<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11-c- or Rule 14a-12
CRAGAR INDUSTRIES, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(I)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
N/A
(2) Aggregate number of securities to which transaction applies:
N/A
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined): $1,875,000 = an estimated $1,700,000 in cash
to be received from sale of assets plus $175,000 in cash to be
received as a royalty prepayment.
(4) Proposed maximum aggregate value of transaction: $1,875,000
(5) Total fee paid: $375
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid: N/A
(2) Form, Schedule or Registration Statement no.: N/A
(3) Filing Party: N/A
(4) Date Filed: N/A
<PAGE>
CRAGAR INDUSTRIES, INC.
4636 NORTH 43RD AVENUE
PHOENIX, ARIZONA 85031
November , 1999
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders
of Cragar Industries, Inc. on Wednesday, December 22, 1999, at 10:00 a.m.,
Mountain Standard Time, at 4636 North 43rd Avenue, Phoenix, Arizona.
At the meeting, we will ask you to vote on a proposed transaction
with Carlisle Tire & Wheel Co., a Delaware corporation, and a wholly-owned
subsidiary of Carlisle Companies Incorporated. If the proposed transaction is
approved, Cragar will grant an exclusive worldwide license to Carlisle to
manufacture, sell, market, and distribute its line of wheels manufactured
with steel outer rims in exchange for a royalty based on net sales of the
licensed products, and sell certain assets to Carlisle related to Cragar's
line of wheels manufactured with steel outer rims, as described in the
accompanying proxy statement.
Copies of the Exclusive Field of Use License Agreement and the
Agreement of Purchase and Sale of Assets between Cragar and Carlisle are
attached as Appendices A and B to the proxy statement.
We are asking our shareholders to vote on the proposed transaction
because this transaction, together with a similar transaction we completed with
Weld Racing, Inc. in October 1999, may be considered a sale of substantially all
of our assets.
We cannot complete the proposed transaction unless it is approved by
the holders of at least a majority of our outstanding common stock. Only
stockholders who owned shares of Cragar common stock on November 16, 1999 will
be entitled to vote at the special meeting.
YOU SHOULD CONSIDER THE MATTERS DISCUSSED UNDER "RISK FACTORS RELATED
TO THE PROPOSED TRANSACTION" ON PAGE 15 OF THE ENCLOSED PROXY STATEMENT BEFORE
VOTING. WE URGE YOU TO CAREFULLY REVIEW THE INFORMATION IN THE PROXY STATEMENT.
CRAGAR'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PROPOSED
TRANSACTION AND DETERMINED THAT IT IS FAIR AND IN THE BEST INTERESTS OF CRAGAR
AND ITS SHAREHOLDERS. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU
VOTE "FOR" THE APPROVAL OF THE PROPOSED TRANSACTION.
Michael L. Hartzmark
Chairman and Chief Executive Officer
YOUR VOTE IS IMPORTANT.
PLEASE COMPLETE, SIGN, DATE, AND RETURN YOUR PROXY.
THIS PROXY STATEMENT IS DATED NOVEMBER , 1999
AND IS FIRST BEING MAILED TO SHAREHOLDERS ON OR ABOUT NOVEMBER ___, 1999.
<PAGE>
CRAGAR INDUSTRIES, INC.
4636 NORTH 43RD AVENUE
PHOENIX, ARIZONA 85031
---------------------------------
NOTICE AND PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 22, 1999
---------------------------------
To our Shareholders:
We will hold a special meeting of shareholders of Cragar Industries,
Inc. on Wednesday, December 22, 1999, at 10 a.m., Mountain Standard Time, at
4636 North 43rd Avenue, Phoenix, Arizona, for the following purpose:
To consider and vote upon a proposal to approve a transaction between
Cragar and Carlisle Tire & Wheel Co., a Delaware corporation and a wholly-owned
subsidiary of Carlisle Companies Incorporated, pursuant to which Cragar will:
- Grant an exclusive worldwide license to Carlisle to
manufacture, sell, market, and distribute its line of wheels
manufactured with steel outer rims in exchange for a royalty
based on net sales of the licensed products, as provided by
the terms of an Exclusive Field of Use License Agreement dated
October 15, 1999, attached as Appendix A; and
- Sell certain assets to Carlisle related to its line of
wheels manufactured with steel outer rims, as provided by
the terms of an Agreement of Purchase and Sale of Assets
dated October 15, 1999, attached as Appendix B.
We will transact no other business at the special meeting except other
business that may properly be brought before the special meeting or any
adjournment by Cragar's Board of Directors.
Only shareholders who own shares of Cragar common stock at the close of
business on Tuesday, November 16, 1999, the record date for the special meeting,
are entitled to notice of and to vote at the special meeting and any
adjournments or postponements. We cannot complete the proposed transaction
unless it is approved by the affirmative vote of the holders of a majority of
the outstanding shares of Cragar common stock.
Cragar's Board of Directors has unanimously approved the proposed
transaction and determined that it is fair and in the best interests of Cragar
and its shareholders. Cragar's Board of Directors unanimously recommends that
you vote "FOR" the approval of the proposed transaction.
Your vote is important. The Board of Directors urges you to sign, date
and return the enclosed proxy card as soon as possible, even if you are
currently planning to attend the special meeting. No postage is necessary if the
proxy is mailed in the United States. Sending in your proxy will not prevent you
from voting in person at the special meeting, but will assure that your vote is
counted if you are unable to attend. If you do attend the special meeting and
wish to vote in person, you may withdraw your proxy and vote at the special
meeting. Properly-executed proxies will be executed in the manner you direct. If
no direction is specified, properly-executed proxies will be voted "for"
adoption of the proposed transaction.
By Order of the Board of Directors,
/s/ Michael L. Hartzmark
----------------------------------------
Phoenix, Arizona Michael L. Hartzmark
November , 1999 Chairman and Chief Executive Officer
<PAGE>
CRAGAR INDUSTRIES, INC.
4636 NORTH 43RD AVENUE
PHOENIX, ARIZONA 85031
PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 22, 1999
This Proxy Statement is furnished to the shareholders of Cragar
Industries, Inc. in connection with the solicitation of proxies to be used in
voting at a special meeting of shareholders to be held on Wednesday, December
22, 1999. The enclosed proxy is solicited by Cragar's Board of Directors. The
proxy materials were mailed on or about November ___, 1999 to shareholders of
record at the close of business on November 16, 1999.
A person giving the enclosed proxy has the power to revoke it at any
time before it is exercised by either:
- Attending the special meeting and voting in person;
- Executing and delivering a proxy bearing a later date; or
- Sending written notice of revocation to Cragar's Secretary at
4636 North 43rd Avenue, Phoenix, Arizona 85031.
Cragar will bear the cost of the solicitation of proxies, including the
charges and expenses of brokerage firms and others for forwarding solicitation
material to beneficial owners of Cragar's outstanding common stock. In addition
to the use of the mails, proxies may be solicited by personal interview,
telephone or telegraph.
VOTING SECURITIES OUTSTANDING
Only holders of record of Cragar's common stock at the close of
business on Tuesday, November 16, 1999 will be entitled to vote at the special
meeting. At that date, there were 2,456,990 shares of common stock outstanding.
Each share of common stock entitles its shareholder to one vote on all matters
on which shareholders may vote.
Votes cast by proxy or in person at the special meeting will be
tabulated by the inspectors of election appointed for the special meeting and
will determine whether or not a quorum is present. The inspectors of election
will treat abstentions as shares that are present and entitled to vote for
purposes of determining the presence of a quorum but as unvoted for purposes of
determining the approval of any matter submitted to the shareholders for a vote.
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THE PROPOSED TRANSACTION
SUMMARY
Cragar currently designs, produces, and sells high-quality custom
vehicle wheels and wheel accessories, including wheels manufactured with steel
outer rims and related accessories. Cragar sells its products using one of the
most widely recognized brand names in the automotive aftermarket industry.
Historically, Cragar has sold its wheel products in the automotive aftermarket
through a national distribution network of value-added resellers, including tire
and automotive performance warehouse distributors and retailers and mail order
houses.
In connection with a reassessment of its business strategy, Cragar has
considered strategic combinations and alliances with other companies that could
complement Cragar's existing business, including outsourcing its manufacturing
and sales operations. In furtherance of this business strategy, on September 30,
1999, Cragar entered into an Exclusive Field of Use License Agreement and an
Agreement of Purchase and Sale of Assets with Weld Racing, Inc., a Missouri
corporation, pursuant to which Cragar granted an exclusive worldwide license to
Weld to manufacture, sell, market, and distribute its line of wheels
manufactured with non-cast wrought aluminum alloy outer rims and related
accessories (the "Wrought Wheel Business") in exchange for a royalty based on
net sales of the licensed products and sold certain assets to Weld related to
its Wrought Wheel Business. Cragar and Weld completed this transaction in
October 1999.
On October 15, 1999, Cragar entered into an Exclusive Field of Use
License Agreement and an Agreement of Purchase and Sale of Assets with Carlisle
Tire & Wheel Co., a Delaware corporation and a wholly-owned subsidiary of
Carlisle Companies Incorporated. Pursuant to these agreements, Cragar proposes
to:
- Grant an exclusive worldwide license to Carlisle to
manufacture, sell, market, and distribute its line of wheels
manufactured with steel outer rims and related accessories
(the "SOR Wheel Business") in exchange for a royalty based on
sales of the licensed products; and
- Sell certain assets to Carlisle related to its SOR Wheel
Business.
Because the licensing of Cragar's SOR Wheel Business and sale of
related assets to Carlisle, combined with the licensing of Cragar's Wrought
Wheel Business and sale of related assets to Weld, may be considered a sale
of substantially all of Cragar's assets, the proposed transaction with
Carlisle is being submitted for approval by Cragar's shareholders in
accordance with Delaware law. If the proposed transaction is approved by
Cragar's shareholders, Carlisle will manufacture, sell, market and distribute
Cragar's line of wheels manufactured with steel outer rims and related
accessories and Cragar will receive a royalty based on net sales of any
licensed products sold by Carlisle as described in this proxy statement.
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BOARD'S RECOMMENDATION; BACKGROUND AND REASONS
Cragar's Board of Directors has unanimously approved the proposed
transaction and recommends that shareholders vote for approval of the proposed
transaction as described in this proxy statement.
BACKGROUND
Historically, Cragar has manufactured or assembled its line of
wheels manufactured with wrought aluminum alloy outer rims and its line of
wheels manufactured with steel outer rims, while outsourcing the production
of its cast aluminum wheels and wheel accessories from other manufacturers.
Over time, the combination of moving Cragar's manufacturing facility from
California to Arizona and the increased competitiveness in the market for
custom wheels has forced Cragar to outsource a larger proportion of its
production. In addition, in September 1997, Cragar's then largest customer,
Super Shops, Inc., declared bankruptcy. As a result of this substantial
one-time write-off, resulting from the non-payment of amounts owed by Super
Shops to Cragar and the loss of a significant portion of Cragar's ongoing
business in the future, Cragar was forced to reformulate its strategy given
that the lower level of sales could not support its cost of operations and
overhead on a continuing basis.
In response to these events, Cragar actively pursued other customers
to replace the lost sales and focused on reducing its cost of operations and
overhead. Cragar also took steps to evaluate strategic combinations or
alliances with larger, better financed companies that could complement
Cragar's existing business and possibly provide for new product development
to enhance Cragar's future business. Because many of the potential partners
Cragar evaluated for such strategic combinations or alliances had similar or
duplicative manufacturing and/or sales operations, Cragar believed that these
strategic combinations or alliances could result in significantly reduced
costs of operations and overhead in manufacturing, selling, marketing and
distributing products under the CRAGAR brand name.
In pursuit of that strategy, Cragar entered into a transaction with
Weld Racing, Inc., completed in October 1999, pursuant to which Cragar
granted an exclusive, worldwide license to Weld to manufacture, sell, market,
and distribute its line of wheels manufactured with non-cast wrought aluminum
alloy outer rims and related accessories in exchange for a royalty based on
net sales of the licensed products and sold certain assets to Weld related to
its Wrought Wheel Business. This transaction enabled Cragar to shift the
costs of manufacturing, selling, marketing, and distributing its line of
wrought aluminum alloy wheels and related accessories to Weld in exchange for
a royalty based on net sales of these products by Weld. As a result, Cragar
intends to improve the profitability of its Wrought Wheel Business by
securing a stream of royalties based on net sales of the licensed products,
which Cragar believes Weld has the capability to increase substantially in
the future, both as a result of increased sales of existing Cragar wrought
wheel products and sales of new wrought wheel products developed by Weld
under the CRAGAR brand name.
On October 15, 1999, in furtherance of this change in strategy, Cragar
entered into a similar transaction with Carlisle with respect to Cragar's SOR
Wheel Business.
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Carlisle is a leading manufacturer and distributor of quality
commercial, recreational and utility tires and wheels. Carlisle is a
wholly-owned subsidiary of Carlisle Companies Incorporated, a diversified
manufacturing company, that, together with its parent and related
subsidiaries, possesses substantially greater financial, operational and
distribution capabilities than Cragar. Through its subsidiaries, Carlisle
Companies Incorporated manufactures and distributes a wide variety of
products in four major product segments, including construction materials,
industrial components, general industry, and automotive components. Carlisle,
a segment of the industrial components sector, is a fully integrated
manufacturer and seller of a wide range of bias tires and wheels for the
commercial and consumer lawn and garden, golf car, all terrain vehicle,
utility trailer and other industrial markets. Carlisle is also a large
manufacturer and seller of steel wheels to customers in the automotive
aftermarket. The automotive components segment of Carlisle Companies
Incorporated also manufacturers non-tire and wheel components for certain
customers of Carlisle.
BOARD'S REASONS FOR RECOMMENDING PROPOSAL
The decision of Cragar's Board of Directors to approve the proposed
transaction and recommend its approval by Cragar's shareholders was based on
an analysis of Cragar's future prospects and discussions of the advantages
and disadvantages of various combinations and strategic alliances with other
companies. When Carlisle expressed interest in obtaining an exclusive license
for Cragar's SOR Wheel Business in return for a royalty, the Board weighed
the proposal against its viable alternatives and concluded that proceeding
with the Carlisle relationship would be in the best interests of Cragar's
shareholders.
The Board's decision was based primarily on the following factors,
including those summarized below.
- As a result of the Super Shops bankruptcy and Cragar's
current financial condition, Cragar's prospects for
continuing to improve its financial results and achieving
long term profitability under its historical business model
have diminished.
- Completing the proposed transaction with Carlisle, when
combined with the Weld transaction, will significantly enhance
Cragar's ability to achieve long term profitability by
eliminating a substantial portion of its operating and
overhead costs and securing a royalty based on net sales of
the licensed products by companies with substantially greater
financial, operational, and distribution capabilities.
- Carlisle and Weld have the financial, operational and
distribution capabilities to substantially increase sales
of Cragar products related to the SOR and Wrought Wheel
Businesses which, if realized, will increase the royalties
payable to Cragar, including the capability to increase
sales through development of new products under the CRAGAR
brand name.
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- Licensing its SOR and Wrought Wheel Businesses rather than
selling the company enables Cragar to retain and focus on
enhancing its most valuable asset -- the CRAGAR brand name.
- Shifting all manufacturing, selling, marketing, and
distribution responsibilities for the SOR and Wrought Wheel
Businesses to Carlisle and Weld permits Cragar to
concentrate its efforts and financial resources on
enhancing the CRAGAR brand name.
- Selling specific product lines to companies with similar
product lines enables Cragar to maximize the value received
for its operating assets.
- Cragar has negotiated a minimum royalty, which must be paid by
Carlisle and Weld to retain its exclusive license, even if
sales of the licensed products decrease from their current
levels.
- Cragar has negotiated a purchase price for the inventory and
equipment orders that exceeds the amount borrowed that is
secured by these assets, which will improve Cragar's cash
position and permit it to pay down additional debt.
The terms of the proposed transaction were the result of arm's length
negotiations between Cragar, Carlisle and their respective representatives. In
negotiating the terms of the proposed transaction, Cragar did not retain an
independent financial advisor to determine whether the consideration to be
received by Cragar was fair from a financial point of view to Cragar and its
shareholders.
The Board also identified and considered a number of potentially
negative factors in its deliberations concerning the proposed transaction,
including the following.
- Despite the substantial financial, operational, and
distribution capabilities of Carlisle and Weld, Carlisle
and Weld may not be able to increase or even maintain
current sales levels of the licensed products, which would
reduce the amount of royalties payable to Cragar.
- Even though operating and overhead costs will be reduced
significantly, Cragar may not achieve profitability if revenue
from royalty payments and other sources is insufficient to
meet Cragar's continuing costs following the proposed
transaction.
- If the proposed transaction with Carlisle is completed,
Cragar's financial results and the quality of products
manufactured under the CRAGAR brand name will be substantially
dependent on third parties that do not have a direct
obligation to do what is in the best interests of Cragar and
its shareholders.
- Despite Cragar's efforts to coordinate sales, marketing, and
distribution of all Cragar products, competing sales efforts
by independent licensees could cause confusion among customers
and harm the reputation of the CRAGAR brand name.
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- The transition from manufacturing, selling, marketing, and
distributing its own products to outsourcing those functions
in exchange for a royalty may have an adverse impact on the
market price of Cragar's common stock to the extent investors
believe that Cragar's growth prospects are limited.
Cragar's Board of Directors believes that certain of these risks are
unlikely to occur, that Cragar could avoid or mitigate others, and that,
overall, these risks are outweighed by the potential benefits of the proposed
transaction.
RECOMMENDATION OF CRAGAR'S BOARD OF DIRECTORS. Cragar's Board
of Directors has unanimously determined that the terms of the proposed
transaction are fair to and in the best interest of its shareholders and has
approved the proposed transaction and the terms of the License and Asset
Purchase Agreements. Cragar's Board of Directors unanimously recommends that
Cragar's shareholders vote "FOR" approval of the proposed transaction.
If the proposed transaction is not approved by Cragar's shareholders or
not completed for any other reason, Cragar will consider:
- entering into a similar transaction with another entity
interested in being granted a license in return for the
payment of a royalty;
- selling all or a portion of its assets to a third party buyer,
which may be on less than favorable terms and could dilute the
interests of shareholders;
- completing a merger or similar combination with a third party,
or
- securing additional sources of financing to allow it to
continue operations.
The foregoing discussion of the information and factors considered by
the Board of Directors is not intended to be exhaustive, but includes a summary
of the material factors that the Board considered in making its recommendation.
The Board considered these factors in light of its knowledge of Cragar's
business, the automotive aftermarket industry in general, information provided
by Cragar's management, and information about Carlisle supplied by Carlisle. In
view of the variety of factors considered in connection with its evaluation of
the proposed transaction, Cragar's Board of Directors did not find it
practicable to and did not quantify or otherwise assign relative weight to the
specific factors considered in reaching its determination.
SUMMARY OF THE PROPOSED TRANSACTION
LICENSE AGREEMENT
THE DESCRIPTION OF THE LICENSE AGREEMENT SET FORTH BELOW IS ONLY A
SUMMARY OF THE KEY TERMS AND IS QUALIFIED BY REFERENCE TO THE COMPLETE TEXT OF
THE LICENSE AGREEMENT, A COPY OF WHICH IS ATTACHED AS APPENDIX A TO THIS PROXY
STATEMENT AND IS INCORPORATED INTO THIS PROXY STATEMENT BY REFERENCE. YOU ARE
URGED TO READ THE ENTIRE AGREEMENT CAREFULLY.
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The License Agreement, a copy of which accompanies this proxy statement
as Appendix A, contemplates the grant of an exclusive, worldwide license to
Carlisle to manufacture, sell, market and distribute Cragar's line of wheels
manufactured with steel outer rims and related accessories, including:
- any wheels having steel or aluminum spokes attached to a
pierced steel outer rim and hub, and related accessories;
- any wheels having a non-steel center disk attached to a
non-pierced steel outer rim, and related accessories;
- any wheels having a multi-piece center disk attached to a
non-pierced steel outer rim, and related accessories; and
- any other vehicle wheels, other than a motorcycle wheel,
having either pierced or non-pierced steel outer rims.
Cragar's current line of wheels manufactured with steel outer rims and
related accessories is listed in Schedule C to the License Agreement attached
as Appendix A to this proxy statement (together with the products described
above, the "Licensed Products").
Cragar has agreed to grant Carlisle an exclusive, worldwide license
to use Cragar's trademark, patent and other intangible rights in connection
with the marketing and sale of the Licensed Products, and to make, use, sell,
import and offer for sale the Licensed Products, in each case subject to the
terms of the License Agreement. Carlisle has agreed to use its best efforts
to promote the sale of the Licensed Products, including making commercially
reasonable advertising and marketing expenditures, prospecting and contacting
customers and potential customers of the Licensed Products, and striving to
achieve a cost-efficient manufacturing process while maintaining high
quality. Cragar will retain the right to control the quality of all Licensed
Products manufactured, sold and marketed by Carlisle. The License Agreement
has an initial term of ten years with perpetual renewal rights, each renewal
extending the term of the License Agreement for an additional ten years. At
least 360 days prior to the end of any ten year period, Carlisle is required
to provide written notice to Cragar of its intent to terminate or renew the
current term. If Carlisle fails to meet any of the material terms of the
License Agreement, Cragar may immediately terminate the Agreement. In
addition, if Carlisle experiences a failure, receivership or seizure, the
Agreement will terminate immediately.
In consideration for the exclusive license to sell the Licensed
Products, Carlisle has agreed to pay Cragar an initial royalty of between two
and five percent on net sales of the Licensed Products, depending upon the
type of Licensed Product sold. Royalty payments are due 30 days after the end
of each calendar quarter. Royalty payments will be reduced by 25% of the
applicable percentage for net sales above $10,000,000 up to $15,000,000 for a
calendar year. If net sales for the Licensed Products exceed $15,000,000 in a
calendar year, the applicable royalty percentages will be reduced by 50% for
net sales above that threshold up to
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$20,000,000. The applicable royalty percentage will be reduced to a flat 1%
for net sales above $20,000,000 in a calendar year. In any event, Carlisle
has agreed to pay a minimum royalty of $250,000 per year, the nonpayment of
which would allow Cragar to terminate the License Agreement. Finally,
Carlisle has agreed to pay Cragar a royalty prepayment of $175,000,
applicable to future royalty payments. See "Unaudited Proforma Condensed
Financial Statements," which give effect to the sale of certain assets and
the grant of the license described in this proxy statement, based on certain
estimates and assumptions described in the financial statements, as if such
transactions were completed on the dates indicated.
ASSET PURCHASE AGREEMENT
THE DESCRIPTION OF THE ASSET PURCHASE AGREEMENT SET FORTH BELOW IS
ONLY A SUMMARY OF THE KEY TERMS AND IS QUALIFIED BY REFERENCE TO THE COMPLETE
TEXT OF THE ASSET PURCHASE AGREEMENT, A COPY OF WHICH IS ATTACHED AS APPENDIX
B TO THIS PROXY STATEMENT AND IS INCORPORATED INTO THIS PROXY STATEMENT BY
REFERENCE. YOU ARE URGED TO READ THE ENTIRE AGREEMENT CAREFULLY.
The Asset Purchase Agreement contemplates the sale to Carlisle of
certain assets related to Cragar's SOR Wheel Business, including the
following assets and rights:
- INVENTORY. All inventories selected by Carlisle of supplies,
packaging, raw materials, purchased parts and components,
work-in-process and finished goods related to Cragar's SOR
Wheel Business;
- EQUIPMENT. All machinery, equipment, tooling, dies, molds,
perishable tools, fixtures, chucks, shop tools, furniture,
test benches, harnesses, hardware, spare-parts, and other
tangible personal property owned by Cragar and related to its
SOR Wheel Business;
- CUSTOMER ORDERS. All of Cragar's rights under each uncompleted
customer order related to its SOR Wheel Business;
- VENDOR ORDERS. All of Cragar's rights under each uncompleted
vendor order related to its SOR Wheel Business;
- CONTRACTS. All of Cragar's rights under the executory
contracts related to its SOR Wheel Business;
- WARRANTY RIGHTS. All of Cragar's rights under express or
implied warranties from Cragar's suppliers with respect to any
of the foregoing assets; and
- INFORMATION. All operational information, together with
originals or copies of all books, records and accounts,
engineering data, design data, drawings, manuals,
correspondence, records, customer lists, marketing
information, promotional material, catalogs, brochures and any
other information relating to Cragar's SOR Wheel Business.
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Carlisle is not acquiring any assets other than the assets specifically
identified above.
Carlisle will assume all liabilities and obligations arising under
any related customer orders, vendor orders and warranty claims, including
product warranty returns for all products manufactured or sold by Cragar
prior to the closing, and replacing or repairing, at Carlisle's cost, all
defective steel wheel products. However, Carlisle will not be required to pay
for warranty claims relating to products manufactured by Cragar prior to the
closing if these claims exceed (i) $50,000 during the first six month period
following the closing date, (ii) $50,000 during the second six month period,
(iii) $25,000 during the third six month period, (iv) $25,000 during the
fourth six month period, and (v) $25,000 during the third twelve month period
following the closing date. Carlisle will not assume any other obligations or
liabilities of Cragar.
The total purchase price for the assets being sold will be
determined at closing, which Cragar estimates will be approximately $1.7
million in cash, including an amount equal to a specified percentage of the
net book value of the inventory at closing plus $450,000 for equipment.
Cragar will retain title to all accounts and notes receivable
related to its SOR Wheel Business as of the closing. If any customer makes
any payments to Carlisle regarding these receivables, Carlisle will
immediately advance those funds to Cragar. Carlisle will be entitled to all
accounts and notes receivable related to Cragar's SOR Wheel Business
following the closing.
Cragar will be responsible for any severance and/or other payments,
including accrued vacation and sick time, sick pay, and other compensation
and benefits incurred in connection with any termination of its employees
following the closing.
The closing of the proposed transaction must occur within five
business days after Cragar has obtained all consents required to complete the
transaction, but not later than January 15, 2000.
The Asset Purchase Agreement may be terminated by mutual written
consent, by either Cragar or Carlisle if the other party breaches any
material term of the agreement that is not cured on a timely basis, or by
either Cragar or Carlisle if the closing does not occur within five days
after Cragar obtains any required consents, but not later than January 15,
2000.
Cragar will be obligated to reimburse Carlisle for any losses
incurred by Carlisle resulting from a breach by Cragar of any material term
of the Asset Purchase Agreement or Cragar's failure to satisfy any liability
not assumed by Carlisle. Carlisle will be obligated to reimburse Cragar for
any loss incurred by Cragar resulting from a breach by Carlisle of any
material term of the Asset Purchase Agreement, Carlisle's failure to
discharge any customer orders or vendor orders following the closing, or any
liability arising from actions of employees supervised by Carlisle after the
closing. In each case, these rights are subject to certain minimum and
maximum thresholds as specified in the Asset Purchase Agreement, except that
no limitation applies to any loss incurred by Carlisle as a result of
Cragar's failure to satisfy any liability not assumed by Carlisle.
BUSINESS
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GENERAL
If the proposed transaction is approved by Cragar's shareholders and
completed as anticipated, Cragar's continuing business and future operating
results will be substantially changed following the closing. In general, the
outsourcing of the manufacturing, selling, marketing, and distribution
operations with respect to the Licensed Products, together with the sale of
the related assets, will result in a substantial decrease in Cragar's
revenues and operating and overhead costs. This decrease in revenues and
operating and overhead costs will be replaced by a stream of royalty payments
generated by net sales of the Licensed Products by Carlisle and Weld. Set
forth below is a brief description of Cragar's current business operations,
and a brief description of Cragar's business assuming the proposed
transaction is completed as contemplated. The change in Cragar's business
operations resulting from the proposed transaction, together with the
transaction with Weld, entails certain risks. Cragar recommends that you
review the risk and other investment factors under "Risk Factors Related to
the Proposed Transaction" in this proxy statement.
CURRENT BUSINESS OPERATIONS
Cragar designs, produces, and sells high-quality custom vehicle
wheels and wheel accessories. Cragar believes that the CRAGAR name is one of
the most widely recognized brand names in the automotive aftermarket
industry. Cragar markets a wide selection of custom wheels and components
that are designed to appeal to automotive enthusiasts who desire to modify
the styling, design, or performance of their cars, trucks, or vans. Cragar
historically has sold its wheel products in the automotive aftermarket
through a national distribution network of value-added resellers, including
tire and automotive performance warehouse distributors and retailers and mail
order houses. Major resellers include The Heafner Group, Inc. (which includes
J. H. Heafner Company, Inc., ITCO Logistics Corp., Speed Merchants dba
Competition Parts Warehouse and Oliver and Winston, Inc.), Keystone
Automotive Operations, Inc., RELCO Corp., Buckeye Sales, Inc. and Discount
Tire.
Traditionally, Cragar's ten largest customers have accounted for a
substantial portion of Cragar's gross sales. For the year ended December 31,
1998, Cragar's ten largest customers accounted for approximately 57.2% of
gross sales, with J.H. Heafner Company, Inc. accounting for 13.5% of gross
sales, Keystone Automotive accounting for 7.7% and RELCO Corp. accounting for
5.1% of gross sales. For the year ended December 31, 1997, Cragar's ten
largest customers accounted for a total of approximately 66.3% of gross
sales, with Super Shops, Inc., accounting for 27.5%, J.H. Heafner Company,
Inc. accounting for 9.6%, and Keystone Automotive Operations, Inc. accounting
for 6.2% of gross sales. Cragar does not have any long-term contractual
relationships with any of its major customers. Due to the significant
concentration of sales to Cragar's top ten customers, the loss of any one
such customer has had and could continue to have a material impact on
Cragar's results of operations and financial condition.
In order to appeal to a broad spectrum of consumers, Cragar offers a
wide selection of custom wheels. Cragar's products include entry-level custom
steel wheels, wire and spoked wheels, chrome plated, one-piece cast aluminum
wheels, and race wheels. Cragar's wheels feature classic designs that have
been sold under the CRAGAR name since the 1960s as well as contemporary
designs that reflect continually changing consumer preferences.
10
<PAGE>
Cragar believes that the custom wheel industry is highly fragmented,
with only a few companies holding market share in excess of ten percent. Like
Cragar, many of its competitors do not manufacture their own wheels, but
purchase the wheel components or finished wheels from third parties for later
assembly and sale to the public. Unlike Cragar, however, most of its
competitors do not offer a full line of custom wheel products, nor do they
have established brand identity. Cragar believes this fragmented nature of
the customer wheel market has presented an opportunity for certain
competitors, such as Cragar, to pursue strategic combinations and alliances.
Cragar believes these alliances can reduce duplicative expenditures, broaden
its product lines or enlarge its product offerings, significantly expand the
scope of its distribution network into newer underserved markets, enhance
Cragar's marketing, selling, distribution and product development
capabilities, and significantly reduce unit costs. In pursuing this strategy,
Cragar has focused on increasing its sales to replace sales lost in the Super
Shops bankruptcy and reducing its operating and overhead costs.
Through the first nine months of 1999, Cragar achieved a profit
primarily through a significant reduction in its operating and overhead
costs. However, Cragar does not believe that it has the current financial,
operational, and distribution capabilities required to develop new products,
significantly increase sales, and achieve long-term profitability under its
traditional business model.
POST-TRANSACTION BUSINESS OPERATIONS
If the proposed transaction is approved by Cragar's shareholders and
completed as contemplated, Cragar will no longer engage in the manufacture,
sale, marketing or distribution of any products related to its SOR Wheel
Business. Instead, Cragar will rely on Carlisle's substantially greater
financial, operational, and distribution capabilities to increase net sales
of the Licensed Products and generate a stream of increasing revenues in the
form of quarterly royalty payments. In addition, Cragar is entitled to
royalties based on the net sales of any new products developed by Carlisle
related to the SOR Wheel Business under the CRAGAR brand name, including
products and related accessories developed for vehicles other than
automobiles, trucks, and vans such as all-terrain vehicles and golf carts.
Following completion of the proposed transaction, all costs related
to the manufacture, sale, marketing and distribution of Cragar products
related to its SOR Wheel Business, including costs associated with inventory,
warranties and other risks, will be shifted to Carlisle. As a result, Cragar
believes that despite an anticipated significant decline in revenues, the
decline will be offset by a substantial reduction in operating and overhead
costs, and the receipt of royalty payments due from Carlisle and Weld. Cragar
intends to continue limited marketing, advertising, and promotional efforts
to the extent these efforts further enhance and leverage the strength of the
CRAGAR brand name. In addition, Cragar will pursue efforts to develop new
non-wheel product lines using the CRAGAR brand name and will seek similar
licensing arrangements with well established companies to manufacture, sell,
market and distribute its line of cast one piece aluminum wheels and wheel
accessories or other non-wheel related products.
11
<PAGE>
UNAUDITED PROFORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited proforma condensed financial statements give
effect to the sale of certain inventories and equipment and the licensing of
certain assets by Cragar to Weld and Carlisle in separate transactions
pursuant to the Asset Purchase Agreements and License Agreements between the
parties, and are based on the estimates and assumptions set forth herein and
in the notes to such statements. This proforma information has been prepared
from historical financial statements and notes, which are incorporated by
reference herein. The proforma financial data does not purport to be
indicative of the results which actually would have been obtained had the
transactions been effected on the dates indicated or of the results which may
be obtained in the future.
The proforma entries are described in the accompanying footnotes to
the unaudited proforma condensed financial statements. The proforma condensed
statements of operations assume the transactions took place on the first day
of the period presented, while the unaudited proforma balance sheet assumes
the transactions took place on the balance sheet date.
TRANSACTION - WELD RACING, INC.
On September 30, 1999, Cragar sold certain assets related to its
Wrought Wheel Business to Weld Racing, Inc. in exchange for $98,070 in cash
and an as yet undetermined amount in the form of short-term promissory notes.
Cragar also granted a license to Weld to manufacture, sell, market and
distribute Cragar products related to its Wrought Wheel Business in exchange
for a royalty based on net sales of those licensed products by Weld. This
transaction was completed in October 1999. Copies of the Agreement of
Purchase and Sale of Assets and Exclusive Field of Use License Agreement
between Cragar and Weld are included as Exhibits to Cragar's Quarterly Report
on Form 10-QSB filed November 15, 1999 with the Commission.
TRANSACTION - CARLISLE TIRE AND WHEEL CO.
On October 15, 1999, Cragar entered into an Asset Purchase Agreement
to sell certain assets related to its SOR Wheel Business to Carlisle in
exchange for cash. Cragar also entered into a License Agreement that would
grant an exclusive worldwide license to Carlisle to manufacture, sell, market
and distribute Cragar products related to its SOR Wheel Business in exchange
for a royalty on net sales of those licensed products by Carlisle. Cragar
anticipates this transaction will close immediately following the special
meeting of shareholders on December 22, 1999, if approved by the shareholders
and all conditions to closing are satisfied.
12
<PAGE>
CRAGAR INDUSTRIES, INC.
PROFORMA BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1999
Proforma Financial Statements:
The following represents a pro forma condensed balance sheet as of
September 30, 1999, assuming the following transactions were consummated as of
September 30, 1999:
- Consummation of the Agreement of Purchase and Sale of Assets and the
Exclusive Field of Use License Agreement with Weld Racing, Inc.
- Consummation of the Agreement of Purchase and Sale of Assets and the
Exclusive Field of Use License with Carlisle Tire and Wheel Co.
<TABLE>
<CAPTION>
PROFORMA
AS REPORTED ADJUSTMENTS PRO FORMA
----------- ----------- ---------
ASSETS
<S> <C> <C> <C>
Current Assets
Cash $ 265,155 $ 265,155
Short-term investments - $ 1,462,269 (3) 1,462,269
Accounts receivable, net 1,883,313 300,917 (1) 2,184,230
Inventories, net 3,185,693 (300,917) (1) 1,749,273
(1,135,504) (2)
Other current assets 315,246 315,246
----------- ----------- ----------
Total current assets 5,649,407 5,976,172
----------- ----------
Property, Plant & Equipment, net 496,747 (92,395) (1) 310,467
93,885) (2)
Other Assets 21,321 21,321
----------- ----------
Total Assets $ 6,167,475 $6,307,960
=========== ==========
LIABILITIES AND STOCKHOLDERS DEFICIENCY
Current Liabilities
Short term portion of long-term debt $ 250,400 $ 250,400
Line of credit 496,305 (496,305) (2) -
Accounts payable 1,425,628 1,425,628
Accrued expenses 556,843 556,843
Other current liabilities 803,718 100,000 (1) 1,078,718
175,000 (2)
----------- ----------
Total current liabilities 3,532,894 3,311,589
----------- ----------
Long-Term Debt, net of current portion above 4,260,000 (198,070) (1) 4,260,000
----------- ----------
(1,264,199) (2)
1,462,269 (3)
Total Liabilities 7,792,894 7,571,589
Stockholders' Deficiency (1,625,419) 5,675 (1) (1,263,629)
356,115 (2)
----------- ----------
Total Liabilities and Stockholders' Deficit $ 6,167,475 $ 6,307,960
=========== ==========
</TABLE>
- -------------------
(1) The effect of the Agreement of Purchase and Sale of Assets and
Exclusive Field of Use License Agreement with Weld Racing, Inc.
(2) The effect of the Agreement of Purchase and Sale of Assets and
Exclusive Field of Use License Agreement with Carlisle Tire and Wheel
Co.
(3) Loan Agreement with NCFC requires minimum loan balance of $4,000,000.
Any loan balance below minimum will be adjusted up to minimum with
excess loan proceeds being invested.
13
<PAGE>
CRAGAR INDUSTRIES, INC.
PROFORMA STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1998
Proforma Financial Statements:
The following represents pro forma condensed statements of operations for the
year ended December 31, 1998, assuming the following transactions were
consummated on January 1, 1998:
- Consummation of the Agreement of Purchase and Sale of Assets and the
Exclusive Field of Use License Agreement with Weld Racing, Inc.
- Consummation of the Agreement of Purchase and Sale of Assets and the
Exclusive Field of Use License Agreement with Carlisle Tire and Wheel Co.
In addition, the proforma consolidated net (loss) per share gives retroactive
effect to the same events which were given retroactive effect in the
accompanying financial statements.
<TABLE>
<CAPTION>
PROFORMA
AS REPORTED ADJUSTMENTS PRO FORMA
----------- ----------- ---------
<S> <C> <C> <C>
Net Sales $12,081,884 $(7,504,259) (1) $4,577,625
Royalty Revenue - 464,540 (2) 464,540
----------- ----------- ----------
Total Revenue 12,081,884 5,042,165
Cost of Goods Sold 10,769,486 (6,116,006) (1) 4,653,480
----------- ----------
Gross Profit 1,312,398 388,685
Selling, General and Administrative Expenses 4,404,391 (3,749,786) (3) 654,605
----------- ----------
Income from Operations (3,091,993) (265,919)
----------- ----------
Other Income and (Expenses)
Interest Expense (792,221) 754,495 (4) (37,726)
Gain or (Loss) on Sale of Assets - (114,683) (5) (114,683)
Settlement (125,000) (125,000)
Other Income/(Expense) 37,772 37,772
----------- ----------
Total Other Income and (Expenses) (879,449) (239,637)
----------- ----------
Income Before Income Taxes (3,971,442) (505,556)
Income Taxes - -
----------- ----------
Net Income $(3,971,442) $ (505,556)
=========== ==========
Basic net loss per common share $ (1.67) $ (0.21)
=========== ==========
Diluted net loss per common share $ (1.67) $ (0.21)
=========== ==========
Weighted-average shares outstanding - basic and diluted 2,453,990 2,453,990
=========== ==========
</TABLE>
- -------------------
(1) To reduce for sales, and related costs of goods sold, involved in the
licensing transactions and to liquidate all outstanding inventory as of
December 31, 1997.
(2) Royalties earned based on actual sales of product involved in licensing
transactions.
(3) To reduce Selling, General and Administrative expenses for costs associated
with the on-going operations of the manufacturing, distribution and sales
of Cragar wheels.
(4) Reduction in debt associated with financing on-going operations of the
manufacture, distribution and sales of Cragar wheels.
(5) Loss on sale of assets from anticipated proceeds received from the sales of
equipment less the net book value of those assets at December 31, 1997.
14
<PAGE>
CRAGAR INDUSTRIES, INC.
PROFORMA STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
Proforma Financial Statements:
The following represents pro forma condensed statements of operations for the
nine months ended September 30, 1999, assuming the following transactions were
consummated on January 1, 1999:
- Consummation of the Agreement of Purchase and Sale of Assets and the
Exclusive Field of Use License Agreement with Weld Racing, Inc.
- Consummation of the Agreement of Purchase and Sale of Assets and the
Exclusive Field of Use License Agreement with Carlisle Tire and Wheel Co.
In addition, the proforma consolidated net income per share gives retroactive
effect to the same events which were given retroactive effect in the
accompanying financial statements.
<TABLE>
<CAPTION>
PROFORMA
AS REPORTED ADJUSTMENTS PRO FORMA
----------- ----------- ---------
<S> <C> <C> <C>
Net Sales $10,818,776 $(6,491,653) (1) $4,327,123
Royalty Revenue - 428,989 (2) 428,949
----------- ----------- ----------
Total Revenue 10,818,776 4,756,112
Cost of Goods Sold 8,527,808 (4,175,355) (1) 4,352,453
----------- ----------
Gross Profit 2,290,968 403,659
Selling, General and Administrative Expenses 1,653,708 (1,098,488) (3) 555,220
----------- ----------
Income from Operations 637,260 (151,561)
----------- ----------
Other Income and (Expenses)
Interest Expense (459,541) 388,664 (4) (70,877)
Gain on sale of economic rights to certain assets 272,600 272,600
Gain or (Loss on Sale of Assets) - 203,536 (5) 203,536
Other Income/(Expense) (69,545) (57,955) (6) (127,500)
----------- ----------
Total Other Income and (Expenses) (256,486) 277,759
----------- ----------
Income Before Provisions for Income Taxes 380,774 126,198
and Extraordinary Item
Provision for Income Taxes - -
----------- ----------
Net Income before Extraordinary Item $ 380,774 $ 126,198
=========== ==========
Basic net earnings per common share $ 0.11 $ 0.00
=========== ==========
Diluted net earnings per common share $ 0.05 $ 0.00
=========== ==========
Weighted-average shares outstanding - basic 2,456,990 2,456,990
=========== ==========
Weighted-average shares outstanding - diluted 5,183,197 5,183,197
=========== ==========
</TABLE>
- --------------------
(1) To reduce for sales, and related costs of goods sold, involved in the
licensing transactions and to liquidate all outstanding inventory as of
December 31, 1998.
(2) Royalties earned based on actual sales of product involved in licensing
transactions.
(3) To reduce Selling, General and Administrative expenses for costs
associated with the on-going operations of the manufacturing, distribution
and sales of Cragar wheels.
(4) Reduction in debt associated with financing on-going operations of the
manufacture, distribution and sales of Cragar wheels.
(5) Gain on sale of assets from anticipated proceeds received from the sales
of equipment less the net book value of those assets at December 31, 1998.
(6) To reduce for the non-operating expenses associated with the on-going
operations of the manufacture, distribution and sales of Cragar wheels
offset with the loan termination fee from the payoff of the credit
facility at NCPC.
15
<PAGE>
RISK FACTORS RELATED TO THE PROPOSED TRANSACTION
In addition to the other information included and incorporated by
reference in this proxy statement, Cragar's shareholders should carefully
consider the risk and other investment factors described below in determining
whether to approve the proposed transaction at the special meeting.
CRAGAR WILL BE SUBSTANTIALLY DEPENDENT ON THIRD PARTIES TO GENERATE ROYALTIES
If completed, the proposed transaction will shift all
responsibilities for manufacturing, selling, marketing, and distributing the
Licensed Products to Carlisle. Because the royalties payable to Cragar are
determined by net sales of Licensed Products sold by Carlisle, the amount
payable to Cragar is subject to Carlisle's ability to generate substantial
sales and deliver a high-quality product on a timely basis to its customers.
In addition, because Carlisle's primary fiduciary obligation is to its
shareholders rather than Cragar's shareholders, it may make decisions or take
steps that would result in lower royalty payments than would otherwise be the
case or that could adversely affect the CRAGAR brand name. If Carlisle does
not meet its obligations under the License Agreement, Cragar's primary remedy
is to terminate the License Agreement, which may be an effective remedy only
if Cragar can identify and secure other capable licensees of its products or
otherwise adopt an effective alternative to manufacturing, selling,
marketing, and distributing the Licensed Products on its own.
CRAGAR MAY BE UNABLE TO SUPPORT MANUFACTURING, SALE, MARKETING AND
DISTRIBUTION IF THIRD PARTY TERMINATES THE LICENSE AGREEMENT
If Carlisle or Weld terminates its License Agreement or Cragar
terminates the License Agreement for any reason, Cragar may be forced to
incur the cost of manufacturing, selling, marketing, and distributing the
products subject to the License Agreement without the financial, operational,
and distribution capabilities of its licensees. In the alternative, Cragar
could be forced to secure another licensee capable of manufacturing, selling,
marketing, and distributing the products on Cragar's behalf and paying any
royalties based on sales of those products. There can be no assurance that
Cragar would be able to meet these obligations in the event that one or more
of the License Agreements is terminated.
COMPLETION OF THE PROPOSED TRANSACTION IS SUBJECT TO A NUMBER OF CONDITIONS
THAT MAY NOT BE SATISFIED BY CLOSING
Even if the shareholders approve the proposed transaction, each
party to the transaction is entitled to terminate the agreements if the other
party does not satisfy certain conditions to closing, including obtaining any
required consents, delivering certain required representations and
warranties, and executing and delivering other documents. If the proposed
transaction is not completed after approval by Cragar's shareholders, Cragar
will have incurred significant time, effort and expenses in attempting to
complete a transaction may not be completed.
16
<PAGE>
ROYALTY PAYMENTS WILL DECREASE AS A PERCENTAGE OF NET SALES AS NET SALES
INCREASE
The royalty structure negotiated by Cragar with both Carlisle and
Weld provides for a decrease in the applicable percentage of net sales that
determines royalty payments to Cragar as net sales increase above certain
levels. The consequence of this structure is that Cragar's ability to realize
the benefits of a substantial increase in sales with respect to any group of
its products will be limited by the negotiated royalty fee structure as net
sales of the licensed products increase.
CHANGE IN CRAGAR'S BUSINESS MAY DEPRESS THE PRICE OF ITS COMMON STOCK
Completion of the proposed transaction and other similar
transactions Cragar has completed or may complete in the future represent a
significant change in Cragar's traditional business model. Because the only
other similar transaction of this type was completed as recently as October
1999, Cragar does not have a history of financial results upon which
shareholders can rely to make a determination whether the new business
strategy will be successful. Given the uncertainty of the consequences of
this change in business strategy, as well as the significant decrease in
revenues expected to occur, there can be no assurance that the change will
result in profitable operations resulting from the anticipated stream of
royalty payments. As a result of this uncertainty, the price of Cragar's
common stock may be adversely affected.
CHANGE IN BUSINESS MODEL MAY CAUSE REGULATORY ISSUES
Cragar will continue to be subject to regulation as a
publicly-traded company under the Securities Exchange Act of 1934. In
addition, as a consequence of the sale of what could be considered
substantially all of its assets in exchange for the receipt of a stream of
royalty payments, Cragar could face regulatory issues under the Investment
Company Act of 1940 if the royalty payments are considered investment
securities. If Cragar is considered to be an investment company under the
1940 Act, it would be required to register under that Act as an investment
company. As a registered investment company, Cragar would be subject to
further regulatory oversight of the Division of Investment Management of the
Commission, and its activities would be subject to substantial and costly
regulation under the 1940 Act. Cragar does not believe that its activities
will subject it to the 1940 Act and accordingly does not intend to register
as an investment company under the Act, although there can be no assurance
that such registration would not be required in the future.
CRAGAR'S EFFORTS TO EXTEND CRAGAR BRAND NAME TO OTHER PRODUCTS MAY NOT BE
SUCCESSFUL
Cragar's new business strategy contemplates the extension of the
CRAGAR brand name to new products developed by its licensees as well as to
non-wheel related products. Cragar regards this extension of its brand name
to new products as a key element of a strategy that is designed to increase
net sales of Cragar products to generate increased royalties. There can be no
assurance, however, that either Cragar or its licensees will be successful in
developing and marketing any new products under the CRAGAR brand name, or if
any new products are developed, that the sale of these products will have a
positive impact on Cragar's financial results.
17
<PAGE>
CRAGAR HAS NO DUTY TO DISTRIBUTE ROYALTY PAYMENTS TO ITS SHAREHOLDERS
Any royalty payments made to Cragar pursuant to the proposed
transaction and the Weld transaction initially will be used by Cragar to
increase its working capital and reduce its debt. Cragar has never paid any
cash dividends on its common stock and does not anticipate doing so in the
foreseeable future. As a result, shareholders should not anticipate that they
will receive any distribution of royalties generated by the transactions with
Carlisle and Weld.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
OF THE PROPOSED TRANSACTION
THE FOLLOING DISCUSSION DOES NOT ADDRESS TAX CONSEQUENCES WHICH MAY
VARY WITH, OR ARE CONTINGENT ON, INDIVIDUAL CIRCUMSTANCES. MOREOVER, THIS
DISCUSSION DOES NOT ADDRESS ANY NON-INCOME TAX OR ANY FOREIGN, STATE OR LOCAL
TAX CONSEQUENCES OF THE PROPOSED TRANSACTION. THIS DISCUSSION DOES NOT
ADDRESS THE TAX CONSEQUENCES OF ANY TRANSACTION OTHER THAN THE PROPOSED
TRANSACTION.
SALE OF ASSETS. The sale of Cragar's assets as contemplated by the
proposed transaction should be treated for U.S. federal income tax purposes
as a taxable sale by Cragar to Carlisle in exchange for the actual purchase
price, including the sum of cash, any property received, and the value of any
liabilities assumed by Carlisle. As a result, Cragar will recognize gain or
loss on the assets sold measured by the difference between Cragar's tax basis
in each asset and the portion of the sale proceeds allocable to that asset.
The purchase price is allocated among the assets sold using a residual value
method. The characterization of income or loss on property used in a trade or
business is generally governed by Section 1231 of the Internal Revenue Code.
If Cragar's Section 1231 gains exceed the losses, each gain or loss is a long
term capital gain or loss derived from the sale of a capital asset to the
extent the asset has been held for at least twelve months. If Cragar's losses
exceed the gains, all gains and losses are treated as ordinary gains or
losses. Any gain attributable to the sale of Cragar's inventory and any
depreciation recapture will produce ordinary income.
Cragar may be able to offset gain recognized on the sale of the
assets by other losses, including net operating loss carryforwards that
Cragar currently has available.
The sale of the Cragar's assets should not have any federal tax
consequences to Cragar shareholders. However, shareholders having specific
questions regarding the tax consequences of the sale should consult their own
tax advisors.
ROYALTIES UNDER THE LICENSE AGREEMENT. In consideration for being
granted an exclusive license, Carlisle has agreed to pay Cragar an initial
royalty of between two and five percent of net sales of all Licensed
Products. In addition, on the effective date of the License Agreement,
Carlisle has agreed to pay Cragar a royalty prepayment of $175,000. Cragar
will recognize $175,000 of ordinary income in the tax year it earns the
royalty prepayment from Carlisle. Cragar also will recognize ordinary income
on any future royalties earned under the License Agreement.
18
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of September 30, 1999, the number
and percentage of outstanding shares of common stock beneficially owned by
(i) each person known by Cragar to beneficially own more than five percent of
such stock, (ii) each of Cragar's directors, (iii) each of Cragar's executive
officers, and (iv) all of Cragar's directors and officers as a group. Except
as otherwise indicated, Cragar believes that each of the beneficial owners of
the common stock listed below, based on information furnished by such owners,
has sole investment and voting power with respect to such shares, subject to
community property laws where applicable.
<TABLE>
<CAPTION>
NUMBER SHARES PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) TOTAL(3)
- ------------------------------------ ------------------ -----
<S> <C> <C>
Michael L. Hartzmark, Ph. D.(4) (11) 130,466 5.22%
Michael R. Miller(5)(11) 29,333 1.19%
Mark Schwartz(6) (11) 260,831 10.06%
Sidney Dworkin(7) (11) 621,707 22.52%
Donald McIntyre(11) 15,300 .62%
Harry Schwartz(8) 253,264 9.82%
Dolores Hartzmark(9) 147,098 5.66%
Lee Hartzmark(10) 258,500 9.53%
All executive officers and directors 1,013,637 34.45%
as a group (six persons) (12)
</TABLE>
(1) Unless otherwise noted, the address of each of the listed stockholders
is c/o Cragar Industries, Inc. 4636 N. 43rd Avenue, Phoenix, Arizona
85031.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired within 60 days from the date set forth above through the
exercise of any option or warrant.
(3) In calculating percentage ownership, all shares of common stock that
the named stockholder has the right to acquire within 60 days upon
exercise of any option or warrant are deemed to be outstanding for the
purpose of computing the percentage of common stock owned by such
stockholder, but are not deemed outstanding for the purpose of
computing the percentage of common stock owned by any other
stockholder. Shares and percentages beneficially owned are based upon
2,456,990 shares outstanding on September 30, 1999.
(4) Includes 43,333 shares purchasable upon exercise of options, and 31,960
shares owned by MDA Financial, Inc. of which Dr. Hartzmark is a
beneficial owner.
(5) Includes 10,000 shares purchasable upon exercise of options.
(6) Includes 20,100 shares purchasable upon exercise of options, 39,287
shares purchasable upon the exercise of various warrants, and 84,696
purchasable upon conversion of Series A Preferred Stock at $3.21 per
share.
19
<PAGE>
(7) Includes 17,400 shares purchasable upon exercise of options, 10,533
shares owned by CN Partners of which Mr. Dworkin is a one-fifth
beneficial owner, 116,324 shares purchasable upon the exercise of
various warrants, and 169,393 shares purchasable upon conversion of
Series A Preferred Stock at $3.21 per share.
(8) Includes 10,533 shares owned by CN Partners of which Mr. Schwartz is a
one-fifth beneficial owner, 39,287 shares purchasable upon exercise of
various warrants, and 84,696 shares purchasable upon conversion of
Series A Preferred Stock at $3.21 per share.
(9) Includes 36,750 shares purchasable upon exercise of various warrants.
(10) Includes 10,533 shares owned by CN Partners of which Mr. Hartzmark is a
one-fifth beneficial owner, 78,574 shares purchasable upon the exercise
of various warrants, and 169,393 shares purchasable upon conversion of
Series A Preferred Stock at $3.21 per share.
(11) Includes Director and Employee options that have vested or will vest as
of November 30, 1999.
(12) Includes Messrs. Dworkin, M. Schwartz, M. Hartzmark, McIntyre, Miller
and Franke.
OTHER MATTERS
The Board of Directors does not intend to present at the Special
Meeting any matters other than those described herein and does not presently
know of any matters that will be presented by other parties.
CRAGAR INDUSTRIES, INC.
/s/ Michael L. Hartzmark
------------------------------------
Michael L. Hartzmark
Chairman and Chief Executive Officer
November ______, 1999
20
<PAGE>
Appendix A
AGREEMENT OF PURCHASE AND SALE OF ASSETS
BY AND BETWEEN
CRAGAR INDUSTRIES, INC.
AND
CARLISLE TIRE & WHEEL CO.
OCTOBER 15, 1999
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TABLE OF CONTENTS
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DESCRIPTION PAGE
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ARTICLE 1 OVERVIEW.......................................................................................1
ARTICLE 2 THE TRANSACTION................................................................................1
2.1 Acquired Assets................................................................................1
2.2 Assets Not Being Acquired......................................................................2
2.4 Assumed Liabilities............................................................................3
2.5 Purchase Price.................................................................................3
2.6 Payment of Purchase Price......................................................................3
2.7 Intentionally Left Blank.......................................................................3
2.8 License Agreement..............................................................................3
2.9 Right of Recision..............................................................................4
2.10 Collection of Accounts Receivable..............................................................4
2.11 Employees......................................................................................4
2.12 Allocation of Purchase Price...................................................................4
2.13 Transfer Fees and Taxes; Prorations............................................................4
2.14 Relocation of Assets...........................................................................5
2.15 Warranty Claims................................................................................5
ARTICLE 3 CONDUCT PENDING THE CLOSING....................................................................5
3.1 Operation of Business in Ordinary Course.......................................................5
3.2 No Negotiations................................................................................6
3.3 Public Announcements...........................................................................6
3.4 Confidentiality................................................................................6
3.5 Access to Information..........................................................................6
3.6 HSR Act........................................................................................7
ARTICLE 4 THE PARTIES' OBLIGATIONS AT THE CLOSING........................................................7
4.1 The Closing....................................................................................7
4.2 Seller's Obligations...........................................................................7
4.3 Buyer's Obligations............................................................................8
4.4 Conditions to Closing..........................................................................8
ARTICLE 5 REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION................................................9
5.1 Representations Relating to the Business.......................................................9
5.2 Representations of Buyer.......................................................................9
5.3 Nature and Survival of Representations and Warranties..........................................9
5.4 Indemnification by Seller.....................................................................10
5.5 Indemnification by Buyer......................................................................10
5.6 Limits on Indemnification.....................................................................10
5.7 Procedure for Indemnification.................................................................10
ARTICLE 6 ADDITIONAL AGREEMENTS.........................................................................10
6.1 Termination...................................................................................11
6.2 Effect of Termination.........................................................................11
6.3 Transaction Expenses..........................................................................11
6.4 Notices.......................................................................................11
6.5 Governing Law and Attorneys' Fees.............................................................12
6.6 Arbitration...................................................................................12
6.7 Assignment....................................................................................12
6.8 Intent to be Binding..........................................................................12
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6.9 Waiver of Provisions..........................................................................13
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Schedule 1 Inventory - as of October 15, 1999
Schedule 2 Equipment - as of February 19, 1999
Schedule 3 Equipment - supplemental list
Schedule 4 Customer Orders
Schedule 5 Vendor Orders
Schedule 6 Contracts
Schedule 7 Product Warranties
Exhibit A Definitions
Exhibit B Representations and Warranties of Seller
Exhibit C Representations and Warranties of Buyer
Exhibit D Procedure for Indemnification
Exhibit E Exclusive Field of Use License Agreement
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AGREEMENT OF PURCHASE AND SALE OF ASSETS
This Agreement is made as of October 15, 1999, by and between Carlisle
Tire & Wheel Co. (defined to include any subsidiaries, affiliates, partnerships,
shareholders, or other related parties), a Delaware corporation (the "BUYER"),
and Cragar Industries, Inc., a Delaware corporation (the "SELLER").
ARTICLE 1
OVERVIEW
1.1 Seller engages in the business of, among others, manufacturing and
selling vehicle wheels with steel outer rims and related accessories (the "SOR
WHEEL BUSINESS").
1.2 For purposes of this Agreement, certain capitalized terms have the
meanings ascribed to them in EXHIBIT A. Other terms are defined in the body of
this Agreement.
ARTICLE 2
THE TRANSACTION
2.1 ACQUIRED ASSETS. Seller agrees to sell and deliver to Buyer the
following assets of the SOR Wheel Business (the "ACQUIRED ASSETS"):
(a) INVENTORY. All inventories selected by Buyer of supplies,
packaging, raw materials, purchased parts and components, work-in-process and
finished goods of Seller related to the SOR Wheel Business, including, but not
limited to, all such items at Seller's facility or ordered but not yet received
by Seller as of the Closing Date (collectively, "INVENTORY"). A list of the
Inventory to be purchased, which was generated by the computer records of the
Seller, but has not been verified by a physical count is on SCHEDULE 1;
(b) EQUIPMENT. All machinery, equipment, tooling, dies, molds,
perishable tools, fixtures, chucks, shop tools, furniture, test benches,
harnesses, hardware, spare parts, and other tangible personal property owned by
or in the possession of Seller and related to the SOR Wheel Business, whether or
not located at the Seller's facility or in the custody of any of Seller's
suppliers selected by Buyer (collectively, the "EQUIPMENT"). A list of certain
Equipment appraised as of February 19, 1999 is listed on SCHEDULE 2, and a
supplemental list of all other Equipment to be purchased is attached as SCHEDULE
3;
(c) CUSTOMER ORDERS. All of Seller's rights under each
uncompleted customer order related to the SOR Wheel Business as of the Closing
Date (collectively,
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the "CUSTOMER ORDERS"). A list of Customer Orders to be purchased is attached
as SCHEDULE 4;
(d) VENDOR ORDERS. All of Seller's rights under each
uncompleted vendor orders related to the SOR Wheel Business (collectively,
the "VENDOR ORDERS"). A list of Vendor Order to be purchased is attached as
SCHEDULE 5; and
(e) CONTRACTS. All of Seller's rights under the executory
contracts related to the SOR Wheel Business listed in Schedule 6;
(f) WARRANTY RIGHTS. All rights of Seller under express or
implied warranties from the suppliers of Seller with respect to any of the
Acquired Assets to the extent such rights may be assigned to Buyer;
(g) INFORMATION. All operational information, together with
originals or copies of all books, records and accounts, engineering data,
design data, drawings, manuals, correspondence, records, customer lists,
marketing information, promotional material, catalogs, brochures and any
other information which has been reduced to writing relating to or arising
out of the SOR Wheel Business.
2.2 ASSETS NOT BEING ACQUIRED. The following assets are expressly
excluded from the assets to be delivered to Buyer (the "EXCLUDED ASSETS"):
(a) the minute books, corporate tax returns, and other
documents relating to the organizational existence of Seller as a corporation;
(b) any cash, loans and marketable securities of Seller;
(c) any of Seller's assets or properties unrelated to the
SOR Wheel Business including, without limitation, the Seller's business
relating to the manufacture, assembly, and marketing of vehicle wheels made
with aluminum outer rims, motorcycle wheels made from any material and
one-piece aluminum vehicle wheels and related accessories.
(d) any tax refunds paid or payable to Seller;
(e) all customer and vendor orders which Buyer elects not
to acquire and are not listed on SCHEDULE 4 or SCHEDULE 5;
(f) all deposits;
(g) all other assets not listed on Schedules 1 through 5
attached here to; and
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(h) Unless otherwise set forth in this Agreement, all
liabilities associated with employees of Seller.
2.4 ASSUMED LIABILITIES. Except as provided in SECTION 2.15, and
except for the Customer Orders and Vendor Orders acquired by Buyer, Buyer
will not assume any liabilities of Seller and nothing contained in this
Agreement shall be construed as an assumption by Buyer of, any liabilities,
obligations or undertakings of any nature whatsoever, whether fixed or
contingent, known or unknown, disclosed or undisclosed, and Seller shall be
responsible for all of the liabilities, obligations and undertakings not
specifically assumed by Buyer (collectively, the "Retained Liabilities").
Seller agrees to pay, perform or discharge the Retained Liabilities in
accordance with their respective terms. Seller and Buyer will mutually
cooperate in order to consummate assignment of the Customer Orders and Vendor
Orders to Buyer, and Buyer will assume all liabilities and obligations under
the Customer Orders and Vendor Orders which relate to events occurring after
the Closing date.
2.5 PURCHASE PRICE. In addition to the payments to be made by Buyer
under the License Agreement, Buyer will pay to Seller the sum of the
following amounts ("PURCHASE PRICE"):
(a) an amount equal to 95% of Seller's standard cost of the
Inventory for the list on SCHEDULE 1;
(b) an amount equal to one hundred thousand dollars
($100,000.00) for the Equipment listed on SCHEDULE 2; and
(c) an amount equal to three hundred, fifty thousand
dollars ($350,000.00) for the Equipment listed on SCHEDULE 3.
2.6 PAYMENT OF PURCHASE PRICE. Buyer will pay the Purchase Price, in
immediately available funds, as follows:
(a) Buyer shall pay for the Inventory upon terms of
immediately available funds at the Closing Date, subject to a physical count on
the Closing Date, or upon removal from the Seller's facility if movement takes
place prior to the Closing Date;
(b) Buyer shall pay for the Equipment at the Closing Date;
2.7 [Intentionally Left Blank]
2.8 LICENSE AGREEMENT. Buyer and Seller further agree that as of the
Closing Date Buyer will enter into a License Agreement with Seller for use of
the "Cragar" name and other intangible assets as set forth in Exhibit E.
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2.9 RIGHT OF RECISION. If Buyer at any time defaults under the License
Agreement (and such default is not cured within the period specified in the
License Agreement), then Seller may, at its sole discretion, repurchase any and
all (at Seller's sole discretion) of the Acquired Assets upon the same terms and
at the Purchase Price provided herein.
2.10 COLLECTION OF ACCOUNTS RECEIVABLE.
(a) Seller will retain the title to all accounts and notes
receivable of Seller related to the SOR Wheel Business as of the Closing Date
(the "RETAINED ACCOUNTS"). If any customer makes any payments to Buyer for the
Retained Accounts, then Buyer will immediately advance such funds to Seller.
Seller will provide to Buyer on a weekly basis a listing of those Retained
Accounts which have past due amounts owing to the Seller. Buyer agrees it will
work with Seller and make all commercially reasonable efforts to assist
Seller in collecting past due amounts owing to Seller.
(b) Buyer will be entitled to all accounts and notes
receivable related to the SOR Wheel Business which relate to periods following
the Closing Date (the "POST-CLOSING ACCOUNTS"). If any customer issues to Seller
a credit or takes a credit upon payment on Retained Accounts which should be
applied to the Post-Closing Accounts, then Buyer will immediately reimburse such
funds to Seller. If any customer makes any payments to Seller for the
Post-Closing Accounts, then Seller will immediately advance such funds to Buyer.
2.11 EMPLOYEES. Seller will be responsible for any severance and/or
other payments, including accrued vacation and sick time, sick pay, and other
compensation, benefits, and perquisites, incurred in connection with the
termination of any of its employees. Seller will cooperate with Buyer and make
reasonable efforts to make available to Buyer the non-exclusive services of
Michael Hartzmark, Michael Miller, and Tony Cortes (collectively, the
"TRANSITION EMPLOYEES"). Seller agrees to pay the salary and benefits for the
Transition Employees for a period of up to 90 days following the Closing;
PROVIDED, HOWEVER, that Buyer will pay for all travel costs incurred by the
Transition Employees. Notwithstanding the foregoing, Seller shall not be liable
to Buyer if any of the Transition Employees refuse at any time to work for Buyer
or are otherwise unavailable.
2.12 ALLOCATION OF PURCHASE PRICE. Promptly following the Closing,
Buyer and Seller will mutually determine the manner in which the Purchase Price
will be allocated among the Acquired Assets, and Seller and Buyer agree to
report the allocation on Internal Revenue Service Form 8594, Asset Acquisition
Statement, which they will file with their respective federal income tax returns
for the tax year that includes the Closing Date.
2.13 TRANSFER FEES AND TAXES; PRORATIONS. Buyer will pay all transfer
and assumption fees and expenses and sales and use taxes arising out of the
transfer of the Acquired Assets. Seller will pay its portion, prorated as of the
Closing date, of state
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and local real and personal property taxes relating to the Acquired Assets.
Seller will also be responsible for any Tax in respect of the Business or the
Acquired Assets related to any period prior to the Closing date.
2.14 RELOCATION OF ASSETS. All Acquired Assets which are at Seller's
facility will be relocated at Buyer's expense as soon as is reasonably practical
after the Closing Date. Buyer and its agents will be given complete and
unrestricted access to and use of such facilities and premises for that purpose.
Buyer may occupy and use the leased facility for up to six months following the
Closing Date or until Seller rejects the Lease or Seller's plan of sublease,
whichever occurs first. Thereafter, if Buyer wishes to continue to use any of
such facilities, Buyer will be responsible for making arrangements therefor with
the owner(s) of such facilities. For its use of such facilities, Buyer will pay
rent to Seller equal to the monthly rent payable by Seller to the owner of such
facilities, except that the first month of Buyer's use of the leased facility
will be rent free. Buyer shall bear the costs of utility services incurred at
facilities during its occupancy of such facilities. Buyer shall repair or cause
to be repaired, at its expense, all damage caused by its agents in removing such
assets.
2.15 WARRANTY CLAIMS. Buyer will be responsible for all product
warranty returns for all products manufactured or sold by Buyer after the
Closing Date. Buyer will be responsible for replacing or repairing at Buyer's
cost all defective SOR Wheel Business products manufactured by Seller before
the Closing Date or by Buyer after the Closing Date within the limitations of
Buyer's normal business practices for such Products; PROVIDED, HOWEVER, that,
Buyer shall not be required to pay for all warranty claims which relate to
products manufactured by Seller prior to the Closing Date which are in excess
of (i) $50,000 during the first six month period following the Closing Date,
(ii) $50,000 during the second six month period following the Closing Date,
(iii) $25,000 during the third six month period following the Closing Date, (iv)
$25,000 during the fourth sixth month period following the Closing Date, and
(v) $25,000 during the third twelve month period following the Closing Date.
Buyer shall be required to pay for warranty claims which relate to products
manufactured by Seller prior to the Closing Date beginning in the fourth year
following the Closing Date. Buyer shall notify Seller of warranty claims which
are the responsibility of the Seller and Seller shall have the opportunity to
accept or reject such claims.
ARTICLE 3
CONDUCT PENDING THE CLOSING
3.1 OPERATION OF BUSINESS IN ORDINARY COURSE. Prior to the Closing,
Seller will conduct its SOR Wheel Business and affairs only in the ordinary
course and consistent with its prior practice including, but not limited to:
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(a) using its reasonable best efforts to maintain its SOR
Wheel Business and sales representatives, customers, assets, suppliers,
licenses and operations in accordance with past custom and practice;
(b) not entering into any transaction related to the SOR
Wheel Business other than in the ordinary course of business, or any
transaction with affiliated persons or entities; and
(c) not (i) incurring any debt other than in the ordinary
course of business and in amounts consistent with past practices; (ii) making
any loans; or (iii) increasing the compensation, incentive arrangements or
other benefits of any employee other than in the ordinary course of business
consistent with past practices.
Seller shall notify Buyer of any material adverse change in the ordinary
course of Seller's business, of any governmental or third party complaints,
investigations, or hearings (or communications indicating that any may be
contemplated), or of any breach by Seller of any agreement, representation or
warranty hereunder.
3.2 NO NEGOTIATIONS. Neither Seller nor any of its Representatives
will, directly or indirectly, solicit or participate in any negotiations
regarding any proposal or offer from any person or entity (including any of
its or their officers or employees) relating to any material transaction,
business combination, or sale of the SOR Wheel Business or the Acquired
Assets (other than the sale of assets in the ordinary course). Seller will
promptly notify Buyer if any person contacts Seller or inquires about any
such proposal or offer.
3.3 PUBLIC ANNOUNCEMENTS. The parties will not issue any press
release or public announcement, including announcements to employees or
customers, with respect to this Agreement without the prior written consent
(which consent will not be withheld unreasonably) of Buyer or Seller, as the
case may be.
3.4 CONFIDENTIALITY. All information concerning a party provided to
the other party, other than publicly available information, will be kept in
strict confidence by such other party and will only be used to evaluate the
other party in conjunction with the transaction contemplated by this
Agreement. If this Agreement is terminated, all documents or other media
containing such information will be returned to the appropriate party.
Subject to the limitations above, nothing herein precludes a party from
developing or offering products or services competitive with those of the
other party, so long as Buyer's rights under the License Agreement are not
infringed upon. The parties may disclose information to their Representatives
so long as they agree to keep such information confidential.
3.5 ACCESS TO INFORMATION.
(a) Buyer and its Representatives will have the opportunity
to make a complete due diligence review of the books, records, business, and
affairs of Seller,
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including, the Acquired Assets and the leased premises. To facilitate the due
diligence review, Seller will provide to Buyer and its Representatives complete
access to all of Seller's records and documents, will provide Buyer with
personal, bank, and professional references, and will make available for
consultation customers, employees, suppliers, and distribution channels.
3.6 HSR ACT. To the extent required by law, Seller and Buyer shall each
file with the FTC and the DOJ any notifications required to be filed by their
respective "ultimate parent entities" under the HSR Act, with respect to the
transactions contemplated herein. Each party shall be responsible for all
expenses incurred in the preparation of their respective HSR Act filings and the
filing fees to be paid in connection with the HSR Act filings. The parties shall
use their reasonable best efforts to make such filings promptly, to respond to
any requests for additional information made by either the FTC or DOJ, and to
cause the waiting periods under the HSR Act to terminate or expire at the
earliest possible date.
ARTICLE 4
THE PARTIES' OBLIGATIONS AT THE CLOSING
4.1 THE CLOSING. The closing ("CLOSING") of these transactions will
be held within five business days of the date Seller obtains any and all
consents required to consummate the transaction contemplated herein, but in
no event later than January 15, 2000, unless both parties agree to extend the
date, and at a time and place as the parties mutually agree.
4.2 SELLER'S OBLIGATIONS. At the Closing, Seller will deliver the
following:
(a) physical possession, as possible, of the Acquired Assets
in accordance with SECTION 2.1;
(b) releases of all liens, encumbrances and security interests
in respect of the Acquired Assets and evidences of all payoffs;
(c) all needed third-party consents, including but not limited
to holders of Seller's outstanding common and preferred stock, Board of
Directors, Seller's Senior Lender (Bank of America Commercial Funding Commercial
Finance), other secured lenders and consents required to transfer the contracts;
(d) the License Agreement referred to in Section 2.8;
(e) an executed Bill of Sale, satisfactory to Buyer and
Seller, which conveys to Buyer legal title to all of the Acquired Assets;
(f) certified resolutions of the Seller's Board of Directors
and shareholders approving this Agreement;
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(g) certificates from the state taxing authorities as evidence
that all sales and use tax liabilities of Seller accruing before the Closing
Date have been fully satisfied; and
(h) opinion of Seller's counsel satisfactory to Buyer.
4.3 BUYER'S OBLIGATIONS. At the Closing, Buyer will deliver the
following:
(a) Payment of the Purchase Price in accordance with SECTION
2.6;
(b) certified resolutions of the Board of Directors of Buyer
necessary to approve this Agreement;
(c) all needed third-party consents; and
(d) the License Agreement referred to in SECTION 2.8.
4.4 Conditions to Closing
(a) The obligation of Buyer to consummate the transaction
contemplated by this Agreement shall be subject to the fulfillment, or the
waiver by Buyer, on or prior to the Closing Date, of the following conditions:
I. SELLER'S OBLIGATIONS. Delivery by Seller of
all items set forth in Section 4.2.
II. REPRESENTATIONS AND WARRANTIES TRUE AT THE
CLOSING DATE. The representations and
warranties of Seller contained in this
Agreement shall be deemed to have been made
on and as of the Closing Date and shall then
be true and correct in all material
respects.
III. LITIGATION. No claim, action, suit,
investigation or other proceeding shall be
pending or threatened by any third party
(including any governmental agency) before
any court or administrative agency
challenging or otherwise relating to the
transactions provided for in this Agreement
or which may adversely affect Seller's
ability to fulfill its obligations under
this Agreement and the License Agreement.
IV. HSR ACT. Any applicable waiting period (and
any extension thereof) under the HSR Act
relating to the transactions contemplated
hereby shall have expired or been terminated
(b) The obligation of Seller to consummate the transaction
contemplated by this Agreement shall be subject to the fulfillment, or the
waiver by Seller, on or prior to the Closing Date, of the following conditions:
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I. BUYERS'S OBLIGATIONS. Delivery by Buyer of
all items set forth in Section 4.3.
II. REPRESENTATIONS AND WARRANTIES TRUE AT THE
CLOSING DATE. The representations and
warranties of Buyer contained in this
Agreement shall be deemed to have been made
on and as of the Closing Date and shall then
be true and correct in all material
respects.
III. LITIGATION. No claim, action, suit,
investigation or other proceeding shall be
pending or threatened by any third party
(including any governmental agency) before
any court or administrative agency
challenging or otherwise relating to the
transactions provided for in this Agreement
or which may adversely affect Buyer's
ability to fulfill its obligations under
this Agreement and the License Agreement.
IV. HSR ACT. Any applicable waiting period (and
any extension thereof) under the HSR Act
relating to the transactions contemplated
hereby shall have expired or been terminated
V. Approvals. Seller shall have received all
required approvals related to this Agreement
and the License Agreement and the
transaction contemplated therein from its
Board of Directors, Shareholders and all
necessary third parties.
ARTICLE 5
REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION
5.1 REPRESENTATIONS RELATING TO THE SOR BUSINESS. Concurrently with the
signing of this Agreement, Seller has prepared a Disclosure Letter which
discloses certain information to Buyer. Seller acknowledges that Buyer is
relying on the accuracy of the representations and warranties contained in
EXHIBIT B. Accordingly, Seller warrants to Buyer that, except for those matters
which have been disclosed to Buyer in the Disclosure Letter, each of the
representations and warranties contained in EXHIBIT B are true and correct (in
all material respects) on the date of this Agreement, and will again be true and
correct (in all material respects) on the Closing Date.
5.2 REPRESENTATIONS OF BUYER. Buyer acknowledges that Seller is relying
on the accuracy of the representations and warranties contained in EXHIBIT C.
Accordingly, Buyer warrants to Seller that each of the representations and
warranties contained in EXHIBIT C are true and correct (in all material
respects) on the date of this Agreement, and will again be true and correct (in
all material respects) on the Closing Date.
5.3 NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each
statement and agreement made by any of the parties in this Agreement or in any
document or other
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instrument delivered by or on behalf any of the parties pursuant to this
Agreement will survive for a period of two (2) years following the Closing of
this Agreement.
5.4 INDEMNIFICATION BY SELLER. Seller agrees to indemnify and hold
Buyer harmless from and against any Loss incurred by Buyer in connection with or
alleged to result from the following:
(a) a breach by Seller of any representation or warranty made
pursuant to SECTION 5.1 above or otherwise in this Agreement;
(b) a breach by Seller of any of its other obligations or
covenants contained in this Agreement;
(c) a failure of Seller to pay, perform or discharge any
Retained Liability.
5.5 INDEMNIFICATION BY BUYER. Buyer agrees to indemnify, defend and
hold Seller harmless from and against any Loss incurred by Seller in connection
with or alleged to result from the following:
(a) a breach by Buyer of any representation or warranty made
pursuant to SECTION 5.2 above or otherwise in this Agreement;
(b) a breach by Buyer of any of its obligations or covenants
contained in this Agreement;
(c) Buyer's failure to discharge the Customer Orders and
Vendor Orders following the Closing Date; and
(d) any liability arising from the actions of the Transition
Employees while under the supervision or control of Buyer.
5.6 LIMITS ON INDEMNIFICATION. In order to limit certain transaction
expenses, the parties acknowledge and agree that neither party may seek
indemnification under this Article 5 unless the aggregate claims exceed
$10,000 and that no claim by either party may exceed $2,000,000. This
limitation on indemnification shall not apply to any loss incurred by Buyer
as a result of Seller's failure to perform or discharge any Retained
Liabilities.
5.7 PROCEDURE FOR INDEMNIFICATION. The party that is entitled to be
indemnified hereunder shall follow the procedures set forth in EXHIBIT D.
ARTICLE 6
ADDITIONAL AGREEMENTS
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6.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing:
(a) by mutual written consent of Buyer and Seller;
(b) by either Buyer or Seller if the other party breaches any
of its material representations, warranties, or covenants contained in this
Agreement and, if the breach is curable, the breach is not cured within five (5)
business days after notice; or
(c) by either Buyer or Seller if the Closing does not occur
within five business days of the date Seller obtains any and all consents
required to consummate the transaction contemplated herein, but in any event
no later than January 15, 2000 (except that no party shall have the right to
terminate this Agreement unilaterally if the event giving rise to the
non-occurrence of the Closing is primarily attributable to that party or to
any affiliated party).
6.2 EFFECT OF TERMINATION. If this Agreement is terminated as provided
above, this Agreement will become void and none of the parties or their
Representatives will have any further liability or obligation except as set
forth in SECTION 3.5 of this Agreement, and except for liability arising from a
breach of this Agreement.
6.3 TRANSACTION EXPENSES. Except as expressly provided herein, each
party shall bear its own expenses, including without limitation, all fees of
counsel, consultants, and accountants incident to this Agreement.
6.4 NOTICES. All notices, and other communications hereunder will be in
writing and deemed to have been given when (i) delivered by hand, (ii) sent by
telecopier (with receipt confirmed), provided that a copy is mailed by
registered mail, postage pre-paid return receipt requested, or (iii) when
actually received by the addressee, in each case to the following:
If to Seller: Cragar Industries, Inc.
4636 North 43rd Avenue
Phoenix, Arizona 85031
Phone: (623) 247-1300, ex. 508
FAX: (623) 846-0684
Attn: Michael Hartzmark
With a copy to: Snell & Wilmer L.L.P.
One Arizona Center
Phoenix, Arizona 85004-0001
Phone: (602) 382-6363
FAX: (602) 382-6070
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Attn: Richard Stagg, Esq.
If to Buyer : Carlisle Tire & Wheel
23 Windham Blvd.
Aiken, SC 29805
Phone: 803-643-2900
FAX: 803-643-2919
Attn: President
With a copy to: Carlisle Companies Incorporated
250 S. Clinton St., Suite 201
Syracuse, NY 13202
Phone: 315-474-2500
FAX: 315-474-2008
Attn: Vice-President,
Secretary & General Counsel
6.5 GOVERNING LAW AND ATTORNEYS' FEES. The validity, construction, and
enforceability of this Agreement shall be governed in all respects by the laws
of the State of Arizona, without regard to its conflict of laws rules
6.6 ARBITRATION. Any controversy relating to this Agreement or relating
to the breach hereof shall be settled by arbitration conducted in Phoenix,
Arizona in accordance with the Commercial Arbitration Rules of the American
Arbitration Association then in effect. The award rendered by the arbitrator(s)
shall be final and judgment upon the award rendered by the arbitrator(s) may be
entered upon it in any court having jurisdiction thereof. The arbitrator(s)
shall possess the powers to issue mandatory orders and restraining orders in
connection with such arbitration. The expenses of the arbitration shall be borne
by the losing party unless otherwise allocated by the arbitrator(s). The
agreement to arbitrate shall be specifically enforceable under the prevailing
arbitration law. During the continuance of any arbitration proceedings, the
parties shall continue to perform their respective obligations under this
Agreement. Nothing herein shall preclude the Seller or any affiliate or
successor from seeking equitable relief, including injunction or specific
performance, in any court having jurisdiction, in connection with the
non-compete agreement.
6.7 ASSIGNMENT. This Agreement will not be assigned by operation of law
or otherwise, except that this Agreement may be assigned by operation of law to
any corporation or entity with or into which Seller may be merged or
consolidated or to which Seller transfers all or substantially all of its
assets, and such corporation or entity assumes this Agreement and all
obligations and undertakings of Seller hereunder.
6.8 INTENT TO BE BINDING. The Schedules and Exhibits referred to herein
are incorporated herein by reference as if fully set forth in the text of this
Agreement. This Agreement may be executed in any number of counterparts, and
each counterpart constitutes an original instrument, but all such separate
counterparts constitute one and the same agreement. This Agreement may not be
amended except by an instrument in
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writing approved by Buyer and Seller. If any term, provision, covenant, or
restriction of this Agreement is held by a court to be invalid or unenforceable,
the remainder of the terms, provisions, covenants, and restrictions of this
Agreement will remain in full force and effect and will in no way be affected or
invalidated and the court will modify this Agreement or, in the absence thereof,
the parties agree to negotiate in good faith to modify this Agreement to
preserve each party's anticipated benefits under this Agreement.
6.9 WAIVER OF PROVISIONS. The terms, covenants, representations,
warranties, and conditions of this Agreement may be waived only by a written
instrument executed by the party waiving compliance. The failure of any party at
any time to require performance of any provisions hereof will, in no manner,
affect the right at a later date to enforce the same. No waiver by any party of
any condition, or breach of any provision, term, covenant, representation, or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, will be deemed to be or construed as a further or
continuing waiver of any such condition or of the breach of any other provision,
term, covenant, representation, or warranty of this Agreement.
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Buyer and Seller have executed this Agreement on the date first written
above. By signing below, each individual represents that he or she is a duly
elected officer of the company and is authorized to sign in that capacity.
CRAGAR INDUSTRIES, INC., a Delaware corporation
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
CARLISLE TIRE & WHEEL CO.
a Delaware corporation
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
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EXHIBIT A
DEFINITIONS
1. Definitions. For purposes of this Agreement, the following
terms have the following meanings.
"ACCOUNTS RECEIVABLE" means all selected accounts and notes receivable
of Seller related to the SOR Wheel Business as of the Closing Date which are
Current Receivables (i.e., bona fide accounts receivable resulting from sales
and shipments of SOR Wheel Business products to credit worthy customers of
Seller within sixty days immediately preceding the Closing Date and are not
heavily concentrated accounts or contra accounts which are deemed unacceptable
by Bank of America Commercial Funding Commercial Finance), Future Receivables
(i.e. bona fide accounts receivable resulting from sales and shipments of SOR
Wheel Business products to customers of Seller within ninety days immediately
preceding the Closing Date in which Seller agreed at the time of sales that the
customer need not pay for the products for up to ninety days following the
sale), or other bona fide accounts receivable.
"APPLICABLE LAWS" means all laws and regulations of foreign, federal,
state, and local governments and all agencies regulating or otherwise affecting
the SOR Wheel Business or the Acquired Assets, including, without limitation,
employee health and safety, the discharge of pollutants or wastes, and employee
benefit plans.
"CONTRACT" means any (i) agreement or indenture relating to the
borrowing of money in excess of $5,000 relating to the SOR Wheel Business or
Acquired Assets or to mortgaging, pledging, or otherwise placing a lien on
any of the Acquired Assets; (ii) guaranty of any obligation for borrowed
money secured by lien on Acquired Assets, other than endorsements made for
collection; (iii) lease or agreement under which it is lessor or lessee of,
or permits any third party to hold or operate, any Acquired Assets; or (iv)
other agreement material to the SOR Wheel Business.
"GAAP" means generally accepted United States accounting principles,
applied on a basis consistent with the basis on which the Balance Sheet and the
other financial statements were prepared.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976 or any successor law, and regulations and rules issued pursuant to that Act
or any successor law.
"INDEMNIFIED PARTY" means the party which is entitled to be indemnified
under this Agreement.
"INDEMNIFYING PARTY" means the party required to indemnify under this
Agreement.
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EXHIBIT A
"INSIDERS" means an officer, director, or shareholder of Seller or
Buyer, as the case may be, or any member of the immediate family of any such
officer, director, or shareholder, or any entity in which any of such persons
owns any beneficial interest, other than a publicly held corporation whose stock
is traded on a national securities exchange or in the over-the-counter market
and less than 1% of the stock of which is beneficially owned by any of such
shareholders.
"LOSS" mean all costs, expenses, losses, damages, fines, penalties,
liabilities, lost profits or other losses (including, without limitation,
interest which may be imposed in connection therewith, court costs, litigation
expenses, and reasonable attorneys' and accounting fees).
"REPRESENTATIVE" means any officer, director, principal, attorney,
agent, employee or other representative.
"SUBSIDIARY" means any corporation of which securities having a
majority of the ordinary voting power in electing directors are owned by Seller,
or Buyer, as the case may be, directly or through another Subsidiary.
"TAX" means any federal, state, local, foreign or other tax, levy,
impost, fee, assessment or other government charge, including without limitation
(i) income, estimated income, business, occupation, franchise, property,
payroll, personal property, sales, transfer, use, employment, commercial rent,
occupancy, franchise or withholding taxes, and (ii) any premium, interest,
penalties and additions in connection therewith.
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EXHIBIT B
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
1. ORGANIZATION AND QUALIFICATION. Seller is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware, and has the requisite corporate power and authority to own and operate
its properties and to carry on its business as now conducted. Seller is duly
qualified to do business and is in good standing in the states of Arizona and
Delaware, the only jurisdictions where the failure to be so qualified would have
a material adverse effect on its business, properties, or ability to conduct the
business currently conducted by it.
2. AUTHORITY RELATIVE TO THIS AGREEMENT. Seller has the requisite
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement by Seller
and the consummation by Seller of these transactions has been duly authorized by
the Board of Directors of Seller. This Agreement has been duly executed and
delivered by Seller, and constitutes a valid and binding obligation of Seller,
enforceable in accordance with its terms.
3. NO CONFLICTS. Except as set forth in the Disclosure Letter, the
Seller is not subject to, or obligated under, any provision of (a) its Articles
of Incorporation, Bylaws, or other organizational documents, (b) any agreement,
arrangement, or understanding, (c) any license, franchise, or permit, or (d) any
Applicable Law which would be breached or violated, or in respect of which a
right of termination or acceleration would arise, or pursuant to which any
encumbrance on any of its assets would be created, by its execution, delivery,
and performance of this Agreement and the consummation by it of the transactions
contemplated hereby.
4. NO CONSENTS. Except for the consent of the Board of Directors, the
holders of Seller's common and preferred stock, Junior Secured Lenders and Bank
of America Commercial Funding Commercial Finance, no authorization, consent, or
approval of, or filing with, any public body, court, or authority is necessary
on the part of Seller for the consummation by Seller of the transactions
contemplated by this Agreement.
5. FINANCIAL STATEMENTS. Seller has provided to Buyer for the 1997 and
1998 year-end audited financial statements in the form of Seller's 10-KSB
Reports and the Seller's most recent financial statements in the form of
Seller's 10-QSB Report. All of these financial statements have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved and fairly present the financial position of Seller as of the dates
thereof and the results of its operations and cash flows for the periods then
ended.
6. SELLER'S SEC REPORTING. Seller files periodic reports pursuant to
the Securities Exchange Act of 1934 (the "SEC REPORTS"). Since December 1997,
Seller has
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EXHIBIT B
duly filed all SEC Reports required to be filed, and no such report, as of the
date filed, contained any untrue statement of material fact or omitted to state
any material fact required to be stated therein or necessary to make the
statements in such report, in light of the circumstances under which they were
made, not misleading. The financial statements included in such SEC Reports were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods involved and present fairly the
consolidated financial position, results of operation, and cash flows of Seller
and its consolidated subsidiaries as of the dates and for the periods indicated,
subject, in the case of unaudited interim statements, to normal year-end
adjustments and the absence of complete footnote disclosure.
7. COMPLIANCE WITH LAWS. Seller and its officers, directors, agents,
and employees have complied in all material respects with all Applicable Laws
related to the SOR Wheel Business and Acquired Assets, and no claims have been
filed against Seller alleging a material violation of any such Applicable Law,
except as set forth in the Disclosure Letter.
8. LITIGATION. Except as set forth in the Disclosure Letter, there are
no suits, claims, actions, arbitrations, investigations, or proceedings entered
against, now pending, or threatened against Seller before any court,
arbitration, administrative or regulatory body, or any governmental agency which
may result in any judgment, order, award, decree, liability, or other
determination which will or could reasonably be expected to have any material
adverse effect upon Seller's ability to fulfill its obligations under this
Agreement and the License Agreement,, the Acquired Assets, or the SOR Wheel
Business. Seller is not subject to any continuing court or administrative order,
writ, injunction, or decree applicable to it or the SOR Wheel Business, or to
its property or employees, and Seller is not in material default with respect to
any order, writ, injunction, or decree of any court or federal, state,
municipal, or other governmental department, commission, board, agency, or
instrumentality which will or could reasonably be expected to have any effect
upon Seller, the Acquired Assets, or the SOR Wheel Business.
9. GOOD TITLE TO AND CONDITION OF THE ACQUIRED ASSETS.
a. The Inventory listed on SCHEDULE 1 is carried on Seller's
books and records at a value determined in accordance with GAAP.
b. Seller owns the Acquired Assets free and clear of all
liens, encumbrances and security interests, except as disclosed in the
Disclosure Letter, or leases such equipment under valid leases, all of
which are listed in the Disclosure Letter. Seller is not in default
under any such obligations, and no circumstances exist which could
result in such default, under any of such equipment leases, nor to
Seller's knowledge is any other party to any of such equipment leases
in default.
10. OTHER CONTRACTS AND COMMITMENTS.
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EXHIBIT B
a. Seller has furnished Buyer with a true and correct copy of
each written Contract, and a written description of each oral Contract
referred to in the Disclosure Letter, together with all amendments,
waivers, or other changes thereto.
b. Except as specifically disclosed in the Disclosure Letter:
(i) no supplier has indicated that it will stop or decrease the rate of
business done with Seller, except for changes in the ordinary course of
the SOR Wheel Business; (ii) Seller has performed in all material
respects the obligations required to be performed by it in connection
with the Contracts and Seller has not been advised of or received any
claim of default under any Contract required to be disclosed hereunder;
(iii) Seller has no present expectation or intention of not fully
performing any obligation pursuant to any Contract; and (iv) to
Seller's knowledge there has been no breach and there is no anticipated
breach by any other party to any Contract.
11. SOLVENCY; BULK SALES. Seller is solvent and able to pay its
outstanding debts as they mature. Seller will not be rendered insolvent by the
transfer of the Acquired Assets pursuant to this Agreement, and the transfer of
the Acquired Assets is not fraudulent to any creditor or equity interest holder
of Seller. There is no state bulk sales or bulk transfer law applicable to the
sale of the Acquired Assets to Buyer.
12. TAX MATTERS. Seller has filed all federal, foreign, state, county,
and local income, excise, property, sales, employment-related wages and
benefits, and other tax returns which are required to be filed by it or them, as
the case may be, in respect of Seller, the SOR Wheel Business or the Acquired
Assets, and all such returns are true and correct; all taxes due and payable by
Seller in respect of Seller, the SOR Wheel Business or the Acquired Assets have
been paid; Seller's provisions for taxes on the most recent balance sheet and
any other financial statements delivered hereunder are sufficient for all
accrued and unpaid taxes as of the dates of such balance sheets; Seller has paid
all taxes due and payable by it or which it is obligated to withhold from
amounts owing to any employee, creditor, or third party; Seller has not waived
any statute of limitations in respect of taxes or agreed to any extension of
time with respect to a tax assessment or deficiency; the assessment of any
additional taxes relating to or for periods for which returns have been filed is
not expected; and Seller has not received notice of any unresolved questions or
claims concerning its tax liability.
13. BROKERS' FEES. Seller has not dealt with any broker, finder, or
other person entitled to any brokerage commissions, finders' fees, or similar
compensation in connection with the transactions contemplated by this Agreement.
14. PRODUCT WARRANTIES. Schedule 7 to this Agreement contains a
description of all product warranties relating to products sold by Seller in the
SOR Wheel Business, including the length of each warranty, the obligation of
Seller thereunder and a three-year
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EXHIBIT B
history of warranty claims made against Seller with respect to the SOR Wheel
Business. Except as set forth on Schedule 7 to this Agreement, Seller has made
no express warranties with respect to SOR products sold or distributed by Seller
and no warranties have been made by Seller or authorized personnel of Seller.
Except as disclosed in the Disclosure Letter, no SOR Products sold or
manufactured by Seller in the SOR Wheel Business have at any time been subject
to any voluntary or governmental recall (whether federal, state, local or
foreign), and Seller knows of no presently existing circumstances that would
constitute a valid basis therefor.
15. NO OTHER AGREEMENT TO SELL THE ASSETS OR BUSINESS. Seller has no
legal obligation, absolute or contingent, to any other person or firm to sell
the Acquired Assets or SOR Wheel Business (other than the sale of inventory in
the ordinary course of business), or to effect any merger, consolidation or
other reorganization, directly or indirectly, of Seller or to enter into any
agreement with respect thereto.
16. Disclosure. Seller has not withheld from Buyer any material facts
relating to the Acquired Assets or the SOR Wheel Business, financial condition
or prospects of the SOR Wheel Business. No representation or warranty of Seller
in the Agreement or in any letter, certificate, schedule, statement or other
document furnished or to be furnished pursuant to this Agreement or in
connection with the transaction contemplated by this Agreement contains or will
omit to state any material fact required to be stated herein or therein or
necessary to make the statements herein therein not misleading.
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EXHIBIT C
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller each of the following:
1. ORGANIZATION AND QUALIFICATION. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware, and has the requisite corporate power and authority to own and operate
its properties and to carry on its business as now conducted in every
jurisdiction where the failure to do so would have a material adverse effect on
its business, properties, or ability to conduct the business currently conducted
by it.
2. AUTHORITY RELATIVE TO THIS AGREEMENT. Buyer has the requisite
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement by Buyer and
the consummation by Buyer of the transactions contemplated hereby have been duly
authorized by Buyer, and no other corporate proceedings on the part of Buyer are
necessary to authorize this Agreement and such transactions. This Agreement has
been duly executed and delivered by Buyer and constitutes a valid and binding
obligation of Buyer, enforceable in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
or other similar laws relating to the enforcement of creditors' rights generally
and by general principles of equity.
3. NO CONFLICTS. Buyer is not subject to, or obligated under, any
provision of (a) its Certificate of Incorporation or Bylaws, (b) any material
agreement, arrangement, or understanding, (c) any material license, franchise,
or permit, or (d) any law, regulation, order, judgment, or decree, which would
be breached or violated, or in respect of which a right of termination or
acceleration would arise, or pursuant to which any encumbrance on any of its or
any of its subsidiaries' material assets would be created, by its execution,
delivery, and performance of this Agreement and the consummation by it of the
transactions contemplated hereby.
4. NO CONSENTS. Except with respect to filing under the HSR Act, no
authorization, consent, or approval of, or filing with, any public body, court,
or authority is necessary on the part of Buyer for the consummation by Buyer of
the transactions contemplated by this Agreement.
5. COMPLIANCE WITH LAWS. Buyer and its officers, directors, agents, and
employees have complied in all material respects with all Applicable Laws
related to Buyer's business, and no claims have been filed against Buyer
alleging a material violation of any Applicable Law, except as set forth in the
Disclosure Letter.
6. LITIGATION. Except as set forth in the Disclosure Letter, there are
no suits, claims, actions, arbitrations, investigations, or proceedings entered
against, now pending, or threatened against Buyer before any court, arbitration,
administrative or regulatory body, or any governmental agency which may result
in any judgment, order, award, decree, liability, or other determination which
will or could reasonably be expected to
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EXHIBIT C
have any material adverse effect upon Buyer's ability to fulfill its obligations
under this Agreement or the License Agreement, the Acquired Assets, or the SOR
Wheel Business. Buyer is not subject to any continuing court or administrative
order, writ, injunction, or decree applicable to it or the SOR Wheel Business,
or to its property or employees, and Buyer is not in material default with
respect to any order, writ, injunction, or decree of any court or federal,
state, municipal, or other governmental department, commission, board, agency,
or instrumentality.
7. BUYER'S REVIEW OF SELLER AND COMPANY INFORMATION. Buyer acknowledges
that it has reviewed Seller's SEC Reports, and has had an opportunity to ask
questions of and to receive answers from Seller regarding these reports and the
affairs and prospects of Seller in general, and desires no further information
pertaining to Seller.
8. NO RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order, or decree to
which Buyer is a party or otherwise binding on Buyer or its property which has
or reasonably could be expected to have the effect of prohibiting or impairing
any business practice of Buyer, any acquisition of property (tangible or
intangible) by Buyer, or the conduct of the SOR Wheel Business.
9. DISCLOSURE.` There is no fact which has not been disclosed to Seller
which materially adversely affects or could reasonably be anticipated to
materially adversely affect the Buyer's ability to fulfill its obligations under
this Agreement. No representation or warranty of Buyer in the Agreement or in
any letter, certificate, schedule, statement or other document furnished or to
be furnished pursuant to this Agreement or in connection with the transaction
contemplated by this Agreement contains or will omit to state any material fact
required to be stated herein or therein or necessary to make the statements
herein therein not misleading
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EXHIBIT D
PROCEDURE FOR INDEMNIFICATION
1. The Indemnified Party will promptly give notice hereunder to the
Indemnifying Party after obtaining written notice of any claim as to which
recovery may be sought against the Indemnifying Party.
2. If the indemnity claim arises from the claim of a third party, the
Indemnified Party will permit the Indemnifying Party to assume the defense of
any such claim and any litigation resulting from such claim. If the Indemnifying
Party assumes the defense of a third-party claim, the obligations of the
Indemnifying Party as to such claim will include taking all steps necessary in
the defense or settlement of such claim or litigation and holding the
Indemnified Party harmless from and against any and all damages caused by or
arising out of any settlement approved by the Indemnifying Party or any judgment
in connection with such claim or litigation. The Indemnifying Party shall not,
in the defense of such claim or any litigation resulting therefrom, consent to
entry of any judgment (other than a judgment of dismissal on the merits without
costs) except with the written consent of the Indemnified Party, or enter into
any settlement (except with the written consent of the Indemnified Party) which
does not include as an unconditional term thereof the giving by the claimant or
the plaintiff to the Indemnified Party a release from all liability in respect
of such claim or litigation. The Indemnified Party may, with counsel of its
choice and at its expense, participate in the defense of any such claim or
litigation.
3. If the Indemnifying Party does not assume the defense of any such
claim by a third-party or resulting litigation after receipt of notice from the
Indemnified Party, the Indemnified Party may defend against such claim or
litigation in such manner as it deems appropriate, and unless the Indemnifying
Party deposits with the Indemnified Party a sum equivalent to the total amount
demanded in such claim or litigation plus the Indemnified Party's estimate of
the costs of defending the same, the Indemnified Party may settle such claim or
litigation on such terms as it may deem appropriate and the Indemnifying Party
will promptly reimburse the Indemnified Party for the amount of such settlement
and for all damages incurred by the Indemnified Party in connection with the
defense against or settlement of such claim or litigation. If the Indemnifying
Party fails to notify an Indemnified Party of its election to defend any such
claim or action by a third party within 15 days after the Indemnifying Party
received notice of such claim or action, then the Indemnifying Party will be
deemed to have waived its right to defend such claim or action.
4. The Indemnifying Party will promptly reimburse the Indemnified Party
for the amount of any judgment rendered with respect to any claim by a
third-party in such litigation and for all damage incurred by the Indemnified
Party in connection with the defense against such claim or litigation, whether
or not resulting from or arising out of the act of a third-party.
5. The right to indemnification hereunder will not be affected by any
failure of an Indemnified Party to give such notice, or delay by an Indemnified
Party in giving such notice, unless, and then only to the extent that, the
rights and remedies of the Indemnifying Party will have been prejudiced as a
result of the failure to give, or delay in giving, such notice.
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APPENDIX B
EXCLUSIVE FIELD OF USE LICENSE AGREEMENT
This Agreement, and any Exhibits, Schedules, and Appendices
(collectively, the "AGREEMENT"), effective as of ______________, 1999, is
entered into between Cragar Industries, Inc., a Delaware corporation having
its principal place of business at 4636 North 43rd Avenue, Phoenix, Arizona
85031 (hereinafter "LICENSOR"), and Carlisle Tire & Wheel Co., (defined to
include any of subsidiaries, affiliates, partnerships, shareholders, or other
related parties), a Delaware corporation having its principal place of
business at 23 Windham Blvd., Aiken, SC 29805 (hereinafter "LICENSEE").
WHEREAS, Licensor is the owner of the various trademark and/or
servicemark rights listed on the attached SCHEDULE A (hereinafter the
"TRADEMARK RIGHTS");
WHEREAS, Licensor is the owner of the various patent rights listed
on the attached SCHEDULE B (hereinafter the "PATENT RIGHTS");
WHEREAS, Licensee and Licensor have entered into a certain Agreement
of Sale and Purchase of Assets, dated as of October 15, 1999; and
WHEREAS, Licensee desires to obtain an exclusive license, in the
field of use designated herein, under the Trademark Rights, the Patent
Rights, and other intangible rights owned by Licensor.
NOW, THEREFORE, in consideration of the premises, the mutual
covenants contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. DEFINITIONS
1.1. "PATENTED PRODUCT" means any device or system covered by a
claim of any currently issued patent contained in the Patent Rights, or any
patent that issues from a currently pending patent application contained in
the Patent Rights.
1.2. "LICENSED PRODUCTS" means the products listed on the attached
SCHEDULE C, ALL TRADE DRESS RIGHTS EMBODIED THEREIN and any Patented Product.
1.3. "LICENSED FIELD" means vehicle wheels, other than motorcycle
wheels, having either pierced or non-pierced steel outer rims, and related
accessories.
1.4. "IMPROVEMENT" means any modification in the structure or design
of the Licensed Products, whether patentable or unpatentable, which depends
upon a Licensed Product for its use or effectiveness or which increases the
effectiveness or manufacturability of a Licensed Product, including, without
limitation, any modification of a part, component, or process or apparatus
for the manufacture thereof.
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1.5. "INTANGIBLE RIGHTS" means (i) any and all documents in whatever
form, including but not limited to writings, computer disks, computer tapes,
and electronic records, containing design and technical information,
engineering or production data, drawings, plans, specifications, techniques,
methods, processes, trade secrets, reports, models, market research data,
customer lists, and any and all other material or matter used by or in
possession of Licensor and applicable to the design, manufacture, assembly,
service, and sale of the Licensed Products, (ii) Licensor's general and
specific knowledge, experience, and information, not in written or printed
form, applicable to the design, manufacture, assembly, service, and sale of
the Licensed Products, and (iii) any other trade secret information, and
proprietary information that may be applicable to the design, manufacture,
assembly, service, and sale of the Licensed Products.
1.6. "LICENSED RIGHTS" means one or more of any of the Trademark
Rights, the Patent Rights, and the Intangible Rights.
2. LICENSE GRANT
2.1. Trademarks. Licensor grants to Licensee a worldwide exclusive
license in the Licensed Field to use the Trademark Rights in connection with
the marketing and sale of the Licensed Products, subject to the terms of this
Agreement.
2.1.1. The parties agree that Licensee's use of the Trademark
Rights, including the goodwill arising from such use, shall inure to
the benefit of Licensor, and Licensee shall have no right whatsoever to
the Trademark Rights except as specifically set forth herein. Licensee
agrees to not use the Trademark Rights, or any simulation or variant
thereof, or any mark, name, logo, design, likeness, or other
representation confusingly similar to any of the marks included in the
Trademark Rights, except as specifically set forth herein.
2.1.2. Licensee shall not at any time do or cause to be done
any act or thing contesting or in any way impairing or tending to
impair any part of Licensor's right, title, and interest respecting the
Trademark Rights. Licensee shall not in any manner represent that it
has any ownership in the Trademark Rights, and Licensee acknowledges
that its use of the Trademark Rights shall not create in Licensee's
favor any right, title, or interest in or to the Trademark Rights.
2.2. LICENSED PRODUCTS. Licensor grants to Licensee a worldwide
exclusive license in the Licensed Field to make, use, sell, import and offer
for sale the Licensed Products, subject to the terms of this Agreement. In
connection with this grant, Licensor grants to Licensee a worldwide exclusive
license in the Licensed Field to use the Patent Rights and the Intangible
Rights to manufacture the Licensed Products.
2.2.1. Licensor makes no warranty related to the validity or
enforceability of any of the issued patents included in the Patent
Rights.
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2.2.2 Licensee may only disclose the Intangible Rights to
third parties if such disclosure is necessary for Licensee to perform
its obligations under this Agreement, PROVIDED, that no disclosure of
the Intangible Rights shall be made by Licensee unless Licensee has
obtained from the third party a signed nondisclosure agreement that
affords Licensor at least the same protection as set forth in PARAGRAPH
8 herein.
2.3. No Transfer. The rights granted under this PARAGRAPH 2 may not be
sublicensed or transferred, except to Licensees affiliate (defined as any
parent, subsidiary, subsidiary of a parent, or other entity in which Licensor
owns at least fifty percent of the voting interest therein), without the express
prior written consent of Licensor, which shall not be unreasonably withheld.
3. ROYALTIES AND PAYMENT TERMS
3.1. Licensee shall pay to Licensor the royalty on Net Sales of
Licensed Products as specified in the attached SCHEDULE D. Licensee's obligation
to pay royalties under this Agreement will be triggered by the invoice date or
the shipping date of the Licensed Products, whichever occurs first. Royalty
payments are due thirty (30) days after the end of each calendar quarter.
3.2. Licensee shall keep accurate and complete records containing all
information required for the computation and verification of the payments due
under Paragraph 3.1. Licensee shall keep records for a period of at least three
years. On a quarterly basis and upon five days advance written notice, Licensor
shall have the right to inspect such records during Licensee's ordinary business
hours to verify the accuracy of any royalty payments made under this Agreement.
If an audit by Licensor uncovers a deficiency in any royalty payment exceeding
twenty-five percent (25%) of the payments due under Paragraph 3.1, Licensee must
pay the cost of such audit. If an audit by Licensor uncovers a deficiency in any
royalty payment Licensee must immediately remit the amount due, including a two
percent (2.0%) per month finance charge.
3.3. Any past due royalty payments will carry an interest rate of two
percent (2.0%) per month commencing on the due date and compounding every thirty
(30) days thereafter.
3.4. Within thirty (30) days after the end of each calendar quarter,
Licensee will have paid to Licensor at least the following cumulative royalty
payment amounts:
First Quarter: 20% of the total minimum annual royalty for that year.
Second Quarter: 40% of the total minimum annual royalty for that year.
Third Quarter: 60% of the total minimum annual royalty for that year.
Fourth Quarter: 100% of the total minimum annual royalty for that year.
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If any of the above cumulative royalty payment amounts is not met by
Licensee, or if Licensee is late for any quarterly royalty payment, Licensee
will be deemed to have defaulted. Upon written notice of such default,
Licensee shall have ninety (90) days to cure such default, otherwise Licensor
may immediately terminate this Agreement. Termination of this Agreement is
the sole remedy available to Licensor.
4. QUALITY CONTROL
4.1. Licensee shall use the Trademark Rights in connection with the
Licensed Products only upon employing quality standards that meet or exceed
each of the following: (a) the current standards under which such products
have in the past been manufactured by Licensor; and (b) the standards
recognized by the industry as acceptable for such products.
4.2. Licensee agrees that Licensor has the right to control the
quality of all Licensed Products manufactured, sold, and marketed by Licensee
under the Trademark Rights. If Licensor determines, in Licensor's sole
reasonable discretion, that the quality of the Licensed Products fail to meet
the quality control standards set forth herein, then such failure shall
constitute a material breach of this Agreement, permitting Licensor to
terminate this Agreement upon ninety (90) days' written notice to Licensee,
unless such breach is cured.
4.3. Licensee shall permit Licensor or Licensor's appointed agent to
inspect and to monitor Licensee's use of the Trademark Rights including,
without limitation, (a) allowing Licensor or Licensor's appointed agent, at
reasonable times, to review Licensee's advertisements and other materials
using the Trademark Rights, and (b) with reasonable advance notice, to enter
the premises of Licensee, or any premises under the control of Licensee,
where any Licensed Product is manufactured or sold, to inspect the Licensed
Products and the manner in which the Licensed Products are marketed. Licensee
shall also provide, upon request of Licensor, representative samples of the
Licensed Products and any advertising therefor.
4.4. Licensee agrees not to use the Trademark Rights in connection
with any Licensed Products where the character, appearance, quality, or
suitability thereof is disapproved by Licensor. The Licensed Products sold
and manufactured under the Trademark Rights shall be in compliance with all
applicable national, state, and local laws and regulations governing the
Licensed Products.
4.5. LEVERAGING OF THE TRADEMARK RIGHTS
4.5.1. Subject to approval of Licensor and subject to the
quality control standards set forth herein, Licensee may utilize the
Trademark Rights in conjunction with any marks owned or created by
Licensee, but only to the extent that such use of the Trademark Rights
is reasonably intended to promote the Licensed Products, and only to
the extent that such use does not dilute any of the Trademark Rights.
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4.5.2. Subject to approval of Licensor and subject to the
quality control standards set forth herein, Licensee shall use the word
mark CRAGAR to create new trademark or service mark designs on behalf
of Licensor (hereinafter "NEW MARKS"). Such New Marks are only to be
used in connection with the sales, promotion, or marketing of the
Licensed Products and such New Marks must be distinctive over all other
New Marks that are created by additional Licensees of Licensor under
similar terms. The parties agree that Licensee's use of such New Marks,
including the goodwill arising from such use, shall inure to the
benefit of Licensor, and Licensee shall have no right whatsoever to the
New Marks except as specifically set forth herein. Licensee agrees to
not use the New Marks, or any simulation or variant thereof, or any
mark, name, logo, design, likeness, or other representation confusingly
similar to any of the New Marks, except as specifically set forth
herein.
4.5.3 Licensee agrees to use the New Marks whenever the Cragar
name or logo is used.
4.5.4. Licensee's right to use the Trademark Rights, any marks
derived from or including any of the Trademark Rights, and any New
Marks, as contemplated by this PARAGRAPH 4.5, shall immediately cease
upon termination of this Agreement for any reason.
5. MARKINGS
5.1. [Intentionally Left Blank]
5.2. Licensee shall place the trademark registration symbol "-R-"
immediately following each use of a federally registered trademark included in
the Trademark Rights. Licensee shall place the trademark symbol "TM" immediately
following each use of a non-federally-registered trademark included in the
Trademark Rights.
5.3. Licensee shall mark each Licensed Product it manufactures with the
actual manufacturing date of such Licensed Product, along with any other
government-mandated, statutory, or other regulatory markings that may be
required. Licensee shall be fully responsible for, and agrees to indemnify
Licensor for, any and all product liability and product warranty claims (and any
associated costs and damages) caused by Licensee's failure to properly mark the
Licensed Products under this Paragraph 5.3.
6. IMPROVEMENTS
6.1. If Licensee develops an Improvement, Licensee shall immediately
disclose such Improvements to Licensor prior to incorporation or implementation
of such Improvement into any Licensed Product. Licensee shall obtain written
approval from Licensor, which shall not be unreasonably denied by Licensor,
before any such Improvement is incorporated or implemented into any Licensed
Product.
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6.2. Upon termination of this Agreement, Licensee shall grant to
Licensor a non-exclusive and royalty-free license to make, use, sell, offer
for sale, and import products that embody or utilize any Improvement
developed by Licensor.
6.3. Licensor shall retain all rights in and to any Improvement
developed or acquired by Licensor. Licensor agrees to grant to Licensee
licenses of the scope specified in Paragraph 2 herein for any Improvements
developed by Licensor, and the terms of this Agreement shall also apply to
such Improvements. No additional royalty shall be due for such additional
licenses for such Improvements. Licensee agrees to cooperate with Licensor,
without further consideration, during the preparation and prosecution of any
patent applications filed in connection with Improvements developed by
Licensor.
7. BEST EFFORTS
7.1. Licensee shall use its best efforts to promote the sale of the
Licensed Products, including making commercially reasonable advertising and
marketing expenditures, prospecting and contacting customers and potential
customers of the Licensed Products, and striving to achieve a cost-efficient
manufacturing process while maintaining a high quality of Licensed Products.
7.2. Licensor may request Licensee to prepare a written quarterly
summary of promotional, marketing, and sales activity related to the Licensed
Products.
7.3. If, for any reason, Licensee ceases to actively market and
promote the Licensed Products for any continuous ninety (90) day period,
Licensee shall promptly notify Licensor and Licensor shall have the right to
immediately terminate this Agreement.
8. CONFIDENTIALITY
8.1. During the term of this Agreement, one party (the "DISCLOSING
PARTY") may disclose to another party (the "RECEIVING PARTY") confidential
information, proprietary information, trade secret information, marketing data,
and the like (hereinafter "CONFIDENTIAL INFORMATION"). The Receiving Party shall
not use or disclose any Confidential Information, except for the purpose of
complying with its obligations under this Agreement.
8.2. The Receiving Party agrees to keep all Confidential Information
strictly confidential, subject to the limited disclosure to a selected number of
employees as may be reasonably necessary to enable the Receiving Party to comply
with its obligations under this Agreement.
8.3. Upon termination of this Agreement, the Receiving Party shall
return (or destroy if requested by the Disclosing Party) all Confidential
Information in its
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possession. Notwithstanding the foregoing, the confidentiality provisions set
forth herein shall survive any termination of this Agreement.
9. INFRINGEMENT
9.1. If either party discovers an infringing use of any of the
Licensed Rights by any third party, the discovering party shall promptly
notify the other party. If Licensor elects to institute an action to end such
third party infringement, Licensee shall provide all reasonable assistance to
Licensor in connection with such action. If Licensor elects to not institute
such an action, Licensee may initiate such action, and Licensor agrees to
provide reasonable assistance to Licensee in connection with such action.
9.2 Any lawsuit or action initiated pursuant to Paragraph 9.1 shall
be prosecuted at the sole expense of the party bringing suit and all sums
recovered shall be divided equally between the parties after deduction of all
reasonable expenses and attorney fees.
10. TERM AND TERMINATION
10.1. This Agreement shall have a term of ten (10) years from its
effective date, with perpetual renewal rights. Any renewal of this Agreement
shall have a term of ten (10) years.
10.2. At least three hundred sixty (360) days prior to the termination
date of the original Agreement or any subsequently renewed Agreement, Licensee
shall provide written notice to Licensor of Licensee's intent to terminate or
renew the current Agreement.
10.3. If Licensee fails to comply with any of the material terms of
this Agreement, then Licensee will be deemed to have defaulted. Upon written
notice of such default, unless otherwise specified herein, Licensee shall have
ninety (90) days to cure such default, otherwise Licensor may immediately
terminate this Agreement.
10.4. In the event of failure, receivership, or seizure of Licensee,
this Agreement shall terminate immediately.
10.5. If this Agreement is terminated for any reason, Licensee shall
not be relieved of any duties or obligations owing as of the date of
termination, including without limitation, accounting for any outstanding
royalties, responsibility for product warranties and product liability for any
Licensed Products, and the duty to maintain confidentiality in accordance with
Paragraph 8 herein. Any royalty payments due upon termination of this Agreement
must be paid by Licensee within sixty (60) days of the termination date.
10.6. Upon termination of this Agreement for any reason, Licensee shall
immediately cease and desist from any use whatsoever of the Licensed Rights.
Licensee,
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its primary lender or another party responsible for liquidating the
Licensee's inventory may, however, liquidate all remaining inventory in its
possession at time of termination, provided that (i) Licensor shall be given
the right of first refusal to purchase any or all of the inventory upon the
same terms as Licensee offers to third parties, (ii) royalties shall be
payable to Licensor on all liquidated inventory. Further, upon termination of
this Agreement for any reason, Licensee shall immediately transfer to
Licensor or destroy, at Licensor's election, any and all documents and things
bearing any mark included within the Trademark Rights.
11. ARBITRATION
Any controversy or claim arising out of or relating to this Agreement,
or its breach, shall be settled by binding arbitration in accordance with the
rules of the American Arbitration Association with all proceedings conducted in
Phoenix, Arizona. Judgement upon the award rendered by the arbitrator(s) may be
entered in any court having competent jurisdiction.
12. MISCELLANEOUS TERMS
12.1. Licensor may assign its rights under this Agreement to any third
party, with prior written consent of Licensee, which shall not be unreasonably
withheld.
12.2. Licensee agrees to indemnify and hold Licensor and its officers,
directors, representatives, agents, and employees harmless from and against any
and all liability, damage, loss, or expense, which Licensor may sustain or incur
in any action brought or claim made by any person, organization, or governmental
entity or agency (including Licensee), to the extent such liability relates to
acts or omissions of acts by Licensee with respect to making, using, selling,
importing and offering for sale the Licensed Products, following the Closing
Date.
12.3. EXCEPT AS EXPRESSLY SET FORTH HEREIN, LICENSOR, AND ANY RELATED
ENTITIES INCLUDING LICENSOR'S DIRECTORS, OFFICERS, EMPLOYEES, AND AFFILIATES
MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY KIND, EITHER EXPRESSED
OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE, VALIDITY OF ISSUED OR PENDING PATENT CLAIMS, IN THE
ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE. NOTHING IN THIS
AGREEMENT SHALL BE CONSTRUED AS A REPRESENTATION MADE OR WARRANTY GIVEN BY
LICENSOR THAT THE PRACTICE BY LICENSEE OF THE LICENSES GRANTED HEREUNDER SHALL
NOT INFRINGE THE PATENT OR TRADEMARK RIGHTS OF ANY THIRD PARTY. IN NO EVENT
SHALL LICENSOR, ITS DIRECTORS, OFFICERS, EMPLOYEES, OR AFFILIATES BE LIABLE FOR
INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING ECONOMIC DAMAGE OR
INJURY TO PROPERTY OR LOST PROFITS, REGARDLESS OF
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WHETHER LICENSOR SHALL BE ADVISED, SHALL HAVE OTHER REASON TO KNOW, OR IN FACT
SHALL KNOW OF THE POSSIBILITY.
12.4. Subject to PARAGRAPH 2.3 herein, this Agreement shall be
binding upon the successors, assigns, and legal representatives of the
parties.
12.5. Any payment, notice, or other communication required or
permitted to be made or given to either party pursuant to this Agreement
shall be sufficiently made or given upon actual receipt if hand-delivered or
by telecopy, or three days after the date of mailing if sent by certified or
registered mail, postage prepaid, addressed to such party at its address set
forth above or to any other address as it shall designate by written notice
to the other party.
12.6. The parties agree that if any part, term, or provision of this
Agreement is found to be illegal, invalid, or unenforceable, the validity of
the remaining provisions shall not be affected thereby.
12.7. This Agreement shall be governed by, construed, and
interpreted in accordance with the laws of the State of Arizona, without
regard to its conflict of laws rules.
12.8. The failure of any party to exercise any right, power, or
remedy hereunder shall not constitute a waiver thereof, nor shall any single
or partial exercise of any right, power, or remedy hereunder preclude any
other or further exercise thereof or the exercise of any other right, power,
or remedy.
12.9. This Agreement constitutes the entire understanding between
the parties as to the subject matter hereof. No amendments to this Agreement
shall be effective unless in writing and signed by the parties.
12.10 Licensor represents and warrants to Licensee that Licensor has
good and marketable title to and owns or exclusively holds all rights to use,
free and clear of all liens, claims, restrictions and infringements, other
than those disclosed to Licensee, the Licensed Rights. To the best of the
Licensor's knowledge there is no current infringement or other adverse claim
pending against any of the Licensed Rights. Licensor has received no notice
or has any knowledge that Licensor is currently infringing upon the right or
claim right of any person under or with respect to any of the Licensed Rights.
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LICENSOR: CRAGAR INDUSTRIES, INC.
a Delaware corporation
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
LICENSEE: CARLISLE TIRE & WHEEL CO.
a Delaware corporation
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
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SCHEDULE A - LICENSOR'S TRADEMARK RIGHTS
THIS SCHEDULE A ACCOMPANIES THE EXCLUSIVE FIELD OF USE LICENSE
AGREEMENT, EFFECTIVE __________________________, BETWEEN CRAGAR INDUSTRIES,
INC. ("LICENSOR") AND CARLISLE TIRE & WHEEL CO. ("LICENSEE"). THE PARTIES
AGREE THAT THIS SCHEDULE A MAY NOT BE AMENDED UNLESS SUCH AMENDMENT IS IN
WRITING AND IS SIGNED BY BOTH PARTIES.
A LIST ALL APPLICABLE STATE, FEDERAL, AND FOREIGN REGISTERED TRADEMARKS AND
SERVICE MARKS, INCLUDING THE REGISTRATION NUMBERS AND APPROPRIATE EXHIBITS
SHOWING DESIGN MARKS ARE ATTACHED.
11
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SCHEDULE B - LICENSOR'S PATENT RIGHTS
THIS SCHEDULE B ACCOMPANIES THE EXCLUSIVE FIELD OF USE LICENSE
AGREEMENT, EFFECTIVE ____________________________, BETWEEN CRAGAR INDUSTRIES,
INC. ("LICENSOR") AND CARLISLE TIRE & WHEEL CO. ("LICENSEE"). THE PARTIES AGREE
THAT THIS SCHEDULE B MAY NOT BE AMENDED UNLESS SUCH AMENDMENT IS IN WRITING AND
IS SIGNED BY BOTH PARTIES.
NONE.
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SCHEDULE C - LICENSED PRODUCTS
THIS SCHEDULE C ACCOMPANIES THE EXCLUSIVE FIELD OF USE LICENSE
AGREEMENT, EFFECTIVE ________________________________, BETWEEN CRAGAR
INDUSTRIES, INC. ("LICENSOR") AND CARLISLE TIRE & WHEEL CO. ("LICENSEE"). THE
PARTIES AGREE THAT THIS SCHEDULE C MAY NOT BE AMENDED UNLESS SUCH AMENDMENT IS
IN WRITING AND IS SIGNED BY BOTH PARTIES.
The Licensed Products for the License Agreement shall be as follows:
1. Any wheel having steel or aluminum spokes attached to a
pierced steel outer rim and hub, and related accessories
whether or not marketed, distributed or sold under any of the
Trademark Rights ("Wire Wheels");
2. Any wheel having a non-steel center disk attached to a
non-pierced steel outer rim, and related accessories,
marketed, distributed or sold under any of the Trademark
Rights ("Composite Wheels")
3. Any wheel having a multi-piece center disk attached to a
non-pierced steel outer rim, and related accessories,
marketed, distributed or sold under any of the Trademark
Rights ("Legacy Wheels")
4. Any other wheel within the Licensed Field other than
Licensor's Line, Wire Wheels or Composite Wheels, and related
accessories, marketed, distributed or sold under any of the
Trademark Rights ("Commodity Steel Wheels").
5. Licensor's line of wheels, and related accessories with wheel
series identification numbers contained in the Cragar
Industries, Inc. Warehouse Distributor Workbook dated January
1, 1999 ("Licensor's Line") as set forth below:
1. 08/61 (Legacy S/S) (L);
2. 32 (Keystone Klassic) (L);
3. 54 (SS/T) (L);
4. 103 (Street Pro) (L);
5. 310 (Nomad) (C);
6. 311 (Black Race Wheel) (C);
7. 315 (Nomad II)(C);
8. 316 (Star Spoke) (C);
9. 320 (Quick Trick I) (C);
10. 330 (Super Spoke) (C);
11. 341 (Street Star) (L);
12. 346 (Street Lite) (L);
13. 470/471/477/479 (Star Wire) (L); and
14. T80 (W).
Legacy are denoted with "L"
Commodity Steel Wheels are denoted with "C"
Wire Wheels are denoted with "W"
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SCHEDULE D - ROYALTY PAYMENTS
This Schedule D accompanies the Exclusive Field of Use License
Agreement, effective ________________________________, between Cragar
Industries, Inc. ("Licensor") and Carlisle Tire & Wheel Co. ("Licensee"). The
parties agree that this Schedule D may not be amended unless such amendment is
in writing and is signed by both parties.
1. Licensee shall pay to Licensor a royalty of five percent (5.0%) of
the Net Sales for all Licensed Products defined as Legacy or Composite
Wheels, where "Net Sales" means the total gross sales price for all
Legacy and Composite Wheel Licensed Products sold by Licensee less the
total gross sales price for all Legacy and Composite Wheel Licensed
Products returned to Licensee during the relevant time period,
except that the total gross sales price for all returned Legacy and
Composite Wheel Licensed Products shall not be deducted in the case
where the Licensor is wholly responsible for the returned Legacy
and Composite Wheel Licensed Product.
2. Licensee shall pay to Licensor a royalty of three percent (3.0%) of
the Net Sales for all Licensed Products defined as Wire Wheels, where
"Net Sales" means the total gross sales price for all Wire Wheel
Licensed Products sold by Licensee less the total gross sales price
for all Wire Wheel Licensed Products returned to Licensee during the
relevant time period, except that the total gross sales price for
all returned Wire Wheel Licensed Products shall not be deducted in
the case where the Licensor is wholly responsible for the returned
Wire Wheel Licensed Product.
3. Licensee shall pay to Licensor a royalty of two percent (2.0%) of
the Net Sales for all Licensed Products defined as Commodity Steel
Wheels, where "Net Sales" means the total gross sales price for all
Commodity Steel Wheel Licensed Products sold by Licensee less the
total gross sales price for all Commodity Steel Wheel Licensed
Products returned to Licensee during the relevant time period, except
that the total gross sales price for all returned Commodity Steel
Wheel Licensed Products shall not be deducted in the case where the
Licensor is wholly responsible for the returned Commodity Steel
Wheel Licensed Product.
4. During the calendar year, should Net Sales for all Licensed
Products exceed ten million dollars ($10,000,000), for the purpose
of calculating additional royalty payments due, the royalty
percentages in (1), (2) and (3), above, shall be reduced by
twenty-five percent (25%) for all Net Sales above ten million
($10,000,000) dollars and equal to or below fifteen million dollars
($15,000,000) for such calendar year.
5. During the calendar year, should Net Sales for all Licensed
Products exceed fifteen million dollars ($15,000,000), for the
purpose of calculating additional royalty payments due, the royalty
percentages in (1), (2) and (3), above, shall be reduced by fifty
percent (50%) for all Net Sales above fifteen million dollars
($15,000,000) and equal to or below twenty million dollars
($20,000,000) for such calendar year.
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6. During the calendar year, should Net Sales for all Licensed
Products exceed twenty million dollars ($20,000,000), for the purpose
of calculating additional royalty payments due, the royalty
percentages in (1), (2) and (3), above, shall all be reduced to one
percent (1.0%) for all Net Sales above twenty million dollars
($20,000,000) for such calendar year.
7. Licensee agrees to pay Licensor a minimum royalty of two hundred,
fifty thousand dollars ($250,000) per year for each of the years 2000
and beyond.
8. On the effective date of the License Agreement, Licensee shall
pay to Licensor a royalty prepayment of one hundred, seventy-five
thousand dollars ($175,000), which is to be applied to future royalty
payments due to Licensor. Payment will be made in a combination
of cash and the application of amounts due Licensee by Licensor based
on the outstanding Accounts Payable Balance.
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CRAGAR INDUSTRIES, INC.
SPECIAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Michael L. Hartzmark and Michael R.
Miller, or any of them acting in the absence of the other with full powers of
substitution, the true and lawful attorneys and proxies for the undersigned and
to vote, as designated on the reverse, all shares of common stock of CRAGAR
INDUSTRIES, INC. (the "Company") that the undersigned is entitled to vote at the
Special Meeting of Shareholders (the "Meeting") to be held on Wednesday,
December 22, 1999, at 10:00 a.m., Mountain Standard Time, at 4636 North 43rd
Avenue, Phoenix, Arizona, and at any and all adjournments thereof, and to vote
all shares of common stock which the undersigned would be entitled to vote, if
then and there personally present, on the matters set forth on the reverse.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
SEE REVERSE SIDE
Please date, sign and mail your proxy card back as soon as possible-
SPECIAL MEETING OF SHAREHOLDERS
CRAGAR INDUSTRIES, INC.
DECEMBER 22, 1999
- PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED -
PLEASE MARK YOUR
/X/ VOTES AS IN THIS
EXAMPLE
1. Proposed Transaction with Carlisle Tire & Wheel Co. as described in
Cragar's Proxy Statement accompanying this proxy.
/X/ FOR /X/ WITHHELD /X/ ABSTAIN
The Board of Directors recommends a vote FOR the Proposed Transaction with
Carlisle.
Change of Address / /
comments on reverse side / /
<PAGE>
I plan to I do not plan
attend / / to attend / /
the meeting the meeting
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
SIGNATURE(S): Dated:
- --------------------------------------------------------- -------------
SIGNATURE IF HELD JOINTLY: Dated:
- --------------------------------------------------------- -------------
Note: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executer, administrator, or guardian, please give full
title as such.
