SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 1996
Commission File Number 0-25184
U. S. ELECTRICAR, INC.
(Exact name of registrant as specified in its charter)
California 95-3056150
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
5 Thomas Mellon Circle, San Francisco, California 94134
(Address of principal executive offices, including zip code)
(415) 656-2400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
-- --
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of November 5, 1996 was $8,465,402. For purposes of this
calculation only, (i) shares of Common Stock and Series A and B Preferred Stock
are deemed to have a market value of $0.27 per share, the average of the high
bid and low ask prices of the Common Stock on November 5, 1996, and (ii) each of
the executive officers, directors and persons holding 5% or more of the
outstanding Common Stock (including Series A and B Preferred Stock on an as
converted basis) is deemed to be an affiliate.
The number of shares of Common Stock outstanding as of November 5, 1996 was
127,168,477.
Documents Incorporated By Reference:
Part III of this Report incorporates information by reference from the
definitive Proxy Statement for the registrant's annual meeting of shareholders
to be held in February, 1997.
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U.S. ELECTRICAR, INC.
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1. Business ......................................................... 3
Item 2. Properties ....................................................... 12
Item 3. Legal Proceedings ................................................ 12
Item 4. Submission of Matters to a Vote of Security Holders............... 13
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters...................................... 13
Item 6. Selected Financial Data........................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................ 15
Item 8. Financial Statements and Supplementary Data....................... 19
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................... 19
PART III
Item 10. Directors and Executive Officers of the Registrant................ 20
Item 11. Executive Compensation............................................ 20
Item 12. Security Ownership of Certain Beneficial Owners and Management.... 20
Item 13. Certain Relationships and Related Transactions.................... 20
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.. 21
SIGNATURES ................................................................ 22
The matters addressed in this report on Form 10-K , with the exception of the
historical information presented, may incorporate certain forward-looking
statements involving risks and uncertainties, including the risks discussed
under the heading "Certain Factors That May Affect Future Results" in the
Management's Discussion and Analysis section and elsewhere in this report.
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Item 1. Business
General
U.S. Electricar, Inc. (the "Company") was incorporated on July 30,
1976, under its original name, "Clover Solar Corporation, Inc." The name of the
Company was changed in June 1979, to "Solar Electric Engineering, Inc.", and was
subsequently changed to "U.S. Electricar, Inc." in January 1994.
Beginning in fiscal year 1994, the Company focused almost exclusively
on the development, manufacture and distribution of battery powered electric
vehicles on a large production scale. A significant portion of the Company's
marketing and sales efforts for on-road electric vehicles (including sedans and
light trucks) in fiscal 1994 and 1995 focused primarily on altering (commonly
referred to as "converting" or "retrofitting") specific internal combustion
vehicles to run on electric battery power for fleet operators. This market
strategy was designed to avoid direct competition with major automobile
manufacturers in the consumer markets. The Company devoted significant attention
toward developing or acquiring technology necessary for this evolving business.
In addition, through one of the Company's wholly-owned subsidiaries, the Company
manufactured and sold a broad line of off-road industrial vehicles and produced
and marketed electric powered on-road buses.
In March 1995, the Company experienced a severe cash shortage due to a
failure to obtain additional anticipated capital funding. In response to this
lack of funding, the Company initiated steps to restructure its organization and
operations in an effort to stabilize and improve the Company's financial
condition. After March 1995, the Company focused its resources on the production
of off-road industrial vehicles and on-road buses. The Company continues
re-evaluating all aspects of its business, including each of its product lines,
in view of its capital constraints as well as competitive market conditions.
During 1996, the Company restructured most of its debt and raised
approximately $5,300,000 in additional funding. Certain facilities were closed,
operations were consolidated and major contracts were terminated. Despite the
additional funding in 1996, the Company's operations continued to be impacted by
an insufficient amount of funds to adequately support its planned sales volumes
and product development programs. In the third quarter of 1996, the Company
curtailed the manufacture and sale of off-road industrial vehicles. In September
1996, the Company disposed of a substantial portion of the assets and properties
of the Company's wholly-owned subsidiary, Industrial Electric Vehicles, Inc. In
October 1996, the Company acquired the assets of Systronix Corporation, a
developer of fully integrated propulsion systems and related components for
electric vehicles.
Debt Restructuring
In March 1995, as a result of the Company's insolvency, the Company
entered into agreements in March and April 1995 with the holders of its Series S
and Series I secured convertible Bonds and with Itochu Corporation, to
restructure this debt in the aggregate amount of approximately $22 million. The
Company, Itochu and the holders of more than 75% of the outstanding principal
under the Series S Bonds agreed to add the unpaid interest to principal, reset
the maturity dates of the Series S Bonds and Itochu's note to March and April
1996, respectively, and for most of the debt establish a new conversion rate to
common stock of $0.30 per share. They also agreed that conversion shall occur
upon (1) a restructuring/repayment workout plan accepted by the Company's
unsecured creditors holding 80% or more of the Company's unsecured trade debt,
which plan has been approved by the Company, or (2) Itochu's sole election to
cause conversion of this debt. In March 1996, the maturity dates of the Series S
and Series I bonds were extended to March 25, 1997. In June 1996, following
satisfaction of the conditions precedent to such conversion as discussed below,
approximately $13,000,000 of the Series S Bonds and Itochu secured notes were
converted into the Company's common stock at $.30 per share.
In April 1995, an informal committee of the Company's unsecured trade
creditors was established, and in August 1995, this committee recommended for
approval a voluntary restructuring of the Company's unsecured debt existing as
of March 17, 1995. The terms of the restructuring plan were presented to all of
the unsecured creditors in the second quarter of 1996 for their review and
acceptance or rejection. The shareholders of the Company approved the issuance
of the Company's Series B Preferred Stock in furtherance of this restructuring
at the Company's annual shareholders meeting held in February 1996. As of
February, 1996, the aggregate amount of the Company's outstanding unsecured
debt, including principal and interest, was approximately $14,000,000, and there
were approximately 600 unsecured creditors of the Company.
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The unsecured debt restructuring plan divided the creditors into two
classes. Creditors are members of a class based on whether they qualify under
applicable securities laws to receive restricted preferred stock of the Company
in a private placement. Each creditor that did not so qualify was entitled to
receive if the creditor so elected at the closing of the restructuring (i) cash
in the amount of 10% of such creditor's debt, subject to available funds at that
time, and, to the extent funds were not available, a three year promissory note,
and (ii) a promissory note of the Company in an amount equal to 65% of its debt
(the "Large Note"). This promissory note is payable over a twenty year period,
and is secured with a "sinking fund" escrow account. The Company is required to
deposit 10% of the proceeds of all financings during the twenty year period into
the escrow account, subject to investor approval. Currently, approximately
$720,000 has been deposited by the Company into the escrow account and paid to
creditors.
Each creditor who was eligible under securities laws to receive
restricted preferred stock was entitled to receive if the creditor so elected at
the closing (i) cash in the amount of 15% of such creditor's debt, subject to
available funds at that time, and, to the extent funds were not available, a
three year promissory note, and (ii) shares of Series B Convertible Preferred
Stock ("Series B Preferred Stock") of the Company having a value equal to the
balance of its debt, at a conversion price of $2.00 per share. Each share of
Series B Preferred Stock is initially convertible into 6.66 shares of Common
Stock (subject to adjustment for stock splits, combinations, reclassifications
and the like). The Series B Preferred Stock has certain liquidation and dividend
rights prior and in preference to the rights of the Common Stock and Series A
Preferred Stock.
The Company will be required to make accelerated payments under the
promissory notes if it is able to raise additional funds from investors, but
only with the consent of such investors. In addition, the Company will not be
allowed to pay any dividends on its outstanding shares of capital stock or to
repurchase shares without the consent of a majority of the then outstanding
principal held by creditors under the Large Note. The Company's Series B
Preferred Stock shareholders have the right to elect two members to the
Company's Board of Directors.
As of October 15th, 1996, the Company had obtained settlements for
approximately $11.7 million of approximately $14 million of unsecured trade debt
obligated prior to March 18th, 1995. The Company has issued approximately
$800,000 of three year and $3.3 million of 20 year promissory notes and 1.5
million shares of Series B Preferred Stock valued at $3.2 million. As of October
15th, 1996, approximately 280 creditors representing approximately $2.5 million
in unsecured trade debt have not participated in the debt restructuring plan.
TO THE EXTENT THAT THE COMPANY IS UNABLE TO COMPLETE THE VOLUNTARY
RESTRUCTURING OR OTHERWISE REFINANCE OR CONVERT SUCH DEBT AND ADDITIONAL FUNDING
IS NOT AVAILABLE, THE COMPANY WOULD BE FORCED TO SEEK PROTECTION UNDER
APPLICABLE BANKRUPTCY AND INSOLVENCY LAWS. IN ADDITION, SIGNIFICANT ADDITIONAL
FUNDING WILL BE NEEDED THROUGHOUT FISCAL 1997 AND BEYOND TO CONTINUE OPERATIONS.
Environmental Initiatives and Legislation
United States
Following the state and federal elections in November, 1994, the
changed legislative climate in the United States resulted in extensions and
modifications to federal and state legislation which had defined the early
market for alternative fuel and zero emission vehicles. Most significantly, the
state of California decided to amend its timing for the mandated introduction of
zero emission vehicles ("ZEV"). The amendment is defined below:
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California State Mandates for Zero-Emission Vehicles
Applicable to Large & Intermediate-Volume Vehicle Manufacturers
Percentage of Vehicle Sales Which Must be ZEV
================================================================================
Year Previous Legislation Current Legislation as Amended
- --------------------------------------------------------------------------------
1998 2% Provision for ZEV credits toward 2003
1999 2% Provision for ZEV credits toward 2003
2000 2% Provision for ZEV credits toward 2003
2001 5% Provision for ZEV credits toward 2003
2002 5% Provision for ZEV credits toward 2003
2003 10% 10%
================================================================================
The U.S. Department Of Energy ("DOE") also modified their rules governing how
state fleets and utility fleets covered by the Energy Policy Act of 1992
("EPAct") must comply with the EPAct's Alternative Fuel Transportation Program
by making certain a percentage of light-duty vehicle purchases
alternatively-fueled. Light-duty, for the purposes of the EPAct, is 8,500 lbs
Gross Vehicle Weight Rating before aftermarket conversion. The rules went into
effect on April 15, 1996 and the major revisions include:
1. A one-year shift in the statutory alternative fueled vehicle acquisition
schedules.
2. An automatic exemption to allow time for a State to apply for an obtain
approval of an Alternative State Plan for State fleets.
3. A revised definition of the statutory term "substantial portion" that omits
smaller refiners from acquisition requirements and includes large,
integrated producers and importers.
4. The addition of "neat" biodiesel to the list of "alternative fuels".
5. A provision for the allocation of credits to State government fleets and
covered fuel providers for newly-acquired medium- and heavy-duty
alternative fueled vehicles (AFV's).
A fleet is covered by the EPAct if the fleet has 50 or more light-duty vehicles,
not counting officially excluded vehicles (a category including such vehicles as
law enforcement, emergency vehicles, and non-road vehicles).
The current revised acquisition formula as follows:
================================================================================
Model Year Covered Utility/Fuel State Government
Provider Fleets Fleets
- --------------------------------------------------------------------------------
1997 30% 10%
1998 50% 15%
1999 70% 25%
2000 90% 50%
2001 90% 75%
================================================================================
The Company believes that electric vehicle technology continues to offer a
solution to achieve zero emission performance and to comply with current "clean
air" legislation implementation deadlines. Electric vehicle performance
requirements that are likely to be established will include vehicle range, load
capacity, speed and acceleration characteristics, refueling/recharging time and
operating cost per mile.
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Relationships of Affiliated Companies
In July 1993, the Company acquired all of the outstanding capital stock
of Industrial Electric Vehicles, Inc. ("IEV"). IEV manufactured a broad line of
off-road industrial electric vehicles, including three-wheeled supervisor carts,
small trucks, inventory carriers and pickers, various personnel carriers and
many other specialty type vehicles. IEV also developed and marketed a line of
on-road electric buses. Effective as of September 5th, 1996, the Company
disposed of substantially all of the assets of IEV. The assets sold included
inventory, receivables, work-in-process, parts, furniture, fixtures, machinery,
tools, tooling, supplies, computers, software, sales and marketing material, and
equipment related to the industrial business. The Company retained certain
international rights to market the industrial product line, and all rights to
continue developing and marketing on-road electric buses. The sale was made to
Legend Electric Vehicles, Inc., a California corporation. The principals of
Legend include several former employees of the Company, including the manager of
IEV.
The fixed purchase price for the assets of IEV was One Million Eighty
Thousand Dollars ($1,080,000). An additional, contingent amount not to exceed
One Hundred Seventeen Thousand Dollars ($117,000), which reflects a portion of
receivables collections, may also be paid. The fixed purchase price payment was
made as follows:
1. Buyer assumed, and was credited with, the principal amount of
$1,004,504.00 outstanding under a Promissory Note ("Note") owed by the Company
to the previous owners of the business, from whom the Company purchased the
business. The previous owners, as holders of the Note, approved the assignment
and assumption of the Note, and have released the Company from all obligations
thereunder. The Note was secured by substantially all of the assets of IEV
included in the sale transaction. The principal amount including interest
outstanding under the Note was $1,004,504.00 on the date of sale. Since July 31,
1995, the Company had been in default on payment of the Note in the principal
amount of $982,000 which constituted a portion of the purchase price for IEV's
stock.
2. Buyer agreed to assume, and was credited with, up to $88,000 of
outstanding warranty obligations for a period of twelve months on claims
submitted after the date of closing. The credit would not be reduced if actual
warranty claims are less.
Electricar International Limited ("Electricar International"), a
wholly-owned subsidiary of the Company, operates as the distribution affiliate
for the Company in certain countries, primarily countries in the Pacific Rim and
Middle East regions (the "International Countries"). Pursuant to an
International Distribution Agreement ("IDA"), the Company had granted certain
rights in the International Countries to one of the previous owners of
Electricar International with respect to the distribution of the Company's and
Electricar International's electric vehicles. On January 19th, 1996, the Company
terminated the IDA based on the insolvency of the distributor, and based on the
distributor's prior material breaches and defaults which were not cured after
receipt of written notice from the Company.
Livermore Research and Engineering Corporation ("Livermore R & E"), a
wholly-owned subsidiary of the Company based in California, has been a research
organization which has developed a comprehensive electric vehicle
crashworthiness simulation capability. Livermore R & E uses DYNA3D, a non-linear
computer generated crashworthiness testing and impact analysis software licensed
to the Company, in designing computer generated analytical models to simulate
physical crash tests on both metal and composite chassis/body systems on the
Company's vehicles. The Company has been granted a non-exclusive license to use
and modify the DYNA3D software. DYNA3D and any modifications to the software
(other than certain special-purpose technical features and add-ons designed to
improve its simulation capability for electric vehicle crashworthiness) remain
the property of the grantor of the software and may not be redistributed outside
the Company. Due to the Company's financial constraints, the activities of this
subsidiary have been suspended.
The two individuals from whom the Company purchased Livermore R & E
were the lead developers of DYNA3D, and these individuals became employees of
the Company in December 1993 to design the computer generated analytical models
for the Company's vehicles. In June 1995, these employees resigned from the
Company. The Company has continued association with these former employees
through a consulting arrangement on an as-needed basis.
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Products
The Company's electric vehicle products presently include two converted
on-road vehicles, a Geo Prism sedan and a Chevrolet S-10 pickup truck, a
purpose-built on-road electric bus, a purpose-built light delivery truck, and
specialty off-road vehicles such as inventory carriers and pickers and various
personnel carriers.
On-Road Vehicles
The Company's existing sales of on-road electric vehicles arise
primarily from the Company's past focus on fleet niche markets. The Company's
strategy in this business was to select specific, existing, internal combustion
powered vehicles for conversion to electric power for large fleet users. The
conversion first entails a redesign of significant components of the vehicle,
including the power train and battery pack. The Company then converts these
vehicles into electric vehicles for sale to fleet users. The Company selected
Chevrolet S-10 trucks and Geo Prizm sedans for this program. As of July 31,
1996, the Company had converted and delivered to its customers approximately 210
on-road vehicles. The Company is re-evaluating its on-road conversion business
in order to determine the continued viability of this product line. The Company
currently intends, subject to available financial resources, to finish
converting and selling its existing inventory of on-road vehicles.
The Company has had discussions with several foreign manufacturers and
government entities to develop and manufacture electric vehicles pursuant to
license agreements, including a world light truck delivery vehicle, for specific
worldwide markets and applications. The focus of these potential alliances is to
develop products primarily for "in country" applications, whereby the goods
manufactured would be used in the same local and regional area in which they
were produced. The Company believes that the demand for electric vehicles in
these markets will be influenced to a large extent by further developments in
electric power infrastructure and government incentives in these markets. As of
July 31, 1996, no such ventures or products exist.
Through its IEV subsidiary, the Company produces on-road electric
buses, including a 22 passenger shuttle bus. This bus uses light-weight
composite panels to reduce weight and increase driving range. As of July 31,
1996, 22 of these buses have been sold and are presently operating.
Off-Road Vehicles
The Company's line of off-road specialty electric vehicles produced by
IEV include inventory carriers and pickers, various personnel carriers and other
electric off-road specialty type vehicles. The Company is re-evaluating this
product line in order to determine its continued viability. However, the Company
continues, subject to financial resources to develop a line of purpose-built
(OEM) vehicles (such as those used for airline ground support) for testing and
evaluation that may lead to a new product line of off-road vehicles. As of
October 15, 1996, the Company has converted 6 airport ground support vehicles as
part of a program with Southwest Airlines. In addition, the Company has also
entered into prototype production of a 1.5 ton off-road electric delivery truck
with initial marketing activities anticipated to occur in Mexico City.
Strategic Partnering And Technology Developments
The Company has also made efforts to establish third-party distribution
arrangements and align itself with various technology development companies and
electric vehicle component manufacturers to complement its own expertise in the
electric vehicle market. The Company has continued its efforts to implement a
strategy to be a "systems integrator" by attempting to establish relationships
to use other independently developed technology. The Company believes that its
competitive advantage may be its ability to identify, attract and integrate the
latest technology available to produce state of the art products at competitive
prices. The Company believes this strategy may, if successful, at least in the
near term, reduce capital and research and development expenses to the extent
other companies or organizations will fund these expenses.
The Company believes that two of the principal component technologies
relevant to a cost effective electric vehicle are the electric drive system and
the battery/charging system. It is the Company's strategy to continuously review
emerging technological developments and seek alliances with or, if sufficient
additional capital funding can be obtained, complete
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acquisitions with companies that it perceives own the best proven technologies
for incorporation into its electric vehicles. The Company's progress and current
plans for each system are described below.
Electric Drive System
The electric drive system consists of an electric motor and electronic
controls that regulate the flow of electricity to and from the batteries (at
various voltages and amperages) to propel the vehicle. Auxiliary vehicle
functions (e.g., radio, lights, windshield wipers, etc.) are also powered by
stored electrical energy similar to that of an internal combustion drive system.
The Company presently utilizes drive systems for on-road cars and light trucks
that employ either direct current ("DC") or alternating current ("AC"). The
Company's buses and industrial vehicles presently use DC-powered drive systems.
On October 25, 1996, the Company acquired all of the assets and certain
liabilities of Systronix Corporation, located in Torrance, California. Systronix
Corporation is a development stage company which was incorporated in September,
1994, and began research and development operations in January, 1995. Its goal
was to become a leading developer of technologically advanced electric
propulsion systems for electric vehicles. As a result of the acquisition, the
Company is now in the process of validating its first propulsion system product,
the Panther(TM) 60 alternating current (AC) drive train for light duty vehicles.
Also under development is the Panther(TM) 120 system for buses and heavy duty
vehicles, and the C20(TM) offboard charging system, the first of an intended
family of rapid chargers for all sizes of electric vehicles. The aggregate
purchase price for the Systronix assets acquired by the Company include the
following terms of payment:
1. The Company was credited with the amount of $1,020,000 towards the
purchase price, which the Company had previously delivered to Systronix as a
pre-payment of the purchase price;
2. The Company delivered to Systronix a Promissory Note in the
principal amount of $829,978.39, secured by the acquired assets pursuant to a
security agreement. The Note bears interest at the rate of six percent (6% ) per
annum and is due and payable (A) on, or before, November 19, 1996 and (B) in the
amount of 45% of any additional financing received by the Company until paid in
full, whichever occurs first. IN THE EVENT SAID NOTE IS NOT PAID IN FULL AS
DISCUSSED ABOVE, SYSTRONIX HAS THE RIGHT TO RESCIND THE TRANSACTION THROUGH
FORECLOSURE ON THE ASSETS.
3. The Company delivered to Systronix a share certificate representing
2,700,000 shares of the Company's Common Stock, and to an Escrow Agent for the
benefit of Systronix under an escrow arrangement a share certificate
representing 1,100,000 shares of the Company's Common Stock;
4. The Company was credited with certain loans, trade payables and
other liabilities assumed in the approximate amount of $ 1,150,000, of which
$500,000 owed to a non-U.S. person was converted into common stock pursuant to
Regulation S at $0.30 per share in October, 1996.
5. The Company issued pursuant to Regulation S as a finder fee a
"cashless" exercise warrant for 2,000,000 shares of the Company's Common Stock.
The terms and conditions of this warrant are substantially similar to the terms
and conditions of the cashless exercise warrants discussed in Note 10 of the
Notes to the Financial Statements, page F-27, below.
6. In conjunction with this transaction, the Company has employed
substantially all of the then-existing employees of Systronix Corporation.
Pursuant to such employment, the Company has granted to these employees
qualified and non-qualified stock options under the Company's 1996 Stock Option
Plan. The options granted in the aggregate total approximately 10,400,000
options at an exercise price of $0.30 cents per share, subject to various
vesting schedules with a substantial portion of the options vesting in 6-12
months. The Plan has been approved by the Board of Directors of the Company, and
the Company anticipates presenting the Plan for shareholder approval at its next
annual meeting.
Battery/Charging System
Pursuant to a United States Department of Defense/ ARPA program, the
Company is working with numerous battery manufacturers to "beta test" their new
battery technologies. The Company believes that these new systems will allow
design advantages in battery placement, weight distribution, and car
crashworthiness. Additionally, the Company is monitoring other
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battery innovations that may extend an electric vehicle driving range by up to
50% and permit a shorter recharging time. For electric buses, the Company has a
"switch-out battery system" that allows for battery replacement in approximately
ten (10) minutes, similar to the battery replacement on a cellular phone or
portable drill.
International Market
The Company believes that the international market for electric
vehicles could become a significant source of revenue. In addition, the Company,
in conjunction with one of its major international shareholders, has in
development, and in prototype production, a light delivery truck that the
Company believes may have broad market applications worldwide. Subject to
existing valid and enforceable agreements, if any, the Company intends to test
market its light delivery truck and several industrial vehicle lines in these
international markets to evaluate the viability of continuing to develop these
product lines.
Warranties/Customer Service Plan
The Company believes that customer service and technical support
capabilities should be important competitive factors for its business. The
Company presently provides a limited one-year parts and labor warranty as a
basic standard on all electric vehicle models, including the Geo Prism sedans.
The Company attempts to obtain warranty coverage from its third-party suppliers
which it would then be authorized to pass on to its customers. In addition, the
Company has offered an extended limited warranty of up to three years under
certain sales contracts for its Chevrolet S-10 trucks. The Company is now
reviewing this warranty coverage for possible modification. At the present time,
subject to available capital resources, it is also anticipated that Company
maintenance personnel will continue to be available for field service calls as
part of this warranty coverage for buses and conversion vehicles, with
dealerships providing warranty service for industrial vehicles.
Market Profile
The Company believes that the electric vehicle fleet market may offer a
substantial available market for converted electric vehicles. For example, a
1988 study by the Center for the Biology of Natural Systems revealed that the
average daily mileage of the federal government's 370,000 cars, vans and light
trucks ranged from 25 to 50 miles per day. About 20% of this total fleet is
replaced annually. In fiscal year 1992, the Federal government purchased about
80,000 light-duty cars, vans and trucks.
The Company believes that during the period from 1993 through 1998, the
major California investor-owned utilities will spend in excess of $300 million
for electric vehicle and associated infrastructure development. In addition,
utilities outside of California as well as many governmental entities are
planning to spend significant funds for the development of the electric vehicle
business. The California Council on Science and Technology in its 1992 Project
California Report estimated that the size of the market in the U.S. for electric
vehicles will grow to $8 billion in 2003 and to $24 billion in 2007.
Competitive Conditions
The competition to develop and market electric vehicles has increased
during the last fiscal year and is expected to continue to increase. The
competition consists of development stage companies as well as major U.S. and
international companies, including automobile manufacturers, utilities, and
component and material suppliers. MANY OF THESE COMPANIES HAVE FINANCIAL,
TECHNICAL, MARKETING, SALES, MANUFACTURING, DISTRIBUTION AND OTHER RESOURCES
VASTLY GREATER THAN THOSE OF THE COMPANY. The Company's future prospects will be
highly dependent upon the successful development and introduction of new
products that are responsive to market needs and can be manufactured and sold at
a profit. There can be no assurance that the Company will be able to
successfully develop or market any such products.
The development of other nonconventionally powered vehicles, such as
compressed natural gas, poses a competitive threat to the Company in markets for
low emission vehicles (LEVs) but not in markets where government mandates call
for zero emission vehicles (ZEVs). Such nonconventionally powered vehicles have
initial advantages over electric vehicles primarily in the areas of range, cost
and weight. These advantages may decline over time as electric vehicles' costs
decline with increased production and as advances in battery technology are
made. An inherent disadvantage of LEVs versus ZEVs is that LEVs emit pollutants,
even though at much lower levels than gasoline/diesel powered vehicles.
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To date, various providers of electric vehicles have proposed products
or offer products for sale in this emerging market. These products encompass a
wide variety of technologies aimed at various markets, both consumer and
commercial. The critical role of technology in this market is demonstrated
through several product offerings. Applied technologies range from DC motor
drives to AC induction motor drives, from conversion vehicles to purpose-built
(OEM) vehicles, from lead-acid batteries to more advanced power storage
technologies and from traditional materials to more advanced "composite"
materials. As the industry matures, key technologies and capabilities are
expected to play critical competitive roles. The Company's goal is to position
the Company as a long term competitor in this industry by focusing on vehicle
component integration, technology application and strategic partnerships.
There are many entities, including governmental, quasi-governmental,
non-profit and private organizations, involved in advancing research and
development of electric vehicle and low-emission vehicle technologies. In
addition, several consortia have formed to fund research on electric vehicle
batteries: the United States Advanced Battery Consortium, an organization
committed to funding a total of $260 million for battery research by 1998, which
is financed by the United States Department of Energy, General Motors, Ford,
Chrysler, and the Electric Power Research Institute; the Advanced Lead-Acid
Battery Consortium, funded by North American lead manufacturers; and the New
Energy Development Organization, a Japanese consortium funded by the Japanese
government and certain Japanese battery manufacturers.
The Company now competes in three broad product areas of the electric
vehicle industry; (1) on-road cars and light trucks, (2) off-road trucks, (3)
on-road buses and (4) off-road specialty industrial vehicles.
On-Road Cars and Light Trucks
The Company competes with several other electric vehicle companies as
well as the major automobile manufacturers, most all of whom have electric
vehicle development programs. In addition, the major automobile manufacturers
have resources vastly greater than the Company's and, as a result of various
government mandates, are under pressure to develop and produce electric
vehicles. As a result, they pose a significant competitive threat as well as
opportunity for the Company. The Company's approach has been to attempt to work
closely with the major automobile manufacturers so that the Company is
positioned as an important resource for these major automobile manufacturers. As
a result, the Company has been contracted by an off-shore OEM to explore the
possibility of developing electric sedans.
The conversion of gasoline powered cars and light trucks to electric
power allowed the Company to enter the electric vehicle market sooner than if it
had limited itself to purpose-built (OEM) electric vehicles; however, such
conversions are expensive. Two major elements in the Company's plan to reduce
the cost of its on-road electric vehicles were (i) to work with the major
automobile manufacturers to provide the Company factory built vehicles without
engines, transmissions and fuel systems (gliders), and (ii) to develop and
manufacture light-weight, purpose-built (OEM) electric vehicles. To date, the
Company has not been able to solidify the elements of this plan.
Off-Road Trucks
The Company's customer and industry research in Mexico, the primary and
initial market for the Company's light trucks, indicates there are four prime
factors which are weighed most prominently in a new truck purchase decision:
speed, payload, range and life-cycle cost. The Company's light truck is believed
to be competitive, when compared to the current electric truck offerings of
competitors, including Taylor-Dunn and Cushman.
The Company believes that in Mexico, where the light truck will operate as an
"on-road" vehicle, penetration of the internal-combustion engine (ICE) truck
market is also feasible. This is believed to be a 100,000 annual unit market in
Mexico.
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On-Road Buses
The Company is presently aware of over ten companies intending to
produce electric buses, approximately half of which are currently producing
vehicles. CALSTART, a non-profit consortium of manufacturers, public utilities
and local, state and federal agencies formed to promote the manufacture of
electric vehicles in California, has contracted to have APS Systems and Bus
Manufacturing, Inc. produce several electric buses. Specialty Vehicle
Manufacturing Crop. currently offers several electric bus models. In addition,
the Company expects the large bus manufacturers, such as Bluebird, Carpenter and
Gillig, to become competitors.
Off-Road Industrial Vehicles
The Company believes that the industrial off-road electric vehicle
market is a mature, marginally differentiated industry with all of the top
competitors offering comparable products at comparable prices. As a result, the
Company divested its interests in the industrial business as previously
discussed above. There are four prime U.S. competitors, the largest of which is
Taylor-Dunn, holding approximately 50% of the market share, followed by Cushman,
with approximately 25% of the market share, EZ-GO, with approximately 8% of the
market share, and the Company, which held approximately 5% of the market share.
Following the divesture of the industrial business, the Company continues to
develop and market a select group of specialty vehicles including an in-factory
delivery vehicle for express delivery companies, and airline ground support
vehicles.
Research and Development
The Company believes that continued timely development and introduction
of new products are essential to establishing and maintaining a competitive
advantage. The Company is currently focusing its limited development efforts
primarily in the following areas:
*Technical proposal and program development under ARPA;
*Power Control and Drive Systems and related technology;
*Bus development;
*Technology safety development/crash worthiness/structural analysis; and
*Subsystem development (i.e., climate control, power management).
Company funded research and development expense charged to operations
in fiscal years, 1994, 1995 and 1996 were $7,724,000, $6,697,000 and $1,401,000,
respectively.
The Company is continually evaluating and updating the technology and
equipment used in developing each of its products. The electric vehicle industry
has only recently come into existence, and the technology involved in the
industry is rapidly changing. There is limited experience in the operation and
testing of electric vehicles and components, and the development of electric
vehicle technology therefore involves inherent risks. Due to financial
constraints, there is no assurance that the Company shall have the ability to
stay competitive through its research and development efforts.
Department of Commerce Funding Award for Composite Components Development
The Company was notified in November 1994 that it had been selected to
receive an award of matching funds from the National Institute of Standards and
Technology ("NIST") of the United States Department of Commerce in connection
with a 5-year, $21.8 million program to stimulate development of a
cost-effective composite manufacturing process for use in the production of
lightweight, affordable, and safe electric vehicles. The Company and the other
companies involved in the program have been unable to negotiate a suitable joint
venture agreement as required by NIST. Due to the Company's financial
difficulties, the Company withdrew from the NIST program in fiscal 1996.
Licenses, Patents and Trademarks
The Company does not currently hold any patents, although it has
submitted applications for a patent and several trademarks or servicemarks in
the United States. For the foreseeable future, the Company believes that its
success will not rely on its patent and trademark proprietary position. As the
Company develops its own technology, the policy of the Company will be to apply
for patents or for other appropriate statutory protection when it develops
valuable new or improved technology. The status of patents involves complex
legal and factual questions and the breadth of claims allowed is uncertain.
Accordingly, there can be no assurance that any patent application filed by the
Company will result in patents being issued. In addition, the laws of
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any foreign country in which the Company elects to conduct business may not
protect the Company's products and intellectual property rights to the same
extent as the laws of the United States.
Backlog
As of July 31, 1996, the Company's backlog of orders was approximately
$1,200,000, of which approximately $200,000 was related to the off-road
industrial electric vehicle business, which was sold by the Company in
September, 1996. Most of the remaining backlog consisted of orders to finish
converting and delivering the Company's existing inventory of on-road vehicles.
As of July 31, 1995, the Company's backlog of orders was approximately
$1,000,000. Backlog consists of orders for which shipments have not yet been
made and unfilled portions of orders for which partial shipments have been made.
Employees
As of July 31, 1996, the Company had 35 employees, including 15 in
administration, 6 in engineering, research and development, 12 in manufacturing,
and 2 in sales and service. This represents a reduction from a total of 86
employees as of July 31, 1995.
Item 2. Properties
The Company's corporate offices are located in San Francisco,
California, in leased office space of approximately 6,800 square feet. The
Company's administrative departments and senior level operations, including
executive, legal, finance, planning, purchasing, personnel, and operations
personnel, are housed in this location. These facilities are leased through
October 1998 with early termination provisions at the election of the Company in
October, 1997.
Electricar's IEV subsidiary leased a 107,000 square foot production
facility in Redlands, California. Following the Company's divesture of the IEV
industrial business, this facility's lease, which expired on July 31, 1996, was
assigned to the new owner. Pursuant to a month-to-month sublease, the Company
manufactures specialty vehicles, buses and upfit (conversion) vehicles at this
facility utilizing approximately one-fourth of floor space of the facility.
The production capacity of the current bus manufacturing line is 8
buses per month. The Company is currently not in production. The conversion
production line capacity is estimated at 16 units per month. The Company is
currently converting only vehicles in its existing inventory and is
re-evaluating its conversion business in order to determine the continued
viability of this product line.
Item 3. Legal Proceedings
Nineteen of the unsecured creditors of the Company have brought
independent lawsuits in various courts in California, Connecticut, North
Carolina and New York against the Company in connection with the Company's
default on its debt obligations to such creditors, in the aggregate amount of
approximately $650,000. These lawsuits seek damages for the amount of principal
and interest due by the Company under the debt owed to such creditors, plus
court costs and attorneys' fees. No individual creditor's claims exceed the
amount of $121,700. Nine of the unsecured creditors have obtained judgments
against the Company in the aggregate amount of approximately $450,000. The
remaining suits are pending.
The Company is currently in the process of restructuring its
outstanding unsecured antecedent trade debt. A creditors' committee has been
established to represent the antecedent unsecured creditors (including the
creditors who have brought suit against the Company and other creditors who have
not yet filed legal claims) in negotiating a settlement with the Company. It is
intended and hoped that the restructuring will result in the settlement of a
majority of the lawsuits filed and judgments obtained against the Company in
connection with its unsecured debt. See "Item 1. Business -- Debt
Restructuring."
The Company reported in its report on Form 10-Q filed with the
Commission for the quarterly period ended April 30, 1996 that on May 20, 1996, a
suit was brought in San Francisco Superior Court by a shareholder, alleging that
the shareholder was misled in the purchase of stock in the Company. The
shareholder, Janet Poli, for Janet Poli IRA and for SERP Janet Poli Realty,
named in the suit the Company, Mr. Ted Morgan, a previous officer of the
Company, and Mr. Mark Neuhaus, an individual. The suit alleged that the
individual made fraudulent and negligent misrepresentations to induce the
shareholder to purchase shares of Company stock for $100,000; that the former
officer concealed material facts from the shareholder; and that defendants
(including the Company) all breached fiduciary duties to the shareholder. The
complaint sought compensatory damages in an unspecified amount allegedly
exceeding $1,000,000, punitive damages, attorneys fees and costs, and other
relief. The Company and the previous officer of the Company filed a Demurrer to
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<PAGE>
the First Amended Complaint which the Court sustained without leave to amend on
October 15, 1996. On October 29, 1996, counsel for the shareholder filed a
motion for reconsideration. The motion is scheduled for hearing on November 26,
1996. Counsel for the shareholder has also filed a motion to be relieved as
counsel. The motion is scheduled for hearing on November 27, 1996.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
The Company's Common Stock is presently traded in the over-the-counter
market and quoted on the National Association of Securities Dealers (NASD)
"Bulletin Board" under the symbol "ECAR." The following table sets forth the
high and low prices of the Common Stock as reported on the NASD Bulletin Board
by the National Quote Bureau for the fiscal quarters indicated. The following
over-the-counter market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions.
Common Stock Average Daily
Fiscal 1995 High/Low Bid - High/Low Asking Volume
- ----------- ------------------------------ -------------
First Quarter . . . . . . $5.14/$3.53 - $7.48/$5.26 *
Second Quarter . . . . . $3.74/$2.08 - $6.01/$3.81 *
Third Quarter . . . . . . $1.43/$0.73 - $3.27/$1.48 *
Fourth Quarter. . . . . . $0.25/$0.10 - $1.85/$0.26 *
Common Stock Average Daily
Fiscal 1996 High/Low Bid - High/Low Asking Volume
- ----------- ------------------------------ -------------
First Quarter . . . . . . $0.15/$0.19 - $0.81/$0.17 *
Second Quarter . . . . . $0.31/$0.35 - $0.91/$0.32 *
Third Quarter . . . . . . $0.29/$0.27 - $0.32/$0.30 *
Fourth Quarter. . . . . . $0.39/$0.37 - $0.42/$0.40 *
*Volume information not available.
On November 5, 1996, the last reported high/low bid prices of the
Common Stock were $0. 23/$0.23 and the last reported high/low asking prices were
$0.27/$0.26. As of November 5, 1996, there were approximately 1,515 holders of
record of the Common Stock. In addition, as of November 5, 1996, the Company's
Series A Preferred Stock was held by approximately 144 shareholders, many of
whom are also Common Stock shareholders. The number of holders of record
excludes beneficial holders whose shares are held in the name of nominees or
trustees.
Dividend Policy
To date, the Company has neither declared nor paid any cash dividends
on shares of its Common Stock or Series A or B Preferred Stock. The Company
presently intends to retain all future earnings for its business and does not
anticipate paying cash dividends on its Common Stock or Series A or B Preferred
Stock in the foreseeable future. However, the Company is required to pay
dividends on its Series A and B Preferred Stock before dividends may be paid on
any shares of Common Stock. At July 31, 1996, the Company had an accumulated
deficit of approximately $77 million and, until this deficit is eliminated, will
be prohibited from paying dividends on any class of stock except out of net
profits, unless it meets certain assets and other tests under Section 500 et
seq. of the California Corporations Code.
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<TABLE>
Item 6. Selected Financial Data
As of and for the fiscal year ended July 31, (in thousands, except per share data)
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET SALES $ 4,209 $ 11,625 $ 5,787 $ 863 $ 1,220
COST OF SALES 5,370 20,210 6,372 802 848
-------- -------- -------- -------- --------
GROSS MARGIN (1,161) (8,585) (585) 61 372
-------- -------- -------- -------- --------
OTHER COSTS AND EXPENSES
Research and Development 1,401 6,697 7,724 376 56
Selling, general and administrative 5,608 13,952 12,638 1,953 791
Interest and financing fees 1,890 5,732 339 146 80
Other expense (income) 740 449 17 24 24
Market development expense 77 3,718
Facility closures and consolidations
of operations 701 2,378
-------- -------- -------- -------- --------
Total other costs and expenses 10,340 29,285 24,436 2,499 951
-------- -------- -------- -------- --------
LOSS FROM CONTINUING OPERATIONS (11,501) (37,870) (25,021) (2,438) (579)
LOSS FROM DISCONTINUED OPERATIONS (169) (203)
GAIN ON DEBT RESTRUCTURING 2,147 305
-------- -------- -------- -------- --------
NET LOSS $ (9,354) $(37,565) $(25,021) $ (2,607) $ (782)
======== ======== ======== ======== ========
PER COMMON SHARE:
Loss from continuing operations $ (0.17) $ (1.88) $ (2.61) $ (0.54) $ (0.15)
Loss from discontinued operations (0.04) (0.05)
Gain on debt restructuring 0.03 0.02
-------- -------- -------- -------- --------
Net loss per common share $ (0.14) $ (1.86) $ (2.61) $ (0.58) $ (0.20)
======== ======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 67,906 20,156 9,571 4,487 3,871
======== ======== ======== ======== ========
Total Assets $ 4,363 $ 10,230 $ 21,306 $ 5,453 $ 372
======== ======== ======== ======== ========
Long-term debt $ 3,987 $ 9,980 $ 1,020 $ 31
======== ======== ======== ======== ========
Shareholders' equity (deficit) $(12,736) $(24,760) $ 1,605 $ 2,421 $ (424)
======== ======== ======== ======== ========
</TABLE>
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The matters addressed below, with the exception of the historical information
presented, may incorporate certain forward-looking statements involving risks
and uncertainties, including the risks discussed under the heading "Certain
Factors That May Affect Future Results" and elsewhere in this report.
GENERAL
U. S. Electricar, Inc. and Subsidiaries (collectively, the "Company") develops,
converts, assembles, manufactures and distributes battery-powered electric
vehicles, including on-road pick-up trucks, passenger cars, buses and delivery
vehicles and a variety of off-road industrial and specialty vehicles. The
Company's product lines include converted vehicles (originally built to be
powered by internal combustion engines) and vehicles that are built specifically
to be battery powered. The Company's fiscal year ends July 31. All year
references refer to fiscal years.
During 1994 and the first half of 1995, the Company's approach to its business
was intended to establish manufacturing, marketing and support functions of a
large scale company so that the transition from development and prototype
activities to volume production of on-road vehicles could be made as quickly as
possible once component parts design, systems integration and assembly processes
were developed. The Company raised approximately $38 million to fund its
activities during this period. However, the Company was not able to achieve
volume production, primarily because the development of such designs and
processes was not completed prior to the Company's capital becoming severely
depleted, which occurred in the second half of 1995. The Company incurred losses
totaling $62,586,000 during 1994 and 1995.
The Company was forced to severely curtail its operations in the second half of
1995 due to a lack of funds. Certain facilities were consolidated and major
contracts were terminated. The Company initiated programs to restructure its
debt and raise interim funding which continued through 1996.
During 1996, the Company restructured a significant portion of its debt and
raised approximately $5 million in interim funding. However, its operations
continued to be impacted by an insufficient amount of funds to adequately
support its planned sales volumes and product development programs. The Company
curtailed the manufacture and sale of off-road industrial vehicles in the third
and fourth quarters of 1996 and reduced the carrying values of the assets
associated with this product line. In 1996, the Company incurred a loss of
$9,354,000.
In September 1996, a substantial portion of the assets of Industrial Electric
Vehicles, Inc., (formerly Nordskog Electric Vehicles, Inc. (Nordskog), prior to
its acquisition in July 1993 by the Company) were sold. Consideration for this
sale included the assumption of, and release of liability for, the note payable
that totaled $1,013,000 at July 31, 1996 to Nordskog.
The company also acquired substantially all the tangible and intangible assets,
and assumed certain liabilities, of Systronix Corporation (Systronix) on October
25, 1996. For a description of the transaction, see Item 1, "Electric Drive
System".
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced significant recurring cash flow shortages due to
operating losses. Cash flows from operations have been extremely negative and
have not been sufficient for the Company to meet its obligations as they came
due. The Company has therefore had to raise funds through numerous
financial transactions and from various resources. At least until the Company
reaches breakeven volume in sales and develops and/or acquires the capability
and technology necessary to manufacture and sell its electric vehicles
profitably, it will need to continue to rely extensively on cash from debt and
equity financing. The Company anticipates that it will require substantial
additional outside financing for at least the next two fiscal years.
During 1996, the Company spent $4,384,000 in cash on operating activities to
fund the net loss of $9,354,000 resulting from factors explained in the
following section of this discussion and analysis. In addition, during the third
and fourth quarters of 1996, the Company used $1,015,000 for advances on the
purchase of certain intellectual property assets. Inventories declined during
1996 by approximately $4.9 million primarily as a result of the Company's
efforts to reduce its inventory of converted sedans and light trucks, and its
inability to replenish stocks of raw material needed for current production due
to a chronic shortage of available funds.
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<PAGE>
The operations of the Company during 1996 were financed primarily by $1,144,000
received from the issuance of Series I secured convertible bonds, a matching
$1,144,000 received from Itochu Corporation pursuant to a Supplemental Loan
Agreement dated April 13, 1995, short term notes totaling $320,000 from private
parties, and $2.7 million received from sales of unregistered common stock under
Regulation S. In accordance with the Supplemental Loan Agreement, Itochu agreed
to lend to the Company amounts under secured convertible notes equal to funds
the Company receives from other outside lenders or investors up to a maximum of
$3,000,000. Itochu had previously loaned the Company $1,856,000 under this
Agreement during the preceding fiscal year.
The Company has not paid seven interest payments due quarterly from January 31,
1995 through July 31, 1996 totaling approximately $147,000 causing an event of
default on the convertible secured note issued in connection with the
acquisition of Industrial Electric Vehicles, Inc. (formerly Nordskog Electric
Vehicles, Inc.). In September 1996, the Company sold the assets and certain
liabilities of the industrial electric vehicle business to a group consisting of
former employees of the Company. Part of the consideration for this sale was the
assumption of this note by the buyers and the release of the Company from the
principal amount of the note. The $147,000 accrued interest has been converted
to a new note payable.
During 1995, the Company, the holders of its Series S and Series I secured
convertible bonds and Itochu Corporation entered into agreements to restructure
approximately $22 million of convertible debt. In July 1995, $8,200,000 of this
debt was converted to common stock at $.30 per share. Maturity dates of much of
this debt were set or reset for either March 25 or April 17, 1996, and the
conversion rate to acquire common stock for most of this debt was established at
$.30 per share. They also agreed that conversion of the remaining debt shall
occur upon (1) the Company's election after a Debt Restructuring Plan has been
accepted by the Company's unsecured creditors holding 80% or more of the
Company's unsecured trade debt, or (2) Itochu's sole election to cause
conversion of this debt. In March 1996, the maturity dates of the Series S and
Series I bonds were extended to March 25, 1997 and the maturity dates of the
convertible secured notes due Itochu were extended to April 17, 1997. In June
1996, $13 million of the debt was converted to common stock, of which
approximately $12.5 million was issued pursuant to Regulation S.
During 1995, the Company fell behind significantly in its payments to suppliers
and other creditors due to a chronic shortage of cash. In March 1995, an
unofficial Creditors Committee under the auspices of the Credit Managers
Association of California ("CMAC") was established to represent the interests of
the unsecured creditors in structuring a workout of trade debt incurred before
March 18, 1995 ("Debt Restructuring Plan"). In May 1995, the Company granted
CMAC, as trustee for the unsecured creditors of the Company whose claims arose
prior to March 18, 1995, a security interest in certain collateral of the
Company.
At the Annual Meeting of Shareholders held in February 1996, the Company's
shareholders gave approval for an increase in the number of authorized shares of
common stock to 300 million and for authorization of a new series of preferred
stock needed for its Debt Restructuring Plan.
Through July 1996, the Company had obtained settlements for $11.7 million of
approximately $14 million of unsecured trade debt obligated prior to March 18,
1995. In connection with the settlements, the Company issued $817,000 of three
year and $3.3 million of 20 year promissory notes and 1.6 million shares of
Series B Preferred Stock valued at $3.2 million. The company also paid $418,000
to the unsecured creditors who agreed to accept the 20 year promissory note as
part of the settlement for their claims. In addition, during the twelve months
prior to the initial closing of the Debt Restructuring Plan, the Company had
paid $284,000 to certain unsecured creditors in full settlement of their claims.
It is management's intention to continue its debt restructuring and to seek
additional financing through private placements as well as other means. As of
November 5, 1996, however, the Company had no firm commitments to provide
significant additional financing to the Company.
IF THE COMPANY IS UNABLE TO COMPLETE THE VOLUNTARY RESTRUCTURING OF ITS DEBT OR
OTHERWISE REFINANCE OR CONVERT SUCH DEBT, AND ADDITIONAL FUNDING IS NOT
AVAILABLE, THE COMPANY WOULD BE FORCED TO SEEK PROTECTION UNDER APPLICABLE STATE
AND FEDERAL BANKRUPTCY AND INSOLVENCY LAWS.
IN ADDITION, SIGNIFICANT ADDITIONAL FUNDING WILL BE NEEDED DURING 1997 AND 1998.
AS OF NOVEMBER 5, 1996, THE COMPANY HAD NO FIRM COMMITMENTS FROM ANY PERSON OR
ENTITY TO PROVIDE CAPITAL AND THERE CAN BE NO ASSURANCE THAT ADDITIONAL FUNDS
16
<PAGE>
WILL BE AVAILABLE FROM ANY SOURCE AT THE TIME THE COMPANY WILL NEED SUCH FUNDS.
THE INABILITY OF THE COMPANY TO OBTAIN ADDITIONAL FUNDING ON TERMS ACCEPTABLE TO
THE COMPANY WILL HAVE A MATERIAL ADVERSE EFFECT ON ITS BUSINESS. THE FUTURE
UNAVAILABILITY OR INADEQUACY OF FINANCING TO MEET FUTURE NEEDS COULD FORCE THE
COMPANY TO DELAY, MODIFY, SUSPEND OR CEASE SOME OR ALL ASPECTS OF ITS PLANNED
OPERATIONS, AND/OR SEEK PROTECTION UNDER APPLICABLE STATE AND FEDERAL BANKRUPTCY
AND INSOLVENCY LAWS.
RESULTS OF OPERATIONS
Net sales of $4,209,000 for the year declined $7,416,000, or 63.8% from 1995.
These declines in sales for 1996 were primarily due to the Company's inability
to raise the funds necessary to support its operations at levels comparable to
the corresponding periods of 1995. Net sales in 1995 increased $5,838,000, or
100.9%, over 1994, and the increase was entirely due to increased sales of light
trucks and sedans, while the sales of buses declined approximately 60%
A decline of $5.8 million in sales of light trucks and sedans accounted for most
of the decrease from 1995 sales. Sales of industrial vehicles, parts and
accessories declined by $1.3 million from 1995. The manufacture and sales for
all product lines was limited in 1996 by the shortage of available funds. The
Company curtailed the manufacture and sale of off-road industrial vehicles in
the third and fourth quarters.
Cost of sales as a percent of sales decreased to 127.6% for the year of 1996
from 173.8% for 1995, after having increased from 110.1% in 1994. These
improvements in cost of sales as a percent of sales for 1996 compared with 1995
were primarily due to lower costs associated with the converted sedans and light
trucks and with buses. Most of these vehicles sold in 1996 were produced in
prior periods and placed in inventory at estimated net realizable values. The
manufacturing costs in excess of estimated net realizable value were expensed in
prior periods. Inventory write-downs for obsolescence impacted the results for
1995. In addition to the inventory write-downs in 1995, the increase in costs
from 1994 was caused by high unit costs for raw materials due to small order
quantities and rush orders and also by higher than normal wastage caused by the
rapid build-up of production and subsequent rapid scaling back of production due
to lack of funds.
Research and development expense of $1,401,000 in 1996 declined $5,296,000, or
79.1% from 1995. The decline is the result of a substantial reduction of
technical resources by the Company. During the last half of 1995 and through
1996, the Company has reduced its engineering staff and decreased its purchasing
of technical services due to a severe lack of funds. Research and development
expense declined approximately 15% in 1995 from 1994, with all of the decline
coming in the second half of 1995 in connection with the downsizing of the
Company as described above.
Selling, general and administrative expense of $5,608,000 in 1996 declined
$8,344,000, or 59.8%, from 1995. The decline was primarily a result of
significant reductions in selling, marketing and administrative staff and
reductions in the purchasing of various outside services and travel due to the
aforementioned lack of funds. Selling, general and administrative expenses
increased $1,314,000 or 10.4%, in 1995 over 1994. This represented a substantial
increase during the first half of 1995 as a result of a continuation of the
Company's expansion efforts and a decline in the second half in connection with
the downsizing of the Company desribed above.
Interest and financing fees for the year of 1996 were $1,890,000, which was a
decline of $3,842,000, or 67.0% from 1995. Interest and financing fees in 1995
included $3,780,000 of amortized fees associated with the issuance of
$12,000,000 of Series S secured convertible bonds in September 1994. There was
no amortization of fees associated with these bonds in 1996 as all of the fees
were fully amortized by March 1995, the original maturity date of the bonds.
In 1995, interest and financing fees increased 17 times over 1994 to $5,732,000
due to significantly greater borrowings needed to help fund the Company's
aggressive expansion programs. The increase in 1995 was due to a full year of
interest on the $8,980,000 note to Itochu, interest on $12,000,000 of Series S
bonds issued in September 1994, and the amortization of financing fees
associated with these borrowings.
The Company adopted FASB No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets To Be Disposed Of" effective in 1996. In 1996,
the Company reduced the carrying values of certain long-lived assets to their
estimated fair values in connection with the curtailment of the manufacture and
sale of off-road industrial
17
<PAGE>
vehicles. The assets included were part of the Industrial Electric Vehicle
business which was subsequently sold in September 1996. This reduction resulted
in a charge to operations of $680,000. .
The results for 1996 included a provision of $701,000, and the results for 1995
included a provision of $2,378,000, for facility closures, consolidation of
operations and contract terminations as a result of the Company's decision to
close many of its facilities and cancel several contracts due to a severe lack
of funds.
In connection with the settlement of $11.7 million of unsecured trade debt under
the Company's Debt Retructuring Plan, several unsecured creditors agreed to
settle their claims for amounts less than the original debt owed to them. The
reductions from the original amounts owed and the settlement amounts resulted in
a gain on debt restructuring of $2,147,000 in 1996.
As a result of the foregoing changes in net sales, cost of sales, other costs
and expenses and gain on debt restructuring, the net loss of $9,354,000 for the
year decreased $28,211,000 or 74.6% from $37,565,000 in 1995, while the
Company's net loss increased $12,544,000, or 50.1%, from 1994.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Future trends for the Company's revenue and profitability remain difficult to
predict. The Company operates in a rapidly changing and developing market that
involves a number of risks, some of which are beyond the Company's control. In
addition, as previously disclosed in this Form 10-K, the Company's financial
condition remains extremely precarious. The following discussion highlights
certain of these risks.
Going Concern / Net Operating Losses. The Company has experienced recurring
losses from operations and had an accumulated deficit of $76,990,000 at July 31,
1996. There is no assurance, however, that any net operating losses will be
available to the Company in the future as an offset against future profits for
income tax purposes. A substantial portion of the losses are attributable to
product development and other start-up costs associated with the Company's
business focus on the development, production and sale of battery powered
electric vehicles. Cash flows from future operations may not be sufficient to
enable the Company to achieve profitable operations. Market conditions and the
Company's financial position may inhibit its ability to achieve profitable
operations. These factors, as well as others, indicate the Company may be unable
to continue as a going concern unless it is able to obtain significant
additional financing and generate sufficient cash flows to meet its obligations
as they come due and sustain its operations. As of November 5, 1996, the Company
had no firm commitments from any person or entity to provide capital, and there
can be no assurance that additional funds will be available from any source at
the time the Company will need such funds.
Continued Losses. For the fiscal years ended July 31, 1994, 1995 and 1996, the
Company had substantial net losses of $25,021,000, 37,565,000 and $9,354,000,
respectively on sales of $5,787,000, $11,625,000 and $4,209,000, respectively.
Nature of Industry. The electric vehicle ("EV") industry is in its infancy.
Although the Company believes that it has manufactured a significant percentage
of the electric vehicles sold in the United States based upon its own knowledge
of the industry, there are many large and small companies, both domestic and
foreign, now in, poised to enter, or entering this industry. This EV industry is
subject to rapid technological change. Most of the major domestic and foreign
automobile manufacturers (1) have produced design-concept electric vehicles,
and/or (2) have developed improved electric storage, propulsion and control
systems, and/or (3) are now entering or planning to enter the field. Various
non-automotive companies are also developing improved electric storage,
propulsion and control systems. Growth of the present limited demand for
electric vehicles depends upon (a) future regulation and legislation requiring
more use of non-polluting vehicles, (b) the environmental consciousness of
customers and (c) the ability of electric vehicles to successfully compete with
vehicles powered with internal combustion engines on price and performance.
Changed Legislative Climate. Because vehicles powered by internal combustion
engines cause pollution, there has been significant public pressure in Europe
and Asia, and enacted or pending legislation in the United States at the federal
level and in certain states, to promote or mandate the use of vehicles with no
tailpipe emissions ("zero emission vehicles") or reduced tailpipe emissions
("low emission vehicles"). Legislation requiring or promoting zero emission
vehicles is necessary to create a significant market for electric vehicles.
There can be no assurance, however, that further legislation will be enacted or
that current legislation or state imposed mandates will not be repealed or
amended
18
<PAGE>
(as recently occurred in California), or that a different form of zero emission
or low emission vehicle will not be invented, developed and produced, and
achieve greater market acceptance than electric vehicles. Extensions,
modifications or reductions of current federal and state legislation, mandates
and potential tax incentives could adversely affect the Company's business
prospects if implemented.
Item 8. Financial Statements and Supplementary Data
The response to this Item is submitted as a separate section of this Form 10-K.
See Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
19
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information regarding directors and executive officers required by Item
10 is incorporated by reference from the information under the captions
"Election of Directors" and "Directors and Executive Officers" in the Company's
definitive proxy statement for its annual meeting of shareholders to be held in
February 1997.
Item 11. Executive Compensation
The information required by Item 11 is incorporated by reference from the
information under the caption "Executive Compensation and Other Information" in
the Company's definitive proxy statement for its annual meeting of shareholders
to be held in February 1997.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 is incorporated by reference from the
information under the caption "Security Ownership of Certain Beneficial Owners
and Management" in the Company's definitive proxy statement for its annual
meeting of shareholders to be held in February 1997.
Item 13. Certain Relationships and Related Transactions
The information required by Item 13 is incorporated by reference from the
information under the caption "Certain Relationships and Related Transactions"
in the Company's definitive proxy statement for its annual meeting shareholders
to be held in February 1997.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
20
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)1. Financial Statements
The financial statements filed as a part of this report are identified
in the Index to Consolidated Financial Statements on page 23.
(a)2. Financial Statement Schedules
No financial statement schedules are filed as a part of this report.
(a)3. Exhibits
The exhibits filed herewith or incorporated by reference to exhibits
previously filed with the Commission are identified in the Exhibit Index
attached hereto on page E-1. The Company shall furnish copies of exhibits for a
reasonable fee (covering the expense of furnishing copies) upon request.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K with the Commission on September 19, 1996
reporting the sale of substantially all of the assets of its wholly-owned
subsidiary, Industrial Electric Vehicles, Inc. The Company filed a report on
Form 8-K with the Commission on August 20 1996 reporting the execution of a
Memorandum of Understanding with Systronix Corporation for the purchase by the
Company of the assets of Systronix.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf of the undersigned, thereunto duly authorized, on November 5, 1996.
U.S. ELECTRICAR, INC.
By: /s/ Roy Kusumoto
---------------------------------------------
Roy Y. Kusumoto, Chief Executive Officer,
President, and Acting Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints, severally and not jointly, Roy Kusumoto
and Carl D. Perry, with full power to act alone, his true and lawful
attorneys-in-fact, with full power of substitution, and re-substitution, for him
and in his name, place and stead, in any and all capacities, to sign any and all
amendments to the annual report on Form 10-K, and file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact full
power and authority to do and perform each and every act and thing requisite and
necessary to be done as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ Roy Y. Kusumoto President, Chief November 5, 1996
- ---------------------------- Executive Officer,
Roy Y. Kusumoto and Director (Principal
Executive Officer and
Principal Financial
and Accounting Officer).
/s/ Carl D. Perry Executive Vice November 5, 1996
- ---------------------------- President and Director
Carl D. Perry
/s/ James S. Miller Director November 5, 1996
- ----------------------------
James S. Miller
/s/ Malcolm R. Currie, Ph.D. Director November 5, 1996
- ----------------------------
Malcolm R. Currie, Ph.D.
/s/ Edwin O. Riddell Director November 5, 1996
- ----------------------------
Edwin O. Riddell
/s/ David A. Ishag Director November 5, 1996
- ----------------------------
David A. Ishag
22
<PAGE>
- --------------------------------------------------------------------------------
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
INDEPENDENT AUDITOR'S REPORT..............................................F-1
CONSOLIDATED BALANCE SHEETS - JULY 31, 1996 AND 1995......................F-3
CONSOLIDATED STATEMENTS OF OPERATIONS -
YEARS ENDED JULY 31, 1996, 1995 AND 1994.............................F-5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) -
YEARS ENDED JULY 31, 1996, 1995 AND 1994.............................F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS -
YEARS ENDED JULY 31, 1996, 1995 AND 1994.............................F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...............................F-11
- --------------------------------------------------------------------------------
23
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
U. S. Electricar, Inc., and Subsidiaries
We have audited the accompanying consolidated balance sheets of U. S.
Electricar, Inc., and Subsidiaries (Company), as of July 31, 1996 and 1995, and
the related consolidated statements of operations, stockholders' deficit, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The consolidated
statements of operations, stockholders' equity, and cash flows for the year
ended July 31, 1994, were audited by other auditors whose report on those
statements, dated October 17, 1994, included an explanatory paragraph expressing
substantial doubt about the Company's ability to continue as a going concern.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated balance sheets as of July 31, 1996 and 1995,
and the related statements of operations, stockholders' deficit and cash flows
for the years then ended, present fairly, in all material respects, the
financial position of the Company as of July 31, 1996 and 1995, and the results
of its operations and its cash flows for the years then ended, in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 2, the
Company's recurring losses from operations and its inability to generate
sufficient cash flows to sustain operations and meet its obligations, raises
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ MOSS ADAMS LLP
Santa Rosa, California
October 23, 1996, except for Note 3 which is as of October 29, 1996
Page F-1
<PAGE>
PRIOR AUDITOR'S REPORT
The Company has been unable to obtain the consent of their prior auditors,
Deloitte & Touche LLP, to include their auditor's report which was dated October
17, 1994, of the consolidated statements of operations, shareholders' equity
(deficit) and cash flows for the year ended July 31, 1994. The original report
was included in Amendment No. 1 to Form 10 as filed with the Securities and
Exchange Commission on January 27, 1995.
Page F-2
<PAGE>
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share data)
- --------------------------------------------------------------------------------
July 31, 1996 1995
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 13 $ 319
Accounts receivable, net of allowance for
doubtful accounts of $596 and $503 856 1,364
Inventory 2,387 4,832
Prepaids and other current assets 184 375
------- -------
Total current assets 3,440 6,890
PROPERTY, PLANT AND EQUIPMENT 835 3,112
INTANGIBLE ASSETS, net of amortization of $18 in 1995 -- 29
OTHER ASSETS 88 199
------- -------
Total assets $ 4,363 $10,230
======= =======
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
Page F-3
<PAGE>
<TABLE>
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(In thousands, except for share and per share data)
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
July 31, 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 2,868 $ 11,082
Accrued payroll and related expenses 441 410
Accrued warranty reserve 1,156 1,358
Reserve for lease terminations 112 770
Accrued interest 208 1,378
Other accrued expenses 721 1,086
Deferred revenues 250 --
Customer deposits 73 763
Current maturities of long-term debt 7,283 17,370
-------- --------
Total current liabilities 13,112 34,217
-------- --------
LONG-TERM DEBT, less current maturities 3,987 --
-------- --------
ROYALTIES PAYABLE -- 773
-------- --------
STOCKHOLDERS' DEFICIT
Series A preferred stock - no par value; 30,000,000
shares authorized; 4,010,000 and 6,275,000 shares
issued and outstanding in 1996 and 1995, respectively;
liquidating preference $0.60 per share 2,983 5,148
aggregating $5,612 and $3,765, respectively
Series B preferred stock - no par value; 5,000,000 shares
authorized; 1,587,000 shares issued and outstanding 3,175 --
Stock notes receivable (1,061) (987)
Common stock - no par value; 300,000,000 and
100,000,000 shares authorized in 1996 and 1995,
respectively; 120,220,000 and 55,223,000 shares
issued and outstanding in 1996 and 1995 59,157 38,715
Accumulated deficit (76,990) (67,636)
-------- --------
Total stockholders' deficit (12,736) (24,760)
-------- --------
Total liabilities and stockholders' deficit $ 4,363 $ 10,230
======== ========
<FN>
The accompanying notes are an integral part of these financial statements.
- ------------------------------------------------------------------------------------------------------------------
</FN>
</TABLE>
Page F-4
<PAGE>
<TABLE>
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for share and per share data)
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
Years Ended July 31, 1996 1995 1994
------------
<S> <C> <C> <C>
NET SALES $ 4,209 $ 11,625 $ 5,787
COST OF SALES 5,370 20,210 6,372
------------ ------------ ------------
GROSS MARGIN (1,161) (8,585) (585)
------------ ------------ ------------
OTHER COSTS AND EXPENSES
Research and development 1,401 6,697 7,724
Selling, general and administrative 5,608 13,952 12,638
Interest and financing fees 1,890 5,732 339
Other expense 740 449 17
Market development expense -- 77 3,718
Facility closures and consolidation
of operations 701 2,378 --
------------ ------------ ------------
Total other costs and expenses 10,340 29,285 24,436
------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS (11,501) (37,870) (25,021)
GAIN ON DEBT RESTRUCTURING 2,147 305 --
------------ ------------ ------------
NET LOSS $ (9,354) $ (37,565) $ (25,021)
============ ============ ============
PER COMMON SHARE
Loss from continuing operations $ (0.17) $ (1.88) $ (2.61)
Gain on debt restructuring 0.03 0.02 --
------------ ------------ ------------
Net loss per common share $ (0.14) $ (1.86) $ (2.61)
============ ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING 67,905,941 20,156,417 9,571,134
============ ============ ============
<FN>
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------------------------------------
</FN>
</TABLE>
Page F-5
<PAGE>
<TABLE>
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years Ended July 31, 1996, 1995 and 1994
(In thousands)
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PREFERRED STOCK
-------------------------------------
SERIES A SERIES B COMMON STOCK
------------------ --------------- ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ -------- ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 31, 1993 7,434 $ 4,408 -- $ -- 5,839 $ 4,063
PREFERRED STOCK TRANSACTIONS
Private offerings (net of $291 issuance costs) 2,325 2,615 -- -- -- --
Exercise of warrants 875 862 -- -- -- --
Stock for services 34 28 -- -- -- --
Conversion of subordinated debentures 72 42 -- -- -- --
COMMON STOCK TRANSACTIONS
Asset purchase -- -- -- -- 1,000 1,250
Purchase of research company -- -- -- -- 215 269
Purchase of co-owner's interest in joint venture -- -- -- -- 1,060 2,968
Sales under Regulation S Subscription
Agreement (net of $687 issuance costs) -- -- -- -- 3,141 8,320
Sales to ITOCHU Corporation
(net of $361 issuance costs) -- -- -- -- 2,150 5,659
Exercise of warrants and options
(net of $27 issuance costs) -- -- -- -- 632 538
Conversions of Series A preferred stock (1,387) (837) -- -- 1,387 837
Stock for Services -- -- -- -- 57 82
Other stock sales for cash, notes receivable
and conversion of debt -- -- -- -- 37 35
COMPENSATION RECOGNIZED FOR STOCK OPTIONS -- -- -- -- -- 1,551
INTEREST RECOGNIZED FOR STOCK WARRANTS -- -- -- -- -- 80
INTEREST ON STOCK NOTES RECEIVABLE -- -- -- -- -- --
NET LOSS -- -- -- -- -- --
-------- -------- ------ ------ -------- -------
BALANCE, JULY 31, 1994 9,353 7,118 -- -- 15,518 25,652
COMMON STOCK TRANSACTIONS
Excess of fair market value over
exercise price of warrants -- -- -- -- -- 1,920
Sales under Regulation S Subscription
Agreement (net of $171 issuance
costs) for cash -- -- -- -- 9,000 729
Conversion of note payable (net of
$151 issuance costs) -- -- -- -- 13,667 3,949
Conversion of Series S Convertible Bonds -- -- -- -- 13,667 4,100
Cancellation of Stock Note Receivable
(shares held as collateral) -- -- -- -- (450) (180)
Exercise of warrants and options for
cash and notes receivable -- -- -- -- 664 174
Conversions of Series A preferred stock (3,078) (1,970) -- -- 3,078 1,970
Stock for services -- -- -- -- 79 201
COMPENSATION RECOGNIZED FOR STOCK OPTIONS -- -- -- -- -- 200
INTEREST ON STOCK NOTES RECEIVABLE -- -- -- -- -- --
NET LOSS -- -- -- -- -- --
-------- -------- ------ ------ -------- -------
BALANCE, JULY 31, 1995 6,275 5,148 -- -- 55,223 38,715
<FN>
The accompanying notes are an integral part of these financial statements.
- ---------------------------------------------------------------------------------------------------------------
</FN>
</TABLE>
<PAGE>
<TABLE>
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years Ended July 31, 1996, 1995 and 1994
(In thousands)
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
STOCK NOTES ACCUMULATED
RECEIVABLE DEFICIT TOTAL
---------- ------ -----
<S> <C> <C> <C>
BALANCE, JULY 31, 1993 $ (1,000) $ (5,050) $ 2,421
PREFERRED STOCK TRANSACTIONS
Private offerings (net of $291 issuance costs) -- -- 2,615
Exercise of warrants -- -- 862
Stock for services -- -- 28
Conversion of subordinated debentures -- -- 42
COMMON STOCK TRANSACTIONS
Asset purchase -- -- 1,250
Purchase of research company -- -- 269
Purchase of co-owner's interest in joint venture -- -- 2,968
Sales under Regulation S Subscription
Agreement (net of $687 issuance costs) -- -- 8,320
Sales to ITOCHU Corporation
(net of $361 issuance costs) -- -- 5,659
Exercise of warrants and options
(net of $27 issuance costs) -- -- 538
Conversions of Series A preferred stock -- -- --
Stock for Services -- -- 82
Other stock sales for cash, notes receivable
and conversion of debt (14) -- 21
COMPENSATION RECOGNIZED FOR STOCK OPTIONS -- -- 1,551
INTEREST RECOGNIZED FOR STOCK WARRANTS -- -- 80
INTEREST ON STOCK NOTES RECEIVABLE (80) -- (80)
NET LOSS -- (25,021) (25,021)
-------- -------- --------
BALANCE, JULY 31, 1994 (1,094) (30,071) 1,605
COMMON STOCK TRANSACTIONS
Excess of fair market value over
exercise price of warrants -- -- 1,920
Sales under Regulation S Subscription
Agreement (net of $171 issuance
costs) for cash -- -- 729
Conversion of note payable (net of
$151 issuance costs) -- -- 3,949
Conversion of Series S Convertible Bonds -- -- 4,100
Cancellation of Stock Note Receivable
(shares held as collateral) 180 -- --
Exercise of Warrants and options for
cash and notes receivable (16) -- 158
Conversions of Series A preferred stock -- -- --
Stock for services -- -- 201
COMPENSATION RECOGNIZED FOR STOCK OPTIONS -- -- 200
INTEREST ON STOCK NOTES RECEIVABLE (57) -- (57)
NET LOSS -- (37,565) (37,565)
-------- -------- --------
BALANCE, JULY 31, 1995 (987) (67,636) (24,760)
<FN>
The accompanying notes are an integral part of these financial statements.
- ---------------------------------------------------------------------------------------------------------------
</FN>
</TABLE>
Page F-6
<PAGE>
<TABLE>
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT) (Continued)
Years Ended July 31, 1996, 1995 and 1994
(In thousands)
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PREFERRED STOCK
----------------------------------------------
SERIES A SERIES B COMMON STOCK
------------------- ----------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
PREFERRED STOCK TRANSACTION
Conversion of unsecured debt -- -- 1,587 3,175 -- --
COMMON STOCK TRANSACTIONS
Sales under Regulation S subscription
agreement -- -- -- -- 10,670 2,701
Exercise of warrants -- -- -- -- 220 28
Conversion of Series S Bonds and
accrued interest -- -- -- -- 43,214 12,964
Conversion of Series I Bonds and
accrued interest -- -- -- -- 7,913 2,374
Conversion of Series A preferred stock (2,265) (2,165) -- -- 2,265 2,165
Conversion of debt -- -- -- -- 715 210
INTEREST ON STOCK NOTES RECEIVABLE -- -- -- -- -- --
NET LOSS -- -- -- -- -- --
------- ------- ------- ------- ------- -------
BALANCE, July 31, 1996 4,010 $ 2,983 1,587 $ 3,175 120,220 $59,157
======= ======= ======= ======= ======= =======
</TABLE>
STOCK NOTES ACCUMULATED
RECEIVABLE DEFICIT TOTAL
---------- ------- -----
PREFERRED STOCK TRANSACTION
Conversion of unsecured debt -- -- 3,175
COMMON STOCK TRANSACTIONS
Sales under Regulation S subscription
agreement -- -- 2,701
Exercise of warrants -- -- 28
Conversion of Series S Bonds and
accrued interest -- -- 12,964
Conversion of Series I Bonds and
accrued interest -- -- 2,374
Conversion of Series A preferred stock -- -- --
Conversion of debt -- -- 210
INTEREST ON STOCK NOTES RECEIVABLE (74) -- (74)
NET LOSS -- (9,354) (9,354)
-------- -------- --------
BALANCE, July 31, 1996 $ (1,061) $(76,990) $(12,736)
======== ======== ========
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
Page F-7
<PAGE>
<TABLE>
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
Years Ended July 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (9,354) $(37,565) $(25,021)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 968 6,864 1,285
Provision for facility closures
and consolidation of operations 701 770 --
Change in allowance for doubtful accounts 93 44 334
Gain on debt restructuring (2,147) (305) --
Changes in valuation allowances and
reserves (1,449) 2,721 448
Purchase of remaining interest in joint
venture -- -- 3,718
Stock issued for services -- 201 110
Stock option compensation -- 200 1,551
Stock warrant interest accretion -- -- 80
Interest income on stock notes receivable (74) (57) (80)
Accretion on royalties payable -- 65 73
Write-off of development costs and
leasehold improvements 137 733 --
Interest converted to common stock 1,575 -- --
Change in operating assets and liabilities:
Accounts receivable 415 143 (1,260)
Inventory 4,916 (837) (6,078)
Prepaids and other current assets 302 838 (368)
Accounts payable and accrued expenses (27) 8,153 5,667
Deferred revenues 250 -- --
Customer deposits (690) (1,006) 1,615
-------- -------- --------
Net cash used by operating activities (4,384) (19,038) (17,926)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Advances to Systronix Corporation (1,000) -- --
Purchases of property, plant and equipment -- (568) (2,385)
Notes receivable -- -- (300)
Purchase of co-owner's interest in EIL
joint venture -- -- (250)
-------- -------- --------
Net cash used by investing activities (1,000) (568) (2,935)
-------- -------- --------
<FN>
The accompanying notes are an integral part of these financial statements.
- ---------------------------------------------------------------------------------------------------------------
</FN>
</TABLE>
Page F-8
<PAGE>
<TABLE>
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
Years Ended July 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable (259) (282) (2,116)
Borrowings on notes payable 2,608 3,853 10,130
Borrowings on debentures and bonds -- 12,000 42
Notes payable and bonds issuance costs -- (1,860) (500)
Proceeds from issuance of common stock 2,701 900 15,048
Proceeds from issuance of Series A preferred
stock -- -- 2,906
Exercise of options and warrants 28 158 1,427
Stock issuance costs -- (171) (1,366)
-------- -------- --------
Net cash provided by financing activities 5,078 14,598 25,571
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (306) (5,008) 4,710
CASH AND CASH EQUIVALENTS:
Beginning of year 319 5,327 617
-------- -------- --------
End of year $ 13 $ 319 $ 5,327
======== ======== ========
<FN>
The accompanying notes are an integral part of these financial statements.
- ---------------------------------------------------------------------------------------------------------------
</FN>
</TABLE>
Page F-9
<PAGE>
<TABLE>
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
Years Ended July 31, 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUPPLEMENTAL CASH-FLOW INFORMATION:
Cash paid during the year for interest $ 30 $ 106 $ 55
NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Conversion of debt to common stock $ 210 $ 8,049 $ --
Conversion of debt to Series A preferred stock $ -- $ -- $ 42
Conversion of debt to Series B preferred stock $ 3,175 $ -- $ --
Conversion of Series A preferred stock to
common stock $ 2,165 $ 1,970 $ 837
Notes issued in connection with debt
restructuring $ 4,148 $ -- $ --
Excess of fair market value over exercise price
of warrants issued in connection with
convertible bonds $ -- $ 1,920 $ --
Issuance of common stock for notes receivable $ -- $ 16 $ 14
Purchase of research company - issuance of
common stock $ -- $ -- $ 269
Conversion of Series S bonds to common stock 15,338 $ -- $ --
Asset purchase:
Issuance of common stock $ -- $ -- $ 1,250
Minimum royalty liability -- -- 800
------- ------- -------
Fair value of assets purchased $ -- $ -- $ 2,050
======= ======= =======
Purchase of co-owner's interest in EIL joint
venture:
Issuance of common stock $ -- $ -- $ 2,968
Issuance of short-term notes payable -- -- 500
Cash paid -- -- 250
------- ------- -------
Market development expense $ -- $ -- $ 3,718
======= ======= =======
<FN>
The accompanying notes are an integral part of these financial statements.
- ------------------------------------------------------------------------------------------------------------------
</FN>
</TABLE>
Page F-10
<PAGE>
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization - U. S. Electricar, Inc., previously Solar Electric Engineering,
Inc., a California corporation, was incorporated in 1976. In January 1994, the
Company changed its name to U. S. Electricar, Inc. The Company currently
conducts research and development, and produces and sells electric vehicles.
Principles of consolidation - The consolidated financial statements include the
accounts of U. S. Electricar, Inc., and its wholly owned subsidiaries (the
"Company"). Intercompany transactions and balances have been eliminated.
Cash and cash equivalents - The Company considers all highly liquid investments
with a maturity of three months or less to be cash equivalents.
Inventory - Inventory is comprised of electric vehicles, raw materials and
work-in-process. Inventory is stated at market, which is lower than cost.
Property, plant and equipment - Property, plant and equipment are stated at cost
and depreciated using the straight-line method over the estimated useful lives
of the related assets which range from 3 to 7 years. The Company has adopted
Statement of Financial Accounting Standards No. 121 (FAS121), "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." This Statement requires long-lived assets to be reviewed for impairment
whenever events or changes in circumstances indicates the sum of expected cash
flows from use of the asset is less than its carrying value. Additionally,
long-lived assets that management has committed to sell or abandon are reported
at the lower of carrying amount or fair value less cost to sell.
Intangible assets - Acquired deferred development and technology costs and
goodwill arising from previous business combinations were amortized on a
straight-line basis over their expected useful lives of three to five years. The
unamortized balances of these costs were charged to expense when it was
determined there was no future value for the Company's operations.
Warranties - Estimated electric vehicle warranty costs are provided at the time
of sale. Warranties, in general, are extended for one year from time of vehicle
sale.
Income taxes - Deferred income taxes are recognized using enacted tax rates and
reflect the expected future tax consequences of temporary differences between
financial statement carrying amounts and tax bases of existing assets and
liabilities.
Revenue recognition - Revenue from the sale of electric vehicles is recognized
when the vehicle is delivered to the customer.
Net loss per common share - Net loss per common share is based on the weighted
average number of common shares outstanding during the year. Common stock
equivalents have been excluded from the weighted average shares outstanding
since the effect of these potentially dilutive securities would be antidilutive.
- --------------------------------------------------------------------------------
Page F-11
<PAGE>
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Significant estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires the Company to make
estimates and assumptions affecting the reported amounts of assets, liabilities,
revenues and expenses, and the disclosure of contingent assets and liabilities.
Inventory is reported at market value. The inventory valuation adjustment is an
estimate based on the subsequent sale of inventory and the projected impact of
certain economic, marketing and business factors. Warranty reserves and certain
accrued expenses are based on an analysis of future costs expected to be
incurred in meeting contracted obligations. The amounts estimated for the above,
in addition to other estimates not specifically addressed, could differ from
actual results; and the difference could have a significant impact on the
financial statements.
Fair value of financial instruments - The Company measures its financial assets
and liabilities in accordance with generally accepted accounting principles. The
fair value of a financial instrument is the amount at which the instrument could
be exchanged in a current transaction between willing parties. For certain of
the Company's financial instruments, including cash, accounts receivable and
accounts payable, the carrying amount approximates fair value because of the
short maturities. The carrying amount of the Company's short-term and long-term
debt approximates fair value because interest rates available to the Company for
issuance of similar debt with similar terms and maturities are approximately the
same.
Stock-based compensation - The Financial Accounting Standards Board recently
issued Statement of Financial Accounting Standards No. 123 (SFAS 123),
"Accounting for Stock-Based Compensation". This Standard will become effective
for the year ending July 31, 1997, although earlier application is permitted.
The Company has determined that it will implement the new standard in 1997.
Under SFAS 123, a fair value method is used to determine compensation cost for
stock options or similar equity instruments. Compensation is measured at the
grant date and is recognized over the service or vesting period. Under the
current accounting standard, compensation cost is the excess, if any, of the
quoted market price of the stock at a measurement date over the amount that must
be paid to acquire the stock.
The new standard would allow the Company to continue to account for stock-based
compensation under the current standard, with disclosure of the effect of the
new standard, or adopt a fair value based method of accounting. The Company has
not yet decided which method will be utilized, nor has it determined the impact,
if any, that adoption of the new standard will have on the financial condition
and results of operations. However, management believes the effect of the new
accounting standard will not be significant.
NOTE 2 - GOING CONCERN
The Company has experienced recurring losses from operations and use of cash
from operations and had an accumulated deficit of $76,990,000 at July 31, 1996.
A substantial portion of the losses is attributable to research, development and
other start-up costs associated with the Company's development and production of
electric vehicles, including the conversion of gas-powered cars and light trucks
to electric power.
- --------------------------------------------------------------------------------
Page F-12
<PAGE>
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 2 - GOING CONCERN (Continued)
During the three years ended July 31, 1996, the Company obtained approximately
$47 million (net of debt repayments) in cash from financing activities through
private placements of common stock and Series A preferred stock, the exercise of
options and warrants, and the issuance of convertible subordinated notes payable
and secured convertible bonds and notes. During 1996, the Company was successful
in restructuring $11,700,000 of its trade debt, and converting $15,300,000 of
its convertible debt to common stock.
It is management's plan to seek additional financing through private placements
as well as other means. Management believes the additional capital it is seeking
will be available in the future and will enable the Company to achieve sales
growth and, ultimately, profitable operations. As of October 23, 1996, the
Company had no commitments from any person or entity to provide additional
financing to the Company.
The consolidated financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. Cash flows from future operations
may not be sufficient to enable the Company to meet its obligations, and market
conditions and the Company's financial position may inhibit its ability to
achieve profitable operations.
These factors, as well as the future availability or inadequacy of financing to
meet future needs, could force the Company to delay, modify, suspend or cease
some or all aspects of its planned operations, and/or seek protection under
applicable bankruptcy and insolvency laws.
NOTE 3 - ACQUISITIONS
Asset purchase - In October 1993, the Company purchased from Mosler Auto Care
Center, Inc., certain assets including vehicle molds, plugs used to produce
molds, jigs and other assets for use in the development and manufacture of
composite monocoque integrated chassis and body systems for lightweight
vehicles. The Company issued 1,000,000 shares of unregistered common stock
valued at $1,250,000 for the assets and agreed to pay royalties based on one to
three percent of sales of products (cars and vans) in the United States and
Canada which use the composite monocoque technology.
The net present value of the minimum royalty was recorded as a liability as of
the date of acquisition. There was a minimum royalty of $100,000 per year over
fourteen years ($800,000 net present value).
The acquisition of assets was accounted for as a purchase and, accordingly, the
acquired assets and liabilities were recorded at their estimated fair values as
of the date of acquisition. Because the assets acquired were expected to be used
in the research and development of future vehicle lines or used in other
composite monocoque applications, the excess of purchase price over net assets
acquired of $1,466,000 was initially included in intangible assets as deferred
development costs associated with technology acquired and amortized over a
three-year period on a straight-line basis. In addition, the Company entered
into two-year lease agreements with a minimum annual rent of $148,000 for
approximately 33,000 square feet of manufacturing space and certain equipment
located in Florida.
In 1995, the Company closed the Florida facility and charged to expense the
remaining balances in deferred development costs and certain fixed assets not
relocated to its other facilities.
- --------------------------------------------------------------------------------
Page F-13
<PAGE>
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 3 - ACQUISITIONS (Continued)
In 1996, the liability for future royalties was incorporated into the debt
restructuring agreement established under the auspices of the Credit Managers
Association of California (CMAC). The restructured agreement consists of a 20
year note payable of $606,000 and a 3 year note of $17,000 which are both
included in the CMAC notes. (See note 6 for the terms of the CMAC note).
Additionally, the Company paid $76,000 in cash, and approximately $233,000 of
the agreed upon debt was forgiven.
Purchase of a research company - In December 1993, the Company acquired
Livermore Research and Engineering Corporation, a company engaged in the
development and application of computer programs that simulate the effects of
crash testing vehicles, for 215,000 unregistered shares of common stock valued
at $269,000. The full purchase price was included in intangible assets as
software technology associated with computer generated crash testing simulation
models. In 1995, the Company determined there was no further value associated
with the acquired assets and charged the remaining unamortized costs to expense.
Purchase of co-owner's interest in joint venture - In February 1994, the Company
purchased the 60% interest of its co-owner in Electricar International Limited
("EIL"), a joint venture formed in the British West Indies in 1993 to develop
certain international electric vehicle markets for the Company. The Company paid
$250,000 in cash; issued four $250,000 notes bearing interest at 8% per annum,
which were payable in four successive quarters beginning May 1994; and issued
1,000,000 unregistered shares of its common stock. In June 1994, the Company and
its co-owner entered into a subsequent agreement whereby the Company issued
60,000 unregistered shares of its common stock and paid $500,000 in cash as
payment in full, including interest, for the four $250,000 notes. The aggregate
1,060,000 unregistered shares of common stock were valued at $2,968,000. The
total consideration of $3,718,000, after giving retroactive effect for the
subsequent agreement, was recorded effective February 1994. In addition, the
Company issued warrants to purchase 750,000 unregistered shares of its common
stock at $3.50 per share contingent upon successfully completing certain
joint-venture contracts within a two-year period. These warrants expired in
February 1996.
The purpose of EIL was to operate as the international manufacturing and
distribution affiliate of the Company, develop international markets for
electric vehicles, and obtain joint-venture partners with which to research and
develop electric vehicle technologies. No joint ventures have been formed and
EIL has not had any significant operations through July 31, 1996. However,
management believes certain segments of the international electric-vehicle
market are ready to be developed.
In light of the contingent nature of the potential ventures and the
international market, management recorded the total consideration of $3,718,000,
exclusive of the contingent warrants, as market development expense in February
1994.
Asset acquisition subsequent to July 31, 1996 - The Company acquired
substantially all the tangible and intangible assets, and assumed certain
liabilities, of Systronix Corporation (Systronix) on October 25, 1996. Systronix
was a developer of technologically advanced electric propulsion systems for
electric - powered vehicles.
The purchase price, in addition to the assumed liabilities, consisted of a
credit for the $1,020,000 previously advanced to Systronix; an $830,000 secured
note due within 30 days of closing; and 3,800,000 shares of restricted common
stock, with an approximate market value of $0.22 per share at the purchase date.
2,000,000 cashless exercise warrants exercisable at $.30 per share were also
issued pursuant to a finders fee.
- --------------------------------------------------------------------------------
Page F-14
<PAGE>
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 3 - ACQUISITIONS (Continued)
In conjunction with this transaction, the Company has employed substantially all
of the then-existing employees of Systronix Corporation. Pursuant to such
employment, the Company has granted to these employees qualified and
non-qualified stock options under the Company's 1996 Employee and Consultant
Stock Option Plan. The options granted in the aggregate total approximately
10,400,000 options at an exercise price of $.30 per share, subject to various
vesting schedules with all options vested in no less than five years. The Plan
has been approved by the Board of Directors of the Company.
The purchase of Systronix will be reported using the purchase method of
accounting and, accordingly, the purchase price will be allocated to the assets
acquired and liabilities assumed based upon the fair values at the date of
acquisition. It is expected that assets resulting from, or to be used in,
research and development will be allocated a significant portion of the
acquisition cost. Research and development costs that have no alternative future
use will be expensed.
The preliminary estimates are that approximately $2,000,000 may be allocated to
research and development. At July 31, 1996, the $1,015,000 (of the eventual
$1,020,000) that had been advanced to Systronix's throughout the year to help
fund its operations was reported as a receivable, and had been fully reserved
since collectibility of the obligation in the event the eventual purchase was
not consummated was highly questionable. The Company considers the advance as a
down payment for research and development that has no future alternative use,
and has charged the advance against income at July 31, 1996.
NOTE 4 - INVENTORIES
(in thousands) 1996 1995
---- ----
Finished goods $1,000 $2,503
Work-in-process 710 1,566
Raw materials 1,450 4,007
------ ------
3,160 8,076
Less valuation adjustment 773 3,244
------ ------
$2,387 $4,832
====== ======
- --------------------------------------------------------------------------------
Page F-15
<PAGE>
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
(in thousands) 1996 1995
------ ------
Machinery and equipment $2,141 $2,189
Computers 1,186 1,215
Furniture and office equipment 409 409
Demonstration vehicles 257 578
Leasehold improvements 653 790
Automobiles 40 29
------ ------
4,686 5,210
Less accumulated depreciation and amortization 3,171 2,098
Less adjustment for impairment 680 --
------ ------
$ 835 $3,112
====== ======
Subsequent to July 31, 1996, substantially all of the assets of the Company's
subsidiary, Industrial Electrical Vehicles, Inc. were sold. The Company had
previously committed to a plan of action to sell the assets. The impairment
adjustment reflects a reduction in the carrying value to $195,000 based on the
fair value assigned to the long-lived assets at the time of sale. The impairment
loss is included in facility closures expense in the consolidated statements of
operations.
The results of operations associated with those assets impaired and subsequently
sold for the year ended July 31, 1996 were as follows (in thousands):
Revenues $ 2,089
Cost of sales (2,963)
Other operating costs and allowances (1,616)
Debt forgiveness 233
-------
Net loss $(2,257)
=======
- --------------------------------------------------------------------------------
Page F-16
<PAGE>
<TABLE>
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------------------------------------------
NOTE 6 - LONG-TERM DEBT
<CAPTION>
(in thousands except for shares data) 1996 1995
---- ----
<S> <C> <C>
Series S secured convertible bonds, interest at 10%, principal and
interest due March 1997, secured by the personal property of
the parent company; $5,500 was converted to 18,333,000
shares of common stock $3,000 $8,500
Convertible subordinated note - ITOCHU Corporation, interest
at prime rate; converted to 16,267,000 shares of common stock -- 4,880
Convertible secured notes under a Supplemental Loan Agreement
with ITOCHU Corporation, interest at 10%, principal and
interest due April 1997, secured by the personal property of
the parent company 3,000 1,856
Series I secured convertible bonds, interest at 10%, converted to
7,147,000 shares of common stock -- 1,000
Convertible secured note (acquisition of Nordskog); due January
1997, with interest at 9% payable quarterly, secured by
certain machinery and equipment of the subsidiary;
subsequent to July 1996, the assets associated with the
previous acquisition of Nordskog were sold in exchange for
the assumption of this note 1,013 982
Secured promissory note - Credit Managers Association of
California ("CMAC") as exclusive agent for Non-Qualified
Creditors; interest at 3%, with principal and interest due April
1999; secured with an interest in a sinking fund escrow
consisting of 10% of any financing received subsequent to April
1996; the Board of Directors may waive the sinking fund set
aside on a case-by-case basis 95 --
Secured subordinated promissory note - CMAC as exclusive agent
for Qualified Creditors; interest at 3%, with principal and
interest due April 1999; secured with an interest in a sinking
fund escrow as noted above 560 --
</TABLE>
- --------------------------------------------------------------------------------
Page F-17
<PAGE>
<TABLE>
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------------------------------------------
NOTE 6 - LONG-TERM DEBT (Continued)
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Secured subordinated promissory note - CMAC as exclusive agent
for Non-Qualified Creditors; interest at 3% for the first 5 years,
6% for years 6 and 7, and then at prime plus 3% through date of
maturity; interest payments are made upon payment of principal,
with principal and interest due no later than April 2016; secured
with an interest in a sinking fund escrow as noted above;
payments on this note are subordinated to payment in full on all
principal and accrued interest owed on the above 3 year non-
qualified and qualified notes 3,332 --
Convertible secured promissory note, interest at 10%, due November
1996, convertible into common stock at $0.30 a share 100 --
Other 170 152
------- -------
11,270 17,370
Less current maturities 7,283 17,370
------- -------
$ 3,987 $ --
======= =======
</TABLE>
In September 1994, the Company issued 120 units of Series S secured convertible
bonds, totaling $12,000,000, and received proceeds of $10,140,000, net of fees
of $1,860,000. Each of the units consisted of $100,000 in principal and a
warrant to purchase 10,000 common shares. The bonds, which bear interest at 10%,
were initially due in March 1995 and were secured by the personal property of
the parent company, excluding securities of its subsidiary. The Company also
issued additional warrants to purchase 1,200,000 common shares representing
additional issuance fees. The warrants are exercisable through July 1997 at an
exercise price of $3.20 per share. The excess of fair-market value over the
exercise price of the warrants of $1,920,000, and the fees of $1,860,000, was
recorded as debt discount and amortized over the initial period of the bonds. In
March 1995, the Company had neither sufficient funds, nor commitments to receive
sufficient funds, to pay the principal and interest. Subsequently, the Company
negotiated an extension of the bonds' maturity to March 1996; the conversion of
$600,000 of the unpaid interest to principal; and a conversion price for most of
the debt of $0.30 per share. In July 1995, the Company converted $4,100,000 of
the Series S bonds to 13,667,000 shares of common stock at $0.30 per share. In
December 1995, the company converted $210,000 of the Series S secured
convertible bonds to 700,000 shares of common stock at $0.30 per share. In March
1996 accrued unpaid interest of $71,000 on the bonds was added to principal.
Also in March 1996, the Company converted $491,000 of the bonds to 1,638,000
shares of common stock at $0.30 per share. In June 1996, the Company converted
$4,870,000 of the Series S secured convertible bonds to 16,233,000 shares of
common stock at $0.30 per share, and accrued interest of $1,111,000 was
converted to 3,704,000 shares of common stock at $0.30 per share. The maturity
date of the remaining Series S secured convertible bonds was extended to March
1997.
- --------------------------------------------------------------------------------
Page F-18
<PAGE>
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 6 - LONG-TERM DEBT (Continued)
The convertible subordinated note from ITOCHU had an original maturity date of
June 1997, with interest payments due semi-annually. The interest payment of
$331,000 due December 1994 was not paid, causing an event of default. In
February 1995, the Company made a partial interest payment of $25,000. In April
1995, the Company and ITOCHU agreed to accelerate the maturity of the note to
April 1996; and change the conversion price from $5.00 to $0.30 per share. In
July 1995, $4,100,000 of the note was converted to 13,667,000 shares of common
stock at $0.30 per share. In June 1996, the company converted the $4,880,000
balance of the convertible subordinated note from ITOCHU to 16,267,000 shares of
common stock at $0.30 per share, and the accrued unpaid interest of $1,612,000
was converted to 5,372,000 shares of common stock at $0.30 per share.
The Company and ITOCHU Corporation entered into a Supplemental Loan Agreement in
April 1995, whereby ITOCHU agreed to lend the Company amounts equal to funds the
Company receives from other outside lenders or investors, up to $3,000,000, at
10% annual interest. The notes are secured by the personal property of the
parent company and are convertible at $0.30 per share into the Company's common
stock. In July 1995, the Company received $1,856,000 under this agreement, with
principal and interest due April 1996. The Company received the remaining amount
of ITOCHU's commitment of $1,144,000 in August 1995. In March 1996, the maturity
date of these convertible secured notes was extended to April 1997.
In March through May 1995, the Company issued $1,000,000 of Series I secured
convertible bonds to investors. Principal and interest were due March 1996, with
the bonds convertible into the Company's common stock at floating conversion
rates. In August 1995, the Company issued an additional $1,144,000 of Series I
convertible bonds. In March 1996, the maturity date of the Series I secured
convertible bonds was extended to March 25, 1997. In June 1996, the Company
converted the total outstanding balance of the Series I convertible bonds of
$2,144,000 to 7,147,000 shares of common stock at $0.30 per share. In addition,
accrued unpaid interest of $230,000 was converted to 766,000 shares of common
stock at $0.30 per share.
ITOCHU and the Series S and Series I bond holders are obligated to convert the
notes and bonds they hold once (1) a restructuring/repayment workout plan has
been accepted by the unsecured creditors holding 80% of the Company's unsecured
debt, and (2) such plan has been approved by the Company in consultation with
ITOCHU Corporation, or (3) upon ITOCHU Corporation's sole election. In June
1996, having completed the initial phase of the debt restructuring with
acceptance of the workout plan by over 80% of the Company's unsecured creditors,
and in consultation with ITOCHU Corporation, the Company effected the conversion
of $11,900,000 of principal and $2,900,000 of accrued interest into 49,489,000
shares of common stock at the rate of $0.30 per share.
- --------------------------------------------------------------------------------
Page F-19
<PAGE>
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 6 - LONG-TERM DEBT (Continued)
In connection with the acquisition of Nordskog Electric Vehicles, Inc., renamed
Industrial Electric Vehicles, Inc. (IEV), in July 1993, the Company issued a
$1,000,000 secured convertible promissory note due in January 1997, with
interest at 9% annually and payable quarterly. This note was secured by
machinery and equipment owned by IEV. During 1995, the Company sold some of the
machinery and equipment used to secure the note and used the proceeds of $18,000
to pay down the principal. Quarterly interest payments have not been paid,
causing an event of default. The note holder did not exercise any of its
remedies with respect to the acceleration of the principal and interest nor the
collateral securing this note. The full amount of the note was classified as a
current liability in 1995, due to the event of default. In September 1996, the
Company sold the assets of IEV to a group headed by former employees of the
Company. The buyers assumed the liability for the note and the Company was
released from this liability.
In December 1994, the Company entered into a manufacturing agreement with a
vendor whereby the Company agreed to sell to the vendor sufficient inventory to
complete the conversion of 84 sedans and pick-up trucks to electric power and
then to repurchase the completed vehicles upon completion of the manufacturing
process. The selling price was established at a 10% discount from the repurchase
price; and the terms of the agreement gave the vendor a purchase money interest
in inventory. Due to the repurchase agreement, the Company did not account for
this transaction as a sale. The Company initially accrued the difference between
the selling price and repurchase price as interest expense. However, the
interest expense accrual was later reversed by the Company as a result of an
amendment to the agreement in July 1995, which eliminated the price difference
and required only the refund to the vendor of the net amount of money paid to
the Company under the agreement. During 1995, the vendor paid the Company
$867,000, and the Company paid the vendor $64,000--for a difference of $803,000,
which was recorded as an account payable. Under the July 1995 amendment, and
separate from the debt restructuring process, a portion of anticipated proceeds
from future sales of unsold vehicles in which the vendor had a purchase money
interest was to be paid to the vendor; and the vendor was to ratably release its
interest in such vehicles as they were sold until the $803,000 was fully repaid.
At July 31, 1996, approximately $364,000 remains unpaid and is included in
accounts payable.
In April 1996, and as amended in July 1996, the Company issued two promissory
notes, due April 1999, for $256,000 and $560,000, and one promissory note due
April 2016 for $3,332,000, to the Credit Managers Association of California
("CMAC") as the exclusive agent for certain unsecured creditors who settled with
the Company in connection with its Debt Restructuring Plan. Payments of $161,000
have been made on the secured promissory note.
NOTE 7 - LEASE COMMITMENTS
In November 1995, the Company moved its administrative offices from Santa Rosa,
California and entered into a three-year lease, expiring October 1998, for
administrative offices at its new location in South San Francisco. The lease
provides for an early termination by the Company during the period August 1996
to December 1996, and again in October 1997. Minimum annual lease payments will
be $99,000, $107,000 and $27,000 for the years ending July 31, 1997, 1998, and
1999, respectively.
- --------------------------------------------------------------------------------
Page F-20
<PAGE>
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 8 - INCOME TAXES
As of July 31, 1996, the Company has available for carryforward approximately
$71 million and $26 million of net operating losses for federal and California
income tax purposes, respectively.
The Tax Reform Act of 1986 and the California Conformity Act of 1987 impose
restrictions on the utilization of net operating losses in the event of an
"ownership change" as defined by Section 382 of the Internal Revenue Code of
1986. An "ownership change" occurred at the time of the private placement
memorandums in 1991 and 1992, at the time of the common and preferred stock
issuances in 1993, and upon conversion of certain debt to equity in 1995 and
1996. This change will limit future availability of net operating loss
carryforwards. The extent of the limitation has not been determined.
The following table summarizes the components of the net deferred tax assets (in
thousands):
1996 1995
---- ----
Deferred tax assets
Federal tax loss carryforward $21,797 $18,708
State tax loss carryforward 2,346 2,002
Basis difference in EIL 1,610 1,610
Accumulated depreciation 439 113
Stock option compensation 595 572
Reserves and allowances 38 262
Other, net 393 462
Amortization of goodwill -- 4
------- -------
27,218 23,733
Less valuation allowance 27,218 23,733
------- -------
Net deferred tax asset $ -- $ --
======= =======
A valuation allowance is required for those deferred tax assets that are not
likely to be realized. Realization is dependent upon future earnings during the
period that temporary differences and carryforwards are expected to be
available. Because of the uncertain nature of their ultimate utilization, based
upon the Company's past performance, a full valuation allowance is recorded
against these deferred tax assets.
- --------------------------------------------------------------------------------
Page F-21
<PAGE>
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 8 - INCOME TAXES (Continued)
The net operating losses expire in varying amounts, as follows, for income tax
reporting purposes:
Net Operating Loss
---------------------------------
Date of expiration Federal California
------------------ -------- ----------
1996 $ 58,000 $ 161,000
1997 125,000 558,000
1998 130,000 1,806,000
1999 124,000 1,715,000
2000 51,000 16,730,000
2001 44,000 4,541,000
2002 11,000 --
2003 64,000 --
2004 322,000 --
2005 443,000 --
2006 680,000 --
2007 2,552,000 --
2008 24,221,000 --
2009 33,460,000 --
2010 9,083,000 --
----------- -----------
$71,368,000 $25,511,000
=========== ===========
NOTE 9 - STOCKHOLDERS' DEFICIT
Series A preferred stock - During 1993, stockholders authorized 30,000,000
shares of Series A preferred stock. Series A preferred stock is currently
unregistered and convertible into common stock on a one-to-one basis, at the
election of the holder, or automatically upon the occurrence of certain events,
including: sale of stock in an underwritten public offering; registration of the
underlying conversion stock; or the merger, consolidation or sale of more than
50% of the Company. Holders of Series A preferred stock have the same voting
rights as common stockholders. The stock has a liquidation preference at $0.60
per share plus any accrued and unpaid dividends in the event of voluntary or
involuntary liquidation of the Company. Dividends are non-cumulative and payable
at the annual rate of $0.036 per share if, when, and as declared by, the Board
of Directors. No dividends have yet been declared on the Series A preferred
stock.
In July 1993, the Board of Directors approved a plan for the sale of shares of
Series A preferred stock to certain officers and directors ("Participants") at
$0.60 per share. In general, the Participants could purchase these shares for a
combination of cash, promissory notes payable to the Company, and conversion of
debt and deferred compensation due to the Participants. All shares issued under
this plan are pledged to the Company as security for the notes. The notes
provide for interest at 8% per annum payable annually with the full principal
amount and any unpaid interest due on January 31, 1997.
- --------------------------------------------------------------------------------
Page F-22
<PAGE>
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 9 - STOCKHOLDERS' DEFICIT (Continued)
Between August 1993, and January 1994, the Company completed a private offering
of units at $25,000 per unit. Each unit consisted of 20,000 unregistered shares
of Series A preferred stock and warrants to purchase 10,000 unregistered shares
of common stock exercisable at $1.25 per share through December 1993, and then
exercisable at $2.00 through June 1995, which was the original expiration date
of the warrants. In 1995, expiration of the warrants was extended to June 1996,
and the exercise price reduced to $0.30 per share until January 1, 1996, at
which time the exercise price reverts to $2.00 per share. An aggregate of
2,325,000 shares of Series A preferred stock and 1,150,000 warrants to purchase
common stock were issued resulting in proceeds, net of issuance costs, of
$2,615,000.
During 1994, 875,000 shares of Series A preferred stock were issued for cash
equal to the exercise prices ($0.75 to $1.00 per share) of warrants to purchase
common stock, which were surrendered, resulting in proceeds of $862,000.
Further, 34,000 shares of Series A preferred stock were issued in consideration
of $28,000 of services provided by employees and consultants.
A total of 2,264,000, 3,078,355 and 1,387,000 shares of Series A preferred stock
were converted on a one-to-one basis to common stock during 1996, 1995 and 1994,
respectively.
Series B preferred stock - In January 1996, stockholders authorized 5,000,000
shares of Series B preferred stock. Series B preferred stock is currently
unregistered and each share is initially convertible into 6.66 shares of common
stock at the election of the holder. The Series B preferred stock has certain
liquidation and dividend rights prior and in preference to the rights of the
common stock and Series A preferred stock.
In April 1996, the Company issued 1,507,000 shares of Series B preferred stock,
plus a note for $532,000, in settlement of claims of $3,547,000 under the debt
restructuring plan. In July 1996, an additional 80,000 shares of Series B
preferred stock and a note for $28,000 were issued in settlement of an
additional $189,000 of claims.
Common stock - In October 1993, the Company issued 1,000,000 unregistered shares
of common stock valued at $1,250,000 related to the purchase of certain assets
from Mosler Auto Care Center, Inc.
(See Note 3.)
In December 1993, the Company issued 215,000 unregistered shares of common stock
valued at $269,000 related to the purchase of Livermore Research and Engineering
Corporation. (See Note 3.)
In February 1994, the Company issued 1,000,000 unregistered shares of common
stock and subsequently issued an additional 60,000 unregistered shares of common
stock with an aggregate value of $2,968,000 related to the purchase of the
remaining interest in Electricar International Limited.
(See Note 3.)
Between February and June 1994, the Company sold 2,500,000 unregistered shares
of its common stock at $2.80 per share, and an additional 500,000 unregistered
shares of common stock at $3.20 per share, pursuant to a Regulation S
Subscription Agreement. In connection with this offering, under Regulation D,
one investor purchased 110,000 unregistered shares of common stock at $2.80 per
share and another investor purchased 31,000 unregistered shares of common stock
at $3.20 per share. These transactions resulted in proceeds, net of issuance
costs, of $8,320,000. The shares sold in this offering have certain registration
rights.
- --------------------------------------------------------------------------------
Page F-23
<PAGE>
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 9 - STOCKHOLDERS' DEFICIT (Continued)
In June 1994, the Company and ITOCHU Corporation entered into agreements whereby
ITOCHU purchased 2,150,000 shares of unregistered common stock for $6,020,000,
and loaned $8,980,000 to the Company under an unsecured subordinated note
convertible into the Company's common stock at $5.00 per share. ITOCHU has
certain registration rights for the shares purchased, and the shares would be
issued upon conversion of the note. In addition, ITOCHU and the Company have
agreed to exchange certain rights and obligations with respect to international
trade and to the formation of international business ventures in the electric
vehicle industry under a related Strategic Alliance Agreement.
In connection with this transaction, the Company paid $361,000 of issuance costs
associated with the shares of common stock purchased, and $500,000 of issuance
costs associated with the subordinated note, which was being amortized over the
life of the note. In April 1995, the Company and ITOCHU agreed to reduce the
conversion price of the unsecured subordinated note from $5.00 to $0.30 per
share. Subsequently, in July 1995, $4,100,000 of the note was converted to
13,667,000 shares of common stock and $151,000 of unamortized issuance costs
associated with the converted amount of the note was transferred to common
stock. In June 1996, the $4,880,000 note balance was converted to 16,267,000
shares of common stock, and $1,612,000 of accrued interest was converted to
5,372,000 shares of common stock.
Warrants and options to purchase 220,000, 664,000 and 632,000 unregistered
shares of common stock were exercised at prices ranging from $0.25 to $2.00 per
share, resulting in proceeds, net of issuance costs, of $28,000, $174,000 and
$538,000 in 1996, 1995 and 1994, respectively.
During 1994, the Company issued 57,000 unregistered shares of common stock
valued at $82,000 in consideration for services rendered, and sold 37,000
unregistered shares of common stock for cash of $21,000 and a nonrecourse note
of $14,000. During 1995, the Company issued 79,000 unregistered shares of common
stock valued at $201,000 in consideration for services rendered.
In June and July 1995, the Company sold 9,000,000 unregistered shares of its
common stock at $0.10 per share pursuant to a Regulation S Subscription
Agreement resulting in net proceeds of $729,000.
In July 1995, $4,100,000 of the Series S secured convertible bonds issued in
September 1994 were converted, at $0.30 per share, to 13,667,000 shares of
common stock. In December 1995, the Company converted $210,000 of the bonds to
700,000 shares of common stock at $0.30 per share. In March 1996, the Company
issued 1,638,000 shares of common stock to convert $491,000 of principal and
accrued interest of the Series S secured convertible bonds at $0.30 per share of
common stock. In June 1996, the Company converted $4,870,000 of Series S bonds
and $1,111,000 of accrued interest to 16,233,000 and 3,704,000 shares,
respectively, of common stock at $0.30 per share.
In September 1994, common stock was credited $1,920,000 for the excess of the
fair-market value over the exercise price of warrants issued in connection with
the sale of the Series S secured convertible bonds.
In May 1995, 450,000 shares of common stock were canceled in connection with the
cancellation of a $180,000 non-recourse note from a participant in the Company's
stock purchase plan, which allowed certain officers and directors to purchase
Series A preferred stock. The common stock canceled was converted from
previously issued Series A preferred stock under this plan.
- --------------------------------------------------------------------------------
Page F-24
<PAGE>
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 9 - STOCKHOLDERS' DEFICIT (Continued)
Between December 1995 and April 1996, the Company sold 3,333,000 unregistered
shares of its common stock at $0.15 per share and an additional 7,337,000
unregistered shares at $0.30 per share pursuant to the Regulation S Subscription
Agreement. These transactions resulted in proceeds of $2,701,000.
The shares sold in this offering have certain registration rights.
In June 1996, the Company converted all of the outstanding balance of $2,144,000
of Series I convertible bonds to 7,147,000 shares of common stock at $0.30 per
share. The accrued interest on these bonds of $230,000 was also converted to
766,000 shares of common stock at $0.30 per share.
NOTE 10 - STOCK OPTIONS AND WARRANTS
In 1993, stockholders approved the 1993 Employee and Consultant Stock Plan (the
"1993 Plan") which expires in 2003. Under the 1993 Plan, the Company reserved
10,000,000 shares of common stock for incentive and nonstatutory stock options
as of July 31, 1993. The Company increased the number of shares of common stock
reserved under the 1993 Plan to 15,000,000 in November 1993 and to 30,000,000 in
September 1995. Options under the 1993 Plan expire over periods not to exceed
ten years from date of grant. Options which expire or are canceled may become
available for future grants under the 1993 Plan. In addition, the Company grants
other nonstatutory stock options.
In 1994, stockholders approved the 1994 Director Stock Option Plan (the
"Director Option Plan"). Under this plan, the Company has reserved 150,000
shares of common stock for nonstatutory stock options for nonemployee directors.
Options under this plan are fully vested upon the granting of the options and
expire ten years from the date of grant unless terminated sooner upon
termination of the optionee's status as a director. Options which expire or are
canceled may become available for future grants under the Director Option Plan.
In April 1996, the Company, together with Systronix Corporation, entered into an
agreement with Hyundai Motor Company ("Hyundai") which provided Systronix with
two contracts to perform engineering services and which granted Hyundai the
right to either purchase common stock in the Company or enter into a multi-year
licensing agreement to utilize electric vehicle technology owned by Systronix.
Upon the payment by Hyundai of $250,000 to the Company in July 1996, Hyundai was
granted an option to purchase 12,000,000 shares of common stock at $0.467 per
share. This option expires on March 1, 1997. Upon the full exercise of the stock
purchase option, the Company and Systronix will grant to Hyundai a manufacturing
and distribution license to a proprietary drive train system. If Hyundai decides
not to exercise the stock purchase option, the Company and Systronix will grant
a manufacturing and distribution license system to Hyundai for $1,500,000 plus
royalties equivalent to 4% of Hyundai's procurement cost beginning with systems
sold in the year 2000. The royalty will be reduced to 3% in 2004 and to 2% in
2008, with no royalty due after 2012. The $250,000 option payment will be
applied toward the purchase of the stock or the manufacture and distribution
license if either occurs before March 1, 1997.
- --------------------------------------------------------------------------------
Page F-25
<PAGE>
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 10 - STOCK OPTIONS AND WARRANTS (Continued)
<TABLE>
The following table summarizes common stock option activity (shares in
thousands):
<CAPTION>
Director
1993 Plan Option Plan Other
------------------ --------------------- --------------------
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance, August 1, 1993 9,910 $ 0.60 -- $ -- 2,055 $ .60-.87
Granted 5,177 .60-5.00 7 6.88 1,043 .75-3.00
Canceled (605) .60-2.80 -- -- (924) .60
Exercised -- -- -- -- (10) .87
Expired -- -- -- -- (95) .75
------ ---- ------
Balance, July 31, 1994 14,482 .60-5.00 7 6.88 2,069 .60-3.00
Granted 8,126 .40-2.97 17 .24-5.88 -- --
Canceled (4,916) .60-2.97 (8) .24-5.88 -- --
Exercised (13) .60-1.25 -- -- -- --
Expired (784) .60-2.80 -- -- -- --
------ ---- ------
Balance, July 31, 1995 16,895 .60-5.00 16 .24-6.88 2,069 .60-3.00
Granted 11,415 0.30 13 0.20 -- --
Canceled (10,034) .60-2.97 -- -- -- --
Exercised -- -- -- -- -- --
Expired (1,007) .60-2.97 (9) .71-6.88 (574) .60-2.80
------ ---- ------
Balance, July 31, 1996 17,269 .30-5.00 20 .20-6.88 1,495 .60-2.80
====== ==== ======
</TABLE>
The Company recorded $200,000 and $1,551,000 as compensation expense during 1995
and 1994, respectively, for the difference between the quoted market price and
the exercise price of options at dates of grant amortized over the service
period related to such options.
Warrants in amounts of 1,122,000 in 1991 and 1992, 1,000,000 in 1993, 1,150,000
in 1994 and 2,400,000 in 1995 were issued in conjunction with private placements
of debentures, common stock and bonds. Warrants relating to the 1991 and 1992
private placements are exercisable at the lower of $1.00 or 125% of the market
value of the Company's common stock at date of exercise. The warrants relating
to the 1993 private placement were initially exercisable at $1.25 per share
through December 31, 1994, and $2.00 per share through June 30, 1995, the
expiration date of the warrants. On February 1, 1995, the expiration date was
extended to June 30, 1996, and the exercise price was lowered to $0.30 per share
through December 31, 1995, and then $2.00 through June 30, 1996. In connection
with the purchase of the Company's co-owner's interest in EIL, a joint venture
(Note 3), 750,000 warrants exercisable at $3.50 per share were issued. In 1994,
267,000 warrants exercisable at $3.00 and, in 1995, 20,000 warrants exercisable
at $2.00 were issued in connection with pledges of collateral made by certain
stockholders for bank lines of credit (Note 6). In September 1994, the Company
issued warrants to purchase 2,400,000 common shares representing fees for the
issuance of Series S convertible secured bonds (Note 6). The exercise price of
these warrants is $3.20 per share.
- --------------------------------------------------------------------------------
Page F-26
<PAGE>
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 10 - STOCK OPTIONS AND WARRANTS (Continued)
In May 1996, the Company issued 13,333,000 warrants in exchange for services
performed. The warrants are exercisable at $0.30 per share for an equal number
of shares of common stock, and expire on May 1, 1997. If the market value of the
common stock of the Company is equal to or greater than $0.60 per share on the
date of exercise, and if the average trading volume was in excess of 100,000
shares per day for the preceding 20 trading days, the warrants may be exercised
without payment of cash. The warrants may not be exercised in the United States,
and the stock purchased may not be delivered to the United States unless first
registered under the Securities Act or receive an available exemption from
registration.
<TABLE>
The following table summarizes warrant activity (in thousands):
<CAPTION>
Purchase
of
1991 & Co-owner's
1992 1993 1994 Interest Bank Series S
Private Private Private in Joint Lines of Bond
Placements Placement Placement Venture Credit Placement Other
------------- ----------- ----------- ------------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
August 1, 1993 1,122 1,000 -- -- -- -- --
Granted -- -- 1,150 750 267 -- 247
Expired (100) -- -- -- -- -- --
Exercised (730) (325) (297) -- -- -- (147)
Canceled -- -- -- -- (134) -- --
------- ------- ------- ------- ------- ------- -------
Balance,
July 31, 1994 292 675 853 750 133 -- 100
Granted -- -- -- -- 20 2,400 100
Expired -- (25) -- -- -- -- (25)
Exercised (1) (650) -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Balance,
July 31, 1995 291 -- 853 750 153 2,400 175
Granted -- -- -- -- -- -- 13,333
Expired (291) -- (853) -- -- -- (175)
Exercised -- -- -- -- (153) -- --
Canceled -- -- -- (750) -- (220) --
------- ------- ------- ------- ------- ------- -------
Balance,
July 31, 1996 -- -- -- -- -- 2,180 13,333
======= ======= ======= ======= ======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
Page F-27
<PAGE>
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 11 - CONTINGENCIES
In connection with the Company's default on its debt obligations to unsecured
creditors, nineteen of these creditors have brought independent lawsuits to
various courts in California, Connecticut, North Carolina and New York in the
aggregate amount of approximately $650,000. As of October 23, 1996, nine of the
unsecured creditors have obtained judgments against the Company in the aggregate
amount of approximately $450,000. The remaining suits are pending. In addition,
in 1995 four former officers of the Company have threatened actions against the
Company for damages as a result of its failure to pay severance pay under
certain employment contracts in the aggregate amount of $377,000. To date no
actions have been filed.
The Company is also subject to other legal proceedings and claims that have
arisen during the period of restructuring both its debt and operations. The
ultimate resolution of these proceedings is not known, but the final outcomes
are not expected to significantly influence the Company's current financial
position.
NOTE 12 - SUBSEQUENT EVENTS
A substantial portion of the assets of Industrial Electric Vehicles, Inc.,
(formerly Nordskog Electric Vehicles, Inc. (Nordskog), prior to its acquisition
in July 1993 by the Company), were sold in September 1996. Consideration for
this sale included the assumption of the note payable that totaled $1,013,000 at
July 31, 1996 to Nordskog.
As discussed at Note 3, the Company acquired substantially all the assets and
certain liabilities of Systronix Corporation for cash, notes and stock totaling
approximately $2,686,000.
- --------------------------------------------------------------------------------
Page F-28
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
================================================================================
3.1(1) Certificate of Amendment of Articles of Incorporation, filed
1/12/94, changing name to U.S. Electricar, Inc.
3.2(1) Certificate of Correction to Amended and Restated Articles of
Incorporation, filed 8/23/93, correcting number of shares of Series
A Preferred stock to 30,000,000.
3.3(1) Amended and Restated Articles of Incorporation, filed 7/26/93,
changing number of authorized Common Stock shares to 60,000,000 and
Preferred Stock shares to 35,000,000, authorizing 3,000,000 Series
A Convertible Preferred Stock shares and establishing rights,
preferences, privileges and restrictions of Series A Preferred
stock.
3.4(1) Amended and Restated Articles of Incorporation, filed 12/29/89,
changing number of authorized Common Stock shares to 20,000,000 and
authorizing 10,000,000 shares of Preferred Stock.
3.5(1) Certificate of Amendment of Articles of Incorporation, filed
3/3/83, authorizing reverse stock split.
3.6(1) Certificate of Amendment of Articles of Incorporation, filed
10/21/81, increasing authorized Common Stock shares to 80,000,000.
3.7(1) Certificate of Amendment of Articles of Incorporation, filed
8/24/79, increasing authorized Common Stock shares to 40,000,000.
3.8(1) Certificate of Amendment of Articles of Incorporation, filed
6/27/79, changing name to Solar Electric Engineering, Inc.
3.9(1) Certificate of Amendment of Articles of Incorporation of Clover
Solar Corporation, Inc., dated 5/9/79, filed 5/17/79, changing name
to Solar Electric Eng., Inc., and increasing authorized Common
Stock shares to 20,000,000 and authorizing a 1/10 Common Stock
split.
3.10(1) Certificate of Amendment of Articles of Incorporation of Clover
Solar Corporation, Inc., dated 2/21/77, filed 3/15/77, increasing
authorized Common Stock shares to 2,000,000, and authorizing a 1/10
Common Stock split.
3.11(1) Articles of Incorporation of Clover Solar Corporation, Inc.
3.12(1) Bylaws of Registrant.
3.13(4) Certificate of Amendment of Restated and Amended Articles of
Incorporation of U.S. Electricar, Inc., filed February 1, 1995,
whereby the number of shares of common stock authorized to issue
was changed from 60,000,000 shares to 100,000,000 shares.
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
================================================================================
3.14(4) Certificate of Correction of Certificate of Amendment of Restated
and Amended Articles of Incorporation of U.S. Electricar, Inc.,
filed February 10, 1995, whereby the total number of shares of
Preferred Stock designated as Series A convertible Preferred Stock
was corrected to 30,000,000.
3.15(8) Restated and Amended Articles of Incorporation of U.S. Electricar
filed March 18, 1996.
4.1(1) Specimen Common Stock Certificate.
4.2(1) Specimen Series A Preferred Stock Certificate.
4.3(1) Articles of Incorporation Provision Defining Rights of Series A
Preferred Stock.
4.4(4) Form of Solar Electric Engineering, Inc. Subscription Agreement
(regarding April 1993 Private Placement Offering).
4.5(1) Form of Solar Electric Engineering, Inc. Common Stock and Warrants
to Purchase Common Stock Subscription Agreement (regarding
September 1993 Private Placement Offering).
4.6(1) Form of Solar Electric Engineering, Inc. Registration Rights
Agreement (regarding September 1993 Private Placement Offering).
4.7(1) Form of U.S. Electricar, Inc. Subscription Purchase Agreement
(regarding January 1994 Reg S Private Placement Offering).
4.8(1) Form of U.S. Electricar, Inc. S-1 Registration Rights Agreement
(regarding January 1994 Reg S Private Placement Offering).
4.9(1) Form of U.S. Electricar, Inc. Amended S-1 Registration Rights
Agreement (regarding January 1994, Reg S Private Placement
Offering).
4.10(1) Amendment to U.S. Electricar, Inc. Amended S-1 Registration Rights
Agreement, dated November 23, 1994 (regarding January 1994 Reg S
Private Placement Offering).
4.11(1) Letter dated August 8, 1994 from U.S. Electricar, Inc., regarding
registration rights for shares of Common Stock held by Mark
Neuhaus.
4.12(1) Shareholders' Agreement: ITOCHU Corporation, dated June 9, 1994.
4.13(1) Form of U.S. Electricar, Inc. Subscription and Loan Agreement
(regarding September 1994 Reg S Private Placement Offering).
4.14(1) Form of U.S. Electricar, Inc. Secured Convertible Bond to Purchase
Common Stock (regarding September 1994 Reg S Private Placement
Offering).
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
================================================================================
4.15(1) Form of U.S. Electricar, Inc. Security Agreement (regarding
September 1994 Reg S Private Placement Offering).
4.16(1) Form of U.S. Electricar, Inc. Warrant to Purchase Common Stock
(regarding September 1994 Reg S Private Placement Offering).
4.17 Cashless Exercise Warrants dated October 25, 1996 issued to Fontal
International, Ltd.
10.1(1) Amendment of Solicitation/Modification of Contract (dated December
15, 1992, between Nordskog Electric Vehicles and the General
Services Administration).
10.2(1) Common Stock Purchase Agreement (dated July 30, 1993, among Solar
Electric Engineering, Inc., Vehicles Holding Company, Inc.,
Nordskog Electric Vehicles and Elinor Nordskog).
10.3(1) Convertible note issued in connection with the purchase of Nordskog
Electric Vehicles.
10.4(1) Amendment to Common Stock Purchase Agreement (dated July 30, 1993,
among U.S. Electricar, Inc. (formerly Solar Electric Engineering,
Inc.), Industrial Electric Vehicles, Inc. (formerly Nordskog
Electric Vehicles), Vehicles Holding Company, Inc., and Elinor
Nordskog).
10.5(1) Asset Purchase Agreement (dated October 31, 1993, among Solar
Electric Engineering, Inc., U.S. Electricar Consulier, Inc., Mosler
Auto Care Center, Inc., Consulier Engineering, Inc., and Warren B.
Mosler).
10.6(3) International Distribution Agreement (dated September 10, 1993,
among Solar Electric Asia Limited, Solar Electric Engineering, Inc.
and Electric Motor Car Company, Limited).
10.7(3) Amendment to International Distribution Agreement (dated February
15, 1994).
10.8(1) Stock Purchase Agreement (dated December 31, 1993, among Bruce E.
Engelmann and Robert G. Whirley and Solar Electric Engineering,
Inc.).
10.9(1) Stock Purchase Agreement (dated February 17, 1994, among U.S.
Electricar, Inc., Energy Resources Limited, EV Resources, Ltd.,
Windlass Holdings, Ltd. and Electric Motor Car Company, Limited).
10.10(1) Form of U.S. Electricar, Inc. Promissory Note (dated February 17,
1994).
10.11(1) Warrant to Purchase Common Stock (dated February 17, 1994, granted
to Energy Resources Limited).
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
================================================================================
10.12(1) Agreement for the Electric & Hybrid Electric Vehicle Technology &
Infrastructure Program (EVTI) dated as of 11/24/93 between
Calstart, Inc. and Solar Electric Engineering, Inc.
10.13(1) Codding Bank Revolving Line of Credit Promissory Note.
10.14(1) Letter Confirming Transfer of Solar Home to Earth Options Institute
by Solar Electric Engineering, Inc. (dated December 9, 1992).
10.15(1) Form of Stock Option Agreement under 1993 Employee and Consultant
Stock Plan.
10.16(1) Form of Solar Electric Engineering, Inc. 1993 Employee and
Consultant Stock Plan.
10.17(1) Form of U.S. Electricar, Inc. 1994 Director Stock Option Plan.
10.18(1) Form of Solar Electric Engineering, Inc. Warrant Issued in
Connection with 1992 Private Placement Offering.
10.19(1) Compensation Deferral and Debt Conversion Agreement (Ted D.
Morgan).
10.20(1) Secured, Partially Nonrecourse Promissory Note (Ted D. Morgan).
10.21(1) Pledge Agreement (Ted D. Morgan).
10.22(1) Compensation Deferral and Debt Conversion Agreement (John
Billington).
10.23(1) Secured, Partially Nonrecourse Promissory Note (John Billington).
10.24(1) Pledge Agreement (John Billington).
10.25(1) Compensation Deferral and Debt Conversion Agreement (Harold
Robinson).
10.26(1) Secured, Nonrecourse Promissory Note (Harold Robinson).
10.27(1) Pledge Agreement (Harold Robinson).
10.28(1) Compensation Deferral and Debt Conversion Agreement (Michael
Chobotov).
10.29(1) Secured, Partially Nonrecourse Promissory Note (Michael Chobotov).
10.30(1) Pledge Agreement (Michael Chobotov).
10.31(1) Compensation Deferral and Debt Conversion Agreement (David
Brandmeyer).
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
================================================================================
10.32(1) Secured, Partially Nonrecourse Promissory Note (David Brandmeyer).
10.33(1) Pledge Agreement (David Brandmeyer).
10.34(1) Secured, Partially Nonrecourse Promissory Note (James Miller).
10.35(1) Pledge Agreement (James Miller).
10.36(1) Employment Agreement: John J. Micek III (dated January 31, 1994).
10.37(1) Employment Agreement: David Brandmeyer (dated November 1, 1992).
10.38(1) Employment Agreement: Ted D. Morgan (dated November 1, 1992).
10.39(1) Employment Agreement: John A. Billington (dated November 1, 1992).
10.40(1) Employment Agreement: Thomas A. Hakel (dated January 10, 1994).
10.41(1) Employment Agreement: Carl D. Perry (dated July 5, 1993).
10.42(1) Employment Agreement: Michael V. Chobotov (dated July 1, 1993).
10.43(1) Employment Agreement: Robert Garzee (dated July 1, 1993).
10.44(1) Employment Agreement: James B. Boyd (dated April 25, 1994).
10.45(1) Employment Agreement: Chris Crispel (dated July 11, 1994).
10.46(1) Letter Consulting Agreement: Harold H. Robinson.
10.47(1) Nordskog Electric Vehicles New Vehicles One-Year Limited Warranty.
10.48(3) Purchase Order (from U.S. Electricar, Inc. to GM Hughes Electronics
Co. dated December 16, 1993).
10.49(3) Purchase Order (from U.S. Electricar, Inc. to Hawker Energy
Products dated March 11, 1994).
10.50(1) Commercial Lease (dated November 7, 1992, between Daniel and Robbin
Davis and Solar Electric Engineering, Inc.).
10.51(1) Sublease (dated March 16, 1994, between Custodis-Ecodyne, Inc. and
U.S. Electricar, Inc.).
10.52(1) Sublease (dated March 16, 1994, between Custodis-Ecodyne, Inc. and
U.S. Electricar, Inc.).
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
================================================================================
10.53(1) Standard Industrial Lease - Net (dated March 11, 1994 between U.S
Electricar, Inc. and Dixie J. Walker and R. Ruth Waltenspeil).
10.54(1) Standard Industrial Lease - Multi-Tenant (dated January 20, 1993,
between Solar Electric Engineering, Inc. and Roberts Business Park
- Sunrise).
10.55(1) Standard Industrial Lease - Multi-Tenant (dated May 11, 1994,
between U.S. Electricar, Inc. and Roberts Business Park - Sunrise).
10.56(1) Lease (dated March 4, 1994, between Warren B. Mosler and U.S.
Electricar Consulier, Inc.).
10.57(1) Standard Industrial/Commercial Single-Tenant Lease - Net (dated
July, 1993, between Elinor T. Nordskog, Elinor T. Nordskog as
Executor of the estate of Robert A. Nordskog, Gerald C. Nordskog,
Carla M. Wales, and Solar Electric Engineering, Inc.).
10.58(3) Joint Venture Agreement (dated as of July 16, 1993 between Solar
Electric Engineering, Inc. and Energy Resources Limited).
10.59(1) Assignment of Deposit Account (Grantor: Jean Schulz, dated January
28, 1994).
10.60(1) Assignment of Deposit Account (Grantor: Ronald A. Nelson, dated
January 28, 1994).
10.61(1) Assignment of Deposit Account (Grantor: James S. Miller, dated
January 28, 1994).
10.62(1) Assignment of Deposit Account (Grantor: Harold H. Robinson, III,
dated January 28, 1994).
10.63(1) Form of Indemnification Agreement.
10.64(1) Negotiated Agreement For Services: High Technology Development
Corporation, an Agency of the Department of Business, Economic
Development and Tourism, State of Hawaii, dated March 1, 1994.
10.65(1) Loan Agreement: ITOCHU Corporation, dated June 9, 1994.
10.66(1) Convertible Subordinated Promissory Note: ITOCHU Corporation, dated
June 10, 1994.
10.67(1) Common Stock Purchase Agreement: ITOCHU Corporation, dated June 9,
1994.
10.68(1) Strategic Alliance Agreement: ITOCHU Corporation, dated June 9,
1994.
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
================================================================================
10.69(1) Form of Settlement Agreement between U.S. Electricar, Inc. and Mark
Neuhaus.
10.70(1) Agency Agreement between U.S. Electricar, Inc. and Yorkton
Securities, Inc. (dated September 23, 1994).
10.71(1) Business Venture Agreement between U.S. Electricar, Inc. and Grupo
Industrial Casa, S.A. de C.V. (dated August 11, 1994).
10.72(2) First Amendment to Business Venture Agreement between U.S.
Electricar, Inc. and Grupo Industrial Casa, S.A. de C.V. (dated
December 20, 1994).
10.73(3) License/Collaboration Agreement dated as of July 22, 1994 between
U.S. Electricar, Inc. and The Regents of the University of
California, LLNL.
10.74(4) Second Amendment to Business Venture Agreement, dated February 1,
1995, by and between U.S. Electricar, Inc. and Grupo Industrial
Casa, S.A. de C.V.
10.75(5) Letter dated May 23, 1995 to U.S. Electricar, Inc. from Grupo
Industrial Casa, S.A. de C.V.
10.76(5) Form of Security Agreement dated effective March 30, 1995, by and
among U.S. Electricar, Inc. and the Series I Bond Holders.
10.77(5) Form of Secured Convertible Loan Purchase Agreement, dated
effective March 20, 1995, by and between U.S. Electricar, Inc. and
Investors in Secured Convertible 10% Series I Bonds of the Company.
10.78(5) Form of Secured Convertible 10% Series I Bond to Purchase Common
Stock, dated as of April 21, 1995.
10.79(5) Memorandum dated May 18, 1995 to Itochu Corporation, Citibank
(Switzerland), and Gerlach & Co. re: Amendment to Conversion Terms
of Outstanding Debt.
10.80(5) Supplemental Loan Agreement, entered into as of April 13, 1995, by
and between U.S. Electricar, Inc. and Itochu Corporation.
10.81(5) First Amendment to Loan Agreement entered into as of April 13,
1995, by and between U.S. Electricar, Inc. and Itochu Corporation.
10.82(5) Security Agreement dated April 13, 1995, by and between U.S.
Electricar, Inc. and Itochu Corporation.
10.83(5) Convertible Secured Promissory Note dated April 17, 1995, in the
amount of $500,000 by U.S. Electricar, Inc. to Itochu Corporation.
10.84(5) Amendment to Security Agreement made as of May 31, 1995, by and
between Itochu Corporation and U.S. Electricar, Inc.
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
================================================================================
10.85(5) Form of Security Agreement made as of May 31, 1995, between the
Company and Credit Managers Association of California, Trustee.
10.86(5) Form of Common Stock Purchase and Debt Exchange Agreement dated
March 20, 1995, between the Company and Citibank (Switzerland) and
Citibank (Luxembourg).
10.87(6) Standard Industrial/Commercial Multi-Tenant Lease - Gross (dated
September 29, 1995, between U.S. Electricar, Inc. and Salvatore and
Irene Bisagno).
10.88(6) Lease Agreement (dated as of November 1, 1995, between U.S.
Electricar, Inc. and OB-1 Associates).
10.89(6) Form of Secured Convertible Loan Purchase Agreement dated effective
as of August 7, 1995 (including (i) form of Secured Convertible 10%
Series I Bond to Purchase Common Stock, and (ii) form of Security
Agreement), by and between U.S. Electricar, Inc. and Investors in
Secured Convertible 10% Series I Bonds.
10.90(7) Common Stock Purchase Agreement pursuant to Regulation S between
the Company and Gerlach & Co., dated January 8, 1996.
10.91(7) Form of Confidential Private Placement Memorandum and Debt
Restructuring Disclosure Statement of U.S. Electricar, Inc., dated
January 2, 1996, delivered by the Company to its certain unsecured
trade creditors (including exhibits).
10.92(7) Form of Stock Purchase, Note and Debt Exchange Agreement dated
January 2, 1996 between the Company and certain unsecured trade
creditors.
10.93(8) Regulation S Common Stock Subscription Agreement dated May 1, 1996,
with Gerlach & Co.
10.94 Hyundai Agreement
10.95 Agreement for Purchase and Sale of Assets, effective October 25,
1996, by and between U.S. Electricar, Inc. and Systronix
Corporation, and exhibits.
10.96 U.S. Electricar 1996 Employee and Consultant Stock Option Plan.
10.97(9) Agreement for the Purchase and Sale of Assets, effective September
5, 1996, by and between Industrial Electric Vehicles, Inc., U.S.
Electricar, Inc., and Legend Electric Vehicles, Inc.
11 Statement Re: Computation of per share earnings.
21(1) Subsidiaries of the Registrant.
24 Power of Attorney (included on signature page)
27 Financial Data Schedule.
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
================================================================================
- ----------------------------
(1) Incorporated by reference to identically numbered exhibits filed
with the Registration Statement on Form 10 filed on November 29,
1994.
(2) Incorporated by reference to identically numbered exhibits filed
with the Amendment No. 1 to Form 10 filed on January 27, 1995.
(3) Incorporated by reference to identically numbered exhibits filed
with the Amendment No. 2 to Form 10 filed on February 28, 1995.
(4) Incorporated by reference to identically numbered exhibits filed
with the Form 10-Q filed on March 17, 1995.
(5) Incorporated by reference to identically numbered exhibits filed
with the Form 10-Q filed on June 14, 1995.
(6) Incorporated by reference to identically numbered exhibits filed
with the Form 10-K for the year ended July 31, 1995, filed on
October 30, 1995.
(7) Incorporated by reference to identically numbered exhibits filed
with the Form 10-Q filed on March 18, 1996.
(8) Incorporated by reference to the identically numbered exhibit filed
with the Form 10-Q filed on June 14, 1996.
(9) Incorporated by reference to Exhibit No. 10.87 filed with the Form
8-K filed on September 19, 1996.
EI
WARRANT
THE SECURITIES REPRESENTED BY OR UNDERLYING THIS INSTRUMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
APPLICABLE STATE SECURITIES LAWS AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES
ONLY AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION
THEREOF. THE SECURITIES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION AND QUALIFICATION WITHOUT AN OPINION OF COUNSEL FOR THE
HOLDER, CONCURRED IN BY COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION AND
QUALIFICATION ARE NOT REQUIRED.
THE SECURITIES REPRESENTED BY OR UNDERLYING THIS INSTRUMENT ARE SUBJECT TO
RESTRICTIONS ON TRANSFER PURSUANT TO REGULATION S PROMULGATED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED
OR HYPOTHECATED EXCEPT PURSUANT TO THE PROVISIONS UNDER REGULATION S OR PURSUANT
TO REGISTRATION UNDER SUCH ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH
REGISTRATION.
THE WARRANTS AND WARRANT SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), AND (i) THE WARRANTS AND THE WARRANT SHARES
MAY NOT BE EXERCISED, OFFERED OR SOLD BY OR ON BEHALF OF U.S. PERSONS, (ii) THE
WARRANTS MAY NOT BE EXERCISED IN THE UNITED STATES AND (iii) THE WARRANT SHARES
MAY NOT BE DELIVERED IN THE UNITED STATES UNLESS, IN EACH CASE, THERE IS A
REGISTRATION STATEMENT IN EFFECT COVERING THE WARRANTS AND WARRANT SHARES OR
THERE IS AVAILABLE AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT.
THE SECURITIES REPRESENTED BY OR UNDERLYING THIS INSTRUMENT ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER SET FORTH IN THAT CERTAIN OCTOBER 25, 1996
SUBSCRIPTION AGREEMENT BETWEEN THE ORIGINAL HOLDER HEREOF AND THE COMPANY.
No. Series C-11
500,000 Shares
CASHLESS EXERCISE WARRANT TO PURCHASE COMMON STOCK
U.S. ELECTRICAR, INC., a California corporation (the "Corporation"),
hereby grants to FONTAL INTERNATIONAL LTD. (the "Holder"), the right to purchase
from the Corporation five hundred thousand (500,000) shares of the common stock
of the Corporation (the "Warrant Shares"), subject to the terms and conditions
set forth below. This Warrant is one of a duly authorized series of Warrants of
the Corporation (which Warrants are identical except for the variations
necessary to express the name of the Holder and number of "Warrant Shares"),
which Warrants together are designated "Series C Warrants" acquired pursuant to
the terms and conditions set forth in that certain October 25, 1996 Subscription
Agreement (the Subscription Agreement").
1. Term. This Warrant may be exercised at any time after the date
hereof through October 25, 1997 (the "Exercise Period").
<PAGE>
2. Purchase Price. The purchase price for each share of the
Corporation's common stock purchasable hereunder shall be Thirty Cents ($0.30),
subject to adjustment as provided in Section 8 below (the "Warrant Exercise
Price").
3. Exercise of Warrant. This Warrant may be exercised in whole or in
part (except for a cashless exercise which shall require exercise in full) , but
not for less than one hundred thousand (100,000) Warrant Shares (or such lesser
number of Warrant Shares as may at the time of exercise constitute the maximum
number exercisable) and in excess of 100,000 Warrant Shares in increments of
10,000 Warrant Shares. It is exercisable, subject to the satisfaction of
applicable securities laws, at any time during the Exercise Period by the
surrender of the Warrant to the Corporation at its principal office together
with the Notice of Exercise annexed hereto duly completed and executed on behalf
of the Holder, accompanied by payment in full of the amount of the aggregate
purchase price of the Warrant Shares in immediately available funds, except if
exercised under the cashless exercise option as provided below. The Corporation
agrees that the Warrant Shares so purchased shall be issued as soon as
practicable thereafter, and that the Holder shall be deemed the record owner of
such Warrant Shares as of and from the close of business on the date on which
this Warrant shall be surrendered, together with payment in full as required
above. It shall be a condition to the exercise of this Warrant that the Holder
or any transferee hereof certify to the Corporation, at the time of exercise,
either that he or it is not a U.S. Person (as defined in Regulation S under the
Securities Act of 1933, as amended (the "Securities Act") and that this Warrant
is not being exercised on behalf of a U.S. Person, or to provide an opinion of
counsel that the Warrant and the Warrant Shares to be delivered upon exercise
thereof have been registered under the Securities Act or that an exemption from
the registration requirements of the Securities Act is available. It shall be a
further condition to the exercise of this Warrant that the Warrant may not be
exercised in the United States and the Warrant Shares may not be delivered to
the United States absent registration under the Securities Act or an available
exemption from registration.
4. Cashless Exercise Option. Notwithstanding the foregoing, if on the
date of exercise the "Fair Market Value" of one Warrant Share is equal to or
greater than twice the Warrant Exercise Price and during the preceding 20
trading days prior to the date of exercise under this Warrant the average
trading volume was in excess of 100,000 shares per day, then in lieu of
exercising this Warrant for cash, the Holder may elect to receive Warrant Shares
equal to the value of this Warrant (or equal to the value of the portion of the
Warrant Shares thereof being cancelled) which shall be that number of Warrant
Shares equal to the quotient obtained by dividing (Z) the product obtained when
(i) the number of Warrant Shares being exercised/cancelled under this Warrant is
multiplied by (ii) the value of one Warrant Share for which this Warrant is
being cancelled on the exercise date (determined by subtracting the Warrant
Exercise Price for one Warrant Share on the exercise date from the "Fair Market
Value" (as hereinafter defined) of one Warrant Share on the exercise date) by
(ZZ) the Warrant Exercise Price for one Warrant Share on the exercise date
illustrated as follows:
X = Y(A-B)
------
B
Where X = the number of Warrant Shares to be issued to Holder
Y = the number of Warrant Shares being exercised/cancelled under this
Warrant
A = the "Fair Market Value" of one Warrant Share on the date of
exercise
B = Exercise Price on the date of exercise
Fair Market Value of one share of a Warrant Share shall mean:
-2-
<PAGE>
a. If the Corporation's Common Stock is listed on a national securities
exchange or is quoted on the National Association of Securities Dealers, Inc.
Automated Quotation/ National Market System (NASDAQ/NMS), then the average price
of all of the closing or last sales prices, respectively, reported for the
twenty (20) trading days immediately preceding the exercise date.
b. If the Corporation's Common Stock is not listed on a national
securities exchange or quoted on NASDAQ/NMS, but is traded in the
over-the-counter market, then the average price of all of the mean prices
between the closing bid and asked prices of the Corporation's publicly traded
stock as listed and traded on the NASDAQ electronic bulletin board during the
twenty (20) trading days immediately preceding the exercise date.
In the event of a cashless exercise, the entire Warrant must be
surrendered, and no new Warrant shall be issued. In no event shall a cashless
exercise entitle the Holder to exercise more than the Warrant Shares set forth
on page 1 of this Warrant, less any number previously exercised.
5. Warrant Confers No Rights of Shareholder. The Holder shall not have
any rights as a shareholder of the Corporation with regard to the Warrant Shares
prior to actual exercise resulting in the purchase of the Warrant Shares.
6. Holder Representations and Warranties. The Holder represents and
warrants to the Corporation that:
a. Purchase For Own Account/Regulation S. The Holder
understands that neither this Warrant nor the Warrant Shares issuable upon the
exercise of this Warrant have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), or any state securities laws, by reason of a
specific exemption from the registration provisions of the Securities Act which
depends upon, among other things, the bona fide nature of the investment as
expressed herein. The Holder is acquiring this Warrant for investment for its
own account, and not with a view to, or for resale in connection with, any
distribution thereof, and it has no present intention of selling or distributing
this Warrant. The Holder agrees that any Warrant Shares issuable upon exercise
of this Warrant will be acquired for investment for its own account, and not
with a view to, or for resale in connection with, any distribution thereof, and
such Warrant Shares will not be registered under the Securities Act and
applicable state securities laws and that such Warrant Shares may have to be
held indefinitely unless they are subsequently registered or qualified under the
Securities Act and applicable state securities laws or, based on an opinion of
counsel reasonably satisfactory to the Corporation, an exemption from such
registration and qualification is available. The Holder further understands that
the Corporation is relying on the rules and regulations governing offers and
sales made outside the United States to non-"U.S. Persons" pursuant to
Regulation S under the Securities Act. The Holder, by acceptance hereof,
consents to the placement of the following restrictive legends, or similar
legends, on each certificate to be issued to the Holder by the Corporation in
connection with the issuance of such Warrant Shares:
-3-
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY
STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR
HYPOTHECATED UNLESS (A) THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR LAWS COVERING SUCH SECURITIES, OR (B) THE HOLDER
RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THE SECURITIES
SATISFACTORY TO THE CORPORATION, STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND THE QUALIFICATION
REQUIREMENTS UNDER APPLICABLE STATE LAW.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER PURSUANT TO REGULATION S PROMULGATED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED EXCEPT PURSUANT TO THE PROVISIONS UNDER
REGULATION S OR PURSUANT TO REGISTRATION UNDER SUCH ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION.
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO CERTAIN RESTRICTIONS
ON TRANSFER SET FORTH IN THAT CERTAIN MAY 1, 1996 [Don, review]
INVESTMENT BANKING AGREEMENT BETWEEN THE ORIGINAL HOLDER HEREOF AND THE
COMPANY.
b. Access to Data. The Holder has had an opportunity to
discuss the Corporation's business, management and financial affairs with its
management and to obtain any additional information which the Holder has deemed
necessary or appropriate for deciding whether or not to purchase this Warrant
and the Warrant Shares, including the information provided or otherwise
disclosed under the Subscription Agreement. The Holder acknowledges that no
other representations or warranties, oral or written, have been made by the
Corporation or any agent thereof except as set forth in this Agreement.
c. No Fairness Determination. The Holder is aware that no
federal, state or other agency has made any finding or determination as to the
fairness of the investment, nor made any recommendation or endorsement of this
Warrant or the Warrant Shares.
d. Knowledge And Experience. The Holder has such knowledge and
experience in financial and business matters, including investments in other
start-up companies, that it is capable of evaluating the merits and risks of the
investment in this Warrant and the Warrant Shares, and it is able to bear the
economic risk of such investment. Further, the Holder has such knowledge and
experience in financial and business matters that he is capable of utilizing the
information made available to him in connection with the offering of this
Warrant and the Warrant Shares, of evaluating the merits and risks of an
investment in this Warrant and the Warrant Shares and of making an informed
investment decision with respect to this Warrant and the Warrant Shares.
-4-
<PAGE>
e. Limited Public Market. The Holder is aware that there is
currently a very limited "over-the-counter" public market for the Corporation's
registered securities and that the Corporation became a "reporting issuer" under
the Securities Exchange Act of 1934, as amended, on January 27, 1995. There is
no guarantee that a more established public market will develop at any time in
the future. The Holder understands that this Warrant and the Warrant Shares are
all unregistered and may not presently be sold in even this limited public
market. The Holder understands that this Warrant and the Warrant Shares cannot
be readily sold or liquidated in case of an emergency or other financial need.
The Holder has sufficient liquid assets available so that the purchase and
holding of this Warrant and the Warrant Shares will not cause it undue financial
difficulties.
g. Investment Experience. The Holder is an "accredited
investor" as that term is defined in Regulation D promulgated by the Securities
and Exchange Commission. The term "accredited investor" under Regulation D
refers to:
(1) A person or entity who is a director or executive officer of the
Corporation;
(2) Any bank as defined in Section 3(a)(2) of the Securities Act, or
any savings and loan association or other institution as defined in
Section 3(a)(5)(A) of the Securities Act whether acting in its
individual or fiduciary capacity; any broker or dealer registered
pursuant to Section 15 of the Exchange Act; insurance company as
defined in Section 2(13) of the Securities Act; investment company
registered under the Investment Company Act of 1940; or a business
development company as defined in Section 2(a)(48) of that Act; Small
Business Investment Company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small Business
Investment Act of 1958; any plan established and maintained by a state,
its political subdivisions, or any agency or instrumentality of a state
or its political subdivisions for the benefit of its employees, if such
plan has total assets in excess of $5,000,000; employee benefit plan
within the meaning of the Employee Retirement Income Security Act of
1974, if the investment decision is made by a plan fiduciary, as
defined in Section 3(21) of such Act, which is either a bank, savings
and loan association, insurance company, or registered investment
adviser, or if the employee benefit plan has total assets in excess of
$5,000,000 or, if a self-directed plan, with investment decision made
solely by persons that are accredited investors;
(3) Any private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
(4) Any organization described in Section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring this
Warrant or the Warrant Shares, with total assets in excess of
$5,000,000;
(5) Any natural person whose individual net worth, or joint net worth
with that person's spouse, at the time of his purchase exceeds
$1,000,000;
-5-
<PAGE>
(6) Any natural person who had an individual income in excess of
$200,000 during each of the previous two years or joint income with
that person's spouse in excess of $300,000 in each of those years and
has a reasonable expectation of reaching the same income level in the
current year;
(7) Any trust, with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring this Warrant or the Warrant
Shares, whose purchase is directed by a person who has such knowledge
and experience in financial and business matters that he is capable of
evaluating the merits and risks of the prospective investment; or
(8) Any entity in which all of the equity owners are accredited
investors.
As used in this Section 6(g), the term "net worth" means the excess of
total assets over total liabilities. For the purpose of determining a
person's net worth, the principal residence owned by an individual
should be valued at fair market value, including the cost of
improvements, net of current encumbrances. As used in this Section
6(g), "income" means actual economic income, which may differ from
adjusted gross income for income tax purposes. Accordingly, the
undersigned should consider whether it should add any or all of the
following items to its adjusted gross income for income tax purposes in
order to reflect more accurately its actual economic income: Any
amounts attributable to tax-exempt income received, losses claimed as a
limited partner in any limited partnership, deductions claimed for
depletion, contributions to an IRA or Keogh retirement plan, and
alimony payments.
h. Restrictions On Transfer Re Regulation S.
(1) Not A "U.S. Person." The Holder hereby certifies
that (i) it is not a "U.S. Person" as defined under Rule 902, Section (o) of
Regulation S promulgated under the Securities Act (a copy of which is attached
hereto as Schedule 2) and is not acquiring this Warrant or the Warrant Shares
for the account or benefit of any U.S. Person, and (ii) it is acquiring this
Warrant and the Warrant Shares in an "offshore transaction" as defined under
Section (i) of such Rule 902 (a copy of which is attached hereto as Schedule 3).
(2) Transfer Restrictions. The Holder shall not
attempt to have registered any transfer of this Warrant or the Warrant Shares
not made in accordance with the provisions of Regulation S. In addition to any
other restrictions on transfer set forth in this Warrant, the Holder agrees to
transfer this Warrant or the Warrant Shares only (i) in accordance with the
provisions of Regulation S, pursuant to registration under the Securities Act,
or pursuant to an available exemption from registration, and (ii) in accordance
with any applicable state securities laws. Unless so registered or exempt
therefrom, such transfer restrictions shall include but not be limited to and
the Holder warrants and represents the following:
(i) The Holder shall not sell this Warrant
or the Warrant Shares publicly or privately, or through any short sale, or other
hedging transaction to any U.S. Person, whether directly or indirectly, or for
the account or benefit of any such U.S. Person for the restrictive period
mandated by Regulation S after the purchase of this Warrant or the Warrant
Shares, as applicable, unless registered or exempt from registration;
-6-
<PAGE>
(ii) Any other offer or sale of this Warrant
or the Warrant Shares shall be made only if (A) during the restrictive period
any subsequent purchaser certifies in writing that it is not a U.S. Person and
is not acquiring this Warrant or the Warrant Shares for the account or benefit
of any U.S. Person, or (B) after the restrictive period this Warrant and the
Warrant Shares are purchased in a transaction that did not require registration
under the Securities Act and applicable Blue Sky laws; and
(iii) Any transferee of this Warrant or the
Warrant Shares shall agree in writing to resell this Warrant or the Warrant
Shares, as applicable, only in accordance with the provisions of Regulation S,
pursuant to registration under the Securities Act, or pursuant to an available
exemption from registration.
(3) Restrictions On Resales In the United States. The
Holder understands and acknowledges that the Securities Act prohibits resales of
securities in the United States except pursuant to an effective registration
statement or an exemption from registration for which the securities and the
Holder holding such securities qualifies. The Holder understands and
acknowledges the requirements for qualifying for an exemption from registration
afforded by Section 4 of the Securities Act and that there can be no assurance
that the Holder will be able to qualify for such an exemption from registration.
7. Reservation of Shares. The Corporation agrees at all times during
the Exercise Period to have authorized and reserved, for the exclusive purpose
of issuance and delivery upon exercise of this Warrant, a sufficient number of
shares of its common stock to provide for the exercise of the rights represented
hereby.
8. Adjustment for Re-Classification of Capital Stock. If the
Corporation at any time during the Exercise Period shall, by subdivision,
combination or re-classification of securities, change any of the securities to
which purchase rights under this Warrant exist under the same or different
number of securities of any class or classes, this Warrant shall thereafter
entitle the Holder to acquire such number and kind of securities as would have
been issuable as a result of such change with respect to the Warrant Shares
immediately prior to such subdivision, combination, or re-classification. If
shares of the Corporation's common stock are subdivided into a greater number of
shares of common stock, the purchase price for the Warrant Shares upon exercise
of this Warrant shall be proportionately reduced and the Warrant Shares shall be
proportionately increased; and conversely, if shares of the Corporation's common
stock are combined into a smaller number of common stock shares, the price shall
be proportionately increased, and the Warrant Shares shall be proportionately
decreased.
9. Public Offering Lock-Up. For a period of up to one-hundred-eighty
(180) days (the "Stand-off Period"), Holder shall not if requested by the
Corporation at any time in contemplation of a public registration, sell, pledge
or otherwise transfer any Warrant Shares (or any other shares exchanged
therefor). Notwithstanding the foregoing, the Corporation may exercise this
public offering lock-up only one time.
10. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by
the
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<PAGE>
Corporation of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of any Warrant or stock certificate, and in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
it, and upon reimbursement to the Corporation of all reasonable expenses
incidental thereto, and upon surrender and cancellation of such Warrant or stock
certificate, if mutilated, the Corporation will make and deliver a new Warrant
or stock certificate of like tenor and dated as of such cancellation, in lieu of
this Warrant or stock certificate.
11. Assignment. The Holder of this Warrant shall not assign or transfer
this Warrant or any of the Warrant Shares without the transferee meeting the
suitability requirements set forth in Section 6 (above) and without the consent
of the Corporation and in compliance with applicable state and federal
securities laws. In giving its consent, the Corporation may request an opinion
of counsel reasonably acceptable to it that such transfer is in compliance with
all applicable state and federal securities laws.
12. Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of California applicable to contracts
between California residents entered into and to be performed entirely within
the State of California.
13. Notices. Any notice required or permitted under this Warrant shall
be given in writing and shall be deemed effectively given upon personal delivery
to the party to be notified by hand or professional courier service or for
mailings from and to any address in North America (Canada, United States and
Mexico) five (5) days after deposit with the United States Post Office, by
registered or certified mail, postage prepaid and addressed to the party to be
notified at the address indicated for such party in the Subscription Agreement,
or at such other address as such party may designate by ten (10) days' advance
written notice to the other parties.
14. Attorneys' Fees. If any action at law or in equity is necessary to
enforce or interpret the terms of this Warrant, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and disbursements in addition to
any other relief to which such party may be entitled.
15. Amendments. Any terms of this Warrant may be amended with the
written consent of the Corporation and the holders of Series C Warrants
representing not less than 67% of the shares of Common Stock issuable upon
exercise of all Series C Warrants.
Dated: October 25, 1996 U.S. ELECTRICAR, INC.
By: /s/ Roy Kusumoto
---------------------------
Roy Y. Kusumoto, President
-8-
<PAGE>
NOTICE OF EXERCISE
To: U.S. ELECTRICAR, INC.
(1) The undersigned hereby elects to purchase __________ shares of
Common Stock of Electricar, Inc., pursuant to the terms of the attached Warrant,
and tenders herewith payment of the purchase price for such shares in full.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of Common Stock are being acquired solely for the
account of the undersigned and not as a nominee for any other party, for
investment, and that the undersigned will not offer, sell or otherwise dispose
of any such shares of Common Stock except under circumstances that will not
result in a violation of the Securities Act of 1933, as amended (the "Securities
Act"), including, but not limited to, Regulation S promulgated thereunder, or
any state securities laws.
(3) The undersigned hereby certifies that either (i) the undersigned is
not a U.S. Person (as such term is defined in Regulation S under the Securities
Act), or (ii) the undersigned has delivered to the Corporation an opinion of
counsel to the effect that this Warrant and the Warrant Shares to be delivered
upon exercise thereof have been registered under the Securities Act or an
exemption from such registration is available.
(4) The undersigned further certifies that this Warrant is not being
exercised in the United States and understands and agrees that the Warrant
Shares may not be delivered to the United States absent registration under the
Securities Act or an available exemption from such registration.
(5) Please issue a certificate representing said shares of Common Stock
in the name of the undersigned.
(6) Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned.
___________________________
(Name)
_________________ ___________________________
(Date) (Signature)
-9-
<PAGE>
WARRANT
THE SECURITIES REPRESENTED BY OR UNDERLYING THIS INSTRUMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
APPLICABLE STATE SECURITIES LAWS AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES
ONLY AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION
THEREOF. THE SECURITIES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION AND QUALIFICATION WITHOUT AN OPINION OF COUNSEL FOR THE
HOLDER, CONCURRED IN BY COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION AND
QUALIFICATION ARE NOT REQUIRED.
THE SECURITIES REPRESENTED BY OR UNDERLYING THIS INSTRUMENT ARE SUBJECT TO
RESTRICTIONS ON TRANSFER PURSUANT TO REGULATION S PROMULGATED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED
OR HYPOTHECATED EXCEPT PURSUANT TO THE PROVISIONS UNDER REGULATION S OR PURSUANT
TO REGISTRATION UNDER SUCH ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH
REGISTRATION.
THE WARRANTS AND WARRANT SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), AND (i) THE WARRANTS AND THE WARRANT SHARES
MAY NOT BE EXERCISED, OFFERED OR SOLD BY OR ON BEHALF OF U.S. PERSONS, (ii) THE
WARRANTS MAY NOT BE EXERCISED IN THE UNITED STATES AND (iii) THE WARRANT SHARES
MAY NOT BE DELIVERED IN THE UNITED STATES UNLESS, IN EACH CASE, THERE IS A
REGISTRATION STATEMENT IN EFFECT COVERING THE WARRANTS AND WARRANT SHARES OR
THERE IS AVAILABLE AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT.
THE SECURITIES REPRESENTED BY OR UNDERLYING THIS INSTRUMENT ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER SET FORTH IN THAT CERTAIN OCTOBER 25, 1996
SUBSCRIPTION AGREEMENT BETWEEN THE ORIGINAL HOLDER HEREOF AND THE COMPANY.
No. Series C-12
1,500,000 Shares
CASHLESS EXERCISE WARRANT TO PURCHASE COMMON STOCK
U.S. ELECTRICAR, INC., a California corporation (the "Corporation"),
hereby grants to FONTAL INTERNATIONAL LTD. (the "Holder"), the right to purchase
from the Corporation one million five hundred thousand (1,500,000) shares of the
common stock of the Corporation (the "Warrant Shares"), subject to the terms and
conditions set forth below. This Warrant is one of a duly authorized series of
Warrants of the Corporation (which Warrants are identical except for the
variations necessary to express the name of the Holder and number of "Warrant
Shares"), which Warrants together are designated "Series C Warrants" acquired
pursuant to the terms and conditions set forth in that certain October 25, 1996
Subscription Agreement (the Subscription Agreement").
1. Term. This Warrant may be exercised at any time after the date
hereof through October 25, 1997 (the "Exercise Period").
<PAGE>
2. Purchase Price. The purchase price for each share of the
Corporation's common stock purchasable hereunder shall be Thirty Cents ($0.30),
subject to adjustment as provided in Section 8 below (the "Warrant Exercise
Price").
3. Exercise of Warrant. This Warrant may be exercised in whole or in
part (except for a cashless exercise which shall require exercise in full) , but
not for less than one hundred thousand (100,000) Warrant Shares (or such lesser
number of Warrant Shares as may at the time of exercise constitute the maximum
number exercisable) and in excess of 100,000 Warrant Shares in increments of
10,000 Warrant Shares. It is exercisable, subject to the satisfaction of
applicable securities laws, at any time during the Exercise Period by the
surrender of the Warrant to the Corporation at its principal office together
with the Notice of Exercise annexed hereto duly completed and executed on behalf
of the Holder, accompanied by payment in full of the amount of the aggregate
purchase price of the Warrant Shares in immediately available funds, except if
exercised under the cashless exercise option as provided below. The Corporation
agrees that the Warrant Shares so purchased shall be issued as soon as
practicable thereafter, and that the Holder shall be deemed the record owner of
such Warrant Shares as of and from the close of business on the date on which
this Warrant shall be surrendered, together with payment in full as required
above. It shall be a condition to the exercise of this Warrant that the Holder
or any transferee hereof certify to the Corporation, at the time of exercise,
either that he or it is not a U.S. Person (as defined in Regulation S under the
Securities Act of 1933, as amended (the "Securities Act") and that this Warrant
is not being exercised on behalf of a U.S. Person, or to provide an opinion of
counsel that the Warrant and the Warrant Shares to be delivered upon exercise
thereof have been registered under the Securities Act or that an exemption from
the registration requirements of the Securities Act is available. It shall be a
further condition to the exercise of this Warrant that the Warrant may not be
exercised in the United States and the Warrant Shares may not be delivered to
the United States absent registration under the Securities Act or an available
exemption from registration.
4. Cashless Exercise Option. Notwithstanding the foregoing, if on the
date of exercise the "Fair Market Value" of one Warrant Share is equal to or
greater than twice the Warrant Exercise Price and during the preceding 20
trading days prior to the date of exercise under this Warrant the average
trading volume was in excess of 100,000 shares per day, then in lieu of
exercising this Warrant for cash, the Holder may elect to receive Warrant Shares
equal to the value of this Warrant (or equal to the value of the portion of the
Warrant Shares thereof being cancelled) which shall be that number of Warrant
Shares equal to the quotient obtained by dividing (Z) the product obtained when
(i) the number of Warrant Shares being exercised/cancelled under this Warrant is
multiplied by (ii) the value of one Warrant Share for which this Warrant is
being cancelled on the exercise date (determined by subtracting the Warrant
Exercise Price for one Warrant Share on the exercise date from the "Fair Market
Value" (as hereinafter defined) of one Warrant Share on the exercise date) by
(ZZ) the Warrant Exercise Price for one Warrant Share on the exercise date
illustrated as follows:
X = Y(A-B)
------
B
Where X = the number of Warrant Shares to be issued to Holder
Y = the number of Warrant Shares being exercised/cancelled under this
Warrant
A = the "Fair Market Value" of one Warrant Share on the date of
exercise
B = Exercise Price on the date of exercise
Fair Market Value of one share of a Warrant Share shall mean:
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<PAGE>
a. If the Corporation's Common Stock is listed on a national securities
exchange or is quoted on the National Association of Securities Dealers, Inc.
Automated Quotation/ National Market System (NASDAQ/NMS), then the average price
of all of the closing or last sales prices, respectively, reported for the
twenty (20) trading days immediately preceding the exercise date.
b. If the Corporation's Common Stock is not listed on a national
securities exchange or quoted on NASDAQ/NMS, but is traded in the
over-the-counter market, then the average price of all of the mean prices
between the closing bid and asked prices of the Corporation's publicly traded
stock as listed and traded on the NASDAQ electronic bulletin board during the
twenty (20) trading days immediately preceding the exercise date.
In the event of a cashless exercise, the entire Warrant must be
surrendered, and no new Warrant shall be issued. In no event shall a cashless
exercise entitle the Holder to exercise more than the Warrant Shares set forth
on page 1 of this Warrant, less any number previously exercised.
5. Warrant Confers No Rights of Shareholder. The Holder shall not have
any rights as a shareholder of the Corporation with regard to the Warrant Shares
prior to actual exercise resulting in the purchase of the Warrant Shares.
6. Holder Representations and Warranties. The Holder represents and
warrants to the Corporation that:
a. Purchase For Own Account/Regulation S. The Holder
understands that neither this Warrant nor the Warrant Shares issuable upon the
exercise of this Warrant have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), or any state securities laws, by reason of a
specific exemption from the registration provisions of the Securities Act which
depends upon, among other things, the bona fide nature of the investment as
expressed herein. The Holder is acquiring this Warrant for investment for its
own account, and not with a view to, or for resale in connection with, any
distribution thereof, and it has no present intention of selling or distributing
this Warrant. The Holder agrees that any Warrant Shares issuable upon exercise
of this Warrant will be acquired for investment for its own account, and not
with a view to, or for resale in connection with, any distribution thereof, and
such Warrant Shares will not be registered under the Securities Act and
applicable state securities laws and that such Warrant Shares may have to be
held indefinitely unless they are subsequently registered or qualified under the
Securities Act and applicable state securities laws or, based on an opinion of
counsel reasonably satisfactory to the Corporation, an exemption from such
registration and qualification is available. The Holder further understands that
the Corporation is relying on the rules and regulations governing offers and
sales made outside the United States to non-"U.S. Persons" pursuant to
Regulation S under the Securities Act. The Holder, by acceptance hereof,
consents to the placement of the following restrictive legends, or similar
legends, on each certificate to be issued to the Holder by the Corporation in
connection with the issuance of such Warrant Shares:
-3-
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY
STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR
HYPOTHECATED UNLESS (A) THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR LAWS COVERING SUCH SECURITIES, OR (B) THE HOLDER
RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THE SECURITIES
SATISFACTORY TO THE CORPORATION, STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND THE QUALIFICATION
REQUIREMENTS UNDER APPLICABLE STATE LAW.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER PURSUANT TO REGULATION S PROMULGATED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED EXCEPT PURSUANT TO THE PROVISIONS UNDER
REGULATION S OR PURSUANT TO REGISTRATION UNDER SUCH ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION.
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO CERTAIN RESTRICTIONS
ON TRANSFER SET FORTH IN THAT CERTAIN MAY 1, 1996 [Don, review]
INVESTMENT BANKING AGREEMENT BETWEEN THE ORIGINAL HOLDER HEREOF AND THE
COMPANY.
b. Access to Data. The Holder has had an opportunity to
discuss the Corporation's business, management and financial affairs with its
management and to obtain any additional information which the Holder has deemed
necessary or appropriate for deciding whether or not to purchase this Warrant
and the Warrant Shares, including the information provided or otherwise
disclosed under the Subscription Agreement. The Holder acknowledges that no
other representations or warranties, oral or written, have been made by the
Corporation or any agent thereof except as set forth in this Agreement.
c. No Fairness Determination. The Holder is aware that no
federal, state or other agency has made any finding or determination as to the
fairness of the investment, nor made any recommendation or endorsement of this
Warrant or the Warrant Shares.
d. Knowledge And Experience. The Holder has such knowledge and
experience in financial and business matters, including investments in other
start-up companies, that it is capable of evaluating the merits and risks of the
investment in this Warrant and the Warrant Shares, and it is able to bear the
economic risk of such investment. Further, the Holder has such knowledge and
experience in financial and business matters that he is capable of utilizing the
information made available to him in connection with the offering of this
Warrant and the Warrant Shares, of evaluating the merits and risks of an
investment in this Warrant and the Warrant Shares and of making an informed
investment decision with respect to this Warrant and the Warrant Shares.
-4-
<PAGE>
e. Limited Public Market. The Holder is aware that there is
currently a very limited "over-the-counter" public market for the Corporation's
registered securities and that the Corporation became a "reporting issuer" under
the Securities Exchange Act of 1934, as amended, on January 27, 1995. There is
no guarantee that a more established public market will develop at any time in
the future. The Holder understands that this Warrant and the Warrant Shares are
all unregistered and may not presently be sold in even this limited public
market. The Holder understands that this Warrant and the Warrant Shares cannot
be readily sold or liquidated in case of an emergency or other financial need.
The Holder has sufficient liquid assets available so that the purchase and
holding of this Warrant and the Warrant Shares will not cause it undue financial
difficulties.
g. Investment Experience. The Holder is an "accredited
investor" as that term is defined in Regulation D promulgated by the Securities
and Exchange Commission. The term "accredited investor" under Regulation D
refers to:
(1) A person or entity who is a director or executive officer of the
Corporation;
(2) Any bank as defined in Section 3(a)(2) of the Securities Act, or
any savings and loan association or other institution as defined in
Section 3(a)(5)(A) of the Securities Act whether acting in its
individual or fiduciary capacity; any broker or dealer registered
pursuant to Section 15 of the Exchange Act; insurance company as
defined in Section 2(13) of the Securities Act; investment company
registered under the Investment Company Act of 1940; or a business
development company as defined in Section 2(a)(48) of that Act; Small
Business Investment Company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small Business
Investment Act of 1958; any plan established and maintained by a state,
its political subdivisions, or any agency or instrumentality of a state
or its political subdivisions for the benefit of its employees, if such
plan has total assets in excess of $5,000,000; employee benefit plan
within the meaning of the Employee Retirement Income Security Act of
1974, if the investment decision is made by a plan fiduciary, as
defined in Section 3(21) of such Act, which is either a bank, savings
and loan association, insurance company, or registered investment
adviser, or if the employee benefit plan has total assets in excess of
$5,000,000 or, if a self-directed plan, with investment decision made
solely by persons that are accredited investors;
(3) Any private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
(4) Any organization described in Section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring this
Warrant or the Warrant Shares, with total assets in excess of
$5,000,000;
(5) Any natural person whose individual net worth, or joint net worth
with that person's spouse, at the time of his purchase exceeds
$1,000,000;
-5-
<PAGE>
(6) Any natural person who had an individual income in excess of
$200,000 during each of the previous two years or joint income with
that person's spouse in excess of $300,000 in each of those years and
has a reasonable expectation of reaching the same income level in the
current year;
(7) Any trust, with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring this Warrant or the Warrant
Shares, whose purchase is directed by a person who has such knowledge
and experience in financial and business matters that he is capable of
evaluating the merits and risks of the prospective investment; or
(8) Any entity in which all of the equity owners are accredited
investors.
As used in this Section 6(g), the term "net worth" means the excess of
total assets over total liabilities. For the purpose of determining a
person's net worth, the principal residence owned by an individual
should be valued at fair market value, including the cost of
improvements, net of current encumbrances. As used in this Section
6(g), "income" means actual economic income, which may differ from
adjusted gross income for income tax purposes. Accordingly, the
undersigned should consider whether it should add any or all of the
following items to its adjusted gross income for income tax purposes in
order to reflect more accurately its actual economic income: Any
amounts attributable to tax-exempt income received, losses claimed as a
limited partner in any limited partnership, deductions claimed for
depletion, contributions to an IRA or Keogh retirement plan, and
alimony payments.
h. Restrictions On Transfer Re Regulation S.
(1) Not A "U.S. Person." The Holder hereby certifies
that (i) it is not a "U.S. Person" as defined under Rule 902, Section (o) of
Regulation S promulgated under the Securities Act (a copy of which is attached
hereto as Schedule 2) and is not acquiring this Warrant or the Warrant Shares
for the account or benefit of any U.S. Person, and (ii) it is acquiring this
Warrant and the Warrant Shares in an "offshore transaction" as defined under
Section (i) of such Rule 902 (a copy of which is attached hereto as Schedule 3).
(2) Transfer Restrictions. The Holder shall not
attempt to have registered any transfer of this Warrant or the Warrant Shares
not made in accordance with the provisions of Regulation S. In addition to any
other restrictions on transfer set forth in this Warrant, the Holder agrees to
transfer this Warrant or the Warrant Shares only (i) in accordance with the
provisions of Regulation S, pursuant to registration under the Securities Act,
or pursuant to an available exemption from registration, and (ii) in accordance
with any applicable state securities laws. Unless so registered or exempt
therefrom, such transfer restrictions shall include but not be limited to and
the Holder warrants and represents the following:
(i) The Holder shall not sell this Warrant
or the Warrant Shares publicly or privately, or through any short sale, or other
hedging transaction to any U.S. Person, whether directly or indirectly, or for
the account or benefit of any such U.S. Person for the restrictive period
mandated by Regulation S after the purchase of this Warrant or the Warrant
Shares, as applicable, unless registered or exempt from registration;
-6-
<PAGE>
(ii) Any other offer or sale of this Warrant
or the Warrant Shares shall be made only if (A) during the restrictive period
any subsequent purchaser certifies in writing that it is not a U.S. Person and
is not acquiring this Warrant or the Warrant Shares for the account or benefit
of any U.S. Person, or (B) after the restrictive period this Warrant and the
Warrant Shares are purchased in a transaction that did not require registration
under the Securities Act and applicable Blue Sky laws; and
(iii) Any transferee of this Warrant or the
Warrant Shares shall agree in writing to resell this Warrant or the Warrant
Shares, as applicable, only in accordance with the provisions of Regulation S,
pursuant to registration under the Securities Act, or pursuant to an available
exemption from registration.
(3) Restrictions On Resales In the United States. The
Holder understands and acknowledges that the Securities Act prohibits resales of
securities in the United States except pursuant to an effective registration
statement or an exemption from registration for which the securities and the
Holder holding such securities qualifies. The Holder understands and
acknowledges the requirements for qualifying for an exemption from registration
afforded by Section 4 of the Securities Act and that there can be no assurance
that the Holder will be able to qualify for such an exemption from registration.
7. Reservation of Shares. The Corporation agrees at all times during
the Exercise Period to have authorized and reserved, for the exclusive purpose
of issuance and delivery upon exercise of this Warrant, a sufficient number of
shares of its common stock to provide for the exercise of the rights represented
hereby.
8. Adjustment for Re-Classification of Capital Stock. If the
Corporation at any time during the Exercise Period shall, by subdivision,
combination or re-classification of securities, change any of the securities to
which purchase rights under this Warrant exist under the same or different
number of securities of any class or classes, this Warrant shall thereafter
entitle the Holder to acquire such number and kind of securities as would have
been issuable as a result of such change with respect to the Warrant Shares
immediately prior to such subdivision, combination, or re-classification. If
shares of the Corporation's common stock are subdivided into a greater number of
shares of common stock, the purchase price for the Warrant Shares upon exercise
of this Warrant shall be proportionately reduced and the Warrant Shares shall be
proportionately increased; and conversely, if shares of the Corporation's common
stock are combined into a smaller number of common stock shares, the price shall
be proportionately increased, and the Warrant Shares shall be proportionately
decreased.
9. Public Offering Lock-Up. For a period of up to one-hundred-eighty
(180) days (the "Stand-off Period"), Holder shall not if requested by the
Corporation at any time in contemplation of a public registration, sell, pledge
or otherwise transfer any Warrant Shares (or any other shares exchanged
therefor). Notwithstanding the foregoing, the Corporation may exercise this
public offering lock-up only one time.
10. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by
the
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<PAGE>
Corporation of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of any Warrant or stock certificate, and in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
it, and upon reimbursement to the Corporation of all reasonable expenses
incidental thereto, and upon surrender and cancellation of such Warrant or stock
certificate, if mutilated, the Corporation will make and deliver a new Warrant
or stock certificate of like tenor and dated as of such cancellation, in lieu of
this Warrant or stock certificate.
11. Assignment. The Holder of this Warrant shall not assign or transfer
this Warrant or any of the Warrant Shares without the transferee meeting the
suitability requirements set forth in Section 6 (above) and without the consent
of the Corporation and in compliance with applicable state and federal
securities laws. In giving its consent, the Corporation may request an opinion
of counsel reasonably acceptable to it that such transfer is in compliance with
all applicable state and federal securities laws.
12. Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of California applicable to contracts
between California residents entered into and to be performed entirely within
the State of California.
13. Notices. Any notice required or permitted under this Warrant shall
be given in writing and shall be deemed effectively given upon personal delivery
to the party to be notified by hand or professional courier service or for
mailings from and to any address in North America (Canada, United States and
Mexico) five (5) days after deposit with the United States Post Office, by
registered or certified mail, postage prepaid and addressed to the party to be
notified at the address indicated for such party in the Subscription Agreement,
or at such other address as such party may designate by ten (10) days' advance
written notice to the other parties.
14. Attorneys' Fees. If any action at law or in equity is necessary to
enforce or interpret the terms of this Warrant, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and disbursements in addition to
any other relief to which such party may be entitled.
15. Amendments. Any terms of this Warrant may be amended with the
written consent of the Corporation and the holders of Series C Warrants
representing not less than 67% of the shares of Common Stock issuable upon
exercise of all Series C Warrants.
Dated: October 25, 1996 U.S. ELECTRICAR, INC.
By: /s/ Roy Kusumoto
---------------------------
Roy Y. Kusumoto, President
-8-
<PAGE>
NOTICE OF EXERCISE
To: U.S. ELECTRICAR, INC.
(1) The undersigned hereby elects to purchase __________ shares of
Common Stock of Electricar, Inc., pursuant to the terms of the attached Warrant,
and tenders herewith payment of the purchase price for such shares in full.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of Common Stock are being acquired solely for the
account of the undersigned and not as a nominee for any other party, for
investment, and that the undersigned will not offer, sell or otherwise dispose
of any such shares of Common Stock except under circumstances that will not
result in a violation of the Securities Act of 1933, as amended (the "Securities
Act"), including, but not limited to, Regulation S promulgated thereunder, or
any state securities laws.
(3) The undersigned hereby certifies that either (i) the undersigned is
not a U.S. Person (as such term is defined in Regulation S under the Securities
Act), or (ii) the undersigned has delivered to the Corporation an opinion of
counsel to the effect that this Warrant and the Warrant Shares to be delivered
upon exercise thereof have been registered under the Securities Act or an
exemption from such registration is available.
(4) The undersigned further certifies that this Warrant is not being
exercised in the United States and understands and agrees that the Warrant
Shares may not be delivered to the United States absent registration under the
Securities Act or an available exemption from such registration.
(5) Please issue a certificate representing said shares of Common Stock
in the name of the undersigned.
(6) Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned.
___________________________
(Name)
_________________ ___________________________
(Date) (Signature)
-9-
AGREEMENT
between
Hyundai Motor Company ("HMC")
and
U.S. Electricar ("USE")
Systronix Corporation ("SC")
(Collectively "USE/"SC")
April 12, 1996
Whereas HMC is the leader in electric vehicle technology in Korea
and
Whereas USE/SC is a leader in electric vehicles and drivetrains,
now therefore
HMC and USE/SC have reached the following agreement in order to
cooperate in the field of
electric vehicle technology:
1. HMC shall grant to USE/SC the fleet EV contract utilizing Panther(tm)60
systems.
2. HMC shall grant to USE/SC the MPV Production Phase 1 contract utilizing
Panthertm90 systems.
3. HMC shall pay US$ 250,000 to USE or SC within 45 days of HMS receiving an
invoice, for an option to purchase 12,000,000 shares of USE at a price of
US$ 0.467 per share, the blended rate paid by the major new capital
investors in USE/SC. The option shall expire on March 1, 1997. If the
option is exercised before March 1, 1997, the US$ 250,000 option price
shall be applied toward the share purchase.
4. Upon the full exercise of the share purchase option, USE/SC shall grant to
HMC a manufacturing and distribution license to the Panthertm systems, as
defined in the November 1995 SC business plan, including upgrades
developed by USE/SC, without payment of any additional fee and without
payment of any royalties by HMC or HMC's appointed manufacturer, for use
within vehicles or for use as spare parts for such vehicles built by HMC
or built by subsidiaries owned more than 50% by HMC, or for use within
vehicles or for use as spare parts for such vehicles assembled by any
company from completely knocked down ("CKD") kits built by HMC or built by
subsidiaries owned more than 50% by HMC.
5. If HMC decides not to purchase shares in USE as described above in
paragraph three (3), then USE/SC shall grant to HMC a manufacturing and
distribution license to the Panthertm systems, as defined in the November
1995 SC business plan, including upgrades developed by USE/SC, for a fee
of US$ 1,500,000 and for
<PAGE>
royalties equivalent to 4% of HMC's procurement cost beginning with
systems sold in the year 2000. The license shall apply only to systems
manufactured by HMC and/or HMC's appointed manufacturer, for use within
vehicles or for use as spare parts for such vehicles built by HMC or built
by subsidiaries owned more than 50% by HMC, or for use within vehicles or
for use as spare parts for such vehicles assembled by any company from
completely knocked down ("CKD") kits built by HMC or built by subsidiaries
owned more than 50% by HMC. Beginning in 2004 the royalty shall be reduced
to 3%. Beginning in 2008 the royalty shall be reduced to 2%. Beginning in
2012 no further royalty shall be required. The US$ 250,000 option amount
described above in paragraph three (3) shall be applied toward the
purchase of this license if the license is purchased prior to March 1,
1997.
6. The manufacturing and distribution licenses to the Panthertm systems shall
also be exclusive to HMC for the territory of Korea. The vehicles
manufactured in accordance with paragraph four (4) and five (5) above may
be exported to any country.
7. The licenses described above in paragraph four (4), five (5) and six (6)
shall include the right to "make or have made" the Panthertm hardwares.
8. USE/SC will support HMC and/or HMC's appointed manufacturer in setting up
production lines, processes, procedures, and automated testing of
Panthertm products. This support will include assistance with production
and test of subassemblies, units, and complete systems. USE/SC will also
assist HMC and/or HMC's appointed manufacturer with procurement of
components, including the development and qualification of sources for
unique electric vehicle and Panthertm system electronic components.
/s/ H. K. Lee /s/ Roy Kusumoto /s/ Don Kang
- --------------------------- ----------------------- ----------------------
H. K. Lee Roy Y. Kusumoto Don C. Kang
Director Chief Executive Officer President
Corporate Planning Director U.S. Electricar Systronix Corporation
AGREEMENT FOR PURCHASE AND SALE OF ASSETS
THIS AGREEMENT FOR PURCHASE AND SALE OF ASSETS (this "Agreement"), is
made effective as of October 25, 1996, by and between U.S. ELECTRICAR, INC., a
California corporation ("Buyer") and SYSTRONIX CORPORATION, a California
corporation ("Seller").
RECITALS
A. The Seller is engaged in the business of developing technologies
relating to the design and manufacture of electric-powered vehicles.
B. Buyer desires to purchase from the Seller, and the Seller desires to
sell to Buyer, on the terms and subject to the conditions of this Agreement,
substantially all the business, properties and assets of the Seller.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements, covenants,
representations and warranties contained in this Agreement, the parties hereto
hereby agree as follows:
1. Purchase and Sale of Assets.
a. Agreement to Purchase and Sell. Subject to the terms and
conditions set forth in this Agreement, the Seller agrees to sell, convey,
transfer, assign, and deliver to Buyer, and Buyer agrees to purchase from the
Seller, all of the assets, properties, and business of the Seller of every kind,
character, and description, whether tangible, intangible, real, personal, or
mixed, and wherever located (all of which are sometimes collectively referred to
as the "Assets"), including, but without limitation to, the following:
i) The patents, service marks, trademarks, trade names,
copyrights (and registrations and applications therefor), processes, methods,
patterns, devices, formulae, discoveries, trade secrets and other know-how, all
as identified on Exhibit "A" attached hereto (the "Technology"); and
ii) The inventory, work-in-progress, parts, furniture, fixtures
and equipment listed on Exhibit "B" attached hereto (the "Personal Property");
and
iii) Seller's interest in that certain Industrial Real Estate
Lease dated December 1, 1994, between Nakamichi U.S.A., Inc. ("Nakamichi"), as
sublessor and Seller, as sublessee, for the premises located at 19850 South
Magellan Drive, Torrance, California, 90502 (the "Lease"); and
iv) The contracts of Seller identified in Exhibit "C" attached
hereto (the "Contracts"); and
v) All accounts receivable or other amounts owing Seller as of
the Closing Date (the "Receivables"); and
vi) All of Seller's data, drawings, files and records pertaining
to the Technology, the Personal Property, the Lease, the Contracts and the
Receivables.
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<PAGE>
b. Aggregate Purchase Price. The aggregate purchase price for the
Assets shall be for the consideration set forth in Subsection 1.d. (below) (the
"Purchase Price").
c. Allocation of Purchase Price. The Purchase Price shall be
allocated among the Assets in the manner mutually agreed to by Buyer and Seller
prior to the Closing. The parties agree to report this transaction for federal
and state income tax purposes in accordance with said allocation of the Purchase
Price.
d. Payment of Purchase Price. The Purchase Price shall be payable as
follows:
(i) Buyer shall be credited at the Closing with the amount of
$1,020,211 towards the Purchase Price, which Buyer has previously delivered to
Seller as a pre-payment of the Purchase Price;
(ii) Buyer shall deliver to Seller at the Closing a Promissory
Note in form and substance as attached hereto as Exhibit D in the principal
amount of Eight Hundred Twenty-nine Thousand, Nine Hundred Seventy-eight and
39/100 Dollars ($829,978.39) (the "Note") secured by the Assets pursuant to a
security agreement in form and substance attached hereto as Exhibit E (the
"Security Agreement"). The Note shall bear interest at the rate of six percent
(6%) per annum and shall be payable (A) in full thirty (30) days after the
Closing and (B) in the amount of 45% of any additional financing received by
Buyer until paid in full, whichever occurs first;
(iii) Buyer shall deliver to (i) Seller a share certificate
representing Two Million Seven Hundred Thousand shares of Buyer's Common Stock
(the "ECAR Shares") at the Closing and (ii) "Escrow Agent" (as defined below)
for the benefit of Seller at the Closing a certificate or certificates
representing One Million One Hundred Thousand (1,100,000) shares of Buyer's
Common Stock (the "Escrow Stock"); and
(iv) Buyer shall assume and be credited at the Closing with the
$800,000 loan from Fontal International, Ltd., and the liabilities assumed under
Subparagraph 1.f. below in the approximate amount of $357,383.65.
e. Escrow. At the Closing, certificates representing the Escrow
Stock shall be deposited in escrow (the "Escrow Shares") to be held by an Escrow
Agent as collateral for Seller's indemnification obligations under Paragraph 9
below and pursuant to the provisions of an escrow agreement (the "Escrow
Agreement") to be entered into by Seller and Buyer in form and substance as
attached hereto as Exhibit F and incorporated herein by reference.
f. Assumption of Liabilities. Buyer agrees to assume only those
liabilities set forth on Exhibit G attached hereto. It is expressly understood
and agreed that Buyer shall not be liable for any of the obligations or
liabilities of the Seller of any kind or nature, other than those specifically
assumed by Buyer under this paragraph as identified on Exhibit G ("Seller
Liabilities").
g. Stock Option Agreements. Buyer and Daniel D. Rivers and Don C.
Kang shall also each enter into Stock Option Agreements in form and substance
attached hereto as Exhibit H, providing for, among other provisions, the
issuance of stock options. Buyer shall also employ those employees of Seller set
forth on Exhibit I on the principal terms and conditions set forth on Exhibit I.
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<PAGE>
h. Registration Rights.
i) Piggyback Rights If Buyer at any time proposes to register
any of its securities under the Securities Act of 1933, as amended (the "Act")
(other than a registration effected solely to implement an employee benefit
plan, a transaction to which Rule 145 of the Commission is applicable or any
other form or type of registration in which "Registrable Securities" (as defined
below) cannot be included pursuant to Commission regulation, rule or practice),
then Seller shall receive written notice from the Buyer (the "Buyer Notice") of
its intention to make such registration (the Escrow Stock, ECAR Shares and any
other securities issued upon any stock split, stock dividend, recapitalization,
merger, consolidation or similar event with respect to such stock are referred
to herein as "Registrable Securities"). If such registration is proposed to be
on a form which permits inclusion of the Registrable Securities, then upon the
written request of Seller holding Registrable Securities given within ten (10)
days after transmittal by the Buyer to Seller of the Buyer Notice, the Buyer
will, subject to the limits contained in this section, at its cost, use its
reasonable efforts to cause such Registrable Securities of Seller to be
registered under the Act, all to the extent requisite to permit such sale or
other disposition by Seller of the Registrable Securities so registered.
The right of Seller to request inclusion in the registration pursuant to
this section shall terminate (i) upon the second anniversary date of the Closing
or (ii) at such time that all shares of Registrable Securities held by Seller
may be publicly sold under Rule 144 or any applicable exemption or any other
registration statement during any three month period. Furthermore,
notwithstanding any other provision of this Agreement, if the underwriter
managing such registration notifies Seller holding Registrable Securities in
writing that market or economic conditions limit the amount of securities which
may reasonably be expected to be sold or that inclusion of such Registrable
Securities would jeopardize the success of the offering, then the Buyer may
exclude all or any portion of such Registrable Securities; provided, however,
that such cutback shall be pro rata among Seller and the executive officers and
directors of the Buyer desiring to participate in such registration based on the
number of shares of Registrable Securities held by Seller and the number of
shares in the Buyer held by such executive officers and directors.
ii) S-3 Registration Rights Buyer also agrees, at its cost, to
use its reasonable efforts to file an S-3 Registration Statement covering all
ECAR Shares within 180 days after Buyer has received an aggregate of $6 million
in additional equity capital after the Closing. The right of Seller to
registration hereunder shall terminate at such time that all ECAR Shares held by
Seller may be publicly sold under Rule 144 or any applicable exemption or any
other registration statement during any three month period. With respect to the
ECAR Shares only and the rights granted to Seller to registration under an S-3
Registration Statement, Seller may transfer such rights to one transferee only
so long as Seller shall thereafter forfeit any such rights to any remaining ECAR
Shares it may hold.
iii) S-8 Registration Rights Buyer also agrees, at its cost, to
use its best efforts to file an S-8 Registration Statement covering all stock
options received by Messrs. Rivers and Kang pursuant to subsection g.(above)
(the "Stock Options") within 180 days after Buyer has received an aggregate of
$6 million in additional equity capital after the Closing or such earlier time
as Buyer shall file an S-8 Registration Statement for any other securities of
Buyer.
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<PAGE>
iv) Further Documents Any holder of Registrable Securities or
ECAR Shares or Stock Options desiring to participate in a registration under
this Agreement shall enter into such further agreements, including
indemnification and customary underwriting agreements, if applicable, as Buyer
or the managing underwriter shall reasonably require.
2. The Closing.
a. Closing. The closing of the transactions provided for in
Paragraph 1 hereof shall take place at the offices of Pezzola & Reinke, 1999
Harrison Street, Suite 1300, Oakland, California, 94612, on October 25, 1996, at
10:00 am, or such other date (and/or place and/or time) as may be agreed upon
between the parties, such date being referred to herein as the "Closing Date" or
"Closing". If the Closing shall not take place at such date or time, either
party may terminate this Agreement upon written notice to the other.
b. Delivery at Closing.
i) Seller shall deliver or cause to be delivered the following
at the Closing:
a) One or more bills of sale or assignments covering the
Assets in form and substance satisfactory to counsel for Buyer; and
b) A certified copy of a resolution approving the sale of
the Assets adopted by the shareholders of Seller in such form as is acceptable
to Buyer; and
c) A certified copy of the written consent of all of the
Directors of Seller approving the sale of the Assets in such form as is
acceptable to Buyer; and
d) The Stock Option Agreements, and Escrow Agreement, duly
executed by the parties thereto; and
e) Such other documents or certificates as are required as
conditions precedent to the obligations of Buyer under Paragraph 7, or as may be
reasonably required by counsel for Buyer to place Buyer in actual possession and
operating control of the Assets pursuant to the provisions of this Agreement.
The Seller at any time before or after the Closing Date, will execute,
acknowledge, and deliver any further deeds, assignments, conveyances, and other
assurances, documents, and instruments of transfer, reasonably requested by
Buyer, and will take any other action consistent with the terms of this
Agreement that may reasonably be requested by Buyer for the purpose of
assigning, transferring, granting, conveying, and confirming to Buyer, or
reducing to possession, any or all property to be conveyed and transferred under
this Agreement. If requested by Buyer, the Seller further agrees at Buyer's
expense to prosecute or otherwise enforce in its own name for the benefit of
Buyer any claims, rights, or benefits that are transferred to Buyer under this
Agreement and that require prosecution or enforcement in the Seller's name.
Simultaneously with the consummation of the transfer, the Seller through its
officers, agents, and employees, will put Buyer into full possession and
enjoyment of all properties and Assets to be conveyed and transferred by this
Agreement.
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<PAGE>
ii) Buyer shall deliver or cause to be delivered to Seller the
following at the Closing:
a) A duly executed Promissory Note in the amount of Eight
Hundred Twenty-nine Thousand Nine Hundred Seventy-eight and 39/100 Dollars
($829,978.39); and
b) To Escrow Agent, stock certificates evidencing the
Escrow Stock and such other documents and certificates as are required to issue
to Seller and placed into escrow One Million One Hundred Thousand (1,100,000)
shares of Common Stock of Buyer; and
c) To Seller, stock certificates evidencing the ECAR
Shares and such other documents and certificates as are required to issue to
Seller Two Million Seven Hundred Thousand (2,700,000) shares of Common Stock of
Buyer; and
d) A certified copy of the written consent of all of the
Directors or a certified copy of the minutes of a meeting of the Board of
Directors of Buyer approving the purchase of the Assets and the issuance of the
Stock in such form as is acceptable to Seller; and
e) The Employment Agreements, Escrow Agreement and
Security Agreement (together with any required UCC-1 Financing Statements) duly
executed by the parties thereto; and
f) Such other documents and certificates as are required
as conditions precedent to the obligations of Seller under Paragraph 8, or as
may be reasonably required by counsel for Seller.
3. Representations and Warranties of the Seller. The Seller represents
and warrants to Buyer that, except as set forth on the disclosure schedule
attached hereto as Schedule 3 and incorporated herein by reference (the
"Disclosure Schedule"):
a. Organization. The Seller is a corporation duly organized, validly
existing, and in good standing under the laws of the state in which it was
incorporated; has all necessary corporate powers to own its properties and to
carry on its business as now owned and operated by it; and is duly qualified to
do business and is in good standing in all jurisdictions in which the nature of
the Seller's business or its properties makes such qualification necessary.
b. Authorization. This Agreement has been duly authorized by
Seller's Board of Directors and shareholders and constitutes a valid and binding
obligation of the Seller enforceable in accordance with its terms, except as
limited by bankruptcy, insolvency or other similar laws of general application
affecting creditors' rights. This Agreement will not violate, with or without
the giving of notice and/or the passage of time, the Articles of Incorporation
or the Bylaws of Seller, any agreement to which Seller may be a party, or any
laws of any state which may be applicable to this Agreement, and will be valid,
binding and enforceable against Seller in accordance with its terms.
c. Agreement Will Not Cause Breach or Violation. The consummation of
the transactions contemplated by this Agreement will not result in or constitute
with or without
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<PAGE>
the giving of notice and/or the passage of time any of the following: (1) a
breach ofany term or provision of this Agreement; (2) a default or an event
that, with notice or lapse of time or both, would be a default, breach, or
violation of the Articles of Incorporation or Bylaws of the Seller, or any
lease, license, promissory note, conditional sales contract, com mitment,
indenture, mortgage, deed of trust, or other agreement, instrument, or
arrangement to which the Seller is a party or by which the Seller or the
property of the Seller is bound; (3) an event that would permit any party to
terminate any agreement or to accelerate the maturity of any indebtedness or
other obligation of the Seller; or (4) the creation or imposition of any lien,
charge, or encumbrance on any of the properties of the Seller.
d. Authority and Consents. The Seller has the right, power, legal
capacity, and authority to enter into, and perform its obligations under this
Agreement, and no approvals or consents of any persons are necessary in
connection with it. The execution and delivery of this Agreement by the Seller
has been duly authorized by all necessary corporate action on the part of the
Seller.
e. Subsidiaries. Seller does not own, directly or indirectly, any
interest or investment (whether equity or debt) in any corporation, partnership,
business, trust, or other entity.
f. Financial Statements. Exhibit J to this Agreement sets forth the
unaudited financial statements of the Seller as of October 25, 1996, certified
by the chief financial officer of the Seller as accurately reflecting the
financial condition of the Seller for the periods indicated. The financial
statements in Exhibit J are referred to herein as the "Financial Statements."
The Financial Statements fairly represent the financial position of the Seller
and contain true and accurate statements of each and all of the assets and
liabilities of Seller as of the respective dates indicated in the Financial
Statements, and the results of its operations for the respective periods
indicated.
g. Claims and Liabilities. Exhibit K to this Agreement contains a
true and complete schedule of all liabilities and obligations of the Seller. The
Seller has no debts, liabilities, or obligations of any nature, whether accrued,
absolute, contingent, or otherwise, and whether due or to become due, that are
not set forth in Exhibit K. Notwithstanding the foregoing, only the Seller
Liabilities set forth on Exhibit G as referenced in Paragraph 1.f are being
assumed by Buyer.
h. Tax Returns and Audits. Within the times and in the manner
prescribed by law, the Seller has filed all federal, state, and local tax
returns required by law and has paid all taxes, assessments, and penalties due
and payable. There are no present disputes as to taxes of any nature payable by
the Seller. The Seller has never filed, and will not file on or before the
Closing Date, any consent under ss.341(f) of the Internal Revenue Code of 1986,
as amended.
i. Real Property. The Lease is valid and in full force, and there
does not exist any default or event that with notice or lapse of time, or both,
would constitute a default under the Lease. The Seller has obtained or will
obtain prior to Closing all landlord consents necessary to transfer the Lease to
Buyer.
j. Hazardous Materials. To Seller's best knowledge, there are no
asbestos-containing materials incorporated into the leased premises set forth in
Paragraph 3.j. (above) buildings or interior improvements that are part of that
real property, or into any other
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<PAGE>
Assets of the Seller, nor is there any electrical transformer, fluorescent light
fixture with ballasts, or other equipment containing PCBs on those leased
premises.
k. Inventory. The inventories of raw materials, work in process, and
finished goods (collectively called "Inventories") shown on the Seller's
Financial Statements, are being sold in their "As Is" condition. Except for
sales made in the ordinary course of business since that date, all the
Inventories are the property of the Seller. No items are subject to a security
interest. The value of the Inventories has been determined on a "first-in,
first-out" basis consistent with prior years.
l. Other Tangible Personal Property. Exhibit L to this Agreement is
a complete and accurate schedule describing, and specifying the location of, all
trucks, automobiles, machinery, equipment, furniture, supplies, tools, dies,
rigs, molds, patterns, drawings, and all other tangible personal property owned
by, in the possession of, or used by the Seller in connection with its business,
except Inventories of raw materials, work in process, and finished goods. The
property listed in Exhibit L constitutes all such tangible personal property
necessary for the Seller's business as now conducted. No personal property used
by the Seller in connection with its business is held under any lease, security
agreement, conditional sales contract, or other title retention or security
arrangement, or is located other than in the possession of the Seller.
m. Trade Names, Trademarks and Copyrights. Exhibit M to this
Agreement is a schedule of all tradenames, trademarks, service marks, and
copyrights and their registrations, owned by the Seller or in which they have
any rights or licenses, together with a brief description of each. The Seller
does not have any knowledge of any infringement or alleged infringement by
others of any such trade name, trademark, service mark, or copyright. To
Seller's knowledge, Seller has not infringed, and is not now infringing, on any
trade name, trademark, service mark, or copyright belonging to any other person,
firm, partnership or corporation. The Seller is not a party to any license,
agreement, or arrangement, whether as licensor, licensee, franchisor,
franchisee, or otherwise, with respect to any trademarks, service marks, trade
names, or applications for them, or any copyrights. The Seller owns, or holds
adequate licenses or other rights to use, all trademarks, service marks, trade
names, and copyrights necessary for its business as now conducted by it
(including without limitation those listed in Exhibit M), and to Seller's
knowledge, that use does not, and will not, conflict with, infringe on, or
otherwise violate any rights of others. The Seller has the right to sell or
assign to Buyer all such owned trademarks, trade names, service marks, and
copyrights, and all such licenses or other rights.
n. Patents and Patent Rights. Exhibit M to this Agreement is a true
and complete schedule of all patents, inventions, industrial models, processes,
designs, and applications for patents owned by the Seller in which it has any
rights, licenses, or immunities (the "Intellectual Property"). The patents and
applications for patents listed in Exhibit M are valid and in full force and
effect and are not subject to any taxes, maintenance fees, or actions falling
due within ninety (90) days after the Closing Date. There have not been any
interference actions or other judicial, arbitration, or other adversary
proceedings concerning any of the Intellectual Property. To Seller's knowledge,
the manufacture, use, or sale of the Intellectual Property do not violate or
infringe on any patent or any proprietary or personal right of any person, firm,
or corporation; and to Seller's knowledge, the Seller has not infringed and is
not now infringing on any patent or other right belonging to any person, firm,
or corporation. The Seller is not a party to any license, agreement, or
arrangement, whether as licensee, licensor, or otherwise, with respect to any
patent, application for patent, invention, design, model,
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<PAGE>
process, trade secret, or formula. The Seller has the right and authority to use
and to transfer to Buyer the Intellectual Property as are necessary to enable it
to conduct and to continue to conduct all phases of its business in the manner
presently conducted by it, and that use does not, and will not, conflict with,
infringe on, or violate any patent or other rights of others.
o. Trade Secrets. Exhibit N to this Agreement is a true and complete
list, of the Seller's trade secrets, including all customer lists, processes,
know-how, computer programs and routines, archival libraries, pictures, and
other technical data. The specific location of each trade secret's
documentation, if any, including its description, specifications, charts,
procedures, and other material relating to it, is also set forth with it in that
Exhibit. To the extent that Seller has intended to completely memorialize its
trade secrets in a tangible readable form, each such trade secret's
documentation is current, accurate, and sufficient in detail and content to
identify and explain it and to allow its full and proper use by Buyer without
reliance on the special knowledge or memory of others. To Seller's knowledge,
the Seller is the sole owner of each of these trade secrets, free and clear of
any liens, encumbrances, restrictions, or legal or equitable claims of others.
The Seller has taken all reasonable security measures to protect the secrecy,
confidentiality, and value of these trade secrets; any of its employees and any
other persons who, either alone or in concert with others, developed, invented,
discovered, derived, programmed, or designed these secrets, or who have
knowledge of or access to information relating to them, have been put on notice
and, if appropriate, have entered into agreements that these secrets are
proprietary to the Seller and not to be divulged or misused. To Seller's
knowledge, all these trade secrets are presently valid and protectable and are
not part of the public knowledge or literature; nor to the Seller's knowledge
have they been used, divulged, or appropriated for the benefit of any past or
present employees or other persons, or to the detriment of the Seller.
p. Title to Assets. Seller has good and marketable title to all its
Assets and interests in Assets, whether real, personal, mixed, tangible, or
intangible, which constitute all the assets and interests in Assets that are
used in the business of the Seller. All these assets are free and clear of the
restrictions on or conditions to transfer or assignment, and free and clear of
mortgages, liens, pledges, charges, encumbrances, equities, claims, easements,
rights of way, covenants, conditions or restrictions, except the lien of current
taxes not yet due and payable and possible minor matters that, in the aggregate,
are not substantial in amount and do not materially detract from or interfere
with the present or intended use of any of these Assets or materially impair
business operations. The Seller is not in default or in arrears in any material
respect under any lease. All real property and tangible personal property of the
Seller is being sold in its "As Is" condition solely with respect to its
operating condition, wear and tear. The Seller is in possession of all premises
leased to it from others. No officer, director, or employee of the Seller; nor
any spouse, child, or other relative of any of these persons, owns, or has any
interest, directly or indirectly, in any of the real property leased to the
Seller or any copyrights, patents, trademarks, trade names, or trade secrets
licensed by the Seller or any other Asset. The Seller does not occupy any real
property in violation of any law, regulation, or decree.
q. Employment Contracts and Benefits. Seller has no employment
contracts or collective bargaining agreements, or pension, bonus,
profit-sharing, stock option, or other agreements or arrangements providing for
employee remuneration or benefits to which the Seller is a party or by which the
Seller is bound. Seller has not entered into any severance or similar
arrangement in respect of any present or former employee that will result in any
obligation, absolute or contingent, of Buyer, or the Seller to make any payment
to any present or former employee following termination of employment.
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r. Insurance Policies. Exhibit O to this Agreement is a description
of all insurance policies held by the Seller concerning its business and
properties. All these policies are in the respective principal amounts set forth
in Exhibit O. The Seller has maintained and now maintains (1) insurance on all
its Assets and business of a type customarily insured, covering property damage
and loss of income by fire or other casualty, and (2) adequate insurance
protection against all liabilities, claims, and risks against which it is
customary to insure. The Seller is not in default with respect to payment of
premiums on any such policy. No claim is pending under any such policy.
s. Other Contracts. The Seller is not a party to, nor is its
property bound by, any distributor's or manufacturer's representative or agency
agreement; any output or requirements agreement; any agreement not entered into
in the ordinary course of business; any indenture, mortgage, deed of trust, or
lease; or any agreement that is unusual in nature, duration, or amount
(including, without limitation, any agreement requiring the performance by the
Seller of any obligation for a period of time extending beyond one month from
the Closing Date or calling for consideration of more than Five Thousand Dollars
($5,000)); except the agreements listed in Exhibit P, copies of which have been
furnished to Buyer. There is no default or event that, with notice or lapse of
time or both, would constitute a default by any party to any of these
agreements. The Seller has not received notice that any party to any of these
agreements intends to cancel or terminate any of these agreements or to exercise
or not exercise any options under any of these agreements. The Seller is not a
party to, nor is any of its property bound by, any agreement that is materially
adverse to the business, properties, or financial condition of the Seller.
t. Compliance With Laws.
i) Environmental Protection Laws. The Seller has complied in
all
material respects with all federal, state, and local environmental protection
laws and regulations and has not been cited for any violation of any such law or
regulation. No material capital expenditures will be required for compliance
with any applicable federal, state, or local laws or regulations now in force
relating to the protection of the environment. There is no pending audit known
to the Seller or any of its officers or Directors by any federal, state, or
local governmental authority with respect to groundwater, soil, or air
monitoring; the storage, burial, release, transportation, or disposal of
hazardous substances; or the use of underground storage tanks by the Seller or
relating to the facilities of the Seller. The Seller does not have any agreement
with any third party or federal, state, or local governmental authority relating
to any such environmental matter or any environmental cleanup.
ii) OSHA Laws. The Seller has complied with all requirements of
the Occupational Safety and Health Act and its state equivalents and regulations
promulgated under any such legislation, the consequences of a violation of which
could have a material adverse effect on its operations, and with all orders,
judgments, and decrees of any tribunal under such legislation that apply to its
business or properties.
iii) Export Laws. The Seller is not in violation of any provision
of the Export Administration Act of 1979 or the Foreign Corrupt Practices Act of
1977.
iv) Fees or Commissions. The Seller has not directly or
indirectly paid or delivered any fee, commission, or other money or property,
however characterized,
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to any finder, agent, government official, or other party, in the United States
or any other country, that is in any manner related to the business or
operations of the Seller and that the Seller knows or has reason to believe to
have been illegal under any federal, state, or local law of the United States or
any other country having jurisdiction. The Seller has not participated, directly
or indirectly, in any boycott or other similar practice affecting any of its
actual or potential customers. The Seller has at all times done business in an
open and ethical manner.
v) Others. The Seller has complied with, and is not in
violation of, any applicable federal, state, or local statute, law, or
regulation (including, without limitation, any applicable building, zoning,
environmental protection, or other law, ordinance, or regulation) affecting its
properties or the operation of its business.
u. Litigation. There is not pending, or, to the best knowledge of
the Seller threatened, any suit, action, arbitration, or legal, administrative,
or other proceeding, or governmental investigation against or affecting the
Seller or any of its business, Assets, or financial condition. The Seller is not
in default with respect to any order, writ, injunction, or decree of any
federal, state, local, or foreign court, department, agency, or instrumentality.
The Seller is not presently engaged in any legal action to recover monies due to
damages sustained by it.
v. Interest in Customers, Suppliers and Competitors. No officer,
Director, shareholder, or employee of the Seller, nor any spouse or child of any
of them, has any direct or indirect interest in any competitor, supplier, or
customer of the Seller or in any person from whom or to whom the Seller leases
any real or personal property, or in any other person with whom the Seller is
doing business.
w. Full Disclosure. None of the representations and warranties made
by the Seller or made in any certificate or memorandum furnished or to be
furnished by the Seller or on its behalf, contains or will contain any untrue
statement of a material fact, or omits to state a material fact necessary to
make the statements made, in the light of the circumstances under which they
were made, not misleading.
x. Account. Seller is acquiring Buyer's Stock (the "Securities") for
investment for its own account, and not with a view to, or for resale in
connection with, any distribution thereof, and it has no present intention of
selling or distributing any such Securities. Seller understands that the
Securities have not been registered under the Securities Act of 1933, as amended
(the "Securities Act") by reason of a specific exemption from the registration
provisions of the Securities Act which depends upon, among other things, the
bona fide nature of the investment as expressed herein.
y. Access to Data. The Seller has had an opportunity to discuss
Buyer's business, management and financial affairs with its management and to
obtain any additional information which Seller has deemed necessary or
appropriate for deciding whether or not to acquire the Stock, including an
opportunity to receive, review and understand the disclosures and information
regarding the Buyer's financial statements, capitalization and other business
information as set forth in Buyer's Amended Form 10 filed with the Securities
and Exchange Commission ("SEC") on January 27, 1995 and subsequent 10-K and
10-KA, two 10-Qs and Proxy Statement filed with the SEC on October 30, 1995,
November 28, 1995, December 15, 1995, March 18, 1996, and June 14, 1996,
respectively, all incorporated herein by reference, together with all exhibits
referenced therein. Seller also acknowledges receiving a copy of Buyer's Private
Placement Memorandum dated January 2, 1996 prepared for Buyer's trade
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creditors. The Investor acknowledges that no representations or warranties, oral
or written, have been made by the Buyer or any agent thereof except as set forth
in this Agreement.
z. No Fairness Determination. Seller is aware that no federal, state
or other agency has made any finding or determination as to the fairness of
Seller's acquisition of the Securities, nor made any recommendation or
endorsement of the Securities.
aa. Knowledge And Experience. Seller or its officers, directors or
representatives, have such knowledge and experience in financial and business
matters, including investments in other start-up companies, that they are
capable, on behalf of Seller as applicable, of evaluating the merits and risks
of acquiring the Securities, and Seller is able to bear the economic risk of
such investment, including an assessment of the Risk Factors attached hereto as
Exhibit Q and incorporated herein by reference.
bb. Economic Risk. Seller is aware that it must bear the economic
risk of the investment in the Securities for an indefinite period of time
because the Securities have not been registered under the Securities Act, or
qualified under the California Corporate Securities Law of 1968, as amended
("California Securities Law"), and the Securities cannot be sold unless they are
subsequently registered under the Securities Act and the California Securities
Law, or an exemption from such registration and qualification is available.
cc. No Public Market. Seller is aware that there is currently no
public market for Buyer's Stock, although a limited market on the "pink sheets"
exists for some of Buyer's outstanding capital. There is no guaranty that
Buyer's Stock will be registered in the future for public sale. Seller
understands that the Securities cannot be readily sold or liquidated in case of
an emergency or other financial need. Seller has sufficient liquid assets
available so that the purchase and holding of the Securities will not cause it
undue financial difficulties.
dd. Restrictive Legends. Each certificate or other written
documentation representing any of Buyer's Stock which Seller is acquiring
hereunder and any other securities issued upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event (unless no longer
required in the opinion of the counsel for Buyer) shall be stamped or otherwise
imprinted with a legend substantially in the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES
LAW, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, OR
THE HOLDER RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THE SECURITIES
SATISFACTORY TO THE CORPORATION, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR
HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT AND THE QUALIFICATION REQUIREMENTS UNDER STATE LAW."
Buyer shall be entitled to enter stop transfer notices on its stock books with
respect to the Securities.
ee. Reliance. Seller is aware that Buyer is relying on the accuracy
of the above representations to establish compliance with Federal and State
securities laws.
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4. Buyer's Representations and Warranties. Buyer represents and warrants
to the Seller that:
a. Reorganization. All matters to be voted upon by Buyer's
shareholders as set forth in that certain Proxy Statement of Buyer dated January
24, 1996, distributed by Buyer to its shareholders have been approved.
b. Corporate Status. Buyer (i) is a corporation duly organized,
validly existing and in good standing under the laws of the State of California,
(ii) has the requisite corporate power and authority to own, lease, use and
operate its property and assets and to transact the business in which it is
engaged, and (iii) is duly qualified and is authorized to do business and is in
good standing in each jurisdiction where the ownership, leasing, use or
operation of its property or the conduct of its business makes such
qualification necessary, except where the failure to be so qualified would, in
the aggregate, not reasonably be expected to have a material adverse effect on
the Buyer and its subsidiaries, taken as a whole. "Material Adverse Effect" or
similar derivatives shall mean where the effect on Buyer would be a liability in
excess of $100,000.
c. Capitalization of Buyer. Immediately prior to execution of this
Agreement, Buyer's entire authorized capital stock consists of 300,000,000
shares of no par value Common Stock ("Buyer's Common Stock"), of which a total
of 60,704,083 shares are issued and outstanding, 30,000,000 shares of Series A
Preferred Stock, of which a total of 5,283,140 shares are issued and
outstanding, and 5,000,000 shares of Series B Convertible Preferred Stock, of
which a total of not in excess of 2,000,000 shares are issued and outstanding.
There are, and as of the Closing there will be, no shares of Buyer's Common
Stock issued and held by Buyer as treasury stock. All of Buyer's Common Stock
has been, and the Stock to be issued hereunder to Seller shall be, validly
issued, fully paid and non assessable and the issuance of which has not been,
nor will be, in violation of any preemptive right of stockholders.
d. Corporate Records and Authorization. All corporate records of
Buyer, including but not limited to the Articles of Incorporation, the Bylaws
(including all amendments to both) and all minutes of the proceedings of the
Board of Directors of Buyer and the shareholders thereof, are complete and
correct and will be made available to Seller immediately upon the execution of
this Agreement upon reasonable prior notice to Buyer.
e. Financial Statements. The certified financial statements of Buyer
for the fiscal years ending July 31, 1994, July 31, 1995, and the unaudited
financial statements for the quarterly periods thereafter ending January 31,
1996, as filed with the Securities and Exchange Commission (collectively, the
"Financial Statements"), contain true and accurate statements of each and all of
the assets and liabilities of Buyer and fairly and accurately present the
financial condition of Buyer as of said dates and the results of the operations
of Buyer for the periods then ended, and that said Financial Statements were
prepared by the accountants indicated therein for such fiscal years and by Buyer
for the two most recent quarterly periods, in accordance with generally accepted
accounting principles consistently applied (except for the absence of footnotes
for the last two quarterly periods). As of the Closing Date, Buyer will not have
any liabilities, obligations or commitments, secured or unsecured, absolute or
contingent which are not reflected in the Financial Statements and which would
reasonably be expected to have a material adverse effect on Buyer.
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<PAGE>
f. Directors' Authorization. This Agreement has been duly authorized
by Buyer's Board of Directors. This Agreement will not violate, with or without
the giving of notice and/or the passage of time, the Articles of Incorporation
or the Bylaws of Buyer, any mortgage, contract or other agreement or instrument
to which Buyer may be a party, and will be valid, binding and enforceable
against Buyer in accordance with its terms.
g. Subsidiaries. All of the outstanding shares of capital stock or
other equity interests in each subsidiary of Buyer (collectively, the
"Subsidiaries") have been duly authorized and validly issued, are fully paid and
nonassessable and are owned, of record and beneficially, by Buyer, free and
clear of all liens, encumbrances, restrictions and claims of any kind.
h. Consents. No order, consent, approval, license, authorization or
validation of, or filing, recording or registration with (except as have already
been obtained or made), or review or exemption by, and governmental or public
body or authority, or any subdivision thereof, or any bank is required in
connection with, (i) the execution, delivery or performance of this Agreement by
Buyer or (ii) the authorization, legality, validity, binding effect or
enforceability of this Agreement against Buyer, except where the failure to
obtain any such consent or approval would not have a material adverse effect on
Buyer and its subsidiaries, taken as a whole.
i. Compliance With Laws. At the Closing, Buyer will be in compliance
with all applicable laws, regulations and administrative orders of any country,
state, municipality or any subdivision thereof to which it or its business and
its employment of labor or use or occupancy of properties or any part thereof
may be subject. Buyer has all permits, licenses and franchises from governmental
agencies required to conduct its business as is now being conducted. Buyer has
not failed to comply with any statute, law, ordinance, regulation, rule or order
of any federal, state, local or other governmental agency, or any judgment,
decree, or order of any court, relating to or materially affecting its business
or its assets which would have a material adverse effect on Buyer.
j. Execution and Performance of Agreement. The execution and
performance by Buyer of this Agreement and the transactions contemplated hereby
will not violate any provision of, or result in the breach of, or constitute a
default under any law or any order, writ, injunction or decree of any court,
governmental agency or arbitration tribunal, or any contract, agreement or
instrument by which Buyer is or will at the Closing be bound.
k. Litigation. Neither Buyer nor any of its Subsidiaries is
presently engaged in or threatened with any litigation (including appeals of
lower court decisions, arbitration, claim or other legal proceedings or
governmental or any other investigation which (i) is material and adverse to
Buyer and its subsidiaries taken as a whole or (ii) questions the validity or
enforceability of this Agreement.
l. Accuracy of Information. No representation or warranty in this
Agreement, nor any of the material heretofore furnished or to be furnished to
Seller by Buyer or the employees, agents or representatives of Buyer contains or
will contain any untrue or misleading statement of a material fact, or omits or
will omit to state any material fact required to make the statements herein or
therein contained not misleading.
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5. The Seller's Obligations Before Closing. The Seller covenants that
from the date of this Agreement until the Closing:
a. Access to Premises and Information. Buyer and its counsel,
accountants, and other representatives shall have full access during normal
business hours to all properties, books, accounts, records, contracts, and
documents of or relating to the Seller. The Seller shall furnish or cause to be
furnished to Buyer and its representatives all data and information concerning
the business, finances, and properties of the Seller that may reasonably be
requested. To the extent feasible and without extra expense to Buyer, the
inspection may occur on the weekends or outside of the Seller's principal place
of business.
b. Conduct of Business in Normal Course. The Seller will carry on
its business and activities diligently and in substantially the same manner as
it has previously been carried out and shall not make or institute any unusual
or novel methods of manufacture, purchase, sale, lease, management, accounting,
or operation that vary materially from those methods used by the Seller as of
the date of this Agreement.
c. Preservation of Business and Relationships. The Seller will use
its best efforts to preserve its business organizations intact, to keep
available the services of present employees and to preserve its present
relationships with suppliers, customers, and others having business
relationships with it, including preserving all goodwill associated therewith.
d. Maintenance of Insurance. The Seller will continue to carry its
existing insurance, subject to variations in amounts required by the ordinary
operations of its business.
e. Employees and Compensation. The Seller will not do, or agree to
do, any of the following acts: (1) make any increase in compensation payable or
to become payable by it, to any officer, or director, or any increase greater
than the increase in the last year to any employee, sales agent, or
representative; (2) make any increase in benefits payable to any officer,
employee, sales agent, or representative under any bonus or pension plan or
other contract or commitment; or (3) modify any collective bargaining agreement
to which it is a party or by which it may be bound.
f. New Transactions. The Seller shall not, without Buyer's written
consent, do or agree to do any of the following acts:
i) Unusual Contracts. Enter into any contract, commitment, or
transaction not in the usual and ordinary course of its business; or
ii) Excessive Contracts. Enter into any contract, commitment, or
transaction in the usual and ordinary course of business involving an amount
exceeding Ten Thousand Dollars ($10,000), individually, or in the aggregate; or
iii) Capital Expenditures. Make any capital expenditures in
excess of Ten Thousand Dollars ($10,000) for any single item or One Hundred
Thousand Dollars ($100,000) in the aggregate, or enter into any leases of
capital equipment or property under which the annual lease charge is in excess
of Ten Thousand Dollars ($10,000); or
iv) Sale or Disposal. Sell or dispose of any capital Assets with
a fair market value exceeding Ten Thousand Dollars ($10,000) individually, or in
the aggregate.
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g. Payment of Liabilities and Waiver of Claims. The Seller shall not
do, or agree to do, any of the following acts: (1) waive or compromise any right
or claim; or (2) cancel, without full payment, any note, loan, or other
obligation owing to the Seller.
h. Existing Agreements. The Seller shall not modify, amend, cancel,
or terminate any of its existing contracts or agreements, or agree to do any of
those acts without Buyer's prior written consent.
i. Representations and Warranties True at Closing. All
representations and warranties of the Seller set forth in this Agreement and in
any written statements delivered to Buyer by the Seller under this Agreement
will also be true and correct as of the Closing Date as if made on that date.
6. Buyer's Obligations Before Closing.
a. Cooperation in Securing Third-Party Consents. Buyer will use its
best efforts to assist the Seller in obtaining the consent of all necessary
persons and agencies to the assignment and transfer to Buyer of any and all
properties, Assets, and agreements, including agreements with the United States
government or any of its agencies, to be assigned and transferred under the
terms of this Agreement.
7. Conditions Precedent to Buyer's Performance. The obligations of Buyer
to purchase the Assets under this Agreement are subject to the satisfaction, at
or before the Closing, of all the conditions set out below in this Section.
Buyer may waive any or all of these conditions in whole or in part without prior
notice; provided, however, that no such waiver of a condition shall constitute a
waiver by Buyer of any of its other rights or remedies, at law or in equity, if
the Seller shall be in default of any of its representations, warranties, or
covenants under this Agreement.
a. Accuracy of Representations and Warranties. Except as otherwise
permitted by this Agreement, all representations and warranties by the Seller in
this Agreement, or in any written statement that shall be delivered to Buyer by
it under this Agreement, shall be true on and as of the Closing Date as though
made at that time.
b. Performance. The Seller shall have performed, satisfied, and
complied with all covenants, agreements, and conditions required by this
Agreement to be performed or complied with by them, or any of them, on or before
the Closing Date.
c. No Material Adverse Change. During the period from October 25,
1996, to the Closing Date, there shall not have been any material adverse change
in the financial condition or the results of operations of the Seller, and shall
not have sustained any material loss or damage to its Assets, whether or not
insured, that materially affects its ability to conduct a material part of its
business.
d. Certification. Buyer shall have received a certificate, dated the
Closing Date, signed and verified by the Seller's president and treasurer,
certifying, in such detail as Buyer and its counsel may reasonably request, that
the conditions specified in paragraphs 7a-c (above) have been fulfilled.
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<PAGE>
e. Absence of Litigation. No action, suit, or proceeding before any
court or any governmental body or authority, pertaining to the transaction
contemplated by this Agreement or to its consummation, shall have been
instituted or threatened on or before the Closing Date.
f. Corporate Approval. The execution and delivery of this Agreement
by the Seller, and the performance of its covenants and obligations under it,
shall have been duly authorized by all necessary corporate and shareholder
action, and Buyer shall have received copies of all resolutions pertaining to
that authorization, certified respectively by the Secretary of the Seller.
g. Sales and Use Tax on Prior Sales and on this Sale. The Seller
agrees (i) to furnish to Buyer a clearance certificate from all applicable
jurisdictions regulating the payment of sales taxes and any related certificates
that Buyer may reasonably request as evidence that all sales and use tax
liabilities of the Seller accruing before the Closing Date have been fully
provided for or otherwise satisfied. Seller and Buyer shall each be responsible
for paying fifty percent (50%) of any taxes required to be paid to obtain such
clearance certificates; provided, however, that Seller shall remain liable for
any misrepresentations hereunder regarding taxes owed or any outstanding
liabilities of Seller.
h. Consents. All necessary agreements and consents of any parties to
the consummation of the transactions contemplated by this Agreement, or
otherwise pertaining to the matters covered by it, shall have been obtained by
the Buyer and the Seller and delivered to Buyer.
i. Approval of Documentation. The form and substance of all
certificates, instruments, opinions, and other documents delivered to Buyer
under this Agreement shall be satisfactory in all reasonable respects to Buyer
and its counsel.
8. Conditions Precedent to Seller's Performance. The obligations of the
Seller to sell and transfer the Assets under this Agreement are subject to the
satisfaction, at or before the Closing, of all the following conditions. The
Seller may waive any or all of these conditions in whole or in part without
prior notice; provided, however, that no such waiver of a condition shall
constitute a waiver by the Seller of any of its other rights or remedies, at law
or in equity, if Buyer should be in default of any of its representations,
warranties, or covenants under this Agreement.
a. Accuracy of Representations and Warranties. All representations
and warranties by Buyer contained in this Agreement or in any written statement
delivered by Buyer under this Agreement shall be true on and as of the Closing
Date as though such repre sentations and warranties were made on and as of that
date.
b. Performance. Buyer shall have performed and complied with all
covenants and agreements and satisfied all conditions that it is required by
this Agreement to perform, comply with, or satisfy, before or at the Closing.
c. Corporate Approval. All corporate action necessary or proper to
fulfill the Buyer's obligations to be performed under this Agreement on or
before the Closing Date shall have been obtained.
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d. Consents. All necessary agreements and consents of any parties to
the consummation of the transactions contemplated by this Agreement, or
otherwise pertaining to the matters covered by it, shall have been obtained by
the Buyer and the Seller and delivered to Buyer.
9. Obligations After Closing of the Parties.
a. Indemnification. Each party shall indemnify, defend, and hold
harmless the other party against and in respect of any and all claims, demands,
losses, costs, expenses, obligations, liabilities, damages, recoveries, and
deficiencies, including interest, penalties, and reasonable attorneys' fees,
that the other party shall incur or suffer, that arise, result from, or relate
to any breach of, or failure by a party to perform any of the representations,
warranties, covenants, or agreements in this Agreement or in any schedule,
certificate, Exhibit, or other instrument furnished or to be furnished by it
under this Agreement; provided, however, the parties' obligations under this
Paragraph 9.a. shall expire on December 31, 1998.
b. Use of Name. Seller agrees that after the Closing Date it shall
not use or employ in any manner directly or indirectly the names that Buyer has
purchased pursuant to this Agreement or any name that would be similar to such
names, and that it will take and cause to be taken all necessary action by its
Board of Directors, stockholders, and any other persons in order to make this
change in the Seller's name within ten (10) calendar days after the Closing
Date.
c. Name Change. The Seller agrees that immediately after the Closing
Date it will take all action required to change its name to a name that does not
employ in any manner directly or indirectly the names that Buyer has purchased
pursuant to this Agreement or any name that would be similar to such names.
10. Miscellaneous.
a. Brokers and Finders. Except as set forth in the Disclosure
Schedule, each party represents that it has not dealt with any broker or finder
in connection with any transac tion contemplated by this Agreement.
b. Costs and Expenses. Except as specifically provided in this
Agreement, each party shall pay all costs and expenses incurred or to be
incurred by it in negotiating and preparing this Agreement and in closing and
carrying out the transactions contemplated by this Agreement.
c. Form of Agreement. The subject headings of the paragraphs and
subparagraphs of this Agreement are included for convenience only and shall not
affect the construction or interpretation of any of its provisions.
d. Entire Agreement. This Agreement and the Exhibits and Schedules
attached hereto, all of which are incorporated by this reference herein,
constitute the entire agreement between the parties pertaining to the subject
matter contained in it and supersede all prior and contemporaneous agreements,
representations, and understandings of the parties. No supplement, modification,
or amendment of this Agreement shall be binding unless executed in writing by
all the parties. No waiver of any of the provisions of this Agreement shall be
deemed, or shall constitute, a waiver of any other provision, whether or not
similar,
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nor shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party making the waiver.
e. Counterparts. This Agreement may be executed simultaneously in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
f. Parties in Interest. Nothing in this Agreement, whether express
or implied, is intended to confer any rights or remedies under or by reason of
this Agreement on any persons other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third persons to any party to this
Agreement, nor shall any provision give any third persons any right of
subrogation or action over against any party to this Agreement.
g. Assignment. This Agreement shall not be assignable by either
party without the prior written consent of the other party. No such assignment
shall release the assigning party from its obligations under this Agreement.
Subject to the foregoing, this Agreement shall inure to the benefit of and be
binding upon Buyer, its successors and assigns and upon Seller, its successors
and assigns. Nothing in this Agreement, expressed or implied, is intended to
confer upon any other person any rights or remedies under or by reason of this
Agreement.
h. Attorneys' Fees and Costs. In the event of any litigation or
other dispute arising as a result of or by reason of this Agreement, the
prevailing party in any such litigation or other dispute shall be entitled to,
in addition to any other damages assessed, its reasonable attorneys' fees, and
all other costs and expenses incurred in connection with settling or resolving
such dispute. The attorneys' fees which the prevailing party is entitled to
recover shall include fees for prosecuting or defending any appeal and shall be
awarded for any supplemental proceedings until the final judgment is satisfied
in full. In addition to the foregoing award of attorneys' fees to the prevailing
party, the prevailing party in any lawsuit on this Agreement shall be entitled
to its reasonable attorneys' fees incurred in any post judgment proceedings to
collect or enforce the judgment. This attorneys' fees provision is separate and
several and shall survive the merger of this Agreement into any judgment.
i. Representations and Warranties. All representations, warranties,
covenants, and agreements of the parties contained in this Agreement, or in any
instrument, certificate, opinion, or other writing provided for in it, shall
survive the Closing.
j. Notices. All notices, requests, demands, instructions or other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given upon delivery, if
delivered personally or by one-day courier, or by facsimile transmission where
receipt is acknowledged by the receiving machine or if given by prepaid
telegram, or mailed first-class airmail, postage prepaid, registered or
certified mail, return receipt requested, shall be deemed to have been given 72
hours after such delivery, to the applicable party's address set forth on the
signature page herein. Either party hereto may change the address to which such
communications are to be directed by giving written notice to the other party
hereto of such change in the manner provided above.
k. Governing Law. This Agreement shall be construed in accordance
with, and governed by, the laws of the State of California, as applied to
contracts that are executed and performed entirely in California.
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l. Severability. If any provision of this Agreement is held invalid
or unenforceable by any court of final jurisdiction, it is the intent of the
parties that all other provisions of this Agreement be construed to remain fully
valid, enforceable, and binding on the parties.
m. Number and Gender. All terms in this Agreement shall be construed
to mean either the singular or the plural, masculine, feminine or neuter, as the
situation may demand. When the term Seller is used herein, it shall refer to
each entity within that definition.
n. Ambiguities. This Agreement has been negotiated at arms-length
and between persons sophisticated and knowledgeable in the matters dealt within
this Agreement. In addition, each party has had the benefit of legal advice from
experienced and knowledgeable legal counsel. Accordingly, any rule of law
(including California Civil Code ss.1654), or legal decision that would require
interpretation of any ambiguities in this Agreement against the party that has
drafted it, is not applicable and is waived. The provisions of this Agreement
shall be interpreted in a reasonable manner to effect the purpose of the
parties.
o. Bulk Sales Law. Buyer and Seller agree to waive compliance with
the provisions of the California law commonly known as the "Bulk Sales Law"
(Section 6101 eg seg. of the California Commercial Code).
p. Repurchase of ECAR/Escrow Shares. If Seller, or any affiliate of
Seller, directly or indirectly, shall recover possession of and title to
substantially all of the Assets at any time on, or prior to, the first
anniversary date following the Closing (the "Recovery Period"), then Buyer shall
have a right to repurchase the ECAR Shares and Escrow Shares at a per share
price of $0.30 within the longer of the Recovery Period and sixty (60) days
after such recovery.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
BUYER: SELLER:
U.S. ELECTRICAR, INC. SYSTRONIX CORPORATION
By: /s/ Roy Kusumoto By: /s/ Dan Rivers
--------------------------------- ------------------------------
(Signature) (Signature)
- -------------------------------------- -----------------------------------
(Print Name & Title) (Print Name & Title)
5 Thomas Mellon Circle, Suite 305 19850 South Magellan Drive
San Francisco, CA 94134 Torrance, CA 90502
With copy to: With copy to:
Donald C. Reinke, Esq. Francis W. Costello
Pezzola & Reinke, APC Whitman Breed Abbott & Morgan
1999 Harrison Street, Suite 1300 633 West Fifth Street, Suite 2100
Oakland, CA 94612 Los Angeles, CA 90071
The following Exhibits to this Agreement are included: (1) Secured Promissory
Note; (2) Purchase Money Security Agreement; and (3) Escrow Agreement. The
remainder of Exhibits are deemed not to be material in nature, and would be
prohibitively expensive to submit. The Exhibits are available for review from
the Company upon request.
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<PAGE>
U.S. ELECTRICAR, INC.
SECURED PROMISSORY NOTE
San Francisco, California
$829,978.39 October 25, 1996
U.S. ELECTRICAR, INC., a California corporation (the "Company"), the
principal office of which is located at San Francisco Executive Park, 5 Thomas
Mellon Circle, Ste. 305 San Francisco, CA 94134, for value received hereby
promises to pay to Systronix Corporation, a California corporation or registered
assigns, the sum of Eight Hundred Twenty-nine Thousand Nine Hundred
Seventy-eight and 39/100 U.S. Dollars ($829,978.39), or such lesser amount as
shall then equal the outstanding principal amount hereof on the terms and
conditions set forth hereinafter. The principal hereof and any unpaid accrued
interest hereon, as set forth below, shall be due and payable on, or before, the
thirtieth calendar day following the date of this Note (the "Due Date"). This
Note is entered into and delivered by the Company to Holder pursuant to that
certain Agreement For Purchase and Sale of Assets executed by the Company and
Holder on even date herewith (the "Purchase Agreement"). Any "C"apitalized terms
not defined herein shall have the meaning set forth in the Purchase Agreement.
The following is a statement of the rights of the Holder of this Note and
the conditions to which this Note is subject, and to which the Holder hereof, by
the acceptance of this Note, agrees:
1. Definitions. As used in this Note, the following terms, unless the
context otherwise requires, have the following meanings:
a. "Company" includes any corporation which shall succeed to or
assume the obligations of the Company under this Note.
b. "Holder," when the context refers to a holder of this Note, shall
mean any person who shall at the time be the registered holder of this Note.
2. Interest. Until all outstanding principal and interest on this Note
shall have been paid in full, interest shall be payable on the outstanding
principal balance of this Note, in arrears on the Due Date, at the rate of six
percent (6.0%) per annum accruing from the date of this Note (the "Loan Date")
(the "Interest Rate"). In the event that any portion of the principal amount of
this Note is not paid in full on, or before, the Due Date by depositing such
payment in the United States mails, postage prepaid, on, or before, the Due
Date, interest at the Interest Rate shall continue to accrue on the balance of
any unpaid principal and accrued interest until such balance is paid.
3. Prepayment. The Company may prepay any portion or all of the principal
balance or interest of this Note. Likewise, the Company shall pay Holder within
five (5) business days of receipt forty-five percent (45%) of any equity
financing received by the Company prior to the Due Date until all outstanding
principal and accrued hereunder is paid in full. Any prepayment of this Note
will be credited first against accrued interest then principal.
4. Purchase Money Security Interest. All principal and interest hereunder
shall be secured by the Assets. The Company shall be in "Default" hereunder if
any monies owed hereunder are not paid when due and payable. Upon Default, the
provisions set forth in the Purchase Money Security Agreement shall govern.
- 1 -
<PAGE>
5. Notices. Any notice required or permitted under this Note shall be
given in writing and shall be deemed effectively given upon personal delivery to
the party to be notified by hand or professional courier service or for mailings
from and to any address in North America (Canada, United States and Mexico) five
(5) days after deposit with the United States Post Office, by registered or
certified mail, postage prepaid and addressed to the party to be notified at the
address indicated for such party below, or at such other address as such party
may designate by ten (10) days' advance written notice to the other parties.
6. Governing Law. This Note shall be governed by, and construed in
accordance with, the laws of the State of California, applicable to contracts
between California residents entered into and to be performed entirely within
the State of California.
7. Attorneys' Fees. If any action at law or in equity is necessary to
enforce or interpret the terms of this Note, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and disbursements in addition to
any other relief to which such party may be entitled.
8. Heading; References. All headings used herein are used for convenience
only and shall not be used to construe or interpret this Note.
IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the
date first set forth above.
U.S. ELECTRICAR, INC.
By:
-------------------------------
(Signature)
-----------------------------------
(Print Name and Title)
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<PAGE>
PURCHASE MONEY SECURITY AGREEMENT
This Purchase Money Security Agreement ("Agreement"), dated October 15,
1996, is made by and between U.S. Electricar, Inc., a California corporation
("Debtor"), and Systronix Corporation, a California corporation ("Secured
Party").
RECITALS
A. Secured Party and Debtor have entered into an Agreement for Purchase
and Sale of Assets made effective as of October 25, 1996 (the "Purchase
Agreement") whereby Secured Party has agreed to sell to Debtor all of the
assets, properties and business of Secured Party (the "Assets");
B. Pursuant to the terms of the Purchase Agreement, Debtor has
concurrently herewith executed and delivered to Secured Party a promissory note
in the original principal amount of Eight Hundred Twenty Nine Thousand Nine
Hundred Seventy Eight Dollars and 39/100 ($829,978.39) (the "Promissory Note"),
which sum represents partial payment for the Assets of Secured Party:
C. Debtor has agreed with Secured Party that Debtor shall provide
security for the obligations of Debtor under the Promissory Note with a purchase
money first priority security interest in all of the Assets of the Secured Party
to be transferred to Debtor pursuant to the Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and conditions herein, the parties hereby agree as follows:
AGREEMENT
1. Grant of Security. As security for and in further consideration for
the obligations of Debtor under the Promissory Note and this Agreement, Debtor
hereby grants to Secured Party a security interest in all present and future
right, title and interest whatsoever of Debtor in or to, and all rights and
powers whatsoever of Debtor to transfer any interest in or to, in the following
property:
(a) the patents, service marks, trademarks, trade names, copyrights
(and registrations and applications therefor), processes, methods, patterns,
devices, formulae, discoveries, trade secrets and other know-how, all as
identified on Exhibit "A" attached hereto (the "Technology"); and
(b) the inventory, work-in-progress, parts, furniture, fixtures and
equipment listed on Exhibit "B" attached hereto (the "Personal Property"); and
<PAGE>
(c) the Debtor's interest in that certain Industrial Real Estate Lease
dated December 1, 1994, between Nakamichi U.S.A., Inc. ("Nakamichi") as
sublessor and Secured Party, as sublessee, for the premises located at 19850
South Magellan Drive, Torrance, California 90502 (the "Lease"); and
(d) the contracts identified in Exhibit "C" attached hereto (the
"Contracts"); and
(e) all accounts receivable or other amounts owing Secured Party as of
the Closing Date (as defined in the Purchase Agreement) (the "Receivables"); and
(f) all data, drawings, files and records pertaining to the
Technology, the Personal Property, the Lease, and the Receivables; and
(g) All other tangible and intangible property of Debtor relating to
or arising out of the Business, including but not limited to the name
"Systronix" and the mark "Panther"; and
(h) All rights, remedies, powers and/or privileges of Debtor with
respect to any of the foregoing; and
(i) Any and all proceeds of any of the foregoing, including, without
limitation, all money, accounts, general intangibles, deposit accounts,
documents, instruments, chattel paper, goods, insurance proceeds, and any other
tangible or intangible property received upon the sale or disposition of any of
the foregoing.
The property so described in this Section 1 shall be referred to hereafter
collectively as the "Collateral". Notwithstanding the foregoing, nothing herein
shall be deemed to grant Secured Party any security interest in any property
which does not comprise the "Assets" as of the date hereof except as referenced
in subparagraph (i) above.
2. Indebtedness. The Collateral secures and will secure all indebtedness
owed by Debtor to Secured Party under the Promissory Note and this Agreement.
3. Representations, Warranties and Covenants. Debtor hereby represents,
warrants and covenants that, unless compliance is waived by Secured Party in
writing:
(a) Debtor will properly maintain and care for the Collateral, not
cause or permit any waste or confiscation of the Collateral, and pay all taxes,
assessments and liens now or hereafter imposed on the Collateral;
- 2 -
<PAGE>
(b) Debtor will notify Secured Party in writing prior to any change in
Debtor's place of business, or, if Debtor has or acquires more than one place of
business, prior to any change in Debtor's chief executive office, the office or
offices where Debtor's books and records concerning the Collateral are kept, or
where Debtor's inventory is kept;
(c) Debtor will immediately notify Secured Party of any proposed or
actual change of Debtor's name, identity or corporate structure;
(d) Debtor will maintain such insurance covering the Collateral as is
customary for businesses similar to the business of Debtor;
(e) Debtor will not sell, contract for sale or otherwise dispose of
any of the Collateral except in the ordinary course of business as heretofore
conducted by Debtor;
(f) Debtor will promptly notify Secured Party in writing of any event
which affects the value of the Collateral, the ability of Debtor or Secured
Party to dispose of the Collateral, or the rights and remedies of Secured Party
in relation thereto, including, but not limited to, the levy of any legal
process against the Collateral and the adoption of any marketing order,
arrangement or procedure affecting the Collateral, whether governmental or
otherwise;
(g) Until Secured Party exercises its right to make collection, Debtor
will diligently collect all receivables and keep accurate books and records of
the receivables and all collections thereof; and
(h) The security interest granted to Secured Party on the date hereof
is and shall at all times remain first in priority, subject only to any liens or
encumbrances existing immediately prior to Secured Party's sale of the Assets to
Debtor under the Purchase Agreement, and Debtor shall not further encumber the
Collateral or any part thereof without the prior written consent of Secured
Party, nor shall Debtor transfer, convey or license any of the Collateral,
whether to an affiliate of Debtor or otherwise, except as otherwise permitted in
Section 3(e) hereof.
4. Additional Covenants. Debtor hereby agrees that Secured Party may at
any time at its option, whether or not Debtor is in default, do any one or more
of the following, and Debtor hereby agrees to promptly comply:
(a) Require Debtor to periodically deliver to Secured Party records
and schedules (in such form as deemed satisfactory to Secured Party) which show
the status and
- 3 -
<PAGE>
condition of the Collateral, where it is located and such contracts or other
matters which affect the Collateral;
(b) Verify the Collateral and, subject to reasonable confidentiality
requirements, inspect the books and records of Debtor and make copies thereof or
extracts therefrom where such records refer to or relate to the Collateral;
(c) Require Debtor to obtain Secured Party's prior written consent to
any sale, contract of sale or other disposition of any inventory or of any
products or other goods covered by any document of title not made in the
ordinary course of business;
(d) Notify any account debtors, any buyers of the Collateral, or any
other persons, of Secured Party's interest in the Collateral and the proceeds
thereof.
5. Defaults. Any one or more of the following shall be a default
hereunder:
(a) Debtor shall fail to pay any indebtedness owed to Secured Party
when due;
(b) Debtor shall breach any term, provision, warranty or
representation under this Agreement;
(c) Any financial statements, profit and loss statements,
certificates, or other statements furnished by Debtor to Secured Party hereunder
prove false or incorrect in any material respect; or
(d) An event of default shall have occurred under the Promissory Note
or the Purchase Agreement.
6. Remedies. In the event of any default hereunder,
Secured Party (in its sole discretion), may do any one or more of
the following:
(a) Declare any indebtedness secured hereby immediately due and
payable;
(b) Enforce the security interest given hereunder pursuant to the
California Commercial Code or any other law and enforce any other rights and
remedies of Secured Party under the Promissory Note;
(c) Require Debtor to assemble the Collateral and the records
pertaining to the Collateral and make them available to Secured Party at a place
designated by Secured Party;
- 4 -
<PAGE>
(d) Enter the premises of Debtor and take possession of the Collateral
and of the records pertaining to the Collateral;
(e) Grant extensions, compromise claims and sell the Collateral for
less than face value, all without prior notice to Debtor;
(f) Use, in connection with any assembly or disposition of the
Collateral, any trademark, trade name, trade style, copyright, patent right or
technical process used or utilized by Debtor;
(g) Proceed in the foreclosure of Secured Party's security interest
and sale of the Collateral in any manner permitted by law or this Agreement;
(h) Sell, lease or otherwise dispose of the Collateral at public or
private sale;
(i) Retain the Collateral in full satisfaction of the obligations
secured hereby and in connection therewith operate the Business;
(j) Require Debtor to segregate all collections and proceeds of the
Collateral so that they are capable of identification, and deliver daily such
collections and proceeds to Secured Party in kind;
(k) Require Debtor to deliver to Secured Party any receivables
evidenced by instruments or chattel paper;
(l) Require Debtor to direct all account debtors to forward all
remittances, payments and proceeds of the Collateral to a post office box under
Secured Party's exclusive control; or
(m) Demand and collect any receivables and any proceeds of the
Collateral. In connection therewith, Debtor irrevocably authorizes Secured Party
to endorse or sign Debtor's name on all collections, receipts or other
documents, take possession of and open the mail addressed to Debtor and remove
therefrom payments of receivables and proceeds of the Collateral.
7. Waivers. Debtor hereby waives, to the maximum extent permitted by
applicable laws, all demands, presentments and notices of every kind and nature,
including notice of any public or private judicial or nonjudicial sale or
foreclosure of any of the Collateral. Debtor further waives, to the maximum
extent permitted by applicable laws (i) any rights which it may have to require
Secured Party to conduct a public or private judicial or nonjudicial sale or
foreclosure of any of the Collateral or to pursue any other remedy; (ii) the
pleading of
- 5 -
<PAGE>
any statute of limitations as a defense to Debtor's obligations hereunder; (iii)
and any and all laws providing for exemption of property from execution or for
valuation and appraisal upon foreclosure; (iv) the benefit of, or any right to
participate in, any Collateral now or hereafter held by Secured Party; and (v)
any rights to require Secured Party to sell the Collateral in a commercially
reasonable manner. Debtor agrees that upon an event of default, Secured Party
shall automatically be deemed to be in possession of all of the Collateral
including, without limitation, the Technology. In the event Secured Party
elects, after an event of default, to retain the Collateral in full satisfaction
of the obligations secured hereby, Debtor agrees to immediately surrender to
Secured Party all of Debtor's rights, title and interest in and to the
Collateral. Debtor acknowledges an understanding of the consequences of each of
the foregoing waivers.
8. Relief from Automatic Stay. Debtor further agrees that, in
consideration of the recitals and mutual covenants contained herein, including,
but not limited to, the agreement of Secured Party to accept payment for the
Assets in installments as set forth in the Promissory Note, in the event Debtor
shall file, be the subject of any order for relief, or be the subject of any
petition under Title 11 of the United States Code, as now existing or later
amended (the "Bankruptcy Code"), Secured Party shall thereupon be entitled to
immediate relief from the automatic stay imposed by Section 362 of the
Bankruptcy Code, as now existing or later amended, against the exercise of
Secured Party's rights and remedies, including, but not limited to, foreclosure
remedies under this Agreement or as provided by applicable law.
Debtor acknowledges and represents that prior to payment of sums owing
under the Promissory Note (i) it does not have any equity in the Collateral as
that term is used in Section 362(d)(2)(A) of the Bankruptcy Code, and (ii) the
Collateral is not necessary to an effective reorganization of Debtor under
Section 362(d)(2)(A) of the Bankruptcy Code.
9. Miscellaneous.
(a) Any waiver, expressed or implied, of any provision hereunder and
any delay or failure by Secured Party to enforce any provision shall not
preclude Secured Party from enforcing any such provision thereafter.
(b) Debtor shall, at the request of Secured Party, execute such other
agreements, documents or instruments in connection with this Agreement as
Secured Party may reasonably deem necessary, including but not limited to a Form
UCC-1 Financing Statement and the recordation of the security interest granted
hereunder with the U.S. Patent and Trademark Office.
- 6 -
<PAGE>
(c) This Agreement shall be governed by and construed according to the
laws of the State of California.
(d) All rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies otherwise provided by law. Any single or
partial exercise of any right or remedy shall not preclude the further exercise
thereof or the exercise of any other right or remedy.
(e) All terms not defined herein are used as set forth in the
California Commercial Code.
(f) In the event of any litigation or other dispute arising as a
result of or by reason of this Agreement, the prevailing party in any such
litigation or other dispute shall be entitled to, in addition to any other
damages assessed, its reasonable attorneys' fees, and all other costs and
expenses incurred in connection with settling or resolving such dispute. The
attorneys' fees which the prevailing party is entitled to recover shall include
fees for prosecuting or defending any appeal and shall be awarded for any
supplemental proceedings until the final judgment is satisfied in full. In
addition to the foregoing award of attorneys' fees to the prevailing party, the
prevailing party in any lawsuit on this Agreement shall be entitled to its
reasonable attorneys' fees incurred in any post judgment proceedings to collect
or enforce the judgment. This attorneys' fees provision is separate and several
and shall survive the merger of this Agreement into any judgment.
(g) If any term, provision, covenant or condition of this Agreement is
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remainder of the provisions shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
(h) This Agreement shall not be released, discharged, changed or
modified in any manner, except by an instrument signed by a duly authorized
officer or representative of both Debtor and Secured Party. No oral explanation
or oral information by either of the parties hereto shall alter the meaning or
interpretation of this Agreement.
(i) This Agreement shall inure to the benefit of and be binding upon
the parties hereto and their successors and assigns; provided that Debtor shall
not be entitled to assign its obligations hereunder without Secured Party's
consent.
(j) All notices, requests, demands, and other communications hereunder
shall be in writing and shall be deemed given if delivered personally or three
(3) days after mailed by certified or registered mail, postage prepaid, return
receipt requested, to the parties, their successors in interest or their
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<PAGE>
assignees at the following addresses, or at such other addresses as the parties
may designate by written notice in the manner aforesaid:
If to Debtor, to: U.S. Electricar, Inc.
San Francisco Executive Park
5 Thomas Mellon Circle, Ste. 305
San Francisco, California 94134
Attention:
Telephone: (415) 656-2400
Facsimile: (415) 656-2404
with a copy to: Pezzola & Reinke
Attorneys At Law
Lake Merritt Plaza Building
1999 Harrison Street, Suite 1300
Oakland, California 94612
Attention: Donald C. Reinke, Esq.
Telephone: (510) 273-8750
Facsimile: (510) 834-7440
If to Secured Party, to: Systronix Corporation
19850 South Magellan Drive
Torrance, California 90502
Attention: Dr. Dan Rivers
Telephone: (310) 527-3841
Facsimile: (310) 527-7888
with a copy to: Whitman Breed Abbott & Morgan
633 West Fifth Street, Ste. 2100
Los Angeles, California 90071
Attention: Francis W. Costello
Telephone: (213) 896-2400
Facsimile: (213) 896-2450
- 8 -
<PAGE>
IN WITNESS WHEREOF, Debtor and Secured Party have caused this Agreement to
be duly executed on the date set forth above.
U.S. ELECTRICAR, INC. ("Debtor")
By:______________________________
Name:____________________________
Title:___________________________
SYSTRONIX CORPORATION ("Secured
Party")
By:______________________________
Name:____________________________
Title:___________________________
- 9 -
<PAGE>
EXHIBIT A
Technology
- 10 -
<PAGE>
EXHIBIT B
Personal Property
- 11 -
<PAGE>
EXHIBIT C
Contracts
- 12 -
<PAGE>
ESCROW AGREEMENT
This Agreement is made and entered into effective as of October 25, 1996,
by and among Pezzola & Reinke, a professional corporation (the "Escrow Agent"),
U.S. Electricar, Inc., a California corporation ("ECAR") and Systronix
Corporation, a California corporation (the "Company").
WITNESSETH:
WHEREAS, ECAR and the Company have entered into an Agreement For Purchase
And Sale of Assets, dated as of October 25, 1996 (collectively, with all
amendments, schedules, exhibits and certificates referred to therein, the
"Purchase Agreement"), which provides for the acquisition of substantially all
of the assets of the Company (the "Acquisition"); and
WHEREAS, the Purchase Agreement provides that on the effective date of the
Acquisition, certain shares of ECAR's common stock ("ECAR Common Stock"), to be
issued in the Acquisition, will be deposited in escrow with the Escrow Agent
pursuant to this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained in the Purchase Agreement and herein, the parties agree as follows:
1. Escrow and Escrow Shares.
a. Escrow. Subject to Section 2.a. of this Agreement, One Million
One Hundred Thousand (1,100,000) shares of ECAR Common Stock issuable in the
Acquisition shall be withheld and shall be delivered into escrow to the Escrow
Agent on the effective date of the Acquisition (such shares to be delivered into
escrow are referred to herein as the "Escrow Shares"). The Escrow Shares shall
be held and distributed by the Escrow Agent in accordance with the terms and
conditions of this Agreement.
2. Indemnification.
a. Survival of Representations, Warranties, Covenants and
Agreements.
(1) Except as set forth in Section 3.a. (below), the Escrow as
provided in Section 1.c. of the Acquisition Agreement shall terminate on
December 31, 1998 (the "Escrow Termination Date"). Likewise, except as set forth
in 2.a.(2) (below), all warranties and representations of the Company shall
terminate on December 31, 1998.
(2) Notwithstanding the foregoing, in the event of fraud or a
willful breach, the representations and warranties of the Company and its
indemnity obligations under Section 9 of the Purchase Agreement shall not
terminate. All representations, warranties, covenants and agreements shall
survive as to any claim or demand made prior to the Escrow Termination Date
until such claim or demand is fully paid or otherwise resolved by the parties
hereto in writing or by a court of competent jurisdiction.
<PAGE>
b. Claims for Indemnification.
(1) Whenever any claim shall arise for indemnification under the
Purchase Agreement, ECAR shall describe such claim in a written notice ("Notice
of Claim") to a Representative (as defined below) and, when known, specify the
facts constituting the basis for such claim and the amount or an estimate of the
amount of such claim. Each Notice of Claim shall (a) be signed by a
representative of ECAR, (b) contain a description of the claim and (c) specify
the amount of such claim.
(2) ECAR shall give such Representative prompt notice of any
claim for indemnification hereunder resulting from, or in connection with, any
claim or legal proceeding by a person who is not a party to this Agreement
("Third Party Claim") and, with respect to any Third Party Claim, such
Representative shall undertake the defense thereof by representatives reasonably
satisfactory to ECAR and such Representative. Such Representative shall not have
the right to settle or compromise or enter into any binding agreement to settle
or compromise, or consent to entry of any judgment arising from, any such claim
or proceeding in its sole discretion without the prior written consent of ECAR.
ECAR shall have the right to participate in any such defense of a Third Party
Claim with advisory counsel of its own choosing at the Company's expense. ECAR
shall have the right to undertake the defense, compromise or settlement of such
Third Party Claim on behalf of, and for the account of the Company, at the
expense and risk of the Company to the extent of its liability set forth in
Section 9 of the Purchase Agreement. The Company shall not settle or compromise
any such Third Party Claim or consent to entry of any judgment that does not
include, as an unconditional term thereof, the giving by the claimant or the
plaintiff to ECAR and/or ECAR's subsidiary or subsidiaries, or affiliate or
affiliates, as the case may be, an unconditional release from all liability in
respect of such Third Party Claim. Notwithstanding any provision herein to the
contrary, failure of ECAR to give any notice of any Third Party Claim required
hereunder shall not constitute a waiver of ECAR's right to indemnification or a
defense to any claim by ECAR hereunder.
3. Application of Escrow Shares.
a. Distribution of Escrow Shares/Notice. The Escrow Shares shall be
held as a source of satisfaction of indemnification claims made by ECAR under
Section 9 of the Purchase Agreement and this Agreement, its directors and
officers, and each other person, if any, who controls ECAR within the meaning of
the Securities Act of 1933, as amended (the "Act") (collectively, the
"Indemnified Parties" and, individually, an "Indemnified Party"). Within five
(5) business days after the Escrow Termination Date (the "Distribution Date"),
the Escrow Agent shall distribute to the Company all of the Escrow Shares, less
the number of Escrow Shares (in whole shares) having an aggregate market value
(determined as provided below) most nearly equal to the amount of any pending
claims asserted by the Indemnified Parties hereunder (the "Pending Claims"). The
value of such Pending Claims shall be determined in good faith by the Board of
Directors of ECAR, after taking into account such factors as the Board of
Directors shall deem appropriate, provided that if the Company by delivery of
written notice prior to the Distribution Date to the Escrow Agent does not agree
with the Board of Directors' determination of the amount of any such
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<PAGE>
Pending Claims, the amount of any such Pending Claims shall be finally
determined in accordance with this Agreement (the "Pending Claims Amount").
The Escrow Shares not so distributed shall be retained in escrow by the
Escrow Agent until all such Pending Claims are resolved and the Escrow Agent
receives written instructions from ECAR to distribute such Escrow Shares;
provided, that upon the disposition of any such Pending Claims prior to the
disposition of all such claims, the Escrow Agent shall, upon receipt of written
instructions from ECAR, deliver to the Company such number of Escrow Shares (in
whole shares) as is indicated in such written notice and as is most nearly equal
to the excess of the aggregate market value of the remaining Escrow Shares
(determined as provided below) over the amount of the remaining unresolved and
aggregate Pending Claims as determined above.
b. Value of Escrow Shares. For purposes of this Agreement, each
Escrow Share shall be deemed to have a value of $0.30 per share.
c. Ownership of Escrow Shares; Voting Rights. The Company shall
remain the registered owner of Escrow Shares while they are held in escrow and
shall retain the right to vote the Escrow Shares and receive distributions
thereon and the obligations to pay all taxes, assessment, and charges with
respect thereto, but the Company shall not have the right to sell, transfer,
pledge, hypothecate or otherwise dispose of any Escrow Shares; provided, that
any distribution of stock of ECAR on or with respect to the Escrow Shares and
any other shares or securities into which such Escrow Shares may be changed or
for which they may be exchanged pursuant to corporate action of ECAR affecting
holders of ECAR Common Stock generally shall be delivered to the Escrow Agent
and upon such delivery and receipt, held in escrow and shall be subject to the
provisions of this Agreement as if they were Escrow Shares. The Escrow Agent
shall have no responsibility or liability for shares or property not delivered
and received by it.
4. Escrow Agent.
a. Duties and Obligations. The duties and obligations of the Escrow
Agent are exclusively set forth in this Agreement, as each may from time to time
be amended. The Escrow Agent may request and rely upon, and shall be protected
in acting or refraining from acting upon, any written notice, request, wavier,
consent, receipt or other paper or document from ECAR, the Company, or any
Stockholder, not only as to its due execution and the validity and effectiveness
of its provision, but also as to the truth of any information therein contained,
that the Escrow Agent in good faith believes to be genuine and as to which the
Escrow Agent shall have no actual notice of invalidity, lack of authority or
other deficiency.
The Escrow Agent shall not be liable for any error of judgment, or for any
act done or step taken or omitted by it in good faith, or for any mistake of
fact or law, for anything which it may do or refrain from doing in connection
therewith, except for any liability arising from its own gross negligence or
willful misconduct.
The Escrow Agent shall be entitled to consult with competent and
responsible counsel of its choice and at its own cost and expense with respect
to the interpretation of the
-3-
<PAGE>
provisions hereof, and any other legal matters relating hereto, and shall be
fully protected in taking any action or omitting to take any action in good
faith in accordance with the advice of such counsel. The Escrow Agent shall be
entitled to request written instructions from ECAR or the Company as the case
may be, and shall have the right to refrain from acting until it has received
such written instructions.
The Escrow Agent shall not be responsible for following or interpreting any
condition set forth in the Purchase Agreement and shall only be bound by the
terms and conditions of this Agreement, as may be amended from time to time.
The Escrow Agent will be promptly paid or reimbursed upon request for any
and all reasonable expenses, fees, costs, disbursements and/or advances (except
attorney's fees) which may be incurred or made by it in accordance with the
provisions hereof.
b. Risk of Loss. The Escrow Agent acknowledges and agrees that the
Escrow Agent bears the exclusive risk of loss, theft or damage with respect to
the Escrow Shares in its possession.
c. Escrow Agent's Compensation. ECAR shall pay to the Escrow Agent
all compensation in respect of the Escrow Agent's duties and obligations under
this Agreement.
d. Resignation. The Escrow Agent may resign at any time by giving
not less than sixty (60) days written notice thereof to each of ECAR and the
Company. Within (60) days after the date hereof, ECAR and the Company shall
mutually agree on a replacement Escrow Agent for Pezzola & Reinke, APC. If the
Company and ECAR fail to so mutually agree within such sixty (60) day period,
the selection of a replacement Escrow Agent shall be submitted to binding
arbitration by JAMS/Endispute under the JAMS/Endispute Rules for Complex
Arbitration.
e. Successor Escrow Agent. Upon receipt of the Escrow Agent's notice
of resignation, ECAR and the Company may appoint a successor escrow agent. Upon
the acceptance of the appointment as escrow agent hereunder by a successor
escrow agent and the transfer to such successor escrow agent of the Escrow
Shares, the resignation of the Escrow Agent shall become effective and the
Escrow Agent shall be discharged from any future duties and obligations under
this Agreement.
f. Conflicting Demands. If on or before the close of escrow the
Escrow Agent receives or becomes aware of any conflicting demands or claims with
respect to the Escrow Shares or the rights of any of the parties hereto to such
Escrow Shares, the Escrow Agent shall have the right to discontinue any or all
further acts on the Escrow Agent's part until such conflict is resolved to the
Escrow Agent's satisfaction, and the Escrow Agent shall have the right to
commence or defend any action or proceedings for the determination of such
conflict. In the event any of the above-described events occur, ECAR and the
Company each agree to pay one half of all costs, damages, judgments and
expenses, including reasonable attorneys fees, suffered or incurred by the
Escrow Agent in connection with, or arising out of, such conflicting demands or
claims, including, without limitation, a suit in interpleader brought by the
Escrow Agent. ECAR and the Company each acknowledges that Escrow Agent is the
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<PAGE>
general corporate counsel to ECAR and waives any conflicts associated therewith
and hereby consents to Escrow Agent's role, rights and obligations hereunder
notwithstanding its position as ECAR's law firm in negotiating the terms and
conditions of this Escrow Agreement, and all ancillary documents referenced
herein or in connection therewith.
g. Indemnity. The Company and ECAR hereby agree to jointly and
severally indemnify the Escrow Agent for, and to hold it harmless against, any
loss, liability or expense arising out of or in connection with this Agreement
and carrying out its duties hereunder, including the costs and expenses of
defending itself against any claim or liability, except for acts or omissions by
the Escrow Agent that constitute gross negligence or willful misconduct.
Anything in this Agreement to the contrary notwithstanding, in no event shall
the Escrow Agent be liable for special, indirect or consequential loss or damage
or any kind whatsoever (including, but not limited to, lost profits), even if
the Escrow Agent has been advised of the likelihood of such loss or damage and
regardless of the form of action.
5. Miscellaneous.
a. Notices. Unless otherwise provided, all notices or other
communications required or permitted to be given to the parties hereto shall be
in writing and shall be deemed to have been given if personally delivered
(including personal delivery by facsimile, provided that the sender receives
telephonic or electronic confirmation that the facsimile was received by the
recipient), or three (3) days after mailing by certified or registered mail,
return receipt requested, first class postage prepaid, addressed as follows (or
at such other address as the addressed party may have substituted by notice
pursuant to this Section 5.a):
If to ECAR:
U.S. Electricar, Inc.
San Francisco Executive Park
5 Thomas Mellon Circle, Ste. 305
San Francisco, CA 94134
Attention: Legal Department
If to the Escrow Agent:
Pezzola & Reinke, A Professional Corporation
1999 Harrison Street, Suite 1300
Oakland, California 94612
Attn. Donald C. Reinke, Esq.
If to the Company:
Systronix Corporation
19850 South Magellan Drive
Torrance, California 90502
-5-
<PAGE>
b. Termination. This Agreement shall terminate upon the mutual
written express agreement of ECAR and the Company. In any event, this Agreement
shall terminate when all of the Escrow Shares have been distributed according to
its terms.
c. Interpretation. The validity, construction, interpretation and
enforcement of this Agreement shall be determined and governed by the laws of
the State of California. The invalidity or unenforceability of any provision of
this Agreement or the invalidity or unenforceability of any provision as applied
to a particular occurrence or circumstance shall not affect the validity or
enforceability of any of the other provisions of this Agreement or the
applicability of such provision, as the case may be. In the event of a conflict
between the terms of this Agreement and the Purchase Agreement, the terms of the
Purchase Agreement shall govern. All capitalized terms used in this Agreement,
unless otherwise defined herein, shall have the meanings ascribed to them in the
Purchase Agreement. No party hereto, nor its respective counsel, shall be deemed
the drafter of this Agreement for purposes of construing the provisions of this
Agreement, and all provisions of this Agreement shall be construed in accordance
with their fair meaning, and not strictly for or against any party hereto.
d. Attorneys' Fees. Should suit be brought to enforce or interpret
any part of this Agreement, the prevailing party shall be entitled to recover,
as an element of the costs of suit and not as damages, reasonable attorneys'
fees to be fixed by the court (including without limitation, costs, expenses and
fees on any appeal). The prevailing party shall be the party entitled to recover
its costs of suit, regardless of whether such suit proceeds to final judgment. A
party not entitled to recover its costs shall not be entitled to recover
attorneys' fees. No sum for attorneys' fees shall be counted in calculating the
amount of a judgment for purposes of determining if a party is entitled to
recover costs or attorneys' fees.
e. Venue. Any action or proceeding arising directly or indirectly
from this Agreement shall be litigated in an appropriate state or federal court
in the County of San Francisco, State of California.
f. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be deemed an original and all of which shall
constitute one agreement.
g. Transfer of Interests. The Company shall not sell, transfer,
pledge, hypothecate or otherwise dispose of any Escrow Shares, or any interest
therein prior to the distribution of such Escrow Shares in accordance with
Section 2.a. above.
h. Taxes. For purposes of federal and state income taxation, the
Escrow Shares shall be treated as owned by the Company and this Agreement shall
be interpreted in a manner to effect the Company's ownership of the Escrow
Shares for such tax purposes.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.)
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<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement on the day and
year first above written.
Pezzola & Reinke, A Professional Corporation, as Escrow Agent
By:
----------------------------------------------
Donald C. Reinke, Vice President and Secretary
U.S. ELECTRICAR, INC.,
a California corporation
By:
----------------------------------------------
(Signature)
- -------------------------------------------------
(Print Name & Title)
SYSTRONIX CORPORATION
By:
----------------------------------------------
(Signature)
- -------------------------------------------------
(Print Name & Title)
-7-
U.S. ELECTRICAR, INC.
1996 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants of the Company and its Subsidiaries and to promote the success of
the Company's business. Options granted under the Plan may be Incentive Stock
Options or Non-Qualified Stock Options, as determined by the Administrator at
the time of grant.
2. Definitions. As used herein, the following definitions shall apply:
a. "Administrator" means the Board or any of the Committees
appointed to administer the Plan.
b. "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.
c. "Applicable Laws" means the legal requirements relating to the
administration of stock option plans, if any, under applicable provisions of
federal securities laws, state corporate and securities laws, the Code, the
rules of any applicable stock exchange or national market system, and the rules
of any foreign jurisdiction applicable to Options granted to residents therein.
d. "Board" means the Board of Directors of the Company
e. "Code" means the Internal Revenue Code of 1986, as amended.
f. "Committee" means any committee appointed by the Board to
administer the Plan.
g. "Common Stock" means the common stock of the Company.
h. "Company" means U.S. Electricar, Inc., a California corporation.
i. "Consultant" means any person who is engaged by the Company or
any Parent or Subsidiary to render consulting or advisory services as an
independent contractor and is compensated for such services.
j. "Continuing Directors" means members of the Board who either (i)
have been Board members continuously for a period of at least thirty-six (36)
months or (ii) have been Board members for less than thirty-six (36) months and
were elected or nominated for election as Board members by at least a majority
of the Board members described in clause (i) who were still in office at the
time such election or nomination was approved by the Board.
k. "Continuous Status as an Employee, Director or Consultant" means
that the employment, director or consulting relationship with the Company, any
Parent, or Subsidiary, is not interrupted or terminated. Continuous Status as an
Employee, Director or Consultant shall not be considered interrupted in the case
of (i) any leave of absence approved by the Company or (ii)
<PAGE>
transfers between locations of the Company or between the Company, its Parent,
any Subsidiary, or any successor. A leave of absence approved by the Company
shall include sick leave, military leave, or any other personal leave approved
by an authorized representative of the Company. For purposes of Incentive Stock
Options, no such leave may exceed ninety (90) days, unless reemployment upon
expiration of such leave is guaranteed by statute or contract.
l. "Corporate Transaction" means any of the following
stockholder-approved transactions to which the Company is a party:
i. a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the state in which the Company is incorporated;
ii. the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the capital stock of
the Company*s subsidiary corporations) in connection with the complete
liquidation or dissolution of the Company; or
iii. any reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from those who held such securities
immediately prior to such merger.
m. "Covered Employee" means an Employee who is a "covered employee"
under Section 162(m)(3) of the Code.
n. "Director" means a member of the Board.
o. "Employee" means any person, including an Officer or Director,
who is an employee of the Company or any Parent or Subsidiary of the Company for
purposes of Section 422 of the Code. The payment of a director's fee by the
Company shall not be sufficient to constitute "employment" by the Company.
p. "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
q. "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
i. Where there exists a public market for the Common Stock, the
Fair Market Value shall be (A) the closing sales price for a Share for the last
market trading day prior to the time of the determination (or, if no sales were
reported on that date, on the last trading date on which sales were reported) on
the stock exchange determined by the Administrator to be the primary market for
the Common Stock or the Nasdaq National Market, whichever is applicable or (B)
if the Common Stock is not traded on any such exchange or national market
system, the average of the closing bid and asked prices of a Share on the Nasdaq
Small Cap Market for the day prior to the time of the determination (or, if no
such prices were reported on that date, on the last date on which such prices
were reported), in each case, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable; or
2.
<PAGE>
ii. In the absence of an established market of the type
described in (i), above, for the Common Stock, the Fair Market Value thereof
shall be determined by the Administrator in good faith.
r. "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
s. "Non-Qualified Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
t. "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
u. "Option" means a stock option granted pursuant to the Plan.
v. "Option Agreement" means the written agreement evidencing the
grant of an Option executed by the Company and the Optionee, including any
amendments thereto.
w. "Optioned Stock" means the Common Stock subject to an Option.
x. "Optionee" means an Employee, Director or Consultant who receives
an Option under the Plan.
y. "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
z. "Performance-Based Compensation" means compensation qualifying as
"performance-based compensation" under Section 162(m) of the Code.
aa. "Plan" means this 1996 Stock Option Plan.
bb. "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act
or any successor thereto.
cc. "Share" means a share of the Common Stock.
dd. "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3.
<PAGE>
3. Stock Subject to the Plan.
a. Subject to the provisions of Section 10, below, the maximum
aggregate number of Shares which may be optioned and sold under the Plan is
10,000,000 Shares. The Shares may be authorized, but unissued, or reacquired
Common Stock.
b. If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option exchange program,
such unissued or retained Shares shall become available for future grant under
the Plan (unless the Plan has terminated). Shares that actually have been issued
under the Plan shall not be returned to the Plan and shall not become available
for future distribution under the Plan, except that if unvested Shares are
forfeited, or repurchased by the Company at their original purchase price, such
Shares shall become available for future grant under the Plan.
4. Administration of the Plan.
a. Plan Administrator.
i. Administration with Respect to Directors and Officers. With
respect to grants of Options to Directors or Employees who are also Officers or
Directors of the Company, the Plan shall be administered by (A) the Board or (B)
a Committee designated by the Board, which Committee shall be constituted in
such a manner as to satisfy the Applicable Laws and to permit such grants and
related transactions under the Plan to be exempt from Section 16(b) of the
Exchange Act in accordance with Rule 16b-3. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board.
ii. Administration With Respect to Consultants and Other
Employees. With respect to grants of Options to Employees or Consultants who are
neither Directors nor Officers of the Company, the Plan shall be administered by
(A) the Board or (B) a Committee designated by the Board, which Committee shall
be constituted in such a manner as to satisfy the Applicable Laws. Once
appointed, such Committee shall continue to serve in its designated capacity
until otherwise directed by the Board. The Board may authorize one or more
Officers to grant such Options and may limit such authority by requiring that
such Options must be reported to and ratified by the Board or a Committee within
six (6) months of the grant date, and if so ratified, shall be effective as of
the grant date.
iii. Administration With Respect to Covered Employees.
Notwithstanding the foregoing, grants of Options to any Covered Employee
intended to qualify as Performance-Based Compensation shall be made only by a
Committee (or subcommittee of a Committee) which is comprised solely of two or
more Directors eligible to serve on a committee making Options qualifying as
Performance-Based Compensation. In the case of such Options granted to Covered
Employees, references to the "Administrator" or to a "Committee" shall be deemed
to be references to such Committee or subcommittee.
4.
<PAGE>
iv. Administration Errors. In the event an Option is granted in
a manner inconsistent with the provisions of this subsection (a), such Option
shall be presumptively valid as of its grant date to the extent permitted by the
Applicable Laws.
b. Powers of the Administrator. Subject to Applicable Laws and the
provisions of the Plan (including any other powers given to the Administrator
hereunder), and except as otherwise provided by the Board, the Administrator
shall have the authority, in its discretion:
i. to select the Employees, Directors and Consultants to whom
Options may be granted from time to time hereunder;
ii. to determine whether and to what extent Options are
granted hereunder;
iii. to determine the number of Shares to be covered by each
Option granted hereunder;
iv. to approve forms of Option Agreement for use under the
Plan;
v. to determine the terms and conditions of any Option
granted hereunder;
vi. to establish additional terms, conditions, rules or
procedures to accommodate the rules or laws of applicable foreign jurisdictions
and to afford Optionees favorable treatment under such laws; provided, however,
that no Option shall be granted under any such additional terms, conditions,
rules or procedures with terms or conditions which are inconsistent with the
provisions of the Plan;
vii. to amend the terms of any outstanding Option granted under
the Plan, including a reduction in the exercise price of any Option to reflect a
reduction in the Fair Market Value of the Common Stock since the grant date of
the Option, provided that any amendment that would adversely affect the
Optionee's rights under an outstanding Option shall not be made without the
Optionee's written consent;
viii. to construe and interpret the terms of the Plan and
Options granted pursuant to the Plan; and
ix. to take such other action, not inconsistent with the terms
of the Plan, as the Administrator deems appropriate.
c. Effect of Administrator's Decision. All decisions, determinations
and interpretations of the Administrator shall be conclusive and binding on all
persons.
5. Eligibility. Non-Qualified Stock Options may be granted to Employees,
Directors and Consultants. Incentive Stock Options may be granted only to
Employees. An Employee, Director or Consultant who has been granted an Option
may, if otherwise eligible, be granted additional Options. Options may be
granted to such Employees of the Company and its subsidiaries who are residing
in foreign jurisdictions as the Administrator may determine from time to time.
5.
<PAGE>
6. Terms and Conditions of Options.
a. Designation of Options. Each Option shall be designated as either
an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of Shares subject to Options designated as Incentive Stock Options which
become exercisable for the first time by an Optionee during any calendar year
(under all plans of the Company or any Parent or Subsidiary) exceeds $100,000,
such excess Options, to the extent of the Shares covered thereby in excess of
the foregoing limitation, shall be treated as Non-Qualified Stock Options. For
this purpose, Incentive Stock Options shall be taken into account in the order
in which they were granted, and the Fair Market Value of the Shares shall be
determined as of the date the Option with respect to such Shares is granted.
b. Conditions of Option. Subject to the terms of the Plan, the
Administrator shall determine the provisions, terms, and conditions of each
Option including, but not limited to, the Option vesting schedule (which in no
case shall be less than 20% per year over five years from the date of grant),
repurchase provisions, rights of first refusal, forfeiture provisions, and
satisfaction of any performance criteria. The performance criteria established
by the Administrator may be based on any one of, or combination of, increase in
share price, earnings per share, total stockholder return, return on equity,
return on assets, return on investment, net operating income, cash flow,
revenue, economic value added, personal management objectives, or other measure
of performance selected by the Administrator. Partial achievement of the
specified criteria may result in vesting corresponding to the degree of
achievement as specified in the Option Agreement.
c. Term of Option. The term of each Option shall be the term stated
in the Option Agreement, provided, however, that the term of an Incentive Stock
Option shall be no more than ten (10) years from the date of grant thereof.
However, in the case of an Incentive Stock Option granted to an Optionee who, at
the time the Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the term of the Option shall be five (5) years from the date of
grant thereof or such shorter term as may be provided in the Option Agreement.
d. Transferability of Options. Incentive Stock Options may not be
sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee.
Non-Qualified Stock Options shall be transferable to the extent provided in the
Option Agreement.
e. Time of Granting Options. The date of grant of an Option shall
for all purposes, be the date on which the Administrator makes the determination
to grant such Option, or such other date as is determined by the Administrator.
Notice of the grant determination shall be given to each Employee, Director or
Consultant to whom an Option is so granted within a reasonable time after the
date of such grant.
6.
<PAGE>
7. Option Exercise Price, Consideration and Taxes.
a. Exercise Price. The exercise price for an Option shall be as
follows:
i. In the case of an Incentive Stock Option:
(1) granted to an Employee who, at the time of the grant of
such Incentive Stock Option owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be not less than one hundred ten
percent (110%) of the Fair Market Value per Share on the date of grant.
(2) granted to any Employee other than an Employee described
in the preceding paragraph, the per Share exercise price shall be not less than
one hundred percent (100%) of the Fair Market Value per Share on the date of
grant.
ii. In the case of Options intended to qualify as
Performance-Based Compensation, the per Share exercise price shall be not less
than one hundred percent (100%) of the Fair Market Value per Share on the date
of grant.
iii. In the case of a Non-Qualified Stock Option:
(1) granted to a person who, at the time of the grant of
such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of the grant.
(2) granted to any person, the per Share exercise price
shall be no less than 85% of the Fair Market Value per Share on the date of the
grant.
b. Consideration. Subject to Applicable Laws, the consideration to
be paid for the Shares to be issued upon exercise of an Option including the
method of payment, shall be determined by the Administrator (and, in the case of
an Incentive Stock Option, shall be determined at the time of grant). In
addition to any other types of consideration the Administrator may determine,
the Administrator is authorized to accept as consideration for Shares issued
under the Plan the following:
i. cash;
ii. check;
iii. delivery of Optionee*s promissory note with such recourse,
interest, security, and redemption provisions provisions as the Administrator
determines as appropriate;
iv. surrender of Shares (including withholding of Shares
otherwise deliverable upon exercise of the Option) which have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised (but
7.
<PAGE>
only to the extent that such exercise of the Option would not result in an
accounting compensation charge with respect to the Shares used to pay the
exercise price unless otherwise determined by the Administrator);
v. delivery of a properly executed exercise notice together
with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price; or
vi. any combination of the foregoing methods of payment.
c. Taxes. No Shares shall be delivered under the Plan to any
Optionee or other person until such Optionee or other person has made
arrangements acceptable to the Administrator for the satisfaction of any
foreign, federal, state, or local income and employment tax withholding
obligations, including, without limitation, obligations incident to the receipt
of Shares or the disqualifying disposition of Shares received on exercise of an
Incentive Stock Option. Upon exercise of an Option, the Company shall withhold
or collect from Optionee an amount sufficient to satisfy such tax obligations.
8. Exercise of Option.
a. Procedure for Exercise: Rights as a Stockholder.
i. Any Option granted hereunder shall be exercisable at such
times and under such conditions as determined by the Administrator under the
terms of the Plan and specified in the Option Agreement.
ii. An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with the
terms of the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company. Until the issuance (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Shares, no right to vote or
receive dividends or any other rights as a stockholder shall exist with respect
to Optioned Stock, notwithstanding the exercise of an Option. The Company shall
issue (or cause to be issued) such stock certificate promptly upon exercise of
the Option. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the stock certificate is issued, except as
provided in the Option Agreement or Section 10, below.
b. Exercise of Option Following Termination of Employment, Director
or Consulting Relationship.
i. Upon termination of an Optionee's Continuous Status as an
Employee, Director or Consultant, other than upon the Optionee's death or
disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's
8.
<PAGE>
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified by the Administrator, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan.
ii. Disability of Optionee. If an Optionee's Continuous Status
as an Employee, Director or Consultant terminates as a result of the Optionee's
disability, the Optionee may exercise the Option to the extent the Option is
vested on the date of termination, but only within twelve (12) months from the
date of such termination (and in no event later than the expiration date of the
term of such Option as set forth in the Option Agreement). If such disability is
not a "disability" as such term is defined in Section 22(e)(3) of the Code, in
the case of an Incentive Stock Option such Incentive Stock Option shall
automatically convert to a Non-Qualified Stock Option on the day three months
and one day following such termination. If, on the date of termination, the
Optionee is not vested as to the entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Option is not exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
iii. Death of Optionee. In the event of the death of an Optionee,
the Option may be exercised at any time within twelve (12) months following the
date of death (but in no event later than the expiration of the term of such
Option as set forth in the Option Agreement) to the extent vested on the date of
death. If, at the time of death, the Optionee is not vested as to the entire
Option, the Shares covered by the unvested portion of the Option shall revert to
the Plan. The Option may be exercised by the executor or administrator of the
Optionee's estate or, if none, by the person(s) entitled to exercise the Option
under the Optionee's will or the laws of descent or distribution. If the Option
is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
c. Buyout Provisions. The Administrator may at any time offer to buy
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
9. Conditions Upon Issuance of Shares.
a. Shares shall not be issued pursuant to the exercise of an Option
unless the exercise of such Option and the issuance and delivery of such Shares
pursuant thereto shall comply with all Applicable Laws, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
b. As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any
Applicable Laws.
9.
<PAGE>
10. Adjustments Upon Changes in Capitalization. Subject to any required
action by the stockholders of the Company, the number of Shares covered by each
outstanding Option, and the number of Shares which have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan, as well as the price per share of Common
Stock covered by each such outstanding Option, shall be proportionately adjusted
for any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, or any other similar event resulting in
an increase or decrease in the number of issued shares of Common Stock. Except
as expressly provided herein, no issuance by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason hereof shall be made with respect to, the
number or price of Shares subject to an Option.
11. Corporate Transactions.
a. In the event of any Corporate Transaction, each Option which is
at the time outstanding under the Plan automatically shall become fully vested
and exercisable and be released from any restrictions on transfer and repurchase
or forfeiture rights, immediately prior to the specified effective date of such
Corporate Transaction, for all of the Shares at the time represented by such
Option. However, an outstanding Option under the Plan shall not so fully vest
and be exercisable and released from such limitations if and to the extent: (i)
such Option is, in connection with the Corporate Transaction, either to be
assumed by the successor corporation or Parent thereof or to be replaced with a
comparable Option with respect to shares of the capital stock of the successor
corporation or Parent thereof, or (ii) such Option is to be replaced with a cash
incentive program of the successor corporation which preserves the compensation
element of such Option existing at the time of the Corporate Transaction and
provides for subsequent payout in accordance with the same vesting schedule
applicable to such Option. The determination of Option comparability under
clause (i) above shall be made by the Administrator, and its determination shall
be final, binding and conclusive.
b. Effective upon the consummation of the Corporate Transaction, all
outstanding Options under the Plan shall terminate and cease to remain
outstanding, except to the extent assumed by the successor company or its
Parent.
c. The portion of any Incentive Stock Option accelerated under this
Section 11 in connection with a Corporate Transaction shall remain exercisable
as an Incentive Stock Option under the Code only to the extent the $100,000
dollar limitation of Section 422(d) of the Code is not exceeded. To the extent
such dollar limitation is exceeded, the accelerated excess portion of such
Option shall be exercisable as a Non-Qualified Stock Option.
12. Term of Plan. The Plan shall become effective upon the earlier to occur
of its adoption by the Board or its approval by the stockholders of the Company.
It shall continue in effect for a term of ten (10) years unless sooner
terminated.
10.
<PAGE>
13. Amendment, Suspension or Termination of the Plan.
a. The Board may at any time amend, suspend or terminate the Plan.
To the extent necessary to comply with Applicable Laws, the Company shall obtain
stockholder approval of any Plan amendment in such a manner and to such a degree
as required.
b. No Option may be granted during any suspension of the Plan or
after termination of the Plan.
c. Any amendment, suspension or termination of the Plan shall not
affect Options already granted, and such Options shall remain in full force and
effect as if the Plan had not been amended, suspended or terminated, unless
mutually agreed otherwise between the Optionee and the Administrator, which
agreement must be in writing and signed by the Optionee and the Company.
14. Reservation of Shares.
a. The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
b. The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
15. No Effect on Terms of Employment. The Plan shall not confer upon any
Optionee any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with his or her
right or the Company's right to terminate his or her employment or consulting
relationship at any time, with or without cause.
16. Stockholder Approval. The grant of Incentive Stock Options under the
Plan shall be subject to approval by the stockholders of the Company within
twelve (12) months before or after the date the Plan is adopted. Such
stockholder approval shall be obtained in the degree and manner required under
Applicable Laws. The Administrator may grant Incentive Stock Options under the
Plan prior to approval by the stockholders, but until such approval is obtained,
no such Incentive Stock Option shall be exercisable. In the event that
stockholder approval is not obtained within the twelve (12) month period
provided above, all Incentive Stock Options previously granted under the Plan
shall terminate.
17. Information to Optionees and Purchasers. The Company shall provide to
each Optionee, not less frequently than annually, copies of annual financial
statements. The Company shall also provide such statements to each individual
who acquires Shares pursuant to the Plan while such individual owns such Shares.
The Company shall not be required to provide such statements to Employees,
Directors or Consultants whose duties in connection with the Company assure
their access to equivalent information.
11.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE ANNUAL REPORT ON FORM 10-K OF U.S. ELECTRICAR, INC.
FOR THE YEAR ENDED JULY 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000922237
<NAME> U.S.ELECTRICAR,INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 13
<SECURITIES> 0
<RECEIVABLES> 856
<ALLOWANCES> 0
<INVENTORY> 2,387
<CURRENT-ASSETS> 3,440
<PP&E> 835
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,363
<CURRENT-LIABILITIES> 13,112
<BONDS> 3,987
<COMMON> 59,157
0
6,158
<OTHER-SE> (76,990)
<TOTAL-LIABILITY-AND-EQUITY> 4,363
<SALES> 4,209
<TOTAL-REVENUES> 4,209
<CGS> 5,370
<TOTAL-COSTS> 12,379
<OTHER-EXPENSES> 740
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,890
<INCOME-PRETAX> (11,501)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,501)
<DISCONTINUED> 0
<EXTRAORDINARY> (2,147)
<CHANGES> 0
<NET-INCOME> (9,354)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
