As filed with the Securities and Exchange Commission on October 10, 1997
Registration No. 333-33465
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
STANDARD AUTOMOTIVE CORPORATION
(Exact name of registrant as specified in its charter)
---------------
Delaware 3715 52-2018607
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
321 Valley Road
Hillsborough Township, NJ
08876-4056 (908) 369-5544
(Address, including zip code, and telephone number including area code of
registrant's principal executive offices)
Steven Merker
Karl Massaro
321 Valley Road
Hillsborough Township, NJ
08876-4056 (908) 369-5544
(Name, address including zip code, and telephone number including area code
of agent for service)
---------------
Copies to:
Vincent J. McGill, Esq. Lawrence B. Fisher, Esq.
Phillips Nizer Benjamin Krim & Ballon LLP Orrick, Herrington & Sutcliffe LLP
666 Fifth Avenue 666 Fifth Avenue
New York, New York 10103-0084 New York, New York 10103-0001
(212) 977-9700 (212) 506-5000
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION DATED OCTOBER 10, 1997
PROSPECTUS
STANDARD AUTOMOTIVE CORPORATION
1,000,000 Shares of Convertible Redeemable Preferred Stock
1,300,000 Shares of Common Stock
Standard Automotive Corporation, a Delaware corporation (the "Company"),
hereby offers (this "Offering") 1,000,000 shares of 8 1/2% Senior Convertible
Redeemable Preferred Stock, par value $.001 per share and liquidation preference
of $_____ per share (the "Convertible Preferred Stock"), and 1,300,000 shares of
Common Stock, par value $.001 per share (the "Common Stock"). The Convertible
Preferred Stock and Common Stock are sometimes collectively referred to as the
"Securities." The Convertible Preferred Stock and the Common Stock are being
offered separately and not as a unit and will trade separately immediately after
the Offering. The Convertible Preferred Stock is convertible into Common Stock
at any time on or after _______, 1998 (180 days after the date hereof) prior to
redemption at the ratio of one share of Common Stock for each share of
Convertible Preferred Stock, an effective conversion price of $____ per share or
120% of the initial public offering price per share of Common Stock (subject to
adjustment under certain circumstances including in the event of the failure of
the Company to pay a dividend on the Convertible Preferred Stock within 30 days
after a dividend payment date, which will result in each instance in a reduction
of $.50 per share in the conversion price but not below $9.00 per share). The
Convertible Preferred Stock is subject to redemption by the Company at any time
on or after __________, 2000 (30 months after the date hereof), in whole but not
in part, at $_________per share, plus accumulated and unpaid dividends on 30
days' prior written notice, provided that the closing bid price of the Common
Stock for any 20 trading days within a period of 30 consecutive trading days
ending not more than five trading days prior to the date of the notice of
redemption equals or exceeds $____ per share (180% of the initial public
offering price per share of Common Stock). Cumulative dividends on the
Convertible Preferred Stock at the rate of $____ per share per annum are payable
quarterly, out of funds legally available therefor, on the last business day of
March, June, September and December of each year, commencing December 31, 1997.
See "Description of Securities."
Purchasers of the Securities offered hereby will experience immediate and
substantial dilution in net tangible book value per share from the initial
public offering price. New investors will contribute 100% of the consideration
for 38.2% of the total number of shares of Common Stock to be outstanding
following completion of this Offering (assuming no conversion of the Convertible
Preferred Stock); while existing investors will own the balance of the shares of
Common Stock for which they have paid nominal consideration.
Prior to this Offering, there has been no public market for the Securities
and there can be no assurance that such a market will develop after the
completion of this Offering or, if developed, that it will be sustained. It is
currently estimated that the initial public offering price per share of
Convertible Preferred Stock will be between $11.50 and $12.50 and that the
initial public offering price per share of Common Stock will be between $9.50
and $10.50. For information regarding the factors considered in determining the
initial public offering prices of the Securities and the terms of the
Convertible Preferred Stock, see "Risk Factors" and "Underwriting." The Company
has applied to have the Convertible Preferred Stock and the Common Stock listed
on The American Stock Exchange ("AMEX") for trading separately under the symbols
"TRK.Pr" and "TRK," respectively.
THESE ARE SPECULATIVE SECURITIES. THE SECURITIES OFFERED HEREBY INVOLVE A
HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS"
COMMENCING ON PAGE 9 AND "DILUTION."
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------
<TABLE>
<CAPTION>
=============================================================================================
Price to Public Underwriting Discounts(1) Proceeds to Company(2)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share of Convertible
Preferred Stock ......... $ $ $
- ---------------------------------------------------------------------------------------------
Per share of Common Stock $ $ $
- ---------------------------------------------------------------------------------------------
Total(3) ................ $ $ $
=============================================================================================
</TABLE>
(1) Does not include additional compensation to Dirks & Company, Inc. and
Millennium Financial Group, Inc., the representatives (the
"Representatives") of the several Underwriters (the "Underwriters"), in
the form of a non-accountable expense allowance. In addition, see
"Underwriting" for information concerning indemnification and contribution
arrangements with the Underwriters and other compensation payable to the
Representatives.
(2) Before deducting estimated expenses of $660,000 payable by the Company,
excluding the non-accountable expense allowance payable to the
Representatives.
(3) The Company has granted the Underwriters an option exercisable within 45
days after the date of this Prospectus to purchase up to an aggregate of
150,000 additional shares of Convertible Preferred Stock and/or 195,000
additional shares of Common Stock upon the same terms and conditions as
set forth above, solely to cover over-allotments, if any (the
"Over-allotment Option"). The Over-allotment Option may be exercised to
purchase shares of Convertible Preferred Stock, shares of Common Stock or
any combination thereof. If such Over-allotment Option is exercised in
full, the total Price to Public, Underwriting Discount and Proceeds to
Company will be $_________, $_________ and $__________, respectively.
The Securities are being offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters and subject
to approval of certain legal matters by their counsel and subject to certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify this Offering and to reject any order in whole or in part. It is expected
that delivery of the Securities will be made against payment at the offices of
Dirks & Company, Inc., New York, New York on or about ______, 1997.
DIRKS & COMPANY, INC. MILLENNIUM FINANCIAL GROUP, INC.
The date of this Prospectus is ________, 1997
<PAGE>
[Picture of Container Chassis]
---------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES,
INCLUDING PURCHASES OF THE SECURITIES TO STABILIZE THE MARKET PRICE, PURCHASES
OF THE SECURITIES TO COVER SOME OR ALL OF A SHORT POSITION IN THE SECURITIES
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
THE COMPANY INTENDS TO FURNISH ITS STOCKHOLDERS WITH ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS AUDITED BY ITS INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANT AND QUARTERLY REPORTS CONTAINING UNAUDITED INTERIM FINANCIAL
STATEMENTS FOR THE FIRST THREE QUARTERS OF EACH FISCAL YEAR.
---------------
This Prospectus contains forward-looking statements which involve risks
and uncertainties. The Company's actual results may differ significantly from
the results discussed in the forward-looking statements. Factors that may cause
such a difference include, but are not limited to, those discussed in "Risk
Factors" and in "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
2
<PAGE>
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements and notes thereto appearing
elsewhere in this Prospectus. Except as otherwise specified, all information in
this Prospectus (i) assumes that the following transactions (collectively, the
"Closing Transactions") have been consummated upon the closing of this Offering
(the "Closing Date"): (a) the acquisition (the "Acquisition") of Ajax
Manufacturing Company ("Ajax" or the "Predecessor Company") by Standard
Automotive Corporation ("Standard"), (b) the filing prior to the date of this
Prospectus of a Certificate of Designation, Preferences and Rights amending the
Company's Certificate of Incorporation to authorize the Convertible Preferred
Stock, (c) the issuance to the holders of $325,000 in aggregate principal amount
of certain notes (the "Bridge Notes") of an aggregate number of shares of Common
Stock determined by dividing $325,000 by the initial public offering price per
share of Common Stock (which is assumed for purposes hereof to be $10.00,
yielding 32,500 shares), and (d) the repayment by Mr. Carl Massaro to the
Company of $220,000 in loans, and (ii) does not give effect to (x) any exercise
of the Over-allotment Option, (y) the issuance of up to 1,000,000 shares of
Common Stock upon conversion of the Convertible Preferred Stock, and (z) the
issuance of up to 100,000 shares of Convertible Preferred Stock and/or 130,000
shares of Common Stock upon exercise of the Representatives' Warrants. See "The
Acquisition" and "Underwriting." References to "Ajax" or the "Company" mean Ajax
and Standard, respectively, as of dates and periods prior to the Closing Date
and to Standard and its subsidiaries, collectively, thereafter. References to
"Ajax" or the "Predecessor Company", as they relate to historical financial
information presented herein, mean the financial condition, results of
operations and statistics of Ajax Manufacturing Company on a separate company
basis.
The Company
The Company is a specialized manufacturer of new trailer chassis which are
sold to leasing companies, large steamship lines, railroads and trucking
companies to transport overland 20', 40', 45' and 48' shipping containers. The
Company also remanufactures used trailer chassis. The Company recently began to
manufacture a new line of 20, 30 and 40 yard sanitary containers known as
roll-off dumpsters and to sell a new line of intermodal refuse containers that
can be shipped on trailer chassis, barge or railroad. The Company's net sales
and net income were $22,355,871 and $1,727,907 for the fiscal year ended March
31, 1997, as compared to $42,537,553 and $3,344,303 for the fiscal year ended
March 31, 1996, respectively. For the three months ended June 30, 1997, the
Company had net sales and net income of $4,875,524 and $466,404, as compared to
$3,671,413 and $264,149 for the comparable period of 1996.
A shipping cargo container is a reusable metal container designed for the
efficient carriage of cargo with a minimum of exposure to loss through damage or
theft. According to Containerization International, the world container fleet
has grown to an estimated 9,100,000 TEU (i.e., "Twenty-Foot Equivalent Unit") as
of mid-1995. The Company believes that the demand for new and remanufactured
container chassis is closely related to container use. The total size of the
United States chassis fleet was estimated at 515,000 units in 1996 as compared
to 481,000 units in 1995.
The Company leases its 182,000 square foot manufacturing facility in
Hillsborough, New Jersey. The Company has established production lines for the
manufacture of new chassis and the remanufacture of used chassis. In August 1997
the Company expanded its operations by establishing a production line for the
manufacture of refuse containers.
The Company's business strategy is to grow through the acquisition of
companies that manufacture complementary products, by diversifying its product
lines and establishing manufacturing facilities in the SouthWestern United
States or Mexico to service potential customers on the West Coast. At this time
the Company has not entered into any discussions with any acquisition
candidates, nor has it established a timetable for the establishment of a new
manufacturing facility.
The Company will use the net proceeds of this Offering to pay the Purchase
Price of the Acquisition, repay approximately $335,000 due under the Bridge
Notes and to pay $270,000 in advisory fees to certain affiliated parties.
The Company is a Delaware corporation formed on January 2, 1997, to
acquire and operate the business of Ajax Manufacturing Company. Ajax was
incorporated in 1964 under New Jersey law and commenced business in 1979. The
Company's office and manufacturing facilities are located at 321 Valley Road,
Hillsborough Township, New Jersey, 08876-4056, telephone (908) 369-5544.
- --------------------------------------------------------------------------------
3
<PAGE>
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The Acquisition
On the Closing Date, the Company will use the proceeds of this Offering to
consummate the acquisition (the "Acquisition") from Mr. Carl Massaro, the
founder and sole stockholder of Ajax, of all of the outstanding capital stock of
Ajax. The Stock Purchase and Redemption Agreement (the "Stock Purchase
Agreement") dated August 11, 1997 between the Company and Mr. Carl Massaro
provides for a purchase price (the "Purchase Price") of $20,625,000 adjusted by
an amount equal to 83.33% of the excess of Ajax's net worth as of the Closing
Date over $4,463,671 (the "Net Worth Adjustment"). The Purchase Price is payable
in cash on the Closing Date by Standard, except that to the extent that the
Purchase Price exceeds $19,903,257, the excess amount up to $4,000,000 is
payable by Ajax pursuant to a three-year promissory note bearing interest at the
annual rate of 10% (the "Redemption Note"), which will be issued in
consideration for stock of Ajax to be redeemed simultaneously with the Closing.
There is no ceiling on the Net Worth Adjustment and, the excess of the Purchase
Price over $23,903,257, is payable in cash by the Company. Promptly after the
Closing, Ajax will prepare a balance sheet to determine its net worth as of the
Closing Date. Upon final determination of Ajax's Closing Date net worth,
appropriate adjustments will be made to the Redemption Note or the cash portion
of the Purchase Price. After the Closing Date, Ajax will operate as a
wholly-owned subsidiary of the Company. See "The Acquisition."
The Offering
Securities ............................ Offered 1,000,000 shares of
Convertible Preferred Stock and
1,300,000 shares of Common Stock.
Offering Prices:
Convertible Preferred Stock ......... $_____ per share.
Common Stock ........................ $_____ per share.
Securities outstanding prior to the
Offering ............................ 2,067,500 shares of Common Stock and
no shares of Convertible Preferred
Stock.
Securities to be outstanding after
the Offering(1):
Prior to conversion of the
Convertible Preferred Stock ....... 3,400,000 shares of Common Stock and
1,000,000 shares of Convertible
Preferred Stock.
Giving effect to full conversion of
the Convertible Preferred Stock ... 4,400,000 shares of Common Stock.
Terms of Convertible Preferred Stock:
Dividend Rate and Payment Dates ....... Cumulative dividends are payable at
the rate of $____ per share per
annum, quarterly on the last business
day of March, June, September and
December of each year, commencing
December 31, 1997, when, as and if
declared by the Board of Directors,
before any dividends are declared or
paid on the Common Stock or any
capital stock ranking junior to the
Convertible Preferred Stock. Failure
to pay any quarterly dividend will
result in a reduction of the
conversion price. See "Dividend
Policy" and "Description of
Securities--Convertible Preferred
Stock."
- ----------
(1) Does not give effect to the issuance of up to 50,000 shares of Common
Stock upon exercise of options at an exercise price of $_______ per share
[115% of the initial public offering price per share] granted to Mr. Carl
Massaro (the "Massaro Options"), and the issuance of up to 340,000
additional shares of Common Stock reserved for issuance upon exercise of
stock options that may be granted under the Company's 1997 Stock Option
Plan.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
Conversion Rights ................... Convertible into Common Stock at any
time on or after ______, 1998 (180
days after the date hereof) and prior
to redemption at a conversion rate of
one share of Common Stock for each
share of Convertible Preferred Stock
(an effective conversion price of
$____ per share or 120% of the
initial public offering price per
share of Common Stock), subject to
adjustment under certain
circumstances including in the event
of the failure of the Company to pay
a dividend on the Convertible
Preferred Stock within 30 days after
a dividend payment date, which will
result in each instance in a
reduction of $.50 per share in the
conversion price but not below $9.00
per share. See "Description of
Securities--Convertible Preferred
Stock."
Optional Cash Redemption ............ Redeemable, in whole but not in part,
by the Company upon 30 days' prior
written notice at any time on or
after _____, 2000 (30 months after
the date hereof) at $_____ per share,
plus accumulated and unpaid
dividends, provided the closing bid
price of the Common Stock for any 20
trading days within a period of 30
consecutive trading days ending not
more than five trading days prior to
the date of the notice of redemption
equals or exceeds $_____ per share
(180% of the initial public offering
price per share of the Common Stock).
See "Description of
Securities--Convertible Preferred
Stock."
Voting Rights ....................... The holders of Convertible Preferred
Stock have the right, voting as a
class, to approve or disapprove of
the issuance of any class or series
of stock ranking senior to or on a
parity with the Convertible Preferred
Stock with respect to declaration and
payment of dividends or the
distribution of assets on
liquidation, dissolution or
winding-up. The affirmative vote of
the holders of 2/3 of the outstanding
shares of Convertible Preferred Stock
is acquired to approve the issuance
of stock senior to the Convertible
Preferred Stock, and the affirmative
vote of the holders of a majority of
the outstanding shares of Convertible
Preferred Stock is required to
approve the issuance of stock on a
parity with the Convertible Preferred
Stock. In addition, if the Company
fails to pay dividends on the
Convertible Preferred Stock for four
consecutive quarterly dividend
payment periods, holders of
Convertible Preferred Stock voting
separately as a class will be
entitled to elect two directors such
voting right will be terminated as of
the next annual meeting of
stockholders of the Company following
payment of all accrued dividends. See
"Description of Securities--
Convertible Preferred Stock."
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5
<PAGE>
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Liquidation Preference .............. Upon liquidation, dissolution or
winding up of the Company, holders of
Convertible Preferred Stock are
entitled to receive liquidation
distributions equivalent to $____ per
share (plus accumulated and unpaid
dividends) before any distribution to
holders of the Common Stock or any
capital stock ranking junior to the
Convertible Preferred Stock. See
"Description of
Securities--Convertible Preferred
Stock."
Priority ............................ The Convertible Preferred Stock will
be senior to and have priority over
the Common Stock with respect to the
payment of dividends and upon
liquidation, dissolution or
winding-up of the Company.
Use of Proceeds The Company intends to apply the net
proceeds of this Offering to pay the
Purchase Price of the Acquisition, to
repay all indebtedness due under the
Bridge Notes, to pay $270,000 in
advisory fees to certain affiliated
parties, and to use any balance, and
any proceeds of the Over-allotment
Option, for working capital and
general corporate purposes. See "Use
of Proceeds."
Proposed AMEX Symbols:
Convertible Preferred Stock ....... TRK.Pr
Common Stock ...................... TRK
Risk Factors ........................ An investment in the Securities
offered hereby involves a high degree
of risk and immediate and substantial
dilution, and should be made only by
investors who can afford the loss of
their entire investment. See "Risk
Factors" and "Dilution."
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6
<PAGE>
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Summary Financial Data
The following table sets forth (i) for the periods indicated and at the
dates indicated historical summary financial information of the Predecessor
Company and (ii) adjusted pro forma financial information of the Company for the
fiscal year ended March 31, 1997 and the fiscal quarter ended June 30, 1997. The
historical information contained in the table for the fiscal years ended March
31, 1995, 1996 and 1997 has been derived from audited financial statements, and
is qualified in its entirety by, and should be read in connection with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", the audited financial statements (and notes thereto) and other
financial and statistical information of the Predecessor Company appearing
elsewhere in this Prospectus. The historical statements of operations, cash flow
and other financial data as of and for the years ended March 31, 1993 and 1994
and for the quarters ended June 30, 1996 and 1997, have been derived from
unaudited financial statements. The financial statements as of June 30, 1997 and
for the three month periods ended June 30, 1996 and 1997 are unaudited; however
in the opinion of management all adjustments (consisting solely of normal
recurring adjustments) necessary for a fair presentation of the financial
statements for the interim periods have been made. The results of interim
periods are not necessarily indicative of the results to be obtained in a full
fiscal year. The accompanying pro forma unaudited statement of operations, cash
flow and other financial data reflect the effects of the Acquisition, the
related equity financing, and related expenses, costs and fees as if such
transactions occurred on April 1, 1996 (the beginning of the Predecessor
Company's fiscal year). The accompanying pro forma unaudited balance sheet data
is adjusted to give effect to the Acquisition and the other Closing Transactions
as if they had occurred on June 30, 1997.
<TABLE>
<CAPTION>
Quarter Ended
Year Ended March 31, June 30,
-------------------------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1996 1997
---- ---- ---- ---- ---- ---- ----
(Amounts in thousands, except share and earnings per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Net sales ................ $ 7,245 $ 17,551 $ 33,407 $ 42,538 $ 22,356 $ 3,671 $ 4,876
Gross profit ............. 1,160 1,406 2,696 8,565 5,329 697 1,089
Selling, general and
administrative .......... 839 861 1,149 3,082 2,510 264 317
Amortization of
goodwill ................ -- -- -- -- -- -- --
Operating income ......... 321 545 1,547 5,482 2,818 433 771
Interest expense ......... 442 342 339 118 -- -- --
Income (loss) before
income taxes and
extraordinary gain ...... (121) 172 1,282 5,449 2,896 448 790
Net income (loss) ........ $ (93) $ 103 $ 784 $ 3,344 $ 1,728 $ 264 $ 466
Preferred stock
dividends ............... -- -- -- -- -- -- --
Earnings (loss)
attributable to
Common Stockholders ..... (93) 103 784 3,344 1,728 264 466
Primary and fully
diluted earnings
(loss) per share(2) ..... $ (.04) $ .05 $ .38 $ 1.62 $ .84 $ .13 $ .23
Weighted average
common and common
equivalent shares
outstanding(2):
Primary and fully diluted 2,067,500 2,067,500 2,067,500 2,067,500 2,067,500 2,067,500 2,067,500
Statement of Cash Flow
Data:
Net cash provided by
(used in) operating
activities .............. $ 719 $ 592 $ 2,254 $ 2,870 $ 547 $ 194 $ (153)
Net cash provided by
(used in) investing
activities .............. (158) 63 600 325 (471) (120) 38
Net cash provided by (used
in) financing activities (494) (676) (2,176) (2,225) -- -- --
Other Financial Data:
Ratio of earnings to
combined fixed charges
and preferred stock
dividends(4) ............ .74 1.46 4.46 33.1 47.7 -- 27.5
EBITDA(3) ................ $ 646 $ 881 $ 1,853 $ 5,709 $ 3,020 $ 485 $ 823
Acquisition of property
and equipment
(use of cash) ............ (158) (41) (136) (139) (171) (40) (42)
</TABLE>
Pro Forma,
As Adjusted(1)
------------------------
Year Ended Quarter
March 31, Ended June
1997 30, 1997
------------------------
(Amounts in thousands,
except share and
earnings per share data)
Statement of
Operations Data:
Net sales ................ $ 22,356 $ 4,876
Gross profit ............. 5,057 1,094
Selling, general and
administrative .......... 1,720 359
Amortization of
goodwill ................ 986 246
Operating income ......... 2,350 489
Interest expense ......... 410 110
Income (loss) before
income taxes and
extraordinary gain ...... 2,018 398
Net income (loss) ........ $ 1,086 $ 238
Preferred stock
dividends ............... (886) (221)
Earnings (loss)
attributable to
Common Stockholders ..... 200 17
Primary and fully
diluted earnings
(loss) per share(2) ..... $ .06 $ .01
Weighted average
common and common
equivalent shares
outstanding(2):
Primary and fully diluted 3,400,000 3,400,000
Statement of Cash Flow
Data:
Net cash provided by
(used in) operating
activities .............. $ 547 $ (153)
Net cash provided by
(used in) investing
activities .............. (20,621) 38
Net cash provided by (used
in) financing activities 21,750 --
Other Financial Data:
Ratio of earnings to
combined fixed charges
and preferred stock
dividends(4) ............ 1.15 .95
EBITDA(3) ................ $ 3,538 $ 787
Acquisition of property
and equipment
(use of cash) ............ (171) (42)
- ----------
Footnotes on Page 8
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7
<PAGE>
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<TABLE>
<CAPTION>
March 31, June 30, 1997
-------------------------------- --------------------
Unaudited
Pro Forma, As
1993 1994 1995 1996 1997 Adjusted (1)
---- ---- ---- ---- ---- ------------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and Cash Equivalents 37 15 512 1,482 1,558 1,444 2,509
Accounts Receivable, net 142 1,218 503 751 2,536 920 920
Inventory ............... 3,274 3,172 5,165 3,341 3,515 5,326 5,628
Property and Equipment,
net .................... 1,268 1,045 949 946 994 1,003 1,003
Goodwill ................ -- -- -- -- -- -- 16,695
Current Liabilities
(excluding debt) ....... 882 2,056 3,288 1,464 2,093 1,657 1,657
Total Debt (including
current) ............... 3,699 3,113 2,373 -- -- -- 4,000
Stockholders' Equity .... 1,264 1,367 2,151 5,495 7,222 7,689 21,752
</TABLE>
- ----------
(1) Pro forma, as adjusted amounts reflect the statement of operations and
cash flow data, balance sheet data and other financial data of the
Predecessor Company after giving effect to the Acquisition and the other
Closing Transactions, and the sale of the Securities offered hereby at the
assumed price of $10.00 per share for the Common Stock and $12.00 per
share for the Preferred Stock, in the manner described under "Unaudited
Selected Pro Forma Financial Data."
(2) "Primary and fully diluted earnings (loss) per share" and the "Weighted
average common and common equivalent shares outstanding" data assume the
Predecessor Company had 2,067,500 shares of Common Stock outstanding
during all periods presented. Such number of shares reflects the
capitalization of the Company prior to the Acquisition.
(3) As used herein, EBITDA reflects net income (loss) increased by the effects
of interest expense, income tax provisions, depreciation and amortization
expense. EBITDA is used by management, along with other measures of
performance, to assess the Company's financial performance. EBITDA should
not be considered in isolation or as an alternative to measures of
operating performance or cash flows pursuant to generally accepted
accounting principles. EBITDA, pro forma, as adjusted, reflects the
effects of amortizing preliminary goodwill and other pro forma
adjustments. See "Unaudited Selected Pro Forma Financial Data."
(4) Had all the Convertible Preferred Stock been considered outstanding, the
Pro Forma as Adjusted Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends for the quarter ended June 30, 1997, would
indicate a less than one to one coverage. The coverage deficiency is $27.
- --------------------------------------------------------------------------------
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RISK FACTORS
The Securities offered hereby are speculative and involve a high degree of
risk. An investment should only be made by investors who can afford the loss of
their entire investment. Accordingly, prospective investors, before making an
investment, should carefully consider the following risk factors:
Risks of the Acquisition
The Company will commence operations upon the consummation of the
Acquisition of Ajax upon the closing of this Offering. There can be no
assurance, however, that any benefits will be achieved or that the results of
Ajax prior to the Acquisition will be improved upon. In addition, Carl Massaro,
the President and Chief Executive Officer of Ajax, will resign from those
positions upon consummation of the Acquisition, and become a consultant to the
Company. Although Carl Massaro's position will be filled by his son, Karl
Massaro, Ajax's Vice President and General Manager since 1991, there can be no
assurance that the management of the Company and Ajax will be successfully
combined, or that the new management will collectively have the necessary
experience to operate the Company. The process of combining the organizations
could cause the interruption of, or a loss of momentum in, the activities of
part or all of the Company's business, which could have an adverse effect on the
Company.
Limited Recourse Against Selling Shareholder
Pursuant to the Stock Purchase Agreement, Carl Massaro's obligation to
indemnify the Company for breaches of his representations and warranties therein
is, with certain exceptions, limited to $2.0 million. Consequently, the Company
will have no recourse against Mr. Massaro for claims in excess of such amount.
Incurring Additional Indebtedness and Issuing New Securities
In connection with the Acquisition of Ajax the Company will become
indebted to Carl Massaro in an amount estimated to be $3,400,000, based upon the
results of operations of Ajax through June 30, 1997, and which amount may
increase to up to $4,000,000 based upon the results of operations of Ajax
through the Closing Date. In addition, to consummate the Acquisition the Company
will issue the Common Stock and Convertible Preferred Stock offered hereby. The
Convertible Preferred Stock has an annual dividend requirement of $1,020,000
($1,173,000 if the Over-allotment Option is exercised in full).
Inadequate Dividend Coverage
The annual dividend requirement on the Convertible Preferred Stock is
$1,020,000 ($1,173,000 if the Over-allotment Option is exercised in full;
assuming a public offering price of $12.00 per share of Convertible Preferred
Stock). The future earnings of the Company, if any, may not initially be
adequate to pay the dividends on the Convertible Preferred Stock, and, although
the Company will pay quarterly dividends out of available capital surplus, there
can be no assurance that the Company will maintain sufficient capital surplus or
that future earnings, if any, will be adequate to pay the dividends on the
Convertible Preferred Stock. Under the Delaware General Corporation Law,
dividends may be paid only out of legally available funds. Failure to pay any
quarterly dividend will result in a reduction in the conversion price and
failure to pay a total of four consecutive quarterly dividends will entitle the
holders of the Convertible Preferred Stock, voting separately as a class, to
elect one director. In addition, no dividends or distributions may be declared,
paid or made if the Company is or would be rendered insolvent by virtue of such
dividend or distribution. See "Dividend Policy" and "Description of
Securities--Convertible Preferred Stock."
Significant Leverage
On the Closing Date of this Offering and of the Acquisition, the Company
will have up to $4,000,000 in long-term indebtedness outstanding, consisting of
the Redemption Note, and related annual interest expense of up to $400,000. As a
result, the Company will be significantly leveraged and will have indebtedness
that is substantial in relation to its stockholders' equity. In contrast, at
March 31, 1995, 1996 and 1997 and June 30, 1997(historical) and June 30,
1997(pro forma, as adjusted), the Company had a ratio of indebtedness to total
capitalization of 2.43:1, .27:1, .29:1, .22:1 and .26:1, respectively. For the
fiscal years ended March 31, 1995, 1996 and 1997, and the quarter ended June 30,
1997, the net increase (decrease) in cash and cash equivalents of the Company
was $(522,837), $970,153, $76,329 and $(114,846), respectively. The ability of
the Company to make principal and interest
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payments will depend on future performance, which is subject to many factors,
some of which will be outside the Company's control. In addition, the Redemption
Note will be secured by substantially all of the assets of the Company. In the
case of a continuing default by the Company under the Redemption Note, Mr. Carl
Massaro will have the right to foreclose on the Company's assets, which would
have a material adverse effect on the Company. Payment of principal and interest
on such indebtedness may limit the Company's ability to pay dividends to
shareholders. The Company's leverage may also adversely affect the ability of
the Company to finance its future operations and capital needs, may limit its
ability to pursue other business opportunities and may make its results of
operations more susceptible to adverse economic conditions. See "The
Acquisition."
Additional Capital Requirements
Almost the entire proceeds of this Offering (assuming no exercise of the
Over-allotment Option) will be used to pay the Purchase Price of the
Acquisition, repay the Bridge Notes and pay certain advisory fees. As a result
the Company may require additional capital to expand its operations. The Company
contemplates that it may seek to expand its operations and product lines, which
might require significant modifications to and modernization of the Company's
facilities and the establishment of new manufacturing facilities outside the
territory served by the Company's current facility and the acquisition of
companies in the trailer chassis industry or related industries. Any such
expansion would likely require that the Company raise additional financing
either in the form of debt or equity. There can be no assurance that any such
financing will be available to the Company on favorable terms, if at all.
Further, there can be no assurance that the Company will be able to service its
existing indebtedness or any debt it may hereafter incur in connection with the
expansion of its operations. If the Company were to seek to raise additional
equity, its then existing shareholders would suffer dilution to their interests.
Absence of Principal Shareholder
Historically, the Company has obtained money and achieved other financial
accommodations through arrangements guaranteed by Mr. Carl Massaro. After the
Closing Date, the Company will no longer be able to rely upon Mr. Massaro's
credit when seeking to borrow money or obtain other financial accommodations.
Following the completion of the Offering, management intends to seek to obtain
bank credit facilities for the Company; however, the Company does not currently
have any specific plans or arrangements with respect to obtaining such
facilities. The fact that the Redemption Note will be secured by substantially
all of the assets of the Company may make it more difficult for the Company to
obtain such credit facilities.
Risks Associated with Rapid Expansion and Acquisitions
The Company's proposed expansion is expected to place a strain on its
management, administrative, operational, financial and other resources. The
Company's expansion will be largely dependent upon its ability to maintain its
operating margins, successfully market new products, hire and retain skilled
management, marketing and other personnel and successfully manage growth
(including monitoring operations, controlling costs and maintaining effective
management and credit controls). The Company has limited experience in
effectuating rapid expansion and in managing a broader range of new services and
operations which are geographically dispersed. There can be no assurance that
the Company will be able to successfully expand its operations or manage growth.
To date, the Company's customer base has been concentrated in the Northeastern
United States. The Company's growth prospects will be significantly affected by
its ability to achieve greater penetration in new and existing geographic areas
and to acquire additional resellers and customer bases. The Company's prospects
could be adversely affected by a decline in the trucking and shipping industry
in general or in particular geographic markets or related market segments, which
could result in reduction or deferral of expenditures by prospective customers.
While the Company regularly evaluates possible acquisition opportunities, as of
the date of this Prospectus, the Company has no plans, agreements, commitments,
understandings or arrangements with respect to any such acquisition. There can
be no assurance that the Company will ultimately effect any acquisition or that
the Company will be able to successfully integrate into its operations any
business which it may acquire. Any inability to do so, particularly in instances
in which the Company has made significant capital investments, would have a
material adverse effect on the Company.
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The Company may determine, depending upon the opportunities available to
it, to seek additional debt or equity financing to fund the cost of continuing
expansion. To the extent that the Company finances an acquisition with a
combination of cash and equity securities, any such issuance of equity
securities would result in dilution to the interests of the Company's
shareholders. Additionally, to the extent that the Company incurs indebtedness
or issues debt securities in connection with any acquisition, the Company will
be subject to risks associated with incurring additional indebtedness and there
can be no assurance that cash flow will be sufficient to repay any such
indebtedness. See "Use of Proceeds" and "Business--Business of the
Company--Business Strategy."
Risks of New Products
The Company has recently begun to manufacture and market a new line of
sanitary containers, known as "roll-off" dumpsters. The Company may consider
manufacturing this product for inventory rather than upon receipt of customer
purchase orders. There can be no assurance that the Company will be able to
commercially exploit this new container line or any other new product. If it is
not able to do so, the Company will incur a loss with regard to any unsold
inventory.
Dependence on Trucking and Shipping Industries
The container chassis and marine container manufacturing industries and
related industries are dependent on the demand for their products from the
trucking and shipping industries. Unit sales of new container chassis have
historically been subject to substantial cyclical variation. Future economic
downturns, increases in the utilization rate of existing container chassis or
cyclical decreases in demand for marine cargo containers would likely have a
materially adverse effect on the Company. Similarly, downturn or cyclical
decreases in demand for container chassis would likely have a materially adverse
effect on the Company. See "Business--Industry Overview."
Reliance on Small Number of Customers
Due to the nature of the heavy-duty trailer chassis and container
industries, the available pool of potential customers is limited. The Company's
two largest customers, Trac Leasing and Ned Lloyd, accounted for a total of 90%
(57% and 33%, respectively), of the Company's total net sales for the year ended
March 31, 1997. The Company does not have a long-term contract with either of
these customers as sales are made pursuant to purchase orders. The loss of any
of such major customers could have a material adverse effect on the business of
the Company, its financial condition, and its future operating results. See
"Business--Business of the Company--Major Customers."
Dependence on One Manufacturing Site
All of the Company's products are manufactured at the Company's
Hillsborough Township, New Jersey facility. The Company leases the facility from
Mr. Carl Massaro. Long-term interruption in the operation of this plant, from
labor strikes or disputes, a natural disaster or other cause, whether or not
covered by insurance, could have a materially adverse effect on the Company. See
"Business--Business of the Company--Facilities" and "--Insurance."
Competition
The chassis and container manufacturing industries are highly competitive
and barriers to entry are relatively low. The Company directly competes with
Strick Corporation and Hyundai Mexico, two other manufacturers of new trailer
chassis, each of which has greater financial resources and higher sales than the
Company. Furthermore, the Company's products compete with alternative forms of
shipping, such as truck trailers, that have experienced recent rapid growth in
usage. There can be no assurance that the Company will be able to continue to
compete effectively with existing or potential competitors or alternative forms
of shipping. See "Business--Business of the Company--Competition for the
Manufacture of New Chassis."
Control by Management and Principal Stockholders
Upon completion of the Offering, the directors and officers of the Company
will own, as a group, shares equal to approximately 41% of the outstanding
shares of the Company's Common Stock, assuming no conversion of the Convertible
Preferred Stock, 32% assuming full conversion of such stock (39% and 30%,
respectively if the Over-
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allotment Option is exercised in full). As a result, management may be able to
elect the entire Board of Directors and control all matters requiring
stockholder approval. This concentration may also have the effect of delaying or
preventing a change in control of the Company. See "Management" and "Principal
Shareholders."
Dependence on Key Employees and Qualified Personnel
The Company's success is dependent in large measure on the efforts and
abilities of its executive officers, including Karl Massaro, its President, and
Steven Merker, its Chairman of the Board. Upon closing of this Offering the
Company will enter into three year Employment Agreements with Karl Massaro and
Steven Merker. Although the Company will, prior to the Closing Date, obtain a $2
million "key man" insurance policy on the life of Karl Massaro, the loss of
either of these executive officers could have a materially adverse effect on the
Company. The future success of the Company will also depend in large part on its
ability to attract and retain talented management and skilled employees. There
can be no assurance that the Company can retain its key employees or that it can
attract and retain qualified personnel in the future. See "Business--Business of
the Company--Employees" and "Management."
Potential Adverse Effect of Government Regulation
Trailer chassis and container length, height, width, gross vehicle weight
and other specifications are regulated by the National Highway Traffic Safety
Administration and individual states. Historically, changes and anticipated
changes in these regulations have resulted in significant fluctuations in demand
for new trailer chassis and containers thereby contributing to industry
cyclicality. The Company's manufactured chassis are also subject to federal
excise taxes. Changes or anticipation of changes in these regulations or in
applicable tax laws may have a materially adverse impact on the Company's
manufacturing operations and sales.
Notice of Violation of Federal and State Air Quality Regulation
The federal Clean Air Act requires the Company to obtain air emission
permits ("Title V Permits") from the New Jersey Department of Environmental
Protection ("NJDEP") setting the emission levels from the Company's facility of
various pollutants, including certain volatile organic compounds ("VOC")
generated by drying solvent-based paints. The Company's equipment that requires
Title V permitting includes three paint spray booths, associated natural gas
fired heaters and two shot blaster systems.
On March 13, 1997 the NJDEP issued two Notices of Violations, which
asserted that the Company had failed to obtain Title V permits for the shot
blasters prior to February 18, 1997 and for the heaters for the paint spray
booths. The Company submitted permit applications for the heaters on March 25,
1997, which are pending. On May 2, 1997, the NJDEP issued an Administrative
Order of Civil Administrative Penalty Assessment ("Order and Notice") assessing
the Company a $9,000 penalty for emitting VOCs from the paint spray booths in
excess of permissible limits in 1995. In response to the Order and Notice, the
Company submitted to the NJDEP an adjudicatory hearing request which contests
the $9,000 assessment and outlines the steps that the Company has taken to
comply with the air quality regulatory requirements for VOC emissions. The NJDEP
could make further assessments with respect to other years in which the
allowable VOC limits were exceeded by the Company, although no other assessments
have yet been made.
The outcome of NJDEP regulatory actions cannot be predicted with
certainty. The NJDEP could fine the Company for operating the shot blaster
booths without a completed permit between April 1992 and February 18, 1997, for
operating the heaters for the paint spray booths without a permit, and/or for
emitting more VOCs from the paint spray booths than allowed by its permits.
NJDEP could also require the Company to take other steps to comply with NJDEP
requirements and the Clean Air Act, including capital improvements to ensure
compliance with air quality regulations. Such improvements could include a VOC
incinerator and/or other control apparatus which could cost $2,000,000 or more.
The Company does not have allowances accrued for fines that may be assessed in
respect of its air quality violations or for potenial purchases of any capital
equipment that may be mandated by the NJDEP or otherwise be necessary to avoid
future violations.
To reduce VOC emissions, the Company is working with its suppliers to
develop a reformulated paint which will emit little or no VOC's and which will
be acceptable to the Company's customers. However, there can no assurance that
the Company and its suppliers will be successful in reformulating such a paint
or that such reformulated paint will be acceptable to the Company's customers.
Failure to comply with NJDEP regulations and
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directives could result in fines and/or NJDEP orders to curtail or shutdown
operations, any or all of which could have a material adverse effect on the
Company's business and financial condition. The Company would have to bear the
entire cost of any such capital improvements subject to Carl Massaro's
obligations under the Stock Purchase Agreement to indemnify the Company for all
environmental liability up to an aggregate of $250,000. See "Business--Business
of the Company--Violation of Federal and State Air Quality Regulation."
Other Environmental and Regulatory Compliance
General
The Company is subject to Federal, state and local laws and regulations
relating to its operations, including building and occupancy codes, occupational
safety and environmental laws, and laws governing the use, discharge and
disposal of hazardous materials. Except as described above with regard to air
quality regulation, the Company is not aware of any material non-compliance with
any such laws and regulations. However, a Phase I Environmental Site Assessment,
prepared at the Company's request by a private environmental consulting firm
(the "Phase I Report"), and additional investigation by such firm, has
identified the matters described below for additional compliance assessment.
There can be no assurance that such additional assessment will not reveal
environmental regulatory compliance liabilities, nor can there be any assurance
that health-related or environmental issues will not arise in the future and, if
so, that they will not have a material adverse impact on the Company's financial
position or results of operations.
Hazardous Waste Generation
The Phase I Report indicates that the Company's facility is identified in
an environmental data base as a generator of large quantities of solid and/or
liquid hazardous waste within the scope of the Federal Resource Conservation and
Recovery Act (an "RCRA Large Quantity Generator"). RCRA Large Quantity
Generators are subject to quarterly and annual reporting requirements and, among
other things, are required to maintain contingency plans on site and to document
the disposal of applicable hazardous waste. Failure to comply with those
requirements may result in the imposition of potentially significant fines. The
Company believes that it is not an RCRA Large Quantity Generator, and that
identification as such in the data base is in error. The Company presently is
investigating the basis, if any, for that data base identification and
classification.
Superfund Amendments and Re-authorization Act of 1986
Title III of the Superfund Amendments and Re-authorization Act of 1986
("SARA") provides for reporting the use of specified quantities of certain
chemicals. The Company believes it is not currently required to submit SARA
Title III reports. Based on the Phase I Report, the Company is assessing whether
its use prior to 1995 of paints and coatings that contained SARA-reportable
chemicals was of a magnitude to which SARA Title III applied. Failure to comply
with SARA Title III reporting requirements may result in regulatory enforcement
proceedings that could result in the imposition of significant fines on the
Company. The imposition of such fines, which are typically calculated on a per
diem basis based on the number of days that a company is in violation of SARA
Title III, could have a material adverse impact on the Company's financial
condition or results of operations.
Stormwater Permit
The Company has not obtained, but is required to obtain, a general
stormwater permit in connection with the outdoor storage at its facility of
certain materials and products used and manufactured by the Company. The Company
will apply for such a permit, and based on its application submission, the NJDEP
will determine if the Company must also institute a stormwater pollution
prevention plan.
Storage of Certain Materials
The Company is in the process of removing and recycling various items of
old steel equipment, vehicles, tanks and other metal objects stored on the
grounds of the Company's facility. Although the Phase I Report noted that no
evidence of distressed vegetation or stained soil was observed at or around such
items (which, if present, might
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indicate leakage of stored materials onto the ground), upon the removal of
those items the Company will inspect the underlying soils for evidence of
staining. There can be no assurance that staining will not be found or that, if
found, leakage onto or into the ground will not have occurred. Such leakage
could require clean-up or other remediation measures which presently are neither
identifiable nor qualifiable, and which potentially could be financially
significant.
Additionally, the Company presently maintains on the grounds of its
facility a rail car containing a liquid hardening agent for concrete. While no
evidence of leakage was observed in the Phase I Report, the Company plans to
empty the rail car of its contents in accordance with applicable law.
Indemnification by the Company
Under the Stock Purchase Agreement, the Company is required to indemnify
Carl Massaro for liability in excess of $250,000 that Mr. Massaro may incur in
connection with compliance with the New Jersey Industrial Site Recovery Act and
other environmental laws, with respect to the premises leased by the Company
from Mr. Massaro. The Company would be responsible for any liabilities imposed
above $250,000. The imposition of any such liabilities resulting from a
violation of environmental laws, rules or regulations could have a material
adverse impact on the Company's financial condition or results of operations.
Uncertain Availability of Environmental Risk Insurance
The Company is considering obtaining insurance to cover potential
environmental liabilities, including those outlined above. There can be no
assurance that such insurance coverage is or will be available on terms
favorable to the Company, if at all. If the Company is not able to obtain such
insurance, pursuant to the indemnification described above it will have to bear
the cost of any environmental liabilities to the extent they exceed $250,000. At
present, the possible magnitude of such potential liabilities is largely unknown
and not quantifiable, and could have a materially adverse impact on the
Company's financial condition or results of operations.
Inflation
The Company produces its products upon receipt of confirmed fixed-price
orders. The Company normally does not attempt to negotiate inflation-based price
adjustment provisions into its orders. Consequently, the price of the chassis is
determined at the time an order is accepted. Additionally, competition may limit
the amount by which the Company can increase chassis prices. The Company may
thus have limited ability to pass on cost increases caused by inflation to its
customers on a short term basis.
Variability of Operating Results
The Company's sales, cash flow and net earnings fluctuate considerably
from quarter-to-quarter depending in large part on the availability, timing and
success of individual projects. Consequently, year to year comparisons of
quarterly results may not be meaningful and quarterly results during the course
of a fiscal year may not be indicative of the results for that year. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operation."
Federal Excise Tax Liability
On July 3, 1997, the Internal Revenue Service notified Ajax of a proposed
$1,434,931 increase in federal excise tax liability relating to Ajax's valuation
of tires included in the sale of new chassis for the period from March 1995
through December 1996 and a $286,986 penalty thereon. Ajax intends to contest
this claim vigorously. Pursuant to the Stock Purchase Agreement, Carl Massaro
will indemnify the Company against any excise tax deficiency (net of any income
tax benefit) relating to the Company's operations prior to the Closing Date, and
an amount in cash equal to $1,721,917, the sum of the proposed assessed
deficiency and penalty, will be held in escrow after the Closing Date and
set-off against the Purchase Price to the extent that Ajax makes payment to the
Internal Revenue Service (net of any income tax benefit). There can be no
assurance that additional liability will not be assessed for subsequent periods.
Pursuant to certain amendments to the Internal Revenue Code, commencing on
January 1, 1998, the value of such tires will no longer
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be excluded from the federal excise tax imposed on such chassis sales.
Instead, the amount of federal excise tax imposed upon the tire manufacturer
will be deductible from the excise tax payable by Ajax on the sale of new
chassis. For periods after January 1, 1998, this may result in significant
increases in the federal excise taxes paid by Ajax as compared to prior periods.
See "Business--Litigation."
Dilution
Purchasers of shares of Common Stock in this Offering will experience an
immediate and substantial dilution of $11.58 per share (based on an assumed
initial public offering price of $10.00 per share of Common Stock in this
Offering and no conversion of the Convertible Preferred Stock), or approximately
116% of the purchase price of the shares of Common Stock purchased by them in
this Offering. Purchasers of Convertible Preferred Stock will experience an
immediate and substantial dilution of $10.85 per share (based on an assumed
initial public offering price of $12.00 per share of Convertible Preferred Stock
and conversion into an equal number of Common Shares), or approximately 90% of
the effective purchase price of $12.00 per share of Common Stock. Additional
dilution to future net tangible book value per share may occur upon exercise of
outstanding stock options and warrants (including the Massaro Options and the
Representatives' Warrants) and may occur, in addition, if the Company issues
additional equity securities in the future, including issuances of Common Stock
pursuant to the conversion of the Convertible Preferred Stock. Existing
stockholders of the Company acquired their shares of Common Stock for cash
consideration which was substantially less than the initial public offering
price of the shares of Common Stock offered hereby. As a result, new investors
will bear substantially all of the risks inherent in an investment in the
Company. See "Dilution" and "Management--1997 Stock Option Plan."
No Dividends on Common Stock
The Company has never paid any dividends on its Common Stock, and has no
plans to pay dividends on its Common Stock in the foreseeable future.
Furthermore, pursuant to the terms governing the Convertible Preferred Stock,
the Company's Board of Directors may not declare dividends payable to holders of
Common Stock unless and until all accrued cash dividends through the most recent
past quarterly dividend payment date have been paid in full to holders of the
Convertible Preferred Stock. Payment of principal and interest on the Redemption
Note and any other indebtedness that the Company may obtain in the future
pursuant to bank credit facilities or otherwise may limit the Company's ability
to pay dividends to shareholders. In addition, any bank credit facilities that
the Company obtains in the future may contain covenants restricting the payment
of dividends on the Common Stock and the Convertible Preferred Stock. See
"Dividend Policy."
Lack of Experience of Representatives
Dirks & Company, Inc. and Millennium Financial Group, Inc. commenced
operations in July 1997 and May 1996, respectively. Accordingly, neither has
extensive experience as an underwriter of public offerings of securities. In
addition, Dirks & Company, Inc. and Millennium Financial Group, Inc. are
relatively small firms and no assurance can be given that either Dirks &
Company, Inc. or Millennium Financial Group, Inc., will be able to participate
as a market marker in the Preferred Stock or the Common Stock. No assurance can
be given that any broker-dealer will make a market in the Preferred Stock or
Common Stock. See "Underwriting."
Potential Adverse Effect on Market Price of Securities from Future Sales of
Common Stock
Future sales of Common Stock by stockholders (including option holders)
under Rule 144 of the Securities Act of 1933, as amended (the "Securities Act"),
or through outstanding registration rights granted to the holders of the
Representatives' Warrants, could have an adverse effect on the market prices of
the Securities. The Company, as well as all holders of outstanding securities
exercisable for or convertible into Common Stock, have agreed not to, directly
or indirectly, issue, agree or offer to sell, sell, transfer, assign,
distribute, grant an option for purchase or sale of, pledge, hypothecate or
otherwise encumber or dispose of any beneficial interest in such securities for
a period of 12 months following the date of this Prospectus without the prior
written consent of Dirks & Company, Inc. Sales of substantial amounts of Common
Stock or the perception that such sales could occur could adversely affect
prevailing market prices for the Convertible Preferred Stock and/or the Common
Stock. All of the shares of Convertible Preferred Stock and all shares of Common
Stock issuable upon conversion of the Convertible Preferred
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Stock will have been registered under the Securities Act and, at any time on or
after 180 days after the date hereof, may be converted into up to 1,000,000
additional shares of Common Stock, all of which are immediately salable. Such
sales may further adversely affect the market price of the Common Stock. See
"Shares Eligible For Future Sale."
Current Prospectus and State Blue Sky Registration Required to Convert
Convertible Preferred Stock
The shares of Common Stock underlying the Convertible Preferred Stock will
be restricted and not freely transferable unless, at the time of conversion, the
Company has a current prospectus covering such shares of Common Stock and such
shares have been registered, qualified or deemed to be exempt under the
securities or "blue sky" laws of the state of residence of the converting holder
thereof. There can be no assurance that the Company will be able to have all of
the shares of Common Stock issuable upon conversion of the Convertible Preferred
Stock registered or qualified on or before the conversion date and will be able
to maintain a current prospectus relating thereto until the redemption of the
Convertible Preferred Stock. The value of the Convertible Preferred Stock may be
greatly reduced if a current prospectus covering the common Stock issuable upon
the conversion thereof is not kept effective or if such Common Stock is not
qualified or exempt from qualification in the states in which the holders of the
Convertible Preferred Stock reside. The Convertible Preferred Stock will be
separately tradeable immediately after this Offering. In the event investors
purchase the Convertible Preferred Stock in the secondary market or move to a
jurisdiction in which the shares underlying the Convertible Preferred Stock are
not registered or qualified during the period that the Convertible Preferred
Stock is convertible, the Company will be unable to issue shares to those
persons desiring to convert their Convertible Preferred Stock unless and until
the shares are qualified for sale in jurisdictions in which such purchasers
reside, or an exemption from such qualification exists in such jurisdictions,
and holders of the Convertible Preferred Stock will have no choice but to
attempt to sell the Convertible Preferred Stock in a jurisdiction where such
sale is permissible or allow them to be redeemed prior to conversion. See
"Description of the Securities--Convertible Preferred Stock."
Effect of Stock Options
In accordance with the Stock Option Plan, the Company has reserved a total
of 340,000 authorized but unissued shares of Common Stock for issuance to
executive employees and directors. The committee administering the Stock Option
Plan will have sole authority and discretion to grant options under the Stock
Option Plan. Options granted will be exercisable during the period specified by
the committee administering the Stock Option Plan except that options will
become immediately exercisable in the event of a Change in Control (as defined
in the Stock Option Plan) of the Company and in the event of certain mergers and
reorganizations of the Company. The existence of such options could limit the
price that certain investors might be willing to pay in the future for shares of
the Company's Common Stock and may have the effect of delaying or preventing a
change in control of the Company. The issuance of additional shares upon the
exercise of such options could also decrease the amount of earnings and assets
available for distribution to the holders of the Securities and could result in
the dilution of voting power of the Securities. See "Management--1997 Stock
Option Plan."
Certain Anti-Takeover Provisions and Potential Adverse Effect on Market Price of
Securities from Issuance of Preferred Stock
The Company's Certificate of Incorporation and By-Laws contain certain
provisions that could have the effect of delaying or preventing a change of
control of the Company, which could limit the ability of security holders to
dispose of their Convertible Preferred Stock and/or Common Stock in such
transactions. The Certificate of Incorporation authorizes the Board of Directors
to issue one or more series of preferred stock without stockholder approval.
Such preferred stock could have voting and conversion rights that adversely
affect the voting power of the holders of Convertible Preferred Stock and/or
Common Stock, or could result in one or more classes of outstanding securities
that would have dividend, liquidation or other rights superior to those of the
Convertible Preferred Stock and/or Common Stock. Issuance of such preferred
stock may have an adverse effect on the then prevailing market price of the
Convertible Preferred Stock and/or Common Stock. Additionally, the Company is
subject to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law, which prohibits the Company from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
Section 203 could have the effect of delaying or preventing a change of control
of the Company. See "Description of Securities--Preferred Stock" and "--Delaware
Law and Certain Provisions of the Certificate of Incorporation and By-Laws."
16
<PAGE>
Possible Issuance of Additional Preferred Stock Senior to the Convertible
Preferred Stock
In addition to the Convertible Preferred Stock, the Company will have
1,500,000 shares of Preferred Stock authorized after the designation of
Convertible Preferred Stock which may be issued with dividend, liquidation,
voting and redemption rights senior to the Convertible Preferred Stock;
provided, however, that any such issuance of senior preferred stock must be
approved by the holders of a majority of the outstanding shares of Convertible
Preferred Stock. See "Description of Securities--Convertible Preferred Stock."
Adverse Effect of Possible Redemption of Preferred Stock
The Convertible Preferred Stock may be redeemed by the Company in whole
but not in part, at any time on 30 days' prior written notice at the initial
public offering price of the Convertible Preferred Stock plus accumulated and
unpaid dividends, provided the closing bid price of the Common Stock for any 20
trading days within a period of 30 consecutive trading days ending not more than
five trading days prior to the date of notice of redemption equals or exceeds
$_____ per share [180% of the initial public offering price per share of Common
Stock]. The Company may choose to redeem the Convertible Preferred Stock rather
than incur the cost of keeping a registration statement current with the
Securities and Exchange Commission (the "Commission") for the shares of Common
Stock underlying the Convertible Preferred Stock. Redemption or automatic
conversion of the Convertible Preferred Stock could force the holders to convert
the Convertible Preferred Stock at a time when it may be disadvantageous for the
holders to do so, to sell the Convertible Preferred Stock at the then current
market price when they might otherwise wish to hold the Convertible Preferred
Stock for possible additional appreciation and receipt of dividends, or to
accept the redemption price, which is likely to be substantially less than the
market value of the Convertible Preferred Stock at the time of redemption.
No Assurance of Public Trading Market; Arbitrary Determination of Public
Offering Prices
Prior to this Offering, there has been no public market for the
Convertible Preferred Stock or the Common Stock, and there can be no assurance
that an active trading market for any of the Securities will develop or, if
developed, be sustained after the Offering. The initial public offering prices
of the Securities offered hereby and the terms of the Convertible Preferred
Stock have been arbitrarily determined by negotiations between the Company and
the Representatives, and do not necessarily bear any relationship to the
Company's assets, book value, results of operations or any other generally
accepted criteria of value. See "Underwriting."
THE ACQUISITION
The Stock Purchase Agreement
On the Closing Date, the Company will use the proceeds of this Offering to
consummate the acquisition (the "Acquisition") from Mr. Carl Massaro, the
founder and sole stockholder of Ajax, of all of the outstanding capital stock of
Ajax. The Stock Purchase and Redemption Agreement (the "Stock Purchase
Agreement") dated August 11, 1997 between the Company and Mr. Carl Massaro
provides for a purchase price (the "Purchase Price") of $20,625,000 adjusted by
an amount equal to 83.33% of the excess of Ajax's net worth as of the Closing
Date over $4,463,671 (the "Net Worth Adjustment"). The Purchase Price is payable
in cash on the Closing Date by Standard, except that to the extent that the
Purchase Price exceeds $19,903,257, the excess amount up to $4,000,000 is
payable by Ajax pursuant to a three-year promissory note bearing interest at the
annual rate of 10% (the "Redemption Note"), which will be issued in
consideration for stock of Ajax to be redeemed simultaneously with the Closing.
There is no ceiling on the Net Worth Adjustment and, the excess of the Purchase
Price over $23,903,257, is payable in cash by the Company. Promptly after the
closing, Ajax will prepare a balance sheet as of the Closing Date to determine
its net worth as of the Closing Date. Upon final determination of the Closing
Day net worth, appropriate adjustments will be made to the Redemption Note or
cash portion of the Purchase Price. After the Closing Date, Ajax will operate as
a wholly-owned subsidiary of the Company.
The Stock Purchase Agreement contains various customary representations
and warranties by Carl Massaro. With certain exceptions, Mr. Massaro's
obligation to indemnify the Company for a breach of his representations and
warranties is limited to $2 million, and becomes effective if and to the extent
that the amount of such losses exceeds $250,000. In particular, Mr. Massaro's
obligation to indemnify the Company for environmental liability is limited
17
<PAGE>
to an aggregate of $250,000. Pursuant to the Stock Purchase Agreement, Carl
Massaro will indemnify the Company against any income or excise tax deficiencies
(net of any income tax benefit) relating to the Company's operations prior to
the Closing Date, and an amount equal to $1,721,918, the sum of an excise tax
liability and related penalty assessed against Ajax by the Internal Revenue
Service, will be held in escrow after the Closing Date and set-off against the
Purchase Price to the extent that Ajax makes payment to the Internal Revenue
Service on account thereof (net of any resulting income tax benefit).
The Stock Purchase Agreement contains restrictive covenants prohibiting
Carl Massaro for the five year period commencing on the Closing Date, from
directly or indirectly owning, having an ownership interest (other than less
than a 2% stock ownership interest in a publicly traded corporation) in,
managing, controlling or being employed by any company that is competitive with
the business of the Company within the United States, from otherwise competing
with the Company and from soliciting the Company's customers and employees.
Related Transactions with Carl Massaro
On the Closing Date, the Company will grant Carl Massaro options (the
"Massaro Options") to purchase up to 50,000 shares of Common Stock. The Massaro
Options are initially exercisable at a price of 115% of the initial public
offering price per share of Common Stock. The Massaro Options may be exercised
for a period of four years, commencing at the beginning of the second year after
the Closing Date and are restricted from sale, transfer, assignment or
hypothecation for a period of 12 months from the Closing Date. The Massaro
Options provide for adjustment in the number of shares of Common Stock issuable
upon the exercise thereof and in the exercise price thereof as a result of
certain events, including subdivisions and combinations of the Common Stock.
On the Closing Date, the Company and Carl Massaro will enter into a
three-year consulting agreement providing for annual base compensation of
$160,000 and a "triple net" lease of the factory and office facility owned by
Mr. Massaro and presently occupied by Ajax. The lease will provide for annual
rent of $600,000, payable monthly, and the estimated amount of triple net
expenses for the first year are approximately $63,000, without giving effect to
maintenance expenses currently being paid by Ajax. During the initial five-year
term of the lease, so long as the Company is not in default thereunder or under
the Redemption Note, the Company will have the option to purchase the leased
facility and land for a cash purchase price of $6.5 million. Ajax will also
terminate an existing credit facility with Summit Bank, under which no amounts
will be outstanding on the Closing Date, and Mr. Massaro will terminate his
guaranty of the Company's obligations thereunder. The terms of the lease,
including the purchase option, were determined through arms' length negotiation
between the Company and Carl Massaro. See "Management--Employment Agreements"
and "Business--Business of the Company--Facilities."
Bridge Financing
On August 8, 1997, the Company sold $325,000 in aggregate principal amount
of Bridge Notes to the following third party investors: Gary Dorsi, Thomas
Szemiot, Robert H. Rathauser, Dr. Stephen Jankovic, Ghanshyambhai G. Patel,
Martin R. Lesh, Mark M. Wiener, Abbas K. Shikary, Swayam Prakash, Financial
Merchant Group, Inc., and David Leibman (collectively, the "Bridge Lenders").
Upon closing of this Offering, the Company will repay the principal amount of
the Bridge Notes together with interest thereon at the annual rate of 12% from
the date of issuance and issue to the holders of the Bridge Notes a number of
shares of Common Stock determined by dividing such principal amount by the
initial public offering price per share of the Common Stock offered hereby. The
Company will incur a charge to operations during the period that the Bridge
Notes are outstanding.
18
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from this Offering,
assuming an initial public offering price of $10.00 per share of Common Stock
and $12.00 per share of Convertible Preferred Stock, are estimated to be
approximately $21.6 million (approximately $25.0 million if the Over-allotment
Option is exercised in full). The Company will use almost the entire proceeds of
this Offering to pay the cash portion of the Purchase Price of the Acquisition
due to Mr. Carl Massaro on the Closing Date, to repay approximately $335,000
(including accrued interest), due under the Bridge Notes to the Bridge Lenders,
to pay $270,000 in advisory fees to Barclay Partners LLC and Redstone Capital
Corporation, which are parties related to Steven Merker, William Merker and
Andrew Levy who are officers, directors and principal stockholders of the
Company, and to pay expenses of approximately $25,000, $40,000 and $25,000 to
Redstone Capital Corporation, Steven Merker and William Merker, respectively.
See "Certain Transactions." Any balance, and any proceeds received upon the
exercise of the Over-allotment Option will be used for working capital and
general corporate purposes. Pending utilization as described above, the proceeds
of this Offering will be invested principally in United States government
securities, short term certificates of deposit, money market funds or other
short-term interest-bearing investments.
DIVIDEND POLICY
The Company has never declared or paid cash dividends, and does not intend
to pay any dividends in the foreseeable future on its shares of Common Stock.
Pursuant to the terms governing the Convertible Preferred Stock, the Company's
Board of Directors may not declare dividends payable to holders of Common Stock
unless and until all accrued cash dividends through the most recent past
quarterly payment date have been paid in full to holders of the Convertible
Preferred Stock. Earnings of the Company, if any, not paid as dividends to
holders of the Convertible Preferred Stock are expected to be retained for use
in expanding the Company's business. The payment of dividends on the Common
Stock is within the discretion of the Board of Directors of the Company and will
depend upon the Company's earnings, if any, capital requirements, financial
condition and such other factors as are considered to be relevant by the Board
of Directors from time to time. The dividends payable annually on the
Convertible Preferred Stock are $1,020,000 ($1,173,000 if the Over-allotment
Option is exercised in full)[assuming an initial public offering price of $12.00
per share of Convertible Preferred Stock]. The Company's future earnings, if
any, may not initially be adequate for the payment of dividends on the
Convertible Preferred Stock, in which event such dividends will be paid out of
the Company's then capital surplus (the Company's net assets minus the aggregate
par or stated value of the outstanding shares of the Company's capital stock),
if any. On a pro forma, as adjusted basis, after giving effect to this Offering,
the Company's capital surplus as of June 30, 1997 was $21,747,000. The payment
of dividends and any future operating losses will reduce such capital surplus,
which may adversely affect the Company's ability to continue to pay dividends on
the Convertible Preferred Stock. The failure to pay quarterly dividends will
result in a reduction of the conversion price on the Convertible Preferred Stock
and may in certain circumstances give rise to voting rights to the holders of
such Convertible Preferred Stock and allow them, voting as a class, to elect two
directors. See "Risk Factors--Inadequate Dividend Coverage" and "Description of
Securities--Convertible Preferred Stock."
19
<PAGE>
CAPITALIZATION
The following table sets forth: (a) the capitalization of the Predecessor
Company at June 30, 1997, and (b) the capitalization of the Company on a pro
forma, as adjusted basis, to give effect to the consummation of the Acquisition,
the issuance of 32,500 shares of Common Stock to the holders of the Bridge
Notes, the issuance of the Securities and the receipt of the estimated net
proceeds of this Offering, the initial application of such estimated net
proceeds as described in "Use of Proceeds" and the consummation of the Closing
Transactions without conversion of the Convertible Preferred Stock into Common
Stock. See "The Acquisition" and "Certain Transactions."
June 30, 1997 (in thousands)
---------------------------
(a) (b)
Pro Forma
Historical As Adjusted
---------- -----------
Long-Term Debt .................................... $-- $ 4,000
Stockholders' Equity
AJAX
Ajax Common stock, no par value, 100 shares
authorized, 75 shares issued and
outstanding ..................................... 1 --
STANDARD
Common Stock: par value $.001,
10,000,000 shares authorized and
3,400,000 outstanding (Pro Forma As Adjusted) ... -- 4
Preferred Stock: par value $.001,
1,500,000 authorized, no shares
outstanding (Pro Forma As Adjusted) ............. -- --
Convertible Preferred Stock: par value
$.001, 8.5% cumulative dividend;
1,500,000 shares authorized and 1,000,000
shares outstanding (Pro Forma
As Adjusted) .................................... -- 1
Additional Paid in Capital - Convertible
Preferred Stock .................................. -- 10,440
Additional Paid in Capital - Common Stock ......... -- 11,632
Retained Earnings (Accumulated Deficit) ........... 7,688 (325)(c)
------ --------
Total Stockholders' Equity ........................ 7,689 21,752
------ --------
Total Capitalization .............................. $7,689 $ 25,752
====== ========
- ----------
(c) Represents interest charges incurred in connection with the settlement of
the Bridge Notes.
20
<PAGE>
DILUTION
Common Stock
The net tangible book value of the Predecessor Company at June 30, 1997
was approximately $7,689,000 or $3.72 per share of Common Stock, assuming for
this purpose there were 2,067,500 shares of Common Stock outstanding. Net
tangible book value (deficit) per share of Common Stock, represents the amount
of the Company's total tangible assets less total liabilities less capital (net
of underwriter discounts and offering costs) attributable to the Convertible
Preferred Stock, divided by the number of shares of Common Stock outstanding at
that date. After giving effect to the sale of the Common Stock, at an assumed
initial public offering price of $10.00 per share and after deducting allocable
underwriting discounts and commissions and estimated offering expenses payable
by the Company, and the application of the net proceeds therefrom as described
under "Use of Proceeds," as well as the issuance of 32,500 shares of Common
Stock pursuant to the terms of the Bridge Notes at no additional cost, the
Company's pro forma, as adjusted net tangible book value (deficit) at June 30,
1997 (assuming no conversion of the Company's Convertible Preferred Stock) would
have been approximately $(5,384,000) or $(1.58) per share of Common Stock. This
represents an immediate decrease in the net tangible book value per share of
Common Stock of $5.30 when compared to the net tangible book value per common
share of the Predecessor Company, and an immediate dilution of $11.58 per share
of Common Stock (approximately 116% of the initial public offering price) to
investors purchasing shares of Common Stock in this Offering. The following
table illustrates this per share dilution allocable to the Company's Common
Stockholders (assuming no conversion of the Company's Convertible Preferred
Stock):
Initial public offering price per share of Common Stock $ 10.00
Net tangible book value per share of Common Stock
of Ajax (Historical) at June 30, 1997 $3.72
Pro forma as adjusted net tangible book value (deficit)
per share of Common Stock at June 30, 1997 after giving
effect to the issuance of Convertible Preferred Stock and
prior to the Acquisition and the issuance of the Common
Stock (3.07)
Pro Forma as adjusted net tangible book value (deficit)
decrease per share attributable to the effects of
Acquisition and issuance of Common Stock (2.23)
----
Pro forma as adjusted net tangible book value (deficit)
per share of Common Stock at June 30, 1997 after the
Acquisition and this Offering (1.58)
------
Dilution per share to new Common Stock investors $(11.58)
=======
The computations in the table set forth above assume that the
Over-allotment Option is not exercised. If the Over-allotment Option is
exercised in full, the pro forma net tangible book value (deficit) at June 30,
1997 allocable to the Company's Common Stock (assuming no conversion of the
Company's Convertible Preferred Stock) would have been $(3,649,000) or $(1.01)
per share of Common Stock, representing immediate dilution of $11.01 per share
or approximately 110% of the initial public offering price per share of Common
Stock.
The following table summarizes, on a pro forma, as adjusted basis, after
giving effect to this Common Stock Offering and the Closing Transactions, the
number of shares purchased from the Company, the total consideration paid and
the average price per share paid by the existing stockholders and by the new
investors:
Shares Purchased Total Consideration Average
---------------------------------------- Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
Existing Stockholders 2,100,000 61.8% $ 2,100 0% $.001
Purchasers of Common Stock 1,300,000 38.2% 13,000,000 100% $10
--------- ----- ----------- ---
3,400,000 100.0% $13,002,100 100%
========= ===== =========== ===
The information presented above, with respect to existing stockholders,
assumes no exercise of the Over-allotment Option. In addition, 130,000 shares of
Common Stock and 100,000 shares of Convertible Preferred Stock have been
reserved for issuance upon exercise of the Representatives' Warrants, 340,000
shares of Common Stock have been reserved for future issuance upon exercise of
options available for grant pursuant to the Stock Option Plan and 50,000 shares
of Common Stock have been reserved for future issuance upon exercise of the
Massaro Options. The issuance of such shares of Common Stock may result in
further dilution to new investors. See "The Acquisition;" "Management--1997
Stock Option Plan" and "Underwriting."
21
<PAGE>
The information set forth above gives no effect to the conversion of the
shares of Convertible Preferred Stock offered hereby. If one assumes conversion
of the Convertible Preferred Stock, (which is not convertible until 180 days
following the date of this Prospectus) the net tangible book value of the
Company's Common Stock as of June 30, 1997, would have been $1.15, representing
dilution to the purchasers of Common Stock offered hereby of $8.85 per share or
approximately 89% of the initial public offering price per share of Common
Stock.
Conversion of Convertible Preferred Stock into Common Stock
The net tangible book value (deficit) of the Company at June 30, 1997 was
approximately $(5,384,000), or $(1.58) per share of Common Stock, after giving
effect to the Closing Transactions and the sale of the Common Stock offered
hereby. This net tangible book value (deficit) per share represents the amount
of the Company's total tangible assets less total liabilities less capital
attributable to the Convertible Preferred Stock divided by the number of shares
of Common Stock outstanding at that date. After giving effect to the sale of the
Convertible Preferred Stock at an assumed initial public offering price of
$12.00 per share and conversion of the Convertible Preferred Stock into an equal
number of shares of Common Stock (which conversion cannot occur until 180 days
after the date of this Prospectus), and after deducting underwriting discounts
and commissions and estimated offering expenses payable by the Company, and the
application of the net proceeds therefrom as described under "Use of Proceeds,"
as well as the issuance of 32,500 shares of Common Stock pursuant to the terms
of the Bridge Notes at no additional cost, the Company's pro forma, as adjusted
net tangible book value at June 30,1997 would have been $5,057,000 or $1.15 per
share of Common Stock. This represents an immediate decrease in the net tangible
book value of $(2.57) per share to existing Company stockholders and an
immediate dilution of $10.85 per share (or approximately 90%) to new Convertible
Preferred Stock investors who elect to convert shares into Common Stock. The
following table illustrates this per share dilution:
Weighted average initial public offering price per common
share and equivalents ...................................... $12.00
Net tangible book value per common share and equivalents
of Ajax (Historical) at June 30, 1997 before this Offering .. $3.72
Decrease in net tangible book value per common share and
equivalents attributable to new investors .................. (2.57)
-----
Pro forma, as adjusted, net tangible book value per
common share and equivalents after this Offering ............ 1.15
------
Dilution in net tangible book value per common share
and equivalents to new investors ........................... $10.85
======
The computations in the table set forth above assume that the
Over-allotment Option for the Common Stock and the Convertible Preferred Stock
are not exercised. If the Over-allotment Option is exercised in full, the pro
forma net tangible book value at June 30, 1997 would have been $8,394,000 or
$1.77 per share of Common Stock, as converted representing an immediate dilution
of $10.23 per share of Common Stock or 85% per share.
The following table summarizes, on a pro forma, as adjusted basis, after
giving effect to this Offering and the Closing Transactions, the number of
shares purchased from the Company, the total consideration paid and the average
price per share paid by the existing stockholders and by the new investors:
Shares Purchased Total Consideration Average
------------------ ------------------- Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
Existing Stockholders 2,100,000 47.8 $ 2,100 0% $ .001
Purchasers of Common Stock 1,300,000 29.5 13,000,000 52% $10.00
Purchasers of Convertible
Preferred Stock 1,000,000 22.7 12,000,000 48% $12.00
--------- ----- ----------- --- ------
4,400,000 100.0% $25,002,100 100%
========= ===== =========== ===
The information presented above, (i) assumes conversion of the Convertible
Preferred Stock into an equal number of shares of Common Stock (which conversion
cannot occur until 180 days after the date of this Prospectus) and (ii) with
respect to existing stockholders, assumes no exercise of the Over-allotment
Option. In addition, 130,000 shares of Common Stock and 100,000 shares of
Convertible Preferred Stock have been reserved for issuance upon exercise of the
Representatives' Warrants, 340,000 shares of Common Stock have been reserved for
future issuance upon exercise of options available for grant pursuant to the
Stock Option Plan and 50,000 shares of Common Stock have been reserved for
future issuance upon exercise of the Massaro Options. The issuance of such
shares of Common Stock may result in further dilution to new investors. See "The
Acquisition;" "Management--1997 Stock Option Plan" and "Underwriting."
22
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth for the periods indicated and at the dates
indicated summary historical financial information of the Predecessor Company.
The historical information contained in the table for the fiscal years ended
March 31, 1995, 1996 and 1997 has been derived from audited financial
statements, and is qualified in its entirety by, and should be read in
connection with, "Management's Discussion and Analysis of Financial Condition
and Results of Operations", the audited financial statements (and notes thereto)
and other financial and statistical information of the Predecessor Company
appearing elsewhere in this Prospectus. The historical information as of and for
the years ended March 31, 1993 and 1994 and the quarters ended June 30, 1996 and
1997 have been derived from unaudited financial statements. The financial
statements as of June 30, 1997 and for the three month periods ended June 30,
1996 and 1997 are unaudited; however in the opinion of management all
adjustments (consisting solely of normal recurring adjustments) necessary for a
fair presentation of the financial statements for the interim periods have been
made. The results of interim periods are not necessarily indicative of the
results to be obtained in a full fiscal year.
<TABLE>
<CAPTION>
Year Ended March 31, Quarter Ended June 30,
---------------------------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1996 1997
---- ---- ---- ---- ---- ---- ----
(Amounts in thousands, except share and earnings per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales .......................... $ 7,245 $ 17,551 $ 33,407 $ 42,538 $ 22,356 $ 3,671 $ 4,876
Gross profit ....................... 1,160 1,406 2,696 8,565 5,329 697 1,089
Selling, general and
administrative ................... 839 861 1,149 3,082 2,510 264 317
Amortization of goodwill ........... -- -- -- -- -- -- --
Operating income ................... 321 545 1,547 5,482 2,818 433 771
Interest expense ................... 442 342 339 118 -- -- --
Income (loss) before income
taxes and extraordinary
gain ............................. (121) 172 1,282 5,449 2,896 448 790
Net income (loss) .................. $ (93) $ 103 $ 784 $ 3,344 $ 1,728 $ 264 $ 466
Preferred stock dividends ......... -- -- -- -- -- -- --
Earnings (loss) attributable to
Common Stockholders .............. (93) 103 784 3,344 1,728 264 466
Primary and fully diluted
earnings (loss) per
share(1) ......................... $ (.04) $ .05 $ .38 $ 1.62 $ .84 $ .13 $ .23
Weighted average common
and common equivalent
shares outstanding(1):
Primary and fully diluted .......... 2,067,500 2,067,500 2,067,500 2,067,500 2,067,500 2,067,500 2,067,500
Statement of Cash Flow Data:
Net cash provided by (used in)
operating activities.............. $ 719 $ 592 $ 2,254 $ 2,870 $ 547 $ 194 $ (153)
Net cash provided by (used in)
investing activities.............. (158) 63 600 325 (471) (120) 38
Net cash provided by (used in)
financing avtivities.............. (494) (676) (2,176) (2,225) -- -- --
Other Financial Data:
Ratio of Earnings to Combined
Fixed Charges and Preferred
Stock Dividends ................. .74 1.46 4.46 33.1 47.7 -- 27.5
EBITDA(2) .......................... $ 646 $ 881 $ 1,853 $ 5,709 $ 3,020 $ 485 $ 823
Acquisition of property and
equipment (use of cash) .......... (158) (41) (136) (139) (171) (40) (42)
Balance Sheet Data:
Cash and Cash Equivalents .......... 37 15 512 1,482 1,558 1,444
Accounts Receivable, net ........... 142 1,218 503 751 2,536 920
Inventory .......................... 3,274 3,172 5,165 3,341 3,515 5,326
Property and Equipment, net ........ 1,268 1,045 949 946 994 1,003
Current Liabilities (excluding debt) 882 2,056 3,288 1,464 2,093 1,658
Total Debt (including current) ..... 3,699 3,113 2,373 -- -- --
Stockholders' Equity ............... 1,264 1,367 2,151 5,495 7,222 7,689
</TABLE>
- ----------
(1) "Primary and fully diluted (loss) per share" and the "Weighted average
common shares and common equivalent shares outstanding" data assume the
Predecessor Company had 2,067,500 shares of Common Stock outstanding
during all periods presented. Such number of shares reflects the
capitalization of the Company prior to the Closing Date.
(2) As used herein -- EBITDA reflects net income (loss) increased by the
effects of interest expense, income tax provisions, depreciation and
amortization expense. EBITDA should not be considered in isolation or as
an alternative to measures of operating performance or cash flows pursuant
to generally accepted accounting principles.
23
<PAGE>
UNAUDITED SELECTED PRO FORMA FINANCIAL DATA
The following unaudited pro forma statements of operations and other
financial data are based upon the historical financial statements of the
Predecessor Company, adjusted to give effect to the Acquisition (accounted for
as a purchase), the other Closing Transactions and the sale of the Securities
offered hereby at the assumed price of $10.00 per share for the Common Stock and
$12.00 per share for the Preferred Stock, as if the Closing Transactions and the
sale of the Securities had occurred at April 1, 1996 (the beginning of the
Predecessor Company's fiscal year). The accompanying unaudited pro forma
selected balance sheet data is adjusted to give effect to the Acquisition, the
other Closing Transactions and the sale of the Securities as if they had
occurred on June 30, 1997. The unaudited pro forma selected statements of
operations and other financial data are not necessarily indicative of the
results that would have been obtained if the Acquisition, the other Closing
Transactions and the sale of the Securities had occurred on the dates indicated
or for any future period or date. The pro forma financial data should be read in
conjunction with the Company's historical financial statements and notes thereto
and the historical financial statements of the Predecessor Company and the notes
thereto. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Unaudited Pro Forma Selected Statements of Operations
<TABLE>
<CAPTION>
Ajax Pro forma Ajax Pro forma
Historical Closing As Adjusted Historical Closing As Adjusted
Year Ended Transactions Year Ended Quarter Ended Transactions Quarter Ended
March 31 Adjustments March 31, June 30, Adjustments June 30,
-------- ----------- --------- -------- ----------- --------
1997 1997 1997 1997 1997 1997
---- ---- ---- ---- ---- ----
(Amounts in thousands, except share and earnings per share data)
<S> <C> <C> <C> <C> <C> <C>
Pro Forma, As Adjusted
Statement of Operations
Data
Net sales .................... $ 22,356 -- $ 22,356 $ 4,876 -- $ 4,876
Gross profit ................. 5,329 (272)(b,e) 5,057 1,089 5(e) 1,094
Selling, general and
administrative ............. 2,510 (790)(d,e) 1,720 317 42(d) 359
Amortization of goodwill ..... -- 986(a) 986 246(a) 246
Operating income ............. 2,818 (468) 2,350 771 (283) 488
Interest expense ............. -- 410(c,g) 410 110(c,g) 110
Income (loss) before income
taxes and extraordinary
gain ....................... 2,896 (878) 2,018 791 (393) 398
Net income (loss) ............ 1,728 (642)(f) $ 1,086 467 (229)(f) $ 238
=========== ===========
Preferred stock dividends .... (886) (221)
Earnings attributable to
Common Stockholders ........ 200 17
Primary and fully diluted
earnings per share(h) ..... $ .06 $ .01
Weighted average common and
common equivalent shares
outstanding:
Primary and fully diluted ... 3,400,000 3,400,000
Statement of Cash Flows Data:
Net cash provided by (used in)
operating activities ....... 547 (153)
Net cash provided by (used in)
investing activities ....... (20,621) 38
Net cash provided by
financing activities ....... 21,750 --
Other Financial Data:
Ratio of Earnings to Combined
Fixed Charges and Preferred
Stock Dividends(i) ........ 1.15 .95
EBITDA(1) .................... 3,538 787
Acquisition of property and
equipment (use of cash) .... (171) (42)
</TABLE>
- ----------
(1) Pro forma, as adjusted, EBITDA includes historical EBITDA and the effects
of amortizing preliminary goodwill and other pro forma adjustments as
described in the following notes.
24
<PAGE>
Notes to Unaudited Pro Forma Selected Statements of Operations
(a) The increase in amortization expense of $986 for the year ended March 31,
1997 and $246 for the quarter ended June 30, 1997 relates to the
amortization of goodwill and related costs arising from the Acquisition.
The allocation of preliminary goodwill (i.e., the excess of the Purchase
Price over the book value of Ajax's net assets) and related amortization
expense are subject to adjustment based on the completion of certain
valuations and the consummation of the Acquisition, and assumes an
amortization period of 20 years. A defined lease agreement for the
Company's facilities has yet to be formally executed with Mr. Carl
Massaro. Accordingly, the accounting treatment to be afforded to this
lease has not been determined. For purposes of preparing the Pro Forma, As
Adjusted, Statement of Operations Data, the effects of this contemplated
lease arrangement is treated as an operating lease.
(b) The decrease in gross profit of $287 reflects the effects of the write up
of acquired inventory to fair market value, which was subsequently sold in
the year ended March 31, 1997.
(c) The interest expense of $410 and $110 for the year ended March 31, 1997
and the quarter ended June 30, 1997, respectively, principally relates to
the Redemption Note.
(d) Historical Selling, General and Administrative Expenses for the year ended
March 31, 1997 are reduced (increased) as a result of the following
conditions and agreements:
Revised Consulting Agreement with Mr. Carl Massaro $423
Revised Employment Agreement with Mr. Karl Massaro 430
Additional Administrative Salary requirements (150)
Redundant Administrative Costs 82
----
$785
====
The effects of these conditions and agreements was to increase Selling,
General and Administrative Expenses by $42 for the quarter ended June 30,
1997.
(e) Reductions in rent expense of $20 for the year ended March 31, 1997
(allocated $15 to Cost of Sales and $5 to S, G & A expense) related to the
effects of the rent agreement with Mr. Carl Massaro. The effects were $5
(allocated to Cost of Sales) in the quarter ended June 30, 1997.
(f) The provision for income taxes for the year ended March 31, 1997 and the
quarter ended June 30, 1997 were reduced $236 and $164 respectively, as a
result of the net income tax benefits related to adjustments (a), (c), (d)
and (e) at an effective rate of 40%. With respect to adjustment (b), there
is no related tax benefit recognized in operations for the year ended
March 31, 1997.
(g) In connection with the settlement of the Bridge Notes, the Company will
issue 32,500 shares of common stock to the holders of the Bridge Notes.
The assumed issuance price of $10 per share will result in an interest
charge of $325 during the period that the Bridge Notes are outstanding.
The unaudited selected pro forma statements of operations and other
financial data for the year ended March 31, 1997 and the quarter ended
June 30, 1997 do not reflect the effects of this charge.
(h) In calculating primary earnings per common share, preferred stock
dividends were based on an assumed 869,000 shares of Convertible Preferred
Stock outstanding during the year ended March 31, 1997 and the quarter
ended June 30, 1997. The proceeds from the sale of 869,000 shares of
Convertible Preferred Stock represent the funding from Convertible
Preferred Stock issuances necessary to consummate the Acquisition and fund
related costs (in addition to the proceeds from the sale of 1,300,000
shares of Common Stock).
For purposes of determining primary earnings per share, the convertible
preferred stock is not considered a common stock equivalent. For purposes
of determining fully diluted earnings per share, the effects of such
conversion is anti-dilutive.
(i) Had all Convertible Preferred Stock been considered outstanding, the Pro
Forma as Adjusted Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends for the quarter ended June 30, 1997, would
indicate a less than one to one coverage. The coverage deficiency is $27.
25
<PAGE>
Unaudited Pro Forma Selected Balance Sheet Data
<TABLE>
<CAPTION>
Ajax Closing Pro Forma
June 30, 1997 Transactions As Adjusted
Historical Adjustments June 30, 1997
------------- ------------ -------------
(Amounts in thousands)
<S> <C> <C> <C>
Assets:
Cash and Cash Equivalents ................ $ 1,444 $ 1,065(b) $ 2,509
Accounts Receivable ...................... 920 -- 920
Inventory ................................ 5,326 302(b) 5,628
Other current assets ..................... 446 -- 446
-------- -------- --------
Total current .......................... 8,136 1,367 9,503
Property & Equipment ..................... 1,003 -- 1,003
Other assets ............................. 220 -- 220
Intangibles .............................. -- 16,695(b)(d) 16,695
-------- --------
Total .................................. $ 9,358 $ 27,421
======== ========
Liabilities & Stockholders' Equity:
Accounts Payable ......................... $ 923 $ -- $ 923
Accrued Expenses ......................... 278 -- 278
Income taxes ............................. 456 -- 456
-------- -------- --------
Total current .......................... 1,657 -- 1,657
Other noncurrent liabilities ............. 12 -- 12
Long term debt ........................... -- 4,000(b) 4,000
-------- -------- --------
Total liabilities ...................... 1,669 4,000 5,669
-------- -------- --------
Common Stock ............................. 1 3(a)(c) 4
Convertible Preferred Stock .............. -- 1(a) 1
Additional Paid In Capital ............... -- 22,072(a)(c) 22,072
Retained Earnings (Accumulated Deficit) .. 7,688 (8,013)(b,c) (325)
-------- -------- --------
Total Stockholders' Equity ............. 7,689 14,062 21,752
-------- --------
Liabilities & Stockholders' Equity ....... $ 9,358 $ 27,421
======== ========
</TABLE>
Notes to Unaudited Pro Forma Selected Balance Sheet Data
Adjustments to reflect the Closing Transactions as if they had occurred on
June 30, 1997 are as follows:
(a) The issuance of the Securities offered hereby at the assumed price of
$10.00 per share for the Common Stock and $12.00 per share for the Preferred
Stock, for aggregate proceeds, net of underwriting discounts, of $22,250
(excluding $500 in capitalized transaction expenses, see "Use of Proceeds");
(b) The acquisition of Ajax by the Company for $23,903; $19,903 funded by
cash received in (a) with the balance (assuming maximum funding under the
Redemption Note of $4,000) payable in a three year promissory note bearing an
interest rate of 10%; and excess cash of $1,065 reverting to the Company. In
connection with the Acquisition, inventory was written up by $302 to estimated
fair market values. The stockholder's equity of Ajax was eliminated in
connection with the Acquisition, which is accounted for as a purchase;
(c) The issuance of 32,500 shares to Bridge Note holders;
(d) Options to purchase 50,000 shares at an exercise price of $________
[115% of the initial public offering price per share] to be issued to Mr. Carl
Massaro have been valued at $1.80 per share. Such value was determined by
management using the Black Scholes option pricing formula and accepted valuation
methodologies. Because such options have been granted to the previous owner of
Ajax in connection with the Acquisition, the value thereof has been recorded as
a deferred charge. The related amortization period is four years.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read together with the
consolidated financial statements and notes thereto included elsewhere herein.
Overview
The Company manufactures and remanufactures trailer chassis. The Company
manufactures and remanufactures all of its chassis to order and revenues are
recognized when the finished product is inspected and accepted by the customer
or its agent. The market for chassis is cyclical and is affected by overall
economic conditions, in particular the needs of the transportation industry.
Remanufacturing existing chassis tends to be counter-cyclical to manufacturing
new chassis. To reduce the effect of industry cyclicality on its business, in
September 1996 the Company began to manufacture roll-off refuse containers.
Sales of such containers comprised less than 1% of the Company's sales for the
year ended March 31, 1997.
Prior to the Acquisition, the Company had no business operations and
engaged in no activities other than those related to its organization, the
negotiation of the Acquisition and obtaining the funds necessary to complete the
Acquisition, including the issuance of the Bridge Notes. Accordingly, the
discussion contained herein relates solely to the operating results and
financial position of Ajax. Simultaneously with the consummation of this
Offering, the Company will consummate the Acquisition and the other Closing
Transactions, and, among other things, Ajax will deliver the Redemption Note to
Carl Massaro.
The Company anticipates that the number of chassis it remanufactures will
increase as compared to the number of new chassis it manufactures as a result of
(i) a contemplated increase in the Company's marketing of its remanufacturing
capabilities, (ii) the potentially large number of purchasers of remanufactured
chassis among the lessors and steamship lines that use the Company's chassis,
(iii) the fact that the container chassis fleet is growing and aging and (iv)
potential regulatory changes affecting the container chassis fleet. The chassis
that the Company remanufactures for a particular customer are provided by that
customer.
Results of Operations
The following table sets forth, for the period indicated, certain
components of the Company's Statements of Income expressed in dollar amounts (in
thousands) and as a percentage of net sales (rounded):
<TABLE>
<CAPTION>
Quarter Ended June 30, Year Ended March 31,
-------------------------------- --------------------------------------------------
1997 1996 1997 1996 1995
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales .......... $ 4,876 100% $ 3,671 100% $22,356 100% $42,538 100% $33,407 100%
Costs of Sales ..... 3,787 78% 2,975 80% 17,027 76% 33,973 80% 30,711 92%
Selling, General ... 317 7% 264 7% 2,510 11% 3,082 7% 1,149 3%
and Administrative .
Interest Expense ... -- --% -- --% -- --% 118 --% 339 1%
Other Income (net) . 19 --% 16 --% 77 --% 84 --% 74 --%
Provision for Taxes 324 7% 184 5% 1,168 5% 2,195 5% 498 1%
Extraordinary Gain . -- --% -- --% -- --% 90 --% -- --%
Net Income (Loss) .. 466 10% 264 7% 1,728 8% 3,344 8% 784 4%
</TABLE>
The following discussion provides information regarding the Company's
results of operations for the fiscal years ended March 31, 1995 ("Fiscal 1995"),
March 31, 1996 ("Fiscal 1996") and March 31, 1997 ("Fiscal 1997") and the fiscal
quarters ended June 30, 1996 and 1997.
Comparison of Fiscal Quarter Ended June 30, 1997 to Fiscal Quarter Ended June
30, 1996.
Net Sales. Net sales in the quarter ended June 30, 1997, were $4,876,000
an increase of 33% from net sales of $3,671,000 for the quarter ended June 30,
1996. The increase in net sales reflects an increase in the quarter ended June
30, 1997, of approximately $1,000,000 in sales of remanufactured chassis
resulting from an increase in the volume of remanufactured chassis sold in the
quarter ended June 30, 1997, as compared to the quarter ended June 30, 1996, and
continued growth in sales of roll-off refuse containers and parts, which was
partially offset by a decrease of approximately $600,000 in sales of new chassis
resulting primarily from a decrease in the volume of
27
<PAGE>
new chassis sold in the quarter ended June 30, 1997, as compared to the quarter
ended June 30, 1996. During the quarter ended June 30, 1997, net sales of new
chassis, remanufactured chassis, spare parts and roll-off containers represented
27%, 51%, 21.5% and .5% of net sales, as compared to 52%, 40%, 8% and 0%,
respectively, for the quarter ended June 30, 1996.
Cost of Sales. Cost of sales increased to $3,787,000 in the quarter ended
June 30, 1997, compared to $2,975,000 for the quarter ended June 30, 1996. The
increase in the cost of sales reflects the increase in net sales; however, in
both quarters cost of sales remained relatively constant as a percentage of net
sales.
Gross Profit. Gross profit was $1,089,000 in the quarter ended June 30,
1997, an increase of 56% from gross profit of $697,000 during the quarter ended
June 30, 1996. The increase in gross profit reflects the fact that the Company
was able to maintain its overall margins while increasing its net sales. The
Company maintained its gross margins, during the quarter ended June 30, 1997, in
part, by increasing its production of remanufactured chassis during the first
quarter of 1997 as compared to the first quarter of 1996, while decreasing the
number of new chassis produced. The Company's decision to emphasize the
production of remanufactured chassis reflects competitive pricing pressures in
the market for new chassis which adversely impacted its gross margins on new
chassis.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") were $317,000 during the quarter ended June 30,
1997, an increase of 20% from the $264,000 of SG&A incurred during the quarter
ended June 30, 1996. The increase in SG&A is primarily attributable to an
increase in salaries to $204,000 in the quarter ended June 30, 1997 from
$185,000 for the quarter ended June 30, 1996, an increase in outside
professional fees to $38,000 in the June 30, 1997 quarter from $21,000 in the
June 30, 1996 quarter and an increase in travel expenses to $23,000 in the first
quarter of 1997 as compared to $16,000 in the first quarter of 1996. Although
SG&A increased from the quarter ended June 30, 1996, to the quarter ended June
30, 1997, SG&A represented approximately 77% of net sales during each period.
Total Operating Costs. Total operating costs and expenses were $4,104,000
for the quarter ended June 30, 1997, an increase of 27% from the $3,238,000 of
total operating costs and expenses incurred during the quarter ended June 30,
1996. Although total operating costs and expenses increased during the quarter
ended June 30, 1997, total operating costs and expenses were 84% of net sales in
the quarter ended June 30, 1997, as compared to 88% of net sales during the year
earlier period, reflecting the increase in the Company's net sales.
Operating Income. Operating income was $771,000 during the quarter ended
June 30, 1997, an increase of 78% from operating income of $433,000 recorded
during the year earlier period. As a percentage of net sales, operating income
increased to 16% of net sales during the quarter ended June 30, 1997, from 12%
during the earlier period, reflecting operating efficiencies attained through
the increase in the level of the Company's manufacturing operations.
Comparison of Fiscal Year Ended March 31, 1997 to Fiscal Year Ended March 31,
1996
Net Sales. Net sales in Fiscal 1997 were $22,356,000, a decrease of 47%
from net sales of $42,538,000 for Fiscal 1996. The decrease in net sales
reflects a shift of the Company's business from the manufacture of new chassis
to the remanufacture of used chassis, and a general slowdown in the trailer
industry. During Fiscal 1997, sales of new chassis represented 60% of total
sales as compared to 82% in Fiscal 1996; the reduction in sales of new chassis
resulted principally from a decrease in the volume of new chassis sold in Fiscal
1997 as compared to Fiscal 1996. In contrast, sales of remanufactured chassis
represented 40% of total sales in Fiscal 1997 as compared to 18% in Fiscal 1996;
the increase in sales of remanufactured chassis resulted from an increase in the
number of remanufactured chassis sold in Fiscal 1997 as compared to Fiscal 1996.
Despite the shift to the remanufacture of used chassis, the Company maintained
its margins in Fiscal 1997 due to the fact that gross profit on a remanufactured
chassis is approximately 85% of gross profit on a new chassis while the
Company's cost to remanufacture a chassis is approximately 62% of the cost to
manufacture a new chassis, reflecting, in part, the lower cost of materials used
to remanufacture a chassis. Sales of refuse containers were not material during
Fiscal 1997, the first year the Company manufactured refuse containers.
Cost of Sales. Cost of sales decreased to $17,027,000 or 76% of net sales
in Fiscal 1997 from $33,973,000 or 80% of net sales in Fiscal 1996. The decrease
in the cost of sales as a percentage of net sales reflects the fact that during
Fiscal 1997 the mix of the Company's business reflected an increase in the sale
of remanufactured chassis.
28
<PAGE>
Gross Profit. Gross profit was $5,329,000 in Fiscal 1997, a decrease of
38% from gross profit of $8,565,000 in Fiscal 1996 due to decreased sales.
Nevertheless, gross profit increased to 24% of net sales in Fiscal 1997 from 20%
of net sales in Fiscal 1996 due to higher margins attributable to the change in
the mix of the Company's products. The Company's decision to shift personnel
from the production of new chassis to the sale of remanufactured chassis
reflects intense price competition for new chassis, which adversely impacted its
gross margins on new chassis.
SG&A. SG&A were $2,510,000 during Fiscal 1997, a decrease of 19% from the
$3,082,000 of SG&A incurred during Fiscal 1996. Although SG&A expenses decreased
from Fiscal 1996 to Fiscal 1997, SG&A represented 11% of net sales during Fiscal
1997 as compared to 7% of net sales during Fiscal 1996. The increase in SG&A as
a percentage of net sales in Fiscal 1997 reflects the relatively constant nature
of the SG&A expenses despite the decrease in the Company's revenues. The
decrease in Fiscal 1997 SG&A principally reflects a reduction in executive
incentive compensation paid of $349,000 due to decreased profitability of the
Company in fiscal 1997. This was partially offset by an increase to $121,000
from $97,000 in the amounts paid to outside professionals. See
"Management--Executive Compensation."
Total Operating Costs. Total operating costs and expenses were $19,537,000
for Fiscal 1997 a decrease of 47% from total operating costs and expenses of
$37,055,000 incurred during Fiscal 1996. Consistent with the decrease in net
sales, total operating costs and expenses as a percentage of net sales remained
relatively constant at 87% for Fiscal 1997 and Fiscal 1996. The consistency of
total operating costs and expenses as a percentage of net sales reflects the
shift in the Company's business from the production of new chassis to the
remanufacture of used chassis. The costs of materials related to the
remanufacture of a chassis are significantly less than those related to the
manufacture of a new chassis. Thus, in Fiscal 1997, when the Company's
operations shifted to the production of remanufactured chassis from the
production of new chassis, the Company's operating costs and expenses decreased
proportionately to the decrease in its net sales.
Operating Income. Operating income was $2,818,000 during Fiscal 1997, a
decrease of 49% from the $5,482,000 of operating income during Fiscal 1996.
Despite the dollar decrease in the Company's operating income, operating income
as a percentage of net sales remained constant primarily as a result of the
shift in the mix of the Company's products to remanufactured chassis.
Interest Expense. Interest expense decreased to $0 in Fiscal 1997 from
$118,000 during Fiscal 1996, reflecting full repayment of all interest bearing
debt.
Comparison of Fiscal Year Ended March 31, 1996 to Fiscal Year Ended March 31,
1995
Net Sales. Net sales for Fiscal 1996 were $42,538,000, an increase of 27%
from net sales of $33,407,000 for Fiscal 1995. The increase in net sales
reflects a substantial increase in the volume of new chassis manufactured during
Fiscal 1996 resulting from an increase in orders and a slight increase in the
average price per new chassis.
Cost of Sales. Cost of sales were $33,973,000 in Fiscal 1996, an increase
of 11% from $30,711,000 in Fiscal 1995. Cost of sales as a percentage of net
sales decreased from 92% for Fiscal 1995 to 80% of net sales for Fiscal 1996.
The decrease in cost of sales as a percentage of net sales reflects increased
efficiencies resulting from the increase in the volume of the Company's net
sales as well as decreases in the cost of net sales as a percentage of net sales
resulting from the change in the Company's product mix. The increase in cost of
sales reflects the corresponding growth of sales in the Company's business which
occurred during Fiscal 1996.
Gross Profit. Gross profit was $8,565,000 during Fiscal 1996, an increase
from gross profit of $2,696,000 generated in Fiscal 1995. Further, gross profit
increased to 20% of net sales during Fiscal 1996 from 8% of net sales during
1995, reflecting, in part, improved production efficiency and reduced unit cost.
The proportion of the Company's products sold which were new chassis increased
to 82% in Fiscal 1996 as compared to 70% in Fiscal 1995. The Company's ability
to increase gross profit while increasing the proportion of sales represented by
new chassis reflects an increase in the gross profit derived from the sale of
new chassis resulting from the aforementioned improvement in production and
reduced unit costs and a slight increase in the prices for new chassis.
SG&A. SG&A expenses were $3,082,000 during Fiscal 1996, an increase from
the $1,148,000 incurred during Fiscal 1995. SG&A expenses increased to 7% of net
sales during Fiscal 1996 from 3% of net sales during Fiscal 1995. The increase
in SG&A expenses as a percentage of net sales reflects the increase in executive
compensation of $1,505,000, related to the amounts paid to Carl Massaro and Karl
Massaro and an increase of approximately
29
<PAGE>
$127,000 in sales volume related costs compared to the amount of such costs
incurred during Fiscal 1995. The increases in executive compensation in Fiscal
1996 as compared to Fiscal 1995 reflects the policy of Carl Massaro, as the
shareholder of Ajax, of paying higher incentives to himself and certain other
executives in those years when Ajax generated higher profits. The increase in
rent expense (allocated to cost of sales and SG&A) resulted from a new agreement
between Mr. Massaro and the Company during 1996 that effectively doubled the
base rent for the premises occupied by Ajax from that paid in Fiscal 1995. The
base rent, reflecting this increase, is currently at the same level as that paid
in Fiscal 1996.
Total Operating Costs and Expenses. Total operating costs and expenses as
a percentage of net sales decreased to 87% for Fiscal 1996 as compared to 95%
for Fiscal 1995. Consistent with the increase in revenues from Fiscal 1995 to
Fiscal 1996 actual total operating costs and expenses increased 16% to
$37,055,000 for Fiscal 1996 from $31,860,000 for Fiscal 1995. The decrease in
total operating costs and expenses as a percentage of net sales reflects the
substantial increase in the Company's sales volume.
Operating Income. Operating income was $5,482,000 during Fiscal 1996, an
increase of $3,935,000 from the $1,547,000 of operating income generated during
Fiscal 1995 due to an increase in net sales. As a percentage of net sales,
operating income increased to 13% in Fiscal 1996 from 5% of net sales in Fiscal
1995.
Interest Expense. Interest expense was $118,000 during Fiscal 1996, a
decrease of 65% from $339,000 during Fiscal 1995, reflecting debt reduction and
improved operating cash flows.
Liquidity and Capital Resources
Historically, the Company has financed its operations through debt
provided by its sole stockholder and loans from financial institutions. In
addition, to provide the Company with working capital, Carl Massaro varies the
amount of his compensation to reflect the performance of the Company's business.
In 1989, the Company borrowed $300,000 from an officer of Ajax at an interest
rate of 9% with principal to be amortized over a term of 30 years. The Company
repaid the entire balance of this loan in September 1995. In October 1995 the
Company entered into a revolving line of credit agreement with a bank permitting
borrowing up to the lesser of $2,000,000 or the sum of certain inventory and
receivables plus $750,000. As of June 30, 1997 there were no amounts outstanding
on the Company's bank credit facilities. Upon completion of the Acquisition this
facility will be terminated and the Company will seek a new bank credit
facility. The fact that the Redemption Note payable to Carl Massaro will be
secured by substantially all of the Company's assets may make it more difficult
for the Company to obtain a new credit facility.
Capital expenditures, primarily for the acquisition of equipment at the
Company's facility were $171,000, $139,000 and $136,000 in Fiscal 1997, Fiscal
1996 and Fiscal 1995, respectively. The Company anticipates that capital
expenditures during fiscal 1998 will slightly exceed those of the preceding
years as the Company expands its roll-off refuse container business and expands
its product line to include intermodal containers. Nevertheless, the Company
could require substantial additional capital if it were to seek to expand its
product lines by substantially modifying or modernizing its facility, open
additional facilities or acquire a new business within the chassis industry or
related industries.
The Company used $153,000 in operating activities during the quarter ended
June 30, 1997, as compared to $194,000 provided by operating activities during
the quarter ended June 30, 1996. The use of cash in operating activities during
the quarter ended June 30, 1997, reflects primarily an increase of approximately
$1,800,000 in the Company's inventory and a decrease of $640,000 in accounts
payable and accrued expenses partially offset by a decrease of $1,600,000 in
accounts receivable. Net cash provided by investing activities was $38,000
during the quarter ended June 30, 1997, as compared to $120,000 used in
investing activities during the quarter ended June 30, 1996. The use of cash in
investing activities during the earlier period reflects a loan of $80,000 to a
related party and the application of $40,000 to the acquisition of property and
equipment. The $38,000 provided by investing activities during the June 30, 1997
quarter reflects the repayment of the $80,000 loan by the related party
partially offset by the application of $42,000 applied to the acquisition of
property and equipment.
Net cash provided by operating activities decreased to $547,000 in Fiscal
1997 from $2,870,000 in Fiscal 1996. The decrease in cash provided by operating
activities reflects the reduction in the Company's net income, the growth in
accounts receivable from $271,000 in Fiscal 1996 to $1,792,000 in Fiscal 1997,
partially offset by an increase in the Company's accounts payable and accrued
expenses from $806,000 as of the end of Fiscal 1996 to $1,849,000
30
<PAGE>
as of the end of Fiscal 1997. The increase in accounts receivable at March 31,
1997, as compared to March 31, 1996, is attributable to the fact that although
net sales for all of Fiscal 1997 were less than those for Fiscal 1996, net sales
during the month of March 1997 were approximately $2,240,000 as compared to net
sales of $1,512,000 for the month of March 1996. Further, a large portion of the
month of March 1997 sales occurred during the end of the month, temporarily
increasing accounts receivable until payments were received. Net cash used in
investing activities in Fiscal 1997 was $471,000 as compared to $325,000 of net
cash provided by investing activities in Fiscal 1996. The cash used in investing
activities in Fiscal 1997 reflects a loan of $300,000 (which is evidenced by a
note which does not bear interest or stipulate payment terms) primarily to the
Company's principal shareholder and the application of $171,000 to the
acquisition of property and equipment. The net cash of $325,000 provided by
investing activities in Fiscal 1996 represents the repayment of a note from a
related party of approximately $464,000 partially offset by $139,000 applied to
the acquisition of property and equipment. Net cash used in financing activities
in Fiscal 1997 was --$0-- as compared to $2,225,000 used in financing activities
during Fiscal 1996. Cash used by financing activities in Fiscal 1996 represented
principally $1,406,000 applied to reduce short term borrowings and $525,000
applied to reduce restructured debt.
Net cash provided by operating activities increased to $2,867,000 in
Fiscal 1996 from $2,254,000 in Fiscal 1995 reflecting the increase in the amount
of $2,560,000 in the Company's net income and decreases in inventory of
$2,205,000 offset by decreases in accounts payable and accrued expenses of
$2,800,000 and increases in accounts receivable of $986,000. Net cash provided
by investing activities was $325,000 in Fiscal 1996 compared to approximately
$600,000 of net cash used in investing activities in Fiscal 1995 due primarily
to the repayment during Fiscal 1995 of notes receivable from related parties.
The use of net cash in investing activities in Fiscal 1995 represents loans to
related parties of approximately $464,000 and approximately $136,000 applied to
the purchase of property and equipment. Net cash used in financing activities of
$2,225,000 in Fiscal 1996 remained approximately unchanged from the $2,176,000
used in Fiscal 1995. The use of net cash in financing activities in Fiscal 1995
principally reflects a reduction of $1,701,000 in the Company's short term
borrowings and approximately $316,000 paid to reduce loans from related parties.
The terms on which the Company manufactures and remanufactures chassis
provide for payment within 30 days of acceptance and the Company's accounts
receivable were collected in an average of less than 30 days during Fiscal 1996
and Fiscal 1997.
On the Closing Date, the Company will repay $325,000 in aggregate
principal amount to the holders of the Bridge Notes, together with interest
thereon at the annual rate of 12% per annum, and issue to the holders of the
Bridge Notes an aggregate of 32,500 shares of Common Stock (assuming an initial
public offering price of $10.00 per share of the Common Stock). The Company will
incur a charge to operations in the period that such shares are issued. In
addition, Carl Massaro will repay $220,000 in loans from the Company and the
Company will terminate its line of credit with Summit Bank.
The annual dividend requirement on the Convertible Preferred Stock is
$1,020,000 ($1,173,000 if the Over-allotment Option is exercised in full;
assuming an initial public offering price of $12.00 per share of Convertible
Preferred Stock). The future earnings of the Company, if any, may not initially
be adequate to pay the dividends on the Convertible Preferred Stock, and,
although the Company will pay quarterly dividends out of available capital
surplus, there can be no assurance that the Company will maintain sufficient
capital surplus or that future earnings, if any, will be adequate to pay the
dividends on the Convertible Preferred Stock. In addition, on the Closing Date
of this Offering and the Acquisition, the Company will have up to $4,000,000 in
debt outstanding, consisting of the Redemption Note, which bears interest at an
assumed rate of 10%, payable quarterly, and an aggregate annual interest expense
of up to $400,000.
The Company anticipates that the proceeds of this Offering (assuming no
exercise of the Over-allotment Option) and cash generated from operations will
be sufficient to satisfy all working capital needs for 12 months after the date
hereof. The Company intends to seek opportunities for growth through
acquisitions, and, in connection therewith, may seek to raise additional cash in
the form of equity, bank debt or other debt financing, or may seek to issue
stock as consideration for assets. At this time the Company is not party to any
agreements for acquisitions or joint ventures.
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Recent Pronouncements of the Financial Accounting Standards Board
The Financial Accounting Standards Board has issued Statements of
Financial Accounting Standard Statement ("SFAS") No. 123, "Accounting and
Disclosure of Stock-Based Compensation." Statement No. 123 is effective for
years beginning after December 15, 1995. The adoption of Statement No. 123 did
not have a material effect on the Company's financial statements as the Company
has adopted only the disclosure requirements of Statement No. 123 for options to
be granted to employees.
In February 1997, SFAS No. 128, "Earnings per Share", was issued. The
pronouncement, which is effective for periods ending after December 15, 1997,
requires dual presentation of basic and diluted earnings per share. This
statement is not expected to have a material impact on the primary earnings per
share of the Company.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income" and SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information, were
issued. SFAS No. 130 addresses standards for reporting and display of
comprehensive income and its components and SFAS No. 131 requires disclosure of
reportable operating segments. Both statements are effective for the Company's
1999 fiscal year. The Company will be reviewing these pronouncements to
determine their applicability, if any.
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BUSINESS
Overview of the Company
The Company is a specialized manufacturer of new trailer chassis which are
sold to leasing companies, large steamship lines, railroads and trucking
companies to transport overland 20', 40', 45' and 48' shipping containers. The
Company also remanufactures used trailer chassis. Ajax recently began to
manufacture a new line of 20, 30 and 40 yard sanitary containers known as
roll-off dumpsters and to sell a new line of intermodal refuse containers that
can be shipped on trailer chassis, barge or railroad. The Company's net sales
and net income were $22,355,871 and $1,727,907 for the fiscal year ended March
31, 1997, as compared to $42,537,553 and $3,344,303 for the fiscal year ended
March 31, 1996, respectively. For the three months ended June 30, 1997, the
Company had net sales and net income of $4,875,524 and $466,404, as compared to
$3,671,413 and $214,149 for the comparable period of 1996.
A shipping container is a reusable metal container designed for the
efficient carriage of cargo with a minimum of exposure to loss through damage or
theft. According to industry sources, the world container fleet has grown to an
estimated 9,100,000 TEU as of mid-1995. The Company believes that demand for new
and remanufactured container chassis is closely related to container use. The
total size of the United States chassis fleet was estimated at 515,000 units in
1996 as compared to 481,000 in 1995.
The Company leases its 182,000 square foot manufacturing facility in
Hillsborough, New Jersey. The Company has established production lines for the
manufacture of new chassis and for the remanufacture of used chassis. In August
1997 the Company expanded its operations by establishing a production line for
the manufacture of refuse containers.
The Company's business strategy is to grow through the acquisition of
companies that manufacture complementary products, by diversifying its product
lines and establishing manufacturing facilities in the SouthWestern United
States or Mexico to service potential customers on the West Coast, who are
currently constrained by freight cost considerations from purchasing from the
Company's East Coast facility. At this time the Company has not entered into any
discussions with acquisition candidates, nor has it established a timetable for
the establishment of a new manufacturing facility. The Company may determine,
depending upon the opportunities available to it, to seek additional debt or
equity financing to fund the cost of continuing expansion. To the extent that
the Company finances an acquisition with a combination of cash and equity
securities, any such issuance of equity securities would result in dilution to
the interests of the Company's shareholders. Additionally, to the extent that
the Company incurs indebtedness or issues debt securities in connection with any
acquisition, the Company will be subject to risks associated with incurring
additional indebtedness and there can be no assurance that cash flow will be
sufficient to repay any such indebtedness.
The Company will use the proceeds of this Offering to pay the Purchase
Price of the Acquisition, repay approximately $335,000 (including accrued
interest), due under the Bridge Notes, to pay $270,000 in advisory fees to
certain affiliated parties, and to pay expenses of approximately $25,000,
$40,000 and $25,000 to Redstone Capital Corporation (which is a party related to
Steven Merker, William Merker and Andrew Levy, who are officers, directors and
principal stockholders of the Company), Steven Merker and William Merker,
respectively.
Industry Overview
The Shipping Container and Chassis Market
The Company manufactures and remanufactures chassis used in the transport
of shipping containers.
Steamship companies use chassis by attaching them to a truck cab, driving
it to a customer's warehouse, having a container loaded upon it, transporting
the container to an ocean going vessel, removing the container from the chassis
and loading the container on a ship. At the destination, the container is
unloaded from the ship onto another chassis which is attached to a truck cab for
transportation to the container's next or final destination. Rail freight users
stack the chassis either separately or together with the containers on rail
cars.
A shipping container is a reusable metal container designed for the
efficient overland carriage of cargo with a minimum of exposure to loss through
damage or theft. Containers are manufactured to conform to worldwide standards
of container dimensions and container ship fittings adopted by the International
Standards Organization ("ISO") in 1968. The standard container is either 20'
long x 8' wide x 8'6" high (i.e., one "20 foot Equivalent Unit" or "TEU") or 40'
long x 8' wide x 8'6" high (two TEU). Standardization of the construction,
maintenance and
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handling of containers allows containers to be picked up, dropped off, stored
and repaired efficiently. This standardization is the foundation on which the
container industry has developed.
The Container Market
One of the primary benefits of containerization has been the ability of
the shipping industry to effectively lower freight rates due to the efficiencies
created by standardized intermodal containers. Containers can be handled much
more efficiently than loose cargo and are typically shipped via several modes of
transportation, including truck, railway and ship. Containers require loading
and unloading only once and remain sealed until arrival at the final
destination, significantly reducing transport time, labor and handling costs,
and losses due to damage and theft. Efficient movement of containerized cargo
between ship and shore reduces the amount of time that a ship must spend in port
and the transit time of freight moves.
Greater use of containers on cargo ships has led railroad and trucking
companies to increase their capacity to transport containers domestically by
chassis and railcar, and shipping companies have begun soliciting domestic
freight in order to mitigate the cost of moving empty containers back to the
port areas for use again in international trade. The Company believes that the
introduction in the mid-1980's of the double stack railroad car, specially
designed to carry containers stacked one on top of another, accelerated the
growth of domestic intermodal transportation by reducing shipping costs still
further. Due to these trends, the Company believes that an increasing portion of
domestic cargo is now being shipped by container instead of by a conventional
highway trailer.
The Container Chassis Market
The total size of the United States chassis fleet was estimated at 515,000
units in 1996 as compared to 481,000 units in 1995. Most chassis are owned by
leasing companies or by maritime shipping companies. Two of the largest owners
of container chassis are Flexi Van Leasing, Inc. and Trac Lease, Inc., customers
of the Company.
Factors Affecting Demand for Container Chassis in the United States
The Company believes that the demand for container chassis is closely
related to container use. The Company believes that the primary factors
affecting demand for new or remanufactured container chassis are: domestic and
international business conditions, technical changes (resulting from a desire
for greater payloads), regulatory developments (such as a requirement for a new
braking system) and foreign use of containerization, railroad containerization
and over-the-road containerization. Increased ocean and rail freight usage has a
direct relationship with chassis demand, and such increase is affected by
general business conditions, domestically and internationally.
Chassis Design, Technology and Useful Life
There has been little change in container chassis design over the last
five years. Over a more extended time, customers have sought longer chassis
capable of carrying larger payloads. As a result, chassis length has increased
from 40' to 45' to 53'. In addition, moving the running gear further to the rear
to increase load-bearing capacity and increasing container height by six inches
has affected the design of the chassis "gooseneck." Such redesigns have
increased the demand for remanufactured chassis. The Company believes that, if
properly used and maintained, a chassis generally will last between 15 and 20
years. Legal obsolescence (which is in part a function of technological
advances) plays a large role in the useful life of a chassis. Proposed changes
in laws concerning the vehicles' braking systems would add $700 to $1,800 to the
cost of a chassis. This would increase demand for remanufacturing and have a
favorable effect on the Company's business. Changes in industry practice also
affect the life of a chassis. Shippers generally demand the ability to carry the
largest possible payload, thereby forcing carriers to upgrade their chassis to
accommodate such demands.
Business of the Company
Products
New Container Chassis. The Company manufactures its new chassis from raw
materials and purchased parts to customer order, in accordance with
International Standards Organization ("ISO") specifications or such other
specifications as the customer may require.
Remanufactured Container Chassis. The Company remanufactures chassis
originally built by the Company and by other manufacturers to customer order and
to ISO specifications. The Company remanufactures a used chassis by removing all
of its components except the axles, which are refurbished, and replacing the
discarded
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components with new components. In periods of high demand, customers tend to
purchase new chassis because their existing chassis are in use and cannot be
returned for remanufacture. When demand eases, leasing companies are able to
remove chassis from service for remanufacturing at the end of their lease terms.
Chassis Parts. Chassis parts include front assemblies ("goosenecks"),
slider assemblies and rear bolster sets. Sales of chassis parts and
sub-assemblies have historically been small. However, the Company anticipates
that such sales will increase as the number of chassis in service grows.
Sanitary Containers. Ajax has recently begun to manufacture and market a
new line of 20, 30 and 40 yard sanitary containers known as roll-off dumpsters,
which will be available in standard and watertight containers. The Company
anticipates that the potential market for its sanitary containers will include
waste haulers, scrap metal dealers, construction and demolition companies and
leasing companies in the Northeast. Although the Company is unable to estimate
the total demand for its sanitary containers, the Company contemplates that it
may manufacture such containers for sale from inventory rather than upon receipt
of a customer purchase order. The Company is in discussions with several waste
haulers regarding their requirements for these products. In addition, the
Company has begun to offer for sale a line of enclosed, intermodal refuse
containers that can be shipped on trailer chassis, barge or railroad.
New Products. The Company's new product lines include converter dollies,
for which manufacturing has commenced, as well as platform trailers and "drop
frame" trailers. Converter dollies are used to link tandem trailers and are
manufactured in a similar (but simpler) manner as a chassis. The Company expects
that these dollies would be marketed directly to fleet over-the-road haulers.
Revenue by Product
The table set forth below shows the Company's approximate sales as a
percentage of total sales by product group for the last six years:
Fiscal Year Ended New Remanufactured
March 31, Chassis Chassis
----------------- ------- --------------
1997 .................. 60% 40%
1996 .................. 82% 18%
1995 .................. 70% 30%
1994 .................. 67% 33%
1993 .................. (1) 100%
1992 .................. (1) 100%
- ----------
(1) Due to intense price competition during these years the Company focused
exclusively on the remanufacture of used chassis.
During the quarter ended June 30, 1997, sales of new chassis and
remanufactured chassis represented 27% and 51% of the Company's net sales, the
balance being comprised of spare parts.
In general, the Company's cost to remanufacture a chassis is approximately
62% of the Company's cost to build a new chassis. However, gross profit earned
by the Company on a remanufactured chassis is approximately 85% of the Company's
gross profit on a new chassis. Although the Company has historically received
only limited revenues from the sale of parts and subassemblies, it anticipates
that such sales will increase as the number of chassis in service grows.
Backlog
The Company's backlog of firm unfilled orders totalled approximately
$8,225,000 as of September 22, 1997, as compared to approximately $8,911,000 as
of September 22, 1996. The Company estimates that approximately all of its
current backlog will be filled by March 31, 1998.
Business Strategy
The Company's business strategy is to grow through the acquisition of
companies that manufacture complementary products, by diversifying its product
lines and, establishing manufacturing facilities in the SouthWestern United
States or Mexico to service existing customers on the West Coast. At this time
the Company
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has not entered into any discussions with acquisition candidates, nor has it
established a timetable for the establishment of a new manufacturing facility.
The Company may determine, depending upon the opportunities available to it, to
seek additional debt or equity financing to fund the cost of continuing
expansion. To the extent that the Company finances an acquisition with a
combination of cash and equity securities, and such issuance of equity
securities would result in dilution to the interests of the Company's
shareholders. Additionally, to the extent that the Company incurs indebtedness
or issues debt securities in connection with any acquisition, the Company will
be subject to risks associated with incurring additional indebtedness and there
can be no assurance that cash flow will be sufficient to repay any such
indebtedness. See "Use of Proceeds."
Marketing and Distribution
The Company sells directly to its customers, and does not use outside
dealers or distributors. The Company anticipates that new products, such as
sanitary containers and truck trailers, will be sold both directly and through
dealers and distributors. The Company currently employs one person in sales who,
together with senior management, maintain customer contacts. The Company intends
to increase the size of its sales force. The Company participates in industry
trade shows and is listed in industry registers. The Company does not currently
rely heavily on printed advertisement of its products. Magazine and trade
publication promotion of its products is limited.
Manufacturing
The Company manufactures all of its products to order. The Company
maintains little finished goods inventory. All products are pre-inspected by the
buyer before title passes. Products are then shipped FOB manufacturer. Customer
orders run from as little as 100 units to as many as 2,000 units. Production
scheduling, except for customer emergencies, is generally planned three months
in advance. Each of the Company's production lines is capable of producing
between 13 and 15 chassis per single daily shift on a continuous basis. The
Company currently operates three production lines for one shift per day. The
Company has the capacity to operate four production lines for two shifts per
day.
The Company manufactures most of the components that are used in the
chassis from commercially available, standard supplies and materials. Where
possible, the Company purchases pre-sized material. Lead times are generally
between four to eight weeks. In the case of steel I beams, lead time is tied to
the steel mills' production scheduling. The Company maintains an inventory
position which it believes is sufficient to prevent delays due to inventory
shortages. The Company engages independent contractors to arrange, at no cost to
the Company, for the disposal of parts of refurbished chassis and used equipment
that are stored at its present location.
Raw Materials
Materials, such as steel, tires and wheels, represent approximately 82% of
the cost of sales of manufactured chassis and 51% of the cost of sales of
remanufactured chassis, the remainder consisting of labor and factory overhead.
Labor represents about 11% and 40% of product cost for new and remanufactured
chassis, respectively, and is the other significant cost factor. Any change in
the price of materials or labor would have a direct effect on the price of the
product. Other factors affecting product cost include design changes, changes in
available materials and changes in government regulations. The Company has
generally been able to pass any such cost increases through to its customers.
The Company does business with suppliers with which it has generally had
long relationships. All of its primary suppliers are well-known in the industry,
substantial and have a reputation for reliability. The Company purchases its
materials on an as-needed basis, and does not have any long-term agreements with
any of its suppliers. The Company does not rely upon a single supplier for
steel, tires or wheels, but rather maintains relationships with a few suppliers
of each of these components.
Machinery and Equipment
The Company's manufacturing equipment consists primarily of steel bending,
cutting, hole punching and welding equipment. There have been little basic
changes in this type of equipment over time. The basic equipment used by the
Company has a useful life of 40 or more years. The Company manufactures some and
maintains most of its tools and dies. If the Company implements its plans to
manufacture new products, it would acquire additional
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tooling and equipment as necessary. The Company also uses paint spraying and
material handling equipment. The Company has its own internal maintenance
department and performs regular preventive maintenance on its equipment. Major
Customers
The Company generally sells to leasing companies that, in turn, lease
chassis to steamship companies. The Company also negotiates purchase orders
directly with steamship companies. Although the Company typically has
long-standing relationships with such steamship companies, it does not have any
long-term contracts with them, as all sales are made pursuant to purchase
orders. The Company does not offer any special discounts or credit terms.
Set forth below are the Company's sales by percentage of net sales to five
customers which individually accounted for 10% of more of net sales for the
fiscal years ended March 31, 1995, 1996 and 1997.
Fiscal Year Ended March 31,
--------------------------- Quarter Ended
Customer 1995 1996 1997 June 30, 1997
------------ ---- ---- ---- -------------
Trac Leasing ....... 32% 33% 57% 26%
Ned Lloyd .......... -- 26% 33% --
Nadag Lloyd ........ -- 18% -- --
Flexi Van Leasing .. 30% 10% -- 56%
Maersk Lines ....... 37% -- -- --
--- --- --- ---
Total .............. 99% 87% 90% 82%
=== === === ===
Trac Leasing and Flexi Van Leasing each purchase new chassis from the
Company for the account of approximately 12 steamship lines and other lessees
and end users and purchase remanufactured chassis for their own account.
Historically, the Company has relied on a limited number of customers for a
substantial portion of its total net revenues. The Company expects that a
significant portion of its future revenues from chassis sales will continue to
be generated by a limited number of customers.
Competition for the Manufacture of New Chassis
The Company believes that it has only two significant domestic competitors
in manufacturing new chassis. The Company believes that it has no significant
competitors in remanufacturing chassis on a production line basis and is aware
of only a limited number of companies that remanufacture on a piece-by-piece
basis. Because container chassis are purchased FOB manufacturer, shipping costs
affect customer purchase decisions. The market is thus segmented geographically.
The Company currently competes mainly on the Eastern seaboard, with some Gulf
Coast sales. The Company's primary competitors are Strick Corporation (located
in Pennsylvania) which also services the Northeast market primarily, and Hyundai
Mexico (located on the California border), both of which manufacture products in
addition to trailer chassis. The Company believes that none of the competitors
in the industry has a price advantage.
In making purchase decisions, the customer generally considers
engineering, quality, availability, price and transportation cost. The Company
believes that it competes well with regard to each of these factors, as a result
of the Company's design and manufacturing integrity, its flexibility in making
design changes to meet customer requirements, its ability to meet delivery
schedules and its competitive pricing.
Manufacturing labor, both direct and indirect, represents approximately
11% of the value of a new chassis, while materials represent in excess of 82% of
value and the balance is SG&A expense. This ratio, plus the cost of shipment,
tends to protect the domestic container chassis market from low labor cost
foreign competition. Additionally, chassis used elsewhere in the world are
manufactured to local standards in addition to ISO specifications. The Company
believes that, with the exception of chassis being manufactured by Hyundai in
Mexico and shipped to California, there are no chassis imported into the United
States.
Due to freight cost considerations, the industry competes on a regional
basis. The Company thus believes that there is currently no significant export
market. The Company is evaluating the feasibility of establishing a facility in
the Southwestern United States or Mexico to serve potential customers on the
West Coast, although the Company has not identified any such facility and there
can be no assurance that any such facility, if identified, will be established.
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Product Warranties
The Company provides limited warranties against construction defects in
its products. These warranties generally provide for the replacement or repair
of defective parts or workmanship for a specified period following the date of
sale. Customers and end-users also receive warranties from suppliers of
components incorporated into the Company's chassis.
Facilities
Upon closing of the Acquisition, Ajax and Carl Massaro will enter into a
new lease whereby Ajax will continue to lease from Mr. Massaro, on a "triple
net" basis, the 189,000 square foot factory complex it currently occupies. The
facility is located on 22 acres in Hillsborough Township, New Jersey,
approximately 45 miles southwest of New York City. The area is rural to suburban
and is convenient to major expressways and points of delivery. The facility was
built in 1964. Currently approximately 2,500 square feet is devoted to
administrative offices and the balance is used for manufacturing and
warehousing. The 22 acre site is part of an approximate 70 acres owned by Mr.
Massaro. The site is primarily used for storing chassis and inventory and
employee parking. The Company believes that it has sufficient storage and
warehousing space.
The lease will provide for a five-year initial term and will be renewable
at the Company's option for four successive, five year renewal terms, at an
annual base rent of $600,000 for the initial term, subject to increase during
each renewal term by the percentage increase in the Consumer Price Index over
the immediately preceding five year term. The lease will contain customary
provisions indemnifying Mr. Massaro for the acts of the Company and its
employees, agents, contractors and the like, and against certain specified
environmental liabilities other than those arising out of Mr. Massaro's use of
the leased facility and land prior to the closing of the Acquisition and acts
which at Mr. Massaro's discretion are required to be performed by the Company.
Additionally, so long as the lease remains in effect, the Company is not in
default thereunder or under the Redemption Note, the Company will have the
option, exercisable during the initial term of the lease, to purchase the leased
facility and land for a cash purchase price of $6,500,000.
Violation of Federal and State Air Quality Regulation
The federal Clean Air Act requires the Company to obtain air emission
permits ("Title V Permits") from the New Jersey Department of Environmental
Protection ("NJDEP") setting the emission levels from the Company's facility of
various pollutants, including certain volatile organic compounds ("VOC")
generated by drying solvent-based paints required by customer specifications.
NJDEP deems the facility to be a "major" facility because the facility has the
potential to emit more than 25 tons per year of VOCs. The NJDEP determined the
Company's Title V permit application to be complete on November 14, 1996 and
NJDEP is reviewing the application. The Company has satisfied all NJDEP requests
for further information. Pursuant to NJDEP Title V regulations, the Company pays
an annual air contaminant fee.
The equipment that requires Title V permitting includes three paint spray
booths, associated natural gas fired heaters and two shot blaster systems. NJDEP
has issued permits for the spray booths and shot blasters. On March 13, 1997 the
NJDEP issued two Notices of Violations to the Company, which respectively
asserted that the Company had failed to obtain Title V permits for (i) the shot
blasters prior to February 18, 1997 and (ii) the heaters for the paint spray
booths. The Company submitted permit applications for the heaters on March 25,
1997, which are pending.
NJDEP requires the Company to file an annual Emission Statement to report
the estimated actual emissions of regulated air contaminants, including VOCs.
The Company's Emission Statements show that the facility emitted 53.31, 92.97,
88.03 and 55.55 tons per year of VOCs in 1993, 1994, 1995 and 1996,
respectively. The paint spray booths account for approximately 97% of the
reported VOCs. The permits for the paint spray booths allow a combined total of
26.89 tons of VOCs per year to be emitted. In March 1997, the Company applied
for new permits which seek to increase the VOC emission limits of the paint
spray booths by almost 25 additional tons per year, which application was denied
by NJDEP on July 30, 1997. The Company has appealed the NJDEP denial, and if
such application is not granted the Company will not be in compliance with its
allowable emission limits during 1997.
On May 2, 1997, the NJDEP issued an Administrative Order of Civil
Administrative Penalty Assessment ("Order and Notice") assessing the Company a
$9,000 penalty for emitting VOCs from the paint spray booths in excess of
permissible limits in 1995. In response to the Order and Notice, the Company
submitted to the NJDEP an
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adjudicatory hearing request which contests the $9,000 assessment and outlines
the steps that the Company has taken to comply with the air quality regulatory
requirements for VOC emissions. The NJDEP could make further assessments with
respect to other years in which the allowable VOC limits were exceeded by the
Company, although no other assessments have yet been made.
The outcome of NJDEP regulatory actions cannot be predicted with
certainty. The NJDEP could fine the Company for operating the shot blaster
booths without a completed permit between April 1992 and February 18, 1997, for
operating the heaters for the paint spray booths without a permit, and/or for
emitting more VOCs from the paint spray booths than allowed by its permits.
NJDEP could also require the Company to take other steps to comply with NJDEP
requirements and the Clean Air Act, including capital improvements to ensure
compliance with air quality regulations. Such improvements could include a VOC
incinerator and/or other control apparatus which could cost $2,000,000 or more.
NJDEP could also require the Company to use paints with lower VOC content. To
reduce VOC emissions, the Company is attempting to obtain permission from its
customers to use water-based paint, which does not emit VOCs, instead of
solvent-based paint. Failure to comply with NJDEP regulations and directives
could result in fines and/or NJDEP orders to curtail or shutdown operations, any
or all of which could have a material adverse effect on the Company's business
and financial condition.
Other Environmental and Regulatory Compliance
The Company is subject to extensive Federal, state and local laws and
regulations relating to its operations, including building and occupancy codes,
occupational safety and environmental laws, and laws governing the use,
discharge and disposal of hazardous materials. Except as otherwise described
above with regard to its compliance with air quality regulations, the Company is
not aware of any material non-compliance with any such laws and regulations.
Insurance
The Company maintains auto liability and comprehensive coverage of
$300,000, contents/physical loss coverage of $350,000 and statutory workmen's
compensation coverage. The Company has not experienced any significant claim
under any of its insurance policies.
Employees
As of March 31, 1997, the Company had 146 full-time employees of whom four
were managers, eight were administrative personnel and the rest were in
production. The Company's employees do not belong to a collective bargaining
unit and the Company considers its relations with employees to be satisfactory.
Litigation
On July 3, 1997, the Internal Revenue Service notified Ajax of a proposed
$1,434,931 increase in federal excise tax liability relating to Ajax's valuation
of tires included in the sale of new chassis for the period from March 1995
through December 1996 and a $286,986 penalty thereon. Ajax intends to contest
this claim vigorously. Pursuant to the Stock Purchase Agreement, Carl Massaro
will indemnify the Company against any excise tax deficiency (net of any income
tax benefit) relating to the Company's operations prior to the Closing Date, and
an amount equal to $1,721,918, the sum of the proposed assessed deficiency and
penalty, will be held in escrow after the Closing Date and set-off against the
Purchase Price to the extent that Ajax makes payment to the Internal Revenue
Service (net of any income tax benefit). There can be no assurance that
additional liability will not be assessed for subsequent periods. Pursuant to
certain amendments to the Internal Revenue Code, commencing on January 1, 1998,
the value of such tires will no longer be excluded from the federal excise tax
imposed on such chassis sales. Instead, the amount of federal excise tax imposed
upon the tire manufacturer will be deductible from the excise tax payable by
Ajax on the sale of new chassis.
The Company is involved in litigation arising in the normal course of its
business, none of which is believed, individually or in the aggregate, to be
material to the Company's financial position and results of operations.
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MANAGEMENT
Executive Officers and Directors
The executive officers and directors of the Company are as follows:
Name Age Position with the Company
------ --- -----------------------
Roy Ceccato* ........... 38 Director
Karl Massaro** ......... 44 President and Director
Steven Merker** ........ 40 Chairman of the Board, Treasurer and
Chief Financial Officer
William Merker ......... 37 Vice President, Secretary and Director
Joseph Spinella* ....... 40 Director
----------
* Member of the Audit Committee
** Member of the Compensation Committee
Roy Ceccato has been a Director of the Company since August 1997. Since
1995, Mr. Ceccato has been Director of Finance of Complete Management, Inc., an
AMEX-listed physician practice management company. From 1990 to 1995, he was
President of Broad Partners, Inc., a management consulting firm. From 1986 to
1989, he was Vice President of The R.O.I. Group, Inc., an investment banking
firm specializing in retailing and machine tool parts manufacturing companies
for the aerospace industry. Mr. Ceccato graduated from Pace University in 1980
with a BBA in management accounting.
Karl Massaro has been President and a Director of the Company since August
1997. Mr. Massaro has been Vice President and General Manager of Ajax since
1991. From 1984 to 1990, he was purchasing manager and chief product
designer/engineer of Ajax, and, prior to that, he worked for Ajax in various
other capacities from 1963 to 1984.
Steven Merker has been Chairman of the Board, Treasurer and Chief
Financial Officer of the Company since August 1997. Mr. Merker is the Managing
Director of Barclay Partners LLC, an investment banking firm specializing in
corporate buy-outs, which he formed in 1995 with his brother, William Merker.
From 1993 to 1995 he was Senior Vice President of Branin Investments. From 1988
to 1993, he was a partner with the Redstone Group, an investment banking firm.
Prior to joining Redstone, Mr. Merker was the Chief Financial Officer of The
R.O.I. Group, Inc., an investment banking firm. Mr. Merker graduated with a B.S.
degree in accounting from Fairleigh Dickinson University in 1979.
William Merker has been a Vice President, Secretary and a Director of the
Company since August 1997. William Merker has been associated with the law firm
of Loeb, Block & Partners LLP since 1990, specializing in the field of corporate
law. In 1995, Mr. Merker and his brother, Steven Merker, founded Barclay
Partners LLC.
Mr. Merker received a B.S. degree in accounting from The American
University in 1982 and graduated from Georgetown University Law School in 1985.
Joseph Spinella has been a Director of the Company since August 1997.
Since November 1996, Mr. Spinella has been manager of financial reporting for
Gruntal Financial L.L.C. From 1989 to through 1995, Mr. Spinella was Vice
President-Director of Financial Services and Controller of Copelco Capital, a
subsidiary of Itochu International. From 1987 to 1989, he was an Assistant Vice
President with First Fidelity Bank. Mr. Spinella graduated from Fairleigh
Dickinson University with a B.S in Accounting in 1979 and with an MBA in Finance
in December 1988.
40
<PAGE>
Executive Compensation
The following table sets forth the compensation paid by Ajax for services
rendered in all capacities during the fiscal years ended March 31, 1997, 1996
and 1995 to its chief executive officer and to the most highly-compensated
executive officer and key employee (other than the chief executive officer)
whose annual salary and bonus exceeded $100,000 and who were serving at March
31, 1997 (collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
Annual Compensation
---------------------------------
Name and Principal Position Year Other Annual
- --------------------------- Ended Salary Bonus Compensation
March 31 ($) ($) ($)
-------- ----------- ----- ------------
Carl Massaro 1997 $ 583,323 0 0
Consultant .................... 1996 $ 1,232,500 0 0
1995 $ 13,000 0 0
Karl Massaro 1997 $ 680,546 0 0
Director and President ........ 1996 $ 386,613 0 0
1995 $ 110,500 0 0
Employment Agreements
The Company has entered into employment agreements with each of Karl
Massaro and Steven Merker, and into a consulting agreement with Carl Massaro.
The employment agreement of Karl Massaro will become effective on the
Closing Date, and will terminate three years thereafter, subject to earlier
termination upon the occurrence of certain specified events. Pursuant to his
Employment Agreement, Mr. Massaro will receive a base salary at the annual rate
of $200,000 and such bonus compensation as the Board of Directors may determine.
The agreement will also contain restrictive covenants prohibiting Mr. Massaro
from directly or indirectly competing with the Company east of the Mississippi
River during the three-month period commencing upon the termination of his
agreement, and, during the six-month period commencing upon such termination,
from soliciting or servicing any supplier to or customer of the Company for any
competitive purpose, and from employing or retaining any employee of or
consultant to the Company or soliciting any such employee or consultant to
become affiliated with any entity other than the Company.
The employment agreement of Steven Merker will become effective on the
Closing Date, and will terminate three years thereafter, subject to earlier
termination upon the occurrence of certain specified events. Pursuant to his
employment agreement, Mr. Merker will receive a base salary at the annual rate
of $144,000. Mr. Merker will be required to devote at least 40 hours per week to
the business of the Company. Mr. Merker's employment agreement also contains
covenants prohibiting him during the one year period commencing upon termination
of the agreement, from soliciting or servicing any party who was a supplier or
customer of the Company during the term of his agreement for any purpose which
is in competition with the Company, and from soliciting any employee or
consultant of the Company with a view towards causing such employee or
consultant to become affiliated with the entity with which the employee is then
affiliated.
Carl Massaro's consulting agreement will become effective on the Closing
Date, and will terminate three years thereafter, subject to earlier termination
on the occurrence of certain specified events. Mr. Massaro will receive
consulting fees at the annual rate of $160,000. Mr. Massaro will be required to
devote at least 40 hours per month to the business of the Company. Mr. Massaro
will have the right to attend Board meetings as an observer. The agreement also
contains restrictive covenants prohibiting Mr. Massaro, during the one-year
period commencing upon the termination of the agreement, from directly or
indirectly competing with the Company east of the Mississippi River, soliciting
or servicing any supplier to or customer of the Company for any competitive
purpose, and employing or retaining any employee of or consultant to the Company
or soliciting any such employee or consultant to become affiliated with any
entity other than the Company.
41
<PAGE>
Board of Directors
The Certificate of Incorporation divides the Board of Directors into three
classes, with, initially, one class having a term of one year, one class having
a term of two years and one class having a term of three years. Commencing with
the annual meeting of stockholders to be held in 1998, directors will be elected
to succeed those directors whose terms have expired, and each newly elected
director will serve for a three-year term. All officers are appointed annually
by the Board of Directors and, subject to existing employment agreements, serve
at the discretion of the Board. Directors who are employees of the Company
receive no compensation for serving on the Board of Directors. It is expected
that Directors who are not employees of the Company will receive compensation
for their services in an amount to be determined. All Directors are reimbursed
by the Company for any expenses incurred in attending Director's meetings and,
upon completion of this Offering, non-employee directors will receive a fee of
$5,000 per annum for serving on the Board. The Company may attempt to obtain
Officers and Directors liability insurance.
Audit Committee of the Board of Directors
The Board of Directors has designated an Audit Committee of the Board of
Directors consisting initially of Messrs. Ceccato and Spinella. The duties of
the Audit Committee are to (i) recommend to the full Board the auditing firm to
be selected each year as the Company's independent auditors and the terms and
conditions upon which such firm is to be engaged, (ii) consult with the persons
so chosen to be the independent auditors with regard to the plan of audit, (iii)
review, in consultation with the independent auditors, their report of audit, or
proposed report of audit, and the accompanying management letter, if any, (iv)
consult with the independent auditors (periodically, as appropriate, out of the
presence of management) with regard to the adequacy of the Company's internal
accounting and control procedures, (v) review the Company's financial condition
and results of operations with management and the independent auditors and (vi)
review any non-audit services and special engagements to be performed by the
independent auditors and consider the effect of such performance on the
auditors' independence.
Compensation Committee of the Board of Directors
The Board of Directors has designated a Compensation Committee of the
Board of Directors, consisting initially of Steven Merker and Karl Massaro. The
primary duties of the Compensation Committee are to (i) determine the annual
salary, bonus and other benefits, direct and indirect, of any and all executive
officers (as defined under Regulation S-K promulgated by the Commission), (ii)
prepare an Annual Report of the Compensation Committee for inclusion in the
Company's Proxy Statement, (iii) review and recommend to the full Board any and
all matters related to benefit plans covering the foregoing officers and any
other employees in the event such matters are appropriate for stockholder
approval, and (iv) administer any stock option plan or other bonus or incentive
plan or pool adopted by the Company (including the 1997 Incentive Stock Option
Plan).
1997 Stock Option Plan
The Company has adopted its 1997 Stock Option Plan ("Plan"). The Board
believes that the Plan is desirable to attract and retain executives and other
key employees of outstanding ability. Under the Plan, options to purchase an
aggregate of not more than 340,000 shares of Common Stock may be granted from
time to time to key employees, officers, directors, advisors and consultants to
the Company or to any of its subsidiaries. To date, no options have been granted
pursuant to the Plan.
The Plan is currently administered by the Board of Directors which has
empowered the Compensation Committee to administer the Plan. The Compensation
Committee is generally empowered to interpret the Plan, prescribe rules and
regulations relating thereto, determine the terms of the option agreements,
amend them with the consent of the optionee, determine the individuals to whom
options are to be granted, and determine the number of shares subject to each
option and the exercise price thereof. The per share exercise price for options
granted under the Plan are determined by the Board of Directors; provided that
the exercise price of incentive stock options ("ISOs") will not be less than
100% of the fair market value of a share of the Common Stock on the date the
option is granted (110% of fair market value on the date of grant of an ISO if
the optionee owns more than 10% of the Common Stock of the Company); and further
provided that, for a period of 18 months after the Closing Date, the exercise
price will be the greater of 110% of fair market value on the date of grant and
the initial public offering price
42
<PAGE>
of the Common Stock. Upon exercise of an option, the optionee may pay the
purchase price with previously acquired securities of the Company, or at the
discretion of the Board, the Company may loan some or all of the purchase price
to the optionee.
Options will be exercisable for a term determined by the Compensation
Committee which will not be greater than ten years from the date of grant (or
five years in the case of ISO's granted to holders of more than 10% of the
Common Stock). Options may be exercised only while the original grantee has a
relationship with the Company which confers eligibility to be granted options or
within three months after termination of such relationship with the Company, or
up to one year after death or total and permanent disability. In the event of
the termination of such relationship between the original grantee and the
Company for cause (as defined in the Plan), all options granted to the original
optionee terminate immediately. In the event of certain basic changes in the
Company, including a reorganization, merger or consolidation of the Company, or
the purchase of shares pursuant to a tender offer for shares of Common Stock of
the Company, in the discretion of the Committee, each option may become fully
and immediately exercisable. ISOs are not transferable other than by will or the
laws of descent and distribution. Non-qualified stock options may be transferred
to the optionee's spouse or lineal descendants, subject to certain restrictions.
Options may be exercised during the holder's lifetime only by the holder, his or
her guardian or legal representative.
Options granted pursuant to the Plan may be designated as ISOs, with the
attendant tax benefits provided under Section 421 and 422 of the Internal
Revenue Code of 1986. Accordingly, the Plan provides that the aggregate fair
market value (determined at the time an ISO is granted) of the Common Stock
subject to ISOs exercisable for the first time by an employee during any
calendar year (under all plans of the Company and its subsidiaries) may not
exceed $100,000. The Board may modify, suspend or terminate the Plan; provided,
that certain material modifications affecting the Plan must be approved by the
stockholders, and any change in the Plan that may adversely affect an optionee's
rights under an option previously granted under the Plan requires the consent of
the optionee.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Company's Common Stock at the date of this
Prospectus (assuming (a) consummation of the Acquisition and (b) no conversion
of the Convertible Preferred Stock) by (i) each person known by the Company to
own beneficially more than 5% of the Company's Common Stock, (ii) each of the
Company's directors and executive officers, and (iii) all officers and directors
of the Company as a group. Except as otherwise indicated, the Company believes
that the beneficial owners of the Common Stock listed below based on information
furnished by such owners, have sole investment and voting power with respect to
such shares, subject to community property laws, where applicable.
<TABLE>
<CAPTION>
Percent of Common Percent of Common
Name and Address of Number of Stock Owned Before Stock Owned After
Beneficial Owner Shares Offering Offering
------------------ --------- ----------------- ----------------
<S> <C> <C> <C>
Roy Ceccato (1) ................ 88,000 4.2% 2.6%
Andrew Levy (2) ................ 246,000 11.9% 7.2%
Karl Massaro (1) ............... 170,000 8.1% 5.0%
Steven Merker (3) .............. 724,000 34.5% 21.3%
William Merker (3) ............. 420,000 20.0% 12.6%
Joseph Spinella (1) ............ -- -- --
All Directors and Officers
as a group (5 persons) ...... 1,402,000 68% 41%
</TABLE>
- ----------
(1) The address of such person is c/o the Company, 321 Valley Road,
Hillsborough Township, N.J.
(2) The address of such person is c/o Redstone Capital Corp., 375 Park Avenue,
New York, N.Y. Includes 30,000 shares owned by a family trust and 50,000
shares owned by Mr. Levy's wife. Mr. Levy disclaims beneficial ownership
as to all such shares.
(3) The address of such person is c/o Loeb, Block, Wacksman & Selzer LLP, 505
Park Avenue, New York, N.Y. Steven and William Merker each disclaim
beneficial ownership of shares owned by the other.
Steven Merker and William Merker are brothers. Carl Massaro, the founder
of Ajax and its sole stockholder prior to the Acquisition, is the father of Karl
Massaro, the President and a Director of the Company. There are no other family
relationships among the Company's officers, directors and 5% shareholders.
44
<PAGE>
CERTAIN TRANSACTIONS
The Acquisition
On the Closing Date, the Company will use the proceeds of this Offering to
consummate the Acquisition of all of the outstanding capital stock of Ajax from
Mr. Carl Massaro. The Stock Purchase Agreement provides for a Purchase Price of
$20,625,000 adjusted by an amount equal to the Net Worth Adjustment, which is
payable in cash on the Closing Date, except that, to the extent that the
Purchase Price exceeds $19,903,257, the excess amount up to $4,000,000 is
payable by Ajax pursuant to the Redemption Note. On the Closing Date, the
Company will grant Carl Massaro options to purchase up to 50,000 shares of
Common Stock at 115% of the initial public offering price thereof, and enter
into (i) a three-year consulting agreement with Carl Massaro providing for
annual base compensation of $160,000 and (ii) a "triple net" lease with Carl
Massaro of the factory and office facility presently occupied by Ajax. On the
Closing Date, Carl Massaro will repay $220,000 in loans from the Company. Carl
Massaro repaid the Company $300,000 in loans in 1995. In addition, Ajax will
terminate an existing credit facility with Summit Bank, and Mr. Massaro will
terminate his guaranty of Ajax's obligations thereunder. See "The Acquisition,"
"Management--Employment Agreements" and "Business--Business of the
Company--Facilities."
Fees to Affiliated Parties
Pursuant to advisory agreements dated as of February 1, 1997, on the
Closing Date, the Company will pay to each of Barclay Partners LLC ("Barclay")
and Redstone Capital Corporation ("Redstone") $135,000 in fees for advisory
services rendered in connection with negotiating and structuring the Acquisition
and this Offering and related matters. Such fees were not negotiated at arm's
length with the Company. In addition, the Company will reimburse Redstone,
Steven Merker and William Merker approximately $25,000, $40,000 and $25,000,
respectively (an aggregate of $90,000), representing amounts advanced by them in
respect of expenses incurred in connection with the Acquisition and this
Offering. William Merker and Steven Merker, Directors of the Company, are the
sole members of Barclay Partners LLC. Mr. Andrew Levy, a 5% stockholder of the
Company is the President of Redstone Capital Corporation. In addition, the
Company will pay approximately $145,000 in legal fees to William Merker for
legal services rendered in connection with organizing the Company and
structuring the Acquisition and this Offering.
45
<PAGE>
DESCRIPTION OF SECURITIES
General
The Company is authorized by its amended and restated Certificate of
Incorporation (the "Certificate") to issue an aggregate of 10,000,000 shares of
Common Stock, par value $.001 per share, and 3,000,000 shares of preferred
stock, par value $.001 per share (the "Preferred Stock"), which Preferred Stock
may be issued with such rights, designations and privileges (including
redemption and voting rights) as the Board of Directors may, from time to time,
determine.
Common Stock
Holders of the Common Stock are entitled to one vote per share and,
subject to the rights of the holders of the Preferred Stock (discussed below),
to receive dividends when and as declared by the Board of Directors, and to
share ratably in the assets of the Company legally available for distribution in
the event of the liquidation, dissolution or winding up of the Company. The
Board of Directors may not declare dividends payable to holders of Common Stock
unless and until all accrued cash dividends through the most recent past
quarterly dividend payment date have been paid in full to holders of the
Convertible Preferred Stock. Holders of the Common Stock do not have
subscription, redemption or conversion rights, nor do they have any preemptive
rights. In the event the Company were to elect to sell additional shares of its
Common Stock following this Offering, investors in this Offering would have no
right to purchase such additional shares. As a result, their percentage equity
interest in the Company would be diluted. The shares of Common Stock offered
hereby will be, when issued and paid for, fully-paid and not liable for further
call or assessment. Holders of the Common Stock do not have cumulative voting
rights, which means that the holders of more than half of the outstanding shares
of Common Stock (subject to the rights of the holders of the Preferred Stock)
can elect all of the Company's directors, if they choose to do so. In such
event, the holders of the remaining shares would not be able to elect any
directors. The Board is empowered to fill any vacancies on the Board. Except as
otherwise required by the Delaware Law, all stockholder action is taken by vote
of a majority of the outstanding shares of Common Stock voting as a single class
present at a meeting of stockholders at which a quorum (consisting of a majority
of the outstanding shares of the Company's Common Stock) is present in person or
by proxy.
Preferred Stock
The Company is authorized by the Certificate to issue a maximum of
3,000,000 shares of Preferred Stock, in one or more series and containing such
rights, privileges and limitations, including voting rights, conversion
privileges and/or redemption rights, as may, from time to time, be determined by
the Board of Directors of the Company. Preferred Stock may be issued in the
future in connection with acquisitions, financings or such other matters as the
Board of Directors deems to be appropriate. In the event that any such shares of
Preferred Stock shall be issued, a Certificate of Designation, setting forth the
series of such Preferred Stock and the relative rights, privileges and
limitations with respect thereto, shall be filed with the Secretary of State of
the State of Delaware. The effect of such Preferred Stock is that the Company's
Board of Directors alone, within the bounds and subject to the federal
securities laws and the Delaware Law, may be able to authorize the issuance of
Preferred Stock which could have the effect of delaying, deferring or preventing
a change in control of the Company without further action by the stockholders
and may adversely affect the voting and other rights of holders of Common Stock.
The issuance of Preferred Stock with voting and conversion rights may also
adversely affect the voting power of the holders of Common Stock, including the
loss of voting control to others.
Convertible Preferred Stock
The issuance of 1,500,000 shares of Convertible Preferred Stock has been
authorized by resolutions adopted by the Board of Directors and set forth in a
Certificate of Designation, Preferences and Rights of 8 1/2% Senior Convertible
Redeemable Preferred Stock filed with the Secretary of State of the State of
Delaware, which contains the designations, rights, powers, preferences,
qualifications and limitations of the Convertible Preferred Stock. Upon
issuance, the shares of Convertible Preferred Stock offered hereby will be fully
paid and non-assessable.
Dividends. The holders of the Convertible Preferred Stock are entitled to
receive if, when and as declared by the Board of Directors out of funds legally
available therefor, cumulative dividends at the rate of $____ per share
46
<PAGE>
per annum, payable quarterly on the last business day of March, June, September
and December of each year, commencing December 31, 1997 (each a "Dividend
Payment Date"), to the holders of record as of a date, not more than 60 days
prior to the Dividend Payment Date, as may be fixed by the Board of Directors.
Dividends accrue from the first day of the quarterly period in which such
dividend may be payable, except with respect to the first quarterly payment
which shall accrue from the date of issuance of the Convertible Preferred Stock.
Dividends on the Convertible Preferred Stock will accrue whether or not
the Company has earnings, whether or not there are funds legally available for
the payment of such dividends and whether or not such dividends are declared.
Dividends accumulate to the extent they are not paid on the Dividend Payment
Date to which they relate. Accumulated unpaid dividends will not bear interest.
Under Delaware Law, the Company may declare and pay dividends or make other
distributions on its capital stock only out of capital surplus (as defined in
the Delaware Law) and in case there shall be no such surplus, out of its net
profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year. On June 30, 1997, the Company had available capital
surplus of $21,747,000 (on a pro forma as adjusted basis, after giving effect to
this Offering). The payment of dividends and any future operating losses will
reduce such surplus of the Company, which may adversely affect the ability of
the Company to continue to pay dividends on the Convertible Preferred Stock. In
addition, no dividends or distributions may be declared, paid or made if the
Company is or would be rendered insolvent by virtue of such dividend or
distribution.
No dividends may be paid on any shares of capital stock ranking junior to
the Convertible Preferred Stock (including the Common Stock) unless and until
all accumulated and unpaid dividends on the Convertible Preferred Stock have
been declared and paid in full.
Conversion. At the election of the holder thereof, each share of
Convertible Preferred Stock will be convertible into Common Stock at any time on
or after ______, 1998 (180 days after the date hereof) and prior to redemption
at a conversion rate of one share of Common Stock for each share of Convertible
Preferred Stock (an effective conversion price of $__ per share or 120% of the
initial public offering price per share of Common Stock) (the "Conversion
Price"). The Conversion Price is subject to adjustment from time to time in the
event of (i) the issuance of Common Stock as a dividend or distribution on any
class of capital stock of the Company; (ii) the combination, subdivision or
reclassification of the Common Stock; (iii) the distribution to all holders of
Common Stock of evidences of the Company's indebtedness or assets (including
securities, but excluding cash dividends or distributions paid out of earned
surplus); (iv) the failure of the Company to pay a dividend on the Convertible
Preferred Stock within 30 days after a Dividend Payment Date, which will result
in each instance in a reduction of $.50 per share in the Conversion Price but
not below $9.00 per share, or __% of the initial per share Conversion Price of
the shares of Common Stock issuable upon conversion of the Convertible Preferred
Stock; or (v) the sale of Common Stock at a price, or the issuance of options,
warrants or convertible securities with an exercise or conversion price per
share, less than the lower of the then current Conversion Price or the then
current market price of the Common Stock (except upon exercise of options
outstanding on the date of this Prospectus and options thereafter granted to
employees, officers, directors, stockholders or consultants pursuant to existing
stock option plans). No adjustment in the Conversion Price will be required
until cumulative adjustments require an adjustment of at least 5% in the
Conversion Price. No factional shares will be issued upon conversion, but any
fractions will be adjusted in cash on the basis of the then current market price
of the Common Stock. Payment of accumulated and unpaid dividends will be made
upon conversion to the extent of legally available funds. The right to convert
the Convertible Preferred Stock terminates on the date fixed for redemption.
In case of any consolidation or merger to which the Company is a party
(other than a consolidation or merger in which the Company is the surviving
party and the Common Stock is not changed or exchanged), or in case of any sale
or conveyance of all or substantially all the property and assets of the
Company, each share of Convertible Preferred Stock then outstanding will be
convertible from and after such merger, consolidation or sale or conveyance of
property and assets into the kind and amount of shares of stock or other
securities and property receivable as a result of such consolidation, merger,
sale or conveyance by a holder of the number of shares of Common Stock into
which such share of Convertible Preferred Stock could have been converted
immediately prior to such merger, consolidation, sale or conveyance.
Optional Cash Redemption. The Company may, at its option, redeem the
Convertible Preferred Stock, in whole but not in part, upon 30 days prior
written notice at any time on or after _______, 2000 (30 months after the date
hereof) at a redemption price of $___ per share, plus accumulated and unpaid
dividends, if the Market Price of the
47
<PAGE>
Common Stock (as defined below) equals or exceeds $___ per share (180% of the
initial public offering price per share) for at least 20 trading days within a
period of 30 consecutive trading days ending not more than five trading days
prior to the date of the notice of redemption. The term "Market Price" means the
closing bid price as reported by the principal securities exchange on which the
Common Stock is listed or admitted to trading or by Nasdaq or, if not traded
thereon, the high bid price as reported by Nasdaq or, if not quoted thereon, the
high bid price on the OTC Bulletin Board or in the National Quotation Bureau
sheet listing for the Common Stock, or, if not listed therein, as determined in
good faith by the Board of Directors.
Provisions Relating to Optional Cash Redemption. Notice of redemption must
be mailed to each holder of Convertible Preferred Stock to be redeemed at his
last address as it appears upon the Company's registry books not less than 30
days nor more than 60 days prior to the date fixed for redemption (the
"Redemption Date"). On and after the Redemption Date, dividends will cease to
accumulate on shares of Convertible Preferred Stock called for redemption.
On or after the Redemption Date, holders of Convertible Preferred Stock
which have been redeemed shall surrender their certificates representing such
shares to the Company at its principal place of business or as otherwise
specified in the notice of redemption and thereupon either (i) the redemption
price of such shares shall be payable to the order of, or (ii) the shares of
Common Stock shall be issued to, the person whose name appears on such
certificate or certificates as the owner thereof; provided, that a holder of
Convertible Preferred Stock may elect to convert such shares into Common Stock
at any time prior to the Redemption Date.
From and after the Redemption Date, all rights of the holders of redeemed
shares shall cease with respect to such shares and such shares shall not
thereafter be transferred on the books of the Company or be deemed to be
outstanding for any purpose whatsoever.
Voting Rights. The holders of Convertible Preferred Stock are not entitled
to vote, except as set forth below and as provided by applicable law. On matters
subject to a vote by holders of Convertible Preferred Stock, the holders are
entitled to one vote per share.
The affirmative vote of at least: (i) two-thirds of the shares of
Convertible Preferred Stock, voting as a class, shall be required to authorize,
effect or validate the creation and issuance of any class or series of stock
ranking superior to; and (ii) a majority of the shares of Convertible Preferred
Stock, voting as a class, shall be required to authorize, effect or validate the
creation and issuance of any class or series of stock ranking on parity with,
the Convertible Preferred Stock with respect to the declaration and payment of
dividends or distribution of assets on liquidation, dissolution or winding-up.
In the event that the Company has the right to redeem the Convertible Preferred
Stock, no such vote is required if, prior to the time such class is issued,
provision is made for the redemption of all shares of Convertible Preferred
Stock and such Convertible Preferred Stock is redeemed on or prior to the
issuance of such class.
In the event that the Company fails to pay any dividends for four
consecutive quarterly dividend payment periods, the holders of the Convertible
Preferred Stock, voting separately as a class, shall be entitled to elect two
directors. Such right will be terminated as of the next annual meeting of
stockholders of the Company following payment of all accrued dividends.
Liquidation. In the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the Company, before any payment or distribution of
the assets of the Company (whether capital or surplus), or the proceeds thereof,
may be made or set apart for the holders of Common Stock or any stock ranking
junior to Convertible Preferred Stock, the holders of Convertible Preferred
Stock will be entitled to receive, out of the assets of the Company available
for distribution to stockholders, a liquidating distribution of $________ per
share, plus any accumulated and unpaid dividends. If, upon any voluntary or
involuntary liquidation, dissolution or winding up of the Company, the assets of
the Company are insufficient to make the full payment of $________ per share,
plus all accumulated and unpaid dividends on the Convertible Preferred Stock and
similar payments on any other class of stock ranking on a parity with the
Convertible Preferred Stock upon liquidation, then the holders of Convertible
Preferred Stock and such other shares will share ratably in any such
distribution of the Company's assets in proportion to the full respective
distributable amounts to which they are entitled.
48
<PAGE>
A consolidation or merger of the Company with or into another corporation
or sale or conveyance of all or substantially all the property and assets of the
Company will not be deemed to be a liquidation, dissolution or winding-up,
voluntary or involuntary, of the Company for purposes of the foregoing.
Miscellaneous. The Company is not subject to any mandatory redemption or
sinking fund provision with respect to the Convertible Preferred Stock. The
holders of the Convertible Preferred Stock are not entitled to preemptive rights
to subscribe for or to purchase any shares or securities of any class which may
at any time be issued, sold or offered for sale by the Company. Shares of
Convertible Preferred Stock redeemed or otherwise reacquired by the Company
shall be retired by the Company and shall be unavailable for subsequent issuance
as any class of the Company's Preferred Stock.
Indemnification of Officers and Directors
The Company's Certificate of Incorporation provides that a director shall
not be personally liable to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except to the extent that
the elimination or limitation of liability is not permitted under the Delaware
General Corporation Law as in effect when such liability is determined. The
General Corporation Law of the State of Delaware limits the personal liability
of a director or officer to the Company for monetary damages for breach of
fiduciary duty or care as a director. Liability is not limited for (i) any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) unlawful payment of dividends or stock
repurchases or redemptions, or (iv) any transaction from which the director
derived an improper personal benefit. This limitation does not eliminate the
liability for violation of federal securities laws. The Company's by-laws
provide that the Company shall, to the fullest extent permitted under Delaware
law, indemnify its officers and directors.
Delaware Law and Certain Provisions of the Certificate of Incorporation and
By-Laws
The Company's Certificate of Incorporation (the "Certificate") and By-Laws
include provisions that could make more difficult the acquisition of the Company
by means of a merger, tender offer, a proxy contest or otherwise. These
provisions, as described below, are expected to discourage certain types of
coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of the Company first to negotiate with the
Company. These provisions may also, however, inhibit a change in control of the
Company in circumstances that could give the holders of the Common Stock the
opportunity to realize a premium over the then prevailing market price of the
Common Stock. In addition, such provisions could adversely affect the market
price for the Common Stock. The Company believes that the benefits of increased
protection of its potential ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure the Company
outweigh the disadvantages of discouraging such proposals because, among other
things, negotiations with respect to such proposals could result in an
improvement of their terms.
The Certificate and the By-Laws provide that the Board of Directors (the
"Board") will be divided into three classes of directors, with the term of each
class expiring in a different year. See "Management." The By-Laws provide that
the number of directors will be fixed from time to time exclusively by the
Board, but shall consist of not more than 15 nor less than three directors. A
majority of the Board then in office has the sole authority to fill any
vacancies on the Board. The Certificate provides that directors may be removed
only by the affirmative vote of holders of at least 75% of the voting power of
all of the then outstanding shares of stock entitled to vote generally in the
election of directors ("Voting Stock"), voting together as a single class.
The Certificate provides that stockholder action can be taken only at an
annual or special meeting of stockholders and prohibits stockholder action by
written consent in lieu of a meeting. The Certificate and By-Laws provide that
special meetings of stockholders can be called by the Chairman of the Board of
the Company, pursuant to a resolution approved by a majority of the total number
of directors which the Company would have if there were no vacancies on the
Board, or by the stockholders owning at least 20% of the stock entitled to vote
at the meeting. The business permitted to be conducted at any special meeting of
stockholders is limited to the business brought before the meeting by the
Chairman of the Board, or at the request of a majority of the members of the
Board, or as specified in the stockholders' notice of a meeting.
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The By-Laws set forth an advance notice procedure with regard to the
nomination, other than by or at the direction of the Board, of candidates for
election as directors and with regard to business brought before an annual
meeting of stockholders of the Company.
The Certificate and By-Laws contain provisions requiring the affirmative
vote of the holders of at least 75% of the Voting Stock, voting together as a
single class, to amend certain provisions of the Certificate relating primarily
to anti-takeover provisions and to the limitations on director liability.
The Certificate empowers the Board, when considering a tender offer or
merger or acquisition proposal, to take into account factors in addition to
potential economic benefits to stockholders. Such factors may include (i)
comparison of the proposed consideration to be received by stockholders in
relation to the then current market price of the capital stock, the estimated
current value of the Company in a freely negotiated transaction, and the
estimated future value of the Company as an independent entity; (ii) the impact
of such a transaction on the customers and employees of the Company, and its
effect on the communities in which the Company operates; and (iii) the ability
of the Company to fulfill its objectives under applicable statutes and
regulations.
The Certificate prohibits the Company from purchasing any shares of the
Company's stock from any person, entity or group that beneficially owns 5% or
more of the Company's Voting Stock at a price exceeding the average closing
price for the 20 trading days prior to the purchase date, unless a majority of
the Company's disinterested stockholders approve the transaction. This
restriction on purchases by the Company does not apply to any offer to purchase
shares of a class of the Company's stock which is made on the same terms and
conditions to all holders of that class of stock, to any purchase of stock owned
by such a 5% stockholder occurring more than two years after such stockholder's
last acquisition of the Company's stock, to any purchase of the Company's stock
in accordance with the terms of any stock option or employee benefit plan, or to
any purchase at prevailing market prices pursuant to a stock purchase program.
Section 203 of the Delaware General Corporation Law ("DGCL") is applicable
to corporations organized under the laws of the State of Delaware. Subject to
certain exceptions set forth therein, Section 203 of the DGCL provides that a
corporation may not engage in any business combination with any "interested
stockholder" for a three-year period following the date that such stockholder
becomes an interested stockholder unless (a) prior to such date, the Board of
Directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, (b) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding certain shares) or (c) on or subsequent to such
date, the business combination is approved by the Board of Directors of the
corporation and by the affirmative vote of at least 66 2/3% of the outstanding
voting stock which is not owned by the interested stockholder. Except as
specified therein, an interested stockholder is defined to mean any person that
(i) is the owner of 15% or more of the outstanding voting stock of the
corporation, or (ii) is an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within three years immediately prior to the relevant date, and the
affiliates and associates of such person referred to in clause (i) or (ii) of
this sentence. Under certain circumstances, Section 203 of the DGCL makes it
more difficult for an interested stockholder to effect various business
combinations with a corporation for a three-year period, although the
stockholders may, by adopting an amendment to the corporation's certificate of
incorporation or by-laws, elect not to be governed by this section, effective 12
months after adoption. The Company's Certificate and By-Laws do not exclude the
Company from the restrictions imposed under Section 203 of the DGCL. It is
anticipated that the provisions of Section 203 of the DGCL may encourage
companies interested in acquiring the Company to negotiate in advance with the
Board.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this Offering, 3,400,000 shares of Common Stock
and 1,000,000 shares of Convertible Preferred stock will be outstanding
(3,595,000 shares of Common Stock and 1,150,000 shares of Convertible Preferred
Stock if the Over-allotment Option is exercised in full). The 1,300,000 shares
of Common Stock and 1,000,000 shares of Convertible Preferred Stock sold in this
Offering (1,495,000 shares of Common Stock and 1,150,000 shares of Convertible
Preferred Stock if the Over-allotment Option is exercised in full) will be
freely tradeable without restrictions or further registration under the
Securities Act unless acquired by an "affiliate" of the Company (as that term is
defined in the Securities Act), in which case such Shares will be subject to the
resale limitations of Rule 144 under the Securities Act ("Rule 144").
The remaining 2,100,000 shares of Common Stock which will be outstanding
upon the consummation of this Offering have been issued by the Company in
private transactions in reliance upon the "private placement" exception under
Section 4(2) of the Securities Act in connection with the organization of the
Company, and are therefore "restricted securities" within the meaning of Rule
144 ("Restricted Securities"). In general, under Rule 144 as currently in
effect, a stockholder who has beneficially owned for at least one year shares
privately acquired, directly or indirectly, from the Company or from an
affiliate of the Company, and persons who are affiliates of the Company, will be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of (i) 1% of the outstanding shares of Common Stock, or (ii)
the average weekly trading volume of shares during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain
requirements relating to the manner and notice of sale and the availability of
current public information about the Company.
The Company, the existing stockholders, and the holders of the Bridge
Notes (and any other holders of outstanding securities exercisable for or
convertible into Common Stock) have agreed not to, directly or indirectly,
issue, agree or offer to sell, sell, transfer, assign, distribute, grant an
option for purchase or sale of, pledge, hypothecate or otherwise encumber or
dispose of any beneficial interest in such securities for a period of 12 months
from the date of this Prospectus without the prior written consent of the
Company and Dirks & Company, Inc. other than (i) shares of Common Stock
transferred pursuant to bona fide gifts where the transferee agrees in writing
to be similarly bound or (ii) securities transferred through the laws of
descent. Upon expiration of this period, all such shares may be sold subject to
the limitations of and in accordance with Rule 144. Beginning 12 months after
the date of this Prospectus, these 2,100,000 shares will be available for sale
in the public market subject to certain volume and resale restrictions, as
described below. Additional shares of Common Stock and Convertible Preferred
Stock, including shares issuable upon exercise of (i) up to 340,000 options
granted in accordance with the Stock Option Plan, (ii) 50,000 options granted to
Carl Massaro (the "Massaro Options"), and (iii) the Representatives' Warrants
will also become eligible for sale in the public market from time to time in the
future.
The Company has reserved 390,000 shares of Common Stock for issuance under
the Stock Option Plan and the Massaro Options. At appropriate times subsequent
to completion of the Offering, the Company may file registration statements
under the Securities Act to register the Common Stock to be issued under the
Stock Option Plan and the Massaro Options. After the effective date of such
registration statements, and subject to the lock-up agreement executed by
existing shareholders, shares issued under the Plan will be freely tradeable
without restriction or further registration under the Securities Act, unless
acquired by affiliates of the Company.
Prior to this Offering, there has been no market for the Common Stock. No
prediction can be made with respect to the effect, if any, that public sales of
shares of the Common Stock or the availability of shares for sale will have on
the market price of the Common Stock after this Offering. Sales of substantial
amounts of the Common Stock in the public market following this Offering, or the
perception that such sales may occur, could adversely affect the market price of
the Common Stock the ability of the Company to raise capital through sales of
its equity securities.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the material United States
federal income tax considerations relevant to the purchase, ownership and
disposition of the Convertible Preferred Stock and the Common Stock by the
holders thereof, but does not purport to be a complete analysis of the relevant
tax issues. The discussion is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury regulations, Internal Revenue Service ("IRS")
rulings and pronouncements and judicial decisions in effect as of the date
hereof, all of which are subject to change at any time, and any such change may
be applied retroactively in a manner that could adversely affect a holder of any
such stock. The discussion does not address all of the federal income tax
consequences that may be relevant to a holder in light of such holder's
particular circumstances or to holders subject to special rules, such as certain
financial institutions, insurance companies, dealers in securities, foreign
corporations, nonresident alien individuals and persons holding either or both
of the Convertible Preferred Stock and the Common Stock as part of a "straddle,"
"hedge" or "conversion transaction." Moreover, the effect of any applicable
state, local or foreign tax laws is not discussed. The discussion deals only
with investors who hold Convertible Preferred Stock and Common Stock as "capital
assets" within the meaning of section 1221 of the Code.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO
THE APPLICATION OF THE TAX CONSIDERATIONS DISCUSSED BELOW TO THEIR PARTICULAR
SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX
LAWS.
Distributions on Stock
Distributions on the Convertible Preferred Stock and the Common Stock will
be taxable as ordinary dividend income to the extent that the amount distributed
does not exceed the Company's current or accumulated earnings and profits (as
determined for federal income tax purposes). To the extent that the amount of
distributions exceeds the Company's current or accumulated earnings and profits
(as determined for federal income tax purposes), a distribution will be treated
as a return of capital, thus reducing the holder's adjusted tax basis in such
stock. The amount of any such excess distribution that is greater than the
holder's adjusted basis in the stock with respect to which a distribution is
made will be taxed as capital gain and will be long-term capital gain if the
holder's holding period for such stock exceeds one year. For purposes of the
remainder of this discussion, the term "dividend" refers to a distribution taxed
as ordinary income as described above, unless the context indicates otherwise.
Dividends received by corporate holders will be eligible for the 70%
dividends-received deduction under Section 243 of the Code, subject to
limitations generally applicable to the dividends-received deductions, including
those contained in Sections 246 and 246A of the Code and the corporate
alternative minimum tax. The 70% dividends-received deduction may be reduced if
a holder's shares of Preferred Stock are "debt financed." In addition, under
Section 246(c) of the Code, the 70% dividends-received deduction will not be
available with respect to stock that is held for 45 days or less during the 90
day period beginning on the date which is 45 days before the date on which such
stock becomes ex-dividend with respect to such dividend (In the case of a
dividend on preferred stock attributable to a period or periods aggregating more
that 366 days, the required holding period would be determined by substituting
90 days for 45 days and a 180 day period for the 90 day period), including the
day of disposition but excluding the day of acquisition. The length of time that
a holder is deemed to have held stock for these purposes is reduced for periods
during which the holder's risk of loss with respect to the stock is diminished
by reason of the existence of certain options, contracts to sell, short sales or
other similar transactions. Section 246(c) of the Code also denies the 70%
dividends received deduction to the extent that a corporate holder is under an
obligation, with respect to substantially similar or related property, to make
payments corresponding to the dividend received. Under Section 246(b) of the
Code, the aggregate dividends-received deductions allowed may not exceed 70% of
the taxable income, with certain adjustments, of the corporate shareholder.
In general, under Section 1059 of the Code, the tax basis of stock that
has been held by a corporate shareholder for two years or less (determined as of
the earliest of the date on which the Company declares, announces or agrees to
the payment of an actual or constructive dividend) is reduced (but not below
zero) by the non-taxed portion of an "extraordinary dividend" for which a
dividends-received deduction is allowed. In addition, such corporate holder will
recognize gain in the year in which the extraordinary dividend is received to
the extent that its tax basis would have been reduced below zero but for the
foregoing limitation. Generally, an "extraordinary dividend" is a dividend
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that (i) equals or exceeds, in the case of preferred stock, 5% of the holder's
basis in such stock or 10% in the case of any other stock (computed by treating
all dividends having ex-dividend dates within an 85-day period as a single
dividend) or (ii) exceeds 20% of the holder's adjusted basis in its stock
(treating all dividends having ex-dividend dates within a 365-day period as a
single dividend). If an election is made by a holder, under certain
circumstances in applying these tests, the fair market value of its stock as of
the day before the ex-dividend date may be substituted for the holder's basis.
An "extraordinary dividend" would also include amounts received in the
case of certain redemptions of the Convertible Preferred Stock and the Common
Stock that are non-pro rata as to all shareholders, without regard to the period
the holder held the stock.
Special rules apply with respect to "qualified preferred dividends." A
qualified preferred dividend is any fixed dividend payable with respect to
preferred stock which (i) provides for fixed preferred dividends payable no less
often than annually and (ii) is not in arrears as to dividends when acquired,
provided the actual rate of return as determined under Section 1059(e)(3) of the
Code, on such stock does not exceed 15%. A qualified preferred dividend will not
be treated as an extraordinary dividend if the taxpayer holds the stock for more
than five years. In addition, if the taxpayer disposes of the stock before it
has been held for more than five years, the aggregate reduction in basis will
not exceed the excess of the qualified preferred dividends paid on such stock
during the period held by the taxpayer over the qualified preferred dividends
which would have been paid during such period on the basis of the stated rate of
return as determined under Section 1059(e)(3) of the Code. The length of time
that a taxpayer is deemed to have held stock for purposes of the extraordinary
dividend rules is determined under principles similar to those applicable for
purposes of the dividends-received deduction discussed above.
Conversion of Convertible Preferred Stock
Conversion of the Convertible Preferred Stock into Common Stock will not
result in the recognition of gain or loss (except with respect to cash received
in lieu of fractional shares). The holders's adjusted tax basis in the Common
Stock received upon conversion would be equal to the holder's tax basis in the
shares of Convertible Preferred Stock converted, reduced by the portion of such
basis allocable to the fractional share interest exchanged for cash. The holding
period for the Common Stock received upon conversion would include the holding
period of the Convertible Preferred Stock converted.
Redemption or Other Disposition of Stock
In the event the Company exercises its right to redeem the Convertible
Preferred Stock, the redemption proceeds will generally be treated as a sale or
exchange if the holder does not own, actually or constructively within the
meaning of Section 318 of the Code, any stock of the Company other than the
stock redeemed. If a holder does own, actually or constructively, such other
stock, a redemption of stock may be treated as a dividend to the extent of the
Company's current or accumulated earnings and profits (as determined for federal
income tax purposes). Such dividend treatment would not be applied if the
redemption is "substantially disproportionate" with respect to the holder under
Section 302(b)(2) of the Code or is "not essentially equivalent to a dividend"
with respect to the holder under Section 302(b)(1) of the Code. A distribution
to a holder will be "not essentially equivalent to a dividend" if it results in
a "meaningful reduction" in the holder's stock interest in the Company. For
these purposes, a redemption of stock for cash that results in a reduction in
the proportionate interest in the Company (taking into account any constructive
ownership) of a holder whose relative stock interest in the Company is minimal
and who exercises no control over corporate affairs may be regarded as a
meaningful reduction in the holder's stock interest in the Company.
If a redemption of stock is treated as a distribution that is taxable as a
dividend, the amount of the distribution will be measured by the amount received
by the holder. The holder's adjusted tax basis in the redeemed stock will be
transferred to his remaining stock holdings in the Company. If the holder does
not retain any stock ownership in the Company, the holder may lose such basis
entirely.
A redemption of stock that is not treated as a distribution taxable as a
dividend, and a sale or other disposition of stock would result in capital gain
or loss equal to the difference between the amount of cash and the fair market
value of property received and the holder's adjusted tax basis in the stock that
is disposed. Such gain or loss would be long term capital gain or loss if the
holding period for the stock exceeded one year. For corporate taxpayers,
long-
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term capital gains are taxed at the same rate as ordinary income. For individual
taxpayers, net capital gains (the excess of the taxpayer's net long-term capital
gains over his net short-term capital losses) are subject to a maximum tax rate
of (i) 28%, if such stock was held for at least one year but not more than 18
months or (ii) 20%, if such stock was held for more than 18 months. The
deductibility of capital losses are restricted and, in general, may only be used
to reduce capital gains to the extent thereof. However, individual taxpayers may
deduct annually $3,000 of capital losses in excess of their capital gains.
Capital losses which cannot be utilized because of the aforementioned limitation
are, for corporate taxpayers carried back three years and, in most
circumstances, carried forward for five years; for individual taxpayers, capital
losses may only be carried forward without a time limitation.
Proposed Legislation
The President has previously proposed legislation which would reduce the
70% dividends-received deduction to 50%. Although such legislation was not
enacted as part of the recently enacted Taxpayer Relief Act of 1997, it cannot
be predicted with certainty whether in the future such proposal will be enacted
into law or, if enacted, what would be its effective date. Corporate holders of
stock are urged to consult their own tax advisors regarding the possible effects
of such proposed legislation.
Backup Withholding
A holder of the Convertible Preferred Stock or Common Stock may be subject
to backup withholding at a rate of 31% with respect to dividends thereon and
gross proceeds upon sale, exchange or retirement of such stock, unless such
holder (i) is a corporation or other exempt recipient and, when required,
demonstrates that fact, or (ii) provides a correct taxpayer identification
number, certifies, when required, that such holder is not subject to backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. Backup withholding is not an additional tax; any amounts so
withheld are creditable against the holder's federal income tax, provided the
required information is provided to the IRS. A holder who does not provide the
Company with a correct taxpayer identification number may be subject to
penalties imposed by the IRS. Holders should consult their tax advisors
regarding their qualification for exemption from backup withholding and the
procedure for obtaining any applicable exemption.
EACH PROSPECTIVE HOLDER OF CONVERTIBLE PREFERRED STOCK OR COMMON STOCK SHOULD
CONSULT HIS OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM OF
HOLDING OR DISPOSING OF SUCH STOCK INCLUDING THE APPLICABILITY AND EFFECT OF ANY
STATE, LOCAL, OR FOREIGN INCOME TAX LAWS, AND ANY RECENT OR PROSPECTIVE CHANGES
IN APPLICABLE TAX LAWS.
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UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Dirks &
Company, Inc. and Millennium Financial Group, Inc. are acting as
Representatives, have severally agreed, subject to the terms and conditions of
the Underwriting Agreement (the "Underwriting Agreement") to purchase from the
Company and the Company has agreed to sell to the Underwriters on a firm
commitment basis, the respective number of shares of Convertible Preferred Stock
and Common Stock set forth opposite their names:
Number of Shares of Convertible Number of Shares
Underwriters Preferred Stock of Common Stock
------------ --------------- ---------------
Dirks & Company, Inc. ..............
Millennium Financial Group, Inc. ...
Total .............................. 1,000,000 1,300,000
========= =========
The Underwriters are committed to purchase all the Securities offered
hereby, if any of such Securities are purchased. The Underwriting Agreement
provides that the obligations of the several Underwriters are subject to
conditions precedent specified therein.
The Company has been advised by the Representatives that the Underwriters
propose initially to offer the Securities to the public at the initial public
offering price, set forth on the cover page of this Prospectus and to certain
dealers at such price less concessions not in excess of $________ per share of
Common Stock and $________ per share of Convertible Preferred Stock. Such
dealers may re-allow a concession not in excess of $________ per share of Common
Stock and $________ per share of Convertible Preferred Stock to certain other
dealers. After the commencement of the Offering, the public offering price,
concession and reallowance may be changed by the Representatives.
The Representatives have informed the Company that it does not expect
sales to discretionary accounts by the Underwriters to exceed five percent of
the Securities offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make. The Company has also
agreed to pay to the Representatives a non-accountable expense allowance equal
to three percent of the gross proceeds derived from the sale of the Securities
underwritten, of which $50,000 has been paid to date.
The Company has granted to the Underwriters an Over-allotment Option,
exercisable during the 45 day period from the date of this Prospectus, to
purchase up to 150,000 shares of Convertible Preferred Stock and 195,000 shares
of Common Stock at the initial public offering prices per share of Common Stock
and Convertible Preferred Stock offered hereby, less underwriting discounts and
the non-accountable expense allowance. Such option may be exercised only for the
purpose of covering over-allotments, if any, incurred in the sale of the
Securities offered hereby. To the extent such option is exercised in whole or in
part, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase the number of the additional Securities proportionate to
its initial commitment.
In connection with this Offering, the Company has agreed to sell to the
Representatives, for nominal consideration, warrants to purchase from the
Company up to 130,000 shares of Common Stock and 100,000 shares of Preferred
Stock. The Representatives' Warrants are initially exercisable at a price of
165% of its initial public offering per share of Common Stock. The
Representatives' Warrants may be exercised for a period of four years,
commencing at the beginning of the second year after their issuance and sale and
are restricted from sale, transfer, assignment or hypothecation for a period of
12 months from the date hereof, except to the respective officers of the
Representatives. The Representatives' Warrants provide for adjustment in the
number of shares of Common Stock issuable upon the exercise thereof and in the
exercise price of the Representatives' Warrants as a result of certain events,
including subdivisions and combinations of the Common Stock. The
Representatives' Warrants grant to the holders thereof certain demand and
"piggyback" rights of registration for the securities issuable upon exercise
thereof.
All officers, directors and existing stockholders of the Company, and all
holders of any outstanding options, warrants or other securities (including Carl
Massaro and the holders of the Bridge Notes) convertible, exercisable or
exchangeable for or convertible into shares of Common Stock have agreed not to,
directly or indirectly, issue,
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offer, agree or offer to sell, sell, transfer, assign, encumber, grant an option
for the purchase or sale of, pledge, hypothecate or otherwise dispose of any
beneficial interest in such securities for a period of 12 months following the
date of this Prospectus without the prior written consent of the Company and
Dirks & Company, Inc. other than (x) shares of Common Stock transferred pursuant
to bona fide gifts where the transferee agrees in writing to be similarly bound
or (y) securities transferred through the laws of descent. An appropriate legend
shall be marked on the face of certificates representing all such securities.
The Company has agreed not to, directly or indirectly, without the prior
written consent of Dirks & Company, Inc., issue, sell, agree or offer to sell,
grant an option for the purchase or sale of, or otherwise transfer or dispose of
any of its securities for a period of 12 months following the date of this
Prospectus, except (x) pursuant to the exercise of the Representatives'
Warrants, the Massaro Options or the Stock Option Plan or (y) debt securities
issued to non-affiliated third parties in connection with bona fide business
acquisitions and/or expansions consistent with the Company's business plans as
generally described in this Prospectus.
The Company has agreed for a period of three years after the date hereof,
if requested by Dirks & Company, Inc., to use its best efforts to nominate for
election to the Company's Board of Directors one person designated by Dirks &
Company, Inc. In the event Dirks & Company, Inc. elects not to exercise such
right, Dirks & Company, Inc. may designate a person to receive all notices of
meetings of the Company's Board of Directors and all other correspondence and
communications sent by the Company to its Board of Directors and to attend all
such meetings of the Company's Board of Directors. The Company has agreed to
reimburse designees of Dirks & Company, Inc. for their out-of-pocket expenses
incurred in connection with their attendance of meetings of the Company's Board
of Directors.
Prior to this Offering, there has been no public market for the
Securities. Consequently, the initial public offering prices of the Securities
and the terms of the Convertible Preferred Stock have been determined by
negotiation between the Company and the Representatives and do not necessarily
bear any relationship to the Company's asset value, net worth, or other
established criteria of value. The factors considered in such negotiations, in
addition to prevailing market conditions, included the history of and prospects
for the industry in which the Company competes, an assessment of the Company's
management, the prospects of the Company, its capital structure, the market for
initial public offerings and certain other factors as were deemed relevant.
In connection with this Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Securities. Such
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M, pursuant to which such persons may bid for or purchase
Convertible Preferred Stock or Common Stock for the purpose of stabilizing their
respective market prices. The Underwriters also may create a short position for
the account of the Underwriters by selling more Securities in connection with
this Offering than they are committed to purchase from the Company, and in such
case may purchase Securities in the open market following completion of the
Offering to cover all or a portion of such short position. The Underwriters may
also cover all or a portion of such short position by exercising the
Over-allotment Option referred to above. In addition, the Representatives, on
behalf of the Underwriters, may impose "penalty bids" under contractual
arrangements with the Underwriters whereby it may reclaim from an Underwriter
(or dealer participating in the Offering) for the account of other Underwriters,
the selling concession with respect to Securities that are distributed in the
Offering but subsequently purchased for the account of the Underwriters in the
open market. Any of the transactions described in this paragraph may result in
the maintenance of the price of the Securities at a level above that which might
otherwise prevail in the open market. None of the transactions described in this
paragraph is required, and, if they are undertaken, they may be discontinued at
any time.
Dirks & Company, Inc. and Millennium Financial Group, Inc. commenced
operations in July 1997 and May 1996, respectively. Accordingly, neither has
extensive experience as an underwriter of public offerings of securities. In
addition, Dirks & Company, Inc. and Millennium Financial Group, Inc. are
relatively small firms and no assurance can be given that either Dirks &
Company, Inc. or Millennium Financial Group, Inc. will be able to participate as
a market marker in the Preferred Stock or the Common Stock.
The foregoing is a summary of the principal terms of the agreements
described above. Reference is made to a copy of each such agreement which are
filed as exhibits to the Registration Statement of which is Prospectus is a part
for a more complete description thereof. See "Additional Information."
56
<PAGE>
LEGAL MATTERS
The legality of the Securities offered hereby will be passed upon for the
Company by Phillips Nizer Benjamin Krim & Ballon LLP, New York, New York. Orrick
Herrington & Sutcliffe LLP has acted as counsel for the Underwriters in
connection with this Offering.
EXPERTS
The financial statements and schedules included in this Prospectus and in
the Registration Statement have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their reports appearing elsewhere herein and in the Registration Statement, and
are included in reliance upon such reports given upon the authority of said firm
as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement
(together with all amendments and exhibits thereto, the "Registration
Statement") on Form S-1 under the Securities Act with respect to the Securities
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement. The Company
will provide without charge to each person who receives a prospectus, upon
written or oral request of such person, a copy of any of the information that
was incorporated by reference in the prospectus (not including exhibits to the
information that is incorporated by reference unless the exhibits are themselves
specifically incorporated by reference). Any such request shall be directed to:
Standard Automotive Corporation, 321 Valley Road, Hillsborough Township, New
Jersey 08876-4056, telephone (908) 369-5544, Attn: Secretary.
The Registration Statement, including all exhibits and schedules thereto
may be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549; 219
South Dearborn Street, Chicago, Illinois 60604; 7 World Trade Center, New York,
New York 10048; and 5757 Wilshire Boulevard, Los Angeles, California 90036.
Copies of such material, including the Registration Statement, can be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such material may also be accessed
electronically at the Commission's site on the World Wide Web located at
http:\\www.sec.gov.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and with quarterly reports for the first
three quarters of each fiscal year containing unaudited summary financial
information. In addition, after this Offering, the Company will be subject to
the information requirements of the Securities Exchange Act of 1934, as amended,
and in accordance therewith, will file reports, proxy statements and other
information with the Securities and Exchange Commission. The Company's fiscal
year end is March 31.
57
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Standard Automotive Corporation
Report of Independent Certified Public Accountants ............... F-1
Balance Sheets ................................................... F-2
Notes to Balance Sheets .......................................... F-3
Ajax Manufacturing Company
Report of Independent Certified Public Accountants ............... F-4
Financial Statements
Balance Sheets ................................................... F-5
Statements of income and retained earnings ....................... F-6
Statements of cash flows ......................................... F-7
Notes to financial statements .................................... F-8
58
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BOARD OF DIRECTORS
STANDARD AUTOMOTIVE CORPORATION:
We have audited the accompanying balance sheet of Standard Automotive
Corporation (the "Company"), as of March 31, 1997. This balance sheet is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
As discussed in Note 1 to the balance sheet, the Company was formed in
January 1997 and has entered into a definitive agreement for the acquisition of
Ajax Manufacturing Company, concurrently with the consummation of an initial
public offering of its common and preferred stock.
In our opinion, the balance sheet referred to above presents fairly, in
all material aspects, the financial position of Standard Automotive Corporation
as of March 31, 1997 in conformity with generally accepted accounting
principles.
BDO SEIDMAN, LLP
Woodbridge, New Jersey
August 11, 1997
F-1
<PAGE>
STANDARD AUTOMOTIVE CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, June 30,
--------- ---------
1997 1997
--------- ---------
ASSETS:
<S> <C> <C>
Capitalized Acquisition Costs ................................. $ 375,000 $ 575,000
--------- ---------
Total ......................................................... $ 375,000 $ 575,000
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Accrued expenses .............................................. $ 375,000 $ 575,000
--------- ---------
Stockholders' Equity
Preferred Stock: $.001 par value, 3,000,000 shares authorized,
none issued and outstanding ................................. -- --
Common Stock: $.001 par value 10,000,000 shares authorized,
2,067,500 issued and outstanding ............................ 2,067 2,067
Common Stock Subscription Receivable .......................... (2,067) (2,067)
--------- ---------
Total Stockholders' Equity .................................... 0 0
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................... $ 375,000 $ 575,000
========= =========
</TABLE>
See accompanying notes to balance sheets.
F-2
<PAGE>
STANDARD AUTOMOTIVE CORPORATION
NOTES TO BALANCE SHEETS
Note 1 - Organizational and General
Standard Automotive Corporation (the "Company") was formed and
incorporated in January 1997. The Company has conducted no operations to date.
Concurrent with its acquisition of Ajax Manufacturing Company ("Ajax"), the
Company has incurred certain costs related to this transaction. The Company has
capitalized approximately $375,000 of such costs at March 31, 1997. The
acquisition agreement was executed on August 11, 1997. The acquisition of Ajax
is to be funded from the proceeds of an initial public offering of the Company's
common and preferred stock. Of the total amount of 3,000,000 authorized shares
of Preferred Stock, the Company has reserved 1,150,000 shares in connection with
the acquisition of Ajax. Of the total amount of 10,000,000 authorized shares of
Common Stock, the Company has reserved 1,495,000 in connection with the
acquisition of Ajax.
The Company maintains its books and records on the accrual basis of
accounting.
Common Stock was issued to the Company's founders and principals at
nominal values, which approximated management's assessment of the fair values of
such securities at the date of issuance. At that time, the Company had conducted
no business and the probability of consummating the acquisition of Ajax could
not be predicted with any degree of certainty.
Note 2 - Unaudited Interim Statements
The balance sheet as of June 30, 1997 is unaudited; however in the opinion
of management all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the balance sheet for the
interim period have been made.
Note 3 - Subsequent Event (Unaudited)
In August 1997, the Company obtained $325,000 in Bridge Financing from
third party investors. Upon consummation of the initial public offering, the
Company will repay the principal amount of bridge notes along with interest
thereon at the annual rate of 12% from the date of issuance and issue holders of
the bridge notes a sufficient number of shares of common stock to equal the
principal amount of the bridge notes, determined by the initial public offering
price per share of the Company's common stock. The Company will incur a charge
to operations in the period that such shares are issued.
F-3
<PAGE>
Report of Independent Certified Public Accountants
Ajax Manufacturing Company
Hillsborough Township, New Jersey
We have audited the accompanying balance sheets of Ajax Manufacturing
Company as of March 31, 1996 and 1997, and the related statements of income and
retained earnings, and cash flows for each of the three years in the period
ended March 31, 1997. 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 Ajax Manufacturing Company
as of March 31, 1996 and 1997 and the results of its operations and its cash
flows for each of the three years in the period ended March 31, 1997 in
conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Woodbridge, New Jersey
June 3, 1997 (July 3, 1997 as to the last paragraph of Note 10 and August 11,
1997 as to Note 11)
F-4
<PAGE>
Ajax Manufacturing Company
Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
March 31, June 30,
---------------------- ----------
1996 1997 1997
---------- ---------- ----------
<S> <C> <C> <C>
Assets
Current:
Cash and cash equivalents ............................................ $1,482,069 $1,558,398 $1,443,552
Accounts receivable (net of allowance for doubtful accounts
of $22,800 at March 31, 1996 and $30,000 at
March 31, 1997 and June 30, 1997) ................................... 750,882 2,536,336 920,689
Inventory (Note 3) ................................................. 3,341,095 3,514,923 5,325,774
Other receivables .................................................. 94,019 -- --
Prepaid expenses (Note 8) .......................................... 158,304 219,505 159,216
Deferred taxes (Note 7) ............................................ 199,000 205,000 287,000
---------- ---------- ----------
Total current assets ............................................. 6,025,369 8,034,162 8,136,231
---------- ---------- ----------
Property and equipment, net of accumulated depreciation and amortization
of $2,422,780 at March 31, 1996, $2,539,307 at March 31, 1997 and
$2,572,308 at June 30, 1997 (Note 4) ................................ 946,315 993,649 1,002,846
---------- ---------- ----------
Other assets:
Loans receivable - related parties (Note 8) .......................... -- 300,000 220,000
---------- ---------- ----------
Total assets ..................................................... $6,971,684 $9,327,811 $9,359,077
========== ========== ==========
Liabilities and Stockholder's Equity
Current:
Accounts payable ..................................................... $ 567,071 $1,179,028 $ 923,450
Accrued expenses ..................................................... 239,104 669,923 278,471
Income taxes payable ................................................. 657,643 244,087 455,979
---------- ---------- ----------
Total current liabilities ........................................ 1,463,818 2,093,038 1,657,900
Long-term liabilities:
Deferred income taxes (Note 7) ....................................... 13,000 12,000 12,000
---------- ---------- ----------
Total liabilities ................................................ 1,476,818 2,105,038 1,669,900
---------- ---------- ----------
Commitments and contingencies (Notes 8 and 10) Stockholder's equity:
Common stock, no par value 100 shares authorized, 75
shares issued and outstanding ..................................... 1,000 1,000 1,000
Retained earnings .................................................... 5,493,866 7,221,773 7,688,177
---------- ---------- ----------
Total stockholder's equity ....................................... 5,494,866 7,222,773 7,689,177
---------- ---------- ----------
Total liabilities and stockholder's equity ....................... $6,971,684 $9,327,811 $9,359,077
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
Ajax Manufacturing Company
Statements of Income and Retained Earnings
<TABLE>
<CAPTION>
Years ended Three Months ended
March 31, June 30,
----------------------------------------- ----------------------
1995 1996 1997 1996 1997
------------ ------------ ----------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales (Note 9) .............................. $ 33,406,612 $ 42,537,553 $22,355,871 $3,671,413 $4,875,524
Operating costs and expenses:
Cost of sales (Note 8) ........................ 30,710,595 33,973,010 17,027,441 2,974,631 3,787,154
Selling, general and administrative
expenses (Note 8) ........................... 1,148,843 3,082,402 2,509,947 264,233 317,005
------------ ------------ ----------- ---------- ----------
Total operating costs and expenses ........ 31,859,438 37,055,412 19,537,388 3,238,864 4,104,159
------------ ------------ ----------- ---------- ----------
Operating income ................................ 1,547,174 5,482,141 2,818,483 432,549 771,365
Interest expense (Notes 5 and 6) ................ (338,869) (117,501) -- -- --
Other income:
Investment income ............................. 7,384 49,520 77,424 15,600 19,039
Legal settlements (Note 10) ................... 66,700 35,003 -- -- --
------------ ------------ ----------- ---------- ----------
Income before income taxes and extraordinary
gain on extinguishment of restructured debt 1,282,389 5,449,163 2,895,907 448,149 790,404
Provision for income taxes (Note 7) ............. 498,000 2,195,000 1,168,000 184,000 324,000
------------ ------------ ----------- ---------- ----------
Income before extraordinary gain on
extinguishment of restructured debt ....... 784,389 3,254,163 1,727,907 264,149 466,404
Extraordinary gain on extinguishment of
restructured debt (net of taxes of
$62,640) (Note 6) ............................. -- 90,140 -- -- --
------------ ------------ ----------- ---------- ----------
Net income ...................................... 784,389 3,344,303 1,727,907 264,149 466,404
Retained earnings, beginning of period .......... 1,365,174 2,149,563 5,493,866 5,493,866 7,221,773
------------ ------------ ----------- ---------- ----------
Retained earnings, end of period ................ $ 2,149,563 $ 5,493,866 $ 7,221,773 $5,758,015 $7,688,177
============ ============ =========== ========== ==========
Per Share Data (Note 11):
Earnings per Share before extraordinary gain on
extinguishment of debt ....................... $ .38 $ 1.57 $ .84 $ .13 $ .23
Extraordinary gain on extinguishment of
restructured debt ............................. -- .05 -- -- --
------------ ------------ ----------- ---------- ----------
Earnings Per Share .............................. $ .38 $ 1.62 $ .84 $ .13 $ .23
============ ============ =========== ========== ==========
Weighted Average Common Shares Outstanding ...... 2,067,500 2,067,500 2,067,500 2,067,500 2,067,500
============ ============ =========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
Ajax Manufacturing Company
Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended Three Months ended
March 31, June 30,
--------------------------------------- -------------------------
1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ....................................... $ 784,389 $ 3,344,303 $ 1,727,907 $ 264,149 $ 466,404
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Extraordinary gain on extinguishment of
restructured debt ........................... -- (152,780) -- -- --
Interest expense on restructured debt .......... 69,390 5,000 -- -- --
Bad debt provision ............................. -- 22,800 7,200 -- --
Depreciation and amortization .................. 232,201 141,616 123,795 37,499 33,000
Deferred taxes ................................. (98,000) (1,000) (7,000) -- (82,000)
Accounts receivable ............................ 714,807 (270,921) (1,792,654) (298,206) 1,615,647
Inventory ...................................... (681,423) 1,523,539 (173,828) (102,558) (1,810,851)
Other receivables .............................. (16,604) (53,355) 94,019 94,019 --
Prepaid expenses ............................... (60,486) 14,249 (61,201) (164,517) 60,289
Accounts payable and accrued expenses .......... 941,545 (1,858,289) 1,042,776 180,465 (641,137)
Income taxes payable ........................... 367,891 154,531 (413,556) 182,758 206,000
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities ................... 2,253,710 2,869,693 547,458 193,609 (152,648)
----------- ----------- ----------- ----------- -----------
Cash flows used in investing activities:
Issuance of note receivable - related parties .... (464,400) -- (300,000) (80,000) --
Repayments of note receivable - related parties .. -- 464,400 -- -- 80,000
Acquisition of property and equipment ............ (135,661) (139,048) (171,129) (40,105) (42,198)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
investing activities .................... (600,061) 325,352 (471,129) (120,105) 37,802
----------- ----------- ----------- ----------- -----------
Cash flows used in financing activities:
Decrease in bank acceptances payable ............. (158,893) -- -- -- --
Repayment of restructured debt ................... -- (525,000) -- -- --
Repayments of loans to related parties ........... (316,144) (293,873) -- -- --
Payments on short term borrowings ................ (1,701,449) (1,406,019) -- -- --
----------- ----------- ----------- ----------- -----------
Net cash used in financing activities ...... (2,176,486) (2,224,892) -- -- --
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (522,837) 970,153 76,329 73,504 (114,846)
Cash and cash equivalents, beginning of period ..... 1,034,753 511,916 1,482,069 1,482,069 1,558,398
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents, end of period ........... $ 511,916 $ 1,482,069 $ 1,558,398 $ 1,555,573 $ 1,443,552
=========== =========== =========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ........................................... $ 261,668 $ 139,921 $ -- $ 0 $ 0
=========== =========== =========== =========== ===========
Income taxes ....................................... $ 114,000 $ 2,003,100 $ 1,720,620 $ 0 $ 0
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
Ajax Manufacturing Company
Notes to Financial Statements
1. Business Description. Ajax Manufacturing Company (the "Company" or
"Ajax") principally manufactures and refurbishes trailer chassis at its
Hillsborough, New Jersey facility. The Company also manufactures industrial
waste and refuse containers under the trade name of Rockford Equipment. The
Company sells its products throughout the United States. Certain transactions of
the Company were initially executed under the name of an inactive, affiliated
corporation controlled by the Company's Stockholder; related costs were funded
by the Company and reflected in the accompanying financial statements.
2. Summary of Significant Accounting Policies
Revenue Recognition.
The Company recognizes revenue when the product is inspected and accepted
by its customers or the customers' authorized agent and title has transferred.
Cash Equivalents
The Company considers all highly liquid investments with maturities of
less than three months when purchased to be cash equivalents.
Income Taxes
The Company follows Statement of Financial Accounting Standard ("SFAS")
No. 109, "Accounting for Income Taxes," which requires recognition of deferred
tax liabilities and assets for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined on the difference
between the financial statement and tax basis of assets and liabilities using
expected tax rates in effect for the year in which the differences are expected
to reverse.
Inventory
Inventory is stated at the lower of cost, determined on a first-in,
first-out basis, or market.
Inventory at June 30, 1997 has been costed using the gross-profit method
which was utilized in arriving at cost of sales for the quarters ended June 30,
1997 and 1996.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight line method for financial reporting purposes. The estimated lives
used in depreciating the assets are:
Years
-------
Transportation equipment .......................... 3 - 5
Leasehold improvements ............................ 10 - 25
Furniture, fixtures and office equipment .......... 5 - 7
Machinery and equipment ........................... 5 - 7
Depreciation on leasehold improvements is recorded over the lesser of the
useful lives of the assets or lease term. Expenditures for major renewals and
improvements that extend the useful lives of property and equipment are
capitalized. Expenditures for routine maintenance and repairs are charged to
expense as incurred.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The costs the Company will ultimately incur and the value of
assets ultimately realized could differ in the near term from the related
amounts reflected in the accompanying financial statements.
Significant accounting estimates include valuation of inventory, useful
lives of property and equipment and in the measurement of contingencies.
F-8
<PAGE>
Ajax Manufacturing Company
Notes to Financial Statements - (Continued)
Fair Value of Financial Instruments
Generally accepted accounting principles require disclosing fair value to
the extent practicable for financial instruments which are recognized or
unrecognized in the balance sheet. The fair value of the financial instruments
disclosed herein is not necessarily representative of the amount that could be
realized or settled, nor does the fair value amount consider the tax
consequences of realization or settlement. For cash equivalents, accounts
receivable and accounts payable, it is estimated that the carrying amounts at
March 31, 1996 and 1997 approximated fair values for these instruments because
of their short-term maturities or payment terms. Due to unspecified repayment
terms of the amounts due from related parties, it is not practicable to
determine the fair value of these non-interest bearing amounts.
Effects of Recent Accounting Pronouncements
In February 1997, SFAS No. 128, "Earnings per Share", was issued. The
pronouncement, which is effective for periods ending after December 15, 1997,
requires dual presentation of basic and diluted earnings per share. This
statement is not expected to have a material impact on the primary earnings per
share of the Company.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income" and SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information, were
issued. SFAS No. 130 addresses standards for reporting and display of
comprehensive income and its components and SFAS No. 131 requires disclosure of
reportable operating segments. Both statements are effective for the Company's
1999 fiscal year. The Company will be reviewing these pronouncements to
determine their applicability, if any.
3. Inventory. Inventory is comprised of the following:
March 31, (Unaudited)
-------------------------- June 30,
1996 1997 1997
---------- ---------- ----------
Raw materials ................. $1,936,467 $1,837,542 $2,784,224
Work in progress .............. 958,117 766,000 1,160,635
Finished goods ................ 446,511 911,381 1,380,915
---------- ---------- ----------
$3,341,095 $3,514,923 $5,325,774
========== ========== ==========
4. Property and Equipment. Property and equipment are summarized by major
classifications as follows:
March 31, (Unaudited)
-------------------------- June 30,
1996 1997 1997
---------- ---------- ----------
Transportation equipment ...... $ 150,907 $ 181,197 $ 182,197
Leasehold improvements ........ 1,096,307 1,096,307 1,096,307
Furniture, fixtures and
office equipment ........... 169,011 190,045 189,697
Machinery and equipment ....... 1,952,870 2,065,407 2,106,953
---------- ---------- ----------
3,369,095 3,532,956 3,575,164
Less: Accumulated depreciation
and amortization ............ 2,422,780 2,539,307 2,572,308
---------- ---------- ----------
$ 946,315 $ 993,649 $1,002,846
========== ========== ==========
5. Short-Term Borrowings. In October 1995, the Company entered into a
revolving line of credit agreement with a bank (the "Agreement") which permits
borrowings up to the lesser of (1) $2,000,000 or (2) the sum of defined account
receivables and inventory levels, plus $750,000. Interest on the revolving line
of credit is payable monthly at the bank's rate, plus 2%. There was no
outstanding balance as of March 31, 1996 and 1997 and June 30, 1997 (unaudited).
Interest expense for the years ended March 31, 1996 and 1997 and the quarter
ended June 30, 1997 (unaudited), totaled $41,962, $0 and $0, respectively.
The Agreement contains certain restrictions, including prohibitions on
additional borrowings or guarantees, the sale of assets and the payment of
dividends. The Company is also required to maintain certain financial ratios. As
of March 31, 1997 and June 30, 1997 (unaudited), the Company was in compliance
with all financial and operating covenants as specified in the Agreement.
Substantially all of the assets of the Company are pledged as collateral against
outstanding borrowings. This Agreement will be terminated upon completion of the
sale of the Company, discussed in Note 11.
F-9
<PAGE>
Ajax Manufacturing Company
Notes to Financial Statements - (Continued)
The Company's previous line of credit facilities were replaced by the
Agreement. Related interest expense for the years ended March 31, 1995 and 1996
were $243,539 and $57,705, respectively. The interest rates in effect on
outstanding borrowings as of March 31, 1995 was 12 1/2%.
6. Restructured Debt. At March 31, 1992, the Company was in technical
default of the payment terms of the balance ($485,343) of its 11 1/2% notes. The
Company and the creditor commenced negotiations on restructuring the payment
terms of this note and on April 19,1995, a settlement was reached. In return for
a full release of the obligation and interests in related collateral, the
Company paid $525,000 to the creditor. The accompanying financial statements
reflect the accrual of compounded interest expense through the settlement date.
The balance outstanding at March 31, 1995 was $672,780, including $187,437 of
accrued interest. The excess of the carrying value of this contractual
obligation over the settlement amount ($90,140, net of a current tax benefit of
$16,000 and a deferred tax provision of $78,640) has been recognized as an
extraordinary gain for the year ended March 31, 1996.
Interest expense for this note totaled $69,390 and $5,000 for the years
ended March 31, 1995 and 1996, respectively.
7. Income Taxes. The provision (benefit) for income taxes in the
statements of income and retained earnings consists of the following components:
(Unaudited)
Three Months
Year ended March 31, Ended June 30,
--------------------------------------- -------------
1995 1996 1997 1997
--------- ----------- ----------- ---------
Current:
Federal ............ $ 435,000 $ 1,674,000 $ 910,000 $ 313,000
State .............. 161,000 522,000 265,000 93,000
--------- ----------- ----------- ---------
Deferred:
Federal ............ (81,000) (800) (6,000) (69,000)
State .............. (17,000) (200) (1,000) (13,000)
--------- ----------- ----------- ---------
Total provision ...... $ 498,000 $ 2,195,000 $ 1,168,000 $ 324,000
========= =========== =========== =========
Deferred tax assets (liabilities) consist of the following items:
(Unaudited)
March 31, June 30,
---------------------- -----------
1996 1997 1997
-------- -------- --------
Deferred tax asset:
Accounts receivable ................. $ 9,000 $ 12,000 $ 12,000
Inventory ........................... 154,000 160,000 242,000
Warranty accrual .................... 36,000 33,000 33,000
-------- -------- --------
$199,000 $205,000 $287,000
======== ======== ========
Deferred tax liabilities:
Principally property, plant
and equipment basis difference .... $(13,000) $(12,000) $(12,000)
======== ======== ========
A reconciliation between the Company's effective tax-rate and the U.S.
statutory rate is as follows:
<TABLE>
<CAPTION>
(Unaudited)
Three Months
Year ended March 31, Ended June 30,
-------------------- ---------------
1995 1996 1997 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
U.S. statutory rate applied to pretax income .... 34.0% 34.0% 34.0% 34.0%
State tax provision, net of federal tax benefit . 7.0 7.0 7.0 7.0
Other ........................................... (2.0) (.7) (.7) --
---- ---- ---- ----
Total effective tax rate ........................ 39.0% 40.3% 40.3% 41.0%
==== ==== ==== ====
</TABLE>
8. Related Party Transactions. Lease Obligations with Stockholder. The
Company leases its manufacturing and office facilities from its sole Stockholder
on a monthly basis. (See Note 11). Rent expense incurred by the Company is
$310,000, $516,667, $620,000 and $155,000 for the years ended March 31, 1995,
1996 and 1997 and the quarter ended June 30, 1997 (unaudited), respectively. At
March 31, 1997 and June 30, 1997 (unaudited), prepaid rent totaled $103,333.
F-10
<PAGE>
Ajax Manufacturing Company
Notes to Financial Statements - (Continued)
Selling, General and Administrative Expenses
The Company does not have an employment agreement with its President, also
the Company's Stockholder. The Stockholder's compensation varies with the
overall performance of the Company and is generally subject to limitations
imposed by financial institutions, which have outstanding indebtedness with the
Company. Salary and incentives expense for the Company's Stockholder were
$13,000, $1,232,500 and $581,947 for the years ended March 31, 1995, 1996 and
1997, respectively.
Loans
At March 31, 1997, and June 30, 1997 the Company had loan receivables of
$300,000 and $220,000 (unaudited), respectively, from related parties,
principally an officer and the Stockholder. The loans do not bear interest or
stipulate payment terms; accordingly, the receivables are considered
non-current.
In 1989, the Company borrowed approximately $300,000 from an officer, with
an interest rate of 9% with principal amortized over a term of 30 years. The
outstanding balance at March 31, 1995 was $279,323. The Company repaid the
entire balance of this loan in September 1995. There was no gain or loss on the
early repayment of the debt. Interest expense for this note totaled $25,940 and
$12,834 for the years ended March 31, 1995 and 1996, respectively.
Guarantees
Through various guarantees, the Company's Stockholder is contingently
liable for repayment of certain indebtedness of the Company. There was no
outstanding principal of such borrowings at March 31, 1996 and 1997. There are
no direct costs to the Company associated with these guarantees.
9. Major Customers and Concentrations.
Major Customers
Listed below are five customers who individually accounted for 10% or more
of net sales for the years ended March 31, 1995, 1996 and 1997, respectively and
the three months ended June 30, 1997 (unaudited):
June 30,
Customer 1995 1996 1997 1997
-------- ----- ------ ----- -----
A 32% 33% 57% 26%
B -- 26 33 --
C -- 18 -- --
D 30 10 -- 56
E 37 -- -- --
-- -- -- --
99% 87% 90% 82%
== == == ==
Historically, the Company has relied on a limited number of customers for
a substantial portion of its total revenues. The Company expects that a
significant portion of its future revenues will continue to be generated by a
limited number of customers. The loss of any of these customers or any
substantial reduction in orders by any of these customers could have a material
adverse effect on operating results.
Concentrations
As discussed in Note 1, the Company's manufacturing and refurbishing
processes are concentrated in one facility.
The Company maintains cash balances at several financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100,000.
Credit Risk
Accounts receivable are primarily composed of unsecured balances. The
Company does not require collateral as a condition of sale.
F-11
<PAGE>
Ajax Manufacturing Company
Notes to Financial Statements - (Continued)
The Company has $634,000 (84% of total) and $1,660,000 (65% of total) of
accounts receivable with a sole customer at March 31, 1996 and 1997,
respectively. At March 31, 1997, another customer had an accounts receivable
balance of approximately $882,000 (34% of total).
10. Commitments and Contingencies.
Environmental Matters
The Company is subject to various Federal, state and local laws and
regulations governing the use, discharge and disposal of hazardous materials.
Management believes that the Company is in substantial compliance with current
laws and regulations. Accordingly, no reserve has been established for such
exposures. Compliance with current laws and regulations has not had, and is not
expected to have, a material adverse effect on the Company's financial
condition. However, it is possible that additional health related or
environmental issues may arise in the future which the Company cannot predict at
present.
The Company is subject to extensive federal, state and local regulation of
environmental matters relating to its operations. The Company and its
Stockholder are currently involved in test drillings and site assessments to
ascertain whether any environmental remediation efforts are required and, if
necessary, the magnitude and extent of such costs.
On May 2, 1997, the New Jersey Department of Environmental Protection
("NJDEP") issued an Administrative Order of Civil Administrative Penalty
Assessment ("Order and Notice") assessing the Company a $9,000 penalty for
emitting volatile organic compounds ("VOC") in excess of permissible limits in
1995. In response to the Order and Notice, the Company submitted to the NJDEP an
adjudicatory hearing request which contests the $9,000 assessment and outlines
the steps that the Company has taken to comply with the air quality regulatory
requirements for volatile compound emissions. The NJDEP could make further
assessments with respect to other years in which the allowable volatile compound
limits were exceeded by the Company, although no other assessments have yet been
made.
The outcome of NJDEP regulatory actions cannot be predicted with
certainty. The NJDEP could fine the Company for operating the shot blaster
booths without a completed permit between April 1992 and February 18, 1997, for
operating the heaters for the paint spray booths without a permit, and/or for
emitting more volatile compounds from the paint spray booths than allowed by its
permits. NJDEP could also require the Company to take other steps to comply with
NJDEP requirements and the Clean Air Act, including capital improvements to
ensure compliance with air quality regulations. Such improvements could include
a volatile compound incinerator and/or other control apparatus which could cost
$2,000,000 or more. NJDEP could also require the Company to use paints with
lower volatile compound content. To reduce volatile compound emissions, the
Company is attempting to obtain permission from its customers to use water-based
paint, which does not emit volatile compounds, instead of solvent-based paint.
In March 1997, the Company applied for new permits which seek to increase the
VOC emission limits of the paint spray booths by almost 25 additional tons per
year, which application was denied by NJDEP on July 30, 1997. The Company has
appealed the NJDEP denial, and if such application is not granted the Company
will not be in compliance with its allowable emission limits during 1997.
Failure to comply with NJDEP regulations and directives could result in fines
and/or NJDEP orders to curtail or shutdown operations, any or all of which could
have a material adverse effect on the Company's business, financial condition
and results of operations.
While it is not feasible to predict the outcome of all these matters,
management, based upon all available information, is of the opinion that the
ultimate disposition of these environmental matters will not have a material
adverse effect on the Company's financial position or results of operations.
Disposal Costs
The Company also engages independent contractors to arrange, at no cost to
the Company or the lessor, for the disposal of parts of refurbished chassis and
used equipment that are stored at its present location. The Company has not
established reserves related to the associated disposal costs of such items (in
the event the current leasing arrangement ceases and the Company relocates),
since such costs will be the responsibility of its lessor, also the Company's
Stockholder.
F-12
<PAGE>
Ajax Manufacturing Company
Notes to Financial Statements - (Continued)
Legal
The Company is either a plaintiff or a defendant in several pending legal
matters arising in the normal course of operations. In the opinion of
management, the final resolution of these matters will not have a material
adverse effect on the Company's financial position or results of operations.
Included in "Other income," in the accompanying 1995 and 1996 statements
of income and retained earnings are the proceeds from legal settlements of
$66,700, and $35,003 respectively. The Company initiated litigation against
certain inventory manufacturers for damages arising from purchases of
substandard product.
Internal Revenue Service ("IRS") Review
Revenue derived from sales of the Company's manufactured chassis is
subject to Federal excise tax. The Company uses certain estimates and valuation
assumptions in calculating excise tax liabilities. On July 3, 1997, the IRS
notified Ajax of an assessment totaling $1,722,000 (which includes $287,000 of
penalties). Ajax is reviewing the assessment and underlying correspondence and
intends to contest this assessment in a vigorous fashion. The review is in its
early stages and, accordingly, the Company cannot predict the ultimate outcome
of this matter. Accordingly, the Company has not established a liability for
this matter. In the event that the IRS asserts a successful claim for deficient
payments as a result of their review and assuming a definitive agreement as
described in Note 11 is consummated, the Company will be indemnified for such
liabilities by the Stockholder under terms of the sale agreement discussed in
Note 11, if such a sale is consummated. A successful claim for deficient
payments by the IRS could have a material adverse effect on the Company's
results of operations, financial condition and liquidity, exclusive of the
aforementioned indemnification. While it is not feasible to predict the ultimate
outcome of this matter, management, based upon all available information, is of
the opinion that the ultimate disposition of this matter will not have a
material adverse effect on the Company's financial position or results of
operations.
11. Sale of Company. On August 11, 1997 the Company's Stockholder executed
an agreement to sell the Company to an independent third party, Standard
Automotive Corporation ("SAC"), for consideration approximating $23.9 million.
The exact purchase price is subject to adjustment by the parties and will be
based on the financial position of the Company as of the closing date. The
amount of the contested IRS assessments discussed in Note 10 will be placed in
escrow pending the settlement of the matter.
In connection with the sale, the Company will execute a lease with its
Stockholder for an initial term of five years with four renewal options totaling
twenty years. The estimated annual base rent over the initial term will be
$600,000.
The Company's earnings per share data has been determined using the
outstanding common shares of SAC (equal to the capitalization of SAC prior to
the Acquisition) for the fiscal years ended March 31, 1995, 1996 and 1997.
12. Unaudited Interim Statements
The financial statements as of June 30, 1997 and for the three month
periods ended June 30, 1996 and 1997 are unaudited; however in the opinion of
management all adjustments (consisting solely of normal recurring adjustments)
necessary for a fair presentation of the financial statements for the interim
periods have been made. The results of interim periods are not necessarily
indicative of the results to be obtained in a full fiscal year.
F-13
<PAGE>
================================================================================
No Underwriter, dealer, sales person or other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus, and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company or any Underwriter.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of the Company since the hereof or that the information contained herein
is correct as of any time subsequent to the date hereof. This Prospectus does
not constitute an offer to sell or a solicitation of any offer to buy any
securities offered hereby by anyone in any jurisdiction in which such offer or
solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to anyone to whom it is unlawful to
make such offer or solicitation.
---------------
TABLE OF CONTENTS
Page
----
Prospectus Summary ........................................................ 3
Risk Factors .............................................................. 9
The Acquisition ........................................................... 16
Use of Proceeds ........................................................... 18
Dividend Policy ........................................................... 18
Capitalization ............................................................ 19
Dilution .................................................................. 20
Selected Financial Data ................................................... 22
Unaudited Selected Pro Forma Financial Data ............................... 23
Management's Discussion and Analysis of
Financial Condition and Results of Operations ........................... 26
Business .................................................................. 32
Management ................................................................ 39
Principal Shareholders .................................................... 43
Certain Transactions ...................................................... 44
Description of Securities ................................................. 45
Shares Eligible for Future Sale ........................................... 50
Certain Federal Income Tax Considerations ................................. 51
Underwriting .............................................................. 54
Legal Matters ............................................................. 56
Experts ................................................................... 56
Additional Information .................................................... 56
Index to Financial Statements ............................................. 57
---------------
Until _______, 1997 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities whether or not participating
in this distribution, may be required to deliver a Prospectus. This delivery
requirement is in addition to the obligations of dealers to deliver a Prospectus
when acting as Underwriters and with respect to their unsold allotments or
subscriptions.
================================================================================
================================================================================
STANDARD AUTOMOTIVE
CORPORATION
1,000,000 Shares
of
Convertible Redeemable
Preferred Stock
1,300,000 Shares
of
Common Stock
----------
PROSPECTUS
----------
DIRKS & COMPANY, INC.
MILLENNIUM FINANCIAL GROUP, INC.
__________, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Set forth below are the expenses (other than underwriting discounts and
commissions) expected to be incurred in connection with the issuance and
distribution of the securities registered hereby. With the exception of the
Securities and Exchange Commission registration fee and the AMEX filing fee, the
amounts set forth below are estimates.
Securities and Exchange Commission registration fee .... $ 9,114
AMEX filing fee ........................................ 20,000
NASD filing fee ........................................ 3,508
Printing and engraving expenses ........................ 100,000*
Legal fees and expenses ................................ 400,000*
Accounting fees and expenses ........................... 100,000*
Blue Sky fees and expenses ............................. 5,000*
Transfer agent fees and expenses ....................... 5,000*
Miscellaneous Expenses ................................. 17,378*
Total .................................................. $ 660,000
=========
- ----------
* Estimated.
Item 14. Indemnification of Directors and Officers
Section 145 of the General Corporation Law of the State of Delaware
provides for the indemnification of officers and directors under certain
circumstances against expenses incurred in successfully defending against a
claim and authorizes Delaware corporations to indemnify their officers and
directors under certain circumstances against expenses and liabilities incurred
in legal proceedings involving such persons because of their being or having
been an officer or director. Pursuant to section 102(b)(7) of the General
Corporation Law of the State of Delaware, the Restated Certificate of
Incorporation of the Company provides that the directors of the Company,
individually or collectively, shall not be held personally liable to the
Registrant or its stockholders for monetary damages for breaches of fiduciary
duty as directors, except that any director shall remain liable (1) for any
breach of the director's fiduciary duty of loyalty to the Company or its
stockholders, (2) for acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of law, (3) for liability under
Section 174 of the General Corporation Law of the State of Delaware or (4) for
any transaction from which the director derived an improper personal benefit.
The by-laws of the Company provide for indemnification of its officers and
directors to the full extent authorized by law.
Reference is made to Section 7 of the form of Underwriting Agreement filed
as Exhibit 1.1 to this Registration Statement.
Item 15. Recent Sales of Unregistered Securities
In March 1997, the Company issued an aggregate of 2,067,500 shares of
Common Stock to Karl Massaro, William Merker, Steven Merker and Andrew Levy in
connection with its organization for an aggregate of $2,067.50. The Company
believes that the issuance of such shares is exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Act") pursuant to
Section 4(2) thereof as a transaction not involving a public offering.
On August 8, 1997, for aggregate consideration of $325,000, the Company
sold $325,000 in aggregate principal amount of Notes (the "Bridge Notes") to the
following third party investors: Gary Dorsi, Thomas Szemiot, Robert H.
Rathauser, Dr. Stephen Jankovic, Ghanshyambhai G. Patel, Martin R. Lesh, Mark M.
Wiener, Abbas K. Shikary, Swayam Prakash, Financial Merchant Group, Inc., David
Leibman. The Company paid an aggregate of $32,500 as commissions in connection
with the sale of the Bridge Notes. The Company believes that the issuance of the
Bridge Notes is exempt from the registration requirements of the Act, pursuant
to Section 4(2) thereof as a
II-1
<PAGE>
transaction not involving a public offering. Upon closing of this Offering, the
Company will issue to the holders of the Bridge Notes a number of shares of
Common Stock determined by dividing such principal amount by the initial public
offering price per share of the Common Stock offered hereby. The Company
believes that the issuance of such shares will be exempt from the registration
requirements of the Act pursuant to Section 4(2) thereof as a transaction not
involving a public offering.
Upon closing of this Offering, the Company will grant options to purchase
up to 50,000 shares of Common Stock to Mr. Carl Massaro. The Company believes
that the grant of such options is exempt from the registration requirements of
the Act pursuant to Section 4(2) thereof as a transaction not involving a public
offering.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
Exhibit No. Description of Exhibit
- ----------- ----------------------
1.1 Form of Underwriting Agreement*
3.1 Amended and Restated Certificate of Incorporation of the Company***
3.2 Form of Certificate of Designation, Preferences and Rights of 8 1/2%
Senior Convertible Redeemable Preferred Stock***
3.3 By-Laws of the Company***
4.1 Form of Common Stock Certificate**
4.2 Form of Representatives' Warrant Agreement and Form of Warrant*
5.1 Opinion of Phillips Nizer Benjamin Krim & Ballon LLP**
10.1 Stock Purchase and Redemption Agreement between Standard Automotive
Corporation and Carl Massaro dated August 11, 1997***
10.2 Form of Employment Agreement between the Company and Karl Massaro
dated _______, 1997***
10.3 Form of Consulting Agreement between the Company and Carl Massaro
dated _______, 1997***
10.4 Form of Employment Agreement between the Company and Steven Merker
dated _______, 1997***
10.5 Form of Lease between the Company and Carl Massaro dated
____________, 1997***
10.6 Form of Option Agreement dated _________ 1997 between the Company
and Carl Massaro**
10.7 1997 Incentive Stock Option Plan***
10.8 Advisory Agreement between the Company and Barclay Partners LLC
dated ___________, 1997***
10.9 Advisory Agreement between the Company and Redstone Capital Corp.
dated ___________, 1997***
10.10 Redemption Note to be executed by the Company in favor of Carl
Massaro dated _______, 1997.***
10.11 Security Agreement between the Company and Carl Massaro dated
_______, 1997.***
10.12 Guaranty made by the Company in favor of Carl Massaro dated _______,
1997.*
10.13 Escrow Agreement among the Company, Carl Massaro and Phillips Nizer
Benjamin Krim & Ballon LLP dated _______, 1997.***
12. Computation of Pro Forma, As Adjusted Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends*
23.1 Consent of BDO Seidman, LLP*
23.2 Consent of BDO Seidman, LLP*
23.3 Consent of Phillips Nizer Benjamin Krim & Ballon LLP (included in
Exhibit 5.1)
24.1 Power of Attorney (included in Part II)
- ----------
* Filed herewith
** To be filed by amendment
*** Previously filed
(b) Financial Statement Schedules:
II-2
<PAGE>
All financial statement schedules are omitted because the information is
not required, is not material or is otherwise included in the financial
statements or related notes thereto.
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to directors, officers or
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be a part of this Registration Statement as of
the time it was declared effective.
(2) For the purposes of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed to
be a new Registration Statement relating to the securities offered therein, and
this Offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof
The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in this Registration Statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar volume of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide Offering thereof;
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant has duly caused this amendment to registration statement to be signed
on its behalf by the undersigned in the City of New York, State of New York, on
October , 1997.
STANDARD AUTOMOTIVE CORPORATION
By: /s/ Karl Massaro
---------------------------------------
Karl Massaro, President and Director
(Principal Executive Officer)
In accordance with the requirements of the Securities Act of 1933, this
amendment to registration statement has been signed by the following persons in
the capacities and on the dates stated.
Signature Titles Date
--------- ------ ----
* Director October , 1997
- -------------------------
Roy Ceccato
/s/ Karl Massaro President and Director October , 1997
- ------------------------- (Principal Executive Officer)
Karl Massaro
/s/ Steven Merker Chairman of the Board, October , 1997
- ------------------------- Treasurer and
Steven Merker Principal Financial
and Accounting Officer October , 1997
* Vice President, Secretary October , 1997
- ------------------------- and Director
William Merker
* Director October , 1997
- -------------------------
Joseph Spinella
* By: /s/ Steven Merker
-------------------
Steven Merker
Attorney-in-Fact
- ----------
* Executed pursuant to a power of attorney contained in Registration Statement.
II-4
<PAGE>
Exhibit Index
Exhibit No. Description of Exhibit
- ----------- ----------------------
1.1 Form of Underwriting Agreement*
3.1 Amended and Restated Certificate of Incorporation of the Company***
3.2 Form of Certificate of Designation, Preferences and Rights of 8 1/2%
Senior Convertible Redeemable Preferred Stock***
3.3 By-Laws of the Company***
4.1 Form of Common Stock Certificate**
4.2 Form of Representatives' Warrant Agreement and Form of Warrant*
5.1 Opinion of Phillips Nizer Benjamin Krim & Ballon LLP**
10.1 Stock Purchase and Redemption Agreement between Standard Automotive
Corporation and Carl Massaro dated August 11, 1997***
10.2 Form of Employment Agreement between the Company and Karl Massaro
dated _______, 1997***
10.3 Form of Consulting Agreement between the Company and Carl Massaro
dated _______, 1997***
10.4 Form of Employment Agreement between the Company and Steven Merker
dated _______, 1997***
10.5 Form of Lease between the Company and Carl Massaro dated
____________, 1997***
10.6 Form of Option Agreement dated _________ 1997 between the Company
and Carl Massaro**
10.7 1997 Incentive Stock Option Plan***
10.8 Advisory Agreement between the Company and Barclay Partners LLC
dated ___________, 1997***
10.9 Advisory Agreement between the Company and Redstone Capital Corp.
dated ___________, 1997***
10.10 Redemption Note to be executed by the Company in favor of Carl
Massaro dated _______, 1997.***
10.11 Security Agreement between the Company and Carl Massaro dated
_______, 1997.***
10.12 Guaranty made by the Company in favor of Carl Massaro dated _______,
1997.*
10.13 Escrow Agreement among the Company, Carl Massaro and Phillips Nizer
Benjamin Krim & Ballon LLP dated _______, 1997.***
12. Computation of Pro Forma, As Adjusted Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends*
23.1 Consent of BDO Seidman, LLP*
23.2 Consent of BDO Seidman, LLP*
23.3 Consent of Phillips Nizer Benjamin Krim & Ballon LLP (included in
Exhibit 5.1)
24.1 Power of Attorney (included in Part II)
- ----------
* Filed herewith
** To be filed by amendment
*** Previously filed
EXHIBIT 1.1
[Form of Underwriting Agreement - Subject to Additional Review]
1,300,000 SHARES OF COMMON STOCK AND
1,000,000 SHARES OF CONVERTIBLE REDEEMABLE PREFERRED STOCK
STANDARD AUTOMOTIVE CORPORATION
UNDERWRITING AGREEMENT
New York, New York
, 1997
DIRKS & COMPANY, INC.
MILLENNIUM FINANCIAL GROUP, INC.
As Representatives of the
Several Underwriters listed on Schedule A hereto
c/o Dirks & Company, Inc.
520 Madison Avenue
New York, New York 10022
Ladies and Gentlemen:
Standard Automotive Corporation, a Delaware corporation (the "Company"),
confirms its agreement with Dirks & Company, Inc. ("Dirks"), Millennium
Financial Group, Inc. ("Millennium"), and each of the underwriters named in
Schedule A hereto (collectively, the "Underwriters," which term shall also
include any underwriter substituted as hereinafter provided in Section 11), for
whom Dirks and Millennium are acting as co-representatives (in such capacity,
Dirks and Millennium each shall hereinafter sometimes be referred to as a
Representative and collectively as "you" or the "Representatives"), with respect
to the sale by the Company and the purchase by the Underwriters, acting
severally and not jointly, of the respective numbers of shares of the Company's
common stock, $0.001 par value per share ("Common Stock"), and the Company's
convertible redeemable preferred stock, $0.001 par value per share ("Convertible
Preferred Stock") set forth in Schedule A hereto. The aggregate
<PAGE>
1,300,000 shares of Common Stock and 1,000,000 shares of Convertible Preferred
Stock will be separately tradeable upon issuance and are hereinafter referred to
as the "Firm Securities." The shares of Convertible Preferred Stock may be
redeemed by the Company at a redemption price of $[___] [IPO price per share of
Convertible Preferred Stock] per share, plus accumulated and unpaid dividends,
at any time after __________, 2000 [30 months from the date of this Agreement]
on thirty (30) days' prior written notice, provided that the closing bid price
of the Common Stock equals or exceeds $[____] [180% of the initial public
offering price of the Common Stock] per share, for any twenty (20) trading days
within a period of thirty (30) consecutive trading days ending on the fifth
trading day prior to the date of the notice of redemption. The shares of
Convertible Preferred Stock may be converted into Common Stock at any time after
__________, 1998 [180 days from the date of this Agreement] prior to redemption
at the ratio of one share of Common Stock for each share of Convertible
Preferred Stock, an effective conversion price of $[____] [IPO price per share
of Convertible Preferred Stock] per share or 120% of the initial public offering
price per share of Common Stock (subject to adjustment under certain
circumstances including in the event of the failure by the Company to pay a
dividend on the Convertible Preferred Stock within 30 days after a dividend
payment date, which will result in each instance in a reduction of $0.50 per
share in the conversion price but not below $9.00 per share).
Upon your request, as provided in Section 2(b) of this Agreement, the
Company shall also issue and sell to the Underwriters, acting severally and not
jointly, up to an additional 195,000 Shares of Common Stock and/or 150,000
Shares of Convertible Preferred Stock for the purpose of covering
over-allotments, if any. Such 195,000 Shares of Common Stock and 150,000 Shares
of Convertible Preferred Stock are hereinafter collectively referred to as the
"Option Securities." The Company also proposes to issue and sell to the
Representatives warrants (the "Representatives' Warrants") pursuant to the
Representatives' Warrant Agreement (the "Representatives' Warrant Agreement")
for the purchase of an additional 130,000 Shares of Common Stock and/or 100,000
Shares of Convertible Preferred Stock. The Shares of Common Stock and the Shares
of Convertible Preferred Stock issuable upon exercise of the Representatives'
Warrants and the Shares of Common Stock issuable upon conversion of the
Convertible Preferred Stock issuable upon exercise of the Representatives'
Warrants are hereinafter referred to as the "Representatives' Securities." The
Firm Securities, the Option Securities, the Representatives' Warrants and the
Representatives' Securities (collectively, hereinafter referred to as the
"Securities") are more fully described in the Registration Statement and the
Prospectus referred to below.
Simultaneously with the closing of the purchase of the shares of Common
Stock and Convertible Preferred Stock by the Underwriters, the Company will
acquire in a separate Acquisition Transaction (the "Acquisition") all of the
Common Stock and ownership interest of Ajax Manufacturing Company, a New Jersey
corporation ("Ajax"), the consideration for which will be a combination of cash
payable by the Company and a three-year promissory note payable by Ajax as
described in the Registration Statement.
1. Representations and Warranties of each of the Company and Ajax. The
Company represents and warrants to, and agrees with, each of the Underwriters as
of the date hereof, and
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as of the Closing Date (as hereinafter defined) and each Option Closing Date (as
hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form S-1 (No. 333-33465), including any
related preliminary prospectus ("Preliminary Prospectus"), for the registration
of the Firm Securities, the Option Securities and the Representatives'
Securities under the Securities Act of 1933, as amended (the "Act"), which
registration statement and amendment or amendments have been prepared by the
Company in conformity with the requirements of the Act, and the rules and
regulations (the "Regulations") of the Commission under the Act. The Company
will promptly file a further amendment to said registration statement in the
form heretofore delivered to the Underwriters and will not file any other
amendment thereto to which the Underwriters shall have objected in writing after
having been furnished with a copy thereof. Except as the context may otherwise
require, such registration statement, as amended, on file with the Commission at
the time the registration statement becomes effective (including the prospectus,
financial statements, schedules, exhibits and all other documents filed as a
part thereof or incorporated therein (including, but not limited to those
documents or information incorporated by reference therein) and all information
deemed to be a part thereof as of such time pursuant to paragraph (b) of Rule
430(A) of the Regulations), is hereinafter called the "Registration Statement",
and the form of prospectus in the form first filed with the Commission pursuant
to Rule 424(b) of the Regulations, is hereinafter called the "Prospectus." For
purposes hereof, "Rules and Regulations" mean the rules and regulations adopted
by the Commission under either the Act or the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary Prospectus,
the Registration Statement or Prospectus or any part of any thereof and no
proceedings for a stop order suspending the effectiveness of the Registration
Statement or any of the Company's securities have been instituted or are pending
or threatened. Each of the Preliminary Prospectus, the Registration Statement
and Prospectus at the time of filing thereof conformed with the requirements of
the Act and the Rules and Regulations, and none of the Preliminary Prospectus,
the Registration Statement or Prospectus at the time of filing thereof contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that this representation and warranty does not apply to statements made in
reliance upon and in conformity with written information furnished to the
Company with respect to the Underwriters by or on behalf of the Underwriters
expressly for use in such Preliminary Prospectus, Registration Statement or
Prospectus or any amendment thereof or supplement thereto.
(c) When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date (as defined herein) and each
Option Closing Date (as defined herein), if any, and during such longer period
as the Prospectus may be required to be delivered in connection with sales by
the Underwriters or a dealer, the Registration Statement and the Prospectus will
contain all statements which are required to be stated therein in accordance
with
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the Act and the Rules and Regulations, and will conform to the requirements of
the Act and the Rules and Regulations; neither the Registration Statement nor
the Prospectus, nor any amendment or supplement thereto, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, provided, however,
that this representation and warranty does not apply to statements made or
statements omitted in reliance upon and in conformity with information furnished
to the Company in writing by or on behalf of any Underwriter expressly for use
in the Preliminary Prospectus, Registration Statement or Prospectus or any
amendment thereof or supplement thereto.
(d) Each of the Company and Ajax has been duly organized and is
validly existing as a corporation in good standing under the laws of the state
of its incorporation. Except as set forth in the Prospectus, each of the Company
and Ajax does not own an interest in any corporation, partnership, trust, joint
venture or other business entity. Each of the Company and Ajax is duly qualified
and licensed and in good standing as a foreign corporation in each jurisdiction
in which its ownership or leasing of any properties or the character of its
operations requires such qualification or licensing. Each of the Company and
Ajax has all requisite power and authority (corporate and other), and has
obtained any and all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or regulatory
officials and bodies (including, without limitation, those having jurisdiction
over environmental or similar matters), to own or lease its properties and
conduct its business as described in the Prospectus; each of the Company and
Ajax is and has been doing business in compliance with all such authorizations,
approvals, orders, licenses, certificates, franchises and permits and all
applicable federal, state, local and foreign laws, rules and regulations; and
each of the Company and Ajax has not received any notice of proceedings relating
to the revocation or modification of any such authorization, approval, order,
license, certificate, franchise, or permit which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would materially and
adversely affect the condition, financial or otherwise, or the earnings,
position, prospects, value, operation, properties, business or results of
operations of each of the Company and Ajax. The disclosures in the Registration
Statement concerning the effects of federal, state, local, and foreign laws,
rules and regulations on each of the Company and Ajax's business as currently
conducted and as contemplated are correct in all material respects and do not
omit to state a material fact required to be stated therein or necessary to make
the statements contained therein not misleading in light of the circumstances
under which they were made.
(e) Each of the Company and Ajax has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus under "Capitalization"
and "Description of Securities" and will have the adjusted capitalization set
forth therein on the Closing Date and each Option Closing Date, if any, based
upon the assumptions set forth therein, and each of the Company and Ajax is not
a party to or bound by any instrument, agreement or other arrangement providing
for it to issue any capital stock, rights, warrants, options or other
securities, except for this Agreement, the Representatives' Warrant Agreement
and as described in the Prospectus. The Securities and all other securities
issued or issuable by the Company conform or, when issued and paid for, will
conform, in all respects to all statements with respect thereto contained in the
Registration Statement and the Prospectus. All issued and outstanding
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securities of each of the Company and Ajax have been duly authorized and validly
issued and are fully paid and non-assessable and the holders thereof have no
rights of rescission with respect thereto, and are not subject to personal
liability by reason of being such holders; and none of such securities were
issued in violation of the preemptive rights of any holders of any security of
each of the Company and Ajax or similar contractual rights granted by each of
the Company and Ajax. As of the Closing Date, after giving effect to the
Acquisition, all of the issued and outstanding shares of capital stock of Ajax
will be owned by the Company free and clear of any security interest, mortgage,
pledge, lien, encumbrance or claim; and no options, warrants or other rights to
purchase, agreements or other obligations to issue or other rights to convert
any obligations into shares of capital stock or ownership interests in Ajax are
outstanding. The Securities are not and will not be subject to any preemptive or
other similar rights of any stockholder, have been duly authorized and, when
issued, paid for and delivered in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable and will conform to the
description thereof contained in the Prospectus; the holders thereof will not be
subject to any liability solely as such holders; all corporate action required
to be taken for the authorization, issue and sale of the Securities has been
duly and validly taken; and the certificates representing the Securities will be
in due and proper form. Upon the issuance and delivery pursuant to the terms
hereof of the Securities to be sold by the Company hereunder, the Underwriters
or the Representatives, as the case may be, will acquire good and marketable
title to such Securities free and clear of any lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction or equity of any kind
whatsoever.
(f) The financial statements of each of the Company and Ajax,
together with the related notes and schedules thereto, included in the
Registration Statement, each Preliminary Prospectus and the Prospectus fairly
present the financial position, income, changes in cash flow, changes in
stockholders' equity and the results of operations of each of the Company and
Ajax at the respective dates and for the respective periods to which they apply
and such financial statements have been prepared in conformity with generally
accepted accounting principles and the Rules and Regulations, consistently
applied throughout the periods involved and such financial statements as are
audited have been examined by BDO Seidman LLP, who are independent certified
public accountants within the meaning of the Act and the Rules and Regulations,
as indicated in their reports filed therewith. There has been no adverse change
or development involving a prospective adverse change in the condition,
financial or otherwise, or in the earnings, position, prospects, value,
operation, properties, business, or results of operations of each of the Company
and Ajax, whether or not arising in the ordinary course of business, since the
date of the financial statements included in the Registration Statement and the
Prospectus and the outstanding debt, the property, both tangible and intangible,
and the business of each of the Company and Ajax, conform in all material
respects to the descriptions thereof contained in the Registration Statement and
the Prospectus. Financial information (including, without limitation, any pro
forma financial information) set forth in the Prospectus under the headings
"Summary Financial Data," "Selected Consolidated Financial Data,"
"Capitalization," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," fairly present, on the basis stated in the
Prospectus, the information set forth therein, and have been derived from or
compiled on a basis consistent with that of the audited financial statements
included in the Prospectus; and, in the case of pro forma financial information,
if any, the assumptions used in the preparation thereof are reasonable and the
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adjustments used therein are appropriate to give effect to the transactions and
circumstances referred to therein. The amounts shown as accrued for current and
deferred income and other taxes in such financial statements are sufficient for
the payment of all accrued and unpaid federal, state, local and foreign income
taxes, interest, penalties, assessments or deficiencies applicable to each of
the Company and Ajax, whether disputed or not, for the applicable period then
ended and periods prior thereto; adequate allowance for doubtful accounts has
been provided for unindemnified losses due to the operations of each of the
Company and Ajax; and the statements of income do not contain any items of
special or nonrecurring income not earned in the ordinary course of business,
except as specified in the notes thereto.
(g) Each of the Company and Ajax (i) has paid all federal, state,
local, and foreign taxes for which it is liable, including, but not limited to,
withholding taxes and amounts payable under Chapters 21 through 24 of the
Internal Revenue Code of 1986, as amended (the "Code"), or has established
adequate reserves for such taxes, (ii) has furnished all information returns it
is required to furnish pursuant to the Code, (iii) has established adequate
reserves for such taxes which are not due and payable, and (iv) does not have
any tax deficiency or claims outstanding, proposed or assessed against it, other
than as described in the Registration Statement.
(h) No transfer tax, stamp duty or other similar tax is payable by
or on behalf of the Underwriters in connection with (i) the issuance by the
Company of the Securities, (ii) the purchase by the Underwriters of the Firm
Securities and the Option Securities from the Company and the purchase by the
Representatives of the Representatives' Warrants from the Company, (iii) the
consummation by each of the Company and Ajax of any of its obligations under
this Agreement, or (iv) resales of the Firm Securities and the Option Securities
in connection with the distribution contemplated hereby.
(i) Each of the Company and Ajax maintains insurance policies,
including, but not limited to, general liability, malpractice and property
insurance, which insures each of the Company, Ajax and their employees, against
such losses and risks generally insured against by comparable businesses. Each
of the Company and Ajax (A) has not failed to give notice or present any
insurance claim with respect to any matter, including but not limited to each of
the Company and Ajax's business, property or employees, under any insurance
policy or surety bond in a due and timely manner, (B) does not have any disputes
or claims against any underwriter of such insurance policies or surety bonds or
has failed to pay any premiums due and payable thereunder, or (C) has failed to
comply with all conditions contained in such insurance policies and surety
bonds. There are no facts or circumstances under any such insurance policy or
surety bond which would relieve any insurer of its obligation to satisfy in full
any valid claim of each of the Company and Ajax.
(j) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of, each of the
Company and Ajax which (i) questions the validity of the capital stock of each
of the Company and Ajax, this Agreement, or the Representatives' Warrant
Agreement, or of any action taken or to be taken by each of the Company and Ajax
pursuant to or in connection with
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<PAGE>
this Agreement or the Representatives' Warrant Agreement, (ii) is required to be
disclosed in the Registration Statement which is not so disclosed (and such
proceedings as are summarized in the Registration Statement are accurately
summarized in all material respects), or (iii) might materially and adversely
affect the condition, financial or otherwise, or the earnings, position,
prospects, stockholders' equity, value, operation, properties, business or
results of operations of each of the Company and Ajax.
(k) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, enter into this Agreement and
the Representatives' Warrant Agreement and to consummate the transactions
provided for in this Agreement and the Representatives' Warrant Agreement; and
this Agreement and the Representatives' Warrant Agreement have each been duly
and properly authorized, executed and delivered by the Company. Each of this
Agreement and the Representatives' Warrant Agreement constitutes a legal, valid
and binding agreement of the Company enforceable against the Company in
accordance with its terms, and none of the Company's issue and sale of the
Securities, execution or delivery of this Agreement or the Representatives'
Warrant Agreement, its performance hereunder and thereunder, its consummation of
the transactions contemplated herein and therein, or the conduct of its business
as described in the Registration Statement, the Prospectus, and any amendments
or supplements thereto, conflicts with or will conflict with or results or will
result in any breach or violation of any of the terms or provisions of, or
constitutes or will constitute a default under, or result in the creation or
imposition of any lien, charge, claim, encumbrance, pledge, security interest,
defect or other restriction or equity of any kind whatsoever upon, any property
or assets (tangible or intangible) of each of the Company and Ajax pursuant to
the terms of (i) the amended and restated articles of incorporation or amended
and restated by-laws of each of the Company and Ajax, (ii) any license,
contract, collective bargaining agreement, indenture, mortgage, deed of trust,
lease, voting trust agreement, stockholders agreement, note, loan or credit
agreement or any other agreement or instrument to which each of the Company and
Ajax is a party or by which each of the Company and Ajax is or may be bound or
to which its or assets (tangible or intangible) is or may be subject, or any
indebtedness, or (iii) any statute, judgment, decree, order, rule or regulation
applicable to each of the Company and Ajax of any arbitrator, court, regulatory
body or administrative agency or other governmental agency or body (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over each of the Company and
Ajax or any of its activities or properties.
(l) No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance of the Securities pursuant to the
Prospectus and the Registration Statement, the performance of this Agreement and
the Representatives' Warrant Agreement and the transactions contemplated hereby
and thereby, including without limitation, any waiver of any preemptive, first
refusal or other rights that any entity or person may have for the issue and/or
sale of any of the Securities, except such as have been or may be obtained under
the Act or may be required under state securities or Blue Sky laws in connection
with the Underwriters' purchase and distribution of the Firm Securities and the
Option Securities, and the Representatives' Warrants to be sold by the Company
hereunder.
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(m) All executed agreements, contracts or other documents or
copies of executed agreements, contracts or other documents filed as exhibits to
the Registration Statement to which each of the Company and Ajax is a party or
by which it or they may be bound or to which its or their respective assets,
properties or business may be subject have been duly and validly authorized,
executed and delivered by each of the Company and Ajax and constitute the legal,
valid and binding agreements of each of the Company and Ajax, as the case may
be, enforceable against it in accordance with its terms. The descriptions in the
Registration Statement of agreements, contracts and other documents are accurate
and fairly present the information required to be shown with respect thereto by
Form S-1, and there are no contracts or other documents which are required by
the Act to be described in the Registration Statement or filed as exhibits to
the Registration Statement which are not described or filed as required, and the
exhibits which have been filed are complete and correct copies of the documents
of which they purport to be copies.
(n) Subsequent to the respective dates as of which information is
set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, each of the Company
and Ajax has not (i) issued any securities or incurred any liability or
obligation, direct or contingent, for borrowed money, (ii) entered into any
transaction other than in the ordinary course of business, or (iii) declared or
paid any dividend or made any other distribution on or in respect of its capital
stock of any class, and there has not been any change in the capital stock, or
any change in the debt (long or short term) or liabilities or material adverse
change in or affecting the general affairs, management, financial operations,
stockholders' equity or results of operations of each of the Company and Ajax.
(o) No default exists in the due performance and observance of any
term, covenant or condition of any license, contract, collective bargaining
agreement, indenture, mortgage, installment sale agreement, lease, deed of
trust, voting trust agreement, stockholders agreement, partnership agreement,
note, loan or credit agreement, purchase order, or any other agreement or
instrument evidencing an obligation for borrowed money, or any other material
agreement or instrument to which each of the Company and Ajax is a party or by
which each of the Company and Ajax may be bound or to which the property or
assets (tangible or intangible) of each of the Company and Ajax is subject or
affected.
(p) Each of the Company and Ajax has generally enjoyed a
satisfactory employer-employee relationship with its employees and is in
compliance with all federal, state, local, and foreign laws and regulations
respecting employment and employment practices, terms and conditions of
employment and wages and hours. There are no pending investigations involving
each of the Company and Ajax by the U.S. Department of Labor, or any other
governmental agency responsible for the enforcement of such federal, state,
local, or foreign laws and regulations. There is no unfair labor practice charge
or complaint against each of the Company and Ajax pending before the National
Labor Relations Board or any lockout, strike, picketing, boycott, dispute,
slowdown or stoppage pending or threatened against or involving each of the
Company and Ajax, or any predecessor entity, and none has ever occurred. No
representation question exists respecting the employees of each of the Company
and Ajax, and no collective bargaining agreement or modification thereof is
currently being negotiated by each of the Company and Ajax. No grievance or
arbitration proceeding is pending under any expired
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or existing collective bargaining agreements of each of the Company and Ajax. No
labor dispute with the employees of each of the Company and Ajax exists, or, is
imminent.
(q) Neither the Company nor Ajax maintains, sponsors or
contributes to any program or arrangement that is an "employee pension benefit
plan," an "employee welfare benefit plan," or a "multiemployer plan" as such
terms are defined in Sections 3(2), 3(1) and 3(37), respectively, of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA
Plans"). Neither the Company nor Ajax maintains or contributes, now or at any
time previously, to a defined benefit plan, as defined in Section 3(35) of
ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Code, which could subject each of the Company and Ajax to any tax
penalty on prohibited transactions and which has not adequately been corrected.
Each ERISA Plan is in compliance with all reporting, disclosure and other
requirements of the Code and ERISA as they relate to any such ERISA Plan.
Determination letters have been received from the Internal Revenue Service with
respect to each ERISA Plan which is intended to comply with Code Section 401(a),
stating that such ERISA Plan and the attendant trust are qualified thereunder.
Each of the Company and Ajax has never completely or partially withdrawn from a
"multiemployer plan."
(r) Neither the Company, nor Ajax, nor any of their respective
employees, directors, stockholders, partners, or affiliates (within the meaning
of the Rules and Regulations) of any of the foregoing has taken or will take,
directly or indirectly, any action designed to or which has constituted or which
might be expected to cause or result in, under the Exchange Act, or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities or otherwise.
(s) Except as otherwise disclosed in the Prospectus, none of the
patents, patent applications, trademarks, service marks, trade names and
copyrights, and licenses and rights to the foregoing presently owned or held by
each of the Company and Ajax, are in dispute so far as known by each of the
Company and Ajax or are in any conflict with the right of any other person or
entity. Each of the Company and Ajax (i) owns or has the right to use, free and
clear of all liens, charges, claims, encumbrances, pledges, security interests,
defects or other restrictions or equities of any kind whatsoever, all patents,
trademarks, service marks, trade names and copyrights, technology and licenses
and rights with respect to the foregoing, used in the conduct of its business as
now conducted or proposed to be conducted without infringing upon or otherwise
acting adversely to the right or claimed right of any person, corporation or
other entity under or with respect to any of the foregoing and (ii) is not
obligated or under any liability whatsoever to make any payment by way of
royalties, fees or otherwise to any owner or licensee of, or other claimant to,
any patent, trademark, service mark, trade name, copyright, know-how, technology
or other intangible asset, with respect to the use thereof or in connection with
the conduct of its business or otherwise.
(t) Each of the Company and Ajax has good and marketable title to,
or valid and enforceable leasehold estates in, all items of real and personal
property stated in the Prospectus to be owned or leased by it, free and clear of
all liens, charges, claims, encumbrances, pledges,
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security interests, defects, or other restrictions or equities of any kind
whatsoever, other than those referred to in the Prospectus and liens for taxes
not yet due and payable.
(u) BDO Seidman LLP, whose report is filed with the Commission as
a part of the Registration Statement, are independent certified public
accountants as required by the Act and the Rules and Regulations.
(v) The Company has caused to be duly executed legally binding and
enforceable agreements pursuant to which each of the Company's officers,
directors and all holders of the Common Stock of the Company or securities
exchangeable or exercisable for or convertible into shares of Common Stock, has
agreed not to, directly or indirectly, issue, offer, offer to sell, sell, grant
any option for the sale or purchase of, assign, transfer, pledge, hypothecate or
otherwise encumber or dispose of any shares of Common Stock or securities
convertible into, exercisable or exchangeable for or evidencing any right to
purchase or subscribe for any shares of Common Stock (either pursuant to Rule
144 of the Rules and Regulations or otherwise) or dispose of any beneficial
interest therein for a period of not less than twelve (12) months following the
effective date of the Registration Statement without the prior written consent
of Dirks. During the twelve (12) month period commencing on the effective date
of the Registration Statement, the Company shall not, without the prior written
consent of Dirks, sell, contract or offer to sell, issue, transfer, assign,
pledge, distribute, or otherwise dispose of, directly or indirectly, any shares
of Common Stock or any options, rights or warrants with respect to any shares of
Common Stock. The Company will cause the Transfer Agent (as hereinafter defined)
to mark an appropriate legend on the face of stock certificates representing all
of such securities and to place "stop transfer" orders on the Company's stock
ledgers.
(w) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuance with
respect to the Company, or any of its officers, directors, stockholders,
partners, employees or affiliates, that may affect the Underwriters'
compensation, as determined by the National Association of Securities Dealers,
Inc. ("NASD").
(x) The Common Stock has been approved for quotation on the
American Stock Exchange ("Amex").
(y) None of the Company or Ajax, nor any of their respective
officers, employees, agents or any other person acting on behalf of the Company
or Ajax has, directly or indirectly, given or agreed to give any money, gift or
similar benefit (other than legal price concessions to customers in the ordinary
course of business) to any customer, supplier, employee or agent of a customer
or supplier, or official or employee of any governmental agency (domestic or
foreign) or instrumentality of any government (domestic or foreign) or any
political party or candidate for office (domestic or foreign) or other person
who was, is, or may be in a position to help or hinder the business of each of
the Company and Ajax (or assist each of the Company and Ajax in connection with
any actual or proposed transaction) which (a) might subject each of the Company
and Ajax, or any other such person to any damage or penalty in any civil,
criminal or governmental litigation or proceeding (domestic or foreign), (b) if
not given in the
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past, might have had a material adverse effect on the assets, business or
operations of each of the Company and Ajax, or (c) if not continued in the
future, might adversely affect the assets, business, condition, financial or
otherwise, earnings, position, properties, value, operations or prospects of
each of the Company and Ajax. Each of the Company and Ajax's internal accounting
controls are sufficient to cause each of the Company and Ajax to comply with the
Foreign Corrupt Practices Act of 1977, as amended.
(z) Except as set forth in the Prospectus, no officer, director,
stockholder or partner of each of the Company and Ajax, or any "affiliate" or
"associate" (as these terms are defined in Rule 405 promulgated under the Rules
and Regulations) of any of the foregoing persons or entities has or has had,
either directly or indirectly, (i) an interest in any person or entity which (A)
furnishes or sells services or products which are furnished or sold or are
proposed to be furnished or sold by each of the Company and Ajax, or (B)
purchases from or sells or furnishes to each of the Company and Ajax any goods
or services, or (ii) a beneficiary interest in any contract or agreement to
which each of the Company and Ajax is a party or by which it may be bound or
affected. Except as set forth in the Prospectus under "Certain Transactions,"
there are no existing agreements, arrangements, understandings or transactions,
or proposed agreements, arrangements, understandings or transactions, between or
among each of the Company and Ajax, and any officer, director, or 5% or greater
securityholder of the Company, or any partner, affiliate or associate of any of
the foregoing persons or entities.
(aa) Any certificate signed by any officer of the Company or of
Ajax, and delivered to the Underwriters or to Underwriters' Counsel (as defined
herein) shall be deemed a representation and warranty by the Company to the
Underwriters as to the matters covered thereby.
(ab) The minute books of each of the Company and Ajax have been
made available to the Underwriters and contain a complete summary of all
meetings and actions of the directors (including committees thereof) and
stockholders of each of the Company and Ajax, since the time of its
incorporation, and reflect all transactions referred to in such minutes
accurately in all material respects.
(ac) Except and to the extent described in the Prospectus, no
holders of any securities of each of the Company and Ajax or of any options,
warrants or other convertible or exchangeable securities of each of the Company
and Ajax have the right to include any securities issued by each of the Company
and Ajax in the Registration Statement or any registration statement to be filed
by the Company or to require each of the Company and Ajax to file a registration
statement under the Act and no person or entity holds any anti-dilution rights
with respect to any securities of each of the Company and Ajax.
(ad) The Company has as of the effective date of the Registration
Statement (i) entered into an employment agreement with Karl Massaro in the form
filed as Exhibit 10.2 to the Registration Statement and (ii) purchased term key
person insurance on the life of Karl Massaro in the amount of two (2) million
dollars which policy names the Company as the sole beneficiary thereof.
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(ae) The Company is not, and upon the issuance and sale of the
Securities as herein contemplated and the application of the net proceeds
therefrom as described in the Prospectus under the caption "Use of Proceeds"
will not be, an "investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of 1940, as
amended (the "1940 Act").
(af) Each of the Company and Ajax maintains a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparations of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorizations; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(ag) The Company has entered into the Stock Purchase Agreement
with Carl Massaro (the "Stock Purchase Agreement"), set forth as Exhibit 10.1 to
the Registration Statement, pursuant to which the Company will acquire in a
separate Acquisition all of the common stock and ownership interest of Ajax. The
Stock Purchase Agreement is in full force and effect, has been duly and validly
authorized, executed and delivered by the parties thereto, and is valid and
binding on the parties thereto in accordance with its terms and none of the
parties thereto is in default in any respect thereunder. A complete and correct
copy of the Stock Purchase Agreement (including exhibits and schedules) has been
delivered to the Representatives and no changes therein will be made subsequent
hereto and prior to the Closing Date.
(ah) The representations and warranties made in the Stock Purchase
Agreement by the Company and Ajax and/or Carl Massaro are true and correct in
all material respects, except for such changes permitted or contemplated by such
Stock Purchase Agreement.
2. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly, agrees to purchase from the Company at a price of
$___ [92% of the public offering price] per share of Common Stock and $___ [92%
of the public offering price] per share of Convertible Preferred Stock, that
number of Firm Securities set forth in Schedule A opposite the name of such
Underwriter, subject to such adjustment as the Representatives in their
discretion shall make to eliminate any sales or purchases of fractional shares,
plus any additional number of Firm Securities which such Underwriter may become
obligated to purchase pursuant to the provisions of Section 11 hereof.
(b) In addition, on the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase all or any part of an
additional 195,000 Shares of Common Stock at a price of $___ [92% of the public
offering price] per share of Common Stock and/or an additional 150,000 Shares of
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Convertible Preferred Stock at a price of $___ [92% of the public offering
price] per share of Convertible Preferred Stock. The option granted hereby will
expire forty-five (45) days after (i) the date the Registration Statement
becomes effective, if the Company has elected not to rely on Rule 430A under the
Rules and Regulations, or (ii) the date of this Agreement if the Company has
elected to rely upon Rule 430A under the Rules and Regulations, and may be
exercised in whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Firm Securities upon notice by the Representatives to the
Company setting forth the number of Option Securities as to which the several
Underwriters are then exercising the option and the time and date of payment and
delivery for any such Option Securities. Any such time and date of delivery (an
"Option Closing Date") shall be determined by the Representatives, but shall not
be later than three (3) full business days after the exercise of said option,
nor in any event prior to the Closing Date, as hereinafter defined, unless
otherwise agreed upon by the Representatives and the Company. Nothing herein
contained shall obligate the Underwriters to make any over-allotments. No Option
Securities shall be delivered unless the Firm Securities shall be simultaneously
delivered or shall theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of
certificates for, the Firm Securities shall be made at the offices of Dirks at
520 Madison Avenue, New York, New York 10022, or at such other place as shall be
agreed upon by the Representatives and the Company. Such delivery and payment
shall be made at 10:00 a.m. (New York City time) on
, 1997 or at such other time and date as shall be agreed upon by the
Representatives and the Company, but not less than three (3) nor more than five
(5) full business days after the effective date of the Registration Statement
(such time and date of payment and delivery being herein called the "Closing
Date"). In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
office of Representatives or at such other place as shall be agreed upon by the
Representatives and the Company on each Option Closing Date as specified in the
notice from the Representatives to the Company. Delivery of the certificates for
the Firm Securities and the Option Securities, if any, shall be made to the
Underwriters against payment by the Underwriters, severally and not jointly, of
the purchase price for the Firm Securities and the Option Securities, if any, to
the order of the Company for the Firm Securities and the Option Securities, if
any, by New York Clearing House funds. In the event such option is exercised,
each of the Underwriters, acting severally and not jointly, shall purchase that
proportion of the total number of Option Securities then being purchased which
the number of Firm Securities set forth in Schedule A hereto opposite the name
of such Underwriter bears to the total number of Firm Securities, subject in
each case to such adjustments as the Representatives in their discretion shall
make to eliminate any sales or purchases of fractional shares. Certificates for
the Firm Securities and the Option Securities, if any, shall be in definitive,
fully registered form, shall bear no restrictive legends and shall be in such
denominations and registered in such names as the Underwriters may request in
writing at least two (2) business days prior to the Closing Date or the relevant
Option Closing Date, as the case may be. The certificates for the Firm
Securities and the Option Securities, if any, shall be made available to the
Representatives at such office or such other place as the Representatives may
designate for inspection, checking and packaging no later than 9:30 a.m. on the
last business day prior to the Closing Date or the relevant Option Closing Date,
as the case may be.
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(d) On the Closing Date, the Company shall issue and sell to the
Representatives Representatives' Warrants at a purchase price of $.0001 per
warrant, which Representatives' Warrants shall entitle the holders thereof to
purchase an aggregate of 130,000 shares of Common Stock and/or 100,000 shares of
Convertible Preferred Stock. The Representatives' Warrants shall be exercisable
for a period of four (4) years commencing one (1) year from the effective date
of the Registration Statement at a price equaling one hundred sixty-five percent
(165%) of the respective initial public offering price of the shares of Common
Stock and the shares of Convertible Preferred Stock. The Representatives'
Warrant Agreement and form of Warrant Certificate shall be substantially in the
form filed as Exhibit [___] to the Registration Statement. Payment for the
Representatives' Warrants shall be made on the Closing Date.
3. Public Offering of the Shares of Common Stock and the Shares of
Convertible Preferred Stock. As soon after the Registration Statement becomes
effective as the Representatives deem advisable, the Underwriters shall make a
public offering of the shares of Common Stock and shares of Convertible
Preferred Stock (other than to residents of or in any jurisdiction in which
qualification of the shares of Common Stock and shares of Convertible Preferred
Stock is required and has not become effective) at the price and upon the other
terms set forth in the Prospectus. The Representatives may from time to time
increase or decrease the respective public offering price after distribution of
the shares of Common Stock and shares of Convertible Preferred Stock has been
completed to such extent as the Representatives, in their discretion deem
advisable. The Underwriters may enter into one or more agreements as the
Underwriters, in each of their sole discretion, deem advisable with one or more
broker-dealers who shall act as dealers in connection with such public offering.
4. Covenants and Agreements of the Company. The Company covenants and
agrees with each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
effective date of the Registration Statement, file any amendment to the
Registration Statement or supplement to the Prospectus or file any document
under the Act or Exchange Act before termination of the offering of the shares
of Common Stock and shares of Convertible Preferred Stock by the Underwriters of
which the Representatives shall not previously have been advised and furnished
with a copy, or to which the Representatives shall have objected or which is not
in compliance with the Act, the Exchange Act or the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Representatives and confirm the notice in
writing (i) when the Registration Statement, as amended, becomes effective, if
the provisions of Rule 430A promulgated under the Act will be relied upon, when
the Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective; (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of proceedings for that purpose; (iii) of the
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issuance by the Commission or by any state securities commission of any
proceedings for the suspension of the qualification of any of the Securities for
offering or sale in any jurisdiction or of the initiation, or the threatening,
of any proceeding for that purpose; (iv) of the receipt of any comments from the
Commission; and (v) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or for
additional information. If the Commission or any state securities commission
shall enter a stop order or suspend such qualification at any time, the Company
will make every effort to obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Representatives) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424(b)(1) (or, if applicable and if consented to by the Representatives,
pursuant to Rule 424(b)(4)) not later than the Commission's close of business on
the earlier of (i) the second business day following the execution and delivery
of this Agreement and (ii) the fifth business day after the effective date of
the Registration Statement.
(d) The Company will give the Representatives notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
by the Underwriters in connection with the offering of the Securities which
differs from the corresponding prospectus on file at the Commission at the time
the Registration Statement becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) of the Rules and
Regulations), and will furnish the Representatives with copies of any such
amendment or supplement a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file any such prospectus to
which the Representatives or Orrick, Herrington & Sutcliffe LLP ("Underwriters'
Counsel") shall object.
(e) The Company shall endeavor in good faith, in cooperation with
the Representatives, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Representatives may designate to permit the
continuance of sales and dealings therein for as long as may be necessary to
complete the distribution, and shall make such applications, file such documents
and furnish such information as may be required for such purpose; provided,
however, the Company shall not be required to qualify as a foreign corporation
or file a general or limited consent to service of process in any such
jurisdiction. In each jurisdiction where such qualification shall be effected,
the Company will, unless the Representatives agree that such action is not at
the time necessary or advisable, use all reasonable efforts to file and make
such statements or reports at such times as are or may reasonably be required by
the laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be delivered
under the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any
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amendments or supplements thereto. If at any time when a prospectus relating to
the Securities is required to be delivered under the Act, any event shall have
occurred as a result of which, in the opinion of counsel for the Company or
Underwriters' Counsel, the Prospectus, as then amended or supplemented, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or if
it is necessary at any time to amend the Prospectus to comply with the Act, the
Company will notify the Representatives promptly and prepare and file with the
Commission an appropriate amendment or supplement in accordance with Section 10
of the Act, each such amendment or supplement to be satisfactory to
Underwriters' Counsel, and the Company will furnish to the Underwriters copies
of such amendment or supplement as soon as available and in such quantities as
the Underwriters may request.
(g) As soon as practicable, but in any event not later than
forty-five (45) days after the end of the 12-month period beginning on the day
after the end of the fiscal quarter of the Company during which the effective
date of the Registration Statement occurs (ninety (90) days in the event that
the end of such fiscal quarter is the end of each of the Company and Ajax's
fiscal year), the Company shall make generally available to its security
holders, in the manner specified in Rule 158(b) of the Rules and Regulations,
and to the Representatives, an earnings statement which will be in the detail
required by, and will otherwise comply with, the provisions of Section 11(a) of
the Act and Rule 158(a) of the Rules and Regulations, which statement need not
be audited unless required by the Act, covering a period of at least twelve (12)
consecutive months after the effective date of the Registration Statement.
(h) During a period of seven (7) years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants) and
unaudited quarterly reports of earnings, and will deliver to the
Representatives:
i. concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company for each quarter in
the form furnished to the Company's stockholders and certified by the
Company's principal financial or accounting officer;
ii. concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the
preceding fiscal year, together with statements of operations,
stockholders' equity, and cash flows of the Company for such fiscal
year, accompanied by a copy of the certificate thereon of independent
certified public accountants;
iii. as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
iv. as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the NASD
or any securities exchange;
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v. every press release and every material news item or article of
interest to the financial community in respect of the Company, or its
affairs, which was released or prepared by or on behalf of the Company;
and
vi. any additional information of a public nature concerning the
Company (and any future subsidiary) or its businesses which the
Representatives may reasonably request.
During such seven-year period, if the Company has an active subsidiary,
the foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiary(ies) are consolidated, and
will be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated.
(i) The Company will maintain a transfer agent ("Transfer Agent")
and, if necessary under the jurisdiction of incorporation of the Company, a
Registrar (which may be the same entity as the Transfer Agent) for its Common
Stock and Convertible Preferred Stock.
(j) The Company will furnish to the Representatives or on the
Representatives' order, without charge, at such place as the Representatives may
designate, copies of each Preliminary Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any prospectus
prepared after the effective date of the Registration Statement, in each case as
soon as available and in such quantities as the Representatives may request.
(k) On or before the effective date of the Registration Statement,
the Company shall provide the Representatives with true original copies of duly
executed, legally binding and enforceable agreements pursuant to which, for a
period of twelve (12) months from the effective date of the Registration
Statement, each of the Company's officers, directors and all holders of the
Common Stock of the Company or securities exchangeable or exercisable for or
convertible into shares of Common Stock agrees that it or he or she will not,
directly or indirectly, issue, offer to sell, sell, grant an option for the sale
or purchase of, assign, transfer, pledge, hypothecate or otherwise encumber or
dispose of any shares of Common Stock or securities convertible into,
exercisable or exchangeable for or evidencing any right to purchase or subscribe
for any shares of Common Stock (either pursuant to Rule 144 of the Rules and
Regulations or otherwise) or dispose of any beneficial interest therein without
the prior consent of Dirks (collectively, the "Lock-up Agreements"). During the
twelve (12) month period commencing on the effective date of the Registration
Statement, the Company shall not, without the prior written consent of the
Dirks, sell, contract or offer to sell, issue, transfer, assign, pledge,
distribute, or otherwise dispose of, directly or indirectly, any shares of
Common Stock or any options, rights or warrants with respect to any shares of
Common Stock. On or before the Closing Date, the Company shall deliver
instructions to the Transfer Agent authorizing it to place appropriate legends
on the certificates representing the securities subject to the Lock-up
Agreements and to place appropriate stop transfer orders on the Company's
ledgers. The Company further covenants that it will not file a registration
statement with the Commission during the twelve (12) month period commencing on
the effective date of the Registration Statement without the prior written
consent of Dirks.
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(l) None of each of the Company or Ajax, nor any of their
respective officers, directors, stockholders, nor any of their affiliates
(within the meaning of the Rules and Regulations) will take, directly or
indirectly, any action designed to, or which might in the future reasonably be
expected to cause or result in, stabilization or manipulation of the price of
any securities of the Company.
(m) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "Use of
Proceeds" in the Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company.
(n) The Company shall timely file all such reports, forms or other
documents as may be required (including, but not limited to, a Form SR as may be
required pursuant to Rule 463 under the Act) from time to time, under the Act,
the Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents filed will comply as to form and substance with the applicable
requirements under the Act, the Exchange Act, and the Rules and Regulations.
(o) Each of the Company and Ajax shall furnish to the
Representatives as early as practicable prior to each of the date hereof, the
Closing Date and each Option Closing Date, if any, but no later than two (2)
full business days prior thereto, a copy of the latest available unaudited
interim financial statements of each of the Company and Ajax (which in no event
shall be as of a date more than thirty (30) days prior to the date of the
Registration Statement) which have been read by each of the Company and Ajax's
independent public accountants, as stated in their letters to be furnished
pursuant to Sections 6(n) and 6(o) hereof.
(p) The Company shall cause the Common Stock and the Convertible
Preferred Stock to be listed on AMEX and, for a period of seven (7) years from
the date hereof, use its best efforts to maintain the AMEX listing of the Common
Stock and the Convertible Preferred Stock to the extent outstanding.
(q) For a period of five (5) years from the Closing Date, the
Company shall furnish to the Representatives at either Representatives'
reasonable request and the Company's sole expense, (i) daily consolidated
transfer sheets relating to the Common Stock and the Convertible Preferred Stock
(ii) the list of holders of all of the Company's securities and (iii) a Blue Sky
"Trading Survey" for secondary sales of the Company's securities prepared by
counsel to the Company.
(r) As soon as practicable, (i) but in no event more than five (5)
business days before the effective date of the Registration Statement, file a
Form 8-A with the Commission providing for the registration under the Exchange
Act of the Securities and (ii) but in no event more than thirty (30) days after
the effective date of the Registration Statement, take all necessary and
appropriate actions to be included in Standard and Poor's Corporation
Descriptions and Moody's OTC Manual and to continue such inclusion for a period
of not less than seven (7) years.
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(s) The Company hereby agrees that, except as set forth above in
Section 4(k) and the 340,000 shares reserved for future issuance under the
Company's 1997 Stock Option Plan ("Stock Option Plan"), it will not, for a
period of twelve (12) months from the effective date of the Registration
Statement, adopt, propose to adopt or otherwise permit to exist any employee,
officer, director, consultant or compensation plan or similar arrangement,
permitting (i) the grant, issue, sale or entry into any agreement to grant,
issue or sell any option, warrant or other contract right (x) at an exercise
price that is less than the greater of the public offering prices of the Common
Stock and the Convertible Preferred Stock set forth herein and the fair market
value on the date of grant or sale or (y) to any of its executive officers or
directors or to any holder of 5% or more of the Common Stock or the Convertible
Preferred Stock; (ii) the maximum number of shares of Common Stock, Convertible
Preferred Stock or other securities of the Company purchasable at any time
pursuant to options or warrants issued by the Company to exceed such 340,000
shares reserved for future issuance under the Company's Stock Option Plan; (iii)
the payment for such securities with any form of consideration other than cash;
or (iv) the existence of stock appreciation rights, phantom options or similar
arrangements. Furthermore, the Company agrees that for a period of twelve (12)
months from the effective date of the Registration Statement, the Company will
not amend any material employment agreement or option agreement or other
agreement providing compensation to any officer, director or other principal
stockholder, without the prior written consent of Dirks.
(t) Until the completion of the distribution of the Securities,
each of the Company and Ajax shall not, without the prior written consent of the
Representatives and Underwriters' Counsel, issue, directly or indirectly, any
press release or other communication or hold any press conference with respect
to each of the Company and Ajax or its activities or the offering contemplated
hereby, other than trade releases issued in the ordinary course of each of the
Company and Ajax's business consistent with past practices with respect to each
of the Company and Ajax's operations.
(u) For a period equal to the lesser of (i) seven (7) years from
the date hereof, and (ii) the sale to the public of the Representatives'
Securities, each of the Company and Ajax will not take any action or actions
which may prevent or disqualify the Company's use of Form S-1 (or other
appropriate form) for the registration under the Act of the Representatives'
Securities.
(v) For a period of three (3) years after the effective date of
the Registration Statement, the Company agrees that Dirks shall have the right
to designate one (1) person to attend all meetings of the Board of Directors of
the Company (the "Board"). The Company shall send to such person all notices and
other correspondence and communications sent by the Company to members of the
Board. Such designee(s) of Dirks shall be reimbursed for all out-of-pocket
expenses incurred in connection with their attendance of meetings of the Board.
(w) Each of the Company, Ajax and Carl Massaro will: (i) use
its/his best efforts to satisfy all conditions to consummation of the Ajax
Acquisition as set forth in the Stock Purchase Agreement with respect thereto;
(ii) use its/his best efforts to cause each other party to such Stock Purchase
Agreement to satisfy all conditions to the consummation of the Ajax Acquisition;
and (iii) promptly notify the Representatives of the occurrence of any event
which may result in the non-consummation of the Ajax Acquisition on the First
Closing Date.
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(x) Each of the Company and Carl Massaro covenant that they will
consummate the Acquisition Transaction at the Closing Date upon notice that the
Firm Securities have been paid for and delivered in accordance with the terms
set forth in Section 2 of this Agreement.
(y) The Company covenants that at the Closing it will instruct the
Representatives to pay the proceeds from the sale of the Firm Securities (net of
underwriting discounts and expenses) directly to Carl Massaro pursuant to the
terms of the Stock Purchase Agreement and as disclosed in the Prospectus.
(z) The Company covenants that upon the written request of either
Representative it will assign to the Representatives the Company's rights under
the Stock Purchase Agreement to enforce the Company's rights against Carl
Massaro for breach of any representations, warranties or covenants contained in
the Stock Purchase Agreement.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on the Closing Date, and each
Option Closing Date, if any, all expenses and fees (other than fees of
Underwriters' Counsel, except as provided in (iv) below) incident to the
performance of the obligations of the Company under this Agreement, the
Representatives' Warrant Agreement and the Stock Purchase Agreement, including,
without limitation, (i) the fees and expenses of accountants and counsel for the
Company, (ii) all costs and expenses incurred in connection with the
preparation, duplication, printing (including mailing and handling charges),
filing, delivery and mailing (including the payment of postage with respect
thereto) of the Registration Statement and the Prospectus and any amendments and
supplements thereto and the printing, mailing (including the payment of postage
with respect thereto) and delivery of this Agreement, the Representatives'
Warrant Agreement, the Agreement Among Underwriters, the Selected Dealer
Agreements, and related documents, including the cost of all copies thereof and
of the Preliminary Prospectuses and of the Prospectus and any amendments thereof
or supplements thereto supplied to the Underwriters and such dealers as the
Underwriters may request, in quantities as hereinabove stated, (iii) the
printing, engraving, issuance and delivery of the Securities including, but not
limited to, (x) the purchase by the Underwriters of the Firm Securities and the
Option Securities and the purchase by the Representatives of the
Representatives' Warrants from the Company, (y) the consummation by the Company
of any of its obligations under this Agreement and the Representatives' Warrant
Agreement, and (z) resale of the Firm Securities and the Option Securities by
the Underwriters in connection with the distribution contemplated hereby, (iv)
the qualification of the Securities under state or foreign securities or "Blue
Sky" laws and determination of the status of such securities under legal
investment laws, including the costs of printing and mailing the "Preliminary
Blue Sky Memorandum", the "Supplemental Blue Sky Memorandum" and "Legal
Investments Survey," if any, and disbursements and fees of counsel in connection
therewith, (v) advertising costs and expenses, including but not limited to
costs and expenses in connection with the "road show", information meetings and
presentations, bound volumes and prospectus memorabilia and "tombstone"
advertisement expenses, (vi) costs and expenses in connection with due diligence
investigations, including but not limited to the fees of any independent
counsel, expert or consultant retained, (vii) fees and expenses of the Transfer
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Agent and registrar and all issue and transfer taxes, if any, (viii)
applications for assignment of a rating of the Securities by qualified rating
agencies, (ix) the fees payable to the Commission and the NASD, and (x) the fees
and expenses incurred in connection with the quotation of the Securities on the
AMEX or Nasdaq and any other exchange.
(b) If this Agreement is terminated by the Underwriters in
accordance with the provisions of Section 6 (except Sections 6(c), 6(j) and
6(n)) or Section 12, the Company shall reimburse and indemnify the Underwriters
for all of their actual out-of-pocket expenses, including the reasonable fees
and disbursements of counsel for the Underwriters and all Blue Sky counsel fees
(excluding filing fees) and disbursements (less amounts previously paid pursuant
to Section 5(c) hereof).
(c) The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this Section 5, it will pay to the
Representatives on the Closing Date by certified or bank cashier's check or, at
the election of the Representatives, by deduction from the proceeds of the
offering of the Firm Securities, a non-accountable expense allowance equal to 3%
of the gross proceeds received by the Company from the sale of the Firm
Securities, $50,000 of which has been paid to date. In the event the
Representatives elect to exercise the overallotment option described in Section
2(b) hereof, the Company further agrees to pay to the Representatives on each
Option Closing Date, by certified or bank cashier's check, or at the
Representatives' election, by deduction from the proceeds of the Option
Securities purchased on such Option Closing Date, a non-accountable expense
allowance equal to 3% of the gross proceeds received by the Company from the
sale of such Option Securities.
6. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of each of the Company and Ajax herein as of the
date hereof and as of the Closing Date and each Option Closing Date, if any, as
if they had been made on and as of the Closing Date or each Option Closing Date,
as the case may be; the accuracy on and as of the Closing Date or Option Closing
Date, if any, of the statements of the officers of the Company made pursuant to
the provisions hereof; and the performance by each of the Company and Ajax on
and as of the Closing Date and each Option Closing Date, if any, of its
covenants and obligations hereunder and to the following further conditions:
(a) The Registration Statement shall have become effective not
later than 9:30 a.m., New York time, on the date of this Agreement or such later
date and time as shall be consented to in writing by the Representatives, and,
at the Closing Date and each Option Closing Date, if any, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or contemplated by the Commission and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Underwriters' Counsel. If the Company has elected to
rely upon Rule 430A of the Rules and Regulations, the price of the Common Stock,
the price of the Convertible Preferred Stock and any price-related information
previously omitted from the effective Registration Statement pursuant to such
Rule 430A shall have been transmitted to the Commission for filing pursuant to
Rule 424(b) of the Rules and Regulations within the prescribed time period and,
prior to the Closing Date, the
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Company shall have provided evidence satisfactory to the Representatives of such
timely filing, or a post-effective amendment providing such information shall
have been promptly filed and declared effective in accordance with the
requirements of Rule 430A of the Rules and Regulations.
(b) The Representatives shall not have advised the Company that
the Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Representatives' opinion, is material, or omits
to state a fact which, in the Representatives' opinion, is material and is
required to be stated therein or is necessary to make the statements therein not
misleading, or that the Prospectus, or any supplement thereto, contains an
untrue statement of fact which, in the Representatives' opinion, is material, or
omits to state a fact which, in the Representatives' opinion, is material and is
required to be stated therein or is necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(c) On or prior to each of the Closing Date and each Option
Closing Date, if any, the Representatives shall have received from Underwriters'
Counsel, such opinion or opinions with respect to the organization of each of
the Company and Ajax, the validity of the Securities, the Registration
Statement, the Prospectus and other related matters as the Representatives may
reasonably request and Underwriters' Counsel shall have received such papers and
information as they reasonably request to enable them to pass upon such matters.
(d) At the Closing Date, the Underwriters shall have received the
favorable opinion of Phillips Nizer Benjamin Krim & Ballon LLP, counsel to the
Company, dated the Closing Date, addressed to the Underwriters and in form and
substance satisfactory to Underwriters' Counsel, to the effect that:
i. the Company (A) has been duly organized and is validly existing
as a corporation in good standing under the laws of its jurisdiction,
(B) is duly qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which its ownership or leasing of
any properties or the character of its operations requires such
qualification or licensing, and (C) has all requisite corporate power
and authority, and has obtained any and all necessary authorizations,
approvals, orders, licenses, certificates, franchises and permits of and
from all governmental or regulatory officials and bodies (including,
without limitation, those having jurisdiction over environmental or
similar matters), to own or lease its properties and conduct its
business as described in the Prospectus; the Company is and has been
doing business in compliance with all such authorizations, approvals,
orders, licenses, certificates, franchises and permits and all federal,
state and local laws, rules and regulations; and, the Company has not
received any notice of proceedings relating to the revocation or
modification of any such authorization, approval, order, license,
certificate, franchise, or permit which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would
materially adversely affect the business, operations, condition,
financial or otherwise, or the earnings, business affairs, position,
prospects, value, operation, properties, business or results of
operations of the Company. The disclosures in the Registration Statement
concerning the effects of federal, state and local laws, rules and
regulations on the Company's business as currently
22
<PAGE>
conducted and as contemplated are correct in all material respects and
do not omit to state a fact required to be stated therein or necessary
to make the statements contained therein not misleading in light of the
circumstances in which they were made;
ii. except as described in the Prospectus, the Company does not
own an interest in any other corporation, partnership, joint venture,
trust or other business entity;
iii. the Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and any amendment or
supplement thereto, under "CAPITALIZATION", and the Company is not a
party to or bound by any instrument, agreement or other arrangement
providing for it to issue, sell, transfer, purchase or redeem any
capital stock, rights, warrants, options or other securities, except for
this Agreement and the Representatives' Warrant Agreement and as
described in the Prospectus. The Securities and all other securities
issued or issuable by the Company conform in all material respects to
all statements with respect thereto contained in the Registration
Statement and the Prospectus. All issued and outstanding securities of
the Company have been duly authorized and validly issued and are fully
paid and non-assessable; the holders thereof have no rights of
rescission with respect thereto, and are not subject to personal
liability by reason of being such holders; and none of such securities
were issued in violation of the preemptive rights of any holders of any
security of the Company or any similar rights granted by the Company.
The Securities to be sold by the Company hereunder and under the
Representatives' Warrant Agreement are not and will not be subject to
any preemptive or other similar rights of any stockholder, have been
duly authorized and, when issued, paid for and delivered in accordance
with the terms hereof, will be validly issued, fully paid and
non-assessable and conform to the description thereof contained in the
Prospectus; the holders thereof will not be subject to any liability
solely as such holders; all corporate action required to be taken for
the authorization, issue and sale of the Securities has been duly and
validly taken; and the certificates representing the Securities are in
due and proper form. The Representatives' Warrants and the shares of
Convertible Preferred Stock constitute valid and binding obligations of
the Company to issue and sell, upon exercise thereof and payment
therefor, the number and type of securities of the Company called for
thereby. Upon the issuance and delivery pursuant to this Agreement of
the Firm Securities and the Option Securities and the Representatives'
Warrants to be sold by the Company, the Underwriters and the
Representatives, respectively, will acquire good and marketable title to
the Firm Securities and the Option Securities and the Representatives'
Warrants free and clear of any pledge, lien, charge, claim, encumbrance,
pledge, security interest, or other restriction or equity of any kind
whatsoever. No transfer tax is payable by or on behalf of the
Underwriters in connection with (A) the issuance by the Company of the
Securities, (B) the purchase by the Underwriters of the Firm Securities
and the Option Securities from the Company, and the purchase by the
Representatives of the Representatives' Warrants from the Company (C)
the consummation by the Company of any of its obligations under this
Agreement or the Representatives' Warrant Agreement, or (D) resales of
the Firm Securities and the Option Securities in connection with the
distribution contemplated hereby.
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<PAGE>
iv. the Registration Statement is effective under the Act, and, if
applicable, filing of all pricing information has been timely made in
the appropriate form under Rule 430A, and no stop order suspending the
use of the Preliminary Prospectus, the Registration Statement or
Prospectus or any part of any thereof or suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or, to the best of such
counsel's knowledge, threatened or contemplated under the Act;
v. each of the Preliminary Prospectus, the Registration Statement,
and the Prospectus and any amendments or supplements thereto (other than
the financial statements and other financial and statistical data
included therein, as to which no opinion need be rendered) comply as to
form in all material respects with the requirements of the Act and the
Rules and Regulations.
vi. to the best of such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Act to be
described in the Registration Statement and the Prospectus and filed as
exhibits to the Registration Statement other than those described in the
Registration Statement (or required to be filed under the Exchange Act
if upon such filing they would be incorporated, in whole or in part, by
reference therein) and the Prospectus and filed as exhibits thereto, and
the exhibits which have been filed are correct copies of the documents
of which they purport to be copies; (B) the descriptions in the
Registration Statement and the Prospectus and any supplement or
amendment thereto of contracts and other documents to which the Company
is a party or by which it is bound, including any document to which the
Company is a party or by which it is bound, incorporated by reference
into the Prospectus and any supplement or amendment thereto, are
accurate and fairly represent the information required to be shown by
Form S-1; (C) there is not pending or threatened against the Company any
action, arbitration, suit, proceeding, inquiry, investigation,
litigation, governmental or other proceeding (including, without
limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, pending or threatened against (or
circumstances that may give rise to the same), or involving the
properties or business of the Company which (x) is required to be
disclosed in the Registration Statement which is not so disclosed (and
such proceedings as are summarized in the Registration Statement are
accurately summarized in all respects), (y) questions the validity of
the capital stock of the Company or this Agreement or the
Representatives' Warrant Agreement, or of any action taken or to be
taken by the Company pursuant to or in connection with any of the
foregoing; (D) no statute or regulation or legal or governmental
proceeding required to be described in the Prospectus is not described
as required; and (E) there is no action, suit or proceeding pending, or
threatened, against or affecting the Company before any court or
arbitrator or governmental body, agency or official (or any basis
thereof known to such counsel) in which there is a reasonable
possibility of a decision which may result in a material adverse change
in the condition, financial or otherwise, or the earnings, position,
prospects, stockholders' equity, value, operation, properties, business
or results of operations of the Company, which could adversely affect
the present or prospective ability of the Company to perform its
obligations under this Agreement or the Representatives' Warrant
24
<PAGE>
Agreement or which in any manner draws into question the validity or
enforceability of this Agreement or the Representatives' Warrant
Agreement;
vii. the Company has full legal right, power and authority to
enter into each of this Agreement and the Representatives' Warrant
Agreement, and to consummate the transactions provided for therein; and
each of this Agreement and the Representatives' Warrant Agreement has
been duly authorized, executed and delivered by the Company. Each of
this Agreement and the Representatives' Warrant Agreement, assuming due
authorization, execution and delivery by each other party thereto
constitutes a legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its terms (except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating
to or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except as
rights to indemnity or contribution may be limited by applicable law),
and none of the Company's execution or delivery of this Agreement and
the Representatives' Warrant Agreement, its performance hereunder or
thereunder, its consummation of the transactions contemplated herein or
therein, or the conduct of its business as described in the Registration
Statement, the Prospectus, and any amendments or supplements thereto,
conflicts with or will conflict with or results or will result in any
breach or violation of any of the terms or provisions of, or constitutes
or will constitute a default under, or result in the creation or
imposition of any lien, charge, claim, encumbrance, pledge, security
interest, defect or other restriction or equity of any kind whatsoever
upon, any property or assets (tangible or intangible) of the Company
pursuant to the terms of, (A) the certificate of incorporation or
by-laws of the Company, (B) any license, contract, collective bargaining
agreement, indenture, mortgage, deed of trust, lease, voting trust
agreement, stockholders agreement, note, loan or credit agreement or any
other agreement or instrument to which the Company is a party or by
which it is or may be bound or to which any of its properties or assets
(tangible or intangible) is or may be subject, or any indebtedness, or
(C) any statute, judgment, decree, order, rule or regulation applicable
to the Company of any arbitrator, court, regulatory body or
administrative agency or other governmental agency or body (including,
without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, having jurisdiction over the
Company or any of its respective activities or properties.
viii. no consent, approval, authorization or order, and no filing
with, any court, regulatory body, government agency or other body (other
than such as may be required under Blue Sky laws, as to which no opinion
need be rendered) is required in connection with the issuance of the
Firm Securities and the Option Securities pursuant to the Prospectus and
the Registration Statement, the issuance of the Representatives'
Warrants, the performance of this Agreement and the Representatives'
Warrant Agreement, and the transactions contemplated hereby and thereby;
ix. the properties and business of the Company conform in all
material respects to the description thereof contained in the
Registration Statement and the Prospectus; and the Company has good and
marketable title to, or valid and enforceable leasehold estates in, all
items of real and personal property stated in the Prospectus to be owned
or leased by
25
<PAGE>
it, in each case free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects or other restrictions
or equities of any kind whatsoever, other than those referred to in the
Prospectus and liens for taxes not yet due and payable;
x. the Company is not in breach of, or in default under, any term
or provision of any license, contract, collective bargaining agreement,
indenture, mortgage, installment sale agreement, deed of trust, lease,
voting trust agreement, stockholders' agreement, partnership agreement,
note, loan or credit agreement or any other agreement or instrument
evidencing an obligation for borrowed money, or any other agreement or
instrument to which the Company is a party or by which the Company may
be bound or to which the properties or assets (tangible or intangible)
of the Company is subject or affected; and the Company is not in
violation of any term or provision of its Amended and Restated Articles
of Incorporation or Amended and Restated By-Laws or in violation of any
franchise, license, permit, judgment, decree, order, statute, rule or
regulation;
xi. the statements in the Prospectus under "RISK FACTORS," "THE
COMPANY," "BUSINESS," "MANAGEMENT," "PRINCIPAL STOCKHOLDERS," "CERTAIN
TRANSACTIONS," "DESCRIPTION OF SECURITIES," and "SHARES ELIGIBLE FOR
FUTURE SALE" have been reviewed by such counsel, and insofar as they
refer to statements of law, descriptions of statutes, licenses, rules or
regulations or legal conclusions, are correct in all material respects;
xii. the Securities have been accepted for quotation on the AMEX;
xiii. the persons listed under the caption "PRINCIPAL
STOCKHOLDERS" in the Prospectus are the respective "beneficial owners"
(as such phrase is defined in regulation 13d-3 under the Exchange Act)
of the securities set forth opposite their respective names thereunder
as and to the extent set forth therein;
xiv. none of the Company nor any of its officers, stockholders,
employees or agents, nor any other person acting on behalf of the
Company has, directly or indirectly, given or agreed to give any money,
gift or similar benefit (other than legal price concessions to customers
in the ordinary course of business) to any customer, supplier, employee
or agent of a customer or supplier, or official or employee of any
governmental agency or instrumentality of any government (domestic or
foreign) or any political party or candidate for office (domestic or
foreign) or other person who is or may be in a position to help or
hinder the business of the Company (or assist it in connection with any
actual or proposed transaction) which (A) might subject the Company to
any damage or penalty in any civil, criminal or governmental litigation
or proceeding, (B) if not given in the past, might have had an adverse
effect on the assets, business or operations of the Company, as
reflected in any of the financial statements contained in the
Registration Statement, or (C) if not continued in the future, might
adversely affect the assets, business, operations or prospects of the
Company;
xv. no person, corporation, trust, partnership, association or
other entity has the right to include and/or register any securities of
the Company in the Registration Statement,
26
<PAGE>
require the Company to file any registration statement or, if filed, to
include any security in such registration statement;
xvi. except as described in the Prospectus, there are no claims,
payments, issuances, arrangements or understandings for services in the
nature of a finder's or origination fee with respect to the sale of the
Securities hereunder or financial consulting arrangements or any other
arrangements, agreements, understandings, payments or issuances that may
affect the Underwriters' compensation, as determined by the NASD;
xvii. assuming due execution by the parties thereto other than the
Company, the Lock-up Agreements are legal, valid and binding obligations
of the parties thereto, enforceable against the party and any subsequent
holder of the securities subject thereto in accordance with its terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights
and the application of equitable principles in any action, legal or
equitable, and except as rights to indemnity or contribution may be
limited by applicable law);
xviii. except as described in the Prospectus, the Company does not
(A) maintain, sponsor or contribute to any ERISA Plans, (B) maintain or
contribute, now or at any time previously, to a defined benefit plan, as
defined in Section 3(35) of ERISA, and (C) has never completely or
partially withdrawn from a "multiemployer plan";
xix. the minute books of the Company have been made available to
the Underwriters and contain a complete summary of all meetings and
actions of the directors and stockholders of the Company since the time
of its incorporation and reflect all transactions referred to in such
minutes accurately in all material respects;
xx. except as set forth in the Prospectus and to the best
knowledge of such counsel, no officer, director or stockholder of the
Company, or any "affiliate" or "associate" (as these terms are defined
in Rule 405 promulgated under the Rules and Regulations) of any of the
foregoing persons or entities has or has had, either directly or
indirectly, (A) an interest in any person or entity which (x) furnishes
or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company, or (y) purchases from
or sells or furnishes to the Company any goods or services, or (B) a
beneficial interest in any contract or agreement to which the Company is
a party or by which it may be bound or affected. Except as set forth in
the Prospectus under "CERTAIN TRANSACTIONS," there are no existing
agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or
among the Company, and any officer, director, or 5% or greater
securityholder of the Company, or any affiliate or associate of any such
person or entity;
xxi. to the best of such counsel's knowledge, after due inquiry,
there is no action, suit, proceeding, inquiry, investigation, litigation
or governmental proceeding, domestic or foreign, pending or threatened
(or circumstances that may give rise to the same) involving the
Company's production, use, testing, manufacturing or marketing of any
27
<PAGE>
products or services, which (i) questions the authority of the Company
to produce, use, test, manufacture or market any products or services as
described in the Prospectus, (ii) questions the completeness or accuracy
of data generated by any trials, tests or studies being conducted by or
on behalf of the Company, (iii) is required to be disclosed in the
Prospectus which is not so disclosed, or (iv) might materially and
adversely affect the condition, financial or otherwise, or the earnings,
prospects, value, operations or business of the Company.
xxii. none of the Company nor any of its affiliates shall be
subject to the requirements of or shall be deemed an "Investment
Company," pursuant to and as defined under, respectively, the Investment
Company Act.
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company, and
representatives of the independent public accountants for the Company, at which
conferences such counsel made inquiries of such officers, representatives and
accountants and discussed the contents of the Preliminary Prospectus, the
Registration Statement, the Prospectus, and related matters and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement and Prospectus, on the basis
of the foregoing, no facts have come to the attention of such counsel which lead
them to believe that either the Registration Statement or any amendment thereto,
at the time such Registration Statement or amendment became effective or the
Preliminary Prospectus or Prospectus or amendment or supplement thereto as of
the date of such opinion contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading (it being understood that such
counsel need express no opinion with respect to the financial statements and
schedules and other financial and statistical data included in the Preliminary
Prospectus, the Registration Statement or the Prospectus). Such counsel shall
further state that its opinions may be relied upon by Underwriters' Counsel in
rendering its opinion to the Underwriters.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to Underwriters' Counsel) of
other counsel acceptable to Underwriters' Counsel, familiar with the applicable
laws; (B) as to matters of fact, to the extent they deem proper, on certificates
and written statements of responsible officers of the Company and certificates
or other written statements of officers of departments of various jurisdictions
having custody of documents respecting the corporate existence or good standing
of the Company, provided that copies of any such statements or certificates
shall be delivered to Underwriters' Counsel if requested. The opinion of such
counsel for the Company shall state that the opinion of any such other counsel
is in form satisfactory to such counsel and that the Representatives,
Underwriters' Counsel and they are each justified in relying thereon. Any
opinion of counsel for the Company shall not state that it is to be governed or
qualified by, or that it is otherwise subject to, any treatise, written policy
or other document relating to legal opinions, including, without limitation, the
Legal Opinion Accord of the ABA Section of Business Law (1991) or any comparable
state accord.
28
<PAGE>
(e) At each Option Closing Date, if any, the Underwriters shall
have received the favorable opinion of Phillips Nizer Benjamin Krim & Ballon
LLP, counsel to the Company, dated on such Option Closing Date, addressed to the
Underwriters and in form and substance satisfactory to Underwriters' Counsel
confirming as of such Option Closing Date the statements made by Phillips Nizer
Benjamin Krim & Ballon LLP in its opinions delivered on the Closing Date.
(f) At the Closing Date, the Underwriters shall have received the
favorable opinion of Marc Maser, Esq. counsel to Ajax, dated the Closing Date,
addressed to the Underwriters and in form and substance satisfactory to
Underwriters' Counsel, to the effect that:
i. Ajax (A) has been duly organized and is validly existing as a
corporation in good standing under the laws of its jurisdiction, (B) is
duly qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which its ownership or leasing of
any properties or the character of its operations requires such
qualification or licensing, and (C) has all requisite corporate power
and authority, and has obtained any and all necessary authorizations,
approvals, orders, licenses, certificates, franchises and permits of and
from all governmental or regulatory officials and bodies (including,
without limitation, those having jurisdiction over environmental or
similar matters), to own or lease its properties and conduct its
business as described in the Prospectus; Ajax is and has been doing
business in compliance with all such authorizations, approvals, orders,
licenses, certificates, franchises and permits and all federal, state
and local laws, rules and regulations; and, Ajax has not received any
notice of proceedings relating to the revocation or modification of any
such authorization, approval, order, license, certificate, franchise, or
permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would materially adversely
affect the business, operations, condition, financial or otherwise, or
the earnings, business affairs, position, prospects, value, operation,
properties, business or results of operations of Ajax. The disclosures
in the Registration Statement concerning the effects of federal, state
and local laws, rules and regulations on Ajax's business as currently
conducted and as contemplated are correct in all material respects and
do not omit to state a fact required to be stated therein or necessary
to make the statements contained therein not misleading in light of the
circumstances in which they were made;
ii. except as described in the Prospectus, Ajax does not own an
interest in any other corporation, partnership, joint venture, trust or
other business entity;
iii. Ajax is not a party to or bound by any instrument, agreement
or other arrangement providing for it to issue, sell, transfer, purchase
or redeem any capital stock, rights, warrants, options or other
securities, except for the Stock Purchase Agreement, as described in the
Prospectus. The Securities and all other securities issued or issuable
by Ajax conform in all material respects to all statements with respect
thereto contained in the Stock Purchase Agreement. All issued and
outstanding securities of Ajax have been duly authorized and validly
issued and are fully paid and non-assessable; the holder thereof have no
rights of rescission with respect thereto, and are not subject to
personal liability by reason of being such holder; and none of such
securities were issued in violation of the
29
<PAGE>
preemptive rights of any holders of any security of Ajax or any similar
rights granted by Ajax. The securities to be sold by Ajax under the
Stock Purchase Agreement are not and will not be subject to any
preemptive or other similar rights of any stockholder, have been duly
authorized and, when issued, paid for and delivered in accordance with
the terms of the Stock Purchase Agreement, will be validly issued, fully
paid and non-assessable and conform to the description thereof contained
in the Prospectus and the Stock Purchase Agreement; the Company will not
be subject to any liability solely as holders such securities; all
corporate action required to be taken for the authorization, issue and
sale of the securities has been duly and validly taken; and the
certificates representing the securities are in due and proper form.
Upon the delivery pursuant to the Stock Purchase Agreement of Ajax's
issued and outstanding common stock, the Company will acquire good and
marketable title to Ajax's issued and outstanding common stock free and
clear of any pledge, lien, charge, claim, encumbrance, pledge, security
interest, or other restriction or equity of any kind whatsoever. No
transfer tax is payable by or on behalf of the Company in connection
with (A) the purchase by the Company of Ajax's issued and outstanding
common stock from Ajax or (B) the consummation by Ajax of any of its
obligations under this Agreement or the Stock Purchase Agreement.
iv. to the best of such counsel's knowledge, (A) the descriptions
in the Registration Statement and the Prospectus and any supplement or
amendment thereto of contracts and other documents to which Ajax is a
party or by which it is bound, including any document to which Ajax is a
party or by which it is bound, incorporated by reference into the
Prospectus and any supplement or amendment thereto, are accurate and
fairly represent the information required to be shown by Form S-1; (B)
there is not pending or threatened against Ajax any action, arbitration,
suit, proceeding, inquiry, investigation, litigation, governmental or
other proceeding (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or
foreign, pending or threatened against (or circumstances that may give
rise to the same), or involving the properties or business of Ajax which
(x) is required to be disclosed in the Registration Statement which is
not so disclosed (and such proceedings as are summarized in the
Registration Statement are accurately summarized in all respects), (y)
questions the validity of the capital stock of Ajax or this Agreement or
the Stock Purchase Agreement, or of any action taken or to be taken by
Ajax pursuant to or in connection with any of the foregoing; and (C)
there is no action, suit or proceeding pending, or threatened, against
or affecting Ajax before any court or arbitrator or governmental body,
agency or official (or any basis thereof known to such counsel) in which
there is a reasonable possibility of a decision which may result in a
material adverse change in the condition, financial or otherwise, or the
earnings, position, prospects, stockholders' equity, value, operation,
properties, business or results of operations of Ajax, which could
adversely affect the present or prospective ability of Ajax to perform
its obligations under this Agreement or the Stock Purchase Agreement or
which in any manner draws into question the validity or enforceability
of this Agreement or the Stock Purchase Agreement;
v. Ajax has full legal right, power and authority to enter into
each of this Agreement and the Stock Purchase Agreement, and to
consummate the transactions provided for therein; and each of this
Agreement and the Stock Purchase Agreement has been duly
30
<PAGE>
authorized, executed and delivered by Ajax. Each of this Agreement and
the Stock Purchase Agreement, assuming due authorization, execution and
delivery by each other party thereto constitutes a legal, valid and
binding agreement of Ajax enforceable against Ajax in accordance with
its terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditors'
rights and the application of equitable principles in any action, legal
or equitable, and except as rights to indemnity or contribution may be
limited by applicable law), and none of Ajax's execution or delivery of
this Agreement and the Stock Purchase Agreement, its performance
hereunder or thereunder, its consummation of the transactions
contemplated herein or therein, or the conduct of its business as
described in the Registration Statement, the Prospectus, and any
amendments or supplements thereto, conflicts with or will conflict with
or results or will result in any breach or violation of any of the terms
or provisions of, or constitutes or will constitute a default under, or
result in the creation or imposition of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other restriction or
equity of any kind whatsoever upon, any property or assets (tangible or
intangible) of Ajax pursuant to the terms of, (A) the certificate of
incorporation or by-laws of Ajax, (B) any license, contract, collective
bargaining agreement, indenture, mortgage, deed of trust, lease, voting
trust agreement, stockholders agreement, note, loan or credit agreement
or any other agreement or instrument to which Ajax is a party or by
which it is or may be bound or to which any of its properties or assets
(tangible or intangible) is or may be subject, or any indebtedness, or
(C) any statute, judgment, decree, order, rule or regulation applicable
to Ajax of any arbitrator, court, regulatory body or administrative
agency or other governmental agency or body (including, without
limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over Ajax or any of
its respective activities or properties.
vi. no consent, approval, authorization or order, and no filing
with, any court, regulatory body, government agency or other body (other
than such as may be required under Blue Sky laws, as to which no opinion
need be rendered) is required in connection with the performance of this
Agreement and the Stock Purchase Agreement, and the transactions
contemplated hereby and thereby;
vii. the properties and business of Ajax conform in all material
respects to the description thereof contained in the Registration
Statement and the Prospectus; and Ajax has good and marketable title to,
or valid and enforceable leasehold estates in, all items of real and
personal property stated in the Prospectus to be owned or leased by it,
in each case free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects or other restrictions or equities
of any kind whatsoever, other than those referred to in the Prospectus
and liens for taxes not yet due and payable;
viii. Ajax is not in breach of, or in default under, any term or
provision of any license, contract, collective bargaining agreement,
indenture, mortgage, installment sale agreement, deed of trust, lease,
voting trust agreement, stockholders' agreement, partnership agreement,
note, loan or credit agreement or any other agreement or instrument
evidencing an obligation for borrowed money, or any other agreement or
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instrument to which Ajax is a party or by which Ajax may be bound or to
which the properties or assets (tangible or intangible) of Ajax is
subject or affected; and Ajax is not in violation of any term or
provision of its Amended and Restated Articles of Incorporation or
Amended and Restated By-Laws or in violation of any franchise, license,
permit, judgment, decree, order, statute, rule or regulation;
ix. none of Ajax nor any of its officers, stockholders, employees
or agents, nor any other person acting on behalf of Ajax has, directly
or indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary
course of business) to any customer, supplier, employee or agent of a
customer or supplier, or official or employee of any governmental agency
or instrumentality of any government (domestic or foreign) or any
political party or candidate for office (domestic or foreign) or other
person who is or may be in a position to help or hinder the business of
Ajax (or assist it in connection with any actual or proposed
transaction) which (A) might subject Ajax to any damage or penalty in
any civil, criminal or governmental litigation or proceeding, (B) if not
given in the past, might have had an adverse effect on the assets,
business or operations of Ajax, as reflected in any of the financial
statements contained in the Registration Statement, or (C) if not
continued in the future, might adversely affect the assets, business,
operations or prospects of Ajax;
x. no person, corporation, trust, partnership, association or
other entity has the right to include and/or register any securities of
Ajax, require Ajax to file any registration statement or, if filed, to
include any security in such registration statement;
xi. except as described in the Prospectus, Ajax does not (A)
maintain, sponsor or contribute to any ERISA Plans, (B) maintain or
contribute, now or at any time previously, to a defined benefit plan, as
defined in Section 3(35) of ERISA, and (C) has never completely or
partially withdrawn from a "multiemployer plan";
xii. the minute books of Ajax have been made available to the
Underwriters and contain a complete summary of all meetings and actions
of the directors and stockholders of Ajax since the time of its
incorporation and reflect all transactions referred to in such minutes
accurately in all material respects;
xiii. except as set forth in the Prospectus and to the best
knowledge of such counsel, no officer, director or stockholder of Ajax,
or any "affiliate" or "associate" (as these terms are defined in Rule
405 promulgated under the Rules and Regulations) of any of the foregoing
persons or entities has or has had, either directly or indirectly, (A)
an interest in any person or entity which (x) furnishes or sells
services or products which are furnished or sold or are proposed to be
furnished or sold by Ajax, or (y) purchases from or sells or furnishes
to Ajax any goods or services, or (B) a beneficial interest in any
contract or agreement to which Ajax is a party or by which it may be
bound or affected. Except as set forth in the Prospectus under "CERTAIN
TRANSACTIONS," there are no existing agreements, arrangements,
understandings or transactions, or proposed agreements, arrangements,
understandings or transactions, between or among the
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Company, and any officer, director, or 5% or greater securityholder of
Ajax, or any affiliate or associate of any such person or entity;
xiv. to the best of such counsel's knowledge, after due inquiry,
there is no action, suit, proceeding, inquiry, investigation, litigation
or governmental proceeding, domestic or foreign, pending or threatened
(or circumstances that may give rise to the same) involving Ajax's
production, use, testing, manufacturing or marketing of any products or
services, which (i) questions the authority of Ajax to produce, use,
test, manufacture or market any products or services as described in the
Prospectus, (ii) questions the completeness or accuracy of data
generated by any trials, tests or studies being conducted by or on
behalf of Ajax, (iii) is required to be disclosed in the Prospectus
which is not so disclosed, or (iv) might materially and adversely affect
the condition, financial or otherwise, or the earnings, prospects,
value, operations or business of Ajax.
xv. none of Ajax nor any of its affiliates shall be subject to the
requirements of or shall be deemed an "Investment Company," pursuant to
and as defined under, respectively, the Investment Company Act.
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of Ajax, and representatives
of the independent public accountants for Ajax, at which conferences such
counsel made inquiries of such officers, representatives and accountants and
discussed the contents of the Preliminary Prospectus, the Registration
Statement, the Prospectus, and related matters and, although such counsel is not
passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Preliminary
Prospectus, the Registration Statement and Prospectus, on the basis of the
foregoing, no facts have come to the attention of such counsel which lead them
to believe that either the Registration Statement or any amendment thereto, at
the time such Registration Statement or amendment became effective or the
Preliminary Prospectus or Prospectus or amendment or supplement thereto as of
the date of such opinion contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading (it being understood that such
counsel need express no opinion with respect to the financial statements and
schedules and other financial and statistical data included in the Preliminary
Prospectus, the Registration Statement or the Prospectus). Such counsel shall
further state that its opinions may be relied upon by Underwriters' Counsel in
rendering its opinion to the Underwriters.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to Underwriters' Counsel) of
other counsel acceptable to Underwriters' Counsel, familiar with the applicable
laws; (B) as to matters of fact, to the extent they deem proper, on certificates
and written statements of responsible officers of Ajax and certificates or other
written statements of officers of departments of various jurisdictions having
custody of documents respecting the corporate existence or good standing of
Ajax, provided that copies of any such statements or certificates shall be
delivered to Underwriters' Counsel if requested. The opinion of such counsel for
Ajax
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shall state that the opinion of any such other counsel is in form satisfactory
to such counsel and that the Representatives, Underwriters' Counsel and they are
each justified in relying thereon. Any opinion of counsel for Ajax shall not
state that it is to be governed or qualified by, or that it is otherwise subject
to, any treatise, written policy or other document relating to legal opinions,
including, without limitation, the Legal Opinion Accord of the ABA Section of
Business Law (1991) or any comparable state accord.
(g) At the Closing Date, the Underwriters shall have received the
favorable opinion of Peter Dollenger, Esq. environmental counsel to the Company,
dated the Closing Date, addressed to the Underwriters in substantially the form
attached hereto as Exhibit A.
(h) On or prior to each of the Closing Date and each Option
Closing Date, if any, Underwriters' Counsel shall have been furnished such
documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
subsection (c) of this Section 6, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions of each of the Company and Ajax, or herein contained.
(i) Prior to each of the Closing Date and each Option Closing
Date, if any, (i) there shall have been no material adverse change nor
development involving a prospective change in the condition, financial or
otherwise, earnings, position, value, properties, results of operations,
prospects, stockholders' equity or the business activities of each of the
Company and Ajax, whether or not in the ordinary course of business, from the
latest dates as of which such condition is set forth in the Registration
Statement and Prospectus; (ii) there shall have been no transaction, not in the
ordinary course of business, entered into by each of the Company or Ajax, from
the latest date as of which the financial condition of each of the Company and
Ajax is set forth in the Registration Statement and Prospectus which is
materially adverse to each of the Company or Ajax; (iii) neither the Company nor
Ajax shall be in material default under any provision of any instrument relating
to any outstanding indebtedness; (iv) neither the Company nor Ajax shall have
issued any securities (other than the Securities) or declared or paid any
dividend or made any distribution in respect of its capital stock of any class
and there has not been any change in the capital stock or any material change in
the debt (long or short term) or liabilities or obligations of each of the
Company or Ajax (contingent or otherwise); (v) no material amount of the assets
of each of the Company or Ajax shall have been pledged or mortgaged, except as
set forth in the Registration Statement and Prospectus; (vi) no action, suit or
proceeding, at law or in equity, shall have been pending or threatened (or
circumstances giving rise to same) against each of the Company or Ajax, or
affecting any of its respective properties or businesses before or by any court
or federal, state or foreign commission, board or other administrative agency
wherein an unfavorable decision, ruling or finding may materially adversely
affect the business, operations, earnings, position, value, properties, results
of operations, prospects or financial condition or income of each of the Company
and Ajax; and (vii) no stop order shall have been issued under the Act and no
proceedings therefor shall have been initiated, threatened or contemplated by
the Commission.
(j) At each of the Closing Date and each Option Closing Date, if
any, the Underwriters shall have received a certificate of each of the Company
and Ajax signed by the
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principal executive officer and by the chief financial or chief accounting
officer of each of the Company and Ajax, dated the Closing Date or Option
Closing Date, as the case may be, to the effect that each of such persons has
carefully examined the Registration Statement, the Prospectus, the Stock
Purchase Agreement and this Agreement, and that:
i. The representations and warranties of each of the Company and
Ajax in the Stock Purchase Agreement and this Agreement are true and
correct, as if made on and as of the Closing Date or the Option Closing
Date, as the case may be, and each of the Company and Ajax has complied
with all agreements and covenants and satisfied all conditions contained
in the Stock Purchase Agreement and this Agreement on its part to be
performed or satisfied at or prior to such Closing Date or Option
Closing Date, as the case may be;
ii. No stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued, and no proceedings for
that purpose have been instituted or are pending or, to the best of each
of such person's knowledge, are contemplated or threatened under the
Act;
iii. The Registration Statement and the Prospectus and, if any,
each amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the
Registration Statement, the Prospectus nor any amendment or supplement
thereto includes any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading and neither the Preliminary
Prospectus or any supplement thereto included any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; and
iv. Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (a) neither the
Company nor Ajax has incurred up to and including the Closing Date or
the Option Closing Date, as the case may be, other than in the ordinary
course of its business, any material liabilities or obligations, direct
or contingent; (b) neither the Company nor Ajax has paid or declared any
dividends or other distributions on its capital stock; (c) neither the
Company nor Ajax has entered into any material transactions not in the
ordinary course of business; (d) there has not been any change in the
capital stock or long-term debt or any increase in the short-term
borrowings (other than any increase in the short-term borrowings in the
ordinary course of business) of each of the Company or Ajax; (e) neither
the Company nor Ajax has sustained any material loss or damage to its
properties or assets, whether or not insured; (f) there is no litigation
which is pending or threatened (or circumstances giving rise to same)
against each of the Company or Ajax or any affiliated party which is
required to be set forth in an amended or supplemented Prospectus which
has not been set forth; and (g) there has occurred no event required to
be set forth in an amended or supplemented Prospectus which has not been
set forth.
References to the Registration Statement and the Prospectus in this subsection
(j) are to such documents as amended and supplemented at the date of such
certificate.
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(k) By the Closing Date, the Underwriters will have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriters, as described in the Registration Statement.
(l) At the time this Agreement is executed, the Underwriters shall
have received a letter, dated such date, addressed to the Underwriters in form
and substance satisfactory (including the non-material nature of the changes or
decreases, if any, referred to in clause (iii) below) in all respects to the
Underwriters and Underwriters' Counsel, from BDO Seidman LLP:
i. confirming that they are independent certified public
accountants with respect to each of the Company and Ajax within the
meaning of the Act and the applicable Rules and Regulations;
ii. stating that it is their opinion that the financial statements
and supporting schedules of each of the Company and Ajax included in the
Registration Statement comply as to form in all material respects with
the applicable accounting requirements of the Act and the Rules and
Regulations thereunder and that the Representatives may rely upon the
opinion of BDO Seidman LLP with respect to the financial statements and
supporting schedules included in the Registration Statement;
iii. stating that, on the basis of a limited review which included
a reading of the latest available unaudited interim financial statements
of each of the Company and Ajax, a reading of the latest available
minutes of the stockholders and board of directors and the various
committees of the board of directors of each of the Company and Ajax,
consultations with officers and other employees of each of the Company
and Ajax responsible for financial and accounting matters and other
specified procedures and inquiries, nothing has come to their attention
which would lead them to believe that (A) the unaudited financial
statements and supporting schedules of each of the Company and Ajax
included in the Registration Statement do not comply as to form in all
material respects with the applicable accounting requirements of the Act
and the Rules and Regulations or are not fairly presented in conformity
with generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial statements
of each of the Company and Ajax included in the Registration Statement,
or (B) at a specified date not more than five (5) days prior to the
effective date of the Registration Statement, there has been any change
in the capital stock or long-term debt of each of the Company and Ajax,
or any decrease in the stockholders' equity or net current assets or net
assets of each of the Company and Ajax as compared with amounts shown in
the June 30, 1997 balance sheet included in the Registration Statement,
other than as set forth in or contemplated by the Registration
Statement, or, if there was any change or decrease, setting forth the
amount of such change or decrease, and (C) during the period from June
30, 1997 to a specified date not more than five (5) days prior to the
effective date of the Registration Statement, there was any decrease in
net revenues, net earnings or increase in net earnings per common share
of any of each of the Company and Ajax or the Subsidiaries, in each case
as compared with the corresponding period beginning June 30, 1996, other
than as set forth in or contemplated by the Registration Statement, or,
if there was any such decrease, setting forth the amount of such
decrease;
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iv. setting forth, at a date not later than five (5) days prior to
the date of the Registration Statement, the amount of liabilities of
each of the Company and Ajax taken as a whole (including a break-down of
commercial paper and notes payable to banks);
v. stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and
other financial information pertaining to each of the Company and Ajax
set forth in the Prospectus in each case to the extent that such
amounts, numbers, percentages, statements and information may be derived
from the general accounting records, including work sheets, of each of
the Company and Ajax and excluding any questions requiring an
interpretation by legal counsel, with the results obtained from the
application of specified readings, inquiries and other appropriate
procedures (which procedures do not constitute an examination in
accordance with generally accepted auditing standards) set forth in the
letter and found them to be in agreement;
vi. statements as to such other matters incident to the
transaction contemplated hereby as the Representatives may reasonably
request.
(m) At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from BDO Seidman LLP a letter, dated as of the
Closing Date or the Option Closing Date, as the case may be, to the effect that
they reaffirm that statements made in the letter furnished pursuant to
subsection (l) of this Section, except that the specified date referred to shall
be a date not more than five (5) days prior to the Closing Date or the Option
Closing Date, as the case may be, and, if the Company has elected to rely on
Rule 430A of the Rules and Regulations, to the further effect that they have
carried out procedures as specified in clause (v) of subsection (i) of this
Section with respect to certain amounts, percentages and financial information
as specified by the Representatives and deemed to be a part of the Registration
Statement pursuant to Rule 430A(b) and have found such amounts, percentages and
financial information to be in agreement with the records specified in such
clause (v).
(n) On each of the Closing Date and each Option Closing Date, if
any, there shall have been duly tendered to the Representatives for the several
Underwriters' accounts the appropriate number of Securities.
(o) No order suspending the sale of the Securities in any
jurisdiction designated by the Representatives pursuant to subsection (e) of
Section 4 hereof shall have been issued on either the Closing Date or the Option
Closing Date, if any, and no proceedings for that purpose shall have been
instituted or shall be contemplated.
(p) On or before the Closing Date, the Company shall have executed
and delivered to the Representatives (i) the Representatives' Warrant Agreement
substantially in the form filed as Exhibit 4.2 to the Registration Statement, in
final form and substance satisfactory to Dirks, and (ii) the Representatives'
Warrants in such denominations and to such designees as shall have been provided
to the Company by Dirks.
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(q) On or before the Closing Date, the Firm Securities and Option
Securities shall have been duly approved for listing on AMEX, subject to
official notice of issuance.
(r) On or before the Closing Date, there shall have been delivered
to the Representatives all of the Lock-up Agreements, in form and substance
satisfactory to Underwriters' Counsel.
(s) With respect to the Ajax Acquisition:
i. each condition to the obligations of the Company set forth in
Section [___] of the Stock Purchase Agreement shall have been satisfied,
without waiver or modification, except as may be approved by the
Representatives;
ii. each certificate delivered to the Company pursuant to the
Stock Purchase Agreement shall have also been delivered to the
Representatives;
iii. counsel for Ajax shall have furnished to the Representatives
a letter, in form and substance satisfactory to the Representatives, to
the effect that they are entitled to rely on the opinion of such counsel
delivered to the Company pursuant to the Stock Purchase Agreement as if
such opinion were addressed to them; and
iv. on the Closing Date the Representatives shall have received
opinions, in form and substance satisfactory to the Representatives,
from counsel for the Company and counsel for Ajax, to the effect that
the Acquisition pursuant to the Stock Purchase Agreement has become
effective and that such Acquisition was consummated in accordance with
the provisions of the Stock Purchase Agreement, which has been duly
authorized by the Company and Ajax and their respective stockholders,
and complies in all respects with applicable law.
(t) The Stock Purchase Agreement shall be in full force and effect
and none of the parties thereto shall be in default thereunder. The
Representatives shall have received assurances reasonably satisfactory to them
that all documents required to be filed in the respective states in order to
effectuate the consummation of the Acquisition shall have been approved for
filing by the appropriate authorities in each state and that all of such
Acquisition documents shall be filed substantially concurrently with the
consummation of the transactions pursuant to this Agreement.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Representatives may terminate this
Agreement or, if the Representatives so elect, they may waive any such
conditions which have not been fulfilled or extend the time for their
fulfillment.
7. Indemnification.
(a) The Company and Ajax agree to indemnify and hold harmless each
of the Underwriters (for purposes of this Section 7 "Underwriter" shall include
the officers, directors,
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partners, employees, agents and counsel of the Underwriter, including
specifically each person who may be substituted for an Underwriter as provided
in Section 11 hereof), and each person, if any, who controls the Underwriter
("controlling person") within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, from and against any and all losses, claims, damages,
expenses or liabilities, joint or several (and actions, proceedings,
investigations, inquiries, suits and litigation in respect thereof), whatsoever
(including but not limited to any and all expenses whatsoever reasonably
incurred in investigating, preparing or defending against any such claim,
action, proceeding, investigation, inquiry, suit or litigation, commenced or
threatened, or any claim whatsoever), as such are incurred, to which the
Underwriter or such controlling person may become subject under the Act, the
Exchange Act or any other statute or at common law or otherwise or under the
laws of foreign countries, arising out of or based upon (A) any untrue statement
or alleged untrue statement of a material fact contained (i) in any Preliminary
Prospectus, the Registration Statement or the Prospectus (as from time to time
amended and supplemented); (ii) in any post-effective amendment or amendments or
any new registration statement and prospectus in which is included securities of
the Company issued or issuable upon exercise of the Securities; or (iii) in any
application or other document or written communication (in this Section 7
collectively called "application") executed by each of the Company and Ajax or
based upon written information furnished by each of the Company and Ajax in any
jurisdiction in order to qualify the Securities under the securities laws
thereof or filed with the Commission, any state securities commission or agency,
AMEX or any other securities exchange; (B) the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading (in the case of the Prospectus, in the
light of the circumstances under which they were made), or (C) any breach of any
representation, warranty, covenant or agreement of each of the Company and Ajax
contained herein or in any certificate by or on behalf of each of the Company
and Ajax or any of its officers delivered pursuant hereto, unless, in the case
of clause (A) or (B) above, such statement or omission was made in reliance upon
and in conformity with written information furnished to each of the Company and
Ajax with respect to any Underwriter by or on behalf of such Underwriter
expressly for use in any Preliminary Prospectus, the Registration Statement or
Prospectus, or any amendment thereof or supplement thereto, or in any
application, as the case may be. The indemnity agreement in this subsection (a)
shall be in addition to any liability which each of the Company and Ajax may
have at common law or otherwise.
The foregoing indemnity with respect to any untrue statement
contained in or omission from a Preliminary Prospectus shall not inure to the
benefit of any Underwriter (or any person controlling such Underwriter) from
whom the person asserting any such loss, liability, claim, damage or expense
purchased any of the Securities which are the subject thereof if (1) each of the
Company or Ajax shall sustain the burden of proving that such asserting person
did not receive a copy of the Prospectus (or the Prospectus as amended or
supplemented) at or prior to the written confirmation of the sale of such
Securities to such person and the untrue statement contained in or omitted from
such Preliminary Prospectus was corrected in the Prospectus (or the Prospectus
as amended or supplemented); and (2) the Company shall have complied with its
covenant pursuant to Section 4(f) of this Agreement.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless each of the Company and Ajax, each of their
respective directors, each of their
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respective officers who has signed the Registration Statement, and each other
person, if any, who controls each of the Company and Ajax within the meaning of
the Act, to the same extent as the foregoing indemnity from each of the Company
and Ajax to the Underwriters but only with respect to statements or omissions,
if any, made in any Preliminary Prospectus, the Registration Statement or
Prospectus or any amendment thereof or supplement thereto or in any application
made in reliance upon, and in strict conformity with, written information
furnished to each of the Company and Ajax with respect to any Underwriter by
such Underwriter expressly for use in such Preliminary Prospectus, the
Registration Statement or Prospectus or any amendment thereof or supplement
thereto or in any such application, provided that such written information or
omissions only pertain to disclosures in the Preliminary Prospectus, the
Registration Statement or Prospectus directly relating to the transactions
effected by the Underwriters in connection with this Offering. The Company
acknowledges that the statements with respect to the public offering of the Firm
Securities and the Option Securities set forth under the heading "Underwriting"
and the stabilization legend in the Prospectus have been furnished by the
Underwriters expressly for use therein and constitute the only information
furnished in writing by or on behalf of the Underwriters for inclusion in the
Prospectus.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any claim, action, suit,
investigation, inquiry, proceeding or litigation, such indemnified party shall,
if a claim in respect thereof is to be made against one or more indemnifying
parties under this Section 7, notify each party against whom indemnification is
to be sought in writing of the commencement thereof (but the failure so to
notify an indemnifying party shall not relieve it from any liability which it
may have under this Section 7 except to the extent that it has been prejudiced
in any material respect by such failure or from any liability which it may have
otherwise). In case any such claim, action, suit, investigation, inquiry,
proceeding or litigation is brought against any indemnified party, and it
notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such case
but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by the indemnifying parties in connection with
the defense of thereof at the expense of the indemnifying party, (ii) the
indemnifying parties shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense thereof within a reasonable
time after notice of commencement thereof, or (iii) such indemnified party or
parties shall have reasonably concluded that there may be defenses available to
it or them which are different from or additional to those available to one or
all of the indemnifying parties (in which case the indemnifying parties shall
not have the right to direct the defense thereof on behalf of the indemnified
party or parties), in any of which events such fees and expenses of one
additional counsel shall be borne by the indemnifying parties. In no event shall
the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one claim, action, suit,
investigation, inquiry, proceeding or litigation or separate but similar or
related claims, actions, suits, investigations, inquiries, proceedings or
litigation in the
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same jurisdiction arising out of the same general allegations or circumstances.
Anything in this Section 7 to the contrary notwithstanding, an indemnifying
party shall not be liable for any settlement of any claim, action, suit,
investigation, inquiry, proceeding or litigation effected without its written
consent; provided, however, that such consent was not unreasonably withheld. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle, compromise or consent to the entry of any judgment
with respect to any pending or threatened claim, action, suit, investigation,
inquiry, proceeding or litigation in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified parties are
actual or potential parties to such claim, action, suit, investigation, inquiry,
proceeding or litigation), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit, investigation, inquiry, proceeding or
litigation and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(d) In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes claim for indemnification pursuant
to this Section 7, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Firm Securities and the Option Securities or (B) if the allocation provided
by clause (A) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of each of the contributing parties, on the
one hand, and the party to be indemnified on the other hand in connection with
the statements or omissions that resulted in such losses, claims, damages,
expenses or liabilities, as well as any other relevant equitable considerations.
In any case where each of the Company and Ajax is the contributing party and the
Underwriters are the indemnified party, the relative benefits received by each
of the Company and Ajax on the one hand, and the Underwriters, on the other,
shall be deemed to be in the same proportion as the total net proceeds from the
offering of the Firm Securities and the Option Securities (before deducting
expenses) bear to the total underwriting discounts received by the Underwriters
hereunder, in each case as set forth in the table on the Cover Page of the
Prospectus. Relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by each of the Company and Ajax, or by the Underwriters, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, expenses or
liabilities (or actions in respect thereof) referred to above in this subsection
(d) shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this subsection (d), the
Underwriters shall not be required to contribute any amount in excess of the
underwriting
41
<PAGE>
discount applicable to the Firm Securities and the Option Securities purchased
by the Underwriters hereunder. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7, each person, if any, who
controls each of the Company and Ajax or the Underwriter within the meaning of
the Act, each officer of the Company who has signed the Registration Statement,
and each director of each of the Company and Ajax shall have the same rights to
contribution as each of the Company and Ajax or the Underwriter, as the case may
be, subject in each case to this subsection (d). Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect to which a claim for
contribution may be made against another party or parties under this subsection
(d), notify such party or parties from whom contribution may be sought, but the
omission so to notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have hereunder or otherwise than under this subsection (d), or to the extent
that such party or parties were not adversely affected by such omission. The
contribution agreement set forth above shall be in addition to any liabilities
which any indemnifying party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of each of the Company and Ajax submitted
pursuant hereto, shall be deemed to be representations, warranties and
agreements at the Closing Date and the Option Closing Date, as the case may be,
and such representations, warranties and agreements of each of the Company and
Ajax and the indemnity agreements contained in Section 7 hereof, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any Underwriter, each of the Company and Ajax, any controlling
person of any Underwriter or each of the Company and Ajax, and shall survive
termination of this Agreement or the issuance and delivery of the Securities to
the Underwriters and the Representatives, as the case may be.
9. Effective Date. This Agreement shall become effective at 10:00 a.m.,
New York City time, on the next full business day following the date hereof, or
at such earlier time after the Registration Statement becomes effective as the
Representatives, in their discretion, shall release the Securities for sale to
the public; provided, however, that the provisions of Sections 5, 7 and 10 of
this Agreement shall at all times be effective. For purposes of this Section 9,
the Securities to be purchased hereunder shall be deemed to have been so
released upon the earlier of dispatch by the Representatives of telegrams to
securities dealers releasing such securities for offering or the release by the
Representatives for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. Termination.
(a) Subject to subsection (b) of this Section 10, the
Representatives shall have the right to terminate this Agreement, (i) if any
domestic or international event or act or occurrence has materially adversely
disrupted, or in the Representatives' opinion will in the immediate future
materially adversely disrupt, the financial markets; or (ii) if any material
adverse change in the financial markets shall have occurred; or (iii) if trading
generally shall have been
42
<PAGE>
suspended or materially limited on or by, as the case may be, any of the New
York Stock Exchange, the American Stock Exchange, the NASD, the Commission or
any governmental authority having jurisdiction over such matters; or (iv) if
trading of any of the securities of the Company shall have been suspended, or
any of the securities of the Company shall have been delisted, on any exchange
or in any over-the-counter market; (v) if the United States shall have become
involved in a war or major hostilities, or if there shall have been an
escalation in an existing war or major hostilities or a national emergency shall
have been declared in the United States; or (vi) if a banking moratorium has
been declared by a state or federal authority; or (vii) if a moratorium in
foreign exchange trading has been declared; or (viii) if either the Company or
Ajax shall have sustained a loss material or substantial to either the Company
or Ajax by fire, flood, accident, hurricane, earthquake, theft, sabotage or
other calamity or malicious act which, whether or not such loss shall have been
insured, will, in the Representatives' opinion, make it inadvisable to proceed
with the offering, sale and/or delivery of the Securities; or (ix) if there
shall have been such a material adverse change in the conditions or prospects of
either the Company or Ajax, or such material adverse change in the general
market, political or economic conditions, in the United States or elsewhere,
that, in each case, in the Representatives' judgment, would make it inadvisable
to proceed with the offering, sale and/or delivery of the Securities or (x) if
Karl Massaro shall no longer serve either the Company or Ajax in his present
capacity.
(b) If this Agreement is terminated by the Representatives in
accordance with the provisions of Section 10(a) the Company shall promptly
reimburse and indemnify the Representatives for all of its actual out-of-pocket
expenses, including the fees and disbursements of counsel for the Underwriters
and all Blue Sky counsel fees (excluding filing fees) and disbursements (less
amounts previously paid pursuant to Section 5(c) above). In addition, the
Company shall remain liable for all Blue Sky counsel fees and disbursements,
expenses and filing fees. Notwithstanding any contrary provision contained in
this Agreement, if this Agreement shall not be carried out within the time
specified herein, or any extension thereof granted to the Representatives, by
reason of any failure on the part of either the Company or Ajax to perform any
undertaking or satisfy any condition of this Agreement by it to be performed or
satisfied (including, without limitation, pursuant to Section 6 (except if this
Agreement is terminated pursuant to Sections 6(c), 6(l) or 6(q)) or Section 12)
then, the Company shall promptly reimburse and indemnify the Representatives for
all of their actual out-of-pocket expenses, including the reasonable fees and
disbursements of counsel for the Underwriters (less amounts previously paid
pursuant to Section 5(c) above). In addition, the Company shall remain liable
for all Blue Sky counsel fees and disbursements, expenses and filing fees.
Notwithstanding any contrary provision contained in this Agreement, any election
hereunder or any termination of this Agreement (including, without limitation,
pursuant to Sections 6, 10, 11 and 12 hereof), and whether or not this Agreement
is otherwise carried out, the provisions of Section 5 and Section 7 shall not be
in any way affected by such election or termination or failure to carry out the
terms of this Agreement or any part hereof.
11. Substitution of the Underwriters. If one or more of the Underwriters
shall fail (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 6, Section 10 or Section 12
hereof) to purchase the Securities which it or they are obligated to purchase on
such date under this Agreement (the "Defaulted Securities"),
43
<PAGE>
the Representatives shall have the right, within 24 hours thereafter, to make
arrangement for one or more of the non-defaulting Underwriters, or any other
underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth; if, however, the Representatives shall not have completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of
the total number of Firm Securities to be purchased on such date, the
non-defaulting Underwriters shall be obligated to purchase the full
amount thereof in the proportions that their respective underwriting
obligations hereunder bear to the underwriting obligations of all
non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the total
number of Firm Securities, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriters (or, if such
default shall occur with respect to any Option Securities to be
purchased on an Option Closing Date, the Underwriters may at the
Representatives' option, by notice from the Representatives to the
Company, terminate the Underwriters' obligation to purchase Option
Securities from the Company on such date).
No action taken pursuant to this Section 11 shall relieve any defaulting
Underwriter from liability in respect of any default by such Underwriter under
this Agreement.
In the event of any such default which does not result in a termination
of this Agreement, the Representatives shall have the right to postpone the
Closing Date for a period not exceeding seven (7) days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements.
12. Default by the Company. If the Company shall fail at the Closing
Date or at any Option Closing Date, as applicable, to sell and deliver the
number of Securities which it is obligated to sell hereunder on such date, then
this Agreement shall terminate (or, if such default shall occur with respect to
any Option Securities to be purchased on an Option Closing Date, the
Underwriters may at the Representatives' option, by notice from the
Representatives to the Company, terminate the Underwriters' obligation to
purchase Option Securities from the Company on such date) without any liability
on the part of any non-defaulting party other than pursuant to Section 5,
Section 7 and Section 10 hereof. No action taken pursuant to this Section 12
shall relieve the Company from liability, if any, in respect of such default.
13. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representatives, Dirks & Company, Inc., 520 Madison Avenue, New York, New York
10022, Attention: Ray Dirks, Chairman and Millennium Financial Group, Inc., 235
West 56th Street, Suite 37E, New York, New York 10019, Attention: Michael Roy
Fugler, Managing Director, with a copy to Orrick, Herrington & Sutcliffe LLP,
666 Fifth Avenue, New York, New York 10103-0001, Attention: Lawrence B. Fisher,
Esq. Notices to the Company shall be directed to the Company at 321 Valley Road,
Hillsborough Township, New Jersey
44
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08876-4056, Attention: Mr. Steven Merker, Chairman of the Board, Vice President,
Treasurer and Chief Financial and Accounting Officer, with a copy to: Phillips
Nizer Benjamin Krim & Ballon LLP, 666 Fifth Avenue, New York, New York
10103-0084, Attention: Vincent McGill, Esq.
14. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained. No purchaser of Securities from any Underwriter shall be deemed to be
a successor by reason merely of such purchase.
15. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
17. Entire Agreement; Amendments. This Agreement, the Warrant Agreement
and the Representatives' Warrant Agreement constitute the entire agreement of
the parties hereto and supersede all prior written or oral agreements,
understandings and negotiations with respect to the subject matter hereof. This
Agreement may not be amended except in a writing, signed by the Representatives
and the Company.
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If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
STANDARD AUTOMOTIVE CORPORATION
By:________________________________________
Mr. Steven Merker
Chairman of the Board, Vice President,
Treasurer and Chief Financial and
Accounting Officer
AJAX MANUFACTURING COMPANY
By:________________________________________
Name:
Title:
CARL MASSARO
___________________________________________
Confirmed and accepted as of
the date first above written.
DIRKS & COMPANY, INC.
For itself and as Representative
of the several Underwriters named
in Schedule A hereto.
By:______________________________________
Name:
Title:
MILLENNIUM FINANCIAL GROUP, INC.
For itself and as Representative
of the several Underwriters named
in Schedule A hereto.
<PAGE>
By:______________________________________
Name:
Title:
<PAGE>
SCHEDULE A
Number of
Number of Shares of
Shares of Convertible
Common Stock Preferred Stock
Name of Underwriters to be Purchased to be Purchased
- -------------------- --------------- ---------------
Dirks & Company, Inc..................
Millennium Financial Group, Inc.......
Total................................. 1,300,000 1,000,000
========= =========
<PAGE>
EXHIBIT A
[FORM OF ENVIRONMENTAL OPINION - TO BE DETERMINED]
[FORM OF REPRESENTATIVE'S WARRANT AGREEMENT]
[SUBJECT TO ADDITIONAL REVIEW]
- --------------------------------------------------------------------------------
STANDARD AUTOMOTIVE CORPORATION
AND
DIRKS & COMPANY, INC.
---------------------
REPRESENTATIVE'S
WARRANT AGREEMENT
DATED AS OF ________, 1997
- --------------------------------------------------------------------------------
<PAGE>
REPRESENTATIVE'S WARRANT AGREEMENT dated as of _______, 1997 between
STANDARD AUTOMOTIVE CORPORATION, a Delaware corporation (the "Company"), and
DIRKS & COMPANY, INC. (hereinafter referred to variously as the "Holder",
"Dirks", or "Representative").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to Dirks warrants ("Warrants")
to purchase up to an aggregate 130,000 shares of Common Stock, $0.001 par value
("Common Stock"), of the Company and/or up to an aggregate 100,000 shares of
Convertible Redeemable Preferred Stock, $0.001 par value ("Convertible Preferred
Stock"), of the Company; and
WHEREAS, Dirks has agreed pursuant to the underwriting agreement (the
"Underwriting Agreement") dated as of the date hereof among Dirks, Millennium
Financial Group, Inc. ("Millennium", collectively with Dirks, the
"Representatives") as the Representatives of the several Underwriters listed
therein, and the Company to act as a Representative in connection with the
Company's proposed public offering of up to 1,300,000 shares of Common Stock and
1,000,000 shares of Convertible Preferred Stock at a public offering price of
$10.00 per share of Common Stock and $12.00 per share of Convertible Preferred
Stock; and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to Dirks or its designees in consideration for, and as
part of Dirk's compensation in connection with, Dirks acting as one of the
Representatives pursuant to the Underwriting Agreement;
<PAGE>
NOW, THEREFORE, in consideration of the premises, the payment by Dirks
to the Company of an aggregate twenty-three dollars ($23), the agreements herein
set forth and other good and valuable consideration, hereby acknowledged, the
parties hereto agree as follows:
1. Grant. Dirks (or its designees) is hereby granted the right to
purchase, at any time from __________, 1998 [one year from the effective date of
the Registration Statement], until 5:30 P.M., New York time, on __________, 2002
[five years from the effective date of the Registration Statement], up to an
aggregate of 130,000 shares of Common Stock and/or 100,000 shares of Convertible
Preferred Stock at an initial exercise price (subject to adjustment as provided
in Section 8 hereof) of $____ per share of Common Stock [165% of the initial
public offering price per share] and $____ per share of Convertible Preferred
Stock [165% of the initial public offering price per share], subject to the
terms and conditions of this Agreement. Except as set forth herein, the shares
of Common Stock and the shares of Convertible Preferred Stock are in all
respects identical to the shares of Common Stock and the shares of Convertible
Preferred Stock being purchased by the Underwriters for resale to the public
pursuant to the terms and provisions of the Underwriting Agreement. In the event
the Company shall at any time redeem the Convertible Preferred Stock prior to
the exercise of a Warrant to purchase shares of Convertible Preferred Stock, the
Holder of a Warrant to purchase shares of Convertible Preferred Stock shall have
the right thereafter to receive, upon exercise of such Warrant, the kind and
amount of shares of stock and other securities and property receivable by a
holder of shares of Convertible Preferred Stock immediately prior to the
Company's redemption of the Convertible Preferred Stock. The shares of Common
Stock and the shares of Convertible Preferred Stock are sometimes hereinafter
referred to collectively as the "Securities."
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<PAGE>
2. Warrant Certificates. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A, attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. Exercise of Warrant.
ss.3.1 Method of Exercise. The Warrants initially are exercisable at an
aggregate initial exercise price (subject to adjustment as provided in Section 8
hereof) per share of Common Stock and per share of Convertible Preferred Stock
set forth in Section 6 hereof payable by certified or official bank check in New
York Clearing House funds, subject to adjustment as provided in Section 8
hereof. Upon surrender of a Warrant Certificate with the annexed Form of
Election to Purchase duly executed, together with payment of the Exercise Price
(as hereinafter defined) for the shares of Common Stock and/or shares of
Convertible Preferred Stock purchased at the Company's principal executive
offices in New Jersey (presently located at 321 Valley Road, Hillsborough
Township, New Jersey 08876-5544) the registered holder of a Warrant Certificate
("Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the shares of Common Stock so purchased and a certificate or
certificates for the shares of Convertible Preferred Stock so purchased. The
purchase rights represented by each Warrant Certificate are exercisable at the
option of the Holder thereof, in whole or in part (but not as to fractional
shares of the Common Stock and/or fractional shares of Convertible Preferred
Stock underlying the Warrants). Warrants may be exercised to purchase all or
part of the shares of Common Stock together with an equal or unequal number of
the shares of Convertible Preferred Stock represented thereby. In the case of
the purchase of less than all the shares of Common Stock and/or Convertible
Preferred Stock purchasable under any Warrant Certificate, the Company shall
cancel said Warrant Certificate upon the surrender thereof and
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<PAGE>
shall execute and deliver a new Warrant Certificate of like tenor for the
balance of the shares of Common Stock and/or Convertible Preferred Stock
purchasable thereunder.
ss.3.2 Exercise by Surrender of Warrant. In addition to the method of
payment set forth in Section 3.1 and in lieu of any cash payment required
thereunder, the Holder(s) of the Warrants shall have the right at any time and
from time to time to exercise the Warrants in full or in part by surrendering
the Warrant Certificate in the manner specified in Section 3.1 hereof. The
number of shares of Common Stock to be issued pursuant to this Section 3.2 shall
be equal to the difference between (a) the number of shares of Common Stock in
respect of which the Warrants are exercised and (b) a fraction, the numerator of
which shall be number of shares of Common Stock in respect of which the Warrants
are exercised multiplied by the Exercise Price and the denominator of which
shall be the Market Price (as defined in Section 3.3 hereof) of the Common
Stock. The number of shares of Convertible Preferred Stock to be issued pursuant
to this Section 3.2 shall be equal to the difference between (a) the number of
shares of Convertible Preferred Stock in respect of which the Warrants are
exercised and (b) a fraction, the numerator of which shall be the number of
shares of Convertible Preferred Stock in respect of which the Warrants are
exercised multiplied by the Exercise Price and the denominator of which shall be
the Market Price (as defined in Section 3.3 hereof) of the Convertible Preferred
Stock. Solely for the purposes of this paragraph, Market Price shall be
calculated either (i) on the date on which the form of election attached hereto
is deemed to have been sent to the Company pursuant to Section 13 hereof
("Notice Date") or (ii) as the average of the Market Prices for each of the five
trading days preceding the Notice Date, whichever of (i) or (ii) is greater.
ss.3.3 Definition of Market Price. As used herein, the phrase "Market
Price" at any date shall be deemed to be (i) when referring to the Common Stock,
the last reported sale
-4-
<PAGE>
price, or, in the case no such reported sale takes place on such day, the
average of the last reported sale prices for the last three (3) trading days, in
either case as officially reported by the principal securities exchange on which
the Common Stock is listed or admitted to trading or by the Nasdaq SmallCap
Market ("Nasdaq SmallCap") or by the National Association of Securities Dealers
Automated Quotation System ("Nasdaq"), or, if the Common Stock is not listed or
admitted to trading on any national securities exchange or quoted by Nasdaq, the
average closing bid price as furnished by the National Association of Securities
Dealers, Inc. ("NASD") through Nasdaq or similar organization if Nasdaq is no
longer reporting such information, or if the Common Stock is not quoted on
Nasdaq, as determined in good faith (using customary valuation methods) by
resolution of the members of the Board of Directors of the Company, based on the
best information available to it or (ii) when referring to the Convertible
Preferred Stock, the last reported sales price, or, in the case no such reported
sale takes place on such day, the average of the last reported sale prices for
the last three (3) trading days, in either case as officially reported by the
principal securities exchange on which the Convertible Preferred Stock is listed
or admitted to trading or by Nasdaq SmallCap or by Nasdaq, or, if the
Convertible Preferred Stock is not listed or admitted to trading on any national
securities exchange or quoted by Nasdaq, the average closing bid price as
furnished by the NASD through Nasdaq or similar organization if Nasdaq is no
longer reporting such information, or if the Convertible Preferred Stock is not
quoted on Nasdaq, as determined in good faith (using customary valuation
methods) by resolution of the members of the Board of Directors of the Company,
based on the best information available to it.
4. Issuance of Certificates. Upon the exercise of the Warrants, the
issuance of certificates for shares of Common Stock and/or shares of Convertible
Preferred Stock and/or other securities, properties or rights underlying such
Warrants shall be made forthwith (and in
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<PAGE>
any event within five (5) business days thereafter) without charge to the Holder
thereof including, without limitation, any tax which may be payable in respect
of the issuance thereof, and such certificates shall (subject to the provisions
of Sections 5 and 7 hereof) be issued in the name of, or in such names as may be
directed by, the Holder thereof; provided, however, that the Company shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name other
than that of the Holder, and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the shares
of Common Stock and the shares of Convertible Preferred Stock underlying the
Warrants (and/or other securities, property or rights issuable upon the exercise
of the Warrants) shall be executed on behalf of the Company by the manual or
facsimile signature of the then Chairman or Vice Chairman of the Board of
Directors or President or Vice President of the Company. Warrant Certificates
shall be dated the date of execution by the Company upon initial issuance,
division, exchange, substitution or transfer. Certificates representing the
shares of Common Stock and shares of Convertible Preferred Stock (and/or other
securities, property or rights issuable upon exercise of the Warrants) shall be
dated as of the Notice Date (regardless of when executed or delivered) and
dividend bearing securities so issued shall accrue dividends from the Notice
Date.
5. Restriction On Transfer of Warrants. The Holder of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof; that the Warrants may not be sold,
-6-
<PAGE>
transferred, assigned, hypothecated or otherwise disposed of, in whole or in
part, for a period of one (1) year from the date hereof, except to officers of
the Representatives.
6. Exercise Price.
ss.6.1 Initial and Adjusted Exercise Price. Except as otherwise
provided in Section 8 hereof, the initial exercise price of each Warrant shall
be $____ [165% of the initial public offering price] per share of Common Stock
and $_____ [165% of the initial public offering price] per share of Convertible
Preferred Stock. The adjusted exercise price shall be the price which shall
result from time to time from any and all adjustments of the initial exercise
price in accordance with the provisions of Section 8 hereof. Any transfer of a
Warrant shall constitute an automatic transfer and assignment of the
registration rights set forth in Section 7 hereof with respect to the Securities
or other securities, properties or rights underlying the Warrants.
ss.6.2 Exercise Price. The term "Exercise Price" herein shall mean the
initial exercise price or the adjusted exercise price, depending upon the
context or unless otherwise specified.
7. Registration Rights.
ss.7.1 Registration Under the Securities Act of 1933. The Warrants, the
shares of Common Stock and the shares of Convertible Preferred Stock or other
securities issuable upon exercise of the Warrants, (collectively, the "Warrant
Securities") have not been registered under the Securities Act of 1933, as
amended (the "Act") pursuant to the Company's Registration Statement on Form S-1
(Registration No. 333-33465) (the "Registration Statement"). The certificates
representing the Warrant Securities shall bear the following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended ("Act"), and
may not be offered or sold except pursuant to (i) an effective
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<PAGE>
registration statement under the Act, (ii) to the extent applicable,
Rule 144 under the Act (or any similar rule under such Act relating to
the disposition of securities), or (iii) an opinion of counsel, if
such opinion shall be reasonably satisfactory to counsel to the
issuer, that an exemption from registration under such Act is
available.
ss.7.2 Piggyback Registration. If, at any time commencing after the
date hereof and expiring five (5) years thereafter, the Company proposes to
register any of its securities under the Act (other than pursuant to Form S-4,
Form S-8 or a comparable registration statement) it will give written notice by
registered mail, at least thirty (30) days prior to the filing of each such
registration statement, to Dirks and to all other Holders of the Warrants and/or
the Warrant Securities of its intention to do so. If Dirks or other Holders of
the Warrants and/or Warrant Securities notify the Company within twenty (20)
business days after receipt of any such notice of its or their desire to include
any such securities in such proposed registration statement, the Company shall
afford Dirks and such Holders of the Warrants and/or Warrant Securities the
opportunity to have any such Warrant Securities registered under such
registration statement.
Notwithstanding the provisions of this Section 7.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 7.2 (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
ss.7.3 Demand Registration.
(a) At any time commencing after the date hereof and expiring five (5)
years thereafter, the Holders of the Warrants and/or Warrant Securities
representing a "Majority" (as hereinafter defined) of such securities (assuming
the exercise of all of the Warrants) shall
-8-
<PAGE>
have the right (which right is in addition to the registration rights under
Section 7.2 hereof), exercisable by written notice to the Company, to have the
Company prepare and file with the Securities and Exchange Commission (the
"Commission"), on one occasion, a registration statement and such other
documents, including a prospectus, as may be necessary in the opinion of both
counsel for the Company and counsel for Dirks and Holders, in order to comply
with the provisions of the Act, so as to permit a public offering and sale of
their respective Warrant Securities for six (6) consecutive months by such
Holders and any other Holders of the Warrants and/or Warrant Securities who
notify the Company within ten (10) days after receiving notice from the Company
of such request.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
(c) Notwithstanding anything to the contrary contained herein, if the
Company shall not have filed a registration statement for the Warrant Securities
within the time period specified in Section 7.4(a) hereof pursuant to the
written notice specified in Section 7.3(a) of a Majority of the Holders of the
Warrants and/or Warrant Securities, the Company may, at its option, upon the
written notice of election of a Majority of the Holders of the Warrants and/or
Warrant Securities requesting such registration, repurchase (i) any and all
Warrant Securities of such Holders at the higher of the Market Price per share
of Common Stock and per share of Convertible Preferred Stock on (x) the date of
the notice sent pursuant to Section 7.3(a) or (y) the expiration of the period
specified in Section 7.4(a) and (ii) any and all Warrants of such Holders at
such Market Price less the Exercise Price of such Warrant. Such repurchase shall
be in immediately available funds and shall close within two (2) days after the
later of (i) the
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expiration of the period specified in Section 7.4(a) or (ii) the delivery of the
written notice of election specified in this Section 7.3(c).
(d) If all of the Holders are able to sell the Warrant Securities
pursuant to Rule 144 under the Securities Act of 1933, as amended, and without
regard to the volume limitations thereunder, the Holders' rights under Section
7.2 and 7.3(a) shall terminate.
ss.7.4 Covenants of the Company With Respect to Registration. In
connection with any registration under Section 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within thirty (30) days of receipt of any demand therefor, shall use
its best efforts to have any registration statements declared effective at the
earliest possible time, and shall furnish each Holder desiring to sell Warrant
Securities such number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and expenses of
Holder(s)' counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses.
(c) The Company will take all necessary action which may be required in
qualifying or registering the Warrant Securities included in a registration
statement for offering and sale under the securities or blue sky laws of such
states as reasonably are requested by the Holder(s), provided that the Company
shall not be obligated to execute or file any general
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<PAGE>
consent to service of process or to qualify as a foreign corporation to do
business under the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant Securities
to be sold pursuant to any registration statement and each person, if any, who
controls such Holders within the meaning of Section 15 of the Act or Section
20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"),
against all loss, claim, damage, expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Act, the Exchange
Act or otherwise, arising from such registration statement but only to the same
extent and with the same effect as the provisions pursuant to which the Company
has agreed to indemnify each of the Underwriters contained in Section 7 of the
Underwriting Agreement.
(e) The Holder(s) of the Warrant Securities to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company, its officers and directors and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage, expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished by or on behalf of such Holders, or their successors or assigns, for
specific inclusion in such registration statement to the same extent and with
the same effect as the provisions contained in Section 7 of the Underwriting
Agreement pursuant to which the Underwriters have agreed to indemnify the
Company.
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<PAGE>
(f) Nothing contained in this Agreement shall be construed as requiring
the Holder(s) to exercise their Warrants prior to the initial filing of any
registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities other
than the Warrant Securities to be included in any registration statement filed
pursuant to Section 7.3 hereof, or permit any other registration statement to be
or remain effective during the effectiveness of a registration statement filed
pursuant to Section 7.3 hereof (other than (i) shelf registrations effective
prior thereto and (ii) registrations on Form S-4 or S-8), without the prior
written consent of the Holders of the Warrants and Warrant Securities
representing a Majority of such securities.
(h) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities.
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<PAGE>
(i) The Company shall as soon as practicable after the effective date
of the registration statement, and in any event within 15 months thereafter,
make "generally available to its security holders" (within the meaning of Rule
158 under the Act) an earnings statement (which need not be audited) complying
with Section 11(a) of the Act and covering a period of at least 12 consecutive
months beginning after the effective date of the registration statement.
(j) The Company shall deliver promptly to each Holder participating in
the offering requesting the correspondence and memoranda described below and to
the managing underwriters, copies of all correspondence between the Commission
and the Company, its counsel or auditors and all memoranda relating to
discussions with the Commission or its staff with respect to the registration
statement and permit each Holder and underwriter to do such investigation, upon
reasonable advance notice, with respect to information contained in or omitted
from the registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the NASD. Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such Holder
or underwriter shall reasonably request.
(k) The Company shall enter into an underwriting agreement with the
managing underwriters selected for such underwriting by Holders holding a
Majority of the Warrant Securities requested pursuant to Section 7.3(a) to be
included in such underwriting, which may be Dirks. Such agreement shall be
satisfactory in form and substance to the Company, each Holder and such managing
underwriter(s), and shall contain such representations, warranties and covenants
by the Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter(s). The Holders shall be parties
to any underwriting agreement relating to an underwritten sale of their Warrant
Securities whether
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<PAGE>
pursuant to Section 7.2 or Section 7.3(a) and may, at their option, require that
any or all of the representations, warranties and covenants of each of the
Company and the Subsidiary to or for the benefit of such underwriter(s) shall
also be made to and for the benefit of such Holders. Such Holders shall not be
required to make any representations or warranties to or agreements with the
Company or the underwriter(s) except as they may relate to such Holders and
their intended methods of distribution.
(l) For purposes of this Agreement, the term "Majority" in reference to
the Holders of Warrants or Warrant Securities, shall mean in excess of fifty
percent (50%) of the then outstanding Warrants or Warrant Securities that (i)
are not held by the Company, an affiliate, officer, creditor, employee or agent
thereof or any of their respective affiliates, members of their family, persons
acting as nominees or in conjunction therewith and (ii) have not been resold to
the public pursuant to a registration statement filed with the Commission under
the Act.
8. Adjustments to Exercise Price and Number of Securities. ss.8.1
Subdivision and Combination. In case the Company shall at any time subdivide or
combine the outstanding shares of Common Stock and/or the outstanding shares of
Convertible Preferred Stock, the Exercise Price shall forthwith be
proportionately decreased in the case of subdivision or increased in the case of
combination.
ss.8.2 Stock Dividends and Distributions. In case the Company shall pay
a dividend in, or make a distribution of, shares of Common Stock or shares of
Convertible Preferred Stock, the Exercise Price shall forthwith be
proportionately decreased. An adjustment made pursuant to this Section 8.2 shall
be made as of the record date for the subject stock dividend or distribution.
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<PAGE>
ss.8.3 Adjustment in Number of Securities. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 8, the number of
Warrant Securities issuable upon the exercise at the adjusted exercise price of
each Warrant shall be adjusted to the nearest full amount by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Securities issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
ss.8.4 Definition of Common Stock. For the purpose of this Agreement,
the term "Common Stock" shall mean (i) the class of stock designated as Common
Stock in the Certificate of Incorporation of the Company as may be amended as of
the date hereof, or (ii) any other class of stock resulting from successive
changes or reclassifications of such Common Stock consisting solely of changes
in par value, or from par value to no par value, or from no par value to par
value.
ss.8.5 Definition of Convertible Preferred Stock. For the purpose of
this Agreement, the term "Convertible Preferred Stock" shall mean (i) the class
of stock designated as Convertible Preferred Stock in the Certificate of
Incorporation of the Company as may be amended as of the date hereof, or (ii)
any other class of stock resulting from successive changes or reclassifications
of such Convertible Preferred Stock consisting solely of changes in par value,
or from par value to no par value, or from no par value to par value.
ss.8.6 Merger or Consolidation. In case of any consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock and/or the
outstanding Convertible Preferred Stock), the corporation formed by such
consolidation or merger shall execute and deliver to the Holder a
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supplemental warrant agreement providing that the holder of each Warrant then
outstanding or to be outstanding shall have the right thereafter (until the
expiration of such Warrant) to receive, upon exercise of such Warrant, the kind
and amount of shares of stock and other securities and property receivable upon
such consolidation or merger, by a holder of the number of securities of the
Company for which such Warrant might have been exercised immediately prior to
such consolidation, merger, sale or transfer. Such supplemental warrant
agreement shall provide for adjustments which shall be identical to the
adjustments provided in Section 8. The above provision of this subsection shall
similarly apply to successive consolidations or mergers.
ss.8.7 No Adjustment of Exercise Price in Certain Cases. No adjustment
of the Exercise Price shall be made if the amount of said adjustment shall be
less than two cents (2(cent)) per Warrant Security, provided, however, that in
such case any adjustment that would otherwise be required then to be made shall
be carried forward and shall be made at the time of and together with the next
subsequent adjustment which, together with any adjustment so carried forward,
shall amount to at least two cents (2(cent)) per Warrant Security.
9. Exchange and Replacement of Warrant Certificates. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Securities in such denominations as
shall be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the
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Company of all reasonable expenses incidental thereto, and upon surrender and
cancellation of the Warrants, if mutilated, the Company will make and deliver a
new Warrant Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
or shares of Convertible Preferred Stock upon the exercise of the Warrants, nor
shall it be required to issue scrip or pay cash in lieu of fractional interests,
it being the intent of the parties that all fractional interests shall be
eliminated by rounding any fraction up to the nearest whole number of shares of
Common Stock or shares of Convertible Preferred Stock or other securities,
properties or rights.
11. Reservation and Listing of Securities. The Company shall at all
times reserve and keep available out of its authorized shares of Common Stock
and its authorized shares of Convertible Preferred Stock, solely for the purpose
of issuance upon the exercise of the Warrants, such number of shares of Common
Stock and such number of shares of Convertible Preferred Stock or other
securities, properties or rights as shall be issuable upon the exercise thereof.
The Company covenants and agrees that, upon exercise of the Warrants and payment
of the Exercise Price therefor, all shares of Common Stock, shares of
Convertible Preferred Stock and other securities issuable upon such exercise
shall be duly and validly issued, fully paid, non-assessable and not subject to
the preemptive rights of any stockholder. As long as the Warrants shall be
outstanding, the Company shall use its best efforts to cause all shares of
Common Stock and all shares of Convertible Preferred Stock issuable upon the
exercise of the Warrants to be listed (subject to official notice of issuance)
on all securities exchanges on which the Common Stock or the Convertible
Preferred Stock may then be listed and/or quoted on Nasdaq SmallCap or Nasdaq.
-17-
<PAGE>
12. Notices to Warrant Holders. Nothing contained in this Agreement
shall be construed as conferring upon the Holders the right to vote or to
consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock and its shares of Convertible Preferred Stock
for the purpose of entitling them to receive a dividend or distribution
payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings or capital
surplus (in accordance with applicable law), as indicated by the
accounting treatment of such dividend or distribution on the books of
the Company; or
(b) the Company shall offer to all the holders of its Common
Stock and its Convertible Preferred Stock any additional shares of
capital stock of the Company or securities convertible into or
exchangeable for shares of capital stock of the Company, or any option,
right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an
entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least thirty (30) days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
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<PAGE>
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
13. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made and sent when
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3
hereof or to such other address as the Company may designate by notice
to the Holders.
14. Supplements and Amendments. The Company and Dirks may from time to
time supplement or amend this Agreement without the approval of any Holders of
Warrant Certificates (other than Dirks) in order to cure any ambiguity, to
correct or supplement any provision contained herein which may be defective or
inconsistent with any provisions herein, or to make any other provisions in
regard to matters or questions arising hereunder which the Company and Dirks may
deem necessary or desirable and which the Company and Dirks deem shall not
adversely affect the interests of the Holders of Warrant Certificates.
15. Successors. All the covenants and provisions of this Agreement
shall be binding upon and inure to the benefit of the Company, the Holders and
their respective successors and assigns hereunder.
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<PAGE>
16. Termination. This Agreement shall terminate at the close of
business on _______, 2004. Notwithstanding the foregoing, the indemnification
provisions of Section 7 shall survive such termination until the close of
business on _______, 2010.
17. Governing Law; Legal Costs and Expenses. This Agreement and each
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be construed in
accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
The Company, Dirks and the Holders agree that the prevailing party(ies)
in any action, proceeding or claim arising out of, or relating in any way to
this Agreement shall be entitled to recover from the other party(ies) all of
its/their reasonable legal costs and expenses relating to such action or
proceeding and/or incurred in connection with the preparation therefor.
18. Entire Agreement; Modification. This Agreement (including the
Underwriting Agreement and the Redeemable Warrant Agreement to the extent
portions thereof are referred to herein) contains the entire understanding
between the parties hereto with respect to the subject matter hereof and may not
be modified or amended except by a writing duly signed by the party against whom
enforcement of the modification or amendment is sought.
19. Severability. If any provision of this Agreement shall be held to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision of this Agreement.
20. Captions. The caption headings of the Sections of this Agreement
are for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
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<PAGE>
21. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and Dirks
and any other registered Holder(s) of the Warrant Certificates or Warrant
Securities any legal or equitable right, remedy or claim under this Agreement;
and this Agreement shall be for the sole benefit of the Company and Dirks and
any other registered Holders of Warrant Certificates or Warrant Securities.
22. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
STANDARD AUTOMOTIVE CORPORATION
By:_____________________________
Name:
Title:
Attest:
_________________
Secretary
DIRKS & COMPANY, INC.
By:_____________________________
Name:
Title:
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, __________, 2002
No. W- Warrants to Purchase
____ Shares of Common Stock and/or
____ Shares of Convertible Preferred Stock
WARRANT CERTIFICATE
This Warrant Certificate certifies that , or registered assigns, is the
registered holder of Warrants to purchase initially, at any time from
__________, 1998 [one year from the effective date of the Registration
Statement] until 5:30 p.m. New York time on ___________, 2002 [five years from
the effective date of the Registration Statement] ("Expiration Date"), up to
__________ fully-paid and non-assessable shares of common stock, $0.001 par
value ("Common Stock"), of STANDARD AUTOMOTIVE CORPORATION, a Delaware
corporation (the "Company"), and/or up to _______ fully-paid and non-assessable
shares of convertible preferred stock, $0.001 par value ("Preferred Stock") of
the Company at the initial exercise price, subject to adjustment in certain
events (the "Exercise Price"), of $______ [165% of the initial public offering
price] per share of Common Stock and $____ [165% of the initial public offering
price] per share of Preferred Stock upon surrender of this Warrant Certificate
and payment of the Exercise Price at an office or agency of the Company, but
subject to the conditions set forth herein and in the warrant agreement dated as
of _______, 1997 between the Company and DIRKS & COMPANY, INC. (the "Warrant
Agreement"). Payment of the Exercise Price shall be made by certified or
official bank check in New York
A-1
<PAGE>
Clearing House funds payable to the order of the Company or by surrender of this
Warrant Certificate.
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
A-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of ___________, 1997
STANDARD AUTOMOTIVE CORPORATION
By:_____________________________
Name:
Title:
A-3
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
|_| _________________ shares of Common Stock;
|_| _________________ shares of Convertible Preferred Stock;
|_| _________________ shares of Common Stock together with an equal number of
shares of Convertible Preferred Stock; or
|_| _________________ shares of Common Stock together with
_________________ shares of Convertible Preferred Stock.
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of Standard
Automotive Corporation in the amount of $_______________________, all in
accordance with the terms of Section 3.1 of the Representative's Warrant
Agreement dated as of ______________________, 1997 between Standard Automotive
Corporation and Dirks & Company, Inc. The undersigned requests that a
certificate for such securities be registered in the name of whose address is
and that such Certificate be delivered to____________________ whose address is.
________________________.
Dated:
Signature___________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
____________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
A-4
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
|_| _________________ shares of Common Stock;
|_| _________________ shares of Convertible Preferred Stock;
|_| _________________ shares of Common Stock together with an equal number of
shares of Convertible Preferred Stock; or
|_| _________________ shares of Common Stock together with
_________________ shares of Convertible Preferred Stock.
and herewith tenders in payment for such securities ________ Warrants all in
accordance with the terms of Section 3.2 of the Representative's Warrant
Agreement dated as of __________________, 1997 between Standard Automotive
Corporation and Dirks & Company, Inc. The undersigned requests that a
certificate for such securities be registered in the name of whose address is __
___________ and that such Certificate be delivered to ____________________ whose
address is ______________________________.
Dated:
Signature___________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
____________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
A-5
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _________________________ hereby sells, assigns and
transfers unto
________________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint Attorney, to transfer the
within Warrant Certificate on the books of the within-named Company, with full
power of substitution.
Dated:______________________ Signature___________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
___________________________________________
(Insert Social Security or Other Identifying
Number of Assignee)
EXHIBIT 12
COMPUTATION OF PRO FORMA, AS ADJUSTED RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS FOR THE YEAR ENDED MARCH 31, 1997
AND THE QUARTER ENDED JUNE 30, 1997:
(UNAUDITED)
Quarter
(Dollars in thousands) Year ended ended
March 31, June 30,
1997 1997
---------- --------
Income before income taxes ........................... $2,018 $398
Add:
Fixed charges ...................................... 470 125
------ ----
Income as adjusted ................................. $2,488 $523
====== ====
Fixed charges:
Interest expense ................................... $ 410 $110
Portion of rental expense representative
of interest ...................................... 60 15
------ ----
Total fixed charges .................................. 470 125
Preferred stock dividends (1) ........................ 1,700 425
------ ----
Combined fixed charges and preferred stock
dividends ......................................... $2,170 $550
====== ====
Ratio of earnings to combined fixed charges
and preferred stock dividends ...................... 1.15 .95
====== ====
(1) Included are preferred stock dividends of $1,020 ($1,700 on a pre tax
basis) and $255 ($425 on a pre tax basis) representing the pre tax income
which would be required to cover such dividend requirements based on the
Company's effective income tax rate for the year ended March 31, 1997 and
for the quarter ended June 30, 1997, respectively.
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Standard Automotive Corporation
Hillsborough Township, New Jersey
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated June 3, 1997 (July 3, 1997 as to the
last paragraph of Note 10 and August 11, 1997 as to Note 11), relating to the
financial statements of Ajax Manufacturing Company which is contained in that
Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
Woodbridge, New Jersey
October 9, 1997
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Standard Automotive Corporation
Hillsborough Township, New Jersey
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated August 11, 1997, relating to the
financial statement of Standard Automotive Corporation which is contained in
that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
Woodbridge, New Jersey
October 9, 1997
