<PAGE> 1
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 4, 1996
PROSPECTUS
CRAGAR INDUSTRIES, INC.
1,000,000 Units
Each Unit Consisting of One Share of Common Stock
and One Common Stock Purchase Warrant
Cragar Industries, Inc., a Delaware corporation ("the Company"), hereby
offers (the "Offering") 1,000,000 shares of the Company's common stock, $0.01
par value (the "Common Stock"), and 1,000,000 warrants to purchase Common Stock
(the "Warrants"). The Common Stock and the Warrants offered hereby (hereinafter
collectively referred to as the "Units") may only be purchased under this
Offering together, as one share of Common Stock and one Warrant. The initial
public offering price for the Units will be $6.00 per Unit. See "Plan of
Distribution" for information relating to the factors considered in determining
the initial public offering price for a Unit. Each Warrant is separately
transferrable immediately upon issue and entitles the holder to purchase one
share of the Company's Common Stock at an exercise price of $7.20.
The minimum offering by the Company will be 666,667 Units ($4,000,002) and
the maximum offering will be 1,000,000 Units ($6,000,000). The Units are being
offered by the Company on a "best efforts, all or none" basis with respect to
the first 666,667 Units sold, and on a "best efforts" basis with respect to
sales of Units thereafter up to the maximum number of Units being offered.
Subscription payments for this Offering are irrevocable and will be deposited in
an escrow account at __________________________ (the "Escrow Agent"). This
Offering will terminate 120 days from the date of this Prospectus (__________,
1997) unless this Offering is otherwise extended one or more times in the
discretion of the Company for an additional period not to exceed 120 days
(through _______________, 1997) (the "Minimum Offering Period"), or unless
subscription funds for the minimum number of Units offered hereby have been
received and accepted prior to the end of the Minimum Offering Period. In no
event, however, may the Offering period exceed two years from the date of this
Prospectus. If subscriptions for the minimum number of Units offered hereby have
not been received and accepted by the Company by the end of the Minimum Offering
Period, no Units will be sold, and all funds held in escrow will be returned
promptly to investors with their proportionate share of interest, if any, earned
on the funds they deposited in the escrow account. See "Plan of Distribution."
There has been no public market for the Common Stock and the Warrants prior
to this Offering, and there can be no assurance that a public market will
develop or be maintained following this Offering. The initial public offering
price for the Units has been determined solely by the Company, and does not
necessarily bear any direct relationship to the Company's assets, operations,
book or other established criteria of value. See "Risk Factors" and "Dilution."
The Company has applied for inclusion on the National Association of
Securities Dealers Automated Quotation System ("Nasdaq") for the SmallCap Market
under the symbols "CRGR" for its Common Stock and "CRGRW" for its Warrants. In
the event that the Common Stock or Warrants are not accepted for inclusion upon
the Nasdaq, an investor would likely find it difficult to dispose of the Common
Stock or Warrants, or to obtain current quotations as to their value.
SEE "RISK FACTORS" AT PAGE 8 OF THIS PROSPECTUS FOR CERTAIN INFORMATION
WHICH SHOULD BE CAREFULLY CONSIDERED BEFORE PURCHASING THE UNITS OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=========================================================================
Underwriting
Price to Discounts and Proceeds to
Public(1) Commissions(2) Company(3)
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit $6.00 $0.30 $5.70
- ------------------------------------------------------------------------
Total Minimum $4,000,002 $200,000 $3,800,002
- ------------------------------------------------------------------------
Total Maximum $6,000,000 $300,000 $5,700,000
========================================================================
</TABLE>
(1) The Units are being offered for sale at $6.00 per Unit. A minimum
investment of 100 Units ($600) is required of each investor, provided that the
Company, in its discretion, may reduce the size of the minimum investment.
Payment in full is due upon subscription.
(2) The Units are being offered by the Company on a "best efforts, all or
none" basis with respect to the minimum number of Units offered hereby, and on a
"best efforts" basis with respect to sales of Units thereafter up to the maximum
number of Units being offered. The Company expects that it may also engage
independent broker/dealers who are members of the National Association of
Securities Dealers, Inc. ("Participating Dealers") to sell the Units. The
Company anticipates that it will pay Participating Dealers sales commissions
equal to 5% of the subscriptions sold by such Participating Dealers and, for
$0.01 each, an aggregate of up to 150,000 warrants, each warrant entitling the
holder to purchase one share of Common Stock at $7.20 (the "Dealer Warrants").
Participating Dealers will not receive selling commissions with respect to Units
sold by the Company or its officers or directors. No underwriting discounts or
commissions will be paid to such officers or directors. The Company will, under
certain circumstances, indemnify the Participating Dealers from certain civil
liabilities which may arise with respect to this Offering, including liabilities
under the Securities Act. See "Plan of Distribution."
(3) This amount is after payment of sales commissions, but before deduction
of offering and related expenses incurred by the Company in this Offering, which
are estimated as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee $ 4,329
Nasdaq Filing Fee 7,291
NASD Fee 1,929
Blue Sky Filing Fees and Expenses 25,000
Warrant Agent, Transfer Agent, and Registrar Fees 3,000
Printing Expenses 40,000
Legal Fees and Expenses 150,000
Accounting Fees and Expenses 95,000
Miscellaneous 73,451
------
Total $400,000
=======
</TABLE>
-----------------------
THE DATE OF THIS PROSPECTUS IS __________________ .
<PAGE> 2
CRAGAR
TRU~SPOKE
wire wheels
<PAGE> 3
<PAGE> 4
AVAILABLE INFORMATION
The Company has not been subject to the reporting requirements of the
Securities Exchange Act of 1934. The Company has filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form SB-2
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act with respect to the
securities being offered pursuant to this Prospectus. This Prospectus does not
contain all information set forth in the Registration Statement and exhibits and
schedules thereto, certain parts of which are omitted in accordance with the
rules and regulations of the Commission. The Registration Statement may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 25049 and at the regional
office of the Commission located at 5670 Wilshire Boulevard, 11th Floor, Los
Angeles, California 90036-3648. Copies of such material can be obtained at
prescribed rates from the Public Reference Room of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 25049. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy, and information statements
and other information regarding registrants, such as the Company, that file
electronically with the Commission. Statements contained in this Prospectus
concerning the provisions of any documents are not necessarily complete and in
each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
The Company intends to furnish to its stockholders annual reports
containing audited financial statements certified by independent public
accountants following the end of each fiscal year.
CRAGAR(R), Keystone(R) Klassic(R), Legacy(TM), CRAGAR LITE(TM), Star
Wire(TM), TRU~CRUISER(TM), Street Pro(R), S/S(R), The Wheel People(TM),
Blunt(TM), and TRU~SPOKE(R) are trademarks of the Company. This Prospectus also
contains trademarks of companies other than the Company.
SUBSCRIPTION INFORMATION
Subscribers purchasing Units should make checks payable to "_________
___________________, as Escrow Agent for Cragar Industries, Inc." Subscribers
must also complete a Subscription Agreement in the form of Appendix A to this
Prospectus. For convenience, a Subscription Agreement has also been included in
this Prospectus. Additional copies of the Subscription Agreement may be obtained
by writing, calling, or faxing the Company at its office, located at 4636 North
43rd Avenue, Phoenix, Arizona 85031, telephone (602) 247-1300, facsimile (602)
846-0684.
3
<PAGE> 5
PROSPECTUS SUMMARY
The following is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Except as otherwise indicated, the information in this
Prospectus assumes that 1,000,000 Units are issued pursuant to this Offering and
further assumes no exercise of (i) the Warrants included in the Units offered
hereby and any Dealer Warrants that may be offered hereby, and (ii) currently
outstanding warrants and options to purchase up to 284,463.2 shares of Common
Stock. Except as otherwise indicated, the information in the Prospectus also
assumes conversion of certain of the Company's outstanding notes that will be
automatically converted into 359,721.6 shares of Common Stock upon the date of
the Escrow Agent's release to the Company of at least $4,000,002 (the minimum
offering amount) from the escrow account (the "Closing Date"). In addition to
the other information in this Prospectus, prospective investors should
carefully consider the information set forth under the heading "Risk Factors."
THE COMPANY
CRAGAR Industries, Inc. ("CRAGAR" or the "Company") is a leading
developer, assembler, and distributer of high quality custom vehicle wheels and
wheel accessories. The Company possesses one of the most widely recognized and
positively regarded brand names in the automotive industry. CRAGAR's products
utilize unique technology and styling which enhance the individual appearance
and/or performance of cars, trucks, and vans.
CRAGAR's wheel products are sold in the automotive aftermarket through
a national distribution network of value-added resellers, including major tire
and automotive performance warehouse distributors, large tire and automotive
performance retailers, and mail order houses. Major resellers include Super
Shops, J. H. Heafner Company, Inc., and B & R Wholesale Tire. These resellers
provide a combination of services to CRAGAR, including, among others, stocking
large amounts of inventory, carrying out telemarketing campaigns, publishing
marketing literature and catalogs, distributing CRAGAR's marketing literature,
and providing on-site training to retail sales people. The Company supports
these sales efforts with a multifaceted marketing program focused on both
end-user consumers and the Company's resellers.
The Company's wide selection of custom wheels and components are
designed to appeal to automotive enthusiasts who desire to modify the styling,
design, or performance of their cars, trucks or vans. CRAGAR wheels are also
used by car and truck dealers to upgrade their inventory of vehicles. In order
to appeal to a variety of consumers groups, CRAGAR offers an assortment of
custom and specialty steel and aluminum wheels. These products are sold under a
number of tradenames, including CRAGAR, CRAGAR Lite, Keystone Klassic, S/S,
StarWire, TRU~CRUISER, and TRU~SPOKE. In addition, the Company offers a full
line of wheel accessories, including lug nuts, spacers, bolts, washers,
spinners, and hubcaps.
Specialty Equipment Market Associations ("SEMA") reports that the
custom wheel industry has grown at a rate of 15.5% per annum since 1991, from
manufacturer sales of approximately $420 million in 1991 to $650 million in
1994. The Company believes that consumer desire for individuality in vehicle
appearance will contribute to the Company's growth
4
<PAGE> 6
because custom wheels represent one of the easiest, least expensive, and
quickest ways to dramatically alter the appearance of a vehicle.
The Company's long-term revenue growth strategy is to increase its
presence as a leading niche marketer of high quality custom vehicle wheels and
wheel accessory products by capitalizing on consumer recognition of the "CRAGAR"
brand name and the Company's distribution network. The Company intends to
implement this strategy by:
- Continuing to build the CRAGAR name with enhanced marketing
and superior product quality
- Identifying and developing new product lines in order to build
its customer loyalty into a broader-based business, and
expanding existing product lines by manufacturing existing
products to fit additional applications
- Diversifying domestic product distribution by penetrating new
geographic areas and targeting key distributors and national
retail accounts to service its customer and consumer markets
- Expanding the Company's penetration into international markets
- Making strategic acquisitions or entering into joint ventures
or other business relationships with strategic partners.
The Company was incorporated in Delaware in December 1992. The
principal executive offices of the Company are located at 4636 North 43rd
Avenue, Phoenix, Arizona 85031. The Company's telephone number is (602)
247-1300.
5
<PAGE> 7
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Units offered by the Company 1,000,000 Units
Common Stock to be outstanding
after the Offering 2,290,304.96 shares
Use of Proceeds Repayment of debt and other
general corporate purposes,
including but not limited to,
marketing, product development
and enhancement, facility
improvement, and new ventures.
See "Use of Proceeds."
Risk Factors This offering involves a high
degree of risk. See "Risk
Factors."
Proposed Nasdaq Symbols Common Stock: CRGR; Warrants: CRGRW.
</TABLE>
6
<PAGE> 8
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------- ---------------------
1994 1995 1995 1996
------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
STATEMENTS OF OPERATIONS DATA:
<S> <C> <C> <C> <C>
Net sales $20,270 $22,936 $13,790 $12,528
------- ------- ------- -------
Gross profit 3,103 2,646 1,993 1,931
------- ------- ------- -------
Selling, general and administrative
expenses 3,888 2,912 1,529 1,377
Amortization of excess of fair value
of assets acquired over cost (738) (738) (369) (369)
------- ------- ------- -------
Income (loss) from operations (47) 472 833 923
Interest and other expenses, net 1,510 1,165 578 412
------- ------- ------- -------
Income (loss) before income taxes (1,557) (693) 255 511
------- ------- ------- -------
Extraordinary item 1,107 --- --- ---
------- ------- ------- -------
Net earnings (loss) $ (450) $ (693) $ 255 $ 480
======= ======= ======= =======
Net earnings (loss) per common and
common equivalent share $ (0.40) $(0.60) $ 0.22 $ 0.41
======= ======= ======= =======
Net earnings (loss) per common share--
assuming full dilution --- (1) --- (1) $ 0.18 $ 0.33
======= =======
Weighted average common and common
equivalent shares outstanding 1,120 1,154 1,148 1,174
======= ======= ======= =======
Weighted average common shares out-
standing--assuming full dilution --- (1) --- (1) 1,439 1,466
======= =======
DECEMBER 31, JUNE 30, 1996 (UNAUDITED)
1995 -------------------------
PROFORMA
ACTUAL AS ADJUSTED(2)
BALANCE SHEET DATA: Minimum Maximum
-------- ------------------------------------
Working capital $ 8,354 $ 8,346 $ 9,066 $ 9,066
Total assets 13,966 14,929 15,649 15,649
Long term debt(3) 10,531 10,165 5,349 3,449
Excess of fair value of
assets acquired over cost 1,475 1,106 1,106 1,106
Stockholders' equity (deficit) (1,604) (1,125) 4,125 6,025
</TABLE>
(1) Amounts are not disclosed as the impact of the convertible debt is
anti-dilutive.
(2) Adjusted to give effect to the sale by the Company of the maximum and
minimum number of Units offered hereby at the initial public price of $6.00
per Unit and the application of the estimated net proceeds therefrom. See
"Use of Proceeds."
(3) Does not include excess of fair value of assets acquired over cost. See
Note 3 of Notes to Financial Statements. See Notes 9, 10, 11 and 16 of
Notes to Financial Statements for a description of the Company's long-term
debt and lease obligations.
7
<PAGE> 9
RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should carefully consider the following risk factors in evaluating the
Company and its business before purchasing the Units offered hereby.
NO ASSURANCE OF PROFITABLE OPERATIONS
The Company was incorporated in December 1992, and incurred significant
losses in 1993, 1994, and 1995. For the six months ended June 30, 1996, the
Company achieved profitability with net earnings of approximately $480,000
(including $368,734 related to the amortization of negative goodwill) on total
revenues of approximately $12.5 million. The Company's ability to achieve
profitability as it pursues its business strategy will depend chiefly upon its
ability to: (i) expand its revenue-generating operations; (ii) reduce its
administrative overhead; (iii) adapt to the increasingly competitive market in
which it operates; and (iv) effectively manage its cost of sales. Outside
factors, such as the economic environment in which it operates, will also have
an effect on the Company's business.
DEPENDENCE ON KEY CUSTOMERS
A limited number of customers have accounted for a substantial portion
of the Company's revenues in each year. In 1995, the Company's ten largest
customers accounted for approximately 70.4% of its gross sales, with three
accounting for a total 44.9%. Super Shops, J. H. Heafner Company, Inc., and B &
R Wholesale Tire accounted for 23.6%, 11.8%, and 9.5% of gross sales,
respectively, in 1995. For the six months ended June 30, 1996, the Company's ten
largest customers accounted for approximately 75.4% of gross sales, with Super
Shops at 28.6%, J. H. Heafner Company, Inc. at 12.4%, and B & R Wholesale Tire
at 9.0%. The Company does not have any long-term contractual relationships with
any of its major customers. The loss, material reduction, or delay in orders by
any of the Company's major customers, including reductions due to market,
economic, or competitive pressures in the automotive aftermarket industry, could
adversely affect the Company's business, financial condition, and results of
operations. The Company's ability to obtain orders from new customers as well as
the financial condition and success of its current customers and the general
economy are critical to the Company's success in the future. There can be no
assurance that the Company will be able to maintain or continue to increase the
level of its sales in the future or that the Company will be able to retain
existing customers or attract new customers. See "Business - Distribution -
Sales and Marketing."
RISK OF PRODUCT LIABILITY
The nature of the Company's business exposes it to risk from product
liability claims. The Company currently maintains product liability insurance
for its products, with limits of $1,000,000 per occurrence and $2,000,000 in the
aggregate per annum. However, such coverage is becoming increasingly expensive
and there can be no assurance that the Company's insurance will be adequate to
cover future product liability claims, or that the Company will be successful in
maintaining adequate product liability insurance at commercially reasonable
rates. In addition, the Company is currently one of four defendants in a product
liability case that is
8
<PAGE> 10
not covered by insurance. While the Company is defending itself vigorously in
this matter, there can be no assurance that the ultimate resolution of this case
will not result in a material adverse effect on the Company's financial
condition. Any losses that the Company may suffer as a result of this or any
future liability claims, including the successful assertion against the Company
of claims in excess of the Company's coverage, may have a material adverse
effect on the Company's business, financial condition, and results of
operations. In addition, any product liability litigation may have a material
adverse effect on the reputation and marketability of the Company's products.
See "Business - Product Warranties" and "Business - Legal Proceedings."
VARIABILITY IN QUARTERLY OPERATING RESULTS; SEASONALITY
The Company may experience significant fluctuations in future quarterly
operating results due to a number of factors including, among other things, the
size and timing of customer orders, delays in new product enhancements and new
product introductions, vendor quality control and delivery difficulties, market
acceptance of new products, product returns, seasonality in product purchases by
distributors and end users, and pricing trends in the automotive aftermarket
industry in general and in the specific markets in which the Company is active.
Any of these factors could cause quarterly operating results to vary
significantly from prior periods. Historically, the Company's net sales have
been highest in the first and second quarters of each year. Significant
variability in orders during any period may have an adverse impact on the
Company's cash flow or work flow, and any significant decrease in orders could
have a material adverse impact on the Company's results of operations and
financial conditions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
DEPENDENCE ON THIRD PARTY SUPPLY AND MANUFACTURING RELATIONSHIPS
The Company's business is dependent upon the assembly of parts that it
obtains from its suppliers. Consequently, an interruption in the supply, a
significant increase in the price of such supplies, or a reduction in the
quality or condition of supplies could have a material adverse effect on the
Company's results of operations and financial condition. The Company in the
past, from time to time, has experienced delays in delivery of products from
vendors. In addition, one of the Company's significant suppliers is located in
China, which has been subject to numerous trading restrictions by the United
States from time to time. The Company also has suppliers in the Philippines and
Taiwan.
The parts obtained by the Company are primarily metal products, the
cost of which could vary greatly due to shortages in the availability of certain
raw materials. Due to the competitive nature of its marketplace, the Company may
not be able to pass on all of such costs to its customers. Furthermore, there
can be no assurance that such materials will be delivered on a timely basis or
on terms favorable to the Company. Although the Company believes that
alternative sources of supply exist or can be developed, if the Company loses
its present sources of supply for these materials, or is not able to obtain such
materials on favorable terms or experiences delays in receiving them, there may
result from any one of such events a material adverse effect the Company's
results of operations and financial condition. See "Business - Manufacturing."
9
<PAGE> 11
COMPETITION
The market for the Company's products is highly competitive and is
based primarily on (i) product selection, (ii) product availability, (iii)
quality, (iv) design innovation, (v) price, and (vi) service. Many of the
Company's competitors have substantially greater financial and other resources
than the Company and may offer lower prices on competing products. Another key
competitive factor among suppliers of automotive aftermarket products is the
ability to promptly deliver products to dealers and distributors and,
accordingly, even smaller regional companies may be able to compete effectively
against the Company. The Company has experienced delays in product shipments
arising out of problems with its vendors and arising from the Company's move in
1993 from Compton, California to Phoenix, Arizona.
Increased competition could result in product price reductions, reduced
margins, and loss of market share, all of which could have a material adverse
effect on the Company's results of operations and financial condition. While the
Company believes that it offers a wide selection of wheels and that its prices
are competitive given the quality level of its products, the Company relies on
its reputation for selling quality products and on its strong brand-name
recognition. There can be no assurance that the Company will be able to compete
successfully in the future with its competitors. The Company continually strives
to develop new and innovative designs and technologies to differentiate its
products from those of its competitors. There can be no assurance that the
Company will be able to develop sufficient new designs and technologies and any
failure to do so could have a material adverse effect on its results of
operations and financial condition. See "Business - Competition."
CHANGING CUSTOMER TRENDS
The Company's success is substantially dependent upon the continued
success of its traditional wheel product lines. There can be no assurance that
the Company's traditional wheel designs will continue to enjoy acceptance among
the Company's customers or that any new wheel designs will enjoy acceptance by
the Company's customers. Furthermore, various federal, state, and local laws
regulating automobile emissions may have the effect of reducing the number of
older cars in operation in the future. In such event, the demand for the
Company's traditional wheel product lines may be reduced.
The Company's success is also dependent in part on its ability to
correctly and consistently anticipate, gauge, and respond in a timely manner to
changing consumer preferences. The Company attempts to minimize the risks
relating to changing consumer trends by offering a wide variety of product
styles, analyzing consumer purchases, maintaining active product development
efforts, and monitoring sales of its products. However, any misjudgment by the
Company of the market for a particular product, or its failure to correctly
anticipate consumer preferences, could have a material adverse impact on its
results of operations and financial condition. See "Business - Product
Development."
DEPENDENCE ON EXTERNAL FINANCING
The Company has borrowed, and will continue to borrow, substantial
amounts to fund its operations from financing companies and other lenders.
Currently, the Company receives
10
<PAGE> 12
financing pursuant to a revolving credit facility (the "Credit Facility") with
Norwest Business Credit, Inc. ("Norwest"). The Credit Facility, which extends
through April 15, 1998, has a maximum commitment of $9,500,000, and is subject
to, among other things, the Company's collateral availability at the time of
borrowing and the satisfaction of certain financial covenants. The Credit
Facility is secured by substantially all of the Company's assets. The aggregate
principal amount outstanding under the Credit Facility as of June 30, 1996 was
approximately $6,980,827, and the amount available to be borrowed, based on
collateral availability, was approximately $257,000. The interest rate on the
Credit Facility is variable based on the prime rate. Accordingly, the Company's
interest expense could rise if interest rates increase.
Among the financial covenants in the Credit Facility is a prohibition
against the Company paying dividends without Norwest's prior consent. Other
financial covenants include the maintenance of specified cumulative net income
and adjusted net worth levels and of a specified debt service covenant ratio.
There can be no assurance that the Company will be able to satisfy the terms
and conditions of the Credit Facility or that the Credit Facility will be
extended beyond its current expiration date of April 15, 1998.
FUTURE CAPITAL REQUIREMENTS
To the extent that the proceeds from this Offering and cash flow from
operations are insufficient to fund the Company's activities, the Company will
be required to raise additional funds through equity or debt financings. No
assurance can be given that such financings will be available on terms
acceptable to the Company, if at all. Moveover, such financings, if available,
may result in further dilution to the Company's shareholders and in higher
interest expense. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."
ADVERSE EFFECT OF REDUCED DISCRETIONARY CONSUMER SPENDING
Purchases of specialty automotive aftermarket products are
discretionary for consumers. The success of the Company is influenced by a
number of economic factors affecting disposable income, such as employment
levels, business conditions, interest rates, and tax rates. Adverse changes in
these economic factors, among others, may cause consumers to reduce
discretionary spending for the Company's products, thereby adversely affecting
the Company's results of operations and growth.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of the Common Stock in the
public market following this Offering could adversely affect the market price of
the Common Stock. Certain shareholders of the Company have agreed pursuant to
"lock-up" agreements (the "Lock-up Agreements") that they will not, without the
prior written consent of the Company, offer, sell, or otherwise dispose of
shares of Common Stock or presently outstanding options and warrants
beneficially owned by them for a specified period of time following this
Offering. Holders of approximately 765,710.87 shares of Common Stock and
approximately 113,137.5 presently outstanding options and warrants have agreed
to a six month lock-up period (agreeing not to offer, sell, or otherwise
dispose of their securities for a period of six months from the date of this
11
<PAGE> 13
Prospectus), and holders of approximately 524,594.09 shares of Common Stock and
approximately 171,325.7 presently outstanding options and warrants have agreed
to a three month lock-up period (agreeing not to offer, sell, or otherwise
dispose of their securities for a period of three months from the date of this
Prospectus). Upon the expiration of the Lock-up Agreements, these securities
will become eligible for sale in the public market, subject to the provisions of
Rule 144 under the Securities Act of 1933, as amended (the "Securities Act").
The Company intends to file a registration statement under the Securities Act
after consummation of this Offering to register shares to be issued pursuant to
the Company's 1996 Stock Option and Restricted Stock Plan and the 1996
Non-Employee Directors' Option Plan. See "Description of Securities - Shares
Eligible for Future Sale."
ENVIRONMENTAL COMPLIANCE
In the ordinary course of its assembling process, the Company uses
metals, oils, and similar materials which are stored on site. The waste created
by use of these materials is transported off-site on a regular basis by a
state-registered waste hauler. Although the Company is not aware of any claim
involving the violation of environmental or occupational safety and health laws
and regulations, there can be no assurance that such a claim may not arise in
the future, which may have a material adverse effect on the Company.
CONTROL BY EXISTING SHAREHOLDERS
The directors, officers, and principle shareholders of the Company,
will beneficially own approximately 40% of the Company's outstanding voting
securities upon completion of this Offering. Because of their stock ownership
and positions with the Company, these persons will be in a position to continue
to control the affairs and management of the Company. Such concentration of
ownership and control may have the effect of delaying, deferring, or preventing
a change in control of the Company. See "Principal Shareholders" and
"Description of Capital Stock."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends, in large part, on the efforts and
abilities of its management team, including Michael L. Hartzmark, Ph.D., its
President and Chief Executive Officer. The loss of the services of Dr. Hartzmark
could have a material adverse effect on the business of the Company. There is no
assurance that Dr. Hartzmark will remain employed by the Company. However, prior
to this Offering, Dr. Hartzmark and his family held over 21% of the Company's
Common Stock. In addition, the success of the Company will depend on, among
other factors, the successful recruitment and retention of qualified management
and other personnel. See "Management."
EFFECT OF PREFERRED STOCK ON RIGHTS OF COMMON STOCK
The Board of Directors of the Company is authorized to issue, from time
to time, without any action on the part of the Company's shareholders, up to
200,000 shares of Preferred Stock in one or more series, with such relative
rights, powers, preferences, limitations, and restrictions as are determined by
the Board of Directors at the time of issuance. Accordingly, the Board
12
<PAGE> 14
of Directors is empowered to issue preferred stock with dividend, liquidation,
conversion, voting, or other rights which could adversely affect the voting
power or other rights of the holders of Common Stock. In the event of such
issuance, the preferred stock could be utilized, as a method of discouraging,
delaying, or preventing a change in control of the Company. See "Description of
Capital Stock - Preferred Stock."
INTERNATIONAL SALES
A significant element of the Company's business strategy is to continue
to expand into selected international markets. In 1995 and during the six month
period ended June 30, 1996, the Company derived approximately 5.4% and 5.8%,
respectively, of total gross sales from international markets. The Company's
international sales efforts are subject to the customary risks of doing business
abroad, including exposure to regulatory requirements, political and economic
instability, barriers to trade, trade restrictions (including import quotas),
tariff regulations, foreign taxes, restrictions on transfer of funds, difficulty
in obtaining distribution and support, and export licensing requirements, any of
which could have a material adverse effect on the Company's operations. In
addition, a weakening in the value of foreign currencies relative to the U.S.
dollar and potential fluctuations in foreign currency exchange rates could have
an adverse impact on the price of the Company's products in its international
markets. See "Business - Distribution, Sales and Marketing."
ABSENCE OF PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for Common
Stock. There can be no assurance that an active trading market will develop
after completion of this Offering or, if developed, that it will be sustained.
There can be no assurance that the market price of the Common Stock will not
decline below the initial offering price. As discussed above under "Variability
in Quarterly Operating Results; Seasonality," quarterly fluctuations in the
Company's financial performance can be caused by many factors. The securities of
many emerging companies have experienced price and volume fluctuations which
are, at times, unrelated or disproportionate to the operating performance of
such companies. Such fluctuations may be the result of changes in conditions
affecting the economy in general, analysts' reports, general trends in the
industry, and other events or factors. These conditions may have a material
adverse effect on the market price of the Common Stock.
DILUTION
Purchasers of the Units offered hereby will incur immediate substantial
dilution in net tangible book value of the Common Stock. The conversion of
existing convertible notes or the exercise of warrants and options also have an
additional dilutive effect on the interests of the purchasers of the Units. See
"Dilution."
LACK OF CURRENT SPECIFIC PLANS FOR SUBSTANTIAL PORTION OF OFFERING PROCEEDS.
The Company does not have current specific plans for all of the
proceeds to be received from this Offering. As a result of the lack of current
specific plans, management has a large
13
<PAGE> 15
amount of discretion as to how the proceeds of the Offering will be used. See
"Use of Proceeds."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Units (after
deducting estimated commissions and offering expenses) are estimated to be
$5,300,000 if the maximum number of 1,000,000 Units are sold and $3,400,002 if
the minimum number of 666,667 Units are sold.
The Company intends to use $1,500,000 of the net proceeds to repay
certain promissory notes privately issued by the Company on July 1, 1996 (the
"Bridge Notes"). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources - Bridge
Notes." The Bridge Notes are due in full on June 30, 1998 or earlier in certain
circumstances, including within 30 days following the initial underwritten
public offering of the Company's Common Stock. The Bridge Notes bear interest at
the rate of 8% per annum payable on June 30 of each year. The Company used
$779,727 of the proceeds from the issuance of the Bridge Notes to satisfy a
$1,110,216 obligation to one of its creditors. See "Certain Transactions."
The Company intends to use the remaining proceeds of this Offering
(approximately $3,800,000 if the maximum number of Units are sold and
approximately $1,900,002 if the minimum number of Units are sold) to reduce the
debt outstanding under the Credit Facility with Norwest. The Credit Facility,
which extends through April 15, 1998, has a maximum commitment of $9,500,000,
and is subject to, among other things, the Company's collateral availability at
the time of borrowing and the satisfaction of certain financial covenants.
Interest is due monthly at the prime rate plus 2.25%. The aggregate principal
amount outstanding under the Credit Facility as of June 30, 1996 was
approximately $6,980,827, and the amount available to be borrowed was
approximately $257,000.
Subject to the Company's collateral availability and the satisfaction
of certain financial covenants, the Company intends to reborrow amounts repaid
under the Credit Facility to implement its long-term growth strategy (such
reborrowed amounts are hereinafter referred to as the "Credit Facility
Reborrowings"). See "Business - Business Strategy." Although subsequent events,
such as changing market conditions and new opportunities for strategic
investments or acquisitions, may cause the Company to alter its use of the
Credit Facility Reborrowings, the Company anticipates that such growth-related
expenditures will initially focus on increased advertising and marketing
programs (see "Business - Distribution, Sales and Marketing - Sales"); plant
and facility improvements, including improvement of tooling; and investment in
new ventures. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
DIVIDEND POLICY
The Company does not intend to pay cash dividends in the foreseeable
future. The Company's revolving Credit Facility with Norwest prohibits the
payment of dividends by the Company without the prior written consent of
Norwest.
14
<PAGE> 16
DILUTION
Dilution is determined by subtracting net tangible book value per share
after the Offering from the amount of cash paid by a new investor for a Unit.
Net tangible book value per share represents the amount of total tangible assets
less total liabilities, divided by the number of shares of Common Stock issued
and outstanding.
Based on the Company's June 30, 1996 financial position, and assuming
conversion on that date of certain of the Company's outstanding notes that will
be automatically converted into 359,721.6 shares of Common Stock upon the
Closing Date, the Company had a net tangible book value available to holders of
Common Stock of approximately $1,628,493 or $1.26 per share. After giving effect
to the sale of the Units offered by the Company hereby at the initial offering
price of $6.00 per Unit, and assuming no other changes in the net tangible book
value after June 30, 1996, the Company's net tangible book value (after
deduction of underwriting discounts and commissions and estimated offering
expenses) at June 30, 1996 would have been approximately $6,928,493, or $3.03
per share if the maximum number of Units are sold, or approximately $5,028,495,
or $2.57 per share, if the minimum number of Units are sold. Assuming the
maximum number of Units are sold, this represents an immediate increase in net
tangible book value of $1.77 per share to existing shareholders and an immediate
dilution to new investors of $2.97 per share. Assuming the minimum number of
Units are sold, this represents an immediate increase in net tangible book value
of $1.31 per share to existing shareholders and an immediate dilution to new
investors of $3.43 per share. The following table illustrates the per share
dilution:
15
<PAGE> 17
<TABLE>
<CAPTION>
MAXIMUM
-------
<S> <C> <C>
Initial public offering price per Unit $6.00
Net tangible book value per share
before the Offering $1.26
Increase per share attributable
to new investors $1.77
-----
Net tangible book value per share after the Offering $3.03
-----
Dilution per share to new investors $2.97
=====
MINIMUM
-------
Initial public offering price per Unit $6.00
Net tangible book value per share
before the Offering $1.26
Increase per share attributable
to new investors $1.31
-----
Net tangible book value per share after the Offering $2.57
-----
Dilution per share to new investors $3.43
=====
</TABLE>
The following table summarizes, on an unaudited pro forma basis as of
June 30, 1996, the differences in the total consideration and the average price
per share of Common Stock paid or contributed by existing shareholders and the
total consideration and the average price per share of Common Stock to be paid
by investors in this Offering at the initial public offering price of $6.00 per
Unit.
<TABLE>
<CAPTION>
Total
MAXIMUM Shares Purchased Consideration
- ------- ---------------- ------------- Average
Number Percent Amount Percent Price Per
------ ------- ------ ------- Share
-----
<S> <C> <C> <C> <C> <C>
Existing Shareholders(1) 1,290,304.96 50.11% $ 6,675,245 50.09% $5.17
Exercise of outstanding 284,463.20 11.05% $ 651,765 4.89% $2.29
warrants and options(2)
New investors(3) 1,000,000.00 38.84% $ 6,000,000 45.02% $6.00
------------ ------ ----------- ------
Total 2,574,768.16 100.0% $13,327,010 100.0%
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
Total
MINIMUM Shares Purchased Consideration
- ------- ---------------- ----------------------- Average
Number Percent Amount Percent Price Per
------ ------- ------ ------- Share
-----
<S> <C> <C> <C> <C> <C>
Existing Shareholders(1) 1,290,304.96 57.57% $ 6,675,245 58.93% $5.17
Exercise of outstanding 284,463.20 12.69% $ 651,765 5.76% $2.29
warrants and options(2)
New investors(4) 666,667.00 29.74% $ 4,000,002 35.31% $6.00
------------ ------ ----------- ------
Total 2,241,435.16 100.0% $11,327,012 100.0%
</TABLE>
(1) Assumes conversion of certain of the Company's outstanding notes that
are automatically convertible into 359,721.6 shares of Common Stock
upon the Closing Date and further assumes no exercise of currently
outstanding warrants and options to purchase 284,463.2 shares of
Common Stock. For a summary of the currently outstanding warrants and
options, see footnote 2, immediately below.
(2) Includes the following items:
122,063.2 shares exercisable at $1.43 per share from Class A Warrants,
188,125.7 of which were issued on December 31, 1992, and 3,937.5 of
which were issued on December 15, 1994.
24,500.0 shares exercisable at $0.36 per share from Class B Warrants
issued on December 15, 1994.
126,000.0 shares exercisable at $3.25 per share from Class C Warrants
issued on July 1, 1996.
11,900.0 shares exercisable at $5.14 per share from Non-Employee
Director Options issued on June 10, 1996
(3) Assumes 1,000,000 Units are sold at a price per Unit of $6.00, but
further assumes that neither the 1,000,000 Warrants included in the
Units nor any Dealer Warrants are exercised.
(4) Assumes 666,667 Units are sold at a price per Unit of $6.00, but
further assumes that neither the 666,667 Warrants included in the Units
nor any Dealer Warrants are exercised.
CAPITALIZATION
The following table sets forth the capitalization of the Company at
June 30, 1996, and as adjusted to give effect to the sale of the Units offered
hereby at the initial public offering price of $6.00 per Unit and the
application of the net proceeds thereof to repay certain indebtedness.
17
<PAGE> 19
<TABLE>
<CAPTION>
June 30, 1996 (unaudited)
-------------------------
Actual(1) Pro Forma as Adjusted(2)
Minimum Maximum
------------------------------------------
(In Thousands, except for share amounts)
<S> <C> <C> <C>
Long-term debt(3) $10,165 $5,349 $ 3,449
Stockholders' equity:
Common stock, $0.01 par value:
5,000,000 shares authorized:(4) 1 12 15
Additional paid-in capital 4,824 10,063 11,960
Accumulated deficit (5,950) (5,950) (5,950)
------- ------- -------
Total Stockholders' Equity (Deficit) (1,125) $4,125 6,025
------- ------ -----
Total capitalization $9,040 $9,474 $9,474
====== ====== ======
</TABLE>
(1) Assumes (i) no conversion of outstanding notes that are automatically
convertible into 359,721.6 shares of Common Stock upon the Closing
Date, and (ii) no exercise of currently outstanding warrants and
options to purchase up to 284,463.2 shares of Common Stock.
(2) Assumes conversion of certain of the Company's outstanding notes that
will be automatically converted into 359,721.6 shares of Common Stock
upon the Closing Date and further assumes no exercise of (i) the
Warrants included in the Units offered hereby and any Dealer Warrants
that may be offered hereby, and (ii) currently outstanding options and
warrants to purchase up to 284,463.2 shares of Common Stock.
(3) The pro forma numbers reflect the Company's July 1, 1996 payment of
$779,727 in satisfaction of a $1,066,098 promissory note (see "Certain
Transactions"), and further assumes that (i) $1,500,000 of the proceeds
of this Offering will be used to pay off in full the outstanding Bridge
Notes, and (ii) that the balance of the proceeds (after deducting
expenses of this Offering) will be used to pay down amounts currently
outstanding on the Credit Facility (see "Use of Proceeds"). See Notes
9, 10, 11 and 16 of Notes to Financial Statements for a description of
the Company's long-term debt and lease obligations.
(4) Actual number based on 930,583.36 shares issued and outstanding. Pro
forma shares issued and outstanding are 1,956,971.96 based on the sale
of a minimum number of Units, and 2,290,304.96 based on the sale of a
maximum number of Units.
SELECTED FINANCIAL DATA
The data set forth below is qualified by reference to, and should be
read in conjunction with, the financial statements of the Company and related
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus. The following
selected financial data of the Company for the fiscal years ended December 31,
1994 and 1995 are derived from the financial statements of the Company audited
by KPMG Peat Marwick LLP, independent certified public accountants. The balance
sheet at December 31, 1995 and the related statements of operations,
stockholders' deficit and cash flows for the fiscal years ended December 31,
1994 and 1995, respectively, and notes thereto are included elsewhere in this
Prospectus. The selected financial data as of June 30, 1996, and for the
six-month periods ended June 30, 1995 and 1996 have been derived from the
Company's unaudited financial statements which, in the opinion of management,
reflect all adjustments which are of a normal recurring nature necessary for a
fair presentation of the results of operations for such periods. The results of
the interim periods are not necessarily indicative of the results of a full
year.
18
<PAGE> 20
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------ ------------------------
1994 1995 1995 1996
------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales $20,270 $22,936 $13,790 $12,528
------- ------- ------- -------
Gross profit 3,103 2,646 1,993 1,931
------- ------- ------- -------
Selling, general and administrative expenses 3,888 2,912 1,529 1,377
Amortization of excess of fair value of assets
acquired over cost (738) (738) (369) (369)
------- ------- ------- -------
Income (loss) from operations (47) 472 833 923
Interest and other expenses, net 1,510 1,165 578 412
------- ------- ------- -------
Income (loss) before income taxes (1,557) (693) 255 511
------- ------- ------- -------
Provision for income taxes --- --- --- 31
------- ------- ------- -------
Income (loss) before extraordinary item (1,557) (693) 255 480
------- ------- ------- -------
Extraordinary item 1,107 --- --- ---
------- ------- ------- -------
Net earnings (loss) $(450) $(693) $255 $480
======= ======= ======= =======
Net earnings (loss) per common and
common equivalent share $(0.40) $(0.60) $0.22 $0.41
======= ======= ======= =======
Net earnings (loss) per common share--
assuming full dilution ---(1) ---(1) $0.18 $0.33
======= =======
Weighted average common and common
equivalent shares outstanding 1,120 1,154 1,148 1,174
======= ======= ======= =======
Weighted average common shares out-
standing--assuming full dilution ---(1) ---(1) 1,439 1,466
======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996 (UNAUDITED)
1995 -------------------------
ACTUAL AS ADJUSTED(2)
BALANCE SHEET DATA: Minimum Maximum
----------- -----------------------------------------
<S> <C> <C> <C> <C>
Working capital $ 8,354 $ 8,346 $ 9,066 $ 9,066
Total assets 13,966 14,929 15,649 15,649
Long term debt(3) 10,531 10,165 5,349 3,449
Excess of fair value of assets acquired
over cost 1,475 1,106 1,106 1,106
Stockholders' equity (deficit) (1,604) (1,125) 4,125 6,025
</TABLE>
(1) Amounts are not disclosed as the impact of the convertible debt is
anti-dilutive.
(2) Adjusted to give effect to the sale by the Company of the maximum and
minimum number of Units offered hereby at the initial public price of $6.00
per Unit and the application of the estimated net proceeds therefrom. See
"Use of Proceeds."
(3) Does not include excess of fair value of assets acquired over cost.
See Note 3 of Notes to Financial Statements. See Notes 9, 10, 11 and 16 of
Notes to Financial Statements for a description of the Company's long-term
debt and lease obligations.
19
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis provides information regarding the
Company's financial position as of December 31, 1994 and 1995, and June 30, 1995
and 1996, and its results of operations for the years ended December 31, 1994
and 1995, and the six months ended June 30, 1995 and 1996. This discussion
should be read in conjunction with the preceding "Selected Financial Data" and
the Company's Financial Statements and related Notes thereto and other financial
data appearing elsewhere in this Prospectus. In the opinion of management, such
unaudited interim data reflect all adjustments, consisting only of normal
recurring adjustments, necessary to fairly present the Company's financial
position and results of operations for the periods presented. The results of
operations for any interim period are not necessarily indicative of results
expected for a full fiscal year. For information relating to factors that could
affect future operating results, see "Risk Factors." Any forward-looking
statements included in this Prospectus should be considered in light of such
factors, as well as the information set forth below.
OVERVIEW
The Company is a leading developer, assembler, and distributer of high
quality custom vehicle wheels and wheel accessories. The Company possesses one
of the most widely recognized and highly regarded brand names in the automotive
industry. CRAGAR's products utilize unique technology and styling which enhance
the individual appearance and/or performance of cars, trucks, and vans.
The corporation that first used the Cragar name was founded in 1930. In
1964, automotive genius Roy Richter developed the CRAGAR S/S "MAG" wheel, "the
most popular, most imitated and most successful custom wheel in history." (Car
and Driver Magazine, September 1993). In 1982, Mr. Gasket Company, Inc.
purchased the CRAGAR assets and incorporated them into their growing line of
brand name automotive aftermarket products. Mr. Gasket Company, Inc. went
bankrupt in 1991, and in 1992, the Company was formed to purchase the CRAGAR
brand name and certain assets out of bankruptcy. The allocated fair value of the
assets acquired exceeded the final purchase price by $3,687,341. This excess of
fair value of assets acquired over acquisition cost (commonly referred to as
negative goodwill) is being amortized to income over five years using the
straight-line method, or $737,468 per annum through December 31, 1997.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of net sales represented by certain items included in the Company's Statements
of Operations.
20
<PAGE> 22
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
----------------------------------------------------------
STATEMENTS OF OPERATIONS DATA: 1994 1995 1995 1996
---------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales ........................................... 100.0% 100.0% 100.00% 100.00%
Costs of goods sold ................................. 84.7 88.5 85.6 84.6
----- ----- ------ ------
Gross profit ........................................ 15.3 11.5 14.4 15.4
Selling, general and administrative expenses ........ (19.2) (12.7) (11.1) (11.0)
Amortization of excess of fair value of assets
acquired over cost .................................. 3.6 3.2 2.7 2.9
----- ----- ------ ------
Income (loss) from operations........................ (0.3) 2.0 6.0 7.3
Interest and other expenses, net .................... (7.4) (5.0) (4.2) (3.3)
Extraordinary Gain .................................. (5.5) 0.0 0.0 0.0
----- ----- ------ ------
Income (loss) before provision for income taxes...... (2.2) (3.0) 1.8 4.0
Provision (benefit) for income taxes ................ (0.0) (0.0) 0.0 0.0
----- ----- ------ ------
Net earnings (loss) ................................. (2.2) (3.0) 1.8 4.0
===== ===== ====== ======
</TABLE>
Traditionally, the Company's ten largest customers have accounted for a
substantial portion of the Company's gross sales. During the six months ended
June 30, 1996, the Company's ten largest customers accounted for approximately
75.4% of the Company's gross sales. During 1995 and for the six months ended
June 30, 1996, the Company's largest customers were Super Shops (23.6% of gross
sales in 1995 and 28.6% for the six months ending June 30, 1996), J. H. Heafner
Company, Inc. (11.8% of gross sales in 1995 and 12.4% for the six months ending
June 30, 1996), and B & R Wholesale Tire (9.5% of gross sales in 1995 and 9.0%
for the six months ending June 30, 1996). There can be no assurance that the
Company will be able to maintain or continue to increase the level of its sales
in the future to these or other customers.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 AND
SIX MONTHS ENDED JUNE 30, 1995
Net sales consist of gross sales less the amount of discounts, returns, and
allowances. Net sales for the six months ended June 30, 1996 were $12,527,685,
compared to $13,789,826 for the same period in 1995. In part, the decrease in
net sales was attributable to the reduction in sales of excess inventory which
took place during the first half of 1995, and the loss of a significant customer
due to that customer's acquisition by a wheel distributor that historically
21
<PAGE> 23
has purchased wheels from one of the Company's competitors. Another factor
contributing to the decrease in net sales was the larger amount of cash
discounts taken and rebates accrued during the first six months of 1996 versus
the same period in 1995.
Gross profit is determined by subtracting cost of goods sold from net
sales. Costs of goods sold consists primarily of the costs of labor, aluminum,
steel, raw materials, overhead and material processing used in the production of
the Company's products. Gross profit for the six months ended June 30, 1996 was
$1,930,942, versus $1,992,731 for the same period in 1995. As a percentage of
net sales, gross profit increased in the first half of 1996, compared to the
same period in 1995, from 14.4% to 15.4%. This increase is attributable to the
decrease in sales of lower margin, excess inventory in the first half of 1996
versus the same period in 1995.
In order to increase gross profit, the Company continues to focus on
reducing its costs, with a significant focus on creating supply relationships
with vendors. For example, effective April 4, 1996, through December 31, 1997,
the Company has one formal supply arrangement with one of its vendors to
purchase fully assembled steel wheels. During the first six months of 1996,
approximately 15.5% of the Company's gross sales were attributable to the sale
of steel wheels. See "Business - Products." Also, late in the second quarter of
1996, the Company began using machine shops in California to machine certain
components that had previously been shipped to Phoenix and then shipped back to
California for certain processing. The Company expects that the reduction in
in-bound freight costs and the need for less inventory to cover the shipping
time will lead to lower costs.
Selling, general and administrative expenses ("SG&A") consist primarily of
commissions, marketing expenses, race wheel promotional programs, sales and
administrative salaries and wages, product development expenses, office
expenses, accounting expenses, legal expenses, and general overhead. SG&A
expenses for the six months ended June 30, 1996 were $1,376,643, compared to
$1,529,424 for the same period in 1995. This 10.0% reduction in SG&A is
primarily due to cost saving efforts implemented during the fourth quarter of
1995, including reduced advertising expenses and decreased utilization of
employee overtime. The Company expects that future SG&A expenses will increase
in absolute amounts and possibly in proportion to net sales due, in part, to
increased advertising and marketing promotional expenditures, increased product
development activities, the hiring of additional personnel, and the additional
costs associated with compliance and reporting requirements of a public company.
The Company acquired certain assets, including the accounts receivable,
inventory, property, equipment, patents, trademarks and copyrights of the Wheel
and Tire Group of Mr. Gasket Company, Inc., in a leverage buyout on December 31,
1992. The fair value of the net assets acquired exceeded the final purchase
price, and, accordingly, the fair value of the property and equipment, patents,
trademarks, and copyrights acquired were reduced to zero. The remaining balance
of $3,687,341 was classified as excess of fair value of assets acquired over
cost (commonly referred to as negative goodwill) and is being amortized to
income over five years using the straight-line method, or $737,468 per annum
through December 31, 1997. Accordingly, net income for each of the six month
periods ending June 30, 1996, and June 30, 1995, includes $368,734 of negative
goodwill.
22
<PAGE> 24
Interest and other expenses, net, for the six month period ended June 30,
1996 were $412,151, compared to $577,629 for the same period in 1995. A gain on
the sale of equipment in the amount of approximately $130,000 and a reduction in
interest expense accounted for this decrease.
Because of its carry-forward losses from previous years, the Company had no
income tax provision in 1995 and had a $31,000 provision for alternative minimum
taxes in the first six months of 1996.
As a result of the above, net earnings for the six month period ended June
30, 1996 were $479,711, compared to $254,412 for the same period in 1995, an
increase of $225,299, or 88.6%.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995
AND THE YEAR ENDED DECEMBER 31, 1994
Net sales for the year ended December 31, 1995, were $22,935,773, compared
to $20,269,936 for the same period in 1994, an increase of $2,665,837, or 13.2%.
This increase was attributable to increased sales as a result of additional
product offerings, continued growth of the customer base, and better
availability of product.
The Company's gross profit in late 1994 and early 1995 was adversely
impacted by significant increases in metals prices. The Company currently does
not purchase forward contracts for metals and, therefore, any future increase in
metals prices could adversely affect the Company's gross profit. The Company has
entered into a supply agreement to purchase fully assembled steel wheels, at
agreed upon prices, which should help to improve the gross profit for this
portion of the business. In addition, as part of the supply agreement, credits
paid for defective products will be the responsibility of the manufacturer.
Gross profit for the year ended December 31, 1995 was $2,646,426, compared
to $3,103,386 for the same period in 1994, a decrease of $456,960, or 14.7%. As
a percent of sales, gross margin decreased to 11.5% in 1995 from 15.3% in 1994.
The decrease in gross profit was attributable to an increase in metal prices;
increased reserves for accrued rebates, cash discounts, allowances, and returns;
and to a program to reduce excess inventory.
SG&A expenses for the twelve months ended December 31, 1995, were
$2,912,393, compared to $3,887,756 for the same period in 1994, a decrease of
25.1% from 1994. This decrease was attributed in part to a reduction in
personnel in all administrative and sales areas as well as the reduction in
outside independent representatives. For example, professional and consulting
expenses in the accounting department dropped approximately $190,000 in fiscal
year 1995 compared to 1994. In addition, the Company reduced marketing and
promotional expenses in 1995 compared to 1994 by approximately $126,000. The
Company also had approximately a $317,000 write-off for bad debts in 1994,
compared to approximately $55,000 in 1995.
Interest and other expenses for the year ended December 31, 1995, were
$1,165,257, compared to $1,509,647 for the same period in 1994, a decrease of
$344,390, or 22.8%. This decrease was attributable to a reduction in interest
expense resulting from two events that
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<PAGE> 25
occurred during 1995. First, the Company replaced its former primary credit
facility with the Norwest Credit Facility, resulting in more favorable terms.
Second, the Company's outstanding long-term debt decreased as a result of a
recapitalization whereby certain of the Company's investors agreed to contribute
certain of the Company's promissory notes held by the investors to the capital
of the Company. See "Certain Transactions." In 1994, as a result of the
forgiveness of interest and restructuring of certain debt, the Company realized
an extraordinary gain of $1,107,232.
As a result of the above, net loss for the year ended December 31, 1995 was
$693,756 compared to $449,317 for the same period in 1994, a difference of
54.4%. The net loss for fiscal years 1994 and 1995 was reduced by $737,468 per
annum as a result of the amortization of negative goodwill. See Note 3 of Notes
to Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced significant growth since its inception, with
net sales increasing from $13,822,000 in 1993, to $20,269,936 in 1994, and
$22,935,773 in 1995. During this period, the Company has financed its activities
primarily from cash flow from operations, lines of credit arrangements with
financial institutions, operating leases for equipment, and loans and equity
infusions from its principal stockholders and investors. There can be no
assurance that the Company's cash flow will be sufficient to finance its
operations as currently planned or that it will be able to supplement its cash
flow with externally generated funds.
Revolving Credit Facility
In April 1995, the Company obtained a revolving credit facility ("Credit
Facility") with Norwest Business Credit, Inc. ("Norwest"). The Credit Facility
currently has a maximum commitment of $9,500,000, subject to certain
restrictions with respect to the collateral borrowing base. The Credit Facility
expires April 15, 1998 and is secured by the Company's accounts receivable,
inventories, intangible assets, and property and equipment. Interest is due
monthly at the prime rate plus 2.25%. As of June 30, 1996, the outstanding
balance under this Credit Facility was $6,980,827, and the amount available to
be borrowed was approximately $257,000.
1993 Junior Notes
At June 30, 1996, the Company had outstanding in aggregate principle amount
$1,500,000 of convertible junior investor notes (the "1993 Junior Notes"). The
1993 Junior Notes are collateralized by accounts receivable, inventories, and
property and equipment, subject to and subordinate to the existing security
interests of Norwest. The 1993 Junior Notes mature in full in September 1998.
The 1993 Junior Notes bear interest at 8%, which is due annually in September.
On December 15, 1994, the Company issued a $350,000 promissory note (the
"$350,000 Note"), on terms similar to the 1993 Junior Notes, in order to fund
the Company's obligation
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<PAGE> 26
to one its creditors. On the Closing Date, the 1993 Junior Notes and the
$350,000 Note will automatically convert into 359,721.6 shares of the
Company's Common Stock. See "Certain Transactions."
Bridge Financing Notes
On July 1, 1996, the Company issued $1,500,000 of uncollateralized bridge
financing notes (the "Bridge Notes"). The Bridge Notes are due in full on June
30, 1998 or earlier in certain circumstances, including within 30 days following
the initial public offering of the Company's Common Stock. The Bridge Notes bear
interest at 8% per annum payable on June 30 of each year. See "Certain
Transactions." The Company intends to use a portion of the proceeds of this
Offering to fully repay the Bridge Notes. See "Use Of Proceeds."
At December 31, 1995, the Company had an accumulated deficit of $6,429,645.
During the year ended December 31, 1994, the Company used $1,974,977 in its
operating activities. For the year ended December 31, 1995, the Company's
operating activities provided $527,922 of cash. The Company's operating
activities have provided $419,628 of cash for the six months ended June 30,
1996.
Based on the Company's operating plan, management believes that the
proceeds from this Offering and anticipated cash flow from operations will be
sufficient to (i) meet the Company's anticipated needs, including the repayment
of the Bridge Notes and associated interest, (ii) partially repay the amounts
borrowed under the Credit Facility, and (iii) finance its operations for at
least the next twelve months from the date of this Prospectus. See "Use of
Proceeds." In the future, the Company may require additional financing. No
assurance can be given of the Company's ability to obtain such financing on
favorable terms, if at all. If the Company is unable to obtain additional
financing, its ability to meet its current and future revenue growth plans could
be materially adversely affected.
SEASONALITY
Historically, the Company has experienced higher revenues in the first two
quarters of the year than in the latter half of the year. The Company believes
that these results are due to seasonal buying patterns resulting, in part, from
(i) an increased demand for certain automotive parts and accessories associated
with more favorable weather conditions, and (ii) the fact that many of its
ultimate customers enjoy added liquidity by receiving income tax refunds during
the first half of the year.
INFLATION
Increases in inflation generally result in higher interest rates. Higher
interest rates on the Company's borrowings would decrease the profitability of
the Company. To date, general price inflation has not had a significant impact
on the Company's operations; however, as explained above, increases in metal
prices may adversely affect the Company's gross profit. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Comparison of the Year Ended December 31, 1995 and the Year Ended December 31,
1994."
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<PAGE> 27
ACCOUNTING MATTERS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
(SFAS No. 121), which the Company will adopt for its fiscal year ending December
31, 1996, will require "that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of asset
may not be recoverable." In the opinion of management, the adoption of SFAS No.
121 will not have any material effect on the Company.
In November 1995 the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123).
This statement establishes financial accounting standards for stock-based
employee compensation plans. SFAS 123 permits the Company to choose either a new
fair value based method or the current APB Opinion 25 intrinsic value based
method of accounting for its stock-based compensation arrangements. SFAS 123
requires pro forma disclosure of net earnings and earnings per share computed as
if intrinsic value based method of accounting for its stock-based compensation
arrangements. SFAS 123 requires pro forma disclosures of net earnings and
earnings per share computed as if the fair value based method had been applied
in financial statements of companies that continue to follow current practice in
accounting for such arrangements under Opinion 25. SFAS 123 applies to all
stock-based employee compensation plans in which an employer grants shares of
its stock or other equity instruments to employees except for employee stock
ownership plans. SFAS 123 also applies to plans in which the employer incurs
liabilities to employees in amounts based on the price of the employer's stock,
i.e., stock option plans, stock purchase plans, restricted stock plans, and
stock appreciation rights. The statement also specifies the accounting for
transactions in which a company issues stock options or other equity instruments
for services provided by nonemployees or to acquire goods or services from
outside suppliers or vendors. The recognition provisions of SFAS 123 for
companies choosing to adopt the new fair value based method of accounting for
stock-based compensation arrangements may be adopted immediately and will apply
to all transactions entered into fiscal years that begin after December 15,
1995. The disclosure provisions of SFAS 123 are effective for fiscal years
beginning after December 15, 1995; however, disclosure of the pro forma net
earnings per share, as if the fair value method of accounting for stock-based
compensation had been elected, is required for all awards granted in fiscal
years beginning after December 31, 1994.
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<PAGE> 28
BUSINESS
INTRODUCTION
The Company is a leading developer, assembler, and distributer of high
quality custom vehicle wheels and wheel accessories. The Company possesses one
of the most widely recognized and highly regarded brand names in the automotive
industry. CRAGAR's products utilize unique technology and styling which enhance
the individual appearance and/or performance of cars, trucks, and vans.
CRAGAR's wheel products are sold in the automotive aftermarket through a
national distribution network of value-added resellers, including major tire and
automotive performance warehouse distributors, large tire and automotive
performance retailers, and mail order houses. Major resellers include Super
Shops, J. H. Heafner Company, Inc., and B & R Wholesale Tire. These resellers
provide a combination of services to CRAGAR, including, among others, stocking
large amounts of inventory, carrying out telemarketing campaigns, publishing
marketing literature and catalogs, distributing CRAGAR's marketing literature,
and providing on-site training to retail salesmen. The Company supports these
sales efforts with a multifaceted marketing program focused on both end-user
consumers and the Company's resellers.
The Company's wide selection of custom wheels and components are designed
to appeal to automotive enthusiasts who desire to modify the styling, design, or
performance of their cars, trucks or vans. CRAGAR wheels are also used by car
and truck dealers to upgrade their inventory of vehicles. In order to appeal to
a variety of consumers groups, CRAGAR offers an assortment of custom and
specialty steel and aluminum wheels. These products are sold under a number of
tradenames including CRAGAR, CRAGAR Lite, Keystone Klassic, S/S, StarWire,
TRU~CRUISER, and TRU~SPOKE. In addition, the Company offers a full line of wheel
accessories, including lug nuts, spacers, bolts, washers, spinners, and hubcaps.
The Company sources most of its component parts, which are processed by
outside vendors before final assembly at the Company's Phoenix plant. The
Company undertakes certain basic manufacturing operations, including, among
other processes: bending spokes on presses, de-flashing various components,
piercing rims, hubs and fellies for spoked wheels, dimpling rims for wire
wheels, and machining for a variety of components.
The corporation that first used the Cragar name was founded in 1930. In
1964, automotive genius Roy Richter developed the CRAGAR S/S "MAG" wheel, "the
most popular, most imitated and most successful custom wheel in history." (Car
and Driver Magazine, September 1993). In 1982, Mr. Gasket Company, Inc.
purchased the CRAGAR assets and merged it with their growing line of brand name
automotive aftermarket products. Mr. Gasket Company, Inc. went bankrupt in 1991.
In 1992, the Company was formed to purchase the CRAGAR brand name and certain
assets out of bankruptcy.
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<PAGE> 29
INDUSTRY BACKGROUND
Specialty Equipment Market Association ("SEMA") reports that the custom
wheel industry has grown at a rate of 15.5% per annum since 1991, starting from
manufacturer sales of approximately $420 million in 1991 to an estimated $650
million in 1994.
The Company believes that several factors which have contributed to the
growth in its segment of the custom wheel market include: (i) increases in sales
of domestic cars, sport utility vehicles, and light trucks, which have resulted
in an increase in potential consumers of automotive aftermarket products, (ii)
increases in average vehicle life, which the Company believes contributes to
demand for automotive aftermarket parts as vehicle owners seek to enhance the
appearance of older vehicles, (iii) increases in sales through tire dealers and
performance retailers and (iv) the continuing enthusiasm of Americans for
vehicle styling.
The Company believes that consumer desire for individuality in vehicle
appearance will contribute to growth in the custom wheel industry since custom
wheels represent one of the easiest, least expensive, and quickest ways to
dramatically alter the appearance of a vehicle. Additionally, increased
government regulation of specialty performance automotive aftermarket parts has
made it more difficult to modify engine and drive-train components, which the
Company believes will also contribute to growth in the custom wheel industry.
BUSINESS STRATEGY
The Company's long-term revenue growth strategy is to increase its presence
as a leading niche marketer of high quality custom vehicle wheels and wheel
accessories by capitalizing on consumer recognition of the "CRAGAR" brand name
and the Company's growing distribution network. Key elements of the Company's
business strategy include:
Leverage and Strengthen High Quality Brand Name Recognition. The Company
intends to capitalize on consumer recognition of the "CRAGAR" brand name. The
Company has developed the reputation for delivering high quality products to the
marketplace and intends to continue emphasizing its brand name recognition by
providing high quality product offerings and through the increased use of
advertising and marketing programs, public relations efforts, and licensing
agreements.
Develop New Products and Product Lines. The Company plans to leverage
existing products by (i) designing new products in existing product lines that
appeal to the consumer's desire for individuality and high quality; (ii)
manufacturing existing products to fit on additional car models and years; and
(iii) assembling wheels using new technology and components. The Company is also
committed to identifying and developing new product lines in order to build its
customer loyalty into a broader based business. For example, in 1995, the
Company introduced the CRAGAR Lite Wheel Line, TRU~BLUNT wire wheels, Diamond
Spoke Star Wire Wheel, and the split five-spoke one-piece aluminum wheel.
Diversify Domestic Product Distribution. The Company has successfully
established distribution of its products in key regions of the United States.
The Company believes that the future growth of its distribution channels will
come from penetration of new geographic areas
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within the United States, such as California, Southern Florida, New England, and
the Northwest United States. In addition, through the use of demographic
information, the Company intends to target key distributors to service its
customer and consumer markets. Alternative distribution methods, new
distribution channels, and new national retail accounts are key elements of the
Company's sales expansion strategy.
Expand Penetration of International Markets. The Company's products are
recognized in many international markets, including Australia, Germany, Sweden,
Canada, Russia, and Japan. In order to meet what the Company anticipates to be a
growing international market, the Company intends to expand its foreign presence
by establishing relationships with selected foreign distributors. The Company
believes that its brand name recognition and unique styling will facilitate
penetration into these markets.
Make Strategic Acquisitions or Alliances. Although the Company currently
has no definitive plans to do so, the Company may, if the circumstances justify,
make strategic acquisitions or enter into joint venture or business
relationships with strategic partners.
PRODUCTS
CRAGAR offers an assortment of custom wheels which can be divided into six
general categories: (1) wire or spoked wheels; (2) composite wheels, known as
Legacy and CRAGAR Lite wheels; (3) steel wheels; (4) race wheels; (5) street
steel wheels; and (6) one-piece cast aluminum wheels. In addition, the Company
offers a full line of wheel accessories, including lug nuts, spacers, bolts,
washers, spinners, and hubcaps.
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The following table provides sales and other information about the
Company's major product lines:
<TABLE>
<CAPTION>
============================================================================================================================
% OF 1996 % OF 1995
GROSS SALES* GROSS SALES TYPE OF
PRODUCT LINE CONSTRUCTION CUSTOMER NICHE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Wire or Spoked 22.1% 24.2% Steel spokes attached Urban and inner city
Wheels to inner steel hub and consumers
outer steel rim or
felly
- ----------------------------------------------------------------------------------------------------------------------------
Composite, 20.4% 17.8% Inner cast aluminum Nostalgia car and
Legacy, and disc welded to outer current line truck
CRAGAR Lite steel rim owners
Wheels
- ----------------------------------------------------------------------------------------------------------------------------
Steel Wheels 15.5% 16.7% Inner steel disc Low-end consumers of
welded to outer steel all types of vehicles
rim
- ----------------------------------------------------------------------------------------------------------------------------
Race Wheels 18.0% 15.8% Two outer aluminum Pro and amateur race
rim halves welded drivers and
together with performance car
aluminum center or owners
spacer
- ----------------------------------------------------------------------------------------------------------------------------
Street Steel Wheels 8.4% 8.5% Three piece steel and Hot rod and race
aluminum center enthusiasts with cars
welded to outer steel and trucks
rim
- ----------------------------------------------------------------------------------------------------------------------------
One-piece Cast 9.4% 7.8% Cast one-piece Low and high-end
Aluminum Wheels aluminum consumers of all types
with machined, of vehicles
painted, or chrome
finish
- ----------------------------------------------------------------------------------------------------------------------------
Wheels Accessories 4.4% 4.6% Steel and aluminum All types of
hub caps, lug nuts, consumers with all
spinners, locks, types of vehicles
spacers, etc.
- ----------------------------------------------------------------------------------------------------------------------------
Miscellaneous 1.8% 4.6% Excess wheels and N/A
accessories
============================================================================================================================
</TABLE>
* For six months ended June 30, 1996, unaudited.
Wire or Spoked Wheels
CRAGAR has a complete line of wire or spoked wheels. Most of the products
are sold under the TRU~SPOKE brand name, although there is one spoked wheel
using patented technology called the Starwire sold under the CRAGAR brand name.
Wire wheels are a high-end, niche product that are sold to a limited group of
vehicle owners. Recently, CRAGAR introduced a new look for the TRU~SPOKE brand
name, with a new decorative medallion and
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<PAGE> 32
several new styles, including wheels with diamond spokes. From time to time,
Cragar also supplies certain other companies with wire wheels under private
label.
Composite, Legacy, and CRAGAR Lite Wheels
Composite wheels are composed of a die cast aluminum center welded to a
rolled steel outer rim. The process of welding aluminum to steel was patented by
CRAGAR in 1964. In addition to CRAGAR's renowned S/S and SS/T composite wheels,
the Company in 1995 purchased the exclusive rights to manufacture and market the
Keystone Klassic, the second most popular wheel (behind the S/S) in automotive
history. The Company expects this product to help solidify CRAGAR's Legacy Line
as the top nostalgia wheels in the market.
Another addition, introduced in 1995, was CRAGAR's development (with patent
pending technology) of the CRAGAR Lite wheel line using a new light-weight steel
rim. While these light-weight rims are over thirty percent lighter than
conventional rims, they are stronger than conventional rims because the rims are
made of high-strength alloy steel. The CRAGAR Lite rim has a dramatic effect on
improving the stability of the ride, the vibrations, wear on the suspension, and
fuel economy. The Company currently has two CRAGAR Lite styles, both used for
front-wheel drive vehicles.
Steel Wheels
CRAGAR steel wheels have been sold for over 30 years. While aluminum has
slowly been replacing steel as the major material input, CRAGAR continues to
sell very large quantities of steel wheels which, for many consumers, is a more
attractive, less costly, option. The Company currently has in effect a supply
arrangement to purchase fully assembled steel wheels. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." From
time to time, CRAGAR also supplies certain other companies with steel wheels
under private label.
Race Wheels
CRAGAR race wheels are higher-priced, three-piece, lightweight, polished
aluminum wheels. These wheels are used by professional drag racers, who are
sometimes provided CRAGAR wheels without charge in return for their promotion of
CRAGAR and for displaying a CRAGAR sticker on their cars. The two highest-end
professional race wheels are the Super Race and the Super Star.
CRAGAR also sells race wheels to amateur racers, up-and-coming professional
racers, and individuals who want the look of the race wheel for street use. The
race wheels for this product category are the Dragstar and the Super Lite II. In
addition, the Company has introduced a series of race wheels with billet centers
for street use.
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<PAGE> 33
Street Steel Wheels
CRAGAR has developed a unique niche, selling chrome-plated steel look-alike
versions of its race wheels. The Street Star is a copy of the Dragstar and the
Street Lite is a copy of the SuperLite II.
One-Piece Cast-Aluminum Wheels
CRAGAR currently offers several styles of one-piece aluminum wheels. One
category of one-piece aluminum wheels consists of high-end, chrome plated or
silver painted wheels with innovative styling. The styles are designed for
CRAGAR's "muscle car" or "hot rod" niche, including classic Mustangs, Camaros,
Firebirds, and Monte Carlos. In addition, these wheels are also popular with
high-end European and Japanese car owners. These wheels are sourced from
manufacturers in the Philippines.
Another category of one-piece aluminum wheels consists of the Hammer, Star,
Blade, and Modular styles. These styles have been on the market for many years
and are available from almost all of CRAGAR's domestic and foreign competitors.
These wheels have become "commodity" items and provide relatively small gross
margins. These wheels are sourced from a manufacturer in China.
Wheel Accessories
CRAGAR has a large and varied line of accessories, including hubcaps,
medallions, lug nuts, washers, steels locks, spinners, beadlock rings, and trim
rings. These are sold both packaged and loose. The packaging is either in boxes
or shrink wrap with paper board. Most of the accessories are sourced from the
Far East.
PRODUCT DEVELOPMENT
While the styles of the Company's product line are traditional, the Company
currently has several new products within several new product lines under
development. These new products are designed to enhance the Company's existing
product lines and they are intended to appeal to the consumer's desire for
individuality and high quality. The Company is also manufacturing existing
product offerings to fit on additional car models and years. To enhance its
product development efforts, the Company plans to engage an experienced outside
consultant to assist the Company's current in-house product development staff.
In addition, the Company plans to supplement its existing product development
staff with the addition of one or more new employees with product development
experience.
DISTRIBUTION, SALES AND MARKETING
Product Distribution
The Company's products are currently sold through a national and
international distribution network consisting primarily of the categories
described below. The following are brief descriptions of the Company's
distribution channels:
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<PAGE> 34
Tire Dealers and Automotive Performance Retailers. The Company sells its
custom wheels and other products to major tire and automotive performance
retailers (retailers specializing in selling high performance aftermarket
automotive parts and accessories) throughout the United States, including
Discount Tire and Super Shops. The Company believes that tire dealers have
experienced success with "combination" sales of tires with custom wheels
and that automotive performance retailers serve as an important link to
automotive enthusiasts. Tire dealers and automotive performance retailers,
two traditionally separate channels which are beginning to overlap in their
product coverages, are currently the largest distribution channel for the
Company's custom wheels and related accessories. In 1995 and for the six
months ended June 30, 1996, gross sales to tire dealers and automotive
performance retailers accounted for 36.1% and 40.8%, respectively, of the
Company's gross sales.
Warehouse Distributors. The Company sells its products to warehouse
distributors who sell to tire dealers, automotive performance retailers,
service stations, and specialty boutiques. These customers include, among
others, J. H. Heafner Company, Inc., B & R Wholesale Tire and Wheel, and
Keystone Automotive Warehouse. Automotive aftermarket warehouse
distributors generally seek rapid inventory turnover and often stock a full
selection of high quality merchandise. The Company believes that warehouse
distributors are, and will continue to be, an important factor in the
Company's penetration of new geographic areas. In 1995 and for the six
months ended June 30, 1996, sales to warehouse distributors accounted for
46.2% and 37.1%, respectively, of the Company's gross sales.
Mail Order Outlets. The Company sells its products to mail order catalog
houses, including Atech Motorsports, Buckeye Sales, and ASAP, who resell
them to the public. The Company believes that inclusion of its products in
large mail-order catalogs, has been, and will continue to be, a significant
factor in promoting the brand name recognition of the Company's product and
increasing direct sales to consumers. In 1995 and for the six months ended
June 30, 1996, sales to mail order outlets accounted for 12.1% and 14.5%,
respectively, of the Company's gross sales.
International Sales. The Company seeks to expand its international sales
by addressing selected foreign markets and securing foreign distribution
channels for its products. In 1995, and for the six months ended June 30,
1996, international sales accounted for approximately 5.4% and 5.8%,
respectively, of the Company's gross sales. A majority of such sales were
generated in Australia, Germany, Sweden, Canada, Russia, and Japan.
Sales
As of June 30, 1996, the Company employed seven individuals in its sales
and marketing department and retained two independent representative agencies.
The Company's sales and marketing employees are responsible for implementing
marketing plans and sales programs, providing technical advice and customer
service, handling customer inquiries, following up on shipments to customers,
informing customers of special promotions, coordinating the Company's trade
shows, and all other types of customer service. In addition, in the future the
Company plans to hire an executive to coordinate the Company's marketing
efforts.
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<PAGE> 35
Most of the accounts of CRAGAR's direct customers are handled by outside
sales representatives. These individuals approach CRAGAR's customers on a
frequent basis and solicit orders. The sales representatives typically either
earn a commission on each sale or are paid a flat monthly retainer. Each sales
representative has a particular internal salesperson with whom they deal with in
order to provide better service to its customers.
In 1995, the Company's ten largest customers accounted for approximately
70.4% of its gross sales, with three accounting for a total 44.9%. Super Shops,
J. H. Heafner Company, Inc., and B & R Wholesale Tire accounted for 23.6%,
11.8%, and 9.5% of gross sales, respectively, in 1995. For the six months ended
June 30, 1996, the Company's ten largest customers accounted for approximately
75.4% of gross sales, with Super Shops at 28.6%, J. H. Heafner Company, Inc. at
12.4%, and B & R Wholesale Tire at 9.0%. The Company does not have any long-term
contractual relationships with any of its major customers. See "Risk
Factors - Dependence on Key Customers."
The Company's standard payment terms generally provide that payment is due
by its customers no later than the twenty-fifth day of the month following the
month of the invoice, with a 2% discount offered if payment is made by the tenth
day of the month. Certain customers receive longer terms and at certain times of
the year dating terms are offered which can extend to as much as 210 days from
the date of invoice.
MANUFACTURING
The Company's facility in Phoenix, Arizona is used to assemble the
component parts of its products. While most of its component parts are
manufactured by outside vendors, the Company undertakes certain basic
manufacturing operations, including, among other processes: bending spokes on
presses; de-flashing various components; piercing rims, hubs, and fellies for
spoked wheels; dimpling rims for wire wheels; and machining a variety of
components.
Most of CRAGAR component parts must be polished and plated. CRAGAR had
polishing and chrome-plating facilities when located in Compton, California.
Although the Company has not reestablished these facilities in Phoenix, it has
created a small polishing shop in Phoenix to polish race wheels and other
components.
CRAGAR has its own in-house testing facility for its wheels. CRAGAR also
utilizes independent test laboratories with all wheels which certify their
results relating to load ratings, cornering fatigue, and radial fatigue.
COMPETITION
The market for the Company's products is highly competitive and is based
primarily on (i) product selection, (ii) product availability, (iii) quality,
(iv) design innovation, (v) price, and (vi) service. Competition in the custom
wheel market is intense, and the Company believes that, because of their
substantial resources, several wheel manufacturers such as American Racing
Equipment, Prime Wheel, Progressive Custom Wheel, Ultra Custom Wheel, Inc., and
Superior Industries pose significant competition.
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<PAGE> 36
The level and source of the Company's competition varies based on product
category. Cast aluminum wheels comprise a large portion of the custom wheel
market. There are numerous competitors in the cast wheel market, including
American Racing Equipment, Prime Wheel, Progressive Custom Wheel, Ultra Custom
Wheel, Inc., Superior Industries, and certain smaller domestic companies as well
as numerous foreign manufacturers. Competition is fierce and based primarily on
cost, with most manufacturers seeking high volume to compensate for low margins.
Most of these companies also make composite wheels. In race wheels, the Company
has two major competitors, Weld Racing, Inc. and Centerline Performance Wheels.
The largest wire wheel competitors include Roadster Wheels, Inc., Crown Wire
Wheels, and Dayton Wheel Products, Inc. In steel wheels, the competitors include
Mangels, Unique, American Racing Equipment, and Greenball.
The Company intends to meet its competition with quality products and the
strength of its brand names. The Company believes its relationship with its
customers is strengthened by its private labeling of products for certain of its
customers.
FACILITIES
The Company's executive offices, product development, manufacturing, and
distribution facilities are currently housed in a leased industrial building.
The 167,000 square foot facility is located in Phoenix, Arizona.
INTELLECTUAL PROPERTY
The Company markets its custom wheels and products under a variety of brand
names designed to capitalize on CRAGAR's reputation. The Company believes that
its trademarks, most importantly CRAGAR, are critical to its strategy. The
Company also relies on trade secrets and proprietary know-how, which it seeks to
protect, in part, through appropriate confidentiality and proprietary
information agreements. These agreements generally provide that all confidential
information developed or made known to the individual by the Company during the
course of the individual's relationship with the Company is to be kept
confidential and not disclosed to third parties, except in specific
circumstances. The Company has also entered into agreements with its vendors to
restrict the use of technology provided by the Company. However, no assurance
that the proprietary information or confidentiality agreements with employees
and others will not be breached, that the Company would have adequate remedies
for any breach, or that the Company's trade secrets will not otherwise become
known to or independently developed by competitors.
PRODUCT WARRANTIES
Historically, the Company's wheels have been sold with a limited one-year
warranty from the date of purchase. The Company's warranties generally provide
that, in the case of defects in material or workmanship, the Company will, at
its option, replace or repair the defective product without charge. The Company
currently maintains product liability insurance for its products, with limits of
$1,000,000 per occurrence and $2,000,000 in the aggregate, per annum. Such
coverage is becoming increasingly expensive and there can be no assurance that
the Company's insurance will be adequate to cover future product liability
claims, or that the
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<PAGE> 37
Company will be able to maintain adequate liability insurance at commercially
reasonable rates. For a discussion of a current product liability claim, see
"Business - Legal Proceedings."
EMPLOYEES
As of June 30, 1996, the Company had 120 employees, a majority of which
were full-time employees, and 28 independent contractors. At the year ended
December 31, 1995, the Company had 91 employees and no independent contractors.
At the six month period ended June 30, 1995, the Company had 151 employees and
one independent contractor. A significant factor in these fluctuating employment
levels is the fact that the Company operates in a highly seasonal marketplace.
See "Risk Factors - Variability in Quarterly Operating Results; Seasonality."
The Company considers its employee relations to be good. None of the Company's
employees are represented by unions.
LEGAL PROCEEDINGS
The Company is one of four defendants in an action in the United States
District Court for the Eastern District of Michigan entitled Patricia Ellerholz
v. Goodyear Tire & Rubber Co., et al., No. 95-CV-76153 (consolidated with
95-75675), instituted December 20, 1995. Ms. Ellerholz alleges, among other
things, that her husband, Brian Ellerholz, was killed on January 8, 1993 while
attempting to disassemble a two-piece drag racing wheel. The plaintiff in this
case is seeking damages of $5.5 million plus an unspecified amount of punitive
damages. Any losses to the Company resulting from this case will not be covered
by product liability insurance. The Company believes that the wheel was
manufactured and sold by another party and that the Company is not a "successor
corporation" to the entity that manufactured and sold the wheel. Accordingly,
the Company, on June 30, 1996, filed a Motion For Summary Judgment asking the
Court to dismiss the Company as a defendant in the action. While the Company is
defending itself vigorously in this matter, there can be no assurance that the
ultimate resolution of this case will not result in a material adverse effect on
the Company's financial condition.
The Company is involved in routine litigation incidental to the conduct of
its business. Except for the matter referred to in the preceding paragraph,
there are currently no material pending proceedings to which the Company is a
party or to which any of its property is subject.
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<PAGE> 38
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executives officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Michael L. Hartzmark, Ph.D. 40 President, Chief Executive Officer, and
Director
Anthony W. Barrett 48 Vice President of Operations
Tony Cortes 34 Production Manager
Kent Rogers 46 Director of Information Services
David Bratset 49 Director of Administrative Services
Sidney Dworkin(1)(2) 75 Director
Mark Schwartz(1)(2) 46 Director
Donald McIntyre(1)(2) 72 Director
</TABLE>
- --------------------------------
(1) Member of Audit Committee
(2) Member of Compensation
Committee
Dr. Hartzmark joined the Company as a full-time employee in May 1993
and has served as its President/CEO since June 4, 1993, and as a director since
January 1, 1993. Prior to joining the Company, Dr. Hartzmark was an economic
consultant (as President of EconOhio Corporation) and financial consultant (as
President of MDA Financial, Inc.). EconOhio wrote business plans and provided
advice for a variety of companies. MDA provided financial consulting services to
small and medium-size companies, as well as assistance to oil and gas and real
estate limited partnerships. From 1987 to 1989, Dr. Hartzmark was Senior
Economist at Lexecon Inc. a Chicago-based economics and law consulting firm. Dr.
Hartzmark was the John M. Olin Visiting Scholar at the University of Chicago and
an Assistant Professor at the University of Michigan. He has also worked for the
Treasury Department and the Commodity Futures Trading Commission. Dr. Hartzmark
earned his M.A. and Ph.D. degrees in economics at the University of Chicago. He
holds a B.A. in economics from the University of Michigan.
Mr. Barrett joined CRAGAR in August 1995. In addition to presently
serving as Vice President of Operations, Mr. Barrett also serves as the
Company's principal financial and accounting officer. He has over 25 years of
experience in manufacturing. He has had extensive experience in finance and
accounting, operations, sales, marketing and production. From 1980 to 1993, Mr.
Barrett served as Vice President - Finance, Vice President - Retail Operations
and Vice President - Canadian Operations at F.E. Myers, a manufacturer and
assembler of pumps.
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<PAGE> 39
His responsibilities included overseeing finance, production, operations, and
sales. Prior to 1980, Mr. Barrett worked for 10 years at ITT. Mr. Barrett holds
a B.A. from Malone College.
Mr. Cortes joined CRAGAR in 1982 as an assembly worker and has served
as Production Manager since June 1993.
Mr. Rogers joined CRAGAR in August 1994 and has over 19 years of
experience in utilizing all types of computer hardware platforms and a variety
of integrated computer software packages. As Director of Management Information
Systems at Syntellect, Inc. from 1989 to 1994, Mr. Rogers created the
Information Systems Department for a $50 million voice mail and voice response
products manufacturer. He also directed Syntellect's Customer Support
Department. From 1987 to 1988, Mr. Rogers was a District Industry Specialist for
Unisys, assisting the company in the sales and implementation of its financial,
purchasing, order entry, inventory control, and manufacturing control products.
From 1985 to 1987, Mr. Rogers was an Independent Systems Consultant, where he
evaluated, recommended, trained, and implemented various financial accounting,
distribution, plant maintenance, and manufacturing control software systems.
From 1979 to 1985, Mr. Rogers worked at Hewlett Packard as a Senior Systems
Engineer, installing and implementing the company's software packages. Mr.
Rogers holds a B.S. degree in Computer Science from Angelo State University.
Mr. Bratset joined CRAGAR in September 1995. He has had a varied
background, mostly focused on finance, accounting, and human resources. From
1994 to 1995, Mr. Bratset was Business Manager at Christensen & Associates,
investor relations consultants, with a full range of responsibilities, including
management of Accounting, Human Resources, MIS, and Administrative Services.
From 1992 to 1993, Mr. Bratset was the Controller at Dynamic Information
Corporation, From 1978 to 1992, Mr. Bratset was Vice President of Administration
at the Thunder Group. From 1969 to 1978, Mr. Bratset was Corporate Headquarters
Manager at Zytron Corporation. Mr. Bratset holds a B.A. in Business
Administration/Accounting from University of California, Berkeley.
Mr. Dworkin has served as a director of the Company since December of
1994. Mr. Dworkin founded and served as President and Chairman of the Board of
Revco Drugstore Company, Inc. until October of 1987. Mr. Dworkin currently
serves on the Boards of approximately ten companies, including a number of large
public corporations. These include General Computer Corporation, which was sold
in 1995 (where he was Chairman of the Board), Comtrex Systems, Inc. (where he
was Chairman of the Board), Northern International Technologies, CCA Industries,
Interactive Technologies, Inc. (a manufacturer of pet supplies), Marbledge
Group, Inc., Powerhorse, Overdrive Systems, Inc., and Neutrogena (prior to its
sale). He is also Owner and Chairman of the Board of Advanced Modular Company, a
privately-held manufacturer of modular buildings. His experiences range across a
multitude of industries including, among others, pharmaceuticals, computer
hardware and software, modular housing, and consumer products.
Mr. Schwartz has served as a director of the Company since January of
1993. Mr. Schwartz is President of G&S Metal Products, Inc., one of the largest
producers of consumer metal products in the United States. The company's
headquarters in Cleveland, Ohio includes a major manufacturing facility. G&S
Metal Products sells its products to all major retailers (e.g.,
38
<PAGE> 40
K-Mart, Target, and WalMart), many through private label programs. Mr. Schwartz
is also President of G&S Machine Tools, Inc. and Vice President of Porcelen,
Inc. Mr. Schwartz's has extensive export and import experience.
Mr. McIntyre has served as a director of the Company since June 10,
1996. Mr. McIntyre is currently active nationally in merger and acquisition work
in association with Chapman Associates. He is also interim CEO at Capital
Electric Group. From 1964-1981, he was Chairman of the Board, President, and CEO
of Custom Products Corporation, a multi-plant manufacturing and distribution
company. Mr. McIntyre currently serves on the boards of several companies,
including Capital Electric Group, the Joray Corporation, and Watkins Shepard
Inc. Mr. McIntyre holds a B.S. from Iowa State University and attended
post-graduate courses at Michigan State University and Drake.
The Company's Bylaws provide that the authorized number of directors of
the Company shall be five. Directors are elected annually to serve until the
next annual meeting of shareholders and until their successors are elected and
qualified. Executive officers are elected annually by, and serve at the
discretion of, the Board of Directors.
BOARD COMMITTEES
The Compensation Committee consists of Messrs. Dworkin, Schwartz, and
McIntyre. The Compensation Committee will establish salaries, incentives, and
other forms of compensation for officers and other employees, administers
incentive compensation and benefit plans, including the Company's 1996 Stock
Option and Restricted Stock Plan and the Company's 1996 Non-Employee Directors'
Option Plan, and recommends policies relating to such plans.
The Audit Committee consists of Messrs. Dworkin, Schwartz, and
McIntyre. The Audit Committee will meet periodically with management and
the Company's independent auditors and review the results and scope of the
audit and other services provided by the Company's independent auditors and the
need for internal auditing procedures and the adequacy of internal controls.
DIRECTORS' COMPENSATION
The Company pays all nonemployee directors $1,000 for attendance at the
Company's annual meeting of directors; the Company anticipates that this amount
will increase to $1,500 after the completion of this Offering. The Company pays
all nonemployee directors $250 for any other board or committee meetings
attended. In addition, directors may be reimbursed for certain expenses in
connection with attendance at board meetings. On June 10, 1996, pursuant to the
Company's Non-Employee Directors' Stock Option Plan (the "Directors' Plan"), the
Company granted options to purchase 9,800 shares of the Company's Common Stock
to those persons who were Directors of the Company as of May 31, 1996. All
options were granted with an exercise price of $5.14 per share. Pursuant to the
terms of the Directors' Plan, Mark Schwartz received 2,800 options; Sidney
Dworkin, Victor Scaravilli and Phyllis Froimson each received 2,100 options; and
Donald McIntyre received 700 options. Mr. Scaravilli and Ms. Froimson are not
currently directors of the Company, but were Directors on May 31, 1996. Also,
effective as of June 10, 1996, the Company's Board of Directors granted James
Schoke, a former director of the Company,
39
<PAGE> 41
an option to purchase 2,100 shares of the Company's Common Stock at an exercise
price of $5.14 per share. The option grant to Mr. Schoke was in recognition of
Mr. Schoke's service to the Company as a Board member and was on substantially
the same terms as the option grants under the Directors' Plan. See "Certain
Transactions." The Directors' Plan currently provides that each nonemployee
director will be granted options to purchase 700 shares of Common Stock at fair
market value on the date of grant and which shall vest after each such full year
of service; provided, however, that the aggregate number of options granted by
the Company under the Directors' Plan may not exceed 35,000.
EXECUTIVE COMPENSATION
The following table summarizes all compensation paid or accrued by the
Company for services rendered during the year ended December 31, 1995 by the
Company's President and Chief Executive Officer. No other executive officer of
the Company had compensation in excess of $100,000 for the periods indicated.
<TABLE>
<CAPTION>
Annual Compensation
-----------------------
Name and Principal Position Year Salary
- --------------------------- -------- ---------
<S> <C> <C>
Michael L. Hartzmark, Ph.D., President, 1995 $96,000
Chief Executive Officer, and Director 1994 $96,000
1993 $72,000
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1995, the Company's Board of
Directors established the levels of compensation for certain of the Company's
executive officers without the involvement of the Compensation Committee, as the
Compensation Committee had not yet been formed during that period. Dr.
Hartzmark, the Company's President and Chief Executive Officer, participated in
the deliberations regarding executive compensation that occurred during 1995.
The current members of the Company's Compensation Committee, who joined the
Compensation Committee effective as of September 27, 1996, are Messrs. Dworkin,
Schwartz, and McIntyre. None of these individuals were at any time during 1995
an officer or employee of the Company.
1996 STOCK OPTION PLAN
The Company's 1996 Stock Option and Restricted Stock Plan (the "Option
Plan") was adopted by the Board of Directors in May 1996 and was approved by the
shareholders at the Company's annual meeting of shareholders in June 1996. The
Board of Directors approved an amendment to the Option Plan on September 27,
1996, and the Company's shareholders approved the amendment effective as of that
same date. The purpose of the Option Plan is to attract and retain qualified
personnel, provide additional incentives to employees, officers, directors, and
consultants of the Company and promote the success of the Company's business.
40
<PAGE> 42
Pursuant to the Option Plan, the Company may grant incentive and nonstatutory
(nonqualified) stock options to key employees, officers, directors, and
consultants of the Company. A total of 210,000 shares of Common Stock have been
reserved for issuance under the Option Plan.
The Compensation Committee has been delegated the authority by the
Board to select the key employees, officers, directors, and consultants of the
Company to whom stock options are granted (provided that incentive stock options
only be granted to employees of the Company), to interpret and adopt rules for
the operation of the Option Plan, and to specify other terms of stock options.
Subject to the limitations set forth in the Option Plan, the Compensation
Committee has the authority to designate the number of shares to be covered by
each option, determine whether an option is to be an incentive stock option or a
nonstatutory option, establish vesting schedules, specify the type of
consideration to be paid to the Company upon exercise and, subject to certain
restrictions, specify other terms of the options.
The maximum term of options granted under the Option Plan is ten years.
The aggregate fair market value of the stock with respect to which incentive
stock options are first exercisable in any calendar year may not exceed $100,000
per incidence. Options granted under the Option Plan are nontransferable and
generally expire three months after the termination of an optionee's service to
the Company. In general, if an optionee is permanently disabled or dies during
his or her service to the Company, such option may be exercised up to 12 months
following such disability or death.
The exercise price of incentive stock options must equal the fair
market value of the Common Stock on the date of grant. The exercise price of
incentive stock options granted to any person who at the time of grant owns
stock possessing more than 10% of the total combined voting power of all classes
of stock must be at least 110% of the fair market value of such stock on the
date of grant and the term of those options cannot exceed five years.
OPTION GRANTS
The Company did not grant stock options or stock appreciation rights
during the year ended December 31, 1995.
See "Management-Directors Compensation" for information regarding
option grants made as of June 10, 1996 to certain of the Company's existing
and former directors.
41
<PAGE> 43
CERTAIN TRANSACTIONS
On December 15, 1994, Mr. Sidney Dworkin, a director and principal
shareholder of the Company, invested $500,000 in the Company in order to, among
other things, fund the Company's $360,000 installment under a promissory note to
Performance Industries, Inc. (formerly Mr. Gasket) ("Performance"). This
payment related to debt owed by the Company to Mr. Gasket as a result of the
Company's acquisition of the CRAGAR brand name and certain other assets from
Mr. Gasket. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Overview." Of Mr. Dworkin's $500,000 investment,
$150,000 was made as a contribution to capital, and the remaining $350,000 was
made as a loan to the Company. In consideration of the $150,000 capital
contribution, Mr. Dworkin received (i) 29,166.9 shares of Common Stock, (ii)
3,937.5 Class A Warrants, each warrant entitling the holder to purchase one
share of the Common Stock at $1.4286, and (iii) a promissory note in the
principal amount of $108,333 (the "$108,333 Note"). The $108,333 Note bears
interest at a rate of 15% per annum, payable annually in five installments
commencing January 1, 1995. In consideration of the $350,000 loan to the
Company, Mr. Dworkin received (i) 24,500 Class B Warrants, each warrant
entitling the holder to purchase one share of Common Stock at $0.36 per share,
and (ii) a promissory note in the principal amount of $350,000 (the "$350,000
Note"). The $350,000 Note, which initially had an interest rate of 1.5% per
month through June 30, 1995, and 2% per month thereafter until the outstanding
principal balance is paid in full, was amended by the parties on October 12,
1995, so that the Note currently bears interest at 8% per annum and matures on
January 1, 1997. Pursuant to an amendment executed by the parties on
September 30, 1996 (see below), the $350,000 Note will automatically convert
upon the Closing Date into 68,055.6 shares of Common Stock.
In connection with the original capitalization of the Company, the
Company issued promissory notes (the "1992 Notes") to certain investors (the
"1992 Note Holders"). On December 14, 1994, as part of a plan of
recapitalization (the "Recapitalization"), all but one of the 1992 Note Holders
entered into an agreement with the Company to forgive all interest accrued on
the 1992 Notes through December 31, 1994. In addition, all of the 1992 Note
Holders agreed on January 31, 1995 to contribute to the capital of the Company
the indebtedness owed pursuant to the 1992 Notes, and, Mr. Dworkin contributed
to the capital of the Company the indebtedness owed pursuant to the $108,333
Note. Among the 1992 Note Holders that participated in the recapitalization were
(with amount contributed in parenthesis): Michael L. Hartzmark, President,
Director, and Chief Executive Officer of the Company ($180,555); Dolores
Hartzmark, principal shareholder and mother of Michael L. Hartzmark ($361,110);
Debra Jacobs, principal shareholder and sister of Michael L. Hartzmark and
daughter of Dolores Hartzmark ($180,555); Sidney Dworkin, Director ($216,666);
Elliot Dworkin, son of Sidney Dworkin ($72,222); Mark Schwartz, Director
($361,110); Harry Schwartz, principal shareholder and father of Mark Schwartz
($361,110); and Edward R. Falkner ($144,444), Irving Davies ($144,444), James
Schoke ($144,444), and Gerald Richter ($216,666), all of whom are principal
shareholders of the Company.
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<PAGE> 44
On September 30, 1995, the Company entered into a First Note Amendment
with the holders of the 1993 Junior Notes. Pursuant to this Amendment, the
Company agreed to increase the interest rate on the 1993 Junior Notes from 6% to
8% per annum. Also pursuant to this Amendment, the Company agreed to issue
shares of its Common Stock to holders of the 1993 Junior Notes, and the holders
of the 1993 Junior Notes agreed to accept such Common Stock, in lieu of
interest that had accrued on the 1993 Junior Notes. Pursuant to this agreement,
holders of the 1993 Junior Notes received 2,152.84 shares of the Company's
Common Stock for every $100,000 of interest payable. Among the holders of 1993
Junior Notes were (with shares issued in parenthesis): Sidney Dworkin
(10,244.57); Gerald Richter (931.35); Edward R. Falkner (931.35), Elayne Schoke
(931.35), James Schoke (1,862.63), and Irving Davies (2,793.98), all of whom are
principal shareholders of the Company; and CN Partners (4,057.62) in which Lee
Hartzmark, Harry Schwartz, Gerald Richter, Edward R. Falkner, and Sidney Dworkin
each have a one-fifth beneficial interest.
On June 20, 1996, Mr. Lee Hartzmark, father of Michael L. Hartzmark,
entered into an agreement with Performance Industries (formerly Mr. Gasket,
the seller of the Cragar assets) whereby Mr. Lee Hartzmark was assigned
the rights to an unsecured promissory note and a non-compete agreement between
Performance and the Company. The unsecured promissory note and non-compete
agreement had outstanding balances of $1,066,098 and $44,118, respectively, at
June 20, 1996. Mr. Hartzmark paid Performance $700,000 in consideration of said
assignment. On July 1, 1996, the Company privately sold Bridge Notes totaling
$1,500,000 (see the immediately following paragraph). A portion of the proceeds
from the Bridge Notes were used to pay the unsecured promissory note and
non-compete agreement obligations held by Mr. Hartzmark for $700,000, plus
$79,727 for interest and service charges related to the assignment.
On July 1, 1996, the Company obtained bridge financing totaling
$1,500,000 (the "Bridge Financing"). Each lender that participated in the Bridge
Financing (collectively, the "Lenders") received from the Company, as
consideration, (i) the Company's promissory note in the principal amount of the
Lender's investment (the "Bridge Note"), and (ii) 8,400 Class C Warrants for
each $100,000 the Lender invested in connection with the Bridge Financing. Each
Class C Warrant entitles the holder to purchase one share of the Company's
Common Stock at an exercise price of $3.247 per share. The Bridge Notes are due
in full on June 30, 1998 or earlier in certain circumstances, including within
30 days following the initial public offering of the Company's Common Stock.
Among the officers, directors, and principal shareholders that participated in
the Bridge Financing (with amount invested in parenthesis) are: Mark Schwartz,
($100,000); Irving Davies ($150,000); Edward R. Falkner ($200,000); and Harry
Schwartz ($100,000).
See "Mangement - Directors Compensation" for information regarding
options grants made on June 10, 1996 to certain of the Company's existing and
former directors.
On September 30, 1996, the Company entered into a Second Note Amendment
with the holders of the 1993 Junior Notes, and entered into a First Note
Amendment with Mr. Sidney
43
<PAGE> 45
Dworkin, the holder of the $350,000 Note. Pursuant to both of these Amendments,
provisions were added to the 1993 Junior Notes and the $350,000 Note which
provide that, upon the Closing Date, (i) the outstanding principal and interest
under the 1993 Junior Notes will convert into 291,666 shares of the Company's
Common Stock (19,444.4 shares per $100,000 principal amount) and (ii) the
outstanding principal and interest under the $350,000 Note will convert into
68,055.6 shares of the Company's Common Stock (19,444.4 shares per $100,000
principal amount).
Management believes that the foregoing transactions were consummated on
terms that would otherwise prevail in arms-length transactions.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of September 26, 1996 by
(i) each person who is known by the Company to be the beneficial owner of more
than 5% of the Common Stock, (ii) each of the Company's directors, (iii) the
executive officer named in the Compensation Table, and (iv) all directors and
executive officers of the Company as a group. Except as otherwise indicated, the
Company believes that the beneficial owners of the Common Stock listed below,
based on information furnished by such owners, have sole investment and voting
power with respect to such shares, subject to community property laws where
applicable.
<TABLE>
<CAPTION>
Number Percent of Total(3)
of Shares -------------------
Name and Address Beneficially Before After
of Beneficial Owner(1) Owned(2) Offering Offering
- ---------------------- ------------ -------- --------
Minimum Maximum
------- -------
<S> <C> <C> <C> <C>
Michael L. Hartzmark, Ph. D.#(4) 87,134.58 6.72% 4.44% 3.79%
Mark Schwartz#(5) 121,548.00 9.25% 6.13% 5.25%
Donald McIntyre#(6) 700.00 * * *
Sidney Dworkin#(7) 321,691.29 24.21% 16.12% 13.81%
Lee & Dolores Hartzmark(8) 120,881.72 9.27% 6.14% 5.25%
Debra Jacobs(9) 87,134.58 6.72% 4.44% 3.79%
Edward R. Falkner(10) 82,126.47 6.26% 4.15% 3.55%
Irving Davies(11) 88,699.78 6.78% 4.49% 3.84%
Gerald Richter(12) 87,396.07 6.73% 4.45% 3.80%
James & Elayne Schoke(13) 78,199.78 6.03% 3.98% 3.40%
Harry Schwartz(14) 129,281.72 9.86% 6.53% 5.59%
All Executive Officers and Directors
as a Group (4 persons) 541,607.60 39.82% 26.72% 22.95%
</TABLE>
- --------------
* Indicates ownership of less than one percent.
44
<PAGE> 46
# Indicates Director of the Company.
(1) Unless otherwise noted, the address of each of the listed stockholders
is 4636 N. 43rd Avenue, Phoenix, Arizona 85031.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired within 60 days from the date set forth above through the
exercise of any option or warrant.
(3) In calculating percentage ownership, all shares of Common Stock which
the named shareholder has the right to acquire upon exercise of any
option or warrant are deemed to be outstanding for the purpose of
computing the percentage of Common Stock owned by such shareholder, but
are not deemed outstanding for the purpose of computing the percentage
of Common Stock owned by any other shareholder. Shares and percentages
beneficially owned are based upon 1,290,304.96 shares outstanding
before the Offering, which assumes conversion of all convertible notes
which will be automatically converted into approximately 359,721.6
shares of Common Stock upon the Closing Date. Accordingly, shares and
percentages beneficially owned after the Offering are based on
1,956,971.96 Units for the minimum, and 2,290,304.96 Units for the
maximum.
(4) Dr. Hartzmark is deemed to be beneficial owner of MDA Financial, Inc.
As a result, Dr. Hartzmark's beneficial interest includes 6,562.5
shares purchasable upon exercise of Class A warrants and convertible
notes that will automatically convert into 29,166.6 shares of Common
Stock upon the Closing Date.
(5) Includes 13,125 shares purchasable upon exercise of Class A warrants,
8,400 shares purchasable upon exercise of Class C warrants, and 2,800
shares purchasable upon exercise of Non-Employee Directors' Stock
Options.
(6) Includes 700 shares purchasable upon exercise of Non-Employee
Directors' Stock Options.
(7) Mr. Dworkin is deemed to be beneficial owner of a one-fifth interest in
CN Partners. As a result, Mr. Dworkin's beneficial interest includes
11,812.5 shares purchasable upon exercise of Class A warrants, 24,500
shares purchasable upon exercise of Class B warrants, 2,100 shares
purchasable upon exercise of Non-Employee Directors' Stock Options, and
convertible notes that will automatically convert into 184,722 shares
of Common Stock upon the Closing Date.
(8) Because Lee Hartzmark and Dolores Hartzmark are married, each may be
deemed a beneficial owner of the other's shares of Common Stock. Mr.
and Mrs. Hartzmark are deemed to be beneficial owners of a one-fifth
interest in CN Partners. As a result, their interest includes 13,125
shares purchasable upon exercise of Class A warrants and convertible
notes that will automatically convert into 9,722.2 shares of Common
Stock upon the Closing Date.
(9) Ms. Jacobs is deemed to be beneficial owner of MDA Financial, Inc. As a
result, Ms. Jacobs's beneficial interest includes 6,562.5 shares
purchasable upon exercise of Class A warrants and convertible notes
that will automatically convert into 29,166.6 shares of Common Stock
upon the Closing Date.
(10) Mr. Falkner is deemed to be beneficial owner of The Edward Falkner
Trust and beneficial owner of a one-fifth interest in CN Partners. As a
result, Mr. Falkner's beneficial interest includes 5,250 shares
purchasable upon exercise of Class A warrants, 16,800 shares
purchasable upon exercise of Class C warrants, and convertible notes
that will automatically convert into 19,444.4 shares of Common Stock
upon the Closing Date.
(11) Includes 5,250 shares purchasable upon exercise of Class A warrants,
12,600 shares purchasable upon exercise of Class C warrants, and
convertible notes that will automatically convert into 29,166.6 shares
of Common Stock upon the Closing Date.
(12) Mr. Richter is deemed to be beneficial owner of a one-fifth interest in
CN Partners. As a result, Mr. Richter's beneficial interest includes
7,875 shares purchasable upon exercise of Class A warrants and
convertible notes that will automatically convert into 19,444.4 shares
of Common Stock upon the Closing Date.
(13) Because James Schoke and Elayne Schoke are married, each may be deemed
a beneficial owner of the other's shares of Common Stock. As a result,
their interest includes 5,250 shares purchasable upon exercise of Class
A warrants, 2,100 shares purchasable upon exercise of stock options,
and convertible notes that will automatically convert into 29,166.6
shares of Common Stock upon the Closing Date.
(14) Mr. Schwartz is deemed to be the beneficial owner of a one-fifth
interest in CN Partners. As a result, Mr. Schwartz's beneficial
interest includes 13,125 shares purchasable upon exercise of Class A
warrants, 8,400 shares purchasable upon exercise of Class C warrants,
and convertible notes that will automatically convert into 9,722.2
shares of Common Stock upon the Closing Date.
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<PAGE> 47
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 5,000,000
shares of Common Stock, $0.01 par value, and 200,000 shares of Preferred Stock,
$0.01 par value. The following description of the Company's capital stock is
qualified in all respects by reference to the Company's Amended and Restated
Certificate of Incorporation ("Certificate of Incorporation"), which has been
filed as an exhibit to the Registration Statement incorporating this Prospectus.
COMMON STOCK
The holders of outstanding shares of Common Stock are entitled to
receive dividends out of assets legally available thereof at such times and in
such amounts as the Board of Directors may, from time to time, determine,
subject to any preferences which may be granted to the holders of Preferred
Stock. Holders of Common Stock are entitled to one vote per share on all matters
on which the holders of Common Stock are entitled to vote. The Common Stock is
not entitled to preemptive rights and is not subject to redemption or
conversion. Upon liquidation, dissolution or winding-up of the Company, the
assets (if any) legally available for distribution to shareholders are
distributable ratably among the holders of the Common Stock after payment of all
debt and liabilities of the Company and the liquidated preference of any
outstanding class or series of Preferred Stock. All outstanding shares of Common
Stock are, and the shares of Common Stock to be issued pursuant to this Offering
will be, when issued and delivered, validly issued, fully paid, and
nonassessable. The rights, preferences, and privileges of holders of Common
Stock are subject to any series of Preferred Stock that the Company may issue in
the future.
COMMON STOCK PURCHASE WARRANTS
In connection with this Offering, the Company will issue a minimum of
666,667 and a maximum 1,000,000 Warrants. The Warrants are subject to the terms
and conditions of a Warrant Agreement between the Company and _________________
_________________________, as Warrant Agent. The following description of the
Warrants is not complete and is qualified in all respects by the Warrant
Agreement which is filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The shares of the Company's Common Stock underlying
the Warrants, when issued upon exercise thereof and payment of the purchase
price, will be fully paid and nonassessable.
Each Warrant entitles the holder to purchase one share of Common Stock
at any time during the three years following the Closing Date for $7.20. The
number and kind of securities or other property for which the Warrants are
exercisable are subject to adjustment upon the occurrence of certain events,
including mergers, reorganizations, stock dividends, stock splits, and
recapitalizations. All Warrants not exercised or redeemed will expire three
years from the Closing Date. Holders of Warrants have no voting, dividend, or
other rights as shareholders of the Company with respect to the shares
underlying the Warrants, unless and until the Warrants are exercised.
The Warrants may be exercised by filling out and signing the
appropriate form on the Warrants and mailing or delivering the Warrants to the
Warrant Agent in time to reach the Warrant Agent by the expiration date,
accompanied by payment in full of the exercise price for
46
<PAGE> 48
the Warrants being exercised in United States funds (in cash or by check or bank
draft payable to the order of the Company). Common Stock certificates will be
issued as soon as practicable after exercise and payment of the exercise price
as described above.
DEALER WARRANTS
In connection with this Offering, the Company may sell to Participating
Dealers, for $.01 per warrant, up to 150,000 warrants to purchase Common Stock
(the "Dealer Warrants"). Each Dealer Warrant entitles the holder to purchase one
share of Common Stock at any time during the three years following the Closing
Date for $7.20 per share. The Dealer Warrants may not be sold, transferred,
assigned, or hypothecated for a period of one year from the Closing Date. The
number and kind of securities or other property for which the Warrants are
exercisable are subject to adjustment upon the occurrence of certain events,
including mergers, reorganizations, stock dividends, stock splits, and
recapitalizations. Holders of Dealer Warrants have no voting, dividend or
other rights as shareholders of the Company with respect to shares underlying
the Dealer Warrants, unless and until the Dealer Warrants have been exercised.
OTHER WARRANTS
Class A Warrants
In connection with the original capitalization of the Company in 1992,
the Company issued 118,125 Class A Warrants. Each Class A Warrant entitles the
holder to purchase one share of the Common Stock at a price of $1.43 and is
exercisable at any time on or before December 31, 1999. In addition, on December
15, 1994, the Company issued 3,937.5 Class A Warrants. See "Certain
Transactions." As of the date of this Prospectus, none of the holders of the
Class A Warrants have exercised their Class A Warrants. The Class A Warrants
contain provisions that protect the holders against dilution by adjustment of
the exercise price and the number of shares of Common Stock subject to the Class
A Warrants in certain events, such as stock dividends and distributions, stock
splits, recapitalizations, mergers or consolidations. Holders of Class A
Warrants will not possess any rights as shareholders of the Company prior to
exercise.
Class B Warrants
On December 15, 1994, the Company issued 24,500 Class B Warrants. See
"Certain Transactions." Each Class B Warrant entitles the holder to purchase one
share of the Common Stock at a price of $0.36 and is exercisable at any time on
or before December 31, 1999. As of the date of this Prospectus, none of the
holders of the Class B Warrants have exercised their Class B Warrants. The Class
B Warrants contain provisions that protect the holders against dilution by
adjustment of the exercise price and the number of shares of Common Stock
subject to the Class B Warrants in certain events, such as stock dividends and
distributions, stock splits, recapitalizations, mergers or consolidations.
Holders of Class B Warrants will not possess any rights as shareholders of the
Company prior to exercise.
47
<PAGE> 49
Class C Warrants
On July 1, 1996, the Company issued 126,000 Class C Warrants. See
"Certain Transactions." Each Class C Warrant entitles the holder to purchase one
share of Common Stock at a price of $3.25 per share, exercisable before June 30,
2001. See "Certain Transactions." As of the date of this Prospectus, none of the
holders of the Class C Warrants have exercised their Class C Warrants. The Class
C Warrants contain provisions that protect the holders against dilution by
adjustment of the exercise price and the number of shares of Common Stock
subject to the Class C Warrants in certain events, such as stock dividends and
distributions, stock splits, recapitalizations, mergers or consolidations.
Holders of Class C Warrants will not possess any rights as shareholders of the
Company prior to exercise. Holders of Class C Warrants have been granted certain
registration rights. See "Shares Eligible For Future Sale - Registration
Rights."
OPTIONS
See "Management - Directors Compensation" for information regarding
option grants made as of June 10, 1996 to certain of the Company's existing and
former directors. As of the date of this Prospectus, none of the holders of
such options have exercised their options.
PREFERRED STOCK
Preferred Stock may be issued from time to time in one or more series,
and the Board of Directors, without action by the holders of the Common Stock,
may fix or alter the voting rights, redemption provisions (including sinking
fund provisions), dividend rights, dividend rates, liquidation preferences,
conversion rights, and any other rights, preferences, privileges, and
restrictions of any wholly unissued series of Preferred Stock. The Board of
Directors, without shareholder approval, can issue shares of Preferred Stock
with rights that could adversely affect the rights of the holders of Common
Stock. No shares of Preferred Stock are outstanding, and the Company has no
present plans to issue any such shares. The issuance of shares of Preferred
Stock could adversely affect the voting power of holders of Common Stock and
could have the effect of delaying, deferring, or preventing a change in control
of the Company or other corporate action.
DEBT SECURITIES
For a discussion of the Company's outstanding debt securities, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
CERTAIN CERTIFICATE OF INCORPORATION PROVISIONS
The Company's Certificate of Incorporation provides that the Company's
directors will not be personally liable for monetary damages for beach of the
directors' fiduciary duty of care to the Company or its shareholders, except for
liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involved intentional misconduct or a knowing violation of law, (iii) under
Section 174 of
48
<PAGE> 50
the Delaware Corporation Law, or (iv) for any transaction from which the
director derived any improper personal benefit. This provision in the
Certificate of Incorporation does not eliminate the duty of care, and in
appropriate circumstances equitable remedies such as an injunction or other
forms of nonmonetary relief would remain available under Delaware law. This
provision also does not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws.
TRANSFER AGENT, REGISTRAR AND WARRANT AGENT
The stock transfer agent and registrar for the Common Stock is
ChaseMellon Shareholder Services, L.L.C.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 2,290,304.96
shares of Common Stock outstanding if the maximum number of 1,000,000 Units are
sold, assuming conversion of outstanding notes which are automatically
convertible into approximately 359,721.6 shares of Common Stock and excluding
exercise of currently outstanding options and warrants. In addition, the Company
will have outstanding 122,063.2 Class A Warrants, 24,500 Class B Warrants,
126,000 Class C Warrants, and 9,800 Non-Employee Director Options, and 2,100
other options (collectively, the "Outstanding Warrants and Options"). Of the
outstanding shares of Common Stock, the 1,000,000 shares of Common Stock
included in the Units to be sold in this Offering will be freely transferable
without restriction or further registration under the Securities Act, except
that any shares purchased by affiliates of the Company will be subject to the
limitations of Rule 144 under the Securities Act. In addition, the 1,000,000
Warrants included in the Units to be sold in this Offering will be freely
transferable without restriction or further registration under the Securities
Act, except that any Warrants purchased by affiliates of the Company will be
subject to the limitations of Rule 144 under the Securities Act. The remaining
1,290,304.96 outstanding shares of Common Stock and all of the Outstanding
Warrants and Options will be "restricted securities" upon the completion of this
Offering as that term is defined in Rule 144 under the Securities Act (the
"Restricted Securities").
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregate) who has beneficially owned Restricted Securities for
at least two years, including persons who may be deemed "affiliates" of the
Company, would be entitled to sell within any three-month period a number of
securities that does not exceed the greater of one percent of the number of
shares of Common Stock then outstanding or the average weekly trading volume of
the Common Stock during the four calendar weeks preceding the date an order to
sell is placed with respect to such sale. Sales under Rule 144 are also subject
to certain manner of sale provisions and notice requirements, and to the
availability of current public information about the Company. In addition, a
person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned the
securities proposed to be sold for at least three years, would be entitled to
sell such securities under Rule 144(k) without regard to the requirements
described above. The Company is unable to estimate the number of securities that
may be sold under Rule 144 since this will depend on the market price for the
Common Stock of the Company, the personal circumstances of the sellers, and
other factors.
49
<PAGE> 51
Certain stockholders of the Company, including all of the Company's
officers and directors, have agreed with the Company not to offer, sell, or
otherwise dispose of Restricted Securities for a period of six months from the
date of this Prospectus without the written consent of the Company (the "Six
Month Lock-up Agreement"). Approximately 765,710.87 shares of Common Stock and
approximately 113,137.5 Outstanding Warrants and Options are subject to the Six
Month Lock-up Period. Holders of the remaining Restricted Securities
(approximately 524,594.09 shares of Common Stock and approximately 171,325.7
Outstanding Warrants and Options) have agreed with the Company not to offer,
sell, or otherwise dispose of Restricted Securities for a period of three months
from the date of this Prospectus without the written consent of the Company (the
"Three Month Lock-up Agreement"). Upon expiration of the Lock-up Agreements, the
Restricted Securities will be available for sale in the public market subject to
compliance with the limitations of Rule 144.
Prior to this Offering, there has been no public market for the Common
Stock or Warrants. The Company can make no predictions as to the effect, if any,
that sales of shares of Common Stock or Warrants or the availability of Common
Stock or Warrants for sale will have on the market price prevailing from time to
time. Nevertheless, sales of substantial amounts of the Common Stock or Warrants
in the public market could adversely affect the market price of the Common Stock
or Warrants and could impair the Company's future ability to raise capital
through an offering of its equity securities.
REGISTRATION RIGHTS
The holders of the Class C Warrants have been granted certain rights
with respect to the registration under the Securities Act of the Class C
Warrants or the shares of Common Stock issued upon exercise of the Class C
Warrants. Beginning twelve months after the closing of the Company's initial
underwritten public offering of Common Stock, the Company shall, within six
months of receipt of requests for registration from holders of 63,000 shares of
Common Stock (or warrants to acquire 63,000 shares of Common Stock), use its
best efforts to affect the registration under the Securities Act of such
securities.
The Company generally is required to bear all costs incurred in
connection with any such registrations, other than underwriting discounts and
commissions. The foregoing registration rights could result in substantial
future expense to the Company and could adversely affect any future equity or
debt offerings of the Company.
50
<PAGE> 52
PLAN OF DISTRIBUTION
The Company is offering up to 1,000,000 Units at a purchase price of
$6.00 per Unit. The Units will be sold on a "best efforts, all or none" basis
with respect to the first 666,667 Units and on a "best efforts" basis as to the
remaining 333,333 Units. A minimum investment of 100 Units ($600) is required of
each investor, provided that the Company, in its discretion, may reduce the size
of the minimum investment. Payment is due in full upon subscription.
Subscription funds are irrevocable and will initially be held in an escrow
account at Norwest Bank Arizona, N.A. This Offering will terminate 120 days from
the date of this Prospectus unless this Offering is otherwise extended one or
more times in the discretion of the Company for an additional period not to
exceed 120 days (through________ , 1997) (the "Minimum Offering Period"), or
unless collected or collectible subscriptions for at least 666,667 Units
offered hereby (the "Minimum Offering") have been received and accepted prior
to such date. If subscriptions for the minimum number of Units offered hereby
have not been received and accepted by the Company by the Minimum Offering
Period, no Units will be sold, and all funds held in escrow will be returned
promptly to investors with their proportionate share of interest, if any,
earned in the escrow account. If the Minimum Offering is sold, the Offering
may continue beyond the Minimum Offering Period. In no event, however, may the
Offering period exceed two years from the date of this Prospectus. The Company
reserves the right to terminate the Offering at any time either prior or
subsequent to the sale of the Minimum Offering. The Company may allocate among
or reject any subscriptions, in whole or in part.
The offering of the Units is a self-underwritten offering. The Units
will be offered and sold by the Company's officers and directors, without
compensation. However, notwithstanding the foregoing, the Company anticipates
that it will also engage Participating Dealers to assist the Company in the sale
of the Units. Should the Company engage Participating Dealers to assist it in
the offering of the Units, the Company plans to pay sales commissions to
Participating Dealers equal to five percent (5%) of the offering purchase price
of the Units sold by them. Additionally, the Company may sell to Participating
Dealers, for $0.01 each, an aggregate of up to 150,000 warrants (the "Dealer
Warrants"), each warrant entitling the holder to purchase one share of Common
Stock at $7.20. The exercise price and the number of shares may, under certain
circumstances, be subject to adjustment pursuant to anti-dilution provisions of
the Dealer Warrants. During the term of the Dealer Warrants, the holders thereof
will have the opportunity to profit from a rise in the market price for the
shares of Common Stock at a nominal cost. Exercise of the Dealer Warrants will
result in dilution of the interest of existing shareholders.
Further, the Company expects to agree to indemnify Participating
Dealers against certain liabilities, including liabilities under the Securities
Act, which may arise in connection with this Offering as a result of disclosures
for which the Company is responsible.
Those subscribing to purchase Units must complete a subscription
agreement, a form of which is included as an appendix to this Prospectus.
Subscription funds will be held in an escrow account at Norwest Bank Arizona
N.A., pursuant to the terms and conditions contained in the Escrow Agreement, a
form of which is included as an appendix to this Prospectus. When funds are
released to the Company from escrow, investors whose subscriptions for Units
have been accepted by the Company will be issued Common Stock certificates
evidencing the number of shares purchased and certificates evidencing the number
of Warrants purchased. Until the
51
<PAGE> 53
certificates are delivered to the purchasers thereof, such purchasers, if any,
will be deemed subscribers only, and not shareholders.
There is no lead underwriter for this Offering. Participating Dealers
will execute Participating Dealer Agreements with the Company; however, such
Participating Dealers will be under no obligation to sell any or all of the
Units offered hereby. Any broker/dealer that sells Units in the Offering may be
deemed an underwriter as defined in Section 2(11) of the Securities Act. The
Company currently has not entered into Participating Dealer Agreements with any
brokers or dealers. The Company anticipates that it will enter into
Participating Dealer Agreements with Participating Dealers. The Company reserves
the right to enter into Participating Dealer Agreements with Participating
Dealers after the commencement of this Offering. There is no assurance that,
even if any Participating Dealers sell the Units offered hereby, a court of
competent jurisdiction or arbitration panel would deem any such Participating
Dealer to be an underwriter as so defined.
The Units are being offered subject to prior sale, withdrawal,
cancellation or modification of the offer, including its structure, terms and
conditions, without notice. The Company reserves the right, in its sole
discretion, to reject, in whole or in part, any offer to purchase the Units.
The Company intends to sell the Units in this Offering only in the
states in which the Offering is qualified or in which an exemption from
qualification is available. An offer to purchase may only be made and the
purchase of the Units may only be negotiated and consummated in such states. The
Subscription Agreement for the Units must be executed, and the Units may be
delivered only in, such states. Resale or transfer of the Units may be
restricted under state law.
Any Participating Dealers will agree in accordance with the provisions
of Rule 15c2-4 promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended, to cause all funds received upon
subscription for Units to be forwarded to the Escrow Agent upon the receipt of
the executed Subscription Agreement and related funds by the Participating
Dealer by or before noon of the next business day following the subscription for
said Units.
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price has been unilaterally determined by the
Company without being negotiated with an underwriter or other third party. Among
the factors considered by the Company in determining the price were the history
of, and the prospects for, the Company and the industry in which it competes,
its past and present operations, its past and present earnings and the trend of
such earnings, the prospects for future earnings, the present state of the
Company's development, the general condition of the securities markets at the
time of this Offering, and the recent market prices of publicly traded common
stocks of comparable companies.
52
<PAGE> 54
LEGAL MATTERS
The validity of the Units offered hereby will be passed upon for the
Company by Snell & Wilmer L.L.P., Phoenix, Arizona.
EXPERTS
The financial statements of Cragar Industries, Inc., as of December 31,
1995 and for each of the years in the two-year period ended December 31, 1995,
have been included herein and in the registration statement, in reliance on the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
53
<PAGE> 55
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................. F-2
Balance Sheets at December 31, 1995 and at
June 30, 1996 (unaudited).............................................. F-3
Statements of Operations for the years ended December 31, 1994
and 1995 and for the six month periods ended June 30, 1995
(unaudited) and June 30, 1996 (unaudited).............................. F-4
Statements of Stockholders' Deficit for the years ended
December 31, 1994 and 1995, and for the six month period
ended June 30, 1996 (unaudited)........................................ F-5
Statements of Cash Flows for the years ended December 31, 1994
and 1995, and for the six month periods ended June 30, 1995
(unaudited) and June 30, 1996 (unaudited).............................. F-6
Notes to Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 56
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
CRAGAR Industries, Inc.:
We have audited the accompanying balance sheet of CRAGAR Industries, Inc.
as of December 31, 1995, and the related statements of operations, stockholders'
deficit, and cash flows for each of the years in the two-year period ended
December 31, 1995. 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.
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 that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CRAGAR Industries, Inc. as
of December 31, 1995, and the results of its operations and its cash flows for
each of the years in the two-year period ended December 31, 1995 in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Phoenix, Arizona
January 12, 1996, except
for Note 9 which is as of May 25, 1996
and Note 20 which is as of
September 30, 1996
F-2
<PAGE> 57
CRAGAR INDUSTRIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
1996
DECEMBER 31, -----------
1995
------------ (UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ -- $ --
Accounts receivable, less allowance for doubtful accounts of
$150,626 in 1995 and $40,598 in 1996......................... 4,994,488 6,325,774
Inventories, net................................................ 7,380,142 7,091,794
Current portion of non-trade receivables........................ 87,500 144,894
Prepaid expenses................................................ 29,753 144,504
----------- -----------
Total current assets......................................... 12,491,883 13,706,966
----------- -----------
Property and equipment, net....................................... 1,047,090 953,110
Non-trade receivables, less current portion....................... 102,619 --
Other assets, net................................................. 324,305 268,816
----------- -----------
$ 13,965,897 $14,928,892
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable................................................ $ 2,515,208 $ 3,392,734
Accrued expenses................................................ 924,861 1,157,726
Accrued interest................................................ 124,044 231,797
Current portion of capital lease obligations.................... 61,573 64,582
Current portion of long-term debt............................... 512,748 514,510
----------- -----------
Total current liabilities.................................... 4,138,434 5,361,349
----------- -----------
Note payable...................................................... 7,300,895 6,980,827
Capital lease obligations, excluding current portion.............. 177,341 144,219
Long-term debt, less current portion.............................. 978,690 960,983
Subordinated investor debt, less current portion.................. 1,500,000 1,500,000
Excess of fair value of assets acquired over cost................. 1,474,937 1,106,203
----------- -----------
Total liabilities............................................ 15,570,297 16,053,581
----------- -----------
Commitments, contingencies and subsequent events..................
Stockholders' deficit:
Preferred stock, par value $.01; authorized 200,000 shares, no
shares issued and outstanding................................ -- --
Common stock, par value $.01; authorized 5,000,000 shares,
930,584 shares at December 31, 1995 and 930,584 shares
(unaudited) at June 30, 1996 issued and outstanding.......... 1,329 1,329
Additional paid-in capital...................................... 4,823,916 4,823,916
Accumulated deficit............................................. (6,429,645) (5,949,934)
----------- -----------
Total stockholders' deficit.................................. (1,604,400) (1,124,689)
----------- -----------
$ 13,965,897 $14,928,892
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
F-3
<PAGE> 58
CRAGAR INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------- ---------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales............................. $20,269,936 $22,935,773 $13,789,826 $12,527,685
Costs of goods sold................... 17,166,550 20,289,347 11,797,095 10,596,743
----------- ----------- ----------- -----------
Gross profit.......................... 3,103,386 2,646,426 1,992,731 1,930,942
----------- ----------- ----------- -----------
Selling, general and administrative
expenses............................ 3,887,756 2,912,393 1,529,424 1,376,643
Amortization of excess of fair value
of assets acquired over cost........ (737,468) (737,468) (368,734) (368,734)
----------- ----------- ----------- -----------
Income (loss) from operations......... (46,902) 471,501 832,041 923,033
----------- ----------- ----------- -----------
Non-operating expenses, net:
Interest expense, net............... 1,396,677 1,164,510 577,629 542,151
Other, net.......................... 112,970 747 -- (130,000)
----------- ----------- ----------- -----------
Total non-operating expenses..... 1,509,647 1,165,257 577,629 412,151
----------- ----------- ----------- -----------
Earnings (loss) before income taxes
and extraordinary item.............. (1,556,549) (693,756) 254,412 510,882
Income taxes.......................... -- -- -- 31,171
----------- ----------- ----------- -----------
Income before extraordinary item...... (1,556,549) (693,756) 254,412 479,711
Extraordinary item:
Gain on forgiveness of debt......... 1,107,232 -- -- --
----------- ----------- ----------- -----------
Net earnings (loss).............. $ (449,317) $ (693,756) $ 254,412 $ 479,711
=========== =========== =========== ===========
Earnings (loss) per common and common
equivalent share.................... $ (.40) $ (.60) $ .22 $ .41
=========== =========== =========== ===========
Weighted average common and common
equivalent shares outstanding....... 1,119,839 1,154,395 1,147,792 1,174,200
=========== =========== =========== ===========
Earnings (loss) per common shares --
assuming full dilution.............. $ .18 $ .33
=========== ===========
Weighted average common shares
outstanding -- assuming full
dilution............................ 1,439,458 1,465,866
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
F-4
<PAGE> 59
CRAGAR INDUSTRIES, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- ADDITIONAL
NUMBER OF PAID-IN ACCUMULATED STOCKHOLDER'
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
---------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1994......... 8,750,070 $ 12,500 $1,237,510 $(5,286,572) $ (4,036,562)
One-for-ten reverse stock split... (7,875,063) (11,250) 11,250 -- --
Issuance of common stock for
cash........................... 29,167 42 41,625 -- 41,667
Net loss for the year............. -- -- -- (449,317) (449,317)
---------- ------- --------- ---------- ----------
Balances at December 31, 1994....... 904,174 1,292 1,290,385 (5,735,889) (4,444,212)
Issuance of common stock.......... 26,410 37 175,208 -- 175,245
Contribution of subordinated
investor debt.................. -- -- 3,358,323 -- 3,358,323
Net loss for the year............. -- -- -- (693,756) (693,756)
---------- ------- --------- ---------- ----------
Balances at December 31, 1995....... 930,584 1,329 4,823,916 (6,429,645) (1,604,400)
Net earnings (unaudited).......... -- -- -- 479,711 479,711
---------- ------- --------- ---------- ----------
Balances at June 30, 1996
(unaudited)....................... 930,584 $ 1,329 $4,823,916 $(5,949,934) $ (1,124,689)
========== ======= ========= ========== ==========
</TABLE>
See accompanying notes to the financial statements.
F-5
<PAGE> 60
CRAGAR INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 30, 1996
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------- --------------------------
1994 1995 1995 1996
----------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)................................................. $ (449,317) $ (693,756) $ 254,412 $ 479,711
Adjustments to reconcile net earnings (loss) to net cash provided by
(used in) operating activities:
Provision for losses on accounts receivable....................... 129,086 (232,960) (185,908) (110,027)
Provision for obsolete and slow-moving inventory.................. (122,137) (125,227) 3,476 (50,821)
Gain on sale of property and equipment............................ (155,417) -- -- (130,000)
Depreciation and amortization of property and equipment........... 144,737 264,554 114,809 147,481
Amortization of intangibles....................................... 268,630 161,131 97,810 62,990
Amortization of excess fair value of assets acquired over cost.... (737,468) (737,468) (368,734) (368,734)
Extraordinary gain on restructuring of debt....................... (1,107,232) -- -- --
Increase (decrease) in cash resulting from changes in:
Accounts receivable............................................. (1,423,470) 1,073,704 (2,351,027) (1,221,259)
Inventories..................................................... 490,835 (114,248) 54,327 339,169
Non-trade receivables........................................... (281,300) 91,181 45,591 45,225
Prepaid expenses................................................ 100,154 (5,755) (71,436) (114,751)
Other assets.................................................... (26,433) (95,700) (95,000) (7,500)
Accounts payable and accrued expenses........................... 637,355 872,632 1,504,044 1,240,391
Accrued interest................................................ 547,000 69,834 70,589 107,753
----------- ---------- ----------- -----------
Net cash provided by (used in) operating activities.......... (1,974,977) 527,922 (927,047) 419,628
----------- ---------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment................................. (272,075) (179,296) (109,284) (53,501)
Proceeds from the sale of property and equipment.................... 155,417 -- -- --
----------- ---------- ----------- -----------
Net cash used in investing activities........................ (116,658) (179,296) (109,284) (53,501)
----------- ---------- ----------- -----------
Cash flows from financing activities:
Net borrowings (repayments) on note payable......................... 1,789,647 46,515 1,490,730 (320,068)
Proceeds from issuance of long-term debt............................ 350,000 22,034 -- --
Repayments of long-term debt........................................ (348,191) (507,207) (193,319) (15,946)
Repayments of capital lease obligations............................. -- (59,406) (28,603) (30,113)
Proceeds from issuance of subordinated investor debt................ 108,333 -- -- --
Proceeds from issuance of common stock.............................. 41,667 -- -- --
----------- ---------- ----------- -----------
Net cash provided by (used in) financing activities.......... 1,941,456 (498,064) 1,268,808 (366,127)
----------- ---------- ----------- -----------
Increase (decrease) in cash.................................. (150,179) (149,438) 232,477 --
Cash and cash equivalents at beginning of period...................... 299,617 149,438 149,438 --
----------- ---------- ----------- -----------
Cash and cash equivalents at end of period............................ $ 149,438 $ -- $ 381,915 $ --
=========== ========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest.............................................. $ 831,987 $ 977,894 $ 448,046 $ 463,502
Cash paid for income taxes.......................................... -- -- -- 31,171
Noncash financing and investing activities:
Sale of asset reducing accounts payable............................. -- -- -- 130,000
Contribution of subordinated investor debt.......................... -- 3,358,323 3,358,323 --
Issuance of common stock in exchange for accrued interest........... -- 175,245 -- --
Capital lease obligations incurred for new equipment................ -- 240,370 240,370 --
Long-term debt incurred for new equipment........................... -- -- 22,034 --
</TABLE>
See accompanying notes to the financial statements.
F-6
<PAGE> 61
CRAGAR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
SIX MONTHS ENDED JUNE 30, 1995 (UNAUDITED)
AND JUNE 30, 1996 (UNAUDITED)
(1) DESCRIPTION OF BUSINESS
CRAGAR Industries, Inc. (the Company) designs, develops, assembles and
distributes composite, aluminum, steel and wire custom wheels and wheel
accessories. It markets and sells to automotive aftermarket distributors and
dealers throughout the United States, Canada, Mexico, Australia and other
international markets.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
All short-term investments purchased with an original maturity of three
months or less are considered to be cash equivalents. Cash and cash equivalents
include cash on hand and amounts on deposit with financial institutions.
Inventories
Inventories consist of raw materials and partially and fully assembled
custom specialty wheels. Inventories are stated at the lower of cost or market.
Cost is determined using the average cost method. Market is based upon current
sales price less distribution and selling cost. Provisions are made currently
for obsolete and slow-moving inventory.
Property and Equipment
Property and equipment are stated at cost. Major improvements and
betterments are capitalized; maintenance repairs and minor replacements are
expensed as incurred. Depreciation on furniture, fixtures and equipment is
provided using the straight-line method over the economic lives of the assets
ranging from three to seven years. Leasehold improvements and equipment held
under capital leases are amortized over the shorter of the underlying lease
terms or the asset lives.
Amortization of Organization Costs
Organization costs are being amortized using the straight-line method over
five years.
Amortization of Loan Costs
Loan costs are being amortized using the interest method over the term of
the loan agreement.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes pursuant to Statement of Financial Accounting Standards No. 109. Under the
asset and liability method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which
F-7
<PAGE> 62
CRAGAR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Revenue Recognition
Revenue from product sales is recognized upon shipment to the customer.
Provisions are made currently for estimated product returns.
Product Warranties
Costs estimated to be incurred with respect to product warranties are
provided for at the time of sale based upon estimates derived from experience
factors.
Earnings (loss) per Share
Earnings (loss) per share is based upon the weighted average number of
common shares outstanding plus common stock equivalents after giving effect to
the one-for-ten reverse stock split on March 26, 1994 and the 7-to-1 stock split
(note 20). Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin No. 83 (SAB 83), common stock and common stock equivalents issued
during the 12-month period prior to the Company's proposed initial public
offering have been included in the calculation as if they were outstanding for
all periods presented (even if antidilutive, using the treasury stock method and
an anticipated public offering price of $6.00 per share). A total of 34,802
common equivalent shares have been used in the primary and fully-diluted
earnings per share calculations pursuant to SAB 83. The fully diluted earnings
per share also gives effect to the conversion of the $1,500,000 convertible debt
and has not been presented for the twelve months ended December 31, 1994 and
1995 because it would be antidilutive.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Unaudited Interim Financial Information
The unaudited interim financial statements as of June 30, 1996 and for the
six month periods ended June 30, 1995 and 1996 reflect, in the opinion of
management all adjustments (which include only normal recurring adjustments)
necessary to fairly present the results of operations, changes in cash flows,
and financial position as of and for the periods presented. The results for the
interim periods presented are not necessarily indicative of results to be
expected for the full year.
(3) ACQUISITION OF ASSETS
The Company acquired the accounts receivable, inventories, property and
equipment, patents, trademarks and copyrights of the wheel and tire group of Mr.
Gasket Company, Inc. in a leveraged buyout on December 31, 1992. The acquisition
was accounted for as a purchase and, accordingly, the purchase price of
$10,602,097 was allocated to the assets acquired based upon their fair values at
the date of acquisition. The fair value of the net assets acquired exceeded the
purchase price and, accordingly, the fair values of the property and equipment,
patents, trademarks and copyrights acquired were reduced to zero. The remaining
balance of $3,687,341 ("bargain purchase element") was classified as excess of
fair value of assets acquired
F-8
<PAGE> 63
CRAGAR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
over cost, and is being amortized to income over five years using the
straight-line method. The unamortized balance at December 31, 1995 was
$1,474,937 and was $1,106,203 (unaudited) at June 30, 1996.
(4) INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
JUNE 30,
1996
DECEMBER 31, -----------
1995
------------ (UNAUDITED)
<S> <C> <C>
Raw materials and supplies............................... $5,451,092 $ 4,002,339
Work-in-process.......................................... 395,761 985,663
Finished goods........................................... 2,311,925 2,831,607
---------- ----------
8,158,778 7,819,609
Less allowance for obsolete and slow-moving inventory.... 778,636 727,815
---------- ----------
$7,380,142 $ 7,091,794
========== ==========
</TABLE>
(5) NON-TRADE RECEIVABLES
In February 1994, the Company established a services agreement with a
subcontractor in Mexico to provide plating services on a selection of the
Company's whole wheels, wheel components and accessories. Pursuant to the
services agreement, the Company advanced to the subcontractor, $65,000 cash and
$240,300 of equipment to cover the costs and equipment requirements to
appropriately modify the subcontractor's plating line. The receivable of
$190,119 at December 31, 1995, and $144,894 (unaudited) at June 30, 1996, is
being paid via a $.25 to $.50 per unit discount on the plating fees paid to the
subcontractor as provided in the services agreement. Management anticipates that
this receivable will be received by June 30, 1997.
(6) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
1996
DECEMBER 31, -----------
1995
------------ (UNAUDITED)
<S> <C> <C>
Equipment................................................ $ 953,130 $ 997,685
Leasehold improvements................................... 522,908 531,852
Furniture and fixtures................................... 37,081 37,081
---------- ----------
1,513,119 1,566,619
Less accumulated depreciation and amortization........... 466,029 613,509
---------- ----------
Property and equipment, net.............................. $1,047,090 $ 953,110
========== ==========
</TABLE>
F-9
<PAGE> 64
CRAGAR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(7) OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Organization costs, net of accumulated amortization of
$280,892 at December 31, 1995 and $327,707 (unaudited)
at June 30, 1996....................................... $187,260 $ 140,445
Deferred loan costs, net of accumulated amortization of
$23,750 at December 31, 1995 and $39,924 (unaudited) at
June 30, 1996.......................................... 71,250 62,576
Deposits................................................. 65,795 65,795
-------- ----------
Total other assets.................................. $324,305 $ 268,816
======== ==========
</TABLE>
(8) ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Accrual for stock adjustments, rebates, cash discounts,
advertising and warranty............................... $641,933 $ 844,591
Payroll and related benefits............................. 94,600 167,594
Real estate, personal property and other taxes........... 114,594 71,358
Professional fees........................................ 58,510 45,637
Other.................................................... 15,224 28,546
-------- ----------
$924,861 $ 1,157,726
======== ==========
</TABLE>
(9) NOTE PAYABLE
Effective April 14, 1995, the Company entered into a credit agreement with
a new finance company. The maximum amount of credit available to the Company
under the new facility is $9,500,000, subject to certain restrictions with
respect to the collateral borrowing base. The loan is collateralized under a
security agreement which includes accounts receivable, inventories, intangible
assets, and property and equipment. The loan bears interest based upon the prime
rate plus 1.25% (see amendment below). The loan agreement expires three years
from the effective date, and contains no automatic renewal options. The balance
outstanding on this facility at December 31, 1995 was $7,300,895 and at June 30,
1996 was $6,980,827 (unaudited). The Company had $372,446 and $257,063
(unaudited) available on the line of credit at December 31, 1995 and June 30,
1996, respectively.
As of December 31, 1995 the Company was in violation of certain financial
covenants required under the credit agreement. The Company obtained a first
amendment to the credit agreement from the finance company, dated May 25, 1996,
which waived the Company's loan covenant violations as of December 31, 1995, as
well as restated the financial covenants for the remaining duration of the
credit agreement. Management believes the Company will be in compliance with the
restated covenants through 1996. Certain other modifications were also included
in the amendment including a change to the interest rate. Effective December 1,
1995, the loan bears interest at prime plus 2.25% (10.75% at December 31, 1995)
and may decrease to prime plus 1.25% if certain thresholds of net earnings and
adjusted net worth are met for the year
F-10
<PAGE> 65
CRAGAR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ending December 31, 1996. As of June 30, 1996, the Company was in compliance
with the amended financial covenants (unaudited).
(10) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
1996
DECEMBER 31, -----------
1995
------------ (UNAUDITED)
<S> <C> <C>
Unsecured promissory note bearing interest at 8%, payable in
eight monthly installments of $60,000 including interest,
totaling $480,000 annually, with a final payment of $34,367
including interest payable in May 1998. On December 15, 1994,
$360,000 of the principal payment due in December 1994 was
forgiven. The principal forgiveness resulted in an
extraordinary gain net of tax of $153,902 for the year ended
December 31, 1994.............................................. $1,066,098 $ 1,066,098
Unsecured promissory note to a stockholder bearing interest at 8%
per annum, due in full on January 1, 1997, amended to allow for
the conversion into 68,056 (unaudited) shares of common stock
(Note 20)...................................................... 350,000 350,000
Noninterest bearing $130,000 noncompete agreement with interest
imputed at 9%, payable in monthly installments of $2,500,
maturing
January 1998................................................... 56,798 44,118
Promissory note, bearing interest at 9%, payable in monthly
installments of $777, maturing June 1998, secured by
equipment...................................................... 18,542 15,277
---------- ----------
Total long-term debt............................................. 1,491,438 1,475,492
Less current portion............................................. 512,748 514,510
---------- ----------
Long-term debt, less current portion $ 978,690 $ 960,983
========== ==========
</TABLE>
The annual maturities of long-term debt after December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-----------------------------------------------------------------
<S> <C>
1996............................................................. $ 512,748
1997............................................................. 866,373
1998............................................................. 112,317
1999............................................................. --
----------
Total annual maturities of long-term debt........................ $1,491,438
==========
</TABLE>
F-11
<PAGE> 66
CRAGAR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(11) SUBORDINATED INVESTOR DEBT
Subordinated investor debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
1996
DECEMBER 31, -----------
1995
------------ (UNAUDITED)
<S> <C> <C>
Investor notes payable ("junior investor notes"),
collateralized by a security interest in accounts
receivable, inventories, and property and equipment,
subject to and subordinate to the existing security
interests of the finance company described in note 9.
The notes bear interest at 6%, payable annually
starting September 1994, with principal due in
September 1995. This note was amended during 1995 to
extend the principal due as of September 1995 to
September 1998. The note holders have the right to
convert their notes into 291,666 shares of $.01 par
value common stock of the Company...................... $1,500,000 $ 1,500,000
---------- ----------
Total subordinated investor debt......................... 1,500,000 1,500,000
Less current portion................................... -- --
---------- ----------
Subordinated investor debt, less current portion.... $1,500,000 $ 1,500,000
========== ==========
</TABLE>
The annual maturities of subordinated investor debt after December 31, 1995
is as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-----------------------------------------------------------------
<S> <C>
1996............................................................. $ --
1997............................................................. --
1998............................................................. 1,500,000
----------
Total annual maturities of subordinated investor debt............ $1,500,000
==========
</TABLE>
Total interest expense on subordinated investor debt was $577,500 and
$116,177 for the years ended December 31, 1994 and 1995, respectively, $45,000
(unaudited) and $60,000 (unaudited) for the six months ended June 30, 1995 and
1996, respectively.
On January 1, 1995, the outstanding indebtedness under the subordinated
investor notes (not including the junior investor notes) was contributed to the
capital of the Company in the amount of $3,358,323. No securities of the Company
or any other consideration was issued or delivered to the original investors in
connection with the contribution.
(12) OUTSTANDING WARRANTS
At December 31, 1995, the Company has outstanding Class A warrants to
purchase 122,062.5 shares of the Company's common stock at $1.43 per share. The
warrants became exercisable on or after January 1, 1993 and expire December 31,
1999. The Company also has outstanding Class B warrants to purchase 24,500
shares of the Company's common stock at $.36 per share, these warrants become
exercisable on or after December 15, 1994 and expire December 31, 1999. In the
opinion of management, the exercise price of the warrants approximated their
fair value at the date of grant; therefore, no debt discount was recorded at the
date of grant.
(13) PREFERRED STOCK
On March 26, 1994, the Company authorized 200,000 shares of preferred
stock, $.01 par value, of which no shares were issued and outstanding at
December 31, 1995 or at June 30, 1996 (unaudited).
F-12
<PAGE> 67
CRAGAR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(14) COMMON STOCK
On September 30, 1995, the Company issued 26,410 shares of common stock at
$6.64 per share in exchange for accrued interest on the junior investor notes as
of September 30, 1995, in the amount of $175,245.
On December 15, 1994, the Company issued 29,167 shares of common stock at
$1.43 per share for $41,667 cash.
(15) INCOME TAXES
The reconciliation of the expected income tax expense (benefit) calculated
at the U.S. federal statutory rate of 35% to the actual income tax benefit per
the financial statements for the years ended December 31, 1994 and 1995 is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995
--------- ---------
<S> <C> <C>
Computed "expected" tax benefit............................ $(529,227) $(235,877)
Gain on forgiveness of debt................................ 387,531 --
Change in the valuation allowance for deferred tax
assets................................................... 159,000 216,000
State and local income taxes, net of federal income tax
benefit.................................................. (15,100) (30,800)
Other, net................................................. (2,204) 50,677
-------- --------
$ -- $ --
======== ========
</TABLE>
Components of income tax expense for the years ended December 31, 1994 and
1995 follow:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- ------
<S> <C> <C> <C>
1994:
Federal............................................ $ -- $ -- $ --
State.............................................. -- -- --
------ ------ ------
$ -- $ -- $ --
====== ====== ======
1995:
Federal............................................ $ -- $ -- $ --
State.............................................. -- -- --
------ ------ ------
$ -- $ -- $ --
====== ====== ======
</TABLE>
The Company has net operating loss carryforwards at December 31, 1995 of
approximately $2,151,000 for federal income tax purposes which begin to expire
in 2010. In the event of a change in ownership pursuant to Internal Revenue
Service regulations, utilization of the net operating loss carry forwards may be
eliminated or significantly reduced.
F-13
<PAGE> 68
CRAGAR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1994 and 1995 are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for
doubtful accounts.................................. $ 229,000 $ 60,000
Inventories, principally due to allowance for obsolete
and slow-moving inventory.......................... 1,059,000 593,000
Differences in basis of assets upon acquisition,
principally property and equipment and accounts
receivable......................................... 1,219,000 806,000
Net operating loss carryovers......................... 57,000 860,000
Rebates and sales discounts accrual................... -- 133,000
Other................................................. 35,000 74,000
----------- -----------
Total gross deferred tax assets....................... 2,599,000 2,526,000
Less valuation allowance.............................. (2,297,000) (2,513,000)
----------- -----------
Net deferred tax assets............................... 302,000 13,000
----------- -----------
Deferred tax liabilities:
Property and equipment, principally due to differences
in depreciation.................................... 302,000 13,000
----------- -----------
Total gross deferred liabilities...................... 302,000 13,000
----------- -----------
Net deferred income taxes............................. $ -- $ --
=========== ===========
</TABLE>
The valuation allowance for deferred tax assets as of December 31, 1994 and
1995 was $2,297,000 and $2,513,000, respectively. The net change in the total
valuation allowance for the years ended December 31, 1994 and 1995 was an
increase of $159,000 and $216,000, respectively. In assessing the realizability
of deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon generation of
future taxable income during the periods in which those temporary differences
become deductible.
(16) LEASES
The Company is obligated under various capital leases for certain equipment
that expire at various dates during the next three years. The gross amount of
equipment and related accumulated amortization recorded under capital leases is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Equipment......................................... $ 94,625 $334,996 $ 334,996
Less accumulated amortization..................... (22,696) (49,633) (75,119)
------- ------- -------
$ 71,929 $285,363 $ 259,877
======= ======= =======
</TABLE>
Amortization of equipment held under capital leases is included with
depreciation expense.
F-14
<PAGE> 69
CRAGAR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company also leases office and warehouse facilities and various
equipment items under operating leases. The Company is responsible for all
occupancy costs including insurance and utility costs. Minimum future rental
commitments for all noncancelable operating leases having original or remaining
lease terms in excess of one year and future minimum capital lease payments as
of December 31, 1995 are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEARS ENDING DECEMBER 31, LEASES LEASES
----------------------------------------------------------- -------- ----------
<S> <C> <C>
1996....................................................... $ 99,162 $ 319,952
1997....................................................... 95,295 327,213
1998....................................................... 112,997 327,213
1999....................................................... -- 321,977
2000....................................................... -- 336,255
Thereafter................................................. -- 814,604
-------- ----------
Total minimum lease payments............................... 307,454 $2,447,214
==========
Less amount representing interest (at rates ranging from 9%
to 19.05%)............................................... 68,540
--------
Present value of minimum capital lease payments............ 238,914
Less current portion of capital leases obligations......... 61,573
--------
Capital leases obligations, excluding current portion...... $177,341
========
</TABLE>
No renewal options are provided for in the operating lease agreements. In
the normal course of business, operating leases are generally renewed or
replaced by other leases. Total rental expense under operating leases with a
term in excess of one month was $527,325 and $414,131 for the years ended
December 31, 1994 and 1995, respectively, and $192,987 (unaudited) and $208,876
(unaudited) for the six month periods ended June 30, 1995 and 1996.
F-15
<PAGE> 70
CRAGAR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(17) MAJOR CUSTOMERS
The Company sold a substantial portion of its product to two customers in
1994, to two customers in 1995, and to two (unaudited) customers for the period
ended June 30, 1996. Sales amounts for 1994, 1995 and 1996 (unaudited) and the
related accounts receivable at December 31, 1994, 1995 and June 30, 1996
(unaudited) for these customers are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------- JUNE 30, 1996
1994 1995 (UNAUDITED)
----------- ----------- -------------
PERCENT PERCENT PERCENT
OF SALES OF SALES OF SALES
----------- ----------- -------------
<S> <C> <C> <C>
Sales to major customers:
Super Shops............................... 30.0% 23.6% 28.6%
Heafner Tire.............................. 1.9 11.8 12.4
Keystone Automotive....................... 9.8 3.7 5.9
---- ---- ----
41.7% 39.1% 46.9%
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
PERCENT PERCENT PERCENT
OF ACCOUNTS OF ACCOUNTS OF ACCOUNTS
RECEIVABLE RECEIVABLE RECEIVABLE
----------- ----------- -------------
<S> <C> <C> <C>
Accounts receivable from major customers:
Super Shops............................... 46.4% 29.4% 51.9%
Heafner Tire.............................. .4 8.6 5.3
Keystone Automotive....................... 14.5 10.8 6.8
---- ---- ----
61.3% 48.8% 64.0%
==== ==== ====
</TABLE>
(18) FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
Statement of Financial Accounting Standard No. 107 "Disclosure about Fair
Value of Financial Instruments" requires disclosure of the fair value of certain
financial instruments. The following methods and assumptions were used by the
Company in estimating fair value disclosures for the financial instruments:
Limitations -- Fair value estimates are made at a specific point in
time and are based on relevant market information and information about the
financial instrument; they are subjective in nature and involve
uncertainties, matters of judgment and, therefore, cannot be determined
with precision. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Company's entire
holdings of a particular instrument. Changes in assumptions could
significantly affect these estimates.
Since the fair value is estimated as of December 31, 1995, the amounts
that will actually be realized or paid in settlement of the instruments
could be significantly different.
Current assets and current liabilities -- The amounts reported in the
balance sheet approximates fair value due to the short maturities of these
instruments.
Long-term debt and investor subordinated debt -- The terms of the
Company's long-term debt and subordinated debt approximate the terms in the
market place at which they could be replaced. Therefore, the fair value
approximates the carrying value of these financial instruments.
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and trade accounts
receivable. The Company places its cash with high credit quality financial
institutions and generally limits the amount of credit exposure to the amount of
FDIC coverage. As described in note 1, the Company sells its products to
automotive aftermarket distributors and dealers
F-16
<PAGE> 71
CRAGAR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
throughout the United States, Canada, Mexico, Australia and other international
markets. The Company performs ongoing credit evaluations of its customers'
financial condition but does not require collateral to support customer
receivables. The Company establishes an allowance for doubtful accounts based
upon factors surrounding the credit risk of specific customers, historical
trends and other information.
As of December 31, 1995, the Company had concentrations of credit risk
consisting of cash balances of approximately $50,517 over the FDIC coverage at
one financial institution.
(19) LITIGATION AND CLAIMS
The Company is one of four defendants in a wrongful death lawsuit. The
plaintiff is seeking damages of $5,500,000 plus an unspecified amount of
punitive damages. The Company is defending itself vigorously in this matter. Any
costs to the Company resulting from this case will not be covered by product
liability insurance. Management of the Company is unable to determine the
ultimate loss that might result from this case and, accordingly no provision has
been made in the accompanying financial statements for losses, if any, that
might result from this matter.
The Company is involved in other claims arising in the normal course of
operations. Management believes the outcome of these matters will not have a
material adverse effect on the financial position of the Company, therefore, no
provision has been made in the accompanying financial statements for losses, if
any, that might result from these matters.
(20) SUBSEQUENT EVENTS
Subsequent to December 31, 1995, the Company's Board of Directors and
Stockholders formally approved the Company's stock option and restricted stock
plan and nonemployee director plan (plans), which permit the granting of options
to eligible employees and directors to purchase shares of the Company's common
stock. The plans reserve 245,000 shares of the Company's common stock for grant.
The plans provide that the options may be either incentive or nonincentive stock
options. The exercise price for the incentive stock options shall not be less
than 100% of the fair market value of the stock at the date of grant and 85% of
the fair market value with respect to the nonincentive stock options. Options
granted under the plans must be exercised in whole or in part within 10 years of
the date of grant. The Company may also issue stock appreciation rights or
restricted stock under provisions of the plans with similar terms to the
incentive and nonincentive stock options. As of June 30, 1996, the Company
granted 11,900 (unaudited) options under the nonemployee director plan at an
exercise price of $5.14 a share. No options (unaudited) were granted under the
restricted stock plan.
On June 20, 1996, a stockholder of the Company entered into an agreement
with a creditor of the Company, whereby the stockholder was assigned the rights
to an unsecured promissory note and a non-compete agreement between the creditor
and the Company. The unsecured promissory note and non-compete liability had
outstanding balances of $1,066,098 and $44,118, respectively, at June 20, 1996.
The stockholder paid the creditor $700,000 in consideration of said assignment.
Subsequent to June 30, 1996, the Company obtained bridge financing from
unrelated parties totaling $1,500,000 (unaudited). The holders of the bridge
financing were also granted warrants to purchase 126,000 (unaudited) shares of
common stock at an exercise price of $3.25 (unaudited) a share. The Company
valued the warrants at $3.55 (unaudited) a share. A portion of the bridge
finance proceeds were used to pay the aforementioned unsecured promissory note
and non-compete agreement obligation held by a stockholder for $700,000
(unaudited), plus $79,727 (unaudited) for interest and service charges related
to the assignment. The Company will recognize a $410,216 (unaudited)
extraordinary gain on the transaction.
F-17
<PAGE> 72
CRAGAR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Subsequent to June 30, 1996, the Company terminated a service agreement
with a subcontractor in Mexico, and sold certain assets maintained in Mexico to
a third party for $350,000 (unaudited). The assets had no book value at the time
of sale.
Effective September 27, 1996, the Company's Board of Directors approved a
7-to-1 stock split and increased the authorized number of shares of common stock
from 700,000 to 5,000,000 (unaudited) shares. All share and per share amounts
have been restated to reflect the effect of the stock split.
F-18
<PAGE> 73
================================================================================
No dealer, salesman, or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer contained herein, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company, or by any of the Underwriters. This Prospectus does
not constitute an offer of any securities other than those to which it relates
or an offer to sell, or a solicitation of an offer to buy those to which it
relates in any state to any person to whom it is not lawful to make such offer
in such state. The delivery of this Prospectus at any time does not imply that
the information herein is correct as of any date subsequent to its date.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information................................ 3
Subscription Information............................. 3
Prospectus Summary................................... 4
Risk Factors......................................... 8
Use of Proceeds...................................... 14
Dividend Policy...................................... 14
Dilution............................................. 15
Capitalization....................................... 17
Selected Financial Data.............................. 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations......................................... 20
Business............................................. 27
Management........................................... 37
Certain Transactions................................. 42
Principal Shareholders............................... 44
Description of Securities............................ 46
Shares Eligible for Future Sale...................... 49
Plan of Distribution................................. 51
Legal Matters........................................ 53
Experts.............................................. 53
Index to Financial Statements........................ F-1
</TABLE>
UNTIL _________, 1996, (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS.
================================================================================
================================================================================
CRAGAR INDUSTRIES, INC.
1,000,000 Units
PROSPECTUS
______________, 1996
================================================================================
<PAGE> 74
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Bylaws provide that the corporation shall to the fullest
extent authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the corporation to provide broader
indemnification rights than such law permitted the corporation to provide prior
to such amendment), indemnify and hold harmless any person who was or is a
party, or is threatened to be made a party to or is otherwise involved in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that such person
is or was a director or officer of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, including
service with respect to an employee benefit plan (hereinafter an "Indemnitee")
against expenses, liabilities and losses (including attorneys' fees, judgments,
fines, excise taxes or penalties paid in connection with the Employee Retirement
Income Security Act of 1974, as amended, and amounts paid in settlement)
reasonably incurred or suffered by such Indemnitee in connection therewith;
provided, however, that except as provided in this Section with respect to
proceedings to enforce rights to indemnification, the corporation shall
indemnify any such Indemnitee in connection with a proceeding (or part thereof)
initiated by such Indemnitee only if such proceeding or part thereof was
authorized by the board of directors of this corporation.
The right to indemnification conferred in the Company's Bylaws includes
the right to be paid by the corporation the expenses (including attorneys' fees)
incurred in defending any such proceeding in advance of its final disposition;
provided, however, that, if the Delaware General Corporation Law requires, an
advancement of expenses incurred by an Indemnitee in his capacity as a director
or officer (and not in any other capacity in which service was or is rendered by
such Indemnitee, including, without limitation, service to an employee benefit
plan) shall be made only upon delivery to the corporation of an undertaking, by
or on behalf of such Indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is not
further right to appeal that such Indemnitee is not entitled to be indemnified
for such expenses under this section or otherwise. The rights to indemnification
and to the advancement of expenses conferred in this Section shall be contract
rights and such rights shall continue as to an Indemnitee who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
Indemnitee's heirs, executors and administrators.
If a claim under the two preceding paragraphs of this Section is not
paid in full by the corporation within sixty (60) days after a written claim has
been received by the corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be twenty
(20) days, the Indemnitee may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim. If successful in whole or
in part in any such suit, or in a suit brought by the corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the Indemnitee
shall be entitled to be paid also the expense of prosecuting or defending such
suit. In (i) any suit brought by the Indemnitee to enforce a right to
indemnification hereunder (but not in a suit brought by the Indemnitee to
II-1
<PAGE> 75
enforce a right to an advancement of expenses) and (ii) in any suit brought by
the corporation to recover an advancement of expenses pursuant to the terms of
an undertaking, the corporation shall be entitled to recover such expenses upon
a final adjudication that the Indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither the
failure of the corporation (including its board of directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the Indemnitee is proper in
the circumstances because the Indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the corporation (including its board of directors, independent
legal counsel, or its stockholders) that the Indemnitee has not met such
applicable standard of conduct shall create a presumption that the Indemnitee
has not met the applicable standard of conduct or, in the case of such a suit
brought by the Indemnitee, be a defense to such suit. In any suit brought by the
Indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or brought by the corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of proving that the
Indemnitee is not entitled to be indemnified, or to such advancement of expenses
under this Section or otherwise shall be on the corporation.
The Delaware General Corporation Law provides that indemnification is
permissible only when the director, officer, employee, or agent acted in good
faith and in a manner reasonable believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the conduct was unlawful. The
Delaware General Corporation Law also precludes indemnification in respect of
any claim, issue, or matter as to which an officer, director, employee, or agent
shall have been adjudged to be liable to the Company unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall determine that, despite such adjudication of liability but in view
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee $ 4,329
Nasdaq Filing Fee 7,291
NASD Fee 1,929
Printing Expenses 40,000
Legal Fees and Expenses 150,000
Accounting Fees and Expenses 95,000
Blue Sky Filing Fees and Expenses 25,000
Warrant Agent, Transfer Agent and Registrar Fees 3,000
Miscellaneous 73,451
---------
Total $ 400,000*
=========
</TABLE>
* Estimated
II-2
<PAGE> 76
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since September 30, 1993, the Company has sold the following unregistered
securities:
1. On September 30, 1993, the Company privately sold for cash
$1,500,000 principal amount of 6% convertible subordinated secured promissory
notes (the "1993 Junior Notes") to certain accredited and sophisticated
investors. On September 30, 1995, the 1993 Junior Notes were amended to increase
the annual interest rate from 6% to 8% and the conversion ratio from 1% per
$100,000 principal amount of the 1993 Junior Notes to 1 1/3% per $100,000
principal amount of the 1993 Junior Notes. The purchasers of the 1993 Junior
Notes were David Atkins; CN Partners, L.P.; Phyllis Cohen; Anthony Dalessio;
Irving Davies; Sidney Dworkin; Edward R. Falkner; Julius Kramer; MDA Financial,
Inc.; Kenneth Reichle; Gerald Richter; James Schoke; Elayne Schoke; and Donald
Shapiro.
2. On December 15, 1994, the Company issued to Mr. Sidney Dworkin
29,166.9 shares of Common Stock, 3,937.5 Class A Warrants, and a promissory note
in the principal amount of $108,333 (the "$108,333 Note") in exchange for
$150,000 cash. Each Class A Warrant entitles the holder to purchase one share of
Common Stock at $1.43, exercisable at any time before December 31, 1999. The
$108,333 Note had an interest rate of 15% per annum, payable annually in five
installments commencing January 1, 1995. On January 31, 1995, Mr. Dworkin
contributed the $108,333 Note to the capital of the Company.
3. On December 15, 1994, the Company issued to Mr. Sidney Dworkin
24,500 Class B Warrants and a promissory note in the principal amount of
$350,000 (the "$350,000 Note") in exchange for $350,000 cash. Each Class B
Warrant entitles the holder to purchase one share of Common Stock at $0.36,
exercisable at any time on or before December 31, 1999. The $350,000 Note bears
interest at a rate of 8% per annum, payable monthly through January 1, 1997. The
$350,000 Note is automatically convertible upon the closing of this Offering
into approximately 68,055.6 shares of the Company's Common Stock.
4. On September 30, 1995, the Company agreed to issue shares of its
Common Stock to the holders of the 1993 Junior Notes, and the holders of the
1993 Junior Notes agreed to accept such Common Stock, in lieu of paying interest
that had accrued on the 1993 Junior Notes. Pursuant to that agreement, each
holder of the 1993 Junior Notes received 15,069.26 shares of the Company's
Common Stock for every $100,000 of interest payable. In aggregate, 26,409.46
shares of Common Stock were issued for $175,245. The holders of the 1993 Junior
Notes were the same accredited and sophisticated investors as set forth above in
paragraph 1.
5. On June 10, 1996, pursuant to the Company's Non-Employee Directors'
Stock Option Plan, the Company granted options to current and former members of
the Board of Directors to purchase 9,800 shares of the Company's Common Stock.
All options were granted with an exercise price of $5.14 per share. The options
were issued to Mark Schwartz, Sidney Dworkin, Donald McIntyre, Phyllis
Froimson, and Victor Scaravilli. Also, effective June 10, 1996, the Company's
Board of Directors granted James Schoke, a former director of the Company, an
option to purchase 2,100 shares of the Company's Common Stock at an exercise
price of $5.14 per share.
6. On July 1, 1996, the Company sold securities totaling $1,500,000 to
certain accredited and sophisticated investors. In consideration thereof, each
investor received from the Company (i) the Company's promissory note in the
principal amount of the investor's individual investment (the "Bridge Note"),
and (ii) Class C Warrants, in the amount of 8,400 warrants for
II-3
<PAGE> 77
each $100,000 the investor individually invested. Each Class C Warrant entitles
the holder to purchase one share of the Company's Common Stock at $3.25,
exercisable at any time before June 30, 2001. The Bridge Notes will be
automatically converted upon the closing of this Offering into approximately
19,444.4 shares of Common Stock for each $100,000 of principal amount of the
Notes. These Bridge Notes and Class C Warrants were sold to the following
investors: Hymie Akst; Michael Bushey; Central Fill Pharmacy; Inc.; Irving
Davies; Melvin Gershman, IRA; Edward R. Falkner; Marvin Kogod; Marc Loveman,
IRA; Beno Michel; Kenneth M. Reichle, Jr.; Robert M. Rosin; Royal Bank of
Scotland; RFD Associates, Ltd.; Harry Schwartz; Mark Schwartz; Paul T.
Sciarrino; Wesley Wood.
Each transaction described above was deemed exempt from registration
under the Securities Act pursuant to Section 4(2) of the Act regarding
transactions not involving any public offering.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
1.1 Form of Participating Dealer Agreement
3.1 Second Amended and Restated Certificate of Incorporation of the
Registrant filed with State of Delaware on October 1, 1996
3.2 Amended and Restated Bylaws of the Registrant
4.1 Second Amended and Restated Certificate of Incorporation of the
Registrant (filed as Exhibit 3.1)
4.2 Form of Certificate representing Common Stock
4.3 Form of Warrant Agreement
4.4 Form of Warrant Certificate (attached as Exhibit A to Form of Warrant
Agreement filed as Exhibit 4.3)
4.5 Form of Participating Dealer Warrant Agreement (attached as Exhibit A
to Form of Participating Dealer Agreement filed as Exhibit 1.1)
4.6 Form of Participating Dealer Warrant Certificate attached as Exhibit B
to Participating Dealer Warrant Agreement referenced as Exhibit 4.5)
4.7 Form of 1993 Convertible Subordinated Secured Note of the Registrant,
dated September 30, 1993
4.7(a) Form of First Note Amendment to 1993 Convertible Subordinated Secured
Note of the Registrant, dated September 30, 1995
II-4
<PAGE> 78
4.7(b) Form of Second Note Amendment to 1993 Convertible Subordinated Secured
Note of the Registrant
4.8 $350,000 Promissory Note of the Registrant, dated December 15, 1994,
issued to Sidney Dworkin
4.8(a) Agreement between Registrant and Sidney Dworkin, dated October 12,
1995, amending the terms and conditions of the $350,000 Promissory Note
4.8(b) First Note Amendment to the $350,000 Promissory Note of the Registrant
issued to Sidney Dworkin
4.9 Form of 1996 Unsecured Promissory Bridge Note of the Registrant
4.10 Credit and Security Agreement, dated as of April 14, 1995, executed by
and between Registrant and Norwest Business Credit, Inc.
4.10(a) Amendment to Credit and Security Agreement, dated as of September 19,
1995, executed by and between Registrant and Norwest Business Credit,
Inc.
4.11 Form of Class A Stock Purchase Warrant Certificate*
4.12 Form of Class B Stock Purchase Warrant Certificate*
4.13 Form of Class C Stock Purchase Warrant Certificate*
4.14 Form of Stock Option / Restricted Stock Grant for grants made pursuant
to either or both the Cragar Industries, Inc. 1996 Non-Employee
Directors' Stock Option Plan filed as Exhibit 10.1 and the Cragar
Industries, Inc. 1996 Stock Option and Restricted Stock Plan filed as
Exhibit 10.2
5.1 Opinion of Snell & Wilmer L.L.P. regarding the legality of the Units
and Dealer Warrants being registered
10.1 Cragar Industries, Inc. 1996 Non-Employee Directors' Stock Option Plan
10.1(a) First Amendment to the Cragar Industries, Inc. 1996 Non-Employee
Directors' Stock Option Plan, dated October 1, 1996
10.2 Cragar Industries, Inc. 1996 Stock Option and Restricted Stock Plan
10.2(a) First Amendment to the Cragar Industries, Inc. 1996 Stock Option and
Restricted Stock Plan, dated October 1, 1996
10.3 Commercial Lease, dated February 5, 1993, executed by and between
Registrant and Principal Mutual Life Insurance Company
10.4 Employment Agreement, dated January 1, 1996, executed by and between
Registrant and Tony Barrett
10.5 Purchase Program, dated January 24, 1996, executed by and between
Registrant and Super Shops
10.6 Form of 1992 Promissory Note of Registrant, dated December 31, 1992,
issued in connection with Registrant's original capitalization
- ---------------
* To be filed by Amendment.
II-5
<PAGE> 79
10.6(a) Form of First Note Amendment of 1992 Promissory Note of Registrant,
dated September 30, 1994
10.6(b) Form of Agreement to Forgive Interest, dated December 14, 1994,
executed by and between Registrant and certain holders of 1992
Promissory Notes of Registrant
10.6(c) Form of Letter, dated February 16, 1995, issued by Registrant to
(i) holders of the 1992 Promissory Notes of Registrant, and
(ii) holder of the $350,000 Note of Registrant, whereby holders of
the Notes agreed to contribute to capital the 1992 Promissory Notes
and the $350,000 Note
10.7 $108,333 Promissory Note of Registrant, dated December 15, 1994, issued
to Sidney Dworkin
10.7(a) Form of Letter, dated February 16, 1995, issued by Registrant to
(i) holders of the 1992 Promissory Notes of Registrant, and
(ii) holder of the $350,000 Note of Registrant, whereby holders of
the Notes agreed to contribute to capital the 1992 Promissory Notes
and the $350,000 Note (attached as Exhibit 10.6(c))
10.8 Cognovit Promissory Note dated September 30, 1993, executed by
Registrant and payable to Performance Industries, Inc.
10.8(a) Cross Receipt executed by and between Lee Hartzmark and Registrant in
connection with Assignment of Cognovit Promissory Note
11.1 Computation of Earnings Per Share
21 List of Subsidiaries of the Registrant
23.1 Consent of Snell & Wilmer, L.L.P (included in Opinion of Snell & Wilmer
L.L.P. regarding the legality of the Units and Dealer Warrants being
registered filed as Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick LLP, independent certified public
accountants
24 Power of Attorney (included on signature page of Registration
Statement)
27 Financial Data Schedule
99.1 Form of Escrow Agreement
99.2 Form of Subscription Agreement
II-6
<PAGE> 80
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A
and contained in the form of prospectus field by the Registrant
pursuant to Rule 424(b)(1), or (4) or 497(h) under the Securities Act
shall be deemed to be part of this Registration Statement as of the
time it was declared effective.
(2) For purposes of determining any liability under the
Securities Act, each post effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement
to: (i) including any prospectus required by Section 10(a)(3) of the
Securities Act of 1933; (ii) reflect in the prospectus any facts or
events arising after the effective date of this Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in the
information set forth in this Registration Statement; (iii) include any
material information with respect to the plan of distribution not
previously disclosed in this Registration Statement or any material
change to such information in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the Offering.
II-7
<PAGE> 81
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe it meets all of
the requirements for filing on Form SB-2 and has authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Phoenix, State of Arizona, on the 3rd day of October,
1996.
CRAGAR INDUSTRIES, INC.
By: /s/ Michael L. Hartzmark
-------------------------------------
Michael L. Hartzmark
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby authorizes Michael L. Hartzmark and Tony Barrett and each of them, as
attorney-in-fact, to sign in his name and behalf, individually and in each
capacity designated below, and to file any amendments, including post-effective
amendments to this registration statement.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Michael L. Hartzmark President, Chief Executive October 3, 1996
- ------------------------ Officer, and Director (Principal
Michael L. Hartzmark Executive Officer)
/s/ Anthony W. Barrett Vice President of Operations October 3, 1996
- ------------------------ (Principal Financial and
Anthony W. Barrett Accounting Officer)
/s/ Sidney Dworkin Director October 3, 1996
- ------------------------
Sidney Dworkin
/s/ Donald McIntyre Director October 3, 1996
- ------------------------
Donald McIntyre
/s/ Mark Schwartz Director October 3, 1996
- ------------------------
Mark Schwartz
</TABLE>
II-8
<PAGE> 82
APPENDIX A
DESCRIPTION OF GRAPHIC AND IMAGE MATERIAL
Location: Inside Front cover of the Prospectus
Item: Photographs
Description: The photographs appearing on the inside front cover of the
Prospectus are, beginning with the center photograph and then
moving clockwise from the upper left hand corner, of the
following types of wheels: (a) CRAGAR Legacy S/S Super Sport
Series 08/61, (b) CRAGAR LITE Three Spoke Series 230,
(c) CRAGAR Racing Super Star Series 44, (d) TRU~SPOKE Wire
Wheels TRU~CRUISER Series 16/716, and (e) CRAGAR One-Piece
Aluminum Split Five Spoke Series 247.
<PAGE> 1
EXHIBIT 1.1
CRAGAR INDUSTRIES, INC.
A DELAWARE CORPORATION
UP TO 1,000,000 SHARES OF COMMON STOCK
AND
UP TO 1,000,000 WARRANTS TO PURCHASE COMMON STOCK
PARTICIPATING DEALER AGREEMENT
-----------------------------------------
Dear Sirs:
Cragar Industries, Inc., a Delaware corporation (the "COMPANY") is
offering for sale (the "OFFERING") up to 1,000,000 shares of Common Stock, $0.01
par value ("COMMON STOCK"), and up to 1,000,000 Warrants to Purchase Common
Stock (the "WARRANTS"). The Common Stock and the Warrants offered (hereinafter
collectively referred to as the "UNITS") may only be purchased pursuant to the
Offering together, as one share of Common Stock and one Warrant, at a price of
$6.00 per Unit. The Units will be offered on a "best-efforts, all or none" basis
with respect to the first 666,667 Units (the "MINIMUM OFFERING"), and on a "best
efforts" basis as to the remaining 333,333 Units. Collected or collectible
subscriptions for the Minimum Offering must be received prior to the expiration
of one hundred twenty (120) days from the commencement of the Offering unless
extended by the Company one or more times for up to a total additional one
hundred twenty (120) days (the "MINIMUM OFFERING PERIOD"). The Offering of the
Units is further described in the Company's Registration Statement (File No.
__________) filed on Form SB-2 (the "REGISTRATION STATEMENT") with the United
States Securities and Exchange Commission (the "COMMISSION"). The Registration
Statement was declared effective by the Commission on _______ _____, 19___. You,
as a licensed broker-dealer capable of participating in the Offering of the
Units ("PARTICIPATING DEALER"), are invited to assist the Company in the
Offering of the Units by using your best efforts to solicit offers for the
purchase of the Units, and in this regard, you have agreed to act in such
capacity on the terms and conditions set forth in this Participating Dealer
Agreement (the "AGREEMENT").
NOW, THEREFORE, in consideration of the respective covenants,
agreements, representations, and warranties contained herein, the parties hereto
agree as follows:
Section 1. Representations and Warranties of the Company. In order to
induce you to enter into this Agreement, and to further the Offering of the
Units, the Company hereby represents and warrants to you and agrees with you as
follows:
(a) The Company has filed the Registration Statement relating
to the Common Stock offered pursuant to the Offering (the "OFFERED COMMON
STOCK"), the Warrants, the shares of the Company's Common Stock issuable upon
exercise of the Warrants (the "WARRANT SHARES"), the
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<PAGE> 2
Participating Dealer Warrants (as defined in Section 3(g)(ii) below), and the
shares of the Company's Common Stock issuable upon the exercise of the
Participating Dealer Warrants (the "PARTICIPATING DEALER WARRANT SHARES"), with
the Commission pursuant to the Securities Act of 1933, as amended (the
"SECURITIES ACT")[, and such Registration Statement was declared effective on
_____________, 1996]. The term "REGISTRATION STATEMENT," when used hereinafter
will mean the Registration Statement described above, including the Prospectus
(defined below), the exhibits, and all amendments and supplements thereto,
including any amendments and supplements after the effective date of the
Registration Statement. The term "PROSPECTUS" means the prospectus filed as a
part of the Registration Statement, including all pre-effective and
post-effective amendments and supplements thereto.
(b) The Registration Statement and all other documents
previously filed or filed after the date hereof during the pendency of the
Offering with the Commission pursuant to the Securities Act conform and will
conform with the requirements of the Securities Act in all material respects.
Neither the Registration Statement, the Prospectus, nor any other material filed
or to be filed with the Commission during the pendency of the Offering contains
nor will contain any untrue statement of material fact nor are there or will
there be any omissions of material facts required to be stated therein or that
are necessary to make the statements therein not misleading, except that this
warranty does not apply to any statements or omissions made in reliance upon and
in conformity with information furnished in writing to the Company by and with
respect to you, or any dealer through you, expressly for use in the Registration
Statement or Prospectus or any amendment or supplement thereto.
(c) The Company has been legally incorporated and is now and
always during the period of the Offering will be, a validly existing corporation
under the laws of the state of Delaware, lawfully qualified to conduct the
business for which it was organized and which it proposes to conduct.
(d) The outstanding capital stock of the Company has been duly
and validly authorized, issued, and is fully paid and nonassessable and conforms
to all statements made in the Registration Statement and Prospectus with respect
thereto. The Offered Common Stock, the Warrant Shares, and the Participating
Dealer Warrant Shares have been duly and validly authorized and, when issued and
delivered against payment as provided in this Agreement, will be validly issued,
fully paid, and nonassessable. The Offered Common Stock, the Warrant Shares, and
the Participating Dealer Warrant Shares, upon issuance, will not be subject to
the preemptive rights of any shareholders of the Company. The Units will conform
to all statements in the Registration Statement and Prospectus.
(e) The Company has an authorized capitalization of 5,000,000
shares of Common Stock, and 200,000 shares of Preferred Stock, $0.01 par
value.
(f) The audited financial statements, together with related
schedules and notes, included in the Registration Statement and Prospectus
present fairly the financial condition of the
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<PAGE> 3
Company and are reported upon by independent public accountants according to
generally accepted accounting principles and as required by the rules and
regulations of the Commission.
(g) The Company will have the legal right and authority to
enter into this Agreement upon its execution, to effect the proposed sale of the
Units, and to effect all other transactions contemplated by this Agreement.
(h) The Company is eligible to use Form SB-2 for the Offering
of the Units.
(i) The Company possesses adequate certificates or permits
issued by the appropriate federal, state, and local regulatory authorities
necessary to conduct its business and to retain possession of its properties,
except to the extent that the failure to possess any such certificates or
permits is not likely to have a material adverse effect on the financial
condition or operations of the Company and its subsidiaries, taken as a whole.
The Company has not received any notice of any proceeding relating to the
revocation or modification of any necessary certificates or permits.
(j) Material documents and other information relating to the
Company's affairs have been and will continue to be made available upon
reasonable request to you and to your counsel and copies of any such documents
will be furnished upon reasonable request to you and to your counsel.
(k) The Company has retained ChaseMellon Shareholder Services,
L.L.C. as its transfer agent. The Company will retain an independent transfer
agent, for so long as the Company is subject to the reporting requirements under
Section 12(g) or Section 15(d) of the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT") and is required to retain an independent transfer
agent under the Exchange Act. The Company will make arrangements to have
available at the office of the transfer agent sufficient quantities of the
Company's Common Stock and Warrant certificates as may be needed for the quick
and efficient transfer of the Units.
(l) The Company will use the proceeds from the sale of Units
as set forth in the Registration Statement and Prospectus.
(m) This Agreement has been duly and validly authorized,
executed, and delivered by the Company and constitutes a valid, binding
agreement of the Company enforceable against the Company in accordance with its
terms, except as such enforcement may be limited by general principles of
equity, or by bankruptcy, insolvency, reorganization, arrangement, moratorium,
or other similar laws, and except as public policy may limit any rights of
indemnity granted herein. The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated and compliance with the
terms of this Agreement will not conflict with or result in a breach of any of
the material terms, conditions, or provisions of, or constitute a material
default under, the Certificate of Incorporation or Bylaws of the Company, as
amended, or any material note, indenture, mortgage, deed of trust, or other
agreement or instrument to which the Company is a party or by which it or any of
its property is bound, or any existing law, order, rule, regulation, writ,
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<PAGE> 4
injunction, or decree of any government, governmental instrumentality, agency or
body, arbitration tribunal or court, domestic or foreign, having jurisdiction
over the Company or its property. The consent, approval, authorization, or order
of any court or governmental instrumentality, agency, or body is not required
for the consummation of the transactions herein contemplated except such as may
be required under the Securities Act, under the Blue Sky or securities laws of
any state or jurisdiction, or the rules of the NASD (as defined in Section 2(c)
hereof).
Section 2. Representations and Warranties of the Participating Dealer.
You hereby represent and warrant to the Company and agree with the Company as
follows:
(a) This Agreement has been duly and validly authorized,
executed and delivered by you and constitutes a valid and binding agreement by
you enforceable against you in accordance with its terms, except as such
enforcement may be limited by general principles of equity, or by bankruptcy,
insolvency, reorganization, arrangement, moratorium, or other similar laws, and
except as public policy may limit any rights of indemnity granted herein.
(b) [You are a corporation duly organized, validly existing
and in good standing under the laws of the state of your incorporation with all
requisite power and authority to enter into and carry out your obligations under
this Agreement.] Neither the execution and delivery of this Agreement nor the
performance and consummation of the transactions contemplated in this Agreement
will result in any breach of any of the material terms or conditions of, or
constitute a material default under, your articles or certificate of
incorporation or bylaws or any material indenture, agreement or other instrument
to which you are a party or violate any order directed to you of any court or
any federal or state regulatory body or administrative agency having
jurisdiction over you or your affiliates.
(c) You represent that you are a member in good standing of
the National Association of Securities Dealers, Inc. ("NASD") and are registered
as a broker-dealer with the Commission. Your attention is called to the
following: (a) Article III, Section 1 of the Rules of Fair Practice of the NASD
and the interpretations of said Section promulgated by the Board of Governors of
the NASD; (b) Section 10(b) of the Exchange Act and Rule 10b-9 of the general
rules and regulations promulgated under the Exchange Act; (c) Section 15 of the
Exchange Act and Rule 15c2- 4 of the general rules and regulations promulgated
under the Exchange Act; and (d) Securities Act Release No. 4968 requiring the
distribution of a Preliminary Prospectus to all persons reasonably expected to
be purchasers of Units from you at least 48 hours prior to the time you expect
to mail confirmations of purchase. You, if a member of the NASD, by signing this
Agreement, acknowledge that you are familiar with the cited law, rules and
releases, and agree that you will not directly and/or indirectly violate any
provisions of applicable law in connection with your participation in the
distribution of the Units.
(d) You will not, until advised by us in writing or by wire
that the entire Offering has been distributed and closed, bid for or purchase
Units in the open market or otherwise make a market in the Units or otherwise
attempt to induce others to purchase Units in the open market.
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<PAGE> 5
(e) You represent that you have been provided a copy of the
Escrow Agreement dated _____________, 1996 between the Company and ____________
______________ (the "ESCROW AGREEMENT"). You agree that you will conduct the
Minimum Offering and all sales of Units during the Escrow Period (as such term
is defined in the Escrow Agreement) subject to and in full compliance with the
terms and conditions of the Escrow Agreement.
(f) Neither you nor your directors or officers (or any other
person serving in a similar capacity) or any person engaged on your behalf to
sell the Units:
(1) Has filed a registration statement, or is named
as an underwriter in connection with a registration or offering statement, which
is the subject of any pending proceeding or examination under Section 8 of or
Rule 258 or 261 or any similar rules under the Securities Act, or under any
state securities laws or is the subject of a currently effective refusal order
or stop order entered pursuant to the above or pursuant to the law of any state
within five years prior to the commencement of the Offering;
(2) Has been convicted of a misdemeanor or felony
within the last ten years in connection with the offer, purchase or sale of any
security or commodity, involving the making of a false filing with the
Commission, or arising out of the conduct of the business of any underwriter,
broker, dealer, municipal securities dealer, or investment adviser, or involving
theft, fraud, breach of fiduciary duty, deceit, or intentional wrongdoing, or
which is a crime involving moral turpitude, or, within the last five years, of a
misdemeanor or felony which is a criminal violation of statutes designed to
protect consumers against unlawful practices involving insurance, securities,
commodities or commodity futures, real estate, franchises, business
opportunities, consumer goods, or other goods and services;
(3) Is currently subject to any administrative order
or judgment entered within five years prior to the commencement of the offering,
arising out of the conduct of the business of an underwriter, broker, dealer,
municipal securities dealer, or investment adviser, or involving theft, fraud,
or fraudulent conduct, or breach of fiduciary duty, or deceit, or intentional
wrongdoing, including but not limited to making untrue statements of material
facts or omitting to state material facts, and the order or judgment was entered
within five years prior to the commencement of the offering;
(4) Is currently subject to any administrative order
or judgment which prohibits the use of any exemption from registration in
connection with the purchase or sale of securities, or to a Commission censure
or other order based on a finding of false filing;
(5) Is subject to any administrative order or order,
judgment, or decree of any court of competent jurisdiction temporarily or
preliminarily restraining or enjoining, or is subject to any order, judgment, or
decree of any court of competent jurisdiction entered within five years prior to
the commencement of the offering permanently restraining or enjoining, such
person from engaging in or continuing any conduct or practice in connection with
the purchase or sale of any
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<PAGE> 6
security or commodity or involving the making of any false filing with the
Commission or any state or arising out of the conduct of the business of an
underwriter, broker, dealer, municipal securities dealer, or investment adviser,
or which restrains or enjoins such person from activities subject to federal or
state statutes designed to protect consumers against unlawful or deceptive
practices involving insurance, commodities or commodity futures, real estate,
franchises, business opportunities, consumer goods, or other goods and services;
(6) Is suspended or expelled from membership in, or
suspended or barred from association with a member of, an exchange registered as
a national securities exchange, an association registered as a national
securities association, or a Canadian securities exchange or association;
(7) Is subject to a United States Postal Service
false representation order entered within five years prior to the commencement
of the Offering or is subject to a restraining order or preliminary injunction
with respect to conduct alleged to violate 39 U.S.C. Section 3005; or
(8) Is otherwise subject to any disqualification
under Commission Rule 262.
(g) To your knowledge, no action or proceeding is pending
against you or any of the other persons referred to in Section 2(f) hereof
concerning your or such person's activities as a broker or dealer or an
associated person of a broker or dealer that would affect the Company's Offering
of the Units.
(h) You will offer the Units only in those states in which the
Offering of the Units has been qualified for sale or an exemption for the
Offering and sale of the Units is available under applicable state statutes and
regulations and which have been approved by the Company, and in the quantities
that are identified in the Blue Sky Memorandum prepared by the Company's counsel
and provided to you.
(i) You, in connection with the offer and sale of Units, and
in the performance of your duties and obligations under this Agreement, agree to
comply and will cause your employees, agents, and representatives to comply with
all applicable federal laws, including but not limited to the Securities Act and
Exchange Act and any applicable rules and regulations issued under the
Securities Act and/or the Exchange Act, the laws of the states or other
jurisdictions in which the Units are offered and sold, and the Rules and
Regulations of the NASD.
(j) You will not make any offer or sale of Units unless the
offer or sale is made in compliance with the Securities Act, the Rules of Fair
Practice of the NASD, and the applicable securities or Blue Sky laws of
jurisdictions in which offers or sales are made, and the rules and regulations
thereunder. You agree that you will not offer or sell Units to any subscriber
unless you have reasonable grounds to believe that the investment in the Units
is suitable for the subscriber.
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<PAGE> 7
(k) You have not dealt with or engaged and will not deal with
or engage any finder in connection with the Offering of the Units.
(l) You, in connection with the offering of the Units, have
obtained and may in the future obtain information regarding the Company and its
business that is not generally available to the public, and you have not and
will not disclose any such information to any person except as may be required
to comply with obligations of disclosure pursuant to federal or state securities
laws and, even as to such disclosures, will make them only after notice to the
Company and only to those persons, prospective subscribers and regulatory
authorities, who have a need to know the information, and will exercise
reasonable efforts to inform the persons to whom such information is disclosed
that it should be held in confidence to the maximum extent possible, except as
otherwise agreed to by the Company.
(m) Neither you nor any of your officers, directors,
employees, agents, representatives, or affiliates are subject to any
disqualifications precluding reliance by the Company upon any exemption from
registration under the securities laws of any jurisdiction in which it intend to
offer or sell the Units in reliance upon such exemption.
(n) You will, reasonably promptly after the closing of the
Offering of the Units, supply the Company with all information required from you
for the completion of Form SR and such additional information as the Company may
reasonably request to be supplied to the securities commission of such states in
which the Units have been qualified for sale.
All of the representations and warranties made by you hereunder shall
survive the performance or termination of this Agreement.
Section 3. Retention of Participating Dealer. In reliance upon the
representations and warranties set forth herein, and subject to the terms and
conditions of this Agreement:
(a) You hereby agree to solicit, as an independent contractor
and not as our agent, persons who will acquire the Units. Neither you nor any
other person is or has been authorized to give any information or to make any
representations other than those contained in the Prospectus in connection with
the sale of the Units, and you hereby agree not to give any such information or
make any such representations.
(b) The Company shall have full authority to take such action
as it may deem advisable in respect of all matters pertaining to the Offering or
arising thereunder. The Company shall be under no liability to you, except such
as may be incurred under the Securities Act and the rules and regulations
thereunder, except for lack of good faith and except for obligations expressly
assumed by the Company in this Agreement, and no obligation on the Company's
part shall be implied or inferred therefrom.
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<PAGE> 8
(c) You will be informed by the Company as to the states in
which the Company has been advised by counsel that the Units have been qualified
for sale or are exempt under the respective securities or blue sky laws of such
states, but the Company has not assumed and will not assume any obligation or
responsibility as to the right of you or any other Participating Dealer to sell
Units in any states.
(d) Pursuant to the Escrow Agreement, an escrow account shall
be established for the Offering at ________________________, Corporate Trust
Services (the "Escrow Agent"). Pursuant to the Escrow Agreement, you shall
deliver all checks, drafts, money orders, and other forms of subscription
payment received from subscribers to the Units solicited by you to the Escrow
Agent by twelve o'clock noon of the next business day after the date of receipt,
and all checks, money orders and other subscription payments should be made
payable to "________________________, Corporate Trust Services, as Escrow Agent
for Cragar Industries, Inc."
(e) The Units will be sold by the Company on a "best effort,
all or none" basis with respect to the first 666,667 Units constituting the
Minimum Offering and on a "best efforts" basis as to the remaining 333,333
Units. The Minimum Offering must be sold, if any are to be sold, within a period
of 120 days (or a period of 240 days, if extended by the Company) from the
commencement of the Offering (the "Offering Period"). The Company reserves the
right, in its sole discretion to allocate among or reject, in whole or in part,
any subscriptions to purchase Units.
(f) In the event that the Minimum Offering is not sold within
the Offering Period or the Offering is terminated by the Company pursuant to
Section 6 of the Escrow Agreement or at any other time, all funds not
theretofore utilized to purchase Units will be promptly refunded to the
subscribers, in full, without interest or deductions therefrom.
(g) Subject to the sale of the Minimum Offering within the
Minimum Offering Period, the Company agrees to:
(i) pay to you a cash commission equal to five
percent (5%) of the offering purchase price of
all Units sold by you. In the event that a sale
of a Unit for which you have solicited a
purchaser shall not occur, no payment with
respect to such Unit shall be paid to you.
During the Escrow Period, payment of
commissions due to you will be made prior to or
concurrently with the disbursement of funds to
the Company pursuant to the terms and
conditions of the Escrow Agreement and a sale
will be deemed to have occurred only upon such
disbursement; and
(ii) subject to your entering into a Participating
Dealer Warrant Agreement in substantially the
form attached hereto as Exhibit A (the
"Participating Dealer Warrant Agreement") with
the Company, sell to you, at a price of $0.01
each, and issue and deliver to you or your
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<PAGE> 9
designees, that number of warrants
("Participating Dealer Warrants") equal to 15
per centum of the number of Units sold by you
in the Offering, each such Participating Dealer
Warrant to be in substantially the form
attached as Exhibit B to the Participating
Dealer Warrant Agreement, and to be issued
pursuant thereto and subject to the terms and
conditions stated therein, and shall represent
the right to purchase one share of Common Stock
at a price of $7.20 per share during the period
and on the terms and conditions specified
therein.
(h) The Company will provide to you as many copies of the
Registration Statement and amendments thereto, any Preliminary Prospectuses, and
definitive Prospectuses as reasonably requested by you. If at any time any event
occurs as a result of which, in the opinion of the Company, the Prospectus would
include an untrue statement of a material fact or would omit to state any
material fact necessary to make any statement therein, in view of the
circumstances under which it was made, not misleading, the Company will notify
you thereof and will prepare an amended or supplemented Prospectus which will
correct such statement or omission. The Company will deliver to you as many
copies of such amended or supplemented Prospectus as you may reasonably request.
Section 4. Company Indemnification. The Company agrees to indemnify,
defend and hold you and any person who controls (within the meaning of Section
15 of the Securities Act) you harmless against any losses, claims, damages, or
liabilities, joint or several, to which you may become subject:
(a) under applicable law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the
Registration Statement, Prospectus, or any amendment or
supplement thereto or in any sales literature, or arise out of
or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; or
(b) due to the misrepresentation by the Company or its agents
(other than you or any other Participating Dealer) of material
facts in connection with the sale of the Units, unless the
misrepresentation of such material facts was the direct result
of misleading information provided to the Company or its
agents by you; or
(c) as a result of any representation or warranty of the
Company herein having been false or misleading in any material
respect when made or of any breach by the Company of its
agreements contained in this Agreement.
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<PAGE> 10
The Company will reimburse you for reasonable legal or other
expenses reasonably incurred in connection with investigating or defending any
such loss, claim, damage, or liability (or actions in respect thereof);
provided, however, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, Prospectus or any amendment or
supplement thereto or in any sales literature, in reliance upon and in
conformity with written information furnished to the Company by you specifically
for use in the preparation thereof.
Section 5. Participating Dealer Indemnification. You agree to indemnify
and hold harmless the Company and any person who controls (within the meaning of
Section 15 of the Securities Act) the Company against any losses, claims,
damages, or liabilities, joint or several, to which they may become subject:
(a) under applicable law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the
Registration Statement, Prospectus, or any amendment or
supplement thereto or in any sales literature, in reliance
upon and in conformity with written information furnished to
the Company by you specifically for use in the preparation
thereof or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein
not misleading; or
(b) due to the misrepresentation by you or your agents of
material facts in connection with the sale of the Units,
unless the misrepresentation of such material facts was the
direct result of misleading information provided by the
Company or its agents to you; or
(c) as a result of any representation or warranty made by you
herein having been false or misleading in any material respect
when made or of any breach by you of the terms and conditions
of this Agreement.
Section 6. Notices and Other Conditions of Indemnification. Promptly
after receipt by an indemnified party of notice of the commencement of any
action, such indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party under Sections 4 or 5 hereof, notify the
indemnifying party in writing of the commencement thereof; but the omission to
so notify the indemnifying party shall not relieve it from any liability which
it may have to any indemnified party otherwise than under such Section. In case
any such action shall be brought against such indemnified party, and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate in, and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnifying and
indemnified parties. Any indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the
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<PAGE> 11
fees and expenses of such counsel shall be at the expense of such indemnified
party unless (a) the employment thereof has been specifically authorized by the
indemnifying party in writing, or (b) the indemnifying party has failed to
assume the defense and employ counsel or (c) the named parties to any such
action (including any impleaded parties) include both such indemnified party and
the indemnifying party, and such indemnified party shall have been advised in
writing by such counsel that representation of such indemnified party and the
indemnifying party by the same counsel would be inappropriate under applicable
standards of professional conduct due to actual or potential differing interests
between them, in which case the indemnifying party shall not have the right to
assume the defense of such action on behalf of such indemnified party; provided,
however, that the indemnifying party shall, in connection with any one such
action or, separate or substantially similar or related actions in the same
jurisdictions arising out or the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate firm of
attorneys at any time for all such indemnified parties.
Section 7. Termination. This Agreement may be terminated by the Company
at any time upon five (5) days' written notice to you. Your participation in the
offer and sale of the Units will be governed by the conditions herein set forth
until this Agreement is terminated. If this Agreement is not terminated sooner
as provided in this section, then this Agreement will terminate when the
Offering is completed.
Section 8. Addresses. Except as otherwise expressly provided in this
Agreement, whenever notice is required by the provisions of this Agreement to be
given, such notice shall be in writing addressed to the parties at the following
addresses:
If to the Company:
Cragar Industries, Inc.
4636 N. 43rd Avenue
Phoenix, Arizona 85031
Facsimile No. (602) 846-0684
Attention: Michael L. Hartzmark
President and Chief Executive Officer
If to the Participating Dealer:
Section 9. Binding Effect. This Agreement shall inure to the benefit of
and be binding upon you and the Company and the Company's respective successors
and assigns. Nothing expressed in this Agreement is intended to give any person
other than the persons mentioned in the preceding sentence any legal or
equitable right, or any remedy on warranties included in this Agreement.
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<PAGE> 12
Section 10. Miscellaneous Provisions.
(a) Independent Contractor. Nothing contained herein shall
constitute the relationship between you and the Company as an association,
partnership, unincorporated business venture or other separate entity.
(b) Governing Law. This Agreement shall be construed according
to the laws of the State of Arizona (without giving effect to its principles of
conflicts of law).
(c) Survival of Representations and Warranties. The
representations and warranties made in this Agreement shall survive the
termination of this Agreement and shall continue in full force and effect
regardless of any investigation made by the party relying upon any such
representation or warranty.
(d) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute me and the same instrument.
(e) Entire Agreement. This Agreement constitutes the entire
agreement between the parties and supersedes any prior understandings or
agreements concerning the subject matter hereof.
(f) Amendments; Waivers. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto. No waiver of this Agreement shall be binding unless executed in writing
by the party to be bound thereby. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provision
hereof (whether or not similar), nor shall such waiver constitute a continuing
waiver unless otherwise expressly provided.
(g) Severability. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
(h) Headings. All headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
Please confirm your agreement to solicit persons to acquire Units on
the foregoing terms and conditions by signing and returning the form enclosed
herewith.
Very truly yours,
Cragar Industries, Inc.
By_____________________________
Michael L. Hartzmark, President
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<PAGE> 13
Michael L. Hartzmark
Cragar Industries, Inc.
4636 N. 43rd Avenue
Phoenix, Arizona 85031
Gentlemen:
The undersigned confirms its agreement to act as a
Participating Dealer as referred to in the foregoing Participating Dealer
Agreement, subject to the terms and conditions of such Agreement. The
undersigned confirms all of the representations, warranties, and agreements on
the part of a Participating Dealer in such Agreement.
-------------------------------
(Print Name of Firm)
By______________________________
(Signature)
--------------------------------
(Print Name and Title of
Authorized Representative)
--------------------------------
(N.A.S.D. Firm Number)
Dated: ___________, 199__ ________________________________
Address
--------------------------------
Telephone(___) _________________
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Exhibit A
---------
PARTICIPATING DEALER WARRANT AGREEMENT
AGREEMENT, dated as of the _______ day of
____________________, 199__, by and between CRAGAR INDUSTRIES, INC., a Delaware
corporation (the "Company"), and
_________________________________________________ (the
"Participating Dealer").
WITNESSETH
WHEREAS, the Company has determined to offer for sale (the
"Offering") up to 1,000,000 units ("Units"), consisting of one (1) share of the
Company's Common Stock, $0.01 par value ("Common Stock"), and one (1) warrant to
purchase Common Stock;
WHEREAS, the Units will be offered on a "best-efforts, all or
none" basis as to the first 666,667 Units (the "Minimum Offering"), and on a
"best efforts" basis as to the remaining 333,333 Units, and collected or
collectible subscriptions for the Minimum Offering must be received prior to the
expiration of one hundred twenty (120) days from the commencement of the
Offering unless extended one or more times by the Company for up to a total
additional one hundred twenty (120) days (the "Minimum Offering Period");
WHEREAS, the offer and sale of the Units will be made by the
Company, provided that the Company may engage independent broker-dealers to sell
the Units and each such broker-dealer will enter into a separate participating
dealer agreement with the Company in connection with the Offering;
WHEREAS, the Company and the Participating Dealer have entered
into that certain Participating Dealer Agreement dated _________________________
(the "Participating Dealer Agreement"); and
WHEREAS, pursuant to the Participating Dealer Agreement,
subject to the sale of the Minimum Offering within the Minimum Offering Period,
the Participating Dealer may purchase, at a purchase price of $0.01 each, up to
that number of warrants (the "Participating Dealer Warrants") equal to 15 per
centum of the number of Units sold by the Participating Dealer, such
Participating Dealer Warrants to be in substantially the form attached hereto as
Exhibit A, and each Participating Dealer Warrant representing the right to
purchase one (1) share of Common Stock at a price of $7.20 per share on the
terms and subject to the conditions contained herein.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter set forth and for the purpose of defining the
terms and provisions of the Participating Dealer Warrants and the Warrant
Certificates and the respective rights and obligations thereunder of the Company
and the holders of Warrant Certificates, the parties hereto agree as follows:
<PAGE> 15
SECTION 1. DEFINITIONS. As used herein, the following terms shall have
the following meanings, unless the context shall otherwise require:
(a) "Corporate Office" shall mean the office of the Company
located at 4636 N. 43rd Avenue, Phoenix, Arizona 85031, or such other
location as shall be notified to the Registered Holders by the Company
from time to time.
(b) "Exercise Date" shall mean, as to any Participating Dealer
Warrant, the date on which the Company shall have received at the
Corporate Office both (a) the Warrant Certificate representing such
Participating Dealer Warrant, with the exercise form thereon duly
executed by the Registered Holder thereof or his attorney duly
authorized in writing, and (b) payment in cash, or by official bank or
certified check made payable to the Company, of an amount in lawful
money of the United States of America equal to the applicable Stock
Purchase Price.
(c) "Market Value" shall mean, on any date specified herein,
the price obtained by taking the average, on each such trading day, of
(A) the high and low sale price of a share of Common Stock or if no
such sale takes place on any such trading day, the average of the
closing bid and asked prices thereof on any such trading day, in each
case as officially reported on all national securities exchanges on
which the Common Stock is then listed or admitted to trading, or (B) if
the Common Stock is not then listed or admitted to trading on any
national securities exchange, the closing price of the Common Stock on
such date or if no closing price is available on any such trading date,
the average of the closing bid and asked prices thereof on any such
trading date in the over-the-counter market as reported to NASDAQ, or,
if the Common Stock is not then quoted in such system, the average of
the highest and lowest bid and asked prices reported by the market
makers and dealers for the Common Stock listed as such by the National
Quotation Bureau, Incorporated or any similar successor organization.
(d) "Registered Holder" shall have the meaning given in
Section 2(f) hereof.
(e) "Stock Purchase Price" shall mean the purchase price to be
paid upon exercise of the Participating Dealer Warrants in accordance
with the terms hereof, which price shall be $7.20 per share of Common
Stock, subject to modification and adjustment from time to time
pursuant to the provisions of Section 8 hereof.
(f) "Transfer Agent" shall mean the entity designated as the
Company's transfer agent from time to time. On the date hereof, the
Transfer Agent is ChaseMellon Shareholder Services, L.L.C.
(g) "Warrant Expiration Date" shall mean 5:00 P.M.
(_____ time) on ___________,___________ .
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<PAGE> 16
(h) "Warrant Purchase Price" shall mean the purchase price to
be paid for the Participating Dealer Warrants, which price shall be $0.01 per
Participating Dealer Warrant.
(i) "Warrant Register" shall have the meaning given in
Section 2(e) hereof.
SECTION 2. PURCHASE OF WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES;
REGISTRATION.
(a) From time to time from the date hereof to the Warrant
Expiration Date, the Company will issue and deliver that number of
Participating Dealer Warrants as the Participating Dealer shall be
entitled to purchase at such time pursuant to the Participating Dealer
Agreement to the Participating Dealer upon delivery by the
Participating Dealer to the Company of (i) a properly completed and
executed Form of Election to Purchase Participating Dealer Warrants in
the form attached hereto as Exhibit A (an "Election to Purchase") and
(ii) the Warrant Purchase Price for the number of Participating Dealer
Warrants which the Participating Dealer is entitled to purchase and
elects so to purchase; provided, however, that the Warrant Certificates
representing Participating Dealer Warrants will not be issued until
clearance of the funds received for purchase thereof.
(b) A Participating Dealer Warrant shall initially entitle the
Registered Holder of the Warrant Certificate representing such
Participating Dealer Warrant to purchase one share of Common Stock upon
the exercise thereof and payment of the Stock Purchase Price (subject
to modification as herein provided), in accordance with the terms
hereof.
(c) From time to time up to the Warrant Expiration Date, the
Company shall cause the Transfer Agent to deliver stock certificates in
required whole number denominations representing up to an aggregate of
150,000 shares of Common Stock, subject to adjustment as described
herein, upon the exercise of the Participating Dealer Warrants in
accordance with this Agreement.
(d) From time to time up to the Warrant Expiration Date, the
Company shall deliver Warrant Certificates in required whole number
denominations to the persons entitled thereto in connection with any
transfer or exchange permitted under this Agreement; provided that no
Warrant Certificates shall be issued except (i) those issued upon the
exercise of fewer than all the Participating Dealer Warrants
represented by a Warrant Certificate, to evidence any unexercised
Participating Dealer Warrants held by the exercising Registered Holder;
(ii) those issued upon any transfer or exchange pursuant to Section 6;
(iii) those issued in replacement of lost, stolen, destroyed, or
mutilated Warrant Certificates pursuant to Section 7; and (iv) at the
option of the Company, in such form as may be approved by its Board of
Directors, to reflect any adjustment or change in the Stock Purchase
Price or the number of shares of Common Stock purchasable upon exercise
of the Participating Dealer Warrants made pursuant to Section 8.
(e) The Company shall maintain books (the "Warrant Register")
for the registration of original issuance and the registration of
transfer of the Warrants. Upon the
3
<PAGE> 17
initial issuance of the Warrants, the Company shall issue and register
the Participating Dealer Warrants in the name of the Participating
Dealer.
(f) Prior to due presentment for registration of transfer of
any Warrant Certificate, the Company may deem and treat the person in
whose name such Warrant Certificate shall be registered upon the
Warrant Register (the "Registered Holder"), as the absolute owner of
such Warrant Certificate and of each Participating Dealer Warrant
represented thereby (notwithstanding any contrary notation of ownership
or other writing on the Warrant Certificate), for the purpose of any
exercise thereof, and for all other purposes, and the Company shall not
be affected by any notice to the contrary.
SECTION 3. FORM AND EXECUTION OF WARRANT CERTIFICATE.
(a) Warrant Certificates shall be substantially in the form
annexed hereto as Exhibit B (provisions of which Exhibit are hereby
incorporated herein) and may have such letters, numbers, or other marks
of identification or designation and such legends, summaries or
endorsements printed, lithographed, or engraved thereon as the Company
may deem appropriate and as are not inconsistent with the provisions of
this Agreement, or as may be required to comply with any law or with
any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange or other market (including the NASDAQ)
on which the Common Stock may be listed, or to conform to usage. The
Warrant Certificates shall be dated the date of issuance thereof
(whether upon initial issuance, transfer, or exchange or in lieu of
mutilated, lost, stolen, or destroyed Warrant Certificates) and issued
in registered form. Participating Dealer Warrants shall be numbered
serially with the letter W on the Participating Dealer Warrants of all
denominations.
(b) Warrant Certificates shall be executed on behalf of the
Company by its President and by its Secretary by manual signatures or
by facsimile signatures printed thereon. In case any officer of the
Company who shall have signed any of the Warrant Certificates shall
cease to be such officer of the Company before the date of issuance of
the Warrant Certificates and before issue and delivery thereof, such
Warrant Certificates may nevertheless be issued and delivered by the
Company to the Registered Holder without further action by the Company,
except as otherwise provided by Section 4 hereof.
SECTION 4. EXERCISE. Each Participating Dealer Warrant may be exercised
by the Registered Holder thereof at the Corporate Office at any time up to and
including the Warrant Expiration Date, upon the payment of the Stock Purchase
Price (subject to adjustment as herein provided) and upon the other terms and
subject to the conditions set forth herein and in the applicable Warrant
Certificate. A Participating Dealer Warrant shall be deemed to have been
exercised immediately prior to the close of business on the Exercise Date and
the person entitled to receive the securities deliverable upon such exercise
shall be treated for all purposes as the holder
4
<PAGE> 18
of such securities upon exercise thereof as of the close of business on the
Exercise Date. Promptly following, and in any event within five business days
after the date of exercise, the Company shall issue and deliver to the person or
persons entitled to receive the same a certificate or certificates for the
securities deliverable upon such exercise (plus a Warrant Certificate for any
remaining unexercised Participating Dealer Warrants of the Registered Holder),
subject to clearance of checks received in payment of the Stock Purchase Price.
A Warrant may only be exercised in whole number denominations.
SECTION 5. RESERVATION OF SHARES; LISTING: PAYMENT OF TAXES; ETC.
(a) The Company covenants that it will at all times reserve
and keep available out of its authorized Common Stock, solely for the
purpose of issue upon exercise of the Participating Dealer Warrants,
such number of shares of Common Stock as shall then be issuable upon
the exercise of all outstanding Participating Dealer Warrants. The
Company covenants that all shares of Common Stock which shall be
issuable upon exercise of the Participating Dealer Warrants shall, at
the time of delivery, be duly and validly issued, fully paid,
nonassessable and free from all taxes, liens, and charges with respect
to the issue thereof (other than those which the Company shall promptly
pay or discharge), and that upon issuance such shares shall be listed
on each national securities exchange, if any, or on the NASDAQ, on
which the other outstanding shares of Common Stock of the Company are
then listed.
(b) The Company has filed with the Securities and Exchange
Commission a Registration Statement No. (the "Registration
Statement") on Form SB-2 for the registration, under the Securities Act
of 1933, as amended (the "Securities Act"), of, among other securities,
the Participating Dealer Warrants and the Common Stock issuable upon
exercise of the Participating Dealer Warrants. The Company agrees that,
if necessary, it shall file with the Securities and Exchange Commission
a post-effective amendment to the Registration Statement, or a new
registration statement, for the registration, under the Securities Act
of the Common Stock issuable upon exercise of the Participating Dealer
Warrants. In either case, the Company will use its best efforts to
cause the same to become effective and to maintain the effectiveness of
such registration statement until the expiration of the Participating
Dealer Warrants in accordance with the provisions of this Agreement.
(c) The Company shall pay all documentary, stamp, or similar
taxes and other governmental charges that may be imposed with respect
to the issuance of the Participating Dealer Warrants, or the issuance
or delivery of any shares of Common Stock upon exercise of the
Participating Dealer Warrants; provided, however, that if the shares
of Common Stock are to be delivered in a name other than the name of
the Registered Holder of the Warrant Certificate representing any
Participating Dealer Warrant being exercised, then no delivery shall
be made unless the person requesting the same has paid to the Company
the amount of transfer taxes or charges incident thereto, if any. The
Company shall not be required to pay any tax
5
<PAGE> 19
which may be payable in respect of any transfer involved in the
issuance and delivery of any Warrant Certificate in a name other than
that of the then Registered Holder of the Warrant being exercised.
(d) The Company will requisition the Transfer Agent from time
to time for certificates representing shares of Common Stock required
upon exercise of the Participating Dealer Warrants.
SECTION 6. EXCHANGE AND REGISTRATION OF TRANSFER.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Participating
Dealer Warrants of the same class or may be transferred in whole or in
part; provided that no Participating Dealer Warrant may be sold,
transferred, hypothecated, or assigned prior to ______________, ____,
the date that is twelve (12) months following the disbursement of funds
to the Company from the Minimum Offering. The Company will advise the
Participating Dealer of such date. Warrant Certificates to be exchanged
shall be surrendered to the Company at the Corporate Office, and upon
satisfaction of the terms and provisions hereof, the Company shall
execute and deliver in exchange therefor the Warrant Certificates which
the Registered Holder making the exchange shall be entitled to receive.
(b) Upon due presentment for registration of transfer of any
Warrant Certificate at such office, the Company shall execute and
deliver to the transferee or transferees a new Warrant Certificate or
Certificates representing an equal aggregate number of Participating
Dealer Warrants.
(c) With respect to all Warrant Certificates presented for
registration of transfer, the Form of Assignment attached thereto shall
be duly endorsed, or be accompanied by a written instrument or
instruments of transfer, in form satisfactory to the Company, duly
executed by the Registered Holder or his attorney-in-fact duly
authorized in writing.
(d) The Company may require payment by the Registered Holder
of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any exchange or registration of
transfer of Warrant Certificates.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly
canceled by the Company and may be disposed of or destroyed in the
discretion of the Company. The Company will record all such exercises
or exchanges on the Warrant Register.
(f) Prior to due presentment for registration of transfer
thereof, the Company may deem and treat the Registered Holder of any
Warrant Certificate as the absolute owner thereof and of each
Participating Dealer Warrant represented thereby (notwithstanding any
6
<PAGE> 20
contrary notations of ownership or other writing thereon) for all
purposes and shall not be affected by any notice to the contrary.
SECTION 7. LOSS OR MUTILATION. Upon receipt by the Company of evidence
satisfactory to it of the ownership of and loss, theft, destruction, or
mutilation of any Warrant Certificate and (in case of loss, theft, or
destruction) of indemnity satisfactory to it, and (in case of mutilation) upon
surrender and cancellation thereof, the Company shall (in the absence of notice
that the Warrant Certificate has been acquired by a bona fide purchaser) execute
and deliver to the Registered Holder in lieu thereof a new Warrant Certificate
of like tenor representing an equal aggregate number of the Participating Dealer
Warrants. Applicants for substitute Warrant Certificates shall comply with such
other reasonable regulations and pay such other reasonable charges as the
Company may prescribe.
SECTION 8. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES OF COMMON
STOCK. The Stock Purchase Price and the number of shares purchasable upon the
exercise of the Participating Dealer Warrants shall be subject to adjustment
from time to time upon the occurrence of certain events described in this
Section 8.
8.1 SUBDIVISION OR COMBINATION OF COMMON STOCK. In case the
Company shall at any time (a) subdivide its outstanding shares of Common Stock
into a greater number of shares, (b) combine its outstanding Common Stock into a
smaller number of shares, or (c) issue any securities in reclassification of its
outstanding Common Stock (except as provided in Section 8.5 hereof), then and in
each such event, the Stock Purchase Price in effect immediately prior to such
action by the Company shall be adjusted by multiplying it by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such subdivision, combination, or reclassification and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after such subdivision, combination, or reclassification, and the
number of shares of Common Stock issuable upon exercise of the Participating
Dealer Warrants shall be increased or decreased proportionately.
8.2 STOCK DIVIDEND. In case the Company shall at any time
declare a dividend upon its Common Stock payable solely in shares of Common
Stock, the Stock Purchase Price in effect immediately prior to such dividend
shall be proportionately reduced and the number of shares of Common Stock
issuable upon exercise of the Participating Dealer Warrants shall be
proportionately increased.
8.3 NOTICE OF ADJUSTMENT. Upon any adjustment of the Stock
Purchase Price or any increase or decrease in the number of shares purchasable
upon the exercise of the Participating Dealer Warrants, the Company shall give
written notice thereof, by first class mail, postage prepaid, addressed to each
Registered Holder of the Participating Dealer Warrants at the address of such
holder as shown on the Warrant Register. The notice shall be signed by the
Company's principal financial or accounting officer and shall state the Stock
Purchase Price resulting from such adjustment and the increase or decrease, if
any, in the number of shares purchasable at
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<PAGE> 21
such price upon the exercise of the Participating Dealer Warrants, setting forth
in reasonable detail the method of calculation and the facts upon which such
calculation is based. Such calculation shall be conclusive in the absence of
manifest error.
8.4 OTHER NOTICES. If at any time:
(a) the Company shall declare any cash dividend upon
its Common Stock;
(b) the Company shall declare any dividend upon its
Common Stock payable in stock (other than a dividend payable solely in
shares of Common Stock) or make any special dividend or other
distribution to the holders of its Common Stock;
(c) there shall be any consolidation or merger of the
Company with another corporation, or a sale of all or substantially all
of the Company's assets to another corporation; or
(d) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company; then, in any one
or more of said cases, the Company shall give, by certified or
registered mail, postage prepaid, addressed to the Registered Holder of
each Participating Dealer Warrant at the address of such Registered
Holder as shown on the Warrant Register, at least 30 days' prior
written notice of the date on which the books of the Company shall
close or a record shall be taken for such dividend or for determining
rights to vote in respect of any such consolidation, merger, sale,
dissolution, liquidation, or winding up or, if no such vote is
required, of the date of such consolidation, merger, sale, dissolution,
liquidation, or winding-up. Any such notice shall also specify, in the
case of any such dividend or distribution, the date on which the
holders of Common Stock shall be entitled thereto and, in the case of
any such consolidation, merger, sale, dissolution, liquidation, or
winding-up, the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other
property deliverable upon such consolidation, merger, sale,
dissolution, liquidation, or winding-up, as the case may be. In the
event that the Registered Holder of a Warrant does not exercise the
Participating Dealer Warrant prior to the occurrence of an event
described above, except as provided in Section 8.5 below, the
Registered Holder shall not be entitled to receive the benefits
accruing to existing holders of the Common Stock in such event, and,
upon the occurrence of an event described in subsection (d) the
Participating Dealer Warrant shall terminate.
8.5 CHANGES IN COMMON STOCK. In case at any time the Company
shall be party to any transaction (including, without limitation, a merger,
consolidation, sale of all or substantially all of the Company's assets or
recapitalization of the Common Stock) in which the previously outstanding Common
Stock shall be changed into or exchanged for different securities of the Company
or common stock or other securities of another corporation or interests in a
non-corporate entity or other property (including cash) or any combination of
any of the foregoing (each such transaction being herein called a "Transaction"
and the effective date of the Transaction being
8
<PAGE> 22
herein called the "Consummation Date"), the Company shall make, as a condition
of the consummation of the Transaction, lawful and adequate provisions so that
each Registered Holder, upon the exercise of its Participating Dealer Warrants
at any time on or after the Consummation Date, shall be entitled to receive, and
the Participating Dealer Warrants shall thereafter represent the right to
receive, in lieu of the Common Stock issuable upon such exercise prior to the
Consummation Date, the highest amount of securities or other property to which
such holder would actually have been entitled as a stockholder upon the
consummation of the Transaction if such Register Holder had exercised its
Participating Dealer Warrants immediately prior thereto (subject to adjustments
from and after the Consummation Date as nearly equivalent as possible to the
adjustments provided for in this paragraph 8). The provisions of this Section
8.5 shall similarly apply to successive Transactions.
SECTION 9. FRACTIONAL WARRANTS AND FRACTIONAL SHARES. No fractional
shares shall be issued upon the exercise of the Participating Dealer Warrants.
The Company shall, in lieu of issuing any fractional shares, pay the holder
entitled to such fraction a sum equal to such fraction multiplied by the Market
Value. No fractional Warrants shall be issued.
SECTION 10. WARRANT HOLDERS NOT DEEMED STOCKHOLDERS. No holder of a
Participating Dealer Warrant shall, as such, be entitled to vote or to consent
or to receive notice as a stockholder in respect of meetings of stockholders for
the election of directors of the Company or any other matters or any rights
whatsoever as a stockholder of the Company. Except for any required adjustment
to the Stock Purchase Price pursuant to Section 8 hereof, no dividends or
interest shall be payable or accrued in respect of a Participating Dealer
Warrant or the interest represented thereby or the shares purchasable thereunder
until, and only to the extent that, the Participating Dealer Warrant shall have
been exercised. No provisions hereof, in the absence of affirmative action by
the holder to purchase shares of Common Stock, and no mere enumeration herein of
the rights or privileges of the Registered Holder of the Participating Dealer
Warrant, shall give rise to any liability of such Registered Holder for the
Stock Purchase Price or as a stockholder of the Company whether such liability
is asserted by the Company or by its creditors.
SECTION 11. RIGHTS OF ACTION. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Participating
Dealer Warrants, and any Registered Holder of a Participating Dealer Warrant,
without consent of the holder of any other Participating Dealer Warrant, may, in
his own behalf and for his own benefit, enforce against the Company his right to
exercise his Participating Dealer Warrants for the purchase of Common Stock in
the manner provided in the Warrant Certificate and this Agreement.
SECTION 12. AGREEMENT OF WARRANT HOLDERS. Every holder of a
Participating Dealer Warrant, by his acceptance thereof, consents and agrees
with the Company and every other holder of a Participating Dealer Warrant that:
(a) The Participating Dealer Warrants are transferable only on
the Warrant Register by the Registered Holder thereof in person or by
his attorney duly authorized in
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<PAGE> 23
writing and only if the Warrant Certificates representing such
Participating Dealer Warrants are surrendered at the Corporate Office
of the Company, duly endorsed or accompanied by a proper instrument of
transfer satisfactory to the Company in its sole discretion, together
with payment of any applicable transfer taxes; and
(b) The Company may deem and treat the person in whose name
the Warrant Certificate is registered as the holder and as the
absolute, true and lawful owner of the Participating Dealer Warrants
represented thereby for all purposes, and the Company shall not be
affected by any notice or knowledge to the contrary, except as
otherwise expressly provided in Section 7 hereof.
SECTION 13. CANCELLATION. If the Company shall purchase or acquire any
Participating Dealer Warrants, the Warrant Certificate(s) evidencing the same
shall thereupon be canceled by it and retired. The Company shall also cancel the
Warrant Certificate(s) following exercise of any or all of the Participating
Dealer Warrants represented thereby or delivered to it for transfer, split-up,
combination, or exchange.
SECTION 14. MODIFICATION OF AGREEMENT. The Company and the
Participating Dealer for so long as it is a Registered Holder of any
Participating Dealer Warrants may by supplemental agreement make any changes or
corrections in this Agreement: (i) that they shall deem appropriate to cure any
ambiguity or to correct any defective or inconsistent provision or manifest
mistake or error herein contained; or (ii) that they may deem necessary or
desirable and which shall not adversely affect the interests of the holders of
Warrant Certificates; provided, however, that, except as provided in subclause
(i) or (ii) above, this Agreement shall not otherwise be modified, supplemented,
or altered in any respect except with the consent in writing of the Registered
Holders of Warrant Certificates representing not less than 50% of the
Participating Dealer Warrants then outstanding; and provided, further, that no
change in the number or nature of the securities purchasable upon the exercise
of any Participating Dealer Warrant, of the Stock Purchase Price therefor, or
the acceleration of the Warrant Expiration Date shall be made without the
consent in writing of the Registered Holder of the Warrant Certificate
representing such Participating Dealer Warrant, other than such changes as are
specifically prescribed by this Agreement as originally executed or are made in
compliance with applicable law.
SECTION 15. NOTICES. All notices, requests, consents, and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first class registered or certified mail, postage
prepaid as follows: if to the Registered Holder of a Warrant Certificate, at the
address of such Registered Holder as shown in the Warrant Register maintained by
the Company; and if to the Company, at the Corporate Office.
SECTION 16. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Arizona, without reference
to principles of conflict of laws.
SECTION 17. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the Company and the Participating Dealer and their
respective successors and assigns,
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<PAGE> 24
and the holders from time to time of Warrant Certificates. Nothing in this
Agreement is intended or shall be construed to convey upon any other person any
right, remedy, or claim, in equity or at law, or to impose upon any other person
any duty, liability, or obligation.
SECTION 18. TERMINATION. This Agreement shall terminate at the close of
business on the fifth business day following the Warrant Expiration Date.
SECTION 19. COUNTERPARTS. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
CRAGAR INDUSTRIES, INC.
By:______________________
_________________________
By:______________________
<PAGE> 1
EXHIBIT 3.1
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CRAGAR INDUSTRIES, INC.
This Second Amended and Restated Certificate of Incorporation
has been duly adopted by Cragar Industries, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware, in
accordance with the provisions of Sections 242 and 245 of the Delaware General
Corporation Law by the directors and stockholders of the corporation. This
Second Amended and Restated Certificate of Incorporation restates and integrates
and further amends the provisions of Cragar Industries, Inc.'s Restated
Certificate of Incorporation as heretofore amended, supplement or restated. The
original Certificate of Incorporation of Cragar Industries, Inc. was filed with
the office of the Secretary of State of Delaware on December 21, 1992.
I. The name of the corporation is Cragar Industries, Inc.
II. The address of its registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
III. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
IV. The corporation shall be authorized to issue two classes
of shares of stock to be designated, respectively, "Common Stock" and "Preferred
Stock"; the total number of shares of Common Stock that the corporation shall
have authority to issue shall be 5,000,000, and each of such shares shall have a
par value of $.01; and the total number of shares of Preferred Stock that the
corporation shall have the authority to issue shall be 200,000, and each of such
shares shall have a par value of $.01. The total number of shares the
corporation shall have authority to issue (both Common Stock and Preferred
Stock) is 5,200,000 amounting in the aggregate to Fifty Two Thousand Dollars
($52,000).
On the effective date of this Second Amended and Restated
Certificate of Incorporation (the "Effective Date"), the Common Stock of the
corporation will be split on a 7-for-1 basis so that each share of Common Stock
issued and outstanding immediately prior to the Effective Date shall
automatically be converted into and reconstituted as seven shares of Common
Stock. Each holder of a certificate or certificates which immediately prior to
the Effective Date represented outstanding shares of Common Stock (the "Old
Common Stock") shall be entitled to receive upon surrender of such certificates
a certificate or certificates representing the number of shares of Common Stock
(the "New Common Stock") into which and for which the shares of the Old Common
Stock are split under the terms hereof. From and after the Effective Date, Old
Common Stock certificates shall represent only the right to receive New Common
Stock certificates.
Shares of Preferred Stock may be issued from time to time in
one or more series as may from time to time be determined by the board of
directors, each of said series to be distinctly designated. The voting powers,
preferences and relative, participating, optional and other special rights, and
the qualifications, limitations or restrictions thereof, if any, of each such
<PAGE> 2
series may differ from those of any and all other series of Preferred Stock at
any time outstanding, and the board of directors is hereby expressly granted
authority to fix or alter, by resolution or resolutions, the designation,
number, voting powers, preferences and relative, participating, optional and
other special rights, and the qualifications, limitations and restrictions
thereof, of each such series, including, but not limiting the generality of the
foregoing, the following:
1. The distinctive designation of, and the number of shares of
Preferred Stock that shall constitute, such series, which number
(except where otherwise provided by the board of directors in the
resolution establishing such series) may be increased or decreased (but
not below the number of shares of such series then outstanding) from
time to time by like action of the board of directors;
2. The rights in respect of dividends, if any, on such series
of Preferred Stock, the extent of the preference or relation, if any,
of such dividends to the dividends payable on any other class or
classes or any other series of the same or other class or classes of
capital stock of the corporation, and whether such dividends shall be
cumulative or noncumulative;
3. The right, if any, of the holders of such series of
Preferred Stock to convert the same into, or exchange the same for,
shares of any other class or classes or of any other series of the same
or any other class or classes of capital stock of the corporation, and
the terms and conditions of such conversion or exchange;
4. Whether or not shares of such series of Preferred Stock
shall be subject to redemption, and the redemption price or prices and
the time or times at which, and the terms and conditions on which,
shares of such series of Preferred Stock may be redeemed;
5. The rights, if any, of the holders of such series of
Preferred Stock upon the voluntary or involuntary liquidation,
dissolution or winding-up of the corporation or in the event of any
merger or consolidation of or sale of assets by the corporation;
6. The terms of any sinking fund or redemption or purchase
account, if any, to be provided for shares of such series of the
Preferred Stock; and
7. The voting powers, if any, of the holders of any series of
Preferred Stock generally or with respect to any particular matter,
which may be less than, equal to or greater than one vote per share,
and which may, without limiting the generality of the foregoing,
include the right, voting as a series by itself or together with the
holders of any other series of Preferred Stock or all series of
Preferred Stock as a class, to elect one or more directors of the
corporation generally or under such specific circumstances and on such
conditions, as shall be provided in the resolution or resolutions of
the board of directors adopted pursuant hereto, including, without
limitation, in the event there shall have been a default in the payment
of dividends on or redemption of any one or more series of Preferred
Stock.
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After the provisions with respect to preferential dividends on
any series of Preferred Stock (fixed in accordance with the provisions of this
Article IV), if any, shall have been satisfied and after the corporation shall
have complied with all the requirements, if any, with respect to redemption of,
or the setting aside of sums as sinking funds or redemption or purchase accounts
with respect to, any series of Preferred Stock (fixed in accordance with the
provisions of this Article IV), and subject further to any other conditions that
may be fixed in accordance with the provisions of the preceding paragraph of
this Article IV, then and not otherwise the holders of Common Stock shall be
entitled to receive such dividends as may be declared from time to time by the
board of directors.
In the event of the voluntary or involuntary liquidation,
dissolution or winding-up of the corporation, after distribution in full of the
preferential amounts, if any (fixed in accordance with the provisions of this
Article IV), to be distributed to the holders of Preferred Stock by reason
thereof, the holders of Common Stock shall, subject to the additional rights, if
any (fixed in accordance with the provisions of this Article IV), of the holders
of any outstanding shares of Preferred Stock, be entitled to receive all of the
remaining assets of the corporation, tangible and intangible, of whatever kind
available for distribution to stockholders ratably in proportion to the number
of shares of Common Stock held by them respectively.
Except as may otherwise be required by law, and subject to the
provisions of such resolution or resolutions as may be adopted pursuant to this
Article IV granting the holders of one or more series of Preferred Stock
exclusive voting powers with respect to any matter, each holder of Common Stock
shall have one vote in respect of each share of Common Stock held on all matters
voted upon by the stockholders.
The authorized amount of shares of Common Stock and of
Preferred Stock may, without a class or series vote, be increased or decreased
from time to time by the affirmative vote of the holders of a majority of the
combined voting power of the then-outstanding shares of capital stock of the
corporation entitled to vote generally in the election of directors of the
corporation, voting together as a single class.
V. The corporation is to have perpetual existence.
VI. Except as otherwise provided in this Second Amended and
Restated Certificate of Incorporation, the board of directors of the corporation
shall have the power to make, alter or repeal the by-laws of the corporation.
With respect to the power of the stockholders of the corporation to make, alter
or repeal the by-laws of the corporation, notwithstanding anything contained in
this Second Amended and Restated Certificate of Incorporation or any provision
of law that might otherwise require a lesser vote, the by-laws may not be made,
altered or repealed by the stockholders, and no provision inconsistent therewith
shall be adopted by the stockholders, without the affirmative vote of the
holders of
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at least seventy-five percent (75%) of the voting power of all of the shares of
the corporation entitled to vote generally in the election of directors, voting
together as a single class.
VII. Notwithstanding any other provisions of this Second
Amended and Restated Certificate of Incorporation or the by-laws of the
corporation (and notwithstanding the fact that some lesser percentage may be
specified by law, this Second Amended and Restated Certificate of Incorporation
or the by-laws of the corporation), and subject to the rights of the holders of
any series of Preferred Stock then outstanding, any director, or the entire
board of directors, may be removed from office at any time but only for cause
and only by the affirmative vote of the holders of at least seventy-five percent
(75%) of the voting power of all of the shares of the corporation entitled to
vote generally in the election of directors, voting together as a single class.
VIII. Elections of directors need not be by written ballot
unless the by-laws of the corporation shall so provide.
Meetings of stockholders may be held within or without the
State of Delaware, as the by-laws may provide. The books of the corporation may
be kept (subject to any provision contained in the statutes) outside the State
of Delaware at such place or places as may be designated form time to time by
the board of directors or in the by-laws of the corporation.
IX. The corporation reserves the right to amend, alter, change
or repeal any provision contained in this Second Amended and Restated
Certificate of Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are granted subject
to this reservation.
X. A director of the corporation shall not be personally
liable to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived any
improper personal benefit.
XI. No sale of all or substantially all of the corporation's
assets or a merger or consolidation of the corporation with any other
corporation or corporations, or the liquidation of the corporation shall be
effected, unless there shall be first obtained the vote by the holders of record
of not less than 66 2/3% of the voting shares outstanding at the time of such
sale, merger, consolidation or liquidation.
XII. Any proposed issuance of voting shares that will increase
by an amount equal to or greater than fifty percent (50%) the number of voting
shares of the corporation that are issued and outstanding at the time the
proposed issuance is voted upon by the holders of record shall require a consent
in writing of the holders of record of 66 2/3% of the voting shares of the
corporation outstanding at the time.
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XIII. Any action required or permitted to be taken by the
stockholders of the corporation must be effected at a duly called annual or
special meeting of stockholders or by the unanimous written consent of all of
the stockholders entitled to vote on such action.
IN WITNESS WHEREOF, CRAGAR INDUSTRIES, INC. HAS CAUSED THIS
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO BE SIGNED BY MICHAEL
HARTZMARK, PRESIDENT AND MARIANNE HARTZMARK, SECRETARY, WHO DECLARE UNDER
PENALTY OF PERJURY THAT THE MATTERS SET FORTH IN THE FOREGOING SECOND AMENDED
AND RESTATED CERTIFICATE OF INCORPORATION ARE TRUE AND CORRECT. THIS SECOND
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION WAS EXECUTED AT PHOENIX,
ARIZONA, THIS 27TH DAY OF SEPTEMBER, 1996.
CRAGAR INDUSTRIES, INC.
By: /s/ MICHAEL L. HARTZMARK
-------------------------------------
Its: President Michael L. Hartzmark
Attest:
/s/ MARIANNE HARTZMARK
- -----------------------------
Secretary Marianne Hartzmark
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EXHIBIT 3.2
Cragar Industries, Inc.
* * * * *
AMENDED AND RESTATED BY-LAWS
* * * * *
ARTICLE I.
OFFICES
Section 1. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other
places both within and without the State of Delaware as the board of directors
may from time to time determine or the business of the corporation may require.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held in the City of Phoenix, State of Arizona, at such place
as may be fixed from time to time by the board of directors, or at such other
place either within or without the State of Delaware as shall be designated from
time to time by the board of directors and stated in the notice of the meeting.
Meetings of stockholders for any other purpose may be held at such time and
place, within or without the State of Delaware, as shall be stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders, commencing with the
year 1994, shall be held on the 15th day of February, if not a legal holiday,
and if a legal holiday, then on the next secular day following, at 10 A. M. , or
at such other date and time as shall be designated from time to time by the
board of directors and stated in the notice of the meeting, at which they shall
elect by a plurality vote a board of directors, and transact such other business
as may properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place,
date and hour of the meeting shall be given to each stockholder entitled to vote
at such meeting not less than 10 nor more than 60 days before the date of the
meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either
<PAGE> 2
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Section 5. Special meetings of the stockholders, for any purpose
or purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the board of
directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
Section 6. Written notice of a special meeting stating the place,
date and hour of the meeting and the purpose or purposes for which the meeting
is called, shall be given not less than 10 nor more than 60 days before the date
of the meeting, to each stockholder entitled to vote at such meeting.
Section 7. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required in which case
such express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the certificate of
incorporation each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
At all elections of directors of the corporation each stockholder
having voting power shall be entitled to exercise the right of cumulative voting
as provided in the certificate of incorporation.
Section 11. Unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or special meeting
of stockholders of the corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken
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without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE III.
DIRECTORS
Section 1. The board of directors shall be comprised of not less
than three (3) nor more than seven (7) members. The board of directors will have
the power to increase its size within the aforesaid limits. The directors shall
be elected at the annual meeting of stockholders, except as provided in Section
2 of this Article, and each director elected shall hold office until his
successor is elected and qualified. Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office until the
next annual election and until their successors are duly elected and shall
qualify, unless sooner displaced. If there are no directors in office, then an
election of directors may be held in the manner provided by statute. If, at the
time of filling any vacancy or any newly created directorship, the directors
then in office shall constitute less than a majority of the whole board (as
constituted immediately prior to any such increase), the Court of Chancery may,
upon application of any stockholder or stockholders holding at least ten percent
of the total number of the shares at the time outstanding having the right to
vote for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
Section 3. The business of the corporation shall be managed by or
under the direction of its board of directors which may exercise all such powers
of the corporation and do all such lawful acts and things as are not by statute
or by the certificate of incorporation or by these by-laws directed or required
to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The board of directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. The first meeting of each newly elected board of
directors shall be held at such time and place as shall be fixed by the vote of
the stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
board of directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided
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for special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the board of directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the board may be called by the
president on no days' notice to each director, either personally or by mail or
by telegram; special meetings shall be called by the president or secretary in
like manner and on like notice on the written request of two directors unless
the board consists of only one director; in which case special meetings shall be
called by the president or secretary in like manner and on like notice on the
written request of the sole director.
Section 8. At all meetings of the board a majority of directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the board of directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the board of directors the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation or these by-laws, any action required or permitted to be taken at
any meeting of the board of directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of
incorporation or these by-laws, members of the board of directors, or any
committee designated by the board of directors, may participate in a meeting of
the board of directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The board of directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the board of directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of
the board of directors, shall have and may exercise all the powers and authority
of the board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the
4
<PAGE> 5
power or authority in reference to amending the certificate of incorporation,
(except that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the board
of directors as provided in Section 151(a) fix any of the preferences or rights
of such shares relating to dividends, redemption, dissolution, any distribution
of assets of the corporation or the conversion into, or the exchange of such
shares for, shares of any other class or classes or any other series of the same
or any other class or classes of stock of the corporation) adopting an agreement
of merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the by-laws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock or to adopt a certificate of ownership and
merger. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the board of directors.
Section 12. Each committee shall keep regular minutes of its
meetings and report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
incorporation or these by-laws, the board of directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the board of directors and may be paid
a fixed sum for attendance at each meeting of the board of directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
incorporation or by law, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV.
NOTICES
Section 1. Whenever, under the provisions of the statutes or of
the certificate of incorporation or of these bylaws, notice is required to be
given to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
by-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
5
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ARTICLE V.
OFFICERS
Section 1. The officers of the corporation shall be chosen by the
board of directors and shall be a president, a vice-president, a secretary and a
treasurer. The board of directors may also choose additional vice-presidents,
and one or more assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the certificate of incorporation
or these by-laws otherwise provide.
Section 2. The board of directors at its first meeting after each
annual meeting of stockholders shall choose a president, one or more
vice-presidents, a secretary and a treasurer.
Section 3. The board of directors may appoint such other officers
and agents as it shall deem necessary who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
Section 4. The salaries of all officers and agents of the
corporation shall be fixed by the board of directors.
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by the
board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of the
corporation shall be filled by the board of directors.
THE PRESIDENT
Section 6. The president shall be the chief executive officer of
the corporation, shall preside at all meetings of the stockholders and the board
of directors, shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the board of
directors are carried into effect.
Section 7. He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the corporation.
THE VICE-PRESIDENTS
Section 8. In the absence of the president or in the event of his
inability or refusal to act, the vice-president (or in the event there be more
than one vice-president, the vice-presidents in the order designated by the
directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice-presidents shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
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Section 9. The secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the board of directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the board of directors, and shall
perform such other duties as may be prescribed by the board of directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The board of directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
Section 10. The assistant secretary, or if there be more than one,
the assistant secretaries in the order determined by the board of directors (or
if there be no such determination, then in the order of their election) shall,
in the absence of the secretary or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 11. The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors.
Section 12. He shall disburse the funds of the corporation as may
be ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors, at
its regular meetings, or when the board of directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 13. If required by the board of directors, he shall give
the corporation a bond (which shall be renewed every six years) in such sum and
with such surety or sureties as shall be satisfactory to the board of directors
for the faithful performance of the duties of his office and for the restoration
to the corporation, in case of his death, resignation, retirement or removal
from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
corporation.
Section 14. The assistant treasurer, or if there shall be more
than one, the assistant treasurers in the order determined by the board of
directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
treasurer and shall perform such other duties and have such other powers as the
board of directors may from time to time prescribe.
ARTICLE VI.
CERTIFICATES FOR SHARES
Section 1. The shares of the corporation shall be represented by a
certificate or shall be uncertificated. Certificates shall be signed by, or in
the name of the corporation by, the chairman
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or vice-chairman of the board of directors, or the president or a
vice-president, and by the treasurer or an assistant treasurer, or the secretary
or an assistant secretary of the corporation.
Upon the face or back of each stock certificate issued to
represent any partly paid shares, or upon the books and records of the
corporation in the case of uncertificated partly paid shares, shall be set forth
the total amount of the consideration to be paid therefor and the amount paid
thereon shall be stated.
If the corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Within a reasonable time after the issuance or transfer of
uncertificated stock, the corporation shall send to the registered owner thereof
a written notice containing the information required to be set forth or stated
on certificates pursuant to Sections 151, 156, 202 (a) or 218 (a) or a statement
that the corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
Section 2. Any of or all the signatures on a certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate or
certificates or uncertificated shares to be issued in place of any certificate
or certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates or uncertificated
shares, the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it shall require and/or to give the corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
TRANSFER OF STOCK
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<PAGE> 9
Section 4. Upon surrender to the corporation or the transfer agent
of the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Upon receipt of proper transfer instructions from the registered owner of
uncertificated shares such uncertificated shares shall be canceled and issuance
of new equivalent uncertificated shares or certificated shares shall be made to
the person entitled thereto and the transaction shall be recorded upon the books
of the corporation.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting: provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII.
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the board of directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside
out of any funds of the corporation available for dividends such sum or sums as
the directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
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<PAGE> 10
Section 3. The board of directors shall print at each annual
meeting, and at any special meeting of the stockholders when called for by vote
of the stockholders, a full and clear statement of the business and condition of
the corporation.
CHECKS
Section 4. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
FISCAL YEAR
Section 5. The fiscal year of the corporation shall be fixed by
resolution of the board of directors.
SEAL
Section 6. The corporate seal shall have inscribed thereon the
name of the corporation, the year of its organization and the words "Corporate
Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 7. The corporation shall to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the corporation to provide broader indemnification
rights than such law permitted the corporation to provide prior to such
amendment), indemnify and hold harmless any person who was or is a party, or is
threatened to be made a party to or is otherwise involved in any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative by reason of the fact that such person is or was
a director or officer of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, including
service with respect to an employee benefit plan (hereinafter an "Indemnitee")
against expenses, liabilities and losses (including attorneys' fees, judgments,
fines, excise taxes or penalties paid in connection with the Employee Retirement
Income Security Act of 1974, as amended, and amounts paid in settlement)
reasonably incurred or suffered by such Indemnitee in connection therewith;
provided, however, that except as provided in this Section with respect to
proceedings to enforce rights to indemnification, the corporation shall
indemnity any such Indemnitee in connection with a proceeding (or part thereof)
initiated by such Indemnitee only if such proceeding or part thereof was
authorized by the board of directors of this corporation.
The right to indemnification conferred in this Section shall
include the right to be paid by the corporation the expenses (including
attorneys' fees) incurred in defending any such proceeding in advance of its
final disposition; provided, however, that, if the Delaware General Corporation
Law requires, an advancement of expenses incurred by an Indemnitee in his
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such Indemnitee, including, without limitation,
service to an employee benefit plan) shall be made only upon delivery to the
corporation of an undertaking, by or on behalf of such Indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is not further
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<PAGE> 11
right to appeal that such Indemnitee is not entitled to be indemnified for such
expenses under this section or otherwise. The rights to indemnification and to
the advancement of expenses conferred in this Section shall be contract rights
and such rights shall continue as to an Indemnitee who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
Indemnitee's heirs, executors and administrators.
If a claim under the two preceding paragraphs of this Section is
not paid in full by the corporation within sixty (60) days after a written claim
has been received by the corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be twenty
(20) days, the Indemnitee may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim. If successful in whole or
in part in any such suit, or in a suit brought by the corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the Indemnitee
shall be entitled to be paid also the expense of prosecuting or defending such
suit. In (I) any suit brought by the Indemnitee to enforce a right to
indemnification hereunder (but not in a suit brought by the Indemnitee to
enforce a right to an advancement of expenses) and (ii) in any suit brought by
the corporation to recover an advancement of expenses pursuant to the terms of
an undertaking, the corporation shall be entitled to recover such expenses upon
a final adjudication that the Indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither the
failure of the corporation (including its board of directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the Indemnitee is proper in
the circumstances because the Indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the corporation (including its board of directors, independent
legal counsel, or its stockholders) that the Indemnitee has not met such
applicable standard of conduct, shall create a presumption that the Indemnitee
has not met the applicable standard of conduct or, in the case of such a suit
brought by the Indemnitee, be a defense to such suit. In any suit brought by the
Indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or brought by the corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of proving that the
Indemnitee is not entitled to be indemnified, or to such advancement of expenses
under this Section or otherwise shall be on the corporation.
The rights to indemnification and advancement of expenses
conferred in this Section shall not be exclusive of any other rights which any
person may have or hereafter acquire under any statute, the corporation's
certificate of incorporation, as it may be amended or restated from
time-to-time, any agreement, vote of stockholders or disinterested directors, or
otherwise.
The corporation shall have the power to purchase and maintain
insurance, at its expense, to protect itself and any director, officer, employee
or agent of the corporation or another corporation, partnership, joint venture,
trust or other enterprise (including an employee benefit plan) against any
expense, liability or loss, whether or not the corporation would have the power
to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
For purposes of this Section , references to the "corporation"
shall include any subsidiary of this corporation from and after the acquisition
thereof by this corporation, so that any person who is a director, officer,
employee or agent of such subsidiary after the acquisition thereof by this
corporation shall stand in the same position under the provisions of this
Section as such person would have had such person served in such position for
this corporation.
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<PAGE> 12
The corporation may, to the extent authorized from time-to-time by
the board of directors, grant rights to indemnification and to the advancement
of expenses to any employee or agent of the corporation to the fullest extent of
the provisions of this Section with respect to the indemnification and
advancement of expenses of directors and officers of the corporation.
Any repeal or modification of this Section 7 shall not adversely
affect any right or protection of a director, officer, or agent of the
corporation existing at the time of such repeal or modification.
ARTICLE VIII.
AMENDMENTS
Section 1. These by-laws may be altered, amended or repealed or
new by-laws may be adopted by the stockholders or by the board of directors,
when such power is conferred upon the board of directors by the certificate of
incorporation at any regular meeting of the stockholders or of the board of
directors or at any special meeting of the stockholders or of the board of
directors if notice of such alteration, amendment, repeal or adoption of new
by-laws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal by-laws is conferred upon the board of directors by the
certificate of incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal by-laws.
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<PAGE> 1
EXHIBIT 4.2
NUMBER SHARES
INCORPORATED UNDER THE LAWS OF THE
STATE OF DELAWARE
CRAGAR INDUSTRIES, INC.
This Certifies that _________________ is the owner of _____________________
_________________________ Shares of the Capital Stock of CRAGAR INDUSTRIES,
INC., fully paid and nonassessable transferable only on the books of the
Corporation by the holder hereof in person or by Attorney upon surrender of
this Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this ____ day of _________ A.D. 19__
_____________________________________ _____________________________________
President Secretary
SHARES $.01 EACH
<PAGE> 2
CERTIFICATE
FOR
______________
SHARES
OF THE
CAPITAL STOCK
CRAGAR INDUSTRIES, INC.
ISSUED TO
______________
DATE
______________
For Value Received, _________________ hereby sell, assign and transfer
unto _________________________________________________________________________
_______________________________________________________________________ Shares
of the Capital Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ___________________________________________
_____________________________________________________________________ Attorney
to transfer the said Stock on the books of the within named Company with full
power of substitution in the premises.
Dated _________________________________ 19______
In presence of
______________________________________ ______________________________________
NOTICE.
THE SIGNATURE OF THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE> 1
EXHIBIT 4.3
WARRANT AGREEMENT
AGREEMENT, dated as of the _______ day of
____________________, 199__, by and between CRAGAR INDUSTRIES, a Delaware
corporation (the "Company"), and ________________________________________, as
Warrant Agent (the "Warrant Agent").
WITNESSETH
WHEREAS, the Company is offering for sale (the "Offering") up
to 1,000,000 shares of Common Stock, $0.01 par value ("Common Stock"), and up to
1,000,000 Warrants to Purchase Common Stock (the "Warrants"). The Common Stock
and the Warrants offered (hereinafter collectively referred to as the "Units")
may only be purchased pursuant to the Offering together, as one share of Common
Stock and one Warrant, at a price of $6.00 per Unit. The Units will be offered
on a "best-efforts, all or none" basis with respect to the first 666,667 Units
(the "Minimum Offering") and on a "best efforts" basis as to the remaining
333,333 Units, and collected or collectible subscriptions for the Minimum
Offering must be received prior to the expiration of one hundred twenty (120)
days from the commencement of the Offering unless extended by the Company one or
more times for up to a total additional one hundred twenty (120) days (the
"Minimum Offering Period");
WHEREAS, subject to the sale of the Minimum Offering within
the Minimum Offering Period, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing to act in connection
with the issuance, registration, transfer, and exchange of the Warrants, the
issuance of certificates representing the Warrants ("Warrant Certificates"), the
exercise of the Warrants, and the rights of the holders thereof;
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter set forth and for the purpose of defining the
terms and provisions of the Warrants and the Warrant Certificates and the
respective rights and obligations thereunder of the Company, the holders of
Warrant Certificates and the Warrant Agent, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. As used herein, the following terms shall have
the following meanings, unless the context shall otherwise require:
(a) "Corporate Office" shall mean the office of the Warrant
Agent (or its successor) at which at any particular time its principal
business shall be administered, which office is located at the date
hereof at ______________________.
(b) "Exercise Date" shall mean, as to any Warrant, the date on
which the Warrant Agent shall have received at the Corporate Office
both (a) the Warrant Certificate representing such Warrant, with the
exercise form thereon duly executed by the Registered Holder thereof or
his attorney duly authorized in writing, and (b) payment in cash, or by
official bank or certified check made payable to the Company, of an
amount in lawful money of the United States of America equal to the
applicable Stock Purchase Price.
<PAGE> 2
(c) "Market Value" shall mean, on any date specified herein,
the price obtained by taking the average, on each such trading day, of
(A) the high and low sale price of a share of Common Stock or if no
such sale takes place on any such trading day, the average of the
closing bid and asked prices thereof on any such trading day, in each
case as officially reported on all national securities exchanges on
which the Common Stock is then listed or admitted to trading, or (B) if
the Common Stock is not then listed or admitted to trading on any
national securities exchange, the closing price of the Common Stock on
such date or if no closing price is available on any such trading date,
the average of the closing bid and asked prices thereof on any such
trading date in the over-the-counter market as reported to NASDAQ, or,
if the Common Stock is not then quoted in such system, the average of
the highest and lowest bid and asked prices reported by the market
makers and dealers for the Common Stock listed as such by the National
Quotation Bureau, Incorporated or any similar successor organization.
(d) "Registered Holder" shall have the meaning given in
Section 2(e) hereof.
(e) "Stock Purchase Price" shall mean the purchase price to be
paid upon exercise of the Warrants in accordance with the terms hereof,
which price shall be $7.20 per share of Common Stock, subject to
modification and adjustment from time to time pursuant to the
provisions of Section 8 hereof.
(f) "Transfer Agent" shall mean the entity designated as the
Company's transfer agent from time to time in accordance with Section
5(d) hereof.
(g) "Warrant Expiration Date" shall mean 5:00 P.M. ( time)
on ___________ ,________ .
(h) "Warrant Register" shall have the meaning given in Section
2(d) hereof.
SECTION 2. WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES:
REGISTRATION.
(a) A Warrant shall initially entitle the Registered Holder of
the Warrant Certificate representing such Warrant to purchase one share
of Common Stock upon the exercise thereof and payment of the Stock
Purchase Price (subject to modification as herein provided), in
accordance with the terms hereof.
(b) From time to time up to the Warrant Expiration Date, the
Transfer Agent shall deliver stock certificates in required whole
number denominations representing up to an aggregate of 1,000,000
shares of Common Stock, subject to adjustment as described herein, upon
the exercise of the Warrants in accordance with this Agreement.
(c) From time to time up to the Warrant Expiration Date, the
Warrant Agent shall deliver Warrant Certificates in required whole
number denominations to the persons entitled thereto in connection with
any transfer or exchange permitted under this Agreement; provided that
no Warrant Certificates shall be issued except (i) those issued upon
the exercise
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<PAGE> 3
of fewer than all the Warrants represented by a Warrant Certificate, to
evidence any unexercised Warrants held by the exercising Registered
Holder; (ii) those issued upon any transfer or exchange pursuant to
Section 6; (iii) those issued in replacement of lost, stolen,
destroyed, or mutilated Warrant Certificates pursuant to Section 7; and
(iv) at the option of the Company, in such form as may be approved by
its Board of Directors, to reflect any adjustment or change in the
Stock Purchase Price or the number of shares of Common Stock
purchasable upon exercise of the Warrants made pursuant to Section 8.
(d) The Warrant Agent shall maintain books (the "Warrant
Register") for the registration of original issuance and the
registration of transfer of the Warrants. Upon the initial issuance of
the Warrants, the Warrant Agent shall issue and register the Warrants
in the names of the respective holders thereof in such denominations
and otherwise in accordance with instructions delivered to the Warrant
Agent by the Company.
(e) Prior to due presentment for registration of transfer of
any Warrant Certificate, the Company and the Warrant Agent may deem and
treat the person in whose name such Warrant Certificate shall be
registered upon the Warrant Register (the "Registered Holder"), as the
absolute owner of such Warrant Certificate and of each Warrant
represented thereby (notwithstanding any contrary notation of ownership
or other writing on the Warrant Certificate), for the purpose of any
exercise thereof, and for all other purposes, and neither the Company
nor the Warrant Agent shall be affected by any notice to the contrary.
(f) The Warrant Agent understands that the Warrants are being
issued as part of Units together with shares of the Company's Common
Stock and that the shares of Common Stock and the Warrants are
immediately detachable and may be traded separately.
SECTION 3. FORM AND EXECUTION OF WARRANT CERTIFICATE.
(a) Warrant Certificates shall be substantially in the form
annexed hereto as Exhibit A (provisions of which Exhibit are hereby
incorporated herein) and may have such letters, numbers, or other marks
of identification or designation and such legends, summaries or
endorsements printed, lithographed, or engraved thereon as the Company
may deem appropriate and as are not inconsistent with the provisions of
this Agreement, or as may be required to comply with any law or with
any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange or other market (including the NASDAQ)
on which the Warrants may be listed, or to conform to usage. The
Warrant Certificates shall be dated the date of issuance thereof
(whether upon initial issuance, transfer, or exchange or in lieu of
mutilated, lost, stolen, or destroyed Warrant Certificates) and issued
in registered form. Warrants shall be numbered serially with the letter
W on the Warrants of all denominations.
(b) Warrant Certificates shall be executed on behalf of the
Company by its President and by its Secretary by manual signatures or
by facsimile signatures printed thereon, and shall have imprinted
thereon a facsimile of the Company's seal. In case any officer of the
Company who shall have signed any of the Warrant Certificates shall
cease to be such officer of the Company before the date of issuance of
the Warrant Certificates and
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<PAGE> 4
before issue and delivery thereof, such Warrant Certificates may
nevertheless be issued and delivered by the Warrant Agent to the
Registered Holder without further action by the Company, except as
otherwise provided by Section 4 hereof. No Warrant may be exercised
until countersigned by the Warrant Agent as provided for in Section
3(c) hereof.
(c) The Warrant Agent shall countersign a Warrant only upon
the occurrence of either of the following events:
(i) if the Warrant is to be issued in exchange or
substitution for one or more previously countersigned
Warrants, as hereinafter provided, or
(ii) if the Company instructs the Warrant Agent to do
so.
SECTION 4. EXERCISE. Each Warrant, when countersigned by the Warrant
Agent, may be exercised by the Registered Holder thereof at the Corporate Office
at any time up to and including the Warrant Expiration Date, upon the payment of
the Stock Purchase Price (subject to adjustment as herein provided) and upon the
other terms and subject to the conditions set forth herein and in the applicable
Warrant Certificate. A Warrant shall be deemed to have been exercised
immediately prior to the close of business on the Exercise Date and the person
entitled to receive the securities deliverable upon such exercise shall be
treated for all purposes as the holder of such securities upon exercise thereof
as of the close of business on the Exercise Date. As soon as practicable on or
after the Exercise Date, the Warrant Agent shall deposit the proceeds received
from the exercise of a Warrant and shall notify the Company in writing of such
exercise. Promptly following, and in any event within five business days after
the date of such notice from the Warrant Agent, the Warrant Agent, on behalf of
the Company, shall cause to be issued and delivered by the Transfer Agent to the
person or persons entitled to receive the same a certificate or certificates for
the securities deliverable upon such exercise (plus a Warrant Certificate for
any remaining unexercised Warrants of the Registered Holder), unless prior to
the date of issuance of such certificates the Company shall instruct the Warrant
Agent to refrain from causing such issuance of certificates pending clearance of
checks received in payment of the Stock Purchase Price pursuant to such
Warrants. Upon the exercise of any Warrant and clearance of the funds received,
the Warrant Agent shall promptly remit the payment received for the issuance of
Common Stock issued upon exercise of the Warrant to the Company or as the
Company may direct in writing. A Warrant may only be exercised in whole number
denominations.
SECTION 5. RESERVATION OF SHARES; LISTING: PAYMENT OF TAXES;
ETC.
(a) The Company covenants that it will at all times reserve
and keep available out of its authorized Common Stock, solely for the
purpose of issue upon exercise of the Warrants, such number of shares
of Common Stock as shall then be issuable upon the exercise of all
outstanding Warrants. The Company covenants that all shares of Common
Stock which shall be issuable upon exercise of the Warrants shall, at
the time of delivery, be duly and validly issued, fully paid,
nonassessable and free from all taxes, liens, and charges with respect
to the issue thereof (other than those which the Company shall promptly
pay or discharge), and that upon issuance such shares shall be listed
on each national securities
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<PAGE> 5
exchange, if any, or on the NASDAQ, on which the other outstanding
shares of Common Stock of the Company are then listed.
(b) The Company has filed with the Securities and Exchange
Commission a Registration Statement No. _____ (the "Registration
Statement") on Form SB-2 for the registration, under the Securities Act
of 1933, as amended (the "Securities Act"), of, among other securities,
the Warrants and the Common Stock issuable upon exercise of the
Warrants. The Company agrees that, if necessary, it shall file with the
Securities and Exchange Commission a post-effective amendment to the
Registration Statement, or a new registration statement, for the
registration, under the Securities Act of the Common Stock issuable
upon exercise of the Warrants. In either case, the Company will use its
best efforts to cause the same to become effective and to maintain the
effectiveness of such registration statement until the expiration of
the Warrants in accordance with the provisions of this Agreement.
(c) The Company shall pay all documentary, stamp, or similar
taxes and other governmental charges that may be imposed with respect
to the issuance of the Warrants, or the issuance or delivery of any
shares of Common Stock upon exercise of the Warrants; provided,
however, that if the shares of Common Stock are to be delivered in a
name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no delivery
shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto,
if any. The Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and
delivery of any Warrant Certificate in a name other than that of the
then Registered Holder of the Warrant being exercised.
(d) The Warrant Agent is hereby irrevocably authorized to
requisition the Company's Transfer Agent from time to time for
certificates representing shares of Common Stock required upon exercise
of the Warrants, and the Company will authorize the Transfer Agent to
comply with all proper requisitions. The Company will file with the
Warrant Agent from time to time a statement setting forth the name and
address of the Transfer Agent of the Company for shares of Common Stock
issuable upon the exercise of the Warrants.
SECTION 6. EXCHANGE AND REGISTRATION OF TRANSFER.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the
same class or may be transferred in whole or in part. Warrant
Certificates to be exchanged shall be surrendered to the Warrant Agent
at its Corporate Office, and upon satisfaction of the terms and
provision hereof, the Company shall execute and the Warrant Agent shall
countersign, issue, and deliver in exchange therefor the Warrant
Certificates which the Registered Holder making the exchange shall be
entitled to receive.
(b) Upon due presentment for registration of transfer of any
Warrant Certificate at such office, the Company shall execute and the
Warrant Agent shall countersign and
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<PAGE> 6
deliver to the transferee or transferees a new Warrant Certificate or
Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration of transfer, the Form of Assignment attached thereto shall
be duly endorsed, or be accompanied by a written instrument or
instruments of transfer, in form satisfactory to the Company and the
Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for
any exchange or registration of transfer of Warrant Certificates. In
addition, the Company may require payment by the Registered Holder of a
sum sufficient to cover any tax or other governmental charge that may
be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly
canceled by the Warrant Agent and thereafter retained by the Warrant
Agent until termination of this Agreement or may be disposed of or
destroyed at the direction of the Company. The Warrant Agent will
record all such exercises or exchanges on the Warrant Register.
(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the
Registered Holder of any Warrant Certificate as the absolute owner
thereof and of each Warrant represented thereby (notwithstanding any
contrary notations of ownership or other writing thereon) for all
purposes and shall not be affected by any notice to the contrary.
SECTION 7. LOSS OR MUTILATION. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and loss,
theft, destruction, or mutilation of any Warrant Certificate and (in case of
loss, theft, or destruction) of indemnity satisfactory to them, and (in case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall (in the absence of notice to the Company and/or the
Warrant Agent that the Warrant Certificate has been acquired by a bona fide
purchaser) countersign and deliver to the Registered Holder in lieu thereof a
new Warrant Certificate of like tenor representing an equal aggregate number of
the Warrants. Applicants for substitute Warrant Certificates shall comply with
such other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
SECTION 8. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF COMMON STOCK OR
WARRANTS. The Stock Purchase Price and the number of shares purchasable upon the
exercise of the Warrants shall be subject to adjustment from time to time upon
the occurrence of certain events described in this Section 8.
8.1 SUBDIVISION OR COMBINATION OF COMMON STOCK. In case the
Company shall at any time (a) subdivide its outstanding shares of Common Stock
into a greater number of shares, (b) combine its outstanding Common Stock into a
smaller number of shares, or (c) issue any securities in reclassification of its
outstanding Common Stock (except as provided in
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<PAGE> 7
Section 8.5 hereof), then and in each such event, the Stock Purchase Price in
effect immediately prior to such action by the Company shall be adjusted by
multiplying it by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such subdivision,
combination, or reclassification and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after such subdivision,
combination, or reclassification, and the number of shares of Common Stock
issuable upon exercise of the Warrants shall be increased or decreased
proportionately.
8.2 STOCK DIVIDED. In case the Company shall at any time
declare a dividend upon its Common Stock payable solely in shares of Common
Stock, the Stock Purchase Price in effect immediately prior to such dividend
shall be proportionately reduced and the number of shares of Common Stock
issuable upon exercise of the Warrants shall be proportionately increased.
8.3 NOTICE OF ADJUSTMENT. Upon any adjustment of the Stock
Purchase Price or any increase or decrease in the number of shares purchasable
upon the exercise of the Warrants, the Company shall give written notice
thereof, by first class mail, postage prepaid, addressed to the Warrant Agent
and to each Registered Holder of the Warrants at the address of such holder as
shown on the Warrant Register. The notice shall be signed by the Company's
principal financial or accounting officer and shall state the Stock Purchase
Price resulting from such adjustment and the increase or decrease, if any, in
the number of shares purchasable at such price upon the exercise of the
Warrants, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
8.4 OTHER NOTICES. If at any time:
(a) the Company shall declare any cash dividend upon
its Common Stock;
(b) the Company shall declare any dividend upon its
Common Stock payable in stock (other than a dividend payable solely in
shares of Common Stock) or make any special dividend or other
distribution to the holders of its Common Stock;
(c) there shall be any consolidation or merger of the
Company with another corporation, or a sale of all or substantially all
of the Company's assets to another corporation; or
(d) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company; then, in any one
or more of said cases, the Company shall give, by certified or
registered mail, postage prepaid, addressed to the Registered Holder of
each Warrant at the address of such Registered Holder as shown on the
Warrant Register, at least 30 days' prior written notice on the date on
which the books of the Company shall close or a record shall be taken
for such dividend or for determining rights to vote in respect of any
such consolidation, merger, sale, dissolution, liquidation, or winding
up or, if no such vote is required, of the date of such consolidation,
merger, sale, dissolution, liquidation, or winding-up. Any such notice
shall also specify, in the case of any such dividend or distribution,
the date on which the holders of Common Stock shall be entitled thereto
and, in the case of any such consolidation, merger, sale, dissolution,
liquidation, or winding-up,
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<PAGE> 8
the date on which the holders of Common Stock shall be entitled to
exchange their Common Stock for securities or other property
deliverable upon such consolidation, merger, sale, dissolution,
liquidation, or winding-up, as the case may be. In the event that the
Registered Holder of a Warrant does not exercise the Warrant prior to
the occurrence of an event described above, except as provided in
Section 8.5 below, the Registered Holder shall not be entitled to
receive the benefits accruing to existing holders of the Common Stock
in such event, and, upon the occurrence of an event described in
subsection (d) hereof, the Warrant shall terminate.
8.5 CHANGES IN COMMON STOCK. In case at any time the Company
shall be party to any transaction (including, without limitation, a merger,
consolidation, sale of all or substantially all of the Company's assets or
recapitalization of the Common Stock) in which the previously outstanding Common
Stock shall be changed into or exchanged for different securities of the Company
or common stock or other securities of another corporation or interests in a
non-corporate entity or other property (including cash) or any combination of
any of the foregoing (each such transaction being herein called a "Transaction"
and the effective date of the Transaction being herein called the "Consummation
Date"), the Company shall make, as a condition of the consummation of the
Transaction, lawful and adequate provisions so that each Registered Holder, upon
the exercise of its Warrants at any time on or after the Consummation Date,
shall be entitled to receive, and the Warrant shall thereafter represent the
right to receive, in lieu of the Common Stock issuable upon such exercise prior
to the Consummation Date, the highest amount of securities or other property to
which such holder would actually have been entitled as a stockholder upon the
consummation of the Transaction if such Register Holder had exercised its
Warrants immediately prior thereto (subject to adjustments from and after the
Consummation Date as nearly equivalent as possible to the adjustments provided
for in this paragraph 8). The provisions of this Section 8.5 shall similarly
apply to successive Transactions.
SECTION 9. FRACTIONAL WARRANTS AND FRACTIONAL SHARES. No
fractional shares shall be issued upon the exercise of the Warrants. The Company
shall, in lieu of issuing any fractional shares, pay the holder entitled to such
fraction a sum equal to such fraction multiplied by the Market Value. No
fractional Warrants shall be issued.
SECTION 10. WARRANT HOLDERS NOT DEEMED STOCKHOLDERS. No holder of a
Warrant shall, as such, be entitled to vote or to consent or to receive notice
as a stockholder in respect of meetings of stockholders for the election of
directors of the Company or any other matters or any rights whatsoever as a
stockholder of the Company. Except for any required adjustment to the Stock
Purchase Price pursuant to Section 8 hereof, no dividends or interest shall be
payable or accrued in respect of a Warrant or the interest represented thereby
or the shares purchasable thereunder until, and only to the extent that, the
Warrant shall have been exercised. No provisions hereof, in the absence of
affirmative action by the holder to purchase shares of Common Stock, and no mere
enumeration herein of the rights or privileges of the Registered Holder of the
Warrant, shall give rise to any liability of such Registered Holder for the
Stock Purchase Price or as a stockholder of the Company whether such liability
is asserted by the Company or by its creditors.
8
<PAGE> 9
SECTION 11. RIGHTS OF ACTION. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Warrants, and
any Registered Holder of a Warrant, without consent of the Warrant Agent or of
the holder of any other Warrant, may, in his own behalf and for his own benefit,
enforce against the Company his right to exercise his Warrants for the purchase
of Common Stock in the manner provided in the Warrant Certificate and this
Agreement.
SECTION 12. AGREEMENT OF WARRANT HOLDERS. Every holder of a
Warrant, by his acceptance thereof, consents and agrees with the Company, the
Warrant Agent, and every other holder of a Warrant that:
(a) The Warrants are transferable only on the Warrant Register
by the Registered Holder thereof in person or by his attorney duly
authorized in writing and only if the Warrant Certificates representing
such Warrants are surrendered at the office of the Warrant Agent, duly
endorsed or accompanied by a proper instrument of transfer satisfactory
to the Warrant Agent and the Company in their sole discretion, together
with payment of any applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the
person in whose name the Warrant Certificate is registered as the
holder and as the absolute, true and lawful owner of the Warrants
represented thereby for all purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice or knowledge to the
contrary, except as otherwise expressly provided in Section 7 hereof.
SECTION 13. CANCELLATION. If the Company shall purchase or acquire any
Warrants, the Warrant Certificate(s) evidencing the same shall thereupon be
delivered to the Warrant Agent and canceled by it and retired. The Warrant Agent
shall also cancel the Warrant Certificate(s) following exercise of any or all of
the Warrants represented thereby or delivered to it for transfer, split-up,
combination, or exchange.
SECTION 14. CONCERNING THE WARRANT AGENT. The Warrant Agent acts
hereunder as agent and in a ministerial capacity for the Company, and its duties
shall be determined solely by the provisions hereof. The Warrant Agent shall
not, by issuing and delivering Warrant Certificates or by any other act
hereunder be deemed to make any representations as to the validity, value, or
authorization of the Warrant Certificates or the Warrants represented thereby or
of any securities or other property delivered upon exercise of any Warrant or
whether any stock issued upon exercise of any Warrant is fully paid and
nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Stock Purchase Price provided in this Agreement, or to
determine whether any fact exists which may require any such adjustment, or with
respect to the nature or extent of any such adjustment, when made, or with
respect to the method employed in making the same. It shall not (i) be liable
for any recital or statement of facts contained herein or for any action taken,
suffered, or omitted by it in reliance on any Warrant Certificate or other
document or instrument believed by it in good faith to be genuine and to have
been signed or presented by the proper party or parties, (ii) be responsible for
any failure
9
<PAGE> 10
on the part of the Company to comply with any of its covenants and obligations
contained in this Agreement or in any Warrant Certificate, or (iii) be liable
for any act or omission in connection with this Agreement except for its own
negligence or wilful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to
it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered, or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order, or
demand of the Company shall be sufficiently evidenced by an instrument signed by
any of its President, any Vice- President, Treasurer or its Secretary (unless
other evidence in respect thereof is herein specifically prescribed). The
Warrant Agent shall not be liable for any action taken, suffered, or omitted by
it in accordance with such notice, statement, instruction, request, direction,
order, or demand reasonably believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable compensation for
its services hereunder and to reimburse it for its reasonable expenses
hereunder; it further agrees to indemnify the Warrant Agent and save it harmless
against any and all losses, expenses, and liabilities, including judgments, and
reasonable costs and counsel fees for anything done or omitted by the Warrant
Agent in the execution of its duties and powers hereunder except losses,
expenses, and liabilities arising as a result of the Warrant Agent's negligence
or wilful misconduct.
The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own negligence or wilful misconduct), after 30 days'
prior written notice to the Company. At least 15 days prior to the date such
resignation is to become effective, the Warrant Agent shall cause a copy of such
notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any inability of
the Warrant Agent to act as such hereunder, the Company shall appoint a new
warrant agent in writing. If the Company shall fail to make such appointment
within a period of 15 days after it has been notified in writing of such
resignation by the resigning Warrant Agent, the Registered Holders of any
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company. After acceptance in
writing of such appointment by the new warrant agent is received by the Company,
such new warrant agent shall be vested with the same powers, rights, duties, and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act, or deed; but if for any reason
it shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act, or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment the Company
shall file notice thereof with the resigning Warrant Agent and shall forthwith
cause a copy of such notice to be mailed to the Registered Holder of each
Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant agent
may be converted or merged or any corporation resulting from any consolidation
to which the Warrant Agent or any
10
<PAGE> 11
new warrant agent shall be a party or any corporation succeeding to the trust
business of the Warrant Agent shall be a successor warrant agent under this
Agreement without any further act; provided that such corporation is eligible
for appointment as successor to the Warrant Agent under the provisions of the
preceding paragraph. Any such successor warrant agent shall promptly cause
notice of its succession as warrant agent to be mailed to the Company and to the
Registered Holder of each Warrant Certificate at the Company's expense.
The Warrant Agent, its subsidiaries and affiliates, and any of its or
their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not the Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
SECTION 15. MODIFICATION OF AGREEMENT. The Warrant Agent and the
Company may by supplemental agreement make any changes or corrections in this
Agreement: (i) that they shall deem appropriate to cure any ambiguity or to
correct any defective or inconsistent provision or manifest mistake or error
herein contained; or (ii) that they may deem necessary or desirable and which
shall not adversely affect the interests of the holders of Warrant Certificates;
provided, however, that, except as provided in subclause (i) or (ii) above, this
Agreement shall not otherwise be modified, supplemented, or altered in any
respect except with the consent in writing of the Registered Holders of Warrant
Certificates representing not less than 50% of the Warrants then outstanding;
and provided, further, that no change in the number or nature of the securities
purchasable upon the exercise of any Warrant, of the Stock Purchase Price
therefor, or the acceleration of the Warrant Expiration Date shall be made
without the consent in writing of the Register Holder of the Warrant Certificate
representing such Warrant, other than such changes as are specifically
prescribed by this Agreement as originally executed or are made in compliance
with applicable law.
SECTION 16. NOTICES. All notices, requests, consents, and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first class registered or certified mail, postage
prepaid as follows: if to the Registered Holder of a Warrant Certificate, at the
address of such Registered Holder as shown in the Warrant Register maintained by
the Warrant Agent; if to the Company, at 4636 N. 43rd Avenue, Phoenix, Arizona
85031, Attention: President, or at such other address as may have been furnished
to the Warrant Agent in writing by the Company; and if to the Warrant Agent, at
its Corporate Office.
SECTION 17. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Arizona, without reference
to principles of conflict of laws.
SECTION 18. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the Company and the Warrant Agent and their respective
successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
convey upon any other person any right, remedy, or claim, in equity or at law,
or to impose upon any other person any duty, liability, or obligation.
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<PAGE> 12
SECTION 19. TERMINATION. This Agreement shall terminate at the close of
business on the Warrant Expiration Date, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 14
hereof shall survive such termination.
SECTION 20. COUNTERPARTS. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
CRAGAR INDUSTRIES, INC.
By:______________________
_________________________
By:______________________
12
<PAGE> 13
EXHIBIT A
CRAGAR INDUSTRIES, INC.
______________________ WARRANTS
THIS CERTIFIES THAT, for value received, ____________________________,
or registered assigns, is the owner of the number of Warrants set forth above,
each of which entitles the owner thereof to purchase at any time on or before
_________________________ one fully paid and nonassessable share of the Common
Stock, $0.01 par value (the "Common Stock") of Cragar Industries, Inc., a
Delaware corporation (the "Company"), at the purchase price of $7.20 per share
(the "Exercise Price") upon presentation and surrender of this Warrant
Certificate with the attached Form of Election to Purchase duly executed. As
provided in the Warrant Agreement referred to below, the Exercise Price and the
number or kind of shares which may be purchased upon the exercise of the
Warrants evidenced by this Warrant Certificate are, upon the happening of
certain events, subject to adjustment.
This Warrant Certificate is subject to, and entitled to the benefits
of, all of the terms, provisions and conditions of an agreement dated as of
______________________, 199___ (the "Warrant Agreement") between the Company and
ChaseMellon Shareholder Services, L.L.C., as Warrant Agent, which Warrant
Agreement is hereby incorporated herein by reference and made a part hereof and
to which Warrant Agreement reference is hereby made for a full description of
the rights, limitations, obligations, duties and immunities hereunder of the
Company, the Warrant Agent, and the holders of the Warrant Certificates. Copies
of the Warrant Agreement are on file at the principal office of the Company.
This Warrant Certificate, with or without other Warrant Certificates,
upon surrender at the principal office of the Company, may be exchanged for
another Warrant Certificate or Warrant Certificates of like tenor and date
evidencing warrants entitling the holder to purchase a like aggregate number of
shares of Common Stock as the Warrants evidenced by the Warrant Certificate or
Warrant Certificates surrendered entitled such holder to purchase. If this
Warrant Certificate shall be exercised in part, the holder hereof shall be
entitled to receive, upon surrender hereof, another Warrant Certificate or
Warrant Certificates for the number of whole Warrants not exercised.
Fractional shares of Common Stock will not be issued upon the exercise
of any Warrant or Warrants evidenced hereby, and in lieu thereof a cash payment
will be made by the Company, as provided in the Warrant Agreement.
No holder of this Warrant Certificate shall be entitled to vote or
receive dividends or be deemed the holder of Common Stock or any other
securities of the Company which may at any time be issuable on the exercise
hereof for any purpose, nor shall anything contained in the Warrant Agreement or
herein be construed to confer upon the holder hereof, as such, any of the rights
of a shareholder of the Company or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issue of stock, reclassification of stock, change of par value
or change of stock to no par value, consolidation, merger, sale of assets, or
otherwise) or, except as provided in the Warrant Agreement, to receive notice of
meetings, or to receive dividends or subscription rights or otherwise, until the
Warrant or Warrants evidenced by this Warrant
<PAGE> 14
Certificate shall have been exercised and the Common Stock purchasable upon the
exercise thereof shall have become deliverable as provided in the Warrant
Agreement.
If this Warrant shall be surrendered for exercise within any period
during which the transfer books for the Common Stock or other class of stock
purchasable upon the exercise of this Warrant are closed for any purpose, the
Company shall not be required to make delivery of certificates for shares
purchasable upon such exercise until the date of the reopening of such transfer
books.
IN WITNESS WHEREOF, Cragar Industries, Inc. has caused the signature of
its President and Secretary to be printed hereon.
Cragar Industries, Inc.
Attest:
_____________________________ By:_____________________________
Secretary President
The Warrant shall not be valid unless countersigned by the Warrant
Agent below.
ChaseMellon Shareholder
Services, Inc.,
as Warrant Agent
By:_____________________________
Authorized Officer
<PAGE> 15
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Warrants represented by the Warrant Certificate.)
TO Cragar Industries, Inc.
The undersigned hereby irrevocably elects to exercise
( ) Warrants represented by this Warrant Certificate to purchase the shares
of Common Stock issuable upon the exercise of such Warrants and requests that
certificates for such shares be issued in the name of:
(Please print name and address)
Please insert social security or other identifying number:
If such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, a new Warrant Certificate for the balance remaining of such
Warrants shall be registered in the name of and delivered to:
(Please print name and address)
Please insert social security or other identifying number:
Dated: ____________________________, 19___
Signature:
(Signature must conform in all respects to name of
holder as specified on the face of this Warrant
Certificate)
<PAGE> 16
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires a
transfer of Warrants represented by the Warrant Certificates.)
FOR VALUE RECEIVED _______________________________ hereby sells, assigns and
transfers unto ____________________________ this Warrant Certificate, together
with all right, title and interest therein, and does hereby irrevocably
constitute and appoint _______________________, as attorney-in-fact to transfer
the within Warrant Certificates on the books of the within-name Company, with
full power of substitution.
Dated: ________________________________, 19____
By:________________________________
NOTICE
The signature on the foregoing Assignment must correspond to the name as written
upon the face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever.
<PAGE> 1
EXHIBIT 4.7
____________, 1993 $__________
CRAGAR INDUSTRIES, INC.
1993 TWO-YEAR 6% CONVERTIBLE SUBORDINATED SECURED NOTE
CRAGAR INDUSTRIES, INC., a Delaware corporation, hereinafter called the
Company, for value received, hereby promises to pay to the order of
_________________ or registered assigns, at the then principal office of the
Company in the State of Arizona, the principal sum of _________ Dollars ($____)
lawful money of the United States on ____, 1995 and to pay interest on the
unpaid balance of such principal sum, at the rate of 6% per annum from _______,
1993, at such office, in like manner, on September 30 of each year, commencing,
1994 until payment of such principal sum has been made.
This Note is one of a duly authorized issue of One Million Five Hundred
Thousand Dollars ($1,500,000) aggregate principal amount of Notes of the
Company, hereinafter called the Notes.
1. SECURITY AND SUBORDINATION. In order to secure the principal of, and
interest on this Note, the Company and the undersigned have executed a Security
Agreement pursuant to which the Company has granted to all of the holders of the
Notes a security interest in and to the equipment, inventory, accounts
receivable and all other personal property of the Company, tangible and
intangible, wherever located and proceeds thereof (the "Collateral"), subject
and subordinate to the existing security interests of Foothill Capital
Corporation ("Foothill"), or, with the consent of the holder hereof, which
consent shall not unreasonable be withheld, to the security interests of any
other institutional creditor of the Company now or hereafter having a security
interest in any of the foregoing (hereinafter collectively referred to as the
"Senior Creditors").
2. REDEMPTION. The Note may be redeemed at the option of the Company,
the notice referred to below, for the principal amount of the Note, together
with interest accrued on the principal amount redeemed to the date fixed for
redemption, provided however, that no Note shall be redeemed hereunder in full
if less than all of the Notes are to be redeemed for their full principal
amounts and further provided that no redemption of any portion of the principal
amount of this Note shall be made if, immediately after such redemption and by
reason of such redemption, the credit then available to the Company from the
Senior Creditors would be less than $500,000.
3. NOTICE OF REDEMPTION, ETC. Notice of redemption shall be mailed to
the holders of the Note not less than 14 days prior to the date fixed for
redemption, to their last addresses as they shall appear upon the records of the
Company.
4. CONVERSION. Each holder of the Notes shall have the right, at its
option, to convert the Note into shares of Common Stock of the Company on the
following terms and conditions:
a. Each Note shall be convertible at any time (or, if
the Note is called for redemption, at any time up to
and including, but not after, the close of business
on the fifth full business day prior to the date
fixed for such redemption, unless default shall be
made by the Company in providing moneys for the
payment of the redemption price), into fully paid and
non- assessable shares (calculated to the nearest
1/100th of a share, fractions of less than 1/100th of
a share being disregarded) of Common Stock of the
Company as constituted at the time of such
conversion, at the conversion price in effect at the
time of conversion determined as hereinafter
provided.
<PAGE> 2
Every reference in this paragraph 4 to the Common
Stock of the Company (unless a different intention is
expressed) shall be to the shares of the Common Stock
of the Company of no par value as such stock exists
immediately after the issuance of the Notes provided
for hereunder, or to stock into which said Common
Stock may be changed from time to time thereafter.
The conversion of this Note for shares of the Common
Stock shall be for that number of shares of Common
Stock equal to one percent (1%) of the total issued
and outstanding shares of Common Stock after
conversion of all the Notes, for each $100,000 of
principal amount of this Note.
b. If at any time, or from time to time, the Company
shall (i) declare and pay, on or in respect of,
shares of Common Stock any dividend payable in shares
of Common Stock or (ii) subdivide the outstanding
shares of Common Stock into a greater number of
shares, of the conversion price in effect at the time
of the taking of a record for such dividend or the
taking of such other action shall be proportionately
decreased as of such time, and conversely (iii) if at
any time, or from time to time, the Company shall
contract the number of outstanding shares of Common
Stock by combining such shares into a smaller number
of shares, the conversion price in effect at the time
of the taking of any such action shall be
proportionately increased as of such time.
c. If the Company shall consolidate with or merge into
any corporation or reclassify its outstanding shares
of Common Stock (other than by way of subdivision or
contraction of such shares), each of the Notes shall
thereafter be convertible into the number of shares
of stock or other securities or property of the
Company, or of the entity resulting from such
consolidation or merger, to which a holder of the
number of shares of Common Stock deliverable upon
conversion of such Note would have been entitled upon
such consolidation or merger or reclassification, had
the holder of such Note exercised his right of
conversion and had such shares been issued and
outstanding and had such holder been the holder of
record of such Common Stock at the time of such
consolidation, merger or reclassification; and the
Company shall make lawful provision therefor as a
part of such consolidation, merger or
reclassification.
d. Anything in this paragraph 4 to the contrary
notwithstanding, the Company shall not be required to
give effect to any adjustment in the conversion price
unless and until the net effect of one or more
adjustments, determined as above provided, shall have
resulted in a change of the conversion price by at
least $.10, but when the cumulative net effect of
more than one adjustment so determined shall be to
change the conversion price by at least $.10 such
change in the conversion price shall thereupon be
given effect.
e. The Company shall not be required to issue any
fraction of a share of Common Stock upon any
conversion, but shall pay in cash therefor at the
conversion price then in effect multiplied by such
fraction.
f. On presentation and surrender to the Company at any
office or agency maintained for the transfer of the
Notes so to be converted, duly endorsed
2
<PAGE> 3
for transfer, the holder of such Notes shall be
entitled, subject to the limitations herein shall be
entitled, subject to the limitations herein
contained, to receive in exchange therefor a
certificate or certificates for fully paid and
non-assessable shares, and cash for fractional shares
of Common Stock, on the basis aforesaid. The Note
shall be deemed to have been converted and the person
converting the same to have become the holder of
record of Common Stock, for the purpose of receiving
dividends and for all other purposes whatever as of
the date when the Notes are surrendered to the
Company as aforesaid. The Company shall not be
required to make any such conversion, and no
surrender of any Note shall be effective for such
purpose, while the books for the transfer of the
Common Stock are closed for any purpose, but the
surrender of any such Note for conversion during any
period while such books are closed shall become
effective for all purposes of conversion immediately
upon the reopening of such books, as if the
conversion had been made on the date such Notes were
surrendered.
g. The Company shall, so long as any of the principal
amount of the Notes is outstanding, reserve and keep
available out of its authorized and unissued Common
Stock, solely for the purpose of effecting the
conversion of the Note, such number of shares of
Common Stock as shall from time to time be sufficient
to effect the conversion of all Notes then
outstanding. The Company shall from time to time
increase its authorized Common Stock and take such
other action as may be necessary to permit the
issuance from time to time of the shares of Common
Stock, as fully paid and nonassessable shares, upon
the conversion of the Notes as herein provided.
h. The Company shall pay any and all taxes which may be
imposed upon it with respect to the issuance and
delivery of Common Stock upon the conversion of the
Note as herein provided. The Company shall not be
required in any event to pay any transfer or other
taxes by reason of the issuance of such Common Stock
in names other than those in which the Notes
surrendered for conversion may stand, and no such
conversion or issuance of Common Stock shall be made
unless and until the person requesting such issuance
has paid to the Company the amount of any such tax,
or has established to the satisfaction of the Company
and its transfer agent, if any, that such tax has
been paid. Upon any conversion of the Note as herein
provided, no adjustment or allowance shall be made
for interest on the Notes so converted, and all
rights to interest if any, shall cease and be deemed
satisfied, but nothing in this sentence shall be
deemed to relieve the Company from its obligation to
pay any interest up to the date of such conversion
which shall be payable, prorated on a daily basis, on
the date after such conversion when interest on the
Note would be payable in accordance with the terms
hereof.
5. TRANSFER. This Note may be transferred only at the principal office
of the Company upon surrender of this Note for cancellation, and upon the
payment of any stamp tax or other governmental charge connected therewith, and
upon any such transfer a new Note or Notes will be issued to the transferee in
exchange therefor. The Company may consider and treat the registered owner of
this Note as the absolute owner thereof, whether or not this Note shall be
overdue, for all purposes whatsoever, and the Company shall not be affected by
any notice to the contrary.
3
<PAGE> 4
6. DEFAULT. Upon the occurrence of any of the following events of
default:
a. Failure to pay any installment of principal of or any
interest on this Note within 30 days after the same
becomes due; or
b. The Company shall commence any voluntary proceeding
under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, receivership,
dissolution, or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect; or
the Company shall be adjudicated insolvent or
bankrupt by a decree of a court of competent
jurisdiction; or the Company shall petition or apply
for, acquiesce in, or consent to, the appointment of
any receiver or trustee of the Company or for all or
a substantial part of the property of the Company; or
the Company shall make an assignment for the benefit
of creditors; or the Company shall admit in writing
its inability to pay its debts as they mature; or
c. There shall be commenced against the Company any
proceeding relating to the Company under any
bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, receivership, dissolution, or
liquidation law or statute of any jurisdiction,
whether now or hereafter in effect, and any such
proceeding shall remain undismissed for a period of
60 days or the Company by any act indicates its
consent to, approval of, or acquiescence in, any such
proceeding; or a receiver or trustee shall be
appointed for the Company or for all or a substantial
part of the property of the Company and any such
receivership or trusteeship shall remain undischarged
for a period of 60 days; or a warrant of attachment,
execution, or similar process shall be issued against
any substantial part of the property of the Company
and the same shall not be dismissed or bonded within
60 days after levy;
then, and in any such event, the holder of this Note may be written notice to
the Company declare the entire unpaid principal amount of all the Notes together
with accrued interest thereon due and payable, and the same shall, unless such
default shall be cured within ten days after such notice, forthwith become due
and payable upon the expiration of such ten-day period, without presentment,
demand, protest, or other notice of any kind, all of which are expressly waived.
7. DIVIDENDS. Until the preincipal sum, together with all accured
interest, of this Note has been paid in full, or until this Note has been
converted into shares of the Common Stock of the Company pursuant to the terms
contained in this Note, the Company will not make any distribution or declare or
pay any dividends (in cash or in stock) on any of the Company's capital stock,
of any class, whether now or hereafter outstanding.
8. GOVERNING LAW; BINDING EFFECT. This Note, its construction,
interpretation and enforcement, shall be determined under, governed by and
construed in accordance with the laws of the State of Arizona, and shall be
binding upon and inure to the benefit of, the successors, assigns and personal
representatives, as the case may be, of the Company and the holder.
4
<PAGE> 5
IN WITNESS WHEREOF, Cragar Industries, Inc. has caused this Note to be
signed and its corporate seal to be affixed by its duly authorized officers.
CRAGAR INDUSTRIES, INC.
By:
----------------------------
Its President
5
<PAGE> 1
EXHIBIT 4.7(a)
FIRST NOTE AMENDMENT
THIS FIRST NOTE AMENDMENT ("Amendment") is made and entered into as of
the 30th day of September, 1995, by and between CRAGAR INDUSTRIES, INC., a
Delaware corporation (the "Company"), and ______________________________ (the
"Holder").
RECITALS
A. The Company executed that certain 1993 Two-Year 6% Convertible
Subordinated Secured Note (the "Note"), dated September 30, 1993.
B. The Company and the Holder desire to amend the Note in accordance
with the terms and conditions set forth in this Amendment.
AMENDMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual obligations set forth in this Amendment, the Company and Holder hereby
agree as follows:
1. The first paragraph of the Note shall be revised in its entirety to
read as follows:
CRAGAR INDUSTRIES, INC., a Delaware corporation, hereinafter
called Company, for value received, hereby promises to pay to
the order of ____________ or registered assigns, at the then
principal office of the Company in the State of Arizona, the
principal sum of __________________ Dollars ($__________)
lawful money of the United States on September 30, 1998 and to
pay interest on the unpaid balance of such principal sum, at
the rate of 8% per annum from October 1, 1995, at such office,
in like manner, on September 30 of each year, commencing, 1996
until payment of such principal sum has been made.
2. Section 1 of the Note shall be revised by deleting the words
"Foothill Capital Corporation ("Foothill")" and replacing them with the words
"Norwest Business Credit, Inc. ("Norwest")".
3. Section 2 of the Note shall be revised by deleting the words
"credits then available to the Company from the Senior Creditors would be less
than $500,000" and replacing them with the words "covenants with respect to the
Credit and Security Agreement between the Company and its Senior Creditors would
be violated."
4. Section 3 of the Note shall be revised by adding the following
sentence: "If, after receiving Notice of Redemption, the Holder does not elect
to convert the Note, the Holder shall be paid
<PAGE> 2
a prepayment premium of 2% of the outstanding balance if redemption takes place
before September 30, 1996 or 1% of the outstanding balance if redemption takes
place after September 30, 1996 and before September 30, 1997, in addition to the
full outstanding balance owed on the Note."
5. The last sentence of Section 4(a) of the Note shall be revised in
its entirety to read as follows:
The conversion of this Note for shares of the Common Stock
shall be for that number of shares of Common Stock equal to
one and one third percent (1- 1/3%) of the total issued and
outstanding shares of Common Stock after conversion of all the
Notes, for each $100,000 of principal amount of this Note.
6. The parties hereby acknowledge that as of the date hereof, the
Company owes Holder $_________ in interest accrued on the Note. In lieu of
paying such interest to Holder, the Company agrees to issue _____ shares of
Common Stock to Holder and Holder agrees to accept such Common Stock in lieu of
the interest accrued to date on the Note. The Holder understands that the shares
of Common Stock acquired hereunder are restricted securities within the meaning
of Rule 144, promulgated under the Securities Act of 1933, as amended (the
"Act"), and that any future sales of such shares will be regulated by the Act.
Specifically, the Holder understands that because the Common Stock has not been
registered under the Act or any state securities laws, the Holder will continue
to bear the economic risk of the investment for an indefinite period of time and
cannot sell such Common Stock unless it is subsequently registered under the Act
and applicable state securities laws, or an exemption from such registration is
available. The Holder further represents, that the shares of Common Stock
acquired hereunder are being acquired for his own account, for investment, and
not with a view to, or for resale in connection with, any distribution of such
shares. The Holder agrees to the placement of an appropriate legend reflecting
the foregoing representations on the certificate representing such shares, and
further understands that the transfer of any of these shares out of his name
will be permitted only if the request for transfer is accompanied by evidence
satisfactory to the Company that such transfer will not result in a violation of
any applicable federal or state law, rule or regulation, which evidence will
include, unless waived by the Company, an opinion of counsel in form and
substance satisfactory to the Company.
7. The parties hereto shall execute all further instruments and perform
all acts which are or may become necessary to effectuate and carry out the
matters contemplated by this Amendment.
2
<PAGE> 3
8. This first Note Amendment may be executed in counterparts.
IN WITNESS WHEREOF, the parties have executed this Amendment effective
as of the day and year first above written.
"Holder"
------------------------------------
CRAGAR INDUSTRIES, INC.
By:_________________________________
Its:________________________________
3
<PAGE> 1
EXHIBIT 4.7(b)
SECOND NOTE AMENDMENT
THIS SECOND NOTE AMENDMENT ("Amendment") is made and entered into as of
the 30th day of September, 1996, by and between CRAGAR INDUSTRIES, INC., a
Delaware corporation (the "Company"), and ______________________________ (the
"Holder").
RECITALS
A. The Company executed that certain 1993 Two-Year 6% Convertible
Subordinated Secured Note (the "Note"), dated September 30, 1993.
B. The Company and the Holder executed that certain First Note
Amendment, dated September 30, 1995.
C. The Company and the Holder desire to amend the Note again in
accordance with the terms and conditions set forth in this Amendment.
AMENDMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual obligations set forth in this Amendment, the Company and Holder hereby
agree as follows:
1. A new Section 4(i) shall be added to the Note to read as follows:
"Notwithstanding anything in this Note to the contrary, upon the
closing of the Company's initial public offering of Common Stock any
accrued but unpaid interest on this Note and the unpaid principal
balance of the Note shall be automatically converted into 19,444.4
shares of Common Stock (subject to adjustment as provided herein) for
each $100,000 of principal amount of this Note."
2. The parties hereto shall execute all further instruments and perform
all acts (including surrendering the Note following the closing of the Company's
initial public offering) which are or may become necessary to effectuate and
carry out the matters contemplated by this Amendment.
3. This Second Note Amendment may be executed in counterparts.
IN WITNESS WHEREOF, the parties have executed this Amendment effective
as of the day and year first above written.
"Holder"
------------------------------------
CRAGAR INDUSTRIES, INC.
By:_________________________________
Its:________________________________
<PAGE> 1
EXHIBIT 4.8
PROMISSORY NOTE
$350,000.00 December 15, 1994
FOR VALUE RECEIVED, the undersigned, Cragar Industries, Inc., a
Delaware corporation ("Maker"), promises to pay Sidney Dworkin ("Payee"), at
______________________ _______________________________________, or such other
place as Payee shall designate in writing, the principal sum of Three Hundred
Fifty Thousand and No/100 Dollars ($350,000.00), at the rate of interest in the
amount of (i) one and one-half percent (1 1/2%) per month through the period
ending June 30, 1994, and (ii) two percent (2%) per month through the period
commencing on July 1, 1994 and ending at such time that Maker shall have paid
Payee all of the outstanding principal indebtedness evidenced by this Note.
This Note is the obligation of Maker only, and no recourse shall be had
for the payment thereof of the interest thereon against any stockholder, officer
or director of Maker, either directly or through Maker, by virtue of any statute
for the enforcement of any assessment or otherwise, all such liability of
stockholders, directors and officers of such being released by Maker by the
acceptance of this Note.
Any term of this Note may be amended and the observance of any term
hereof may be waived only with the written consent of both Maker and Payee.
The provisions of this Note shall be governed by and construed in
accordance with the laws of the State of Arizona without giving effect to
principals of conflict of laws.
The terms and conditions contained this Note shall apply to and bind
the heirs, representatives, successors, administrators and assigns of the
parties hereto.
This Note is not assignable without the prior written consent of the
other party. Any attempt at such an assignment without such consent shall be
void.
IN WITNESS WHEREOF, Maker has executed this Note in favor of Payee as
of the date first set forth above.
"MAKER":
CRAGAR INDUSTRIES, INC.
a Delaware corporation
By: Michael Hartzmark
----------------------------
Michael Hartzmark
President
<PAGE> 1
EXHIBIT 4.8(a)
[Cragar letterhead]
October 12, 1995
Mr. Sidney Dworkin
Advanced Modular
1550 North Powerline Road
Pompano Beach, FL 33069
Dear Sid:
I apologize for not being able to pay back the Bridge Loan in a timely manner. I
would like to request your extending the Bridge Loan to be due on January 1,
1997 or upon consummation of a public offering, whichever is first, at an
interest rate of eight percent (8%) per annum, payable monthly beginning
November 20, 1995. Unfortunately, our financial covenants with Norwest Business
Credit, Inc., limit our ability to pay when we are tight with our availability.
Therefore, unpaid interest would be added to the unpaid principal, if the
covenants will not allow payment. We would also, to the extent allowed by
Norwest, pay down as much of the principal as possible prior to January 1, 1997.
As you are aware, we are examining the possibility of raising additional
capital. Out of the proceeds from this possible financing, I would propose that
we pay you back. However, as an inducement to you to accept this proposal, I
would like to offer, pending Board approval, a conversion option under the same
terms as is currently being offered for the Junior Debt.
I appreciate your support and patience. If the letter is acceptable please sign
and date this letter.
Sincerely,
Michael L. Hartzmark
-------------------------------
Michael L. Hartzmark
President/CEO
AGREED AND ACCEPTED:
BY SID DWORKIN Sidney Dworkin
--------------------------
DATE
--------------------------
<PAGE> 1
Exhibit 4.8(b)
FIRST NOTE AMENDMENT
THIS FIRST NOTE AMENDMENT ("Amendment") is made and entered into as of
the 30th day of September, 1996, by and between CRAGAR INDUSTRIES, INC., a
Delaware corporation (the "Company"), and Sidney Dworkin (the "Holder").
RECITALS
A. The Company executed that certain Promissory Note (the "Note"),
dated December 15, 1994.
B. The Company and the Holder desire to amend the Note in accordance
with the terms and conditions set forth in this Amendment.
AMENDMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual obligations set forth in this Amendment, the Company and Holder hereby
agree as follows:
1. A new paragraph shall be added to the Note to read as follows:
"Notwithstanding anything in this Note to the contrary, upon the
closing of the Company's initial public offering of Common Stock, any
accrued but unpaid interest on this Note and the unpaid principal
balance of the Note shall be automatically converted into 68,055.6
shares of Common Stock (subject to adjustment for stock splits, stock
dividends, and other changes in the Company's capital structure)."
2. The parties hereto shall execute all further instruments and perform
all acts (including surrendering the Note following the closing of the Company's
initial public offering) which are or may become necessary to effectuate and
carry out the matters contemplated by this Amendment.
3. This First Note Amendment may be executed in counterparts.
<PAGE> 2
IN WITNESS WHEREOF, the parties have executed this Amendment effective
as of the day and year first above written.
"Holder"
Sidney Dworkin
____________________________________
Sidney Dworkin
CRAGAR INDUSTRIES, INC.
By: Michael Hartzmark
_______________________________
Its: President
_______________________________
2
<PAGE> 1
EXHIBIT 4.9
PROMISSORY NOTE
DUE JUNE 30, 1998
________________ June 30, 1996
THE SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR THE SECURITIES
LAWS OF ANY STATE. THE SECURITIES MAY NOT BE PLEDGED, HYPOTHECATED,
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT COVERING THE SECURITIES REPRESENTED BY
THIS NOTE UNDER THE ACT AND OTHER FILINGS UNDER ANY APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL, WHICH OPINION IS SATISFACTORY
IN FORM AND SUBSTANCE TO THE COMPANY, TO THE EFFECT THAT SUCH
REGISTRATION AND OTHER FILINGS ARE NOT REQUIRED UNDER THE ACT OR ANY
APPLICABLE STATE SECURITIES LAWS AND THAT THE TRANSACTION COMPLIES WITH
THE RULES AND REGULATIONS IN EFFECT THEREUNDER.
FOR VALUE RECEIVED, the undersigned, Cragar Industries, Inc., a
Delaware corporation ("Maker"), promises to pay ________________ ("Payee"), at ,
________________________________ or such other place as Payee shall designate in
writing, the principal sum of ________________________________________
($________), plus interest at the rate of eight percent (8%) per annum payable
on June 30 of each year through the period ending June 30, 1998 and ending at
such time that Maker shall have paid Payee all of the outstanding principal, and
accrued interest, indebtedness evidenced by this Note. The principal and
interest due under this Note may be prepaid at any time without penalty.
Within thirty (30) days following (i) the sale or other disposition of
all or substantially all of the Company's assets, (ii) the consolidation or
merger of the Company with or into any other entity, or (iii) the initial
underwritten public offering of the Company's common stock, the Company shall
prepay this Note in full, including interest accrued to the date of prepayment.
<PAGE> 2
This Note is the obligation of Maker only, and no recourse shall be had
for the payment thereof of the principal or interest thereon against any
stockholder, officer or director of Maker, either directly or through Maker, by
virtue of any statute for the enforcement of any assessment or otherwise, all
such liability of stockholders, directors and officers as such being released by
Payee by the acceptance of this Note.
Any term of this Note may be amended and the observance of any term
hereof may be waived only with the written consent of both Maker and Payee.
The provisions of this Note shall be governed by and construed in
accordance with the laws of the State of Arizona without giving effect to
principles of conflict of laws.
The terms and conditions contained this Note shall apply to and bind
the heirs, representatives, successors, administrators and assigns of the
parties hereto.
This Note is not assignable without the prior written consent of the
other party. Any attempt at such an assignment without such consent shall be
void.
IN WITNESS WHEREOF, Maker has executed this Note in favor of Payee as
of the date first set forth above.
"MAKER":
CRAGAR INDUSTRIES, INC.
a Delaware corporation
By:_____________________________________
Michael L. Hartzmark
President
2
<PAGE> 1
EXHIBIT 4.10
CREDIT AND SECURITY AGREEMENT
Dated as of April 14, 1995
CRAGAR INDUSTRIES, INC., a Delaware corporation (the "Borrower"), and
NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), hereby
agree as follows:
ARTICLE 1
Definitions
1.1 Definitions. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles.
"Accounts" means the aggregate unpaid obligations of customers
and other account debtors to the Borrower arising out of the sale or
lease of goods or rendition of services by the Borrower on an open
account or deferred payment basis.
"Advance" means an advance to the Borrower by the Lender under
the Credit Facility.
"Adjusted Net Worth" means net worth determined in accordance
with generally accepted accounting principals consistent with those
used in preparing Borrower's most recent audited financial statement
plus Subordinated Debt other than the Bridge Loan.
"Affiliate" or "Affiliates" any Person controlled by,
controlling or under common control with the Borrower, including
(without limitation) any Subsidiary of the Borrower. For purposes of
this definition, "control", when used with respect to any specified
Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
"Agreement" means this Credit and Security Agreement.
"Applicable Percentage" means, from the date of this Agreement
to and including April 13, 1996, 3%; from April 14, 1996, to and
including April 13, 1997, 2%; and from April 14, 1997 until the date
immediately preceding the Termination Date, 1%.
"Banking Day" means a day other than a Saturday on which banks
are generally open for business in Phoenix, Arizona.
"Base Rate" means the rate of interest publicly announced from
time to time by Norwest Bank Minnesota, National Association as its
"base rate" or, if such bank ceases to announce a rate so designated,
any similar successor rate designated by the Lender.
1
<PAGE> 2
"Blemished Finished Goods Inventory" means Finished Goods
Inventory which is damaged or defective but still saleable as blemished
or seconds and is so classified in the books and records of Borrower.
"Borrowing Base" means, at any time and subject to change from
time to time in the Lender's sole discretion, the lesser of
(i) the Commitment, or
(ii) the sum of
(A) 75% of Eligible Accounts, plus
(B) the lesser of (x) the sum of the following
percentages of various classes of Eligible
Inventory; (i) 55% of Raw Materials
Inventory; (ii) 55% of Current Finished
Goods Inventory; (iii) 35 % of Dated
Finished Goods Inventory not to exceed
$500,000.00; and (iv) 30% of Blemished
Finished Goods Inventory not to exceed
$75,0000.00; or (y) $4,500,000.00, plus
(C) to the extent the Advances allowed by
clauses (A) and (B) above shall have been
made in full, the "Inventory Overadvance" in
an amount equal to the lesser of (a) from
the date of this Agreement to and including
June 30, 1995, (1) 5% of Eligible Inventory,
or (2) $375,000.00; (b) from July 1, 1995 to
and including September 30, 1995, (1) 4% of
Eligible Inventory, or (2) $300,000.00; (c)
from October 1, 1995, to and including
December 31, 1995, (1)3% of Eligible
Inventory, or (2) $225,000.00; (d) from
January 1, 1996 to and including March 31,
1996, (1) 2% of Eligible Inventory or (2)
$150,000.00; and (e) from April 1, 1996 to
and including June 30, 1996, (1) 1% of
Eligible Inventory or (2) $75,000.00.
"Bridge Loan" means that portion of the Subordinated
Indebtedness identified as the "Bridge Loan" on Exhibit C.
"Capital Expenditures" means net tangible and intangible
expenditures of the applicable Person or Persons for the lease,
purchase or acquisition of capital assets, or a capitalized lease of
any other asset (capitalized leases being determined in accordance with
generally accepted accounting principles).
"Collateral" means all of the Equipment, General Intangibles,
Inventory, Receivables and all sums on deposit in the Collateral
Account, together with all substitutions and replacements for and
products of any of the foregoing Collateral and together with proceeds
of any and all of the foregoing Collateral and, in the case of all
tangible Collateral, together with all accessions and together with (i)
all accessories, attachments, parts, equipment and repairs now or
hereafter attached or affixed to or used in connection with any such
goods, and (ii) all warehouse receipts, bills of lading and other
documents of title now or hereafter covering such goods.
2
<PAGE> 3
"Collateral Account" has the meaning specified in Section
4.1(d) hereof.
"Commitment" means $9,500,000.00, unless said amount is
reduced pursuant to Section 2.8(b) hereof, in which event it means the
amount to which said amount is reduced.
"Credit Facility" means the revolving credit facility being
made available to the Borrower in the amount of the Commitment by the
Lender pursuant to Article 2 hereof.
"Current Finished Goods Inventory" means Finished Goods
Inventory which is not damaged or defective which is of a SKU type of
which the quantity in Borrower's inventory at the date of determination
is less than the quantity of such SKU type sold by Borrower in the one
year period preceding the date of determination; provided, however,
that upon the prior approval of Lender, reasonable inventories of new
products or reasonably anticipated inventory needs due to increased
demand for existing products may be included in the definition of
Current Finished Goods Inventory from time to time.
"Current Maturities Long-Term Debt" means contractual debt
amortization of long-term debt and capitalized leases of the Borrower.
"Dated Finished Goods Inventory" means Finished Goods
Inventory which is not damaged or defective and consisting of all SKU
types which do not qualify as Current Finished Goods Inventory.
"Default" means an event that, with giving of notice or
passage of time or both, would constitute an Event of Default.
"Default Period" means the period following the occurrence of
a Default or Event of Default which period shall continue until and
unless the Lender shall thereafter waive such Default or Event of
Default in writing.
"Default Rate" means at any time 2% over the Floating Rate,
which Default Rate shall change when and as the Floating Rate changes.
"Default Rate Commencement Date" means:
(i) in the case of a Default arising under Sections
6.12 through 6.14, 7.10 or 7.17, the date of the financial
statement disclosing such Default; or
(ii) in the case of any other Default, 30 days after
the date of such Default.
"Eligible Accounts" means all unpaid Accounts, net of any
credits, except the following shall not in any event be deemed Eligible
Accounts:
(i) That portion of Accounts over 60 days past
scheduled due date;
(ii) That portion of Accounts that are disputed or
subject to a claim of offset or a contra account;
3
<PAGE> 4
(iii) That portion of Accounts not yet earned by the
final delivery of goods or rendition of services, as
applicable, by the Borrower to the customer;
(iv) Accounts owed by any unit of government, whether
foreign or domestic (provided, however, that there shall be
included in Eligible Accounts that portion of Accounts owed by
such units of government with respect to which the Borrower
has provided evidence satisfactory to the Lender that (A) the
Lender has a first priority perfected security interest and
(B) such Account may be enforced by the Lender directly
against such unit of government under all applicable laws);
(v) Accounts owed by an account debtor located
outside the United States or Canada which are not backed by a
bank letter of credit assigned to the Lender, in the
possession of the Lender and acceptable to the Lender in all
respects, in its sole discretion;
(vi) Accounts owed by an account debtor that is the
subject of bankruptcy proceedings or has gone out of business
unless Lender agrees otherwise;
(vii) Accounts owed by a shareholder, subsidiary,
Affiliate, officer or employee of the Borrower;
(viii) Accounts not subject to a duly perfected
security interest in favor of the Lender or which are subject
to any lien, security interest or claim in favor of any Person
other than the Lender;
(ix) That portion of Accounts that have been
restructured, extended, amended or modified unless otherwise
consented to by Lender in writing;
(x) That portion of Accounts that constitutes finance
charges, service charges or sales or excise taxes;
(xi) Accounts owed by an account debtor, regardless
of whether otherwise eligible, if 25% or more of the total
amount due under Accounts from such debtor is ineligible under
clauses (i), (ii) or (ix) above;
(xii) Accounts which by their terms allow the account
debtor to pay more than 210 days from the date of sale;
(xiii) That portion of Eligible Accounts of any one
account debtor which are not insured by credit insurance
acceptable to Lender and naming Lender as loss payee and which
exceed 10% of Borrower's total Eligible Accounts, provided,
however, that in the case of Super Shops the applicable
percentage of Borrower's total Eligible Accounts shall be 40%
and in the case of Keystone Automotive, 20%; and
(xiv) Accounts, or portions thereof, otherwise deemed
ineligible by the Lender in its sole discretion.
4
<PAGE> 5
"Eligible Inventory" means all inventory of the Borrower, at
the lower of cost or market value as determined in accordance with
generally accepted accounting principles plus the amount reserved
against inventory as of December 31, 1994, to the extent the inventory
to which such reserves relate remain in Borrower's inventory; provided,
however, that the following shall not in any event be deemed Eligible
Inventory:
(i) Inventory that is: in-transit; located at any
warehouse or other premises not approved by the Lender in
writing; located outside of the states, or localities, as
applicable, in which the Lender has filed financing statements
to perfect a first priority security interest in such
inventory; covered by any negotiable or non-negotiable
warehouse receipt, bill of lading or other document of title;
on consignment to or from any other person or subject to any
bailment;
(ii) Supplies, packaging or parts inventory;
(iii) Work-in-process inventory except raw materials
which have been segmented for use in a particular production
run to the extent reported as raw materials by Borrower;
(iv) Inventory that is damaged, obsolete or not
currently saleable in the normal course of the Borrower's
operations;
(v) Inventory that the Borrower has returned, has
attempted to return, is in the process of returning or intends
to return to the vendor thereof;
(vi) Inventory that is subject to a security interest
in favor of any Person other than the Lender;
(vii) Pre-1991 Inventory; and
(viii) Inventory otherwise deemed ineligible by the
Lender in its sole discretion.
"Environmental Laws" has the meaning specified in Section 5.12
hereof.
"Equipment" means all of the Borrower's equipment, as such
term is defined in the UCC, whether now owned or hereafter acquired,
including but not limited to all present and future machinery,
vehicles, furniture, fixtures (whether located upon the Premises or
otherwise), manufacturing equipment, shop equipment, office and
recordkeeping equipment, parts, tools, supplies, and including
specifically (without limitation) the goods described in any equipment
schedule or list herewith or hereafter furnished to the Lender by the
Borrower.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Event of Default" has the meaning specified in Section 8.1
hereof.
"Excess Cash Flow" means the Net Income of Borrower as shown
on the audited financial statement of Borrower required by Section
6.1(a) hereof for the fiscal year in
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question, plus or minus non-cash items, less unfinanced Capital
Expenditures and scheduled debt service, and less principal and
interest paid on Subordinated Indebtedness during such fiscal year.
"Finished Goods Inventory" means Eligible Inventory which is
fully assembled and ready for sale by Borrower.
"Floating Rate" means an annual rate equal to the sum of the
Base Rate plus one and one-quarter percent (1-1/4%), which Floating
Rate shall change when and as the Base Rate changes.
"Funds from Operations" means after tax net income of the
Borrower for the applicable period or periods, adjusted to exclude
non-cash items or income or expense which are extraordinary items or
items not related to operations (determined in accordance with
generally accepted accounting principles).
"General Intangibles" means all of the Borrower's general
intangibles, as such term is defined in the UCC, whether now owned or
hereafter acquired, including (without limitation) all present and
future Patents (or Borrower's rights therein where Borrower is a
licensee), patent applications, copyrights, Trademarks (or Borrower's
rights therein where Borrower is a licensee), trade names, trade
secrets, customer or supplier lists and contracts, manuals, operating
instructions, permits, franchises, the right to use the Borrower's
name, and the goodwill of the Borrower's business.
"Initial Advance" has the meaning specified in Section 4.1 (m)
hereof.
"Interest Expense" means total gross interest expense of the
Borrower (cash and capitalized, including interest on capitalized
leases and not net of interest income).
"Inventory" means all of the Borrower's inventory, as such
term is defined in the UCC, whether now owned or hereafter acquired,
whether consisting of whole goods, spare parts or components, supplies
or materials, whether acquired, held or furnished for sale, for lease
or under service contracts or for manufacture or processing, and
wherever located.
"Inventory Overadvance Rate" means an annual rate equal to the
sum of the Base Rate, plus 2.25%, which Inventory Overadvance Rate
shall change when and as the Base Rate changes.
"Investor Debt" means that portion of the Subordinated
Indebtedness identified as the "Investor Debt" on Exhibit C.
"Issuer" means the issuer of any Letter of Credit.
"L/C Amount" means the sum of (i) the aggregate face amount of
any issued and outstanding Letters of Credit and (ii) the unpaid amount
of the Obligation of Reimbursement.
"L/C Application" means an application and agreement for
letters of credit in a form acceptable to the Issuer and the Lender.
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"Letter of Credit" has the meaning specified in Section 2.2
hereof.
"Loan Documents" means this Agreement, the Note and the
Security Documents.
"Lockbox " has the meaning specified in Section 4.1(e) hereof.
"Net Income" means after tax net income of the Borrower from
continuing operations.
"Note" means the Revolving Note of the Borrower payable to the
order of the Lender in substantially the form attached hereto as
Exhibit A.
"Obligations" has the meaning specified in Section 3.1 hereof.
"Obligation of Reimbursement" has the meaning specified in
Section 2.4(a) hereof.
"Patent" all letters patent currently or hereafter issued by
the government of the United States or any foreign government held by
Borrower, in which the Borrower is a licensee or otherwise used by
Borrower in its business, including, but not limited to those listed on
Exhibit F.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company,
trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Plan" means an employee benefit plan or other plan maintained
for employees of the Borrower and covered by Title IV of ERISA.
"Premises" means all premises where the Borrower conducts its
business and has any rights of possession, including (without
limitation) the premises legally described in Exhibit E attached
hereto.
"Raw Materials Inventory" means that portion of Eligible
Inventory consisting of spare parts, components, supplies and materials
useable in producing Finished Goods Inventory but not yet incorporated
into Finished Goods Inventory.
"Receivables" means each and every right of the Borrower to
the payment of money, whether such right to payment now exists or
hereafter arises, whether such right to payment arises out of a sale,
lease or other disposition of goods or other property, out of a
rendering of services, out of a loan, out of the overpayment of taxes
or other liabilities, or otherwise arises under any contract or
agreement, whether such right to payment is created, generated or
earned by the Borrower or by some other person who subsequently
transfers such person's interest to the Borrower, whether such right to
payment is or is not already earned by performance, and howsoever such
right to payment may be evidenced, together with all other rights and
interests (including all liens and security interests) which the
Borrower may at any time have by law or agreement against any account
debtor or other obligor obligated to make any such payment or against
any property of such account debtor or other obligor; all including but
not limited to all present and future accounts, contract rights, loans
and obligations receivable, chattel papers, bonds, notes and other debt
instruments, tax refunds and rights to payment in the nature of general
intangibles.
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"Reportable Event" shall have the meaning assigned to that
term in Title IV of ERISA.
"Security Documents" means the Collateral Account Agreement
and the Lockbox Agreement.
"Security Interest" has the meaning specified in Section 3.1
hereof.
"Seller Debt" means that portion of the Subordinated
Indebtedness identified as the "Seller Debt" on Exhibit C.
"Special Account" means a specified cash collateral account
maintained by a financial institution acceptable to the Lender in
connection with Letters of Credit, as contemplated by Sections 2.5 and
3.6 hereof.
"Subordinated Indebtedness" means the indebtedness of the
Borrower shown as such on Exhibit C and which is in fact subordinated
as to payment of principal and interest to the indebtedness of the
Borrower to the Lender, and to the extent such indebtedness is secured,
such liens are subordinated to the liens in favor of Lender on the
Collateral, all such subordinations to be in writing and in form and
substance satisfactory to the Lender.
"Subsidiary" means any corporation of which more than 50% of
the outstanding shares of capital stock having general voting power
under ordinary circumstances to elect a majority of the board of
directors of such corporation, irrespective of whether or not at the
time stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency, is at the
time directly or indirectly owned by the Borrower, by the Borrower and
one or more other Subsidiaries, or by one or more other Subsidiaries.
"Termination Date" means April 15, 1998.
"Trademarks" means all trademarks, tradenames and servicemarks
whether federally registered or not, held by Borrower, in which
Borrower is a licensee or otherwise used by Borrower in its business,
including, but not limited to those listed on Exhibit F.
"UCC" means the Uniform Commercial Code as in effect from time
to time in the state designated in Section 9.12 hereof as the state
whose laws shall govern this Agreement, or in any other state whose
laws are held to govern this Agreement or any portion hereof.
ARTICLE 2
Amount and Terms of the Credit Facility
2.1 Advances. The Lender agrees, on the terms and subject to the
conditions herein set forth, to make Advances to the Borrower from time to time
during the period from the date hereof to and including the Termination Date, or
the earlier date of termination in whole of the Credit Facility pursuant to
Sections 2.8(a) or 8.2 hereof, in an aggregate amount at any time outstanding
not to exceed the Borrowing Base less the L/C Amount, which Advances shall be
secured by the Collateral as provided in Article 3 hereof. The Credit Facility
shall be a revolving facility and it is contemplated
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that the Borrower will request Advances, make prepayments and request additional
Advances. The Borrower agrees to comply with the following procedures in
requesting Advances under this Section 2.1:
(a) The Borrower will not request any Advance under this
Section 2.1 if, after giving effect to such requested Advance, the sum of the
outstanding and unpaid Advances under this Section 2.1 or otherwise would exceed
the Borrowing Base less the L/C Amount.
(b) Each request for an Advance under this Section 2.1 shall
be made to the Lender prior to 12:00 noon (Minneapolis time) of the day of the
requested Advance by the Borrower. Each request for an Advance may be made in
writing or by telephone, specifying the date of the requested Advance and the
amount thereof, and shall be by (i) any officer of the Borrower; or (ii) any
person designated as the Borrower's agent by any officer of the Borrower in a
writing delivered to the Lender; or (iii) any person reasonably believed by the
Lender to be an officer of the Borrower or such a designated agent.
(c) Upon fulfillment of the applicable conditions set forth in
Article 4 hereof, the Lender shall disburse loan proceeds by crediting the same
to the Borrower's demand deposit operating account maintained with Norwest Bank
Arizona, N.A. unless the Lender and the Borrower shall agree in writing to
another manner of disbursement. Upon request of the Lender, the Borrower shall
promptly confirm each telephonic request for an Advance by executing and
delivering an appropriate confirmation certificate to the Lender. The Borrower
shall be obligated to repay all Advances under this Section 2.1 notwithstanding
the failure of the Lender to receive such confirmation and notwithstanding the
fact that the person requesting the same was not in fact authorized to do so.
Any request for an Advance under this Section 2.1, whether written or
telephonic, shall be deemed to be a representation by the Borrower that (i) the
condition set forth in Section 2.1(a) hereof has been met, and (ii) the
conditions set forth in Section 4.2 hereof have been met as of the time of the
request.
2.2 Note. All Advances made by the Lender under this Article 2 shall be
evidenced by and repayable with interest in accordance with the Note. The
principal of the Note shall be payable as provided herein and on the earlier of
the Termination Date or acceleration by the Lender pursuant to Section 8.2
hereof, and shall bear interest as provided herein.
2.3 Issuance of Letters of Credit.
(a) The Lender agrees, on the terms and subject to the
conditions herein set forth, to issue or cause to be issued by an Issuer one or
more documentary letters of credit for the account of the Borrower (each a
"Letter of Credit") from time to time during the period from the date hereof
until the earlier of the Termination Date or the Credit Facility has been
terminated pursuant to Section 2.8 or 8.2 hereof, in an aggregate amount at any
time outstanding not to exceed the Borrowing Base less the sum of (i) all
outstanding and unpaid Advances hereunder and (ii) the unpaid amount of the
Obligation of Reimbursement. Each Letter of Credit, if any, shall be issued
pursuant to a separate L/C Application entered into by the Borrower and the
Lender as co-applicants for the benefit of the Issuer, completed in a manner
satisfactory to the Lender and the Issuer. The terms and conditions set forth in
each such L/C Application shall supplement the terms and conditions hereof, but
in the event of inconsistency between the terms of any such L/C Application and
the terms hereof, the terms hereof shall control.
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(b) No Letter of Credit shall be issued under this Section 2.3
if, after the issuance of such requested Letter of Credit, the sum of the face
amounts of all issued and outstanding Letters of Credit would exceed the
Borrowing Base less the sum of (i) all outstanding and unpaid Advances hereunder
and (ii) the unpaid amount of the Obligation of Reimbursement.
(c) No Letter of Credit shall be issued with an expiry date
later than the Termination Date in effect as of the date of issuance.
(d) Any request for the issuance of a Letter of Credit under
this Section 2.3 shall be deemed to be a representation by the Borrower that (i)
the condition set forth in Section 2.3(b) hereof has been met, and (ii) the
statements set forth in Section 4.2 hereof are correct as of the time of the
request.
2.4 Payment of Amounts Drawn Under Letters of Credit. The Borrower
acknowledges that the Lender, as co-applicant, will be liable to the Issuer of
any Letter of Credit for reimbursement of any and all draws thereunder and all
other amounts required to be paid under the applicable L/C Application.
Accordingly, the Borrower agrees to pay to the Lender any and all amounts
required to be paid under the applicable L/C Application, when and as required
to be paid thereby, and the amounts designated below, when and as designated:
(a) The Borrower hereby agrees to pay the Lender on the day a
draft is honored under any Letter of Credit a sum equal to all amounts drawn
under such Letter of Credit plus any and all reasonable charges and expenses
that the Issuer or the Lender may pay or incur relative to such draw, plus
interest on all such amounts, charges and expenses as set forth below (all such
amounts are hereinafter referred to, collectively, as the "Obligation of
Reimbursement"). So long as no Default shall then exist, the Obligation of
Reimbursement shall be paid first through an Advance to the extent available
under the Credit Facility.
(b) The Borrower hereby agrees to pay the Lender on demand
interest on all amounts, charges and expenses payable by the Borrower to the
Lender under this Section 2.3, accrued from the date any such draft, charge or
expense is paid by the Issuer until payment in full by the Borrower at the
Default Rate.
If the Borrower fails to pay to the Lender promptly the amount of its
Obligation of Reimbursement in accordance with the terms hereof and the L/C
Application pursuant to which such Letter of Credit was issued, the Lender is
hereby irrevocably authorized and directed, in its sole discretion, to make an
Advance in an amount sufficient to discharge the Obligation of Reimbursement,
including all interest accrued thereon but unpaid at the time of such Advance,
and such Advance shall be evidenced by the Note and shall bear interest as
provided in Section 2.7 hereof.
2.5 Special Account. If the Credit Facility is terminated for any
reason whatsoever, while any Letter of Credit is outstanding, the Borrower shall
thereupon pay the Lender in immediately available funds for deposit in the
Special Account an amount equal to the maximum aggregate amount available to be
drawn under all Letters of Credit then outstanding, assuming compliance with all
conditions for drawing thereunder. The Special Account shall be maintained for
the Lender by any financial institution acceptable to the Lender. Any interest
earned on amounts deposited in the Special Account shall be credited to the
Special Account. Amounts on deposit in the Special Account may be applied by the
Lender at any time or from time to time to the Borrower's Obligation
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of Reimbursement or any other Obligations, in the Lender's sole discretion, and
shall not be subject to withdrawal by the Borrower so long as the Lender
maintains a security interest therein. The Lender agrees to transfer any balance
in the Special Account to the Borrower at such time as the Lender is required to
release its security interest in the Special Account under applicable law.
2.6 Obligations Absolute. The obligations of the Borrower arising under
this Agreement shall be absolute, unconditional and irrevocable, and shall be
paid strictly in accordance with the terms of this Agreement, under all
circumstances whatsoever, including (without limitation) the following
circumstances:
(a) any lack of validity or enforceability of any Letter of
Credit or any other agreement or instrument relating to any Letter of Credit
(collectively the "Related Documents");
(b) any amendment or waiver of or any consent to departure
from all or any of the Related Documents;
(c) the existence of any claim, setoff, defense or other right
which the Borrower may have at any time, against any beneficiary or any
transferee of any Letter of Credit (or any persons or entities for whom any such
beneficiary or any such transferee may be acting), or other person or entity,
whether in connection with this Agreement, the transactions contemplated herein
or in the Related Documents or any unrelated transactions;
(d) any statement or any other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any respect
whatsoever;
(e) payment by or on behalf of the Issuer or the Lender under
any Letter of Credit against presentation of a draft or certificate which does
not strictly comply with the terms of such Letter of Credit; or
(f) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing.
2.7 Interest.
(a) The principal of the Advances under the Commitment
outstanding from time to time during any month shall bear interest (computed on
the basis of actual days elapsed in a 360- day year) at the Floating Rate;
provided, however, that the portion of the Advances which constitutes an
Inventory Overadvance outstanding from time to time during any month shall bear
interest (computed on the basis of actual days elapsed in a 360-day year) at the
Inventory Overadvance Rate. In the Lender's discretion and without waiving any
of its other rights and remedies, the principal of the Advances under the
Commitment outstanding from time to time shall bear interest at the Default Rate
from the Default Rate Commencement Date until the end of the Default Period.
Notwithstanding any provision of this Agreement to the contrary, no rate change
shall be put into effect which would result in a rate greater than the highest
rate permitted by law. Interest accruing on the principal balance of the
Advances outstanding from time to time shall be payable on the first day of each
succeeding month and on the Termination Date or earlier demand or prepayment in
full. The Borrower agrees that the interest rate contracted for includes the
interest rate set forth herein
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plus any other charges or fees set forth herein and costs and expenses incident
to this transaction paid by the Borrower to the extent same are deemed interest
under applicable law.
(b) If any Person shall acquire a participation in the
Advances under this Agreement, the Borrower shall be obligated to the Lender
to pay the full amount of all interest calculated under Sections 2.7(a) hereof,
along with all other fees, charges and other amounts due under this Agreement,
regardless if such Person elects to accept interest with respect to its
participation at a lower rate than the Floating Rate, or otherwise elects to
accept less than its pro rata share of such fees, charges and other amounts
due under this Agreement.
2.8 Voluntary Prepayment; Termination of Agreement by the Borrower;
Permanent Reduction of the Commitment.
(a) Except as otherwise provided herein, the Borrower may, in
its discretion, prepay the Advances in whole at any time or from time to time in
part. The Borrower may terminate this Agreement at any time so long as either
(i) no Letter of Credit has been issued and is outstanding with an expiration
date after such date, or (ii) Borrower shall have fully complied with Section
2.5 hereof, and, subject to payment and performance of all the Borrower's
obligations to the Lender, may obtain any release or termination of the Security
Interest to which the Borrower is otherwise entitled by law by giving at least
30 days' prior written notice to the Lender of the Borrower's intention to
terminate this Agreement. Upon any termination of this Agreement by Borrower
pursuant to this Section 2.8(a), Borrower shall pay to Lender a prepayment fee
of the Applicable Percentage of the Commitment; provided, however, that no such
fee shall be payable if and to the extent (i) the funds for any termination of
the Commitment are derived from Funds From Operations, or (ii) such termination
represents a refinancing of the Obligations by Norwest Bank Arizona, N.A.
(b) The Borrower may at any time and from time to time, upon
at least 30 days' prior written notice to the Lender, permanently reduce in part
the Commitment; provided, however, that no reduction shall reduce the Commitment
to an amount less than the then-aggregate amount of the Advances plus the L/C
Amount; and provided, further, that if the Borrower shall elect permanently to
reduce in part the Commitment at any time other than the Termination Date, the
Borrower shall pay to the Lender a premium in an amount equal to the Applicable
Percentage.
2.9 Mandatory Prepayment. Without notice or demand, if the sum of the
outstanding principal balance of the Advances plus the L/C Amount shall at any
time exceed the Borrowing Base, the Borrower shall (i) first, immediately prepay
the Advances to the extent necessary to eliminate such excess; and (ii) if
prepayment in full of the Advances is insufficient to eliminate such excess, pay
to the Lender in immediately available funds for deposit in the Special Account
an amount equal to the remaining excess. Any payment received by the Lender
under this Section 2.9 or under Section 2.8 may be applied to the Obligation of
Reimbursement or the Advances, including interest thereon and any fees,
commissions, costs and expenses hereunder and under the Security Documents, in
such order and in such amounts as the Lender, in its discretion, may from time
to time determine. For each day or portion thereof that the Advances shall
exceed the Borrowing Base, the Borrower shall pay to the Lender an overadvance
charge in the amount of $100.00; provided, however, that if any such day occurs
during a Default Period, the overadvance charge for such day shall be $250.00.
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2.10 Payment. All payments of principal of and interest on the
Advances, the Obligation of Reimbursement, the commissions and fees hereunder
and amounts required to be paid to the Lender for deposit in the Special Account
shall be made to the Lender in immediately available funds. The Borrower hereby
authorizes the Lender, in its discretion at any time or from time to time and
without request by the Borrower, to make an Advance or Advances in such amount
as shall be necessary to pay any interest, fees, costs or expenses hereunder or
under the Loan Documents.
2.11 Payment on Non-Banking Days. Whenever any payment to be made
hereunder shall be stated to be due on a day which is not a Banking Day, such
payment may be made on the next succeeding Banking Day, and such extension of
time shall in such case be included in the computation of interest on the
Advances or the fees hereunder, as the case may be.
2.12 Use of Proceeds. The proceeds of Advances and each Letter of
Credit issued or caused to be issued shall be used by the Borrower (i) to repay
all outstanding indebtedness to Foothill Capital Corporation, (ii) for ordinary
working capital purposes; or (iii) to pay certain other existing indebtedness of
Borrower but only to the extent specifically permitted by this Agreement.
2.13 Liability Records. The Lender may maintain from time to time, at
Its discretion, liability records as to any and all Advances made or repaid,
interest accrued or paid under this Agreement, outstanding Letters of Credit and
fees thereon and the Borrower's Obligation of Reimbursement. All entries made on
any such record shall be presumed correct until the Borrower establishes the
contrary. On demand by the Lender, the Borrower will admit and certify in
writing the exact principal balance that the Borrower then asserts to be
outstanding to the Lender for Advances under this Agreement and the amount of
any Letters of Credit outstanding. Any billing statement or accounting rendered
by the Lender shall be conclusive and fully binding on the Borrower unless
specific written notice of exception is given to the Lender by the Borrower
within 180 days after its receipt by the Borrower.
2.14 Setoff. The Borrower agrees that the Lender may at any time or
from time to time, at its sole discretion and without demand and without notice
to anyone, setoff any liability owed to the Borrower by the Lender, whether or
not due, against any indebtedness owed to the Lender by the Borrower (for
Advances or for any other transaction or event), whether or not due. In
addition, each other Person holding a participating interest in any Advances
made to the Borrower by the Lender shall have the right to appropriate or setoff
any deposit or other liability then owed by such Person to the Borrower, whether
or not due, and apply the same to the payment of said participating interest, as
fully as if such Person had lent directly to the Borrower the amount of such
participating interest.
2.15 Fees.
(a) The Borrower hereby agrees to pay the Lender a fully
earned and non-refundable origination fee of $98,000.00, due and payable upon
the execution of this Agreement.
(b) The Borrower agrees to pay to the Lender an unused fee
each month at the annual rate of 0.5% on the average daily unused amount of the
Commitment from the date hereof to and including the date on which such facility
is terminated, due and payable monthly in arrears on the first day of each
month, commencing May 1, 1995, provided that any such unused fee remaining
unpaid upon termination of the Credit Facility or acceleration of the Note by
the Lender
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pursuant to Section 8.2 hereof shall be due and payable on the date of such
termination or acceleration. Such fee shall be calculated on the basis of actual
days elapsed in a 360-day year.
(c) The Borrower hereby agrees to pay any and all fees,
commissions and charges of any Issuer of a Letter of Credit with respect to or
in connection with such Letter of Credit.
(d) The Borrower agrees to pay the Lender, on written demand,
the administrative fees charged by the Issuer in connection with the honoring of
drafts under any Letter of Credit, amendments thereto, transfers thereof and all
other activity with respect to the Letters of Credit.
(e) The Borrower hereby agrees to pay the Lender, on demand,
audit fees of $50.00 per hour per auditor in connection with any audits or
inspections by the Lender of any collateral or the operations or business of the
Borrower, together with all actual out-of-pocket costs and expenses incurred in
conducting any such audit or inspection; provided, however, such audit and
inspection fees shall not exceed $25,000.00 in any one calendar year, excluding
the pre-loan audit performed by or on behalf of Lender.
(f) The Borrower hereby agrees to pay the Lender a management
fee in the amount of $20,000.00 per annum due and payable on April 14th of each
year (commencing April 14, 1996) so long as this Agreement remains in effect and
on the Termination Date; provided, however, that upon the termination of this
Agreement in accordance with Section 2.8 Borrower shall pay that portion of the
management fee for the year of such termination equal to $20,000.00 multiplied
by a fraction, the numerator of which shall be the number of days which shall
have elapsed from the previous April 14, and the denominator of which shall be
365.
(g) The Borrower shall pay to the Lender a fee on the
aggregate face amount of any issued and outstanding Letters of Credit (computed
on the basis of actual days elapsed in a 360 day year) at the rate of 3% per
annum payable monthly.
2.16 Capital Adequacy. If the Lender shall determine that the adoption
after the date hereof of any applicable law, rule or regulation regarding
capital adequacy, or any change therein after the date hereof, any change after
the date hereof in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Lender or its
parent corporation with any guideline or request issued after the date hereof
regarding capital adequacy (whether nor not having the force of law) of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on the Lender's or the Lender's parent corporation's
capital as a consequence of the Lender's obligations hereunder to a level below
that which the Lender or its parent corporation could have achieved but for such
adoption, change or compliance (taking into consideration the Lender's policies
with respect to capital adequacy and those of the Lender's parent corporation)
by an amount deemed to the Lender or its parent corporation to be material, then
from time to time on demand by the Lender, the Borrower shall pay to the Lender
such additional amount or amounts as will compensate the Lender or its parent
corporation for such reduction. Certificates of the Lender sent to the Borrower
from time to time claiming compensation under this Section, stating the reason
therefor and setting forth in reasonable detail the calculation of the
additional amount or amounts to be paid to the Lender hereunder shall be
conclusive absent manifest error. In determining such amounts, the Lender or its
parent corporation may use any reasonable averaging and attribution methods. If,
pursuant to this Section 2.16, the Lender requires
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the Borrower to pay the additional amount or amounts as will compensate the
Lender or its parent corporation for a reduction in the rate of return on the
Lender's or the Lender's parent corporation's capital as a consequence of the
Lender's obligations hereunder, then Borrower shall have the right to prepay the
Advances in whole and terminate this Agreement, which prepayment and termination
shall not be subject to the prepayment fee set forth in Section 2.8 hereof.
ARTICLE 3
Security Interest
3.1 Grant of Security Interest. The Borrower hereby assigns and grants
to the Lender a security interest (collectively referred to as the "Security
Interests") in the Collateral, as security for the payment and performance of
each and every debt, liability and obligation of every type and description
which the Borrower may now or at any time hereafter owe to the Lender (whether
such debt, liability or obligation now exists or is hereafter created or
incurred, whether it arises in a transaction involving the Lender alone or in a
transaction involving other creditors of the Borrower, and whether it is direct
or indirect, due or to become due, absolute or contingent, primary or secondary,
liquidated or unliquidated, or sole, joint, several or joint and several, and
including specifically, but not limited to, the Obligation of Reimbursement and
all indebtedness of the Borrower arising under this Agreement, the Note, any L/C
Application completed by the Borrower or any other loan or credit agreement or
guaranty between the Borrower and the Lender, whether now in effect or hereafter
entered into; all such debts, liabilities and obligations are herein
collectively referred to as the "Obligations").
3.2 Notification of Account Debtors and Other Obligors. In addition to
the rights of the Lender under Section 6.10 hereof, with respect to any and all
rights to payment constituting Collateral, the Lender may at any time (after the
occurrence of an Event of Default) notify any account debtor or other person
obligated to pay the amount due that such right to payment has been assigned or
transferred to the Lender for security and shall be paid directly to the Lender.
The Borrower will join in giving such notice if the Lender so requests. At any
time after the Borrower or the Lender gives such notice to an account debtor or
other obligor, the Lender may, but need not, in the Lender's name or in the
Borrower's name, (a) demand, sue for, collect or receive any money or property
at any time payable or receivable on account of, or securing, any such right to
payment, or grant any extension to, make any compromise or settlement with or
otherwise agree to waive, modify, amend or change the obligations (including
collateral obligations) of any such account debtor or other obligor; and (b) as
agent and attorney in fact of the Borrower, notify the United States Postal
Service to change the address for delivery of the Borrower's mail to any address
designated by the Lender, otherwise intercept the Borrower's mail, and receive,
open and dispose of the Borrower's mail, applying all Collateral as permitted
under this Agreement and holding all other mail for the Borrower's account or
forwarding such mail to the Borrower's last known address.
3.3 Assignment of Insurance. As additional security for the payment and
performance of the Obligations, the Borrower hereby assigns to the Lender any
and all monies (including, without limitation, proceeds of insurance and refunds
of unearned premiums) due or to become due under, and all other rights of the
Borrower with respect to, any and all policies of insurance now or at any time
hereafter covering the Collateral or any evidence thereof or any business
records or valuable papers pertaining thereto, and the Borrower hereby directs
the issuer of any such policy to pay all such monies directly to the Lender. At
any time, whether before or after the occurrence of any Event of Default, the
Lender may (but need not), in the Lender's name or in the Borrower's name,
execute
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and deliver proof of claim, receive all such monies, endorse checks and other
instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.
3.4 Occupancy.
(a) The Borrower hereby irrevocably grants to the Lender the
right to take possession of the Premises at any time after the occurrence and
during the continuance of an Event of Default.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise dispose of
goods that are Collateral and for other purposes that the Lender may in good
faith deem to be related or incidental purposes.
(c) The right of the Lender to hold the Premises shall cease
and terminate upon the earlier of (A) payment in full and discharge of all
Obligations, and (B) final sale or disposition of all goods constituting
Collateral and delivery of all such goods to purchasers.
(d) The Lender shall not be obligated to pay or account for
any rent or other compensation for the possession, occupancy or use of any of
the Premises; provided, however, in the event that the Lender does pay or
account for any rent or other compensation for the possession, occupancy or use
of any of the Premises, the Borrower shall reimburse the Lender promptly for the
full amount thereof. In addition, the Borrower will pay, or reimburse the Lender
for, all taxes, fees, duties, imposts, charges and expenses at any time
reasonably incurred by or imposed upon the Lender by reason of the execution,
delivery, existence, recordation, performance or enforcement of this Agreement
or the provisions of this Section 3.4.
3.5 License. The Borrower hereby grants to the Lender a non-exclusive,
worldwide and royalty-free license to use or otherwise exploit all Trademarks,
franchises, trade names, copyrights and Patents of the Borrower for the purpose
of selling, leasing or otherwise disposing of any or all Collateral following an
Event of Default.
3.6 Security Interest in Special Account and Collateral Account. The
Borrower hereby pledges, and grants to the Lender a security interest in, all
funds held in the Special Account and in the Collateral Account from time to
time and all proceeds thereof, as security for the payment of all present and
future Obligations of Reimbursement and all other Obligations.
ARTICLE 4
Conditions of Lending
4.1 Conditions Precedent to the Initial Advance. The obligation of the
Lender to make the initial Advance under the Credit Facility, or causing to be
issued any Letter of Credit hereunder shall be subject to the condition
precedent that the Lender shall have received all of the following, each in form
and substance satisfactory to the Lender:
(a) This Agreement, properly executed on behalf of the
Borrower.
(b) The Note, properly executed on behalf of the Borrower.
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(c) A true and correct copy of any and all leases pursuant to
which the Borrower is leasing the Premises, together with a landlord's
disclaimer and consent with respect to each such lease; and with respect to any
and all of the Premises owned by Borrower a Mortgagee's disclaimer as to all
such Premises which are subject to a Mortgage, deed of trust or other lien.
(d) A Collateral Account Agreement, duly executed by the
Borrower and Norwest Bank Arizona, N.A. pursuant to which the Borrower and
Norwest Bank Arizona, N.A. establish a depository account (the "Collateral
Account") in the name of and under the sole and exclusive control of the Lender,
from which such institution agrees to transfer finally collected funds to the
Lender for application to the Advances.
(e) A Lockbox Agreement, duly executed by the Borrower and an
institution acceptable to the Lender, pursuant to which the Borrower agrees to
maintain and direct account debtors to make payment to, and such institution
agrees to maintain and process payments received in, a lockbox for the benefit
of the Lender (the "Lockbox"), from which Lockbox such institution shall
transfer funds to the Collateral Account.
(f) Current searches of appropriate filing offices showing
that (i) no state or federal tax liens have been filed and remain in effect
against the Borrower, (ii) no financing statements have been filed and remain in
effect against the Borrower, except those financing statements relating to liens
permitted pursuant to Section 7.1 hereof and those financing statements filed by
the Lender, and (iii) the Lender has duly filed all financing statements
necessary to perfect the Security Interests granted hereunder, to the extent the
Security Interests are capable of being perfected by filing.
(g) A certificate of the Secretary or an Assistant Secretary
of the Borrower, certifying as to (i) the resolutions of the directors and, if
required, the shareholders of the Borrower, authorizing the execution, delivery
and performance of this Agreement and the Security Documents, (ii) the articles
of incorporation and bylaws of the Borrower, and (iii) the signatures of the
officers or agents of the Borrower authorized to execute and deliver this
Agreement, the Loan Documents and other instruments, agreements and
certificates, including Advance requests, on behalf of the Borrower.
(h) A current certificate issued by the Secretary of State of
the state of the Borrower's incorporation, certifying that the Borrower is in
compliance with all corporate organizational requirements of such state.
(i) Evidence that the Borrower is duly licensed or qualified
to transact business in all jurisdictions where the character of the property
owned or leased or the nature of the business transacted by it makes such
licensing or qualification necessary.
(j) A certificate of an officer of the Borrower confirming, in
his personal capacity, the representations and warranties set forth in Article 5
hereof.
(k) An opinion of counsel to the Borrower, addressed to the
Lender, together with the results of a litigation search or searches showing all
actions and proceedings where the Borrower is a defendant or involving a claim
against the Borrower.
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(l) Certificates of the insurance required hereunder, with all
hazard insurance containing a lender's loss payable endorsement in favor of the
Lender and with all liability insurance naming the Lender as an additional
insured.
(m) Evidence from the Borrower satisfactory to the Lender
establishing the amount of the Borrowing Base and a request for Advance from the
Borrower in an amount such that the minimum excess loan availability of the
Borrower after such Advance (the "Initial Advance") and payment of (i) all
indebtedness owing to Foothill Capital Corporation, (ii) all trade payables of
the Borrower older than 60 days from the due date; (iii) all Bank overdrafts;
and (iv) all fees of the Lender required hereunder shall be $250,000.00.
(n) Payment of the fees and commissions due through the date
of the initial Advance, or Letter of Credit under Section 2.15 hereof and
expenses incurred by the Lender through such date and required to be paid by the
Borrower under Section 9.7 hereof.
(o) Subordination agreements satisfactory to the Lender with
respect to all Subordinated Debt and all liens securing the same.
(p) A support agreement from Michael Hartzmark in form and
substance satisfactory to the Lender.
(q) Such agreements as shall be required to grant to Lender
valid and enforceable securities interests in the Patents, Trademarks and any
contract rights necessary for the operation of Borrower's business.
(r) Such other documents as the Lender in its sole discretion
may require.
4.2 Conditions Precedent to All Advances. The obligation of the Lender
to make each Advance, or cause to be issued any Letter of Credit shall be
subject to the further conditions precedent that on such date:
(a) the representations and warranties contained in Article 5
hereof are correct on and as of the date of such Advance, or issuance of Letter
of Credit as though made on and as of such date, except to the extent that such
representations and warranties relate solely to an earlier date; and
(b) no event has occurred and is continuing, or would result
from such Advance, or the issuance of such Letter of Credit, as the case may be,
which constitutes a Default or an Event of Default.
ARTICLE 5
Representations and Warranties
The Borrower represents and warrants to the Lender as follows:
5.1 Corporate Existence and Power; Name; Chief Executive Office;
Inventory and Equipment Locations. The Borrower is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and is duly licensed or qualified to transact
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business in all jurisdictions where the character of the property owned or
leased or the nature of the business transacted by it makes such licensing or
qualification necessary. The Borrower has all requisite power and authority,
corporate or otherwise, to conduct its business, to own its properties and to
execute and deliver, and to perform all of its obligations under, the Loan
Documents. During its corporate existence, the Borrower has done business solely
under the names set forth in Exhibit B hereto. The chief executive office and
principal place of business of the Borrower is located at the address set forth
in Exhibit B hereto, and all of the Borrower's records relating to its business
or the Collateral are kept at that location. All Inventory and Equipment is
located at that location or at one of the other locations set forth in Exhibit B
hereto. The Borrower's tax identification number is correctly set forth in
Section 9.4.
5.2 Authorization of Borrowing; No Conflict as to Law or Agreements.
The execution, delivery and performance by the Borrower of the Loan Documents
and the borrowings from time to time hereunder have been duly authorized by all
necessary corporate action and do not and will not (a) require any consent or
approval of the stockholders of the Borrower, (b) require any authorization,
consent or approval by, or registration, declaration or filing with, or notice
to, any governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or notice as
has been obtained, accomplished or given prior to the date hereof, (c) violate
any provision of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System) or of any
order, writ, injunction or decree presently in effect having applicability to
the Borrower or of the Articles of Incorporation or Bylaws of the Borrower, (d)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other material agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be bound or
affected, or (e) result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature (other than the Security Interests) upon or with
respect to any of the properties now owned or hereafter acquired by the
Borrower.
5.3 Legal Agreements. This Agreement constitutes and, upon due
execution by the Borrower, the other Loan Documents will constitute the legal,
valid and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms.
5.4 Subsidiaries. Except as set forth in Exhibit B attached hereto, the
Borrower has no Subsidiaries.
5.5 Financial Condition; No Adverse Change. The Borrower has heretofore
furnished to the Lender audited financial statements of the Borrower for its
fiscal year ended December 31, 1994, and unaudited financial statements of the
Borrower for the months ended February 28, 1995, and those statements fairly
present the financial condition of the Borrower on the dates thereof and the
results of its operations and cash flows for the periods then ended and were
prepared in accordance with generally accepted accounting principles. Since the
date of the most recent financial statements, there has been no material adverse
change in the business, properties or condition (financial or otherwise) of the
Borrower.
5.6 Litigation. There are no actions, suits or proceedings pending or,
to the knowledge of the Borrower, threatened against or affecting the Borrower
or any of its Affiliates or the properties of the Borrower or any of its
Affiliates before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which, if determined
adversely to the
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Borrower or any of its Affiliates, would have a material adverse effect on the
financial condition, properties or operations of the Borrower or any of its
Affiliates.
5.7 Regulation U. The Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any Advance will be used to purchase or
carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock.
5.8 Taxes. The Borrower and its Affiliates have paid or caused to be
paid to the proper authorities when due all federal, state and local taxes
required to be withheld by each of them. The Borrower and its Affiliates have
filed all federal, state and local tax returns which to the knowledge of the
officers of the Borrower or any Affiliate, as the case may be, are required to
be filed, and the Borrower and its Affiliates have paid or caused to be paid to
the respective taxing authorities all taxes as shown on said returns or on any
assessment received by any of them to the extent such taxes have become due.
5.9 Titles and Liens. The Borrower has good and absolute title to all
Collateral described in the collateral reports provided to the Lender and all
other Collateral, properties and assets reflected in the latest balance sheet
referred to in Section 5.5 hereof and all proceeds thereof, free and clear of
all mortgages, security interests, liens and encumbrances, except for (i)
mortgages, security interests and liens permitted by Section 7.1 hereof, and
(ii) in the case of any such property which is not Collateral or other
collateral described in the Security Documents, covenants, restrictions, rights,
easements and minor irregularities in title which do not materially interfere
with the business or operations of the Borrower as presently conducted. No
financing statement naming the Borrower as debtor is on file in any office
except to perfect only security interests permitted by Section 7.1 hereof.
5.10 Plans. Except as disclosed to the Lender in writing prior to the
date hereof, neither the Borrower nor any of its Affiliates maintains or has
maintained any Plan. Neither the Borrower nor any Affiliate has received any
notice or has any knowledge to the effect that it is not in full compliance with
any of the requirements of ERISA. No Reportable Event or other fact or
circumstance which may have an adverse effect on the Plan's tax qualified status
exists in connection with any Plan. Neither the Borrower nor any of its
Affiliates has:
(a) Any accumulated funding deficiency within the meaning of
ERISA; or
(b) Any liability or knows of any fact or circumstances which
could result in any liability to the Pension Benefit Guaranty Corporation, the
Internal Revenue Service, the Department of Labor or any participant in
connection with any Plan (other than accrued benefits which or which may become
payable to participants or beneficiaries of any such Plan).
5.11 Default. The Borrower is in compliance with all provisions of all
agreements, instruments, decrees and orders to which it is a party or by which
it or its property is bound or affected, the breach or default of which could
have a material adverse effect on the financial condition, properties or
operations of the Borrower.
5.12 Environmental Protection. The Borrower has obtained all permits,
licenses and other authorizations which are required under federal, state and
local laws and regulations relating to
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emissions, discharges, releases of pollutants, contaminants, hazardous or toxic
materials, or wastes into ambient air, surface water, ground water or land, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants or
hazardous or toxic materials or wastes ("Environmental Laws") at the Borrower's
facilities or in connection with the operation of its facilities. The Borrower
shall provide copies of all such permits, licenses and other authorizations to
the Lender upon the Lender's request. The Borrower also shall provide to the
Lender copies of all environmental investigation and inspection reports
available to the Borrower that pertain to the Borrower's facilities, upon the
Lender's request. Except as previously disclosed to the Lender in writing, to
the best of Borrower's knowledge after due and diligent investigation, the
Borrower and all activities of the Borrower at its facilities comply with all
Environmental Laws and with all terms and conditions of any required permits,
licenses and authorizations applicable to the Borrower with respect thereto.
Except as previously disclosed to the Lender in writing, the Borrower is also in
compliance with all limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
Environmental Laws or contained in any plan, order, decree, judgment or notice
of which the Borrower is aware. Except as previously disclosed to the Lender in
writing, to the best of Borrower's knowledge after due and diligent
investigation, the Borrower is not aware of, nor has the Borrower received
notice of, any events, conditions, circumstances, activities, practices,
incidents, actions or plans which may interfere with or prevent continued
compliance with, or which may give rise to any liability under, any
Environmental Laws. Except as previously disclosed to the Lender in writing, the
Borrower has received no inquiry from any federal, state or local agency
concerning the Borrower's facilities or any adjacent properties involving
possible environmental contamination or violations of any Environmental Laws,
and has no knowledge of any such inquiry to any party concerning the Borrower's
facilities or any adjacent properties. The Borrower agrees to notify Lender
promptly in writing of any inquiries by third parties or regulatory agencies
concerning the possible presence of environmental contamination on the
Borrower's facilities or any adjacent properties or concerning any possible
violations of Environmental Laws involving the Borrower's facilities or any
adjacent properties. The Lender shall have the right to enter the Borrower's
facilities for the purpose of conducting environmental investigations, including
taking soil and water samples, during the Borrower's normal business hours of
operation and without unreasonable interference with Borrower's business
operations.
5.13 Submissions to the Lender. All financial and other information
provided to the Lender by or on behalf of the Borrower in connection with the
Borrower's request for the credit facilities contemplated hereby is true and
correct in all material respects and, as to projections, valuations or proforma
financial statements, present a good faith opinion as to such projections,
valuations and proforma condition and results.
5.14 Financing Statements. The Borrower has provided to the Lender
signed financing statements sufficient when filed to perfect the Security
Interests and the other security interests created by the Security Documents.
When such financing statements are filed in the offices noted therein, the
Lender will have a valid and perfected security interest in all Collateral and
all other collateral described in the Security Documents which is capable of
being perfected by filing financial statements. None of the Collateral or other
collateral covered by the Security Documents is or will become a fixture on real
estate, unless a sufficient fixture filing is in effect with respect thereto.
5.15 Rights to Payment. Each right to payment and each instrument,
document, chattel paper and other agreement constituting or evidencing
Collateral or other collateral covered by the Security Documents is (or, in the
case of all future Collateral or such other collateral, will be when
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arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in the Borrower's records pertaining thereto as being
obligated to pay such obligation.
ARTICLE 6
Affirmative Covenants of the Borrower
So long as the Note shall remain unpaid, the Credit Facility or any
Letter of Credit shall be outstanding, the Borrower will comply with the
following requirements, unless the Lender shall otherwise consent in writing:
6.1 Reporting Requirements. The Borrower will deliver, or cause to be
delivered, to the Lender each of the following, which shall be in form and
detail acceptable to the Lender:
(a) as soon as available, and in any event within 120 days
after the end of each fiscal year of the Borrower, audited financial statements
of the Borrower with the unqualified opinion of independent certified public
accountants selected by the Borrower and acceptable to the Lender, which annual
financial statements shall include the balance sheet of the Borrower as at the
end of such fiscal year and the related statements of income, retained earnings
and cash flows of the Borrower for the fiscal year then ended, prepared, if the
Lender so requests, on a consolidating and consolidated basis to include any
Affiliates, all in reasonable detail and prepared in accordance with generally
accepted accounting principles applied on a basis consistent with the accounting
practices applied in the financial statements referred to in Section 5.5 hereof,
together with (i) a report signed by such accountants stating whether or not the
Borrower is in compliance with the requirements set forth in Sections 6.12
through 6.14 and Sections 7.10, 7.17 and 7.19 hereof; and (ii) a certificate of
the chief financial officer of the Borrower stating that such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a basis consistent with the accounting practices reflected
in the annual financial statements referred to in Section 5.5 hereof and whether
or not such officer has knowledge of the occurrence of any Default or Event of
Default hereunder and, if so, stating in reasonable detail the facts with
respect thereto;
(b) as soon as available and in any event within 30 days after
the end of each month, an unaudited/internal balance sheet and statements of
income and retained earnings of the Borrower as at the end of and for such month
and for the year to date period then ended, prepared, if the Lender so requests,
on a consolidating and consolidated basis to include any Affiliates, in
reasonable detail and stating in comparative form the figures for the
corresponding date and periods in the previous year, all prepared in accordance
with generally accepted accounting principles applied on a basis consistent with
the accounting practices reflected in the financial statements referred to in
Section 5.5 hereof, subject to year-end audit adjustments; and accompanied by a
certificate of the chief financial officer of the Borrower, substantially in the
form of Exhibit D hereto stating (i) that such financial statements have been
prepared in accordance with generally accepted accounting principles applied on
a basis consistent with the accounting practices reflected in the financial
statements referred to in Section 5.5 hereof, subject to year-end audit
adjustments, (ii) whether or not such officer has knowledge of the occurrence of
any Default or Event of Default hereunder not theretofore reported and remedied
and, if so, stating in reasonable detail the facts with respect thereto, and
(iii) all relevant facts in reasonable detail to evidence, and the computations
as to, whether or not the Borrower is in compliance with the requirements set
forth in Sections 6.12 through 6.14 and Sections 7.10, 7.17 and 7.19 hereof;
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(c) within 15 days after the end of each month, agings of the
Borrower's accounts receivable and its accounts payable and an inventory
certification report as at the end of such month;
(d) at least 30 days before the beginning of each fiscal year
of the Borrower, the projected balance sheets and income statements for each
month of such year, each in reasonable detail, representing the good faith
projections of the Borrower and certified by the Borrower's chief financial
officer as being the most accurate projections available and identical to the
projections used by the Borrower for internal planning purposes, together with
such supporting schedules and information as the Lender may in its discretion
require;
(e) immediately after the commencement thereof, notice in
writing of all litigation and of all proceedings before any governmental or
regulatory agency affecting the Borrower of the type described in Section 5.6
hereof or which seek a monetary recovery against the Borrower in excess of
$100,000.00;
(f) as promptly as practicable (but in any event not later
than five business days) after an officer of the Borrower obtains knowledge of
the occurrence of any breach, default or event of default under any Security
Document or any event which constitutes a Default or Event of Default hereunder,
notice of such occurrence, together with a detailed statement by a responsible
officer of the Borrower of the steps being taken by the Borrower to cure the
effect of such breach, default or event;
(g) as soon as possible and in any event within 30 days after
the Borrower knows or has reason to know that any Reportable Event with respect
to any Plan has occurred, the statement of the chief financial officer of the
Borrower setting forth details as to such Reportable Event and the action which
the Borrower proposes to take with respect thereto, together with a copy of the
notice of such Reportable Event to the Pension Benefit Guaranty Corporation;
(h) as soon as possible, and in any event within 10 days after
the Borrower fails to make any quarterly contribution required with respect to
any Plan under Section 412(m) of the Internal Revenue Code of 1986, as amended,
the statement of the chief financial officer of the Borrower setting forth
details as to such failure and the action which the Borrower proposes to take
with respect thereto, together with a copy of any notice of such failure
required to be provided to the Pension Benefit Guaranty Corporation;
(i) promptly upon knowledge thereof, notice of (i) any
disputes or claims in excess of $25,000.00 by customers of the Borrower; (ii)
any credits for goods returned to or recovered by the Borrower; and (iii) any
change in the persons constituting the officers and directors of the Borrower;
(j) promptly upon knowledge thereof, notice of any loss of or
material damage to any Collateral or other collateral covered by the Security
Documents or of any substantial adverse change in any Collateral or such other
collateral or the prospect of payment thereof;
(k) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have sent to
its stockholders;
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(l) promptly after the sending or filing thereof, copies of
all regular and periodic financial reports which the Borrower shall file with
the Securities and Exchange Commission or any national securities exchange;
(m) promptly upon knowledge thereof, notice of the violation
by the Borrower of any law, rule or regulation, the non-compliance with which
could materially and adversely affect its business or its financial condition;
and
(n) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment schedules,
copies of invoices to account debtors, shipment documents and delivery receipts
for goods sold, and such other material, reports, records or information as the
Lender may request.
(o) on each Banking Day a report of Receivables, collections
and deposit information of the Borrower.
6.2 Books and Records; Inspection and Examination. The Borrower will
keep accurate books of record and account for itself pertaining to the
Collateral and pertaining to the Borrower's business and financial condition and
such other matters as the Lender may from time to time request in which true and
complete entries will be made in accordance with generally accepted accounting
principles consistently applied and, upon request of the Lender, will permit any
officer, employee, attorney or accountant for the Lender to audit, review, make
extracts from or copy any and all corporate and financial books and records of
the Borrower at all times during ordinary business hours, to send and discuss
with account debtors and other obligors requests for verification of amounts
owed to the Borrower, and to discuss the affairs of the Borrower with any of its
directors, officers, employees or agents. The Borrower will permit the Lender,
or its employees, accountants, attorneys or agents, to examine and inspect any
Collateral, other collateral covered by the Security Documents or any other
property of the Borrower at any time during ordinary business hours.
6.3 Account Verification. The Borrower will at any time and from time
to time upon request of the Lender send requests for verification of accounts or
notices of assignment to account debtors and other obligors.
6.4 Compliance with Laws; Environmental Indemnity. The Borrower will
(a) comply with the requirements of applicable laws and regulations, the
non-compliance with which would materially and adversely affect its business or
its financial condition, (b) comply with all applicable Environmental Laws and
obtain any permits, licenses or similar approvals required by any such
Environmental Laws, and (c) use and keep the Collateral, and will require that
others use and keep the Collateral, only for lawful purposes, without violation
of any federal, state or local law, statute or ordinance. The Borrower will
indemnify, defend and hold the Lender harmess from and against any claims, loss
or damage to which the Lender may be subjected as a result of any past, present
or future existence, use, handling, storage, transportation or disposal of any
hazardous waste or substance or toxic substance by the Borrower or on property
owned, leased or controlled by the Borrower. This indemnification agreement
shall survive the termination of this Agreement and payment of the indebtedness
hereunder.
6.5 Payment of Taxes and Other Claims. The Borrower will pay or
discharge, when due, (a) all taxes, assessments and governmental charges levied
or imposed upon it or upon its income
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or profits, upon any properties belonging to it (including, without limitation,
the Collateral) or upon or against the creation, perfection or continuance of
the Security Interests, prior to the date on which penalties attach thereto, (b)
all federal, state and local taxes required to be withheld by it, and (c) all
lawful claims for labor, materials and supplies which, if unpaid, might by law
become a lien or charge upon any properties of the Borrower; provided, that the
Borrower shall not be required to pay any such tax, assessment, charge or claim
whose amount, applicability or validity is being contested in good faith by
appropriate proceedings and so long as the Collateral and Lender's lien thereon
is not in any manner impaired by any enforcement remedy available to the tax
levying entity during the period of such contest.
6.6 Maintenance of Properties.
(a) The Borrower will keep and maintain the Collateral, the
other collateral covered by the Security Documents and all of its other
properties necessary or useful in its business in good condition, repair and
working order (normal wear and tear excepted) and will from time to time replace
or repair any worn, defective or broken parts; provided, however, that nothing
in this Section 6.6 shall prevent the Borrower from discontinuing the operation
and maintenance of any of its properties if such discontinuance is, in the
judgment of the Lender, desirable in the conduct of the Borrower's business and
not disadvantageous in any material respect to the Lender.
(b) The Borrower will defend the Collateral against all claims
or demands of all persons (other than the Lender) claiming the Collateral or any
interest therein.
(c) The Borrower will keep all Collateral and other collateral
covered by the Security Documents free and clear of all security interests,
liens and encumbrances except the Security Interests and other security
interests permitted by Section 7.1 hereof.
6.7 Insurance. The Borrower will obtain and at all times maintain
insurance with insurers believed by the Borrower to be responsible and
reputable, in such amounts and against such risks as may from time to time be
required by the Lender, but in all events in such amounts and against such risks
as is usually carried by companies engaged in similar business and owning
similar properties in the same general areas in which the Borrower operates. If
the Lender increases the amounts of insurance required to be maintained by the
Borrower, the Borrower shall have 20 days to obtain such increased limits of
insurance. Without limiting the generality of the foregoing, the Borrower will
at all times keep all tangible Collateral insured against risks of fire
(including so-called extended coverage), theft, collision (for Collateral
consisting of motor vehicles) and such other risks and in such amounts as the
Lender may reasonably request, with any loss payable to the Lender to the extent
of its interest, and all policies of such insurance shall contain a lender's
loss payable endorsement for the benefit of the Lender. All policies of
liability insurance required hereunder shall name the Lender as an additional
insured.
6.8 Preservation of Corporate Existence. The Borrower will preserve and
maintain its corporate existence and all of its rights, privileges and
franchises necessary or desirable in the normal conduct of its business and
shall conduct its business in an orderly, efficient and regular manner.
6.9 Delivery of Instruments, etc. Upon request by the Lender, the
Borrower will promptly deliver to the Lender in pledge all instruments,
documents and chattel papers constituting Collateral, duly endorsed or assigned
by the Borrower.
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6.10 Lockbox; Collateral Account.
(a) The Borrower will irrevocably direct all present and
future Account debtors and other Persons obligated to make payments constituting
Collateral to make such payments directly to the Lockbox. All of the Borrower's
invoices, account statements and other written or oral communications directing,
instructing, demanding or requesting payment of any Account or any other amount
constituting Collateral shall conspicuously direct that all payments be made to
the Lockbox and shall include the Lockbox address. All payments received in the
Lockbox shall be processed to the Collateral Account.
(b) The Borrower agrees to deposit in the Collateral Account
or, at the Lender's option, to deliver to the Lender all collections on
Accounts, contract rights, chattel paper and other rights to payment
constituting Collateral, and all other proceeds of Collateral, which the
Borrower may receive directly notwithstanding its direction to Account debtors
and other obligors to make payments to the Lockbox, immediately upon receipt
thereof, in the form received, except for the Borrower's endorsement when deemed
necessary. Until delivered to the Lender or deposited in the Collateral Account,
all proceeds or collections of Collateral shall be held in trust by the Borrower
for and as the property of the Lender and shall not be commingled with any funds
or property of the Borrower. Amounts deposited in the Collateral Account shall
not bear interest and shall not be subject to withdrawal by the Borrower, except
after full payment and discharge of all Obligations. All such collections shall
constitute proceeds of Collateral and shall not constitute payment of any
Obligation. Collected funds from the Collateral Account shall be transferred to
the Lender's general account, and the Lender may deposit in its general account
or in the Collateral Account any and all collections received by it directly
from the Borrower. The Lender may commingle such funds with other property of
the Lender or any other person. The Lender from time to time at its discretion
may, after allowing 2 Banking Days, apply such funds to the payment of any and
all Obligations, in any order or manner of application satisfactory to the
Lender. All items delivered to the Lender or deposited in the Collateral Account
shall be subject to final payment. If any such item is returned uncollected, the
Borrower will immediately pay the Lender, or, for items deposited in the
Collateral Account, the bank maintaining such account, the amount of that item,
or such bank at its discretion may charge any uncollected item to the Borrower's
commercial account or other account. The Borrower shall be liable as an endorser
on all items deposited in the Collateral Account, whether or not in fact
endorsed by the Borrower.
6.11 Performance by the Lender. If the Borrower at any time fails to
perform or observe any of the foregoing covenants contained in this Article 6 or
elsewhere herein, and if such failure shall continue for a period of ten
calendar days after the Lender gives the Borrower written notice thereof (or in
the case of the agreements contained in Sections 6.5, 6.7 and 6.10 hereof,
immediately upon the occurrence of such failure, without notice or lapse of
time), the Lender may, but need not, perform or observe such covenant on behalf
and in the name, place and stead of the Borrower (or, at the Lender's option, in
the Lender's name) and may, but need not, take any and all other actions which
the Lender may reasonably deem necessary to cure or correct such failure
(including, without limitation, the payment of taxes, the satisfaction of
security interests, liens or encumbrances, the performance of obligations owed
to account debtors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing
statements, and the endorsement of instruments); and the Borrower shall
thereupon pay to the Lender on demand the amount of all monies expended and all
costs and expenses (including reasonable attorneys' fees and legal expenses)
incurred by the Lender in connection with or as a result of the performance or
observance of such agreements or the taking of such action by the
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Lender, together with interest thereon from the date expended or incurred at the
Floating Rate. To facilitate the performance or observance by the Lender of such
covenants of the Borrower, the Borrower hereby irrevocably appoints the Lender,
or the delegate of the Lender, acting alone, as the attorney in fact of the
Borrower (which appointment is coupled with an interest) with the right (but not
the duty) from time to time to create, prepare, complete, execute, deliver,
endorse or file in the name and on behalf of the Borrower any and all
instruments, documents, assignments, security agreements, financing statements,
applications for insurance and other agreements and writings required to be
obtained, executed, delivered or endorsed by the Borrower under this Section
6.11.
6.12 Debt Service Coverage Ratio. The Borrower agrees that it shall as
of the last day of each calendar month, on and after June 30, 1995, maintain the
average minimum debt service coverage ratio required below based upon the
immediately preceding 12 month period; provided, however, that until February 1,
1996, such calculation shall be based on the period from January 1, 1995, until
the date of calculation. The average minimum debt service coverage ratio as of
the last day of each calendar month beginning June 30, 1995, through August 31,
1995, shall be 1.0. The average minimum debt service coverage ratio as of the
last day of each calendar month beginning September 30, 1995, through November
30, 1995, shall be 1.10. The average minimum debt service coverage ratio as of
the last day of each calendar month on and after December 31, 1995, shall be
1.20. The debt service coverage ratio shall be calculated according to the
following formula.
Funds from Operations + Interest Expense - Unfinanced Portion of Capital Expense
- --------------------------------------------------------------------------------
Current Maturities Long Term Debt + Interest Expense
In making the foregoing calculation Interest Expenses shall not include
any interest on Subordinated Indebtedness, the payment of which is accrued but
deferred under the terms of a subordination agreement between the holder of such
debt and Lender in accordance with the provisions of Section 7.19 until such
interest is actually paid.
6.13 Adjusted Net Worth. The Borrower will at all times maintain a
minimum book Adjusted Net Worth of $3,550,000.00 as of the last day of each
calendar month; provided, however, that such minimum Adjusted Net Worth shall be
increased by $100,000.00 per fiscal quarter over the minimum of $3,550,000.00
commencing June 30, 1995. Adjusted Net Worth decreases for any one calendar
month will be permitted so long as the Adjusted Net Worth minimums set forth
herein are achieved.
6.14 Net Income. Borrower will, as of the last day of each fiscal
quarter beginning with the quarter ending June 30, 1995, achieve a minimum Net
Income as follows:
(a) as of June 30, 1995, for the preceding two fiscal
quarters, a cumulative Net Income of not less than $150,000.00;
(b) as of September 30, 1995, for the preceding three fiscal
quarters, a cumulative Net Income of not less than $225,000.00;
(c) as of December 31, 1995, for the preceding four fiscal
quarters, a cumulative Net Income of not less than $275,000.00;
(d) as of each March 31 commencing with March 31, 1996, for
the preceding fiscal quarter, a cumulative Net Income of not less than
$125,000.00;
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(e) as of each June 30 commencing with June 30, 1996, for the
preceding two fiscal quarters, a cumulative Net Income of not less than
$275,000.00;
(f) as of each September 30 commencing with September 30,
1996, for the preceding three fiscal quarters, a cumulative Net Income of not
less than $350,000.00;
(g) as of each December 31 commencing with December 31, 1996,
for the preceding four fiscal quarters, a cumulative Net Income of not less than
$400,000.00.
ARTICLE 7
Negative Covenants
So long as the Note shall remain unpaid, the Credit Facility shall be
outstanding or any Letter of Credit shall be outstanding, the Borrower agrees
that, without the prior written consent of the Lender:
7.1 Liens. The Borrower will not create, incur or suffer to exist any
mortgage, deed of trust, pledge, lien, security interest, assignment or transfer
upon or of any of its assets, now owned or hereafter acquired, to secure any
indebtedness; excluding, however, from the operation of the foregoing:
(a) mortgages, deeds of trust, pledges, liens, security
interests and assignments in existence on the date hereof and listed in Exhibit
C hereto, securing indebtedness for borrowed money permitted under Section
7.2(b) hereof;
(b) the Security Interests; and
(c) purchase money security interests relating to Capital
Expenditures (and which attach only to the assets acquired by such Capital
Expenditures) made after the date of this Agreement by the Borrower or any
Affiliate so long as the Borrower is in, and maintains, compliance with every
other provision of this Agreement.
7.2 Indebtedness. The Borrower will not incur, create, assume or permit
to exist any indebtedness or liability on account of deposits or advances or any
indebtedness for borrowed money, or any other indebtedness or liability
evidenced by notes, bonds, debentures or similar obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date
hereof and listed in Exhibit C hereto; and
(c) indebtedness relating to liens permitted in accordance
with Section 7.1(c) hereof.
7.3 Guaranties. The Borrower will not assume, guarantee, endorse or
otherwise become directly or contingently liable in connection with any
obligations of any other Person, except:
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(a) the endorsement of negotiable instruments by the Borrower
for deposit or collection or similar transactions in the ordinary course of
business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons in existence on
the date hereof and listed in Exhibit C hereto.
7.4 Investments and Subsidiaries.
(a) The Borrower will not, without the prior written consent
of Lender, purchase or hold beneficially any stock or other securities or
evidences of indebtedness of, make or permit to exist any loans or advances to,
or make any investment or acquire any interest whatsoever in, any other Person,
including specifically but without limitation any partnership or joint venture,
except:
(i) investments in direct obligations of the United
States of America or any agency or instrumentality thereof whose obligations
constitute full faith and credit obligations of the United States of America
having a maturity of one year or less, commercial paper issued by U.S.
corporations rated "A-1" or "A-2" by Standard & Poors Corporation or "P-1" or
"P-2" by Moody's Investors Service or certificates of deposit or bankers'
acceptances having a maturity of one year or less issued by members of the
Federal Reserve System having deposits in excess of $100,000,000.00 (which
certificates of deposit or bankers' acceptances are fully insured by the Federal
Deposit Insurance Corporation);
(ii) travel advances or loans to officers and
employees of the Borrower not exceeding at any one time an aggregate of
$20,000.00; and
(iii) advances in the form of progress payments,
prepaid rent or security deposits.
(b) The Borrower will not, without the prior written consent
of Lender, create or permit to exist any Subsidiary, other than any Subsidiary
in existence on the date hereof and listed in Exhibit B hereto.
7.5 Dividends. The Borrower will not declare or pay any dividends
(other than dividends payable solely in stock of the Borrower) on any class of
its stock or make any payment on account of the purchase, redemption or other
retirement of any shares of such stock or make any distribution in respect
thereof, either directly or indirectly; provided, however, that if the Borrower
is an S Corporation within the meaning of the Internal Revenue Code of 1986, as
amended, or shall become such an S Corporation with the Lender's consent under
Section 7.16 hereof, and after first providing such supporting documentation as
the Lender may request, the Borrower may pay dividends in an amount equal to the
amount of state and federal income tax which would be due by each shareholder
with respect to income deemed to be received by such shareholder from the
Borrower as a result of the Borrower's status as an S Corporation at the highest
marginal income tax rate for federal and state (for the state or states in which
each shareholder is liable for income taxes with respect to such income) income
tax purposes, after taking into account any deduction for state income taxes in
calculating the federal income tax liability.
7.6 Sale or Transfer of Assets; Suspension of Business Operations. The
Borrower will not sell, lease, assign, transfer or otherwise dispose of (i) the
stock of any Subsidiary, (ii) all or a substantial part of its assets, or (iii)
any Collateral or any interest therein (whether in one transaction
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or in a series of transactions) to any other Person other than (x) the sale of
Inventory in the ordinary course of business, (y) the sale or disposal of
equipment worn out in the ordinary course of business and replaced by equipment
of comparable use and value, and (z) the Equipment listed on Exhibit G and the
Borrower will not liquidate, dissolve or suspend business operations. The
Borrower will not in any manner transfer any property without prior or present
receipt of full and adequate consideration.
7.7 Consolidation and Merger; Asset Acquisitions. The Borrower will not
consolidate with or merge into any Person, or permit any other Person to merge
into it, or acquire (in a transaction analogous in purpose or effect to a
consolidation or merger) all or substantially all the assets of any other
Person.
7.8 Sale and Leaseback. The Borrower will not enter into any
arrangement, directly or indirectly, with any other Person whereby the Borrower
shall sell or transfer any real or personal property, whether now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which the Borrower intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.
7.9 Restrictions on Nature of Business. The Borrower will not engage in
any line of business materially different from that presently engaged in by the
Borrower and will not purchase, lease or otherwise acquire assets not related to
its business.
7.10 Capital Expenditures. The Borrower will not expend or contract to
make Capital Expenditure greater than (i) $300,000.00 in the aggregate during
fiscal year 1995, (ii) $400,000.00 in the aggregate for fiscal year 1996; and
(iii) $500,000.00 in the aggregate for each fiscal year thereafter, whether
payable currently or in the future.
7.11 Accounting. The Borrower will not adopt any material change in
accounting principles other than as required by generally accepted accounting
principles. The Borrower will not adopt, permit or consent to any change in its
fiscal year.
7.12 Discounts, etc. The Borrower will not, after notice from the
Lender, grant any discount, credit or allowance to any customer of the Borrower
or accept any return of goods sold other than to the extent customary and
standard in Borrower's normal business practices, or at any time (whether before
or after notice from the Lender) modify, amend, subordinate, cancel or terminate
the obligation of any account debtor or other obligor of the Borrower.
7.13 Defined Benefit Pension Plans. The Borrower will not adopt,
create, assume or become a party to any deemed benefit pension plan, unless
disclosed to the Lender pursuant to Section 5.10 hereof.
7.14 Other Defaults. The Borrower will not permit any breach, default
or event of default to occur under any note, loan agreement, indenture, lease,
mortgage, contract for deed, security agreement or other contractual obligation
binding upon the Borrower.
7.15 Place of Business; Name. The Borrower will not transfer its chief
executive office or principal place of business, or move, relocate, close or
sell any business location. The Borrower will not permit any tangible Collateral
or any records pertaining to the Collateral to be located in any state or area
in which, in the event of such location, a financing statement covering such
Collateral
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would be required to be, but has not in fact been, filed in order to perfect the
Security Interests. The Borrower will not change its name.
7.16 Organizational Documents; S Corporation Status. The Borrower will
not amend its certificate of incorporation, articles of incorporation or bylaws.
The Borrower will not become an S Corporation within the meaning of the Internal
Revenue Code of 1986, as amended, or, if the Borrower already is such an S
Corporation, it shall not change or rescind its status as an S Corporation.
7.17 Salaries. The Borrower will not pay excessive or unreasonable
salaries, bonuses, commissions, consultant fees or other compensation; or
increase the salary, bonus, commissions, consultant fees or other compensation
of any director (including the compensation paid to a director for their service
as an officer or consultant), or any member of their families, by more than 20%
in any one year, either individually or for all such persons in the aggregate,
or pay any such increase from any source other than profits earned in the year
of payment.
7.18 Change in Ownership. The Borrower will not issue or sell any stock
of the Borrower and will not permit or suffer to occur the sale, transfer,
assignment, pledge or other disposition of any or all of the issued and
outstanding shares of stock of the Borrower if the result shall be to vest
majority ownership of Borrower or the control of the majority of any class of
voting stock of Borrower in any Person or Persons other than those Persons who
constitute the majority shareholders of Borrower as of the date of this
Agreement.
7.19 Payments on Subordinated Indebtedness. The Borrower will not make
any payment of principal or interest on any Subordinated Indebtedness so long as
any of the Obligations are outstanding. Notwithstanding the foregoing, in each
fiscal year the Borrower may make payments (i) in an amount equal to 25% of
Borrower's Excess Cash Flow on the Investor Debt payable by the Borrower
semi-annually upon receipt by the Lender of the Borrower's June 30 unaudited
statement showing such calculation and upon receipt by the Lender of the
Borrower's audited financial statement for the fiscal year; (ii) of regularly
scheduled principal and interest payments on the Seller Debt; and (iii)
regularly scheduled payments of interest and after July 1, 1995, of all
principal and interest owing on the Bridge Loan; provided, however, that at the
time of any such payment on the Subordinated Indebtedness each of the following
conditions are satisfied;
(a) No Default Period exists and such payment does not and
will not result in a Default or Event of Default;
(b) The average unborrowed availability under the Commitment
less the L/C Amount for the 30 day period immediately preceding such payment as
shown in the Lender's records shall equal not less than $250,000.00; and
(c) Upon such payment by the Borrower the unborrowed
availability under the Commitment, less the L/C Amount shall total not less than
$250,000.00.
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ARTICLE 8
Events of Default, Rights and Remedies
8.1 Events of Default. "Event of Default", wherever used herein, means
any one of the following events:
(a) Default in the payment of any interest on or principal of
the Note when it becomes due and payable; or
(b) Failure to pay when due any amount specified in Section
2.5 hereof relating to the Borrower's Obligation of Reimbursement, or failure to
pay immediately when due or upon termination of the Credit Facility any amounts
required to be paid for deposit in the Special Account under Section 2.5 or 3.6
hereof; or
(c) Default in the payment of any fees, commissions, costs or
expenses required to be paid by the Borrower under this Agreement; or
(d) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement; provided, however, that
in the case of a Default arising under Section 6.1, 6.6(a) or 6.6(b) the
Borrower shall have 5 days (or such longer time as may be consented to in
writing by the Lender in its sole discretion) to cure such Default before it
shall constitute an Event of Default; or
(e) The Borrower shall be or become insolvent, or admit in
writing its inability to pay its or his debts as they mature, or make an
assignment for the benefit of creditors; or the Borrower shall apply for or
consent to the appointment of any receiver, trustee, or similar officer for it
or him or for all or any substantial part of its or his property; or such
receiver, trustee or similar officer shall be appointed without the application
or consent of the Borrower; or the Borrower shall institute (by petition,
application, answer, consent or otherwise) any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt, dissolution, liquidation or
similar proceeding relating to it under the laws of any jurisdiction; or any
such proceeding shall be instituted (by petition, application or otherwise)
against the Borrower; or any judgment, writ, warrant of attachment, garnishment
or execution or similar process shall be issued or levied against a substantial
part of the property of the Borrower; or
(f) A petition shall be filed by or against the Borrower under
the United States Bankruptcy Code naming the Borrower as debtor; provided,
however, that in the case of an involuntary petition filed against Borrower it
shall not be an Event of Default unless Borrower shall have failed to have such
petition dismissed within 60 days from the date of its filing; or
(g) Any representation or warranty made by the Borrower in
this Agreement, or by the Borrower (or any of its officers) in any agreement,
certificate, instrument or financial statement or other statement contemplated
by or made or delivered pursuant to or in connection with this Agreement or any
such guaranty shall prove to have been incorrect in any material respect when
deemed to be effective; or
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(h) The rendering against the Borrower of a final judgment,
decree or order for the payment of money in excess of $100,000.00 and the
continuance of such judgment, decree or order unsatisfied and in effect for any
period of 30 consecutive days without a stay of execution; or
(i) A default under any bond, debenture, note or other
evidence of indebtedness of the Borrower owed to any Person other than the
Lender and other than the failure to make payments on the Subordinated
Indebtedness, or default under any indenture or other instrument under which any
such evidence of indebtedness has been issued or by which it is governed, or
under any lease of any of the Premises, and the expiration of the applicable
period of grace, if any, specified in such evidence of indebtedness, indenture,
other instrument or lease; or
(j) Any Reportable Event, which the Lender determines in good
faith might constitute grounds for the termination of any Plan or for the
appointment by the appropriate United States District Court of a trustee to
administer any Plan, shall have occurred and be continuing 30 days after written
notice to such effect shall have been given to the Borrower by the Lender; or a
trustee shall have been appointed by an appropriate United States District Court
to administer any Plan; or the Pension Benefit Guaranty Corporation shall have
instituted proceedings to terminate any Plan or to appoint a trustee to
administer any Plan; or the Borrower shall have filed for a distress termination
of any Plan under Title IV of ERISA; or the Borrower shall have failed to make
any quarterly contribution required with respect to any Plan under Section
412(m) of the Internal Revenue Code of 1986, as amended, which the Lender
determines in good faith may by itself, or in combination with any such failures
that the Lender may determine are likely to occur in the future, result in the
imposition of a lien on the assets of the Borrower in favor of the Plan; or
(k) An event of default shall occur under any Security
Document or under any other security agreement, mortgage, deed of trust,
assignment or other instrument or agreement securing any obligations of the
Borrower hereunder or under any note; or
(l) The Borrower shall liquidate, dissolve, terminate or
suspend its business operations or otherwise fail to operate its business in the
ordinary course, or sell all or substantially all of its assets, without the
prior written consent of the Lender; or
(m) The Borrower shall fail to pay, withhold, collect or remit
any tax or tax deficiency when assessed or due (other than any tax deficiency
which is being contested in good faith and by proper proceedings and for which
it shall have set aside on its books adequate reserves therefor) or notice of
any state or federal tax liens shall be filed or issued; or
(n) Default in the payment of any amount owed by the Borrower
to the Lender other than any indebtedness arising hereunder; or
(o) Any breach, default or event of default by or attributable
to any Affiliate under any agreement between such Affiliate and the Lender.
8.2 Rights and Remedies. Upon the occurrence of an Event of Default or
at any time thereafter during the resulting Default Period, the Lender may
exercise any or all of the following rights and remedies:
(a) The Lender may, by notice to the Borrower, declare the
Credit Facility to be terminated, whereupon the same shall forthwith terminate;
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(b) The Lender may, by notice to the Borrower, declare to be
forthwith due and payable the entire unpaid principal amount of the Note then
outstanding, all interest accrued and unpaid thereon, all amounts payable under
this Agreement and any other Obligations, whereupon the Note, all such accrued
interest and all such amounts and Obligations shall become and be forthwith due
and payable, without presentment, notice of dishonor, protest or further notice
of any kind, all of which are hereby expressly waived by the Borrower;
(c) The Lender may, without notice to the Borrower and without
further action, apply any and all money owing by the Lender to the Borrower,
including without limitation any funds on deposit with the Lender, whether or
not matured, to the payment of the Advances, including interest accrued thereon,
and of all other sums then owing by the Borrower hereunder, including, without
limitation, the Obligation of Reimbursement;
(d) The Lender may make demand upon the Borrower and,
forthwith upon such demand, the Borrower will pay to the Lender in immediately
available funds for deposit in the Special Account pursuant to Sections 2.5 and
3.6 hereof an amount equal to the maximum aggregate amount available to be drawn
under all Letters of Credit then outstanding, assuming compliance with all
conditions for drawing thereunder;
(e) The Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC, including,
without limitation, the right to take possession of Collateral, or any evidence
thereof, proceeding without judicial process or by judicial process (without a
prior hearing or notice thereof, which the Borrower hereby expressly waives) and
the right to sell, lease or otherwise dispose of any or all of the Collateral,
and, in connection therewith, the Borrower will on demand assemble the
Collateral and make it available to the Lender at a place to be designated by
the Lender which is reasonably convenient to both parties;
(f) the Lender may exercise and enforce its rights and
remedies under the Loan Documents; and
(g) the Lender may exercise any other rights and remedies
available to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in Section 8.1(f) hereof, the entire unpaid principal amount of the
Note and the Obligation of Reimbursement (whether contingent or funded), all
interest accrued and unpaid thereon, all other amounts payable under this
Agreement and any other Obligations shall be immediately due and payable
automatically without presentment, demand, protest or notice of any kind.
8.3 Certain Notices. If notice to the Borrower of any intended
disposition of Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given (in the manner specified in Section 9.3) at least ten calendar days prior
to the date of intended disposition or other action.
34
<PAGE> 35
ARTICLE 9
Miscellaneous
9.1 No Waiver; Cumulative Remedies. No failure or delay on the part of
the Lender in exercising any right, power or remedy under the Loan Documents
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy under the Loan Documents.
The remedies provided in the Loan Documents are cumulative and not exclusive of
any remedies provided by law.
9.2 Amendments, Etc. No amendment, modification, termination or waiver
of any provision of any Loan Document or consent to any departure by the
Borrower therefrom or any release of a Security Interest shall be effective
unless the same shall be in writing and signed by the Lender, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
9.3 Addresses for Notices, Etc. Except as otherwise expressly provided
herein, all notices, requests, demands and other communications provided for
under the Loan Documents shall be in writing and shall be (a) personally
delivered, (b) sent by first class United States mail, (c) sent by overnight
courier of national reputation, or (d) transmitted by telecopy, in each case
addressed to the party to whom notice is being given at its address as set forth
below and, if telecopied, transmitted to that party at its telecopier number set
forth below:
If to the Borrower:
Cragar Industries, Inc.
4636 North 43rd Avenue
Phoenix, Arizona 85031
Telecopier: (602) 846-0684
Attention: Michael L. Hartzmark
If to the Lender:
Norwest Business Credit, Inc.
Norwest Tower
Mail Station 9025
3300 North Central Avenue
Phoenix, Arizona 85012-2501
Telecopier: (602) 263-6215
Attention: Scott Schryver
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if
35
<PAGE> 36
delivered by telecopy, except that notices or requests to the Lender pursuant to
any of the provisions of Article 2 hereof shall not be effective until received
by the Lender.
9.4 Financing Statement. A carbon, photographic or other reproduction
of this Agreement or of any financing statements signed by the Borrower is
sufficient as a financing statement and may be filed as a financing statement in
any state to perfect the security interests granted hereby. For this purpose,
the following information is set forth:
Name and address of Debtor:
Cragar Industries, Inc.
4636 North 43rd Avenue
Phoenix, Arizona 85031
Federal Tax Identification No. 86-0721001
Name and address of Secured Party:
Norwest Business Credit, Inc.
Norwest Tower
Mail Station 9025
3300 North Central Avenue
Phoenix, Arizona 85012-2501
Telecopier: (602) 263-6215
Attention: Scott Schryver
9.5 Further Documents. The Borrower will from time to time execute and
deliver or endorse any and all instruments, documents, conveyances, assignments,
security agreements, financing statements and other agreements and writings that
the Lender may reasonably request in order to secure, protect, perfect or
enforce the Security Interests or the rights of the Lender under this Agreement
(but any failure to request or assure that the Borrower executes, delivers or
endorses any such item shall not affect or impair the validity, sufficiency or
enforceability of this Agreement and the Security Interests, regardless of
whether any such item was or was not executed, delivered or endorsed in a
similar context or on a prior occasion).
9.6 Collateral. This Agreement does not contemplate a sale of accounts,
contract rights or chattel paper, and, as provided by law, the Borrower is
entitled to any surplus and shall remain liable for any deficiency. The Lender's
duty of care with respect to Collateral in its possession (as imposed by law)
shall be deemed fulfilled if it exercises reasonable care in physically keeping
such Collateral, or in the case of Collateral in the custody or possession of a
bailee or other third person, exercises reasonable care in the selection of the
bailee or other third person, and the Lender need not otherwise preserve,
protect, insure or care for any Collateral. The Lender shall not be obligated to
preserve any rights the Borrower may have against prior parties, to realize on
the Collateral at all or in any particular manner or order or to apply any cash
proceeds of the Collateral in any particular order of application.
9.7 Costs and Expenses. The Borrower agrees to pay on demand all costs
and expenses, including (without limitation) attorneys' fees, incurred by the
Lender in connection with the Obligations, this Agreement, the Loan Documents,
any Letters of Credit, and any other document or agreement related hereto or
thereto, and the transactions contemplated hereby,
36
<PAGE> 37
including without limitation all such costs, expenses and fees incurred in
connection with the negotiation, preparation, execution, amendment,
administration, performance, collection and enforcement of the Obligations and
all such documents and agreements and the creation, perfection, protection,
satisfaction, foreclosure or enforcement of the Security Interests.
9.8 Indemnity. In addition to the payment of expenses pursuant to
Section 9.7 hereof and the environmental indemnity pursuant to Section 6.4
hereof, the Borrower agrees to indemnify, defend and hold harmless the Lender,
and any of its participants, parent corporations, subsidiary corporations,
affiliated corporations, successor corporations, and all present and future
officers, directors, employees and agents of the foregoing (the "Indemnitees"),
from and against (i) any and all transfer taxes, documentary taxes, assessments
or charges made by any governmental authority by reason of the execution and
delivery of this Agreement and the other Loan Documents or the making of the
Advances, or issuance of any Letter of Credit, and (ii) any and all liabilities,
losses, damages, penalties, judgments, suits, claims, costs and expenses of any
kind or nature whatsoever (including, without limitation, the reasonable fees
and disbursements of counsel) in connection with any investigative,
administrative or judicial proceedings, whether or not such Indemnitee shall be
designated a party thereto, which may be imposed on, incurred by or asserted
against such Indemnitee, in any manner relating to or arising out of or in
connection with the making of the Advances, or the issuance of any Letter of
Credit, this Agreement and all other Loan Documents or the use or intended use
of the proceeds of the Advances or any Letter of Credit unless arising directly
from the gross negligence or willful misconduct of the Lender (the "Indemnified
Liabilities"). If any investigative, judicial or administrative proceeding
arising from any of the foregoing is brought against any Indemnitee, upon
request of such Indemnitee, the Borrower, or counsel designated by the Borrower
and satisfactory to the Indemnitee, will resist and defend such action, suit or
proceeding to the extent and in the manner directed by the Indemnitee, at the
Borrower's sole cost and expense. Each Indemnitee will use its best efforts to
cooperate in the defense of any such action, suit or proceeding. If the
foregoing undertaking to indemnify, defend and hold harmless may be held to be
unenforceable because it violates any law or public policy, the Borrower shall
nevertheless make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities which is permissible under applicable law.
The obligation of the Borrower under this Section 9.8 shall survive the
termination of this Agreement and the discharge of the Borrower's other
Obligations.
9.9 Participants. The Lender and its participants, if any, are not
partners or joint venturers, and the Lender shall not have any liability or
responsibility for any obligation, act or omission of any of its participants.
All rights and powers specifically conferred upon the Lender may be transferred
or delegated to any of the participants, successors or assigns of the Lender.
9.10 Execution in Counterparts. This Agreement and other Loan Documents
may be executed in any number of counterparts, each of which when so executed
and delivered shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same instrument.
9.11 Binding Effect; Assignment; Complete Agreement. The Loan Documents
shall be binding upon and inure to the benefit of the Borrower and the Lender
and their respective successors and assigns, except that the Borrower shall not
have the right to assign its rights thereunder or any interest therein without
the prior written consent of the Lender. This Agreement, together with the Loan
Documents, comprises the complete and integrated agreement of the parties
37
<PAGE> 38
on the subject matter hereof and supersedes all prior agreements, written or
oral, on the subject matter hereof.
9.12 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial. The Loan
Documents shall be governed by and construed in accordance with the substantive
laws (other than conflict laws) of the State of Arizona. Each party consents to
the personal jurisdiction of the state and federal courts located in the State
of Arizona in connection with any controversy related to this Agreement, waives
any argument that venue in any such forum is not convenient and agrees that any
litigation initiated by any of them in connection with this Agreement shall be
venued in either the Superior Court of Maricopa County, Arizona, or the United
States District Court, District of Arizona. The parties waive any right to trial
by jury in any action or proceeding based on or pertaining to this Agreement.
Notwithstanding the foregoing, except for "Core Proceedings" under the United
States Bankruptcy Code, the Lender and the Borrower agree to submit to binding
arbitration all claims, disputes and controversies between or among them,
whether in tort, contract or otherwise (and their respective employees,
officers, directors, attorneys and other agents) arising out of or relating to
in any way (i) the loan and related loan and security documents which are the
subject of this Agreement and its negotiation, execution, collateralization,
administration, repayments, modification, extension, substitution, formation,
inducement, enforcement, default or termination; or (ii) requests for additional
credit. Any arbitration proceeding will (i) proceed in Phoenix, Arizona; (ii) be
governed by the Federal Arbitration Act (Title 9 of the United States Code); and
(iii) be conducted in accordance with the Commercial Arbitration rules of the
American Arbitration Association ("AAA").
The arbitration requirements does not limit the right of any party to
(i) foreclose against real or personal property collateral; (ii) exercise
self-help remedies relating to collateral or proceeds of collateral such as
setoff or repossession; or (iii) obtain provisional ancillary remedies such as
replevin, injunctive relief, attachment or the appointment of a receiver,
before, during or after the pendency of any arbitration proceeding. This
exclusion does not constitute a waiver of the right or obligation of either
party to submit any dispute to arbitration, including those arising from the
exercise of the actions detailed in sections (i), (ii) and (iii) of this
paragraph.
Any arbitration proceeding will be before a single arbitrator selected
according to the Commercial Arbitration Rules of the AAA. The arbitrator will be
a neutral attorney who has practiced in the area of commercial law for a minimum
of ten years, The arbitrator will determine whether or not an issue is
arbitrable and will give effect to the statutes of limitation in determining any
claim. Judgment upon the award rendered by the arbitrator may be entered in any
court having jurisdiction.
In any arbitration proceeding the arbitrator will decide (by documents
only or with a hearing at the arbitrator's discretion) any pre-hearing motions
which are similar to motions to dismiss for failure to state a claim or motions
for summary adjudication.
In any arbitration proceeding discovery will be permitted and will be
governed by the Arizona Rules of Civil Procedure. All discovery must be
completed no later than 20 days before the hearing date and within 180 days of
the commencement of arbitration proceedings. Any requests for an extension of
the discovery periods, or any discovery disputes, will be subject to final
determination by the arbitrator upon a showing that the request for discovery is
essential for the party's presentation and that no alternative means for
obtaining information is available.
The arbitrator shall award costs and expenses of the arbitration
proceeding in accordance with the provisions of this Agreement, the Note and/or
other Loan Documents.
38
<PAGE> 39
9.13 Severability of Provisions. Any provision of this Agreement which
is prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof.
9.14 Headings. Article and Section headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
REMAINDER OF PAGE INTENTIONALLY BLANK; SIGNATURE PAGE FOLLOWS
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
CRAGAR INDUSTRIES, INC., a Delaware corporation
By MICHAEL L. HARTZMARK
--------------------------------------------
Its Pres/CEO
---------------------------------------
NORWEST BUSINESS CREDIT, INC., a Minnesota corporation
By SCOTT O. SCHRYVER
---------------------------------------------
Its Vice President
--------------------------------------
39
<PAGE> 40
EXHIBIT A TO CREDIT AND
SECURITY AGREEMENT
REVOLVING NOTE
$9,500,000.00 Phoenix, Arizona
April 14, 1995
For value received, the undersigned, CRAGAR INDUSTRIES, INC., a
Delaware corporation (the "Borrower"), hereby promises to pay on April 1, 1998,
to the order of NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the
"Lender"), at its office in Phoenix, Arizona, or at any other place designated
at any time by the holder hereof, in lawful money of the United States of
America and in immediately available funds, the principal sum of NINE MILLION
FIVE HUNDRED THOUSAND and NO/100 Dollars ($9,500,000.00) or, if less, the
aggregate unpaid principal amount of all Advances made by the Lender to the
Borrower under the Credit Agreement (defined below) together with interest on
the principal amount hereunder remaining unpaid from time to time, computed on
the basis of the actual number of days elapsed and a 360-day year, from the date
hereof until this Note is fully paid at the rate from time to time in effect
under the Credit and Security Agreement of even date herewith (the "Credit
Agreement") by and between the Lender and the Borrower. The principal hereof and
interest accruing thereon shall be due and payable as provided in the Credit
Agreement. This Note may be prepaid only in accordance with the Credit
Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Note referred to in the Credit Agreement.
This Note is secured, among other things, pursuant to the Credit
Agreement and the Security Documents as therein defined, and may now or
hereafter be secured by one or more other security agreements, mortgages, deeds
of trust, assignments or other instruments or agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
The Borrower agrees that the interest rate contracted for includes the
interest rate set forth herein plus any other charges or fees set forth herein
and costs and expenses incident to this transaction paid by the Borrower to the
extent the same are deemed interest under applicable law.
Presentment or other demand for payment, notice of dishonor and protest
are expressly waived.
CRAGAR INDUSTRIES, INC., a Delaware
corporation
By
------------------------------------
Its
------------------------------
A-1
<PAGE> 41
EXHIBIT B TO CREDIT AND
SECURITY AGREEMENT
NAMES
CHIEF EXECUTIVE OFFICE/PRINCIPAL PLACE OF BUSINESS
4636 North 43rd Avenue
Phoenix, Arizona 85031
OTHER INVENTORY AND EQUIPMENT LOCATIONS
4850 W. Jefferson Street, Phoenix, AZ 85043
4044 W. Lower Buckeye Road, Phoenix, AZ 85009
Mexicali, Mexico
SUBSIDIARIES
Pulido
Av. Cuatro Cienegas #800
Ex - Ejido Coahuila
Mexicali, B.C., Mexico C.P. 21360
B-1
<PAGE> 42
EXHIBIT C TO CREDIT AND
SECURITY AGREEMENT
PERMITTED LIENS, INDEBTEDNESS AND GUARANTIES
Liens
Time Clocks (UCC filed)
Studebaker-Worthington Leasing Corp.
XL/Datacomp, Inc.
ACM Equipment Rental and Sales, Co.
Indebtedness
Subordinated Indebtedness
("Bridge Loan")
("Investor Debt")
("Seller Debt")
Guaranties
C-1
<PAGE> 43
EXHIBIT D TO CREDIT AND
SECURITY AGREEMENT
COMPLIANCE CERTIFICATE
In accordance with our Credit and Security Agreement dated as of April
14, 1995 (the "Credit Agreement"), attached are the financial statements of
Cragar Industries, Inc. (the "Borrower") as of and for the month and
year-to-date period ended ____________ ___, 199_ (the "Current Financials").
I certify that the Current Financials have been prepared in accordance
with generally accepted accounting principles applied on a basis consistent with
the accounting practices reflected in the financial statements referred to in
Section 5.5 of the Credit Agreement, subject to year-end audit adjustments.
Defaults and Events of Default (check one)
/ / I have no knowledge of the occurrence of any
Default or Event of Default under the Credit
Agreement which has not previously been reported to
you and remedied.
/ / Attached is a detailed description of all Defaults
and Events of Default of which I have knowledge and
which have not previously been reported to you and
remedied.
For the date and periods covered by the Current Financials,
the Borrower is in compliance with the covenants set forth in Sections 6.12
through 6.14, 7.10, 7.17 and 7.19 of the Credit Agreement, except as indicated
below. The calculations made to determine compliance are as follows:
Covenant Actual Requirement
6.12) Debt Service _______ __________
6.13) Adjusted Net Worth _______ __________
6.14) Net Income _______ __________
Actual Maximum Allowed
7.10) Capital Expenditures ______ $__________
7.17) Compensation Increases ______% 20%
7.19) Subordinated Indebtedness
Payments
(i) Investor Debt $_______ $__________
(i) Seller Debt $_______ $__________
(i) Bridge Loan $_______ $__________
D-1
<PAGE> 44
Minimum Average
Commitment Availability less
L/C Amount of $250,000.00
for 30 days prior to payment
Yes ____ No ____
Minimum Commitment Yes ____ No ____
Availability Less L/C Amount
after payment
Attached hereto are all relevant facts in reasonable detail to evidence, and the
computation of the financial covenants referred to above. The computations were
made in accordance with GAAP.
__________________________________________
Title_____________________________________
D-2
<PAGE> 45
EXHIBIT E TO CREDIT AND
SECURITY AGREEMENT
PREMISES
The Premises referred to in the Credit and Security Agreement are
legally described as follows:
A portion of the Northeast quarter of Section 21, Township 2 North,
Range 2 East of the Gila and Salt River Base and Meridian, Maricopa
County, Arizona, described as follows:
COMMENCING at the intersection of the centerline of Highland Avenue
with the East line of said Section 21, said Section line being also the
centerline of 43rd Avenue, as shown on Map of Dedication recorded on
June 3, 1977 at Book 190, Page 21, records of said County; thence along
said centerline North 89(degree)51'58" West 65.00 feet; thence at right
angles South 00(degree)08'02" West 33.00 feet to the Northwesterly
terminus of the Southwesterly curved line of said Highland Avenue,
which line is a curve concave Southwesterly having a radius of 25.00
feet, said point being tangent to the South line of said Highland
Avenue and being also the TRUE POINT OF BEGINNING for this description;
thence Southeasterly along said curved street line, a distance of 39.27
feet to tangency with the Westerly line of said 43rd Avenue; thence
South 00(degree)08'02" West thereon 627.00 feet to a line that is
parallel with and distant Southerly 652.00 feet at right angles from
said Southerly street line; thence along said parallel line North
89(degree)51'58" West 400.94 feet to a line that is parallel with and
distant Westerly 400.94 feet at right angles from said Westerly street
line; thence along said last-mentioned parallel line North
00(degree)08'02" East 652.00 feet to said Southerly street line; thence
South 89(degree)51'58" East thereon 375.94 feet to the Point of
Beginning.
E-1
<PAGE> 46
EXHIBIT F TO CREDIT AND
SECURITY AGREEMENT
Patents
<TABLE>
<CAPTION>
<S> <C> <C>
PATENT NO./ SERIAL NO./
ISSUE DATE FILING DATE PATENTEE/TITLE
- ---------- ----------- --------------
3,635,529 835,999 Nass; Motor Vehicle Wheel Assembly
01/18/72 06/24/69
3,759,576 189,971 Richter; Custom Wheel Assembly
09/18/73 10/18/71
3,871,708 242,678 Richter; Custom Wheel Assembly
03/18/75 04/10/72
3,960,047 504,208 Liffick; Dual Size Lug Nut
06/01/76 09/09/74
4,138,160 811,044 Lohmeyer; Simulated Knock Off
02/06/79 06/29/77 Spinner Nut and Adaptor
4,150,854 795,287 Lohmeyer; Wire Wheel Sealing System
04/24/79 05/09/77
4,191,427 919,325 Bradley; Simulated Knock Off
03/04/80 06/26/78 Spinner Nut
4,223,952 896,246 Weld; Automotive Wheel Construction
09/23/80 04/14/78
4,226,479 918,606 Weld; Wire Spoke Automotive Wheel
10/07/80 06/23/78
4,294,393 079,962 Weld; Method of Manufacturing a
10/13/81 09/29/79 Wire Spoke Automotive Wheel
4,339,859 178,795 Weld; Wire Spoke Automotive Wheel
07/20/82 08/18/80 Manufacturing Method
4,361,358 214,177 Bonniwell et al; Wheel Disc Offset
11/30/82 12/08/80 Attachment to Wheel Rim
4,363,521 176,083 Bonniwell et al; Wheel Disc Offset
12/14/82 08/07/80 Attachment to Wheel Rim
4,511,183 512,771 Spiegel et al; Steel Wheel with
04/16/85 07/11/83 Decorative Cover
4,530,542 509,818 Spiegel et al; Wheel Center and
07/23/85 06/29/83 Wheel Constructed Therewith
</TABLE>
F-1
<PAGE> 47
<TABLE>
<CAPTION>
<S> <C> <C>
PATENT NO./ SERIAL NO./
ISSUE DATE FILING DATE PATENTEE/TITLE
- ---------- ----------- --------------
D230,008 280,711 Gibbons; Automotive Vehicle Wheel
01/22/74 08/14/72 Lock
D241,421 513,451 Lohmeyer; Spoked Vehicle Wheel
09/14/76 10/09/74
D241,828 588,305 Hall; Wheel
10/12/76 06/19/75
D241,829 588,304 Hall; Wheel
10/12/76 06/19/75
D252,749 911,440 Retzlaff; Spoked Vehicle Wheel
08/28/79 06/01/78
D253,050 840,555 Lohmeyer; Vehicle Wheel
10/02/79 10/11/77
D253,286 840,543 Lohmeyer; Vehicle Wheel
10/30/79 10/11/77
D253,817 840,554 Lohmeyer; Vehicle Wheel
01/01/80 10/11/77
D254,064 911,442 Retzlaff; Spoked Vehicle Wheel
01/29/80 06/01/78
D257,032 006,192 Weld; Automotive Wheel Center
09/23/80 01/24/79
D270,050 248,525 Retzlaff; Spoked Vehicle Wheel
08/09/83 03/27/81
D295,370 707,944 Carlo et al; Wheel Nut
04/26/88 03/04/85
</TABLE>
Federally Registered Trademarks
Non-Federally registered Trademarks
F-2
<PAGE> 48
EXHIBIT G TO CREDIT
AND SECURITY
AGREEMENT
ASSETS FOR SALE BY BORROWER
Paint Line (with associated conveyors, washers, burners, blowers,
booths, powder guns, cyclones, baghouses, dryers, motors, pumps, and
other related equipment)
Waster Water Treatment Equipment
Miscellaneous Chrome Plating Equipment
Vapor Degreaser
Pro-Trac Tire Molds
One-Piece Aluminum Wheel Molds
Mexicali Polishing Equipment
G-1
<PAGE> 1
EXHIBIT 4.10(a)
AMENDMENT TO CREDIT AND SECURITY AGREEMENT
Dated as of September 19, 1995
RECITALS
CRAGAR INDUSTRIES, INC., a Delaware corporation (the
"Borrower"), and NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the
"Lender"), are the parties to that certain Credit and Security Agreement dated
as of April 14, 1995 (the "Credit Agreement").
Borrower has entered into an agreement with Norwest Bank
Minnesota N.A. ("Norwest Bank") pursuant to which Norwest Bank has agreed to
purchase certain foreign currency for Borrower's account (the "Foreign Exchange
Account").
Prior to purchasing any foreign currency for Borrower's
account, Norwest Bank requires that Borrower provide a reimbursement mechanism
to ensure that Norwest Bank is compensated for such expenditures.
Borrower has requested that Lender amend the Credit Agreement
to provide that Advances under the Credit Agreement may be made directly from
Lender to Norwest Bank to cover sums owed to Norwest Bank by Borrower related to
the Foreign Exchange Account when a shortfall occurs in funds available in
Borrower's account with Norwest Bank Arizona N.A.
Lender has agreed to amend the Credit Agreement to assist
Borrower in complying with the Norwest Bank requirements for the establishment
of the Foreign Exchange Account.
Now, therefore, in consideration of the premises and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby amended, the parties agree as follows:
AGREEMENTS
1. Accuracy of the Recitals. The parties hereby acknowledge
the accuracy of the Recitals.
2. Capitalized Terms. Capitalized terms not specifically
defined herein shall have the meanings set forth in the Credit Agreement, which
are incorporated herein by this reference.
3. Amendment to the Credit Agreement. The Credit Agreement is
hereby amended as follows:
<PAGE> 2
(a) Any and all sums paid by Lender to Norwest Bank
in any way related to the Foreign Exchange Account shall for all purposes be
considered "Advances" under the Credit Facility, and shall be evidenced by and
repayable with interest in accordance with the Note.
(b) The "Borrowing Base" is reduced by Twenty-Five
Thousand and no/100 Dollars ($25,000.00) (or such other sum as is deemed
appropriate by Lender in its sole discretion to cover Borrower's Foreign
Exchange Account activity) notwithstanding whether it is calculated pursuant to
clause (i) or clause (ii) as set forth on page 2 of the Credit Agreement.
(c) Notwithstanding anything to the contrary, until
such time as Lender receives written notice from Norwest Bank that the Foreign
Exchange Account has been terminated, Borrower irrevocably authorizes Lender to
make Advances directly to Norwest Bank, on behalf of Borrower, without notice to
Borrower.
4. Entire Agreement. This Amendment constitutes the entire
agreement of the parties hereto with respect to the Foreign Exchange Account,
and no prior negotiations or understandings with respect to the same, whether
written or oral, shall be of any further force or effect, all such other prior
negotiations and understandings having been superseded in their entirety by this
Amendment.
5. Effect of Amendment. Except as specifically set forth
herein, the Credit Agreement shall continue in full force and effect, and is in
all respects ratified, approved and confirmed.
CRAGAR INDUSTRIES, INC., a Delaware
corporation
By /s/ Michael L. Hartzmark
--------------------------------------
Its President/CEO
----------------------------------
NORWEST BUSINESS CREDIT, INC., a
Minnesota corporation
By /s/ Scott O. Schryver
--------------------------------------
Its Vice President
----------------------------------
-2-
<PAGE> 1
EXHIBIT 5.1
October 3, 1996
Cragar Industries, Inc.
4636 North 43rd Avenue
Phoenix, Arizona 85031
Re: Registration Statement on Form SB-2
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form
SB-2 (the "Registration Statement") relating to the offer and sale (the
"Offering") from time to time by Cragar Industries, Inc., a Delaware
corporation (the "Company"), of (a) 1,000,000 units (the "Units"), each Unit
consisting of one share of the Company's common stock, $0.01 par value (the
"Common Stock," and the Common Stock offered as part of the Units being
hereinafter referred to as the "Offered Common Stock") and one warrant
entitling the holder to purchase one share of Common Stock (the "Offered
Warrants"); (b) 150,000 dealer warrants (the "Offered Dealer Warrants") offered
to independent broker-dealers participating in the Offering, each Offered
Dealer Warrant entitling the holder to purchase one share of Common Stock; (c)
1,000,000 shares of Common Stock (subject to adjustment from time to time as
described in the Offered Warrants) purchasable upon the exercise of the Offered
Warrants (the "Offered Warrant Shares"); and (d) 150,000 shares of Common Stock
(subject to adjustment from time to time as described in the Offered Dealer
Warrants) purchasable upon the exercise of the Offered Dealer Warrants (the
"Offered Dealer Warrant Shares"). The Offered Common Stock, the Offered
Warrants, the Offered Dealer Warrants, the Offered Warrant Shares, and the
Offered Dealer Warrant Shares may be hereinafter referred to as the "Offered
Securities." In addition, we have reviewed the originals, or copies certified
or otherwise identified to our satisfaction, of all such corporate records of
the Company and such other instruments and certificates of public officials,
officers, and representatives of the Company and other persons, and have made
such investigations of law, as we have deemed appropriate as a basis for the
opinions expressed below. In rendering the opinions expressed below, we have
assumed that the signatures on all documents that we have reviewed are genuine
and that the Offered Securities will conform in all material respects to the
description thereof set forth in the Registration Statement. Capitalized terms
used but not otherwise defined herein shall have the meanings ascribed to them
in the Registration Statement.
Based upon the foregoing, we advise you that in our opinion, when the
following events have occurred:
(a) The Registration Statement has become effective under the
Securities Act of 1933, as amended;
<PAGE> 2
(b) The due authorization, registration, and delivery of the
certificate or certificates evidencing the Offered Securities has occurred; and
(c) The Offered Securities have been issued and sold in the manner
specified in the Registration Statement and the Company has received the
consideration therefor as described in the Registration Statement; then
The Offered Securities will be legally issued, fully-paid and
nonassessable.
The foregoing opinions are limited to the federal law of the United
States of America and the general corporation law of the State of Delaware. We
express no opinion as to the application of the various states' securities laws
to the offer, sale, issuance or delivery of the Offered Securities.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement.
Very truly yours,
SNELL & WILMER L.L.P.
<PAGE> 1
EXHIBIT 10.1
CRAGAR INDUSTRIES, INC.
1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
1. Purpose. The purpose of this Plan is to advance the interests of
Cragar Industries, Inc., a Delaware corporation (the "Company"), by providing
additional incentive to attract and retain qualified non-employee Directors,
whose efforts and judgment contribute significantly to the success of the
Company, by encouraging such persons to own stock in the Company.
2. Shares and Options. Options may be granted under this Plan from time
to time to purchase an aggregate of up to 3,500 Shares of the Class A Common
Stock, $.01 par value, from Shares held in the Company's treasury or from
authorized and unissued Shares. If any Option granted under the Plan shall
terminate, expire, or be canceled or surrendered as to any Shares, new Options
may thereafter be granted covering such Shares. Each Option granted hereunder
shall be a Non-Statutory Stock Option and shall clearly state that it is a
Non-Statutory Stock Option.
3. Conditions for Grant of Options. Each Option shall be evidenced by a
written instrument granting an Option with such terms as are not inconsistent
with this Plan. Any person who files with the Committee, in a form satisfactory
to the Committee, a written waiver of eligibility to receive any Option under
this Plan shall not be eligible to receive any Option under this Plan for the
duration of such waiver.
4. Option Grants. On the Effective Date each Director who is a Director
on May 31, 1996, and who is not then an employee of the Company will receive an
Option to purchase 100 Shares for each year (or portion of a year) of service as
a Director of the Company, which Option shall be exercisable in full on the
first Effective Date. Each non-employee Director who is not a director on the
Effective Date will receive, on the date of his or her initial election as a
non-employee Director, an Option to purchase 100 Shares, which Option will
become exercisable in full on the first anniversary of the Option's grant,
provided he or she remains a Director on such anniversary. Thereafter, each
non-employee Director shall be granted, on the date of his or her initial
election or re-election as a Director, an option to purchase 100 Shares, which
Option will become exercisable in full on the first anniversary of the Option's
grant, provided he or she remains a Director on such anniversary. The per share
exercise price of all Options granted pursuant to this Section 4 will be equal
to the Fair Market Value of the Shares underlying such Option on the date such
Option is granted.
5. Exercise of Options. An Option shall be deemed exercised when (i)
the Company has received written notice of such exercise in accordance with the
terms of the Option, (ii) full payment of the aggregate option price of the
Shares as to which the Option is exercised has been made, and (iii) arrangements
that are satisfactory to the Committee in its sole discretion have been made for
the Optionee's payment to the Company of an amount that is sufficient to satisfy
all applicable Federal or state tax withholding requirements relating to
exercise of the Option. The option price of any Shares purchased shall be paid
in cash, by certified or official bank check, by money order, with Shares or by
a combination of the above, provided, however, that the Committee in its sole
discretion may accept a personal check in full or partial payment of any Shares.
If the exercise price is paid in whole or in part with Shares, the value of the
Shares surrendered shall be their Fair Market Value on the date the
<PAGE> 2
Option is exercised. No Optionee shall be deemed to be a holder of any Shares
subject to an Option unless and until a stock certificate or certificates for
such Shares are issued to such person(s) under the terms of this Plan. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to the date such stock certificate is issued, except as
expressly provided in Section 8 hereof.
6. Exercisability of Options. Each outstanding Option shall become
immediately fully exercisable if:
(a) there occurs any transaction (which shall include a series
of transactions occurring within 60 days or occurring pursuant to a plan), that
has the result that stockholders of the Company immediately before such
transaction cease to own at least 51% of the voting stock of the Company or of
any entity that results from the participation of the Company in a
reorganization, consolidation, merger, liquidation or any other form of
corporate transaction;
(b) the stockholders of the Company approve a plan of merger,
consolidation, reorganization, liquidation or dissolution in which the Company
does not survive (unless the approved merger, consolidation, reorganization,
liquidation or dissolution is subsequently abandoned); or
(c) the stockholders of the Company approve a plan for the
sale, lease, exchange, transfer, assignment or other disposition of all or
substantially all the property and assets of the Company (unless such plan is
subsequently abandoned).
7. Termination of Option Period. The unexercised portion of any Option
shall automatically and without notice terminate and become null and void on the
earliest to occur of: (i) one year after the death of Optionee; (ii) six months
after the date on which the Optionee ceases to be a Director for any reason
other than death; or (iii) after the expiration of 10 years from the date of
grant of the Option.
8. Adjustment of Shares.
(a) If at any time while the Plan is in effect and unexercised
Options are outstanding, there shall be any increase or decrease in the number
of issued and outstanding Shares through the declaration of a stock dividend or
through any recapitalization resulting in a stock split-up, combination or
exchange of Shares, then and in such event:
(i) appropriate adjustment shall be made in the
maximum number of Shares available for grant under the Plan, so that the same
percentage of the Company's issued and outstanding Shares shall continue to be
subject to being so optioned; and
(ii) appropriate adjustment shall be made in the
number of Shares and the exercise price per Share thereof then subject to any
outstanding Option, so that the same percentage of the Company's issued and
outstanding Shares shall remain subject to purchase at the same aggregate
exercise price.
(b) Subject to the specific terms of any Option, the Committee
shall make
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<PAGE> 3
appropriate adjustment in the terms of Options outstanding under this Plan, with
respect to the option price or the number of Shares subject to the Options, or
both, when such adjustments become appropriate by reason of a corporate
transaction described in Subsections 6(b) or (c) hereof.
(c) Except as otherwise expressly provided herein, the
issuance by the Company of shares of its capital stock of any class, or
securities convertible into shares of capital stock of any class, either in
connection with direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to the number of or
exercise price of Shares then subject to outstanding Options granted under the
Plan.
(d) Without limiting the generality of the foregoing, the
existence of outstanding Options granted under the Plan shall not affect in any
manner the right or power of the Company to make, authorize or consummate (i)
any or all adjustments, recapitalizations, reorganizations or other changes in
the Company's capital structure or its business; (ii) any merger or
consolidation of the Company; (iii) any issue by the Company of debt securities,
or preferred or preference stock that would rank above the Shares subject to
outstanding Options; (iv) the dissolution or liquidation of the Company; (v) any
sale, lease, exchange, transfer, assignment or other disposition of all or any
part of the assets or business of the Company; or (vi) any other corporate act
or proceeding, whether of a similar character or otherwise.
9. Transferability of Options. No Option shall be transferable by the
Optionee other than by will or the laws of descent and distribution and each
Option shall be exercisable during the Optionee's lifetime only by the Optionee.
10. Administration of the Plan.
(a) The Plan shall be administered by the Committee, which
shall consist of not less than two Directors, each of whom shall be
Disinterested Persons, provided that the Committee shall not have any discretion
with respect to the grant of Options to pursuant to this Plan. The Committee
shall have all of the powers of the Board with respect to the Plan. The Board
may change the membership of the Committee at any time and fill any vacancy
occurring in the membership of the Committee by appointment.
(b) The Committee, from time to time, may adopt rules and
regulations for carrying out the purposes of the Plan. The Committee's
determinations and its interpretation and construction of any provision of the
Plan shall be final and conclusive.
(c) Any and all decisions or determinations of the Committee
shall be made either (i) by a majority vote of the members of the Committee at a
meeting or (ii) without a meeting by the unanimous written consent of the
members of the Committee.
11. Interpretation.
(a) This Plan shall be governed by the internal substantive
laws of the State of Delaware.
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<PAGE> 4
(b) Headings contained in this Plan are for convenience only
and shall in no manner be construed as part of this Plan.
(c) Any reference to the masculine, feminine, or neuter gender
shall be a reference to such other gender as is appropriate.
12. Amendment and Discontinuation of the Plan. Either the Board or the
Committee may from time to time amend the Plan or any Option; provided, however,
that, except to the extent provided in Section 8, no such amendment may, without
approval by the stockholders of the Company, (i) materially increase the
benefits accruing to participants under the Plan, (ii) materially increase the
number of securities which may be issued under the Plan, or (iii) materially
modify the requirements as to eligibility for participation in the Plan; and
provided further, that, no amendment or suspension of the Plan or any Option
issued hereunder shall substantially impair any Option previously granted to any
Optionee without the consent of such Optionee. Notwithstanding anything herein
to the contrary, to the extent required by Rule 16b-3 promulgated under the
Securities Exchange Act, the provisions of this Plan which govern the number of
Options to be awarded, the exercise price per share under each Option, when and
under what circumstances Options will be granted and the period within which
each Option may be exercised, shall not be amended more than once every six
months (even with stockholder approval), other than to conform to changes to the
Code, or the rules promulgated thereunder, or with rules promulgated by the
Securities and Exchange Commission.
13. Effective Date and Termination Date. Subject to approval of the
Plan by the holders of a majority of the shares of Common Stock present at a
duly called stockholders' meeting at which a quorum is present, the Plan shall
be effective upon the Effective Date and shall terminate on the tenth
anniversary of the Effective Date. If the Plan is not approved by the holders of
a majority of the outstanding shares of Common Stock, the Plan shall be null and
void.
14. Definitions. As used herein, the following terms shall have the
meanings indicated:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Committee" shall mean the stock option committee
described in Section 10 hereof.
(d) "Common Stock" shall mean the Company's Class A Common
Stock, par value $0.01 per share.
(e) "Director" shall mean a member of the Board.
(f) "Disinterested Person" shall mean a Director who is not,
during the one year prior to his or her service as an administrator of this Plan
or any other stock option plan of the Company, or during such service, granted
or awarded equity securities pursuant to this Plan or any other plan of the
Company or any of its affiliates, except that:
4
<PAGE> 5
(i) participation in a formula plan meeting the
conditions in paragraph (c)(2)(ii) of Rule 16b-3 promulgated under the
Securities Exchange Act shall not disqualify a Director from being a
Disinterested Person;
(ii) participation in an ongoing securities
acquisition plan meeting the conditions in paragraph (d)(2)(i) of Rule 16b-3
promulgated under the Securities Exchange Act shall not disqualify a Director
from being a Disinterested Person; and
(iii) an election to receive an annual retainer fee
in either cash or an equivalent amount of securities, or partly in cash and
partly in securities, shall not disqualify a Director from being a Disinterested
Person.
(g) "Effective Date" shall mean ____________, 1996.
(h) The "Fair Market Value" of corporate stock shall mean:
(i) If the stock is then Publicly Traded: The closing
price of stock of that class as of the day in question (or, if such day is not a
trading day in the principal securities market or markets for such stock, on the
nearest preceding trading day), as reported with respect to the market (or the
composite of markets, if more than one) in which shares of such stock are then
traded, or, if no such closing prices are reported, on the basis of the mean
between the high bid and low asked prices that day on the principal market or
quotation system on which shares of such stock are then quoted, or, if not so
quoted, as furnished by a professional securities dealer making a market in such
stock selected by the Board of the Committee.
(ii) If the stock is then not Publicly Traded: The
price at which one could reasonably expect such stock to be sold in an arm's
length transaction, for cash, other than on an installment basis, to a person
not employed by, controlled by, in control of or under common control with the
issuer of such stock. Such Fair Market Value shall be that which has currently
or most recently been determined for this purpose by the Board, or at the
discretion of the Board by an independent appraiser or appraisers selected by
the Board, in either case giving due consideration to recent transactions
involving shares of such stock, if any, the issuer's net worth, prospective
earning power and dividend-paying capacity, the goodwill of the issuer's
business, the issuer's industry position and its management, that industry's
economic outlook, the values of securities of issuers whose stock is Publicly
Traded and which are engaged in similar businesses, the effect of transfer
restrictions to which such stock may be subject under law and under the
applicable terms of any contract governing such stock, the absence of a public
market for such stock and such other matters as the Board or its appraiser or
appraisers deem pertinent. The determination by the Board or its appraiser or
appraisers of the Fair Market Value shall, if not unreasonable, be conclusive
and binding notwithstanding the possibility that other persons might make a
different, and also reasonable, determination. If the Fair Market Value to be
used was thus fixed more than sixteen months prior the day as of which Fair
Market Value is being determined, it shall in any event be no less than the book
value of the stock being valued at the end of the most recent period for which
financial statements of the issuer are available.
(i) "Non-Statutory Stock Option" shall mean an Option which is
not an incentive
5
<PAGE> 6
stock option as defined in Section 422 of the Code.
(j) "Option" (when capitalized) shall mean any option granted
under this Plan.
(k) "Optionee" shall mean a person to whom an Option is
granted under this Plan or any person who succeeds to the rights of such person
under the Plan by reason of the death of such person.
(l) "Plan" shall mean this Directors' Stock Option Plan for
the Company.
(m) "Securities Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
(n) "Share(s)" shall mean a share or shares of the Common
Stock.
6
<PAGE> 1
EXHIBIT 10.1(a)
FIRST AMENDMENT
TO THE
CRAGAR INDUSTRIES, INC.
1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
Cragar Industries, Inc. (the "Company") has previously adopted the
Cragar Industries, Inc. 1996 Non-Employee Directors' Stock Option Plan (the
"Plan"). By this instrument, the Company desires to amend the Plan to increase
the number of shares of the Company's Common Stock, $.01 par value, that may be
issuable under the Plan.
1. This Amendment shall amend only those Sections specified herein
and those Sections not amended hereby shall remain in full force and effect.
2. Section 2 of the Plan is hereby amended in its entirety to read
as follows:
2. Shares and Options. Options may be granted
under this Plan from time to time to purchase an aggregate
of up to 35,000 Shares of the Common Stock, $.01 par value,
from Shares held in the Company's treasury or from authorized
and unissued Shares. The number of authorized Shares in the
immediately preceding sentence takes into consideration the
7 for 1 stock split approved by the Company's Board of
Directors on September 7, 1996; therefore, no further
adjustment shall be made under Section 8 for such stock
split. If any Option granted under the Plan shall terminate,
expire, or be canceled or surrendered as to any Shares, new
Options may thereafter be granted covering such Shares.
Each Option granted hereunder shall be a Non-Statutory Stock
Option.
Except as amended by this First Amendment, the Company hereby ratifies
and affirms the Plan.
Cragar Industries, Inc. has caused this First Amendment to be executed
by its duly authorized representative as of this 1st day of October, 1996.
CRAGAR INDUSTRIES, INC.
BY: Michael L. Hartzmark
--------------------
ITS: President and Chief Executive Officer
-------------------------------------
<PAGE> 1
EXHIBIT 10.2
CRAGAR INDUSTRIES, INC.
1996 STOCK OPTION AND RESTRICTED STOCK PLAN
1. Purpose of the Plan. Under this 1996 Stock Option and Restricted
Stock Plan (the "Plan") of CRAGAR INDUSTRIES, INC. (the "Company") options may
be granted to eligible employees to purchase shares of the Company's capital
stock and restricted stock may be granted to eligible employees. The Plan is
designed to enable the Company and its subsidiaries to attract, retain and
motivate employees of the Company and its subsidiaries. The Plan provides for
the grant of options which qualify as incentive stock options ("Incentive
Options") under Section 422 of the Internal Revenue Code of 1986, as amended, as
well as options which do not so qualify and for the grant of restricted stock.
2. Stock Subject to Plan. The maximum number of shares of stock subject
to this Plan shall be 10,000 shares of the Company's Class A Common Stock, $.01
par value, subject to the adjustments provided in Sections 6 and 13. Shares of
stock subject to the unexercised portion of any options granted under this Plan
which expire or terminate or are cancelled may again be subject to options under
the Plan. However, if stock appreciation rights are granted with respect to any
options under this Plan, the total number of shares of stock for which options
granted under this Plan may thereafter be exercised shall be irrevocably reduced
not only when there is an exercise of an option granted under the Plan, but also
when such option is surrendered upon an exercise of a stock appreciation right
granted under this Plan, in either case by the number of shares covered by the
portion of such option which is exercised or surrendered. When the exercise
price for an option granted under this Plan is paid with previously outstanding
shares or with shares as to which the option is being exercised, as permitted in
Section 9, the total number of shares of stock for which options granted under
this Plan may thereafter be exercised shall be irrevocably reduced by the total
number of shares for which such option is thus exercised, without regard to the
number of shares received or retained by the Company in connection with the
exercise.
3. Eligible Employees. The employees eligible to be considered for the
grant of options hereunder are any persons regularly employed by the Company or
its subsidiaries in a managerial, professional or technical capacity on a
full-time, salaried basis.
4. Exercise Price. The exercise price for each option granted hereunder
as an Incentive Option shall be not less than 100% of the Fair Market Value
(defined hereinbelow) of the stock being optioned at the date of the grant of
the option. The exercise price for an option that is not an Incentive Option
shall be determined by the Committee at the time of grant, but shall not be less
than 85% of the Fair Market Value of the stock subject to the option.
5. Nontransferability. Any option granted under this Plan shall by its
terms be nontransferable by the optionee other than by will or the laws of
descent and distribution and shall be exercisable during the optionee's lifetime
only by the optionee or by the optionee's guardian or legal representative,
except that an option which is not intended to be an Incentive Option may, if
the instrument evidencing it so provides, also be transferable to members of the
optionee's Immediate Family (defined hereinbelow), to a partnership whose
members are only the optionee and/or members of the optionee's Immediate Family,
or to a trust for the benefit of only the optionee and/or members of the
optionee's Immediate Family.
6. Adjustments. If the outstanding shares of stock of the class then
subject to this
<PAGE> 2
Plan are increased or decreased, or are changed into or exchanged for a
different number or kind of shares or securities or other forms of property
(including cash) or rights, as a result of one or more reorganizations,
recapitalizations, spin-offs, stock splits, reverse stock splits, stock
dividends or the like, appropriate adjustments shall be made in the number
and/or kind of shares or securities or other forms of property (including cash)
or rights for which options may thereafter be granted under this Plan and for
which options then outstanding under this Plan may thereafter be exercised. Any
such adjustment in outstanding options shall be made without changing the
aggregate exercise price applicable to the unexercised portions of such options.
In connection with any reorganization, recapitalization,
spin-off or other transaction in which the outstanding shares of stock of the
class then subject to options outstanding under this Plan are changed into or
exchanged for property (including cash), rights and/or securities other than, or
in addition to, stock of the Company, an outstanding option may under this
Section entitled "Adjustments" be adjusted to become exercisable for either: (a)
the property (including cash), rights and/or securities receivable in that
transaction by a holder of the number and kind of outstanding shares of stock
subject to the option immediately prior to the transaction; or (b) stock of the
Company or of a successor employer corporation, or a parent or subsidiary
thereof, provided, that (i) such adjustment may preserve but may not increase
any amount by which the Fair Market Value of the stock subject to the option
exceeds the option exercise price, comparing such excess immediately before and
immediately after the transaction, and (ii) such adjustment may preserve but may
not reduce the ratio of the option exercise price to the Fair Market Value of
the stock subject to the option, comparing such ratio immediately before and
immediately after the transaction.
7. Maximum Option Term. No option granted under this Plan may be
exercised in whole or in part more than ten years after its date of grant.
8. Plan Duration. Options may not be granted under this Plan after
____________, 2006.
9. Payment. Payment for stock purchased upon any exercise of an option
granted under this Plan shall be made in full in cash (including payment by
check) concurrently with such exercise, except that, if and to the extent the
instrument evidencing the option so provides and the Company is not then
prohibited from purchasing or acquiring shares of such stock, such payment may
be made in whole or in part with shares of the same class of stock as that then
subject to the option, delivered in lieu of cash concurrently with such
exercise, the shares so delivered to be valued on the basis of the Fair Market
Value of such class of stock on the date of exercise. If and while payment with
stock is permitted for the exercise of an option granted under this Plan in
accordance with the foregoing provision, the instrument evidencing the option
may also permit the person then entitled to exercise that option, in lieu of
using previously outstanding shares therefor, to use some of the shares as to
which the option is then being exercised.
10. Administration. The Plan shall be administered by the Company's
board of directors (the "Board") or, at the discretion of the Board, by a
committee (the "Committee") of not less than two members of the Board.
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<PAGE> 3
The interpretation and construction by the Committee of any
term or provision of the Plan or of any option granted under it, including
without limitation any determination of adjustments required pursuant to Section
6 hereof, shall be conclusive, unless otherwise determined by the Board in which
event such action by the Board shall be conclusive, and such interpretation and
construction shall be binding upon all those who hold or are eligible to receive
options under the Plan and upon all persons claiming under them. The Board or
Committee may from time to time adopt rules and regulations for carrying out
this Plan and, subject to the provisions of this Plan, may prescribe the form or
forms of the instruments evidencing any option granted under this Plan.
Subject to the provisions of this Plan, the Board or, by
delegation from the Board, the Committee, shall have full and final authority in
its discretion to select the employees to be granted options, to authorize
granting such options and to determine the number of shares to be subject
thereto, the exercise prices, the terms of exercise, expiration dates and other
pertinent provisions thereof.
11. Other Option Provisions. Options granted under this Plan shall
contain such other terms and provisions which are not inconsistent with this
Plan as the Board or Committee may authorize, including but not limited to (a)
vesting schedules governing the exercisability of such options, (b) provisions
for acceleration of such vesting schedules in certain events, (c) arrangements
whereby the Company may fulfill any tax withholding obligations it may have in
connection with the exercise of such options, (d) provisions imposing
restrictions upon the transferability of stock acquired on exercise of such
options, whether required by this Plan or applicable securities laws or imposed
for other reasons, and (e) provisions regarding the termination or survival of
any such option upon the optionee's death, retirement or other termination of
employment and the extent, if any, to which any such options may be exercised
after such event Incentive Options shall contain the terms and provisions
required of them under the Internal Revenue Code.
12. Stock Appreciation Rights. If the instrument evidencing an option
granted under this Plan so provides, such option may include a stock
appreciation right, entitling the optionee, in lieu of exercising the option or
any portion thereof, to surrender such option in whole or in part in exchange
for a payment equal to the amount by which the Fair Market Value of the stock
subject to that option or portion thereof then exceeds the option exercise price
thereof, which payment may be made, at the Company's discretion, either in cash
or in stock valued at its then current Fair Market Value, or any combination of
such cash and stock; provided, however, no such stock appreciation right may be
exercised unless the stock subject to the option is then Publicly Traded
(defined hereinbelow).
13. Restricted Stock. The Committee may make grants of shares as
restricted stock with such terms and conditions as may be determined in the sole
discretion of the Committee. Shares of restricted stock shall be issued and
delivered at the time of the grant or as otherwise determined by the Committee,
but shall be subject to forfeiture until provided otherwise in the applicable
instrument evidencing the grant or the Plan. Each certificate representing
shares of restricted stock shall bear a legend referring to the Plan and the
risk of forfeiture of the shares and stating that such shares are
nontransferable until all restrictions have been satisfied and the legend has
been removed. At the discretion of the Committee, the grantee may or may not be
entitled to full voting and dividend rights with respect to all shares of
restricted stock from the date of grant. The Committee may (but is not obligated
to) require that any dividends on such shares be automatically deferred and
reinvested in additional restricted stock subject
3
<PAGE> 4
to the same restrictions as the underlying stock.
Grants of shares of restricted stock shall be made at such
cost as the Committee shall determine and may be issued for no monetary
consideration, subject to applicable state law. Shares of restricted stock shall
not be transferable until after the removal of the legend with respect to such
shares.
14. Corporate Reorganizations. Upon the dissolution or liquidation of
the Company, or upon a reorganization, merger or consolidation of the Company as
a result of which the outstanding securities of the class then subject to
options hereunder are changed into or exchanged for property (including cash),
rights or securities other than the Company, or any combination thereof, or upon
a sale of substantially all the property of the Company to, or the acquisition
of stock representing more than eighty percent (80%) of the voting power of the
stock of the Company then outstanding by, another corporation or person, the
Plan shall terminate, and all options theretofore granted shall terminate,
unless provision be made in writing in connection with such transaction for the
continuance of the Plan and/or for the assumption of options theretofore
granted, or the substitution for such options of options covering the stock of a
successor employer corporation, or a parent or a subsidiary thereof, with
appropriate adjustments in accordance with Section 6 hereof as to the number and
kind of shares optioned and their exercise prices, in which event the Plan and
options theretofore granted shall continue in the manner and under the terms so
provided. The instrument evidencing any option may also provide for the
acceleration of otherwise unexercisable portions of the option (a) if the option
shall terminate pursuant to the foregoing sentence, such acceleration to become
effective at such time prior to the consummation of the transaction causing such
termination as the Company shall designate, and (b) upon other specified events
or occurrences, such as involuntary terminations of the option holder's
employment following certain changes in the control of the Company.
15. Financial Assistance. The Company is vested with authority under
this Plan to assist any employee to whom an option is granted hereunder
(including any director or officer of the Company or any of its subsidiaries who
is also an employee) in the payment of the purchase price payable on exercise of
that option, by lending the amount of such purchase price to such employee on
such terms and at such rates of interest and upon such security (or unsecured)
as shall have been authorized by or under authority of the Board.
16. Company's Right of First Purchase. While and so long as the stock
of the class subject to this Plan has not been Publicly Traded for at least
ninety days, any stock issued on exercise of any option granted under this Plan
shall be subject to the Company's right of first purchase. By virtue of that
right, (a) such stock may not be transferred during the optionee's lifetime to
any person other than members of the optionee's Immediate Family, a partnership
whose members are the optionee and/or members of the optionee's Immediate
Family, or a trust for the benefit of the optionee and/or members of the
optionee's Immediate Family, unless such transfer occurs within fifteen days
following the expiration of thirty days after the Company has been given a
written notice which correctly identified the prospective transferee or
transferees and which offered the Company an opportunity to purchase such stock
at its Fair Market Value in cash, and such offer has not been accepted within
thirty days after the Company's receipt of such notice; and (b) upon the
optionee's death, the Company shall have the right to purchase all or some of
such stock at its Fair Market Value within nine months after the date of death.
This right of first purchase shall continue to apply to any such stock after the
transfer during the optionee's lifetime of that stock to a member of the
optionee's Immediate
4
<PAGE> 5
Family or to a family partnership or trust as aforesaid, and after any transfer
of that stock with respect to which the Company expressly waived its right of
first purchase without also waiving it as to any subsequent transfers thereof,
but it shall not apply after a transfer of that stock with respect to which the
Company was offered but did not exercise or waive its right of first purchase or
more than nine months after the optionee's death. The Company may assign all or
any portion of its right of first purchase to any one or more of its
stockholders, or to a pension or retirement plan or trust for employees of the
Company, who may then exercise the right so assigned. Stock certificates
evidencing stock subject to this right of first purchase shall contain an
appropriate legend reflecting the right of first purchase.
17. Limitations of Rights of Participants.
(a) A person to whom an option is granted under this Plan
shall not have any interest in the optioned shares or in any dividends paid
thereon and shall not have any of the rights or privileges of a stockholder with
respect to such shares, until the certificates therefor have been issued and
delivered to him or her.
(b) No shares of stock issuable under the Plan shall be issued
and no certificate therefor delivered unless and until, in the opinion of legal
counsel for the Company, such securities may be issued and delivered without
causing the Company to be in violation of or to incur any liability under any
federal, state or other securities law, or any other requirement of law or of
any regulatory body having jurisdiction over the Company.
(c) The receipt of an option does not give the optionee any
right to continued employment by the Company or a subsidiary for any period, nor
shall the granting of the option or the issuance of shares on exercise thereof
give the Company or any subsidiary any right to the continued services of the
optionee for any period.
(d) Nothing contained in this Plan shall constitute the
granting of an option hereunder, which shall occur only pursuant to express
authorization by the Board or the Committee.
18. Amendment and Termination. The Board may alter, amend, suspend or
terminate this Plan, provided that no such action shall deprive an optionee who
has not consented thereto of any option granted to the optionee pursuant to this
Plan or of any of the optionee's rights under such option. Except as herein
provided, no such action of the Board, unless taken with the approval of the
stockholders of the Company, may:
(a) increase the maximum number of shares for which options
granted under this Plan may be exercised;
(b) reduce the minimum permissible exercise price;
(c) extend the ten-year duration of the Plan set forth herein;
(d) alter the class of employees eligible to receive options
under the Plan; or
(e) amend the Plan in any other manner which the Board, in its
discretion, determines should become effective only if approved by the
stockholders even through such stockholder approval is not expressly required by
this Plan.
5
<PAGE> 6
19. Certain Definitions. The terms "Board," "Committee," and "Incentive
Options" have been defined hereinabove. In addition, as used in this Plan, the
following terms shall have the following meanings:
The "Fair Market Value" of corporate stock shall mean:
(1) If the stock is then Publicly Traded: The closing
price of stock of that class as of the day in question (or, if such day is not a
trading day in the principal securities market or markets for such stock, on the
nearest preceding trading days as reported with respect to the market (or the
composite of markets, if more than one) in which shares of such stock are then
traded, or, if no such closing prices are reported, on the basis of the mean
between the high bid and low asked prices that day on the principal market or
quotation system on which shares of such stock are then quoted, or, if not so
quoted, as furnished by a professional securities dealer making a market in such
stock selected by the Board of the Committee.
(2) If the stock is then not Publicly Traded: The
price at which one could reasonably expect such stock to be sold in an arm's
length transaction, for cash, other than on an installment basis, to a person
not employed by, controlled by, in control of or under common control with the
issuer of such stock. Such Fair Market Value shall be that which has currently
or most recently been determined for this purpose by the Board, or at the
discretion of the Board by an independent appraiser or appraisers selected by
the Board, in either case giving due consideration to recent transactions
involving shares of such stock, if any, the issuer's net worth, prospective
earning power and dividend-paying capacity, the goodwill of the issuer's
business, the issuer's industry position and its management, that industry's
economic outlook, the values of securities of issuers whose stock is Publicly
Traded and which are engaged in similar businesses, the effect of transfer
restrictions to which such stock may be subject under law and under the
applicable terms of any contract governing such stock, the absence of a public
market for such bock and such other matters as the Board or its appraiser or
appraisers deems pertinent. The determination by the Board or its appraiser or
appraisers of the Fair Market Value shall, if not unreasonable, be conclusive
and binding notwithstanding the possibility that other persons might make a
different, and also reasonable, determination. If the Fair Market Value to be
used was thus fixed more than sixteen months prior to the day as of which Fair
Market Value is being determined, it shall in any event be no less than the book
value of the stock being valued at the end of the most recent period for which
financial statements of the issuer are available.
An individuals's "Immediate Family" includes only his or her spouse,
parents or other ancestors, and children and other direct descendants of that
individual or of his or her spouse (including such direct descendants by
adoption).
Corporate stock is "Publicly Traded" if stock of that class is listed
or admitted to unlisted trading privileges on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. ("NASD") or if
sales or bid and offer quotations are reported for that class of stock in the
automated quotation system (NASDAQ") operated by the NASD.
6
<PAGE> 1
EXHIBIT 10.2(a)
FIRST AMENDMENT
TO THE
CRAGAR INDUSTRIES, INC.
1996 STOCK OPTION AND RESTRICTED STOCK PLAN
Cragar Industries, Inc. (the "Company") has previously adopted the
Cragar Industries, Inc. 1996 Stock Option and Restricted Stock Plan (the
"Plan"). By this instrument, the Company desires to amend the Plan to increase
the number of shares of the Company's Common Stock, $.01 par value, that may be
issuable under the Plan.
1. This Amendment shall amend only those Sections specified herein and
those Sections not amended hereby shall remain in full force and effect.
2. The first sentence of Section 2 of the Plan is hereby amended in
its entirety to read as follows:
2. Stock Subject to the Plan. The maximum number
of shares of stock subject to this Plan shall be 210,000
shares of the Company's Common Stock, $.01 par value,
subject to the adjustments provided in Sections 6 and 13;
provided, however, that the number of authorized shares in
the immediately preceding clause takes into consideration
the 7 for 1 stock split approved by the Company's Board of
Directors on September 7, 1996, and therefore, no further
adjustment shall be made under Section 6 for such stock
split.
Except as amended by this First Amendment, the Company hereby ratifies
and affirms the Plan.
Cragar Industries, Inc. has caused this First Amendment to be executed
by its duly authorized representative as of this 1st day of October, 1996.
CRAGAR INDUSTRIES, INC.
BY: Michael L. Hartzmark
--------------------
ITS: President and Chief Executive Officer
-------------------------------------
<PAGE> 1
EXHIBIT 10.3
TRAMMELL CROW COMPANY
COMMERCIAL LEASE
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY, AN IOWA CORPORATION
LANDLORD
AND
CRAGAR INDUSTRIES, INC., A DELAWARE CORPORATION
TENANT
SUMMARY OF LEASE TERMS*
<TABLE>
<S> <C>
Date __________________________________________________
__________________________________________________
Lease Number
Project 43rd Avenue Building
Square Footage 167,171
Address 4636 N. 43rd Avenue
Phoenix, AZ 85031
Term 124 mos.
Base Rental Schedule Months 1 - 4 $0.00*
Months 5 - 40 $20,895/mo/NNN
Months 41 - 88 $24,240/mo/NNN
Months 89 - 124 $27,585/mo/NNN
*Tenant pays operating expenses during this term
Current Rental Tax Rate 6.3%
Current Estimated
Operating Expenses
Other Items Purchase option - See Addendum "A".
Improvements - See Exhibit "C".
</TABLE>
__________________________
*Note - This summary is provided for the Tenant's convenience only. It is
not to be construed as a part of the above referenced Lease Agreement. In the
event that there is a conflict between this summary of lease terms and the Lease
Agreement, the language in the Lease Agreement shall prevail.
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STANDARD LEASE AGREEMENT
TRAMMELL CROW COMPANY
LEASE NUMBER
DATE
LEASE AGREEMENT
THIS LEASE AGREEMENT, made and entered into by and between PRINCIPAL MUTUAL LIFE
INSURANCE COMPANY, an Iowa corporation hereinafter referred to as "Landlord",
and CRAGAR INDUSTRIES, INC., a Delaware corporation hereinafter referred to as
"Tenant";
WITNESSETH:
1. PREMISES AND TERM. In consideration of the mutual obligations of
Landlord and Tenant set forth herein, Landlord leases to Tenant, and Tenant
hereby takes from Landlord the Premises situated within the County of Maricopa,
State of Arizona, more particularly described on Exhibit "A" attached hereto and
incorporated herein by reference, (the "Premises"), together with all rights,
privileges, easements, appurtenances, and amenities belonging to or in any way
pertaining to the Premises, to have and to hold, subject to the terms, covenants
and conditions in this Lease. The term of this Lease shall commence on the
commencement date hereinafter set forth and shall end on the last day of the
month that is one hundred, twenty-four (124) months after the commencement date.
A. EXISTING BUILDING. If no improvements are to be constructed to the
Premises, the commencement date shall be February 1, 1993. Tenant acknowledges
that (i) it has inspected and accepts the Premises, (ii) the buildings and
improvements comprising the same are suitable for the purpose for which the
Premises are leased, (iii) the Premises are in good and satisfactory condition,
and (iv) no representations as to the repair of the Premises, nor promises to
alter, remodel or improve the Premises have been made by Landlord (unless
otherwise expressly set forth in this Lease)
B. This paragraph intentionally deleted.
2. BASE RENT, SECURITY DEPOSIT AND OPERATING EXPENSE
PAYMENTS.
A. Tenant agrees to pay to Landlord rent for the Premises, in advance,
without demand, deduction or set off, at the rate of SEE ADDENDUM "A"
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<PAGE> 3
Dollars ($ ) per month during the term hereof. One such monthly installment,
plus the other monthly charges set forth in Paragraph 2C below shall be due and
payable on the date hereof and a like monthly installment shall be due and
payable on or before the first day of each calendar month succeeding the
commencement date, except that all payments due hereunder for any fractional
calendar month shall be prorated.
B. In addition, Tenant agrees to deposit with Landlord on the date
hereof the sum of Twenty Thousand, Eight Hundred Ninety-five and 00/100 Dollars
($20,895.00), which shall be held by Landlord, without obligation for interest,
as security for the performance of Tenant's obligations under the Lease, it
being expressly understood and agreed that this deposit in not an advance rental
deposit or a measure of Landlord's damages in case of Tenant's default. Upon
each occurrence of an event of default, Landlord may use all or part of the
deposit to pay past due rent or other payments due Landlord under this Lease,
and the cost of any other damage, injury, expense or liability caused by such
event of default without prejudice to any other remedy provided herein or
provided by law. On demand, Tenant shall pay Landlord the amount that will
restore the security deposit to its original amount. The security deposit shall
be deemed the property of Landlord, but any remaining balance of such deposit
shall be returned by Landlord to Tenant when Tenant's obligations under this
Lease have been fulfilled. Should Tenant exercise its right under Paragraph 28
of Addendum One attached hereto, Landlord shall apply the balance of such
deposit towards the purchase price.
C. Tenant agrees to pay the operating expenses, which shall include (i)
taxes (hereinafter defined) payable by Landlord pursuant to Paragraph 3A below,
(ii) the cost of utilities that are metered payable pursuant to Paragraph 9
below, (iii) the cost of maintaining insurance payable by Tenant pursuant to
Paragraph 10A below, (iv) the cost of any security that may be provided to the
Premises as set forth in Paragraph 24 below, and (v) an administrative fee equal
to ten percent (10%) of the sum of items (i) through (iv) above. During each
month of the term of this Lease, on the same day that rent is due hereunder,
Tenant shall pay Landlord an amount equal to 1/12 of the estimated annual cost
of its proportionate share of such items. The initial monthly payments are based
upon the estimated amounts for the year in question, and may be increased or
decreased quarterly to reflect the projected actual cost of all such items. If
the Tenant's total payments are less than Tenant's actual proportionate share of
all such items, Tenant shall pay the difference to Landlord within ten (10) days
after demand. If the total payments of Tenant are more than Tenant's actual
proportionate share of all such items, Landlord shall retain such excess and
credit it against Tenant's next annual payments.
Notwithstanding the foregoing as described in paragraph 2.C., Landlord hereby
grants Tenant the right to, at Tenant's option, pay directly for costs
identified in 2.C.(i) through 2.C.(v) so that these costs are not paid by
Landlord and then reimbursed by Tenant to Landlord but rather paid by Tenant
directly to the respective vendor. So long as this is applicable Tenant shall
not be obligated to pay a fee to Landlord an described in 2.C.(vi). Should
Tenant be in monetary or other default under this Lease for a period longer than
thirty days after notice by Landlord of such default, Landlord may,
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<PAGE> 4
but shall not be obligated to, rescind this right granted to Tenant and thereby
take over the responsibilities identified in paragraph 2.C. at such time Tenant
agrees to reimburse Landlord for its proportionate share an described therein.
3. TAXES
A. Tenant agrees to pay all taxes, assessments and governmental charges
of any kind and nature (collectively referred to herein as "Taxes") that accrue
against the Premises, and/or the land and/or improvements of which the Premises
are a part. The Landlord or Tenant shall have the right to employ a tax
consulting firm to attempt to assure a fair tax burden on the building and
grounds within the applicable taxing jurisdiction. Tenant agrees to pay the cost
of such consultant.
B. Tenant shall be liable and pay for all taxes levied or assessed
against any personal property or fixtures placed in the Premises.
C. If at any time during the term of this Lease, there shall be levied,
assessed or imposed on Landlord a capital levy or other tax directly or
indirectly upon the rents received therefrom and/or a franchise tax, any excise,
transaction, sales or privilege tax, assessment, levy or charge measured by or
based, in whole or in part, upon such rents from the Premises and/or the land
and improvements of which the Premises are a part, then all such taxes,
assessments, levies or charges, at the part, thereof so measured or based, shall
be payable to Landlord, monthly or upon demand, at the option of the Landlord,
as additional rent.
D. Notwithstanding the foregoing as described in paragraph 3.A.
Landlord hereby grants Tenant the right to, at Tenant's option, employ directly
with a property tax consulting firm. Should Tenant be in monetary or other
default under this Lease for a period longer than thirty days after notice by
Landlord of such default, Landlord may, but shall not be obligated to, rescind
this right granted to Tenant.
E. Tenant hereby agrees to pay into an escrow account held in the joint
names of Landlord and Tenant one-twelfth of the estimated annual property taxes
as determined by a mutually agreed upon property tax consultant which taxes
shall be paid to the taxing authority no later than fifteen days prior to the
date such taxes would be delinquent. Tenant shall provide Landlord evidence of
such payment by official receipt from the taxing authority.
4. LANDLORD'S REPAIRS.
A. Landlord, at its own cost and expense shall maintain the structural
soundness of the roof, foundation and exterior walls of the building of which
the Premises are a part in good repair, reasonable wear and tear excluded and is
responsible for structural compliance. The term "walls" as used herein shall not
include windows, glass or plate glass, doors or overhead doors, special store
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<PAGE> 5
fronts, dock bumpers, dock plates or levelers, or office entries. Tenant shall
immediately give Landlord written notice of defect or need for repairs, after
which Landlord shall have reasonable opportunity to repair same or cure such
defect. Landlord responsibility for governmental laws as they pertain to ADA
regulations shall be limited to compliance on the exterior of the building, up
to, but not including doors and entryways.
B. If not performed by Tenant to Landlord's reasonable satisfaction
after thirty day (30) cure period has expired, Landlord reserves the right to
perform the paving, common area and landscape replacement and maintenance,
exterior painting, common sewage line plumbing and any other items that are
otherwise Tenant's obligations under Paragraph 5A, all of which are sometimes
referred to herein as common area charges, in which event, Tenant shall be
liable for its proportionate share of the cost and expense of such repair,
replacement, maintenance and other such items.
C. Tenant agrees to pay the cost of (i) maintenance and/or landscaping
of any property that is a part of the building and/or project of which the
Premises are a part, (ii) maintenance and/or landscaping of any property that in
maintained or landscaped by any property owner or community owner association
that is named in the restrictive covenants or deed restrictions to which the
Premises are subject, and (iii) operating and maintaining any property,
facilities or services provided for the use of Tenant of any project or building
of which the Premises are a part.
5. TENANT'S REPAIRS.
A. Tenant, at its own cost and expense, shall (i) maintain all parts of
the Premises, landscape and grounds surrounding the Premises (except those for
which Landlord is expressly responsible hereunder) in good condition, (ii)
promptly make all necessary repairs and replacements, (iii) keep the parking
areas, driveways and alleys surrounding the Premises in a clean and sanitary
condition, and (iv) maintain any spur track servicing the Premises. Tenant
agrees to sign a joint maintenance agreement with the railroad company servicing
the Premises if requested by the railroad company. Landlord shall have the right
to coordinate all repairs and maintenance of any rail tracks serving or intended
to serve the Premises and, if Tenant uses such rail tracks, Tenant shall
reimburse Landlord from time to time, upon demand, for its proportionate share
of the costs of such repairs and maintenance and any other sums specified in any
agreement respecting such tracks to which Landlord is a party. It shall be at
Tenant's sole discretion that the rail spur is activated to the building.
B. Tenant, at its own cost and expense, shall enter into and deliver to
Landlord a regularly scheduled preventive maintenance service contract with a
maintenance contractor approved by Landlord for servicing all hot water, heating
and air conditioning systems and equipment within the premises. The service
contract must include all services required by the Landlord and must become
effective within thirty (30) days of the date Tenant takes possession of the
Premises. In the
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<PAGE> 6
event Tenant does not deliver said contract to Landlord within thirty (30) days
of the commencement date, the Landlord has the right to contract for said
service without notice to Tenant, and Tenant shall upon demand reimburse
Landlord for the full cost thereof. If not performed by Tenant to Landlord's
reasonable satisfaction after thirty (30) day cure period has expired, Landlord
reserves the right upon sixty (60) days written notice to Tenant to enter into a
regularly scheduled preventive maintenance service contract covering the
service, repair and/or replacement of any or all such items for the entire
building(s) of which the Premises are a part, in which event Tenant shall be
liable for its proportionate share of the cost and expense of said preventive
maintenance service contract in accordance with Paragraph 4 above.
6. ALTERATIONS. Tenant shall not make any alterations, additions or
improvements to the Premises without the prior written consent of Landlord which
shall not be unreasonably withheld. Tenant, at its own cost and expense, may
erect such shelves, bins, machinery and trade fixtures an it desires provided
that (a) such items do not alter the basic character of the Premises or the
building and/or improvements of which the Premises are a part; (b) such items do
not overload or damage the same; (c) such items may be removed without injury to
the Premises; and (d) the construction, erection or installation thereof
complies with all applicable governmental laws, ordinances, regulations and with
Landlord's specifications and requirements. All alterations, additions,
improvements and partitions erected by Tenant shall be and remain the property
of Tenant during the term of this Lease. All shelves, bins, machinery and trade
fixtures installed by Tenant shall be removed on or before the earlier to occur
of the date of termination of this Lease or vacating the Premises, at which time
Tenant shall restore the Premises to their original condition. All alterations,
installations, removals and restoration shall be performed in a good and
workmanlike manner so as not to damage or alter the primary structure or
structural qualities of the buildings and other improvements situated on the
Premises or of which the Premises are a part.
7. SIGNS. Any signage Tenant desires for the Premises shall be subject
to all applicable city ordinances, sign codes, and criteria. Tenant shall
repair, paint, and/or replace the building facia surface to which its signs are
attached upon vacation of the Premises, or the removal or alteration of its
signage. Tenant shall not, (i) make any changes to the exterior of the Premises,
(ii) install any exterior lights, decorations, balloons, flags, pennants,
banners or painting, or (iii) erect or install any signs, windows or door
lettering, placards, decorations or advertising media of any type which can be
viewed from the exterior of the Premises, without Landlord's prior written
consent. All signs, decorations, advertising media, blinds, draperies and other
window treatment or bars or other security installations visible from outside
the Premises shall conform in all respects to the criteria established by
Landlord.
8. PARKING. Tenant shall be entitled to park anywhere that is
permittable by law on the Premises. Vehicle storage shall be allowed in any
parking area with Landlord's prior written consent which shall not be
unreasonably withheld.
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<PAGE> 7
9. UTILITIES. Landlord agrees to provide normal water and electricity
service to the Premises. Tenant shall pay for all water, gas, heat, light,
power, telephone, sewer, sprinkler charges, refuse and trash collection, and
other utilities and services used on or at the Premises, together with any
taxes, penalties, surcharges or the like pertaining to the Tenant's use of the
Premises, and any maintenance charges for utilities. Landlord shall have the
right to cause any of said services to be separately metered or charged to
Tenant, at Tenant's expense. Landlord shall not be liable for any interruption
or failure of utility service on the Premises.
10. INSURANCE.
A. Tenant shall maintain insurance covering the buildings situated on
the Premises or of which the Premises are a part for the full replacement cost
hereof, except for a commercially reasonable deductible, insuring against the
perils of Fire, Lightning, Extended Coverage, Vandalism and Malicious Mischief.
Tenant shall provide Landlord with proof of insurance and the amount, and
Tenant's insurance carrier shall promptly provide Landlord written notice of any
such policy lapse or termination and should such occur, Landlord shall have the
right to contract for the required insurance and charge such cost to Tenant
accordingly.
B. Tenant, at its own expense, shall maintain during the term of this
Lease a policy or policies of worker's compensation and comprehensive general
liability insurance, including personal injury and property damage, with
contractual liability endorsement, in the amount of Five Hundred Thousand
Dollars ($500,000.00) for property damage and One Million Dollars
($1,000,000.00) per occurrence for personal injuries or deaths of persons
occurring in or about the Premises. Tenant, at its own expense, also shall
maintain during the term of this Lease, fire and extended coverage insurance
covering the replacement cost of (i) all alterations, additions, partitions and
improvements installed or placed on the Premises by Tenant or by Landlord on
behalf of Tenant and (ii) all of Tenant's personal property contained within the
Premises. Said policies shall (i) name Landlord as an additional insured and
insure Landlord's contingent liability under this Lease (except for the worker's
compensation policy, which instead shall include waiver of subrogation
endorsement in favor of Landlord), (ii) be issued by an insurance company which
in acceptable to Landlord, (iii) provide that said insurance shall not be
canceled unless thirty (30) days prior written notice shall have been given to
Landlord, and (iv) provide primary coverage to Landlord, when any policy issued
to Landlord provides duplicate or in similar coverage, Landlord's policy will be
excess over Tenant's policies. Said policy or policies or certificates thereof
shall be delivered to Landlord by Tenant upon commencement of the term of the
Lease and upon each renewal of said insurance.
C. Tenant will not permit the Premises to be used for any purpose or in
any manner that would (i) void the insurance thereon, (ii) increase the
insurance risk, or (iii) cause the disallowance of any sprinkler credits,
including without limitation, use of the Premises for the receipt, storage or
handling of any product, material or merchandise that is explosive or highly
inflammable. If any increase in the cost of any insurance on the Premises or the
building of which the Premises are a part
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<PAGE> 8
is caused by Tenant's use of the Premises, or because Tenant vacates the
Premises, then Tenant shall pay the amount of such increase to Landlord.
D. Landlord hereby agrees to provide Tenant with access to Landlord's
building insurance programs, if possible.
11. FIRE AND CASUALTY DAMAGE
A. If the premises or the building of which the Premises are a part
should be damaged or destroyed by fire or other peril, Tenant immediately shall
give written notice to Landlord. If the buildings situated upon the Premises or
of which the Premises are a part should be totally destroyed by any peril
covered by the insurance to be provided by Tenant under Paragraph 10A above, or
if they should be so damaged thereby that, in Landlord's estimation, rebuilding
or repairs cannot be completed within one hundred eighty (180) days after the
date of such damage, this Lease shall terminate and the rent shall be abated
during the unexpired portion of this Lease, effective upon the date of the
occurrence of such damage, provided Tenant has paid to Landlord the deductible
or applicable portion of the deductible, as the case may be, under the
Landlord's insurance policy.
B. If the buildings situated upon the Premises or of which the Premises
are a part, should be damaged by any peril covered by the insurance to be
provided by Tenant under Paragraph 10A above, and in Landlord's estimation,
rebuilding or repairs can be substantially completed within one hundred eighty
(180) days after the date of such damage, this lease shall not terminate, and
Landlord shall restore the Premises to substantially its previous condition,
except that Landlord shall not be required to rebuild, repair or replace any
part of the partitions, fixtures, additions and other Improvements that may have
been constructed, erected or installed in, or about the Premises or for the
benefit of, or by or for Tenant. Tenant shall pay to Landlord the amount of the
deductible under Tenant's insurance policy within thirty (30) days after receipt
of Landlord's invoice therefor. If the damage covered by the insurance also
involves portions of the building or buildings other than the Premises, Tenant
shall pay only a portion of the deductible, based on the ratio of the cost of
repairing the damage in the Premises to the total cost of repairing all damage
in the building or buildings. If such repairs and rebuilding have not been
substantially completed within one hundred eighty (180) days after the date of
such damage, Tenant, as Tenant's exclusive remedy, may, upon payment to the
Landlord of the deductible or applicable portion of the deductible, as the case
may be, under Landlord's insurance policy, terminate this Lease by delivering
written notice of termination to Landlord in which event the rights and
obligations hereunder shall cease and terminate.
C. Notwithstanding anything herein to the contrary, in the event the
holder of any indebtedness secured by a mortgage or deed of trust covering the
premises requires that the insurance proceeds be applied to such indebtedness,
then Landlord shall have the right to terminate this Lease by delivering written
notice of termination to Tenant within fifteen (15) days after such requirement
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<PAGE> 9
is made known by any such holder, whereupon all rights and obligations hereunder
shall cease and terminate.
D. Anything in this Lease to the contrary notwithstanding, Landlord and
Tenant hereby waive and release each other of and from any and all rights of
recovery, claim, action or cause of action, against each other, their agents,
officers and employees, for any loss or damage that may occur to the Premises,
improvements to the building of which the Premises are a part, or personal
property (building contents) within the building and/or Premises, for any reason
regardless of cause or origin. Each party to this Lease agrees immediately after
execution of this Lease to give each insurance company, which has issued to it
policies of fire and extended coverage insurance, written notice of the terms of
the mutual waivers contained in this subparagraph, and if necessary, to have the
insurance policies properly endorsed.
12. LIABILITY AND INDEMNIFICATION. Except for any claims, rights of
recovery and causes of action that Tenant has released, Landlord shall hold
Tenant harmless and defend Tenant against any and all claims or liability for
any injury or damage to any person in, on or about the Premises or any part
thereof and/or the building of which the Premises are a part, when such injury
or damage shall be caused by the act, neglect, negligence, fault of, or omission
of any duty with respect to the same by Landlord, its agents, servants and
employees. Except for any claims, rights of recovery and causes of action that
Landlord has released, Tenant shall hold Landlord harmless from and defend
Landlord against any and all claims or liability for any injury or damage (i) to
any person or property whatsoever occurring in, on or about the Premises or any
part thereof and/or of the building of which the Premises are a part, including
without limitation elevators, stairways, passageways or hallways, the use of
which Tenant may have in accordance with this Lease, when such injury or damage
shall be caused by the act, neglect, negligence, fault of, or omission of any
duty with respect to the same by Tenant, its agents, servants, employees, or
invitees (ii) arising from the conduct of management of any work done by the
Tenant in or about the Premises, (iii) arising from transactions of the Tenant,
(iv) Tenant's breach of any covenant contained in this Lease, including, but not
limited to, Tenant's failure to comply with any of the matters set forth
relating to hazardous wastes or regulated substances as defined and described on
Exhibit "D", attached hereto and incorporated herein by reference, and (v) all
costs, counsel fees, expenses and liabilities incurred in connection with any
such claim or action or proceeding brought thereon. The provisions of this
Paragraph 12 shall survive the expiration or termination of this Lease with
respect to any claims or liability occurring prior to such expiration or
termination.
13. USE. The Premises shall be used only for the purpose of
manufacturing, receiving, storing, shipping and selling products, materials and
merchandise made and/or distributed by Tenant and for such other lawful purposes
as may be incidental thereto. Should Tenant's use of the Premises change
primarily to retail, Tenant shall be responsible for any incremental ADA
compliance required cost associated with such use. Outside storage, including
without limitation, storage of trucks and other vehicles, is prohibited without
Landlord's prior written consent. Tenant shall comply with all
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governmental laws, ordinances and regulations applicable to the use of the
Premises, and promptly shall comply with all governmental orders and directives
for the correction, prevention and abatement of nuisances in or upon, or
connected with, the Premises, all at Tenant's sole expense. Tenant shall not
permit any objectionable or unpleasant odors, smoke, dust, gas, noise or
vibration to emanate from the Premises, nor take any other action that would
constitute a nuisance or would disturb, unreasonably interfere with, or endanger
Landlord or any other tenants of the building in which the Premises are a part.
Landlord's consent to trailer and truck storage shall not be unreasonably
withheld.
14. INSPECTION. Landlord and Landlord's agents and representatives
shall have the right to enter the Premises at any reasonable time during
business hours, to inspect the Premises and to make such repairs as may be
required or permitted pursuant to this Lease. During the period that is six (6)
months prior to the end of the Lease term, upon telephonic notice to Tenant,
Landlord and Landlord's representatives may enter the Premises during business
hours for the purpose of showing the Premises. In addition, Landlord shall have
the right to erect a suitable sign on the Premises stating the Premises are
available. Tenant shall notify Landlord in writing at least thirty (30) days
prior to vacating the Premises and shall arrange to meet with Landlord for a
joint inspection of the Premises prior to vacating. If Tenant fails to give such
notice or to arrange for such inspection, then Landlord's inspection of the
Premises shall be deemed correct for the purpose of determining tenant's
responsibility for repairs and restoration of the Premises.
15. ASSIGNMENT AND SUBLETTING.
A. Tenant shall not have the right to assign, sublet, transfer or
encumber this Lease, or any interest therein, without the prior written consent
of Landlord. Any attempted assignment, subletting, transfer or encumbrance by
Tenant in violation of the terms and covenants of this Paragraph shall be void.
Notwithstanding the foregoing, Tenant shall have the right to assign this Lease
to any affiliate provided that such assignment is in form satisfactory to
Landlord. Any assignee, sublessee or transferee of Tenant's interest in this
Lease (all such assignees, sublessees and transferees being hereinafter referred
to as "Transferees"), by assuming Tenant's obligations hereunder, shall assume
liability to Landlord for all amounts paid to persons other than Landlord by
such Transferees in contravention of this Paragraph. No assignment, subletting
or other transfer, whether consented to by Landlord or not permitted hereunder
shall relieve Tenant of its liability hereunder. If an event of default occurs
while the Premises or any part thereof are assigned or sublet, then Landlord, in
addition to any other remedies herein provided, or provided by law, may collect
directly from such Transferee all rents payable to the Tenant and apply such
rent against any sums due Landlord hereunder. No such collection shall be
construed to constitute a novation or a release of Tenant from the further
performance of Tenant's obligations hereunder.
B. If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, 11 U.S.C. Section 101 et. seq., (the
"Bankruptcy Code"), any and all monies or
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other consideration payable or otherwise to be delivered in connection with such
assignment shall be paid or delivered to Landlord, shall be and remain the
exclusive property of Landlord and shall not constitute property of Tenant or of
the estate of Tenant within the meaning of the Bankruptcy Code. Any and all
monies or other considerations constituting Landlord's property under the
preceding sentence not paid or delivered to Landlord shall be held in trust for
the benefit of Landlord and be promptly paid or delivered to Landlord.
C. Any person or entity to which this Lease is assigned pursuant to the
provisions of the Bankruptcy Code, shall be deemed, without further act or deed,
to have assumed all of the obligations arising under this Lease on and after the
date of such assignment. Any such assignee shall upon demand execute and deliver
to Landlord an instrument confirming such assumption.
16. CONDEMNATION. If more than eighty percent (80%) of the Premises are
taken for any public or quasi-public use under governmental law, ordinance or
regulation, or by right of eminent domain, or by private purchase in lieu
thereof and the taking prevents or materially interferes with the use of the
Premises for the purpose for which they were leased to Tenant, this Lease shall
terminate and the rent shall be abated during the unexpired portion of this
Lease, effective on the date of such taking. If less than eighty percent (80%)
of the Premises are taken for any public or quasi-public use under any
governmental law, ordinance or regulation, or by right of eminent domain, or by
private purchase in lieu thereof, this Lease shall not terminate, but the rent
payable hereunder during the unexpired portion of this Lease shall be reduced to
such extent as may be fair and reasonable under all of the circumstances. All
compensation awarded in connection with or as a result of any of the foregoing
proceedings shall be the property of Landlord and Tenant hereby assigns any
interest in any such award to Landlord; provided, however, Landlord shall have
no interest in any award made to Tenant for loss of business or goodwill or for
the taking of Tenant's fixtures and improvements, if a separate award for such
items is made to Tenant.
17. HOLDING OVER. At the termination of this Lease by its expiration or
otherwise, Tenant immediately shall deliver possession to Landlord with all
cleaning, repairs and maintenance required herein to be performed by Tenant
completed. If, for any reason, Tenant retains possession of the Premises after
the expiration or termination of the Lease, unless the parties hereto otherwise
agree in writing, such possession shall be subject to termination by either
Landlord or Tenant at any time upon not less than ten (10) days advance written
notice, and all of the other terms and provisions of this Lease shall be
applicable during such period, except that Tenant shall pay Landlord from time
to time, upon demand, as rental for the period of such possession, an amount
equal to ____ times the rent in effect on the termination date, computed on a
daily basis for each day of such period. No holding over by Tenant, whether with
or without consent of Landlord shall operate to extend this Lease except as
otherwise expressly provided. The preceding provisions of this Paragraph 17
shall not be construed as consent for Tenant to retain possession of the
Premises in the absence of written consent thereto by Landlord.
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18. QUIET ENJOYMENT. Landlord covenants that on or before the
commencement date it will have good title to the Premises, free and clear of all
liens and encumbrances, excepting only the lien for current taxes not yet due,
such mortgage or mortgages as are permitted by the terms of this Lease, zoning
ordinances and other building and fire ordinances and governmental regulations
relating to the use of such property, and easements, restrictions and other
conditions of record. If this Lease is a sublease, then Tenant agrees to take
the Premises subject to the provisions of the prior Leases. Landlord represents
that it has the authority to enter into this Lease and that so long as Tenant
pays all amounts due hereunder and performs all other covenants and agreements
herein set forth, Tenant shall peaceably and quietly have, hold and enjoy the
Premises for the term hereof without hindrance or molestation from Landlord,
subject to the terms and provisions of this Lease.
19. EVENTS OF DEFAULT. The following events (herein individually
referred to as "event of default") each shall be deemed to be events of
nonperformance by Tenant under this Lease.
A. Tenant shall fail to pay any installment of the rent herein reserved
when due, or any other payment or reimbursement to Landlord required herein when
due, and such failure shall continue for a period of ten (10) days from when
due.
B. The Tenant or any guarantor of the Tenant's obligations hereunder
shall (i) become insolvent; (ii) admit in writing its inability to pay its
debts; (iii) make a general assignment for the benefit of creditors; (iv)
commence any case, proceeding or other action seeking to have an order for
relief entered on its behalf as a debtor or to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, liquidation,
dissolution or composition of it or its debts under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors or seeking
appointment of a receiver, trustee, custodian or other similar official for it
or for all or of any substantial part of its property; or (v) take any action to
authorize or in contemplation of any of the actions set forth above in this
Paragraph.
C. Any case, proceeding or other action against the Tenant or any
guarantor of the Tenant's obligations hereunder shall be commenced seeking (i)
to have an order for relief entered against it as debtor or to adjudicate it
bankrupt or insolvent; (ii) reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it or its debts under any law
relating to bankruptcy, insolvency, reorganization or relief of debtors; (iii)
appointment of a receiver, trustee, custodian or other similar official for it
or for all or any substantial part of its property, and such case, proceeding or
other action (a) results in the entry of an order for relief against it which it
is not fully stayed within seven (7) business days after the entry thereof or
(b) shall remain undismissed for a period of forty-five (45) days.
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D. This paragraph intentionally deleted.
E. Tenant shall fail to discharge any lien placed upon the Premises in
violation of Paragraph 22 hereof within twenty (20) days after any such lien or
encumbrance is filed against the Premises.
F. Tenant shall fail to comply with any term, provision or covenant of
this Lease (other than those listed in this Paragraph 19), and shall not cure
such failure within twenty (20) days after written notice thereof to Tenant.
20. REMEDIES.
A. Upon each occurrence of an event of default, Landlord shall have the
option to pursue any one or more of the following remedies without any notice or
demand: (1) Terminate this Lease, and/or (2) Enter upon and take possession of
the Premises without terminating this Lease; and/or (3) Alter all locks and
other security devices at the Premises with or without terminating this Lease,
and pursue, at Landlord's option, one or more remedies pursuant to this Lease,
Tenant hereby specifically waiving any state or federal law to the contrary; and
in any such event Tenant immediately shall surrender the Premises to Landlord,
and if Tenant fails so to do, Landlord, without waiving any other remedy it may
have, may enter upon and take possession of the Premises and expel or remove
Tenant and any other person who may be occupying such Premises or any part
thereof, without being liable for prosecution or any claim of damages therefor.
B. If Landlord terminates this Lease, at Landlord's option, Tenant
shall be liable for and shall pay to Landlord, the sum of all rental and other
payments owed to Landlord hereunder accrued to the date of such termination,
plus, an liquidated damages, an amount equal to (1) the present value of the
total rental and other payments owed hereunder for the remaining portion of the
Lease term, calculated as if such term expired on the date set forth in
Paragraph 1, less (2) the then present fair market rental value of the Premises
for such period, which because of the difficulty of ascertaining such value,
Landlord and Tenant stipulate and agree, shall in no event be deemed to exceed
seventy-five percent (75%) of the rental amount set forth in Paragraph 2 above.
C. If Landlord repossesses the Premises without terminating the Lease,
Tenant, at Landlord's option, shall be liable for and shall pay Landlord on
demand all rental and other payments owed to Landlord hereunder, accrued to the
date of such repossession, plus all amounts required to be paid by Tenant to
Landlord until the date of expiration of the term as stated in Paragraph 1,
diminished by all amounts received by Landlord through reletting the Premises
during such remaining term (but only to the extent of the rent herein reserved).
Actions to collect amounts due by Tenant to Landlord under this subparagraph may
be brought from time to time, on one or more occasions, without the necessity of
Landlord's waiting until expiration of the Lease term.
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D. Upon an event of default, in addition to any sum provided to be paid
herein, Tenant also shall be liable for and shall pay to Landlord (i) brokers'
fees incurred by Landlord in connection with reletting the whole or any part of
the Premises; (ii) the costs of removing and storing Tenant's or other
occupant's property; (iii) the costs of repairing, altering, remodeling or
otherwise putting the Premises into condition acceptable to a new Tenant or
Tenants, and (iv) all reasonable expenses incurred by Landlord in enforcing or
defending Landlord's rights and/or remedies. If either party hereto institute
any action or proceeding to enforce any provision hereof by reason of any
alleged breach of any provision of this Lease, the prevailing party shall be
entitled to receive from the losing party all reasonable attorney's fees and all
court costs in connection with such proceeding.
E. In the event Tenant fails to make any payment due hereunder when
payment is due, to help defray the additional cost to Landlord for processing
such late payments, Tenant shall pay to Landlord on demand a late charge in an
amount equal to five percent (5%) of such installment; and the failure to pay
such amount within ten (10) days after written demand therefor shall be an
additional event of default hereunder. The provision for such late charge shall
be in addition to all of Landlord's other rights and remedies hereunder or at
law and shall not be construed as liquidated damages or as limiting Landlord's
remedies in any manner.
F. Exercise by Landlord of any one or more remedies hereunder granted
or otherwise available shall not be deemed to be an acceptance of surrender of
the Premises by Landlord, whether by agreement or by operation of law, it being
understood that such surrender can be effected only by the written agreement of
Landlord and Tenant. Tenant and Landlord further agree that forbearance by
Landlord to enforce its rights pursuant to the Lease at law or in equity, shall
not be a waiver of Landlord's right to enforce one or more of its rights in
connection with any subsequent default.
G. In the event of termination and/or repossession of the Premises for
an event of default, Landlord shall use reasonable efforts to relet the Premises
and to collect rental after reletting; provided, that, Tenant shall not be
entitled to credit or reimbursement of any proceeds in excess of the rental owed
hereunder. Landlord may relet the whole or any portion of the Premises for any
period, to any Tenant and for any use and purpose.
H. If Landlord fails to perform any of its obligations hereunder within
thirty (30) days after written notice from Tenant specifying such failure,
Tenant's exclusive remedy shall be an action for damages. Unless and until
Landlord fails to so cure any default after such notice, Tenant shall not have
any remedy or cause of action by reason thereof. All obligations of Landlord
hereunder will be construed as covenants, not conditions; and all such
obligations will be binding upon Landlord only during the period of its
possession of the Premises and not thereafter. The term "Landlord" shall mean
only the owner, for the time being of the Premises, and in the event of the
transfer by such owner of its interest in the Premises, such owner shall
thereupon be released and discharged from all covenants and obligations of the
Landlord thereafter accruing, but such covenants and
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obligations shall be binding during the Lease term upon each new owner for the
duration of such owner's ownership. Notwithstanding any other provision hereof,
Landlord shall not have any personal liability hereunder. In the event of any
breach or default by Landlord in any term or provision of this Lease, Tenant
agrees to look solely to the equity or interest then owned by Landlord in the
Premises or of the building of which the Premises are a part; however, in no
event, shall any deficiency judgment or any money judgment of any kind be sought
or obtained against any Landlord.
I. If Landlord repossesses the Premises pursuant to the authority
herein granted, the Landlord shall have the right to (i) keep in place and use
or (ii) remove and store all of the furniture, fixtures and equipment at the
Premises, including that which is owned by or leased to Tenant at all times
prior to any foreclosure thereon by Landlord or repossession thereof by any
Landlord thereof or third party having a lien thereon. Landlord also shall have
the right to relinquish possession of all or any portion of such furniture,
fixtures, equipment and other property to any person ("Claimant") who presents
to Landlord a copy of any instrument represented by Claimant to have been
executed by Tenant (or any predecessor of Tenant) granting Claimant the right
under various circumstances to take possession of such furniture, fixtures,
equipment or other property, without the necessity on the part of Landlord to
inquire into the authenticity or legality of said instrument. The rights of
Landlord herein stated shall be in addition to any and all other rights that
Landlord has or may hereafter have at law or in equity; and Tenant stipulates
and agrees that the rights herein granted Landlord a commercially reasonable.
J. This paragraph intentionally deleted.
K. This is a contract under which applicable law excuses Landlord from
accepting performance from (or rendering performance to) any person or entity
other than Tenant.
21. MORTGAGES. Tenant accepts this Lease subject and subordinate to any
mortgages and/or deeds of trust now or at any time hereafter constituting a lien
or charge upon the Premises or the improvements situated thereon or the building
of which the Premises are a part, provided, however, that if the mortgagee,
trustee, or holder of any mortgage or deed of trust elects to have Tenant's
interest in this Lease superior to any such instrument, then by notice to Tenant
from such mortgage, trustee or holder, this Lease shall be deemed superior to
such lien, whether this Lease was executed before or after said mortgage or deed
of trust. Tenant, at any time hereafter on demand, shall execute any
instruments, releases or other documents that may be required by any mortgagee
for the purpose of subjecting and subordinating this Lease to the lien of any
such mortgage. Further, Tenant, at anytime hereafter on demand, shall deliver to
Landlord a certified copy of its most recent financial statement.
22. MECHANIC'S LIENS. Tenant has no authority, express or implied, to
create or place any lien or encumbrance of any kind or nature whatsoever upon,
or in any manner to bind the interest of Landlord or Tenant in the Premises or
to charge the rentals payable hereunder for any
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claim in favor of any person dealing with Tenant, including those who may
furnish materials or perform labor for any construction or repairs. Tenant
covenants and agrees that it will pay or cause to be paid all sums legally due
and payable by it on account of any labor performed or materials furnished in
connection with any work performed on the Premises and that it will save and
hold Landlord harmless from any and all loss, cost or expense based on or
arising out of asserted claims or liens against the leasehold estate or against
the right, title and interest of the Landlord in the Premises or under the terms
of this Lease. Tenant agrees to give Landlord immediate written notice of the
placing of any lien or encumbrance against the Premises.
23. MISCELLANEOUS.
A. Words of any gender used in this Lease shall be held and construed
to include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires. The captions inserted
in this Lease are for convenience only and in no way define, limit or otherwise
describe the scope or intent of this Lease, or any provision hereof, or in any
way affect the interpretation of this Lease.
B. This paragraph intentionally deleted.
C. The terms, provisions and covenants and conditions contained in this
Lease shall run with the land and shall apply to, inure to the benefit of, and
be binding upon, the parties hereto and upon their respective heirs, executors,
personal representatives, legal representatives, successors and assigns, except
as otherwise herein expressly provided. Landlord shall have the right to
transfer and assign, in whole or in part, its rights and obligations in the
building and property that are the subject of this Lease including Purchase
Option and First Right of Refusal. Each party agrees to furnish to the other,
promptly upon demand, a corporate resolution, proof of due authorization by
partners, or other appropriate documentation evidencing the due authorization of
such party to enter into this Lease.
D. Landlord shall not be held responsible for delays in the performance
of its obligations hereunder when caused by strikes, lockouts, labor disputes,
acts of God, inability to obtain labor or materials or reasonable substitutes
therefor, governmental restrictions, governmental regulations, governmental
controls, enemy or hostile governmental action, civil commotion, fire or other
casualty, and other causes beyond the control of the Landlord.
E. Tenant agrees, from time to time, within ten (10) days after request
of Landlord, to deliver to Landlord, or Landlord's designee, a Certificate of
Occupancy and an estoppel certificate stating that this Lease is in full force
and effect the date to which rent has been paid, the unexpired term of this
Lease and such other factual matters pertaining to this Lease as may be
requested by Landlord. It is understood and agreed that Tenant's obligation to
furnish such estoppel certificates in a timely fashion is a material inducement
for Landlord's execution of this Lease.
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F. This Lease constitutes the entire understanding and agreement of the
Landlord and Tenant with respect to the subject matter of this Lease, and
contains all of the covenants and agreements of Landlord and Tenant with respect
thereto. Landlord and Tenant each acknowledge that no representations,
inducements, promises or agreements, oral or written, have been made by Landlord
or Tenant, or anyone acting on behalf of Landlord or Tenant, which are not
contained herein, and any prior agreements, promises, negotiations, or
representations not expressly set forth in this Lease are of no force or effect.
This Lease may not be altered, changed or amended except by an instrument in
writing signed by both parties hereto.
G. All obligations of Tenant hereunder not fully performed as of the
expiration or earlier termination of the term of this Lease shall survive the
expiration or earlier termination of the term hereof, including without
limitation, all payment obligations with respect to operating expenses as set
forth in Paragraph 2C and all obligations concerning the condition and repair of
the Premises. Upon the expiration or earlier termination of the term hereof, and
prior to Tenant vacating the Premises, Tenant shall pay to Landlord any amount
reasonably estimated by Landlord as necessary to put the Premises, including
without limitation, all heating and air conditioning systems and equipment
therein, in good condition and repair, reasonable wear and tear excluded. Tenant
shall also, prior to vacating the Premises, pay to Landlord the amount, as
estimated by Landlord, of Tenant's obligation hereunder for operating expenses
for the year in which the Lease expires or terminates. All such amounts shall be
used and held by Landlord for payment of such obligations of Tenant hereunder,
with Tenant being liable for any additional costs therefor upon demand by
Landlord, or with any excess to be returned to Tenant after all such obligations
have been determined and satisfied as the case may be. Any security deposit held
by Landlord shall be credited against the amount due from Tenant under this
Paragraph 23G.
H. If any clause or provision of this Lease is illegal, invalid or
unenforceable under present or future laws effective during the term of this
Lease, then and in that event, it is the intention of the parties hereto that
the remainder of this Lease shall not be affected thereby, and it is also the
intention of the parties to this Lease that in lieu of each clause or provision
of this Lease that is illegal, invalid or unenforceable, there be added, as a
part of this Lease, a clause or provision as similar in terms to such illegal,
invalid or unenforceable clause or provision as may be possible and be legal,
valid and enforceable.
I. All references in this Lease to "the date hereof" or similar
references shall be deemed to refer to the last date, in point of time, on which
all parties hereto have executed this Lease.
J. Commission Agreement.
(1) The real estate commission due and payable in this lease
transaction shall be paid by Landlord at a rate stipulated in "Exhibit K" in the
management agreement between Principal
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Mutual Life Insurance Company or their assigns (Landlord and Owner) and Phoenix
Retail Overhead Limited Partnership (Manager). The rate so stated is an follows:
Base Lease: 6% of total rental for years 1 - 5
3% of total rental for years 6 - 10
1.5% of total rental for balance of the term
(2) It is further understood that the "Owner/Landlord"
(Principal Mutual Life Insurance Company) is represented by Phoenix Retail
Overhead Limited Partnership and the Tenant (Cragar Industries, Inc.) is
represented by Industrial Brokerage, Inc.
(3) The commission fees referenced herein above in paragraph 1
shall be divided equally (50% - 50%) between the respective brokerage firms and
shall be paid directly to each firm as follows:
(a) 50% of the total fee shall be paid upon signing
and delivery of a fully executed Lease;
(b) the remaining 50% shall be paid after Landlord's
inspection of the improvements to the premises to be completed by Tenant.
Landlord agrees that it will not unreasonably delay said Tenant Improvement
inspections and unreasonably withhold payment of the balance of the commission.
(4) Both Tenant and Landlord and any/all brokers/agents for
Tenant and Landlord agree that there will be no commissions paid in the event of
the sale of the property from Landlord to Tenant. All parties further agree that
the leasing commissions paid in connection with this Lease are suffice and just
compensation for the Lease and/or the sales transaction.
K. If and when included within the term "Landlord", an used in this
instrument, there is more than one person, firm or corporation, all shall
jointly arrange among themselves for their joint execution of a notice
specifying some individual at some specific address for the receipt of notices
and payments to Landlord. If and when included within the term "Tenant", as used
in this instrument, there is more than one person, firm or corporation, all
shall jointly arrange among themselves for their joint execution of a notice
specifying some individual at some specific address within the continental
United States for the receipt of notices and payments to Tenant. All parties
included within the terms "Landlord" and "Tenant" respectively shall be bound by
notices given in accordance with the provision of Paragraph 25 hereof to the
same effect as if each had received such notice.
L. Tenant shall, at all times during the term of this Lease and any
extension thereof, comply with all reasonable rules and regulations ("Building
Rules and Regulations") at any time or
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from time to time established by Landlord covering use of the Premises and
common areas. The existing Building Rules and Regulations currently in force and
effect are attached hereto as Exhibit "B" and made a part hereof. In the event
of any conflict between said Building Rules and Regulations and the Lease, the
terms and provision of the Lease shall control.
M. This paragraph intentionally deleted.
24. SECURITY SERVICE. Tenant agrees to pay the proportionate share of
the cost of any security services and/or of monitoring, repair and maintenance
of any burglar alarm systems, water flow detection systems and other protective
security equipment that is on or may be installed on the Premises and/or the
building of which the Premises are a part, including the cost of any license or
permit or user charge required for any such security systems. Landlord, in its
sole discretion, may enter into agreements with third parties for any such
security systems. Landlord, in its sole discretion, may enter into agreements
with third parties for any such security systems and/or services. Landlord shall
not be liable to Tenant for any damages, costs or expenses suffered or incurred
by Tenant in connection with any such security systems or services.
25. NOTICES. Each provision of this instrument or of any applicable
governmental laws, ordinances, regulations and other requirements with reference
to the sending, mailing or delivering of notice or the making of any payment by
Landlord to Tenant or with reference to the sending, mailing or delivering of
any notice or the making of any payment by Tenant to Landlord shall be deemed to
be complied with when and if the following steps are taken:
(a) All rent and other payments required to be made by Tenant to
Landlord hereunder shall be payable to Landlord at the address for Landlord set
forth below or at such other address as Landlord may specify from time to time
by written notice delivered in accordance herewith. Tenant's obligation to pay
rent and any other amounts to Landlord under the terms of this Lease shall not
be deemed satisfied until such rent and other amounts have been actually
received by Landlord. In addition to base rental due hereunder, all sums of
money and all payments due Landlord hereunder shall be deemed to be additional
rental owed to Landlord. (b) All payments required to be made by Landlord to
Tenant hereunder shall be payable to Tenant at the address set forth below, or
at such other address within the continental United States as Tenant may specify
from time to time by written notice delivered in accordance herewith. (c) All
notices referenced herein shall be in writing. (d) Any written notice or
document required or permitted to be delivered hereunder shall be deemed to be
delivered whether actually received or not when deposited in the United States
Mail, postage prepaid, Certified or Registered Mail, addressed to the parties
hereto at the respective addresses set out below, or at such other address as
they have theretofore specified by written notice delivered in accordance
herewith.
26. LANDLORD'S LIEN. In addition to any statutory lien for rent in
Landlord's favor, Landlord shall be entitled to all applicable lien rights under
Arizona law. Upon a default hereunder
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<PAGE> 20
by Tenant in addition to all other rights and remedies, Landlord shall have all
rights and remedies under the Uniform Commercial Code. The record owner of this
property is Principal Mutual Life Insurance Company.
EXECUTED BY LANDLORD, this 10 day of February, 1993.
ADDRESS: LANDLORD:
C/O Trammell Crow Company PRINCIPAL MUTUAL LIFE INSURANCE
Two North Central Avenue, #400 COMPANY, an Iowa corporation
Phoenix, AZ 85004
BY: BY: Randall C. Mundt
---------------------------- ---------------------------
Randall C. Mundt
- ------------------------------- ---------------------------
Print Name Print Name
Its Director
Commercial Real Estate
____________________________
BY: Kurt D. Schaeffer
----------------------------
Kurt D. Schaeffer
----------------------------
Print Name
Its Assistant Director
& Secretary
Real Estate Equity
Asset Management
________________________
EXECUTED BY TENANT, this 6th day of February, 1993.
ADDRESS: TENANT:
4636 N. 43rd Avenue CRAGAR INDUSTRIES, INC., a Delaware
Phoenix, AZ 85031 corporation
BY: James A. Haggerty, Pres.
____________________________
James A. Haggerty
____________________________
Print Name
Its President
________________________
"We are an Equal Opportunity Employer of Minorities and Females."
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<PAGE> 21
[BLANK PAGE]
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<PAGE> 22
ADDENDUM ONE TO LEASE AGREEMENT
LEASE AGREEMENT NUMBER:
DATE:
THIS ADDENDUM TO LEASE AGREEMENT has been attached to that certain Lease
Agreement (the "Lease") of even date herewith, by and between PRINCIPAL MUTUAL
LIFE INSURANCE COMPANY, an Iowa corporation as "Landlord" and CRAGAR INDUSTRIES,
INC. as "Tenant" and shall constitute an integral part thereof. In the event of
a conflict between the terms and provisions of the Lease and this Addendum, this
Addendum shall be deemed controlling.
Paragraph 27. A new Paragraph 27 is hereby added to the Lease Agreement
as follows:
"Base Rent Schedule.
Notwithstanding the base rental terms set forth in Paragraph 2A of this
Lease Agreement, Tenant shall pay base rent for the initial term of the Lease
according to the following schedule:
<TABLE>
<CAPTION>
Months Base Monthly Rental
------ -------------------
<S> <C>
1 - 4 $0.00*
5 - 40 $20,895.00/mo/NNN
41- 88 $24,240.00/mo/NNN
89 - 124 $27,585.00/mo/NNN
*Tenant pays operating expenses during this term
</TABLE>
In any event, the Tenant shall still be responsible for its
proportionate share of operating expenses as defined in Paragraph 2C for each
month this Lease is in effect, which shall be paid to Landlord monthly as rent.
In the event of any default by Tenant of this Lease Agreement, the sum
of Eighty-three Thousand, Five Hundred Eighty and 00/100 Dollars ($83,580,00)
shall become immediately due and payable to Landlord as rent. This provision
shall be in addition to all of Landlord's other rights and remedies hereunder or
at law and shall not be construed as liquidated damages or as limiting
Landlord's remedies in any manner."
Paragraph 28. A new Paragraph 28 is hereby added to the Lease Agreement
as follows:
"Purchase option.
The Tenant shall have the option to purchase the property in an "as is"
condition for a full asking price in cash, as set forth below. The option shall
be exercisable during the first 10 calendar months of 1993. The Tenant must
notify the Landlord in writing on or before October 31, 1993 of
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<PAGE> 23
its intent to exercise its option. Upon notification of Tenant exercising the
Purchase Option, Tenant shall deposit a sum of Fifty Thousand and 00/100 Dollars
($50,000.00) with an escrow agent (to be determined by Landlord) and shall have
thirty (30) days to sign a Purchase and Sale contract, and complete their "Due
Diligence". After that thirty (30) day "Due Diligence" period, the Fifty
Thousand and 00/100 Dollars ($50,000.00) shall be non-refundable and Tenant
shall have thirty (30) days to close the sale. The price shall be as stated
below according to the month the sale closes:
<TABLE>
<S> <C>
February 93 to July 1993 - $2,250,000
August 1993 - $2,500,000
September 1993 - $2,550,000
October 1993 - $2,600,000
November 1993 - $2,650,000
December 1993 - $2,700,000
</TABLE>
If the proposed sale is not closed by December 31, 1993, the Purchase Option
shall have expired and will no longer be in effect."
Paragraph 29. A new Paragraph 29 is hereby added to the Lease Agreement
as follows:
"First-Right of Refusal.
So long as Tenant is not in any default under the Lease, Tenant shall
have the First Right of Refusal to purchase said property under the same price
and conditions an set forth in the Purchase and Sale contract with the
prospective buyer. Landlord will notify the Tenant of the intent to sell, and
the Tenant will have five (5) business days to respond in writing to exercise
this option. If Tenant fails to accept the terms and conditions of the pending
sale within the five (5) day period, then this Option shall terminate and will
no longer be in effect."
Paragraph 30. A new Paragraph 30 is hereby added to the Lease Agreement
as follows:
"Landlord's Delivery.
Landlord's delivery of this Lease to Tenant shall not be deemed to be
an offer to lease and shall not be binding upon either party until executed and
delivered by both parties."
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<PAGE> 24
IN WITNESS WHEREOF, the parties hereto have executed this Addendum to
Lease Agreement this 10 day of February, 1993.
LANDLORD: TENANT:
PRINCIPAL MUTUAL LIFE INSURANCE CRAGAR INDUSTRIES, INC., a Delaware
COMPANY, an Iowa corporation corporation
BY: Randall C. Mundt James A. Haggerty, Pres
-------------------------- ------------------------------
Randall C. Mundt James A. Haggerty
-------------------------- ------------------------------
Print Name Print Name
Its Director Its President
Commercial Real Estate ---------------------------
-----------------------
BY: Kurt D. Schaeffer
--------------------------
Kurt D. Schaeffer
--------------------------
Print Name
Its Assistant Director &
Secretary
Real Estate Equity
Asset Mngt.
-----------------------
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<PAGE> 25
RIDER TO LEASE AGREEMENT
LEASE AGREEMENT NUMBER: ________
DATE: __________________
THIS RIDER TO LEASE AGREEMENT has been attached to that certain Lease
Agreement (the "Lease") of even date herewith, by and between PRINCIPAL MUTUAL
LIFE INSURANCE, an Iowa corporation as "Landlord" and CRAGAR INDUSTRIES, INC., a
Delaware corporation, as "Tenant" and shall constitute as integral part thereof.
In the event of a conflict between the terms and provisions of the Lease and
this Rider, this Rider shall be deemed controlling.
2.B. The balance of the security deposit shall be applied by landlord against
the purchase price of the Premises should Tenant exercise its right to purchase
the Premises under either paragraph 28 or 29 of Addendum One.
3.A. Landlord shall provide to Tenant copies of all real estate bills or other
invoices that may be payable by Tenant under this Lease in an expeditious manner
after receipt by Landlord.
21. Any subordination of this Lease shall be on condition that the mortgagee
agrees to recognize this Lease and not disturb Tenant's occupancy of the
Premises so long as Tenant duly performs its obligations hereunder.
EXECUTED BY LANDLORD, this 10 day of February, 1993
LANDLORD:
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY,
an Iowa Corporation
BY: Randall C. Mundt By: Kurt D. Schaeffer
-------------------------- ----------------------------
Randall C. Mundt Kurt D. Schaeffer
__________________________ ______________________________
Print Name Print Name
Its Director Its Assistant Director & Secretary
Commercial Real Estate Real Estate Equity Asset Management
EXECUTED BY TENANT, this 6 day of February, 1993.
TENANT:
CRAGAR INDUSTRIES, INC., a Delaware
corporation
BY: James A. Haggerty, Pres.
__________________________
James A. Haggerty
__________________________
Print Name
Its President
_______________________
EXHIBIT A
Remodeled Trammell Crow Co.
Plan #1 167,171 S.F. Manufacturing Facility
7-dec-90 4636 North 43rd Avenue
Phoenix, Arizona
FEATURES
- ----------------------- --------------------------
167,171 S.F. (Gross) South bay Office 1720 S.F.
Steel Structure Fencing Secured dock areas
CMU Masonry Perimeter Skylights
Divisible to 74,500 S.F. Landscaped Exterior
60' x 62' Column Spacing North bay, with 3 br.
Dock High, Rail Served Separation wall,
Clear height Rake 16' to 26' Evaps.
Fire Sprinklered Exhaust air system
SFS#1-1200 Amps, 277/480 115 Parking Spaces
SFS#2-600 Amps 277/480
2 Story Office/Showroom
16,259 S.F. (Gross) [graphic depiction of
Useable S.F. Second Floor
1st Floor - 8249 S.F. Office Area]
2nd Floor - 7673 S.F.
[graphic depiction of floor plan]
<PAGE> 26
EXHIBIT B
BUILDING RULES AND REGULATIONS
1. See paragraph 7 of page 4 of Lease. Landlord shall have the right to
remove any sign which is not in compliance with any city codes and ordinances at
the expense of the Tenant. All approved signs shall be installed at expense of
Tenant. Tenant shall not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unsightly from
outside of Premises.
2. The sidewalks, paved area, exits and entrances, shall not be
obstructed by any of the Tenants or used by them for any purpose other than for
ingress to and egress from their respective Premises. The paved areas, exits,
entrances, and roof are not for the use of the general public and the Landlord
shall in all cases retain the right to control thereof and prevent access
thereto by all persons whose presence in the judgment of the Landlord shall be
prejudicial to the safety, character, reputation, and interests of the Building
or its Tenants; provided, however, that nothing herein contained shall be
construed to prevent access by persons with whom Tenant normally deals in the
ordinary course of Tenant's business unless such persons are engaged in illegal
activities. Tenant, employees, invitees, contractors and subcontractors of
Tenant shall go upon the roof of the Building only for purposes of maintenance
of equipment and in case of emergency. In addition, the Tenant will cause to be
removed all debris, pallets or any outside storage immediately in front or to
the rear of the premises. If Landlord has to remove the above then Tenant will
be charged a minimum of $300.00 for the removal of the material.
3. This paragraph intentionally deleted.
4. The toilet rooms, urinals, wash bowls and other apparatus shall not
be used for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein. The expense of
any breakage, stoppage or damage resulting from a violation of this rule shall
be borne by the Tenant who, or whose employees or invitees, shall have caused
it.
5. Tenant shall not overload the floor of the Premises, and shall not
in any way deface the Premises or any part thereof.
6. Tenant shall not use, keep, or permit to be used any food or noxious
gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive. No animals or birds shall be brought in
or kept in or about the Premises or the Building. No Tenant shall disturb
neighboring Buildings or Premises, or those having business with such occupants,
by
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<PAGE> 27
the use of any musical instruments, radio, phonograph, unusual noise, or in any
other way. No Tenant shall throw anything out of doors or down the passageways.
7. Tenant shall not use or keep in the Premises, or the Building, any
kerosene, gasoline or inflammable or combustible fluid or material or use any
method of heating or air conditioning other than that supplied by Landlord.
8. No boring or cutting for or stringing of wires will be allowed
without the consent of Landlord. Approval will not be unreasonably withheld.
9. All keys to the Building, offices, rooms and toilet rooms shall be
obtained from Landlord's office. Tenant, upon termination of the tenancy, shall
deliver to the Landlord the keys to the Building, offices, rooms and toilet
rooms which shall have been furnished and shall pay the Landlord the cost of
replacing any lost key or of changing the lock or locks opened by such lost key
if Landlord deems it necessary to make such change.
10. No Tenant shall affix to the floor of the Premises any linoleum,
tile, carpet or other similar floor coverings except as approved by the
Landlord. The expense of repairing any damage resulting from a violation of this
rule or removal of any floor covering shall be borne by the Tenant.
Approval will not be unreasonably withheld.
11. Landlord reserves the right to exclude or expel from the Building
any person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in violation
of any of the rules and regulations of the Building.
12. This paragraph intentionally deleted.
13. Tenant agrees that it shall comply with all fire regulations that
may be issued from time to time by City of Phoenix Fire Marshall, and Tenant
also shall provide Landlord with the name of a designated responsible employee
to represent Tenant in all matters pertaining to fire regulations.
14. Landlord reserves the right by written notice to Tenant, to
rescind, alter or waive any rule or regulation at any time prescribed for the
Building.
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<PAGE> 28
EXHIBIT "C"
Tenant Improvements:
1. The leased Premises to be delivered in an "as is" condition.
2. Landlord, at its expense, shall deliver all mechanical, HVAC, evaporative
coolers, and plumbing in a fully operational condition (including but not
limited to landscape sprinkler system, building fire sprinkler system, man
doors, rail doors, dock doors, outside lighting, mechanical dock levelers,
exhaust vents over dock doors, any broken glass, and repair damaged extruded
curbing).
3. Landlord, at its expense, shall repair the roof, which repair shall commence
within fourteen (14) days.
4. Landlord does hereby grant the right to Tenant to make all necessary repairs
and improvements to the Leased Premises for Tenant's operation provided said
improvements are done so in a good and workmanlike manner, according to all
applicable building codes, and at Tenant's sole expense.
5. Landlord and Tenant agree to split the cost of painting the exterior of the
building, fifty percent (50%) - fifty percent (50%) each. Should Tenant purchase
the building, Tenant shall reimburse Landlord for its share of such painting
cost.
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<PAGE> 29
EXHIBIT D
HAZARDOUS SUBSTANCE. The term "Hazardous Substances," as used in this
lease shall mean pollutants, contaminants, toxic or hazardous wastes, or any
other substances, the use and/or the removal of which is required or the use of
which is restricted, prohibited or penalized by any "Environmental Law," which
term shall mean any federal, state or local law, ordinance or other statute of a
governmental or quasi-governmental authority relating to pollution or protection
of the environment. Tenant hereby agrees that (i) no activity will be conducted
on the premises that will produce any Hazardous Substance, except for such
activities that are part of the ordinary course of Tenant's business activities
(the "Permitted Activities") provided said Permitted Activities are conducted in
accordance with all Environmental Laws and have been approved in advance in
writing by Landlord; Tenant shall be responsible for obtaining any required
permits and paying any fees and providing any testing required by any
governmental agency; (ii) the premises will not be used in any manner for the
storage of any Hazardous Substances except for the temporary storage of such
materials that are used in the ordinary course of Tenant's business (the
"Permitted Materials") provided such Permitted Materials are properly stored in
a manner and location meeting all environmental Laws and approved in advance in
writing by Landlord; Tenant shall be responsible for obtaining any required
permits and paying any fees and providing any testing required by any
governmental agency; (iii) no portion of the premises will be used as a landfill
or a dump; (iv) Tenant will not install any underground tanks of any type; (v)
Tenant will not allow any surface or subsurface conditions to exist or come into
existence that constitute, or with the passage of time may constitute, a public
or private nuisance; (vi) Tenant will not permit any Hazardous Substances to be
brought onto the premises, except for the Permitted Materials described below,
and if so brought or found located thereon, the same shall be immediately
removed, with proper disposal and all required clean up procedures shall be
diligently undertaken pursuant to all environmental laws. Landlord or Landlord's
representative shall have the right but not the obligation to enter the premises
for the purpose of inspecting the storage, use, and disposal of Permitted
Materials to insure compliance with all environmental laws. Should it be
determined in Landlord's sole opinion, that said Permitted Materials are being
improperly stored, used, or disposed of, then Tenant shall immediately take such
corrective action as requested by Landlord. Should Tenant fail to take such
corrective action within 24 hours, Landlord shall have the right to perform such
work and Tenant shall promptly reimburse Landlord for any and all costs
associated with said work. If at any time during or after the term of the Lease,
the premises is found to be so contaminated or subject to said conditions,
Tenant shall diligently institute proper and thorough clean up procedures at
Tenant's sole cost, and Tenant agrees to indemnify and hold Landlord harmless
from all claims, actions, liabilities, costs, expenses, damages, and obligations
of any nature arising from or as a result of the use of the premises by Tenant.
The foregoing indemnification and the responsibilities of Tenant shall survive
the termination or expiration of this Lease.
Attached hereto as Exhibit D-1 is a schedule of materials that Tenant intends to
use at the Property and Landlord agrees to such use.
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<PAGE> 30
EXHIBIT D-1
CRAGAR INDUSTRIES, INC.-CHEMICALS USED IN MANUFACTURING
4636 N. 43rd Ave., Phoenix AZ
This report excludes chemicals used in the plating operation.
Dated: Feb. 2, 1993
<TABLE>
<CAPTION>
Suppliers Name Chemical Brand Name Chemical Contents
- -------------- ------------------- -----------------
<S> <C> <C>
Power wash line Chemicals
- -------------------------
Chemco Products
KOTE 60 Phosphoric Acid
Cleaner 48 Sodium Hydroxide
Cleaner 804
Foam Pluss
- --------------------------------------------------------------------------------------------
Boiler Treatment Chemicals/Cooling
Towers
- -------------------------
__-Way Water Conditioning Inc. Fromula 500C Aqueous Alkaline
Fromula 700T Aqueous Acidic
Paint, Sealers & Resins
- -------------------------
Basin Formulators Company RFC-2066 Part A Bisphend A/Epichlorohydrin Resin
N-butyl Glycidyl Ether
Silca, amorphous
RFC-2066 Part B Triethylenetetramine
(1,2 Ethanedlamine, N,N-bis(2-
aminoethyl)
Polyamide Resin
Silica, amorphous
- --------------------------------------------------------------------------------------------
__.B. Fuller Company Super Clear Nuisance dust
Caprolactam (105-80-20
Polyester Urethane Nuisance dust
Caprolactam (105-80-20
- --------------------------------------------------------------------------------------------
Industro Systems, Inc. Solucut Highly refined Petroleum Oil
(64741-97-5)
Highly refined Petroleum
(64741-96-4)
</TABLE>
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<PAGE> 31
EXHIBIT "E"
CERTIFICATE AND INDEMNITY
REGARDING HAZARDOUS SUBSTANCES
In connection with and as partial consideration for the acceptance by
CRAGAR INDUSTRIES, INC., a Delaware corporation ("Tenant") of a lease (the
"Lease") of the real property known as 4636 North 43rd Avenue, Phoenix, Arizona
85031 (the "Property") from PRINCIPAL MUTUAL LIFE INSURANCE COMPANY, an Iowa
corporation ("Landlord"), Landlord hereby certifies to Tenant and agrees as
follows:
1. Except only as disclosed in the Phase I Environmental Site
Assessment with Soil Sampling, dated August 16, 1990, prepared by GPI
Environmental, Inc. (Project No. 9082) as supplemented by the analytical results
contained in the report from GPI Environmental, Inc. (Project No. 9097), dated
September 10, 1990 (the "Environmental Report") it has no knowledge of (a) the
presence of any "Hazardous Substances" (as defined below) on the property (b)
any spills, releases, discharges or disposal of Hazardous Substances that have
occurred or are presently occurring on or onto the Property, or (c) any spills
or disposal of Hazardous Substances that have occurred or are presently
occurring off the Property as a result of any construction on or operating and
use of the Property.
2. It represents that, as of the date of this Certificate, it has no
knowledge of any failure to comply with all applicable local, state and federal
environmental laws, regulations, ordinances and administrative and judicial
orders relating to the generation, recycling, reuse, sale, storage, handling,
transport and disposal of any Hazardous Substances on the Property.
3. [deleted]
4. If environmental action is pursued by any governmental agency, and
it has been proven that the cause of the action is a result of action prior to
___/___/___ (execution date of lease), then Landlord agrees to bear the cost and
responsibility of monitoring and taking any appropriate action to insure that
the environmental problems are remedied to the satisfaction of the governmental
agency. In addition, Landlord will be responsible for insuring that the cost of
said clean-up will be born by the contaminating party/parties. Tenant is
responsible for notifying Landlord immediately of any action commencing or
pending on the property.
5. Landlord's obligations under this Certificate are unconditional and
shall not be limited by any nonrecourse or other limitations or liability
provided for in the Lease. The representations, warranties and covenants of
Landlord set forth in this Certificate shall continue in effect and, to the
extent permitted by law.
6. As used in this Certificate, "Hazardous Substances" shall mean: any
substance or material defined or designated as hazardous or toxic waste,
hazardous or toxic material, a hazardous,
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<PAGE> 32
toxic or radioactive substance, or other similar term, by any federal, state or
local environmental statute, regulation, or ordinance presently in effect, as
such statutes, regulations and ordinances may be amended from time to time,
including but not limited to the statutes listed below:
Federal Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901
et seq.
Federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, 49 U.S.C. Section 1801 et seq.
Federal Clean Air Act, 42 U.S.C. Sections 7401-7626.
Federal Water Pollution Control Act, Federal Clean Water Act of 1977, 33 U.S.C.
Section 1251 et seq.
Federal Insecticide, Fungicide, and Rodenticide Act, Federal Pesticide Act of
1978, 7 U.S.C. Paragraph 13 et seq.
Federal Toxic Substances Control Act, 15 U.S.C. Section 2601.
Federal Safe Drinking Water Act, 42 U.S.C. Section 300(f).
Arizona Environmental Quality Act, A.R.S. Section 36-3501 et seq.
7. This Certificate shall be binding upon Landlord and its successors
and assigns and it shall inure to the benefit of Tenant and its successors and
assigns.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
____________, 1993.
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY, an
Iowa corporation
BY:____________________________________
_______________________________________
Print Name
Its____________________________________
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<PAGE> 33
RIDER TO LEASE AGREEMENT
LEASE AGREEMENT NUMBER:
DATE: FEBRUARY 5, 1993
THIS RIDER TO LEASE AGREEMENT has been attached to that certain Lease
Agreement (the "Lease") of even date herewith, by and between PRINCIPAL MUTUAL
LIFE INSURANCE, an Iowa corporation as "Landlord" and CRAGAR INDUSTRIES, INC., a
Delaware corporation, as "Tenant" and shall constitute an integral part thereof.
In the event of a conflict between the terms and provisions of the Lease and
this Rider, this Rider shall be deemed controlling.
1. The Premises include the buildings ("Buildings"), parking areas and other
improvements that are shown on Exhibit A. Tenant has the exclusive right to use
the Premises in accordance with this Lease and there are no common areas or
jointly metered utilities. Landlord warrants that (i) it owns fee simple title
to the Premises, (ii) also, to best of the Landlords knowledge, the Premises are
subject to no liens or encumbrances, and (iii) there are no restrictive
covenants with respect to the Premises that conflict with this Lease in any way
or impair any of Tenant's rights hereunder with exception of the easements and
parking agreement as noted below. The Premises also include a rail road spur
track (the "Spur Track"). Tenant shall have no responsibility with respect to
the Spur Track or enter into any obligation to maintain the Spur Track or enter
into any agreements with the railroad company unless and until it elects to use
the Spur Track. Landlord shall at its own cost and expense maintain, repair and
replace the Spur Track in accordance with the requirements of the railroad
company until such time as Tenant elects to use the Spur Track.
The Premises are subject to the Easement and Parking Agreement, dated
August 16, 1991, and recorded September 20, 1991 at No. 41-0438916, records of
Maricopa County.
1.A. The term of the Lease shall commence on February 8, 1993; provided,
however, that Tenant may, at its option, cancel this Lease and receive a prompt
refund of any advance rent or security deposit if the City of Phoenix refuses to
issue a Certificate of Occupancy for the Premises following Tenants diligent
pursuit of same.
2.B. The balance of the security deposit shall be applied by Landlord against
the purchase price of the Premises should Tenant exercise its right to purchase
the Premises under either paragraph 28 or 29 of Addendum One.
3.A. Landlord shall provide to Tenant copies of all real estate tax bills or
other invoices that may be payable by Tenant under this Lease within ten (10)
days after receipt by Landlord.
3.D. Landlord shall join in any appeal of real estate taxes or assessments with
respect to the Property that Tenant shall elect to make and Landlord shall,
within ten (10) days after demand by Tenant, execute such petitions or other
filings that may be necessary with respect thereto provided
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<PAGE> 34
however that the Tenant bears all cost associated with such appeals including
but not limited to consultant fees.
4.A. Landlord's responsibility for governmental laws as they pertain
____________ regulations shall be limited to compliance on the exterior of the
building, up to, but not including doors and entryways.
6. Landlord grants Tenant the right to make all necessary repairs and
improvements to the Premises from time to time during the term of this Lease
that may be necessary for Tenant's operation excluding any structural
repairs/improvements which must be approved by Landlord in writing; provided
that all such repairs and improvements are done so in a good and workmanlike
manner, according to all applicable building codes and at Tenant's sole expense.
7. Landlord grants Tenant the right to use all signs on or about the Premises
that it elects, from time to time, provided that it complies with all laws and
repairs any damage to the Premises caused by their installation or removal.
11.A. Tenant may terminate this Lease upon written notice of material damage to
or destruction of the Premises that substantially impairs Tenant's ability to
operate in and from the premises if such damage or destruction cannot reasonably
be repaired within 90 days and provided that the Landlord is not able to
accommodate Tenants operation in another facility.
15.A. Landlord's consent to any assignment or subletting shall not be
unreasonably withheld or delayed. However, it shall not be deemed unreasonable
for Landlord to base such a decision on the financial strength of subletting
Tenant or the proposed use of such Tenant.
16. Wherever appearing in this paragraph, "80% of the Premises" is revised to
refer to "25% of the parking, driveway or pedestrian areas or any part of the
Buildings provided that however that the Landlord is given the opportunity to
restore or modify the premises such that no major business interruptions shall
be incurred by Tenant." If by reason of any condemnation the Lease is not
terminated, Landlord shall promptly and at its expense restore the remainder of
the Premises to its condition immediately preceding the taking.
20.H. The last 2 sent shall not apply to any subsequent owner of the premises
and is restricted to Principal Mutual Life Insurance Company of ownership.
20.I. From time to time, upon Tenant's request, Landlord shall subordinate its
lien with respect to any of Tenant's furniture, fixtures, equipment, inventory
and other personal property located in or about the Premises to the liens and
security interests of Tenant's lender provided that such requests will be issued
on a form acceptable to Landlord & proposed that such requests be limited to 1
year (12 months).
21. Any subordination of this Lease shall be on condition that the mortgagee
agrees to recognize this Lease and not disturb Tenant's occupancy of the
Premises so long as Tenant duly performs its obligations hereunder.
- ----------------- -----------------
Landlord Initials Tenant Initials
2
<PAGE> 35
28. Landlord and Tenant shall execute in a form agreeable to Landlord, and
Tenant shall cause to be recorded, a Memorandum of this Lease and the Purchase
Option and the First Right of Refusal that is referred to in paragraph 29
hereof.
29. The notice to Tenant shall include a copy of the purchase contract and the
price to Tenant shall be calculated by deducting any sales commission that is
provided for in the purchase contract. If Tenant does not elect to purchase,
Landlord shall sell the Premises in strict accordance with the terms and
conditions stated in the purchase contract.
EXECUTED BY LANDLORD, this 5 day of February, 1993.
LANDLORD: TENANT:
PRINCIPAL MUTUAL LIFE INSURANCE CRAGAR INDUSTRIES, INC., a Delaware
COMPANY, an Iowa Corporation Corporation
BY: Randall C. Mundt BY: Bill Barvitski
------------------------------- --------------------------------
Randall C. Mundt Bill Barvitski
- ---------------------------------- -----------------------------------
Print Name Print Name
Its Director Its Vice President
Commercial Real Estate
------------------------------- --------------------------------
BY: Kurt D. Schaeffer
-------------------------------
Kurt D. Schaeffer
- ----------------------------------
Print Name
Its Assistant Director & Secretary
Real Estate Equity Asset Mngt.
-------------------------------
EXECUTED BY TENANT, this 5 day of February, 1993.
LANDLORD: TENANT:
PRINCIPAL MUTUAL LIFE INSURANCE CRAGAR INDUSTRIES, INC., a
COMPANY, An Iowa Corporation Delaware Corporation
BY: Randall C. Mundt BY: Bill Barvitski
------------------------------- --------------------------------
Randall C. Mundt Bill Barvitski
- ---------------------------------- -----------------------------------
Print Name Print Name
Its Director Its Vice President
Commercial Real Estate
------------------------------- --------------------------------
BY: Kurt D. Schaeffer
-------------------------------
Kurt D. Schaeffer
- ----------------------------------
Print Name
Its Assistant Director & Secretary
Real Estate Equity Asset Mngt.
-------------------------------
<PAGE> 36
EXHIBIT "C"
Tenant Improvements:
1. The Premises are to be delivered to Tenant in an "as is" condition with
exception of the items listed below.
2. Landlord, at its expense, shall, within thirty (30) days after date hereof,
cause all mechanical, HVAC, evaporative coolers, and plumbing, to be in fully
operational condition at the commencement of the term (including but not limited
to landscape sprinkler system, building fire sprinkler system, man doors, rail
doors, dock doors, outside lighting, inside lighting, mechanical dock levelers,
exhaust vents over dock doors, any broken glass, and repair damage extruded
curbing).
3. Tenant shall paint the exterior of the Building, and Landlord shall reimburse
one-half of the cost thereof, within ten (10) days, after presentation of an
invoice therefore.
4. Landlord shall, at its expense, repair the roof of the Building, which repair
shall commence within fourteen (14) days after date of the Lease, and be
completed within 60 days thereafter, or as soon as possible.
- ----------------- -----------------
Landlord Initials Tenant Initials
4
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") effective the 1st day of January, 1996
by and between CRAGAR INDUSTRIES, INC., ("Employer"), a Delaware corporation,
and Tony Barrett ("Employee").
WHEREAS, Employer is a corporation, duly organized, incorporated and
existing under and by virtue of the laws of the State of Delaware, that conducts
its business primarily in the manufacture and sale of automotive wheels and
wheel accessories (defined as steel, composite and aluminum wheels for
automobiles, racing vehicles and other vehicles for both on and offroad
operation) and,
WHEREAS, Employer and Employee desire to enter into this Agreement to
provide for the employment of Employee and to set forth the rights and duties of
the parties hereto.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, acknowledged by the parties to be adequate and sufficient, the
parties hereto intending to be legally bound agree as follows:
1. Employment and Duties:
a) Employer hereby employs Employee, and Employee hereby
accepts such employment, to render services in the name of and
for the benefit of Employer, including but not limited to the
overall operation of Employer's business, which manufactures
and sells automotive wheels and related products throughout
the World. Exhibit "A", hereof, further describes Employee's
present position and work responsibilities on behalf of
Employer; however, these responsibilities are subject to
change by the Employer.
b) At all times Employee is to promote Employer's interest.
c) Employer will provide Employee with the necessary work
space, support staff, supplies, stationery and business cards.
2. Term
This Agreement shall commence on January 1, 1996 and shall continue
thereafter until terminated as herein provided.
3. Termination of the Agreement
a) Employer may terminate this Agreement, at will and without
notice, with or without cause at any time within the first
ninety (90) days of Employee's employment.
b) After Employee's probationary period as set forth in 3(a)
above, Employee's employment shall continue to be at will.
Employer may terminate this Agreement at any time upon not
less than thirty-days advanced written notice to Employee,
with or without cause, for any reason whatsoever. The
<PAGE> 2
decision to require Employee to report to work after receiving
notice is left entirely to Employer's discretion.
c) This Agreement shall terminate immediately upon the
happening of any of the following events, which ever shall
occur first:
i) expulsion, suspension or other
disciplinary action taken against Employee by the
final action of any state or federal regulatory body
or professional or scientific organization;
ii) death of Employee; in the event of the
death of the Employee, his legal representative shall
be entitled to receive his compensation for the
period of employment to the date of death;
iii) inability to perform the essential
functions of his job with or without reasonable
accommodation and after exhausting any and all rights
to leave that may exist.
4. Exclusive Service:
Employee shall devote his full working time and attention to the
business of Employer. During the term of this Agreement, Employee shall
not directly or indirectly, unless specifically authorized in writing
by the Employer, render services to or for any person or firm or engage
in any business or service that competes with the interests of
Employee. Employee shall have no authority to enter into contracts or
agreements binding Employer or to create obligations on the part of
employer, except as specifically authorizes by the Board of Directors
of Employer or the President.
5. Compensation:
Employee shall be compensated for services rendered as set forth on
Exhibit "B".
6. Restrictive covenant; Trade Secrets:
In consideration of both Employer's hiring of Employee, the payments
made to Employee under this Agreement, as well as the wide access
Employer grants to Employee to review and become familiar with
Employer's business, including certain valuable trade secrets and, in
view of other consideration, Employee hereby covenants and agrees as
part of and ancillary to this Agreement, that Employee, for a
reasonable period of time after termination of this Agreement, whether
with or without cause, shall not for any reason directly or indirectly,
by any means or device whatsoever, for himself or on behalf of, or in
conjunction with any person, partnership or corporation. do any one or
more of the following:
a) induce, entice, or hire, or attempt to hire or employ any
employee of Employer;
2
<PAGE> 3
b) compete with Employer or solicit any customers of employer
in the products and services provided by Employer, or engage
directly or indirectly, in the business of manufacturer and/or
importing to distribute Automotive wheels or accessories.
Directly or indirectly engaging in the business of Automotive
wheels or in any competitive business shall include, but not
be limited to, engaging directly or indirectly in business as
owner, partner, or agent, or an employee of or consultant to
any person, firm, corporation, or other entity engaged in such
business, or in being interested directly or indirectly in any
such business, or in being interested directly or indirectly
in any such business conducted by any person, firm,
corporation, or other entity.
Employee and Employer hereby expressly agree that "a reasonable period
of time" as used within this Paragraph 6(a), shall be one year.
Employee and Employer hereby expressly agree that "a reasonable period
of time" as used within this paragraph 6(b), shall be one year from the
date of the last payment for any purpose from Employer to Employee.
Employee and Employer hereby agree that the geographic restriction for
the covenant not to compete in this paragraph 6 shall be Ohio,
California, North Carolina, Michigan, Arkansas, Tennessee, Texas,
Kansas, Missouri, New York, New Jersey, and Florida.
Employer and Employee agree that the covenant set forth in paragraphs 6
(a) and 6 (b) shall accrue to the benefit of Employer, irrespective of
the reason for termination of this Agreement and the corresponding
employment relationship created herein or Employee's performance
hereunder.
In connection with the limited protection afforded Employer by the
ancillary covenants contained within paragraphs 6(a) and 6(b), Employee
recognizes that Employer's need for the covenants is based on the
following:
a) Employer has expended and will continue to expand
substantial time, money and effort in developing (i) a
valuable list of customers and (ii) information about
technical problems, purchasing and sales;
b) Employee will, in the course of his employment, be
personally entrusted with and exposed to Employer's trade
secrets;
c) Employer during the term of this Agreement and after its
termination, will be engaged in a highly competitive industry
in which many firms, including Employer, compete;
d) Employer sells its products throughout the world;
e) Employer, pursuant to acquiring certain patents, technology
and associated trade secrets and know-how, will further
develop its product line;
3
<PAGE> 4
f) Employee could, after having access to Employer's financial
records, contracts, patents, technology and associated trade
secrets and know-how, perform his obligations under this
Agreement, and receive training by and experience with
Employer, and after reviewing Employer's trade secrets, become
a Competitor; and
g) Employer will suffer great loss and irreparable harm if
Employee were to terminate his employment and thereafter enter
directly or indirectly, into competition with Employer.
7. Confidential Information:
Employee agrees that he will not, during or after his term of
employment with Employer, reveal, divulge, furnish, use to his own
advantage or the advantage of any other person or business enterprises,
or make accessible or known in any manner, any confidential information
or confidential records pertaining to the Employer's business,
including, without limitation, information regarding:
i) customers or potential customers of Employer;
ii) employees and associates of Employer;
iii) training programs of Employer,
iv) formulas, patterns, devices, inventions, processes,
designs, specifications and suppliers; or
v) other proprietary, confidential or secret information
relating to the business, products, activities or operating
aspects of Employer (hereinafter collectively the Confidential
Information") to which he has access or which he develops
during the course of his services hereunder, or under any
prior agreement between the parties, to any person not
authorized by Employer.
Employee understands that Confidential Information is information not
generally available to the public concerning the business and affairs
of Employer which Employer desires to keep secret; and includes all
records not generally available to the public containing information
concerning the business and affairs of Employer regardless of the media
used to create the records, which records Employer desires to keep
secret. All files, records, designs, documents, drawings,
specifications, equipment, and similar items relating to the business
of Employer, whether prepared by Employee or otherwise coming into his
possession, shall remain the exclusive property of Employer and shall
not be removed from the premises of Employer under any circumstances
whatsoever without the prior written consent of Employer, except in the
normal course of business.
In the event that Employee violates the terms of this Paragraph 6 or 7,
Employer, shall be entitled to obtain injunctive relief to prohibit
Employee from such practices and seek or request money damages for any
injury to Employer resulting from such
4
<PAGE> 5
competition.
8. Amendment; Binding Effects:
This Agreement constitutes the entire understanding between the
parties, and the same shall not be changed, modified or altered unless
it is done in writing and signed by both Employer and Employee. This
Agreement shall be construed and regulated, and its validity and effect
shall be determined, according to the laws of the State of Arizona. 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.
Notwithstanding the above, the court shall have the authority to modify
this agreement to make it enforceable. This Agreement shall be binding
upon the parties hereto, there respective heirs, executors,
administrators, successors and assigns. Whenever any particular gender
is used in this Agreement, it shall be deemed to include any other
gender, and the singular and the plural shall be deemed to be
interchangeable, when the meaning and context so requires.
Any part of this Agreement may be modified by written amendment or
modification of this Agreement shall be deemed to be effective unless
or until executed in writing by the parties hereto with the same
formality attending execution of this Agreement.
9. Waiver:
The waiver by Employer of it breach of any provision of this Agreement
by Employee and/or the waiver by Employee of a breach of any provision
of this Agreement by Employer, shall not operate or be construed as a
waiver of any subsequent or additional breach by either party.
10. Assignment:
The rights and obligations of Employer and Employee under this
Agreement are of a personal nature and, therefore, this Agreement and
the rights and obligations of the parties hereto are not assignable by
either party.
11. Notice:
Any notice required or permitted to be given under this Agreement shall
be sufficient if in writing, and shall be deemed to have been given at
the time when sent by certified mail, return receipt requested,
addressed to the address of the respective parties below:
a) To the Employer: Cragar Industries, Inc.
Att: Michael L. Hartzmark
President
4636 North 43rd Avenue
Phoenix, Arizona 95031
5
<PAGE> 6
With a copy to: Snell & Wilmer
Att: Becky Winterscheidt, Esq.
One Arizona Center
Phoenix, Arizona 85004-0001
b) To the Employer: Tony Barrett
Address:
provided, however, that any notice of change of address shall be
effective only upon receipt.
12. Severability:
The provisions of this Agreement are severable and if any one or more
provisions are determined to be illegal or otherwise unenforceable, in
whole or in part, the remaining provisions and any partially
unenforceable provision to the extent enforceable shall, nevertheless,
be binding and enforceable..
13. Captions:
The captions of this Agreement are for reference only and do not affect
the meaning of any term or provision herein.
IN WITNESS WHEREOF, the Employer has caused this Agreement to be
executed by an officer duly authorized to execute the same and Employee
has signed this Agreement this 1st day of January, 1996, at 5:24 pm.
EMPLOYER:
CRAGAR Industries, Inc.
BY: Michael L. Hartzmark
-----------------------------------
Michael L. Hartzmark, President/CEO
EMPLOYEE:
Tony Barrett
----------------------------------------
Tony Barrett, Vice President, Operations
6
<PAGE> 1
EXHIBIT 10.5
CRAGAR
THE WHEEL PEOPLE
January 24, 1996
Gregg Koechlein
Super Shops Inc.
San Bernardino, CA
Gregg,
Thank you for the opportunity to submit this follow up Purchase Program for
Super Shops for the period January 1, 1996 through December 31,1996. The terms
and conditions of sale stated here are designed specifically to cover the needs
you expressed during our conversation yesterday and supersedes all previous
proposals and agreements.
PRICING:
Net prices are attached. They represent the same prices utilized since
May 1, 1995. A price increase up to 3% will become effective May 1,
1996. Any orders placed prior to May 1, 1996 with ship release dates
after May 31, 1996 will be billed based on the new prices. The detailed
listing of this increase will be presented to the Super Shops
purchasing department in March, 1996.
CREDIT TERMS:
1. Payment schedule:
a. Invoices for Purchase Orders of amounts less than
$250,000 are due 90 days from receipt of product.
b. Invoices for Purchases Orders of amounts from
$250,000 to $500,000 are due 120 days from receipt of
product.
c. Invoices for Purchase Orders of amounts from
$500,000 to $1,000,000 are due in three equal
payments 120, 150 and 180 days from receipt of
product.
2. All Purchase Orders must have ship release dates within 30 days of
the Purchase Order date.
3. A 1% prompt pay discount is allowed on each payment if received by
the due date. All payments received after the due date are net. No
exceptions.
<PAGE> 2
FREIGHT & WILL CALL POLICIES:
1. Minimum prepaid order: $25,000 value will be shipped to one location
within the continental United States.
2. Stocking orders of less than prepaid freight will be shipped freight
collect. No C.O.D. shipments will be made.
3. Will Call orders of qualifying prepaid quantities are entitled to
discounts as related to the states listed below:
CA, AZ, NM, NV = 1%
OR, WA, ID, CO, UT, TX = 2%
All other states except Hawaii = 3%
4. For Will Call orders the date of receipt of product will be the date
of product pick-up
ADVERTISING AND PROMOTIONAL ALLOWANCE:
An allowance is offered for the promotion of Cragar product through
media advertising. This includes, but is not limited to, consumer
publications, radio ads or other media. The allowance is equal to 1% of
the net invoices (defined as invoice amounts minus all credit memos)
per calendar quarter during 1996. Super Shops is to provide proof of
performance in a manner to be agreed upon as back-up for the allowance.
The allowance is to be credited within 60 days of the end of the
calendar quarter.
RETURNS ALLOWANCE:
An allowance is offered for the return of product during the year. This
allowance is for the return of "non-defective", mounted wheels and/or
"return to stock" product (RTS). The allowance cannot exceed 2.5% of
the previous year's net invoices. ($5.6 million). The returns are to be
made on a regular basis, preferably quarterly, so as not to arrive at
Cragar at year end. There is to be no handling charge for these returns
but it is understood that there will be orders of equal size placed by
Super Shops at the time of the return. The credit issued by Cragar and
the matching debit taken by Super Shops will have the same terms as the
offsetting order.
DEFECTIVE RETURNS:
All product returned to Cragar that is found to be defective, and
within the warranty period, will have credit issued at a rate equal to
the then current purchase price as quoted to Super Shops at the time of
the return. In addition to this credit, Cragar will add the actual cost
of the freight (up to $5.00 per wheel) to cover the expense. Super
Shops is to provide proof of performance of freight cost. Details of
this policy is printed on the top of each Return goods form.
2
<PAGE> 3
REBATE:
1995 rebate -
The amount of the rebate covering the 1995 calendar year is $160,000.
It is to be paid in the form of a credit at a rate of $10,000 per month
for sixteen months beginning March 15, 1996. The rebate credits will
begin only when the current out of balance condition of the receivable
account is resolved. Cragar will not be obligated to issue rebate
credits if the account is delinquent. If a delinquent account becomes
current credits will once again be issued, but at no more than $10,000
per month to fulfill the obligation.
1996 rebate -
The following rebate is to be paid in the form of a credit issued in
equal monthly installments over the twelve month period beginning March
15, 1997. In no month, may the combined 1995 rebate and 1996 rebate
exceed $20,000. The credit is to be used against future purchases made
during the calendar year 1997 and 1998. Cragar will not be obligated to
issue rebate credits if the account is delinquent. If a delinquent
account becomes current credits will once again be issued, but at no
more than $10,000 per month to fulfill the obligation.
<TABLE>
<CAPTION>
Net Shipments Rebate
------------- ------
(Invoices less credit memos)
<S> <C>
$4,000,000 2%
$5,000,000 2.5%
$6,000,000 3%
$6,500,000 3.5%
$7,000,000 4%
$7,500,000 4.5%
$8,000,000 5%
</TABLE>
All other conditions of sale are determined by the 1996 Cragar Sales Policy
effective October 1, 1995.
Gregg, I believe this covers all important points of the 1995 rebate and 1996
purchase program we discussed for Super Shops. Thank you for the continued
interest in our product line.
Sincerely,
Barry Horlick Accepted Gregg Koechlein date 1/28/96
---------------------
Barry Horlick Gregg Koechlein
Vice President - Sales
cc: M Hartzmark
3
<PAGE> 1
EXHIBIT 10.6
CRAGAR INDUSTRIES, INC.
Five-Year Fifteen (15) Percent Note
Due in Five Installments on January 1 of 1994
1995, 1996, 1997, and 1998
Cragar Industries, Inc., a Delaware corporation (the "Corporation"),
for value received, hereby promises to pay to ______________________________
the principal sum of $___________ interest from the date of issuance of
this Note at the rate of fifteen percent (15%) per annum. The principal and
interest are payable in five (5) installments as set forth in the Payment
Schedule attached hereto as Exhibit "A", at the office of the Corporation, or
by registered or certified mail to the address of the registered owner hereof.
This Note is one of a duly authorized issue of notes of the Corporation
of like tenor and effect evidencing an aggregate indebtedness of $3,538.878.
The following is a statement of the rights of the holder of this Note and the
conditions to which this Note is subject, to which the holder hereof, by the
acceptance of this Note, assents:
1. Equal Rank. All notes of this issue rank equally and ratably
without priority over one another.
2. Subordination. The rights of the holder hereof to the principal
sum or any part thereof, and the interest due thereon, are and shall remain
subject and subordinate to the claims of all creditors of the Corporation other
than the holders of notes of this issue, and upon dissolution or liquidation of
the Corporation no payment shall be due or payable upon this Note until all
other contract creditors of the Corporation shall have been paid in full.
3. Forbearance From Suit. No holder of a note of this issue shall
institute any suit or proceeding for the enforcement of the payment of
principal or interest unless the holders of more than 50 percent of the amount
of all outstanding notes of this issue join in such suit or proceeding.
<PAGE> 2
4. Prepayment. The Corporation may at any time, at its own
option, prepay in whole or in part the principal sum, plus accrued interest to
date of payment, of all but not less than all outstanding notes of this issue.
5. Registered owner. The Corporation may treat the person whose
name appears above as the absolute owner hereof for the purpose of receiving
payment of, or on account of, the principal or interest due hereon and for all
other purposes.
6. Non-Liability of Shareholders, Officers, and Directors. This
Note is the obligation of the Corporation only, and no recourse shall be had
for the payment thereof of the interest thereon against any shareholder,
officer, or director of the Corporation, either directly or through the
Corporation, by virtue of any statute for the enforcement of any assessment or
otherwise, all such liability of shareholders, directors, and officers as such
being released by the holder hereof by the acceptance of this Note.
7. Late Payment. In the event the corporation does not pay the
holder hereof any payment of principal or interest within 150 days after the
due date thereof, the interest rate from the due date until payment of
principal and interest then due on the entire remaining unpaid principal
balance hereunder shall be seventeen percent (17%), except to the extent
otherwise required by creditors of the Corporation to whom the indebtedness
evidenced hereby is subordinated.
8. Conversion. The holder of this Note has the right, at his
option, at any time after any payment of principal or interest remains unpaid
more than one hundred fifty (150) days after due, and except to the extent
otherwise required by creditors of the Corporation to whom the indebtedness
evidenced hereby is subordinated, to convert the unpaid principal balance
hereof into shares of the Class A common stock .01 par value of the Corporation
(the "Stock"), as such Stock may be constituted at the date of conversion, at
the price of One Dollar ($1.00) for one share of Stock, or at the adjusted
conversion price of the date of conversion giving effect to any stock splits,
reverse stock splits, stock dividends, or merger after the date of this Note.
To convert this Note, the holder hereof shall surrender this Note to the
2
<PAGE> 3
Corporation, accompanied by written notice of election to convert this Note
(executed on the form attached to this Note). As soon as practicable after the
surrender of this Note, the Corporation shall deliver (i) a certificate for the
number of full shares of the Stock issuable upon conversion, and (ii) cash in
lieu of any fractional shares of Stock otherwise issuable pursuant to the
exercise of the right or conversion hereunder.
9. Reservation of Stock. The Corporation shall take, or has taken
all steps necessary to reserve a number of its authorized but unissued shares
of the Stock sufficient for issuance upon conversion of this Note pursuant to
this paragraph. IN WITNESS WHEREOF, the Corporation has signed this Note on
December _____, 1992.
Payments on account of principal of this Note are noted on the reverse
side hereof.
CRAGAR INDUSTRIES, INC.
By:____________________________
James A. Haggerty, President
3
<PAGE> 1
EXHIBIT 10.6(a)
FIRST NOTE AMENDMENT
THIS FIRST NOTE AMENDMENT (the "Amendment") is made and entered into as
of the 30th day of September, 1994, by and between CRAGAR INDUSTRIES, INC., a
Delaware corporation (the "Corporation"), and _________________ (the "holder").
RECITALS
A. The Corporation executed that certain Five-Year Fifteen (15)
Percent Note Due in Five Installments on January 1 of 1994, 1995, 1996, 1997,
and 1998 (the "Note") payable to the holder as of December 31, 1992.
B. The Corporation and the holder desire to amend the Note in
accordance with the terms and conditions set forth in this Amendment.
AMENDMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual obligations set forth in this Amendment, the Corporation and the holder
hereby agree as follows:
1. The first sentence of the first paragraph of the Note shall be
revised to add the word "plus" before the word "interest."
2. Section 7 of the Note shall be revised in its entirety to read
as follows:
Late Payment. In the event the Corporation does not pay
the holder hereof any payment of principal within 150 days
after the due date thereof, the interest rate from the
due date until payment of principal hereunder shall be
seventeen percent (17%), except to the extent otherwise
required by creditors of the Corporation to whom the
indebtedness evidenced hereby is subordinated. In the event
the Corporation does not pay the holder hereof any payment of
interest within 150 days after the due date thereof, such
interest shall be automatically added to the remaining
principal balance hereunder.
3. The first sentence of Section 8 shall be revised by deleting the
words "or interest."
4. Exhibit "A" to the Note shall be amended from time to time
after every conversion of unpaid interest to principal to take into account the
additional interest and unpaid principal resulting therefrom.
5. The parties hereto shall execute all further instruments and
perform all acts which are or may become necessary to effectuate and carry out
the matters contemplated by this Amendment.
6. This First Note Amendment may be executed in counterparts.
IN WITNESS WHEREOF, the parties have executed this Amendment effective
as of the day and year first above written.
"holder" CRAGAR INDUSTRIES, INC.
___________________
BY:______________________________
Its:_____________________________
<PAGE> 1
EXHIBIT 10.6(b)
AGREEMENT TO FORGIVE INTEREST
THIS AGREEMENT TO FORGIVE INTEREST (the "Agreement") is made
and entered into as of the 14th day of December, 1994, by and between CRAGAR
INDUSTRIES, INC., a Delaware corporation (the "Corporation"), and
____________________ (the "holder").
RECITALS
A. On December 31, 1992, the Corporation executed that certain
Five-Year Fifteen (15) Percent Note Due in Five Installments on January 1 of
1994, 1995, 1996, 1997, and 1998 (the "Note") payable to the holder.
B. The Corporation and the holder executed that certain First
Note Amendment as of September 30, 1994.
C. In light of the Corporation's short-term liquidity
requirements, it is in the best interest of the Corporation and its shareholders
to discharge all interest accrued on and prior to December 31, 1994 on the Note.
D. The Corporation and the holder desire to provide for the
discharge of such interest in accordance with the terms and conditions set forth
in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals set
forth above, the Corporation and the holder hereby agree as follows:
1. All interest accrued on the Note through December 31, 1994
is hereby waived, forgiven, discharged, and released and no payment of the
interest accrued on the Note through December 31, 1994 shall be due on January
1, 1995 or on any date thereafter.
2. The parties hereto shall execute all further instruments
and perform all acts which are or may become necessary to effectuate and carry
out the purposes of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
effective as of the day and year first above written.
"HOLDER" CRAGAR INDUSTRIES, INC.
By:
- ---------------------- ------------------------
Its:
-----------------------
<PAGE> 1
EXHIBIT 10.6(c)
CRAGAR
THE WHEEL PEOPLE(TM)
February 16, 1995
All Holders of Cragar Industries, Inc. 1992 Five-
Year Fifteen (15) Percent Notes
Re: 1995 Recapitalization of Cragar Industries, Inc. (the "Company")
Dear Holders:
Each of you is a holder of (i) the Company's 1992 Five-Year Fifteen
(15) Percent Notes, as amended by a First Note Amendment dated September 30,
1994 (as amended, the "1992 Notes"), and/or (ii) the New Note (as defined in
Section I.E., below). For purposes of this letter, each of you is sometimes
referred to individually as an "Original Investor" and collectively as the
"Original Investors." I am writing to inform you that on January 31, 1995, the
Company's Board of Directors (the "Board") approved a plan of recapitalization
of the Company (the "Recapitalization") pursuant to which all of the Original
Investors are hereby being asked to contribute to the capital of the Company
the outstanding indebtedness under the 1992 Notes and the New Note (the
"Contribution"). The terms, conditions and consequences of the Contribution
are explained elsewhere in this letter.
THE CONTRIBUTION IS HEREBY MADE CONDITIONAL UPON THE ELECTION OF ALL
ORIGINAL INVESTORS TO PARTICIPATE IN THE CONTRIBUTION BY NO LATER THAN 5:00
P.M., FEBRUARY 28, 1995; IF LESS THAN ALL ORIGINAL INVESTORS ELECT TO
PARTICIPATE IN THE CONTRIBUTION AS OF SUCH DATE, THEN THE CONTRIBUTION SHALL BE
RENDERED NULL AND VOID.
As explained in greater detail in Section II, below, the Contribution is
part of a recapitalization plan that has been approved by the Board in order to
reduce a significant portion of the long-term debt of the Company and thereby
increase the equity of the Company.
IN ORDER TO PARTICIPATE IN THE CONTRIBUTION, YOU MUST COMPLETE AND SIGN
THE ELECTION NOTICE ATTACHED TO THIS LETTER AS SCHEDULE 1 AND DELIVER OR SEND
IN THE ENCLOSED FEDERAL EXPRESS
<PAGE> 2
February 16, 1995
Page 2
ENVELOPE THE ELECTION NOTICE, AND SURRENDER AS SOON AS PRACTICABLE THE ORIGINAL
1992 NOTES OR THE NEW NOTE TO WHICH YOU ARE A PARTY, TO MR. MICHAEL L.
HARTZMARK, PRESIDENT, CRAGAR INDUSTRIES, INC., 4636 NORTH 43RD AVENUE, PHOENIX,
ARIZONA 85031, EVIDENCING YOUR ELECTION TO CONTRIBUTE ALL OUTSTANDING
INDEBTEDNESS UNDER THE 1992 NOTES AND NEW NOTE TO WHICH YOU ARE A PARTY TO THE
CAPITAL OF THE COMPANY. IN THE ALTERNATIVE, YOU MAY DELIVER THE ELECTION NOTICE
BY FACSIMILE (FAX NO. (602) 846-0684), SO LONG AS YOU DELIVER THE ORIGINALLY
EXECUTED ELECTION NOTICE IN THE MANNER SET FORTH ABOVE AS SOON AS PRACTICABLE.
IF YOU WISH TO PARTICIPATE IN THE CONTRIBUTION, THEN THE COMPANY MUST
RECEIVE FROM YOU, WHETHER BY PERSONAL DELIVERY, MAIL, MESSENGER, OVERNIGHT
COURIER OR FACSIMILE, A PROPERLY EXECUTED ELECTION NOTICE NO LATER THAN 5:00
P.M., FEBRUARY 28, 1995, AND THE ORIGINAL 1992 NOTES AND THE NEW NOTE TO WHICH
YOU ARE A PARTY AS SOON AS POSSIBLE THEREAFTER. THE CONTRIBUTION SHALL BE
EFFECTIVE AS OF JANUARY 1, 1995.
I. Background of the Contribution
A. The 1992 Notes. In connection with the original contribution to
capital of the Company (the "Original Investment"), as more specifically set
forth in Schedule 2 hereto, the Original Investors contributed $4,500,000 to
the capital of the Company. For each $100,000 invested, an Original Investor
acquired (i) 2,777.8(1) shares of the Company's Class A Common Stock, $0.01 par
value (the "Common Stock"), (ii) 375 Class A Warrants, and (iii) a 1992 Note,
in the principal amount of $72,222. The Class A Warrants (which entitle the
holder to purchase one (1) share of the Common Stock at $10 per share) are
exercisable by the Original Investors at any time on or before December 31,
1999 and, therefore, they are now exercisable by the Original Investors. In
addition, the Class A Warrants provide the Original Investors with certain
protections against
- ---------------
(1) All numbers set forth herein and in the Schedules hereto give effect to
the reverse stock split that was approved by the stockholders of the Company on
March 26, 1994, pursuant to which all of the issued and outstanding shares of
common stock of the Company were converted into and reconstituted as one-tenth
of one share of common stock. For example, whereas one Unit originally had
27,778 shares before the reverse split, afterwards, each Unit has one-tenth of
that amount, 2,777.8 shares.
<PAGE> 3
February 16, 1995
Page 3
dilution (see Section 2 of the Statement of Rights of Warrant Holders), and, by
participating in the Contribution, each participating Original Investor waives
any and all rights which it may have thereunder protecting such Original
Investor against dilution in connection with the issuance of the Class B
Warrants to Dworkin in connection with the Dworkin Contribution (see Section
I.E., below). Each Original Investor's rights under the 1992 Notes are
expressly made subject to and subordinate to the claims of all creditors of the
Company. The Company's obligations under the 1992 Notes are unsecured. In
addition, each Original Investor has the right to convert the outstanding
balance under its 1992 Note, pursuant to the terms set forth therein, into
shares of Common Stock at the price of $10 per share.(2)
B. Loan and Security Agreement. On April 7 1994, the Company and
Foothill Capital Corporation ("Foothill") entered into a Loan and Security
Agreement (the "Loan Agreement"). The Loan Agreement provides the Company with
a revolving line of credit of up to $10,000,000 (the "Revolving Line"). At
December 31, 1994, approximately $7,644,530 was outstanding under the Revolving
Line. The Company's obligations under the Loan Agreement are secured by
substantially all of the Company's assets.
C. The 1993 Notes. From August 1993 through February 1994, the holders
(the "Junior Holders") of the Company's 1993 Two-Year 6% Convertible
Subordinate Secured Notes (the "1993 Notes") loaned $1,500,000 to the Company,
on the terms and subject to the conditions of the 1993 Notes. Each Junior
Holder's rights under the 1993 Notes are subject to and subordinate to the
rights of Foothill under the Loan Agreement. The Company's obligations under
the 1993 Notes are secured (subject to the lien in favor of Foothill) by
substantially all of the Company's assets. Also, each Junior Holder has the
right at any time to convert its 1993 Notes into a number of shares of Common
Stock equal to one percent of the total issued and outstanding shares of Common
Stock after the conversion of all the 1993 Notes, for each $100,000 of
principal amount of such Junior Holder's 1993 Note.
D. The Cognovit Promissory Note. Pursuant to a Cognovit Promissory Note,
dated as of September 30, 1993, the Company was originally indebted to
Performance Industries, Inc. ("Seller") in the principal amount of $2,000,000.
The Company's obligations under the Cognovit
- ---------------
(2) The Company has previously asked each of the Original Investors to forgive
the interest payments that would have otherwise been due and payable by the
Company to the Original Investors on January 1, 1994 and January 1, 1995 under
the 1992 Notes, pursuant to the terms and conditions of an Agreement to Forgive
Interest dated as of December 15, 1994. As of the date of this letter, all
Original Investors, except for the one Original Investor who is deceased, have
agreed to forgive such interest.
<PAGE> 4
February 16, 1995
Page 4
Note are unsecured. The Company has recently renegotiated the Cognovit Note,
pursuant to which, except as set forth in Item No. 2 of Schedule 3 hereto, a
payment of $360,000 was made in settlement of a $720,000 obligation which
became due and payable on December 1, 1994. The current principal balance under
the Cognovit Note is $1,340,000. Pursuant to a December 14, 1994 Memorandum
from Seller to the Company, the Company and Seller agreed to amend the Cognovit
Note in certain other aspects, a summary of which is set forth in Schedule 3
hereto.
E. The Dworkin Contribution. On December 15, 1994, Mr. Sidney Dworkin
invested $500,000 in the Company (the "Dworkin Contribution") in order to,
among other things, fund the Company's $360,000 payment to Seller on December
15, 1994. With respect to this $500,000 investment, $150,000 was made as a
contribution to capital, and the remaining $350,000 was made, subject to the
consent of Foothill (see Section III, below), as a loan to the Company. In
consideration of the $150,000 capital contribution, Mr. Dworkin shall receive
the same consideration that an Original Investor would have received from the
Company in connection with the Original Investment; that is, 4,166.7 shares of
Common Stock, 562.5 Class A Warrants, and a promissory note, on the same terms
and conditions of the 1992 Notes (a "New Note"), in the principal amount of
$108,333. In consideration of the $350,000 loan to the Company, Mr. Dworkin
shall receive (i) a promissory note in the principal amount of $350,000,
bearing interest at the rate of 1.5% per month through June 30, 1995, and 2%
per month thereafter until the outstanding principal balance is paid in full,
and (ii) 3,500 warrants to purchase one (1) share of the Common Stock at $2.50
per share, exercisable at any time on or before December 31, 1999 (the "Class B
Warrants").
II. The Contribution.
The Contribution was approved by the Board on January 31, 1995. By
contributing a significant portion of the Company's long-term debt to equity,
the Company will (i) improve the Company's balance sheet; (ii) increase the
possibility of obtaining more favorable terms from lenders and vendors; (iii)
reduce operating costs, which will likely lead to the improved overall
performance of the Company; and (iv) significantly improve the likelihood of
the Company attracting a suitor or funds to accelerate the Company's growth.
In connection with the Contribution, the Original Investors shall
contribute to the capital of the Company the then outstanding indebtedness
under the 1992 Notes and the New Note. No securities of the Company or any
other consideration will be issued or delivered to the Original Investors in
connection with the Contribution. Since (i) the Contribution is being made on
the condition that all of the Original Investors agree to participate in the
Contribution, as indicated on Schedule 4 attached hereto, and (ii) the
conversion rights of the Junior Holders are based upon a fixed percentage of
the then outstanding common stock, the Contribution will not cause any
<PAGE> 5
February 16, 1995
Page 5
adjustment in the relative ownership interests of the Original Investors and
the Junior Holders, except to the extent that Mr. Dworkin's relative equity
interest in the Company is increased, which increase is attributable to the
Class B Warrants and is more specifically described in Schedule 4.
III. Condition Precedent.
Our attorneys have advised us that the consent of Foothill must be
obtained under the Loan Agreement before the Contribution may become effective.
The Company is negotiating with Foothill to obtain the requisite consent and
anticipates being able to obtain Foothill's consent. If, however, Foothill has
not granted its consent to the Contribution by February 28, 1995, the
Contribution shall only become effective at such time that Foothill has
consented to the Contribution, in which case the effective date shall relate
back to January 1, 1995.
IV. Financial Statements.
Attached to this letter as Schedule 5 are the Company's unaudited
balance sheet for December 31, 1994 (including the effect of the Contribution),
Income Statement and Consolidated Statement of Cash Flows for the period then
ended. KPMG Peat Marwick is working with the Company, but has not yet concluded
its year-end audit of the Company.
V. Description of Capital Stock.
The Company's authorized capital stock consists of 700,000 shares of
Class A Common Stock, $0.01 par value, of which 125,001 shares are currently
issued and outstanding (excluding the issuances to Dworkin under Section I.E.,
above), and 200,000 shares of preferred stock, none of which is currently
outstanding.
VI. Tax Consequences to the Company.
If the Original Investors were to receive shares or warrants in the
Company in exchange for the 1992 Notes and the New Note, the Company would
realize income equal to the difference between (i) the aggregate face amount of
the 1992 Notes and the New Note surrendered, and (ii) the fair market value of
the stock and other consideration received by the Original Investors in
exchange for such notes.
<PAGE> 6
February 16, 1995
Page 6
However, there is an exception to the income recognition rule described
above. If the Original Investors contribute the 1992 Notes and the New Note to
the capital of the Company, and receive no stock or other consideration in
return for such capital contribution, then the Company would realize income
only to the extent the Original Investors' tax basis in the 1992 Notes and the
New Note was less than the face value of the 1992 Notes and the New Note.
Because this differential is zero under the facts of the instant case, the
Company should realize no income if the Original Investors contribute the 1992
Notes and the New Note to the capital of the Company. The legislative history
to Section 108 of the Internal Revenue Code suggests that the form selected by
the parties to the transaction should govern.
VII. Certain Risk Factors.
In addition to the other information contained in this letter, the
following should be considered by you before you elect to contribute to the
capital of the Company the outstanding indebtedness under your 1992 Notes or the
New Note:
A. Loss of Preferential Rights. The Original Investors, as holders of
the 1992 Notes and the New Note, are creditors of the Company and, upon
dissolution, bankruptcy or such other reorganization of the Company, would be
entitled to receive distributions from the Company prior to the stockholders of
the Company. The Contribution will cause the creditor status of the Original
Investors to be subordinated to all other creditors of the Company. However,
since the 1992 Notes and the New Note expressly state that they are subordinate
to all other creditors of the Company, there would appear to be only a slightly
greater risk to the Original Investors that, after the Contribution, they will
not be able to recover the amount of their Contributions.
B. Expiration of Loan Agreement. The initial two year term of the Loan
Agreement, which is the Company's primary financing source, automatically renews
for an additional one year period on April 7, 1995, unless Foothill or the
Company elects to terminate the Loan Agreement. The Company has been advised
that Foothill is currently evaluating whether to renew the Loan Agreement. The
Company, however, would prefer to find a less costly financing alternative and
has been actively exploring other sources of capital and has specific proposals
from the business credit units of Bank of America and Norwest Bank. The Company
has also met with National Bank of Arizona and First National Bank of Arizona,
the latter of which is currently developing a proposal for submission to the
Company.
C. Make-Up of Company's Customers. A significant portion of the
Company's products are purchased by a relatively small groups of customers.
Approximately 25% to 35% of the Company's annual sales are obtained through
Super Shops. Although Super Shops indicates that it
<PAGE> 7
February 16, 1995
Page 7
intends to increase the number of new and existing products purchased by it, no
assurance can be given that Super Shops will actually increase or maintain the
amount of such new or existing products. The Company has been informed that
Super Shops has constructed a new warehouse, commenced a mail-order business,
and has committed to the purchase of 10,000 units of a new race product over the
next year, each of which indicates potential for significant growth for Super
Shops which could translate in increased demands by it for the Company's
products. In addition, Cragar has opened two new accounts in 1995 and is
concluding negotiations on a third new account. Cragar believes that each of
these accounts represents the possibility of significant sales opportunities.
Cragar has also extended its product line being purchased by a major customer in
the southeastern United States.
D. Success of New Product Line. The Company has recently introduced its
Cragar Lite Wheel Line and other new products and, based upon the initial
reactions, expects to successfully market such products. However, since these
new products have no established track record, there can be no assurance of
their success. Currently, the Company holds over $700,000 in back orders for
such new products.
E. Competition. Competition is intense in the Company's product market.
The Company competes nationwide with over 100 companies selling wheels in the
automotive aftermarket, and it holds approximately a 5% market share. It is
estimated that total sales of wheels in the automotive aftermarket exceed $500
million per annum. The largest company is believed to be American Racing
Equipment, Inc. (a subsidiary of Noranda Aluminum, a large publicly traded
Canadian corporation). There are also a number of larger producers of wheels
which sell to Original Equipment Manufacturers and have substantially greater
financial resources than the Company. There is no guarantee that one or more of
these manufacturers might not enter the automotive aftermarket. Superior
Industries, Inc., a large publicly traded United States Corporation, sells
mostly Original Equipment wheels, but also sells into the automotive
aftermarket.
F. Dependence Upon Suppliers. The Company's business is dependent upon
the assembly of parts that it obtains from its suppliers. If, for whatever
reason, the Company is no longer able to acquire such parts, or if the quality
and condition of such parts is not to the satisfaction of the Company, then the
Company could be adversely affected in its ability to provide products to its
customers. In addition, one of the Company's major suppliers is located in
China, which has been subject to numerous trading restrictions by the United
States from time to time.
G. Fluctuation in Prices of Raw Materials. The products obtained by the
Company are primarily metal products, the cost of which could vary greatly due
to the shortages in the availability of certain raw materials. Due to the
competitive nature of its market place, the Company may not be able to pass on
all of such higher costs to its customers. If not, the Company's profit margin
will
<PAGE> 8
SCHEDULE 1
ELECTION NOTICE
The undersigned hereby irrevocably contributes to the capital of Cragar
Industries, Inc. the entire, aggregate principal balance of its 1992 Notes or
the New Note (as defined in Cragar Industries, Inc.'s letter to which this
Election Notice is attached (the "Letter")), in accordance with the terms of
the Contribution, as disclosed in the Letter. Capitalized terms used herein but
not otherwise defined shall have the meanings ascribed to them in the Letter.
In connection with the foregoing, the undersigned represents and
warrants to, and covenants with, Cragar Industries, Inc. (the "Company"), as of
the date hereof, that:
1. The undersigned understands the information contained in the
Letter and information otherwise provided to it in writing, if any, by the
Company relating to the Contribution, including, without limiting the
generality of the foregoing, the "Risk Factors" set forth in Section VII of the
Letter;
2. The undersigned understands that all documents, records and
books pertaining to the Contribution (including, without limitation, the
Company's business plan) have been made available for inspection by it, its
attorney and/or its accountant;
3. The undersigned and/or its advisor(s) have had a reasonable
opportunity to ask questions of and receive answers from a person or persons
acting on behalf of the Company concerning the Contribution, and all such
questions have been answered to the full satisfaction of the undersigned;
4. No oral or written representations have been made or oral or
written information furnished to the undersigned or its advisor(s) in
connection with the Contribution inconsistent with the information stated in
the Letter and the Schedules thereto;
5. The undersigned is not participating in the Contribution as a
result of or subsequent to any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or
broadcast over television or radio, or presented at any seminar or meeting, or
any solicitation of a subscription in connection with investments in securities
generally;
Page 1 of 4
<PAGE> 9
6. The undersigned has reached the age of majority in the state in
which the undersigned resides and is not a non-resident alien;
7. The undersigned has adequate means of providing for the
undersigned's current needs and personal contingencies, is able to bear the
substantial economic risk of an additional capital investment in the Company
for an indefinite period of time, has no need for liquidity in such investment
and, at the present time can afford a complete loss of such investment;
8. The undersigned has such knowledge and experience in financial and
business matters, either alone or with a representative, so as to enable it to
utilize the information made available to it in connection with the
Contribution in order to evaluate the merits and risks of exercise of the
Contribution and to make an informed investment decision with respect thereto;
9. The undersigned is not relying on the Company with respect to the
tax and other economic considerations of the undersigned relating to the
Contribution. In regard to such considerations, the undersigned has relied on
the advice of, or has consulted with, only its own advisors;
10. The undersigned is making the additional investment in the Company
(the "Investment") for its own account, for investment and not with a view to
distribution thereof; and that its interest in the Investment will not be sold
or distributed in violation of the Securities Act of 1933, as amended (the
"Securities Act"), or applicable state law or the rules or regulations under
either. The undersigned understands that the Investment has not been registered
under the Securities Act or applicable state securities laws by reason of the
reliance by the Company on an exemption from the registration requirements of
the Securities Act and applicable state securities laws. The financial
condition of the undersigned is such that it is able to bear all risks of the
Investment for an indefinite period of time. The undersigned has been afforded
an opportunity to ask questions of and receive answers from the Company and
from persons authorized to act on its behalf, concerning the terms and
conditions of the Contribution, and the opportunity to review the books and
records of the Company and to obtain additional information to verify the
accuracy of information furnished by the Company. The undersigned has
investigated the Investment to the extent it deems necessary or desirable, and
the Company has provided it with the assistance in connection therewith that it
requested. The undersigned has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of the
Investment and of making an informed investment decision with respect thereto.
Page 2 of 4
<PAGE> 10
11. The undersigned is an "accredited investor" within the meaning of
Rule 501 of Regulation D, because the undersigned is one of the following
(check whichever of the following is applicable to you):
______ A. A natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of his/her
purchase exceeds $1,000,000. "Net worth" means the net value
or equity of a purchaser's assets and properties, provided
that a purchaser's principal residence (if any) must be at
the lower of (i) cost, including the costs of improvements
net of current encumbrances upon the property; (ii) the
appraised value of the property as determined upon a written
appraisal used by an institutional lender making a loan to
the individual secured by the property, including the cost of
subsequent improvements, net of current encumbrances upon the
property; or (iii) the estimated fair market value of the
property, net of current encumbrances upon the property;
______ B. A natural person whose individual income exceeded $200,000
in each of the two most recent years or whose joint income
with that person's spouse exceeded $300,000 in each of those
years, and who reasonably expects to reach the same income
level in the current year;
______ C. A bank as defined in Section 3(a)(2) of the Securities Act,
whether acting in its individual or fiduciary capacity;
______ D. An insurance company as defined in Section 2(13) of the
Securities Act;
______ E. A 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;
______ F. Any broker or dealer registered pursuant to Section 15 of
the Securities Exchange Act of 1934;
______ G. An 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;
______ H. A 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;
______ I. A pension or profit sharing trust (other than a pension or
profit sharing trust of the Company) that is an employee
benefit plan within the meaning
Page 3 of 4
<PAGE> 11
of Title I of the Employee Retirement Income Security Act of 1974 ("ERISA"), if
the investment decision is made by a plan fiduciary, as defined in Section 3(21)
of ERISA 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 million or, if a self-directed plan, the investment
decisions are made solely by persons that are accredited investors within the
meaning of the Act;
___ J. A private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
___ K. An organization described in Section 501(c)(3) of the Internal
Revenue Code of 1986, a corporation, Massachusetts or similar
business trust, or a partnership, not formed for the specific
purpose of acquiring the Preferred Stock, with total assets in
excess of $5 million according to its most recent audited
financial statement;
___ L. A director or executive officer of the Company;
___ M. A trust, with total assets in excess of $5 million, not formed
for the specific purpose of acquiring the Preferred Stock, whose
purchase is directed by a person who either alone or with his
purchaser representative has such knowledge or experience in
financial and business matters that he is capable of evaluating
the merits and risks of the prospective investment; or
___ N. Any entity in which all the equity owners are accredited
investors within the meaning of the Securities Act.
12. The undersigned agrees that upon the Contribution, the Company
shall have no further obligations to it under the 1992 Notes and the New Note,
and the undersigned shall have no further rights, privileges or benefits
thereunder.
13. By participating in the Contribution, each participating Original
Investor waives any and all rights which it may have under the Class A Warrants
protecting such Original Investor against dilution in connection with the
Dworkin Contribution.
---------------------------------
[Signature]
_________________________________
[Print Name]
Page 4 of 4
<PAGE> 12
SCHEDULE 3
MODIFICATIONS TO COGNOVIT NOTE
1. No Additional Security Interests. The Company has agreed to not grant
any new security interests without the prior consent of Seller except for any
security interest granted to (i) Foothill under the Loan Agreement, (ii) any
first tier lender in substitution of the Loan Agreement, or (iii) any lenders in
substitution of all or any part of the debt evidenced by the 1993 Notes.
2. Subordination by Original Investors. The Company has agreed to cause
the Original Investors, no later than March 22, 1995, to subordinate at least
85% of the Company's aggregate outstanding indebtedness to the Original
Investors under the 1992 Notes to the indebtedness of the Company to Seller
under the Cognovit Note. If the Company is not successful in causing such
subordination, then the Company is obligated to grant Seller a security interest
(subject to the lien in favor of Foothill and the Junior Holders pursuant to the
Loan Agreement and the 1993 Notes, respectively) in all of the Company's
equipment situated in Mexicali, Mexico, which is valued at approximately
$250,000.
Moreover, if the Company is unsuccessful in causing at least 75%
of the Company's aggregate indebtedness to the Original Investors under the 1992
Notes to be subordinated to the indebtedness of the Company to Seller under the
Cognovit Note by March 22, 1995, then (i) the outstanding principal balance of
the Cognovit Note shall be increased by $110,000, which shall effectively cause
the debt forgiveness described in Section I.D. of the letter to which this
Schedule 5 is attached to be reduced from $360,000 to $250,000, and (ii) a
penalty in the amount of the remaining $250,000 of the forgiven debt shall be
added to the outstanding principal balance upon any subsequent default by the
Company to make any payment under the Cognovit Note on or before the applicable
due date. Our attorneys have advised us that the Contribution will satisfy the
Company's subordination obligations under the Cognovit Note.
3. The Company's Prepayment Options. Seller has granted the Company the
following two options to prepay the Cognovit Note in full and final satisfaction
of all of the Company's obligations to Seller under the Cognovit Note: (i) The
Company may pay Seller $840,000 on or before December 31, 1994, or (ii) the
Company may pay Seller $1,000,000 on or before February 28, 1995. The Company
did not exercise the first of these prepayment options. Any such prepayment must
be consented to by Foothill (See Section III of the letter to which this
Schedule 5 is attached).
4. Modified Schedule of Payments. Finally, Seller and the Company agreed
to a new schedule of payments under the Cognovit Note pursuant to which (i) the
interest rate has been increased from 6% to 8% per annum and (ii) amortized
payments under the Cognovit Note shall be made monthly in the amount $60,000,
except no monthly payments shall be made in the months of December, January,
February, and March of each calendar year. The Company has also been granted
Page 1 of 2
<PAGE> 13
a 30-day cure period for its first delinquent payment.
Page 2 of 2
<PAGE> 1
EXHIBIT 10.7
CRAGAR INDUSTRIES, INC.
Five-Year Fifteen (15) Percent Note
Due in Five Installments on January 1 of 1996
1997, 1998, 1999 and 2000
Cragar Industries, Inc., a Delaware corporation (the "Company"), for
value received, hereby promises to pay to Sidney Dworkin ("Maker") the
principal sum of $108,333, plus interest from the date of issuance of this Note
at the rate of fifteen percent (15%) per annum. The principal and interest are
payable in five (5) installments as set forth in the Payment Schedule attached
hereto as Exhibit "A", at the office of the Company, or by registered or
certified mail to the address of Maker.
This Note is being issued on the same terms and conditions as the
Company's 1992 Five-Year Fifteen (15) Percent Notes, as amended by a First Note
Amendment dated September 30, 1994 (as amended, the "1992 Notes"), evidencing
an aggregate indebtedness of $3,358,323. The following is a statement of the
rights of Maker and the conditions to which this Note is subject, to which
Maker, by the acceptance of this Note, assents:
1. Equal Rank. This Note is of equal rank without priority over
the 1992 Notes.
2. Subordination. The rights of Maker to the principal sum or any
part thereof, and the interest due thereon, are and shall remain subject and
subordinate to the claims of all creditors of the Company other than the
holders of the 1992 Notes, and upon dissolution or liquidation of the Company
no payment shall be due or payable upon this Note until all other contract
creditors of the Company shall have been paid in full.
3. Forbearance From Suit. Maker shall not institute any suit or
proceeding for the enforcement of the payment of principal or interest unless
the holders of more than 50 percent of the amount of all outstanding 1992 Notes
join in such suit or proceeding.
4. Prepayment. The Company may at any time, at its own option,
prepay in whole or in part the principal sum, plus accrued interest to date of
payment, on a prorata basis with all but not less than all outstanding 1992
Notes.
<PAGE> 2
5. Registered Owner. The Company may treat Maker as the absolute
owner hereof for the purpose of receiving payment of, or on account of, the
principal or interest due hereon and for all other purposes.
6. Non-Liability of Stockholders, Officers and Directors. This
Note is the obligation of the Company only, and no recourse shall be had for
the payment thereof of the interest thereon against any stockholder, officer or
director of the Company, either directly or through the Company, by virtue of
any statute for the enforcement of any assessment or otherwise, all such
liability of stockholders, directors and officers as such being released by
Maker by the acceptance of this Note.
7. Late Payment. In the event the Corporation does not pay Maker
any payment of principal within 150 days after the due date thereof, the
interest rate from the due date until payment of principal hereunder shall be
seventeen percent (17%), except to the extent otherwise required by creditors
of the Corporation to whom the indebtedness evidenced hereby is subordinated.
In the event the Corporation does not pay Maker any payment of interest within
150 days after the due date thereof, such interest shall be automatically added
to the remaining principal balance hereunder.
8. Conversion. Maker has the right, at his option, at any time
after any payment of principal or interest remains unpaid more than one hundred
fifty (150) days after due, and except to the extent otherwise required by
creditors of the Company to whom the indebtedness evidenced hereby is
subordinated, to convert the unpaid principal balance hereof into shares of the
Class A common stock . 01 par value of the Company (the "Stock"), as such Stock
may be constituted at the date of conversion, at the price of Ten Dollars
($10.00) for one share of Stock, or at the adjusted conversion price of the
2
<PAGE> 3
date of conversion giving effect to any stock splits, reverse stock splits,
stock dividends or merger after the date of this Note. To convert this Note,
Maker shall surrender this Note to the Company, accompanied by written notice
of election to convert this Note (executed on the form attached to this Note).
As soon as practicable after the surrender of this Note, the Company shall
deliver (i) a certificate for the number of full shares of the Stock issuable
upon conversion, and (ii) cash in lieu of any fractional shares of Stock
otherwise issuable pursuant to the exercise of the right or conversion
hereunder.
9. Reservation of Stock. The Company shall take, or has taken all
steps necessary to reserve a number of its authorized but unissued shares of
the Stock sufficient for issuance upon conversion of this Note pursuant to this
paragraph.
10. Restriction on Transfer. This Note is only transferrable to
the extent expressly permitted under and pursuant to the terms and conditions
of the Subscription Agreement of even date herewith, by and between the Company
and Maker, including, without limitation, Section 4 thereto.
IN WITNESS WHEREOF, the Company has signed this Note as of December 15,
1994.
Payments on account of principal of this Note
are noted on the reverse side hereof.
CRAGAR INDUSTRIES, INC.
By: Michael H. Hartzmark
______________________________
Michael H. Hartzmark, President
3
<PAGE> 4
EXHIBIT "A"
[Payment Schedule]
<TABLE>
<CAPTION>
Payment Date Principal Interest Balance
------------ --------- -------- -------
<S> <C> <C> <C>
January 1, 1996 -0- $16,249.95 $108,333.00
January 1, 1997 $27,083.25 $16,249.95 $ 81,249.75
January 1, 1998 $27,083.25 $12,187.46 $ 54,166.50
January 1, 1999 $27,083.25 $ 8,124.97 $ 27,083.25
January 1, 2000 $27,083.25 $ 4,062.49 -0-
</TABLE>
<PAGE> 1
EXHIBIT 10.8
COGNOVIT PROMISSORY NOTE
$2,000,000.00 Cleveland, Ohio
September 30, 1993
FOR VALUE RECEIVED, the undersigned, Cragar Industries, Inc. ("Maker"),
whose mailing address is c/o Steven L. Wasserman, Esq.., Honohan, Harwood,
Chernett & Wasserman, East Ohio Building, Suite 1600, 1717 East 9th Street,
Cleveland, Ohio 44114, a Delaware corporation, hereby promises to pay in
immediately available United States funds, to the order of Performance
Industries, Inc., an Ohio corporation, at 2401 West First Street, Tempe, Arizona
85281 ("Payee"), or at such other address as the holder, or holders, hereof may
from time to time designate, the principal sum of Two Million Dollars
($2,000,000.00), or such other amount as determined in accordance with Paragraph
2. below.
This Cognovit Promissory Note (the "Note") is given by Maker to Payee
in accordance with the terms of that Settlement Agreement and Mutual Release
("Settlement Agreement") between Maker and Payee executed concurrently herewith.
1. Interest and Payments. The principal amount of this note shall bear
interest from the date hereof at the rate of six percent (6%) per annum. The
payments shall be due and payable on the first day of each month in installments
according to the following Amortization Schedule:
<TABLE>
<CAPTION>
Beginning Payment Ending
Balance Interest Schedule Balance
--------- -------- -------- -------
<S> <C> <C> <C> <C>
Oct-93 2,000,000.00 10,000.00 0.00 2,010,000.00
Nov-93 2,010,000.00 10,000.00 0.00 2,020,000.00
Dec-93 2,020,000.00 10,000.00 0.00 2,030,000.00
Jan-94 2,030,000.00 10,000.00 0.00 2,040,000.00
Feb-94 2,040,000.00 10,000.00 0.00 2,050,000.00
Mar-94 2,050,000.00 10,000.00 0.00 2,060,000.00
Apr-94 2,060,000.00 10,000.00 0.00 2,070,000.00
May-94 2,070,000.00 10,000.00 0.00 2,080,000.00
Jun-94 2,080,000.00 10,000.00 90,000.00 2,000,000.00
Jul-94 2,000,000.00 10,000.00 0.00 2,010,000.00
Aug-94 2,010,000.00 10,000.00 0.00 2,020,000.00
Sep-94 2,020,000.00 10,000.00 0.00 2,030,000.00
Oct-94 2,030,000.00 10,000.00 0.00 2,040,000.00
Nov-94 2,040,000.00 10,000.00 0.00 2,050,000.00
Dec-94 2,050,000.00 10,000.00 720,000.00 1,340,000.00
Jan-95 1,340,000.00 6,700.00 0.00 1,346,700.00
Feb-95 1,346,700.00 6,700.00 0.00 1,353,400.00
Mar-95 1,353,400.00 6,700.00 0.00 1,360,100.00
Apr-95 1,360,100.00 6,700.00 0.00 1,366,800.00
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C> <C> <C>
May-95 1,366,800.00 6,700.00 0.00 1,373,500.00
Jun-95 1,373,500.00 6,700.00 360,000.00 1,020,200.00
Jul-95 1,020,200.00 5,101.00 0.00 1,025,301.00
Aug-95 1,025,301.00 5,101.00 0.00 1,030,402.00
Sep-95 1,030,402.00 5,101.00 0.00 1,035,503.00
Oct-95 1,035,503.00 5,101.00 0.00 1,040,604.00
Nov-95 1,040,604.00 5,101.00 0.00 1,045,705.00
Dec-95 1,045,705.00 5,101.00 360,000.00 690,806.00
Jan-96 690,806.00 3,454.03 0.00 694,260.03
Feb-96 694,260.03 3,454.03 0.00 697,714.06
Mar-96 697,714.06 3,454.03 0.00 701,168.09
Apr-96 701,168.09 3,454.03 0.00 704,622.12
May-96 704,622.12 3,454.03 0.00 708,076.15
Jun-96 708,076.15 3,454.03 360,000.00 351,530.18
Jul-96 351,530.18 1,757.65 0.00 353,287.83
Aug-96 353,287.83 1,757.65 0.00 355,045.48
Sep-96 355,045.48 1,757.65 0.00 356,803.13
Oct-96 356,803.13 1,757.65 0.00 358,560.78
Nov-96 358,860.78 1,757.65 0.00 360,318.43
Dec-96 360,318.43 1,757.65 362,076.09 0.00
</TABLE>
Maker may at any time, or from time to time, prepay this Note, in whole or in
part, without penalty or premium. If any portion of the principal hereunder is
not paid when due, such unpaid amount shall bear interest from the date due
until paid at the rate of eighteen percent (18%) per annum. Interest shall be
computed on the actual number of days elapsed on the basis of a 360-day year.
Notwithstanding the foregoing, if at any time the rate of interest provided for
herein shall exceed the maximum permitted by law, the rate shall be deemed to be
the maximum permitted under applicable law.
2. Acceleration. Notwithstanding anything herein to the contrary, the
entire unpaid principal balance hereof shall be due and payable at once at the
option of the holder, or holders, hereof after the occurrence of any of the
following events (an "Acceleration Event"); provided, with respect to the event
described in the following subparagraph (a), the holder has given Maker fifteen
(15) days prior written notice of the holder's intent to exercise such option an
opportunity to cure, in which case the Acceleration Event shall be deemed to
occur upon the expiration of such fifteen (15) day period without cure:
(a) any breach or default by Maker under any provision of the
Settlement Agreement or this Note, including any failure to make any payment
required under this Note;
(b) (i) immediately upon the filing of a petition in
bankruptcy by Maker, or (ii) in the event that an involuntary petition in
bankruptcy is filed against Maker, upon the earlier to occur of (A) the entry of
any order for relief against Maker, or (B) the expiration of sixty (60) days
following the filing of such involuntary petition (provided, however, that if
the Bankruptcy Court has, within said sixty (60) day period, entered an order
dismissing such involuntary petition, then no Acceleration Event shall be deemed
to have occurred; provided further, however, that the reversal of such order,
2
<PAGE> 3
or the reinstatement of such involuntary petition, shall be deemed to
constituted the filing of an involuntary petition in bankruptcy for purposes of
this Subparagraph 3(b));
(c) the written or public admission by Maker of its inability
to pay its debts as and when they mature; or
(d) if Maker shall be, or becomes, insolvent.
3. Covenants. Maker hereby covenants and agrees that Maker will notify
the holder, or holders, hereof in writing of the occurrence of any Acceleration
Event within five (5) days after such occurrence, notwithstanding the fact that
such Acceleration Event may have been later cured.
4. Notices. All notices or other communications permitted or required
under this Note shall be delivered or sent to the addresses set forth above;
provided, however, that if any party shall have designated a different address
by notice to the other, then such notices or communications shall be sent to the
last address so designated.
5. Procedural Matters and Collections Costs. Maker, for itself and for
its successors and assigns, hereby expressly waives presentment, notice of
dishonor, protest, notice of non-payment or protest, and other notice with
respect to this Note other than notices specifically required by the terms of
this Note, including notice of any failure to perform or default or by Maker. If
this Note is not paid when due, or is collected or attempted to be collected by
the initiation or prosecution of any suit or action, or through any probate or
bankruptcy court, or by any other judicial proceeding, or is placed in the hands
of any attorney or other agent for collection, then Maker shall, if permitted by
law, pay reasonable attorneys' fees and all other costs of collection in
addition to any other amounts owing hereunder.
6. No Waiver. No delay on the part of any holder or holders hereof in
exercising any rights hereunder and no waiver of any payment shall operate as a
waiver of any power or right on the non-performance or default or non-payment of
any of the obligations above mentioned.
7. Severability. All provisions of this Note shall be severable for
purposes of enforcement. If any provision of this Note is deemed invalid, ruled
illegal by any court of competent jurisdiction, or unenforceable under present
or future laws effective during the term hereof, then and in that event it is
the intention of Maker that the remainder of this Note shall not be affected
thereby, and it is also the intention of Maker that in lieu of each such
provision which is invalid, illegal or unenforceable, there be added as part of
this Note a provision which shall be as similar in terms to such invalid,
illegal or unenforceable provision as may be possible and valid, legal and
enforceable, and which deals equitably with the intended obligations of Maker.
8. Negotiability. It is the intention of the parties hereto that this
Note be negotiable as defined in Chapter 1309 of the Ohio Revised Code, and that
all provisions of this Note shall be construed accordingly.
9. Choice of Forum. This Note shall be deemed executed and delivered in
the State of Ohio. Any actions or proceedings to enforce or collect upon this
Note shall be litigated in courts having situs within Cuyahoga County, Ohio, and
Maker hereby irrevocably consents and submits to the exclusive jurisdiction of
any local, state or federal court located in such county and irrevocably waives
any objection that it may now or hereafter have to the laying of venue or to the
jurisdiction
3
<PAGE> 4
of any such court in any such action or proceeding. Maker shall, and hereby
does, waive trial by jury in any action, proceeding or counterclaim arising out
of, or in any way connected with, this Note.
10. Cognovit Provision. Notwithstanding the foregoing Paragraph 9,
Maker, for itself and its successors and assigns, hereby authorizes any
attorney-at-law, without presentment or notice, to appear in any court of record
in Cuyahoga County, Ohio, the county in which this Note was deemed executed, and
to waive the issuance and service of process and to confess judgment against
Maker in favor of the holder, or holders, of this Note for the amount then
appearing due, together with costs of suit to the extent permitted by applicable
law, and thereupon to release all errors and to waive all rights of appeal and
stay of execution, hereby ratifying all that said attorney may do by virtue
hereof. No such judgment obtained in respect of a particular indebtedness due
hereunder shall be a bar to any subsequent judgment with respect to any other
indebtedness due hereunder nor to any claim, counterclaim or set-for of the
Maker against Payee under the Purchase Agreement. If any such judgment shall be
vacated for any reason, the holder, or holders, of this Note may nevertheless
use the foregoing authorization to obtain an additional judgment or judgments
against Maker.
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND
COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST
YOU WITHOUT YOUR PRIOR KNOWLEDGE, AND THE POWERS OF A COURT CAN BE USED TO
COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR
WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE.
CRAGAR INDUSTRIES, INC.
By /s/ Michael L. Hartzmark
---------------------------------
Its President / CEO
4
<PAGE> 1
EXHIBIT 10.8(a)
CROSS-RECEIPT
Reference is made to that certain Cognovit Promissory Note (the
"Note"), dated as of September 30, 1993, executed by Cragar Industries, Inc., a
Delaware corporation (the "Company") and payable to Performance Industries,
Inc., an Ohio corporation ("Performance") and that certain Reinstated
Non-Competition Agreement ("Non-Competition Agreement"), dated as of September
30, 1993 by and between the Company and Performance.
1. Lee Hartzmark ("Hartzmark") represents and warrants that all right,
title, and interest in the Note and all right to payment under the
Non-Competition Agreement have been assigned to him pursuant to the attached
Assignment of Promissory Note dated June 20, 1996.
2. Hartzmark further represents and warrants that he now holds all
right, title, and interest in the Note and all right to payment under the
Non-Competition Agreement.
3. Hartzmark hereby acknowledges receipt from the Company of $779,727
as full payment for all amounts owed by the Company under the Note and the
Non-Competition Agreement.
4. The Company hereby acknowledges receipt from Hartzmark of the
original Note for cancellation.
CRAGAR INDUSTRIES, INC.
By: Michael L. Hartzmark
--------------------------
Michael L. Hartzmark
Its: President / CEO
-------------------------
Lee Hartzmark
----------------------------
Lee Hartzmark
<PAGE> 1
EXHIBIT 11.1
CRAGAR INDUSTRIES, INC.
SCHEDULE OF COMPUTATION OF EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX-MONTHS ENDED JUNE 30,
PRIMARY EARNINGS PER COMMON SHARES ------------------------- --------------------------
1994 1995 1995 1996
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net earnings (loss) $ (449,317) $ (693,756) $ 254,412 $ 479,711
============ ============ ============ ============
Weighted average number of common and
common equivalent shares:
Weighted average common shares outstanding(1) 125,174.6 130,111.3 129,168.0 132,940.5
Common equivalent shares using the treasury stock method(2) 34,802.3 34,802.3 34,802.3 34,802.3
----------- ----------- ----------- -----------
159,977.0 164,913.6 163,970.3 167,742.8
Effect of 7-to-1 split 7.0 7.0 7.0 7.0
----------- ----------- ----------- -----------
Average common shares outstanding, as adjusted 1,119,838.7 1,154,395.1 1,147,792.3 1,174,199.8
=========== =========== =========== ===========
Net earnings (loss) per common and common
equivalent share $ (0.40) $ (0.60) $ 0.22 $ 0.41
============ ============ ============ ============
SIX-MONTHS ENDED JUNE 30,
FULLY-DILUTED EARNINGS PER COMMON SHARE --------------------------
1995 1996
---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net earnings $ 254,412 $ 479,711
============ ============
Weighted average number of common
and common equivalent shares:
Weighted average common shares outstanding(1) 129,168.0 132,940.5
Common equivalent shares using the treasury stock method(2) 34,802.3 34,802.3
Conversion of $1,500,000 convertible debt 41,666.6 41,666.6
---------- ----------
205,636.9 209,409.4
Effect of 7-to-1 split 7.0 7.0
---------- ----------
Average common shares outstanding, as adjusted 1,439,458.5 1,465,866.0
=========== ===========
Net earnings per common share -- assuming full
dilution $ 0.18 $ 0.33
============ ============
</TABLE>
- ---------------
(1) Gives effect to the weighted average number of actual common shares
outstanding during each period presented.
(2) Gives effect to the exercise of 122,063.2 Class A, 24,500 Class B and
126,000 Class C Warrants, exercise of the Non-Employee Director Options and
conversion of $350,000 convertible debt using the treasury stock method
pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin No. 83.
<PAGE> 1
Exhibit 21
List of Subsidiaries of the Registrant
1. CRAGAR Mexicana S.A. DE C.V. - Incorporated pursuant to the laws
of the United States of Mexico.
<PAGE> 1
EXHIBIT 23.2
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
ACCOUNTANTS' CONSENT
The Board of Directors
Cragar Industries, Inc.:
We consent to the use of our report included in the Form SB-2 Registration
Statement for Cragar Industries, Inc. and to the reference to our firm under
the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Phoenix, Arizona
October 1, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1995 AUDITED FINANCIAL STATEMENTS AND JUNE 30, 1996 UNAUDITED FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 FILED BY CRAGAR
INDUSTRIES, INC. DATED OCTOBER 3, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 JUN-30-1996
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 4994 6326
<ALLOWANCES> 151 41
<INVENTORY> 7380 7092
<CURRENT-ASSETS> 12492 13707
<PP&E> 1047 953
<DEPRECIATION> 466 614
<TOTAL-ASSETS> 13966 14929
<CURRENT-LIABILITIES> 4138 5361
<BONDS> 8457 8086
0 0
0 0
<COMMON> 1 1
<OTHER-SE> (1605) (1126)
<TOTAL-LIABILITY-AND-EQUITY> 13966 14929
<SALES> 22936 12528
<TOTAL-REVENUES> 22936 12528
<CGS> 20289 10597
<TOTAL-COSTS> 23201 11974
<OTHER-EXPENSES> (736) (499)
<LOSS-PROVISION> (233) (110)
<INTEREST-EXPENSE> 1165 542
<INCOME-PRETAX> (694) 511
<INCOME-TAX> 0 31
<INCOME-CONTINUING> 472 923
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (694) 480
<EPS-PRIMARY> (.64) .43
<EPS-DILUTED> 0 .33
</TABLE>
<PAGE> 1
EXHIBIT 99.1
ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("Agreement") is made and entered into as of
_________________, 1996, by and among __________________________, having its
principal place of business at
______________________________________________________ and Cragar Industries,
Inc. (the "COMPANY"), having its principal place of business at 4636 N. 43rd
Avenue, Phoenix, Arizona 85031.
RECITALS
A. The Company proposes to offer for sale (the "OFFERING") up to
1,000,000 shares of its Common Stock, $0.01 par value (the "COMMON STOCK"), and
up to 1,000,000 Warrants to Purchase Common Stock (the "WARRANTS"). The Common
Stock and the Warrants offered (hereinafter collectively referred to as the
"UNITS") may only be purchased pursuant to the Offering together, as one share
of Common Stock and one Warrant, at a price of $6.00 per Unit. The Units are
being offered by the Company on a "best efforts, all or none" basis with respect
to the first 666,667 Units (the "MINIMUM OFFERING"), and on a "best efforts"
basis with respect to sales of the remaining 333,333 Units. The maximum number
of Units that may be sold in the Offering is 1,000,000 (the "MAXIMUM OFFERING").
B. Although the Units may be offered directly by the Company, the
Company anticipates that it will also engage independent broker-dealers who are
members of the National Association of Securities Dealers, Inc. ("PARTICIPATING
DEALERS") to sell the Units. All Participating Dealers will agree to conduct the
Minimum Offering subject to and in compliance with the terms and conditions of
this Agreement.
C. The Company desires to establish an escrow account in which funds
received from subscribers for the Units will be deposited pending completion of
the escrow period. __________________________ agrees to serve as Escrow Agent
(together with its successors and assigns hereunder, the "Escrow Agent") in
accordance with the terms and conditions set forth herein and subject to the
approval of the state securities administrators set forth on the list attached
hereto as Exhibit A (hereinafter referred to as the "STATE ADMINISTRATORS"). The
Escrow Agent must be satisfactory to the State Administrators and it is not
affiliated with the Company.
D. The purpose of this Agreement is to comply with the provisions of
Rules 10b-9 and 15c2-4 promulgated under the Securities Exchange Act of 1934, as
amended, and with the applicable securities laws of all states in which the
Offering of Units is made.
NOW, THEREFORE, in consideration of the respective covenants,
agreements, representations, and warranties contained herein, the parties hereto
agree as follows:
<PAGE> 2
AGREEMENT
1. ESTABLISHMENT OF ESCROW ACCOUNT. Effective as of the date of the
commencement of the Offering, the parties hereby establish an escrow account
with the Escrow Agent, which escrow account shall be entitled "Cragar
Industries, Inc./_____________________ Escrow Account #____________" (the
"ESCROW ACCOUNT"). Escrow Agent, by its signature hereon, accepts the escrow
agency created by this Agreement, and agrees to carry out its duties as Escrow
Agent hereunder pursuant to the terms and conditions contained herein.
2. DEPOSITS INTO THE ESCROW ACCOUNT. All monies received from
subscribers of the Units prior to disbursement of the Escrow Account as provided
herein will be deposited with the Escrow Agent by twelve o'clock noon of the
next business day after receipt of said monies from subscribers, together with
or followed promptly by a written account of each sale (each a "Sale Account"),
which Sale Accounts shall set forth, among other things, the subscriber's name
and address, Social Security or taxpayer identification number, the number of
Units purchased, the amount paid therefor, the form of subscription payment such
as whether the subscription payment was in the form of a check, draft, or money
order, the date of said check, draft, or money order, and the date received and
delivered to the Escrow Agent. All monies so deposited in the Escrow Account are
hereinafter referred to as the "ESCROW AMOUNT." The Company and any
Participating Dealers will instruct subscribers to the Units to make
subscription payments in the form of checks, drafts or money orders payable to
__________________________, AS ESCROW AGENT FOR CRAGAR INDUSTRIES, INC." Any
such payments received that are made payable to a party other than the Escrow
Agent shall be promptly returned by the Escrow Agent to the Company or the
Participating Dealer who submitted the payment. With the approval of the Company
and the Escrow Agent, subscription payments may also be tendered by wire
transfer to the Escrow Account pursuant to instructions given by the Escrow
Agent to the Company or the Participating Dealer. The Escrow Agent will promptly
deposit all subscription payments received by it and cleared for payment as good
funds into the Escrow Account. Subscription funds received by the Company and
any Participating Dealer during the pendency of the Offering will continue to be
deposited with the Escrow Agent in accordance with this Agreement
notwithstanding the sale of the Minimum Offering and the disbursement of funds
constituting the Minimum Offering.
The State Administrators shall have the authority to inspect
the Escrow Account without obtaining any further permission from the Company
and/or the Escrow Agent.
Unless and until all of the State Administrators order the
release of funds constituting the Minimum Offering to the Company and such funds
are disbursed to the Company hereunder, such funds shall not be, nor shall such
funds be considered to be, assets of the Company. Following the disbursement of
funds constituting the Minimum Offering, until funds held in the Escrow Account
are disbursed to the Company in accordance with the terms hereof, such funds
shall not be, nor shall such funds be considered to be, assets of the Company.
2
<PAGE> 3
3. ESCROW PERIOD. The period for the existence of the escrow (the
"ESCROW PERIOD") shall begin with the commencement of the Offering and shall
terminate upon Escrow Agent's disbursement of all funds in the Escrow Account in
accordance with Section 4 hereof following the earlier to occur of the following
dates:
A. The expiration of one hundred twenty (120) days from the
date of commencement of the Offering, unless extended one or more times as
permitted in the Registration Statement on Form SB-2 filed by the Company with
the Securities and Exchange Commission pursuant to the Securities Act of 1933,
as amended, in connection with the Offering (the "REGISTRATION STATEMENT") for
up to a total additional one hundred twenty (120) days at the sole discretion of
the Company, with a copy of each such extension to the Escrow Agent and the
State Administrators (the "MINIMUM OFFERING PERIOD"), unless subscriptions for
at least Four Million Two and No/100 Dollars ($4,000,002) (the "MINIMUM OFFERING
AMOUNT") have been received within the Minimum Offering Period;
B. The sale of the maximum amount of Units being offered
pursuant to the Offering (1,000,000 Units) in accordance with this Agreement;
C. The date upon which a determination is made by the Company
pursuant to Section 6 hereof to withdraw or terminate the Offering with notice
of such determination being given to the Escrow Agent, and if such determination
is made prior to the sale of the Minimum Offering and disbursement of the
Minimum Offering Amount, to the State Administrators (the "COMPANY TERMINATION
DATE").
Without further agreement between the Company and the Escrow
Agent, the Escrow Period will not extend beyond ________________, (two years
after the commencement of the Offering).
The Company is aware and understands that, during the Escrow
Period, it is not entitled to any funds received into escrow except upon
disbursement of such amounts to the Company as provided in this Agreement, and
except as so provided, no amounts deposited in the Escrow Account shall become
the property of the Company or any other entity, or be subject to the debts of
the Company or any other entity.
4. DISBURSEMENTS FROM THE ESCROW ACCOUNT.
Escrow Agent will disburse monies from the Escrow Account as
follows:
A. In the event the Escrow Agent does not receive deposits
totalling the Minimum Offering Amount within the Minimum Offering Period or in
the event that the Escrow Agent has received written notice from the Company of
the Company Termination Date prior to the sale of the Minimum Offering and
disbursement of the Minimum Offering Amount, the Escrow Agent shall promptly
notify the State Administrators by telephone, confirmed in writing, of such fact
3
<PAGE> 4
and shall, upon approval by the State Administrators, promptly thereafter refund
to each subscriber the amount received from the subscriber, without deduction,
penalty, or expense to the subscriber, together with a proportionate share of
the interest earned in the Escrow Account allocable to such subscriber, taking
into account the amount received from the subscriber and the length of time
held, and the Escrow Agent shall notify the Company (who shall notify any
Participating Dealers) of its distribution of the funds. The purchase money
returned to each subscriber shall be free and clear of any and all claims of the
Company or any of its creditors.
B. In the event the Escrow Agent receives the Minimum Offering
Amount within the Minimum Offering Period, the Escrow Amount will not be
released to the Company until such amount is received by the Escrow Agent in
collected funds and the release provisions set forth in Section 4.C below are
complied with. For purposes of this Agreement, the term "collected funds" shall
mean all funds received by the Escrow Agent which have cleared normal banking
channels and are in the form of cash. The Minimum Offering Amount may be met by
funds that are deposited from the effective date of the Offering up to and
including the last day of the Minimum Offering Period. The Escrow Amount will
not be released to the Company and the Offering may not proceed to closing until
subscriber checks have been collected through the normal banking channels in an
aggregate amount sufficient to meet the Minimum Offering Amount. Purchases made
after the Minimum Offering Period may not subsequently be counted to meet the
Minimum Offering Amount should checks tendered during the Minimum Offering
Period fail to clear the banking system. In no event may a Participating Dealer
substitute its own good check for the check of a purchaser that has insufficient
funds nor otherwise purchase Units to satisfy the Minimum Offering Amount unless
purchasing for investment during the Minimum Offering Period and the Offering
document discloses the maximum amount of such potential purchase and such
arrangement has been approved by the State Administrators.
C. In no event will funds be released to the Company until the
State Administrators have entered an Order authorizing the release of funds in
the Escrow Account. Such Order will be entered only after receipt by the State
Administrators of an application that includes the following:
(1) A verified statement duly executed by the Escrow Agent
setting forth the total amount in collected funds on deposit with the Escrow
Agent at the date of such filing, including collected funds on deposit in the
Escrow Account at the conclusion of the Minimum Offering Period and the funds
received prior to the conclusion of the Minimum Offering Period and subsequently
collected as provided in Section 4.B, [and separately stating the amount of any
additional subscription funds received following the conclusion of the Minimum
Offering Period.]
(2) A verified statement duly executed by the Company which
states:
(a) That all required proceeds received by it and, to
the best of its knowledge, received by any Participating Dealer from the sale of
the Units have been placed with the Escrow Agent in accordance with the terms
and conditions of this Agreement and that there have
4
<PAGE> 5
been no material omissions or changes in the financial condition of the Company,
or other changes of circumstances, that would render the amount of the proceeds
inadequate to finance the Company's proposed plan of operations, business, or
enterprise;
(b) That the required proceeds are represented by
unconditional subscription agreements which are not loans and are not subject to
rescission or rejection by the subscribers and which have been accepted by
Company and are not subject to further rejection by the Company;
(c) That there have been no material omissions or
changes that would render the representations contained in the Registration
Statement to be fraudulent, false or misleading; and
(d) Such other information as the State
Administrators may require.
D. Following the sale of the Minimum Offering, collected funds
received into the Escrow Account up to the amount of the Maximum Offering shall
be disbursed by the Escrow Agent to the Company from time to time upon receipt
by the Escrow Agent of a statement of the Company to the effect that the
subscriptions of the subscribers who tendered such funds have been accepted and
containing instructions to the Escrow Agent to release such funds.
The Company will cause Units to be issued and delivered to
subscribers promptly following its receipt of the proceeds from the sale of such
Units pursuant to this Agreement. Until the terms of this Agreement with respect
to Units have been met and the funds hereunder received from subscriptions for
Units have been released to the Company, the Company may not issue any
certificates or other evidence of Units.
E. Prior to or concurrently with disbursement of any funds to
the Company hereunder, the proceeds representing the commission of any
Participating Dealer will be disbursed to such Participating Dealer. Escrow
Agent shall not have to calculate the amount of commission to be delivered to a
Participating Dealer hereunder but shall rely on the written instructions of the
Company with respect thereto.
5. COLLECTION PROCEDURE. The Escrow Agent is hereby authorized to
forward each check, draft, and money order or other form of subscription payment
for collection and, upon collection of the proceeds of each such check, draft,
and money order or other form of subscription payment, deposit the collected
proceeds in the Escrow Account.
Any check returned unpaid to the Escrow Agent shall be returned to the
Company or the Participating Dealer that submitted the check. In such cases, the
Escrow Agent will promptly notify the Company of such return and Escrow Agent
will be reimbursed by the Company for any expenses so incurred.
5
<PAGE> 6
The Company shall have the ability to reject the subscription of any
person in whole or in part for any reason. The Company will certify in writing
to the Escrow Agent the fact of any rejection of any subscription, including the
name of the subscriber whose subscription is rejected in whole or in part, the
amount of funds submitted by the subscriber and the portion thereof that has
been rejected. If the Company rejects any subscription or portion thereof for
which the Escrow Agent has already collected funds, the Escrow Agent shall
promptly issue a refund check to the rejected subscriber for the portion of his
subscription so rejected. If the Company rejects any subscription or portion
thereof for which the Escrow Agent has not yet collected funds but has submitted
the subscriber's check for collection, the Escrow Agent shall promptly issue a
check in the amount of the subscriber's check, or portion thereof so rejected,
to the rejected subscriber after the Escrow Agent has cleared such funds. If the
Escrow Agent has not yet submitted a rejected subscriber's check for collection
and the subscription is rejected in whole, the Escrow Agent shall promptly remit
the subscriber's check directly to the subscriber. If the Escrow Agent has not
yet submitted a rejected subscriber's check for collection and the subscription
is rejected in part only, the Escrow Agent will submit the subscriber's check
for collection and will promptly issue a check for the rejected portion of the
subscriber's subscription to the rejected subscriber after the Escrow Agent has
cleared such funds. All funds returned to a rejected subscriber shall include
interest, calculated based on such subscribers' proportionate share of interest
earned in the Escrow Account, taking into account the amount received from the
subscriber and the length of time held.
6. TERMINATION OF THE OFFERING. The Company may terminate the Offering
for any reason and at any time during the Escrow Period. If the Offering is so
terminated, the Company shall so notify Escrow Agent in writing. In the absence
of any such notification, Escrow Agent shall assume the Offering has not been
terminated.
7. INSTRUCTIONS TO THE ESCROW AGENT. Escrow Agent shall not accept
instructions regarding the funds in the Escrow Account or the Offering other
than from an authorized representative of the Company.
______________________________________ is currently the authorized
representative of the Company. The Company may notify Escrow Agent in writing of
the designation of any substitute or additional authorized representative.
Escrow Agent shall be entitled to rely on the written instructions of any
authorized representative or of any substitute.
8. INVESTMENT OF ESCROW AMOUNT. The Escrow Agent may invest the Escrow
Amount only in such accounts or investments as the Company may specify by
written notice. The Company may only specify investment in (1) bank accounts,
(2) bank money-market accounts, (3) short-term certificates of deposit issued by
a bank, or (4) short-term securities issued or guaranteed by the U.S.
Government. Following the termination of the Escrow Period, Escrow Agent shall
deliver to the Company in a single, lump-sum payment all interest earned on
funds in the Escrow Account and not theretofore paid to subscribers in
accordance with the terms of this Agreement. The amount of interest earned shall
be calculated by the Escrow Agent and provided to the Company at the closing of
the Escrow Account.
6
<PAGE> 7
9. COMPLIANCE WITH TAXATION MATTERS. The Company shall provide the
Escrow Agent with a completed Internal Revenue Service ("IRS") Form W-9 upon the
execution of this Agreement. The Escrow Agent may delay accepting escrow funds
until the IRS forms have been provided. The Company shall be responsible for any
requirements for paying taxes or reporting any payments for tax purposes.
10. COMPENSATION OF ESCROW AGENT. The Company shall pay the Escrow
Agent a fee for its escrow services in accordance with the fee schedule attached
hereto as Exhibit B. However, no such fee or any monies whatsoever shall be paid
out of or chargeable to the funds on deposit in the Escrow Account.
11. RESIGNATION OF ESCROW AGENT. Escrow Agent may resign at any time
and be discharged from its duties as escrow agent hereunder by giving all other
parties hereto at least thirty (30) days' notice in accordance with Section
14.A. If a successor escrow agent is not appointed within the 30-day period
following such notice, Escrow Agent may petition any court of competent
jurisdiction to name a successor escrow agent. As soon as practicable after its
resignation, Escrow Agent shall turn over to a successor escrow agent appointed
by the Company and satisfactory to the State Administrators all monies and
property held hereunder (less such amount as Escrow Agent is entitled to retain)
upon presentation to Escrow Agent of the document appointing the new escrow
agent and its acceptance of such appointment and will be released from any
further responsibility or obligation in connection with the Escrow Account on
this Agreement.
12. DUTY AND LIABILITY OF THE ESCROW AGENT; INDEMNIFICATION. The sole
duty of the Escrow Agent, other than as herein specified, shall be to receive
funds hereunder and hold them subject to release, in accordance herewith, and
the Escrow Agent shall be under no duty to determine whether the Company or any
Participating Dealer is complying with the requirements of this Agreement in
tendering to the Escrow Agent subscription funds tendered by subscribers to the
Units. The Escrow Agent may conclusively rely upon and shall be protected in
acting upon any statement, certificate, notice, request, consent, order, or
other document believed by it to be genuine and to have been signed or presented
by the proper party or parties. The Escrow Agent shall have no duty or liability
to verify any such statement, certificate, notice, request, consent, order, or
other document, and its sole responsibility shall be to act only as expressly
set forth in this Agreement. The Escrow Agent shall be under no obligation to
institute or defend any action, suit, or proceeding in connection with this
Agreement unless first indemnified to its satisfaction. The Escrow Agent may
consult with counsel in respect of any question arising under this Agreement and
the Escrow Agent shall not be liable for any action taken or omitted in good
faith upon advice of such counsel.
The Company hereby indemnifies and holds harmless the Escrow
Agent from and against, any and all loss, liability, cost, damage, and expense,
including, without limitation, reasonable counsel fees, which the Escrow Agent
may suffer or incur by reason of any action, claim, or proceeding brought
against the Escrow Agent arising out of or relating in any way to this Agreement
or any transaction to which this Agreement relates unless such action, claim, or
proceeding is the result of the [gross negligence or] willful misconduct of the
Escrow Agent. The
7
<PAGE> 8
Escrow Agent may consult with counsel in respect of any question arising under
this Agreement and the Escrow Agent shall not be liable for any action taken or
omitted in good faith upon advice of such counsel. Within fifteen (15) days
following the receipt by Escrow Agent of notice of any demand or claim or the
commencement of any action, suit, or proceeding relating to this Agreement for
which indemnification will be claimed hereunder, the Escrow Agent shall notify
the Company in writing in accordance with the notification provisions of this
Agreement. The Company may defend Escrow Agent with counsel reasonably
satisfactory to it against any such demand or claim if it so notifies Escrow
Agent within fifteen (15) days following receipt of a notice from Escrow Agent
as described above.
13. MAINTENANCE OF RECORDS. The Escrow Agent shall maintain the Sale
Accounts provided to the Escrow Agent pursuant to Section 2 hereof and a record
of all payments returned and disbursements made from the Escrow Account as
provided in this Agreement. The Escrow Agent shall also provide the Company on
request, and otherwise from time to time in accordance with its normal
procedures, a report stating the balance in the Escrow Account and the interest
earned therein. At the written request of the Company, the Escrow Agent will
provide such information regarding the Escrow Account as may be requested from
time to time by the State Administrators.
14. MISCELLANEOUS.
A. NOTICES. All notices, reports, instructions, requests, and
other communications given under this Agreement ("NOTICES") shall be in writing,
delivered by hand, by facsimile with confirmation of receipt, by receipted
mailed, or by delivery service, and shall be deemed given when received. Notices
shall be addressed to the parties hereto at their addresses or facsimile numbers
listed on the signature pages hereof. A party may change its address or numbers
for Notices by giving notice to all other parties in accordance with this
paragraph.
B. GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with the laws of the State of Arizona
(without taking into consideration its choice of law provisions).
C. ENTIRE AGREEMENT. This Agreement, together with any
exhibits and/or schedules referred to herein, constitutes the entire agreement
among the parties pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements and undertakings of the parties in
connection herewith.
D. ASSIGNMENT. All of the terms, covenants, conditions, and
provisions of this Agreement shall bind and inure to the benefit of the parties
hereto and to their respective representatives, successors, and assigns.
E. AMENDMENTS; WAIVERS. This Agreement may be amended or
modified, and any of the terms, covenants, representations, warranties, or
conditions hereof may be waived, only by a written instrument executed by the
parties hereto, or in the case of a waiver, by the party
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<PAGE> 9
waiving compliance. Any waiver by any party of any condition, or of the breach
of any provision, term, covenant, representation, or warranty contained in this
Agreement, in any one or more instances, shall not be deemed to be nor construed
as a further or continuing waiver of any such condition, or of the breach of any
other provision, term, covenant, representation, or warranty of this Agreement.
F. SEVERABILITY. The invalidity of any provision hereof shall
in no way affect the validity of any other provision hereof. Each of the parties
shall at the request of the other party, deliver to the requesting party all
further documents or other assurances as may reasonably be necessary or
desirable in connection with this Agreement.
G. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original and all of
which together shall be deemed to be one and the same instrument.
IN WITNESS WHEREOF, the Company and the Escrow Agent have
entered into this Agreement on the date first set forth above.
COMPANY
Cragar Industries, Inc.
By:_____________________________________
Michael L. Hartzmark, President
Address for Notices:
4636 North 43rd Avenue
Phoenix, Arizona 85031
Facsimile: (602) 846-0684
ESCROW AGENT
By:_____________________________________
Authorized Officer
Address for Notices:
Facsimile:
9
<PAGE> 1
EXHIBIT 99.2
CRAGAR INDUSTRIES, INC.
4636 N. 43rd Avenue
Phoenix, Arizona 85031
SUBSCRIPTION AGREEMENT AND SIGNATURE PAGE
(All investors must sign this Subscription Agreement)
The undersigned hereby acknowledges receipt of the Prospectus dated ___________,
19____ (the "Prospectus") relating to the offering (the "Offering") by Cragar
Industries, Inc. (the "Company") of up to 1,000,000 units (the "Units") at $6.00
per Unit, each Unit consisting of one (1) share of common stock, $0.01 par value
("Common Stock"), and one (1) warrant to purchase one (1) share of Common Stock
at an exercise price of $7.20 per share. The undersigned hereby subscribes for
the number of Units specified below on the terms and subject to the conditions
described in the Prospectus.
===============================================================================
SUBSCRIBER DATA: (Must be completed in full)
===============================================================================
Full Name of Subscriber: (Do not use initials)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
First Full Name (Do not use initials) Middle Initial Last Name
Residence Address, Including Zip Code (Do not use P.O. box)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Correspondence Address, Including Zip Code:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Residence Telephone Number: Business Telephone Number:
- ---------- ---------- ---------- ----------- ---------- ----------
Social Security: or Tax I.D. Number:
---------- ---------- ---------- ---------- ----------
- -------------------------------------------------------------------------------
SUBSCRIPTION: (Must be completed in full)
- -------------------------------------------------------------------------------
Number of Units Being Purchased:
---------
X $6.00 per Unit- Total Purchase Price for Units: $
---------------------
Amount of Payment Received: $
------------------ ------------------------------
[Initials of recipient]
Date Payment Received:
---------------------------------
- --------------------------------------------------------------------------------
BROKER/DEALER INFORMATION
TO BE COMPLETED BY THE REGISTERED REPRESENTATIVE
Registered Representative Name: No.
------------------------------ -------------
Branch Office Address:
---------------------------------------------------------
City: State: Zip: Phone:
------------------- -------- ---------- --------------
Broker/Dealer NASD Firm Name:
--------------------------------------------------
Home/Main Office Address:
------------------------------------------------------
City: State: Zip: Phone:
------------------- -------- ---------- --------------
SIGNATURE OF REGISTERED REPRESENTATIVE SIGNATURE OF REGISTERED REPRESENTATIVE
(if more than one)
- -------------------------------------------------------------------------------
SIGNIFICANT DISCLOSURE
- -------------------------------------------------------------------------------
THIS SUBSCRIPTION IS MADE PURSUANT TO, AND IS SUBJECT TO, THE TERMS AND
CONDITIONS OF THE QUALIFICATION APPROVED BY THE SECURITIES COMMISSIONS OF THE
STATES IN WHICH THE SHARES ARE BEING OFFERED.
SIGNATURE MUST BE IDENTICAL TO NAME OF REGISTERED OWNER
- -------------------------------------------------
Printed Name of Subscriber
- ------------------------------------------------- -------------------------
Signature of Subscriber Date
- -------------------------------------------------
Printed Name of Subscriber (if more than one)
- ------------------------------------------------- -------------------------
Signature of Subscriber Date
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
In order to facilitate processing of your subscription, please be sure
you have completed each of the following:
- - A check made out to "_______________________________, as Escrow Agent for
Cragar Industries, Inc."
- - Enter number of Units being purchased and total cash contribution on this
Subscription Agreement.
- - Enter the State in which you are a legal resident in the "Residence
Address" column above.
Please mail to Cragar Industries, Inc., 4636 N. 43rd
Avenue, Phoenix, Arizona 85031 or the participating dealer described above.
<PAGE> 2
Exhibit 21
List of Subsidiaries of the Registrant
1. CRAGAR Mexicana S.A. DE C.V. - Incorporated pursuant to the laws
of the United States of Mexico.
