<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10 - QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________ to _________
COMMISSION FILE NUMBER 0-23705
AUTOMOTIVE PERFORMANCE GROUP, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 86-0938742
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
7341 ANACONDA AVENUE, GARDEN GROVE, CALIFORNIA 92841
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(714) 373-2837
(ISSUER'S TELEPHONE NUMBER)
1207 N. MILLER ROAD, TEMPE, ARIZONA 85281
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF
CHANGED SINCE LAST REPORT.)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuers' classes of common
equity, as of the latest practicable date: On April 30, 1999, the registrant had
6,439,956 outstanding shares of Common Stock, par value $.0001.
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
<PAGE> 2
Part I. Financial Information
Item 1. Financial Statements
<PAGE> 3
Automotive Performance Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
March 31, 1999 December 31,
(Unaudited) 1998
-------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 980 $ 1,829
Restricted cash 2,011 500
Accounts receivable, net of allowance for
doubtful accounts of $25 and $19, respectively 375 327
Inventories 1,007 907
Prepaid expenses and other 600 374
Investment in Boyd's 1,697 -
Purchase option 1,000 -
Notes receivable 609 600
-------- --------
Total current assets 8,279 4,537
PROPERTY, PLANT and EQUIPMENT, net 1,688 1,710
OTHER ASSETS 12 20
-------- --------
$ 9,979 $ 6,267
======== ========
LIABILITIES
CURRENT LIABILITIES
Line of Credit $ 876 $ 876
Current maturities of long-term obligations 496 496
Current maturities of capital lease obligations 106 106
Accounts payable 1,156 1,440
Accrued liabilities 218 239
-------- --------
Total current liabilities 2,852 3,157
LONG TERM OBLIGATIONS, less current maturities 820 944
LONG TERM CAPITAL LEASE OBLIGATIONS, less current
maturities 152 179
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock - authorized 13,000,000 shares, $.0001 par
value, 4,769,000 and 2,195,000 shares outstanding, respectively - -
Common Stock - authorized 130,000,000 shares, $.0001 par
value, 6,239,956 shares outstanding for both periods 1 1
Additional contributed capital 44,009 38,418
Accumulated other comprehensive income 28 28
Accumulated deficit (37,883) (36,460)
-------- --------
6,155 1,987
-------- --------
$ 9,979 $ 6,267
======== ========
</TABLE>
<PAGE> 4
Automotive Performance Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------
1999 1998
------- -------
<S> <C> <C>
Revenues $ 765 $ 286
Expenses
Direct expenses 503 163
Selling, general and administrative 528 341
Salaries, payroll taxes and benefits 479 180
Professional expenses 436 298
Depreciation and amortization 52 7
Loss on investments in affiliates 8 3
------- -------
2,006 992
------- -------
Operating loss (1,241) (706)
Other income (expense)
Interest expense (210) (319)
Interest income 26 46
Other income 2 -
------- -------
(182) (273)
------- -------
Loss on continuing operations before income taxes (1,423) (979)
Income Taxes - -
------- -------
Loss from continuing operations before discontinued
operations and extraordinary item (1,423) (979)
Discontinued operations
Loss from operations of discontinued venue division - (220)
Loss from operations of discontinued race team subsidiary - (1,758)
------- -------
Loss from discontinued operations - (1,978)
------- -------
Loss before extraordinary item (1,423) (2,957)
Extraordinary item
Gain from extinguishment of debt - 258
------- -------
NET LOSS $(1,423) $(2,699)
======= =======
Loss per common share basic and diluted
Loss before discontinued operations
and extraordinary item $ (0.23) $ (0.45)
Discontinued operations - (0.92)
Extraordinary item - 0.12
------- -------
$ (0.23) $ (1.25)
======= =======
</TABLE>
<PAGE> 5
Automotive Performance Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------
1999 1998
------- -------
<S> <C> <C>
Increase (Decrease) in Cash
Cash flows from operating activities
Net loss $(1,423) $(2,699)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 52 566
Deferred revenue - 62
Forgiveness of debt - (259)
Equity in losses from affiliates 8 3
Loss (gain) on disposal of assets 1 (4)
Interest expense on notes payable converted
to common stock - 319
Write-off of notes receivable - 533
Changes in assets and liabilities:
Accounts receivable (48) 108
Notes receivable (9) (401)
Inventories (100) -
Prepaid expenses and other (226) 50
Accounts payable (284) (48)
Accrued liabilities (21) (40)
------- -------
Net cash used in operating activities (2,050) (1,810)
Cash flows from investing activities:
Purchase of equipment (32) (16)
Deposit on future acquisition (2,011) -
Investment in Boyd's (1,197) -
Purchase option (1,000) -
Investment in affiliates - (265)
Proceeds from the disposition of equipment 1 12
------- -------
Net cash used in investing activities (4,239) (269)
Cash flows from financing activities:
Payments on long-term obligations (124) (478)
Payments on capital leases (27) -
Proceeds from issuance of preferred stock 5,591 -
Payments on notes payables to affiliate, net - (29)
------- -------
Net cash provided by (used in) financing activities 5,440 (507)
Effect of exchange rate on cash - (29)
------- -------
Net decrease in cash (849) (2,615)
Cash at beginning of period 1,829 3,510
------- -------
Cash at end of period $ 980 $ 895
======= =======
Cash paid during the period for interest $ 55 $ -
======= =======
</TABLE>
<PAGE> 6
Automotive Performance Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - FINANCIAL STATEMENTS
The unaudited consolidated financial statements of the Company and its
subsidiaries have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The results of operations for
interim periods are not necessarily indicative of the results to be expected for
the entire fiscal year ending December 31, 1999.
In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
information for the periods indicated, have been included.
NOTE 2 - INVENTORIES
Inventories are stated at the lower of cost (on a first-in, first-out
basis) or market and consisted of the following at (in $'000s):
<TABLE>
<CAPTION>
March 31, 1999
(unaudited) December 31, 1998
-------------- -----------------
<S> <C> <C>
Raw materials $ 167 $ 203
Work in process 126 0
Finished goods 714 704
------- -------
Total Inventory $ 1,007 $ 907
======= =======
</TABLE>
NOTE 3 - ACQUISITION INVESTMENTS
In February 1999, the Company signed a Term Sheet and Option Agreement for the
acquisition of Ampersand Ventures' AC Tech Equity and Debt. Concurrent with the
execution of the Term Sheet and Option Agreement, the Company made a
non-refundable, $1,000,000 option payment to Ampersand Ventures. Ampersand
Ventures then invested this money as an unsecured, subordinated loan to AC Tech.
The Company's Chairman and CEO is also the Chairman and CEO of AC Tech, as well
as a minority shareholder of AC Tech.
This option payment is included in current assets as "Purchase Option"
at March 31, 1999.
Also, in February 1999, the Company signed a letter of intent to
acquire assets utilized by Loctite's Automotive Aftermarket Division. In
accordance with terms set forth in this letter, $2,000,000 was placed in an
interest bearing escrow account on February 10, 1999. This amount is classified
as restricted cash at March 31, 1999.
In March 1999, the Company invested $1,197,000 in Boyd's Wheels, in
accordance with the terms of the Boyd's acquisition agreement. $500,000 had been
invested as of December 31, 1998. Management is currently considering
alternative strategies to maximize the value of the Company's investment in
Boyd's. Accordingly, the total investment of $1,697,000 is classified in current
assets.
Legal and professional fees associated with these transactions of
$270,000 at March 31, 1999, have been capitalized and are included in other
current assets.
<PAGE> 7
Automotive Performance Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - LOSS PER COMMON SHARE
In 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, Earnings per Share, which
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants, and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share.
Basic loss per share is computed by dividing net loss by the weighted
average number of shares of common stock outstanding during each period. The
weighted average number of common shares outstanding was 6,239,956 and 2,158,635
for the three months ended March 31, 1999 and March 31, 1998, respectively. The
computations for loss per share assuming dilution for the periods ended March
31, 1999 and 1998, were anti-dilutive; and therefore, are not included.
NOTE 5 - PREFERRED STOCK
During the quarter ended March 31, 1999, the Company issued 2,574,000
shares of Series A Preferred Stock at $2.50 per share to accredited investors in
conjunction with a private placement of 4,000,000 preferred shares. The
preferred shares are convertible to Common shares of the Company at a conversion
rate of one share of Common stock for each share of Preferred stock. 540,000
preferred shares had been issued in connection with this placement prior to
December 31, 1998.
NOTE 6 - CONTINGENCIES
The Company is involved in certain claims arising in the normal course
of business. An estimate of the possible loss resulting from these matters
cannot be made; however, the Company believes that the ultimate resolution of
these matters will not have a material effect on its financial position or
results of operations.
NOTE 7 - SUBSEQUENT EVENTS
On April 2, 1999, 200,000 shares of common stock were issued to Boyd's
Wheels in connection with the investment in Boyd's. The shares were valued at
the closing trading value on March 31, 1999 of 6 1/4 and increased the Company's
investment in Boyd's.
On May 3, 1999, the Company announced that APG has signed a letter of
intent with Triumph Capital Group Inc. pursuant to which Triumph has indicated
its intent to make a $40 million investment in the Company to be used solely for
APG's proposed acquisitions of Loctite's AAD.
<PAGE> 8
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risks and
uncertainties. All forward-looking statements are based on information available
to the Company on the date hereof, and the Company assumes no obligation to
update any such forward-looking statements. The Company's actual results could
differ materially from those anticipated in these forward-looking statements as
a result of a number of factors, including those set forth below.
The following discussion and analysis provides information that
management believes is relevant to an assessment and understanding of APG's
level of operation and financial condition. This discussion should be read with
the financial statements appearing in Part 1, Item 1 of this report.
GENERAL
Automotive Performance Group, Incorporated ("APG" or the "Company") was
formed to be the parent company for high performance automotive- and specialty
chemical-related operating subsidiaries. The objective of the Company is to
develop and successfully market a spectrum of integrated mutually supportive
brands of products and services for the high-performance automotive and
specialty chemicals industries. Specialty chemicals comprise an important part
of the overall automotive market as well as certain non-automotive market
niches.
APG has developed a strategy to assemble a portfolio of high margin
brands and products in the high-performance automotive and specialty chemicals
markets that leverage the Company's strengths in brand management, product
marketing, and channel access under one corporate umbrella. Within each of these
sectors, APG seeks out those products that have high potential profitability,
premium quality, and market leadership in their respective markets.
The Company believes that the core market targets benefits from either
(1) its premium product positioning or (2) the unique product attributes for
specific applications where efficacy and application are the primary
determinants to the purchasing decision. Premium product positioning is most
commonly associated within the lubricants, car care, and image target markets.
Product efficacy and suitability to the applications define specialty chemicals.
APG's primary business is conducted through its operating subsidiary
Royal Purple Motor Oil, Inc. ("Royal Purple Motor Oil" or "RPMO"), which markets
and distributes a product line of high performance synthetic oils and lubricants
for the motorcycle, streetcar, and racing segments of the automotive industry
under the Royal Purple(TM) brand name. RPMO is the exclusive worldwide
distributor in those segments for Royal Purple, Inc., a non-affiliate, which
manufactures such oils and lubricants.
APG is also the parent of Klein Engines and Competition Components,
Inc. ("Klein Engines" or "Klein"), a builder of high performance engines and
components for motor sports and specialty applications.
RECENT DEVELOPMENTS
In February 1999, the Company entered into a letter of intent with
Loctite Corporation to acquire Loctite's North American Automotive Aftermarket
Division ("AAD"), which manufactures and markets a number of well established
automotive chemical products, including Permatex(TM) and Fast Orange(TM). AAD's
revenues for the year ended December 31, 1998 were approximately $107,000,000.
In February 1999, APG entered into an agreement giving APG an option to
acquire Advanced Chemicals & Technology, Inc. ("AC Tech"). AC Tech develops,
manufactures and markets aircraft sealant, specialty packaging materials and
packaging services to the aircraft OEM and maintenance markets. The agreement
provides for the current shareholders of AC Tech to receive shares of APG stock
in exchange for their interest in AC Tech. The transaction is conditioned on APG
completing its proposed acquisition of Loctite's Automotive Aftermarket
Division.
In April 1999, APG acquired the Boyd's Wheels and Hot Rods by Boyd
businesses out of bankruptcy protection for a total cash purchase price of
$1,697,000. The Company has agreed to invest up to an additional $2,000,000 in
both Boyd's operations. The Company initially believed that the acquisition of
these businesses would strengthen the Company's position in the hard-parts
segments of the automotive aftermarket. The Company's current strategy is to
pursue strategic acquisitions of specialty chemical businesses primarily in the
<PAGE> 9
automotive aftermarket and aerospace industries. Therefore, the Company is
evaluating strategic alternatives, which may include divestiture, with respect
to these businesses in an effort to maximize shareholder value.
The AAD and AC Tech transactions are expected to be completed by the
end of the second quarter of 1999. However, these transactions are not subject
to binding agreements and there can be no assurance that they will be
consummated.
RESULTS OF OPERATIONS
3 months ended March 31, 1999:
<TABLE>
<CAPTION>
Percentage of Percentage of
Subsidiary Consolidated Sales Net Loss
- ------------ ------------------ -------------
<S> <C> <C>
Royal Purple 60.8% 21.7%
Klein Engines 39.2% 10.2%
Corporate - 68.1%
---- ----
100% 100%
</TABLE>
3 months ended March 31, 1998:
<TABLE>
<CAPTION>
Percentage of Percentage of
Subsidiary Consolidated Sales Net Loss
- ------------- ------------------ -------------
<S> <C> <C>
Royal Purple 100% 8.6%
Corporate - 18.1%
Discontinued Operations - 73.3%
---- ----
100% 100%
</TABLE>
As indicated by the percentages above, a significant portion of the
1998 operations have been discontinued due to changes in the Company's strategy
and focus. Additionally, corporate operations have been radically restructured.
Royal Purple Motor Oil is the only consistent operating subsidiary, which was
still in its first full year of operation in 1998.
REVENUES Revenues for the three months ended March 31, 1999 were
$765,000, with Klein's revenues at $300,000 and RPMO's revenues at $465,000.
RPMO's revenues increased by approximately 63% from $286,000 for the first
quarter of 1998. The increase in RPMO revenues is primarily due to an increase
in the number of sales personnel in the field and also the impact of stronger
relations with RPMO's primary buyer, Napa Automotive Parts.
DIRECT EXPENSES Direct expenses for the Company were $503,000 for the
quarter ending March 31, 1999, while they were $163,000 in the same quarter of
the prior year. Klein's direct expenses represented approximately 73% of its
revenues, while RPMO's direct expenses represented approximately 61% of its
revenues. Klein's direct expenses represented nearly 29% of total APG direct
expenses and were $220,000. RPMO's direct expenses represented the remaining 71%
of total APG direct expenses. For the same period in 1998, direct expenses
represented approximately 57% of sales. The increase in direct expenses for the
Company over the same quarter in 1998 was due primarily to increases in
materials for Klein and RPMO.
SELLING, GENERAL & ADMINISTRATIVE Selling General & Administrative
("SG&A") expenses for the quarter ending March 31, 1999 were $528,000, or 69% of
revenue versus nearly $341,000, or approximately 119% of revenues for the same
period in 1998. The improvement in SG&A as a percent of revenue was due to an
increase in sales primarily at RPMO. Klein's SG&A as a percent of its revenues
was approximately 8%, which reflects the substantial restructuring that APG took
during 1998 at the Klein division. For RPMO, SG&A as a percent of its revenues
was approximately 65%, which reflects the increases in indirect costs
accompanying its growth strategy. APG corporate SG&A expenses were $181,000.
<PAGE> 10
SALARIES, PAYROLL TAXES AND BENEFITS For the quarter ending March 31,
1999, APG's salaries, payroll taxes and benefits were $479,000, or approximately
63% of total revenues. The same quarter of 1998 incurred a charge of $180,000,
or approximately 63% of revenues. Klein incurred a total of $51,000 for this
item during the current quarter, or approximately 17% of its revenues. RPMO
incurred a charge of $169,000 for the quarter, or approximately 36% of its
revenues. APG corporate salaries, payroll taxes and benefits, including D3, for
the current period were $259,000 or 33% of total revenues. The APG corporate
charge represents the costs of building a corporate management infrastructure to
manage the Company's growth.
PROFESSIONAL EXPENSES Professional expenses for the three month period
ending March 31, 1999, were $436,000, which reflects the costs of accounting
fees and the pursuit, defense, and settlement of lawsuits. Legal and
professional fees for the comparable period in 1998 were $298,000 relating
primarily to similar expenditures.
INTEREST EXPENSE Interest expense for the first quarter of 1999 was
$210,000, which is primarily comprised of $155,000 of amortization of deferred
financing costs. The remaining balance of these financing costs is $176,000 at
March 31, 1999. Additional interest expense was recognized on the Company's
outstanding notes payables, capital leases, and the outstanding line of credit.
Interest expense for the comparable period in 1998 was $319,000 on notes payable
which were subsequently converted to common stock.
INCOME TAXES Due to the uncertainty of future utilization of any tax
benefits, the Company established valuation allowances at March 31, 1999 and
March 31, 1998, which reduced the potential tax benefit to zero.
LOSS FROM CONTINUING OPERATIONS BEFORE DISCONTINUED OPERATIONS AND
EXTRAORDINARY ITEM The loss from continuing operations for the current quarter
was $1,423,000 versus a loss of $979,000 from the year earlier, primarily due to
the foregoing reasons.
LOSS FROM DISCONTINUED OPERATIONS APG recorded no loss from
discontinued operations in the current quarter versus a loss of $1,978,000,
which was due to the operations of the Team Scandia racing subsidiary and
Mosport racing venue division in Canada, both of which were sold in 1998. In
mid-1998, APG began restructuring its operations which included an exit from the
ownership of its race team (Team Scandia) and an exit from its ownership of
racing venues (Mosport).
EXTRAORDINARY ITEM APG recorded no extraordinary items in the current
quarter but did record the forgiveness of a note payable from a related party in
the year prior of $258,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its business primarily through private
placements of preferred stock and debt financing agreements with lending
institutions. During the quarter ended March 31, 1999, proceeds to the Company
from the issuance of preferred stock were $5,600,000. For that period, APG
experienced a net decrease in cash of $849,000, resulting in cash and cash
equivalents of $980,000 at March 31, 1999.
APG experienced negative cash flow from operations of $2,050,000 for
the first quarter of 1999. APG's net loss in this period was $1,423,000.
Non-cash adjustments to this net loss were depreciation and amortization of
$52,000, the majority of which was realized at the Klein subsidiary. APG's
accounts receivable increased $48,000, which is due primarily to the increase in
sales at RPMO. Inventories increased $100,000, which reflects increased
inventory due to increased sales activity at RPMO and also the building of
inventory for Klein's Indy Racing League engine program. Prepaid expenses and
other assets increased $226,000, which is primarily due to prepaid inventory for
RPMO and capitalized expenses relating to the acquisition of AAD, which was
offset by the amortization of certain prepaid acquisition expenses during the
quarter. Accounts payable increased $284,000.
Cash flow used in investing activities was $4,239,000 for the quarter
ending March 31, 1999 for the following:
- A deposit of $2,000,000 on the potential future acquisition
for the Company's pending acquisition of
<PAGE> 11
Loctite's AAD; APG may be required to make an additional
$1,000,000 deposit to Loctite to extend the closing date of
the Loctite transaction;
- A $1,000,000 non-refundable deposit on the pending acquisition
of AC Tech to Ampersand Ventures, a non-affiliate investor in
AC Tech; and,
- An investment of $1,197,000 in the acquisition of Boyd's
Wheels and Hot Rods by Boyd's as per the Boyd's' bankruptcy
plan approved by the bankruptcy courts in late March 1999. In
1998, APG made a $500,000 deposit on Boyd's as well. APG
pledged to invest up to an additional $2,000,000 to fund the
emergence of Boyd's out of bankruptcy and increase the level
of its operations. Based upon a change in corporate strategy,
APG is evaluating strategic alternatives, which may include
divestiture, to maximize value.
- General corporate purposes including working capital.
The Company invested $32,000 in additional equipment in the first quarter.
During the quarter ended March 31, 1999, cash flows from financing
activities were $5,440,000. The Company placed 2,574,000 shares of Series A
Preferred stock with accredited investors at $2.50 per share. This resulted in
approximately $5,591,000 net proceeds to the Company. This was offset slightly
by the repayment of long-term obligations of $124,000 and $27,000 in capital
lease payments.
APG expects to fund its non-acquisition related liquidity needs through
cash generated from operations, its unused credit facility and the issuance of
additional preferred shares. At present, APG does not have any covenants that
would restrict its ability to transfer funds among the parent company and its
subsidiaries.
In November 1998, APG obtained a $1,000,000 revolving credit facility,
which is guaranteed by a former member of the Board of Directors, who placed
$1,000,000 in a CD with the creditor. Available credit at March 31, 1999 was
$124,000. This revolving credit facility has been refinanced through November
1999 and carries an interest rate of 6.56%.
Additionally, the same former board member guaranteed a $720,000
equipment loan. The balance bears interest at a rate of 6.35% and is to be paid
in 18 monthly installments of $40,000, which commenced in December 1998. As of
March 31, 1999, the balance on this equipment loan was $560,000.
On May 15, 1999, a note receivable due from Professional Sportscar
Racing of America comes due. The balance of note plus accrued interest through
that date will be $690,000. This note may be refinanced.
On May 3, 1999, the Company announced that APG has signed a letter of
intent with Triumph Capital Inc. of Massachusetts, whereby Triumph will provide
$40,000,000 of private equity funds to be used solely for APG's proposed
acquisition of Loctite's AAD.
RELATED PARTY TRANSACTIONS
During the first quarter of 1999, APG paid $1,000,000 in a
non-refundable deposit to Ampersand Ventures for the option to acquire AC Tech,
pending the successful acquisition of Loctite. This $1,000,000 was subsequently
loaned on an unsecured basis to fund AC Tech's operations and other investment
activities. APG's Chairman and CEO is also Chairman and CEO of AC Tech as well
as a minority shareholder of AC Tech.
SEASONALITY
Many of the Company's products are tied to the racing industry. The
season for the racing circuits primarily runs from January through October.
Revenues realized in the first, second, and third quarters tend to be higher
than revenues in the fourth quarter.
FORWARD-LOOKING STATEMENTS
Matters discussed herein contain forward-looking statements. The
Company's actual results may differ
<PAGE> 12
significantly from results indicated by forward-looking statements. Factors that
might cause some differences include, but are not limited to, changes in the
public's interest in racing, and shifts in leisure time pursuit preferences;
changes in government regulations affecting racing, sponsors, customers, the
Company, or its subsidiaries; risks generally involved in the high performance
automotive business including, but not limited to, product liability risk as a
result of high performance engines and certain specialty chemicals which are
intended to improve automotive performance, sometimes in extreme or severe
conditions; the ability of the Company to continue to produce quality products
at competitive prices in markets which are historically intensely competitive;
the ability of the Company's supplier of Royal Purple Motor Oil to continue to
meet increasing demand; the ability of the Company to attract new teams to
contract with Klein Engines; the Company's ability to raise sufficient debt and
equity capital to meet increased operating and acquisition requirements; the
Company's ability to recruit and retain key personnel; unfavorable results in
litigation which the Company is currently involved in, or may become subject to;
the ability to effectively integrate the personnel and operations of acquired
companies; compliance with hazardous waste disposal regulations and standards;
and the Company's history of operating losses and limited operating history.
<PAGE> 13
Part II. Other Information
ITEM 1. -- LEGAL PROCEEDINGS
The Company or its subsidiaries is engaged in various litigation, none
of which are believed by Management to involve claims for damages against the
Company or its subsidiaries of more than 10% of the Company's assets.
ITEM 2. -- CHANGES IN SECURITIES AND USE OF PROCEEDS
In November 1998, the Company commenced a private placement of
4,000,000 shares of its Series A Preferred Stock at $2.50 per share. The
preferred shares are convertible to Common shares of the Company at a conversion
rate of one share of Common stock for each share of Preferred stock. In December
1998, 540,000 shares were placed with accredited investors, raising $1,350,000
in aggregate proceeds.
During the quarter ended March 31, 1999, the Company sold an additional
2,574,000 shares of Series A Preferred Stock at $2.50 per share, raising
approximately $6,400,000 gross proceeds. Net proceeds to the Company for this
period were $5,600,000. The Series A Preferred Stock was sold to accredited
investors in reliance on the exemptions provided by Section 4(2) of the
Securities Act and Regulation D promulgated thereunder.
ITEM 4. -- SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
On or before the close of business on March 18, 1999, a majority of
APG's stockholders approved the Company's 1998 Stock Option Plan (the "Plan") by
written consent. As adopted the number of shares approved for the Plan is
4,000,000. The purpose of the Plan is to provide executive and other key
employees of the Company, and its subsidiaries, who have substantial
responsibility for the management and growth of the Company with additional
incentives by allowing employees to acquire an ownership interest in the
company. The Plan is a compensatory benefit plan within the meaning of rule 701
under the Securities Act of 1933. The Plan is to be administered by the
Compensation Committee of the Company. The options granted under the Plan may be
either nonqualified stock options or "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code, or any successor provision.
The Plan provides for specific conditions and limitations on the vesting,
exercise, expiration, and transfer of Options granted under the Plan. The
maximum exercise date for Options granted under the Plan is 10 years. In
addition to approving the Plan, a majority of shareholders approved the options
previously granted in accordance with the Plan. The Plan was filed with the
Securities and Exchange Commission on February 26, 1999.
ITEM 5. -- OTHER INFORMATION
The Company completed in March 1999 a private placement of Series A
Preferred Stock at $2.50 per share to accredited investors. The terms of the
offering are consistent with the private placement completed in August 1998. The
net proceeds to the Company were $6,800,000. Proceeds received will be applied
to legal, accounting, and printing costs associated with the offering, working
capital, financing the growth in sales of Royal Purple, general corporate
purposes, and future acquisitions. The Series A Preferred Stock will not be
registered under the Securities Act of 1933, as amended, and may not be offered
or sold until registered under the Securities Act, or unless sold under an
exemption from registration requirements.
The Company has entered into letters of intent during the first quarter
of 1999 to acquire the following companies: Advanced Chemistry & Technology,
Inc. and Loctite's AAD. These companies fall within the Company's acquisition
strategy, which is focused on two primary market areas: specialty chemicals for
aerospace and automotive applications. APG placed a $1,000,000 non-refundable
deposit for the option to acquire AC Tech, provided APG completes the
acquisition of Loctite's AAD. APG placed a $2,000,000 deposit for the
acquisition of AAD. If APG fails to complete the financing required by AAD by
May 15, 1999, APG may be required to make an additional deposit of $1,000,000.
The letters of intent are non-binding and there can be no assurance that the
Company will enter definitive agreements with the aforementioned parties or that
any of these potential acquisitions will ultimately be consummated.
<PAGE> 14
Subsequent to the end of the first quarter, James Dunn, who was APG's
Chief Operating Officer, resigned from his position in the Company. The Company
has no plans to fill this position.
<PAGE> 15
ITEM 6. -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits to Part II
Exhibit 10.1 Ampersand Ventures Agreement
Exhibit 10.2 $1,000,000 Loan Agreement for Automotive Specialty
Chemicals Group, Inc. (formerly International Motor
Sports Group, Inc.) with first Capital Bank of
Arizona dated May 3, 1999
Exhibit 27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no Reports on Form 8-K during the reporting period.
The items omitted are either inapplicable or are items to which the answer is
negative.
<PAGE> 16
AUTOMOTIVE PERFORMANCE GROUP, INC.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AUTOMOTIVE PERFORMANCE GROUP, INC.
May 14, 1999 /s/ DEAN M. WILLARD
--------------------
Dean M. Willard
Chairman of the Board and Chief Executive Officer
/s/ CARL WALKER
--------------------
Carl Walker
Chief Financial Officer
<PAGE> 17
Exhibit 10.1 Ampersand Ventures Agreement
Exhibit 10.2 $1,000,000 Loan Agreement for Automotive Specialty
Chemicals Group, Inc. (formerly International Motor
Sports Group, Inc.) with first Capital Bank of
Arizona dated May 3, 1999
Exhibit 27.1 Financial Data Schedule
The items omitted are either inapplicable or are items to which the answer is
negative.
<PAGE> 1
Exhibit 10.1
TERM SHEET AND OPTION AGREEMENT
FOR
ACQUISITION OF AMPERSAND'S AC TECH EQUITY AND DEBT
Automotive Performance Group (APG) proposes to acquire Loctite's
automotive aftermarket business (Loctite). For purposes of this term sheet, the
combined company will be designated APG/Loctite. Concurrent with this
acquisition, APG/Loctite proposes to acquire Ampersand's investment interest in
AC Tech. To facilitate this transaction, Ampersand and APG have reached the
following agreement:
- - FORM OF TRANSACTION: In return for an option payment (see Option
Consideration paragraph below). APG/Loctite will have the right to acquire
Ampersand's AC Tech equity ownership and $1.0 million note in return for
three elements of consideration: (1) $10 million of stock (see Stock
Consideration paragraph below); (2) a put which guarantees that Ampersand can
exchange this stock position for $10 million in cash (see Put Consideration
paragraph below); and (3) a warrant to purchase APG/Loctite shares (see
Warrant paragraph below).
- - STOCK CONSIDERATION: Ampersand will receive $10 million of APG/Loctite stock
on the same terms and at the same price that is paid by independent, third
party, institutional investors (i.e., the potential investors that Dean
Willard has described to Ampersand who will be investing roughly $45 million
in equity in the Loctite acquisition).
- - PUT CONSIDERATION: Ampersand will receive a put to APG/Loctite for $10
million in cash on the aforementioned Stock Consideration. Ampersand's put
will be exercisable during the 90 day period beginning 12 months after the
closing of the Loctite acquisition.
- - WARRANT: Ampersand will receive a 5-year warrant for shares equal to 1% of
APG/Loctite's fully diluted shares outstanding at an exercise price equal to
the price paid by the independent, third party, institutional investors
described above.
- - OPTION CONSIDERATION: Concurrent with execution of this Term Sheet and
Option Agreement, in return for Ampersand's grant of a purchase option along
the preceding lines, APG will make a non-refundable, $1.0 million option
payment to Ampersand. Ampersand, in turn, will invest this $1.0 million as an
unsecured, subordinated loan to AC Tech. The term of this purchase option
will be coterminous with the 13 week period in the Loctite Letter of Intent
(LOI).
- - MANAGEMENT: Dean Willard and Ampersand will support AC Tech's immediate
initiation of a search for a new COO for AC Tech. In the event that APG
chooses to exercise its option to acquire Ampersand's AC Tech ownership, APG
would then be free to complete or cease the COO search.
Agreed and accepted by:
/s/ Richard A. Charpie /s/ Dean M. Willard
- ----------------------------- ------------------------
Richard A. Charpie, Managing General Partner Dean M. Willard, Chairman
for Ampersand Ventures of the Board for APG, Inc.
Date: 2/8/99 2/8/99
------
<PAGE> 1
CORPORATE RESOLUTION TO BORROWER
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,000,000.00 11-05-1999 1110003585 CD 1110003585 WCK
- -------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
BORROWER: AUTOMOTIVE SPECIALTY CHEMICAL GROUP, INC. LENDER: FIRST CAPITAL BANK OF ARIZONA
1207 N. MILLER ROAD 2700 NORTH CENTRAL #210
TEMPE, AZ 85234 PHOENIX, AZ 85004-1135
=======================================================================================================
</TABLE>
I, the undersigned Secretary or Assistant Secretary of AUTOMOTIVE SPECIALTY
CHEMICAL GROUP, INC. (the "Corporation"), HEREBY CERTIFY that the Corporation is
organized and existing under and by virtue of the laws of the State of Delaware
as a corporation for profit, with its principal office at 1207 N. MILLER ROAD,
TEMPE, AZ 85234, and is duly authorized to transact business in the State of
Arizona.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation, duly
called and held on MAY 3, 1999, at which a quorum was present and voting, or by
other duly authorized corporate action in lieu of a meeting, the following
resolutions were adopted:
BE IT RESOLVED, that ANY ONE (1) of the following named officers, employees, or
agents of this Corporation, whose actual signatures are shown below:
NAMES POSITIONS ACTUAL SIGNATURES
- ----- --------- -----------------
DEAN M. WILLARD PRESIDENT X /s/ DEAN M. WILLARD
----------------------------------
CARL WALKER SECRETARY X /s/ CARL WALKER
----------------------------------
acting for and on behalf of the Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from First Capital Bank of
Arizona ("Lender"), on such terms as may be agreed upon between the
Corporation and Lender, such sum or sums of money as in their judgment
should be borrowed; however, not exceeding at any one time the amount of
ONE MILLION & 00/100 DOLLARS ($1,000,000.00), in addition to such sum or
sums of money as may be currently borrowed by the Corporation from Lender.
EXECUTE NOTES. To execute and deliver to Lender the promissory note or
notes, or other evidence of credit accommodations and/or revision agreement
or other evidence of obligation of the Corporation, on Lender's forms, at
such rates of interest and on such terms as may be agreed upon, evidencing
the sums of money so borrowed or any indebtedness of the Corporation to
Lender, and also to execute and deliver to Lender one or more renewals,
extensions, modifications, refinancings, consolidations, or substitutions
for one or more of the notes, any portion of the notes, or any other
evidence of credit accommodations.
GRANT SECURITY. To mortgage, pledge, transfer, endorse, hypothecate, or
otherwise encumber and deliver to Lender, as security for the payment of
any loans or credit accommodations so obtained, any promissory notes so
executed (including any amendments to or modifications, renewals, and
extensions of such promissory notes), or any other or further indebtedness
of the Corporation to Lender at any time owing, however the same may be
evidenced, any property now or hereafter belonging to the Corporation or in
which the Corporation now or hereafter may have an interest, including
without limitation all real property and all personal property (tangible or
intangible) of the Corporation. Such property may be mortgaged, pledged,
transferred, endorsed, hypothecated, or encumbered at the time such loans
are obtained or such indebtedness is incurred, or at any other time or
times, and may be either in addition to or in lieu of any property
theretofore mortgaged, pledged, transferred, endorsed, hypothecated, or
encumbered.
EXECUTE SECURITY DOCUMENTS. To execute and deliver to Lender the forms of
mortgage, deed of trust, pledge agreement, hypothecation agreement, and
other security agreements and financing statements which may be submitted
by Lender, and which shall evidence the terms and conditions under and
pursuant to which such liens and encumbrances, or any of them, are given;
and also to execute and deliver to Lender any other written instruments,
any chattel paper, or any other collateral, of any kind or nature, which
they may in their discretion deem reasonably necessary or proper in
connection with or pertaining to the giving of the liens and encumbrances.
DEPOSIT ACCOUNTS. To open one or more depository accounts in the
Corporation's name and sign and deliver all documents or items required to
fulfill the conditions of all banking business, including without
limitation the initiation of wire transfers, until authority is revoked by
action of the Corporation on written notice to Lender.
NEGOTIATE ITEMS. To draw, endorse, and discount with Lender all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness
payable to or belonging to the Corporation in which the Corporation may
have an interest, and either to receive cash for the same or to cause such
proceeds to be credited to the account of the Corporation with Lender, or
to cause such other disposition of the proceeds derived therefrom as they
may deem advisable.
FURTHER ACTS. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder,
and in all cases, to do and perform such other acts and things, to pay any
and all fees and costs, and to execute and deliver such other documents and
agreements as they may in their discretion deem reasonably necessary or
proper in order to carry into effect the provisions of these Resolutions.
The following person or persons currently are authorized to request
advances and authorize payments under the line of credit until Lender
receives written notice of revocation of their authority: DEAN M. WILLARD,
PRESIDENT; TAMMY POWERS; and CARL WALKER, SECRETARY.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
Resolutions and performed prior to the passage of these Resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Lender may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Lender. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
BE IT FURTHER RESOLVED, that the Corporation will notify Lender in writing at
Lender's address shown above (or such other addresses as Lender may designate
from time to time) prior to any (a) change in the name of the Corporation, (b)
change in the assumed business name(s) of the Corporation, (c) change in the
management of the Corporation, (d) change in the authorized signer(s), (e)
conversion of the Corporation to a new or different type of business entity, or
(f) change in any other aspect of the Corporation that directly or indirectly
relates to any agreements between the Corporation and Lender. No change in the
name of the Corporation will take effect until after Lender has been notified.
I FURTHER CERTIFY that the officers, employees, and agents named above are duly
elected, appointed, or employed by or for the Corporation, as the case may be,
and occupy the positions set opposite their respective names; that the foregoing
Resolutions now stand of record on the books of the Corporation; and that the
Resolutions are in full force and effect and have not been modified or revoked
in any manner whatsoever. The Corporation has no corporate seal, and therefore,
no seal is affixed to this certificate.
<PAGE> 2
05-03-1999 CORPORATE RESOLUTION TO BORROW Page 2
(Continued)
================================================================================
IN TESTIMONY WHEREOF, I have hereunto set my hand on May 3, 1999 and attest
that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X GB
_________________________________________
X _________________________________________
NOTE: In case the Secretary or other certifying officer is designated by
the foregoing resolutions as one of the signing officers, it is advisable
to have this certificate signed by a second Officer or Director of the
Corporation.
================================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.26b (c) 1999 CFI ProServices,
Inc. All rights reserved. [AZ-C10F3.2611103565.LN]
<PAGE> 3
CHANGE IN TERMS AGREEMENT
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,000,000.00 11-05-1999 1110003585 CD 1110003585 WCK(4)
- -----------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document
to any particular loan or item.
- -----------------------------------------------------------------------------------------------------------------------------------
BORROWER: AUTOMOTIVE SPECIALTY CHEMICAL GROUP, INC. LENDER: FIRST CAPITAL BANK OF ARIZONA
1207 N. MILLER ROAD 2700 NORTH CENTRAL #210
TEMPE, AZ 85234 PHOENIX, AZ 85004-1135
===================================================================================================================================
</TABLE>
Principal Amount: $1,000,000.00 Date of Agreement: May 3, 1999
DESCRIPTION OF EXISTING INDEBTEDNESS. PROMISSORY NOTE DATED NOVEMBER 4, 1998 IN
THE ORIGINAL PRINCIPAL BALANCE OF $1,000,000.00 AND A CURRENT OUTSTANDING
PRINCIPAL BALANCE OF $999,747.31.
DESCRIPTION OF COLLATERAL. TIME CERTIFICATE DEPOSIT ACCOUNT #27119 ISSUED BY
FIRST CAPITAL BANK OF ARIZONA IN THE ORIGINAL AMOUNT OF $1,000,000.00.
DESCRIPTION OF CHANGE IN TERMS. EXTEND MATURITY DATE TO NOVEMBER 5, 1999 AND
CHANGE INTEREST RATE FROM 6.65% TO 6.56% EFFECTIVE UPON RECEIPT OF SIGNED
DOCUMENTS BY BANK.
PROMISE TO PAY, AUTOMOTIVE SPECIALTY CHEMICAL GROUP, INC. ("Borrower") promises
to pay to First Capital Bank of Arizona ("Lender"), or order, in lawful money of
the United States of America, the principal amount of One Million and 00/100
Dollars ($1,000,000.00) or so much as may be outstanding, together with
interest at the rate of 6.650% per annum on the unpaid outstanding principal
balance of each advance. Interest shall be calculated from the date of each
advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding principal
plus all accrued unpaid interest on November 5, 1999. In addition, Borrower will
pay regular monthly payments of accrued unpaid interest beginning June 3, 1999,
and all subsequent interest payments are due on the same day of each month after
that. Interest on this Agreement is computed on a 365/366 simple interest basis;
that is, by applying the ratio of the annual interest rate over the number of
days in a year, multiplied by the outstanding principal balance, multiplied by
the actual number of days the principal balance is outstanding. Borrower will
pay Lender at Lender's address shown above or at such other place as Lender may
designate in writing. Unless otherwise agreed or required by applicable law,
payments will be applied first to any unpaid collection costs and any late
charges, then to any unpaid interest, and any remaining amount to principal.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount
owed earlier than it is due. Early payments will not, unless agreed to by
Lender in writing, relieve Borrower of Borrower's obligation to continue to
make payments of accrued unpaid interest. Rather, they will reduce the
principal balance due.
LATE CHARGE. If a payment is 11 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $10.00, whichever is greater.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform
when due any other term, obligation, covenant, or condition contained in this
Agreement or any agreement related to this Agreement, or in any other agreement
or loan Borrower has with Lender. (c) Any representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf is false or misleading
in any material respect either now or at the time made or furnished. (d)
Borrower becomes insolvent, a receiver is appointed for any part of Borrower's
property, Borrower makes an assignment for the benefit of creditors, or any
proceeding is commenced either by Borrower or against Borrower under any
bankruptcy or insolvency laws. (e) Any creditor tries to take any of Borrower's
property on or in which Lender has a lien or security interest. This includes a
garnishment of any of Borrower's accounts with Lender. (f) Any guarantor dies
or any of the other events described in this default section occurs with
respect to any guarantor of this Agreement. (g) A material adverse change
occurs in Borrower's financial condition, or Lender believes the prospect of
payment or performance of the indebtedness is impaired. (h) Lender in good
faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Agreement and all accrued unpaid interest immediately due,
without notice, and then Borrower will pay that amount. Upon default, including
failure to pay upon final maturity, Lender, at its option, may also, if
permitted under applicable law, increase the interest rate on this Agreement
2.000 percentage points. The interest rate will not exceed the maximum rate
permitted by applicable law. Lender may hire or pay someone else to help collect
this Agreement if Borrower does not pay. Borrower also will pay Lender that
amount. This includes, subject to any limits under applicable law, Lender's
attorneys' fees and Lender's legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. If not
prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law. THIS AGREEMENT HAS BEEN DELIVERED TO
LENDER AND ACCEPTED BY LENDER IN THE STATE OF ARIZONA. IF THERE IS A LAWSUIT,
BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE
COURTS OF MARICOPA COUNTY, THE STATE OF ARIZONA. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ARIZONA.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $20.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without
limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keough accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Agreement against
any and all such accounts.
LINE OF CREDIT. This Agreement evidences a revolving line of credit. Advances
under this Agreement may be requested either orally or in writing by Borrower
or by an authorized person. Lender may, but need not, require that all oral
requests be confirmed in writing. All communications, instructions or
directions by telephone or otherwise to Lender are to be directed to Lender's
office shown above. The following party or parties are authorized to request
advances under the line of credit until Lender receives from Borrower at
Lender's address shown above written notice of revocation of their authority.
DEAN M. WILLARD, PRESIDENT; TAMMY POWERS; and CARL WALKER, SECRETARY. Borrower
agrees to be liable for all sums either: (a) advanced in accordance with the
instructions of an authorized person or (b) credited to any of Borrower's
accounts with Lender. The unpaid principal balance owing on this Agreement at
any time may be evidenced by endorsements on this Agreement or by Lender's
internal records, including daily computer print-outs. Lender will have no
obligation to advance funds under this Agreement if: (a) Borrower or any
guarantor is in default under the terms of this Agreement or any agreement that
Borrower or any guarantor has with Lender, including any agreement made in
connection with the signing of this Agreement; (b) Borrower or any guarantor
ceases doing business or is insolvent; (c) any guarantor cooke claims or
otherwise attempts to limit, modify or revoke such guarantor's guarantee of
this Agreement or any other loan with Lender (d) Borrower has applied funds
provided pursuant to his Agreement for purposes other than those authorized by
Lender; or (e) Lender in good faith deems itself
<PAGE> 4
05-03-1999 CHANGE IN TERMS AGREEMENT Page 2
(Continued)
================================================================================
insecure under this Agreement or any other agreement between Lender and
Borrower.
CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms of
the original obligation or obligations, including all agreements evidenced or
securing the obligation(s), remain unchanged and in full force and effect.
Consent by Lender to this Agreement does not waive Lender's right to strict
performance of the obligation(s) as changed, nor obligate Lender to make any
future change in terms. Nothing in this Agreement will constitute a satisfaction
of the obligation(s). It is the intention of Lender to retain as liable parties
all makers and endorsers of the original obligation(s), including accommodation
parties, unless a party is expressly released by Lender in writing. Any maker or
endorser, including accommodation makers, will not be released by virtue of this
Agreement. If any person who signed the original obligation does not sign this
Agreement below, then all persons signing below acknowledge that this Agreement
is given conditionally, based on the representation to Lender that the
non-signing party consents to the changes and provisions of this Agreement or
otherwise will not be released by it. This waiver applies not only to any
initial extension, modification or release, but also to all such subsequent
actions.
MISCELLANEOUS PROVISIONS. Lender may delay or forgo enforcing any of its rights
or remedies under this Agreement without losing them. Borrower and any other
person who signs, guarantees or endorses this Agreement, to the extent allowed
by law, waive presentment, demand for payment, protest and notice of dishonor.
Upon any change in the terms of this Agreement, and unless otherwise expressly
stated in writing, no party who signs this Agreement, whether as maker,
guarantor, accommodation maker or endorser, shall be released from liability.
All such parties agree that Lender may renew or extend (repeatedly and for any
length of time) this loan, or release any party or guarantor or collateral; or
impair, fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone. All such parties also agree that Lender may
modify this loan without the consent of or notice to anyone other than the party
with whom the modification is made.
EFFECTIVE RATE. Borrower agrees to an effective rate of Interest that is the
rate specified in this Note plus any additional rate resulting from any other
charges in the nature of interest paid or to be paid in connection with this
Note.
PRIOR TO SIGNING THIS AGREEMENT, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS AGREEMENT. BORROWER AGREES TO THE TERMS OF THE AGREEMENT AND
ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE AGREEMENT.
BORROWER:
AUTOMOTIVE SPECIALTY CHEMICAL GROUP, INC.
By: /s/ Dean M. Willard
--------------------------
DEAN M. WILLARD, PRESIDENT
================================================================================
Fixed Rate, Line of Credit LASER PRO, Reg. U.S. Pat. & T.M. Off., Var. 3.265(c)
1939 OFI ProServices, Inc. All rights reserved.
[A2-D2011103585.LN]
<PAGE> 5
DISBURSEMENT REQUEST AND AUTHORIZATION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,000,000.00 11-05-1999 1110003585 CD 1110003585 WOK
- -----------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document
to any particular loan or item.
- -----------------------------------------------------------------------------------------------------------------------------------
BORROWER: AUTOMOTIVE SPECIALTY CHEMICAL GROUP, INC. LENDER: FIRST CAPITAL BANK OF ARIZONA
1207 N. MILLER ROAD 2700 NORTH CENTRAL #210
TEMPE, AZ 85234 PHOENIX, AZ 85004-1135
===================================================================================================================================
</TABLE>
LOAN TYPE. This is a Fixed Rate (6.650%), Revolving Line of Credit Loan to a
Corporation for $1,000,000.00 due on November 5, 1999. This is a secured renewal
loan.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for:
[ ] PERSONAL, FAMILY, OR HOUSEHOLD PURPOSES OR PERSONAL INVESTMENT.
[X] BUSINESS (INCLUDING REAL ESTATE INVESTMENT).
SPECIFIC PURPOSE. The specific purpose of this loan is: WORKING CAPITAL.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Lender's conditions for making the loan have been
satisfied. Please disburse the loan proceeds of $1,000,000.00 as follows:
<TABLE>
<S> <C>
UNDISBURSED FUNDS:.................................... $252.69
AMOUNT PAID ON BORROWERS ACCOUNT: $999,747.31
$999,747.31 Payment on Loan # CHANGE OF TERMS.........
-------------
NOTE PRINCIPAL:....................................... $1,000,000.00
</TABLE>
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION
AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO LENDER. THIS
AUTHORIZATION IS DATED MAY 3, 1999.
BORROWER:
AUTOMOTIVE SPECIALTY CHEMICAL GROUP, INC.
BY: /s/ Dean M. Willard
-------------------------------------
DEAN M. WILLARD, PRESIDENT
================================================================================
Fixed Rate, Line of Credit. LASER PRO, Reg. U.S. Pat. & T.M. Off., Var,
3.26b (c) 1998 CFI ProServices, Inc. All
rights reserved. [AZ-120 11103505.LN]
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