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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Amendment No. 1
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):
[X] No fee required
[ ] 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
[X] 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: $375
(2) Form, Schedule or Registration Statement no.: N/A
(3) Filing Party: Cragar Industries, Inc.
(4) Date Filed: November 18, 1999
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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 16 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.
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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, including the capability to increase sales
through development of new products under the CRAGAR brand
name, which, if realized, will increase the royalties
payable to Cragar.
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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.
- Licensing and selling the related assets to 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.
Absence Of Dissenters' Rights Of Appraisal
The Delaware General Corporation Law governs stockholders' rights in
connection with the proposed transaction. Under the applicable provisions of
Delaware law, Cragar's shareholders will have no right in connection with the
proposed transaction to dissent and seek appraisal of their common stock.
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 to the extent that 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.
No Change In Rights Of Shareholders
Following the completion of the proposed transaction, Cragar's
shareholders will retain their equity interests in Cragar. The completion of
the proposed transaction will not result in any changes in the rights of
Cragar's shareholders. As discussed elsewhere in this proxy statement,
Cragar does not intend to distribute any of the proceeds derived from the
proposed transaction to its shareholders through a special dividend,
liquidation, share repurchase or similar device.
Regulatory Approval
Cragar does not believe that any regulatory approvals are or will be
required in connection with the proposed transaction.
9
<PAGE>
BUSINESS
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 that 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 FOLLOWING 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>
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Cragar common stock is traded on the OTC Bulletin Board under the
symbol "CRGR". The following table sets forth the range of high and low bid
quotations or high and low sales prices for Cragar's common stock for each of
the periods indicated as reported by the OTC Bulletin Board and the Nasdaq
Small Cap Market. Bid quotations reflect interdealer prices without retail
markup, markdown or commission and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
Fiscal Year 1997
First Quarter 6.00 4.375
Second Quarter 5.375 4.25
Third Quarter 5.375 5.00
Fourth Quarter 6.50 4.50
Fiscal Year 1998
First Quarter 6.00 5.00
Second Quarter 5.75 5.00
Third Quarter 5.1875 4.25
Fourth Quarter 4.3125 3.0625
Fiscal Year 1999
First Quarter 5.5938 3.50
Second Quarter 4.25 3.50
Third Quarter 3.875 2.0625
</TABLE>
HOLDERS
The approximate number of beneficial holders of shares of Cragar's
common stock outstanding as of November 16, 1999 was 375. On October 17,
1999, the last trading day before the date the proposed transaction was
announced, the bid price for the common stock was $______ per share.
DIVIDENDS
Cragar has never paid cash dividends on its common stock and does not
anticipate paying cash dividends in the foreseeable future. As discussed
above, Cragar currently intends to retain the proceeds of the proposed
transaction and will not pay out any dividend to stockholders in connection
therewith. The declaration and payment of future dividends, if any, will be
at the sole discretion of the board of directors and will depend upon factors
deemed relevant by the board of directors.
19
<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.
20
<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.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
INTRODUCTION
Cragar designs, produces, and sells high-quality custom vehicle
wheels and wheel accessories. Cragar possesses 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.
Cragar was formed in 1992 to acquire certain assets, including the
accounts receivable, inventory, property, equipment, patents, trademarks, and
copyrights in a leveraged buyout from the Wheel and Tire Division of Mr.
Gasket Company, Inc., which had filed for reorganization. The fair value of
the net assets acquired exceeded the final purchase price, and, accordingly,
the fair value of the property and equipment, patents, trademarks, and
copyrights acquired was reduced to zero. The remaining balance of $3,687,341
was classified as excess of fair value of assets acquired over cost (commonly
referred to as negative goodwill) and was amortized to income over five years
using the straight-line method ($737,468 per annum through December 31,
1998). As of December 31, 1998, the balance of the excess of fair value of
assets acquired over cost was zero.
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 1998 AND YEAR ENDED DECEMBER 31, 1997
Net sales consist of gross sales less discounts, returns, and
allowances. Net sales for the year ended December 31, 1998 were $12,081,884
compared to $16,545,159 in the year ended December 31,1997, representing a
27.0% decline in net sales. The decrease was primarily attributable to the
lack of shipments to Super Shops, formerly Cragar's largest customer, which
filed for bankruptcy on September 19, 1997 and is currently being liquidated.
Not including net sales of $5,053,572 to Super Shops, Inc. in 1997, net sales
increased by 5.1%
Gross profit is determined by subtracting cost of goods sold from net
sales. Costs of goods sold consists primarily of the costs of labor, aluminum,
steel, raw materials, overhead, and material processing used in the production
of Cragar's products. Gross profit for the year ended December 31, 1998 was
$1,312,398 versus $2,636,887 for the year ended December 31, 1997. As a
percentage of net sales, gross profit decreased in 1998 compared to 1997, from
15.9% to 10.9%. The decrease in gross profit, both in terms of dollars and as a
percentage of net sales, was primarily attributable to the loss of sales to
Super Shops resulting in lower overhead absorption through the production cycle
and a decrease in margins as Cragar attempted to sell the excess inventory
produced based on Super Shops' sales volume.
Selling, general, and administrative ("SG&A") expenses consist
primarily of commissions, marketing expenses, promotional programs, salaries
and wages, product development expenses, office expenses, accounting and
legal expenses, and non-manufacturing overhead. These expenses for the year
ended December 31, 1998 were $4,404,391 compared to $7,394,235 for the year
ended December 31, 1997. This 40.4% decrease was primarily attributable to
the expense of $3,523,028 recognized in 1997 for bad debt reserve related to
the past due receivable from Super Shops as described above. Excluding the
allowance, SG&A for the year ended December 31, 1998 increased $533,184 or
13.8% over the comparable twelve month period ended December 31, 1997. This
increase was due, in large part, to the amortization and write-off of certain
intangible costs, totaling $427, 674, related to wheel designs and molds that
Cragar determined had no future value. In addition, Cragar launched an
aggressive non-recurring marketing campaign aimed at strengthening Cragar's
brand name in the aftermath of the Super Shops bankruptcy. The increases in
marketing expenses and the intangible cost write-off were partially offset by
Cragar's continued focus on reducing other expenses. Cragar did not receive
any benefit from the amortization of excess of fair value of assets over
acquired cost in 1998. This
22
<PAGE>
amount, which totaled $737,468 in 1997, was fully amortized by December 31,
1997.
Interest and other expenses, net, for fiscal 1998 were $879,449
compared to $748,905 for fiscal 1997. Interest expense increased from
$752,388 in 1997 to $792,221 in 1998, an increase of $39,833 or 5.3%. This
increase is attributable to a higher average outstanding debt balance in 1998
than in 1997. Other revenue (expense), net, decreased from $3,483 in 1997 to
$(87,228) in 1998. This decrease was primarily attributable to the preference
payment due as a result of the Super Shops bankruptcy. The initial preference
payment obligation was substantially higher than the finalized negotiated
amount due. Cragar was successful in negotiating a much smaller preference
payment without forfeiting its claims against the bankruptcy estate. Although
there is no assurance Cragar will receive any proceeds, Cragar anticipates
the liquidation of the bankruptcy estate will yield Cragar proceeds in excess
of this preference payment.
Because of Cragar's current period net loss and its carry-forward
losses from previous years, Cragar had no income tax provision in 1998 and
had no provision for alternative minimum taxes in 1998.
Net loss for the year ended December 31, 1998 was $3,971,442
compared to $4,768,785 for the year ended December 31, 1997, a decrease of
$797,343. Excluding the reserve for bad debts in 1997, the net loss increased
$2,725,685 from 1997 to 1998. This increase is primarily attributable to the
decrease in sales due to the loss of sales from Super Shops, non-recurring
marketing expenses, the amortization of excess of fair value of assets over
acquired cost, and the preference payment associated with the Super Shops
bankruptcy.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 AND NINE MONTHS ENDED
SEPTEMBER 30, 1998
Net sales increased 11.4% from $9,709,999 in the nine month period
ended September 30, 1998 to $10,818,776 for the nine month period ended
September 30, 1999. The increase was primarily attributable to sales of
Cragar's new wire wheel to J. H. Heafner, Inc., Cragar's largest customer,
and other existing customers, additional sales to existing customers, and
reduction in its inventory of slow-moving and obsolete products.
Gross profit for the nine months ended September 30, 1999
was $2,290,968 compared to $1,535,137 for the same period in 1998. As a
percentage of sales, gross profit improved from 15.8% for the nine month
period ended September 30, 1998 to 21.2% for the nine month period ended
September 30, 1999. The gross profit improvement during the nine months ended
September 30, 1999 was primarily the result of product mix changes, continued
cost reduction programs, and increased production, which resulted in improved
overhead absorption. Cost reduction efforts, including the reduction of
production personnel and outsourcing of selected manufacturing processes,
positively affected gross profit in the first nine months of 1999. However,
Cragar also expects its gross profit and overall results of operations to
vary from period to period based upon a variety of factors, including changes
in order levels from customers, the timing of orders, changes in product mix,
the level of net sales and other factors, such as overhead absorption.
Overhead absorption variations result from changes in production levels and
efficiencies. Cragar also anticipates its future operating results to change
significantly if the proposed transaction with Carlisle Tire & Wheel Co. is
completed.
Cragar sold the economic rights derived from certain assets for
$300,000 during the third quarter of 1999. The gain on the sale, after
deducting the underlying cost of the assets and related selling costs,
totaled $272,600.
SG&A expenses for the nine months ended September 30, 1999 decreased
$1,586,891 to $1,653,708 from $3,240,599 over the nine months ended September
30, 1998. This 49.0% decrease
23
<PAGE>
was due in part to Cragar's concentrated focus on reducing SG&A
expenses. Cragar achieved these reductions primarily through reductions
in labor and related costs, implementation of a less costly sales and
marketing plan, and lower legal, accounting, and professional fees.
Non-operating expenses, net, for the nine months ended September 30,
1999 were $256,486 compared to $570,875 for the same period for 1998. The
decrease of $314,389 was primarily attributable to the gain on sale of the
economic rights to certain assets. Cragar sold the economic rights derived
from certain assets for $300,000 during the third quarter of 1999. The gain on
the sale, after deducting the underlying cost of the assets and related selling
costs, totaled $272,600. In addition, Cragar had lower interest costs
resulting from a lower outstanding balance on the NCFC Credit Facility (as
defined herein).
Net earnings for the nine months ended September 30, 1999 were
$530,974 compared to a net loss of $2,276,337 for the nine months ended
September 30, 1998. Excluding the extraordinary gain of $150,200 resulting
from the forgiveness of debt by certain material and media vendors, Cragar
had net earnings for the nine months ended September 30, 1999 of $380,774.
Basic earnings per share for the nine months ended September 30, 1999 was
$.17 compared to a basic loss per share of $.97 for the nine months ended
September 30, 1998. Diluted earnings per share were $.08 for the nine months
ended September 30, 1999 versus a diluted loss per share of $.97 for the nine
months ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
On April 20, 1998, Cragar secured a credit facility (the "NCFC
Credit Facility") with NationsCredit Commercial Funding Corporation ("NCFC").
The terms of the NCFC Credit Facility specify a maximum combined term loan
and revolving loan totaling $8.5 million at an interest rate of 1.25% above
the prime rate. The NCFC Credit Facility is secured by substantially all of
Cragar's assets and certain pledged assets from three investors and expires
on April 19, 2002. During the quarter ended June 30, 1999, Cragar negotiated
a short-term overadvance provision of $250,000 as part of its NCFC Credit
Facility. The overadvance provision expired during the third quarter of 1999.
As of September 30, 1999, the outstanding balance under the NCFC Credit
Facility was approximately $4,750,000, and Cragar had excess availability of
approximately $80,000. The NCFC Credit Facility contains no financial
performance covenants and requires prior approval rights to any declarations
of cash dividend payments.
At September 30, 1999, Cragar had an accumulated deficit of
$15,627,624. For the nine months ended September 30, 1999, Cragar's
operating activities provided $2,098,077 of cash, which was primarily
attributable to Cragar's net earnings for the period and the decrease in
accounts receivable and inventory. During the nine months ended September 30,
1999, Cragar's financing activities used $1,773,856 of cash. The decrease
in cash from financing activities was primarily due to a net decrease of
$1,846,056 in net borrowings under the revolving line of the NCFC Credit
Facility and long-term debt payments of $187,800. Cragar received $260,000
in proceeds from loans provided by private lenders during the first quarter of
1999.
Cragar had negative cash flow from operations of $(2,834,075) and
$(3,994,258) for 1998 and 1997, respectively. Cragar showed an improvement in
its cash flow used in operations of $1,160,183 from 1997 to 1998. This
improvement is primarily attributable to the amortization of excess fair
value of assets acquired over cost included in 1997 operations and the
amortization of other assets expensed in 1998. Cragar had net cash provided
by investing activities of $13,859 in 1998. In 1997, Cragar used net cash of
$(453,317) from investing activities. The difference of $467,176, which
represents an improvement in cash flows from investing activities, is
primarily attributable to Cragar investing more cash in the purchases of
property and equipment during 1997. In 1998, Cragar disposed of assets
approximately equal to the amount invested in
24
<PAGE>
additional property and equipment. Cragar had net cash provided by financing
activities of $2,803,894 in 1998 and $3,600,848 in 1997. Due to the
improvement in the cash flow used in operations during 1998, Cragar did not
require as much cash flow provided by financing activities. In 1998, of the
total cash provided by financing activities, Cragar received $1,650,000 in
equity financing. In 1997, Cragar received $513,178 of the total cash
provided by financing activities from equity financing. Overall, Cragar used
net cash from all activities of $16,322 in 1998 and $846,727 in 1997.
Although Cragar believes that the amount available under the NCFC
Credit Facility together with cash from operations and its current cash
position will be sufficient to fund Cragar's working capital requirements for
1999, there can be no assurance that Cragar's cash flow will be sufficient to
finance its operations as currently planned or that it will be able to
supplement its cash flow with additional financing. If Cragar is unable to
obtain additional funding, its ability to meet its current and future
business plans could be materially and adversely affected.
DATA PROCESSING AND TECHNOLOGY AND YEAR 2000
The Year 2000 issue is one where computer systems may recognize the
designation "00" as 1900 when it means 2000, resulting in system failure or
miscalculations.
Cragar initiated a comprehensive review of its core information
technology systems, which Cragar is dependent upon for the conduct of day
to day business operations, in order to determine the adequacy of those systems
in light of future business requirements. Year 2000 readiness was one of a
variety of factors to be considered in the review of core systems.
As a result of its review to date, Cragar determined that certain of
its internal software systems were inadequate for Cragar's future business
needs, and needed to be upgraded because of various considerations, including
Year 2000 non-compliance. In certain cases the timing of system upgrades were
accelerated because of the Year 2000 issue, although Cragar believes
upgrades, modification or replacement would have been necessary in the near
future regardless of such issues. The upgrades were made early in the third
quarter 1999 and the full integration of the upgrades were completed by
September 30, 1999. Cragar will continue to monitor and test the upgrades
during the fourth quarter of 1999 to insure their reliability and compliancy.
Based on the responses from Cragar's critical suppliers, the suppliers
are either Year 2000 compliant or have developed plans to be Year 2000 compliant
by December 31, 1999. Cragar plans to continue monitoring its critical
suppliers for Year 2000 compliance and take appropriate steps if it appears any
critical suppliers will not be Year 2000 compliant by December 31, 1999.
At this time, Cragar has not developed Year 2000 contingency plans,
other than the review and remedial actions described above, and does not intend
to do so unless Cragar believes such plans are merited by the results of
its continuing Year 2000 review.
If Cragar or the third parties with which it has relationships were to
cease or not successfully complete its or their Year 2000 remediation
efforts, Cragar could encounter disruptions to its business that could have a
material adverse effect on its business, financial position and results of
operations. Cragar could be materially and adversely impacted by widespread
economic or financial market disruption or by Year 2000 computer system
failures at third parties with which it has relationships.
25
<PAGE>
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS
This Proxy Statement contains certain statements that may constitute
forward-looking information within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements regarding the completion of the
proposed transaction and the consequences of completing the proposed
transaction, including Cragar's future financial condition, results of
operations, cash flows, financing plans, business strategy, projected costs
and capital expenditures, and operations after the proposed transactions, and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks, uncertainties and assumptions. All
of these forward-looking statements are based on estimates and assumptions
made by Cragar's management which, although believed by Cragar's management
to be reasonable, are inherently uncertain. Shareholders are cautioned that
such forward looking statements are not guarantees of future performance or
results and involve risks and uncertainties and that actual results or
developments may differ materially from the forward-looking statements as a
result of various considerations, including the risk factors and other
considerations described in this proxy statement.
INDEPENDENT AUDITORS
Representatives of Semple & Cooper LLP, Cragar's independent
auditors, are expected to be present at the Special Meeting, where they will
be available to respond to appropriate questions and have the opportunity to
make a statement if they so desire.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
As required by law, Cragar files reports, proxy statements and other
information with the SEC. These reports, proxy statements and other
information contain additional information about Cragar. You can inspect and
copy these materials at the public reference facilities maintained by the SEC
at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549. For further information concerning the SEC's public reference rooms,
you may call the SEC at 1-800-SEC-0330. Some of this information may also be
accessed on the World Wide Web through the SEC's Internet address at
http://www.sec.gov.
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
26
<PAGE>
CRAGAR INDUSTRIES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report F-2
Balance Sheet as of December 31, 1998 F-3
Statements of Operations for the years ended December 31, 1998 and 1997 F-4
Statements of Stockholders' Deficiency for the years ended December 31,
1998 and 1997 F-5
Statements of Cash Flows for the years ended December 31, 1998 and 1997 F-6
Notes to Financial Statements F-7
Condensed Balance Sheets at September 30, 1999 and December 31, 1998 F-18
Condensed Statements of Operations for the nine-month periods ended
September 30, 1999 and 1998 F-19
Condensed Statements of Cash Flows for the nine-month periods ended
September 30, 1999 and 1998 F-20
Notes to Condensed Financial Statements F-21
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
CRAGAR Industries, Inc.:
We have audited the accompanying balance sheet of CRAGAR Industries, Inc. as of
December 31, 1998, and the related consolidated statements of operations,
stockholders' deficiency and cash flows for each of the years in the two-year
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CRAGAR Industries, Inc. as of
December 31, 1998, and the results of its operations and its cash flows for each
of the years in the two-year period ended December 31, 1998 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 2 to the
financial statements, the Company has a stockholders' deficiency and the Company
has suffered recurring losses from operations. These matters raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in note 2. The financial statements
do not include any adjustments that might result from this uncertainty.
KPMG LLP
March 18, 1999
F-2
<PAGE>
CRAGAR INDUSTRIES, INC.
BALANCE SHEET
December 31, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Accounts receivable, less allowance for doubtful accounts of $108,995 $ 2,879,277
Inventories, net 4,352,453
Prepaid expenses 200,017
-----------
Total current assets 7,431,747
Property and equipment, net 654,534
Other assets, net 21,320
-----------
$ 8,107,601
-----------
-----------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Line of credit $ 2,530,161
Accounts payable 2,376,112
Accrued expenses 1,032,644
Accrued interest 74,678
Current installments of long-term debt 250,400
-----------
Total current liabilities 6,263,995
Line of credit, excluding current installments 3,290,333
Long-term debt, excluding current installments 709,667
-----------
Total liabilities 10,263,995
-----------
Stockholders' deficiency:
Preferred stock, par value $.01; authorized 200,000 shares, 22,500 shares
issued and outstanding 225
Additional paid-in capital - preferred 2,090,513
Common stock, par value $.01; authorized 5,000,000 shares, 2,453,990 shares
issued and outstanding at December 31, 1998 24,540
Additional paid-in capital - common 12,097,115
Accumulated deficit (16,368,787)
-----------
Total stockholders' deficiency (2,156,394)
Commitments, contingencies and subsequent events (notes 7, 12, 13, 14 and 15)
-----------
$ 8,107,601
-----------
-----------
</TABLE>
See accompanying notes to the financial statements.
F-3
<PAGE>
CRAGAR INDUSTRIES, INC.
Statements of Operations
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ----------
<S> <C> <C>
Net sales $12,081,884 16,545,159
Costs of goods sold 10,769,486 13,908,272
----------- ----------
Gross profit 1,312,398 2,636,887
Selling, general and administrative expenses 4,404,391 7,394,235
Amortization of excess of fair value of assets acquired over cost -- (737,468)
----------- ----------
Loss from operations (3,091,993) (4,019,880)
Other revenues (expenses), net:
Interest expense, net (792,221) (752,388)
Other, net 37,772 3,483
Settlement (125,000) --
----------- ----------
Loss before income taxes (3,971,442) (4,768,785)
Income taxes -- --
----------- ----------
Net loss $ (3,971,442) (4,768,785)
----------- ----------
----------- ----------
Basic net loss per common share $ (1.67) (2.08)
----------- ----------
----------- ----------
Diluted net loss per common share $ (1.67) (2.08)
----------- ----------
----------- ----------
Weighted-average shares outstanding - basic and diluted 2,453,990 2,291,278
----------- ----------
----------- ----------
</TABLE>
See accompanying notes to the financial statements.
F-4
<PAGE>
CRAGAR INDUSTRIES, INC.
Statements of Stockholders' Deficiency
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
-------------------------- -----------------------
NUMBER OF NUMBER OF
SHARES AMOUNT SHARES AMOUNT
--------- -------- --------- ------
<S> <C> <C> <C> <C>
Balances, December 31, 1996 2,210,305 $22,103 -- $ --
Issuance of common stock for
warrants exercised 243,685 2,437 -- --
Net loss -- -- -- --
--------- -------- ---- ------
Balances, December 31, 1997 2,453,990 24,540 -- --
Issuance of preferred stock -- -- 22,500 225
Warrants issued with line of
credit financing -- -- -- --
Warrants issued with preferred
stock -- -- -- --
Amortization of warrant
valuation -- -- -- --
Net loss -- -- -- --
--------- ------- ------ -----
Balances, December 31, 1998 2,453,990 $24,540 22,500 $225
--------- ------- ------ -----
--------- ------- ------ -----
</TABLE>
<TABLE>
<CAPTION>
PAID-IN CAPITAL
--------------------------- ACCUMULATED STOCKHOLDERS'
COMMON PREFERRED DEFICIT DEFICIENCY
---------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Balances, December 31, 1996 11,335,141 -- (7,558,489) 3,798,755
Issuance of common stock for
warrants exercised 510,741 -- -- 513,178
Net loss -- -- (4,768,785) (4,768,785)
---------- ---------- ----------- ----------
Balances, December 31, 1997 11,845,882 -- (12,327,274) (456,852)
Issuance of preferred stock -- 2,249,775 -- 2,250,000
Warrants issued with line of
credit financing 21,900 -- -- 21,900
Warrants issued with preferred
stock 229,333 (229,333) -- --
Amortization of warrant
valuation -- 70,071 (70,071) --
Net loss -- -- (3,971,442) (3,971,442)
---------- ---------- ----------- ----------
Balances, December 31, 1998 12,097,115 2,090,513 (16,368,787) (2,156,394)
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
</TABLE>
See accompanying notes to the financial statements.
F-5
<PAGE>
CRAGAR INDUSTRIES, INC.
Statements of Cash Flows
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,971,442) (4,768,785)
Adjustments to reconcile net loss to net cash used in
operating activities:
Provision for losses on accounts receivable 255,120 3,587,861
Provision for obsolete and slow-moving inventory 785,000 (260,945)
Depreciation and amortization of property and equipment 304,360 306,069
Amortization of other assets 427,674 140,387
Amortization of excess fair value of assets acquired over cost -- (737,468)
Gain on sale of property and equipment 21,900 --
Increase (decrease) in cash resulting from changes in:
Accounts receivable (136,517) (3,023,383)
Inventories (483,973) 1,910,077
Prepaid expenses (188,864) 27,345
Other assets (44,734) (381,525)
Accounts payable and accrued expenses 258,218 (806,034)
Accrued interest (60,817) 12,143
----------- -----------
Net cash used in operating activities (2,834,075) (3,994,258)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (113,823) (453,317)
Disposition of property and equipment 127,682 --
----------- -----------
Net cash provided by (used in) investing activities 13,859 (453,317)
----------- -----------
Cash flows from financing activities:
Proceeds from sale of preferred stock 1,650,000 --
Net borrowings (repayments) on Norwest line of credit (5,518,544) 2,561,152
Net borrowings (repayments) on NCFC line of credit 5,820,494 --
Proceeds from issuance of long-term debt 1,127,000 600,000
Repayments of long-term debt (166,933) (4,263)
Repayments of capital lease obligations (108,123) (69,219)
Net proceeds from issuance of common stock -- 513,178
----------- -----------
Net cash provided by financing activities 2,803,894 3,600,848
----------- -----------
Decrease in cash and cash equivalents (16,322) (846,727)
Cash and cash equivalents at beginning of year 16,322 863,049
----------- -----------
Cash and cash equivalents at end of year $ -- 16,322
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 854,038 805,974
Cash paid for income taxes -- 3,342
----------- -----------
----------- -----------
Noncash financing and investing activities:
Contribution of subordinated investor debt $ -- 2,000,000
Exchange of asset reducing accounts payable -- 130,000
Conversion of investor notes payable to preferred stock 600,000 --
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to the financial statements.
F-6
<PAGE>
CRAGAR INDUSTRIES, INC.
Notes to Financial Statements
December 31, 1998
1. DESCRIPTION OF BUSINESS
CRAGAR Industries, Inc. (the Company) designs, produces and sells
composite, aluminum, steel and wire custom wheels and wheel accessories.
It markets and sells to automotive aftermarket distributors and dealers
throughout the United States, Canada, Australia and other international
markets.
2. LIQUIDITY
The Company's financial statements have been presented on the basis that
it is a going concern, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business. The
Company has an accumulated deficit of $16,368,787 as of December 31, 1998,
has generated substantial losses for several years, and has a
stockholders' deficiency of $2,156,394 as of December 31, 1998. The
Company's business plan calls for an increase in sales from new and
existing customers, decrease in operating expenses, and an equity
investment from a new private offering which management believes will be
adequate to provide the Company with operating cash flow and to meet its
current obligations. However, there is no certainty that the Company's
plans will be successfully carried out. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(b) CASH AND CASH EQUIVALENTS
All short-term investments purchased with an original maturity of
three months or less are considered to be cash equivalents. Cash and
cash equivalents include cash on hand and amounts on deposit with
financial institutions.
(c) INVENTORIES
Inventories consist of raw materials and partially and fully
assembled custom specialty wheels. Inventories are stated at the
lower of cost or market. Cost is determined using the average cost
method. Market is based upon current sales price less distribution
and selling costs. Provisions are made currently for obsolete and
slow-moving inventory.
(d) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation on furniture,
fixtures and equipment is provided using the straight-line method
over the economic lives of the assets ranging from three to seven
years. Leasehold improvements and equipment held under capital leases
are amortized over the shorter of the underlying lease terms or the
asset lives.
F-7
<PAGE>
(e) REVENUE RECOGNITION
Revenue from product sales is recognized upon shipment to the
customer. Provisions are made currently for estimated product
returns.
(f) EXCESS OF FAIR VALUE OF ASSETS ACQUIRED OVER COST
The excess of fair value of assets acquired over cost in the original
amount of $3,687,341 was amortized to operations over five years
using the straight-line method through December 31, 1997.
(g) IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future
undiscounted net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of
the assets exceeded the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair
value less costs to sell.
(h) PRODUCT WARRANTIES
Costs estimated to be incurred with respect to product warranties are
provided for at the time of sale based upon estimates derived from
experience factors.
(i) INCOME TAXES
The Company uses the asset and liability method of accounting for
income taxes whereby deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the
enactment date.
(j) EMPLOYEE STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB 25) and related
interpretations in accounting for its employee stock options and to
adopt the "disclosure only" alternative treatment under Statement of
Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION (SFAS 123). SFAS 123 requires the use of fair value
option valuation models that were not developed for use in valuing
employee stock options. Under SFAS No. 123, deferred compensation is
recorded for the excess of the fair value of the stock on the date of
the option grant, over the exercise price of the option. The deferred
compensation is amortized over the vesting period of the option.
F-8
<PAGE>
(k) NET LOSS PER COMMON SHARE
Basic net loss per common share is computed based on weighted average
shares outstanding and excludes any potential dilution from stock
options, warrants and other common stock equivalents. Diluted net
loss per common share reflects potential dilution from the exercise
or conversion of securities into common stock or from other contracts
to issue common stock. Assumed exercise of the outstanding stock
options and warrants at December 31, 1998 and 1997 of 1,642,611 and
1,264,778, respectively, have been excluded from the calculation of
diluted net loss per common share as their effect is antidilutive.
(l) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standard No. 107 "Disclosure about
Fair Value of Financial Instruments" requires disclosure of the fair
value of certain financial instruments. The following methods and
assumptions were used by the Company in estimating fair value
disclosures for the financial instruments:
Limitations -- Fair value estimates are made at a specific point in
time and are based on relevant market information and information
about the financial instrument; they are subjective in nature and
involve uncertainties, matters of judgment and, therefore, cannot be
determined with precision. These estimates do not reflect any premium
or discount that could result from offering for sale at one time the
Company's entire holdings of a particular instrument. Changes in
assumptions could significantly affect these estimates.
Since the fair value is estimated as of December 31, 1998, the
amounts that will actually be realized or paid in settlement of the
instruments could be significantly different.
Current assets and current liabilities -- The amounts reported in the
balance sheet approximates fair value due to the short maturities of
these instruments.
Long-term debt -- The terms of the Company's long-term debt
approximate the terms in the market place at which they could be
replaced. Therefore, the fair value approximates the carrying value
of these financial instruments.
(m) CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of accounts
receivable. As described in note 1, the Company sells its products to
automotive aftermarket distributors and dealers throughout the United
States, Canada, Australia and other international markets. The
Company performs ongoing credit evaluations of its customers'
financial condition but does not require collateral to support
customer receivables. The Company establishes an allowance for
doubtful accounts based upon factors surrounding the credit risk of
specific customers, historical trends and other information. Due to
the significant concentration of sales to the Company's top ten
customers, the loss of any one such customer could have a material
impact on the Company's results of operations and financial
condition.
(n) SEGMENT REPORTING
The Company has only one segment, sales of wheels and wheel
accessories. The Company's foreign sales totaled 3.1% in 1998 and
4.8% in 1997.
F-9
<PAGE>
4. INVENTORIES
<TABLE>
<S> <C>
Inventories as of December 31, 1998 consist of:
Raw materials and supplies $2,612,857
Work-in-process 161,164
Finished goods 2,577,681
----------
5,351,702
Less allowance for obsolete and slow-moving inventory 999,249
----------
$4,352,453
----------
----------
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1998 consists of the following:
<TABLE>
<S> <C>
Equipment $1,035,296
Leasehold improvements 558,791
Furniture and fixtures 435,815
----------
2,029,902
Less accumulated depreciation and amortization 1,375,368
----------
Property and equipment, net $ 654,534
----------
----------
</TABLE>
6. ACCRUED EXPENSES
Accrued expenses as of December 31, 1998 consist of the following:
<TABLE>
<S> <C>
Accrual for stock adjustments, rebates, cash discounts,
advertising, royalty and warranty $ 502,787
Payroll and related benefits 127,982
Professional fees 113,590
Real estate, personal property and other taxes 90,254
Settlement 125,000
Other 73,031
----------
$1,032,644
----------
----------
</TABLE>
F-10
<PAGE>
7. CREDIT FACILITY
During 1998, the Company secured a new credit facility with a finance
company. The terms of the credit facility specify a maximum combined term
loan and revolving line of credit totaling $8.5 million, subject to
certain restrictions with respect to the collateral borrowing base. The
credit facility contains no financial covenants and is collateralized by
certain assets of the Company under a security agreement, which includes
accounts receivable, inventories, intangible assets, and property. Certain
stockholders have also pledged personal investments totaling $1.5 million
as collateral on the credit facility and a portion of the investments are
considered in determining the borrowing base. The line of credit bears
interest at the prime rate plus 1.25% (9.0% at December 31, 1998) and is
due in full in April 2002. As of December 31, 1998, $5,820,494 was
outstanding under the line of credit and approximately $149,000 was
available to borrow under the line of credit.
In April 1998, the Company borrowed $1,127,000 under the term loan
component of the credit facility. The term note is payable in monthly
principal and interest payments based upon the prime rate plus 1.25%
(9.00% at December 31, 1998) and is due April 2002. As of December 31,
1998, $960,067 was outstanding under the term loan.
The credit facility requires the Company to maintain an outstanding
minimum principal balance and collateral borrowing base of at least $4
million from the combination of the line of credit and term loans. As this
minimum balance must be maintained until April 2002, $4 million of the
total balances due under the credit facility are classified as long-term
at December 31, 1998.
Aggregate maturities of the line of credit and term loan over the next
five years are as follows: 1999 - $2,780,561; 2000 - $250,400; 2001 -
$250,400; and 2002 - $3,499,200.
8. PREFERRED STOCK
In December 1997, the Company obtained debt financing from two
stockholders (investors) of the Company totaling $600,000. The notes,
bearing interest at a rate of 12% per annum, were due in full in January
1998. In January 1998, the $600,000 notes to stockholders were converted
into 6,000 shares of Series A Convertible Preferred Stock. Total interest
expense on investor debt was $3,000 and $2,800 for the years ended
December 31, 1998 and 1997, respectively.
During January 1998, the Company issued 22,500 shares of 7% Series A
Convertible Preferred Stock for $1,650,000 cash and conversion of $600,000
of investor notes payable to stockholders, all of which were outstanding
at December 31, 1997. Dividends in arrears for preferred stock totaled
$135,625 at December 31, 1998.
F-11
<PAGE>
9. OUTSTANDING WARRANTS
At December 31, 1998 and 1997, the Company has outstanding Class A
warrants to purchase 7,877.5 shares of the Company's common stock at $1.43
per share. These warrants became exercisable on January 1, 1993 and expire
on December 31, 1999. Class B warrants to purchase 24,500 shares of the
Company's common stock at $0.36 per share outstanding at December 31, 1996
were exercised in 1997. At December 31, 1998 and 1997, the Company has
outstanding Class C warrants to purchase 21,000 shares of the Company's
common stock at $3.25 per share. These warrants became exercisable on July
1, 1996 and expire on June 30, 2001. In the opinion of management, the
exercise price of the Class A, B, and C warrants approximated their fair
value at the date of grant; therefore, no debt discount was recorded at
the date of the grant.
Warrants to acquire 977,500 shares of the Company's common stock at $6.60
per share and representative's warrants to acquire 85,000 shares of the
Company's common stock at $7.50 per share were outstanding as of December
31, 1998 and 1997 as a result of the completion of the Company's initial
public offering in December 1996.
During January 1998, the Company granted warrants to purchase 333,333
shares of the Company's common stock at $8.75 per share in conjunction
with the preferred stock issuance. These warrants became exercisable in
January 1998 and expire in January 2001. These warrants were valued at
$229,333 and recorded as a contra entry to additional paid-in capital -
preferred. This amount is being amortized to accumulated deficit on a
straight-line basis over the three-year life of the warrants.
In April 1998, the Company issued warrants to purchase 50,000 shares of
the Company's common stock at a price of $5.25 per share to a financing
company as part of securing its credit facility. The warrants became
exercisable in April 1998, at the execution of the credit facility, and
expire in April 2003. These warrants were valued at $21,900 based upon the
market value of similar publicly traded warrants as of the date of grant.
This warrant value was fully amortized to interest expense in 1998.
No warrants to purchase shares of the Company's common stock were
exercised during 1998.
10. STOCK OPTION PLAN
During 1996, the Company's Board of Directors and stockholders formally
approved the Company's stock option and restricted stock plan and
nonemployee director plan (the Plans), which permit the granting of
options to purchase shares of the Company's common stock to eligible
employees and directors. The Plans reserve 245,000 shares of the Company's
common stock for grant. The Plans provide that the options may be either
incentive or non-incentive stock options. The exercise price for the
incentive stock options shall not be less than 100% of the fair market
value of the stock at the date of grant for incentive options and 85% of
the fair market value with respect to the non-incentive stock options.
Options granted under the Plans must be exercised in whole or in part
within 10 years of the date of grant. The Company may also issue stock
appreciation rights or restricted stock under provisions of the Plans with
similar terms to the incentive and non-incentive stock options. As of
December 31, 1998, 90,600 stock options under the Plans were available
for grant.
F-12
<PAGE>
The per share weighted-average fair value of stock options granted during
1998 and 1997 was $3.24 and $3.29, respectively, on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions: expected dividend yield 0%, expected
volatility of 40.9% and an expected life of 4 years for both 1998 and
1997. The risk-free interest rate was 5.46% and 6.50% for 1998 and 1997,
respectively.
The Company applies APB Opinion 25 in accounting for its Plan, and
accordingly, no compensation cost has been recognized for its stock
options to employees in the financial statements. Had the Company
determined compensation cost based on the fair value at the grant date for
its stock options under SFAS No. 123, the Company's net loss and loss per
share would have been increased to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Net loss:
As reported $(3,971,442) (4,768,785)
Pro forma (4,113,742) (4,984,985)
Loss per share:
As reported $ (1.67) (2.08)
Pro forma (1.73) (2.18)
</TABLE>
The full impact of calculating compensation cost for stock options under
SFAS No. 123 is not reflected in the pro forma net loss amounts presented
above because compensation cost is reflected over the options' vesting
period of four years.
A summary of the aforementioned stock plan follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 YEAR ENDED DECEMBER 31, 1997
---------------------------- ----------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE
--------- -------- ---------- --------
<S> <C> <C> <C> <C>
Balance at the beginning of the year 173,400 $5.26 68,200 $5.52
Granted 6,000 5.25 141,700 5.12
Forfeited (25,000) 5.12 (36,500) 5.16
Exercised -- -- -- --
-------- ----- ------- -----
Balance at the end of the year 154,400 $5.28 173,400 $5.26
-------- ----- ------- -----
-------- ----- ------- -----
Exercisable at the end of the year 154,400 $5.28 173,400 $5.26
-------- ----- ------- -----
-------- ----- ------- -----
Weighted-average fair value of
options granted during the year $3.24 $3.29
-------- ----- ------- -----
-------- ----- ------- -----
</TABLE>
F-13
<PAGE>
A summary of stock options granted at December 31, 1998 follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ ------------------------------
WEIGHTED-
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 1998 LIFE PRICE 1998 PRICE
--------------- --------------- --------------- ---------- --------------- ---------
<S> <C> <C> <C> <C> <C>
5.12 - 5.14 97,600 8 years, 6 mos. $ 5.12 97,600 $ 5.12
5.25 6,000 9 years, 7 mos. 5.25 6,000 5.25
5.60 50,800 7 years, 10 mos. 5.60 50,800 5.60
------- ------ ------- -------
154,400 $ 5.28 154,400 $ 5.28
------- ------ ------- -------
------- ------ ------- -------
</TABLE>
11. LOSS PER SHARE
A summary of the Company's basic and diluted loss per share follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997
----------- ----------
<S> <C> <C>
Net loss $(3,971,442) (4,768,785)
Less preferred stock dividends in arrears (135,625) --
----------- ----------
Loss available to common stockholders $(4,107,067) (4,768,785)
----------- ----------
----------- ----------
Basic EPS-weighted average shares outstanding 2,453,990 2,291,278
----------- ----------
----------- ----------
Basic loss per share $(1.67) (2.08)
----------- ----------
----------- ----------
Basic EPS-weighted average shares outstanding 2,453,990 2,291,278
Effect of dilutive securities -- --
----------- ----------
----------- ----------
Dilutive EPS-weighted average shares outstanding 2,453,990 2,291,278
----------- ----------
----------- ----------
Diluted loss per share $ (1.67) (2.08)
----------- ----------
----------- ----------
Stock options and warrants not included in diluted EPS
since antidilutive 1,642,611 1,264,778
----------- ----------
----------- ----------
</TABLE>
F-14
<PAGE>
12. INCOME TAXES
The Company had no current or deferred income taxes for the years ended
December 31, 1998 and 1997. The reconciliation of the expected income tax
benefit calculated at the U.S. Federal statutory rate of 34% to loss
before income taxes for the years ended December 31, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Computed "expected" tax benefit $(1,350,290) (1,621,387)
Change in the valuation allowance for deferred tax assets 1,397,000 2,193,000
State and local income taxes, net of federal income tax
benefit (237,515) (328,682)
Other, net 190,805 (242,931)
----------- ---------
$ -- --
----------- ---------
----------- ---------
</TABLE>
The Company has net operating loss carryforwards at December 31, 1998 of
approximately $13,721,000 for Federal income tax purposes, which begin to
expire in 2010. In the event of a change in ownership pursuant to Internal
Revenue Service regulations, utilization of the net operating loss
carryforwards may be eliminated or significantly reduced.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1998 and 1997 are presented below:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for
doubtful accounts $44,000 1,447,000
Inventories, principally due to allowance for obsolete
and slow-moving inventory 536,000 883,000
Differences in basis of assets upon acquisition,
principally property and equipment and accounts
receivable 169,000 169,000
Property and equipment, principally due to differences in
depreciation 59,000 133,000
Net operating loss carryovers 5,488,000 2,334,000
Rebates and sales discounts accrual 106,000 79,000
Other 122,000 82,000
--------- ---------
Total gross deferred tax assets 6,524,000 5,127,000
Less valuation allowance (6,524,000) (5,127,000)
--------- ---------
Net deferred tax assets -- --
Deferred tax liabilities -- --
--------- ---------
Net deferred income taxes $ -- --
--------- ---------
--------- ---------
</TABLE>
F-15
<PAGE>
The net change in the total valuation allowance for the years ended
December 31, 1998 and 1997 was an increase of $1,397,000 and $2,193,000,
respectively. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion
or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon generation of future
taxable income during the periods in which those temporary differences
become deductible. Management believes that the inability to utilize net
operating loss carryforwards to offset future taxable income within the
carryforward periods is more likely than not. Accordingly, a 100 percent
valuation allowance has been recorded against the net deferred tax assets.
13. OPERATING LEASES
The Company leases office and warehouse facilities and various equipment
items under operating leases. The Company is responsible for all occupancy
costs including insurance and utility costs. Minimum future rental
commitments for all noncancelable operating leases having original or
remaining lease terms in excess of one year and future minimum capital
lease payments as of December 31, 1998 are as follows:
<TABLE>
<S> <C>
Years ending December 31:
1999 $ 339,799
2000 360,297
2001 364,702
2002 348,090
2003 55,170
----------
Total lease payments $1,468,058
----------
----------
</TABLE>
No renewal options are provided for in the operating lease agreements. In
the normal course of business, operating leases are generally renewed or
replaced by other leases. Total rental expense under operating leases with
a term in excess of one month was $309,909 and $311,467 for the years
ended December 31, 1998 and 1997, respectively.
14. CONCENTRATIONS OF RISK -- MAJOR CUSTOMER
The Company sold a substantial portion of its product to three customers
in 1998 and to four customers in 1997. Sales amounts for 1998 and 1997 for
these customers are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- -----------
PERCENT OF PERCENT OF
SALES SALES
---------- -----------
<S> <C> <C>
Sales to major customers:
Heafner Tire 13.5% 9.6%
Reliable Auto - Kansas 5.1 5.8
Keystone Automotive 7.7 6.2
Super Shops -- 27.5
---- ----
26.3% 49.1%
---- ----
---- ----
</TABLE>
F-16
<PAGE>
Gross accounts receivable from significant customers as of December 31,
1998 and 1997 follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
PERCENT OF PERCENT OF
ACCOUNTS ACCOUNTS
RECEIVABLE RECEIVABLE
---------- -----------
<S> <C> <C>
Accounts receivable from major customers:
Keystone Automotive 16.2% 3.9%
Heafner Tire 15.7 2.3
Reliable Auto - Kansas 8.8 4.8
Super Shops -- 52.0
---- ----
40.7% 63.0%
---- ----
---- ----
</TABLE>
On September 19, 1997, Super Shops filed for Chapter 11 bankruptcy
protection in the United States Bankruptcy Court, Central District of
California. As a result, the Company established an allowance for bad debt
of $3,523,028 to reserve for 100% of receivables related to this customer
at December 31, 1997. In 1998, this receivable was written off against the
allowance for doubtful accounts.
15. CONTINGENCIES
In 1997, the Company developed a plan to deal with the Year 2000 problem
and began converting its computer systems to be Year 2000 compliant. The
plan provides for the conversion efforts to be completed by the end of
1999. The Year 2000 problem is the result of computer programs being
written using two digits rather than four to define the applicable year.
Management has also assessed the Year 2000 remediation efforts of the
Company's significant suppliers. Although management believes its efforts
minimize the potential adverse effects on the Company of a supplier's
failure to be Year 2000 compliant on time, there can be no absolute
assurance that all its suppliers will become Year 2000 compliant on time
or in a way that will be compatible with the Company's systems. The
Company does not believe expenditures to be Year 2000 compliant will be
material, and is expensing all costs associated with these systems changes
as the costs are incurred. However, there can be no assurance that the
Company will be able to completely resolve all Year 2000 issues or that
the ultimate cost to identify and implement solutions to all Year 2000
problems will not be material to the Company.
The Company is involved in various claims and actions arising in the
ordinary course of business. In the opinion of management, based on
consultation with legal counsel, the ultimate disposition of these matters
will not have a material adverse effect on the Company's financial
position, results of operations or liquidity. Accordingly, no provision
has been made in the accompanying financial statements for losses, if any,
that might result from the ultimate resolution of these matters.
F-17
<PAGE>
CRAGAR INDUSTRIES, INC.
Condensed Balance Sheets
September 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
ASSETS (unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 265,155 $ -
Accounts receivable, less allowance for doubtful accounts of
$195,303 as of 9/30/99 and $108,995 as of 12/31/98 1,883,313 2,879,277
Inventories, net 3,185,693 4,352,453
Prepaid expenses 315,246 200,017
------------- ------------
Total current assets 5,649,407 7,431,747
Property and equipment, net 496,747 654,534
Other assets, net 21,320 21,320
------------- ------------
$ 6,167,474 $ 8,107,601
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,425,628 $ 2,376,112
Accrued expenses 1,280,952 1,032,644
Accrued interest 79,609 74,678
Line of credit 496,305 2,530,161
Long-term debt, current installments 250,400 250,400
------------- ------------
Total current liabilities 3,532,894 6,263,995
Line of credit, excluding current installments 3,478,133 3,290,333
Long-term debt, excluding current installments 781,867 709,667
------------- ------------
Total liabilities 7,792,894 10,263,995
------------- ------------
Stockholders' equity:
Preferred stock, par value $.01; authorized 200,000 shares
22,500 shares issued and outstanding 225 225
Additional paid-in capital - preferred 1,880,294 2,090,513
Common stock, par value $.01; authorized 5,000,000 shares
2,456,990 shares issued and outstanding 24,570 24,540
Additional paid-in capital - common 12,097,115 12,097,115
Accumulated deficit (15,627,624) (16,368,787)
------------- ------------
Total stockholders' equity (deficit) $ (1,625,420) (2,156,394)
------------- ------------
$ 6,167,474 $ 8,107,601
------------- ------------
------------- ------------
</TABLE>
See accompanying notes to condensed financial statements
F-18
<PAGE>
CRAGAR INDUSTRIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 1999 and 1998
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
-----------------------------
1999 1998
------------ -----------
<S> <C> <C>
Net Sales $ 10,818,776 $ 9,709,999
Cost of goods sold 8,527,808 8,174,862
------------ -----------
Gross profit 2,290,968 1,535,137
Selling, general and administrative expenses 1,653,708 3,240,599
------------ -----------
Income (loss) from operations 637,260 (1,705,462)
------------ -----------
Non-operating (income) expenses, net
Interest expense 476,918 495,303
Gain on sale of economic rights to certain assets (272,600) -
Other, net 52,168 75,572
------------ -----------
Total non-operating expenses 256,486 570,875
------------ -----------
Income (loss) before income taxes
and extraordinary items 380,774 (2,276,337)
Income taxes - -
------------ -----------
Income (loss) before extraordinary item 380,774 (2,276,337)
Extraordinary item
Gain on forgiveness of debt 150,200 -
------------ -----------
Net income (loss) $ 530,974 $(2,276,337)
------------ -----------
------------ -----------
Basic earnings (loss) per share
Income (loss) before extraordinary item $ 0.11 $ (0.97)
Extraordinary item 0.06 -
------------ -----------
Net income (loss) $ 0.17 $ (0.97)
------------ -----------
------------ -----------
Weighted average shares outstanding - basic 2,456,990 2,453,990
------------ -----------
------------ -----------
Diluted earnings (loss) per share
Income (loss) before extraordinary item $ 0.05 $ (0.97)
Extraordinary item 0.03 -
------------ -----------
Net income (loss) $ 0.08 $ (0.97)
------------ -----------
------------ -----------
Weighted average shares outstanding - diluted 5,183,197 2,453,990
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to condensed financial statements
F-19
<PAGE>
CRAGAR INDUSTRIES, INC.
Condensed Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------------------
1999 1998
-------------------- -------------------
<S> <C> <C>
Cash flows from operating activities
Net earnings (loss) $ 530,974 $ (2,276,337)
Adjustments to reconcile net earnings (loss) to net cash
used in operating activities:
Provision for (write-off of) doubtful accounts 86,308 241,777
Reduction in provision for obsolete and slow moving inventory (376,429) 24,799
Depreciation and amortization of property and equipment 216,854 219,871
Amortization of other assets - 61,667
Amortization of warrants issued with line of credit - 21,900
Increase (decrease) in cash resulting from changes in:
Accounts receivable 909,656 (414,382)
Inventory 1,543,189 (144,449)
Prepaid expenses (115,229) (132,245)
Other assets - 12,940
Accounts payable and accrued expenses (702,176) 324,626
Accrued interest 4,930 (65,791)
-------------------- -------------------
Net cash povided by (used in) operating activities 2,098,077 (2,125,624)
-------------------- -------------------
Cash flows from investing activities
Purchases of property and equipment (59,066) (43,468)
-------------------- -------------------
Net cash used in investing activities (59,066) (43,468)
-------------------- -------------------
Cash flows from financing activities
Proceeds from sale of preferred stock - 1,650,000
Net borrowings (repayments) on Norwest line of credit - (5,518,544)
Net borrowings (repayments) on NCFC line of credit (1,846,056) 5,369,226
Proceeds from long-term debt 260,000 1,127,000
Repayments of long-term debt (187,800) (104,333)
Repayments of capital lease obligations - (105,626)
-------------------- -------------------
Net cash provided by (used in) financing activities (1,773,856) 2,417,723
-------------------- -------------------
Net increase (decrease) in cash and equivalents 265,155 248,631
Cash and cash equivalents at beginning of period - 16,322
-------------------- -------------------
Cash and cash equivalents at end of period $ 265,155 $ 264,953
-------------------- -------------------
-------------------- -------------------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 471,987 $ 561,094
-------------------- -------------------
-------------------- -------------------
Conversion of investor notes payable to preferred stock $ - $ 600,000
-------------------- -------------------
-------------------- -------------------
</TABLE>
See accompanying notes to condensed financial information
F-20
<PAGE>
CRAGAR INDUSTRIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1999
(Unaudited)
1. Summary of Significant Accounting Policies and Practices Basis of
Presentation:
The interim financial data of Cragar Industries, Inc. (the Company) as
of and for nine months ended September 30, 1999 and 1998 is unaudited;
however, in the opinion of the Company, the interim data includes all
adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of the results for the interim periods.
The year-end balance sheet information was derived from audited
financial statements. These interim financial statements should be read
in conjunction with the Company's audited financial statements.
2. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
(Unaudited)
<S> <C> <C>
Raw materials $ 1,665,082 $ 2,612,857
Work in process 113,969 161,164
Finished Goods 2,029,462 2,577,681
----------- -----------
3,808,513 5,351,702
Less allowance for obsolete and slow-moving inventory 622,820 999,249
----------- -----------
Inventories, net $ 3,185,693 $ 4,352,453
----------- -----------
----------- -----------
</TABLE>
3. Basic and Diluted Earnings (Loss) per Share
Basic and diluted earnings and loss per share amounts are based on the
weighted average number of common shares outstanding as reflected on
Exhibit 11 to Cragar's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1999.
4. Other Related Reserves and Allowances
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
(Unaudited)
<S> <C> <C>
Stock adjustments and returns $ 187,577 $ 129,849
Rebates reserve 4,235 5,869
Warranty reserve 420,575 397,991
Other reserves 48,331 72,957
</TABLE>
5. Preferred Stock and Warrants
During the first quarter ended March 31, 1998, the Company issued
22,500 shares of Series A Preferred Stock for $1,350,000 cash and the
conversion of $900,000 in principal amount of investor notes payable.
The Company also granted warrants valued at $229,333 to purchase
333,333 shares of common stock at a price of $8.75 per share in
connection with the preferred stock issuance. On April 20, 1998, the
Company issued warrants to NationsCredit Commercial Funding valued at
$21,960 to purchase 50,000 shares of common stock at a price of $5.25
per share. On August 8, 1998, the Company agreed to grant warrants to
certain individuals who provided bridge loans to the Company in the
aggregate principal amount of $900,000 during December 1997 and January
1998. For each $100,000 made available to the Company, the Company
granted warrants to purchase 1,500 shares of
F-21
<PAGE>
common stock at an exercise price of $3.00 per share. The principal
amounts of the loans were subsequently converted into 90,000 shares
of Series A Preferred Stock. In addition, the Company agreed to
grant warrants to certain individuals who continue to pledge assets
to secure the Company's obligations under the Loan and Credit
Agreement with NationsCredit Commercial Funding. The Company agreed
to grant warrants to purchase 7,000 shares for each $100,000 in
value of the assets pledged on an annual basis, which warrants will
be exercisable at an exercise price equal to the price of the
Company's common stock on the date of grant. As of September 30,
1999 the Company had granted warrants to purchase 73,500 shares of
the Company's common stock at exercise prices equal to the fair
market value on the dates of grant. During the first quarter of 1999
the Company agreed to grant warrants to certain individuals who
provided financing to the Company in the aggregate principal amount
of $260,000 during March 1999. For each $100,000 made available to
the Company, the Company granted warrants to purchase 33,333 shares
of common stock at an exercise price of $3.00 per share. On May 21,
1999, the Company granted options to Sidney Dworkin, Donald McIntyre
and Mark Schwartz, each of whom are outside Directors of the
Company, to purchase 2,000 shares of common stock at an exercise
price of $3.75 per share, which was the fair market value on the
date of grant. Also, on May 21, 1999, the Company agreed that, in
lieu of cash payments for director fees, Messrs. Dworkin, McIntyre
and Schwartz would each be granted options to purchase 4,000 shares
(or 2,000 per meeting for the February and May 1999 board meetings)
of the Company's common stock, at an exercise price of $3.75 per
share, which was the fair market value on the date of grant. Until
the Company's cash position improves, the Board of Directors has
agreed that for each board meeting an outside director attends, the
Company will grant options to that director to purchase 2,000 shares
of the Company's common stock exercisable at an exercise price equal
to the price of the Company's common stock on the date of grant. As
a result, the Company granted to each of the outside directors
options to purchase 2,000 shares of the Company's common stock at an
exercise price of $3.125, which was the fair market value on the
date of grant, for their attendance at the August 1999 board
meeting. During the third quarter ended September 30, 1999, no
warrants or options to purchase shares of common stock were
exercised and no Series A Preferred Stock was converted to common
stock. Dividends in arrears for outstanding Series A Preferred Stock
at September 30, 1999 totaled $253,750, which are payable, at the
discretion of the Company, in cash or additional shares of the
Company's Series A Preferred Stock. See "Factors That May Affect
Future Results and Financial Condition -Dependence on External
Financing."
F-22
<PAGE>
APPENDIX A
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.
1
<PAGE>
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.
2
<PAGE>
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.
3
<PAGE>
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.
4
<PAGE>
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.
5
<PAGE>
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
6
<PAGE>
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,
7
<PAGE>
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
8
<PAGE>
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.
9
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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:
----------------------------
10
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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
<PAGE>
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.
12
<PAGE>
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"
13
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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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<PAGE>
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.
15
<PAGE>
Appendix B
AGREEMENT OF PURCHASE AND SALE OF ASSETS
BY AND BETWEEN
CRAGAR INDUSTRIES, INC.
AND
CARLISLE TIRE & WHEEL CO.
OCTOBER 15, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C>
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
</TABLE>
<PAGE>
<TABLE>
<S> <C>
6.9 Waiver of Provisions..........................................................................13
</TABLE>
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
ii
<PAGE>
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
2
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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.
3
<PAGE>
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
4
<PAGE>
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:
5
<PAGE>
(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,
6
<PAGE>
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;
7
<PAGE>
(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.
13
<PAGE>
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.
D-1
<PAGE>
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.
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Cragar Industries, Inc.:
We consent to the use of our report dated March 18, 1999, on the financial
statements of Cragar Industries, Inc. included in the Proxy of Cragar
Industries, Inc.
Phoenix, Arizona
November 23, 1999
