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As Filed With the Securities and Exchange Commission on August 20, 1998
Registration Statement No. 333-58187
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
AMENDMENT NO. 1
to
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
___________________________
CRAGAR INDUSTRIES, INC.
(Exact Name of registrant as specified in its Charter)
DELAWARE 86-0721001
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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)
____________________________
MICHAEL L. HARTZMARK, CHIEF EXECUTIVE OFFICER
CRAGAR INDUSTRIES, INC.
4636 NORTH 43RD AVENUE
PHOENIX, ARIZONA 85031
(602) 247-1300
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
____________________________
COPY TO:
STEVEN D. PIDGEON, ESQ.
RICHARD B. STAGG, ESQ.
SNELL & WILMER L.L.P.
ONE ARIZONA CENTER
PHOENIX, ARIZONA 85004-0001
(602) 382-6000
____________________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
____________________________
From time to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
____________________________
(FACING PAGE CONTINUED ON FOLLOWING PAGE)
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
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Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Aggregate Amount of
Securities to be Registered Registered(1) Per Share Offering Price Registration Fee
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Common Stock 750,000 shares $5.125(2) $3,843,750 $1,134
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Common Stock Issuable 333,333 shares $8.10 (3) $2,699,997(3) $ 796
Upon Exercise of Preferred
Stock Warrants
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Total $1,930(4)
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</TABLE>
(1) Represents estimated number of shares of Common Stock issuable upon
conversion of the Company's Series A Convertible Preferred Stock. In
the event of a stock split, stock dividend, or similar transaction
involving the Common Stock of the Company, in order to prevent dilution,
the number of shares registered shall be automatically increased to
cover the additional shares in accordance with Rule 416(a) under the
Securities Act of 1933. In addition, pursuant to Rule 416, this
Registration Statement also covers such indeterminate number of
additional Shares of Common Stock which may become issuable upon
conversion of the Series A Convertible Preferred Stock by reason of
reductions in the conversion price thereof in accordance with its terms
(including, but not limited to, the terms which cause the variable
conversion price thereof to decrease to the extent the market price for
shares of the Company's Common Stock declines).
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), based upon the last reported sales price
of the Common Stock on June 23, 1998, as reported by the Nasdaq SmallCap
Market.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(g), based upon the last reported sales price
of the Common Stock on June 23, 1998, as reported by the Nasdaq SmallCap
Market.
(4) Previously paid.
____________________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
SUBJECT TO COMPLETION
DATED AUGUST 20, 1998
PROSPECTUS
1,083,333 SHARES OF COMMON STOCK
CRAGAR INDUSTRIES, INC.
All of the shares of Common Stock offered hereby (the "Offering") may be
sold by certain Selling Security Holders (the "Selling Security Holders") of
Cragar Industries, Inc. ("Cragar" or the "Company"). Pursuant to Rule 416
under the Securities Act of 1933, as amended (the "Securities Act"), the
number of shares of Common Stock offered hereby (the "Common Stock") includes
such presently indeterminate number of shares of Common Stock as may be
issued on conversion of the Company's Series A Convertible Preferred Stock
(the "Series A Preferred Stock") as a dividend, payment of a redemption price
or otherwise pursuant to the provisions thereof regarding determination of
the applicable conversion price, including adjustments to the conversion
price to prevent dilution resulting from stock splits, stock dividends or
similar transactions, or by reason of reductions in the conversion price in
accordance with the terms thereof (including, but not limited to, the terms
which cause the variable conversion price thereof to decrease to the extent
the market price of the Common Stock declines). If the shares of Series A
Preferred Stock were converted into shares of Common Stock at the conversion
ratio in effect on August 17, 1998, the Company would be obligated to issue a
total of approximately 333,333 shares of Common Stock if all 22,500 shares of
Series A Preferred Stock were to be converted at the Series A Fixed Price (as
defined herein), excluding any dividends. If the Series A Floating Price (as
defined herein) were used as the Series A Conversion Price (as defined
herein) as of August 17, 1998, the Company would be obligated to issue a
total of approximately 598,205 shares of Common Stock if all 22,500 shares of
Series A Preferred Stock were to be converted on such date. An additional
333,333 shares of Common Stock may be purchased upon exercise of presently
outstanding Warrants sold to the Selling Security Holders simultaneously with
the purchase of the Series A Preferred Stock (the "Preferred Stock
Warrants"). The 333,333 Common Shares purchasable upon exercise of the
Preferred Stock Warrants also may be offered by the Selling Security Holders.
See "Selling Security Holders." The Company will not receive any of the
proceeds from the sale of Common Stock by the Selling Security Holders,
although the Company will receive the proceeds from exercise of the Preferred
Stock Warrants, which would equal $2,699,997 if all Preferred Stock Warrants
were exercised. The Selling Security Holders may elect to sell all, a
portion, or none of the shares of Common Stock registered hereby. The Common
Stock is traded on the Nasdaq SmallCap Market ("Nasdaq") and the Boston Stock
Exchange ("BSE") under the symbols "CRGR" and "CWH," respectively. See,
however, "Risk Factors - Listing and Maintenance Criteria for Securities;
Possible Delisting from Nasdaq SmallCap Market." The Common Stock being
registered under the Registration Statement of which this Prospectus is a
part may be offered for sale from time to time by or for the account of such
Selling Security Holders in the open market, on the Nasdaq or BSE, in
privately negotiated transactions, in an underwritten offering, or a
combination of such methods, at market prices prevailing at the time of sale,
at prices related to such prevailing market prices or at negotiated prices.
The Common Stock is intended to be sold through one or more broker-dealers or
directly to purchasers. Such broker-dealers may receive compensation in the
form of commissions, discounts or concessions from the Selling Security
Holders and/or purchasers of the Common Stock for whom such broker-dealers
may act as agent, or to whom they may sell as principal, or both (which
compensation as to a particular broker-dealer may be in excess of customary
concessions). The Selling Security Holders and any broker-dealers who act in
connection with the sale of the Common Stock hereunder may be deemed to be
"underwriters" within the meaning of the Securities Act, and any commissions
received by them and proceeds of any resale of the Common Stock may be deemed
to be underwriting discounts and commissions under the Securities Act. See
"Selling Security Holders" and "Plan of Distribution." All expenses of
registration incurred in connection with this Offering are being borne by the
Company, but the Selling Security Holders will pay any brokerage and other
expenses of sale incurred by them. See "Plan of Distribution."
SEE "RISK FACTORS" ON PAGE 3 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED HEREBY.
EACH SELLING SECURITY HOLDER AND ANY BROKER EXECUTING SELLING ORDERS ON BEHALF
OF THE SELLING SECURITY HOLDERS MAY BE DEEMED TO BE AN "UNDERWRITER" WITHIN THE
MEANING OF THE SECURITIES ACT. COMMISSIONS RECEIVED BY ANY SUCH BROKER MAY BE
DEEMED TO BE UNDERWRITING COMMISSIONS UNDER THE SECURITIES ACT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS AUGUST ____, 1998.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Company may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at its regional offices located at 7 World Trade
Center, 13th Floor, New York, New York 10048 and at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a web site (http://www.sec.gov) that contains reports,
proxy, and information statements and other information regarding registrants,
such as the Company, that file electronically with the Commission. The Company's
Common Stock and related Warrants are listed on Nasdaq and similar information
can be inspected and copied at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006, although
the Company has received a notice from Nasdaq that the Company's Common Stock
and related Warrants will be delisted from the Nasdaq SmallCap Market unless the
Company is able to demonstrate compliance with the Nasdaq SmallCap Market's net
tangible assets maintenance rule on a timely basis. See "Risk Factors - Listing
and Maintenance Criteria for Securities; Possible Delisting from Nasdaq SmallCap
Market." The Company has filed with the Commission a registration statement
(the "Registration Statement") with respect to the shares of Common Stock
offered hereby. This Prospectus, which constitutes part of the Registration
Statement, does not contain all of the information contained in the Registration
Statement and the exhibits thereto. For further information with respect to the
Company and the shares of Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits thereto. Statements contained
herein concerning the provisions of any documents filed as an exhibit to the
Registration Statement or otherwise filed with the Commission are not
necessarily complete and, in each instance, reference is made to the copy of
such document as so filed. Each such statement is qualified in its entirety by
such reference.
No person is authorized to give any information or make any representation
other than those contained or incorporated by reference in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized. This Prospectus does not constitute an offer to sell or
a solicitation of an offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof.
INFORMATION INCORPORATED BY REFERENCE
The following documents have been filed by the Company with the
Commission and are hereby incorporated by reference into this Prospectus: (1)
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1997; (2)
Annual Report on Form 10-KSB/A for the fiscal year ended December 31, 1997;
(3) Quarterly Report on Form 10-QSB for the quarter ended March 31, 1998; (4)
Quarterly Report on Form 10-QSB for the quarter ended June 30, 1998; (5) the
Proxy Statement for the 1998 Annual Meeting of Securityholders; (6) Current
Report on Form 8-K filed on January 15, 1998; (7) Current Report on Form
8-K/A filed on January 23, 1998; and (8) Description of Capital Stock
contained in the Company's registration statement on Form 8-A, including all
amendments or reports filed for the purpose of updating such description. All
other documents and reports filed pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of this Offering shall be deemed to be incorporated by
reference in this Prospectus and to be made a part hereof from the date of
the filing of such reports and documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon the written or oral
request of such person, a copy of any or all documents incorporated
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herein by reference (not including the exhibits to such documents, unless
such exhibits are specifically incorporated by reference in the document
which this Prospectus incorporates). Requests for such documents should be
directed to Investor Relations, Cragar Industries, Inc., 4636 North 43rd
Avenue, Phoenix, Arizona 85031; telephone (602) 247-1300.
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS,
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS DISCUSSED BELOW IN
EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING ANY OF THE SHARES OF
COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK
FACTORS AND ELSEWHERE IN THIS PROSPECTUS. SEE "DISCLOSURE REGARDING
FORWARD-LOOKING STATEMENTS."
RISKS ASSOCIATED WITH BANKRUPTCY OF PRINCIPAL CUSTOMER
On September 19, 1997, the Company's principal customer, Super Shops, Inc.,
("Super Shops") filed for reorganization under Chapter 11 of the Federal
Bankruptcy Code in the United States Bankruptcy Court, Central District of
California. On December 31, 1997, the accounts receivable owed to the Company
by Super Shops totaled $3,523,028. The Company will continue to review various
alternatives with respect to this matter. Since the date of filing for
reorganization, Super Shops has ceased operations and has begun a liquidation
plan. As an unsecured creditor, there is no assurance that the Company will
recover any of the accounts receivable from Super Shops. Furthermore, if the
Company should be able to recover a portion of the accounts receivable the
timing of such recovery is uncertain. Accordingly, the Company has established
an allowance for bad debt that includes the entire $3,523,028 account receivable
from Super Shops. As a result of Super Shops ceasing operations, the Company
also has lost what was its largest customer. It is uncertain whether other
current or new customers can make up for the lost revenues generated by Super
Shops. Failure to resolve this matter satisfactorily is likely to have a
material adverse effect on the Company's results of operations and financial
conditions.
HISTORY OF PREVIOUS LOSSES
The Company was incorporated in December 1992 and has incurred significant
losses in each of its completed fiscal years. For the year ended December 31,
1997, the Company incurred a net loss of $4,768,785, including $3,523,028 from
the reserve established in connection with the Super Shops accounts receivable.
There can be no assurance that the Company will be profitable in the future.
Net sales for the year ended December 31, 1997 declined to $16.5 million from
$18.6 million for the year ended December 31, 1996. As of December 31, 1997,
the Company had cumulative losses of $12.3 million and a total stockholders'
deficiency of approximately $457,000.
LISTING AND MAINTENANCE CRITERIA FOR SECURITIES; POSSIBLE DELISTING FROM NASDAQ
SMALLCAP MARKET
The shares of Common Stock and Warrants currently are listed on the
Nasdaq SmallCap Market and the Boston Stock Exchange. The Company's net
tangible assets, however, have fallen below the minimum required by NASDAQ,
primarily as a result of the establishment of the allowance for bad debt
arising from the bankruptcy of the Company's primary customer. Nasdaq has
notified the Company of its decision to delist the Company's shares of Common
Stock and related Warrants from the Nasdaq SmallCap Market as a result of the
Company's inability to demonstrate compliance with the net tangible assets
rule on a continuing basis. The Company appealed this decision and attempted
to demonstrate its ability to sustain long term compliance with all
applicable maintenance criteria at a hearing held on July 24, 1998. If the
Company's appeal is unsuccessful, the Company's Common Stock and related
Warrants will be delisted from the Nasdaq SmallCap Market. There can be no
assurance that the Company's appeal will be successful or that, if
successful, the Company will be able to maintain compliance with the
requirements for continued listing on the Nasdaq SmallCap Market with respect
to the Common Stock or Warrants. If the Common Stock or the Warrants fail to
maintain such listing, the market value of the Common Stock and Warrants may
decline and holders may find
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it more difficult to dispose of the Common Stock and Warrants. In addition,
if the Company fails to maintain Nasdaq SmallCap Market and Boston Stock
Exchange listings 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 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 Warrants.
DEPENDENCE ON EXTERNAL FINANCING
On April 20, 1998, the Company secured a credit facility with
NationsCredit Commercial Funding Corporation ("NCFC"), a portion of the
proceeds of which were used to pay off the Company's previous credit facility
with Norwest Business Credit, Inc., which expired on April 15, 1998. The
terms of this new credit facility provide for a maximum combined term loan
and revolving loan totaling $8.5 million at an interest rate of 1.25% above
the prime rate (the "NCFC Credit Facility"). The NCFC Credit Facility will
be secured by substantially all of the Company's assets and has a term of
four years. Although the Company believes that the amount available under
the NCFC Credit Facility together with cash from operations will be
sufficient to fund the Company's working capital requirements for the next 12
months, there can be no assurance that the Company's cash flow from
operations, together with amounts currently available under the NCFC Credit
Facility, will be sufficient to implement fully its business strategies
especially in the event that the Company is required to refinance or replace
the NCFC Credit Facility. As a result, the Company may be required to raise
additional funds through equity or debt financings. No assurance can be
given that such additional financing will be available on terms acceptable to
the Company, if at all.
DEPENDENCE ON KEY DISTRIBUTORS; IMPLEMENTATION OF NEW DISTRIBUTION CHANNELS
A limited number of customers have accounted for a substantial portion of
the Company's revenue in each year. The financial condition and success of its
current customers and the Company's ability to obtain orders from new customers
are critical to the Company's success. For the year ended December 31, 1997,
the Company's ten largest customers accounted for a total of approximately 66.3%
of gross sales, with Super Shops accounting for 27.5%, J. H. Heafner Company,
Inc. 9.6%, and Keystone Automotive 6.2%. For the year ended December 31, 1996,
the Company's ten largest customers accounted for a total of approximately 75.7%
of its gross sales, with Super Shops, J. H. Heafner Company, Inc., and B & R
Wholesale Tire accounting for 24.3%, 12.1%, and 8.4% of gross sales,
respectively. The Company does not have any long-term contractual relationships
with any of its major customers. On September 19, 1997, Super Shops filed for
reorganization under Chapter 11 of the Federal Bankruptcy Code in the United
States Bankruptcy Court, Central District of California. At December 31, 1997,
the accounts receivable owed to the Company by Super Shops totaled $3,523,028,
all of which has been reserved. Since the date of the filing for
reorganization, Super Shops has ceased operations and has begun a liquidation
plan. As an unsecured creditor, there is no assurance that the Company will
recover any of the accounts receivable from Super Shops. Furthermore, if the
Company should be able to recover a portion of the accounts receivable, the
timing of such recovery is uncertain. Accordingly, the Company has established
an allowance for bad debt that includes the entire $3,523,028 account receivable
from Super Shops. As a result of Super Shops ceasing operations, the Company
also has lost what was its largest customer. It is uncertain whether other
current or new customers can make up for the lost revenues generated by Super
Shops.
GENERAL ECONOMIC FACTORS
The Company's business is directly impacted by certain external factors,
such as the general demand for aftermarket automotive parts, prices for raw
materials used in producing the Company's products, fluctuations in
discretionary consumer spending, and general economic conditions, including
employment levels, business conditions,
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interest rates, and tax rates. While the Company believes that current
economic conditions favor stability in the markets it serves, various
factors, including those listed above, could lead to decreased sales and
increased operating expenses. There can be no assurance that various factors
will not adversely affect the Company's business in the future or prevent the
Company from successfully implementing its business strategies.
DATA PROCESSING AND TECHNOLOGY AND YEAR 2000
The Company has commenced a study of its computer systems in order to
assess its exposure to year 2000 issues. To enable proper processing of
transactions relating to the year 2000 and beyond, the Company expects to
make the necessary modifications or changes to its computer information
systems or to migrate its operations to other systems that are year 2000
compliant. The Company believes the cost to modify its existing systems or
migrate its operations to other systems will not be material. The Company
will evaluate appropriate courses of action, including replacement of certain
systems whose associated costs would be recorded as assets and subsequently
amortized, or modification of its existing systems which costs would be
expensed as incurred. There can be no assurance that the Company will be able
to completely resolve all year 2000 issues in a timely fashion or that the
ultimate cost to identify and implement solutions to all year 2000 problems
will not be material to the Company.
VARIABILITY IN OPERATING RESULTS; SEASONALITY
The Company's results of operations have been and will continue to be
subject to substantial variations as a result of a number of factors, any of
which could have a material adverse effect on the Company's business, financial
condition, and results of operations. In particular, the Company's operating
results can vary because of the size and timing of customer orders, delays in
new product enhancements and new product introductions, vendor quality control
and delivery difficulties, market acceptance of new products, product returns,
product rebates and allowances, seasonality in product purchases by distributors
and end users, and pricing trends in the automotive aftermarket industry in
general and in the specific markets in which the Company participates.
Historically, the Company's net sales have been highest in the first and second
quarters of each year. Significant variability in orders during any period may
have an adverse impact on the Company's cash flow or work flow, and any
significant decrease in orders could have a material adverse effect on the
Company's results of operations. The Company believes that any period-to-period
comparisons of its financial results are not necessarily meaningful and should
not be relied upon as an indication of future performance.
CHANGING CUSTOMER TRENDS; NEED FOR PRODUCT DEVELOPMENT
The Company's success depends, in part, on its ability to correctly and
consistently anticipate, gauge, and respond in a timely manner to changing
consumer preferences. There can be no assurance that the Company's core
products will continue to enjoy acceptance among consumers or that any of the
Company's future product offerings will achieve or maintain market acceptance.
The Company attempts to minimize the risks relating to changing consumer trends
by offering a wide variety of product styles, analyzing consumer purchases,
maintaining active product development efforts, and monitoring the sales
performance of its various product lines. However, any misjudgment by the
Company of the market for a particular product, or its failure to correctly
anticipate changing consumer preferences, could have a material adverse effect
on its business, financial condition, and results of operations. In order to
enhance its product development efforts, the Company may supplement its existing
product development staff by hiring one or more new employees with product
development experience and by engaging an outside consultant to assist the
Company's product development staff. There can be no assurance that the Company
will be able to attract and retain such additional personnel or that the costs
associated with additional product development efforts will not have an adverse
effect on the Company's business, financial condition, and results of
operations.
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DEPENDENCE ON THIRD PARTY SUPPLIERS
The Company's business depends upon the assembly of component parts and
the shipment of finished wheels and wheel accessories from third-party
suppliers. From time to time, the Company has experienced delays in the
delivery of component parts and finished products from vendors. In addition,
some of the Company's suppliers are located in China, which from time to time
has been subject to numerous trading restrictions by the United States. The
Company also has had suppliers in Indonesia, the Philippines, and Taiwan.
The purchase of materials from foreign suppliers may be adversely affected by
political and economic conditions abroad over which the Company has no
control. Although to date the Company has generally been able to acquire
adequate supplies of such components and finished product in a timely manner,
any extended interruption in supply, significant increase in the price, or
reduction in the quality of such components could have a material adverse
effect on the Company's business, financial condition, and results of
operations. The Company has begun to outsource selectively the production of
some of its finished products and may increase such outsourcing in the
future. For the six-month period ended June 30, 1998, approximately 29.5% of
the Company's gross sales were attributable to outsourced finished products.
While the Company anticipates that such outsourcing programs will stabilize
costs and shift certain inventory, warranty, and other risks to its
suppliers, there can be no assurance that the continued or increased
outsourcing of its products will have these desired effects.
HIGHLY COMPETITIVE INDUSTRY
The market for the Company's products is highly competitive. The Company
competes primarily on the basis of product selection (which includes style and
vehicle fit), timely availability of product for delivery, quality, design
innovation, price, payment terms, and service. Many of the Company's
competitors have substantially greater financial, personnel, marketing, and
other resources than the Company. Increased competition could result in price
reductions (which may be in the form of rebates or allowances), reduced margins,
and loss of market share, all of which could have a material adverse effect on
the Company's business, financial condition, and results of operations.
NO ASSURANCE OF SUCCESSFUL ACQUISITIONS
The Company is considering acquisitions of and alliances with other
companies that could complement the Company's existing business, including
acquisitions of complementary product lines. Although the Company has conducted
preliminary discussions with a number of companies, there can be no assurance
that suitable acquisition or joint venture candidates can be identified, or
that, if identified, adequate and acceptable financing sources will be available
to the Company that would enable it to consummate such transactions. Even if an
acquisition or joint venture is consummated, there can be no assurance that the
Company will be able to integrate successfully such acquired companies or
product lines into its existing operations, which could increase the Company's
operating expenses in the short-term and materially and adversely affect the
Company's results of operations. Moreover, any acquisition by the Company may
result in potentially dilutive issuances of equity securities, the incurrence of
additional debt, and amortization of expenses related to goodwill and intangible
assets, all of which could adversely affect the Company's profitability.
Acquisitions involve numerous risks, such as the diversion of the attention of
the Company's management from other business concerns, the entrance of the
Company into markets in which it has had no or only limited experience, and the
potential loss of key employees of the acquired company, all of which could have
a material adverse effect on the Company's business, financial condition, and
results of operations.
REGULATORY COMPLIANCE
The Company is subject to various federal and state governmental
regulations related to occupational safety and health, labor, and wage practices
as well as federal, state, and local governmental regulations relating to the
storage, discharge, handling, emission, generation, manufacture, and disposal of
toxic or other hazardous substances used to produce the Company's products. The
Company believes that it is currently in material compliance with such
regulations. Failure to comply with current or future environmental regulations
could result in the imposition of substantial fines on the Company, suspension
of production, alteration of its production processes, cessation of operations,
or other actions that could materially and adversely affect the Company's
business, financial condition, and results of operations. In the ordinary
course of its business, the Company uses metals, oils, and similar materials
that
6
<PAGE>
are stored on site. The waste created by use of these materials is
transported off-site on a regular basis by a state-registered waste hauler.
Although the Company is not aware of any current material claim or investigation
with respect to these activities, there can be no assurance that such a claim
may not arise in the future or that the cost of complying with governmental
regulations in the future will not have a material adverse effect on the
Company.
RELIANCE ON INTELLECTUAL PROPERTY
The Company owns the rights to certain trademarks and patents, relies on
trade secrets and proprietary information, technology, and know-how, and seeks
to protect this information through agreements with employees and vendors.
There can be no assurance that the Company's patents will preclude the Company's
competitors from designing competitive products, that proprietary information or
confidentiality agreements with employees and others will not be breached, that
the Company's patents will not be infringed, that the Company would have
adequate remedies for any breach or infringement, or that the Company's trade
secrets will not otherwise become known to or independently developed by
competitors.
RISKS ASSOCIATED WITH INTERNATIONAL SALES; CURRENCY FLUCTUATIONS
As part of the Company's business strategy, it intends to expand into
selected international markets. In 1997 and 1996, the Company derived
approximately 4.8% and 4.0%, respectively, of total gross sales from
international markets. The Company's international sales efforts are subject to
the customary risks of doing business abroad, including exposure to regulatory
requirements, political and economic instability, barriers to trade, trade
restrictions (including import quotas), tariff regulations, foreign taxes,
restrictions on transfer of funds, difficulty in obtaining distribution and
support, and export licensing requirements, any of which could have a material
adverse effect on the Company's operations. In addition, a weakening in the
value of foreign currencies relative to the U.S. dollar and fluctuations in
foreign currency exchange rates could have an adverse impact on the price of the
Company's products in its international markets.
CONTROL BY EXISTING STOCKHOLDERS
The directors, officers, and principal stockholders of the Company
currently beneficially own approximately 23.3% of the Company's outstanding
Common Stock. As a result, these persons could have a significant influence
on the affairs and management of the Company, as well as on all matters
requiring stockholder approval, including electing and removing members of
the Company's Board of Directors, causing the Company to engage in
transactions with affiliated entities, causing or restricting the sale or
merger of the Company, and changing the Company's dividend policy. Such
concentration of ownership and control could have the effect of delaying,
deferring, or preventing a change in control of the Company even when such a
change of control might be in the best interest of the Company's other
stockholders.
EFFECT OF PREFERRED STOCK ON RIGHTS OF COMMON STOCK
The Company's Amended and Restated Certificate of Incorporation authorizes
the Board of Directors of the Company to issue "blank check" Preferred Stock,
the relative rights, powers, preferences, limitations, and restrictions of which
may be fixed or altered from time to time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without stockholder approval,
to issue Preferred Stock with dividend, liquidation, conversion, voting, or
other rights that could adversely affect the voting power and other rights of
the holders of Common Stock. In the first quarter of 1998, for example, the
Company issued 22,500 shares of its Series A Preferred Stock for $2.25 million
in additional capital. See "Description of Capital Stock - Series A Convertible
Preferred Stock." Additional series of Preferred Stock could be issued, under
certain circumstances, as a method of discouraging, delaying, or preventing a
change in control of the Company that stockholders might consider to be in the
Company's best interests. There can be no assurance that the Company will not
issue additional shares of Preferred Stock in the future.
7
<PAGE>
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends, in large part, on the efforts and
abilities of its management team, including Michael L. Hartzmark, Ph.D., its
President and Chief Executive Officer. The loss of the services of Dr.
Hartzmark could have a material adverse effect on the business of the
Company. While Dr. Hartzmark does not have an employment agreement with the
Company, Dr. Hartzmark and his family currently beneficially own over 14.2%
of the Company's Common Stock. The successful implementation of the
Company's business strategies depends on the hiring and retention of
additional management, engineering, marketing, product development, and other
personnel. There can be no assurance that the Company will be able to
identify and attract additional qualified management and other personnel when
needed or that the Company will be successful in retaining such additional
management and personnel if added. Moreover, there can be no assurance that
the additional costs associated with the hiring of additional personnel will
not adversely effect the Company's results of operations. The Company does
not maintain key man life insurance on any of its personnel.
LIMITED LIABILITY OF DIRECTORS
The Company's Certificate of Incorporation provides, with certain
exceptions, that the Company's directors will not be personally liable for
monetary damages for breach of the directors' fiduciary duty of care to the
Company or its stockholders. This provision does not eliminate the duty of
care, and in appropriate circumstances equitable remedies such as an injunction
or other forms of nonmonetary relief would remain available under Delaware law.
This provision also does not affect a director's responsibilities under any
other laws, such as the federal securities laws or state or federal
environmental laws.
NO DIVIDENDS
The Company has never paid dividends on its Common Stock and does not
anticipate that it will pay dividends in the foreseeable future. It is
contemplated that any earnings will be used to finance the growth of the
Company's business. In addition, the Company's NCFC Credit Facility prohibits
the payments of cash dividends without the lender's consent.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus, including all documents
incorporated herein by reference, may be forward-looking statements within
the meaning of The Private Securities Litigation Reform Act of 1995. These
forward-looking statements may include projections of revenue and net income
and issues that may affect revenue or net income; projections of capital
expenditures; plans for future operations; financing needs or plans; plans
relating to the Company's products and services; and assumptions relating to
the foregoing. In particular, there can be no assurance that the Company
will be able to maintain listing of its Common Stock and related Warrants on
the Nasdaq SmallCap Market. 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.
Statements in this Prospectus, including those set forth above, describe
factors, among others, that could contribute to or cause such differences.
USE OF PROCEEDS
The Selling Security Holders will receive all of the proceeds and the
Company will not receive any of the proceeds from the sale of the Common
Stock offered hereby. If all of the outstanding Preferred Stock Warrants
were exercised as of August 17, 1998, the Company would receive gross
proceeds of approximately $2,669,997, which the Company expects to use for
working capital and general corporate purposes. There can be no assurance,
however, that any of such Warrants will be exercised.
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<PAGE>
SELLING SECURITY HOLDERS
The following table provides information regarding the beneficial
ownership of the Common Stock as of August 17, 1998, and as adjusted to
reflect the sale of all of the Common Stock offered hereby by the Selling
Security Holders. Pursuant to Rule 416 of the Securities Act, Selling
Security Holders also may offer and sell Common Stock issued with respect to
the Series A Preferred Stock and the Preferred Stock Warrants as a result of
stock splits, stock dividends and anti-dilution provisions (including by
reason of reductions in the conversion price of the Series A Preferred Stock
related to reductions in the market price of the Company's Common Stock and
otherwise in accordance with the terms thereof). Except as otherwise
indicated, to the knowledge of the Company, all persons listed below have
sole voting and investment power with respect to their securities.
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK COMMON STOCK
BENEFICIALLY TO BE SOLD IN BENEFICIALLY OWNED
OWNED PRIOR TO THE THE AFTER THE
OFFERING(1) OFFERING(1) OFFERING(2)
---------- ---------- ---------------------
<S> <C> <C> <C> <C>
NAME OF SELLING
SECURITY HOLDER NUMBER NUMBER NUMBER PERCENT
--------------- ------ ------ ------ -------
Joan Albrecht 21,166 21,166 -- --%
Eileen D. Berke 64,401 42,332 22,069 0.9%
R Capital II, Ltd. 63,498 63,498 -- 0.0%
Phillis J. Cohen 44,995 42,332 2,663 0.1%
Irving Davies 109,865 21,166 88,699 3.4%
Sidney Dworkin(3) 533,351 211,661 321,690 11.5%
Edward Falkner Trust 21,166 21,166 -- 0.0%
Central Fill Pharmacy
Alvin Konigsberg 50,732 42,332 8,400 0.3%
Lee Hartzmark(4) 222,194 211,661 10,533 0.4%
Virginia Meade 21,166 21,166 -- 0.0%
Gee Gee Morgan 10,583 10,583 -- 0.0%
James M. Persky 10,583 10,583 -- 0.0%
Kenneth M. Reichle, Jr. 40,219 21,166 19,053 0.8%
Harry Schwartz(5) 251,113 105,831 145,282 5.5%
Mark Schwartz(6) 227,379 105,831 121,548 4.7%
</TABLE>
_____________________
(1) Includes such number of shares of Common Stock estimated to be issuable
upon conversion of the Series A Preferred Stock, based on the Series A
Floating Price of $3.76125 per share as of August 17, 1998. The
actual number of such shares of Common Stock (and the actual number of
shares offered hereby) may be greater than the indicated amount as a
result of the application of the variable conversion price provisions at
the actual date of conversion. See "Description of Capital Stock."
The figures above also include up to 333,333 shares of Common Stock
issuable upon conversion of Preferred Stock Warrants sold in connection
with the private placement of the Series A Preferred Stock and 20,937
shares of Common Stock issuable upon conversion of Series A Preferred
Stock previously issued as dividends.
(2) Assumes that the Selling Security Holder disposes of all of the shares
of Common Stock covered by this Prospectus and does not acquire any
additional shares of Common Stock. Except as set forth in footnote 1,
assumes no other exercise of options, warrants or conversion rights or
issuances of additional securities.
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<PAGE>
(3) Includes 2,100 shares purchasable upon the exercise of options and 10,533
shares owned by CN Partners LP of which Mr. Dworkin is a one-fifth
beneficial owner.
(4) Includes 10,533 shares owned by CN Partners LP of which Mr. Hartzmark is a
one-fifth beneficial owner.
(5) Includes 10,533 shares owned by CN Partners LP of which Mr. Schwartz is a
one-fifth beneficial owner.
(6) Includes 2,800 shares purchasable upon the exercise of options.
Based on 2,482,865 shares outstanding as of August 17, 1998.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 5,000,000 shares of
Common Stock, $0.01 par value, and 200,000 shares of Preferred Stock, $0.01 par
value.
COMMON STOCK
The holders of outstanding shares of Common Stock are entitled to receive
dividends out of assets legally available thereof at such times and in such
amounts as the Board of Directors may, from time to time, determine, subject to
any preferences which may be granted to the holders of Preferred Stock. Holders
of Common Stock are entitled to one vote per share on all matters on which the
holders of Common Stock are entitled to vote. The Common Stock is not entitled
to preemptive rights and is not subject to redemption or conversion. Upon
liquidation, dissolution, or winding-up of the Company, the assets (if any)
legally available for distribution to stockholders are distributable ratably
among the holders of the Common Stock after payment of all debt and liabilities
of the Company and the liquidated preference of any outstanding class or series
of Preferred Stock. All outstanding shares of Common Stock are, and the shares
of Common Stock to be issued pursuant to this offering will be, when issued and
delivered, validly issued, fully paid, and nonassessable. The rights,
preferences, and privileges of holders of Common Stock will be subject to the
preferential rights of any outstanding series of Preferred Stock that the
Company may issue in the future.
SERIES A CONVERTIBLE PREFERRED STOCK
The Company is authorized to issue 30,000 shares of its Series A
Convertible Preferred Stock (the "Series A Preferred Stock"), of which 22,500
Series A Preferred Shares were outstanding as of the date of this Prospectus.
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<PAGE>
The Series A Preferred Stock is subject to the terms and conditions of the
Certificate of Designation and the Series A Convertible Preferred Stock Purchase
Agreement discussed below and in detail in the Company's Form 8-K/A filed on
January 15, 1998.
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, including
the Common 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 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 is convertible into shares of the
Company's Common Stock at the Series A Conversion Ratio (as defined below)
(subject to adjustment as provided 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, shares of
which were issued in January 1998, February 1998 and March 1998. 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
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" is $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
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<PAGE>
(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 the Company is not declared
effective by the 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) in the prior
paragraph and this sentence exceed 20%. If the Series A Floating Price were
used to determine the conversion ratio as of August 17, 1998, the Company
would be required to issue up to 598,205 shares of Common Stock upon the
conversion of Series A Preferred Stock, exclusive of dividends.
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 fully 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.
WARRANTS
WARRANTS RELATED TO SERIES A PREFERRED STOCK
In connection with the issuance of the Series A Preferred Stock, the
Company granted Preferred Stock Warrants to the holders of the Series A
Preferred Stock to acquire up to 333,333 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.
PUBLIC WARRANTS
In connection with its initial public offering ("IPO") in 1996, the Company
issued 977,500 Public Warrants. The Public Warrants are subject to the terms
and conditions of a Warrant Agreement between the Company and American Stock
Transfer & Trust Company, as Warrant Agent. The following description of the
Public Warrants is qualified in all respects by the Warrant Agreement. The
shares of the Company's Common Stock underlying the Public Warrants, when issued
upon exercise thereof and payment of the purchase price, will be fully paid and
nonassessable.
Each Public Warrant entitles the holder to purchase one share of Common
Stock for $6.60, subject to adjustment in certain circumstances, at any time
before December 18, 2001, unless earlier redeemed, at which time the Public
Warrants will expire. The Public Warrants are redeemable in whole and not in
part by the Company upon 30 days written notice at a price of $.10 per Public
Warrant, provided that the closing bid quotations of the Common Stock have
12
<PAGE>
averaged at least $9.00 per share for a period of any 20 trading days ending on
the third day prior to the day on which the Company mails the notice of
redemption to the Public Warrant holders. In the event the Company gives notice
of its intention to redeem the Public Warrants, a holder would be forced to
either exercise his Public Warrant within 30 days of the notice of redemption or
accept the redemption price. The holders of the Public Warrants will have
exercise rights until the close of business on the date fixed for the redemption
thereof. The number and kind of securities or other property for which the
Public Warrants are exercisable are subject to adjustment upon the occurrence of
certain events, including mergers, reorganizations, stock dividends, stock
splits, and recapitalizations. Holders of Public Warrants have no voting,
dividend, or other rights as stockholders of the Company with respect to the
shares underlying the Public Warrants, unless and until the Public Warrants are
exercised.
The Public Warrants may be exercised by filling out and signing the
appropriate form on the Public Warrants and mailing or delivering the Public
Warrants to the Warrant Agent in time to reach the Warrant Agent by the
expiration date, accompanied by payment in full of the exercise price for the
Public Warrants being exercised in United States funds (in cash or by check or
bank draft payable to the order of the Company). Common Stock certificates will
be issued as soon as practicable after exercise and payment of the exercise
price as described above.
REPRESENTATIVE'S WARRANTS
In connection with its IPO, the Company issued to the Representative of the
Underwriters warrants (the "Representative's Warrants") to purchase 85,000
shares of Common Stock and 85,000 Underlying Warrants. The Representative's
Warrants are exercisable for a period of four years commencing December 18,
1997. The Representative's Warrants are exercisable for an equal amount of
shares of Common Stock and Underlying Warrants at an exercise price of $7.50 per
share of Common Stock and $.125 per Underlying Warrant. The terms of the
Underlying Warrants are substantially identical to those of the Public
Warrants. In addition, the Company will provide certain demand and piggyback
registration rights in connection with the Representative's Warrants.
PRIVATE WARRANTS
As of August 17, 1998, the Company had outstanding warrants (the
"Private Warrants") to purchase an aggregate of 28,875 shares of Common Stock
at exercise prices ranging from $1.43 to $3.25.
The Private Warrants contain provisions that protect the holders against
dilution by adjustment of the exercise price and the number of shares of Common
Stock subject to the Private Warrants in certain events, such as stock dividends
and distributions, stock splits, recapitalizations, mergers, or consolidations.
Holders of the Private Warrants do not possess any rights as stockholders of the
Company prior to exercise.
CERTAIN CHARTER PROVISIONS
The Company's Certificate of Incorporation provides that the Company's
directors will not be personally liable for monetary damages for breach of the
directors' fiduciary duty of care to the Company or its stockholders, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involved
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, or (iv) for any transaction from which the
director derived any improper personal benefit. This provision in the
Certificate of Incorporation does not eliminate the duty of care, and in
appropriate circumstances equitable remedies such as an injunction or other
forms of nonmonetary relief would remain available under Delaware law. This
provision also does not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws.
TRANSFER AGENT, REGISTRAR AND WARRANT AGENT
The stock transfer agent and registrar for the Common Stock is American
Stock Transfer Company.
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REGISTRATION RIGHTS
Certain holders of the Private Warrants have been granted certain rights
with respect to the registration under the Securities Act of the Private
Warrants or the shares of Common Stock issued upon exercise of the Private
Warrants. Beginning December 18, 1998, the Company must, within six months of
receipt of requests for registration from holders of at least 63,000 shares of
Common Stock (or warrants to acquire 63,000 shares of Common Stock), use its
best efforts to effect the registration under the Securities Act of such
securities.
The Company generally is required to bear all costs incurred in connection
with any such registrations, other than underwriting discounts and commissions.
The foregoing registration rights could result in substantial future expense to
the Company and could adversely affect any future equity or debt offerings of
the Company.
PLAN OF DISTRIBUTION
The Common Stock is being offered on behalf of the Selling Security
Holders, and, except for the exercise price of the Preferred Stock Warrants,
the Company will not receive any proceeds from the Offering. The Common
Stock may be sold or distributed from time to time by the Selling Security
Holders or by pledgees, donees, or transferees of, or other successors in
interest to, the Selling Security Holders, directly to one or more purchasers
(including pledgees) or through brokers, dealers or underwriters who may act
solely as agents or may acquire Common Stock as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices, or at fixed prices, which may be changed. The
distribution of the Common Stock may be effected in one or more of the
following methods: (i) ordinary brokers' transactions, which may include long
or short sales (in certain circumstances); (ii) transactions involving cross
or block trades or otherwise on Nasdaq or the BSE; (iii) purchases by
brokers, dealers or underwriters as principal and resale by such purchasers
for their own accounts pursuant to this Prospectus; (iv) "at the market" to
or through market makers or into an existing market for the Common Stock; (v)
in other ways not involving market makers or established trading markets,
including direct sales to purchasers or sales effected through agents; (vi)
through transactions in options, swaps or other derivatives (whether
exchange-listed or otherwise); (vii) pursuant to Rule 144 under the
Securities Act; or (viii) any combination of the foregoing, or by any other
legally available means except as may be limited by the terms of the
Securities Purchase Agreement with respect to the Series A Preferred Stock
and Preferred Stock Warrants. The Selling Security Holders or their
successors in interest may also enter into option or other transactions with
broker-dealers that require the delivery by such broker-dealers of the Common
Stock, which Common Stock may be resold thereafter pursuant to this
Prospectus. Selling Security Holders will be subject to applicable
provisions of the Exchange Act and rules and regulations thereunder,
including without limitation, Regulation M, which provisions may limit the
timing of purchases and sales of any of the shares of Common Stock by the
Selling Security Holders.
Brokers, dealers, underwriters or agents participating in the distribution
of the Common Stock as agents may receive compensation in the form of
commissions, discounts or concessions from the Selling Security Holders and/or
purchasers of the Common Stock for whom such broker-dealers may act as agent, or
to whom they may sell as principal, or both (which compensation as to a
particular broker-dealer may be less than or in excess of customary
commissions). The Selling Security Holders and any broker-dealers who act in
connection with the sale of the Common Stock hereunder may be deemed to be
"Underwriters" within the meaning of the Securities Act, and any commissions
they receive and proceeds of any sale of Common Stock may be deemed to be
underwriting discounts and commissions under the Securities Act. Neither the
Company nor any Selling Security Holder can presently estimate the amount of
such compensation. The Company knows of no existing arrangements between any
Selling Security Holder, any other shareholder, broker, dealer, underwriter or
agent relating to the sale or distribution of the Common Stock.
The Company will pay substantially all of the expenses incident to the
registration, offering and sale of the Common Stock to the public other than
commissions or discounts of underwriters, broker-dealers or agents. The
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<PAGE>
Company has also agreed to indemnify the Selling Security Holders and certain
related persons against certain liabilities, including liabilities under the
Securities Act.
LEGAL OPINIONS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Snell & Wilmer, L.L.P., Phoenix, Arizona.
EXPERTS
The financial statements of Cragar Industries, Inc. as of December 31,
1997, and for each of the years in the two year period ended December 31, 1997
have been incorporated by reference herein and in the registration statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
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- ------------------------------------ -----------------------------------
- ------------------------------------ -----------------------------------
No dealer, sales representative,
or other person has been
authorized to give any
information or to make any
representation not contained in
this Prospectus and, if given or
made, such information or 1,083,333 SHARES OF COMMON STOCK
representation must not be relied
upon as having been authorized by
the Company, the Selling Security
Holders, or any other person. CRAGAR INDUSTRIES, INC.
This Prospectus does not
constitute an offer of any
securities other than those to
which it relates or an offer to
sell, or a solicitation of an
offer to buy, to any person in
any jurisdiction where such an _______________
offer or solicitation would be
unlawful. Neither the delivery PROSPECTUS
of this Prospectus nor any sale _______________
made hereunder and thereunder
shall, under any circumstances,
create any implication that the
information contained herein is
correct as of anytime subsequent
to the date hereof.
<TABLE>
<CAPTION>
_________________
TABLE OF CONTENTS
Page
----
<S> <C>
Available Information 2
Information Incorporated by
Reference. 2
Risk Factors . . . . . 3
Use of Proceeds . . . . 8
Selling Security Holders 9
Description of Capital Stock 10
Plan of Distribution . 14
Legal Opinions . . . . 15
Experts . . . . . . . . 15
</TABLE>
AUGUST ____, 1998
- ------------------------------------ -----------------------------------
- ------------------------------------ -----------------------------------
16
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses in connection with the issuance
and distribution of the securities being registered, all of which expenses will
be paid by the Company:
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission Registration Fee $**1,930
Nasdaq Listing Fee $* 7,500
Printing and Engraving Expense $* 1,000
Legal Fees and Expenses $* 5,000
Accounting Fees and Expenses $* 5,000
Blue Sky Fees and Expenses $* 2,500
Transfer Agent Fees and Expenses $* 500
Miscellaneous $* 500
-------
TOTAL $*23,930
</TABLE>
________________
* Estimated
** Previously Paid
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Bylaws provide that the Company shall to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Company to provide broader indemnification
rights than such law permitted the Company to provide prior to such amendment),
indemnify and hold harmless any person who was or is a party, or is threatened
to be made a party to or is otherwise involved in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director or
officer of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "Indemnitee") against expenses,
liabilities and losses (including attorneys' fees, judgments, fines, excise
taxes or penalties paid in connection with the Employee Retirement Income
Security Act of 1974, as amended, and amounts paid in settlement) reasonably
incurred or suffered by such Indemnitee in connection therewith; provided,
however, that except as provided in the Bylaws with respect to proceedings to
enforce rights to indemnification, the Company shall indemnify any such
Indemnitee in connection with a proceeding (or part thereof) initiated by such
Indemnitee only if such proceeding or part thereof was authorized by the Board
of Directors of this Company.
The right to indemnification conferred in the Company's Bylaws includes the
right to be paid by the Company the expenses (including attorneys' fees)
incurred in defending any such proceeding in advance of its final disposition;
provided, however, that, if the Delaware General Corporation Law requires, an
advancement of expenses incurred by an Indemnitee in his capacity as a director
or officer (and not in any other capacity in which service was or is rendered by
such Indemnitee, including, without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Company of an undertaking, by or
on behalf of such Indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is not
further right to appeal that such Indemnitee is not entitled to be indemnified
for such expenses under this section or otherwise. The rights to
indemnification and to the advancement of expenses conferred in this section of
the Bylaws shall be contract rights and such rights shall continue as to an
Indemnitee who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the Indemnitee's heirs, executors and administrators.
17
<PAGE>
If a claim under the two preceding paragraphs of this section of the Bylaws
is not paid in full by the Company within 60 days after a written claim has been
received by the Company, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be 20 days, the Indemnitee
may at any time thereafter bring suit against the Company to recover the unpaid
amount of the claim. If successful in whole or in part in any such suit, or in
a suit brought by the Company to recover an advancement of expenses pursuant to
the terms of an undertaking, the Indemnitee shall be entitled to be paid also
the expense of prosecuting or defending such suit. In (i) any suit brought by
the Indemnitee to enforce a right to indemnification hereunder (but not in a
suit brought by the Indemnitee to enforce a right to an advancement of expenses)
and (ii) in any suit brought by the Company to recover an advancement of
expenses pursuant to the terms of an undertaking, the Company shall be entitled
to recover such expenses upon a final adjudication that the Indemnitee has not
met any applicable standard for indemnification set forth in the Delaware
General Corporation Law. Neither the failure of the Company (including its
Board of Directors, independent legal counsel, or its stockholders) to have made
a determination prior to the commencement of such suit that indemnification of
the Indemnitee is proper in the circumstances because the Indemnitee has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Company (including its Board of
Directors, independent legal counsel, or its stockholders) that the Indemnitee
has not met such applicable standard of conduct shall create a presumption that
the Indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the Indemnitee, be a defense to such suit. In any suit
brought by the Indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or brought by the corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the Indemnitee is not entitled to be indemnified, or to such
advancement of expenses under this section of the Bylaws or otherwise shall be
on the Company.
The Delaware General Corporation Law provides that indemnification is
permissible only when the director, officer, employee, or agent acted in good
faith and in a manner reasonable believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the conduct was unlawful. The
Delaware General Corporation Law also precludes indemnification in respect of
any claim, issue, or matter as to which an officer, director, employee, or agent
shall have been adjudged to be liable to the Company unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall determine that, despite such adjudication of liability but in view
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1 Second Amended and Restated Certificate of Incorporation of the
Registrant filed with State of Delaware on October 1, 1996*
3.2 Amended and Restated Bylaws of the Registrant*
3.3 Form of Certificate of Designation***
4.1 Form of Certificate representing Common Stock*
4.2 Form of Warrant Agreement**
4.3 Form of Warrant Certificate*
4.4 Form of Class A Stock Purchase Warrant Certificate*
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
4.5 Form of Class B Stock Purchase Warrant Certificate*
4.6 Form of Class C Stock Purchase Warrant Certificate*
4.7 Form of Representative's Warrant Agreement, dated December 18, 1996,
by and between the Registrant and Dickinson & Co.**
4.8 Form of Series A Convertible Preferred Stock Purchase Agreement***
4.9 Form of Warrant***
5 Legal opinion of Snell & Wilmer, L.L.P. (previously filed)
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Snell & Wilmer, L.L.P. (included in Exhibit 5)
24 Power of Attorney (included on signature page of Registration
Statement) (previously filed)
27 Financial Data Schedule (previously filed)
___________________
* Incorporated by reference to the Company's Registrant Statement on Form
SB-2) (No. 333-13415) filed as of November 22, 1996
** Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1996 (No. 1-12559)
*** Incorporated by reference to the Company's Current Report of Form 8-K,
filed January 23, 1998 (No. 1-12559)
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement to include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the
Act, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities
offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering
thereof;
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Act, each filing of the Registrant's
Annual Report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") that is incorporated by reference in
the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
19
<PAGE>
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing this Amendment No. 1 on Form S-3 and has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Phoenix, State of
Arizona, on August 20, 1998.
CRAGAR INDUSTRIES, INC.
By: /s/ MICHAEL L. HARTZMARK
-----------------------------
Michael L. Hartzmark
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated. Each person whose signature appears below hereby authorizes
Michael L. Hartzmark and Michael R. Miller, and each of them, as
attorneys-in-fact, to sign his or her name on his or her behalf, individually
and in each capacity designated below, and to file any amendments, including
post-effective amendments to this Registration Statement.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
----- ----
<S> <C> <C>
/s/ Michael L. Hartzmark President, Treasurer, Chief August 20, 1998
- ---------------------------- Executive Officer, and Director
Michael L. Hartzmark (Principal Executive Officer)
/s/ Anthony W. Barrett Vice President of Sales Operations August 20, 1998
- ---------------------------- (Principal Financial and
Anthony W. Barrett accounting Officer)
/s/ Michael R. Miller Chief Operating Officer, August 20, 1998
- ---------------------------- Secretary and Director
Michael Miller
/s/ Sidney Dworkin Director August 20, 1998
- ----------------------------
Sidney Dworkin
/s/ Donald McIntyre Director August 20, 1998
- ----------------------------
Donald McIntyre
/s/ Mark Schwartz Director August 20, 1998
- ----------------------------
Mark Schwartz
</TABLE>
21
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Cragar Industries, Inc.:
We consent to incorporation by reference in the registration statement on
Form S-3 of Cragar Industries, Inc. of our report dated March 20, 1998,
except for note 19 which is as of April 20, 1998, relating to the balance
sheet of Cragar Industries, Inc. as of December 31, 1997, and the related
statements of operations, stockholders' deficiency, and cash flows for each
of the years in the two-year period ended December 31, 1997, which report
appears in the December 31, 1997 annual report on Form 10-KSB/A of Cragar
Industries, Inc. and to the reference to our firm under the heading "Experts"
therein.
/s/ KPMG Peat Marwick LLP
Phoenix, Arizona
August 20, 1998
