<PAGE>
[LOGO] Electric Fuel(R)
January 20, 2000
Dear Stockholder:
It is our pleasure to invite you to the Annual Meeting of Stockholders of
Electric Fuel Corporation, a Delaware corporation (the "Company"), to be held on
February 16, 2000 at 4:00 PM local time at the Company's R & D and manufacturing
facility, Western Industrial Park, Beit Shemesh, Israel.
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 directors,
and to act upon such other matters as may properly come before the meeting.
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 February 16, 2000
-------------------------------
To the Stockholders:
The Annual Meeting of Stockholders of Electric Fuel Corporation (the
"Company") will be held at the Company's R & D and manufacturing facility,
Western Industrial Park, Beit Shemesh, Israel, on Wednesday, February 16, 2000
at 4:00 PM local time for the following purposes:
1. To fix the number of Class II directors at two and to elect two Class II
directors for a three-year term ending in 2002 and until successors are
elected and qualified.
2. To transact such other business as may properly come before the meeting and
any adjournments thereof.
The Board of Directors (the "Board") has fixed the close of business on
January 20, 2000 as the record date for determination of stockholders entitled
to notice of and to vote at the meeting and any adjournments thereof.
IF YOU ARE UNABLE TO BE PRESENT AT THE MEETING PERSONALLY, PLEASE SIGN AND
DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
Any stockholder granting a proxy may revoke THE same at any time prior to its
exercise. Also, whether or not you grant a proxy, you may vote in person if you
attend the meeting.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Robert S. Ehrlich
Robert S. Ehrlich
Chairman of the Board of Directors
January 20, 2000
<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
(the "Board") of Electric Fuel Corporation, a Delaware corporation (the
"Company"), for use at the Annual Meeting of Stockholders (the "Annual Meeting")
to be held at the Company's R & D and manufacturing facility, Western Industrial
Park, Beit Shemesh, Israel, on Wednesday, February 16, 2000 at 4:00 PM local
time 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 January 20, 2000 will be
entitled to vote at the Annual Meeting. As of January 12, 2000, there were
16,108,054 shares of the 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 Annual Meeting.
Proxies properly executed and returned will be voted at the Annual Meeting in
accordance with any directions noted thereon or, if no direction is indicated,
proxies will be voted FOR the election of the nominees for director set forth
below and FOR the fixing of the number of Class II directors at two.
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 Annual Meeting
and all matters incidental to the conduct of the Annual 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 Annual Meeting in person may
revoke his or her proxy and vote his or her shares at the Annual Meeting.
It is expected that this Proxy Statement and the enclosed form of proxy are
being mailed to stockholders on or about January 20, 2000.
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 properly come
<PAGE>
before the Annual 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 Company's most recent annual report, which is its Annual Report on Form
10K for the fiscal year ended December 31, 1998, is being mailed to the
Company's stockholders with this Proxy Statement.
At least 10 days before the Annual Meeting, the Company shall make a complete
list of the stockholders entitled to vote at the meeting open to the examination
of any stockholder for any purpose germane to the Annual Meeting at the
Company's R&D and manufacturing facility, Western Industrial Park, Beit Shemesh,
Israel. The list shall also be made available to stockholders present at the
Annual Meeting.
Voting
Consistent with Delaware corporate 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 Annual Meeting.
The two nominees for election as Class II directors at the Annual Meeting who
receive the greatest number of votes for the election of the directors shall be
elected the Class II directors. 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 any other matter which comes before the Annual Meeting,
except where law, the Company's Amended and Restated Certificate of
Incorporation or the Company's By-laws otherwise require.
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 (a) instructions have not
been received from the beneficial owners or persons entitled to vote, and (b)
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 and broker non-votes
will have the effect of a vote AGAINST a matter.
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PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
Two Class II directors are to be elected at the Annual Meeting for a three-
year term that expires in 2002. Four other directors have been elected or
appointed to terms that end in either 2000 or 2001, 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
each of the nominees listed below for a term of three years expiring at the
Annual Meeting of Stockholders to be held in 2002, and until the nominee's
successor is elected and qualified or until the nominee's earlier death, removal
or resignation. The nominees named below are presently serving as directors of
the Company and are anticipated to be available for election and able to serve.
However, if the nominees should become unavailable, such proxy will be voted for
substitute nominees designated by the Board. The two nominees for election as
directors at the Annual Meeting who receive 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 one or more directors, and the
number of directors currently is fixed at seven. Under the terms of the
Company's Amended and Restated Certificate of Incorporation, the Board is
composed of three classes of similar size, each elected in a different year, so
that only one-third of the Board is elected in any single year.
Mr. Harats, Dr. Eastman and Mr. Gross are designated as Class I directors and
have been elected for a term expiring in 2002, and until their successors are
elected and qualified. Messrs. Rosenfeld and Miller are designated as Class II
directors elected for a term expiring in 1999, and until their successors are
elected and qualified. Mr. Ehrlich is designated the Class III director elected
for a term expiring in 2000, and until his successor is elected and qualified.
Set forth below is certain information concerning the nominees and the other
incumbent directors:
Board of Directors
------------------
<TABLE>
<CAPTION>
Name Age Position Class Director since
- ---- --- -------- ----- --------------
<S> <C> <C> <C> <C>
Yehuda Harats 48 President, Chief Executive Officer and I May 1991
Director
Dr. Jay M. Eastman(1)(2) 51 Director I October 1993
Leon S. Gross 93 Director I March 1997
Jack E. Rosenfeld(1)(2) 61 Director II October 1993
Lawrence M. Miller (1)(2) 53 Director II November 1996
Robert S. Ehrlich 61 Chairman of the Board, Chief Financial III May 1991
Officer and Director
</TABLE>
- -----------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
3
<PAGE>
Nominees for Election as Class II Directors at the 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 from May 1988 until
September 1990. Mr. Rosenfeld is also a director of Maurice Corporation and a
director of PSC, Inc. ("PSCX"), a manufacturer and marketer of hand-held laser
diode bar code scanners. Mr. Rosenfeld has been President and Chief Executive
Officer of Potpourri Collection Inc., a specialty catalog direct marketer, since
April 1998.
Lawrence M. Miller was elected to the Board in November 1996. Mr. Miller has
been a senior partner in the Washington D.C. law firm of Schwartz, Woods and
Miller since 1990. He served from August 1993 through May 1996 as a member of
the board of directors of The Phoenix Resource Companies, Inc., a publicly
traded energy exploration and production company, and as a member of the Audit
and Compensation Committee of that board. That company was merged into Apache
Corporation in May 1996.
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 and Chief Executive
Officer of Lucid Technologies, Inc., which is developing laser technology
applications for medical diagnosis and treatment. Dr. Eastman has served as a
director of PSCX since April 1996, and served as Senior Vice President of
Strategic Planning at PSCX from December 1995 through October 1997. From
December 1987 through December 1995, Dr. Eastman was Executive Vice President of
PSCX. Dr. Eastman is also a director of Chapman Instruments, Inc., which
develops, manufactures and sells surface profiling instruments; Dimension
Technologies, Inc., a developer and manufacturer of 3D displays for computer and
video displays; and Centennial Technologies Inc., a manufacturer of PCMCIA
cards.
Leon S. Gross was elected to the Board in March 1997. Mr. Gross's principal
occupation for the past five years has been as a private investor in various
publicly held corporations, including the Company. He is also majority owner
and an officer of Micro TV, Inc., a business that owns communications towers.
4
<PAGE>
Class III Director
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. Mr. Ehrlich has
served as a director of PSCX since 1987, and, since April 1997, has been the
chairman of the Board of PSCX, a position he previously held from December 1987
until July 1992. Mr. Ehrlich received a B.S. and J.D. from Columbia University
in New York, New York.
Information Concerning the Board and Its Committees
In fiscal year 1998, the Board held three meetings and acted by unanimous
written consent on one occasion. The Board has two committees: the Audit
Committee and the Compensation Committee.
The Audit Committee was established in December 1993, and held one meeting
during fiscal year 1998. The duties of the Audit Committee are to (i) 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) make recommendations to the Board on
the engagement of the independent auditors. Messrs. Rosenfeld and Miller and
Dr. Eastman are members of the Audit Committee.
The Compensation Committee was established in December 1993. This Committee
held three meetings during fiscal year 1998 and acted by unanimous written
consent on three occasions. 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. Messrs. Rosenfeld and Miller and Dr.
Eastman are members of the Compensation Committee. All Committee members are
"disinterested persons" as that term is used in Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
Non-employee members of the Board are paid $1,000 (plus expenses) for each
Board meeting attended and $500 (plus expenses) for each meeting of a committee
of the Board attended. In addition, on September 28, 1995, the Board adopted
(and later amended on March 25, 1996), and on June 24, 1996, the Company's
stockholders approved, a Non-Employee Director Stock Option Plan pursuant to
which non-employee directors 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 the date of his or her election as a director. Thereafter, non-employee
directors will 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 grant.
Pursuant to the Securities Purchase Agreement entered into in connection
with the Company's private placement consummated in December 1999 (described
more fully on page 24 of this Proxy), the purchasers in that placement (the
"1999 Investors") are entitled to have one designated nominee elected to the
Board of Directors and serve in such capacity so long as they
5
<PAGE>
hold in the aggregate 950,000 shares of Common Stock. Subsequent to the Annual
Meeting of Stockholders in connection with which this Proxy Statement is being
distributed, the Board will increase its number of directors to a total of seven
by nominating the designee of the 1999 Investors to fill the vacant Class III
directorship that resulted from the resignation of Mr. Harvey Krueger from the
Company's Board of Directors in June 1999.
THE BOARD OF DIRECTORS RECOMMENDS
ELECTION OF THE NOMINEES
DESCRIBED ABOVE.
6
<PAGE>
EXECUTIVE COMPENSATION; CERTAIN ARRANGEMENTS;
SECURITY OWNERSHIP
This Proxy Statement and the Stockholder Meeting in connection with which it
is being distributed relate to the Company's fiscal year ended December 31,
1998. Accordingly, except where otherwise indicated, the information disclosed
in this section relates to 1998 and the preceding years.
The following table shows the compensation paid (or accrued) by the Company,
in connection with services rendered for 1996, 1997 and 1998, 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 the
year ended December 31, 1998 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
---------
Compensation
Annual Compensation ------------
------------------- Awards
------
Name and Principal Securities
- ------------------ ----------
Position At Other Annual Underlying All Other
----------- ------------ ---------- ---------
December 31, 1998 Year Salary Bonus Compensation Options (#) Compensation
- ------------------- ---- ------ ----- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Yehuda Harats(1) 1998 $118,246 $77,652(2) $ 15,942(4) 368,177 $146,386(5)
President, Chief 1997 154,968 50,000(3) 10,691 0 280,748
Executive Officer and 1996 145,220 47,000 127,558 150,000 372,875
Director
Robert Ehrlich(1) 1998 $118,246 $77,652(2) $ 14,536(4) 372,577 $202,030(6)
Chairman and Chief 1997 154,968 50,000(3) 14,193 0 264,501
Financial Officer 1996 145,238 47,000 75,890 150,000 166,628
Joshua Degani (1) 1998 $109,497 $14,250(2) $ 6,241(4) 185,071(9) $ 41,996(8)
Executive Vice 1997 59,105 15,062(7) 3,449(3) 122,500 51,906
President, Chief
Operating Officer
</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
exchange rate of NIS into U.S. dollars at the time of payment or accrual.
(2) No cash bonuses for fiscal year 1998 were paid out in 1998. However, the
Company accrued $52,000 of the $77,652 in bonuses Messrs. Harats and
Ehrlich were entitled to as per their contracts in partial satisfaction
of such bonuses. The Company also accrued the full amount of the bonus
Mr. Degani was entitled to under his contract. The Company paid each of
Messrs. Harats and Ehrlich $30,000 of their respective bonuses in 1999
and anticipates paying the balance in 2000. The Company also anticipates
paying Mr. Degani the full amount of his bonus in 2000.
7
<PAGE>
(3) In lieu of a cash bonus for fiscal year 1997, the Compensation Committee
granted to each of Messrs. Ehrlich and Harats performance options,
determined based on a present value of $50,000, to acquire 66,500 shares
of the Company's Common Stock at an exercise price of $2.50 per share,
the fair market value of the Company's Common Stock on the date of grant.
The options granted become exercisable as follows: 1/3 become exercisable
when the closing sale price of the Company's Common Stock has been at
least $3.25 per share for a period of 20 consecutive trading days on The
Nasdaq National Market ("Nasdaq"); 1/3 become exercisable when the
closing sale price of the Company's Common Stock has been at least $4.25
per share for a period of 20 consecutive trading days on Nasdaq; and the
final 1/3 become exercisable when the closing sale price of the Company's
Common Stock has been at least $5.50 per share for a period of 20
consecutive trading days on Nasdaq; provided, however, that such options
shall, in all events, become exercisable seven years from the date of
grant. During 1998, the first two milestones were reached and these
options are now 2/3 vested.
(4) Represents the costs of taxes paid by the Named Executive Officer and
reimbursed by the Company.
(5) Of this amount, $13,572 represents the Company's accrual for severance
pay that would be payable to Mr. Harats upon a "change of control" of the
Company or upon the occurrence of certain other events; ($96,441)
represents the Company's reduction of the accrual for sick leave and
vacation redeemable by Mr. Harats; $114,406 consists of payments to Mr.
Harats in lieu of vacation and sick leave; $74,608 represents
compensation expense recorded in relation to the sale of shares to the
Company; $12,388 represents the Company's accrual for severance pay that
would be payable to Mr. Harats under the laws of the State of Israel upon
the termination of his employment by the Company; and $35,907 consists of
the Company's payments and accruals 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,
($16,163) represents the reduction of the Company's accrual to fund Mr.
Harats' pension and education funds as well as provide him with certain
other post-termination benefits, and $8,109 represents the value charged
for tax purposes for the use of a car provided by the Company.
(6) Of this amount, $81,110 represents the Company's accrual for severance
pay that would be payable to Mr. Ehrlich upon a "change of control" of
the Company or upon the occurrence of certain other events; $18,461
represents the Company's accrual for sick leave and vacation redeemable
by Mr. Ehrlich; $35,194 represents compensation expense recorded in
relation to the sale of shares to the Company; ($664) represents a
reduction of the Company's accrual for severance pay that would be
payable to Mr. Ehrlich under the laws of the State of Israel upon the
termination of his employment by the Company; and $35,715 represents the
Company's payments and accruals to pension and education funds.
Additionally, $25,482 represents the Company's accrual to fund Mr.
Ehrlich's pension fund as well as provide him with certain other post-
termination benefits, and $6,732 represents the value charged for tax
purposes for the use of a car provided by the Company.
(7) In lieu of $10,000 in cash for part of his bonus for fiscal year 1997,
Dr. Degani was granted options to acquire an aggregate of 6,826 shares of
the Company's Common Stock at an exercise price of $2.50 per share, the
fair market value of the Company's Common Stock on the date of grant.
(8) Of this amount, $11,500 represents the Company's accrual for additional
severance pay that would be payable to Dr. Degani if terminated by the
Company; $1,775 represents the Company's accrual for vacation redeemable
by Dr. Degani; $1,123 represents the Company's accrual for severance pay
that would be payable to Dr. Degani under the laws of the State of Israel
upon the termination of his employment by the Company; and $21,048
represents the Company's payments and accruals to pension and education
funds. Additionally, $6,550 represents the value charged for tax purposes
for the use of a car provided by the Company.
8
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(9) Includes 122,500 stock options received by Dr. Degani in 1997, whose
exercise price was adjusted in 1998.
9
<PAGE>
The table below sets forth information with respect to stock options granted
to the Named Executive Officers for the fiscal year 1998.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants Potential Realizable Value of Assumed Annual
Rates of Stock Price Appreciation for Option Term
---------------------------------------------------------------------------------------------------
% of Total
Number of Options
Securities granted to
Underlying Employees Exercise or
Options in Fiscal Base Price Expiration
Name Granted Year ($/Sh) Date 5% ($) 10% ($)
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Yehuda Harats 66,500(1) 3.75% $2.50 22-Apr-05 $ 67,743 $157,893
26,977(2) 1.52% $2.50 22-Apr-05 $ 27,481 $ 64,053
160,000(3) 9.01% $3.38 28-Oct-08 $339,956 $861,719
6,010(4) 0.34% $2.50 29-Dec-08 $ 9,459 $ 23,977
108,690(5) 6.12% $2.50 29-Dec-08 $171,064 $433,612
Robert Ehrlich 66,500(1) 3.75% $2.50 22-Apr-05 $ 67,743 $157,893
26,977(2) 1.52% $2.50 22-Apr-05 $ 27,481 $ 64,053
89,400(6) 5.04% $2.69 29-Dec-03 $ 45,025 $119,780
75,000(3) 4.22% $3.38 28-Oct-08 $159,354 $403,931
6,010(4) 0.34% $2.50 29-Dec-08 $ 9,459 $ 23,977
108,690(5) 6.12% $2.50 29-Dec-08 $171,064 $433,612
Joshua Degani 10,000(7) 0.56% $3.25 27-Jan-08 $ 20,453 $ 51,841
6,826(8) 0.38% $2.50 22-Apr-05 $ 6,954 $ 16,207
4,170(9) 0.23% $2.50 22-Apr-05 $ 4,248 $ 9,901
5,575(10) 0.31% $2.50 29-Dec-08 $ 8,774 $ 22,241
36,000(11) 2.03% $2.50 29-Dec-08 $ 56,659 $143,620
</TABLE>
<TABLE>
<C> <S>
(1) In lieu of a cash bonus for fiscal year 1997, the Compensation Committee granted to each of
Messrs. Ehrlich and Harats performance options at an exercise price equal to the fair market
value of the Company's Common Stock on the date of grant. The options granted become
exercisable as follows: 1/3 become exercisable when the closing sale price of the Company's
Common Stock has been at least $3.25 per share for a period of 20 consecutive trading days on
Nasdaq; 1/3 become exercisable when the closing sale price of the Company's Common Stock has
been at least $4.25 per share for a period of 20 consecutive trading days on Nasdaq; and the
final 1/3 become exercisable when the closing sale price of the Company's Common Stock has
been at least $5.50 per share for a period of 20 consecutive trading days on Nasdaq;
provided, however, that such options shall, in all events, become exercisable seven years
from the date of grant. During 1998, the first two milestones were reached and the options
are now 2/3 vested.
(2) Messrs. Ehrlich and Harats agreed that for 1998, they would waive 25% of their base salary,
totaling $38,820 for the calendar year. In lieu of the amount waived, Messrs. Ehrlich and
Harats were each granted options at an exercise price equal to the fair market value of the
Company's Common Stock on the date of grant. The options were fully vested by the end of
1998.
</TABLE>
10
<PAGE>
<TABLE>
<C> <S>
(3) Messrs. Ehrlich and Harats were each granted fully vested options at an exercise price equal
to the fair market value of the Company's common stock on the date of grant. The options were
granted to partially replace shares that were sold by Messrs. Ehrlich and Harats back to the
Company in 1998.
(4) Messrs. Ehrlich and Harats were each granted fully vested options at an exercise price equal
to the fair market value of the Company's common stock on the date of grant in lieu of
additionally waived salary during 1999 totaling $2,404.
(5) In December 1998, Messrs. Ehrlich and Harats agreed that for 1999, they would each waive
approximately 27% of their base salary, for a total of $43,476 each for the calendar year.
The numbers of options granted are based on a variety of factors considered by the Board of
Directors of the Company. In lieu of the amount waived, Messrs. Ehrlich and Harats were each
granted options at an exercise price equal to the fair market value of the Company's Common
Stock on the date of grant. The options vest 1/12th per month over the calendar year.
Messrs. Ehrlich and Harats each have the right to cancel the arrangement upon two weeks'
notification to the Company prior to the beginning of each calendar quarter. Any unvested
options would immediately be forfeited. Furthermore, while their base salary was decreased,
their social benefits and 1999 bonuses have still been calculated on the basis of the full
base salary that they are entitled to by contract. In July 1999, the Company canceled the
unvested portion of these options and resumed full payment of Messrs. Ehrlich's and Harats's
base salary.
(6) Grant of fully vested options. These options were granted in acknowledgment that the grantee
had failed to exercise $0.82 options that had expired.
(7) The options granted become exercisable as follows: 4,000 options on January 27, 2000; 3,000
options on January 27, 2001; and 3,000 options on January 27, 2002.
(8) In lieu of cash for part of his bonus for fiscal year 1997, Dr. Degani was granted fully
vested options at an exercise price equal to the fair market value of the Company's Common
Stock on the date of grant.
(9) Dr. Degani agreed that for 1998, he would waive $500 per month of his base salary, totaling
$6,000 for the calendar year. In lieu of the amount waived, Dr. Degani was granted options
at an exercise price equal to the fair market value of the Company's Common Stock on the date
of grant.
(10) Dr. Degani was granted fully vested options at an exercise price equal to the fair market
value of the Company's Common Stock on the date of grant in lieu of additionally waived
salary during 1998 totaling $2,230.
(11) In December 1998, Dr. Degani agreed that for 1999, he would waive $1,200 per month of his
base salary, totaling $14,400 for the calendar year. In lieu of the amount waived, Dr. Degani
was granted options at an exercise price equal to the fair market value of the Company's
Common Stock on the date of grant. The options vest 1/12th per month over the calendar year.
Dr. Degani may cancel the arrangement upon two weeks` notification to the Company prior to
the beginning of each calendar quarter. Any unvested options would immediately be forfeited.
Furthermore, while his base salary was decreased, his social benefits and 1999 bonuses have
still been calculated on the basis of the full base salary that he is entitled to by contract.
</TABLE>
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The table below sets forth information for the Named Executive Officers with
respect to fiscal 1998 year-end option values.
<TABLE>
<CAPTION>
Number of Securities Underlying Unexercised Value of Unexercised In-the-Money Options
Options at Fiscal Year End at Fiscal Year End (1)
------------------------------------------------------------------------------------------
Exercisable Unexercisable
Name (Number) (Number) Exercisable ($) Unexercisable ($)
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert S. Ehrlich 331,720 280,857 24,918 32,714
Yehuda Harats 237,320 280,857 19,330 32,714
Joshua Degani 68,838 116,233 17,209 26,558
</TABLE>
______________________
(1) In-the-money options are options for which the fair market value of the
underlying securities exceeds the exercise or base price of the option.
Report on Repricing of Options/SARs
The table below sets forth information for all Executive Officers with respect
to repricing of Options for the 10 years preceding December 31, 1998.
<TABLE>
<CAPTION>
Ten-Year Option/SAR Repricings
------------------------------
Number of
Securities Length of Original
Underlying Market Price of Exercise Price Option Term
Options/ Stock at Time at Time of New Remaining at Date
SARs Repriced of Repricing or Repricing or Exercise of Repricing or
Name Date or Amended Amendment ($) Amendment ($) Price ($) Amendment
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Stewart Edelman 27-Jan-98 1,667 3.25 5.875 3.25 0.53 (2)
(1)
Treasurer and 27-Jan-98 1,000 3.25 5.750 3.25 1.90 (2)
Controller 27-Jan-98 5,000 3.25 7.125 3.25 2.34 (2)
27-Jan-98 5,000 3.25 5.875 3.25 8.79
Joshua Degani 22-Apr-98 122,500 2.50 5.500 2.50 9.05
Executive Vice
President, Chief
Operating Officer
</TABLE>
- ----------------------
(1) Mr. Edelman's employment with the Company was terminated February 28, 1999.
(2) On June 8, 1998, the expiration dates of these options were extended by
five years from their original expiration dates.
12
<PAGE>
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors for the 1998 fiscal year
consisted of Dr. Jay Eastman, Jack Rosenfeld and Lawrence Miller. None of the
committee members have served as officers of the Company.
Robert S. Ehrlich, Chairman and Chief Financial Officer of the Company, serves
as Chairman and a director of PSCX. Dr. Eastman serves as a director and Mr.
Rosenfeld serves as a director and a member of the Compensation Committee of
PSCX.
In January 1993, each of Messrs. Ehrlich and Harats and Mr. Menachem Korall (a
former Named Executive Officer of the Company) 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 non-recourse 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. The Promissory Notes matured
on January 3, 1998.The promissory notes of Messrs. Ehrlich and Harats were
renewed as recourse notes for a period of 10 years through December 31, 2007.
Mr. Korall's note was not renewed. As part of his Termination Agreement
(discussed on page 15 below), Mr. Korall agreed to sell shares sufficient to pay
the remaining balance of the loan. The loan balance has since been fully paid.
In June 1998, the terms of the recourse notes were amended such that the Company
would have recourse only to certain compensation due Messrs. Ehrlich and Harats
upon termination, other than for cause, in which case Messrs. Ehrlich and Harats
would continue to be personally liable on the notes. The Company's reserve for
termination benefits to each of Messrs. Ehrlich and Harats is greater than the
outstanding amount due the Company under the Promissory Notes. Additionally, the
Company agreed to repurchase shares of the Company's Common Stock, at any time,
at current market prices, from either Messrs. Ehrlich or Harats as payment in
full for the Promissory Notes; if the shares were sold to the Company, Messrs.
Ehrlich and Harats would be granted new options at current market prices to
purchase the same amount of shares of the Company's Common Stock as were sold.
As of December 31, 1998, the aggregate amount outstanding pursuant to the
Promissory Notes for each of Messrs. Ehrlich and Harats was $220,463 and
$378,422, respectively (including an aggregate of $200,685 in accrued interest
receivable), which are also the largest aggregate amounts outstanding since the
issuance of the Promissory Notes.
In August 1996, each of Messrs. Ehrlich and Harats exercised options to
purchase 80,000 and 170,000 shares of the Company's Common Stock, respectively,
at an exercise price of $5.75 per share. In payment for the option exercise,
each of Messrs. Ehrlich and Harats issued new non-recourse promissory notes (the
"New Promissory Notes") secured by the shares of Common Stock purchased, bearing
interest at the rate of 6.2% per annum. The income taxes due on the option
exercise were also added to the loan balance. Interest accrued at the higher of
the above mentioned rate or the percentage increase in the Israeli CPI between
the date of the New Promissory Notes and the date interest was calculated, based
on the original principal amount of
13
<PAGE>
the loan expressed in NIS. Israel Value Added Tax ("VAT") was also being added
to the interest. Both interest and the related VAT were payable at maturity.
During July 1998, the Company repurchased the underlying shares from each of
Messrs. Ehrlich and Harats for the aggregate amount outstanding under the New
Promissory Notes, which at the time of the repurchase was $566,287 and
$1,203,484, respectively (including an aggregate of $256,696 in accrued interest
and VAT receivable).
On December 3, 1999, Messrs. Ehrlich and Harats each purchased 125,000 shares
of Common Stock out of the Company's treasury at the closing price of the Common
Stock on December 2, 1999. Payment was rendered by Messrs. Ehrlich and Harats
for their purchases in the form of non-recourse promissory notes in the amount
of $167,975 each, secured by the shares of Common Stock purchased.
Employment Contracts and Termination of Employment Arrangements
Each of Messrs. Ehrlich and Harats are parties to similar employment
agreements with the Company (the "Employment Agreements") which can be extended
automatically for additional terms of two years each unless terminated sooner by
either the executive or the Company. The terms of each of the Employment
Agreements expires on December 15, 2000.
The Employment Agreements provide for a base salary of $11,736 per month for
each of Messrs. Ehrlich and Harats (the "Base Salary"). On January 1 of each
year, the Base Salary is adjusted in an amount equal to the greater of (a) 3% or
(b) the excess, if any, of any increase in the Israeli Consumer Price Index over
any devaluation in the currency of Israel compared to the US Dollar, in each
case during the immediately preceding year. Accordingly, the Base Salary for
each of Messrs. Ehrlich and Harats is, as of January 1, 1999, $13,330 per month.
Each Employment Agreement provides for a bonus (the "Bonus") to be paid to
each of Messrs. Ehrlich and Harats in an amount equal to the greater of (a) not
less than 50% of Base Salary or (b) 2% of Net Earnings (defined as net income
before taxes and extraordinary and other nonrecurring items), 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 the
Bonus to be paid pursuant to the Employment Agreements is based on attainment of
the Company's budgeted results, including Net Earnings. Additionally, the
Compensation Committee sets qualitative goals annually as a basis for paying the
Bonus to each of Messrs. Ehrlich and Harats. During 1998, no cash bonuses were
paid to Messrs. Ehrlich and Harats. However, the Company accrued $52,000 for
each of them for their bonuses, in partial satisfation of the $77,625 each was
entitled to. The Company paid each of Messrs. Ehrlich and Harats $30,000 of
their 1998 Bonuses in 1999, and anticipates paying the balance of their Bonuses
in 2000.
The Employment Agreements also contain confidentiality and non-competition
covenants. Pursuant to the Employment Agreements, each of Messrs. Ehrlich and
Harats 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 or 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 and Harats 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
14
<PAGE>
Employment Agreements provide for payment of all accrued and unpaid compensation
as well as bonuses due for the year in which employment is terminated. The
Employment Agreements also provide for a termination payment equal to thirty-six
times the monthly Base Salary at the highest rate in effect within the 90-day
period prior to the termination of employment. Furthermore, certain benefits
will continue and all outstanding options will be fully vested. In addition,
Messrs. Harats and Ehrlich are entitled to an amount equal to the greater of (x)
the average of all bonuses paid to the executive during the three most recent
full calendar years immediately preceding the termination date or (y) all
bonuses paid to the executive during the most recent full calendar year
immediately preceding the termination date. Finally, Mr. Harats has the right to
terminate his employment even without "Good Reason" prior to the end of the
employment agreement, and will still be entitled to all the termination benefits
indicated above. On December 29, 1998, Messrs. Ehrlich and Harats each agreed
that for 1999, they would waive approximately 27% of their base salary, totaling
$43,476 each for the calendar year. The Compensation Committee, in December
1998, approved a grant of 108,690 options to each of Messrs. Ehrlich and Harats
in lieu of the amount waived, at an exercise price equal to the fair market
value of the Company's Common Stock on the date of grant. The options vest
1/12th per month over the calendar year. Messrs. Ehrlich and Harats each have
the right to cancel the arrangement upon two weeks` notification to the Company
prior to the beginning of each calendar quarter. Any unvested options would
immediately be forfeited. Furthermore, while their base salary has been
decreased, their social benefits and 1999 bonuses have still been calculated on
the full base salary that they are entitled to by contract. In July 1999, the
Company canceled the unvested portion of these options and resumed full payment
of Messrs. Ehrlich's and Harats's base salary.
Dr. Degani entered into an employment agreement with the Company upon joining
the Company in June 1997 (the "Degani Employment Agreement"). The Degani
Employment Agreement has no fixed termination date and, subject to advance
notice by either party of two months, may be terminated at will. The Degani
Employment Agreement provides for a monthly base salary of $9,000. This was
adjusted to $9,500, effective January 1998. The Degani Employment Agreement
provides for an annual bonus of not less than 1.5 times the monthly base salary
then in effect, in accordance with Dr. Degani's success in the position, as well
as other benefits such as vacation, sick leave, provision of an automobile and
insurance contributions. Furthermore, Dr. Degani is entitled to a termination
payment (in addition to severance pay by law) in an amount between 2-5 months`
base salary, depending on who gives notice of termination and how long Dr.
Degani has been employed with the Company. The Degani Employment Agreement also
contains confidentiality and non-competition covenants. During 1998, no cash
bonus was paid to Dr. Degani. However, the Company accrued $14,250 for him, as
per his contract. This bonus is to be paid out in cash in 2000. On December 29,
1998, Dr. Degani agreed that for 1999, he would waive $1,200 per month of his
base salary, totaling $14,400 for the calendar year. The Compensation Committee,
in December 1998, approved a grant of 36,000 options to Dr. Degani in lieu of
the amount waived, at an exercise price equal to the fair market value of the
Company's Common Stock on the date of grant. The options vest 1/12th per month
over the calendar year. Dr. Degani has the right to cancel the arrangement upon
two weeks` notification to the Company prior to the beginning of each calendar
quarter. Any unvested options would immediately be forfeited. Furthermore, while
his base salary was decreased, his social benefits and 1999 bonuses have still
been calculated on the basis of the full base salary that he is entitled to by
contract.
On March 12, 1998, the Company and Mr. Korall entered into an agreement (the
"Termination Agreement") to terminate, effective as of January 31, 1998, Mr.
Korall's Employment Agreement and all of the Company's and Mr. Korall's
respective rights and obligations thereunder. Pursuant to the Termination
Agreement, the Company paid Mr. Korall all
15
<PAGE>
salary, other benefits and legally mandated severance pay due to him through the
effective date. In addition, the Company agreed to pay to Mr. Korall additional
severance pay in the amount of $120,000, payable in 24 equal monthly
installments of $5,000 each, and to extend the date by which options held by Mr.
Korall to purchase 90,000 shares of the Company may be exercised to February 28,
2000. The Termination Agreement also contains mutual general releases between
the Company and Mr. Korall. Simultaneously, the Company entered into a
consulting agreement (the "Consulting Agreement") with Shampi Ltd., a consulting
company with which Mr. Korall is affiliated. Pursuant to the terms of the
Consulting Agreement, Mr. Korall will prepare several reports for the Company
dealing with the Company's existing vehicle battery product and with a proposal
for a new battery project. The Consulting Agreement terminates on April 10, 2000
unless renewed by mutual agreement of the parties. In consideration of Mr.
Korall's consulting services, the Company will make 24 equal monthly payments of
$6,000 each to Shampi Ltd., in addition to two lump sum payments of $31,500 each
at the beginning and end of the contract period. Furthermore, the Company has
agreed to provide to Shampi Ltd. a motor vehicle during the contract period for
Mr. Korall's use. Pursuant to the Consulting Agreement, Shampi Ltd. and Mr.
Korall have agreed to a five-year confidentiality provision and an agreement not
to compete with the Company nor to solicit customers, suppliers or employees of
the Company during the term of the Consulting Agreement and for a period of
twelve months thereafter.
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 farther 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. All of these agreements also 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. Such
provisions remain in force 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 approved
private provident funds and by its accrual for severance pay in the consolidated
financial statements. See Note 3 of the Notes to the Consolidated Financial
Statements contained in the Company's Annual Report on Form 10K.
16
<PAGE>
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 (the "Securities
Act"), or the Exchange Act that might incorporate future filings, including this
Proxy Statement, in whole or in part, the following report and the Performance
Graph on page 20 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 1998
consisted of Dr. Eastman, Mr. Rosenfeld and Mr. Miller. 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 1998. The members of
the Committee are familiar with various forms and types of remuneration from
reports of other public corporations and their own business experience.
The Company maintains compensation and incentive programs designed to
motivate, retain and attract management and utilize various combinations of base
salary, bonuses payable upon the achievement of specified goals, discretionary
bonuses 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. The Chief Executive Officer,
Yehuda Harats, and the Chief Financial Officer, Robert S. Ehrlich, are parties
to employment agreements with the Company (together, the "Employment
Agreements"). The Executive Vice President of Technology, Dr. Joshua Degani, is
also party to an employment agreement (the "Degani Employment Agreement"). For
details regarding the various Employment Agreements, see "Employment Contracts
and Termination of Employment Arrangements" on page 14 of this Proxy Statement.
Each of the Employment Agreements requires that bonuses be paid in an amount
equal to the greater of (a) 50% of annual Base Salary or (b) 2% of annual Net
Earnings (defined as net income before taxes and extraordinary and other
nonrecurring items) (the "Bonus"), provided that 100% of budgeted results and
other goals are attained. In addition, the Board of Directors may award the
executive a discretionary bonus based on the achievement of objectives
established by the Board of Directors in its sole discretion if the Company has
attained at least 80% of the Company's budgeted results for such period. The
Committee has also determined that, given the stage of the Company's
development, 1998 compensation for executive officers should not be related
primarily to the annual profit performance of the Company. A primary
consideration for executive officers' compensation is leadership effort in the
development of the Company's proprietary technology and its applications and in
planning for future growth and profitability through commercialization of the
Company's products. This Committee also considers qualitative achievements
occurring during each fiscal year as a basis for paying the Bonus to each of
Messrs. Ehrlich and Harats.
17
<PAGE>
Among the qualitative achievements considered by the Committee for 1998 were:
(i) reorganizing the Company into three divisions by application; (ii)
developing the commercialization of the cellphone battery; (iii) obtaining new
equity and/or debt financing; (iv) obtaining funding and initiating Las Vegas
bus program; and (v) strengthening relationships with existing EV customers.
In an effort to help the Company conserve available cash, during 1998 each
of Messrs. Harats and Ehrlich deferred portions of their regular salary and
benefits payments of approximately $43,500. In lieu of these payments, each of
Messrs. Harats and Ehrlich received 108,690 options at fair market value. These
options vest 1/12th per month over the calendar year. However, in July 1999,
the Company canceled the unvested portion of these options and resumed full
payment of Messrs. Ehrlich's and Harats's base salary. For the year ended
December 31, 1998, the Company exceeded its budgeted results and, based on the
terms of the Employment Agreements, each of Messrs. Ehrlich and Harats were
entitled to receive a cash bonus of 50% of their Base Salary ($6,471 per month).
During 1998, no cash bonuses were paid to Messrs. Ehrlich and Harats. However,
the Company accrued $52,000 for each of them for the bonuses in partial
satisfaction of the $77,625 each was entitled to. The Company paid each of
Messrs. Ehrlich and Harats $30,000 of their 1998 Bonuses in 1999, and
anticipates paying the balance in 2000.
The Degani Employment Agreement provides for an annual bonus of not less than
1.5 times monthly base salary. Accordingly, Dr. Degani was entitled to a cash
bonus of $14,250 for 1998. During 1998, no cash bonus was paid to Dr. Degani.
However, the Company accrued $14,250 for Dr. Degani's 1998 bonus, which amount
will be paid to Dr. Degani in 2000 in cash.
As of December 31, 1998, Messrs. Harats' and Ehrlich's total options
represented approximately 3% and 3.6%, respectively, of the fully-diluted
outstanding stock of the Company, which the Compensation Committee believes are
appropriate levels of options for Messrs. Harats and Ehrlich in view of their
equity position (including options) in the Company which, as of December 31,
1998, represented approximately 11% and 8.2%, respectively, of the fully-diluted
outstanding stock of the Company. As of December 31, 1998, Dr. Degani's options
represented approximately 1% of the fully-diluted outstanding stock of the
Company, which the Compensation Committee believes is an appropriate level of
options considering his position in the Company.
With respect to employees other than the Named Executive Officers,
compensation is determined not by formula, but based on the achievement of
qualitative and/or quantitative objectives established in advance of each year
by the Chief Executive Officer and Chief Financial Officer, who then, pursuant
to authority delegated by the Compensation Committee, determine remuneration of
the Company's employees based on such objectives.
The Company seeks to promote, including through its compensation plans, an
environment that encourages employees to focus on the continuing long-term
growth of the Company. Employee compensation is generally comprised of a
combination of 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
employee 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 employees. Factors considered in
making option awards to the employees other than the Named
18
<PAGE>
Executive Officers in 1998, and during the first quarter of 1999 on account of
1998, included prior grants to the employees, the importance of retaining the
employees services, the amount of cash bonuses received by the employees, the
employees potential to contribute to the success of the Company and the
employees' past contributions to the Company.
Dated: January 20, 2000
COMPENSATION COMMITTEE
Dr. Jay M. Eastman
Lawrence M. Miller
Jack E. Rosenfeld
19
<PAGE>
Performance Graph
The following graph compares the yearly percentage change in the Company's
cumulative total shareholder return on its Common Stock with the cumulative
total return on the Nasdaq Market Index (Broad Market Index) and a self-
constructed peer group index from February 24, 1994, the date of the Company's
initial public offering, through December 31, 1998. The cumulative total
shareholder return is based on $100 invested in Common Stock of the Company and
in the respective indices on February 24, 1994 (including reinvestment of
dividends). The stock prices on the Performance Graph are not necessarily
indicative of future price performance.
CUMULATIVE TOTAL RETURN THROUGH DECEMBER 31, 1998
AMONG ELECTRIC FUEL CORPORATION,
NASDAQ MARKET INDEX AND PEER GROUP INDEX
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
2/94 12/94 12/95 12/96 12/97 12/98
---- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
ELECTRIC FUEL 100 135.0 112.0 50.0 56.00 56.00
PEER GROUP (1) 100 135.03 74.68 109.03 219.49 219.49
BROAD MARKET 100 129.79 161.18 197.16 490.46 490.46
</TABLE>
ASSUMES $100 INVESTED ON FEBRUARY 24, 1994 (THE DAY THE COMPANY'S COMMON STOCK
BEGAN TRADING ON THE NASDAQ NATIONAL MARKET) AND ASSUMES DIVIDENDS REINVESTED
YEAR ENDING DECEMBER 31, 1994.
- -------------------------
(1) The Peer Group Index is comprised of the following companies: AER Energy
Resources, Battery Tech Inc., Electrosource, Inc., Ultralife Batteries, Inc. and
Valence Technology, Inc. The returns of each company have been weighted
according to their respective stock market capitalization for purposes of
arriving at a peer group average.
20
<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 December 20, 1999,
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. This table does not give effect to 1,425,000 shares of Common Stock and
warrants to purchase an additional 1,425,000 shares of Common Stock issued
pursuant to a private placement consummated by the Company on December 28, 1999,
nor to 385,000 shares of Common Stock issued in a separate private placement on
January 10, 2000. Such shares of Common Stock and warrants were placed into
escrow (with the exception of 375,000 shares of Common Stock and warrants to
purchase 375,000 shares, as described below on pages 24/25 of this Proxy)
pending the effectiveness of a resale registration statement for the securities
to be filed by the Company.
<TABLE>
<CAPTION>
Shares Beneficially Percentage of Total Shares
Owned(1)(2) Outstanding(2)
------------------------------------------------------------------------------
<S> <C> <C>
Five Percent Holders
- --------------------
Newton Becker 1,746,904(3) 12.2%
2743 Aqua Verde Circle
Los Angeles, California
Named Executive Officers and Directors
- --------------------------------------
Leon S. Gross 3,537,671(4)(12) 24.7%
Robert S. Ehrlich 1,308,566(5)(8)(12) 8.8%
Yehuda Harats 1,782,872(6)(8)(12) 12.1%
Joshua Degani 121,954(7) *
Dr. Jay M. Eastman 25,000(9) *
Jack E. Rosenfeld 27,000(10) *
Lawrence M. Miller 31,914(11) *
All Directors and Executive Officers of 6,834,977(4)(5)(6)(7)(8)(9)(10)(11)(12) 44.16%
the Company as a group (7 persons)
</TABLE>
* Less than one percent.
(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.
(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.
21
<PAGE>
(3) 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.
(4) Includes 11,667 shares of Common Stock issuable upon exercise of
options exercisable within 60 days and 175,000 shares held by Leon S.
Gross and Lawrence M. Miller as co-trustees of the Rose Gross
Charitable Foundation. Does not include 375,000 shares of Common
Stock and warrants to purchase an additional 375,000 shares acquired
pursuant to the December 28, 1999 private placement.
(5) Includes 536,065 shares of Common Stock issuable upon exercise of
options exercisable, or potentially exercisable, within 60 days.
(6) Includes 441,665 shares of Common Stock issuable upon exercise of
options exercisable, or potentially exercisable, within 60 days.
(7) Shares of Common Stock issuable upon exercise of options exercisable
within 60 days.
(8) Messrs. Ehrlich and Harats 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.
(9) Shares of Common Stock issuable upon exercise of options exercisable
within 60 days.
(10) Includes 25,000 shares of Common Stock issuable upon exercise of
options exercisable within 60 days.
(11) Includes 20,000 shares of Common Stock issuable upon exercise of
options exercisable within 60 days.
(12) Messrs. Gross, Ehrlich and Harats are parties to a Voting Rights
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, Harats and Miller for five years
following October 1996.
22
<PAGE>
Section 16(a) Beneficial ownership reporting compliance
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 such reports have been established and the
Company is required to report any failure to file by such dates during 1998. All
filing requirements were satisfied by its directors and officers and, to the
knowledge of the Company, ten percent holders.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 non-recourse
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. The
Promissory Notes matured on January 3, 1998.The promissory notes of Messrs.
Ehrlich and Harats were renewed as recourse notes for a period of 10 years
through December 31, 2007. Mr. Korall's note was not renewed. As part of his
Termination Agreement, Mr. Korall agreed to sell shares sufficient to pay the
remaining balance of the loan. The loan balance has since been fully paid. In
June 1998, the terms of the recourse notes were amended such that the Company
would have recourse only to certain compensation due Messrs. Ehrlich and Harats
upon termination, other than for cause, in which case Messrs. Ehrlich and Harats
would continue to be personally liable on the notes. The Company's reserve for
termination benefits to each of Messrs. Ehrlich and Harats is greater than the
outstanding amount due the Company under the Promissory Notes. Additionally, the
Company agreed to repurchase shares of the Company's Common Stock, at any time,
at current market prices, from either Messrs. Ehrlich or Harats as payment in
full for the Promissory Notes; if the shares were sold to the Company, Messrs.
Ehrlich and Harats would be granted new options at current market prices to
purchase the same amount of shares of the Company's Common Stock as were sold.
As of December 31, 1998, the aggregate amount outstanding pursuant to the
Promissory Notes for each of Messrs. Ehrlich and Harats was $220,463 and
$378,422, respectively (including an aggregate of $200,685 in accrued interest
receivable), which are also the largest aggregate amounts outstanding since the
issuance of the Promissory Notes.
In August 1996, each of Messrs. Ehrlich and Harats exercised options to
purchase 80,000 and 170,000 shares of the Company's Common Stock, respectively,
at an exercise price of $5.75 per share. In payment for the option exercise,
each of Messrs. Ehrlich and Harats issued new non-recourse promissory notes (the
"New Promissory Notes") secured by the shares of Common Stock purchased, bearing
interest at the rate of 6.2% per annum. The income taxes due on the option
exercise were also added to the loan balance. Interest accrued at the higher of
the above
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mentioned rate or the percentage increase in the Israeli CPI between the date of
the New Promissory Notes and the date interest was calculated, based on the
original principal amount of the loan expressed in NIS. Israel Value Added Tax
("VAT") was also being added to the interest. Both interest and the related VAT
were payable at maturity. During July 1998, the Company repurchased the
underlying shares from each of Messrs. Ehrlich and Harats for the aggregate
amount outstanding under the New Promissory Notes, which at the time of the
repurchase was $566,287 and $1,203,484, respectively (including an aggregate of
$256,696 in accrued interest and VAT receivable).
Pursuant to a Stock Purchase Agreement dated September 30, 1996, between the
Company and Mr. Gross (the "1996 Purchase Agreement"), on October 2, 1996 the
Company issued 1,538,462 shares of Common Stock to Mr. Gross at a price of $6.50
per share, for a total purchase price of $10 million.
Pursuant to a Securities Purchase Agreement dated December 28, 1999, between
the Company and a group of purchasers, including Mr. Gross (the "1999 Purchase
Agreement," and together with the 1996 Purchase Agreement, the "Purchase
Agreements"), the Company issued an aggregate of 1,425,000 shares of Common
Stock, including 375,000 shares to Mr. Gross. Such shares were issued at a
price of $2.00 per share. The Company also issued in this transaction warrants
to purchase an additional 1,425,000 shares of Common Stock, of which warrants to
purchase 950,000 shares of Common Stock have an exercise price of $1.25 per
share and are exercisable for a period of six months ("six-month warrants") and
warrants to purchase 425,000 shares of Common Stock have an exercise price of
$4.50 per share and are exercisable for one year ("one-year warrants"). Of
these, Mr. Gross purchased six-month warrants to purchase 250,000 shares of
Common Stock and one-year warrants to purchase 125,000 shares of Common Stock.
Pursuant to the terms of both Purchase Agreements, Mr. Gross agreed that for a
period of five years from the date of each Purchase Agreement, neither Mr. Gross
nor his "affiliates" (as such term is defined in the Securities Act) directly or
indirectly or in conjunction with or through any "associate" (as such term is
defined in Rule 12b-2 of the Exchange Act), will (i) solicit proxies with
respect to any capital stock or other voting securities of the Company under any
circumstances, or become a "participant" in any "election contest" relating to
the election of directors of the Company (as such terms are used in Rule 14a-11
of Regulation 14A of the Exchange Act); or (ii) make an offer for the
acquisition of substantially all of the assets or capital stock of the Company
or induce or assist any other person to make such an offer; or (iii) form or
join any "group" within the meaning of Section 13(d)(3) of the Exchange Act with
respect to any capital stock or other voting securities of the Company for the
purpose of accomplishing the actions referred to in clauses (i) and (ii) above,
other than pursuant to the Voting Rights Agreement described below.
In connection with the 1996 Purchase Agreement, the Company and Mr. Gross also
entered into a Registration Rights Agreement, dated September 30, 1996, setting
forth registration rights with respect to the shares of Common Stock issued to
Mr. Gross in connection with the offering. These rights include the right to
make two demands for a shelf registration statement on Form S-3 for the sale of
the Common Stock that may, subject to certain customary limitations and
requirements, be underwritten. In addition, Mr. Gross was granted the right to
"piggyback" on registrations of Common Stock in an unlimited number of
registrations. In addition, under the Registration Rights Agreement, Mr. Gross
is subject to customary underwriting lock-up requirements with respect to public
offerings of the Company's securities.
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Pursuant to the 1999 Purchase Agreement, the Company agreed to register for
resale the shares of Common Stock issued thereunder and the shares of Common
Stock issuable pursuant to the warrants issued thereunder. The shares of Common
Stock and warrants issued pursuant to the 1999 Purchase Agreement, other than
those issued to Mr. Gross, were deposited in an escrow account (the "Escrow
Account") pending the effectiveness, by April 30, 2000, of a resale registration
statement to be filed by the Company in connection with such securities.
Pursuant to a Voting Rights Agreement dated September 30, 1996 and as amended
December 10, 1997, between the Company, Mr. Gross, Robert S. Ehrlich and Yehuda
Harats (the "Voting Rights Agreement"), Lawrence M. Miller, Mr. Gross's advisor,
will be entitled to be nominated to serve on the Company's Board of Directors so
long as Mr. Gross, his heirs or assigns retains at least 1,375,000 shares of
Common Stock. As a result of this agreement, the Company's Board of Directors
was increased to a total of six members. In addition, under the Voting Rights
Agreement, Mr. Gross and Messrs. Ehrlich and Harats agreed to vote and take all
necessary action so that Messrs. Ehrlich, Harats and Miller shall serve as
members of the Board of Directors until the earlier of December 10, 2002 or the
5th Annual Meeting after December 10, 1997. In addition, so long as Mr. Miller
serves as a director, Mr. Gross, who shall succeed Mr. Miller should he cease to
serve on the Board (unless Mr. Gross is then serving on the Board, in which case
Mr. Gross may designate a director), shall be entitled to attend and receive
notice of Board meetings.
Pursuant to Amendment No. 1 to the Voting Rights Agreement dated December 28,
1999 between the parties to the Voting Rights Agreement and the purchasers under
the 1999 Purchase Agreement, such purchasers are entitled to have one designated
nominee elected to the Board of Directors and serve in such capacity so long as
they hold in the aggregate 950,000 shares of Common Stock.
On December 3, 1999, Messrs. Ehrlich and Harats each purchased 125,000 shares
of Common Stock out of the Company's treasury at the closing price of the Common
Stock on December 2, 1999. Payment was rendered by Messrs. Ehrlich and Harats
for their purchases in the form of non-recourse promissory notes in the amount
of $167,975 each, secured by the shares of Common Stock purchased.
INDEPENDENT ACCOUNTANTS
Kesselman & Kesselman, a member of PriceWaterhouseCoopers International
("Kesselman"), served as the Company's independent accountants for the fiscal
year ending December 31, 1998. Upon the recommendation of the Audit Committee,
effective as of January 12, 2000, the Board of Directors terminated the
Company's engagement of Kesselman as the Company's independent accountants, and
appointed Kost Forer & Gabbay, a member of Ernst & Young International ("Kost"),
to serve as the Company's independent accountants.
The Audit Committee recommended the change in the Company's independent
accountants after soliciting proposals from Kost and comparing Kost's proposed
budget to the costs of the Company's prior audits.
Kesselman's reports on the Company's financial statements for the years ended
December 31, 1997 and 1998 did not contain an adverse opinion or disclaimer of
opinion, and were not qualified or modified as to uncertainty, auditing scope or
accounting principles. During the two years preceding the change in independent
accountants and through the effective date of the
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change, there were no disagreements with Kesselman on any matter of accounting
principles or practices, financial statement dislosure, auditing scope or
procedures or internal controls, which, if not resolved to the satisfaction of
Kesselman, would have caused it to make reference to such matter in its report.
Representatives of Kesselman and Kost are not expected to be present at the
Annual Stockholders Meeting.
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 of Stockholders 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.
COMMON STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 promulgated by the Securities and Exchange Commission,
Common Stockholder proposals intended to be included in the Company's proxy
material for the Annual Meeting of Stockholders must be received by the Company
on or before 120 days before the date of the Company's Proxy Statement for the
1999 Annual Stockholder Meeting at its principal executive offices, 885 Third
Avenue, Suite 2900, 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 of Stockholders 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 judgment.
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 in person.
Stockholders are encouraged to send their proxies without delay. Your
cooperation is appreciated.
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FINANCIAL STATEMENTS
The Company's audited financial statements for the fiscal year ended
December 31, 1998 and certain other related financial and business information
of the Company are contained in the Company's 1998 Annual Report on Form 10-K
furnished to the Stockholders along with this Proxy Statement.
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ELECTRIC FUEL CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF ELECTRIC FUEL CORPORATION
for Annual Meeting of Stockholders to be held FEBRUARY 16, 2000
The undersigned, having received the Notice of the Annual Meeting of
Stockholders and the Proxy Statement on 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
Wednesday, February 16, 2000 at 4:00 PM local time at the Company's R&D and
manufacturing facility, Western Industrial Park, Beit Shemesh, Israel 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 or her 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 proposal 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 matters 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.
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Please Detach and Mail in the Envelope Provided
Please date, sign and mail your
Proxy card back as soon as possible!
Annual Meeting of Stockholders
ELECTRIC FUEL CORPORATION
February 16, 2000
[X] Please mark your votes as in this example.
The Board of Directors recommends a vote FOR each of the following matters:
1. To elect two Class II directors, each for a term ending in 2002 and until
each such director's successor is elected and qualified.
FOR WITHHELD Nominees: Jack E. Rosenfeld
Lawrence M. Miller
[ ] [ ]
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below:
------------------------------------------------------------
2. To fix the number of Class II directors at two.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
PLEASE DATE AND RETURN THIS PROXY FORM PROMPTLY USING THE ENCLOSED ENVELOPE.
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement of the Company dated January 20, 2000.
[ ] [ ]
I do plan to attend the meeting. I do not plan to attend the meeting.
- -------------------- -----------------------------------------
Date Signature
- -------------------- -----------------------------------------
Date Signature If Held Jointly
Note: Please sign exactly as name appears on this Proxy. When shares are held
by joint tenants, both should sign. If signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If you are
signing for a corporation, please sign in the full corporate name by President
or other authorized officer. If you are signing for a partnership, please sign
in the partnership name by authorized person.
