<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
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
[X] Definitive Proxy Statement RULE 14C-5(D)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
ELECTRIC FUEL CORPORATION
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (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:
[X] Fee paid previously with preliminary materials.
[_] 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:
Notes:
<PAGE>
[ELECTRIC FUEL LOGO APPEARS HERE]
May 22, 1996
Dear Stockholder:
It is our pleasure to invite you to the Annual Meeting of Stockholders of
Electric Fuel Corporation (the "Company") to be held on June 24, 1996 at 9:00
a.m. at The Harvard Club of New York, 27 West 44th Street, New York, New York
10036.
Whether or not you plan to attend, and regardless of the number of shares
you own, it is important that your shares be represented at the meeting. You
are accordingly urged to carefully review the enclosed proxy materials, and
sign, date and return your proxy promptly in the enclosed envelope, which
requires no postage if mailed in the United States. Your return of a proxy in
advance will not affect your right to vote in person at the meeting.
We ask for your support in approving the election of the Class II director,
the approval of a proposal to amend the Amended and Restated Certificate of
Incorporation to increase the authorized Common Stock of the Company, the
approval of a Non-Employee Director Stock Option Plan and the ratification of
the appointment of Kesselman & Kesselman, a member of Coopers & Lybrand
(International), as the Company's independent accountants.
Sincerely,
/s/ ROBERT S. EHRLICH
ROBERT S. EHRLICH
Chairman of the Board
of Directors
<PAGE>
ELECTRIC FUEL CORPORATION
885 Third Avenue
New York, New York 10022
-------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held June 24, 1996
------------------------
The Annual Meeting of Stockholders of Electric Fuel Corporation (the
"Company") will be held at The Harvard Club of New York, 27 West 44th Street,
New York, New York 10036, on Monday, June 24, 1996 at 9:00 a.m. for the
following purposes:
1. To fix the number of Class II directors at one and to elect one Class
II director for a three-year term ending in 1999 and until a successor
is elected and qualified.
2. To consider and act upon a proposal to amend the Amended and Restated
Certificate of Incorporation of the Company to increase the authorized
Common Stock of the Company from 14,000,000 shares to 28,000,000
shares.
3. To consider and act upon a proposal to approve a Non-Employee Director
Stock Option Plan.
4. To consider and act upon a proposal to ratify the appointment of
Kesselman & Kesselman, a member of Coopers & Lybrand (International),
as independent accountants of the Company.
5. To transact such other business as may properly come before the
meeting and any adjournments thereof.
The Board of Directors has fixed the close of business on May 10, 1996 as
the record date for determination of stockholders entitled to notice of and to
vote at the meeting and any adjournments thereof.
<PAGE>
IF YOU ARE UNABLE TO BE PRESENT PERSONALLY, PLEASE SIGN AND DATE THE ENCLOSED
PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. IF YOU LATER DESIRE TO
REVOKE YOUR PROXY, YOU MAY DO SO AT ANY TIME BEFORE IT IS EXERCISED.
BY ORDER OF THE BOARD OF DIRECTORS,
Yehuda Harats
President and Chief Executive Officer
May 22, 1996
-2-
<PAGE>
ELECTRIC FUEL CORPORATION
885 Third Avenue
New York, New York 10022
_____________________
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
_____________________
The accompanying proxy is solicited by and on behalf of the Board of
Directors of Electric Fuel Corporation (the "Company") for use at the Annual
Meeting of Stockholders to be held on Monday, June 24, 1996 at 9:00 a.m. and any
adjournments thereof for the purposes set forth in the Notice of Annual Meeting
of Stockholders.
Stockholders of record at the close of business on May 10, 1996 will be
entitled to vote at the Annual Meeting of Stockholders. On that date, there
were 12,425,947 shares of Common Stock, par value $.01 per share (the "Common
Stock"), of the Company outstanding, the holders of which are entitled to one
vote per share on each matter to come before the meeting. Proxies properly
executed and returned will be voted at the meeting in accordance with any
directions noted thereon or, if no direction is indicated, proxies will be voted
FOR the election of the nominee for director set forth below, FOR approval of
the amendment to the Amended and Restated Certificate of Incorporation to
increase the authorized Common Stock of the Company, FOR approval of the Non-
Employees Director Stock Option Plan and FOR the ratification of the appointment
of Kesselman & Kesselman, a member of Coopers & Lybrand (International), as
independent accountants of the Company. Proxies will be voted in the discretion
of the holders of the proxy with respect to any other business that may properly
come before the meeting and all matters incidental to the conduct of the
meeting. Any stockholder signing and delivering a proxy may revoke it at any
time before it is voted by delivering to the Secretary of the Company a written
revocation or a duly executed proxy bearing a later date than the date of the
proxy being revoked. Any record stockholder attending the meeting in person may
revoke his or her proxy and vote his or her shares at the meeting.
It is expected that this Proxy Statement and form of proxy enclosed are
being mailed to stockholders on or about May 22, 1996.
Expenses in connection with the solicitation of proxies will be paid by the
Company.
The Company is not aware of any matters other than those described in this
Proxy Statement that will be acted upon at the Annual Meeting. In the event
that any other matters
<PAGE>
properly come before the meeting for a vote of stockholders, the persons named
as proxies in the enclosed form of proxy will vote in accordance with their best
judgment on such other matters.
The annual report of the Company for the fiscal year ended December 31,
1995 is being mailed to the Company's stockholders with this proxy statement.
Voting
Consistent with state law and under the Company's by-laws, a majority of
the shares outstanding and entitled to vote, present in person or represented by
proxy, constitutes a quorum for the transaction of business at the Annual
Meeting. Votes cast by proxy or in person at the Annual Meeting will be counted
by persons appointed by the Company to act as election inspectors at the
meeting.
The nominee for election as a Class II director at the Annual Meeting who
receives the greatest number of votes for the election of the director shall be
elected the Class II director. A majority vote of the number of shares present
in person or represented by proxy at the Annual Meeting entitled to vote thereon
is necessary to approve the actions proposed in Item 2, Item 3 and Item 4 as
well as any other matter which comes before the Annual Meeting, except where
law, the Company's Amended and Restated Certificate of Incorporation or By-laws
require otherwise.
The total number of votes cast "for" approval of proposals, other than the
election of directors, will be counted for purposes of determining whether
sufficient affirmative votes have been cast. Shares represented by proxies that
withhold authority to vote for a nominee for election as a director or that
reflect abstentions and "broker non-votes" (i.e., shares represented at the
Annual Meeting held by brokers or nominees as to which (i) instructions have not
been received from the beneficial owners or persons entitled to vote and (ii)
the broker or nominee does not have the discretionary voting power on a
particular matter) will be counted as shares that are present and entitled to
vote on the matter for purposes of determining the presence of a quorum,
directions to withhold authority on a particular matter have the effect of a no
vote, but neither broker non-votes nor abstentions will have any effect on the
outcome of voting on the matter.
-2-
<PAGE>
PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
One Class II director is to be elected at the 1996 Annual Meeting for a
three-year term that expires in 1999. Four other directors have been elected or
appointed to terms that end in either 1996 or 1998, as indicated below. Unless
instructions are given to the contrary, it is the intention of the persons named
as proxies to vote the shares to which each proxy relates FOR the election of
the nominee listed below for a term of three years expiring at the 1999 Annual
Meeting of Stockholders and until the nominee's successor is elected and
qualified or until the nominee's earlier death, removal or resignation. The
nominee named below is presently serving as a director of the Company and is
anticipated to be available for election and able to serve. However, if the
nominee should become unavailable, such proxy will be voted for a substitute
nominee designated by the Board of Directors. The nominee for election as a
director at the Annual Meeting who receives the greatest number of votes
properly cast for the election of directors shall be elected.
The Company's By-laws provide for a Board of Directors of one or more
directors, and the number of directors is currently fixed at five. Under the
terms of the Company's Amended and Restated Certificate of Incorporation, the
Board of Directors is composed of three classes of similar size, each elected in
a different year, so that only one-third of the Board of Directors is elected in
any single year. Mr. Harats and Dr. Eastman are designated Class I directors
and have been elected for a term expiring in 1998 and until their successors are
elected and qualified; Mr. Rosenfeld is designated a Class II director elected
for a term expiring in 1995 and until his successor is elected and qualified;
and Mr. Ehrlich and Mr. Krueger are designated a Class III directors elected for
a term expiring in 1996 and until their successors are elected and qualified.
Set forth below is certain information concerning the nominees and the
other incumbent directors:
Board of Directors
------------------
<TABLE>
<CAPTION>
Director
Name Age Position Class Since
- --------------------------- --- --------------------- -------- -------------
<S> <C> <C> <C> <C>
Yehuda Harats(1) 44 President, Chief I May 1991
Chief Executive
Officer and Director
Jack E. Rosenfeld(1)(2) 57 Director II October 1993
Dr. Jay M. Eastman(1)(2) 47 Director I October 1993
Robert S. Ehrlich 57 Chairman of the Board III May 1991
Chief Financial Officer
and Director
Harvey M. Krueger(3) 66 Director III February 1996
- --------------------
</TABLE>
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Compensation Committee since March, 1996.
-3-
<PAGE>
Nominee for Election as Class II Director at the 1996 Annual Meeting
Jack E. Rosenfeld has been a director of the Company since October 1993.
Mr. Rosenfeld was President and Chief Executive Officer of Hanover Direct, Inc.
("Hanover"), formerly Horn & Hardart Co., which operates a direct mail marketing
business, from September 1990 until December 1995 and had been President and
Chief Executive Officer of its direct marketing subsidiary, since May 1988. Mr.
Rosenfeld is currently acting as a consultant to the Board of Directors of
Hanover. From July 1986 until May 1988, Mr. Rosenfeld was a partner in Rosenfeld
& Co. (a private investment banking group). Mr. Rosenfeld is also a director
emeritus of Hanover Direct, Inc. and a director of PSC Inc., a New York
corporation ("PSCX"), a manufacturer and marketer of hand-held laser diode bar
code scanners.
Class I Directors
Yehuda Harats has been President, Chief Executive Officer and a director of
the Company since May 1991. Previously, from 1980 to May 1991, he was the
Executive Vice President, Director of the Process Division and head of the Heat
Collection Element Division, at Luz Industries Israel Limited ("LII"). In 1989,
he was part of the team awarded the Rothschild Award for Industry, granted by
the President of the State of Israel, for his work at LII. Before joining LII in
1980, Mr. Harats was Manager of the Maintenance Planning Unit of the Israel Air
Force. Mr. Harats received a B.Sc. in Mechanical Engineering from the Israel
Institute of Technology (Technion) in Haifa, Israel.
Dr. Jay M. Eastman has been a director of the Company since October 1993.
Since November 1991, Dr. Eastman has served as President, Chief Executive
Officer And Director of Lucid Technologies, Inc., which is developing laser
technology applications for medical diagnosis and treatment. Dr. Eastman also
serves as Senior Vice President of Strategic Planning of PSCX, a position he has
held since January 1, 1996. From December 1987 through December 1995, Mr.
Eastman was Executive Vice President of PSCX. He joined PSCX in 1986 when PSCX
acquired Optel Systems, Inc., a corporation which he co-founded and served as
Chairman, President and Chief Executive Officer from its formation in 1981. Dr.
Eastman is also a director of Chapman Instruments, Inc., which develops,
manufactures and sells surface profiling instruments and Dimension Technologies,
Inc., a developer and manufacturer of 3D displays for computer and video
displays. From 1981 until January 1983, Dr. Eastman was Director of the
University of Rochester's Laboratory for Laser Energetics, where he was a member
of the staff from September 1975 to 1981.
Class III Directors
Robert S. Ehrlich has been Chairman of the Board of the Company since
January 1993 and Chief Financial Officer of the Company since May 1991. From May
1991 until January 1993, Mr. Ehrlich was Vice Chairman of the Board. From May
1990 until March 1994, Mr.
-4-
<PAGE>
Ehrlich was also President, Chief Executive Officer and a director of Advanced
Materials Technology, Inc. ("Amtec"), a former stockholder which was merged with
and into EFC immediately prior to the Closing of the Company's initial public
offering. From December 1987 until July 1992, Mr. Ehrlich was Chairman of the
Board of PSCX. He continues to serve as a director of PSCX and Chairman of the
Executive Committee and was formerly Chairman of the Compensation and Nominating
Committees of PSCX. From February 1987 until October 1989, Mr. Ehrlich was
Chairman and CEO of Fresenius USA, Inc., a Massachusetts corporation ("FRN"), a
manufacturer and distributor of renal care systems, solutions and supplies. Mr.
Ehrlich continues to serve as a member of the Executive Committee, Chairman of
the Compensation Committee and a director of FRN. From 1974 until 1989, Mr.
Ehrlich was President of Ehrlich & Co., a private investment banking firm. Mr.
Ehrlich was also Executive Vice President and Chief Financial Officer and a
director of Mattel Inc. ("Mattel") during 1972 and 1973 and continued as a
director of Mattel through 1987. Mr. Ehrlich received a B.S. and J.D. from
Columbia University in New York, New York.
Harvey M. Krueger was elected to the Board of Directors in February 1996.
Mr. Krueger has been a Senior Managing Director of Lehman Brothers Inc., an
investment banking firm and the lead manager of the Company's recent equity
offering, since May 1984. From December 1977 to May 1984, he was Managing
Director of Lehman Brothers Kuhn Loeb, Inc. From 1965 to 1977, he was a Partner
of Kuhn Loeb & Co. and in 1977, he served as President and Chief Executive
Officer of Kuhn Loeb & Co. Mr. Krueger serves as a director on the boards of
directors of a number of companies, including Automatic Data Processing, Inc.,
R.G. Barry Corporation, a manufacturer of footwear, Chaus, Inc., a manufacturer
of women's apparel, and IVAX Corporation, a generic pharmaceutical manufacturer.
In addition, he serves on the International Advisory Board of Club Mediterranee,
S.A. and as chairman of the board of directors of Stockton Partners, Inc., the
general partner of the manager of the Renaissance Fund LDC, a private closed-end
investment fund.
Information Concerning the Board and Its Committees
In fiscal 1995, the Board of Directors held three meetings and acted by
unanimous written consent on three occasions. Each of the directors attended all
of the meetings of the Board of Directors and of each committee of which he is a
member. The Board has two standing committees: the Audit Committee and the
Compensation Committee.
The Audit Committee was established in December 1993 and held one meeting
during fiscal 1995. The duties of the Audit Committee are (i) to review with
management and the independent auditors the scope and results of the annual
audit, the nature of any other services provided by the independent auditors,
changes in the accounting principles applied to the presentation of the
Company's financial statements, and any comments by the independent auditors on
the Company's policies and procedures with respect to internal accounting,
auditing and financial controls, and (ii) to make recommendations to the Board
of Directors on the
-5-
<PAGE>
engagement of the independent auditors. Messrs. Harats and Rosenfeld and Dr.
Eastman are members of the Audit Committee.
The Compensation Committee was established in December 1993 and held
four meetings during fiscal 1995. The duties of the Compensation Committee are
to recommend compensation arrangements for the Chief Executive Officer and the
Chief Financial Officer and review annual compensation arrangements for all
other officers and significant employees. Mr. Rosenfeld and Dr. Eastman are the
members of the Compensation Committee as is Mr. Krueger, who joined this
Committee in March, 1996. All Committee members are "disinterested persons" as
that term is used in Rule 16b-3 under the Securities Exchange Act of 1934, as
amended.
Non-employee members of the Board of Directors are paid $1,000 (plus
expenses) for each Board of Directors Meeting attended and $500 (plus expenses)
for each meeting of a committee of the Board of Directors attended. In
addition, in September 1995, the Board of Directors adopted, (and later amended
on March 25, 1996), subject to stockholder approval, a Non-Employee Director
Stock Option Plan pursuant to which non-employee directors will receive an
initial grant of options to purchase 15,000 shares of the Company's Common Stock
upon the effective date of such plan or upon their election as a director.
Thereafter, non-employee directors receive options to purchase 5,000 shares of
Common Stock for each year of service on the Board. All such options will be
granted at fair market value and vest ratably, over three years from the date of
the grant.
Pursuant to the Underwriting Agreements entered into in connection with
the Company's recent equity offering consummated in February 1996, the Company
was required, prior to this annual meeting of its stockholders, to increase its
number of directors to a total of six and nominate a person for election by the
stockholders at such annual meeting to be approved by Lehman Brothers Inc.
("Lehman"), the lead manager for the underwriters in the equity offering.
However, the requirements have been waived by Lehman as to the 1996 annual
meeting of the stockholders and deferred until the Company's 1997 annual meeting
of the stockholders.
THE BOARD OF DIRECTORS RECOMMENDS
ELECTION OF THE NOMINEE
DESCRIBED ABOVE
-6-
<PAGE>
EXECUTIVE COMPENSATION; CERTAIN ARRANGEMENTS;
SECURITY OWNERSHIP
Summary Compensation Table
The following table shows the compensation paid by the Company for
services rendered for 1993, 1994 and 1995 to the Chief Executive Officer and the
other highest paid executive officers (of which there were only two) who
received more than $100,000 in salary and bonuses during fiscal 1995 (the "Named
Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------------- ----------------------------
Name and Principal Position Other Annual Options All Other
At December 31, 1995 Year Salary Bonus Compensation (Number) Compensation
-------------------------- ---- ------ ----- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Yehuda Harats(1) 1995 $140,684 $40,364 $1,742(2) 0 $175,309(3)
President, Chief Executive 1994 127,445 30,000 1,447 170,000 192,029
Officer and a Director 1993 113,484 15,628 0 0 15,728
Robert S. Ehrlich(1)(4) 1995 $140,684 $40,364 $6,148(2) 0 $123,657(5)
Chairman and 1994 114,034 30,000 0 170,000 118,442
Chief Financial
Officer
Menachem Korall(1) 1995 $106,491 $30,328 $1,744(2) 0 $102,703(6)
Vice President of Technology 1994 95,458 27,000 1,447 90,000 95,458
1993 77,184 0 0 0 14,772
</TABLE>
- --------------------------------
(1) The amounts reported for each Named Executive Officer were paid in New
Israeli Shekels ("NIS") and have been translated into U.S. dollars at the
average exchange rate of NIS into U.S. dollars during the year in question.
(2) Represents taxes paid by the employee and reimbursed by the Company.
(3) Of this amount, $120,000 represents the Company's accrual for severance pay
which would be payable to Mr. Harats upon a "change of control" of the
Company or upon the occurrence of certain other events, $8,181 represents
the Company's accrual for sick leave and vacation redeemable by Mr. Harats,
$20,113 consisted of payments to Mr. Harats in lieu of vacation and/or sick
leave, $25,274 consisted of the Company's payment to a pension fund which
provides a savings plan, insurance and severance pay benefits and an
education fund which provides for the on-going education of employees.
Additionally, $1,741 represents the value charged for tax purposes for the
use of a car provided by the Company.
-7-
<PAGE>
(4) Mr. Ehrlich was not compensated by the Company during 1993. During that
period, Mr. Ehrlich was employed by Amtec, a consultant to, and stockholder
of, the Company.
(5) Of this amount, $72,000 represents the Company's accrual for severance pay
which would be payable to Mr. Ehrlich upon a "change of control" of the
Company or upon the occurrence of certain other events, $15,498 represents
the Company's accrual for sick leave and vacation redeemable by Mr.
Ehrlich, $4,565 represents the Company's accrual for severance pay which
would be payable to Mr. Ehrlich under the laws of the State of Israel upon
the termination of his employment by the Company, $25,431 represents the
Company's payments to pension and education funds and $6,163 represents the
value charged for tax purposes for the use of a car provided by the
Company.
(6) Of this amount, $54,000 represents the Company's accrual for severance pay
which would be payable to Mr. Korall upon a "change of control" of the
Company or upon the occurrence of certain other events, $15,909 represents
the Company's accrual for sick leave and vacation redeemable by Mr. Korall,
$2,101 represents the Company's accrued severance pay which would be
payable to Mr. Korall under the laws of the State of Israel upon the
termination of his employment by the Company, $8,945 consisted of payments
to Mr. Korall in lieu of vacation and/or sick leave, $19,861 represents the
Company's payments to pension and education funds, and $1,887 represents
the value charged for tax purposes for use of a car provided by the
Company.
The table below sets forth information for the Named Executive Officers with
respect to fiscal 1995 year-end option values.
<TABLE>
<CAPTION>
Underlying Value of Unexercised
Unexercised Options In-the-Money Options
at Fiscal Year End Fiscal-Year-End (1)
---------------------------- ---------------------------------
Exercisable Unexercisable Exercisable Unexercisable
Name (Number) (Number) ($) ($)
- ------------------- ------------ -------------- ------------ -------------------
<S> <C> <C> <C> <C>
Yehuda Harats...... 170,000 0 456,875 0
Robert S. Ehrlich.. 207,478 0 742,364 0
Menachem Korall.... 90,000 0 241,875 0
</TABLE>
_______________________
(1) In-the-money options are options for which the fair market value of the
underlying securities exceeds the exercise or base price of the option.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors for the 1995 fiscal
year consisted of Dr. Jay Eastman and Jack Rosenfeld, neither of whom have
served as officers of the Company.
Robert S. Ehrlich, Chairman and Chief Financial Officer of the Company,
serves as a director and Chairman of the Executive Committee and formerly served
as the Chairman of the Compensation and Nominating Committees of PSC, Inc., a
New York Corporation, for which Dr. Eastman, a member of the Compensation
Committee of the Company, serves as Senior Vice President and Mr. Rosenfeld
serves as director.
Harvey M. Krueger, a director of the Company, is Senior Managing Director
of Lehman Brothers Inc., an investment banking firm ("Lehman"). Lehman was the
lead manager of the
-8-
<PAGE>
Company's recent equity offering consummated in February 1996, in which the
Company issued 3.75 million shares of its Common Stock.
Employment Contracts and Termination of Employment Arrangements
Each of Messrs. Ehrlich, Harats and Korall are parties to employment
agreements (the "Employment Agreements") with the Company for
an initial term of three years, which can be extended automatically for
additional terms of two years each unless terminated sooner by either the
executive or the Company. In 1994, each of the Employment Agreements was
extended for a period of two years ending December 1998. The Employment
Agreements provide for a base salary of $10,000, $10,000 and $7,500 per month
for Messrs. Ehrlich, Harats and Korall, respectively (the "Base Salary"). On
each anniversary of the Employment Agreements, Base Salary is adjusted in an
amount equal to the excess, if any, of any increase in the Israeli Consumer
Price Index over any devaluation in currency of Israel compared to the U.S.
dollar during the immediately preceding year. Accordingly, Base Salary for
Messrs. Ehrlich, Harats and Korall is currently $11,736, $11,736 and $8,802 per
month, respectively. In addition, the Employment Agreements require bonuses to
be paid in an amount the greater of (a) not less than 50% of Base Salary or (b)
2%, 2% and 1%, respectively of Net Earnings (defined as net income before taxes
and extraordinary and other nonrecurring items) (the "Bonus"), subject to
certain conditions, as well as other benefits such as vacation, sick leave,
provision of automobiles and insurance contributions. The determination of the
amount of Bonus to be paid pursuant to the Employment Agreements is based on
attainment of the Company's budgeted results. Additionally, the Compensation
Committee will set qualitative goals annually as a basis for paying bonuses to
each of Messrs. Ehrlich, Harats and Korall. The Employment Agreements also
contain confidentiality and non-competition covenants. Pursuant to the
Employment Agreements, each of Messrs. Ehrlich, Harats and Korall was granted
demand and "piggyback" registration rights covering shares of the Company's
Common Stock held by them. The Employment Agreements may be terminated by the
Company in the event of death, disability or for "Cause" (defined as conviction
of certain crimes, willful failure to carry out directives of the Company's
Board of Directors or gross negligence or willful misconduct). Messrs. Ehrlich,
Harats and Korall each have the right to terminate their employment for "Good
Reason," which is defined to include adverse changes in employment status or
compensation, insolvency of the Company, material breaches and certain other
events. Upon termination of employment, the Employment Agreements provide for
payment of all accrued and unpaid compensation, any Bonus due for the year in
which employment is terminated and a termination payment equal to thirty-six
times monthly Base Salary at the highest rate in effect within the 90 day period
prior to the termination of employment. In addition, certain benefits will
continue and all outstanding options will be fully vested.
Other employees have entered into individual employment agreements with
the Company. These agreements govern the basic terms of the individual's
employment, such as salary, vacation, overtime pay, severance arrangements and
pension plans. Subject to Israeli law, which restricts a company's right to
relocate an employee to a work site further than sixty kilometers from his or
her regular work site, the Company has retained the right to transfer certain
employees to other locations and/or positions provided that such transfers do
not result in a decrease in salary or benefits. In
-9-
<PAGE>
addition, all of these agreements contain provisions governing the
confidentiality of information and ownership of intellectual property learned or
created during the course of the employee's tenure with the Company. Under the
terms of these provisions, employees must keep confidential all information
regarding the Company's operations (other than information which is already
publicly available) received or learned by the employee during the course of
employment. This provision remains in force for five years after the employee
has left the service of the Company. Further, intellectual property created
during the course of the employment relationship belongs to the Company.
A number of the individual employment agreements, but not all, contain
non-competition provisions which restrict the employee's rights to compete
against the Company, or work for an enterprise which competes against the
Company, for a period of two years after the employee has left the service of
the Company.
Under the laws of Israel, an employee of the Company who has been
dismissed from service, died in service, retired from service upon attaining
retirement age, or left due to poor health, maternity or certain other reasons,
is entitled to severance pay at the rate of one month's salary for each year of
service. The Company funds this obligation currently by making monthly payments
to an approved private provident fund and by its accrual for severance pay in
the consolidated financial statements.
Compensation Committee Report
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended that might incorporate future
filings, including this Proxy Statement, in whole or in part, the following
report and the Performance Graph on page 13 shall not be incorporated by
reference into any such filings.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors of the Company for
1995 consisted of Dr. Eastman and Mr. Rosenfeld; Mr. Krueger joined this
Committee in March 1996. The Committee's responsibilities include recommending
the annual compensation arrangements for the Chief Executive Officer and the
Chief Financial Officer of the Company and reviewing the annual compensation
arrangements for all other officers and significant employees of the Company,
all by reference to the parameters set by any agreements the Company may have
with such persons. No member of this Committee was an officer or employee of
the Company during 1995.
-10-
<PAGE>
The Company maintains compensation and incentive programs designed to
motivate, retain and attract management and utilize various combinations of base
salary, bonus payable upon the achievement of specified goals, discretionary
bonus and stock options. It is the Company's current policy to establish,
structure and administer compensation plans and arrangements so that the
deductibility to the Company of such compensation will not be limited under
Section 162(m) of the Internal Revenue Code.
Each of the Named Executive Officers, including the Chief Executive
Officer Yehuda Harats, has entered into an employment agreement (collectively,
the "Employment Agreements"), effective December 15, 1993, with the Company for
an initial term of three years, which can be extended automatically for
additional terms of two years each. In 1994, the Company exercised its option
to extend each of the Employment Agreements for a period of two years ending
December 1998. The Employment Agreements provide for a base salary of $10,000,
$10,000 and $7,500 per month for Messrs. Harats, Ehrlich and Korall,
respectively (the "Base Salary"). On each anniversary of the Employment
Agreements, Base Salary is increased in an amount equal to the excess, if any,
of any increase in the Israeli Consumer Price Index over any devaluation in
Israel's currency compared to the U.S. dollar during the immediately preceding
year. (This effectively fixes the value in Israel's currency of the U.S. dollar
denominated salary.) Accordingly, Base Salary for Messrs. Ehrlich, Harats and
Korall is currently $1l,736, $11,736 and $8,802 per month, respectively.
In addition, the Employment Agreements require that bonuses be paid in an
amount of the greater of (a) 50% of annual Base Salary or (b) 2%, 2% and 1%,
respectively, of annual Net Earnings (defined as net income before taxes and
extraordinary and other nonrecurring items) (the "Bonus"), provided that 100% of
-------- ----
budgeted results are attained. Additionally, the Employment Agreements provide
for other benefits such as vacation, sick leave, provision of automobiles and
insurance contributions. For the year ended December 31, 1995, the Company
achieved 80% of its budgeted results. Consequently, the Compensation Committee,
during the first quarter of 1996, exercised its discretionary authority to grant
bonuses based upon the Company's results of operations and specific achievements
of the Company as a result of the efforts of the Named Executive Officers.
Accordingly, each of Messrs. Harats, Ehrlich and Korall was awarded a
discretionary bonus for 1995 of $40,364, $40,364 and $30,328, respectively,
which represents approximately 33% of Base Salary. The achievements considered
by the Committee were: (i) the successful completion of the Company's public
offering of 3.75 million shares of its Common Stock, which was consummated in
February 1996 and which resulted in proceeds to the Company of approximately
$24.0 million; (ii) the completion of the Company's 10 kg/hour regeneration
plant located in Beit Shemesh, near Jerusalem, Israel; (iii) the delivery of
batteries by the Company to Deutsche Post AG ("Deutsche Post") for use in the
Deutsche Post field test resulting in payment to the Company of 70% of the total
budgeted cost of batteries for the field test; (iv) the opening of the 100
kg/hour regeneration plant in Bremen for the Deutsche Post field test; and (v)
the entry by the Company into several new strategic alliances.
No stock options were granted to the Named Executive Officers in 1995.
As of December 31, 1995, Messrs. Harats', Ehrlich's and Korall's total options
represented approximately 1.73%, 2.11%
-11-
<PAGE>
and 0.91% of the fully-diluted outstanding stock of the Company, respectively,
which the Compensation Committee believes are appropriate levels of options for
the Named Executive Officers in view of their equity position in the Company.
With respect to executive officers other than the Named Executive
Officers, compensation is determined not by formula, but based on the
achievement of qualitative objectives established by the Chief Executive Officer
and Chief Financial Officer, who then provide recommendations to the
Compensation Committee for proposed remuneration of the Company's executive
officers based on such objectives.
Officer compensation is generally comprised of a combination of both cash
compensation and grants of options under the Company's stock option plans.
Stock options are awarded annually in connection with annual bonuses and,
occasionally, during the year on a discretionary basis. Stock options are
intended to offer an incentive for superior performance while basing executive
compensation on the achievement of higher share value, and to foster the
retention of key personnel through the use of schedules which vest options over
time if the person remains employed by the Company. There is no set formula for
the award of options to individual executives. Factors considered in making
option awards to the officers other than the Named Executive Officers in 1995
included prior grants to the officer, the importance of retaining the officer's
services, the officer's potential to contribute to the success of the Company
and the officer's past contributions to the Company.
Dated: May 1, 1996 COMPENSATION COMMITTEE
Dr. Jay M. Eastman
Jack E. Rosenfeld
-12-
<PAGE>
CUMULATIVE TOTAL RETURN FOR PERIOD INDICATED
AMONG ELECTRIC FUEL CORPORATION.
NASDAQ MARKET INDEX AND PEER GROUP INDEX
[GRAPH APPEARS HERE]
2/94 12/94 12/95
ELECTRIC FUEL 100 48.54 65.53
PEER GROUP 100 49.18 47.69
BROAD MARKET 100 97.21 126.09
ASSUMES $100 INVESTED ON FEB. 24, 1994
(THE DAY THE COMPANY'S COMMON STOCK BEGAN
TRADING ON THE NASDAQ NATIONAL MARKET SYSTEM)
ASSUMES DIVIDENDS REINVESTED YEAR ENDING DEC. 31, 1994
-13-
<PAGE>
OWNERSHIP OF COMMON STOCK
The following table sets forth information regarding the security
ownership of those persons owning of record or known to the Company to be
beneficial owners of more than five percent of the Company's Common Stock as of
May 1, 1996, each of the Company's Named Executive Officers and directors, and
the shares of Common Stock held by all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Owned/(1)(2)/ Total Shares
Outstanding/2/
<S> <C> <C>
Named Executive Officers and
Directors
- ----------------------------
Robert S. Ehrlich 988,979/(3)(6)/ 7.8%
Yehuda Harats 1,386,207/(4)(6)/ 11.0%
Menachem Korall 530,632/(5)(6)/ 4.2%
Dr. Jay M. Eastman 0 0
Jack E. Rosenfeld 0 0
Harvey M. Krueger 3,000 *
All Directors and Executive 2,905,818/(3)(4)(5)(6)/ 23.0%
Officers
of the Company as a group
Other Five Percent Holders
- --------------------------
Newton D. Becker 1,746,904/(7)/ 14.1%
2743 Aqua Verde Circle
Los Angeles, California
Newton Becker Irrevocable 793,350/(8)/ 6.4%
Trust No. 1
c/o Bryan Gordon
4046 San Remo Way
Tarzana, California
Leon S. Gross 1,334,786/(9)/ 11.15%
c/o Enterprises, Inc.
River Park House
3600 Conshohocken Avenue
Philadelphia, PA 19131
- ------------------------
</TABLE>
(1) Unless otherwise indicated in these footnotes, each of the persons or
entities named in the table has sole voting and sole investment power with
respect to all shares shown as beneficially owned by that person, subject
to applicable community property laws.
-14-
<PAGE>
(2) For purposes of determining beneficial ownership of the Company's Common
Stock, owners of options exercisable within sixty days are considered to be
the beneficial owners of the shares of Common Stock for which such
securities are exercisable. The percentage ownership of the outstanding
Common Stock reported herein is based on the assumption (expressly required
by the applicable rules of the Securities and Exchange Commission) that
only the person whose ownership is being reported has converted his options
into shares of Common Stock.
(3) Includes 207,478 shares of Common Stock issuable upon exercise of options
exercisable, or potentially exercisable, within 60 days.
(4) Includes 170,000 shares of Common Stock issuable upon exercise of options
exercisable, or potentially exercisable, within 60 days.
(5) Includes 90,000 shares of Common Stock issuable upon exercise of options
exercisable, or potentially exercisable, within 60 days.
(6) Messrs. Ehrlich, Harats and Korall are parties to a Stockholders Voting
Agreement pursuant to which each of the parties agrees to vote the shares
of the Company's Common Stock held by that person in favor of the election
of Messrs. Ehrlich and Harats (or their designees) as directors of the
Company.
(7) All shares are held in the name of the Becker Family Trust of which Mr.
Becker is the trustee and sole beneficiary during his lifetime. Excludes
793,350 shares held by the Newton Becker Irrevocable Trust No. 1, as to
which Mr. Becker disclaims beneficial ownership.
(8) Shares held for the benefit of members of Mr. Becker's family. David E.
Becker and Bryan Gordon, Mr. Becker's son and stepson, respectively, are
co-trustees.
(9) Based solely upon a Schedule 13D dated February 23, 1995, as amended on
April 23, 1996. The Schedule 13D states that Mr. Gross has power to direct
the vote of all 1,334,786 of such shares and shared power to dispose or
direct the disposition of all of such shares, which are subject
to margin account agreements.
* Less than one percent
DELINQUENT FILINGS
Under the securities laws of the United States, the Company's directors,
certain of its officers, and any persons holding more than ten percent of the
Company's Common Stock are required to report their ownership of the Company's
Common Stock and any changes in that ownership to the Securities and Exchange
Commission. Specific due dates for these reports have been established and the
Company is required to report in this proxy statement any failure to file by
these dates during 1995. All of these filing requirements were satisfied by its
directors and officers and, to the knowledge of the Company, ten percent
holders, except as follows: Robert S. Ehrlich was required to file a Form 4 on
or prior to July 10, 1995, for his sale of 4,000 shares of the Company's common
stock in June 1995; Mr. Ehrlich did not file this Form 4 until July 19, 1995.
-15-
<PAGE>
CERTAIN TRANSACTIONS
Harvey M. Krueger, a director of the Company, is Senior Managing Director
of Lehman Brothers Inc., an investment banking firm ("Lehman"). Lehman was the
lead manager of the Company's recent equity offering consummated in February
1996, in which the Company issued 3.75 million shares of its Common Stock.
In January 1993, each of Messrs. Ehrlich, Harats and Korall exercised
options to purchase 423,116, 719,304 and 343,785 shares of the Company's Common
Stock, respectively, at an exercise price of $0.35 per share. In payment for the
option exercise, each of Messrs. Ehrlich, Harats and Korall issued nonrecourse
promissory notes (the "Promissory Notes") secured by the shares of Common Stock
purchased, bearing interest at one point over the applicable United States
federal funds rate. In December 1994, the Promissory Notes were amended to
change the interest rate to the higher of a United States dollar rate of 7% or
the percentage increase in the Israeli CPI between the date of the Promissory
Notes and the date interest is calculated, based on the original principal
amount of the loan expressed in NIS. Interest is payable at maturity. As of
December 31, 1995, the aggregate amount outstanding pursuant to the Promissory
Notes for each of Messrs. Ehrlich, Harats and Korall was $180,081, $309,108 and
$141,139, respectively (including an aggregate of $117,124 in accrued interest
receivable), which are also the largest aggregate amounts outstanding since the
issuance of the Promissory Notes. The Promissory Notes mature on January 3,
1998.
On March 2, 1994, Amtec, a stockholder of the Company, was merged with and
into EFC (the "Reorganization"). Prior to the Reorganization, Amtec had an
aggregate of 25,790 shares of Preferred Stock and 8,686 shares of Common Stock
outstanding, held by Messrs. Ehrlich and Harats and certain other persons and
entities. There were no options for the purchase of Amtec's Preferred or Common
Stock outstanding. Each share of Amtec's Preferred Stock was entitled to the
payment of $100 per share, together with all accrued and unpaid dividends, prior
to any distribution being made on shares of Amtec's Common Stock. Those accrued
and unpaid dividends equaled approximately $39.00 per share of Amtec Preferred
Stock at the time of the Reorganization. The Boards of Directors of EFC and
Amtec determined that a reorganization of the ownership of EFC and Amtec was
necessary in order to simplify the corporate structure, achieve operating
efficiencies and put publicly traded stock in the hands of EFC's ultimate
stockholders.
For the period beginning January 1, 1992 through the date of the
Reorganization, Amtec was a consultant to the Company and received an aggregate
of approximately $272,000 in respect of management services and consulting fees.
During this period Mr. Ehrlich was President, Chief Executive Officer, director
and a stockholder of Amtec and received compensation from Amtec in respect of
services provided to EFC.
-16-
<PAGE>
PROPOSAL NUMBER 2
PROPOSED AMENDMENT TO ARTICLE FOUR OF THE COMPANY'S AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION TO INCREASE THE AUTHORIZED COMMON STOCK OF THE
COMPANY FROM 14,000,000 SHARES TO 28,000,000 SHARES.
General
- -------
The Board of Directors has approved a proposed amendment to Article
Four of the Company's Amended and Restated Certificate of Incorporation to
increase the number of shares of Common Stock which the Company is authorized to
issue from 14,000,000 to 28,000,000. The Board of Directors of the Company has
directed that the proposed amendment be submitted to a vote of the stockholders
of the Company at the Annual Meeting.
The Amended and Restated Certificate of Incorporation of the Company
currently authorizes 15,000,000 shares of capital stock consisting of 14,000,000
shares of Common Stock, $.01 par value, and 1,000,000 shares of Preferred Stock,
$.01 par value. The proposed amendment would increase the authorized Common
Stock to 28,000,000 shares. The holders of Common Stock are entitled to (i) one
vote for each share of Common Stock registered in the name of such holder, (ii)
receive dividends on their shares of stock when and as declared by the Board of
Directors, (iii) in the event of liquidation, dissolution or the winding up of
the affairs of the Company, share pro rata in the net assets available for
distribution to holders of Common Stock after satisfaction of the prior claims
of the holders of Preferred Stock of any series or any shares of any other class
of capital stock ranking senior to the Common Stock as to assets, in accordance
with the Amended and Restated Certificate of Incorporation.
On May 1, 1996, 12,425,947 shares of Common Stock were issued and
outstanding. In addition, 1,143,033 shares of Common Stock are reserved for
issuance upon the exercise of stock options granted under the Company's 1991
Stock Option Plan ("1991 Plan") and 1993 Stock Option and Restricted Stock
Purchase Plan (the "1993 Plan"). An aggregate of 995,000 shares of Common Stock
may be issued upon the exercise of stock options to be granted under the Amended
and Restated Non-Employee Director Stock Option Plan and the 1991 and 1993
Plans.
In February of 1996, the Company issued 3,750,000 shares in its second
equity offering. The Board of Directors believes that it is in the best
interests of the Company to increase the authorized number of shares of Common
Stock to 28,000,000 shares, which would make available for issuance under the
Company's stock option plans as well as for issuance in the future for other
valid corporate purposes, without further authorization of the stockholders
(except as may be required by applicable law or regulation) additional shares of
Common Stock. The Board of Directors believes that the proposed amendment to
Article Four will provide several long-term advantages to the Company and its
shareholders. In order to attract and retain qualified individuals in key
positions and maintain the 1991 and 1993 Plans for the long term, the Company
requires additional shares for issuance under the current terms of such Plans in
order to have sufficient shares to be issued
-17-
<PAGE>
thereunder and to grant appropriate levels of stock options to employees. The
Board of Directors has frequently utilized options as a form of noncash
compensation and believes that continued employee ownership should be
encouraged. In addition, increased costs related to the Company's involvement
in the Deutsche Post Field Test, the establishment by the Company of additional
strategic alliances or investment by the Company in programs to advance the
development and commercialization of the Electric Fuel System may require the
Company to seek additional financing over the next several years. An increase
in authorized shares would enable the Board of Directors to raise cash assets
through sales of Common Stock or other debt or equity securities convertible
into Common Stock to public and private investors without the need to seek
shareholder authorization at that time, which could significantly delay the
receipt of such financing. Finally, the passage of this Proposal would also
enable management, with the approval of the Board of Directors, to pursue
acquisitions or enter into transactions or other business combinations which
management believes provide the potential for growth and profit.
With the extremely limited number of shares currently available for
the potential uses discussed above, it is impractical for the Company to
evaluate or seek to obtain additional financings, or consummate business
combinations or other transactions which, if they could be accomplished, might
enhance shareholder value. If additional shares are available, financings or
transactions dependent upon the issuance of additional shares would be less
likely to be undermined by delays and uncertainties occasioned by the need to
obtain shareholder authorization prior to the consummation of such transactions
or financings. The ability to issue shares, as deemed in the Company's best
interest by the Board, will also permit the Company to avoid the expenses which
are incurred in holding special shareholders' meetings.
Certain Effects, Advantages and Disadvantages of the Proposed Amendment
The Proposal, if approved, would strengthen the position of management
and might make the removal of management more difficult, even if such removal
would be generally beneficial to the Company's stockholders. The authorization
to issue the additional shares of Common Stock would provide management with a
capacity to negate the efforts of unfriendly tender offerors through the
issuance of securities to others who are friendly or desirable to management.
Moreover, the Company currently has in place certain provisions which have an
anti-takeover effect. Under the terms of the Company's Amended and Restated
Certificate of Incorporation, Directors are elected for a term of three years,
and the Board of Directors is composed of three classes of similar size, each
elected in a different year, so that only one third of the Board of Directors is
up for election in any single year. Additionally the Company's Amended and
Restated Certificate of Incorporation provides for "blank check" preferred
stock. Moreover, the provisions of the Company's Amended and Restated
Certificate of Incorporation permit the directors, in exercising their fiduciary
duties, including without limitation, evaluating a tender offer or exchange
offer for the Company's stock or any merger or consolidation of the Company or
any sale, lease, exchange or transfer of all or substantially all of the assets
of the Company, the acquisition of securities of a third party or any
reclassification, recapitalization or reorganization of the Company or any of
its securities, to consider various factors, including, among others, other
constituencies such as employees, creditors, customers
-18-
<PAGE>
and the economy. As a result of these provisions, potential purchasers of the
Company may be discouraged from attempting to effect an acquisition transaction
with the Company, thereby possibly depriving holders of the Company's securities
of certain opportunities to sell or otherwise dispose of such securities at
above market prices pursuant to such transactions. However, the Company has
elected not to be governed by the provisions of Section 203 of the General
Corporation Law of the State of Delaware, an anti-takeover section which
prohibits certain business combinations between a Delaware corporation and an
"interested stockholder," which is defined as a person who, together with any
affiliates and/or associates of such person, beneficially owns, directly or
indirectly, 15% or more of the outstanding voting shares of a Delaware
corporation.
This Proposal is primarily intended to assist the Company in attracting,
motivating and retaining qualified employees through the issuance of stock
options and allow the Company the ability to issue securities in future
financings. This Proposal would also allow the Company to pursue acquisitions
and other business combinations. This Proposal is not the result of the Board's
knowledge of any specific effort to obtain control of the Company by means of a
merger, tender offer, proxy solicitation in opposition to management or
otherwise. The Company is not submitting this proposal to enable it to frustrate
any efforts by another party to acquire a controlling interest or to seek Board
representation. The submission of this proposal is not a part of any plan by the
Company's management to adopt a series of amendments to the Amended and Restated
Certificate of Incorporation or Bylaws so as to render the takeover of the
Company more difficult.
Other than with respect to the issuance of shares in connection with
the Company's stock option plans, including if approved by the stockholders, the
Amended and Restated Non-Employee Directors Plan, the Company currently has no
specific plans or proposals for the use of the additional shares, the
authorization of which is sought hereby. However, the Company could determine
to issue additional shares at any time. The Company is at an early stage of
development and, as such, is continuously evaluating proposals for potential
financings, including private placements of debt and equity securities. In the
event this Proposal is passed, shareholder approval of the issuance of the
14,000,000 additional shares of Common Stock, the authorization of which is
sought hereby, will not be sought prior to the issuance of additional securities
unless such issuances relate to an increase in shares under certain stock option
plans as required by Section 16 of the Securities Exchange Act of 1934, mergers,
consolidations or other transactions which require shareholder approval.
The affirmative vote of the holders of record of a majority of the
outstanding shares of stock entitled to vote thereon is necessary to adopt the
proposed amendment to Article Four. If this Proposal is adopted, the amended
portion of Article Four of the Amended and Restated Certificate of Incorporation
will read as follows:
FOUR: The total number of shares of all classes of stock which the
----
corporation shall have authority to issue is Twenty-nine Million (29,000,000)
consisting of two classes of shares designated as follows:
-19-
<PAGE>
A. Twenty-eight Million (28,000,000) shares of Common Stock, $.01 par
value, (the "Common Stock"); and
B. One Million (1,000,000) shares of Preferred Stock, $.01 par value,
(the "Preferred Stock").
THE BOARD OF DIRECTORS RECOMMENDS THE APPROVAL OF PROPOSED AMENDMENT TO ARTICLE
FOUR OF THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO
INCREASE THE AUTHORIZED COMMON STOCK OF THE COMPANY FROM 14,000,000 SHARES TO
28,000,000 SHARES.
-20-
<PAGE>
PROPOSAL NUMBER 3
APPROVAL OF AMENDED AND RESTATED
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN.
General
The Company believes that stock-based awards are a key component to the
Company's ability to retain and attract high quality directors to manage the
business and affairs of the Company. As such, the 1995 Stock Option Plan for
Non-Employee Directors, as adopted on September 28, 1995 and as amended on March
25, 1996, (the "Plan") was adopted to advance the interests of Electric Fuel
Corporation (the "Company") by enhancing the ability of the Company to attract
and retain directors who are in a position to make significant contributions to
the success of the Company and to reward such directors for such contributions
through ownership of shares of the Company's common stock (the "Stock").
Pursuant to the Plan, non-employee directors will receive an initial grant of
options to purchase 15,000 shares of Stock upon the effective date of the Plan
or upon their election as a director. Thereafter, non-employee directors will
receive options to purchase 5,000 shares of Stock per year of service on the
Board.
Description of the Plan
Administration. The Plan shall be administered by a committee (the
"Committee") of the Board of Directors (the "Board") of the Company from time to
time appointed by the Board to administer the Plan in accordance with the
express provisions of the Plan, which include, adopting, amending and rescinding
rules and regulations for the administration of the Plan, interpreting the Plan
and to deciding any questions and settling all controversies and disputes that
may arise in connection with the Plan. Such determinations of the Committee
shall be conclusive and shall bind all parties. Subject to the limitations of
the Plan and Rule 16b-3 under the Securities Exchange Act of 1934, as from time
to time in effect ("Rule 16b-3"), the Committee shall also have the authority,
both generally and in particular instances, to waive compliance by a non-
employee director with any obligation to be performed by him under an option and
to waive any condition or provision of an option. Because this Plan is a
"formula" plan under the Securities and Exchange Act of 1934, non-employee
directors may be members of the Committee administering the Plan. Accordingly,
options to non-employee directors are granted solely under this Plan and not
under the Company's regular stock award plans. Each director who is not an
employee of the Company or of any subsidiary of the Company will be eligible to
receive options under the Plan (an "Eligible Director").
Effective Date and Term of Plan. This Plan was approved by the Board of
Directors on September 28, 1995 (the "Effective Date") and was later amended on
March 25, 1996. It is subject to approval by vote of a majority of the
stockholders of the Company present and eligible to vote on the question at the
Annual Meeting. Options are permitted to be granted and were granted under the
Plan
-21-
<PAGE>
prior to the date of stockholder approval, and options so granted shall be
effective on the effective date of grant subject to stockholder approval of the
Plan. No options may be awarded under this Plan after September 28, 2005, but
the Plan shall continue thereafter while previously awarded options remain
subject to the Plan.
Shares Subject to Plan. Subject to certain adjustments set forth in the
Plan, the aggregate number of shares of Stock that may be delivered upon the
exercise of options granted under the Plan shall be 500,000. If any option
granted under the Plan terminates without having been exercised in full, the
number of shares of Stock as to which such option was not exercised shall be
available for future grants within certain limits under the Plan. Shares
delivered under the Plan shall be authorized but unissued Stock or, if the board
so decides in its sole discretion, previously issued Stock acquired by the
Company and held in treasury. In the event of a stock dividend, stock split or
combination of shares, recapitalization or other change in the Company's capital
stock, the number and kind of shares of stock or securities of the Company
subject to options then outstanding or subsequently granted under the Plan, the
maximum number of shares or securities that may be delivered under the Plan, the
exercise price, and other relevant provisions shall be appropriately adjusted by
the Committee, whose determination shall be binding on all persons.
Terms and Conditions of Options. Each individual who was an Eligible
Director on the Effective Date of the Plan was granted, on that date, an option
covering 15,000 shares of Stock, subject to stockholder approval and each
individual becoming an Eligible Director after the Effective Date is entitled,
upon first qualifying as an Eligible Director, to be granted an option covering
15,000 shares of Stock. Following the initial grant of 15,000 shares, each
Eligible Director shall be awarded an additional option covering 5,000 shares of
Stock on each anniversary date of the initial grant, provided that he or she is
an Eligible Director on such anniversary.
The exercise price of each option shall be 100% of the fair market value
("the closing price of the Stock as reported on The Nasdaq National Market
System") per share of the Stock at the time the option is granted, but not less,
in the case of an original issuance of authorized stock, than par value per
share. The latest date on which an option may be exercised (the "Final Exercise
Date") is ten years from the date on which the option was granted. Each option
shall become exercisable in three equal installments on each of the first,
second and third anniversaries of the grant. The exercise price of options
granted under the Plan must be paid in cash, or by certified check, bank draft
or money order payable to the order of the Company through the delivery of
shares of Stock, or by a combination of the above.
Termination of Options. Upon the death of any Eligible Director granted
options under this Plan, all options not then exercisable shall terminate. All
options held by the director that are exercisable immediately prior to death may
be exercised by his executor or administrator, or by the person or persons to
whom the option is transferred by will or the applicable laws of descent and
distribution, at any time within the three-month period following the director's
death (but not later than the Final Exercise Date).
-22-
<PAGE>
If a director's service with the Company terminates for any reason other
than death, all options held by the director that are not then exercisable shall
terminate. Options that are exercisable on the date of termination shall
continue to be exercisable for a period of three months (or until the Final
Exercise Date, if earlier), but shall terminate immediately if the director was
removed or terminated for fraud, dishonesty or intentional misrepresentation or
embezzlement, misappropriation or conversion of assets or opportunities of the
Company or any of its subsidiaries. After completion of that three-month
period, such options shall terminate to the extent not previously exercised,
expired or terminated.
In the event of any merger or consolidation involving the Company, any
liquidation or dissolution of the Company, any sale of substantially all of the
Company's assets or any other transaction or series of related transactions as a
result of which a single person or several persons acting in concert own a
majority of the Company's then outstanding Stock (such merger, consolidation,
sale or other transaction being hereinafter referred to as a "Transaction"), all
outstanding options shall become exercisable prior to the consummation of such
Transaction, such options shall be exercisable at such time as the Committee
determines but in no event for less than a period of at least 20 days prior to
the consummation, but only to the extent the Committee determines it may so
accelerate the exercisability of such options in accordance with the applicable
requirements of Rule 16b-3. Upon consummation of the Transaction, all
outstanding options not so exercised shall terminate and cease to be
exercisable. There shall be excluded from the foregoing any Transaction as a
result of which (a) the holders of Stock prior to the Transaction retain or
acquire securities constituting a majority of the outstanding voting common
stock of the acquiring or surviving corporation or other entity and (b) no
single person owns more than half of the outstanding voting common stock of the
acquiring or surviving corporation or other entity. For purposes of this
Section, voting common stock of the acquiring or surviving corporation or other
entity that is issuable upon conversion of convertible securities or upon
exercise of warrants or options shall be considered outstanding, and all
securities that vote in the election of directors (other than solely as the
result of a default in the making of any dividend or other payment) shall be
deemed to constitute that number of shares of voting common stock which is
equivalent to the number of such votes that may be cast by the holders of such
securities.
Certain Federal Income Tax Consequences
No income is realized by the optionee solely by reason of the grant of an
option under the Plan. In general, exercise of the option will result in
ordinary income at time of exercise in an amount equal to the excess of the fair
market value of the shares on the date of exercise over the exercise price. The
Company will be entitled to a corresponding deduction if it satisfies applicable
reporting requirements. Any gain or loss recognized upon a subsequent sale or
exchange of the shares will be a capital gain or loss, long-term or short-term
depending upon the applicable holding period for the shares.
The discussion set forth in the preceding paragraph is limited to certain
federal income tax consequences and assumes optionees who are U.S. citizens or
tax residents. There may be additional
-23-
<PAGE>
or different tax consequences where the optionee is not a U.S. citizen or tax
resident or under other U.S. (including state and local) or non-U.S. tax rules.
Miscellaneous. Neither adoption of the Plan nor the grant of options to
an Eligible Director shall confer upon any person any right to continued status
as a director with the Company or any subsidiary or affect in any way the right
of the Company or subsidiary to terminate a director relationship at any time or
shall affect the Company's right to grant to such director options that are not
subject to the Plan, to issue to such directors Stock as a bonus or otherwise,
or to adopt other plans or arrangements under which Stock may be issued to
directors.
The Committee may at any time discontinue granting options under the
Plan. The Committee may at any time or times amend the Plan or any outstanding
options for the purpose of satisfying any changes in applicable laws or
regulations or for any other purpose which may at the time be permitted by law,
or may at any time terminate the Plan as to any further grants of options,
provided that no such amendment shall adversely affect the rights of any
director (without his or her consent) under any option previously granted.
Certain terms and conditions of the options of this Plan shall not be amended
any more frequently than once every six months other than to comply with changes
in the Internal Revenue Code of 1986, the Employee Retirement Income Security
Act of 1974 or the rules and regulations thereunder, all as from time to time in
effect.
Options Granted Under the Plan Subject to Stockholder Approval. The Plan
was adopted by the Board of Directors on September 28, 1995 and was amended on
March 25, 1996, subject to stockholder approval. Options have been granted
under the Plan to two non-employee Eligible Directors, effective September 28,
1995 for 15,000 shares each, at an exercise price of $7.938, the then fair
market value of the Stock. An option was also granted to another director,
elected to the Board in February 1996, who became an Eligible Director on March
25, 1996, for 15,000 shares at an exercise price of $7.50, the then fair market
value of the Stock, all subject to stockholder approval of the Plan.
-24-
<PAGE>
NEW PLAN BENEFITS
Dollar Number of
Name and Position Value ($) Units (Options)
Non-Executive Director Group 0/1/ 45,000
____________________
/1/ The exercise price of these options is currently greater than the
fair market value of the underlying Common Stock.
The affirmative vote of at least a majority of all outstanding shares of
Common Stock of the Company entitled to vote is required to authorize the
proposed amendment.
THE BOARD OF DIRECTORS
RECOMMENDS RATIFICATION OF THE
AMENDED AND RESTATED
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
-25-
<PAGE>
PROPOSAL NUMBER 4
RATIFICATION OF THE SELECTION
OF INDEPENDENT ACCOUNTANTS
The Board of Directors recommends the ratification by the stockholders
of the appointment by the Board of Directors of Kesselman & Kesselman, a member
of Coopers & Lybrand (International), as the Company's independent accountants
for the fiscal year ending December 31, 1995. Kesselman & Kesselman, a member
of Coopers & Lybrand (International), has served as the Company's independent
accountants since December 1990. Unless instructions are given to the contrary,
it is the intention of the persons named as proxies to vote the shares to which
the proxy is related FOR the ratification of the appointment of Kesselman &
Kesselman, a member of Coopers & Lybrand (International). The affirmative vote
of the holders of a majority of shares properly cast on the proposal, in person
or by proxy, will be required to ratify the selection of Kesselman & Kesselman,
a member of Coopers & Lybrand (International). In the event that the
stockholders do not ratify the selection of Kesselman & Kesselman, a member of
Coopers & Lybrand (International), as an independent accounting firm, the Board
of Directors will consider the selection of another firm of independent
accountants. Representatives of Kesselman & Kesselman, a member of Coopers &
Lybrand (International), are not expected to be present at the Annual Meeting.
The affirmative vote of at least a majority of all outstanding shares
of Common Stock of the Company entitled to vote is required to authorize the
proposed amendment.
THE BOARD OF DIRECTORS
RECOMMENDS RATIFICATION OF THE
SELECTION OF INDEPENDENT ACCOUNTANTS DESCRIBED ABOVE
-26-
<PAGE>
QUORUM REQUIREMENT AND METHOD OF TABULATION
Consistent with Delaware corporate law and under the Company's By-Laws, a
majority of the shares entitled to be cast on a particular matter, present in
person or represented by proxy, constitutes a quorum as to such matter. Votes
cast by proxy or in person at the Annual Meeting will be counted by persons
appointed by the Company to act as election inspectors for the meeting. The
election inspectors will count shares represented by proxies that withhold
authority to vote for a nominee for election as a director or that reflect
abstentions and "broker non-votes" (i.e., shares represented at the meeting held
by brokers or nominees as to which (i) instructions have not been received from
the beneficial owners or persons entitled to vote, and (ii) the broker or
nominee does not have the discretionary voting power on a particular matter)
only as shares that are present and entitled to vote on the matter for purposes
of determining the presence of a quorum, but neither abstentions nor broker non-
votes have any effect on the outcome of voting on the matter.
STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 promulgated by the SEC, stockholder proposals
intended to be included in the Company's proxy material for the Company's 1996
Annual Meeting of Stockholders must be received by the Company on or before
January 20, 1997 at its principal executive offices, 885 Third Avenue, New York,
New York 10022 Attention: Corporate Secretary.
OTHER MATTERS
The management has no knowledge of any other matter that may come
before the Annual Meeting and does not, itself, currently intend to present any
such other matter. However, if any such other matters properly come before the
meeting or any adjournment thereof, the persons named as proxies will have
discretionary authority to vote the shares represented by the accompanying proxy
in accordance with their own judgement.
PROXY SOLICITATION
The cost of soliciting proxies will be paid by the Company. Proxies
may be solicited without extra compensation by certain directors, officers and
regular employees of the Company by mail, telegram or personally.
Stockholders are encouraged to send their proxies without delay. Your
cooperation is appreciated.
-27-
<PAGE>
FINANCIAL STATEMENTS
The Company's audited financial statements for the fiscal year ended
December 31, 1995 and certain other related financial and business information
of the Company are combined in the Company's 1995 Annual Report furnished to the
stockholders along with this Proxy Statement.
-28-
<PAGE>
ELECTRIC FUEL CORPORATION
Proxy Solicited on behalf of the Board of Directors of Electric Fuel
Corporation for Annual Meeting of Stockholders to be held June 24, 1996
The undersigned, having received the Notice of the Annual Meeting of
Stockholders and the Proxy Statement of behalf of the Board of Directors of
Electric Fuel Corporation (the "Company"), hereby appoint(s) Robert S. Ehrlich
and Yehuda Harats, and each of them, proxies of the undersigned (with full power
of substitution) to attend the Annual Meeting of the Company to be held on June
24, 1996 at 9:00 a.m. at the Harvard Club, 27 West 44th Street, New York, N.Y.
10036 and all adjournments thereof (the "Meeting") and there to vote all shares
of Common Stock of the Company that the undersigned would be entitled to vote,
if personally present, in regard to all matters which may come before the
Meeting, and without limiting the general authorization hereby given, the
undersigned directs that his vote be cast as specified in this proxy.
This Proxy when properly executed will be voted in the manner specified
herein. If no specification is made, the proxies intend to vote for the nominees
and for the other proposals set forth herein and described in the Board of
Directors' Proxy Statement. If either of the nominees is not available to serve,
this Proxy may be voted for a substitute. This proxy delegates discretionary
authority with respect to matter not known or determined at the time of
solicitation of this proxy. The undersigned hereby revokes any other proxy
previously granted to vote the same shares of stock for said meeting.
SEE REVERSE SIDE. If you wish to vote in accordance with the
recommendations of the Board of Directors, just sign on the reverse side. You
need not mark any boxes.
CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A [X] Please mark your votes as in this example.
The Board of Directors recommends a vote FOR each of the following matters:
FOR WITHELD Nominee: Jack E. Rosenfield
1. The election of one Class II [_] [_]
director for a term ending in 1999 and until a
successor is elected and qualified.
INSTRUCTION: To withhold authority to vote for any
individual nominee, write that nominee's name in the
space provided below.
- -----------------------------------------------------
FOR AGAINST ABSTAIN
2. To fix the number of Class II directors at one. [_] [_] [_]
3. The approval of an amendment to the Company's [_] [_] [_]
Amended and Restated Certificate of Incorporation to
increase the authorized shares of Common Stock from
14,000,000 shares to 28,000,000 shares.
4. The approval of the Non-Employee Director Stock [_] [_] [_]
Option Plan.
5. Ratification of the appointment of Kesselman & [_] [_] [_]
Kesselman, a member of Coopers & Lybrand
(International), as independent accountants of the
Company.
PLEASE DATE AND RETURN THIS PROXY FORM PROMPTLY USING THE ENCLOSED ENVELOPE.
I do plan I do not
to attend [_] plan to [_]
the meeting. attend the
meeting.
Signature Date
-------------------------------------------------- ----------------
Date
- ----------------------------------------------------------- ----------------
Signature if Held Jointly
Note: Please sign exactly as name appears on this proxy. When share are held
by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please in partnership name by authorized person.
<PAGE>
Electric Fuel(TM)
1995
<PAGE>
May 1996
Dear fellow shareholder,
1995 was a very productive year for Electric Fuel. We made a significant
investment in our technology, and have made great progress towards our goal of
becoming the number one supplier of battery systems for zero emission electric
vehicles.
We developed three high energy battery models -- one for small pick-up trucks
and sub-compact passenger vehicles, one for pick-up trucks and passenger
vehicles, and one for full size vans, buses and trucks. All models use a new
concept of self-contained, easy to exchange, battery trays. The tray
configuration allows easy and cost effective installation of the battery on
almost every existing vehicle being produced today.
A key date in 1995 was December 14, the official kick-off of the Deutsche Post
field test of the Electric Fuel zinc-air battery system. On that day, with over
300 journalists and guests present, the Electric Fuel MB410, 4.5-ton Mercedes-
Benz van and the GM-Opel Corsa Combo light pick-up truck were unveiled to the
public. Fitted with batteries, with the largest electric capacity ever installed
in electric vehicles, these cars demonstrated excellent performance at below
freezing temperatures on the main streets of Bremen, Germany.
December 14 was also the official opening of Electric Fuel's zinc regeneration
facility in Bremen, Germany. The plant provides the refueling and zinc-
regeneration support for the Deutsche Post fleet. The plant is 10 times larger
than the regeneration plant in Bet Shemesh, Israel which was put into service in
May 1995, and offers a high degree of automation. These two regeneration plants,
together with the plant in Italy, demonstrate the Company's vision of the
future of the electric vehicle infrastructure. We believe the Electric Fuel
unique approach is the best, low cost, and most convenient method for refueling
electric vehicles, particularly for the fleet market, with great business
potential for Electric Fuel and its licensees.
The Deutsche Post program, with its magnitude and impressive array of partners,
is of great importance to our company. In 1995, we invested significant
resources in battery development, regeneration and refueling equipment, as well
as in other related activities. This investment, which is reflected in the
attached financials, was made in order to maximize our success in this program.
Recently, the Deutsche Post Field Test partners decided that the 20 Mercedes-
Benz MB410 vans that were originally designated for use almost solely by the
Deutsche Post, will be redistributed for use in service among several of the
Deutsche Post program partners, including Deutsche Telekom, the city and utility
of Bremen, the Swedish Post and Vattenfall. The roll out of the fleet will begin
in May, 1996 with four MB410s. Vehicles will gradually be added to the fleet
throughout the summer.
<PAGE>
GM-Opel, which is supplying the 44 Corsa Combo pickup trucks for the Post
program, is engaged in an extensive engineering effort which could result in
commercially viable electric vehicles using the Electric Fuel system. Because of
the magnitude of the effort involved, the Opel cars are expected to be available
to the field test only by the end of 1996.
Electric Fuel's strategic partner in Italy, Edison SpA, has significantly
increased its Electric Fuel related activities over the past few months. Edison,
Italy's largest private energy company, recently installed a small Electric Fuel
battery in a Seat Marbella subcompact car and achieved a driving range of 300
kilometers in the hilly terrain around Turin, Italy. The car exhibited excellent
performance, achieving a driving range six times better than the same vehicle
powered by a lead-acid battery--even in the sub-freezing temperatures. It
offers a payload capacity four times greater then when driven with the lead-acid
battery.
We believe there is a substantial market for small fleet vehicles similar to the
Seat Marbella, especially in the emerging markets of Asia and Latin America.
In 1995 the Swedish Post and Vattenfall, Sweden's largest utility, joined the
Deutsche Post field test as Associate Partners. Eskom, South Africa's electric
company, has also stated its intention to join the Deutsche Post field test
program as Associate Partners.
Besides the many milestones achieved in 1995 in Germany and in Italy, Electric
Fuel signed a letter of intent with General Motors and its Israeli
representative Universal Motors Israel, for a joint program in Israel. The
objective of the GM-UMI electric vehicle demonstration project is to evaluate
the Electric Fuel zinc-air battery for commercial fleet usage, particularly for
South America and Asia, which are new vast potential markets for electric
vehicles.
We enter 1996 with a great EV technology for fleet operators--one that is
capable of delivering long range, high speed travel and fast refueling at
reasonable cost. We continue to build our company one step at a time, in tune
with our vision--to provide an environment-friendly energy system that will
cause significant and positive changes in the world in which we live. We look
forward to sharing this vision with our shareholders, employees and partners
throughout the world.
Very truly yours,
Robert S. Ehrlich Yehuda Harats
Chairman of the Board President & CEO
<PAGE>
The text for this report was taken from the Company's Form 10K, as filed with
the Securities and Exchange Commission, March 1995.
Safe Harbor Statement. This report contains forward looking statements that
involve risks and uncertainties. There are certain important factors that could
cause results to differ materially from those anticipated by the statements made
herein. Among, but not limited to these, are reliance on the Deutsche Post Field
Test, the uncertainty of the electric vehicle market and significant future
capital requirements. Additional information on these and other factors which
could affect the Company's financial results are included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995, on file with
the Securities and Exchange Commission.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
Introduction
Electric Fuel Corporation ("EFC" or the "Company") is engaged in the design,
development and commercialization of an innovative, advanced zinc-air battery
system for powering zero emission electric vehicles. The Company's proprietary
system (the "Electric Fuel System") consists of a refuelable zinc-air battery
comprised of a series of cells with removable zinc anode cassettes (referred to
as "Electric Fuel"), an automated battery refueling system for mechanically
replacing, rather than electrically recharging, depleted fuel cassettes (the
"Refueling System"), and a regeneration system for recycling the depleted fuel
cassettes (the "Regeneration System"). The Company believes that the Electric
Fuel battery exhibits a combination of performance characteristics superior to
those of electric vehicle batteries that are currently commercially available
or, to the Company's knowledge, under development. To date, the Electric Fuel
battery has been successfully installed and driven in extensive laboratory tests
and in limited road tests, including in a Mercedes-Benz MB180E 3.5 ton van.
Working prototypes of the Company's Refueling System and Regeneration System
have been operated in Israel and Italy.
Business Strategy
The Company's strategy is to market the Electric Fuel System initially to large
fleet operators. The Company believes that environmental concerns, recently
enacted and proposed legislation and high gasoline prices create significant
incentives for fleet operators, particularly in Europe, to use electric
vehicles, and that the Electric Fuel system is particularly suitable for fleet
operations. While the Company's efforts are currently focused on Europe,
governmental action has been taken in the United States which the Company
believes will create incentives for fleet operators to introduce electric
vehicles into their fleets. The Company intends to strengthen existing and
develop new networks of strategic alliances with fleet operators, companies
engaged in energy production and transportation, automobile manufacturers and
others in order to establish the infrastructure necessary for further
development and commercialization of the Electric Fuel System. If the Electric
Fuel System is successfully commercialized, the Company expects to derive
revenues from the sale of components of the Electric Fuel System, including
Electric Fuel, manufactured by the Company and from licensing rights to the
Electric Fuel System to third parties. The Company is also developing other
applications for its proprietary technology.
The Company has historically derived revenues from licensing its proprietary
technology, supplying components of the Electric Fuel System and providing
technical services to its strategic partners. The Company expects that in the
future, depending on the availability of financing and other resources, it will
derive revenues principally from the manufacture and lease or sale of commercial
quantities of Electric Fuel batteries and Electric Fuel, royalty payments
related to licensing to others the right to manufacture and sell batteries and
Electric Fuel, the establishment of joint ventures for the manufacture and sale
of batteries and Electric Fuel or a combination of the above. The Company also
expects to obtain revenues from licensing to others rights relating to the
Refueling System and Regeneration System, or to enter into joint ventures for
the manufacture, operation and sale of refueling and regeneration equipment, or
a combination of the above. There can be no assurance, however, that the Company
will ever derive such revenues. During the next two years, in a field test
managed by the German postal service, the Electric Fuel System will be tested by
Deutsche Post in vehicles powered by the Electric Fuel battery in regular mail
delivery operations in Bremen, Germany, and by certain other fleet operators
(including Deutsche Telekom, the German telecommunications company) in
representative operations of their fleets in Germany and Sweden.
The following are the key elements of the Company's strategy:
Fleet Operators. The Company intends, particularly in its initial marketing
efforts, to focus on fleet operators, such as mail, delivery and courier
services, utility companies, government agencies and
5
<PAGE>
food and goods distributors. The Company believes that such fleet operators will
be responsive to environmental concerns and will be targeted by legislative and
other mandates limiting access to cities and requiring the use of electric
vehicles. In addition, these potential customers have centralized technical
support facilities which can act as hubs for their vehicles, and are therefore
well positioned to install refueling systems and adapt to new technologies. The
Company believes that, as large fleet operators adopt electric vehicles, an
expanded infrastructure will become available to small fleet and individual
drivers, allowing the market for the Electric Fuel System to expand.
Geographic Focus. To date, the Company has entered into cooperative strategic
agreements in Italy, Germany and Sweden. The Company believes that its existing
relationships in these countries will enable it to expand into other countries
in Europe. While the Company's main focus is currently in Europe, it is
exploring the possibility of entering into similar arrangements in the United
States, where legislation has been enacted to promote the use of zero emission
vehicles.
Strategic Alliances. The Company has sought and intends to continue to seek to
exploit its zinc-air battery technology through strategic alliances with fleet
operators, companies engaged in energy production and transportation, automobile
manufacturers and others, in order to provide the additional investment and
other resources required to further develop and commercialize the Electric Fuel
System. To that end, the Company has formed alliances with Deutsche Post AG
("Deutsche Post"), Deutsche Telekom AG ("Deutsche Telekom"), Edison
Termoelettica ("Edison"), Vattenfall AB, Stadtwerke Bremen AG and Uhde GmbH
("Uhde").
Further Technological Development. In conjunction with its strategic partners,
the Company's continued development and engineering activities will be directed
toward scaling up the production of batteries, Refueling Systems and
Regeneration Systems. In addition, the Company intends to continue to design and
engineer the Electric Fuel System, including scrubbing, air and water
circulation, control systems and other peripheral systems incorporated in the
Electric Fuel battery, to develop and further automate the mechanical refueling
and regeneration process, and to continue to increase battery lifetime and
decrease battery cost.
New Applications. The Company is continually researching and developing other
applications for its proprietary technology related to the Electric Fuel System
and other advanced battery technologies. The Company is currently developing a
battery for torpedoes and has developed a signal light powered by water
activated batteries for use in life jackets and other rescue apparatus.
The Deutsche Post Field Test
During the next two years, in a field test managed by the German postal service,
the Electric Fuel System will be tested by Deutsche Post in vehicles powered by
the Electric Fuel battery in regular mail delivery operations in Bremen,
Germany, and by certain other fleet operators (including Deutsche Telekom, the
German telecommunications company) in representative operations of their fleets
in Germany and Sweden. In December 1995, the construction of the refueling and
regeneration plant in Bremen, Germany was completed and the plant is expected to
be operational in the spring of 1996. Based on the anticipated delivery schedule
of vehicles, the Field Test is scheduled to expand during 1996 to a total of 64
Mercedes-Benz 4.6 ton vans and GM-Opel light pick-up trucks. The Field Test will
test only vehicles powered by the Electric Fuel System and is expected to end in
December 1997. Deutsche Post will decide, on the basis of its own requirements
and at its discretion, whether it deems the Field Test successful. If Deutsche
Post deems the Field Test successful, Deutsche Post has informed the Company
that it intends to begin replacing, over several years, up to 25,000 vehicles in
its fleet with electric vehicles powered by the Electric Fuel System. The
Company believes that acceptance of the Electric Fuel System by Deutsche Post
for its fleet is crucial to the Company's efforts to commercialize the Electric
Fuel System. There can be no assurance, however, that Deutsche Post will deem
the Field Test to have been successful and accept the Electric Fuel System as a
powering system for a
6
<PAGE>
substantial portion of its fleet. In addition to Deutsche Post and Deutsche
Telekom, participants in the Field Test currently include other fleet operators
such as the German state of Bremen, the German municipality of Hamm, Stadtwerke
Mainz AG (the municipal utility of Mainz, Germany), the Swedish postal service,
Vattenfall AB, the largest utility in Sweden, as well as German industrial
suppliers such as Mercedes-Benz AG, GM-Opel, Webasto AG Fahrzeugtechnik, an
automotive parts manufacturer ("Webasto"), and Stadtwerke Bremen AG (the
municipal utility of Bremen). Eskom, a South African utility company, has also
expressed interest in joining the Field Test as an Associated Partner and in
initiating a similar demonstration project in South Africa. Other major fleet
operators have expressed interest in participating in the Field Test.
The Field Test is a cooperative and strategic partnership managed by Deutsche
Post to conduct a representative operating test of the Electric Fuel System. The
Company views the Field Test as consisting of three phases. The first phase of
the Field Test began in May 1995, when the Company delivered the first Mercedes-
Benz MB 410 van converted to the Electric Fuel System to be used in the Field
Test, and the Company's 10 kg/hour regeneration plant located in Beit Shemesh,
near Jerusalem, Israel, was completed. The second phase of the Field Test began
upon the opening of the 100 kg/hour regeneration plant in Bremen and the third
phase of the Field Test will begin when the entire 64 vehicle fleet is in
operation. Deutsche Post has indicated that access by its fleet to all urban
areas to which it provides service is of primary importance, and that there is a
possibility that this competitive requirement may only be satisfied by using
zero emission vehicles which will not be denied access under governmental
initiatives. Further, Deutsche Post has stated that, for competitive reasons, it
will be willing to accept a cost for electric vehicles greater than that for
conventionally-powered vehicles in order to preserve complete access to urban
areas.
The Field Test will also permit an analysis of the economic feasibility and
infrastructure of the Electric Fuel System. Deutsche Post has budgeted
approximately DM 25.7 million (approximately $17.3 million) for the Field Test,
which will be funded by Deutsche Post and its partners, including the Company.
The Company expects that expenses incurred in connection with the Field Test
will exceed revenues related thereto.
In the Field Test, "Industrial Partners," in addition to the Company, will
supply products and services to the Field Test, "Users" will operate vehicles in
the Field Test, and "Associated Partners" will receive information and limited
services in exchange for their financial contributions.
With respect to the Industrial Partners in the Field Test, Mercedes-Benz AG has
agreed to supply 20 MB 410 vans and GM-Opel has agreed to supply 44 Corsa Combo
light pick-up trucks, each converted for use in the Field Test. Webasto has
provided battery exchange equipment for the Refueling System, and Stadtwerke
Bremen AG has agreed to operate the regeneration plant in Bremen. During the
course of the Field Test, Deutsche Post plans to operate 15 MB 410 vans and 28
Opel Corsa Combo light pick-up trucks, and Deutsche Telekom plans to operate 10
Opel Corsa Combos. The other Users are expected to operate the remaining
vehicles as follows: State of Bremen (4 MB 410 vans and 1 Opel Corsa Combo);
Stadtwerke Bremen AG (1 Opel Corsa Combo); Stadtwerke Mainz AG (1 MB 410 van and
1 Opel Corsa Combo); and City of Hamm (1 Opel Corsa Combo). Vattenfall AB and
the Swedish postal service plan to operate one MB 410 van and two Opel Corsa
Combos in Sweden using the refueling and regeneration services provided by the
100 kg/hour regeneration plant in Bremen. All of the Field Test vehicles are
expected to replace, for purposes of the Field Test, vehicles used in regular
operation by the users of the vehicles.
Pursuant to the agreement among the partners in the Field Test (the "Partners
Agreement"), the Company is obligated to deliver a total of thirty batteries
(each containing 528 cassettes) for the Mercedes-Benz 4.6 ton vans and sixty-six
batteries (each containing 264 cassettes) for the Opel Corsa Combo light pick-up
trucks. Furthermore, the Company is required to design, construct, install and
operate a 100 kg/hour regeneration plant in Bremen, as well as providing, for
evaluation purposes, its existing 10 kg/hour regeneration plant in Beit
7
<PAGE>
Shemesh, Israel. The 10 kg/hour regeneration plant was constructed to both
produce and fuel the initial batteries to be used for the Field Test and other
customers, such as Edison, and to provide the conceptual design and evaluation
required for the 100 kg/hour regeneration plant in Bremen. The 100 kg/hour
plant, which will provide regeneration services necessary for the Field Test,
has been constructed in a facility the Company is leasing from Stadtwerke
Bremen. The Company, Uhde and Bateman Engineering Limited designed the plant.
The Company contracted with several subcontractors, including Siemens Aktien-
gesellschaft, Haushahn Automtionssysteme, Mannesman Anlagenbau AG and Richter
Chemie Technick GmbH in connection with the construction and equipping of the
Bremen plant. The regeneration plant is scheduled to become operational during
the first half of 1996, although it is not expected to initially operate at full
capacity.
Edison
In May 1993, the Company entered into an exclusive license agreement (pursuant
to the exercise of an option granted in 1991) with Edison, Italy's leading
private operator in the field of electric energy production. Pursuant to this
license, which terminates in 2008, Edison is authorized to manufacture, use and
sell Electric Fuel batteries, Refueling Systems, Regeneration Systems and
related services based on the Company's technology in Italy, France, Spain and
Portugal. The license also grants Edison non-exclusive license rights for the
sale of Electric Fuel battery systems and related services to Deutsche Post and
Deutsche Telekom, if the Company has first sold in excess of an aggregate of 250
batteries to those customers.
In November 1993, Edison and Ente Nazionale per L'Energia Elettrica, Italy's
government-owned national electric company ("ENEL"), announced a new energy
program, a significant portion of which is dedicated to the Electric Fuel
System. In connection with this announcement, Edison performed demonstration
drives of two electric vehicles powered by the Electric Fuel System, one of
which was a 2.1 ton van that had previously been test-driven at Centro
Electrotechnico Sperimentale Italiano ("CESI"), an independent research and
testing institute affiliated with ENEL, for a distance of more than 190 miles
(306 kilometers) at a constant speed of 44 miles per hour (71 kilometers per
hour). At the end of the demonstration drive, 25% of the battery's capacity was
still available.
As part of the license agreement, Edison agreed to cooperate in a development
program which will cover a maximum of four years commencing upon the
satisfactory completion of the in-vehicle battery performance tests. During this
four-year period, Edison will purchase from the Company batteries and related
components and services in an amount up to $4.0 million, but not less than 600
million Italian lira (approximately $375,000) per year. After the above four-
year period or, alternatively, as soon as Edison has succeeded in selling at
least 150 battery systems in any consecutive four-month period, the cooperation
described above will terminate and Edison will be obligated to purchase from the
Company no less than 35% of all battery cells required by it for manufacturing
battery systems and no less than 20% of the refueling systems it requires so
long as the Company is able to provide these products at prices competitive with
Edison's internal costs of producing these products itself. There can, however,
be no assurance that the Company will be able to produce such components in a
manner that will make such sales profitable to the Company. The license expires
in the year 2008, and Edison is under no obligation to exploit the Company's
technology.
In November 1995, the Company supplied Edison with a zinc-air battery for an
Italian Seat Marbella, a small passenger car. The battery was used in an initial
test drive and it is expected that additional tests are being performed during
the first quarter of 1996.
Other Strategic Alliances
The Company has and will continue to seek to exploit its zinc-air battery
technology through strategic alliances with fleet operators, companies engaged
in energy production and transportation, automobile manufacturers and others, in
order to provide the other resources required to further develop and
commercialize the Electric Fuel System.
8
<PAGE>
To that end, the Company has formed or engaged in preliminary discussions for
other alliances in Europe.
Deutsche Telekom
Deutsche Telekom has informed the Company that if the Field Test is successful
it intends to convert between 12,000 and 15,000 vehicles of its fleet to
vehicles powered by the Electric Fuel System, although there can be no assurance
that it will do so. After the completion of the Field Test, in exchange for
Deutsche Telekom's DM 3.0 million (approximately $2.0 million) investment in the
Field Test, the Company has agreed to reimburse Deutsche Telekom 10% of Deutsche
Telekom's investment for each 1,250 vehicles Deutsche Telekom converts to the
Electric Fuel System. The Company expects to enter into additional agreements
similar to its agreement with Deutsche Telekom with other Users in the Field
Test.
Uhde
The Company has entered into a three year agreement with Uhde under which both
companies will cooperate in the joint development and marketing of Electric Fuel
regeneration plants during the term of the Field Test. Additionally, the Company
and Uhde have entered into an agreement which provides for a cooperative
marketing arrangement for commercial Electric Fuel regeneration plants in
Germany, Austria, Switzerland, Belgium, Luxembourg and The Netherlands. This
cooperation agreement is for an exclusive basis until five years after the
completion of the Field Test and will terminate in the year 2011. Pursuant to
this agreement, the Company is entitled to receive fees on a per transaction
basis based on Uhde's revenues related to the sale of regeneration plants as
well as recurring fees from the purchasers of these plants.
Stadtwerke Bremen
The Company has agreed that it will grant to Stadtwerke Bremen AG, the municipal
utility of Bremen, Germany, the option of, after the completion of the Field
Test, becoming the Company's partner in Germany either by granting a right of
first refusal for contracts to own and operate regeneration plants in Bremen and
Niedersachsen and to sell certain components of the Electric Fuel System, or
participating in a regeneration joint venture in Germany with the Company.
Sweden/Vattenfall
Contemporaneously with the Field Test in Bremen, Vattenfall AB and the Swedish
postal service, Posten Distribution AB, plan to operate three of the Field Test
vehicles in Sweden, one Mercedes-Benz MB 410 van and two Opel Corsa Combos. For
this purpose, Vattenfall has contracted with the Company to purchase up to eight
Electric Fuel batteries, identical to those being used in the Field Test. The
Company has agreed to provide refueling and regeneration services to Vattenfall
from the 100 kg/hour regeneration plant in Bremen. In connection with this
strategic agreement, Vattenfall has agreed to make payments to the Company over
time upon the achievement of certain milestones, including delivery of batteries
to Vattenfall and the completion and commencement of operations of the Company's
regeneration facilities. Vattenfall has also agreed to use its best efforts to
promote the use of the Electric Fuel System. In addition, until the completion
of the Field Test, Vattenfall may exercise a right of first refusal for a
license, on terms to be negotiated, to own and operate regeneration facilities
and sell Electric Fuel in Sweden, Denmark, Norway and Finland.
Israel
In December 1995, the Company entered into a non-binding letter of intent with
General Motors Corporation and, its Israeli representative, Universal Motors
Israel Ltd. (together, "GM-UMI"). In the letter, GM-UMI and the Company have
stated their intent to cooperate in implementing a demonstration fleet of GM
vans, to be used in GM-UMI's day-to-day operations, powered by Electric Fuel
batteries and using the Company's refueling and regeneration facilities in Beit
Shemesh. The parties intend to coordinate the details of the project during
1996. The Company and GM-UMI are in the preliminary stages of negotiations,
however, and there can be no assurance that this project will be initiated.
Marketing
To date, the Company has focused its marketing efforts and resources in Europe
due to greater demand for zero and reduced emission vehicles in Europe than
<PAGE>
in the United States. Beginning in 1996, the Company intends to use a portion of
the net proceeds to the Company of the Offering to continue these efforts in
Europe and to commence its marketing efforts and establish marketing facilities
in the United States and the Far East. In the future, the Company expects to
focus its marketing efforts in geographic areas worldwide that have adopted
legislation and other initiatives supporting the use of electric vehicles.
Working with fleet operators, the Company plans to develop demonstration and
evaluation programs that will illustrate how the Electric Fuel System will be
able to meet the needs of fleet operators. The Company plans to concurrently
seek to expand its existing strategic alliances in Europe, benefiting from
experience gained in connection with the Field Test and its alliances with
Edison and Vattenfall. If successful, these alliances will then be used by the
Company to generate interest in similar alliances in the United States and other
countries. The Company also intends to seek the support of government agencies,
electric utilities and zinc manufacturers.
Manufacturing
The Company is currently producing prototype batteries at its facilities in
Israel, based upon standard industrial techniques. In addition, the Company has
constructed a production facility in leased premises in Beit Shemesh, Israel for
manufacturing and assembling the Electric Fuel batteries and related components
of the Electric Fuel System. This facility was completed during the second
quarter of 1995 at an aggregate cost of approximately $1.7 million, including
the regeneration equipment, and will initially be utilized to manufacture and
assemble Electric Fuel batteries for the Field Test, producing both 80 kWh and
160 kWh battery systems for use in the participating GM-Opel and Mercedes-Benz
vehicles. The Company plans to expand this facility to enable more efficient
assembly of batteries in greater quantities. The Company believes that the
manufacturing process required to produce its batteries incorporates relatively
standard and inexpensive procedures and, therefore, the establishment of a full-
scale production facility will be commercially feasible.
It is the Company's plan that zinc anodes for its battery will be manufactured
by parties licensed by the Company to operate regeneration facilities.
Regeneration and refueling equipment will be manufactured by the Company and by
third parties licensed by the Company to do so, although proprietary components
of the equipment may be manufactured and supplied by the Company. Prototype
regeneration and refueling systems have been constructed by the Company and are
in operation at its facilities in Israel and a prototype regeneration facility
is in operation in Italy. The Company has also constructed a 100 kg/hr
regeneration facility in Bremen, Germany and designs for larger scale versions
of these systems are currently under development.
New Applications
The Company is continually researching and developing other applications for its
proprietary technology related to the Electric Fuel System and other advanced
battery technologies. The Company is currently developing, in cooperation with
STN Atlas Elektronik GmbH ("STN Atlas"), a German defense and marine industry
contractor, a high power zinc-oxygen battery for torpedoes. STN Atlas has
exclusive rights to sell torpedoes with the Company's zinc-oxygen batteries
until 2001, subject to automatic extension if full-scale production commences,
as well as certain rights with respect to the application of the Company's
proprietary technology for batteries.
The Company has also developed Survivor Locator Light ("SLL"), a signal light
powered by a water activated magnesium-cuprous chloride battery, used to locate
survivors of airplane or boat accidents in the water. The Company has received
certification of the SLL by both the United States Federal Aviation
Administration and the Civil Aviation Authority of Israel for use of the SLL in
aircraft. The Company has received an initial order to produce 60,000 SLLs over
the next two years.
================================================================================
<PAGE>
Five Year Summary of Selected Financial Data
The selected financial information set forth below with respect to the
statements of income (loss) for each of the five fiscal years in the period
ended December 31, 1995, and with respect to the balance sheets at the end of
each such fiscal year has been derived from the financial statements of the
Company, which have been audited by Kesselman & Kesselman, independent certified
public accountants in Israel. The financial information set forth below is
qualified by and should be read in conjunction with the Financial Statements and
the notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Year Ended December 31
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1991 1992 1993 1994 1995
- --------------------------------------------------------------------------------
(dollars in thousands, except per share data)
Statement of Operations
Data:
Revenues $ 170 $1,519 $3,694 $ 4,873 $ 4,372
Research and development 1,139 1,426 1,830 4,770 14,379
expenses and costs of
revenues
Less: royalty-bearing
grants (553) (594) (578) (699) (1,561)
-------------------------------------------------
586 832 1,252 4,071 12,818
Provision for anticipated 1,500 2,600
program losses
Selling, general and
administrative expenses
379 623 1,694 336 2,752
-------------------------------------------------
Operating income (loss) $ (795) $ 64 $ 748 (4,063) (13,798)
Financial income (expenses) 15 (19) 50 583 664
-------------------------------------------------
Income (loss) before taxes
on income (780) $ 45 $ 798 (3,480) (13,134)
Taxes on income 8 147 20 35
-------------------------------------------------
</TABLE>
<PAGE>
Income (loss) from the
operations of the Company
and its subsidiaries $ (780) $ 37 $ 651 $(3,500) $(13,169)
--------------------------------------------------
Share in loss of investee
Company $61 $52
--------------------------------------------------
Net Income (loss) (780) 37 651 (3,561) (13,221)
-------------------------------------------------
Earnings (loss) per share $(0.21) $* $0.08 $(0.43) $(1.55)
-------------------------------------------------
Weighted average number of
common shares outstanding
(in thousands) 3,659 7,760 7,926 8,319 8,530
__________
*less than $0.01
- ------------------------------------------------------------------------------
December 31
- ------------------------------------------------------------------------------
Balance Sheet Data: 1991 1992 1993 1994 1995
- ------------------------------------------------------------------------------
Cash, cash equivalents and
investments in marketable
debt securities $ 832 $1,444 $2,514 $18,222 $ 9,580
Receivables and other
assets 163 209 958 2,528 4,135
Fixed assets, net of
depreciation 79 105 398 1,989 5,986
-------------------------------------------------
Total Assets $1,074 $1,758 $3,870 $22,739 $ 19,701
=================================================
Liabilities $ 731 $1,285 $2,783 $ 3,736 $ 13,880
- ------------------------------------------------------------------------------
Long term debt 0 0 0 0 0
- ------------------------------------------------------------------------------
Stockholders' equity 343 473 1,087 19,003 5,821
- ------------------------------------------------------------------------------
Total liabilities and
stockholders equity $1,074 $1,758 $3,870 $22,739 $ 19,701
-------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------
Price Range of Common Stock
Since February, 1994, the Company's Common Stock has been traded under the
symbol EFCX in the NASDAQ National Market System. The following table sets
forth, for the periods indicated, the range of high and low closing prices of
the Company's Common Stock in the NASDAQ National Market System.
- ---------------------------------
1994 High Low
- ---------------------------------
First Quarter $ 14.25 $ 8.00
Second Quarter 12.50 6.50
Third Quarter 8.50 5.50
Fourth Quarter 8.50 5.75
- ---------------------------------
1995 High Low
- ---------------------------------
First Quarter 6.25 $ 4.25
Second Quarter 13.875 4.625
Third Quarter 11.375 7.875
Fourth Quarter 10.00 7.875
As of March 19, 1996, the Company had approximately 204 holders of record of its
Common Stock.
The Company has never paid any cash dividends on its Common Stock. The Board of
Directors presently intends to retain all earnings for use in the Company's
business. Any future determination as to payment of dividends will depend upon
the financial condition and results of operations of the Company and such other
factors as are deemed relevant by the Board of Directors.
<PAGE>
ELECTRIC FUEL
CORPORATION
1995
Financial
Report
<PAGE>
HIGHLIGHTS OF MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULT OF OPERATIONS
================================================================================
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this Report.
Amounts reported here have been rounded to the nearest thousand, unless such
amounts are more than $1.0 million in which event such amounts have been rounded
to the nearest hundred thousand.
General
From its inception, the Company has been engaged principally in the research,
design, development and commercialization of an advanced zinc-air battery
system for powering zero emission electric vehicles. The Electric Fuel System
consists of a refuelable zinc-air battery comprised of a series of cells with
removable zinc-anode cassettes, a battery refueling system for refueling the
depleted fuel cassettes and a regeneration system for recycling the depleted
cassettes. The Company continues to develop and engineer all components of the
Electric Fuel System, currently primarily for use in the Field Test, as well as
in connection with its other strategic alliances.
The Company has experienced significant fluctuations in the sources and amounts
of its revenues and expenses, and the Company believes that the following
comparisons of results of operations for the periods presented do not provide a
meaningful indication of the development of the Company. During these periods,
the Company has received periodic lump-sum payments relating to licensing and
other revenues from Deutsche Post in connection with the Field Test, and from
Edison, which have been based on the achievement of certain milestones, rather
than ratably over time. The Company's expenses have been based upon meeting the
contractual requirements under its agreements with various strategic partners
and, therefore, have varied according to the timing of activities, such as the
need to provide prototype products and to establish and engineer refueling and
regeneration facilities. The Company's research and development expenses have
been offset, to some extent, by the periodic receipt of research grants from the
Chief Scientist. The Company expects that, because of these and other factors,
including general economic conditions and delays due to legislation and
regulatory and other processes and the development of competing battery
technologies, future results of operations may not be meaningfully compared with
those of other periods. Thus, the Company believes that period-to-period
comparisons of its past results of operations should not be relied upon as
indications of future performance.
The Company incurred significant operating losses for the years ended December
31, 1995 and 1994, and expects to continue to incur significant operating losses
over the next several years. These losses may increase and be incurred over a
longer period of time as the Company expands its research and development
activities and establishes production and regeneration facilities, and such
losses may fluctuate from quarter to quarter. However, if the Electric Fuel
System is successfully commercialized, the Company expects to derive revenues
from the sale of components of the Electric Fuel System manufactured by the
Company, including Electric Fuel, and from licensing rights to the Electric Fuel
System to third parties. There can be no assurance that the Company will ever
derive such revenues or achieve profitability.
Forward Looking Statements
When used in this discussion, the words "believes", "anticipated" 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. 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 publicly release
the result of any revisions to these forward-looking statements which may be
made to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
<PAGE>
Results of Operations
Years Ended December 31, 1995 and 1994
Revenues for the year ended December 31, 1995, totaled $4.4 million compared
with $4.9 million in the comparable period in 1995, a decrease of $500,000. In
1994, the Company recognized revenues from Deutsche Post in connection with the
granting of a use license, as well as from Edison for the construction and
delivery of equipment related to the Electric Fuel System. Revenues for the year
ended December 31, 1995, were principally derived from activities relating to
the Field Test, including the construction of the 100 kg/hr regeneration
facility in Bremen and the initial production of battery components and related
equipment; and a grant of marketing rights and the sale of equipment to
Vattenfall AB when it and the Swedish Post joined the Field Test as associate
partners. In addition, revenues related to the Company's agreement with STN
Atlas Elektronik GmbH to develop a high power zinc oxygen battery for torpedoes
and the completion and delivery of all of the Company's outstanding orders from
Edison were recognized in 1995. The Company anticipates a significant portion of
the remaining expected revenues related to the Field Test to be recognized in
1996.
Research and development expenses and cost of revenues were $14.4 million during
1995 compared with $4.8 million during 1994. The Company believes that, given
the Company's stage of development, it is not, at this time, meaningful to
distinguish between research and development expenses and cost of revenues. The
increase in expenses of $9.6 million compared to 1994 is principally
attributable to: expenses in connection with the Field Test, including costs
related to construction of the Bremen regeneration facility and initial battery
production costs; costs associated with the operation of the Company's
production facilities in Israel (which were expanded in 1995 to include a new
facility in Beit Shemesh); increased personnel and consulting costs relating to
the foregoing; and further engineering costs related to the integration of the
Electric Fuel battery into vehicles being used in the Field Test. In the year
ended December 31, 1995, the Company accrued $1.6 million of royalty-bearing
grants representing substantially all of the expected grants from the Chief
Scientist in connection with the Company's 1995 research and development
program, including an increase of $185,000 in Chief Scientist grants in
connection with the Company's 1994 research and development program. For the
year ended December 31, 1994 the Company accrued $699,000 of Chief Scientist
grants. The majority of expenses related to the Field Test are expected to
continue to be incurred through 1996, when the initial phase of the Field Test
is expected to be concluded.
Selling, general and administrative expenses for the year ended December 31,
1995 decreased to $2.8 million compared with $3.4 million in 1994. Selling,
general and administrative expenses for 1994 included a royalty accrual to the
Chief Scientist of $1.1 million, resulting, without reflecting the royalty
accrual, in a net increase in selling, general and administrative expenses of
$500,000 in 1995. This increase was attributable to increased costs as the
Company intensified its marketing efforts in to new geographic areas, provided
administrative support for the Company's expanded activities, and continued to
develop its managerial infrastructure to meet its growth requirements. As the
Company expands its activities it expects further increases in selling, general
and administrative expenses.
Management currently estimates the total program losses related to the Field
Test to approximate $5.7 million and, at December 31, 1995, the provision for
anticipated program losses on the uncompleted portions of the program to
approximate $4.1 million. Accordingly, the 1995 financial statements reflect a
$2.6 million net increase in the provision for anticipated program losses from
$1.5 million recorded in 1994.
This provision, in addition to the provision recorded in 1994, reflects
anticipated losses from the Field Test based on the most recent estimates of
costs related to the Field Test, and may be offset by future revenues or
increased to reflect any future revised estimates of project costs. The overall
increase to the provision includes revised cost estimates based on the Company's
production experience to date
<PAGE>
for the supply of the battery-vehicle interface equipment, batteries, the
estimated service expenses for the Field Test fleet and the 100 kg/hour
regeneration plant being built in Bremen, Germany. Since the plant is currently
dedicated to the Field Test, the cost of the plant (net of anticipated residual
value) is reflected as a current expense.
Financial income, net of interest expense, bank charges, and other fees, totaled
approximately $665,000 in 1995 compared to $584,000 in 1994. Financial income
reflects primarily interest earned on United States tax-exempt securities, which
increased to $781,000 in 1995 from $689,000 in 1994.
The Company has incurred net operating losses or had earnings arising from tax-
exempt income during the years ended December 31, 1995 and 1994 and,
accordingly, no provision for income taxes was required. Taxes payable in 1995
and 1994 are primarily composed of United States federal alternative minimum
taxes. The difference between the tax expense and the tax benefit arising on
pre-tax losses is the valuation allowance which was established to eliminate the
deferred tax assets.
The Company reported a net loss of $13.2 million in 1995 compared with a net
loss of $3.6 million in 1994 due to the factors cited above.
Liquidity and Capital Resources
Battery and vehicle deliveries for the Field Test commenced in December 1995 and
are expected to continue through 1996. Accordingly, most of the Company's
revenues and expenses related to the Field Test are expected to be recognized in
these periods. Total consideration to the Company for the batteries, equipment
and services to be supplied in connection with the Field Test (including DM 1.0
million from Vattenfall AB) is expected to be DM 22.0 million (approximately
$15.4 million), less a contribution to the costs of the Field Test by the
Company of DM 7.0 million (approximately $4.9 million), leaving a net balance of
DM 15.0 million (approximately $10.5 million), which the Company does not
believe will be sufficient to offset its related expenses.
The Company expects that, in connection with the expansion of its activities and
the engineering and establishment of the Electric Fuel System, the Company's
research and development, operational and selling, general and administrative
expenses will continue to increase.
As of December 31, 1995, the Company had cash, cash equivalents and investments
of $9.6 million compared with $18.2 million as of December 31, 1994.
The Company used available funds during 1995 primarily for the advancement of
its commitments with regard to the Field Test, continued research and
development expenditures and other working capital needs. The Company invested
in fixed assets $5.3 million (and anticipates receiving investment grants of
$835,000 thereon). Fixed assets include $2.0 million related to the value of the
Bremen facility after its use in the Field Test, based on construction costs to
date. The Company currently anticipates that the total residual value of the
Bremen facility will be approximately $3.6 million.
Subsequent Events
In the first quarter of 1996, the Company completed a public offering of
3,750,000 shares of its Common Stock at an offering price of $6.50 per share.
The offering resulted in net proceeds to the Company of approximately $21.6
million. The Company currently has cash, cash equivalents and investments of
approximately $26.2 million.
Also in 1996, EFL has established a line of credit with the First International
Bank of Israel Ltd. ("FIBI") (the "Credit Facility"). Borrowings under the
Credit Facility will bear interest at FIBI's prime rate + 2% per annum, be
unconditionally guaranteed by EFC and be secured by a pledge of foreign currency
deposits in the amount of NIS 750,000. Additionally, the Credit Facility imposes
financial and other covenants on EFC and EFL and will expire on May 31, 1996, at
which time the Credit Facility will be reviewed for renewal by FIBI. The Credit
Facility provides EFL with a line of credit in the maximum principal amount of
NIS 3.8 million (approximately $1.2 million), which is expected to be used as
credit support for various obligations of the Company, and will enable EFL to
enter into up to U.S. $4.0 million in currency hedging forward contracts with a
5% collateral requirement.
<PAGE>
The Company currently has no long-term debt outstanding and expects that its
cash flow from operations, cash reserves (including proceeds of the Company's
1996 stock offering) and amounts available under the Credit Facility, will be
sufficient to fund the Company's activities through 1997. However, costs related
to the Field Test have exceeded, and may continue to exceed, budgeted amounts
and while the Company, in accordance with the terms of the Partners Agreement,
intends to request additional funding from the Deutsche Post, there can be no
assurance that it will obtain any such additional funding. As a result, the
Company might have to reduce, or defer, its anticipated future commitments.
Furthermore, if the Field Test is successful and Deutsche Post, or any other
participant in the Field Test, begins to convert all or a portion of their
fleets to the Electric Fuel System, the Company could be required to produce
batteries in increased quantities as well as to construct new regeneration and
refueling facilities or expand its existing facilities to commercial capacity.
Moreover, additional strategic alliances may also require the establishment or
expansion of facilities in Israel or elsewhere. In addition, the Company may
determine that it should invest in certain programs, such as additional electric
vehicle demonstration programs, which it believes will advance the development
and commercialization of the Electric Fuel System. Accordingly, the Company may
be required to seek additional financing during this period.
Actual cash requirements will depend in part upon actual and anticipated sales
and licenses. The Company may also be able to finance some portion of its fixed
asset and equipment needs through Approved Enterprise grants from the Government
of Israel.
- --------------------------------------------------------------------------------
Report of Independent Auditors
To the Stockholders of Electric Fuel Corporation:
We have audited the consolidated balance sheets of Electric Fuel Corporation
(hereafter--the "Company") at December 31, 1995 and 1994 and the consolidated
statements of income (loss), changes in stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's board of directors and
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
Our audit was performed in accordance with auditing standards generally accepted
in Israel and in the United States, including those prescribed by the Israeli
Auditors (Mode of Performance) Regulations, 1973. Those standards require that
we plan and perform the audit to obtain reasonable assurance that the financial
statements are free of material misstatement, whether caused by an error in the
financial statements or by misleading information included therein. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the Company's board
of directors and management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a fair basis of our
opinion.
In our opinion, the aforementioned financial statements present fairly, in all
material respects, in conformity with accounting principles generally accepted
in Israel and in the United States (as applicable to these financial statements,
such accounting principles are practically identical), the consolidated
financial position of the Company at December 31, 1995 and 1994, and the
consolidated results of operation, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995.
KESSELMAN AND KESSELMAN
Jerusalem, Israel Certified Public Accountants (Israel)
March 21, 1996
<PAGE>
<TABLE>
<CAPTION>
ELECTRIC FUEL CORPORATION
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
ASSETS December 31
CURRENT ASSETS (note 7): -------------------------
1995 1994
<S> <C> <C>
Cash and cash equivalents (note 1L) $5,364,867 $1,307,855
Marketable debt 4,215,518 9,459,667
securities--current portion
(notes 1e and 8a)
Accounts receivable:
Trade 398,535 1,632,323
Related parties (note 10) 10,141
Other (note 8b) 2,421,804 622,143
Inventories (note 1f) 535,208 131,750
- --------------------------------------------------------------------------------
Total current assets $12,935,932 $13,163,879
- --------------------------------------------------------------------------------
INVESTMENTS:
Marketable debt securities (notes 1e and 8a) $7,454,509
Investee company (note 1d) $35,849 87,983
-------------------------
35,849 7,542,492
FIXED ASSETS (notes 1g and 2):
Cost 6,639,926 2,155,533
Less--accumulated depreciation and amortization 654,391 166,620
-------------------------
$5,985,535 $1,988,913
OTHER ASSETS AND DEFERRED CHARGES
net of accumulated amortization (notes 1h and 8c) 743,885 43,333
- --------------------------------------------------------------------------------
$19,701,201 $22,738,617
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES (note 7):
Accounts payable and accruals
Trade $2,743,539 $533,035
Other (note 8d) 6,357,706 2,849,654
Advances from Customers 4,223,066 58,121
- --------------------------------------------------------------------------------
Total current liabilities $13,324,311 $3,440,810
- --------------------------------------------------------------------------------
LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT,
Net of amount funded (note 3) 555,908 295,133
COMMITMENTS (note 4)
- --------------------------------------------------------------------------------
Total Liabilities $13,880,219 $3,735,943
================================================================================
STOCKHOLDERS' EQUITY (note 5):
Common stock--$0.01 par value*;
authorized--14,000,000 shares;
issued--11,328,110 shares as of
December 31, 1995 and 11,183,550
shares as of December 31, 1994;
outstanding--8,675,947 shares as
of December 31, 1995 and 8,540,087
shares as of December 31, 1994 $113,282 $111,836
Preferred stock--$0.01 par value;
authorized--1,000,000 shares, no
shares outstanding
Additional paid-in capital 24,168,108 24,059,587
Accumulated deficit (16,873,340) (3,652,282)
Unrealized gain on available-for-sale securities 29,048
Treasury stock, at cost (common stock--2,652,163
shares as of December 31, 1995 and 2,643,463 shares
as of December 31, 1994) (193,174) (146,187)
Notes receivable from stockholders (notes 5a(4)
and b(4)) (1,422,942) (1,370,280)
- --------------------------------------------------------------------------------
Total stockholders' equity $5,820,982 $19,002,674
================================================================================
$19,701,201 $22,738,617
================================================================================
</TABLE>
* Adjusted for a 5.289 for one stock (note 5c)
The accompanying notes are an integral part of the financial statements
<PAGE>
<TABLE>
<CAPTION>
ELECTRIC FUEL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
- --------------------------------------------------------------------------------
Year ended December 31
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES (notes 1i, 4a and 9a) $4,371,610 $4,872,688 $3,694,798
---------------------------------------
RESEARCH AND DEVELOPMENT EXPENSES AND COST OF
REVENUES (note 1j):
Expenses incurred (note 9b)
14,378,805 4,770,182 1,829,661
Less--royalty-bearing grants
(note 4b) 1,560,792 698,911 577,816
---------------------------------------
$12,818,013 $4,071,271 $1,251,845
PROVISION FOR ANTICIPATED PROGRAM LOSSES
(notes 1i, 1n and 4a) 2,600,000 1,500,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
(note 9c) 2,752,033 3,364,752 1,694,485
---------------------------------------
$18,170,046 $8,936,023 $2,946,330
- --------------------------------------------------------------------------------
OPERATING INCOME (LOSS) $(13,798,436) $(4,063,335) $748,468
FINANCIAL INCOME (EXPENSES)--NET 664,722 583,563 49,581
(note 9d)
- --------------------------------------------------------------------------------
INCOME (LOSS) BEFORE TAXES ON INCOME $(13,133,714) $(3,479,772) $798,049
TAXES ON INCOME (note 6) 35,210 19,814 146,644
- --------------------------------------------------------------------------------
INCOME (LOSS) FROM THE OPERATIONS OF THE
COMPANY AND ITS SUBSIDIARIES $(13,168,924) $(3,499,586) $651,405
SHARE IN LOSS OF INVESTEE COMPANY (note 1d) 52,134 61,276
- --------------------------------------------------------------------------------
NET INCOME (LOSS) $(13,221,058) $(3,560,862) $651,405
- --------------------------------------------------------------------------------
EARNINGS (LOSS) PER SHARE (note 9e) $(1.55) $(0.43) $0.08
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING (note 9e)* 8,530,388 8,318,985 7,925,926
================================================================================
</TABLE>
* Adjusted for a 5.289 for one stock split--see note 5c
The accompanying notes are an integral part of the financial statement
<PAGE>
<TABLE>
<CAPTION>
ELECTRIC FUEL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized
gain on Notes
Common Stock Additional available- receivable
paid-in Accumulated for-sale Treasury from stock-
Shares* Amount capital deficit securities stock holders Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
JANUARY 1, 1993 7,444,960 $74,449 $1,141,353 $(742,825) $472,977
- ------------------------------------------------------------------------------------------------------------------------------------
CHANGES DURING 1993:
Purchase of treasury
stock (2,643,463*
shares), (notes
5a(1) and (2)) (146,187) (146,187)
Shares issued in
connection with the
exercise of options 1,700,868 17,009 662,863 (570,779) 109,093
Net income 651,405 651,405
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1993 9,145,828 $91,458 $1,804,216 $(91,420) $(146,187) $(570,779) $1,087,288
- ------------------------------------------------------------------------------------------------------------------------------------
CHANGES DURING 1994:
Shares issued in a public
offering (note 5a(3)) 2,000,000 20,000 21,919,284** 21,939,284
Shares issued in
connection with Amtec
merger (note 1d) 26,262 263 328,012 328,275
Shares issued in
connection with the
exercise of options 11,460 115 4,325 4,440
Options issued as
compensation for
services rendered by
consultants 3,750 3,750
Loan granted to
stockholder
(note 5a(4)) (720,000) (720,000)
Accrued interest on
notes receivable from
stockholders (79,501) (79,501)
Loss (3,560,862) (3,560,862)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1994 11,183,550 $111,836 $24,059,587 $(3,652,282) $(146,187) $(1,370,280) $19,002,674
- ------------------------------------------------------------------------------------------------------------------------------------
CHANGES DURING 1995:
Shares issued in
connection with the
exercise of options 144,560 1,446 108,521 109,967
Purchase of treasury
stock (8,700 shares)
(note 5a(7)) (46,987) (46,987)
Accrued interest on
notes receivable from
stockholders (77,291) (77,291)
Payment of interest
and principal on notes
receivable from
stockholders 24,629 24,629
Unrealized gain on
available-for-
sale securities 29,048 29,048
Loss (13,221,058) (13,221,058)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1995 11,328,110 $113,282 $24,168,108 $(16,873,340) $29,048 $(193,174) $(1,422,942) $5,820,982
====================================================================================================================================
</TABLE>
* Adjusted for 5.289 for one stock split (note 5c)
** Net of $3,060,716 -- offering expenses
The accompanying notes are an integral part of the financial statements
<PAGE>
ELECTRIC FUEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
================================================================================
Year ended December 31
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($13,221,058) ($3,560,862) $651,405
Adjustments required to reconcile
net income or loss to net cash
provided by or used in operating
activities:
Share in loss of investee company 52,134 61,276
Depreciation and amortization 506,895 148,530 32,681
Amortization of net premium on
marketable debt securities 278,455 70,804
Deferred income taxes -- net 142,744 (142,744)
Capital loss (gain) from disposal
of fixed assets (3,786) 6,494
Capital loss from disposal of
marketable debt securities, net 348
Liability for employee rights upon
retirement -- net 260,775 259,671 24,494
Issue of stock options as
compensation for services rendered
by consultants 3,750
Interest accrued on notes and loan
to stockholders (77,291) (79,501) (37,054)
Changes in operating asset and
liability items:
Decrease (increase) in accounts
receivable 268,712 (1,703,314) (345,412)
Increase in inventories (403,458) (131,750)
Increase in accounts payable and
accruals 5,718,556 1,789,466 1,002,847
Changes in related parties -- net 10,141 132,606 (141,001)
Increase (decrease) in advances from
customers 4,164,945 (862,331) 420,452
- --------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities ($2,444,632) ($3,722,417) $1,465,668
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (5,333,875) (1,772,885) (406,609)
Investment grant relating to fixed
assets 108,090
Purchase of marketable debt securities (16,984,980)
Loan granted to stockholder (note 5a(4)) (720,000)
Merger of Amtec (stockholder) in 1994 (a) 146,177
Amounts carried to other asset and
deferred charges (710,552) (50,000) (39,579)
Proceeds from disposal of fixed assets 9,559 57,101
Proceeds upon sale or redemption of
marketable debt securities 12,448,903
- --------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities $6,414,035 ($19,216,497) ($446,188)
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issue of share capital (including
additional paid in capital), net
of offering expenses 21,978,863
Payment to the Estate of Luz
International Limited (250,000)
Proceeds from exercise of options 109,967 4,440 146,147
Payment on note receivable from
stockholders 24,629
Purchase of treasury stock(b) (46,987) (96,187)
Short-term bank credit -- net (468)
- --------------------------------------------------------------------------------
Net cash provided by financing
activities $87,609 $21,732,835 $49,960
- --------------------------------------------------------------------------------
Forward $4,057,012 ($1,206,079) $1,069,440
================================================================================
</TABLE>
<PAGE>
ELECTRIC FUEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
==========================================================================================
Year ended December 31
- ------------------------------------------------------------------------------------------
1995 1994 1993
==========================================================================================
<S> <C> <C> <C>
Forward $4,057,012 ($1,206,079) $1,069,440
- ------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,057,012 (1,206,079) 1,069,440
BALANCE OF CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 1,307,855 2,513,934 1,444,494
- ------------------------------------------------------------------------------------------
BALANCE OF CASH AND CASH EQUIVALENTS AT END OF
YEAR $5,364,867 $1,307,855 $2,513,934
==========================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - CASH PAID DURING THE YEAR FOR:
Interest $48,810 $1,083 $526
----------------------------------------
Advances to income tax authorities $65,448 $22,821 $15,499
----------------------------------------
(a) Merger of Amtec (stockholder) in 1994, see note 1d
assets and liabilities of Amtec at date of merger:
Working capital (excluding cash and cash equivalents) ($25,842)
Investment in associated company 149,259
Fixed assets - net 58,681
-----------
$182,098
Stock of the Company issued upon merger (328,275)
-----------
($146,177)
-----------
(b) As to transaction during 1993 not involving cash flows, see note 5a(1).
</TABLE>
================================================================================
The accompanying notes are an integral part of the financial statements.
<PAGE>
ELECTRIC FUEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1--SIGNIFICANT ACCOUNTING
POLICIES
The significant accounting policies, applied on a consistent basis, are as
follows:
a. General
Electric Fuel Corporation (EFC)--a Delaware Corporation--together with its
subsidiaries are referred to as the Company. Primarily, all operating assets of
the Company are situated at, and operations of the Company are carried out by
Electric Fuel (E.F.L.) Ltd. (EFL)--an Israeli wholly-owned subsidiary. The
Company is engaged in one business segment--design, development, and
commercialization of an innovative advanced zinc-air battery system for powering
zero-emission electric vehicles. The Company's products have not fully reached
the commercial stage. Until commencement of commercial product sales occurs, the
Company plans to meet its funding requirements through fees from potential users
of its technology, sales of pre-production battery systems and equipment, grants
from various programs from the State of Israel's Ministry of Industry and Trade
and the funds raised from the public offering of EFC's shares.
The other subsidiaries are:
1) Electric Fuel B.V. -- a Netherlands company, wholly-owned by EFL.
2) Vipco Israel Limited -- an wholly-owned Israeli company which EFC acquired as
a result of the merger of Amtec (see below) into the Company in 1994 (not
presently active).
3) Erbato GmbH -- a recently incorporated German company, 80% owned by EFL (not
presently active).
4) EFL GmbH -- a recently incorporated German company, wholly-owned by EFL.
In these financial statements:
Luz -- Luz International Limited and its Estate in Bankruptcy (stockholder in
EFC until June 1993) and its subsidiaries.
Amtec -- Advanced Materials Technologies, Inc. -- formerly a stockholder in
EFC, which was merged into the Company (see d. below).
Investee company -- Coatec Ltd., an Israeli company (16% owned as at December
31, 1995; 25% owned as at December 31, 1994) which was acquired as a result
of the merger of Amtec.
b. Functional Currency of Subsidiaries
The currency of the primary economic environment in which EFL operates is the
U.S. dollar (the dollar). The operations of EFL's subsidiaries are an integral
part of EFL. Thus, the functional currency of the subsidiaries is the dollar.
Transactions and balances originally denominated in dollars are presented in
their original amounts. Gains and losses arising from non-dollar transactions
and balances are included in net income.
c. Principles of Consolidation
The consolidated financial statements include the accounts of EFC and its
subsidiaries. Inter-company balances and transactions have been eliminated.
d. Merger of Amtec
Immediately prior to the closing of the Company's initial public offering (IPO)
of its capital stock (see note 5a(3)), Amtec was merged into the Company. The
primary asset of Amtec was its stockholding in the Company. Other assets (net of
liabilities) as per Amtec's book value amounted to $328,275 and were exchanged
for stock of the Company at the IPO price of $12.50 per share. This transaction
has been recorded by the Company as a purchase of these assets at the
aforementioned book value.
As a result of the merger, the Company acquired two Israeli companies, a wholly-
owned subsidiary and an investee company (see a. above). The investment in the
investee company was accounted for by the equity method. In July 1995, following
an issue of shares by the investee company to a third party, EFC's investment in
that company decreased from 25% to 16% and accordingly, EFC leased accounting
for this investment by the equity method at such time.
e. Marketable Debt Securities
Composed of fixed income obligations of state and political subdivisions (1994--
<PAGE>
and U.S. Government and Agencies). The securities were classified as at December
31, 1994, as held-to-maturity in accordance with Statement No. 115 of the
Financial Accounting Standards Board of the United States (FASB) and reflected
in the financial statements at their amortized cost. In December 1995, the
Company reassessed its classification of these securities and concluded that it
would be more appropriate to classify the balance of securities as available-
for-sale; accordingly, the securities are stated as of December 31, 1995 at fair
market value and the changes in their value are carried directly to
stockholders' Equity. The effect of this change is immaterial.
f. Inventories
Composed of raw materials and supplies valued at the lower of cost or market.
Cost is determined on the "first-in, first-out" basis.
g. Fixed Assets
These assets are stated at cost, net of related investment grant.
The assets are depreciated by the straightline method, on the basis of their
estimated useful life.
Annual rates of depreciation are as follows:
- --------------------------------------------------------------------------------
Machinery and equipment 10%
Computers and related equipment 20%
Office furniture and equipment 6%; 10%
Vehicles 15%
- --------------------------------------------------------------------------------
Leasehold improvements are amortized by the straight-line method over the term
of the lease, which is shorter than the estimated useful life of the
improvements.
h. Other Assets and Deferred Charges
Other asset represents know-how purchased in 1994. The know-how is stated at
cost and amortized over five years.
Deferred charges represent costs incurred in connection with the Company's
public offering and in February 1996, which will be charged in 1996 against the
premium upon the issuance of the stock.
i. Revenue Recognition
Revenues in respect of contracts for prototype equipment, technical assistance,
services, etc. are recognized upon the delivery of the equipment (subsequent to
which the consideration is non-refundable) or as the services are performed.
Revenues from technology licenses (or from options for said licenses) are
recognized upon sale of license or the exercise of the option.
If such sale or exercise is uncertain, revenue is recognized to the extent of
non-refundable fees received.
Revenue and costs in connection with the Company's contractual program
commitments (see note 4a(2)) are recognized on the "percentage of completion"
method. The percentage of completion is determined according to the ratio of
amounts already expended to estimated total cost as projected at balance sheets
dates. Full provision is made for losses arising from these commitments upon
their anticipation.
j. Research and Development
Research and development expenses are included under "Research and development
expenses and cost of revenues". Because of the nature of the Company's
operations, management is of the opinion that it is not meaningful to segregate
these costs. Research and development expenses, net of related participations,
are charged to income as incurred.
k. Deferred Income Taxes
The Company uses the liability method of accounting for income taxes, as set
forth in Statement No. 109 of the FASB, "Accounting for Income Taxes". Under
this method, deferred income are provided on the basis of the differences
between the financial reporting and income tax bases of assets and liabilities
at the statutory rates enacted for future periods.
l. Cash Equivalents
The Company considers all highly liquid debt instruments, purchased with a
maturity of three months or less, to be cash equivalents.
m. Foreign Currency Forward Contracts
In order to hedge foreign currency exposure on firm commitments, the Company
entered, in 1995, into foreign currency forward contracts. Gains and losses from
these contracts are deferred and recognized in the same period as the underlying
hedged transaction.
<PAGE>
n. Estimates and Assumptions in the Financial Statements
The preparation of the financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
periods. Actual results could differ from those estimates.
As stated in i. above, the Company fully provides for anticipated losses on its
contractual program commitments (see also note 4a(2)). As at December 31, 1995
and 1994, the Company has provided $4.1 million and $1.5 million, respectively.
The ultimate cost of the program, however, may fluctuate as the project
progresses. The Company expects the project to be substantially completed in
1997.
o. Concentration of Credit Risks
Most of the Company's cash and cash equivalents and marketable debt securities
at December 31, 1995 and 1994 are deposited with Israeli and U.S. banks and U.S.
brokers. Similarly, the counterparty to the Company's hedging of foreign
currency (see m. above) is a major Israeli bank. Accordingly, the Company
considers the inherent credit risks to be remote.
The Company's revenues are earned almost entirely in Europe, from large
institutional customers. In general, the exposure to concentration of credit
risks relating to trade receivables is limited, due to the nature of the
Company's customers.
p. Reclassification
Certain prior years' amounts have been reclassified to conform to the 1995
presentation.
- --------------------------------------------------------------------------------
NOTE 2 = FIXED ASSETS
Composition of assets, grouped by major classifications, is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COST* Accumulated depreciation
and amortization
- --------------------------------------------------------------------------------
December 31 December 31
- --------------------------------------------------------------------------------
1995 1994 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Machinery and equipment **$5,191,697 $1,327,964 $377,652 **$76,877
Computers and related equipment 175,895 128,948 60,119 27,591
Office furniture and equipment 173,131 89,987 20,395 7,816
Vehicles 426,428 342,391 84,469 27,986
Leasehold improvements 672,775 266,243 111,756 26,350
- --------------------------------------------------------------------------------
Total $6,639,926 $2,155,533 $654,391 $166,620
- --------------------------------------------------------------------------------
</TABLE>
* Net of related investment grant in the amount of $986,677 and $152,092 as at
December 31, 1995 and 1994, respectively (see also note 6b).
** including $1,987,062 - residual value of equipment relating to the field
test, see also note 4a(2).
NOTE 3 = EMPLOYEE RIGHTS UPON RETIREMENT:
a. The liability for employee rights upon retirement to Israeli employees,
pursuant to Israeli law and employment agreements (see also note 4d) is
primarily funded by purchase of insurance policies whereby the significant risks
have been irrevocably transferred to the insurance companies. Based on recent
court decisions, the assets accumulated in the aforementioned insurance policies
are the exclusive property of the individual employee.
Accordingly, the liability for employee rights upon retirement is reflected net
of such assets which amount to approximately $433,464 as at December 31, 1995
(December 31, 1994 = $234,669) which the Company has no means of realizing,
except for application towards its severance pay obligations. The balance sheet
accrual (see b. below) represents the liability not covered by the insurance
policies mentioned above, net of amount funded by deposits, in the name of EFL,
with a recognized severance pay fund.
<PAGE>
<TABLE>
<CAPTION>
b. The balance accrued and funded at balance sheet date is as follows:
- --------------------------------------------------------------------------------
December 31
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
For severance pay $566,880 $304,580
Less = amount funded 10,972 9,447
-----------------------------------
Unfunded balance* $555,908 $295,133
- --------------------------------------------------------------------------------
</TABLE>
* Reflects primarily obligations of the Company in connection with employment
agreements with certain senior employees (see note 4d).
EFL may only make withdrawals from the severance pay fund for the purpose of
paying severance pay.
c. Expenses included for employee rights upon retirement for each of the years
ended December 31, 1995, 1994 and 1993 amounted to approximately $470,000,
$459,000 and $94,000, respectively.
NOTE 4 = COMMITMENTS:
a. Agreements relating to the Company's technology:
1) Edison
Pursuant to agreements between the Company, through its Dutch subsidiary, and
a major Italian energy company (Edison Termoelettrica, a subsidiary of Edison
SpA; hereafter = Edison), the Company has provided batteries and related
equipment and technical assistance in respect of the Company's technology.
The Company has also granted Edison a sublicense for its technology in
certain areas in Europe until the year 2008 and will be entitled to royalties
of 5% to 3% of sales in excess of $10 million. Edison has agreed to purchase
up to $4 million of equipment and services during the four years commencing
upon the satisfactory completion of the in-vehicle battery performance tests
and is to maintain certain purchase levels of the Company's equipment as
stipulated in the agreements.
2) German Postal Service (Deutsche Post)
Pursuant to agreements with Technischer Uberwachungsverein Bayern Sachsen e.
V (TUV), Germany, the Company provided TUV with a prototype battery system,
related equipment and technical assistance for the evaluation of the
Company's system by TUV on behalf of the Deutsche Post AG (the German Postal
Authority; hereafter = Deutsche Post). Total consideration received through
1993 in respect of these agreements approximates DM 1.41 million
(approximately $882,000).
Further to a letter of intent signed in November 1993 between the Company and
Deutsche Post, the parties reached a final agreement in September 1994
regarding the licensing of the Company's technology for testing during a
field test, for Deutsche Post's internal use and for costs incurred by the
Company in connection with the start up of the field test program. The
agreement calls for payment of DM 5 million (approximately $3.1 million) to
the Company which has been included in revenues for the year ended December
31, 1994. The Company has also agreed to pay royalties based on future sales
of its products in certain parts of Europe.
In December 1994, EFL finalized an agreement with Deutsche Post and other
partners for the purpose of conducting a field test using EFL's technology,
which is anticipated to reach completion in 1997. It is anticipated that the
partners, contribution to the field test will approximate DM 25.7 million
(approximately $17.9 million), of which the Company's share of Partners'
contributions will amount to DM 7 million (approximately $4.9 million). The
field test partners will purchase equipment and services from EFL in the
approximate gross amount of DM 21.0 million (approximately $14.6 million). In
addition to Deutsche Post, partners in the field test currently include
Deutsche Telekom, Mercedes-Benz, Adam Opel (GM Europe), Webasto, and several
German municipalities.
The projected costs to be incurred in connection with the field test are
expected to be greater than the related revenues. Accordingly, the Company
has accrued a provision for anticipated program losses in the cumulative
amounts of $4.1 million and $1.5 million as at December 31, 1995 and 1994,
respectively.
3. Vattenfall
During 1995, EFL signed an agreement with Vattenfall AB to sell up to eight
batteries = identical to those used in
<PAGE>
the Deutsche Post field test, to provide refueling and regeneration services
and to provide other equipment and services for total consideration of
approximately $1 million. In connection with this agreement, the Company
recognized revenues of $270,000 during the year ended December 31, 1995.
4. Other
Pursuant to an agreement with International Lead Zinc Research Organization,
Inc. (ILZRO), U.S.A., the Company carried out a study to be reimbursed by
ILZRO in the maximum amount of $50,000 per annum during 1994 and 1993.
b. Royalty Commitments
Since its inception, EFL has received royalty-bearing research and development
(R&D) grants from the Chief Scientist's Office (Chief Scientist) of the Ministry
of Industry and Trade. Pursuant to the terms of these grants, EFL is obligated
to pay royalties to the Chief Scientist on proceeds from the sale of products in
the R&D of which the Chief Scientist participated. EFL had further assumed
responsibility to pay royalties to the Chief Scientist on account of certain
amounts granted to Luz prior to the EFL's inception.
In 1994, EFL agreed to prepay royalty obligations on R&D grants received through
1993 in the approximate amount of $1.1 million and in turn has received Chief
Scientist approval for continuing support by way of R&D grants. In 1995, it was
agreed that Chief Scientist support would amount to approximately $885,000 and
$1.4 million on account of 1994 and 1995, respectively. The payable is linked to
the Israeli consumer price index (CPI) and bear interest of 4% per annum. EFL
has provided for the entire amount of royalties payable in these financial
statements.
Royalties in connection with the grants received in 1994 and 1995 are payable at
a rate of 3%-6% of net sales (up to 100% of grants received). In the case of
approved transfer of technology out of Israel, total payments may exceed 100% of
the amount granted.
Total commitments to pay royalties to the Chief Scientist at
the 100% rate (if the R&D projects are successful) are in the approximate amount
of $3.3 million as at December 31, 1995.
c. Lease Commitments
The Company has entered into various non-cancelable operating lease agreements
for the premises it occupies. The leases will expire by the end of 1997.
The rental payments under the above leases, at rates in effect at December 31,
1995 are as follows:
[CAPTION]
<TABLE>
Year ending December 31:
<S> <C>
1996 $429,000
1997 $231,000
</TABLE>
The rental payments are primarily payable in Israeli currency, linked to the
Israeli CPI.
As security in connection with these agreements, the Company has given a lessor
a letter of credit in the approximate amount of $30,000.
d. Employment Contracts
In December 1993, three senior employees (related parties) entered into
employment agreements with the Company for an initial term of three years, which
was extended for an additional term of two years. Base salary payable by the
Company under these agreements amounts to $375,000 annually, with further
amounts payable as bonuses of not less than 50% of base salary or in the
aggregate 5% of net income as defined, subject to certain conditions, including
attainment of the Company budgeted goals.
The employees are entitled to other usual benefits and are to receive a
termination payment equal to 36 times monthly base salary -- in addition to the
usual severance pay required by Israeli law -- upon fulfillment of the
contractual terms.
e. Consultants
In 1995, the Company incorporated a German company, Erbato GmbH which is owned
80% by the Company and 20% by a consultant and stockholder in the Company.
Further, the consultant is entitled to certain fees based on marketing success.
Commencing September 1994, the Company paid the consultant a monthly retainer of
DM 30,000, which will be credited against any future fees due to
<PAGE>
the consultant but which is not refundable (see also note 5a(4)).
f. Foreign Currency Forward Contracts
At December 31, 1995, the Company had outstanding foreign currency forward
contracts to sell DM 3.5 million for approximately $2.5 million through April
1996. These contracts are used to hedge the net DM revenue stream to the Company
in regard to the Deutsche Post field test (see a(2) above).
NOTE 5 = STOCKHOLDERS' EQUITY:
a. Capital transactions (the number of shares is adjusted for stock split = see
c. below):
1) In June 1993, EFC purchased 2,620,927 shares of its common stock from Luz
for approximately $334,000 and release from certain royalty obligations in
the maximum aggregate amount of $2 million, less $200,000 of debts to Luz
which were forgiven.
2) During 1993, EFC purchased 22,536 shares of its common stock from various
parties for approximately $12,000.
3) In February 1994, EFC completed an IPO of 2,000,000 shares of its common
stock of par value of $0.01 per share, at an offering price of $12.50 per
share (see also note 1d).
4) In 1994, the Company extended a loan in the amount of $720,000 to a
stockholder and consultant to the Company and accepted a promissory note
bearing interest at the rate of 5% per annum, originally payable in 1994 and
subsequently extended to December 31, 1996. The note is partially
collateralized by a pledge on 72,300 shares owned by such shareholder. The
note receivable, including accrued interest, is reflected as a deduction of
Stockholders' Equity in the financial statements.
5) During 1994, employees exercised options and purchased 11,460 shares for
$4,440.
6) During 1995, employees exercised options and purchased 144,560 shares for
$109,967.
7) During 1995, EFC purchased 8,700 shares of its common stock for $46,987.
b. Common Stock Options
The Company has adopted the following stock option plans whereunder options
may be granted for purchase of the Company's common stock:
1) 1991 Employee Plan - 2,115,600 shares reserved for issuance.
2) 1993 Employee Plan -
1,200,000 shares reserved for issuance.
Under the terms of the employee plans, the Board of Directors or the
designated committee will grant options and will determine the vesting period
and the exercise terms.
3) 1995 Non-Employee Director Plan -
500,000 shares reserved for issuance.
In September 1995, the Board of Directors adopted, subject to stockholder
approval, a Non-Employee Director Stock Option Plan pursuant to which non-
employee directors will receive an initial grant of options to purchase 15,000
shares of the Company's common stock upon the effective date of such plan or
upon their election as a director. Thereafter, non-employee directors will
receive options to purchase 5,000 shares of Common Stock per year of service to
the Board. All such options will be granted at fair market value.
In October 1995, the FASB issued Statement No. 123 = "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 defines a "fair value" based method of
accounting for an employee stock option or similar equity instrument and
encourages all entities to adopt that method of accounting for all their
employee stock compensation plans. However, it also allows companies to continue
to measure compensation cost for those plans using the "intrinsic value" based
method of accounting prescribed by APB 25. Entities electing to continue
accounting according to APB 25 must comply with the disclosure requirements of
SFAS 123 and, in addition, must make pro-forma disclosures of net income and
earnings per share, as if the fair value based method of accounting defined in
SFAS 123 had been applied. The Company has elected to continue applying the
provisions of APB 25. The disclosures required by SFAS 123 will be included in
the Company's annual financial statements beginning 1996.
<PAGE>
SFAS 123 will also require that transactions with other than employees, entered
into after December 15, 1995, in which goods or services are the consideration
received for the issuance of equity instruments shall be accounted for based on
the fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable.
Changes in the options outstanding may be summarized as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number of
options
- --------------------------------------------------------------------------------
<S> <C> <C>
Balance at January 1, 1992 and 1993 (1) 1,848,505
Changes during the year ended December 31, 1993:
Granted during the year:
At $0.82 (2)(3) 349,984
At IPO price 250,000
Exercised during the year:
At $0.35 (1)(4) (1,525,876)
At $0.82 (2) (174,992)
------------
Balance at December 31, 1993 747,621
Changes during the year ended December 31, 1994:
Granted during the year -
At $5.75-$6.25 (5)(6)(7) 358,187
Exercised during the year:
At $0.35 (10,578)
At $0.82 (882)
-------------
Balance at December 31, 1994 1,094,348
Changes during the year ended December 31, 1995:
Granted during the year -
At $4.625-$8.00 (8)(9) 223,245
Exercised during the year:
At $0.35 (31,735)
At $0.82 (111,158)
At $4.625 (1,667)
-------------
Balance at December 31, 1995 1,173,033
- --------------------------------------------------------------------------------
</TABLE>
Average exercise price at December 31, 1995, 1994 and 1993 was $4.71, $3.60 and
$4.70, respectively.
The options granted may be exercised as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
Number of shares
- --------------------------------------------------------------------------------
<S> <C> <C>
First year and thereafter 933,800 394,358
Second year and thereafter 136,533 208,323
Third year and thereafter 72,700 61,667
Seventh year and thereafter 30,000 (7) 430,000
---------------------------
1,173,033 1,094,348
- --------------------------------------------------------------------------------
</TABLE>
The number of shares reserved for future grants under the Plans at December 31,
1995, 1994 and 1993 was 965,671 shares, 688,916 shares and 1,042,103 shares,
respectively.
(1) Including 1,142,424 options granted to related parties, which were
exercised during the year ended December 31, 1993.
(2) Including 174,992 options issued, outside of the Plans, to a related
party, which were exercised in December 1993 (paid for in January 1994), and
37,478 options granted, under the Plans, to other related parties.
(3) Based on the purchase price EFC's stock from Luz, see a(1) above. The
options granted are net of 277,673 options previously issued at $0.35 per
share, forfeited by employees during 1993 and granted to other employees at
$0.82 per share.
(4) The purchase of the common stock upon exercise of options was financed by
EFC's acceptance of 5 year non-recourse notes receivable due January 1998 and
bearing interest at the higher of the increase in the Israeli CPI or linkage
to the dollar + 7% interest. The notes receivable, including accrued
interest, are reflected as a reduction of Stockholders' Equity in the
financial statements.
(5) The options granted are net of 250,000 options previously granted to an
employee pool at $12.50 per share (IPO price) and 11,813 options previously
granted at $0.82 per share, which were canceled during 1994. The options
granted include 5,000 options issued outside of the Plans (see (6) below).
(6) During 1994, consultants were issued five year options, outside of the
<PAGE>
Plans, for the purchase of 5,000 shares of EFC's stock at a price of $6.25
per share, in consideration for services rendered to the Company. The
statements of income (loss) include $3,750 of consulting expense in 1994
relating to such issuance.
(7) The options were granted in 1994 to related parties. The exercise date
may be accelerated based on the share price of EFC's common stock. During
1995, these options became exercisable.
(8) The options granted are net of 21,955 options previously granted which
were canceled during 1995.
(9) Including 30,000 options granted to non-employee directors, subject to
approval of the plan by shareholders.
c. On December 14, 1993, EFC declared a 5.289 for one split of its common stock
in the form of a stock dividend.
NOTE 6 -- TAXES ON INCOME:
a. Taxation of U.S. parent (EFC)
Since EFC incurred net losses or had earnings arising from tax-exempt income
during the reported years, no provisions for income taxes were required. Taxes
payable in 1994 and 1995 are primarily composed of federal alternative minimum
taxes. The difference between the tax provision and the total tax benefit
computed by applying the statutory federal income tax rate to pre-tax loss is
the valuation allowance which was established to eliminate the deferred tax
asset.
As at December 31, 1995, EFC has operating loss carry-forwards for U.S. federal
income tax purposes of approximately $280,000, which are available to offset
future taxable income, if any, expiring primarily in 2009.
b. Israeli subsidiary (EFL):
1) Tax benefits under the Law for the Encouragement of Capital Investments, 1959
(hereinafter -- the law).
EFL's manufacturing facility has been granted "approved enterprise" status under
the above law, and is entitled to investment grants from the State of Israel of
38% of the investment in fixed assets of the approved enterprise and to reduced
tax rates on income arising from the approved enterprise, as detailed below.
The approved investment program is in the approximate amount of $500,000. EFL
substantially placed the program into operation during 1993 and will enjoy the
tax benefits available under the law. EFL is entitled to additional tax benefits
as a "foreign investment company", as defined by the law.
In 1995, EFL received approval for a second "approved enterprise" program for
investment in fixed assets of approximately $6 million. EFL, as a Jerusalem-
based high-tech company, has received approval for grants at the rate of 38% for
investments in these approved fixed assets. Certain fixed assets have been
temporarily approved for use outside of Jerusalem. If these fixed assets
continue to operate outside Jerusalem after July 1996, EFL shall be required to
refund a portion of the applicable grant in the approximate amount of $71,000
per year for a period of seven years.
The main tax benefits available to EFL are:
(a) Reduced tax rates
During the period of benefits -- 10 years -- commencing in the first year in
which EFL earns taxable income from the approved enterprise (provided the
maximum period to which it is restricted by law has not elapsed), a reduced
corporate tax rate of 10%-25% (depending on percentage of foreign ownership;
based on present ownership percentages -- 20%) will apply, instead of the
regular tax rates (see (4) hereafter).
(b) Accelerated depreciation
EFL is entitled to claim accelerated depreciation in respect of machinery and
equipment used by the approved enterprise for the first five years of the
operation of these assets.
(c) Conditions for entitlement to the benefits
The entitlement to the above benefits is conditional upon EFL's fulfilling
the conditions stipulated by the law, regulations published thereunder and
the instruments of approval for the specific investments in approved
enterprises. In the event of failure to comply with these conditions, the
benefits may be canceled and EFL may be required to refund the amount of the
benefits, in whole or in part, with the addition of interest.
<PAGE>
As security for compliance with the terms attaching to investment grants (see
above), EFL has registered floating charges on all its assets in favor of the
State of Israel.
2) Measurement of results for tax purposes under the Income Tax (Inflationary
Adjustments) Law, 1985 (hereafter -- the inflationary adjustments law).
Under this law, results for tax purposes are measured in real terms, in
accordance with the changes in the Israeli CPI. As explained in note 1b, the
financial statements are presented in dollars. The difference between the change
in the Israeli CPI and in the Israeli currency/dollar exchange rate -- both on
annual and cumulative bases -- causes a difference between taxable income (loss)
and pre-tax income (loss) reflected in the financial statements.
3) Tax benefits under the Law for the Encouragement of Industry (Taxes), 1969
EFL is an "industrial company" as defined by this law and as such is entitled to
certain tax benefits, mainly accelerated depreciation as prescribed by
regulations published under the inflationary adjustments law, the right to claim
public issue expenses and amortization of know-how, patents and certain other
intangible property rights as deductions for tax purposes.
4) Tax rates applicable to income from other sources
Income not eligible for "approved enterprise" benefits mentioned in (1) above is
taxed at the regular rate: 1995 -- 37%; 1994 -- 38%; 1993 -- 39%. In accordance
with an amendment to the Israeli Income Tax Ordinance enacted on December 31,
1992, the regular corporate tax rate is to be further scaled down in 1996 to
36%.
5) Tax rates applicable to income distributed as dividends by EFL
The effective tax on income distributed by EFL to its parent, EFC, would be
increased as a result of the Israeli withholding tax imposed upon such dividend
distributions. The overall effective tax rate on such distribution would be 32%
in regard of income arising from EFL's approved enterprise and 44% regarding
other income. EFL does not have any earnings available for dividend distribution
nor does it intend to distribute any dividends in the foreseeable future.
6. Tax loss carryforwards
As at December 31, 1995, EFL has operating loss carryforwards for Israeli tax
purposes of approximately $12 million, which are available, indefinitely, to
offset future taxable income.
c. European subsidiaries
The European subsidiaries are taxed based upon tax laws in their country of
residence.
d. Deferred income taxes
Presented in the balance sheets as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Domestic income taxes
Deferred tax asset $97,000 $127,000)
Less - valuation allowance $(97,000) $(127,000)
---------------------------
-,- -,-
- --------------------------------------------------------------------------------
Foreign income taxes:
Deferred tax asset
-current (1) (2) 3,900,000 1,390,000
Deferred tax asset
(liability) - non-current (3) (35,000)
---------------------------
3,900,000 1,355,000
Less - valuation allowance (3,900,000) (1,355,000)
---------------------------
-,- -,-
================================================================================
</TABLE>
(1) Mainly in respect of provision for anticipated program loss and loss
carryforwards.
(2) Includes deductible expenditures reported as a reduction of the proceeds
from issuing capital stock.
(3) Mainly in respect of accrued employee rights upon retirement and
depreciation on fixed assets.
e. Tax assessments
EFC and its subsidiaries have not been assessed for tax purposes since
incorporation.
f. Taxes on income included in the statements of income (loss):
1) As follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year ended December 31
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
U.S. $52,010 $19,184
Israeli (142,744) $216,219
European (16,800) 630 73,169
- --------------------------------------------------------------------------------
35,210 $(122,930) $289,388
Deferred --
Israeli 142,744 (142,744)
- --------------------------------------------------------------------------------
$35,210 $19,814 $146,644
================================================================================
</TABLE>
2) A reconciliation of the theoretical tax expense, assuming all income is taxed
at the regular rates applicable to income of companies in Israel, see b(4) above
(the difference in the liability arising from the
<PAGE>
discrepancy between the theoretical tax rate and the tax rate applicable in the
country of residence of the European subsidiaries is not material) and the
actual tax expense, is as follows:
<TABLE>
<CAPTION>
===============================================================================
Year ended December 31
- -------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before taxes on income,
as reported $(13,133,714) $(3,479,772) $796,049
Add--losses (income) of EFC,
see a. above--domestic (375,807) (240,770) 21,897
------------------------------------------
Income (loss) before taxes on income
(foreign--mainly Israeli) $(13,509,521) $(3,720,542) $819,946
- --------------------------------------------------------------------------------
Theoretical tax expense * * 319,779
Tax benefit arising from reduced
tax rate as an "approved enterprise" (75,132)
------------
$244,647
Increase in taxes resulting from permanent
differences--disallowed deductions 1,384
Utilization of carryforward losses in
respect of which deferred taxes were not provided (89,545)
Sundry--net (9,842)
-----------
Taxes on income in the consolidated income statements $146,644
- -------------------------------------------------------------------------------
</TABLE>
* No tax benefits are reflected. The loss carryforwards have been fully reserved
as the realization of such deferred tax asset is uncertain.
NOTE 7--MONETARY BALANCES IN NON-DOLLAR CURRENCIES:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31, 1995 December 31, 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Israeli Other non- Israeli Other non-
currency- dollar currency- dollar
unlinked currencies unlinked currencies
- --------------------------------------------------------------------------------
Assets--current
Cash and cash equivalents $3,559,341 $300,076 $27,460
Accounts receivable 1,854,151 457,817 262,829 1,130,126
- --------------------------------------------------------------------------------
$1,854,151 $4,017,158 $562,905 $1,157,586
- --------------------------------------------------------------------------------
Liabilities--current
accounts payable & accruals $2,720,635 $1,327,288 $1,126,881 $49,817
- --------------------------------------------------------------------------------
NOTE 8--SUPPLEMENTARY BALANCE SHEET INFORMATION:
- --------------------------------------------------------------------------------
December 31, 1995 December 31, 1994
-------------------------------------------------
a. Marketable debt securities: Amortized Fair Market Amortized Fair Market
cost value cost value
-------------------------------------------------
U.S. Treasury securities and
obligations of U.S.
government corporations
and agencies $6,296,350 $6,276,611
Obligations of states and
political subdivisions $4,186,470 $4,215,518 10,617,826 10,529,078
-------------------------------------------------
$4,186,470 $4,215,518 $16,914,176 $16,805,689
Less--portion due in one
year or less--presented
among current assets $4,186,470 $4,215,518 9,459,667 9,420,737
- --------------------------------------------------------------------------------
Balance--
due in one to two years -,- -,- $7,454,509 $7,384,952
</TABLE>
================================================================================
<PAGE>
As stated in note 1e, the said securities were classified as of December 31,
1994 as held-to-maturity and reflected at amortized cost. As of December 31,
1995, they are classified as available-for-sale and reflected at fair market
value. Unrealized gain in the amount of $29,048 arising from this
reclassification is reflected in Stockholders' Equity.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31
------------------------------
<S> <C> <C>
b. Accounts receivable--other: 1995 1994
Israeli Government departments and agencies:
Research and development grant receivable $447,952
Investment grant receivable 878,587 $44,002
VAT and other receivables 826,663 219,718
Land development fees 76,921
------------------------------
$2,230,123 $263,720
Employees 18,282 20,906
Prepaid expenses 39,965 54,699
Interest receivable 72,208 259,229
Sundry 61,226 23,589
- --------------------------------------------------------------------------------
$2,421,804 $622,143
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
December 31
------------------------------
1995 1994
c. Other assets and deferred charges ------------------------------
Deferred public offering expenses $710,552
------------------------------
Know-how purchased $50,000 $50,000
Less--accumulated amortization 16,667 6,667
------------------------------
$33,333 $43,333
------------------------------
$743,885 $43,333
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<CAPTION>
December 31
------------------------------
d. Accounts payable and accruals--other: 1995 1994
------------------------------
Employees and employee institutions $393,180 $291,150
Provision for vacation pay 261,943 180,129
Income taxes payable 20,199 169,737
Accrued expenses 1,568,236 704,742
Provision for anticipated program losses 4,100,000 1,500,000
Sundry 14,148 3,896
------------------------------
$6,357,706 $2,849,654
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
e. Fair value of financial instruments
SFAS No. 107 "Disclosure About Fair Value of Financial Instruments" requires
disclosure of information about the fair value of certain financial instruments
for which it is practicable to estimate that value.
The financial instruments of the Company consist mainly of cash and cash
equivalents, marketable debt securities, accounts receivable and accounts
payable and accruals and foreign currency forward contracts.
In view of their nature, the fair value of the financial instruments included in
working capital of the Company is usually identical or close to their carrying
value.
The fair value of open foreign currency forward contracts at December 31, 1995
is approximately $30,000.
NOTE 9--SELECTED INCOME STATEMENT DATA:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------------
1995 1994 1993
------------------------------------------
<S> <C> <C> <C>
a. Revenues--classified
by geographical distribution
(see also note 4a):
Germany (in D.M.) $3,578,938 $3,202,908 $376,820
Italy (in U.S. dollars) 423,732 1,616,122 3,206,492
U.S.A. (in U.S. dollars) 50,000 64,300
Sweden (in U.S. dollars) 270,000
Other 98,940 3,658 47,186
------------------------------------------
$4,371,610 $4,872,688 $3,694,798
- ------------------------------------------------------------------------------
b. Research and development
expenses and cost of revenues:
Materials, subcontracted
work & consulting $8,389,716 $2,390,930 $827,069
Salaries and related expenses 3,831,004 2,266,105 949,543
Other 2,158,085 113,147 53,049
------------------------------------------
$14,378,805 $4,770,182 $1,829,661
- ------------------------------------------------------------------------------
c. Selling, general and
administrative expenses:
Salaries and related expenses $1,112,574 $363,746 $227,551
Consulting and professional fees 736,836 611,222 854,063
Royalties (note 4b) 1,136,910 68,206
Other 902,623 1,252,874 544,665
------------------------------------------
$2,752,033 $3,364,752 $1,694,485
- ------------------------------------------------------------------------------
d. Financial income (expenses)--net:
Interest, bank charges and fees ($142,492) ($64,643) ($7,249)
Exchange differences, net 26,090 (40,885) (11,862)
Interest income 781,124 689,091 68,692
------------------------------------------
$664,722 $583,563 $49,581
- ------------------------------------------------------------------------------
</TABLE>
<PAGE>
e. Earnings (loss) per share:
1) Earnings (loss) per share are computed based on the weighted average number
of shares outstanding (net of treasury stock) during each year and common stock
equivalents, after adjustment for 5.289 to one stock split, effected on December
14, 1993, see note 5c.
2) The following options are not taken into account as part of the common stock
equivalents since their effect on the earnings (loss) per share was not
dilutive: part of options for 1993 and all options for 1994 and 1995.
3) The notes receivable from stockholders relating to exercised options are
assumed--for per share computation--to be proceeds used to purchase stock
under the treasury stock method.
NOTE 10--RELATED PARTIES
a. Balances with related parties:
These represent balances with stockholders--included among current assets--
amounting to $10,141 at December 31, 1994.
b. Transactions with related parties:
- --------------------------------------------------------------------------------
Year ended December 31
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
Interest income $77,291 $79,501 $37,054
- --------------------------------------------------------------------------------
Research and
development
expenses and cost
of revenues 28,147
- --------------------------------------------------------------------------------
General and
administrative
expenses $30,000 $121,993
c. As to capital transactions with related parties--see note 5.
d. As to employment contracts with senior employees--see note 4d.
NOTE 11--SUBSEQUENT EVENT
In connection with a public offering of its common stock at a gross offering
price of $6.50 per share, the Company issued 3,300,000 shares of its common
stock in February 1996 and an additional 450,000 shares to its underwriters to
cover over allotments in March 1996.
================================================================================
<PAGE>
ELECTRIC FUEL OFFICERS AND DIRECTORS
Electric Fuel Corporation
Robert S. Ehrlich
Chairman and Chief Financial Officer
Yehuda Harats
President and Chief Executive Officer
Menachem Korall
Senior Vice President, Technology
Harvey M. Krueger
Director
Jack E. Rosenfeld
Director
Dr. Jay M. Eastman
Director
Stewart J. Edelman
Treasurer and Controller
Electric Fuel Limited
Robert S. Ehrlich
Chairman, Chief Financial Officer and Director
Yehuda Harats
President, Chief Executive Officer and Director
Menachem Korall
Senior Vice President, Technology
Amnon Sherf
Vice President, Operations
Jonathan Whartman
Vice President, Marketing
Stewart J. Edelman
Treasurer and Controller
================================================================================
SHAREHOLDER INFORMATION
Annual Meeting:
The annual meeting of shareholders will be held Monday, June 24, 1996, at 9:00
AM at The Harvard Club, 27 West 44th Street, New York, NY 10036.
Share Transfer Agent:
American Stock Transfer & Trust Company, 40 Wall Street, New York, NY 10005
Shares Traded:
The securities of Electric Fuel Corporation are quoted on the NASDAQ National
Market System under the symbol EFCX.
Legal Counsel, Electric Fuel Corporation:
Ropes & Gray, One International Place, Boston, Massachusetts 02110-2624.
Legal Counsel, Electric Fuel Limited:
Yigal Arnon & Co., 3 Daniel Frisch Street, Tel Aviv 64731, Israel.
Independent Auditor:
Kesselman & Kesselman, a member firm of Coopers & Lybrand (International), 9a
Diskin Street, Jerusalem 96440, Israel.
Forms 10-K:
Electric Fuel Corporation's Annual Report on Form 10-K provides additional
information and is on file with the Securities and Exchange Commission. It is
available free of charge upon written request to Shareholder Relations, Electric
Fuel Corporation, 885 Third Avenue, Suite 2900, New York, NY 10022, or to
Electric Fuel Ltd., 5 Kiryat Mada Street, Har Hotzvim Science Park, P.O. Box
23073, Jerusalem 91230, Israel.
Product Literature:
Electric Fuel's product literature is available free of charge upon written
request to Electric Fuel, Marketing Communications, 5 Kiryat Mada Street, Har
Hotzvim Science Park, P.O. Box 23073, Jerusalem 91230, Israel. Information is
also available on the Internet. The address of the Company's World Wide Web site
is: http://www/electric-fuel.co.il
================================================================================
<PAGE>
ELECTRIC FUEL CORPORATION
AMENDED AND RESTATED NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. PURPOSE
The purpose of this 1995 Stock Option Plan for Non-Employee Directors (the
"Plan") is to advance the interests of Electric Fuel Corporation (the "Company")
by enhancing the ability of the Company to attract and retain directors who are
in a position to make significant contributions to the success of the Company
and to reward such directors for such contributions through ownership of shares
of the Company's common stock (the "Stock").
2. ADMINISTRATION
The Plan shall be administered by a committee (the "Committee") of the
Board of Directors (the "Board") of the Company from time to time appointed by
the Board to administer the Plan in accordance with the express provisions of
the Plan, (a) to prescribe the form or forms of instruments evidencing options
and any other instruments required under the Plan and to change such forms from
time to time; (b) to adopt, amend and rescind rules and regulations for the
administration of the Plan; and (c) to interpret the Plan and to decide any
questions and settle all controversies and disputes that may arise in connection
with the Plan. Such determinations of the Committee shall be conclusive and
shall bind all parties. Subject to Section 7 of this Plan and to Rule 16b-3
under the Securities Exchange Act of 1934, as from time to time in effect ("Rule
16b-3"), the Committee shall also have the authority, both generally and in
particular instances, to waive compliance by a non-employee director with any
obligation to be performed by him under an option and to waive any condition or
provision of an option.
The Plan is a "formula" plan within the meaning of the rules and
regulations of the Securities and Exchange Act of 1934. As a result of the Plan
being a formula plan and otherwise meeting certain requirements of the SEC
adopted under Section 16, non-employee directors may be members of the Committee
administering the Plan. Accordingly, options to non-employee directors are
granted solely under this Plan and not under the Company's regular stock award
plans.
3. EFFECTIVE DATE AND TERM OF PLAN
This Plan, having been approved by the Board of Directors on September 28,
1995 (the "Effective Date"), is subject to approval of this Plan by vote of a
majority of the stockholders of
<PAGE>
the Company present and eligible to vote on the question at an annual or special
meeting of stockholders held not later than September 28, 1996. Options may be
granted under the Plan prior to the date of stockholder approval, and options so
granted shall be effective on the effective date of grant subject to stockholder
approval of the Plan as provided in this Section. No options may be awarded
under this Plan after September 28, 2005, but the Plan shall continue thereafter
while previously awarded options remain subject to the Plan.
4. SHARES SUBJECT TO PLAN
a. Number of Shares. Subject to adjustment as provided in Section 4(c) of
this Plan, the aggregate number of shares of Stock that may be delivered upon
the exercise of options granted under the Plan shall be 500,000. If any option
granted under the Plan terminates without having been exercised in full, the
number of shares of Stock as to which such option was not exercised shall be
available for future grants within the limits set forth in this Section 4(a).
b. Shares to be Delivered. Shares delivered under the Plan shall be
authorized but unissued Stock or, if the board so decides in its sole
discretion, previously issued Stock acquired by the Company and held in
treasury. No fractional shares of Stock shall be delivered under the Plan.
c. Changes in Stock. In the event of a stock dividend, stock split or
combination of shares, recapitalization or other change in the Company's capital
stock, the number and kind of shares of stock or securities of the Company
subject to options then outstanding or subsequently granted under the Plan, the
maximum number of shares or securities that may be delivered under the Plan, the
exercise price, and other relevant provisions shall be appropriately adjusted by
the Committee, whose determination shall be binding on all persons.
5. ELIGIBILITY FOR OPTIONS
Each director who is not an employee of the Company or of any subsidiary of
the Company shall be eligible to receive options under the Plan (an "Eligible
Director").
-2-
<PAGE>
6. TERMS AND CONDITIONS OF OPTIONS
a. Number of Options.
i. Initial Grant. Each individual who is an Eligible Director on the
-------------
Effective Date of the Plan shall be granted, on that date, an option
covering 15,000 shares of Stock, subject to stockholder approval as
provided in Section 3. Each individual who thereafter becomes an Eligible
Director shall, upon first qualifying as an Eligible Director, be granted
an option covering 15,000 shares of Stock. Option grants pursuant to either
of the two preceding sentences are herein referred to as "Initial Grants".
ii. Subsequent Options. Following the Initial Grant, each Eligible
------------------
Director shall be awarded an additional option covering 5,000 shares of
Stock on each anniversary of the Initial Grant, provided that he or she is
an Eligible Director on such anniversary.
b. Exercise Price. The exercise price of each option shall be 100% of the
fair market value per share of the Stock at the time the option is granted, but
not less, in the case of an original issue of authorized stock, than par value
per share. For this purpose, "fair market value" shall mean the closing price
of the Stock as reported on the Nasdaq National Market System (or other exchange
or market system if no longer listed on such exchange) on the date of the grant
(based on The Wall Street Journal report of composite transactions).
c. Duration of Options. The latest date on which an option may be
exercised (the "Final Exercise Date") shall be the date which is ten years from
the date the option was granted.
d. Exercise of Options.
i. Each option shall become exercisable in accordance with the
following:
(1) One year after the date of the grant, the option shall become
exercisable to the extent of one-third of the shares covered
thereby, and
(2) On each of the second and third anniversaries of the date of
the grant, the option shall become exercisable as to an
additional one-third of the shares covered thereby.
-3-
<PAGE>
ii. Any exercise of an option shall be in writing, signed by the
proper person and delivered or mailed to the Company, accompanied by (a) the
option certificate and any other documents required by the Committee and (b)
payment in full for the number of shares for which the option is exercised.
iii.If an option is exercised by the executor or administrator of a
deceased director, or by the person or persons to whom the option has been
transferred by the director's will or the applicable laws of descent and
distribution, the Company shall be under no obligation to deliver Stock pursuant
to such exercise until the Company is satisfied as to the authority of the
person or persons exercising the option.
e. Payment for and Delivery of Stock. Stock purchased under the Plan
shall be paid for as follows; (i) in cash or by certified check, bank draft or
money order payable to the order of the Company, (ii) through the delivery of
shares of Stock having a fair market value on the last business day preceding
the date of exercise equal to the purchase price, provided that, in the case of
shares of stock acquired directly from the Company, such shares have been held
for at least six months, or (iii) by a combination of cash and Stock as provided
in clauses (i) and (ii) above.
An option holder shall not have the rights of a stockholder with regard to
awards under the Plan except as to Stock actually received by him or her under
the Plan.
The Company shall not be obligated to deliver any shares of Stock (a)
until, in the opinion of the Company's counsel, all applicable federal and state
laws and regulations have been complied with and any applicable taxes have been
paid, (b) if the outstanding Stock is at the time listed on any stock exchange,
until the shares to be delivered have been listed or authorized to be listed on
such exchange upon official notice of issuance, and (c) until all other legal
matters in connection with the issuance and delivery of such shares have been
approved by the Company's counsel. If the sale of Stock has not been registered
under the Securities Act of 1933, as from time to time in effect, the Company
may require, as a condition to exercise of the option, such representations or
agreements as counsel for the Company may consider appropriate to avoid
violation of such Act and may require that the certificates evidencing such
Stock bear an appropriate legend restricting transfer.
f. Nontransferability of Options. No option may be transferred other than
by will or by the laws of descent and distribution, and during a director's
lifetime an option may be exercised only by the director.
g. Death. Upon the death of any Eligible Director granted options under
this Plan, all options not then exercisable shall terminate. All options held by
the director that are exercisable immediately prior to death may be exercised by
his executor or administrator, or by the person or persons to whom the option is
transferred by will or the applicable laws of descent and distribution, at any
time within the three-month period following the director's death (but not later
than the Final Exercise Date).
h. Other Termination of Status of Director. If a director's service with
the Company terminates for any reason other than death, all options held by the
director that are not then exercisable shall terminate. Options that are
exercisable on the date of termination shall continue to be exercisable for a
period of three months (or until the Final Exercise Date, if earlier), but shall
-4-
<PAGE>
terminate immediately if the director was removed or terminated for fraud,
dishonesty or intentional misrepresentation or embezzlement, misappropriation or
conversion of assets or opportunities of the Company or any of its subsidiaries.
After completion of that three-month period, such options shall terminate to the
extent not previously exercised, expired or terminated.
i. Mergers, etc. In the event of any merger or consolidation involving
the Company, any liquidation or dissolution of the Company, any sale of
substantially all of the Company's assets or any other transaction or series of
related transactions as a result of which a single person or several persons
acting in concert own a majority of the Company's then outstanding Stock (such
merger, consolidation, sale or other transaction being hereinafter referred to
as a "Transaction"), all outstanding options shall become exercisable prior to
the consummation of such Transaction, such options shall be exercisable at such
time as the Committee determines but in no event for less than a period of at
least 20 days prior to the consummation, but only to the extent the Committee
determines it may so accelerate the exercisability of such options in accordance
with the applicable requirements of Rule 16b-3. Upon consummation of the
Transaction, all outstanding options not so exercised shall terminate and cease
to be exercisable. There shall be excluded from the foregoing any Transaction
as a result of which (a) the holders of Stock prior to the Transaction retain or
acquire securities constituting a majority of the outstanding voting common
stock of the acquiring or surviving corporation or other entity and (b) no
single person owns more than half of the outstanding voting common stock of the
acquiring or surviving corporation or other entity. For purposes of this
Section, voting common stock of the acquiring or surviving corporation or other
entity that is issuable upon conversion of convertible securities or upon
exercise of warrants or options shall be considered outstanding, and all
securities that vote in the election of directors (other than solely as the
result of a default in the making of any dividend or other payment) shall be
deemed to constitute that number of shares of voting common stock which is
equivalent to the number of such votes that may be cast by the holders of such
securities.
7. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION.
Neither adoption of the Plan nor the grant of options to an Eligible
Director shall confer upon any person any right to continued status as a
director with the Company or any subsidiary or affect in any way the right of
the Company or subsidiary to terminate a director relationship at any time or
shall affect the Company's right to grant to such director options that are not
subject to the Plan, to issue to such directors Stock as a bonus or otherwise,
or to adopt other plans or arrangements under which Stock may be issued to
directors.
The Committee may at any time discontinue granting options under the Plan.
The Committee may at any time or times amend the Plan or any outstanding options
for the purpose of satisfying any changes in applicable laws or regulations or
for any other purpose which may at the time be permitted by law, or may at any
time terminate the Plan as to any further grants of options, provided that no
such amendment shall adversely affect the rights of any director (without his or
her consent) under any option previously granted. The provisions of Section 5 or
-5-
<PAGE>
6 of this Plan shall not be amended any more frequently than once every six
months other than to comply with changes in the Internal Revenue Code of 1986,
the Employee Retirement Income Security Act of 1974 or the rules and regulations
thereunder, all as from time to time in effect.
-6-
