers are shared.
(2) Acquired in Private Placement of January 1997.
(3) Total shares owned by Kamkorp Limited of which Mr. Musson owns five
percent. As five percent shareholder and director of Kamkorp Limited,
Mr. Musson may be considered to share voting and investment powers with
respect to such shares. Mr. Musson disclaims beneficial ownership of
such shares.
(4) Kamkorp Limited owns rights to purchase 875,000 shares and options to
purchase 3,000,000 shares of Common Stock under the Stock Purchase
Agreement. As five percent shareholder and director of Kamkorp
Limited, Mr. Musson may be considered to share voting and investment
powers with respect to such shares. Mr. Musson disclaims beneficial
ownership of such shares.
(5) Mr. Rosel resigned as Vice President, Finance and General Counsel,
in August 1998. At the time of his resignation, Mr. Rosel had been
granted options to purchase 47,667 shares of common stock at an
exercise price of $1.563 per share; subsequently, all such options
expired unexercised under the terms and conditions of the 1996 Stock
Option Plan. He was appointed to the Board of Directors in December 1998.
(6) Total shares owned by Kamkorp Limited of which Mr. Siddiqi owns eighty-
five percent. As eighty-five percent shareholder and director of Kamkorp
Limited, Mr. Siddiqi may be considered to share voting and investment
powers with respect to such shares. Mr. Siddiqi disclaims beneficial
ownership of such shares.
(7) Kamkorp Limited owns rights to purchase 875,000 shares and
options to purchase 3,000,000 shares of Common Stock under
the Stock Purchase Agreement. As eighty-five percent
shareholder and director of Kamkorp Limited, Mr. Siddiqi may
be considered to share voting and investment powers with
respect to such shares. Mr. Siddiqi disclaims beneficial
ownership of such shares.
(8) Total shares owned by Kamkorp Limited of which Mr. Winckless
owns ten percent. As ten percent shareholder and director of
Kamkorp Limited, Mr. Winckless may be considered to share
voting and investment powers with respect to such shares.
Mr. Winckless disclaims beneficial ownership of such shares
(9) Kamkorp Limited owns rights to purchase shares 875,000 and
options to purchase 3,000,000 shares of Common Stock under
the Stock Purchase Agreement. As ten percent shareholder and
director of Kamkorp Limited, Mr. Winckless may be considered
to share voting and investment powers with respect to such
shares. Mr. Winckless disclaims beneficial ownership of such
shares.
(10) Mr. Semmens served as President, CEO and Chairman until
December 7, 1998, at which time he resigned. Mr. Semmens'
spouse owns 40 shares of stock as custodian for minor
children.
(11) At December 7, 1998, Mr. Semmens had options to purchase
100,834 shares under the 1996 Stock Option Plan of which
31,667 shares were unvested and 69,167 shares were vested
with an exercise price of $1.563. Subsequent to December 31,
1998, Mr. Semmens exercised 49,167 shares at an exercise
price of $1.563 and the remaining 20,000 shares were
forfeited under the terms and conditions of the Plan.
(12) Mr. Sams was Vice President, Product Development and
Research, at December 31, 1998; however, due to
reorganization was terminated on January 5, 1999. Options to
purchase 8,333 shares were vested of the 25,000 options
granted to Mr. Sams under the 1996 Stock Option Plan. Mr.
Sams exercised 3,600 options to purchase shares on April 1,
1999, and the remaining 4,733 options expired and were
forfeited as prescribed by the terms of the Plan.
(13) At December 31, 1998, Mr. Jay was Chief Scientist. In
January 1999, the Board of Directors appointed him to the
office of Executive Vice President and Chief Technical
Officer.
(14) Mr. Mathews' spouse owns 4 shares of stock as to which
shares Mr. Mathews disclaims beneficial ownership.
(15) Includes 87,500 shares of Common Stock receivable upon the exercise
of options in addition to option shares shown above.
(16) Includes 40,097 shares of Common Stock receivable upon the exercise
of warrants in addition to warrant shares shown above.
(17) Includes rights to acquire shares under Stock Purchase Agreement.
(18) Includes options to purchase shares under Stock Purchase Agreement.
CHANGE IN CONTROL OF THE COMPANY
In June 1998, the Company entered into an Agreement with
Kamkorp Limited ("Kamkorp"), a company organized in England, for
up to $6,000,000 of equity funding. The Agreement was structured
with the intent of providing additional equity capital combined
with battery orders for use in electric vehicles, neighborhood
electric vehicles and other applications. The Agreement requires
Kamkorp to purchase an aggregate of 6,000,000 shares of the
Company's Common Stock for cash at $1.00 per share and grants
Kamkorp 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.
An additional $1,200,000 of the Company's common stock was
purchased during September through December 1998 at $1.00 per
share. Such payments were generally not made on the time
schedule required by the Agreement. The Agreement requires,
subject to certain conditions precedent, that Kamkorp purchase up
to an additional $2,100,000 of the Company's Common Stock $1.00
per share at a minimum of $300,000 per month though July 1999.
Kamkorp management has stated that the remaining and future
purchases of Common Stock (more or less than those defined in the
Agreement) will be made in the amount and timeframe they deem
necessary to sustain the Company's operations and execute the
business plan approved by Kamkorp rather than as defined in the
schedule set forth in the Agreement. All funding to date has
been provided from working capital sources of Kamkorp and it is
anticipated that the continued funding under the Stock Purchase
Agreement will be provided through the same source.
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. At December
31, 1998, the three directors nominated by Kamkorp comprised
37.5% of the eight-member Board of Directors. As of December 31,
1998, Kamkorp held 46% of the Company's Common Stock and has the
ability to obtain greater than 50% of the outstanding Common
Stock 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. As of Record Date, Kamkorp held 52.7% of the
outstanding Common Stock of the Company. 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 of commitment for more than 12 months;
and
k. other various management policies and decisions.
As of May 12, 1999, Kamkorp is the record owner of 5,125,000
shares or 52.7 % of the Company's 9,721,631 outstanding shares of
Common Stock and, including options to purchase Common Stock, the
beneficial owner of 9,000,000 shares or in excess of 66% 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
such shares. Kamkorp has not yet requested registration.
ITEM 1
ELECTION OF DIRECTORS
The Company has a Board of Directors consisting of eight
members serving staggered terms. The terms of directors Norman
Hackerman and Roger G. Musson will expire at the 1999 Annual
Meeting and accordingly, two directors are to be elected at such
meeting. The Nominating Committee of the Board of Directors has
nominated Dr. Hackerman and Mr. Musson for reelection as
directors. 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 2002, 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 Principal Occupation during Term to Expire
Held with the Company Age Past Five Years at Annual Meeting in
Richard E. Balzhiser 66 Director, Electrosource, Inc., 2000
Director 1997 to Present; 1996-Present,
President Emeritus, Electric
Power Research Institute (EPRI);
1988-1996, President and CEO,
EPRI; 1996-Present, Director,
Houston Industries.
William F. Griffin 51 President, Chief Executive Officer 2001
President, Chief and Chairman of the Board (Acting),
Executive Officer and Electrosource, Inc., December 1998
(Acting) Board Chairman to present; Executive Vice President/
Marketing, April 1996 to December 1998;
Vice President, 1990-1995, COMPUSA
Norman Hackerman 87 Director, Electrosource, Inc., 1993 to 1999
Director present; Chairman, Scientific Advisory
Board, Robert A. Welch Foundation, for
more than five years; Director,
American General Portfolio Fund, for
more than five years.
Nathan P. Morton 50 Director, Electrosource, Inc., 1995 2000
Director to present; Senior Partner, Channel
Marketing Corporation, 1996-present;
Co-Chairman/Chief Executive Officer,
Computer City, Inc., 1996-1998;
President and Chief Executive Officer,
Open Environment Corporation, 1994-1996;
Chairman, President, and Chief Executive
Officer, COMPUSA, 1989-1993.
Roger G. Musson 49 Director, Electrosource, Inc., June 1999
Director 1998 to present; Director and
Secretary, Kamkorp Ltd., 1997 to
Present; Director and Secretary,
Frazer-Nash Research Ltd., 1997 to
Present; Director and Secretary,
Frazer-Nash Engineering Technology Ltd.,
1998 to Present; Director and Secretary,
Frazer-Nash International Ltd., 1999 to
Present; Director and Secretary, Kamkorp
Investments Ltd., 1997 to Present;
Financial Controller, Vickers PLC,
1987-1997.
James M. Rosel 50 Director, Electrosource, Inc., December 2001
Director 1998 to Present; Sr. Vice President
and General Counsel, Garland Broadcast
Investors, Inc. dba KADCO Systems,
November 1998 - present; Director,
Global Ticket Exchange, September 1998
- present; Vice President, Finance and
General Counsel, Electrosource, Inc.,
1994 to September 1998; Vice President
and Secretary, Nord Pacific Ltd., 1990-
1994.
Kamal Siddiqi 46 Director, Electrosource, Inc., June 2001
Director 1998 to present; Director, Kamkorp Ltd.,
1992 to Present; Director, Frazer-
Nash Research Ltd., 1992 to Present;
Director, Frazer-Nash Engineering
Technology Ltd., 1998 to Present;
Director, Frazer-Nash International
Ltd., 1992 to Present; Director, Kamkorp
Investments Ltd., 1997 to Present.
Clifford G. Winckless 51 Director, Electrosource, Inc., June 2000
Director 1998 to Present; Director, Kamkorp
Ltd., 1994 to present, Secretary 1995
to 1997; Director, Frazer-Nash
Research Ltd., 1993 to Present,
Secretary 1995 to 1997; Director,
Frazer-Nash Engineering Technology
Ltd., 1998 to Present; Director,
Frazer-Nash International Ltd.,
1993 to Present, Secretary, 1995
to 1999; Director, Kamkorp Investments
Ltd., 1997 to Present; Director,
Molegate Ltd., 1994 to Present.
EXECUTIVE OFFICERS
Benny E. Jay 60 Executive Vice President-Chief Technical Officer,
Executive Vice President January 1999 to Present; Chief Scientist,1998-1999;
Marketing Director - Europe, 1997-1998; Chief
Scientist, 1994-1997, Electrosource, Inc.
Charles L. Mathews 63 Chief Engineer, Electrosource, Inc., 1997-
Chief Engineer present; Consultant to Electrosource, Inc.
1995-1997; President of CEO, Bastrop Metal
Products, Inc., 1995-present; Chief Scientific
Officer, Electrosource, Inc., 1992-1994.
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. Dr. Richard E.
Balzhiser was appointed to the Board in March 1997. Mr. Griffin
was appointed to the Board in December 1998 to fill a newly-
created position on the Board with a term expiring at the Annual
Meeting of 2001. Dr. Hackerman was appointed to fill the vacancy
created by the resignation of Donald S. Thomas effective
September 1, 1993. Previously, Dr. Hackerman was a director of
the Company from 1988 until 1991 with his current term expiring
with the Annual Meeting of Shareholders to be held on June 22,
1999. The Nominating Committee has nominated him for reelection.
Mr. Nathan P. Morton was appointed to the Board in June 1995.
Under the terms of the Stock Purchase Agreement with Kamkorp,
Messrs. Musson, Siddiqi, and Winckless were appointed to the
Board effective as of June 2, 1998, to terms expiring at the
Annual Meetings for the years 1999, 2001, and 2000, respectively.
The Nominating Committee has nominated Mr. Musson for reelection.
Mr. Rosel was appointed to fill the vacancy created by the
resignation of Charles L. Mathews effective December 23, 1998.
See "Change in Control of the Company."
Mr. Sams was appointed as Vice President, Contracts and
Programs, on August 26, 1997. On January 5, 1999, Mr. Sams was
terminated as a result of reorganization; however, as of December
31, 1998, he was serving the Company in the capacity of Vice
President and General Manager.
Mr. Nathan Morton, Director, and Mr. William Griffin, President
and Chief Executive Officer and Acting Chairman of the Board, are
related as brothers-in-law.
Committees of the Board of Directors
The Board of Directors held nine meetings and gave one written
consent during the year ended December 31, 1998. 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 1998.
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. Upon the
expiration of his term on May 20, 1998, Mr. Wilson left the Audit
Committee. From August 18, 1998 until November 3, 1998, the
members of the Audit Committee were Messrs. Williamson, Mathews
and Musson. On November 3 , Mr. Williamson resigned. At such
time, the Audit Committee consisted of Messrs. Mathews and
Musson. Mr. Mathews resigned as a Director and a Audit Committee
member as of December 14, 1998. At December 31, 1998, Mr. Musson
remained as a member of the Audit Committee; subsequently, Mr.
Rosel and Dr. Hackerman have been appointed to serve on this
Committee. The Audit Committee met two times during the year
ended December 31, 1998.
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 comprised the
membership of the Executive Committee until the resignations of
Mr. Semmens as of December 7, Mr. Mathews as of December 14, and
Dr. Graham effective November 20, 1998. At December 31, 1998,
the Executive Committee was composed of Dr. Hackerman and Mr.
Siddiqi; subsequently, Mr. Griffin has joined the Committee as
President of the Company. The Executive Committee had no
meetings during the year ended December 31, 1998.
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 were Messrs. Morton and Wilson and Drs. Balzhiser and
Graham. Upon the expiration of his term, Mr. Wilson left the
Finance Committee, as did Dr. Graham with his resignation as of
November 20. As of December 31, 1998, the Finance Committee was
comprised of Messrs. Morton, Musson and Siddiqi. There were
three formal meetings of the Finance Committee during the fiscal
year 1998; 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.
Upon his resignation, Mr. Williamson left the Nominating
Committee, which consisted of Dr. Balzhiser and Messrs. Morton
and Williamson. As of December 31, 1998, the Nominating
Committee consisted of Dr. Balzhiser and Mr. Winckless;
subsequently, Dr. Hackerman has been appointed to serve on this
Committee. The Nominating Committee met two times during the
year ended December 31, 1998. 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 plan. The members of the
Compensation/Stock Option Committee were Directors Graham,
Hackerman, Williamson, and Gjelde until such times as Dr. Graham
and Messrs. Williamson and Gjelde resigned. The
Compensation/Stock Option Committee held two meetings and gave
two written consents during 1998. At December 31, 1998, the
committee was composed of Dr. Hackerman and Mr. Winckless;
subsequently, Mr. Rosel and Dr. Balzhiser have been appointed to
the Committee with Mr. Winckless serving in a non-voting capacity
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 1998, its officers,
directors and greater than 10 percent beneficial owners complied
with all filing requirements applicable to them.
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, 1998
to the Chief Executive Officer of the Company, to each other
executive officers and to certain other highly paid persons of
the Company earning in excess of $100,000 during 1998:
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term Compensation(1)
Awards Payouts
Annual Compensation
Other Restricted Securities All Other
Annual Stock Underlying LTIP Compen-
Name and Principal Compen- Award(s) Options/ Payouts sation
Positionon (2) Year Salary($) Bonus($) sation($)(3) $ SARs(#) ($) ($)
<S> <C> <C> <C> <C> <C>
William R. Griffin 1998 154,689 2,446 52,500(4) 19,327(6)
President, CEO and 1997 146,385 2,339 17,500(5) 38,838(7)
Acting Chairman 1996 111,323 1,112 35,000(5) 36,000(8)
Gary R. Sams 1998 120,250 851 25,000(4) 18,786(10)
Vice President, 1997 38,048 0 25,000(5) 3,296(11)
General Manager
Benny E. Jay 1998 111,692 1,100 30,000(4)
Chief Scientist 1997 107,308 1,069 10,000(5)
1996 100,965 1,008 13,166(5)
Michael G. Semmens 1998 155,966 2,409 100,834(4)
Former President, 1997 205,962 2,361 25,000(5)
125,000(6)
CEO and Chairman 1996 176,923 1,769 28,334(5)
James M. Rosel 1998 112,841 1,693 47,667(4)
Former Vice President 1997 134,384 1,988 17,500(5)
Financial and 25,003(6)
General Counsel 1996 110,704 1,107 18,000(5)
Charles L. Mathews 1998 121,640 0 50,000(4)
Chief Engineer 1997 91,025 0 15,000(5)
1996 0 0 26,166(5)
</TABLE>
(1) The Company has made no restricted stock
awards and has no long-term incentive plans.
(2) No executive officer serving during 1998 (other than
officers shown in table) earned in excess of $100,000 in
annual salary and bonus in 1996 1997 or 1998.
(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 prior years and regranted or
repriced during 1998. No additional options to purchase were
granted to listed individuals during 1998.
(5) Reflects options to purchase stated number of shares of
Common Stock granted during respective years.
(6) Includes $16,041 reimbursement for travel between residence
and place of business and $3,286 reimbursement for lodging,
local transportation and miscellaneous expenses for 1998.
(7) Includes $31,780 reimbursement for travel between residence
and place of business and $7,058 reimbursement for lodging,
local transportation and miscellaneous expenses for 1997.
(8) Mr. Griffin was paid as a consultant to the
Company for the period of January 1 through March 25, 1996,
at which time he became an employee.
(9) Includes $28,122 reimbursement for travel between residence
and place of business and $14,593 reimbursement for lodging,
local transportation and miscellaneous expenses for the
period from March 25 through December 31, 1996.
(10) Includes $10,599 reimbursement for travel between residence
and place of business and $8,187 reimbursement for lodging,
local transportation and miscellaneous expenses for 1998.
(11) Mr. Sams was appointed as a Vice President on August 26,
1997, at an annual salary of $125,000 but earned $38,048 for
the 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.
William F. Griffin was hired as Executive Vice President in
March 1996 with a base salary of $144,000 and was provided a
Letter of Employment Agreement that provides for a severance
payment of three months salary and benefits in the event of his
termination by the Company without cause. This Agreement was
superseded by the Severance Agreement dated May 1998. Mr.
Griffin was appointed as Acting President and Chief Executive
Officer as of December 23, 1998, at a salary of $200,000. This
appointment was finalized by confirmation of Mr. Griffin as
President and Chief Executive Officer by the Board of Directors
effective January 15, 1999.
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 were
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 approval by the
stockholders of the Company of 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, if the employee's job were
materially changed or lost for reasons other than cause, the
employee would be entitled to a lump sum payment equal to two-
years' salary and the immediate vesting of all stock options.
Additionally, if there were a Change in Control and no change
were 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. These
Agreements were to expire January 1, 2000, with provisions to
extend the term in certain events. The August 1997 Severance
Agreements were replaced and superseded by Agreements dated May
1998 which altered the terms as follows: Monthly salary until
new employment is secured, but in no event for longer than six
months and payment by the Company of six months insurance
premiums. Original 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. Mr. Gary P. Sams was included in those
executing the Severance Agreement dated May 1998.
The Company terminated the employment of Gary Sams, Vice
President, Product Development and Research, in January 1999. On
March 10, 1999, Mr. Sams filed an action in the 207th Judicial
District Court (Hays County, Texas), claiming that he is entitled
to compensation under a Severance Agreement entered into between
the Company and Mr. Sams in May 1998. The suit seeks damages
representing, in summary, compensation at his initial salary rate
for the period of time that Mr. Sams remains unemployed, the
amount of premiums paid for health and group life insurance
coverage, housing costs and attorneys fees. The Company disputes
the claim for damages and will vigorously defend the action. No
liability has been recorded in the financial statements at
December 31, 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.
Mr. Chris Morris resigned from the Company in July 1998. Mr.
Morris was reemployed as Chief Engineer at a salary of $115,000
annually and in January 1999, the Board of Directors appointed
him to the office of Vice President, Chief Operating Officer.
Under the terms of the Severance Agreements, Mr. Morris forfeited
his right to severance upon his resignation. It was not
reinstated at his reemployment.
_________________________________________________________________
The following table sets forth certain information concerning
options/SARs granted during 1998 to the named executives:
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term
% of Total
Number of Options/
Securities SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted Fiscal Year ($/Share)(1) Date 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
William F. Griffin 52,500(2) 8.7 $1.563 8/18/2008 51,605 130,778
Michael G. Semmens 100,834(3) 16.7 $1.563 8/18/2008 99,116 224,551
Gary R. Sams 25,000(2) 4.1 $1.563 8/18/2008 24,574 62,275
Benny E. Jay 30,000(2) 5.0 $1.563 8/18/2008 29,488 74,730
James M. Rosel 47,667(4) 7.9 $1.563 8/18/2008 46,855 118,739
Charles L. Mathews 50,000(2) 8.3 $1.563 8/18/2008 49,148 124,551
</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) Reflects options to purchase stated number of shares of
Common Stock granted during prior years and regranted or
repriced during 1998. No additional options to purchase were
granted to listed individuals during 1998.
(3) At December 7, 1998, Mr. Semmens had options to purchase
100,834 shares under the 1996 Stock Option Plan of which
31,667 shares were unvested and 69,167 shares were vested
with an exercise price of $1.563. Subsequent to December 31,
1998, Mr. Semmens exercised 49,167 shares at an exercise
price of $1.563 and the remaining 20,000 shares were
forfeited under the terms and conditions of the Plan.
(4) At the time of his resignation Mr. Rosel had been granted
options to purchase 47,667 shares of common stock at an
exercise price of $1.563 per share; subsequently, all such
options expired unexercised under the terms and conditions of
the 1996 Stock Option Plan.
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
Fiscal Year-end Fiscal Year-end
Shares Acquired (#) ($)
on Exercise Value Realized Exercisable(E)/ Exercisable(E)/
Name (#) ($) Unexercisable(U)(1) Unexercisable(U)(2)
<S> <C> <C> <C> <C>
William F. Griffin 0 0 0 (E) (3)
52,500 (U)
Michael G. Semmens(4) 0 0
Gary R. Sams 0 0 0 (E) (3)
25,000 (U)
Benny E. Jay 0 0 0 (E) (3)
0 (U)
James M. Rosel(5) 0 0
Charles L. Mathews 0 0 0 (E) (3)
50,000 (U)
</TABLE>
(1) Because the outstanding options under the 1996 Stock Option
Plan were regranted or repriced on August 18, 1998, the six
month holding period required under the Plan did not expire
until after the close of the fiscal year therefore all such
options are reflected above as unexercisable at yearend..
(2) Based on the $.625 per share market price of the Common Stock
as reported on NASDAQ as of December 31, 1998, (last market
day of year).
(3) Option price exceeded the market price at December 31, 1998.
(4) Mr. Semmens resigned as of December 7, 1998.
(5) Mr. Rosel resigned as of August 31, 1998.
<TABLE>
Ten-Year Option/SAR Repricing
<CAPTION>
Market Length of
Number of Price of Execise Original
Securities Stock at Price at Option Term
Underlying Time of Time of Remaining
Options/SARs Repricing or Repricing or New at Date of
Repriced or Amendment Amendment Exercise Repricing or
Name Date Amended(#) ($) ($) Price($) Amendment
<S> <C> <C> <C> <C> <C> <C>
William F. Griffin 8/18/98 28,000 1.563 11.60 1.563 7 yrs 7 mos
President, CEO 8/18/98 7,000 1.563 5.28 1.563 8 yrs 2 mos
and Chairman 8/18/98 17,500 1.563 6.938 1.563 8 yrs 10 mos
Michael G. Semmens 8/18/98 47,500 1.563 35.00 1.563 5 yrs 10 mos
Former President, 8/18/98 3,334 1.563 12.50 1.563 7 yrs 6 mos
CEO and Chairman 8/18/98 25,000 1.563 5.28 1.563 8 yrs 2 mos
8/18/98 25,000 1.563 6.938 1.563 8 yrs 10 mos
Gary R. Sams 8/18/98 25,000 1.563 6.50 1.563 9 yrs 1 mo
Vice President,
Product Development
and Research
Benny E. Jay 8/18/98 3,834 1.563 10.60 1.563 5 yrs 6 mos
Executive Vice 8/18/98 3,000 1.563 33.75 1.563 6 yrs 9 mos
President 8/18/98 13,166 1.563 5.28 1.563 8 yrs 2 mos
8/18/98 10,000 1.563 6.938 1.563 8 yrs 10 mos
James M. Rosel 8/18/98 5,000 1.563 36.25 1.563 5 yrs 11 mos
Director, Former 8/18/98 5,000 1.563 35.00 1.563 6 yrs 3 mos
Vice President, 8/18/98 500 1.563 33.75 1.563 6 yrs 9 mos
Finance and General 8/18/98 1,667 1.563 12.50 1.563 7 yrs 6 mos
Counsel 8/18/98 9,500 1.563 11.60 1.563 7 yrs 7 mos
8/18/98 8,500 1.563 5.28 1.563 8 yrs 2 mos
8/18/98 17,500 1.563 6.938 1.563 8 yrs 10 mos
Charles L. Mathews 8/18/98 5,834 1.563 10.60 1.563 5 yrs 6 mos
Chief Engineer 8/18/98 3,000 1.563 33.75 1.563 6 yrs 9 mos
8/18/98 26,666 1.563 5.28 1.563 8 yrs 2 mos
8/18/98 15,000 1.563 6.938 1.563 8 yrs 10 mos
</TABLE>
See "Compensation Committee Report on Executive Compensation"
for discussion of repricing of options.
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.
At December 31, 1998, the Company's Compensation/Stock Option
Committee consisted of Dr. Hackerman and Mr. Winchless. Dr.
Graham and Messrs. Williamson and Gjelde also served on the
committee during 1998. None of these current and former
committee members is or has been an officer or employee of the
Company.
Mr. Winckless is a Director of Kamkorp, Limited, and other
companies within the Kamkorp group. See "Certain Relationships
and Related Transactions", below, for a description of certain
relationships and transactions between the Company and such
entities.
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
Transactions with Kamkorp, Limited
During 1998, Kamkorp Limited., a private company located in
Great Britain, acquired a controlling stock interest in the
Company. See "Change in Control" above. Messrs. Siddiqi, Musson
and Winckless, directors of the Company are directors and holders
of all the shares of Kamkorp Limited. As holder of an 85%
interest in Kamkorp Limited, Mr. Siddiqi serves as a Director and
Chairman; Mr. Winckless with a 10% interest serves as Managing
Director, and Mr. Musson with a 5% interest serves as Finance
Director.
During 1998, the Company received a purchase order for 5,800
batteries for delivery during the second half of 1998 from
Electrosource International Limited ("EIL"), a newly-formed
distribution company 100% owned by Kamkorp. EIL, in turn,
received a purchase order for 5,800 batteries from Perusahaan
Otomobile Elektric (Malaysia) Sdn. Bhd. ("POEM"), an emerging
Malaysian joint venture company in which Kamkorp affiliates hold
a significant minority interest, engaged in the production of
electric vehicles developed by companies within the Kamkorp
group.
As of December 31, 1998, Electrosource had delivered 2,062
batteries under the purchase order; no deliveries have been made
in 1999. The Company is in the final round of negotiations on
the terms of a purchase order for 8,000 batteries from EIL for
delivery beginning during the second half of 1999. The order
replaces the previous order for 5,800 batteries. EIL took
delivery of 2,062 batteries under the previous order and made a
$507,500 down payment equal to fifty percent of the purchase
price of the entire order. The Company will retain the entire
amount paid under the previous order. If finalized, the new
order will therefore represent 4,262 net new batteries ordered,
given the undelivered portion of the previous order, which has
now been cancelled.
Contract with Bastrop Metal Products
Mr. Charles L. Mathews, who resigned as a director as of
December 14, 1998, 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 has not made any disbursements in 1998. The Company
has made no advances for construction costs for a coextruder.
The Company purchased certain raw materials from Bastrop Metal
Products, Inc. in the amount of $44,000 in 1998. 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 1998.
Participation in Equity Placement
In January 1997 certain of the Company's executive officers
participated as purchasers in a private placement of the
Company's 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. As of August 18, 1998, the Board of Directors approved the
repricing of the warrants to $1.00 over the market price of
$1.563 on that date as well as an extension of the expiration
date to January 2004.
Compensation Committee Report on Executive Compensation.
During fiscal 1998, 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 twenty-nine 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. To date none
of the salary reductions have been reinstated; however, with the
resignation of the President and Chief Executive Officer and the
assumption of such duties and responsibilities by Mr. Griffin,
his salary was increased from $144,000 annually as Executive Vice
President - Marketing to $200,000 annually as President and Chief
Executive Officer.
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. The
Compensation Committee authorized no bonuses during 1998 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, all outstanding options under the various previous
plans then in place were aggregated under the 1996 Plan, and all
the 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.
On August 18, 1998, the Committee approved reducing the
exercise price of options granted prior to such date to a price
equal to the current market price of the Common Stock on that
date, $1.563 per share. By August 1998, the price of the Common
Stock had fallen considerably below the exercise prices for all
options granted by the Company to key employees and officers
during 1996 and 1997. As a result the Committee believed the
value of such options under the 1996 Stock Option Plan had eroded
to such an extent that the intended incentive to such employees
was no longer meaningful. The Committee believes that by
repricing the options previously granted under this Plan, the
Company has restored the incentive value for those employees. In
each case, the options granted in replacement of previously
granted options were made with an exercise price equal to the
fair market value of the Common Stock on August 18, 1998. The
number of shares subject to exercise, the vesting periods and the
terms remain unchanged by the replacement options. The options
granted to directors not otherwise employees and to consultants
were not repriced.
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. Mr. Semmens resigned from that position as of
December 7, 1998, and Mr. Griffin was appointed to fill these
positions on an acting basis.
The above recommendations were approved by the following non
employee directors who comprised the Compensation Committee for
the period shown:
May 1998/November 1998 William R. Graham, Earl E. Gjelde,
Norman Hackerman, and Richard S. Williamson
November 1998-Present Norman Hackerman and
Clifford Winckless
Comparative Performance of Company's Securities
1993 1994 1995 1996 1997 1998
NASDAQ Stock 100.000 97.752 138.256 170.015 208.580 293.209
Electronic 100.000 110.490 182.994 316.463 331.744 512.867
Components
Electrosource 100.000 72.059 33.824 14.633 5.588 1.471
Divided by 12/31/93 1.00000 0.97752 1.38256 1.70015 2.08580 2.93209
CRSP Total Return 249.861 244.244 345.448 424.801 521.159 732.615
Divided by 1993 1.00000 1.10490 1.82994 3.16463 3.31744 5.12867
Electronic Comp 372.156 411.197 681.024 1177.737 1234.605 1908.666
Index
Divided by 1993 1.00000 0.72059 0.33824 0.14633 0.05588 0.01471
ELSI - Close on 42.500 30.625 14.375 6.219 2.375 0.625
Dec. 31st
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
PROPOSAL CONCERNING NEW 1999 STOCK OPTION PLAN
Material Features of the 1999 Stock Option Plan
The Plan provides for the grant of options to purchase Common
Stock. Options granted under the Plan may be incentive stock
options ("ISO's") meeting the requirements of section 422 of the
Internal Revenue Code (the "Code") or non-qualified stock options
("non-qualified options") that do not meet such requirements.
The following summary describes the principal features of the
Plan. There are no outstanding grants of options to purchase
under the 1999 Stock Option Plan and it is not anticipated that
the implementation of the 1999 Stock Option Plan will have any
effect upon the 1996 Stock Option Plan.
Covered Shares. A maximum 1,000,000 shares of Common Stock,
$1.00 par value, may be issued pursuant to options granted under
the Plan. The Plan provides for adjustments in the number of
shares subject to the Plan and issuable pursuant to options
granted under the Plan in the event of stock dividends or stock
splits or combinations, and for adjustments in the case of
recapitalization, merger or sale of the assets of the Company.
If any option granted under the Plan expires or terminates
without having been exercised, the unpurchased shares subject to
the option will become available for further option grants.
Administration and Eligibility. The Plan is administered by
the Company's Compensation/Stock Option Committee (the
"Committee"), which is composed of not less than three members of
the Board of Directors, each of which must be a "Non-Employee
Director" (as such term is defined in Rule 16a-3 promulgated by
the Securities and Exchange Commission, which provides that such
persons may not be employees of or consultants to the Company and
may not be engaged in related party transactions or relationships
with the Company). The Committee has full authority in its
discretion to determine the officers, directors, key employees,
and consultants of the Company and its subsidiaries to whom
Options (as defined below) shall be granted, the number of shares
of Stock covered thereby and the terms and provisions thereof,
subject to the Plan. The Committee's decisions are final and
binding on all participants in the Plan. At March 19, 1999, 1
employee director, 7 non-employee directors, 5 officers,
approximately 55 identified key employees, and 6 consultants were
eligible to participate in the Plan.
Each member of the Company's Board of Directors that is not
also an employee or officer of the Corporation or an active
Director who has received the initial option to purchase 15,000
shares under this or any prior plan as of the date of the
adoption of the Plan, and any person who assumes a position on
the Board of Directors of the Company for the first time (whether
by appointment by the Board or election) after such date who is
not also an employee or an officer of the Company at the time
shall, automatically and without the exercise of discretion or
the requirement of any further action or authorization on the
part of any person, receive an option to purchase an aggregate of
15,000 shares of the Common Stock of the Company. In addition,
each non-employee director will be awarded an annual option to
purchase 2,000 shares of the Common Stock of the Company;
however, in no event will a director become eligible for the
annual grant prior to two full years of service on the Board of
Directors. The annual option grant of 2,000 shares may be issued
under this Plan or any prior plan; however, only one such grant
may be made annually.
Termination and Amendment. The Plan and all options granted
under the Plan will expire if the Plan does not receive
Shareholder approval before March 3, 2000. If approved by the
Shareholders, the Plan will terminate on March 3, 2009.
Termination will not affect any option outstanding as of the date
of termination. The Plan may be amended by the Board of
Directors; amendments that would materially increase the benefits
accruing to participants, materially increase the number of
securities which may be issued, or materially modify the
requirements as to eligibility for participation must be approved
by the Stockholders. No amendment will affect the terms of
options granted prior to the amendment.
Terms and Conditions. Each option awarded under the Plan is
evidenced by a Stock Option Agreement (an "Option Agreement")
containing terms and conditions consistent with the terms of the
Plan and otherwise satisfactory to the Committee. The Plan does
not provide for any payment or consideration to be given to the
Company for the granting or extension of any option. The
purchase price of the shares of Common Stock covered by any ISO
granted under the Plan must be not less than the greater of par
value or fair market value of such shares as of the date of
grant. ISO's may be granted to officers (including directors
that are also officers) and employees of the Company only. The
exercise price of non-qualified options granted under the Plan is
not limited to fair market value. The options granted under this
plan are exercisable for a period of ten years from the date of
grant; however, no ISO option can be exercised within six months
from the date of grant. The exercise price can be paid in cash,
check, shares of Common Stock having a market value equal to the
aggregate exercise price, or any combination of the foregoing.
The Company may allow "cashless exercise" of options, whereby
shares are delivered to a broker-dealer or other financial
institution for the account of the option holder prior to payment
by the option holder of the exercise price upon the Company's
receipt of assurance of payment by such broker or financial
institution. Options granted under the Plan must be exercised
within three (3) months from the date of the option holder's
termination of employment (the extent exercisable at the
termination date) for any reason other than death or disability.
Upon termination of employment by reason of disability, any
Option held at the date of such termination may, to the extent
then exercisable, be exercised within twelve months after the
date of such termination. If the holder of an Option dies, any
Option held at the date of death may be exercised by the holder's
heirs, legatees or personal representatives within twelve (12)
months after the holder's death for the full number of shares
under this option not theretofore purchased at the time of death.
If the holder of an Option retires at normal retirement age (age
65 or older), any Options held at the date of retirement may be
exercised in full, whether or not the Options are fully vested at
such time, within twelve (12) months after the holder's
retirement. All Options granted under the Plan expire not later
than ten years from the date of grant. Options granted under the
Plan are transferable only by will or by the laws of descent and
distribution, and can be exercised during the holder's lifetime
only by the holder.
Change in Capitalization; Merger; Liquidation. The number of
shares of Common Stock as to which Options may be granted, the
number of shares covered by each outstanding Option, and the
price per share of each outstanding Option will 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 or any other increase or decrease in the
number of such shares effected without receipt of consideration
by the Company. If the Company is the surviving corporation in
any merger or consolidation, recapitalization, reclassification
of shares or similar reorganization, the holder of each
outstanding Option will be entitled to purchase, at the same
times and upon the same terms and conditions as are then provided
in the Option, the number and class of shares of stock or other
securities to which a holder of the number of shares of Common
Stock subject to the Option at the time of such transaction would
have been entitled to receive as a result of such transaction.
In the event of any such changes in capitalization of the
Company, the Committee may make such additional adjustments in
the number and class of shares of Common Stock or other
securities with respect to which outstanding Options are
exercisable and with respect to which future Options may be
granted as the Committee deems appropriate, subject to the
provisions to prevent dilution or enlargement of rights. The
optionee will have the right, immediately prior to dissolution,
liquidation, merger or consolidation of the Company (to the
extent the Company is not the surviving entity in such merger or
consolidation), to exercise his Options in full without regard to
any installment exercise provisions. 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, each outstanding Option will terminate unless
another corporation assumes the Option or substitutes another
option in its place. 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 will be deemed to be the
Common Stock within the meaning of the Plan.
Tax Consequences of Grant and Exercise. The Committee will
determine, within the limits set by the Code, what portion of any
award under the Plan will constitute ISO's and what portion will
constitute non-qualified options. The Code provides that the
aggregate fair market value (measured as of the date of grant) of
stock covered by ISO's granted to any participant cannot exceed
$100,000 in the year in which such ISO's first become
exercisable. In addition, any ISO granted to a holder of
securities representing more than ten percent of the combined
voting power of all the Company's capital stock must have an
exercise price not less than 110 percent of fair market value and
must have a term of not more than five years. A participant in
the Plan will recognize no income at the time that an ISO is
granted, and the Company will obtain no tax benefit at the time
of the grant. Participants receiving non-qualified options may
recognize income upon grant if the exercise price of the option
is less than the fair market value of the covered shares. When a
non-qualified option is exercised, the holder will recognize
ordinary income equal to the excess of the fair market value of
the shares of Common Stock acquired as of the date of exercise
over the option price of those shares, and the Company will
receive a corresponding income tax deduction. Exercise of an ISO
generally does not give rise to income on the part of the option
holder or deduction on the part of the Company, although the
difference between the fair market value of the shares purchased
and the exercise price of such shares is taken into account by
the option holder in determining alternative minimum taxable
income. If an option holder sells any shares Acquired upon
exercise of an ISO within two years from the date of grant of the
option or within one year from the date of exercise, the option
will no longer qualify for ISO treatment, and the tax treatment
of exercise will be the same as that applicable to non-qualified
options. Taxability of the sale of shares acquired upon exercise
of options will otherwise be similar to that of any other
investor in the Company's Common Stock.
The Market Price of the Common Stock was $1.25 per share on May
12, 1999.
Management recommends approval of the 1999 Stock Option Plan.
ITEM 3
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, 1999. 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.
Approval of the proposed adoption of the 1999 Stock Option Plan,
selection of auditors 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 nonvotes 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 2000 ANNUAL MEETING
It is currently anticipated that the 2000 Annual Meeting of
Shareholders of the Company will be held on or about May 17,
2000. Shareholder proposals to be presented at the 2000 Annual
Meeting pursuant to the procedures established by Rule 14a-8 of
the Securities and Exchange Commission ("Rule 14a-8") must be
received in writing by the Company at its principal executive
offices not later than January 15, 2000. If the date of the 2000
Annual Meeting of Shareholders is changed by more than 30 days
from May 17, then shareholder proposals must be received a
reasonable time before the Company begins to print and mail its
proxy materials. Proposals submitted outside the procedures
established by Rule 14a-8 must be received not later than
February 24, 2000.
FORM 10-K
The Company will, upon written request, furnish without charge
to each person who was a beneficial owner of its securities on
May 12, 1999, 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, 1998, 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 May 24, 1999.
PROXY
Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby constitutes and appoints William F.
Griffin and Benny E. Jay, 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 May 12, 1999, at the
Annual Meeting of Shareholders to be held at 10:00 A.M., June 22,
1999, at the San Marcos Activity Center, 501 East Hopkins, San
Marcos, Texas, or any adjournments thereof.
1. ELECTION OF DIRECTORS, NOMINEES:
Norman Hackerman Roger Musson
2. Proposal to approve the adoption of the Company's 1999 Stock
Option Plan.
3. Proposal to approve the appointment of Ernst & Young LLP as
auditors.
4. 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, 2 and 3. 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)
__________________________________
__________________________________
__________________________________
__________________________________
(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.
