Amendment to General Statement of Beneficial Ownership — Schedule 13D
Filing Table of Contents
Document/Exhibit Description Pages Size
1: SC 13D/A Amendment to General Statement of Beneficial 5± 22K
Ownership
2: EX-5 Opinion re: Legality 3± 13K
3: EX-6 Opinion re: Discount on Capital Shares 3± 13K
4: EX-7 Opinion re: Liquidation Preference 3± 14K
5: EX-8 Opinion re: Tax Matters 65± 256K
6: EX-9 Voting Trust Agreement 13± 53K
EXHIBIT 8
Note Purchase Agreement
December 19, 1997
NOTE PURCHASE AGREEMENT
This Note Purchase Agreement (the "Agreement") is made
and entered into as of December 19, 1997, by and among
Electrosource, Inc., a Delaware corporation (the
"Company"), and Corning Incorporated, a corporation organized
under the laws of the State of New York (the "Purchaser").
WHEREAS, Purchaser wishes to purchase a note from
the Company with the option to convert the note in to either
common stock of the Company or 5% cumulative convertible
preferred stock of the Company;
NOW, THEREFORE, the parties hereto agree as follows:
1. Purchase and Sale of Notes.
A. Notes. The Company agrees to sell to
the Purchaser and, subject to the terms and conditions set
forth herein, the Purchaser agrees to purchase from the
Company a 5% Convertible Promissory Notes (the "Notes") in
the total principal amount of Two Million Dollars
($2,000,000.00)for the consideration of Two Million Dollars
($2,000,000.00), payable as set forth in Section 2. The
Notes shall be for a one (1) year term, bearing interest at
5% per annum, payable in cash or, upon prior written approval
of the Investor, in kind and will be convertible, in whole
or in part, on or before payment in full of the outstanding
principal and accrued interest into common stock ("Common
Stock") of the Company at a conversion price per share equal
to the closing price of the Company's common stock as
reported by NASDAQ on December 19, 1997, plus $1.00, subject
to adjustment of the conversion price as provided in the
Notes, or exchangeable, in whole or in part, for the Company's
5% cumulative convertible preferred stock ("Preferred
Stock"), as provided in the Notes. The form of the Notes
is set forth in Exhibit "A," the "5% Convertible
Promissory Notes," attached hereto and incorporated
herein by reference. The terms of the Preferred Stock
are set forth in Exhibit "B," the "Securities Purchase
Agreement" with attachments, which is attached hereto
and incorporated herein by reference, to the extent
not in conflict herewith.
B. Amendment of Stock Option Agreement. In
further consideration of the purchase of the Notes
herein, the Company and Investor hereby amend that
certain Stock Option Agreement dated March 27, 1997
("Option Agreement") under the Note Purchase and Option
Agreement of March 27, 1997 to modify the option
exercise prices. The exercise prices are amended to
Four and No/100 Dollars ($4.00) per share for Two
Hundred Seventy-five Thousand (275,000) shares (the
previous exercise price was Seven and No/100 Dollars
($7.00) per share for such shares) and to Six and No/100
Dollars ($6.00) per share for Two Hundred Twenty-five
Thousand (225,000) shares (the previous exercise price
was Nine and No/100 Dollars ($9.00) per share for such
shares). The said Option Agreement is not otherwise
amended and remains in full force and effect.
2. Closing
The closing of the purchase and sale of the
Notes (the "Closing") will take place in installments of
One Million Dollars ($1,000,000) on or before December
24, 1997; Five Hundred Thousand Dollars ($500,000) on
or before January 24, 1998, and Five Hundred Thousand
Dollars ($500,000) on or before February 24, 1998.
Closing may be held by mail or as the Parties may
otherwise agree. At each Closing, the Company will
deliver to the Purchaser a Note in the requisite amount
upon payment by Purchaser of the respective purchase
price. The purchase price shall be paid in the form of
a check or by a wire transfer of funds to an account
designated by the Company.
3. Covenants
The Company covenants and agrees with the
Purchaser as follows:
3A. Financial Statements and Other
Information. The Company will deliver to Purchaser so
long as such Purchaser holds the Notes or any Notes
issued in payment of accrued interest thereon (sometimes
referred to herein collectively with the Notes as the
"Notes") copies of all reports required to be filed by
the Company pursuant to sections 13 and 14 of the
Securities Exchange Act of 1934.
3B. Reservation of Common Stock. The Company
will at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, for the
purpose of issuance upon the conversion of the Notes,
such number of shares of Common Stock as are
issuable upon the conversion of the Notes. All shares
of Common Stock which are so issuable will, when issued,
be duly and validly issued, fully paid and non-
assessable and free from all taxes, liens and charges.
The Company will take all such actions as may be
necessary to assure that all such shares of Common Stock
may be so issued without violation of any applicable law
or governmental regulation or any requirements of any
domestic securities exchange upon which shares
of Common Stock may be listed.
3C. Authorization of Preferred Stock. Upon
Purchaser electing to exercise its right to exchange each
of the Notes into Preferred Stock, the Company will
authorize the issuance of Two Hundred Thousand
(200,000) shares of Preferred Stock at Ten and No/100
Dollars ($10.00) per share to the Purchaser with the
rights, designations and preferences set forth in Exhibit
"B."
3D. Ranking of Notes. The Company's
obligations under the Notes will rank at least pari passu
in priority of payment and in all other respects with
all other unsecured loans, debts or obligations of the
Company entered into after the date hereof. The Company
shall not, while any amount of the Notes remains
outstanding, offer to borrow funds from any third party on
terms more favorable to the third party lender than those
extended to Purchaser for the Notes with respect to
security for the Notes, financial covenants or negative
pledges of the Company in favor of such third party,
repayment terms, or other significant matters, without
offering such terms to Purchaser in writing.
4. Representations and Warranties
4A. Representations by Company. The Company
represents, warrants and agrees as follows:
(i) The Company is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Delaware and is in good standing as a foreign
corporation in each jurisdiction where the properties owned,
leased or operated, or the business conducted by it require
such qualification, except for such failure to so qualify
or be in such good standing, which, when taken together
with all other such failures, is not reasonably likely to
have a material adverse effect on the financial condition,
properties, business or results of operations of the Company
or the interest of shareholders in the Company (a "Material Adverse
Effect"). The Company has the requisite corporate power and
authority to carry on its business as it is now being
conducted.
(ii) The authorized capital stock of the
Company as of the date hereof consists of Fifty Million
(50,000,000) shares of $1.00 par value Common Stock, of which
Four Million Two Hundred Thirty Thousand Five Hundred One
(4,230,501) shares were issued and outstanding as of December
5, 1997, none of which are held in treasury,
and Ten Million (10,000,000) shares of Preferred Stock,
par value $1.00 per share ("Preferred Stock"), of which no
shares are issued and outstanding on the date hereof. All
of the outstanding shares of Common Stock have been duly
authorized and are validly issued, fully paid and
nonassessable. As of December 5, 1997, there were
reservations for outstanding options, warrants and agreements
to purchase up to an aggregate of approximately Two Million
Nine Hundred One Thousand Four Hundred Fortyfour (2,901,444)
shares of Common Stock, at prices ranging from Five and
25/100 Dollars ($5.25) to Fifty-five and No/100 Dollars
($55.00) per share.
(iii) The Notes when issued in compliance
with the provisions of this Agreement, will be duly
authorized and validly issued. The issuance of the Notes will
not be subject to any preemptive rights or rights of first
refusal created by the Company. The shares of Common Stock or
Preferred Stock issuable upon conversion of the Notes have
been duly and validly reserved. The shares of Common Stock
and Preferred Stock issuable upon conversion of the Notes are
not subject to any preemptive rights or rights of first
refusal created by the Company, and upon conversion and
cancellation of the Notes and exercise of the Option will be
duly authorized, validly issued, fully paid and
nonassessable.
(iv) The Company has the requisite corporate
power and authority and has taken all corporate action
necessary in order to authorize, execute and deliver this
Agreement and to consummate the transactions contemplated
hereby and to perform the acts contemplated on its part
hereunder. This Agreement is a valid and legally binding
agreement of the Company enforceable against the Company
in accordance with its terms except as such enforcement may be
limited by bankruptcy, insolvency, moratorium or other similar
laws affecting creditors' rights generally or by equitable
principles.
(v) The offer, sale and issuance of the Notes
and the Preferred Stock or Common Stock issuable
upon conversion thereof as contemplated by this Agreement
are exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act")
and from the registration or qualification requirements of
the laws of any applicable state or other jurisdiction.
Except as the same shall have been made or obtained at or
prior to the Closing, and except for Form D and related state
securities law filings with the Securities and Exchange
Commission and applicable state securities boards to be made
following the Closing, no notices, reports or other filings are
required to be made by the Company with, nor are any
consents, registrations, approvals, permits or
authorizations required to be obtained by the Company from, any
governmental or regulatory authority, agency, commission, court
or other entity, domestic or foreign ("Governmental Entity"),
in connection with the execution and delivery of this
Agreement by the Company, the consummation by the Company of
the transactions contemplated hereby and the performance of
the acts contemplated on the part of the Company hereunder.
(vi) The Company is not in violation of any
term of its Certificate of Incorporation or By-Laws. Except as
may be disclosed in Exhibit "C" hereto, the Company has, to the
best of its knowledge, information and belief, complied in
all material respects with all material leases, contracts,
notes, mortgage, indentures, arrangements or other
obligations and commitments ("Contracts") to which the
Company is a party or by which the Company or its assets are
bound or subject, and there does not currently exist any event
of default under any such agreement or any event which,
after notice or lapse of time or both, would constitute an
event of default under such agreement, plan, arrangement
or commitment, in each case to the extent that such failure
to comply, event of default or event which would
constitute an event of default would result in a Material
Adverse Effect to the Company. The execution and delivery
of this Agreement by the Company do not, and the
consummation by the Company of the transactions
contemplated hereby and the performance of the acts
contemplated on the part of the Company hereunder will not,
constitute or result in (A) a breach or violation of,
or a default under, the Certificate of Incorporation
or By-Laws of the Company, or (B) a breach, violation or
event triggering a right of termination of, or a default
under, or the acceleration of or the creation of a lien,
pledge, security interest or other encumbrance on assets (with
or without the giving of notice or the lapse of time or
both) pursuant to any provisions of any Contract or any law,
rule, ordinance or regulation, agreement, instrument or
judgment, decree, order or award to which the Company is
subject or any governmental or nongovernmental
authorization, consent, approval, registration, franchise,
license or permit under which the Company conducts its
business.
(vii) No investment banker, broker or
finder is entitled to any financial advisory, brokerage or
finder's fee or other similar payment from either the Purchaser
or the Company based on agreements, arrangements or
undertakings made by the Company or any of its directors,
officers or employees in connection with the transactions
and acts contemplated hereby.
(viii) In furnishing information to
Purchaser for purposes of this Agreement, it has not made
any untrue statements of a material fact to Purchaser or
omitted to state a material fact necessary to make such
statements not misleading to Purchaser in light of the
circumstances under which they were made.
(ix) The Company possess all patents,
patent rights, trademarks, service marks, trademark rights,
service mark rights, trade names, trade name rights,
copyrights, mask works, trade secrets, proprietary software,
proprietary rights and process necessary to conduct its
business as now conducted and as planned to be conducted,
without, to the best of the Company's knowledge, conflict with
or infringement upon any valid rights of others, the lack of
which could have a Material Adverse Effect, and has not
received any notice of infringement upon or conflict with the
asserted rights of others. The Company has all permits,
licenses and other similar authority necessary for the conduct
of its business as now being conducted and as planned to
be conducted, the lack of which could have a Material
Adverse Effect, and it is not in default in any material
respect under any of such permits, licenses or other similar
authority.
(x) The Company has heretofore delivered or
made available to the Investor complete and correct copies
of all reports and other filings filed by The Company with
the SEC pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), since January 1, 1994, through
the date hereof (such reports and other filings are
collectively referred to herein as the "Company Exchange Act
Filings"). Except as set forth in Exhibit "D" hereto, as of
their respective dates, the Company Exchange Act Filings
substantially complied in all material respects with the
published rules and regulations of the SEC with respect thereto
and did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
The audited consolidated financial statements of the Company
included in the Company Exchange Act Filings (i) were
prepared from the books and records of the Company, (ii)
were prepared in accordance with generally accepted
accounting principles, except as otherwise permitted under the
Exchange Act and the rules and regulations thereunder and
(iii) present fairly in all material respects the financial
position of the Company as at the dates thereof and the
results of its operations and cash flows for the periods then
ended, subject to the qualifications set forth in the
respective Reports of Independent Auditors thereto.
The unaudited consolidated financial
statements included in the Exchange Act Filings comply in
all material respects with the published rules and regulations
of the SEC with respect thereto; and such unaudited
consolidated financial statements (i) were prepared from the
books and records of the Company, (ii) were prepared in
accordance with generally accepted accounting principles,
except as otherwise permitted under the Exchange Act and the
rules and regulations thereunder, applied on a consistent
basis (except as may be expressly indicated therein or in the
notes thereto) and (iii) present fairly the financial position
of the Company as at the dates thereof and the results of its
operations and cash flows for the periods then ended,
subject to the same qualifications as set forth in the
audited financial statements in the respective Reports of
Independent Auditors, and subject to normal year-end
adjustments which would not have a material adverse effect on
the Company and any other adjustments expressly described
therein or in the notes thereto.
(xi) The Company has no outstanding
indebtedness for borrowed money except as reflected in
the Financial Statements and the notes thereto and is not
a guarantor or otherwise contingently liable for any
such indebtedness (including, without limitation, liability
by way of agreement, contingent or otherwise, to purchase,
provide funds for payment, supply funds or otherwise invest
in any debtor or otherwise to insure any creditor against
loss). The Company is not in material default under the
provisions of any instrument evidencing any indebtedness
of the Company or any agreement relating thereto.
(xii) The Company maintains insurance to
protect the Company and its financial condition against
the risks involved in the business conducted by the Company
to the extent and in the manner customary for companies in
similar businesses similarly situated.
(xiii) There is no litigation, action,
suit, proceeding or investigation pending or threatened
against or affecting the Company before any court or before
any governmental or administrative agency which contests the
Company's right to own, produce, manufacture, update,
maintain, sell or use any product, database, software,
process, method, substance, part or other material presently
or planned to be owned, produced, manufactured, updated,
maintained, sold or used by the Company in connection with the
operations of the Company. The Company has no actual
knowledge or belief that (i) there presently exists, or there
is pending or planned, any patent, invention, device,
application or any statute, rule, law regulation, standard
or code which would have a Material Adverse Effect or (ii)
there is any other factor (other than fire, flood,
earthquake, accident, act of war or civil commotion, or any
other cause or event beyond the control of the Company) which
may Materially Adversely Effect the condition (financial or
otherwise), prospects or operations of the Company.
(xiv) Since the latest date of the
Financial Statements, the Company has conducted business
only in the ordinary and usual course of business and,
other than as specifically or generally reflected on the
Financial Statements, there has not been any event or
condition of any character which, alone or in combination, is
a Material Adverse Effect, including but not limited to:
(a) any material adverse change in
the condition, prospects, assets, liabilities or business of
the Company from that reflected in the Financial Statements;
(b) any damage, destruction or loss of
any of the properties or assets of the Company (whether or
not covered by insurance) materially adversely ffecting the
assets, properties, financial conditions, operations,
prospects, business or plans of the Company;
(c) any material adverse change or
amendments to a contract or arrangement by which the Company
or any of its assets is bound or subject;
(d) any declaration, setting aside or
payment or other distribution in respect of any of the
Company's capital stock, or any direct or indirect redemption,
purchase or other acquisition of any such stock by the
Company;
(e) any waiver by the Company of a
valuable right or material debt owed to it;
(f) any labor trouble, or any event
or condition of any character, materially adversely affecting
the business or plans of the Company.
(xv) The Company has filed within the
time prescribed by law (including extensions of time approved
by the appropriate taxing authority) all tax returns and
reports required to be filed with the United States
Internal Revenue Service and with the State of Delaware and
(except to the extent that the failure to file would not
have a Material Adverse Effect) with all other
jurisdictions where such filing is required by law; and
the Company has paid, or made adequate provision in the
Financial Statements for the payment of, all taxes, interest,
penalties, assessments or deficiencies shown to be due or
claimed to be due on or in respect of such tax returns and
reports. The Company knows of (i) no unpaid assessment for
additional taxes for any fiscal period or any basis therefor
and (ii) no other tax returns or reports which are required
to be filed which have not been so filed.
4B. Representations by Purchaser
The Purchaser represents, warrants and agrees
as follows:
(i) Purchaser is purchasing the Notes for its
own account for the purpose of investment and not with a view
toward the redistribution or resale of any part thereof.
Purchaser has no present arrangement, understanding or
agreement for transferring or
disposing of the Notes;
(ii) Purchaser is aware that the purchase of
the Notes represent speculative investments;
(iii) Before executing this Agreement,
representatives of Purchaser were furnished all information
with respect to the Company that they requested and
representatives of Purchaser were given the opportunity to ask
Company executives all questions that such representatives
had;
(iv) Purchaser confirms that it is an
"Accredited Purchaser," as such term is defined in Rule 501 of
Regulation D promulgated under the Securities Act;
(v) Purchaser confirms that it is able to
bear the economic risk inherent in its investment and
understands that there currently is no, and that there may
not ever be any, private or public market for the Notes
in the event that Purchaser needs to liquidate its
investment;
(vi) Purchaser agrees that it will not offer
or sell the Notes or any of the shares of Common Stock or
Preferred Stock into which the Notes is convertible or which
are issuable upon exercise of the Option unless the Notes or
such shares of Common Stock or Preferred Stock are
registered under the Securities Act and under all
applicable state securities
laws, unless Purchaser has established to the reasonable
satisfaction of the Company that no such registration is
required;
(vii) Purchaser agrees that
appropriate restrictive endorsements will be placed on the
instrument evidencing the Notes and on the certificate(s)
evidencing the shares of Common Stock or Preferred Stock
into which the Notes are convertible or which are issuable
upon exercise of the Option to reflect the foregoing and
that the Company will give appropriate stop transfer
instructions to the person in charge of the transfer of its
securities, including the Notes, the Common Stock and the
Preferred Stock. Upon request of the holder of such Notes or
certificates, the Company shall give an instruction to the
transfer agent to process the transfer if (i) with such request,
the Company shall have received either (A) an opinion of legal counsel,
addressed to the Company and reasonably satisfactory in
form and substance to the Company, to the effect that the
proposed transfer of such securities may be effected without
registration under the Securities Act, or (B) a "noaction"
letter from the Securities and Exchange Commission (the
"Commission") to the effect that the distribution of
such securities without registration will not result
in a recommendation by the staff of the Commission that
action be taken with respect thereto, or (ii) such holder is
eligible to utilize paragraph (k) of Rule 144 (or any
successor rule) as then in effect under the Securities Act;
5. Registration Rights
5A. The Purchaser shall have the following
demand registration rights:
(i) Upon purchase of the Notes, the
Purchaser shall have the right, by written notice to
the Company, to require the Company to use its best
reasonable efforts to file within thirty (30) days
thereafter a Form S-3 registration statement for all shares
of Common Stock issued or issuable upon conversion of the
Notes owned by the Purchaser (also "Demand Covered Shares").
If a Form S-3 is not available, the Company will attempt to
use a Form S-2 or other Form as appropriate.
(ii) The Company shall be entitled to defer
filing any such registration statement for a period of up to
ninety (90) days after such notice upon a good faith
determination by the Company's management that the filing of
a registration statement at such time would be detrimental
to the Company due to the pendency of a material
acquisition or financing or for other reasonable cause.
Purchaser may request that the Company withdraw any such
registration statement at any time prior to its
effectiveness; provided that, any such withdrawn
registration statement shall be treated as a completed
registration fulfilling the obligations of the Company
pursuant to this section unless the Purchaser shall
reimburse the Company for all of the Company's costs and
expenses incurred in connection with such withdrawn
registration within thirty days following the request to
withdraw.
(iii) The Purchaser may elect to have
conversion of the Notes contingent upon a registration
statement hereunder being declared effective.
(iv) In the event a registration statement on
Form S-3 (or on another form at the Company's discretion) has
not been declared effective within one hundred fifty (150) days
of demand, then for each thirty (30) day period thereafter
until a registration statement becomes effective, the
Company shall be required to issue to Purchaser an additional
two percent (2%) of the shares issuable upon conversion of
such Notes.
5B. The Purchaser shall also have
"piggyback" registration rights. If the Company proposes to
sell shares of Common Stock for its own account and to
register the sale of such shares under the Securities Act, or
if the Company proposes to register the sale of shares of
Common Stock to be sold for the account of any other
shareholder, it shall give written notice of such proposed
registration to Purchaser as promptly as possible and shall
use its reasonable efforts to include in the offering such
number of shares of Common Stock received by Purchaser upon
conversion of the Notes ("Piggyback Covered Shares") then
owned by Purchaser as Purchaser shall request, within twenty-
five (25) days after the giving of such notice such offering to
be upon the same terms (including method of distribution) as
the securities being sold by the Company or any selling
shareholder pursuant to any such offering. The Company's
obligation to include Piggyback Covered Shares owned by
Purchaser in any offering shall in all cases be subject to
the following limitations and qualifications:
(i) The Company shall not be required to
give notice to Purchaser or include such shares in any
such registration if the proposed registration is (A) a
registration of a stock option or compensation plan or of
Common Stock issued or issuable pursuant to any such plan,
(B) a registration of Common Stock proposed to be issued in
exchange for securities or assets of, or in connection with a
merger or consolidation with, another corporation, or (C) to
be on a form of registration statement for which the
Piggyback Covered Shares are not eligible;
(ii) The Company may require that the number
of Piggyback Covered Shares requested to be included in
such registration be reduced, or that all such shares be
excluded from any such registration, if it is advised in
writing by its managing underwriter (or, if the offering is
not underwritten, upon a good faith determination by the
Company's board of directors) that such reduction or
exclusion, as the case may be, is necessary to avoid
materially adversely affecting the public offering of the
securities being offered by the Company. If the Company shall
require such a reduction, Purchaser shall have the right to
withdraw from the
offering;
(iii) In the event that the number of
shares of Common Stock included in any registration is to be
reduced pursuant to Section 6B(ii):
(A) If the registration in question is
one initiated by the Company in order to allow the sale of
Common Stock for the account of the Company, then any
reduction in the number of shares to be included in such
registration shall first affect only shares other than the
shares the Company proposes to sell for its own account.
(B) If the registration in question is
one initiated by any person or persons other than the
Company exercising demand registration rights in order to allow
the sale of Common Stock for the account of such person or
persons, then any reduction in the number of shares to be
included in such registration shall first affect only shares
other than the shares of Common Stock requested to be included
by the person or person initiating the registration by the
exercise of demand registration rights requested to be
included in the registration by Holders; and
(C) Subject to subparagraphs (A) and
(B) above, in the event that the Company requires that the
number of shares to be included in a registration be
reduced, such reduction shall be applied pro rata among all
parties having registration rights in proportion to the
number of shares requested to be registered by each.
(iv) The Company shall not be required to
include any Piggyback Covered Shares in any registration to
the extent that the inclusion thereof would result in a
reduction in the number of shares requested to be included in
the registration by the person or persons (including the
Company) initiating the registration in question or would
reduce the per share price of the offering.
(v) The Company may, in its sole discretion
and without the consent of Purchaser, withdraw such
registration statement and abandon the proposed offering in
which Purchaser had requested to participate.
5C. In connection with a registration of
Covered Shares undertaken by the Company pursuant to this Part
6, the Company shall:
(i) prepare and file with the Commission
such amendments and supplements to such registration statement
and the prospectus used in connection therewith as may be
necessary to keep such registration statement current as long
as is reasonably possible as Purchaser shall request and to
comply with the provisions of the Securities Act with respect
to the sale of all Covered Shares covered by such registration
statement during such period;
(ii) provide Purchaser a reasonable opportunity
to review prior to filing any registration statement filed by
the Company in connection with a registration in which
Purchaser is participating, any amendments or supplements to
such registration statement and any prospectus used in
connection therewith;
(iii) furnish to Purchaser such number
of conformed copies of such registration statement and of each
such amendment and supplement thereto (in each case
including all exhibits), such number of copies of the
prospectus included in such registration statement, in
conformity with the requirements of the Securities Act, and
such other documents as Purchaser may reasonably request in
order to facilitate the sale of the Covered Shares covered by
such registration statement;
(iv) use its best efforts to register or
qualify the Covered Shares covered by such registration
statement under such other securities or blue sky laws of
such jurisdictions as Purchaser shall reasonably request, and
do any and all other acts and things which may be reasonably
necessary or advisable to enable Purchaser to consummate the
sale in such jurisdictions of such shares; provided that the
Company shall not for any such purpose be required to
register or qualify the covered shares covered by such
registration statement in any jurisdiction in which the
Common Stock is not then qualified for public trading, to
qualify generally to do business as a foreign corporation in
any jurisdiction wherein it would not but for the requirements
of this section be obligated to be so qualified, to subject
itself to taxation in any such jurisdiction or to consent to
general service of process in any such jurisdiction;
(v) notify Purchaser at any time when
a prospectus relating to the Covered Shares covered by
such registration statement is required to be delivered
under the Securities Act, of the Company's becoming aware
that the prospectus included in such registration statement,
as then in effect, includes an untrue statement of a material
fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing,
and at the request of Purchaser promptly prepare and
furnish to Purchaser a reasonable number of copies of a
prospectus supplemented or amended so that, as thereafter
delivered to the purchasers of such shares, such prospectus
shall not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading
in light of the circumstances then existing;
(vi) use its best efforts to cause all of
the Covered Shares included in such registration statement to
be listed on each securities exchange on which securities of
the same class issued by the Company are then listed or, if
there shall then be no such listing, to be accepted for
quotation on NASDAQ;
(vii) provide a transfer agent and
registrar for the Covered Shares covered by such registration
statement not later than the effective date of such
registration statement; and
5D. For as long as Purchaser shall continue to
hold any Covered Shares, the Company shall use reasonable
efforts to file, on a timely basis, all annual, quarterly and
other reports required to be filed by it under Sections 13
and 15(d) of the Exchange Act, and the rules and
regulations of the Commission thereunder, as amended
from time to time. In the event of any proposed sale of
Covered Shares by Purchaser pursuant to Rule 144 (or any
successor rule) under the Securities Act, the Company shall
cooperate with Purchaser so as to enable such sales to be made
in accordance with applicable laws, rules and
regulations, the requirements of the Company's transfer
agents, and the reasonable requirements of the broker through
which the sales are proposed to be executed.
5E. The costs and expenses of any
registration effected pursuant to this Part 6 shall be
allocated as provided in this Section 6E:
(i) "Registration Expenses" shall mean
all expenses incurred by the Company in complying with this
Part 6, including, without limitation, all registration,
qualification and filing fees, printing expenses, escrow fees,
transfer agents' and registrars' fees, fees and disbursements
of counsel for the Company, blue sky fees and expenses,
and the expense the Company's accountants, including the
cost of any special audits incident to or required by any
such registration (but excluding the compensation of regular
employees of the Company which shall be paid in any event by
the Company);
(ii) "Selling Expenses" shall mean all
underwriting discounts and selling commissions applicable to
the sale and all fees and disbursements of counsel for any
holder;
(iii) In connection with any
registration pursuant to Section 6A, the company shall pay
all Registration Expenses and Purchaser shall pay all
Selling Expenses;
(iv) In connection with any registration
initiated by the Company in which Purchaser
participates pursuant to Section 6B, the Company or
other person initiating the registration shall pay all
Registration Expenses, and Purchaser shall pay all
Selling Expenses attributable to the inclusion in the
offering of the Covered Shares being sold by Purchaser.
5F. In the case of the registration effected by the
Company pursuant to this part, the Company agrees to indemnify
and hold harmless Purchaser, each underwriter of the Covered Shares so
registered and each person who controls any such
underwriter within the meaning of Section 15 of the
Securities Act, against any and all losses, claims,
damages or liabilities to which they or any of them
may become subject under the Securities Act or any
other statute or common law, including any amount paid
in settlement of any litigation, commenced or
threatened, if such settlement is effected with the
written consent of the Company, and to reimburse them for
any legal or other expenses incurred by them in
connection with investigating any claims and defending any
actions, insofar as any such losses, claims, damages,
liabilities or actions arise out of or are based upon (i)
any untrue statement or alleged untrue statement of a
material fact contained in the registration statement
relating to the sale of the Covered Shares, or any post-
effective amendment thereto, or the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements
therein not misleading, or (ii) any untrue statement
or alleged untrue statement of a material fact
contained in any preliminary prospectus, if used prior
to the effective date of such registration statement, or
contained in the final prospectus (as amended or
supplemented if the Company shall have filed with the
Commission any amendment thereof or supplement thereto)
if used within the period during which the Company is
required to keep the registration statement to which such
prospectus relates current, or the omission or
alleged omission to state therein (if so used) a material
fact necessary in order to make the statements
therein, in light of the circumstances under which
they were made, not misleading; provided, however,
that the indemnification agreement contained in this
section shall not (x) apply to such losses, claims,
damages, liabilities or actions arising out of, or based
upon, any such untrue statement or alleged untrue
statement, or any such omission or alleged omission, if
such statement or omission was made in reliance upon
and in conformity with information furnished in writing
to the Company by Purchaser or such underwriter for
use in connection with the preparation of the
registration statement, any preliminary prospectus or
final prospectus contained in the registration
statement, or any amendment or supplement thereto, or
(y) inure to the benefit of any underwriter or any
person controlling such underwriter, if such underwriter
failed to send or give a copy of the final prospectus
to the person asserting the claim at or prior to the
delivery of certificates representing Covered Shares
or of written confirmation of the sale of Covered Shares
to such person and if the untrue statement or omission
concerned had been corrected in such final prospectus.
5G. In the case of a registration effected
by the Company pursuant to this part, Purchaser and each
underwriter of the Covered Shares to be registered
shall agree in the same manner and to the same extent
as set forth above to indemnify and hold harmless the
Company, each person who controls the Company, the
directors of the Company and those of its officers who
shall have signed any such registration statement, with
respect to any untrue statement or alleged untrue
statement in, or omission or alleged omission from, such
registration statement or any posteffective amendment
thereto or any preliminary prospectus or final
prospectus (as amended or as supplemented, if amended or
supplemented as aforesaid) contained in such
registration statement, if such statement or omission
was made in reliance upon and in conformity with
information furnished in writing to the Company by
Purchaser or any such underwriter for use in connection
with the preparation of such registration statement or any
preliminary prospectus or final prospectus contained in
such registration statement or any such amendment or
supplement thereto.
5H. Each indemnified party shall, with
reasonable promptness after its receipt of written
notice of the commencement of any action against such
indemnified party in respect of which indemnity may be
sought from an indemnifying party on account of an
indemnity agreement contained in this part, notify
the indemnifying party in writing of the commencement
thereof. In case any such action shall be brought
against any indemnified party and it shall so
notify an indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate
therein and, to the extent it may wish, jointly with any
other indemnifying party similarly notified, to assume
the defense thereof with counsel reasonably satisfactory
to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its
election so to assume the defense thereof, the
indemnifying party shall not be liable to such
indemnified party under this part for any legal or other
expenses subsequently incurred by such indemnified party
in connection with the defense thereof other than
reasonable costs of investigation. The indemnity
agreements in this part shall be in addition to any
liabilities that the indemnifying parties may have
pursuant to law.
5I. If the indemnification provided for in
this part shall be unavailable to or insufficient to
hold harmless an indemnified party under sections above
in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to
therein, then the indemnifying parties shall
contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof)
in such proportions as are appropriate to reflect to
the relative benefits received by the respective
indemnifying parties from the offering of the Covered
Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by
applicable law, or if the indemnified party failed to
give the notice required under section 6H above,
then each indemnifying party shall contribute to such
amount paid by or payable by such indemnified party in
such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the
indemnifying parties in connection with the statements
or omissions which resulted in such losses, claims,
damages or liabilities (or actions in respect
thereof) as well as any other relevant equitable
considerations. The relative benefits received by the
indemnifying parties shall be deemed to be in the same
proportion as the net proceeds to any such party bear to
the total net proceeds from the offering before
deducting expenses. The relative fault shall be
determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a
material fact relates to information supplied by the
respective indemnifying party and the parties' relative
intent, knowledge, access to information
and opportunity to correct or prevent such statement
or omission. Provided in no event shall Purchaser's
liability pursuant to these indemnity provisions be
greater than the amount paid for the Notes and
shares of Common Stock purchased pursuant to this
Agreement and the Exhibits.
6. Miscellaneous
6A. Successors and Assigns. Except as
otherwise expressly provided herein, all covenants and
agreements contained in this Agreement by or on behalf
of any of the parties hereto will bind and inure to the
benefit of the respective successors and assigns of the
parties hereto whether so expressed or not; provided
that, the registration rights granted to the Purchaser
shall not be transferred or assigned by Purchaser other
than to an entity wholly owned by Investor.
6B. Severability. Whenever possible, each
provision of this Agreement will be interpreted in such
manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to
be prohibited by or invalid under applicable law, such
provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the
remainder of this Agreement.
6C. Counterparts. This Agreement may be
executed simultaneously in two or more counterparts, any
one of which need not contain the signatures of more than
one party, but all such counterparts taken together will
constitute one and the same Agreement.
6D. Descriptive Headings. The descriptive
headings of this Agreement are inserted for convenience
only and do not constitute a part of this Agreement.
6E. Governing Law; Venue. The corporate
law of Delaware will govern all issues concerning the
relative rights of the Company and its stockholders. All
other questions concerning the construction, validity and
interpretation of this Agreement and the exhibits,
including the Notes and Option, and schedules hereto will
be governed by the internal law, and not the law of
conflicts, of Delaware. It is the intention of the parties
that proper venue for any action, suit or proceeding
arising pursuant to this Agreement or in connection
with the transactions contemplated herein shall be in
Delaware. Each party agrees that any such action, suit
or proceeding shall be brought before a state or
federal court sitting in the State of Delaware and
waives any objection to venue in such court. Each party
waives the right to demand a jury in any action, suit
or proceeding arising pursuant to this Agreement.
6F. Notices. All notices, demands or
other communications to be given or delivered under or by
reason of the provisions of this Agreement (other than
notice of a telephonic meeting of the Company's board of
directors, which may be given by telephone) will be in
writing and will be deemed to have been given either when
delivered personally or three (3) business days after
having been mailed by certified or registered mail, return
receipt requested and postage prepaid, to the
recipient. Such notices, demands and other communications
will be sent to the Purchaser and to the Company at the
address indicated below:
If to the Company:
Electrosource, Inc.
2809 Interstate 35 South
San Marcos, Texas 78666
Attention: President
With a copy to:
Bret Van Earp
Attorney-at-Law
100 Congress Avenue, Suite 1800
Austin, Texas 78701
If to the Purchaser:
Corning Incorporated
Attn: Corporate Secretary
One Riverfront Plaza
Corning, New York 14831
or to such other address or to the attention of such other
person as the recipient party has specified by prior
written notice to the sending party.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement on the date first written above.
ELECTROSOURCE, INC. CORNING INCORPORATED
By: /s/ MICHAEL G. SEMMENS By:/s/ DAVID H. FULLER
Michael G. Semmens
President, CEO and Printed Name: David H. Fuller
Chairman of the Board
Its: Division Vice President and
Director
Exhibit "A" to Note Purchase Agreement
5% Convertible Promissory Note
EXHIBIT "A"
TO NOTE PURCHASE AGREEMENT DATED
DECEMBER 19, 1997
5% CONVERTIBLE PROMISSORY NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE ("BLUE SKY LAWS"), AND MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
DELIVERY TO THE COMPANY OF EVIDENCE SATISFACTORY TO THE
COMPANY TO THE EFFECT THAT AN EXEMPTION FROM
REGISTRATION THEREUNDER IS AVAILABLE.
Dated __________
$________________
FOR VALUE RECEIVED, Electrosource, Inc., a
Delaware corporation (the "Company"), hereby promises to pay
to the order of Corning Incorporated, a New York
corporation ("Corning" or the "original holder"), the
principal sum of _______________________ ($__________)
together with interest thereon calculated from the date
hereof, in accordance with the provisions of this Note.
This Note is one of the 5% Convertible Promissory Notes
(the "Note") issued pursuant to a Note Purchase Agreement
dated as of December ___, 1997, between the Company
and Corning (the "Purchase Agreement"). The Purchase
Agreement contains terms governing the rights and
obligations of the holder of this Note, and all
provisions of the Purchase Agreement are incorporated
herein by reference. Unless otherwise indicated
herein, capitalized terms used in this Note have the same
meanings as set forth in the Purchase Agreement.
Part 1. Payment of Interest
lA. Rate of Interest. Interest shall accrue at the
rate of five percent (5%) per annum on the unpaid
principal amount of this Note outstanding from time to
time. Interest shall be paid in cash or, upon prior
written consent of Corning, in additional Notes having
terms identical to this Note except in respect of
principal amount, dated as of the Payment Date (as defined
below) with respect to which such interest is payable
and having a principal amount equal to the amount of
interest accrued and unpaid as of that Payment Date.
lB. Payment Dates. On June 19, 1998, and December 19,
1998 (each of which dates shall be a "Payment
Date"), all unpaid interest that has accrued on the unpaid
principal amount of this Note on and prior to such Payment
Date or on any overdue interest on this Note shall become
due and payable.
lC. Payment upon Maturity or Prepayment. All
accrued interest that has not theretofore been paid shall be
paid in full on the date on which the entire principal
amount outstanding under this Note is paid,
whether upon maturity or upon prepayment. In the event
that any portion less than the entire outstanding principal
amount of this Note is prepaid pursuant to paragraph 2B,
the accrued interest applicable to such portion prepaid
shall be paid as of the effective date of such partial
prepayment.
lD. Saving Clause. All agreements and transactions
between the Company and the holder of this Note, whether now
existing or hereafter arising, whether contained herein
or in any other instrument, and whether written or oral,
are hereby expressly limited so that in no contingency or
event whatsoever, whether by reason of acceleration of the
maturity hereof, prepayment, demand for prepayment or
otherwise, shall the amount contracted for, charged or
received by the holder of this Note from the Company for
the use, forbearance or detention of the principal
indebtedness or interest hereof, which remains unpaid from
time to time, exceed the maximum amount permissible under
applicable law, it particularly being the intention of the
parties hereto to conform strictly to the applicable law
of usury. Any interest payable hereunder or under any
other instrument relating to the indebtedness evidenced
hereby that is in excess of the legal maximum, shall,
in the event of acceleration of maturity, prepayment,
demand for prepayment or otherwise, be automatically, as of
the date of such acceleration, prepayment, demand or
otherwise, applied to a reduction of the principal
indebtedness hereof and not to the payment of interest, or
if such excessive interest exceeds the unpaid balance of
such principal, such excess shall be refunded to the
Company. To the extent not prohibited by law,
determination of the legal maximum rate of interest shall
at all times be made by amortizing, prorating, allocating
and spreading in equal parts during the period of the full
stated term of the indebtedness, all interest at any time
contracted for, charged or received from the Company
in connection with the indebtedness, so that the actual
rate of interest on account of such indebtedness is
uniform throughout the term hereof.
Part 2. Payment of Principal
2A. Payment upon Maturity. The entire unpaid
principal amount hereof shall be due and payable on December
19, 1998.
2B. Prepayment. The Company may prepay all or any
part of this Note at any time in One Hundred Thousand
Dollar ($100,000) increments. The Company shall give not
less than thirty (30) days prior written notice of its
intention to prepay this Note.
Part 3. Registration of Transfer
The Company shall keep at its principal office a
register for the registration of Notes, which shall contain
the name and address of the registered holder (herein
referred to as the holder) of the Note and the principal
and interest of the Note. No transfer of the Note or any
right to receive payments under the Note shall be
permitted unless made upon the Company's register. Upon
the surrender of any Note or Notes at such place, the
Company shall, at the request of the holder of such Note,
execute and deliver (at the Company's expense) a new Note
or Notes in exchange therefor representing in the
aggregate the principal amount represented by the
surrendered Note. Each such new Note shall be registered
in such name and shall represent such principal amount of
Note as is requested by the holder of the surrendered Note
and shall be substantially identical in form to the
surrendered Note, and interest shall accrue on such new
Note from the date to which interest has been fully paid on
such Note represented by the surrendered Note; provided
that, if any Note is to be registered in the name of a
person or persons other than the holder of the Note, there
has been compliance with all laws applicable to such
change of registered holder, including but not limited to
federal and state securities laws.
Part 4. Replacement
Upon receipt of evidence reasonably satisfactory to
the Company of the ownership and the loss, theft,
destruction or mutilation of any Note, and in the case of
any such loss, theft or destruction, upon receipt of
indemnity reasonably satisfactory to the Company, or, in
the case of any such mutilation upon surrender of such
Note, the Company shall (at its expense) execute and
deliver in lieu of such Note, a new Note of like kind
representing the principal amount of Note represented by
such lost, stolen, destroyed or mutilated Note and dated
the date of such lost, stolen, destroyed or mutilated
Note, and interest shall accrue on the Note represented
by such new Note from the date to which interest has been
fully paid on such lost, stolen, destroyed or mutilated
Note.
Part 5. Cancellation
After all principal and accrued interest at any time
owed on this Note has been paid in full, this Note shall be
surrendered to the Company for cancellation and shall not be
reissued.
Part 6. Waiver of Notice, etc.
The Company hereby waives presentment, demand,
notice, protest and all other demands and notice in
connection with the delivery, acceptance, performance and
enforcement of this Note, and assents to extension of the
time of payment or forbearance or other indulgence without
notice.
Part 7. Events of Default
7A. Events of Default. Each of the following
shall constitute an Event of Default:
(i) the Company fails to pay when due the full
amount of any principal or interest on this Note whether at
maturity or by acceleration or otherwise;
(ii) the Company makes an assignment for the
benefit of creditors or admits in writing its inability to
pay its debts generally as they become due; or an order,
judgment or decree is entered adjudicating the Company
bankrupt or insolvent; or the Company petitions or
applies to any tribunal for the appointment of a trustee,
receiver or liquidator of the Company or of any
substantial part of the assets of the Company, or commences
any proceeding under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution
or liquidation law of any jurisdiction; or any such
petition or application is filed, or any such proceeding
is commenced against the Company and either the Company
takes any action indicating its approval thereof, consent
thereto, or acquiescence therein or such petition,
application or proceeding is not dismissed within ninety
(90) days;
(iii) the sale by the Company of a material
part of the business or assets of the Company other than in
the ordinary course of business;
(iv) the taking, closing or nationalization of
a material part of the business or assets of the
Company by governmental or legal action. A "material part
of the business or assets of the Company" means more than
one-third of the gross assets of the Company as set forth
in its most recent audited consolidated financial
statements;
(v) any representation or warranty of the
Company set forth in the Purchase Agreement is shown to be,
or becomes false or untrue as of the date of this Note.
7B. Remedies. Upon the occurrence and
continuance of any Event or Events of default, the
holders of a majority of the combined aggregate principal
amount outstanding under this Note and any Notes issued in
payment of accrued interest on Notes may, by written notice
to the Company, declare all or any part of the unpaid
principal amount of the Notes then outstanding to be
forthwith due and payable, and thereupon such unpaid
principal amount or part thereof, together with interest
accrued thereon, shall become so due and payable
without presentation, presentment, protest, notice of
intent to accelerate, notice of acceleration, or further
demand or notice of any kind, all of which are hereby
expressly waived, and such holder or holders may proceed to
enforce payment of such amount or part thereof in such
manner as it or they may elect. The Company hereby waives to
the extent not prohibited by applicable law which cannot
itself be waived (i) all presentments, demands for
performance, notices of nonperformance (except to the
extent required by the provisions hereof), (ii) any
requirement of diligence or promptness on the part of
any holder of Notes in the enforcement of its rights under
the provisions of this Note, and (iii) any and all notices
of every kind and description which may be required to be
given by any statute or rule of law.
Part 8. Conversion into Common Stock
8A. Conversion Procedure.
(i) At any time on or before payment in full of
the principal and accrued interest outstanding hereunder,
the holder of this Note may convert all or any portion of
the outstanding principal amount hereof (plus accrued but
unpaid interest on such principal amount or portion thereof)
held by such holder into a number of shares of the
Company's Common Stock computed by dividing the
principal amount of this Note (plus accrued but unpaid
interest thereon) to be converted by the "Conversion
Price" (as defined below in Part 8B).
(ii) Each conversion will be deemed to have
been effected as of the close of business on the date on
which the instrument representing this Note has been
surrendered at the principal office of the Company. At
such time as such conversion has been effected, the rights
of the holder of this Note as such holder will cease and
the person or persons in whose name or names any
certificate or certificates for shares of Common Stock are
to be issued upon such conversion will be deemed to have
become the holder or holders of record of the shares of
Common Stock represented thereby.
(iii) As soon as possible after a conversion
has been effected (but in any event within three (3)
business days in the case of subparagraph (a) below), the
Company will deliver to the converting holder:
(a) a certificate representing the
number of shares of Common Stock issuable by reason of such
conversion in such name or names and such denomination or
denominations as the converting holder has specified
(provided that, in the event that the name specified by the
converting holder is other than that of the converting
holder, the Company has received evidence satisfactory
to Company counsel that the transfer of Common Stock from
the converting holder to the person specified may be
accomplished without violation of applicable law);
(b) a replacement Note having terms
identical to those of this Note other than the principal
amount, which shall be equal to portion of the principal
amount of the original Note not converted; and
(c) the amount payable under subparagraph
(vi) below with respect to fractional shares of Common Stock
otherwise issuable upon such conversion.
(iv) The issuance of certificates for shares of
Common Stock upon conversion of this Note will be made
without charge to the holder of such Note for any issuance
tax in respect thereof or other cost incurred by the
Company in connection with such conversion and the
related issuance of shares of Common Stock. Upon
conversion of this Note, the Company will take all such
actions as are necessary in order to insure that the Common
Stock issuable with respect to such conversion will be
validly issued, fully paid and nonassessable.
(v) The Company will not close its books against
the transfer of this Note or of Common Stock issued or
issuable upon conversion of this Note in any manner which
interferes with the timely conversion of this Note.
(vi) If any fractional interest in a share of
Common Stock would, except for the provisions of this
subparagraph (vi), be deliverable upon any conversion of
this Note, the Company, in lieu
of delivering the fractional share therefor, may at its
option pay a cash adjustment for such fractional share
equal to such fraction times the fair market value per share
of the Common Stock at the close of business on the date
of conversion, as determined in good faith by the board
of directors of the Company.
(vii) The provisions of this part 8
shall be subject to the limitations imposed by section 2B
hereof.
8B. Conversion Price. The Conversion Price shall be equal
to the closing price of the Company's common stock as
reported by NASDAQ on December 19, 1997, plus $1.00. In
order to prevent dilution of the conversion rights granted
under this part 8, the Conversion Price will be subject to
adjustment from time to time pursuant to this part 8;
provided that the Conversion Price will in no event be
less than One and No/100 Dollars ($1.00), the par value.
8C. Subdivision or Combination of Common Stock. If
the Company at any time subdivides (by any stock
split, stock dividend, recapitalization or otherwise) its
outstanding shares of Common Stock into a greater number
of shares, the Conversion Price in effect immediately
prior to such subdivision will be proportionately reduced,
and if the Company at any time combines (by reverse stock
split or otherwise) its outstanding shares of Common Stock
into a smaller number of shares, the Conversion Price in
effect immediately prior to such combination will be
proportionately increased.
8D. Reorganization, Reclassification, Consolidation,
Merger or Sale. Any reorganization, reclassification,
consolidation, merger or sale of all or substantially all
of the Company's assets to another Person which is
effected in such a way that holders of Common Stock are
entitled to receive (either directly or upon subsequent
liquidation), stock, securities or amounts with
respect to or in exchange for Common Stock is referred to
herein as an "Organic Change." Prior to the consummation of
any Organic Change, the Company will make appropriate
provisions (in form and substance satisfactory to the
holders of a majority of the outstanding principal amount
of Notes then outstanding) to insure that each of the
holders of Notes will thereafter (for so long as such
holders have the right to convert the Notes as provided
in this part 8) have the right to receive, in lieu of or in
addition to the shares of Common Stock immediately
theretofore issuable upon the conversion of such holder's
Notes, such shares of stock, securities or assets as such
holder would have received in connection with such
Organic Change if such holder had converted his Notes
immediately prior to such Organic Change. In any such case,
the Company will make appropriate provisions (in form and
substance satisfactory to the holders of a majority of the
outstanding principal amount of Notes then outstanding) to
insure that the provisions of this part 8 will thereafter
(for so long as such holders have the right to convert
the Notes as provided in this part 8) be applicable to the
Notes.
8E. Notices. Until the maturity of this Note:
(i) Immediately upon any adjustment of the
Conversion Price, the Company will give written notice
thereof to the holder of this Note.
(ii) The Company will give written notice to the
holder of this Note at least twenty (20) days prior to the
date on which the Company closes its books or takes a
record (a) with respect to any dividend or distribution
upon Common Stock, (b) with respect to any pro rata
subscription offer to holders of Common Stock or (c) for
determining rights to vote with respect to any Organic
Change, dissolution or liquidation.
(iii) The Company will also give written
notice to the holder of this Note at least thirty (30) days
prior to the date on which any Organic Change will take
place.
Part 9. Conversion into Preferred Stock.
9A. Conversion Procedure.
At any time on or before payment in full of
the principal and accrued interest outstanding hereunder,
the holder of the Note may apply the principal and
accrued interest outstanding hereunder against the purchase
price of 5% Cumulative Convertible Preferred Stock as
provided in Exhibit "B" hereto, the "Securities Purchase
Agreement."
Part 10. Amendment and Waiver
No amendment, modification or waiver shall be binding
or effective with respect to any provision of this Note
without the prior written consent of the holders of at
least sixtyseven percent (67%) of the combined aggregate
principal amount of this Note and any additional Notes
issued in payment of accrued interest then outstanding.
Part 11. Notices
Except as otherwise expressly provided, all
notices referred to herein will be in writing and will be
delivered by registered or certified mail, return receipt
requested, postage prepaid and will be deemed to have been
given when so mailed (i) to the Company, at its principal
executive offices and (ii) to any holder of this Note, at
such holder's address as it appears in the Note register
maintained pursuant to part 3 hereof (unless
otherwise indicated by any such holder).
IN WITNESS WHEREOF, the Company has executed and
delivered this Note on __________.
ELECTROSOURCE, INC.
By:/s/ MICHAEL G. SEMMENS
Printed Name: Michael G. Semmens
Its: President, CEO and Chairman of the Board
EXHIBIT "B"
TO
NOTE PURCHASE AGREEMENT DATED
DECEMBER 19, 1997
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (the "Agreement") is
made and entered into as of December __, 1997, by
and among Electrosource, Inc., a Delaware corporation (the
"Company"), and Corning Incorporated, a New York
corporation (the "Investor"). The parties hereto agree as
follows:
1. Authorization and Terms of 5% Cumulative
Convertible Preferred Stock. The Company will authorize the
issuance and sale to the Investor of 200,000 shares of the
Company's 5% Cumulative Convertible Preferred Stock par
value $1.00 per share ("5% Cumulative Convertible
Preferred Stock") having the designations, rights and
preferences set forth in the Company's Certificate of
Designation attached hereto as Exhibit "A."
2. Purchase and Sale of 5% Cumulative Convertible
Preferred Stock. At the Closing (as defined in part 3), the
Investor will purchase 200,000 shares of 5% Cumulative
Convertible Preferred Stock for an aggregate consideration
of Two Million Dollars ($ 2,000,000.00). The initial
conversion price per common share shall be equal to the
closing price of the Company's common stock as reported by
NASDAQ on December 19, 1997, plus $1.50. The Investor
will deliver the consideration for the 5% Cumulative
Convertible Preferred Stock at the Closing in the form of
(i) a certified, cashier's or other check acceptable to the
Company or by wire transfer of funds to an account designated
by the Company or (ii) the Notes issued pursuant to the Note
Purchase Agreement dated December 19, 1997, marked "paid in
full," or (iii) by a combination thereof, in any case by
mail or as the parties may otherwise agree. Delivery of
the Notes marked "paid in full" shall result in a credit
to the Investor of an amount equal to the
principal and accrued interest outstanding thereunder; any
credit balance due to the investor shall be paid to the
investor at the Closing in the form of a certified,
cashier's or other check acceptable to the Investor or by
wire transfer of funds to an account designated by the
Investor.
3. Closing. The closing of the purchase and sale of the
5% Cumulative Convertible Preferred Stock (the "Closing")
will take place by mail or as the parties may otherwise
agree. At the Closing, the Company will deliver to the
Investor a certificate evidencing the 5% Cumulative
Convertible Preferred Stock to be purchased by the
Investor, registered in the name of Investor or its nominee,
upon payment of the consideration for the 5% Cumulative
Convertible Preferred Stock purchased at the Closing in the
form and amount described above. The Closing will be held on
or before December 19, 1998, or at such other time and
location as may be mutually agreed upon by the parties.
4. Closing Documents. At the Closing, the Company will
deliver to the Investor all of the following documents:
(i) certified copies of the resolutions duly adopted
by the Company's board of directors authorizing the
execution, delivery and performance of this Agreement,
the issuance and sale of the 5% Cumulative Convertible
Preferred Stock and the consummation of all other
transactions contemplated by this Agreement;
(ii) copies of the Certificate of Incorporation and
the Company's By-Laws, each certified by the Secretary
of the Company as in effect at the Closing;
(iii) a certificate, executed by an officer of the
Company on its behalf, certifying that the
representations and warranties of the Company
contained herein are true and correct in all material
respects as of the Closing; and
(iv) such other documents relating to the
transactions contemplated by this Agreement as the
Investor may reasonably request.
5. Covenants. The Company covenants and agrees with
the Investor as follows:
5A. Financial Statements and Other Information. The
Company will deliver to the Investor (so long as such
Investor holds any 5% Cumulative Convertible Preferred
Stock) copies of all reports required to be filed by the
Company pursuant to sections 13 and 14 of the Securities
Exchange Act of 1934.
5B. Reservation of Common Stock. The Company will at all
times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of
issuance upon the conversion of the 5% Cumulative
Convertible Preferred Stock, such number of shares of Common
Stock as are issuable upon the conversion of the 5%
Cumulative Convertible Preferred Stock. All shares of
Common Stock which are so issuable will, when issued, be
duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges. The Company will take
all such actions as may be necessary to assure that all such
shares of Common Stock may be so issued without violation of
any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon
which shares of Common Stock may be listed (except for
official notice of issuance which will be immediately
transmitted by the Company upon issuance).
5C. Investor's Option to Require More Favorable Terms. If the
Company enters into any agreement (or series of related
agreements) involving the sale of 5% Cumulative
Convertible Preferred Stock or of any other class or series
of the Company's Preferred Stock, $1.00 par value
("Preferred Stock"), having an aggregate purchase price
of at least Five Hundred Thousand Dollars ($500,000)
within two years after the execution of this Agreement by
the Company and the Investor, the Investor shall have the
right, at its option and upon written notice to the
Company:
(i) if the security issued or to be issued
pursuant to such agreement or series of agreements is
5% Cumulative Convertible Preferred Stock, to require
that the terms of this Agreement be amended to
provide, to the extent reasonably practicable, the
same terms and conditions as those contained in such
subsequent agreement or series of agreements,
provided that the aggregate investment in the Company
by the Investor pursuant to such revised agreement
shall not be less than Two Million Dollars ($2,000,000);
(ii) to the extent permitted by applicable laws
(including without limitation laws pertaining to unlawful
distributions and fraudulent conveyance), to rescind this
Agreement, and to enter into a new agreement for the
purchase of securities having an aggregate purchase price of
Two Million Dollars ($2,000,000) on the terms and conditions
offered pursuant to such subsequent agreement or series of
agreements, provided that the Company shall not be required
to pay any amount to the Investor in respect of the
rescission of this Agreement, but shall instead be allowed
to retain the purchase price paid hereunder as payment of
the purchase price under the substituted agreement. The
provisions of this subparagraph (ii) shall not apply unless
the rescission and purchase can be effected pursuant to the
exemption from registration provided by Rule 506 of
Regulation D of the Securities and Exchange Commission.
5D. Company's Option to Require Dividend Reinvestment.
The Company shall pay any regular semiannual dividend
payable upon the 5% Cumulative Convertible Preferred Stock in
cash; provided, however, that the Company may elect when and
if the same may be declared, but only in accordance with
the actual declaration of such dividend, to require the
Investor to reinvest all or any portion of such cash
dividends toward the purchase of additional newly issued
shares of 5% Cumulative Convertible Preferred Stock, at a
purchase price per share equal to the Liquidation Value. If
the Company elects to require any such reinvestment, the
Company shall give notice of such election to the Investor
within three (3) business days after such dividend is
declared, stating the total amount of the dividend and the
portion thereof as to which the Company has elected to
require such reinvestment. The Company shall deliver to
the Investor a certificate evidening the additional shares
of 5% Cumulative Convertible Preferred Stock so issued
within five (5) business days after the record date in
respect of such dividend. Any shares of 5% Cumulative
Convertible Preferred Stock issued pursuant to this paragraph
5D shall be duly authorized, validly issued, fully paid,
nonassessable and subject to and participating in all
rights, privileges, preferences and priorities provided
for in this Agreement.
The Company may, as a condition to the Investor's
right to transfer any shares of 5% Cumulative
Convertible Preferred Stock, require that the transferee
enter into an agreement to be bound by the provisions of
this Section 5D.
5E. The Company agrees to indemnify and hold harmless the
Investor and each of its directors, employees, agents
and representatives against all losses, damages, claims and
expenses (including reasonable attorneys' fees) arising
from the assertion of claims against the Investor related
to the sale to parties other than the Investor of 5%
Cumulative Convertible Preferred Stock, or securities having
similar terms and conditions, however arising including,
without limitation, from representations, warranties,
agreements or other conversations or documents such as the
Private Placement Memorandum of the Company dated October
1997, or any similar memorandum, prospectus or offering
circular, that have been or may be issued or communicated
in respect of such securities, as any such of the above
may be amended, restated or otherwise modified.
6. Representations and Warranties.
6A. Representations by Company. The Company
represents, warrants and agrees as follows:
(i) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware and is in good standing as a foreign corporation in
each jurisdiction where the properties owned, leased or
operated, or the business conducted, by it require such
qualification, except for such failure to so qualify or be
in such good standing, which, when taken together with all
other such failures, is not reasonably likely to have a
material adverse effect on the financial condition,
properties, business or results of operations of the Company
or the interest of shareholders in the Company (a "Material
Adverse Effect"). The Company has the requisite corporate
power and authority to carry on its businesses as they are
now being conducted.
(ii) The authorized capital stock of the Company as of
the date hereof consists of 50,000,000 shares of Common
Stock, of which 4,230,501 were issued and outstanding as of
the date hereof, and none were held in treasury, and
10,000,000 shares of Preferred Stock, par value $1.00 per
share ("Preferred Stock"), of which 0 shares were issued and
outstanding on the date hereof. All of the outstanding
shares of Common Stock have been duly authorized and are
validly issued, fully paid and nonassessable. As the date
hereof, there were outstanding options and warrants to
purchase an aggregate of 3,107,738 shares of Common Stock.
(iii) The 5% Cumulative Convertible Preferred Stock, and
any 5% Cumulative Convertible Preferred Stock issued
pursuant to paragraph 5D above, when issued in compliance
with the provisions of this Agreement, will be duly
authorized and validly issued. The issuance of the 5%
Cumulative Convertible Preferred Stock and any additional 5%
Cumulative Convertible Preferred Stock issued pursuant to
paragraph 5D above will not be subject to any preemptive
rights or rights of first refusal created by the Company.
The shares of Common Stock issuable upon conversion of the
5% Cumulative Convertible Preferred Stock have been duly
authorized and validly reserved. The shares of Common Stock
issuable upon conversion of the 5% Cumulative Convertible
Preferred Stock are not subject to any preemptive rights or
rights of first refusal created by the Company, and upon
conversion and cancellation of the 5% Cumulative Convertible
Preferred Stock will be duly authorized, validly issued,
fully paid and nonassessable and will be free of any liens
and encumbrances created by the Company.
(iv) The Company has the requisite corporate power and
authority and has taken all corporate action necessary in
order to authorize, execute and deliver this Agreement and to
consummate the transactions contemplated hereby and to
perform the acts contemplated on its part hereunder. This
Agreement is a valid and legally binding agreement of the
Company enforceable against the Company in accordance with
its terms except as such enforcement may be limited by
bankruptcy, insolvency, moratorium or other similar laws
affecting creditors' rights generally or by equitable
principles.
(v) The offer, sale and issuance of the 5% Cumulative
Convertible Preferred Stock and the shares of Common Stock
issuable upon conversion thereof as contemplated by this
Agreement are exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities
Act"), and from the registration or qualification
requirement of the laws of any applicable state or other
jurisdiction. Except as the same shall have been made or
obtained at or prior to the Closing, and except for Form D
and related state securities law filings with the Securities
and Exchange Commission and applicable state securities
boards to be made following the Closing, no notices, reports or
other filings are required to be made by the Company with,
nor are any consents, registrations, approvals, permits
or authorizations required to be obtained by the Company
from, any governmental or regulatory authority, agency,
commission, court or other entity, domestic or foreign
("Governmental Entity"), in connection with the execution
and delivery of this Agreement by the Company, the consummation
by the Company of the transactions contemplated hereby and the
performance of the acts contemplated on the part of the
Company hereunder.
(vi) The Company is not in violation of any term of its
Certificate of Incorporation or By-Laws. Except as may be
disclosed in Exhibit "B" hereto, the Company has, to the
best of its knowledge, information and belief, complied in
all material respects with all material leases, contracts,
notes, mortgage, indentures, arrangements or other
obligations and commitments ("Contracts") to which the
Company is a party or by which the Company or its assets are
bound or subject, and there does not currently exist any
event of default under any such agreement or any event
which, after notice or lapse of time or both, would
constitute an event of default under such agreement, plan,
arrangement or commitment, in each case to the extent that
such failure to comply, event of default or event which
would constitute an event of default would result in a
Material Adverse Effect to the Company. The execution and
delivery of this Agreement by the Company do not, and the
consummation by the Company of the transactions contemplated
hereby and the performance of the acts contemplated on the
part of the Company hereunder will not, constitute or result in
(A) a breach or violation of, or a default under, the
Certificate of Incorporation or By-Laws of the Company, or
(B) a breach, violation or event triggering a right of
termination of, or a default under, or the acceleration of or
the creation of a lien, pledge, security interest or other
encumbrance on assets (with or without the giving of notice
or the lapse of time or both) pursuant to any provisions
of any Contract or any law, rule, ordinance or regulation,
agreement, instrument or judgment, decree, order or award to
which the Company or its assets are bound or any governmental
or non-governmental authorization, consent, approval,
registration, franchise, license or permit under which the
Company conducts its business.
(vii) No investment banker, broker or finder is entitled to
any financial advisory, brokerage or finder's fee or other
similar payment from either the Investor or the Company
based on agreements, arrangements or undertakings made by
the Company or any of its directors, officers or employees
in connection with the transactions and acts contemplated
hereby except as may be disclosed in Exhibit "C" hereto.
(viii) In furnishing information to the Investor for
purposes of this Agreement, the Company has not made any
untrue statement of material fact or omitted to state any
material fact necessary to make the statements therein, in
the light of the circumstances under which they were made,
not misleading.
(ix) The Company possess all patents, patent rights,
trademarks, service marks, trademark rights, service mark
rights, trade names, trade name rights, copyrights, mask
works, trade secrets, proprietary software, proprietary
rights and process necessary to conduct its business as now
conducted and as planned to be conducted, without, to the
best of the Company's knowledge, conflict with or
infringement upon any valid rights of others, the lack of
which could have a Material Adverse Effect, and has not
received any notice of infringement upon or conflict with
the asserted rights of others. The Company has all permits,
licenses and other similar authority necessary for the
conduct of its business as now being conducted and as
planned to be conducted, the lack of which could have a
Material Adverse Effect, and it is not in default in any
material respect under any of such permits, licenses or
other similar authority.
(x) The Company has heretofore delivered or made
available to the Investor complete and correct copies of all
reports and other filings filed by The Company with the SEC
pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), since January 1, 1994, through the
date hereof (such reports and other filings are collectively
referred to herein as the "Company Exchange Act Filings").
Except as set forth in Exhibit C hereto, as of their
respective dates, the Company Exchange Act Filings
substantially complied in all material respects with the
published rules and regulations of the SEC with respect
thereto and did not contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading. The audited consolidated financial
statements of the Company included in the Company Exchange
Act Filings (i) were prepared from the books and records of
the Company, (ii) were prepared in accordance with generally
accepted accounting principles, except as otherwise
permitted under the Exchange Act and the rules and
regulations thereunder and (iii) present fairly in all
material respects the financial position of the Company as at
the dates thereof and the results of its operations and cash
flows for the periods then ended, subject to the
qualifications set forth in the respective Reports of
Independent Auditors thereto. The unaudited consolidated
financial statements included in the Exchange Act Filings
comply in all material respects with the published rules and
regulations of the SEC with respect thereto; and such
unaudited consolidated financial statements (i) were
prepared from the books and records of the Company, (ii)
were prepared in accordance with generally accepted
accounting principles, except as otherwise permitted under
the Exchange Act and the rules and regulations thereunder,
applied on a consistent basis (except as may be expressly
indicated therein or in the notes thereto) and (iii) present
fairly the financial position of the Company as at the dates
thereof and the results of its operations and cash flows for
the periods then ended, subject to the same qualifications as
set forth in the audited financial statements in the
respective Reports of Independent Auditors, and subject to
normal year-end adjustments which would not have a material
adverse effect on the Company and any other adjustments
expressly described therein or in the notes thereto.
(xi) The Private Placement Memorandum of the Company,
dated October 1997 as updated or replaced, and all other
documents, certificates, schedules or written statements
furnished to the Investor by or on behalf of the Company in
connection with the transactions contemplated hereby as of
the date thereof did not contain any untrue statement of a
material fact and do not omit to state any material fact
necessary in order to make the statements contained therein or
herein not misleading in the light of the circumstances under
which they were made.
(xii) The Company has no outstanding indebtedness for
borrowed money except as reflected in the Financial
Statements and the notes thereto and is not a guarantor or
otherwise contingently liable for any such indebtedness
(including, without limitation, liability by way of
agreement, contingent or otherwise, to purchase, provide
funds for payment, supply funds or otherwise invest in any
debtor or otherwise to insure any creditor against loss).
Except as set forth in Exhibit B, the Company is not in
default under the provisions of any instrument evidencing
any indebtedness of the Company or any agreement relating
thereto.
(xiii) The Company maintains insurance to protect the
Company and its financial condition against the risks
involved in the business conducted by the Company to the
extent and in the manner customary for companies in similar
businesses similarly situated.
(xiv) There is no litigation, action, suit, proceeding or
investigation pending or threatened against or affecting the
Company before any court or before any governmental or
administrative agency which contests the Company's right to
own, produce, manufacture, update, maintain, sell or use any
product, database, software, process, method, substance,
part or other material presently or planned to be owned,
produced, manufactured, updated, maintained, sold or used by
the Company in connection with the operations of the
Company. The Company has no actual knowledge or belief that
(I) there presently exists, or there is pending or planned,
any patent, invention, device, application or any statute,
rule, law regulation, standard or code which would have a
Material Adverse Effect or (ii) there is any other factor
(other than fire, flood, earthquake, accident, act of war or
civil commotion, or any other cause or event beyond the
control of the Company) which may Materially Adversely
Effect the condition (financial or otherwise), prospects or
operations of the Company.
(xv) Since the latest date of the Financial Statements,
the Company has conducted business only in the ordinary and
usual course of business and, other than as specifically or
generally reflected on the Financial Statements, there has
not been any event or condition of any character which,
alone or in combination, is a Material Adverse Effect,
including but not limited to:
(a) any material adverse change in the condition,
prospects, assets, liabilities or business of the Company
from that reflected in the Financial Statements;
(b) any damage, destruction or loss of any of the
properties or assets of the Company (whether or not covered by
insurance) materially adversely affecting the assets,
properties, financial conditions, operations, prospects,
business or plans of the Company;
(c) any material adverse change or amendments to a
contract or arrangement by which the Company or any of its
assets is bound or subject;
(d) any declaration, setting aside or payment or other
distribution in respect of any of the Company's capital
stock, or any direct or indirect redemption, purchase or
other acquisition of any such stock by the Company;
(e) any waiver by the Company of a valuable right or
material debt owed to it;
(f) any labor trouble, or any event or condition of
any character, materially adversely affecting the business or
plans of the Company.
(xvi) The Company has filed within the time prescribed
by law (including extensions of time approved by the
appropriate taxing authority) all tax returns and
reports required to be filed with the United States
Internal Revenue Service and with the State of Delaware
and (except to the extent that the failure to file
would not have a Material Adverse Effect) with all
other jurisdictions where such filing is required by
law; and the Company has paid, or made adequate provision
in the Financial Statements for the payment of, all
taxes, interest, penalties, assessments or deficiencies
shown to be due or claimed to be due on or in respect of
such tax returns and reports. The Company knows of (i)
no unpaid assessment for additional taxes for any fiscal
period or any basis therefor and (ii) no other tax
returns or reports which are required to be filed which
have not been so filed.
6B. Representations by Investor. The Investor
represents, warrants and agrees as follows:
(i) Investor is purchasing the 5% Cumulative
Convertible Preferred Stock for its own account for
the purpose of investment and not with a view toward the
redistribution or resale of any thereof. Investor is
not a party to any arrangement, understanding or
agreement for transferring or disposing of the 5%
Cumulative Convertible Preferred Stock;
(ii) Investor is aware that the purchase of the
5% Cumulative Convertible Preferred Stock
represents a speculative investment;
(iii) Before executing this Agreement, representatives
of Investor were furnished all information with respect to
the Company that they requested and representatives of
Investor were given the opportunity to ask Company
executives all questions that such representatives had;
(iv) Investor confirms that it is an
"Accredited Investor", as such term is defined in Rule 501
of Regulation D promulgated under the Securities Act;
(v) Investor confirms that it is able to bear the
economic risk inherent in its investment and understands
that there currently is no, and that there may not ever
be any, private or public market for the 5% Cumulative
Convertible Preferred Stock in the event that Investor
needs to liquidate its investment;
(vi) Investor agrees that it will not offer or sell
the 5% Cumulative Convertible Preferred Stock or any of
the shares of Common Stock into which the 5%
Cumulative Convertible Preferred Stock are convertible
unless the 5% Cumulative Convertible Preferred Stock or
such shares of Common Stock are registered under the
Securities Act and under all applicable state
securities laws, unless Investor has established to the
reasonable satisfaction of the Company that no such
registration is required;
(vii) Investor agrees that appropriate restrictive
endorsements will be placed on the certificate(s)
evidencing the 5% Cumulative Convertible Preferred Stock
and on the certificate(s) evidencing the shares of
Common Stock into which the 5% Cumulative Convertible
Preferred Stock is convertible to reflect the foregoing
and that the Company will give appropriate stop
transfer instructions to the person in charge of the
transfer of its securities, including the 5% Cumulative
Convertible Preferred Stock and the Common Stock.
Upon request of the holder of such certificate(s), the
Company shall give an instruction to the transfer agent
to process the transfer if (i) with such request, the
Company shall have received either (A) an opinion of
legal counsel, addressed to the Company and reasonably
satisfactory in form and substance to the Company,
to the effect that the proposed transfer of such
securities may be effected without registration under
the Securities Act, or (B) a "no-action" letter
from the Securities and Exchange Commission (the
"Commission") to the effect that the distribution of
such securities without registration will not result
in a recommendation by the staff of the Commission
that action be taken with respect thereto, or (ii)
such holder is eligible to utilize paragraph (k) of
Rule 144 (or any successor rule) as then in effect under
the Securities Act.
(viii) No investment banker, broker or finder is
entitled to any financial advisory, brokerage or
finder's fee or other similar payment from either
the Investor or the Company based on agreements,
arrangements or undertakings made by the Investor or
any of its directors, officers or employees in
connection with the transactions and acts contemplated
hereby.
7. Registration Rights.
7A. The Investor shall have the registration rights set
forth in this section 7A(i) and (ii).
(i) From and after the first anniversary of
this Agreement, the Investor shall have the right, by
written notice to the Company, to require the Company to
use its best reasonable efforts to register the sale
under the Securities Act of 1933, as amended (the
"Securities Act") on up to two occasions all or any
shares of the Common Stock issued or issuable upon
conversion of the 5% Cumulative Convertible Preferred
Stock owned by the Investor ("Demand Covered Shares")
representing at least one percent (1%) of the shares of
Common Stock outstanding. The Company shall have no
obligation with respect to the selection by the
Investor of any underwriter to be used in connection
with such sale, but shall have the right to
approve such selection, which approval shall not be
unreasonably withheld or delayed. The Company shall be
entitled to sell shares of Common Stock (to be newly
issued or from shares held in treasury) and/or have
other shareholders sell shares of Common Stock pursuant
to such demand registration unless the Investor's
underwriters believe, or if the offering is not
underwritten, upon a good faith determination by the
Investor's Board of Directors or a committee thereof
that such inclusion would adversely affect the success
of the proposed offering by the Investor. The Company
shall be entitled to defer filing any registration
statement with respect to such demand registration (A)
for a reasonable period in order to insure that such
filing would not result in an effective registration
statement within six (6) months of an underwritten
offering by the Company of its securities for its own
account or (B) for a period of up to ninety (90) days
upon a good faith determination by the Company's
management that the filing of a registration statement
at such time would be detrimental to the Company due to
the pendency of a material acquisition or financing or for
other reasonable cause. Investor may request that the
Company withdraw any such registration statement at any
time prior to its effectiveness; provided that, any
such withdrawn registration statement shall be treated
as a completed registration fulfilling the
obligations of the Company pursuant to this section
7A(i) unless the Investor shall reimburse the Company
for all of the Company's costs and expenses incurred
in connection with such registration within thirty
days following the request to withdraw. In the event a
registration statement has not been filed within one
hundred eighty (180) days of demand because of the lack of
good faith efforts by the Company, then for each thirty
(30) day period thereafter until a registration
statement has been filed, the Company shall be required
to issue to Investor an additional one percent (1%)
of the shares requested to be registered.
(ii) If the Company proposes to sell shares of
Common Stock for its own account and to register the sale
of such shares under the Securities Act, or if the
Company proposes to register the sale of shares of Common
Stock to be sold for the account of any shareholder,
it shall give written notice of such proposed
registration to Investor as promptly as possible and
shall, subject in all cases to section 7B, use its
reasonable efforts to include in the offering such number
of shares of Common Stock received by Investor upon
conversion of the 5% Cumulative Convertible Preferred
Stock then owned by Investor as Investor shall request
to be included ("Piggyback Covered Shares" and
together with Demand Covered Shares, "Covered Shares")
within twenty-five (25) days after the giving of such
notice, such offering to be upon the same terms (including
method of distribution) as the securities being sold by
the Company or any selling shareholder pursuant to any
such offering.
7B. The Company's obligation to include Piggyback
Covered Shares owned by Investor in any offering pursuant
to section 7A(ii) shall in all cases be subject to the
following limitations and qualifications:
(i) The Company shall not be required to give notice
to Investor or include such shares in any such
registration if the proposed registration is (A) a
registration of a stock option or compensation plan or
of Common Stock issued or issuable pursuant to any such
plan, (B) a registration of Common Stock proposed to
be issued in exchange for securities or assets of, or
in connection with a merger or consolidation with,
another corporation, or (C) to be on a form of
registration statement for which the Piggyback Covered
Shares are not eligible;
(ii) The Company may require that the number of
Piggyback Covered Shares requested to be included in such
registration be reduced, or that all such shares be
excluded from any such registration, if it is advised
in writing by its managing underwriter (or, if the
offering is not underwritten, upon a good faith
determination by the Company's board of directors)
that such reduction or exclusion, as the case may
be, is necessary to avoid materially adversely
affecting the public offering of the securities being
offered by the Company. If the Company shall require
such a reduction, Investor shall have the right to
withdraw from the offering;
(iii) In the event that the number of shares of
Common Stock included in any registration is to be reduced
pursuant to section 7B(ii):
(A) If the registration in question is one
initiated by any person or persons other than
the Company exercising demand registration rights in
order to allow the sale of Common Stock for the
account of such person or persons, then any reduction
in the number of shares to be included in such
registration shall first affect only shares other
than the shares of Common Stock requested to be
included by the person or persons initiating the
registration; and
(B) Subject to subparagraphs 7B(iii)(A) and (B),
in the event that the Company requires that the
number of shares to be included in such
registration be reduced, such reduction shall be
applied pro rata among all parties having
registration rights in proportion to the number of
shares requested to be registered by each.
(iv) The Company shall not be required to include any
Piggyback Covered Shares in any registration to the
extent that the inclusion thereof would result in a
reduction in the number of shares included in the
registration by the person or persons (including the
Company) initiating the registration in question or
would reduce the per share price of the offering.
(v) The Company may, in its sole discretion and
without the consent of Investor, withdraw such
registration statement and abandon the proposed
offering in which Investor had requested to
participate.
7C In connection with any registration of Covered
Shares undertaken by the Company pursuant to this part 7, the
Company shall:
(i) prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement with
respect to such shares and use its best efforts to causesuch
registration statement to become effective;
(ii) prepare and file with the Commission such amendments
and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to
keep such registration statement current for such period not
to exceed 180 days as Investor shall request and to comply
with the provisions of the Securities Act with respect to
the sale of all Covered Shares covered by such registration
statement during such period;
(iii) provide Investor a reasonable opportunity to review
prior to filing (A) any registration statement filed by the
Company in connection with a registration in which Investor is
participating pursuant to this part 7, and (B) any
amendments or supplements to such registration statement and
any prospectus used in connection therewith;
(iv) furnish to Investor such number of conformed copies
of such registration statement and of each such amendment
and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus included in
such registration statement (including each preliminary
prospectus and prospectus supplement), in conformity with
the requirements of the Securities Act, and such other
documents as Investor may reasonably request in order to
facilitate the sale of the Covered Shares covered by such
registration statement;
(v) use its best efforts to register or qualify the
Covered Shares covered by such registration statement under
such other securities or blue sky laws of such jurisdictions as
Investor shall reasonably request, and do any and all other
acts and things which may be reasonably necessary or advisable
to enable Investor to consummate the sale in such
jurisdictions of such shares; provided that the Company
shall not for any such purpose be required to register or
qualify the covered shares covered by such registration
statement in any jurisdiction in which the Common Stock is
not then qualified for public trading, to qualify generally to
do business as a foreign corporation in any jurisdiction
wherein it would not but for the requirements of this
section 7C(v) be obligated to be so qualified, to subject
itself to taxation in any such jurisdiction or to consent to
general service of process in any such jurisdiction, and
provided further that, in the case of a registration
pursuant to section 7A(ii), in the event that the Investor
proposes to sell such shares in any jurisdiction in which
the Company or any selling shareholder other than Investor
does not propose to sell shares being registered, the
expense of registration or qualification in any such
additional jurisdictions other than those in which the
Company or any selling shareholder other than Investor
proposes to sell, including all legal fees incurred in
connection with such additional registrations or
qualifications, shall be borne by Investor;
(vi) notify Investor at any time when a prospectus
relating to the Covered Shares covered by such registration
statement is required to be delivered under the Securities
Act, of the Company's becoming aware that the prospectus
included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances then existing, and at the request of
Investor promptly prepare and furnish to Investor a
reasonable number of copies of a prospectus supplemented or
amended so that, as thereafter delivered to the purchasers of
such shares, such prospectus shall not include an untrue
statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading in light of the
circumstances then existing;
(vii) use its best efforts to cause all of the Covered
Shares included in such registration statement to be listed on
each securities exchange on which securities of the same class
issued by the Company are then listed or, if there shall
then be no such listing, to be accepted for quotation on
NASDAQ; and
(viii) provide a transfer agent and registrar for the
Covered Shares covered by such registration statement not
later than the effective date of such registration
statement; and
7D. For as long as Investor shall continue to hold any
Covered Shares, the Company shall use reasonable efforts to
file, on a timely basis, all annual, quarterly and other
reports required to be filed by it under Sections 13 and 15(d)
of the Exchange Act, and the rules and regulations of the
Commission thereunder, as amended from time to time. In the
event of any proposed sale of Covered Shares by Investor
pursuant to Rule 144 (or any successor rule) under the
Securities Act, the Company shall cooperate with Investor so
as to enable such sales to be made in accordance with
applicable laws, rules and regulations, the requirements of
the Company's transfer agents, and the reasonable requirements
of the broker through which the sales are proposed to be
executed.
7E. The costs and expenses of any registration
effected pursuant to this part 7 shall be allocated as
provided in this section 7E:
(i) "Registration Expenses" shall mean all
expenses incurred by the Company in complying with
this part 7, including, without limitation, all
registration, qualification and filing fees, printing
expenses, escrow fees, transfer agents' and
registrars' fees, fees and disbursements of counsel for
the Company, blue sky fees and expenses, and the
expense the Company's accountants, including the
cost of any special audits incident to or required by
any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in
any event by the Company).
(ii) "Selling Expenses" shall mean all
underwriting discounts and selling commissions applicable
to the sale and all fees and disbursements of counsel for
any holder.
(iii) In connection with any registration pursuant
to section 7A(i), the Company shall pay all
Registration Expenses, and Investor shall pay all
Selling Expenses; provided that, in the event that the
Company or any other person shall include shares of
Common Stock in such registration, Selling Expenses
(other than fees and disbursements of counsel to any
such person) shall be shared among all such persons
including shares pro rata based upon the number of Common
Shares included in the registration by each such person.
(iv) In connection with any registration initiated by
the Company in which Investor participates pursuant to
section 7A(ii), the Company shall pay all Registration
Expenses, and Investor shall pay all Selling Expenses
attributable to the inclusion in the offering of the
Covered Shares being sold by Investor.
(v) In connection with any registration initiated by
any person other than the Company or the Investor in
which Investor participates pursuant to section
7A(ii), the Company or such person shall pay all
Registration Expenses, as may be provided by the
agreement granting registration rights to such person,
and Investor shall pay all Selling Expenses attributable
to the inclusion in the offering of the Covered Shares
being sold by Investor.
7F. In the case of each registration effected by the
Company pursuant to this part 7, the Company agrees to
indemnify and hold harmless Investor, each person who controls
the Investor, the directors and employees of Investor, each
underwriter of the Covered Shares so registered and each
person who controls any such underwriter within the
meaning of Section 15 of the Securities Act, against any
and all losses, claims, damages or liabilities to which they
or any of them may become subject under the Securities Act or
any other statute or common law, including any amount paid in
settlement of any litigation, commenced or threatened, if
such settlement is effected with the written consent of
the Company, and to reimburse them for any legal or other
expenses incurred by them in connection with investigating any
claims and defending any actions, insofar as any such losses,
claims, damages, liabilities or actions arise out of or are
based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in the registration
statement relating to the sale of the Covered Shares, or any
post-effective amendment thereto, or the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein
not misleading, or (ii) any untrue statement or alleged
untrue statement of a material fact contained in any
preliminary prospectus, if used prior to the effective date
of such registration statement, or contained in the final
prospectus (as amended or supplemented if the Company shall
have filed with the Commission any amendment thereof or
supplement thereto) if used within the period during which
the Company is required to keep the registration statement to
which such prospectus relates current, or the omission or
alleged omission to state therein (if so used) a material fact
necessary in order to make the statements therein, in
light of the circumstances under which they were made,
not misleading; provided, however, that the indemnification
agreement contained in this section 7F shall not (x) apply
to such losses, claims, damages, liabilities or actions
arising out of, or based upon, any such untrue statement or
alleged untrue statement, or any such omission or alleged
omission, if such statement or omission was made in reliance
upon and in conformity with information furnished in writing
to the Company by Investor or such underwriter for use
in connection with the preparation of the registration
statement, any preliminary prospectus or final prospectus
contained in the registration statement, or any amendment
or supplement thereto, or (y) inure to the benefit of
any underwriter or any person controlling such underwriter,
if such underwriter failed to send or give a copy of the
final prospectus to the person asserting the claim at or prior
to the delivery of certificates representing Covered
Shares or of written confirmation of the sale of Covered
Shares to such person and if the untrue statement or
omission concerned had been corrected in such final
prospectus.
7G. In the case of a registration effected by the
Company pursuant to this part 7, Investor and each
underwriter of the Covered Shares to be registered shall
agree in the same manner and to the same extent as set
forth in section 7F to indemnify and hold harmless the
Company, each person who controls the Company, the
directors of the Company and those of its officers who shall
have signed any such registration statement, with respect
to any untrue statement or alleged untrue statement in, or
omission or alleged omission from, such registration statement
or any post-effective amendment thereto or any
preliminary prospectus or final prospectus (as amended or as
supplemented, if amended or supplemented as aforesaid)
contained in such registration statement, if such statement
or omission was made in reliance upon and in conformity with
information furnished in writing to the Company by Investor
or any such underwriter for use in connection with the
preparation of such registration statement or any
preliminary prospectus or final prospectus contained in such
registration statement or any such amendment or supplement
thereto.
7H. Each indemnified party shall, with reasonable
promptness after its receipt of written notice of the
commencement of any action against such indemnified party
in respect of which indemnity may be sought from an
indemnifying party on account of an indemnity agreement
contained in this part 7, notify the indemnifying party
in writing of the commencement thereof. In case any such
action shall be brought against any indemnified party and it
shall so notify an indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to
participate therein and, to the extent it may wish, jointly
with any other indemnifying party similarly notified, to
assume the defense thereof with counsel reasonably
satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified
party under this part 7 for any legal or other expenses
subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable
costs of investigation. The indemnity agreements in this part
7 shall be in addition to any liabilities that the
indemnifying parties may have pursuant to law.
7I. If the indemnification provided for in this part 7
shall be unavailable to or insufficient to hold harmless an
indemnified party under sections 7F or 7G above in respect of
any losses, claims, damages or liabilities (or actions in
respect thereof) referred to therein, then the
indemnifying parties shall contribute to the amount paid
or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (or actions in
respect thereof) in such proportions as are appropriate to
reflect to the relative benefits received by the respective
indemnifying parties from the offering of the Covered Shares.
If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law, or if
the indemnified party failed to give the notice required
under section 7H above, then each indemnifying party shall
contribute to such amount paid by or payable by such
indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the
relative fault of the indemnifying parties in connection with
the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions in
respect thereof) as well as any other relevant equitable
considerations. The relative benefits received by the
indemnifying parties shall be deemed to be in the same
proportion as the net proceeds to any such party bear to
the total net proceeds from the offering before
deducting expenses. The relative fault shall be determined
by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact
relates to information supplied by the respective indemnifying
party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such
statement or omission.
7J. The registration rights granted pursuant to this part
7 shall not be available with respect to covered shares if
such Covered Shares then held by the Investor may be sold
pursuant to Rule 144 (or any successor rule) during the
three month period immediately succeeding Investor's notice
or request pursuant to Section 7A.
8. Miscellaneous.
8A. Successors and Assigns. Except as otherwise
expressly provided herein, all covenants and agreements
contained in this Agreement by or on behalf of any of the
parties hereto will bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether
so expressed or not; provided that, the rights granted to the
Investor pursuant to part 7 hereof shall not be transferred
or assigned by Investor other than to an entity wholly owned by
Investor.
8B. Severability. Whenever possible, each provision of
this Agreement will be interpreted in such manner as to be
effective and valid under applicable law, but if any
provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of this
Agreement.
8C. Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, any one of which
need not contain the signatures of more than one party, but
all such counterparts taken together will constitute one and
the same Agreement.
8D. Descriptive Headings. The descriptive headings of
this Agreement are inserted for convenience only and do not
constitute a part
of this Agreement.
8E. Governing Law; Venue The corporate law of Delaware
will govern all issues concerning the relative rights of the
Company and its stockholders. All other questions
concerning the construction, validity and interpretation of
this Agreement and the exhibits and schedules hereto will
be governed by the internal law, and not the law of
conflicts, of Delaware. It is the intention of the parties
that proper venue for any action, suit or proceeding
arising pursuant to this Agreement or in connection with the
transactions contemplated herein shall be in Travis County,
Texas. Each party agrees that any such action, suit or
proceeding shall be brought before a state or federal court
sitting in the City of Austin, Travis County, Texas and
waives any objection to venue in such court. Each party
waives the right to demand a jury in any action, suit or
proceeding arising pursuant to this Agreement.
8F. Notices. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of
this Agreement (other than notice of a telephonic meeting
of the Company's board of directors, which may be given by
telephone) will be in writing and will be deemed to have been
given either when delivered personally or three business
days after having been mailed by certified or registered
mail, return receipt requested and postage prepaid, to the
recipient. Such notices, demands and other communications will
be sent to the Investor and to the Company at the address
indicated below:
If to the Company:
Electrosource, Inc.
2809 IH 35 South
San Marcos, Texas 78666
Attention: Michael G. Semmens
With a copy to:
Bret Van Earp
Attorney-at-Law
100 Congress Avenue, Suite 1800
Austin, Texas 78701
If to the Investor:
Corning Incorporated
Attn: Corporate Secretary
One Riverfront Plaza
Corning, New York 14831
or to such other address or to the attention of such other
person as the recipient party has specified by prior written
notice to the sending party.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement on the date first written above.
ELECTROSOURCE, INC. CORNING INCORPORATED
By:/s/ MICHAEL G. SEMMENS By:/S/ DAVID H. FULLER
Printed Name:Michael G. Semmens Printed Name: David H. Fuller
Title: President, CEO and Title: Division Vice President and
Chairman of the Board Director
EXHIBIT "A"
TO SECURITIES PURCHASE AGREEMENT DATED
_____________, 1998
CERTIFICATE OF DESIGNATION
ELECTROSOURCE, INC.
5% CUMULATIVE CONVERTIBLE PREFERRED STOCK,
$1.00 PAR VALUE ("5% CUMULATIVE CONVERTIBLE PREFERRED STOCK")
Pursuant to Section 151 of the General Corporation Law of the
State of Delaware and Article Four of its Restated
Certificate of Incorporation, Electrosource, Inc., a
corporation organized and existing under the laws of
the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY that pursuant to the authority
conferred upon the Board of Directors of the Corporation by
the Restated Certificate of Incorporation of the
Corporation and by the General Corporation Law of the
State of Delaware, said Board of Directors, at a meeting
duly called and held on December 19, 1997, adopted a
resolution providing for the creation of a new series of
Preferred Stock, to be designated 5% Cumulative
Convertible Preferred Stock, consisting of not more
than 1,000,000 shares, which resolution reads in its
entirety as follows:
RESOLVED, that pursuant to the authority provided in
the Corporation's Restated Certificate of Incorporation and
expressly granted to and vested in the Board of
Directors of the Corporation, this Board of Directors hereby
creates out of the Preferred Stock, $1.00 par value per
share, a new series of Preferred Stock to be
designated 5% Cumulative Convertible Preferred Stock,
consisting of 1,000,000 shares, and this Board of Directors
hereby fixes the designation and the powers,
preferences and rights, and the qualifications, limitations
and restrictions thereof, to the extent not otherwise
provided in the Corporation's Restated Certificate of
Incorporation, as follows:
Designation of Series
The designation of the new series of Preferred Stock
created by this resolution shall be "5% Cumulative
Convertible Preferred Stock." The powers, preferences
and rights, and the qualifications, limitations and
restrictions thereof, to the extent not otherwise
provided in the Corporation's Restated Certificate of
Incorporation, shall be as follows:
Part 1. Dividends.
1A. Cumulative Dividends. Dividends shall accrue on
the 5% Cumulative Convertible Preferred Stock at a rate per
annum per share equal to five percent (5%) of the
Liquidation Value of each share of 5% Cumulative Convertible
Preferred Stock, and shall be payable when and as
declared by the Board of Directors. All dividends declared
upon the 5% Cumulative Convertible Preferred Stock shall be
payable semiannually on June 30 and December 31 of each year.
Dividends upon the 5% Cumulative Convertible Preferred Stock
shall be cumulative, and no dividend or distribution shall be
made upon the Common Stock or any Junior Securities until all
dividends accrued with respect to the 5% Cumulative
Convertible Preferred Stock, whether or not declared, have
been paid.
Part 2. Liquidation.
2A. Liquidation Preference. Upon any liquidation,
dissolution or winding up of the Corporation, whether
voluntary or involuntary, the holders of outstanding 5%
Cumulative Convertible Preferred Stock will be entitled
to be paid, before any distribution or payment is made
upon any Junior Securities, an amount in cash equal to the
aggregate Liquidation Value of all 5% Cumulative Convertible
Preferred Stock outstanding. If, upon any such liquidation,
dissolution or winding up of the Corporation, the
Corporation's assets to be distributed among the holders of
the 5% Cumulative Convertible Preferred Stock are
insufficient to permit payment to such holders of the
aggregate amount that they are entitled to be paid, then the
entire assets to be distributed will be distributed ratably
among such holders in proportion to the full respective
preferential amounts to which they are entitled.
Written notice of any voluntary or involuntary
liquidation, dissolution or winding up of the
Corporation, stating the payment date or dates when, and the
place or places where, the amounts distributable to
holders of 5% Cumulative Convertible Preferred Stock in
such circumstances shall be payable, shall be given by
first-class mail, postage prepaid, mailed not less than
twenty days prior to any payment date stated therein, to
the holders of 5% Cumulative Convertible Preferred Stock,
at the address shown on the books of the Corporation or the
transfer agent for the 5% Cumulative Convertible Preferred
Stock.
Part 3. Redemptions.
3A. Redemption at Option of Corporation. No shares of the
5% Cumulative Convertible Preferred Stock may be redeemed
without the consent of the holder of such shares prior to
January 1, 2000. From and after [January 1, 2000], the
Corporation may redeem from time to time and at such times
as it may appoint, all or any part of the shares of 5%
Cumulative Convertible Preferred Stock outstanding. For
each Preferred Share that is to be redeemed pursuant
to this part 3, the Corporation will be obligated on
the redemption date to pay the holder thereof (upon
surrender by such holder at the Corporation's principal
office of the certificate representing such Preferred Share)
an amount in immediately available funds equal to the
Liquidation Value thereof. In the case of a redemption of a
part only of the 5% Cumulative Convertible Preferred Stock,
the shares to be redeemed shall be selected by lot or in such
other manner as the Board of Directors may determine.
Notwithstanding the foregoing, if the Corporation is in
default with respect to any dividend payable on or any
sinking or other purchase fund or other requirement
relating to shares of Preferred Stock of the Corporation,
it shall not redeem any shares of 5% Cumulative
Convertible Preferred Stock except pro rata pursuant to
offers of sale made by holders of the all series of
Preferred Stock in response to an invitation for tenders
given simultaneously by the Corporation by mail to the
holders of all shares of the Preferred Stock then
outstanding.
3B. Notices. Unless otherwise required by law, notice
of redemption will be sent to holders of 5% Cumulative
Convertible Preferred Stock at the address shown on the
books of the Corporation or any transfer agent for the
5% Cumulative Convertible Preferred Stock by first-class
mail, postage prepaid, mailed not less than twenty, nor more
than sixty days prior to the redemption date. Each such
notice shall state: (i) the redemption date; (ii) the
total number of shares of 5% Cumulative Convertible Preferred
Stock to be redeemed and, if fewer than all the shares held
by such holder are to be redeemed, the number of such shares
to be redeemed from such holder; (iii) the redemption price;
(iv) the place or places where certificates for such
shares are to be surrendered for payment of the redemption
price; and (v) the conversion rights of the shares to be
redeemed, the period within which conversion rights may be
exercised, and the Conversion Price and number of shares of
Common Stock issuable upon conversion of a share of 5% Cumulative
Convertible Preferred Stock on the date such notice is sent.
3C. Redeemed or Otherwise Acquired 5% Cumulative
Convertible Preferred Stock. Any shares of 5%
Cumulative Convertible Preferred Stock that are redeemed
or otherwise acquired by the Corporation will be canceled
and will not be reissued, sold or transferred.
Part 4. Voting Rights
4A. General. Except as required by the General Corporation
Law of Delaware and Section 4B hereof, holders of 5%
Cumulative Convertible Preferred Shares shall not be entitled
to vote with respect to such 5% Cumulative Convertible
Preferred Shares on any matter to be voted upon by the
Corporation's shareholders.
4B. So long as any shares of 5% Cumulative
Convertible Preferred Stock are outstanding, the consent of
the holders of at least a majority of the outstanding
shares of 5% Cumulative Convertible Preferred Stock, given
in person or by proxy, either at a regular meeting or at
a special meeting called for that purpose, at which the
holders of 5% Cumulative Convertible Preferred Stock
shall vote separately as a series, shall be necessary
for effecting, validating or authorizing any one or more
of the following:
(i) the amendment, alteration or repeal of any of
the provisions of the Certificate of Incorporation, as
amended, of the Corporation or any amendment thereto
or any other certificate filed pursuant to law
(including any such alteration, amendment or repeal
effected by any merger or consolidation to which the
Corporation is a party) that would adversely change any
of the rights, powers or preferences of outstanding
shares of 5% Cumulative Convertible Preferred Stock;
or
(ii) any merger or consolidation with or into, or any
sale, transfer, exchange or lease of all or
substantially all of the assets of the Corporation to,
any other corporation, in either case that would
adversely change any of the rights, powers or
preferences of outstanding shares of 5% Cumulative
Convertible Preferred Stock.
Part 5. Conversion.
5A. Conversion Procedure.
(i) Any holder of 5% Cumulative Convertible Preferred
Stock may convert all or any portion of the
shares of 5% Cumulative Convertible Preferred Stock
held by such holder into a number of shares of the
Corporation's Common Stock computed by multiplying
the number of shares of 5% Cumulative Convertible
Preferred Stock to be converted by $10.00 and dividing
the result by the "Conversion Price" (as defined below)
then in effect.
(ii) Each conversion of 5% Cumulative Convertible Preferred
Stock will be deemed to have been effected as of the close
of business on the date on which the certificate or
certificates representing the shares of 5% Cumulative
Convertible Preferred Stock to be converted have been
surrendered at the principal office of the Corporation duly
assigned or endorsed for transfer to the Corporation (or
accompanied by duly executed stock powers relating thereto)
together with a notice of conversion specifying (i) the
number of shares of 5% Cumulative Convertible Preferred
Stock to be converted and the name or names in which such
holder wishes the certificate or certificates for Common
Stock and for any shares of 5% Cumulative Convertible
Preferred Stock not to be so converted to be issued
(together with an opinion of counsel that the transfer may
be made without registration if the name is different than
that of the holder) and (ii) the address to which such
holder wishes delivery to be made of such new certificates
to be issued upon such conversion. At such time as such
conversion has been effected, the rights of the holder of
such 5% Cumulative Convertible Preferred Stock as such
holder will cease and the Person or Persons in whose name or
names any certificate or certificates for shares of Common
Stock are to be issued upon such conversion will be deemed
to have become the holder or holders of record of the shares
of Common Stock represented thereby.
(iii) As soon as possible after a conversion has been
effected (but in any event within five business days in the
case of subparagraph (a) below), the Corporation will
deliver to the converting holder:
(a) a certificate representing the number of shares
of Common Stock issuable by reason of such conversion
in such name or names and such denomination or
denominations as the converting holder has specified;
(b) the amount payable under subparagraph (vi) below
with respect to fractional shares of Common Stock
otherwise issuable upon such conversion; and
(c) a certificate representing any shares of 5%
Cumulative Convertible Preferred Stock which were
represented by the certificate or certificates
delivered to the Corporation in connection with such
conversion but which were not converted.
(iv) The issuance of certificates for shares of Common Stock
upon conversion of 5% Cumulative Convertible Preferred Stock
will be made without charge to the holders of such 5%
Cumulative Convertible Preferred Stock for any issuance tax
in respect thereof or other cost incurred by the Corporation
in connection with such conversion and the related issuance
of shares of Common Stock. Upon conversion of each share of
5% Cumulative Convertible Preferred Stock, the Corporation
will take all such actions as are necessary in order to
insure that the Common Stock issuable with respect to such
conversion will be duly authorized, validly issued, fully
paid and nonassessable.
(v) The Corporation will not close its books against the
transfer of 5% Cumulative Convertible Preferred Stock or of
Common Stock issued or issuable upon conversion of 5%
Cumulative Convertible Preferred Stock in any manner which
interferes with the timely conversion of 5% Cumulative
Convertible Preferred Stock.
(vi) If any fractional interest in a share of Common Stock
would, except for the provisions of this subparagraph (vi),
be deliverable upon any conversion of 5% Cumulative
Convertible Preferred Stock, the Corporation, in lieu of
delivering the fractional share therefor, may at its option
pay a cash adjustment for such fraction equal to the same
fraction of the greater of (i) the Liquidation Value divided by
the number of shares of Common Stock into which each share
of 5% Cumulative Convertible Preferred Stock is
convertible and (ii) the fair market value per share of the 5%
Cumulative Convertible Preferred Stock at the close of
business on the date of conversion, as determined in good
faith by the board of directors of the Corporation.
(vii) The Corporation shall make no payment or
adjustment on account of any dividends accrued on the shares of
5% Cumulative Convertible Preferred Stock surrendered for
conversion except that all dividends accrued and unpaid on
such shares up to the dividend payment date immediately
preceding such surrender for conversion shall constitute a
debt of the Corporation payable without interest to the
converting shareholder, and no dividend shall be declared or
paid in respect of shares of Common Stock until such debt
shall be fully paid or sufficient funds set apart for the
payment thereof.
5B. Conversion Price. The initial Conversion Price for each
share of 5% Cumulative Convertible Preferred Stock will be equal to
_____________ ($____), on the date of closing. In order to
prevent dilution of the conversion rights granted under this part 5,
the Conversion Price will be subject to adjustment from time to
time pursuant to this part 5; provided that the Conversion Price
will in no event be less than the aggregate amount necessary
to equal the par value of the shares of Common Stock into which a
share of 5% Cumulative Convertible Preferred Stock is convertible.
5C. Subdivision or Combination of Common Stock. If the
Corporation subdivides (by any stock split, common stock
dividend, recapitalization or otherwise) its outstanding shares of
Common Stock into a greater number of shares, the Conversion Price
in effect immediately prior to such subdivision shall be
proportionately reduced, and if the Corporation at any time
combines (by reverse stock split or otherwise) its outstanding
shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination
will be proportionately increased.
5D. Reorganization, Reclassification, Consolidation, Merger or
Sale. In the event that the Corporation shall consummate any
Organic Change, outstanding shares of 5% Cumulative Convertible
Preferred Stock shall, without any action on the part of the
Corporation or any holder thereof, be automatically converted by
virtue of such transaction immediately prior to the consummation
thereof into the number of share of Common Stock into which such
shares of 5% Cumulative Convertible Preferred Stock could have
been converted at such time so that each share of 5% Cumulative
Convertible Preferred Stock shall, by virtue of such transaction
and on the same terms as apply to the holders of Common Stock, be
converted into or exchanged for the aggregate amount of stock,
securities, cash or other property (payable in like kind)
receivable by a holder of the number of shares of Common Stock
into which such shares of 5% Cumulative Convertible Preferred
Stock could have been converted immediately prior to such
transaction if such holder of Common Stock failed to exercise any
rights of election as to the kind or amount of stock, securities,
cash or other property receivable upon such transaction (provided
that, if the kind or amount of stock, securities, cash or other
property receivable upon such transaction is not the same for
each non-electing share, then the kind and amount of stock,
securities, cash or other property receivable upon such
transaction for each non-electing share shall be the kind and
amount so receivable per share by a plurality of the non-electing
shares).
5E. Anti-dilution Adjustments.
(i) In the event the Corporation shall, at any time or
from time to time after December 19, 1997, while any of the
shares of the 5% Cumulative Convertible Preferred Stock are
outstanding, (a) pay a dividend or make a distribution in respect of
the Common Stock, to the extent that such dividend or
distribution consists of shares of Common Stock, (b) subdivide
the outstanding shares of Common Stock, or (c) combine the
outstanding shares of Common Stock into a smaller number of
shares, in each case whether by reclassification of shares,
recapitalization of the Corporation (excluding a recapitalization
effected by a merger or consolidation to which Section 8 hereof
applies) or otherwise, the Conversion Price in effect immediately
prior to such action shall be adjusted by multiplying such
Conversion Price by a fraction the numerator of which shall be
the number of shares of Common Stock outstanding immediately
before such event and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after
such event. An adjustment made pursuant to this paragraph 5E(i)
shall be given effect, upon payment of such a dividend or
distribution, as of the record date for the determination of
holders of Common Stock entitled to receive such dividend or
distribution (on a retroactive basis) and in the case of a
subdivision or combination shall become effective immediately as of
the effective date thereof.
(ii) In the event that the Corporation shall, at any time or
from time to time while any of the shares of 5% Cumulative
Convertible Preferred Stock are outstanding, issue to holders of
shares of Common Stock as a dividend or distribution, including by
way of a reclassification of shares or a recapitalization of the
Corporation, any right or warrant to purchase shares of Common
Stock, such right or warrant by its terms enabling the holder
thereof to acquire shares of Common Stock at a purchase price per
share less than the Fair Market Value (as hereinafter defined) of
a share of Common Stock on the date of issuance of such right or
warrant, then, subject to the provisions of paragraphs (v) and
(vi) of this Section 5E, the Conversion Price shall be adjusted
by multiplying such Conversion Price by a fraction the numerator
of which shall be the number of shares of Common Stock
outstanding plus Common Stock Deemed Outstanding immediately
before such issuance of rights or warrants plus the number of
shares of Common Stock that could be purchased at the Fair Market
Value of a share of Common Stock at the time of such issuance for
the maximum aggregate consideration payable upon exercise in
full of all such rights or warrants and the denominator of
which shall be the number of shares of Common Stock outstanding
plus Common Stock Deemed Outstanding
immediately before such issuance of rights or warrants plus the
maximum number of shares of Common Stock that could be acquired
upon exercise in full of all such rights and warrants. If such
rights or warrants expire unexercised, the conversion price
adjustment will be recalculated to eliminate the effect of any
adjustment made to the conversion price in respect of such rights or
warrants.
(iii) In the event the Corporation shall, at any time or from
time to time while any of the shares of 5% Cumulative Convertible
Preferred Stock are outstanding, issue, sell or exchange shares of
Common Stock (other than pursuant to any employee or director
incentive or benefit plan or arrangement, including any
employment, severance or consulting agreement, of the Corporation or
any subsidiary of the Corporation heretofore or hereafter
adopted) for a consideration having a Fair Market Value on the
date of such issuance, sale or exchange less than the Fair Market
Value of such shares on the date of such issuance, sale or
exchange, then, subject to the provisions of paragraphs (v) and
(vi) of this Section 5E, the Conversion Price shall be adjusted by
multiplying such Conversion Price by a fraction the numerator of
which shall be the sum of (a) the Fair Market Value of all the
shares of Common Stock outstanding plus Common Stock Deemed
Outstanding on the day immediately preceding the first public
announcement of such issuance, sale or exchange plus (b) the Fair
Market Value of the consideration received by the Corporation in
respect of such issuance, sale or exchange of shares of Common
Stock, and the denominator of which shall be the product of (I)
the Fair Market Value of a share of Common Stock on the day
immediately preceding the first public announcement of such
issuance, sale or exchange multiplied by (II) the sum of the
number of shares of Common Stock outstanding plus Common Stock
Deemed Outstanding on such day plus the number of shares of
Common Stock so issued, sold or exchanged by the Corporation. In
the event the Corporation shall, at any time or from time to
time, while any shares of 5% Cumulative Convertible Preferred
Stock are outstanding, issue, sell or exchange any right or
warrant to purchase or acquire shares of Common Stock (including as
such a right or warrant any security convertible into or
exchangeable for shares of Common Stock), other than any such
issuance to holders of shares of Common Stock as a dividend or
distribution (including by way of a reclassification of shares or a
recapitalization of the Corporation) and other than pursuant to any
employee or director incentive or benefit plan or arrangement
(including any employment, severance or consulting agreement) of
the Corporation or any subsidiary of the Corporation heretofore or
hereafter adopted, such right or warrant being issued for a
consideration having a Fair Market Value, on the date of such
issuance, sale or exchange, less than the Non-dilutive Amount (as
hereinafter defined), then, subject to the provisions of
paragraphs (v) and (vi) of this Section 5E, the Conversion Price
shall be adjusted by multiplying such Conversion Price by a
fraction, the numerator of which shall be the sum of (a) the Fair
Market Value of all the shares of Common Stock outstanding plus
Common Stock Deemed Outstanding on the day immediately preceding
the first public announcement of such issuance, sale or exchange
plus (b) the Fair Market Value of the consideration received by
the Corporation in respect of such issuance, sale or exchange of
such right or warrant plus (c) the Fair Market Value at the time of
such issuance of the consideration that the Corporation would
receive upon exercise in full of all such rights or warrants, and
the denominator of which shall be the product of (i) the Fair
Market Value of a share of Common Stock on the day immediately
preceding the first public announcement of such issuance, sale or
exchange multiplied by (ii) the sum of the number of shares of
Common Stock outstanding plus Common Stock Deemed Outstanding on
such day plus the maximum number of shares of Common Stock that
could be acquired pursuant to such rights or warrants at the time of
issuance, sale or exchange of such rights or warrants
(assuming shares of Common Stock could be acquired pursuant to
such rights or warrants at such time). If such convertible or
exchangeable rights expire unexercised, the conversion price
adjustment will be recalculated to eliminate the effect of any
adjustment made to the conversion price in respect of such
convertible or exchangeable rights.
(iv) In the event the Corporation shall, at any time or from
time to time, while any of the shares of 5% Cumulative
Convertible Preferred Stock are outstanding, make an
Extraordinary Distribution (as hereinafter defined) in respect of
the Common Stock, whether by dividend, distribution,
reclassification of shares or recapitalization of the Corporation
(excluding a recapitalization or reclassification effected by a
merger or consolidation to which Section 5D hereof applies) or
effect a Pro Rata Repurchase (as hereinafter defined) of Common
Stock, the Conversion Price in effect immediately following such
Extraordinary Distribution or Pro Rata Repurchase shall, subject to
paragraphs (v) and (vi) of this Section 5E, be adjusted by
multiplying such Conversion Price by a fraction the numerator of
which is the difference between (a) the product of (I) the number of
shares of Common Stock outstanding plus Common Stock Deemed
Outstanding immediately preceding such Extraordinary Distribution or
Pro Rata Repurchase multiplied by (II) the Fair Market Value of a
share of Common Stock on the record date with respect to an
Extraordinary Distribution, or on the applicable expiration date
(including all extensions thereof) of any tender offer or
exchange offer that is a Pro Rata Repurchase, or on the date of
purchase with respect to any Pro Rata Repurchase that is not a
tender offer or exchange offer, as the case may be, minus (b) the
Fair Market Value of the Extraordinary Distribution or the
aggregate purchase price of the Pro Rata Repurchase, as the case
may be, and the denominator of which shall be the product of (a)
the number of shares of Common Stock and Common Stock Deemed
Outstanding outstanding immediately preceding such Extraordinary
Dividend or Pro Rata Repurchase minus, in the case of a Pro Rata
Repurchase, the number of shares of Common Stock repurchased by
the Corporation multiplied by (b) the Fair Market Value of share of
the Corporation on the record date with respect to an
Extraordinary Distribution or on the applicable expiration date
(including all extensions thereof) of any tender offer or
exchange offer that is a Pro Rata Repurchase or on the date of
purchase with respect to any Pro Rata Repurchase that is not a
tender offer or exchange offer, as the case may be. The
Corporation shall send each holder of 5% Cumulative Convertible
Preferred Stock (a) notice of its intent to make any dividend or
distribution and (b) notice of any offer by the Corporation to
make a Pro Rata Repurchase, in each case at the same time as, or as
soon as practicable after, such offer is first communicated
(including by announcement of a record date in accordance with
the rules of any stock exchange on which the Common Stock is
listed or admitted to trading) to holders of Common Stock. Such
notice shall indicate the intended record date and the amount and
nature of such dividend or distribution, or the number of shares
subject to such offer for a Pro Rata Repurchase and the purchase
price payable by the Corporation pursuant to such offer, as well as
the Conversion Price and the number of shares of Common Stock into
which a share of 5% Cumulative Convertible Preferred Stock may be
converted at such time.
(v) Notwithstanding any other provisions of this Section 5E,
the Corporation shall not be required to make any adjustment to
the Conversion Price unless and until such adjustment would
require an increase or decrease of at least two percent in the
Conversion Price. Any lesser adjustment shall be carried forward
and shall be made no later than the time of, and together with,
the next subsequent adjustment that, together with any adjustment or
adjustments so carried forward, shall amount to an increase or
decrease of at least one percent in the Conversion Price. All
adjustments shall be made to the nearest one hundredth of a share
and the nearest cent.
(vi) For the purposes of this Section 5E, the following
definitions shall apply:
"Common Stock Deemed Outstanding" shall mean in the event the
Company at any time or from time to time has issued or after the
date hereof shall issue any rights to subscribe for or to
purchase, or any options for the purchase of, Common Stock or any
stock or other securities (including debt securities) convertible
into or exchangeable for Common Stock (such rights or options
being herein called "Options" and such convertible or
exchangeable stock or securities being herein called "Convertible
Securities") or shall fix a record date for the determination of
holders of any class of securities then entitled to receive any
such Options or Convertible Securities, then the maximum number of
shares (as set forth in the instrument relating thereto
without regard to any provisions contained therein designed to
protect against dilution) of Common Stock issuable upon the
exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of
such Convertible Securities, shall be deemed to be additional
shares of Common Stock issued as of the time of such issue or, in
case such a record date shall have been fixed, as of the close of
business on such record date. For purposes of the antidilution
adjustments contained in this Section 5E, "Common Stock Deemed
Outstanding" shall mean all of such additional shares of Common
Stock other than additional shares of Common Stock issuable on
conversion, exercise or exchange of any security the issuance of
which is the cause of the antidilution adjustment in question.
"Business Day" shall mean each day other than a Saturday,
Sunday or a day on which state or federally chartered banking
institutions in Dallas, Texas are authorized or required to be
closed.
"Extraordinary Distribution" shall mean any dividend or other
distribution to the holders of Common Stock (effected while any of
the shares of 5% Cumulative Convertible Preferred Stock are
outstanding) (a) of cash, where the aggregate amount of such cash
dividend or distribution, together with the amount of all cash
dividends and distributions made during the preceding period of
12 months, when combined with the aggregate amount of all Pro
Rata Repurchases (for this purpose, including only that portion of
the aggregate purchase price of such pro Rata Repurchase that is in
excess of the Fair Market Value of the Common Stock
repurchased as determined on the applicable expiration date
(including all extensions thereof) of any tender offer or
exchange offer that is a Pro Rata Purchase, or the date of
purchase with respect to any other Pro Rata Repurchase that is
not a tender offer or exchange offer made during such period),
exceeds 12-1/2 percent of the aggregate Fair Market Value of all
shares of Common Stock outstanding on the record date for
determining the stockholders entitled to receive such
Extraordinary Distribution and (b) of any shares of capital stock of
the Corporation (other than shares of Common Stock), other
securities of the Corporation (other than securities of the type
referred to in paragraph (ii) or (iii) of this Section 5E),
evidences of indebtedness of the Corporation or any other person or
any other property (including shares of any subsidiary of the
Corporation), or any combination thereof. The Fair Market Value of
an Extraordinary Distribution for purposes of paragraph (iv) of
this Section 5E shall be equal to the sum of the Fair Market Value
of such Extraordinary Distribution plus the amount of any cash
dividends that are not Extraordinary Distributions made during
such twelve month period and not previously included in
the calculation of any adjustment pursuant to paragraph (iv) of
this Section 5E.
"Fair Market Value" shall mean, as to shares of Common Stock or
any other class of capital stock or securities of the
Corporation or any other issuer that are publicly traded, the
average of the Current Market Prices (as hereinafter defined) of
such shares or securities for each day of the Adjustment Period
(as hereinafter defined). "Current Market Price" of publicly
traded shares of Common Stock or any other class of capital stock
or other security of the Corporation or any other issuer for a
given day shall mean the last reported sales price, regular way,
or, in case no sale takes place on such day, the average of the
reported closing bid and asked prices, regular way, in either
case as reported on the New York Stock Exchange Composite Tape
or, if such security is not listed or admitted to trading on the
New York Stock Exchange, on the principal national securities
exchange on which such security is listed or admitted to trading
or, if not listed or admitted to trading on any national
securities exchange, on the NASDAQ National Market System or, if
such security is not quoted on such National Market System, the
average of the closing bid and asked price on such day in the
over-the counter market as reported by NASDAQ or, if bid and
asked prices for such security on each such day shall not have
been reported through NASDAQ, the average of the bid and asked
prices for such day shall not have been reported through NASDAQ,
the average of the bid and asked prices for such day as furnished by
any New York Stock Exchange member firm regularly making a market
in such security selected for such purpose by the Board of Directors
of the Corporation or a committee thereof on each trading day
during the Adjustment Period. "Adjustment Period" shall mean the
period of five consecutive trading days, selected by the Board of
Directors of the Corporation or a committee thereof, during the
20 days preceding, and including, the date as of which the Fair
Market Value of a security is to be determined. The "Fair Market
Value" of any security that is not publicly traded or any other
property shall mean the fair value thereof as determined by an
independent investment banking or appraisal firm experienced in
the valuation of such securities or property selected in good
faith by the Board of Directors of the Corporation or a
committee thereof, or, if no such investment banking or appraisal
firm is, in the good faith judgment of the Board of Directors or
such committee, available to make such determination, as
determined in good faith by the Board of Directors of the
Corporation or such committee.
"Non-dilutive Amount" in respect of an issuance, sale or
exchange by the Corporation of any right or warrant to purchase or
acquire shares of Common Stock (including any security
convertible into or exchangeable for shares of Common Stock)
shall mean the difference between (a) the product of the Fair
Market Value of a share of Common Stock on the day preceding the
first public announcement (whether by the Corporation or
otherwise) of such issuance, sale or exchange multiplied by the
maximum number of shares of Common Stock that could be acquired on
such date upon the exercise in full of such rights and
warrants (including upon the conversion or exchange of all such
convertible or exchangeable securities), whether or not
exercisable (or convertible or exchangeable) at such date, minus
(b) the aggregate amount payable to the Corporation pursuant to
such right or warrant to purchase or acquire such maximum number of
shares of Common Stock; provided, however, that in no event shall
the Non-dilutive Amount be less than zero. For purposes of the
foregoing sentence, in the case of a security convertible into
or exchangeable for shares of Common Stock, the amount payable
pursuant to a right or warrant to purchase or acquire shares of
Common Stock shall be the Fair Market Value of such security on
the date of the issuance, sale or exchange of such security by the
Corporation.
"Pro Rata Repurchase" shall mean any purchase of shares of
Common Stock by the Corporation or any subsidiary thereof,
whether for cash, shares of capital stock of the Corporation,
other securities of the Corporation, evidences of indebtedness of
the Corporation or any other person or any other property
(including shares of a subsidiary of the Corporation), or any
combination thereof, effected while any of the shares of 5%
Cumulative Convertible Preferred Stock are outstanding pursuant to
any tender offer or exchange offer subject to Section 13(e) of the
Exchange Act or any successor provision of law, or pursuant
to any other offer available to substantially all holders of
Common Stock; provided, however, that no purchase of shares by
the Corporation or any subsidiary thereof made in open market
transactions shall be deemed a Pro Rata Repurchase. For purposes of
this paragraph 5E(vii), shares shall be deemed to have been
purchased by the Corporation or any subsidiary thereof "in open
market transactions" if they have been purchased substantially in
accordance with the requirements of Rule 10b-18 promulgated by
the Securities and Exchange Commission under the Exchange Act, on
the date shares of the 5% Cumulative Convertible Preferred Stock
are initially issued by the Corporation or on such other terms
and conditions as the Board of Directors of the Corporation or a
committee thereof shall have determined are reasonably designed to
prevent such purchases from having a material effect on the
trading market for Common Stock.
(vii) Whenever an adjustment to the Conversion Price and the
related voting rights of the 5% Cumulative Convertible Preferred
Stock is required pursuant to this paragraph 5E, the Corporation
shall forthwith place on file with the transfer agent for the
Common Stock and the 5% Cumulative Convertible Preferred Stock, if
there be one, and with the Secretary of the Corporation, a
statement signed by two officers of the Corporation, stating the
adjusted Conversion Price determined as provided herein and the
resulting conversion ratio, and the voting rights (as
appropriately adjusted) of the 5% Cumulative Convertible
Preferred Stock. Such statement shall set forth in reasonable
detail such facts as shall be necessary to show the reason and
the manner of computing such adjustment, including any
determination of Fair Market Value involved in such computation.
Promptly after each adjustment to the Conversion Price and the
related voting rights of the 5% Cumulative Convertible Preferred
Stock, the Corporation shall mail a notice thereof and of the
then-prevailing Conversion Price (and the resulting conversion
ratio) to each holder of shares of the 5% Cumulative Convertible
Preferred Stock.
(viii) Whenever a conversion price adjustment has been made
due to the issuance of Options or Convertible Securities, no
further adjustment will be made upon the issuance of Common Stock as
a result of the exercise, conversion or exchange of such
options or Convertible Securities.
5F. Certain Events. If any event occurs of the type
contemplated by the provisions of this part 5 but not expressly
provided for by such provisions, then the Corporation's Board of
Directors will make an appropriate adjustment in the Conversion
Price so as to protect the rights of the holders of 5% Cumulative
Convertible Preferred Stock.
5G. Notices.
(i) Upon any adjustment of the Conversion Price, the
Corporation will promptly give written notice thereof to all
holders of 5% Cumulative Convertible Preferred Stock.
(ii) The Corporation will give written notice to all holders of
5% Cumulative Convertible Preferred Stock at least 20 days
prior to the date on which the Corporation closes its books or
takes a record (a) with respect to any dividend or
distribution upon Common Stock, (b) with respect to any pro
rata subscription offer to holders of Common Stock (c) with
respect to any proposed redemption of 5% Cumulative
Convertible Preferred Stock (such notice to be in form
provided for in Section 3B), or (d) for determining rights to
vote with respect to any Organic Change, dissolution or
liquidation.
(iii) The Corporation will also give written notice to
the holders of 5% Cumulative Convertible Preferred Stock at
least 30 days prior to the date on which any Organic Change
will take place.
Part 6. Registration of Transfer.
The Corporation will keep at its principal office a register
for the registration of 5% Cumulative Convertible Preferred
Stock. Subject to compliance with applicable law, including but
not limited to federal and state securities laws, upon the
surrender of any certificate representing 5% Cumulative
Convertible Preferred Stock at such place, the Corporation will, at
the request of the record holder of such certificate, execute and
deliver (at the Corporation's expense) a new certificate or
certificates in exchange therefor representing in the aggregate
the number of shares of 5% Cumulative Convertible Preferred Stock
represented by the surrendered certificate. Each such new
certificate will be registered in such name and will represent
such number of 5% Cumulative Convertible Preferred Stock as is
requested by the holder of the surrendered certificate and will be
substantially identical in form to the surrendered
certificate, and dividends will accrue on the 5% Cumulative
Convertible Preferred Stock represented by such new certificate
from the date to which dividends have been fully paid on such 5%
Cumulative Convertible Preferred Stock represented by the
surrendered certificate.
Part 7. Replacement.
Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder will be
satisfactory) of the ownership and the loss, theft, destruction or
mutilation of any certificate evidencing 5% Cumulative
Convertible Preferred Stock, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation (provided that if the holder is an
institutional investor its own agreement will be
satisfactory), or, in the case of any such mutilation upon
surrender of such certificate, the Corporation will (at its
expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of shares of 5%
Cumulative Convertible Preferred Stock represented by such lost,
stolen, destroyed or mutilated certificate and dated the date of
such lost, stolen, destroyed or mutilated certificate, and
dividends will accrue on the 5% Cumulative Convertible Preferred
Stock represented by such new certificate from the date to which
dividends have been fully paid on such lost, stolen, destroyed or
mutilated certificate.
Part 8. Definitions.
"Common Stock" means, collectively, the Corporation's Common
Stock, par value $.10 per share, provided that if there is a
change such that the securities issuable upon conversion of the 5%
Cumulative Convertible Preferred Stock are issued by an entity other
than the Corporation or there is a change in the class of
securities so issuable, then the term "Common Stock" will mean
the security issuable upon conversion of the 5% Cumulative
Convertible Preferred Stock.
"Corporation" means Electrosource, Inc., a Delaware
corporation.
"Junior Securities" means any class or series of equity
securities of the Corporation having a preference in liquidation or
right to dividends junior to the 5% Cumulative Convertible
Preferred Stock, which shall include without limitation any class or
series of common stock and any class or series of preferred stock
that does not expressly provide that it ranks pari passu with the
5% Cumulative Convertible Preferred Stock.
"Liquidation Value" of any 5% Cumulative Convertible Preferred
Stock as of any particular date will be equal to $10.00 per
share.
"Organic Change" means any reorganization reclassification,
consolidation, merger or sale of all or substantially all of the
Corporation's assets to another Person which is effected in such a
way that holders of Common Stock are entitled to receive
(either directly or upon subsequent liquidation), stock,
securities, cash or other property or assets, or any combination
thereof with respect to or in exchange for Common Stock.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an
unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Preferred Stock" means the Corporation's Preferred Stock, par
value $1.00 per share, including without limitation the 5%
Cumulative Convertible Preferred Stock.
"5% Cumulative Convertible Preferred Stock" means the
Corporation's 5% Cumulative Convertible Preferred Stock, par
value $1.00 per share.
"Subsidiary" means any corporation of which the shares of
stock having a majority of the general voting power in electing
the board of directors are, at the time as of which any
determination is being made, owned by the Corporation either
directly or indirectly through Subsidiaries.
IN WITNESS WHEREOF, the Corporation has caused its corporate
seal to be affixed hereunto and this Certificate of Designation to
be signed by its President and Secretary this ____ day of
____________, 199__.
ELECTROSOURCE, INC. ATTEST:
By:/s/ MICHAEL G. SEMMENS By: /S/ AUDREY T. DEARING
Michael G. Semmens, President Audrey T. Dearing,
Secretary
EXHIBIT "C"
TO
NOTE PURCHASE AGREEMENT DATED
DECEMBER 19, 1997
1. BDM. BDM Technologies, Inc. ("BDM") entered into
essentially a 50/50 joint venture with the Company in 1993 to perfect
the battery manufacturing process and to license or commercialize the
Electrosource technology world-wide. Under this agreement, BDM arranged
for and guaranteed the lease of the Company's plant and certain equipment
in San Marcos, Texas and paid essentially all of the San Marcos
operational costs. In mid1994, BDM determined to discontinue its interest
in the venture, and an interim arrangement for payment of costs was
entered into whereby the Company had the option of reimbursing BDM for
real and personal property lease payments and property taxes in stock or
cash. The Company and BDM subsequently entered into a detailed
Asset and Technology License Agreement and a Stock Purchase Agreement
(for BDM's 50% of the joint venture company) on January 31, 1995 that
provided for monthly reimbursements by the Company to BDM in cash only.
The Company has since deferred a number of such payments to BDM,
which are disclosed as liabilities on the Company financial statements.
The Company has not received a notice of default from BDM for such non-
payment and is in discussions with BDM regarding satisfaction of such
liabilities. The Company and BDM entered into a First Amendment to Asset
and Technology License Agreement on December 19, 1997 wherein BDM, among
other things, waives default and rights to terminate for past non-payment
2. Development Contracts. The Company is involved in
approximately fifteen development contracts and programs at the present
time, all but a few of which have been ongoing for many months. Most of
these programs involve contractual research and development of prototype
batteries for specific customers. Due to the nature of this work,
successful prototyping often takes longer
and may be more expensive than originally forecast. Initial versions
of prototypes often lack all of the specified performance and
reliability characteristics necessary for commercial use. Subsequent
development attempts to improve the different areas while maintaining the
acceptable specifications. This work has met with various degrees of
success. As a matter of general course, the Company maintains close
contact with the customers to discuss progress on the programs and
to seek customer understanding and acceptance of any delays or failures
to achieve all specifications. The Company maintains and regularly
updates a schedule summarizing the status of the programs and
projects. While the Company believes it will ultimately be successful
in most or all of these programs, there is no assurance of success. It
is possible at any point in time for any one of these programs, such as
SMH, Fiat or Black & Decker, to terminate or be concluded on an
unsatisfactory basis. Day to day changes occur in the work under these
contracts, and it is not certain at this time how or when they
will be
concluded.
EXHIBIT "D"
TO
NOTE PURCHASE AGREEMENT DATED
DECEMBER 19, 1997
Certain Exchange Act filings by the Company or its officers and
directors were or could have been deemed to be filed late. Various Form 3
and 4 filings, which are the responsibility of the respective officers and
directors, were late, as reported in the Company's Proxy Statements.
Several Form C filings for prior years were filed late. Forms 10C were
required for 5% increases in shares outstanding, however, such reports
are no longer required by the SEC. The Company may be deemed to have
late filed its definitive proxy statement for the Annual Meeting held on
May 22, 1997, in that mailing of proxy materials commenced several days
prior to filing of the definitive proxy. A preliminary proxy had
previously been filed, and the definitive proxy was filed within 120 days
of year end. This could result in the Company not being eligible to use
a Form S-3 Registration Statement for the one year period from the date
of the late filing, unless an exemption is granted by the SEC.
Dates Referenced Herein and Documents Incorporated by Reference
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