As filed with the Securities and Exchange Commission on August 12, 1997
Registration No. 333-
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------
STANDARD AUTOMOTIVE CORPORATION
(Exact name of registrant as specified in its charter)
--------------
<TABLE>
<S> <C> <C>
Delaware 3715 52-2018607
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
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.
Phillips Nizer Benjamin Krim & Ballon LLP
666 Fifth Avenue
New York, New York 10103-0084
(212) 977-9700
Lawrence B. Fisher, Esq.
Orrick, Herrington & Sutcliffe LLP
666 Fifth Avenue
New York, New York 10103-0084
(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|
<PAGE>
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. |_|
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
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<S> <C> <C> <C> <C>
Common Stock, $.001 par value ..... 1,495,000 shares $10.50 $15,697,500 $4,757.00
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Preferred Stock, $.001 par value .. 1,150,000 shares $12.50 $14,375,000 $4,357.00
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Common Stock issuable upon
conversion of Preferred Stock(3) .. 1,150,000 shares -- -- --
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Total $30,072,500 $9,114.00
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</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. 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.
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.
PROSPECTUS
SUBJECT TO COMPLETION DATED AUGUST 12, 1997
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 12 AND "DILUTION."
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
<TABLE>
<CAPTION>
=======================================================================================================================
Price to Public Underwriting Discounts(1) Proceeds to Company(2)
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<S> <C> <C> <C>
Per share of Convertible Preferred Stock. $ $ $
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Per share of Common Stock ............... $ $ $
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Total(3)................................. $ $ $
=======================================================================================================================
</TABLE>
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(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 - Liquidity and Capital Resources."
2
<PAGE>
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and financial statements and notes thereto appearing
elsewhere in this Prospectus. Except as otherwise specified, all information in
this Prospectus (i) assumes that the following transactions (collectively, the
"Closing Transactions") have been consummated upon the closing of this Offering
(the "Closing Date"): (a) the acquisition (the "Acquisition") of Ajax
Manufacturing Company ("Ajax" or the "Predecessor Company") by Standard
Automotive Corporation ("Standard"), (b) the filing prior to the date of this
Prospectus of a Certificate of Designation, Preferences and Rights amending the
Company's Certificate of Incorporation to authorize the Convertible Preferred
Stock, (c) the issuance to the holders of $325,000 in aggregate principal amount
of certain notes (the "Bridge Notes") of an aggregate number of shares of
Common Stock determined by dividing $325,000 by the initial public offering
price per share (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
$300,000 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
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3
<PAGE>
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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.
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4
<PAGE>
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The Acquisition
On the Closing Date, the Company will use the proceeds of this Offering to
consummate the acquisition (the "Acquisition") from Mr. Carl Massaro, the
founder and sole stockholder of Ajax, of all of the outstanding capital stock of
Ajax. The Stock Purchase and Redemption Agreement (the "Stock Purchase
Agreement") dated August 11, 1997 between the Company and Mr. Carl Massaro
provides for a purchase price (the "Purchase Price") of $20,625,000 adjusted by
an amount equal to 83.33% of the excess of Ajax's net worth as of the Closing
Date over $4,463,761 (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."
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5
<PAGE>
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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 (v) 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.
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6
<PAGE>
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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 junior to the
Convertible Preferred Stock. See "Description
of Securities-Convertible Preferred Stock."
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7
<PAGE>
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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."
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8
<PAGE>
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Summary Financial Data
The following table sets forth (i) summary financial information of the
Predecessor Company for the fiscal years provided below, and (ii) adjusted pro
forma financial information of the Company as of and for the fiscal year ended
March 31, 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 have been derived from unaudited financial statements. The accompanying
pro forma unaudited statement of operations data and balance sheet 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).
<TABLE>
<CAPTION>
Year Ended March 31,
-----------------------------------------------------------------------
Historical (1)
------------------------------------------------------------
Unaudited Unaudited
--------- ---------
1997
Pro Forma,
1993 1994 1995 1996 1997 as Adjusted(2)
---- ---- ---- ---- ---- --------------
(Amounts in thousands, except share and earnings per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data(1)
Net sales $7,245 $17,551 $33,407 $42,538 $22,356 $22,356
Gross profit 1,160 1,359 2,696 8,565 5,329 5,057
Selling, general and
administrative 839 949 1,149 3,082 2,510 1,720
Amortization of goodwill -- -- -- -- -- 986
Operating income 321 410 1,547 5,482 2,818 2,351
Interest expense 442 342 339 118 0 410
Interest expense arising
from settlement of
Bridge Notes -- -- -- -- -- 325
Income (loss) before
income taxes and
Extraordinary Gain (121) 172 1,282 5,449 2,896 1,693
Net income (loss) $(93) $103 $784 $3,344 $1,728 $891
==== ==== ==== ====== ====== ====
Preferred stock
dividends -- -- -- -- -- (886)
Earnings (loss)
attributable to Common
Stockholders (93) 103 784 3,344 1,728 5
Primary and fully diluted
earnings (loss) per share $(.04) $.05 $.38 $1.62 $.84 $.001
Weighted average common and common equivalent shares outstanding:
Primary and
fully diluted 2,067,500 2,067,500 2,067,500 2,067,500 2,067,500 3,400,000
</TABLE>
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9
<PAGE>
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<TABLE>
<CAPTION>
Year Ended March 31,
-----------------------------------------------------------------------
Historical (1)
------------------------------------------------------------
Unaudited Unaudited
--------- ---------
1997
Pro Forma,
1993 1994 1995 1996 1997 as Adjusted(2)
---- ---- ---- ---- ---- --------------
(Amounts in thousands, except share and earnings per share data)
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to
preferred stock dividends -- -- -- -- -- 1.01
Other Financial Data:
EBITDA(3) $646 $881 $1,853 $5,709 $3,020 $3,538
Acquisition of property and
equipment (use of cash) (158) (41) (136) (139) (171) (171)
</TABLE>
<TABLE>
<CAPTION>
March 31, 1997
---------------------------------------------------------------------------
1997
----------------------------------
Pro Forma,
Historical (1) As Adjusted (2)
-------------- ---------------
(Amounts in thousands)
Balance Sheet Data: 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Working capital (deficiency) $ (8) $ (117) $ 917 $4,562 $5,941 $ 7,467
Total assets 5,039 5,806 8,006 6,971 9,328 28,441
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 22,447
</TABLE>
(1) Historical Statement of Operations Data, Historical Other Financial Data,
and Historical Balance Sheet Data reflect the operations and financial
position of Ajax, the Predecessor Company. "Primary and fully diluted
earnings (loss) per share" and the "Weighted average common and common
equivalent shares outstanding" data assume 2,067,500 shares (equal to the
capitalization of the Company prior to the Acquisition) of Common Stock.
(2) Pro Forma, As Adjusted Data gives effect to the consummation of the Closing
Transactions and other transactions relating thereto on the Closing Date,
including the following: (a) the consummation of the Acquisition for an
estimated Purchase Price of approximately $22,923, (b) 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 Convertible Preferred Stock and
the application of the net proceeds therefrom as set forth under "Use of
Proceeds", and (c) the issuance of the Redemption Note bearing an interest
rate of 10% per annum.
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.
The issuance of 32,500 common shares to the holders of the Bridge Notes has
been recorded as interest expense of $325 in the Pro Forma, As Adjusted,
Statement of Operations Data. Accordingly, stockholders' equity has
increased by $325 in the Pro Forma, As Adjusted, Balance Sheet Data to
reflect the value ascribed to the shares issued.
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10
<PAGE>
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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.
In calculating primary earnings (loss) 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. The proceeds from
the sale of 869,000 shares of Convertible Perferred Stock represent the
funding from Convertible Perferred Stock issuances necessary to consummate
the Acquisition and fund related costs.
For purposes of determining primary earnings (loss) per share, the
convertible preferred stock is not considered a common stock equivalent. For
purposes of determining fully diluted earnings (loss) per share, the effects
of such conversion is anti-dilutive.
(3) As used herein, historical 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.
Pro Forma, As Adjusted, EBITDA reflects Historical EBITDA and the effects of
amortizing preliminary goodwill and interest expense arising from the
settlement of the Bridge Notes and other pro forma adjustments.
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RISK FACTORS
The Shares 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."
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
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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
accomodations 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 accomodations.
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 began to manufacture and market a new line of
sanitary containers, known as "roll-off" dumpsters. The Company may consider
manufacturing this product for inventory rather than upon receipt of customer
purchase orders. There can be no assurance that the Company will be able to
commercially exploit this new container line or any other new product. If it is
not able to do so, the Company will incur a loss with regard to any unsold
inventory.
Dependence on Trucking and Shipping Industries
The container chassis and marine container manufacturing industries and
related industries are dependent on the demand for their products from the
trucking and shipping industries. Unit sales of new container chassis have
historically been subject to substantial cyclical variation. Future economic
downturns, increases in the utilization rate of existing container chassis or
cyclical decreases in demand for marine cargo containers would likely have a
materially adverse effect on the Company. Similarly, downturn or cyclical
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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 trailers, chassis and containers thereby contributing to industry
cyclicality. The Company's manufactured
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<PAGE>
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
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thus have limited ability to pass on cost increases caused by inflation to its
customers on a short term basis.
Variability of Operating Results
The Company's sales, cash flow and net earnings fluctuate considerably from
quarter-to-quarter depending in large part on the availability, timing and
success of individual projects. Consequently, year to year comparisons of
quarterly results may not be meaningful and quarterly results during the course
of a fiscal year may not be indicative of the results for that year. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operation."
Federal Excise Tax Liability
On July 3, 1997, the Internal Revenue Service notified Ajax of a $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 $1,721,918, 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). 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 $8.44 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
84% 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 $5.91 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 49% 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 annual 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
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the perception that such sales could occur could adversely affect prevailing
market prices for the Convertible Preferred Stock and/or the Common Stock. All
of the shares of Convertible Preferred Stock and all shares of Common Stock
issuable upon conversion of the Convertible Preferred 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 exercise, 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 exercise 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
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and/or Common Stock. Additionally, the Company is subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law, which
prohibits the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. Section 203 could have
the effect of delaying or preventing a change of control of the Company. See
"Description of Securities--Preferred Stock" and "--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.
Promtly 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 $1,721,918, the sum of an excise tax liability and
related penalty assessed against Ajax by the Internal Revenue Service, will be
held in escrow after the Closing Date and set-off against the Purchase Price to
the extent that Ajax makes payment to the Internal Revenue Service on account
thereof (net of any resulting income tax benefit).
The Stock Purchase Agreement contains restrictive covenants prohibiting Carl
Massaro for the five year period commencing on the Closing Date, from directly
or indirectly owning, having an ownership interest (other than less than a 2%
stock ownership interest in a publicly traded corporation) in, managing,
controlling or being employed by any company 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 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
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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 June 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.
20
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from this Offering, assuming
an initial public offering price of $10.00 per share of Common Stock and $12.00
per share of Convertible Preferred Stock, are estimated to be approximately
$21.6 million (approximately $25.0 million if the Over-allotment Option is
exercised in full). The Company will use almost the entire proceeds of this
Offering to pay the cash portion of the Purchase Price of the Acquisition due 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 annual
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 March 31, 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."
21
<PAGE>
CAPITALIZATION
The following table sets forth: (a) the capitalization of the Predecessor
Company at March 31, 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."
March 31, 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 (Historical) -- --
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) 7,221 (129)
------- --------
Total Stockholders' Equity 7,222 22,447
------- --------
Total Capitalization $7,222 $26,447
======= ========
22
<PAGE>
DILUTION
Common Stock
The net tangible book value (deficit) of the Company at March 31, 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 ($5,785,000), or
($2.80) 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 March 31,1997 (assuming no conversion of the Company's Convertible
Preferred Stock) would have been approximately $5,302,000 or $1.56 per share of
Common Stock. This represents an immediate increase in the net tangible book
value per share of Common Stock of $4.36 and an immediate dilution of $8.44 per
share of Common Stock (approximately 84% 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):
<TABLE>
<S> <C> <C>
Initial public offering price per common share ..................... $10.00
Pro forma net tangible book value per common share at March 31, 1997
allocable to Common shareholders.................................... (2.80)
Increase per share attributable to new Common Stock investors ...... 4.36
Pro forma, as adjusted net tangible book value per share after
the Offering allocable to Common shareholders ...................... 1.56
----
Dilution per share to new Common Stock investors.................... $8.44
=====
</TABLE>
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 March 31, 1997
allocable to the Company's Common Stock (assuming no conversion of the Company's
Convertible Preferred Stock) would have been $7,037,000 or $1.96 per share of
Common Stock, representing immediate dilution of $8.04 per share or
approximately 80% 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%
========= ===== =========== ===
23
<PAGE>
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 March 31, 1997, would have been $6.09, representing dilution
to the purchasers of Common Stock offered hereby of $3.91 per share or
approximately 39% 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 March 31, 1997 was
approximately $5,469,000, or $2.65 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 March 31,1997 would have been
$26,789,000 or $6.09 per share of Common Stock. This represents an immediate
increase in the net tangible book value of $3.44 per share to existing
stockholders and an immediate dilution of $5.91 per share (or approximately 49%)
to new investors acquiring shares of Common Stock upon conversion of the
Convertible Preferred Stock. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Weighted average initial public offering price per common $12.00
share and equivalents ..............................................
Pro forma net tangible book value per common share and equivalents $2.65
at March 31, 1997 before the Offering ..............................
Increase in net tangible book value per common share and equivalents 3.44
attributable to new investors ......................................
Pro forma, as adjusted, net tangible book value per common share and 6.09
equivalents after the Offering .....................................
Dilution in net tangible book value per common share and equivalents $5.91
to new investors ...................................................
</TABLE>
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 March 31, 1997 would have been $30,127,000
or $6.35 per share of Common Stock, as converted representing an immediate
dilution of $3.65 per share of Common Stock or 36.5% 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:
24
<PAGE>
Shares Purchased Total Consideration
------------------- ------------------- Average Price
Number Percent Amount Percent Per 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 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."
25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth (i) summary financial information of the
Predecessor Company for the fiscal years provided below, and (ii) adjusted pro
forma financial information of the Company as of and for the fiscal year ended
March 31, 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,
financial data, and balance sheet data as of and for the years ended March 31,
1993 and 1994 have been derived from unaudited financial statements. The
accompanying pro forma unaudited statement of operations data, other fianancial
data, and balance sheet 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 (beginning of the Predecessor Company's fiscal year).
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------------------------------------------------
Historical (1)
--------------------------------------------------------
Unaudited Unaudited
--------- ---------
1997
Pro Forma,
1993 1994 1995 1996 1997 as Adjusted(2)
---- ---- ---- ---- ---- --------------
(Amounts in thousands, except share and earnings per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data(1):
Net sales $7,245 $17,551 $33,407 $42,538 $22,356 $22,356
Gross profit 1,160 1,359 2,696 8,565 5,329 5,057
Selling, general and
administrative 839 949 1,149 3,082 2,510 1,720
Amortization of goodwill -- -- -- -- -- 986
Operating income 321 410 1,547 5,482 2,818 2,351
Interest expense 442 342 339 118 -- 410
Interest expense arising
from settlement of
Bridge Notes -- -- -- -- -- 325
Income (loss) before
income taxes and
Extraordinary Gain (121) 172 1,282 5,449 2,896 1,693
Net income (loss) $ (93) $ 103 $ 784 $ 3,344 $ 1,728 $ 891
===== ====== ====== ====== ====== =====
Preferred stock
dividends -- -- -- -- -- (886)
Earnings (loss)
attributable to Common
Stockholders (93) 103 784 3,344 1,728 5
Primary and fully diluted
earnings (loss) per share $ (.04) $ .05 $ .38 $ 1.62 $ .84 $.001
Weighted average common and common equivalent shares outstanding:
Primary and
fully diluted 2,067,500 2,067,500 2,067,500 2,067,500 2,067,500 3,400,000
Number of preferred
shares outstanding in
calculating fully diluted
earnings (loss) per share -- -- -- -- -- 869
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------------------------------------------------
Historical (1)
--------------------------------------------------------
Unaudited Unaudited
--------- ---------
1997
Pro Forma,
1993 1994 1995 1996 1997 as Adjusted(2)
---- ---- ---- ---- ---- --------------
(Amounts in thousands, except share and earnings per share data)
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to
preferred stock dividends 1.01
Other Financial Data:
EBITDA (3) 646 881 1,853 5,709 3,020 3,538
Acquisition of property
equipment (use of cash) (158) (41) (136) (139) (171) (171)
</TABLE>
<TABLE>
<CAPTION>
March 31, 1997
---------------------------------------------------------------------------------
1997
------------------------------------
Pro Forma,
(Amounts in thousands) Historical (1) As Adjusted (2)
-------------- ---------------
Balance Sheet Data 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Working capital (deficiency) (8) (117) 917 4,562 $5,941 $ 7,467
Total assets 5,039 5,806 8,006 6,971 9,328 28,441
Total debt (including
current) 3,699 3,114 2,373 -- -- 4,000
Convertible Preferred Stock -- -- -- -- -- 1
Stockholders' Equity 1,264 1,367 2,151 5,495 7,222 22,447
</TABLE>
(1) Historical Statement of Operations Data, Historical Other Financial Data,
and Historical Balance Sheet Data reflect the operations and financial
position of Ajax, the Predecessor Company. "Primary and fully diluted (loss)
per share" and the "Weighted average common shares and common equivalent
shares outstanding" data assume 2,067,500 shares (equal to the
capitalization of shares the Company prior to the Acquisition) of Common
Stock.
(2) Pro Forma, As Adjusted Data gives effect to the consummation of the Closing
Transactions and other transactions relating thereto on the Closing Date,
including the following: (a) the consummation of the Acquisition for an
estimated Purchase Price of approximately $22,923, (b) 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 Convertible Preferred Stock (net
of Underwriter Discounts and expense allowances), and the application of the
net proceeds therefrom as set forth under "Use of Proceeds", and (c) the
issuance of the Redemption Note bearing an interest rate of 10% per annum.
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.
27
<PAGE>
The issuance of 32,500 common shares to the holders of the Bridge Notes
has been recorded as interest expense of $325 in the Pro Forma, As
Adjusted, Statement of Operations Data. Accordingly, stockholders' equity
has increased by $325 in the Pro Forma, As Adjusted, Balance Sheet Data to
reflect the value ascribed to the additional shares issued.
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.
In calculating primary earnings (loss) 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. 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.
For purposes of determining primary earnings (loss) per share, the
convertible preferred stock is not considered a common stock equivalent. For
purposes of determining fully diluted earnings (loss) per share, the effects
of such conversion is anti-dilutive.
(3) As used herein -- Historical 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.
Pro forma, as adjusted, EBITDA includes Historical EBITDA and the effects of
amortizing preliminary goodwill and interest expense arising from settlement
of Bridge notes and other pro forma adjustments.
28
<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:
Year Ended March 31,
1997 1996 1995
--------------- -------------- ----------------
Net Sales $22,356 100% $42,538 100% $33,407 100%
Costs of Sales 17,027 76% 33,973 80% 30,711 92%
Selling, General 2,510 11% 3,082 7% 1,149 3%
and Administrative
Interest Expense -- --% 118 --% 339 1%
Other Income(net) 77 --% 84 --% 74 --%
Provision for 1,168 5% 2,195 5% 498 1%
Taxes
Extraordinary -- --% 90 --% -- --%
Gain
Net Income (Loss) 1,728 8% 3,344 8% 1,365 4%
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
29
<PAGE>
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 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").
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%
30
<PAGE>
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."
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.
31
<PAGE>
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. In 1989, the Company borrowed $300,000 from its sole
stockholder 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 March 31, 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.
Net cash provided by operating activities decreased to $547,458 in Fiscal
1997 from $2,869,693 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 $270,921 as of the end of Fiscal 1996 to $1,792,654 as
of the end of Fiscal 1997, partially offset by an increase in the Company's
accounts payable and accrued expenses from $806,175 as of the end of Fiscal 1996
to $1,848,951 as of the end of Fiscal 1997. Net cash used in investing
activities in Fiscal 1997 was $471,129 as compared to $325,352 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 $171,129 to the
acquisition of property and equipment. The net cash of $325,352 provided by
investing activities in Fiscal 1996 represents the repayment of a note from a
related party of approximately $450,000 partially offset by $139,048 applied to
the acquisition of property and equipment. Net cash used in financing activities
in Fiscal 1997 was --$0-- as compared to $2,224,892 used in financing activities
during Fiscal 1996. Cash used by financing activities in Fiscal 1996 represented
principally $1,406,019 applied to reduce short term borrowings and $525,000
applied to reduce restructured debt.
Net cash provided by operating activities increased to $2,869,693 in Fiscal
1996 from $2,253,710 in Fiscal 1995 reflecting the increase in the amount of
$1,523,539 in the Company's operating income, and decrease in the Company's
receivables offset by a decrease in payables of $1,858,289. Net cash provided by
investing activities was $325,352 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 $450,000 and approximately $135,000 applied to
the purchase of property and equipment. Net cash used in financing activities of
$2,224,892 in Fiscal 1997 remained approximately unchanged from the $2,176,486
used in Fiscal 1996. The use of net cash in financing activities in Fiscal 1995
principally reflects a reduction of $1,701,449 in the Company's short term
borrowings and approximately $316,000 paid to reduce loans from related parties.
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The terms on which the Company manufactures and remanufactures chassis
provide for payment within 30 days of acceptance and the Company's accounts
receivable were collected in an average of less than 30 days during Fiscal 1996
and Fiscal 1997.
On the Closing Date, the Company will repay $325,000 in aggregate principal
amount to the holders of the Bridge Notes, together with interest thereon at the
annual rate of 12%, 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). In addition, Carl Massaro will repay
$300,000 in loans from the Company and the Company will terminate its line of
credit with Summit Bank.
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.
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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. 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.
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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
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 dealers, construction and demolition companies and
leasing companies in the Northeast.
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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 five 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.
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, revenue from
parts has recently become significant.
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.
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Marketing and Distribution
The Company sells directly to its customers, and does not use outside
dealers or distributors. The Company anticipates that new products, such as
sanitary containers and truck trailers, will be sold both directly and through
dealers and distributors. The Company currently employs one person in sales who,
together with senior management, maintain customer contacts. The Company intends
to increase the size of its sales force. The Company participates in industry
trade shows and is listed in industry registers. The Company does not currently
rely heavily on printed advertisement of its products. Magazine and trade
publication promotion of its products is limited.
Manufacturing
The Company manufactures all of its products to order. The Company maintains
little finished goods inventory. All products are pre-inspected by the buyer
before title passes. Products are then shipped FOB manufacturer. Customer orders
run from as little as 100 units to as many as 2,000 units. Production
scheduling, except for customer emergencies, is generally planned three months
in advance. Each of the Company's production lines is capable of producing
between 13 and 15 chassis per single daily shift on a continuous basis. The
Company currently operates three production lines for one shift per day. The
Company has the capacity to operate four production lines for two shifts per
day.
The Company manufactures most of the components that are used in the
chassis from commercially available, standard supplies and materials. Where
possible, the Company purchases pre-sized material. Lead times are generally
between four to eight weeks. In the case of steel I beams, lead time is tied to
the steel mills' production scheduling. The Company maintains an inventory
position which it believes is sufficient to prevent delays due to inventory
shortages. The Company engages independent contractors to arrange, at no cost
to the Company, for the disposal of parts of refurbished chassis and used
equipment that are stored at its present location.
Raw Materials
Materials, such as steel, tires and wheels, represent approximately 82% of
the cost of sales of manufactured chassis and 51% of the cost of sales of
remanufactured chassis, the remainder consisting of labor and factory overhead.
Labor represents about 11% and 40% of product cost for new and remanufactured
chassis, respectively, and is the other significant cost factor. Any change in
the price of materials or labor would have a direct effect on the price of the
product. Other factors affecting product cost include design changes, changes in
available materials and changes in government regulations. The Company has
generally been able to pass any such cost increases through to its customers.
The Company does business with suppliers with which it has generally had
long relationships. All of its primary suppliers are well-known in the industry,
substantial and have a reputation for reliability. The Company purchases its
materials on an as-needed basis, and does not have any long-term agreements with
any of its suppliers.
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,
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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,
Customer 1995 1996 1997
-------- ---- ---- ----
Trac Leasing 32% 33% 57%
Ned Lloyd -- 26% 33%
Nadag Lloyd -- 18% --
Flexi Van Leasing 30% 10% --
Maersk Lines 37% -- --
---- ---- ----
Total 99% 87% 90%
==== ==== ====
Trac Leasing and Flexi Van Leasing each purchase new chassis from the
Company for the account of approximately 12 steamship lines and other lessees
and end users and purchase remanufactured chassis for their own account.
Historically, the Company has relied on a limited number of customers for a
substantial portion of its total net revenues. The Company expects that a
significant portion of its future revenues from chassis sales will continue to
be generated by a limited number of customers.
Competition for the Manufacture of New Chassis
The Company believes that it has only two significant domestic competitors
in manufacturing new chassis. The Company believes that it has no significant
competitors in remanufacturing chassis on a production line basis and is aware
of only a limited number of companies that remanufacture on a piece-bypiece
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.
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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.
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
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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
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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.
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.
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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.
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
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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.
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.
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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
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.
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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 $300,000 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 annual
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, with.in 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.
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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, 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 March 31, 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
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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 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 at least 30 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.
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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, 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
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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.
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The Certificate empowers the Board, when considering a tender offer or
merger or acquisition proposal, to take into account factors in addition to
potential economic benefits to stockholders. Such factors may include (i)
comparison of the proposed consideration to be received by stockholders in
relation to the then current market price of the capital stock, the estimated
current value of the Company in a freely negotiated transaction, and the
estimated future value of the Company as an independent entity; (ii) the impact
of such a transaction on the customers and employees of the Company, and its
effect on the communities in which the Company operates; and (iii) the ability
of the Company to fulfill its objectives under applicable statutes and
regulations.
The Certificate prohibits the Company from purchasing any shares of the
Company's stock from any person, entity or group that beneficially owns 5% or
more of the Company's Voting Stock at a price exceeding the average closing
price for the 20 trading days prior to the purchase date, unless a majority of
the Company's disinterested stockholders approve the transaction. This
restriction on purchases by the Company does not apply to any offer to purchase
shares of a class of the Company's stock which is made on the same terms and
conditions to all holders of that class of stock, to any purchase of stock owned
by such a 5% stockholder occurring more than two years after such stockholder's
last acquisition of the Company's stock, to any purchase of the Company's stock
in accordance with the terms of any stock option or employee benefit plan, or to
any purchase at prevailing market prices pursuant to a stock purchase program.
Section 203 of the Delaware General Corporation Law ("DGCL") is applicable
to corporations organized under the laws of the State of Delaware. Subject to
certain exceptions set forth therein, Section 203 of the DGCL provides that a
corporation may not engage in any business combination with any "interested
stockholder" for a three-year period following the date that such stockholder
becomes an interested stockholder unless (a) prior to such date, the Board of
Directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, (b) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding certain shares) or (c) on or subsequent to such
date, the business combination is approved by the Board of Directors of the
corporation and by the affirmative vote of at least 66 2/3% of the outstanding
voting stock which is not owned by the interested stockholder. Except as
specified therein, an interested stockholder is defined to mean any person that
(i) is the owner of 15% or more of the outstanding voting stock of the
corporation, or (ii) is an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within three years immediately prior to the relevant date, and the
affiliates and associates of such person referred to in clause (i) or (ii) of
this sentence. Under certain circumstances, Section 203 of the DGCL makes it
more difficult for an interested stockholder to effect various business
combinations with a corporation for a three-year period, although the
stockholders may, by adopting an amendment to the corporation's certificate of
incorporation or by-laws, elect not to be governed by this section, effective 12
months after adoption. The Company's Certificate and By-Laws do not exclude the
Company from the restrictions imposed under Section 203 of the DGCL. It is
anticipated that the provisions of Section 203 of the DGCL may encourage
companies interested in acquiring the Company to negotiate in advance with the
Board.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this Offering, 3,400,000 shares of Common Stock and
1,000,000 shares of Convertible Preferred stock will be outstanding (3,595,000
shares of Common Stock and 1,150,000 shares of Convertible Preferred Stock if
the Over-allotment Option is exercised in full). The 1,300,000 shares of Common
Stock and 1,000,000 shares of Convertible Preferred Stock sold in this Offering
(1,495,000 shares of Common Stock and 1,150,000 shares of Convertible Preferred
Stock if the Over-allotment Option is exercised in full) will be freely
tradeable without restrictions or further registration under the Securities Act
unless acquired by an "affiliate" of the Company (as that term is defined in the
Securities Act), in which case such Shares will be subject to the resale
limitations of Rule 144 under the Securities Act ("Rule 144").
The remaining 2,100,000 shares of Common Stock which will be outstanding
upon the consummation of this Offering have been issued by the Company in
private transactions in reliance upon the "private placement" exception under
Section 4(2) of the Securities Act in connection with the organization of the
Company, and are therefore "restricted securities" within the meaning of Rule
144 ("Restricted Securities"). In general, under Rule 144 as currently in
effect, a stockholder who has beneficially owned for at least one year shares
privately acquired, directly or indirectly, from the Company or from an
affiliate of the Company, and persons who are affiliates of the Company, will be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of (i) 1% of the outstanding shares of Common Stock, or (ii)
the average weekly trading volume of shares during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain
requirements relating to the manner and notice of sale and the availability of
current public information about the Company.
The Company, the existing stockholders, and the holders of the Bridge Notes
(and any other holders of outstanding securities exercisable for or convertible
into Common Stock) have agreed not to, directly or indirectly, issue, agree or
offer to sell, sell, transfer, assign, distribute, grant an option for purchase
or sale of, pledge, hypothecate or otherwise encumber or dispose of any
beneficial interest in such securities for a period of 12 months from the date
of this Prospectus without the prior written consent of the Company and 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.
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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 a surplus in 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
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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 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.
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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.
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
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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.
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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.
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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, 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.
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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."
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
64
<PAGE>
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.
65
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Standard Automotive Corporation
Report of Independent Certified Public Accountants ....................... F-1
Balance Sheet ............................................................ F-2
Note to Balance Sheet .................................................... 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
66
<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.
/s/ BDO Seidman, LLP
- --------------------------------
BDO SEIDMAN, LLP
Woodbridge, New Jersey
August 11, 1997
F-1
<PAGE>
STANDARD AUTOMOTIVE CORPORATION
BALANCE SHEET
AS OF MARCH 31, 1997
ASSETS:
Capitalized Acquisition Costs $ 375,000
---------
Total $ 375,000
=========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Accrued expenses $ 375,000
---------
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
Common Stock Subscription Receivable (2,067)
---------
Total Stockholders' Equity 0
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 375,000
=========
See accompanying note to balance sheet.
F-2
<PAGE>
STANDARD AUTOMOTIVE CORPORATION
NOTE TO BALANCE SHEET
MARCH 31, 1997
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.
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
================================================================================
March 31,
1996 1997
- --------------------------------------------------------------------------------
Assets
Current:
Cash and cash equivalents $1,482,069 $1,558,398
Accounts receivable (net of allowance
for doubtful accounts of $22,800 and
$30,000 in 1996 and 1997 respectively) 750,882 2,536,336
Inventory (Note 3) 3,341,095 3,514,923
Other receivables 94,019 --
Prepaid expenses (Note 8) 158,304 219,505
Deferred taxes (Note 7) 199,000 205,000
-------------------------
Total current assets 6,025,369 8,034,162
-------------------------
Property and equipment, net of accumulated
depreciation and amortization of $2,422,780
in 1996 and $2,539,307 in 1997(Note 4) 946,315 993,649
-------------------------
Other assets:
Loans receivable - related parties (Note 8) -- 300,000
-------------------------
Total assets $6,971,684 $9,327,811
=========================
Liabilities and Stockholder's Equity
Current:
Accounts payable $ 567,071 $1,179,028
Accrued expenses 239,104 669,923
Income taxes payable 657,643 244,087
-------------------------
Total current liabilities 1,463,818 2,093,038
Long-term liabilities:
Deferred income taxes (Note 7) 13,000 12,000
-------------------------
Total liabilities 1,476,818 2,105,038
-------------------------
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
Retained earnings 5,493,866 7,221,773
-------------------------
Total stockholder's equity 5,494,866 7,222,773
-------------------------
Total liabilities and stockholder's equity $6,971,684 $9,327,811
=========================
See accompanying notes to financial statements.
F-5
<PAGE>
Ajax Manufacturing Company
Statements of Income and Retained Earnings
================================================================================
Year ended March 31,
1995 1996 1997
- --------------------------------------------------------------------------------
Net sales (Note 9) $33,406,612 $42,537,553 $22,355,871
Operating costs and expenses:
Cost of sales (Note 8) 30,710,595 33,973,010 17,027,441
Selling, general and
administrative expenses
(Note 8) 1,148,843 3,082,402 2,509,947
--------------------------------------
Total operating costs
and expenses 31,859,438 37,055,412 19,537,388
--------------------------------------
Operating income 1,547,174 5,482,141 2,818,483
Interest expense (Notes 5 and 6) (338,869) (117,501) --
Other income:
Investment income 7,384 49,520 77,424
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
Provision for income taxes (Note 7) 498,000 2,195,000 1,168,000
--------------------------------------
Income before extraordinary
gain on extinguishment of
restructured debt 784,389 3,254,163 1,727,907
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
Retained earnings, beginning of year 1,365,174 2,149,563 5,493,866
--------------------------------------
Retained earnings, end of year $ 2,149,563 $ 5,493,866 $7,221,773
======================================
Per Share Data (Note 11):
Earnings per Share
before extraordinary
gain on extinguishment
of debt $ .38 $ 1.57 $ .84
Extraordinary gain on
extinguishment of
restructured debt -- .05 --
----------- ----------- ----------
Earnings Per Share $ .38 $ 1.62 $ .84
======================================
Weighted Average Common
Shares Outstanding 2,067,500 2,067,500 2,067,500
======================================
See accompanying notes to financial statements.
F-6
<PAGE>
Ajax Manufacturing Company
Statements of Cash Flows
================================================================================
Year ended March 31,
1995 1996 1997
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 784,389 $ 3,344,303 $ 1,727,907
Adjustments to reconcile
net income to net cash
provided by 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
Deferred taxes (98,000) (1,000) (7,000)
Accounts receivable 714,807 (270,921) (1,792,654)
Inventory (681,423) 1,523,539 (173,828)
Other receivables (16,604) (53,355) 94,019
Prepaid expenses (60,486) 14,249 (61,201)
Accounts payable and
accrued expenses 941,545 (1,858,289) 1,042,776
Income taxes payable 367,891 154,531 (413,556)
-------------------------------------
Net cash provided by
operating activities 2,253,710 2,869,693 547,458
-------------------------------------
Cash flows used in investing activities:
Issuance of note
receivable - related parties (464,400) -- (300,000)
Repayments of note
receivable - related parties -- 464,400 --
Acquisition of property and equipment (135,661) (139,048) (171,129)
-------------------------------------
Net cash provided
by (used in) investing
activities (600,061) 325,352 (471,129)
-------------------------------------
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
Cash and cash equivalents,
beginning of year 1,034,753 511,916 1,482,069
-------------------------------------
Cash and cash equivalents, end of year $ 511,916 $ 1,482,069 $ 1,558,398
=====================================
Supplemental disclosures of
cash flow information:
Cash paid during the year for:
Interest $ 261,668 $ 139,921 $ --
=====================================
Income taxes $ 114,000 $ 2,003,100 $ 1,720,620
=====================================
See accompanying notes to financial statements.
F-7
<PAGE>
Ajax Manufacturing Company
Notes to Financial Statements
================================================================================
1. Business Ajax Manufacturing Company (the "Company" or "Ajax")
Description 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 Revenue Recognition
Significant
Accounting The Company recognizes revenue when the product is inspected
Policies 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.
F-8
<PAGE>
Ajax Manufacturing Company
Notes to Financial Statements
================================================================================
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-9
<PAGE>
Ajax Manufacturing Company
Notes to Financial Statements
================================================================================
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:
March 31,
1996 1997
-------------------------
Raw materials $1,936,467 $1,837,542
Work in progress 958,117 766,000
Finished goods 446,511 911,381
-------------------------
$3,341,095 $3,514,923
=========================
4. Property and Property and equipment are summarized by major
Equipment classifications as follows:
March 31,
1996 1997
-------------------------
Transportation equipment $ 150,907 $ 181,197
Leasehold improvements 1,096,307 1,096,307
Furniture, fixtures and
office equipment 169,011 190,045
Machinery and equipment 1,952,870 2,065,407
-------------------------
3,369,095 3,532,956
Less: Accumulated depreciation
and amortization 2,422,780 2,539,307
-------------------------
$ 946,315 $ 993,649
=========================
F-10
<PAGE>
Ajax Manufacturing Company
Notes to Financial Statements
================================================================================
5. Short-Term In October 1995, the Company entered into a revolving line
Borrowings 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. Interest
expense for the years ended March 31, 1996 and 1997 totaled
$41,962 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, 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 At March 31, 1992, the Company was in technical default of
Debt 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 colla-
teral, the Company paid $525,000 to the creditor. The
accompanying financial statements reflect the accrual of
compounded interest expense through the settlement date. The
balance outstanding at March 31, 1995 was $672,780,
including $187,437 of accrued interest. The excess of the
carrying value of this contractual obligation over the
settlement amount ($90,140, net of a current tax benefit of
$16,000 and a deferred tax provision of $78,640) has been
recognized as an extraordinary gain for the year ended March
31, 1996.
Interest expense for this note totaled $69,390 and $5,000
for the years ended March 31, 1995 and 1996, respectively.
F-11
<PAGE>
Ajax Manufacturing Company
Notes to Financial Statements
================================================================================
7. Income Taxes The provision (benefit) for income taxes in the statements
of income and retained earnings consists of the following
components:
Year ended March 31,
1995 1996 1997
----------------------------------
Current:
Federal $435,000 $1,674,000 $ 910,000
State 161,000 522,000 265,000
----------------------------------
Deferred:
Federal (81,000) (800) (6,000)
State (17,000) (200) (1,000)
----------------------------------
Total provision $498,000 $2,195,000 $1,168,000
==================================
Deferred tax assets (liabilities) consist of the following
items:
March 31,
1996 1997
----------------------
Deferred tax asset:
Accounts receivable $ 9,000 $ 12,000
Inventory 154,000 160,000
Warranty accrual 36,000 33,000
----------------------
$199,000 $205,000
======================
Deferred tax liabilities:
Principally property, plant and
equipment basis difference $(13,000) $(12,000)
======================
F-12
<PAGE>
Ajax Manufacturing Company
Notes to Financial Statements
================================================================================
A reconciliation between the Company's effective tax-rate
and the U.S. statutory rate is as follows:
Year ended March 31,
1995 1996 1997
---------------------
U.S. statutory rate applied to
pretax income 34.0% 34.0% 34.0%
State tax provision, net of
federal tax benefit 7.0 7.0 7.0
Other (2.0) (.7) (.7)
---------------------
Total effective tax rate 39.0% 40.3% 40.3%
=====================
8. Related Party Lease Obligations with Stockholder
Transactions
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
and $620,000 for the years ended March 31, 1995, 1996 and
1997, respectively. At March 31, 1997, 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 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.
F-13
<PAGE>
Ajax Manufacturing Company
Notes to Financial Statements
================================================================================
Loans
At March 31, 1997, the Company had loan receivables of
$300,000 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 at March 31, 1997.
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 Major Customers
Customers and
Concentrations 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:
Customer 1995 1996 1997
------------------------------------------------------------
A 32% 33% 57%
B -- 26 33
C -- 18 --
D 30 10 --
E 37 -- --
------------------------------------------------------------
99% 87% 90%
============================================================
F-14
<PAGE>
Ajax Manufacturing Company
Notes to Financial Statements
================================================================================
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.
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 Environmental Matters
and
Contingencies
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.
F-15
<PAGE>
Ajax Manufacturing Company
Notes to Financial Statements
================================================================================
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.
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.
F-16
<PAGE>
Ajax Manufacturing Company
Notes to Financial Statements
================================================================================
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 On August 11, 1997 the Company's Stockholder executed an
Company 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.
F-17
<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 ............................................................ 12
The Acquisition ......................................................... 19
Use of Proceeds ......................................................... 21
Dividend Policy ......................................................... 21
Capitalization .......................................................... 22
Dilution ................................................................ 23
Selected Consolidated Financial Data .................................... 26
Management's Discussion and Analysis
of Results of Operations and
Financial Condition ................................................... 29
Business ................................................................ 34
Management .............................................................. 43
Principal Shareholders .................................................. 48
Certain Transactions .................................................... 49
Description of Securities ............................................... 50
Shares Eligible for Future Sale ......................................... 56
Certain Federal Income Tax Consequences ................................. 58
Underwriting ............................................................ 62
Legal Matters ........................................................... 64
Experts ................................................................. 64
Additional Information .................................................. 64
Index to Financial Statements ........................................... 66
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 Amended and Restated 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 _______, 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 William 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**
11.1 Computation of Earnings per share**
22.1 Subsidiaries of the Registrant**
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 other 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
II-2
<PAGE>
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be a part of this Registration Statement as of
the time it was declared effective.
(2) For the purposes of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed to
be a new Registration Statement relating to the securities offered therein, and
the Offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned in the City of New York, State of New York, on August
11, 1997.
STANDARD AUTOMOTIVE CORPORATION
By:/s/ Karl Massaro
-------------------------------------
Karl Massaro, President and Director
POWER OF ATTORNEY
Each of the undersigned does hereby constitute and appoint Karl Massaro
and Steven Merker, and each of them acting singly, his attorneys-in-fact and
agents, with full power of substitution, to execute for him in his name, and in
any and all of his capacities, any and all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform every act and thing required
or necessary to be done, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
Signature Titles Date
--------- ------ ----
/s/ Roy Ceccato Director August 11, 1997
- -----------------------
Roy Ceccato
/s/ Karl Massaro President and
- ----------------------- Director August 11, 1997
Karl Massaro
/s/ Steven Merker Chairman of the Board,
- ----------------------- Treasurer and Chief Financial and
Steven Merker Accounting Officer August 11, 1997
/s/ William Merker Vice President, Secretary and August 11, 1997
- ----------------------- Director
William Merker
/s/ Joseph Spinella Director August 11, 1997
- -----------------------
Joseph Spinella
II-4
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
August 12, 1997
II-5
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
August 12, 1997
II-6
