<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO
CURRENT REPORT
----------------------------
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) January 15, 1998
CRAGAR INDUSTRIES, INC.
(Exact Name of registrant as specified in its charter)
DELAWARE 1-12559 86-0721001
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
4636 NORTH 43RD AVENUE
PHOENIX, ARIZONA 85031
(602) 247-1300
(Address, including zip code, and telephone number,
including area code of principal executive
offices)
-----------------------------
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ITEM 5. OTHER EVENTS.
On January 23, 1998, the Company raised $2.0 million from a private
placement of 20,000 shares of Series A Convertible Preferred Stock ("Series A
Preferred Stock") and related Warrants. The private placement was made to a
group of accredited investors in reliance on the exemptions from registration
provided by Sections 4(2) and 4(6) under the Securities Act of 1933, and
included the conversion of $900,000 of existing debt into equity. The Company
estimates the net proceeds of the offering, after expenses, to be approximately
$1,970,000. The purpose of the private placement was to raise additional capital
in order to meet the minimum maintenance requirements for continued listing on
Nasdaq and the Boston Stock Exchange. The Company's capital and surplus and
shareholders' equity had fallen below the minimums required by Nasdaq and the
Boston Stock Exchange primarily as a result of the establishment of an allowance
for bad debt arising from the bankruptcy of the Company's primary customer. With
the proceeds from the private placement, the Company exceeds the minimum
requirements for continued listing on Nasdaq and the Boston Stock Exchange.
There can be no assurance, however, that the Company will continue to meet these
minimum requirements. If the Company fails to meet such requirements in the
future, the Company's securities could be delisted from Nasdaq and the Boston
Stock Exchange, which likely would have a material adverse effect on the market
value of the Company's securities.
The Series A Convertible Preferred Stock is subject to the terms and
conditions of the Certificate of Designation and the Series A Convertible
Preferred Stock Purchase Agreement (the "Stock Purchase Agreement"), forms of
which are attached hereto as Exhibits 3.1 and 4.1, respectively. The Warrants
are subject to the terms and conditions of the form of Warrant attached hereto
as Exhibit 4.2. Pursuant to Section 5.11 of the Stock Purchase Agreement, the
Company has agreed to prepare and file with the Securities and Exchange
Commission within 120 days of the closing date a registration statement covering
the resale of the shares of Common Stock issuable pursuant to the terms of the
Series A Preferred Stock.
Holders of Series A Preferred Stock are entitled to receive cumulative
dividends equal to 7% per annum on the Stated Value of the Series A Preferred
Stock ($100 per share). Dividends are payable in arrears at the Company's option
in either (i) cash or (ii) additional shares of Series A Preferred Stock, the
number of which will be determined by dividing the aggregate cash value of such
dividends payable by the Stated Value on the day immediately prior to the date
the holder of any shares of Series A Preferred Stock converts those shares to
shares of Common Stock. Dividends on the Series A Preferred Stock will accrue
monthly commencing on the issuance date of such shares. Dividends on the Series
A Preferred Stock payable in cash will be paid semi-annually on the 16th day of
each July and January following the issuance of the Series A Preferred Stock.
Dividends on the Series A Preferred Stock payable in additional shares of Series
A Preferred Stock will be issued in the form of Common Stock upon conversion of
the Series A Preferred Stock by the holder thereof.
Holders of the Series A Preferred Stock will have no voting rights
prior to conversion, except that, so long as any shares of Series A Preferred
Stock remaining outstanding, the Company may not, without the affirmative vote
of the holders of a majority of the Series A Preferred Stock then outstanding,
(i) alter or change adversely the powers, preferences or rights given to the
Series A Preferred Stock or (ii) authorize, create, issue or increase any class
of stock ranking as to dividends or distribution of assets upon liquidation
senior to or pari passu with the Series A Preferred Stock.
Upon any liquidation, dissolution, or winding-up of the Company, the
holders of the Series A Preferred Stock will be entitled to receive out of the
assets of the Company, for each share of Series A Preferred Stock outstanding,
an amount equal to the Stated Value per share, plus an amount equal to accrued
but unpaid dividends per share, before any distribution or payment is made to
the holders of any securities junior to the Series A Preferred Stock. If the
assets of the Company are insufficient to pay such amounts in full, then any
assets remaining to be distributed after payment of any indebtedness and
distribution to holders of securities with rights senior to those of the Series
A Preferred Stock will be distributed among the holders of the Series A
Preferred Stock and the holders of any class of the Company's equity securities
ranking on a parity with the Series A Preferred Stock as to liquidation,
dissolution and winding-up, ratably
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in accordance with the respective amounts that would be payable on such shares
if all amounts payable thereon were paid in full.
Each share of Series A Preferred Stock shall be convertible into shares
of the Company's Common Stock at the Series A Conversion Ratio (as defined
below) at the option of the holder of the Series A Preferred Stock, in whole or
in part, at anytime following the 120-day period after the issuance of the
Series A Preferred Stock. On the third anniversary of the issuance of the Series
A Preferred Stock, each share of Series A Preferred Stock remaining outstanding
will be mandatorily converted into shares of Common Stock at the Series A
Conversion Ratio. The Series A Conversion Ratio equals a fraction, the numerator
of which is the Series A Stated Value plus accrued but unpaid dividends, and the
denominator of which is the Series A Conversion Price (as defined below) at such
time.
The Series A Conversion Price for each share of Series A Preferred
Stock in effect on any conversion date during the 60-day period following the
120-day period after the issuance of the Series A Preferred Stock will equal the
Series A Fixed Price (as defined below). Thereafter, the Series A Conversion
Price for each share of Series A Preferred Stock in effect on any conversion
date will equal the lesser of the Series A Fixed Price or the Series A Floating
Price (as defined below). The "Series A Fixed Price" will be equal to the
greater of 115% of the closing bid price per share of the Common Stock on the
date of issuance of the Series A Preferred Stock or $6.75, and the Series A
Floating Price will be equal to 97% of the average closing bid price per share
of the Company's Common Stock during the 10 trading days immediately preceding
the date of conversion; provided, however, that (i) for each 30-day period
following the date of issuance of the Series A Preferred Stock, the Series A
Floating Price will be reduced by an additional 1 1/2% of the closing bid price
per share of the Company's Common Stock during the 10 trading days prior to the
date of conversion, (ii) in no event will the Series A Floating Price be reduced
below 80% of the closing bid price per share of the Company's Common Stock, and
(iii) in the event any holder of Series A Preferred Stock has directly or
indirectly taken a "short position" or engaged in any substantially similar
transaction with respect to the Common Stock at anytime during the period
commencing on the date of issuance of the Series A Preferred Stock through the
date of conversion of such stock, the Series A Conversion Price for the Series A
Preferred Stock held by such holder will be the greater of the Series A Fixed
Price and the Series A Floating Price.
If the registration statement to be filed by Company is not declared
effective by the Securities and Exchange Commission for any reason within 120
days after the date of issuance of the Series A Preferred Stock, then for each
month after the expiration of such 120-day period that such registration
statement has not been declared effective, the Series A Floating Price, as
computed above, will be decreased by an additional 1%, provided, however, that
in no event will the aggregate discount to the Series A Floating Price under (i)
of the prior sentence and this sentence exceed 20%.
The Series A Preferred Stock will be redeemable, in whole or in part,
at anytime upon the payment to the holders of the Series A Preferred Stock of
(i) a cash payment equal to the closing bid price per share of the Company's
Common Stock on the date of redemption, multiplied by the number of shares of
Common Stock that would be issued if the Series A Preferred Stock was converted
on such date at the Series A Conversion Price, (ii) a cash payment equal to all
accrued dividends payable with respect to such Series A Preferred Stock, and
(iii) a number of warrants to purchase Common Stock with an exercise price equal
to the Series A Fixed Price determined by dividing the aggregate Stated Value of
the Series A Preferred Stock being redeemed by the Series A Fixed Price, with a
term expiring three years from the date of redemption.
In case of any reclassification of the Company's Common Stock, any
consolidation or merger of the Company with or into another entity, the sale or
transfer of all or substantially all of the assets of the Company and certain
other events, the holders of the Series A Preferred Stock then outstanding will
have the right thereafter to convert such shares only into the shares of stock
and other securities and property receivable upon or deemed to be held by the
holders of the Company's Common Stock following such reclassification,
consolidation, merger, sale, or transfer, and the holders of the Series A
Preferred Stock will be entitled upon such event to receive such amount of
securities and property as the holders of the Common Stock of the Company into
which such shares of Series A Preferred Stock could have been converted
immediately prior to such reclassification, consolidation, merger, sale or
transfer would have been entitled.
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In connection with the issuance of the Series A Preferred Stock, the
Company also granted Warrants to the holders of the Series A Preferred Stock to
acquire up to 296,296 shares of the Company's Common Stock at an exercise price
of $8.10 per share. The Warrants may be exercised at any time on or before
January 23, 2001, three years after the date of issuance of the Series A
Preferred Stock. The terms of the Warrants also provide for the registration of
the shares of Common Stock underlying the Warrants on substantially the same
terms and conditions as provided in Section 5.11 of the Stock Purchase
Agreement.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION
Included with this report are the following unaudited historical and
pro forma financial statements.
a. Balance sheet as of December 1, 1997.
b. Statement of Operations for the two months ended
December 31, 1997.
EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
3.1 Form of Certificate of Designation
4.1 Form of Series A Convertible Preferred Stock Purchase Agreement
4.2 Form of Warrant
99 Press Release
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Amendment No. 1 to Form 8-K to be signed on
its behalf by the undersigned hereunto duly authorized.
CRAGAR INDUSTRIES, INC.
Date: January 23, 1998 /s/ Michael L. Hartzmark
------------------------
Michael L. Hartzmark
President, Treasurer & CEO
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The following unaudited financial information includes unaudited
historical and pro forma balance sheet data for the Company as of December 1,
1997 and unaudited historical statement of operations data for the two months
ended December 1, 1997. The unaudited pro forma balance sheet data gives effect
to the sale by the Company of $2.0 million of its Series A Preferred Stock as if
such sale had been completed on December 1, 1997.
The financial statements included in this report are unaudited and
therefore are subject to adjustments upon audit, which adjustments could be
materially adverse to the Company.
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CRAGAR INDUSTRIES, INC.
BALANCE SHEET
DECEMBER 1, 1997
<TABLE>
<CAPTION>
ASSETS
PROFORMA
DECEMBER 1 DECEMBER 1
1997 1997
---------------- -----------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 30,199 2,030,199
Accounts receivable, less allowance for doubtful accounts of 3,228,742 3,228,742
$3,613,390 as of 12/1/97
Inventories, net 5,245,403 5,245,403
Prepaid expenses 245,196 245,196
---------------- -----------------
Total current assets 8,749,540 10,549,540
---------------- -----------------
Property and equipment, net 1,257,683 1,257,683
Other assets, net 46,374 46,374
---------------- -----------------
$10,053,596 12,053,596
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,357,843 2,357,843
Accrued expenses 1,384,269 1,384,269
Accrued interest 78,542 78,542
Current installments of capital lease obligations 114,357 114,357
Current installments of long-term debt 4,453 4,453
---------------- -----------------
Total current liabilities 3,939,464 3,939,464
Notes payable 5,722,313 5,722,313
Capital lease obligations, less current installments 0 0
Long-term debt, less current installments 0 0
Subordinated investor debt, less current portion 0 0
Excess of fair value of assets acquired over cost 61,456 61,456
---------------- -----------------
Total liabilities 9,723,233 9,723,233
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Stockholders' equity:
Preferred stock, par value $.01; authorized 200,000 shares, 20,000 0 2,000
shares issued and outstanding pro forma
Common stock, par value $.01; authorized 5,000,000 shares, 24,855 24,855
2,485,490 shares issued and outstanding at 12/1/97
Additional paid-in capital 11,845,565 13,841,765
Accumulated deficit (11,540,056) (11,540,055)
---------------- -----------------
Total stockholders' equity 330,364 2,330,364
Commitments, contingencies and subsequent events
---------------- -----------------
$10,053,596 12,053,596
================ =================
</TABLE>
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CRAGAR INDUSTRIES, INC.
STATEMENTS OF OPERATIONS FOR THE
TWO MONTHS ENDED DECEMBER 1, 1997
<TABLE>
<CAPTION>
TWO MONTHS
ENDED
DECEMBER 1
1997
---------------------
<S> <C>
Net sales $ 2,229,952
Cost of goods sold 1,682,770
---------------------
Gross profit 547,182
---------------------
Selling, general and administrative expenses 535,431
Amortization of excess of fair value of assets acquired over cost (122,912)
---------------------
Income from operations 134,663
---------------------
Non-operating expenses, net 110,512
Interest expense, net
Other, net 43,773
Total non-operating expenses 154,285
---------------------
Loss before income taxes (19,622)
Income taxes (benefit) (300)
---------------------
Income (loss) before extraordinary item (19,322)
Net loss $ (19,322)
---------------------
</TABLE>
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Exhibit 3.1
CERTIFICATE OF DESIGNATION
The undersigned, being the President and Chief Executive Officer of Cragar
Industries, Inc., a Delaware corporation (the "Company"), does hereby file this
Certificate of Designation pursuant to Section 151(g) of the Delaware General
Corporation Law.
SERIES A CONVERTIBLE PREFERRED STOCK
Section 1. Designation, Amount, Par Value and Rank. A series
of preferred stock shall be designated as Series A Convertible
Preferred Stock (the "Series A Preferred Stock"), and the number of
shares so designated shall be 30,000. Each share of Series A
Preferred Stock shall have a par value of $.01. Each share of Series
A Preferred Stock shall have a stated value of $100 per share (the
"Series A Stated Value"). The Series A Preferred Stock shall rank
prior to all classes or series of equity securities (including the
Common Stock). The Series A Preferred Stock is subject to and
limited by the Purchase Agreement (as defined in Section 6 below)
and the terms contained herein.
Section 2. Dividends. The holders of shares of Series A
Preferred Stock (the "Series A Holders") shall be entitled to
receive, and the Company shall pay, cumulative dividends at a rate
per share (as a percentage of the Series A Stated Value per share)
equal to 7.0% per annum payable (in arrears) at the Company's option
in either (i) cash or (ii) shares of Series A Preferred Stock, the
number of which shall be determined by dividing the aggregate cash
value of such dividends payable (other than such dividends
previously paid) by the Series A Stated Value on the day immediately
prior to the Series A Holder Conversion Date (as defined in Section
5(a) hereunder). Dividends on the Series A Preferred Stock shall
accrue monthly commencing on the Series A Original Issue Date (as
defined in Section 6 below) and shall be deemed to accrue whether or
not earned or declared and whether or not there are profits, surplus
or other funds of the Company legally available for the payment of
dividends. The party that holds the Series A Preferred Stock on an
applicable record date for any dividend payment will be entitled to
receive such dividend payment and any other accrued and unpaid
dividends which accrued prior to such dividend payment date, without
regard to any sale or disposition of such Series A Preferred Stock
subsequent to the applicable record date but prior to the applicable
dividend payment date. Dividends on the Series A Preferred Stock
payable in cash shall be paid on the 16th day of the sixth month
anniversary and twelfth month anniversary of the Series A Original
Issue Date. Dividends on the Series A Preferred Stock payable in
additional shares of Series A Preferred Stock shall be issued in the
form of Common Stock upon conversion of the Series A Preferred Stock
pursuant to Section 5. Series A Preferred Stock which is accrued as
a dividend but is unissued shall accrue dividends under this
Section.
Section 3. Voting Rights. Except as otherwise provided herein
and as otherwise provided by law, the Series A Preferred Stock shall
have no voting rights. However, so long as any shares of Series A
Preferred Stock are outstanding, the Company shall not, without the
affirmative vote of the holders of a majority of the
<PAGE> 2
shares of the Series A Preferred Stock then outstanding, (i) alter
or change adversely the powers, preferences or rights given to the
Series A Preferred Stock or (ii) authorize, create, issue or
increase any class of stock ranking as to dividends or distribution
of assets upon a Series A Liquidation (as defined in Section 4
below) senior to or pari passu with the Series A Preferred Stock.
Section 4. Liquidation. Upon any liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary (a
"Series A Liquidation"), the Series A Holders shall be entitled to
receive out of the assets of the Company, whether such assets are
capital or surplus, for each share of Series A Preferred Stock, an
amount equal to the Series A Stated Value, plus an amount equal to
accrued but unpaid dividends per share, whether declared or not, but
without interest, before any distribution or payment shall be made
to the holders of any Series A Junior Securities (as defined in
Section 6 below), and if the assets of the Company shall be
insufficient to pay in full such amounts, then the entire remaining
assets to be distributed after distribution of payment to senior
securities shall be distributed among the Series A Holders and the
holders of any class of the Company's equity securities ranking on a
parity with the Series A Preferred Stock as to liquidation,
dissolution and winding-up ratably in accordance with the respective
amounts that would be payable on such shares if all amounts payable
thereon were paid in full. A sale, conveyance or disposition of all
or substantially all of the assets of the Company shall be deemed a
Series A Liquidation; provided that a consolidation or merger of the
Company with or into any other company or companies shall not be
treated as a Series A Liquidation, but instead shall be subject to
the provisions of Section 5 below. The Company shall mail written
notice of any such liquidation, not less than 60 days prior to the
payment date stated therein, to each record Series A Holder as shown
on the record books of the Company.
Section 5. Conversion.
(a) Subject to the provisions of Section 5(c)(ii) and
5(c)(iii) and the last paragraph of this Section 5(a), each share of
Series A Preferred Stock shall be convertible into validly issued,
fully paid and nonassessable shares of Common Stock free and clear
of all liens and charges and not subject to any preemptive rights at
the Series A Conversion Ratio (as defined in Section 6 below) at the
option of the Series A Holder in whole or in part at any time after
the Series A Original Issue Date (the "Series A Conversion Date").
Any conversion herewith shall be of a minimum number of at least
1,000 shares of Series A Preferred Stock, except in the event there
are less than 1,000 shares of Series A Preferred Stock remaining,
then, in that case, all such remaining shares may be converted. The
Series A Holder shall effect conversions by surrendering to the
Company the form of conversion notice attached as Exhibit C to the
Purchase Agreement (the "Series A Holder Conversion Notice") in the
manner set forth in Section 5(i) below and simultaneously therewith
or as soon as practicable thereafter the certificate or certificates
representing the shares of Series A Preferred Stock to be converted.
Each Series A Holder Conversion Notice shall specify the number of
shares of Series A Preferred Stock to be converted and the date on
which such conversion is to be effected, which date may not be prior
to the date the Series A Holder delivers such notice by facsimile
(the "Series A Holder Conversion Date"). Each Series A Holder
Conversion Notice, once given, shall be irrevocable except as
provided in Section 5(b) below. If the Series A Holder is converting
less than all shares of Series A Preferred Stock represented by the
certificate or certificates tendered by the Series A Holder with the
Series A Holder
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Conversion Notice, the Company shall promptly deliver to such Holder
a certificate for such number of shares as have not been converted.
Notwithstanding anything to the contrary contained herein, no
shares of Series A Preferred Stock may be converted prior to the
date which is 120 days following the Series A Original Issue Date.
On the expiration of three years after the Series A Original Issue
Date, each share of Series A Preferred Stock shall be mandatorily
converted into shares of Common Stock at the Series A Conversion
Ratio.
(b) Not later than three Trading Days (as defined in Section 6
below) after the Series A Holder Conversion Date (the third day of
which shall hereinafter be referred to as the "Last Series A
Conversion Trading Day"), the Company will deliver to the Series A
Holder (i) a certificate or certificates which shall be free of
restrictive legends and trading restrictions, representing the
number of shares of Common Stock being acquired upon the conversion
of shares of Series A Preferred Stock and (ii) one or more
certificates representing the number of shares of Series A Preferred
Stock not converted; provided, however, that the Company shall not
be obligated to issue certificates evidencing the shares of Common
Stock issuable upon conversion of any shares of Series A Preferred
Stock until certificates evidencing such shares of Series A
Preferred Stock are either delivered for conversion to the Company
or any transfer agent for the Series A Preferred Stock or Common
Stock (the "Transfer Agent"), or the Series A Holder notifies the
Company that such certificates have been lost, stolen or destroyed
and provides a bond (or other adequate security reasonably
acceptable to the Company) satisfactory to the Company to indemnify
the Company from any loss incurred by it in connection therewith
(collectively, the "Lost Certificate Notification and Bond"). The
Company shall, upon request of the Series A Holder, use its best
efforts to deliver any certificate or certificates required to be
delivered by the Company under this Section 5(b) electronically
through the Depository Trust Corporation or another established
clearing corporation performing similar functions. In the event that
the certificate(s) representing the number of shares of Common Stock
issuable upon conversion of any shares of Series A Preferred Stock
is not delivered to the Series A Holder on the later to occur of the
Last Series A Conversion Trading Day, or the day on which the
Company or any Transfer Agent receives the certificates evidencing
the shares of Series A Preferred Stock to be converted or the Series
A Holder provides the Company with the Lost Certificate Notification
and Bond, then the Series A Holder shall be entitled by written
notice to the Company at any time on or before such Holder's receipt
of such certificate or certificates thereafter, to rescind such
conversion, in which event the Company shall immediately return the
certificates representing the shares of Series A Preferred Stock
tendered for conversion. The Series A Holders shall not trade any
Common Stock evidenced by any certificate to be received upon a
conversion until receipt of such certificate.
(c) (i) The conversion price ("Series A Conversion Price") for
each share of Series A Preferred Stock in effect on any Series A
Holder Conversion Date shall be the lesser of X (the "Series A Fixed
Price") or (subject to the last sentence of this Section 5 (c)(i)) Y
(the "Series A Floating Price"): where X is equal to the greater of
115% of the Per Share Market Value (as defined in Section 6 below)
on the Series A Original Issue Date or $6.75 and Y is equal to 97%
of the average Per Share Market Value during the ten (10) Trading
Days immediately preceding the Series A Holder Conversion Date (the
"Series A Valuation Period"); provided, however, that (i) for each
30 day period subsequent to the Series A Original Issue
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<PAGE> 4
Date, Y shall be reduced by an additional 1.5% of the Per Share
Market Value during the Series A Valuation Period, (ii) in no event
shall Y be reduced below 80% of the average Per Share Market Value
and (iii) in the event any Series A Holder or any Affiliate (as
defined in Section 6 below) of such Series A Holder has directly or
indirectly taken a "short position" or engaged in any substantially
similar transaction with respect to the Common Stock at any time
during the period commencing on the Series A Original Issue Date
through the Series A Holder Conversion Date, the Series A Conversion
Price for the Series A Preferred Stock held by such Series A Holder
shall be the greater of Series A Fixed Price and the Series A
Floating Price. If the registration statement to be filed by the
Company is not declared effective by the Commission for any reason
within 120 days after the Series A Original Issue Date (the date on
which the 120-day period expires being hereinafter referred to as
the "Series A Filing Date"), then for each month after such Series A
Filing Date that such registration statement shall not have been so
declared effective, the Series A Floating Price, as computed above,
shall be decreased by an additional 1%, provided, however in no
event shall the aggregate discount to the Series A Floating Price
under (i) of the prior sentence and this sentence exceed 20%. Any
decrease in Series A Floating Price shall not be subject to
elimination or alteration by any subsequent delay in the declaration
of effectiveness of a registration statement. Notwithstanding
anything contained herein to the contrary, the Series A Preferred
Stock may only be converted under this Section 5(c)(i) at the Series
A Fixed Price during the period of time beginning on the date 120
days following the Series A Original Issue Date and ending on the
date 180 days following the Series A Original Issue Date.
(ii) The Series A Preferred Stock shall be redeemable,
in whole or in part, and superseding any prior Series A Holder
Conversion Notice ("Series A Company Redemption") at any time upon
the payment to the Series A Holder of all of A) a cash payment equal
to the Per Share Market Value on the date of the Series A Company
Redemption (the "Series A Company Redemption Date"), multiplied by
the number of shares of Common Stock that would be provided if such
date were a Series A Holder Conversion Date at the Series A
Conversion Price, B) a cash payment equal to all accrued dividends
payable with respect to such Series A Preferred Stock and C) a
number of warrants to purchase Common Stock with an exercise price
equal to the Series A Fixed Price determined by dividing the
aggregate Series A Stated Value of the Preferred Stock redeemed by
the Series A Fixed Price, with a term expiring three (3) years from
the Series A Company Redemption Date, in the form of warrant
attached as Exhibit D to the Purchase Agreement. The Company shall
effect such redemption by delivering to the Series A Holders of such
shares of Series A Preferred Stock to be redeemed a written notice
in the form attached as Exhibit E to the Purchase Agreement (the
"Series A Company Redemption Notice"). In the event that the Company
receives a Series A Holder Conversion Notice, then it may effect a
Series A Company Redemption thereafter only if it provides a Series
A Company Redemption Notice no later than two (2) Trading Days after
the Company has actually received such Series A Holder Conversion
Notice. Each Series A Company Redemption Notice shall specify the
number of shares of Series A Preferred Stock to be redeemed and the
date on which redemption is to be effected. Upon the receipt of the
Series A Company Redemption Notice, the Series A Holders shall, as
promptly as practicable, surrender the
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<PAGE> 5
certificates representing the shares of Series A Preferred Stock
which have been redeemed at the office of the Company or of any
Transfer Agent. The failure of a Series A Holder to deliver such
certificates shall have no impact on the effectiveness of the
redemption. The Company shall make payment to any Series A Holder
for all of its shares of Series A Preferred Stock redeemed by the
Company hereby within thirty (30) days from delivery of the Series A
Company Redemption Notice. If the Company is redeeming less than all
shares of the Series A Preferred Stock, the Company shall, upon
redemption of such shares subject to such Series A Company
Redemption and receipt of the certificate or certificates
representing such shares of Series A Preferred Stock, deliver to the
Series A Holders a certificate for such number of shares of Series A
Preferred Stock as have not been redeemed.
(iii) In case of any reclassification of the Common
Stock, any consolidation or merger of the Company with or into
another Person, the sale or transfer of all or substantially all of
the assets of the Company or any compulsory share exchange pursuant
to which the Common Stock is converted into other securities, cash
or property, the holders of the Series A Preferred Stock then
outstanding shall have the right thereafter to convert such shares
only into the shares of stock and other securities and property
receivable upon or deemed to be held by the holders of Common Stock
following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the Series A Holders shall be
entitled upon such event to receive such amount of securities or
property as the holders of the Common Stock of the Company into
which such shares of Series A Preferred Stock could have been
converted immediately prior to such reclassification, consolidation,
merger, sale, transfer or share exchange would have been entitled.
The terms of any such consolidation, merger, sale, transfer or share
exchange shall include such terms so as to continue to give to the
Series A Holder the right to receive the securities or property set
forth in this Section 5(c)(iv) upon any conversion following such
consolidation, merger, sale, transfer or share exchange. This
provision shall similarly apply to successive reclassifications,
consolidations, mergers, sales, transfers or share exchanges.
(iv) If:
a. the Company shall declare a dividend (or any
other distribution) on its Common Stock; or
b. the Company shall declare a special
nonrecurring cash dividend on or a redemption of its
Common Stock; or
c. the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital stock of
any class or of any rights; or
d. the approval of any stockholders of the Company
shall be required in connection with any
reclassification of the Common Stock of the Company
(other than a subdivision or combination of the
outstanding shares of Common Stock), any consolidation
or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of
the Company, or any compulsory share exchange whereby
the Common Stock is converted into other securities,
cash or property; or
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e. the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding-up of
the affairs of the Company;
then the Company shall cause to be filed at each office or agency
maintained for the purpose of converting the Series A Preferred
Stock, and shall cause to be mailed to the Series A Holders at their
last addresses as shall appear upon the stock books of the Company,
at least 10 calendar days prior to the applicable record or
effective date hereinafter specified, a notice stating (x) the date
on which a record is to be taken for the purposes of declaring such
dividend, distribution, redemption, rights or warrants, or if a
record is not to be taken, the date as of which the holders of
Common Stock of record to be entitled to such dividend,
distribution, redemption, rights or warrants are to be determined,
or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation or
winding-up is expected to become effective, and the date as of which
it is expected that the holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution,
liquidation or winding-up; provided, however, that the failure to
mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be
specified in such notice.
(v) All calculations under this Section 5 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case
may be.
(vi) In no event shall the holders of the Preferred
Stock be permitted to convert any of the shares of Series A
Preferred Stock held by them (other than as a result of a mandatory
conversion thereof) if, as a result of such conversion, the holders
of the Series A Preferred Stock would hold, in the aggregate greater
than 20% of the Company's issued and outstanding Common Stock.
(d) If at any time conditions shall arise by reason of action
taken by the Company which in the opinion of the Board of Directors
are not adequately covered by the other provisions hereof and which
might materially and adversely affect the rights of the Series A
Holders (different than or distinguished from the effect generally
on rights of holders of any class of the Company's capital stock) or
if at any time any such conditions are expected to arise by reason
of any action contemplated by the Company, the Company shall mail a
written notice briefly describing the action contemplated and the
material adverse effects of such action on the rights of the Series
A Holders at least 10 calendar days prior to the effective date of
such action, and an appraiser (the "Appraiser") selected by the
holders of majority in interest of the Series A Preferred Stock
shall give its opinion as to the adjustment, if any (not
inconsistent with the standards established in this Section 5), of
the Series A Conversion Price (including, if necessary, any
adjustment as to the securities into which shares of Series A
Preferred Stock may thereafter be convertible) and any distribution
which is or would be required to be made without diluting the rights
of the Series A Holders; provided, however, that the Company after
receipt of the determination by such Appraiser, shall have the right
to select an additional Appraiser, in which case the adjustment
shall be equal to the average of the adjustments recommended by each
such Appraiser. The Board of Directors shall make the adjustment
recommended forthwith upon the receipt of such opinion or
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opinions or taking of any such action contemplated, as the case may
be; provided, however, that no such adjustment of the Series A
Conversion Price shall be made which in the opinion of the
Appraiser(s) giving the aforesaid opinion or opinions would result
in an increase of the Series A Conversion Price to more than the
Series A Conversion Price then in effect. The Board of Directors
shall act in a reasonable manner and make any reasonable adjustment
recommended forthwith.
(e) The Company will at all times reserve and keep available
out of its authorized and unissued Common Stock and Series A
Preferred Stock solely for the purpose of issuance upon conversion
of Series A Preferred Stock and for issuance of dividends on the
Series A Preferred Stock as herein provided, free from preemptive
rights or any other actual contingent purchase rights of Persons
other than the Series A Holders, such number of shares of Common
Stock as shall be issuable (taking into account the adjustments and
restrictions of Section 5(c) hereof) upon the conversion of all
outstanding shares of Series A Preferred Stock and such number of
shares of Series A Preferred Stock as shall be accrued (taking into
account the adjustments and restrictions of Section 5(c) hereof) as
dividends on the Series A Preferred Stock. The Company covenants
that all shares of Common Stock and Series A Preferred Stock that
shall be so issuable shall, upon issue, be duly and validly
authorized, issued and fully paid and nonassessable.
(f) Upon a conversion or redemption of any shares of Series A
Preferred Stock hereunder the Company shall not be required to issue
stock certificates representing fractions of shares of Common Stock,
but may if otherwise permitted, make a cash payment in respect of
any final fraction of a share based on the Per Share Market Value at
such time. If the Company elects not, or is unable, to make such a
cash payment, the holder of a share of Series A Preferred Stock
shall be entitled to receive, in lieu of the final fraction of a
share, one whole share of Common Stock.
(g) The issuance of certificates for shares of Common Stock on
conversion of Series A Preferred Stock shall be made without charge
to the holders thereof for any documentary stamp or similar taxes
that may be payable in respect of the issue or delivery of such
certificate, provided that the Company shall not be required to pay
any tax that may be payable in respect of any transfer involved in
the issuance and delivery of any such certificate upon conversion in
a name other than that of the holder of such shares of Series A
Preferred Stock so converted and the Company shall not be required
to issue or deliver such certificates unless or until the Person(s)
requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of
the Company that such tax has been paid.
(h) Shares of Series A Preferred Stock converted into Common
Stock shall thereafter be canceled and shall have the status of
authorized but unissued shares of Series A Preferred Stock.
(i) Each Series A Holder Conversion Notice shall be given by
facsimile and by mail, postage prepaid, addressed to the attention
of the Chief Financial Officer of the Company at the facsimile
telephone number and address of the principal place of business of
the Company. Each Series A Company Conversion Notice and Series A
Company Redemption Notice shall be given by facsimile and mail,
postage prepaid, addressed, to the attention of the Series A Holder
at such shareholder's facsimile telephone number and place of
business. Any such notice shall be deemed
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<PAGE> 8
given and effective and the Person in whose name the certificates
for shares of Common Stock shall be issued upon conversion shall be
deemed to have become the holder of record of such shares of Common
Stock upon the earliest to occur of (i) (a) if such notice is
delivered via facsimile at the facsimile telephone number specified
in this Section 5(i) prior to 5:30 p.m. (Eastern Standard Time) on
any date, such date (or, in the case of a Series A Company
Conversion Notice, the next Trading Day) or such later date as is
specified in the notice, and (b) if such notice is delivered via
facsimile at the facsimile telephone number specified in this
Section 5(i) after 5:30 p.m. (Eastern Standard Time) on any date,
the next date (or, in the case of a Series A Company Conversion
Notice, the next Trading Day after such next day) or such later date
as is specified in the notice, (ii) five days after deposit in the
United States mails or (iii) upon actual receipt by the party to
whom such notice is required to be given.
Section 6. Definitions. For the purposes hereof, the following
terms shall have the following meanings:
"Affiliate" shall have the mean ascribed to such term under
Rule 144 as promulgated by the Commission under the Securities Act.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means shares now or hereafter authorized of the
class of Common Stock, par value $.01 per share, of the Company and
stock of any other class into which such shares may hereafter have
been reclassified or changed.
"NASD" shall mean the National Association of Securities
Dealers.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the
Nasdaq Smallcap Market or other stock exchange in which the Common
Stock has been listed or if there is no such price exchange on such
date, then the closing bid price on such exchange on the date
nearest preceding such date, or (b) if the Common Stock is not
listed on the Nasdaq Smallcap Market or any stock exchange, the
closing bid for a share of Common Stock in the over-the-counter
market as reported by NASD at the close of business on such date, or
(c) if the Common Stock is not quoted on the NASD, the closing bid
price for a share of Common Stock in the over-the-counter market as
reported by the National Quotation Bureau Incorporated (or similar
organization or agency succeeding to its functions or reporting
prices), or (d) if the Common Stock is no longer publicly traded,
the fair market value of a share of Common Stock as determined by an
Appraiser (as defined in Section 5(d) above) selected in good faith
by the holders of a majority in interest of the shares of the Series
A Preferred Stock; provided, however, that the Company, after
receipt of the determination by such Appraiser, shall have the right
to select an additional Appraiser, in which case, the fair market
value shall be equal to the average of the determination by each
such Appraiser.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a government agency.
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"Purchase Agreement" means the Series A Convertible Preferred
Stock Purchase Agreement, dated as of January 16, 1998, between the
Company and certain purchasers of the Series A Preferred Stock.
"Securities Act" means the Securities Act of 1933, as amended.
"Series A Conversion Ratio" means, at any time, a fraction, of
which the numerator is the Series A Stated Value plus accrued but
unpaid dividends, and of which the denominator is the Series A
Conversion Price at such time.
"Series A Junior Securities" means the Common Stock and any
other equity securities of the Company ranking junior to the
Company's Series A Preferred Stock either as to dividends or upon
liquidation, dissolution or winding up.
"Series A Original Issue Date" shall mean the date of the
first issuance of any shares of the Series A Preferred Stock
regardless of the number of transfers of any particular shares of
Series A Preferred Stock and regardless of the number of
certificates which may be issued to evidence such Series A Preferred
Stock.
"Trading Day" means (a) a day on which the Common Stock is
traded on the Nasdaq Smallcap Market or principal stock exchange on
which the Common Stock has been listed, or (b) if the Common Stock
is not listed on the Nasdaq Smallcap Market or any stock exchange, a
day on which the Common Stock is traded in the over-the-counter
market, as reported by the NASD, or (c) if the Common Stock is not
quoted by the NASD, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its
functions of reporting prices).
The foregoing Certificate of Designation was adopted by the Board of
Directors on December 1, 1997. A vote of shareholders was not needed
for the adoption of the Certificate of Designation.
IN WITNESS WHEREOF, the undersigned President and Chief Executive Officer
of the Company has executed this Certificate of Designation on January 16, 1998.
CRAGAR INDUSTRIES, INC.
By:______________________________________
Michael L. Hartzmark, Ph.D.
President and Chief Executive Officer
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<PAGE> 1
Exhibit 4.1
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NO. ___
CRAGAR INDUSTRIES, INC.
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Dated as of January 16, 1998
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<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I CERTAIN DEFINITIONS........................................2
Section 1.1. Certain Definitions........................................2
ARTICLE II PURCHASE OF SHARES.........................................3
Section 2.1. Purchase of Shares; Closing................................3
ARTICLE III RISK FACTORS...............................................4
Section 3.1. Operational Losses; Decreasing Sales; Obligation to
Pay Down Credit Facility...................................4
Section 3.2. Listing and Maintenance Criteria for Securities; Penny
Stock Rules................................................5
Section 3.3. Best Efforts Offering......................................6
ARTICLE IV REPRESENTATIONS AND WARRANTIES.............................6
Section 4.1. Representations and Warranties of the Company..............6
Section 4.2. Representations and Warranties of the Purchasers...........9
ARTICLE V OTHER AGREEMENTS OF THE PARTIES...........................11
Section 5.1. Transfer Restrictions.....................................11
Section 5.2. Stop Transfer Instruction.................................12
Section 5.3. Furnishing of Information.................................12
Section 5.4. Copies of Disclosure Materials............................12
Section 5.5. Blue Sky Laws.............................................13
Section 5.6. Solicitation Materials....................................13
Section 5.7. Subsequent Financial Statements...........................13
Section 5.8. Charter Documents.........................................13
Section 5.9. Listing of Underlying Shares..............................13
Section 5.10. Conversion Procedures.....................................13
Section 5.11. Registration Statement....................................13
Section 5.12. Warrants..................................................14
ARTICLE VI CONDITIONS PRECEDENT TO CLOSING...........................14
Section 6.1. Conditions Precedent to Obligations of each Purchaser.....14
Section 6.2. Conditions Precedent to Obligations of the Company........15
ARTICLE VII TERMINATION...............................................16
Section 7.1. Termination by Mutual Consent.............................16
Section 7.2. Termination by the Company or the Purchasers..............16
Section 7.3. Termination by the Company................................17
Section 7.4. Termination by the Purchasers.............................17
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ARTICLE VIII MISCELLANEOUS.............................................17
Section 8.1. Fees and Expenses.........................................17
Section 8.2. Entire Agreement; Amendments..............................18
Section 8.3. Notices...................................................18
Section 8.4. Amendments; Waivers.......................................18
Section 8.5. Headings..................................................19
Section 8.6. Successors and Assigns....................................19
Section 8.7. No Third Party Beneficiaries..............................19
Section 8.8. Governing Law.............................................19
Section 8.9. Counterpart Signatures....................................19
Section 8.10. Severability.............................................19
Section 8.11. Remedies.................................................20
SCHEDULES
4.1(a) List of Subsidiaries
4.1(c) Capitalization, Rights, Warrants, Options
4.1(g) Legal Proceedings
4.1(i) No Default or Violation
EXHIBITS
A List of Purchasers
B Certificate of Designation
C Forms of Conversion or Redemption Notice
D Warrant to Purchase Common Stock (Issuance)
E Warrant to Purchase Common Stock (Redemption)
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THIS SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT, dated as of
January 16, 1998 (this "Agreement"), is entered into by and among CRAGAR
INDUSTRIES, INC., a Delaware corporation (the "Company"), and the purchasers
described on Exhibit A attached hereto (collectively, the "Purchasers" and each
individually, the "Purchaser").
THE SECURITIES REFERRED TO HEREIN HAVE NOT BEEN REGISTERED, QUALIFIED,
APPROVED OR DISAPPROVED UNDER ANY UNITED STATES OR FOREIGN FEDERAL OR STATE
SECURITIES LAWS, NOR HAS THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION,
OR ANY OTHER FOREIGN, FEDERAL OR STATE REGULATORY AUTHORITY, PASSED ON OR
ENDORSED THE ACCURACY OR ADEQUACY OF THIS PURCHASE AGREEMENT. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL. THE SECURITIES REFERRED TO HEREIN MAY BE RESOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF BY AN INVESTOR ONLY IF SUCH SECURITIES
HAVE BEEN REGISTERED UNDER FEDERAL SECURITIES LAWS AND, WHERE REQUIRED, UNDER
THE LAWS OF OTHER JURISDICTIONS, OR IF SUCH PROPOSED SALE, TRANSFER OR
DISPOSITION IS EXEMPT FROM SUCH REGISTRATION.
THIS AGREEMENT IS HIGHLY CONFIDENTIAL AND HAS BEEN PREPARED BY THE COMPANY
SOLELY FOR USE IN CONNECTION WITH A PRIVATE PLACEMENT OF THE COMPANY'S SERIES A
CONVERTIBLE PREFERRED STOCK. BY ACCEPTING DELIVERY OF THIS AGREEMENT, THE
RECIPIENT AGREES TO USE THE INFORMATION CONTAINED HEREIN SOLELY FOR THE PURPOSE
OF EVALUATING AN INVESTMENT IN THE SECURITIES OFFERED HEREBY AND FOR NO OTHER
PURPOSE WHATSOEVER. THE RECIPIENT AGREES THAT IT SHALL NOT DISCLOSE THE
INFORMATION CONTAINED HEREIN TO ANY PERSON AT ANY TIME OR IN ANY MANNER,
DIRECTLY OR INDIRECTLY, EXCEPT AS MAY BE AUTHORIZED BY THE COMPANY IN WRITING
PRIOR TO SUCH DISCLOSURE, AND THEN ONLY AFTER SUCH THIRD PARTY HAS EXECUTED AND
DELIVERED TO THE COMPANY A LETTER SUBSTANTIALLY THE SAME AS THE PROVISIONS OF
THIS CONFIDENTIALITY NOTICE. THE RECIPIENT ACKNOWLEDGES THAT IT IS AWARE THAT
THE SECURITIES LAWS OF THE UNITED STATES PROHIBIT ANY PERSON WHO HAS MATERIAL,
NON-PUBLIC INFORMATION CONCERNING THE COMPANY FROM PURCHASING OR SELLING
SECURITIES IN RELIANCE UPON SUCH INFORMATION AND FROM COMMUNICATING SUCH
INFORMATION TO ANY OTHER PERSON OR ENTITY UNDER CIRCUMSTANCES IN WHICH IT IS
REASONABLY FORESEEABLE THAT SUCH PERSON OR ENTITY IS LIKELY TO PURCHASE OR SELL
SUCH SECURITIES IN RELIANCE UPON SUCH INFORMATION.
WHEREAS, the Company desires to issue and sell to the Purchasers and the
Purchasers desire to acquire shares of the Company's Series A Convertible
Preferred Stock, $.01 par value per share (the "Preferred Stock").
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IN CONSIDERATION of the mutual covenants and agreements set forth herein
and for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. Certain Definitions. As used in this Agreement, and unless
the context requires a different meaning, the following terms have the meaning
indicated:
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions chartered under
the laws of the State of Arizona are authorized or required by law or other
government actions to close.
"Certificate of Designation" shall have the meaning set forth in Section
2.1(a).
"Closing" shall have the meaning set forth in Section 2.1(b).
"Closing Date" shall have the meaning set forth in Section 2.1(b).
"Commission" means the United States Securities and Exchange Commission.
"Common Stock" means the Company's common stock, $.01 par value per share.
"Disclosure Materials" means, collectively, this Agreement and the
Exhibits and Schedules hereto together with the Company's Prospectus dated
December 18, 1996, the Company's Proxy Statement dated April 16, 1997, the
Company's Form 10-K for the year ended December 31, 1996, the Company's Forms
10-Q for the quarters ended March 31, June 30 and September 30, 1997 and the
Company's Form 8-K dated September 19, 1997 and January 15, 1998, together with
all exhibits filed with the Commission in connection with such documents.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
encumbrance, charge or security interest of any kind in or on such asset or the
revenues or income thereon or therefrom.
"Material Adverse Effect" means a material and adverse effect on or change
in the business, prospects, assets, properties, financial condition or results
of operation of the Company.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
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"Preferred Stock" shall have the meaning set forth in the recitals hereto.
"Purchase Price" shall have the meaning set forth in Section 2.1(a).
"SEC Documents" shall have the meaning set forth in Section 4.1(j).
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means the shares of Preferred Stock purchased by the Purchasers
pursuant to this Agreement.
"Underlying Shares" means the shares of Common Stock into which the Shares
are convertible and any shares of Common Stock received as a dividend with
respect to the Shares and convertible in accordance with the terms hereof and
the Certificate of Designation.
ARTICLE II
PURCHASE OF SHARES
Section 2.1. Purchase of Shares; Closing.
(a) Subject to the terms and conditions herein set forth, the
Company shall issue and sell to the Purchasers, and each of the Purchasers shall
purchase from the Company, on the Closing Date the number of Shares indicated
next to its name on Exhibit A or as otherwise designated at Closing, which
Shares shall have the respective rights, preferences and privileges set forth in
Exhibit B (the "Certificate of Designation"), for a price per Share of US $100
(the "Purchase Price"). In no event, however, shall the Company be required to
sell more than 24,000 Shares.
(b) The closing of the purchase and sale of the Shares (the
"Closing") shall take place at the offices of the Company, immediately following
the execution hereof, or at such other time and/or place as the Purchasers and
the Company may agree, provided, however, in no case shall the Closing take
place later than the second Business Day after the last of the conditions listed
in Article VI is satisfied or waived by the appropriate party. The date of the
Closing is hereinafter referred to as the "Closing Date."
(c) At the Closing, (i) the Company shall deliver to each of the
Purchasers (A) one or more stock certificates representing the Shares purchased
hereunder, in definitive form and registered in the name of each Purchaser and
(B) all documents, instruments and writings required to have been delivered at
or prior to Closing by the Company pursuant to this Agreement, (ii) each of the
Purchasers shall deliver to the Company (A) its respective portion of the
Purchase Price as determined pursuant to this Article II in United States
Dollars in immediately available funds by wire transfer to an account designated
in writing by the Company prior to the Closing and (B) all
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documents, instruments and writings required to have been delivered at or prior
to Closing by the Purchasers pursuant to this Agreement.
ARTICLE III
RISK FACTORS
THE SECURITIES REFERRED TO HEREIN INVOLVE CERTAIN ELEMENTS OF RISK,
INCLUDING, BUT NOT LIMITED TO, THE FACTS DISCUSSED BELOW. IN ADDITION TO THE
OTHER INFORMATION CONTAINED HEREIN AND IN THE DISCLOSURE MATERIALS, PURCHASERS
SHOULD REVIEW CAREFULLY THE FOLLOWING RISK FACTORS ATTENDANT TO THIS
TRANSACTION.
NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, ARE MADE AS TO THE
ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED HEREIN OR IN ANY DOCUMENTS
FURNISHED BY THE COMPANY UPON REQUEST, AND NOTHING CONTAINED HEREIN IS, OR SHALL
BE RELIED UPON AS, A PROMISE OR REPRESENTATION AS TO FUTURE PERFORMANCE OF
EVENTS. THIS AGREEMENT DOES NOT PURPORT TO CONTAIN ALL OF THE INFORMATION THAT
MAY BE REQUIRED TO EVALUATE AN INVESTMENT IN THE COMPANY AND ANY RECIPIENT
HEREOF SHOULD CONDUCT ITS OWN INDEPENDENT ANALYSIS.
THE COMPANY MAKES NO REPRESENTATIONS CONCERNING THE LEGAL, FINANCIAL OR
TAX CONSEQUENCES OF ANY INVESTMENT IN THE COMPANY TO ANY PARTICULAR PURCHASER.
PURCHASERS SHOULD CONSULT WITH THEIR OWN PROFESSIONAL ADVISORS WITH RESPECT TO
LEGAL AND FINANCIAL, AS WELL AS UNITED STATES AND FOREIGN FEDERAL, STATE AND
LOCAL TAX CONSEQUENCES OF AN INVESTMENT IN THE COMPANY.
Section 3.1. Operational Losses; Decreasing Sales; Obligation to Pay Down
Credit Facility. The Company is currently experiencing a significant liquidity
shortfall. From inception in 1992, the Company has incurred substantial
operating losses resulting in an accumulated deficit of $11,820,073 as of
September 30, 1997. At September 30, 1997, the Company had a working capital
deficit of $818,110. The Company incurred a net operating loss of $3,962,243 for
the nine months ended September 30, 1997, of which $3,258,115 is attributable to
an increase in allowance for bad debt related to the accounts receivable from
the Company's primary customer, Super Shops, Inc. ("Super Shops"), which filed
for Chapter 11 bankruptcy protection on September 19, 1997. In addition, net
sales for the nine months ended September 30, 1997 decreased from $16,056,074 to
$13,770,728, or 14.2%, from the comparable period of 1996, primarily due to the
Company's decision to withdraw from a low margin relationship with a customer,
the reduction of sales of wire wheels, and the lack of shipments to Super Shops
because of its bankruptcy. Since September 30, 1997, the Company's financial
condition has continued to deteriorate.
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In April 1995, the Company entered into a revolving credit facility (the
"Credit Facility") with Norwest Business Credit, Inc. ("Norwest"). The credit
facility currently has a maximum commitment of $9,500,000. As of September 28,
1997, the Company has failed to meet several of its financial covenants under
the Credit Agreement and the outstanding balance under the Credit Facility was
approximately $5,752,171, an amount that exceeded the Company's borrowing base
thereunder by $846,524. On December 5, 1997, Norwest advised the Company that as
of September 28, 1997, the Company was in default under the terms of the Credit
Agreement and, among other remedies available, Norwest could charge a penalty
rate of interest. As of the date hereof, Norwest has not elected to charge such
penalty rate of interest. The Company has entered into an amendment to the
Credit Facility with Norwest which requires the Company to reduce the over
advance to zero by January 24, 1998. The Company presently intends to apply a
significant portion of the proceeds of the sale of the Shares to pay down this
obligation, but there is no assurance that the Company will be able to meet this
requirement by January 24, 1998. Norwest continues to permit the Company to
borrow funds under the Credit Agreement, but there is no assurance it will
advance funds in the future. The Company has sought alternative bank financing
should Norwest decide to terminate its relationship with the Company. The
Company has received three proposals from alternative sources and continues to
seek alternative financing arrangements; however, there can be no assurance of
the Company being able to secure alternative financing.
With the recent bankruptcy of Super Shops, the Company is uncertain
whether the anticipated cash flow from operations will be sufficient to meet the
Company's anticipated operating and capital needs. 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
additional financing on favorable terms, or at all. If the Company is unable to
meet its current and future revenue growth plans, the Company would be forced to
adopt one or more alternatives, such as reducing or delaying expansions,
reducing or discontinuing some or all of its operations, or seeking protection
under the federal bankruptcy laws.
Section 3.2. Listing and Maintenance Criteria for Securities; Penny Stock
Rules. The Common Stock is listed on the Nasdaq Smallcap Market and the Boston
Stock Exchange. There can be no assurance that the Company in the future will
meet the requirements for continued listing on the Nasdaq Smallcap Market or the
Boston Stock Exchange with respect to the Common Stock. If the Common Stock
fails to maintain such listings, the market value of the Company Stock and the
value of the Shares likely would decline and holders likely would find it more
difficult to dispose of, or to obtain accurate quotations as to the market value
of, the Common Stock. In addition, if the Company fails to maintain the Nasdaq
Smallcap Market Listing for its securities, and no other exclusion from the
definition of a "penny stock" under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), is available, then any broker engaging in a
transaction in the Company's securities would be required to provide any
customer with a risk disclosure document, disclosure of market quotations, if
any, disclosure of the compensation of the broker-dealer and its salesperson in
the transaction, and monthly account statements showing the market values of the
Company's securities held in the customer's accounts. The bid and offer
quotation and compensation information must be provided prior to effecting the
transaction and must be
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contained on the customer's confirmation. If brokers become subject to the
"penny stock" rules when engaging in transactions in the Company's securities,
they would become less willing to engage in such transactions, thereby making it
more difficult for the Company's securityholders to dispose of Common Stock and
Preferred Stock.
On November 14, 1997, Nasdaq informed the Company that, as of September
30, 1997, the Company failed to meet the minimum capital and surplus
requirements for the continued listing of the Common Stock on the Nasdaq
Smallcap Market and that, as of January 15, 1998, the Common Stock would be
delisted from the Nasdaq Smallcap Market unless the Company could provide Nasdaq
with a report filed with the Commission demonstrating the Company's compliance
with all Nasdaq Smallcap Market listing requirements, including a minimum level
of net tangible assets equal to $2,000,000. The Company has filed a Current
Report on Form 8-K, dated January 15, 1998, which the Company believes indicates
that the Company has met such requirements, however, there is no assurance that
the Nasdaq will confirm that the Company has met such requirements. The Company
also has been advised by the Boston Stock Exchange that compliance with Nasdaq
requirements will constitute compliance with the maintenance requirements for
listing on the Boston Stock Exchange. There is no assurance that the Company
will meet the listing requirements for the Nasdaq Smallcap Market or that its
Common Stock will continue to be listed on the Nasdaq Smallcap Market.
Section 3.3. Best Efforts Offering. There is no firm commitment on the
part of Community Investment Services, Inc. ("Community") to purchase any or all
of the Shares offered hereby. Rather, Community has agreed to sell the Shares on
a "10,000 Shares or none, best efforts" basis. Accordingly, there can be no
assurance that any or all of the Shares being offered hereby will be sold.
Unless 10,000 Shares are sold, the offering will terminate and all funds
theretofore received from the sale of the Shares will be promptly returned to
the subscribers without deduction therefrom or interest thereon. Moreover,
during the offering period, subscribers will not be entitled to a return of
their subscriptions. Therefore, prospective investors in the Shares should
consider that any funds used by them to purchase Shares in the offering could be
unavailable for the entire duration of the offering period and, in the event
that 10,000 Shares are not sold during the offering period, such funds could be
returned to them at the close of the offering period without interest thereon.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1. Representations and Warranties of the Company. The Company
hereby represents and warrants to the Purchasers as follows:
(a) Organization and Qualification. The Company is a corporation,
validly existing and in good standing under the laws of the State of Delaware,
with the requisite corporate power and authority to own and use its properties
and assets and to carry on its business as
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currently conducted. The Company has no subsidiaries. The Company is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, could not reasonably be
expected to have a Material Adverse Effect.
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated hereby and otherwise to carry out its obligations hereunder. The
execution and delivery of this Agreement by the Company and the consummation by
it of the transactions contemplated hereby have been duly authorized by all
necessary action on the part of the Company. This Agreement has been duly
executed and delivered by the Company and constitutes the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
(c) Capitalization. The authorized, issued and outstanding capital
stock of the Company is set forth in Schedule 4.1(c). Except as set forth in
Schedule 4.1(c), no shares of Common Stock are entitled to preemptive or similar
rights. Except as disclosed in Schedule 4.1(c), and except as a result of the
purchase and sale of the Shares hereunder, there are no outstanding options,
warrants, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or, except as a result of the purchase and sale of the
Shares hereunder, securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire any
shares of Common Stock, or contracts, commitments, understandings, or
arrangements by which the Company is or may become bound to issue additional
shares of Common Stock, or securities or rights convertible or exchangeable into
shares of Common Stock. The Company is not in violation of any of the provisions
of its Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation"), Bylaws or other charter documents.
(d) Issuance of Shares. The Shares are duly authorized and, when
issued against payment therefor in accordance with the terms hereof, shall be
validly issued, fully paid and nonassessable. The Company has, and at all times
while the Shares are outstanding will maintain, a reserve of shares of Common
Stock reasonably estimated by it to be sufficient to enable it to perform its
obligations under this Agreement and the Certificate of Designation. When issued
in accordance with the terms hereof and the terms of the Certificate of
Designation, the Underlying Shares will be duly authorized, validly issued,
fully paid and nonassessable.
(e) No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby does not and will not (i) conflict with or violate any
provision of its Certificate of Incorporation or Bylaws, (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time
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or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which the Company is
subject, or by which any property or assets of the Company is bound or affected;
except for, in the case of each of clauses (ii) and (iii), such conflicts,
defaults, terminations, amendments, accelerations, cancellations and violations
that could not reasonably be expected, individually or in the aggregate, to have
a Material Adverse Effect. The business of the Company is not being conducted in
violation of any law, ordinance or regulation of any governmental authority,
except for violations which, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
(f) Consents and Approvals. The Company is not required to obtain
any consent, waiver, authorization or order of, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of this Agreement except for the filing
of the Certificate of Designation with the Secretary of State of Delaware and
except for consents, waivers, authorizations, orders, filings or registrations
which the Company's failure to obtain or make, as the case may be, could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(g) Litigation Proceedings. Except as disclosed in the Disclosure
Materials or in Schedule 4.1(g), there is no action, suit, notice of violation,
proceeding or investigation pending or, to the best knowledge of the Company,
threatened against the Company or any of its properties before or by any court,
governmental or administrative agency or regulatory authority (Federal, State,
county, local or foreign) which (i) relates to or challenges the legality,
validity or enforceability of this Agreement or the Shares (ii) could,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect or (iii) could, individually or in the aggregate, reasonably be
expected to impair the ability of the Company to perform fully on a timely basis
its obligations under this Agreement in any material respect.
(h) Certain Fees. No fees or commission will be payable by the
Company to any broker, finder, investment banker or bank with respect to the
consummation of the transactions contemplated hereby, except those payable to
Community.
(i) No Default or Violation. Except as disclosed in the Disclosure
Materials or in Schedule 4.1(i), the Company is not (i) in default under or in
violation of any material indenture, loan or credit agreement or any other
material agreement or instrument to which it is a party or by which it or any of
its properties is bound, except such conflicts or defaults that could not
reasonably be expected to have a Material Adverse Effect, (ii) in violation of
any order of any court, arbitrator or governmental body, except for such
violations that could not reasonably be expected to have a Material Adverse
Effect, or (iii) in violation of any statute, rule or regulation of any
governmental authority which could reasonably be expected to (individually or in
the
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aggregate) (x) have a Material Adverse Effect or (y) adversely impair the
Company's ability or obligation to perform fully on a timely basis its
obligations under this Agreement in any material respect.
(j) SEC Documents. The Company has filed all reports required to be
filed by it under the Exchange Act, pursuant to Section 13(a) or 15(d) thereof,
for the two years preceding the date hereof (or such shorter period as the
Company was required by law to file such material) (the foregoing materials
being collectively referred to herein as the "SEC Documents") on a timely basis.
As of their respective dates, the SEC Documents complied in all material
respects with the requirements of the Securities Act, the Exchange Act and the
rules and regulations of the Commission promulgated thereunder, and none of the
SEC Documents, when filed, contained any untrue statement of material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Documents when filed with the Commission complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the Commission with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved, except as
may be otherwise indicated in such financial statements or the notes thereto,
and fairly present in all material respects the financial position of the
Company as of and for the dates thereof and the results of operations and cash
flows for the periods then ended, subject, in the case of unaudited statements,
to normal year-end audit adjustments.
Section 4.2. Representations and Warranties of the Purchasers. Each
Purchaser hereby represents and warrants to the Company as follows:
(a) Organization; Authority. The residence or business address set
forth below each Purchaser's name in Schedule 2.1 is such Purchaser's true and
correct residence or principal place of business and is the only jurisdiction in
which an offer to invest in the Shares was made to such Purchaser. Such
Purchaser has no present intention of becoming a resident of (or moving its
principal place of business to) any other state or jurisdiction. The Purchasers
have the requisite power and authority to enter into and to consummate the
transactions contemplated hereby and otherwise to carry out their obligations
hereunder. The purchase of the Shares by each Purchaser hereunder has been duly
authorized by all necessary action on the part of the Purchaser. This Agreement
has been duly executed and delivered by each Purchaser or on its behalf and
constitutes the valid and legally binding obligation of such Purchaser,
enforceable against such Purchaser in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally, and general principles of equity.
(b) Investment Intent. Each Purchaser is acquiring the Shares and
will be acquiring the Underlying Shares for its own account (and/or on behalf of
managed accounts who are purchasing or will acquire solely for their own
accounts for investment) for investment
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purposes only and not with a view to or for distributing or reselling such
Shares or the Underlying Shares or any part thereof or interest therein, without
prejudice, however, to the Purchaser's right, subject to the provisions of this
Agreement, at all times to sell or otherwise dispose of all or any part of such
Shares or the Underlying Shares upon conversion thereof, pursuant to an
effective registration statement pursuant to the Securities Act or under an
exemption from such registration, and, in any case, in compliance with
applicable state securities laws.
(c) Purchaser Status. At the time each Purchaser (and any account
for which it is purchasing) was offered the Shares, it (and any account for
which it is purchasing) was, and at the date hereof, it (and any account for
which it is purchasing) is, and at the Closing Date, it (and any account for
which it is purchasing) will be, an "accredited investor" as defined in Rule
501(a) under the Securities Act and is also deemed an institutional investor.
(d) Experience of Purchaser. Each Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Shares and the
Underlying Shares, and has so evaluated the merits and risks of such investment.
(e) Ability of Purchasers to Bear Risk of Investment. Each Purchaser
is able to bear the economic risk of an investment in the Shares and, at the
present time, is able to afford a complete loss of such investment. Each
Purchaser recognizes that an investment in the Shares and the Underlying Shares
is highly speculative and involves substantial risk. Each Purchaser understands
that the terms of the offering of the Shares has been determined solely by the
Company and Community. In connection with each Purchaser's investment in the
Shares, each has obtained the advice of such Purchaser's own investment
advisors, counsel and accountants and such advisors have been furnished all
information relating to the Company, the Shares and the Underlying Shares which
such Purchaser or such advisors have requested. Each Purchaser has been advised
that the Company has generated significant operating losses since its inception
and is currently experiencing significant capital and liquidity shortfalls.
(f) Prohibited Transactions. The Shares to be purchased by each
Purchaser are not being acquired, directly or indirectly, with the assets of any
"employee benefit plan", within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended.
(g) Access to Information. Each Purchaser acknowledges receipt of
the Disclosure Materials and further acknowledges that it has been afforded (i)
the opportunity to ask such questions as it has deemed necessary to, and to
receive answers from, representatives of the Company concerning the terms and
conditions of the offering of the Shares and the merits and risks of investing
in the Shares and the Underlying Shares; (ii) access to information about the
Company and the Company's financial condition, results of operations, business,
properties, management and prospects sufficient to enable it to evaluate its
investment in the Shares and the Underlying Shares; and (iii) the opportunity to
obtain such additional information which the
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Company possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the Shares and
the Underlying Shares and to verify the accuracy and completeness of the
information contained in the Disclosure Materials.
(h) Reliance. Every Purchaser understands and acknowledges that (i)
the Shares are being offered and sold, and the Underlying Shares are being
offered, to it without registration under the Securities Act in a private
placement that is exempt from the registration provisions of the Securities Act
and (ii) the availability of such exemption depends in part on, and that the
Company will rely upon the accuracy and truthfulness of, the foregoing
representations, and each Purchaser hereby consents to such reliance.
ARTICLE V
OTHER AGREEMENTS OF THE PARTIES
Section 5.1. Transfer Restrictions. If a Purchaser should decide to
dispose of any of the Shares to be purchased hereunder (and, upon conversion
thereof, any Underlying Shares), such Purchaser understands and agrees that it
may do so only (i) pursuant to an effective registration statement under the
Securities Act, (ii) to the Company or (iii) pursuant to an available exemption
from registration under the Securities Act and, in any case, in compliance with
other applicable securities laws. In connection with any transfer of any Shares
or the Underlying Shares other than pursuant to an effective registration
statement or to the Company, the Company may require that the transferor of such
Shares or Underlying Shares, as the case may be, provide to the Company an
opinion of counsel selected by the transferor experienced in the area of United
States or such other jurisdiction's securities laws, the form and substance of
which opinion shall be reasonably satisfactory to the Company and to the effect
that such transfer does not require registration of such Shares or Underlying
Shares under the Securities Act, or any other securities law.
Each Purchaser agrees to the imprinting, so long as the Company reasonably
believes appropriate, of the following legend on certificates representing the
Shares or Underlying Shares:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES
ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, THEY MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED
STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH
IN THE FOLLOWING SENTENCE. BY ITS ACCEPTANCE HEREOF, THE HOLDER OF THESE
SECURITIES AGREES THAT IT WILL NOT RESELL, PLEDGE OR OTHERWISE TRANSFER THESE
SECURITIES OR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE, EXCEPT
(A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, OR
(B) PURSUANT TO AN AVAILABLE
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EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT. IF THE PROPOSED TRANSFER
IS TO BE MADE OTHER THAN PURSUANT TO CLAUSE (A) ABOVE, THE HOLDER MUST, PRIOR TO
SUCH TRANSFER, FURNISH TO THE COMPANY AND THE TRANSFER AGENT SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THEY MAY REASONABLY
REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. AS USED HEREIN, THE TERMS "UNITED STATES" AND "U.S. PERSON" HAVE
THE MEANINGS GIVEN TO THEM BY RULE 902 PROMULGATED UNDER THE SECURITIES ACT.
The legend set forth above may be removed if and when the Shares or
the Underlying Shares, as the case may be, represented by such certificate, are
disposed of pursuant to an effective registration statement under the Securities
Act or if, in the opinion of counsel to the Company experienced in the area of
United States securities laws, such legend is no longer required under
applicable requirements of the Securities Act. The stock certificates
representing the Shares shall also bear any other legends required by applicable
foreign, Federal or state securities laws, which legends may be removed when, in
the opinion of counsel to the Company experienced in the applicable securities
laws, such legends are no longer required under the applicable requirements of
such securities laws. The Company agrees that it will provide the Purchasers,
upon request, with a substitute stock certificate or certificates free from such
legend at such time as such legend is not longer applicable. Each Purchaser
agrees that, in connection with any transfer of Shares or Underlying Shares by
it pursuant to an effective registration statement under the Securities Act,
each Purchaser will comply with all prospectus delivery requirements of the
Securities Act. The Company makes no representation, warranty or agreement as to
the availability of any exemption from registration under the Securities Act
with respect to any resale of Shares or Underlying Shares.
Section 5.2. Stop Transfer Instruction. Each Purchaser agrees that the
Company shall be entitled to make a notation on its records and give
instructions to any transfer agent of the Company in order to implement the
restrictions on transfer set forth in this Agreement.
Section 5.3. Furnishing of Information. As long as any Purchaser owns
Shares or Underlying Shares, the Company will promptly furnish to it upon
written request all reports filed by the Company pursuant to Section 13(a) or
15(d) of the Exchange Act (or if the Company is not at the time required to file
reports pursuant to such sections, annual and quarterly reports comparable to
those required by Section 13(a) or 15(d) of the Exchange Act).
Section 5.4. Copies of Disclosure Materials. The Company shall furnish the
Purchasers, without charge, with as many copies of the Disclosure Materials, and
any amendments or supplements thereto, as the Purchasers may reasonably request.
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Section 5.5. Blue Sky Laws. The Company shall cooperate with the
Purchasers in connection with the qualification of the Shares and the Underlying
Shares under the securities or Blue Sky laws of such jurisdictions as the
Purchasers may reasonably request and use its best efforts to continue such
qualification at all times through the third anniversary of the Closing Date;
provided, however, that the Company shall not be required in connection
therewith to qualify as a foreign corporation where it is not now so qualified.
Section 5.6. Solicitation Materials. The Company shall not distribute any
offering materials in connection with the offering and sale of the Shares other
than the Disclosure Materials.
Section 5.7. Subsequent Financial Statements. The Company shall, upon
written request, furnish to the Purchasers, promptly after they are filed with
the Commission, a copy of all financial statements for any period subsequent to
the period covered by the financial statements included in the Disclosure
Materials.
Section 5.8. Charter Documents. From the date hereof through the Closing
Date, the Company shall not, without the consent of the Purchasers and except as
contemplated hereby, (i) amend its Certificate of Incorporation, Bylaws or other
charter documents so as to adversely affect any rights of the Purchasers; (ii)
redeem, repurchase or offer to repurchase or otherwise acquire shares of its
Common Stock; or (iii) enter into any agreement with respect to any of the
foregoing.
Section 5.9. Listing of Underlying Shares. The Company shall use
reasonable efforts to cause the Underlying Shares to be approved for listing on
the Nasdaq Smallcap Market (or any other national securities exchange or market
on which the Common Stock is listed) and shall provide to the Purchasers upon
written request evidence of such listing.
Section 5.10. Conversion Procedures. The Certificate of Designation
attached hereto as Exhibit B sets forth the procedures with respect to the
conversion of the Shares, including the form of conversion notice to be provided
by a Purchaser upon conversion, and by the Company in connection with a Company
redemption or Company conversion, which forms are attached hereto as Exhibits
C(1), (2) and (3).
Section 5.11. Registration Statement. The Company will file with the
Commission within 120 days after the Closing Date (the date on which the 120-day
period expires being hereinafter referred to as the "Filing Date"), a shelf
registration statement (the "Registration Statement") on Form S-3 or other
applicable form covering the resale of the Underlying Shares by the Purchasers
upon conversion of the Shares, and thereafter shall use its best efforts to
cause the Registration Statement to be declared effective as soon as practicable
following such Filing Date and to maintain such effectiveness for a period of
two (2) years from the Closing Date; provided, however, that the Company shall
have the right to suspend the Purchaser's use of the Registration Statement for
the resale of the Underlying Shares, if (i) in the opinion of counsel for the
Company, the Company would thereby be required to disclose information not
otherwise then required by
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law to be publicly disclosed and (ii) in the good faith judgment of the Board of
Directors of the Company, such disclosure could adversely affect any material
corporate development or business transaction contemplated by the Company. The
Company shall use all commercially reasonable efforts to minimize the period of
time during which the Purchasers may not use the Registration Statement for the
resale of the Underlying Shares; provided, however, that the foregoing shall not
require the Company to alter its actions with respect to such corporate
development or business transaction. At the time of any conversion of such
Shares, the Company will deliver a current prospectus under the Registration
Statement to each of the converting Purchasers.
If the Registration Statement to be filed by the Company is not
declared effective by the Commission for any reason by the Filing Date, then for
each month after the Filing Date that such Registration Statement shall not have
been so declared effective, the Floating Price (as computed and defined in the
Certificate of Designation), shall be decreased by 1%, but in no event shall the
discount to the Floating Price exceed 20%; provided, however, that if at the end
of seven months from the Filing Date such Registration Statement shall not have
been so declared effective, the Company shall effect a Company Redemption as
defined in the Certificate of Designation.
All indemnification rights set forth in Section 7.3 of the form of
Warrant to Purchase Common Stock attached hereto as Exhibit D (as described in
Section 5.13) shall inure to the benefit of the Purchasers and the Company with
respect to the registration of the resale of the Underlying Shares pursuant to
the Registration Statement as if the provisions of Section 7.3 of such Warrants
were applicable hereto.
Section 5.12. Warrants. The Company will grant warrants equal in number to
the Purchase Price paid by each Purchaser divided by 120% of the Fixed Price (as
defined in the Certificate of Designation) in the form of the Warrant to
Purchase Common Stock attached as Exhibit D exercisable per warrant share at
120% of the Fixed Price (as determined in the Certificate of Designation) for
each purchase of 1,000 Shares. In addition, the Company also has an option to
redeem the Preferred Stock, in whole or in part, upon a cash payment to the
Purchasers and delivery to the Purchasers of a warrant to purchase Common Stock,
in the form of Warrant to Purchase Common Stock attached hereto as Exhibit E,
upon the terms set forth in the Certificate of Designation.
ARTICLE VI
CONDITIONS PRECEDENT TO CLOSING
Section 6.1. Conditions Precedent to Obligations of each Purchaser. The
obligation of each Purchaser to purchase the Shares is subject to the
satisfaction or waiver by each Purchaser at or prior to the Closing, of each of
the following conditions:
(a) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company contained herein shall be true and
correct in all
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material respects as of the date when made and as of the Closing Date as though
made at that time (except that representations and warranties that are made as
of a specific date need be true in all material respects only as of such date);
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing;
(c) No Prohibitions. The purchase of and payment for the Shares (and
upon conversion thereof, the issuance of the Underlying Shares) hereunder (i)
shall not be prohibited or enjoined (temporarily or permanently) by any
applicable law or governmental regulation and (ii) shall not subject the
Purchasers to any penalty, or, in their reasonable good faith judgment, other
onerous condition under or pursuant to any applicable law or governmental
regulations that would materially reduce the benefits to the Purchasers of the
purchase of the Shares or the Underlying Shares (provided, however, that such
regulation, law or onerous condition was not publicly proposed or in effect in
such form at the date of this Agreement);
(d) Company Certificates. The Purchasers shall have, upon written
request, received a certificate, dated the Closing Date, signed by the Secretary
or an Assistant Secretary of the Company and certifying (i) that attached
thereto is a true, correct and complete copy of (A) the Company's Amended and
Restated Certificate of Incorporation, (B) the Company's Bylaws, as amended to
the date thereof, and (C) resolutions duly adopted by the Board of Directors of
the Company authorizing the execution and delivery of this Agreement and the
issuance and sale of the Shares and the Underlying Shares and (ii) the
incumbency of officers executing this Agreement;
(e) No Suspensions of Trading in Common Stock. Trading in the Common
Stock shall not have been suspended by the Commission or any exchange or market
on which the Common Stock is listed or quoted (except for any suspension of
trading of limited duration solely to permit dissemination of material
information regarding the Company and except for any suspension of trading
attributable to the delisting of the Common Stock from the Nasdaq Smallcap
Market and the Boston Stock Exchange);
(f) Delivery of Stock Certificates. The Company shall have delivered
to the Purchasers the stock certificate(s) representing the Shares, registered
in the name of the Purchasers, each in form satisfactory to each Purchaser.
Section 6.2. Conditions Precedent to Obligations of the Company. The
obligation of the Company to issue and sell the Shares hereunder is subject to
the satisfaction or waiver by the Company, at or prior to the Closing, of each
of the following conditions:
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(a) Accuracy of the Purchasers' Representations and Warranties. The
representations and warranties of the Purchasers shall be true and correct in
all material respects as of the date when made and as of the Closing Date as
though made at that time (except that representations and warranties that are
made as of a specific date need be true in all material respects only as of such
date);
(b) Performance by the Purchasers. The Purchasers shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by it at or prior to the Closing; and
(c) No Prohibitions. The sale of the Shares (and upon conversion
thereof, the issuance of the Underlying Shares) hereunder (i) shall not be
prohibited or enjoined (temporarily or permanently) by any applicable law or
governmental regulation and (ii) shall not subject the Company to any penalty,
or, in its reasonable good faith judgment, any other onerous condition under or
pursuant to any applicable law or governmental regulation that would materially
reduce the benefits to the Company of the sale of Shares or the Underlying
Shares to the Purchasers (provided, however, that such regulation, law or
onerous condition was not publicly proposed or in effect in such form at the
date of this Agreement).
(d) Minimum Offering Sold. Purchasers offering to purchase, in the
aggregate, not less than 10,000 Shares shall have delivered executed copies of
this Agreement to the Company not later than five days prior to the Closing
Date.
ARTICLE VII
TERMINATION
Section 7.1. Termination by Mutual Consent. This Agreement may be
terminated at any time prior to Closing by the mutual consent of the Company and
the Purchasers.
Section 7.2. Termination by the Company or the Purchasers. This Agreement
may be terminated prior to Closing by either the Company or the Purchasers, by
giving written notice of such termination to the other party, if:
(a) the Closing shall not have occurred by February 28, 1998;
provided that the terminating party is not then in material breach of its
obligations under this Agreement in any manner that shall have caused the
failure referred to in this paragraph (a);
(b) there shall be in effect any statute, rule, law or regulation
that prohibits the consummation of the Closing or if the consummation of the
Closing would violate any unappealable final judgment, order, decree, ruling or
injunction of any court of or governmental authority having competent
jurisdiction; or
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<PAGE> 20
(c) there shall have been an amendment to Regulation D or an
interpretive release promulgated or issued thereunder, which, in the reasonable
judgment of the terminating party, would materially adversely affect the
transactions contemplated hereby.
Section 7.3. Termination by the Company. This Agreement may be terminated
prior to Closing by the Company, by giving notice of such termination to the
Purchasers, if the Purchasers have materially breached any representation,
warranty, covenant or agreement contained in this Agreement and such breach is
not cured within five business days following receipt by the Purchasers of
notice of such breach.
Section 7.4. Termination by the Purchasers. This Agreement may be
terminated prior to Closing by the Purchasers, by giving notice of such
termination to the Company, if:
(a) the Company has breached any representation, warranty, covenant
or agreement contained in this Agreement and such breach is not cured within
five business days following receipt by the Company of notice of such breach;
(b) trading in the Common Stock has been suspended by the Commission
or any exchange or market on which the Common Stock is listed or quoted (except
for any suspension of trading of limited duration solely to permit dissemination
of material information regarding the Company and except for any suspension of
trading attributable to the delisting of the Common Stock from the Nasdaq
Smallcap Market and the Boston Stock Exchange).
ARTICLE VIII
MISCELLANEOUS
Section 8.1. Fees and Expenses. Each party shall pay the fees and expenses
of its advisors, counsel, accountants and other experts, if any, and all other
expenses, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement.
The Company shall pay all United States stamp and other taxes and duties levied
in connection with the issuance of the Shares (and upon conversion thereof, the
Underlying Shares) pursuant hereto. The Purchasers shall be responsible for
their own tax liability that may arise as a result of the investment hereunder
or the transactions contemplated by this Agreement. Whether or not the
transactions contemplated by this Agreement are consummated or this Agreement is
terminated, the Company shall pay (i) all costs, expenses, fees and all taxes
incident to and in connection with, (A) the preparation, printing and
distribution of the Disclosure Materials and all amendments and supplements
thereto (including, without limitation, financial statements and exhibits), and
all preliminary and final Blue Sky memoranda and all other agreements,
memoranda, correspondence and other documents prepared and delivered in
connection herewith, (B) the issuance and delivery of the Shares and, upon
conversion thereof, the Underlying Shares, (C) the qualification of the Shares
and, upon conversion thereof, the Underlying Shares for offer and sale under the
securities or Blue Sky laws of the several states
-17-
<PAGE> 21
(including, without limitation, the fees and disbursements of the Purchasers'
counsel relating to such registration and qualification), (D) furnishing such
copies of the Disclosure Materials and all amendments and supplements thereto,
as may reasonably by requested for use in connection, with resales of the Shares
and, upon conversion thereof, the Underlying Shares, and (E) the preparation of
certificates for the Shares and, upon conversion thereof, the Underlying Shares
(including, without limitation, printing and engraving thereof), (ii) all fees
and expenses of the counsel and accountants of the Company and (iii) all
expenses and listing fees in connection with the application of the Company for
quotation of the Underlying Shares on any exchange or market on which the Common
Stock is listed or quoted.
Section 8.2. Entire Agreement; Amendments. This Agreement, together with
the Exhibits, and Schedules hereto, contains the complete and entire
understanding of the parties with respect to the subject matter hereto and
supersedes all prior agreements and understandings, oral or written, with
respect to such matters.
Section 8.3. Notices. Any notice or other communication required or
permitted to be given hereunder shall by in writing and shall be deemed to have
been received (a) upon hand delivery (receipt acknowledged) or delivery by telex
(with correct answer back received), telecopy or facsimile (with transmission
confirmation report) at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be
received) or (b) on the second business day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to the Company:
Cragar Industries, Inc.
4336 North 43rd Avenue
Phoenix, Arizona 85031
Attention: Michael L. Hartzmark, Ph.D., President
Tel: (602) 247-1300
Fax: (602) 846-0684
If to the Purchasers, at the address as set forth on Schedule 2.1
hereof or such other address as may be designated in writing hereafter, in the
same manner, by such person.
Section 8.4. Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchasers, or in the case of a wavier,
by the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver
-18-
<PAGE> 22
of any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
Section 8.5. Headings. The headings herein do no constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof.
Section 8.6. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns. Neither the Company nor any Purchaser may assign this Agreement or any
rights or obligations hereunder without the prior written consent of the other.
The assignment by a party of this Agreement or any rights hereunder shall not
affect the obligations of such party under this Agreement.
Section 8.7. No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provisions hereto be enforced
by, any other Person.
Section 8.8. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Arizona without regard to the principles of conflicts of law thereof. The
parties to this Agreement agree that any breach of any term or condition of this
Agreement shall be deemed to be a breach occurring in the State of Arizona by
virtue of a failure to perform an act required to be performed in the State of
Arizona and irrevocably and expressly agree to submit to the jurisdiction of the
courts of the State of Arizona for the purpose of resolving any disputes among
the parties relating to this Agreement or the transactions contemplated hereby.
The parties irrevocably waive, to the fullest extent permitted by law, any
objection which they may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement, or any
judgment entered by any court in respect hereof brought in the State of Arizona,
and further irrevocably waive any claim that any suit, action or proceeding
brought in the State of Arizona has been brought in an inconvenient forum.
Section 8.9. Counterpart Signatures. This Agreement may be executed in two
or more counterparts, all of which when taken together shall be considered one
and the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party, it being understood that
both parties need not sign the same counterpart. In the event that any signature
is delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
Section 8.10. Severability. In case any one or more of the provisions of
this Agreement shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provision of this Agreement shall
not in any way be affected or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provisions which shall be a
-19-
<PAGE> 23
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provisions in this Agreement.
Section 8.11. Remedies. In addition to being entitled to exercise all
rights provided herein or granted by law, including recovery of damages, the
Purchasers will be entitled to specific performance of the obligations of the
Company under this Agreement and the Company will be entitled to specific
performance of the obligations of the Purchasers hereunder. Each of the Company
and the Purchasers agree that monetary damages would not be adequate
compensation for any loss incurred by reason of any breach of its obligations
described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate.
NOTICE TO ALL INVESTORS
PRIOR TO SALE, EACH PURCHASER AND SUCH PURCHASER'S REPRESENTATIVE, IF ANY,
ARE INVITED TO ASK QUESTIONS OR TO SEEK ADDITIONAL INFORMATION FROM THE COMPANY.
SUCH QUESTIONS OR REQUESTS FOR INFORMATION SHOULD BE DIRECTED TO MICHAEL L.
HARTZMARK, THE PRESIDENT AND CHIEF EXECUTIVE OFFICER OF THE COMPANY, AND WILL BE
ANSWERED OR ADDITIONAL INFORMATION WILL BE PROVIDED TO THE EXTENT THAT THE
COMPANY IS ABLE TO DO SO WITHOUT UNREASONABLE EFFORT OR EXPENSE. NO PERSON OTHER
THAN OFFICERS AND DIRECTORS OF THE COMPANY ARE AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY STATEMENT NOT CONTAINED HEREIN. ANY INFORMATION OR
STATEMENT NOT CONTAINED HEREIN CANNOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OF ITS PROFESSIONAL ADVISORS.
THE SHARES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OR THE SECURITIES LAWS OF CERTAIN STATES AND ARE BEING OFFERED AND SOLD IN
RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH
LAWS. THE SHARES ARE SUBJECT TO RESTRICTION ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SAID ACT AND SUCH
LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE SHARES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE COMMISSION, ANY STATE SECURITIES COMMISSION OR
OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED
UPON OR ENDORSED THE ACCURACY OR ADEQUACY OF THE DISCLOSURE MATERIALS. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
-20-
<PAGE> 24
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed.
COMPANY:
CRAGAR INDUSTRIES, INC.
By: /s/ Michael L. Hartzmark
Michael L. Hartzmark
Title: President, Treasurer & CEO
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<PAGE> 25
SCHEDULE 4.1(c) -- CAPITALIZATION, RIGHTS, WARRANTS, OPTIONS
A. CAPITALIZATION
The Company is authorized to issue 5,000,000 shares of Common Stock and
200,000 shares of Preferred Stock. As of January 16, 1998, 2,482,865 shares of
Common Stock and no Convertible Preferred Stock were issued and outstanding.
B. RIGHTS, WARRANTS AND OPTIONS
<TABLE>
<CAPTION>
EMPLOYEE CONSULTANT DIRECTOR "A" "C" IPO
INDIVIDUAL OPTIONS OPTIONS OPTIONS WARRANTS WARRANTS WARRANTS
<S> <C> <C> <C> <C> <C> <C>
TONY BARRETT 23,500
MICHAEL BURROUGHS 25,000
MICHAEL BUSHEY 8,400
TONY CORTES 19,000
BOB DEYOUNG 3,000
SID DWORKIN 7,400 1,500
EDWARD FABER 6,000
PHYLLIS FROIMSON 2,100 5,250
MICHAEL HARTZMARK 40,000
HARTZMARK & CO. 1,500
VINOD JOSHI 2,625
DONALD MCINTYRE 6,000
MICHAEL MILLER 25,000
PHILIP PETERSEN 1,000
RFD ASSOCIATES 2,100
ROYAL BANK OF 8,400
SCOTLAND
VICTOR SCARAVILLI 2,100
PAUL SCIARRINO 2,100
JAMES SCHOKE 4,200
MARK SCHWARTZ 8,100
KEN WATERS 15,000
PUBLIC WARRANTS 977,500
UNDERWRITER 85,000
WARRANTS
TOTAL: 136,500 15,000 35,900 7,875 21,000 1,065,500
</TABLE>
Options to be exercised at prices between $5.14 and $5.60, some have not vested.
"A" Warrants to purchase shares at $1.43 before 12/31/99
"C" Warrants to purchase shares at $3.25 before 6/30/2000
Public Warrants to purchase shares at $6.60 before 12/22/2001
Underwriter Warrants to purchase one share of stock and warrant at $6.60 for
$7.32 before 12/22/2000
<PAGE> 26
SCHEDULE 4.1(g) -- LEGAL PROCEEDINGS
See the Company's Form 10-Q for the Quarter Ended September 30, 1997.
<PAGE> 27
SCHEDULE 4.1(i) -- NO DEFAULT OR VIOLATION
In a letter dated December 5, 1997 to the Company from Norwest Business
Credit, Inc. the Company was informed that it had failed to meet the Net Income
and Adjusted Net Worth requirements of the Credit Agreement. These violations of
the covenants were deemed Events of Default pursuant to Section 8.1(d) of the
Credit Agreement. Norwest continues to lend to the Company, but there is no
assurance it will advance funds in the future. The Company has sought
alternative bank financing should Norwest decide to terminate its relationship
with the Company. The Company has received three proposals from alternative
sources and continues to seek alternative financing arrangements, however,
should the Company need it, there can be no assurance of the Company being able
to secure alternative financing.
Listing Agreement with Nasdaq - failure to maintain minimum capital and
surplus.
Listing Agreement with Boston Stock Exchange - failure to maintain minimum
capital requirement.
<PAGE> 28
EXHIBIT A
LIST OF PURCHASERS
AMOUNT OF
PURCHASERS: SHARES: PURCHASE PRICE:
- ----------- --------- ---------------
Central Fill Pharmacy
Alvin Konigsberg 1,000 $100,000
Phillis J. Cohen 1,000 $100,000
Kenneth M. Reichle, Jr. 500 $50,000
Virgina Meade 500 $50,000
Beverly Segal 500 $50,000
Eileen D. Berke 1,000 $100,000
James M. Persky 250 $25,000
Gee Gee Morgan 250 $25,000
Lee Hartzmark 5,000 $500,000
Sidney Dworkin 5,000 $500,000
Mark Schwartz 2,500 $250,000
Harry Schwartz 2,500 $250,000
TOTAL: $2,000,000
<PAGE> 29
EXHIBIT B
CERTIFICATE OF DESIGNATION
See Exhibit 3.1
<PAGE> 30
EXHIBIT C
FORMS OF CONVERSION OR REDEMPTION NOTICE
<PAGE> 31
EXHIBIT D
WARRANT TO PURCHASE COMMON STOCK (ISSUANCE)
See Exhibit 4.2
<PAGE> 32
EXHIBIT E
WARRANT TO PURCHASE COMMON STOCK (REDEMPTION)
<PAGE> 1
Exhibit 4.2
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED
OR OTHERWISE DISPOSED OF, UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THE
SECURITIES ACT AND THE SECURITIES LAWS OF ANY APPLICABLE STATES OR AN OPINION OF
COUNSEL IS OBTAINED STATING THAT SUCH DISPOSITION IS IN COMPLIANCE WITH AN
AVAILABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
NO. _____
WARRANT TO PURCHASE
_________ SHARES OF
COMMON STOCK
WARRANT TO PURCHASE
COMMON STOCK
OF
CRAGAR INDUSTRIES, INC.
This certifies that, for value received, _______________________________,
or its registered assigns (collectively, the "Holder"), is entitled to purchase
from Cragar Industries, Inc., a Delaware corporation (the "Company"), subject to
the terms and conditions set forth below, at any time on or after 9:00 A.M.,
Eastern time, on the Issue Date (as defined below) of this Warrant, and before
5:00 P.M., Eastern time, on the Expiration Date (as defined below), the number
of fully paid and nonassessable shares of common stock, $.01 par value, of the
Company ("Common Stock") stated above at the Purchase Price (as defined below).
The Purchase Price and the number of shares purchasable hereunder are subject to
adjustment as provided below.
ARTICLE I
DEFINITIONS
SECTION 1.1
(a) The term "Business Day" as used in this Warrant means a day
other than a Saturday, Sunday or other day on which national banking
associations whose principal offices are located in the State of Delaware are
authorized by law to remain closed.
<PAGE> 2
(b) The term "Certificate of Designation" as used in this Warrant
means the Certificate of Designation attached as Exhibit [ ] to the Series A
Convertible Preferred Stock Purchase Agreement dated ________________, 199_,
between the Company and the Purchasers (as defined in said Agreement).
(c) The term "Expiration Date" as used in this Warrant means the
date of expiration of the thirty-six (36) month period immediately after the
Issue Date (as defined below), or, if that day is not a Business Day, as defined
above, on the next following Business Day.
(d) The term "Issue Date" as used in this Warrant means the date of
issuance of this Warrant.
(e) The term "Purchase Price" as used in this Warrant means 120% of
the Series A Fixed Price (as determined in the Certificate of Designation, as
adjusted from time to time pursuant to such Certificate of Designation) per
Warrant Share (as defined below), as may be adjusted pursuant to the terms of
Article III hereof.
(f) The term "Warrant" as used in this Warrant means this Warrant
and Warrants of like tenor to purchase up to _______________ Warrant Shares (as
defined below).
(g) The term "Warrant Shares" as used in this Warrant means the
shares of Common Stock or other securities issuable upon exercise of the
Warrants.
ARTICLE II
DURATION AND EXERCISE OF WARRANT
SECTION 2.1 This Warrant may be exercised at any time after 9:00 A.M.,
Eastern time on the Issue Date, and before 5:00 P.M., Eastern time, on the
Expiration Date.
SECTION 2.2 (a) The Holder may exercise this Warrant in whole or in part
(but not in denominations of fewer than 5,000 Warrant Shares except upon an
exercise of the Warrant with respect to the remaining balance of Warrant Shares
purchasable hereunder at the time of exercise) by surrender of this Warrant,
with the Purchase Form (attached hereto) duly executed, to the Company at its
corporate office in Phoenix, Arizona, together with the applicable Purchase
Price of each Warrant Share being purchased in lawful money of the United
States, or by certified check or official bank check payable in United States
dollars to the order of the Company, subject to compliance with all the other
conditions set forth in this Warrant.
-2-
<PAGE> 3
(b) Upon receipt of this Warrant with the Purchase Form duly
executed and accompanied by payment of the aggregate Purchase Price for the
shares of Common Stock for which this Warrant is being exercised, the Company
shall cause to be issued certificates for the total number of whole shares (as
provided in Section 3.2 hereof) of Common Stock for which this Warrant is being
exercised in such denominations as are required for delivery to the Holder, and
the Company will promptly deliver those certificates to the Holder.
(c) If the Holder exercises this Warrant with respect to fewer than
all the shares of Common Stock that may be purchased by exercise of this
Warrant, the Company will execute a new Warrant for the balance of the shares of
Common Stock that may be purchased by exercise of this Warrant and deliver that
new Warrant to the Holder.
(d) The Company covenants and agrees that it will pay when due any
and all taxes which may be payable in respect of the issue of this Warrant, or
the issue of any Warrant Shares upon the exercise of this Warrant other than
income or similar taxes of any kind imposed upon the Holder of this Warrant. The
Company will not, however, be required to pay any tax which may be payable in
respect of any transfer involved in the issuance or delivery of this Warrant or
of Warrant Shares in a name other than that of the Holder at the time of
surrender, and until the payment of any such tax, the Company will not be
required to transfer this Warrant or issue the Warrant Shares which are subject
to the tax.
ARTICLE III
ADJUSTMENT OF PURCHASE PRICE, NUMBER
OF SHARES OR NUMBER OF WARRANTS
SECTION 3.1 The Purchase Price, the number and type of securities issuable
on exercise of this Warrant and the number of Warrants outstanding are subject
to adjustment from time to time as follows:
(a) If the Company issues any shares of its Common Stock as a
dividend on its Common Stock, the Purchase Price then in effect will be
proportionately reduced at the opening of business on the day following the date
fixed for the determination of shareholders entitled to receive the dividend or
other distribution. For example, if the Company distributes one share of Common
Stock as a dividend on each outstanding share of Common Stock the Purchase Price
would be reduced by 50%. If the Company issues as a dividend on its Common Stock
any securities which are convertible into, or exchangeable for, shares of its
Common Stock, such dividend will be treated as a dividend of the Common Stock
into which the securities may be converted, or for which they may be exchanged,
and the Purchase Price shall be proportionately reduced.
-3-
<PAGE> 4
(b) If the outstanding shares of Common Stock are subdivided into a
greater number of shares of Common Stock, then the Purchase Price will be
proportionately reduced at the opening of business on the day following the day
when the subdivision becomes effective, and if the outstanding shares of the
Common Stock are combined into a smaller number of shares of Common Stock, the
Purchase Price will be proportionately increased at the opening of business on
the day following the day when the combination becomes effective.
(c) If by reason of a merger, consolidation, reclassification or
similar corporate event, the holders of the Common Stock receive securities or
assets other than Common Stock, upon exercise of this Warrant after that
corporate event, the Holder of this Warrant will be entitled to receive the
securities or assets the Holder would have received if the Holder had exercised
this Warrant immediately before the first such corporate event and not disposed
of the securities or assets received as a result of that or any subsequent
corporate event.
SECTION 3.2 Upon each adjustment of the applicable Purchase Price pursuant
to Section 3.1 hereof, this Warrant will after the adjustment evidence the right
to purchase, at the adjusted Purchase Price, the number of shares (calculated to
the nearest hundredth) obtained by (i) multiplying the number of shares issuable
on exercise of this Warrant immediately prior to the adjustment by the Purchase
Price in effect immediately prior to the adjustment and (ii) dividing the
resulting product by the Purchase Price in effect immediately after the
adjustment. However, the Company will not be required to issue a fractional
share or to make any payment in lieu of issuing a fractional share.
SECTION 3.3 Whenever the Purchase Price or the number of shares or type of
securities issuable on exercise of this Warrant is adjusted as provided in this
Article III, the Company will compute the adjusted Purchase Price and the
adjusted number of Warrant Shares and will prepare a certificate signed by its
President or any Vice President, and by its Treasurer or Secretary setting forth
the adjusted Purchase Price and the adjusted number of Warrant Shares and
showing in reasonable detail the facts upon which the adjustments were based and
mail a copy of that certificate to the Holder.
SECTION 3.4 If at any time when this Warrant is outstanding the Company:
(a) declares a dividend (or authorizes any other distribution) on
its Common Stock payable otherwise than in cash out of its undistributed net
income;
(b) authorizes the granting to the holders of its Common Stock of
rights to subscribe for or purchase any shares of its capital stock or assets;
(c) authorizes a reclassification, split or combination of the
Common Stock, or a consolidation or merger to which the Company is a party or a
sale or transfer of all or substantially all the assets of the Company; or
-4-
<PAGE> 5
(d) authorizes a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
the Company will mail written notice of such action to the Holder at least 20
days prior to the record date, or other date, for determining the shareholders
entitled to receive the dividend, distribution or rights, or the securities or
other property deliverable as a result of such action.
SECTION 3.5 The form of this Warrant need not be changed because of any
change in the Purchase Price or in the number of Warrant Shares, and Warrants
issued after that change may continue to describe the Purchase Price and the
number of Warrant Shares which were described in this Warrant as initially
issued.
SECTION 3.6 Before taking any action which would cause an adjustment
reducing the Purchase Price below the then par value, if any, of the Common
Stock, the Company will take all corporate action which may, in the opinion of
its counsel, be necessary in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock at the adjusted
Purchase Price.
ARTICLE IV
OTHER PROVISIONS RELATING TO
RIGHTS OF WARRANT HOLDER
SECTION 4.1 If this Warrant is duly exercised, the Holder will for all
purposes be deemed to become the holder of record of the Warrant Shares as to
which this Warrant is exercised on, and the certificate for such shares will be
dated the date this Warrant is surrendered for exercise and the Purchase Price
paid in accordance with Section 2.2 hereof, except that if that date is not a
Business Day, the Holder will be deemed to become the record holder of the
Warrant Shares on, and the certificate will be dated, the next succeeding
Business Day. The Holder will not be entitled to any rights as a holder of the
Warrant Shares, including the right to vote and to receive dividends, until the
Holder becomes or is deemed to become the holder of such shares pursuant to the
terms hereof.
SECTION 4.2 (a) The Company covenants and agrees that it will at all times
reserve and keep available for the exercise of this Warrant a sufficient number
of authorized but unissued shares of Common Stock to permit the exercise in full
of this Warrant.
(b) Prior to the issuance of any shares of Common Stock upon
exercise of this Warrant, the Company shall use its reasonable best efforts to
cause those shares to be authorized for listing, to the extent not previously
authorized for listing, on any securities exchange or trading system upon which
the Common Stock is then listed.
-5-
<PAGE> 6
(c) The Company covenants that all shares of Common Stock issued
upon exercise of this Warrant and against payment of the Purchase Price will be
validly issued, fully paid and nonassessable.
SECTION 4.3 Notices to the Holder relating to this Warrant will be
effective on the earliest of actual receipt or the third business day after
mailing by first class mail (which shall be certified or registered, return
receipt requested), postage prepaid, addressed to the Warrant Holder at the
address shown on the books of the Company.
ARTICLE V
TREATMENT OF WARRANT HOLDER
SECTION 5.1 Prior to presentation of this Warrant for registration of
transfer, the Company may treat the Holder for all purposes as the owner of this
Warrant and the Company will not be affected by any notice to the contrary.
ARTICLE VI
COMBINATION, EXCHANGE AND TRANSFER OF WARRANTS
SECTION 6.1 Any transfer permitted under this Warrant will be made by
surrender of this Warrant to the Company at its principal office with the Form
of Assignment (attached hereto) duly executed and funds sufficient to pay any
transfer tax. In such event the Company will, without charge, execute and
deliver a new Warrant to and in the name of the assignee named in the instrument
of assignment and this Warrant will promptly be canceled, and if the assignor
does not transfer all of its Warrants hereunder, the Company will execute and
deliver a new Warrant to and in the name of the assignor representing the
remaining Warrants held by the assignor.
SECTION 6.2 This Warrant may be divided or combined with other Warrants
which carry the same rights upon presentation of them at the principal office of
the Company together with a written notice signed by the Holder, specifying the
names and denominations in which new Warrants are to be issued.
SECTION 6.3 Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and, in the case of loss, theft or destruction, of reasonably
satisfactory indemnification, or, in the case of mutilation, upon surrender of
the mutilated Warrant, the Company will execute and deliver a new Warrant
bearing the same terms and date as the lost, stolen or destroyed Warrant, which
will thereupon become void.
-6-
<PAGE> 7
ARTICLE VII
REGISTRATION UNDER THE SECURITIES ACT
SECTION 7.1 The Company will file, as soon as practicable after the Issue
Date, a shelf registration statement (the "Registration Statement") on Form S-3
or other applicable form covering the resale of the shares of Common Stock
issuable upon exercise of the Warrant granted hereunder and thereafter shall use
its best efforts to cause the Registration Statement to be declared effective as
soon as practicable following such filing and to maintain such effectiveness for
a period of two (2) years from the Issue Date; provided, however, that the
Company shall have the right to suspend the sale of Common Stock underlying the
Warrant pursuant to the Registration Statement, upon notice to the Holder, if
(i) in the opinion of counsel for the Company, the Company would thereby be
required to disclose information not otherwise then required by law to be
publicly disclosed and (ii) in the good faith judgment of the Board of Directors
of the Company, such disclosure could adversely affect any material corporate
development or business transaction contemplated by the Company. The Company
shall use its best efforts to minimize the period of time of non-conversion of
the Warrant Shares; provided, however, that the foregoing shall not require the
Company to alter its actions with respect to such corporate development or
business transaction. At the time of any sale of Common Stock underlying the
Warrant, the Company will deliver a current prospectus under the Registration
Statement to the Holder.
The Company shall cooperate with the Holder in connection with the
qualification of the Warrant Shares under the securities and Blue Sky laws of
such jurisdictions as the Holder may request; provided, however, that neither
the Company nor its subsidiaries shall be required in connection therewith to
qualify as a foreign corporation where they are not now so qualified.
SECTION 7.2 With respect to the Registration Statement, all fees, costs
and expenses of and incidental to such registration shall be borne by the
Company. Notwithstanding the foregoing, the fees and expenses of counsel and
accountants for the Holder shall be borne by the Holder.
SECTION 7.3 (a) To the extent permitted by law, the Company will indemnify
and hold harmless the Holder and each officer, director and agent of the Holder
and each person who controls the Holder within the meaning of the Securities Act
and the Securities Exchange Act of 1934 (the "Exchange Act"), against any
losses, claims, expenses, damages or liabilities (including reasonable
attorneys' fees), joint or several, to which the Holder or controlling person
become subject under the Securities Act, insofar as such losses, claims,
expenses, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any prospectus contained therein
which is utilized, or any amendment or supplement 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, and will reimburse
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the Holder and each such controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, expense, damage, liability or action; provided, however, that
the Company will not be liable in any such case if and to the extent that any
such loss, claim, expense, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission so
made in conformity with information relating to the Holder furnished in writing
to the Company by the Holder or such controlling person.
(b) To the extent permitted by law, the Holder will indemnify and
hold harmless the Company and each officer, director and agent of the Company
and each person who controls the Company or underwriter within the meaning of
the Securities Act and the Exchange Act, each officer of the Company who signs
the Registration Statement and each director of the Company, against all losses,
claims, expenses, damages or liabilities (including reasonable attorneys' fees),
joint or several, to which the Company or such officer or director or
controlling person become subject under the Securities Act, but only insofar as
such losses, claims, expenses, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact made in reliance on and in conformity with
information relating to the Holder furnished in writing to the Company expressly
for use in the Registration Statement. The Holder's liability shall in no event
exceed the gross proceeds received by the Holder in connection with the sale of
the Warrant and the Warrant Shares.
(c) Promptly after receipt by an indemnified party hereunder 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 hereunder,
notify the indemnifying party in writing thereof; provided, however, that any
failure to give such notice will not waive any rights of the indemnified party
except to the extent the rights of the indemnified party are materially
prejudiced. In case any such action shall be brought against any 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 it
shall wish, to assume and undertake the defense thereof with counsel reasonably
satisfactory to such indemnified party and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 7.3 for any legal expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected;
provided, however, that (i) if the indemnifying party has failed to assume the
defense and employ counsel or (ii) if the defendants in any such action include
both the indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be reasonable defenses available
to it that are different from or additional to those available to the
indemnifying party or if the interests of the indemnified party reasonably may
be deemed to conflict with the interests of the indemnifying party, then the
indemnified party shall have the right to select separate counsel and to assume
such legal defense and otherwise to participate in the defense of such action,
with the expenses and fees of such separate counsel and other expenses related
to such participation to be reimbursed by the indemnifying party as incurred.
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<PAGE> 9
(d) If the indemnification provided for in this Section 7.3 is
unavailable or insufficient to hold harmless an indemnified party in respect of
any losses, claims, expenses, damages or liabilities or actions in respect
thereof, then each indemnifying party shall in lieu of indemnifying such
indemnified party contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, expenses, damages, liabilities or
actions in such proportion as is appropriate to reflect the relative fault of
the Company, on the one hand, and the Holder, on the other, in connection with
the statements or omissions which resulted in such losses, claims, expenses,
damages, liabilities or actions as well as any other relevant equitable
considerations, including the failure to give any required notice. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or any affiliate thereof, on the one hand, or the Holder or any affiliate
thereof, on the other, and the parties' relative intent, knowledge, access to
information and opportunity to correct or present such statement or omission.
The Company and the Holder agree that it would not be just and equitable if
contribution pursuant to this Section 7.3(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 7.3(d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, expenses, damages, liabilities or actions in respect thereof referred to
above in this Section 7.3(d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Holder's liability shall in no
event exceed the gross proceeds received by the Holder in connection with the
sale of the Warrant Shares.
ARTICLE VIII
OTHER MATTERS
SECTION 8.1 (a) This Warrant and any Warrant Shares may not be sold,
transferred, pledged, hypothecated or otherwise disposed of except as follows:
(i) to a person who, in the opinion of counsel to the Company, is a person to
whom this Warrant or the Warrant Shares may legally be transferred without
registration and without the delivery of a current prospectus under the
Securities Act with respect thereto, and then only against receipt of an
agreement of such person to comply with the provisions of this Section 8.1(a)
with respect to any resale or other disposition of such securities; or (ii) to
any person upon delivery of a prospectus then meeting the requirements of the
Securities Act relating to such securities and the offering thereof for such
sale or disposition, and thereafter to all successive assignees.
(b) Unless the Warrant Shares have been registered under the
Securities Act, upon exercise of any of the Warrant and the issuance of any of
the Warrant Shares, all certificates representing Warrant Shares shall bear on
the face thereof substantially the following legend:
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<PAGE> 10
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, nor the
securities laws of any state, and may not be sold, offered for sale,
assigned, transferred or otherwise disposed of, unless registered
pursuant to the provisions of that Act and any applicable state
securities laws or unless an opinion of counsel to the issuer is
obtained stating that such disposition is in compliance with an
available exemption from such registration requirements.
SECTION 8.2 All the covenants and provisions of this Warrant by or for the
benefit of the Company will bind and inure to the benefit of its successors and
assigns.
SECTION 8.3 All notices and other communications under this Warrant must
be in writing. Any notice or communication to the Company will be effective upon
the earlier of actual receipt or the third business day after mailing by first
class mail (which shall be certified or registered, return receipt requested),
postage prepaid, addressed (until another address is designated by the Company)
as follows:
Cragar Industries, Inc.
4636 North 43rd Avenue
Phoenix, Arizona 85031
Attention: __________________
__________________
Any notice or demand authorized by this Warrant to be given or made by the
Company to the Holder must be given in accordance with Section 4.3.
SECTION 8.4 The validity, interpretation and performance of this Warrant
will be governed by the laws of the State of Arizona. This Warrant shall be
subject to the exclusive jurisdiction of the courts of the State of Arizona. The
parties agree that any breach of any term or condition of this Warrant shall be
deemed to be a breach occurring in the State of Arizona by virtue of a failure
to perform an act required to be performed in the State of Arizona and
irrevocably and expressly agree to submit to the jurisdiction of the courts of
the State of Arizona for the purpose of resolving any disputes among the parties
relating to this Warrant or the transactions contemplated hereby. The parties
irrevocably waive, to the fullest extent permitted by law, any objection which
they may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Warrant, or any judgment entered
by any court in respect hereof brought in the State of Arizona, and further
irrevocably waive any claim that any suit, action or proceeding brought in the
State of Arizona has been brought in an inconvenient forum.
SECTION 8.5 Nothing in this Warrant will give any person, corporation or
other entity other than the Company and the Holder(s) any right or claim under
this Warrant, and all
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<PAGE> 11
agreements in this Warrant will be for the sole benefit of the Company, the
Holder(s) and their respective successors.
SECTION 8.6 The Article headings in this Warrant are for convenience only,
are not part of this Warrant and will not affect the interpretation of its
terms.
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company as
of the _____ day of __________________, 199__.
CRAGAR INDUSTRIES, INC.
By:_____________________________________
Name:
Title:
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<PAGE> 12
PURCHASE FORM
To Be Executed By The Warrant Holder
To Exercise The Warrant In Whole Or In Part:
To: Cragar Industries, Inc.
The undersigned (___________________________)
Please insert Social Security or other
identifying number of Holder
hereby irrevocably elects to exercise the right of purchase represented by the
within Warrant for, and to purchase thereunder, ___________________ shares of
Common Stock of Cragar Industries, Inc. in the amount of $__________. The
undersigned requests that certificates for those shares of Common Stock be
issued as follows:
Name:___________________________________
Address:________________________________
Deliver to:_____________________________
Address:________________________________
and that, if the number of shares of Common Stock is not all the shares of
Common Stock purchasable by exercise of the Warrant, that a new Warrant for the
balance of the shares of Common Stock purchasable under the within Warrant be
registered in the name of, and delivered to, the undersigned at the address
stated below:
Address:________________________________
Date:___________________________________
Signature:__________________________________
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<PAGE> 13
FORM OF ASSIGNMENT
(To Be Executed Only Upon An Assignment)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
unto ______________________________ the right to purchase ________ shares of
Common Stock of Cragar Industries, Inc. evidenced by the within Warrant.
Signature___________________________________
Signature Guaranteed:
______________________________
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<PAGE> 1
Exhibit 99
CRAGAR INDUSTRIES, INC. RAISES $2.0 MILLION IN PREFERRED STOCK OFFERING
Phoenix, AZ, January 21, 1998 - CRAGAR Industries, Inc. (NASDAQ: CRGR) today
reported that it had raised $2.0 million from a private placement of Series A
Convertible Preferred Stock, including the conversion of $900,000 of debt into
equity. The purpose of the private placement was to raise additional capital in
order to meet the minimum maintenance requirements for continued listing on
Nasdaq and the Boston Stock Exchange. The Company's capital and surplus and
shareholders' equity had fallen below the minimums required by Nasdaq and the
Boston Stock Exchange primarily as the result of the establishment of an
allowance for bad debt arising from the bankruptcy of the Company's primary
customer. With the proceeds from the offering, the Company's net tangible assets
exceed $2,000,000, the minimum requirement for Nasdaq listing to become
effective February 23, 1998, and the Company's shareholders' equity
substantially exceeds $500,000, the minimum requirement for continued listing on
the Boston Stock Exchange. There can be no assurance, however, that the Company
will continue to meet these minimum requirements for listing on Nasdaq and the
Boston Stock Exchange. If the Company fails to meet such requirements in the
future, the Company's securities could be likely delisted from Nasdaq and the
Boston Stock Exchange, which likely would have a material adverse effect on the
market value of the Company's securities.
Cragar Industries, Inc. is an international designer, producer, and
seller of custom wheels and wheel accessories for cars, trucks, vans, sport
utility vehicles, racing vehicles, and motorcycles.
For additional information, contact Michael L. Hartzmark, President and
CEO, 602-247-1300. Internet address: http:\\www.prnewswire.com/cnoc. To obtain
hard copies, call Fax-On-Demand at 800- 758-5804.
This press release shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of the Series A
Convertible Preferred Stock in any state in which such offer, solicitation, or
sale would be unlawful under the securities laws of any such state.
The Series A Convertible Preferred Stock to be sold in connection with
the private placement discussed herein has not been registered under the
Securities Act of 1933 and may not be offered or sold absent registration or an
applicable exemption from the registration requirements.
This release includes statements which may constitute forward-looking
statements made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are inherently subject
to risks and uncertainties, some of which cannot be predicted or quantified.
Future events and actual results could differ materially from those set forth
in, contemplated by, or underlying the forward-looking statements. Please refer
to the Risk Factors in the Company's filings with the Securities and Exchange
Commission which identify certain important factors that could cause the actual
results to differ materially from those contained in our forward-looking
statements. These factors include, but are not limited to, the bankruptcy of the
Company's primary customer, dependence on external financing, product
availability, market conditions, as well as general economic conditions.
