U.S. ELECTRICAR, INC.
REGULATION S
COMMON STOCK PURCHASE AGREEMENT
FEBRUARY ____, 1997
THE SECURITIES TO WHICH THIS AGREEMENT RELATES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES
ACT"), OR UNDER ANY STATE SECURITIES LAWS ("BLUE SKY LAWS"), AND MAY
NOT BE OFFERED OR SOLD IN THE UNITED STATES OR TO U.S. PERSONS (AS
DEFINED IN REGULATION S) WITHOUT REGISTRATION UNDER THE SECURITIES
ACT, AND AS REQUIRED BY BLUE SKY LAWS IN EFFECT AS TO SUCH TRANSFER,
UNLESS AN EXEMPTION FROM SUCH REGISTRATION UNDER STATE AND FEDERAL LAW
IS AVAILABLE.
THE SECURITIES TO WHICH THIS AGREEMENT RELATES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES
ACT"), OR UNDER ANY STATE SECURITIES LAWS ("BLUE SKY LAWS"), AND MAY
NOT BE OFFERED OR SOLD IN THE UNITED STATES OR TO U.S. PERSONS (AS
DEFINED IN REGULATION S) WITHOUT REGISTRATION UNDER THE SECURITIES
ACT, AND AS REQUIRED BY BLUE SKY LAWS IN EFFECT AS TO SUCH TRANSFER,
UNLESS AN EXEMPTION FROM SUCH REGISTRATION UNDER STATE AND FEDERAL LAW
IS AVAILABLE.
COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT is made effective for reference
purposes only as of February ___, 1997, by and between U.S. Electricar, Inc., a
California corporation (the "Corporation") and HYUNDAI MOTOR COMPANY whose
signature appears on the signature page to this Agreement (the "Investor").
R E C I T A L
The Investor desires to purchase from the Corporation, and the Corporation
desires to sell to the Investor, certain common stock shares of the Corporation,
on the terms and conditions hereinafter set forth.
A G R E E M E N T
NOW, THEREFORE, in consideration of the mutual agreements, covenants,
representations and warranties contained in this Agreement, the parties hereby
agree as follows:
1. PURCHASE AND SALE OF SHARES/EXECUTION OF TECHNICAL AGREEMENT.
a. SALE AND ISSUANCE OF SHARES. Subject to the terms and conditions
of this Agreement, the undersigned Investor agrees to purchase at the Closing
(as defined below) and the Corporation agrees to sell and issue to the Investor
at the Closing, that number of common stock shares (the "Shares") set forth
under Schedule 1 of the signature page attached to this Agreement at the price
set forth under Schedule 1 of the signature page attached to this Agreement (the
"Purchase Price"). All monetary references in this Agreement are to United
States of America dollars.
b. PAYMENT AND DELIVERY. The Investor shall purchase the Shares by
making payment to U.S. Electricar, Inc. in cash by check or wire transfer of
funds of the Purchase Price delivered to the Corporation on, or before, the date
set forth on Schedule 1 attached to the signature page hereto (the "Closing").
c. MANUFACTURING, TECHNICAL ASSISTANCE AND DISTRIBUTION LICENSE
AGREEMENT. Contemporaneously with Investor's purchase of the Shares, Investor
and the Corporation shall enter into a Manufacturing, Technical Assistance and
Distribution License Agreement in form and substance as shall be mutually agreed
upon by the parties as evidenced by their execution thereof in consideration of
Investor's payment to the Corporation in cash at the Closing of that sum as set
forth on Schedule 1, and the payment obligations set forth in said Agreement.
2. DELIVERY OF SHARES. Upon the Investor's delivery of the Purchase
Price in full and a fully executed and completed original of this Agreement to
the Corporation, and after the Corporation determines that all applicable
securities laws have been satisfied, the Corporation will deliver to the
Investor at the address indicated on Schedule 1 within five (5) business days
after the Closing a share certificate for the Shares dated as of the Closing.
As of the Closing, the Investor shall be deemed the owner of the Shares.
Investor shall provide the Corporation with instructions for registration and
delivery of the Shares as set forth on Schedule 1. Any instructions for
registration of the Shares in a name other than that of the Investor shall
require such registered owner to affirm Investor's warranties and
representations set forth herein.
3. CORPORATION'S REPRESENTATIONS, WARRANTIES AND COVENANTS. The
Corporation hereby represents, warrants and covenants to the Investor as
follows:
a. CORPORATE ORGANIZATION AND STANDING. The Corporation is a
corporation duly organized, validity existing and in good standing under the
laws of the State of California. The Corporation has the requisite corporate
power to carry on its business as presently conducted, and as proposed or
contemplated to be conducted in the future, and to enter into and carry out the
provisions of this Agreement and the transactions contemplated hereby. The
Corporation is duly qualified to do business in the jurisdictions where it is
currently doing business.
b. AUTHORIZATION. All corporate action on the part of the
Corporation, its directors and shareholders necessary for the authorization,
execution, delivery and performance of this Agreement by the Corporation and the
performance of all of the Corporation's obligations hereunder has been taken.
This Agreement, when executed and delivered by the Corporation, shall constitute
a valid and binding obligation of the Corporation, enforceable in accordance
with its terms, except as may be limited by principles of public policy, and
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies. The Shares, when issued in
compliance with the provisions of this Agreement, will be validly issued, fully
paid and nonassessable. The Corporation is, and at all times during the offer
and sale of the Shares, will be a "reporting issuer" as that term is defined
under Regulation S.
c. NO BREACH. The issue and sale of the Shares by the Corporation
does not and will not conflict with and does not and will not result in a breach
of any of the terms of the Corporation's incorporating documents or any
agreement or instrument to which the Corporation is a party. The consummation
of the transactions or performance of the obligations contemplated by this
Agreement will not result in a breach of any term of, or constitute a default
under, any statute, indenture, mortgage, or other agreement or instrument or any
order, writ, judgment or decree to which the Corporation or any of its
subsidiaries is or are a party or by which any of them is or are bound.
d. PENDING OR THREATENED CLAIMS. Except as disclosed in Exhibit A
("Risk Factors"), attached hereto and incorporated herein by this reference,
neither the Corporation nor any of its subsidiaries is a party to any action,
suit or proceeding which could materially affect its business or financial
condition, and no such actions, suits or proceedings are contemplated or have
been threatened.
e. NO PREEMPTIVE RIGHTS. There are no preemptive rights of any
shareholder of the Corporation with respect to the Shares.
f. AUTHORIZED SHARES. The Corporation has sufficient authorized and
unissued shares of its common stock to provide for the issuance and delivery of
the Shares as provided under this Agreement.
g. COMPLIANCE WITH REGULATION S. The Corporation represents and
warrants that it has complied, and covenants that until the end of the
applicable Regulation S restricted period it will comply with all of the
requirements of Rule 903(a), (b) and (c)(3) of Regulation S applicable to the
Corporation with respect to the offer and sale of the Shares, including but not
limited to the requirement not to engage in any "directed selling efforts" (as
defined in Regulation S) in the United States with respect to the Shares.
4. INVESTOR REPRESENTATIONS AND WARRANTIES. The Investor represents and
warrants to the Corporation that:
a. ACCOUNT/REGULATION S. The Investor is acquiring the Shares for
investment for its own account, and not with a view to, or for resale in
connection with, any distribution thereof, and it has no present intention of
selling or distributing any of the Shares. The Investor understands that the
Shares have not been registered under the Securities Act of 1933, as amended
(the "Securities Act") by reason of a specific exemption from the registration
provisions of the Securities Act which depends upon, among other things, the
bona fide nature of the investment as expressed herein. The Investor
understands that the Corporation is relying on the rules and regulations
governing offers and sales made outside the United States to non-"U.S. Persons"
pursuant to Regulation S under the Securities Act.
b. ACCESS TO DATA. The Investor has had an opportunity to discuss
the Corporation's business, management and financial affairs with its management
and to obtain any additional information which the Investor has deemed necessary
or appropriate for deciding whether or not to purchase the Shares, including an
opportunity to
receive, review and understand the disclosures and information regarding the
Corporation's financial statements, capitalization and other business
information as set forth in Corporation's filings with the Securities and
Exchange Commission through December 16, 1996, all incorporated herein by
reference, together with all exhibits referenced therein as well as the
Corporation's Private Placement Memorandum dated January 2, 1996 prepared for
the Corporation's trade creditors. Attached hereto as Exhibit B and
incorporated herein by reference is the Corporation's approximate Pro-Form
Capitalization as of the date hereof. The Investor acknowledges that no other
representations or warranties, oral or written, have been made by the
Corporation or any agent thereof except as set forth in this Agreement.
c. NO FAIRNESS DETERMINATION. The Investor is aware that no
federal, state or other agency has made any finding or determination as to the
fairness of the investment, nor made any recommendation or endorsement of the
Shares.
d. KNOWLEDGE AND EXPERIENCE. The Investor has such knowledge and
experience in financial and business matters, including investments in other
start-up companies, that it is capable of evaluating the merits and risks of the
investment in the Shares, and it is able to bear the economic risk of such
investment. Further, the individual executing this Agreement has such knowledge
and experience in financial and business matters that he is capable of utilizing
the information made available to him in connection with the offering of the
Shares, of evaluating the merits and risks of an investment in the Shares and of
making an informed investment decision with respect to the Shares, including
assessment of the Risk Factors attached hereto as Exhibit A and incorporated
herein by reference.
e. LIMITED PUBLIC MARKET. The Investor is aware that there is
currently a very limited "over-the-counter" public market for the Corporation's
registered securities and that the Corporation became a "reporting issuer" under
the Securities Exchange Act of 1934, as amended, on January 27, 1995. There is
no guarantee that a more established public market will develop at any time in
the future. The Investor understands that the Shares are all unregistered and
may not presently be sold in even this limited public market. The Investor
understands that the Shares cannot be readily sold or liquidated in case of an
emergency or other financial need. The Investor has sufficient liquid assets
available so that the purchase and holding of the Shares will not cause it undue
financial difficulties.
f. INVESTMENT EXPERIENCE. The Investor is an "accredited investor"
as that term is defined in Regulation D promulgated by the Securities and
Exchange Commission. The term "Accredited Investor" under Regulation D refers
to:
(i) A person or entity who is a director or executive officer
of the Corporation;
(ii) Any bank as defined in Section 3(a)(2) of the Securities
Act, or any savings and loan association or other institution as defined in
Section 3(a)(5)(A) of the Securities Act whether acting in its individual or
fiduciary capacity; any broker or dealer registered pursuant to Section 15 of
the Exchange Act; insurance company as defined in Section 2(13) of the
Securities Act; investment company registered under the Investment Company Act
of 1940; or a business development Corporation as defined in Section 2(a)(48) of
that Act; Small Business Investment Company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small Business Investment Act
of 1958; any plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or its political
subdivisions for the benefit of its employees, if such plan has total assets in
excess of $5,000,000; employee benefit plan within the meaning of the Employee
Retirement Income Security Act of 1974, if the investment decision is made by a
plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank,
savings and loan association, insurance company, or registered investment
adviser, or if the employee benefit plan has total assets in excess of
$5,000,000 or, if a self-directed plan, with investment decision made solely by
persons that are accredited investors;
(iii) Any private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940;
(iv) Any organization described in Section 501(c)(3) of the
Internal Revenue Code, corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the Shares
offered, with total assets in excess of $5,000,000;
(v) Any natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of his purchase exceeds $1,000,000;
(vi) Any natural person who had an individual income in excess
of $200,000 during each of the previous two years or joint income with that
person's spouse in excess of $300,000 in each of those years and has a
reasonable expectation of reaching the same income level in the current year;
(vii) Any trust, with total assets in excess of $5,000,000,
not formed for the specific purpose of acquiring the Shares offered, whose
purchase is directed by a person who has such knowledge and experience in
financial and business matters that he is capable of evaluating the merits and
risks of the prospective investment; or
(viii) Any entity in which all of the equity owners are
accredited investors.
As used in this Section 4(f), the term "net worth" means the excess of total
assets over total liabilities. For the purpose of determining a person's net
worth, the principal residence owned by an individual should be valued at fair
market value, including the cost of improvements, net of current encumbrances.
As used in this Section 4(f), "income" means actual economic income, which may
differ from adjusted gross income for income tax purposes. Accordingly, the
undersigned should consider whether it should add any or all of the following
items to its adjusted gross income for income tax purposes in order to reflect
more accurately its actual economic income: Any amounts attributable to
tax-exempt income received, losses claimed as a limited partner in any limited
partnership, deductions claimed for depletion, contributions to an XXX or Xxxxx
retirement plan, and alimony payments.
5. RESTRICTIONS ON TRANSFER RE REGULATION S.
a. NOT A "U.S. PERSON." The Investor hereby certifies that (i) it
is not a "U.S. Person" as defined under Rule 902, Section (o) of Regulation S
promulgated under the Securities Act (a copy of which is attached hereto as
Schedule 2) and is not acquiring the Shares for the account or benefit of any
U.S. Person, and (ii) it is acquiring the Shares in an "offshore transaction" as
defined under Section (i) of such Rule 902 (a copy of which is attached hereto
as Schedule 3).
b. TRANSFER RESTRICTIONS. The Investor shall not attempt to have
registered any transfer of the Shares not made in accordance with the provisions
of Regulation S and the Corporation shall be required during the Regulation S
restricted period to refuse to register any transfer of the Shares that is not
made in accordance with the provisions of Regulation S, unless such refusal is
prohibited by foreign law. In addition to any other restrictions on transfer
set forth in this Agreement, the Investor agrees to transfer the Shares only (i)
in accordance with the provisions of Regulation S, pursuant to registration
under the Securities Act, or pursuant to an available exemption from
registration, and (ii) in accordance with any applicable state securities laws.
Unless so registered or exempt therefrom, such transfer restrictions shall
include but not be limited to and the Investor warrants and represents the
following:
(i) The Investor shall not sell the Shares publicly or
privately, or through any short sale, or other hedging transaction to any U.S.
Person, whether directly or indirectly, or for the account or benefit of any
such U.S. Person for the restricted period mandated by Regulation S after the
purchase of the Shares unless registered or exempt from registration;
(ii) Any other offer or sale of the Shares shall be made only if
(A) during the restricted period any subsequent purchaser certifies in writing
that it is not a U.S. Person and is not acquiring the Shares for the account or
benefit of any U.S. Person, or (B) after the restricted period the Shares are
purchased in a transaction that did not require registration under the
Securities Act and applicable Blue Sky laws; and
(iii) Any transferee of the Shares who acquires the Shares during
the Regulation S restricted period shall agree in writing to resell the Shares
only in accordance with the provisions of Regulation S, pursuant to registration
under the Securities Act, or pursuant to an available exemption from
registration.
c. RESTRICTIONS ON RESALES IN THE UNITED STATES. The Investor
understands and acknowledges that the Securities Act prohibits resales of
securities in the United States except pursuant to an effective registration
statement or an exemption from registration for which the Shares and the
Investor holding such Shares qualifies. The Investor understands and
acknowledges the requirements for qualifying for an exemption from registration
afforded
by Section 4 of the Securities Act and that there can be no assurance that the
Investor will be able to qualify for such an exemption from registration.
6. PUBLIC OFFERING LOCK-UP. For one period of up to one-hundred-eighty
(180) days (the "Stand-off Period"), Investor shall not transfer or sell its
Shares to any person or entity if requested by the Corporation upon at least
thirty (30) days prior written notice given, on, or after, the termination of
the Regulation S restricted period hereunder in contemplation of a public
registration. Notwithstanding the foregoing, this right may be exercised only
one time by the Corporation.
7. RESTRICTIVE LEGENDS. Each certificate evidencing the Shares which
the Investor may purchase hereunder and any other securities issued upon any
stock split, stock dividend, recapitalization, merger, consolidation or similar
event (unless no longer required in the opinion of the counsel for the
Corporation) shall be imprinted with legends substantially in the following
form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
AND MAY NOT BE OFFERED OR SOLD WITHOUT REGISTRATION UNDER THE ACT
UNLESS THE CORPORATION RECEIVES AN OPINION OF COUNSEL, SATISFACTORY TO
THE CORPORATION, THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE
OR SUCH REGISTRATION IS NOT REQUIRED PURSUANT TO REGULATION S UNDER
THE ACT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY ALSO BE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER DURING A "STAND-OFF PERIOD" OF UP TO
180 DAYS AS PROVIDED IN THAT CERTAIN FEBRUARY ____, 1997, AGREEMENT
BETWEEN THE ORIGINAL HOLDER HEREOF AND THE CORPORATION. THE
CORPORATION WILL NOTIFY THE TRANSFER AGENT OF THE STARTING DATE OF ANY
SUCH STAND-OFF PERIOD AND WILL ISSUE STOP-TRANSFER INSTRUCTIONS
APPLICABLE TO THE STAND-OFF PERIOD. WHENEVER THE TRANSFER AGENT HAS
RECEIVED NO SUCH STOP TRANSFER INSTRUCTIONS FROM THE CORPORATION, THE
TRANSFER AGENT IS HEREBY AUTHORIZED AND DIRECTED TO CONCLUSIVELY
PRESUME THAT NO STAND-OFF PERIOD IS IN EFFECT TO PREVENT THE TRANSFER
OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE. IMMEDIATELY AFTER
THE EXPIRATION DATE OF ANY STAND-OFF PERIOD (WHICH SHALL FALL NOT
LATER THAN 180 DAYS AFTER THE STARTING DATE), THIS RESTRICTIVE LEGEND
AND ANY RELATED STOP TRANSFER INSTRUCTIONS GIVEN BY THE CORPORATION TO
THE TRANSFER AGENT SHALL BE OF NO FURTHER FORCE OR EFFECT, AND THE
TRANSFER AGENT IS HEREBY AUTHORIZED AND DIRECTED, AT ANY TIME ON OR
AFTER THE EXPIRATION DATE OF THE STAND-OFF PERIOD, TO ISSUE A NEW
CERTIFICATE WITHOUT THIS LEGEND IN EXCHANGE FOR THIS LEGENDED
CERTIFICATE UPON SURRENDER BY AND AT THE REQUEST OF THE HOLDER WITHOUT
FURTHER AUTHORIZATION FROM THE CORPORATION.
The Corporation shall be entitled to enter stop transfer notices on its transfer
books with respect to the Shares during the Regulation S restricted period and
the Stand-off Period.
8. RELIANCE. The Investor is aware that the Corporation is relying on
the accuracy of the above representations to establish compliance with Federal
and State securities laws. If any such warranties or representations are not
true and accurate in any respect as of the Closing, Investor shall so notify the
Corporation in writing immediately and shall be cause for rescission by the
Corporation at its sole election. The Investor shall indemnify the Corporation
and its affiliates, legal counsel and agents against all losses, claims, costs,
expenses and damages or liabilities, including reasonable attorneys' fees, which
such parties may suffer or incur caused or in connection with or arising out of,
directly or indirectly, from their reliance on such warranties and
representations.
9. MISCELLANEOUS.
a. SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive the closing of the transactions
contemplated hereby.
b. SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
c. ENTIRE AGREEMENT. This Agreement and the Exhibits and Schedules
attached hereto constitute the entire agreement and understanding between the
parties with respect to the subject matters herein, and supersede and replace
any prior agreements and understandings, whether oral or written between and
among them with respect to such matters. The provisions of this Agreement may
be waived, altered, amended or repealed, in whole or in part, only upon the
written consent of the Corporation and the Investor.
d. TITLES AND SUBTITLES. The titles of the Sections and subsections
of this Agreement are for the convenience of reference only and are not to be
considered in construing this Agreement.
e. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
f. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with laws of the State of California, applicable to
contracts between California residents entered into and to be performed entirely
within the State of California.
g. VENUE. Any action, arbitration, or proceeding arising directly
or indirectly from this Agreement or any other instrument or security referenced
herein shall be litigated or arbitrated, as appropriate, in the County of San
Francisco, State of California.
h. AUTHORITY. If Investor is a corporation, partnership, trust or
estate: (i) the individual executing and delivering this Agreement on behalf of
the Investor has been duly authorized and is duly qualified to execute and
deliver this Agreement on behalf of Investor in connection with the purchase of
the Shares and (ii) the signature of such individual is binding upon Investor.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year hereinabove first written.
INVESTOR U.S. ELECTRICAR, INC.
HYUNDAI MOTOR COMPANY
By: By:
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(Signature) (Signature)
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(Print Name and Title) (Print Name and Title)
SCHEDULE 1
Purchase Price Per Share:
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Aggregate Purchase Price
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Total Number of Shares
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Purchase Date: March 1, 1997
Name of Registered Owner(s)
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of Shares
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Address for delivery of Shares
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SCHEDULE 2
DEFINITION OF "U.S. PERSON"
"Reg. Section 230.902. As used in Regulation S, the following
terms shall have the meanings indicated:
. . .
(o) U.S. Person.
(1) "U.S. person" means:
(i) any natural person resident in the United States;
(ii) any partnership or corporation organized or
incorporated under the laws of the United States;
(iii) any estate of which any executor or administrator is a
U.S. person;
(iv) any trust of which any trustee is a U.S. person;
(v) any agency or branch of a foreign entity located in the
United States;
(vi) any non-discretionary account or similar account (other
than an estate or trust) held by a dealer or other fiduciary for
the benefit or account of a U.S. person;
(vii) any discretionary account or similar account (other
than an estate or trust) held by a dealer or other fiduciary
organized, incorporated, or (if an individual) resident in the
United States; and
(viii) any partnership or corporation if:
(A) organized or incorporated under the laws of any foreign
jurisdiction; and
(B) formed by a U.S. person principally for the purpose of
investing in securities not registered under the Act, unless it
is organized or incorporated, and owned, by accredited investors
(as defined in Rule 501(a) under the Act (Section 230.501(a) of
this chapter)) who are not natural persons, estates or trusts.
(2) Notwithstanding paragraph (o)(1) of this section, any
discretionary account or similar account (other than an estate or
trust) held for the benefit or account of a non-U.S. person by a
dealer or other professional fiduciary organized, incorporated, or (if
an individual) resident in the United States shall not be deemed a
"U.S. person."
(3) Notwithstanding paragraph (o)(1) of this section, any estate
of which any professional fiduciary acting as executor or
administrator is a U.S. person shall not be deemed a U.S. person if:
(i) an executor or administrator of the estate who is not a
U.S. person has sole or shared investment discretion with respect
to the assets of the estate; and
(ii) the estate is governed by foreign law.
(4) Notwithstanding paragraph (o)(1) of this section, any trust
of which any professional fiduciary acting as trustee is a U.S. person
shall not be deemed a U.S. person if a trustee who is not a U.S.
person has sole or shared investment discretion with respect to the
trust assets, and no beneficiary of the trust (and no settlor if the
trust is revocable) is a U.S. person.
(5) Notwithstanding paragraph (o)(1) of this section, an employee
benefit plan established and administered in accordance with the law
of a country other than the United States and customary practices and
documentation of such country shall not be deemed a U.S. person.
(6) Notwithstanding paragraph (o)(1) of this section, any agency
or branch of a U.S. person located outside the United States shall not
be deemed a "U.S. person" if:
(i) the agency or branch operates for valid business
reasons; and
(ii) the agency or branch is engaged in the business of
insurance or banking and is subject to substantive insurance or
banking regulation, respectively, in the jurisdiction where
located.
(7) The International Monetary Fund, the International Bank for
Reconstruction and Development, the Inter-American Development Bank,
the Asian Development Bank, the African Development Bank, the United
Nations, and their agencies, affiliates and pension plans, and any
other similar international organizations, their agencies, affiliates
and pension plans shall not be deemed "U.S. persons."
SCHEDULE 3
DEFINITION OF "OFFSHORE TRANSACTION"
"Reg. Section 230.902. As used in Regulation S, the following
terms shall have the meanings indicated:
. . .
(i) Offshore Transaction.
(1) An offer or sale of securities is made in an "offshore
transaction" if:
(i) the offer is not made to a person in the United States;
and
(ii) either:
(A) at the time the buy order is originated, the buyer is
outside the United States, or the seller and any person acting on
its behalf reasonably believe that the buyer is outside the
United States; or
(B) for purposes of:
(1) Section 230.903, the transaction is executed in, on
or through a physical trading floor of an established
foreign securities exchange that is located outside the
United States; or
(2) Section 230.904, the transaction is executed in, on
or through the facilities of a designated offshore
securities market described in paragraph (a) of this
section, and neither the seller nor any person acting on its
behalf knows that the transaction has been pre-arranged with
a buyer in the United States.
(2) Notwithstanding paragraph (i)(1) of this section, offers and
sales of securities specifically targeted at identifiable groups of
U.S. citizens abroad, such as members of the U.S. armed forces serving
overseas, shall not be deemed to be made in "offshore transactions."
(3) Notwithstanding paragraph (i)(1) of this section, offers and
sales of securities to persons excluded from the definition of "U.S.
person" pursuant to paragraph (o)(7) of this section or persons
holding accounts excluded from the definition of "U.S. person"
pursuant to paragraph (o)(2) of this section, solely in their
capacities as holders of such accounts, shall be deemed to be made in
"offshore transactions."
EXHIBIT A - RISK FACTORS
INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER, IN ADDITION TO THE MATTERS SET
FORTH ELSEWHERE IN THIS AGREEMENT, THE FOLLOWING FACTORS.
EXHIBIT B - APPROXIMATE PRO FORMA CAPITALIZATION
EXHIBIT A
RISK FACTORS
INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER, IN ADDITION TO THE MATTERS SET
FORTH ELSEWHERE IN THIS SUBSCRIPTION AGREEMENT, THE FOLLOWING FACTORS.
DEBT RESTRUCTURING. As a result of the Corporation's insolvency in March
1995, the Corporation entered into agreements in March and April 1995 with its
secured creditors and largest unsecured creditor, to restructure debt in the
aggregate amount of approximately $22 million. In addition, in April 1995, an
informal committee of the Corporation's unsecured antecedent trade creditors was
established, and in August 1995, this committee recommended for approval by the
Corporation's creditors and shareholders a voluntary restructuring of the
Corporation's unsecured trade debt ("Debt Restructuring Plan"). In early 1996,
the Corporation's shareholders approved and accepted the terms of the
restructuring plan. The terms of the Debt Restructuring Plan are set forth in
the Private Placement Memorandum dated January 2, 1996, a copy of which has been
delivered to and is available for review by the Purchaser and its counsel upon
request.
Pursuant to the Debt Restructuring Plan, and as of October 31, 1996, the
Corporation believes it has received and approved approximately $11,751,000 or
84% acceptances by its antecedent trade creditors. Outstanding antecedent debt
of approximately $2,254,000 has not been settled. As of January 1997, the
Corporation issued 1,587,473 shares of Series B Convertible Preferred Stock as
payment of $3,175,000 of debt owed to qualified unsecured creditors under the
Corporation's Debt Restructuring Plan. This stock is convertible into
10,583,682 shares of common stock. In addition, the Corporation and its secured
creditors have converted approximately $15,000,000 in debt into approximately
50,000,000 shares of common stock. The Corporation and its secured creditors
may elect, however, to keep the remainder of the secured debt outstanding until
substantially all of this remaining unsecured antecedent trade debt has accepted
the Corporation's Debt Restructuring Plan.
THERE CAN BE NO ASSURANCE THAT THE CORPORATION WILL BE ABLE TO CONTINUE TO
EFFECTUATE THE DEBT RESTRUCTURING. TO THE EXTENT THAT THE CORPORATION IS
UNABLE TO CONTINUE TO EFFECTUATE THE VOLUNTARY RESTRUCTURING OR OTHERWISE
REFINANCE OR CONVERT SUCH DEBT AND ADDITIONAL FUNDING IS NOT AVAILABLE, THE
CORPORATION WOULD BE FORCED TO SEEK PROTECTION UNDER APPLICABLE BANKRUPTCY AND
INSOLVENCY LAWS.
ADDITIONAL FUNDING. The Corporation's planned expenditures are based
primarily on its internal estimates of future sales and ability to raise
additional financing. If revenues or additional financing do not meet the
Corporation's expectations in any given period of time, the adverse impact on
the Corporation's finances will be magnified by the Corporation's inability to
adjust spending quickly enough to compensate for revenue or financing
shortfalls. Significant additional funding will be required throughout 1997 to
continue operations, and there can be no assurance that the Corporation will be
able to secure such additional financing on favorable terms, or at all. As of
October 31, 1996, the Corporation had cash of $51,000, including $2,000 held in
escrow for antecedent debt and together with its subsidiaries had receivables
which were not more than sixty days past due of approximately $357,000 which the
Corporation believes have a reasonable likelihood of being collected. There is
no guaranty that all or any of the Corporation's remaining unsecured creditors
representing in excess of $2.2 million in debt will agree to the proposed debt
restructuring/repayment plan or any other plan. In connection with the sale,
the Company issued 13 million cashless warrants with an exercise price of $0.30
per share. These warrants can be exercised for no cash if the price of the
Company's common stock is at least double the exercise price for a period of 20
days.
GOING CONCERN/NOL. The Corporation has experienced recurring losses from
operations, use of cash from operations and had an accumulated deficit of
$79,661,000 at October 31, 1996, which deficit as of July 31, 1996, was
approximately $76,990,000. (See "Increasing and Continued Losses" below).
There is no guaranty, however, that any net operating losses will be available
to the Corporation in the future as an offset against future profits. A
substantial portion of the losses are attributable to research, development and
other start-up costs associated with the Corporation's changing business focus
from retail and mail order operations to the production of electric vehicles and
electric power-train systems. Cash flows from future operations may not be
sufficient to enable the Corporation to achieve profitable operations as
previously disclosed in the preceding paragraph. Market conditions and the
1.
Corporation's financial position may inhibit its ability to achieve profitable
operations. These factors as well as others indicate the Corporation may be
unable to continue as a going concern unless it is able to obtain significant
additional financing and generate sufficient cash flows to meet its obligations
as they come due and sustain its operations. The Corporation estimates that it
will need additional outside financing for at least approximately two more years
to continue funding the development of its products and the growth of its
business before cash from operations is sufficient to fund the Corporation's
business operations. The Corporation estimates that it will need approximately
$8 million in additional outside funding through calendar 1997, without the
payment of past due debts owed to creditors. The Corporation's audited
financial statements included in the Form 10-K for fiscal year 1996 also include
a "Going Concern" qualification from the Corporation's auditors.
INCREASING AND CONTINUED LOSSES. The Corporation was founded in 1976, but
initial sales were very limited and the Corporation was unprofitable as a
manufacturer of solar powered toys. The Corporation has been profitable in only
one year, fiscal year 1986. For the fiscal years ended July 31, 1994, 1995 and
1996, the Corporation had substantial net operating losses of $25,021,000,
$37,565,000 and $9,354,000, respectively, on sales of $5,787,000, $11,625,000
and $4,209,000, respectively. Through the first three months of fiscal 1997,
the Corporation lost an additional $2,671,000 on sales of $527,000. There can
be no assurance that the Corporation will be able to achieve profitability.
SOURCE OF REVENUES. In 1991, the Corporation started to generate a
significant portion of its revenues from the sale of electric vehicles. The
Corporation intends to substantially increase its revenue from the sale of
electric vehicles. However, there can be no assurance that demand for these
products will warrant the Corporation's anticipated expenditures, or that the
Corporation will be successful in engineering and marketing these products or
deriving any sort of profit from such revenues. Due to lack of capital and
other factors, the Corporation has recently reduced its workforce from
approximately seventy employees on December 1, 1996 to a current employee
workforce of fifty-four employees as of January 15, 1997. This action will
significantly impact the Corporation's ability to generate revenue near term.
GENERAL ECONOMIC CONDITIONS. The financial success of the Corporation may
be sensitive to adverse changes in general economic conditions, such as
inflation, unemployment, and consumer demand for the Corporation's products.
These changes could cause the cost of supplies, labor, and other expenses to
rise faster than the Corporation can raise prices. Such changing conditions
also could significantly reduce demand in the market place for the Corporation's
products. The Corporation has no control over any of these changes.
GROWTH STAGE COMPANY; REEVALUATION OF BUSINESS PLANS. Although the
Corporation was originally founded in 1976, many aspects of the Corporation's
business are still in the early growth stage development, and its proposed
operations are subject to all of the risks inherent in a start-up or growing
business enterprise, including the likelihood of continued operating losses.
The likelihood of the success of the Corporation must be considered in light of
the problems, expenses, difficulties, complications and delays frequently
encountered in connection with the growth of an existing business, the
development of new products and channels of distribution, and current and future
development in several key technical fields, as well as the competitive and
regulatory environment in which the Corporation will operate.
In response to the severe cash shortage experienced by the Corporation, in
March 1995, the Corporation initiated steps to restructure its organization and
operations in an effort to stabilize and improve the Corporation's financial
condition. Beginning in March 1995, the Corporation focused its resources on
the production of off-road industrial vehicles and on-road buses and ceased
ordering new inventory for its on-road conversion business; however, the
Corporation intends to finish converting and selling its existing inventory of
on-road vehicles. The Corporation is currently re-evaluating all aspects of its
business, including each of its product lines, in view of its capital
constraints as well as competitive market conditions. To the extent the
Corporation determines to discontinue any of its product lines, potential
sources of revenue from those product lines would be eliminated. In Fall 1996,
the Corporation sold the assets of Industrial Electric Vehicles, Inc., and
ceased production of industrial vehicles domestically. For the first nine
months of Fiscal 1996, industrial vehicle sales were $1.7 million, or
approximately 50% of the Corporation's sales. In December 1996, the Corporation
decided to concentrate its sales activities on two product lines; the first
product line is the drive train system; and the second is the Electrolite
Vehicle.
DEPENDENCE ON KEY PERSONNEL. The success of the Corporation is largely
dependent on its key management and technical personnel, including Xxx Xxxxxxxx,
the Corporation's Chief Executive Officer, and Xxx Xxxxxx, Xxx Xxxx and Xxxx
Xxxxxxxx, the loss of one or more of whom could adversely affect the
Corporation's business.
2.
Additionally, in order to successfully implement its anticipated growth, the
Corporation will be dependent upon its ability to hire additional qualified
personnel. There can be no assurance that the Corporation will be able to
retain or hire other necessary personnel. The Corporation does not maintain key
man life insurance on any of its key personnel. The Corporation believes that
its future success will depend in part upon its continued ability to attract,
retain and motivate additional highly skilled personnel, including engineers,
who are in great demand.
INSURANCE AND POTENTIAL LIABILITY. The Corporation maintains insurance,
including insurance relating to personal injury and product liability, in
amounts which the Corporation currently considers adequate. Nevertheless, a
partially or completely uninsured claim against the Corporation, if successful
and of sufficient magnitude, could have a material adverse effect on the
Corporation. In addition, the Corporation's severe cash shortage may adversely
affect its ability to continue to maintain its insurance coverage.
NATURE OF INDUSTRY. The electric vehicle industry is in its infancy.
Although the Corporation believes that it has manufactured more electric
vehicles than any other company in the United States based on its own knowledge
of the industry, there are many large and small companies, both domestic and
foreign, now in, poised to enter or entering this industry. This EV industry is
subject to rapid technological change. Most of the major domestic and foreign
automobile manufacturers (i) have produced design-concept electric vehicles,
and/or (ii) have developed improved electric storage, propulsion and control
systems, and/or (iii) are planning to enter the field. Various non-automotive
companies are also developing improved electric storage, propulsion and control
systems. Demand for and interest in electric vehicles appears to be increasing.
However, growth in the present limited demand for electric vehicles depends upon
(A) future regulation and legislation requiring more use of non-polluting
vehicles, (B) the environmental consciousness of customers and (C) the ability
of electric vehicles to successfully compete with vehicles powered with internal
combustion engines.
UNCERTAINTY OF PRODUCT MARKET AND ACCEPTANCE; CHANGED LEGISLATIVE CLIMATE.
Because vehicles powered by internal combustion engines cause pollution, there
is significant public pressure in Europe and Asia, and enacted or pending
legislation in the United States at the federal level and in certain states, to
promote or mandate the use of vehicles with no tailpipe emissions ("zero
emission vehicles") or reduced tailpipe emissions ("low emission vehicles"). To
date, substantially all zero emission vehicles designed and produced have been
electric vehicles, and most low emission vehicles have been powered by natural
gas or have been hybrid vehicles using two or more powering systems. The
Corporation believes that legislation requiring or promoting zero emission
vehicles or low emission vehicles is necessary to create a significant
commercial market for electric vehicles. There can be no assurance, however,
that further legislation will be enacted or that current legislation will not be
repealed or amended, or that a different form of zero emission or low emission
vehicle will not be invented, developed and produced, and achieve greater market
acceptance than electric vehicles. Following the state and federal elections in
November 1994, the Corporation believes that the changed legislative climate in
the United States may result in extensions, modifications or reductions of
current federal and state legislation, mandates and potential tax incentives
which could adversely affect the Corporation's business prospects if
implemented. In April 1996, California altered its mandate requirements by
extending the implementation date and establishing voluntary compliance.
Additional information regarding the status of legislative mandates and
initiative is available in the Corporation's Form 10K for the fiscal year ended
July 31, 1996 filed with the Securities and Exchange Commission.
COMPETITION. There are many companies, including several major automobile
companies and electronics firms, actively engaged in the research and
development of electric vehicles. Many have far greater resources and marketing
abilities than the Corporation. Although the Corporation believes it has sold
more electric vehicles than any other company in the United States, there can be
no assurance that the Corporation will retain this advantage or be able to
compete in the future with the companies in or entering the electric vehicle
market. The major automobile manufacturers have a distinct advantage over the
Corporation if they decide to compete with the Corporation in the
retrofit/conversion EV business, should the Corporation continue in this
business. Their vast resources would pose a distinct disadvantage to the
Corporation. Direct competition from the "Big Three" could possibly inhibit the
Corporation from obtaining the vehicles it needed without additional cost. The
Corporation, believes, however, that the niche fleet market which it has
targeted is presently too small for the large automobile manufacturers to pursue
on a competitive basis with the Corporation.
DEPENDENCE ON SUPPLIERS/OUTSIDE PARTIES. Certain components used in the
Corporation's electric vehicles are available only from a limited number of
sources. If such sources are unable or unwilling for any reason to manufacture
and sell these unique components, the Corporation at the present time would have
no other supplier. Additionally, the Corporation intends to develop close
relationships with other suppliers of propriety components, such as batteries,
which the Corporation will integrate into its retrofitted and OEM electric
vehicles. The
3.
Corporation's reliance on these limited source suppliers could cause shortages
of certain key components, or the inability to find comparable replacements at
any cost or time could significantly impair the Corporation's financial
performance and relationships with its customers.
RAPID TECHNOLOGICAL CHANGE. The Corporation's existing products are
designed for use with, and are dependent upon, existing electric vehicle
technology. As technologies change, and subject to the Corporation's limited
available resources, the Corporation plans to upgrade or adapt its products in
order to continue to provide products with the latest technology. However,
there can be no assurance that the Corporation will be able to avoid
technological obsolescence of its products or that the Corporation's research
and development efforts will be able to adapt to changes in or create the
necessary "leading-edge" technology to stay competitive. Further proprietary
technology development by others could prohibit the Corporation from using its
own technology.
MINIMAL BARRIERS TO ENTRY. Although the Corporation has certain
distribution arrangements with suppliers of subcomponents, and trademarks and
proprietary propulsion system technology pursuant to its recent acquisition of
the assets of Systronix Corporation, the Corporation believes it has created
little or no barrier to entry for competitors other than the time and
significant expense required to assemble and develop similar production and
design capabilities. Competitors of the Corporation may enter into exclusive
arrangements with current or potential suppliers for the Corporation, thereby
potentially giving such competitors a competitive edge which the Corporation
might not be able to overcome.
NO DIVIDENDS. To date, the Corporation has not paid any dividends on its
Common Stock or Preferred Stock and does not intend to declare any dividends in
the foreseeable future on its Stock.
PREFERRED STOCK PREFERENCES. The Corporation's Series A and Series B
Preferred Stock has preference over the Common Stock with respect to the payment
of dividends and the distribution of assets in the event of a liquidation or
dissolution of the Corporation. In addition, the Board of Directors of the
Corporation also has the authority to issue additional preferred stock in one or
more series and to fix the voting and other powers, designations, dividends,
preferences and relative participation, optional, conversion, exchange,
redemption and other special rights and qualifications, limitations or
restrictions thereon of any such series of preferred stock. Such rights could
adversely affect the existing or future rights of the units of Common Stock with
respect to the existing Series A Preferred Stock and as to any new series of
Preferred Stock. In connection with the restructuring of the Corporation's
unsecured debt, the Corporation shall issue shares of Series B Preferred Stock
that will have certain preferences over the Common Stock and the Series A
Preferred Stock with respect to dividends and the distribution of assets in the
event of a liquidation or dissolution. See Risk Factors -- Debt Restructuring.
SHARES ELIGIBLE FOR FUTURE SALE. No prediction can be made as to the
effect, if any, that substantial and significant sales of new shares of Common
Stock or the availability of such shares for sale will have on the market prices
prevailing from time to time. Nevertheless, the possibility that substantial
amounts of Common Stock may be sold in the future may adversely affect
prevailing prices for the Corporation's Common Stock and could impair the
Corporation's ability to raise capital through the sale of its equity
securities. As of January 31, 1997, the Corporation had issued and outstanding
approximately 131,000,000 shares, of which over 1,000,000 shares are free
trading with the remainder restricted pursuant to Rule 144 or Regulation S.
LEVERAGE; CASH FLOW. Any indebtedness being assumed by the Corporation in
connection with its financing activities poses significant risks to potential
investors, particularly in view of the Corporation's loss history. The ability
of the Corporation to generate sufficient cash flow to make payments with
respect to any debt of the Corporation will depend upon the future performance
of the Corporation, which will be subject to factors beyond the Corporation's
control. No assurance can be given that the Corporation will be able to fund
its working capital needs and to satisfy its principal and interest requirements
from internally generated funds.
CREDITOR CLAIMS AND LITIGATION [SHAREHOLDER] CLAIMS. The informal
Creditors Committee of the Corporation recommended in 1995 a voluntary
moratorium on pursuing unsecured claims (a copy of which is available for review
by the Purchaser and its counsel upon request). There is no guarantee, however,
that this moratorium will continue. In addition, certain unsecured creditors
representing approximately $650,000 in principal and interest have nevertheless
filed or threatened to file lawsuits if they are not paid. Judgments have been
awarded to unsecured creditors who filed lawsuits for claims representing an
aggregate of approximately $450,000 in principal and interest. On September 30,
196, a suit was filed by Xxxxxxx Xxxxxx in proper against the Corporation in San
Francisco Superior Court, alleging that plaintiff and defendant entered into an
oral agreement whereby defendant agreed to give plaintiff $1,000,000 and 80,000
shares of defendant's stock as compensation for seeking and
4.
arranging a joint business venture agreement with a Mexican company. The
complaint seeks compensatory damages in an unspecified amount, punitive damages,
attorneys' fees and costs, specific performance under the oral agreement, and an
aware of 80,000 shares of stock. The Corporation was served on January 16,
1997, and has just begun to investigate this matter and has retained counsel.
5.
