SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): June 30, 1998
U.S. AUTOMOTIVE MANUFACTURING, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-20436 65-0309477
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
Route 627, Airport Drive, Tappahannock, Virginia 22560
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (804) 443-5356
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Former name or former address, if changed since last report
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Item 9. Sales of Equity Securities Pursuant to Regulation S.
On June 30, 1998, U.S. Automotive Manufacturing, Inc. (the "Company") sold
to persons qualifying as "Non-U.S. Persons" (as such term is defined in Reg S,
as herein defined) its 8% Redeemable Convertible Debentures (each a
"Debenture"), in the aggregate principal amount of $2,250,000, in reliance upon
the exemption from registration afforded by Regulation S ("Regulation S")
promulgated under the Securities Act of 1933, as amended (the "Act"). The
Debentures are unsecured obligations of the Company and there is no sinking fund
applicable thereto.
Each Debenture sold matures on December 31, 2000 (the "Maturity Date"), at
which date the Debenture will be mandatorily convertible into shares (the
"Conversion Shares") of common stock, par value $.001 per share, of the Company
(the "Common Stock"). The Debentures will also be convertible at any time, at
the option of the holder (the "Conversion Date"), into Conversion Shares. The
conversion price (the "Conversion Price") of the Debentures on the Maturity Date
or any Conversion Date will be equal to 80% of the average closing bid price of
the shares of Common Stock as quoted on the Nasdaq SmallCap Market for the five
(5) trading days immediately preceding the Conversion Date. Notwithstanding the
foregoing, the Company is not obligated to issue more than 3,144,900 Conversion
Shares (the "Maximum Conversion Share Allotment") upon the conversion of the
Debentures.
In the event of a stock dividend, recapitalization, reorganization, merger,
consolidation, subdivision, combination or reclassification of shares of the
Company's Common Stock, or any other change in the corporate structure or shares
of the Company's Common Stock, prior to the conversion of the Debentures, the
Company will make such adjustment as is necessary to give the holder of the
Debentures substantially the same rights as the holder of the Debentures had
immediately prior to the occurrence of such event.
Each Debenture bears an initial interest rate of 8% per annum (subject to
increase under certain circumstances), which interest is payable (i) in the
event of conversion of the Debentures, in cash or shares of Common Stock, at the
option of the Company on the Conversion Date or (ii) in the event of redemption
of the Debenture, in cash on the Redemption Date (as herein defined). In the
event that on or before January 1, 1999 the Conversion Shares are not covered by
a registration statement filed with the Securities and Exchange Commission
("SEC"), the interest rate on the Debentures will increase to 20% per annum
until the Debentures are redeemed or converted or the Company has issued the
Maximum Conversion Share Allotment. Moreover, if upon conversion of the
Debentures the Company would otherwise issue shares of Common Stock in excess of
the Maximum
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Conversion Share Allotment, the interest rate on the Debentures will, effective
as of the issuance of the Maximum Conversion Share Allotment, increase to 25%
per annum with respect to that portion of the Debentures not converted by reason
of the issuance of the Maximum Conversion Share Allotment, until the Debentures
are either redeemed by the Company or the Company has obtained stockholder
authorization to issue additional shares for use in lieu of a cash redemption of
Debentures. Upon stockholder authorization of additional shares of Common Stock,
the interest rate will revert to 8% per annum. So long as the Company has timely
filed a proxy statement with the SEC for the issuance of additional shares of
Common Stock and is proceeding diligently to obtain such authorization, then the
25% interest rate will be applied effective as of the date of issuance of the
Maximum Conversion Share Allotment. In the event that the Company fails to file
such proxy statement within ten (10) days of the issuance of the Maximum
Conversion Share Allotment, then the Company shall be penalized by the
retroactive application of the 25% interest rate, effective as of June 30, 1998.
The Company may redeem the Debentures at any time, upon 30 days prior
written notice as to redemptions made, or upon three days notice for redemption
pursuant to (iii) hereof (a "Redemption Notice"), at a redemption price equal to
(i) 110% of the principal amount of, plus accrued interest on, the Debentures,
prior to August 29, 1998; (ii) 125% of the principal amount of, plus accrued
interest on, the Debentures, commencing on August 30, 1998; or (iii) 100% of the
principal amount of, plus accrued interest on, the Debentures in the event that
the Company shall have issued the Maximum Conversion Share Allotment.
In the event that the Company issues the Maximum Conversion Share
Allotment, the Company has agreed to seek authorization to issue additional
shares for use in lieu of the cash redemption of Debentures. The failure of the
Company to undertake to obtain such authorization within 10 days of the issuance
of the Maximum Conversion Share Allotment by filing a proxy statement with the
SEC or, under certain circumstances, to obtain such authorization after holding
a meeting of the shareholders constitutes an event of default under the
Debenture.
In addition, if the Company redeems the Debentures any time after the
Company has issued the Maximum Conversion Share Allotment, the Company has also
agreed to issue to the holders of the Debentures to be redeemed a number of
warrants (the "Redemption Warrants") equal to one-half of the principal amount
of Debentures to be redeemed. If issued, the Redemption Warrants will be
exercisable for a period of five years from the date of issuance at an exercise
price equal to either (i) the greater of (A) $1.00 per share; (B) 115% of the
average of the closing bid price of the Common Stock for the five trading days
immediately preceding the Redemption Date or (ii) in the event that an
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exercise price under alternative (i) is determined by Nasdaq to be an issuance
below the then current market price within the meaning of NASD Rule
4310(c)(25)(H) (or any successor rule), the exercise price will be equal to the
closing bid price of the Common Stock on June 30, 1998 and the number of Warrant
Shares issuable will be subject to adjustment as provided in the Redemption
Warrant.
If issued, the Redemption Warrants will be redeemable by the Company upon
notice of not less than 30 days, at a price of $.05 per Redemption Warrant but
only to the extent that the shares of Common Stock underlying the Redemption
Warrants are transferable either pursuant to an effective registration statement
or pursuant to Rule 144 of the Act and the closing bid price of the Common Stock
on all 15 trading days ending on the day on which the Company gives notice has
been at least 150% of the then effective exercise price of the Redemption
Warrants. The Redemption Warrants will be exercisable either on a cash or
"cashless" basis and the holders will have certain registration rights with
respect to the shares of Common Stock issuable upon exercise of the Redemption
Warrants.
The Company has also agreed, at its expense, to (i) file with the SEC on or
before August 29, 1998, a registration statement covering the issuance by the
Company of the Conversion Shares and (ii) use its reasonable best efforts to
cause such registration statement to be declared effective under the Act as soon
as possible thereafter.
The Company has also agreed to grant certain registration rights with
respect to the holders of any Redemption Warrants that may be issued.
BLH, Inc. acted as the placement agent in connection with the offering of
the Debentures pursuant to Reg S, for which it received an agency fee (including
all reasonable expenses of counsel) in the amount of twelve percent (12%) per
Debenture.
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Item 7. Exhibits
(a) - (b) Not applicable
(c) (1) Form of Debenture
(2) Form of Redemption Warrant
(3) Form of Registration Rights Agreement
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. AUTOMOTIVE MANUFACTURING, INC.
By: /s/ John W. Kohut
--------------------------------
John W. Kohut,
Chairman of the Board
Date: July 28, 1998
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THIS DEBENTURE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OF THE UNITED STATES AND THE RULES AND REGULATIONS
PROMULGATED THEREUNDER (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS (AS SUCH TERMS
ARE DEFINED IN REGULATION S UNDER THE ACT), FOR A PERIOD OF ONE (1) YEAR AFTER
COMPLETION OF THE OFFERING PURSUANT TO WHICH THIS DEBENTURE WAS ISSUED (THE
"COMPLIANCE PERIOD") UNLESS SUCH OFFER OR SALE (I) IS MADE IN AN "OFFSHORE
TRANSACTION" AND NOT TO A "U.S. PERSON" (OTHER THAN A "DISTRIBUTOR") (AS SUCH
TERMS ARE DEFINED IN REGULATION S) OR (II) IS MADE PURSUANT TO REGISTRATION OR
AN APPLICABLE EXEMPTION UNDER THE ACT FROM THE REGISTRATION REQUIREMENTS OF THE
ACT. FOLLOWING THE COMPLIANCE PERIOD, SUCH SECURITIES MAY ONLY BE OFFERED OR
SOLD PURSUANT TO REGISTRATION UNDER, OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF, THE ACT.
BY REQUESTING THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
AFTER THE COMPLIANCE PERIOD, THE HOLDER OF THIS CERTIFICATE REPRESENTS, AMONG
OTHER THINGS, THAT IF SUCH TRANSFER IS MADE TO A U.S. PERSON, THAT AT THE TIME
OF SUCH TRANSFER THE HOLDER IS NOT AN "AFFILIATE" OF THE COMPANY (AS SUCH TERM
IS DEFINED IN THE ACT), HAS NOT ENGAGED IN ANY SHORT SALES OR SIMILAR HEDGE
TRANSACTIONS WITH RESPECT TO THE COMPANY'S COMMON STOCK DURING THE COMPLIANCE
PERIOD AND SUCH TRANSFER IS NOT BEING MADE AS PART OF A PLAN OR SCHEME TO EVADE
THE REGISTRATION PROVISIONS OF THE ACT.
ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO
LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS
PROVIDED IN SECTIONS 165(J) AND 1287(A) OF THE INTERNAL REVENUE CODE OF 1985, AS
AMENDED.
U.S. AUTOMOTIVE MANUFACTURING, INC.
8.0% REDEEMABLE CONVERTIBLE DEBENTURE
USD* _________ June 30, 1998
Number _______
FOR VALUE RECEIVED, U.S. AUTOMOTIVE MANUFACTURING, INC., a Delaware
corporation, having an address at Route 627, Airport Drive, Tappahanock,
Virginia 22560 (the "Company") hereby promises to pay to
_____________________________________________________ or registered assigns (the
"Holder"), having an address at ________________________________, at Holder's
address set forth above (or at such other place as the Holder may from time to
time hereafter direct by notice in writing to the Company), the principal amount
of ______________________ ___________ U.S. Dollars (USD $____________) and
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*USD = U.S. Dollars
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to pay interest on the principal amount hereof, in such amounts, at such times
and on such terms and conditions as are specified herein, on December 31, 2000
(the "Maturity Date"), unless earlier becoming due and owing by reason of an
Event of Default pursuant to Article 7 hereof. This Debenture may not be prepaid
except as specifically provided herein.
Article 1. Interest and Payment
Section 1.1. Interest
(a) Subject to paragraphs (c) and (d) below, the Company shall pay interest
on the unpaid principal amount of this Debenture (the "Debenture") at the rate
of Eight Percent (8.0%) per annum, payable in arrears to the extent of the
outstanding unpaid principal amount of the Debenture to be converted or
redeemed, at the earlier of the Maturity Date, the Conversion Date, the
Redemption Date or an Acceleration Date (as such terms are defined in Articles 2
and 3 hereof), which interest, except in the event of redemption, is payable, at
the option of the Company, in either cash, or shares of the Company's common
stock, $.001 par value (the "USAM Stock") valued at the Conversion Price as
defined below. Notwithstanding anything contained herein to the contrary,
interest accrued at the Redemption Date in the event the Company elects to
redeem the principal amount of the Debenture outstanding shall be payable only
in cash unless the Company, subsequent to the issuance of the Maximum Conversion
Allotment, has obtained authorization to issue additional shares for use in lieu
of a cash redemption of the principal amount of the Debenture then outstanding,
if any.
(b) Interest on this Debenture shall accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the date of
this Debenture (the "Closing"). Interest shall be computed on the basis of a 360
day year of 12, 30 day months.
(c) In the event that the USAM Stock issued upon conversion of the
Debentures pursuant to Article 2 hereof are not covered by a registration
statement filed with the Securities and Exchange Commission (the "Commission")
at any time on or after the first day of the seventh month following the Issue
Date, the interest rate on the principal amount of the Debentures then
outstanding shall increase to 20% per annum until the Debentures are redeemed or
converted into USAM Stock or the Company has issued the Maximum Conversion
Allotment (as defined in Section 2.4 hereof).
(d) If the Company has issued the Maximum Conversion Allotment, the
interest rate on the principal amount of the Debentures then outstanding shall
increase to 25% per annum commencing as of (i) the initial issue date of the
Debentures if the Company has failed to file with the Securities and Exchange
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Commission a proxy statement for the authorization of additional shares of
Common Stock within 10 days of the issuance of the Maximum Conversion Allotment
and fails to proceed diligently to obtain such authorization, or (ii) from the
date of issuance of the Maximum Conversion Allotment if the Company has filed a
proxy statement and is diligently proceeding to obtain such authorization. The
25% interest rate shall continue until the Debentures are redeemed by the
Company or the Company has obtained authorization to issue additional shares of
USAM Stock for use in lieu of a cash redemption of Debentures at which time the
interest rate shall revert to 8% per annum.
Section 1.2. Payment. This Debenture must be surrendered to the Company in
order for the Holder to receive payment of the principal amount (or any portion
thereof). The Company may draw a check for the payment of principal and
interest, if any, to the order of the Holder of this Debenture and mail it to
the Holder's address as shown on the Register (as defined in Section 8.2
hereof). Interest and principal payments shall be subject to withholding under
applicable United States Federal Internal Revenue Service Regulations.
Article 2. Conversion
Section 2.1. Conversion Privilege
(a) Subject to the Maximum Conversion Allotment, the holder of the
Debenture ("Holder") is entitled, at its option, to convert the principal amount
of the Debenture then outstanding (or any portion thereof) into shares of USAM
Stock, at a conversion price ("Conversion Price") for each share of USAM Stock
equal to eighty percent (80%) of the average closing bid price of the shares of
USAM Stock as reported by the Nasdaq SmallCap Market for the 5 trading days
preceding the Conversion Date (as defined in Section 2.3 hereof).
(b) The number of shares of USAM Stock issuable upon the conversion of this
Debenture is determined by dividing (i) the principal amount hereof to be
converted plus all accrued and unpaid interest thereon (unless, however, the
Company elects to pay the interest in United States dollars) minus any required
withholding by (ii) the Conversion Price and, then rounding the result to the
nearest whole share; provided, however, that the aggregate number of shares of
USAM Stock issued pursuant to the Offering (as defined in Section 2.4 hereof)
shall not exceed the Maximum Conversion Allotment except as otherwise provided
herein.
(c) Less than all of the principal amount of this Debenture may be
converted into USAM Stock, provided that the minimum principal amount converted
is $10,000 or a whole multiple of $10,000 (unless the Company consents
otherwise), and the provisions of this Article 2 that apply to the conversion of
all of the Debenture shall also apply to the conversion of a portion
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of it. All accrued and unpaid interest on this Debenture shall be added to the
amount converted (unless, however, the Company elects to pay interest in United
States dollars) if less than all of the principal amount of this Debenture is
converted and shall be deemed to be paid and discharged thereby.
Section 2.2. Mandatory Conversion Date. In the event all or any portion of
this Debenture remains outstanding on the Maturity Date, the unconverted portion
of such Debenture will, subject to the Maximum Conversion Allotment,
automatically be converted into shares of USAM Stock on such date in the manner
set forth in this Article 2.
Section 2.3. Conversion Procedure
(a) Conversion shall be effectuated by surrendering to the Company the
original Debenture to be converted, together with a facsimile or original of the
signed and completed Notice of Conversion and Representation Letter, (Exhibit A
attached hereto), which evidences such Holder's intention to convert the
Debenture or a specified portion thereof in accordance with Regulation S under
the Act, and accompanied by proper assignment, if applicable. The date on which
notice of conversion is effective ("Conversion Date") shall be deemed to be the
date on which the Holder has delivered to the Company a facsimile or original of
the Debenture and the signed Notice of Conversion and Representation Letter;
provided that the original Debenture is delivered to the Company within three
(3) business days thereafter. In the event that the original Debenture is not
received within three (3) business days thereafter, for every day that the
original Debenture is not received after such fourth business day, the Exchange
Period (as defined below) shall be extended by an equal number of days (each
such extension a "Delivery Adjustment").
(b) Subject to any Delivery Adjustments, the Company shall, within five (5)
business days after receipt of the documentation referred to above in Section
2.3(a) (the "Exchange Period"), deliver a certificate for the number of shares
of USAM Stock issuable upon conversion pursuant to this Article 2. Upon the
effectiveness of the Registration Statement, the certificates shall be issued
without a restrictive legend upon the receipt by the transfer agent for the
Common Stock of a broker's certification providing that the shares of Common
Stock have been sold in accordance with the prospectus and that the prospectus
delivery requirements have been met.
(c) The person in whose name the certificate of USAM Stock is to be
registered shall be treated as a stockholder of record on and after the
Conversion Date. No payment or adjustment shall be made for any accrued and
unpaid interest until the earlier of the Maturity Date (unless extended pursuant
to Section 1.3 hereof), the Conversion Date, the Redemption Date
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or the Mandatory Conversion Date. The number of full shares issuable upon the
conversion shall be based on the total principal amount of Debenture(s) plus any
accrued interest thereon (unless the Company elects to pay interest in United
States Dollars) converted. Upon surrender of a Debenture that is to be converted
in part, the Company shall issue to the Holder a new Debenture equal in
principal amount to the unconverted portion of the Debenture surrendered.
(d) No fractional shares or scrip representing fractions of shares will be
issued on conversion, but the number of shares issuable shall be rounded up or
down, as the case may be, to the nearest whole share; provided, however, that no
amount of USAM Stock shall be issued in excess of the Maximum Conversion
Allotment.
(e) In the event that the Common Stock is not delivered per the written
instructions of the Holder within five business days after the Conversion Date
in accordance with the terms hereof other than due to a Delivery Adjustment or
due to the failure of the Holder of the Debenture to comply with the provisions
of this Section 2.3 or due to the force majeure or as otherwise provided herein,
then in such event the Company shall pay to Holder one percent (1%) of the
amount of the Debentures being converted per each day after the fifth business
day following the Conversion Date that the certificates for the shares of Common
Stock are not delivered in cash or shares of Common Stock, based upon the
Conversion Price at the option of the Holder.
(i) The Company acknowledges that its failure to deliver the certificates
for the shares of Common Stock within five business days after the
Conversion Date will cause the Holder to suffer damages in an amount that
will be difficult to ascertain. Accordingly, the parties agree that it is
appropriate to include in this Debenture a provision for liquidated
damages. The parties acknowledge and agree that the liquidated damages
provision set forth in this paragraph represents the parties' good faith
effort to quantify such damages and, as such, agree that the form and
amount of such liquidated damages are reasonable and do not constitute a
penalty. The payment of liquidated damages shall not relieve the Company
from its obligations to deliver the shares of Common Stock pursuant to the
terms of this Debenture.
(ii) To the extent that the failure of the Company to issue the Common
Stock pursuant to this paragraph 2.3 is due to the unavailability of
authorized but unissued shares of Common Stock, the provisions of this
paragraph 2.3(e) shall not apply but instead the provisions of paragraph
2.3(f) shall apply.
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(iii) The Company shall make the cash payment in immediately available
funds or issue such shares of Common Stock incurred under this paragraph
2.3 within five (5) business days from the date of issuance of the
applicable shares of Common Stock upon conversion of the Debenture. Nothing
herein shall limit a Holder's right to pursue actual damages or cancel the
conversion for the Company's failure to issue and deliver the shares of
Common Stock to the Holder within five (5) business days after the
Conversion Date.
(iv) To the extent that the Company has taken all steps reasonably
necessary to issue the Common Stock pursuant to this paragraph 2.3 the
provisions of this paragraph 2.3(e) shall not apply.
(f) The Company agrees to pay to all Holders of outstanding Debentures
payments for a Conversion Default ("Conversion Default Payments") in the amount
of (N/365) x (.25) x the original principal amount plus the accrued interest
thereon of the outstanding and tendered but not converted Debentures held by
each Holder where N = the number of days from the Conversion Default Date to the
date (the "Authorization Date") that the Company authorizes a sufficient number
of shares of Common Stock to effect conversion of all remaining Debentures. The
Company shall send a notice ("Authorization Notice") to each Holder of
outstanding Debentures that additional shares of Common Stock have been
authorized, the Authorization Date and the amount of Holders accrued Conversion
Default Payments. The accrued Conversion Default Payments shall be paid in cash
or shall be convertible into shares of Common Stock at the Conversion Price, at
the Holder's option, payable as follows: (i) in the event the Holder elects to
take such payment in cash, cash payments shall be made to such Holder of
outstanding Debentures by the fifth day of the calendar month following the
Conversion Default Date and each month thereafter, or (ii) in the event the
Holder elects to take such payment in shares of Common Stock, the Holder may
convert such payment amount to take such payment amount into shares of Common
Stock at the Conversion Price at anytime after the fifth day of the calendar
month following the month in which the Authorization Notice was received, until
the Mandatory Conversion Date.
(i) The Company acknowledges that its failure to maintain a sufficient
number of authorized but unissued shares of Common Stock to effect a full
conversion of the Debentures will cause the Holder to suffer damages in an
amount that will be difficult to ascertain. Accordingly, the parties agree
that it is appropriate to include in this Agreement a provision for
liquidated damages. The parties acknowledge and agree that the liquidated
damages provision set forth in this paragraph represents the parties' good
faith effort to
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quantify such damages and, as such, agree that the form and amount of such
liquidated damages are reasonable and do not constitute a penalty. The
payment of liquidated damages shall not relieve the Company from its
obligations to deliver the shares of Common Stock pursuant to the terms of
this Agreement.
(ii) Nothing herein shall limit the Holder's right to pursue actual damages
or cancel the Notice of Conversion for the Company's failure to maintain a
sufficient number of authorized shares of Common Stock.
Section 2.4. Maximum Conversion Allotment.
(a) For purposes of this Debenture, the "Maximum Conversion Allotment"
shall mean an aggregate of 3,144,900 shares of USAM Stock made available for
conversion with respect to the aggregate number of Debentures sold pursuant to
the Company's Confidential Offshore Offering Memorandum, dated June 22, 1998,
relating to the Company's offering of an aggregate of $2,250,000 principal
amount of Debentures under Regulation S of the Act (the "Offering").
(b) In the event that any principal balance of the Debenture has not been
converted prior to the Redemption Notice by reason of the Company having issued
the Maximum Conversion Allotment, the Company shall, within ten (10) business
days of the issuance of the Maximum Conversion Allotment, undertake to obtain
authorization to issue additional shares for use in lieu of a cash redemption of
this Debenture.
(c) If, at any time Purchaser submits a Notice of Conversion and the
Company does not, by reason of the Maximum Conversion Allotment, have sufficient
authorized but unissued shares of USAM Stock available to effect, in full, a
conversion of the Debenture (a "Conversion Default") the Company shall issue to
the Purchaser all of the shares of USAM Stock which are available, and the
Notice of Conversion as to any amount of the Debenture requested to be converted
but not converted (the "Unconverted Debenture") shall become null and void. The
Company shall provide notice of such Conversion Default ("Notice of Conversion
Default") to all existing Purchasers of outstanding Debentures, by facsimile,
within one (1) business day of the date of such default. No Holder may submit a
Notice of Conversion after receipt of a Notice of Conversion Default until the
date any additional shares of USAM Stock are authorized by the Company. The
Company shall provide notice of any such authorization to all existing
Purchasers of outstanding Debentures, by facsimile, within five (5) business
days of the date of obtaining such authorization.
Section 2.5. Adjustment of USAM Stock Issuable upon Conversion. In the
event of a stock dividend, recapitalization,
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reorganization, merger, consolidation, subdivision, combination or
reclassification of shares of the Company's common stock, or any other change in
the corporate structure or shares of the Company's common stock, prior to the
conversion of this Debenture, the Company shall make such adjustment as is
necessary to give the holder of this Debenture substantially the same rights as
the holder of this Debenture had immediately prior to the occurrence of such
event. In the event of any consolidation of the Company with, or merger of the
Company into, another corporation where the Company is not the successor entity,
or in the case of the sale or conveyance to another corporation of the property
of the Company, then the Holder of this Debenture shall thereafter, upon
conversion of this Debenture in accordance with the terms hereof, prior to the
record date for such consolidation, merger, sale or conveyance, have the right
to purchase and receive the kind and number of shares of USAM Stock and other
securities or properties receivable upon such consolidation, merger, sale or
conveyance, that would have been issued to such Holder had this Debenture been
converted immediately prior to such event. No more than the Maximum Conversion
Allotment will be issued by the Company with respect to the Debentures sold in
the Offering unless the Company has obtained stockholder approval for such
additional issuances as provided for in this Agreement.
Section 2.6. Taxes on Conversion. The Company shall pay any documentary,
stamp or similar issue or transfer tax due on the issue of shares of USAM Stock
upon the conversion of this Debenture. However, the Holder shall pay any such
tax which is due because the shares are issued in a name other than its name.
Section 2.7. Company to Reserve Stock. Subject to the Maximum Conversion
Allotment, the Company shall reserve out of its authorized but unissued USAM
Stock or USAM Stock held in treasury enough shares of USAM Stock to permit the
conversion of this Debenture. All shares of USAM Stock which may be issued upon
the conversion hereof shall be fully paid and nonassessable.
Article 3. Limitations on Conversion
Except in the case of Mandatory Conversion, in no event shall the Holder be
entitled to convert that amount of the Debenture in excess of that amount upon
conversion of which the sum of (1) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the Debentures), and (2) the number of shares of Common
Stock issuable upon the conversion of the Debenture with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by the Holder and its affiliates of more than 4.9% of the outstanding
shares of Common Stock of the Company. For purposes of the immediately preceding
sentence, beneficial ownership shall
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be determined in accordance with Section 13 (d) of the Securities Exchange Act
of 1934, as amended, and Regulation 13 D-G thereunder, except as otherwise
provided in clause (1) of the immediately preceding sentence.
Article 4. Redemption
Section 4.1. Redemption Price. The Company may redeem, in cash, the
Debentures at any time, upon giving a Redemption Notice, at a Redemption Price
equal to (i) 110% of the principal amount of, plus accrued interest on, the
Debentures, during the first 60 days following the Closing; (ii) 125% of the
principal amount of, plus accrued interest on, the Debentures, commencing on the
61st day following the Closing and ending on the 31st day following the
Redemption Notice. Redemption Notice may only be given, and the Company may only
redeem that principal amount of the Debentures, to the extent that the shares of
USAM Stock issuable upon conversion of the outstanding Debentures are included
in an effective Registration Statement or to the extent that such shares of USAM
Stock are freely tradeable pursuant to Rule 144 under the Act or otherwise
exempt from registration under the Act; or (iii) 100% of the principal amount
of, plus accrued interest on, the Debentures, in the event that the Company
shall have issued the Maximum Conversion Allotment and until such time as the
Company has obtained authorization to issue shares of Common Stock in excess of
the Maximum Conversion Allotment. No sinking fund is provided for the
Debentures. Except as provided in this Section 4.1, the Debentures are not
redeemable at the option of the Company.
Section 4.2. Issuance of Redemption Warrants.
(a) In the event the Company redeems the Debenture any time after the
Company has issued the Maximum Conversion Allotment, the Company shall also
issue to the Holder of such Debenture a number of warrants (the "Redemption
Warrants") equal to one-half of the principal amount of the Debenture redeemed.
(b) The Redemption Warrants shall be exercisable for a period of five years
from the date of issuance at an Exercise Price equal to either (i) the greater
of (A) $1.00 per share; or (B) 115% of the average of the closing bid price of
the USAM Stock for the five trading days immediately preceding the date of such
redemption or (ii) in the event that an Exercise Price under alternative (i) is
determined by Nasdaq to be an issuance below the then current market price
within the meaning of NASD Rule 4310(c)(25)(H) (or any successor rule), the
Exercise Price shall be equal to the closing bid price of the USAM Stock on the
date of the Closing.
(c) The Redemption Warrants are redeemable by the Company upon notice of
not less than 30 days, at a price of $.05
9
<PAGE>
per Redemption Warrant, provided that the closing bid price of the USAM Stock on
all 15 trading days ending on the day on which the Company gives notice has been
at least 150% of the then effective exercise price of the Redemption Warrants
and only to the extent that the shares of Common Stock underlying the Warrants
are freely tradeable either pursuant to an effective registration statement or
pursuant to Rule 144 of the Act.
(d) The Redemption Warrants shall be exercisable either on a cash or
cashless basis and the holders thereof shall be granted certain registration
rights with respect to the shares of USAM Stock issuable upon exercise of the
Redemption Warrants, as more fully described in the Redemption Warrants.
Article 5. Restrictions on Transfer.
This Debenture and the USAM Stock issuable upon the conversion hereof have
not been registered under the Act, and have been sold pursuant to Regulation S
under the Act. The Debenture and the shares of USAM Stock issuable upon
conversion thereof (including any shares issued in lieu of cash payments of
interest) may not be transferred or resold in the United States, or to a U.S.
Person, or to or for the account or benefit of a U.S. Person (as defined in
Regulation S) for the one (1) year Compliance Period and thereafter, this
Debenture (and the USAM Stock issuable upon the conversion thereof) may only be
offered or sold pursuant to registration under, or an exemption from, the Act.
Article 6. Survival in case of Merger/Sale of Business.
The Company shall not consolidate or merge into, or transfer all or
substantially all of its assets to, any person, unless such person assumes by
operation of law or otherwise the obligations of the Company under this
Debenture. Any reference herein to the Company shall refer to such surviving or
transferee corporation and the obligations of the Company shall terminate upon
such assumption.
Article 7. Reports
The Company will mail to the Holder hereof at its address as shown on the
Register a copy of any annual or quarterly report that it files with the
Commission promptly after the filing thereof and a copy of any annual or
quarterly report or proxy statement that it gives to its shareholders generally
at the time such report or statement is sent to shareholders.
Article 8. Defaults and Remedies
Section 8.1. Events of Default. The following shall constitute an "Event of
Default" under this Debenture:
10
<PAGE>
(a) The Company shall fail to make the payment of principal or interest on
this Debenture; or
(b) After the issuance of the Maximum Conversion Share Allotment, the
Company (i) holds a meeting of stockholders to obtain authorization to
issue additional shares of Common Stock but fails to obtain such
authorization at the meeting or within four (4) months from the date
of the meeting; or (ii) fails to file a proxy statement within ten
(10) days of the issuance of the Maximum Conversion Share Allotment
and proceed diligently to obtain authorization to issue additional
shares of Common Stock.
(c) The Company shall (1) admit in writing its inability to pay its debts
generally as they mature; (2) make an assignment for the benefit of
creditors or commence proceedings for its dissolution; or (3) apply
for or consent to the appointment of a trustee, liquidator or receiver
for its or for a substantial part of its property or business; or
(d) A trustee, liquidator or receiver shall be appointed for the Company
or for a substantial part of its property or business without its
consent and shall not be discharged within sixty (60) days after such
appointment; or
(e) Any governmental agency or any court of competent jurisdiction at the
instance of any governmental agency shall assume custody or control of
the whole or any substantial portion of the properties or assets of
the Company and shall not be dismissed within sixty (60) days
thereafter; or
(f) Any money judgment, writ or warrant of attachment, or similar process
in excess of Four Hundred Thousand ($400,000) Dollars in the aggregate
shall be entered or filed against the Company or any of its properties
or other assets and shall remain unpaid, unvacated, unbonded or
unstayed for a period of sixty (60) days or in any event later than
five (5) days prior to the date of any proposed sale thereunder; or
(g) Bankruptcy, reorganization, insolvency or liquidation proceedings or
other proceedings for relief under any bankruptcy law or any law for
the relief of debtors shall be instituted by or against the Company
and, if instituted against the
11
<PAGE>
Company, shall not be dismissed within sixty (60) days after such
institution or the Company shall by any action or answer approve of,
consent to, or acquiesce in any such proceedings or admit the material
allegations of, or default in answering a petition filed in any such
proceeding; or
(h) The Company shall fail to perform or observe any other covenant, term
provision or obligation under this Debenture and such failure shall
continue for ten (10) days after notice of such failure from the
Holder of this Debenture.
Section 8.2. Acceleration. If an Event of Default occurs and is continuing,
the Holder hereof by written notice to the Company, may declare the principal
of, together with accrued and unpaid interest thereon, to be immediately due and
payable and the amount due shall be the amount set forth in Section 4.1(ii) and
the Holder may enforce any and all of the Holder's rights and remedies provided
herein or any other rights or remedies afforded by law.
Article 9. Registered Debentures
Section 9.1. Series. This Debenture is one of a numbered series of
Debentures which are identical except as to the principal amount and as to any
restrictions on the transfer thereof in order to comply with the Act and the
regulations of the Commission promulgated thereunder. Such Debentures are
referred to herein collectively as the "Debentures." The Debentures shall be
issued in whole multiples of $10,000
Section 9.2. Record Ownership. The Company, or its attorney, shall maintain
a register of the holders of the Debentures (the "Register") showing their names
and addresses and the serial numbers and principal amounts of Debentures issued
to or transferred of record by them from time to time. The Register may be
maintained in electronic, magnetic or other computerized form. The Company may
treat the person named as the Holder of this Debenture in the Register as the
sole owner of this Debenture. The Holder of this Debenture is the person
exclusively entitled to receive payments of interest on this Debenture, receive
notifications with respect to this Debenture, convert it into USAM Stock and
otherwise exercise all of the rights and powers as the absolute owner hereof.
Section 9.3. Transfer. Transfers of this Debenture may be registered on the
books of the Company maintained for such purpose pursuant to Section 8.2 above
(i.e., the Register). Transfers shall be registered when this Debenture is
presented to the Company with a request to register the transfer hereof and the
Debenture is duly endorsed by the appropriate person, reasonable assurances are
given that the endorsements are genuine and
12
<PAGE>
effective, and the Company has received evidence satisfactory to it that such
transfer is rightful and in compliance with all applicable laws, including tax
laws and state and federal securities laws. When this Debenture is presented for
transfer and duly transferred hereunder, it shall be cancelled and a new
Debenture showing the name of the transferee as the record holder thereof shall
be issued in lieu hereof. When this Debenture is presented to the Company with a
reasonable request to exchange it for an equal principal amount of Debentures of
other denominations, the Company shall make such exchange and shall cancel this
Debenture and issue in lieu thereof Debentures having a total principal amount
equal to this Debenture in the denominations requested by the Holder. The
Company may charge a reasonable fee for any registration of transfer or exchange
other than one occasioned by a notice of redemption or the conversion hereof.
Any transfer of this Debenture (or the shares of USAM Stock issuable upon
conversion thereof) shall be subject to the restrictions contained in Article 4
hereof.
Section 9.4. Worn or Lost Debentures. If this Debenture becomes worn,
defaced or mutilated but is still substantially intact and recognizable, the
Company or its agent may issue a new Debenture in lieu hereof upon its
surrender. Where the Holder of this Debenture claims that the Debenture has been
lost, destroyed or wrongfully taken, the Company shall issue a new Debenture in
place of the original Debenture if the Holder so requests by written notice to
the Company actually received by the Company before it is notified that the
Debenture has been acquired by a bona fide purchaser and the Holder has
delivered to the Company an indemnity bond in such amount and issued by such
surety as the Company deems satisfactory together with an affidavit of the
Holder setting forth the facts concerning such loss, destruction or wrongful
taking and such other information in such form with such proof or verification
as the Company may request.
Section 9.5. Partial Conversion or Redemption. To the extent that this
Debenture is not fully converted or redeemed pursuant to Sections 2 and 4
hereto, respectively, the Company or its agent shall, upon surrender of the
Debenture being converted or redeemed, as the case may be, issue a new Debenture
in the amount equal to the remaining outstanding principle balance of this
Debenture.
Article 10. Governing Law/Venue
(a) The validity, terms, performance and enforcement of this Debenture (and
the exhibits and other documents, instruments referenced herein) shall be
governed and construed by the provisions hereof and in accordance with the laws
of the State of Delaware, with regard to its choice of law principles.
(b) The Holder (i) agrees that any legal suit, action or proceeding arising
out of or relating to this Debenture (or any
13
<PAGE>
agreements, instruments or documents referenced herein) shall be instituted
exclusively in state or federal courts located in New York County in the State
of New York (the "New York Courts") to the exclusion of any other jurisdiction
or venue, (ii) waive any objection either of them have now or hereafter may have
based upon jurisdiction, forum non conveniens or to the venue of any such suit,
action or proceeding, and (iii) irrevocably consent to the jurisdiction of the
New York Courts in any such suit, action or proceeding.
Article 11. Notices
All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given or made as of the date
delivered, if delivered personally, or one (1) business day after having been
deposited with courier, if sent by overnight courier or having been sent by
telecopy, if sent by telecopy (receipt confirmed), or five (5) business days
after having been mailed, if mailed by registered or certified mail, postage
prepaid, return receipt requested, directed to the Holder of the Debenture at
its address as it appears on the Register or if to the Company to its principal
executive offices first set forth in this Debenture, with a copy to Tenzer
Greenblatt LLP, 405 Lexington Avenue, New York NY 10174 (Attention: Russell
Bulkeley, Esq.)
Article 12. Miscellaneous
Section 12.1. Time. Where this Debenture authorizes or requires the payment
of money or the performance of a condition or obligation on a Saturday or Sunday
or a public holiday, or authorizes or requires the payment of money or the
performance of a condition or obligation within, before or after a period of
time computed from a certain date, and such period of time ends on a Saturday or
a Sunday or a public holiday, such payment may be made or condition or
obligation performed, at or before the same hour of such next succeeding
business day, with the same force and effect as if made or performed in
accordance with the terms of this Debenture. Where time is extended by virtue of
the provisions of this Article 11, such extended time shall not be included in
the computation of interest. A "business day" shall mean a day on which the
banks in Delaware are not required or allowed to be closed.
Section 12.2. Waivers. The Holder may waive a default or rescind the
declaration of an Event of Default and its consequences except for a default in
the payment of principal of or interest on any Debenture.
Section 12.3. Rules of Construction. In this Debenture, unless the context
otherwise requires, words in the singular number include the plural, and in the
plural include the singular, and words of the masculine gender include the
feminine and the neuter,
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<PAGE>
and when the sense so indicates, words of the neuter gender may refer to any
gender. The numbers and titles of sections contained in the Debenture are
inserted for convenience of reference only, and they neither form a part of this
Debenture nor are they to be used in the construction or interpretation hereof.
Wherever, in this Debenture, a determination of the Company is required or
allowed, such determination shall be made by a majority of the Board of
Directors of the Company and if it is made in good faith, it shall be conclusive
and binding upon the Company and the Holder of this Debenture.
IN WITNESS WHEREOF, the Company has duly executed this Debenture as of the
date first written above.
U.S. AUTOMOTIVE MANUFACTURING, INC.
By: _______________________________
John W. Kohut, Chairman of
the Board
15
<PAGE>
ASSIGNMENT OF DEBENTURE
The undersigned hereby sell(s) and assign(s) and transfer(s) unto
________________________________________________________________________________
(name, address and SSN or EIN of assignee)
Dollars ($_________)
________________________________________________________________________________
(principal amount of Debenture, $10,000 or integral
multiples of $10,000)
of principal amount of this Debenture together with all accrued and unpaid
interest hereon.
HOLDER:
Name: ____________________________________
(written out)
Date: _______________ Signed: ____________________________________
(Signature must conform in all
respects to name of Holder shown of
face of Debenture)
Signature Guaranteed:
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
AND REPRESENTATION LETTER
(To be Executed by the Registered Holder
in order to Convert the Debentures)
The undersigned hereby irrevocably elects, as of ___________, 199____, to
convert USD* __________ of the 8% Redeemable Convertible Debenture (the
"Debenture") of U.S. Automotive Manufacturing, Inc. (the "Company") registered
in the name of the undersigned, into shares of common stock, $.001 par value, of
the Company (the "Common Stock") in accordance with the terms and conditions
relating to conversion as set forth in the Debenture and the Offshore
Subscription Agreement previously executed and delivered by the undersigned.
Certificate(s) representing the Common Stock of the Company should be
issued in the name of the undersigned or, in the alternative, of the following
person(s):
Name __________________________________________________________________________
Address ________________________________________________________________________
________________________________________________________________________________
Name __________________________________________________________________________
Address ________________________________________________________________________
________________________________________________________________________________
As a condition to the conversion of the Debentures, the undersigned
represents and warrants to the Company that: (i) it is not a U.S. Person (as
such term is defined in Regulation S ("Regulation S") promulgated under the U.S.
Securities Act of 1933, as amended (the "Act")) and is not converting the
Debenture on behalf of, for the account of, or the benefit of any U.S. Person;
(ii) it is not an "affiliate" of the Company or an "underwriter" or "dealer" (as
such terms are defined under the Act); (iii) all offers and sales, if any, by it
of the Debenture have been made in compliance with the safe harbor provisions
contained in Regulation S or pursuant to an effective registration statement
under the Act or pursuant to an exemption
- --------
* USD = U.S. Dollars
<PAGE>
from, or in a transaction not subject to the registration requirements of, the
Act; (iv) all offers and sales of the Common Stock acquired upon conversion of
the Debenture shall be made in compliance with the safe harbor provisions
contained in Regulation S or pursuant to an effective registration statement
under the Act or pursuant to an exemption from, or in a transaction not subject
to the registration requirements of, the Act; (v) it has not engaged in any
"directed selling efforts" (as such term is defined in Regulation S) with
respect to the Debentures or the Common Stock acquired upon conversion of the
Debenture nor has it engaged in any short sales with respect to the Company's
capital stock during the one (1) year Distribution Compliance Period (as such
term is defined in Regulation S); and (vi) neither the conversion nor any sale
of the Common Stock acquired upon conversion of the Debenture is being made as
part of a scheme to evade the registration provisions of the Act.
Date of Conversion _____________________________________________________________
Applicable Conversion Price ____________________________________________________
Number of Shares of Common Stock to be issued __________________________________
Signature ______________________________________________________________________
Name ___________________________________________________________________________
Address ________________________________________________________________________
-2-
THIS WARRANT HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND THE RULES AND REGULATIONS
PROMULGATED THEREUNDER, AND, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES
OR TO OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS (AS SUCH TERMS ARE DEFINED
IN REGULATION S UNDER THE ACT), FOR A PERIOD OF ONE (1) YEAR AFTER COMPLETION OF
THE OFFERING PURSUANT TO WHICH THIS WARRANT WAS ISSUED (THE "COMPLIANCE
PERIOD"), UNLESS SUCH OFFER OR SALE (I) IS MADE IN AN "OFFSHORE TRANSACTION" AND
(B) NOT TO A "U.S. PERSON" (OTHER THAN A "DISTRIBUTOR") (AS SUCH TERMS ARE
DEFINED IN REGULATION S) OR (II) IS MADE PURSUANT TO REGISTRATION OR AN
APPLICABLE EXEMPTION UNDER THE ACT FROM THE REGISTRATION REQUIREMENTS OF THE
ACT. FOLLOWING THE COMPLIANCE PERIOD, SUCH SECURITIES MAY ONLY BE OFFERED OR
SOLD PURSUANT TO REGISTRATION UNDER OR AN EXEMPTION OF THE ACT.
BY REQUESTING THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
AFTER THE COMPLIANCE PERIOD, THE HOLDER OF THIS CERTIFICATE REPRESENTS, AMONG
OTHER THINGS, THAT IF SUCH TRANSFER IS MADE TO A U.S. PERSON, THAT AT THE TIME
OF SUCH TRANSFER THE HOLDER IS NOT AN "AFFILIATE" OF THE COMPANY (AS SUCH TERM
IS DEFINED IN THE ACT), HAS NOT ENGAGED IN ANY SHORT SALES OR SIMILAR HEDGE
TRANSACTIONS WITH RESPECT TO THE COMPANY'S COMMON STOCK DURING THE COMPLIANCE
PERIOD AND SUCH TRANSFER IS NOT BEING MADE AS PART OF A PLAN OR SCHEME TO EVADE
THE REGISTRATION PROVISIONS OF THE ACT.
ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO
LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS
PROVIDED IN SECTIONS 165(J) AND 1287(A) OF THE INTERNAL REVENUE CODE OF 1985, AS
AMENDED.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, [FIVE (5) YEARS FROM GRANT DATE]
No. WR-USAM-__ ______ Warrants
U.S. AUTOMOTIVE MANUFACTURING, INC.
WARRANT
This warrant certificate (the "Warrant Certificate") certifies that
___________________________or registered assigns, is the registered holder of
warrants to purchase, at any time from the date of issuance hereof (the "Grant
Date") until 5:00 P.M. New York City time on __________ ___, 20__ (the
"Expiration Date"), up to
<PAGE>
________ fully-paid and non-assessable shares, subject to adjustment in
accordance with Article 5 hereof (the "Warrant Shares"), of the common stock
(the "Common Stock"), par value $.001 par value of U.S. Automotive
Manufacturing, Inc., a Delaware corporation with an address at Route 627,
Airport Drive, P.O. Box 1426, Tappahonnock, VA 22560 (the "Company"), subject to
the terms and conditions set forth herein. The warrants represented by this
Warrant Certificate and any warrants resulting from a transfer or subdivision of
the warrants represented by this Warrant Certificate shall sometimes hereinafter
be referred to, individually, as a "Warrant" and, collectively, as the
"Warrants."
1. Reference to Offering: The Warrants granted hereby are granted in
conjunction with redemption by the Company of certain principal amount of its 8%
Redeemable Convertible Debentures (the "Debentures") which were outstanding
after the "Maximum Conversion Share Allotment" (as such term is defined in that
Confidential Offshore Offering Memorandum, dated June 22, 1998 (the
"Memorandum")) had been issued by the Company.
2. Exercise Price/Exercise of Warrants. Each Warrant is initially
exercisable to purchase one Warrant Share at an exercise price (the "Exercise
Price") equal to either (i) the greater of: (A) $1.00 per Warrant Share or (B)
115% of the average of the closing bid prices of the Common Stock for the five
(5) trading days immediately preceding the Grant Date or (ii) in the event that
an exercise price under alternative (i) is determined by Nasdaq to be an
issuance below the then current market price within the meaning of NASD Rule
4310(c)(25)(H) (or any successor rule),
-2-
<PAGE>
the Exercise Price shall be equal to the closing bid price of the Common Stock
at the date the Debentures were first issued by the Company pursuant to the
Memorandum, subject to adjustment as set forth in Article 6 hereof, payable in
cash or by certified cashiers or bank check to the order of the Company, or any
combination thereof.
2.1. Cashless Exercise. The Holder may, at the Holder's option, exchange,
in whole or in part, the Warrants represented by such Holder's Warrant
Certificate (a "Warrant Exchange"), into the number of Shares determined in
accordance with this Section 2.1, by surrendering such Warrant Certificate at
the principal office of the Company or at the office of its transfer agent,
accompanied by a notice stating such Holder's intent to effect such exchange,
the number of Warrants to be so exchanged and the date on which the Holder
requests that such Warrant Exchange occur (the "Notice of Exchange"). The
Warrant Exchange shall take place on the date specified in the Notice of
Exchange or, if later, the date the Notice of Exchange is received by the
Company (the "Exchange Date"). Certificates for the Warrant Shares issuable upon
such Warrant Exchange and, if applicable, a new Warrant Certificate of like
tenor representing the Warrants which were subject to the surrendered Warrant
Certificate and not included in the Warrant Exchange, shall be issued as of the
Exchange Date and delivered to the Holder within five (5) business days
following the Exchange Date. In connection with any Warrant Exchange, the Holder
shall be entitled to subscribe for and acquire (i) the number of Warrant Shares
(rounded to the next highest integer) which would,
-3-
<PAGE>
but for the Warrant Exchange, then be issuable pursuant to the provision of
Section 2 above upon the exercise of the Warrants specified by the Holder in its
Notice of Exchange (the "Total Number") less (ii) the number of Warrant Shares
equal to the quotient obtained by dividing (a) the product of the Total Number
and the existing Exercise Price by (b) the average of the last reported sale
prices of the Common Stock for the last five (5) trading days, in either case as
officially reported by the principal securities exchange on which the Common
Stock is listed or admitted to trading or as reported in the Nasdaq SmallCap
Market, or, if the Common Stock is not listed or admitted to trading on any
national securities exchange or quoted on the Nasdaq SmallCap Market, the
closing bid price as furnished by (i) the National Association of Securities
Dealers, Inc. through Nasdaq or (ii) a similar organization if Nasdaq is no
longer reporting such information.
3. Issuance of Certificates. Upon the exercise of the Warrants, the
issuance of certificates for the Warrant Shares purchased pursuant to such
exercise shall be made forthwith without charge to the Holder thereof including,
without limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of Article 4
hereof) be issued in the name of, or in such names as may be directed by, the
Holder thereof; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issuance
and delivery of any such certificates in a name other than that of the Holder
and
-4-
<PAGE>
the Company shall not be required to issue or deliver such certificates unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
The Warrant Certificates and, upon exercise of the Warrants, the
certificates representing the Warrant Shares shall be executed on behalf of the
Company by the manual or facsimile signature of those officers required to sign
such certificates under applicable law.
This Warrant Certificate and, upon exercise of the Warrants, in part or in
whole, certificates representing the Warrant Shares shall bear a legend
substantially similar to the following:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT
BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT (ii) TO THE EXTENT
APPLICABLE, RULE 144 UNDER THE ACT (OR SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES) OR (iii) OTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND APPLICABLE STATE SECURITIES LAWS,
SUPPORTED BY AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY
AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
4. Restriction on Transfer of Warrants. The Holder of this Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
and the Warrant Shares issuable upon exercise of the Warrants are being acquired
as an investment and not with a view to the distribution thereof and that the
Warrants and the Warrant Shares may not be transferred unless such
-5-
<PAGE>
securities are either registered under the Act and any applicable state
securities law or an exemption from such registration is available. The Holder
of this Warrant Certificate acknowledges that the Holder is an "accredited
investor" within the meaning of Regulation D promulgated under the Act who has
been provided with an opportunity to ask questions of representatives of the
Company concerning the Company and that all such questions were answered to the
satisfaction of the Holder. In connection with any purchase of Warrant Shares
the Holder agrees to execute any documents which may be reasonably required by
counsel to the Company to comply with the provisions of the Act and applicable
state securities laws.
5. Registration Rights. The Holders of Warrants shall have, and the Company
shall grant to such Holders, with respect to the Warrant Shares (the
"Registration Securities"), the following:
5.1. Demand Registration. (a) Any "Majority Holder" (as such term is
defined in Section 5.1(b) hereof) shall have the right, upon one (1) occasion
any time after the first anniversary of the Grant Date and prior to the fifth
anniversary thereof, to demand (a "Demand Registration Request") that the
Company, at its own expense, for the benefit of such Holders, and with respect
to the Registrable Securities (i) file with the Securities and Exchange
Commission (the "Commission") within sixty (60) days a registration statement
covering the issuance by the Company of the Warrant Shares, provided, however,
if the Company has had an effective registration statement outstanding within
the three month period prior to the Demand Registration Request, the Company
shall file within ninety (90) days a registration statement
-6-
<PAGE>
covering the issuance by the Company of the Warrant Shares and (ii) use its
reasonable efforts to cause such registration statement to be declared effective
under the Act as soon as possible thereafter in order to permit a public
offering and sale of such underlying shares and to keep such registration
statement in effect for a period of six (6) months or until such time as all of
the Warrant Shares have been transferred, whichever is earlier. Notwithstanding
the foregoing, in the event the Company has filed a registration statement
relating to an underwritten public offering of its securities prior to the
exercise of a Demand Registration Request, then the holders agree not to
exercise a Demand Registration Request until the earlier of (i) 90 days from the
date such registration statement is filed or (ii) the effective date of such
registration statement. Also notwithstanding the foregoing, in the event the
Company is engaged in a transaction involving a merger or acquisition which
requires the filing of financial statements with the Commission, then the
holders agree that a Demand Registration Request will not be effective for 75
days following the consummation of such transaction, provided that the Company
gives written notice of such transaction to the holders within five (5) business
days of the Demand Registration Request.
(b) The term "Majority Holder" as used in Section 5.1 hereof shall mean any
holder or any combination of holders of Registrable Securities, if included in
such Holders' Registrable Securities are that aggregate number of shares of
Common Stock (including Warrant Shares already issued and Warrant Shares
issuable pursuant to the exercise of outstanding Warrants) as would
-7-
<PAGE>
constitute a majority of the aggregate number of shares of Common Stock
(including Warrant Shares already issued and Warrant Shares issuable pursuant to
the exercise of outstanding Warrants) included in all the Registrable
Securities.
5.2. Piggyback Registration. (a) The Holders of all of the Warrants issued
pursuant to the Memorandum are also entitled (a "Piggyback Registration Right")
to include the Warrant Shares in any registration statement (other than in
connection with a merger or acquisition or on Forms S-4, S-8 or successor forms
or an amendment to an existing registration statement) filed prior to the fifth
anniversary of the Grant Date with the Commission under the Act relating to a
public offering, until a registration statement covering such Warrant Shares is
declared effective by the Commission; provided, however, that in the event the
registration statement relates to an underwritten public offering, the
underwriter may limit the number of Warrant Shares included therein. To exercise
its Piggyback Registration Right, the Holder will give written notice of its
intention to do so by registered mail ("Notice") at least twenty (20) business
days prior to the filing of each such registration statement, to all holders of
the Registrable Securities. Upon the written request of such a holder (a
"Requesting Holder"), made within five business days after receipt of the
Notice, that the Company include any of the Requesting Holder's Registrable
Securities in the proposed Registration Statement, the Company shall, as to each
such Requesting Holder, use its best efforts to effect the registration under
the Act of the Warrant Shares which it has been so requested
-8-
<PAGE>
to register, at the Company's sole cost and expense and at no cost or expense to
the Requesting Holders (except as provided in Section 5.4(b) hereof).
(b) Notwithstanding the provisions of this Section 5.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 5.2 (irrespective of whether any written request for inclusion of
Registrable Securities shall have already been made) to elect not to file any
such proposed registration statement, or to withdraw the same after the filing
but prior to the effective date thereof.
5.3. Indemnification.
(a) The Company shall indemnify and hold harmless the Holder of the Warrant
Shares included in a registration statement pursuant hereto, its directors and
officers, and each other person or entity, if any, who controls Holder within
the meaning of the Act against any losses, claims, damages or liabilities to
which such Holder or any such director or officer may become subject under the
Act or otherwise, insofar as such losses, claims, damages or liabilities caused
by or arising out of any untrue statement of a material fact contained in any
registration statement under which such securities were registered under the
Act, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, provided that the
Company shall not be liable in any such case to the extent that any
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<PAGE>
such loss, claim, damage, liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
such registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with written information furnished or required to be furnished to the Company by
such Holder for use in the preparation thereof and provided, further, that the
Company shall not be liable to any person or entity to the extent that any such
loss, claim, damage, liability (or action or proceeding in respect thereof) or
expense arises out of such person's or entity's failure to send or file a copy
of the final prospectus, as the same may be then supplemented or amended, within
the time required by the Act to the person or entity asserting the existence of
an untrue statement or alleged untrue statement or omission or alleged omission
at or prior to the written confirmation of the sale of the Registrable Shares to
such person or entity if such statement or omission was corrected in such final
prospectus or an amendment or supplement thereto; provided, however that the
Holder shall be liable under this paragraph for only that amount of losses,
claims, damgages, and liabilities as does not exceed the proceeds to such Holder
as a result of the sale of Registrable Shares pursuant to such registration,
further provided, however, that the foregoing limit on Holder liability shall
not apply in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon a statement or alleged statement or
omission or alleged omission made in information furnished or required to be
furnished
-10-
<PAGE>
to the Company by such Holder for purposes of qualifying for an exemption from
the registration requirements under the Act with respect to the offering of
securities contemplated in the Memorandum.
(b) As a condition to including any of the Warrant Shares in any
registration statement filed pursuant hereto, the Holder of the Warrant Shares,
as a prospective seller of the Warrant Shares hereby agrees to indemnify and
hold harmless (in the same manner and to the same extent as set forth in
subdivision (a) of this Section 5.3) the Company, each director of the Company,
each officer, employee or agent of the Company and each other person or entity,
if any, which controls the Company within the meaning of the Act, with respect
to any statement or alleged statement in, or omission or alleged omission from,
such registration statement, any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment or supplement thereto, if
such statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company by the Holder for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement. Any such indemnity shall remain in full force and effect, regardless
of any investigation made by or on behalf of the Company or any such director,
officer or controlling person and shall survive the transfer of such securities
by Holder.
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<PAGE>
5.4. Miscellaneous.
(a) Notwithstanding anything contained in this Agreement to the contrary,
the Company shall not be obligated to register the Warrant Shares under the Act
or maintain the effectiveness of any registration statement filed pursuant
hereto if it receives an opinion of counsel to the Company that any of the
Warrant Shares may be freely traded without registration under the Act, under
Rule 144 of the Act or otherwise. Nothing contained in this Agreement shall
require the Company to undergo an audit, other than in the ordinary course of
business.
(b) The Company shall pay all costs, fees and expenses (other than
underwriting fees, discounts and nonaccountable expense allowance applicable to
the Registrable Securities and fees and expenses of counsel retained by the
holders of Warrants) in connection with all registration statements filed
pursuant to Sections 5.1 and 5.2 hereof including, without limitation, the
Company's legal and accounting fees, printing expenses, and blue sky fees and
expenses.
6. Adjustments of Exercise Price and Number of Warrant Shares.
6.1. Subdivision and Combination. In case the Company shall at any time
subdivide or combine the outstanding Common Stock, the Exercise Price shall
forthwith be proportionately decreased in the case of subdivision or increased
in the case of combination.
6.2. Adjustment in Number of Warrant Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of
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<PAGE>
this Article 6, the number of Warrant Shares issuable upon the exercise of each
Warrant shall be adjusted to the nearest full share of Common Stock by
multiplying a number equal to the Exercise Price in effect immediately prior to
such adjustment by the number of Warrant Shares issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
6.3. Reclassification, Consolidation, Merger. etc. In case of any
reclassification or change of the outstanding Common shares (other than a change
in par value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination), or in the case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
surviving corporation and which does not result in any reclassification or
change of the outstanding Common Stock, except a change as a result of a
subdivision or combination of such shares or a change in nominal value, as
aforesaid), or in the case of a sale or conveyance to another corporation of the
property of the Company as an entirety, the Holder shall thereafter have the
right to purchase the kind and number of shares of stock and other securities
and property receivable upon such reclassification, change, consolidation,
merger, sale or conveyance as if the Holder were the owner of the Warrant Shares
issuable upon exercise of the Warrants immediately prior to any such events at a
price equal to the product of (x) the number of Warrant Shares issuable upon
exercise of the Warrants and (y) the Exercise Price in effect
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<PAGE>
immediately prior to the record date for such reclassification, change,
consolidation, merger, sale or conveyance as if such Holder had exercised the
Warrants.
6.4. Determination of Outstanding Shares. The number of shares of Common
Stock at any one time outstanding shall include the aggregate number of shares
issued or issuable upon the exercise of outstanding options, rights, warrants
and upon the conversion or exchange of outstanding convertible or exchangeable
securities.
6.5 Adjustment to Number of Warrants. In the event that the Exercise Price
of the Warrants is determined pursuant to alternative (ii) under Article 2
hereof, the number of Warrants shall be adjusted so that the ratio of the
adjusted number of Warrants to the Warrants prior to adjustment pursuant to this
Article 6.5 is equal to the ratio of the Exercise Price pursuant to alternative
(ii) under Article 2 hereof to $1.00. (e.g. if the exercise price pursuant to
alternative (ii) under Article 2 is $1.25 then the number of Warrants shall be
increased by 25%).
7. Exchange and Replacement of Warrant Certificates. This Warrant
Certificate is exchangeable without expense, upon the surrender hereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Shares in such denominations as
shall be designated by the Holder thereof at the time of such surrender.
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<PAGE>
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant of like tenor, in
lieu thereof.
8. Elimination of Fractional Interests. The Company shall not be required
to issue certificates representing fractions of Common Shares and shall not be
required to issue scrip or pay cash in lieu of fractional interests, it being
the intent of the parties that all fractional interests shall be eliminated by
rounding any fraction up to the nearest whole number of Common Shares.
9. Reservation of Shares. The Company covenants and agrees that it will at
all times reserve and keep available out of its authorized share capital, solely
for the purpose of issuance upon the exercise of the Warrants, such number of
shares of Common Stock as shall be equal to the number of Warrant Shares
issuable upon the exercise of the Warrants, for issuance upon such exercise, and
that, upon exercise of the Warrants and payment of the Exercise Price therefor,
all Warrant Shares issuable upon such exercise shall be duly and validly issued,
fully paid, nonassessable and not subject to the preemptive rights of any
shareholder.
10. Redemption of Warrants. The Warrants are redeemable by the Company, in
whole or in part, on not less than thirty (30)
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<PAGE>
days' prior written notice at a redemption price of $.05 per Warrant at any
time, provided that the closing bid price of the Common Stock on all fifteen
(15) trading days ending on the day on which the Company gives notice of
redemption has been at least 150% of the then effective Exercise Price of the
Warrants and only to the extent that the Warrant Shares are transferable either
pursuant to an effective registration statement or pursuant to Rule 144 of the
Act. The redemption notice shall be mailed to the Holders of the Warrants at the
address of such Holders as shown on the books of the Company. Holders of the
Warrants will have exercise rights until the close of business on the date fixed
for redemption
11. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to a registered Holder of the Warrants, to the address of such
Holder as shown on the books of the Company; or
(b) If to the Company, to the address first set forth in this
Agreement or to such other address as the Company may designate by notice
to the Holders.
12. Successors. All the covenants and provisions of this Agreement by or
for the benefit of the Company and the Holders inure to the benefit of their
respective successors and assigns hereunder.
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<PAGE>
13. Governing Law.
13.1. Choice of Law. This Agreement shall be governed as to validity,
interpretation, construction, effect and in all other respects by the laws of
the State of Delaware, without regard to its choice of law provisions.
13.2. Jurisdiction and Venue. The Company and the Holder each (a) agrees
that any legal suit, action or proceeding arising out of or relating to this
Warrant, or any other agreement entered into between the Company and the Holder
pursuant to the Memorandum shall be instituted exclusively in state or Federal
courts located in New York County in the State of New York (the "New York
Courts") to the exclusion of any other jurisdiction or venue; (b) waives any
objection which the Company or such Holder may have now or hereafter may have
based upon jurisdiction, forum non conveniens or to the venue of any such suit,
action or proceeding, and (c) irrevocably consents to the jurisdiction of the
New York Courts in any such suit, action or proceeding.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed, as of the __ day of ________ 19__.
U.S. AUTOMOTIVE MANUFACTURING, INC.
By: _______________________________
Name:
Title:
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<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ________ Warrant Shares and
herewith tenders in payment for such Warrant Shares cash or a bank or cashier's
check payable to the order of "U.S. Automotive Manufacturing, Inc." in the
amount of $_________, all in accordance with the terms hereof. The undersigned
requests that a certificate for such Warrant Shares be registered in the name of
______________________, whose address is __________________________________, and
that such certificate be delivered to __________________, whose address is
__________________________________________________.
Dated: Signature:
______________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant Certificate.)
______________________________
______________________________
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED __________________________ hereby sells, assigns and
transfers unto:
________________________________________________________________________________
(Please print name and address of transferee) this Warrant Certificate, together
with all right, title and interest therein, and does hereby irrevocably
constitute and appoint _____________________, Attorney, to transfer the within
Warrant Certificate on the books of the within-named Company, with full power of
substitution.
Dated: Signature:
_________________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant Certificate)
_________________________________
_________________________________
(Insert Social Security or Other
Identifying Number of Assignee)
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of June 30,
1998, between U.S. Automotive Manufacturing, Inc., a Delaware corporation (the
"Company"), and the person whose name and address appear on the signature page
of this Agreement (individually, a "Holder" or collectively with the holders of
the Debentures issued in the Offering, each as defined below, the "Holders").
RECITALS
WHEREAS, simultaneously with the execution and delivery of this Agreement,
the Company has accepted the subscription of the Holder in connection with the
offering by the Company (the "Offering") of up to U.S.D. $2,250,000 principal
amount of the Company's Redeemable Convertible Debentures (the "Debentures"),
convertible into shares (the "Conversion Shares") of common stock, $.001 par
value, of the Company (the "Common Stock"), all upon the terms set forth in the
Company's Confidential Offshore Private Offering Memorandum dated June 22, 1998,
as amended or supplemented (the "Offering Memorandum");
WHEREAS, the Company has agreed to grant to the Holder certain registration
rights with respect to the Conversion Shares (the "Registrable Shares"), upon
the terms and conditions herein set forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Incorporation by Reference.
All capitalized terms used but not otherwise defined herein shall be deemed
to have the meaning ascribed to such term in the Offering Memorandum.
2. Registration Under the 1933 Act.
(a) The Company shall prepare and file with the Securities and Exchange
Commission (the "SEC"), no later than sixty (60) days after the issuance of the
Debentures, a Registration Statement covering a sufficient number of shares of
Common Stock for the Holders but in no event less than the number of shares of
Common Stock into which the Debentures would be convertible at the time of
filing of the Registration Statement, and such Registration Statement shall
state that, in accordance with Rules 416 and 457 under the Securities Act of
1933, as amended (the "Act"), it also covers such indeterminate number of
additional shares of Common Stock as may become issuable upon conversion of the
Debentures
<PAGE>
resulting from adjustments or changes in the Conversion Price, or to prevent
dilution resulting from stock splits, or stock dividends. The Company shall
cause the Registration Statement to become effective as soon as practicable
after the filing thereof;
(b) For purposes of this Agreement, the term "Registrable Shares" shall
mean each of the shares of Common Stock of the Company acquired and beneficially
owned by Holder upon the conversion of the Debentures granted in connection with
the Offering and any securities issued or issuable with respect to such shares
of Common Stock by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise. Once issued, any such securities shall cease to be
Registrable Shares upon the earlier of (a) the sale of such securities pursuant
to an effective registration statement under the Act, (b) the distribution
thereof to the public pursuant to Rule 144 (or any successor provision) under
the Act, (c) a transfer pursuant to which new certificates for them not bearing
a legend restricting further transfer shall have been delivered by the Company
and subsequent disposition of them shall not require registration or
qualification of them under the Act or any similar state law then in force, (d)
they shall have ceased to be outstanding, or (e) any and all legends restricting
transfer of the Registrable Shares under the Act have been or may be removed in
accordance with the provisions of Rule 144(k) (or any successor provision) under
the Act.
3. Covenants of the Company With Respect to Registration. The Company
hereby covenants and agrees as follows:
(a) Following the effective date of a Registration Statement, the Company
shall, upon the request of Holder, forthwith supply such reasonable number of
copies of the Registration Statement, preliminary prospectus and prospectus
meeting the requirements of the Act, and other documents necessary or incidental
to the public offering of the Registrable Shares as shall be reasonably
requested by Holder to permit Holder to make a public distribution of the
Registrable Shares. The obligations of the Company hereunder with respect to the
Registrable Shares are expressly conditioned on Holder's furnishing to the
Company such appropriate information concerning Holder, the Registrable Shares
and the terms of Holder's offering of such shares as the Company may reasonably
request.
(b) The Company will pay all costs, fees and expenses in connection with
the Registration Statement filed pursuant to Section 2, including, without
limitation, the Company's legal and accounting fees, printing expenses and blue
sky fees and expenses; provided, however, that Holder shall be solely
responsible for the fees of any counsel or advisor retained by Holder in
connection with such registration and any transfer taxes or underwriting
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<PAGE>
discounts, selling commissions or selling fees applicable to the Registrable
Shares sold by Holder pursuant thereto.
(c) The Company will use its best efforts to qualify or register the
Registrable Shares included in a Registration Statement for offering and sale
under the securities or blue sky laws of such states as are reasonably requested
by Holder, provided that the Company shall not be obligated to execute or file
any general consent to service of process (unless the Company is already then
subject to service in such jurisdiction) or to qualify as a foreign corporation
to do business under the laws of any such jurisdiction.
(d) The Company shall use its best efforts to cause the Registration
Statement to become effective under the Act and to maintain such effectiveness
for the period terminating on the date on which all Holders with respect to the
Registrable Shares can sell the Registrable Shares pursuant to Rule 144 under
the Act without restriction under Rule 144(e) thereof; provided, however, that
an Holder may inform the Company in writing that it wishes to exclude all or a
portion of its Registrable Shares from such registration.
(e) Prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to the Registration Statement and the prospectus
used in connection with the Registration Statement as may be necessary to keep
the Registration Statement effective under the Act at all times until the date
on which all Holders can sell the Registrable Shares pursuant to Rule 144 of the
Act without restriction under Rule 144(h) thereof, and to comply with the
provisions of the Act with respect to the disposition of all securities covered
by the Registration Statement.
(f) Notify the Holders, at any time when a prospectus relating to
Registrable Shares covered by the Registration Statement is required to be
delivered under the Act, of the happening of any event as a result of which the
prospectus included in the Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading. The Company shall promptly amend or supplement the Registration
Statement to correct any such untrue statement or omission.
(g) Notify the Holders of the issuance by the SEC or any state securities
commission of any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for such purpose. The Company
will make every reasonable effort to prevent the issuance of any stop order and,
if any stop order is issued, to obtain the lifting thereof at the earliest
possible time.
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<PAGE>
(h) If so notified by the majority holder, permit a single firm of counsel
designated by the holders of a majority in interest of the Registrable Shares to
review, at the expense of the holders, the Registration Statement and all
amendments and supplements thereto not less than three days prior to their
filing, and not file any document in a form to which such counsel reasonably
objects.
(i) If the Common Stock is then listed on a national securities exchange,
cause the Registrable Shares to be listed on such exchange. If the Common Stock
is not then listed on a national securities exchange, facilitate the reporting
of the Registrable Shares on the Nasdaq Bulletin Board, the Nasdaq SmallCap
Market, or the Nasdaq National Market, as applicable.
(j) Take all actions reasonably necessary to facilitate the timely
preparation and delivery of certificates bearing no restrictive legend other
than providing for sale in accordance with the prospectus delivery requirements
of the Act, representing the Registrable Shares to be sold pursuant to the
Registration Statement and to enable such certificates to be in such
denominations and registered in such names as the Holders or any underwriters
may reasonably request.
(k) Notwithstanding anything contained in this Agreement to the contrary,
the Company shall not be obligated to register the Registrable Shares under the
Act or maintain the effectiveness of any registration statement filed under
Section 2 hereof if it receives an opinion of counsel to the Company that all of
the Registrable Shares may be freely traded without registration under the Act,
under Rule 144 of the Act or otherwise. Nothing contained in this Agreement
shall require the Company to undergo an audit, other than in the ordinary course
of business.
(l) Except with respect to (i) contractual committments existing on the
date hereof, (ii) offerings of securities (other than the Offering) after the
date hereof in an amount not to exceed $4,000,000 in the aggregate and (iii)
transactions involving mergers and acquisitions of product lines, companies, or
businesses or similar transactions, the Company will not file any new
registration statement to register any share of its Common Stock sold after the
consummation of the Offering at a price (or with an exercise price in the case
of sales of a derivative security) less than the then current market price of
the Common Stock until such time as (x) any registration statement required to
be filed under Section 2 hereof has been filed or (y) the Registrable Shares
cease to be Registrable Shares as provided in Section 2(b) hereof. So long as
any Registrable Shares remain outstanding any registration statement filed to
register shares of Common Stock pursuant to the provisions of (l)(ii) above may
be filed at the same time or after any registration statement filed under
Section 2 hereof but not prior thereto.
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<PAGE>
4. Covenant of Holder.
(a) Holder, upon receipt of notice from the Company that an event has
occurred which requires a post-effective amendment to the Registration Statement
or a supplement to the prospectus included therein, shall promptly discontinue
the sale of the Registrable Shares until Holder receives a copy of a
supplemented or amended prospectus from the Company, which the Company shall
provide as soon as practicable after such notice.
(b) Holder agrees to fully cooperate with the Company and to furnish to the
Company such information regarding Holder as the Company may from time to time
deem reasonably necessary in connection with the preparation and filing of the
Registration Statement.
5. Indemnification.
(a) In the event of any registration of any the Registrable Shares under
the Act, the Company shall indemnify and hold harmless the Holder of the
Registrable Shares covered by such registration statement, its directors and
officers, and each other person or entity, if any, who controls Holder within
the meaning of the Act against any losses, claims, damages or liabilities to
which such Holder or any such director or officer may become subject under the
Act or otherwise, insofar as such losses, claims, damages or liabilities caused
by or arising out of any untrue statement of a material fact contained in any
registration statement under which such securities were registered under the
Act, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, provided that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with written information furnished or required to be furnished to the Company by
such Holder for use in the preparation thereof and provided, further, that the
Company shall not be liable to any person or entity to the extent that any such
loss, claim, damage, liability (or action or proceeding in respect thereof) or
expense arises out of such person's or entity's failure to send or file a copy
of the final prospectus, as the same may be then supplemented or amended, within
the time required by the Act to the person or entity asserting the existence of
an untrue statement or alleged untrue statement or omission or alleged omission
at or prior to the written confirmation of the sale of the Registrable Shares to
such person or entity if such statement or
-5-
<PAGE>
omission was corrected in such final prospectus or an amendment or
supplement thereto.
(b) As a condition to including any of the Registrable Shares in any
registration statement filed pursuant to this Agreement, the Holder of the
Registrable Shares, as a prospective seller of the Registrable Shares hereby
agrees to indemnify and hold harmless (in the same manner and to the same extent
as set forth in subdivision (a) of this Section 5) the Company, each director of
the Company, each officer, employee or agent of the Company and each other
person or entity, if any, which controls the Company within the meaning of the
Act, with respect to any statement or alleged statement in, or omission or
alleged omission from, such registration statement, any preliminary prospectus,
final prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, if such statement or alleged statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by the Holder for use in the preparation of
such registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement; provided however that the Holder shall be
liable under this paragraph for only that amount of losses, claims, damages, and
liabilities as does not exceed the proceeds to such Holder as a result of the
sale of Registrable Shares pursuant to such registration, further provided,
however, that the foregoing limit on Holder liability shall not apply in any
such case to the extent that any such loss, claim, damage or liability arises
out of or is based upon a statement or alleged statement or omission or alleged
omission made in information furnished or required to be furnished to the
Company by such Holder for purposes of qualifying for an exemption from the
registration requirements under the Act with respect to the offering of
securities pursuant to the Offering Memorandum. Any such indemnity shall remain
in full force and effect, regardless of any investigation made by or on behalf
of the Company or any such director, officer or controlling person and shall
survive the transfer of such securities by Holder.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding involving a claim referred to in the
preceding subdivisions of this Section 5, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action, provided that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under the preceding
subdivisions of this Section 5, except to the extent that the indemnifying party
is actually prejudiced by such failure to give notice. In case any such action
is brought against an indemnified party, unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, the indemnifying party
shall be entitled to participate in and to
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<PAGE>
assume the defense thereof, jointly with any other indemnifying party similarly
notified, to the extent that the indemnifying party may wish, 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 for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
of any such action which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability, or a covenant not to sue, in respect to such claim or litigation.
No indemnified party shall consent to entry of any judgment or enter into any
settlement of any such action the defense of which has been assumed by an
indemnifying party without the consent of such indemnifying party.
6. Amendments. This Agreement may only be amended by a written instrument
executed by the Company and the Holder.
7. Notices. Except as otherwise provided in this Agreement, all notices,
requests and other communications to any person provided for hereunder shall be
in writing and shall be given to such person (a) in the case of the Holder,
addressed to such party at the address set forth on the signature page of this
Agreement or such other address as the Holder shall specify to the Company in
writing, or (b) in the case of the Company, at the address set forth on the
signature page hereto, to the attention of its President, or at such other
address, or to the attention of such other officer, as the Company shall have
furnished to the Holder in writing with a copy to: Tenzer Greenblatt LLP, 405
Lexington Avenue, New York, New York 10174, Attention: J. Russell Bulkeley, Esq.
Each such notice, request or other communication shall be effective (i) if given
by mail, 48 hours after such communication is deposited in the mails (except as
otherwise provided in Section 1) by first class postage prepaid, addressed as
aforesaid or (ii) if given by any other means (including, without limitation, by
fax or air courier), when delivered at the address specified above, provided
that any such notice, request or communication shall not be effective until
received.
8. Assignment. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto. In addition, and whether or
not any express assignment shall have been made, the provisions of this
Agreement which are for the benefit of Holder shall also be for the benefit of
and enforceable by any subsequent holder of the Registrable Shares. Holder
agrees, by accepting any portion of the Registrable Shares after the date
hereof, to the provisions of this Agreement.
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<PAGE>
9. Governing Law.
(a) This agreement shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the laws of the State of
Delaware without reference to the principles of conflicts of laws.
(b) Each of the Company and Holder hereby irrevocably and unconditionally
consents to submit to the exclusive jurisdiction of the federal and state courts
of the State of New York located in New York County (the "New York Courts") for
any litigation arising out of or relating to this Agreement and the transactions
contemplated hereby (and agrees not to commence any litigation relating thereto
except in such courts), waives any objection to the laying of venue of any such
litigation in the New York Courts and agrees not to plead or claim that such
litigation brought in any Virginia Courts has been brought in an inconvenient
forum.
10. Counterparts. This Agreement may be executed by facsimile and may be
signed simultaneously in any number of counterparts, each of which shall be
deemed an original, but all such counterparts shall together constitute one and
the same instrument.
11. Entire Agreement. This Agreement embodies the entire agreement and
understanding between the Company and each other party hereto relating to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
12. Severability. If any provision of this Agreement, or the application of
such provisions to any person or circumstance, shall be held invalid, the
remainder of this Agreement, or the application of such provision to persons or
circumstances other than those to which it is held invalid, shall not be
affected thereby.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.
U.S. AUTOMOTIVE MANUFACTURING, INC.
By: ________________________________
John W. Kohut
Chairman of the Board
Address: Route 627, Airport Drive
Tappahannock, VA 22560
Telephone: (___)__________
Telecopier: (___)__________
HOLDER:
____________________________________
Name:
Title (if entity):
Address:
______________________________
______________________________
______________________________
______________________________
Telephone: ( ) _______________
Telephone: ( ) _______________
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