As filed with the Securities and Exchange Commission on September 4, 1997
Registration No. 333-33465
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
AMENDMENT NO. 1
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 (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification Identification No.)
or organization) Code Number)
321 Valley Road
Hillsborough Township, N.J.
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. |_|
(Continued on following page)
<PAGE>
(Continued from preceding page)
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================
Proposed
Maximum Proposed
Offering Maximum
Title of Each Amount Price Aggregate Amount of
Class of Securities To Be Per Offering Registration
to be Registered Registered(1) Share(2) Price(2) Fee
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value .......... 1,495,000 shares $ 10.50 $15,697,500 $4,757.00
- -------------------------------------------------------------------------------------------------------------------
Preferred Stock, $.001 par value........ 1,150,000 shares $ 12.50 $14,375,000 $4,357.00
- -------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon
conversion of Preferred Stock(3)(4)..... 1,150,000 shares $ -- $ -- $ --
- -------------------------------------------------------------------------------------------------------------------
Representative's Warrants(4)(5)......... 230,000 $ -- $ -- $ --
- -------------------------------------------------------------------------------------------------------------------
Common Stock underlying
Representative's Warrants(4)(5)......... 130,000 $17.325 $ 2,252,250 $ 683
- -------------------------------------------------------------------------------------------------------------------
Preferred Stock underlying
Representative's Warrants(4)(5)......... 100,000 $20.625 $ 2,062,500 $ 625
- -------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon
conversion of Preferred Stock
underlying Representative's
Warrants(4)(5).......................... 100,000 $ -- $ -- $ --
- -------------------------------------------------------------------------------------------------------------------
Total................................... $34,387,250 $ 10,442
===================================================================================================================
Amount Previously Paid ................. $ 10,000
- -------------------------------------------------------------------------------------------------------------------
Amount Due ............................. $ 442
===================================================================================================================
</TABLE>
(1) Includes 195,000 shares of Common Stock and 150,000 shares of Preferred
Stock issuable upon exercise of the Underwriters' Over-allotment Option.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Reserved for issuance upon conversion of Preferred Stock.
(4) Pursuant to Rule 416, an indeterminate number of additional shares of
Common Stock are registered hereunder which may be issued in the event that
applicable antidilution provisions become operative. No additional
registration fee is included as to those shares.
(5) The Representative's Warrants are exercisable to purchase 130,000 shares of
Common Stock and 100,000 shares of Preferred Stock.
------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
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 SEPTEMBER __, 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 (the "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 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 on the fifth trading day 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."
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
"SAC.Pr" and "SAC," 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.
================================================================================
Price Underwriting Proceeds
to Public Discounts(1) to Company(2)
- --------------------------------------------------------------------------------
Per share of Convertible
Preferred Stock. ............ $ $ $
- --------------------------------------------------------------------------------
Per share of Common Stock ..... $ $ $
- --------------------------------------------------------------------------------
Total(3) ...................... $ $ $
================================================================================
(1) Does not include additional compensation to National Securities
Corporation, the representative (the "Representative") 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 Representative.
(2) Before deducting estimated expenses of $660,000 payable by the Company,
excluding the non-accountable expense allowance payable to the
Representative.
(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
National Securities Corporation, New York, New York on or about ______, 1997.
NATIONAL SECURITIES CORPORATION
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>
- --------------------------------------------------------------------------------
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 Representative's Warrants. See
"Executive Compensation - Stock Options" 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
were $22,355,871 and $42,537,553 for its fiscal years ended March 31, 1997 and
1996 respectively.
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 industry sources, the world container fleet has grown from
an estimated 279,000 TEU (i.e., "Twenty-Foot Equivalent Unit") in 1969 to an
estimated 9,100,000 TEU 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 recently formed 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>
- --------------------------------------------------------------------------------
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 $4,463,761 (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.
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. 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 one
director; 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."
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
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
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 ........ SAC.Pr
Common Stock ....................... SAC
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."
- --------------------------------------------------------------------------------
6
<PAGE>
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 as of
and 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,
other financial and cash flows 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 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 are adjusted to give effect to the
Acquisition and the other Closing Transactions as if they had occurred on June
30, 1997.
<TABLE>
<CAPTION>
Pro Forma,
As Adjusted(1)
Quarter Ended -----------------------
Year Ended March 31, June 30, Year Ended Quarter
--------------------------------------------------- ------------------ March 31, Ended June
1993 1994 1995 1996 1997 1996 1997 1997 30, 1997
---- ---- ---- ---- ---- ---- ---- --------- ----------
(Amounts in thousands, except share and earnings per share data)
<S> <C> <C> <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 $ 22,356 $ 4,876
Gross profit .......... 1,160 1,406 2,696 8,565 5,329 697 1,089 5,057 1,094
Selling, general and
administrative ...... 839 861 1,149 3,082 2,510 264 317 1,720 359
Amortization of
goodwill ............ -- -- -- -- -- -- -- 986 246
Operating income ...... 321 545 1,547 5,482 2,818 433 771 2,350 489
Interest expense ...... 442 342 339 118 -- -- -- 410 110
Income (loss) before
income taxes and
extraordinary gain .. (121) 172 1,282 5,449 2,896 448 790 2,018 398
Net income (loss) ..... $ (93) $ 103 $ 784 $ 3,344 $ 1,728 $ 264 $ 466 $ 1,086 $ 238
Preferred stock
dividends ........... -- -- -- -- -- -- -- (886) (221)
Earnings (loss)
attributable to
Common Stockholders . (93) 103 784 3,344 1,728 264 466 200 17
Primary and fully
diluted earnings
(loss) per
share(2) ........... $ (.04) $ .05 $ .38 $ 1.62 $ .84 $ .13 $ .23 $ .06 $ .01
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 3,400,000 3,400,000
Ratio of earnings to
preferred stock
dividends ............ -- -- -- -- -- -- -- 1.23 1.08
Other Financial Data:
EBITDA(3) ............ $ 646 $ 881 $ 1,853 $ 5,709 $ 3,020 $ 485 $ 823 $ 3,538 $ 787
Acquisition of
property and
equipment
(use of cash) ....... (158) (41) (136) (139) (171) (40) (42) (171) (42)
</TABLE>
- ---------------
Footnotes on Page 8
7
<PAGE>
<TABLE>
<CAPTION>
March 31, June 30, 1997
-------------------------------------------------- ----------------------
Unaudited
1993 1994 1995 1996 1997 Pro Forma, As
---- ---- ---- ---- ---- Adjusted (1)
--------------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficiency) .... $ (8) $ (117) $ 917 $4,562 $5,941 $6,478 $ 7,845
Total assets .................... 5,039 5,806 8,006 6,971 9,328 9,359 27,921
Total debt (including current) .. 3,699 3,114 2,373 0 0 4,000
Convertible Preferred Stock ..... -- -- -- -- -- -- 1
Preferred Stock ................. -- -- -- -- -- -- --
Stockholders' Equity ............ 1,264 1,367 2,151 5,495 7,222 7,689 22,251
</TABLE>
- ----------
(1) Pro forma, as adjusted amounts reflect the statement of operations 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, which measures the Company's cash flows, 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."
8
<PAGE>
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.
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."
The Company's Indebtedness May Affect its Operations
On the Closing Date of the 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. The ability of the
Company to make principal and interest 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."
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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.
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.
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--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.
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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 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--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."
Control by Management and Principal Stockholders
Upon completion of this offering, the directors and officers of the Company
will own, as a group, shares equal to approximately 48.8% of the outstanding
shares of the Company's Common Stock (46.1% if the Underwriters' over-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 or 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.
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 one or more 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
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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. 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. 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--Compliance with
Federal and State Air Quality Regulation."
Other Environmental and Regulatory Compliance
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. Although the Company believes that, except as
described above with regard to air quality regulation, it is currently in
material compliance with all such laws and regulations, there can be no
assurance that health related or environmental issues will not arise in the
future and, if so, that they will not have a material adverse effect on the
Company's financial position 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.
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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 $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 has commenced settlement
negotiations with the Internal Revenue Service regarding excise tax liability
for such periods and for fiscal 1997. 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 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). See "Management's
Discussion and Analysis of Financial Conditions and Results of
Operation--Federal Excise Tax Liability."
Dilution
Purchasers of shares of Common Stock in this Offering will experience an
immediate and substantial dilution of $8.26 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
83% 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 $6.01 per share (based on an assumed
initial public offering price of $12.00 per share of Convertible Preferred Stock
and immediate conversion into an equal number of Common Shares), or
approximately 50% 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 Representative's 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--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. See "Dividend Policy."
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
Representative's 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 the Representative. Sales of substantial amounts of Common
Stock or the perception that such sales could occur could adversely affect
prevailing
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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 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--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
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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 "--Section 203 of the Delaware
Law."
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
Representative, 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."
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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 , 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 $4,463,761 (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.
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 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 $1,721,917, 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 competing with the
Company, 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. 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. See "Management--Employment
Agreements" and "Business--Business of the Company--Facilities."
Bridge Financing
In August 1997, the Company sold $325,000 in aggregate principal amount of
Bridge Notes to 11 third party investors. 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 in the period that such shares are issued.
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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 on
the Closing Date, to repay approximately $335,000 due under the Bridge Notes and
to pay $270,000 in advisory fees to certain related parties. 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 $22,572,000. 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 one
director. See "Risk Factors-Inadequate Dividend Coverage" and "Description of
Securities--Convertible Preferred Stock."
17
<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) ................................ -- 3
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 ................................. -- 10,680
Additional Paid-In Capital - Common Stock ....... -- 11,892
Retained Earnings (Accumulated Deficit) ......... 7,688 (325)
------ -------
Total Stockholders' Equity ...................... 7,689 22,251
------ -------
Total Capitalization ............................ $7,689 $26,251
====== =======
18
<PAGE>
DILUTION
Common Stock
The net tangible book value (deficit) of the Company at June 30, 1997 after
giving effect to the Acquisition and the other Closing Transactions, and the
sale of the Convertible Preferred Stock (assuming no conversion of the Company's
Convertible Preferred Stock) was approximately ($5,177,000), or ($2.50) per
share of Common Stock. Net tangible book value 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 at June 30, 1997 (assuming no conversion of the Company's Convertible
Preferred Stock) would have been approximately $5,909,000 or $1.74 per share of
Common Stock. This represents an immediate increase in the net tangible book
value per share of Common Stock of $4.24 and an immediate dilution of $8.26 per
share of Common Stock (approximately 83% 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 common share ................. $10.00
Pro forma net tangible book value per common share
at June 30, 1997 allocable to Common shareholders .............. (2.50)
Increase per share attributable to new Common Stock investors .. 4.24
----
Pro forma, as adjusted net tangible book value per share after
the Offering allocable to Common shareholders .................. 1.74
-----
Dilution per share to new Common Stock investors. .............. $8.26
=====
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 at June 30, 1997
allocable to the Company's Common Stock (assuming no conversion of the Company's
Convertible Preferred Stock) would have been $7,645,000 or $2.13 per share of
Common Stock, representing immediate dilution of $7.87 per share or
approximately 79% 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% $2,067 0% $.001
New Investors ............ 1,300,000 38.2% 13,000,000 100% $10
--------- ----- ----------- ---
3,400,000 100.0% $13,002,067 100%
========= ===== =========== ===
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 Representative's 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--Stock
Option Plan" and "Underwriting."
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, the net tangible book value of the Company's
Common Stock as of June 30, 1997, would have been $5.99, representing dilution
to the purchasers of
19
<PAGE>
Common Stock offered hereby of $4.01 per share or approximately 40% of the
initial public offering price per share of Common Stock.
Conversion of Convertible Preferred Stock into Common Stock
The net tangible book value of the Company at June 30, 1997 was
approximately $5,056,000, or $2.45 per share of Common Stock, as converted,
after giving effect to the Closing Transactions and the sale of the Common Stock
offered hereby. Net tangible book value per share represents the amount of the
Company's total tangible assets less total liabilities 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, 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
$26,376,000 or $5.99 per share of Common Stock. This represents an immediate
increase in the net tangible book value of $3.54 per share to existing
stockholders and an immediate dilution of $6.01 per share (or approximately 50%)
to new investors acquiring shares of Common Stock upon conversion of the
Convertible Preferred Stock. The following table illustrates this per share
dilution:
Weighted average initial public offering price
per common share and equivalents ........................ $12.00
Pro forma net tangible book value per common
share and equivalents at June 30, 1997 before
the Offering ............................................ $2.45
Increase in net tangible book value per common
share and equivalents attributable to new investors ..... 3.54
-----
Pro forma, as adjusted, net tangible book value
per common share and equivalents after the Offering ..... 5.99
------
Dilution in net tangible book value per common share
and equivalents to new investors ........................ $ 6.01
======
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 at June 30, 1997 would
have been $29,713,000 or $6.26 per share of Common Stock, as converted
representing an immediate dilution of $5.74 per share of Common Stock or 57% 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:
Average
Shares Purchased Total Consideration Price
------------------- -------------------- Per
Number Percent Amount Percent Share
------- ------- ------ ------- -------
Existing Stockholders ........ 2,100,000 47.8 $ 2,067 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% $25,002,067 100%
========= ===== =========== ===
The information presented above, with res 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 Representative's 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--Stock Option
Plan" and "Underwriting."
20
<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
Other Financial Data:
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:
Working capital (deficiency) ...... $ (8) $ (117) $ 917 $ 4,562 $ 5,941 $ 6,478
Total assets ...................... 5,039 5,806 8,006 6,971 9,328 9,359
Total debt (including current) .... 3,699 3,114 2,373 -- -- --
Stockholders' Equity .............. $ 1,264 1,367 2,151 5,495 7,223 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, which measures the Company's cash flows,
should not be considered in isolation or as an alternative to measures of
operating performance or cash flows pursuant to generally accepted
accounting principles.
21
<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) 2,350 772 (283) 489
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
Ratio of earnings to preferred
stock dividends ............ 1.23 1.08
Other Financial Data:
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.
22
<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 relate 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 profits 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:
Consulting Agreement with Mr. Carl Massaro ........... $423
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 Costs 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 in the period that such shares are issued. 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.
23
<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>
Working capital .............................. 6,478 1,367(b) 7,845
Total assets ................................. 9,359 18,562(b) 27,921
Total debt (including current) ............... -- 4,000(b) 4,000
Convertible Preferred Stock................... -- 1(a) 1
Preferred Stock............................... -- -- --
Stockholders' Equity(d)....................... 7,689 14,562(a,b,c) 22,251
</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 $660 in capitalized transaction expenses, see "Use of
Proceeds");
(b) The acquisition of Ajax by the Company for $23,923; $19,923 funded by cash
received in (a) with the balance ($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. The related amortization
period is four years.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
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.
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:
<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 ......... 324 7% 184 5% 1,168 5% 2,195 5% 498 1%
Taxes
Extraordinary ......... -- --% -- --% -- --% 90 --% -- --%
Gain
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,
continued growth in sales of roll-off refuse containers and parts, partially
offset by a decrease of approximately $600,000 in sales of new chassis 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.
25
<PAGE>
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, as 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 margins while increasing its net sales.
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. Although SG&A increased from the quarter ended June 30,
1996, to the quarter ended June 30, 1997, SG&A represented approximately 7% 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. In contrast, sales of remanufactured
chassis represented 40% of total sales in Fiscal 1997 as compared to 18% in
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.
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.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("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
decrease in the compensation paid to Carl Massaro of approximately $649,000 and
an increase of $300,000 in compensation to Karl Massaro. See
"Management--Executive Compensation."
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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 manufacture of new chassis resulting from
an increase in orders.
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.
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 approximately $400,000 in rent, utilities and payroll costs.
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 has varied the amount of
his compensation to reduce the expense to the Company during downturns in the
Company's business.
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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.
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 as of the end
of Fiscal 1997. 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.
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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 the 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.
Recent Pronouncements of the Financial Accounting Standards Board
The Financial Accounting Standards Board has issued Statements of Financial
Accounting Standard Statement 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 is not expected to 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 granted to employees.
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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. Ajax's net sales were
$22,355,871 and $42,537,553 for its fiscal years ended March 31, 1997 and 1996,
respectively.
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 from
an estimated 279,000 TEU in 1969 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 will use the 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.
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 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.
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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 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, 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 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. If properly used and maintained, a
chassis generally lasts 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.
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 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
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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 focussed
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.
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, and establishing manufacturing facilities in the SouthWestern United
States or Mexico to service existing customers on the West Coast. 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.
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
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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.
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 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.
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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.
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.
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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. That application is 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. 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
believes that it is currently in material compliance with all 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.
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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 $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 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).
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.
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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.
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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. 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 of the Common Stock. Upon exercise of an
option, the optionee may pay the purchase price with previously acquired
39
<PAGE>
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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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.
Percent of Common Percent of Common
Name and Address of Number of Stock Owned Before Stock Owned After
Beneficial Owner Shares Offering Offering
------------------ --------- ----------------- ----------------
Roy Ceccato (1) .............. 88,000 4.2% 2.6%
Andrew Levy (2) .............. 256,000 12.2% 7.5%
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) .... 1,658,000 79.0% 48.8%
- ----------
(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.
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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 Barclay,
Redstone, Steven Merker and William Merker approximately $120,000; $15,000;
$35,000 and $70,000, respectively (an aggregate of $240,000), 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.
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DESCRIPTION OF SECURITIES
General
The Company is authorized by its Certificate of Incorporation 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 its Certificate of Incorporation 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 per
annum, payable quarterly on the last business day of March, June, September and
December of each year,
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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 year in which such dividend may be payable, except with respect to the
first annual dividend 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. On June 30, 1997, the Company had available surplus of
$22,572,000 (on a pro forma 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 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
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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 or exchange 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 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
superior to or 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 one
director. 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.
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. See
"Conversion."
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,
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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 officers and
directors may be indemnified by the Company to the fullest extent permissible
under Delaware law. 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.
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.
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
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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 the
Representative 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 Representative's 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
In the opinion of Phillips Nizer Benjamin Krim & Ballon LLP, counsel to the
Company, the material federal income tax consequences of acquiring, owning and
disposing of the Convertible Preferred Stock and the Common Stock are as
follows, subject to the qualifications set forth in the two immediately
following paragraphs.
This discussion is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury Regulations, and Internal Revenue Service (the "IRS")
rulings and judicial decisions now in effect, all of which are subject to change
at any time by legislative, judicial or administrative action; any such changes
could be retroactively applied in a manner that could adversely affect a holder
of the Convertible Preferred Stock and/or Common Stock. The following does not
discuss all of the tax consequences that may be relevant to a purchaser in light
of particular circumstances or to purchasers subject to special rules, such as
foreign investors, retirement trusts, and life insurance companies. No
information is provided with respect to foreign, state or local tax laws, estate
or gift tax considerations, or other tax laws that may be applicable to
particular categories of investors.
The discussion assumes that purchasers of the Convertible Preferred Stock
and/or Common Stock will hold the Convertible Preferred Stock and/or Common
Stock as a "capital asset" within the meaning of Code Section 1221. PROSPECTIVE
PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS AS TO ANY FEDERAL, STATE, LOCAL AND
FOREIGN OR OTHER TAX CONSIDERATIONS RELEVANT TO THEM.
Dividends
Distributions with respect to the Convertible Preferred Stock and the
Common Stock will be treated as dividends and taxable as ordinary income to the
extent that the distributions are made out of the Company's current or
accumulated earnings and profits. To the extent that a distribution is not made
out of the Company's current or accumulated earnings and profits, the
distribution will constitute a non-taxable return of capital reducing the
holder's adjusted tax basis in the shares of Convertible Preferred Stock or
Common Stock held and, to the extent the distribution exceeds such basis, will
result in capital gain. At June 30, 1997, the Company had no accumulated
earnings and profits. Accordingly, the treatment of distributions with respect
to the Convertible Preferred Stock will be determined by the Company's earnings
and profits, if any, subsequent to June 30, 1997.
Dividend income of individuals, certain closely held corporations and
personal service corporations (as defined in Code Section 469(j)) may not be
offset by losses or credits from "passive activities," such as losses or credits
incurred in connection with certain rental activities or the ownership of
limited partnership interests.
Corporate stockholders will be eligible to claim a dividends-received
deduction (currently 70% of the amount of the dividend for most corporate
stockholders) with respect to distributions that are treated as dividends on the
Convertible Preferred Stock and Common Stock in calculating their taxable
income.
Under Code Section 246(c), the dividends-received deduction will not be
available with respect to any dividend on the shares of Convertible Preferred
Stock and Common Stock if such shares have been held for 45 days or less (or 90
days or less if the holder of the shares of Convertible Preferred Stock received
dividends with respect to the shares of Convertible Preferred Stock which are
attributable to a period or periods aggregating in excess of 366 days). The
holding period of the shares of Convertible Preferred Stock for this purpose is
determined in accordance with certain specific rules set forth in Code Section
246(c), which reduces the holding period for any period where the holder's risk
of loss, as to such stock, is diminished by certain arrangements, such as the
holding of an option to sell the same, or substantially identical, securities.
Regulations issued on May 26, 1993 also reduce the holding period for any period
in which a holder of Convertible Preferred Stock has outstanding a short sale of
Common Stock.
Code Section 246A provides a further restriction on the availability of the
dividends-received deduction on the shares of Convertible Preferred Stock and
Common Stock if the shares are classified as "debt-financed portfolio stock."
The shares of Convertible Preferred Stock will be classified as debt-financed
portfolio stock when the holder incurs indebtedness directly attributable to the
investment in the shares of Convertible Preferred Stock. In that event, the
dividends-received deduction would be reduced to take into account the average
amount of such indebtedness. Also, the United States Treasury Department is
authorized to issue regulations that (i) would reduce the interest
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deductions attributable to indebtedness in certain cases in which the obligor of
such indebtedness is a person other than the recipient of the dividend, and (ii)
would provide that any reduction in the dividends-received deduction cannot
exceed the amount of any interest deduction allocable to such dividend.
A corporate shareholder will be required to reduce its basis in shares of
the Convertible Preferred Stock and Common Stock (but not below zero) by the
amount of any "extraordinary dividend" which is not taxed because of the
dividends-received deduction if such holder is not considered to have held such
stock for more than two years before the "dividend announcement date," within
the meaning of Code Section 1059. The amount, if any, by which such reduction
exceeds the corporate shareholder's basis in such shares will be treated as gain
on the subsequent sale or disposition of the stock. With respect to the
Convertible Preferred Stock, an "extraordinary dividend" would be a dividend
that (i) equals or exceeds 5% of the holder's adjusted basis in the Convertible
Preferred Stock or 10% in the Common Stock (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 the stock (treating all dividends having
ex-dividend dates within a 365-day period as a single dividend). If an election
is made by the holder, under certain circumstances the fair market value of the
stock as of the day before the ex-dividend date may be substituted for the
holder's basis in applying these tests. An "extraordinary dividend" would also
include any amount treated as a dividend in the case of a redemption of the
Convertible Preferred Stock and the Common Stock that is 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%. Where a qualified preferred
dividend exceeds the 5% or 20% limitation described above, (1) the extraordinary
dividend rules will not apply if the taxpayer holds the stock for more than five
years, and (2) 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.
A corporate holder may be required to include in determining its
alternative minimum taxable income an amount equal to a portion of any
dividends-received deduction allowed in computing regular taxable income.
Under certain circumstances, the operation of the conversion price
adjustment provisions of the Convertible Preferred Stock may result in the
holders being deemed to have received a constructive distribution, which may be
taxable as a dividend, even though the holders do not actually receive cash or
property.
Redemption Premium
If the redemption price of preferred stock that is subject to optional
redemption by the issuer exceeds the issue price and if such excess is not
considered "reasonable," the entire amount of the redemption premium will be
treated as being distributed to the holders of such stock, taxable as described
above, on an economic accrual basis over the period from issuance of the
preferred stock until the date the stock is first redeemable. A premium is
considered to be reasonable if it is in the nature of a penalty for a premature
redemption and if such premium does not exceed the amount which the issuer would
be required to pay for such redemption right under market conditions existing at
the time of issuance of the preferred stock. If the redemption premium payable
on the Convertible Preferred Stock is considered unreasonable under the
foregoing rules, a holder of the Convertible Preferred Stock would take the
amount of such premium into income over the period during which the stock cannot
be called for redemption under an economic accrual method. The Revenue
Reconciliation Act of 1990 authorized the Treasury Department to promulgate new
regulations regarding the federal income tax treatment of redemption premiums
with respect to preferred stock. No such regulations have been issued and no
assurance can be given as to the treatment of the redemption premium with
respect to the Convertible Preferred Stock under any such regulations.
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Conversion
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 holder'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. The tax basis for the
Convertible Preferred Stock will equal its cost, which is $________ per share at
the initial public offering price.
Optional Cash Redemption
In the event the Company exercises its right to redeem the Convertible
Preferred Stock the surrender of the Convertible Preferred Stock for the
redemption proceeds by the holders will be treated as a sale or exchange and the
surrendering holder will recognize capital gain or loss equal to the difference
between the redemption proceeds (other than proceeds attributable to declared
but unpaid dividends, which will be taxed as dividends as described above) and
the holder's adjusted tax basis in the Convertible Preferred Stock, provided the
redemption (I) results in a "complete termination" of the holder's stock
interest in the Company (inclusive of any Common Stock owned) under Section
302(b)(3) of the Code, (2) is "substantially disproportionate" with respect to
the holder under Section 302(b)(2) of the Code, (3) is "not essentially
equivalent to a dividend" with respect to the holder under Section 302(b)(1) of
the Code, or (4) is from a noncorporate holder in partial liquidation of the
Company under Section 302(b)(4) of the Code. The constructive ownership rules of
the Code must be taken into consideration in determining whether any of these
tests has been met. If a redemption of the Convertible Preferred Stock does not
meet any of these tests, then the gross proceeds received would be treated as a
distribution taxable to the holder in the manner described under "Dividends"
above.
Disposition
Except as described above, the holder of any of the Convertible Preferred
Stock or Common Stock will recognize gain or loss upon the sale, exchange,
redemption, retirement or other disposition of such securities measured by the
difference between (a) the amount of cash and the fair market value of property
received and (b) the holder's adjusted tax basis in the security disposed of.
Any gain or loss on such sale, exchange, redemption, retirement or other
disposition will be capital gain provided the security disposed of is held as a
capital asset and will be long-term capital gain if the holding period exceeds
one year. For corporate taxpayers, long-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 28%. 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 $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 but
without a time limitation.
Backup Withholding
A holder of any of the Convertible Preferred Stock or Common Stock may be
subject to backup withholding at the rate of 31% with respect to dividends
thereon unless such holder (a) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact, or (b) provides a
correct taxpayer identification number, certifies as to no loss of exemption
from backup withholding and otherwise complies with applicable requirements of
the backup withholding rules. A holder who does not provide the Company with a
correct taxpayer identification number may be subject to penalties imposed by
the IRS. Any amount paid as backup withholding will be creditable against the
holder's Federal income tax liability. Holders should consult their tax advisors
regarding their qualification for exemption from backup withholding and the
procedure for obtaining any applicable exemption.
51
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom National
Securities Corporation is acting as Representative, 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
------------ --------------- ----------------
National Securities Corporation
Total .............................. 1,000,000 1,300,000
========= =========
The Underwriters are committed to purchase all the Securities offered
hereby, if any of such Shares 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 Representative 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 Representative.
The Representative has informed the Company that it does not expect sales
to discretionary accounts by the Underwriters to exceed five percent of the
Shares 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 Representative a non-accountable expense allowance equal to
three percent of the gross proceeds derived from the sale of the Shares
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
Representative, 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
Representative's Warrants are initially exercisable at a price of 165% of its
initial public offering per share of Common Stock. The Representative's 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 officers of the Representative. The Representative's Warrants
provide for adjustment in the number of shares of Common Stock issuable upon the
exercise thereof and in the exercise price of the Representative's Warrants as a
result of certain events, including subdivisions and combinations of the Common
Stock. The Representative's 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,
52
<PAGE>
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 the
Representative 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 the Representative, 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 Representative's
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 the Representative, to use its best efforts to nominate for
election to the Company's Board of Directors one person designated by the
Representative. In the event the Representative elects not to exercise such
right, the Representative 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 the Representative 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 Representative 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
the 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 Representative, 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.
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."
53
<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 Units
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. Statements
contained in this Prospectus as to the contents of any contract, agreement or
any other document are not necessarily complete, and, in each instance,
reference is made to the copy of such contract, agreement or document filed as
an exhibit to the Registration Statement, each such statement being qualified
being qualified in all respects by such reference. 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.
54
<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
55
<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
(Unaudited)
March 31, June 30,
--------- -----------
1997 1997
--------- -----------
ASSETS:
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
========= =========
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
(Unaudited)
March 31, June 30,
------------------- -------
1996 1997 1997
------ ------ -----
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
========== ========== ==========
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.
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.
3. Inventory. Inventory is comprised of the following:
(Unaudited)
March 31, 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:
(Unaudited)
March 31, 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.
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
F-9
<PAGE>
Ajax Manufacturing Company
Notes to Financial Statements - (Continued)
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:
(Unaudited)
Three Months
Year ended March 31, Ended June 30,
--------------------------- -------------
1995 1996 1997 1997
---- ----- ----- -----
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%
==== ==== ==== ====
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.
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
F-10
<PAGE>
Ajax Manufacturing Company
Notes to Financial Statements - (Continued)
limitations imposed by financial institutions, which have outstanding
indebtedness with the Company. Salary and incentives expense for the Company's
Stockholder were $13,000, $1,159,419 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 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.
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, results of operations,
and financial condition.
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.
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 ........................................................... 17
Dividend Policy ........................................................... 17
Capitalization ............................................................ 18
Dilution .................................................................. 19
Selected Financial Data ................................................... 21
Unaudited Selected Pro Forma Financial Data ............................... 22
Management's Discussion and Analysis of
Results of Operations and Financial Condition ........................... 25
Business .................................................................. 30
Management ................................................................ 37
Principal Shareholders .................................................... 41
Certain Transactions ...................................................... 42
Description of Securities ................................................. 43
Shares Eligible for Future Sale ........................................... 48
Certain Federal Income Tax Consequences ................................... 49
Underwriting .............................................................. 52
Legal Matters ............................................................. 54
Experts ................................................................... 54
Additional Information .................................................... 54
Index to Financial Statements ............................................. 55
----------
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
1,300,000 shares of Common Stock
1,000,000 shares of
Convertible Redeemable Preferred
Stock
----------
PROSPECTUS
----------
NATIONAL SECURITIES
CORPORATION
__________, 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
The Section of the Prospectus entitled "Description of
Securities--Indemnification of Officers and Directors" is hereby incorporated
herein by this reference.
Reference is made to Section __ 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. 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, the Company sold $325,000 in aggregate principal amount
of Notes (the "Bridge Notes") to 11 third party investors. 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 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.
II-1
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
Exhibit No. Description of Exhibit
----------- ----------------------
1.1 Form of Underwriting Agreement**
1.2 Form of Selected Dealer 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 Representative's 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.*
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
(b) Financial Statement Schedules:
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
II-2
<PAGE>
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
the 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
September 3, 1997.
STANDARD AUTOMOTIVE CORPORATION
By: /s/ *
------------------------------------
Karl Massaro, President and Director
POWER OF ATTORNEY
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 September 3, 1997
- --------------------------------
Roy Ceccato
* President and Director September 3, 1997
- --------------------------------
Karl Massaro
/s/ Steven Merker Chairman of the Board, September 3, 1997
- -------------------------------- Treasurer and
Chief Financial
and Accounting Officer September 3, 1997
* Vice President, Secretary September 3, 1997
- -------------------------------- and Director
* Director September 3, 1997
- --------------------------------
Joseph Spinell
*By: /s/ Steven Merker
- ----------------------
Steven Merker
Attorney-in-Fact
II-4
<PAGE>
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
September 3, 1997
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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
September 3, 1997
II-6
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
of
STANDARD AUTOMOTIVE CORPORATION
(Under Sections 241 and 245
of the Delaware General Corporation Law)
Steven Merker and William Merker, each a Director of Standard Automotive
Corporation, a Delaware corporation (the "Corporation"), hereby certify as
follows for the purpose of amending and restated the Certificate of
Incorporation of the Corporation:
1. The name of the Corporation is Standard Automotive Corporation. The
name under which the Corporation was originally incorporated was Standard
Trailer, Inc. The Corporation's Certificate of Incorporation was originally
filed on January 2, 1997.
2. The Corporation has not received any payment for any of its stock.
3. This Amended and Restated Certificate of Incorporation was duly
adopted in accordance with Sections 241 and 245 of the Delaware General
Corporation Law ("GCL").
4. The Certificate of Incorporation of the Corporation, as amended, is
hereby amended and restated in entirety as set forth below:
FIRST: The name of the Corporation is Standard Automotive Corporation.
SECOND: The registered office of the Corporation in the State of Delaware
is located at 1013 Centre Road, Wilmington, DE 19805, in the County of New
Castle. The name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
FOURTH: The aggregate number of shares of all classes of stock which the
Corporation is authorized to issue is thirteen million (13,000,000) shares of
which three million (3,000,000) shall be shares of Preferred Stock, par value
$.001 per share, (the "Preferred Stock") and ten million (10,000,000) shall be
shares of Common Stock, par value $.001 per share (the "Common Stock").
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Any action required or permitted to be taken by the holders of any class or
series of stock of the Corporation may be taken by written consent or consents
but only if such consent or consents are signed by all holders of the class or
series of stock entitled to vote on such action.
SECTION 1. COMMON STOCK.
The powers, preferences, rights, qualifications, limitations and
restrictions relating to the Common Stock are as follows:
a. The Common Stock is junior to the Preferred Stock and is subject to
all the powers, rights, privileges, preferences and priorities of the
Preferred Stock designated herein or in any resolution or resolutions
adopted by the Board of Directors pursuant to authority expressly vested in
it by the provisions of SECTION 2 of this ARTICLE FOURTH.
b. The Common Stock shall have voting rights for the election of
directors and for all other purposes (subject to the powers, rights,
privileges, preferences and priorities of the Preferred Stock as provided
above), each holder of Common Stock being entitled to one vote for each
share thereof held by such holder, except as otherwise required by law.
SECTION 2 PREFERRED STOCK.
The Board of Directors is expressly authorized to provide for the issuance
of all or any part of the shares of the Preferred Stock in one or more classes
or series, and to fix for each such class or series such voting powers, full or
limited or fractional, or no voting powers, and such distinctive designations,
preferences and relative, participating, optional or other special rights and
such qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions adopted by the Board of Directors in
its sole discretion providing for the issuance of such class or series and as
may be permitted by the Delaware General Corporation Law including, without
limitation, (i) whether such shares shall be redeemable, and, if so, the terms
and conditions of such redemption, whether for cash, property or rights,
including securities of any other corporation, and whether at the option of
either the Corporation or the holder or both, including the date or dates or the
event or events upon or after which they shall be redeemable, and the amount per
share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates; (ii) whether such shares shall be
entitled to receive dividends (which may be cumulative or noncumulative) at such
rates, on such conditions, and at such times, and payable in preference to, or
in such relation to, the dividends payable on any other class or classes or any
other series; (iii) the rights of such shares in the event of voluntary
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or involuntary liquidation, dissolution or winding up of the Corporation, and
the relative rights of priority, if any, of payment of such shares; (iv) whether
such shares shall be convertible into, or exchangeable for, shares of any other
class or classes of stock, or of any other series of the same or any other class
or classes of stock, whether at the option of either the Corporation or the
holder or both, and, if so, the terms and conditions of such conversion,
including provisions for adjustment of the conversion rate in such events as the
Board of Directors shall determine; (v) whether the class or series shall have a
sinking fund for the redemption or purchase of such shares, and, if so, the
terms and amount of such sinking fund; or (vi) provisions as to any other
voting, optional, and/or special or relative rights, preferences, limitations,
or restrictions; and (vii) the number of shares and designation of such class or
series.
SECTION 3. SHARES ENTITLED TO MORE OR LESS THAN ONE VOTE.
If any class or series of the Corporation's capital stock shall be entitled
to more or less than one vote per share, on any matter, every reference in this
Certificate of Incorporation or in any resolution or resolutions adopted by the
Board of Directors pursuant to authority expressly vested in it by the
provisions of SECTION 2 of this ARTICLE FOURTH with respect to the Preferred
Stock or in any relevant provision of law or in any rule or regulation, to a
majority or other proportion of stock shall be deemed to refer to such majority
or other proportion of the votes of such stock.
FIFTH: In furtherance of, and not in limitation of, the powers conferred by
statute, the Board of Directors is expressly authorized and empowered
a. to manage, or direct the management of, the business and affairs of the
Corporation and to exercise all such powers and do all such acts and things as
may be exercised or done by the Corporation subject, nevertheless, to the
provisions of the Delaware General Corporation Law, this Certificate of
Incorporation and the By-Laws of the Corporation, and
b. from time to time to determine to what extent, and at what times and
places, and under what conditions and regulations, the accounts and books of the
Corporation, or any of them, shall be open to inspection by stockholders, and no
stockholder shall have any right to inspect any account, book or document of the
Corporation except as conferred by applicable law.
The Corporation may in its By-Laws confer powers upon the Board of
Directors in addition to the foregoing and in addition to the powers and
authorities expressly conferred upon the Board of Directors by applicable law.
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SIXTH: Subject to the rights of the holders of any class or series of stock
having a preference expressly vested in it by the provisions of SECTION 2 of
ARTICLE FOURTH with respect to the Preferred Stock:
a. any action required or permitted to be taken by the stockholders of
the Corporation must be effected only at a duly called annual or special
meeting of stockholders of the Corporation and may not, after the effective
date of this Certificate of Incorporation, be effected by any consent in
writing of such stockholders;
b. special meetings of the stockholders of the Corporation may be
called only (i) by the Chairman of the Board of Directors, (ii) pursuant to
a resolution approved by a majority of the Whole Board (as hereinafter
defined), or (iii) pursuant to a written request of the holders of not less
than twenty percent (20%) of the voting power of the Voting Stock; and
c. the business permitted to be conducted at any special meeting of
the stockholders is limited to the business brought before the meeting (i)
by the Chairman of the Board of Directors, or (ii) at the request of a
majority of the Whole Board, or (iii) as specified in the written request
of the holders of not less than twenty percent (20%) of the voting power of
the Voting Stock.
Advance notice of the business to be brought by stockholders before an
annual meeting shall be given by such stockholders in the manner provided in the
By-Laws of the Corporation.
SEVENTH: SECTION 1. NUMBER, ELECTION AND TERMS OF DIRECTORS.
Subject to the rights of the holders of any class or series of stock having
a preference expressly vested in it by the provisions of SECTION 2 of ARTICLE
FOURTH with respect to the Preferred Stock, the number of Directors of the
Corporation shall be fixed by the By-Laws of the Corporation and may be
increased or decreased from time to time in such a manner as may be prescribed
by the By-Laws, but in no case shall the number be less than three nor more than
fifteen.
The Directors shall be divided into three classes, as nearly equal in
number as possible. One class of Directors ("Class I") has been initially
elected for a term expiring at the annual meeting of stockholders to be held in
1998, another class ("Class II") has been initially elected for a term expiring
at the annual meeting of stockholders to be held in 1999, and another class
("Class III") has been initially elected for a term expiring at the annual
meeting of stockholders to be held in 2000 with members of each class to hold
office until their successors are elected and qualified. At each succeeding
annual meeting of the
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stockholders of the Corporation, the successors of the class of Directors whose
term expires at that meeting shall be elected by plurality vote of all votes
cast at such meeting to hold office for a term expiring at the annual meeting of
stockholders held in the third year following the year of their election.
SECTION 2. STOCKHOLDER NOMINATION OF DIRECTOR CANDIDATES.
Advance notice of stockholder nominations for the election of Directors
shall be given by such stockholders in the manner provided in the By-Laws of the
Corporation.
SECTION 3. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
Subject to the rights of the holders of any class or series of stock having
a preference expressly vested in it by the provisions of SECTION 2 of ARTICLE
FOURTH with respect to the Preferred Stock, newly created directorships
resulting from any increase in the number of directors and any vacancy on the
Board of Directors resulting from death, resignation, disqualification, removal
or other cause shall be filled solely by the affirmative vote of a majority of
the remaining Directors then in office, even though less than a quorum of the
Board of Directors, or by a sole remaining Director. Any Director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of Directors in which the new directorship was
created or the vacancy occurred and until such Director's successor shall have
been elected and qualified. No decrease in the number of Directors constituting
the Board of Directors shall shorten the term of an incumbent Director.
SECTION 4. REMOVAL OF DIRECTORS.
Subject to the rights of the holders of any class or series of stock having
a preference expressly vested in it by the provisions of SECTION 2 of ARTICLE
FOURTH with respect to the Preferred Stock, any Director may be removed from
office only by the stockholders in the manner provided in this SECTION 4 of
ARTICLE SEVENTH. At any annual meeting of the stockholders of the Corporation or
at any special meeting of the stockholders of the Corporation, the notice of
which shall state that the removal of a Director or Directors is among the
purposes of the meeting, the affirmative vote of the holders of at least
seventy-five percent (75%) of the voting power of the Voting Stock, voting
together as a single class, may remove such Director or Directors. In any vote
required by or provided for in this ARTICLE SEVENTH, each share of Voting Stock
shall have the number of votes granted to it generally in the election of
Directors.
EIGHTH: 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
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elimination or limitation of liability is not permitted under the Delaware
General Corporation Law as in effect when such liability is determined. No
amendment or repeal of this provision shall deprive a director of the benefits
hereof with respect to any act or omission occurring prior to such amendment or
repeal.
NINTH: The Board of Directors of the Corporation, in determining whether
the interests of the Corporation, its subsidiaries and its stockholders will be
served by any offer of another person to (i) make a tender or exchange offer for
any equity security of the Corporation or any subsidiary of the Corporation,
(ii) merge or consolidate the Corporation or any of its subsidiaries with or
into another corporation, or (iii) purchase or otherwise acquire all or
substantially all of the properties and assets of the Corporation or any of its
subsidiaries, may take into account factors in addition to potential economic
benefits to stockholders. Such factors may include, without limitation, (a)
comparison of the proposed consideration to be received by stockholders, in
relation to the then current market price of the capital stock, to the estimated
current value of the Corporation or any of its subsidiaries in a freely
negotiated transaction, and to the estimated future value of the Corporation or
any of its subsidiaries as an independent entity; (b) the impact of such a
transaction on the customers and employees of the Corporation or any of its
subsidiaries, and its effect on the communities in which the Corporation or any
of its subsidiaries operate; and (c) the ability of the Corporation or any of
its subsidiaries to fulfill its objectives and obligations under applicable
statutes and regulations.
The term "offer" as used in this ARTICLE TENTH includes every offer to buy
or acquire, solicitation of an offer to sell, tender offer for, or request or
invitation for tender of, a security or interest in a security for value.
TENTH: The Corporation may not purchase any shares of its stock from any
person, entity or group that beneficially owns five percent (5%) or more of the
voting power of the Voting Stock at a price exceeding the average closing price
for the twenty trading business days prior to the purchase date, unless a
majority of the Corporation's Disinterested Stockholders (as hereinafter
defined) approves the transaction. The restrictions on purchases by the
Corporation set forth in this ARTICLE TENTH do not apply (i) to any offer to
purchase shares of any class of the Corporation's stock which is made on the
same terms and conditions to all holders of that class of stock, or (ii) to any
purchase of stock owned by such a 5% stockholder occurring more than two years
after such stockholder's last acquisition of the Corporation's stock, or (iii)
to any purchase of the Corporation's stock in accordance with the terms of any
stock option or employee benefit plan, or (iv) to any purchase at prevailing
market prices pursuant to a stock purchase program.
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For purposes of this ARTICLE TENTH, the term "Disinterested Stockholders"
means those holders each of whom owns less than five percent (5%) of the voting
power of the Voting Stock.
ELEVENTH: Any vote or votes authorizing liquidation of the Corporation or
proceedings for its dissolution may provide, subject to the rights of creditors
and the rights expressly provided for particular classes or series of stock, for
the distribution pro rata among the stockholders of the Corporation of the
assets of the Corporation, wholly or in part in kind, whether such assets be in
cash or other property, and may authorize the Board of Directors of the
Corporation to determine the valuation of the different assets of the
Corporation for the purpose of such liquidation and may divide or authorize the
Board of Directors to divide such assets or any part thereof among the
stockholders of the Corporation, in such manner that every stockholder will
receive a proportionate amount in value (determined as aforesaid) of cash or
property of the Corporation upon such liquidation or dissolution even though
each stockholder may not receive a strictly proportionate part of each such
asset.
TWELFTH: BUSINESS COMBINATIONS.
SECTION 1. HIGHER VOTE FOR BUSINESS COMBINATIONS.
In addition to any affirmative vote required by law or by this Certificate
of Incorporation, unless a Business Combination (as defined below) shall have
been approved by the affirmative vote of not less than a majority of the Whole
Board, any Business Combination shall require the affirmative vote of the
holders of record of outstanding shares representing at least seventy-five
percent (75%) of the voting power of the Voting Stock, voting together as a
single class. Such affirmative vote shall be required notwithstanding the fact
that no vote may be required, or that a lesser percentage may be specified, by
law or in any agreement with any national securities exchange or otherwise.
SECTION 2. NO EFFECT ON FIDUCIARY OBLIGATIONS.
Nothing contained in this provision shall be construed to relieve the
members of the Board of Directors from any fiduciary obligations imposed by law.
SECTION 3. DEFINITION.
For purposes of this ARTICLE TWELFTH "Business Combination" means:
a. any merger or consolidation of the Corporation or any subsidiary;
or
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b. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) of all or more
than ten percent (10%) of the total assets of the Corporation or any
subsidiary, as of the end of such corporation's recent fiscal year ending
prior to the time the determination is made; or
c. the issuance or transfer by the Corporation or any subsidiary (in
one transaction or a series of transactions) of any securities issued by
the Corporation or by any subsidiary; or
d. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation, or any spin-off or split-up of any kind of
the Corporation or any subsidiary; or
e. any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any subsidiary or any other
transaction which has the effect, directly or indirectly; of increasing the
percentage of the outstanding shares of (i) any class of equity securities
of the Corporation or any subsidiary, or (ii) any class of securities of
the Corporation or any subsidiary convertible into equity securities of the
Corporation or any subsidiary; or
f. any agreement, contract or other arrangement providing for any one
or more of the actions specified in clauses (a) through (e) of SECTION 3 of
this ARTICLE TWELFTH.
SECTION 4. SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW.
Nothing in this ARTICLE TWELFTH or elsewhere in this Certificate of
Incorporation shall be construed as a waiver of any rights of the Corporation to
the provisions of SECTION 203 of the Delaware General Corporation Law dealing
with business combinations with interested stockholders; and the Corporation
hereby claims the full benefit of all such provisions or any other similar
provisions heretofore or hereafter enacted as part of the Delaware General
Corporation Law to the fullest extent in addition to the provisions of this
ARTICLE TWELFTH.
THIRTEENTH: The By-Laws of the Corporation may be amended, altered, changed
or repealed, and a provision or provisions inconsistent with the provisions of
the By-Laws as they exist from time to time may be adopted, only by the majority
vote of the Whole Board or by the affirmative vote of the holders of at least
seventy-five percent (75%) of the Voting Stock, voting together as a single
class.
FOURTEENTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for
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monetary damages for breach of fiduciary duty as a director except for liability
(i) for any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the GCL or (iv) for any transaction from which the director derived any improper
personal benefit.
FIFTEENTH: The provisions of SECTION 2 of ARTICLE FOURTH and the provisions
of ARTICLES FIFTH, SIXTH, SEVENTH, EIGHTH, NINTH, TENTH, TWELFTH, THIRTEENTH,
FOURTEENTH and this ARTICLE FIFTEENTH shall not be amended, altered, changed or
repealed, and no provision inconsistent with any of them shall be adopted,
except by the affirmative vote of the holders of at least seventy-five percent
(75%) of the voting power of the Voting Stock, voting together as a single
class. The Corporation reserves the right to amend, alter, change, or repeal any
other provision contained in this Certificate of Incorporation in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
are granted subject to this reservation.
For the purposes of this Certificate of Incorporation: (i) "Voting Stock"
shall mean the outstanding shares of capital stock of the Corporation entitled
to vote generally in the election of directors, and (ii) "Whole Board" shall
mean the total number of Directors which the Corporation would have if there
were no vacancies.
IN WITNESS WHEREOF, the undersigned have executed this Amended and Restated
Certificate of Incorporation as of August __, 1997.
----------------------------
William Merker
-----------------------------
Steven Merker
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EXHIBIT 3.2
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF
8 1/2% SENIOR CONVERTIBLE REDEEMABLE PREFERRED STOCK
OF
STANDARD AUTOMOTIVE CORPORATION
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
I, Steven Merker, Treasurer of Standard Automotive Corporation, a
corporation (the "Corporation") organized and existing under the General
Corporation Law of the State of Delaware, in accordance with the provisions of
Section 103 thereof,
DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by the
Certificate of Incorporation of the said Corporation, the said Board of
Directors on August __, 1997, adopted the following resolution creating a series
of 1,500,000 shares of 8 1/2% Senior Convertible Redeemable Preferred Stock, par
value $.001 per share, designated as Convertible Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of this Corporation in accordance with the provisions of its Certificate of
Incorporation, a series of Preferred Stock of the Corporation is hereby created,
and that the designation and amount thereof and the voting powers, preferences
and relative, participating, optional and other special rights of the shares of
such series, and the qualifications, limitations or
restrictions thereof are as follows:
1. Designation and Number. The designation of the series of preferred stock
fixed by this resolution shall be "8 1/2 Senior Convertible Redeemable Preferred
Stock" (the "Convertible Preferred Stock") and the number of shares constituting
such series shall be 1,500,000.
2. Rank. The Convertible Preferred Stock shall rank: (i) prior to all of
the Corporation's Common Stock, par value $.001 per share ("Common Stock"), (ii)
prior to any class or series of capital stock of the Corporation hereafter
created either specifically ranking by its terms junior to the Convertible
Preferred Stock or not specifically ranking by its terms senior to or on parity
with the Convertible Preferred Stock (collectively with the Common Stock,
"Junior Securities"); (iii) subject to the provisions of subparagraph 4(ii)
hereof, on parity with any class or series of capital stock of the Corporation
hereafter created specifically ranking by its terms on parity with the
Convertible Preferred Stock ("Parity Securities"); and (iv) subject to the
provisions of subparagraph 4(ii) hereof, junior to any class or
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series of capital stock of the Corporation hereafter created specifically
ranking by its terms senior to the Convertible Preferred Stock ("Senior
Securities"), in each case, as to payment of dividends or as to distributions of
assets upon liquidation, dissolution or winding-up of the Corporation, whether
voluntary or involuntary (all such distributions being referred to collectively
as "Distributions").
3. Dividends.
(i) The dividend rate of the Convertible Preferred Stock shall be computed
at a rate of $___ per share per annum from the date of the issuance of the
Convertible Preferred Stock. Dividends shall be payable quarterly in arrears out
of funds legally available therefor on the last business day of March, June,
September and December of each year, commencing December 31, 1997 (each a
"Convertible Dividend Payment Date"). Dividends on shares of Convertible
Preferred Stock shall be cumulative and shall accrue (whether or not declared),
without interest, from the first day of the quarterly period in which such
dividend may be payable as herein provided, except with respect to the first
quarterly payment which shall accrue from the date of issuance. On each
Convertible Dividend Payment Date all dividends which shall have accrued on each
share of Convertible Preferred Stock outstanding on the applicable record date
shall accumulate and be deemed to become "due." Any dividend which shall not be
paid on the Convertible Dividend Payment Date on which it shall become due shall
be deemed to be "past due" (a "Cumulated Convertible Dividend") until such
Cumulated Convertible Dividend shall have been paid.
(ii) The Board of Directors shall declare and pay current dividends out of
funds legally available therefor (after giving effect to the payment of all
requisite dividends on Senior Securities).
(iii) In order to determine the holders of the Convertible Preferred Stock
entitled to receive dividends, the Corporation shall fix a record date not more
than 60 days prior to any Convertible Dividend Payment Date. If any such
Convertible Dividend Payment Date should fall on a day that is not a Business
Day, then the Corporation shall pay the applicable dividend on the next
succeeding Business Day. "Business Day" shall mean a day other than a Saturday,
Sunday on other day on which any national securities exchange or quotation
system on which the Common Stock of the Corporation is traded or quoted is
authorized or required by law to close.
(iv) The Corporation shall not: (A) pay or declare and set apart for
payment any dividends or Distributions on the Corporation's Junior Securities,
other than dividends payable in the form of additional shares of the same Junior
Security as that on which such dividend is declared, or (B) redeem, purchase,
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or otherwise acquire any shares of Junior Securities or any right, warrant
or option to acquire any Junior Securities, unless full Cumulated Convertible
Dividends have been, or contemporaneously are, paid or declared and set apart
for such payment on the Convertible Preferred Stock.
(v) No full dividends shall be paid or declared and set apart for payments
on any class or series of Parity Securities for any period unless full Cumulated
Convertible Dividends have been, or contemporaneously are, paid or declared and
set apart for such payment on the Convertible Preferred Stock for all dividend
periods terminating on or prior to the date of payment of such full Cumulated
Convertible Dividends. No full dividends shall be paid or declared and set apart
for payment on the Convertible Preferred Stock for any period unless full
cumulative dividends have been, or contemporaneously are, paid or declared and
set apart for payment on the Parity Securities, for all dividend periods
terminating on or prior to the date of payment of such full Cumulated
Convertible Dividends. When dividends are not paid in full upon the Convertible
Preferred Stock and the Parity Securities, all dividends paid or declared and
set apart for payment upon shares of Convertible Preferred Stock and the Parity
Securities shall be paid or declared and set apart for payment pro rata, so that
the amount of dividends paid or declared and set apart for payment per share on
the Convertible Preferred Stock and the Parity Securities shall in all cases
bear to each other the same ratio that accrued and unpaid dividends per share on
the shares of Convertible Preferred Stock and the Parity Securities bear to each
other (without taking into account the dividends so paid and those so declared
and set apart for payment).
4. Voting Rights
(i) Except as may otherwise be provided herein or required by law, the
holders of the shares of Convertible Preferred Stock ("Convertible Holders")
shall not be entitled to any vote in respect of such shares.
(ii) The affirmative vote, in person or by proxy, of the Convertible
Holders of the majority of the outstanding shares of the Convertible Preferred
Stock, voting as a single class, on a one-vote-per-share of Convertible
Preferred Stock basis, shall be necessary for the Corporation to authorize: (x)
any class or series of Senior Securities; or (y) any class or series of Parity
Securities; provided, that no such vote shall be required pursuant to clause (x)
or (y) in the event the Corporation shall then have the right to redeem the
Convertible Preferred Stock and, prior to the date of issuance of such new class
or series of Senior Securities or parity Securities provision shall have been
made for the redemption of all the outstanding shares of the Convertible
Preferred Stock and such redemption occurs on or prior to the date
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of issuance of such new series or class of Senior Securities or Parity
Securities.
(iii) On all matters on which the Convertible Preferred Stock is entitled
to vote by law, the Convertible Holders shall be entitled to one vote per share
of Convertible Preferred Stock, voting separately as a single class, and the
presence, in person or by proxy, of the Convertible Holders of a majority of the
outstanding shares of the Convertible Preferred Stock shall constitute a quorum.
(iv) In the event that the Company fails to pay any dividends for four
consecutive quarterly dividend payment periods, the Convertible Holders of the
Convertible Preferred Stock, voting separately as a class, shall be entitled to
elect one director. Such right will be terminated as of the next annual meeting
of stockholders of the Company following payment of all accrued dividends.
5. Conversion Rights
(i) Each share of Convertible Preferred Stock may be converted, at the
option of each Convertible Holder, at any time and from time to time, commencing
on ____________, 1998, into fully-paid and non-assessable shares of Common
Stock; provided, a Convertible Holder's right to so convert shares of
Convertible Preferred Stock shall terminate as to shares thereof that are
redeemed by the Corporation on the Redemption Date (as hereinafter defined)
therefor as provided in and subject to the terms and conditions of paragraph 7
hereof. The number of shares of Common Stock to which the Convertible Holder of
each share of Convertible Preferred Stock shall be entitled upon conversion
shall be the product obtained by multiplying the number of shares of Convertible
Preferred Stock to be converted by the Conversion Rate; in addition, the
Convertible Holder shall be entitled upon conversion to receive cash in an
amount equal to all Cumulated Convertible Dividends on each share of Convertible
Preferred Stock so converted; provided there are funds legally available
therefor. To the extent the Corporation shall not have funds legally available
to pay all such Cumulated Convertible Dividends, the Corporation's obligation to
make such payment shall be deferred until the first date on which the
Corporation shall have funds legally available for all or a portion of such
payment, which shall then be made in whole or in part, as the case may be, until
such Cumulated Convertible Dividends shall have been paid in full. The
"Conversion Rate," that is, the number of shares of Common Stock for which each
share of Convertible Preferred Stock may be converted, shall be determined by
dividing $______ by $_____ (the "Conversion Price"); provided, that in each
instance that the Corporation fails to pay a dividend on the Convertible
Preferred Stock within 30 days after the Convertible Dividend Payment Date
therefor, the Conversion Price shall be reduced by $0.50, on a
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<PAGE>
cumulative basis, 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. The Conversion Price shall be adjusted from time to
time as set forth in subsection (ii) hereof. The Corporation shall not issue
fractional shares of Common Stock upon conversion of Convertible Preferred Stock
but, in lieu thereof, shall pay to a Convertible Holder cash in an amount equal
to such fraction multiplied by the Last Sale Price of the Common Stock on the
trading day prior to the date on which the shares are converted. "Last Sale
Price" shall mean the reported last sale price regular way or, in case no such
reported sale takes place on such day, the average of the reported closing bid
and asked prices regular way, in either case on the principal national
securities exchange on which the Common Stock is listed or admitted to trading
or, if not listed or admitted to trading on any national securities exchange, on
the Nasdaq SmallCap Market or, if the Common Stock is not listed or admitted to
trading on any national securities exchange or quoted on such SmallCap Market,
the average of the closing bid and asked prices in the over-the-counter market
as furnished by any New York Stock Exchange member firm selected from time to
time by the Board of Directors for that purpose.
(ii) The Convertible Preferred Stock shall be converted into Common Stock
in the following manner:
(A) Shares of Convertible Preferred Stock received by the Corporation in
exchange for Common Stock shall be retired and canceled and shall no longer be
available for issuance as Convertible Preferred Stock.
(B) A Convertible Holder shall give written notice to the Corporation of
its desire to convert all or a portion of the shares of Convertible Preferred
Stock owned by such Convertible Holder. Such notice shall be accompanied by
certificates, duly endorsed for conversion, evidencing the number of shares of
Convertible Preferred Stock such Convertible Holder desires to convert, together
with cash, if any required by subparagraph 5(ii)(C) hereof. The Corporation
will, as soon as practicable thereafter, deliver to such Convertible Holder or
to such Convertible Holder's nominee or nominees, a certificate or certificates
for the appropriate number of shares of Common Stock, together with cash, as
provided in subparagraph 5(i), with respect to any fractional shares otherwise
issuable upon conversion, and cash in an amount equal to all Cumulated
Convertible Dividends on each share of Convertible Preferred Stock so converted;
provided, there are funds legally available therefor, and, in the event of a
partial conversion, a certificate representing the balance, it any, of the
shares of Convertible Preferred Stock represented by the surrendered certificate
or certificates but not converted to Common Stock. To the extent the Corporation
shall not have funds legally available to pay all such Cumulated Convertible
Dividends, the
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<PAGE>
Corporation's obligation to make such payment shall be deferred until the first
date on which the Corporation shall have funds legally available for all or a
portion of such payment, which shall then be made in whole or in part, as the
case may be, until such Cumulated Convertible Dividends shall have been paid in
full.
(C) In the event that shares of Convertible Preferred Stock are surrendered
for conversion on any date during the period from the close of business on a
record date fixed for determining the Convertible Holders entitled to receive
dividends to the opening of business on the corresponding Convertible Dividend
Payment Date, the Convertible Holder must also deliver to the Corporation an
amount equal to the dividend payable with respect to such shares of Convertible
Preferred Stock on such Convertible Dividend Payment Date and shall continue to
be entitled to receive such dividend on such Convertible Dividend Payment Date.
In the event that the date on which the shares are converted is the Convertible
Dividend Payment Date, such Convertible Holder will be entitled to receive the
dividend payable with respect to such Convertible Preferred Stock and shall not
be required to include any payment in the amount of the dividend payable with
respect to such converted shares of Convertible Preferred Stock.
(D) If, prior to the date on which all shares of Convertible Preferred
Stock are converted, the Corporation shall (1) pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock, (2) subdivide its
outstanding Common Stock, (3) combine its outstanding Common Stock into a
smaller number of shares of Common Stock or (4) issue by reclassification of its
Common Stock other securities of the Corporation, the Conversion Price in effect
on the opening of business on the record date for determining stockholders
entitled to participate in such transaction shall thereupon be adjusted, or, if
necessary, the right to convert shall be amended, such that the number of shares
of Common Stock receivable upon conversion of the shares of Convertible
Preferred Stock immediately prior thereto shall be adjusted so that the
Convertible Holder shall be entitled to receive, upon the conversion of such
shares of Convertible Preferred Stock, the kind and number of shares of Common
Stock or other securities of the Corporation which it would have owned or would
have been entitled to receive after the happening of any of the events described
above had the Convertible Preferred Stock been converted immediately prior to
the happening of such event or any record date with respect thereto. Any
adjustment made pursuant to this subparagraph 5(ii)(D) shall become effective
immediately after the effective date of such event and such adjustment shall be
retroactive to the record date, if any, for such event. No adjustment with
respect to any ordinary cash dividends (made out of current earnings) on shares
of Common Stock shall be made.
(E) Except in respect of transactions described in subparagraph 5(ii)(D)
above, if, prior to the date on which all
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<PAGE>
shares of Convertible Preferred Stock are converted, the Corporation shall
sell or issue Common Stock or rights, options, warrants or convertible
securities (or rights, options or warrants to purchase convertible securities)
containing the right to subscribe for or purchase shares of Common Stock
(collectively, "Rights"), and the sale or issuance price per share of Common
Stock (or in the case of Rights, the sum of the consideration paid or payable
for any such Right entitling the holder thereof to acquire one share of Common
Stock and such additional consideration paid or payable upon exercise or
conversion of any such Right to acquire one share of Common Stock) is less than
the lower of the then current Conversion Price or the then current Market Price
of the Common Stock (as defined in subparagraph 7(i) below) for the trading day
immediately preceding the dates of such sale or issuance (the "Current Common
Stock Price"), the Conversion Price shall thereupon be adjusted such that the
number of shares of Common Stock receivable upon conversion of the Convertible
Preferred Stock shall be the number determined by multiplying (1) the number of
shares of Common Stock receivable upon conversion of the shares of Convertible
Preferred Stock immediately prior to such issuance or sale by (2) a fraction
(not to be less than one) with a numerator equal to the product of the number of
shares of Common Stock outstanding after giving effect to such sale or issuance
(and assuming, in the case of Rights that such Rights had been fully exercised
or converted, as the case may be) and the Current Common Stock Price and a
denominator equal to the sum of (x) the product of the number of shares of
Common Stock outstanding immediately before the issuance or sale or the record
date, as the case may be, multiplied by the Current Common Stock Price and (y)
the aggregate consideration received or deemed to be received by the Corporation
for the shares of Common Stock to be issued or sold or to be purchased or
subscribed for upon exercise of such Rights. For the purposes of such
adjustments, the Common Stock which the holders of any such Rights shall be
entitled to subscribe for or purchase shall be deemed to be issued and
outstanding as of the date of such issuance or sale or the record date, as the
case may be.
(F) Except in respect of transactions described in subparagraph 5(ii)(D)
above, if, prior to the date on which all shares of Convertible Preferred Stock
are converted, the Corporation shall declare, order, pay or make a dividend or
other distribution (including without limitation any distribution of cash, other
or additional stock or other securities or property or options, by way of
dividend or spin-off, reclassification, recapitalization or similar corporate
rearrangement or otherwise, but excluding dividends described in paragraph 3 or
in the last sentence of subparagraph 5(ii)(D)), then, in each case, the
Conversion Price shall thereupon be adjusted such that the number of shares of
Common Stock thereafter receivable upon the conversion of shares of Convertible
Preferred Stock shall be determined by multiplying (1) the number of shares of
Common Stock theretofore receivable upon conversion of the shares of the
Convertible
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<PAGE>
Preferred Stock by (2) a fraction of which the numerator shall be the then
Conversion Price on the record date for the determination of stockholders
entitled to receive such dividend or other distribution, and of which the
denominator shall be such Conversion Price on such date minus the amount of such
dividend or distribution applicable to one share of Common Stock. The Board of
Directors of the Corporation shall determine the amount of such dividend or
distribution allocable to one share of Common Stock and such determination, if
reasonable and based upon the Board of Directors' good faith business judgment,
shall be binding upon the Convertible Holder. Such adjustment shall be made
whenever any such distribution is made and shall become effective on the date of
distribution retroactive to the record date for the determination of
stockholders entitled to receive such distribution.
(G) Upon the expiration of any Rights, if such shall not have been
exercised, the Conversion Price, to the extent that shares of Convertible
Preferred Stock have not been converted, shall, upon such expiration, be
readjusted and shall thereafter be such as they would have been had they been
originally adjusted (or had the original adjustment not been required, as the
case may be) on the basis of (1) the fact that the only shares of Common Stock
so issued were the shares of Common Stock, if any, actually issued or sold upon
the exercise of such Rights and (2) such shares of Common Stock, if any, were
issued or sold for the consideration actually received by the Corporation
(including for purposes hereof, any underwriting discounts or selling
commissions paid by the Corporation) for the issuance, sale or grant of all such
Rights, whether or not exercised; provided, that no such readjustment shall have
the effect of increasing the Conversion Price by a proportion (relative to the
Conversion Price in effect immediately prior to such readjustment) in excess of
the inverse of the aggregate proportional adjustment thereof made in respect of
the issue, sale, grant or assumption of such Rights.
If the consideration provided for in any Right or the additional
consideration, if any, payable upon the conversion or exchange of any right
shall be reduced, or the rate at which any Right is exercisable or convertible
into or exchangeable for shares of Common Stock shall be increased, at any time
under or by reason of provisions with respect thereto designed to protect
against dilution, then, effective concurrently with each such change, the
Conversion Price then in effect shall first be adjusted to eliminate the effects
(if any) of the issuance (or deemed issuance) of such Right on the Conversion
Price and then readjusted as if such Right had been issued on the date of such
change with the terms in effect after such change, but only if as a result of
such readjustment the Conversion Price then in effect hereunder is thereby
reduced.
(H) If, prior to the date on which all shares of Convertible Preferred
Stock are converted, the Corporation shall
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<PAGE>
(1) consolidate with or merge with or into another person resulting in a
reclassification, conversion, exchange or cancellation of outstanding shares of
Common Stock or (2) sell or otherwise transfer all or substantially all of the
assets of the Corporation, then a Convertible Holder shall thereafter have the
right to convert such shares of Convertible Preferred Stock into the kind and
amount of stock, securities or assets, if any, such Convertible Holder would
have been entitled to receive upon such consolidation, merger, sale or transfer
had such Convertible Holder converted its shares of Convertible Preferred Stock
into Common Stock immediately prior to such transaction.
(I) For the purposes of this paragraph 5: (x) the consideration for the
issue or sale of any additional shares of Common Stock shall, irrespective of
the accounting treatment of such consideration, be deemed to be the
consideration actually received by the Corporation and (1) insofar as it
consists of cash, be computed at the net amount of cash received by the
Corporation, plus any expense paid or incurred by the Corporation and any
commissions or compensation paid or concessions or discounts allowed to
underwriters, dealers or others performing similar services in connection with
such issue or sale, (2) insofar as it consists of property (including
securities) other than cash, be computed at the fair value thereof at the time
of such issue or sale, as determined in good faith by the Board of Directors of
the Corporation, and (3) in case additional shares of Common Stock are issued or
sold together with other stock or securities or other assets of the Corporation
for a consideration which covers both, be the portion of such consideration so
received, computed as provided in clauses (1) and (2) above, allocable to such
additional shares of Common Stock, all as determined in good faith by the Board
of Directors of the Corporation; (y) additional shares of Common Stock deemed to
have been issued pursuant to subparagraph 5(ii)(G) relating to Rights, shall be
deemed to have been issued for a consideration per share determined by dividing
(1) the total amount, if any, received by the Corporation as consideration for
the issue, sale or grant of the Rights in question, less the value of the Rights
not actually received by the Corporation as consideration therefor, plus the
minimum aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provisions contained therein
for a subsequent adjustment of such consideration to protect against dilution)
payable to the Corporation upon the exercise, conversion or exchange of such
Rights or, in the case of Rights which are rights, options or warrants for
convertible securities, the exercise of such Rights for convertible securities
and the conversion or exchange of such convertible securities, in each case
computing such consideration as provided in the foregoing clause (x) of this
subparagraph 5(ii)(I), by (2) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for subsequent adjustment of such number to protect against
dilution)
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<PAGE>
issuable upon the exercise, conversion or exchange of such Rights; and, (z)
additional shares of Common Stock deemed to have been issued pursuant to
subparagraph 5(ii)(D) and (F), relating to stock dividends, stock splits, etc.,
shall be deemed to have been issued for no consideration. For the purposes of
this paragraph 5, the term "Common Stock" shall mean (i) the class of stock
designated as Common Stock in the Certificate of Incorporation of the
Corporation as may be amended as of the date hereof, or (ii) any other class of
stock resulting from successive changes or reclassification 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.
(J) No adjustment in the Conversion Price shall be required unless
explicitly provided for in this paragraph 5 and unless such adjustment (plus any
adjustments not previously made by reason of this subparagraph 5(ii)(J)), would
require an increase or decrease of at least five percent (5%) in such price;
provided, that any adjustments which by reason of this subparagraph 5(ii)(J) are
not required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this subparagraph 5(ii)(J) shall
be made to the nearest cent.
(K) No adjustment shall be made (1) upon conversion of the Convertible
Preferred Stock, (2) upon exercise of options and/or warrants of the Corporation
outstanding on the date hereof, and (3) with respect to options hereafter
granted to employees, officers, directors or stockholders of or consultants to
the Corporation, pursuant to stock option plans in effect on the date hereof.
(L) Whenever the Conversion Price is adjusted pursuant to any of the
foregoing provisions of this paragraph 5, the Corporation shall forthwith
prepare a written statement signed by the president or any vice president and
the treasurer or any assistant treasurer or the secretary or any assistant
secretary of the Corporation, setting forth the adjusted Conversion Rate
determine as provided in the paragraph 5, and in reasonable detail the facts
requiring such adjustment. Such statement shall be filed among the permanent
records of the Corporation and a copy thereof shall be furnished to any
Convertible Holder requesting the same, and shall at all reasonable times during
business hours be open to inspection by the Convertible Holders. Within 10 days
of the event requiring an adjustment, the Corporation shall also cause a notice,
stating that such an adjustment has been made and setting forth the adjusted
Conversion Rate, to be mailed, first-class, postage prepaid, to all then
Convertible Holders of record at their addresses as the same appear on the stock
records of the Corporation.
(M) If a Convertible Holder has delivered notice to the Corporation of its
desire to convert all or a portion, of its shares of Convertible Preferred
Stock, and
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<PAGE>
certificates, duly endorsed for conversion in respect of such shares and cash,
if any, required by subparagraph 5(ii)(C) hereof, then all shares of Convertible
Preferred Stock so tendered to the Corporation shall be deemed to be no longer
outstanding and, notwithstanding the failure of the Corporation to issue the
Common Stock, such Convertible Holder shall be deemed, for all purposes (except
as set forth in the next sentence of this subparagraph 5(ii)(M)), to be a holder
of the number of shares of Common Stock into which the shares of Convertible
Preferred Stock such Convertible Holder is entitled to receive pursuant to the
terms of this paragraph 5 in each case as of the close of business on the date
on which such conversion notice is delivered. In the event such Convertible
Holder has delivered notice to the Corporation of his desire to convert all or a
portion of his shares of Convertible Stock, such Convertible Holder shall retain
the right to receive all Cumulated Convertible Dividends payable on the shares
so converted, as provided in this paragraph 5, notwithstanding such conversion.
(iii) The Corporation shall not, by amendment of its Certificate of
Incorporation as amended as of the date hereof, or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation but shall at all times in good faith assist in the carrying out of
all the provisions of this paragraph 5. The Corporation shall at all times
reserve and keep available out of its authorized but unissued Common Stock the
full number or shares of Common Stock deliverable upon the conversions of all
the then outstanding shares of Convertible Preferred Stock and shall take all
such action and obtain all such permits or orders as may be necessary to enable
the Corporation to validly and legally issue fully paid and non-assessable
shares of Common Stock upon the conversion of Convertible Preferred Stock. The
Corporation shall obtain, prior to or concurrently with the first issuance of
the Convertible Preferred Stock, the authorization for the listing of shares of
Common Stock issuable upon conversion of the Convertible Preferred Stock on The
American Stock Exchange and shall use its best efforts to maintain for as long
as any share of Convertible Preferred Stock shall be outstanding such
authorization or authorization for the listing of such shares on a national
securities exchange on which the Common Stock may hereafter be listed. The
Corporation shall pay any and all transfer, stamp and other like taxes that may
be payable in respect of tho issuance or delivery to a Convertible Holder of
shares of Common Stock or conversion of the Convertible Preferred Stock by such
holder.
6. Liquidation Price. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation, the
amount that shall be paid to a Convertible Holder of each share of Convertible
Preferred Stock shall be $____
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<PAGE>
and an additional sum equal to all Cumulated Convertible Dividends on a share of
Convertible Preferred Stock (the "Liquidation Price"), and no more. Upon any
liquidation, dissolution or winding-up of the Corporation, the Convertible
Holders will be entitled to be paid, after payment or provision for payment of
the debts and other liabilities of the Corporation and after payment or
provision for payment is made upon any Senior Securities, but before any
Distribution or payment is made upon any Junior Securities, an amount in cash
equal to the aggregate Liquidation Price of all shares outstanding, and the
Convertible Holders will not be entitled to any further payment. If, upon any
such liquidation, dissolution or winding-up of the Corporation, the
Corporation's assets to be distributed among the Convertible Holders and the
holders of Parity Securities (the "Parity Holders") are insufficient to permit
payment in full to such Convertible Holders and the Parity Holders of the
aggregate amount which they are entitled to be paid, then the available assets
to be distributed will be distributed ratably among such Convertible Holders and
Parity Holders based upon the aggregate Liquidation Price of the Convertible
Preferred Stock and the aggregate liquidation preference of any Parity
Securities held by each Such Convertible Holder and Parity Holder, respectively.
The Corpora- tion will mail written notice of such liquidation, dissolution or
winding-up, not less than 30 days prior to the payment date stated therein, to
each Convertible Holder of record. Neither the consolidation or merger of the
Corporation into or with any other corporation or any other person, nor the sale
or transfer by the Corporation of all or any part of its assets, nor the
reduction of the capital stock of the Corporation will be deemed to be a
liquidation, dissolution or winding-up of the Corporation within the meaning of
paragraphs 2 and 6.
7. Redemption.
(i) Time of Redemption. The Corporation may, at its option, redeem shares
of the Convertible Preferred Stock, in whole or in part, out of funds legally
available therefor, by action of the Board of Directors, at any time commencing
on _______, 2000, at a redemption price of $_____ per share, plus all Cumulated
Convertible Dividends on a share of Convertible Preferred Stock, upon notice and
in the manner set forth in, and subject to the conditions of, this paragraph 7;
provided, that the current market price of the Common Stock (the closing sale
price as reported by the principal securities exchange on which the Common Stock
is listed or admitted to trading or by the Nasdaq National Market or Nasdaq
SmallCap Market, 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 of the Corporation) (the "Market Price") equals or exceeds $_____ per
share for any 20 trading days within a period of 30 consecutive
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trading days ending on the fifth trading day prior to the date of notice of
redemption.
(ii) Priority of Redemption. None of the shares of any class or series of
Parity Securities or Junior Securities shall be redeemed, repurchased or
otherwise acquired unless full Cumulated Convertible Dividends have been, or
contemporaneously are, paid or declared and set apart for such payment on the
Convertible Preferred Stock for all dividend periods terminating on or prior to
the date of payment of such full Cumulated Convertible Dividends. None of the
shares of Convertible Preferred Stock shall be redeemed, repurchased or
otherwise acquired unless full cumulative dividends have been, or
contemporaneously are, paid or declared and set apart for payment on the Parity
Securities or Senior Securities, for all dividend periods terminating on or
prior to the Redemption Date of Convertible Preferred Stock.
6. Procedures for Redemption. The Convertible Preferred Stock shall be
redeemed pursuant to subparagraph 7(i) in the following manner:
(A) Shares of the Convertible Preferred Stock redeemed, repurchased or
otherwise acquired by the Corporation shall be retired and canceled and shall no
longer be available for issuance as Convertible Preferred Stock.
(B) In the event of a redemption of shares of Convertible Preferred Stock
pursuant to subparagraph 7(i), notice of redemption of shares of Convertible
Preferred Stock shall be given by the Corporation, not less than 30 nor more
than 60 days prior to the Business Day designated in such notice (the
"Redemption Date"), by first class mail to Convertible Holders at their
respective addresses then appearing on the records of the Corporation, and shall
also be published, on or about the date of such mailing, in the National Edition
of the Wall Street Journal. Such notice of redemption shall specify the
Redemption Date, the redemption price plus the Cumulated Convertible Dividends
on a shares of Convertible Preferred Stock, if any (the "Redemption Price"), the
total number of shares of Convertible Preferred Stock to be redeemed and, if
fewer than all the shares held by such Convertible Holder, the number of shares
to be redeemed from such holder, and the place or places of payment. The
conversion rights of the Convertible Holders shall continue until the Redemption
Date (provided no default by the Corporation in the payment of the Redemption
Price shall have occurred and be continuing, and in the event of any such
default the Convertible Holders' conversion rights shall continue until such
shares are actually redeemed, exchanged or converted, and such notice shall
state the then effective Conversion Price and that the right of Convertible
Holders to exercise their conversion rights shall terminate at the close of
business on the Redemption Date (provided no default by the Corporation in the
payment of the redemption price shall have occurred and be continuing). On or
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before the Redemption Date, each Convertible Holder shall surrender to the
Corporation or its designated agent, at such place as it may designate in the
redemption notice, certificates, duly endorsed for transfer, evidencing the
number of shares of Convertible Preferred Stock held by such Convertible Holder
and being redeemed. Upon such surrender, the Convertible Holder shall be
entitled to receive payment of the Redemption Price without interest.
(C) If, on the Redemption Date, (1) notice of redemption has been mailed or
delivered as provided herein, (2) the Corporation has deposited with an
independent paying agent funds necessary to pay the amount due for all shares of
Convertible Preferred Stock subject to such redemption, and (3) all such funds
are available for the sole purpose of paying such amount, then, unless the
Corporation defaults on the payment of the Redemption Price, all shares of
Convertible Preferred Stock subject to redemption shall, whether or not
certificates for such shares have been surrendered for cancellation, be deemed
to be no longer outstanding for any purpose and all rights with respect to such
shares shall cease, except the right of the Convertible Holder to receive the
redemption price, without interest; provided, that the Corporation shall not
have to so redeem any shares of Convertible Preferred Stock which have been
converted to Common Stock prior to the date of such redemption. If the
Corporation shall not have funds legally available for redemption of shares to
be redeemed pursuant to subparagraph 7(i) on the Redemption Date, the notice of
redemption shall be null and void and at such time as the Corporation shall have
funds legally available for redemption of such shares and shall determine to
redeem the Convertible Preferred Stock on the terms and conditions set forth in
subparagraph 7(i), a new notice of redemption to Convertible Holders shall be
required to effect such redemption.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Steven Merker, its Treasurer, and attested to by its Secretary on
August __, 1997.
ATTEST: STANDARD AUTOMOTIVE CORPORATION
_____________________ By:____________________________
Secretary Steven Merker, Treasurer
14
BY-LAWS
of
STANDARD AUTOMOTIVE CORPORATION
(a Delaware corporation)
<PAGE>
STANDARD AUTOMOTIVE CORPORATION
(a Delaware corporation)
BY-LAWS
ARTICLE I.
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the Corporation in
the State of Delaware is located at 1013 Centre Road, Wilmington, DE 19805, in
the County of New Castle. The name of its registered agent at such address is
The Prentice-Hall Corporation System, Inc.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at such
other places, within or without the State of Delaware, as the Board of Directors
may from time to time appoint or the business of the Corporation may require.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETING. Meetings of the stockholders shall be held
either within or without the State of Delaware at such place as the Board of
Directors may fix.
SECTION 2. ANNUAL MEETINGS. The annual meeting of stockholders shall be
held for the election of directors on such date and at such time as the Board of
Directors may fix. Any other business properly brought before the annual meeting
of stockholders as provided by applicable law and by these By-Laws may be
transacted at the annual meeting.
SECTION 3. SPECIAL MEETINGS. Special meetings of the stockholders for any
purpose or purposes may be called by the Chairman of the Board of Directors, or
pursuant to a resolution approved by a majority of the Whole Board (as defined
below), or upon receipt of a written request signed by stockholders owning at
least 20 percent of the stock entitled to vote at the meeting. Any such
resolution of the Board of Directors or any such request of stockholders shall
state the purpose or purposes of the proposed meeting. Business transacted at
any special meeting is limited to the purposes stated in the notice. For the
purposes of these By-Laws, the term "Whole Board" is defined as the total number
of Directors which the Corporation would have if there were no vacancies.
SECTION 4. NOTICE. Written or printed notice of every meeting of
stockholders, annual or special, stating the hour, date and place thereof, and,
in the case of special meetings, the purpose or purposes for which the meeting
is called shall, not
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<PAGE>
less than ten (10), or such longer period as shall be provided by law, the
Certificate of Incorporation, these By-Laws, or otherwise, and not more than
sixty (60) days before such meeting, be delivered or mailed to each stockholder
entitled to vote thereat, at his address as it appears upon the stock records of
the Corporation or, if such stockholder shall have filed with the Secretary of
the Corporation a written request that notices intended for him be mailed to
some other address, then to the address designated in such request.
SECTION 5. QUORUM AND ADJOURNMENTS. Except as otherwise provided by law or
by the Certificate of Incorporation, the presence in person or by proxy at any
meeting of stockholders of the holders of a majority of the shares of the
capital stock of the Corporation issued and outstanding and entitled to vote
thereat, shall be requisite and shall constitute a quorum. If two or more
classes of stock are entitled to vote as separate classes upon any question,
then, in the case of each such class, a quorum for the consideration of such
question shall, except as otherwise provided by law or by the Certificate of
Incorporation, consist of a majority in interest of all stock of that class
issued, outstanding and entitled to vote. If a majority of the shares of capital
stock of the Corporation issued and outstanding and entitled to vote thereat at,
or, where a larger quorum is required, such larger quorum, shall not be
represented at any meeting of the stockholders, the holders of a majority of the
shares present or represented by proxy and entitled to vote thereat shall have
the power to adjourn the meeting to another time, or to another time and place,
without notice other than announcement of adjournment at the meeting, and there
may be successive adjournments for like cause and in like manner until the
requisite amount of shares entitled to vote at such meeting shall be
represented; provided, however, that if the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, written notice of the hour, date and place of the adjourned
meeting shall be given to each stockholder entitled to vote thereat. At any
adjourned meeting any business may be transacted which might have been
transacted at the original meeting. Subject to the requirements of law and the
Certificate of Incorporation, on any issue on which two or more classes of stock
are entitled to vote separately, no adjournment shall be taken with respect to
any class for which a quorum is present unless the Chairman of the meeting
otherwise directs. At any meeting held to consider matters which were subject to
adjournment for want of a quorum at which the requisite amount of shares
entitled to vote thereat shall be represented, any business may be transacted
which might have been transacted at the meeting as originally noticed.
SECTION 6. NOTICE OF STOCKHOLDER BUSINESS. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting.
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To be properly brought before an annual meeting, business must be (A) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Chairman of the Board of Directors, (B) otherwise properly
brought before the meeting by or at the direction of a majority of the Whole
Board, or (C) otherwise properly brought before the meeting by a stockholder as
provided by and in accordance with applicable law, rules and regulations, and
these By-Laws. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered to or mailed to and received at the principal executive offices of the
Corporation in accordance with applicable law, rules and regulations and not
less than 120 days in advance of the date of the Corporation's notice of annual
meeting released to stockholders in connection with the previous year's annual
meeting of stockholders, except that if no annual meeting was held in the
previous year or the date of the annual meeting has been changed by more than 30
calendar days from the date contemplated at the time of the previous year's
notice of annual meeting of stockholders, then, in that event only, a
stockholders' notice hereunder must be delivered to and received at the
principal executive offices of the corporation at least 30 calendar days before
the notice of the date of the annual meeting is mailed to stockholders in the
current year.
A stockholder's notice to the Secretary shall set forth as to each matter
the stockholder proposes to bring before the annual meeting (A) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (B) the name and
address, as they appear on the Corporation's books, of the stockholder proposing
such business, (C) the class and number of shares of the Corporation which are
beneficially owned by the stockholder, and (D) any material interest of the
stockholder in such business. Notwithstanding anything in the By-Laws to the
contrary, no business shall be conducted at an annual meeting except in
accordance with applicable law, rules and regulations, and in accordance with
the procedures set forth in this SECTION 6 OF ARTICLE II.
The presiding officer of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that the business was not properly brought
before the meeting in accordance with this SECTION 6 of ARTICLE II, and if the
presiding officer should so determine, the presiding officer shall so declare to
the meeting and any such business not properly brought before the meeting shall
not be transacted.
SECTION 7. INSPECTORS. The Board of Directors shall appoint inspectors of
election to act as judges of the voting and to determine those entitled to vote
at any meeting of
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stockholders, or any adjournment thereof, in advance of such meeting, but if the
Board of Directors fails to make such appointments or if an appointee fails to
serve, the presiding officer of the meeting of stockholders may appoint
substitute inspectors.
SECTION 8. VOTING. Except as otherwise provided by law or by the
Certificate of Incorporation or by a resolution of the Board of Directors
adopted in accordance with SECTION 2 of ARTICLE FOURTH of the Certificate of
Incorporation, each stockholder shall be entitled at every meeting of the
stockholders to one vote for each share of stock having voting power standing in
the name of such stockholder on the books of the Corporation on the record date
for the meeting and such votes may be cast either in person or by written proxy.
Every proxy must be duly executed and filed with the Secretary of the
Corporation. A stockholder may revoke any proxy which is not irrevocable by
attending the meeting and voting in person or by filing an instrument in writing
revoking the proxy or another duly executed proxy bearing a later date with the
Secretary of the Corporation. Every vote taken by written ballot shall be
counted by the inspectors of election. When a quorum is present at any meeting,
the vote of the holders of a majority (or such other percentage as may be
specified or required by the Certificate of Incorporation, or by a resolution of
the Board of Directors adopted in accordance with SECTION 2 of ARTICLE FOURTH of
the Certificate of Incorporation, by law, or these By-Laws) of the stock which
has voting power present in person or represented by proxy and which has
actually voted shall decide any question properly brought before such meeting,
except the election or removal of Directors or as otherwise provided by law,
these By-Laws or the Certificate of Incorporation. With respect to any election
or questions required to be decided by any class of stock voting as a class, the
vote of the holders of a majority (or such other percentage as may be specified
or required by the Certificate of Incorporation, or by a resolution of the Board
of Directors adopted in accordance with SECTION 2 of ARTICLE FOURTH of the
Certificate of Incorporation, or by law, or by these By-Laws) of such class of
stock present in person or by proxy and which actually voted shall decide any
such election or question.
ARTICLE III.
NOMINATION OF DIRECTOR CANDIDATES
SECTION 1. NOTIFICATION OF NOMINEES. Subject to the rights of holders of
any class or series of stock having a preference over the Common Stock as to
dividends, upon liquidation, or to elect additional Directors under specified
circumstances, nominations for the election of Directors may be made by the
Board of Directors or a committee appointed by the Board of Directors or by any
stockholder entitled to vote in the election of Directors generally. However,
any stockholder entitled to
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vote in the election of Directors generally may nominate one or more persons for
election as Directors at a meeting only if written notice of such stockholder's
intent to make such nomination or nominations has been given, either by personal
delivery or by United States mail, postage prepaid, to the Secretary of the
Corporation not later than 120 days in advance of the date of the Corporation's
notice of annual meeting released to stockholders in connection with the
previous year's annual meeting of stockholders, except that if no annual meeting
was held in the previous year or the date of the annual meeting has been changed
by more than 30 calendar days from the date contemplated at the time of the
previous year's notice of annual meeting of stockholders, then, in that event
only, a stockholders' notice hereunder must be delivered to and received at the
principal executive offices of the corporation at least 30 calendar days before
the notice of the date of the annual meeting is mailed to stockholders in the
current year.
Each such notice shall set forth: (A) the name and address of the
stockholder who intends to make the nomination and of the person or persons to
be nominated; (B) a representation that the stockholder is a holder of record of
stock of the Corporation entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice; (C) a description of all arrangements or understandings between
the stockholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the stockholder; (D) such other information regarding each nominee
proposed by such stockholders as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission had the nominee been nominated, or intended to be nominated, by the
Board of Directors; and (E) the consent of each nominee to serve as a Director
of the Corporation if so elected.
SECTION 2. SUBSTITUTION OF NOMINEES. If a person is validly designated as a
nominee in accordance with Section 1 of this ARTICLE III, and shall thereafter
become unable or unwilling to stand for election to the Board of Directors, the
Board of Directors or the stockholder who proposed such nominee, as the case may
be, may designate a substitute nominee upon delivery, not fewer than five days
prior to the date of the meeting for the election of such nominee, of a written
notice to the Secretary setting forth such information regarding such substitute
nominee as would have been required to be delivered to the Secretary pursuant to
Section 1 of this ARTICLE III, had such substitute nominee been initially
proposed as a nominee. Such notice shall include a signed consent to serve as a
Director of the Corporation, if elected, of each such substitute nominee.
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SECTION 3. COMPLIANCE WITH PROCEDURES. If the presiding officer of the
meeting for the election or Directors determines that a nomination for any
candidate for election as a Director at such meeting was not made in accordance
with the applicable provisions of these By-Laws, such person will not be
eligible for election as a Director and such nomination shall be void.
ARTICLE IV.
DIRECTORS
SECTION 1. POWERS. The business and affairs of the Corporation shall be
managed by or under the direction of its Board of Directors, which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by law or by the Certificate of Incorporation directed or required to be
exercised or done by the stockholders.
SECTION 2. NUMBER, QUALIFICATION, ELECTION AND TERMS. Except as otherwise
fixed by, or pursuant to, the provisions of SECTION 2 of ARTICLE FOURTH of the
Certificate of Incorporation relating to the rights of the holders of any class
or series of stock having a preference over the Common Stock, the number of
Directors shall be fixed from time to time by resolution of the Board of
Directors, but shall not be less than three nor more than fifteen persons. The
Directors shall be classified, with respect to the time for which they severally
hold office, into three classes, as nearly equal in number as possible, as
determined by the Board of Directors. One class ("Class I") shall hold office
initially for a term expiring at the annual meeting of stockholders to be held
in 1998, and another class ("Class II") shall hold office initially for a term
expiring at the annual meeting of stockholders to be held in 1999, and another
class ("Class III") shall hold office initially for a term expiring at the
annual meeting of stockholders to be held in 2000, with the members of each
class to hold office until their successors are elected and qualified. At each
succeeding annual meeting of the stockholders of the Corporation, the successors
of the class of Directors whose term expires at that meeting shall be elected by
plurality vote by written ballot to hold office for a term expiring at the
annual meeting for stockholders held in the third year following the year of
their election.
SECTION 3. REMOVAL. Subject to the rights of the holders of any class or
series of stock having a preference over the Common Stock, any Director may be
removed from office by the stockholders in the manner provided in this SECTION 3
OF ARTICLE IV. At any annual meeting of the stockholders of the Corporation or
at any special meeting of the stockholders of the Corporation, the notice of
which shall state that the removal of a Director or Directors is among the
purposes of the meeting, the affirmative vote of the holders of at least 75
percent of the combined voting power of the outstanding shares of Voting Stock
(as defined
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below), voting together as a single class, may remove such Director or
Directors. For the purposes of these By-Laws, "Voting Stock" shall mean the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of Directors.
SECTION 4. VACANCIES AND NEW DIRECTORSHIPS. Except as otherwise fixed by or
provided for or pursuant to the provisions of ARTICLE FOURTH of the Certificate
of Incorporation relating to the rights of the holders of any class or series of
stock having a preference over the Common Stock, vacancies and newly created
directorships resulting from any increase in the authorized number of Directors
shall be filled solely by the affirmative vote of a majority of the Directors
then in office though less than a quorum, or by a sole remaining Director,
except as may be required by law. Any Director so chosen shall hold office for
the remainder of the full term of the class of Directors in which the new
directorship was created or the vacancy occurred and until such Director's
successor shall have been elected and qualified. No decrease in the authorized
number of Directors constituting the Board of Directors shall shorten the term
of any incumbent Director.
SECTION 5. MEETINGS. Meetings of the Board of Directors shall be held at
such place, within or without the State of Delaware, as may from time to time be
fixed by resolution of the Board of Directors or by the Chairman of the Board,
if there be one, or by the President and as may be specified in the notice or
waiver of notice of any meeting. Special meetings may be held at any time upon
the call of the Chairman of the Board, if there be one, or the President or any
two (2) of the Directors in office by oral, telegraphic, telex, telecopy or
other form of electronic transmission, or written notice, duly served or sent or
mailed to each Director not less than twenty-four (24) hours before such
meeting.
Meetings may be held at any time and place without notice if all the
Directors are present and do not object to the holding of such meeting for lack
of proper notice or if those not present shall, in writing or by telegram,
telex, telecopy or other form of electronic transmission, waive notice thereof.
A regular meeting of the Board may be held without notice immediately following
the annual meeting of stockholders at the place where such meeting is held.
Regular meetings of the Board may also be held without notice at such time and
place as shall from time to time be determined by resolution of the Board.
Members of the Board of Directors or any committee thereof may participate
in a meeting of such Board or committee by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other and participation in a meeting pursuant to the
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foregoing provisions shall constitute presence in person at the meeting.
SECTION 6. VOTES. Except as otherwise provided by law, the Certificate of
Incorporation or otherwise, the vote of the majority of the directors present at
a meeting at which a quorum is present shall be the act of the Board of
Directors. A majority of the directors shall be present at any meeting of the
directors in order to constitute a quorum for the transaction of business at
such meeting, and except as otherwise expressly required by the Certificate of
Incorporation, these By-Laws or any applicable statute, the act of a majority of
the directors present at any meeting at which a quorum is present shall be the
act of the directors. In the absence of a quorum at any meeting of the
directors, a majority of the directors present thereat may adjourn the meeting
to another time and place until a quorum shall be present thereat. Notice of the
time and place of any such adjourned meeting shall be given to the directors who
were not present at the time of the adjournment and, unless such time and place
were announced at the meeting at which adjournment was taken, to the other
directors. At any adjourned meeting at which a quorum is present, any business
may be transacted at the meeting as originally called.
SECTION 7. QUORUM AND ADJOURNMENT. Subject to SECTION 4 of this ARTICLE IV,
and except as otherwise provided by law, the Certificate of Incorporation or
otherwise, a majority of the Directors shall constitute a quorum for the
transaction of business. If at any meeting of the Board there shall be less than
a quorum present, a majority of those present may adjourn the meeting from time
to time without notice other than announcement of the adjournment at the
meeting, and at such adjourned meeting at which a quorum is present any business
may be transacted which might have been transacted at the meeting as originally
noticed.
SECTION 8. COMPENSATION. Directors shall receive compensation for their
services, as such, and for service on any committee of the Board of Directors,
as fixed by resolution of the Board of Directors and for expenses of attendance
at each regular or special meeting of the Board or any committee thereof.
Nothing in this Section shall be construed to preclude a Director from serving
the Corporation in any other capacity and receiving compensation therefor.
SECTION 9. ACTION BY CONSENT OF DIRECTORS. Any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board, or committee. Such consent shall
be treated as a vote adopted at a meeting for all purposes. Such consents may be
executed in one or more
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counterparts and not every Director or committee member need sign the same
counterpart.
ARTICLE V.
COMMITTEES OF DIRECTORS
SECTION 1. EXECUTIVE COMMITTEE. The Board of Directors may, by resolution
passed by a majority of the Whole Board, appoint an Executive Committee of two
(2) or more members, to serve at the pleasure of the Board, to consist of such
directors as the Board may from time to time designate. The Board of Directors
shall designate the Chairman of the Executive Committee.
(A) PROCEDURE. The Executive Committee shall, by a vote of a majority of
its members, fix its own times and places of meeting, determine the number of
its members constituting a quorum for the transaction of business, and prescribe
its own rules of procedure, no change in which shall be made save by a majority
vote of its members.
(B) RESPONSIBILITIES. During the intervals between the meetings of the
Board of Directors, except as otherwise provided by the Board of Directors in
establishing such Committee or otherwise, the Executive Committee shall possess
and may exercise all the powers of the Board in the management and direction of
the business and affairs of the Corporation which are legally delegable to a
committee; provided, however, that the Executive Committee shall not, except to
the extent the Certificate of Incorporation or the resolution providing for the
issuance of shares of stock adopted by the Board of Directors as provided in
SECTION 151(A) of the Delaware General Business Corporation Law, have the power:
(I) to amend or authorize the amendment of the Certificate of
Incorporation or these By-Laws;
(II) to authorize the issuance of stock;
(III) to authorize the payment of any dividend;
(IV) to adopt an agreement of merger or consolidation of the
Corporation or to recommend to the stockholders the sale, lease or exchange
of all or substantially all the property and business of the Corporation;
or
(V) to recommend to the stockholders a dissolution, or a revocation of
a dissolution, of the Corporation.
(C) REPORTS. The Executive Committee shall keep regular minutes of its
proceedings, and all action by the Executive Committee shall be reported
promptly to the Board of
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Directors. Such action shall be subject to review, amendment and repeal by the
Board, provided that no rights of third parties shall be adversely affected by
such review, amendment or repeal.
(D) APPOINTMENT OF ADDITIONAL MEMBERS. In the absence or disqualification
of any member of the Executive Committee, the member or members thereof present
at any meeting and not disqualified from voting, whether or not constituting a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in place of any such absent or disqualified member.
SECTION 2. AUDIT COMMITTEE. The Board of Directors may, by resolution
passed by a majority of the Whole Board, appoint an Audit Committee of two (2)
or more members who shall not be officers or employees of the Corporation to
serve at the pleasure of the Board. The Board of Directors shall designate the
Chairman of the Audit Committee.
(A) PROCEDURE. The Audit Committee, by a vote of a majority of its members,
shall fix its own times and places of meeting, shall determine the number of its
members constituting a quorum for the transaction of business, and shall
prescribe its own rules of procedure, no change in which shall be made save by a
majority vote of its members.
(B) RESPONSIBILITIES. The Audit Committee shall review the annual financial
statements of the Corporation prior to their submission to the Board of
Directors, shall consult with the Corporation's independent auditors, and may
examine and consider such other matters in relation to the internal and external
audit of the Corporation's accounts and in relation to the financial affairs of
the Corporation and its accounts, including the selection and retention of
independent auditors, as the Audit Committee may, in its discretion, determine
to be desirable.
(C) REPORTS. The Audit Committee shall keep regular minutes of its
proceedings, and all action by the Audit Committee shall, from time to time, be
reported to the Board of Directors as it shall direct. Such action shall be
subject to review, amendment and repeal by the Board, provided that no rights of
third parties shall be adversely affected by such review, amendment or repeal.
(D) APPOINTMENT OF ADDITIONAL MEMBERS. In the absence or disqualification
of any member of the Audit Committee, the member or members thereof present at
any meeting and not disqualified from voting, whether or not constituting a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in place of any such absent or disqualified member.
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SECTION 3. OTHER COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the Whole Board, at any time appoint one or more other
committees, including a compensation committee, from and outside of its own
number. Every such committee must include at least one member of the Board of
Directors. The Board may from time to time designate or alter, within the limits
permitted by law, the Certificate of Incorporation and this ARTICLE V, if
applicable, the duties, powers and number of members of such other committees or
change their membership, and may at any time abolish such other committees or
any of them.
(A) PROCEDURE. Each committee, appointed pursuant to this SECTION 3, shall,
by a vote of a majority of its members, fix its own times and places of meeting,
determine the number of its members constituting a quorum for the transaction of
business, and prescribe its own rules of procedure, no change in which shall be
made save by a majority vote of its members.
(B) RESPONSIBILITIES. Each committee, appointed pursuant to this SECTION 3,
shall exercise the powers assigned to it by the Board of Directors in its
discretion.
(C) REPORTS. Each committee appointed pursuant to this SECTION 3 shall keep
regular minutes of proceedings, and all action by each such committee shall,
from time to time, be reported to the Board of Directors as it shall direct.
Such action shall be subject to review, amendment and repeal by the Board,
provided that no rights of third parties shall be adversely affected by such
review, amendment or repeal.
(D) APPOINTMENT OF ADDITIONAL MEMBERS. In the absence or disqualification
of any member of each committee, appointed pursuant to this SECTION 3, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not constituting a quorum, may unanimously appoint another
member of the Board of Directors (or, to the extent permitted, another person)
to act at the meeting in place of any such absent or disqualified member.
SECTION 4. TERM OF OFFICE. Each member of a committee shall hold office
until the first meeting of the Board of Directors following the annual meeting
of stockholders (or until such other time as the Board of Directors may
determine, either in the vote establishing the committee or at the election of
such member or otherwise) and until his successor is elected and qualified, or
until he sooner dies, resigns, is removed, is replaced by change of membership
or becomes disqualified by ceasing to be a Director (where membership on the
Board is required), or until the committee is sooner abolished by the Board of
Directors.
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ARTICLE VI.
OFFICERS
SECTION 1. OFFICERS. The Board of Directors shall elect a Chief Financial
Officer, Chief Executive Officer, President, a Secretary and a Treasurer, and,
in their discretion, may elect a Chairman of the Board, a Vice Chairman of the
Board, a Controller, and one or more Executive Vice Presidents, Senior Vice
Presidents, Vice Presidents, Assistant Secretaries, Assistant Treasurers and
Assistant Controllers as they deem necessary or appropriate. Such officers shall
be elected annually by the Board of Directors at its first meeting following the
annual meeting of stockholders (or at such other meeting as the Board of
Directors determines), and each shall hold office for the term provided by the
vote of the Board, except that each will be subject to removal from office in
the discretion of the Board as provided herein. The powers and duties of more
than one office may be exercised and performed by the same person.
SECTION 2. VACANCIES. Any vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors, at any regular or
special meeting.
SECTION 3. CHAIRMAN OF THE BOARD. The Chairman of the Board of Directors,
if elected, shall be a member of the Board of Directors and shall preside at its
meetings. He shall advise and counsel with the Chief Executive Officer and the
President, and shall perform such duties as from time to time may be assigned to
him by the Board of Directors.
SECTION 4. CHIEF EXECUTIVE OFFICER. Subject to the direction of the Board
of Directors, the Chief Executive Officer shall preside at all meetings of the
stockholders and the Board of Directors unless a Chairman or Vice-Chairman of
the Board is elected by the Board, empowered to preside, and present at such
meeting, shall have general and active management of the business of the
Corporation and general supervision of its officers, agents and employees, and
shall see that all orders and resolutions of the Board of Directors are carried
into effect. The Chief Executive Officer may but need not be a member of the
Board of Directors.
SECTION 5. PRESIDENT. Subject to the direction of the Board of Directors
and the Chief Executive Officer, the President shall have and exercise direct
charge of and general supervision over the operations of the Corporation and
shall perform all duties incident to the office of the President of a
corporation and such other duties as from time to time may be assigned to him by
the Board of Directors. The President may but need not be a member of the Board
of Directors.
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SECTION 6. EXECUTIVE VICE PRESIDENTS AND VICE PRESIDENTS. Each Executive
Vice President and Vice President shall have and exercise such powers and shall
perform such duties as from time to time may be assigned to him by the Board of
Directors, the Chief Executive Officer or the President.
SECTION 7. SECRETARY. The Secretary shall keep the minutes of all meetings
of the stockholders and of the Board of Directors in books provided for the
purpose; he shall see that all notices are duly given in accordance with the
provisions of law and these By-Laws; he may sign, with the President, an
Executive Vice President or a Vice President, certificates of stock of the
Corporation; and, in general, he shall perform all duties incident to the office
of secretary of a corporation, and such other duties as from time to time may be
assigned to him by the Board of Directors.
SECTION 8. ASSISTANT SECRETARIES. The Assistant Secretaries in order of
their seniority shall, in the absence or disability of the Secretary, perform
the duties and exercise the powers of the Secretary and shall perform such other
duties as the Board of Directors shall prescribe or as from time to time may be
assigned by the Secretary.
SECTION 9. TREASURER. The Treasurer shall have charge of and be responsible
for all funds, securities, receipts and disbursements of the Corporation, and
shall deposit, or cause to be deposited, in the name of the Corporation, all
monies or other valuable effects in such banks, trust companies or other
depositories as shall, from time to time, be selected by the Board of Directors;
he may endorse for collection on behalf of the Corporation checks, notes and
other obligations; he may sign receipts and vouchers for payments made to the
Corporation; he may sign checks of the Corporation, singly or jointly with
another person as the Board of Directors may authorize, and pay out and dispose
of the proceeds under the direction of the Board; he shall render to the
President and to the Board of Directors, whenever requested, an account of the
financial condition of the Corporation; he may sign, with the President, or an
Executive Vice President or a Vice President, certificates of stock of the
Corporation; and in general, shall perform all the duties incident to the office
of treasurer of a corporation, and such other duties as from time to time may be
assigned to him by the Board of Directors.
SECTION 10. ASSISTANT TREASURERS. The Assistant Treasurers in order of
their seniority shall, in the absence or disability of the Treasurer, perform
the duties and exercise the powers of the Treasurer and shall perform such other
duties as the Board of Directors shall prescribe or as from time to time may be
assigned by the Treasurer.
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SECTION 11. CONTROLLER. The Controller, if elected, shall be the chief
accounting officer of the Corporation, in general, he shall perform all duties
incident to the office of a controller of a corporation, and, in the absence of
or disability of the Treasurer or any Assistant Treasurer, perform the duties
and exercise the powers of the Treasurer and shall perform such other duties as
the Board of Directors shall prescribe or as from time to time may be assigned
by the President or the Treasurer.
SECTION 12. ASSISTANT CONTROLLERS. The Assistant Controllers in order of
their seniority shall, in the absence or disability of the Controller, perform
the duties and exercise the powers of the Controller and shall perform such
other duties as the Board of Directors shall prescribe or as from time to time
may be assigned by the Controller.
SECTION 13. SUBORDINATE OFFICERS. The Board of Directors may appoint such
subordinate officers as it may deem desirable. Each such officer shall hold
office for such period, have such authority and perform such duties as the Board
of Directors may prescribe. The Board of Directors may, from time to time,
authorize any officer to appoint and remove subordinate officers and to
prescribe the powers and duties thereof.
SECTION 14. COMPENSATION. The Board of Directors, or a duly authorized
executive compensation committee of the Board of Directors, shall fix the
compensation of all officers of the Corporation. It may authorize any officer,
upon whom the power of appointing subordinate officers may have been conferred,
to fix the compensation of such subordinate officers.
SECTION 15. REMOVAL. Any officer of the Corporation may be removed, with or
without cause, by action of the Board of Directors.
SECTION 16. BONDS. The Board of Directors may require any officer of the
Corporation to give a bond to the Corporation, conditional upon the faithful
performance of his duties, with one or more sureties and in such amount as may
be satisfactory to the Board of Directors.
ARTICLE VII.
INDEMNIFICATION
SECTION 1. INDEMNIFICATION. The Corporation shall, to the fullest extent
permitted by the General Corporation Law of the State of Delaware, as amended
from time to time, indemnify each person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he is or was, or has agreed to become, a director or officer of
the Corporation, or is
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<PAGE>
or was serving, or has agreed to serve, at the request of the Corporation, as a
director, officer or trustee of, or in a similar capacity with, another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or on his behalf in
connection with such action, suit or proceeding and any appeal therefrom.
Indemnification may include payment by the Corporation of expenses in
defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of any undertaking by the person indemnified
to repay such payment if it is ultimately determined that such person is not
entitled to indemnification under this ARTICLE VII, which undertaking may be
accepted without reference to the financial ability of such person to make such
repayments.
The Corporation shall not indemnify any such person seeking indemnification
in connection with a proceeding (or part thereof) initiated by such person
unless the initiation thereof was approved by the Board of Directors of the
Corporation.
The indemnification rights provided in this ARTICLE VII (i) shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any law, agreement or vote of stockholders or disinterested directors or
otherwise, and (ii) shall inure to the benefit of the heirs, executors and
administrators of such persons. The Corporation may, to the extent authorized
from time to time by its Board of Directors, grant indemnification rights to
other employees or agents of the Corporation or other persons serving the
Corporation and such rights may be equivalent to, or greater or less than, those
set forth in this ARTICLE VII.
Any person seeking indemnification under this ARTICLE VII shall be deemed
to have met the standard of conduct required for such indemnification unless the
contrary shall be established.
Any amendment or repeal of the provisions of this ARTICLE VII shall not
adversely affect any right or protection of a director or officer of this
Corporation with respect to any act or omission of such director or officer
occurring prior to such amendment or repeal.
ARTICLE VIII.
CERTIFICATES OF STOCK
SECTION 1. FORM AND EXECUTION OF CERTIFICATES. The interests of each
stockholder of the Corporation shall be evidenced by a certificate or
certificates for shares of stock in such form as the Board of Directors may from
time to time
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<PAGE>
prescribe. The certificates of stock of each class shall be consecutively
numbered and signed by the Chairman or Vice Chairman of the Board, if any, or
the President, or an Executive Vice President or a Vice President and by the
Secretary, or an Assistant Secretary, or the Treasurer or an Assistant Treasurer
of the Corporation, and may be countersigned and registered in such manner as
the Board of Directors may by resolution prescribe, and shall bear the corporate
seal or a printed or engraved facsimile thereof. Where any such certificate is
signed by a transfer agent or transfer clerk acting on behalf of the
Corporation, the signatures of any such Chairman, Vice Chairman, President,
Executive Vice President, Vice President, Treasurer, Assistant Treasurer,
Secretary or Assistant Secretary may be facsimiles, engraved or printed. In case
any officer or officers, who shall have signed, or whose facsimile signature or
signatures shall have been used on, any such certificate or certificates, shall
cease to be such officer or officers, whether because of death, resignation or
otherwise, before such certificate or certificates shall have been delivered by
the Corporation, such certificate or certificates may nevertheless be issued and
delivered by the Corporation as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures shall
have been used thereon had not ceased to be such officer or officers.
Every certificate for shares of stock which are subject to any restriction
on transfer pursuant to law, the Certificate of Incorporation, these By-Laws, or
any agreement to which the Corporation is a party, shall have the restriction
noted conspicuously on the certificate, and shall also set forth, on the face or
back, either the full text of the restriction or a statement of the existence of
such restriction and (except if such restriction is imposed by law) a statement
that the Corporation will furnish a copy thereof to the holder of such
certificate upon written request and without charge.
Every certificate issued when the Corporation is authorized to issue more
than one class or series of stock shall set forth on its face or back either the
full text of the preferences, voting powers, qualifications, and special and
relative rights of the shares of each class and series authorized to be issued,
or a statement of the existence of such preferences, powers, qualifications and
rights, and a statement that the Corporation will furnish a copy thereof to the
holder of such certificate upon written request and without charge.
SECTION 2. TRANSFER OF SHARES. The shares of the stock of the Corporation
shall be transferred on the books of the Corporation by the holder thereof in
person or by his attorney lawfully constituted, upon surrender for cancellation
of certificates for the same number of shares, with an assignment and power of
transfer endorsed thereon or attached thereto, duly
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<PAGE>
executed, with such proof or guaranty of the authenticity of the signature as
the Corporation or its agents may reasonably require. The Corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder in fact thereof and accordingly shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person whether or not it shall have express or other notice thereof,
save as expressly provided by law or by the Certificate of Incorporation. It
shall be the duty of each stockholder to notify the Corporation of his post
office address.
SECTION 3. CLOSING OF TRANSFER BOOKS. The stock transfer books of the
Corporation may, if deemed appropriate by the Board of Directors, be closed for
such length of time not exceeding fifty (50) days as the Board may determine,
preceding the date of any meeting of stockholders or the date for the payment of
any dividend or the date for the allotment of rights or the date when any
issuance, change, conversion or exchange of capital stock shall go into effect,
during which time no transfer of stock on the books of the Corporation may be
made.
SECTION 4. FIXING DATE FOR DETERMINATION OF STOCKHOLDER OF RECORD. In order
that the Corporation may determine the stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors and which record date: (A) in the case of determination of
stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, the Certificate of
Incorporation or otherwise, not be more than sixty (60) nor less than ten (10)
days before the date of such meeting; and (B) in the case of any other action,
shall not be more than sixty (60) days prior to such other action. If no record
date is fixed: (A) the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held; and (B) the record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
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<PAGE>
SECTION 5. LOST OR DESTROYED CERTIFICATES. In case of the loss or
destruction of any certificate of stock, a new certificate may be issued under
the following conditions:
(A) The owner of said certificate shall file with the Secretary or any
Assistant Secretary of the Corporation an affidavit giving the facts in relation
to the ownership, and in relation to the loss or destruction of said
certificate, stating its number and the number of shares represented thereby;
such affidavit shall be in such form and contain such statements as shall
satisfy the Chief Executive Officer, the President, any Executive Vice
President, any Vice President, the Secretary, any Assistant Secretary, the
Treasurer or any Assistant Treasurer, that said certificate has been
accidentally destroyed or lost, and that a new certificate ought to be issued in
lieu thereof. Upon being so satisfied, any such officer may require such owner
to furnish the Corporation a bond in such sum and in such form as he may deem
advisable, and with a surety or sureties approved by him, to indemnify and save
harmless the Corporation from any claim, loss, damage or liability which may be
occasioned by the issuance of a new certificate in lieu thereof. Upon such bond
being so filed, if so required, a new certificate for the same number of shares
shall be issued to the owner of the certificate so lost or destroyed; and the
transfer agent and registrar, if any, of stock shall countersign and register
such new certificate upon receipt of a written order signed by any such officer,
and thereupon the Corporation will save harmless said transfer agent and
registrar. In case of the surrender of the original certificate, in lieu of
which a new certificate has been issued, or the surrender of such new
certificate, for cancellation, the bond of indemnity given as a condition of the
issue of such new certificate may be surrendered; or
(B) The Board of Directors of the Corporation may by resolution authorize
and direct any transfer agent or registrar of stock of the Corporation to issue
and register respectively from time to time without further action or approval
by or on behalf of the Corporation new certificates of stock to replace
certificates reported lost, stolen or destroyed upon receipt of an affidavit of
loss and bond of indemnity in form and amount and with surety satisfactory to
such transfer agent or registrar in each instance or upon such terms and
conditions as the Board of Directors may determine.
SECTION 6. UNCERTIFICATED SHARES. The Board of Directors of the Corporation
may by resolution provide that one or more of any or all classes or series of
the stock of the Corporation shall be uncertificated shares, subject to the
provisions of SECTION 158 of the Delaware General Corporation Law.
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<PAGE>
ARTICLE IX.
EXECUTION OF DOCUMENTS
SECTION 1. EXECUTION OF CHECKS, NOTES, ETC. All checks and drafts on the
Corporation's bank accounts and all bills of exchange and promissory notes, and
all acceptances, obligations and other instruments for the payment of money,
shall be signed by such officer or officers, or agent or agents, as shall be
thereunto authorized from time to time by the Board of Directors, which may in
its discretion authorize any such signatures to be by facsimile.
SECTION 2. EXECUTION OF CONTRACTS, ASSIGNMENTS, ETC. Unless the Board of
Directors shall have otherwise provided generally or in a specific instance, all
contracts, agreements, endorsements, assignments, transfers, stock powers, or
other instruments shall be signed by the Chairman of the Board of Directors, the
Chief Executive Officer, the President, any Executive Vice President, any Senior
Vice President, any Vice President, the Secretary, any Assistant Secretary, the
Treasurer or any Assistant Treasurer. The Board of Directors may, however, in
its discretion, require any or all such instruments to be signed by any two or
more of such officers, or may permit any or all of such instruments to be signed
by such other officer or officers, agent or agents, as it shall thereunto
authorize from time to time.
SECTION 3. EXECUTION OF PROXIES. The Chairman of the Board of Directors,
the Chief Executive Officer, the President, any Executive Vice President, any
Senior Vice President, or any Vice President, and the Secretary, the Treasurer,
any Assistant Secretary or any Assistant Treasurer, or any other officer
designated by the Board of Directors, may sign on behalf of the Corporation
proxies to vote upon shares of stock of other companies standing in the name of
the Corporation.
ARTICLE X.
INSPECTION OF BOOKS
The Board of Directors shall determine from time to time whether, and if
allowed, to what extent and at what time and places and under what conditions
and regulations, the accounts and books of the Corporation (except such as may
by law be specifically open to inspection) or any of them, shall be open to the
inspection of the stockholders, and no stockholder shall have any right to
inspect any account or book or document of the Corporation, except as conferred
by law, unless and until authorized so to do by resolution of the Board of
Directors of the Corporation.
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<PAGE>
ARTICLE XI.
FISCAL YEAR
The fiscal year of the Corporation shall be determined from time to time by
vote of the Board of Directors.
ARTICLE XII.
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of independent public accountants which shall sign or certify the
financial statements of the Corporation filed with the Securities and Exchange
Commission shall be selected annually by the Board of Directors and ratified by
the stockholders.
ARTICLE XIII.
AMENDMENTS
Subject to the provisions of the Certificate of Incorporation, these
By-Laws may be amended, altered, changed or repealed, and a provision or
provisions inconsistent with the provisions of these By-Laws as they exist from
time to time may be adopted, only by the majority vote of the Whole Board or by
the affirmative vote of the holders of at least 75% of the voting stock, voting
together as a single class.
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STOCK PURCHASE AND REDEMPTION AGREEMENT
BY AND BETWEEN
STANDARD AUTOMOTIVE CORPORATION
A DELAWARE CORPORATION
AND
CARL MASSARO
<PAGE>
TABLE OF CONTENTS
Page
----
1. DEFINITIONS......................................................... 2
1.1 "Affiliate................................................. 2
1.2 "Ancillary Documents....................................... 2
1.3 "Assets.................................................... 2
1.4 "Code...................................................... 5
1.5 "Commitments............................................... 5
2. SALE AND REDEMPTION OF STOCK........................................ 5
2.1 Purchase and Sale of Stock................................. 5
2.2 Delivery of Possession and Instruments of
Transfer................................................ 6
3. CONSIDERATION....................................................... 6
3.1 Consideration.............................................. 6
3.2 Time and Mode of Payment................................... 7
3.3 Balance Sheet.............................................. 7
3.4 Other Consideration........................................ 12
3.5 Restrictive Covenants...................................... 13
3.6 Allocation of Consideration for Tax Purposes............... 17
4. CLOSING............................................................. 17
Closing and Closing Date............................................ 18
5. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER................... 18
5.1 Organization, Good Standing, Power, Etc.................... 18
5.2 Capital Stock.............................................. 19
5.3 Articles of Incorporation and By-Laws...................... 19
5.4 Subsidiaries, Divisions and Affiliates..................... 20
5.5 Equity Investments......................................... 20
5.6 Authorization of Agreement................................. 20
5.7 Effect of Agreement........................................ 20
5.8 Restrictions............................................... 21
5.9 Governmental and Other Consents............................ 22
5.10 Financial Statements....................................... 22
5.11 Absence of Certain Changes or Events....................... 23
5.12 Title to Assets; Absence of Liens and
Encumbrances........................................... 25
5.13 Equipment.................................................. 26
5.14 Insurance.................................................. 26
5.15 Agreements, Arrangements, Etc.............................. 28
5.16 Patents, Trademarks, Copyrights, Etc....................... 32
5.17 Permits, Licenses, Etc..................................... 33
5.18 Compliance with Applicable Laws............................ 34
5.19 Litigation................................................. 34
5.20 No Interest in Competitors................................. 35
5.21 Customers, Suppliers, Distributors and Agents.............. 36
5.22 Books and Records.......................................... 36
5.23 Employee Benefit Plans..................................... 36
5.24 Powers of Attorney......................................... 37
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5.25 Sufficiency of Assets and Commitments...................... 37
5.26 Labor Disputes, Unfair Labor Practices..................... 38
5.27 Past Due Obligations....................................... 39
5.28 Environmental Matters...................................... 39
5.29 Tax and Other Returns and Reports.......................... 41
5.30 Certain Tax Definitions.................................... 42
5.31 Recent Dividends and Other Distributions................... 43
5.32 Inventory.................................................. 43
5.33 Purchase and Sale Obligations.............................. 43
5.34 Other Information.......................................... 44
5.35 Accounts Receivable and Accounts Payable................... 44
5.36 Knowledge of AJAX and the Shareholder...................... 45
5.37 Subchapter S............................................... 45
6. REPRESENTATIONS AND WARRANTIES OF SAC............................... 45
6.1 Organization............................................... 46
6.2 Authorization of Agreement................................. 46
6.3 Effect of Agreement........................................ 46
6.4 Litigation................................................. 47
6.5 Governmental and Other Consents............................ 47
6.6 Compliance with Applicable Laws............................ 47
7. PRE-CLOSING COVENANTS OF THE SHAREHOLDER............................ 48
7.1 Conduct of Business Until Closing Date..................... 48
7.2 Shareholder Compensation................................... 50
7.3 Approvals, Consents and Further Assurances................. 51
7.4 Access to Properties, Records, Suppliers, Agents,
Etc................................................... 51
7.5 Advice of Changes.......................................... 52
7.6 Conduct.................................................... 52
7.7 Employee Benefit Plans..................................... 52
7.8 Cooperate with Capital Raising Efforts..................... 53
7.9 Satisfaction of Conditions by Shareholder.................. 53
7.10 Redemption................................................. 53
8. PRE-CLOSING COVENANTS OF SAC........................................ 54
8.1 Financing Efforts.......................................... 54
8.2 Timetable.................................................. 54
8.3 Counsel Fees............................................... 55
8.4 Advice of Changes.......................................... 55
8.5 Conduct.................................................... 55
8.6 Satisfaction of Conditions by SAC.......................... 55
9. POST-CLOSING COVENANTS.............................................. 56
9.1 Further Assurances......................................... 56
9.2 Shareholder's Review of AJAX's Records..................... 56
9.3 Subordination.............................................. 57
10. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SAC...................... 57
10.1 Accuracy of Representations and Warranties................. 57
10.2 Performance of Agreements.................................. 59
10.3 Litigation, Etc............................................ 59
10.4 Approvals and Consents..................................... 60
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<PAGE>
10.5 Shareholder's Certificate.................................. 60
10.6 Good Standing Certificates................................. 60
10.7 No Material Adverse Change................................. 61
10.8 Actions, Proceeding, Etc................................... 61
10.9 Opinion of Counsel to Shareholder.......................... 61
10.10 Licenses, Permits, Consents, Etc........................... 61
10.11 Documentation of Rights.................................... 62
10.12 Lease Agreement............................................ 62
11. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE
SHAREHOLDER......................................................... 62
11.1 Accuracy of Representations and Warranties................. 62
11.2 Performance of Agreements.................................. 62
11.3 No Injunction.............................................. 63
11.4 Opinion of Counsel to Buyer................................ 63
11.5 SAC's Certificate.......................................... 63
11.6 Good Standing Certificate.................................. 63
11.7 Guarantees................................................. 64
11.8 Agreements................................................. 64
11.9 Resolutions................................................ 65
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES:
INDEMNIFICATION..................................................... 65
12.1 Survival................................................... 65
12.2.1 Indemnification by the Shareholder......................... 66
12.2.2 Limitation on Shareholder's Indemnification................ 68
12.2.3 Excise Taxes............................................... 69
12.3 Indemnification by SAC..................................... 71
12.4 Right to Defend............................................ 71
12.5 Subrogation................................................ 72
13. TERMINATION OF AGREEMENT............................................ 73
13.1 Mutual Consent of the Parties.............................. 73
13.2 Failure of SAC to obtain Financing......................... 73
13.3 Break-up Fee............................................... 74
14. MISCELLANEOUS....................................................... 75
14.1 Expenses................................................... 75
14.2 Waivers.................................................... 75
14.3 Binding Effect: Benefits................................... 76
14.4 Assignment................................................. 76
14.5 Notices.................................................... 76
14.6 Entire Agreement........................................... 77
14.7 Headings; Certain Terms.................................... 78
14.8 Counterparts............................................... 78
14.9 Governing Law.............................................. 78
14.10 Severability............................................... 79
14.11 Amendments................................................. 79
14.12 Transaction Taxes.......................................... 79
14.13 Section References......................................... 79
14.14 Brokers and Finders........................................ 79
14.15 Lease and Option to Purchase............................... 80
14.16 Parties in Interest........................................ 80
iii
<PAGE>
EXHIBIT INDEX
-------------
1. Exhibit 1.3(b) Inventory
2. Exhibit 1.3(c) Equipment
3. Exhibit 1.3(d) Rights (Patents, Trademarks, Copyrights,
etc.)
4. Exhibit 1.3(h) Real Property (owned or leased)
5. Exhibit 1.3(j) Excluded Assets
6. Exhibit 3.3(a) Carl Massaro Consulting Agreement
7. Exhibit 3.3(b) Karl Massaro Employment Agreement
8. Exhibit 3.4 Allocation for Consideration
9. Exhibit 4.1 Form of Closing Memorandum
10. Exhibit 5.1 Good Standing Certificates - AJAX
11. Exhibit 5.2 Outstanding Offers, Options, Warrants,
Equity Securities, Etc.
12. Exhibit 5.3 Articles of Incorporation and By-laws of
AJAX
13. Exhibit 5.4 Subsidiaries, Divisions and Affiliates of
AJAX
14. Exhibit 5.5 Equity Investments
15. Exhibit 5.8 Restrictions
16. Exhibit 5.9 Governmental and Other Consents
17. Exhibit 5.10 Financial Statements of AJAX
18. Exhibit 5.11 Material Adverse Changes
19. Exhibit 5.12 Notices, Liens and Encumbrances of AJAX
20. Exhibit 5.14 Insurance Policies
21. Exhibit 5.15 Commitments
22. Exhibit 5.16 Patents, Trademarks, Copyrights
23. Exhibit 5.17 Permits, Licenses, Etc.
24. Exhibit 5.19 Material Litigation
25. Exhibit 5.20 5% Interest Ownership Table
26. Exhibit 5.21(a) Customers, Suppliers, Distributions and
Agents
27. Exhibit 5.21(b) 20 Largest Purchasers and Providers
28. Exhibit 5.23 Employee Benefit Plans
29. Exhibit 5.24 Powers of Attorney
30. Exhibit 5.25 Sufficiency of Assets & Commitments
31. Exhibit 5.26 Material Labor Disputes
32. Exhibit 5.27 Past Due Obligations
33. Exhibit 5.28 Environmental Matters
34. Exhibit 5.29(a) Tax Examination Dates
35. Exhibit 5.29(b) Examinations of Tax Returns by Governmental
Agency
36. Exhibit 5.29(c) Proposal by Governmental Entity of
Deficiency, Assessment or Claim of Taxes
37. Exhibit 5.32(a) Inventory
38. Exhibit 5.32(b) Non-usable Inventory
39. Exhibit 10.10 Opinion of Counsel to AJAX
40. Exhibit 5.35 Accounts Receivable and Accounts Payable
41. Exhibit 10.13 Accountant's Letter
42. Exhibit 11.4 Opinion of Counsel to Sac
43. Exhibit 13.16 Lease Agreement
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<PAGE>
STOCK PURCHASE AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of
the 11th day of August, 1997, by and between Standard Automotive Corporation, a
Delaware corporation ("SAC"), or its assignee under Section 14.4 of this
Agreement, and Carl Massaro (the "Shareholder").
RECITALS:
WHEREAS, the Shareholder is the record and beneficial owner of
seventy-five (75) shares of common stock of AJAX Manufacturing Company ("AJAX"),
which is all the issued and outstanding capital stock of AJAX (the "Common
Stock"); and
WHEREAS, Shareholder entered into a Stock Purchase Agreement
as of February 1997 with Barclay Partners, LLC ("Barclay"), with respect to
Shareholder's interest in Ajax and Barclay has assigned all of its rights
thereunder to SAC; and
WHEREAS, Shareholder and SAC desire to enter into this
agreement to confirm their agreement with respect to the purchase by SAC from
Shareholder of the Common Stock;
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants and agreements of the parties hereinafter set forth, and for other
good and valuable consideration, the receipt
<PAGE>
and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. DEFINITIONS
1.1 "Affiliate". As used in this Agreement, the term
"Affiliate" shall mean, as applied to any person or entity, any other person or
entity directly or indirectly controlling, controlled by, or under common
control with, that person or entity. For purposes of this definition, "control"
(including with correlative meanings, the terms "controlling", "controlled by",
and "under common control with") as applied to any person or entity, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of that person or entity, whether
through the ownership of voting securities, by contract, or otherwise.
1.2 "Ancillary Documents" shall have the meaning set
forth in Section 9 hereof.
1.3 "Assets". As used in this Agreement, the term
"Assets" shall mean the assets of AJAX (as of the Closing) as
follows:
(a) the business of AJAX as a going concern which is
the manufacture and sale of trailer and shipping container
chassis and sanitary waste containers, the
2
<PAGE>
goodwill pertaining thereto and all of AJAX's right, title and
interest in and to the names "AJAX Manufacturing Company", and
all other names used by AJAX, as well as all logos relating
thereto (the "Business");
(b) all items of inventory owned by AJAX including,
without limitation, all raw materials, work-in progress and
finished products of AJAX (all of which are collectively
referred to hereinafter as "Inventory");
(c) all vehicles, machinery, equipment (including
equipment which has previously been fully depreciated by AJAX
and all equipment loaned to customers), furniture, fixtures
and non-inventory supplies of AJAX, including containers,
packaging and shipping material, tools and spare parts and
other tangible personal property owned by AJAX (all of which
are collectively referred to hereinafter as the "Equipment");
(d) all of AJAX's right, title and interest in and to
the United States and foreign rights of AJAX currently owned
or used by AJAX in the conduct of the Business (and the rights
proposed to be used) with respect to copyrights, licenses,
patents, trademarks, trademark rights, tradenames, service
marks, service right marks, trade secrets, shop rights,
know-how, technical information, techniques, discoveries,
designs,
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<PAGE>
proprietary rights and non-public information and
registrations, reissues and extensions thereof and
applications and licenses therefor, including but not limited
to the items listed on Exhibit 1.3(d) (all of such rights
being collectively referred to hereinafter as the "Rights");
(e) all books and records of AJAX including without
limitation all tax returns and financial information
pertaining to the Business, all in-house mailing lists, other
customer and supplier lists, trade correspondence, production
and purchase records, promotional literature, data storage
tapes and computer disks, computer software, order forms,
accounts payable records (including invoices, correspondence
and all related documents), accounts receivable ledgers, all
documents relating to uncollected invoices, and all shipping
records;
(f) all contracts, agreements and orders for goods;
all corporate opportunities under discussion and related to
the Business, including any documentation related thereto;
(g) all cash, accounts, deposits, trade receivables
of AJAX and all advance payments, prepaid items, rights to
offset and credits of all kinds of AJAX;
4
<PAGE>
(h) all real property owned by AJAX together with all
fixtures attached thereto, and all right, title and interest
in and to any lease of real property, together with the lease
of all fixtures attached to said property, (the "Real
Property");
(i) all real property and all personal property
owned by AJAX which is not specifically included in the
foregoing subsections (a) through (h) and not
specifically excluded on Exhibit 1.3(j); and
(j) all other assets of AJAX, except as
specifically excluded on Exhibit 1.3(j) ("Excluded
Assets").
1.4 "Code" shall mean the Internal Revenue Code of 1986, as
amended and/or superseded.
1.5 "Commitments" shall mean all agreements, indentures,
mortgages, plans, policies, arrangements, and other instruments, including all
amendments thereto, fixed or contingent required to be disclosed on Exhibits
5.15.1 (a) through (p).
2. SALE AND REDEMPTION OF STOCK
2.1 Purchase and Sale of Stock. In exchange for the
consideration specified herein, and upon and subject to the terms
5
<PAGE>
and conditions of this Agreement, including but not limited to Section 7.10, SAC
agrees to purchase and acquire from the Shareholder, and the Shareholder agrees
to sell, assign, transfer, convey and deliver to SAC or its assignee under
Section 14.4 at the Closing (as hereinafter defined), all right, title and
interest in and to the Common Stock.
2.2 Delivery of Possession and Instruments of Transfer. At the
Closing, the Shareholder shall deliver to SAC possession of all of the
certificates representing the shares of Common Stock (other than those redeemed
in accordance with Section 7.10), duly endorsed in blank or accompanied by duly
executed stock powers, with all necessary transfer stamps, with signatures
guaranteed together with such other instruments of transfer requested by and
satisfactory to SAC and its counsel for the consummation of the transactions
contemplated under this Agreement and as are necessary to vest in SAC, all
right, title and interest in and to the shares of Common Stock (other than those
redeemed in accordance with Section 7.10) free and clear of any lien,
encumbrance, security agreement, equity, option, claim, charge or restriction,
other than restrictions imposed by federal or applicable state securities laws.
3. CONSIDERATION
3.1 Consideration. Subject to reduction as provided in Section
7.10, the aggregate consideration to be paid by SAC in full consideration for
its purchase of the Common Stock (other than
6
<PAGE>
those shares redeemed in accordance with Section 7.10) and the other rights
provided herein (the "Purchase Price") shall be:
(i) $20,625,000 plus
(ii) 83.33% of the "Increased Net Worth" of AJAX
from April 1, 1996, through the Closing
Date.
For purposes hereof the Increased Net Worth shall mean the
excess of the Net Worth of AJAX as of the Closing Date as determined pursuant to
Section 3.3 hereof over $4,463,671.
3.2 Time and Mode of Payment. The Purchase Price set forth in
Section 3.1, shall be payable at the Closing by wire transfer to accounts
designated by Shareholder. For purposes of determining the amount to be paid at
Closing the parties will rely upon the most recent financial statements of Ajax
reviewed by BDO. Said payment shall be made provided good and marketable title
to the Common Stock (other than that redeemed in accordance with Section 7.10)
is delivered, free and clear of any lien, or encumbrance as set forth in Section
2.2 hereof and provided all other terms and conditions of this Agreement have
been complied with. Thereafter, the parties shall adjust the Purchase Price
based upon the Closing Balance Sheet as provided in Section 3.3.
3.3 Balance Sheet.
3.3.1 As soon as practicable after the Closing Date
(but not later than 70 days after the Closing Date), AJAX will prepare, and
cause BDO (or in the event of the unavailability of
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BDO, another firm of accountants selected by SAC, in any case, "BDO") to audit
and report upon, the balance sheet of AJAX at the close of business on the day
immediately preceding the Closing Date (the "Effective Time"). The fees of BDO
for preparing the Closing Balance Sheet and Net Worth Statement shall not be
deducted in computing Net Worth. Such balance sheet shall be referred to herein
as the "Closing Balance Sheet." Except as specifically provided herein, the
Closing Balance Sheet will be prepared in accordance with generally accepted
accounting principles consistent with the accounting policies, practices and
assumptions utilized by AJAX in the preparation of the Financial Statements. For
purposes of preparing the Closing Balance Sheet: (w) for purposes of Sections
3.1(ii) and 3.3, the cash payments in accordance with Section 3.5(h) and Section
7.2(ii) shall be deemed paid prior to the Effective Time; (x) for valuation
purposes, inventories will be equal to the inventories reflected on the March
31, 1997, Balance Sheet of Ajax (as audited by BDO), as adjusted to the
Effective Time to reflect the purchase and sale of inventory in the interim
period. The inventories at the Effective Time shall be valued on a basis
consistent with the valuation method used in preparing the March 31, 1997,
Financial Statements, except that there will be no further markdowns for
obsolete, slow moving, and aged inventories, and that any adjustment for damaged
inventory will be based solely on damage arising after March 31, 1997. In
preparing the Closing Balance Sheet, any physical inventory taken by AJAX and
observed by BDO will be at SAC's expense; (y) no liability will be reflected on
the Closing Balance Sheet in respect of the liabilities of Ajax,
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contingent or otherwise, referred to in Sections 12.2.2(b) and 12.2.3 or set
forth on an Exhibit or Schedule hereto and (z) no deduction shall be taken to
give effect to any redemption made in accordance with Section 7.10. The parties
will and will cause AJAX to provide BDO with such assistance and access to
personnel and books and records of AJAX as may be reasonably necessary in
connection with the preparation and audit of the Closing Balance Sheet and, in
general, will cooperate with BDO in facilitating such audit.
3.3.2 Immediately after the audit of the Closing
Balance Sheet has been completed by BDO, SAC will cause BDO to determine the
preliminary Net Worth (as defined below) of AJAX at the Effective Time. For
purposes hereof, the Net Worth of AJAX (the "Net Worth") shall mean an amount
equal to the Shareholder's Equity of AJAX as reflected on the Closing Balance
Sheet as determined in accordance with the procedures set forth in Sections
3.3.3 and 3.3.4.
3.3.3 BDO's determination of the preliminary Net
Worth at the Effective Time shall be delivered to Shareholder in writing (the
"Preliminary Net Worth Statement")together with a copy of the Closing Balance
Sheet no later than 70 days after the Closing. During the 30-day period
following the Shareholder's receipt of the Preliminary Net Worth Statement, the
Shareholder's accountants will be permitted to review the audit working papers
of BDO relating to the Closing Balance Sheet and the Preliminary Net
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Worth Statement and will have access to AJAX's personnel as may be reasonably
necessary in connection therewith and, in general, SAC and AJAX will cooperate
with the Shareholder and the Shareholder's accountants in facilitating such
review. The Closing Balance Sheet and the Net Worth as disclosed in the
Preliminary Net Worth Statement shall become final and binding upon the parties
on the thirtieth day following the Shareholder's receipt thereof unless the
Shareholder gives written notice of its disagreement as to the Closing Balance
Sheet or the Preliminary Net Worth Statement ("Notice of Disagreement") to SAC
prior to such date. Any Notice of Disagreement shall specify in reasonable
detail the nature of any disagreement so asserted. If a Notice of Disagreement
is received by SAC in a timely manner, then the Net Worth shall become final and
binding upon the parties on the earlier of (x) the date the parties hereto
resolve in writing all differences they have with respect to any matter
specified in the Notice of Disagreement and (y) the date all disputed matters
are finally resolved in writing by the Arbitrators through Mediation, or by the
Final Arbitration, as the case may be (as such terms are defined in Section
3.3.4). The Net Worth that becomes final and binding on the parties in
accordance with the terms of this Section 3.3.3 shall be set forth in a
statement referred to herein as the "Final Net Worth Statement."
3.3.4 During the 15-day period following the delivery
of any Notice of Disagreement, the parties hereto shall attempt to resolve in
writing any differences which they may have
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with respect to any matter specified in such Notice of Disagreement. If, at the
end of such 15-day period, the parties have not reached agreement on such
matters, either Shareholder or SAC shall have the right to submit the matters
which remain in dispute to the arbitrators (the "Arbitrators"), for review and
resolution. The Arbitrators shall be two persons or entities with offices in New
York City, one of which shall be selected by each of Shareholder and SAC. If
within 20 days of receipt by the Arbitrators of the matters which remain in
dispute, the Arbitrators have failed to resolve such matters, the parties shall
attempt to resolve the matters in dispute through non-binding mediation
conducted in New York City pursuant to the rules of the American Arbitration
Association ("Mediation" or "Mediator"). All matters not resolved through
Mediation shall be submitted to arbitration in New York City in accordance with
the rules and regulations of the American Arbitration Association (the "Final
Arbitration" and the arbitrators conducting the same, each a "Final
Arbitrator").
3.3.5 If the Net Worth of AJAX as of the Effective
Time as finally determined in accordance with Section 3.3.3 or 3.3.4 is greater
(less) than the net worth i.e. the shareholder's equity upon which the payment
on the Closing Date was computed, within ten(10) days of the final determination
of such Net Worth SAC (Shareholder) shall pay to Shareholder (SAC) or the Ajax
Note shall be increased (decreased), as appropriate in, an amount equal to
83.33% of such excess (deficiency).
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3.3.6 The fees of each Arbitrator shall be borne by
the party selecting such person or entity. The fees of the Mediator, the Final
Arbitrators, if any, and of the American Arbitration Association (in connection
with the Final Arbitration) shall be borne fifty percent by SAC and fifty
percent by Shareholder. The fees of BDO incurred in connection with the audit of
the Closing Balance Sheet and the preparation of the Preliminary Net Worth
Statement and in any arbitration or mediation shall be borne by AJAX (but shall
not be deducted in computing Net Worth), and the fees of the Shareholder's
accountants incurred in connection with their review of the Closing Balance
Sheet and the Preliminary Net Worth Statement and in any arbitration shall be
borne by the Shareholder.
3.4 Other Consideration. As additional inducements to SAC to
enter into this Agreement:
(a) The Shareholder and AJAX shall execute at the
Closing and deliver to each other a 3-year Consulting
Agreement providing for compensation of $160,000 per annum in
the form attached hereto as Exhibit 3.4(a) (the "Consulting
Agreement").
(b) Karl Massaro and AJAX shall execute at the
Closing and deliver to each other a 3-year Employment
Agreement providing for compensation of $200,000 per
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annum in the form attached hereto as Exhibit 3.4(b) (the
"Employment Agreement").
3.5 Restrictive Covenants. In consideration of the acquisition
of the Common Stock of AJAX by SAC and the amounts provided for in this Section
3.5, and subject to the provisions of paragraph (i) of this Section 3.5, the
parties agree as follows:
(a) The Shareholder shall not at any time during the
period of five years commencing as of the Closing Date (the "Period") engage in
any business, on behalf of any other company or himself, and shall not directly
or indirectly own or own an interest in (except for a less than 2% stock
ownership in a publicly-traded corporation), manage, operate, join, control, be
employed by or participate either directly or indirectly in the ownership,
management, operation or control of, or be connected in any manner with, any
business, which is competitive with the business of AJAX or its subsidiaries or
their successors and assigns (the "Acquired Business"), in any city, county,
state or other jurisdiction within the United States. For purposes of this
Section 3.5, the Acquired Business is as described on Exhibit 3.5.
(b) During the Period Shareholder shall not, directly
or indirectly, on his own behalf or on behalf of or as an employee of any other
person or business, contact or approach any person or business wherever located,
with a view of selling or
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licensing or assisting others to sell or license products or services competing
with any products or services of the Acquired Business or sell or solicit orders
for the sale or licensing of such products or services.
(c) Unless authorized or instructed in writing by
AJAX, during the Period, Shareholder shall not, except as required in the
conduct of the Acquired Business, disclose to others, or use, any of AJAX's
inventions or discoveries or its secret or confidential information, knowledge
or data (oral, written, or in machine-readable form) which Shareholder has or
hereafter may obtain as a consequence of his relationship with AJAX, including
such inventions, discoveries, information (limited to confidential), knowledge,
know-how or data relating to machines, equipment, products, systems, software,
research and/or development, designs, compositions, formulae, processes,
manufacturing procedures or business methods, whether or not developed by
Shareholder, by others on behalf of AJAX or obtained by AJAX from third parties,
and irrespective of whether or not such inventions, discoveries, information,
knowledge or data have been identified by AJAX as secret or confidential, unless
and until, and then to the extent and only to the extent that, such inventions,
discoveries, information (limited to confidential), knowledge or data become
available to the public otherwise than by Shareholder's act or omission.
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(d) During the Period Shareholder shall not, except
as required in the conduct of the Acquired Business, disclose to others, or use,
any of the information relating to current or contemplated customers of AJAX,
business dealings with such customers, prospective sales and advertising
programs and agreements with such representatives of AJAX, present sources of
supply or any other business arrangements of AJAX, including but not limited to
customers, customer lists, costs, prices and earnings, whether or not such
information is developed by the Shareholder, by others on behalf of AJAX or is
obtained by AJAX from third parties, unless and until such information becomes
available to the public otherwise than by the Shareholder's act or omission.
(e) During the Period Shareholder shall not solicit
business competitive with that of the Acquired Business, from any person, firm
or entity which is a customer of AJAX at any time during the Period or was a
customer during the year preceding the Closing, induce or attempt to induce any
customer of AJAX to reduce its business with AJAX, or solicit any employee to
leave the employ of AJAX or any of its subsidiaries or affiliates. During the
Period, Shareholder shall also not solicit business competitive with the
Acquired Business from any contemplated customer of AJAX. For purposes of this
Section 3.5, a "contemplated customer" shall mean potential customers which AJAX
solicited or with which AJAX has had discussions concerning potential business
at any time during the Period.
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(f) The above covenants on the part of Shareholder
shall survive the Closing, and the existence of any claim or cause of action of
Shareholder against AJAX or SAC, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by AJAX or SAC of
such covenants except as otherwise set forth in paragraph 6(b) of the Consulting
Agreement. The Shareholder agrees that a remedy at law for any breach of the
foregoing covenants would be inadequate and that AJAX or Barclay shall be
entitled to a temporary and permanent injunction or an order for specific
performance of such covenants without the necessity of proving actual damage to
AJAX or SAC. Nothing in this Agreement shall be construed, however, to limit the
damages otherwise recoverable by AJAX or SAC.
(g) The parties intend that the covenants of
Shareholder contained in this Section 3.5 shall be construed as a series of
separate covenants, one for each city, county, state or other jurisdiction,
located within the United States of America. If, in any judicial proceeding, a
court shall refuse to enforce any of the separate covenants deemed included
herein, then the unenforceable covenants shall be deemed eliminated from these
provisions for the purposes of those proceedings to the extent necessary to
permit the remaining separate covenants to be enforced.
(h) Shareholder acknowledges that in consideration of
the covenants of Shareholder contained in this Section 3.5, Ajax
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has prior to the date hereof paid to Shareholder the sum of $500,000. As
additional consideration for the covenants of Shareholder contained in this
Section 3.5, SAC shall issue to Shareholder options to purchase 50,000 shares of
the Common Stock of SAC or of such permitted assignee to which SAC may assign
its rights hereunder (such permitted assignee being referred to herein as the
"SAC Assignee"), such options to have a per share exercise price equal to 115%
of the initial public offering price per share of SAC's Common Stock, and to be
on such other terms and conditions as those issued to management of SAC prior to
the contemplated public offering of securities of SAC or SAC's Assignee, as the
case may be, except that such options to Shareholder shall be exercisable for a
period of five years from the Closing Date.
(i) Anything contained in this Section 3.5 to the
contrary notwithstanding, in the event that SAC or Ajax defaults in the payment
when due, of any installment of interest or principal of the SAC Note or the
Ajax Note (as hereinafter defined), and does not cure the same within any
applicable cure period, the covenants of Shareholder contained in this Section
3.5 shall be of no further force and effect.
3.6 Allocation of Consideration for Tax Purposes. None of the
parties shall, at any time hereafter, in any tax or information return filed
with any state or federal agency or in any audit, other tax proceeding or
otherwise, take a position which is contrary to the allocations hereinabove set
forth.
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4. CLOSING
Closing and Closing Date. Subject to the provisions of this
Agreement, the consummation of the transactions contemplated by this Agreement
(the "Closing") shall be held at the offices of Phillips Nizer Benjamin Krim &
Ballon LLP at 10:00 A.M. (local time) on or before November 15, 1997, or at such
later date, place or time as the parties shall otherwise mutually agree upon
(the date of the Closing being referred to herein as the "Closing Date"). All
Closing transactions shall be deemed to take place simultaneously and no Closing
transaction shall be deemed consummated until all transactions to take place at
the Closing have been consummated.
5. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER
As an inducement to SAC to enter into this Agreement and
perform its obligations hereunder, the Shareholder hereby represents and
warrants to SAC as follows, each of which representations and warranties is
material and is being relied upon by SAC, and each of which is true as of the
date hereof:
5.1 Organization, Good Standing, Power, Etc. AJAX is a
corporation duly organized, validly existing and in good standing under the laws
of the State of New Jersey. AJAX is qualified to do business in all states in
which the nature of its Business requires qualification. AJAX has all requisite
corporate power and
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authority to own or lease and operate its properties and assets, and carry on
its Business as it is presently being conducted.
5.2 Capital Stock.
(a) AJAX has authorized capital stock consisting of one
hundred (100) shares of common stock, no par value, of which seventy-five (75)
shares are issued and outstanding, and all of which are duly authorized, validly
issued, fully paid, nonassessable, free of preemptive rights, and, to the
Shareholder's knowledge, were issued in compliance with all federal and
applicable state securities laws.
(b) There are no outstanding offers, options, warrants,
rights, calls, commitments, obligations (verbal or written), conversion rights,
plans or other agreements (conditional or unconditional) of any character
providing for, requiring or permitting the offer, sale, purchase or issuance of
any shares of capital stock of AJAX or any other securities (as such term is
defined in the Securities Act of 1933, as amended). Except for the Common Stock,
there are no equity securities of the Company that are reserved for issuance or
are outstanding.
(c) The Common Stock is owned by the Shareholder free and
clear of all liens, charges, encumbrances or claims of any kind whatsoever,
except for restrictions imposed by federal or applicable state securities laws.
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5.3 Articles of Incorporation and By-Laws. Included in Exhibit
5.3 hereto are correct and complete copies of the Certificate of Incorporation
of AJAX, as amended to date, and the By-Laws of AJAX, as amended to date. Such
Certificate of Incorporation and By-Laws are in full force and effect.
5.4 Subsidiaries, Divisions and Affiliates. There are no
subsidiaries, divisions or Affiliates of AJAX. Since January 1, 1990, the
Business has been conducted solely by AJAX and not through any Affiliate, joint
venture or other entity or person or under any other name.
5.5 Equity Investments. AJAX does not own or have any rights
to any equity interest, directly or indirectly, in any corporation, partnership,
joint venture, firm or other entity.
5.6 Authorization of Agreement. The Shareholder has all
requisite power and authority to execute, deliver and perform his obligations
under this Agreement. This Agreement has been, and the Ancillary Documents will
be, duly and validly executed and delivered by the Shareholder. This Agreement
constitutes a valid and binding obligation of the Shareholder enforceable in
accordance with its terms, except that such enforcement may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally.
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5.7 Effect of Agreement. Except as set forth on Exhibit 5.7,
the execution, delivery and performance of this Agreement by the Shareholder and
the consummation by the Shareholder of the transactions contemplated hereby,
will not, with or without the giving of notice and the lapse of time, or both,
(a) to the Shareholder's knowledge, violate any provision of law, statute, rule,
regulation or executive order to which AJAX or the Shareholder is subject; (b)
violate any judgment, order, writ or decree of any court applicable to the
Shareholder or AJAX; or (c) result in the breach of or conflict with any term,
covenant, condition or provision of, result in the modification or termination
of, constitute a default under, or result in the creation or imposition of any
lien, security interest, charge or other encumbrance upon any of the Assets or
the Common Stock pursuant to any corporate charter, by-law, commitment, contract
or other agreement or instrument, including any of the Commitments, to which
AJAX or the Shareholder is a party or by which any of the Assets or the Common
Stock is or may be bound or affected or from which AJAX or the Shareholder
derives benefit, which breach, conflict, modification, termination, default or
encumbrance described in this clause (c) would be materially adverse to the
Business, any of the Assets or the Common Stock.
5.8 Restrictions. Except as set forth on Exhibit 5.8, neither
AJAX nor the Shareholder is a party to any contract, commitment or agreement,
nor is any of them, the Common Stock or Assets subject to, or bound or affected
by, any provision of the
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Articles of Incorporation, By-laws or other corporate restriction, or any order,
judgment, decree, or to the Shareholder's knowledge, any law, statute,
ordinance, rule, regulation or other restriction of any kind or character, which
would, individually or in the aggregate, materially adversely affect the
Business, the Common Stock, or any of the Assets.
5.9 Governmental and Other Consents. To the Shareholder's
knowledge, except as set forth on Exhibit 5.9 and excluding any filings,
authorizations, consents and approvals as may be required under federal or state
securities, antitrust or takeover laws, no consent, authorization or approval
of, or exemption by, any governmental or public body or authority is required in
connection with the execution, delivery and performance by the Shareholder of
this Agreement or the Shareholder of any of the instruments or agreements herein
referred to, or the taking of any action herein contemplated.
5.10 Financial Statements. Included in Exhibit 5.10 hereto are
correct and complete copies of the balance sheets of AJAX for the years ended
March 31, 1997 and 1996 (collectively, the "Financial Statements"). The
Financial Statements were audited by BDO. The Financial Statements are in
accordance with the financial books and records of AJAX in all material
respects, have been prepared on a consistent basis and fairly present the
financial position of AJAX at their respective dates and the results of
operations and cash flows for the respective periods covered
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thereby. The Shareholder is not aware of any material negative modifications
that should be made to the Financial Statements in order for them to be in
accordance with generally accepted accounting principles. AJAX has provided to
BDO letters from its management with respect to certain financial reporting
matters described therein (collectively, the "Ajax Management Representation
Letter"). The parties hereby agree that the Ajax Management Representation
Letter was given solely for the purpose of enabling BDO to express an opinion
with regard to the Ajax Financial Statements and none of the representations
contained therein are meant to be representations given by Shareholder to SAC
under this Agreement. Said representations are not meant to supersede, modify,
expand or limit any of the representations contained in this Agreement and are
not being relied upon by SAC under this Agreement. Moreover SAC hereby agrees
that it shall not seek to recover for any alleged damages sustained under this
Agreement by reason of a breach of any representation or warranty contained in
the Ajax Management Representation Letter and further agrees that its only
remedies against Shareholder with respect to the transactions contemplated under
this Agreement are the remedies set forth herein.
5.11 Absence of Certain Changes or Events. Except as set forth
on Exhibit 5.11 since March 31, 1997, AJAX has not: (a) suffered any adverse
change in the Business or the Assets, and no event has occurred which,
individually or in the aggregate, has or have had a material adverse effect on,
AJAX's financial
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condition, results of operations or Business or the value of the Assets; (b)
incurred damage to or destruction of any tangible Asset or portion of the
tangible Assets, whether or not covered by insurance which damage or destruction
has had a material adverse effect on the Business or the value of the Assets;
(c) incurred any material obligation or liability (fixed or contingent) except
(i) current business obligations incurred in the ordinary course of business,
none of which were entered into for grossly inadequate consideration, (ii)
obligations or liabilities under the Commitments to the extent required thereby,
and (iii) obligations and liabilities relating to the transaction contemplated
under this Agreement; (d) made or entered into contracts or commitments to make
any capital expenditures in excess of $50,000, except for those previously
committed, for those appropriate to repair, maintain or replace the material
Assets of AJAX, as AJAX reasonably determined and for those alterations in the
ordinary course of AJAX's Business; (e) mortgaged, pledged or subjected to lien
any of the material Assets other than in the ordinary course of the Business
provided that the aggregate amount of such mortgage, pledge or lien does not
exceed $50,000; (f) sold, transferred or leased any material Asset or material
portion of the Assets, or canceled or compromised any debt or material claims,
except in each case, in the ordinary course of business; (g) sold, assigned,
transferred or granted any rights under or with respect to any licenses,
agreements, patents, inventions, trademarks, trade names, copyrights or formulae
or with respect to know-how or any other intangible asset including, but not
limited to, the Rights; (h)
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waived or released any other rights having a material adverse effect on the
Business or Assets; or (i) entered into any transactions not in the ordinary
course of business which would, individually or in the aggregate, materially
adversely affect the Assets or the Business.
5.12 Title to Assets; Absence of Liens and Encumbrances.
Except as set forth on Exhibit 5.12, (a) AJAX has good title to, and owns
outright, the Assets, which include all of AJAX's assets reflected in the March
31, 1997 Financial Statements (except as sold, used or otherwise disposed of in
the ordinary course of business since March 31, 1997), free and clear of all
mortgages, claims, liens, charges, encumbrances, security interests,
restrictions on use or transfer or other defects as to title (collectively, the
"Liens"), other than rights of third parties under leases to which AJAX is a
party, Liens for taxes not yet due and payable, minor title irregularities, and
other similar matters not having a material adverse affect on the Assets (the
"Permitted Encumbrances"); and (b) immediately following the Closing, AJAX will
have good and marketable title to all Assets, free and clear of all liens other
than Permitted Encumbrances. The leases and other agreements or instruments
under which AJAX holds, leases or is entitled to the use of any real or personal
property included in the Assets are in full force and effect and all rentals,
royalties or other payments accruing thereunder prior to the date hereof have
been duly paid or reserved. AJAX enjoys peaceable and undisturbed possession
under all such leases, and the change in ownership of
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the Common Stock will not materially adversely affect such leases, other
agreements and instruments. To the Shareholder's knowledge, all Assets are in
conformity with all applicable zoning and other laws, ordinances, rules and
regulations. Except as set forth in Exhibit 5.12, no notice of violation of any
law, ordinance, rule or regulation thereunder pertaining to said Assets has been
received by the Shareholder or AJAX and which remains unsatisfied.
5.13 Equipment. Set forth on Exhibit 5.13 is a correct and
complete list as of February 1, 1997 of all equipment used by AJAX in the
Business (in excess of a fair market value of $10,000.00), indicating for each
piece of such equipment whether it is owned or leased and setting forth where it
is located. Except as noted on Exhibit 5.13, all of the equipment on Exhibit
5.13 and all Equipment (a) is and will be in working order and reasonable
operating condition and generally has been suitable to AJAX for the uses for
which it was designed or has been employed by AJAX, and (b) to the Shareholder's
knowledge conforms in all material respects with any laws, ordinances,
regulations, orders or other similar governmental requirements relating to its
use, as the same are currently in effect.
5.14 Insurance. There are no outstanding or unsatisfied
written requirements or recommendations imposed or made by any of AJAX'S current
insurance companies with respect to current policies covering any of the Assets
or the Business, or by any governmental authority requiring or recommending,
with respect to any of the
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Assets or the Business, that any material repairs or other material work be done
on or with respect to, or requiring or recommending any material equipment or
facilities be installed on or in connection with, any of the Assets. AJAX
carries, and (with respect to any period for which a claim against AJAX may
still arise) has always carried workers' compensation insurance in reasonable
amounts, and other insurance (other than product liability insurance) which is
reasonably necessary to the conduct of the Business. On Exhibit 5.14 is set
forth a correct and complete list of (a) all currently effective insurance
policies and bonds covering the Assets or the Business, and their respective
annual premiums (as of the last renewal or purchase of new insurance), and (b)
for the three-year period ending on the date hereof, (i) all accidents,
casualties or damage occurring on or to the Assets or relating to the Business
which have exceeded Twenty-Five Thousand Dollars ($25,000.00) per accident,
casualty or damage, and (ii) claims for which written notice has been given for
product liability, damages, contribution or indemnification and settlements
(including pending settlement negotiations) relating thereto which per claim are
in excess of Twenty-Five Thousand Dollars ($25,000.00). Except as set forth on
Exhibit 5.14, as of the date hereof there are no material disputes between AJAX
and underwriters relating to any such policies or bonds, and all premiums due
and payable have been paid. Except as set forth on Exhibit 5.14, there are no
pending and AJAX has not received written notice of any terminations or premiums
increases with respect to any of such policies or bonds and to Shareholder's
knowledge, there is no
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condition or circumstance applicable to the Business, other than the sale of the
Common Stock pursuant to this Agreement, which may result in such termination or
increase. AJAX and the Assets are in compliance with all conditions contained in
such policies or bonds, except for noncompliance which, individually or in the
aggregate, would not have a material adverse affect on the Business or the
Assets.
5.15 Agreements, Arrangements, Etc.
5.15.1 Except as set forth on Exhibit 5.15.1 (a) through (p),
AJAX is not a party to, nor are AJAX or any of the Assets bound by any:
(a) lease agreement (whether as lessor or lessee) providing
for annual payments in excess of $10,000 per lease per year;
(b) license agreement, assignment or contract (whether as
licensor or licensee, assignor or assignee) relating to trademarks, trade names,
patents, or copyrights (or applications therefor), unpatented designs or
processes, formulae, know-how or technical assistance, or other proprietary
rights;
(c) employment or other contract or agreement with an employee
or independent contractor, other than employees paid on an hourly rate, which
(i) may not be terminated without liability to
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AJAX upon notice to the employee or independent contractor of not more than 30
days, or (ii) provides payments (contingent or otherwise) of more than $40,000
per year (including all salary, bonuses and commissions);
(d) agreement, contract or order with any buying agent,
manufacturer, leasing company, supplier or other individual or entity who
assists, provides or is otherwise involved in the acquisition, supplying or
providing Assets or other goods to AJAX which may not be terminated without
liability to AJAX upon notice of not more than thirty (30) days and other than
open purchase orders in the ordinary course of business;
(e) non-competition, secrecy or confidentiality agreements
other than with SAC;
(f) agreement, contract or order with any distributor, dealer,
leasing company, sales agent or customer for the sale of goods or services by
AJAX to any third party (including the government or any other governmental
authority) other than orders for the provision of goods or services in the
ordinary course of business;
(g) agreement with any labor union;
(h) agreement guaranteeing, indemnifying or otherwise becoming
liable for the obligations or liabilities of another;
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(i) agreement with any banks or other persons for the
borrowing or lending of money or payment or repayment of draws on letters of
credit or currency swap or exchange agreements (other than purchase money
security interests which may, under the terms of invoices from its suppliers, be
granted to suppliers with respect to goods so purchased, or under the terms of
invoices delivered to its customers, be granted to AJAX with respect so sold to
its customers);
(j) agreement with any bank, finance company or similar
organization which acquires from AJAX receivables or contracts for sales on
credit;
(k) agreement granting any person a lien, security interest or
mortgage on any of the Assets, including, without limitation, any factoring or
agreement for the assignment of receivables or inventory;
(l) agreement for the incurrence of any capital expenditure in
excess of $50,000;
(m) advertising, publication or printing agreement;
(n) agreement which restricts AJAX from doing business
anywhere in the world;
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(o) agreement or, to Shareholder's knowledge, a statute or
regulation giving any party the right to renegotiate or require a reduction in
prices or the repayment of any amount previously paid; or
(p) to Shareholder's knowledge, agreement or contract, not
included in or expressly excluded from the terms of the foregoing clauses (a)
through (o), materially affecting the Assets or Business, except contracts or
purchase orders for the purchase or sale of goods or services made in the usual
and ordinary course of business or having a value of less than $10,000.
5.15.2 Each of the Commitments is valid, in full force and
effect and enforceable in all material respects by AJAX in accordance with its
terms except that such enforcement may be limited by bankruptcy, insolvency or
other similar laws affecting the enforcements of creditors' rights generally.
5.15.3 Except as set forth on Exhibit 5.15.3, AJAX has
fulfilled, or has taken all action reasonably necessary to enable it to fulfill
when due, all of its obligations under the Commitments, except where the failure
to do so would not, individually or in the aggregate, have a material adverse
affect on the Business or the Assets. Furthermore, there has not occurred any
default by AJAX or to the Shareholder's knowledge any event which, with the
lapse of time or the election of any person other than AJAX, will become a
default, nor, to Shareholder's knowledge, has
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there occurred any default by others or any event which, with the lapse of time
or the election of any person including AJAX, will become a default under any of
the Commitments, except for such defaults, if any, which have not resulted and
will not result in any material loss to or liability of AJAX or any of its
successors or assigns. Except as indicated on Exhibit 5.15.3, AJAX is not in
arrears in any material respect with respect to the performance or satisfaction
of any of the material terms or conditions to be performed or satisfied by it
under any of the Commitments and no waiver or variance has been granted by any
of the parties thereto.
5.15.4 As to those Commitments set forth on Exhibits 5.15 (a)
through (p), prior to Closing Shareholder shall obtain the consent of the
parties thereto other than AJAX to the consummation of the transactions
contemplated hereby.
5.16 Patents, Trademarks, Copyrights, Etc. Exhibit 1.3(d) sets
forth (i) the registered and beneficial owner and the expiration date, to the
extent applicable, for each of the Rights and (ii) the product, service, or
products or services of AJAX which make use of, or are sold, licensed or made
under, each such Right. All of the Rights are included in the Assets and
constitute all rights necessary for the conduct of the Business, as such
business is currently being conducted. Except as set forth on Exhibit 5.16,
since January 1, 1990, AJAX has not sold, assigned, transferred, licensed,
sub-licensed or conveyed the Rights, or any of them, or any interest in the
Rights, or any of them, to any
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person, and has the entire right, title and interest (free and clear of all
security interests, liens and encumbrances of every nature) in and to the Rights
necessary to the conduct of the Business as currently being conducted; neither
the validity of such items nor the use thereof by AJAX, is the subject of any
pending or to Shareholder's knowledge threatened opposition, interference,
cancellation, nullification, conflict, concurrent use, litigation or other
proceeding. AJAX has received no notice that the conduct of the Business of AJAX
as currently operated and the use of the Assets conflicts with, or infringes
upon, legally enforceable rights of third parties. Except as set forth on
Exhibit 5.16, since January 1, 1990 the Rights owned by or licensed to AJAX have
not been used, and to the Shareholder's knowledge no use is now being made, by
any entity except AJAX and other entities duly licensed to use the same. Except
as set forth on Exhibit 5.16, to Shareholder's knowledge, there is no
infringement by any third party of any proprietary right owned by or licensed to
AJAX.
5.17 Permits, Licenses, Etc. There are no permits, licenses,
registrations, memberships, orders or approvals of governmental or
administrative authorities required to permit AJAX to carry on its Business as
currently conducted (other than (i) permits, licenses, registrations, trade
memberships, orders or approvals which are set forth on Exhibit 5.17, all of
which are in full force and effect, and (ii) other permits, licenses, orders or
approvals, the failure to obtain which would not, individually or
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in the aggregate, have a material adverse affect on the Assets or
on the Business).
5.18 Compliance with Applicable Laws. Subject to the
provisions of Section 5.28 hereof and Section 5.29, to Shareholder's knowledge,
the conduct by AJAX of the Business does not violate or infringe, and AJAX has
received no written notice that there is any claim of violation or infringement
of, any law, statute, ordinance, regulation or executive order (including,
without limitation, the Federal Food, Drugs and Cosmetics Act, as amended, the
Occupational Safety and Health Act, the National Environmental Policy Act and
the Foreign Corrupt Practices Act and the respective regulations thereunder and
similar applicable state laws and regulations) currently in effect. AJAX is not
in default under any governmental or administrative registration, membership or
license issued to it, under any governmental or administrative order or written
demand directed to it, or with respect to any order, writ, injunction or decree
of any court directed to it which, in any case, materially adversely affects the
financial condition, results of operations or Business or the value of the
Assets.
5.19 Litigation. Except as set forth on Exhibit 5.19, there is
no action, suit, proceeding, arbitration, pending or, to the knowledge of
Shareholder, threatened, before any court or governmental, administrative or
other competent authority or private arbitration tribunal against or relating to
or affecting (directly or indirectly, including by way of indemnification) the
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Common Stock, the Business or any of the material Assets, or the transactions
contemplated by this Agreement. AJAX has not waived any statute of limitations
or to the knowledge of Shareholder any other affirmative defense with respect to
any of its obligations. There is no continuing order, injunction or decree of
any court, arbitrator or governmental, administrative or other competent
authority to which AJAX is a party, or to the knowledge of Shareholder to which
AJAX or any material portion of the Assets is subject. Neither AJAX nor the
Shareholder or to the knowledge of Shareholder, any other current officer,
director, partner or key supervisory employee of AJAX or any Affiliate of AJAX
has been permanently or temporarily enjoined or barred by order, judgment or
decree of any court or other tribunal or any agency or other body from engaging
in or continuing any conduct or practice in connection with the Business.
5.20 No Interest in Competitors. Set forth on Exhibit 5.20 is
a list describing the extent to which AJAX, the Shareholder or to the knowledge
of Shareholder any other officer or director of AJAX or any Affiliate of any of
the foregoing, directly or indirectly, owns more than a five percent (5%)
interest in or controls or is an employee, officer, director, or partner of, or
consultant to any corporation, partnership, limited partnership, joint venture,
association or other entity which is a competitor, supplier or customer of AJAX
or does any type of business or has a professional relationship with AJAX.
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5.21 Customers, Suppliers, Distributors and Agents. Except as
set forth on Exhibit 5.21 (a), Shareholder has no knowledge that any customer,
distributor, supplier or any other person or entity with material business
dealings with AJAX, will cease to continue such relationship with AJAX, or will
substantially reduce the extent of such relationship, at any time prior to or
after the Closing Date. Exhibit 5.21 (b) sets forth as to AJAX (a) the customers
representing the purchasers of 90% of its goods and/or services and (b) the
fifteen largest (in dollar value) providers of goods and/or services to it, in
each case with respect to each of the years ended March 31, 1995 and 1996.
5.22 Books and Records. The books of account and other
financial and corporate records of AJAX are in all material respects complete,
correct and up to date, with all necessary signatures, and are in all material
respects accurately reflected in the Financial Statements.
5.23 Employee Benefit Plans. Except as described in Exhibit
5.23, AJAX does not have any hospitalization, health insurance, pension,
retirement, profit sharing, stock option or similar plans. Since the date of its
incorporation AJAX has never maintained a pension, profit sharing, stock bonus,
bonus, deferred compensation, severance, stock option or purchase plan, or
retirement plan or arrangement, covering employees of AJAX (the "Employee
Benefit Plans").
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To Shareholder's knowledge, AJAX has complied with all of the
rules and regulations governing each of the Employee Benefit Plans maintained
for the benefit of AJAX's employees, including, without limitation, rules and
regulations promulgated pursuant to ERISA and the Code, by the Department of
Treasury, Department of Labor, and the Pension Benefit Plans Guaranty
Corporation, and each of the Employee Benefit Plans now operated has since its
inception been operated in accordance with its provisions and is in compliance
with such rules and regulations. To Shareholder's knowledge, neither AJAX nor
any Employee Benefit Plans maintained by AJAX or any fiduciaries thereof have
engaged in any prohibited transaction, as that term is defined in Section 406 of
ERISA or Section 4975 of the Code, nor have any of them committed any breach of
fiduciary responsibility with respect to any of the Employee Benefit Plans, and
Shareholder does not have any knowledge that any other person has not complied
with these rules and regulations.
5.24 Powers of Attorney. Except as set forth on Exhibit 5.24,
no person has any power of attorney to act on behalf of AJAX in connection with
any of AJAX's properties or business affairs other than such powers to so act as
normally pertain to the officers of AJAX and the authority granted to Karl
Massaro and Frank Massaro to sign checks on behalf of AJAX.
5.25 Sufficiency of Assets and Commitments. Except as set
forth in Exhibit 5.25, in Shareholder's reasonable judgment the
Assets and the Commitments, taken in the aggregate, are sufficient,
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and constitute all of the property and Rights necessary, for the continuation of
the Business and operations of AJAX as now conducted.
5.26 Labor Disputes, Unfair Labor Practices. Except as set
forth on Exhibit 5.26, AJAX is not engaged in any illegal or unfair labor
practice which would have a material adverse affect on the Assets or the
Business. There is no pending or to the knowledge of Shareholder affirmatively
threatened (i) unfair labor practice complaint, charge, labor dispute, strike,
slowdown, walkout or work stoppage before the National Labor Relations Board or
any other authority or (ii) grievance or arbitration proceeding arising out of
or under a collective bargaining agreement involving employees of AJAX. There
have been no strikes, labor disputes, slow-downs, walkouts, or work stoppages
involving employees of AJAX during the last three (3) years except for claims
brought by or on behalf of individual employees seeking less than $20,000
individually. There has been no suit brought alleging discriminatory discharge
or treatment. To Shareholder's knowledge, no union representation question
exists with respect to the employees of AJAX and no union organizing activities
are taking place. Except as set forth on Exhibit 5.26 AJAX has not received
notice from any of its key supervisory employees of such employee's intent to
terminate his or her employment or bring any action against AJAX for any reason
related to the transactions contemplated by this Agreement.
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5.27 Past Due Obligations. Except as set forth on Exhibit
5.27, AJAX has no obligations over $25,000 more than 30 days past due.
5.28 Environmental Matters.
(a) To the knowledge of Shareholder, except as set forth on
Exhibit 5.28, (i) AJAX is in compliance with all environmental laws,
regulations, permits and orders applicable to it, and with all laws,
regulations, permits and orders governing or relating to asbestos removal and
abatement; (ii) AJAX has not transported, stored, treated or disposed, or
allowed or arranged for any third parties to transport, store, treat or dispose,
of any Hazardous Substances or other waste to or at any location other than a
site lawfully permitted to receive such Hazardous Substances or other waste for
such purposes, or had performed, arranged for or allowed by any method or
procedure such transportation, storage, treatment or disposal in contravention
of any laws or regulations nor has AJAX disposed of, or allowed or arranged for
any third parties to dispose of, Hazardous Substances or other waste upon
property owned or leased by it in contravention of any applicable laws or
regulations; (iii) there has not occurred, nor is there presently occurring, a
Release of any Hazardous Substance on, into, above or beneath the surface of any
parcel of real property in which AJAX has (or will have after giving effect to
the transactions contemplated hereby) an ownership interest or any leasehold
interest in contravention of any applicable laws or regulations;
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(iv) AJAX has not transported or disposed of, or allowed or arranged for any
third parties to transport or dispose of, any Hazardous Substance or other waste
to or at a site which, pursuant to the U.S. comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), has
been placed on the National Priorities List or its state equivalent; (v) AJAX
has not received notice and AJAX has no knowledge of any facts which if
disclosed to the proper governmental authority would give rise to any
substantive notice, that AJAX is a potentially responsible party for a federal
or state environmental cleanup site or for corrective action under CERCLA or
notice of any other Environmental Claim; (vi) AJAX has not undertaken (or been
requested to undertake) any response or remedial actions or cleanup actions of
any kind at the request of any federal, state or local governmental entity, or
at the request of any other person or entity; and (vii) there are no laws,
regulations, ordinances, licenses, permits or orders relating to environmental
matters requiring any work, repairs, construction or capital expenditures with
respect to any material portion of the Assets or properties of AJAX.
(b) For the purposes of this Agreement: (i) "Environmental
Claim" shall mean any written demand, claim, governmental notice or threat of
litigation or the actual institution of any action, suit or proceeding which
asserts that an Environmental Condition constitutes a violation of any statute,
ordinance, regulation, or other governmental requirement relating to the
emission, discharge, or Release of any Hazardous Substance
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into the environment or the generation, treatment, storage, transportation, or
disposal of any Hazardous Substance, prior to Closing Date in each case in
contravention of any applicable laws or regulations; (ii) "Environmental
Condition" shall mean the presence on any real property during the period from
the date such real property was first owned, leased or used by AJAX to the
Closing Date, in surface water, ground water, drinking water supply, land
surface, subsurface strata or ambient air of any Hazardous Substance arising out
of or otherwise related to the operations or other activities of AJAX or of any
predecessor of AJAX, conducted or undertaken prior to the Closing Date, and in
each case in contravention of any applicable laws or regulations; (iii)
"Hazardous Substance" shall mean any substance defined in the manner set forth
in Section 101(14) of the U.S. Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, as applicable on the Closing
Date, and shall include any additional substances designated under Section l
02(a) thereof prior to the Closing Date; and (iv) "Release" shall mean
releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, dumping or disposing into the environment
(including the abandonment or discarding of barrels, containers, and other
closed receptacles containing any hazardous substance or pollutant or
contaminant) in each case in contravention of any applicable laws or
regulations.
5.29 Tax and Other Returns and Reports. AJAX has timely filed
or will file all Tax Returns and information returns required
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to be filed by AJAX prior to the Closing Date and has paid or reserved all Taxes
due for all periods ending on or before December 31, 1996, and will pay all
Taxes due prior to the Closing Date. Adequate provision has been made in the
Financial Statements referred to in Section 5.10 above, for all Taxes whether or
not due and payable as of the dates thereof and whether or not disputed. Exhibit
5.29(a) lists all audits of Tax Returns which have occurred since January 1,
1990. All required Tax Returns, including amendments to date, have been prepared
in good faith without negligence or willful misrepresentation. Except as set
forth on Exhibit 5.29(b), no governmental entity has in writing proposed
(tentatively or definitively), asserted or assessed or threatened in writing to
propose or assert, any deficiency, assessment, lien, or other claim for Taxes.
Except as provided in Exhibit 5.29(c), there are no agreements, waivers or other
arrangements providing for an extension of time with respect to the assessment
of any Taxes or deficiency against AJAX or with respect to any Tax Return filed
or to be filed by AJAX.
5.30 Certain Tax Definitions. For purposes of this Agreement,
the term "Taxes" means all taxes, including without limitation all Federal,
state, local, foreign and other income, franchise, sales, use, excise, property,
payroll, withholding, environmental, alternative or add-on minimum and other
taxes, assessments, charges, duties, fees, levies or other governmental charges
of my kind whatsoever, and all estimated taxes, deficiency assessments,
additions to tax, penalties, and interest, and any
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contractual or other obligation to indemnify or reimburse any person with
respect to any such assessment. For purposes of this Agreement, the term "Tax
Return" shall mean any report, statement, return, declaration of estimated tax
or other information required to be supplied by or on behalf of AJAX to a taxing
authority in connection with Taxes, or with respect to grants of tax exemption,
including any consolidated, combined, unitary, joint or other return filed by
any person that properly includes the income, deductions or other tax
information concerning AJAX.
5.31 Recent Dividends and Other Distributions. Except as set
forth in Exhibit 5.31, there has been no dividend or other distribution of
assets or securities with respect to the Common Stock whether consisting of
money, property or any other thing of value, declared, issued or paid to or for
the benefit of Shareholder subsequent to March 31, 1996.
5.32 Inventory. Except as set forth in Exhibit 5.32 all of the
Inventory is of a quantity and quality saleable at regular prices or usable in
the ordinary course of business during the twelve months following the Closing.
5.33 Purchase and Sale Obligations. All purchases and sales
and all orders and other commitments for purchases, sales and orders, made by or
on behalf of AJAX have been made in the usual and ordinary course of its
business in accordance with normal practices. On the Closing Date, the
Shareholder shall deliver to
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SAC a schedule of all such uncompleted purchase and sale orders and other
commitments for purchases and sales as of a date not earlier than ten (10) days
prior to the Closing.
5.34 Other Information. None of the information which has been
furnished by AJAX or the Shareholder or any of their representatives to SAC or
any of its representatives in connection with the transactions contemplated
hereby, which is contained in this Agreement (including the Exhibits hereto) or
any certificate or instrument delivered or to be delivered by or on behalf of
AJAX or the Shareholder in connection with the transactions contemplated hereby,
does or will contain any untrue statement of a material fact or omit a material
fact necessary to make the information contained herein or therein not
misleading. If SAC, after having been advised in writing of any fact or
circumstance which materially changes a representation or warranty of
Shareholder in this Agreement nevertheless elects to close the transaction
contemplated neither SAC nor AJAX shall thereafter allege that the existence of
such fact or circumstance constitutes a breach of this Agreement.
5.35 Accounts Receivable and Accounts Payable. All of the
accounts receivable of AJAX are actual and bona fide accounts receivable
representing obligations for the total dollar amount thereof showing on the
books of AJAX, and AJAX has received no written notice that any of the accounts
receivable are or will be subject to any recoupments, set-offs or
counter-claims. Exhibit
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5.35 sets forth a true and correct aged (30-60-90) list of all accounts
receivable and accounts payable of AJAX as of the end of January 1997.
5.36 Knowledge of AJAX and the Shareholder. As to each
representation and warranty made by the Shareholder under this Article 5, any
fact or information known to AJAX or notice received by AJAX, shall be imputed
to the Shareholder as if such fact or information were known to the Shareholder
or such notice received by the Shareholder except that with respect to
representations and warranties of Shareholder which are limited to his knowledge
or awareness, such representation and warranties shall be limited to those
matters actually known to Shareholder without any obligation of inquiry.
5.37 Subchapter S. AJAX is and always has been taxed as a "C"
corporation and has never elected to be taxed under Subchapter S of the Internal
Revenue Code of 1986, as amended.
6. REPRESENTATIONS AND WARRANTIES OF SAC
As an inducement to Shareholder to enter into this Agreement
and perform his obligations hereunder, SAC hereby represents and warrants to
Shareholder as follows, each of which representations and warranties is material
and is being relied upon by Shareholder, and each of which is true as of the
date hereof:
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6.1 Organization. SAC is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. SAC has
all requisite power and authority to execute, deliver and perform its
obligations under this Agreement and to consummate the transactions contemplated
hereby.
6.2 Authorization of Agreement. The execution, delivery and
performance of this Agreement by SAC, and the consummation of the transactions
contemplated hereby have been duly and effectively authorized by all necessary
corporate action. This Agreement has been duly and validly authorized, executed
and delivered on behalf of SAC. This Agreement constitutes a valid and binding
obligation of SAC, enforceable in accordance with its terms, except that such
enforcement may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally.
6.3 Effect of Agreement. The execution, delivery and
performance of this Agreement by SAC and consummation by SAC of the transactions
contemplated hereby will not, with or without the giving of notice and the lapse
of time, or both, (a) violate any provision of law, statute, rule, regulation or
executive order to which SAC is subject; (b) violate any judgment, order, writ
or decree of any court applicable to SAC; or (c) result in the breach of or
conflict with any term, covenant, condition or provision of the Certificate of
Incorporation and By-laws of SAC or any
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commitment, contract or other agreement on instrument to which SAC is a party.
6.4 Litigation. There are no actions, suits, proceedings or
governmental investigations or inquiries pending or to its actual knowledge
threatened against SAC which, in its reasonable judgment, would prevent the
consummation of the transactions contemplated hereby.
6.5 Governmental and Other Consents. No consent, authorization
or approval of, or exemption by, any governmental or public body or authority is
required in connection with the execution, delivery and performance by SAC of
this Agreement or with any of the other instruments or agreements herein
referred to, or the taking of any action herein contemplated, except for such
consents as are required in connection with SAC's efforts to raise capital.
6.6 Compliance with Applicable Laws. The conduct by SAC of its
business and affairs does not violate or infringe and SAC has not received a
notice of any claims of violation or infringement of, any law, statute,
ordinance, regulation or executive order currently in effect. SAC is not in
default under any governmental or administrative registration, membership or
license issued to it, under any governmental or administrative order or demand
directed to it, or with respect to any order, writ, injunction or decree of any
court having jurisdiction over it.
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7. PRE-CLOSING COVENANTS OF THE SHAREHOLDER
The Shareholder hereby covenants and agrees with SAC that the
Shareholder shall do, or cause to be done, the following, between the date of
this Agreement and the Closing Date or date of termination of this Agreement (as
permitted by Section 13.1, 13.2 or 13.3 hereof), as the case may be:
7.1 Conduct of Business Until Closing Date. Except as
permitted or required hereby or as SAC may otherwise consent in writing, the
Shareholder shall cause AJAX to:
7.1.1 operate the Business only in the usual, regular and
ordinary manner, and use best efforts to (a) preserve the present business
organization of AJAX intact, (b) keep available the services of the present key
supervisory employees of AJAX and (c) preserve the current business
relationships of AJAX with customers, clients, suppliers, distributors and
others having material business dealings with it;
7.1.2 bear the risk of loss or damage to the Assets on and
prior to the Closing Date where such risk of loss is not the legal obligation of
another, and maintain all material properties necessary for the conduct of the
Business, whether owned or leased;
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7.1.3 maintain the books, records and accounts of AJAX in the
usual, regular and ordinary manner, on a basis consistent with prior periods;
7.1.4 duly comply with all laws, rules and regulations
applicable to AJAX and to the conduct of its Business, if the failure to so
comply would have a material adverse effect on the Business or the financial
condition of AJAX;
7.1.5 perform all of the obligations of AJAX without default,
unless default under any such obligations would have no material adverse impact
on AJAX, its Assets or Business;
7.1.6 neither (a) amend AJAX's Certificate of Incorporation or
By-Laws; (b) merge with or into, consolidate, amalgamate or otherwise combine
with, any other entity; nor (c) change the character of the Business;
7.1.7 neither (a) encumber, mortgage, or voluntarily subject
to Lien other than as set forth on Exhibit 5.12, any of the existing Assets; (b)
transfer, sell, lease, license or otherwise dispose of any of, or any part of,
the Assets (other than in the ordinary course of business); (c) convey, transfer
or acquire any material Asset or property to, for or on behalf of AJAX other
than in the ordinary course of business; (d) enter into any arrangement,
agreement or undertaking, with respect to any of the employees relating to the
payment of bonus, severance, profit-sharing or
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special compensation or any increase in the compensation payable or to become
payable to any such employee other than as referred to in Section 7.2; nor (e)
incur any material fixed or contingent obligation or enter into any agreement,
commitment, contract or other transaction or arrangement relating to the
Business of AJAX or the Assets other than in the ordinary course of business;
7.1.8 not make any distributions or dividends of Assets or
securities, nor any changes to the capital structure of AJAX; not agree to make
or make any sales of its securities; and
7.1.9 neither modify, change or terminate any of its material
obligations other than in the ordinary course of business, nor grant any power
of attorney with respect to the Business or the Assets to any party except SAC.
7.2 Shareholder Compensation. From February 1, 1997, through
the Closing Date, Shareholder shall prevent AJAX from paying, and he shall not
accept from AJAX, any cash or property except (i) reimbursements for business
expenses incurred by Shareholder on behalf of AJAX, (ii) a bonus for services
rendered in the amount of $470,000, which Shareholder acknowledges has been
received prior to the date hereof, (iii) salary for services rendered based on
an annual rate of $160,000, and (iv) rent for the premises currently occupied by
AJAX in accordance with the leasehold terms in effect as of the date hereof.
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7.3 Approvals, Consents and Further Assurances. The
Shareholder shall use and shall cause AJAX to use its best efforts to obtain in
writing as promptly as possible all approvals, consents and waivers required to
be obtained by Shareholder under the Agreement in order to effectuate the
transactions contemplated hereby, and shall deliver to SAC copies, reasonably
satisfactory in form and substance to counsel to SAC, of such approvals and
consents. The Shareholder shall also use best efforts to assure that the other
conditions set forth in Article 10 hereof are satisfied by the Closing Date.
7.4 Access to Properties, Records, Suppliers, Agents, Etc. The
Shareholder shall cause AJAX to give to SAC and to SAC's counsel, financiers,
accountants and other representatives access to and copies of such of AJAX's
properties, personnel, books, tax returns, contracts, commitments and records as
relate to the Assets, suppliers, agents, distributors, etc. or other aspects of
the Business; and shall furnish to SAC and such representatives all such
additional instruments, contracts, documents or other written obligations
(certified by officers of AJAX, if so requested in writing) and financial and
other information concerning such Business, Assets, suppliers, agents, etc. as
SAC or its representatives may from time to time request, subject, however to
the terms and conditions of a Non-Disclosure Agreement of even date herewith
attached hereto as Exhibit 7.4.
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7.5 Advice of Changes. If the Shareholder becomes aware of any
fact or facts which, if known at the date hereof, would have been required to be
set forth or disclosed in or pursuant to this Agreement, Shareholder shall
promptly advise SAC in writing thereof.
7.6 Conduct. Except as permitted or required hereby or as SAC
may otherwise consent in writing, Shareholder shall not, nor shall he permit
AJAX to, enter into any transaction or take any action which would result in any
of the representations and warranties of the Shareholder contained in this
Agreement not being true and correct as of the time immediately after such
transaction has been entered into or such event has occurred and on the Closing
Date.
7.7 Employee Benefit Plans. Except for payment of AJAX's
current obligations, AJAX shall not incur any additional obligations or
liabilities, including (i) liabilities for all claims incurred, whether or not
reported, on or before the Closing Date under all "employee welfare benefit
plans," within the meaning of Section 3(1) of ERISA, (ii) liabilities or
obligations for vacations or sick leave or retiree, medical or life benefits to
employees or former employees of AJAX other than in the ordinary course of
business, and (iii) liabilities of AJAX for all benefits accrued under any
"employee pension benefit plan," within the meaning of Section 3(2) of ERISA
under each Employee Benefit Plan.
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7.8 Cooperate with Capital Raising Efforts. Shareholder shall
reasonably cooperate in SAC's efforts to raise capital by assisting in the
preparation of a registration statement relating to the contemplated offering of
securities by SAC or SAC's Assignee, as the case may be, and, upon reasonable
request and adequate notice, meeting with the proposed underwriter of the
contemplated offering and SAC's or SAC's Assignee's proposed lenders, as the
case may be, but shall not be required to enter into any agreement with the
underwriter in connection with said registration.
7.9 Satisfaction of Conditions by Shareholder. The Shareholder
hereby covenants and agrees with SAC that, between the date of this Agreement
and the Closing Date or date of termination of this Agreement, as the case may
be, he shall use best efforts to assure that the conditions set forth in Article
10 hereof are satisfied by the Closing Date.
7.10 Redemption. (a) Notwithstanding the provisions of Article
2 or this Article 7, immediately prior to or contemporaneous with the Closing
Shareholder shall be permitted to cause Ajax to redeem from him such portion of
the Common Stock as to which SAC shall consent for an amount (the "Redemption
Amount") equal to $4 million. SAC's consent to the number of shares of Common
Stock shall not be unreasonably withheld or delayed. The Redemption Amount shall
be deducted from and reduce the Purchase Price payable for the shares of Common
Stock acquired by SAC.
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(b) The Redemption Amount shall be paid by the delivery of a
three year promissory note of Ajax (the "Ajax Note") bearing interest at the
rate of 10% per annum in the form of Exhibit 7.10.1(a) provided that if the sum
of the Purchase Price and the Redemption Amount is less than $23,903,257, the
principal amount of the Ajax Note shall be reduced by the amount of such
deficiency and such portion of the Redemption Amount shall be paid to
Shareholder by wire transfer to accounts designated by Shareholder. The Ajax
Note shall be secured by a lien on substantially all of the assets of Ajax
pursuant to a Security Agreement (the "Security Agreement") substantially in the
form of Exhibit 7.10(b).
(c) Payment of the Ajax Note shall be guaranteed by SAC
pursuant to a Guaranty substantially in the form of Exhibit 7.10(c).
8. PRE-CLOSING COVENANTS OF SAC
8.1 Financing Efforts. SAC shall exercise its best efforts to
obtain such amounts, in the form of debt or equity, as may be necessary for SAC
to consummate the transaction contemplated hereby.
8.2 Timetable. SAC has provided Shareholder with a tentative
time schedule with respect to a contemplated public offering of its securities
to raise the equity necessary to consummate the transaction contemplated hereby.
Such timetable
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assumes the filing of a registration statement with the Securities and Exchange
Commission on or about August 15, 1997, and SAC shall use its best efforts to
adhere to such schedule.
8.3 Counsel Fees. SAC shall reimburse Shareholder promptly
after submission of invoices to SAC for all reasonable legal fees and expenses
incurred in satisfying his obligation under Section 7.8, provided, the aggregate
amount of reimbursement for such fees and expense shall not exceed $20,000.
8.4 Advice of Changes. If SAC becomes aware of any fact or
facts which, if known at the date hereof, would have been required to be set
forth or disclosed in or pursuant to this Agreement, SAC shall promptly advise
Shareholder in writing thereof.
8.5 Conduct. Except as permitted or required hereby or as
Shareholder may otherwise consent in writing, SAC shall not enter into any
transaction or take any action which would result in any of the representations
and warranties of SAC contained in this Agreement not being true and correct as
of the time immediately after such transaction has been entered into or such
event has occurred and on the Closing Date.
8.6 Satisfaction of Conditions by SAC. SAC hereby covenants
and agrees with Shareholder that, between the date of this Agreement and the
Closing Date or date of termination of this
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Agreement, as the case may be, SAC shall cause the conditions set forth in
Article 11 hereof to be satisfied by the Closing Date.
9. POST-CLOSING COVENANTS
9.1 Further Assurances. After the Closing hereunder, the
Shareholder, at the request of SAC, shall execute, acknowledge and deliver to
SAC, without further consideration, all such further assignments, conveyances,
endorsements, deeds, powers of attorney, consents and other documents (together
with the instruments referred to in Section 1.3, referred to herein collectively
as the "Ancillary Documents") and take such other action as SAC may reasonably
request (a) to transfer to and fully vest in SAC, and protect SAC's right, title
and interest in and to AJAX and to all of AJAX's right, title and interest in
and to the Assets, and (b) otherwise to consummate the transactions contemplated
by this Agreement.
9.2 Shareholder's Review of AJAX's Records. Until such time as
Shareholder is paid in full under the Note, Shareholder and/or his
representatives, upon reasonable prior notice to AJAX and SAC, shall be given
full access during regular business hours of AJAX to all financial and other
books and records of AJAX, provided, however, that such access and inspection
shall not be scheduled or conducted so as to interfere with the conduct of
AJAX'S business.
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9.3 Subordination. Upon the request of SAC or Ajax,
Shareholder shall enter into a subordination agreement with one or more
commercial lenders (the "Lenders") whereby Shareholder shall subordinate its
right to receive payments of principal and interest under the Ajax Note to the
right of such Lenders to receive payments on the notes (the "Lender Notes")
evidencing Ajax's obligation to repay amounts borrowed from the Lenders,
provided the principal amount of the Lender Notes is $5 million or less;
further, Shareholder shall subordinate its liens under the Security Agreement
granted to secure repayment under the Ajax Note to any lien granted to the
Lenders to secure payment under the Lender Notes. Notwithstanding the foregoing,
Shareholder shall not be required in connection with any such subordination
agreement to refrain from taking any action ("standstill") to enforce its rights
under the Ajax Note and to foreclose upon its liens under the related Security
Agreement for more than 180 days after a default not cured by SAC or Ajax.
10. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SAC
The obligations of SAC pursuant to this Agreement are subject
to the satisfaction at the Closing of each of the following conditions, any or
all of which conditions may be waived by SAC in its sole discretion:
10.1 Accuracy of Representations and Warranties. All
representations and warranties made by the Shareholder (contained
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in this Agreement, any Exhibit or Schedule hereto, or any certificate or
instrument delivered to SAC or its representatives by the Shareholder or their
representatives) shall be true on and as of the Closing Date with the same force
and effect as though made on and as of the Closing Date (i.e., with respect to
representations that a state of facts exists on or as of the date hereof, it is
a condition that such state of facts exists on or as of the Closing Date; and
with respect to a representation that a state of facts has or has not changed
between a date prior to the date hereof and the date hereof, it is a condition
that such state of facts has or has not changed between such prior date and the
Closing Date), except as affected by transactions, events and facts contemplated
hereby and specifically including all such transactions, events and facts that
occur and/or arise in the conduct of the Business in the ordinary course from
the date hereof through the Closing and such facts or circumstances as are
communicated in writing by Shareholder to SAC pursuant to Section
7.5.Shareholder acknowledges that if Shareholder discloses in writing any facts
or circumstances required to be disclosed in writing pursuant to Section 7.5,
SAC shall have the right not to close the transaction contemplated hereby and to
seek such other remedies as may be available, provided it may seek such other
remedies only if Shareholder knew as of the date hereof of such facts and
circumstances disclosed pursuant to Section 7.5; further, if SAC elects to
close, the rights and obligations of the parties with respect to such disclosed
facts and circumstances shall be as provided in Section 5.34.
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10.2 Performance of Agreements. The Shareholder shall have
performed and complied in all material respects with all covenants, obligations
and agreements to be performed or complied with by him or before the Closing
Date pursuant to this Agreement.
10.3 Litigation, Etc.
10.3.1 Except as set forth on Exhibit 5.19, no claim, action,
suit, proceeding, arbitration, investigation or hearing or note of hearing shall
be pending or threatened against or affecting the Shareholder, the Common Stock,
AJAX or any of the Assets, which (a) might result either in an action to enjoin
or prevent the consummation of the transactions contemplated by this Agreement
or (b) would materially adversely affect the Business or the ability of SAC to
consummate the transactions contemplated by this Agreement or to own the Common
Stock or to operate the Business.
10.3.2 AJAX shall not be in violation of any law, statute,
ordinance, rule, regulation or executive order, the enforcement of which would,
individually or in the aggregate, materially adversely affect the Assets or the
Business; or which would individually or in the aggregate, materially adversely
affect the ability of SAC to consummate the transactions contemplated by this
Agreement or to own the Common Stock or to operate the Business.
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10.3.3 No law, regulation or decree shall have been proposed,
adopted or promulgated, or become effective, the enforcement of which would
materially adversely affect the ability of SAC to consummate the transactions
contemplated by this Agreement or to own the Common Stock or to operate the
Business.
10.4 Approvals and Consents. AJAX shall have obtained, and SAC
shall have received copies of, all of the approvals and consents referred to in
Section 7.3, each of which approvals and consents shall be in full force and
effect and reasonably satisfactory in form and substance to SAC and its counsel.
10.5 Shareholder's Certificate. SAC shall have received an
accurate certificate of the Shareholder, dated the Closing Date, reasonably
satisfactory in form and substance to SAC and its counsel, certifying (a) as to
the fulfillment of the matters specified in Sections 10.1 through 10.3, and (b)
any changes that SAC is required to be notified of pursuant to Section 7.5, or
that previously had not been disclosed to SAC.
10.6 Good Standing Certificates. SAC shall have received a
certificate of the office of the Secretary of State of New Jersey, dated within
20 days before the Closing Date, certifying that the records of such state
regarding AJAX incorporated in such state reflect that said business has not
been dissolved, canceled, or withdrawn, nor has its charter/authority been
voided/revoked for non-payment of state taxes by proclamation; that it continues
to
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maintain active status within the State of New Jersey and that at the time of
the issuance of said certificate no annual reports are outstanding.
10.7 No Material Adverse Change. There shall have been no
material adverse changes in the financial condition, Business, operations,
Assets, liabilities, management or prospects of AJAX.
10.8 Actions, Proceeding, Etc. All actions, proceedings,
instruments and documents required to carry out the transactions contemplated by
this Agreement shall have been completed.
10.9 Opinion of Counsel to Shareholder: SAC shall have
received an opinion of McCausland, Keen & Buckman, counsel to Shareholder,
addressed to SAC, dated the Closing Date, to the effect set forth in, and
substantially in the form, of Exhibit 10.9.
10.10 Licenses, Permits, Consents, Etc. SAC shall have
received evidence, in form and substance reasonably satisfactory to counsel for
SAC, that such licenses, permits, consents, approvals, authorizations or orders
of governmental authorities as are necessary to the consummation of the
transactions contemplated by this Agreement and the continued operation of the
Business have been obtained.
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10.11 Documentation of Rights. AJAX shall have delivered to
SAC true and complete copies of all of the documentation held by AJAX relating
to each of the Rights.
10.12 Lease Agreement. SAC shall have received the Lease
Agreement and the Option Agreement described in Exhibit 14.15 hereto duly
executed by the lessor named therein.
11. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE SHAREHOLDER
The obligations of the Shareholder under this Agreement are
subject to the satisfaction at the Closing of each of the following conditions,
any or all of which conditions may be waived by Shareholder in his sole
discretion:
11.1 Accuracy of Representations and Warranties. All
representations and warranties by SAC in this Agreement shall be true as of the
Closing Date with the same force and effect as though made on and as of the
Closing Date.
11.2 Performance of Agreements. SAC shall have performed and
complied in all material respects with all covenants, obligations and agreements
to be performed or complied with by it on or before the Closing Date pursuant to
this Agreement, including without limitation the payment of the Purchase Price
as set forth in the first sentence of Section 3.2.
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11.3 No Injunction. No third party injunction, stay or
restraining order shall be in effect prohibiting the consummation of the
transactions contemplated hereby.
11.4 Opinion of Counsel to Buyer. The Shareholder shall have
received an opinion of Phillips Nizer Benjamin Krim & Ballon LLP, counsel to
SAC, addressed to the Shareholder, dated as of the Closing Date, to the effect
set forth in, and substantially in the form, of Exhibit 11.4.
11.5 SAC's Certificate. Shareholder shall have received an
accurate certificate of SAC, dated the Closing Date, reasonably satisfactory in
form and substance to Shareholder and its counsel, certifying (a) as to the
fulfillment of the matters specified in Sections 11.1 through 11.3, and (b) any
changes that Shareholder is required to be notified of pursuant to Section 8.4,
or that previously had not been disclosed to Shareholder.
11.6 Good Standing Certificate. Shareholder shall have
received such certificate with respect to the existence of SAC or SAC's
Assignee, as the case may be, issued by the office of the Secretary of State of
the state of its organization, dated within 20 days before the Closing Date,
certifying that the records of such state regarding SAC or SAC's Assignee, as
the case may be, indicate that SAC or SAC's Assignee as the case may be, was
duly organized and is still existing and in good standing.
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11.7 Guarantees. SAC shall cause AJAX to pay at Closing in
satisfaction of obligations of AJAX existing as of the date hereof guaranteed by
Shareholder or Karl Massaro (the "Guaranteed Obligations") such amounts as may
be necessary, not to exceed $100,000, to obtain for Shareholder and Karl Massaro
a release from the Guaranteed Obligations; further, SAC shall exercise best
efforts to obtain for Shareholder and Karl Massaro a release from all Guaranteed
Obligations and, together with AJAX, shall indemnify Shareholder and Karl
Massaro and hold him harmless from any obligation thereunder.
11.8 Agreements. AJAX, SAC or SAC's Assignee, as the
case may be, shall execute and deliver to the appropriate party:
i) The Consulting Agreement referred to in
Section 3.4(a);
ii) The Employment Agreement referred to in
Section 3.4(b);
iii) The Options referred to in Section 3.5;
iv) The Lease Agreement (and Option) referred to
in Section 14.15;
v) The Ajax Note;
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vi) The Security Agreement referred to in Section
7.10;
vii) The SAC Guaranty of the Ajax Note; and
viii) Such UCC-1's and other instruments as are
necessary to perfect Shareholder's lien under the Ajax Security Agreement.
11.9 Resolutions. Shareholder shall have received a certified
copy of resolutions of the Board of Directors of SAC and the Board of Directors
of SAC's Assignee, as the case may be, authorizing the execution, delivery and
performance of this Agreement and consummation of the transactions contemplated
hereby.
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES:
INDEMNIFICATION
12.1 Survival. The representations and warranties set forth in
this Agreement, in any Exhibit or Schedule hereto and in any certificate or
instrument delivered in connection herewith shall survive for a period of
eighteen (18) months after the Closing Date and shall thereupon terminate and
expire and shall be of no force or effect thereafter, except (i) with respect to
any claim, written notice of which shall have been delivered to SAC, or the
Shareholder, as the case may be prior to the expiration of such eighteen (18)
months, such claim shall survive the termination of such period and shall
survive for as long as such claim is unsettled, provided Shareholder shall have
no liability for such
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claim if it shall remain unsettled and one of the SAC Indemnified Parties shall
not have commenced a litigation with respect thereto within 36 months of the
Closing Date and (ii) with respect to any litigation which shall have been
commenced to resolve such claim on or prior to such date. Notwithstanding the
foregoing, with respect to Taxes, the period shall be the applicable statute of
limitations, and with respect to trade payables and accounts receivable, the
period shall be one (1) year.
In addition to the foregoing limitation of indemnification,
SAC shall not be entitled to indemnification for any claim contending the
insufficiency of a payment of or reserve for federal or state tax liability
unless such claim is derived from SAC's or AJAX's payment of additional taxes,
penalties or interest made as a consequence of an audit by the appropriate
governmental authority not arising from communications (other than routine
communications in connection with its tax obligations) initiated by SAC, SAC's
Assignee (as the case may be) or AJAX.
12.1.1
12.2.1 Indemnification by the Shareholder. (a) The Shareholder
hereby covenants and agrees with SAC that, regardless of any investigation made
at any time by or on behalf of SAC or any information SAC may have and,
regardless of the Closing hereunder, provided that proper and timely notice is
given in accordance with Sections 12.1 and 12.4, the Shareholder shall indemnify
SAC and AJAX and their respective directors, officers, employees and Affiliates
and each of their successors and assigns (individually,
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a "SAC Indemnified Party"), and hold them harmless from, against and in respect
of any and all direct, actual and non-consequential costs, losses, claims,
liabilities, fines, penalties, damages and expenses (including interest which
may be imposed in connection therewith, court costs and reasonable fees and
disbursements of counsel; collectively "Losses") incurred by any of them
resulting from any misrepresentation, breach of warranty or nonfulfillment of
any agreement, covenant or obligation by the Shareholder made in this Agreement
(including without limitation any Exhibit hereto and any certificate or
instrument delivered in connection herewith).
(b) There shall be no obligation on the part of Shareholder to
indemnify or hold a SAC Indemnified Party harmless, except to the extent the sum
of all Losses (other than Losses relating to Taxes which are the subject of the
following paragraph) for which SAC Indemnified Parties seek to be indemnified
exceeds $250,000 (the "General Basket"), in which event Shareholder shall be
responsible for all Losses in excess of $250,000.
(c) There shall be no obligation on the part of Shareholder to
indemnify or hold a SAC Indemnified party harmless with respect to Losses
arising out of or related to Taxes ("Tax Losses") except to the extent that the
Tax Losses exceed $50,000 (the "Tax Basket"), in which event Shareholder shall
be responsible for all such Tax Losses without regard to the Tax Basket.
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(d) Neither the General Basket nor the Tax Basket shall be
applicable with respect to a breach of Sections 5.1, 5.2, 5.3 or 5.7(a) and (b)
and Shareholder's liability with respect to such sections shall be in effect
without any "Basket."
(e) In determining whether Shareholder has any obligation
under the foregoing subparagraphs (a) through (d), and, if so, the amount
thereof, there shall be deducted from any Loss or Tax Loss (i) the proceeds of
any insurance in respect of the incident giving rise to such Loss or Tax Loss
and (ii) the net cash effect of any tax benefit received by Ajax in respect of
any Loss or Tax Loss, offset by the cash effect of any tax burden resulting from
payments made by Shareholder pursuant to Section 12.
12.1.2
12.2.2 Limitation on Shareholder's Indemnification. (a)
Notwithstanding the foregoing, Shareholder's obligation to indemnify the SAC
Indemnified Parties shall not exceed the sum of $2,000,000 (the "Shareholder's
Cap"), except that the Shareholder's Cap shall not apply with respect to a
breach of Sections 5.1, 5.2, 5.6, 5.29 and 5.37 or any of them.
(b) Shareholder acknowledges that Ajax has received from the
New Jersey Department of Environmental Protection Notice of Civil Administrative
Penalty Assessment with respect to emissions from paint spray booths.
Notwithstanding the General Basket, Shareholder shall repay to SAC such portion
of the Purchase Price as is equal to the sum of all fines, penalties,
assessments and
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interest thereon, if any, paid by Ajax and arising out of or related to the use
by Ajax of the paint spray booths prior to the Closing, provided Shareholder's
liability under this paragraph and with respect to any Losses arising out of any
Environmental Conditions shall be capped at $250,000 (the "Environmental Cap").
Subject to the limits of the Environmental Cap, Shareholder shall indemnify the
Company and hold it harmless from and against the cost of any equipment Ajax
must purchase to satisfy any order or directive issued by the New Jersey
Department of Environmental Protection within six months of the Closing Date.
Amounts paid pursuant to this Paragraph will not count towards the Shareholder's
Cap.
12.2.3 Excise Taxes. Shareholder acknowledges that the
Internal Revenue Service ("IRS") has delivered to Ajax notice of a proposed
adjustment of Ajax's excise tax liability for calendar years 1995 and 1996,
together with penalties and interest, in the amount of $1,721,918 (the "Excise
Claim"). Notwithstanding Section 12.2.1(b) and 12.2.2(a) hereof, Shareholder
shall re-pay to SAC such portion of the Purchase Price as is equal to any
liability of Ajax arising out of the Excise Claim, reduced by the net cash
effect of any federal and/or state tax benefit received by Ajax upon payment of
such liability, offset by any federal and/or state tax burdens that may result
from payments made by Shareholder pursuant to this Section 12.2.3.
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To secure Shareholder's obligation under this Section 12.2.3,
a portion of the Purchase Price in an amount equal to the Excise Claim shall be
deposited in escrow with counsel designated by SAC (the "Escrow Agent") to be
held and paid over in accordance with the terms of an Escrow Agreement among
SAC, Shareholder, Ajax and the Escrow Agent substantially in the form annexed
hereto as Exhibit 12.2.3.
Subject to the consent of Ajax, not to be unreasonably
withheld or delayed, Shareholder, at his cost, shall be permitted to select
counsel and a firm of accountants to contest the Excise Claim; provided Ajax
shall have the right, at its cost, to have its counsel participate in such
defense and the Excise Claim shall not be settled in a manner which unreasonably
impacts upon the future liability of Ajax for excise taxes. SAC hereby confirms
that the law firm of McCausland, Keen & Buckman is reasonably acceptable to
contest the Excise Claim.
Shareholder's right to direct the defense of the Excise Claim
shall continue only for so long as such defense does not subject Ajax to
liability in excess of the amount held in escrow, after taking into
consideration the fact that the amount to be paid by Shareholder in respect of
the Excise Claim shall be reduced by the net cash effect of any federal and/or
state tax benefit received by Ajax upon payment of the Excise Claim, offset by
any federal and/or state tax burdens that may result from payments made by
Shareholders pursuant to this Section 12.2.3.
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Amounts paid pursuant to this Section 12.2.3. will not count
towards the Shareholder's Cap.
12.2.4 Industrial Site Recovery Act. SAC hereby acknowledges
and agrees that Shareholder shall cause Ajax, or at Shareholder's request, SAC,
to join in the execution and delivery to the New Jersey Department of
Environmental Protection of a Remediation Agreement or similar arrangement which
shall acknowledge and confirm that the obligations of the parties under the New
Jersey Industrial Site Recovery Act ("ISRA") with respect to the leased premises
described in the Lease shall survive the Closing. SAC further acknowledges and
confirms that it will indemnify Shareholder and hold him harmless from and
against any liability incurred by him under ISRA to the extent that such
liability, together with any liability, which Shareholder may incur under
Section 5.28 and 12.2.2(b), shall exceed $250,000. This indemnity in favor of
Shareholder shall survive the Closing until the expiration of any applicable
statute of limitation.
12.2 Indemnification by SAC. Subject to the limitations set
forth in Section 12.1, SAC hereby covenants and agrees with the Shareholder that
SAC shall indemnify the Shareholder and his heirs, successors and assigns (each,
a "Shareholder Indemnified Party") and hold them harmless from, against and in
respect of any and all costs, losses, claims, liabilities, fines, penalties,
damages and expenses (including interest which may be imposed in connection
therewith and court costs and reasonable fees and disbursements of counsel)
incurred by any of them resulting from any misrepresentation, breach of warranty
or the nonfulfillment of any
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agreement, covenant or obligation by SAC made in this Agreement (including
without limitation any Exhibit hereto and any certificate or instrument
delivered in connection herewith).
12.3 Right to Defend. Except as provided above with respect to
the Excise Liability, if the facts giving rise to any such indemnification shall
involve any actual claim or demand by any third party against a SAC Indemnified
Party or a Shareholder Indemnified Party (referred to hereinafter as an
"Indemnified Party"), the indemnifying parties shall be entitled to prompt
notice of and entitled (without prejudice to the right of any Indemnified Party
to participate at its own expense through counsel of its own choosing) to defend
or prosecute such claim at their expense and through counsel of their own
choosing if they give written notice of their intention to do so no later than
the time by which the interest of the Indemnified Party would be materially
prejudiced as a result of its failure to have received such notice for purposes
hereof, the Indemnified Party will not be considered materially prejudiced if
any notice or demand or claim received by an Indemnified Party is not promptly
delivered to the indemnifying party; provided, however, that if the defendants
in any action shall include both the indemnifying parties and an Indemnified
Party, and the Indemnified Party shall have reasonably concluded that counsel
selected by the indemnifying parties has a conflict of interest because of the
availability of different or additional defenses to the Indemnified Party than
those available to the Indemnified Party, the Indemnified Party shall cooperate
fully in
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the defense of such claim and shall make available to the indemnifying parties
pertinent information under its control relating thereto, but shall be entitled
to be reimbursed, as provided in this Article 12, for all reasonable costs and
expense of said defense by separate counsel incurred by it in connection
therewith.
12.4 Subrogation. If the Indemnified Party receives payment or
other indemnification from the indemnifying party hereunder, the indemnifying
party shall be subrogated to the extent of such payment or indemnification to
all rights in respect of the subject matter of such claim to which the
Indemnified Party may be entitled, to institute appropriate action for the
recovery thereof, and the Indemnified Party agrees reasonably to assist and
cooperate with the indemnifying party at no expense to the Indemnified Party in
enforcing such rights.
13. TERMINATION OF AGREEMENT.
13.1 Mutual Consent of the Parties. This Agreement may be
terminated and the transaction contemplated hereby may be abandoned at any time,
by the mutual consent of the parties. In the event of the termination of this
Agreement, pursuant to this Section 13.1, no party shall have any liability
hereunder, including any liability for damages. In the event that a condition
precedent to a party's obligation is not met, nothing contained herein shall be
deemed to require any party to terminate this
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Agreement rather than to waive such condition precedent and proceed with the
Closing.
13.2 Failure of SAC to obtain Financing. (a) SAC has advised
Shareholder that SAC or SAC's Assignee, as the case may be, intends to conduct a
public offering ("IPO") of its securities to obtain a portion of the monies
necessary to consummate the transaction contemplated hereby. Shareholder shall
have the right to terminate this Agreement by written notice during the period
from August 15, 1997 through August 30, 1997, if SAC or SAC's Assignee, as the
case may be, has not filed a registration statement (the "Registration
Statement") with the Securities & Exchange Commission ("SEC") with respect to
the IPO prior to August 15, 1997, provided Shareholder shall not have the right
to terminate this Agreement pursuant to this sentence if prior to August 15,
1997, SAC (i) pays to Shareholder the sum of $50,000 or (ii) enters into a
bona-fide written commitment (the "Commitment") with an arms' length party which
agrees to provide the equity financing necessary to consummate the transaction
contemplated hereby (the "Private Financing"). Notwithstanding the payment of
the aforesaid $50,000, if SAC has not obtained the Commitment or filed the
Registration Statement prior to August 30, 1997, Shareholder shall have the
right to terminate this Agreement pursuant to written notice to SAC, provided
that the right granted in this sentence shall expire if the Registration
Statement shall be filed or SAC shall obtain the Commitment prior to receipt of
notice of termination.
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(b) Shareholder shall have the right to terminate this Agreement at any
time after November 15, 1997, if the transaction contemplated hereby has not
been closed by that time.
(c) If SAC shall pay to Shareholder the $50,000 referred to in
subsection (a), such amount shall be credited towards the Purchase Price.
13.3 Break-up Fee. If Shareholder shall terminate this
Agreement as a result of a breach by SAC of its material obligations hereunder
or as a result of SAC's inability to consummate the transaction contemplated
hereby as a result of its inability to obtain the necessary financing, SAC shall
pay to Shareholder a break-up fee of $75,000; provided SAC shall not be
obligated to pay such break-up fee if its inability to raise its financing
results, directly or indirectly, from (i) the discovery of facts or information
regarding the Shareholder, AJAX or its Business which are materially different
from the information provided by Shareholder to date and which reflects
materially adversely upon the Shareholder or the Business; (ii) the failure of
Shareholder to comply in all material respects with the covenant contained in
Section 7.8; or (iii) a breach of a material representation or warranty of
Shareholder contained herein.
14. MISCELLANEOUS
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14.1 Expenses. Except as and to the extent otherwise provided
in this Agreement, whether or not the transactions contemplated by this
Agreement are consummated, the Shareholder and SAC shall each pay their own
respective expenses and the fees and expenses of their respective counsel and
other experts, it being acknowledged that the fees and expenses of BDO and such
other firms of accountants as SAC may engage in connection with the transaction
contemplated hereby shall be borne by SAC, unless otherwise provided herein.
14.2 Waivers. No action taken pursuant to this Agreement,
including any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action of compliance with any
representation, warranty, covenant or agreement contained herein or in any other
documents. The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent
breach. Any party hereto may, at or before the Closing, waive any conditions to
its obligations hereunder which are not fulfilled.
14.3 Binding Effect: Benefits. This Agreement shall inure to
the benefit of the parties hereto and shall be binding upon the parties hereto
and their respective heirs, successors and permitted assigns. Except as
otherwise set forth herein, nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective successors
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and assigns any rights, remedies, obligations, or liabilities under or by reason
of this Agreement.
14.4 Assignment. Without limitation, and without the consent,
prior, written or otherwise, of AJAX, this Agreement and all of the rights and
obligations hereunder may be assigned by SAC to any entity owned or controlled
by, or affiliated with it; provided that such assignment shall not relieve SAC
of any of its obligations hereunder, and provided further that SAC's assignee
shall assume all of SAC's obligations hereunder.
14.5 Notices. All notices, requests, demands and other
communications which are required to be or may be given under this Agreement
shall be in writing and shall be deemed to have been duly given when delivered
in person or upon receipt when transmitted by facsimile or telex or after
dispatch by certified or registered first class mail, postage prepaid, return
receipt requested, to the party to whom the same is so given or made:
If to SAC, to:
Standard Automotive Corporation
c/o Loeb, Block, Wacksman & Selzer LLP
505 Park Avenue
New York, New York 10022
Att: Steven Merker, Esq.
With a copy to:
Phillips Nizer Benjamin Krim & Ballon LLP 666 Fifth Avenue New
York, New York 10103 Att: Vincent J. McGill, Esq.
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If to the Shareholder, to:
Carl Massaro
1511 Casey Key Drive
Punta Gorda, Florida 33950
With a copy to:
McCausland, Keen & Buckman
Radnor Court
259 Radnor Chester Road
Radnor, PA 19087-5240
ATT: Marc Maser, Esq.
14.6 Entire Agreement. This Agreement (including the Exhibits
hereto) constitute the entire agreement and supersede all prior agreements and
understandings, oral and written, among the parties hereto with respect to the
subject matter hereof and supersede all prior agreements, representations,
warranties, statements, promises and understandings, whether written or oral,
with respect to the subject matter hereof. No party hereto shall be bound by or
charged with any written or oral arguments, representations, warranties,
statements, promises or understandings not specifically set forth in this
Agreement or in any Exhibit hereto or in certificates and instruments to be
delivered pursuant hereto on or before the Closing.
14.7 Headings; Certain Terms. The section and other headings
contained in this Agreement are for reference purposes only and shall not be
deemed to be a part of this Agreement or to affect the meaning or interpretation
of this Agreement. As used in this Agreement, the term "including" means
"including, but not limited to" unless otherwise specified; the word "or" means
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"and/or," and the word "person" means and refers to any individual, corporation,
trust, partnership, joint venture, government or governmental authority, or any
other entity; and the plural and singular forms are used interchangeably.
14.8 Counterparts. This Agreement may be executed in any
number of counterparts, each of which when executed, shall be deemed to be an
original and all of which together shall be deemed to be one and the same
instrument.
14.9 Governing Law. This Agreement shall be construed in
accordance with the laws of the State of New Jersey, without giving effect to
the choice of law principles thereof
14.10 Severability. If any term or provision of this Agreement
shall to any extent be invalid or unenforceable, the remainder of this Agreement
shall not be affected thereby, and each term and provision of the agreement
shall be valid and enforced to the fullest extent permitted by law.
14.11 Amendments. This Agreement may not be modified or
changed except by an instrument or instruments in writing signed by the party or
parties against whom enforcement of any such modification or amendment is
sought.
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14.12 Transaction Taxes. The Shareholder shall pay any and all
taxes imposed upon the sale of the Common Stock and transfer of ownership
thereof.
14.13 Section References. All references contained in this
Agreement to any section number are references to sections of this Agreement
unless otherwise specifically stated.
14.14 Brokers and Finders. (a) Shareholder represents and
warrants that it has dealt with no brokers, finders or investment bankers in
connection with this Agreement other than the Gottesman Company, 200 East 71st
Street, New York, New York 10021 and Tom Harrier. Shareholder shall pay at the
Closing all fees due Gottesman and upon receipt of the Purchase Price $500,000
of such amounts as may be due Mr. Harrier. Shareholder shall indemnify AJAX, SAC
and their successors and assigns and hold them harmless from a claim by any
party that it is due a commission, finder's or similar fee as a result of
actions taken by Shareholder.
(b) SAC represents and warrants that it has dealt with no
broker, finder or investment banker in connection with this transaction other
than Gottesman and Harrier and that the amount which will be due Harrier upon
consummation of this transaction is $500,000. SAC shall indemnify Shareholder,
his successors and assigns and hold them harmless from (i) a claim by any party
(other than Gottesman and Harrier) that it is due a commission, finder's
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or similar fee as a result of actions taken by SAC and (ii) a claim by Harrier
that he is due an amount in excess of $500,000.
14.15 Lease and Option to Purchase. Set forth on Exhibit 14.15
is a copy of a lease for the premises known as 32 Valley Road, Hillsborough, New
Jersey 08876-4056 and the surrounding twenty-two acres (collectively, the
"Premises"). The aforesaid lease shall be executed on or before the Closing Date
and shall contain a provision which grants the lessee named therein an option to
purchase the Premises.
14.16 Parties in Interest. Nothing in this Agreement, whether
expressed or implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any persons other than the parties to it and their
respective heirs, successors, personal representatives and permitted assigns,
nor is anything in this Agreement intended to relieve or discharge the
obligations or liability of any third persons to any party to this Agreement,
nor is anything in this Agreement intended to impose any liability or obligation
on any third party, nor shall any provision give any third persons any right of
subrogation or action over or against any party to this Agreement.
IN WITNESS WHEREOF, the parties hereto have signed this
Agreement, or have caused this Agreement to be signed in their respective names
by an officer thereunder duly authorized, as of the date first above written.
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________________________________
Carl Massaro
STANDARD AUTOMOTIVE CORPORATION
By:_____________________________
Steven Merker, __________
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EMPLOYMENT AGREEMENT
This AGREEMENT (the "Agreement") is made as of___________, 1997 by AJAX
MANUFACTURING COMPANY, a New Jersey corporation (the "Company"), and KARL
MASSARO (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Executive in the capacity
and on the terms and conditions set forth herein and the Executive desires to be
employed by the Company on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, receipt of which is hereby acknowledged, the parties
hereto agree as follows:
1. Employment. The Company agrees to employ the Executive during the
Term specified in paragraph 2 hereof, and the Executive agrees to accept such
employment, upon the terms and conditions hereinafter set forth.
2. Term. Subject to the terms and conditions of this Agreement, the
Executive's employment by the Company shall be for a term commencing on the date
hereof and expiring on the close of business on the third anniversary of the
date hereof (the "Initial Term"); provided, that the term of the Executive's
employment by the Company shall continue thereafter unless and until either
party shall give to the other at least thirty (30) days' advance written notice
("Notice of Termination") of expiration of the term (the Initial Term and the
period, if any, thereafter, during which the Executive's employment shall
continue are collectively referred to as the "Term"). Such Notice of Termination
shall specify the date of expiration (which may not be earlier than the end of
the Initial Term). The Company shall have the right at any time during any such
30-day notice period to relieve the Executive of his office, duties and
responsibilities and to place him on a paid leave-of-absence status; provided,
that during such notice period the Executive shall remain an employee of the
Company and shall continue to receive his salary, compensation and other
benefits as provided in this Agreement.
3. Duties and Responsibilities
(a) During the Term, the Executive shall hold the office of
President.
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(b) The Executive shall have such powers, duties and
responsibilities as are assigned to him from time to time by the Board of
Directors of the Company (the "Board") or as provided in the Company's By-Laws
consistent with the Executive's position as designated in clause (a) above. The
Executive shall report to the Board at such times and in such detail as the
Board shall reasonably require. Provided that the Executive shall not be
required to perform any act which would constitute or require the violation of
any federal, state or local law, rule, regulation, ordinance or the like.
(c) The Executive's employment by the Company shall be full
time and exclusive, and during the Term the Executive agrees that he will (i)
devote all his business time and attention, his best efforts and all his skill
and ability to the performance of his duties hereunder; (ii) carry out his
duties in a competent and professional manner; and (iii) generally promote the
interests of the Company. During the Term it shall not be a violation of this
Agreement for the Executive to serve on the board of directors of another
corporation, to serve on the board of a cooperative apartment, to serve on civic
or charitable boards or committees, to perform speaking engagements, or to
manage his personal passive investments, so long as such activities
(individually or collectively) do not materially interfere with the performance
of the Executive's responsibilities as an employee of the Company in accordance
with this Agreement.
(d) The Executive's services shall be performed at the
Company's executive offices in Hillsborough Township, New Jersey subject to
necessary travel requirements of his position and duties hereunder. The
Executive shall not be required to relocate without his prior consent.
4. Compensation. As compensation for services hereunder and in
consideration of his agreement not to compete as set forth in paragraph 8
hereof, the Company shall pay the Executive, a base salary at an annual rate of
$200,000. The base salary shall be payable in equal installments in accordance
with the normal payroll policies of the Company, but no less frequently than
bi-weekly. Such annual rate of salary compensation may be increased in the
discretion of the Board, and during the Term Executive shall be eligible to
receive any bonus granted in the discretion of the Board. In addition, during
the Term Executive shall receive annual bonuses based upon the achievement of
reasonable goals determined by the Board after consultation with the Executive,
such goals to be agreed upon within the first month of each twelve month period
commencing on the date hereof. The annual bonus with respect to each twelve
month period shall be payable no later than ninety days after the expiration of
such period.
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5. Expenses; Fringe Benefits.
(a) The Company agrees to pay or to reimburse the Executive
during the Term for all reasonable, ordinary and necessary business or
entertainment expenses incurred in the performance of his services hereunder in
accordance with the policy of the Company as from time to time in effect. The
Executive, as a condition to obtaining such payment or reimbursement, shall
provide to the Company any and all statements, bills or receipts evidencing the
travel or out-of-pocket expenses for which the Executive seeks payment or
reimbursement, and any other information or materials required by such policy or
as the Company may otherwise from time to time reasonably require.
(b) During the Term the Executive and, to the extent eligible,
his dependents, shall be entitled to participate in and receive all benefits
under any welfare benefit plans and programs provided by the Company (including
without limitation, medical, dental, disability, group life (including
accidental death and dismemberment) and business travel insurance plans and
programs) applicable generally to the executive officers of the Company,
subject, however, to the generally applicable eligibility and other provisions
of the various plans and programs in effect from time to time.
(c) During the Term the Executive shall be entitled to
participate in all retirement plans and programs (including without limitation
any profit sharing/401(k) plan) applicable generally to the executive officers
of the Company, subject, however, to generally applicable eligibility and other
provisions of the various plans and programs in effect from time to time. In
addition, during the Term the Executive shall be entitled to receive fringe
benefits and perquisites in accordance with the plans, practices, programs and
policies of the Company from time to time in effect, available generally to the
executive officers of the Company and consistent with the generally applicable
guidelines determined by the Board.
(d) The Executive shall be entitled to as many vacation days,
holidays, sick days and personal days as are in accordance with the Company's
policy then in effect for its employees generally, upon such terms as may be
provided of general application to all employees of the Company.
6. Termination.
(a) The Company, by direction of the Board, shall have the
right to terminate the Executive's employment with the Company at any time for
"Cause"; provided, that any termination by the Company for Cause shall be
communicated by the Company to
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the Executive in a writing indicating the facts and circumstances providing the
basis for termination for Cause, and the Executive shall have the opportunity to
contest his termination before the Board. (The effective date of the Executive's
termination of employment with the Company, regardless of the reason, is
referred to as the "Date of Termination"). For purposes of this Agreement, the
term "Cause" shall be limited to the following grounds:
(i) The Executive's failure or refusal to perform his
material duties and responsibilities as set forth in paragraph 3 hereof (other
than any such failure resulting from Executive's disability or death which are
governed by Paragraph 7), if such failure or refusal continues for fourteen (14)
days after written warning to the Executive, which states that the warning is of
a potential termination for Cause under this Agreement, sets forth the facts and
circumstances providing the basis for such termination, and states that
termination will become effective in fourteen (14) days after the date the
notice is delivered (as determined in accordance herewith) unless such failure
or refusal is corrected prior to 6:00 p.m. New York time on such 14th day;
provided, however, that if Executive commences to correct such failure or
refusal within such fourteen (14) day period and thereafter diligently endeavors
to correct the same to completion, such 14 day period shall be automatically
extended by the amount of time reasonably necessary to complete the correction.
(ii) The willful misappropriation of the funds or
property of the Company;
(iii) Use of alcohol or illegal drugs, interfering
with the performance of the Executive's obligations under this Agreement,
continuing after written warning;
(iv) Conviction of, or admission of or entry of a
plea of nolo contendere or similar plea with respect to, a felony or of any
crime involving moral turpitude, dishonesty or theft; provided that such
violation results in material injury to the business or reputation of the
Company.
(v) The commission by the Executive of any willful or
intentional act having the effect, or which could reasonably be expected to have
the effect, of materially injuring the reputation, business or business
relationships of the Company; or
(vi) Any breach by the Executive (not covered by any
of clauses (i) through (v) and other than in connection with the death or
disability of Executive as set forth in paragraph 7)
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of any material provision of this Agreement, if such breach is not cured within
fourteen (14) days after written notice thereof to the Executive by the Company;
provided, however, that if Executive commences to correct such breach within
such fourteen (14) day period and thereafter diligently endeavors to cure the
same to completion, such fourteen (14) day period shall be automatically
extended by the amount of time reasonably necessary to cure the breach.
Upon the termination of the employment of the Executive with the Company for
Cause, the Company shall pay the Executive, subject to appropriate offsets, as
permitted by applicable law, for debts or money due to the Company, including
without limitation personal loans to the Executive and travel advances
("Offset"), his salary compensation only through, and any unpaid reimbursable
expenses outstanding as of, the Date of Termination. Any benefits to which
Executive or his beneficiaries may be entitled under the plans and programs
described in paragraphs 5(b) and (c) hereof as of his Date of Termination shall
be determined in accordance with the terms of such plans and programs. Except as
provided in this paragraph 6(a), in connection with the Executive's termination
by the Company for Cause, the Company shall have no further liability to the
Executive or the Executive's heirs, beneficiaries or estate for damages,
compensation, benefits, indemnities or other amount of whatever nature.
(b) In the event the Executive's employment by the Company
during the Term is terminated by the Company in breach of this Agreement (a
termination "without Cause"), the Company shall, subject to any Offsets and for
so long as the Executive is not in breach of his obligations to the Company
under paragraph 8 hereof, continue to pay the Executive his salary compensation
under paragraph 4 hereof as and when the Executive would have otherwise received
such salary compensation. There shall be no offset against amounts due Executive
under this Agreement on account of any remuneration attributable to any
subsequent employment that he may obtain. Any benefits to which Executive or his
beneficiaries may be entitled under the plans and programs described in
paragraphs 5(b) and (c) hereof as of his Date of Termination shall be determined
in accordance with the terms of such plans and programs. Except as provided in
this paragraph 6(b), in connection with the Executive's termination by the
Company without Cause, the Company shall have no further liability to the
Executive or the Executive's heirs, beneficiaries or estate for damages,
compensation, benefits, indemnities or other amount of whatever nature. If
subsequent to the termination of Executive's employment without cause, the
Company shall fail to pay the Executive his salary compensation in accordance
with this paragraph 6(b), and such failure continues for ten (10) days after
written notice from the
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Executive to the Company, the restrictions in paragraph 8(a) hereof shall be
null and void. In the event the Executive brings any proceeding against the
Company to enforce his rights under this paragraph 6(b) and prevails (by way of
written settlement, arbitration award or judgment), the Company shall reimburse
the Executive for all reasonable expenses (including reasonable attorney's fees)
he incurred in connection with such proceeding.
(c) Executive may terminate this Agreement, without any breach
of this Agreement, for "Good Reason" if Executive provides written notice (a
"Good Reason Notice") to the Company that an event included in the definition of
"Good Reason" has occurred, sets forth therein the facts and circumstances
providing the basis for a Good Reason termination and further states that unless
such event is cured within 14 days of Company's receipt of a Good Reason Notice,
Executive will terminate this Agreement. Good Reason shall exist if any one or
more of the following shall occur:
(i) any breach by the Company of any of the material
provisions of this Agreement;
(ii) Executive is removed from the position of
President of the Company for any reason other than for Cause within the meaning
of paragraph 6(a) hereof;
(iii) Executive suffers a material diminution in the
authorities, duties or responsibilities normally associated with the position of
President, or there are assigned to him duties and responsibilities materially
inconsistent with those normally associated with such position;
(iv) Company fails to obtain a written agreement for
any successor to the Company to assume and perform this Agreement; or
(v) a change in control of the Company.
In the event the Executive's employment with the Company is
terminated for Good Reason, the Company shall, subject to any Offsets and for so
long as the Executive is not in breach of his obligations to the Company under
paragraph 8 hereof, continue to pay the Executive his compensation under
paragraph 4 hereof, as and when the Executive would have otherwise received such
compensation. There shall be no offset against amounts due Executive under this
Agreement on account of any remuneration attributable to any subsequent
employment that he may obtain. Any benefits to which Executive or his
beneficiaries may be entitled under the plans and programs described in
paragraphs 5(b) and (c) hereof as of the Date of Termination shall be determined
in accordance with the terms of such plans and
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programs. If the Company shall fail to pay the Executive his compensation in
accordance with this Section 6(c), and such failure continues for ten (10) days
after written notice from the Executive to the Company, the restrictions in
paragraph 8(a) hereof shall be null and void. In the event the Executive brings
any proceeding against the Company to enforce his rights under this paragraph
6(c) and prevails (by way of written settlement, arbitration award or judgment),
the Company shall reimburse the Executive for all reasonable expenses (including
reasonable attorney's fees) which he incurred in connection with such
proceeding. Except as provided in this paragraph 6(c), in connection with the
Executive's termination of employment for Good Reason, the Company shall have no
further liability to the Executive or the Executive's heirs, beneficiaries or
estate for damages, compensation, benefits, indemnities or other amounts of
whatever nature.
For purposes hereof, a "change in control" of the Company
shall be deemed to occur only if subsequent to the acquisition of the Company by
Standard Automotive Corporation: (i) an individual or Group (as that term is
defined in Regulation 13D-G promulgated under the Securities Exchange Act of
1934) (or any successor regulation) shall acquire the right, directly or
indirectly to vote more than 50% of the outstanding common stock of the Company;
or (ii) the Company sells or otherwise disposes of substantially all of its
assets.
7. Disability; Death.
(a) In the event the Executive shall be unable to perform the
essential functions of his duties hereunder by virtue of illness or physical or
mental incapacity or disability (from any cause or causes whatsoever) in
substantially the manner and to the extent required hereunder prior to the
commencement of such disability (all such causes being referred to as
"disability") and the Executive shall fail to perform such duties for periods
aggregating one hundred and twenty (120)] days, whether or not continuous, in
any continuous period of one hundred and eighty (180)] days, the Company shall
have the right to terminate the Executive's employment hereunder as at the end
of any calendar month during the continuance of such disability upon at least
thirty (30) days prior written notice to him. In the event of termination under
this paragraph 7(a), the Executive shall be entitled to receive when otherwise
payable, subject to any Offsets, all salary compensation earned but unpaid as of
the Date of Termination and any unpaid reimbursable expenses outstanding as of
such date; and any benefits to which the Executive or his beneficiaries may be
entitled under the plans and programs described in paragraphs 5(b) and (c)
hereof as of such Date of Termination shall be determined in accordance with the
terms of such plans and programs. Nothing contained herein
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is intended to nullify or diminish the Executive's rights under, and this
paragraph 7(a) is subject to, the Americans with Disabilities Act of 1990 and
the Family and Medical Leave Act of 1993, as such Acts may be amended from time
to time.
(b) The employment of the Executive with the Company shall
terminate on the date of the Executive's death and in such event the Executive's
estate shall be entitled to receive when otherwise payable, subject to any
Offsets, all salary compensation earned but unpaid as of the date of his death
and any unpaid reimbursable expenses outstanding as of such date. In the event
of the Executive's death, any benefits to which the Executive or his
beneficiaries may be entitled under the plans and programs described in
paragraphs 5(b) and (c) hereof shall be determined in accordance with the terms
of such plans and programs.
(c) Except as provided in paragraphs 7(a) and (b) hereof, in
the event of the Executive's termination due to disability or death, the Company
shall have no further liability to the Executive or the Executive's heirs,
beneficiaries or estate for damages, compensation, benefits, indemnities or
other amounts of whatever nature.
8. Non-Competition and Protection of Confidential Information.
(a) The Executive agrees that his services to the Company are
of a special, unique, extraordinary and intellectual character, and his position
with the Company places him in a position of confidence and trust with the
employees and customers of the Company. Consequently, the Executive agrees that
it is reasonable and necessary for the protection of the goodwill and business
of the Company that the Executive make the covenants contained herein.
Accordingly, the Executive agrees that, subject to the provisions of paragraphs
6(b) and 6(c) hereof, during the period of the Executive's employment hereunder
and: (x) in the case of clause (i) of this subparagraph (a), for the period of
three months, and (y) in the cases of clauses (ii) and (iii) of this
subparagraph (a), for the period of six months, immediately following the
termination of his employment hereunder, he shall not, except on behalf of the
Company, directly or indirectly:
(i) own, operate, manage or be employed by or
affiliated with any person or entity that engages in any business then being
engaged in by the Company, it being acknowledged that the current business of
the Company is the manufacture of trailer and shipping container chassis and
sanitary containers or provides consulting services relating to the foregoing (a
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"Competing Business") which is located east of the Mississippi River; or
(ii) attempt in any manner to solicit from any
customer or supplier business of the type performed for or by the Company or to
persuade any customer or supplier of the Company to cease to do business or to
reduce the amount of business which any such customer or supplier has
customarily done or contemplates doing with the Company, whether or not the
relationship between the Company and such customer or supplier was originally
established in whole or in part through his efforts; or
(iii) employ as an employee or retain as a
consultant, or persuade or attempt to persuade any person who is at the Date of
Termination or at any time during the preceding year was, or in the six (6)
months following such termination becomes, an employee of or exclusive
consultant to the Company to leave the Company or to become employed as an
employee or retained as a consultant by anyone other than the Company.
As used in this paragraph 8, the term: (i) "Company" shall
include subsidiaries of the Company; and (ii) "customer" and "supplier" shall
mean any person or entity that is a customer or supplier of the Company at the
Date of Termination, or at any time during the preceding year was, or in the six
(6) months following such termination becomes, a customer or supplier of the
Company, or if the Executive's employment shall not have terminated, at the time
of the alleged prohibited conduct.
Notwithstanding the foregoing, during the six months
immediately following the expiration or termination of Executive's employment
hereunder, Executive shall be permitted to engage in those businesses which Carl
Massaro is permitted to engage in pursuant to Paragraph 8(a) of his Consulting
Agreement with the Company dated ____, 1997 (the "Consulting Agreement").
(b) The Executive agrees that he will not at any time (whether
during the Term or after termination of this Agreement), disclose to anyone, any
confidential information or trade secret of the Company or utilize such
confidential information or trade secret for his own benefit, or for the benefit
of third parties, and all memoranda or other documents compiled by him or made
available to him during the Term pertaining to the business of the Company shall
be the property of the Company and shall be delivered to the Company on the Date
of Termination or at any other time, as reasonable, upon request. The term
"confidential information or trade secret" does not include any information
which (i) becomes generally available to the public other than by breach of this
provision or (ii) the Executive learns from a third party who is not under an
obligation of confidence to the
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Company or (iii) is required to be disclosed by law or legal process.
(c) If the Executive commits a breach or threatens to commit a
breach of any of the provisions of paragraphs 8(a) or (b) hereof, the Company
shall have the right to have the provisions of this Agreement specifically
enforced by any court having jurisdiction without being required to post bond or
other security and without having to prove the inadequacy of any other available
remedies, it being acknowledged and agreed that any such breach will cause
irreparable injury to the Company and that money damages will not provide an
adequate remedy to the Company. In addition, the Company may take all such other
actions and remedies available to it in law or in equity and shall be entitled
to such damages as it can show it has sustained by reason of such breach.
(d) The parties acknowledge that the type and periods of
restriction imposed in the provisions of paragraphs 8(a) and (b) hereof are fair
and reasonable and are reasonably required for the protection of the Company and
the goodwill associated with the business of the Company; and that the time,
scope, geographic area and other provisions of this paragraph 8 have been
specifically negotiated by sophisticated parties and accordingly it is
reasonable that the restrictive covenants set forth herein are not limited by
narrow geographic area. If any of the covenants in paragraphs 8(a) or (b)
hereof, or any part thereof, is hereafter construed to be invalid or
unenforceable, it is the intention of the parties that the same shall not affect
the remainder of the covenant or covenants, which shall be given full effect,
without regard to the invalid portions. If any of the covenants contained in
paragraphs 8(a) or (b), or any part thereof, is held to be unenforceable because
of the duration of such provision or the area covered thereby, the parties agree
that the court making such determination should reduce the duration and/or areas
of such provision such that, in its reduced form, said provision shall then be
enforceable. The parties intend to and hereby confer jurisdiction to enforce the
covenants contained in paragraphs 8(a) and (b) upon the courts of any
jurisdiction within the geographical scope of such covenants. In the event that
the courts of any one or more of such jurisdictions shall hold such covenants
wholly unenforceable by reason of the breadth of such time, scope or geographic
area, it is the intention of the parties hereto that such determination not bar
or in any way affect the Company's right to the relief provided above in the
courts of any other jurisdiction within the geographical scope of such
covenants, as to breaches of such covenants in such other respective
jurisdictions, the above covenants as they relate to each jurisdiction being,
for this purpose, severable into diverse and independent covenants.
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9. Intellectual Property. During the Term, the Executive will disclose
to the Company all ideas, inventions, advertising campaigns, designs, logos,
slogans, processes, operations, products or improvements which may be patentable
or copyrightable or subject to any trade or service mark or name, and business
plans developed by him during such period, either individually or in
collaboration with others, which relate to the business of the Company
("Intellectual Property"). The Executive agrees that such Intellectual Property
will be the sole property of the Company and that he will at the Company's
request and cost do whatever is reasonably necessary to secure the rights
thereto by patent, copyright, trademark or otherwise to the Company.
Notwithstanding the foregoing, the Intellectual Property shall not include any
property which is created or developed by Executive in conjunction with Carl
Massaro and which relates exclusively to any business or other endeavor in which
Carl is entitled to engage pursuant to the Consulting Agreement.
10. Enforceability. The failure of either party at any time to require
performance by the other party of any provision hereunder shall in no way affect
the right of that party thereafter to enforce the same, nor shall it affect any
other party's right to enforce the same, or to enforce any of the other
provisions in this Agreement; nor shall the waiver by either party of the breach
of any provision hereof be taken or held to be a waiver of any subsequent breach
of such provision or as a waiver of the provision itself.
11. Assignment. This Agreement is binding on and is for the benefit of
the parties hereto and their respective successors, heirs, executors,
administrators and other legal representatives. Neither this Agreement nor any
right or obligation hereunder may be sold, transferred, assigned, pledged or
hypothecated by either party hereto without the prior written consent of the
other party; provided, the Company may assign its rights and obligations under
the Agreement in connection with the sale or other transfer of all or
substantially all of the Company's business (whether by way of sale of stock,
assets, merger or otherwise).
12. Severability. In the event any provision of this Agreement is found
to be void and unenforceable by a court of competent jurisdiction, the remaining
provisions of this Agreement shall nevertheless be binding upon the parties with
the same effect as though the void or unenforceable part had been severed and
deleted.
13. Life Insurance. The Executive agrees that the Company shall have
the right to obtain life insurance on the Executive's life, at the Company's
sole expense and with the Company as the sole beneficiary thereof to that end,
the Executive shall (a)
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cooperate fully with the Company in obtaining such life insurance, (b) sign any
necessary consents, applications and other related forms or documents and (c)
take any reasonably required medical examinations.
14. Notice. Any notice, request, instrument or other document to be
given under this Agreement by either party hereto to the other shall be in
writing and shall be deemed effective (a) upon personal delivery, if delivered
by hand, (b) three (3) days after the date of deposit in the mails, postage
prepaid, if mailed by certified or registered mail, or (c) on the next business
day, if sent by a prepaid overnight courier service, and in each case addressed
as follows:
If to the Executive:
Karl Massaro
1114 Kipling Road
Elizabeth, New Jersey 07208
With a copy to:
McCausland, Keen & Buckman
Radnor Court
259 Radnor-Chester Road, Suite 160
Radnor, Pennsylvania 19087
Attn: Marc S. Maser
If to the Company:
Ajax Manufacturing Company
321 Valley Road
Hillsborough Township, New Jersey 08876-4056
Attention: President and Secretary
Fax:
with a copy to:
Phillips Nizer Benjamin Krim & Ballon LLP
666 Fifth Avenue
New York, New York 10103-0084
Attention: Vincent J. McGill, Esq.
Fax: (212) 262-5152
Any party may change the address to which notices are to be sent by giving
notice of such change of address to the other party in the manner herein
provided for giving notice.
15. No Conflict. The Executive represents and warrants that he is not
subject to any agreement, instrument, order, judgment or decree of any kind, or
any other restrictive
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agreement of any character, which would prevent him from entering into this
Agreement or which would be breached by the Executive upon the performance of
his duties pursuant to this Agreement.
16. Certain Obligations. The Company will exercise its best efforts to
obtain for Executive a release from all obligations of the Company that are
guaranteed by the Executive as of the date hereof and will indemnify the
Executive and hold him harmless from any obligations under said guarantee or
guarantees. The provisions of this paragraph shall survive the termination of
this Agreement.
17. Miscellaneous.
(a) The headings contained in this Agreement are for reference
purposes only, and shall not affect the meaning or interpretation of this
Agreement.
(b) The Company may withhold from any amount payable under
this Agreement such federal, state or local taxes as shall be required to be
withheld pursuant to applicable law or regulation.
(c) This Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey, without regard to the
conflict of law principles thereof.
(d) This Agreement, represents the entire agreement between
the Company and the Executive with respect to the subject matter hereof, and all
prior agreements relating to the employment of the Executive, written or oral,
are nullified and superseded hereby.
(e) This Agreement may not be orally canceled, changed,
modified or amended, and no cancellation, change, modification or amendment
shall be effective or binding, unless in writing and signed by both parties to
this Agreement, and any provision hereof may be waived only by an instrument in
writing signed by the party or parties against whom or which enforcement of such
waiver is sought.
(f) As used in this Agreement, any gender includes a reference
to all other genders and the singular includes a reference to the plural and
vice versa.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
AJAX MANUFACTURING COMPANY
By:_________________________
Name:
Title:
____________________________
KARL MASSARO
GUARANTY
For good and valuable consideration, the receipt of which is
acknowledged by the undersigned, and intending to be legally bound hereby, the
undersigned agrees that payment of any amounts due and owing hereunder from the
Company to Executive shall be guaranteed by the undersigned in the event that
the Company fails to pay any such amount to Executive when due under the terms
of this Agreement.
STANDARD AUTOMOTIVE CORPORATION
By:____________________________
Name:
Title:
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CONSULTING AGREEMENT
This AGREEMENT (the "Agreement") is made as of ___________, 1997 by AJAX
MANUFACTURING COMPANY, a New Jersey corporation (the "Company"), and CARL
MASSARO (the "Consultant").
W I T N E S E T H:
WHEREAS, the Company wishes to avail itself of the consulting services of
the Consultant, and the Consultant wishes to provide his consulting services to
the Company.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, receipt of which is hereby acknowledged, the parties
hereto agree as follows:
1. Engagement as a Consultant. The Company hereby engages the Consultant as
a consultant to render advice to the Company from time to time during the term
hereof.
2. Term. Subject to the terms and conditions of this Agreement, the
Consultant's engagement by the Company shall be for a term commencing on the
date hereof and expiring on the close of business on the third anniversary of
the date hereof (the "Initial Term"); provided, that the term of the
Consultant's engagement by the Company shall continue thereafter unless and
until either party shall give to the other at least thirty (30) days' advance
written notice ("Notice of Termination") of expiration of the term (the Initial
Term and the period, if any, thereafter, during which the Consultant's
engagement shall continue are collectively referred to as the "Term"). Such
Notice of Termination shall specify the date of expiration (which may not be
earlier than the end of the Initial Term). The Company shall have the right at
any time during any such 30-day notice period to relieve the Consultant of his
responsibilities and to place him on a paid leave-of-absence status; provided,
that during such notice period the Consultant shall continue to receive his
consulting fee and other benefits as provided in this Agreement.
3. Duties and Responsibilities.
(a) It is understood and agreed that the Consultant is an independent
contractor and that the Consultant shall perform his duties hereunder in
compliance with and subject to the direction of, and shall engage in such
assignments as are assigned to him from time to time by, the Board of
Directors of the Company (the "Board"). All such assignments shall not
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obligate Consultant to perform any act which would constitute or require
the violation of any federal, state or local law, rule, regulation,
ordinance or the like. In addition, all such assignments shall require the
performance of services customarily and ordinarily exercised and performed
by an executive officer of a company in the same industry as the business
of the Company acquired by Standard Automotive Corporation from Consultant
(the "Acquired Business"). The Consultant shall report to the Board at such
times and in such detail as the Board shall reasonably require.
(b) The parties contemplate that the Consultant shall be called upon
to provide approximately 40 hours of service to the Company per month. The
parties further contemplate that such service may be rendered in blocks of
consecutive days or weeks during any month and that such service will be
rendered at such places at the Company and the Consultant shall reasonably
determine are appropriate to the completion of the matters assigned to the
Consultant. During the Term the Consultant will (i) devote such of his
business time and attention as is reasonably necessary to render his
services hereunder, and use his best efforts and all his skill and ability
in the performance of his duties hereunder; (ii) carry out his duties in a
competent and professional manner; and (iii) generally promote the
interests of the Company. During the Term it shall not be a violation of
this Agreement for the Consultant to serve on the board of directors of
another corporation, to serve on the board of a cooperative apartment, to
serve on civic or charitable boards or committees, to perform speaking
engagements, to manage his personal investments, or to engage in such other
business as Consultant may pursue in his sole discretion, subject only to
the restrictions on competition between the Company and Consultant set
forth in Section 3.5 of the Stock Purchase Agreement, dated _________ 1997
to which Consultant and Standard Automotive Corporation, a Delaware
corporation, are parties (the "Stock Purchase Agreement") and the
non-competition provisions contained in Section 8 of this Agreement.
(c) The Consultant shall, for all purposes including all applicable
federal, state and local income and employment taxes and withholding
regulations, be deemed to be an independent contractor. The Consultant
shall file all tax returns and pay all relevant taxes to federal and state
and local jurisdictions in respect of his consulting fee hereunder and as
though he were an independent contractor.
4. Consulting Fee. As compensation for services hereunder and in
consideration of his agreement not to compete as set forth in paragraph 8
hereof, the Company shall pay the Consultant a consulting fee at an annual rate
of $160,000, payable in equal installments on a bi-weekly basis.
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5. Expenses. The Company agrees to pay or to reimburse the Consultant
during the Term for all reasonable, ordinary and necessary business or
entertainment expenses incurred in the performance of his services hereunder in
accordance with the policy of the Company as from time to time in effect. The
Consultant, as a condition to obtaining such payment or reimbursement, shall
provide to the Company any and all statements, bills or receipts evidencing the
travel or out-of-pocket expenses for which the Consultant seeks payment or
reimbursement, and any other information or materials, as the Company may from
time to time reasonably require.
6. Termination.
(a) The Company, by direction of the Board, shall have the right to
terminate the Consultant's engagement by the Company at any time for "Cause";
provided, that any termination by the Company for Cause shall be communicated by
the Company to the Consultant in a writing indicating the facts and
circumstances providing the basis for termination for Cause, and the Consultant
shall have the opportunity to contest his termination before the Board. (The
effective date of the Consultant's termination of engagement by the Company,
regardless of the reason, is referred to as the "Date of Termination"). For
purposes of this Agreement, the term "Cause" shall be limited to the following
grounds:
(i) The Consultant's failure or refusal to perform his material duties
and responsibilities as set forth in paragraph 3 hereof (other than any
such failure resulting from Consultant's disability or death which are
governed by Paragraph 7), if such failure or refusal continues for fourteen
(14) days after written warning to the Consultant, which states that the
warning is of a potential termination for Cause under this Agreement, sets
forth the facts and circumstances providing the basis for such termination,
and states that termination will become effective in fourteen (14) days
after the date the notice is delivered (as determined in accordance
herewith) unless such failure or refusal is cured prior to 6:00 p.m. New
York time on such 14th day; provided, however, that if Consultant commences
to correct such failure or refusal within such 14 day period and thereafter
diligently endeavors to correct the same to completion, such 14 day period
shall be automatically extended by the amount of time reasonably necessary
to complete the correction.
(ii) The willful misappropriation of the funds or property of the
Company;
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(iii) Use of alcohol or illegal drugs, interfering with the
performance of the Consultant's obligations under this Agreement,
continuing after written warning;
(iv) Conviction of, or admission of or entry of a plea of nolo
contendere or similar plea with respect to, a felony or of any crime
involving moral turpitude, dishonesty or theft provided that such violation
results in material injury to the business or reputation of the Company.;
(v) The commission by the Consultant of any willful or intentional act
having the effect, or which could reasonably be expected to have the
effect, of materially injuring the reputation, business or business
relationships of the Company; or
(vi) Any breach by the Consultant (not covered by any of clauses (i)
through (v) and other than in connection with the death or disability of
Consultant as set forth in paragraph 7 hereof) of any material provision of
this Agreement, if such breach is not cured within fourteen (14) days after
written notice thereof to the Consultant by the Company.
Upon the termination of the Consultant's engagement by the Company for
Cause, the Company shall pay the Consultant, subject to appropriate offsets, as
permitted by applicable law, for debts or money due to the Company, including
without limitation personal loans to the Consultant and travel advances
("Offset"), his consulting fee only through, and any unpaid reimbursable
expenses outstanding as of, the Date of Termination. Except as provided in this
paragraph 6(a), in connection with the Consultant's termination by the Company
for Cause, the Company shall have no further liability to the Consultant or the
Consultant's heirs, beneficiaries or estate for damages, compensation, benefits,
indemnities or other amount of whatever nature.
(b) In the event the Consultant's engagement by the Company during the Term
is terminated by the Company in breach of this Agreement (a termination "without
Cause"), the Company shall, subject to any Offsets and for so long as the
Consultant is not in breach of his obligations to the Company under paragraph 8
hereof, continue to pay the Consultant his consulting fee under paragraph 4
hereof as and when the Consultant would have otherwise received such consulting
fee. There shall be no offset against amounts due Consultant under this
Agreement on account of any remuneration attributable to any subsequent
employment or consulting work that he may obtain. Except as provided in this
paragraph 6(b), in connection with the Consultant's termination by the Company
without Cause, the Company shall have no further liability to the Consultant or
the
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<PAGE>
Consultant's heirs, beneficiaries or estate for damages, compensation, benefits,
indemnities or other amount of whatever nature. If subsequent to the termination
of this Agreement without cause, the Company shall fail to pay the Consultant
his consulting fee in accordance with this paragraph 6(b), and such failure
continues for ten (10) days after written notice from the Consultant to the
Company, the restrictions in paragraph 8(a) hereof and in Section 3.5 of the
Stock Purchase Agreement (notwithstanding any provision to the contrary
contained therein) shall be null and void. In the event the Consultant brings
any proceeding against the Company to enforce his rights under this paragraph
6(b) and prevails (by way of written settlement, arbitration award or judgment),
the Company shall reimburse the Consultant for all reasonable expenses
(including reasonable attorney's fees) which he incurred in connection with such
proceeding.
(c) Consultant may terminate this Agreement, without any breach of this
Agreement, for "Good Reason" if Executive provides written notice (a "Good
Reason Notice") to the Company that an event included in the definition of "Good
Reason" has occurred, sets forth therein the facts and circumstances providing
the basis for a Good Reason termination and further states that unless such
event is cured within 14 days of Company's receipt of a Good Reason Notice,
Consultant will terminate this Agreement. Good Reason shall exist if any one or
more of the following shall occur:
(i) any breach by the Company of any of the material provisions of
this Agreement;
(ii) there are assigned duties and responsibilities materially
inconsistent with those normally assigned to an executive officer of a
company in the same industry as the Acquired Business;
(iii) Company fails to obtain a written agreement for any successor to
the Company to assume and perform this Agreement;
(iv) a change in control of the Company; or
(v) a breach under the promissory note issued by the Company to the
Consultant pursuant to the Stock Purchase and Redemption Agreement between
Consultant and Standard Automotive Corporation, dated _______________,
1997.
In the event the Consultant's engagement with the Company is terminated for
Good Reason, the Company shall, subject to any Offsets and for so long as the
Consultant is not in breach
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of his obligations to the Company under paragraph 8 hereof, continue to pay the
Consultant his consulting fee under paragraph 4 hereof, as and when the
Consultant would have otherwise received such compensation. There shall be no
offset against amounts due Consultant under this Agreement on account of any
remuneration attributable to any subsequent employment or consulting arrangement
that he may obtain. If subsequent to the termination of this Agreement for Good
Reason, the Company shall fail to pay the Consultant his consulting fee in
accordance with this Section 6(c), and such failure continues for ten (10) days
after written notice from the Consultant to the Company, the restrictions in
paragraph 8(a) hereof and in Section 3.5 of the Stock Purchase Agreement
(notwithstanding any provision to the contrary contained therein) shall be null
and void. In the event the Consultant brings any proceeding against the Company
to enforce his rights under this paragraph 6(c) and prevails (by way of written
settlement, arbitration award or judgment), the Company shall reimburse the
Consultant for all reasonable expenses (including reasonable attorney's fees)
which he incurred in connection with such proceeding. Except as provided in this
paragraph 6(c), in connection with the Consultant's termination of the
consulting arrangement for Good Reason, the Company shall have no further
liability to the Consultant or the Consultant's heirs, beneficiaries or estate
for damages, compensation, benefits, indemnities or other amounts of whatever
nature.
For purposes hereof, a "change in control" of the Company shall be deemed
to occur only if subsequent to the acquisition of the Company by Standard
Automotive Corporation: (i) an individual or Group (as that term is defined in
Regulation 13D-G promulgated under the Securities Exchange Act of 1934) (or any
successor regulation) shall acquire the right directly or indirectly to vote
more than 50% of the outstanding common stock of the Company; or (ii) the
Company sells or otherwise disposes of substantially all of its assets.
7. Disability; Death.
(a) In the event the Consultant shall be unable to perform the essential
functions of his duties hereunder by virtue of illness or physical or mental
incapacity or disability (from any cause or causes whatsoever) in substantially
the manner and to the extent required hereunder prior to the commencement of
such disability (all such causes being referred to as "disability") and the
Consultant shall fail to perform such duties for periods aggregating one hundred
and twenty (120) days, whether or not continuous, in any continuous period of
one hundred and eighty (180) days, the Company shall have the right to terminate
the Consultant's engagement hereunder as at the end of any calendar month during
the continuance of such disability upon at least thirty (30) days prior written
notice to him. In
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the event of termination under this paragraph 7(a), the Consultant shall be
entitled to receive when otherwise payable, subject to any Offsets, all
consulting fees earned but unpaid as of the Date of Termination and any unpaid
reimbursable expenses outstanding as of such date; and any benefits to which the
Consultant or his beneficiaries may be entitled under the plans and programs
described in paragraphs 5(b) and (c) hereof as of such Date of Termination shall
be determined in accordance with the terms of such plans and programs. Nothing
contained herein is intended to nullify or diminish the Consultant's rights
under, and this paragraph 7(a) is subject to, the Americans with Disabilities
Act of 1990 and the Family and Medical Leave Act of 1993, as such Acts may be
amended from time to time.
(b) The Consultant's engagement hereunder shall terminate on the date of
the Consultant's death and in such event the Consultant's estate shall be
entitled to receive when otherwise payable, subject to any Offsets, all
consulting fees earned but unpaid as of the date of his death and any unpaid
reimbursable expenses outstanding as of such date.
(c) Except as provided in paragraphs 7(a) and (b) hereof, in the event of
the Consultant's termination due to disability or death, the Company shall have
no further liability to the Consultant or the Consultant's heirs, beneficiaries
or estate for damages, compensation, benefits, indemnities or other amounts of
whatever nature.
8. Non-Competition and Protection of Confidential Information.
(a) The Consultant agrees that his services to the Company are of a
special, unique, extraordinary and intellectual character, and his position with
the Company places him in a position of confidence and trust with the employees
and customers of the Company. Consequently, the Consultant agrees that it is
reasonable and necessary for the protection of the goodwill and business of the
Company that the Consultant make the covenants contained herein. Accordingly,
the Consultant agrees that, subject to the provisions of paragraphs 6(b) and
6(c) hereof, during the period of Consultant's engagement hereunder and for the
period extending one year after the termination hereof, he shall not, except on
behalf of the Company, directly or indirectly:
(i) own, operate, manage or be employed or engaged by or affiliated
with any person or entity that manufactures long-length trailer chassis or
sanitary waste containers or provides consulting services relating to the
foregoing (a "Competing Business") which is located east of the Mississippi
River; or
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(ii) attempt in any manner to solicit to any Competing Business any
customer or supplier of the Company or to persuade any customer or supplier
of the Company to cease to do business or to reduce the amount of business
which any such customer or supplier has customarily done with the Company,
whether or not the relationship between the Company and such customer or
supplier was originally established in whole or in part through his
efforts; or
(iii) employ as an employee or retain as a consultant, or persuade or
attempt to persuade any person who is at the Date of Termination or at any
time during the preceding year was, or in the six (6) months following such
termination becomes, an employee of or exclusive consultant to the Company,
to leave the Company or to become employed as an employee or retained as a
consultant by anyone other than the Company.
As used in this paragraph 8, the term: (i) "Company" shall include
subsidiaries of the Company; and (ii) "customer" and "supplier" shall mean any
person or entity that is a customer or supplier of the Company at the Date of
Termination, or at any time during the preceding year was, or in the six (6)
months following such termination becomes, a customer or supplier of the
Company, or if the Consultant's engagement shall not have terminated, at the
time of the alleged prohibited conduct.
Nothing contained herein shall prevent Consultant from being able to engage
in the business of manufacturing and/or selling suspension parts, air tanks,
short length trailers and/or cement mixers.
(b) The Consultant agrees that he will not at any time (whether during the
Term or after termination of this Agreement), disclose to anyone, any
confidential information or trade secret of the Company or utilize such
confidential information or trade secret for his own benefit, or for the benefit
of third parties, and all memoranda or other documents compiled by him or made
available to him during the Term pertaining to the business of the Company shall
be the property of the Company and shall be delivered to the Company on the Date
of Termination or at any other time, as reasonable, upon request. The term
"confidential information or trade secret" does not include any information
which (i) becomes generally available to the public other than by breach of this
provision or (ii) the Consultant learns from a third party who is not under an
obligation of confidence to the Company or (iii) is required to be disclosed by
law or legal process.
(c) If the Consultant commits a breach or threatens to commit a breach of
any of the provisions of paragraphs 8(a) or (b) hereof, the Company shall have
the right to have the
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provisions of this Agreement specifically enforced by any court having
jurisdiction without being required to post bond or other security and without
having to prove the inadequacy of any other available remedies, it being
acknowledged and agreed that any such breach will cause irreparable injury to
the Company and that money damages will not provide an adequate remedy to the
Company. In addition, the Company may take all such other actions and remedies
available to it in law or in equity and shall be entitled to such damages as it
can show it has sustained by reason of such breach.
(d) The parties acknowledge that the type and periods of restriction
imposed in the provisions of paragraphs 8(a) and (b) hereof are fair and
reasonable and are reasonably required for the protection of the Company and the
goodwill associated with the business of the Company; and that the time, scope,
geographic area and other provisions of this paragraph 8 have been specifically
negotiated by sophisticated parties and accordingly it is reasonable that the
restrictive covenants set forth herein are not limited by narrow geographic
area. If any of the covenants in paragraphs 8(a) or (b) hereof, or any part
thereof, is hereafter construed to be invalid or unenforceable, it is the
intention of the parties that the same shall not affect the remainder of the
covenant or covenants, which shall be given full effect, without regard to the
invalid portions. If any of the covenants contained in paragraphs 8(a) or (b),
or any part thereof, is held to be unenforceable because of the duration of such
provision or the area covered thereby, the parties agree that the court making
such determination should reduce the duration and/or areas of such provision
such that, in its reduced form, said provision shall then be enforceable. The
parties intend to and hereby confer jurisdiction to enforce the covenants
contained in paragraphs 8(a) and (b) upon the courts of any jurisdiction within
the geographical scope of such covenants. In the event that the courts of any
one or more of such jurisdictions shall hold such covenants wholly unenforceable
by reason of the breadth of such time, scope or geographic area, it is the
intention of the parties hereto that such determination not bar or in any way
affect the Company's right to the relief provided above in the courts of any
other jurisdiction within the geographical scope of such covenants, as to
breaches of such covenants in such other respective jurisdictions, the above
covenants as they relate to each jurisdiction being, for this purpose, severable
into diverse and independent covenants.
9. Intellectual Property. During the Term, the Consultant will disclose to
the Company all ideas, inventions, advertising campaigns, designs, logos,
slogans, processes, operations, products or improvements which may be patentable
or copyrightable or subject to any trade or service mark or name, and business
plans developed by him during such period, either individually or
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in collaboration with others, which relate to the Acquired Business
("Intellectual Property"). Intellectual Property does not include any such
property created or developed by Consultant in connection with any business or
endeavor which Consultant is entitled to engage in during the Term in accordance
with the Stock Purchase Agreement and this Agreement. The Consultant agrees that
such Intellectual Property will be the sole property of the Company and that he
will at the Company's request and cost do whatever is reasonably necessary to
secure the rights thereto by patent, copyright, trademark or otherwise to the
Company.
10. Enforceability. The failure of either party at any time to require
performance by the other party of any provision hereunder shall in no way affect
the right of that party thereafter to enforce the same, nor shall it affect any
other party's right to enforce the same, or to enforce any of the other
provisions in this Agreement; nor shall the waiver by either party of the breach
of any provision hereof be taken or held to be a waiver of any subsequent breach
of such provision or as a waiver of the provision itself.
11. Assignment. This Agreement is binding on and is for the benefit of the
parties hereto and their respective successors, heirs, executors, administrators
and other legal representatives. Neither this Agreement nor any right or
obligation hereunder may be sold, transferred, assigned, pledged or hypothecated
by either party hereto without the prior written consent of the other party;
provided, the Company may assign its rights and obligations under the Agreement
in connection with the sale or other transfer of all or substantially all of the
Company's business (whether by way of sale of stock, assets, merger or
otherwise).
12. Severability. In the event any provision of this Agreement is found to
be void and unenforceable by a court of competent jurisdiction, the remaining
provisions of this Agreement shall nevertheless be binding upon the parties with
the same effect as though the void or unenforceable part had been severed and
deleted.
13. Life Insurance. The Consultant agrees that the Company shall have the
right to obtain life insurance on the Consultant's life, at the Company's sole
expense and with the Company as the sole beneficiary thereof to that end, the
Consultant shall (a) cooperate fully with the Company in obtaining such life
insurance, (b) sign any necessary consents, applications and other related forms
or documents and (c) take any reasonably required medical examinations.
14. Notice. Any notice, request, instrument or other document to be given
under this Agreement by either party hereto
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<PAGE>
to the other shall be in writing and shall be deemed effective (a) upon personal
delivery, if delivered by hand, (b) three (3) days after the date of deposit in
the mails, postage prepaid, if mailed by certified or registered mail, or (c) on
the next business day, if sent by a prepaid overnight courier service, and in
each case addressed as follows:
If to the Consultant:
Carl Massaro
1511 Casey Key Drive
Punta Gorda, Florida 33950
with a copy to:
McCausland, Keen & Buckman
Radnor Court
259 Radnor-Chester Road
Radnor, PA 19087-5240
Attention: Marc S. Maser, Esq.
Fax: (610) 341-1099
If to the Company:
Ajax Manufacturing Company
321 Valley Road
Hillsborough Township, New Jersey 08876-4056
Attention: President and Secretary
Fax:
with a copy to:
Phillips Nizer Benjamin Krim & Ballon LLP
666 Fifth Avenue
New York, New York 10103-0084
Attention: Vincent J. McGill, Esq.
Fax: (212) 262-5152
Any party may change the address to which notices are to be sent by giving
notice of such change of address to the other party in the manner herein
provided for giving notice.
15. No Conflict. The Consultant represents and warrants that he is not
subject to any agreement, instrument, order, judgment or decree of any kind, or
any other restrictive agreement of any character, which would prevent him from
entering into this Agreement or which would be breached by the Consultant upon
the performance of his duties pursuant to this Agreement.
16. Certain Obligations. The Company will exercise its best efforts to
obtain for Consultant a release from all
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<PAGE>
obligations of the Company that are guaranteed by the Consultant as of the date
hereof and will indemnify the Consultant and hold him harmless from any
obligations under said guarantee or guarantees. The provisions of this paragraph
shall survive the termination of this Agreement.
17. Miscellaneous.
(a) The headings contained in this Agreement are for reference purposes
only, and shall not affect the meaning or interpretation of this Agreement.
(b) This Agreement shall be governed by and construed in accordance with
the laws of the State of New Jersey, without regard to the conflict of law
principles thereof.
(c) This Agreement, represents the entire agreement between the Company and
the Consultant with respect to the subject matter hereof, and all prior
agreements relating to the engagement of the Consultant, written or oral, are
nullified and superseded hereby.
(d) This Agreement may not be orally canceled, changed, modified or
amended, and no cancellation, change, modification or amendment shall be
effective or binding, unless in writing and signed by both parties to this
Agreement, and any provision hereof may be waived only by an instrument in
writing signed by the party or parties against whom or which enforcement of such
waiver is sought.
(e) As used in this Agreement, any gender includes a reference to all other
genders and the singular includes a reference to the plural and vice versa.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
AJAX MANUFACTURING COMPANY
By: _______________________________________
Name:
Title:
___________________________________________
CARL MASSARO
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<PAGE>
GUARANTY
For good and valuable consideration, the receipt of which is acknowledged
by the undersigned, and intending to be legally bound hereby, the undersigned
agrees that payment of any amounts due and owing hereunder from the Company to
Consultant shall be guaranteed by the undersigned in the event that the Company
fails to pay any such amount to Consultant when due under the terms of this
Agreement.
STANDARD AUTOMOTIVE CORPORATION
By:_________________________________
Name:
Title:
13
EMPLOYMENT AGREEMENT
This AGREEMENT (the "Agreement") is made as of___________, 1997 by AJAX
MANUFACTURING COMPANY, a New Jersey corporation (the "Company"), and STEVEN
MERKER (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Executive in the capacity
and on the terms and conditions set forth herein and the Executive desires to be
employed by the Company on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, receipt of which is hereby acknowledged, the parties
hereto agree as follows:
1. Employment. The Company agrees to employ the Executive during the
Term specified in paragraph 2 hereof, and the Executive agrees to accept such
employment, upon the terms and conditions hereinafter set forth.
2. Term. Subject to the terms and conditions of this Agreement, the
Executive's employment by the Company shall be for a term commencing on the date
hereof and expiring on the close of business on the third anniversary of the
date hereof (the "Initial Term"); provided, that the term of the Executive's
employment by the Company shall continue thereafter unless and until either
party shall give to the other at least thirty (30) days' advance written notice
("Notice of Termination") of expiration of the term (the Initial Term and the
period, if any, thereafter, during which the Executive's employment shall
continue are collectively referred to as the "Term"). Such Notice of Termination
shall specify the date of expiration (which may not be earlier than the end of
the Initial Term). The Company shall have the right at any time during any such
30-day notice period to relieve the Executive of his office, duties and
responsibilities and to place him on a paid leave-of-absence status; provided,
that during such notice period the Executive shall remain an employee of the
Company and shall continue to receive his salary, compensation and other
benefits as provided in this Agreement.
3. Duties and Responsibilities
(a) During the Term, the Executive shall hold the office of
Treasurer and Chief Financial Officer.
<PAGE>
(b) The Executive shall have such powers, duties and
responsibilities as are assigned to him from time to time by the Board of
Directors of the Company (the "Board") or as provided in the Company's By-Laws
consistent with the Executive's position as designated in clause (a) above. The
Executive shall report to the Board and to the President at such times and in
such detail as the Board shall reasonably require, provided that the Executive
shall not be required to perform any act which would constitute or require the
violation of any federal, state or local law, rule, regulation, ordinance or the
like.
(c) The Executive shall devote not less than ___ hours per
week to carrying out his duties hereunder and to the business of the Company,
and during the Term the Executive agrees that he will (i) devote his best
efforts and all his skill and ability to the performance of his duties
hereunder; (ii) carry out his duties in a competent and professional manner; and
(iii) generally promote the interests of the Company. During the Term it shall
not be a violation of this Agreement for the Executive to serve as an officer or
employee of another company or on the board of directors of another corporation,
to serve on the board of a cooperative apartment, to serve on civic or
charitable boards or committees, to perform speaking engagements, or to manage
his personal passive investments, so long as such activities (individually or
collectively) do not materially interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement.
(d) The Executive's services shall be performed at the
Company's executive offices in Hillsborough Township, New Jersey, or at such
other location(s) as the Board may reasonably agree upon, from time to time,
subject to necessary travel requirements of his position and duties hereunder.
The Executive shall not be required to relocate without his prior consent.
4. Compensation. As compensation for services hereunder and in
consideration of his agreement not to compete as set forth in paragraph 8
hereof, the Company shall pay the Executive, a base salary at an annual rate of
$144,000. The base salary shall be payable in equal installments in accordance
with the normal payroll policies of the Company, but no less frequently than
bi-weekly. Such annual rate of salary compensation may be increased in the
discretion of the Board, and during the Term Executive shall be eligible to
receive any bonus granted in the discretion of the Board. In addition, during
the Term Executive shall receive annual bonuses based upon the achievement of
reasonable goals determined by the Board after consultation with the Executive,
such goals to be agreed upon within the first month of each twelve month period
commencing on the date hereof. The annual bonus with respect to each twelve
month period shall be
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<PAGE>
payable no later than ninety days after the expiration of such period.
5. Expenses; Fringe Benefits.
(a) The Company agrees to pay or to reimburse the Executive
during the Term for all reasonable, ordinary and necessary business or
entertainment expenses incurred in the performance of his services hereunder in
accordance with the policy of the Company as from time to time in effect. The
Executive, as a condition to obtaining such payment or reimbursement, shall
provide to the Company any and all statements, bills or receipts evidencing the
travel or out-of-pocket expenses for which the Executive seeks payment or
reimbursement, and any other information or materials required by such policy or
as the Company may otherwise from time to time reasonably require.
(b) During the Term the Executive and, to the extent eligible,
his dependents, shall be entitled to participate in and receive all benefits
under any welfare benefit plans and programs provided by the Company (including
without limitation, medical, dental, disability, group life (including
accidental death and dismemberment) and business travel insurance plans and
programs) applicable generally to the executive officers of the Company,
subject, however, to the generally applicable eligibility and other provisions
of the various plans and programs in effect from time to time.
(c) During the Term the Executive shall be entitled to
participate in all retirement plans and programs (including without limitation
any profit sharing/401(k) plan) applicable generally to the executive officers
of the Company, subject, however, to generally applicable eligibility and other
provisions of the various plans and programs in effect from time to time. In
addition, during the Term the Executive shall be entitled to receive fringe
benefits and perquisites in accordance with the plans, practices, programs and
policies of the Company from time to time in effect, available generally to the
executive officers of the Company and consistent with the generally applicable
guidelines determined by the Board.
(d) The Executive shall be entitled to as many vacation days,
holidays, sick days and personal days as are in accordance with the Company's
policy then in effect for its employees generally, upon such terms as may be
provided of general application to all employees of the Company.
6. Termination.
(a) The Company, by direction of the Board, shall have the
right to terminate the Executive's employment with the
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<PAGE>
Company at any time for "Cause"; provided, that any termination by the Company
for Cause shall be communicated by the Company to the Executive in a writing
indicating the facts and circumstances providing the basis for termination for
Cause, and the Executive shall have the opportunity to contest his termination
before the Board. (The effective date of the Executive's termination of
employment with the Company, regardless of the reason, is referred to as the
"Date of Termination"). For purposes of this Agreement, the term "Cause" shall
be limited to the following grounds:
(i) The Executive's failure or refusal to perform his
material duties and responsibilities as set forth in paragraph 3 hereof (other
than any such failure resulting from Executive's disability or death which are
governed by Paragraph 7), if such failure or refusal continues for fourteen (14)
days after written warning to the Executive, which states that the warning is of
a potential termination for Cause under this Agreement, sets forth the facts and
circumstances providing the basis for such termination, and states that
termination will become effective in fourteen (14) days after the date the
notice is delivered (as determined in accordance herewith) unless such failure
or refusal is corrected prior to 6:00 p.m. New York time on such 14th day;
provided, however, that if Executive commences to correct such failure or
refusal within such fourteen (14) day period and thereafter diligently endeavors
to correct the same to completion, such 14 day period shall be automatically
extended by the amount of time reasonably necessary to complete the correction.
(ii) The willful misappropriation of the funds or
property of the Company;
(iii) Use of alcohol or illegal drugs, interfering
with the performance of the Executive's obligations under this Agreement,
continuing after written warning;
(iv) Conviction of, or admission of or entry of a
plea of nolo contendere or similar plea with respect to, a felony or of any
crime involving moral turpitude, dishonesty or theft; provided that such
violation results in material injury to the business or reputation of the
Company.
(v) The commission by the Executive of any willful or
intentional act having the effect, or which could reasonably be expected to have
the effect, of materially injuring the reputation, business or business
relationships of the Company; or
(vi) Any breach by the Executive (not covered by any
of clauses (i) through (v) and other than in connection with
4
<PAGE>
the death or disability of Executive as set forth in paragraph 7) of any
material provision of this Agreement, if such breach is not cured within
fourteen (14) days after written notice thereof to the Executive by the Company;
provided, however, that if Executive commences to correct such breach within
such fourteen (14) day period and thereafter diligently endeavors to cure the
same to completion, such fourteen (14) day period shall be automatically
extended by the amount of time reasonably necessary to cure the breach.
Upon the termination of the employment of the Executive with the Company for
Cause, the Company shall pay the Executive, subject to appropriate offsets, as
permitted by applicable law, for debts or money due to the Company, including
without limitation personal loans to the Executive and travel advances
("Offset"), his salary compensation only through, and any unpaid reimbursable
expenses outstanding as of, the Date of Termination. Any benefits to which
Executive or his beneficiaries may be entitled under the plans and programs
described in paragraphs 5(b) and (c) hereof as of his Date of Termination shall
be determined in accordance with the terms of such plans and programs. Except as
provided in this paragraph 6(a), in connection with the Executive's termination
by the Company for Cause, the Company shall have no further liability to the
Executive or the Executive's heirs, beneficiaries or estate for damages,
compensation, benefits, indemnities or other amount of whatever nature.
(b) In the event the Executive's employment by the Company
during the Term is terminated by the Company in breach of this Agreement (a
termination "without Cause"), the Company shall, subject to any Offsets and for
so long as the Executive is not in breach of his obligations to the Company
under paragraph 8 hereof, continue to pay the Executive his salary compensation
under paragraph 4 hereof as and when the Executive would have otherwise received
such salary compensation. There shall be no offset against amounts due Executive
under this Agreement on account of any remuneration attributable to any
subsequent employment that he may obtain. Any benefits to which Executive or his
beneficiaries may be entitled under the plans and programs described in
paragraphs 5(b) and (c) hereof as of his Date of Termination shall be determined
in accordance with the terms of such plans and programs. Except as provided in
this paragraph 6(b), in connection with the Executive's termination by the
Company without Cause, the Company shall have no further liability to the
Executive or the Executive's heirs, beneficiaries or estate for damages,
compensation, benefits, indemnities or other amount of whatever nature. If
subsequent to the termination of Executive's employment without cause, the
Company shall fail to pay the Executive his salary compensation in accordance
with this paragraph 6(b), and such failure continues for ten (10) days after
written notice from the
5
<PAGE>
Executive to the Company, the restrictions in paragraph 8(a) hereof shall be
null and void. In the event the Executive brings any proceeding against the
Company to enforce his rights under this paragraph 6(b) and prevails (by way of
written settlement, arbitration award or judgment), the Company shall reimburse
the Executive for all reasonable expenses (including reasonable attorney's fees)
he incurred in connection with such proceeding.
(c) Executive may terminate this Agreement, without any breach
of this Agreement, for "Good Reason" if Executive provides written notice (a
"Good Reason Notice") to the Company that an event included in the definition of
"Good Reason" has occurred, sets forth therein the facts and circumstances
providing the basis for a Good Reason termination and further states that unless
such event is cured within 14 days of Company's receipt of a Good Reason Notice,
Executive will terminate this Agreement. Good Reason shall exist if any one or
more of the following shall occur:
(i) any breach by the Company of any of the material
provisions of this Agreement;
(ii) Executive is removed from the position of
President of the Company for any reason other than for Cause within the meaning
of paragraph 6(a) hereof;
(iii) Executive suffers a material diminution in the
authorities, duties or responsibilities normally associated with the position of
President, or there are assigned to him duties and responsibilities materially
inconsistent with those normally associated with such position;
(iv) Company fails to obtain a written agreement for
any successor to the Company to assume and perform this Agreement; or
(v) a change in control of the Company.
In the event the Executive's employment with the Company is
terminated for Good Reason, the Company shall, subject to any Offsets and for so
long as the Executive is not in breach of his obligations to the Company under
paragraph 8 hereof, continue to pay the Executive his compensation under
paragraph 4 hereof, as and when the Executive would have otherwise received such
compensation. There shall be no offset against amounts due Executive under this
Agreement on account of any remuneration attributable to any subsequent
employment that he may obtain. Any benefits to which Executive or his
beneficiaries may be entitled under the plans and programs described in
paragraphs 5(b) and (c) hereof as of the Date of Termination shall be determined
in accordance with the terms of such plans and programs. If the Company shall
fail to pay the Executive his
6
<PAGE>
compensation in accordance with this Section 6(c), and such failure continues
for ten (10) days after written notice from the Executive to the Company, the
restrictions in paragraph 8(a) hereof shall be null and void. In the event the
Executive brings any proceeding against the Company to enforce his rights under
this paragraph 6(c) and prevails (by way of written settlement, arbitration
award or judgment), the Company shall reimburse the Executive for all reasonable
expenses (including reasonable attorney's fees) which he incurred in connection
with such proceeding. Except as provided in this paragraph 6(c), in connection
with the Executive's termination of employment for Good Reason, the Company
shall have no further liability to the Executive or the Executive's heirs,
beneficiaries or estate for damages, compensation, benefits, indemnities or
other amounts of whatever nature.
For purposes hereof, a "change in control" of the Company
shall be deemed to occur only if subsequent to the acquisition of the Company by
Standard Automotive Corporation: (i) an individual or Group (as that term is
defined in Regulation 13D-G promulgated under the Securities Exchange Act of
1934) (or any successor regulation) shall acquire the right, directly or
indirectly to vote more than 50% of the outstanding common stock of the Company;
or (ii) the Company sells or otherwise disposes of substantially all of its
assets.
7. Disability; Death.
(a) In the event the Executive shall be unable to perform the
essential functions of his duties hereunder by virtue of illness or physical or
mental incapacity or disability (from any cause or causes whatsoever) in
substantially the manner and to the extent required hereunder prior to the
commencement of such disability (all such causes being referred to as
"disability") and the Executive shall fail to perform such duties for periods
aggregating one hundred and twenty (120) days, whether or not continuous, in any
continuous period of one hundred and eighty (180) days, the Company shall have
the right to terminate the Executive's employment hereunder as at the end of any
calendar month during the continuance of such disability upon at least thirty
(30) days prior written notice to him. In the event of termination under this
paragraph 7(a), the Executive shall be entitled to receive when otherwise
payable, subject to any Offsets, all salary compensation earned but unpaid as of
the Date of Termination and any unpaid reimbursable expenses outstanding as of
such date; and any benefits to which the Executive or his beneficiaries may be
entitled under the plans and programs described in paragraphs 5(b) and (c)
hereof as of such Date of Termination shall be determined in accordance with the
terms of such plans and programs. Nothing contained herein is intended to
nullify or diminish the Executive's rights under, and this paragraph 7(a) is
subject to, the Americans with
7
<PAGE>
Disabilities Act of 1990 and the Family and Medical Leave Act of 1993, as such
Acts may be amended from time to time.
(b) The employment of the Executive with the Company shall
terminate on the date of the Executive's death and in such event the Executive's
estate shall be entitled to receive when otherwise payable, subject to any
Offsets, all salary compensation earned but unpaid as of the date of his death
and any unpaid reimbursable expenses outstanding as of such date. In the event
of the Executive's death, any benefits to which the Executive or his
beneficiaries may be entitled under the plans and programs described in
paragraphs 5(b) and (c) hereof shall be determined in accordance with the terms
of such plans and programs.
(c) Except as provided in paragraphs 7(a) and (b) hereof, in
the event of the Executive's termination due to disability or death, the Company
shall have no further liability to the Executive or the Executive's heirs,
beneficiaries or estate for damages, compensation, benefits, indemnities or
other amounts of whatever nature.
8. Non-Competition and Protection of Confidential Information.
(a) The Executive agrees that his services to the Company are
of a special, unique, extraordinary and intellectual character, and his position
with the Company places him in a position of confidence and trust with the
employees and customers of the Company. Consequently, the Executive agrees that
it is reasonable and necessary for the protection of the goodwill and business
of the Company that the Executive make the covenants contained herein.
Accordingly, the Executive agrees that, subject to the provisions of paragraphs
6(b) and 6(c) hereof, during the period of the Executive's employment hereunder
and: (x) in the case of clause (i) of this subparagraph (a), for the period of
three months, and (y) in the cases of clauses (ii) and (iii) of this
subparagraph (a), for the period of one year immediately following the
termination of his employment hereunder, he shall not, except on behalf of the
Company, directly or indirectly:
(i) own, operate, manage or be employed by or
affiliated with any person or entity that engages in any business then being
engaged in by the Company, it being acknowledged that the current business of
the Company is the manufacture of trailer and shipping container chassis and
sanitary containers or provides consulting services relating to the foregoing (a
"Competing Business") which is located east of the Mississippi River; or
8
<PAGE>
(ii) attempt in any manner to solicit from any
customer or supplier business of the type performed for or by the Company or to
persuade any customer or supplier of the Company to cease to do business or to
reduce the amount of business which any such customer or supplier has
customarily done or contemplates doing with the Company, whether or not the
relationship between the Company and such customer or supplier was originally
established in whole or in part through his efforts; or
(iii) employ as an employee or retain as a
consultant, or persuade or attempt to persuade any person who is at the Date of
Termination or at any time during the preceding year was, or in the six (6)
months following such termination becomes, an employee of or exclusive
consultant to the Company to leave the Company or to become employed as an
employee or retained as a consultant by anyone other than the Company.
As used in this paragraph 8, the term: (i) "Company" shall
include subsidiaries of the Company; and (ii) "customer" and "supplier" shall
mean any person or entity that is a customer or supplier of the Company at the
Date of Termination, or at any time during the preceding year was, or in the six
(6) months following such termination becomes, a customer or supplier of the
Company, or if the Executive's employment shall not have terminated, at the time
of the alleged prohibited conduct.
(b) The Executive agrees that he will not at any time (whether
during the Term or after termination of this Agreement), disclose to anyone, any
confidential information or trade secret of the Company or utilize such
confidential information or trade secret for his own benefit, or for the benefit
of third parties, and all memoranda or other documents compiled by him or made
available to him during the Term pertaining to the business of the Company shall
be the property of the Company and shall be delivered to the Company on the Date
of Termination or at any other time, as reasonable, upon request. The term
"confidential information or trade secret" does not include any information
which (i) becomes generally available to the public other than by breach of this
provision or (ii) the Executive learns from a third party who is not under an
obligation of confidence to the Company or (iii) is required to be disclosed by
law or legal process.
(c) If the Executive commits a breach or threatens to commit a
breach of any of the provisions of paragraphs 8(a) or (b) hereof, the Company
shall have the right to have the provisions of this Agreement specifically
enforced by any court having jurisdiction without being required to post bond or
other security and without having to prove the inadequacy of any other available
remedies, it being acknowledged and agreed that any such breach will cause
irreparable injury to the Company and that
9
<PAGE>
money damages will not provide an adequate remedy to the Company. In addition,
the Company may take all such other actions and remedies available to it in law
or in equity and shall be entitled to such damages as it can show it has
sustained by reason of such breach.
(d) The parties acknowledge that the type and periods of
restriction imposed in the provisions of paragraphs 8(a) and (b) hereof are fair
and reasonable and are reasonably required for the protection of the Company and
the goodwill associated with the business of the Company; and that the time,
scope, geographic area and other provisions of this paragraph 8 have been
specifically negotiated by sophisticated parties and accordingly it is
reasonable that the restrictive covenants set forth herein are not limited by
narrow geographic area. If any of the covenants in paragraphs 8(a) or (b)
hereof, or any part thereof, is hereafter construed to be invalid or
unenforceable, it is the intention of the parties that the same shall not affect
the remainder of the covenant or covenants, which shall be given full effect,
without regard to the invalid portions. If any of the covenants contained in
paragraphs 8(a) or (b), or any part thereof, is held to be unenforceable because
of the duration of such provision or the area covered thereby, the parties agree
that the court making such determination should reduce the duration and/or areas
of such provision such that, in its reduced form, said provision shall then be
enforceable. The parties intend to and hereby confer jurisdiction to enforce the
covenants contained in paragraphs 8(a) and (b) upon the courts of any
jurisdiction within the geographical scope of such covenants. In the event that
the courts of any one or more of such jurisdictions shall hold such covenants
wholly unenforceable by reason of the breadth of such time, scope or geographic
area, it is the intention of the parties hereto that such determination not bar
or in any way affect the Company's right to the relief provided above in the
courts of any other jurisdiction within the geographical scope of such
covenants, as to breaches of such covenants in such other respective
jurisdictions, the above covenants as they relate to each jurisdiction being,
for this purpose, severable into diverse and independent covenants.
9. Intellectual Property. During the Term, the Executive will disclose
to the Company all ideas, inventions, advertising campaigns, designs, logos,
slogans, processes, operations, products or improvements which may be patentable
or copyrightable or subject to any trade or service mark or name, and business
plans developed by him during such period, either individually or in
collaboration with others, which relate to the business of the Company
("Intellectual Property"). The Executive agrees that such Intellectual Property
will be the sole property of the Company and that he will at the Company's
request and cost do whatever is reasonably necessary to secure the rights
thereto by patent, copyright, trademark or otherwise to the Company.
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Notwithstanding the foregoing, the Intellectual Property shall not include any
property which is created or developed by Executive in conjunction with Carl
Massaro and which relates exclusively to any business or other endeavor in which
Carl is entitled to engage pursuant to the Consulting Agreement.
10. Enforceability. The failure of either party at any time to require
performance by the other party of any provision hereunder shall in no way affect
the right of that party thereafter to enforce the same, nor shall it affect any
other party's right to enforce the same, or to enforce any of the other
provisions in this Agreement; nor shall the waiver by either party of the breach
of any provision hereof be taken or held to be a waiver of any subsequent breach
of such provision or as a waiver of the provision itself.
11. Assignment. This Agreement is binding on and is for the benefit of
the parties hereto and their respective successors, heirs, executors,
administrators and other legal representatives. Neither this Agreement nor any
right or obligation hereunder may be sold, transferred, assigned, pledged or
hypothecated by either party hereto without the prior written consent of the
other party; provided, the Company may assign its rights and obligations under
the Agreement in connection with the sale or other transfer of all or
substantially all of the Company's business (whether by way of sale of stock,
assets, merger or otherwise).
12. Severability. In the event any provision of this Agreement is found
to be void and unenforceable by a court of competent jurisdiction, the remaining
provisions of this Agreement shall nevertheless be binding upon the parties with
the same effect as though the void or unenforceable part had been severed and
deleted.
13. Life Insurance. The Executive agrees that the Company shall have
the right to obtain life insurance on the Executive's life, at the Company's
sole expense and with the Company as the sole beneficiary thereof to that end,
the Executive shall (a) cooperate fully with the Company in obtaining such life
insurance, (b) sign any necessary consents, applications and other related forms
or documents and (c) take any reasonably required medical examinations.
14. Notice. Any notice, request, instrument or other document to be
given under this Agreement by either party hereto to the other shall be in
writing and shall be deemed effective (a) upon personal delivery, if delivered
by hand, (b) three (3) days after the date of deposit in the mails, postage
prepaid, if mailed by certified or registered mail, or (c) on the next business
day, if sent by a prepaid overnight courier service, and in each case addressed
as follows:
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If to the Executive:
Steven Merker
900 Palisades Avenue
Apt. 3B
Fort Lee, New Jersey 07024
With a copy to:
Phillips Nizer Benjamin Krim & Ballon LLP
666 Fifth Avenue
New York, New York 10103-0084
Attention: Vincent J. McGill, Esq.
Fax: (212) 262-5152
If to the Company:
Ajax Manufacturing Company
321 Valley Road
Hillsborough Township, New Jersey 08876-4056
Attention: President and Secretary
Fax:
with a copy to:
Phillips Nizer Benjamin Krim & Ballon LLP
666 Fifth Avenue
New York, New York 10103-0084
Attention: Vincent J. McGill, Esq.
Fax: (212) 262-5152
Any party may change the address to which notices are to be sent by giving
notice of such change of address to the other party in the manner herein
provided for giving notice.
15. No Conflict. The Executive represents and warrants that he is not
subject to any agreement, instrument, order, judgment or decree of any kind, or
any other restrictive agreement of any character, which would prevent him from
entering into this Agreement or which would be breached by the Executive upon
the performance of his duties pursuant to this Agreement.
16. Miscellaneous.
(a) The headings contained in this Agreement are for reference
purposes only, and shall not affect the meaning or interpretation of this
Agreement.
(b) The Company may withhold from any amount payable under
this Agreement such federal, state or local taxes as shall be required to be
withheld pursuant to applicable law or regulation.
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(c) This Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey, without regard to the
conflict of law principles thereof.
(d) This Agreement, represents the entire agreement between
the Company and the Executive with respect to the subject matter hereof, and all
prior agreements relating to the employment of the Executive, written or oral,
are nullified and superseded hereby.
(e) This Agreement may not be orally canceled, changed,
modified or amended, and no cancellation, change, modification or amendment
shall be effective or binding, unless in writing and signed by both parties to
this Agreement, and any provision hereof may be waived only by an instrument in
writing signed by the party or parties against whom or which enforcement of such
waiver is sought.
(f) As used in this Agreement, any gender includes a reference
to all other genders and the singular includes a reference to the plural and
vice versa.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
AJAX MANUFACTURING COMPANY
By:__________________________
Name:
Title:
_________________________
STEVEN MERKER
13
LEASE AGREEMENT
Dated: ________________, 1997
By and Between
CARL MASSARO ("Lessor")
and
AJAX MANUFACTURING COMPANY ("Lessee")
Premises: 32 Valley Road
Hillsborough, New Jersey
<PAGE>
TABLE OF CONTENTS
Page
----
1. Term................................................................... 2
2. Rental................................................................. 2
3. Taxes and Assessments.................................................. 4
4. Fire Insurance......................................................... 7
5. Indemnity: Public Liability Insurance:
Environmental Matters.................................................. 8
6. Destruction of Improvements............................................ 17
7. Condition of Premises and Repairs...................................... 18
8. Utilities.............................................................. 21
9. Mechanics' and Other Liens............................................. 21
10. Personal Property and Trade Fixtures................................... 22
11. Peaceful Possession and Use of Premises................................ 23
12. Default................................................................ 23
13. Condemnation........................................................... 27
14. Notices and Demands.................................................... 29
15. Subordination.......................................................... 30
16. Binding Effect: Assignment and Subletting............................. 31
17. Surrender on Expiration of Term and Holding Over....................... 32
18. Representations, Warranties and Covenants.............................. 33
19. Transfer of Lessor's Interest.......................................... 34
20. Option to Purchase..................................................... 34
21. General................................................................ 37
22. Disposal of Lessee's Property.......................................... 40
i
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EXHIBITS
Exhibit "A" Legal Description
Exhibit "B" Permitted Exceptions
ii
<PAGE>
LEASE AGREEMENT
THIS AGREEMENT is dated as of the _____ day of ________, 1997, by and
between CARL MASSARO (hereinafter called "Lessor"), having an address at 1511
Casey Key Drive, Punta Gorda, Florida 33950 and AJAX MANUFACTURING COMPANY, a
New Jersey corporation (hereinafter called "Lessee"), having an address at 321
Valley Road, Hillsborough Township, New Jersey 08876-4056.
W I T N E S S E T H:
Lessee desires to lease from Lessor and Lessor desired to lease to
Lessee, subject to the terms, provisions and conditions hereinafter set forth,
the property described on Exhibit "A" attached hereto, together with all
buildings, structures, facilities and other improvements located thereon, and
all appurtenances thereto, said premises, improvements, facilities and
appurtenances being hereinafter collectively referred to as the "Leased
Premises", more commonly known as 32 Valley Road, Hillsborough, New Jersey. This
Lease is the Lease referred to in Section 14.15 of the Stock Purchase Agreement
dated __________, 1997 to which, Lessor and Lessee are parties (the "Purchase
Agreement").
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
promises contained herein, and other good and valuable consideration, the
receipt and sufficiency of which hereby acknowledged, and in consideration of
the covenants of payment and performance stipulated herein, the parties hereto
agree as follows:
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1. Term.
(a) Lessee hereby leases from Lessor and Lessor hereby leases
to Lessee the Leased Premises, for a term commencing as of the ___ day of
________, 1997 (the "Effective Date"), and continuing in effect for a period of
five (5) years, provided that if the term commences on a day other than the
first day of a month, then the term shall extend for such fractional month (the
"Initial Term"), upon which date this Lease shall terminate unless extended as
provided in Section 1(b), unless sooner terminated under the provisions hereof.
(b) Provided this Lease is then in effect and Lessee is not
then in default hereunder, Lessee may extend the term of this Lease for four (4)
additional five-year periods (each, a "Renewal Term") on the same terms and
conditions as are then in effect (except that the rent shall be increased in
accordance with Section 2(b)), by giving Lessor written notice of Lessee's
exercise of each option at least six (6) months before the expiration of the
then current term.
2. Rental.
(a) In consideration of the use and possession of the Leased
Premises, Lessee agrees to pay to Lessor base rent ("Base Rent") in the amount
of $50,000.00 per month commencing on the Effective Date, and in advance on the
first day of each succeeding month thereafter through the end of the Initial
Term, without any deduction or offset and without any previous demand therefor.
Any installment of Base Rent or additional payments due by Lessee
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hereunder that are not paid within five (5) days after the due date, shall bear
a late charge equal to five percent (5%) of the amount due, and such amount
shall be payable without demand simultaneously with the rent arrearage or other
payment. Any amount owed Lessor by Lessee which is not paid when due shall bear
interest from the due date of such amount until paid at a annum rate equal to
three percent (3%) in excess of the Prime Rate of interest as set forth from
time to time in the Money Rates Section of the Wall Street Journal. Should the
term of this Lease commence on a day other than the first day of a calendar
month, Lessee shall only pay Lessor, for such initial month, proportion of said
monthly rental based on the number of days from the Effective Date to the end of
such month. All rental payments shall be due and payable at the address
specified below to which notices are to be given to Lessor or at such other
place as Lessor may, from time to time, designate by notice to Lessee.
(b) If Lessee elects to extend this Lease pursuant to Section
1(b), the them Base Rent for each Renewal Term shall be subject to adjustment at
the commencement of each Renewal Term by adding to the Base Rent for the
immediately preceding month (the "Preadjustment Base Rent"), an amount
determined by multiplying the Preadjustment Base Rent by the percentage increase
in the Consumer Price Index ("CPI") during the preceding five (5) year term (the
"Term"), measured by reference to the index for the first month of the
applicable Term and the index in effect for the last month of such Term. For
purposes of this Section, the term CPI shall be
3
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defined as the Consumer Price Index for Urban Wage Earners (1982-84 = 100) as
published in the United States Bureau of Labor Statistics (or successor index)
for the smallest statistical subdivision containing the Leased Premises.
Notwithstanding the foregoing, in no event shall the Base Rent be adjusted
downwards.
3. Taxes and Assessments.
(a) In addition to the rental payments specified above, Lessee
agrees to pay, as additional rent, all Real Estates Taxes (as hereafter defined)
which may be levied or assessed against, upon or with respect to the Leased
Premises by any state, county, city or any other governmental agency or taxing
authority at any time or times, throughout the term of this Lease, and all such
taxes and assessments for the years in which the term of this Lease begins or
terminates shall be apportioned and adjusted between Lessor and Lessee on the
basis of the number of days in such year during which this Lease was effective.
Assessments shall be payable in installments, as permitted by the applicable
governmental taxing authority, and Lessee shall be responsible only for such
installments, or portions thereof, allocable for periods falling during the term
of this Lease. Lessor shall furnish to Lessee all bills for Real Estate Taxes
promptly upon receipt from the applicable governmental taxing authority, along
with Lessor's computations of the amount due if the taxes and assessments on the
bill relate to both the Leased Premises and other property. Lessee shall remit
to Lessor for payment the amount of the Real Estate Taxes then due as per the
bill and/or the computation provided by
4
<PAGE>
Lessor. Lessor shall promptly provide Lessee with copies of receipts for tax
payments or other satisfactory evidence of payment of the Real Estate Taxes,
provided that the Lessee has paid Lessor the Real Estate Taxes for which
receipts or other evidence of payment have been requested. Upon failure of
Lessee to make such payments to Lessor in the amount of the Real Estate Taxes,
Lessor may (but shall not be obligated to) make payment thereof and charge the
same to Lessee as additional rent.
(b) Lessee shall likewise pay to the applicable governmental
taxing authority all taxes and assessments which may be lawfully charged,
assessed or levied upon or with respect to any trade fixtures, equipment or
other property of Lessee situated in or upon the Leased Premises at any time or
times, and all license fees, sales and use taxes which may be lawfully imposed
upon or with respect to the business or operations of Lessee in or upon the
Leased Premises at any time or times.
(c) All such Real Estate Taxes as are to be paid by Lessee,
whether such payment is to be made to Lessor pursuant to Section 3(a) or
directly to the applicable governmental taxing authority pursuant to Section
3(b), shall be paid prior to the time when the same become delinquent, provided
only that if Lessee considers any such tax or assessment to be excessive,
invalid or illegal (in whole or in part), Lessee may defer payment thereof or
compliance therewith to the extent permitted by the laws or regulations of the
applicable governmental taxing authority, so long as the validity or amount
thereof is contested by Lessee in
5
<PAGE>
good faith and Lessee's occupancy of the Leased Premises is not disturbed
thereby and no tax lien or liens will be placed against the Leased Premises on
account thereof and no tax lien foreclosure sale of any part of, or interest in,
the Leased Premises is permitted to be held or conducted on account thereof. Any
such contest shall be at Lessee's sole cost and expense, and upon conclusion or
abandonment of any such contest, Lessee shall promptly make payment of such
taxes and assessments to the extent the same shall then be due and payable.
(d) The term "Real Estate Taxes" shall mean all real property
taxes and assessments, special or otherwise, without discounts and personal
property taxes, charges and assessments, which are levied, assessed upon or
imposed by any governmental authority during any calendar year of the term
hereof with respect to the Leased Premises and any improvements, fixtures and
equipment and all other property of Lessor, real or personal, located on the
Leased Premises or any building thereon and used in connection with the
operation of the Leased Premises or any buildings, and any tax which shall be
levied or assessed in addition to or in lieu of such real or personal property
taxes, and any license fees, tax measured by or imposed upon rents, or other tax
or charge upon Lessor's business of leasing the Leased Premises, but shall not
include any federal, state or municipal income franchise, estate or transfer
taxes. Should the State of New Jersey, or any political subdivision thereof, or
any governmental authority having jurisdiction over the Leased Premises, impose
a tax assessment or
6
<PAGE>
charge a fee which Lessor shall be required to pay wholly or partially in
substitution for (or in addition) any of the above Real Estate Taxes, all such
taxes, assessments, fees or changes shall be deemed to constitute Real Estate
Taxes hereunder. In the event that Real Estate Taxes are assessed by a
governmental authority on property which includes both the Leased Premises and
other property (collectively the "Assessment Parcel"), the Real Estate Taxes
shall be an amount equal to (i) the taxes, assessments and charges specifically
identifiable with the improvements, fixtures, equipment and other property on
the Leased Premises, or in the absence of specific identification of the taxes,
assessments and charges attributable to said property, an amount which Lessor
reasonably determines to be attributable thereto, plus (ii) Lessee's
Proportionate Share of the excess of the total taxes, assessments and charges of
the Assessment Parcel over said amount determined in clause (i). For purposes of
this Section 3, Lessee's Proportionate Share shall be the same ratio as the
acreage of the Leased Premises bears to the total acreage of the Assessment
Parcel.
4. Fire Insurance.
(a) Lessee agrees, at Lessee's sole cost and expense, to
obtain and maintain in force during the term of this Lease, fire and extended
coverage insurance with respect to the buildings and improvements constituting a
portion of the Leased Premises, in an amount not less than the full insurable
value thereof, upon terms and conditions reasonably acceptable to the Lessor.
7
<PAGE>
(b) Such insurance shall be secured and maintained through
solvent, responsible insurance companies, authorized to do business in the State
of New Jersey, approved by Lessor, in Lessor's reasonable discretion, with all
losses under such insurance to be payable to Lessor for application as
hereinafter provided. Prior to entering into possession of the Leased Premises,
Lessee agrees to furnish and thereafter maintain with Lessor certificates of
such insurance stating that the above insurance is in force and that the same
will not be materially amended, canceled or not renewed without thirty (30)
days' advance written notice to Lessor and to any mortgagee named in an
endorsement thereto, and Lessee shall furnish to Lessor renewals thereof at
least fifteen (15) days prior to expiration.
5. Indemnity: Public Liability Insurance:
Environmental Matters.
(a) Lessee covenants and agrees to indemnify and save Lessor
harmless from each and every loss, cost, damage, liability, penalty, claim,
charge and expense, including reasonable attorneys' fees ("Loss"), which may be
imposed upon or incurred by or asserted against Lessor and/or Lessor's agents,
servants or employees by reason of any of the following which shall occur during
the term of this Lease:
(i) Lessee's use of the Leased Premises;
(ii) the conduct of Lessee's business;
(iii) any work or act done in, on or about the Leased
Premises or any part thereof at the direction of Lessee, its
8
<PAGE>
agents, contractors, subcontractors, servants, employees, licensees or invitees;
(iv) any negligence or other wrongful act or omission
on the part of Lessee or any of its agents, contractors, subcontractors,
servants, employees, licensees or invitees;
(v) any accident, injury or damage to any person or
property incurring in, on or about the Leased Premises or any part thereof,
unless caused by the gross negligence or willful misconduct of Lessor, Lessor's
agents, contractors, subcontractors, licensees, invitees, servants, or
employees; and
(vi) any misrepresentation by Lessee under this Lease
or any failure on the part of Lessee to perform or comply with any of the
covenants, agreements, terms, provisions, conditions or limitations contained in
this Lease on its part to be performed or complied with.
(b) During the term of this Lease, Lessee agrees to secure and
maintain in full force, with respect to the Leased Premises and Lessee's use
thereof, commercial general liability insurance with limits of not less than
$2,000,000 with respect to bodily injury or death of any one person; nor less
than $5,000,000 with respect to bodily injury or death of any number of persons
in any one accident; nor less than $2,000,000 with respect to property damage in
any one accident with limits, terms and conditions substantially the same as
those applicable to such insurance in effect immediately prior to the Effective
Date. In addition to the foregoing, Lessee shall also be responsible, at
9
<PAGE>
Lessee's own cost, to keep and maintain (i) insurance in respect of and covering
Lessee's own furniture, furnishings, equipment and other personal property, all
insured for the replacement cost thereof, against all risks and hazards,
including but not limited to sprinkler and leakage and theft and other perils
which Lessor deems reasonably necessary, and (ii) workers' compensation
insurance with respect to and covering all employees of Lessee at the statutory
limits.
(c) Such insurance shall be secured and maintained through
solvent, responsible insurance companies, authorized to do business in the State
of New Jersey, and approved by Lessor, in Lessor's reasonable discretion. Each
such insurance policy shall name Lessor as an additional insured and, prior to
entry into possession of the Leased Premises, Lessee agrees to furnish and
thereafter maintain with Lessor certificates of insurance stating that the above
insurance is in force and that same will not be materially amended, canceled or
not renewed without thirty (30) days' advance written notice to Lessor, and to
any mortgagee named in an endorsement thereto, and Lessee shall furnish to
Lessor renewals thereof at least fifteen (15) days prior to expiration. The
liability insurance obtained by Lessee hereunder shall be primary and
non-contributory, contain cross-liability endorsements and insure Lessor against
Lessee's performance under Section 5(a) hereof.
(d) As material part of the consideration to Lessor, Lessee
assumes all risk of damage to property or injury to persons
10
<PAGE>
in or about the Leased Premises arising from any cause and Lessee hereby waives
all claims in respect thereof against Lessor, except for any claim arising out
of Lessor's gross negligence or willful misconduct.
(e) (i) Lessor shall not be liable to, and shall not be
obligated to indemnify Lessee for any liability, loss, claim, damage or expense,
including, but not limited to, reasonable attorneys' and experts' fees, clean-up
or other remediation costs and fees, and governmental fines ("Costs"), arising
out of or in connection with the existence of any toxic or hazardous materials,
pollutants, contaminants or hazardous wastes ("Hazardous Materials") existing on
the Leased Premises in violation of any Environmental Law, as defined
hereinafter, as of the Effective Date, except as otherwise provided in, and
limited by, the terms of the Purchase Agreement. Lessee hereby indemnifies,
agrees to defend and shall hold Lessor harmless from and against all Costs which
arise during or after the term arising out of or in connection with the
existence of any Hazardous Materials introduced to the Leased Premises or any
Release (as defined below) of any Hazardous Materials by Lessee or its agents,
contractors, employees or from sources within Lessee's reasonable control in
violation of any Environmental Law. As used herein, the term "Release" means any
releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, dumping or disposing into the environment of any
Hazardous Material in contravention of any Environmental Law.
11
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(ii) The term "Environmental Law" shall mean any
federal, state or Environmental, local, statute, act, law, ordinance, rule,
regulation or order pertaining to the environment whether now or hereafter
enacted and whether or not listed in this definition, including but not limited,
to the following:
(A) The Comprehensive Environmental Response
Compensation and Liability Act ("CERCLA"), 42 U.S.C. Section 9601 as amended by
the Superfund Amendments and Reauthorization Act of 1986 (Pub. L. 99-499, 100
Stat 1613 1986)("SARA");
(B) The Resource Conservation and Recovery
Act, 42 U.S.C. Section 6901 et seq. ("RCPA");
(C) Toxic Substances Control Act, 15 U.S.C.
Section 2601 ("TSCA");
(D) The Clean Water Act, 33 U.S.C. Section
407, et seq. ("CWA");
(E) The Clean Air Act, 42 U.S.C. Section
7901, et seq. ("CAA");
(F) The New Jersey Industrial Site Recovery
Act, N.J.S.A. 13:1K-6, et seq. ("ISRA"); and
(G) Any similar statute, law, ordinance,
rule, regulation or order adopted in the jurisdiction in which the Leased
Premises is located at any time whether before or after the execution of this
Lease.
(iii) All alterations made in the Leased Premises by
Lessor, Lessee or any other tenant of the Leased Premises shall
12
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be in accordance with and shall comply with all Environmental Laws and the
requirements of the Environmental Protection Agency ("EPA") and any state,
county, municipal or other agency having authority to enforce any Environmental
Law ("Enforcement Agency").
(iv) If any statues, laws, ordinances, rules or
regulations are promulgated at any time after the date of execution of this
Lease for the removal, abatement or containment of Hazardous Materials in the
Leased Premises or any portion of the Leased Premises and, in the reasonable
judgment of Lessor, it is hazardous for the Lessee to remain in the Leased
Premises during such removal, abatement or containment of the Hazardous
Materials, Lessee shall vacate the Leased Premises or that portion of the Leased
Premises that is hazardous and, provided that such condition did not result from
Lessee's acts, omissions or operations, the Base Rent shall be abated
proportionately for the period of time in which Lessee's use of such portion of
the Leased Premises has been interrupted.
(v) Lessee shall not intentionally or unintentionally
use, store, handle, spill, discharge or cause or permit any Release of any
Hazardous Materials at or in the vicinity of the Leased Premises, other than in
compliance with all Environmental Laws.
(vi) Lessee represents that its SIC number is ____.
At any time during the term of this Lease, Lessee shall supply to Lessor
affidavits of an officer of Lessee setting forth Lessee's SIC number and
describing in detail the operations and
13
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processes undertaken by Lessee at the Leased Premises. Such affidavits shall
include a certification that no Hazardous Materials are generated, used, stored,
handled or disposed of at the Leased Premises or shall state the nature of any
such substance and the methods used in handling the same in reasonable detail,
including a demonstration (accompanied by reasonable documentary evidence, e.g.,
copies of any permits or licenses issued by any Enforcement Agency) that such
use and handling complies with Environmental Laws. Such affidavits shall be
delivered to Lessor within ten (10) days after request therefor.
(vii) Within ten (10) business days after request
therefor, Lessee shall provide all information requested from time to time by
Lessor, or by any Enforcement Agency for the preparation of notices, submissions
or affidavits (including, without limitation, Non-applicability Affidavit, de
Minimis Quantity Exemption Application, Limited Conveyance Application or
Administrative Consent Order). Within ten (10) days after request therefor,
Lessee shall execute and deliver any document reasonably required in order to
comply with any Environmental Law.
(viii) Each of Lessor and Lessee shall promptly
deliver to the other copies of all notices made by it to, or received by it,
from any Enforcement Agency or from the United States Occupational Safety and
Health Administration concerning environmental matters or Hazardous Materials at
the Leased Premises. Lessee shall notify Lessor in advance of all meetings
(including telephone conferences) scheduled between Lessee or
14
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Lessee's representative and any Enforcement Agency, and Lessor and Lessor's
representative shall have the right, without the obligation, to attend and
participate in all such meetings.
(ix) At any time throughout the term of this Lease
and any extension thereof, Lessor may during normal business hours cause an
inspection to be made of the Leased Premises and its surrounding area for the
purpose of determining whether any Hazardous Materials are present thereon or on
the surrounding area.
(x) Notwithstanding any provision hereof to the
contrary, Lessee shall, at Lessee's expense, comply with ISRA and all other
Environmental Laws; provided however, that Lessor shall be responsible for the
cost of any compliance caused by or arising out of or in connection with any
breach of Lessor's warranties and representations herein, Lessor's use and
occupancy of the Leased Premises (provided, however, that Lessee's use of the
same premises prior to the commencement of this Lease shall not be imputed to
Lessor), and any acts which are at Lessor's discretion required to be performed
by Lessee. Without limiting the generality of the foregoing, Lessee shall, at
Lessee's own expense, make all submissions to, provide all information to, and
comply with all requirements of, the New Jersey Department of Environmental
Protection ("DEP"), including any notifications and other filings required as a
result of any closing, terminating or transferring of operations of an
industrial establishment at the Leased Premises pursuant to ISRA, or any other
event requiring notification to the DEP pursuant to N.J.A.C. 7:26B-1.6 (or any
successor regulation),
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whether triggered by Lessor or Lessee (except as otherwise provided or limited
by this paragraph). Should the DEP or any Enforcement Agency determine that a
cleanup plan be prepared and that a cleanup be undertaken because of any spills
or discharges or other Release of Hazardous Materials at or from the Leased
Premises, or otherwise arising from Lessee's occupancy of the Leased Premises or
the conduct of its business, which occur during the term of this Lease, then
Lessee shall at Lessee's own expense, prepare and submit the required plans and
financial assurances, and carry out the approved plans. If the Leased Premises
are not an industrial establishment within the meaning of ISRA, then prior to
the termination of the Lease, Lessee shall, at its own expense, obtain and
provide to Lessor a letter of non-applicability or de minimis quantity exemption
from the DEP. Lessee shall provide Lessor with copies of all notifications,
cleanup plans, financial assurances and other submissions to the DEP or any
Enforcement Agency prior to submitting them and such submissions shall be
subject to Lessor's approval.
(xi) Lessee further covenants that, without Lessor's
prior written consent, Lessee shall not install or use any underground storage
tank on the Leased Premises if such installation or use would be subject to
regulation under the Underground Storage of Hazardous Substances Act (N.J.S.A.
58:10A-21 et seq.).
(xii) Lessee's obligations under this section shall
survive the expiration or earlier termination of this lease.
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In addition to any other remedies available to Lessor as a result of Lessee's
failure to abide by the terms of this section, Lessor shall be entitled to a
temporary or permanent injunction.
6. Destruction of Improvements.
If the improvements which constitute a portion of the Leased
Premises shall be damaged by fire or other casualty, then Lessee shall
immediately notify Lessor. Within 10 days of its receipt of such notice, Lessor
shall give a notice to Lessee ("Lessor's Damage Notice") stating whether, in
Lessor's reasonable opinion, such damage can be repaired from the insurance
proceeds alone within 180 days after receipt of all necessary permits for repair
of the damaged improvements (the "Repair Permits"). If Lessor's Damage Notice
states that such damage cannot be so substantially repaired from the insurance
proceeds within said 180 day period, then Lessee alone during the Initial Term
or any Renewal Term may terminate this Lease by written notice to the Lessor
within thirty (30) days of the date of Lessor's Damage Notice. If this Lease is
not terminated as provided herein, then: (i) Lessor shall diligently endeavor to
obtain the Repair Permits; and (ii) from the insurance proceeds paid to Lessor
under the insurance policies provided herein, then; (i) Lessor shall diligently
endeavor to obtain the Repair Permits; and (ii) from the insurance proceeds paid
to Lessor under the insurance policies provided herein to be carried by Lessee,
and, to the extent such insurance proceeds are not sufficient to complete such
repair and reconstruction, from additional funds supplied by Lessee (and not
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by Lessor), Lessee shall diligently endeavor to substantially complete the
repair and reconstruction of the Leased Premises to substantially the same
condition existing immediately prior to such damage or destruction within 180
days after the later of receipt of the Repair Permits or receipt of such
insurance proceeds. If this Lease is not terminated by Lessee as provided
herein, then until the repair and reconstruction of the Leased Premises is
substantially complete, Lessee shall be required to pay the Base Rent and other
amounts payable by Lessee hereunder only for the portion of the Leased Premises
that is usable while such repairs and reconstruction are being made.
7. Condition of Premises and Repairs.
(a) Lessee shall not make any structural alterations to the
improvements constituting a portion of the Leased Premises without the prior
written consent of Lessor which consent shall not be unreasonably withheld,
conditioned or delayed. Lessee is authorized to make such changes and additions
which are not structural alterations provided Lessee first obtains Lessor's
consent, which consent shall not be unreasonably withheld, conditioned or
delayed. Such alterations, changes or additions as may be made by Lessee shall
be at Lessee's expense, shall be completed in a good and workmanlike manner,
shall be constructed in accordance with all applicable laws and building codes
and in a manner so as not to structurally impair the improvements comprising any
portion of the Leased Premises. All permanent improvements and
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fixtures (except trade fixtures) installed by Lessee shall become and remain the
property of Lessor, except as hereinafter provided.
(b) Lessee shall, at its own cost, keep and maintain the
Leased Premises (including but not limited to the landscaping, the parking area,
the roof and all heating, air-conditioning, plumbing, electrical and mechanical
system) in good order and repair during the term of this Lease; provided, that
Lessee shall not be responsible for such repairs which are the responsibility of
Lessor as provided in Section 7(c). Lessee shall maintain the Leased Premises at
its own expense in a clean, orderly and sanitary condition free of insects,
rodents, vermin and other pests and shall not permit undue accumulation of
garbage, trash, rubbage and other refuse, but shall remove the same at its own
expense, and shall keep such refuse in proper containers prepared for
collection. Lessee further covenants that Lessee will:
(i) promptly replace at its own expense with glass or
like, kind and quality any plate glass, door or window glass on or in the Leased
Premises which may become cracked or broken;
(ii) not cause or permit objectionable odors to
emanate or be dispelled from the Leased Premises;
(iii) keep the improvements which constitute a
portion of the Leased Premises at a temperature sufficiently high to prevent the
freezing of water and pipes and fixtures;
(iv) not burn any trash or garbage of any kind in or
about the Leased Premised;
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(v) keep the Leased Premises free of snow and ice and
maintain all landscaping and outdoor areas; and
(vi) comply with all laws and ordinances and all
rules and regulations of governmental authorities and all recommendations of the
Association of Fire Underwriters with respect to the use or occupancy of the
Leased Premises by Lessee; and supply, maintain, repair and replace for the
Leased Premises at the Lessee's own cost and expense, and fire extinguishers or
other fire prevention equipment and safety equipment required by the
aforementioned rules and regulations throughout the Initial Term and any Renewal
Term; provided, however, that Lessee shall not be required to make any repairs,
alterations or improvements to the Leased Premises or install or replace any
fire extinguishers or other fire prevention and safety equipment unless such
items are necessitated by Lessee's use of the Leased Premises.
(c) Lessor shall, at its own cost and expense, keep and
maintain in good order and repair all exterior and load-bearing walls and
building foundations, and shall make all necessary structural repairs to said
walls and foundations and Lessee shall, at its own cost and expense keep and
maintain in good order and repair all structural alterations made by Lessee in
accordance with Section 7(a), including but not limited to such repairs,
required by any governmental authority having jurisdiction, any order of a
court, or any insurance policy covering the Leased Premises. All requests for
repairs or maintenance that are the responsibility of Lessor pursuant to any
provision of this Lease must be in writing
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to Lessor at the address set forth in Section 14. Notwithstanding the foregoing,
in no event shall Lessor be responsible to make any repair or replacement
necessitated by Lessee's negligence, which repair and replacement shall be
promptly made by Lessee at its sole cost and expense.
8. Utilities.
Lessee agrees to pay when due all proper charges for all
utility services furnished to the Leased Premises during the term hereof. Lessee
shall pay all utility bills directly to the appropriate utility companies.
Lessee shall arrange for all utilities supplied to the Leased Premises to be
billed directly to Lessee. Lessor, at its own cost, shall provide for all
utility services to be available to the Leased Premises.
9. Mechanics' and Other Liens.
No work performed by Lessee pursuant to this Lease, whether in
the nature of erection, construction, alteration or repair, shall be deemed to
be for the immediate use and benefit of Lessor so that no mechanics' or other
liens shall be allowed against the estate of Lessor by reason of any consent
given by Lessor to Lessee to improve the Leased Premises. Lessee shall place
such contractual provisions as Lessor may reasonably request in all contracts
and subcontracts for any work contracted by Lessee, assuring Lessor that no
mechanics' liens will be asserted against Lessor's interest in the Leased
Premises. If any mechanics or other liens shall at any time be filed against the
Leased Premises by reason of work, labor, services or materials performed
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or furnished, or alleged to have been performed or furnished, to Lessee or to
anyone holding the Leased Premises through or under Lessee, and regardless of
whether any such lien is asserted against the interest of Lessor or Lessee,
Lessee shall within 30 days cause the same to be discharged of record, or bonded
to the reasonable satisfaction of Lessor. If Lessee shall fail to cause such
lien forthwith to be so discharged or bonded after being notified of the filing
thereof, then in addition to any other right or remedy of Lessor, Lessor may
bond or discharge the same by paying the amount claimed to be due, and the
amount so paid by Lessor, including reasonable attorneys' fees incurred by
Lessor either in defending against such lien or in procuring the bonding or
discharge of such lien, shall be due and payable by Lessee and Lessor as
additional rent hereunder.
10. Personal Property and Trade Fixtures.
Provided the Lessee is not then in default hereunder, upon the
expiration of the term of this Lease or earlier termination thereof for any
cause, Lessee shall have the right to remove from the Leased Premises any and
all of Lessee's personal property, including, but not limited to, all equipment
and any and all trade fixtures used in the conduct of business on the Leased
Premises theretofore placed thereon, whether or not such property be attached to
the Leased Premises. In the event Lessee removes any such equipment and/or trade
fixtures, Lessee agrees to repair any resulting damage to the Leased Premises.
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11. Peaceful Possession and Use of Premises.
(a) Subject to the terms and provision hereof, Lessor agrees
that Lessee, having paid the rent and duly performed all of its obligations
contained herein, shall and may peaceably and quietly have, hold and enjoy the
Leased Premises during the full term of this Lease. During the term of this
Lease, Lessee may use the Leased Premises for any type of lawful business
operation. Lessee warrants and covenants, however, that no business will be
conducted on the Leased Premises which will violate any law or ordinance now or
hereafter in force or which will violate the provisions of any insurance policy
on the Leased Premises.
(b) Lessor, upon reasonable prior notice to Lessee, shall have
free access to the Leased Premises during normal business hours for the purpose
of making inspections or repairs or showing the Leased Premises to any
prospective buyer or tenant.
12. Default.
(a) Each of the following shall constitute an "Event of
Default":
(i) The Base Rent or any money payments due
hereunder, including but not limited to taxes, or any part thereof, shall remain
unpaid after the same becomes due for a period of ten (10) days after notice
from Lessor to Lessee; or
(ii) The entry of an order for relief by a court
having jurisdiction in a case under the Bankruptcy Code in which Lessee is a
debtor, or any other similar order is entered under applicable state law, if
such decree or order shall have remained
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undischarged for a period of sixty (60) days; or a decree or order of court
shall have been entered for the appointment of a receiver or liquidator or a
trustee or assignee in bankruptcy or insolvency of the Lessee or its property or
for the winding up or liquidation of its affairs; or Lessee shall file a
petition under the Bankruptcy Code seeking an order for relief or shall make an
assignment for the benefit of Lessee's creditors or admit in writing Lessee's
inability to pay the debts of Lessee generally as they become due; or the sale
of Lessee's interest in the Leased Premises under attachment, execution or
similar legal process; or
(iii) Lessee shall fail to fulfill or perform, in
whole or in part, any of its non-monetary obligations under this Lease and such
failure or nonperformance shall continue for a period of thirty (30) days after
notice from Lessor to Lessee; provided that if Lessee commences to correct any
such failure or nonperformance within such thirty (30) day period and thereafter
diligently endeavors to correct same to completion, such thirty (30) day period
shall be automatically extended by the amount of time reasonably necessary to so
complete the correction.
(b) Upon the occurrence of any Event of Default, Lessor shall
have the right (in addition to all other rights and remedies at law and in
equity) to do any one or more of the following:
(i) Termination of Lease. Lessor may terminate this
Lease, by written notice to Lessee, without any right by Lessee to reinstate its
rights by payment of rent due or other performance of the terms and conditions
hereof. Upon such
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termination, Lessee shall immediately surrender possession of the Leased
Premises to Lessor, and Lessor shall immediately become entitled to receive from
Lessee an amount equal to the aggregate of all Base Rent and other payments
which then remain due to Lessor but unpaid by Lessee.
(ii) Reletting. With or without terminating this
Lease, as Lessor may elect, Lessor may re-enter and repossess the Leased
Premises, or any part thereof, and lease them to any other person upon such
terms as Lessor shall deem reasonable, for term within or beyond the Term;
provided, that any such reletting prior to termination shall be for the account
of Lessee, and Lessee shall remain liable for (i) Base Rent and other sums which
would be payable under this Lease by Lessee in the absence of such expiration,
termination or repossession, less (ii) the net proceeds, if any, of any
reletting effected for the account of Lessee after deducting from such proceeds
all of Lessor's expenses, including reasonable attorneys' fees and expenses,
employees' expenses, alteration costs, expenses of preparation for such
reletting and all costs and expenses, direct or indirect, incurred as a result
of Lessee's breach of this Lease, other than expenses for which Lessor is
responsible hereunder. If the Leased Premises are, at the time of default,
sublet or leased by Lessee to others, Lessor may, as Lessee's agent, collect
rents due from any subtenant or other tenant and apply such rents to the Base
Rent and other amounts due hereunder without in any way affecting Lessee's
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obligation to Lessor hereunder. Such agency, being given for security, is hereby
declared to be irrevocable.
(iii) Acceleration of Rent. Lessor may declare the
net present value (at the rate of 7% per year) of the Base Rent and all other
charges, payments, costs, and expenses payable by Lessee for the entire balance
of the then current Term immediately due and payable, as though such amounts
were payable in advance on the date the Event of Default occurred.
(iv) Removal of Contents by Lessor. With respect to
any portion of the Leased Premises which is vacant or which is physically
occupied by Lessee, Lessor may remove all persons and property therefrom, and
store such property in a public warehouse or elsewhere at the cost of and for
the account of Lessee, without service of notice or resort to legal process (all
of which Lessee expressly waives) and without being deemed guilty of trespass or
becoming liable for any loss or damage which may be occasioned thereby.
(v) Survival of Lessee's Obligations. No expiration
or termination of this Lease and no repossession of the Leased Premises or any
part thereof pursuant to this Section 12(b) of this Lease shall relieve Lessee
of its liabilities and obligations hereunder, all of which shall survive such
expiration, termination or repossession, and Lessor may, at its option, sue for
and collect all Base Rent and other charges due hereunder at any time as when
such charges accrue.
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(vi) Not Exclusive Right. No right or remedy herein
conferred upon or reserved to Lessor is intended to be exclusive of any other
right or remedy herein or by law provided, but each shall be cumulative and in
addition to every other right or remedy given herein or now or hereafter
existing at law or in equity or by statute.
(vii) Lessor shall use its good faith efforts to
relet the Leased Premises and mitigate damages arising from an Event of Default.
(viii) Expenses. In the event that Lessor commences
suit for the repossession of the Leased Premises, for the recovery of Base Rent
or any other amount due under the provisions of this Lease, or Lessor or Lessee
commences suit because of the breach of any covenant herein contained on the
part of the other to be kept or performed, and a breach shall be established, by
final court order or decree after exhaustion of all rights of appeal, or by
settlement agreement entered with such court, the breaching party shall pay to
the other all reasonable expenses incurred in connection therewith, including
reasonable attorneys' fees.
13. Condemnation.
(a) If the whole of the Leased Premises shall be taken by
condemnation or right of eminent domain, then the term of this Lease shall cease
as of the day possession shall be so taken as if such date were the date
originally fixed herein for termination of this Lease, and any unaccrued,
prepaid rent or other charges paid
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by Lessee attributable to a period after such date shall be refunded to Lessee.
(b) If less than all but so much of the Leased Premises as to
render the balance unsuitable for use by Lessee for the purposes for which the
Leased Premises are being used by Lessee, as determined by Lessee in its
reasonable discretion, shall be taken by condemnation or right of eminent
domain, then the term of this Lease shall likewise cease as of the day
possession shall be so taken with the same consequences specified in Section
13(a).
(c) If only a portion of the Leased Premises shall be taken by
condemnation or right of eminent domain and this Lease is not terminated under
the provisions of Section 13(b), this Lease shall continue in effect
notwithstanding such taking in accordance with and subject to the other terms
and provisions hereof, in which even the Base Rent and other amounts payable by
Lessee for each month of the term of this Lease ensuing after the date of such
taking shall be reduced according to the nature, extent and effect of such
taking upon the operations of Lessee.
(d) All damages and amounts awarded for taking by condemnation
or right of eminent domain, whether for the whole or a part of the Leased
Premises, shall belong to and be the sole property of Lessor (whether such
damages or amounts shall be awarded as compensation for taking of or diminution
in value of the leasehold or the fee of the Leased Premises); provided, however,
that Lessee shall be entitled to receive and retain any amount which may be
specifically awarded to it in such proceedings for
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business interruption and/or relocation costs or loss of its trade fixtures or
other personal property belonging to Lessee on the Leased Premises, provided,
further, that in the event Lessee is able and does recover in such condemnation
proceedings an award of damages to Lessee for the value of Lessee's leasehold
estate under this Lease over and above the full value of the land, building and
fixtures and all other improvements and property belonging to Lessor which may
be so taken (all of which is to be paid to Lessor) and without in any way
reducing the amount of the award which would have been recovered by Lessor if
this Lease were not in existence, then Lessee shall be entitled to receive and
retain such additional award of damages.
14. Notices and Demands.
Any and all notices or demands which shall be required or
permitted by law or any of the provisions of this Lease must be in writing to be
effective and, if the same are to be served upon Lessor, shall be either
personally delivered to Lessor or mailed by first class registered mail, postage
and fees prepaid and return receipt requested or by a nationally recognized
overnight courier service providing proof of delivery, addressed to Lessor at:
Carl Massaro
1511 Casey Key Drive
Punta Gorda, Florida 33950
with a copy to its counsel:
McCausland, Keen & Buckman
Radnor Court, Suite 160
259 Radnor-Chester Road
Radnor, PA 19087-5240
Attention: Marc S. Maser, Esquire
Fax No.: (610) 341-1099
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or at such other address as Lessor may from time to time designate by notice in
writing to Lessee.
If such notices or demands are to be served on Lessee, such notices or
demands shall be delivered to Lessee by facsimile with a hard copy to be sent
out the same day by a nationally recognized overnight courier service providing
proof of delivery, addressed to Lessee at:
Ajax Manufacturing Company
321 Valley Road
Hillsborough Township, NJ 08876-4056
Attention: President & Secretary
Fax No. (908) 369-5415
with a copy to its counsel:
Phillips Nizer Benjamin Krim & Ballon, LLP
666 Fifth Avenue
New York, NY 10103-0084
Attention: Vincent J. McGill, Esquire
Fax No.: (212) 262-5152
or at such other address as Lessee may from time to time designate by notice in
writing to Lessor.
Notices and demands shall be deemed given upon the actual date
and delivery, whether or not delivery is refused.
15. Subordination.
It is expressly stipulated and agreed that this Lease is and
shall be at all times subject and subordinate to the lien of any and all
Mortgages (as defined below) now or hereafter encumbering the Leased Premises
given to secure existing or future indebtedness of Lessor, and to all renewals,
modifications, replacements and extensions of such Mortgages, provided, however,
that the subordination herein contained shall not be effective with
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respect to any future Mortgage unless the holder of such Mortgage ("Mortgagee")
shall execute and deliver a subordination, non-disturbance and attornment
agreement, in Mortgagee's customary form, providing that, in the event the
Mortgage shall be foreclosed or the Mortgage shall accept a deed in lieu thereof
(either of which event shall be a "Foreclosure"), then so long as Lessee shall
not then be in Default beyond any cure period provided herein and so long as
Lessee shall attorn to the Mortgagee or purchaser upon Foreclosure, (a) this
Lease shall not terminate, nor shall any of Lessee's rights hereunder (including
but not limited to Lessee's rights under Section 20 hereof) be abrogated,
reduced or otherwise adversely affected, by reason of such Foreclosure, (b)
Lessee's possession of the Leased Premises shall not be disturbed, and (c) the
Mortgagee or its successors or its assigns shall agree to perform the
obligations of Lessor which accrue subsequent to the passage of title thereto.
Lessee agrees, at any time, and from time to time, upon request of Lessor to
execute and deliver proper recordable agreements submitted by Lessor confirming
the foregoing subordination and non-disturbance agreement with respect to any
such Mortgage. As used in this section, the term "Mortgage" shall mean any
mortgage, deed to secure debt, deed of trust, trust deed, ground lease or other
collateral conveyance of, or lien or encumbrance against this Lease and/or the
Leased Premises.
16. Binding Effect: Assignment and Subletting.
This Lease shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, legal
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representatives, successors and assigns. In this connection, however, it is
understood that Lessee does not have the right (without the advance written
consent of Lessor) to assign this Lease or sublease the Leased Premises, in
whole or in part, and any attempted assignment or sublease without such consent
of Lessor is and shall be prohibited and void; provided, that Lessor's consent
shall not be required respecting an assignment by Lessee to any entity
controlling, controlled by or under common control with Leasee. If Lessee
hereafter assigns or subleases its rights hereunder as permitted herein, Lessee
shall, nevertheless, be and remain fully responsible and liable for the full
performance of Lessee's obligations hereunder, including without limitation the
payment of all Base Rent and other sums payable hereunder. Consent by Lessor to
any assignment or sublease shall not waive the necessity for Lessor's consent to
any subsequent assignment or sublease.
17. Surrender on Expiration of Term and Holding Over.
(a) Lessee agrees that at the expiration of the term of this
Lease, or the earlier termination thereof, unless Lessee shall have purchased
the Leased Premises under Section 20, possession of the Leased Premises will be
surrendered to Lessor in good condition and repair, with all of Lessee's
personal property removed, ordinary wear and tear and damage by fire or other
casualty excepted.
(b) In case of holding over by Lessee after the termination of
this Lease, however such termination shall be
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brought about, Lessee shall pay rent for each calendar month or portion thereof
after the termination of this Lease at 150% of the rate provided herein for the
month prior to such termination. No holding over by Lessee after the term of
this Lease, either with or without the acquiescence of Lessor, shall operate to
extend this Lease for a period or periods longer than from month to month.
18. Representations, Warranties and Covenants.
(a) Lessor has the right, power and authority to enter into
this Lease and to perform Lessor's obligations hereunder, and no joinder by any
other party and no approvals or consents of any other persons, entities or
governmental authorities are necessary or required in order for this Lease to be
valid and binding upon Lessor in accordance with its terms. Lessor further
represents, warrants and agrees that from the date hereof through the expiration
of the Purchase Option contained herein, Lessor shall not suffer or permit the
imposition of any lien or encumbrance on the Leased Premises without Lessee's
prior written consent other than a Mortgage (as defined in Section 15) or any
lien or encumbrance which may attach by reason of a breach by Lessee of any term
hereunder.
(b) Lessee represents, warrants and agrees that: (i) Lessee
has the right, power and authority to enter into this Lease and to perform
Lessee's obligations hereunder, and no joinder by any other party and no
approvals or consents of any other persons are necessary in order for this Lease
to be valid and binding upon Lessee in accordance with its terms; (ii) Lessee
shall, at
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Lessee's sole cost and expense, comply with the lawful requirements of all
applicable governmental authorities having jurisdiction over the Lease Premises;
and (iii) Lessee shall, at its sole cost and expense, be responsible for
obtaining all necessary permits, licenses, use registration permits and zoning
approvals necessary for Lessee's use and operation of the Leased Premises.
19. Transfer of Lessor's Interest. In the event of any transfer of
Lessor's interest in the Leased Premises, the transferor shall be automatically
relieved of any and all obligations and liabilities on the part of the Lessor
accruing from and after the date of such transfer.
20. Option to Purchase. Provided that (i) this Lease is then in effect,
(ii) Lessee is not in default hereunder and (iii) the Maker of that certain
promissory note and security agreement delivered by Lessee (as Maker and Debtor)
to Lessor pursuant to Section __ of the Purchase Agreement, is not then in
default as to any monetary or nonmonetary obligations thereunder, Lessee may
elect to purchase the Leased Premises from Lessor during the Initial Term, upon
the following terms, covenants and conditions:
(a) Notice of Election to Purchase. If Lessee elects to
exercise its option to purchase the Leased Premises, Lessee shall so notify (a
"Purchase Notice") at least ninety (90) days prior to the last day of the
Initial Term. The Purchase Notice shall contain a settlement date, which date
shall be no later than ninety (90) days following the date of the Purchase
Notice (the "Closing Date"). Lessee's failure to deliver the Purchase Notice
within the
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time period specified herein shall be deemed a relinquishment of Lessee's option
to purchase the Leased Premises.
(b) Purchase Price. The purchase price of the Leased Premises
shall be $6,500,000.00 and shall be payable in cash at Closing by wire transfer.
(c) Closing. Closing shall take place in accordance with this
Section 20 on the Closing Date at a time and place reasonably agreeable to the
parties. Time shall be of the essence. The Leased Premises shall be conveyed by
warranty deed. All documentary stamps, recording charges and/or transfer taxes
imposed by any governmental body shall be borne equally by Lessor and Lessee.
All title, survey and customary buyer's closing costs shall be borne by Lessee.
(d) Title. The Leased Premises shall be conveyed free and
clear of all liens, restrictions, encumbrances, and easements, except for
building and zoning ordinances, taxes not then due and payable, governmental
regulations affecting the Leased Premises, liens and encumbrances caused soley
by Lessee's use and occupancy of the Leased Premises and restrictions and
easements of record that are shown on the List of Permitted Exceptions attached
hereto as Exhibit "B" and that do not materially interfere with the use of the
Leased Premises in the manner in which the Leased Premises are then being used
by Lessee. Title to the Leased Premises shall be good, marketable and insurable
as such by a reputable title insurance company licensed to do business in the
State of New Jersey at Lessee's expense. If Lessor is unable to give good and
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marketable title on the Closing Date as required in this Section 20, Lessee may
elect to terminate its commitment to purchase the Leased Premises (provided
Lessee has given Lessor notice of all title objections on or before the date
which is thirty (30) days after the date of the Purchase Notice), or may
purchase the Leased Premises with such title as Lessor is able to give with no
reduction in the purchase price, unless Lessor's inability to give title as
required in this Section 20(d) is due to liens or other title objections
reasonably ascertainable in amount. In this event, Lessee shall have the option
of taking such defective title with a deduction from the purchase price equal to
the cost of satisfying said liens or other objections. In the event that Lessee
elects to terminate its commitment to purchase the Leased Premises as the result
of Lessor's inability to convey title in accordance with this Section 20(d),
neither party shall have any further liability or obligation to the other under
this Section 20. From and after the date of Lessee's Purchase Notice, Lessor
shall not further encumber or impair title to the Leased Premises.
(e) Condition of Property. In the event all or a portion of
the Leased Premises shall be damaged by fire or other casualty or all or a
portion of the Leased Premises shall be condemned after the date of Lessee's
Purchase Notice Lessee may, within thirty (30) days after receipt of notice
thereof and by notice to Lessor, either revoke its Purchase Notice or proceed to
purchase the Leased Premises with no reduction in the purchase price, in which
latter event all casualty insurance proceeds and
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claims thereto and any condemnation awards shall be paid and/or assigned to
Lessee at closing.
(f) Termination of Lease Agreement. Upon the completion of the
purchase and sale of the Leased Premises in accordance with this Section 20,
this Lease shall terminate.
(g) Recording of Lease Agreement. Lessee may record a notice
or memorandum of this Lease in the appropriate recording office in the County of
Somerset, New Jersey.
21. General.
(a) This Lease is to be governed by the laws of the State of
New Jersey. No waiver by either party of its rights to enforce any provision
hereof after any default on the part of the other party shall be deemed a waiver
of its rights to enforce each and all of the provisions hereof upon any further
or other defaults on the part of such other party.
(b) This Lease and the covenants and agreements set forth
herein and therein are and shall constitute the entire agreement between the
parties with respect to the subject matter hereof. Each party to this Lease
hereby acknowledges and agrees that the other party has made no warranties,
representations, covenants or agreements, express or implied, to such party
other than those expressly set forth herein and that each party, in entering
into and executing this Lease, has relied upon no warranties, representations,
covenants and agreements other than those expressly set forth herein.
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(c) The captions of the various paragraphs of this Lease are
inserted only as a matter of convenience and for reference and in no way define,
limit or describe the scope or intent of this Lease nor in any way affect this
Lease.
(d) In the event any covenant, condition or provision herein
contained is held to be invalid or unenforceable in whole or in part or as to
any person or circumstance by final judgment of any court of competent
jurisdiction, the extent of such invalidity or unenforceability shall not in any
way affect the balance of such covenant, condition or provision, the application
of such covenant, condition or provision to persons or circumstances as to which
it is not invalid or unenforceable, or any other covenants, conditions or
provisions herein contained.
(e) Each of the parties represents and warrants that there are
no rights or claims for brokerage commissions or finder's fees in connection
with the execution of this Lease (including any purchase of the Leased Premises
by Lessee), and each of the parties agrees to indemnify the other against, and
hold the other harmless from, all liabilities arising from any such rights or
claims asserted through it, such obligation to survive the termination of this
Lease and/or any such purchase.
(f) This Lease may not be altered, waived, amended or extend
except by an instrument in writing signed by Lessor and Lessee.
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(g) The time for the performance of all of the covenants,
conditions and agreements of this Lease is of the essence of this Lease.
(h) Neither party shall be required to perform any covenant or
obligation in this Lease, or be liable in damages to the other, so long as the
performance or nonperformance of the covenant or obligation is delayed, caused
or prevented by force majeure (as hereinafter defined). "Force majeure" is
defined for purposes of this Section as strikes, lock-outs, sit downs, material
or labor restrictions or any delay caused by any governmental authority, unusual
transportation delays, riots, floods, wash-outs, explosions, earthquakes, fire
storms, weather (including wet ground or inclement weather which prevents
construction) acts of the public enemy, war, insurrection, and/or any other
cause not reasonably within the control of such party.
(i) If Lessor shall fail to perform any covenant, term or
condition of this Lease upon Lessor's part to perform and, as the consequences
such default, Lessee shall recover a money judgment against Lessor, such
judgment shall be satisfied only out of the right, title and interest of Lessor
in the Leased Premises or out of rents or other income from the Leased Premises
receivable by Lessor or out of the consideration received by Lessor from the
sale or other disposition of all or any part of the Lessor's right, title and
interest in the Leased Premises, and Lessor shall not be personally liable for
any deficiency. The covenants in this Lease shall run with the Leased Premises
and all personal liability of
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the present Lessor shall cease in the event of sale or transfer of his interest.
(j) Accord and Satisfaction. No payment by Lessee or receipt
by Lessor of a lesser amount than the rents herein stipulated shall be deemed to
be other than on account of the earliest stipulated rent, nor shall any
endorsement or statement on any check or any letter accompanying any check or
payment as rent be deemed an accord and satisfaction and Lessor may accept such
check or payment without prejudice to Lessor's right to recover the balance of
such rent or pursue any other remedy in this Lease provided.
22. Disposal of Lessee's Property. Notwithstanding any agreement,
understanding or acknowledgment contained in this Lease or in any other document
to the contrary, including a certain management letter delivered by Lessee to
BDO Seidman & Co. ("BDO"), dated June 3, 1997, as updated by letter from Lessee
to BDO dated August __, 1997, Lessee shall be and remain solely responsible for
the disposal of any of its property.
IN WITNESS WHEREOF, this instrument is executed in duplicate originals
as of the ______ day of _____________, 1997.
AJAX MANUFACTURING COMPANY
By: ________________________
Name
Title
______________________________
CARL MASSARO
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Guaranty
For good and value consideration, the receipt of which is acknowledged
by the undersigned, and intending to be legally bound hereby, the undersigned
agrees under seal that payment of any amounts due and owing hereunder by Lessee
shall be guaranteed by the undersigned in the event that Lessee fails to pay any
such amount when due under the terms of this Lease.
STANDARD AUTOMOTIVE CORPORATION
BY: ____________________________
Name
Title
41
<PAGE>
EXHIBIT "A"
Description of Leased Premises
[MUST BE SUPPLIED PRIOR TO CLOSING]
42
<PAGE>
EXHIBIT "B"
Permitted Exceptions
[MUST BE SUPPLIED PRIOR TO CLOSING]
43
STANDARD AUTOMOTIVE CORPORATION
1997 Stock Option Plan
The purpose of this 1997 Stock Option Plan (the "Plan") is to attract and
retain key employees of Standard Automotive Corporation (the "Company") and its
affiliates, to provide an incentive for them to achieve long-range performance
goals, and to enable them to participate in the long-term growth of the Company
by the granting of Incentive Stock Options and Non- Statutory Stock Options
(each an "Option" and collectively the "Options") to purchase the Company's
common stock, $0.001 par value (the "Common Stock").
1. Administration of the Plan. The administration of the Plan shall be
under the general supervision of the Compensation Committee of the Board of
Directors of the Company (the "Compensation Committee"). Within the limits of
the Plan, the Compensation Committee shall determine the individuals to whom,
and the times at which, Options shall be granted, the type of Option to be
granted, the duration of each Option, the price and method of payment for each
Option, and the time or times within which (during its term) all or portions of
each Option may be exercised. The Compensation Committee may establish such
rules as it deems necessary for the proper administration of the Plan, make such
determinations and interpretations with respect to the Plan and Options granted
under it as may be necessary or desirable and include such further provisions or
conditions in Options granted under the Plan as it deems advisable. To the
extent permitted by law, the Compensation Committee may delegate its authority
under the Plan to a sub-committee of the Compensation Committee. Whenever
options are granted to any person subject to Section 16 of the Securities
Exchange Act of 1934 (the "Exchange Act"), each member of the committee or
sub-committee shall be a "disinterested person" within the meaning of Rule 16b-3
under the Exchange Act.
2. Shares Subject to the Plan.
(a) Number of Shares. The aggregate number of shares of Common Stock of the
Company which may be optioned under the Plan is 340,000 shares. In the event
that the Compensation Committee in its discretion determines that any stock
dividend, split-up, combination or reclassification of shares, recapitalization
or other similar capital change affects the Common Stock such that adjustment is
required in order to preserve the benefits or potential benefits of the Plan or
any Option granted under the Plan, the maximum aggregate number and kind of
shares or securities of the Company as to which Options may be granted under the
Plan and as to which Options then outstanding shall be exercisable, and the
option price of such
<PAGE>
Options, shall be appropriately adjusted by the Compensation Committee (whose
determination shall be conclusive) so that the proportionate number of shares or
other securities as to which Options may be granted and the proportionate
interest of holders of outstanding Options shall be maintained as before the
occurrence of such event.
(b) Effect of Certain Transactions. In order to preserve a Participant's
(as defined below) rights under an Option in the event of a Change in Control
(as defined below) of the Company, the Compensation Committee in its discretion
may, at the time an Option is made or at any time thereafter, take one or more
of the following actions: (i) provide for the acceleration of any time period
relating to the exercise or payment of the Option, (ii) provide for payment to
the Participant of cash or other property with a fair market value equal to the
amount that would have been received upon the exercise or payment of the Option
had the Option been exercised or paid upon the change in control, (iii) adjust
the terms of the Option in a manner determined by the Compensation Committee to
reflect the change in control, (iv) cause the Option to be assumed, or new
rights substituted therefor, by another entity, or (v) make such other provision
as the Compensation Committee may consider equitable to the Participant and in
the best interests of the Company.
"Change in Control" shall mean (i) the Company merges or consolidates with
any other entity and is not the surviving entity (or survives only as the
subsidiary of another entity), (ii) the Company sells all or substantially all
of its assets to any other person or entity, (iii) the Company is dissolved or
liquidated, (iv) any third person or entity together with its affiliates shall
become, directly or indirectly, the beneficial owner of at least 51% of the
voting stock of the Company, or (v) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board (including
for this purpose any new director whose election or nomination for election by
the Company's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board.
(c) Restoration of Shares. If any Option expires or is terminated
unexercised or is forfeited for any reason, the shares subject to such Option,
to the extent of such expiration, termination or forfeiture, shall again be
available for granting pursuant to Options under the Plan, subject, however, in
the case of Incentive Stock Options, to any requirements under the Code (as
defined below).
(d) Reservation of Shares. The Company shall at all times while the Plan is
in force reserve such number of shares of Common Stock as will be sufficient to
satisfy the requirements of
- 2 -
<PAGE>
the Plan. Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.
3. Grant of Options; Eligible Persons.
(a) Types of Options. Options shall be granted under the Plan either
as incentive stock options ("Incentive Stock Options"), as defined in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
or as Options which do not meet the requirements of Section 422
("Nonstatutory Stock Options"). Options may be granted from time to time by
the Compensation Committee, within the limits set forth in Sections 1 and 2
of the Plan, to all employees of the Company or of any parent corporation
or subsidiary corporation of the Company (as defined in Sections 424(e) and
(f), respectively, of the Code) (collectively the "Participants").
(b) Date of Grant. The date of grant for each Option shall be the date
on which it is approved by the Compensation Committee, or such later date
as the Compensation Committee may specify. No Incentive Stock Options shall
be granted hereunder after ten years from the date on which the Plan was
approved by the Board of Directors.
4. Form of Options. Options granted hereunder shall be evidenced by an
option agreement delivered to the optionee specifying the terms and conditions
thereof and containing such other terms and conditions not inconsistent with the
provisions of the Plan as the Compensation Committee considers necessary or
advisable to achieve the purposes of the Plan or comply with applicable tax and
regulatory laws and accounting principles. The form of such option agreements
may vary among optionees.
5. Option Price. The price at which shares may from time to time be
optioned shall be determined by the Compensation Committee; provided, that such
price shall not be less than the current market value of the Common Stock on the
date of grant, or if no such market value exists, then the current net asset
value of the Common Stock as determined in good faith by the Compensation
Committee; and provided further, that no Incentive Stock Option shall be granted
to any individual who is ineligible to be granted an Incentive Stock Option
because his ownership of stock of the Company or its parent or subsidiary
corporations exceeds the limitations set forth in Section 422(b)(6) of the Code
unless such option price is at least 110% of the current market value of the
Common Stock on the date of grant; and further provided, that, in all cases, for
a period of 18 months after the closing date of the Company's initial public
offering, the exercise price will be the greater of 110% of fair market value on
the date of grant and the initial public offering price of the Common Stock.
- 3 -
<PAGE>
To the extent permitted by law, the Compensation Committee may in its
discretion permit the option price to be paid in whole or in part by a note or
in installments or with shares of Common Stock of the Company or such other
lawful consideration as the Compensation Committee may determine.
6. Term of Options and Dates of Exercise.
(a) Exercisability. The Compensation Committee shall determine the
term of all Options, the time or times that Options are exercisable and
whether they are exercisable in installments, provided that the term of
each Option granted under the Plan shall not exceed a period of ten years
from the date of its grant, and provided further that no Incentive Stock
Option shall be granted to any individual who is ineligible to be granted
such Option because his ownership of stock of the Company or its parent or
subsidiary corporations exceeds the limitations set forth in Section
422(b)(6) of the Code unless the term of his Incentive Stock Option does
not exceed a period of five years from the date of its grant. In the
absence of such determination, the Option shall be exercisable at any time
or from time to time, in whole or in part, during a period of ten years
from the date of its grant or, in the case of an Incentive Stock Option,
the maximum term of such Option.
(b) Effect of Disability, Death or Termination of Employment. The
Compensation Committee shall determine the effect on an Option of the
disability, death, retirement or other termination of employment of an
optionee and the extent to which, and during the period which, the
optionee's estate, legal representative, guardian, or beneficiary on death
may exercise rights thereunder. Any beneficiary on death shall be
designated by the optionee, in the manner determined by the Compensation
Committee, to exercise rights of the optionee in the case of the optionee's
death.
(c) Other Conditions. The Compensation Committee may impose such
conditions with respect to the exercise of Options, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable.
(d) Withholding. The optionee shall pay to the Company, or make
provision satisfactory to the Compensation Committee for payment of, any
taxes required by law to be withheld in respect of any Options under the
Plan no later than the date of the event creating the tax liability. In the
Compensation Committee's discretion, such tax obligations may be paid in
whole or in part in shares of Common Stock, including shares retained from
the exercise of the Option creating the tax obligation, valued at the fair
market value of the Common Stock on the date of delivery to the Company as
determined in good faith by the Compensation Committee. The Company and any
parent
- 4 -
<PAGE>
corporation or subsidiary corporation of the Company (as defined in Sections
424(e) and (f), respectively, of the Code) may, to the extent permitted by law,
deduct any such tax obligations from any payment of any kind otherwise due to
the optionee.
(e) Amendment of Options. The Compensation Committee may amend, modify
or terminate any outstanding Option, including substituting therefor
another Option of the same or different type, changing the date of exercise
or realization and converting an Incentive Stock Option to a Nonstatutory
Stock Option, provided that the optionee's consent to such action shall be
required unless the Compensation Committee determines that the action,
taking into account any related action, would not materially and adversely
affect the optionee.
7. Non-transferability. Options granted under the Plan shall not be
transferable by the holder thereof otherwise than by will or the laws of descent
and distribution or, in the case of a Nonstatutory Stock Option, to the extent
consistent with qualifying for the exemption provided by Rule 16b-3 under the
Exchange Act, pursuant to a qualified domestic relations order, and shall be
exercisable, during the holder's lifetime, only by him or her or such permitted
transferee.
8. No Right to Employment. No persons shall have any claim or right to be
granted an Option, and the grant of an Option shall not be construed as giving
an optionee the right to continued employment. The Company expressly reserves
the right at any time to dismiss an optionee free from any liability or claim
under the Plan, except as specifically provided in the applicable Option.
9. No Rights as a Shareholder. Subject to the provisions of the applicable
Option, no optionee or any person claiming through an optionee shall have any
rights as a shareholder with respect to any shares of Common Stock to be
distributed under the Plan until he or she becomes the holder thereof.
10. Amendment or Termination. The Board of Directors of the Company may
amend, suspend or terminate the Plan or any portion thereof at any time, subject
to any shareholder approval that the Board of Directors determines to be
necessary or advisable, provided that the Participant's consent will be required
for any amendment, suspension or termination that would adversely affect the
rights of the Participant under any outstanding Options.
11. Governing Law. This Plan shall be governed by and interpreted in
accordance with the laws of the State of Delaware.
- 5 -
STANDARD AUTOMOTIVE CORPORATION
321 Valley Road
Hillsborough Township, New Jersey 08876-4056
February 1, 1997
Barclay Partners, LLC
375 Park Avenue, Suite 2805
New York, New York 10152
Dear Sirs:
1. This is to confirm that Barclay Partners, LLC ("Barclay") has been
engaged to advise the Board of Directors of Standard Automotive Corporation (the
"Company") with respect to the proposed acquisition of Ajax Manufacturing
Company (the "Proposed Acquisition").
2. Barclay hereby accepts the engagement described in paragraph 1 of this
Agreement and, in that connection, agrees to:
(a) provide advisory services, including general business and financial
analysis, transaction feasibility analysis, and pricing of the
Proposed Acquisition;
(b) if requested by the Company, assist in negotiations and related
strategy relating to the Proposed Acquisition;
This Agreement does not contemplate Barclay serving as the Company's agent
in raising financing for the Proposed Acquisition or Additional Acquisitions.
Any such arrangement shall be confirmed in a separate engagement agreement.
3. For purposes of this Agreement:
(a) an "acquisition" shall mean any transaction or series or combination
of transactions, other than in the ordinary course of trade or
business, whereby, directly or indirectly, control of, or a material
interest in, a company or any of its businesses or assets is
transferred for consideration, including, without limitation, a sale
or exchange of
<PAGE>
Barclay Partners, LLC
February 1, 1997
Page 2
capital stock or assets, a lease of assets with or without a purchase
option, a merger or consolidation, a tender or exchange offer, a
leveraged buy-out, a restructuring, a recapitalization, a repurchase
of capital stock, an extraordinary dividend or distribution, a
liquidation, the formation of a joint venture, minority investment or
partnership, or any similar transaction.
(b) "Consideration" shall mean the value of all cash, securities and other
property paid by an acquiring party to a selling party in connection
with an acquisition. The value of any such securities (whether debt or
equity) or other property shall be determined as follows: (1) the
value of securities that are freely tradeable in an established public
market will be determined on the basis of the greater of the last
market closing price prior to the public announcement of the
acquisition and the last market closing price prior to the closing of
the acquisition; and (2) the value of securities that are not freely
tradeable or have no established public market, or if the
Consideration utilized consists of property other than securities, the
value of such other property, shall be the fair market value thereof.
4. As compensation for the services rendered by Barclay hereunder, if an
acquisition as defined in paragraph 3(a), occurs either during the term of
Barclay's engagement hereunder or any time during a period of 12 months
following the effective date of termination of Barclay's engagement hereunder,
then the Company shall pay to Barclay a success fee in such amount as may be
agreed upon by the parties prior to the Company making an offer for a particular
candidate but in no event less than 1-1/2% of the Consideration paid by the
Company for such acquisition. The parties have agreed that Barclay's success fee
if the Company shall acquire Ajax is $135,000, plus reimbursement of reasonable
out-of- pocket expenses not to exceed $45,000.
5. Compensation which is payable to Barclay pursuant hereto shall be paid
by the Company to Barclay at the closing of an acquisition, provided that
compensation attributable to that part of consideration which is contingent upon
the occurrence of some future event (e.g., the realization of earnings
projections) shall
<PAGE>
Barclay Partners, LLC
February 1, 1997
Page 3
be paid by the Company at the earlier of (i) the payment of such consideration
or (ii) the time that the amount of such consideration can be determined.
6. Except as specifically provided herein, the Company shall have no
obligation to reimburse Barclay for any expenses (including, without limitation,
legal and other professional fees and expenses) incurred during the period of
its engagement hereunder with respect to the services to be rendered by it.
7. (a) The Company shall indemnify and hold harmless Barclay and its
affiliates, their respective officers, directors, controlling persons (within
the meaning of Section 15 of the Securities Act of 1933 or Section 20(a) of the
Securities Exchange Act of 1934), if any, employees and agents of Barclay or any
of Barclay's affiliates (each such person being an "Indemnified Person") from
and against any losses, claims, damages or liabilities related to, arising out
of or in connection with Barclay's engagement hereunder, except for such losses,
claims, damages or liabilities arising out of the gross negligence or willful
misconduct of an Indemnified Person.
(b) The Company will not be responsible for any losses, claims, damages or
liabilities (or expenses related thereto) that are finally judicially determined
to have resulted from the bad faith or gross negligence of any Indemnified
Person. The Company further agrees that no Indemnified Person shall have any
liability (whether direct or indirect, in contract or tort or otherwise) to the
Company or to any person claiming through the Company (including, without
limitation, equity holders and creditors of the Company) for or in connection
with Barclay's engagement hereunder except for any such liability for losses,
claims, damages or liabilities incurred by the Company that are finally
judicially determined to have resulted from the bad faith or gross negligence of
such Indemnified Person.
(c) No Indemnified Person seeking indemnification, reimbursement or
contribution under this Agreement will, without the Company's prior written
consent, settle, compromise, consent to the entry of any judgment in or
otherwise seek to terminate any action, claim, suit, investigation or proceeding
referred to in this subparagraph 7(a) above.
8. The term of Barclay's engagement hereunder shall extend from the date
hereof through March 1, 1998; provided that either party may terminate this
Agreement at any time upon ten (10) days prior written notice to the other. Upon
such termination,
<PAGE>
Barclay Partners, LLC
February 1, 1997
Page 4
Barclay will deliver within ten (10) days to the Company an updated copy of the
List.
9. The Company and Barclay acknowledge and agree that there are no brokers,
representatives or other persons which have an interest in compensation due to
Barclay from any transaction contemplated herein.
10. Nothing in this Agreement, expressed or implied, is intended to confer
or does confer on any person or entity other than the parties hereto or their
respective successors and assigns, and to the extent expressly set forth herein,
the Indemnified Persons, any relationship, rights or remedies under or by reason
of this Agreement or as a result of the services to be rendered by Barclay.
11. The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provisions of this
Agreement which shall remain in full force and effect.
12. This Agreement may not be amended or modified except in writing and
shall be governed by and construed in accordance with the laws of the State of
New York. Any right to trial by jury with respect to any lawsuit, claim or other
proceeding arising out of or relating to this Agreement or the services to be
rendered hereunder is expressly and irrevocably waived.
13. The benefits of this Agreement shall inure to the respective successors
and assigns (whether by merger or otherwise) of the parties hereto and of the
Indemnified Persons hereunder and their successors, assigns and representatives,
and the obligations and liabilities assumed in this Agreement by the parties
hereto shall be binding upon their respective successors and assigns.
14. If the Proposed Acquisition is consummated within the Engagement
Period, the Company shall pay to Barclay a fee of $135,000 in cash upon the
closing of the Acquisition.
15. The Company will provide Barclay with all financial and other
information requested by Barclay for purposes of rendering services pursuant to
this agreement. Barclay may rely, without independent verification, on the
accuracy and completeness of all information furnished to Barclay by the Company
or any other party or potential party to any transaction contemplated hereunder.
<PAGE>
Barclay Partners, LLC
February 1, 1997
Page 5
16. Barclay will treat all non-public information provided by the Company
as confidential and the Company and Barclay will treat all any financial or
other advice rendered by Barclay under this agreement as confidential. This
obligation will survive termination of this agreement.
Please indicate your acceptance hereof by signing both enclosed
counterparts of this letter and returning one to us.
Very truly yours,
STANDARD AUTOMOTIVE CORPORATION
By: /s/ William Merker
-----------------------------------
William Merker, Vice President
ACCEPTED AND AGREED:
BARCLAY PARTNERS, LLC
By: /s/ Steven Merker
----------------------------------
STANDARD AUTOMOTIVE CORPORATION
321 Valley Road
Hillsborough Township, New Jersey 08876-4056
February 1, 1997
Redstone Capital Corporation
375 Park Avenue, Suite 2805
New York, New York 10152
Dear Sirs:
1. This is to confirm that Redstone Capital Corporation ("Redstone")
has been engaged to advise the Board of Directors of Standard Automotive
Corporation (the "Company") with respect to the proposed acquisition of Ajax
Manufacturing Company (the "Proposed Acquisition").
2. Redstone hereby accepts the engagement described in paragraph 1 of
this Agreement and, in that connection, agrees to:
(a) provide advisory services, including general business and
financial analysis, transaction feasibility analysis, and
pricing of the Proposed Acquisition;
(b) if requested by the Company, assist in negotiations and
related strategy relating to the Proposed Acquisition;
This Agreement does not contemplate Redstone serving as the Company's
agent in raising financing for the Proposed Acquisition or Additional
Acquisitions. Any such arrangement shall be confirmed in a separate engagement
agreement.
3. For purposes of this Agreement:
(a) an "acquisition" shall mean any transaction or series or
combination of transactions, other than in the ordinary
course of trade or business, whereby, directly or
indirectly, control of, or a material interest in, a company
or any of its businesses or assets is transferred for
consideration, including, without limitation, a sale or
exchange of
<PAGE>
Redstone Capital Corporation
February 1, 1997
Page 2
capital stock or assets, a lease of assets with or without a
purchase option, a merger or consolidation, a tender or
exchange offer, a leveraged buy-out, a restructuring, a
recapitalization, a repurchase of capital stock, an
extraordinary dividend or distribution, a liquidation, the
formation of a joint venture, minority investment or
partnership, or any similar transaction.
(b) "Consideration" shall mean the value of all cash, securities
and other property paid by an acquiring party to a selling
party in connection with an acquisition. The value of any
such securities (whether debt or equity) or other property
shall be determined as follows: (1) the value of securities
that are freely tradeable in an established public market
will be determined on the basis of the greater of the last
market closing price prior to the public announcement of the
acquisition and the last market closing price prior to the
closing of the acquisition; and (2) the value of securities
that are not freely tradeable or have no established public
market, or if the Consideration utilized consists of
property other than securities, the value of such other
property, shall be the fair market value thereof.
4. As compensation for the services rendered by Redstone hereunder, if
an acquisition as defined in paragraph 3(a), occurs either during the term of
Redstone's engagement hereunder or any time during a period of 12 months
following the effective date of termination of Redstone's engagement hereunder,
then the Company shall pay to Redstone a success fee in such amount as may be
agreed upon by the parties prior to the Company making an offer for a particular
candidate but in no event less than 1-1/2% of the Consideration paid by the
Company for such acquisition. The parties have agreed that Redstone's success
fee if the Company shall acquire Ajax is $135,000, plus reimbursement of
reasonable out-of-pocket expenses not to exceed $20,000.
5. Compensation which is payable to Redstone pursuant hereto shall be
paid by the Company to Redstone at the closing of an acquisition, provided that
compensation attributable to that part of consideration which is contingent upon
the occurrence of some future event (e.g., the realization of earnings
projections)
<PAGE>
Redstone Capital Corporation
February 1, 1997
Page 3
shall be paid by the Company at the earlier of (i) the payment of such
consideration or (ii) the time that the amount of such consideration can be
determined.
6. Except as specifically provided herein, the Company shall have no
obligation to reimburse Redstone for any expenses (including, without
limitation, legal and other professional fees and expenses) incurred during the
period of its engagement hereunder with respect to the services to be rendered
by it.
7. (a) The Company shall indemnify and hold harmless Redstone and its
affiliates, their respective officers, directors, controlling persons (within
the meaning of Section 15 of the Securities Act of 1933 or Section 20(a) of the
Securities Exchange Act of 1934), if any, employees and agents of Redstone or
any of Redstone's affiliates (each such person being an "Indemnified Person")
from and against any losses, claims, damages or liabilities related to, arising
out of or in connection with Redstone's engagement hereunder, except for such
losses, claims, damages or liabilities arising out of the gross negligence or
willful misconduct of an Indemnified Person.
(b) The Company will not be responsible for any losses, claims,
damages or liabilities (or expenses related thereto) that
are finally judicially determined to have resulted from the
bad faith or gross negligence of any Indemnified Person. The
Company further agrees that no Indemnified Person shall have
any liability (whether direct or indirect, in contract or
tort or otherwise) to the Company or to any person claiming
through the Company (including, without limitation, equity
holders and creditors of the Company) for or in connection
with Redstone's engagement hereunder except for any such
liability for losses, claims, damages or liabilities
incurred by the Company that are finally judicially
determined to have resulted from the bad faith or gross
negligence of such Indemnified Person.
(c) No Indemnified Person seeking indemnification, reimbursement
or contribution under this Agreement will, without the
Company's prior written consent, settle, compromise, consent
to the entry of any judgment in or otherwise seek to
terminate any action, claim, suit, investigation or
proceeding referred to in this subparagraph 7(a) above.
8. The term of Redstone's engagement hereunder shall extend from the
date hereof through March 1, 1998; provided that either party may terminate this
Agreement at any time upon ten (10) days prior written notice to the other. Upon
such termination,
<PAGE>
Redstone Capital Corporation
February 1, 1997
Page 4
Redstone will deliver within ten (10) days to the Company an updated copy of the
List.
9. The Company and Redstone acknowledge and agree that there are no
brokers, representatives or other persons which have an interest in compensation
due to Redstone from any transaction contemplated herein.
10. Nothing in this Agreement, expressed or implied, is intended to
confer or does confer on any person or entity other than the parties hereto or
their respective successors and assigns, and to the extent expressly set forth
herein, the Indemnified Persons, any relationship, rights or remedies under or
by reason of this Agreement or as a result of the services to be rendered by
Redstone.
11. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement which shall remain in full force and effect.
12. This Agreement may not be amended or modified except in writing and
shall be governed by and construed in accordance with the laws of the State of
New York. Any right to trial by jury with respect to any lawsuit, claim or other
proceeding arising out of or relating to this Agreement or the services to be
rendered hereunder is expressly and irrevocably waived.
13. The benefits of this Agreement shall inure to the respective
successors and assigns (whether by merger or otherwise) of the parties hereto
and of the Indemnified Persons hereunder and their successors, assigns and
representatives, and the obligations and liabilities assumed in this Agreement
by the parties hereto shall be binding upon their respective successors and
assigns.
14. If the Proposed Acquisition is consummated within the Engagement
Period, the Company shall pay to Redstone a fee of $135,000 in cash upon the
closing of the Acquisition.
15. The Company will provide Redstone with all financial and other
information requested by Redstone for purposes of rendering services pursuant to
this agreement. Redstone may rely, without independent verification, on the
accuracy and completeness of all information furnished to Redstone by the
Company or any other party or potential party to any transaction contemplated
hereunder.
<PAGE>
Redstone Capital Corporation
February 1, 1997
Page 5
16. Redstone will treat all non-public information provided by the
Company as confidential and the Company and Redstone will treat all any
financial or other advice rendered by Redstone under this agreement as
confidential. This obligation will survive termination of this agreement.
Please indicate your acceptance hereof by signing both enclosed
counterparts of this letter and returning one to us.
Very truly yours,
STANDARD AUTOMOTIVE CORPORATION
By: /s/ William Merker
------------------------------------
William Merker, Vice President
ACCEPTED AND AGREED:
REDSTONE CAPITAL CORPORATION
By: /s/ Andrew Levy
----------------------------
Andrew Levy, President
NON-NEGOTIABLE PROMISSORY NOTE
________________, 1997
FOR VALUE RECEIVED, AJAX MANUFACTURING COMPANY, a New Jersey
corporation, ("Maker") promises to pay to the order of CARL MASSARO, an
individual and resident of the State of Florida, at 1511 Casey Key Drive, Punta
Gorda, Florida 33950 ("Original Holder") or an assignee of Original Holder (said
Original Holder and any such assignee hereinafter referred to sometimes as
"Holder") or such other place as the Holder hereof may from time to time
designate in writing, the principal sum of ($_________) Dollars subject to
adjustment as provided in Paragraph 3.3.5 of the Stock Purchase and Redemption
Agreement by and among Standard Automotive Corporation and Original Holder,
dated ________, 1997 (the "Stock Purchase Agreement"), together with interest on
the outstanding principal balance thereof at a rate of ten percent (10%) per
annum, to be computed on a 360-day basis. Interest on the outstanding principal
balance shall be due and payable monthly in arrears, commencing on
________________, 1997 and on the first day of each and every month thereafter
until the third (3rd) anniversary of the date hereof, at which time, the entire
unpaid principal balance, all accrued and unpaid interest and all other sums
payable hereunder shall be due in full. Notwithstanding the foregoing payment
schedule: (i) any interest on the amount (if any) by which the aforesaid
principal sum of this Note (the "Unadjusted Principal Sum") is increased by
virtue of such adjustment shall accrue from the date hereof and shall first
<PAGE>
be paid on the first day of the month immediately following the month in which
the "Increased Net Worth" of Maker as of the "Effective Time" (as such terms are
defined in the Stock Purchase Agreement) is finally determined pursuant to
Section 3.3 of the Stock Purchase Agreement, and thereafter shall be due and
payable in accordance with the foregoing payment schedule; and (ii) all interest
theretofore paid on the amount (if any) by which the Unadjusted Principal Sum is
reduced by virtue of such adjustment shall be credited to Maker as prepaid
principal hereunder. Each monthly payment of interest shall be due and payable
on or before the first day of the month. All sums payable hereunder shall be
paid in lawful money of the United States of America.
Maker shall have the option to prepay this Note, in full or in
part, at any time without penalty. All payments and pre-payments by Maker shall
be applied first to the payment of accrued but unpaid interest and second to the
reduction of the outstanding principal balance on the date of the payment.
This Note is the non-negotiable promissory note referred to in
Section 7.10 of the Stock Purchase and Redemption Agreement.
Maker shall not set off any obligations owed to Holder
hereunder as a result of any rights, claims or other choses of action that Maker
or SAC may have or obtain against Holder under the Stock Purchase and Redemption
Agreement or otherwise.
Maker acknowledges that late payment by Maker of any amount
due hereunder will cause the Holder hereof to incur costs, the exact amount of
which would be extremely difficult and
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impractical to ascertain, including, but not limited to, processing and
accounting expenses. Therefore, if Maker fails to make any payment within seven
(7) days of the date when due, Maker shall pay to the Holder hereof a late
charge equal to five percent (5%) of the amount of the late payment. For
purposes of this Note, any such late charge shall be treated as due on the same
date as the due date of the late payment to which it applies.
At Holder's option, interest shall be assessed on any
principal which remains unpaid at the maturity of this Note, whether by
acceleration or otherwise, at the rate of fourteen (14%) percent per annum (the
"Default Rate") until all of such unpaid principal is paid in full, provided
that at no time shall the Default Rate exceed the highest rate of interest
allowed by law.
The Holder may recover from Maker all costs of collecting any
overdue balance of any principal and interest, including court costs and
reasonable attorney fees.
In the event of (a) Maker failing to make payment of any
amount due under this Note when it becomes due; provided, however, that Maker
shall not be treated as failing to timely pay an amount due under this Note if
Maker pays said amount within ten (10) days after the date on which it was due;
(b) Maker having a "change in control"; for purposes hereof, a "change in
control" shall be deemed to occur if subsequent to the date hereof, (i) a Person
or Group (as such term is defined in Regulation 13D-G promulgated under the
Securities Exchange Act of 1934 or any successor regulation thereto) shall
acquire the right, directly or indirectly, to
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<PAGE>
vote fifty (50%) percent or more of the issued and outstanding voting securities
of Maker, (ii) Maker sells, transfers or otherwise disposes of substantially all
of its assets to a Person not controlled by it or SAC; for purposes hereof
"controlled" means the ownership of capital stock of or other interest in a
Person which capital stock or other interest possesses at least fifty (50%)
percent of the total combined voting power of all classes of stock of or other
interests in said Person, and "Person" means any individual, partnership,
limited liability company, corporation, estate, trust, unincorporated entity or
other entity; or (iii) Maker becomes a party to a merger, consolidation or share
exchange (other than with SAC) in which Maker shall not be the surviving Person;
(c) Maker failing to perform in accordance with any other terms or conditions in
this Note, the Stock Purchase and Redemption Agreement, a Security Agreement of
even date herewith between Maker and Original Holder, and in any other
instruments and agreements delivered by Maker under the Stock Purchase and
Redemption Agreement, and Maker has failed to cure same within ten (10) days
following its receipt of written notice of said default hereunder or thereunder;
(d) SAC failing to perform in accordance with any terms or conditions of a
certain Guaranty Agreement of even date herewith and in any other instruments
and agreements delivered by SAC in favor of Original Holder under the Stock
Purchase and Redemption Agreement, and SAC has failed to cure same within ten
(10) days following its receipt of written notice of said default hereunder or
thereunder; (e) the commencement of a levy, execution
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or attachment proceeding against Maker or SAC, in respect of a judgment entered
against Maker or SAC equal to or exceeding $50,000, which levy, execution or
attachment is not discharged within sixty (60) days after filing; (f) the
institution by or against Maker or SAC of any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceeding or other proceeding for relief
under any bankruptcy law or similar law for the relief of debtors, which is not
discharged within sixty (60) days after filing if filed against Maker or SAC;
(g) the appointment of any receiver of any property of Maker or SAC if such
appointment is not discharged within sixty (60) days, or (h) the making by Maker
or SAC of an assignment for the benefit of creditors or the admission in writing
of any inability to pay any debts generally as they become due; then upon the
happening of any such event or events described in (a) through (h) ("Default"),
Holder shall have the following rights and remedies which may be exercised at
Holder's sole option, all of which are cumulative and concurrent and none being
exhausted by use or waived by forbearance:
A. To declare the entire principal amount, together with accrued
interest and all other amounts due under this Note, immediately due and payable;
and/or
B. To exercise any and all other rights and remedies at law or in
equity.
Maker hereby waives presentment, demand, notice, protest and
all other demands and notices in connection with the delivery, acceptance,
performance, Default, or enforcement of this Note.
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Holder shall not, by any act, delay, omission or otherwise, be
deemed to have waived any of its rights or remedies hereunder unless such waiver
be in writing and signed by the Holder. A waiver on any one occasion shall not
be construed as bar to or waiver of any such right or remedy on any future
occasion.
This Note shall be binding upon Maker, its successors and
assigns, and inure to the benefit of the Holder, his heirs, successors and
assigns.
This Note may not be amended or added to except by a
subsequent writing signed by Maker and Holder.
This Note shall be governed by and construed and enforced in
accordance with, the internal laws of the State of New Jersey without giving any
effect to conflict of law principles.
In any suit or action to enforce or interpret this Note, the
prevailing party or parties shall be entitled to recover reasonable attorney's
fees from the losing party or parties. As used herein, the term "Attorney's
fees" includes, without limitation, attorney's fees, costs and disbursements
incurred in any pre-trial discovery or proceedings, and attorney's fees incurred
in enforcing, executing or collecting on any judgment entered in connection
therewith.
Maker consents to the exclusive jurisdiction of any Court of
competent jurisdiction in the State of New York, or in such
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other state as Holder may select in Holder's sole discretion, with respect to
any claims, dispute or controversy arising hereunder.
AJAX MANUFACTURING COMPANY, a
New Jersey Corporation
Attest: ______________________ By: ___________________________
Title: _______________________ Title: ________________________
7
SECURITY AGREEMENT
SECURITY AGREEMENT made this _______ day of ___________________, 1997, by
and among AJAX MANUFACTURING COMPANY, a New Jersey corporation ("Ajax") in favor
of CARL MASSARO, an individual residing at 1511 Casey Key Drive, Punta Gorda,
Florida 33950 ("Secured Party").
W I T N E S S E T H :
WHEREAS, pursuant to the Stock Purchase and Redemption Agreement by and
between Secured Party and Standard Automotive Corporation ("SAC"), a Delaware
corporation, of even date herewith (the "Stock Purchase Agreement"), Ajax has
redeemed from Secured Party a portion of the outstanding common stock of Ajax,
in consideration for which Ajax has issued a non-negotiable promissory note of
even date herewith, payable to the Secured Party, in the principal amount of
______________ ($__________) Dollars (the "Note"); and
WHEREAS, without this Security Agreement, the Secured Party would be
unwilling to accept the Note in consideration of said redemption, and,
therefore, the parties to the Stock Purchase Agreement would be unable to
consummate the transactions contemplated thereby; and
WHEREAS, Ajax has agreed to secure payment of the Note and the other
Obligations (as hereinafter defined) to the Secured
<PAGE>
Party by granting the Secured Party a lien and security interest in the
Collateral (as hereinafter defined).
NOW THEREFORE, in consideration of the premises and the mutual covenants
and other good and valuable considerations hereinafter contained, and intending
to be legally bound hereby, the parties hereto agree as follows:
1. Definitions.
(a) "Accounts" means all presently existing and hereafter arising
accounts, accounts receivable, contract rights, chattel paper and all other
forms of obligations owing to Ajax arising out of the sale or lease of
goods or the rendering of services by Ajax, whether or not earned by
performance, all returned or repossessed goods and all credit card
receivables and any and all credit insurance, guaranties, or security
therefor.
(b) "Collateral" means each of the following: all present and
hereafter acquired personal property of Ajax, wherever located, including,
but not limited to all Accounts; the General Intangibles; Deposit Accounts;
Ajax's Books; the Equipment; the Inventory; Supplies, all other Goods; and
the proceeds and products, whether tangible or intangible, of any of the
foregoing, including proceeds of insurance covering any or all of the
Collateral.
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(c) "Ajax's Books" means all of Ajax's present and future books and
records, including ledgers; records indicating, summarizing, or evidencing
Ajax's assets or liabilities, or the Collateral; all information relating
to Ajax's business operations or financial condition; and all computer
programs, disc or tape files, printouts, runs, or other computer prepared
information, and the equipment containing such information.
(d) "Deposit Accounts" means all present and future bank accounts
established by Ajax and all deposits created pursuant to any agreement
between Ajax and any bank.
(e) "Equipment" means all of Ajax's present and hereafter acquired
machinery, furniture, furnishings and fixtures, including, without
limitations, trade fixtures, leasehold improvements and signs, and any
interest in any of the foregoing, and all attachments, accessories,
accessions, replacements, substitutions, additions, and improvements to any
of the foregoing, wherever located.
(f) "General Intangibles" means all of Ajax's present and future
personal property, other than Accounts, Inventory and Equipment, including,
without limitation, all tax refunds, trademarks, servicemarks, trade names,
patents, copyrights, franchises, licenses and customer lists.
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<PAGE>
(g) "Inventory" means all inventory now owned or hereafter acquired by
Ajax, wherever located, whether in Ajax's or some other person's
possession, which are held for sale, lease or manufacture; all documents of
title, warehouse receipts, bills of lading and other documents relating to
the Inventory; all products thereof, and all substitutions, replacements,
repairs, additions or accessions therefor and thereto, including, without
limitation, returned goods, rejected goods, and goods in transit; and all
cash or non-cash proceeds of all of the foregoing, including, without
limitation, insurance proceeds.
(h) "Obligations" means all liabilities, indebtedness and obligations
of any and every kind and nature, heretofore, now or hereafter owing,
arising, due or payable from the Debtor to the Secured Party under the
Note, whether primary, secondary, direct, contingent, fixed or otherwise,
together with any and all extensions and renewals of such liabilities,
indebtedness and obligations.
(i) "Permitted Encumbrances" means thoe security interests,
encumbrances and liens in the Collateral in favor of Secured Party and
those set forth on Schedule I hereto.
(j) "Security Documents" means this Security Agreement, and any other
security agreement, guaranty, pledge
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agreement or other agreement or document relating to the foregoing entered into
among the Secured Party and Ajax.
(k) "UCC" means Uniform Commercial Code as enacted in the state of
Ajax's chief executive office or each state where any Collateral is
located, as the case may be.
To the extent not defined in this Section 1, unless the content otherwise
requires, all other terms contained in this Security Agreement shall have the
meaning attributed to them by Article 9 of the UCC, to the extent the same are
used or defined therein.
2. Grant of Security Interest.
(a) As security for the payment and performance in full of the Secured
Obligations (as defined in Section 3 hereof), Ajax hereby grants to the
Secured Party a security interest in and to all of the Collateral and all
products and proceeds of any Collateral (including but not limited to any
claims against third parties for loss of, damage to or destruction of any
or all of the Collateral or for proceeds payable under policies of
insurance) in any form, including but not limited to cash, negotiable
instruments and other instruments for the payment of money, chattel paper,
and other documents. This grant of a security interest in the Collateral
shall be absolute and unconditional, shall create a continuing security
interest in the Collateral, and shall immediately be effective upon and
simultaneous with Ajax's
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<PAGE>
execution of this Security Agreement, until the termination of this
Security Agreement pursuant to Section 19 hereof.
(b) Anything contained herein to the contrary notwithstanding, this
Security Agreement, the security interest and lien created hereunder, the
Security Documents, and Secured Party's rights hereunder and thereunder are
subject to subordination pursuant to Section 9.3 of the Stock Purchase
Agreement.
3. Security for Secured Obligations.
(a) The security interest created hereby is granted to Secured Party
to secure the full and prompt payment and performance of the following (the
"Secured Obligations"):
(i) the Obligations;
(ii) all commercially reasonable payments made and costs and
expenses incurred by Secured Party to obtain, preserve, perfect and
enforce the lien and security interest created hereby, and to
maintain, preserve and collect the property in which Secured Party has
been granted a lien, including without limitation, taxes, assessments,
insurance premiums, repairs, reasonable attorneys' fees and legal
expenses, rent, storage charges, advertising costs, brokerage fees and
expenses of sale; and
(iii) any renewals, continuations, modifica- tions or extensions
of any of the foregoing.
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(b) Upon termination of this Security Agreement as set forth in
Section 19 hereof, the grant of the security interest effected by Section 2
hereof and all rights herein assigned to Secured Party shall cease and
terminate, the Collateral shall revert to Ajax, this Security Agreement
shall be of no further force and effect, and Secured Party shall execute
and deliver to Ajax UCC-3 termination statements and all other documents
reasonably requested by Ajax to evidence the termination of the lien and
security interest granted herein; provided that such documents shall be
prepared and filed or recorded at Ajax's sole cost and expense.
4. Representations and Warranties of Ajax. Ajax as to itself and the
Collateral hereby represents and warrants to the Secured Party as follows:
(a) This Security Agreement and any document or instrument delivered
in connection herewith and the transactions contemplated hereby have been
duly authorized by all necessary corporate action; and this Security
Agreement when executed will constitute a valid and legally binding
obligation of Ajax enforceable against Ajax in accordance with its
respective terms, except as enforcement thereof may be subject to i) the
effect of any applicable bankruptcy, insolvency, reorganization, moratorium
or similar law affecting creditor's rights generally, and ii) general
principles of equity (regardless of whether such enforcement is sought in a
proceeding in equity or at law).
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<PAGE>
(b) Ajax is a corporation duly organized, validly existing and in good
standing under the laws of the state of New Jersey.
(c) Ajax is the owner of, and has good title to, all of the
Collateral, free and clear of all security interests, encumbrances or
liens, except for Permitted Encumbrances, and Ajax has full right, power
and authority to grant to Secured Party the security interest described
herein. The Collateral is and at all times shall be free and clear of all
liens, claims and encumbrances of any kind and nature whatsoever (other
than the Permitted Encumbrances) and no currently effective financing
statement or other instrument of similar effect has been filed covering all
or any part of the Collateral, except i) as may have been filed in favor of
Secured Party with respect to this Security Agreement, and ii) for the
Permitted Encumbrances.
(d) Upon the filing in the appropriate offices of UCC-1 financing
statements and any other documents or instruments necessary or required
under the UCC or such other applicable law to perfect a security interest
in the Collateral, this Security Agreement will create a perfected security
interest in the Collateral, except for the Permitted Encumbrances. Ajax
shall execute such documents and financing statements and shall take any
other actions reasonably necessary or desirable to perfect, keep
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perfected and protect such security interest upon Secured Party's reasonable
request.
(e) The execution and performance of this Security Agreement and any
other document or instrument delivered in connection herewith does not
conflict with, result in any violation of, or create a default under law or
under any contractual provision binding on or affecting Ajax or its
properties, and will not result in the creation or imposition of any lien
or encumbrance upon any of the Collateral other than as provided herein.
(f) All Inventory and Equipment is located at the addresses set forth
in Schedule II attached hereto, and all current and accurate records of
Ajax pertaining thereto are kept at such locations or at its chief
executive offices.
(g) Ajax's chief executive office is at the location identified as
such on Schedule II.
5. Covenants of Ajax. Ajax as to itself and the Collateral covenants in
favor of Secured Party as follows:
(a) Within thirty (30) days of the end of each fiscal quarter, Ajax
will deliver to Secured Party an inventory report and an unaudited
consolidated financial statement of Ajax for such fiscal quarter.
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(b) Ajax will keep the Collateral in good condition and repair, normal
wear and tear excepted, and will not permit anything to be done which may
materially impair the value thereof. Ajax will use the Collateral only in
the ordinary course of business. After actual knowledge thereof, Ajax will
promptly notify the Secured Party of any material loss or destruction of,
or material damage to, any of the Collateral.
(c) Ajax will defend the Collateral against all claims and demands
arising by, through or under Ajax, of all persons at any time claiming any
interest therein adverse to those of the Secured Party, subject to the
Permitted Encumbrances and to subordination pursuant to Section 9.3 of the
Stock Purchase Agreement.
(d) Ajax as to itself and its Collateral agrees:
(i) when reasonably requested by Secured Party, to prepare and
deliver to Secured Party a schedule in form reasonably satisfactory to
Secured Party, listing all Collateral and the location thereof;
(ii) to keep materially accurate and complete records at all
times with respect to the Collateral and to deliver to Secured Party
copies of such records and such other information regarding the
Collateral as Secured Party may reasonably request in form reasonably
satisfactory to Secured Party; and
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(iii) that at any time during normal business hours, Secured
Party, or its authorized representatives may, on reasonable notice and
in such manner so as not to interfere with Ajax's business and
operations prior to the occurrence and continuance of an Event of
Default, as hereinafter defined, and without notice upon the
occurrence and continuance of an Event of Default, enter the premises
where the Collateral is located to examine the Collateral and inspect
and copy the books and records of Ajax.
(e) Subject to subordination pursuant to Section 9.3 of the Stock
Purchase Agreement, if any of the Collateral is or becomes evidenced by a
draft, trade acceptance, chattel paper, instrument, document of title or a
promissory note, Ajax will at Secured Party's request, promptly deliver the
same to Secured Party appropriately endorsed to Secured Party's order.
Regardless of the form of such endorsement, Ajax hereby waives presentment,
demand, notice of dishonor, protest and notice of protest and all other
notices with respect thereto. After actual knowledge thereof, Ajax will
promptly notify Secured Party of any material adverse change in the
financial condition of any obligor thereunder.
(f) Ajax shall pay and discharge when due all taxes, assessments, and
governmental charges imposed upon the Collateral, and shall also pay and
discharge when due all claims including, without limitation, claims for
labor, materials,
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supplies and services which might, if unpaid, give rise to any penalty,
security interest, lien, charge, levy, assessment or encumbrances in on or
against the Collateral, unless in each case the validity or amount thereof
is being contested in good faith and as to which Ajax has maintained
appropriate reserves with respect thereto.
(g) Except for Permitted Encumbrances, and subject to subordination
pursuant to Section 9.3 of the Stock Purchase Agreement, Ajax shall not
sell, assign (by operation of law or otherwise), lease, transfer, pledge,
hypothecate or otherwise dispose of or encumber any Collateral or any
interest therein; provided, however, that Ajax may sell Inventory in the
ordinary course of its business, and Ajax may sell or dispose of obsolete
Equipment in the ordinary course of its business.
(h) Ajax shall keep all of the Collateral fully insured against loss
and damage by fire, windstorm, water, theft and malicious mischief.
Duplicates of such policies of insurance shall be delivered by Ajax to
Secured Party. All such policies shall contain a loss payable clause, in a
form reasonably satisfactory to Secured Party, naming Secured Party as loss
payee as its interests may appear. Each such policy of insurance or
endorsement shall contain a clause requiring the insurer to give Secured
Party not less than thirty (30) days' written notice before
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any such policy shall be altered or canceled or the coverage thereunder
reduced or restricted.
(i) Ajax shall notify Secured Party no later than thirty (30) days
prior to any change of any location where the Collateral is or may be kept,
or any change in the location of its chief executive office.
(j) Ajax will maintain accounting records and prepare all financial
statements required under this Security Agreement in accordance with
generally accepted accounting principles, consistently applied (subject, in
the case of unaudited interim statements, to year-end adjustments).
6. Default. Each of the following constitutes an "Event of Default":
(a) The occurrence of a "Default" under the Note (as defined therein);
(b) The failure of Ajax to perform, observe, or fulfill any covenant
or obligation contained in this Security Agreement or any other Security
Document, other than those referred to in Sections 6(a) and 6(d) hereof,
which has not been cured within ten (10) days after receipt of written
notice of such default sent by Secured Party to Ajax;
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(c) Any representation or warranty made by Ajax in any of the Security
Documents proves to have been false or misleading in any material respect
on the date as of which it was made;
(d) Ajax shall fail generally to pay its debts not subject to bona
fide dispute as they become due, including but not limited to debts to
suppliers; or admits in writing its inability to pay its debts as they
mature, or makes a general assignment for the benefit of creditors; or
applies for or consents to the appointment of any custodian, receiver, or
trustee for its business, or any substantial part of its property, or a
similar officer shall be appointed without its application or consent and
such appointment shall continue undischarged or unstayed for a period of
sixty (60) days; or an order for relief respecting Ajax under the United
States Bankruptcy Code, as amended from time to time, or under any
successor provision thereto, whether pursuant to a voluntary or involuntary
petition filed by or against Ajax, shall be entered; or Ajax shall
institute (by petition, application, answer, consent or otherwise) any
other proceeding for the bankruptcy, insolvency, reorganization, or
liquidation under the laws of any jurisdiction; or any such proceeding
shall be commenced (by petition, application or otherwise) against Ajax and
is not controverted within 20 days or shall remain undismissed or unstayed
for a period of sixty (60) days; or any corporate action is taken by Ajax
for the purpose of effecting any of the foregoing.
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(e) A final decree is entered in any judicial proceeding against Ajax
decreeing the dissolution or liquidation of Ajax;
(f) Ajax is enjoined, restrained or in any way prevented by court
order from conducting all or any material part of its business, or Ajax
ceases to conduct its business substantially as now conducted;
(g) Any material portion of the Collateral is lost, stolen, damaged or
destroyed and there is either no insurance coverage or in the reasonable
opinion of Secured Party, there is insufficient insurance coverage.
7. Remedies Upon Default. Subject to subordination pursuant to Section 9.3
of the Stock Purchase Agreement:
(a) On and after the occurrence and continuance of an Event of
Default:
(i) if Secured Party so elects, the entire unpaid amount of such
of the Secured Obligations as are not then otherwise due and payable
shall become immediately due and payable without notice to or demand
on Ajax;
(ii) without notice, demand or hearing, Secured Party may (x)
take possession of all or any part of the Collateral and enter and
remain upon the premises where such Collateral is located without any
obligation to pay rent to Ajax for the purpose
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of such possession and the exercise of the remedies provided herein or
in the UCC, (y) remove the Collateral from the premises where the
Collateral is located to the premises of Secured Party or any agent of
Secured Party in order to effectively collect or liquidate the
Collateral, or (z) render the Collateral unusable.
(iii) without limiting any rights and remedies provided by any
other applicable law, or at law, in equity or available hereunder,
Secured Party may at its option from time to time exercise any and all
rights and remedies available to it as a secured party under the UCC
or the laws of the state where the Collateral is located; and
(iv) the Secured Party may take such measures as Secured Party
may deem reasonably necessary or proper for the use, protection,
maintenance and preservation of the Collateral, for the preparation of
the Collateral for sale, lease, or other disposition, or for the most
advantageous beneficial exercise of its remedies hereunder;
(b) Upon Secured Party's demand, Ajax shall assemble the Collateral
and make it available to Secured Party at such place as Secured Party may
designate which is reasonably convenient for Ajax and Secured Party.
Without limiting the generality of the foregoing, Secured Party shall have
the right to assemble, give receipt for, adjust, modify, repair, refurnish
or refurbish (but without any obligation to do so) or foreclose or
otherwise realize upon any of the Collateral and to dispose of any
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of the Collateral at one or more public or private sales or other
proceedings, and Ajax agrees that Secured Party or its nominee may become
the purchaser at any such public sale or private sales. Ajax agrees that
fifteen (15) days' notice (or, as to particular Collateral such longer
notice period as may be prescribed under the UCC as in effect from time to
time in any jurisdiction where such Collateral is located at the time of
such sale) by Secured Party to Ajax designating the date, time and place of
any public sale or other disposition of all or any part of the Collateral,
or of the date on or after which any private sale or other disposition of
the same may be made, shall be reasonable;
(c) All rights and remedies granted Secured Party hereunder or under
any of the Security Documents shall be deemed concurrent and cumulative and
not alternative, and Secured Party may proceed with any number of remedies
at the same time or at different times until all the Secured Obligations
are fully satisfied. The exercise of any one right or remedy shall not be
deemed a waiver or release of, or any election against, any other right or
remedy, and Secured Party may proceed against Ajax and the Collateral in
any order and through any available remedies;
(d) All property of any kind held at any time by Secured Party as
Collateral shall stand as one general continuing collateral security for
all the Secured Obligations and may be retained by Secured Party as
security until all the Secured
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Obligations are fully satisfied. Ajax shall pay to Secured Party on demand
any and all reasonable expenses (including reasonable attorneys' fees and
legal expenses) which may have been incurred by Secured Party in connection
with the custody, preservation, use, operation, preparation for sale or
sale of any of the Collateral.
(e) If permitted by law, Secured Party shall also have the right to
apply for and have a receiver appointed by a court of competent
jurisdiction in order to manage, protect and preserve the Collateral and
continue the operation of Ajax's business and to collect all revenues and
profits thereof and apply the same to the payment of all expenses and other
charges of such receivership including the compensation of the receiver and
to the payment of Ajax's liabilities and indebtedness secured thereby.
(f) Secured Party may operate the business of Ajax, using items of the
Collateral for that purpose, or may rent the Collateral, or any part
thereof, for such term or terms and on such other terms and conditions as
Secured Party may see fit, collect all revenues and rentals (which term
shall also include sums payable for use and occupation) and, after
deducting all reasonable costs of collection, operation, and administration
(including without limitation the cost to- Secured party of the time of any
employees of Secured Party in connection with such use, operation, and/or
possession), apply the net revenues to the reduction of the Obligations
hereby secured.
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8. Application of Proceeds. Subject to subordination pursuant to Section
9.3 of the Stock Purchase Agreement, the proceeds received by Secured Party 9in
respect of the Collateral upon the exercise of any of Secured Party's remedies
hereunder shall be applied by Secured Party in the following order: (a) first,
to the payment of all reasonable costs and expense, including reasonable
attorneys' fees, incurred by Secured Party in enforcing its remedies hereunder
or under any other instrument, document or agreement evidencing, securing or in
any way related to the Secured Obligations, or in enforcing or protecting the
lien and/or security interest hereof or thereof, (b) second, to the payment of
the Secured Obligations, and (c) third, to the extent any surplus remains, to
Ajax or to such other persons as required by law.
9. Recording and Filing. A counterpart of this Security Agreement and/or
one or more UCC financing statements and continuation statements shall be
recorded or filed at the expense of Ajax in such offices as may be required by
law or as Secured Party may deem reasonably appropriate. Ajax agrees to execute
and deliver to Secured Party any financing statements and continuation
statements required under the UCC as enacted in any state in which such
recordation and filing would be appropriate in Secured Party's judgment to
perfect and keep perfected the security interest granted herein. Ajax hereby
authorizes Secured Party to take such action as Security Party and its counsel
deem reasonably necessary
19
<PAGE>
or desirable to perfect Secured Party's security interest in the Collateral,
including, without limitation, the filing of financing statements without Ajax's
signature.
10. As to Accounts. Except as otherwise provided herein, Ajax shall
continue to collect, at its own expense, all amounts due or to become due to
Ajax under the Accounts. Upon the occurrence and during the continuance of an
Event of Default, Secured Party shall have the right to notify the debtors or
obligers under any Accounts of the assignment of such Accounts to Secured Party
and to direct such debtors or obligers to make payment of all amounts due or to
become due to Ajax thereunder directly to Secured Party and, upon such
notification and at the expense of Ajax, to enforce collection of any such
Accounts, and to adjust, settle or comprise the amount or payment thereof, in
the same manner and to the same extent as Ajax might have done. After receipt by
Ajax of notice that the Secured Party has so notified such debtors or obligors,
(i) all amounts and proceedings (including instruments) received by Ajax in
respect of the Accounts shall be received in trust for the benefit of Secured
Party, shall be segregated from other funds of Ajax and shall be forthwith paid
over to Secured Party in the same form as so received (with any necessary
endorsement) to be held as cash collateral and applied as provided in Section 8
hereof, and (ii) Ajax shall not adjust, settle or compromise the amount or
payment of any Account, or
20
<PAGE>
release wholly or partly any account debtor or obligor or allow any credit or
discount thereon.
11. Further Assurances. Ajax agrees that it shall execute and deliver such
notices, financing statements, continuation statements and other documents as
Secured party may deem reasonably appropriate, and shall deliver to Secured
Party upon request therefor such insurance policies, agreements, leases,
licenses, permits, documents, certificates and instruments, which the Secured
Party deems reasonably necessary to perfect and keep perfected the security
interests of Secured Party hereunder, all at the expense of Ajax. All documents
to be filed or recorded shall be in form and substance reasonably satisfactory
to Secured Party. Ajax shall do such further acts and things and execute and
deliver to Secured Party such additional conveyances, assignments and
instruments as Secured Party may reasonably require or deem advisable to
effectuate this Security Agreement or to perfect the purposes of this Security
Agreement or to better perfect, assurance and confirm its rights, powers and
remedies hereunder.
12. Secured Party Appointed Attorney-in-Fact. Ajax hereby irrevocably
appoints Secured Party as Ajax's true and lawful attorney-in-fact, with full
power and authority and in the place and stead of Ajax and in the name of Ajax
or otherwise, from time to time in Secured Party's discretion, after the
occurrence and during the continuance of an Event of Default, to take any action
21
<PAGE>
and to execute any instrument which Secured Party may deem necessary or
desirable to accomplish the purposes of this Security Agreement, including,
without limitation, to receive, endorse and collect all instruments made payable
to Ajax representing any distribution in respect of the Collateral or any part
thereof and to give full discharge for the same; to ask, demand, collect, sue
for, recover, compromise, receive and give acquittance and receipt for monies
due and to become due under or in connection with the Collateral; to obtain and
adjust insurance covering the Collateral; to receive, endorse and collect any
drafts or other instruments and documents in connection therewith; and to file
any claims or take any action or institute any proceedings which Secured Party
may deem to be necessary or desirable for the collection thereof.
13. Secured Party May Perform. If Ajax fails to perform any agreement
contained herein, Secured Party may (but is not obligated to) itself perform, or
cause performance of, such agreement, and the reasonable expenses of Secured
party incurred in connection therewith shall be payable to Ajax with interest at
the rate set forth in the Note and, upon being incurred by Secured Party, it is
agreed such expenses shall be Secured Obligations.
14. Secured Party's Duties. The powers conferred on Secured Party hereunder
are solely to protect its interests in the Collateral and shall not impose any
duty upon it to exercise any such powers. Except for the safe custody of any
Collateral in its
22
<PAGE>
possession and the accounting for moneys actually received by it hereunder,
Secured Party shall have no duty as to any Collateral or as to the taking of any
necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral.
15. Indemnity. Ajax agrees to indemnify Secured Party from and against any
and all claims, losses and liabilities arising out of or resulting from this
Security Agreement (including, without limitation, enforcement of this Security
Agreement), except claims, losses or liabilities resulting from the Secured
Party's fraud, negligence or willful misconduct.
16. Security Interest Absolute. Subject to subordina- tion pursuant to
Section 9.3 of the Stock Purchase Agreement, all rights of Secured Party and the
security interest granted here- under, and all obligations of Ajax hereunder,
shall be absolute and unconditional, irrespective of:
(i) any change in the time, manner or place of payment of, or any
other term of, all or any of the Secured Obligations; or
(ii) any exchange, release or nonperfection of any other collateral
given as security for all or any of the Secured Obligations, or any release
or amendment or waiver of or consent to departure from any guaranty, for
all or any of the Secured Obligations.
23
<PAGE>
17. No Waiver. No failure on the part of Secured party to exercise, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy by Secured Party preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. All remedies are cumulative
and are not exclusive of any other remedies provided by law.
18. Binding Agreement. This Security Agreement and the terms, covenants and
conditions hereof shall be binding upon and inure to the benefit of Ajax and its
successors and assigns, and the Secured Party and his heirs, successors and
assigns.
19. Term. This Security Agreement and all other Security Documents shall
terminate upon the expiration of any applicable bankruptcy or similar preference
period immediately following the payment in full of all of the Secured
Obligations.
20. Governing Law; Amendments. This Security Agreement and the rights and
obligations of the parties hereunder shall be governed by the internal laws of
the State of New Jersey in all respects, including matters of construction,
validity, and performance, without regard to conflict of laws principles. This
Security Agreement may not be amended or modified, nor may the
24
<PAGE>
Secured Party's security interest in the Collateral be released, except in a
writing signed by Ajax and Secured Party.
21. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been validly given or delivered i) if given
by mail, three (3) days after deposit of the same in the United States mails,
designated as registered or certified mail, return receipt requested, with first
class postage prepaid, or ii) on the date of delivery to such party if delivered
by hand delivery (via overnight or other similar carrier) or iii) if given by
facsimile transmitter, when such facsimile is transmitted to the number
specified below, receipt confirmed, and in each instance addressed to the party
to be notified at the address set forth below, or to such other address as each
party may designate for itself by like notice:
As to Ajax:
Ajax Manufacturing Company
c/o Loeb, Block, Wacksman & Selzer LLP
505 Park Avenue
New York, New York 10022
Att: Steven Merker, Esq.
With a copy to:
Phillips Nizer Benjamin Krim & Ballon LLP
666 Fifth Avenue
New York, New York 10103
Att: Vincent J. McGill, Esq.
If to the Secured Party, to:
Carl Massaro
1511 Casey Key Drive
Punta Gorda, Florida 33950
25
<PAGE>
With a copy to:
McCausland, Keen & Buckman
Radnor Court
259 Radnor Chester Road
Radnor, PA 19087-5240
Att: Marc Maser, Esq.
Each notice shall be effective as set forth above, and rejection or other
refusal to accept or the inability to deliver because of changed address of
which no notice was given shall be deemed to be receipt of the notice sent.
22. Miscellaneous.
(a) If any provision(s) of this Security Agreement or the application
thereof to any person or circumstance shall be invalid or unenforceable to any
extent, the remainder of this Security agreement and/or the application of such
provisions to other persons or circumstances shall not be affected thereby and
shall be enforced to the fullest extent permitted by law. The section and
paragraph headings contained in this Security agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Security Agreement. When used herein, the singular shall include the
plural, and vice versa, and the use of the masculine, feminine or neuter gender
shall include all other genders, as the context may require;
(b) This Security Agreement, together with the other Security Documents
constitutes the entire agreement among the parties as to the subject matter
hereof and supersedes all prior written or oral understandings with respect
thereto.
26
<PAGE>
IN WITNESS WHEREOF, Ajax has executed this Security Agreement as of the day
and year first above written.
AJAX MANUFACTURING COMPANY
By: ________________________________
27
GUARANTY
GUARANTY, dated _______________, 1997, (the "Guaranty"), given
by STANDARD AUTOMOTIVE CORPORATION, a Delaware corporation (the "Guarantor"),
and extended to CARL MASSARO (the "Creditor"), for the benefit of AJAX
MANUFACTURING COMPANY, a New Jersey corporation (the "Debtor").
W I T N E S S E T H :
WHEREAS, pursuant to a Stock Purchase and Redemption Agreement
(the "Stock Purchase Agreement") by and among Guarantor and Creditor of even
date herewith, Debtor is the Maker of a non-negotiable promissory note, payable
to Creditor, in the principal amount of _______________ ($_________) Dollars
(the "Note"); and
WHEREAS, without this Guaranty, the Creditor would be
unwilling to accept the Note as partial payment of the Purchase Price under the
Stock Purchase Agreement, and the parties, therefore, would be unable to
consummate the transactions contemplated by the Stock Purchase Agreement; and
WHEREAS, Guarantor has agreed to guarantee to Creditor the
payment of the Note.
NOW THEREFORE, in consideration of the premises and other good
and valuable considerations, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the Guarantor agrees as
follows:
<PAGE>
1. The Guarantor absolutely and unconditionally guarantees the
payment when due, upon maturity, acceleration or otherwise, of any and all
indebtedness of the Debtor to the Creditor under the Note. The Guarantor further
agrees to pay any and all reasonable expenses which may be incurred or paid by
Creditor in enforcing its rights under this Guaranty, including, but not limited
to, all reasonable attorneys' fees and costs and court costs. Guarantor shall
render reasonable assistance to Creditor in his efforts to collect the
indebtedness due to Creditor under the Note, and shall not during the course of
such collection efforts sell, transfer, or otherwise dispose of any of the
assets of Guarantor so as to impair its ability to perform under this Guaranty.
2. This Guaranty is and shall be construed to be an absolute
guaranty of collection, regardless of the present and future composition of
Debtor. All of the Debtor's indebtedness under the Note to which this Guaranty
applies, shall be conclusively presumed to have been created in reliance hereon.
3. The Guarantor agrees that the Creditor may, in his sole
discretion, without notice or demand (except as shall be required by applicable
statute), and without affecting or impairing Guarantor's liability hereunder,
from time to time (a) renew, compromise, extend, increase, accelerate, or
otherwise change the time for payment of, or otherwise change the terms of any
obligation of Debtor under the Note (or any part thereof), including an increase
or decrease of the rate of interest thereon,
2
<PAGE>
(b) take and hold security for the payment of any such obligations and exchange,
enforce, waive, and release any such security, (c) apply such security and
direct the order or manner of sale thereof as the Creditor in his sole
discretion may determine, and (d) release or substitute any one or more
endorsers, guarantors, or other obligors.
4. Payment of any amounts owed to the Guarantor by the Debtor
are hereby subordinated in right of payment to the payment in full of the
Debtor's obligations under the Note; and after the occurrence and during the
continuance of an Event of Default (as defined in the Note), such subordinate
obligations of the Debtor to the Guarantor, if the Creditor so requests, shall
be collected, enforced, and received by the Guarantor as trustee for the
Creditor and be paid over to the Creditor on account of such obligations of the
Debtor to the Creditor under the Note, but without affecting or impairing in any
manner the liability of the Guarantor under this Guaranty. Any instruments now
or hereafter evidencing any such obligations of the Debtor to the Guarantor
shall be marked with a legend that the same are subject to this Guaranty and, if
the Creditor so requests, shall be delivered to the Creditor.
5. The Guarantor represents that (i) it is duly authorized and
empowered to execute and deliver this Guaranty in favor of the Creditor and (ii)
at the time of the execution and delivery of this Guaranty, nothing exists to
impair the effectiveness of the obligations of the Guarantor to the Creditor
hereunder, or the immediate taking effect of this Agreement between
3
<PAGE>
the Guarantor and the Creditor with respect to becoming a guarantor of all
indebtedness owed by the Debtor to the Creditor under the Note.
6. This Guaranty and the liability and obligations of the
Guarantor hereunder are binding upon the Guarantor, its successors and assigns,
and inures to the benefit of and is enforceable by the Creditor and his heirs,
transferees and assigns, except as enforcement thereof may be subject to (a) the
effect of any applicable bankruptcy, insolvency, reorganization, moratorium or
similar law affecting creditors' rights generally and (b) general principles of
equity (regardless of whether such enforcement is sought in a proceeding in
equity or at law.)
7. No right or power of the Creditor hereunder shall be deemed
to have been waived by any act or conduct on the part of the Creditor, or by any
neglect to exercise such right or power, or by any delay in so doing; and every
right or power shall continue in full force and effect until specifically waived
or released by an instrument in writing executed by the Creditor.
8. This Guaranty shall be deemed to be made under and shall be
governed by the internal laws of the State of New York in all respects,
including matters of construction, validity, and performance, without regard to
conflict of laws principles. The terms and provisions hereof may not be waived,
altered, modified, or amended except in writing duly signed by the Creditor and
by the Guarantor.
4
<PAGE>
9. The Guarantor agrees and consents to the exclusive
jurisdiction of any Court of competent jurisdiction in the State of New York, or
in such other state as the Creditor may select in his sole discretion, in any
and all actions and proceedings arising hereunder or pursuant hereto, and
irrevocably agrees to service of process by certified mail, return receipt
requested, to the Guarantor's address set forth herein, or such address as may
appear in the Creditor's records.
10. If any of the provisions of this Guaranty shall contravene
or be held invalid under the laws of the State of New York, this Guaranty shall
be construed as if not containing those provisions and the rights and
obligations of the parties hereto shall be construed and enforced accordingly.
11. All rights and remedies of the Creditor hereunder are
cumulative and not alternative.
12. This Guaranty shall terminate upon the expiration of the
applicable bankruptcy preference period immediately following the payment in
full of all indebtedness of the Debtor to the Creditor under the Note.
13. Anything contained herein to the contrary notwithstanding,
this Guaranty and the rights of the Creditor hereunder are subject to
subordination pursuant to Section 9.3 of the Stock Purchase Agreement.
5
<PAGE>
IN WITNESS WHEREOF, the undersigned Guarantor has executed
this Guaranty on the date first above written.
STANDARD AUTOMOTIVE CORPORATION
By:____________________________
Name:__________________________
Title:_________________________
6
ESCROW AGREEMENT
ESCROW AGREEMENT, dated ___________, 1997, by and among
STANDARD AUTOMOTIVE CORPORATION, a Delaware corporation having an address c/o
Loeb, Block, Wacksman & Selzer LLP, 505 Park Avenue, New York, New York 10022
("SAC"), AJAX MANUFACTURING COMPANY, a New Jersey corporation with offices at
321 Valley Road, Hillsborough Township, New Jersey 08876-4056 ("Ajax"), CARL
MASSARO, an individual residing at 1511 Casey Key Drive, Punta Gorda, Florida
33950 ("Massaro") and PHILLIPS NIZER BENJAMIN KRIM & BALLON LLP, having offices
at 666 Fifth Avenue, New York, New York 10103 ("Escrow Agent").
WITNESSETH:
WHEREAS, SAC and Massaro have entered into a Stock Purchase
and Redemption Agreement, dated ____________, 1997 (the "Stock Purchase
Agreement") providing for, among other things, the purchase by SAC from Massaro
of all of the outstanding shares of the common stock of Ajax; and
WHEREAS, the Internal Revenue Service ("IRS") has delivered to
Ajax a notice of proposed adjustment of Ajax's federal excise tax liability for
calendar years 1995 and 1996, together with interest and penalties, in the
amount of One Million Seven Hundred Twenty-One Thousand Nine Hundred Eighteen
($1,721,918) Dollars (the "Excise Claim"); and
<PAGE>
WHEREAS, to secure Massaro's obligation under Section 12.2.3
of the Stock Purchase Agreement to re-pay to SAC such portion of the Purchase
Price (as defined in the Stock Purchase Agreement) as is equal to any Ajax
liability arising out of the Excise Claim (as described in the first paragraph
of said Section 12.2.3), Massaro has agreed to deposit One Million Seven Hundred
Twenty-One Thousand Nine Hundred Eighteen ($1,721,918) Dollars in escrow with
the Escrow Agent to be held and paid over as hereinafter provided; and
WHEREAS, Escrow Agent has agreed to serve as escrow agent
pursuant to the terms hereof.
NOW, THEREFORE, it is agreed as follows:
1. Deposit of Funds. Simultaneously with the execution and
delivery of this Escrow Agreement, the sum of One Million Seven Hundred
Twenty-One Thousand Nine Hundred Eighteen ($1,721,918) Dollars has been
deposited in an interest bearing account with the Escrow Agent, or, subject to
the execution and delivery of such releases and other instruments as shall be
satisfactory to Escrow Agent, in such other interest bearing account (to be
maintained in the name of Escrow Agent) as SAC, Massaro and Ajax may agree upon
and direct. Monies shall be disbursed from the account only in accordance with
the terms hereof. All monies on deposit with the Escrow Agent, inclusive of
interest, are referred to herein as the "Escrow Funds."
2
<PAGE>
2. Release and Delivery of Funds.
(a) Upon either: (i) Ajax and the IRS having \entered into a
final agreement of settlement as to Ajax's federal excise tax liability in
respect of the Excise Claim; or (ii) if not so settled, the amount of said
liability having been finally determined by a court of competent jurisdiction
which is not subject to further appeal or other appellate review (in either
case, such liability being hereinafter referred to as the "Final Excise
Liability"), then in such event SAC, Massaro and Ajax jointly shall give to
Escrow Agent prompt written notice of such settlement or determination, together
with a copy of the fully executed settlement agreement or a copy of the
judgment, order or decree embodying such final determination, as the case may
be, such notice to contain the computation (prepared by Ajax's independent
public accountants) of the combined net cash effect to Ajax (if any) of (w) any
federal and/or state tax benefit received by Ajax resulting from Ajax's payment
of the Final Excise Liability, offset by (x) any federal and/or state tax
burdens to Ajax that may result from payments made by Massaro pursuant to said
Section 12.2.3, for the Ajax tax year in which the Final Excise Liability is
paid (the result of such computation being hereinafter referred to as the "Net
Cash Effect"). Upon receipt of such notice, Escrow Agent promptly shall release
and disburse (y) to SAC such portion of the then total Escrow Funds as is equal
to the Final Excise Liability, less the Net Cash Effect, and (z) to Massaro the
balance of the
3
<PAGE>
Escrow Funds remaining after the disbursement described in clause (y) of this
Paragraph 2(a).
(b) If conflicting or adverse claims or demands are made or
served upon the Escrow Agent by, or if litigation is commenced between, any of
SAC, Massaro or Ajax with respect to the escrow provided for herein, SAC,
Massaro and Ajax agree that except as otherwise provided in this subparagraph
(b) the Escrow Agent shall refuse to act with regard to the Escrow Funds so long
as such disagreement or litigation shall continue. In so doing, the Escrow Agent
shall not be or become liable for damages, losses, costs, expenses or interest
to any person for its refusal to so act. The Escrow Agent shall continue to so
refrain and refuse to so act until such conflicting claims or demands or
litigation shall have been finally determined by a court of competent
jurisdiction which is not subject to further appeal or other appellate review,
or shall have been settled by agreement of the parties to such controversy, in
which case the Escrow Agent shall be notified thereof in a notice signed by such
parties. The Escrow Agent may also elect to commence an interpleader or other
action for declaratory judgment for the purpose of having the respective rights
of the claimants adjudicated, and may deposit with the court all funds held
hereunder pursuant to this Agreement; and if it so commences and deposits, the
Escrow Agent shall be relieved and discharged from any further duties and
obligations under this Agreement. Whichever of SAC, Massaro or Ajax is a party
to such dispute or litigation shall equally pay all costs, expenses and
4
<PAGE>
reasonable attorney's fees and expenses incurred by the Escrow Agent in seeking
any such judgment.
3. Concerning the Escrow Agent. (a) The Escrow Agent shall not
be bound in any way by any agreement or contract between the parties hereto to
which the Escrow Agent is not a party (whether or not the Escrow Agent has
knowledge thereof) and the only duties or responsibilities of the Escrow Agent
shall be to hold and disburse the Escrow Funds in accordance with the terms of
this Escrow Agreement.
(b) The Escrow Agent may accept or act upon any
instructions, directions, documents or instruments purportedly signed or issued
by, or on behalf of, any corporation, partnership, fiduciary or individual; it
shall not be necessary for the Escrow Agent to inquire into their authority. The
Escrow Agent shall not be held liable in any event if it accepts as accurate and
acts in good faith upon the contents of any notice received by it from SAC,
Massaro and/or Ajax, delivered to it in accordance with the terms of this Escrow
Agreement.
(c) This Agreement may be altered or amended only with
the written consent of all of the parties hereto. The Escrow Agent may resign as
escrow agent at any time by notifying the other parties hereto in writing and,
until a successor escrow agent is appointed by them and accepts such
appointment, the only duty of the Escrow Agent shall be to hold the Escrow Funds
in accordance with the original instructions contained in this Escrow Agreement.
Upon receipt by the Escrow Agent of a written notice from SAC,
5
<PAGE>
Massaro and Ajax advising it of the appointment of a successor escrow agent, it
shall deliver the Escrow Funds to such successor.
(d) The Escrow Agent shall not be liable for any exercise
of judgment in the performance of its duties hereunder but only for its own
willful misconduct or gross negligence, and the duties of the Escrow Agent shall
be determined solely by the express provisions of this Escrow Agreement.
(e) The Escrow Agent shall be reimbursed in equal shares
by SAC, Massaro and Ajax for all out-of-pocket expenses necessarily incurred in
performing its obligations hereunder.
4. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing and shall be effective when received
by the addressee, if delivered by hand, or by overnight courier service which
obtains a written receipt of delivery, or three days after deposit in the United
States mails if sent by certified mail, return receipt requested, postage
prepaid, addressed as follows (or, as to any party, addressed to it at such
other address as it shall designate by a written notice to the other parties
complying as to delivery with the terms of this Paragraph):
If to SAC:
Standard Automotive Corporation
c/o Loeb, Block, Wacksman & Selzer LLP
505 Park Avenue
New York, New York 10022
Att: Steven Merker, Esq.
6
<PAGE>
If to Massaro:
Carl Massaro
1511 Casey Key Drive
Punta Gorda, Florida 33950
With a copy to:
McCausland, Keen & Buckman
Radnor Court
259 Radnor Chester Road
Radnor, PA 19087-5240
Attn: Marc Maser, Esq.
If to Ajax:
Ajax Manufacturing Company
321 Valley Road
Hillsborough Township
New Jersey 08876-4056
Attn: Karl Massaro
With a copy to:
Standard Automotive Corporation
c/o Loeb, Block, Wacksman & Selzer LLP
505 Park Avenue
New York, New York 10022
Att: Steven Merker, Esq.
If to Escrow Agent:
Phillips Nizer Benjamin Krim & Ballon LLP
666 Fifth Avenue
New York, New York 10103
Att: Vincent J. McGill, Esq.
5. General Provisions. (a) This Escrow Agreement shall be
governed by and interpreted in accordance with the laws of the State of New
York.
(b) This Escrow Agreement may be executed in one or more
counterparts each of which shall be deemed an original but all of which together
shall constitute one and the same instrument.
7
<PAGE>
(c) This Escrow Agreement contains the entire
understanding of the parties with respect to the subject matter hereof and may
not be changed or terminated orally, but only by a written instrument signed by
the party against which enforcement of such change or termination is sought.
(d) This Escrow Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns.
(e) Paragraph headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
(f) The failure of any party, at any time or times
hereafter, to require strict performance of any provision of this Escrow
Agreement shall not waive, affect or diminish any future right of such party to
demand strict compliance therewith. No delay or omission of any party to
exercise any right or power available to it upon the default of any other party
hereto shall be deemed to be a waiver of such right or acquiescence to such
default. No right or remedy granted to any party herein shall be deemed
exclusive and each such remedy shall be cumulative and in addition to any other
remedy given herein or existing at law or in equity.
IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be duly executed and delivered as of the date first above written.
8
<PAGE>
STANDARD AUTOMOTIVE CORPORATION
By:___________________________
______________________________
CARL MASSARO
AJAX MANUFACTURING COMPANY
By:___________________________
PHILLIPS NIZER BENJAMIN
KRIM & BALLON LLP
By:___________________________
Vincent J. McGill, a Partner
9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> MAR-31-1997 MAR-31-1997
<PERIOD-START> APR-01-1997 APR-01-1996
<PERIOD-END> JUN-30-1997 MAR-31-1997
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 575 375
<CURRENT-LIABILITIES> 575 375
<BONDS> 0 0
0 0
0 0
<COMMON> 2 2
<OTHER-SE> (2) (2)
<TOTAL-LIABILITY-AND-EQUITY> 575 375
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 0 0
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
