FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission file number 0-16323
ELECTROSOURCE, INC.
(Exact name of Registrant as specified in its charter)
Delaware 742466304
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2809 Interstate 35 South, San 78666
Marcos, Texas
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, (512) 753-6500
including area code:
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No __
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes __ No __
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date: 11,276,631 as of November 10, 1999.
INDEX TO FINANCIAL STATEMENTS
September 30, 1999
ELECTROSOURCE, INC. COMMISSION FILE NUMBER 0-16323
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Balance Sheets at September 30, 1999 (Unaudited)
and December 31, 1998 Page 3
Condensed Statements of Operations for the three and nine
months ended September 30, 1999 and 1998 (Unaudited) Page 4
Condensed Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998 (Unaudited) Page 5
Notes to Condensed Financial Statements (Unaudited) Page 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Unaudited) Page 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings Page 12
Item 2. Changes in Securities Page 13
Item 3. Defaults On Senior Securities Page 13
Item 4. Submission of Matters to a Vote of Security Holders Page 13
Item 5. Other Information Page 13
Item 6. Exhibits and Reports on Form 8-K Page 13
INDEX TO EXHIBITS Page 16
Part I - Financial Information
Item 1. Financial Statements
Electrosource, Inc.
Condensed Balance Sheets
September December
30, 1999 31, 1998
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,844 $ 207,246
Trade receivables 1,024,529 109,520
Inventories 173,478 350,464
Prepaid expenses and other assets 32,258 29,938
TOTAL CURRENT ASSETS 1,236,109 697,168
PROPERTY AND EQUIPMENT (net of accumulated
depreciation of $4,152,735 in 1999 and
$4,028,762 in 1998) 2,919,286 3,462,157
INTANGIBLE ASSETS (net of accumulated
amortization of $2,188,012 in 1999 and
$2,046,397 in 1998) 860,662 1,002,277
OTHER ASSETS 53,250 55,500
TOTAL ASSETS $5,069,307 $5,217,102
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 854,412 $ 948,528
Accrued liabilities 1,407,150 1,308,346
Deferred revenue and advance payments
on batteries 396,759 649,893
Current portion of capital lease
obligations 84,165 77,006
TOTAL CURRENT LIABILITIES 2,742,486 2,983,773
CAPITAL LEASE OBLIGATIONS
(less current portion) 7,463 71,512
SHAREHOLDERS' EQUITY (DEFICIT)
Common Stock, par value $1.00 per share,
Authorized 50,000,000 shares; issued
and outstanding 11,276,631 in 1999
and 8,434,531 in 1998 11,276,631 8,434,531
Preferred Stock, par value $1.00 per
share; authorized 10,000,000 shares,
no shares issued or outstanding - -
Common Stock subscription receivable (467,663) (467,663)
Warrants - -
Paid in capital 51,481,594 51,446,504
Accumulated deficit (59,971,204) (57,251,559)
2,319,358 2,161,817
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,069,307 $ 5,217,102
See notes to financial statements.
Electrosource, Inc.
Condensed Statements of Operations (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Revenues
Battery sales $ 152,230 $ 480,760 $ 427,204 $ 869,380
Project revenue 632,312 413,290 1,097,498 628,246
Other income 53,338 - 108,154 -
Interest income 13 4,636 77 33,209
837,893 898,687 1,632,933 1,530,835
Costs and expenses
Manufacturing 569,167 1,076,316 1,897,466 2,811,005
Selling, general and
administrative 171,635 399,243 736,290 1,582,010
Research and development 387,795 347,676 939,843 1,427,318
Technology license and
royalties 25,000 25,000 75,000 75,000
Depreciation and
amortization 223,589 432,945 690,687 1,344,018
Interest expense 3,866 6,086 13,292 356,507
1,381,052 2,287,266 4,352,578 7,595,858
Loss before extraordinary
gain (543,159) (1,388,579) (2,719,645) (6,065,023)
Extraordinary gain from early
extinguishment of debt (Note D) - - - 3,532,045
Net income (loss) $(543,159) $(1,388,579) $(2,719,645) $(2,532,978)
Net income (loss) per
common share $(0.05) $(0.22) $(0.28) $(0.45)
Average common shares
outstanding 10,695,327 6,209,941 9,652,391 5,657,608
See notes to condensed financial statements.
Electrosource, Inc.
Condensed Statements of Cash Flows (Unaudited)
Nine Months Ended
September 30,
1999 1998
OPERATING ACTIVITIES
Net loss $(2,719,645) $(2,532,978)
Adjustments to reconcile net loss to net
cash used in operating activities:
Equity instruments for consulting services - 300,000
Depreciation and amortization 684,486 1,344,019
Non-cash interest expense 44,888 359,571
Amortization of prepaid lease expense - 319,605
Extraordinary gain from early -
extinguishment of debt - (3,532,045)
Changes in operating assets and liabilities:
(Increase) decrease in trade receivables (915,009) (226,032)
(Increase) decrease in inventories 176,986 (45,193)
(Increase) decrease in prepaid expenses
and other assets (70) 39,230
Decrease in accounts payable and
accrued liabilities (40,200) (188,063)
Increase (decrease)in deferred revenue
and advanced payments on batteries (253,134) 1,076,244
CASH USED IN OPERATING ACTIVITIES (3,021,698) (3,085,642)
INVESTING ACTIVITIES
Purchases of property and equipment, net (56,890) (94,363)
CASH USED IN INVESTING ACTIVITIES (56,890) (94,363)
FINANCING ACTIVITIES
Proceeds from issuances of convertible notes
payable and related warrants to purchase
Common Stock - 1,000,000
Payment of notes payable and capital lease
obligations - (1,554,403)
Proceeds from issuances of common stock, net 2,877,186 3,000,000
Decrease in restricted cash - 81,604
CASH PROVIDED BY FINANCING ACTIVITIES 2,877,186 2,527,201
INCREASE (DECREASE)IN CASH AND
CASH EQUIVALENTS (201,402) (652,804)
Cash and cash equivalents at
beginning of period 207,246 782,918
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,844 $ 130,114
See notes to condensed financial statements.
Electrosource, Inc.
September 30, 1999
Item 1. Notes of Condensed Financial Statements (Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they
do not include all of the information and notes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments,
consisting of normal recurring accruals, considered necessary for
a fair presentation have been included. These interim financial
statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998, and are
not necessarily indicative of results for the entire year.
NOTE B - INVENTORIES
1999 1998
Raw materials $137,080 $147,235
Work in progress 35,544 61,499
Finished goods 854 141,730
$173,478 $350,464
NOTE C - PROPERTY AND EQUIPMENT
1999 1998
Office equipment $ 801,610 $ 801,610
Production and lab equipment 5,394,491 5,388,291
Leasehold improvements 875,920 1,301,018
7,072,021 7,490,919
Less-accumulated depreciation
and amortization (4,152,735) (4,028,762)
Total Property and Equipment $2,919,286 $3,462,157
NOTE D - CONVERTIBLE NOTES PAYABLE
In June 1998, in accordance with the terms of a Stock Purchase
Agreement ("Agreement") with Kamkorp Limited ("Kamkorp"), a
company organized in England, the Company executed an agreement
with Corning Incorporated ("Corning") to retire the full
$6,293,002 in outstanding Convertible Notes Payable and accrued
interest owed to Corning, in exchange for $1,500,000 in cash. The
transaction was completed on June 16, 1998. The Convertible Notes
Payable and accrued interest had a carrying amount of $5,032,045
(after unamortized discount of $1,260,957), resulting in an
extraordinary gain from the early extinguishment of debt of
$3,532,045 upon completion of the transaction. Basic and diluted
earnings per share for the extraordinary gain from the early
extinguishment of debt were $0.68 and $0.73 per share,
respectively, for the three and six month periods ended June 30,
1998. The $1,500,000 was provided to the Company by Kamkorp from
the sale of 1,500,000 share of Common Stock under the terms of
the Agreement. (See Note G).
NOTE E - CONTINGENCIES
In 1994, the Company signed a "Know-How License Agreement" (the
"Agreement") with Horizon Battery Technologies, Ltd., ("HBTL"),
of Bombay, India, calling for the completion of several detailed
subordinate agreements with the ultimate purpose to license the
manufacture and sale of batteries in India. The effectiveness of
the Agreement was conditioned upon the subsequent execution of
these six related agreements, none of which were executed. The
Company believes, therefore, the Agreement never became effective
and has no force or effect. Separately in 1995, HBTL agreed to
pay the Company $250,000 for a Preliminary Design Review ("PDR")
for a potential manufacturing facility in India which was
required to complete one of the subordinate agreements. The
Company received $100,000 from HBTL and completed the PDR in
1995. The remaining $150,000 was never paid by HBTL, in spite of
repeated demands by the Company.
In September 1996, the Company received a demand from HBTL to
arbitrate damage claims for alleged breach of the Agreement. HBTL
claimed damages of approximately $5.1 million for its expenses
and lost profits related to the Agreement. The Company disputes
the claim for damages and will vigorously defend any action taken
by HBTL to pursue the claims. The Company also filed a petition
in State Court in Travis County, Texas, seeking, among other
things, a declaratory judgment that HBTL had no right to
arbitration or monetary relief. HBTL contested jurisdiction and
removed the proceedings to the U.S. Federal District Court. The
Federal District Court to which the action was removed ruled that
it did not have personal jurisdiction over HBTL and therefore had
no power to hear the case. The Company filed an appeal in the
U.S. Fifth Circuit Court of Appeals from the final judgment and
rulings in the Federal District Court, which denied jurisdiction.
The appeal was successful and the case was remanded to the U.S.
Federal District Court which ruled in favor of the Company in 1999.
The Company is also involved in certain other contingencies
incidental to its business. While the ultimate results of these
matters cannot be predicted with certainty, management does not
expect them to have a material adverse effect on the financial
position of the Company.
NOTE F - EARNINGS PER SHARE
Basic and diluted loss per share is based on the average number
of shares of common stock outstanding during each period. Since
the Company has experienced net operating losses, outstanding
options and warrants to purchase common stock have an
antidilutive effect. Therefore, such options and warrants were
not included in the diluted loss per share calculation.
NOTE G - LIQUIDITY
Under the terms of an Agreement entered into with the Company in
June 1998, Kamkorp Limited ("Kamkorp") agreed to provide up to
$6,000,000 of equity funding for 6,000,000 Common Shares
("shares") at $1.00 per share. In addition, Kamkorp was granted
an option to purchase up to 3,000,000 shares at $1.00 per share
under the initial agreement. On October 27, 1999, the Company
granted Kamkorp an option to purchase an additional 3,000,000
shares of its Common Stock at a price of $1.00 per share. These
latest options expire as to 2,000,000 shares in six months, 500,000
shares in nine months, and 500,000 shares in twelve months.
Kamkorp is the beneficial owner of 12,000,000 shares representing
72.3% of the Company's Common Stock if all options to Kamkorp are
exercised. As of November 10, 1999, Kamkorp has paid for and been
issued 6,680,000 shares at $1.00 per share, representing 59.2% of
the Company's outstanding Common Stock at that date.
In accordance with the terms of the Agreement Kamkorp nominated
three members to the Company's Board of Directors, who were
unanimously approved by the Board of Directors, and has the
ability to ultimately have control of the Board of Directors.
Additionally, pursuant to the terms of the Agreement, the Company
must obtain approval from Kamkorp for all important management
policies and decisions, which include the following:
a. issuance of Common Stock or any security which provides for
the right to acquire Common Stock, or any other capital stock of
the Company;
b. overall policy decisions relating to business direction and
manufacturing capacity;
c. any agreement or commitment that materially affects or
modifies the intellectual property owned by the Company;
d. approval of the annual operating budget, capital budget,
overhead budgets and business plans of the Company;
e. approval of any merger, consolidation, partnership or joint
venture;
f. approval of transfer of any assets of the Company with a
fair market value greater than $100,000;
g. incurring indebtedness for borrowed money, granting any
material pledge or security interest in the assets of the
Company;
h. increasing the size of the Company's Board of Directors;
i. amending the Company's Certificate of Incorporation or
Bylaws;
j. entering into any transaction involving an amount greater
than, or having a value in excess of, $100,000 or involving a
term or commitment for more than 12 months; and
k. other various management policies and decisions.
During the nine months ended September 30, 1999, existing battery
orders and contract work have not been adequate to sustain the
Company on an ongoing basis and the Company continues to be
dependent on cash payments from Kamkorp and its affiliates to
continue operations on a day-to-day basis. As of November 15,
1999, the Company has not met its obligations to pay certain monthly
operating costs including building rent, corporate liability
insurance premiums, worker's compensation insurance premiums,
telephone billings, property tax payments, employee health insurance
premiums, equipment operating leases and numerous smaller operating
costs. The Company anticipates that funds will be available from Kamkorp
in an amount sufficient to alleviate this problem; however, Kamkorp is
not obligated to provide additional funds, and there is no assurance
that the funds will be forthcoming. The Company has approximately
$750,000 of outstanding accounts payable greater than 30 days past
due, most of which is payable to raw material suppliers, some of
which date back to June 1998. Certain of these vendors have
hreatened legal action for non-payment of invoices. One such vendor
sued the Company in May 1999 for approximately $12,000 and the
suit was settled in the third quarter. Another vendor sued the
Company in October 1999 for approximately $12,000 and this suit has
not yet been settled.
Funding from Kamkorp, additional battery orders, or other
financing will be required in the fourth quarter of 1999 to
continue operations and to maintain compliance with the minimum
listing standards of The Nasdaq Stock Markets ("Nasdaq"). The
Company is discussing the possibility of accelerated financing
from Kamkorp, which could be provided under the terms of the
Agreement through Kamkorp's exercise of all or a portion of its
options to purchase the balance of 5,320,000 shares of the
Company's Common Stock at $1.00 per share.
The Company's Common Stock is traded in the Over-the-Counter
Market and is reported on Nasdaq. In order to maintain listing by
Nasdaq under rules which went into effect in February 1998, the
Company must maintain a minimum $2,000,000 of net tangible assets
(total assets, excluding goodwill, minus total liabilities) and
the Company's closing stock price cannot fall below $1.00 per
share for 30 consecutive trade dates. On February 1, 1999, the
Company received written notice from Nasdaq that the closing bid
price of its shares fell below $1.00 for 30 consecutive trade
dates and therefore did not meet the Nasdaq minimum listing
requirements. The written notification stated that within 90
calendar days of the notification, the Company's closing bid
price must be $1.00 or higher for ten consecutive trading days to
satisfy the requirement. This requirement was met on or about
February 18, 1999. As of March 31, 1999, the Company's net
tangible assets were less than $2,000,000. As a result, the
Company was not in compliance with the minimum listing
requirements of Nasdaq and advised Nasdaq of that fact. The
Company anticipated that Kamkorp would make an additional equity
investment in the Company in April 1999 sufficient to bring it
into compliance; this did not occur due to delays in completing
renegotiation of outstanding battery orders with Kamkorp
affiliates. On April 15, 1999, the Company received notice from
Nasdaq that it was concerned that the Company may not be able to
sustain compliance with the continued listing requirements of
Nasdaq in light of the "going concern" opinion from its
independent auditor. To address this concern, Nasdaq requested a
detailed letter from the Company on or before April 30, 1999,
discussing the Company's plans to address the specific items that
led to the issuance of the "going concern" opinion, an expected
timeline for resolution of these items and a discussion
explaining why the Company believes it will be able to sustain
compliance with the continued listing standards of Nasdaq. The
Company complied with this request on April 30, 1999.
Additionally, on May 20, 1999, the Company received notice that
since the Company failed to meet the requirement for net tangible
assets of $2 million on the March 31, 1999 Form 10-Q, the Company
would be required to submit before June 4, 1999, a proposal for
achieving compliance. This proposal was submitted June 3, 1999.
The Nasdaq Staff responded to both of these issues in a letter
dated July 14, 1999. The Staff has reviewed the Company's plan
for regaining and maintaining compliance and stated while
the Staff has determined that the Company will not be delisted due
to its previously cited failures to comply, they have determined
to apply more stringent reporting requirements. The Company is
required to submit an internal balance sheet and statement of
operations for the period ended July 31, 1999 by August 20,
1999. Thereafter, until further notice, the Company is required
to submit by the 20th of each month, an internal balance sheet
and statement of operations for the preceding month's end. The
Company has complied with this requirement. The Company is required
to keep Nasdaq apprised of all material events and any changes in
its financial statements. Should the Company fail to maintain
$2 million net tangible assets, the Staff will issue a formal
delisting letter to the Company.
In the event that the Common Stock were no longer traded on the
Nasdaq market, brokers and dealers effecting trades in the Common
Stock would become subject to the Securities and Exchange
Commission rules covering trading in "penny stocks." These rules
generally require that such broker-dealers make specific
disclosures to customers including information on available bid
and asked prices for the stock in question and compensation to
the broker-dealer and his associates with respect to the proposed
trade, and provide periodic reports as to the market value of a
customer's position in penny stocks. The rules also impose
heightened "know your customer" requirements that require broker-
dealers to obtain information, including personal financial
information, from customers sufficient to allow the broker-dealer
to make a determination that the investment in penny stocks is
suitable for the customer and that the customer is capable of
assessing the risks of such an investment. Broker-dealers may be
less willing to effect trades in any security subject to these
rules due to the additional disclosure, record-keeping and other
requirements imposed by the rules. In addition, some potential
investors in penny stock may be reluctant to provide the required
personal financial information to broker-dealers, which may
reduce the number of potential investors. These factors would
likely further reduce trading liquidity in the Common Stock.
If the Company were delisted from Nasdaq, it would likely be more
difficult to obtain additional funding. There can be no assurance
that additional funding which will generate sufficient cash to
sustain operations can be obtained on terms acceptable to the
Company, if at all. The financial statements do not include any
adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and
classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Unaudited)
Financial Condition
The Company's cash balance decreased from $207,246 to $5,844
during the nine months ended September 30, 1999, as a result of
operating losses in excess of equity sales. Subsequent to
September 30, 1999, additional equity funding from Kamkorp and
funds from customers have been received to sustain operations.
Trade receivables increased from $109,520 to $1,024,529 during
the nine months ended September 30, 1999 as a result of increased
research and development billings under an agreement between the
Company and Frazer-Nash Research, Inc. Inventories declined from
$350,464 to $173,478 as a result of battery shipments for orders
outstanding at the end of the year and shipments throughout the
first nine months of 1999.
As of November 15, 1999, the Company has not met its obligations
to pay certain monthly operating costs including building rent,
corporate liability insurance premiums, worker's compensation insurance
premiums, telephone billings, property tax payments, employee health
insurance premiums, equipment operating leases and numerous smaller
operating costs. The Company anticipates that funds will be available
from Kamkorp in an amount sufficient to alleviate this problem;
however, Kamkorp is not obligated to provide additional funds, and
there is no assurance that the funds will be forthcoming.
The Company sold 800,000, 1,300,000, and 680,000 shares of Common
Stock to Kamkorp for $1.00 per share in the quarters ended March
31, June 30, and September 30, 1999, respectively; participants
in the Company's stock option plans exercised options for 51,000
and 11,000 shares of Common Stock in the aggregate for a total
consideration of approximately $80,000 and $17,000 in the
quarters ended March 31 and June 30, 1999, respectively.
Results of Operations:
Revenues. The Company had battery sales of approximately
$152,000 and $427,000 for the three and nine months ended
September 30, 1999 compared to $481,000 and $869,000 for the
three and nine months ended September 30, 1998. The decrease in
sales to Chrysler and Lockheed Martin is the reason for the lower
revenues in 1999 as compared to 1998. Approximately 30% of the
1999 and 27% of the 1998 battery sales, were to Chrysler
Corporation. These purchases were for testing and evaluation of
the Horizon battery in the EPIC Minivan Program. Chrysler
announced its decision to use Nickel-Metal-Hydride batteries in
its electric minivan for the 1999 model year. Any significant
sales to Chrysler for the remainder of 1999 and sales beyond this
period are uncertain. The majority of the remainder of 1999
battery sales were to Lockheed Martin for use in Hybrid Electric
Vehicles ("HEV") and Electric Vehicles ("EV") they are producing
for testing and evaluation. Sales of batteries to Lockheed Martin
are expected to increase slightly throughout 1999. Approximately
36% and 11% of the 1999 and 1998 battery sales, respectively,
were to Lockheed Martin. Lockheed Martin produces a drive train
used in hybrid buses manufactured by the Orion Bus Company and
others. The New York City Transit Authority is currently testing
a hybrid diesel bus on the streets of New York City manufactured
by Orion, which is powered by a Lockheed Martin drive train and
Electrosource batteries. The tests have been completed and were
successful. The New York City Transit Authority may place an
order for the hybrid buses powered by Horizon batteries in the
fourth quarter of 1999; however, the amount and timing of such
orders remains uncertain. The remainder of battery sales were to
various customers for testing and evaluation.
The Company received a purchase order in June 1999 for 8,000
12H85 batteries from Electrosource International Limited ("EIL")
for delivery beginning in the third quarter of 1999 with
completion of the order in the first quarter of 2000. The Company
delivered 290 batteries against this order in the quarter ended
September 30, 1999 and is scheduled to deliver 694 batteries in
the quarter ended December 31, 1999. EIL is the international
marketing company and is affiliated with Kamkorp. This order
replaces a previous order for 5,800 batteries of which 2,062 were
shipped. These battery sales represent 42 percent of the battery
sales in 1998 and 11 percent of battery sales in 1999.
The Company had project revenue of approximately $632,000 and
$1,097,000 for the three and nine months ended September 30, 1999
compared to $413,000 and $628,000 for the three and nine months
ended June 30, 1998. The Company had approximately $501,000 and
$683,000 of project revenue for the three and nine months ended
September 30, 1999, under an agreement with Frazer-Nash Research
Limited for the continued research and development of the
Company's battery technology. The Company also had $100,000 of
other income from Electrosource International, Ltd. ("EIL") for
marketing assistance to complete negotiations for an order of
8,000 of the Company's 12H85 batteries. This order from EIL
follows receipt of an order from Perusahaan Otomobil Elektrik
(Malaysia) Sdn. Bdh. ("POEM"). The remaining revenue generated in
1999 was from cooperative development and research agreements
with the Defense Advanced Research Projects Agency ("DARPA") and
with the Department of Energy ("DOE"). The DARPA programs are for
various HEV and EV applications. The DOE program is for the
development of core technology for a lithium polymer material
eventually to be used in batteries. Similar programs were in
progress in 1998. Project revenue is expected to decrease
throughout 1999 as some of the DARPA programs were completed in
early 1999.
Costs and Expenses. Total costs were significantly lower in the
three and nine months ended September 30 , 1999 compared to the
three and nine months ended September 30, 1998. Manufacturing
costs were lower in 1999 primarily due to savings associated with
the non-production of batteries in the three quarters such as
lower utilities, consumables/equipment and hazardous waste
removal costs, etc. Additionally, certain operating leases for
manufacturing equipment began to expire in late 1998 and early
1999 reducing 1999 manufacturing lease expense. Some of these
expired leases pertain to equipment necessary for production and
will have to be renegotiated, so that the expense reduction will
be only temporary to that extent. The per battery cost of
building batteries (direct material and direct labor) also
decreased throughout 1998 contributing to the decline in
manufacturing costs in 1999. Manufacturing costs have remained
high as a percentage of battery sales, primarily due to the lack
of capital required to further automate the production processes,
materials being purchased in low volumes and the fixed facility
cost for leasing and maintaining the 88,000 square foot
manufacturing and office facility. Management expects that
manufacturing costs can decrease as a percentage of battery sales
as volume production begins; however, additional capital will be
required to significantly reduce labor and raw material costs per
battery.
Selling, general and administrative costs have decreased for the
three and nine months ended September 30, 1999 compared to the
three and nine months ended September 30, 1998, primarily due to
labor reductions throughout 1998 and early 1999 in middle
management and executive management positions combined with
reductions in travel costs. Such costs are expected to begin
increasing as the level of production activity increases.
Research and development costs have decreased for the nine months
ended September 30, 1999 compared to the same period in 1998 due
to the reduction in work on development programs in 1999,
primarily SMH Automobile S.A. ("SMH"), which terminated its
contract with the Company in mid-1998 and a reduction in work on
the Fiat Auto ("Fiat") program associated with the current
shortage of raw materials. In addition, the Company incurred
approximately $200,000 of costs in the first quarter of 1998 on
improvements in manufacturing processes and joint research and
development efforts with Corning Incorporated ("Corning"). This
program was terminated by Corning in mid-1998. Research and
development costs are expected to remain at approximately the
same level throughout 1999.
Depreciation and amortization costs decreased for the three and
nine months ended September 30, 1999 compared to the three and
nine months ended September 30, 1998, primarily due to the full
amortization of purchased technology in October 1998, which
resulted in a monthly decrease of approximately $67,000 in
amortization. The remainder of the decrease in 1999 is due to
the full depreciation of various production pieces of equipment
in 1998 and 1999 which remain in use.
Interest costs decreased in 1999 as the Company's outstanding
debt obligations to Corning were fully settled in June of 1998,
following the equity funding from Kamkorp.
Liquidity and Capital Resources. Liquidity and Capital Resources
have been discussed in detail under "NOTE G - LIQUIDITY" to the
interim financial statements, which is incorporated into this
Item 2 by reference.
In addition to the disclosures under that Note, in December 1997,
the Company issued 299,304 shares of Common Stock to BDM as
partial payment for past obligations owed to BDM for occupancy
related costs (which the Company has accrued) and as prepayment
under operating leases for manufacturing equipment which are
guaranteed by BDM. The number of shares issued was determined
based on the fair market value of the shares at the date of the
agreement ($2.56 per share). When the shares are sold by BDM,
the proceeds will be used to satisfy these past and future
obligations. If the proceeds from the sale of such shares are
not sufficient to satisfy the obligations, the Company will issue
additional shares of Common Stock or pay cash to BDM to make up
the deficiency. BDM has agreed to reduce amounts owed to it by
at least $1.00 per share or $299,304 for the shares issued. BDM
will retain any overage from the sale of such shares in excess of
the amounts owed. Additionally, the Company has agreed to pay
$300,000 to BDM (for the remaining unpaid occupancy related
costs) from the proceeds received from any fundraising activities
completed by the Company before March 31, 1998 in excess of
$5,000,000, which did not occur. As a result of this transaction,
a Common Stock subscription receivable of $467,663 was recorded.
The Company's closing market price as reported by Nasdaq on
November 10, 1999 was $1.00. BDM has not notified the Company of
an intent to sell such shares in the near term; however, unless
the value of the Company's Common Stock improves, based on
current market prices of the Company's Common Stock, additional
shares of Common Stock or cash will be required to settle these
obligations under the terms of this agreement.
Significant capital expenditures will be required in the future
to further automate and achieve consistency in the production
process; however, such expenditures are not expected to be
significant in 1999 to satisfy current battery orders. There were
no significant capital commitments at September 30, 1999.
The Company terminated the employment of Gary Sams, an officer of
the Company, 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 beginning salary rate for the period of time
that Mr. Sams remains unemployed (or six months, whichever is
less), 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 September 30, 1999 for this uncertainty as
management is unable to determine the likelihood of an
unfavorable outcome of this matter or to estimate the amount or
range of potential loss should the outcome be unfavorable.
The Company is a party to certain litigation that, if resolved in
a manner adverse to the Company, could have a material adverse
effect on the Company's liquidity and capital resources. (See
NOTE E - CONTINGENCIES to the interim financial statements.)
From time to time the Company may publish forward-looking
statements relating to such matters as anticipated financial
performance, business prospects, technological development, new
products, research and development activities and similar
matters. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. In order
to comply with the terms of the safe harbor, the Company notes
that a variety of factors could cause the Company's actual
results and experience to differ materially from the anticipated
results or other expectations expressed in the Company's forward-
looking statements. When used in this discussion, the words
"expects," "believes," "anticipates" and similar expressions are
intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. The
risks and uncertainties that may affect the operations,
performance, development and results of the Company's business
primarily include completion of existing battery orders,
uncertainty as to receipt of additional orders, inability to
obtain additional debt or equity financing, financing and
battery sales. Readers are cautioned not to place undue reliance
on these forward-looking statements which speak only as of the
date hereof. The Company undertakes no obligation to republish
revised forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence
of unanticipated events. Readers are also urged to carefully
review and consider the various disclosures made by the Company
which attempt to advise interested parties of the factors which
affect the Company's business in this report and in the Company's
periodic reports on Forms 10-K and 8-K filed with the Securities
and Exchange Commission.
Qualitative and Quantitative Disclosures About Market Risk
The Company does not hold financial investments or instruments
subject to market risk, therefore disclosures about market risk
are not applicable.
Part II - Other Information
Item 1. Legal Proceedings
In September 1996, the Company received a demand from HBTL to
arbitrate damage claims for alleged breach of the Agreement. HBTL
claimed damages of approximately $5.1 million for its expenses
and lost profits related to the Agreement. The Company disputes
the claim for damages and will vigorously defend any action taken
by HBTL to pursue the claims. The Company also filed a petition
in State Court in Travis County, Texas, seeking, among other
things, a declaratory judgment that HBTL had no right to
arbitration or monetary relief. HBTL contested jurisdiction and
removed the proceedings to the U.S. Federal District Court. The
Federal District Court to which the action was removed ruled that
it did not have personal jurisdiction over HBTL and therefore had
no power to hear the case. The Company filed an appeal in the
U.S. Fifth Circuit Court of Appeals from the final judgment and
rulings in the Federal District Court, which denied jurisdiction.
The appeal was successful and the case was remanded to the U.S.
Federal District Court which ruled in favor of the Company in 1999.
The Company was sued in October, 1999 by a vendor for
approximately $12,000 for past due invoices, attorney's fees and
court costs. This lawsuit has not yet been settled.
The Company was sued in May, 1999 by a vendor for approximately
$11,000 for past due invoices, attorney's fees and court costs. The
Company has subsequently paid the amount due the vendor, including
attorney's fees. The lawsuit was dismissed.
Item 2. Changes in Securities
The Company sold 800,000 shares of its Common Stock to Kamkorp at
a price of $1.00 per share in cash during the first quarter. Of
these shares, 600,000 were issued during the quarter and 200,000
were issued later, although the subscription price receivable for
these later-issued shares is reflected in paid in capital at
March 31, 1999. The Company issued an additional 1,300,000 shares
of its Common Stock to Kamkorp at a price of $1.00 per share in
cash during the second quarter of 1999. The Company issued an
additional 680,000 shares of its Common Stock to Kamkorp at a
price of $1.00 per share in cash during the third quarter of
1999.
There were no underwriters involved in the sale, and no
underwriting discounts or commissions. The securities were sold
pursuant to exemptions under Section 4(2) of the Securities Act
of 1933 and Regulation D thereunder; the offering was to a single
sophisticated, accredited investor in a transaction not involving
public solicitation or advertising.
Item 3. Defaults on Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4. Kamkorp Limited Stock Option Agreement
10. Consulting Agreement-W. Laubach
27. Financial Data Schedule.
(b) Reports on Form 8-K.
Reports on Form 8-K filed during the quarter ended
September 30, 1999 were:
August 11, 1999 Resignation of Ernst & Young as independent auditors
October 7, 1999 Amended-Resignation of Ernst & Young as
independent auditors
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereto duly authorized.
Date: November 15, 1999
ELECTROSOURCE, INC.
/s/
Benny E. Jay
President and Chief Executive Officer
/s/
Donald C. Perriello
Vice President/Finance, Treasurer and
Chief Accounting Officer
Washington, D.C. 20549
________________________________________
EXHIBITS TO
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission File
September 30, 1999 Number 0-16323
__________________________________________
ELECTROSOURCE, INC.
(Exact name of Registrant as specified in its charter)
Delaware 742466304
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2809 Interstate 35 South, San 78666
Marcos, Texas
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code:
(512) 753-6500
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
(Title of Class)
INDEX TO EXHIBITS
No. Description Page
4 Kamkorp Stock Option Agreement
10 Consulting Agreement-W. Laubach
27 Financial Data Schedule
OPTION AGREEMENT
THIS OPTION HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
UNDER THE SECURITIES LAWS OF ANY STATE ("BLUE SKY
LAWS"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT AND APPLICABLE BLUE SKY LAWS OR DELIVERY TO
THE COMPANY OF EVIDENCE REASONABLY SATISFACTORY TO THE
COMPANY TO THE EFFECT THAT AN EXEMPTION FROM
REGISTRATION THEREUNDER IS AVAILABLE.
This Option Agreement (the "Option") is made and entered into
as of October 27, 1999, by and between Electrosource, Inc., a
Delaware corporation (the "Company"), and Kamkorp Limited, a
United Kingdom Company (the "Purchaser").
The parties to this Option therefore agree as follows:
1. Grant of Option. This certifies that, for value received,
Purchaser, as the holder of this Option, is entitled to purchase
from the Company up to three million (3,000,000) shares (the
"Option Shares") of the Company's Common Stock, $1.00 par value
("Common Stock"), at an exercise price of One Dollar ($US 1.00)
per share, subject to the terms and conditions contained herein.
2. Exercise of Option.
(a) This Option may be exercised by the Purchaser as
follows:
(i) As to two million (2,000,000) Option Shares, from the
date hereof until 5:00 PM, Austin, Texas time on April 27, 2000;
(ii) As to five hundred thousand (500,000) Option Shares,
from the date hereof until 5:00 PM, Austin, Texas time on on
July 27, 2000; and
(iii) As to five hundred thousand (500,000) Option Shares,
from the date hereof until 5:00 PM, Austin, Texas time on on
October 27, 2000.
Each partial exercise shall be applied against the earliest
expiring tranche of options that remain exercisable at the date
of the contemplated exercise.
(b) In order to exercise this Option, the Purchaser shall
give written notice of exercise at the principal office of the
Company located at 2809 Interstate 35 South, San Marcos, Texas,
and tender to the Company by certified or cashiers check or bank
wire transfer of funds a sum equal to the Exercise Price for the
shares of Common Stock to be purchased.
(c) As promptly as practicable, after receipt of such notice
and the tender of the Exercise Price for the Option Shares to be
purchased, the Company shall issue at its expense, and shall
deliver to The Purchaser at its principal office, or at such
other place as Purchaser reasonably may request, a certificate
or certificates for the number of shares of Common Stock
issuable upon the exercise in question. Such exercise shall be
deemed to have been effected immediately prior to the close of
business on the date (the "Exercise Date") on which the Company
shall have received such notice and the tender of the aggregate
Exercise Price for the Option Shares, and at such time the
Purchaser shall be deemed to have become the holder of record of
the shares represented thereby.
(d) The Company shall bear all sales, use, documentary,
stamp and other transfer taxes, if any, arising out of or by
reason of the transactions contemplated by this Option,
including without limitation the issuance of the Option and the
issuance of Common Stock on exercise of the Option.
3. No Rights as Stockholder. This Option shall not entitle the
Purchaser to any of the rights of a stockholder of the Company
prior to the exercise hereof.
4. Representations of the Company. The Company represents and
warrants to The Purchaser as of the date of this Option as
follows:
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of Delaware and is
qualified to do business in every jurisdiction in which its
ownership of property or conduct of business requires it to
qualify. The Company has all requisite corporate power and
authority and all material licenses, permits and authorizations
necessary to own and operate its properties, to carry on its
business as now conducted and as currently proposed to be
conducted and to carry out the transactions contemplated by this
Option.
(b) The execution, delivery and performance of this Option
have been duly authorized by the Company. This Option
constitutes a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its
terms, except as such enforcement may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting
creditors' rights generally or by equitable principles. The
execution, delivery and performance by the Company of this
Option, the issuance of Common Stock upon exercise of this
Option, and the fulfillment of and compliance with the
respective terms hereof and thereof by the Company, do not and
will not (i) conflict with or result in a breach of the terms,
conditions or provisions of, (ii) constitute a default under,
(iii) result in the creation of any lien, security interest,
charge or encumbrance upon the Company's or any subsidiary's
capital stock or assets pursuant to, (iv) give any third party
the right to accelerate any obligation under, (v) result in a
violation of, or (vi) require any authorization, consent,
approval, exemption or other action by or notice to any court or
administrative or governmental body pursuant to, the Certificate
of Incorporation or Bylaws of the Company, or any law, statute,
rule or regulation to which the Company is subject, or any
agreement, instrument, order, judgment or decree to which the
Company is subject.
(c) All shares of Common Stock issuable upon exercise of
this Option will, when issued, be duly and validly issued, fully
paid and nonassessable and free from all taxes, liens and
charges.
5. Amendment. This Option may be amended only by a written
instrument executed by the Company and the Purchaser
6. Assignment. This Option may not be sold, transferred,
hypothecated or assigned without the express written consent of
the Company.
7. Governing Law; Venue. All questions concerning the
construction, validity and interpretations of this Option will
be governed by the internal laws, and not the law of conflicts,
of the State of Delaware. Each party waives the right to demand
a jury in any action, suit or proceeding arising pursuant to
this Option.
8. Termination; Survival. This Option shall terminate and
expire at 5:00 p.m., Austin, Texas time, on October 27, 2000, if
not exercised on or prior to such time.
IN WITNESS WHEREOF, the Company executed and delivered this
Option as of October 27, 1999.
ELECTROSOURCE, INC.
By: /s/ Benny Jay
Benny Jay, President and CEO
ACCEPTED:
KAMKORP, LTD.
By: /s/ Roger Musson
Roger Musson
ELECTROSOURCE, INC.
CONSULTING AGREEMENT
Wilburn B. Laubach
THIS CONSULTING AGREEMENT (the "Agreement"), made effective
the 15th day of July 1999, is between ELECTROSOURCE, INC.
("Electrosource"), a Delaware corporation, having its principal
offices at 2809 Interstate 35 South, San Marcos, Texas 78666,
U.S.A. and Wilburn B. Laubach, having his place of business at
8400 Shenandoah Drive, Austin, Texas 78753 ("Consultant").
W I T N E S S E T H:
WHEREAS, Consultant possesses knowledge, experience and
administrative expertise in storage battery technology and/or
related fields of engineering activity; and
WHEREAS, Consultant has the knowledge and ability and is
duly licensed or authorized to assist Electrosource in the
development of its technology; and
WHEREAS, Electrosource desires the assistance of Consultant.
NOW, THEREFORE, in consideration of the promises and the
mutual agreements hereinafter contained, the parties hereto
intending to be legally bound, agree as follows:
1. Term
1.1 Electrosource hereby engages Consultant as
independent contractor for a term commencing on July
15, 1999, and ending on July 14, 2000.
1.2 Electrosource shall have the right to extend this
Agreement by written notification at the same rate of
compensation provided for in Section 3 by written
notice not less than two (2) weeks prior to the last
day of the initial term of this Agreement or Amendment
to same.
1.3 Electrosource may cancel this Agreement at its
sole discretion with thirty (30) days advance written
notice to Consultant. Electrosource's sole liability
will be for hours worked at the rate specified, and for
reasonable travel or business expenses incurred in
accordance with Section 4.
1.4 Notwithstanding any other provision of this
Agreement, if Consultant breaches any of its
provisions, Electrosource may terminate this Agreement
immediately upon written notice to Consultant.
1.5 Upon termination of this Agreement in accordance
with any of its provisions, Electrosource shall have no
obligation to make further payments to Consultant for
services performed after notice is received by
Consultant. Notice may be hand carried or sent by
certified mail. Notice is effective upon receipt or
within five (5) days of mailing, whichever is earlier.
2. Duties
2.1 Consultant shall use his best efforts to assist
Electrosource with respect to matters pertaining to its
manufacturing, engineering and battery design
activities. Consultant shall not during the term of
this Agreement accept any other engagement as
consultant, or enter into any employment relationship,
with respect to which any portion of his duties would
entail assisting any other entity in the field of
energy storage or batteries. Consultant shall be
reasonably available on an on-call, as-needed basis for
a minimum of one day per month, and additional time to
be scheduled on a mutually agreeable basis, to perform
such engineering and consulting duties as may be
assigned from time to time by Electrosource. Such
services shall be provided either at the offices of
Electrosource or Consultant, or at such other locations
as the parties may agree.
2.2 Specific duties shall include, but not be limited
to, serving the particular needs of the General Manager
and others designated by him.
3. Compensation
As full compensation for the services which Consultant
renders to Electrosource under this Agreement, Electrosource
shall pay to Consultant $40.00 per hour. Invoices Consultant
submits to Electrosource for services rendered shall include
the heading "a professional consulting firm (or
individual)."
4. Expenses
Electrosource shall reimburse Consultant for all proper and
reasonable expenses incurred by him pursuant to Consultant's
consulting duties. Such expenses may include necessary
actual expenses of out-of-town travel costs, communications,
hotel accommodations, meals and the like provided that
Consultant shall keep receipts and provide Electrosource an
accurate and complete accounting of all such expenses so
incurred, and shall obtain Electrosource's prior written
consent to any such expenses. Reimbursement of expenses will
be issued within fourteen (14) days of receipt of complete
accounting, with receipts, of same.
5. Confidential and Proprietary Information
5.1 The parties agree that from time to time during
performance of this Agreement confidential or
proprietary technical or business information may be
provided either orally or in written form to
Consultant. Consultant shall keep confidential all such
information furnished by Electrosource and safeguard
same from disclosure or use by any unauthorized
individuals for any purpose other than in performance
of this Agreement.
5.2 Consultant shall restrict the disclosure of
Electrosource's confidential and/or proprietary
technical and business information to those of his
employees who need to know the same for purposes of
carrying out this contract, and Consultant shall have
non-disclosure agreements with all such persons.
Consultant shall advise all such employees of
Consultant's obligations of confidentiality under this
Agreement.
5.3 In event of termination or cancellation of this
Agreement for any reason whatsoever, Consultant agrees
promptly to deliver to Electrosource all written
information of any sort made available to Consultant or
created by it under the terms of this Agreement.
5.4 Work product created by Consultant shall become
the confidential proprietary property of Electrosource.
Consultant agrees to treat such work product in the
same manner as confidential proprietary information of
Electrosource. Consultant agrees that any remedy at law
would be inadequate or a violation of this provision;
consequently, Consultant agrees that Electrosource is
entitled to obtain an injunction against Consultant's
disclosure of any confidential proprietary information.
5.5 Neither expiration of this Agreement nor its
earlier termination for any reason shall release
Consultant from its obligations under this Section 5.
6. Classified Information
6.1 Except in connection with authorized visits,
classified material shall not be possessed by the
Consultant off the premises of the Company. The Company
shall not furnish classified material to the Consultant
at any other location than the premises of the Company
and performance of the consulting services by the
Consultant shall be accomplished at the premises of the
Company; and classification guidance will be provided
by the Company.
6.2 The Consultant and his certifying employees shall
not disclose classified information to unauthorized
persons.
6.3 Electrosource shall brief the Consultant as to the
security controls and procedures applicable to the
Consultant's performance.
7. Works of Authorship and Inventions
7.1 Consultant shall convey to Electrosource all
rights to each work of authorship, whether or not
patentable, which is conceived, developed, written, or
reduced to practice by Consultant in performing the
requirements of this Agreement. Consultant agrees to
execute all necessary patent and copyright
applications, assignments and other instruments at
Electrosource's expense and to give all lawful and
proper testimony in aid of Electrosource obtaining and
maintaining in its name full and complete patent
protection on any such invention. Before final payment
is made under this Agreement, Consultant shall furnish
Electrosource complete information with respect to any
invention and all work product subject to this Section.
7.2 Consultant hereby irrevocably appoints each
officer and director of Electrosource as his attorney-
in-fact for purposes of filing any applications or
assignments necessary to properly reflect the sole
ownership by Electrosource of any invention or work of
authorship subject to this Section.
8. Assignment and Subcontracting
Neither this Agreement nor its performance, either in whole
or in part, shall be assigned or subcontracted by Consultant
to a third party without, in each case, the prior written
consent of Electrosource.
9. No Conflicts
9.1 Consultant represents and warrants that:
(a) He has full authority to enter into this
Agreement and to perform his obligations
hereunder; and
(b) Performance by Consultant of his
obligations hereunder will not be in conflict with
any other of his obligations.
9.2 Consultant shall advise Electrosource's Executive
Vice President of all clients under similar agreement
to him within five (5) days after execution of this
Agreement. Consultant shall not contract for additional
clients without first having notified Electrosource in
writing.
9.3 Notwithstanding any other provision of this
Agreement, Electrosource shall have the right to
terminate this Agreement if, in Electrosource's sole
opinion, a conflict of interest rises or may arise
between Consultant's representation of Electrosource
and its representation of its other clients. Such
termination shall become effective upon five (5) days
written notification by Electrosource.
10. Independent Contractor
Consultant's relationship to Electrosource shall be solely
to provide personal services on an independent contractor
basis. In this capacity, Consultant will not be a regular
employee of Electrosource and will not be entitled to
worker's compensation coverage, unemployment insurance, or
any other type or form of insurance or benefit normally
provided by Electrosource for its employees, and
Electrosource will not be responsible for withholding
federal income or social security taxes from the fees paid
to Consultant. The Consultant will be solely responsible for
reporting and paying all Federal, State and Local taxes
arising from his performance of this Agreement. The
consultant is generally free to perform the services
hereunder in any manner desired, subject to satisfactory
completion of the subject task.
11. Notice
A notice communicated to Electrosource shall be sent to
Benny E. Jay, Executive Vice President, Electrosource, Inc.,
2809 Interstate 35 South, San Marcos, Texas 78666, or to
such other place or places as Electrosource by notice in
writing shall specify. Any notice to be served shall be
deemed to be served if the same be sent by registered or
certified mail through the United States mail, addressed to
the party on which service is to be effected at the address
stated in the immediately preceding sentences and shall be
deemed to have been received on the day indicated on the
return receipt relating thereto.
12. Binding Agreement
This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of Electrosource and
to the successors and assigns of Consultant.
13. Modification
This Agreement supersedes all prior agreements or
understandings between Consultant and Electrosource relating
to the subject matter hereof, and no change, termination or
attempted waiver of any of the provisions hereof shall be
binding unless reduced to writing and signed by duly
authorized officers of Electrosource and by Consultant.
14. Construction
This Agreement shall be construed in accordance with the
laws of the State of Texas. Consultant hereby submits to the
continuing jurisdiction of the laws and the courts of the
State of Texas in the prosecution of any interpretation or
dispute under or arising out of this Agreement. Should any
portion of this Agreement be adjudged or held to be invalid,
unenforceable or void, such judgment shall not have the
effect of invalidating or voiding the remainder of this
Agreement, and the parties hereto agree that the portion to
be held invalid, unenforceable or void shall, if possible be
deemed amended or reduced in scope or to otherwise be
stricken from this Agreement to the extent required for the
purposes of validity and enforcement thereof.
IN WITNESS WHEREOF, this Agreement is dated and is effective
the date and year first above written.
ELECTROSOURCE, INC. CONSULTANT
By: /s/ Benny E. Jay By: /s/Wilburn B. Laubach
Printed Name: Benny E. Jay Printed Name: Wilburn B. Laubach
Date: 8/5/1999 Date: 8/5/1999
SOCIAL SECURITY NUMBER OR
FEDERAL IDENTIFICATION NUMBER:
###-##-####
WITNESS:
By: /s/Don Perriello
Printed Name: Don Pierrello
Date: 8/5/1999
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